Segment Access Solutions AMER

Organic sales and profitability heavily impacted by Covid-19 pandemic

Operational performance

AS AMER achieved total sales of CHF 755.3 million in the financial year 2019/20. Organic sales decreased 8.1% compared to the previous year. Segment EBITDA reached CHF 128.1 million (previous year CHF 168.1 million), the EBITDA margin was at 17.0% (previous year 20.6%).

While the business recorded organic growth in the first half of financial year 2019/20, organic sales and profitability were heavily influenced by the Covid-19 pandemic in the second half. Impact was driven by the contraction of operational capacity that came as a result of government-mandated manufacturing site closures and restrictions on manufacturing employee density. While in the United States these impacts were short in duration, the manufacturing sites in Canada, Mexico, and Brazil experienced material, unfavorable capacity impact in the period. In addition to capacity impact, the Covid-19 pandemic resulted in increased shipping costs and challenges with supply chain component availability.

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The segment’s performance was still impacted by challenges in its hollow metal door business (Mesker), which continued to affect both the top line and profitability. While the technical issues had been resolved early on in the period under review, the business performance remains under pressure, as Covid-19 risk management measures slowed efforts.

Despite favorable price realization, procurement savings, a positive M&A effect from the acquisition of Alvarado, as well as cost measures including lower discretionary spending and reduced personnel costs, the strong volume contraction resulted in a lower EBITDA margin.

As part of the Group-wide cost savings and restructuring program to address the ongoing Covid-19 pandemic-related substantial volume contraction and to maintain operational and financial efficiency, AS AMER in the fourth quarter of financial year 2019/20 has initiated specific measures to adjust capacities and costs. Measures include a reduction of around 150 full-time equivalents. This comprises responsible and necessary headcount reductions across multiple AS AMER entities with the objective to shift job duties and to automate processes and the further consolidation of smaller manufacturing and distribution sites, while maintaining commitment to key strategic priorities such as new digital product development and the advancement of the dormakaba brand.

Market development

In the first half of 2019/20, growth in AS AMER was driven by Door Hardware, Safe Locks, Interior Glass Systems, and the Lodging Systems business in North America. Latin America contributed to growth as well, driven by an improvement in Mexico.

However, sales in the second half of 2019/20 were heavily impacted by the Covid-19 pandemic. Revenue contracted for all countries and product clusters, as sales development was harmed by project execution constraints resulting from lockdowns in individual locations. Markets experienced sequential order rate improvement beginning in April 2020 and extending through the end of the reporting period. While construction site activities in the US resumed normal levels by the end of the financial year 2019/20, US interstate travel restrictions continue to limit service and installation activities.

Beyond Door Hardware and Electronic Access & Data, which were negatively impacted most in terms of volume by the Covid-19 pandemic, the Lodging Systems business has experienced notable impact, as this product cluster is tightly connected to the strength of the hospitality industry. However, given the segment’s innovative Lodging product portfolio, including wireless devices and mobile key solutions, as well as touchless solution synergies with other product cluster offerings, dormakaba is well positioned to support health-oriented hotel facility improvement and participate in market recovery.

Outlook

Assuming no further disruptions related to Covid-19, AS AMER expects a sequential improvement in the first quarter of financial year 2020/21 versus the fourth quarter of financial year 2019/20. However, there will be still a negative impact of Covid-19 in financial year 2020/21. Therefore, sales for the first half of financial year 2020/21 will be below previous year’s period which was not affected by Covid-19.

The segment will continue to drive operational efficiency and reduce its cost base to compensate for lower demand. Initiatives to maximize benefits of scale and assure integration synergies will be prioritized, as these steps also support positive capability development to serve customers.

The Covid-19 era will disrupt customary practices in the access solutions marketplace. Access and credentialing policies across all vertical end markets will be strengthened, with emphasis on adaptability, versatility, and health. As such, the segment believes it is well-equipped with key products and interoperable solutions to realize the growth potential in the area of seamless and touchless access solutions. Furthermore, the segment is expected to capitalize on targeted technology investments made over recent years with successful launch of new and innovative products. The most recent example is Switch Tech, a highly durable, digital lock replacement for small-format interchangeable cores. This device replaces a traditional mechanical lock cylinder and extends electronic access control and mobile credentials to the simple mechanical doorway.

Alex Housten assumed responsibility as COO of AS AMER on 1 July 2020 after an onboarding period of three months. He and his team will focus on strategic investments and efficiencies to support sustainable profitable growth. In addition, priorities will be to further strengthen relationships with key customers and build the dormakaba brand reputation and trust in the key market USA.

Key figures - segment AS AMER

Segment sales (in CHF million) - AS AMER