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Lockmaker Assa Abloy says China demand turns sour again

[STOCKHOLM] Sweden's Assa Abloy, the world's biggest lockmaker, said on Wednesday demand turned sour again in China in the second quarter after a stabilising earlier in the year, sending its shares lower.

The group, which has been outgrowing rivals, helped by a string of acquisitions every year and a shift towards digital access systems, reported a 7 per cent increase in quarterly operating profit from a year ago to 3.1 billion crowns (S$510.1 million), just below a mean forecast in a Reuters poll.

"Sales in North America continued to develop well. In Europe the underlying demand is good but we have not seen any appreciable improvement," Chief Executive Johan Molin said.

"Sales in China fell once again, and disappointingly they also continued to decrease in Brazil and in the Middle East." In China, where the firm had in the previous quarter seen weak demand stabilising and unchanged sales, turnover fell again in a slack market for fire and security doors.

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The China drop pushed organic sales in the Asia-Pacific division, which accounts for around a fifth of group turnover, down 6 per cent, far below expectations for a 1 per cent rise. In the first quarter sales were up 3 percent and a year ago, down 8 percent.

Shares in Assa Abloy, whose rivals include US group Allegion, were down 7.2 per cent at 0719 GMT, almost erasing their year-to-date increase.

At group level, organic sales grew 2 per cent against an expected 3 percent, and a 6 per cent increase in the first quarter. Fewer workdays in the period due to Easter falling in April also had a negative effect, as well as the China impact.

In April, Molin had said he was increasingly optimistic about reaching the higher end of a full-year target of 2-4 per cent organic growth.

Organic sales growth at biggest divisions EMEA was 2 per cent, matching forecasts, and Americas 3 per cent against an expected 4 per cent.

Group operating margin matched expectations at 16.1 pct, and was within the company's target of 16-17 per cent.