Allegion plc — 2021 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2021. This is an annual report; the supplied filing text does not provide a clear standalone fourth-quarter income statement or cash-flow value.
Business context
Allegion sells mechanical and electronic security, access-control and door products through two segments: Allegion Americas and Allegion International. Its markets include commercial, institutional and residential construction and remodeling. The company highlighted connected access, touchless solutions and software-enabled products as growth areas.
Key financial metrics
| Metric | 2021 | 2020 |
|---|---|---|
| Net revenue | $2,867.4 million | $2,719.9 million |
| Gross profit | $1,204.9 million | $1,178.8 million |
| Operating income / margin | $530.2 million / 18.5% | $403.5 million / 14.8% |
| Net earnings attributable to Allegion | $483.0 million | $314.3 million |
| Diluted earnings per share | $5.34 | $3.39 |
| Cash from operating activities | $488.6 million | $490.3 million |
| Capital expenditures | $45.4 million | $47.1 million |
| Cash and cash equivalents, year-end | $397.9 million | $480.4 million |
| Total borrowings outstanding, year-end | $1,450.3 million | $1,439.4 million |
Gross margin was approximately 42.0%, down from 43.3%. The effective tax rate was 7.8%, versus 13.9%. The company paid $129.0 million in dividends and repurchased 3.3 million shares for $412.8 million during 2021.
At year-end, Allegion had $491.3 million of unused revolving-credit availability, after $8.7 million of letters of credit. Its reported leverage ratio was approximately 1.8, below the credit-facility covenant limit; management said it did not anticipate covenant concerns over the next 12 months.
Changes and segment performance
- Revenue rose 5.4%, driven by pricing (1.8 percentage points), volume (2.7 points) and currency (1.4 points), partly offset by acquisitions and divestitures (negative 0.5 points).
- Americas revenue increased 2.8% to $2,072.2 million, while segment operating income fell 9.5% to $525.0 million and margin declined to 25.3% from 28.8%. Supply constraints limited sales conversion; residential revenue increased at a low-double-digit rate, while electronic-product revenue declined at a low-single-digit rate.
- International revenue increased 13.1% to $795.2 million. Segment operating income was $82.4 million, compared with a $102.1 million loss in 2020; the comparison benefited substantially from the absence of prior-year impairment and QMI held-for-sale charges.
- Operating income increased by $126.7 million. The absence of $101.7 million of 2020 goodwill and intangible-asset impairments and a $37.9 million QMI held-for-sale loss was a major contributor. Higher inflation and supply-chain inefficiencies reduced 2021 operating income by $34.9 million relative to pricing and productivity effects.
- Operating cash flow was nearly flat despite higher earnings, principally because inventory increased $105.6 million amid supply disruptions and working-capital demands.
Outlook, risks and unusual items
- Management expected supply-chain disruption, electronic-component and labor shortages, freight and material inflation, and operational inefficiencies to continue into 2022. It cited elevated demand and record-high non-residential backlog, and described pricing actions, product redesigns to use alternate components, alternate sourcing and efforts to improve delivery and reduce backlog. No numerical 2022 revenue or earnings guidance is provided in the supplied text.
- Other income included a $20.7 million fair-value gain on the VergeSense investment and a $6.4 million gain on the sale of the Nuki investment. These investment-related gains contributed to reported earnings.
- Allegion completed the sale of its QMI business in February 2021 and acquired certain Astrum Benelux assets and WorkforceIT in July; the acquisitions and divestiture were not material to consolidated results, according to the filing.
- Key risks include persistent supply constraints and inflation, labor availability, COVID-19 effects, construction-market cyclicality, competition and technology shifts, cybersecurity and product-quality exposure, foreign-exchange movements, variable-rate debt, tax uncertainty and environmental remediation obligations.
- Environmental reserves were $16.4 million at year-end. Management said pending legal matters were not expected to materially adversely affect results, financial condition, liquidity or cash flows. The auditor identified the Allegion International goodwill impairment assessment as a critical audit matter; no 2021 impairment was recorded.
- PwC issued an unqualified opinion on the financial statements and internal control over financial reporting; management also concluded controls were effective.
Investor verification checklist
- Assess whether pricing and productivity can offset inflation and whether reported margin gains are comparable after excluding 2020 impairment and QMI charges.
- Track backlog conversion, electronic-component availability, labor constraints and inventory levels, especially in Americas.
- Review operating cash conversion, working-capital trends and the effect of share repurchases and dividends on cash balances.
- Examine the assumptions and valuation headroom underlying Allegion International goodwill, plus the sustainability of investment-related gains and the low effective tax rate.
- Confirm debt maturities, variable-rate exposure, covenant headroom and the status of environmental and tax contingencies.