Allegion plc — FY 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; filed February 16, 2021. The filing also reports unaudited fourth-quarter results. Allegion provides mechanical and electronic security products and access solutions across the Americas, EMEA and Asia Pacific.
Key financial results
| Metric | FY 2020 | FY 2019 |
|---|---|---|
| Net revenue | $2,719.9 million | $2,854.0 million |
| Operating income | $403.5 million | $565.1 million |
| Operating margin | 14.8% | 19.8% |
| Net earnings attributable to Allegion | $314.3 million | $401.8 million |
| Diluted EPS | $3.39 | $4.26 |
| Operating cash flow | $490.3 million | $488.2 million |
| Capital expenditures | $47.1 million | $65.6 million |
Revenue declined 4.7%, mainly from lower volumes related to COVID-19, especially in the second quarter. Price increases and favorable currency effects partly offset the decline. Operating income also reflected $101.7 million of goodwill and intangible impairment charges and a $37.9 million loss on QMI assets held for sale. The reported effective tax rate was 13.9%, compared with 15.4% in 2019.
Fourth quarter: Revenue was $727.3 million, versus $719.5 million in Q4 2019. Operating income was $117.7 million versus $143.3 million; net earnings attributable to Allegion were $93.3 million versus $80.7 million; diluted EPS was $1.01 versus $0.86. Q4 2020 included the $37.9 million QMI held-for-sale loss.
Liquidity, debt and capital allocation
At year-end, cash and cash equivalents were $480.4 million, total current assets $1,145.0 million and current liabilities $521.5 million. Total debt was $1,429.6 million net of discounts and issuance costs; gross borrowings were $1,439.4 million. The company had no revolving-facility borrowings and reported $485.0 million of unused availability, after letters of credit. The remaining $238.8 million term-facility balance was due September 2022; senior notes mature in 2024, 2027 and 2029. Allegion reported compliance with debt covenants.
FY 2020 cash flow from operations included approximately $30 million of cash-flow benefits from CARES Act provisions. The company paid $117.3 million in dividends and repurchased approximately 1.9 million shares for $208.8 million. The quarterly dividend was raised to $0.36 per share in February 2021, from $0.32 in 2020.
Material changes and unusual items
- Americas revenue declined 4.6%; residential sales grew mid-single digits, while non-residential sales fell high-single digits. Segment operating margin was 28.8%, compared with 28.9%.
- EMEA revenue declined 3.1%. Segment operating loss was $5.4 million, including the $37.9 million QMI held-for-sale loss; 2019 segment operating income was $34.3 million.
- Asia Pacific revenue declined 11.0%. A $88.1 million goodwill impairment and further intangible impairments contributed to a $96.7 million segment operating loss, versus $0.5 million income in 2019.
- Impairment charges totaled $101.7 million, including $88.1 million of Asia Pacific goodwill impairment and additional intangible asset charges. The QMI write-down was based on expected sale proceeds less costs to sell.
- Allegion acquired smart-home integration platform provider Yonomi in December 2020; the acquisition did not materially affect consolidated financial statements. Effective January 1, 2021, EMEA and Asia Pacific were combined as Allegion International.
Outlook, commentary and risks
The filing provides no numerical FY 2021 revenue or earnings guidance. Management said non-residential construction and discretionary projects remained exposed to pandemic-related occupancy changes, budget constraints and economic uncertainty, with challenges expected to continue in 2021. It cited cash generation, cash on hand, revolving-facility availability and low capital intensity as sources of financial flexibility.
Principal risks include the duration and economic effects of COVID-19; construction and remodeling demand; supply-chain and commodity disruptions; competition and the pace of electronic-security innovation; cybersecurity and IT-system risks; foreign exchange and variable-rate debt exposure; and possible further asset impairments. The company reported $21.1 million of environmental reserves, $41.2 million of unrecognized tax benefits plus $7.6 million of related accrued interest and penalties, and ongoing environmental, product-liability and other proceedings. Management stated pending legal matters were not expected to materially affect results, financial condition, liquidity or cash flows. It also anticipated $5–$10 million of additional restructuring charges in 2021.
Most important facts for investors to verify
- Whether post-pandemic recovery in non-residential construction, institutional spending and project activity supports revenue and margins.
- How the EMEA and Asia Pacific businesses perform under the new Allegion International structure, and whether additional impairments arise.
- QMI sale progress and proceeds relative to the year-end held-for-sale valuation.
- Cash conversion and the sustainability of dividends and share repurchases alongside debt maturities, particularly the September 2022 term-facility maturity.
- Developments in environmental remediation, tax audits and other contingencies, and any changes to the disclosed reserves.