Earnings Call: Q1 2020

Apr 29, 2020

Good morning, and welcome to the presentation of Assalbloy's First Interim Report in 2020. My name is Bjorn Tebel. I'm heading Investor Relations. And joining me from their home offices are AssaBLOY's CEO, Nico Del Voh and CFO, Erik Kieder. We have set aside about 1 hour for this conference. And as usual, we will now start with a summary of the report before we open up for your questions. So with that, I would like to hand over to you, Nico. Thank you, Bjorn, and also good morning from my side. Indeed, a special quarter affected in an important way by COVID-nineteen and also the way we do this Q1 call now also affected by COVID-nineteen, as Johan said, all working from home. And of course, we already gave you the preliminary results 3 weeks ago. So what we will try to do today is give you a little bit more color on the results and give you some more details. So again, a quarter impacted in an important way by COVID-nineteen with an organic sales development, negative organic growth of minus 3%. With still positive growth in Americas, a flat Global Technologies and Entrance Systems, but then a decline in EMEA and a strong decline in APAC. And then definitely our EBIT more affected by COVID-nineteen and EBIT which was 15% down compared to the same quarter a year ago, and EBIT also affected negatively by FX and M and A. And then on the positive side, a solid cash flow, 3% up compared to the same quarter last year. This COVID-nineteen started, I would say, as a demand problem in China and perhaps operational supply challenge outside of China to the rest of the world. Where if everybody was still asking, are you going to be able to deliver from China to other places in the world? But then very fast, that changed into, I would say, a global demand challenge in the whole world, basically starting in the rest of Asia, coming to Europe and now definitely also in the Americas. But then in February, we had higher costs around operations and logistics. And then clearly, in March, we saw in many markets top line and topping in a significant way. So the figures, sales minus 3 percent organic growth, good growth through acquisition still of plus 3%, also howled by currency, 3%. So sales of SEK 22,000,000,000 3 percent up, an EBIT margin of 12.4 percent versus 15.1 percent last year and EBIT in absolute value of 15% lower than the same quarter a year ago. If we look a little bit the sales by region, starting with North America, perhaps the part of the world that was less affected by COVID-nineteen in the Q1. As a matter of fact, in U. S, you could say that we still had a normal quarter till the last week of March, where we only then started to see an effect on the top line. So still a solid 3% positive organic growth on top of a very strong growth same quarter a year ago. Then we were also very pleased by the development in South America, an accelerated growth, plus 9. With also Brazil performing very well in Q1. Then we go to Africa, a minus 13. That is mainly because we got a big project order from HID a year ago, and therefore, the comparison was difficult. But then clearly, in Europe, minus 4 percent affected in an important way by COVID-nineteen in March, I would say, starting beginning of March in South Europe and then slowly the virus working its way up more to Central Europe and then also markets like France, UK and so on being affected. So minus 4. Pacific holding up well in Q1, a +1, thanks in the first place to Australia a good performance. And then clearly, Asia, the part of the world most affected in Q1, top line wise by COVID-nineteen, minus 31%. In the first place, of course, China, but also strong negative growth in South Korea, a market which was already depressed before COVID-nineteen and then clearly COVID-nineteen did not help and also negative growth in Southeast Asia. I think this also gives me perhaps opportunity to show a little bit where we stand today in April from a market perspective. And it's true that more or less half of world population in one way or the other lives in a lockdown situation today. If I start with North America, if I look in Canada, decisions are made on state level. But if you take the 2 more important states, Ontario and Quebec, both are under lockdown. If you take the U. S, most states and definitely the more important states from a construction perspective are, in one way or the other, locked down. If we then go to Central and South America or Latin America, Mexico perhaps still slightly more positive than the rest of Latin America, but I would say situation in general in Latin America also very depressed with a big country like Brazil in complete lockdown, countries like Colombia, Peru completely locked down. When I go to Africa for us, obviously, the most important market is South Africa, also completely shut down. Middle East, big market like Saudi Arabia, incomplete lockdown. And then coming to Europe, Spain, Italy, France, perhaps more ahead of the curve and confident that things are improving and starting to talk about how to open up the country again from a very low level than country like U. K, perhaps a couple of weeks behind in the cycle compared to Italy and Spain. So still very much in that negative part of the cycle. Perhaps a little bit more positive in Europe, a country like Germany and the DACH region in general, managed quite well so far, the crisis, and we still see good business activity. And then definitely also a region like Scandinavia, with Sweden in particular, but also Finland, where activity is still going on, clearly on a lower level than last year, but not completely locked down like southern part of Europe. If we then go to Oceania, 2 different pictures. Australia managed to keep going, whereas New Zealand had been locked down for a month or so. They just opened up again yesterday. It remains now to be seen how fast they will ramp up again. And if we then go to Asia, a lot of people are very positive on China. We must say that we don't see that strong pickup in market activity yet in April in China. We see on the residential side, and we are, you should remember, very exposed to the residential side, still very strong double digit negative growth market activity in China. I think on the commercial side, it's a little bit better on activity, but of course, then that activity still has to be translated into sales. So we see a slower recovery in China. And then, of course, we should not forget when we talk about APAC, China is only half of the business. If you then look, 2nd biggest market is definitely Australia, New Zealand. Then we have South Korea. And like I mentioned earlier already, South Korea was already a depressed market, and corona did not improve that situation. And then the next big market is Southeast Asia. And if you look in Southeast Asia, with the exception of Vietnam, most other countries in Southeast Asia are still in a lockdown situation. And then we have, of course, India. If somebody would have said beginning of the year that they would shut down a big country like India for more than a month, nobody would have believed it. But today, that is the reality, unfortunately. So I would say market conditions in general in the world still very depressed. Some light at the tunnel with some markets talking of opening up again, then remains to be seen how fast they will ramp up again. Some market highlights. Also this quarter, we had several strong project wins around the globe. I will not go in detail for time reasons. A lot of new product launches also on the electromechanical side. I will just pick 1, the Abloy Bluetooth padlock, keyless padlock, very excited about that, very important for our critical infrastructure, vertical in Global Solutions. And then, of course, it's always good to see that we on a continuous base are recognized for all the innovation work we do. Also this quarter, we won several innovation awards around the world. Sales growth, 27 consecutive quarters with positive organic growth, and then unfortunately, it took the COVID-nineteen crisis to kill that track record. So this quarter. Negative 3% organic growth, but still 3% positive growth through acquisitions. And operating margin also dropping on a 12 month moving trend to 15.2%. And like I mentioned already earlier than our operating profit, 15% down versus the same quarter last year. We continue to be active on the acquisition side, although also there, it's now obviously difficult to go and visit potential targets. But we closed 3 acquisitions in the quarter, and then we still have the ambition now to close Agta Record in the second half of this year. A couple of words on Biocide, an acquisition we did in the UK, a leading solution provider of biometric access control to the construction industry. So they do access control time and attendance and so on for construction sites, a business of SEK 175,000,000 with SEK 140 employees, which is for us a new vertical in our Global Solutions division. Obviously, we have then the ambition to also expand that concept internationally. If I then go into the different divisions, starting with EMEA. Like I mentioned earlier, affected by COVID-nineteen as of March, an organic negative sales growth of minus 4%, a division really that was ramped up for accelerated growth, where we also saw that growth accelerating at the beginning of the quarter, but then, of course, different story towards the end of the quarter. There's still a good growth in Scandinavia, a flat Middle East, Africa and Germany, and then sales decline in Finland, mainly, I would say, because of the export business in Finland. They export quite a lot to France, and clearly, France was very much done. Sales decline also in U. K. And Benelux and then significant sales decline in South Europe, France and East Europe. And an operating margin of 12% versus 16.2% last year, affected in a very important way by COVID-nineteen. Again, this cost structure in EMEA was built for accelerating growth. And then of course, if in many markets, market like France, for instance, business goes from 100% to 0 from one day to the next when the French government decides to shut down the country, we had not enough time to adjust our cost structure to that new reality. Margin was also affected in a negative way by FX 60 basis points, that's mainly the SEK versus euro. EMEA had also much higher operational costs in February March because, again, we had more challenges with our supply chain coming out of China, where we had higher logistic costs because we had to fly some of the products. We also had to ship more half full containers than full load containers with extra logistic cost as a consequence. And clearly, we also had to make a lot of extra measures in our factories to keep them up and running, measures around COVID-nineteen, also higher sick leave that all led to more inefficiencies in our operations. When I go to Americas, I would say Americas, a good quarter, a strong quarter with an organic sales growth of 1%. But we should here mention that, that is on top of 15% organic growth same quarter a year ago. We have a strong performance in U. S. For all business areas, with the exception of smart residential and exercise security, where in smart residential, we had that very high difficult comparison with a big Google Nest order last year, where in exercise security, we had a very high comparison for the Walmart order a year. If you would exclude for those 2 also those two business areas would have seen strong performance. Also good performance in Canada and like I mentioned earlier, also in Latin America. A good operating margin of 19.9%, a little bit affected on the operation side also with higher logistic costs and higher operational costs because of COVID-nineteen. But apart from that, a good solid quarter. We also should mention that we moved then the perimeter security business from Entrance from Americas to Entrance Systems, and figures are corrected restated for that move. Asia Pacific, clearly affected in a very important way top line wise by COVID-nineteen and organic sales negative growth of minus 34%. I would say, yes, negative growth in all regions in the division, mainly, of course, strongest negative growth in China and then also in South Korea. And an operating margin of minus 9.6% versus 5.2% last year. You will see in the bridge that we still managed in a reasonable way to take cost out and still see a decent leverage on that very strong top line drop. And we were also affected in important way negatively by FX 120 basis points. That was mainly because of the low Australian dollar and then the renminbi versus the SEK. If we then go to Global Technologies, a flat top line development, where we had still strong growth in physical access, good growth in secure issuance, but then flat development in Global Solutions and negative growth in the other business areas in HID. And then there is negative growth in citizen ID. It's clear that we are not happy with the performance in citizen ID. In particular. It's now several quarters that we missed the biggest projects. And yes, we are taking the necessary actions there also to adjust our cost structure to the new reality. Global Solutions was affected in an important way by COVID-nineteen in the sense that they have one factory in Shanghai that makes all the door locks for the hotel and the marine business. And obviously, that factory was closed in February and then had some challenges to ramp up again in March, and that affected top line in an important way and then clearly also bottom line. Same is true for HID to a lesser extent in a sense that they also have an important factory in Malaysia, which was also closed for more than a week and then is now only running at 50% of capacity due to government restrictions in Malaysia. The operating margin of 14.3% versus 17 point 9% last year. Also here, the negative volume leveraged, it was this was clearly a division that was geared up for growth. We have said that we had the ambition to grow this division high single digit for the coming years, and the cost structure was also accordingly. We also had and are making important R and D investments in this division. Then obviously, if you have a flat top line, that is translated on significant pressure than on the bottom line. We also had negative FX, 20 basis points and negative M and A, 120 basis points. That was with our acquisition of Delha Roux, which is still in the early months, and we are still working on the integration of Delha Roux. And then also placard, our acquisition in Australia, where we had an important currency effect, Australian dollar versus buying a lot in U. S. Dollar. Then go to Entrance Systems, a flat top line development with very strong perimeter security. Remember that perimeter security last year had a weak first half of the year. It was a very wet season in the U. S, and therefore, it was difficult for perimeter security to install their projects. So they had an easier comparison, I would say. Stable growth in pedestrian and residential and then negative growth in industrial. What is important here in Entrance Systems to mention is also that we don't see now that further positive mix change to service. As a matter of fact, our service was also only stable in the quarter. We had a very good start, accelerated product of service in the beginning of the quarter, but then it dropped in an important way in March. Also here, customers did not allow us to come on-site because, again, they thought that our service technicians could have coronavirus and they didn't want to take the risk and postponed all, I would say, non essential service interventions. Operating margin of 12.2% versus 13.2% last year, where it's important to mention the 30 basis point FX and then definitely the 50 basis point M and A, where we took another SEK 20,000,000 of cost for the Agta Records acquisition. A small negative volume leverage than base points. Also here, Entrance Systems has 3 factories in China, therefore, also operationally affected by that. And I would say that Entrance Systems is a little bit between EMEA and Americas in, in the sense that less than half of the business comes from the U. S, a little bit half of the business comes from Europe. So they had similar effects like EMEA in Europe, similar effects like the Americas in North America. So we are clearly implementing severe cost saving measures. We are profiting in all the different markets where we can from all the subsidies and support that the local governments put in place and therefore have a lot of permanent temporary layoffs, short term work and so on. But we also are working on adjusting our more longer term cost structure because we believe this will take longer to recover. And therefore, unfortunately, also have to make permanent layoffs. We have put a hiring freeze in place, and we reduced headcount by more than 1,000 people in Q1, partly MFP related, partly, of course, COVID-nineteen related. We reduced in a very important way consultant work and external services work, delaying and stopping a lot of projects, and we also renegotiated service costs with our service providers. We stopped basically traveling also because no customers or suppliers want us to go and visit them. We reduced marketing activities in an important way. We also decided not to participate in any exhibition conference that kind in the full year 2020. So we are really doing a lot of cost saving measures, And I would say that our priority, I repeat, is in the 1st place cash flow, 2nd place bottom line and only 3rd place top line. And with that, I give then the word to Erik, who will then go a little bit more in detail on the financial numbers. Thank you, Nick, and also good morning, everybody, from my side. If you look on the financial summary, yes, yes, we've seen before that we increased the sales with 3%. I think Nico went through, if we look on the organic, the minus 3%. Acquired net growth was 3%. If we looked in for Q2, it's expected to be around 2% with a dilutive impact on the margin. FX was 3%. We expect the same now for Q2 with also dilutive impact on the margin. Operating income down minus 15%. You see the same drop also coming through then on the 16% then on income before tax and net income and the same on earnings per share. Operating cash flow was positive. As you can see, we actually improved it with 3% if we compare to last year, which is, of course, a lot related to the good work that we do on reducing our net working capital. Our return on capital employed went down with 4 points, which is related to the weaker earnings and the increased capital employed due to the acquisitions. If we then go to the bridge, you can see that the volume effect was minus 4%, and we still were able to keep, let's say, the price of 1% that we had already last year. The flow through was at least a pointing 76% and were sort of minus 2.1 points, which I think you've seen before is mainly related to APAC, EMEA and Global Technologies. The currency had a negative impact of 30 basis points. And on the acquisitions, it had the same negative impact, which is, of course, related to what Nico talked before about the results from Dela Rue and placard. But it's also important to mention that we have also acquisition costs for Agta record of more than SEK20 1,000,000. If we then go to the cost breakdown, you can see that we still had some tailwind when it comes to direct material, which is mainly coming from the door group and Parameter Security, which you now know has moved from Americas over to Entrance Systems. You can see the impact was 2 points. The conversion cost was negative with minus 1.2 points, which is related to the negative growth but also related to, let's say, the higher cost that we have for logistics and also the higher cost that we have to sort of make sure that our employees are safe in the factories, so COVID-nineteen measures, if I call it like that. The gross margin was up with 80 basis points. The SG and A, minus 3.2 points. Of course, it's related to the negative growth, but also that we had we continued our investment in R and D, and we were also so that was mentioned before that we were geared up for growth. And yes, now, of course, we are in a different situation. What we will now do in the future, we'll continue to invest in R and D, and we will continue to invest in specialized sales. But on all other items here, we have cost measures, and we expect it to start to materialize now in Q2. If we then go to the operating cash flow, as I said, it was encouraging to see that it was up with 3% versus the same quarter last year. As I mentioned before, it's mainly related to the good work that we do in our net working capital. And if I should highlight one is once again the inventory, where we see that we sort of have a good traction when it comes to this. The cash flow versus EBT on a 12 month rolling, you can see is 108%, which is I think it's still on a reasonable level. So and of course, also, if you look what we have done in the previous downturns, I think there we've also been able to maintain very well the cash flow. So if you then see what do we do, I think that was mentioned by Nico before. I think our priorities are cash flow, profit and then sales. And if we then look into, let's say, the 4 areas where, let's say, on the balance sheet where we work, we work on the accounts receivable, where we then have a stricter collection procedure. We also have stricter credit checks because we want to make sure that sales is also collectible sales so that we get the money. On the inventory, we are destocking. We're also making sure that we optimize our logistic flow by using newly implemented softwares on accounts payable. As Nico mentioned before, we are renegotiating our payment terms with our suppliers. And then, of course, as you always do in a crisis like this on the CapEx, we are postponing projects in order then to make sure that we maintain our cash flow position. If we then look on the gearing, you can see that the debt versus equity went down to 58%, and the net debit to EBITDA is now at 2% versus 2.2% last year. So I would say that still our financial position is solid, which I think is important in times like this. Finally, from my side, the earnings per share went down with 16% and ended for the quarter at 1.68. And with that, I hand back to Nico. Thank you. Thank you, Erik. So as a conclusion, definitely a challenging Q1, affected in an important way by COVID-nineteen, a negative minus 3 percent organic sales development, EBIT 15% down compared to the same quarter a year ago, but a good solid cash flow 3% up. And then, I mean, I went through the map of the world with you and where we stand today in the different markets from a market condition perspective. So it's clear that going into Q2, it's a very challenging situation. We are taking important cost measures in all parts of the world. We are postponing investments and so on. But we believe that as well sales as EBIT margin will be significantly affected in the coming months and will be significantly lower than in Q1. And with that, we can give back the word to Bjorn and then open up for Q and A. Thank you, Nico. Yes, before we hand over to the operator, could I please remind you to limit yourself to 1 question and one follow-up to allow as many as possible to ask questions. So operator, this means that we are ready to open up for the Q and A session. Please go ahead. Thank you. Our first question is from Guillaume Maupinier from UBS. Please go ahead. Your line is open. Good morning, everyone. It's Guillermo Piner from UBS. Hope everyone is safe. I wanted to ask one question and one follow-up. One is regarding some of your comments, Nico, regarding the evolution since basically your 7th April pre release. As the situation remains very fluid, I was wondering how some of the regional markets that you mentioned or any anecdotal evidence that some of the regional markets that you mentioned in Europe, especially react in terms of activity or even quoting activity from your perspective, I. E, is there any interest in going back to business? And do you see any incremental demand? And a similar question, I guess, to the supply chain disruptions that you saw from China? Have they evolved in any way, any shape or any form in a more positive way since the 7th April? And then I do have a follow-up on the manufacturing program number 8, which is also mentioned in your release. I guess, is that just driven by the acquisitions you recently executed on? And therefore, we shouldn't be ascribing this as the COVID-nineteen reaction? Thank you. Yes. Thanks, Guillermo. If I start on the sales side, of course, the big question is what's going to happen when the different markets open up again? And the honest answer is we don't know. I mean, we really don't know how fast markets will pick up again when they open again. I think the only reference we have so far, and then the question is, of course, how much you can copy that as an example to the rest of the world is China. And like I mentioned earlier, we see in China business slowly coming back, but definitely not as fast as perhaps some other people say or some other people think. Now again, what you have to realize in China is that we are very exposed to the residential side, we are less on the commercial side. And it's clear that our feeling is that it will take longer on the residential side to recover than on the commercial side. Because again, if you have been in locked up into your home for more than a month, it's not your first thinking of putting a new front door, of putting a new digital door lock. You have further things on your mind, perhaps you still have that fear that, that person, that locksmith that will come and replace that door or that lock might have corona. So you will postpone some of those decisions. So we see a lower recovery in China on the residential side with market activity in April still very strong double digit down compared to the same April a year ago. It's a little bit better on the commercial side because obviously also the government is making investments on bigger projects, but that is in the first place, of course, on order activity side, then this order still have to be translated into sales. So we still see an important negative trend also on the commercial side in China in April at least. And again, we will see how that now evolves going into May June. If you then talk more in general, and you asked on the European countries, it's clear that South Europe is preparing themselves to open up again. If you see already something, perhaps it's that they are delaying that opening up. Italy, for instance, had announced that they were going to open up the 4th May, but then you see, yes, they open up the factories again on the 4th May, but then, for instance, retail will only open up a week later. The normal life will only start, depends what you call normal life, a week later, like restaurants, bars will only go up open up again in a very restricted way in June. So how that ramp up will go is very difficult for us to judge and to say. And the same is true for other countries like Spain, France and so on. We have opened some of our factories again in France, in Italy and in Spain, but they run at a very low level. They are just trying to fulfill the backlog we have. Market activity in April has been still very low. And then I would say it's the 1st markets that open again in Europe and U. K, for instance, is, I think, a couple of weeks behind in the cycle. Then it's true. You mentioned Germany. I think Germany, it looks like they handled that corona crisis in a good way. We still see good activity in Germany, but again, not on the same level as a year ago. And the same thing in Sweden, which has also had a more liberal approach to restricting and locking down people. Also in Sweden, we see business going on, but also on a lower level than a year ago. That was your first part of your first question. 2nd part of your first question, the operations, we are back to normal. China supply chain is okay again. Our factories are up and running again definitely on the level that they need. Our supply chain in China is up again. So that challenge is over now. Perhaps there is another challenge there now that as the demand from the rest of the world is lower, it's more how do we address and lower our capacity in some of the factories because of the lower demand in the rest of the world. And then your second question, well, and only thing that we still have there is, of course, higher freight cost, because it's still a bit difficult on the logistic side, but definitely, definitely significantly improved compared to February March. And then your follow-up question, MFP 8, it's too early to quantify. We should be able to do that more towards the second half of the year and definitely going into Q4. But it looks like it's going to be a very similar program as MFP VI and MFP VII. And for the same reasons as before, in the sense that indeed, we continue to buy 15 to 20 companies per year. So we see possibilities there to consolidate operations, but also to consolidate sales organizations, logistics, warehouses and so on. And of course, the whole COVID-nineteen situation also gives us the opportunity to accelerate some of those projects. But Guillermo, I think it's this is a part of our normal process. I mean, we did the MFP 7. We announced that 2 years ago. And now, yes, we are working on, let's say, the MFP 8. As I said, it's a part of our normal process and it would follow the normal process. And our next question is from Alexander Virgo from Bank of America. Please go ahead. Your line is open. Good morning, gentlemen. Thanks for taking my questions. I trust everybody as well. A quick one, I suppose, on construction. I'm just trying to understand a little bit around the customer behavior with respect to discussing projects and what's going to happen over the next 12 to 18 months. So obviously, the very near term impact of lockdown is quite clear from what you've been saying. I'm just trying to understand how we can think about the trajectory of recovery. And obviously regional differences within that would be helpful. And then the second question would just be on HID. You've got an ambition obviously to double that business, which you presented at the Capital Markets Day 18 months ago or so. Just wondering if you can comment on the well, that level of ambition and whether or not that's still achievable. Thank you. If I start with construction, again, perhaps we should make difference between the residential and or B2C and B2B. I explained the behavior on the B2C side before, so I will not repeat that. If we look at the on the B2B side, I think we should also make a distinction between newbuild and aftermarket. If we take newbuild, obviously, all the projects that are on hold today because countries are under lockdown, they will open up again once the country opens again. I mean, if tomorrow, a country like Spain opens up again, they will start to work again on those projects. And as we are close to the end of that project, obviously, they will go on because they've spent most of the money. So they will not stop the projects once they are at the door hardware. Of course, it remains to be seen how efficient that will go because all the countries are discussing on social distancing between the workers on those construction sites. So for sure, those construction sites will continue in a less efficient way than prior to COVID-nineteen. That's on the short term. On the long term, it will depend how much money is going to be available to do new projects because clearly, while they were in lockdown, also the activity on deciding on new projects went down. And if you don't do a project today, we will only see that result in a year, 18 months from now for us because that's the time it takes between starting a new project and arriving at the door heart heart where we come in. On the replacement market, of course, when people go back to work, when they sit back in the office, things will break down and they will have to replace perhaps the refurbishments, the upgrades, there might be some delay because some other companies might do like us. They will look into investments, cutting costs, postponing investments. But again, it's very difficult for us to judge what's really going to happen. I think it depends also a bit from country to country. It depends also on how much stimulus packages the different governments are going to make available on the construction side. I think it's fair to say that in a lot of countries, definitely construction is high on the agenda as stimulus for the governments to, 1, get construction people back at work and to also make sure that they that activity ramps up again. When it comes to HID, I would say that long term, our ambition has not changed. We for HID, definitely, we still have that ambition to grow high single digit organically and continue with complementing that growth with good add on acquisitions. It's clear that on the short term, COVID-nineteen puts us back. In general, if you take, for instance, our access our bags business, our physical access, our carts and our readers, it's clear also there that if people don't go to the office, they don't need cards. We have also an effect on that core business as we have an effect on all the other different business areas. But it's fair also to say that apart from COVID-nineteen, we are not entirely happy with the performance of the division in general and with the performance of Citizen ID, so the passport business in particular. We have done a couple of acquisitions, Cosmesach acquisition and ours, De La Rie. We are still very much in the integration phase, And we believe we can do better in general and for Citizens ID, in particular, irrespective of COVID-nineteen. Okay. Thanks very much guys. And our next question is from Gael DeBray from Deutsche Bank. Please go ahead. Your line is open. I have two questions, please. The first one is about the drop through 76% in Q1. So obviously very high compared to what we've seen in the past. So it seems you've been caught by the sudden and brutal fall in demand at the very end of the quarter. And now going into Q2, I mean, how shall we think about this operating leverage? Because on the one hand, I guess, the bigger drop in volumes likely means that the operating leverage should increase in theory. But on the other hand, you certainly had a bit more time now to react to the new environment and cut nonessential OpEx and the likes. So how do you see the operating leverage in Q2? That's question number 1. Question number 2 is about, well, what you well, you said that you expected sales to decline significantly in Q2 compared to Q1. But more specifically about this, I mean, a number of industrial companies have pointed to organic sales declines of about 25% recently going into Q2. So is this ballpark what you see as well? Or is this specificity of your business and the exposure to consumer markets in particular? If I start with the first question, the drop through, as I explained in Q1, it was 2 effects: higher operational costs, higher logistic costs for supply chain out of China to the rest of the world. That will continue to exist, of course, in Q2, perhaps less on the supply chain out of China, but more on the fact that we have higher operational costs in the different entities around the globe because we take all those extra measures. Because let us be clear, the health and the safety of our own employees is our first priority. So we do a lot of work, social distancing, special measures. But clearly, that has a negative effect on efficiency in the operations and in the factories, and that will continue as long as COVID-nineteen is there, most probably as long as we don't have most of the people vaccinated. But clearly, the second one, the top line effect, which was only 3% negative organic growth in Q1, that will be much more significant now in Q2. And everything will most probably depend on, I would say, June, because April, I explained to you the situation with more than 50% of world population in one way or the other way, locked down. But we also know that May, for many markets, will be a kind of lost month in a sense that France is talking about opening up again the latter part of May as an example. UK, the same thing. A lot of countries around the world are saying that they will stay locked down till the last week of May or even June. And then everything will depend on, again, how fast business will pick up again when those markets open up, and that we honestly don't know. But what we only say is that it will be a very significant double digit drop of market activity. How much exactly? It's very difficult to say. And clearly, we are making a lot of cost measures, very significant cost savings, but they will not be enough to compensate for the big drop on the top line. And therefore, yes, we definitely expect a further negative effect on our EBIT margins like I also mentioned on my conclusion side, if you take the 1st 2 months now, April May, the 2 months where we have visibility, We foresee that for those 2 months, we will have lower definitely significant lower top line, but also a lower margin, significantly lower margin than we had in Q1. Then again, everything will depend on afterwards June, July, end of Q2, Q3, how then the business will pick up again, or we don't know. Okay, okay. Thank you. And our next question is from Lucy Karly from Morgan Stanley. Please go ahead. Your line is open. Hi, good morning, gentlemen. Thanks for taking my question. I will go one at a time. The first one, I was hoping if you could maybe help us in thinking about the breakdown of your activity in your commercial businesses, specifically for EMEA and North America, I. E. How much is exposure to, let's say, retail buildings? How much is manufacturing buildings? How much is office space and so on? So if we start in North America, I would say that our exposure is mainly on the commercial side. We have very little exposure to the residential side. Our only exposure to the residential side is on digital well, it's mainly on digital door locks for U. S. And Canada. It's for the whole Americas, around 20% residential exposure, but that's mainly because of South America. In South America, we have a bigger part residential. If you take the U. S, it's significantly lower. So we are very much skewed towards, yes, commercial side. If you take EMEA, it varies very much country by country. But on average, you could say that residential is around 40% in EMEA, so 60% is commercial. Thank you, Mitra. I guess my question was more if you could give us a breakdown of your commercial exposure. How big are office buildings? How big are retails or kind of leisure entertainment type of buildings? How big are manufacturing facilities in your portfolio? Yes. I would say that there is no there is not one vertical that really sticks out. I mean, if you look, again, on the average, in U. S, Americas and EMEA together, it's very wide spreads. If you take K-twelve, universities, government, all the different verticals, there's no significant vertical that sticks out. So in that aspect, we are more natural leveraged, you could say. Okay. Thank you very much. And then my second question was around the different cost saving measures that you're putting in place. I guess the question is 2 sides. On one hand, are you able maybe to give us some information on the savings you are targeting from these new measures? And which time frame do you think they're going to be completed? And then to that, should we think about additional costs in between adjusted EBIT and reported EBIT this year on the back of these initiatives? Or overall, can you indicate the level of adjustment we should expect between adjusted and reported EBIT for this year? Yes. So we have not reported like some other people did 2 EBITs. I would say the EBIT we reported was a clean EBIT taking all the costs into account. I guess we should make a little bit distinction between short term cost actions and long term cost actions. I would say that all short term actions, you should see immediately all the costs now in Q2. And that's where we take advantage of all the subsidies and the aid that all the local governments put at possession of all the companies in the countries. And there again, all those cost savings will kick in now in Q2. And I would say that this is a moving target. If you take, for instance, a country like Italy, which I think has a very good support from the government, When we have people home, 50%, obviously, we get 50% cost aids from the government. So this Castelli Indigrazione, when they are 80% at home, we get 80%. It is very flexible, and it depends on the workload we have, similar things in Spain and in France. So the cost short term is really a moving target that changes every day. But then next to that, of course, we are taking more long term measures and where we also said that we have to unfortunately lay off people on a permanent base. And there it depends a bit on the country. If you take the U. S, obviously, if you lay off a person today, you will have the saving, yes, perhaps not tomorrow, but on very short term, whereas in some markets in Europe, it takes longer. So there, you might have costs that we take now in Q2 and where you will see the benefit only going into Q3 and Q4. But we are making a combination of both because we don't see this as a sharp V shape recovery in the sense that once that COVID-nineteen is over and everybody is back to work, we don't see that, that immediately is going to overshoot or be back at on levels pre COVID-nineteen. We think that effect will take longer. We will also have economic crisis effect after that, and therefore, we also lower our run rate cost base, and that is, yes, unfortunately, mainly permanent layoffs. And perhaps just if I add, as you started with Nico, I mean, the Q1 is, let's say, it's a clean, it's a real EBIT and we will continue with that process. I mean, that's what we, of course, will come back with, but that will be end of the year. That is MFP 8. And there, of course, we will announce very clearly what we will do, but that will be at the end of the year. Thank you, both. And our next question is from Andrew Cookman from Credit Suisse. Please go ahead. Your line is open. Good morning. Thanks so much for taking my question and follow-up and Hapo as well. I just wanted to really put some numbers around the very useful color that you gave. Maybe I'll try with a specific. If you think about Europe, some of your kind of lateral peers have given indications of kind of mid-20s or mid to mid-30s negative run rate for 1st 2 weeks of April. Is this kind of consistent with what you're seeing? Just to put a number around all the kind of shutdowns color that you gave. Well, again, it depends very much country by country. And if you take 1 or 2 extremes, Germany and Sweden, where we have seen lower drop in market activity. And then you have on the complete extreme, other side, a country like Spain or France, where literally, like I mentioned before, business from one day to the next one, from 100 to close to 0. So we have markets in Europe where that are under lockdown or are under lockdown, where market activity is also down 90% and more. But most importantly, if you take the mix, that double digit negative protein market activity that you mentioned is a reasonable figure. Again, everything will that is April and perhaps May where we have a little bit of visibility, then everything will depend again on how fast and those markets will recover when they open up and if they open up. Okay. Got it. That's useful. I mean, I'm not surprised to see very sharp drops in activity in South Europe. I guess some others reported kind of drops of 60%, 70%. So we'll take the kind of 90% away from this. And then also on the cost action side, maybe I could just try it a bit differently. Out of this 1,000 people that you took out in Q1, not a 1,000 headcount, how much was permanent as a proportion roughly? And can you confirm that the costs associated to that were not charged against the provisions taken for MFP? You want to take that, Erik? Yes. I mean, first of all, I mean, if we start with I mean, what we will do from our head count reporting is we will I mean, when it's short term I mean, the short term like the subsidies, those ones we will not consider to be headcount reductions. It's the long term that we consider to be long term reductions. If we look on this 1,000 people that we took out, part of that was actually related to MFP 7 projects. You could say that around onethree of those people were MFP 7% related and then twothree were permanent layoffs related to economic situation. And it was mainly in APAC and, to a certain extent, in Americas. Again, because in Europe, it takes longer if you do those actions to come to the conclusion. Thank you. And sorry to violate the follow ups rule, but I think it's important for everyone. But just to double check, the twothree that were taken out outside of MFP, the cost of that were not you didn't use provisions, MFP provisions for cost of that? We just took them as cost of it working. Correct. Correct. Got it. Thank you. Thank you. I'm sorry to take so many questions. Operator, I think we have time for one more question, please. And our next question is from Alastair Lesley from Societe Generale. Please go ahead. Your line is open. Yes. Thanks and good morning, everyone. So I was just wondering if you could help us understand the expected margin declines by business. Should we expect to see kind of big differences in operational leverage across regions sort of similar to what we saw in Q1? I'm thinking particularly how should we think about the Americas decremental margins. You've arguably had more time to adjust costs there, perhaps weren't ramping up for accelerated growth and adding cost as you kind of flagged you were doing in Europe. And then maybe some also some relatively reassuring comments from your main U. S. Period last week around sort of continuing price cost benefits. So I was just wondering whether we should be more optimistic the negative operational gearing in the Americas. Thank you. Yes. If you look and compare EMEA with Americas, it's clear that Americas is an easier, I guess, division to run operationally than EMEA in the sense that EMEA, you have or in Americas, you have one market, the U. S. Market, which represents almost 80% of the division, and that's in a way a uniform market, where also it's easier to take decisions on laying off people and also a faster process when you lay off people as compared to EMEA, where you don't have one global market. Every country is different and every country has its own dynamic and its own rules. So I think it's fair to assume that it's easier also from a volume leverage point of view to adjust quickly in Americas than it is in EMEA. And then just maybe a follow-up on the in reference to the lower residential exposure in the U. S. I was wondering is that a positive as well already Q2? Because you've kind of sort of framed that in terms of sort of the recovery that how B2C would recover at a sort of slower pace. But already in Q2, the lower residential exposure in the U. S, would that be a positive for the top line as well? I guess what I'm getting at is have you seen a significant difference in demand in countries that have been in lockdown, particularly in Europe, between the kind of residential markets and the commercial markets? I think in the lockdown as such, not again, I mean, if France is locked down, it goes from 100 to 0 irrespective if it's now residential or commercial. It's more, I would say, in the markets that are not locked down, if you take a market like Germany or Sweden, again, the normal B2B construction work is less affected than the B2C because again, people are afraid to have that locksmith coming to their home to put a new digital door lock or to put a new door handle or whatever, whereas in the B2B environment, as long as the industry is open, markets continue to run. And the same is true in U. S. If whatever, if Chicago decides, say, we close all construction sites as of tomorrow, okay, construction sites are closed. And if it's not a residential construction site or a commercial construction site, it doesn't matter. People went home and business stopped. It's more when business picks up again, what's going to be the dynamic when they open up again. And that's definitely not the case yet in the U. S. I would say that in the U. S, we are still very much in that shutdown phase with all important states and cities, yes, construction sites completely locked down. Very helpful. Thanks, Niko. Thanks, guys. Thank you, Alastair. It's time for us now to round up this conference. On behalf of the AssaBLOY team, I would like to thank you for your participation and interest today. We do look forward to seeing you as soon as it is will become possible. But in the meantime, we will look forward to talking with you on the phone in the coming weeks. So that's it for today. We wish you a good day. Thank you. Thank you. Stay safe. Thank you. Stay safe. Bye bye.