Earnings Call: Q4 2019

Feb 6, 2020

Morning, everyone, and welcome to the presentation of Assa Abloy's Year End Report 2019. My name is Bjorn Tebel and joining me here is our CEO, Nico Del Voor and our CFO, Erik Pieder. We have set aside about 1 hour for this call and we will, as usual, start now with a presentation of the report before we open up for your questions. So with that, I would like to hand over to you, Nico. Thanks, Bjorn, and also a good morning from my side. Q4 report for Assa Abloy, a quarter with a lower organic growth of 1%. We have a strong growth in the Americas, but a negative growth in APAC. A lower organic growth complemented with good growth through acquisitions of 3%. A stable EBIT margin with strong EBIT growth of 8% and a record cash flow of SEK5.2 billion. And we also booked now the cost for the remaining cost of our MFP 7 program. Look a little bit more in the details. Sales of almost SEK25 1,000,000,000, 8% up, 1% organic, 3% through acquisitions and then 4% positive currency. An EBIT margin of 16.2 on a stable level and a record EBIT of more than SEK4 1,000,000,000, the first time in our history that we are above SEK4 1,000,000,000. So EBIT up 8% and earnings per share up 7% at SEK2.49. If we look at the full year, you can say that 2019 was another good year for ASSABLOY with sales up 12%, SEK94,000,000,000 3 percent organic growth, which I think is a good performance, taking into account the actual market conditions 3% growth through acquisitions, so good complement from acquisitions and 6% positive currency. And EBIT margin of 15.9, 10 basis points improvement versus last year. EBIT up 12% at almost SEK15 1,000,000,000. Cash flow very strong, up 27 percent and cash flow at SEK14.4 billion. Earnings per share SEK9.22 billion, up 14%. And then we will propose a dividend of SEK3.85 billion, 10% up to the AGM later this year. If you look a bit at the sales per region, a strong North America, 4% up on a tough comparison with same quarter last year because same quarter last year, North America was up 10%. Very good South America. We have a strong Brazil where we also got some project sales for HID in Brazil. Then a flat Europe, where definitely market conditions are not very favorable. Obviously, also very mixed, where there are some markets with still good strong momentum, a market like Germany, for instance, East Europe, but then definitely also markets with lower activity. I would say France on a stable on a lower level and then definitely also the U. K. Market where market conditions are further going down. Africa is a smaller continent with minus 19. That's mainly because a weaker South Africa and a difficult comparison for an HID passport project last year in the same quarter. Asia minus 8%. That's because of negative growth in China, but mainly because of strong negative double digit growth in South Korea, where we really see market conditions going down in an important way, where we also have to say that we are not entirely happy with our own performance in South Korea. And then Oceania, Australia, New Zealand, plus 3, I think, is a very strong performance there because definitely market conditions are not on that level. So market highlights. We continue to win big projects. I'll just mention 1. In Argentina, a big order for HID. They got the world's 1st mobile national ID program. We continue to invest and innovate also in our mechanical core. You see here some examples. And then it's, of course, always good if you see that your innovation effort also is rewarded and recognized by the market. Also this quarter, we won several awards. We also had the CES show, the biggest consumer show in Las Vegas at the beginning of the year where we launched several new products for our smart residential business. You can see the list on the slide. Just to mention one is that cooperation with Samsung, where on the Samsung booth, we revealed a new ultra wideband technology lock for automatic unlocking of doors. We also won 9 product awards on that show. So very happy, very excited about that. So now 27 quarters in a row with positive organic growth. I believe a very strong track record. And then the operating margin, slightly below the bandwidth where we want to be, the 16% to 17% bandwidth, but slowly coming back into that range. So if you keep operating margins stable on a high level and you continue to grow the top line, you, of course, accelerate the operating profit, 8% up in the quarter, 12% up in the year, 61% up over the last 5 years. Acquisitions, we continue to be very active in this on this side with 3 acquisitions completed in Q4, 12 in the full year. And then we still have the Aktter Record acquisition going on. And we also will close AM Group acquisition later this quarter. AM Group is an Australian industrial door company that has also some activity in the U. K. And in the U. S, SEK800 1,000,000 of sales with 425 employees. And that acquisition will be accretive to EPS as of the start. We then go a bit more in detail into the different divisions, starting with EMEA, an organic growth of 1%, with a good growth in Scandinavia, Germany and Spain, but a negative growth in Finland, UK, Middle East, Africa and the Benelux. You might also know that there was a national strike in Finland where 3 days our factory was also closed. Obviously, that had a negative effect not only on Finland, but also EMEA in general because that factory is also an important, I would say, export factory for the EMEA division. Operating margin of 16% with a negative volume leverage of 50 basis points. Of course, with only 1% organic growth, it's difficult to get that operational leverage. We then also had that 3 days strike in Finland, like I mentioned, which had a negative effect on operational efficiencies. And we also continued to invest and we had higher R and D costs because we accelerated the launch of some new products for EMEA. 30 basis points dilution from FX and 20 basis points up on acquisitions. That's mainly the shift from the critical infrastructure business from EMEA to Global Technologies. If we look at Opening Solutions Americas, I would say another very strong quarter. And organic sales growth of 5% on top of a growth of 14% same quarter last year, so very difficult comparison. U. S. Strong in all fields and also Canada coming back. Canada had a difficult start in 2019, but then ended second half strongly. And we also saw better momentum in Latin America, especially Brazil showed good growth in the quarter. We had negative growth for U. S. Smart Residential. That's mainly or exclusively because of the very difficult comparison with our Google Nest business where we got a very big order same quarter a year before. Strong operating margin of 20% with very good strong volume leverage of 40 basis points, of course, driven by the 5% organic growth, but also because of realized operational efficiencies and then clearly the raw material tailwind that we now experienced compared to a year ago. FX, 10 basis points up and M and A, 40 basis points dilution. Asia Pacific, an organic sales growth of minus 10% versus a +11 percent last year. So it was a difficult comparison. Good growth in South Asia and Pacific, but negative growth in China. I would say a bit in line with our new strategy in China where we are more selective when it comes to taking orders. We want to take orders that have the right profit margins and where we also are confident we will get paid in the normal for us payment conditions. But then definitely a strong double digit negative growth in South Korea. As I explained earlier, market conditions are very much down in South Korea and also our performance in South Korea could have been better. And as the digital door locks in the 1st place did not grow in the U. S. And as EMEA showed also lower growth, we also had a negative intra group sales, also affecting the figures for Asia Pacific. An operating margin of 8.2 percent, of course, negative volume leverage with the 10% negative volume growth. And then definitely also the effect of South Korea, which is the biggest market for us in APAC and is also a profitable market for us. China business plan, I would say, according to plan, we are making progress. We see the first small signs of improvement. But as we mentioned earlier, this is more a long term project. Global Technologies and organic sales of 2%, I would say on the lower side with a good extended access and physical access card and readers and also a strong global solutions. But then the other business areas in HID, lower performance, and that's the business areas where you live more of the project business. And as you know, some quarters those projects come, all the stars are aligned. I would say this quarter was a quarter where the stars were not aligned and we didn't have those bigger projects. An operating margin of 18.3% versus 19.9% last year. We have a very good strong volume leverage of 140 basis points, of course, driven by the mix because we grow faster measures and clearly also by the raw material tailwinds. FX halved as of 20 basis points, but then we had a strong dilution in M and A, 3 20 basis points. And I would say that's mainly because of high closing and integration costs for, in the first place, the La Rue U. K. Acquisition and placard, an Australian acquisition. Entrance Systems, a flat development of the organic sales with strong growth in pedestrian doors and in logistics solutions, but negative growth for our residential doors. You will see that we have negative growth on equipment and positive growth on service. So happy with the service initiatives that they are also translated now in accelerated growth of our service business. I would say that's also an important reason why we show good operating margins for Entrance Systems, 16.3 versus 15.1 last year because obviously we make better margins on service than equipment, under 30 basis points positive volume leverage. We also did several operational efficiency projects in Entrance Systems in the quarter. And then an important other one is that we got a good strong raw material tailwind, and that effect was probably the biggest in Entrance Systems because they also had the toughest comparison with the same quarter a year ago. We also want to remind you that Q4 had one working day less as compared to the same quarter a year ago. And obviously, there again, that has the biggest effect on the Entrance Systems business. Then we also announced our new organizational setup for Entrance Systems, where we have created now 4 business segments under division. And the business segment would have a kind of highest operational responsibility within that division. We will have a pedestrian business segment, an industrial business segment, a residential business segment. And then we also moved the perimeter security business from the Americas into hands on systems, and that will then be the 4th business segment in the division. We also appointed a new leader for the division, Christophe Norby, is an internal candidate. So very happy that we found good internal talent that can bring now Ensign Systems up to the next level in its development. And with that, I give the word to Erik for some more details on the financials. Thank you, Nico. Good morning, everybody. If you look on the numbers, the organic growth was 1% with a strong growth in Americas, good growth in Global Technologies. And also as mentioned by Nico before, we had one working day less, which also of course has an impact. The acquired growth was 3%. If we then do a forecast for Q1, we would say that the acquired growth would be about 2%, but it would have a significant impact on our margin, not as low as what we had in Q4. The weaker SEK helped us in a way so that we got currency health of about 4%. What we see as a forecast then for Q1 is 1% with a slight dilution on the margin. We had if we go down and look on EBIT, we had a record. EBIT, we have never been above SEK4 1,000,000,000 in a quarter before. And if we look in percentage, we were up with 8%. The EBITA margin is up with 10 basis points. The EBIT margin is the same as what it was last year. The net income and the income before tax are up with 7%. The earnings per share ended at 2.49%, also an increase with 7%. Cash flow was once again very strong. We were up 6% versus the same quarter last year. And I think it's a record and it's very encouraging to see that if we look for the full year, we're up with 27% on the cash flow. Return on capital employed went down with 1%, mainly related to the IFRS 16 impact and also the higher capital employed that we got through the acquisitions. If we then go over to the bridge, the mix of the organic growth part is 1% is related to price and the volume was flat. As mentioned before, this was mainly driven by Americas and Global Technologies. You see that we have a very good flow through, which helped to result with 60 basis points. There we have a strong contribution then from the Americas and also as mentioned by Nico before from Entrance Systems. I would say that also Global Technologies performed well, whereas then the performance in EMEA and APAC was on the weaker side. The currency had a slight negative impact of 10 basis points. And if we look on the acquisitions, as also mentioned before, we had about SEK60 1,000,000 in acquisition and integration cost, which comes from the De La Rue acquisition, the placard acquisition, but also we had a slight additional cost also coming from Agta Record. If we then go down to the cost breakdown, you can see that we had a very good evolution if you look on the direct material 90 basis points. It's driven by the, let's say, tailwind that we have on the raw material. It's driven by mix. We see good evolution if you look in the door group in Americas, in the perimeter security and also, as was mentioned here before, also in entrance system. Conversion cost, it was almost flat, but it went down with 10 basis points. One of the reasons is that with the low organic growth has an impact and then also we had higher investments within IT. The SG and A, which has been I think what we have had all along that we have increased our investments within R and D and also within sales, it has a negative impact of 30 basis points. And if you take the total there, if you exclude the acquisitions in the quarter, we were up with 50 basis points versus the same period last year, 16.7%. But we have a dilutive effect of the acquisitions, which sort of brought us down to be at the same level as was what we were a year ago. A couple of words on the manufacturing footprint program. The MFP 7, as we have informed before, we booked in Q4 an additional provision of SEK312 1,000,000. So the total program is about SEK1 point 5,000,000,000 and the for the whole program, the annual saving is about SEK800 1,000,000. If we look and that we have also said before is that we have had very good traction in the program during the year with an annual saving of about SEK700 1,000,000. We have closed 5 factories and more than 1300 people have left the group. If you look in total what we have left as provision from the MFP 5, 6 and 7, it's close to SEK 780,000,000. As I said, we've had good traction. We are looking for we are looking to see what we can do more. So we will, in due time, come back with additional initiatives. Cash flow. I mentioned before, very pleased with the performance of the cash flow. If you look on the year, we are up with 27%. In the quarter, we were up with 6%. It's driven by that we have good earnings, but also that we have good efficiencies when it comes to working capital, especially if you look into the inventory where we're seeing good traction. If you look on the cash conversion cycle, Q4 is almost the strongest quarter that we have, but we had a cash conversion cycle of 138%, of course, which is very strong. And if we look 12 months, the cash flow is higher than what the EBITDA is, which, of course, it's encouraging, but I don't think that will sort of remain for a long term. The net the gearing and the net debt, debt versus equity is 56%, which is the same level as last year. This, I think, you should also keep in mind that we have the impact on the IFRS 16, which was SEK3.7 billion. And then also in the quarter, we had an unfavorable decision on the tax case in Finland, which also had an impact of about SEK700 1,000,000. No impact on, let's say, on the result. It's purely a cash flow impact. But we are at the same level as what we were a year ago. The net debt versus EBITDA is down with that basis points, which means that we have a very solid financial performance and we can continue our acquisitions strategy with this kind of balance sheet. Last one for me. The earnings per share went up with 14% and ended at 9.22% for the full year. And with that, I hand back to Nico for the concluding comments. Thank you, Erik. So we can conclude Q4 quarter with lower organic growth of 1%, complemented with good growth through acquisitions of 3%, a strong EBIT growth, basically a record EBIT quarter, also a record cash flow quarter. And then for the full year, a good strong 2019 with good organic growth of 3%, complemented with growth through acquisitions of 3%, strong EBIT growth of 12% and a record cash flow of SEK14.4 billion. And like we mentioned, we proposed a dividend of SEK3 point 8.5 per share SEK per share to the AGM. I already talked about a new President for Entrance Systems. We also have a new President for HID. You know that our previous President of HID became the CEO of Sandvik. Very happy, very proud of that. And also for HID, we could find a good strong internal candidate. His name is Boren Lederfeld. And he will also then work together with the HID team now on bringing HID up to the next level in its development. And with that, I give the word back to for questions and hopefully answers. Thank you, Nico. Well, before I hand over to the operator, could I please remind you to limit yourself to one question and maybe a follow-up to allow as many as possible to ask questions. So with that, operator, it means that we are ready to open up for the Q and A session. Please go ahead. Thank you. So our first question is over the line of Andreas Willi at JPMorgan. Please go ahead, Andreas. Your line is now open. Good morning, everybody. My question is on the price cost and the raw material sourcing contribution, which was very strong in Q4. What should we expect here for 2020? Has the level of benefit here peaked in Q4? And maybe how that looks like then for the 2020? And also, what was the contribution of price to your organic growth in Q4? Yes. So our contribution of price in Q4 was 1%. So the organic growth of 1% was 1% price, 0% volume. It's true that we had indeed a good tailwind from the material cost. You obviously will remember the very high material inflation, I would say, 18 months ago, almost 2 years ago, which had an important negative effect a year ago. So in this quarter, indeed, we had easy comparison, you could say, where we compared Q4 this year with Q4 a year ago with very high material inflation. Material products have now leveled out on a more on a lower and more stable level. And so we have now indeed a good plus price versus cost. You might remember that in 2019, the first two quarters, we were still talking about headwinds. And then somewhere around the middle of the year, we then, let's say, broke the line and we became positive. That means that we should still see positive tailwind definitely in the first half of twenty twenty, of course, under the conditions that material prices and material indexes stay where they are today. From a comparison point of view, Q4 was definitely the toughest one. But again, Q1 and Q2, we should still see positive momentum there. And my follow-up on terms of the M and A dilution you mentioned before. If the deals close, the announced deals close as expected, what would you expect the full year dilution to be on margins from the deal so far? You talked then also about closing Agta Records in particular or the ones that we have already closed? Yes. Just if AM Group and Agta Record close as expected, but you wouldn't make any further acquisitions, just basically as it is now, what would be the dilution on 2020 margins from the M and A side? Just to help us model that. I would say if you take of all the other acquisitions, it will the dilution is very similar like we have seen historically. Obviously, the Hector Record acquisition is a bigger one, almost 400 €1,000,000 It will depend a little bit, of course, on when we will be able to close it and then also how the PPA calculation will look. So in other words, how much we will amortize as intangibles, so how much will be goodwill. But we calculate for the 1st year that the Agta Record acquisition will be dilutive around 40 to 50, 60 basis points. Our next question is over the line of Lars Bronson at Barclays. Please go ahead, Lars. Your line is now open. Thank you very much. Good morning, Nico. I had a follow-up on raw materials, but I'll come back to it. But maybe just my first question on your sort of organic growth outlook or the implied organic growth outlook for 2020. You talk about the in your report acquisitions driving growth in 2020. Maybe you can remind us what you are penciling in for growth contribution from M and A in 2020, assuming again that ACTA completes. And I'm just trying to reconcile that comment with what I see as pretty strong leading indicators in some of your key construction markets, not at least the U. S. So maybe you could help us frame how you think about 2020 at this point? Yes. Let me perhaps answer the question in an indirect way and talk a little bit about market conditions. If we start with the Americas division, we continue to see very good strong momentum on the commercial side in North America, I would say, even despite some of the KPIs indicating in the wrong direction. All our internal KPIs like quotations, spec business are now still positive. We also see the positive momentum in Canada continuing. If you then look at Latin America, we are more positive perhaps definitely about Brazil than 6 months ago, but we are perhaps a little bit more negative for Mexico because of the whole political situation also in Mexico. I would say for the Americas, the biggest challenge is that they have a very high comparable, mainly in Q1 and still a little bit in Q2. But market conditions, as far as we can judge, remain strong. If we go to EMEA, obviously, it's a very mixed picture today. There is markets with still good momentum. Then there is definitely markets that are not favorable. The biggest challenge is clearly the U. K. Hopefully and confidently soon when it becomes clearer how the Brexit will happen, people start to regain confidence and we will start to see market going up again. But that's definitely not the case yet today. Obviously, in general, in EMEA, you see a little bit markets that slowed down. If you take, for instance, Scandinavia, obviously, 3, 4 years ago with the construction boom, we were growing double digits. In 2018, we were growing around 5%. We still see good positive growth in Scandinavia, but on a lower level. And that's a little bit a general trend in EMEA. If you see for the full year in EMEA, we grew 2% organically. I think that's a good performance if you take into account the given market conditions. Then if we go to APAC, let's see what will happen with the coronavirus. Obviously, in test today, an important negative effect on China. Let's see if it will only be China or if it will have effect also more global. For us, China is important for the 2 other divisions from a supply chain perspective. If factories open again as planned next week, we believe the negative effect will be limited in the rest of the world. If delays would further extend, then of course, we have to see. But like I said, in China, we are happy with our new strategy that we are implementing, stability, profitability and growth. And stability means that we walk away from some less attractive orders. We want to get orders with the right margins and with the right payment conditions, which has a little bit of negative effect on top line, but positive effect on the bottom line. First, APAC, the big challenge is South Korea, where market conditions are clearly significant down, where we don't see any improvement on the near term and where we also believe we as a company have to do better. If we then go to Global Technologies, as I mentioned in the quarter, we have had these quarters where I said that all stars are aligned. I think this quarter, clearly, the stars were not aligned. So I'm confident that in Global Technology, the underlying market conditions are there to go back to higher growth levels than we experienced in Q4. And then Entrance Systems. Entrance Systems is a bit of translation of what you have seen also with other companies reporting in the industrial manufacturing segment. Okay, they were negatively affected by one working day less. And the 0% growth is clearly a too low level for us. We are now implementing the new organization. We are confident that, that will help to build also for the future, but obviously that will take some time. Till then, we are more linked to the actual market conditions, and that's mainly manufacturing indexes related, I would say. Sorry, Nico. Can I that's helpful? Thank you for the color. Can I just be clear on your M and A assumption for 2020, assuming ACTA completes, I presume Q1 this year, I've got that sort of penciling in all of that, including completed M and A through 2019 to for M and A to deliver something to the tune of 7% to top line in 2020? Is that ballpark where you are? Again, it depends when we will close Agta Records, but it will be around 6%, 5%, 6%, yes, around 5%, 6%, Bjorn tells me. My follow-up would just be briefly on Entrance Systems and the margin there to Andreas' earlier question on raw material. I mean, I appreciate you getting a 90 basis point uplift from direct material at the group level. We're not used to talking about significant raw material impact in Entrance Systems. You're obviously calling it out. I wonder whether you could help us understand the dynamics within Entrance Systems and whether there was more of an one off effect from raw materials in the quarter or whether that you also see to be a sustained tailwind in 2020? In Antwerp Systems, there was, of course, also a bit of a mix effect where some segments with higher material costs grew more than others. But I would say that the story in Entrance Systems is very similar to the story we told for the Americas and for the group in general. We have seen material indexes going up was it depending on the inventory levels. You see it in one division a bit earlier than another one. And Q4 was definitely the toughest or the easiest comparison, in particular for Entrance Systems. So again, for Entrance Systems, you will continue to see good tailwind from material indexes versus pricing going into Q1, Q2. But obviously, it will not be on the same level as we had in Q4. We now go to the line of Andrey Kukhnin at Credit Suisse. Please go ahead. Andre, your line is now open. Good morning. Thanks so much for taking my question and follow-up. My main question is on the Entrance Systems division and the changes that you've made there in terms of setup and management. Could you maybe talk us through what it enables this division to do over the next 3 years? And just more specifically, which are the sub segments that Morgans will continue to run? And will Christopher be running any of the pieces directly? Or will there be other heads there? Yes. So if you look at Entrance Systems, the history of Entrance Systems started around 15 years ago when we acquired Besam, €150,000,000 business at that time. And then especially over the last 10 years, we have been very, very active in acquiring the one company after the other. And every time when we bought a company, we added up to reporting into the Entrance Systems division. You could say that the division became slowly a little bit a bottleneck for future growth. And so in order to be prepared for future scale and make the organization scalable. And also in order to realize more synergies among the different companies that we acquired, we have now decided to create that new layer below the divisions and above business areas. If I take, for instance, the industrial business segments, so all business areas that were before reporting directly into the division related to industrial businesses are now grouped together and report into that industrial business segment. You could say that the business segment is the highest operational responsibility. It's where all the action will happen with a very slim divisional management setup. And then the reason to do that is to see how we can get more synergies when it comes to R and D between the different companies that we acquired in the direct and in the indirect channel? And are we or we can also get more synergies in operations? Is there consolidation possibilities between direct to indirect channel between the different brands when it comes to factories and supply chain. And then I would say the third one is just to have focus. I mean, if you're only focused on industrial customers, then okay, you will get better results. Same is true for pedestrian, where we have the direct and indirect business of Assa Abloy for pedestrian business of sliding doors, revolving doors, swinging doors and where we will then also will add the actor records business when it comes in. The 3rd business segment is residential. So residential garage doors and our component business, FlexiForce. And the 4th business segment, as I mentioned earlier, is our perimeter security business, our fencing business, which was up till 2019 in our Americas division. So they make fences for residential applications, but mainly for high end security applications. And we have moved that business segment also into entrance systems. We would aim to see if there is a way that we can scale that also internationally. And as a start, we have said that Christoffer will be heading the pedestrian business segment and the perimeter security business segment. Then obviously, perimeter security, Christophe will very fast appoint the new leader. In on the pedestrian side, we want to see also a bit which talent we get in when Hector Eckhart is then part of the group. And Morgans, as a start, will head the other 2 business segments, so the industrial business segment and the residential business segment. The reason why we also do that is we said this is a new organizational setup that is something for the next 5 to 10 years. We want to also have there a leader who will be there for the next 5 to 10 years. And obviously, Morgans has will be happily retired in 5 years from now. That's one of the reasons why we sit and let's put a new leader and have more roles running the business segments. Got it. Got it. And my follow-up on Ison El Nec. Could you let us know how much it grew in Q4? And looking at 2020, what kind of growth do you anticipate kind of in any ballpark figures? And is there anything to say on how the comps roll out for 2020 as we go through the quarters? I didn't get the question, but which road? LME. So electromechanical locks. Yes. I think you can also see it in the report. You can see it even per division in the report. But what was the figure then? So on group level, the figure was 10%. So we continue to see stronger growth on the electromechanical side than on the mechanical side. We forecast that continue to be the case also going into 2020 also because we continuously see a faster adaptation rate of people willing to move from mechanical to electromechanical and digital. And that's not only on the residential side, but definitely also on the commercial side. And I think it's very similar in the different divisions. Where you see a little bit deviations is on the smart resi side, where in the U. S, of course, we have the still also now Q1 and certain extent Q2, the difficult comparison for Google Nest, which deviates a little bit. And then in APAC, of course, we have the market situation in South Korea, where South Korea is obviously a very important market for us for digital door locks for smart resi. Resi. Okay. We now go to the line of Sebastian Groote at Redburn Partners. Please go ahead. Your line is open. Hi, good morning. The first question is on the guidance. You talked a lot about the acquisitions on the gross and margin. And it implies some cautious outlook on the organic performance for full year 2020. I would like to if you can give us a bit more color. Maybe I read too much in this comment. That's my first question. Yes. I think I would just say I answered more or less that question when I talked about the different markets. I think it was a question from Lars. Before, I would give you the same answer, I could go again over the different divisions and the different regions and talk about the market conditions. I I think the message that we wrote in the comments was mainly to emphasize that we will have that 5% to 6% growth through acquisitions, which is obviously higher than it was this year and last year. So it's more to emphasize that rather than to be very conservative on organic growth, if that is what you would read through it. Okay. That's clear. The follow-up question I have is, I mean, in the U. S, you had very strong growth in the commercial segment as your peers as well. And I guess one of the driver of that is the educational segment where we see some emergency fundings in the last 18 months to increase security in schools after the shootings in 2017 early 2018. Are you able to scale this impact for us to understand the risk when these fundings are gone? And what is the outlook for that segment in 2020? I think we gave that as an example a couple of times, but I would say it's not more significant than any other vertical. We have in the U. S. A vertical approach where we have dedicated teams for the difficult vertical for the different verticals like schooling, universities, K-twelve, like government and so on. And I would say that if you look different verticals, there is not so much difference. We see solid momentum, good positive market dynamics for the different segments. And yes, it can vary a bit quarter by quarter. But again, there is no one vertical that is dominant where we wouldn't have a problem. Maybe that vertical would then go down. And K-twelve for universities is definitely one of those. We are now over to the line of Lucie Carrier at Morgan Stanley. Please go ahead. Your line is open. Hi, good morning, gentlemen. Thanks for taking my question. The first one is actually a follow-up on the second question from Andreas earlier on the M and A dilution for 2020. Just to kind of clarify and maybe come to what I would call more a group number or global number, you've spoken about AXA to be dilutive 40 to 60 basis points in year 1 and the other M and A to have the usual kind of dilution, which historically has been around 20 bps. Your comment on Agta, was that on the group level or just on Entrance System? And can you just maybe then clarify the overall group number dilution that you are expecting, please? No. I mean, the answer that Nico was that was on group. Of course, it is pending for 2020 when we will close the Agta acquisition. But what we have said before is that on a year basis, the dilution would be something from Agta only specific between 40 basis points and 60 basis points. So on top of that, you Yes. And then, I mean, you said also that, if you look on we don't foresee, let's say, for 2020, we will have, let's say, the normal impact that we would get from that we have had through the years then for the other acquisitions. So we're looking ballpark maybe between something like 50 to 80 basis points if we add Acta and the other acquisition? Yes. I think it would come somewhere in that range, yes. But as said, it's also pending on when the Agta acquisition will close during the year as well. Sure. Of course. Of course. Understood. My second question was actually also a follow-up on South Korea. I appreciate the challenge in the market. You're also mentioning that you're maybe not very happy with your own performance. And one thing I was trying to understand is about 10 years or so ago, we've had a massive kind of momentum into electromechanical locks in South Korea. And at the time, there was also maybe the expectation that the life cycle of the product was about 10 years. So we should be now hitting the sweet spot in terms of upgrading all of that installed base. Can you maybe explain, as a result, the performance that we've been seeing now in South Korea for a while? And maybe your own comment about your own performance? It's, of course, not like that, that 10 years ago, suddenly, the South Korea market was flooded by digital door locks. That was, of course, a gradual thing. It's true that today, South Korea is definitely the market which has the highest penetration when it comes to digital door locks for residential applications, definitely above 90%. But that has been built up gradually. So also the replacement market then came in gradually. And I would say that replacement market today is a more mature market. It's not that we now expect certainly to boost again because we start a new cycle on the replacement. That has been incredible. I think the when I say about our performance in Korea, it's more internal the way we were organized. We have made some changes now in our organizational setup, consolidating also some of the organizations we have in Korea. And we believe that, that new setup is better fit to make sure that we get our fair part of the market in South Korea today with declining market conditions, but definitely also tomorrow when market conditions will be better again. Thank you. We now go to the line of Gael de Bray at Deutsche Bank. Please go ahead. Thank you and good morning everybody. My first question is about the reorganization in Entrance Systems. I think the rationale behind it is pretty clear, but I'm actually more curious about the timing here since all these changes are being implemented at a time when, well, the M and A activity will certainly pick up significantly in the next few months is with 2 of the group's largest acquisitions in history about to close shortly and the transfer of perimeter security from the Americas divisions. So these are a lot of changes. And I was wondering if the guidance takes into account maybe potential disruptive effects from all of this? Of course, it's 2 bigger acquisitions. It's true. They will fall in 2 different business segments, 1 in the pedestrian and 1 in the industrial. Yes, it's 2 bigger ones. But as you know, we have been quite active when it comes to acquisitions also in previous years. So I guess there is never a good moment or always a good moment to do this. We felt this was the right moment in time and that we had to do this at this moment in time to really prepare ourselves for the future and make sure that our organization was fit for future profitable growth. Then it's true that if you make changes, there is always some uncertainties, there is always some disturbance shorter term. But long term, clearly, this is the right thing to do. What obviously also helped is that we again filled that position with an internal candidate on board in a very positive way. So people see this as the right positive changes we make. So it's clearly supported in a good way by the organization. So I'm confident that in the transition phase, if there is already negative effects that they will be limited and that we will very soon start to see the positive effects of the reason why we do this change. Okay. Understood. And then the follow-up I have is on the exit rate of only 1% organic growth in Q4. Did you say if there was an inflection, either positive or negative, in the 1st few weeks of January? Yes. Of course, you have in January the corona virus that everybody's Before the outbreak, yes. Yes. I think before the outbreak, it was New Year and then everybody was celebrating. So I mean, it's a little bit too short to comment on 1 week or 2 weeks. I think we should look a little bit more in general in markets on market conditions. And again, there I would go back to the answer I gave earlier when I gave the overview of the market conditions in the different divisions and in the different geographies. Okay. Understood. Thanks very much. Operator, I think we have time for one more question. Okay. Well, the final question for today then is from the line of Alastair Leslie at Societe Generale. Please go ahead. Your line is now open. Yes. Hi. Good morning, everyone. So my understanding was that you're rolling out a new IT platform for August Smart Locks that could pave the way for more of its locks to be delivered into new markets. Just wondering if you could talk a bit more about that, the timing behind any potential launches, which markets are going to be targeted? And I guess also whether this could spearhead a sort of more ambitious strategy to accelerate smart lock growth in residential markets outside of the U. S? Yes. So if you see why have we a strong position in digital dollars for residential applications, I would say it's mainly thanks to 2 acquisitions. One acquisition is the acquisition of Irivo in Korea that we did many years ago. And that really gave us the know how and the platform on the mechanical side. I mean, IEVO was the inventor of the digital door lock. And then the other acquisition was clearly the acquisition of August that gave us also the best software platform on which we can run those digital door locks. And then we have indeed decided last year to start and use the August software platform not only for the August locks, but for all our digital door locks for dense applications worldwide. So the Yale range that we sell in the rest of the world uses now the same August technology, just branded Yale. And in that way, we believe we combine the best of both worlds on the software side and on the hardware side. It will clearly enhance customer experience. And that combined together with all the new product launches that we will have announced and that will come into the market later this year, especially in EMEA, but also in APAC and to a certain extent also in the U. S. And in Americas in general, definitely will help us to further strengthen our position in this fast growing market. I suppose I just wonder, should we expect any kind of associated cost headwinds perhaps materializing in 2020 from new product launches? It seems like you're sort of now ready post the integration of Yale in August to kind of more aggressively push into international markets in terms of residential smart locks? Not I would say not significant particular for smart resi, also not for the IT platform. It's true that you see that R and D costs in general have are cruising today on a higher level than they were cruising, I would say, 2 years ago, perhaps 30, 40 basis points higher cruise rate than 18 months ago. And we expect that level to stay because we really want to invest in R and D to come faster with new products that then will boost, on one side, our organic growth again and 2, also will give us a competitive situation on the cost side. When it comes to IT, it's more general because I was also comment that IT costs were had increased. It's more general IT spending. It's also related to further improving our IT network against all for cybersecurity, I would say. And that's also something that obviously we will go on. We will continue to invest in our IT platform in general. And the AUGUST software is just a small part of the total picture. Okay. Thank you. Thank you, Alistair. Well, I think it's time to round up the conference. But before doing that, I would like to note that we last week circulated information about our next Capital Markets Day that will take place on the 13th May in London. Registration is now open on our website under Investors. So on that note, I would like to thank you for your interest in Assa Abloy and participation today. And we look forward to speaking and meeting with many of you in the coming weeks. Thank you.