Earnings Call: Q4 2018

Feb 5, 2019

Morning, everyone and welcome to the presentation of Assa Abloy's Year End Report 2018. My name is Bjorn Tibell and I'm heading Investor Relations. Together with me here, I have our CEO, Nico DelBoer and our new CFO, Erik Peter. As usual, we will now start with the presentation before we open up for your questions. And with that, I would like to hand over to you, Nico. Thank you, Guillaume. Good morning to most of you and good afternoon to some of you. Quarter 4 results for our company, very good results. We have a strong organic sales development, 6% growth in a quarter with 1 working day less and the way Christmas and New Year felt in some markets even more than one working day less. Very strong growth in Americas and APAC, strong growth in Global Technologies. And then definitely very strong performance with electromechanical products, up 30%, if we exclude currency, up 24%. A strong EBIT growth of 12%, but the margin diluted by M and A and raw material headwind. We also launched our 7th manufacturing footprint program, MFP 7. I will give details later in the presentation. And then a strong record cash flow of SEK4.9 billion. If we go a bit more in detail, sales of SEK23.2 billion, 15% up. Like I said, 6% organic growth, 4% gross acquired growth, 3% net and then 6% positive currency. An EBITDA margin of 16.7% versus 17.1% last year and an EBIT margin of 16.2% versus 16.7% last year. Here, we have to say that the 16.7% was a tough comparison. It was the 2nd best quarter of the last 15 years of our history. On the 16.2%, you see 30 basis points dilution from acquisitions. And there, we should split in 2 parts, I would say running dilution of acquired companies where the acquired companies make less margin than our organic business. That's around 15 basis points. And then we had extra costs linked to doing acquisitions in the quarter. You have seen that we have been very active in Q4 with 5 acquisitions that we closed. And also, most of the costs for the acquisition of Crossmatch, which came at the end of Q3 and the acquisition of Keeper, which came at the beginning of this year, were taken in Q4. And that also affected the result with around 15 basis points. 3 of the acquisitions were in the U. S. And you know that it's expensive to close acquisitions in the U. S. Also 30 basis points dilution from volume leverage, and that's mainly linked to Global Technologies and Entrance Systems, and I will come back on that later in the presentation. EBIT up 12%, EBIT at SEK3.7 billion, earnings per share up 9%. If we look at the organic growth in the different continents, I would say very good performance all around the globe. Good to see that in Europe, we are back at good organic growth levels, plus 4%, strong Africa, Middle East and South America. But then, obviously, the highlight of the quarter, North America with 10% organic growth. The only negative figure you see here on the slide is Oceania with minus 4%, but there we have to say that it is due to 2 big projects that we got for Global Technologies for HID. As a matter of fact, in Q4 2017, if you exclude for that and look at the running business, then we were also 2%, 3% up in Oceania. So overall, strong performance. The market highlights, obviously, the strong growth in electromechanical products, especially for the Americas division, driven by smart locks and then also the increasing recurring revenue contribution for mobile keys. In Entrance Systems, we decided to merge our industrial doors and high performance doors business areas into 1 business area in order to serve our customers better with one face in front of the customer. And then the continued focus on service that slowly starts to pay off where we see acceleration in our service business or service growth business. And then, opening studios, our tool that we use to make life easier for architects and contractors, an upgrade of this Opening Studios software with a lot of very nice new features in a 3 d environment, strengthening our relation with these important stakeholders. Sales growth now 23 quarters with positive organic growth. This is a very nice track record and then complemented with nice acquisition growth. Our operating margin for the full year at 15.8%, slightly below the bandwidth where we want to be, the 16% to 17% bandwidth, working hard to get it back into that range. And then operating profit record, operating profit, 8% up in the year, 68% up over the last 5 years. Then like I mentioned, we have launched our MFP 7 manufacturing footprint program, where we, depending on union negotiations, will close around 15 factories and more than 30 offices, where 1600 people will be affected. And the total cost of this program is around SEK1.5 billion, where most of that cost was taken in Q4 last year, SEK1.2 billion, and then the remainder will be taken in Q4 this year. Once the program is up and running at full speed, we will generate annual savings of around SEK800 1,000,000 and the payback for the whole program will be less than 3 years. We also give on this slide an update on the previous programs, and you can see the results we realized since we started with these MFP programs back in 2006. Acquisitions. Like I mentioned, it was a very active quarter for acquisitions, with 5 acquisitions closed in the quarter, 19 in the full year, We have acquired annualized sales of SEK3.8 billion and then we divested the wood door business at the beginning of 2018, the wood door business in U. S. If I pick a couple of the acquisitions, Luxor 1, very excited about this acquisition, a leading advanced package locker solution provider in the U. S, market leader in the last mile delivery space, which will reinforce our position in solutions for home delivery, will complement our multifamily product offering and also gives us now access to the fast growing click and collect at retail stores. This company has a turnover of around SEK335 1,000,000, fast growing with 130 employees. And then, Lorient, a U. K.-based manufacturer of door ceiling systems, complementing our acquisition of Planet that we did earlier in the year, a Swiss company also specialized in door seals. And this is really a good example on how we extend our core. Lorient has a turnover of SEK220 1,000,000 with SEK135 employees. If we then go into the different divisions. EMEA, from Q3 with a low organic growth of below 2% to an organic growth of above 3%. So, very happy with that performance. Strong growth in Finland, Germany, U. K. And Middle East Africa with high single digit growth, good growth in Eastern Europe. And then operating margin of 16.6% versus 17.3% last year, dilution from FX for margin and acquisitions. And then on the volume side, some onetime items. The biggest one, pension costs in the U. K, where a new ruling, we have to provide for pensions for male and female equal level, and that had an extra cost for us in the quarter of more than €2,000,000 If you would take this one and a couple of smaller one offs out of the equation, then the volume leverage would have been on a normal, healthy level for EMEA. So, good performance for EMEA, very good excellent performance for the Americas with an organic growth of 14%. We have a very strong U. S. And Mexico for all different business areas. And I would say a better South America. Very strong operating margin of 19.9 percent with very good volume leverage, despite the fact that we had one working day less, despite the fact that we had a negative mix with our digital door locks, our residential business growing faster than the rest and despite the fact that we still have strong dilution of or strong pressure from raw material costs. What we also have to notice here is that in Q4, August moved from acquisition column to organic column in the middle of the quarter. So, also that had a negative effect on the volume column. So, all in all, a very strong performance. You really see that the price increases and the operational efficiency measures that we took in the Americas start to kick in and give good results. Asia Pacific, also very strong organic growth of 11%, where we have to say that most of the growth comes from intercompany sales, mainly sales into EMEA and Americas. The external organic growth for Asia Pacific was 4%. We have very strong growth in Japan, South Asia and India. And also, since a long time again, a positive growth in China, plus 4% in the quarter in China. But I have to say that it's definitely too early to start talking about a change in trend in China. China will continue to go up and down in the coming quarters. Like I mentioned earlier, it will take much more time for the new organization and the new strategy to kick in and deliver lasting results. That is more a matter of years than a matter of quarters. Also good operating margin in Asia Pacific, 9.6% with good volume leverage because you should see also that we grow again in China. We know that we don't make too much money in China. So, that had a negative mix effect on operating margin, but despite that, 10 basis points positive volume leverage. And then Global Technologies, strong performance as well for HID as for Assa Abloy Global Solutions. Very strong growth in secure issuance and identity access solutions for HID. In AssaBLOY Global Solutions, I would say strong growth for all verticals that they are active in. Operating margin of 19.9 percent. We're now, of course, Crossmatch is in for the full quarter. And we know that in Crossmatch, once they are in a running business, the margin will only be low double digit. So, that brings the operating margin down. We had all the extra costs for closing that acquisition in the quarter, which affect the dilution from margin acquisitions. And on the organic side, we had a negative mix as well in HID, where we grew more in other business areas than in physical access. And we know that margins in physical access are higher than the other business areas. And in Assa Abloy Global Solutions, we had a higher growth for projects than running business. And traditionally, projects have lower margin, but of course, you put installed base into the market, and afterwards, you can serve as recurring business. So, it's a dilution, I would say, that we like. And of course, if you can grow 8% organically with an operating margin of 19.9%, close to 20%, we believe it's a very good performance. And then Entrance Systems, perhaps the division where we are a bit disappointed with the results, although I must say that the organic growth was better than 2 percent or the underlying organic growth was better than 2% because, as you remember, we changed the reporting of 1 of the business areas in the U. S. In 2017, they were reporting in weeks, so 4 weeks or 5 weeks per month, where we then changed that to reporting in months. And that had a positive effect in Q1, where we informed you about in April, and then had a negative effect now in Q4. If you look at the underlying organic growth, it was above 3%. We have strong growth in U. S. Residential doors and good growth in industrial doors and pedestrian doors. And a lower operating margin of 15.1%, Again, a tough comparison because the 15.9% was the highest quarter from the last 4 or 5 years for Entrance Systems. And margin definitely affected by mix, where, yes, we grew faster in residential doors than in high performance doors. And obviously, we make much lower margins on residential doors than on high performance doors. We also had source. We also had pressure from material prices. We invoiced several projects that we took 1.5 years, 2 years ago even, at quotations with still lower material prices and we invoice them now, of course, with high material prices. We also had a little bit negative effect from import tariffs from China to the U. S, where we don't see a problem in compensating for them, but where, of course, you always have a little bit of a timing issues when those tariffs kick in. And with that, I give the word to Erik to give a little bit more details on the financials. Thank you, Nico, and good morning, everybody. My name is Erik Peder and I joined Assa Abloy here mid of January. I come from Atlas Copco where my last position was as Vice President Business Control for the Compressor Technique Business Area. I will guide you a bit through the financial highlights, where you can see that the organic growth was strong with 6%, despite that we had one working day less. We also had the way that the Christmas holiday with the Christmas Eve on Monday affected negatively some of the regions and also the cutoff procedures in Entrance also had an impact. The organic the acquired net growth was 3%. Gross, it was 1% higher, so actually at 4%. In total, during 2018, we acquired 19 companies with an annual revenue of about SEK3.8 billion. The exchange helped with 6% in the growth and all in all, in Q4, we had a growth of 15%, whereas then the year to date growth was 10%. If we look into the operating margin, it's up in value with 12%. But as you can see, the margins were a bit under pressure due to the raw material and the acquisition cost. And also as mentioned by Niko, we also have a tough comparison with the Q4 from 2017. The EBITDA margin, where we then take out the amortization for the technology companies which we have bought, was 10 basis points higher, but minus 40 basis points. Income before tax was up with 9%. There was an increase in the interest because of higher interest rates and higher interest bearing liabilities that amounted to SEK97 1,000,000. So the net income ended up at SEK2.6 billion, up with 9% again. The earnings per share ended at $2,330,000,000 also up with 9%. And the cash flow was strong. It was a record cash flow of SEK4.9 billion and that is despite the balancing actions which we have now initiated in the Q4. I will give you some more details when it comes to the margin. If you look into the margins, the organic part was 6%, which was then if we try to divide it, 2% comes from price and 4% comes from volume. The positive development was, as mentioned here before, was driven by Americas and Global Technologies. There is also a strong growth in APAC, but as mentioned, a lot of that is driven by the intergroup sales. The drop through on the organic part is minus 30 basis points, where we see then that we still have an impact on the material cost, but it's less than what has been in the quarters before. And also we had the impact of the result of entrance systems, which also affected the organic part negatively. Currency, yes, I mentioned before, it was up 6%. If you look on the bottom line, it's slightly up with 10 basis points. This is mainly related, of course, to the weakening of the Swedish krona. If we apply the rates then looking into the Q1, we expect a 5% growth due to the currencies, but this is, of course, pending on the currencies, yes, that there is not any real change in the currencies. Acquisitions was net 3%. In value, you can see it's about SEK700 million. There is a dilution of 30 basis points in this. One part is related to the 5 acquisitions that was done during the quarter and costs related to that. A second part is then related to, let's say, the ongoing acquisitions that we have done, like for instance Crossmatch, which was done in Q3, where we then see cost then moving over into Q4. If we look into the Q1, you also see here that we give guideline of that the acquisitions in the quarter would add 4% to the growth. If we look on a full year, right now, we see 3% run rate. And the margin in the Q1 from the acquisitions, we still expect it to be slightly negative. On the next slide, you see the components in the P and L, but this is the full year. So it's January to December 2018. And as mentioned before, you see the impact that we have on the raw material, which is the main reason why we have the 50 basis points down. I mentioned before that prices increased with 2%, but the material price has increased with 3%. Where we see most impacts from the raw material is in the APAC region and the Americas. We continue to work to offset this by increasing the prices and hope that we should be able to offset it early next year. The conversion cost is for the year 10 basis points positive and is which brings us to a gross margin of minus 40 basis points. The SG and A is slightly positive, but we'd like to emphasize that we still invest in sales and R and D. Excluding the acquisitions, you can see that the dilution is minus 20 basis points. The acquisitions is about the same. So all in all, you can see for the year to date that the result was down with 40 basis points and ended at 15.8% for the full year. Turning over to cash flow. We had a record cash flow almost generating SEK5 1,000,000,000, SEK4.9 billion to be exact. You can see in the graph that there is a strong seasonality. And already in the last call in October, we mentioned that we have put actions in place to balance that a bit. Those actions have actually been put in place. So despite that, the cash flow is very strong in Q4, but we expect the actions then to help when it comes to the cash flow generation in Q1. In the Q4, the DSO was 51 days and which was one day lower than what we had in Q3. The DPO for the group went down with 5 days ended at 59 days. So, you still see that we have a positive gap between the DPO and the DSO. Inventory went up with 5 days to 97 compared to the 92 that it was before. All in all, strong cash flow, SEK5 1,000,000,000 in the quarter and for the year, it ended up with SEK11 1,000,000,000. If we look into the gearing, although the cash flow was very strong, we bought 5 companies in Q4, which with a total payment of about SEK1.6 billion. The net debt has increased versus last year. It's now at SEK29.2 billion, which is up SEK3.9 billion versus end of 2017. But in the quarter, it went down. You can see that net debt versus EBITDA is at 1.9%. So we still consider that we have a pretty strong financial situation. The last slide for me is the earnings per share, which in the quarter went up with 9% and ended at SEK2.33. Full year, it reached SEK8.09 per share, which is an improvement of 4% versus 2017. So, that was my last slide. So, now I hand it over to you again, Nico. Thanks, Erik. So, as a summary, we can say it was a good quarter 4 with strong accelerated organic sales development, 6% up. We have very strong growth in Americas and APAC, strong growth in Global Technologies. And then definitely, the electromechanical products is the highlight when it comes to growth. Strong EBIT improvement of 12%. We launched our 7th manufacturing footprint program and then strong record cash flow in the quarter of €4,900,000 And we also proposed a dividend based on the approval in the Annual Shareholder Meeting of SEK3.5 per share, which is 6% up compared to 2017. And with that, I give back to Bjorn for the Q and A session. Thank you, Nico. Before we kick off the Q and A, could I just please ask you to limit yourself to one question each to allow as many as possible to ask questions? Operator, that means that we are ready to start the Q and A session. Can you please go ahead? Yes, of course. Thank you very much. And we go to the line of Guillermo Peigneurs at UBS. Please go ahead. Your line is now open. Hi, good morning. It's Guillermo Peigneurs from UBS. A question regarding Americas. Can you remind us of the split end of the quarter between non resi and residential? And when you talk about strong growth, can you give some granularity as to what kind of growth you saw in residential versus what you saw in non residential? Thank you. Yes. If you look at the growth, you can say that we had strong growth in general in the Americas and stronger growth in U. S. And Mexico than in the rest of the Americas. And then if you split commercial and residential, obviously, stronger growth in residential than in commercial. If you take the wider family of digital door locks, you can say that, that was around 4% of the total growth that we show for the division. So, that gives a little bit of flavor of the split between residential and commercial. Thank you. And a follow-up on raw materials. I think you alluded to this year as the year in which you'll expect some of the price actions to be offset in the raw material pressure. Can you give us guidance as to how dilutive will be raw mats this year, if any, and acquisitions as well? What is the dilution to be expected with what you have on hand? Yes. If you take the raw materials, you could see in the presentation, in Erik's part, that the dilution because of raw materials was around 50 basis points for the full year. But then, over the year, that dilution became smaller. In Q4, the dilution was only 20 basis points. And if material prices continue to evolve, like they have been evolving over recent months, and if we continue to be successful in implementing price increases, we are confident that we can further bridge that gap now coming into the first half of twenty nineteen. So, that's a little bit the gain that you could see on the raw material process. On acquisitions, as I explained, we had a dilution of 30 basis points in the quarter. And like I mentioned, more or less half of that is running business of acquisitions and the fact that we make less margin on acquisitions than on our organic side. And half of that dilution was linked to the acquisitions that we did in the quarter and costs related to closing those acquisitions also because we did 3 acquisitions in the U. S. And it's more expensive to close acquisitions in the U. S. And in other parts of the world. So, you could say that running part between 10 20 basis points, that's a little bit an idea of how much it will dilute now going into the next quarters. The first part on costs for doing acquisitions will, of course, depend on how successful it will be on doing acquisitions in 2019. Thank you, Guillermo. Operator, I think we can proceed with the next question. Yes. We are over to Lars Wasson at Barclays. Please go ahead. Your line is now open. Hi, thanks. Good morning, Nico, Erik, Bjorn. Just a quick follow-up, if I could, on that. And then my main question is actually on your manufacturing footprint. But just on Americas, so you're saying, Nico, 4 percentage points of total growth. If resi is 15% of Americas. That's growth in the high 20s, low 30s. Is that accelerating? And can I just ask to smart locks and Q4 seasonality when folks like me buy their loved ones a nice smart lock for Christmas? Is that something we should start to think about as being more material for your Q4 in Americas specifically, of course, where you've got a bigger component of smart locks driving growth this quarter? It's correct that the growth in residential was higher than on commercial. And within residential, the main growth driver is indeed digital door locks, the business we do with Google Nest, the business we do through Amazon, but also the business we do directly with August and with Yale. And we have seen very nice strong double digit growth for all different families of that digital door lock business in the U. S. Like we mentioned at earlier occasions, if you take total digital door locks in the world, we talk about around a run rate of around 2,500,000 locks per year, and it represents around SEK2.5 billion business on the run rate per year. And that is definitely the fastest growing part of our business. So, just to be clear, greater Q4 seasonality and specifically just going into Q1, is U. S. Government shut down something we should be mindful of on the non resi part in your Americas business as we begin this year? Yes. So, on the first part, of course, Q4 is always a bit skewed when it comes to digital door locks because a lot of people buy a digital door lock as a present gift for friends and families. We like that. When it comes to U. S. Shutdown, yes, of course, it affected our business at the moment when there was a shutdown because there were no purchasing people to write purchase orders. We believe now that shutdown is over, the effect on our business will be very limited. Of course, everything depends what will happen after the 3 weeks. Is it going to stay open or is it going to close again? But all in all, government specific government business for us in the U. S. Is a smaller part of our overall total business. So, it will not have a significant effect on our results. The question I wanted to ask just very briefly was on your manufacturing divisional contribution is from Entrance Systems, less than 10% of the cost taken out at this point. It was also a relatively small part of your MFP 6. Now you have been more active from an acquisition standpoint in Entrance Systems over the last 5, 6 years. So footprint savings should be quite meaningful. It's also a division with 2 thirds sales into Europe, where arguably growth at least outside of services should be slowing down. Could you help me a little bit understand what am I missing here? Why isn't ES, Entrance Systems, a bigger part of your MFP 7 at this point? I think if you look at Entrance Systems, the last 3, 4 years, we were not so active in doing acquisitions in Entrance Systems. Most of the acquisitions came between 5 10 years ago. That's when you have seen the big growth through acquisitions for Entrance Systems. We evaluate, of course, project by project. And if an ID has a good payback, we include it in the MFP program. If there is no good ID, then we don't have a project. And I can only say that what we have today is what came out of that exercise we did for the different divisions. In some MFP programs, one division will be a little bit more contributing than the other. In this MFP program, we will see that U. S. Or the Americas is contributing a bit more, where traditionally Americas was lower. I would not read too much into the fact that you think Entrance is a little bit lower. I think we do what we have to do in Entrance Systems with the pace, we believe, is realistic. Understood. Thank you. Okay. We're now over to the line of Daniela Costa at Goldman Sachs. Please go ahead. Your line is now open. Daniela, can you take your phone off mute? Sorry. Here I am. Good morning. For taking my question. I wanted to follow-up on the comments on the free cash flow and the actions you are doing there. I know you mentioned things like DPO down and inventory up and how should we see that progressing and where are the main regions? I guess it's possibly Asia where you're mainly moving this. If I could just ask that. And then a very quick question related also to cash flows. I know U. K. Is not a very big part, but it's 4%, 5% of your sales. Some other companies have talked about building up inventories heading into Brexit. Is that can you comment on that? Yes. Of course, if you see working capital, it's a small part of our capital employed. Of course, the biggest part is the goodwill that we have on the balance sheet. But if you take working capital, what indeed we didn't do at the end of the year is we had a habit in previous years of delaying payments to suppliers and perhaps also delaying ordering of goods for the different factories. We have decided not to do that this year and really see it more as a running business. That's why you see that our DPOs went down. But we made very good progress, I think, on receivable side. We have good collection in all divisions, I would say. Inventory was up. And inventory is up, of course, in the 1st place because higher raw material the higher raw material also translates in higher inventory in value. We believe we still have good margin for operation improvement in general on working capital and on inventory in particular. And then when it comes to the U. K, so that we don't exactly know what's going to happen with Brexit. But most of what we sell in the U. K, we also produce in the U. K. And in that way, perhaps, we could also have a competitive advantage visavisome of our colleagues in the market. And we have started to ramp up inventory levels in the U. K. We started doing that in Q4, and we will continue to do that now in Q1 to be prepared, I would say, for any scenario in U. K. And when the Brexit will happen, for sure, it will have an effect on delivery times, on supply chain. And that's the reason why we increased our inventories. But like you mentioned, it's a smaller part of our business. So, that increase in inventory for the group is not significant. The main contributor of an increase is really the material prices, which went up. So, just to sum up that, do you think in the Q1, we should factor in slightly weaker free cash flow than normal given the U. K. Situation and maybe higher inventories because of the U. S. Shutdown? No, I would say the opposite because I would be disappointed if, I would say, the actions we didn't do in Q4 towards our suppliers would not pay off in a positive way and contribute in a positive way to our cash flow in Q1. So, I would expect a better cash flow Q1 versus Q1 last year. Very clear. Thank you very much. We are now over to Matthew Spurr at Exane BNP Paribas. Please go ahead. Your line is now open. Morning there. So I had a question. First, with the sales growth and margins in Asia Pacific, so you flagged the contribution from internal sales growth being about 7 percentage points of the total organic you saw there. Can you give us a bit of color of why you built up the internal sales there? Is it to prop up that region in the short term a bit whilst it readjusts? Or is this a change in strategy? And then can you say whether the margin in Asia Pacific was boosted by having a higher margin on that internal sales? Thanks. Yes. So, our external sales organic growth for APAC was around 4%. We've like, like I mentioned, a strong performance for Southeast Asia, for India and also positive growth in China after 4 quarters with negative growth. We had a 4% positive organic growth in China to the outside world. The intercompany boost came from more sales to EMEA and Americas, in particular. And a lot of the digital door locks that we sell in EMEA and Americas are produced in China. And as Q4 is seasonally by far the highest quarter when it comes to digital door locks. That is the main reason for that increased intercompany sales. When it comes to the margins, the shift to more intercompany sales did not really have a significant effect on the margin. It contributed a little bit positively. But on the other hand, as China grew faster, the 4%, like I mentioned, versus negative growth in the 1st 3 quarters in the year. That had a negative effect on the mix because you know that in China, we make very low single digit margins. Okay. And then my quick follow-up was on Americas. So 14% organic. The resi added 4 I think you said 4 percentage points of that growth. So 10 percentage points of growth. It still looks like above trend number. So is there some restocking by your customers in there or perhaps project activity in the quarter? Or is it all underlying? Thanks. So, if you look at the big items, it's, of course, on the digital door lock side, the business we do with Amazon and with Nest in the first place. That is the 4% I mentioned. And then, we still have, of course, the sales of that big Walmart order that we got and that we informed you about at the beginning of the year. And that has started, I think, delivering out end of Q2 and will now continue also into Q1, Q2 this year. That, I would say, are the 2 special items, I would say, boosting organic growth in general. But apart from that, the rest was good, organic growth in daily business for all different business areas, as well on the commercial side, as on the residential side, as well for mechanical, as for electromechanical. And it was, in the 1st place, the U. S. And Mexico, which had the strongest growth, but also solid performance in most other markets in the Americas. Okay. Thanks very much. We are now over to Lucie Carrier at Morgan Stanley. Please go ahead. Your line is now open. Hi, good morning and thanks for taking my question. I'll have one question and one short follow-up. On the first question, I mean, you've had a strong finish, of course, to 2018. Can you comment maybe a little bit on the current trading current trends you are seeing now at the beginning of 2019 and how you all seek 2019 in terms of the top line? And maybe more importantly, in terms of the profitability dynamics, considering that we are seeing the mix and PPA continuing to erode profitability and you are now below your kind of standard range of 16% to 17%? So, that's my first question. Yes. So, when it comes to market outlook, we, of course, live in a very uncertain economic situation where macro figures change every day. I must say that, for us, in general, market conditions have not really changed today compared to 3 months ago with a couple of exceptions. Exception is definitely France. We have seen a strong slowdown of market conditions at the end of last year and now definitely also going into 20 19. We see a little bit uncertainty in the U. K. Because everything around Brexit. But apart from that, we still see good strong market conditions in general. If you look at, I would say, the longest forward looking KPI that we perhaps have is our spec business, where we spec in for projects. We still see healthy development there on similar levels as in Q4. If you look a little bit into the different regions, North America, U. S, Canada, Also there, if you look at KPIs, definitely on the commercial side, are still positive. Several markets in South America, definitely also in Brazil, still a positive sentiment. And then in Europe, I must say, despite a lot of indicators pointing in the wrong direction since several quarters, if you take our biggest market, Scandinavia, KPIs have been down since more than a year. We still see healthy, healthy market dynamics. So, yes, of course, we continue to follow from very close because we know it's a fragile overall market. And we cannot change the overall market. We can only make sure that we are agile enough, enough that we can react fast when it goes up or when it goes down. Sorry, and on your view in terms of the profitability dynamic between mix effect, PPA that are continuing to erode the profitability, How should we think about 2019? Yes. We reconfirmed that we have the ambition to have an EBIT margin between 16% 17%. We are now at 15.8% for the full year 2018. We will work very hard to get it back into that bandwidth. There is positives and there is, of course, negatives. We believe that material inflation will ease. And as price increases kick in, as operational efficiencies kick in, that should have a positive effect on bridging that gap. We still foresee good market conditions in the Americas and for Global Technologies, which are, of course, also positive contributors in the mix. Then, of course, we have inflation, general inflation and, in general, labor inflation and general inflation, which continues. And therefore, we need a certain minimum organic growth to compensate for that. And then, it will also depend a little bit on how some markets and how some product ranges will evolve. Clearly, if we grow we continue to grow faster on residential side and the commercial side, that will have a negative mix effect. Clearly, if China would grow faster like it did in Q4, it would have a negative mix effect. But that will depend a little bit on how the different items, positive and negative ones, play out in 2019. But again, working very hard to get the margin back into the 16% to 17% benefit. Thank you. And just my follow-up on the previous question on in the U. S, how much visibility do you really have on the inventory level of your distributors? Because as you were mentioning, we've seen some leading indicators pointing down. And I guess there's maybe a bit of concern that some of the distributors are slightly heavy in terms of their inventories. Yes. But when you say some of the indicators are pointing down, I agree with you that it's on the residential side. So, even to some extent, the ABI has moderated a little bit or the Dodge index has moderated a little bit? Yes. Okay. If you look at 1 month, then that is the case. But then how much has the government shutdown to do with that? How much has the bad weather conditions to do with that? I think we should look on indexes a bit longer than just a month. And if you look a little bit longer there, I think on the commercial side, you still see positive development. And most of our business in the U. S. Is on the commercial side. It's true that on the residential side, indexes are pointing in the wrong direction. But for us, residential business is mainly smart digital door locks, where we believe that is less or where the indexes that we follow are perhaps less relevant for that type of business because it's a different type of investment. So overall, we are still, like I said, positive about market dynamics in general in the U. S. We also don't believe that the growth we had was because of dealers, distributors overstocking and that there is now a destocking problem. We don't see that being the case. We now go to Sebastien Roteur at Redburn. Please go ahead. Your line is now open. Hi, good morning. I had an issue on my lens. Maybe you already gave the answer during the presentation, but I just wanted to know and dig a bit more in the Elmec growth plus 30% in the quarter. How much of that was organic? And how much for resi versus non resi at the global level? And I have a follow-up on those questions. So, the 30%, if you exclude currencies, it was 24%. If you look at the different geographical divisions, it was strong, double digit in all three, with the strongest growth in the Americas. And in the Americas, we had strong double digit growth in South America and in North America, with the strongest growth in the U. S. And if you look then in the U. S, clearly, the digital door locks, the business with Google Nest, with Amazon and the business we do through August and Yale had the highest growth of all. So, that's a little bit how it's put together. Okay. If I rephrase, I mean, usually, your electromechanical growth is about 10% on average for the last 10 years. Now we are talking about 24%, but that's excluding FX. I don't know if there are acquisitions saying that at a bit the number that quarter. Do you think the step up from 10% to, let's say, high teens on an organic basis is driven only by residential? Or you see also a stronger growth in the nonresidential part of the business? Yes. So, if you look at the 1st party acquisitions, the only one that could affect, if you call it an acquisition, is August. It depends a little bit if you see August still as an acquisition or not because it's now more than a year that we have it in our group. And like I mentioned, in Q4, half of the quarter, August was considered as the acquisition column, half of it, it was considered in the volume column. So, definitely, August was an important contributor to the growth, also because Q4, for the kind of business August is in, is by far the biggest quarter with Black Friday sales, Christmas sales, New Year sales and so on. When you look at residential and commercial, we have seen accelerated growth as well on the commercial side as on the residential side. So, also the growth figures for commercial were higher than run rate in the quarter. And the final question on that issue is, of course, I mean, investors will be worried that the comps will be get quite difficult in next year in Q4 2019 given the very strong growth you had in Elmech and especially the digital locks in the quarter. Do you have any visibility on the sell in versus sell out for Amazon, Nest, Walmart and Yale also? And I mean, do you see the same trends for the end user same growth for the end user versus yourselves? Yes. If you take, for instance, Google Nest, what we see is that we get recurring orders from the same outlets where they sell their or our digital door locks. So, you really see that they fill the shelves in the shops and then the stuff on the shelf is being sold and you get replenishment. So, we believe it's a good recurring business. It's true that most probably the growth figures with Nest today are inflated. And the comparison is difficult in the sense that, yes, today, we can sell digital door lock to every Nest customer that doesn't have a digital door lock yet. And at a certain moment, that population will have a digital door lock and then we will continue to grow more at normal organic growth levels like Nest grows their business. But I think we are far from there with Nest, and I think we are far from there also in general. If you look at the penetration of digital door locks in the U. S, I think it's still somewhere mid single digit. If you compare it with a country like Korea that started with digital door locks 20 years ago, penetration is above 90%. So, there is still good potential to further grow that business. The speed, I don't know, the speed will depend on the consumer and how fast he adapts to that new technology. The only thing I can say is that we have seen an accelerated growth of that part of our business over the last 3, 4 quarters. So let's be confident that, that continues. But indeed, comparison will become difficult and more difficult quarter after quarter, that's for sure. Okay. Thanks. We have now over the line. Yes. We have I think we have time for one more question before we have to finish off. Okay. In that case, it is over to the line of Matthias Holmbe at DNB Markets. Please go ahead. Your line is now open. Thank you very much. A quick one from my side. You've talked a little bit about August here, which you acquired just over a year ago. And in that statement, it said that you expected sales to be roughly SEK 60,000,000 or SEK 500,000,000. Given the very rapid growth in this business, I was wondering, given that we now have 2018 fully in the books, where this figure actually ended up? And if there was any diversion from that, how you think of it today? I don't know what figures we exactly gave. I can only say that August is more or less progressing in line with the model that we made internally when we acquired August, as well top line as bottom line, where we indeed had ambitious growth targets to plan. We are slightly below the plan. And then, bottom line, as I explained a couple of times also before, we lose money in August and we have said that, that would be the case in 2018 2019. And we had then the ambition to come into black figures by somewhere 2020. We can confirm that, that is also the case and that there are also the figures we realized are more or less in line with our model. What we have seen more, and that's more difficult to directly calculate, is a lot of cost synergies from August to our Yale channel. You have perhaps noticed that we have now used started to use the August software platform also for our worldwide Yale business. So, the August app, we use now as a standard, let's say, Yale app. And that's just one example of those cost synergies that are more important than we anticipated when we bought August. Thank you. Thank you very much then. And we have now reached the end of this presentation and I would like to thank you for your interest and participation. And we look forward to seeing you next time and speaking in the next week. Thank you.