Morning everyone, welcome to the presentation of ASSA ABLOY's year-end report 2018. My name is Björn Tibell, and I am heading investor relations. Together with me here I have our CEO, Nico Delvaux, and our new CFO, Erik Pieder. As usual, we will now start with a presentation before we open up for your questions. With that, I would like to hand over to you, Nico.
Thank you, Björn. Good morning to most of you and good afternoon to some of you. Quarter four results for our company, very good results. We have a strong organic sales development, 6% growth in a quarter with one 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. Definitely a 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&A and a raw material headwind. We also launched our seventh manufacturing footprint program, MFP7. I will give details later in the presentation. A strong record cash flow of SEK 4.9 billion. If you go a bit more in detail, sales of SEK 23.2 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 second-best quarter of the last 15 years of our history. On the 16.2%, you see 30 basis point dilution from acquisitions, and there we should split in two parts. The, 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. We had extra costs linked to doing acquisitions in the quarter. You have seen that we have been very active in Q4 with five acquisitions that we closed.
Most of the costs for the acquisition of Crossmatch, which came at the end of Q3, and the acquisition of KEYper Systems, which came at the beginning of this year, were taken in Q4. That also affected results with around 15 basis points. Three 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 point 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 SEK 3.7 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, 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 two 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. Overall, strong performance. The market highlights, obviously the strong growth in electromechanical products, especially for the Americas division, driven by smart locks, 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 one business area in order to serve our customers better with one face in front of the customer. The continued focus on service that slowly starts to pay off, where we see acceleration in our service business or service growth business. Openings Studio, our tool that we use to make life easier for architects and contractors. An upgrade of this Openings Studio software, with a lot of very nice new features in a 3D environment, strengthening our relation with these important stakeholders. Sales growth now 23 quarters with positive organic growth. I think this is a very nice track record, 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%-17% bandwidth.
Working hard to get it back into that range. Operating profit, record operating profit, 8% up in the year, 68% up over the last five years. Like I mentioned, we have launched our MFP7, manufacturing footprint program, where we, depending on union negotiations, will close around 15 factories and more than 30 offices, where 1,600 people will be affected. The total cost of this program is around SEK 1.5 billion, where most of that cost was taken in Q4 last year, SEK 1.2 billion, 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 SEK 800 million and the payback for the whole program will be less than three years.
We also give on this slide an update on the previous programs, 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 five acquisitions closed in the quarter, 19 in the full year. We've acquired annualized sales of SEK 3.8 billion, we divested the Wood Door business at the beginning of 2018, the Wood Door business in the U.S. If I pick a couple of the acquisitions, Luxer One, 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, also gives us now access to the fast-growing click and collect at retail stores.
This company has a turnover of around SEK 335 million, fast-growing with 130 employees. Lorient, a U.K.-based manufacturer of door sealing systems, complementing our acquisition of Planet that we did earlier in the year. Swiss company, also specialized in door seals. This is really a good example on how we extend our core. Lorient has a turnover of SEK 220 million with 135 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%. 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. Operating margin of 16.6% versus 17.3% last year. Dilution from FX, from margin acquisitions. On the volume side, some one-time 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, that had an extra cost for us in the quarter of more than EUR 2 million. If you would take this one and a couple of smaller one-offs out of the equation, the volume leverage would have been on a normal, healthy level for EMEA. 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. I would say a better South America.
Very strong operating margin of 19.9% 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, despite the fact that we still have strong dilution 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. Also that had a negative effect on the volume column. 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. Also, since a long time again, a positive growth in China, plus 4% in the quarter in China. Where 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.
You should see here also that we grow again in China. We know that we don't make too much money in China. That had a negative mix effect on operating margin, but despite that, 10 basis points positive volume leverage. 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 ASSA ABLOY Global Solutions, I would say strong growth for all verticals that they are active in. Operating margin of 19.9%, where now, of course, Crossmatch is in for the full quarter. We know that in Crossmatch, once they are in a running business, the margin will only be low double-digit. 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. The organic side, we had a negative mix as well in HID, where we grew more in other business areas than in physical access. We know that margins in physical access are higher than the other business areas. In ASSA ABLOY Global Solutions, we had a higher growth for projects than running business. Traditionally, projects have lower margin. Of course, you put installed base into the market, and afterwards you can serve as recurring business. It's a dilution, I would say, that we like. 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.
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%, or the underlying organic growth was better than 2%. As you remember, we changed the reporting of one 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. That had a positive effect in Q1, where we informed you about in April, 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 good growth in industrial doors and pedestrian doors. 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. Margin definitely affected by mix, where we grew faster in residential doors than in high-performance doors. Obviously, we make much lower margins on residential doors than on high-performance doors. We had also pressure from material prices. We invoiced several projects that we took a year and a half, 2 years ago, even, at quotations with still lower material prices, 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, you always have a little bit of a timing issues when those tariffs kick in.
With that, I give the word to Erik to give a little bit more details on the financials.
Thank you, Nico. Good morning, everybody. My name is Erik Pieder, 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 a Monday, affected negatively some of the regions, and also the cut-off procedures in entrance also had an impact. 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 SEK 3.8 billion. The exchange helped with 6% in the growth.
All in all, in Q4, we had a growth of 15%, whereas 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. Also, as mentioned by Nico, 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 SEK 97 million. The net income ended up at SEK 2.6 billion, up with 9% again.
The earnings per share ended at SEK 2.33, also up with 9%. The cash flow was strong. It was a record cash flow of SEK 4.9 billion, 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, 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 -30 basis points, where we see that we still have an impact on the material cost, but it's less than what has been in the quarters before. We also had the impact of the result of Entrance Systems, which also affected the organic part negatively. Currency, I mentioned before, it was up to 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, looking into the Q1, we expect a 5% growth due to the currencies, but this is, of course, pending on the currencies that there is not any real change in the currencies. Acquisitions was net 3%. In value, you can see it's about SEK 700 million.
There is a dilution of 30 basis points in this. One part is related to the five acquisitions that was done during the quarter and costs related to that. A second part is related to, let's say, the ongoing acquisitions that we have done, like for instance, Crossmatch, which was done in Q3, where we see cost moving over into Q4. If we look into the Q1, you also see here that we give guideline of that acquisitions in the quarter would add 4% to the growth. If we look on a full year, right now, we see 3% run rate. 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&L, but this is the full year, so it's January to December 2018.
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 impact 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, which brings us to a gross margin of -40 basis points. The SGA is slightly positive, but we like to emphasize that we still invest in sales and R&D. Excluding the acquisitions, you can see that the dilution is -20 basis points. The acquisitions is about the same.
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 SEK 5 billion, SEK 4.9 billion to be exact. You can see in the graph that there is a strong seasonality, 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. Despite that, the cash flow is very strong in Q4, but we expect the actions to help when it comes to the cash flow generation in Q1. In the fourth quarter, the DSO was 51 days, which was one day lower than what we had in Q3.
The DPO for the group went down with five days, ended at 59 days. You still see that we have a positive gap between the DPO and the DSO. Inventory went up with five days to 97 compared to the 92 that it was before. On and on. Strong cash flow, SEK 5 billion in the quarter, and for the year, it ended up with SEK 11 billion. We look into the gearing, although the cash flow was very strong, we bought five companies in Q4, which with a total payment of about SEK 1.6 billion. The net debt has increased versus last year. It is now at 29.2, which is up SEK 3.9 billion versus end of 2017. In the quarter it went down. You can see that net debt versus EBITDA is at 1.9. 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 2.33. Full year, it reached SEK 8.09 per share, which is an improvement of 4% versus 2017. That was my last slide. Now I hand it over to you again, Nico.
Thanks, Erik. As a summary, we can say it was a good quarter four with strong accelerated organic sales development, 6% up, with very strong growth in Americas and APAC, strong growth in Global Technologies, then definitely the electromechanical products as the highlight when it comes to growth. Strong EBIT improvement of 12%. We launched our seventh manufacturing footprint program. Strong record cash flow in the quarter of SEK 4.9 billion. We also proposed a dividend based on the approval in the annual shareholder meeting of SEK 3.5 per share, which is 6% up compared to 2017. With that, I give back to Björn for the Q&A session.
Thank you, Nico. Before we kick off the Q&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&A session. Can you please go ahead?
Yes, of course. Thank you very much. Ladies and gentlemen, if you haven't already, can you press zero and then one on your phone keypad now to enter the queue, then after I announce you, simply ask your single question, and you can always rejoin the queue. If you find your question has been answered before it's your turn to speak, just press zero and then two to cancel. We go to the line of Guillermo Pena at UBS. Please go ahead. Your line is now open.
Hi. Good morning. It's Guillermo Pena from UBS. A question regarding the Americas. Can you remind us of the split end of a quarter between non-resi and residential? 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.
If you look at the growth, we 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. If you split commercial and residential, obviously a 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. That gives a little bit a flavor of the split between residential and commercial.
Thank you. 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-
Yes.
With what you have at hand? Yeah.
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. Over the year, that dilution became smaller. In Q4, the dilution was only 20 basis points. 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 2019. That's a little bit the gain that you could see on the raw material prices. On the acquisitions, as I explained, we had a dilution of 30 basis points in the quarter.
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. Half of that dilution was linked to the acquisitions that we did in the quarter and cost related to closing those acquisitions also because we did three acquisitions in the U.S., and it's more expensive to close acquisitions in the U.S. than in other parts of the world. You could say that running part between 10 and 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 acquisition will of course depend on how successful we will be on doing acquisitions in 2019.
Thank you so much.
Thank you, Guillermo. Operator, I think we can proceed with the next question.
Yes. We are over to Lars Wassum at Barclays. Please go ahead. Your line is now open.
Hi. Thanks. Good morning, Nico, Erik, Björn. Just a quick follow-up, if I could, on that, and then my main question is actually on your manufacturing footprint. Just on Americas, so you're saying, Nico, four percentage points of total growth. If resi is 15% of Americas, that's growth in the high 20s, low 30s. Is that accelerating? 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 fourth quarter, in America specifically, of course, where you've got a bigger component of smart locks driving growth this quarter? Thanks.
It's correct that the growth in residential was higher than on commercial. 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. 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 a run rate of around 2.5 million locks per year, and it represents around 2.5 billion SEK business on a run rate per year. That is definitely the fastest growing part of our business.
Just to be clear, greater Q4 seasonality and specifically just going into Q1, is U.S. government shutdown something we should be mindful of on the non-resi part in your Americas business as we begin this year?
On the first part, of course, Q4 is always a little bit skewed when it comes to digital door locks because a lot of people buy a digital door lock as a present gift for their 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? All in all, 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 MFP program 7. I'm a bit surprised to see how small the 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 five, six years, so footprint savings should be quite meaningful. It's also a division with two-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 three, four years, we were not so active in doing acquisitions in Entrance Systems. Most of the acquisitions came between five and 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 idea has a good payback, we include it in the MFP program. If there is no good idea, then we don't have a project. 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, you 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. Thanks 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 shall 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% or 5% of your sales. Some other companies have talked about building up inventories heading into Brexit. 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. 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. We made very good progress, I think, on receivable side. We have good collection in all divisions, I would say. Inventory was up, inventory is up, of course, in the first place because higher raw material. The higher raw material also translates in higher inventory in value.
We believe we still have good margin for operational improvement in general, on working capital and on inventory in particular. When it comes to the U.K., 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 vis-a-vis some of our colleagues in the market. We have started to ramp up inventory levels in the U.K. We started doing that in Q4, we will continue to do that now in Q1 to be prepared, I would say, for any scenario in U.K. 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 increase our inventories.
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 for the increase is really the material prices, which went up.
Just to sum up that, do you think in the first quarter, 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?
I would say on the opposite, because I would be disappointed if 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. I would expect a better cash flow Q1 versus Q1 last year.
Very clear. Thank you very much.
We're now over to Matthew Stur at Exane BNP Paribas. Please go ahead. Your line is now open.
Morning there. I had a question first. With the sales growth and margins in Asia Pacific, you flagged the contribution from internal sales growth being about seven 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? Can you say whether the margin Asia Pacific was boosted by having a higher margin on that internal sales? Thanks.
Our external sales organic growth for APAC was around 4%. With, 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. A lot of the digital door locks that we sell in EMEA and Americas are produced in China. As Q4 is seasonally by far the highest quarter when it comes to digital door locks, that is the main reason for that increase in the company 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 the first three quarters in the year, that had then a negative effect on the mix because you know that in China we make very low single-digit margins.
Okay, thanks. My quick follow-up was in Americas. 14% organic. The resi added four, I think you said four percentage points of that growth. 10 percentage points of growth. Still looks like above trend number. Is there some restocking by your customers in there or perhaps project activity in the quarter, or is it all underlying? Thanks.
If you look at the big items, it is 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. 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 two special items, I would say, boosting organic growth in general. 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.
It was in the first 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 have one question and one short follow-up. On the first question, you've had a strong finish, of course, to 2018. Can you comment maybe a little bit on the current trends you are seeing now at the beginning of 2019, and how you see 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? That's my first question.
Yeah. 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, where we have seen a strong slowdown of market conditions at the end of last year and now definitely also going into 2019. We see a little bit uncertainty in the U.K. because everything around Brexit. 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 project. 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 Brazil, still a positive sentiment. 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 one year. We still see healthy market dynamics. Yeah, 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 that we can react fast when it goes up or when it goes down.
Sorry, 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 there are good market conditions in the Americas and for Global Technologies, which are, of course, also positive contributors in the mix. 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.
It will also depend a little bit on how some markets and how some product ranges will evolve. Clearly, if 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. That will depend a little bit on how the different items, positive and negative ones, play out in 2019. Again, working very hard to get the margin back into the 16%-17% bandwidth.
Thank you. Just my follow-up on the previous question, in the U.S., how much visibility do you really have on the inventory level of your distributors? As you were mentioning, we've seen some leading indicators pointing down, I guess there's maybe a bit of concern that some of the distributors are slightly heavy, in terms of their inventories.
Yeah. When you say some of the indicators are pointing down, I agree with you that it's on the residential side.
Even some extent, the ABI has moderated a little bit, or the Dodge Index has moderated a little bit.
Okay. If you look at one month, that is the case. 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. If you look a little bit longer there, I think, on the commercial side, you still see positive development. 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. For us, residential business is mainly smart digital door locks, where we believe that it's 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.
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.
Thank you very much.
We now go to Sebastian Erskine 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, dig a bit more in the electromechanical course, +30% in the quarter. How much of that was organic, and how much for resi versus non-resi, at a global level? I have a follow-up on those questions.
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. In the Americas, we had strong double-digit growth in South America and in North America, with the strongest growth in the U.S. 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. That's a bit how it's put together.
Okay. If I rephrase, usually your electromechanical growth is about 10% on average for the last 10 years. Now we are talking about 24%, but that's excluding effects. I don't know if there are acquisitions that helped a bit the number that quarter. Do you think the step up from 10 to, let's say, 18 on an organic basis is driven only by residential, or you see also stronger growth in the non-residential part of the business?
Yeah. If you look at the first part, the 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. Like I mentioned in Q4, half of the quarter, August was considered as in the acquisition column, half it was considered in the volume column. 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.
Also the growth figures for commercial were higher than run rate in the quarter.
The final question on that issue is, of course, investors will be worried that the comps will get quite difficult in next year, in Q4 2019, given the very strong growth you had in electromechanical, 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, or so on? Do you see the same trends for the end user, same growth for the end user versus your sales?
If you take, for instance, Google Nest, what we see is that we get recurring orders from the same outlets where they sell all our digital door locks. 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. We believe it's a good recurring business. It's true that most probably growth figures with Nest today are inflated, and the comparison is difficult in the sense that, yeah, today we can sell a 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.
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%. There is still a 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 three, four quarters. Let's be confident that continues. Indeed, comparison will become more difficult quarter after quarter, that's for sure.
Okay, thanks.
We are now off the line.
Yeah.
Yes? Sorry.
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 Mattias Holmberg 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 $60 million or 500 million SEK. Given the very rapid growth in this business, I was just 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? Thanks.
Yeah. 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. Bottom line, as I explained a couple of times also before, we lose money in August, and we have said that will be the case in 2018 and 2019, and we had then the ambition to come into black figures by somewhere 2020. We can confirm that is also the case, and that there 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 cross synergies from August to our Yale channel.
You have perhaps noticed that we have now start to use the August software platform also for our worldwide Yale business. The August app, we use now as a standard, let's say, Yale app. That's just one example of those cross synergies that are more important than we anticipated when we bought August.
Thank you.
Thank you very much then. 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.