Earnings Call: Q1 2018

Apr 26, 2018

Good morning. Good morning, everybody here in the room. Good morning and perhaps good afternoon to some of you on the conference call. My name is Nico D'Alvoort and Nuke's CEO of Assambloy, and we will present to you quarter 1 results. Now before I start with the results, as most of you perhaps don't know me that well, a couple of words about myself. I'm a Belgium citizen. I'm 51 years old. I have an electromechanical engineer and also have an MBA. And I worked 26 years for another Swedish multinational, Aeroskopko, mainly on the compressor side and a little bit on the vacuum side. And the last 3 years, I was heading their compressor and vacuum business worldwide. And I joined AssaBLOY officially 15th March. I came from Metso, Finnish multinational, active on the mining side and in industrial valves, where I was also the CEO. I said officially 15th March. I already joined earlier, 2nd February. So I had some learning before I really took over. Our results for the Q1, a good start of the year with a good organic growth of 4%. We believe a good achievement. Definitely, if we take into account that it was a short quarter. With the Easter effect, 2 working days less as compared to the same period last year. And then an additional 2% growth through acquisitions. It was a 3% growth, but we had some divestments, so net 2%. So solid performance with a strong growth in global tech and entrance systems, a good growth in EMEA, Americas and APAC and also strong development further strong development of our smart door locks and electromechanical solutions. A good operating margin because obviously also the Easter effect had also some negative effect on bottom line and even on balance sheet and therefore also on cash flow. The numbers, sales SEK 18.55 billion, 2% up. EBIT also 2% up and an operating margin of 15.3% versus 16.4% last year, a good volume flow through of 0.2%, the dilution of acquisitions is 0.3%. Interesting also to note that we had an EBITDA margin of 15.2 percent to 15.7%, sorry, 0.1% up compared to same period last year. You know that we are doing more technology acquisitions, so it's also important to look at EBITDA margin. If we then look about a little bit geographically to our sales, I would say overall, good performance. You see emerging markets plus 2 and total plus 4. That means that our emerging markets were growing less than the mature markets. But it's mainly because of 2 countries, because of Brazil, where we all know the economic situation, although we believe now that market conditions in Brazil have leveled out on a lower level and that we should start to see growth again from that lower level. And the second market is China. At least in the Q1, also market conditions were not favorable, definitely not on the newbuild side. And it's really those 2 markets that like the emerging market growth will be done. All the other emerging markets were performing strongly. If we then look at the different continents, Western World, Euro plus 2, very good performance, North America, +7, as well as on the commercial side, but mainly also on the residential side. And then a very strong plus 10% in Africa, Middle East. We have a strong performance mainly in the Middle East. And then Australia, New Zealand plus 3% and Asia plus 2%. If we then go a bit into the market highlights for this quarter, very happy to announce our first shipment of our specially made door locks for the Nest home or smart home bidding solution. It's a lock that we developed together with Nest, specially made for them. What's interesting also to note is that LLOG will carry our Yale brand. As far as I know, it's the first time that they use also the supplier name for one of their products in their ecosystem. So it shows also the strength of our yield brand on the residential side. We got the first order. They are filling the sales channels, and that is the idea now to further fill that channel throughout the year. We also got a very interesting first order from Walmart. You all know those special boxes where they carry the expensive goods. And then you go and ask the employee, and then he says, yes, wait, I have to go and get a key, and then it takes forever to come back. That problem we solve now with a digital solution where they can trace who has access to the different boxes and also to make sure that things don't get lost. That's a very promising business, but the idea is also they have to roll it out to more stores of Walmart. And then we launched a new full and comprehensive range of door closers under the ASSABLOY brand name and with the new ASSABLOY design lines, the design rules. Very excited about that range because that will definitely help us to improve our relative position in that important hardware family. I was myself also to the ISC West exhibition in Vegas a couple of weeks ago. It's one of the more important exhibitions in our field. And they, by tradition, give out awards for the most innovative ideas, the most innovative solutions. Very happy to see that we won their 12 of their awards, that the vast majority of the awards that we're giving out in our industry, and that is really showing our product and innovative leadership. And so, of course, rewarding to see that experts in the domain choose us as the winners for these awards. If you look a little bit over a longer period to our sales growth, 20 consecutive quarters with positive organic growth. I think if you look in the industry, there's not too many companies that can show that Freck Crawford. So proud about that result. And then I think good complement of the organic growth by acquisition growth. And we managed to realize that growth with a sustained high operating margin within the bandwidth where we want to be between 16% 17%. And we managed to do that despite continued investments in our sales channel, investments in R and D, new product development and continued acquisitions that often at the beginning are dilutive when it comes to operating margin. And if you can keep operating margins within a high stable level and you grow your top line, of course, you grow your profit in absolute value. So that also continues to go up, plus 65% in the last 5 years. We continue also our actions on optimizing our manufacturing footprint. You know that we have these MFP programs, as we call them. On a constant base, we optimize our factories. And we have 2 active ones running as we speak. And in the quarter, we reduced headcount with another 500 people. And we still have in plan to further reduce headcount with 1,000 people because of those 2 programs. And then we are working on a new program, MFP 7, that we will launch towards the end of this year. Acquisitions. We concluded and started to consolidate 4 acquisitions in quarter 1. LOB, we announced already earlier in 2017, took a little bit longer to close that one. It's a Polish hardware company. For NERO, we announced beginning of this year ElderlyCare in Scandinavia, Dale and XL Hardware in the U. K. And then KeyID, we never announced because it's a smaller acquisition. It stands for Korean Autodore. It's a Korean acquisition in entrance systems. If we then go to the results per division and zoom in a little bit. EMEA, strong organic growth of 3%. And overall, in most markets, strong performance. If I pick a couple of them, France, very happy to see that we have again strong growth in France after a couple of, I would say, deepest years since that France is really back and France is an important market for us. East Europe, very strong growth, continued strong growth in East Europe. And then Scandinavia, despite many KPIs perhaps pointing in the wrong direction, we still see good performance in Scandinavia, and we are also still confident for the future in Scandinavia. Strong growth for electromechanical products and smart door locks. So we continue to see that shift from mechanical to electromechanical also in EMEA. And then I would say strong bottom line, 16% versus 16.3% last year, but diluted by acquisitions, in fact, divestments. We divested a smaller but not so profitable fencing business in Norway, and that's more a onetime effect explaining the 16%. Overall, I think business wise, strong performance. If you go to Americas, organic growth of 3%, strong growth in electromechanical and high security, for instance, the ABLOY solution for telecom and utility companies. And then definitely also strong growth on the U. S. Residential side with the Nest order as I explained and many others. Good growth in South America, except for Brazil and Colombia. I explained Brazil before. Like I said, we are confident that we are now touching the bottom in Brazil and that market conditions will improve. And then definitely also Colombia, where market conditions are for sure down. And Colombia is an important market for us where we have a good position. So if market goes down, yes, we normally also follow the market. Operating margin of 19.4 percent, a little bit disappointing for us on the lower side. Three main reasons. One is dilution because of acquisitions, and that's mainly August. And as we explained also in earlier quarters, that August will be dilutive, and that will continue also for the coming quarters. We see that as a growth project. And then 2 internal operational reasons. 1 is in Brazil, where we consolidated our factories and we closed down the factory, and we had some start up problems in the transition. Most of those problems are behind us. So we are confident that, that will improve in Q2. But of course, we still have a backlog to catch up with. And then the 3rd reason is our metal door business in the U. S, where we continue to see metal prices going up, where our price increases lag a little bit the material price increases. And that will definitely also continue now into quarter 2. But we work hard on getting prices up on one side and further improving our operational efficiency and therefore reducing cost on the other side. And then our 3rd geographical division, Asia Pacific, also organic growth of 4%. I would say 2 phases, China and the rest of the region. The rest of the region, good performance. China, not so good performance. And in China, also two phases: hardware business positive door business negative. We have seen project business further going down in quarter 1 in China. Of course, it's a short quarter, so it's not so easy to come to conclusions for the rest of the year. But as you know, we are more on project business. We are not so strong yet on the replacement market, where we believe that replacement market is perhaps slowly growing. And then operating margin on the same level, 7.9% as last year. Global Tech, strong performance as well on HID side as on Hospitality side with an organic growth of 6% and a solid bottom line of 18.8%. For HID, I would say most of the KPIs pointing in the right direction. Physical access, which is an important business area for that division, very good performance. A little bit weak on the Citizen ID side. The Citizen ID is, of course, project business, so it's very difficult to judge in 1 quarter. We are confident that if you look at the longer period, Citizen ID is also promising business. And hospitality, if you look at the different regions, I would say, in all regions, good strong performance. If you then go to Entrance Systems, our last division, also very strong organic growth of 5% and all different subdivisions or business areas. Good performance except for our residential doors in Europe, where it's on one side a little bit the market and on the other side also some operational challenges in our factory. And then a solid operating margin of 13.3%. With that, I give the word to Carolina, who will give a little bit more details on some of the financial figures. Thank you, Nico. Good morning. I will start with the financial highlights. And as usual, we will start with the top line. Most important, the organic growth. We had a full 4% organic growth in the quarter. We estimate the price effect or the net price effect of that to be 1% and the volume to be 3%. And we have to keep in mind that it's a short quarter with 2 working days left due to the Easter coming at the end of that quarter. Moving on then to the acquired growth. We saw a net of 2% acquired growth in the quarter. It's a gross 3%, and then the divestment of Advenai makes it net 2%. Currency, pretty strong effect on currency, negative on the top line in this quarter, so minus 4% on the top line on currency. And if we assume that the currency is still the way they do, we will see a much smaller effect in the second quarter and then for the full year, basically flat on the top line. Top line then translated to a good result also on the margin and on the EBIT. It's down 10 basis points, but that is with a good drop through from organic growth and then some dilution from acquisitions. And interesting to see that for the first time, we have a different effect or different trend on the EBITA. And here again, EBITA has the same effect from organic, acquired and FX. But due to the acquisitions that we have made within the more tech side of the business, we have more amortization than in the numbers. And therefore, we have 20 basis point improvement on the EBITDA versus the other EBIT. Cash flow, not to be forgotten. Q1, though, is a very weak quarter for us always, so the seasonality is very strong here. The Q1 was no different for us this year. From the highlights, more to the details, and we start with the bridge. And here, it's again to try to show you the effects of the difference with the business like for like and then with the acquisitions and the effect from the acquisitions and also taking the currency into consideration. So we start with the organic and the organic drop through. The 4% had a drop through that improved the margin with around 20 basis points. That's really in line with what we saw last year as well. We had similar effect for the full year. Within this, though, we do have a bit different effect for the different divisions. You could see very good leverage for Entrance Systems and good also for EMEA. We were sort of flat and slightly positive even on the APAC business on the organic side, although we do still have the headwinds there of the material. Global Tech, Nico mentioned it, but it's really a strong mix here. And with sort of the project business, especially in Fits and ID then going up and down. And in the quarter, it was pretty weak. So the leverage was negative from Global Tech here. The tough one was Americas, good organic growth and good savings as well, but not fully compensating for the raw material increase in the effect on the door side and therefore, flat on the drop through from the organic, but overall, a 20 basis points improvement. Currency, mainly a translation effect for us. So we do see the minus 4% translating to similar margin and therefore, no effect on the overall margin. Acquisitions, the net 2% here. Overall, it looks, I would say, pretty normal for us, minus 30 basis points here. But we do see a bit different effects in the different divisions. I would say we have sort of the typical one in Android Systems, a little bit with Q1 EMEA. But we also have our 2 sort of outliers here. And we have on one hand, we have Americas with the Teck acquisitions, especially August, which has a significant dilution from August on the acquisition side, which will then carry on for the full almost the full 2018. On the other hand, we have Globaltec, where we did acquisitions that were profitable and had good margins there. And at the same time, we divested Advernite, dollars 1,200,000,000 business with a low margin. We had a significant positive effect for Global Tech on acquisitions there. But overall, 30 basis points dilution. If we look at the P and L from a little bit different point of view as components of sales, we do the same here, a like for like comparison, excluding the acquisitions. And in the Q1, it's a bit short period of time to sort of see strong trends here, but we see one thing that has continued from last year, and that is the effect on direct material. And here, we continue to see that we have an increase of 50 basis points then on the direct material. And really, that comes partly from the mix in Global Tech, but again, from the door sites, both in Asia Pacific and in Americas. Then we were flat on conversion costs, so the overall gross margin then is down 50 basis points. We compensated for that with the lower SG and A, full 70 basis points improvement. So overall, we see an improvement of the margin with 20 basis points like for like. Cash flow. 1st quarter is not the best quarter to talk about cash flow. As you can see from the graph, we have strong seasonality when it comes to cash flow, and especially the Q1 is very weak. And this Q1 was no different. So we continue to see the weak cash flow in the Q1. Important when we look at cash flow is to put it into relation with the growth of the business. And therefore, we really look at the different operating KPIs within working capital. And the most important and the largest one here is DSO, days of sales outstanding. And here, we increased from 52 days to 54 days, so an increase here. On the other hand, we managed to decrease the overall inventories. So the inventory days are down to 97 days from 100, so an improvement there. And on the DPO, also an improvement from 55 to 60 days, so good development there. CapEx, basically on the same level as we were on last year. So I would say basically as expected in the Q1 for us on cash. The debt side. Well, we ended the year with $25,200,000,000 in net debt and weak cash flow as usual in the Q1, about SEK 1,000,000,000 spend on acquisition from tax payments and then also revaluating the debt to SEK having sort of the same effect from currency as you see on the top line. Basically, we ended with SEK 27,200,000,000 in net debt for the group. But that's put into relation with our size. We look at the KPIs here as well, and we feel that the gearing is stable on 50%. And also, maybe more importantly, the net debt to EBITDA ratio, which is now on 1.9% compared to 1.8% a year ago. So also a solid performance there. Finally, what it all comes down to in the end, the earnings per share. Well, if we start with the EBIT that was up, the 2% that we talked about, we have then a lower financial net, somewhat lower financial net than a year ago. And that said, I would say though that interest rates, especially for loan U. S, are going up a bit. But still within the quarter, we did have a bit lower financial net. Then the estimate for tax for the year continues to be 26%. We add that all together, and then the EPS is also up 2% in the quarter. And since today, in the afternoon, we will have our LGM. Can also see from the trend the good results that we had last year on the earnings per share. So we have a proposed dividend for the LGM to decide that it's DKK 3.30. So an increase of 10% on the dividend. And with that, I give back to you Mikko for conclusions. Thank you, Carolina. So the conclusions, we can be short. We are happy with the start of the year, especially pleased with the 6% growth of the top line, excluding currency, 4% organic growth, 2% net acquisition and then a solid bottom line of 15 point 3%, with overall good performance from all divisions and also confidence now on the market conditions that we see for the remaining part of the year. And with that, I think we can open the floor for questions. And then Olger will explain us the procedure, right? Thank you, Nico. Thank you, Carolina. Good morning, everyone. My name is Holger Lembren. I'm Investor Relations Officer at Assalvoje. Before we start the Q and A session, I would like to remind everybody to limit to allow as many people as possible to ask your questions. I will start by asking a question to you, Nico. Good start to the year with 4% organic. What do you see for the Q2 and for the full year? Yes. Like I explained a little bit before, I think market conditions in general are positive as well in Europe as in North America. As in the emerging markets, we see overall positive signals. And also the markets that will be troublesome over previous quarters, China and Brazil, we have at least the impression that the downward trend has stopped, that they have leveled out on a low level. And then from now on, we should start to see improvement of market conditions in those markets. So we are overall confident as far as we have the visibility, of course. Thank you, Nico. And to you, Carolina, do you expect the headwind for raw materials to continue into Q2 and for the full year? Any elaboration on that one? Yes. We saw strong increases already last year, and I would say M Trans Systems and EMEA, the Profecto, have basically managed to cover that. Global tech is not really relevant from this. APAC and Americas had troubles already last year, although we have increased prices. We continue to see it in the Q1. And considering that the prices have gone up or continue to go up, also now, we will continue to see having some raw materials also in the Q2. But of course, we will do our best to mitigate with price increases and operational excellence. Thank you. And before we kick off the telephone conference, do we have any questions from the floor in Stockholm? We have one question here. Thank you. Matthias Sandler, division, could you please elaborate a bit on the quite poor organic drop through, which is a bit of 7% in the quarter? And if you expect that to continue into the latter part of the year as well? Want me to comment? Yes. I think it's a bit like Carolina explained, it's mainly a mix issue, where some of the more profitable projects were not there in the quarter, but where we are confident that, that mix will change over the year and come back to a more balanced shift. So to answer your question more directly, yes, we believe that this volume flow through will improve in the remaining part of the year. Thank you very much, Madel. Before we kick off the telephone conference, operator, will you please remind how to ask questions? Of course. And the first question is from the line of Lars Brorson from Barclays. Please go ahead, Lars. Your line is open. Hi, good morning all. Good morning, Nico. Good morning, Carolina. A quick follow-up to Carolina and then one for Nico. Just Carolina, it's a bit unhelpful I find that you're taking out the divisional margin commentary from the presentation. Specifically, can you help me with what M and A dilution was in the Americas division in Q1? And secondly, and sort of more higher level for Nico, I wonder whether you could share some initial thoughts, Nico, on the business after your 1st few months there and give us some flavor of what we might expect in terms of a strategic review from you and how and when you might communicate that? Thanks. Yes. On Americas, the dilution from acquisitions and then mainly from August was 170 basis points for Americas. You will actually see that because you will have in the presentation the slides in between, which shows the bridges of all the divisions. Thank you. And on my side, if I start a bit with the markets we are in, of course, we operate in a very exciting market with what I believe very strong short term and long term positive drivers. If you just look at urbanization, look at countries like China, where today 750,000,000 people live in a city and where they forecasted that by 2,030, it will be more than €1,000,000,000 So another €250,000,000 Chinese will move from rural areas into cities. So 25 times the population of Sweden or 25 times the population of my country. They all will need locks. Hopefully, they will all need our sub blow solutions. That's not only true for China, it's definitely also true for countries like Indonesia, India and a continent like Africa, where they forecast that in the next 50 years, people living in cities will triple. So huge opportunities. Then we have, of course, the whole drive into more environmental projects, where today, 1 out of 4 big projects is already in one way or the other written with a green spec, sustainable spec, be it a LEED certification or any other kind of certification. And that's also good news for us because that drives technology in the market up, and it takes away a little bit the pure cost competitors, people that just compete on cost and not on technology. And of course, there's a whole shift from mechanical into electromechanical and digital, where we, I believe, have the strong advantage of having a very big installed base, an installed base where we can sell off the market, but where we also can upgrade into new technology. So we operate in a market which has positive dynamics. And then we are, for sure, a strong market leader in that market, a market leader that makes difference to innovation, to new product development and that has also a strong position in the different channels. But I would say the most what I'm most impressed about after these 1st weeks and those 1st months is really the mentality and the spirit of our people in our company. We have really people that are proud to work for Assambloy and people that are willing to go the extra mile to make the difference because at the end of the day, you can have the most fantastic products or the most fantastic IDs. If you don't have the right people, it will never work. And that's the most important asset. When it comes to strategy, I believe we have a solid strategy based on the 3 pillars: market presence, product leadership and operational efficiency. I think it's overall a proven strategy that has also delivered very good results in the future. I think it's also a solid overall strategy for the future. I definitely don't want to make big changes to the strategy. It's going to be more fine tuning of the existing strategy, and I'm confident that we'll also continue to deliver good financial results in the future. Thanks, Nico. And next question is from the line of Andreas Willi from JPMorgan. Please go ahead. Your line is open. Yes. Good morning, everybody. Thanks for your time. I wanted just to follow-up on Lars' question on your first impressions. Was there something you've seen or maybe an area where you think there can be that you can drive some improvement, something you were surprised how it's working? And you think, from your experience, you can quickly basically drive some improvements or change direction or something that negatively surprised you in your first period at Alsternploy? I would say to our people internally, there is no products or no markets where we have 100% market share. So we can still improve in all markets and for all products. And I genuinely believe that I think all our divisions and all our businesses have still good potential to grow as well organically as through acquisitions. Maybe if I put a little more flavor and perhaps prioritize a little bit, it's clear that if you look geographically, our lowest position is in Asia. We have a stronger relative position in the Western world, in Europe and in the Americas. And it's also long term region with very good potential. So from a growth perspective, that is definitely a region which will get our focus in general and then China in particular. And then short term, of course, we have the challenges, as we also mentioned in the call, on metal prices in our door business. We have an important door business in the U. S. And in China. So getting that prices up and cost efficiencies implemented in order to get the margins that we deserve in that market is a short term priority. And then the third one, of course, the whole change from mechanical into electromechanical and digital. In the first place on the residential side, where you see a lot of things happening with a lot of players, a lot of speed, a lot of changes, a lot of new ideas, making sure that we are there in the forefront and that we are also leading there is also a short term priority. And perhaps the 4th one is service and recurring revenue. Service in general and in entrance systems in particular, which represents, I believe, a good potential. And then with the shift to electromechanical and digital, how to make sure that we also in the value stream when it comes to recurring revenue is also up high already. Thank you very much. Thank you, Andreas. Operator, please next question. And next question is from the line of Andre Kukhnin from Credit Suisse. Please go ahead, Andre. Your line is open. Yes, good morning. Thanks very much for taking my question. It's really the main question on your view on the midterm targets of the company. You've clearly confirmed the strategy. You said only maybe small fine tuning. Are you comfortable with the midterm targets that you inherited? Yes. So you're referring in the first place to our 10% growth ambition, 5% organic and 5% acquisition. If I first take that one, I don't have a strong opinion if it's now more organic or more acquisition. Of course, we have a preference in the 1st place for organic growth because that's the most rewarding growth towards the bottom line. So we definitely want to focus on how can we accelerate organic growth and then how can we complement that accelerated organic growth with the right add on acquisitions. And we will continue to put our effort in acquisitions. We will even try to accelerate and see if we can further fill our pipeline. Now I know there's questions about the 10%. Is the 10% realistic? I'd say if you look at over the last 10 years, we grew 9% on a yearly basis. Then you could say, yes, you didn't make it because the target was 10%. We internally see the 10% more as an ambition, as a goal. It's something that the whole organization understands. That's something the whole organization is focused on, and we believe it's a realistic goal, realistic ambition level long term. When it comes to the operation margin, you know our strategy. We say we want to beat between 16% 17%. We believe that's a good, very healthy high level. We don't want to further increase that. Of course, if we can, we will increase, but we prefer to take that money and reinvest that money in the business, invest in our sales organization, invest in R and D, new product development and therefore, see how we can further boost growth, organic growth. And of course, some of the money we will also use to buy more companies and then get the growth through acquisitions. And those acquisitions are most of the time at the beginning dilutive from an operating margin point of view. So that's why we have that ambition between 16% 17%. For the time being, I believe it's good ambition level, and we don't have an intention to change it, at least with the information we have today. That's great. Thank you. Very clear. Can I just follow-up on the startup issue in the plant in Brazil? Could you help quantifying it or just give us an idea if it's meaningful? Yes. So what happens, we closed one factory and we moved actually the operations to 2 other factories. And when we moved the operations of the auto factories, we had some unfortunate issues with personnel That has affected us over quarter 1, also a bit in quarter 4. Like I said, these problems are solved. In the meantime. We are back with the operational efficiency where we want to be. But of course, we have a strong backlog that we have to catch up for now, and that will definitely drag into quarter 2. But we are confident that, that will not be a main reason in our quarter 2 call. If you take in quarter 1, to quantify a bit, you could say that it's around onethree of the explanation of the lower margin according to our expectation. Great. Thank you very much. Thank you, Andre. And back to you, Carolina, with a housekeeping question. You said that you had 30 basis points dilution from acquisitions in the Q1. What do you expect for the Q2 and for the full year? Yes. If we take the acquisitions that we have in the books so far, we will have a little bit lower dilution than in the Q2, probably around 20 basis points from that. And for the full year, somewhere between then, around 20 basis points to max 30 basis points from dilution from acquisitions in 'eighteen. And what impact on the top line from acquisitions do you expect? That's going to be the net with the divestment as well. So we will be between 1% 2% for the full year as it is now. Thank you, Carolina. Operator, please, next question. Our next question is from the line of Markus Alvaroort from Kepler Cheuvreux. Please go ahead. Your line is open. Hi, Markus at Kepler. A couple of questions on the smart locks, please. So you say that you see very strong demand for smart locks in Europe. If you could talk a little bit more about that where in which markets you're seeing and if possible, quantify enough from low levels, but still. And then my second question is on the Nest Lock, would you say you are producing only for Google? Profitability if you compare that lock to, for instance, what you have in Amazon Key? Is it similar type of profitability levels? If I start with the second question. Of course, if you negotiate with Google or if you negotiate with Amazon, first of all, you negotiate with very professional purchasing people. And of course, you talk also about bigger volumes, bigger values. Yes, so exactly, margins gross margins as well for our Amazon orders as well as for our Nest orders are lower than average. On the other hand, of course, it adds also an important way volume, and it comes also with lower functional cost. So still, it's a very good business to be in. It also gives us volume leverage. It also helps us to spread our brand name in the market, and it also helps to make the market more ready for digital solutions. When it comes to the first question, sorry, I forgot the SmartLux 1 in Europe, I would say that you have well, the strong presence that we have is in Scandinavia and in the UK, but also parts of Europe, sort of Germany and Finland and some other places. The percentages in those places that were small are very high. But I would say overall, also including U. K. And Scandinavia, we had significant growth in the Q1 on the SmartLocks. Okay. Thank you. Thank you, Markus. Operator, please, next question. The next question is from the line of Jeffrey Kester from Imperial Capital. Please go ahead. Your line is open. Thank you. Yes, you described some of the project work that you're doing in Global Technologies that has a more lumpy revenue pattern to it. Could you go into a little bit somewhat what types of projects do these incur? Are these mainly citizen ID projects or are these like larger are these enterprise card and access and ID types of projects? No. It is on the citizen ID one. So it's sort of the governmental type of documents, and governments are very lumpy in ordering and not very good transparency in when it's coming. So that is really the kind of project that we have seen big swings in the quarter. Okay. And that pertains to the geography is not important in that one. This is that that's a general statement about those types of projects in general particularly? Yes, unfortunately. Yes. And to a certain extent, it's also a timing issue. Some of those projects come back every year. And some of them we got the order last year, quarter 1. But this year, we will get the order quarter 2 or later in the year. And of course, as these are bigger projects, that timing makes the difference. Operator, please, next question. Next question is from the line of Guillermo Peigneux from UBS. Please go ahead. Your line is open. Thank you very much. Hi, Nico. Hi, Carolina. Just a couple of questions. One on restructuring, which regions will you be focusing on increasing the efficiency level? And then a second one regarding the growth target. You said that you're happy with the 10%. But over the last decade, there's only 1 2 years really, but it's really driven by one acquisition that the company actually was above 10%. All the other 8 years, that 10% has been very far from the real target. And I just wonder whether when do you see that growth happening? And how much of it will be organic? How much of it driven by acquisitions? Because so far, with 10 years back in history, it seems a very, very aspirational, I would say, but not a feasible target. If I start with the second question, and if you look back the 10 years, unfortunately, I don't agree with you. Because if you look at the 10 years, like I said, on average, we grew 9%. Then can you can argue, indeed, it's not 10%. But I think if you can grow 9% over a time span of 10 years year after year. I think it's a very solid performance. And again, we see this 10% to 5 plus 5% as really a goal, an ambition in our company. Then if it's now 9% and if it's 4% and 6% or 6% or 4%, as such, it doesn't really matter. We see it more as a long term goal that we strive for. And it's also an easy figure for our internal organization to remember and to focus on. When it comes to the restructuring, I would say the existing programs are, to a big extent, focused on Europe, both for Entrance Systems and EMEA, and we still have some in China and also in Latin America. So I would say that the best sort of estimate for the next program is that it will be a similar footprint for that one as well. Thank you. Thank you, Guillermo. Operator, we have another question. Yes. And the next question is from the line of Gael de Bray from Deutsche Bank. I have a question on the pricing development because obviously the price rises are still coming through, but perhaps a bit less than the previous two quarters, which I think is somewhat surprising given the continued rise in steel cost in particular. So could you maybe elaborate on the the strong acquisition agenda that you mentioned. The strong acquisition agenda that you mentioned in the press release. Could you elaborate on that and in terms of whether we should expect to hear about the first acquisitions under your direction shortly? Yes. If I start with the second question, I repeat that when it comes to our acquisition strategy, nothing has changed. And if already had something has changed, is that we would like to further accelerate those activities. We're working hard to fill the pipeline. And it's true that in Q1, we did not announce new acquisitions. It has, I would say, nothing to do with me or with the change of CEO. It's more a timing issue. We have different projects in the pipeline, and we are confident that we will be able to land some of them in the remaining part of the year. Then when and how much? That depends, of course, also on the other side. And because the tango, you have to deal with 2. But we are confident we have some interesting projects in the pipeline. So again, that strategy will continue. When it comes to pricing, yes, you could argue that the 1% is a little bit on the lower side. It's also a bit different from region to region and from product to product. If I start with EMEA, with EMEA, we have strong price improvement. And we, I would say, overcompensate material costing increases with pricing. So I don't see too many issues there. It was more challenging in the Americas and then in U. S. In particular, where we have tried to increase prices and where then the market was not always following. Now of course, material prices are, in theory, the same for everybody. I know that in previous quarters, we have discussed a little bit about some of the competitors hedging or not. But over time, material prices are the same for everybody. And as such, it's a good thing because as such, everybody can increase prices. It's more the timing when the different players in the market do what. Now the good thing is that we have seen now in quarter 1 also competition announcing price increases and some of them also announcing significant price increases. So that should ease up a little bit the situation and make it also easier for us to further increase our prices. Now when you come to China, it's, of course, in the 1st place, a challenge on the metal door business. We have explained and discussed it, I think, several quarters also in the past. What we then tried to do there to get more pricing power out of the market is come also with new products developments because we see that in China, like for like the same product, it's very difficult to increase prices in a significant way. So we try to do it to a different angle, coming with new products that then have a better cost structure and that we then in that way, can improve our margins. Overall, we are confident that we will be able to further increase prices now in quarter 2, and that situation ease up a little bit on the pricing side. On the material price increase side, of course, things are not easing up. Material price increases continue definitely in the U. S. So that problem is definitely not over yet, but it's a good challenge to work on. All right. Thanks very much. Thank you, Gail. And over to you, Carolina. Did you have any impact on changed accounting principles in the quarter, IFRS 15 or anything else happening in the quarter? No. I think the good news for us and those following us is that there were no material changes, and we don't plan real estate. We had a smaller impact in entrance systems with revenue recognition. So they have around SEK 70,000,000 that is now in the Q1 of the year instead of being in the last quarter of the year. You see that now in the Q1, and you will not see it in the Q4. But overall, no big changes and therefore, no real estate. Thank you, Carolina. Operator, do we have another question on the line? Yes. And the next question is from the line of Peter Frohnlein from Handelsbanken. Please go ahead. Your line is open. Yes. Hi, thanks for taking my question. Thanks, Nico, for sort of opening up a bit of what you about the company and the strategy. Any fine tuning that you mentioned? Would it seem to be a good sort of timing for that? That's sort of just my first question. Secondly, to Carolina, we talked about the 50 bps dilution on direct material. If you just look at the gross raw material sort of cost increase in the quarter, if you could give us that in absolute terms, maybe also to try to give us that figure for Q2 and the full year. Yes. Perhaps on the first question, I've since I started traveled intensively, visiting customers, visiting partners, distributors, visiting in the first place our own operations and meeting our own people, also for me to learn the business and to learn the industry because obviously, I come from a different industry. So there is a lot of things to learn. And I expressed already before that I'm positively impressed with what I see and what I learn. Perhaps a little bit too early to make strong and bold statements. I think I will continue in the coming weeks to have my journey of traveling and visiting. But with the information I have today, I must say, don't expect big strategic changes. I believe our strategy, our fundamental strategy, as we have laid down today is a solid strategy that has proven good results in the past. And I'm confident if we continue to execute that strategy in a good way that we also will see good financial results in the future. For sure, we will fine tune left and right that strategy. But again, with the information I have today, don't expect big changes. Okay. Then on the material side, there is a starting point what we consider direct material. Out of that, probably in this quarter around the third is related then to raw material. And we have an increase of between 3% to 4% sort of like for like comparing on the material side. And again, here, this is mainly then on the Americas and on LPEK because it's a mixed effect then significantly from Global Tech. And we will see similar effects in the Q2. We also have to remember we have 100 days inventory, so we sort of have one quarter of a delay before we really see the raw material prices coming into our direct material effect. And then for the rest of the year, I think we have the right answer. Okay. 3%, 4%. Okay. Thanks a lot. Thank you, Peter. So I'd like to thank everybody and handing back to Nikku for your closing remarks. Okay. So first of all, thank everybody here in the room for being here. Thanks also on the call. Those were the interesting questions. Like I also started this call, we are happy with the start of the year. We believe it's a good start of the year, especially pleased with our 4% organic growth. And then for me personally coming into this company and coming into this industry, of course, very excited, I'm very happy and also proud that I can take this position and then work together with the Assa Abloy team to further develop the company and bring it to a next level in its development. And again, very positive about the market we are in and a strong leadership position we have in that market. And then of course, looking forward also to a good cooperation and a good relation with all of you in the coming years. So thank you.