Earnings Call: Q1 2015

Apr 28, 2015

Growing in a positive sense for us and especially now when we have these door locks as well. Also home automation here is very popular. We saw also strong growth in Latin America, home 43%. 10% is organic despite and the Brazil is quite dull, to say the least. We still are growing strongly in most markets, including Brazil. And the 43% rest is coming from acquisitions. We've done 3 strategic acquisitions in recent time, Silvana, Metallica and Odys that is of course adding a lot of turnover there. Still a small part of the world, but important increasingly important as we move forward into the future. On the pedestrian side, we have launched a new completely new range of swing door operators and they're also doing very well with more than double digit growth, not more than double digit, but double digit growth. And we see also here they are becoming popular also in emerging market. They're a little bit more expensive normally for an emerging market, but the functionality is very good with these products. And therefore, they have become increasingly popular in high end type of applications. Turning now to our situation on the globe. The mature markets continue to do well. Americas had 9% organic growth in the quarter, very, very strong situation. Of course, we have to remember last year Q1 was quite weak in the U. S. A. We had a severe winter and a number of other disturbances in our sales. Looking to Australia, we also had a very New Zealand, we had also good evolution, 8% organic growth, while Europe was more depressed only 2% growth in the quarter and altogether 3% growth of Europe. In emerging markets, a mixed picture. South America, as I mentioned, 10% organic growth. As you can see here, it's 2% of our total. So but still it's important to grow where the market is growing as such and especially when you have young populations with growing wealth. In Africa, we grew underlying 10%. But in reality then because we have one product order that did not come into Africa this quarter, we grew 0% in fact, but it was 10% on our ordinary business. And the same is in Asia Pacific, 2% organic growth with China minus 10%. So in China is in fact for the group 10% of total turnover on year on year level. So of course it's a heavy drag to have minus 10% in China that takes away a full percent of growth. But still, I must say a positive situation. Also China seems to there is a lot of stimulus coming into the market. It seems as if China has at least on the order side, see we see some revival even though it's I think still believe we're going to see decline going forward. Looking to the sales growth, a very good picture I would say. As I mentioned that this quarter was fantastic, but this is then the normal growth that we had year over year. You can see from 2010 that we've grown more than 80% since then, a very strong growth where we have grown 2% to 4% organically, that's the blue here, per year, so an average about 3%, 3.5% per annum since the crisis. And that means that we have added some 22% growth. On top of that, the rest of the 80% plus turnover growth has come from acquisitions, which is a part of our DNA in a way. So a very positive situation. And here is something that is even more positive. And that is that the profitability has more than followed. It has continued to develop in a positive sense. So we have turned the low rather low margin companies into good citizens, I would call it, that are contributing to the group. So the profitability has grown by more than 80% since then or 20% improvement in the last 4 months. So very soon we will shoot through the SEK10 1,000,000,000 mark here. I hope I can stand here next time and tell you that, but I cannot guarantee it. But it looks good. Looking to EBIT level, 16.3% flat. In this quarter, we had something we had not really expected. We had quite some negative currency influence, 0.3% negative from currencies. And this has of course to do with all these movements of currencies in the quarter as such and also that the currency has been so big as an add on. So we have a little bit lower margin on that. Carolina will show later on a little bit more detail on this. We also had the 1 tenths of a percent of dilution. And despite that, our margin increased to 10ths of a percent in the quarter. And in the last 12 months, we are flat on 16.3%. So I feel very satisfied with this score since we are continuing to maintain and improve what we acquire as companies. It's difficult to do anything about currencies. They are as they are. And when we look to the manufacturing footprint, we are running now since 2013 is our last program. We have closed to 69 factories since we started in 2006 and 80 54 factories have converted. So we are approaching an end stadium. But those of you that are observant know that we acquired last year 20 companies and another 4 in this quarter. So of course there is some pent up demand building. But for the time being, we don't see very much of it. And we have about SEK840 1,000,000 left in our provision for the remainder of the programs that we are running. So it looks good and we get very nice savings out of these programs. Looking now to the margin, as I mentioned, it improved by 2 10ths of a percent, where we had the negative currency of 0.3% and acquisitions 0.1%. And what you can see then is our leverage was very good. In fact, it was 0.6% higher than we normally have, but we also had a higher add on from turn on the organic growth of 5%. Here volume grew by 4% and price was 1%. Price element is becoming less than in the past simply because we don't have that kind of inflationary pressure on salaries and raw material as we have had in past years. So altogether, a pleasing picture with good leverage from growth. Turning to acquisitions. I normally get very excited and I am excited about that. It's a lot of activity. The problem is you have to be cautious because people don't give it free of charge. Things have become more expensive. But we have done 4 acquisitions so far this year with an annualized sales of SEK750 1,000,000 or 1.5%. So we're running at the rate of this 5% added turnover per annum. I'm going to go in now into a little bit more detail in a few selected of our acquisitions. Content Secure is an important addition for us when it comes to access control and identity management. What they do is that they have a software that is providing to the customer advanced identity management and this little bit sounds a little bit higher hieroglyphical. But to explain it in a simple way, many facilities, public multitude of legacy systems. They have time and attendance systems and a lot of things that they monitor the security of the site, but they have it in a decentralized way. We see here there is a trend in the market where you put one system on top that manage the whole. And this has very much to do with compliance. So quantum secure is the leader in this field in the world. It's still small, but has been growing fast for many years. And that's also why you see we talk about bookings. We normally never talk about bookings, but they normally get an order. It takes a year before you get it installed. So that's the reason in this case. It's neutral to earnings per share from day 1. At least we hope it will be that simply because we paid some money for it, but also that the company is in a start up phase. So we are investing a lot because it's growing at a high pace, but a very exciting addition to the group. Switzerland completely different. MSL is a small company in Switzerland. They produce multipoint locks, electric locks and various kinds of lock cases. So why are we going into this? It's a very nice acquisition for us to bolt on, on what we already do in Switzerland. So we can come in a situation where we can do full specification for total door solutions also in the Swiss market. Switzerland, like many other markets in the world, they have different cases to other markets. And since it has been a small market, we haven't really had enough attention to build it ourselves. This is very expensive. So this gave us an opportunity to really become relevant in Switzerland. And we are so this is very exciting when it comes to our Swiss market coverage as such, very positive. And then we have another one, emerging markets in this case. And this is TIMEWARE. We acquired that today or tonight this night in fact. NOK240 1,000,000 in turnover. It doesn't sound much, but it's the absolute leader in Malaysia and we are number 2 as Sabloy. So together we create a very strong number 1. And here we get complementary channels and products as well and that also gain allows us to go full in specification in this market. Malaysia is also one of the South Asian markets of importance since it has a very high and nice level of GDP. So they have a wealth there that is growing year after year after year. So it's a positive situation. Turning now to the divisions. We start by EMEA. We saw strong growth as usual almost as I said in Scandinavia. In Finland, this was the first time we see that, but we see good traction in Finland as well. Eastern Europe and Africa emerging markets continue to do well for us. We saw good growth in U. K. And Iberia. So Spain is coming back very positive, while Germany and Israel was flat in this quarter. Germany hasn't been flat before, but it can vary between the quarters a little bit. When it comes to the negative, we continue to see especially Holland as being a weak market, France being weak market and Italy continued weak in the quarter as such. And all three had negative sales. We also made this a strategic move into Switzerland as well. Looking to profitability, we had a 15 0.9%, down from 16.1% last year on the back of 3% organic growth. And here you can see that the leverage from saving was good, but we also had the dilution quite some dilution mainly from currency, but also in this case a door company that we bought last year in Poland that also had its lowest seasonality in the Q1. So therefore, we lost 2 10ths of a percent, but altogether a pleasing picture in Europe. Americas here we pretty much grow across the board. Canada is weak and high security is a little bit every quarter. It's different depending on that there are quite some projects coming into that that varies between the quarters. But apart from that, all part in America is doing quite well, including the residential, but also South America and Mexico. So a very positive picture, 8% organic growth. And here, as I mentioned, we have seen imported moves in South America growing at 43% pace. And we see strong demand in U. S. A. Itself where people in U. S. Are more and more accepting Digitoto door locks as the item that manages their home alarm systems. And so they open it through the lock that is connected to the alarm system, a very positive situation and also nice for us since we are leaders in digital door locks. So we are well positioned for this. Altogether, a good situation. Our leverage was 0.5% -ish positive, but we also had dilution 0.5% mainly from currency and South America and Canada that have very and Mexico that have weak currencies. 21.1% just like last year. And here I can say also we did an important investment in the quarter of R and D people. We're adding more people since we get so much traction from R and D. So this is a more long term investment, but of course it's not free of charge. Looking to Asia Pacific, a little bit more difficult picture I would say since we are declining there and but it's China really that does it. Australia and New Zealand as I mentioned together was 8% organic, so very positive situation. South Asia and North Asia were also growing at a good pace. China on the other side was declining double digit, so quite a negative situation. But here also helped in a way helped by our credit policy, we try to avoid big losses. A lot of these companies or our customers in China are construction companies and they are working with thin capital. So therefore, we need to be careful when it comes to credit. So first they pay and then we give, not the other way around. So this is hampering our growth ability a little bit on the short run. We did exactly the same in the Iberia. And I can tell you that it was positive in the sense that customers understand and appreciate it even though short term you might feel a little bit from it. On the government side, we have seen the government stepping into the market and giving more incentives for the Chinese market. We don't know really what effect this will have, but it will be positive. But will it really be enough to kick start the market again? That remains to be seen. So my bet is that China will continue to decline for a while longer. Many companies are positive for us that are in acquisition mode is that many companies are for sale in the Chinese market. So this and then of course do you dare to step in? I think we do. We have quite some capability to restructure. We have reduced our I wouldn't say footprint, but we reduced our staffing in China in the last 3 years now by 40%. And in Q1 was as high as 8% less people altogether. This is coming from outsourcing, automation, but also a leanification of our operations in China. And that made also that the margin was pretty reasonable, 10.2%. This is our weakest quarter, down from 10.61% year. But the main difference was the currency gain minus 0.3%. So altogether stable and despite China a good situation in my opinion. Global Tech, fantastic growth in this quarter 12%. This is Global Tech is very difficult to say what's it going to be. Sometimes you get a lot of stuff, other quarters you don't get. We had an easy comp like in Americas to last year. Last year Q1 was weak. We saw strong growth in GAVID in this quarter, IDT, which are our inlays as well and on the product sale side and good growth in our traditional access control and identity management business. So altogether positive picture just like Americas had and the Entrance Systems had. The Austin Mo is now completed. We still have some double laying, but we are in principle into our new facilities and it looks good. And then hospitality on the back of a very many hotels rushing in to buy locks for mobile keys, we see a very strong growth situation there and also the profitability follows as a consequence. Margin expanded in the quarter to 17.4%, up from 17.1% in the same period last year, where we also here had to fight some negative currency and dilution. Entrance Systems, also a positive picture. Here we have, of course, reshuffled a lot of our resources and closed a lot of factories. You always feel that you're going to stop growing due to this. This has not been the case. We are growing at the 5% pace, very strong and solid growth in North America just like the other two divisions I mentioned, but also in some segments in Europe like FlexiForce and a few others. But in principle, Europe here it was at 0% or slightly above 0%. So Europe is weak on the industrial side still. Also on the residential side, we see a weakness, even though orders on that side improved in the Q1, but we still don't see it yet in our invoicing. So Europe is, in my opinion, tough, but improving. And despite that we are fighting with a tough Europe with price pressure and all that, our margins expanded in the quarter from 11.6% to 12%. This is the weakest quarter for entrants every year. So this bodes good for the year. With efficiency improvements of rather large magnitude go across entrance systems. And the current gain occurs negative. It's a little bit repetitive, but the currency negative of 0.4%. That concludes my overview of the divisions. I'd like now to hand over to Carolina that will guide you through the financials. Thank you, Johan. Good morning. A strong start of the year for AssaBLOY. I will start with the financial highlights and the top line here. Full 24% growth. Most important part, the organic part. We saw a good 5% organic growth in the quarter. We have one working day more in some parts of the world. We also estimate the price effect to be 1% and the volume to be 4%. Acquired growth then 3% in the quarter, mainly a carryover effect from the acquisitions we did end of last year and in emerging markets. And then the big one, currency, 16% top line growth from currencies. And I will come back to this one a couple of times during my presentation. So a full 24% top line growth. And if you add then to that the good efficiency savings that we saw in both manufacturing footprint, but also all the other efficiency programs, we had a strong development of the EBIT up 25%. The margin also increased from 15.1% to 15.3%, although we saw typical dilution from acquisitions but also from currency. Cash flow, operating cash flow. Q1 seasonally very weak for us and this is no exception. So it was seasonal low in the quarter. We continued to see low interest environment and the financial net was stable. We add then the tax rate estimated to 26% like previous years and we get an increase of the earnings per share of a full 28% in the quarter. Let's dive then into the P and L, starting with the bridge. And again, the organic growth, 5% organic growth and we saw good drop through in all divisions from this good organic growth. The only one that was almost flat was negative 10 basis points on organic was for obvious reasons APAC, which was also negative on the top line. And the combination of the good organic growth then in the divisions with the efficiency programs gave us a very good drop through of 27% and therefore margin expansion of 60 basis points in the quarter. Currency, a full 16% effect on the top line and this is mainly a translation effect. The biggest currencies that well, the biggest impact that we've seen has been from the U. S. Dollars, but also from euro and pound and U. S. Related currencies, I would say. Here, we have the same drop through as we had in the Q1 previous year with 13% on currency, but due to the sheer size of it with the 16% that did dilute the margin with 30 basis points. The opposite effect we see on acquired growth. We had only 3% acquired growth in the quarter. The drop through from acquisitions, 10%, in line with what it should be. It's mostly emerging markets and quite a lot in China, which is seasonally very low in the Q1. So 10% margin on the acquisitions. But since it's only 3% on the top line, the dilution was only 10 basis points on the margin. And that brings us from 15.1% to 15.3%. Different perspective, components of sales, we get this picture. I compare with and without acquisitions. And here you can see it's quite a big change. Starting with direct material, the raw material part is roughly a third that's affected from that. And on raw materials, we saw some going down on the still and some of the others going up. But the big effect here is really a mixed effect. It's both within divisions. You have within Cubiltech where there are more project sales with higher direct material content. And then you have also like Americas within entrance systems, which is also significantly higher on direct material. What you see on the other hand is the same effect on conversion costs, the opposite. And therefore, the gross margin actually improved with 20 basis points. So that was very good. SG and A. We saw a good development of SG and A last year on the percentage here and we continue to have that beginning of this year as well, also helped by the organic growth here. I think we found a good balance between investing in the front end that Johan talked about both in R and D and his specifies and on the other hand becoming more efficient on the support functions with standardization and automation within what we call the seamless flow program. Just a comment on acquisitions. As you can see here, you add them on. They have the typical P and L split with the higher direct material content, specifically in the emerging markets where these ones were. From the P and L then to the cash flow. First of all, let's have a look at the yellow bars that you can see just to show you how strong seasonality we have on cash flow because Q1 is by far our weakest quarter and we saw the same in this Q1. A commentary was also that the group grew with 24% on the top line, which also means that we have used more working capital as expected. And if I look at the efficiency measures there, we have on the DSO, it's up 3 days. And I would say that one day of that is due to China and 2 days is really due to the size. And we see similar on inventory up a couple of days and also payables up a couple of days because of this. So what did the cash do to the debt? Well, it helped the debt down. But on the other hand, the currencies had a big effect on the net debt, because we translate all the different currencies here into kronas as well. So we had an effect of SEK1.2 billion on the debt from currency. And then we had roughly SEK1 1,000,000,000 spend from acquisitions. So that brought us from SEK22 billion to SEK2 1,000,000,000 in net debt. With that said, I would also say that gearing is actually down to 64,000,000 and the net debt to EBITDA ratio is flat on 2.3%. Finally then, a very beautiful slide, the earnings per share slide. If we start with the EBIT that was up 25%. And then we had a higher debt but continued low interest rate, which made the financial net flat and the tax rate estimated to 26%. That overall brought the earnings per share up to full 28% improvement to SEK4.36 million. And with that, Johan, I get back to you for conclusions. Thank you, Carolina. So a very fast conclusion on this quarter. I wish I could stand there all day, say the same thing, but we will see next quarter. Strong growth, 24% as we have underlined. And in most markets, we grew nicely except in APAC. We have a good pipeline from acquisitions as well, which bodes good for the added turnover from that part of the business. And emerging markets also improved 1 percentage point to 23% over last year. So we are continuing to expand our total share of sales in emerging markets, which I think is very, very important for the long term long run. And profitability improved EUR 25,000,000 and earnings per share EUR 28,000,000. So a very, very good quarter. With those words, I close then our overview and open up them for Q and A. So our eminent Niklas Ribbing will ask probably a few intelligent questions. We will take those questions from the audience here and the telephone conference. And I will start you on with the usual question on current trading. What have you seen so far this month? Very surprising question. We have so far seen around 3%, so more or less in line with the Q1. It's a month of the same number of working days. And we have, of course, a continued drag off from China in that number. Okay. Thank you. And Carolina, there is quite a big change in the P and L components here. Can you explain a little bit and give some color to it? Yes. One part is on the direct material. I think you need to look at it together with the conversion cost because this is mainly a mix effect. And part of it is mix because of within a division like we have the project sales within Global Tech, which are significantly higher on direct material, but then lower on conversion costs. And then we also have a mixed effect because of the translation like entrance systems in the U. S, which is much higher on direct material. So it's mainly a mix effect. And that's why you also see that the gross margin is actually improving with 20 basis points. Thank you, Carolina. And I think we'll turn to the telephone conference directly. Remember, one question and then one follow-up. Operator, please? Our first question comes from Mr. Guillermo Kenny from UBS. Please go ahead. Hi, good morning everyone. It's Guillermo from UBS. Thank you for taking my questions. First, I think, Johan, in your comments, you mentioned stagnant Europe. And obviously, this is a very familiar picture. It's been stagnant for a while. But is it more stagnant or less stagnant given all the quantitative easing and stimulus that the European authorities are putting in place? No. I think it's pretty much the same. It varies between which market is going up, which market is going down, but it's pretty much the same situation. We should also remember AssaBLOY is large in France and France has a negative evolution right now. So we are impacted by that. But generally speaking, I don't see much of a difference. Europe is sort of walking sideways. We are growing at a few percent on a continuous basis. No drama, but I don't see a really strong pickup. The only area where we have seen a positive situation, we have seen a little bit more orders on the Entrance Systems side than we have seen in other quarters. So hopefully we see some revival at least on the industrial side. And then of course depending on the markets and U. K. Is reasonable, Sweden is reasonable, Finland turned positive in this quarter. So it's not all black. But I repeat Europe does not grow its population. So underlying it's not so such a growing field. I think it's very important for us that we establish ourselves strongly in emerging markets where we see there is healthy demographics supporting sales. And then my follow-up is for Carolina regarding the dilution effects into the Q2. Can you give us maybe some clarity as to how much you expect FX to be 2nd quarter maybe in terms of revenues? And also whether it's going to be as dilutive as it was in the Q1? Thank you. Yes. I would say that the currency for the full year, we expect to be around 12% effect. And you can see that it's strong in the beginning of the year because we had 16% in the Q1, so somewhere in between for the second. When it comes to dilution, we see strong seasonality here and the Q1 is the lowest one that we have and it's the same as previous year. For Q2, we estimate it to be slightly dilutive as well, probably around 10 basis points and then for the rest of the year around flat assuming stable rates. Okay. I go back in line. Thank you. Thank you. Next question please. Our next question is from Mr. Peter Frode from Handelsbanken. Please go ahead. Yes. Thank you. Good morning, Jan. Good morning, Carolina. My question relates to profitability trend in EMEA. You also mentioned that sort of the growth is not really there on fundamentals. And if you look at the profitability trend, it is negative despite significant efforts. So when can we expect sort of another savings program? That's really how we should think of this. I mean, you managed to squeeze out quite a lot of savings in the quarter. And if you take that out of the picture, the leverage is not very high. So please could you allude to how we should think about another savings program predominantly maybe then for EMEA? First, I'd like to correct you. The trend was not really negative. We had currency problems in Europe and also acquisition dilution. To take that away then margin continued to expand. So we are not in a difficult situation from that perspective. The same was with Entrance Systems. So it's not so that we have a negative situation. But we get the dilution from acquisitions and that we cannot do anything about and the currency is the same. Then when it comes to savings programs, we still run a number of projects. Many of those are directed towards Europe. Remember, we have reduced by 40% our situation in our staffing in China. We haven't asked about any restructuring money for it. So what we have to have projects then that really are substantial. And we haven't made many acquisitions in Europe in recent times. So therefore, we have not spoken about restructuring programs. We do on a continuous basis, leanification, improvement, efficiency improvements, etcetera. And Karina also spoke about seamless flow where we automate our transactions in the group and we get good traction out of that. So right now, I don't feel like we are in a mood where we need to do major reshuffling of our activities. Our next question comes from Mr. Andre Kuevne from Credit Suisse. It's Andre from CS. The question is just picking on your comment on pricing. I guess it's the usual one. But could you just elaborate whether you are putting prices up at all or in this deflation environment? Is that inappropriate? Yes. We are taking 1st we are market leaders, so we always increase price. That's a healthy thing. The second is that a lot of markets have devaluated. So there we have hefty price increases to recover those losses that we will otherwise suffer in a short while when the inventor has been consumed. So there we do it on a sort of standard way. And then we have a number of markets where we do the regular increases where we have seen some brass material, but we mainly think has gone up. So some specific areas we need to improve as well. So altogether, we have 1% net price increase in the Q1, not too bad considering a noninflationary environment that we have. If we need more, we will do more. Great. Thank you for clarifying. And the follow-up is just on Entrance Systems, the comments on growth. Is this business taking share in Europe and U. S. Now with the acquisitions being integrated and with a more expanded with an expanded product offering there? It's hard to tell because they are so the market is pretty fragmented. We are at least growing better than a few that are public. But I cannot really say we are outgrowing everybody. We are doing okay. And we have a lot of new products that get creating traction. So but also what I think is important, at least for us, that is that we make money in what we do. We have a margin that is much higher than most competitors if not all. And that is of course due to that we operate in a more efficient way, which I think is very important. Growing for growing is not really interesting. Growing with profit is what is really something. And that is the foundation for us also to create money to be able to do acquisitions. If we don't create money flowing in the form of cash, we cannot continue to do what we do, consolidate in the industry. Very clear. Thank you very much. Thank you, Andre. Next question, please. Our next question comes from Mr. James Moore from Redburn. Good morning, Johan, Carolina, everyone else. On the cash flow, thanks for your explanation on the softer cash flow this quarter. But can I ask a bigger picture question on cash conversion? I think your cash conversion was below 90% for the whole of last year. Previously, it used to be some way above 100%. Could you give us a sensible view for cash conversion in the next 2 to 3 years? And what for you are the key moving parts in that? Yes. First of all, I think the target is really to have 100% cash conversion over time. That's basically as good as you can get assuming that you have sort of a balance sheet with the working capital and CapEx in order, which we do. So that is still our target. And if we compare last year, we were 20% higher cash compared to EBIT for the full year. So I think we have proven that we have that record. And now in the Q1, I would say it was seasonality for the Q1 and the target stands that over time we want to continue to have 100% conversion. Okay. Thanks. And could I follow-up with a slightly different question on savings? They look to me like they're coming in a bit better than we might have thought. Could you perhaps update us on the savings profile and maybe help with the split of these MFP and capacity savings divisionally? The savings do come in very well. And we saw in the quarter we had SEK 60,000,000 from MFP in the quarter and we had SEK80 1,000,000 from other efficiency programs. And the profile is that we will serve SEK150 from the MSPs this year and another SEK50 next year. But it's looking good. And then Divisionally, where does that land? Yes. A lot of the savings come in where we had acquisitions in the last year. So it was Entrance Systems as well as partly in EMEA and some in Elpak. But as Johan mentioned, most of what we do in Elpak, we do outside of the MST. Sorry, just on this. The leanification and the seamless flow stuff, is that in the capacity? Yes. Okay. Thanks. Thank you, James. Next question please. Our next question comes from Mr. Alastair Leslie from SocGen. Please go ahead. Hi, good morning. Just a question and clarification on China. I think you said that was down 10%. I was wondering whether you could just clarify what the underlying market did and how much you perhaps underperformed given, I guess, you said you were still taking a stricter approach in terms of credit with customers. I think you said last quarter it was around about 4 percentage points. So maybe how long you expect that performance to go on for? It's difficult to tell. The Chinese market has been growing year after year for probably 20, 30 years at a high pace. And somewhere you need to reach the ceiling. We can see that concrete consumption is down quite a bit. We see that land that is given for construction is down or residential construction and commercial reconstruction is down. And China is on a sort of investment level much higher than any other market. So I think it's bound to come down. If it's this year or next year or the year before, it's difficult really to tell. But clearly, it's that China is on, in my opinion, a little bit higher level than it's just long term sustainable. So therefore, we have adjusted already since several years back. I think the underlying mark is quite negative. We do not think despite our credit situation that we are losing any share. We are on the other side not taking every order. And the reason for it is of course that we estimate that some customers are not really in a capacity to pay once they have got their installations done. And the reason is construction companies is by definition working on with the capital of the suppliers. And that is a very high risk of course. And so we have to be careful not to go too far out on the risk. And that is what the symptom we see right now that people or our customers are paying us less efficiently than in the past despite our increased efforts to get paid. So there is some cautiousness there. But we are basically not thinking we are losing market share. Thank you. Did you have a follow-up question as well? Our next question comes from Mr. Peter Froeler from Handelsbanken. Please go ahead. Yes. Thank you. You mentioned, Jan, that the comps were easy in both GT and Americas. Could you help us to understand if the demand is sort of flattish sequentially into Q2 in those two areas, what would that mean in terms of organic growth year on year? Our quotes are quite okay. They're just on 10% growing at a 10% pace. So it doesn't look too bad. However, if you look to where the business is taking off when it comes to statistics, we see that on the hospital side, it's quite still negative. On the educational side, it's slightly positive, but not really supporting very strong growth. Commercially, retail is strong and office business are strong, not our main segments. So the market is not yet there. We would like to have it. That's why I'm cautious. I cannot say that every quarter we're going to grow some 8% or something. I've seen that in some of your analysis that you expect that. But I think we should need to be careful because the market is not growing at a very high pace. We are doing quite well in this environment. And the same question for GT please. What to expect in the Q2 if demand is flat given tough comps in Q1? We don't give forecast, but GT is doing okay. But it's very hard to say. You know as well as I do, we have many of these projects coming and going. So it's very, very hard. Underlying business is healthy. And we see also a very strong interest in mobile keys. And so even though we haven't seen so many orders coming in yet, we still see a lot of companies that are very, very attracted by the idea of complementing their keys to mobile keys as well. So there are a number of drivers on the product side that also talks for a good evolution. But again, looking back to the market, I'm cautious in my expectations. I don't think we should be overenthusiastic. It will take some time before this market really bounces up in a strong way at least in my belief. The mix in GT, sorry for a second follow-up. How much is that adverse effect on the profitability? Well, first we have Austin, which I mentioned, we have double lanes. We have quite some people extra still. And hopefully, they believe us now in the Q2. That's one thing. And then also we had quite some we had the lower margin items that grew the most. So there we got a negative mix. This was compensated by hospitality that grew nicely in the quarter. So altogether, we didn't see a negative impact out of it. But of course, we are under that situation. So if you talk about only HID, we had a negative impact from that the mix was not ideal. That's very clear. Thank you, Agit Aglaen. Thank you. Thank you, Peter. Do we have any questions from the floor here, Straker? Okay. Well, let's go back to the telephone conference then. Operator, please. Our next question comes from Mr. Sebastian Groote from Exane. Please go ahead. Hi, good morning. A question on China, Asia Pac. I'm trying to reconcile your comments about strict credit policy in China and the increase in working capital we had in Asia Pac as well as Carolina comments about the number of receivable days impacted by China. Should we expect receivables to come down in China given this stricter policy you put in place? Well, I would say to start with the it's still a tough situation in China. We are still way too high in China than we want to be, but we would have been even higher if we hadn't put this credit quality into place. So we're still not there where we want to be. We will continue to work hard on it and hopefully get improvements. But it will also depend on how the underlying market goes. Okay. And just a follow-up also on Asia Pac. I mean, depreciation and amortization charge has gone up quite a lot in Q1. Is there any impairment of receivables in that number? No. We continue to invest in semi automation, I would say, in China and some in IT. And we continue to buy companies in China. So that's where it comes from. Okay. Thank you. Thank you, Sebastian. We have another question from the telephone conference. We have a follow-up question from Mr. James Moore from Redburn. Please go ahead. Yes. Hi, Vaughan. I just thought I'd follow-up because you mentioned the digital door locks business is doing very well in the U. S. I wondered if you could just help us a little bit in terms of sizing how big that is now? What sort of market share you have with your leadership position? And is the profitability there materially above the group? I'm just trying to think about future mix benefit of this business continuing to grow. We normally never talk about how large it is. It's important, but we should remember it's a starting market. So it's not so that it is significant. But the growth that we have got out of it has been very positive and we see very good signs. We have signed up with several other home automation companies. So it will continue to grow from what we can see. The margin wise, digital door locks is a little bit lower than our average. And the reason for it this is more residential oriented. So and also we don't yet have built the really large volume. But I feel very good about it. I think the digital door locks will not contain lower margins moving forward than our ordinary locks for residential applications. So and also as you probably have noticed, we also acquired DigiLock in China last was it last quarter or quarter before, which is, of course, offering us an even lower cost point. So this looks good from that point of view as well. Thanks. And talking of innovation, could you help us with the innovation ratio? I missed it if you said it earlier, but how does that look? Well, new products turnover is in the quarter 31%. So we have a very high pace on new products. Our aim is to reach 20 5%. We don't want to be too high because then we have to prune so much behind. I think 25% is a healthy level, even though on a temporary basis you can have more. And then we see that our new innovations, they're very popular, at least judging from the shows that we show them for other people. And now we're also moving our ability into the cloud where we're launching a number of cloud services to our customers. So in principle, they can we can get more of recurring revenue in the future than we have today where customers in a way don't really have the hardware. They rent it from us on a monthly basis. Quite an exciting evolution as well, even though it's very early days today. But we have seen in the market there is a strong interest for this. This. Our next question comes from Mr. Jeff Kessler from Imperial Capital. Please go ahead. Thank you. Good morning and thank you for taking my call. I wanted to just follow-up on the question with regarding some of the not just the digital door locks, but the market as digital door locks affects small business and medium sized business, which is so far an area that has not been penetrated that greatly by the digital area. Your competition has introduced some locks that are somewhat replacements and perhaps a migration path from mechanical to digital. And I know that at the last trade show, you were introducing some of the same types of locks. I'm wondering how you see that the small to medium business market fitting into your growth plans and how you plan to also migrate the digital types of locks as replacements for the smallmedium business to allow their migration path to be easier to essentially cut cost and cut time of installation? Well, first, the digital door locks are wireless. So that means that it takes you only a few minutes to change from what you have on your door to something new. So it's a rather simple operation. They operate towards a hub and you can close shows whether you would like to have this as cloud or if you want to have a local maintenance system around it. We have, as you said in the show in the U. S. A, we launched a total solution for small and medium sized companies and also for the multi housing. So this holistic approach with different kinds of locks, depending if it's an interior door, exterior door, fire door, exit door, etcetera. So total comprehensive, including the software, which is a very easy operable software as such. So there is a strong evolution in this direction. If you turn into Europe, this is already the case. In Europe, people already use digital locks to a large extent for this. But they are of an expensive kind. So we think the market will go more into at least in the residential side more into the more simple to install, simple to operate environment. And here we see also an opportunity then for recurring revenue and we see a good opportunity for selling mobile keys because people will look for security, they will look for convenience and they will send the keys to people they like or like to let allow into their houses in a secure and safe way. So we think this will drive some nice sales for us. Okay. As a follow-up, do you think that the channel, the integrators that you use are taking to this and are learning this process fairly easily because of its ease of installation? Or is the software component for them a little tough for them to handle at the moment? Well, I think it's a hurdle to start with. We have numerous training centers. We take our partners in and we train them on actual situation how to do it. And of course, they feel probably a little bit resentful like everybody else. When you get a new computer, you sort of think it should must operate like my old one and it cannot be different. But it is different. So it's a learning curve. But I think our experience is good. We see that people take that to them and they work with it and they start to offer these kind of solutions that for the end users are much better solution than we have seen in the past and also in a way less expensive to operate than we have seen in the past, still maintaining a reasonable margins for us. Okay. Great. Thank you very much. Thank you, Jeff. Do we have any more questions? Operator, please? And there's no questions from the floor here. Then I'll hand over to Johan for some closing remarks. Okay. Thank you very much. Thanks for coming here today. An exciting day for us at Bloy's history in the sense that we did another good quarter, where I feel very proud over with earnings per share improving a whole of 28% and also top line improving by 24%. So thank you.