Good morning everyone and welcome to the presentation of ASSA ABLOY's Q1 report. My name is Björn Tibell , I'm heading investor relations and joining me here in the studio are ASSA ABLOY CEO Nico Delvaux and CFO Erik Pieder. We will now as usual, start with a summary of the report and then we will open up for your questions. We plan to round off in about one hour's time. With that I'd like to hand over to you, Nico.
Thank you, Björn. Also, good morning from my side. Q1 results. We had a good start of the year with a 2% organic growth of the top line and then also good complementary growth again, growth requisitions of net 5% and helped by currency 1%. Top line up 8%. We've seen strong sales growth in global tech, good sales growth in Americas, stable sales in EMEA and entrance systems, and a sales decline in Asia Pacific, mainly because of Greater China, an improved underlying operating margin. Operating margin EBIT was at 14.9% but we had 140 basis point dilution mainly, I would say, from one-off acquisition and divestment related costs. We had a good cash flow, SEK 2.4 billion and a cash conversion of 51%, which is, I think, a good cash flow for seasonally lower Q1.
Also with that remark that we build up inventory in the quarter to anticipate the tariff uncertainty and that of course had an effect on the cash flow. A good quarter when it comes to acquisitions with six acquisitions completed in the quarter. We also launched our MFP10 program where Erik will give more details later in the presentation. In numbers, sales at SEK 38 billion, 8% up. Like I mentioned, 2% organic sales, 5% net acquisition growth and 1% currency, an EBITDA margin at 15.9% and an EBIT margin of 14.9%. EBIT at SEK 5.7 billion, 4% up and earnings per share 3% up. If we look a little bit at the different regions, I would say a very similar situation as previous quarters where in the three main markets we continue to see very good momentum.
On the commercial non-residential side, that's the case in North America, in Europe, and in Oceania. In all three markets we also continue to see challenging market conditions. On the residential side we had a 2% organic growth in North America, good commercial development in North America with mid single-digit growth, but challenging residential conditions with mid single-digit negative growth. It's clear that higher interest rates and also political and economic uncertainty in the U.S. weigh on consumer confidence affecting our residential business. In South America, plus 7%. Good growth, I would say, in all marketing. South America also helped by good price realization. Europe plus 2%, where also commercial, similar picture as in North America, continues to grow on a solid level and where residential in general remains challenging.
Although we see at least some light at the end of the tunnel for residential. We have seen definitely in Sweden things leveling, bottoming out and we start to see an increase in the residential replacement market in Sweden. Sweden was the first one to cut interest rates almost a year ago May last year they have done four, five interest rate cuts in the meantime and that starts to give a positive effect on the market conditions. We believe also that U.K. has bottomed out and we have seen some improvement in the U.K. where obviously South Europe is much later in the cycle when it comes to the residential business. Africa + 8%, Oceania - 1%, Australia same picture as I mentioned for Europe, strong commercial more challenging residential. New Zealand is perhaps a little bit like Sweden.
Also New Zealand, there have been several interest rate cuts already. Also in New Zealand, we see residential coming back. Asia - 6% with a strong India but higher double-digit negative growth again in Greater China, where we have seen market conditions further deteriorating and also forecast on construction site residential in particular. This year is even worse than last year. A couple of highlights, and we have changed here a bit the way we present. We zoom in on two market highlights. The first one is a joint effort between Level Lock and Baldwin. Level Lock is a technology company we acquired in the U.S. making digital connected locks. We sell those locks on the commercial side for light commercial and multi-family applications. We also sell these locks now through the Baldwin channels, bringing digital connected locks into the house.
We can have the same form factor as a mechanical lock now and a fully integrated digital lock that you can put on your office door or your sleeping room door without touching the aesthetics of your inner hardware in the house. Quite excited about this collaboration between Baldwin and Level. Another highlight in entrance systems, we launched our Insight mobile app, giving us the possibility to digitally remote control and access manage our doors. We say in that aspect we are unique as a full solution provider in the sense that we can provide the door, we can also provide the connectivity and the insights through this Insight mobile app. Obviously, we also do service on our doors. Top line again, positive organic growth price and positive volume growth.
Top line up 57% on a 12 month moving trend since 2020, good complementary growth again this quarter from acquisitions, 5% like mentioned earlier, operating margin on 12 month moving trend within the bandwidth. We aim for the 16% and an EBITDA margin on the higher end of that bandwidth at 17%. A good operating profit for a seasonally lower Q1, a bit up 106%. If we compare with 2020, another quarter where we were very active from an acquisition perspective with six acquisitions completed in the quarter, they represent an annualized sales of around SEK 3.6 billion and then we also divested in the quarter most of the Citizen ID business and we also booked divestment loss of SEK 50 million for that divestment.
We still have a very small part of Citizen ID in the U.S., the Green Card business, where we are still waiting for approval from the local authorities to also divest that part. Some highlights, InVue, a U.S.-based provider of precision engineered connected asset protection and access control solutions, really adding complementary products and solutions to our core business. A very nice new vertical in global solutions. Quite excited about this acquisition. They had sales of SEK 1.9 billion last year. And then Uhlmann & Zacher , a German supplier of access control handles, knobs, and corresponding software, adding complementary products and solutions to our core electromechanical business and increasing in a significant way our electromechanical presence in Germany. They fall under the EMEA division, and they had sales of SEK 240 million last year. If we then zoom in on the different divisions, starting with EMEA.
EMEA had a stable organic sales development in the quarter with strong sales growth in Central Europe and the Nordics, Sweden and Finland in particular, a stable sales growth in the U.K. and Ireland, but then sales decline in South Europe and in the Middle East, India and Africa region mainly because of the Middle East. An operating margin of 13.8%, 10 basis points better than last year. Very good strong operating leverage of 60 basis points due to positive mix, in a sense more Nordics and less South Europe. Good strong price realization and also good operational efficiencies. FX was dilutive 30 basis points and M&A dilutive 20 basis points. Good start of the year for EMEA. Americas had an organic sales growth of plus 2% with strong sales growth in Latin America and in North America non-residential segment, but a sales decline in the North America residential segment.
As mentioned earlier, an operating margin of 17.1% with a slightly negative operating leverage mainly due to continued investments in R&D and sales and also due to the negative volumes we had on the North American residential segment side, held by FX 30 basis points, and then strong dilution from M&A, 110 basis points. That's the Level Lock acquisition, integration cost around that acquisition, and also investments in R&D where we are finalizing a couple of new product launches. That dilution will continue in Q2 and then should more normalize towards the second half of the year. If we then go to Opening Solutions, Asia Pacific, an organic sales decline of 5% with stable sales growth in Pacific Northeast Asia, that subdivision, but then significant sales declining Greater China, Southeast Asia subdivision.
An operating margin of 4.1% with a negative operating leverage of 50 basis points. It is clear that the strong double-digit volume declining in Greater China at the moment becomes difficult to compensate through cost cutting for that decline in the top line. That is what we have seen in the operating margin. FX was also diluted 50 basis points mainly because of the weaker Australian dollar and we have not done any M&A since several quarters in that division. Global Tech strong start of the year and organic sales growth of plus 8% with very strong sales growth in global solutions in most if not all different verticals. Also strong sales growth in HID, an operating margin of 13.7% but underlying a very strong operating margin with a very good operating leverage of 100 basis points. Good strong price realization. Good realization of operational efficiencies.
FX up to 10 basis points but strong dilution of M&A 280 basis points. That's because of the SEK 50 million capital loss for the divestment of Citizen ID and then one-off acquisition and integration costs mainly related to InVue. Underlying, I think very strong performance of Global Technologies and last but not least Entrance Systems. A flat organic sales development with very strong sales growth in perimeter security. Good sales growth in pedestrian, stable sales in doors and automation. That's the new name for our residential segment. We changed the name because we believe that doors and automation covers better what we do in that segment. We don't only sell residential garage doors, we also sell operators. We do gate operators and we automate all the doors.
A sales decline in industrial and then a good but lower sales growth for service in the quarter. An operating margin of 16.8%. Also here very good operating leverage, 140 basis points accretive driven by positive mix, price, cost, and also here very good operational efficiencies. FX helped us 30 basis points but then strong dilution from NA, 190 basis points. SKIDATA, as you know, SKIDATA is very seasonal. The first quarter is always much lower, top line wise. As a matter of fact, we made a loss for SKIDATA in the quarter. As the year evolves, the top line will seasonally improve and also the bottom line will then significantly improve. With that, I give the word to Erik for some more details on the financial numbers.
Thank you Nico. Also a very good morning from my side. You've heard before that the sales was up with 8% of which 2% is related to organic growth. Operating income in value was up with 4%. EBIT margin as also mentioned before was down with 50 basis points and as also said is that it was mainly related to acquisitions, integration, cost and so forth like that. Income before tax, net income and EPS were all up 3% versus last year. Operating cash flow at SEK 2.4 billion is minus 22% versus I would say a strong quarter last year. This year I mean the cash conversion was at 51% which is good. Also of course it is impacted by that we have increased our inventory, let's say ahead of the tariffs. Finally on this slide, return on capital employed ended on 14.2%.
It's 40 basis points lower than the same period last year. Of course we have been quite active on the acquisition front. If we then look on the bridge, the 2% organic can be split in, I would say, a strong 1% on price and then about, I would say, a low one on volume. There was volume growth in the quarter. You see a very good organic flow through of 60%, 70 basis points accretion to the result there. We have had good help from price mix, operational efficiencies. We had in the quarter positive savings coming out of the MFP programs of slightly below SEK 200 million, currency slightly positive on 20 basis points. We have the acquisition column which in total sort of had a dilutive effect of 140 basis points.
Of this, roughly 70 basis points come from SKIDATA, which as mentioned before, by Nico, it's predominantly seasonal. Level Lock, as mentioned also before, it's a lot of investments into R&D. We then have about 30 basis points which comes from acquisition and integration costs. That one is mainly related to InVue. I should also sort of mention that InVue is also seasonal, which means that they have a lower Q1, but then Q2 and Q3 are much stronger quarters for them. Finally, on the acquisition, we also had the SEK 50 million that we booked in divestment loss for Citizen ID. As mentioned by Nico, we have sold the international part. The American part is something that will come in the quarters to come, and that will also generate roughly the same loss as what we saw from the international part.
Cost breakdown. Direct material positive with 150 basis points. Out of that, 50 is related to a positive mix, which leaves 100 basis points, which is, if I count, the true tailwind then from price versus cost. Conversion cost is flat versus the same period last year. There we have been able to offset inflation, higher wage cost, etc., with operational efficiencies. I mentioned sort of the impact of MFP before, the roughly slightly below SEK 200 million. SG&A is dilutive with 60 basis points. There we have not been able to offset, let's say, inflation and investments in sales organization with efficiency measures. We now launched in Q1 the 10th Manufacturing Footprint Program. It looks a lot like the programs we have seen before. In total, it is about 60 projects. The restructuring cost is slightly higher than the MFP9. We ended up on above SEK 1.3 billion.
The savings from the program by end of 2027 is estimated to be around SEK 1 billion. The payback time is fast. It is slightly below two years. If we look for this year total MFP savings that comes from the 8, 9 and 10 programs, we estimate the effect for 2025 to be around SEK 800 million. Operating cash flow as mentioned before SEK 2.4 billion, 22% lower than a seasonally strong quarter last year. Cash conversion 51%. Here we had sort of. We sort of had an increase in our inventory ahead of the tariffs. You also have on CapEx that last year we sold some buildings in APAC. This year we have invested predominantly in some buildings in global tech and that also has an impact on the cash flow.
If you look on the gearing and the net debt, net debt to EBITDA is at the same as last year at 2.4. Net debt to equity is slightly higher than that, 70%. If you look in total value versus December, our total debt is up with SEK 1.1 billion. We have been rather active I would say on the acquisition front, which has a negative impact. We have also had some help almost offsetting it by the currencies. All in all I think we have continued to have a very strong balance sheet position and can continue our acquisition strategy also going forward. Last from me is then the earnings per share as mentioned before, up 3% versus the same period last year. With that I hand back to Nico for some concluding remarks.
A summary I think was a good start of the year with a strong top line growth of 8%, 2% organic, 5% net acquisition, 1% currency, a good underlying operating margin, but an operating margin that was affected by 140 basis points mainly because of temporary one off M&A related costs. Operating margin of 14.9%. We launched our MFP10 Manufacturing Footprint Program with savings of SEK 1 billion. The best payback we have had on MFP programs so far, a solid but seasonally lower operating cash flow. It is clear that we continue to operate in challenging and mainly also uncertain market conditions as well economically as politically. It is not so easy to navigate in those market conditions.
Again, here having our decentralized organization where we can anticipate local changes through the local teams and empower those local teams has proven to be a good setup and we are confident that that setup also will help us to navigate through the market conditions that we experience today. Last but not least, we will also have this year Capital Markets Day on November 19th and we will have that Capital Markets Day this year in the U.S. and you have the link there where you can register yourself. With that I give the word back to Björn for Q and A.
Thank you, Nico. That means it's time to open up for Q and A. As usual, can I just remind you to limit yourself to one question and a follow up each so we can get through the list of questions. With that, it means that we're ready to kick off the Q and A session. Please go ahead.
Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press Star and two. Questioners on the phone are requested to disable the loudspeaker mode while asking a question. Anyone who has a question may press star and one at this time. The first question comes from Midha Vivek, Citi . Please go ahead.
Thank you very much everyone and good morning. My question is around price costs. Given the tariffs uncertainty, if you really help us understand what actions you've been taking around tariffs and what steps you've been taking around pricing and so on and how you expect this to evolve over the course of the year. Thank you.
Yeah, perhaps it's a question about price and question about tariffs and I assume that the question about tariffs will come again. Perhaps I give a little bit more elaborate answer. Also on the tariff side. If we exclude tariffs, what we have said always is that we have the ambition to increase prices between 1% and 2% this year. We have said this 1.5% is a good guideline. That was without tariffs. Then obviously tariffs change things in a very important way. The challenge with the tariffs is a little bit that, you know, it changes every day. It is very difficult to give guidance on price because obviously we have the ambition to compensate tariffs through price increases.
The answer I can give is only the answer as it is today, as the tariffs stand today, or stand this morning, because perhaps they change this afternoon. If we take the tariffs like they are today, with 10% with the steel, aluminum and then 145% on China, if you look at our U.S. business, we produce around 70% of what we sell in the U.S. we produce in the U.S., then close to 15%. We produce in North America, a little bit in Canada, a couple of percent, but mainly in Mexico, a bit above 10%, and then the other 15% or so we buy from other places in the world, mainly from China. What we buy from China is around 10%. All the other markets are in that below 1% or around that 1% range.
There is no real older market that sticks out in a very significant way. If you take all the normal tariffs, we have covered through price increases, then obviously China is a little bit different. If you have tariffs of 145%, you can say it's a tariff or it's almost an embargo. You could say so also with 145%, we will increase prices, but prices will have to increase in a very significant way. Good news is that if you look what we do in China, most of our competitors are in a similar situation. Overall, it does not give us a competitive advantage or disadvantage. Overall, everybody will try to increase significantly the prices. If tariffs would stay at 145%. You have also heard Mr. Trump saying that he is very confident that the tariffs will go down significantly.
We will see what happens going forward. In the meantime, obviously we are also looking in other places to produce than China and have at least redundancy in place for what we do in China if possible, because we also believe long term that redundancy is a good thing. With the percentage I gave, you can calculate a little bit yourself. If tariffs would be like they are today, and obviously the 145% of China is an important contributor there, but also an important if we would have to increase prices around 10% to fully compensate for tariffs and keep the margins in the U.S., the 10% price increase in the U.S.
That's really helpful, thank you. If I may have a follow-up, could you please give us an indication of how April has started in terms of daily sales? That would be very helpful, thank you.
I would say February was a little bit better than January, although January and February are holiday months so it's a bit difficult. February, March, and also now beginning of April have been very, very similar from a percentage growth versus last year if you correct for working days. February, March, April are a bit better than January, but February, March, April are very similar.
Very helpful, thank you very much.
The next question comes from Andre Kukhnin. Please go ahead.
Hi, good morning. Thanks for taking my question. It's Andre from UBS. Can I just follow up on tariffs first before asking the question? For China, have you started raising the prices now in response to 145% or are you waiting for the end of talks and final resolution?
It is not the same answer for everything. There are three things. Yes, we have increased prices already before the 145% because obviously the 145% did not come immediately. We have raised partly the prices to compensate. Then on some of the products we have raised the price significantly, and we have also given notice that new price increases will come into place depending on the product next month or the month after, under that footnote that those prices will come into force. If the 145% remains as a tariff percentage, obviously, then tariffs would go down in the coming months, and we will adjust price increases to whatever the new tariff level might be.
Got it, got it. Thank you. If I may ask a question on global technologies margin, obviously quite heavy M&A dilution in there and the capital loss as well, how do you expect that to kind of roll out through the year? Do we come back to prior year levels in the second half of the year, subject to obviously no demand shock, or is there anything else there that could be holding it back?
Specifically for global tech we had of course a SEK 50 million Citizen ID divestment. That's one off. Like Erik mentioned, if and when we would close the remaining part, meaning the Green Card business in the U.S., there is the possibility that we will have to book another SEK 50 million loss when that happens, but it would also be one off. The other part of the dilution is mainly InVue related, and that's also one off. What you see today in the numbers is fully only Q1 and should not have an effect in Q2 and going forward, with that footnote that the day that we sell the remaining part of the Citizen ID business, most probably it will be another around SEK 50 million one off cost for that Citizen ID remaining part.
Got it. Thank you.
The next question comes from Gael de-Bray from Deutsche Bank. Please go ahead.
Oh, good morning everybody. My first question relates to the targeted 16-17% margin and your confidence around that. I mean, over the past seven years you've been in the range only one year and I appreciate it was last year, so it's rather fresh. With Q1 now looking obviously weak because of M&A dilution and with tariffs creating additional headwinds, at least for the upcoming quarter, do you still see the 16-17% range as a good guide for the year or could it make sense to lower the bar or perhaps switch to an EBITDA margin range? Thank you.
It's good that you mentioned also the EBITDA range because you know that there is more than 100%, 100 basis points, sorry, difference between the two and us reporting always EBIT perhaps not always give us the clear picture versus other companies that report other profit numbers. I think it's good to look at both. We reconfirmed that we are very convinced that over a business cycle we can have our EBIT margin within that 16-17% bandwidth. Again, if you take the last 12 months, we are at 16% despite strong dilution from the acquisition of SKIDATA, despite still stronger dilution also from the HHI acquisition and despite all the, I would say above 100 basis point dilution in Q1 one off dilution from acquisition related costs and divestment costs.
We are very confident that over the business cycle we will be in that 16%-17% bandwidth.
Over the business cycle. Is this also applicable for this year with the tariff situation?
I don't know what the tariff situation is going to be, but I would say if you exclude the 145% of China and if I exclude, I mean if tariffs on China would be on a more normal level because obviously under 45%, again it's not a tariff, it's almost an embargo. If China would be on normal tariffs, what they were talking about at the initial phase, we are confident that price versus tariffs could give us even a slight accretion of the margin because we will be able to compensate through cost savings to resourcing, renegotiation, and price increases to compensate, perhaps slightly overcompensate, for that cost.
Tariff cost versus price obviously if the 145% in China would remain then it's a bit like when we had the steel inflation a couple of years ago where steel went up in the U.S. 200% and then you see that yes over time you can compensate for it but you lack a bit price versus cost. That would definitely be the case also with China if the 145% would remain because then we will have to resource in a more aggressive or relocate in a more aggressive way things from China to other places and it obviously takes some time to do so. That's not something you can do overnight. Let's be confident on the words that Mr. Trump said I think this morning or yesterday evening that they are discussing with China on much lower tariffs that would definitely help the situation.
Okay, thank you very much.
Next question comes from Featherstone George from Barclays, please go ahead.
Hi, morning everyone. Thanks for taking the questions. I've got one question and then maybe a follow up on the tariff. Sorry to labor the point on entrance systems. In the previous quarter you talked about some optimism on orders growth for the business and how that might come through in the second half. Can you maybe help us understand how ordering activity has been through the quarter for entrance systems? And then on tariffs, is it better to think of them perhaps as a surcharge pricing at this stage? Appreciate there's a lot of volatility around the directions. The sort of system is quite fluid at the minute.
Is it potentially the case that you might raise prices and then unwind them over time, or do you expect to just retain the price at a certain level when you eventually implement them? Thank you.
Take the first question first on entrance systems. As you know, we don't comment on orders, but if you take the four different segments in entrance systems, starting with perimeter security, we had a very strong Q1. We continue to see very good momentum, and there perhaps also the tariffs are helping us in a sense that some of our competitors have more tariff challenges than us, producing everything in the U.S.. The drive for security and also the higher steel prices help us for perimeter security. We are confident on market conditions for perimeter security. I think pedestrian has been growing on that mid single digit level since many quarters now. We still continue to see good momentum, so we are also positive on pedestrian.
If you take industrial, you know that it was very much affected by the logistic warehouse vertical where indeed after COVID everybody was building warehouses like mushrooms because we all wanted to have in home deliveries. At a certain moment they realized they overbuilt and they took a pause for 12-18 months. That pause is over. Now we have seen good momentum again, we see good activity. Also quoting activity on the logistic vertical and we are confident that our sales will improve or recover in the second half of the year because lead times for loading docks are the longest that we have in the group and then last but doors and automation.
The new residential or the name for the new residential segment there of course it all goes to residential houses, garage residential houses. There we are still very much affected by the low market activities on the residential side as well for new builders, for R and R linked to the high interest rates which are not going to come down in the short term probably and also the consumer confidence that is not on a high level today. The residential part will remain challenging, with that footnote that of course the comparison quarter after quarter becomes easier. On the second question on the tariff compensation through price, at the beginning stage of the tariffs and also the normal inflationary pressure at the beginning of the year, those price increases have been implemented through price increases, so increasing list price, increasing net prices.
These are price increases that are there to stay. It's clear that for China where you talk about 145% that cannot be a price increase that is there to stay. If tomorrow the 145% will be, I'm just saying something, 20% or 30%. That is more a temporary price increase. If you want to call it a surcharge, yes, you can call it a surcharge which hopefully will go away as Mr. Trump and Mr. Xi agree on lower or perhaps no tariffs. We always have, with the exception of that very high tariff for China, all the rest we have always the ambition to make it permanent price increases through the list price increases or net price increases because that makes it obviously much more sticky.
Okay, thank you very much.
The next question comes from Maidi Rizk from Jefferies. Please go ahead.
Yes, good morning. Thanks for taking the questions. I'll stick to two. The first one is you said that you started to raise prices in advance of the tariffs but also sent notification to customers. Have you seen any sort of pre-buy in your Americas growth so far and perhaps can you comment on the specification business in the U.S.? We've seen some pretty bad ABI prints. Whether this weak high interest rates, weak consumer data is actually affecting your commercial business. If you see that in your specs. Business, I'll start here.
Contradict myself because I say we don't talk about orders, but for sure we have seen some pre-ordering in March ahead of the more extreme tariffs because obviously what we have done is similar like a lot of other people have done. We have brought more inventory in from China to the U.S. to cover at least some period where then people will negotiate on the tariffs. There we have seen some pre-ordering but that has not been translated significantly in, say, pre-sales. That pre-ordering should translate in sales now in Q2. No significant effect in Q1 when it comes to specifications. On Group level, specifications were up high single digit with a good double digit growth as well in EMEA, higher single digit growth in Oceania, but a slight single digit negative growth in the U.S.
If you zoom in in the U.S. on the different verticals, the slight negative growth was mainly because of negative growth on the education vertical K-12 and universities, which we believe is just a one quarter timing effect because obviously education K12 universities continues to be very strong. We are not so concerned or not so concerned yet on our specification development.
Very helpful. The second one is just if you could give us a summary of the M&A dilution. We had 140 basis points in Q1. SKIDATA and InVue from the sound of it looks quite seasonal. Level Lock, you're doing some investments. Can you just give us a sense of how we should think about the M&A dilution for these three businesses sort of Q2 and the rest of the year? Thanks.
I think the dilution was 140 basis points in Q1. I would say more than 100 basis points is one off. We should not see that coming back in Q2 and the coming quarter. As of Q2, dilution should be more in line with normal dilution that we experience in normal quarters for acquisitions. Level Lock is a good profitable business with margins in line with global tech. Sorry, InVue with global tech margins. Which one is that?
You said Level Lock.
[Crosstalk] And then SKIDATA. Like we said, we bought them with a margin around 4%. Very seasonal. We made a loss in SKIDATA in Q1 and then margins improve. Q2, Q3, Q4.
Seasonal Q1 is always low for SKIDATA, top line wise because obviously they sell to ski resorts and in Q1 they want people to ski and use the ski lift and so on rather than doing repairs or upgrades or maintenance. You see also on the parking side that often it is yearly budget related initiatives where a lot of the budget is spent in Q3 and Q4. That is the reason why SKIDATA is more seasonally lower in Q1. Like I mentioned, the only one that will continue to have a strong dilution in Q2 is Level Lock because there we continue to invest in R&D because we have several projects that we want to bring to the market. In the second half of the year that dilution of Level Lock should also level more out as we progress in the year.
Perfect. Thank you very much.
The next question comes from James Moore from Redburn Atlantic. Please go ahead.
Yes. Hi everybody. Good morning. Thank you for the time. I wondered if I could get back to the tariffs Nico, and just ask what percentage of your Mexico Canada imports are USMCA compliant? Are they all zero tariff?
Apart from a very, very small exception, they are all compliant. We favor from, let's say, the North America agreement for all our business for Mexico and Canada. Yes.
On the China 10%, how much of that can you reroute or substitute would you say?
It's an ongoing progress. First of all, in China we have also some of it that falls under the chip exemptions, so where we don't have the tariffs, and then obviously we already started relocating production or at least have double production for part of what we do in China. Obviously, we never had expected it to be 145% tariffs because if you have tariffs on a more normal level, China, even with tariffs in the 10%-20%-30% range, would still have been the best place to produce because for some things China is simply much more cheaper or lower cost than any other country in the world. Now with 145%, of course we have a wider family of products that we are looking to at least have a second source where we produce.
The challenge there is that it takes longer for some products we have. I was just saying something, die casting molds. If you want to produce them in a different place, you have to first build the molds and then test the molds and then start up production. That's not something that you can do in a couple of weeks. There you talk more about several quarters. That's things that we have started because again even if tomorrow tariffs would become lower or go away, we still believe that it's good to have a second alternative to China production going forward. That's things we are working on for the future.
Finally, if I could just, away from the softer U.S. residential market, have you noticed any change in demand last week, first full week of tariffs on the U.S. commercial side? Have you seen any kind of step down or is demand broadly unchanged on that shift?
No, we haven't seen any significant, any significant change on the non-residential side. Like I also said before, we haven't seen any increase or slowdown of our activity in the first weeks of April as compared to February or March.
Thank you very much.
The next question comes from Alexander Virgo from Bank of America. Please go ahead.
Yeah, thanks. Morning Nico. I wondered if you could just go through a little bit on global tech. Starting to show some meaningful recovery, albeit you've got pretty easy comps in the first half. I wondered if you could just give us a sense of how you think that business shapes up through the balance of the year and into next and as we start to look at a more normal environment for them, obviously tariffs notwithstanding. Thank you.
Perhaps I can give a little bit color on the two sub divisions. If you take global solutions, they have, what is it, six or seven verticals. Look at all the verticals. They have been growing close to double digit or double digit for I would say the last two years or even a bit longer with the exception of our self storage vertical. That is a U.S. business. And you know, self storage in the U.S. as you know is also very linked to people moving houses and as people don't move houses, that's a more challenging vertical. But that's a relative small vertical. Like I said, all the other verticals are performing on a very high level, going from hospitality to marine to key asset managed, critical infrastructure, you name it.
On the HID side with the divestment of Citizen ID, now we have also more balanced portfolio and the main contributor is of course specs, card readers, controllers, and what is important for HID in general and for, in particular is mobility. People have to move, people have to go on vacation, people have to go to hotels, people have to go to government places, to offices. Mobility is good in the world, mobility is good in the U.S., so it's good for our HID business as well.
Okay, thank you.
The next question comes from Andreas Koski, BNP Paribas. Please go ahead.
Thank you very much. Most of my questions have already been asked but we have seen a very strong Swedish krona in recent weeks or in recent months and that will have a meaningful impact on your business. Are you planning to take any actions to try to mitigate the negative effects? Thank you.
I mean first of all, as you saw on the slide there. We expect then for Q2 then to have a negative impact, let's say on the translation part of roughly 5% in Q2. We are not sort of doing any, let's say specific actions, I mean related to that. As you know, we don't do any hedging or anything. I mean it's probably the answer to the question is no.
Yep. Okay, thank you. The second question on your balance sheet, you're now at the net debt to EBITDA of 2.4% and you've been at about that level for, yeah, for more than a year now. Should we think about that as a new normal because you will continue to make acquisitions which I guess will keep up the net debt for a long time or are you going to pay the debt down?
I mean I think that this, we have had a period here where we have been very active on the acquisition front and that is sort of what has had an impact then on the net debt to EBITDA. I mean it's normally, I mean we always, with the cash that we generate, we always, if we don't have anything, let's say to acquire, then we try to pay the net debt down in order then to reduce then from the 2.4% down to let's say, I mean down to almost down to 2%. It is pending a lot on the acquisitions. As said, we have been very active. It is a question if we're going to be this active then for the remaining of the year. If not, of course you will see sort of a net debt to EBITDA reduction then for the year to come.
If you look historically, I mean we have been, I would say around two and that's something that I would say would be more in the normalized situation 2.0.
Perfect. Thank you very much.
As a reminder, if you wish to ask a question, please press star. One next question comes from Gustaf Schwerin from Handelsbanken. Please go ahead.
Yes, morning questions. Can I ask a follow up on the North America non- resi momentum? We've discussed a little previously but I mean ABI doesn't really seem to have much of an effect on your growth anymore. You mentioned things like data centers offsetting previously. How have you seen that pipeline developing over the past quarter? Is there anything you want to call out on the other verticals other than what you mentioned on the specification business? Lastly, how long do you think that this momentum will keep up? Thank you.
If you look at the different verticals, like we mentioned earlier, the two more important or the biggest verticals for us in America is education. Yes, the specification business as I mentioned in Q1 was a bit weaker, but we do not read anything into this. We still see good strong momentum on the education vertical. Second important vertical is everything what is healthcare related there. We have seen good specification development also in Q1, we also see good momentum. So those two core verticals we are very positive about. It is true that data centers, if you go two years back, it was a very small vertical. It is growing in importance, I would say, in a significant way as we move on. It is by far the fastest growing vertical for us not only in North America, but also in many other places around the world.
It is a good extra contributor to the non-residential growth in that aspect that it really starts to move the needle. From an organic growth perspective, we are very widespread. We have no vertical where we are exposed double digit. All of the exposures are single digit, with the two verticals I mentioned earlier as the two most important ones. I can only say that we are still very confident on the non-residential side, especially everything that is institutional. We still see very strong momentum.
Just follow up. If you look at the residential business in North America, roughly how much was down in the quarter?
Like we mentioned earlier, it was down mid single digit compared to same quarter a year ago.
Perfect. Thank you.
I think we have time for one more question. Operator.
We have a follow up question from Andre Kukhnin, UBS. Please go ahead.
Hi, thanks so much for taking my follow up. I just wanted to go back to SKIDATA and could you talk us through again and what you think is the kind of right margin entitlement for this business? Once you've done the full integration and implemented all the manufacturing excellence and other initiatives, how would that stand versus the 16-17% group target please?
Yeah, like we mentioned earlier, I think SKIDATA being in what they do, one of the market leaders in their field having also strong aftermarket revenue and strong recurring revenue, we are convinced that we should be able to increase at least with 10% their bottom line. If they were at 4%, at 14% I think is a good first ambition and obviously at the price we were able to buy SKIDATA, if you can bring it from 4% to 14% it would be fantastic value creator. Can we then bring it to 16-17%, the bandwidth we aim for? Let's see. Let's first work hard on making that significant improvement I just talked about.
Absolutely. Thank you.
Thank you. That means it's time for us to round off this conference. If there are any follow up questions, please reach out to Isabelle or myself at investor relations. That means it only remains for the three of us to thank you for your participation and interest. We know that we will meet many of you in the coming weeks. We look forward to that and thank you for today.
Thank you.
Thank you.