Earnings Call: Q1 2021

Apr 28, 2021

Good morning, and welcome to the presentation of Assa Abloy's First Interim Report in 2021. My name is Bjorn Tibell. I'm heading Investor Relations. And joining me on the call is our CEO, CEO, Nico Del Voh and our CFO, Erik Peter. We have set aside about 1 hour for this conference And we will now start with a summary of the report before we open up for questions and answers. So So with that, I would like to hand over to you, Nico. Please go ahead. Thank you, Bjorn, and also good morning from my side. Q1 results, I think a good start of the year. As you know, it took a worldwide pandemic to kill our, I would say very long standing track record of 27 consecutive quarters with positive organic growth. And then we had a difficult 2020 where we had 4 quarters with negative organic growth. So very happy to be back to good Organic growth in Q1 and organic growth of 4%, complemented with good growth through acquisitions, Net also of 4%. And then I believe very good operational execution, I would say despite operational challenges with further increasing material prices with Electronic shortages and also still with a lot of disturbance of COVID-nineteen related issues with Being at home in quarantine or at home with COVID-nineteen. But good operation execution leading to a strong improvement of the EBIT margin with an 80% volume leverage. And then also very strong cash flow, up 118% versus a year ago. In figures, sales of almost SEK 22,000,000,000, 2% lower than last year. We were 4% organic growth, 4% net Growth to acquisitions, but a strong headwind of currency, minus 10%. An EBITDA margin of 15.3% versus 13% last year and an EBIT margin of 14.6 Versus 12.4 percent a year ago. EBIT up 16%, almost SEK 3,200,000,000 And earnings per share up 21%. If we then come a little bit on the different regions, starting with North America, A solid performance in North America with a 2% positive organic growth. We have seen a very strong Development on the residential side as well for the Americas division, we have seen very high double digit growth for mechanical residential And also for smart residential, but also on the entrance system side where we have also seen double digit growth for our Residential garage door business. We have seen also on the commercial side a sequential improvement Over the quarter. So that positive trend from Q4 now further continued in Q1 in the sense that February was better than January, March was better than February. And that now also continues going into the 1st weeks of April. And our commercial business was only down mid single digit in North America. Then South America, very strong performance with a growth of 21%, with double digit growth in all South American markets. And I would say the highlight, Brazil, a little bit perhaps despite what you would expect with the COVID-nineteen crisis In that country, but it's a good performance in South America, good momentum. If we then go to Europe Plus 4, organic growth, you could say that, yes, better on the residential side than on the commercial side And better in those markets that were hit last year more by COVID-nineteen and weaker in those markets that were less affected. So better growth in countries like Spain, France, U. K. And then lower positive development in markets like the DACH region and Scandinavia. But also in Europe, we have seen a slight sequential improvement throughout the quarter and that continues now also at the beginning of April. Africa, Middle East plus 2% and Oceania minus 2% against a difficult comparison. And in Australia, same picture that residential much stronger than commercial. But with the minus 2, I would say that the underlying business is still Yes, very positive if we compensate for the difficult comparison. And then strong Plus 16% growth in Asia, of course, compared to an easy quarter a year ago because In Q1 last year, of course, China was already hit very much by corona, as it was called at the beginning of the crisis. But nevertheless, we had seen around 57% growth in China. So we overcompensated for what we lost last year. So total plus 4, emerging markets plus 10. So that's perhaps also a bit more the picture we'd like to see going forward in the sense that we would like to grow faster in emerging markets than in mature markets. The market highlights also this quarter, several important big project wins, several larger distribution center orders in Europe and in North America. And that's also one of the important drivers for the 11% organic growth that we see in Entrance Systems. We see that logistic warehouse vertical really growing high double digit. Our strategy in China focusing on different verticals also continues to pay off with several nice new orders for metro stations. And then we got also an important context for critical infrastructure in the electricity vertical in the Middle East. We have been also very active on the R and D side with several new product launches, a facial recognition solution for construction sites in the Construction Product Cleaning Global Solutions and then a complete new design for customization product range in Amtech where you really then Individually, you can personalize the Amtech door handle range to specific individual end customer needs. And then it's the CEO's Essential, a new single application credential solution. And our R and D efforts continue to be rewarded by several awards. We got a Red Dot award for The new interior door operator developed by Entrance Systems as W60. And we are also recognized as a leader in the Gartner Magic Quadrant for HID Indoor Location Services. So back to positive organic growth, plus 4%, strong complement by growth through acquisitions of another 4 Percent. So really bouncing forward and reaccelerating again. Also, operating Arjun, turning in the right direction upside. Again, I'm going back towards that 16% to 17% bandwidth where we are now at the run rate 12 months of 14.2 percent, but where we are very good quarter, if you exclude acquisitions at 15%. So higher top line, better margin, therefore also better operating profit, 16% up versus the same quarter A year ago. And then perhaps a smaller quarter when it comes to acquisitions, only 3 acquisitions with SEK 200,000,000 And then last, sales, just to mention, the Technologies Solutions, a UK based Our advisory hand held a reader company of around SEK 30,000,000 will be accretive to EPS as of the start. If we can go into the different divisions, starting with EMEA, as we call it now, as a matter of fact, we moved the responsibility For India from APAC to EMEA, as of the beginning of the year, strong organic sales of plus 5% With very strong sales growth in UK, France, East Europe, Middle East and Africa, but sales decline in Scandinavia. And then a good operating margin of 14.9% versus 12% last year with very strong volume leverage, 220 basis points, I would say despite the negative mix, in a sense, less North Europe and more South Europe, more residential and less commercial And also despite a strong material headwind where we see material indexes further going up, inflating And where we also see higher costs for electronic components. But the continued efforts in operational efficiency And the continued savings really paid off, giving that 14.9% operating margin. We were held by FX 80 basis points And the 10 basis point dilution in M and A comes from the move from India from APAC to EMEA. When I go to Americas, I think a very strong performance in the quarter with an organic sales of 0% growth Against a normal quarter last year, a quarter prior to COVID-nineteen because COVID-nineteen only started to hit Americas as of Q2. And as a matter of fact, Q1 last year was a strong quarter on top of a strong quarter in 2019. So very strong sales growth in U. S. Smart Residential and U. S. Residential and, like I mentioned, in Latin America. And then mid single digit negative growth on the commercial side. Very good operating margin, 20.7 percent versus 19.9% last year. We have strong volume leverage of 80 basis points. Also here, despite the negative mix because also here, more South America and more residential and less commercial means negative mix. And also here, very strong material headwind where we see all materials, copper, zinc, nickel, aluminum, you name it further going up, Where, of course, steel is the most extreme. As a matter of fact, indexes for steel Today, 100% up compared to a year ago. We've obviously tried to mitigate that with Strong repetitive pricing cases and also with price surcharges. FX was helping us 10 basis points and then M and A, 10 basis points dilution. We'll then go to Asia Pacific, strong organic sales of 23%, but again, compared to an easy quarter last year. Very strong sales growth in China, South Korea and Southeast Asia and then sales declining in Pacific against a difficult comparison. An operating margin of 4.4% versus minus 9.6% last year with very strong leverage, 1330 basis points. And also, a negative mix in a sense, if you have more China, less Southeast Asia and less Pacific, it's a negative mix. And by FX and then the positive on M and A is mainly the shifts from India, from Asia Pacific to EMEA. Then we go to the Global division, starting with Global Technologies, an organic sales decline of, I would say, only 9%, We have good sales growth in secure issuance, but negative growth in all other business areas in HID and significant sales declines Global Solutions where the hospitality vertical and the marine vertical, the cruise ships continue to have a difficult time. But despite the 9% organic sales decline and operating margin at par with last year at 14.3%, We have good volume leverage of 90 basis points, a strong negative currency effect of 70 bps And they've been hit most by currency. And then also M and A dilutive with 20 basis points. And then last but not least, Entrance Systems also very strong performance in the quarter with an organic sales of plus 11%. Very strong growth in perimeter security, high double digit growth where that segment really continues quarter after quarter to Excel and then also double digits in growth in residential, but also strong high double digits In industrial and good growth also in pedestrian, good growth on equipment side, also high single digit growth on the service side, giving us an operating margin of 14.6% versus 12.2% last year. I think Extremely good result if we take into account that we have 130 basis point dilution from the Agta Recorder acquisition still. I think integration is also going faster and where we are realizing synergy is also faster than anticipated. So Very happy with the way that acquisition is going and then halved by FX 50 basis points. And with that, I give the word to Erik, our CFO, who will then dig a little bit deeper into the figures. Thank you, Nico, and good morning, everybody. As alluded to, as mentioned by Nico, our sales was down with 2% mainly related to the currencies. But despite this, we were able to improve the operating income by 16% And ended up with almost SEK 3,200,000,000. The margin improved from SEK 12.4 billion to SEK 14.6 If you look on the income before taxes, it went up even more with 21%. And the reason for this is that we had lower interest Straight. But also we were helped a bit by the improvement of the Swedish currency. The cash flow ended up at 2,600,000,000, 118 percent and this is a record for a Q1 for the Group. This is very much driven by increased earnings as well as good performance when it comes to our working capital. Return on capital employed, now we calculate this. We show it then on a 12 month rolling basis. It's down with 2 points to 13%, which comes from during the period we have had lower earnings as well as we have increased our capital employed. If we move to the next slide, if you look on the bridge, the organic growth of 4% there, we almost had a 3% volume leverage. And as alluded to before by Nico, the material Prices has also meant that we have increased our prices, so the price component is almost 1.5%. We have good operational efficiency. If you look on the organic flow through, it's almost 80% and we see that we have good traction On our efficiency savings in all our divisions. The currency had a main and a huge impact on the Top line, but it had no real impact on our bottom line. The acquisitions was up with 4%. It has a dilutive impact of 40 basis points, of which then the dilution from the Agta Record acquisitions is 50 basis points. If we go to the cost breakdown, you can see on the direct material that we have a negative A comparison to last year of 50 basis points. This is mostly Related to the negative divisional as well as regional mix, you heard that Nico talked about if you look in EMEA with Stronger south than the north of Europe. We also had the regional mix in Americas with stronger Latin America then compared to the US as well as product mix. The raw material, we have almost been able to offset this during the quarter. But the material prices continues to increase and we see challenges In being able to offset this during the remainder of the year, so we expect a headwind for the full year. The conversion cost showed Nice improvement of 30 basis points. So we can see that we have efficiency and savings in our production sites. The savings we can also see if we go to our sales And to our admin part, whereas then we continue to invest in R and D. And if we take the operating cash flow, once again, it was the highlight, I think, of the quarter. It was a record for the Q1 and ended up at SEK2.6 billion. As said before, it was impacted by good Increased earnings, we had a lower working capital as well as we had lower CapEx investments. If we look on a 12 month basis, the cash flow is 137% versus the EBT. Our cash position is Still at a higher level than normal at the SEK3.6 billion, but we expect that it will come down during the next quarter Due to the dividend payout, that will be problem that will happen then in May. If we look on the net debt, debt versus equity is down from 58% to 46% despite The acquisition of Acta Record that we did during end of last year, the net debt Ever, is also down with SEK 600,000,000 if you compare December now to end of March. And the net debt The EBITDA versus net debt is also down and ended at 1.8%. I mean, we have a strong balance sheet and we can continue our strategy going forward. Last slide from my part here is the earnings per share was up with 21% It ended at SEK2.03. I would also like to mention that the Board has proposed to the Annual General Meeting A dividend of SEK3.9 per share, which will be paid in 2 equal installments, one now in May and the other one then in November. And with that, I hand back to Thanks, Erik. So yes, I think we can say we had a good start of the year with a good organic sales growth of 4%, complemented with good growth through acquisitions, net also plus 4% and a good Cost measures and operational efficiency execution, leading to an operating margin of 15% if we exclude M and A. And then definitely one of the highlights of the quarter, the very strong record cash flow for Q1, 118% up versus a year ago. We really see now that vaccines are being rolled out at bigger scale. And through that, we also see that trust in society is coming back. And let us not forget that this crisis for us was in the first place Guys, it's about trust. When trust comes back, business confidence will come back and mobility will come back. And mobility is obviously a very important factor for many of our businesses. So we really believe that gradually Business opportunities will improve and we will be able to reaccelerate again our profitable organic growth. On the other hand, we are, of course, still very much in COVID-nineteen times. And while many markets are opening up, you see also then Other markets further putting restrictions in place, markets like France, Germany, not to speak about a country like India where they are Hit again in a hard way with COVID-nineteen. So short term, it will remain very Unsecured and therefore, we'll also continue to pay a lot of attention on the cost side. And the last point, we would like to remind you that we will host our virtual Capital Markets Day on May 26. And with that, I give back to Bjorn then for Q and A. Thank you, Nico. Before I hand Over to the operator to facilitate the Q and A. Could I just please remind you to limit yourself to one question and one follow-up, So we can allow as many as possible to ask questions. Operator, this means that we are ready to kick off the Q and A session. Please go ahead. Thank you. Our Our first question comes from the line of Vivek Mitter of Citi. Please go ahead. Your line is open. Thanks very much for taking my questions. Hi, everyone. So I have 2, if I may. The first question is on the good cash flow. You highlighted a much smaller seasonal swing than usual on working capital on top of what was a good 2020 for working capital as well. How are you thinking about cash flow and working capital for the full year? And can you hold on to the working capital improvement? And secondly, On inventories, you commented about slight improvements in March, early April. Did you see any restocking effect ahead of Potential supply shortages and how do you assess the latest inventory situation? Thanks very much. I mean, to start with a question with the working capital, I think that we have had a good momentum Now for quite some while when it comes to our inventory, as well as I would say on all three components, But it's mainly, I would say, receivables and inventory. And I would imagine that we can continue, let's say, with a good Inventory management. However, of course, when we will start to grow, as we have now started to see in the Q1, I think it will I mean, the inventory will go up a bit. The second question, which is then related to the electronic component shortages, So far, I would say that so far so good. I would say that we have been able to manage that one. But as a consequence, of course, it will be that we will, let's say, be needing to ramping up in order then not to have any production disturbances going forward when it comes to electronic components. But I think if I can just add on the second one because I think the question was also more So the channel, for sure, there is some of that. I mean, for sure, some of our channel partners have ordered More because everybody knows that there is an electronic shortage and everybody does the same thing. Everybody tries to order a bit in advance to be a bit more on the safe side. But I would say that in Q1, that was not material for our overall results. And also on the electronic shortage side in Q1, the effect on the top line for us was minimal. But of course, it creates quite some disturbances because you have them to buy often electronic components to different other channels Spot market by distributors, disturbing your operations, leading to operational inefficiency. Obviously, also if you buy them through distribution channels and so on, you pay a higher price therefore a negative effect on the cost. That's very helpful. Thank you very much. Thank you. And our next question comes from the line of Nikoya at Morgan Stanley. Please go ahead. Your line is open. Good morning, gentlemen, and thanks for taking my question. I have 2 and I will go one at a time. I could see that in the press release you were mentioning Global Technology taking more time to recover to pre pandemic level. Can you provide maybe a little bit more color here in terms of which type of time frame you have in mind for that? And also how that compares With the 4 other division, because obviously also in Global Tech, there are some exposure that you have, generally speaking, The general commercial business, if I think about offices or hospitality. So can we have a bit more color on that comment, please? Yes. I didn't hear everything what you said, Elizabeth. I think I got a question. So if you take Global Technologies, around 70% is HID, around 30% is Global Solutions. If I start with HID, around half of it is packs and cards and readers. So that business is very much Mobility related. If people go back to the office, if people go back into governmental places and so on, That business will come back. And that's what we also have seen gradually Sequentially improving now over the 1st 4 months this year, mainly in the U. S. As mobility slowly starts to get up, that means business will also come back. I think the same is true for most other Business areas that we have in HID, with the exception perhaps from Citizen ID. And therefore, also, we believe that, That part of Global Technologies will be the first one to recover. Whereas if you look at citizen ID, so the passport business And if you look at Global Solutions, the hotel business and the cruise ships, obviously, that will take longer to recover, 1st of all, because therefore, you need more international travel, overseas travel perhaps also. And we believe that will take quite some time to come back to prior to COVID-nineteen levels. Yes. Of course, the other verticals in Global Solutions that are growing nicely already in a positive way also in Q1, But they are too small to compensate for the drops that we see mainly on the Hospitality side. Okay. But you don't want to kind of guide us on a time when you expect things to go back to pre COVID level, I guess? So can you repeat the question, Julien? You're not kind of ready to provide a time frame for when you That seems to kind of go back to normal, I guess. Yes. I would love to do that and I would love to know that myself. But I think everything depends on how fast markets open up again and how fast mobility We'll come back. I think in U. S, we are quite confident that things are moving in the right direction, but I at least don't know Mobility will come back in Europe because I don't know, man, for instance myself, I will be vaccinated. And I think Vaccination is an important factor to get that trust back in society and then also mobility back in society. Fair enough. My second question was around pricing. I think I was surprised to see it at roughly plus 1%, 1.5%, as you mentioned, Considering what we've seen elsewhere so far in the cap goods sector, including for industries which historically haven't had, had really pricing power. And the fact that you were mentioning, Erik was mentioning that you're not sure that you can offset kind of Raw material inflation during the year with pricing, which again is a little bit unusual. So just wanted to understand maybe what's the issue here And where you are seeing some resistance in passing prices maybe? Yes. So indeed, I think after Q4, we said that we were quite confident that we would be able to Compensate from a TLF in crisis to paisa in cases and that we should have a kind of neutral effect throughout the year. Since we spoke last, of course, now in the last few months, material prices have gone up further So I would say unprecedented levels. I think all basic materials, copper, zinc, nickel, zinc, aluminum, they're all Very high double digit up. I think the most extreme is steel and the most extreme is steel in the U. S. If you see, again, steel in the U. S. Today is Material index is 100% up compared to a year ago. It's on an extreme high level. And of course, we have had and we are implementing price increases in the U. S. We have already done 3 Price increases for everybody what is steel related, price increases of price surcharges. And of course, It's important for us as a market leader to be also the one that takes the initiative and be the price leader. And then we have to make sure and watch to see that the market follows because if the market follows, then you can continue to do that and try to compensate with pricing for material increases. And I mean, so far, the market has followed. But of course, there is a limit to what you can do. Again, I mean, if it's 100% up, you cannot compensate In full for that, are you trying to compensate that to other price increases on other products? But again, we believe it's not going to be possible to fully compensate for the full year. You should reckon that the material index levels we see today, we will see that in our income statement in, let's say, 6 months from now. So you could say that Q2 will be a little bit tougher than Q3 would be perhaps the toughest when it comes to seeing the highest cost in our income statement. Then, of course, under the assumption that prices don't go further up, that they stay where they are today, Hopefully, that they go down again. Thank you very much. I'll go back in the queue. Thank you. Our next question comes from the line of Daniela Costa at Goldman Sachs. Please go ahead. Your line is open. Hi, good morning. Hope you're well. I'll just have one question. I wanted to ask about the commentary on your remarks in the press release that Now it's about time to invest for growth and you might need to step up capacity. And how shall we tie that need for investment plus the raw material headwinds Into what we should expect regarding margins? And when can you go back to that 16% to 17% Medium term margin underlying range. Thank you. Of course, we have continued to do the R and D investments also in COVID-nineteen times, we didn't push back And then also to come out stronger now that hopefully confidently, we see light at the end of the tunnel. And that also has led to several new product introductions. And of course, when we invest again We will do it in a controlled way. We will see where we have the opportunities and then invest and see that we get the return on investment and then And then further move on and see how we can then bounce forward and reaccelerate that growth. But on the other hand, we Like I said also earlier, we are still very much in COVID-nineteen times. So it's important that we also keep an eye still On the strong cost measures that we have taken last year and that we keep the valve as much closed as possible. For instance, if you take Travel related spending, yes, of course, if we can, we want to increase even to the same levels as before, Travel to meet customers, because we really want to be face to face in front of a customer, which was difficult in COVID-nineteen times. But all internal travel for sure will stay on a much lower level for the foreseeable future than it was prior to COVID 'nineteen. So all these cost savings that were in a way a little bit temporary, A lot of them will stay more permanent going forward. And next to that, of course, we have the permanent savings we did. We reduced Workforce is around 5% as compared to in the beginning of the cuts, so that our, for instance, permanent Same. When we will be back into the 16% to 70% bandwidth, of course, difficult To say we would like to be there as soon as possible, and we will work very hard to come back to that 16%. But again, we can only control Internally and do the right things internally, we don't control the external factors. The external factors are Material inflation, electronic component shortages, but definitely still also COVID-nineteen. In the coming months, it will still be very fragile and a lot will depend on how fast the different markets will come out of that COVID-nineteen. Because that also affects in an important way our mix and then definitely also our Divisional mix. We know that and if you want to come back to the 16%, obviously, how the performance is in a division like the Americas And how the performance is in a division like Global Technologies is important because they We are very accretive to the overall EBIT margin for the group. So the faster HID will come back, The faster we will see that improvement on the bottom line. Clear. Thank you. Thank you. Our next question comes from the line of Lars Orson of Barclays. Please go ahead. Your line is open. Great. Thanks. A quick follow-up, Nico, if I can, on price cost and then a question on mix and cost savings. When we talk in February, we'd already seen 6 months a steep steel price inflation, but you're very clear that you were implementing a faster pricing response. You've moved to more to more premiumization, and here we are talking about more adverse price cost. I don't think it's a big surprise to many, but obviously, Shifting in your earlier message. I guess my question or follow-up is more whether you can quantify the impact. What are we talking about as you see it today for the year? Appreciate the cadence. As you see it, is Q2 worse and Q3 probably toughest based on current steel prices? Are we talking 50 basis point margin impact For the year or something materially worse than that as you see it now? Of course, it should not be a surprise To you or to somebody else that material index has further gone up in the last 3 months. We all have seen that That further exploded in general and definitely for steel and that is our cost base and that's a Cost increase on top of the cost increases we already saw when we talked last time, of course. But I think what is what there's a couple of things. What are important when you see today in our bridge, you see, of course, a 50 basis point Dilution on the direct material side. And like Erik explained, that has nothing to do with the fact that we could not compensate with pricing for higher material increases. As a matter of fact, if you would take the higher price we paid for electronics out, Then we would have fully compensated in Q1 for the material increases. We would have seen even a slight positive still in Johan, the 50 basis points has everything to do with the mix in the sense that we had more APAC And more Entrance Systems, which have higher direct material percentages as a division. And we had less Global Technologies, Okay. Less Americas, but that's the Global Technologies, which has a much lower diagmenial Percentage in there, there is 1. 2, we had more residential and commercial and obviously higher direct material on the residential than the commercial. Like Erik also explained, we had more, for instance, South America than U. S. We had more South Europe than Scandinavia, also negative in the mix on direct material. If we go forward, obviously, we should be able to Probably change that mix in a more favorable way once Global Technologies starts to recover, Once that the comparison for the Americans becomes easier, we should see a mix that should help us on that Direct material side. That's on the positive side. On the negative side, indeed, like I mentioned, We will see in our income statement the highest costs for material somewhere in Q3. And okay, we still have some time till Q3 to further increase prices. But again, I would like to see the person that can I would like to talk to the person that can compensate at full in one go for 100% steel price increase in the U? S. That takes time and that lags, of course, to a certain extent. Understood, Nicolas. Sorry to press you. Were you able to give a more kind of quantification on price Cost. So I appreciate there's also a mix impact within the price cost equation. But what are we talking about as far as the year is concerned as you see it today Adjusting price cost. So one, I think you should expect the pricing component, which is today close to 1.5%, Significantly further go up now in the remaining part of the year. And if you look back at the last time when we had the high material inflation Back in 2018, beginning of 2019, we are confident that we can do better than at that time. So it will be negative, but it will be not as bad as in the previous uptick of Material inflation. Understood. Secondly, if I can, just to savings. Erik, I saw you've taken out your savings slide that we've seen in the last The 3 quarters, I think. Can you help us with the total savings in the Q1, both temporary and structural? And for the year as a whole, how are you thinking about cost savings? I'm assuming we saw last year something to the tune of about SEK 2,000,000,000, Which I'm assuming is a bit roughly fifty-fifty between temporary and structural. I could see you could probably deliver another SEK 1,000,000,000 or so of structural this year, including MSP Up to €750,000,000 and some other capacity adjustments. I wonder how much of an offset that might be from a reversal of temporary savings For the year. Sorry, that's a lot. But if you could try and clarify that, that would be helpful. Yeah, Lars. It was a lot in one question there. Of course, if you now look into Q1 and I mean, we were growing in Q1 as well, which of course means that if we take the same definition of the savings as what we did the last year, Our net savings for the Q1 was more than SEK 250,000,000. I mean, we have what we have said for, as you mentioned yourself, for the MFPs for the full year, we have calculated roughly on this €750,000,000 And then we continue the savings as what we have done and what we have said before As we compare ourselves to 2019 where we have said that we will have a compared to 2019, we will be sort of Our internal action plan is based on a mid single digit negative organic growth where the cost should then sort of follow accordingly and that Plan still remains. Understood. Thank you both. Thank you. And our next question comes from the line of Alexander Virgo at Bank of America. Please go ahead. Your line is open. Thanks very much for taking my questions. Good morning to you both. I guess just picking up on that last point actually, I just wondered if you could talk a little bit about the Sequential development, you've alluded to it a couple of times through your introductory comments. And thinking about activity levels relative To pre COVID in 2019, are we still tracking at that sort of MSD lower level? Or do things start to look a little bit Given the comments you've made around sequential development. And then if I could just tack on a quick follow-up. You talked about the aftermarket business in Global Tech declining more strongly. So I'm just wondering if you could expand a little bit on The dynamics around that. Thank you. The sequential market question is, I guess, on market environment business environment, right, Alexander? Yes. Yes, Mitra. Thank you. Yes. So perhaps if I think The main markets and if I start in North America, Like I mentioned earlier, we have seen very high double digit growth on mechanical And electromechanical residential market in North America, giving us a strong growth. The Americas division for residential and for the garage doors on entry system side. We see that momentum continuing on that high level. I don't think that will further improve percent wise because It's on a very high double digit growth level already today. And that's for us an exposure of around between 20%, 25% for the Americas division. But of course, the big exposure in all of America for us is the commercial side. And then we have We see the continued incremental or slight sequential improvement Over the quarter, we mentioned that in Q4, and we have seen that now further being the case in Q1 in the sense that February was better than January. March was better than February April so far is better than March. So we really see A sequential improvement on the commercial side in U. S. And that's important for us because that's Yes, important percentage of our business for the Americas and it's also from a profit perspective than the most profitable business first. Short term, that is, of course, in the first place, everything what is aftermarket related coming back as People go back to schools, K-twelve, universities. As people start to come back to the office, as mobility goes up, this aftermarket and travel shipments and so on starts to kick in. Then we have also seen and has a bit more midterm long time Architecture billing indexes, construction indexes in general going up. As a matter of fact, the ABI index was on the highest level in March since many years. And that's, of course, good news for us in, let's say, 12, 18 months From now. And then, of course, there is a whole stimulus package of the new president That also will give us good opportunities on the short and midterm. I think that the most important thing for us in North America is The whole success vaccination program that they have in the US Well, you know, trust comes back and mobility comes back. We've seen in South America, despite The whole COVID-nineteen and despite Chile now again being low down, Frances, still very good activity, very good momentum, Yes, leading to double digit growth in all Latin American markets. If we go to Europe, I think despite the more stringent lockdowns again in countries like France or Germany, Also in Europe, we have seen a sequential slight improvement, again, February better than January, March better than February. And now, also April, Better if you go correct for the number of working days. But I was also forgetting Q1, we had working one working day less Then a year ago in Q2, we will have run working day more. And also in Europe, we see A better and a faster momentum on the residential side than on the commercial side, but we are also positive on the commercial side in Europe. Then when you go to Asia, of course, China, again, it was, like I said, an easy comparison. And in China, I mean, the market is perhaps less important for us. It's ourselves that have to deliver on our strategy in a sense stability, profitability, growth. We are now definitely in stability phase in China. We are in profitability mode in a sense that we, quarter after quarter, See significant improvement in our margins in China, still on a low level, but a significant improvement. So That strategy is working, and it's now really time for us to bounce forward and reaccelerate our organic growth, but do that, of course, in a controlled way. And as such, The market opportunities for us are still big in China. So it's not so important how hot Or less hot, the China market is. It's more us doing the right thing in that market and further than delivering on the strategy and Further improving our relative position. And then I think the second Question was on Global Technologies and the aftermarket. Well, the simple answer is, of course, if you look at the core of aftermarket, it's cards and its credentials. And if people don't go to hotel, then they don't need a car to get into their hotel room or they don't need their mobile credential on their phone. And the same is true for the office. If you don't go to the bank, you will not lose your card. You will not need new access Rights to a new floor or to a new building, new people will not be added to the list and so on. When people start to go back to the office. And France, it's not so important that they go back full time. If they go back a couple of days a week, it's good enough. As that mobility comes back, that aftermarket will the business comes back. And that obviously is the most profitable part of the business for Global Technologies in general. And on the passport side, the same thing. If people don't travel internationally, their passport expires, they don't get a new passport, they don't lose their passport, they don't need new passports if they want to travel. And then again, the aftermarket part of the Besseld business is the more lucrative part of the business. Great. Okay. I guess if we only go back a couple of days a week, we're more likely to lose our cards anyway, aren't we? Thanks, Nico. Appreciate it. You will not find it anymore from the last time you were in the office. That will be for a lot of other kids. It's quite some time that some of us have been in the office for the last time, I guess. But it's not only that. Also, when you lift it's like a house. When you lift a house or when you lift a building, you will see that things have aged, That they are not functioning well, that they need replacement upgrades. And definitely also when people come back now to the office After COVID-nineteen times, they want to, for sure, a lot of them upgrade also the possibilities of having better controlled COVID-nineteen related dynamics in the office. So contactless openings, Automatic door openings, more professional higher end access controller, which is good news for us. Yes. Thank you, Nico. Appreciate it. Okay. Our next question comes from the line of Guilherme Penney of UBS. Please go ahead. Your line is open. Good morning, Nico. Good morning, Erik. Maybe just a couple of follow ups. One to your previous answer, if you could A little bit because you were very detailed already. But could you describe a little bit the difference between renovation and non renovation? What you see there in new building Probably versus what you see in more the renovation markets, probably just focusing on Americas and EMEA. And I have then a follow-up, but I'll wait for your answer. Yes. I think on the residential side, both are very good. Also newbuild on residential side is positive momentum. On the commercial side, obviously, the newbuild is still negative, but at least the sentiment is improving. But like I said, There is a lag between indexes, concession indexes going up and us seeing that in the result because we are late in the concession cycle. But I'm more optimistic because of the index is going up, but also because you should, of course, realize there is a there was Prior to COVID-nineteen, a long waiting time for construction sites, there is a buffer. And by the time it's our turn later in the construction cycle, Of course, we will profit a bit from the buffer coming short. So I'm also confident that, that part of the business will come back faster than Perhaps people anticipate. But nevertheless, that new building is a small part For us, we live much more of refurbishment, renovation and aftermarketing in general. And then, of course, the stimulus packages will also come faster because the cycle for refurbishment and upgrade is, of course, short. And there is different verticals that are definitely looking very promising in the U. S. I think what has to do with schools, K-twelve universities. I think that has to do also with hospitals and the wider, let's call it, medical vertical because obviously a lot of Things could not happen during COVID-nineteen, Tylus, because people could not go on-site. And again, when And that happens today. I mean, a lot of people, a lot of children, students go back to schools already in the U. S. Today. When people come back now to the office also in Q2 during before summer or after summer, that will also lead So new business opportunities also in the other verticals in U. S. And what I said about U. S. Is I think it's Very similar to for Europe. Most probably some of it will come a little bit later because apart from UK, Which is it's ahead of the cycle of the vaccination. I think the rest of Europe is behind. It's really critical that We get that vaccination going because then again mobility will come back. When mobility come back, business opportunities will come back. Thank you. And then my follow-up is on that. I think one of the scenarios that we were discussing Leigh, last year, one of the statements you said that with activity levels 5% below the 2019 levels, we'll be able to reach 16% margin of the lower end of your corridor. And I was wondering how has that changed From your perspective, given all the comments around price cost and all the comments around growth and savings and so on, Could you maybe refresh a little bit that scenario? Because there is the 50 basis point dilution from the That we should keep in mind. And then of course, like I also said at that time, a lot will depend on mix Because we have very different EBIT margin levels for the different divisions. How fast will China grow or not grow? And therefore, how important will be APAC in the mix picture? How fast will Global Technologies come back because they have In pre COVID-nineteen times, of course, margin is above the 16% to 70% margin. And then of course, we had a strong performance in Antal Systems and I think top line and also bottom line. But still in the mix, They bring the overall EBITDA down. And it's also clear if you grow 11% in Entrance Systems that you also have to invest Again, and support that growth in your operations, In your sales and even in your support admin. So again, we will do everything to come back 16% as soon as possible. And I think we are working very hard and I think in a very good way On all the factors that we can influence ourselves. But of course, there is the external Variables that we don't have under control. And we can only do the best what we can internally to anticipate and then welcome given external variables that exist. Okay. Thank you. Maybe apologies for the pressure in advance, but it's something that can be ruled out already, 16% for 2021? Sorry, can you repeat, Guillermo? Yes. What I said is Sorry for the pressure, but for the question and in advance. But is 16% something that we can rule out for 2021? Well, if you include Agta record, of course, we have the 50 basis points of dilution of Agta Rekert. Yes. Then the answer is yes. I think for the rest, again, it depends all on External variables, material inflation, electronic components, how the different markets will come back and how COVID-nineteen Thank you. Thank you. I will I think we can take one more question. We will run over a couple of minutes, but please, operator, allow one more question before we finish off. Thank you. Then our final question will come from the line of Alastair Leslie of SocGen. Please go ahead. Your line is open. Yes, hi. Thank you. Just a couple of outstanding Questions on the U. S. I mean, you highlighted the sequential improvement on the commercial side through Q1. I was just wondering whether you could give us a sense of the pace of improvement, where that kind of mid single It declined for Q1. I think you called out where that sort of stands now. Is that kind of more flattish for April? And then the sort of second question is just on the Americas And perhaps it's going to feel the brunt of the price cost squeeze. I thought the drop through in the Americas was pretty impressive in Q1 Despite the sort of the top line support. So just wondering how sustainable those savings tailwinds are there? Just thinking about the cushion really against or potential As the raw material inflation that we're probably going to see come through, does a lot of discretionary costs have to come back as growth rates turns? Or Can you kind of keep a tight control of that? Thank you. Yes. I didn't understand the first question, but if Erik understood the first question, perhaps Erik can answer the But if Erik understood the first question, perhaps Erik can answer the first question. But if I then start answering the second question on material, I mean, the highest headwind is on steel. And where do we have steel? We have steel in China on our doors. We are still in Europe on our doors. And we have a bigger exposure on steel in our doors in the Americas. And then we have, of course, steel in parameter security in Anton's system suite is also the Americas. If you see the steel price inflation It's important in Europe, it's important in Asia, but it's much more manageable in those markets than in the U. S. Because in the U. S, Again, it's 100% up compared to a year ago. So I would say the 2 that We'll have the biggest challenges, parameter security in Entrance Systems and then the DAW business in the Americas. And again, we do everything to compensate as much as we can to price increases, price surcharges and to anticipate some of The material cost increases, we see a comment. It's clear that on steel, definitely, we will not be able to compensate fully. Then we will, of course, try to overcompensate a little bit on all the rest to then balance out for some of The increase on steel that we On U. S. Commercial, it was more related to if we have a sequential improvement in the commercial segment. And I mean, what we see the answer to that one would be, yes, that I mean, we were still down. If you look in March, we were still down, but less than what we were in February and in January. And I think also then Nico has alluded to a bit what we see going forward that we expect that demand within the Commercial segment will improve due to, let's say, more of, I mean, due to the mobility, due to more, let's That the vaccinations will continue and of course also this with the stimulus packages, which will later in the year I think kick in and help also with the U. S. Economy. Okay. But is it fair to say that sequential improvement has accelerated so that we'll Flat on the commercial side, maybe already in April? As I said, we saw a sequential improvement during the Q1 Well, let's say that it was still down in March and it's sort of We saw improvement. And then of course the other one you need to take into account is when it comes to the comparisons, because I would say that last year the COVID impact hit the U. S. Market in Q2. It didn't really hit I mean, it wasn't really an impact in Q1. Sure. Great. Thank you very much. Thank you. Thank you. This means that we will have to round up today's conference. I hope it has been helpful. And if there are any follow-up questions or queries, don't hesitate then to contact us at Investor Relations. And we do look forward to speaking with you in the coming weeks. In the meantime, stay safe and thank you for today's conference. Bye. Thank you very much. Bye bye.