Welcome to our next session. I'm Andrew Obin, B of A's multi-industry analyst. And with us today we have Mike Wagnes. He's a Senior VP and CFO of Allegion. And I'm also absolutely delighted to have Josh on stage for the first time. Obviously, you've known Josh for many, many, many years. And very glad to have him on stage in his new capacity. So welcome, and thank you for being here.
Thanks, Andrew.
Yeah, I, I think the plan, we're going to have a fireside chat.
Awesome.
with Mike. Thanks so much for being here. You've anchored this event, I think, for several decades. So welcome back, and thank you for being here.
Thanks for having us.
So, you know, let's sort of start big picture because, we're in Europe, and I think folks have, sort of, I think, a different view of the market here. So maybe we can stop and start talking about electronics, right? It's been highlighted as one of your key priorities during your Analyst Day. Can you just talk about what always surprised me is just different electronics adoption by, by region? You know, why, why is it different, right? I think then obviously we have, like, North America roughly 10, EMEA 5, Australia, New Zealand 8. Why are these regions different?
Yeah, so, thanks for the question. Thanks, everyone, for joining us today. So those numbers came from our Investor Day, which we had, May of last year. Then what you'll find, this is market penetration, not anything to do with our sales. In the case of North America, probably the earliest adopter of electronics, highest penetration rate. You go to Australia, New Zealand. Dynamics very similar to the North American market. When you think of our Australia, New Zealand business, it is, the largest business by far of our Asia, Asia-Pac region. You know, you know, when you think of that part of the world, we're an Australia, New Zealand business. And the dynamics are very similar to North America. You go to Europe, Europe a little less on the electronic adoption. It is very much, an old installed base.
If you think about properties here, they're just older, more diversified than North America. If you think of North America, it's a pretty homogeneous market from a door prep. Europe, you have a different door prep in each country. So electronic adoption is a little less. If you think of our business, we have strength in our European business and our SimonsVoss and Interflex businesses. Those are German-based. There you do see a little heavier adoption in electronics. Those are two great businesses we have. But in general, the market itself, adoption of electronics is probably most, or most accelerated in North America.
Got you. And how should I think about the impact of electronics growth on margins?
Yeah, so electronics is a good profit margin business for us. It's just as healthy as the mechanical. Historically, we always said that it's the same margin percentage but more ASP, so more dollars, EBIT dollars. If you dissect that a little further, the part of the world where it's most different on a positive factor is in our international segment. The two businesses I mentioned earlier, SimonsVoss, Interflex, they are a richer mix of margin than historical mechanical Southern European businesses we have. So that would be a more profitable part. In North America, roughly similar profit margins with a much higher ASP. And so you drive more EBIT dollars. And then as that business becomes larger for us, it only becomes more profit for us because it's now, if you think about software, electronic, and services, that's about a third of our total revenue.
So if you've been following us the last decade plus, you'll know that that was much smaller back then. And we've been talking about this electronic adoption for, for quite some time. And it's now a third of the portfolio. So really excited about electronics. And as we grow it, it certainly, enhances the margin profile.
Interesting. How do you think about your supply chain strategy as you push into electronics? Yeah, just I'll have it as an open-up.
So, for those who've covered us for a while, you know, we ran into some challenges. When you think about 2021 in the supply chain, especially in electronics, we really struggled keeping up with the demand. And so we went through significant efforts as an enterprise to really build supply chain resiliency. Where in the case of electronics, what you may have had one chipset for an electronic lock, now you have two and three different manufacturers who can provide us that chipset. This resiliency makes us a much healthier company when you think about the supply chain. We also did it on the mechanical side where we qualified a lot of additional suppliers. Those of you who know us know that our supply chain's in a much healthier position than it was a few years ago.
And that's really all these efforts to, really redesign our products and qualify additional suppliers to make this a more resilient supply chain. And I think we're in a much healthier position than we were a few years ago. I know we are. And so really pleased with those efforts.
Excellent. So maybe you just, you know, you talk about software and services, but, you know, specifically I'm thinking about services, was the addition of, Stanley. Because historically, you know, I'm sort of blessed/cursed with having a long history with you. So, you know, I just probably have my, biases. But historically, you know, you guys did not you stayed away from services.
Right.
You know, how should I think about, how do you leverage, the new service expertise in your core hardware business? Because that's to me a very big deal when you did that deal.
Yeah, so historically, if you think of our business in North America, the channel has really serviced our product, right? That Stanley business has a direct model. And it also has a service element, which one of the things I love about a service arm that Access Technologies has, that Stanley Access Technologies business, is there's a remarkable resiliency when you have that service element that's less, you know, susceptible to market gyrations in new construction. So there's a real stability in the Access Tech business. I do really like it today. We haven't evolved much today from where we were, where they're servicing the Access Tech only.
But in the future, I do think that having more service capability, software capability, will just become more and more prevalent for us, and look for us to really try to drive some of that more stable revenue that it provides us.
And, you know, just speaking about software, you know, I think Interflex is one of the crown jewels that the company has. And maybe investors don't talk as much about as they should. But, you know, at the same time, I appreciate that it's a market with, you know, a very specific set of strength and customers and very sort of deep penetration, but within a narrow vertical. So what are the opportunities to, A, to scale it up with existing customers, maybe going beyond its legacy region? And what else can you do with it?
Yeah, Interflex is our access control and workforce management business we have in Germany. And it's a great example of how we find areas and niches in the market where our software can enhance product sales as well. So this solution, we really have been investing in it over the last, let's call it, half a decade. And you see what a gem of a business it is. Its business model allows it to grow with its multinational customers. So if you think about large German multinationals, they'll start in Germany with the Interflex solutions. But as they grow around the world, they'll implement the Interflex solutions with them. So we're able to grow with our existing customers as they grow internationally. We're also, you've seen us deploy some capital to enhance that solutions.
We've done a couple bolt-on acquisitions, the most recent, Plano early last year, where you take the legacy Interflex solution and you provide more capability and enhancements that Plano provides to make a better user experience for the customer. So both those things combined really have us excited with the software capabilities that Interflex provides us and kind of gives you a looking glass when we think about software, how you can find a niche market where we could be successful and drive growth and margin. It's a rich margin business for us as well as ARR.
Before we sort of go to more, region-specific questions, maybe two big picture questions. Maybe I'll start with EBITDA margins, right? I think what would it take to exceed prior peak? And the second question, I was just going to make it more complicated. But you know, you're highlighting 50-100 basis points per year going forward, right? But at the same time, you know, clearly more service business going forward. It does seem that there is more interest in investing in software. So how do you balance just natural, very healthy leverage inherent in the business model, you know, with somewhat different business mix and, you know, what seems to be a focus on higher growth area, but maybe one that requires you guys to invest?
Yeah, let me let me take this second part of the question first. If you think about how we, we kind of think about managing the margins, we, we think of it of managing the inputs, price plus productivity. We exceed inflation and investments, right? We're going to drive productivity to fund our investments. It's something we disclose every quarter in our earnings release where we'll talk about what that is for the quarter such that we'll, manage those inputs and then leverage volume on a long-term basis to expand margins. So if you've looked at our history over the last couple of years, we've done a pretty good job recapturing some of the, the margins lost from the supply chain. So we're essentially back to where we were, like-for-like business on, the margin front. I do think there's more room for margin expansion.
You know, if you think about the framework we provided at our Investor Day, we said that over a three-year period from 2023 to 2025, we'll expand the margins 50-100 basis points each year. You know, as we sit here today, we certainly exceeded the high end, the range last year. So we had a really strong year. And then I think we're positioned well, you know, this year and moving forward. So I, I feel good about how our, our business model, how we manage the inputs, and then, leverage volume on a long-term basis. But I think it's important to say we'll always invest in our business. Andrew, you know, you talked about technology and software. We're going to, invest in those capabilities for the long term. We run the business on a long-term basis. And that's how we think.
And so look for us to continue to invest in R&D. If you've followed us since we spun, you'll see our R&D as a percentage sale has increased over time. And we're going to continue to make those investments to drive the right long-term decisions for the company.
Excellent. And, yeah, so let's talk about capital allocation because I think there's been some chatter around it. So yeah, how should we think about your capital allocation priorities? And how do acquisitions fit into this?
Yeah, so, if you listen to us over time and are starting with our Investor Day, you know, for us, it starts with organic growth. We're always going to invest in organic growth, right? I mentioned it earlier, the R&D, you know, dividends. We're going to continue to be a dividend company and expect us to grow our dividend commensurate with earnings. Then from there, the two other items obviously is M&A and then share repurchases. M&A, we look for the right businesses to expand our Seamless Access strategy. And obviously, share repurchases, from time to time, we're authorized and we make share repurchases. If you look at our history, since spin, roughly 50% of our capital deployment has been M&A, with the other 50% being the capital deployment on shareholder distributions, buyback and dividends.
I would say for M&A in particular, want to grow the business with the right assets to drive our Seamless Access strategy. But if you've heard us over the years, you know we're going to be disciplined. So we're going to be disciplined stewards of capital. For us in our history, the biggest acquisition we've done, Andrew, as you know, is the Access Technologies business.
Right.
Think of that as a $900 million purchase price for us. So that would be big if you think about our history. But most of our M&A has been some of the singles and the doubles, the right, the $50 million, $100 million, $200 million acquisitions where you just bolt onto your existing business. And where we do best is where we can leverage something that supplements our core operations.
And from that perspective, you know, are there any sizable opportunities available in the market? And I know over the years, you know, Europe has always been, you know, potential, like, given just to the market structure, but also the market structure is something that keeps any M&A from happening at the lower level. So yeah, how do you think about the opportunity set that's out there over the next several years and specifically?
From a market dynamics, clearly, North America is a little more consolidated today than Europe, which is a little more fragmented. But we love acquisitions both in Europe and in North America. So we're looking to do M&A to enhance our businesses in both geographies. You know, and then from, you know, you mentioned sizable. I kind of gave a framework there of some things you can see, right? A lot of the singles and doubles. We recently announced a few acquisitions earlier this quarter, smaller tuck-ins that work well with our existing footprint today.
I'll just keep pressing. I know you, you've answered in a certain way, but I'll keep pressing. So, Josh can relate in his prior role.
[crosstalk]
Yeah. You know, so for the right deal, like, how far, right, because you have very stable cash flows. For the right deal, like, you know, how far north of three can the company flex its leverage?
From a leverage, yeah. So, you know, as you mentioned, we're blessed with strong cash flows. And it's a great, a great dynamic of our business. So as you saw when we bought Access Technologies, right, historically, we tend to be a leverage level, net leverage, 1.5-2.5x .
That's right.
But we will lever above that to bring in the right access, the right asset, like we did with Access Technologies. So for when we bought Access Technologies, we went north of that, a little north of 3x, and then quickly delevered one year later. So we're right down a year after the fact, right around net leverage, around 2x . So if you think about it as we think about leverage management, it starts with maintaining investment grade. We are committed to that investment grade credit rating. At the same time, we can bounce up a little higher because we generate such strong cash flow that will delever shortly. So long term, right, historically, we've been about 1.5-2.5x . But we will go higher for the right acquisition.
Excellent. And just to think about, I think, I think your framework is 8%-10%, 8%-10% organic, and then 2%-3% on top of it from capital deployment. So is it fair to say, you know, if you look at history, split it down the middle, 50% capital allocate, you know, 50% capital return to shareholders, 50% M&A, and that's the right framework sort of thinking going forward?
Yeah, so, if you think about our business, right, organically, we believe we can drive that 8%-10% organic growth. And then you get a 2% kicker on top with effective capital deployment. It's a combination of both. On a long-term basis, that's what you see. Year- to- year, it could differ, right? So if you think about 2022, we do an acquisition. 2023, it's, it's paying down debt, right? But if you go back to some years, there's more buyback. So I would say, in general, look for us to, invest in the business, deploy capital in M&A, as well as from time to time, buyback stock to drive shareholder distributions.
Got you. And I'll just ask a question because I am on stage. You did provide earnings outlook when you reported the numbers.
Mm-hmm.
So, can you just remind us what are the comments you made about the seasonality because, right, there's the comps are tricky this year? Could you just remind us?
Sure.
Within the seasonality, what aspects of seasonality should we focus on?
Sure. Why don't I start and then.
Yeah.
So, it's important. We always are a year-end guider. So we, we provide outlook for the full year. We don't give quarter-quarterly guidance. However, it's, it's important to understand when you try to model our business that last year was abnormal for us. Historically, the summer months, Q2 and 3, they tend to be our stronger quarters revenue-wise. And Q1 and Q4, like, like most multinationals are a little less. For us last year, Q1 was our highest quarter in the Americas. And that's the abnormality. And so what I was trying to do in our, our year-end earnings release is just remind everyone, "Hey, if you think of 2023 seasonality, that's abnormal." Take a look at our history. Our history, and you do some averages, you, you, you really find that on a top-line basis, right, Q1, Q4 are less than the summer months.
Take a look at the history to get an idea for a relative size. Then, you know, everything is off a top line when we talk about seasonality. We give you the inputs for you all to run your models on profitability. But really, from a seasonality perspective, we wanted to give you some, prior-year comp and just call out the, the frankly unusual nature of last year, which we talked about at length on our, our quarterly earnings calls last year, that that Q1 was, was abnormal.
Top line is a good place, as a good first step to start your analysis?
Yeah, when we gave that comment about normal seasonality, it was on the revenue slide. And it was really just trying to provide you all some additional guidance.
Anything you want to add on that?
Yeah, I would just say the other piece of that is obviously, this is an industry that normally has some stability through the year and, you know, predictable seasonality. When you throw in things like supply chain, it's really a reference point on, that's not what normal should look like. Inventory doesn't move around a lot. Lead time shouldn't move around a lot. So getting back to normal really is a reflection of, you know, rolling that last tough comp or unusual comp.
No, super useful. Thank you so much. So maybe we can go to the Americas. Maybe we can start with residential. So how should we model and think about sort of the timing of housing starts versus completions? And how should we think about Allegion's business model? What should we look at?
Yeah, if you think about residential for us, you put a lock on late in the construction phase. So our business is probably more correlated to completions than starts. Now, obviously, starts is critical because a start today is a completion in the future, right? So it's an important factor to look at. But when you try to consider our business, just be mindful we're a little closer to completions than starts on the new build side. Now, our residential business is a little more aftermarket than new build, right? We go through big box retail and online retail, a big part of our business. And, you know, that's also dependent on secondary home sales, right? So, it's not just the starts.
You know, if you listen to our year-end call, we gave some color that for residential, our outlook assumes a softer resi this year where we said flat to slightly down. And, you know, if markets are better than we think, we are positioned very well with the Schlage brand to capitalize if the market's better than we assumed in our outlook. So I think each of us have a different assessment on market. Just know when you think of our business, we're more closely tied to completions than starts. And just feel comfortable that we have a great brand in Schlage that will take advantage of any potential market upside.
Excellent. And then, as I think about where the inventory is for the residential market, how should I think about it? Where does it sit? Like, how much of it sits at the home builders, you know, big box? Does some of it sort of sit in these distributors? Like, how should I think where it is and, you know, what does inventory level look like? Because, you know, clearly, you've stabilized and normalized your lead times. And that's on track. But where are you? And should I be thinking about any specific differences about parts of the residential channel?
Sure. So, the biggest part of our business, obviously, like I mentioned, is the retail channel. There, they absolutely stock inventory. There's that part of the business has been soft for a while. So I'm not really concerned about any level of destock because they've already adjusted to consumer buying behavior. On the new build side, we do service that through distribution. So distribution partners service that. And then again, any kind of channel dynamics with inventory, I think that's already impacted us. You saw some of that last year. We talked about it. Last year was probably a little more non-res than resi. But the concept of the channel having inventory or too much inventory, I think we worked through that last year.
Right.
I know we worked through it last year. So we're in a much better position than when we were, let's say, this summer when we came and talked about that.
Excellent. As we think about sort of the competitive dynamic in North America, and I know it's a very rational market, and it's been for a long time, you know, having said that, it was fun to watch for many years, you know, one of your European competitors would report numbers. Then your numbers were, like, perpetually higher, like, for five years in a row. Then during COVID, there were a couple of quarters when there were not. You know, I guess my working assumption that, you know, the space on the, you know, shelf space at retailers, you sort of you're confident about sort of maintaining it over the long term once you normalize. But, you know, what's the market? You know, the competitor was able to gain some market share off your troubles.
So is the market back, you know? I also appreciate that it's a very rational competitor. So is the market back, back to normal, or there is some sort of any sort of tussle over market share that's not normal?
Yeah, when you when you think about our industry, it's a, you know, consumers, they, they probably need product on the residential side. If you don't have it, that could be a lost sale. But if you think about non-res, which is the largest part of our business, your end users are end users for decades, right? Your institutional end user will have a campus, pick a university, where they'll have 40 buildings on that campus. Those are relationships you maintain for a very long time. From time to time, you could see growth rates differ from a prior-year comp. But in general, it's a rational non-residential marketplace where we're positioned quite well, especially in the premium part of the market with our Von Duprin and LCN and Schlage branded product. So, the challenges we had in supply chain are behind us.
I think we're positioned quite well to take advantage of the marketplace with a much healthier supply chain. From a comp, from time to time, comps get wonky in our industry, right? We know Q1 of last year, in particular, extremely strong. But in general, that abnormality is in the rearview mirror. And now we're kind of back to a more normal operating environment where I like the position that Schlage, LCN, Von Duprin have as the key three brands in that non-residential space.
And maybe we can shift to the institutional market because I also think investors don't necessarily appreciate that, you know, that's a big vertical for you, institutional versus, you know, sort of office buildings. But from that perspective, what is happening in the institutional market today, right? Because I would imagine, the big verticals are education, hospitals, federal is part of it, right?
One part.
Yes. So how do you sort of gauge, how do you track, the impact of the federal stimulus on this market? Because I think it's a little bit weird because, you know, historically, we've tracked the bond issuance, which has been done because tax receipts have been down. But at the same time, specifically in the education space, there's a lot of stimulus money. You know, it seems like hospitals are getting back on track. If you look at the spending data, it's quite good. What's happening? It's just, there seems to be a lot of moving pieces.
Josh has done a lot of work on this. Why don't you kind of share some of the?
Yeah, so on the stimulus front, I mean, education stimulus is a front and center topic. So you're going to see some level of that, you know, all the time in bits and pieces. And we try to get our fair share. But if you're talking specifically about, say, ESSER funding, which is probably where you're going with that.
That's right, yeah.
Yeah, ESSER funding really had more of a COVID bent to it around healthy buildings, a little bit of remote learning, and, you know, digital spending. It wasn't really a security.
Right.
Focus. So the other folks that you see out there in some different verticals in the building, who have had a little bit more of that backlog growth.
Yeah, of course, yeah.
Of CEOs, that it didn't really apply to us, so.
It did not, okay.
Didn't see the surge, didn't see the tough comp and the other stuff.
But are you benefiting from, you know, because to be completely frank, the educational spending has been better than I would have thought because we do track the bond issuance, which has not been particularly exciting. Yet the money, you know, the universities are getting money from somewhere. So what has been the dynamic for funding that vertical? Where is the money coming from? And how much visibility do you know, because U.S. Census data.
Sure.
Would paint the same picture. I'm just wondering, where does the money come from?
Yeah, so traditionally, it's been a public bond referendum on large projects. One of the things about institutional that may not be fully understood is how rough of a 2020-2021 period it had.
Okay.
And so if you looked at our last investor deck at earnings, we showed a slide which shows that institutional didn't peak. It's actually recovering, meaning 2020 and 2021 were rough. And it's starting to come out of that trough.
Okay.
And so from a market, I think you'll find that institutional is way healthier. The commercial office side, for us, it's only 10% of our Americas business. So it's.
Okay.
Much smaller, has been rougher. Institutional has been stable.
Andrew, I think if you were to smooth out some of that bond issuance over time.
Right.
There's kind of these 2-year cycles that take place that it is this kind of low growth.
Yes.
Funding source over time. When you get disruptions in the market, and I think, you know, you probably heard, you know, the team say this in the past as well, it gets it has a snowplow effect. So it's just steady for longer.
And within your commercial market exposure, how should I think about new versus remodel?
Yeah, so our business is roughly 50/50 new build versus aftermarket. And then from a vertical market, if you think of our Americas business, a little less than 1/2 of the business is institutional, right, with 1/4 being residential and the, the remaining piece being, the various elements of.
Right.
Commercial. As a result, it's that stability of institutional vertical markets that really provides our tailwind when we talk about growth this year.
Josh, how should I think about pricing? This is from a different market. But, you know, I keep using this example. You recently, sort of had a meeting with the CEO of, you know, one of the multi-industrial companies. What we've heard is that, you know, he stated that labor cost inflation is now outpacing his material inflation. There's more labor inflation versus material inflation. His view was that, look, you should be thinking that just pricing going forward, you know, maybe before you were thinking 1- 2, 2- 3 is a better placeholder just structurally. So within your industry, right, how should we think about inflation and pricing going forward? Does the same logic apply to you, or are there different industry dynamics in, you know, in the markets you serve?
Yeah, we operate in a rational, disciplined industry. We manage the inputs. And so as there's inflation, as we've shown over the last few years, we pass along inflation in the form of pricing. One of the things we see is that inflation has, you know, we're in an inflationary environment. And you can't just look at metals.
Right.
Right? And so the person you were talking to is absolutely correct. You gotta look at all elements of the cost base. And it is inflationary. And it's, you know, our belief that we will pass that on.
Right.
As we've shown a multiple-year history of being able to combat inflationary pressures with pricing. It's something we're quite good at. I would expect that to continue.
And so if that's my framework, whatever, that labor inflation will remain stronger for longer, just dial in more pricing. That's my framework, not asking for specific guidance. But within that framework, you know you feel comfortable at your ability to continue to drive pricing to cover the inflation and have the spread.
Yes, because the answer is, we must, right?
Yes.
If inflation's more, we'll adapt, right? We adapted in the past. We'll continue to adapt and ensure that we take the necessary actions.
Can we just talk about sort of the ramp-up of the Mexico plant?
Sure.
What's happening? You sort of talked about it. Then you didn't talk about it. You know, and, you know, just give us an update, and what opportunities does it give you going forward?
Yeah, so I actually, I was there last week. So I saw it firsthand. We built a plant in central Mexico. You know, greenfield, the operations, we're now having product coming off the line. Anytime you start a new plant, right, it's not easy. You know, the thing about us, though, I feel, we feel good that we've taken that into account for the guide. But this is a long-term investment you make. You build a plant based on having the capability and the supply chain resiliency for years and decades, not weeks and months. This particular plant is going to service the North American market. So we're going to make product down in Mexico to service North America.
Which market specifically?
United, mostly the United States.
No, no, but which, which product category?
This is. We're going to the residential business to start.
Yes, Yes.
So this will be our residential, some residential product that historically we sourced from Asia. We bring that capability in-house. Things are moving along, as anticipated. And I feel that, you know, this is something as we service North America, we predominantly manufacture and sell in the region we operate. This is product that we source that we're now bringing in-house to serve that North American market.
Is there more labor inflation in Mexico to deal with, or is just the starting point so low that it just doesn't matter that much?
Yeah, when you think about a new plant, there's a lot of automation in that plant.
Okay, oh, wow.
Right? So you do have a case where there is labor inflation in Mexico. But we'll ensure that we are in a competitive position from a cost perspective. Long term, this is the right business decision we made.
Interesting. So just international, just touching the remaining minutes. Can you just take us around the world, and just what, what, what are you seeing in the way I sort of think about, right? There's Southern Europe with CISA. There's.
Mm-hmm.
Central Europe with Interflex and SimonsVoss, some presence in France and the U.K.
Mm-hmm.
Then you have Australia and New Zealand, you know, a little bit maybe of Electronic Locks and Korea. Just take us around the world. What are we seeing?
Sure. So, if you think about our biggest businesses in Europe, right, I talked about SimonsVoss and Interflex, the software and services businesses. They operate in Germany. And it's been a good growth driver for us. And we expect that to continue long term. That is even it's, it's less market-dependent than some of our other businesses. That's taking advantage of the electronic adoption we keep on talking about. If you move to Southern Europe, that is traditionally a mechanical business for us. That's our Bricard and CISA branded businesses. There you see, you know, they kind of plot along with GDP historically.
Yeah.
In there, we'd also have we put our Briton brand, which is the U.K. There we're making some inorganic investments. We talked about Dorcas and Boss Door Controls we recently announced, very small acquisitions, but to increase our presence here in what we call our home and work business. Global Portable is our—those who followed us last year know we started talking about a lot. This is a bike lock business that had a boom during COVID and then a subsequent decline and pretty pronounced decline in overall market demand. We are now at a point where we've lapped, frankly, some rougher quarters. So it shouldn't be a significant headwind as you think about growth rates moving forward because it's already in the base. But I wouldn't tell you that we expect a substantial rebound or bounce back of explosive growth.
It's more now operating at this lower level. And then in Asia, our largest business by far is our Australia and New Zealand. We have small operations in China. But it's very, very small. I mean, Australia and New Zealand tends to be the Asia-Pac business for us. And those dynamics similar to the North American marketplace.
Josh, can you just help us? I just can't help. Josh, I'm sorry. But can you help us size the portable business? Because, you know, is it SimonsVoss? Is it Interflex? You know, where is it? Because we sort of, you know, I knew you had it, but we never talked about it.
Sure.
All of a sudden, it's just you talk about it, so I assume, because of the margin structure, between the margin structure and the size, you know, it's moving the needle. That's why you're talking about it. Just sort of, if you can help us in any way to size it?
Yeah, it's not that big. If you think of our international business, it's less than 20%. However, I think the declines last year were so substantive that it actually moved the needle for international. And that's why we started to talk about why it really was a headwind in 2023. If you think about 2024, I don't anticipate the big headwind. But it, it's, from a sizing, less than 20% of.
Okay, so it's okay, so that makes sense. I just did not appreciate how big it is. And maybe the last question, last minute. What are the channel improvement opportunities for you? Let's just, in the interest of time, just focus on Europe. What can you do in Europe to enhance your channel?
One of the areas we do particularly well is if it's a code-driven, spec-driven market, we tend to capitalize on that. If you think about North America, we're really strong. So one of the things our current president of international came from our Americas is he's bringing in some of that spec capability that we're quite good at in North America out to international. And so whether that's organically writing specifications or inorganically, we made the Boss Door acquisition, which gives us access to that spec-driven market. So just think of Allegion. If there's a specification, it tends to be a net plus for our chances of succeeding and doing well. And so we're going to look to leverage more of that capability international.
Well, that, that has been a very powerful tool in North America. With that, we're out of time. Thank you so much for being here. And as I said, thanks so much for anchoring this event for multiple decades now, which is, like, scary. Thank you.
Thank you.