Good afternoon. I'm Mike Wagnes. I'm the Head of Investor Relations and the Treasurer here at Allegion. And with me today is the Allegion's management team, and we want to welcome you to the 2019 Investor and Analyst Day. Before we get started, I want to just go through a couple of administrative items.
We'll start with safety. As many of you know, safety is a core value of Allegion. We have a couple double doors over here to the right. In the case of an emergency, you can exit the double doors to the right or behind me to my left is an exit door down to the street. We'll start off with we're going to have some forward looking statements today.
We ask that you read the Safe Harbor provisions in your materials. In addition, we have some non GAAP measures financial measures in the presentation. We ask that you also read that on Slide 3. So with that, I'm going to get into the agenda today. The theme of today's presentation is Access Opens Everything.
And we're going to start off today, Dave Petratis, our Chairman, President and CEO, will give a company overview as well as a strategic overview of Allegion. Next, we'll have Vince Winoos and Rob Martens. Vince is the Head of our Engineering department, and Rob is the Allegion Futurist, and they'll give a technology and innovation update. We'll take a quick 10 minute break. At that time, we ask that you exit and see some of the products that we have outside.
I know many of you saw it already today, but come look at our products that we have and our innovative solutions that we have outside in the foyer. When we come back from break, we're going to have Tim Eckersley, Lucia Moretti and Jeff Wood, our regional presidents of our respective regions, give an overview and a strategic update of their businesses. And then we're going to wrap up with Patrick Shannon, our CFO, who's going to give the finance overview. We ask that we're going to end with the Q and A session at the end. We ask that you hold all of your questions to the end of the presentation and we'll get to questions at the end.
Dave Petratis, our Chairman, President and CEO. Dave Petratis, our Chairman, President and CEO.
Thank you, Mike. Good afternoon. It's good to have you here at the Grand Hyatt on 42nd Street. I also want to extend my welcome on behalf of the 11,000 Allegion employees. We're pleased to have you here and appreciate you taking time out of your day to hear our story.
I got to add my safety pitch to this as well. Mike failed to mention that if you do have to use the exit doors, you'll exit by you Dupern exit devices powered by LCN closures. So I think it's amazing the story of Allegion. We touch you in many ways every day, sometimes nondescriptly. Yesterday, we rang the closing bell that signified 5 years of Allegion as a publicly traded company.
We rang the bell, the closing bell at 3.45 of the New York Stock Exchange. The Stock Exchange also as you go through that building, as some of you may remember from our last Investor Day, is completely outfitted with Allegion products. The Von Dufryne exit device have proudly served that building since 1920. And it's part of the heritage and understanding of this company. We have roots that go back for decades, in some cases over a century.
My goals today as you learn a little bit more about Allegion is understand the strengths of our business and the durability of our franchise, Allegion and its performance in up and down markets 2, how specification and products complexity drives the winning equation of Allegion. It's easy to say, hey, these are just locks and exit devices. But if you think about the mechanical configuration, which we make 100 and 1000 of variations of and the opportunity for those locks, exit devices, closers to be more connected in a digitized world, our opportunity not only for our industry, but for Allegiant, I think is outstanding and third, how smart access, seamless access drives our company. Some comments on our leadership team. We have a very lean Board of Directors.
It's 6 plus me. It was lean by design. All directors are on all committees. Our non executive leaders, Curt Hatch again. Some of you may know him from the electrical industry.
We track where we spend our time as a Board as part of our drive for continuous improvement. 60% of the Board's time is on learning about Allegion and they have traveled the world as well as a focus on the strategy and future of the company. Over the last 24 months, we've done some retooling of that strategy driven by access as an opportunity. I think you'll see that reflected and hopefully we can paint that, but a lean board driving a lean company. You'll hear from 6 of my 9 leaders today.
I want to introduce the some of the teammates that you won't meet from. Our presentations will give a geographical view, a technical view and a financial view. Let's introduce the team members that won't present. Jeff Braun, our Chief Legal Counsel. Jeff, good job.
Tracy Kemp, Senior Vice President and Chief Information Officer. Tracy has been a huge driver of our digital experience, our digital learning. Technology is a driver of our business and Tracy, her entire IT team, our customers of the past have been facilities, engineers, architects. As access becomes more connected, we'll be selling to the IT community, the architectural community, as well as the physical plant community, and IT plays a huge role. Shelly Mehta, our Senior Vice President and Chief Financial Officer.
Shelly was employee number 1 in our tax department. So has created one of the lowest or what she took advantage of an efficient tax structure and help drive that. Our effective tax rate was 14%. Sometimes in manufacturing, good deeds don't go unpunished. I saw the great team leadership of Shelly, outstanding engagement in her team and I appointed her to the Senior Vice President of Human Resources 2 years ago.
She's done an outstanding job. The last person that won't present today is Chris Mullenkamp. Chris, where you at? The big guy in the back. Any tough questions will be handed by him.
Chris leads our global supply chain, brings 38 years of industrial experience like I do, has produced some of the highest efficiency and shortest lead times in our industry. I'll talk about some of the work he's done in safety and environmental, but clearly a great job. At Allegion, we've created a vision, seamless access and a safer world. Let's use some, let's use a video to try and dial you in on part of what we see. If you ever think about how many doors there are in the world, How many access points?
How many openings did you go through already today? In the building, the Hyatt, the Grand Hyatt, 1300 rooms, you can double the amount of access points. In this building, I have the opportunity for every hotel room door, every exit door. But if you just expand the thinking farther, how many homes in the United States? Homes, 56,000,000 homes, each one having about 2.5 entrance point externally.
That's about 140,000,000 doors. If you think about the total doors that just driven by residential, the average American home has about 20 doors. That's over a 1,000,000,000 doors that I can serve both mechanically and with seamless access electronic product. Again, do you ever think about how many doors are in the world? 7,000,000,000 people on the planet.
Just here in the city, the New York Metropolitan area, 860,000 structures. So you start thinking about access points in the world, you should be thinking $30,000,000,000 to $40,000,000,000 And why access is Allegion's opportunity is less than 5% of those doors are connected, less than 5% are powered, less than 5% electronic. And I would present to you today that our opportunity, these doors will become more connected. They will become keyless. Our industry is going to do well and Allegion is going to do well.
An exit device like this will provide seamless access. We showcase it with the RURM. These technologies will proliferate, improve human productivity. I don't have to think about keys. I don't have to I can go out and have seamless access and we can provide levels of authenticity and security through edge devices, codes, facial recognition.
This is the opportunity that Allegion has and I think our days are bright as a result of it. Why are we well positioned for that opportunity? Allegion is a pure play global provider of global security products and solutions. We've got strong brands. Brands will be important.
I hope you'll take a minute to think about the complexity to be able to get an edge device to open a lock. You not only have to have a very solidly engineered lock to keep the bad guys out, you have to have the electronics and durability, connectivity, battery life. You have level of complexity and apps or connectivity to building systems. Our brands and technology help position Allegion well. We have industry leading organic growth and profitability.
We have a broad customer base and strategic partnership. Our installed base, especially in our key market here in North America, if for some reason the device on the right has to be replaced, it will be replaced like for like. If it's upgraded to be able to have smart access, it will be like for like. We have developed expertise in IoT technology, electric and electronic solutions, connected solutions. We were the 1st company in the world.
Hey, Siri. Open the lock. This went on. Hey, Siri. Open the lock.
The 1st company in the world. You'll see our Wi Fi embedded Encode, the 1st company with Wi Fi embedded capabilities. The first go on and on, we'll talk about this. I think one of the honors I've had is to be able to create a culture at Allegion. We've fueled innovation.
An example of that would be our vitality index that we've more than tripled in the last 5 years by being able to invest. But we've also created an engaged environment where I think people can do their best, serve our customers. We've got strong fundamentals and a disciplined industry. I like the setup of competitors that we have globally. It gives us capability to think will serve us well in the future.
We have stated a balanced and flexible capital deployment strategy as well as human capital deployment. You have to set priorities as a 2 $700,000,000 company in terms of how we want to grow organically, where we want to put our human and financial opportunities. We're guided by a strategy, a vision and a set of values that I think are unique to the company, serve each other, not yourself. Be safe and be healthy. You'll hear that theme.
Allegion is one of the safest workforces in the world. We respect the environment that we operate in as well as our people. And I think if you're an owner or you're recommending our stock, we come to the top of the list because of that value, be safe and be healthy. Be curious. There's 32 technologies, both internally and externally, that are hitting all businesses today.
If we get our head above the fence and understand how technology can improve human productivity, how technology can aid in seamless access. There's great opportunity. It's hard to point at a business that's got 100 year old roots and is being transformed by the technology of the day. We have done a good job at the company to understand the technologies and how we can manage them. The last I would say is have a passion for what you do.
There is a passion at Allegion. It reflects. We try and measure that in terms of engagement. That's measured by Gallup as well as celebrate the performance that we have. How do we compete?
We've got a global reach, dollars 2,700,000,000 in 2018, 3 really operating centers, the Americas, about 70%, 80% of the revenues Europe, dollars 590,000,000 Asia Pacific. 5 years ago, when I stood in front of you, we only made money in North America. Today, we're growing and profitable in all regions. I've not pointed out our strength out of Bangalore. 5 years ago, I had a decision to make.
Does Bangalore go with IR or do we retain it? I often get challenged how do you compete against larger global competitors like ASSA and run on technology. Part of the equation is our engineering capability at Bangalore, which we've more than quadrupled in the 5 years of Allegion. We have the ability from Bangalore to develop new products from conception to delivery. They're driving our software and firmware capability.
We have an installed base of engineers coming close to 300. And it's an outstanding We're a house of brands. I believe brands will be important, 34 brands. 15 of these brands are connected, are powered, are delivering some type of connectivity in broader ecosystems. Electronics is driving this portfolio.
If you see the electronics growth at high teens, you feel this. Chiesa, Interflex, LCN, Schlage, Simons, Vos, Von Dupreent are what we would call our leading brands. But the complementary growth and as we add connectivity intelligence is helping us grow this company organically. Our global business profile by geography, 73% of our revenues in the Americas, 21% in EMEA and 6 percent Asia Pacific. 80% of our revenues today are mechanical, 20% Electronics.
This Electronics growth will continue to advance and be a bigger share of our total revenues and think both software, middleware and electronics. As I think about this mix and how we measure freshness of our portfolio, think about electronics growth, think about our vitality index and think about our organic growth. If I reflect back, we came out with a vitality index early and have done a good job at advancing that from single digits to triple. But I've got products that have long lives. So take the ADCO that you'll see out here introduced in 2010.
That product is growing because of the design characteristics and its connectivity. So it's not just about vitality, organic growth, growth in electronics as well as that vitality index. As this ratio change, you'll see our electronics growth growing, but I think it's important you look at that from various lenses. By end markets, we've got a great balance, institutional, commercial and residential. The institutional markets continue to extreme sell us service extremely well because of the complexity, because of the duty cycles, because of our installed base reputation.
We're also well balanced, new construction to aftermarket, 50% is new build, 50% is aftermarket. Once we get installed, we stay installed. When a decision is made to retrofit, it's like for like. So winning this on the spec and then have that annuity that continues to drive us is a powerful equation. What drives these markets?
We see end markets as healthy. I've spent the last few days here driving around the different boroughs. There is one heck of a lot of constructions going on. As I travel North America, in the last 90 days, I've been to San Diego, Houston, Tampa, Indianapolis, Omaha, Nebraska. There is a healthy pace of construction activity and infrastructure needs that are screaming in this economy.
Globally, I see the overall GDP softening, but this is such a much better place than it was in 2009, 2010, 2011, 2012. I think we are still capped in terms of the overall construction activity by labor shortages, but there's good opportunity as I look out in the year ahead. There's some macro trends. The IoT in the connected world is clearly creating opportunity. Urbanization, people are moving back into the cities.
It's not only here in New York, but Indianapolis where I spend lots of time or Houston, Texas. I've been surprised by the continued strength of multifamily construction. It's softened slightly, but it remains at historic highs. Multifamily construction is a great opportunity for connected access, where you may enter the parking garage, you're enter the opening vestibule and then get to your apartment. It's much easier to manage that situation digitally than handing out keys.
There's increased demand for safety and security. We can look to our K through 12 schools. We can look at violence. People are concerned about safety and security as well as hacks. 1 of the great decisions we made three and a half years ago as we thought about cybersecurity for Allegiance Infrastructure, we put in a chief security officer reporting to Tracy.
They look at the broader view, how our Allegion infrastructure and what are those potential threats as well as to our products. We were not the first to say Amazon or not Alexa open or close the door, unlock or close the door. There were products out there that had flaws. We worked through those flaws, eventually arriving with a product that our customers can trust. Those demands for increase in safety will continue, but the keyless world is not going away.
E commerce and services, the last mile delivery is a trend that opens up tremendous opportunity. We partnered with the various mega techs to be able to provide those services. But think about e commerce will continue to grow. Think about the challenges it poses right here on 42nd Street. Are cities going to allow deliveries between 84 while the population's moving?
I'd argue no. We can see examples where United Parcel Service is already negotiating with their unions to have more access in early hours and the weekends. How are they going to get in the buildings? It's going to be with through seamless, connected access and partnerships. It's another just e commerce, we all use it, but there's consequences.
It clogs big cities like this. How will we solve that problem? All of us want our package tomorrow. It's going to be done with seamless access, the ability to be able to get in a loony dock, to get in a high rise building when the traffic is less, there won't be a security guard there to drive it. We like those types of solutions.
Digitization, we all think about connected access, our edge devices. It impacts inside Allegion as well as our products. Digitization is affecting how we communicate with customers, how we manage specifications, how we run inside our factories. It can be a productivity driver and help our margins and it can help drive our sales in terms of new products. As we think about market dynamics in the security industry, codes and standards will continue to be important.
Remember that the building that burned in London, people were killed because of inferior products. Codes and standards will continue to be important. They're well developed in the Western world, still emerging in the growth markets globally. We positively influence through specification and code development a variety of different codes that help strengthen our value proposition. That could be the noise generation from an exit device, in a maternity ward, in a nursery.
The hospital example is a good one. If I can reduce the amount of ambient noise, healing goes up. Our devices contribute to that. It can be part of the hospital specification code and standard. ADA codes and standards, accessibility for people that are in walkers in an aging population, These are drivers.
A door with our closer, if you saw an 80 year old individual with a walker can knock you on your ass. A closer with an exit device. These are challenges that we use automatics to help overcome. There are solutions that help solve those problems and they develop and accelerate with codes and standards. We believe very strongly as a company in open protocols and devices, electronics adoptions will accelerate, connected building and homes will continue to grow.
Last, the needs for aging infrastructure. The average K-twelve school in the United States is 40 years old. This building built in 1923. There's continued infrastructure needs. Our industry is going to benefit from it.
And as you add connectivity, access is our moment of opportunity. As we think about access as a point of opportunity, how do I, the leader of Allegion, get a company with 100 year old roots like Von Duprin or 140 year old roots like Burkhard to think about how new technology can impact our customers, our business. First, it started with me. I had to look in the mirror 24 months ago and question my own capability to be able to lead the company. 32 technologies hitting the company.
I went to the Board, said, I look like a piece of barbed wire and I need to look like a piece of fiber optic cable. Myself and our leadership team went on a journey to reinvent ourselves, chaired by Tracy Kent, traveled the world to understand how technology would implement us and how we could get faster, how we could move at the speed of China, be able to introduce new products and connect. One of the things that we created was a venture group. I went out and benchmarked some different companies. I attended some seminars.
1 of the propositions is in front of Allegion, think about this, visualize this, we needed to put out a vacancy sign that said we're open for new ideas, new technologies. We created Allegiant Ventures with that in mind to observe, learn, partner, invest, and potentially own technologies that would help drive our company. It was I was clearly out on the edge when we went through it. It's exceeded my expectations. Rob Martin, our futurist, will talk a bit about it.
We have companies coming in to the Carmel headquarters and pitching technologies that are impacting K-twelve secondurity, pitching how we can drive edge devices to have higher levels of authenticity that will be important to our interaction of device. It's not just the ability to walk up to a lock and say, oh, that's Dave Petratis. How do we assure it's Dave Petratis? That could be through image, it could be through voice, it could be through other factors of authentic occasion. This will be important to all vectors of our customers, whether it's residential, commercial, institutional.
Technology will be a part of that. Our investment in Pindrop would be a good example of that. Allegion Ventures, we've made 3 investments, Yanomi that helps us with the cloud, the middleware stuff, Nuki, which you can see outside, robotics, and robotic capability to be able to operate a lock, and then pin drop, which is around voice authenticity. Since our beginning, we launched Trailblazers, which bring in innovative ideas from our team. It does a couple things.
Number 1, it unleashes innovation and we give time. We have a local we have regional contest, almost like Shark Tank. They come in and present globally. The winners are rewarded Allegion stock and those products like the Quiet Closer are out on the market today. In Chiza, another example, where the exit light and the exit device with lighting is embedded in the unit.
Think about that. The exit light, where's the smoke going to be? Up at the top. We put the light, the exit sign, to be able to guide you out of the room, an example of a successful trailblazer project. We also have invested digital technology to be able to improve our spec writing collaboration with architects and specifier, we call it Overture.
It's innovative. I encourage you to go out and understand this. Tim will talk about it further. There's many ways to be able to modernize an old company like us. You've got to get your head above the fence, you have to be open to new ideas, and you have to empower people to go make it happen.
It's working at Allegion. So how do we win? One of my goals here was to help you understand the complexity of specification. What is a spec? When I build a complex building like this, there's 16 division, which is everything from the foundations to the electrical system.
Section 8 is doors and windows. We have dedicated employees globally that focus only on moving Allegion products into the specification of a building like this, or a hospital that I show in front of you today. Think of this as the Buffett Cancer Center in Omaha, Nebraska. I spent some time there a couple weeks ago. We are hanging on every door, the hinge, the kicks plates, the closers, the exit devices.
The spec begins with us helping the architect to meet the requirements of the hospital, the building codes, the fire requirements, and the work that goes on in complex spaces, like patient rooms, or the nursery center, where you have multiple challenges of moving small carriages or neonatal in. If you go into the psychiatric part of a hospital, you have what I call anti ligature, which prevents someone from hanging themselves on a doorknob. These are part of the complexity that goes into a bill of material that we load in upfront in partnering with the architect. The better we perform at that, we become a trusted partner. Some of the critical outcomes, I want high security in that nursery.
I want high security in parts of the, certain areas of the hospital, maybe the pharmacy. You have ADA requirements, you have egress and evacuation requirements. All of that goes into the complexity and why specification wins. I remind you, hundreds of specifiers that help drive this, that are employed by Allegiant, that only sponsor our products and work with our partners on these codes. Let's go deeper.
How do the product ranges and the complexity drive for solutions in this space? Von Duprin and LCN devices for cross corridor openings on every opening. You may have steel kraft doors that are specially engineered to be able to seal in the case of a fire or improve the energy efficient. Glenn Johnson push pull locks that are easy to operate. AD Systems, a recent acquisition of sliding doors.
Why are sliding doors are important? We can better optimize the square footage of a medical suite, of a medical floor by the use of sliders, optimizing the construction cost per square foot. We go in and work with the architect to be able to drive that equation. I can get more in here when I eliminate that swinger, and you'll see it's very popular in medical suites, x-ray labs, scanning centers. TGP, another example, where we're using shielding glass to be able to enter light into a CAT scan room, giving protection, along with the other specified computer data centers, millions of SKUs that we're able to prevent.
I think there's another point it's worth thinking about. The elect or the mechanical hardware makeup that goes into these specifications are often unique to the North American markets. In North America, we call them ANSI standards. If you go to the rest of the world, it's EN or European. You if you go into a building design, it's generally 1 or the other.
We have the specification capability for both, but it puts a barrier around this continent. It's not a homogeneous market worldwide. It becomes even more stratified as you get to Europe. When you go to from Spain to Germany to the Netherlands, the door configurations, depths, width, size, materials are different. That complexity is part of what we manage.
Through specification, it drives a winning equation. We have deep relationships and customer base, the largest specifying team in North America, which I talked about, that's being augmented with digital technologies. Our architectural relationships, whether it's HKS, who wrote the specification for the Buffett Hospital, Gensler, AECOM, you'll see this architectural influence go worldwide. Because often, you know, whether it's here with stringent building codes or in the developing world, the architectural reach of North America is cascading around the world. We also have strong, distributor one in the nation, DH Pace out of Kansas City, a variety of capabilities and solutions, Anastor would take our products worldwide.
We also have to have partnerships with the Big Box and Lowe's where you see the richness of our residential offerings. And then the mega techs also play a bigger influence in this connected environment. Amazon Key, Siri Open the Lock, Google's influence, these are things, along with Alibaba, JustCo would be the WeWork of Southeast Asia, these are partnerships and channels that are important to Allegion's success. Our strategy. What is the strategy of Allegion?
Allegion creates value for our employees, our customers, and shareholders by securing people and assets with seamless access wherever they reside, work and thrive. That strategy is supported by 6 pillars, 5 pillars: expanding core markets. Even in my number one market, North America, with an average of 35% market share, I have 60% of the base that I can still go out and serve. We have done an excellent job at segmenting our channels and going and driving growth, Seamless access, electronics, continued channel segmentation gives us great opportunities to expand where we're at today. We've made clear decisions on where we want to compete and where we don't want to.
Look for us, continue to have that discipline. Be a partner of choice, whether it's on a wholesale distributor, an architect, a technology leader. If somebody walks in through Allegion Ventures, we have 10,000 channel partners that we can partner and help grow that business and maybe learn from that technology, partner with that technology, embed in that technology. At $3,000,000,000 in revenue and 11,000 employees, I've got to be a good partner. That partner is also based on open protocols, which we talked about early.
And I think it's so important as we have to adapt into building control systems, as we have to adapt into security systems, being a partner of choice on a variety of front, I think, helps open us to opportunity. I'd contrast that there was a strong culture of it's got to be an invented here, or that lock does not meet the standards of a BHAN level 1 standard. We can look at things through different lenses, be a good partner and drive the business. Deliver new value and access. When I say we can influence human productivity, think about every time you go to the Goldman Sachs headquarters or the Bank of America headquarters, or you go down and visit Nelson Peltz, what you have to check-in from a security standpoint, those problems will be solved.
We spent a lot of time in the last year going through a business sprint with outside teams, software developers thinking about how we can provide access solutions in elderly home care. How do I know that the service provider at my mother's elderly care center went in and looked at her at 2 o'clock in the morning? Was this was the administrator able to justify to me that he was able to provide that service? Did they give her that pill? That's the opportunity with seamless access.
That's where we can deliver new value in a variety of solutions. Another example, new value in access would be K through 12 schools. We've got clear problems of security. Technology will help us solve them. If Dave Petratis walks through the door every day as a student, and I weigh a £180, why do I weigh 1.85 tomorrow?
Artificial intelligence, sensing can determine and help predict problems. Those, that's where new value and access creates opportunity for us to grow. Capital allocation will continue to be important to us, that we're good stewards of the capital and continue to drive enterprise excellence would be the 5 things that guide us. Let's go deeper on the pillars, expand in core markets, continue to optimize channel relationship, channel segmentation, digitally enabled demand creation through specification. Overtur, a good example of that.
Continue to have outstanding back office systems that help us seamlessly take and process orders and deliver. Our goal at Allegion, for an architect and a general contractor, is to get them off the job faster. I believe Allegion has a unique opportunity to raise our capability through smart tools, great specification, and understand the customer opportunities that we have to improvement and drive that value proposition. I think I'm part of an industry that's not very good, and I think we can be a lot better, and it will help us grow organically. Provide leading products and solutions that solve problems.
1 of the learnings for Dave Petratis over the last 3 years as we've expanded our digital journey, as we deploy capital, what is the problem to be solved? Is the money there? Digital access and expansion of the core, if we think about those opportunities, help us grow. Deliver new value. It's amazing to me, the opportunities that we have through technology and embedding, in our products.
Again, we'll accelerate new product development. I want it measured by vitality, I want it measured by electronics and I measure it by organic. And it's because the products have long lives for us. Our industry also has some resistance to be the first one out of the box. Our brands helped us to prove it, but in any industrial application, construction application, they don't always be want to be the first to deploy.
So we tend to have long lives when we make upgrades to our product, to our products. The last is this, I would my comment in developing new access, there is a tremendous challenge to all manufacturers to develop this middleware that connects an intelligent lock to an app or a building system. Don't underestimate the amount of work that Allegion's putting into this and working with partners like Amazon, Apple, or Google, but what we have to provide to successively drive in that ecosystem. It things in that middleware can be allow access, it can hold intelligence, how many times did Dave Petreides go through the door today. It can make decision making, But our orchestration of that middleware and how it connects to our products and how it's plugged in in the broader world is an important opportunity how on how we develop access.
So think of it, I'll have to have and we do have product roadmaps to think about how an exit device can go, how electronics communicate with the changing needs of electronics, and how we interface in this middleware, which also will have product roadmaps. I think we have displayed with our electronics growth that we've got a handle on all three of these, and our best days are ahead of us. Continue to be a partner of choice, drive enterprise excellence, We have signed up for a large margin expansion in 2019. We know how to do this. The 6 acquisitions that we made in 2018 will get in and industrialize and drive it.
Enterprise excellence is the equation that we've used to drive industry leading profitability, it will continue to be a large driver. Last, in terms of capital allocation, look for us to continue to make organic investments, opportunistic acquisitions of size and scale. It takes a tremendous amount of energy to go buy a $10,000,000 thing. Look at us to be, you know, at a higher level, $50,000,000 to $100,000,000 and focused on technology. Bernard Soumy is here, representing Simons Vos.
One of the best acquisitions that we've made. It's helped us to develop products, understand communications and has been a good growth engine for us and Allegiant. As we think about M and A, we like technology. Isonus would be another example. Continue to not hoard cash.
We are clear in terms of our ability to deploy our capital, organic growth, M and A and shareholder distributions. I couldn't leave this stage without bragging on my team, safest workforce in industry, Allegiant industry rate is 85% below the 2017 U. S. Industrial average. In January, we're getting ready for our monthly canvas, redo the revenues, the profitability, the things we do on a monthly basis.
We also, at the top of the agenda, is safety and health. It's the first time in my leadership career, I saw no injuries at Allegion in January. 11,000 employees, no injuries. We take this serious, it's important to us. I did not see that at Quanex.
I did not see that at Schneider Electric. In my mind, safety and health, environmental stewardship is a true north metric, and we're living it, it drives bottom line performance. I think it also says something about my leadership too, that we care about the people that are serving our customers. I also aggressively speak out on the health of our workforce, trying then to make better decisions on how they fuel their body, how they manage stress as part of the value proposition that we drive to try and leverage world class performance and create a good experience. Allegion, outstanding, demonstrated financial performance over the last 5 years, excellent growth, industry leading profitability, good EPS and outstanding cash flow.
We had to work over the last 5 years to earn your credibility. We know we earn it every day and look for us to execute as a high level going forward in any economy. Our shareholder returns, you're well aware of, it benchmarks well. Last, I'll close by this. We've got strong industry characteristics and fundamentals.
I feel extremely good about the economics that we face on a global basis and our opportunity to drive connected access. Seamless access creates profitability and growth. Think about where we started 40 minutes ago when I started. How many doors are there in the world? How many doors right here in the United States?
With a 5% penetration rate, I like our opportunities to be able to drive seamless access, new solutions, solve the problems of congested cities through package delivery or new ways to enter buildings. We enter the next 5 years from a position of strength. I'm clearly much more knowledgeable as well as my management team. We've got a diverse customer base and set of business partners that have looked at us for the past to be successful and will continue to look for us for our expertise, not only in our historic mechanical knowledge, but in our seamless access. We've got an engaged and high performing workforce, and I believe we put up 5 years with a great track record.
So with that, I believe that Allegion's best days are ahead of us. I'm going to bring up Vince Wienos, who's our Vice President of Engineering Technology and Rob Martens, our futurist, to talk a little bit more about SeamlessAccess. Thanks for your attention. Guys? Vince, my pleasure.
All right. So good afternoon, everyone. Thanks for your time. Tough act to follow. I drew the short straw on that one.
Dave could give this pitch as easily as I can. So he's made that transition from hardwire to fiber optics. So congratulations on that, Dave. So my name is Vince Waynes. I have responsibility for engineering at Allegion and I'm joined by my colleague, Rob Martins.
Rob has one of the coolest titles in all of industry, that's futurist and he's also the President of Allegiant Ventures. And so we're going to tag team this topic a little bit. I'll start it out. Focus is going to be on technology and innovation. I think you could tell from Dave's pitch, we're going to focus a lot on electronics.
You can probably tell that by looking at the product displays outside as well. So strong focus on that. As we go forward through this deck, I'm going to hit on products, product innovation. Rob is going to come up and talk about a number of different trends that are impacting our business that we think we can ride and continue our success in the marketplace. He'll also talk to you a bit about Allegion Ventures and then close this particular section.
So what do we mean by innovation? We're a product manufacturing company. So it'd be really easy for all of you to think about innovation around our product the It's the products you experience every day. But innovation is broader than that. I think Dave touched on that when he talked about our trailblazer program.
And he said that we look at innovation around process, how we do our work. We look at innovation around our business models, how we go to the market, how we serve our customers. So it's a very broad, but at the center, no matter whether it's product process or go to market, it's a focus on the customer, right? If it doesn't bring value to the customer, then it is an innovation. Lot of companies can talk about great ideas, lot of people can have ideas.
The challenge is translating those ideas from a piece of paper into a product that has success in the marketplace. And I think you've seen by the products we demonstrated outside and you'll see more in this deck as we go through it that we feel we're extremely good at innovating and bringing value to our customers. So let's start a little bit on a history lesson, innovation relative to electronics at Allegion. You all know that 80% of our business is mechanical. You saw that with Dave's deck.
In fact, our legacy goes back over a century to mechanical devices, the exit device, for example, that Dave talked about or mechanical locks with Walter Schlage. In fact, one of his greatest innovations was the push button to lock a mechanical lock. I mean, we take it for granted now. But when Schlage invented that, it changed the game. It actually puts Schlage on the map from a mechanical locking perspective.
Now what you might not know about Walter Schlage is that he also invented the 1st connected lock. And you're looking at me thinking, there's no way that Walter Schlage invented a connect lock, but he actually did. In 190 9, and you can see it up here on the far left hand side of that timeline, he came up with a way to interface a mechanical lock to the lights in a room to turn them on or off. So in effect, he came up with some initial home automation in the first connected lock. So we can trace our legacy in electronics back over a century as well.
But as you go fast forward through this, you'll see this is not a linear timeline by any stretch of the imagination, right? It starts to get crunched as we get to the right. And I think that's a natural outgrowth of the acceleration we see in electronics in our lives, right? And so a lot of our innovations have come very recently. In fact, I'll mention a few first for Allegion.
We had the 1st grade 1 high security residential electronic lock in the connect lock. We had the 1st lock, Dave mentioned it to be HomeKit compatible. That was a sense lock. Last year, we built on some of the first with Connect and added Zigbee and Z Wave. And now you're thinking, well, those are certainly not new, how can you claim a first?
Well, let me tell you how we're claiming first on some of those. So ZigBee came out with a new standard ZigBee 3.0. It's intended to fix some of the security vulnerabilities that existed in the original ZigBee 1.0. We were the 1st company to feel the lock, our connect lock with ZigBee 3.0 certification. That's really important.
I talked about customers putting customers at the center. When we look at the primary concern for customers, all of us when it comes to the connected home is what, it's security, right? So we're putting the customer first, coming out with solutions they need. Similarly on Z Wave, you say, well, Z Wave is not new. That's true.
Z Wave Plus just came out last year. We were the 1st company to fill the lock with Z Wave plus Smart Start. And you say, well, what is Smart Start? Again, focusing on the customer makes it easy to take that product out of the box and have it join your home network, easy to set up, easy to commission, easy to use. I said the top concern of people in connected home is security, second is cost, and third, as you can probably guess is ease of installation and ease of use.
So again, continuing to put the customer first when it comes to our products, what we introduce and how we introduce them. Those are some examples on the residential side of our business, but it carries over to non res as well. If you look below the timeline on the right hand side, you'll see that when we were last together about 24 months ago, our Engage platform stopped with the NDE lock. I think you saw that out here. Since that time, we've added the LE, which is a Mortise lock version of that connected to our Engage platform.
And we've also added what we call the RURM, think of it as an electronically engaged activated exit device, which fits on that platform as well. So when we look at our innovation leadership in the mechanical space, it's strong. In the electronic space, it's strong. And we believe we're well positioned to continue to be a leader into the future. So I wanted to talk a bit about why the focus on electronics.
I think Dave did a great job. He talked about our strategy, seamless access, right, and how we think that's important for us today and going into the future. But electronics growth is accelerating. Whether we call that a trend or just a fact of life, I call it just a fact of life. I mean, we live with it every day.
In our lives, we see the impact it has. The connectivity we have is mind blowing. So I put a couple of stats on here. By the end of this year, it's estimated there will be over 10 1,000,000,000 Wi Fi connected devices in residences around the world. That's a lot of devices, right?
One for every man, woman and child plus some. But perhaps even more shocking, at least it was to me, was that in 2017 globally, 1,500,000,000 smartphones were sold. I had to go double and triple check that number because it seemed pretty astonishing that 1 in every 5 people on the planet bought a smartphone in 2017, but effectively that's the case. When you had industry leaders like Samsung selling close to 400,000,000 just by themselves. So why am I pointing this out?
It's an increasingly connected world. The transition to our homes and our offices is a natural one. Greater options, right, ease of use, better customer experience, all driving adoption of these products in ways we couldn't have imagined before. So you think that and you say, well, a lot of these statistics end with a B, 1,000,000,000, people are adopting them, the space must be crowded, it must be small. But I think as Dave pointed out, what we see is just the opposite.
So for example, in the Americas, the penetration rate or the adoption rate of Eloxx for front doors is only about 7%. Yet when you talk to people who don't have them, so when we did a survey of people who don't actually have 1, 55% of them expressed an interest or a very strong interest in having 1. So the market is still very strong. And then when we flip over to non residential and look at it, it's similar. I mean that space has adopted electronics and connected locks much earlier than residential.
There's no question about that. But yet the penetration rate only stands at about 14%. In fact, when we look at resi and non resi, the entire market for e locks for physical access control is predicted to be at least $2,500,000,000 by the year 2022. So just a tremendously large opportunity left for us to go get. I think that was Dave's point when he said how many doors are out there, how many doors are out there that aren't connected, a huge number.
Now that said, we can also look at some of the mega techs and the mega trends. Rob is going to talk a bit about those and the influence they have and our ability to effectively partner with them and continue to drive this growth in ways we may have never thought of even 5 or 6 years ago with home delivery, for example, as Dave pointed out. Now earlier I said that innovation only matters or ideas only matter if they're truly innovative and bring value to customers. And so I talked a lot about a lot of our innovation in electronic space, electronic locks and otherwise. And you might say, well, how do you know you're being successful?
Well, if you look at this graphic, and again, it focuses on the Americas region for now. Left hand side is residential, right hand side non resi, blue bar is market growth over about 5 years, orange bar is a leading growth last year. So you can see that our solutions are indeed winning, They're being adopted. They're bringing customers value in the marketplace because we're growing about twice market. So when we feel really good about the products we fielded and what they're doing out in for our customers.
So whether that is the NDE lock, the LE, our Schlage Sense, our Schlage Encode, we'll talk a bit about those in a minute. We believe we're very, very well positioned to capture that growth as we go forward. So I mentioned we were last in front of you about 24 months ago. I talked about some of the things that are new, but that's not all, right. We've had a significant number of new developments in the electronic space, not just in the Americas, but globally that are driving our growth.
So I thought I would talk a little bit about some of those here. Up in the upper left hand corner, you can see our residential Allstate portfolio of products. I talked a bit about those. The fact that we have all the major technology connectivity Zigbee, Z Wave, Wi Fi, for example. We work with all the major voice assistants, whether that's Amazon, Google, Apple.
We work with all the major home hub providers as well to give you solutions that are accessible, whether you're looking for home automation, whether you're looking for home security or just convenience. On the right hand side, you see the Engage platform. When we were here a couple of years ago, we had the NDE lock sitting on that platform. I talked about the fact that we've grown that platform significantly with adding Mortis capability with the LE, as well as a door controller, which we call the CTE. That growth has been well received by the market.
It shows how you can create a platform and quickly put additional devices onto it to complement the portfolio and provide protection on all exterior and interior doors. Those are examples of resi and non resi in the Americas region, but the growth and the innovation isn't confined just to that region. So I thought I'd point out Simons Voss. I think hopefully you got a chance to talk to Bernard and see the solutions that Simons Voss brings to the marketplace. They invented the E cylinder, you probably saw that on my timeline.
They're experts in miniaturization, both mechanical and electronic and they've leveraged that into a new product we call the Smart Handle AX. There's a great example of it out here. If you haven't had a chance to experience it, please do during the break. It's a tremendous product for EMEA, but beyond that it's a global product that even has applicability in the APAC region. So great job by the team there, leveraging their strengths to bring new solutions to the market and not just for EMEA, but for the world.
Similarly, in Lucia's business, Interflex, our time and attendance business has launched a significant portfolio of mobile credentialing. So getting away from physical credentials and being able to use your phone. And last, but certainly not least by any stretch of the imagination is our Asia Pacific portfolio of electronic locks. It has grown tremendously in the last 24 months. There's even some things you don't see here that I think we had out there for you to view in the SEL 600.
But Bluetooth connectivity, both under our Schlage brand as well as our Milray brand are really driving growth in the region for Jeff and for his team. Now all that stuff is really great, right? Cool technology, great products, I love them, Rob loves them. We think they're doing really well. But you might say it takes investment to do that and you'd be right.
It does take investment to do that. You might ask, do you guys feel like you're getting a good return on that investment? And so I'm just going to point out a few things that I think demonstrate our ability to have an engineering organization that is very effective, very efficient in bringing those solutions to the market. So 1st and foremost, as with most parts of our business, we're always looking to digitally transform it, that is bring latest tools and technologies to our teams to make them as productive and efficient as we possibly can. And so we're fortunate to be able to do that, to have common tools that we use globally, so that we can share designs around the world.
When I talk about sharing designs in the middle and the upper hand part, you're not intended to have to read all this. So I apologize for the small font, but it's really focusing on platforming or what I like to call reuse, meaning can you develop core pieces of a design that can be shared, leveraged so that we improve our time to market, reduce our risk and maintain the highest levels of quality. And we've done that around product platforms. I would argue Connect is 1. We've done that around, I'll say, a software platform, a Gauge is a great example.
And even technology platforms over on the right hand side there, the core of all Interflex readers is a common piece of electronics hardware and firmware that goes across the board. So we do it once, we get it right and we leverage it across all the products and all the controllers in that particular business. Dave talked earlier when he was talking about our global capability and he talked a little bit about Bangalore. When we look at the needs of the business, we've had to grow headcount. So productivity is great, platforming helps a lot too, but as the business grows, we need to add people as well.
We've been very successful in doing this since spin, over 50% of our organic headcount, so set aside businesses we've acquired, 50% plus of our organic headcount has come in low cost countries. The vast majority of that, as Dave mentioned, is in Bangalore, India, where we have virtually every engineering competency present. They started out maybe a decade ago focused primarily on supporting product development for the Americas. Proud to say, we now leverage that design center for the globe, supports the Americas, EMEA and APAC as well. And about a quarter of our engineering headcount globally resides in that location.
It gives us great capability, great access to talent, huge, huge numbers of engineers graduate in India every year, second only to China, I believe, and it's given us a great opportunity to leverage that. We talked Dave talked about the complexity of our products, right? So you've got a mechanical lock by the time you look at the features, the trim, the colors, etcetera, you might have 1,000,000 plus possible variants of our products. So there's a lot of work to sustain that. Components, whether mechanical or electronic go obsolete.
So we have to reengineer the product so that it can continue on in the marketplace. We do value engineering to take cost out of our products to keep them competitive in the marketplace. That is sustaining type work, meaning it's work we have to do to keep our current portfolio of products relevant. If you're not careful, that can consume everything you do, right? So you need to have a good balance and make sure you're allocating a fair amount of your time to new product development innovation.
And what you see here in the lower left hand corner is a stat that shows and I didn't make this up, I know fifty-fifty you're looking at it thinking you made it up. But for 2018, that's how it broke down. And we try and target that right off 45, 55, 55, 45, whatever, but try to make sure we've got the right folks maintaining our competitive products their position in the marketplace as well as a fair amount of our team focused on bringing that new innovation and those solutions to the market. As you go about thinking about the transition from a mechanical business to an electronics business, Dave mentioned we're at 20% now, but it's growing double digits, that's absolutely true. That brings a need for different types of people than maybe you had before.
And so as we've grown post spin, we've looked for people who are capable of doing systems engineering, software engineering, firmware engineering, electronics engineering, some of those through acquisition, a lot of those organic growth in our company. And I'm proud to say that as of last year, we passed a point where over 60% of our engineering headcount is now focused in those areas, which will fuel our future as we go forward. Last and certainly not least is, are we doing a good job of protecting our ideas, our intellectual property? Lower right hand side, you can see we've had a continuous stream of great ideas come out of our organization. Those resulted in submissions to the US Patent Office.
But what's even more impressive is our conversion, the ability to get patents awarded is also very, very high. So we have high quality ideas, protecting our products, getting patents in those and we've been very successful with I think over 200 granted since spin. So as you can tell, I'm really proud of the products and solutions we have. Rob is, I know the entire leadership team is, but we also feel good when others recognize the great work we're doing as well. So I thought I'd point out just a few awards that we've won recently.
On the left hand side, you see the Engage exit device, the RURM, won 3 major industry awards when it launched last year. So I'd encourage you to take a look at it out here. Center on the top, we have what's called the Twice Picks Awards. If you're not familiar with Twice, it's a magazine stands for This Week in Consumer Electronics. They provide awards during the Consumer Electronics Show.
We won in 2018 for our SENSE product, and we won award again this year in 2019 for the Encode product, the Wi Fi enabled deadbolt that is compatible with Key by Amazon. Those two products or those three products came from our traditional teams. We're equally proud of the recognition that some of our newer entries have received as well. So Izonis, Dave mentioned, recent acquisition last year brought us some tremendous intellectual property around IP connectivity for devices in and around the door, but also some pretty industry leading products as well. They won an award at ISC West last year for their access control as a service software platform.
And last but certainly not least, on the bottom there, you see our Pegasus lock from Europe, which won a design award as well. So whether it's technology based, design based or combination of the 2, lot of great industry recognition for our teams. So I hope you've enjoyed that so far. Talks a little bit about where we've been, where we are and where we're headed. And where we're headed is heavily influenced a lot by what we see happening and by what's happening in the market, the influences, the trends that we see that are going to be important.
So when we think about that, we talk about megatrends, here's a definition of a megatrend, the standard stuff, right, you can pull out of the dictionary if you want. But we don't look at all the megatrends, we try to boil those down. We're pretty fortunate actually in Allegion to have an individual who is really, really good at that. Over the last 3, 4, 5 years, he's done a great job of predicting the trends that are going to be meaningful in the residential space as well as the trends that are going to be meaningful in the non res space. And so with that, I'd like to turn it over to Rob and let him take you through it.
Thank you.
All right. So like Vince said, one of my primary duties at Allegion is focusing on megatrends. And what that's really about is, I think we're all generally familiar, we want to throw something up there just for context for you. But in our world, there are plenty of them. The question is, is how are they relevant to us, either from a threat or an opportunity standpoint.
And so I'd like to think we're doing a pretty good job of assessing those and kind of pulling those through. So today we're trying to figure out in the middle of the program, what would be something that's interesting for you, but it also be highly informative in terms of how we're leveraging those to our advantage. So to start, I want to point out 5, we just cherry picked 5 out of the plethora of megatrends that are out there that we think are especially relevant to our area of business. So hopefully somewhat familiar, I'm going to define these for you and then I'll take some time to go through our unique opportunity and our unique advantage that we have based on a variety of factors. So first, you heard Dave refer to edge computing, and I'm sure most of you have heard of edge computing, but you may be confused.
It is a complex topic depending on who's writing about it and which magazine at the time. Edge computing, what it really means is more is happening at the point of interaction. More processing is taking place. It is focused on providing a better user experience in real time. And so it does not omit the cloud.
So when you talk about edge computing, we're not talking about everything happening on location. It's highly complementary. So an area of focus for Allegion. The second one, you heard Dave mentioned as well, conversational platforms. So Alexa, Google Assistant, Siri, you name it, we participate in all of those platforms.
We believe what is effectively becoming biometric, authorized entry and things like that are highly relevant, highly intuitive and work really well across various populations across the world. So that's another one. Most importantly here though, this is an effective bridge between physical and digital security. And we're going to talk a little more about that with examples from Pindrop and some others as well I think you'll like. I want to focus a little bit more time here and pontificate if you'll allow me on secure and scalable IoT.
So if you've been at a conference or you've seen me talk before, I always say the big joke in the IoT is there is no S in the IoT. There is no security in the IoT. And we've actually seen that transform a little bit more and I would adapt what I said before is, not only has there been no security, but there's also been no scalability. The message that I want to give is, I can literally go out today and buy a product that will allow a kid that's 10 years old to connect something to the Internet. Connecting products to the Internet is not difficult.
It's easier than it's ever been. The problem is, is what do you do once you get it there? Can it scale? Is it secure? And you're seeing in the news, I won't give specific examples, but lots of places where this is hugely problematic.
You can support 10,000 people, that's fantastic. What about when it hits 1,000,000? What about when it hits 10,000,000? What are you going to do then? So we'll talk more about that.
Specifications, core feature, core function, core capability of our business, the specification process in and of itself with Overtur is changing. We want to do things real time. We want to collaborate. It's not about handing you a physical piece of paper. It's about a digital asset that is constantly learning.
You see machine learning, AI, all these things embedded and baked in now into smarter specifications, very dynamic space for us. And then interestingly enough, we're calling it a megatrend. Emerging technology and venturing are going hand in hand. How does an established existing brand and company get access to the right technology at the right time and apply it responsibly? Venturing is a way to do it.
We think about venturing differently than other people do. Dave came to me with a very specific challenge. I don't want to be like every other corporate venture group. And so we're going to talk a little bit about that and why we are so different. The bottom line here is we want to leverage these megatrends of today and tomorrow into profitable growth and let's dive in.
So edge computing, and you've heard all of us talk about this before, but we're going to mention it again is our unique geography around the door in and of itself is inherently valuable. You're processing more and more locally in order to give the enhanced customer experience that people expect demand from their devices from seamless access, you've got to have the geography. You've got to have it there. And so we have the ideal location for many things. And as Vince's team improves things like battery life, various protocols and other things that we're extremely familiar with, we do it better and better and better.
And so things that you think of today as being dumb devices, well guess what, a lot of those are actually smart and they're definitely getting smarter. Don't forget the trend. The trend is the cost of sensors continues to go down. The cost of transporting the information from all those sensors continues to go down. And the cost of taking that dirty data and converting it to clean usable data, that price is going down as well.
So all these trends pushing in our favor. And that geography has a lot to do with the benefit that we're going to recognize. We talked about conversational platforms. I won't belabor the point. When we see ones that we like that we think have scale and we think add value for the end user, we go for it, we're there and we're there early.
Talking about the IoT in particular and why we think secure and scalable is an advantage for us, I would say the proof is in the pudding. Look at the first investment that Allegion Ventures made. We made an investment in a company called Pindrop. Pindrop are experts in voice authentication. So instead of having to have a pin code when you go in to unlock your door, because that was our concern, unless we can validate that you are who you say you are, we do not want to open that door, We now can do that with Pindrop.
You may be familiar with the Pindrop name because they've been heavily used in contact centers, large financial institutions, other places like this. We aggressively went after them to say, have you thought about propagating your technology in the IoT space more broadly? And Vijay and the team there said, absolutely. The benefit of that is exposure to an incredible array of entrepreneurs. If you look at Pindrop's board, if you look at their makeup of their company, I think you'll be fascinated.
Check them out. Smarter specifications, a big advantage. If you're not familiar with Overtur, get familiar. It is the coolest technology that I think we have going. Heavy level of integration where we make a collaborative environment out of something that historically might have even been a little bit painful.
It continues to double down and grow the moat that we've historically had, but do so in a way that adds inherent value with each step for everybody that's involved. It's a win win all the way around. And then we talked a little bit about Allegion Ventures and I'm going to jump in more. You heard Dave mention, we have a couple of examples there. You know me, for example, is the purveyor of a thin cloud technology.
Many people think of Yanomie as actually a consumer app, and it is. They face they do seamless access for home automation and things like that. But we leverage it to have a highly efficient infrastructure for our back end for cloud devices. Every cloud device that you have sends a message, lock, unlock any status message or something like that. Those messages have an inherent cost to them.
They have and those costs add up significantly over time with scale. And if you're smart, you select platforms and companies to work with that understand where the technology is going. So not only do you get the best cost, but you maximize the capability and the number of messages that you can send, the speed, the quality. And so a great example there. One of the core pillars is around being the partner of choice.
And one thing that I want to emphasize is no one can do this all by themselves. And I think we've been consistent with that from the beginning. That's why we're focused on open standards, having innovative products that people want to partner with to get their hands on to leverage within their ecosystems and candidly having the type of recognized experts out there that people trust. The bottom line with Allegion, even with the person with the futurist title is we're not about technology for technology sake. We're about the appropriate application of technology.
How do we do it the right way, the first time, not to get the buzz, to get the funding? Let's make it so it works. We don't have the luxury of failing. Now the bottom line here is we make products that play well with everyone. So on the left hand side, we've got kind of the usual suspects.
We put them in a separate box because we think the mega techs have an unusual role to play. None of them are able to do it all. But they are able to do a certain level of aggregation and they also do a good job in many cases of helping to own and deliver things like identity and other things like that and propagate it through. So we play extremely well with them. We also play extremely well with some more traditional partners and some big ones too.
You'll notice Alibaba up there in Jeff Woods area of the world. Lucia has Bosch. We have some incredible partnerships that we're very proud of and we continue to maintain and grow and discover collaboratively with on a regular basis. And this is just a short list, the long list we just figured the logos would be too small, we didn't want to dump them all on one page. So in that vein, I would say, what's a tangible example, we're trying to think of what's the best way to show you our ability to partner in some of these things.
And we thought, well, we've got a video that we did with 1 of our partners. And I would challenge you to tell me afterwards, is this a Schlage or Allegion video or is this an Amazon video? Hit
it. Ditch your keys and make life easier with the Amazon Key Smart Lock Kit and introducing its new compatible Schlage Encode WiFi lock. Whether you have your hands full in the kitchen Alexa, lock my side door. Locking, hang on. Need to let someone in while you're out?
Or just want to make your morning run a little lighter? The Amazon Key Smart Lock Kit with Schlage Encode WiFi Lock gives you the peace of mind to securely lock and unlock your door anytime, anywhere, no matter where life takes you.
So for me, my family saw that ad and said, that's really cool that Amazon did that ad for you. And then we had a bunch of other people work say, hey, that's really awesome that we did that ad for Amazon. So the point is, is we have these things at front of mind. We understand what the consumer is looking for is a seamless access, a seamless integration. They don't care about who owns what and which pieces belong to who.
It's about having those open standards and it's about living up to those open standards and those integrations the right way. So when we have challenges, whatever it may be, we approach it in a holistic strategic manner with people together. So I would say that's a core differentiator and a core pillar for us that's an advantage. So kind of hopping back on the innovation piece itself, when you think about Allegion and Innovation, we want you to think about the fact that we have 3 core engines for that. The robust core of this are our engineering advanced development and you heard also about Tracy's IT organization.
So organic creation of solutions, strategic development, global platforming, Many people don't even understand the difference between advanced development and innovation. Advanced development is highly focused on identifying standards and propagating those standards quickly and efficiently. Whereas innovation has far more to do with identifying a theory and improving that theory quickly. We understand those things and we're organized in order to optimally push those things forward. You're also familiar, I know, with our acquisitions.
We've had some nice ones. It's been wonderful. We expand that strategic footprint and capabilities every time we make a purchase. We're very diligent in our assessment when we look at folks And we felt like there was one element that maybe was missing from these engines that we needed to tackle. And that was on the Ventures and Partnership side.
So I want to tell you a little bit more about Allegion Ventures, which was officially launched in March of 2018, okay? Allegion Ventures is all about discovery. It's about discovery of emerging technologies. It's about finding things before everyone else finds them. The thesis for the fund is very simple.
People and asset flow. So it's quite broad. We don't tend to invest in companies that are too literal to us. And when I say literal, I mean, we have people that come to us and say, I have the smart lock, Rob, I like for you. And from a responsible venture capital standpoint, you look at them and say, hey, listen, we should probably have a different type of discussion with you.
I don't know that you want us on your cap table depending on what your exit strategy is, things like that. What Ventures is focused on are things like Pindrop, things like Younomi, things that can advantage us in ways that can accelerate the dynamic growth of this company. So a couple of areas you see on the slide behind me, smarter, more secure buildings, easier, more secure access, a user centric experience. But how do we do this and differentiate ourselves from all the other corporate VCs? Because having been a startup person before and an entrepreneur myself, I look at those things and give the Heisman, right?
I don't have a desire to interact with people that are heavily bureaucratic or somehow may waste my time and I might not get what I need anyway. So we actually have a venture as a service program within Allegion Ventures, which allows people like me to focus on what we're really good at. We can do our financial analysis and we can do assessment of companies in days or weeks, not months. And it's not burdening our traditional financial or our traditional finance or other groups to do those assessments through the partnership that we have with Touchdown Ventures. So when we have a conversation with an entrepreneur, it is about their technology and how we believe that we can help make it grow for them.
It's also about returns. We want to have a successful return, but what it's really about is taking that person that happens to be an expert in working with big box retailers and exposing them. Taking that person that has a supply chain expertise or a particular power management expertise or something and exposing them. So it's beneficial both ways and the feedback thus far has been fantastic and the pipeline for ventures is incredibly robust. So I would just say great things to come.
Kind of want to end it up here for Vince and I around how do we define success in this incredibly dynamic cool space? At the end of the day, we really want to be the smartest, most convenient security devices to install, integrate, manage your own for your home, property or business ecosystem. At the end of the day, you should be able to buy it, have it delivered, what have you, have the person show up and it should just work. The way we're going to do that is through seamless access. Thanks.
Ladies and gentlemen, we will now have a 10 minute break. During that time, we encourage you to visit our product display area and to talk to our experts on innovation and technology. Now it's my pleasure to introduce to the stage our Senior Vice President of Allegion and President of Allegion Americas, Tim Eckersley.
Good afternoon, everybody. Is my mic on? Sounds like it from here. Probably don't need it. It's exciting.
I'll spend the next few minutes talking to you a little bit about the Americas business, and I'll try to do that with the energy, excitement and enthusiasm I have for this business that is such a core part of what Allegion does. In the last 2 years since I was with you last, we've been working hard in the Americas and have accomplished a lot. We've expanded our position in the electronics business. We've created a successful penetration in underserved markets in the marketplace. We've created a foundation in our business for digital capabilities as a business as well.
We strengthened our market leading positions from a brand perspective. We've led this industry in organic growth. We've grown our business leverage year over year, and we lead the industry in customer satisfaction. So it is my pleasure and privilege to be able to represent the great work of the employees of the Allegion Americas team, and it's my pleasure to be here with you this afternoon. So if we just take a quick snapshot of where we are as a business here in March of 2019, you find a $2,000,000,000 enterprise that has market leading operating performance and margins.
As I said, we've expanded our market strength in both the residential and the nonresidential markets. We've got a more balanced end market and cyclical exposure business now that has the ability to withstand downturns in particular market segments in a more effective way. Electronics in this market is accelerating at an incredible pace and we are right smack in the crosshairs of that acceleration. We strengthened our leadership position in both the mechanical and the electronic portfolio space. The foundations of this business remain solid and strong.
And yet we've also made significant investments in building on those strengths through acquisitions and organic investments. We have over 5,000 industry professionals as part of the Allegion Americas team. We have in market manufacturing capabilities and we have significantly broad channel exposure and channel strength. So let's talk a little bit about brands. And we are blessed to be a house of brands here at Allegion.
And in the Americas, certainly brands play a big major role in our success as a business. Von Dupren, LCN and Schlage represent the best of the best in our industry for quality, innovation, installed base, customer access, you name it, we lead the marketplace and we are blessed with the strength of those brands. But over the last 2 years, we've also made some investments in some brands that are actually focused more on the repair, replace or aftermarket business. We've launched Dexter Commercial and Lochnetics, specifically targeted at taking a bigger share of the aftermarket business through our channel initiatives. And those brands represent a growing opportunity for our business on a going forward basis.
We've also been successful at acquiring a number of really fantastic brands as well. AD Systems that you heard Dave mention is this phenomenal sliding door company for glass and wood, but perhaps the most significant thing that's not often talked about is their intellectual property position that creates a specifiable advantage for us in the healthcare space by providing that sliding door capability using or managing both noise and infections in a healthcare environment and doing so with ADA compliance on the bottom rails of those doors. Exactly specifiable intellectual property that makes up the strength of our business. Similarly, in the case of Technical Glass Products or TGP, a high end premium based fire rated glass wall partition capability that brings new design elements to places like schools, auditoriums and other things, while maintaining the fire rating that is so critical to the specifications that we write as a business. So again, we've advanced ourselves there in a specifiable advantage in TGP.
And Izonis that we acquired in the middle of last year also significant in their intellectual property that we acquired for edge computing technology, particularly PoE based edge computing, power over Ethernet, edge computing technology and cloud based architecture for access control. All three of these companies represent innovation and leadership in their market segments and they also represent opportunities for us to take the strengths of Allegion and leverage those on a going forward basis to the advantage of both these acquired companies and Allegion in the Americas business. So let's spend a few minutes talking about the markets. You heard Dave talk about positive favorable trends in the markets. We expect our markets in the Americas to support our growth through the years 2021.
Our institutional market segments, which are generally late cycle, are actually sustaining and still building on momentum that came in 2018. So we see positive trends there and we're also seeing now in the institutional space, electronics becoming a bigger and bigger part of the solutions that are being adopted in both K-twelve and higher education. We'll talk more about that in a minute. The commercial market, I would characterize as slowing a bit, particularly in the multifamily side where we see a little bit slower penetration or market growth. But even here, there's market dynamics that are driving above market expectations for growth, including delivery and mobility in the multifamily space that is driving both a renovation and a new construction market segment where people are vying to bring new connected experiences to people who rent apartments around the country.
On the residential new construction side, we do see some softening there early this year. We'll see how the rest of the year plays out. And I would say the retail environment is somewhat mixed and a bit moderating. But here, we see the electronics portfolio and the activities we have in electronics driving this and we're even starting to see the effects of the builder market on electronics as well, driving a higher than expected growth rate in the market. So the combination of our channel activities and our investments in the channel development area, electronics and I would say the continued capability to drive specifiable differentiation for Allegiance products, we believe that we are poised to
grow at
a pace that is slightly faster than the overall market growth over the next 3 years. So what are the strengths that we talk about all the time in the nonresidential side? So 1st and foremost, we've got to talk about product strength and supply chain skills. The concept and the capability to provide over 100,000,000 different variations of our core product offerings and do so in 5 days or less anywhere in the country with local manufacturing and deliver those on time every time is a significant competitive advantage to Allegion. Now if you bundle that up with the code expertise and the skills that we have to write specifications that are uniquely qualified for Allegion products in the marketplace and our capability of orchestrating the channel to the benefit of Allegion's products on top of the specifications, you've got the 3 legged stool, products that are differentiated relative to our competition, specifications that are driven differentiating our product and access to and management of the channel structure enabling our success.
This position in the marketplace also affords us incredible strength to drive investments in organic activities. And so we have continued to drive innovation in the nonresidential space that you can see outside these doors and we'll talk a little bit more about it as we get into this presentation. But this innovation is driving a distance between us and our competition in a significant way. We're also beginning the process of building value propositions that are beyond the core products that are hanging on the door and these connected solutions are bringing new value propositions in the area of data. Last but not least, we are investing heavily in digital capabilities that is driving efficiency and effectiveness and disruption into the distribution channels.
But we're not standing still at all on these strengths. As I mentioned, we have been investing in market leading innovation. And here, we believe electronics, mobility and mobile access as well as investments in mechanical innovations will continue to drive a higher than normal or higher than expected vitality rate on our new products in the marketplace. We're also doing a lot of work to disrupt the institutional and commercial markets through the development of IP based or IP centric solutions. We'll talk about this in a minute, but at the heart of this, we're talking about delivering solutions that are easier to install and are more cost effective, allowing for a deeper penetration into commercial facilities with electronic access control to enable this seamless access concept.
We're also investing in tools that are driving efficiency, effectiveness and broadening and strengthening our relationship with the architecture community. Overtur is a perfect example of a digitally collaborative environment that allows us to collaborate with architects in a seamless way, produce a single source of truth of the hardware and capabilities that are intended to be constructed in that project and driving that single source of truth all the way through the implementation and the activities in the business. We're also starting to build value in these discretionary channels, as we mentioned before. And here, this discretionary approach is not just a matter of packaging up our products and trying to sell them to new channels. No.
Here we are, in fact, trying to build really intentional relationships with the best partners in the industry that are aligned with the products and the capabilities of what Allegiant believes in, in the marketplace. So here we're talking about open systems, edge intelligence, seamless access and the balance between security and convenience in this seamlessly connected access world. So what is our competitive advantage in the residential space? An equal opportunity for Allegion. You heard Vince talk about our e lock evolution and in fact our legacy.
And we're not new about it new at this. Our first electronic lock innovations in the modern age started in 2,006. It's over that's a pretty significant long time ago. And 12 years ago, that was something called the KPL, KPD that we launched in the marketplace. And now today, fast forward 12 years later, with the brand new launch of the Encode product in the marketplace, just started shipping yesterday, if you haven't last week, sorry, if you haven't gotten your Encode lock, get on to Amazon, get on to homedepot.com, buy your Encode lock, I'm telling you, we're blown away by the simplicity, the ease of installation, the connectivity capability and the breadth of skills and strengths that we are bringing in what is the 1st Wi Fi enabled connected lock.
What else matters in this residential world? Brands matter. Brand strengths matter. We are not talking about gadgets and we're not talking about light bulbs. We are talking about home security.
When we say the door is locked, the door has to be locked. Plus or minus 5 degrees on the thermostat, the light bulb doesn't turn on, it's okay. The lock is supposed to be locked. If it's not locked, it's a problem. And this is a big deal and big brands are important to deliver these kinds of value propositions.
Our installed base and broad market exposure, we are in the big box markets, we're on e commerce, we're in all the builder channels and we have a substantial distribution marketplace to support all of those installed capabilities. We have scale and legacy. I can't tell you the number of times that myself and my partners in the Americas are sitting in a room with big companies trying to make a difference in the connected world and we are the adult experts on security sitting in the room and we are absolutely driving a value proposition that is different than anybody else in those conversations because of our position in the marketplace, our 100 year legacy and the trust and respect that is built around our brands that we've built over the years. Here's the key point. We know where value is added in Access and we fight like hell in those places where value is created.
But we also know that lots of other people can add value in this connected home space. And there, we focus on partnering, we focus on nurturing relationships, we focus on being with the best and the best in the industry. So where are we spending our time right now? Three big areas. The first one is doubling down on our channel development work.
And here, we will continue the work in understanding and developing capabilities to serve underserved markets from our perspective. But we're also doing a lot of work to modernize and grow and add value to our existing distribution. Think about digital tools, new business models, new routes to market. And we're also focusing on always maintaining a creation of value perspective and making sure that we maintain or advance our competitive differentiation or competitive advantage in the marketplace. We're also going to continue to focus and accelerate our focus on investments in electronics.
And here, we're predominantly talking about connected experiences. IP plus mobility plus edge computing equals seamless access in the marketplace, and we're driving aggressively on that in that space in both the residential and the commercial side. We're embracing data as a company as an opportunity. Data, these connected devices are collecting information and data all the time and we're using that data to embrace as an opportunity for our business. And then last but certainly not least, software as a product, not just simply software to enable a product.
If you think about that, there are opportunities across the landscape in our market segment where we can gain additional value and leverage on our investments by simply acknowledging that the software that comes with our products is also creating value beyond just the products themselves. I want to go back. So lastly, on this slide, I wanted to talk about enterprise excellence for a few minutes. And the first point here is, we understand, respect and focus on this price productivity being greater than inflation equation in our business. It's a core part of what's made us successful and we continue to drive there.
Our strength is in gaining leverage on the volume of products that we produce for the marketplace. We're also focusing on platforming, providing a lowest cost platform opportunity that allow us to differentiate our products in a whole host of market segments out there. And we're also investing in digital tools that are reducing our internal complexity and bringing a better customer experience to the people that interact with our business on a going forward basis. So a quick update on our channel work that I talked about 2 years ago with a lot of excitement and enthusiasm, and I'll try to do the same thing again today. You remember, if you were with us 2 years ago, we talked about a $2,000,000,000 market opportunity for Allegion.
These are markets that existed out there, they were operating in their own pace and yet what we found when we did our work is that Allegion was underrepresented in these market segments. And so we set about doing something different about that. Inside this $2,000,000,000 market opportunity, there's somewhere between 68 meaningfully differentiated segments of the marketplace. We are currently operating in earnest on 3 of those 6 to 8. So we got plenty of room for continued growth.
Here, we are focusing on building long term sustainable value that is the product plus other value components like lead generation, marketing support, training and development, all these things that actually these channel partners create value in what they're trying to do and grow their business. It's also important here is that we are curating a select set of partners in the marketplace. This is not an opportunity for 100 percent of the locksmith and integrator markets customers in the marketplace. That is not what we're doing. We are looking for places where strategy, investment and strategic business alignment are all playing together that allows us to create an entrenched differentiated position with a specified focused set of marketplace that are driving value in the aftermarket.
Let me just give you a quick example of what this looks like. You'll see in a minute over 700 locksmith partners. We're also now very actively engaged with many large and small customers around the advent of delivery in the home. And in order for delivery to the home value proposition to be enabled, you must have some means of access into the home. That means that you must have some kind of an electronic lock in the home.
And what these big and small players are struggling with is how do we get those locks on those doors? How do they get installed? Well, lo and behold, Allegion happens to have a curated, aligned and focused relationship with over 700 locksmiths across the country that now represent an enormously valuable opportunity for a seamless and simple install of electronic locks in the homes. So it's not just product, it's also the relationship that you build and the ability to build value with that relationship early on. This is still very much in the early phases, even though we've been talking about it for 2 years.
The opportunities for Allegion in these discretionary market spaces are big and they continue to grow as time goes on. So let's take a little look at what this looks like. What we're looking at is winning value partnerships with and relationships with locksmiths and integrators. And I mentioned a minute ago, if you look at the integrator and locksmith space in the country, there are some 30,000 plus of these providers across the country, some big, mostly, most small. These companies are grinding it out every day, churning through $100 jobs, dollars 1,000 jobs.
And now a lot of these customers, the ones that we've decided to make purposeful relationships are grinding it out through those jobs with a bunch of Allegion gear on their trucks. Addition to that, down below, you can see that we've been focused on national account development. And this national account development is actually more about the new construction, establishing a standard for Allegion products in the new construction phase as these companies begin to expand their brick and mortar presence. But with that new construction also comes the service network that is created by our integrator and locksmith partners that we've curated as part of this business. And so you can imagine, over the life cycle of that building, the ability for us to service and maintain the Allegion position in an effective way inside those retail environments is enabled by this full lifecycle approach in the aftermarket space.
So let's talk a little bit more about the residential electronics and what's driving the growth there. So first of all, I mentioned a minute ago that the market for residential electronics is accelerating at a fast pace right now. And yet, we still find that 10% of the market penetration is the maximum, it's less than 10% actually in penetration. If I were here 2 years ago, when I was here 2 years ago, we're talking about penetrations of 4%. So we still have not yet eclipsed the 10% level of penetration.
What's driving this? Four simple things. 1st of all, security is driving it. Voice and the use of voice in the home is another driver of growth in the Eloc business. Delivery is another one that's gotten a lot of press recently, in home delivery driving the growth of our residential electronic business.
And then I would say the 4th thing is just a host of variety of new ecosystems that are emerging, whether it's dog walking services, house cleaning services, a whole variety of different point based services that are all adding to the narrative in the marketplace of access to the home. The other really interesting thing that has accelerated over the And the key here is, from this point forward, every And the key here is from this point forward, every single home that Lennar builds for the next 5 years will have at least one Schlage electronic lock on that home, regardless of price point. So think about the significance, A, of the volume, but B, of the behavior that's starting to get entrenched now in the new home construction and think about the pressure that that's going to push on the aftermarket business in electronics. So we believe the actual engagement of the new construction market in this phenomena of Eloxx and access is a big, big deal for our business on a going forward basis. It's important to note here, because you see it occasionally in our numbers, this advent and growth in electronics is putting pressure or cannibalization on the mechanical front door hardware that we have traditionally sold.
These are not one for 1, but there is pressure. And the key point for me is that the average unit price for these Eloxx is significantly higher than the mechanical product we would have sold in those instances in the 1st place. And secondly, they are being sold at the same or perhaps slightly better gross margin rate, which produces significantly more gross margin dollars for the business. So while cannibalization is a reality in this eloc growing world, we believe that also favors the long term viability of our business here in the Americas. So as I mentioned on this residential thing, we've been doing this for a while.
We've been at this since 2006. We are a trusted and desired partner with almost anybody who wants to talk about the connected home space. We are invited to all the discussions and all the meetings for anybody who's trying to create new value in the connected home space. Our brand is second to none of the industry. It represents quality, innovation and security, which is a key and important part.
We have broad and significant channel exposure and I would add the word loyalty, channel exposure and loyalty in our market. We are the market leader in the building marketplace And that gives us not only opportunity to sell innovative electronic locks, but it also gives us the opportunity to begin to disrupt and innovate around the supply chain around new construction. If you know anything about the new construction of a home, you know those processes in all phases, let alone door hardware, are broken and they're inefficient. And we believe there are opportunities for us to extract significant value from both us and our builder partners by changing the game, so to speak, in the distribution environment. Lastly, we have a broad product offering in the marketplace.
It's supporting we are supporting industry leading ecosystems that you can see down on the bottom, but more importantly, we're beginning the process of expanding price points. And we believe that as this market continues to accelerate its growth, it's going to be required for us to bring price points sub-one hundred dollars to bring Connected Locks to the masses. And we believe that an Allegion company with the scale and the brand strength is the we have that capability to drive those kinds of economics and do so in a way that's as profitable as the position we're currently in. So what about the non res and how is that going in the electronic space? Well, here the situation is a little bit better.
You can see penetration rates just below 15%. But I would say that is predominantly perimeter security and I said that 2 years ago and it's still the case. One of the unique things about the commercial and institutional space around electronics is the fact that we are that this industry is still dominated by what I would call old legacy business models that are built around proprietary technology, panel sitting on the wall, every product has to be connected back through a wire to a panel, RS485 architecture, which you probably don't even know what it is, and I could go on and on and on. And where the opportunity exists is for us to drive IP connectivity, this edge computing technology and mobility into the marketplace in a new and unique way that will drive efficiency, effectiveness, cost effective solutions. As an example, campus security, and we've been involved in university campuses now for 5 plus years with our ADCO platform out here.
We are now starting to see exactly what we would have predicted 5 years ago. Customers are going back to those AD locks, they're taking off the modular component of that AD lock that represents the opportunity to change the area interface and they're installing it with they're adding to that new modules that allow them to have Bluetooth connectivity and enable mobility on those platforms. 5 years ago, we didn't have the technology to enable mobility. Now we do and we have the ability to go back to every one of that installed base of AD Locks and upgrade and enhance those with simple modules that provide electronics necessary for mobility. Our newest electronic products inside this commercial category are growing over 100% right now.
1 of the best and most shining examples of innovation and creativity outside is the Von Dupren RURM. You got to go look at this product on the next break. It's on the left hand side. You will be blown away by the technology. What have we done?
All we've taken is our market leading installed base in panic bars or exit devices. We've created a retrofit product capability, a simple infield install by either an integrator or the campus locksmith. You put in this module, it enables wireless electronic connectivity from that device to any OEM access control panel, probably one that's sitting and managing the front of the school district and immediately now, you have the ability in a cost effective way to enable access control and perimeter security for the 3 or 4 other doors around an elementary school where only the front door was previously access control. Now you know if the door has been propped open, you know it's being locked when it's supposed to be locked, you're no longer relying on the janitor to make their rounds to make sure that load door is locked. And we've done all that at a price point that will allow us to deepen the penetration in this space, pretty exciting stuff.
The focus here is on simplification, innovation and cost efficiency. We believe that the number one thing to drive deeper penetration in these markets is actually driving down the cost of the solutions, which are predominantly driven by an archaic architecture. And so you'll see all the work that we're doing is in driving edge computing, IP architecture and mobile credentials and mobility in this space. So our strategy refresh that Dave took you through at the beginning speaks a lot about partnering. And this is a really important element of the strategy that we're executing in the Americas as well.
First of all, I would say that partnering builds on what has been our innovative legacy as a business of open architecture platforms. We are not in the business of creating closed systems and trying to manage or control systems by technology. We believe open technology enables the best to thrive and we believe we're one of the best. And also, I would say that while security, we know security is our core, there are many other things happening in the marketplace that are actually driving the purchase intent for security devices. Think about the homeowner who never thought about whether or not they needed to use their mobile to get in and out of their front door, but all of a sudden is attracted by a delivery experience that, oh, by the way, just happens to bring an electronic lock to the door.
And in those cases, regardless of how we hard we try, the value proposition purely provided by Allegion is not nearly enough to make that happen. And so we have to figure out a way to partner. We own significant geography in this equation, though. That's an important element that you heard Rob talk about. This door that you go through every day, it's ours.
And the way you get through it is with our products. And so that significant geography and the critical importance of almost all of these value propositions that are being proposed in either connected home or connected campuses or connected office buildings all start from the position when you walk in the door and grab the Allegion product going through the door. It's a critical point in that point of access. That's why we say, your point of moment of access is our moment of value creation. Our ability to partner in all these phases will enhance our opportunity to grow our business across the board.
We can't and we won't do everything by ourselves. Let me give you a couple of examples. Apple Pay platform plus a OneCard provider like Seaboard or Blackboard plus an Allegion offering equals campus seamless security in the market today. Amazon Key plus Ring plus Allegion represents a delivery and security platform in the consumer space. Castle and Allegion represents a significant seamless access solution for the multifamily environment.
Stratus plus Allegion creates a smart home experience in the multifamily apartment buildings that we're serving today. All of these examples, they're not just about our products, They're about our APIs. They're about our SDKs. They're about our market presence. They're about our brand value.
They're about our installed base, they're about our distribution, they're about a lot of things beyond just the technology and the products that we offer that all bring value in an integrated way to a host of ecosystems that are starting to evolve aggressively in the marketplace. And this is why we believe partnering is such a core part of what we will do going forward.
Let me give
you an example in the Nasrbanonresi world. There's a typical cloud chart on the right hand side, don't expect you to understand it all, but on the right hand side, you've got a set of products, we'll call those edge computing devices. They happen to be in the form of a lock or a reader or an exit device, but they are in fact edge computing devices. In the middle, we have identity and credentials that are created by Allegion. We also have a cloud infrastructure that enables this seamless access experience to occur when you're in this environment.
All these things together create an Allegion seamless access experience. But then take that forward and talk about how you would work with a provider. Here we also have infrastructure capable of bringing a partner's own mobile or electronic credential to the table, their own mobile application, their own IP infrastructure, all on the exact same infrastructure to deliver this seamless access and perhaps provide even broader value proposition beyond just access. So a significant move forward in this partnering and understanding not just our products, but how do our products work with everybody else in the ecosystem. So I want to spend a few minutes talking about enterprise excellence.
It is the core of what makes Allegion successful. I mentioned as we started that we have industry leading margins. It's something we're enormously proud of. I will tell you that those industry leading margins today are delivered in a siloed way with siloed processes inside our organization, a lot of manual tools, a lot of manual capabilities delivering that industry leading margin. As I mentioned at the start of this, we have been working hard to digitally enable our business for the future and drive efficiencies and effectiveness.
We believe that digital optimization represents an enormous opportunity for our business. It creates an opportunity for us to deliver a better end user customer experience. It enables us to deliver better competitive differentiation, the likes of Overtur that I talked about a minute ago. It allows us to reduce waste in almost everything that we do. It allows us to remove labor inefficiencies in our business.
It allows us to more effectively link our strong new construction legacy to the aftermarket business in serving these buildings over many, many years to come. It also provides a connected data experience that provides us, Allegion, with a competitive advantage over all the other players who want to continue to sell just purely mechanical or non connected devices. In addition to that, our enterprise excellence work is focused on delivering platforms that will allow us to leverage that growth over time. And here, I'm not just talking about product platforms. I'm also talking about technology platforms, connectivity, cloud based infrastructure, software and firmware, all of these represent enormous opportunities for a company with the scale and the reach of Allegion to gain leverage on our investments as we go forward.
Now clearly, these things will take time. We've got a big complicated difficult business and we are in the process of modernizing our infrastructure, but we are well down the path. And I think the key for me is that for you to know that we know that margin expansion, particularly in the Americas business, represents our biggest competitive advantage, and we are focused on driving continued margin expansion in our business on a going forward basis. So wrapping things up, Americas key takeaways, healthy end markets. And I would say in addition to that, we have the opportunity for above market growth with the acceleration of electronics, our work that we're doing to develop and expand our channel presence in underserved channels, and none of these things are actually tied to the new construction market that is constantly referenced in the media.
We're driving key partnerships and we believe these partnerships will accelerate the growth of our business even beyond what we could do by ourselves by creating new value propositions where security may not be the reason for the purchase, but security is required for the value to be delivered. Digital convergence is trending in our industry, which creates opportunities for our products, the things we do for our customers and our internal organization in becoming more efficient from a digital perspective. And as I mentioned a minute ago, we believe that we have continued opportunity in our business to expand our margin and our channel opportunities in the marketplace going forward. I appreciate your attention this afternoon. It is my pleasure and my privilege now to turn the stage over to my friend and my partner, Lucia Moretti, who heads our European business.
Thank you.
Thank you, John. Good afternoon. It's a pleasure to be here with all of you again. I think we were here 2 years ago and even before. So I would like to talk a little bit about Europe and how we are doing after 5 years of Allegion.
So $590,000,000 of revenue in 2018, 14.6 percent e adjusted EBITDA. So as you heard before, in all of the Allegiance presentations, we are a house of brands, no different in Europe. We are the number one brand in Italy, which is called Chizza. In Germany, we have great brand assets like Simonsvoss and Interflex. In Netherlands, we have AXA, an acquisition that is a very well brand recognized by the bike business, but as well in the residential business.
So it's really brands that have a portfolio that meets a lot of the market needs that we have in Europe. One of the strengths that we have in Europe is the leading portfolio that we have over there with a large installed base. And when we connect this large installed base with a strong channel presence, becomes an asset that can be leveraged when we combine the traditional mechanical technologies that we have with the connected solutions that we are going to talk about it. Through a very disciplined M and A, We brought technologists to Europe. We expand our business geographically, and we started to transform this business.
Today, we have 40% of the European business is already electronics, primarily driven by the commercial applications. 60% of the European business is nonresidential. All the rest, you can see, is split between residential and portable. From a new construction perspective, 5 years ago, this business was almost insignificant regarding the new construction. Well, we all know, right, for us to start or to continue to enjoy the annuity of the repair and the replacement aftermarket, we've got to invest in the new construction.
So I'm very happy to have 25% of our business in the new construction. So all of that significantly changed the geographic mix that we have in our business. 5 years ago with Allegion, we have a business that was extremely dependent on the Southern European part of Europe in a region which is poorer in terms of growth expectations. Now 5 years after, we have 35% of our business in the DACH region. That means a premium region with some expectations in terms of growth.
So since it's been, we have been able to focus Europe in the core. We have been able to bring innovation, and we have been able to change their geographic mix. So we are, right? All of that made us able to expand our progressively our revenue, but more importantly, to expand the margin business that we have in this business, the EBITDA margin. So we have today a much better business than we used to have at Allegion in Europe.
So with that, let me talk a little bit about the portfolio. We think we have a unique portfolio of products and solutions to deliver in the market in the different market ends. Let me start it with the mechanical security. Mechanical security is the mechanical hardware. I'm talking about mechanical cylinders, mechanical locks, panic devices, door closes.
This is the legacy of Allegiant. This is what is the core. This is the installed base that I mentioned before. So great opportunity with electronic access control. This is the Simons Voss that you saw outside.
This is also Interflex access control. And when you bring to the Interflex access control the workforce management, which is the time and attendance and the personal scheduling, you are taking access control to the next level, which is seamless access. It is more than through the door. So portable security, a very distinctive portfolio for Allegion. We like this business.
It is about bike locks and bike lights, more and more connected is something that is interesting over there. So product categories that are delivering the vision that we have in Allegion, seamless access for in a safer world. So all of that represented with all of these brands, house of brands, that really means innovation and quality. Let me just go and talk a little bit about the overview here. So one of the things that is important here is that when you look at this outlook here, you really see how we are positioned in terms of market segments in this in Europe.
And one of the things that I have to say is that I like the fact that we were able to reduce the exposure of Allegion in the mechanical, traditional in poorer regions. And I love the fact that we are participating in this digital access control revolution, all of the electronics connectivity stuff in a good region. That really gives me the opportunity to maintain my growth expectations for the region. So let's talk about markets. Mechanical security, huge market, dollars 4,000,000,000 flat, up in some regions, down in other regions, but essentially flat when we consider the whole Europe.
Electronic Access Control, significant large business as well, growing very fast, right? We are talking about that because of the enhanced or the demand for security and connectivity, bringing convenience and efficiency. We see here a demand for access control using a cloud solutions, And this is primarily being driven by small, medium type size of companies that look for access control with cloud just because it's very expensive to have big wired type of access control. So they would prefer to expand the money operationally instead of being capital intensive, big mainframes. So from a supplier perspective, this is pretty good because it gives you a recurring revenue.
So we like that. We are participating great opportunity. Portable security, distinctive sector here, EUR 400,000,000, a small market size, but it's still growing. Opportunities, the e bikes market. E bikes, higher cost, higher locks that we have an opportunity here.
So a segment that we enjoy and that we think we still have an opportunity here. Overall, Europe, EUR 7,600,000,000 and we are participating with around 8% market share. So a lot of opportunity to grow. The three priorities of Europe, let me tell you, demand creation, electronics growth and enterprise excellence, just like we had in Americas. So demand creation, and I'm going to go in a little bit more detail in each one of them, but I just want to give you the perspective here of demand creation, all of the key elements that you see over there are essential to deliver the Allegiance promise.
Electronics growth, I'm going to explain to you how we are doing, why we are growing. And then enterprise excellence is the backbone. That's the reason why we have been able to expand our margins in Europe. So let me just start with demand creation through the lens of Middle East. Middle East is a region that is it's area that is growing in the region and one that is we have some significant opportunities over there.
So Middle East, as you probably know, is a diverse, dynamic, managed through imports. At a time is a very challenging market, but one that we are investing for the long term growth. It is a specification driven region. You get clients are requiring or requested to have knowledge of ANSI portfolio and the EN portfolio, which is the European. We if you wanted to succeed in Middle East, you've got to understand building codes and standards for the American products as well as the European.
There is also an expectation or a desire from customers to have door set solutions. Customers expect or give a preference to suppliers that have doors, European hardware, American hardware and access control. That's the reason why we invested in QMI, which by the way, we have had some challenges. We are working on shorter term. There are some work to be done over there, but the intent and the strategic rationale that we have by investing in QMI is absolutely there.
I have a pipeline that I see doors and hardware. So I am absolutely convinced that this is the right way to win in this region. So how does Allegion win? And you heard about that. No different in this region specification.
This is what is driving over there. Allegion in this region has developed a reputation with many key stakeholders over there, end users, architects, general contractors. We have done a pretty good job and participated in many of the most challenging projects that you can ever imagine. So just to give you a reference and what does that mean, we have doubled our specification capabilities in Middle East in the last 12 months. We brought spec writers to the United States.
They spend here 7, 8 months writing specs and or learning how to write specs. So today, we just in 2018, just to give you a reference, we wrote around 100 specs for 100 projects, and that means around 75 1,000 openings that we have done only in 2018. We work with companies that you probably know very well, architects, firms like Gensler's, with Icon, with HOK, many companies like that. And we also use the latest and greatest tool called overture that you heard in many of the presentations today. So we think we are very well positioned in to win in markets like that in Middle East.
So here's an example of when this strategy turns into money and that creates value. This is heart of Doha. All that you see, all of these buildings are a project which is probably the biggest city regeneration that there is in the entire world. I'm talking about Doha, capital of Qatar. So all of these buildings is 100 new buildings being constructed in Doha.
This is hospitals. This is schools. This is commercial buildings. This is residential buildings. And all of the cost of this project is $5,000,000,000 just the circle over there.
It's the last phase of this construction, which is $1,000,000,000 Tim Ackernesley and Dave Petratis, they were with me visiting this site. Only in that phase, you saw 7,000 people working in that site. Well, guess what? Allegion has been this project started in 2010. Allegion has been specifying hardware since then in all of the phases.
We bought QMI the day after. We knock at the door, not quite intended. We offer a doorstep solution certified with the American hardware. We are talking about Shellac, LCN, Vodaflin and Ives, and we propose a total door set solution. Guess what?
Customer accepted, happy customer, happier Allegiant. So very good opportunity to deliver the total access solution, a complete door set for the market over there. Let's talk about electronics. Exciting. All of us talk about electronics because we are really taking us this advantage of that.
So first of all, I have to say that the growth rate that we have over here is you can see that there is some movement over there, but the penetration is still very low. From the commercial side, we think that we are talking about 5%, if so. So very much behind what Americas is. But I have to say something. We like what we have in the dark region with electronics.
We love it. We think that there is something over there that we can export and expand to other geographies in Europe, and we are already doing this. The foundation of our success, the reason why we are growing is because we are we have a user and the end user engagement is extremely important. We understand and we have to understand specific user cases so that we provide the solution, which is either more security or connectivity or what the result of both. So one of the examples that we have here is the Simon's Voss mobile digital key.
It's outside. You can see over there, simple. You just change and replace a mechanical cylinder for a digital cylinder. No wires, no drills, very easy to install, you get an app, you just put over there, configure 20 doors, 100 users. You can do this at a distance, very simple.
User case typical of a lawyer's office, typical of a dentist office, Very important to understand what is the need in providing the solution for these needs. So let me talk about Interflex. Interflex is all about is not only about the perimeter access control. We are talking here with about workforce management. And when you talk about workforce management, it is data, exchange of data.
And then you're talking about efficiency and productivity. So a lot of great opportunities here with electronics, and I think we have a great platform with the SIMOS VAS in Interflex. So beautiful European design, isn't it beautiful, Bernard? Right? I just want to make a statement here.
SimonsVoss is undisputable, the digital locking technology leader in the DACH region. Absolutely. In 2018, we sold 200,000 digital cylinders. We have 1,750,000 users of our devices, and we have sorry, we have 1 point 75 devices, and we have more than 4,000,000 active credentials being used in the market, a phenomenon. So we go to Interflex.
Interflex offers here a fully integrated access control solutions with all of these features that you see in the picture over there. We have several 1,000 system installations, and Interflex manages more than 4,500,000 users every day around the world. Our customers, example, automotive manufacturers, we are talking about BMW. We are talking about Audi. We are talking about Continental.
These companies have their headquarters in Germany, and they open sites all over the world. Interflex manages interest in all of these sites. But it's not only that, right? Interflex, this all of the we have a lot of big hospitals where personal scheduling is extremely important. So Simon's Interflex is there from a time and attention and personal scheduling.
Let's talk about a different vertical, airports, the Dubai Airport, the busiest airport that there is in the world as we speak. The crew maintenance, where the maintenance guy should be at the right time, It's a software that is developed by us, Interflex. So think about the ability to have the right people at the right place at the right time, we are talking about seamless access. So let's talk about residential electronics. Residential electronics, when we talk about the commercial electronics and we say that the rate the penetration rate is small, Here is really, but really, really small, okay?
But still, it's moving, and it's moving in some geographies. Reason why we invested in Nuki. Nuki is a startup created 4, 5 years ago. And they are out of Austria, and they are in the market, became almost like a leader in the DACH region and also in France. And they are obviously expanded their business now in other geographies in Europe with the support of Allegion.
So after 4, 5 years, they are already certified as electronics residential with Alexa, with Google Assistant, with Apple HomeKit, with Airbnb and also with Ring. They have already 50,000 installation devices in EMEA. So we are very happy with this partnership of Nucy, very interesting. And it is over there outside. Have a look, please.
Enterprise excellence, no different than Americas, has been the backbone, has been one of the pillars why and the opportunities that we had in Europe to expand our margins. We'll continue to be. Through the lens of the customers, we are going to understand how we can serve our customer in a more holistic way, how we can drive value to our customer. And doing that, we think that we have an opportunity to create value and in consequence, increase our prices and then have better margins. So this is an area that we are going to continue to work.
So obviously, there is opportunities for a footprint of optimization. That is something that we always consider in Europe. And none of that would be possible without having an engaged workforce that we do, leaving the Allegiant values as we all do. So a lot of opportunity here still to drive margin expansion, bringing productivity and get the results there. So finally, the messages to take home.
First of all, we have in Allegion, in Europe, a much better business than we had 5 years ago. We have a much better balanced business. We are much closer to the end users. We are creating demand through specification, which is the thing that Allegion knows how to do best. We are participating in the biggest growth market.
We are very well positioned with the electronics business, and we are taking this business to the next level, different geographies and seamless access. We will continue to drive productivity across the region, and I will say it again, Allegion in Europe is much better than 5 years ago, and I will finish with Dave's favorite centers to all of us in Allegion. The best years are still ahead of us. So thank you. So and I have to call now Jeff Wood, President of Asia Pacific.
Thank you, Lucia. Good afternoon. So 5 years ago, Asia Pacific was primarily a low margin, a poor cash flow system integration business. Today, we are a product based business with much better profitability, with significantly better cash flow and one with scale, one with capabilities that allows for strong organic growth and margin expansion. If you look across our region, Asia Pacific is much more fragmented when compared to Americas or EMEA.
Global companies as well as local companies are playing a role in growing the safety and security market across the region. Our presence is primarily in Australia and New Zealand, followed by China and South Korea. We have positioned ourselves in alignment with areas of the market that are growing. Mechanical represents 70% of our business, but our electronic portion of that is growing rapidly. From a residential, 60%, which is unique across the three regions versus 40% in commercial institutional.
Both electronics and mechanical are the fastest growing markets and segments within the region and positioning and transforming ourselves have been critical to supporting organic growth and profitability. If you look at our product categories, we have folding and sliding door apartment without seeing a folding and sliding system. We made this acquisition and is a key area of our Australia, New Zealand business and really supports both OEM and retail channels. In the electromechanical space, acquisition of FSH, making door strikes, magnetic locks and most recently magnetic high security sensors going into military and government applications. Our mechanical portfolio led by Britain, Gainsborough and the Schlage brands, this is traditional door hardware serving both new construction as well as retrofit markets.
And then lastly, electronic access control management with electronic locks and access control systems bringing value and solutions under the Milray and Schlage brands. I want to go back to 2013 and kind of walk through the transformation that has occurred within the Asia Pacific region. At the point of Allegion spin off in 2013, we closed a manufacturing joint venture and relocated the manufacturing to our sites in Mexico. In 2014, was the first acquisition of FSH, which added electromechanical products in a key market, Australia, to start moving the transformation forward with a product based business. In 2015, the acquisition of Brio brought in the folding and sliding product categories also in Australia, And then expanding not only product wise into electronic locks, but into South Korea market with the acquisition of Milray, a top 3 electronic lock manufacturer in a key South Korea market that's having influence across the region in electronic locking.
2015 was also a milestone in refocusing a divestiture of the VOCOM system integration business. At that point, we made the transition to primarily be a product focused business in the region. In 2016, we integrated the Simons Voss Asia business with our Southeast Asia team. And this enabled us to reposition ourselves from really being a trading company to a business capable of doing products and services and going direct to market with projects working with our partners. In 2017, we started our transformation in China.
Prior to that, China was really a spec led projects business, utilizing imported products coming from Europe and from the United States. By localizing our products, by expanding our business models, we transformed into a much better balanced commercial residential business, focusing on a variety of different channels to improve both growth opportunities and significantly improving profitability. And then in 2018, we acquired the Gainsborough and API Locksmithing Business in Australia, increasing significantly our scale in that key market, as well as for the entire region. So over these 5 years, not only have we divested and refocused to a product based business, but that product based business has increased its scale three times over the last 5 years. If you look at our markets, Asia Pacific continues to grow and and expand in safety and security.
If you look at the different geographical areas, Australia, New Zealand, a key market from a mature perspective has been softening, led by softening in the residential construction market. That softening has really been driven by slowing the foreign investment going into the major metro areas and we see that both in multifamily and in single family construction. The commercial market in Australia and New Zealand continues to do very well, especially in the health and aged care, and we're seeing increased penetration and acceleration now starting with electronic locks in those markets. China continues to be a key market for the region, slowing growth or more moderating growth, but really a market that's transforming to be more urbanization focused and really changing buying habits and consumption with a growing middle class. That urbanization continues to drive large projects with subways, metro and commercial applications and their progress in e commerce and the digital economy is really starting to accelerate the deployment of electronic locks and electronic solutions.
South Korea continues to be a slow growth market. Electronic penetration there is already 70% to 80% And the e lock is really transforming to what used to be a keypad oriented electronic locks now into more connected smart home applications. The other factor that's driving the South Korea market is the increase in minimum wages. And we're starting to see the market both in terms of companies as well as the supply base starting to transform their supply chains exploring offshoring to reduce their labor costs. In Southeast Asia, this continues to be another high growth area for the region.
Continued investments in infrastructure driven by urbanization, both in commercial and residential. And here, we're also seeing significant growth in digital solutions and electronic locks as their digital economy is starting to accelerate. So overall, a market significant market where today Allegion is still a niche and we are positioning both in residential and electronics well to support and take advantage of this market growth. When you look at our priorities in Asia Pacific, three priorities: Leverage the Gainsborough acquisition in Australia. This acquisition not only increased our presence in a key market, but increased significantly the scale of Allegion in Asia Pacific.
Electronics, growing and taking advantage of this trend and leveraging the assets that we have across the region to support not only product sales, but expand into solutions as well. And then enterprise excellence, recognizing that today Asia Pacific is the lowest in terms of margin performance inside of the three regions and how can we leverage enterprise excellence to expand our margins on a year over year basis. Let's go into a little bit more detail. So Australia, New Zealand, you may be familiar with some of the landmarks, both of which are Allegion customers. But if you look at where we were prior to the acquisition of Gainsborough, in New Zealand, we were number 1 or number 2 in both commercial and residential, and a leader in that market.
In Australia, we had a very strong commercial business. We had a strong OEM and security integrator business, but we didn't have the brand, we didn't have the scale that was needed inside for the residential. Gainsborough brought us a strong history, a strong brand, the number one position in residential construction and really complemented the 2 businesses coming together as one. Not only did they have a strong brand and a strong presence in the construction, but they also had various channels to market, retail, the trades, the hardware and distribution, as well as complementing from an OEM relationships as well, especially with the Austral brand, which is a line of sliding door locks and accessories that were complementary to Brio. They also brought in additional manufacturing and assembly capabilities with a plant in Melbourne, assembly capabilities in outside of Melbourne and Blackburn as well.
And then another piece of this puzzle, which is unique inside Allegion is API. API is a national, the only national locksmith company in Australia. We can be into homes of 90% of the population in Australia in less than an hour. When you think about the role of and the capabilities of that, not only in traditional mechanical cylinders and locks and key systems, but also access control. They play a key role in partnering with education systems with several of the city governments and working with commercial applications to recommend, to specify and install access control systems and really is a basis of installation for electronics for the future.
And it's a really a great opportunity for Allegion to move beyond the product sale to include overall lifecycle management. So with the acquisition of Gainsborough and API, we moved from a number 4 or 5 position in Australia to now number 2. As we were going through the due diligence with Gainsborough, it was very clear and very quickly understood that there was significant synergies and value of bringing Allegion and Gainsborough together. As we started to focus on that, we wanted to come out very, very quickly with day 1 integration and moving quickly into a 1 Australia, not only bringing Allegion and Gainsborough together, but really how do we leverage all of the assets that we had acquired in Australia, including Milray, I mean, including Brio and FSH. So we have built and now have deployed a channel structure, which includes commercial, so leveraging the spec riders from both Gainsborough and Allegion as one team and expanding our capacity, expanding our presence across the country, leveraging the residential, so bringing our Schlage and the Gainsborough teams together to leverage our partners both with new construction and retail and trades, leveraging security integration with the access control and the FSH platforms, bringing the OEM, bringing Austral and Brio together to better serve door and window manufacturing and architectural partners there and then API as well.
So really bringing solutions to each one of those markets, leveraging the assets and capabilities of the 2 businesses together. In addition to that, identifying significant margin expansion opportunities that will more than compensate for the slowdown in the residential construction market. Back office consolidation, bringing sales offices and locations together in key cities like Adelaide and Sydney, consolidating our residential warehousing operations from Brisbane down to Melbourne, And then achieving significant scale from a supply chain perspective, not only leveraging Australia businesses, but that of Asia Pacific, as well as U. S. Because the door prep in Australia and New Zealand is the same as the North America markets as well.
And as we bring these companies together, I don't want to lose sight of the opportunity that drives our priorities and that is the customer. How do we ensure that we're not adding more complexity to customers through this integration, but actually identifying a way to do easier to do business with? Bringing the 2 companies, they both have best practices, how do we leverage those best practices to bring a competitive advantage to our customers and bringing that solution partner. A great example is with JAB. JAB is an interior office and commercial company.
Inside JAB, we have Brio products. We have other Allegion products. And we're bringing solutions to them, utilizing our hardware that is an application that brings value to them, because those openings aren't just the entry, just isn't the front door. There's a large number of openings that are managed inside of an office or a commercial environment. And we're bringing those solutions as one company and building a stronger partnership with JEV.
I want to now transition and talk a little bit about electronics. So electronics is accelerating across the region. At the same time, we do have diversity. In the South Korea market, 70% to 80% of homes already have electronic locks. They've been deploying and working their way up that curve for several years.
You also have markets that have very low penetration rates in the low to mid single digits, China, Southeast Asia, Australia and New Zealand. And we're seeing this start to accelerate with new construction, similar to what Tim had highlighted earlier with Lennar, many of the developers now are deploying electronic locks across their residential towers. We're also seeing retrofit expand both on a do it yourself and an installed base. And I want to highlight China also playing a key role. Not only is it a very, very large market with a large number of consumers, but its penetration is accelerating driven by its digital economy and the role of e commerce.
If you think about the number of households that was mentioned earlier, China has an estimated number of households of 440,000,000. If you look at by 2022, 35% of those homes will have digital locks. That's 140,000,000. In China, we have this tendency and perception that China is just low cost, low price. The SCL 600 lock that's setting outside retails between $40500.
Most of the locks that are going on urban high rises, Shanghai, Guangzhou, and there's a tremendous large number of cities in China that have greater than 1,000,000. Those urban environments, most of those households are putting locks on their front doors between $300 and $500 This is a tremendous market and there will be a variety of this and it's not just the front door where we're seeing electronics being deployed. We also see channels are expanding. As electronics become the norm, as users are using their mobile devices cabs, to order food, they're also wanting to replace their key. So real estate developers are looking for smart home applications beyond just an electronic locks.
E commerce is playing a key role with many of the websites selling e locks growing 100% on a year over year basis on that category. Non hardware retailers are coming into the market, electronic stores, department stores, other retailers now looking to get into the electronic lock business. And then home systems, our ecosystems, whether it's home automation, telecom are utilizing their presence and their retail outlets to sell smart home components, including locks. So as you can see, a tremendous opportunity here where we are focused on positioning. So how are we built?
How are we prepared to take advantage of this growth? So I want to focus on what are our capabilities that we have in place already today that is supporting our growth. In South Korea, we have Milray. This was an acquisition that was made in 2015. Their portfolio already includes today rim, mortise, push pull, locker locks and glass door locks.
We do design and manufacturing in Korea. We also manufacture their products in our plant in China. Today, they export under the Schlage brand to Australia, to New Zealand, to China, to Southeast Asia, to Mexico and other countries. It is a supply chain platform that we're capable of leveraging across the region. In China, we have a Mortise platform, both for European and local China standards for both residential development and retail.
Today, we have partnerships with 30 plus of the top 100 developers in China, where our locks are going into new construction. We also design and we manufacture locks there as well as the mill race SKUs that I mentioned earlier. In Australia, New Zealand, this is a market that has locks coming from Asia, also has locks coming from the U. S. Market, given similar door prep.
And we also have local products that are being designed and developed leveraging our supply chain capabilities in China and in South Korea. We're also working to develop relationships with the ecosystem and technology partners within the region, Alibaba, Huawei, Telstra and then working with asset management companies and work space, shared assets like apartments, and then bringing solutions to market in commercial customers like PwC in Singapore. But having a product portfolio and having a competitive supply chain isn't enough to win in this market in Asia. It takes more than just having a product and a supply chain. It starts off with a differentiator for us around quality.
And I want to highlight an example, we were in Vietnam 2 weeks ago, signing a partnership to develop codes and standards for the people of Vietnam. There's codes and standards there are not near as mature as Australia and the U. S. So we're leveraging our expertise. And one of the ministers of the agencies got up and talked about the lack of quality, the lack of standards in Vietnam.
And he was telling the story that in his apartment building, multiple customers or residents started to install electronic box. For about the 1st week and a half, everybody is excited and everybody wanted 1, until one of the young teenagers figured out he could open them all. So just because you have a lock and just because it has a fingerprint biometric reader doesn't mean it's good quality. And good quality doesn't mean just getting in, but good quality means determining if you're the right person to get in. So that's the type of standards, that's the type of focus that we're reinforcing across our products being part of Allegion.
It's also about agile R and D, being able to bring our products to market faster than our competition. The new SEL 600 is outside the China residential from industrial concept to production in less than 8 months, a brand new platform. Doing that leveraging our capabilities in Bangalore for firmware, for software and leveraging our supply chain partners in China to bring things to market faster and leveraging subsystems that are and platforms that are already in existence to reduce the risk around quality and reliability. It's also about productivity. China, Asia is a very competitive marketplace.
Technology like phones and TVs, the price curves as technology comes down quickly. So what are we doing to value engineer as soon as we go into production to bring our cost structures down 15% to 20% to ensure that we have the ability to remain price competitive, as well as ensuring that we can maintain profitable margins over the lifecycle of those products. New channels and solutions, being able to sell online, leveraging the digital, but leveraging opportunities to bring these products to market in non traditional hardware. Here you see in the photo, one of our Schlage boutiques in a decoration mall. We have kiosks going into electronic stores.
1 of our large customers in Singapore is an electronic home automation store, who leverages and installs electronic locks. Some of our fastest growing customers are actually non hardware distributors and retailers. And then connecting to create value beyond the lock itself. Dave mentioned Justco. Justco is a competitor WeWork.
It's a Singapore based company and shared meeting space. Our Simons Vos product line is integrated in there where you can go on your mobile device, pick an office location, whether in across the region, could be Bangkok, it could be Singapore, it could be Sydney, it could be Jakarta. And you can go in and reserve a space, download the credentials and go into that space. Getting access to the building, getting access to the office, getting off getting access to your specific conference room or meeting space all through integrated solutions, so bringing value beyond. And the other area that we're focusing on with electronics is, there's more applications than just the front door.
How do we ensure that we're leveraging all the access points and outside you see a glass application. I also want to focus on enterprise excellence. This is really key to leveraging and growing our margin on a year over year basis. One of the challenges we have is we don't have the scale. We have a diversity of products being utilized in Asia, which include European products, U.
S. Products and local products, because the codes and standards don't drive a certain consistency. So to meet the cost pressures, to meet the budgetary pressures in building, what we typically find from our customers is they want U. S. Standards for the front doors.
They want European standards for the bedroom, for the closets, for the fire doors that may only get used a couple of times a month, they're okay with local. So you have to have a product portfolio of each of those standards to hold the spec, to hold that job as it goes through the architectural design to the general contractor to the actual build. And we've been developing local products to fit each of those applications, so we can deliver and don't give an opportunity for a competitor to come in and break that solution, having a full solution of the right product in the right place at good margins for that customer. We've also been focusing on localization. I mentioned 2 years ago in China, we started the localization.
We continue to focus on building localized products, because with the trade agreements that are developed across the region, it's very difficult to import from the U. S. Or to import from Europe and be competitive. So having local capabilities has improved our cost structure, but more importantly, our customer service and responsiveness to the market. Acquisition integration, continuing to leverage the economy of scale in Australia, but also leveraging that additional scale to benefit the entire region.
Vitality, value engineering by being an electronics focused, residential focused business. The expectations are much more consumer oriented. Life cycles are shorter. It's critical to maintain vitality, it's critical to drive value engineering in a much more agile and competitive environment that's moving much faster than traditional commercial products. And then we also want to leverage our global capabilities.
I mentioned leveraging Bangalore in terms of firmware, leveraging other technology so that we're not reinventing the wheel. So it's about leading and it's about leveraging ourselves as one region to unlock the potential, which is unique against local competitors and our agility and size can also be a competitive advantage against the other global competitors. So as we wrap up, I want to stress that we are a very different business today. We are a product focused business aligned with the key markets for significant growth in electronics and residential. We have built capabilities through acquisition, we've built capabilities through our product portfolio to take advantage of the electronics penetration and growth rates.
We're unlocking the synergies through the recent acquisition, not only in Australia, but across the region. And we're leveraging capabilities required as a residential electronic focus, agility, speed, customer focus to differentiate ourselves and differentiate our region to support 50 to 100 basis points improvement in margin on a year over year basis. So I encourage you to take a look at our new products from Asia. The architectural style of Gainsborough, the glass door lock from South Korea, as well as our latest designed innovative product that was developed in less than 8 months for China. Thank you.
Ladies and gentlemen, we will now have a 10 minute break. This is your last opportunity to visit the product display area. Ladies and gentlemen, please take your seats. The program will begin.
Let me go ahead and get started. And first of all, thank you all for attending your participation and interest in our company. I'm Patrick Shannon, Chief Financial Officer. And I hope throughout the course of the day, you guys have gotten a sense of the enthusiasm and passion and excitement about the future prospects of our company. I'm the last act before Q and A.
So let me first start with how we think about and how we drive shareholder value and returns every day that we work at Allegion. It's really 4 areas. The first of all is to drive accelerated organic revenue growth, so faster than the broader market. You've heard today a lot of things that we're working on to accelerate growth, whether it be through new product development, electronics adoption, accelerating that part of our business as well as channel segmentation. Improving operating margins is critical, so we can get a compounding effect in our earnings growth.
And we do that by getting ensure we get really good leverage on incremental volume as well as managing this price inflation dynamic extremely well, ensuring we get a high cash flow convergence in terms of our earnings and we're getting that and you'll see that in a little bit. And then balanced, flexible, disciplined capital allocation, how we take the excess cash flow that we generate in our business, reinvest for organic growth and or inorganically to drive shareholder returns. Our financial performance, 1st 5 years has been outstanding. Dave touched on this briefly, just to hit on a couple of highlights here. Revenue growth, total revenue growth, little over 6%, so that will include acquisitions as well as offsetting divestitures and foreign exchange, but probably more importantly, organic growth, CAGR of 5.6% better than the broader market.
Our adjusted EBITDA margin continues to expand growing faster than revenue, margins have expanded 190 basis points. We finished 2018 at roughly 23% adjusted EBITDA margins. EPS has more than doubled, CAGR of 15.6 percent. We're getting that through the acceleration of revenue growth, margin expansion as well as we did benefit a little bit on a lower effective tax rate to help in that area. And then cash flow has continued to expand nicely, pretty much in lock step with earnings growth, compounded growth rate of 14.3 percent, now over $400,000,000 of available cash flow per year.
If we think about capital deployment and Dave touched on this briefly, but this is one of our critical strategic pillars for the company and how we manage this effectively. We first start and look at how we're managing the balance sheet from a leverage perspective. As you guys know, in 2017, we're upgraded to investment grade credit rating that's lowered our overall cost of borrowings. Our philosophy is to maintain investment grade rating going forward. And the 3 areas or pillars that we look at investing in our business and this would be in the order of priority and I'll touch on these individually going forward.
What organic growth investments, so making investments again to expand our core portfolio and channel capability, accelerating new product development as well as enterprise excellence, adding to our core business through acquisitions either through expansion of our product portfolio or geographically. And then if those aren't available or actionable, providing capital back to our shareholders in terms of increased dividends and or share repurchases. The key message here is to ensure that we maintain a balanced, disciplined and flexible capital deployment strategy in our business. One of the great things about our business, as you guys know, is we generate a lot of cash flow. It's a CFO's dream.
Cash flow has been accelerating here over the past couple of years now over $400,000,000 And when we look at the next 3 years 2019 through 2021, and this is after capital expenditures, we would expect available cash flow to be $1,400,000,000 to $1,500,000,000 over the next 3 years. Now the sources or uses of that capital, 3 areas, we have mandatory debt repayments on our term loan A facility about $140,000,000 Dividends, as you guys know, we've been expanding the dividends faster than earnings. We expect that will continue on a going forward basis. So the $390,000,000 here does assume that the dividends will increase faster than earnings in the next 3 years. And then share repurchases at a minimum, we're going to buy back stock to offset the creep on management comp plans.
Now this leaves us with over $800,000,000 of excess cash flow to invest back in the business either through M and A and or shareholder distribution. Again, the idea here is that we're not going to hoard cash, we're going to put it to use for our shareholders to drive incremental value for our holders. If you look at our leverage, we've got a really we're in really good shape relative to our balance sheet. Our leverage ratio, if you look to the right here, our total debt to adjusted EBITDA, we peaked in 2015 after we completed the Simons Voss and OXA transactions. We funded part of those acquisition prices with some incremental debt and we ended 2015 at 3.4 times debt to EBITDA.
We've delevered very nicely over the past couple of years with the growth in EBITDA. We finished 2018 at 2.3 times and the forecast for this year is to end up around 2 times debt to adjusted EBITDA. You can see what that looks like on a net debt basis. So approximately 1.2 turns at the end of this year with cash building on the balance sheet. The point here is that we have plenty of firepower availability for additional borrowings that we could go out and complete a significant acquisition.
So a lot of optionality and flexibility and capital deployment to continuously grow our business. If you look at specifically our organic growth investments, and again, you guys are familiar with these, we look at 3 primary areas to grow our business again faster than the broader market. New product development, hopefully you guys had an opportunity to see some of the product displays in all of the new electronics and platforms and those type of things making a lot of good progress there. There's a lot of incremental capital being invested in engineering and R and D efforts. You heard Vince talk about that earlier and that's to accelerate electronics and to integrate those products with some of the mega techs to ensure they're part of the ecosystems and connectivity is a very important part of our strategy.
Channel opportunities across the globe to do a little bit deeper dive in some of the channels to get a bigger share of the wallet to expand our market presence in certain areas. Tim talked about this specifically in Americas and some of the discretionary opportunity we have there. Demand creation is really trying to accelerate the resi electronics growth and create activity in the marketplace associated with that. And then enterprise excellence, it's not just about driving productivity in the 4 manufacturing walls, also developing lean process automation and back office. But digital tools is an important part of our strategy as well.
You heard us talk about overture as an example, having better collaboration between our specifiers, our architects, general contractors, distributors, etcetera. All of these collectively drive, we believe above market growth and improve productivity. They provide a good return on invested capital, good quick cash return on these incremental investments. If you look at where we've invested the dollars kind of like the last 3 years, normally incremental investments between $0.10 to $0.15 of earnings drag on the business. We believe and it has proven that it will accelerate growth in the future 2019 around $0.15 expected for this year.
The expectation going forward, we kind of look at the opportunities relative to market demand, but there will continue to be incremental investments in these primary categories, again to accelerate growth faster than the broader market. If we look at M and A, again, one of our primary growth strategies, we've been fairly active in the M and A arena over the past 5 years. The industry is consolidating and we want to continue to be a part of the consolidation there. The types of platforms or areas of investments that we look at would be expanding our product portfolio, expand our geographic presence, looking at emerging technologies, technologies changing rapidly. Rob talked earlier about Allegion Ventures.
This supplements the strategy and it's a low cost option to look at emerging technologies to integrate it as part of our products on a going forward basis. So that's going to be key for us as well. And then some of the acquisition criteria that we look at in terms of candidates for acquisition, one look at good valuations for the business, tied to our strategy, core to our business, we're not going to drift far away from what we do very well and have strong capabilities in, ensuring strong market fundamentals, ability to scale the business either within their specific region or globally and then clear synergy opportunities. Financial hurdles that we look at, providing a return on invested capital within a 3 year projection, again inclusive of synergies and market growth and then ensuring its EPS accretive going into year 2, so the total year would be additive to earnings per share. If we look at our track record in M and A over the past 5 years and you may recall coming out of the chute, we had to build a lot of capabilities around the globe, both in terms of sourcing transactions as well as the integration approach.
We've been fairly active. We deployed over $1,000,000,000 in M and A, 14 transactions closed. 2018 was a busy year, completed 5 acquisitions TGP, QMI, AD Systems, Gainsborough and Izonis, all of these I think are tied extremely nicely to our core business and provide good synergy opportunities going forward. Three examples that I just wanted to highlight quickly of the types of businesses we look to acquire that are good characteristics of things we would like to buy. 80 Systems, a specialized acoustic sliding door systems, so this was acquired in early 2018 and it's sold predominantly through the institutional market segment.
So you think about incorporating that product set and solution through our specification capability or national sales force, we can accelerate that business going forward. And it's got some international opportunities, particularly in the Middle East. So that's a good potential growth opportunity for us. Simons Voss, you heard Lucia talk about this specifically, a great business leader in electronic cylinders, predominantly in Germany. It's expanding throughout Europe and provides a lot of technology capability that we can leverage in terms of miniaturization, extended battery life and those type of things, so really good business and acquisition there completed in 2015.
And then you heard Jeff talk about Gainsborough, this expanding our presence in the Australian market, really good business gave us access to new channels, different product segments in terms of residential and we can leverage some of our capabilities relative to Electronics incorporated in those products to accelerate growth in that market going forward. If we look at dividends, it's been a nice progression of dividend increases here over the past 5 years. Every year 20 plus percent increase in dividends. You can see that the payout ratio has increased since when we spun from 12% to 22%. The key here is that we're going to continue to increase the dividends faster than earnings.
We've got plenty of room to grow here. And so that's going to be a key part of our shareholder distributions going forward. In terms of our adjusted EBITDA margins, you guys have seen this chart before. So you have both the dollars in EBITDA as well as the margin performance. A couple of key points here, again since spin really good CAGR growth, a little bit north of 8%.
And if you look specifically on the last 2 years, 2017 was the peak EBITDA margin performance, close to 24%. Margins were down in 2018, you guys know that inflation was a headwind. The margin profile on some of the businesses we acquired lower than our overall margins put a drag on that. But nonetheless, it's still the 2nd highest in the past 2 decades, even though it was down. And we expect the margin percent to increase in 2019 across the globe in each of the regions.
And even though the margins were down 2018 still represented in terms of dollars, our peak EBITDA dollar performance. A couple other quick points, look at the consistency of the EBITDA margin performance here over the past 20 years, tight bandwidth, 400 to 500 basis points from peak to trough, resiliency relative to economic cycles. And I would say that's really characteristic of the fundamentals of the nature of our industry to some extent, it's a long cycle business. So you have visibility to when markets start to deteriorate, you can adjust your cost structure accordingly. And we've done extremely well really pushing this price dynamic to exceed inflation.
So I think we're extremely well positioned on a go forward basis. You've heard a lot of the portfolio transformations made specific to Europe and Asia. We've got a better stronger core business that we can manage this in software economies going forward. So really good story relative to our margin performance. One of the questions I get periodically is, can you guys continue to expand your margins, you've got margin profiles that are close to 400 to 500 basis points higher than your nearest peer, can you continue to expand your margins?
And the shorter answer is yes and absolutely and let me explain why. When you look at our business, the contribution margin for every incremental dollar of revenue is $0.40 or north of that. That's what we've experienced historically over the past 5 years. So we would expect every dollar of incremental revenue, we can get 40 plus cents in additional operating income. The key to get incremental margins is how we manage the inputs to the business and how effective we are in doing that.
So if you look at the net price productivity inflation dynamic, prior to this year, we were net positive. And I believe we can be net positive 2019 going forward. We've got pricing power in the marketplace. We have good initiatives relative to productivity. Inflation was a big headwind last year, shouldn't be that way this year.
And I think we've got the makeup where this can be positive. And the key point here is normally when that's positive, it helps fund all of the incremental investment dollars. Okay, that's kind of how the financial model works. So if those 2 are net 0 or a little bit north of 0, you're going to get incremental margins just because of the 40% contribution margins, both on margin percent and dollars. So this is a simple example.
If we look at our business plan going forward, 50 basis points to 100 basis points is certainly within the realm of possibility going forward. So our 2019 outlook, this isn't a change from what we presented several weeks ago when we released Q4 results, but just to touch on a couple of highlights here. Revenue growth on the left, total revenue and organic revenue 5% to 6% increase year over year, still strong growth and we're getting really good traction relative to the things I talked about previously, seeing pretty good organic growth across all the regions of our business. If you look on the right side, you have the earnings per share reconciliation. We ended 2018 at $4.50 adjusted earnings per share.
The expectation or the guidance or forecast for 2019 is between $4.75 and 4.90 per share. Now that's only 6% to 9% of earnings growth. But if you look at some of the components, you look at operationally, what are we driving in terms of earnings growth, net of investments 10% to 14% increase. So we're getting accelerated revenue growth with margin expansion is what's going to drive that managing this price inflation dynamic extremely well will help us get that. We have below the line pressure pension expense because of the increase in the discount rate, the lower return on assets, the actuarial valuation is a $0.07 drag on earnings expectation for 2019.
I don't expect that to continue going forward. It depends obviously on the actuarial assumptions, but that is a one time item in 2019 non cash. The tax rate in 2018, we experienced a lot of one time benefits that are non repetitive in 2019 going forward. And so the tax rate is migrating from 13.5% to 16% and that's having a drag on our 2019 earnings per share performance. But nonetheless, still up nicely, dollars 4.75 to $4.90 is the expectation.
And our cash flow generation maintaining that to be close to earnings, close to this 100% conversion ratio, 430 to 450 is our estimate for 2019. As we look forward to our 3 year financial targets, and I've got a comparison here to our 1st 5 years and how we've done, but let's focus on the next 3 years, 2019 through 2021. What are the expectations for Allegion to deliver going forward? And I'll just walk through these. Organic revenue growth 4% to 6%, believe we have a good line of sight to do that.
Markets still remain healthy. Dave talked about that earlier, driving the electronics penetration, new product development channel initiatives, those type of things should allow us to deliver top quartile performance in organic revenue growth of 4% to 6%. Margin expansion briefly touched on that 50 basis points to 100 basis points per annum would be the average of what we expect and again seeing margin expansion in all of the regions around the globe. Adjusted EPS growth 8% to 10%. So this is, I should have said at the beginning, this is an organic view.
So it does not include any of the capital deployment I talked about previously, the 800,000,000, but earnings per share 8% to 10% growth there. That does assume a higher tax rate migrating to the high teens from 16% in 2019. And then available cash flow managing our business to be between 95% 100% conversion going forward. So not too dissimilar to the last 5 years that we've delivered. I believe we're well positioned to continue to deliver solid financial performance in the next 3 years.
Last slide here, I started with shareholder returns and value creation. I'll end there. I think this walks through kind of the components of how to think about TSR for Allegion. This would be on a per annum CAGR basis. So it starts with revenue, again 4% to 6%.
The focus here is that we believe basis of our initiatives, electronics, investments in R and D, new product development, etcetera, then we can grow faster than the broader market, 100 to 200 basis points faster than the broader market. So on average, we have 4% to 6% there, we should get margin accretion. And this will give us adjusted earnings per share growth of 8% to 10%, I talked about that. Then the capital deployment, what we talked about previously, having an incremental $800,000,000 the next 3 years that we can deploy into the business, assuming we do that effectively through both either M and A and or shareholder distributions of buyback of stock should allow us to generate another 2% to 3% of earnings power per annum that gives us an adjusted earnings per share of 10% to 13% and then our dividend yield today is a little north of 1% and hopefully that will accelerate dependent upon the share price obviously. But again, the expectation is that dividends are growing faster than earnings.
So you get a total shareholder return on an annual basis, somewhere in the 11% to 14% on a CAGR basis going forward. So that's what we expect to do on total shareholder returns on the next 3 years. So those are my comments relative to the finances. I'm going to turn it back over to Dave to end up with his closing comments and then we'll go into Q and A.
So Patrick, good job. Let's give it up for Patrick. At Allegion, Patrick was employee number 1. I had an interview with him before I got the job and he's been a great financial partner. One of the great things that Patrick does is to help our entire leadership team and the business understand the importance and the importance of delivering shareholder value and our commitments to you.
A housekeeping item before I get to my final comments. One of the big challenges of the management team is to be able to shut up a guy like me. When I left the stage, I thought my mic was off and it wasn't. I apologize for that. I met a member of the audience out here, and we had a conversation.
What you may have heard is congratulate Nelson's for the breakup of Allegiant from Ingersoll Rand. If I went down to 280 Park Avenue, where Nelson Peltz lives today, I would salute him again. The creation of a legion from Ingersoll Rand 5 years ago was in my drive for continuous improvement, how could I sharpen my message? In my drive for continuous improvement, how could I sharpen my message? We talked about my son in law's trade to the Arizona Cardinals in which he should be the outside starting outside linebacker next year.
And my youngest daughter's boyfriend who's the starting pitcher for the Pittsburgh Pirates today gave up 4 hits. So again, I've walked off a stage like this more than 200 times and I ought to be able to know how to pull the plug. So I apologize for that. Let me amplify a couple of things in my closing message here. Allegiant has an outstanding opportunity to take advantage of the trend of seamless access.
I challenge each of you how many doors are out there in the world. There's clearly $30,000,000,000 to $40,000,000,000 Let's think a little bit about the automobile industry. At the beginning of the millennium, about 1999, 2000 keyless cars were introduced. By 2,008, 11% of the U. S.
Fleet was keyless. By 2018, 62% of the fleet is keyless. I am not suggesting that in the next 20 years, 62% of the 40,000,000,000 doors in the world will be keyless. I am strongly suggesting that we're in a transformation of this industry and Allegion is in an outstanding position to take advantage of technology to drive our business. It's a transformation that reminds me of what went on in the electrical industry.
When I joined Square D Company in 1980, we were just unleashing ground fault interrupters. Today, they're in every wet location and have penetrated the market at probably a 90% base driven by code. As you think about the complexity as we embrace, we will not go at the pace, but the work that we do to keep people secure where they thrive is a compelling opportunity for the company. And I believe Allegion is an outstanding in an outstanding position with our strength in early electronics, Simons Voss, the adaptation that we're taking toward digitization, I hope you can see that we have a great opportunity. I hope you also learned a little bit today about the important role that we drive in the specification and access and security and complex building.
That complexity is not going away. It's a process that we own, the ability to work with an architect, a mechanical installer, a contractor to make their designs meet the codes and standards that are required for modern buildings. It's an important aspect and it drives our business. Last, I hope we have earned your confidence over the last 5 years. We have an operating system that delivers and a dedicated team that I think have put up some respectable results.
And I firmly believe that our best days are ahead of us. Thanks for your attendance today. We're going to bring up the team for questions. Come on up. Should I unplug the mic?
You're good? Yes. I'm going to the side. Great.
So as we start Q and A, we ask everyone that they just ask one question and then get back in the queue. We want to make sure we can address everyone's questions as best that we can. So with that said, why don't we start in the front, Julian?
So maybe my first question for David around the low end residential market in the Americas region. Maybe talk a little bit about how large you see that market as being? What's Allegion's strategy in that market? And have you seen any changes around competitive dynamics or ability to push through price increases, particularly in the context of commodity inflation and so forth?
So help me. Residential Americas in total? About 1,700,000,000 So put opening price spend at about 20% of that. That'd be fair. It's under attack.
It's a position where we choose not to play. It's not a sense of capability. If we put our design resources, I believe that we could produce the lowest price point in the world. Can we get better returns somewhere else? There's a line that you go over where standards pick up, where style and design and then the integration of electronics and brands make a difference.
But that's how we'd see the market. Any other observations, Steve?
Well, I guess the 2 things I'd add to that is, first of all, we're not seeing the floor go anywhere but move migrate upwards. So the bottom end of the marketplace is not going lower. And the second thing is that we're not seeing the we're seeing the acceleration in the mechanical side to slow down a bit in terms of the OPP space. So we're not seeing further pressure on driving that overall market. So I think the retailers believe are starting to reinvent or reinvest in brands the capabilities there.
The gap between the OPP and where we sit in the marketplace has sort of shrunk quite a
little bit.
Two positions. Number 1, we make a conscious choice not to go opening price point. It puts Schlage and the Schlage brand in a great position. An American builder on the low end, home guarantee is good for 1 year. And when the door when the lock or the latch or the interior hardware blows off the door, we are in a great position to replace it.
It's not a bad value proposition. Will a consumer go like for like when something didn't last 2 years? It puts the Sleg brand in a great position. I believe that we had the intent, we could go after the opening price point market. I just think there's better opportunities.
As well as Lucia and Jeff. If you look at the business, Europe margin has stagnated. Asia is really not big enough to move the needle much. So this it comes down to Americas margin as Patrick talked about. What are the scenarios over the next 3 to 5 years where you could see EMEA and Asia being a meaningful contributor to margin So, from
So from the beginning, we've not been shy. We lack scale in Europe. We lack scale in Asia Pacific. Our ability to be able to transform and drive margin expansion is really in electronics, access control, our software interface. Simons Vos growing nicely.
Interflex, which was a question mark historically, we did a deep dive on the strategy there. It's growing at double digits. It's our ability to outperform in that converging space. Also like the opportunity with Nuki. Some interesting challenges in connected residential in Europe and that you've got the form fit function along the variety of styles as you go out through the European geography.
We think Nuki is a nice piece. That partnership will help us. As we go to Asia Pacific, a large transformation over the 5 years, but really in the last 36 months when we cut vocab and walked away from that, Jeff has put in a strategy that's positioned more on the strengths of Millray and our electronics, gaining share, we're now a number 1, number 2 in Australia, New Zealand. But again, driving that on electronics and the opportunity we think smart access brings. Is that good for you?
Okay. Other questions? Go.
So, Josh.
I'll cheat a little bit, and it's one question with maybe a couple of parts for Patrick. So in the whole capital allocation framework and kind of the 3 buckets that you categorized there, investments being the first one, the incremental margin that you talked about over the planning horizon is better than what you've done in past couple of years. Is that a function of investments stabilizing, a better view on gross productivity that's kind of the offset? And if investments are stabilizing, doesn't that mean external capital deployment needs to go up and in the absence of M and A, just a lot more share buyback? I know there's a lot there, but you may be doing it.
So I'm going to try to answer your question, okay. So your question in my mind is more specific around the ability to expand margins. If you go back and you look at 2017, it did increase it close to 100%. Okay. So we've done it before, the guidance 50 to 100 basis points.
So the investment and that is net of investments, okay. So the investment profile going forward, think about it to maintain a similar type of level of incremental investments. But what we have is better view on productivity of these digital tools that we talked about driving enterprise excellence, driving price better to have less leakage, okay. So it's not just raising the top line price, managing discounts, rebates, promotions, those type of things better, all kind of fit into that equation. So that's our target.
I mean prior to 2018, our margins did expand 50 to 100 basis points per annum. And so that's kind of our objective. Inflation got out in front of us a little bit too fast in 2018. We adjust the price. We'll continue to drive that in 20
19. Jeff, in front.
Thank you. I was wondering if we could get to this adoption question maybe through the lens of Korea. Now maybe Korea is just so idiosyncratic, it's not a great parallel, but it's at 70% to 80% penetration. When was it close to 0? How quickly did it get there?
Was there some kind of S curve that was evident as this happened? And what light does it shed on where we stand today in these other regions?
I am not steeped in history with Korea. The adoption rates of electronic locks are about the 70% level. I think you can look at Korea as a fast adopter. I would look to parallels. I think China is going to move extremely quickly.
That's why Jeff has positioned our products on electronic growth, relationship with the developers of electronics. So can you back in? Are we too conservative in terms of the electronic growth? Maybe, it's clearly in its inflection point here in North America. I look at it as upside.
I think there are centers of the world where there will be faster adaptation. We're clearly in the middle of it with our Milray franchise that we acquired in 2016. We like it very much with vast adaptation. We think complexity helps us. We think brands help us.
Jeff, anything to add there?
Yes, I would say one thing to add would be look at the scale of South Korea compared to some of the other markets. So I think it's fair to say some of the countries in Southeast Asia would have a similar curve and timeframe. But when you look at a U. S, a China market, much larger geographic and a much larger population. So, I think that play will play a role in terms of a slower curve.
John?
Thank you. Question around specification and it's not I mean across construction markets there's always you have to defend your spec, right, from competitors, particularly as you move away from the architect and get more down into the contract and the project manager. Just wanted to hear you kind of talk about your experience and how you've been able to successfully defend your spec and maybe talk specifically about the Americas or any other geographic region where you think it's really pertinent?
Yes. So John, I'll start the process and others can add. So if you think about the model that we've established, the first thing we have is deep long term relationships with architectural partners. And so we have close working relationships with the vast majority of architects around the country, where they have deep personal relationships with the 120 plus spec riders that we've deployed across the country. That process gives us the upfront opportunity to be in advance of all the other competition in the case of specification.
We then spend an enormous amount of time on the end user side, not selling products, but actually creating differentiation for our product portfolio. So selling the value proposition, total cost of ownership, those kinds of things, establishing a brand preference for our products across school districts, university campuses, those things get spec what we would call a spec guide, which tells anybody who's putting hardware on this facility, it needs to be these standards for us. And then if we do those 2 jobs really effectively, we've got a spec that in all a small number of occasions is a no sub spec, meaning you can't replace it with anything or you have a spec that includes our products as in a preferred position along with competition. But then we've also established this end user preference, which is also driving the GC to not only build the project, but build the project the way the end user wants it built. So that's really the secret to the activity.
One of the most exciting things with Overtur is that we've created now this digital collaboration world between us and the architects that allows a common one set of data available for that. That allows us to push that data into a place with either the GCs or the distribution channel. And then it becomes a much more difficult task to manually change that data because it is automatically
also just the depth of our spec writers, the maturity of our spec writers, in some cases, the partnerships with our wholesalers, architects and mechanical contractors can be decades. They grew up together. When there's tough code compliance issues and a fire inspector say, I'm not giving you a sign off, our people are there to defend the spec. And in many cases, are more intimate with the code and standard than the architect or the inspector. In the life of the building, they'd be called into that.
Another example that I would help strengthen our spec relationship is when we won that on the 1st round, when you go to renovate, it's not only Allegion products with Von Duprin Schlage and LCN. If I have an installed base of Square Deep, the electrical player, I'm not going to go duplicate that. A maintenance guy with his salt wants to have a common set of mechanical and electrical capabilities. If we do our job upfront, the spec works and our product lasts the test of time, we'll win it again.
One other add that I meant to mention. Overture being a digital tool, it is globally deployable. And now Lucia and Jeff teams in the rest of the world are adopting these tools and beginning the process the same process and strengths that we have here in this marketplace.
Next question? Josh, I guess you have a follow-up.
So one thing I found pretty interesting in Jeff's presentation is this notion that the price points in China for Electromech are actually much higher than in the U. S. And maybe curious to add some more color to that on, one, why that gives you confidence that, to Tim's point, that LMEK in the U. S. Is not actually like lighting at all and that no one's selling $500 product in the U.
S, that doesn't make sense. But is there a big spread in China underneath that? Or is that just one case study and there's plenty of low end stuff below that that may leak over here eventually?
Yes. So it is very clear. So we're playing in the medium price point to high price point markets. And if you look at the urban environments inside China, the cost of real estate is pretty high. So if you for example in Shanghai, which I understand is on the higher end of the curve, 900 Square Foot Apartment in a building that's 20 or 30 years old will cost 1,100,000.
Dollars and that's 20 or 30 years old. If you want a newer construction, it's about 2,000,000 So the locks that are going in those types of applications and in those types of developments will retail in that 300 to 500 timeframe. Now you go to the countryside, it's more of a rim lock, probably $35 to $80 for a lock, but it's a much simpler lock and those are readily available in Milray and we have those in our product lines as well. But really where we're aimed and focusing on in China is to not play in a cost competitive, it's that medium to high price point market.
I was surprised as I've traveled China, the door industry, number 1, the Chinese want to give a picture of grandeur and it begins at the front door. Oftentimes heavier materials, more detail as you enter a home and this is part of what pulls through an expensive lock. The second is within China and other parts of the world, there's a lot of cheap stuff out there. And when you enter your home, again, we put ourselves in a good position. If I made a wrong choice when I build out, I can upgrade that we try and perform on reliability, quality of the product and we think it's a place that will justify that type of price point.
Tim, in the back.
So maybe just looking at the $2,000,000,000 that you guys have talked about in terms of the channel opportunity. Tim, you said you're kind of in 3 of the kind of 6 to 8 sub segments of that market. Are those other 3 to 5 attractive parts of the market? And maybe if you could give us an example of what that might be outside of what you're doing right now?
So answer A, yes, they are attractive. They all represent opportunities where there's growth. We're under penetrated and underrepresented in those market segments and there's value to be created with the right value proposition, the right product, the right product price positioning and the value created for the channel. I'd rather not say what those other 5 are because other people will go after them as well, but we'll start the process, you will see it. And one of the early things we've been doing is we've been interjecting ourselves into this builder space and we're in the very early days of that, but that whole builder channel that is somewhere between 2 and 4 steps between us and the actual construction of the house or the single family home has right opportunities for us to create a completely differentiated approach to that.
And we're just sort of getting started on that. So I'd offer that as another example of a place where you'd see us kind of pretty aggressive over the next year or 2.
And maybe one more question, are there more questions from the audience?
Thank you. I just like to talk about doors for a second. So in 2013 or 2014, you divested the U. K. Doors business.
You've had Steelcraft in the States and recently made 3 different deals across your geographies. So can you talk about the importance of building up this portfolio regardless of geography and kind of the importance of it going into specking for a certain project?
So our position in hollow metal, a couple of 100,000,000. We acquired QMI. We've got Steelcraft. We've got Republic. When we get into package bids, especially against the market leaders, we feel it's important that we have the ability to offer hollow metal frames in a building like this and our hardware packages.
We have the market sometimes demands a complete solution and we've tried to position ourselves to do it. And would say, our challenge is to continue to build that model out. The hollow metal business and the door business in general is a tough space. And but the market dynamics, I actually believe our competitors got into the hollow metal and door businesses because of Steelcraft's presence in Ingersoll Rand in the early '70s. As they came in, they have doors, we have to have doors.
The market dynamics are there, but it's really to complete and have a package offering where we need it. You still have the opportunity to partner in some geographical areas, that's a better way to go.
And then for the last question, John, I saw your hand up. Do you have another question?
I guess just a question around M and A and what kind of pace we should be expecting. I mean, obviously, you were very active. Maybe just some comments around the bandwidth internally and maybe by geography where we should kind of be expecting to see the capital deployed?
So you saw in 2018, we acquired businesses around the globe. Each region was represented by a transaction. Most of the integration efforts are done within the region and owned by the business for the financial results and business case. We've got some continued work to do to ensure we maximize those opportunities and integrate those effectively, which we're working on now. It's really contingent dependent upon actionability of transactions.
Valuations continue to be a little bit on the north side now high. But, hey, we've got a robust pipeline, we'll continue to action opportunities to extend their core to our business, fit with our strategy, provide good synergies opportunities, some of the examples I mentioned earlier. This could be a key part of our capital deployment. It's too difficult, I'd say, to give you a number, say, hey, we can complete X number of deals, X dollars in revenue per annum. It's just going to be dependent upon what's available, what we can action at good reasonable prices that we can leverage going
forward. With that, that concludes the Q and A. We want to thank all of you for joining us today and look forward to meeting with you all throughout the year.
Thank you.