ASSA ABLOY AB (publ)

Hello, everyone, and welcome to the presentation of Assa Abloy's first interim report in 2023. My name is Björn Tibela. I'm heading investor relations. And joining me here are Assa Abloy's CEO, Nico Delvaux, and our CFO, Erik Pieder. We will start now with the summary of the report, and then we will open up for your questions, and we plan to round up in about one hour's time. So with that, I'd like to hand over to you, Nico.

Thank you, Bjorn, and also good morning from my side. We can report a very strong start of the year with a very good organic sales growth of 8%, 4% volume and 4% price, with all divisions contributing in a positive way. We have another very strong quarter for the Americas division and also a very strong quarter for global technologies as well on the HID side as on the global solutions side. Then very good complementary growth through acquisitions of 5% in line with our ambition. Very strong execution on the operational side, with very good volume leverage of 33%, an EBIT margin of 16%, and an EBIT of 5.2 billion SEC, almost 30% up. So very good execution. Income statement wise, I think also very good work on the balance sheet side and therefore also a significant improved operating cash flow, record cash flow for Q1. We signed four acquisitions in the quarter and we launched our ninth manufacturing footprint. If you look at the numbers, sales at 32.4 billion SEC, 22% up, 8% organic, like I mentioned, 5% growth through acquisitions, and 9% halved by currency, an EBITDA margin of 16.6%, and an EBIT margin of 16%. EBIT up 30% at 5.2 billion SEC, and EPS up 29%. If you look a little bit at the different regions, starting with North America, continued strong North America, despite a very difficult comparison, double-digit 11% organic growth in that part of the world. But I think you see a bit two realities. You have seen in Q1 definitely an important slowdown on new-built residential, affecting our garage door business in North America, affecting our perimeter security residential part of the fencing business, and definitely also affecting our window hardware business that we sell to OEMs in that part of the world. We have also seen a bit of a deceleration of the R&R side on residential. But despite that, Americas has continued to post high single-digit organic roads for mechanical residential. And then on the commercial side, we continue to see good, strong momentum, also with our specification business still up double-digit. South America, 0% growth. It's mainly related to comparison on projects from HID. the same quarter a year ago, because if you look only at the Americas, they had still good higher single-digit organic growth, I would say despite some of the political challenges we see in South America and despite also here the difficult comparison with a year ago. Europe plus four, very similar picture as in North America, where we have seen new-built residential going down significantly, and also R&R on the residential side weaker, but a continued strong commercial part. But as we are more exposed to residential in Europe, around 40% to 45% of our business in Europe is residential, you see that also more in the organic growth number. A good Africa, plus three. A strong Australia, New Zealand, plus 11, thanks to strong entrance systems and strong HID, mainly, because there also our geographical division was negatively affected by the window hardware OEM business that we have in Australia and in New Zealand. And then a strong Asia, plus 10%, where we still had negative low single-digit growth in China, but much less negative growth than we experienced over the last couple of years, where we are also confident that China is slowly bottoming out and hopefully, confidently, we'll see China to slowly start to grow again in the second half of this year. But a very strong India and China, Middle East and Southeast Asia contributing to the 10% organic growth in that part of the world. So 8% as a group, 7% in emerging markets when it comes to organic growth. Some market highlights for the quarter, also this quarter again, nice important project wins for HID, for instance, mobile access credentials for a very nice innovative new building, the Bishop Gate building in London that we visited with my management team a couple of months ago. I must say fantastic new modern building with a lot of new technology, really good example of how to work in a modern way in the future. And then 10,000 E-click cylinders in the Dag region for an energy utility company, a big, nice order. And also worth mentioning several good residential commercial projects in South Korea. Then our R&D efforts continue to pay off. Also this quarter, we won several awards. I was myself at the Bau exhibition at the beginning of last week, where we got the Product of the Year award from the most reputable magazine in our industry for our security door closer solution. And then you can see several new product launches and extending our products and solutions also this quarter. And the last but not least, also a partnership with LockerOne Venture, where we invest and seed funding for small startups in the locker space, also stimulating our LectureOne locker business in North America. If we then look at the organic growth, it's now nine consecutive quarters again with strong positive organic growth. And that strong positive organic growth is complemented with good growth through acquisition, especially in the last three quarters. So really acceleration of our top line. And then our bottom line really coming back towards that 16% to 17% bandwidth. We are now at 15.6% EBIT margin on a 12-month moving trend. So better operating margin, acceleration of top line, therefore strong acceleration of our operating profit. We signed four acquisitions in the quarter. They represent an annualized sales of around 440 million SEC. And then we are still working on HHI. The court case has started there this Monday and we expect an outcome later this quarter towards the end of the quarter. Perhaps a couple of words on Matura, an Italian acquisition. Very happy with that acquisition because Italy was still a bit of a white spot where we were not a strong player yet. Through this exciting acquisition, we become one of the leaders on the residential space in Italy. They have a sales of around 300 million SEC and a very strong brand name and a very nice product range. If we then go into the different divisions, starting with EMEA, organic sales of three percent with strong growth in middle east india and africa good growth in the nordics and in central europe and then stable growth in uk ireland and and south europe and there like i explained you should see a bit difference between residential and and commercial residential definitely new build was challenging in the quarter commercial still strong momentum. You also see that we report slightly different than before. That is because we reorganized this division in five regions. So we have a Nordic region covering Scandinavia and Finland. We have a region UK and Ireland. We have a central region covering DACH, Benelux, and East Europe. And then we have a South Europe covering Spain, Italy, Portugal, France, and Greece. And then we have an emerging region covering Middle East, India, and Africa. And the idea of that new setup that is effective as of the 1st of January this year is to seek more synergies within the different regions to be even faster and even more efficient agile than we were already in the past. Operating margin of 13.8%, a good operating leverage, compensating for high inflation, general inflation, labor inflation, energy cost inflation, and offsetting through price increases also partly the material cost. Negative effects, 60 base points because of a weaker SEC, and then also dilution from an M&A, 20 base points. We then go to America as another very strong quarter with double-digit, 11% organic sales growth. With all countries and all business areas, I would say, contributing, with the exception of U.S. Smart Residential, where it's more a timing issue, where our two biggest customers did not place orders and we did not realize sales in the quarter. But it just, you know... depending on when the timing is of those bigger orders. We should not read too much negative news in that. We also had a sales decline in electromechanical solutions. That was because of a difficult comparison with a year ago and because of some electronic component shortages. But again, also there, if you look at our Helmic business in general in the Americas, it was up very strong double digits, so still very good momentum. An operating margin of 21.7%, very strong performance, very strong operating leverage, good, strong execution. FX10-based points dilution and M&A80-based points dilution, that is the acquisition cost for HHI, which amounted to 114 million SEC in the quarter. If we then go to the third geographical division, opening solutions Asia-Pacific, organic sales growth of 6%, thanks to very strong sales growth in South Korea and strong sales growth in Southeast Asia. And like I mentioned, a smaller sales decline in China, only a small single digit, and then also sales decline in Pacific, mainly because of our window hardware business. Operating margin of 4.6% versus 3.5% a year ago. Good, strong operating leverage. Also helped by FX, 80 base points because of the strong Australian dollar. And then dilution from M&A, 20 base points. If we then go to the geographical divisions and perhaps the highlight of the quarter, global technologies, organic sales growth of 24%, with all business areas, as well in HID as in global solutions, contributing in a strong way to the top line, with the exception of extended access and secure issuance. very good operating margin of 16.8%, where we were, of course, helped by the mix on one way, in the sense that we continue to further invoice the backlog that we build up on our PECS business, our cards and readers business, and that's the more profitable part of our global technology business. And then on the global solution side, very good recovery of the hospitality business with a very strong team, strong leadership doing very nice things. And they also had now again volume levels where they contribute in a good way to the bottom line. said on one side that we should not remember that if you look at the mobility related businesses in in this division that citizen id is still very much lower level than prior to covet 19 despite even the growth in in the quarter and that we continue to have challenges also on the profitability side on citizen id so yes we have a positive mix but we we also have a some other items affecting the result in a negative way. So 16.8, I think, is a very good result for Q1. Helped also by FX, 90 base points because of the stronger US dollar, and then M&A, 40 base points dilution. And then last but not least, entrance systems, continued organic sales of 3%, despite a very difficult comparison. And you see there that pedestrian and industrial are taking over a little bit as a growth engine from residential and perimeter that have, of course, very difficult comparisons now compared to a year ago. Also, very happy to see a double-digit growth on service, over-delivering on our ambition of growing service high single-digit for the coming years. And that obviously also helps from a margin perspective where we even beat this quarter, the very high record quarter of last year. We post an operating margin of 16.2%. with very good operational execution, good operating leverage, FX neutral, and M&A 10 base points dilution. And with that, I give the word to Eric, who will go a little bit more in detail on the financial numbers.

Thank you. Thank you, Nico. And good morning also from my side to everybody. As mentioned before, we had a very strong sales growth in the quarter where we were up 22 percent with 8 percent coming from organic growth, 5 percent coming from acquisitions. And then we also had help with the currency with 9 percent. A record for the first quarter in both profit and value, which was up 30%, as well as with EBIT margin, which was one point better than the same period last year and ended at 16%. The income before tax is, as you can see, slightly lower. On operating income, it's 30%. On income before tax, it's 27%. This, of course, has to do with the higher interest rates that we are experiencing right now. Another highlight, cash flow, very strong to be a first quarter. We're almost generated 3 billion SEC more, or we actually did even more than that in the first quarter. And then another highlight, I would say the return on capital employed, which is now on a 12-month rolling basis, up 1.7 points and ended at 17.4. If we dissect a bit the organic sales part, roughly half is price and half is volume. And you can see that we have a very strong operating leverage of 33%. This is driven by the lower material cost, price realizations, but also efficiency measures. If we look in Q1, the manufacturing footprint programs, had savings of 195 million SEK. Talked before about the currency. We also have some help from the stronger dollar. And then on the acquisition part, we have this year, we have booked 114 million SEK for HHI. But since this is a bridge, I would also like to remind that last year, we booked 38 million in the same period. As probably doesn't come as a surprise on the direct material, we have a much better outcome this quarter than what we had the last quarter. Yes, we have some help from the mix of roughly 120 base points, which comes from the very good performance from global technologies. And then in a comparable matter, entrance system was a bit lower. But you can see that we have a tailwind of roughly 70 base points. This is something that we... Expect to continue for some quarters, but at the end of the year, we need to see how the prices evolve. Conversion cost, also a positive measure. I talked before about the MFP. And then you can see on the SG&A that we have increased our investments in R&D, but also there we actually suffer a bit from general inflation as well as salary inflation. So that's why you see a negative number there. Talked a bit about the manufacturing footprint program, the ninth program we're up to now. It follows a bit the same as what you've seen before with a number of factory closures, offices, et cetera, et cetera. The restriction cost is slightly above 1.2 billion SEK, and it's the fastest payback that we've ever had. It's roughly two years. The annual saving... When everything is materialized by 2025, it's 700 million. And just so you know, also for reference, if we look for 2023, on all the programs, we expect a saving of about the same size, the 700 million. And in total, roughly 1,300 employees will be affected by the program. Cash flow, I talked before, and that this is one of the better, this is actually the best quarter, Q1 quarter that we've ever had when you look to cash flow. You can see that, of course, it's driven by very strong earnings, but as well, we have been able to work on the working capital, which is actually better. And we especially see an entrance, a very good performance when it comes to this. The cash conversion was in the month 84%, which is an excellent number. This results in that we were actually able to pay back loans of more than 2 billion SEK. We have a net debt to equity, which is also down if you compare the quarters from 38 to 33. And net debt versus EBITDA is now at 1.2, which means that the balance sheet is ready to take on board HHI, as well as to continue with our normal acquisition strategy. Earnings per share, as you've seen before, is up with 29%, so another strong number. If we then go to the dividend, which the board will propose to the AGM today, is at 4.8, which will be paid in two installments. But if you look on a 10-year cycle, see that the dividend payout is almost up with 200%. And with that, I hand the words back to Nico.

Thanks, Eric. So as a conclusion, a very good start of the year with strong sales growth, organic sales up 8%, complemented with good growth through acquisitions of 5%. And then strong execution with an operating profit of 5.2 billion SEC, 30% up, and a very strong EBIT margin for Q1 at 16%. Record cash flow for the first quarter. So overall, very good financial results. And it's clear that we live in an uncertain economic climate. I think we also always are... bombarded with negative news. Yes, we have seen in the quarter some challenges on the residential side, especially on new build, but we still, like I mentioned earlier, see good business climate in the core of what we do on the commercial side. And we are, of course, through our decentralized organization, ready and agile to make sure that we can continue to grasp opportunities there where there is opportunities to continue the profitable growth. But we are also agile enough to cut costs and adapt to a lower reality in those markets or in those segments where we would see a lower market condition. We launched our MFP9, a very nice program that will give us 700 million SEC savings once the project kicks in. We have a very nice payback of slightly above two years. And then last but not least, like Eric mentioned, we will propose to the AGM this afternoon a dividend payment of 4.8 SEC per year.

share and with that i give back the word to john for i guess q a yeah thank you nico yes this means that we are excuse me ready to start the q a session and i know that there are many people in the queue who are eager to ask questions so please restrict yourself to one question and one follow-up operator this means that we are ready to start the q a session please go ahead

The first question is from Lars Bronson from Barclays. Please go ahead.

Thank you. Good morning, Nico. Eric, one for Nico, one for Brian, if I can, please. Clearly, lots of nervousness out there, as you say, Nico, around the commercial side of things. Specifications up double digit in the U.S., In the quarter, I take that to be an acceleration from low single in Q4, which I think was explained by a top incumbent health care. Maybe you can help us a little bit with what you hear and see on the ground. Any evidence of some pausing delays, cancellations? Perhaps you can also remind us of your U.S., total U.S. exposure, the difference or the split between commercial and institutional. And if I can, maybe just secondly, Eric, to price cost, can I get some help, please, with price cost at the divisional level? So the 190 basis point a group or 70 basis point X mix, I really had two questions. One, what's the range of price cost across your divisions relative to that group number? And secondly, what sort of cadence should we expect divisionally through the year to I'm specifically interested in EMEA. I wasn't enthused about the margin in EMEA in Q1, but I also realized that the division is somewhat later in implementing price increases. Thank you.

Okay, I will start to answer both questions, and then Eric can complement. On the commercial side, indeed, like we mentioned during the presentation, we have seen nice double-digit growth of our spec business, I would say in all three regions, in U.S., in Europe. and in Australia and New Zealand. So we still see very good momentum with our, I would say, only internal long-term indicator or KPI we have. We've also seen that the ABI index in the month was also, again, above 50%. And I said earlier, we should not take too much negative news out of an ABI that is three, four months negative. I say the same thing now. We should not take too much positive news out of an ABI which is positive for one month. What is important is that the ABI, over a longer period, comes back in positive territory above 50%. And let's be confident that that is the case. I think there's a lot of discussions on, yeah, there is going to be less liquidity and therefore it's going to be more difficult for the local government to lend money in the U.S. and so on. Yeah, that might be true. It's not something we see in our business today because you could say on the other hand, there's also all the investment packages of the Biden administration. And so far also our channel to market in the U.S. is still positive on demand. the commercial side i would say that like i said in q4 our biggest concern is is perhaps not the market conditions on the commercial side our biggest concern is more the tough comparison with the same q2 a year ago where on top of that we will have one working day less this q2 which by the way will be through us in q3 and q4 whereas we had one working day more in in q1 When it comes to split between commercial and institutional, it's around 55% institutional, it's around 45% commercial, and it's very similar in maya versus commercial. So that was, I think, on the first question. When we come to price versus cost, we had 70 base points accretion from price versus cost. We have continued to increase prices in the Q1, and we will continue to do so also going forward because we see higher labor inflation. We still see energy costs going up, mainly in Europe, because often we had longer-term energy contracts, and then once they expire, then you get the increase. But we have also seen material prices going up again in recent years. And especially steel has gone up again, which is important for us because we were a little bit afraid that steel was going down too much and that there would come pressure on the price. So for steel, we are able to keep a price, and for all the rest, we continue to increase price. So you should continue to see good accretion from price versus cost, at least in Q2 and Q3. Q4 is too early because it depends on where material indexes go, where the market goes, and what we continue to do with the prices. As the mix per division, we have always said that America as an entrance system has a higher price component and the older divisions a lower price component. That has been the case also in Q1. We don't want to exactly say the numbers for the different divisions, but obviously it had also to do with steel. Anthra Systems and Americas had a higher steel component in their portfolio than the other divisions, and especially steel in the U.S. was very much up. Last year, at a given moment in time, it was 200% up if you take January 21 as a comparison. And it's also fair to say that EMEA was a little bit later with price increases like you mentioned. And unfortunately, that you then pull through the whole cycle. And therefore, also, EMEA gets today less accretion from price versus cost than, for instance, the Americas or entrance systems. And that explains the lower volume leverage to a certain extent. in EMEA. You also have, of course, lower, you know, volume growth in EMEA versus America's rental systems, which obviously also plays a role in the volume leverage.

Very clear. Thank you, Nico.

Next question is from Andre Kuknin from Credit Suisse. Please go ahead.

Good morning. Thank you very much for taking my questions. Can I just start with the EMEA margin and dig a little bit deeper into that? It was a bit surprising to see that down 80 bps year on year. Was there anything there in terms of country mix that maybe contributed to that? It might change as we go through the year. Or anything between maybe the product mix of resi and non-resi just Wondering if that's kind of the underlying development that we should think about rolling out for the rest of the year, or was there anything unusual going on in Q1 specifically?

There's several reasons. One that you clearly see in the bridge is, of course, the currency. With the weaker SEC, I think we had in the quarter, if I remember right, 70 base points dilution from currency, which is important. The second thing, like I mentioned, if you see the 3% top-line growth, if you take price away, it's not so much volume. And, of course, you need a certain volume to get a good operating leverage. That's why the operating leverage in EMEA is around 15% and where it's significantly higher, for instance, in China. That's the second aspect. Third aspect, like I mentioned earlier, as we were later with price increases in EMEA than in some other geographical divisions, the tailwind we see now in Q1 is also lower than the tailwind we see in some other divisions. And the fourth one... Is it a positive or negative answer? Yes, if we have less residential and better commercial, it slightly helps from the margin. But we also have seen a bigger drop in Scandinavia and in Sweden in particular, because in Sweden we have also an important OEM business for the residential side. And, of course, they are more exposed to new build, and therefore they went down more. And, as you know, Scandinavia is our more profitable region in EMEA. So in a mix, that affected negatively. So I would say that's the main items for EMEA.

Great. Thank you. And if I may follow up on the MFP program, just wondering that run rate of savings per quarter that you see from the new program, which is around 175 per quarter, I guess, if we take the 700 for the year, how does that compare to the rate of savings that you've been achieving, say, in Q1 this year, in Q4 last year? Is there a step up in the rate of savings or is it more of a continuation of generating that kind of level of quarterly accretion.

I think, I mean, first of all, of course, this is now the figure that I mentioned for the first quarter. That's for all the programs. And I mentioned also the number for the full year of 700. And of course, if you, I mean, you're almost, I would say, even, I would say, on the quarters this year. So you can, yeah, you can spread it out, I think, over the quarters.

Great. Thank you very much to both of you. Thank you.

The next question is from Daniela Costa from Goldman Sachs. Please go ahead.

Hi, good morning. Maybe two things for me. Sorry if I missed this, but in some calls in the past, you comment on how the quarter is starting. I was wondering if you have already, or if not, could comment on in terms of April. And then more longer term, I guess the court case for HHI is ongoing. If you can update us, like, Assuming I think the resolution is in the middle of June, how quickly can you integrate and have the pace at which you see the U.S. market change than anything in terms of whether you think you can push faster or maybe for more cost synergies? If you can comment a little bit on what should be the next steps, assuming that goes through, that would be great. Thank you.

I guess your first question was on exit rates. I would say growth has been rather similar throughout the quarter. Of course, January, February, we have Chinese New Year. But if you compensate a little bit for working days, the growth rate has been rather flat, and therefore exit rate on a similar level. When it comes to HHI, like I mentioned, the court case has started this Monday. It is expected to take around two weeks. I will myself also be a witness in the case next week. As a matter of fact, I will go to Washington on Friday. And then it will take some time for the judge to come to a conclusion. We expect that to happen tomorrow. you know, somewhere towards the second half of this quarter, towards the end of this quarter. And then once the judge comes to the decision, hopefully and confidently a positive decision, we can push the button and we can execute. So depending on the timing, it should be somewhere around the middle of this year that then hopefully, confidently, we can finally close this acquisition. Then we don't know too much more about... HHI, then you can read in... In the news and in the reports, yes. From time to time, we meet the people on an exhibition and so on. But as you know, we don't have more information than the public information. That being said, we have, of course, prepared our action plan from our side. We know what we want to do. We know where we can realize synergies. And also there, we have quite detailed plans that are ready to push the button forward. I would say day one when we become hopefully confidently the proud owner of HHI.

Thank you. The next question is from Andrew Wilson from JP Morgan. Please go ahead.

Hi, good morning. Thanks for taking my questions. I've got two. Maybe a follow-up to Andre's question on MSP. Could you just help in terms of the contribution, even a broad comment, in terms of by the different segments? I mean, can we just assume that there's a saving sort of evenly spread as a percentage of sales, or is there a better way to think about it?

I think if you look in the program, it's more, if you look more on the divisions, I would say that it's more heavy on EMEA as well as on global technologies. So that's when you look in the program, you will see higher savings on those two divisions.

Okay, perfect. A second question just on entrance systems. It seems, I guess, in the commentary and to Nicola's comment with regards to sort of pedestrian and industrial kind of taking over the growth profile, I think to my understanding, there's a slightly sort of two bigger verticals within entrance systems. So, you know, even with some resin and some perimeter slowing, do we still think we can grow this business in terms of what you see for 2023?

It's of course difficult to predict the future, but yes, it's true that the industrial segment is our biggest segment. Our pedestrian segment and our residential segment are similar in size. And then the parameter security segment is a much smaller segment. And obviously the challenge with parameter security and residential, which are both... mainly and for perimeter even exclusively north american businesses is a very difficult comparison they have been growing quarter double digit growth on the quarter last year and a double digit growth a year before and if that then comes with slowdown on the residential side you see the results that we that we showed Pedestrian and industrial are more also global businesses, and they haven't seen that very high growth last year, so for them also the comparison is a little bit easier. And as we continue to realize that price component, we are confident that we continue to see good continued growth for entrance systems. But again, I can only look so far in the future. I cannot predict the future.

One thing perhaps to add on the entrance system, which was encouraging, was the service growth or the aftermarket growth, which was strong. And that's predominantly or actually only, I would say, in industrial as well as in the pedestrian segment, which is also something that's good when you look on growth going forward. Correct.

That's very helpful. Thank you.

The next question is from Vivek Mehta from CT. Please go ahead.

Thanks very much, everyone, and good morning. Just one question, please, following up on the global technology business. Could you give us an indication of how much of the backlog is left in physical access control for fulfillment in Q2 and beyond? Thank you.

Yeah, we had a good recovery of the backlog now again in Q1 after also Q4 and Q3. There's still some backlog left that we should now invoice if everything goes according to plan in Q2. And then we should be back at normal backlog levels. And then that positive extra effect would be gone in the second half of the year. Thank you very much.

The next question is from Mattias Holmberg from DNB. Please go ahead.

Thank you. The comment you made in the report that some key leading indicators are pointing towards a slowdown. Can you elaborate a bit on where you're seeing this weakness beyond the comments you've already made on the slowdown in vessel construction? Or perhaps if I phrase the question a bit differently, based on what you're seeing in the leading indicators, where do you expect to eventually see a slowdown in your own business going forward, taking lead times into consideration, please?

Mathias, I should not be surprised to you, and I can only repeat what I said before. We have seen an important decline on new-built residential. And again, we are not so exposed to new-built residential as a group anymore. But there is, of course, pockets like OEM window hardware, like garage door business in the US or some of our fencing business in the US that is more affected by the decline in residential new build. We have seen a deceleration still in a positive growth, but less positive growth on the R&R side also. on residential also KPIs that are publicly available. And perhaps the only thing what we didn't talk about yet is that we definitely also have seen a bit of weaker direct-to-consumer business If you take the Bunnings, the Hawaii in Australia, or if you take that channel also in Europe, for instance, in the country where we are in Sweden. But to a certain extent, even in the U.S., you definitely see a bit more cautious consumer behavior on that direct-to-consumer part of our business. But then again, like I mentioned, on the commercial side, we still see our internal indicator, spec business up double digit in all three main geographical areas or regions.

Thanks for that, Kalle. A quick follow-up on the MFP. If possible at all, could you split out how much of the contribution in the quarter was relating to to the most recent program and how much was relating to the older ones, please?

I would say that, I mean, if you take the program, I think that everything from the MFP7 is now gone. And if you then look on the split between the MFP8 and the MFP9, there is a higher portion coming from the MFP9.

Thank you.

The next question is from Alistair Leslie from Societe Generale. Please go ahead.

Yeah, thank you and good morning. Yeah, so first question, just quite a few industrial companies reporting so far have kind of indicated a softening in US momentum. One or two kind of highlighting now the stocking and commercial construction. So I just wanted to confirm that's not something you've seen at all in your kind of March and April trends. That's kind of the first question. And then secondly, just a follow-up on global tech. I wonder if you could quantify that sort of positive product mix impact on the margins there. I appreciate there was maybe a benefit from the PAX backlog conversion, but do you see that kind of mixed benefit overall as reflecting a, I guess, a kind of mean reversion in terms of the recovery in the different areas of the portfolio, so it's kind of more sustainable? Obviously, there's going to be a lot of movements in the different areas in the portfolio in terms of growth, so just to get a feeling around the sort of sustainability margins. Thank you.

On your first question, no, that is not something we see as something substantial and definitely not something that affected our result in Q1, also not towards the end of Q1. When it comes to global technologies, perhaps we can dissect a little bit. You can say that 75% of global technologies is HID, 25% of global technologies is global solutions. And in the HID part, around 50% is PEX. And it's also the most profitable part of our global technology business. So if we can grow more PEX, also in the bigger picture of global technology, it's important in the mix. It's important for the margin. If you take the global solution part, there again, of that 30% business, close to half of it is the hospitality business, which is also the more profitable part of our business in global solutions. And with hospitality, we had a bit of challenge that our top line was, you could say, subcritical in the sense that there is a certain level that you need for hospitality business. If you are above that level, you can realize very good volume leverage and post good bottom line figures. If you are below that, it's more challenging. And as we have grown hospitality business nicely over the last two or three quarters, we are again above that critical number, and therefore hospitality contributes in a very good way also to the profitability. That's on the positive side. Like I said, then Citizen ID, which is also travel-related, there we see our... Top line still significantly lower than prior to COVID-19, where that is not the case anymore with Paxson and with hospitality. We are more or less back on that level. Citizen ID is not the case, so we are still on a low level, and therefore we also have challenges, bottom line, where we make still an important loss on that part of the business in HID.

Thank you.

The next question is from James Moore from Redburn. Please go ahead.

Yeah, good morning, everyone. Nico, Eric, I wondered if I could come back to the Americas split and the revenue exposure. I think you're 75 non-res, 25 res, and did I hear you correctly that the non-residential is 45 commercial, 55 institutional? And could you say what the new build versus renovation split is for each of the three buckets of resi, commercial, and institutional?

So if you take America's, you could say 80% is North America, 20% is South America, and South America is obviously much more residential than commercial. The vast majority in South America is residential. But if you take... U.S., Canada could say that 85% is commercial. Residential is very small. As you know, we are a small player on the residential side in the U.S. That's also the reason why we want to acquire HHI. Then it's correct that on the commercial side in the U.S., 55% is institutional and 45% then is the rest of commercial. I think the honest answer is that we don't know exactly how much our exposure is to new-build, but what we know for the Americas is that in all three, it's very low. The very vast majority of what we do on the commercial side, institutional, non-institutional, and on the residential side is R&R, is not new-build.

That's very helpful. Thanks. And within commercial... I wondered if you could help us understand what the breakdown is within that, just because you look at certain areas like office, which is clearly very elevated. Vacancy rates are high. Tech was hiring. It's now firing. That's probably where we've got, if there are any kind of capital flight issues in regional banks, a bigger risk. I don't know if there's any way you could break down some of the categories between multi-retail, office, casino, whatever, as to how that business breaks up these days.

Yeah, so we have different verticals like K-12 universities, government and so on, and we even have dedicated sales teams for the different verticals. All I can say is that there is no vertical that is more than a double digit of our total sales. So all verticals are... single digit sales and if you are specifically after offices where all the questions come, I can say that it's not among the top verticals for us. Top verticals for us are more on universities and K-12 and then on everything that is healthcare related.

That's very helpful. And my last one, if I could, is just your ambition on pricing. I mean, is your ambition to cover inflation? Are you thinking about covering material? Or do you also want to include general and wage inflation in that? Or do you simply want to get the maximum? I'm thinking, given that we went up on steel costs and then we went back down, as we go back down, would you like to try and hold on to price or even raise prices in the face of tailwinds on materials?

I would say our ambition is none of all what you mentioned. Our ambition is to continue to increase prices as long as we can increase prices and as long as the market follows. Because obviously price increase is the easiest and the fastest way to the bottom line. That's why we have continued to increase prices also in Q1 in all the regions and for most of our products. And let's not forget that And let's take steel separate for a second. But all the rest has continued to increase. I think if you take copper, nickel, aluminum, where we are today, it's again up 20%, 25% compared to where we were at the end of last year. So material is up and gives us an argument to further increase prices. Next, too. Labor inflation, well, labor inflation definitely is higher this year than last year, and last year it was higher than the year before. And like I mentioned, we have also energy cost and general inflation. When we talk about steel, steel was significantly up, and then indeed somewhere... Last quarter, last year, steel started to drop 40, 50 percent in the U.S. At a certain moment, we were a little bit afraid that at a certain moment somebody would start to reduce prices. We were able to keep prices on a high level. But if you now see the last couple of months, steel is again significantly up in the U.S. it's easier to keep prices today. And if material continues to evolve in the way it evolves over the last couple of months, we are confident that also going forward, we should be able again to further increase steel prices. So as a short answer, yes, we continue to increase prices as long as we can, as long as the market follows.

Thanks, Nico. Very helpful.

The next question is from Alexander Virgo from Bank of America. Please go ahead.

Thanks very much. Morning, Nico. Eric, I wondered if you could just talk a little bit about the dynamics in your specification business in America. I mean, can you talk a little bit about the trends in terms of size of projects or speed of projects or any kind of... changes in customer behavior? That would be the first question. And then the second question would just simply be a question around quantification, or maybe not necessarily quantification, but just understanding the sort of sequential developments in terms of the slowdowns in new bills that you've called out in Europe, the U.S., and specifically, I guess, in in Northern Europe. Thank you.

On specification, we follow up per vertical. And when I say we see double-digit growth in America, it's almost for all verticals that we see strong double-digit growth. From the bigger verticals, I think there's perhaps two exceptions. One is everything that is hotel-related, hospitality-related. And the other one, like we discussed before, offices, where we see lower, still positive growth, but lower single-digit positive growth compared to the other verticals. On the slowdown on residential, I mean, we already talked about the slowdown also in Q4, so it's nothing new and it's not something that became much more of a problem than it was already in Q4 if we talk for the Americas. Definitely in Europe, in some markets, especially everything that is OEM-related, we have seen more negative trend in Q1 than in Q4. In particular, if you take, for instance, Scandinavia, Sweden, the country where we are, where we have seen a more important drop of our OEM business in Q1, where that was not so outspoken in Q4. But in general, it's more a confirmation of what we had seen in Q4.

Right. Okay. And just as a follow-up, the R&R comments that you made were obviously far more important for your business. How would you describe that in terms of the progress through the last three to six months? And what sort of comps are we facing as we go into the second half? Thank you.

Yeah, again, in the U.S., our exposure to residential is very small, less than 15%, and most of that 15% is R&R. I can only say that we still had, despite a deceleration of R&R, we still had nice higher single-digit growth on our mechanical residential business in the U.S., In Europe, of course, we are more exposed. Like I mentioned, 40% to 45% is residential, where also the majority is R&R. But there also, if you take new built OEMs out, it's not that you see... different pattern over the months in the quarter. It's not that things fall off the cliff in March and were still good in February. It was more, to a certain extent, even a gradual or a stable lower level.

Great. Thank you very much.

The next question is from Aurelia Calderon from Morgan Stanley. Please go ahead.

Hi, good morning. Thanks for taking my questions. The first one is from that comment you've made around some shortages in electromechanical affecting the U.S. business. I wonder if you could comment a little bit on market share dynamics, because I remember the last time we had sort of supply chain issues or kind of shortages you were taking share from some of those peers. So the question would be, have you seen any change in dynamics in market share, or are you seeing any flow back to some of those competitors?

So specifically, yes, on the semiconductor comment I made for one of our electromechanical verticals, yes, it was a reason why they had a negative growth in that specific product range in America. But again, if you look in the bigger picture, the America's LMAIC business was growing high double digits in Q1. I think if you take from all geographical divisions, we even had the highest growth in LMAIC in Q1. in America, so it's not a drama, it's just explaining why that specific family was lower in the quarter, and like I mentioned, the main reason was the difficult comparison with a year ago. When it comes to competitor dynamics, We don't see a change. We have our bigger colleagues in the market that are doing good work as well, and they are a good, strong competitor for us. And then we have many other smaller players that also continue to do, I guess, a good job. It's also not that competitive dynamic change in one or two So far, we have also seen that also the other people in the market in the U.S. have further increased prices also because they have the same challenges when it comes to inflation like we have.

That's great. Thank you. And my second question is around the margins that you've seen in entrant systems. And I think we've been talking about being sort of in a blue sky scenario for quite some time and the 16% margin being very solid. I wonder if with this growth shift towards more services and so on, is 16% the margin that we should target for? Or is that margin target not shifting to 17%, 18%? Why should we stay with 16%?

Or why not 19 or 20, right? We always want more. But I think we have said that for entrance systems mid-term, our ambition was to bring them close to 16%. It's fair to say that we are now faster than anticipated at that 16%. We can only compliment the whole entrance system team for that very good achievement. I think we have as a first ambition to stay on the levels where we are today because you will also remember from previous calls that we have always said also that parameter security is the higher margin segment in entrance systems and they were having also the highest growth over the last six quarters or so. So in the mix they were also helping in a in a very important way. And we see now, you know, even negative growth in parameter security. So the mix also changes that we have to compensate with good work in the other segments and by also trying to continue to grow our service business faster than our equipment business. Because if that happens, you also get a positive effect because we make better margins on service than on equipment. But so the ambition is to, you know, to stay for the time being close to that 16%. We should not dream of 17 or 18 or whatever you mentioned.

Very clear, thank you. I think we have time for one more question, operator.

The next question is from Nick Green from Bernstein. Please go ahead.

Good morning, Nico, Eric, Bjorn. A quick question on HID Global, please. Can you remind us again how the mobile access credentials in that business translate into the recurring revenues for you and how you'll plan to grow that? I recall at the Capital Markets Day, you talked about the switch from the plastic cards to mobile credentials being both revenue and margin accretive. Can you just remind us of the economics of that business, please? Thank you.

So if you take perhaps a general answer, if you take our recurring revenue, I think when I started back in 2018, our recurring revenue of software as a service mainly would have been around 2% of top line. Today it's around 5% of top line. So it's definitely our fastest growing segment or family within the group. And clearly... Global technologies and HID and mobile credentials in particular are playing an important role in that growth. And as Apple continues to make publicity for their Apple Wallet and are rolling out more applications and the other technology giants are doing similar things, the market dynamics help us to further make success on the market. on the mobile credential side. I think it's going in the right direction. We are investing a lot on R&D side also to capture that software as a service opportunity once mobile credential becomes more mainstream. And then I would say that the dynamics that Bjorn explained at the Capital Markets Day, Bjorn Liedefeld, the head of HID, remain valid today and we are delivering on those ambitions.

Are you able to – thank you for that. Are you able to give us just a reminder of those economics that Bjorn explained at the Capital Markets Day? The fact that a plastic card, I think, is a – you get paid a bit more per plastic card, but you expect more individual mobile credential transactions to occur so that the economics should be margin and revenue accreted. Can you just – it would just be good to reconfirm some of those data points if you could.

I think as a general principle, I think we can reconfirm what Bjorn says. Then let's see how it plays out once it becomes more mainstream. But for the time being, definitely we can confirm what Bjorn has said at the Capital Markets Day.

Thank you, Nick. We will unfortunately now have to round up this conference. And I know that there are a few questions left. Please feel welcome to contact us at Investor Relations if you want to follow those questions up. But for now, I'd like to thank you for your interest and participation today. And we look forward to seeing and meeting many of you in the coming weeks. So thanks for today. Thank you.

Thank you.