ASSA ABLOY AB (publ)

Good morning and welcome to the presentation of Assa Abloy's 2023 year-end report. My name is Björn Tebella. I'm heading investor relations. And joining me here are Assa Abloy's CEO, Nico Delvaux, and our CFO, Erik Peder. We will now start with the summary of the results before we open up for your questions. And with that, I'd like to hand over to you, Nico.

Thanks, Bjorn, and good morning also from my side. Q4 report, I can say that we had a good end of a very strong 2023 for Assa Abloy. And I would say Q4 results very similar to Q3 results, as well percent-wise as absolute value-wise. We had a low positive organic growth of 0.5% in the quarter. It was slightly below 0.5%, therefore rounded off to 0% in the quarter, where it was slightly above 0.5% in Q3, and therefore rounded off to 1%. We have a strong sales growth in Americas, a good sales growth in entrance systems, and then sales decline in the other divisions. But then also this quarter, good to see that a lower organic growth is overcompensated by growth through acquisitions, 11% net in the quarter. In total, top line up 12%, 1% held by currency at 37 billion SEX. And then a very strong operational execution with an operating leverage on that 0.5% growth of more than 330%. giving a very strong underlying margin if we exclude HHI of 16.8%, if we include HHI 15.5%. And then a record strong operating cash flow in the quarter of 7.3 billion SEC. We also continue high acquisition pace with six acquisitions signed in the quarter. It was a record year when it comes to number acquisitions and obviously also when it comes to value of acquisitions. If you look in the numbers, like I said, 37 billion SEC top line, 12% up, half a percent organic growth. 11% net acquisition and then halved by currency 1%. And EBITDA margin of high 17.5% if we exclude HHI and HHI-related costs. And then the EBIT margin, like I mentioned, at 16.8%. EBIT at 5.7 billion SEC, also 12% up. If you look a little bit in the different regions, starting with North America, an organic growth of minus two percent where we should make difference because the minus two is mainly explained by global technologies, HID. Well, you know that last year, same quarter, we were recovering on the backlog that we built up because of the electronic component shortages. And that backlog is gone in Q4 last year. Therefore, we had a more important negative growth for the PECs, business in HID, explaining the minus 2%. If you take the Americas division, we still see a good, strong momentum on the commercial side. Perhaps not as hot anymore as 18 months ago, but still very good market conditions. Where on the residential side, also in North America, obviously the market remains challenging. But where we also said in Q3, we believe that the residential market is bottoming out. And from here on... we should start to see improvement also on the residential side in North America. We see that also in our HHI business, which was in the quarter only 1% down organically. If we then go to South America, plus 17%, where we continue to see good momentum in our traditional business, and where the figure is a little bit inflated because of a bigger citizen ID order for HID in that continent. And the same is true for Africa, plus 28%. It's mainly explained by a bigger citizen ID project for HIV. Going to Europe, 0%. Definitely Europe is the most challenging country. continent so far because of challenging conditions on the residential side. Nothing has changed really compared to Q3. I will not say that it's getting worse, but it's definitely not improving yet. We see a new build in residential down a bit everywhere. In Europe, we see also R&R down, and especially in the Nordics. which obviously also has a negative mix effect on our bottom line because the Nordics is also the part of Europe where we make the better margins. If we then go to Australia and New Zealand, plus three, very similar, I would say, to U.S. and Europe with still good momentum on the commercial side, but also more challenging market conditions on the residential side. And then last but not least, Asia plus five, where we see a strong Middle East, a strong India, and where for the first time since many quarters in China, we had positive, slight positive, 1% organic growth if we exclude intercompany and if we exclude or correct for the divestments we made related to the HHI acquisition. We believe that the recovery in China will be slow, but we are convinced that the market has bottomed out in China. Therefore, also good to see the 10% growth in emerging markets. Some highlights in the quarter, some project wins for a German energy company, more than 100,000 master key system cylinders. Very nice project. Then some docking solutions and high-speed doors for two large electrical vehicle battery plants in the U.S. Also here reference projects for us. And NHID that has been awarded the contract in Finland for new high-security driver license cards. And we were able also to secure 15 megawatt reservoir sites in the Middle East and equip them with TESA smart air solutions. Product launches, very excited about our new internal developed SpeedGate product line in entrance system in close collaboration with HID using biometric technology from HID. We had a new range of high-end, high-secure doors, mainly for government and diplomatic facilities applications. And then we launched a new product range of smart digital door locks. Smart digital door locks that have fingerprint reading, face recognition and also digital door view capabilities all integrated in the product. These products are launched in Asia, in Southeast Asia and China in particular. And I'm good to see that we are now for the third year in a row named as one of the companies in the Dow Jones Sustainability Index, also giving us credit for all the sustainability efforts we are making as a group. Look at the growth. So it's now 12 consecutive quarters with positive organic growth, smaller positive organic growth in the last two quarters, like I mentioned, but then overcompensated by strong growth through acquisitions. And obviously the strong growth through acquisitions will also now continue this year. Then a good margin improvement on a running rate at 16.8% if we exclude HHI. If we include HHI at 15.8, so very close to the band which we aim for. So good top line, improved margin, therefore also strong operating profit, 20% up in 2023. Acquisitions, like I mentioned earlier, six acquisitions signed in the quarter, 24 in the year. That's a record in number. It's a record also in value. They represent sales of around 20 billion SEC. If I highlight two, Leon Fence, complementing our perimeter security business in North America. They are a strong player in the Canadian market and have a sales of around 300 million SEC. And then Ghost Controls, an acquisition in Entrance Systems, a supplier of automated residential gate openers, also having a sales of around 300 million SEC. If I go into the different divisions, EMEA, I would say an organic sales decline of only 2%. I think it's a good result if we take into account market conditions in general and residential market conditions in the Nordics in particular. We've seen strong growth in Middle East, India, and Africa. We've seen good growth still in South Europe, stable growth in Central Europe, but then clearly a sales decline in the UK and Ireland and the Nordics. And especially the Nordics also explains then the operating margin because it gave us also an important negative mix. Despite that, still an operating margin of 14.4%. I think on the minus 2% organic sales, a good volume leveraged. M&A has done a very good job in adapting the cost to the lower top line. I think in the last six months they took out around 450 million sec of costs, therefore limiting the operating dilution to 50 base points. They did good price management and other operational gains. They were also hit by FX, 20 base points, and then M&A was a creative 10 base points. When I go to America, it's another very strong quarter with an organic sales growth of 5%, with good growth in our commercial business in North America, good growth also in Latin America. Sales declined in U.S. residential, but that's obviously organically now a very small part of our business here. For residential, we should look at HHI, and like I mentioned, HHI was having an organic growth of minus 1% in the quarter. Very strong operating margin of 23.8% if we exclude HHI and HHI-related costs. 17.6% if we include HHI. Very strong operating leverage, good price versus cost execution and good operational efficiency realization. Helped by VEX 30 base points and then, of course, the dilution of HHI. HHI was having an EBIT of 8.9%, but then we had also a one-off closing and integration costs for HHI around 180 million SEC. When it comes to Closing and integration costs, we are, you could say, almost done in that aspect that this year you should not expect significant cost anymore. And then we reversed some of the PPA. Eric will come back on that later in the presentation. If we then go to APAC, an organic sales of minus 1% with very strong sales growth in Southeast Asia. Stable sales growth in China. As a matter of fact, if you take only external sales into account, you take intercompany out and you correct for the divestment with it linked to the HHI acquisition, we had a slight 1% positive organic growth in China. So clearly market bottoming out and and from here we will see gradual improvement. But then we saw sales decline in South Korea. I think South Korea also on the residential side challenging. And then sales decline in Pacific, and that's mainly explained by our fenestration business in the U.S., the window hardware business in the U.S., which had still a very difficult comparison and is, of course, directly linked to OEM residential business. But where we also see, I would say, a lower sales decline is And where the comparison now going forward will also become easier. Another sign that gives us confidence on the fact that we believe the residential market is bottoming out in North America. An operating margin of 4.3%, a strong improvement compared to a COVID quarter a year ago. Good operating, very strong operating leverage actually. But then a strong dilution of FX, 90 base points because of the weaker Australian dollar. And also 40 base points dilution of M&A related to the divestment in Vietnam linked to the HHI acquisition. If we then go to global tech, an organic sales decline of minus 7%. We had a very strong sales growth in Citizen ID. It's now several quarters in a row that we see Citizen ID coming back top line-wise. I think we have done also a very good job on the cost side, and we are back in black numbers with Citizen ID. And then you can read yourself for the other business areas from global technologies. I would highlight again PECS, physical access control, which had an important sales decline compared to the same quarter a year ago. And that is again explained by the fact that a year ago we were eating up and invoicing the backlog that we built up because of semiconductor shortages. And that backlog was not there now in Q4 last year. We also saw strong sales growth in global solutions in all the different business areas. But obviously the fact that we grew faster in citizen ID and had more negative growth in impacts also had an important negative mix effect on the operating margin. Therefore, only an operating margin of 15.5%. We saw operating dilution of 40 base points, FX flat, and then an important dilution of M&A, 120 base points. I would say that's mainly one of acquisition costs related to the closing and the acquisition of Avalis. So those costs should not come back in the coming quarters. And then last but not least, entrance systems, a good, strong end of a very strong year for entrance systems and organic sales of 3%. Very strong sales growth in perimeter security, strong sales growth in industrial and pedestrian, and then continued sales decline, but less decline on the residential side, mainly our garage door business in North America. And you see there a little bit that industrial and pedestrian growth compensates for sales decline in residential. The comparison for residential will also become now easier as of the second part of this quarter. And also very good, so strong growth in service, above 10%. So delivering on our ambition to grow the service business high single digit for the coming years. That growth in service also helps us in the mix and explains a very strong operating margin of 17.4% because we know that we make better margins on service than on equipment. We did a very good job on the pricing side, price versus material cost, and very good operational efficiency gains again in the quarter. VEX dilute is 10 basepoints. NM&A dilute is 30 basepoints. And with that, I give the work to Erik for some more details on the financial numbers.

Thank you, Nico. And a very good morning from my side as well. You've heard the numbers, the sales numbers on the quarter. So let's zoom in a bit on the full year where we actually in value reached above 140 billion SEK. We were close to 141 billion. billion for the full year which was an increase of 16% where if you do the split 3% came through organic growth, 8% came through acquisitions and 5% was related to currency. If we then move back to the quarter, and these numbers are including HHI, operating income was up with 11%. If you look on EBITDA, we are at the same level, Q4 2023, as what we were the same quarter in 2022 at 16.2%. The EBIT margin is slightly lower, 20 base points, and we ended at 15.5. If you look then just on the full year on the EBIT margin, we're actually 50 base points better in 2023 than what we were in 2022 and ended at 15.8. Income before tax, there, yes, I mean, interest rates have gone up. We have also paid a bunch of money then, I would say, for HHI, which has increased our debt. So in the quarter, roughly 840 million SEK increased. were related to interest costs, which is an increase of roughly 450 million compared to the year before. If we then look for 2024, our estimate is that our interest rates cost, we are providing that the interest rate stays at this level that they are right now, roughly on 3.5 billion SEK. Net income and earnings per share in the quarter was up with 6%. If you look on the full year, they were up with 13% and the earnings per share ended for the full year at 13.54. As mentioned before by Nico, we had a record cash flow in Q4. above 7.3 billion, up with 11%. And if you look in the full year, we actually generated more than 25 billion SEC, which is 60% up compared to the year before. And finally, on this slide, return on capital employed ended on 15.6%. If we dissect a bit and look a bit on the bridge... The 40 base points organic growth, if we then divide it a bit, we had a little bit more than plus 2% in price, which sort of consequently means that we were about minus 2% when it comes to volume. Nico mentioned before, you can see that the flow through on 337%. I think we had a very good, let's say, price versus cost when it comes to material. We have also done, if you take the MFB together with the short-term cost measures, it's a little bit more than half a billion SEC, of which 40% of that comes from MFB, and the rest is related to short-term cost measures. No real material effect from the currencies. On the M&A, excluding HHI, It had no negative impact, and I think considering also that we talked before about Everlist had a negative impact, we have quite a few on the acquisitions that we did last year, which is actually performing really, really well. If we then take the next slide and zoom a bit in on HHI. As mentioned before by Nico, we start to, let's say, be more confident also that we see signs of stabilization on the residential market, where you can see that the sales were actually only 1% lower than the same quarter last year. The EBITDA margin is up with 2.5 points and ended in the quarter at 14.9%. If you then take the adjusted EBIT also, I'm just repeating what Nico said before. We ended on 8.9, which is 130 base points better than what we had in Q3. Here I'm excluding the... the closing and integration cost of 180 million in Q4. We've also finalized the PPA evaluation, where we would then end up on a number, if you look on the Goodwill versus the PPA, of about 15%, which means that going forward, the PPA for the full year impact on the result will be about $60 million per year. We should, however, when we talk about that, we start to see improvements. Keep in mind that Q4 and Q1 are the seasonal more weaker quarters for HHI, but we still sort of confirm that HHI will have a positive impact on our EPS for 2024. And the cost breakdown and direct material is significant. is 240 base points better than the same period last year. Of this, roughly 90 base points is related to mix, where we had a stronger Americas, a weaker EMEA, as well as a weaker APAC, but then also we have within Entrance, we have the, let's say, interdivision mix, as talked before by Nico, that we also see a strong growth in service, which also helps us on the direct material part. Conversion is 100 base points lower. There we are hit by the lower volumes, by the higher wage costs, but we have been able to offset it by what I mentioned before, the MFP and other short-term cost measures. SG&A is about at the same level. It's slightly higher at 20 base points. As highlighted before, we had record cash flow in the quarter. We have a record cash flow in the year. I think that there we've had a strong EBIT and EBT contribution. You can see the cash conversion rate for the full year. was at 128%. If you look in the quarter, it was above 150%. I think I talked about EBIT, but we also sort of have seen good work done in reducing our inventory. This has sort of generated then that we have been able to reduce our net debt with 4.6 billion SEC. There, of course, yes, we've also had some help on the currency, but we are continuously being able to Lower it despite that we are continuing acquiring companies. Net debt to EBITDA ended at the quarter at 2.3. Part of it why it goes down is also, of course, purely mathematics because we get more EBITDA in every quarter than from HHI. But I think that we sort of with these numbers, we can continue our acquisition strategy because we have a very sound financial situation. Earnings per share, as mentioned before, ended at 13.54, which sort of is a record, I would say, for the group. And with that comment, I hand it back to the CEO again.

Thanks, Erik. So as a conclusion, a good end of a strong 2023 for Assembloy. We're still a positive organic growth of 0.5%. Lower organic growth, but then overcompensated with strong growth through acquisitions of net 11%. Strong operational execution with good bottom line and strong margin and record cash flow. It's clear that we are operating in uncertain economic climate. Things are changing every day. But we see several markets that are showing good momentum. We see also several verticals that still show very good opportunities. On the other hand, there is markets like our home market here in Sweden. And in particular for the residential vertical that remains very challenging. So it's a matter for us to continue to take opportunities there where we see opportunities and further strengthen our relative position in the market. And then in those markets where we see more tough conditions, make sure that we adapt cost and protect bottom line and cash flow. And that's what we have been doing. Throughout the year, that's what we will do also this year. And there again, our decentralized organization being able to take decisions locally based on local market conditions gives us that agility and that efficiency and gives us also, we are convinced, a competitive advantage in the market. The board proposes a dividend of 5.4 SEC based on AGM approval, of course, and the idea would be to split the payment in two equal trenches like we also did last year. And then last but not least, Bjorn asked me to remind you that we have our Capital Markets Day on the 14th and the 15th of May, 14th of May in Prague, and then on the 15th of May we will visit our EMEA factory in Rychnov. And with that, I give the word back to Bjorn for Q&A.

Thank you very much. Thanks for that reminder. Everyone, this means that we are ready now to open up for questions. But before we do that, please remember that we ask you to ask just one question each with a follow-up, so we hopefully can get through the list of everyone who would like to ask questions. So with that operated, it means that we are ready to open up for questions. Please go ahead.

Thank you. As a reminder for questions, please press star and 1 on your telephone. The first question from Daniela Costa, Goldman Sachs. Please go ahead, madam.

Hi, good morning. Thank you. So my first question is, can you give us a bit about thinking how you're considering pricing this year? Maybe I'll start there and I'll follow up.

Yeah, morning, Daniela. Of course, we come out of a very high inflationary cycle, where if you take a year and a half ago, steel was up 200% in the U.S., That has calmed down. I think most materials are still on a high stable level and still even went up again in recent months. Next to that, we continue to have higher labor inflation and general inflation. We also expect a better price component this year than what we used to have historically prior to COVID-19 times. I would say if you look prior to COVID-19 times, you were in a low inflationary world where price was around 1%, sometimes a bit lower, sometimes slightly higher. We would be disappointed if this year the price component would not be above 2%, because clearly we continue to live in a higher inflationary world. We will get some price carryover from last year, around 1%, and then we have continued to increase inflation. prices in December, January, and also in February. So we will see how much of that price increases we really can realize in practice. But again, we would be disappointed if it would not be around or above that 2%.

Very clear. Thank you. And maybe as a follow-up on the global tech trends, I guess for parts of global tech, you probably have some tendering or some visibility before the deal is closed. Can you comment a little bit on what you're seeing in tendering activities so that we have an idea of normalized levels given the backlog is now closed?

Yeah, I think the ones where the biggest projects long-term are coming is obviously citizen ID, and there I also mentioned during the presentation that we have seen several quarters with strong growth. If you take the different... verticals in Global Solutions. There we continue to see very nice organic growth, I would say, for all verticals, and in particular also for hospitality, which is our biggest vertical in Global Solutions. I think the one that is more difficult to read is obviously PECS, Cards and Readers, which is by far the biggest business area in HRD, where we are still... having difficulties to really understand the order pattern because we compare with quarters that were very inflated because of the invoicing of the backlog and we come also from quarters a year ago where our delivery times were very long and our delivery times are very much normalized so we have the We have the impression at least that Pax is back on a, I would call it, normal growth pattern in a sense that Pax historically has been growing this mid-single-digit stable growth. And I believe once the... in the comparison with the backlog are over, that should be a good number for our PECS business in HRD.

Thank you. The next question from Vivek Midasiti. Please go ahead.

Thanks very much. Could I follow up on the price-cost comment? So I think you broke out with the direct material about 240 basis points in the quarter, and around 150 of that is price-cost and not mix. Is that a good guide for how that's going to continue going into 2024, or is that likely to taper off? Thank you.

As you know, we don't guide, but let me try to give a bit of a flavor. What we said after Q3 is that we believed that we were peaking in Q3, cost versus price. And that indeed has been the case, because if you correct for the mix, price versus cost in Q4 was 150 base points, where I think it was 160 base points in Q3. So it definitely stayed on a good, positive, high level in Q4. We believe that will still be the case in Q1. We still should get good, stronger accretion from price versus cost in Q1. In Q2, obviously, that will go down, but also in Q2, I believe we should still get positive accretion, but on a lower level, and then where the second half of the year, it should be normalize and become more neutral everything will depend of course again on how much we will be able to realize from the price increases in practice or the price increases that we initiated in december january and february and it will obviously also depend on what the material indexes will do now in in the coming months because as you know there is around six months time difference between material indexes going up or down and us seeing it in in our income statement thank you very much

The next question from Gaël Debray, Deutsche Bank. Please go ahead.

Oh, thanks very much. Good morning, everyone. I appreciate the earlier comment on global tech that the sales decline is essentially due to pretty tough comps because of the backlog execution. If I take a step backwards, I mean, global tech revenues are still kind of flat organically if I compare the current level of activity to pre-COVID levels. So can you perhaps give a bit more color into what is holding down the global tech segment and then perhaps talk about any change you've begun to institute and and when these changes might actually have more of an impact on the growth dynamics for the segment.

I believe this is not correct, Gael. I think if you look at levels of global tech, we are nicely above pre-COVID levels. I think what... Organically. Yes, organically. What has brought it a little bit down... If you look over the whole period prior to COVID and compared to now, it's clearly citizen ID, where we have commented several times that with citizen ID, we are still significantly below pre-COVID levels, despite the fact that we have seen a nice growth now in citizen ID a couple of quarters. So that explains part of it. If you look shorter term, of course, yes, you have also the Pax impact again, the high backlog last year and the sales decline this year. But organically, we are higher now prior to COVID-19 levels. And if you take and you make the split between HID and global solutions, on global solutions in the different verticals, we have seen nice higher single and even double-digit growth. Definitely, we're also higher than prior to COVID-19 levels, where the recovery in hospitality took a little bit longer, but today we are also on an important higher level than prior to COVID-19 for hospitality.

Okay, thanks.

The next question from Matthias Holmberg, DNB. Please go ahead.

Hi, good morning. Can you talk a little bit more about the short-term cost-saving initiatives in Q4? I would expect that to a large extent we're targeting EMEA and other regions that you mentioned, talked about earlier in the year, but it would be interesting to hear if you've expanded them into any other regions or project categories. And also on a similar topic, if you could give any first comments on the new MFP you intend to launch later this year, if there are any regions in particular you have in mind, it would be interesting to hear if you have HHI or anything else on the agenda that was a bit left out of the last MFP. Thank you.

So the cost savings, as Eric mentioned, it's around 300 million SEK extra savings in the quarter. And you're right that most of that is in Europe. And you're right that most of that was in EMEA. But obviously, we see a more challenging situation on the residential side in Europe in general and in the Nordics in particular, where we, like I said, adjust our costs to the lower top line to protect bottom line and cash flow. And we have done that a little bit in all markets in Europe because we see that residential challenge a little bit in most markets in Europe. But again, mainly EMEA and a little bit of entrance systems. When it comes to MFP, We will most probably launch that towards the end of the year. It will be a very similar program, most probably like all the previous MFP programs. We are just starting to generate ID, so it's too early to say which divisions. But it will be most probably like all the previous MFPs. All divisions will contribute. And, yeah, clearly we now, with having HHI or being the owner of HHI, it might give us extra opportunities to do more MFP. We will see going forward. We are still very early in the phase of that MFP program. We are still working very hard on realizing the savings on the existing MFP program.

Thank you.

The next question from Andre Kaknin, UBS. Please go ahead.

Yes, good morning. Thank you very much for taking my question. I wondered if you could talk about how your spec writers activity developed during the quarter and what sequential trends are you seeing there across Europe and Americas? And maybe just offer a bit of color on how that kind of compares and why would that differ versus what we see as the lead indicators for more kind of traditional lead indicators for non-residential construction activity like ABI.

Of course, we also have the fact that we compare now with more difficult higher numbers a year ago. But our spec business was still up mid-single digit. If you look at America's Europe and Australia and New Zealand being our more important markets. And similar trends as we explained before, we see a further shift from mechanical to electromechanical and digital. We see also green specs being the ones with the highest growth, mainly in EMEA. If you look at the different verticals, also no changes to what we said earlier. We still see good momentum on education and on health care, which are important verticals for us. But in general, quite similar patterns for the different verticals, with the exception, obviously, and I should not be surprised, of offices where we see a more important negative growth in the spec business. So that's a little bit in contradiction with what ABI index has shown us now the last four or five months. ABI index is of course one indicator. You can also look at Dutch KPIs and there the picture looks a little bit more positive. I can only say what we see in the market and what we hear also from our channel partners. Again, we still see good momentum on the non-residential side as well in North America as in In Europe, in general, again, perhaps it's not as hot as 18 months ago, but it's still on a very good, healthy level. Prove the growth, the 5% growth that we have seen in the Americas in the quarter.

Great. Thank you very much. If I may just use a follow-up to double-check on America's HHI-related costs, if you could make it very easy for us, please. Can you just give us the number of total purely kind of acquisition-related costs for 2023? And as a side to that, the 60 million of PPA amortization for 2024 that you pointed to, is that similar to what you saw in 2023, or is that a step up?

If we take the last part first was that we had sort of in the first, let's say in Q3, we had anticipated the higher. So we were actually at 80 million. And that's why you have now a reversal to talk about the 60 million SEC that we had then for, which is included in for Q4. So, coming back, so we can say that we started with calculating with $80 million per year, and now we have now finalized it, and now we're down to $60 million. If you look on the acquisition and integration cost, as I said, they are done. I think we had $180 million then in Q4. We had roughly the same in Q3, so let's say about 200 million. But now, as of now, that number will go down significantly. So I think we have taken that, so that you should not take into when you do the calculation then for 2024.

The PPA should calculate with a number below, slightly below 60 million now for this year. And you should consider that integration and closing costs will not be significant anymore this year. And in that aspect, if you look at Q4, The 8.9% EBIT is, you could say, a clean number. The 14.9% EBITDA is also a clean reference number. And that, I think, should be the two numbers you have in mind going forward. going forward because obviously also as we now will have not one-off costs anymore. As of this year, we will start to report HHI just like the residential segment in the Americas and not break it out anymore and do a similar reporting like we do for the segments in entrance systems.

Thank you. But you also had HHI deal-related costs in H1 last year as well, right? Because you had the legal team working throughout the whole DOJ process.

Yes, we did.

And how much were they just for completeness?

I would say in Q1.

I think it was around 90 million.

Yeah, I think it was sort of the running pace in Q1 was roughly 30 million SEC per month. So, I mean, 90 to 100 million is sort of what you will have as a one-off from last year, which, of course, will not be repeated in 2024 Q1. Great.

Thank you. Thank you. Appreciate your time. I'm sorry to interrupt your questions.

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

Good morning, everyone. Nico, Eric. Perfect segue from Andre. I have a follow-up on HHI, if I could, in two parts. If the 8.9 and the 14.9 are the kind of clean base, when we look back in, I don't know, the few years before COVID, HHI was making a 19% EBITDA margin. And obviously, we've had some cyclical pressure since then. I get that. But should we think about HHI's underlying margin before synergies going back to that kind of level as the cycle recovers? And is it that the synergies are on top of that? And my follow-up question is really about the synergies. Do you still feel confident on the 100 million? Do you think you can make that number bigger now that you've looked at it closer and have you changed your thoughts on it? Have you changed your mind on the phasing? Is it still straight line or can it be a bit more hockey stick or front end loaded? Any details on that would be great.

Perhaps first, James, I think that the 19 you talked about in EBITDA, that was, let's say, when they had some really good years. I think the normal level, if you take the period before, was, let's say, plus minus 17 and a half EBITDA. And I don't think, I mean, from my end, perhaps, let's see if Nico has a different view. I don't see any reason why, let's say, further down that they should stand alone be able to come back to that level. I don't know if you want to have another comment there or if you have something on the synergies.

No, no, I agree. We should tamper a little bit with the ambition of James. The number James mentioned was, you know, the record quarter number. The real number is a bit more in line with what Eric was saying. But I think there is no... I would say no reason why over time we should not be able to have similar EBITDA numbers again with... You could argue perhaps that they were a little bit under-invested in R&D and under-invested in equipment in the factories, and therefore it could be a little bit lower, but that then should indeed be overcompensated by the $100 million bottom line synergies that we have laid out when we closed the deal. And we are still very confident on the $100 million. It will be a lot of hard work, but we believe the number is realistic and achievable. As a matter of fact, we started to realize the first savings. We have done some work on the pricing, which is the easiest and the fastest return, I would say. We have brought our pricing experts into HHI. We are building a dedicated pricing team in HHI. We also start to see the first savings when it comes to purchasing on materials, as we both buy, for instance, steel or aluminum. One of the two buys it at a better price, so combining volumes and buying them at the best price gives us good, significant savings. We are starting to fill factories and insourcing some of the components that we were buying from third parties and therefore get better utilization in the different HHI factories. We are investing in R&D as well on the mechanical and electromechanical side. Obviously, there we don't have the realized financial synergies yet because that takes a little bit longer to launch new products. But I think there's a lot of activities going on, and we start to see the first results. So, yes, we are confident on the $100 million bottom line synergies. And like we said, we have the ambition to bring HHI over time back to that 16% EBIT margin.

Thanks very much.

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

Yeah, morning, everyone. Thanks for taking the question. I wondered if you could talk about the sort of current trading, I guess. I appreciate you don't provide guidance, but I wondered if you could talk a little bit to the trends that you're seeing exiting 23 and coming into Q1. I think EMU is possibly a little better than I'd expected. America is possibly a little better there as well. But You called out R&R markets down in Europe and stabilizing resi in North America. So I wondered if you could just give us a sense of magnitude or a sense of how things are progressing as you see things today. Thank you.

So I guess you're a bit off the run rates. Of course, it's a difficult period to really give a qualified answer. answer in the sense that December and January are holiday months. We have Chinese New Year in between. This year is in February where it was last year in January. What is also particular in Q1 now is that we have One working day more in January, one working day more in February, but then three working days less in March. And obviously March is normally the bigger month in Q1. But if you look at rates in January, I would say that they are very similar, if you're correct, for working days. as the rates we have seen throughout Q4, and throughout Q4 it has been rather stable as it was towards Q3 as well. So we haven't seen any significant deceleration or acceleration. And again, I think market conditions on the commercial side stay on a good, healthy level, and perhaps with more normal growth levels again also because of the more difficult comparison and residential is not further declining but it's not really improving neither where we believe on the residential side US is further down in the cycle and MA is still earlier in the cycle in other words it will perhaps show faster recovery in the US than it will show in Europe

Okay, thank you. And can I just follow up quickly on global tech? Your comps obviously remain very tough into Q1, Q2. So is the Q4 base level a sensible place to start as we look for the first half of the year?

I think that is the case, and indeed I think Q1 in general is still a difficult quarter from a comparison perspective. Again, one working day less in Q1, and it was a very strong quarter a year ago for Americas and for global tech, and therefore also in general. But definitely for those two divisions, it's a challenging comparison with a quarter a year ago.

Okay, great. Thanks, Nico.

The next question from Andreas Koski, Exxon BNP Paribas. Please go ahead.

Thank you, and good morning. I have a question on your performance in EMEA. You mentioned that you were happy with the organic sales performance, organically down only 2% when building construction markets are very weak. So what do you explain your outperformance in EMEA? Do you think there is a risk that there is a lag effect here and the weakness is yet to come for you? Or are you gaining market share? Or why is the performance so good relative to the market?

Thank you. I think there's obviously markets where we have a stronger position. There is markets where we have... weaker position. It's clear in those markets where you have a stronger position, it's difficult to do better than the market. In those markets where we still have a weaker position, we believe we can continue to do better than the market irrespective of market conditions. And you've seen that we are growing very nicely in the Africa-Middle East, which is still a part of EMEA with good market conditions and where we are definitely also performing on a high level in a good market. We've also seen still, perhaps for some people surprisingly, good market conditions in South Europe. So it's a little bit of a mixed picture. Clearly, the Nordics is challenging, but in general, it's more challenging on new build than on R&R. And as you know, we are less exposed to new build and are more on the R&R side. EMEA was also the division which was later with price increases in the cycle, and therefore they're also profiting still more now from the price realisation. than some of the other divisions we have in the group. Their price component was higher than the average price of slightly above 2% that Erik mentioned earlier.

Thank you. And then I would like to follow up on Alex's question about the start of this year. In Q4-23, you also had one fewer working day, as you have now winked. So that should not be any different on a year-over-year basis. Is that correct?

That's correct. But, of course, you have the seasonality between Q4 and Q1. And in that aspect, it's also good news that Q2, Q3 and Q4 this year will all three have one working day more than a year ago. Yeah, Q1 will be tough because you have one working day less, but then the next three quarters we'll have one working day better. So in total for the year we'll have two working days more this year as compared to last year.

Thank you.

The next question from Johan Sjöberg, Capital Chevrolet. Please go ahead.

Sorry, my question is to get back to you on the America's margin here, but just to look going into 2024, looking at the underlying margin development. I understand that it's a little bit confusing, to be honest, looking at all the one-offs which you had during 2023, also the amortization. I would like to see sort of if you could give some sort of indication where margins should be at the beginning of this year and also given your forecast and your projections about HHI being EPS accreted, what sort of underlying margin development do you expect in America throughout 2024? Thank you.

But Johan, you talk specifically about HHI, because I think if you take for the rest, I don't think we have had that many, let's say, one-offs. So your question is more directly HHI, right?

Yes, yes.

I think if you take Americas excluding HHI, I think the margins at which they are today I think is a very healthy, strong level. And what you said about price, cost in general for the group is also obviously valid for the Americas. So I think what we have been doing over recent quarters is a good reference for our traditional business in the Americas. If you take HHI, you can see that the last two quarters we have shown EBIT and EBITDA improvement quarter after quarter. We have the ambition to continue to do so for the coming quarters. Obviously, everything will depend a little bit on on how the residential market will evolve in the US and therefore what our top line will do and they should also be aware that HHI is seasonal in the sense that Q3 from a top line perspective is always the best quarter and then Q4 and Q1 are lower quarters and then you start to recover but there again irrespective of the seasonality we have the ambition to continue to improve margin quarter after quarter now for this year as also some of the synergies start to kick in.

But just the numbers that we show, the 14.9 EBITDA and the 8.9 EBIT, that is excluding the one-offs. So you can call it those are clean numbers that we provided you.

Okay, good. And then also just if I look at sort of the margins for the starting point of 2024 for America, do you think that the Q4 numbers adjusting, is that a good appropriate number to sort of start off with? And then hopefully we will get them. you know, residential picking up somewhat throughout the year. But just, is that a good starting point, looking at the margin projections throughout the 2024s? Could you comment on that, please?

Of course, you have also a bit of seasonality in America. So when you look on the pure organic part, yes, you can look at Q4, but you should also look at Q1 last year as a reference because it's also a bit seasonal. And then to repeat what we said before on HHI, you should take the 8.9 and the 14.9 EBITDA as the reference to start from, and we have the ambition to grow from those numbers now in 2024.

Sounds good. Thank you.

Operator, I think we have time for one more question.

For any further questions, please press star and one on your telephone. Sir, there are no more questions at this time.

Well, excellent. Then we have time to round up this conference today. Thank you very much for your interest and participation. If there are any more questions that you get after the conference, please feel welcome to reach out to us at Investor Relations as always. But with that, I guess we say thank you from the three of us and have a good day. Thank you. Thank you very much.