ASSA ABLOY AB (publ)

Good morning, everyone, and welcome to the presentation of Assa Abloy's Q1 report. My name is Björn Tebella. I'm heading investor relations, and joining me here in the studio are Assa Abloy's CEO, Nico Delvaux, and CFO, Erik Peder. We will now, as usual, start with a summary of the report and then we will open up for your questions and we plan to round off 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. Q1 results, we had a good start of the year. with a 2% organic growth of the top line, and then also good complementary growth again, growth requisitions of net 5%, and held by currency 1%, so top line up 8%. We've seen strong sales growth in global tech, good sales growth in Americas, stable sales in EMEA and entrance systems, and a sales decline in Asia, Pacific, mainly because of Greater China. and improved underlying operating margin. Operating margin EBIT was at 14.9%, but we had 140 base point dilution, mainly, I would say, from one-off acquisition and divestment-related costs. We had a good cash flow, 2.4 billion SEC, and a cash conversion of 51%, which is, I think, a good cash flow for a seasonally lower Q1. Also with that remark that we build up inventory in the quarter to anticipate the tariff uncertainty and that of course had an effect on the cash flow. A good quarter when it comes to acquisitions with six acquisitions completed in the quarter. And then we also launched our MFP10 program, where Eric will give more details later in the presentation. So in numbers, sales at 38 billion SEC, 8% up, like I mentioned, 2% organic sales, 5% net acquisition growth, and then 1% currency. An EBITDA margin of 15.9% and an EBIT margin of 14.9%. EBIT at 5.7 billion SEC, 4% up. And earnings per share, 3% up. If you look a little bit at the different regions, I would say a very similar situation as previous quarters. where in the three main markets we continue to see very good momentum on the commercial, non-residential side. That's the case in North America, in Europe, and in Oceania. But in all three markets, we also continue to see challenging market conditions on the residential side. We had a 2% organic growth in North America, good commercial development in North America with mid-single-digit growth, but then challenging residential conditions with mid-single-digit negative growth. higher interest rates and with also political and economic uncertainty in the US way on consumer confidence affecting our residential business. In South America, plus 7%, so good growth, I would say, in all markets in South America, also helped by good price realization. Euro plus 2, where also commercial, similar picture as in North America, continues to grow on a solid level. And where residential in general remains challenging, although we see at least some light at the end of the tunnel for residential, we have seen definitely in Sweden things leveling or bottoming out and we start to see an increase in the residential replacement market in Sweden. Sweden was the first one to cut interest rates almost a year ago, May last year. They have done four or five interest rates cuts in the meantime and it starts to give a positive effect on the market conditions. We believe also that UK has bottomed out and we have seen some improvement in the UK where obviously South Europe is much later in the cycle when it comes to the residential business. Africa plus eight, Oceania minus one, Australia, same picture as I mentioned for Europe, strong commercial, more challenging residential. New Zealand is perhaps a little bit like Sweden, also in New Zealand there has been several inter-trade cuts already, and also in New Zealand we see residential coming back. And then Asia minus six with a strong India, but higher double-digit negative growth again in greater China where we have seen market conditions further deteriorating and also forecasts on construction site residential in particular this year is even worse than last year. A couple of highlights, and we have changed a little bit the way we present. We zoom in on two market highlights. The first one is a joint effort between Levelock and Baldwin. Levelock is a technology company. we acquired in the US making digital connected locks and we sell those locks on the commercial side for light commercial and multi-family applications and we also sell these locks now through the Baldwin channels bringing digital connected locks into the house. We can have the same form factor as a mechanical lock now and a fully integrated digital lock that you can put on your office door or your sleeping room door without touching the aesthetics of your inner hardware in the house. So quite excited about this collaboration between Baldwin and Level. Another highlight in entrance systems, we launched our Insight Mobile app, giving us the possibility to easily remote control and access manage our doors. And I would say in that aspect we are unique as a full solution provider in the sense that we can provide the door, we can also provide the connectivity and the insights through this Insight Mobile app, and obviously we also do service on our doors. So top line, again, positive organic growth, price and positive volume growth. Top line up 57% on a 12-month moving trend since 2020. Good complementary growth again this quarter from acquisitions, 5% like mentioned earlier. Operating margin on 12-month moving trend within the bandwidth we aim for, the 16%, and an EBITDA margin on the higher end of that bandwidth at 17%. A good operating profit for a seasonally lower Q1, EBITDA up 106% if we compare with 2020. Another quarter where we were very active from an acquisition perspective with six acquisitions completed in the quarter. They represent an annualized sales of around 3.6 billion SEC and then we also divested in the quarter most of the citizen ID business and we also booked a divestment loss of 50 million SEC for that divestment. We still have a very small part of citizen ID in the US, the green card business, where we are still waiting for approval from the local authorities to also divest that part. Some highlights in view. A US-based provider of precision engineered connected asset protection and access control solutions. Really adding complementary products and solutions to our core business. A very nice new vertical in global solutions. Quite excited about this acquisition. They had a sales of 1.9 billion SEC last year. And then Ullmann & Sacher, a German supplier of access control handles, knobs, and corresponding software, adding complementary products and solutions to our core electromechanical business and increasing in a significant way our electromechanical presence in Germany. They fall under the EMEA division, and they had a sales of 240 million SEC last year. If we then zoom in on the different divisions, starting with EMEA, EMEA had a stable organic sales development in the quarter with strong sales growth in Central Europe and the Nordics, Sweden and Finland in particular. A stable sales growth in UK, Ireland, but then sales decline in South Europe and in the Middle East, India, and Africa region, mainly because of the Middle East. An operating margin of 13.8%, 10 base points better than last year. Very good, strong operating leverage of 60 base points due to positive mix, in a sense, more Nordics and less South Europe. Good, strong price realization and also good operational efficiencies. VEX was dilute if 30 base points and M&A dilute if 20 base points. So a good start of the year for EMEA. Americas had an organic sales growth of plus 2% with strong sales growth in Latin America and in North America non-residential segment. Then a sales decline in the North America residential segment as mentioned earlier. An operating margin of 17.1% with a slightly negative operating leverage mainly due to continued investments in R&D and sales and also due to the negative volumes we had on the North America residential segment side. held by FX 30 base points, and then strong dilution from M&A 110 base points. That's the level lock acquisition, integration costs around that acquisition, and also investments in R&D where we are finalizing a couple of new product launches. That dilution will continue in Q2 and then should more normalize towards the second half of the year. If we then go to opening solutions, Asia Pacific, an organic sales decline of 5% with stable sales growth in Pacific Northeast Asia, that subdivision, but then significant sales decline in Greater China, Southeast Asia subdivision. an operating margin of 4.1%, with a negative operating leverage of 50 base points. It's clear that the strong double-digit volume declining in Greater China at the moment becomes difficult to compensate through cost-cutting for that decline in the top line, and that's what we have seen in the operating margin. FX was also diluted 50 base points, mainly because of the weaker Australian dollar, and we have not done any M&A since several quarters in that division. Global tech, strong start of the year, and organic sales growth of plus 8%, with very strong sales growth in global solutions in most, if not all, different verticals. Also strong sales growth in HID. an operating margin of 13.7%, but underlying a very strong operating margin with very good operating leverage of 100 base points, good strong price realization, good realization of operational efficiencies. FxHub has 10 base points, but strong dilution of M&A, 280 base points. That's because of the 50 million SEC capital loss for the divestment of citizen ID. And then one-off acquisition and integration costs mainly related to InView. Underlying, I think, very strong performance of global technologies. Last but not least, entrance systems, a flat organic sales development with very strong sales growth in parameters security, good sales growth in pedestrian, a stable sales in doors and automation and that's the new name for our residential segment we change the name because we believe that doors and automation covers better what we do in that segment we don't only sell residential garage doors we also sell operators we do gate operators and we we automate all the all the doors a sales decline in industrial and then a good but lower sales growth for service in the quarter an operating margin of 16.8 percent also here very good operating leverage 140 base points are creative driven by positive mix price cost and also here very good operational efficiencies avex helped us 30 base points but then strong dilution from an a 190 base points As you know, Ski Data is very seasonal. The first quarter is always much lower top line-wise. As a matter of fact, we made a loss for Ski Data in the quarter, but then as the year evolves, the top line will seasonally improve and also the bottom line will then significantly improve. With that, I give the word to Eric for some more details on the financial numbers.

Thank you, Nico. And also a very good morning from my side. You've heard before that the sales was up with 8%, of which 2% is related to organic growth. Operating income in value was up with 4%. EBIT margin, as also mentioned before, was down with 50 base points. And as also said, is that there was mainly related to acquisitions, integration costs and so forth like that. Income before tax, net income and EPS were all up 3% versus last year. Operating cash flow at 2.4 billion, it's minus 22% versus, I would say, a strong quarter last year. This year, I mean, the cash conversion was at 51%, which is good. But also, of course, it's also impacted by that we have increased our inventory, let's say, ahead of the tariffs. Finally, then on this slide, return on capital employed ended on 14.2%. It's 40 base points lower than the same period last year. But of course, we have been quite active on the acquisition front. If we then look on the bridge, the 2% organic can be split in, I would say, a strong 1% on price and then about, I would say, a low one on volume, but there was volume growth in the quarter. You see a very good organic flow through of 60%, 70 base points accretion to the result. There we've had good help from price, mixed operational efficiencies. We had in the quarter positive savings coming out of the MFP programs of slightly below 200 million. Currency slightly positive on 20 base points. And then we have the acquisition column, which in total sort of had a dilutive effect of 140 base points. Of this, roughly 70 base points come from SkiData, which as mentioned before by Nico, it's predominantly seasonal. Levelock, as mentioned also before, it's a lot of investments into R&D. We then have about 30 base points, which comes from acquisition and integration costs. That one is mainly related to Inview. I should also sort of mention that Inview is also seasonal, which means that they have a lower Q1, but then Q2 and Q3 are much stronger quarters for them. And finally, then on the acquisition, we also had the 50 million. that we booked in divestment loss for Citizen ID. As mentioned by Nico, we have sold the international part. The American part is something that will come in the quarters to come, and that will also generate roughly the same loss as what we saw from the international part. Cost breakdown, direct material, positive with 150 base points. Out of that 50 is related to a positive mix, which leaves 100 base points, which is if I call the true tailwind then from price versus cost. Conversion cost is flat versus the same period last year. There we have been able to offset inflation, higher wage costs, etc. with operational efficiencies. I mentioned sort of the impact of MFP before the roughly slightly below 200 million sgna is dilutive with 60 base points there we have not been able to upset let's say inflation and investments in sales organization with efficiency measures We now launched in Q1 the 10th manufacturing footprint program. It looks a lot like the programs you have seen before. In total it is about 60 projects. The restructuring cost is slightly higher than the MFP9. We ended up on above 1.3 billion SEK. the savings from the program by end of 2027 is estimated to be around 1 billion the payback time is is fast it is slightly below two years if you look for this year total mfp savings that comes from the eight nine and ten programs we estimate the effect for 2025 to be around 800 million sec Operating cash flow, as mentioned before, 2.4 billion, 22% lower than a seasonally strong quarter last year. Cash conversion 51%. Here we had an increase in our inventory ahead of the tariffs. but you also have on capex that last year we sold some buildings in apac this year we have invested predominantly in some buildings in global tech and that also has an impact on the cash flow If you look on the gearing and the net debt, net debt to EBITDA is the same as last year at 2.4. Net debt to equity is slightly higher than at 70%. If you look in total value versus December, our total debt is up with 1.1 billion sec but then we have been rather active i would say on the acquisition front which has a negative impact but then we've also had some help almost offsetting it by the currencies so but all in all i think we have continued to have a very strong balance sheet position and can continue our acquisition strategy also going forward And last for me is then the earnings per share, as mentioned before, up 3% versus the same period last year. And with that, I hand back to Nico for some concluding remarks.

Yes, so a summary I think was a good start of the year with a strong top line growth of 8%, 2% organic, 5% net acquisition, 1% currency. A good underlying operating margin, but an operating margin that was affected by 140 base points mainly because of temporary one-off M&A related costs. So operating margin of 14.9%. We launched our MFP 10 manufacturing footprint program with savings of 1 billion SEC and the best payback we have had on MFP programs so far. A solid but seasonally lower operating cash flow. And then it's clear that we continue to operate in challenging and mainly also uncertain market conditions, as well economically as politically. so it's not not so easy to navigate in in those market conditions but again here having our decentralized organization where we can anticipate local changes through the local teams and empower those local teams is has proven to be a good setup and we are confident that that setup also will help us to navigate through the market conditions that we experience today and last but not least we will also have this year a capital markets day on november the 19th and we will have that capital markets day this year in the us and you have the link there where you can register And with that, I give the word back to Bjorn for Q&A.

Thank you, Nico. Well, that means it's time to open up for Q&A. And as usual, can I just remind you to limit yourself to one question and a follow up each so we can get through the list of questions. So with that operate, it means that we're ready to kick off the Q&A session. Please go ahead.

Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their telephone. You will hear a tone to confirm that you have entered a queue. If you wish to remove yourself from the question queue, you may press star and 2. Questioners on the phone are requested to disable the loudspeaker mode while asking a question. Anyone who has a question may press star and 1 at this time. The first question comes from Mida Vivek, City.

Please go ahead. Thank you very much, everyone, and good morning. My question is around price cost. So given the tariffs uncertainty, if you really help us understand what actions you've been taking around tariffs and what steps you've been taking around pricing and so on, and how you expect this to evolve over the course of the year. Thank you.

Perhaps it's a question about price and a question about tariffs. I assume that the question about tariffs will come again. Perhaps I'll give a little bit more of an elaborative answer also on the tariff side. But if we exclude tariffs, what we have said always is that we have the ambition to increase prices between 1% and 2% this year. We have said this 1.5% is a good target. That was without tariffs, then obviously tariffs change things in a very important way. The challenge with the tariffs is a little bit that it changes every day, so it's very difficult to give guidance on price because obviously we have the ambition to compensate tariffs through price increases. So the answer I can give is only the answer as it is today, as the tariffs stand today, or stand this morning, because perhaps they change this afternoon. But if we take the tariffs like they are today with 10% with the steel, aluminium, and then 145% on steel, On China, if you look at our U.S. business, we produce around 70% of what we sell in the U.S., we produce in the U.S. Then close to 15% we produce in North America, a little bit in Canada, a couple of percent, but mainly in Mexico, a little bit above 10%. And then the other 15% or so we buy from other places in the world. mainly from China, what we buy from China is around 10%. All the other markets are in that below 1% or around that 1% range, so there is no real other market that sticks out in a very significant way. If you take all the normal tariffs we have covered through price increases, then obviously China is a bit different. If you have tariffs of 145%, you can say it's a tariff or it's almost an embargo, you could say. So also with 145%, we will increase prices, but prices will have to increase in a very significant way. Good news is that if you look what we do in China, most of our competitors are in a similar situation. So overall, it does not give us a competitive advantage or disadvantage so overall everybody will try to increase significantly the prices if tariffs would stay at 145 percent and you've also heard mr trump saying that he's very confident that the tariffs will go down significantly so we will see what what happens going forward. In the meantime, obviously, we're also looking in other places to produce than China and have at least redundancy in place for what we do in China, if possible, because we also believe long-term that redundancy is a good thing. With the percentage I gave, you can calculate a little bit yourself, but if tariffs would be like they are today, and obviously the 145% of China is an important contributor there, but also an important if, we would have to increase prices around 10% to fully compensate for tariffs and keep the margins in the US. The 10% is price increase in the US.

That's really helpful. Thank you. If I may have a follow-up, Could you please give us an indication of how April has started in terms of daily sales? That would be very helpful. Thank you.

So obviously, I would say February was a little bit better than January, although January and February are holiday months, so it's a bit difficult. But then February, March, and also now beginning of April has been very similar from a percentage growth versus last year, if you're correct for working days. So February, March, April, a little bit better than January, but February, March, April, very similar.

Very helpful. Thank you very much.

The next question comes from Kuki Andre, UBS. Please go ahead.

Hi, good morning. Thanks for taking my question. It's Andre from UBS. Can I just follow up on tariffs first before asking the question? So for China, have you started raising the prices now in response to 1.45? Or are you waiting for the end of talks and final resolution?

So it's not the same answer for everything. There's three things. Yes, we have increased prices already before the 145 because obviously the 145 didn't come immediately. So we have raised partly the prices to compensate. Then on some of the products we have raised the price significantly. And then we have also given notice that new price increases will come into place depending on the product next month or the month after. Under that footnote that those prices will come into force if the 145% increases. remains as a tariff percentage. Obviously if then tariffs would go down in the coming months then we will adjust price increases to whatever the new tariff level might be.

Got it. Thank you. And if I may ask a question on global technologies margin, obviously quite heavy M&A dilution in there and the capital loss as well. How do you expect that to kind of roll out through the year? Do we come back to prior year levels in the second half of the year subject to obviously no demand shock or is there anything else there that could be holding it back?

Specifically for global tech, we had, of course, the 50 million SEC citizen ID divestment. That's one-off. And like Eric mentioned, if and when we would close the remaining part, mainly the green card business in the U.S., there is the possibility that we will have to book another 50 million SEC loss when that happens. But it would also be one-off. The other part of the dilution is mainly in-view related. And that's also one-off. So what you see today in the numbers is fully only Q1 and should not have an effect Q2 and going forward. With that footnote, the day that we sell the remaining part of the citizen ID business, that most probably it will be another round for 50 million SEC one-off cost for that citizen ID remaining part.

Got it. Thank you. The next question comes from the break aisle from Deutsche Bank.

Please go ahead. Good morning, everybody. My first question relates to the targeted 16% to 17% margin and your confidence around that. I mean, over the past seven years, you've been in the range only one year And I appreciate it was actually last year, so it's rather fresh. But with Q1 now looking obviously weak because of M&A dilution and with tariffs creating additional headwinds, at least for the upcoming quarter, do you still see the 16% to 17% range as a good guide for the year? Or could it make sense to... Lower the bar or perhaps switch to an EBIT A margin range. Thank you.

It's good that you mentioned also the EBITDA range, because you know that there is more than 100 base points, sorry, difference between the two, and us reporting always EBIT, perhaps not always give us the clear picture, versus other companies that report other profit numbers. So I think it's good to look at both. But we reconfirm that we are very convinced that over a business cycle, we can have our EBIT margin within that 16 to 17% Again, if you take the last 12 months, we are at 16%, despite strong dilution from the acquisition of Ski Data, despite still stronger dilution also from the HHI acquisition, and despite all the, I would say, above 100 base point dilution in Q1, one-off dilution from acquisition-related costs and divestment costs. we are very confident that over the business cycle we will be in that 16 to 17 percent bandwidth over the the business cycle and is this is it also applicable for this year with the tariff situation Well, I don't know what the tariff situation is going to be, but I would say if you exclude the 145% of China, and if I exclude, I mean if tariffs on China would be on a more normal level, because obviously 145%, again, it's not a tariff, it's almost an embargo. But if China would be on normal tariffs, what they were talking about at the initial phase, we are confident that price versus tariffs could give us even a slight accretion of the margin because we will be able to compensate through cost savings, through resourcing, renegotiation, and through price increases. to compensate, perhaps slightly overcompensate, for that cost, tariff, cost versus price. Obviously, if the 145% in China would remain, then it's a bit like when we had the steel inflation a couple of years ago, where steel went up in the US 200%. And then you see that, yes, over time you can compensate for it, but you lack a little bit price versus cost. And that would definitely be the case also with China if the 145% would remain because then we will have to resource in a more aggressive or relocate in a more aggressive way things from China to other places. And it obviously takes some time to do. So that's not something you can do overnight. But let's be confident on the words that Mr. Trump said, I think, this morning or yesterday evening, that they are discussing with China on much lower tariffs that would definitely help the situation. Okay. Thank you very much.

Next question comes from Pedersen George from Barclays. Please go ahead.

Hi. Morning, everyone. Thanks for taking the questions. I've got one question and then maybe a follow-up on the tariff. Sorry to label the point. On entrance systems, in the previous quarter, you talked about some optimism on orders growth for the business and how that might come through in the second half. Can you maybe help us understand how ordering activity has been through the quarter for entrance systems? And then on tariffs, is it better to think of them perhaps There's a surcharge pricing at this stage. I appreciate there's a lot of volatility around the directions. The system's quite fluid at the minute. But is it potentially the case that you might raise prices and then unwind them over time? Or do you expect to just retain the price at a certain level when you eventually implement them?

Thank you. If I take the first question first on entrance systems, as you know, we don't comment on orders, but if you take the four different segments in entrance systems, starting with parameter security, We had a very strong Q1, we see, we continue to see very good momentum, and there perhaps also the tariffs are helping us in a sense that some of our colleagues, competitors, have more tariff challenges than us producing everything in the US, and then the drive for security, and also the higher steel prices help us for parameter security, so we are confident on market conditions for perimeter security. Pedestrian has been growing on that mid single digit level since many quarters. Now we still continue to see good momentum, so we're also positive on pedestrian. If you take industrial, you know that it was very much affected by the logistic warehouse vertical, where indeed after COVID, everybody was building warehouses like mushrooms because we all wanted to have in-home deliveries. And at a certain moment, they realized they overbuilt and they took a pause for 12, 18 months. That pause is over now. We have seen a good momentum again. We see good activity, also quoting activity on the logistic vertical and we are confident that our sales will improve or recover in the second half of the year because lead times for loading docks are the longest that we have in the group. And then last but not least, doors and automation, so the new residential, or the name for the new residential segment. There, of course, it all goes to residential houses, garage for residential houses. There we are still very much affected by the low market activities on the residential side as well for new builders for R&R linked to the high interest rates which are not going to come down on the short term probably and also the consumer confidence that is not on a high level today so the residential part will remain challenging with that footnote that of course the comparison quarter after quarter becomes easier. On the second question, on the tariff compensation through price, so at the beginning stage of the tariffs and also the normal inflationary pressure at the beginning of the year, those price increases have been implemented through price increases, so increasing list price, increasing net prices. So these are price increases that are there to stay. It's clear that for China, where you talk about 145%, that cannot be a price increase that is there to stay if tomorrow the 145% would be, I'm just saying something, 20% or 30%. So that is more temporary price increase. If you want to call it a surcharge, yes, you can call it a surcharge, which hopefully will go away as Mr. Trump and Mr. Xi agree on lower or perhaps no tariffs. But we always have, with the exception of that very high tariff for China, all the rest we have always the ambition to make it permanent price increases through list price increases or net price increases because that makes it obviously much more sticky.

Okay, thank you very much.

The next question comes from Mighty Risk from Jefferies. Please go ahead.

Yes, good morning. Thanks for taking the questions. I'll stick to two. So the first one is you said that you started to raise prices in advance of the tariffs, but also send notification to customers. Have you seen any sort of pre-buy in your America's growth sort of so far? And perhaps, can you comment on the specification business in the U.S.? We've seen some pretty bad ABI prints. Whether this weak high interest rates, weak consumer data is actually affecting your commercial business, if you see that in your specs business. I'll start here.

On the pre-buy contract, I think myself, because I say we don't talk about orders, but for sure we have seen some pre-ordering in March ahead of the more extreme tariffs, because obviously what we have done is similar like a lot of other people have done. We have brought more inventory in from China to the US to cover at least some period where then people will negotiate on on the tariffs. And there we have seen some pre-ordering, but that has not been translated significantly in, let's say, pre-sales. That pre-ordering should translate in sales now in Q2. So no significant effect in Q1. When it comes to specifications on group level, specifications were up high single digit with a good double digit growth as well in EMEA, higher single digit growth in Oceania. but a slight single-digit negative growth in the US. If you zoom in in the US on the different verticals, the slight negative growth was mainly because of negative growth on the education vertical, K-12. and universities, which we believe is just a one-quarter timing effect because obviously education, K12 universities continues to be very strong. We are not so concerned yet on our specification development.

Very helpful. The second one is just if you can give us a summary of the M&A dilution. We had 140 basis points in Q1. ski data and in view from the sound of it looks quite seasonal level lock you're doing some investments can you just give us a sense of how we should think about the M&A dilution for these three businesses sort of Q2 and the rest of the year thanks

I think the dilution was 140 base points in Q1. I would say more than 100 base points is one-off. We should not see that coming back in Q2 and the coming quarter. As of Q2, dilution should be more in line with normal dilution that we experience in normal quarters for acquisitions. Levelock is a good, profitable business with margins in line with global tech. Sorry, in view, with global tech margins. Which one did I say? You said Levelock. Sorry, sorry. Levelock. In view. And then Ski Data, like we said, we bought them with a margin around 4%, very seasonal. We made a loss in Ski Data in Q1. And then margins improved Q2, Q3, Q4. Seasonal Q1 is always low for skidata topline-wise because obviously they sell to ski resorts and in Q1 they want people to ski and use the ski lift and so on rather than doing repairs or upgrades or maintenance. And you see also on the parking side that often it's yearly budget-related initiatives where a lot of the budget is spent in Q3 and Q4. That's the reason why SKIDATA is more significantly lower in Q1. Like I mentioned, the only one that will continue to have a stronger dilution now in Q2 is Levelog, because there we continue to invest in R&D because we have several projects that we want to bring to the market. And then in the second half of the year, that dilution of Levelog should also level more out as we progress in the year.

Perfect. Thank you very much.

The next question comes from James Moore from Redburn Atlantic. Please go ahead.

Yes. Hi, everybody. Good morning. Thank you for the time. I wonder if I could get back to the tariffs, Nico, and just ask what percentage of your Mexico-Canada imports are USMCA compliant? Are they all zero tariffs?

So apart from a very, very small exception, they are all compliant. So we favor from, let's say, the North America agreement for all our business from Exxon Canada. Yes.

And on the China 10%, how much of that can you reroute or substitute, would you say?

Well, it's an ongoing progress. First of all, in China we have also some of it that falls under the cheap exemptions, where we don't have the tariffs. And then obviously we already started relocating production or at least have double production for part of what we do in china obviously we never had expected it to be 145 percent uh terrorists because if you have tariffs on a normal on a more normal level china even with tariffs in the 10 20 30 percent range would still have been the best place to produce because for some things, China is simply much more cheaper or lower cost than any other country in the world. Now we're under 45%. Of course, we have a wider family of products that we are looking to at least have a second source where we produce. The challenge there is that it takes longer. For some products we have, I'm just saying something, die casting molds. If you want to produce them in a different place, you have to first build the molds and then test the molds and then start up production. That's not something that you can do in a couple of weeks. There you talk more about several quarters, but that's things that we have started because, again, Even if tomorrow tariffs would become lower or go away, we still believe that it's good to have a second alternative to China production going forward. And that's things we are working on for the future.

And finally, if I could, just away from the softer U.S. residential market, have you noticed any change in demand last week, the first full week of tariffs on the US commercial side. Have you seen any kind of step down or is demand broadly unchanged from that shift?

No, we haven't seen any significant change on the non-residential side. Like I also said before, we haven't seen any increase or slowdown of our activity in the first weeks of April as compared to February or March.

Thank you very much.

The next question comes from Alexander Vogel from Bank of America. Please go ahead.

Yeah, thanks. Morning, Nico. I wondered if you could just go through a little bit on global tech, starting to show some meaningful recovery, albeit you've got pretty easy comps in the first half. So I wondered if you could just give us a sense of how you think that business shapes up through the balance of the year and into next as we start to look at a more normal environment for them, obviously, tariffs notwithstanding. Thank you.

Perhaps I can give a little bit of color on the two subdivisions. If you take global solutions, they have six or seven verticals. If you look at all the verticals, they have been growing close to double-digit or double-digit for, I would say, the last two years or even a little bit longer, with the exception of our self-storage vertical that is a U.S. business. And self-storage in the U.S., as you know, is also very linked to people moving houses, and if people don't move houses, that's a more challenging vertical, but that's a relatively small vertical. Like I said, all the other verticals are performing on a very high level, going from hospitality to marine to key asset management, critical infrastructure, you name it. On the HID side, with the divestment of citizen ID, now we have also more balanced portfolio. The main contributor is of course specs, cards, readers, controllers. What is important for HID in general and for Pax in particular is mobility. People have to move. People have to go on vacation. People have to go to hotels. People have to go to government places, to offices. And mobility is good in the world. Mobility is good in the U.S. So it's good for our HID business as well.

Okay, thank you.

The next question comes from Koski Andreas, BNB Paribas. Please go ahead.

Thank you very much. Most of my questions have already been asked, but we have seen a very strong Swedish corona in recent weeks or in recent months, and that will have a meaningful impact on your business. Are you planning to take any actions to try to mitigate the negative effects? Thank you.

I mean, first of all, as you saw on the slide there, we expect then for Q2 then to have a negative impact, let's say, on the translation part of roughly 5% in Q2. We are not sort of doing any, let's say, specific actions, I mean, related to that. As you know, we don't do any hedging or anything. So, I mean, it's probably, and the answer to the question is no.

Okay, thank you. And then the second question on your balance sheet, you're now at a net debt to EBITDA of 2.4 and you've been at about that level for more than a year now. Should we think about that as a new normal? Because you will continue to make acquisitions, which I guess will keep up the net debt for a long time. Or are you going to pay the debt down?

I mean, I think that this, we have had a period here where we have been very active on the acquisition front. And that is sort of what has had an impact then on the net debt to EBITDA. I mean, it's normally, I mean, we always, with the cash that we generate, we always, if we don't have anything, let's say, to acquire, then we try to pay the net debt down in order then to reduce then from the 2.4%. down to, let's say, I mean, down to almost down to two. But it's pending a lot on the acquisitions. But as I said, we have been very active. It's a question if we're going to be this active then for the remaining of the year. If not, then, of course, you will see sort of a net debt to EBITDA reduction then for the year to come. And if you look historically, I mean, we have been, I would say, around two. And that's something that I would say would be more in the normalized situation, 2.0. Perfect.

Thank you very much.

As a reminder, if you wish to ask a question, please press star and one. The next question comes from Parim Gustav from Handelsman. Please go ahead.

Yes, morning. I have to take my questions. Can I ask a follow-up on the North America non-REFI momentum. We discussed a lot previously, but I mean, ABI doesn't really seem to have much of an effect on your growth anymore. You mentioned things like data centers offsetting previously. How have you seen that pipeline developing over the past quarter? And is there anything you want to call out on the other verticals other than what you mentioned on the specification business? And then lastly, I mean, how long do you think that this momentum will keep up? Thank you.

If you look at the different verticals, like we mentioned earlier, the two more important or the biggest verticals for us in America is education. Yes, the specification business, as I mentioned, in Q1 was a bit weaker, but we don't read anything into this. We still see good, strong momentum on the education vertical. Second important vertical is everything what is healthcare related. There we have seen good specification development also in Q1. We also see good momentum, so those two core verticals we are very positive about. Then it's true that data centers, if you go two years back, it was very small vertical. It's growing in importance, I would say in a significant way as we move on, it's by far the fastest growing vertical for us, not only in North America, but sales in many other places around the world, and it's a good extra contributor to the non-residential growth in that aspect that it really starts to move the needle from an organic growth perspective. Then we are very widespread. We have no vertical where we exposed double digits. All of the exposures are single digits with the two verticals I mentioned earlier as the two most important ones. I can only say that we are still very confident on the non-residential side, especially everything that is institutional. We still see very strong momentum.

If you look at the residential business in North America, roughly how much was just down in the quarter?

So like we mentioned earlier, it was down mid single digit compared to same quarter a year ago.

All right. Thank you.

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

We have a follow-up question from Andrew Cook in UBS. Please go ahead.

Hi, thanks so much for taking my follow-up. I just wanted to kind of go back to Ski Data and could you talk us through again on what you think is the kind of right margin entitlement for this business once you've done the full integration and implemented all the manufacturing excellence and other initiatives? How would that sort of stand versus the 16% to 17% group target piece?

like we mentioned mentioned earlier i think skidata being in what they do one of the the market leaders in their field having also strong aftermarket revenue and a strong recurring revenue we we are convinced that we should be able to increase at least with 10% their bottom line. If they were at 4%, at 14%, I think is a good first ambition. Obviously, at the price we were able to buy Skreed out, if we can bring it from 4% to 14%, it would be a fantastic value creator. Can we then bring it to 16%, 17%, depends which we aim for. Let's see. Let's first work hard on making that significant improvement I just talked about.

Absolutely. Thank you.

Thank you. Well, that means it's time for us to round off this conference. If there are any follow-up questions, please reach out to Isabel or myself at Investor Relations. So that means it only remains for the three of us to thank you for your participation and interest. And we know that we will meet many of you in the coming weeks. So we look forward to that. And thank you for today. Thank you. Thank you.