ASSA ABLOY AB (publ)

Good morning, everyone, and welcome to the presentation of ASSA ABLOY's Year-End Report 2020. My name is Björn Tibell.

I'm heading Investor Relations. And joining me from their home offices are ASSA ABLOY's CEO, Nico Delvaux; and our CFO, Erik Pieder.

We have set aside about one hour for this conference and we will now start with a summary of the Q4 report before we open up for your questions. So with that I would like to hand over to you Nico.

Thank you, Björn, and also good morning from my side. And yes unfortunately we have to do this call again from our home office, which as we all know shows again that COVID-19 is not over yet.

But we can present you a good Q4 definitely if we take COVID-19 into account, a quarter with strong operational execution, the quarter in which organic sales declined with 5% but we compensated that organic sales decline by a strong growth to acquisitions of plus 5%. If we look on the organic sales side, flat sales in EMEA and in Entrance Systems, but then declining organic sales in the other divisions.

And then a solid EBIT margin in the quarter of 16.1% if we exclude acquisitions and divestments. We have, of course, agta record that came in and that diluted in the quarter with 40 basis points, but we also had a divestment of Gardesa residential door business in Italy where we took goodwill cost and other related costs in the quarter of SEK185 million.

And that divestment diluted the EBIT result with 80 basis points. A very good continued cost reductions with a net cost reduction in the quarter of around SEK500 million.

We launched a new MFP program, MFP 8 and we are already executing on the first projects and start to see the first results there. And then definitely another quarter where the cash flow was the highlight.

Very strong record cash flow in the quarter 6% up versus last year also a record cash flow for the full year. If we now look into the figures, sales of SEK23.3 billion, 7% down.

Like I mentioned 5% drop organic, but compensated by 5% growth to acquisitions net. And then important negative effect of currency on the top line of 7%.

And EBIT margin of 14.9%. But if we exclude Gardesa and acquisitions like I mentioned 16.1% versus 16.2% a year ago, and earnings per share of SEK2.33, 7% down compared to the same quarter a year ago.

If we then also look at the full year 2020, sales of almost SEK88 million, 7% down compared to 2019 with an 8% negative organic growth. And that came of course mainly from Q2 where we had an organic decline of 18% but good growth through acquisitions for the full year plus 4% net, and then a negative currency effect of 3% and an EBIT margin of 13.6% versus 15.9% in 2019.

If we then go back to Q4 and look a little bit into the different regions, and first we start with North America, an organic growth of minus five on the same level as in Q3. But if we then zoom a little bit on the Americas division, we have seen a very strong residential with high double-digit growth for traditional residential and also for smart residential where we have seen a continued more difficult commercial side with higher single-digit decline.

Although I must say that in this quarter and that's different from Q3, we have seen over the quarter, a slight gradual sequential improvement of our commercial business in the sense that it was right at the end of the quarter and at the beginning of the quarter and that trend has now also continued in the first month of this year. So, we are a bit more optimistic on the commercial side than we were perhaps three months ago.

Then South America, minus 2%, but if you look only in the Americas division, it was a high -- very high single-digit number. We have very strong Brazil, very strong Chile, but a very good overall performance.

The reason why I chose here minus 2% is that, we have difficult comparison with some project orders for global technologies in 2019. Then in Europe, minus 3%, where you could say that countries that were hit the hardest in Q2 by the very stringent lockdowns also recovered the most and we are also here in contradiction with Q3.

Now in Q4, we saw a small, gradual sequential improvement over the quarter and then also further confirm now in January. Australia and Europe, a stronger residential than commercial.

And as we have a more mixed, more balanced exposure to residential commercial in Europe versus the US of course Europe profited more from that stronger momentum on the residential side. Africa, Middle East, minus 11%, mainly in the Middle East, we see that construction companies projects, construction projects have difficulties to get executed.

If you take for instance country like Saudi Arabia that has locked their borders or closed their borders, it's difficult to have people from India, people from Pakistan so to get into the country and it's mainly those manpower that do construction projects in that part of the world. So delays there also some challenges with financing of the project, so minus 11%.

Australia-New Zealand, plus 1% I think a very good performance. Definitely if we take into account that Australia, part of Australia was again in lockdown in Q4.

But also here, you see a strong residential than commercial and that's a little bit a general sense, I would say with that the exception of China. And that brings us to Asia, where we have a minus 15%, where mainly India and Southeast Asia remain very deepest -- India and Southeast Asia are definitely the two countries -- regions that were hit the most and have still hit the most by COVID-19.

We see Southeast Asia where many of the borders are still closed. It's the region that lives also off tourism.

So, very difficult business climate and the same is true for India. Whereas we have seen an incredible improvement in South Korea and are also a bit more optimistic now for South Korea going forward and where in China, we still had a mid single-digit decline.

But then in China definitely on the strategy side, we are moving from the stability, profitability and are confident that we will now get back also into the [indiscernible] If we then go to some market highlights for the quarter, also this quarter several bigger project wins. I would just mention one an important door hardware project for an airport in China.

Also good to see here that also in this -- on this side, our new strategy China starts to pay off, so very happy with that. Several new product launches in the quarter automatic sliding door range with digital OLED signals incorporated in the door.

That's a cooperation with some very nice high-end sliding doors. And then of course, I would say long-awaited New Yale Doorman for Scandinavia and great success where our pre-launch at the end of last year, we were completely sold out very good traction.

And then of course, it's good to see that also in this part, again, we get rewarded for all the innovation and R&D efforts we put in the organization. And it's good to see that that work is recognized by experts in our industry.

Sales growth. Yes, four quarters now with negative organic growth.

But like I mentioned, it's very well compensated by growth through acquisitions in this quarter offsetting each other. And then, operating margin on a 12 months run rate of 13.5%.

But in the quarter, if we adjust for acquisitions and mainly adjust for the divestment of Gardesa, we were at 16.1% in the quarter, so well within the bandwidth we aim for again. Lower topline, lower margin that of course also lower operating profit 14% lower than the same quarter a year ago.

On the acquisition side still a good full active pipeline the four acquisitions completed in the quarter 12 acquisitions for the full year. Those acquisitions represent together an annualized sales of SEK 5.6 billion.

And of course we had some of these divestments we already mentioned. We have also got Adidas together they represent an annualized sales of SEK 1.6 billion.

If we then go into the different divisions a bit more in detail starting with EMEA, I believe a very strong performance from EMEA in the quarter with an organic sales of minus 1%. We have strong sales growth in the U.K.

and France and stable sales in Germany and in Scandinavia. An operating margin of 12.8%, of course that 12.8% includes the SEK 185 million capital loss and exit cost for the divestment of Gardesa.

If you correct for that, EMEA would have been at 15.9% versus 16% last year. We have a very good volume leverage.

We have continued savings and continued efficiency improvements in the division really lowering the cost base 10 basis points dilution from FX. If we go to Americas, I mean it was a very strong performance in this division an organic sales decline of 4% with very strong high double-digit sales growth for smart residential and traditional residential and then high single-digit growth in Latin America.

And still a more challenging situation with higher single-digit negative growth on the commercial side in the U.S. Operating margin of 20% on the same level as last year.

We have a very strong volume leverage of 90 basis points. Also here very good cost control in division, very good savings.

I would say despite a negative mix because we know that margins on the commercial side are higher than on the residential side and margins in the U.S. are higher than in South America.

20 basis points dilution from FX and 70 basis points dilution from M&A, that's mainly an internal or only an internal thing. That's the move of Perimeter Security from Americas division to Entrance Systems.

And then our third geographical division opening solutions, Asia Pacific with an organic sales decline of 5%, with sales declining in all markets and with a high double-digit decline in India and in Southeast Asia. Operating margin of 8.2% on the same level as last year also very good volume leverage of 40 basis points.

We had our strategy for China continues to see results. Also in this quarter our margins in China were more than double what they were the same quarter a year ago.

That's not three or four quarters. That's -- we see that phenomenon.

So really China we moved from that stability to profitability. Obviously now the next step is to move also back into positive organic growth.

And that's also one of the reasons why we have decided now to change the divisional setup for APAC. You might have seen that we have split the division into I could say subdivisions two segments.

One segment with Australia and New Zealand, Japan and Korea we could say the more mature markets of APAC; and then another segment with China Greater China and Southeast Asia the more emerging part of division. I will be heading the overall division, but then we have put two new management teams in place that will run the two separate sub-segments, two internal leaders.

I think the next step after we came to that stability profitability phase. Now we need more fine-tuning and more dedicated strategy on one side for the emerging markets on the other side for the more mature markets.

If we then go to Global Technologies, the division that is definitely still hit the most and the hardest by COVID-19, an organic sales decline of minus 17% for all business areas in HID and a very strong sales decline also for Global Solutions. I don't have to tell you what's happening with the hotel business or the cruise ships.

And of course, as people still are not going back to the office, they don't consume too many cars of credentials. So that also has a negative impact on our tax business in HID.

As people don't travel, they don't have to renew their passport. So they don't lose their passports also having a negative effect on our Citizen ID business in HID.

I would say there's a double negative effect. It has a negative effect on top line, but it has also an important negative effect on our bottom line, because obviously that aftermarket part of the business in Global Technologies is the most profitable part that we have -- that suffers by far the most.

Operating margin of 16.4% versus 18.3% last year, so I think despite the very big drop on the top line, very good management of the division to cut cost and adapt the suit to the new reality, a negative volume leverage of 90 basis points and an important negative effect of FX of 70 basis points. That's mainly USD-SEK related, and then also M&A dilutive with 30 basis points.

And the FX, we are less optimistic than on the geographical divisions. It's clear that the negative effect of COVID-19 will continue to go on in this division.

We really need people to come back to the office in the first place. And hopefully confidently that it's going to happen soon.

And then, of course, we need also people start to travel again to see the same positive effect on the hospitality business in Global Solutions. Entrance Systems and organic sales of minus 1%, also very strong performance in this division with positive sales in all segments, except for Pedestrian, where the lockdowns had a negative effect on the sales.

More positive mix towards equipment versus service, on the service side we have some challenges with the higher sick leave of our technicians either because some of our technicians have COVID-19, but mainly because they have to go in quarantine because they have been in contact with people that tested positive on COVID-19. But the good news there, I guess, is that most of that business is, of course, not done.

It's just a delay, just a backlog and we will be able to execute on that service once the technicians come back up to full capacity. Operating margin of 15.8% versus 16.3% last year, stable volume leverage than basis point dilution helped a little bit by currency 20 basis points.

And then M&A, mainly agta record on the dilutive side 60 basis points, but good performance from the AM Group, which is also part of the acquisition column in Entrance Systems. So overall, very good performance also in this division.

And with that, I give the word to Erik for some more details on the financial numbers.

Thank you, Nico, and also from my side a very good morning. The sales decreased with 7%, which you can see is equal to the FX difference that we have.

So, I mean the negative organic sales of 5%, is offset by the M&A activities that we have had. The operating income decreased in the quarter by 14%.

But if you compare that to the 20% that we have for the full year, it shows that our cost efficiency actions that we have in place that they are actually generating improvement. The operating margin, as you have seen before, was at 14.9%.

But if you exclude acquisitions and divestments, and then in particular, then Gardesa and agta record, our operating margin was just above the 16%. We had a record cash flow, which increased with 6% versus last year.

And we also had a record high cash flow for the full year which ended then on SEK 14.6 billion. This is driven by good execution on our working capital as well as lower CapEx and lower interest expenses.

Finally on this slide, you can see that the return on capital employed is down with 2% and ended at 15%, which is related to the lower earnings as well as higher capital employed. Nico mentioned before, the cost efficiency actions that we do and we continue to implement that across the group in Q4.

There was a headcount reduction in the quarter of 650 permanent reductions and during 2020, we have reduced the workforce permanently with about 5%. We have also good cost traction – cost reduction tractions in other types, such as the travel cost was down with 65% but we can also see it in premises as well as other kind of – other types.

The net effect on the quarter was around SEK 500 million. We have also launched the eighth manufacturing footprint program now in Q4.

The restructuring cost is close to SEK 1.4 billion with an annual saving of about SEK 1 billion. This is slightly more than what we indicated in the Q3 report.

The payback period for the eighth program is about two years. And we expect in 2021 that all manufacturing programs will generate a saving of about SEK 750 million.

If we then go over to the bridge, you can see that we have a 6% lower volume but we continue to have a benefit from the price. The operating leverage continues to improve and now it was – the flow-through was 14%, which is compared to the 26% that we had in Q3 shows that the operational efficiencies that we have implemented across the group yields results.

And I think specifically as was mentioned before by Nico we had a good leverage in Americas as well as in APAC, where they actually can absorb their sales decline by lower cost. On the top line, as previously, noted the currency is down with 7% but it has a very marginal effect I would say on the bottom line.

The M&A 5% plus on the top line and it has a dilutive effect of 120 basis points. The divestment of Gardesa explains about 80 basis points and then the remaining part is mostly driven by agta record.

This is in line with the bandwidth that we have said before that where now in this has 40 basis points. And I just wanted to make a comment there that agta record is seasonally stronger in Q4 and that Q1 is the weakest quarter.

If we then continue with the cost breakdown, the direct material decreased during the quarter with 40 basis points. We have a strong tailwind in APAC and we also see improvements in EMEA as well as Entrance System.

On Americas and Global Technologies it is more or less on line than what we had in last year. What we have seen – we see now of course that the raw material starts to increase.

And it normally takes one to two quarter before it impacts our cost base. And of course, we are on high alert to offset this higher raw material cost with the actions that we have.

The conversion cost was up with 10 basis points. And if the sales goes down then you know that then the absolute cost continues to decrease and that we saw.

So the gross margin increased with 30 basis points before acquisitions. On the SG&A, we continue to invest in R&D but we see good savings in the sales and admin.

And we can also see here sequential improvement from Q3, which is driven then by our cost measures. If we then go over to the cash flow.

The cash flow was SEK 5.5 billion in the quarter, which is a record and it's close to SEK 300 million higher than last year. It's driven by as I said before, the strong execution that we have on our working capital, which was actually down with SEK 1.8 billion.

But we also have lower interest expenses as well as lower CapEx. The cash conversion rate was very strong at 131% compared to the EBT.

A comment there as well on our cash position. It came down a bit in Q4, but it's still high at SEK 2.8 billion.

And looking ahead, we gradually try -- we will gradually normalize this one going further and should come back to previous levels that we've had before. On the gearing.

The gearing level is down with 5% and ended at 51%. The net debt continued to decrease and is down with SEK 3.3 billion versus last year.

It's of course contributed partially then to the strengthening of the Swedish Krona, but we also had a strong operating cash flow as we have alluded to before. The net debt versus EBITDA is at 1.9, which is at the similar level as what there was last year.

And this means that -- and I will continue to repeat that we still have strong enough balance sheet to continue our acquisition strategy. On the last slide for me, is then the earnings per share, which decreased with 7% in Q4 to SEK 2.33 per share.

I would also like to notice that the Board is proposing an increased dividend to SEK 3.90 per share, which will be split in two equal payments this year. And with that said, I hand it back to you Nico for some final conclusions.

Thanks, Erik. So yes, I think we can say, it's a good quarter if we take COVID-19 pandemic into consideration.

We have a strong operational execution in the quarter. An organic sales decline of 5% compensated by good growth through acquisitions net 5%; and operating margin of 16.1% if we exclude acquisitions and divestments.

And then a record cash flow up 6% versus last year record cash flow also for the full year. But it's clear that COVID-19 continues to have a negative effect on our business.

We continue to see also new lockdowns, new restrictions also in Maine an important market in Europe. So far those restrictions are of course more of a social nature.

So they definitely don't have the same very big negative effect that they had back in March -- in March and April last year when countries really shut down completely. You see that governments really try to continue to keep the business going.

So yes, it has a negative effect that it has much lower negative effect and back at the first wave of COVID-19. But nevertheless, therefore, we continue our strong focus on cost and cash flow remains a priority while we also continue to invest in growth initiatives to bounce forward and to reaccelerate our organic growth again.

We are convinced that our strong long-term growth drivers that they remain valid. And therefore also our financial targets remain unchanged.

And like Erik said the Board has then proposed a dividend of SEK 3.9 in two equal installments one in May and one in November. And then we also want to remind you that we will have unfortunately also a virtual Capital Markets Day on May 26th.

And with that I hand over back to Björn for the Q&A.

Thank you, Nico. [Operator Instructions] Operator, this means that we are ready to kick off the Q&A session.

Please go ahead.

Thanks very much. Good morning.

I trust everybody is safe and well. I wondered Nico, can you talk a little bit about that some sequential development of demand through the quarters and maybe break that down a little bit for us between divisions.

I think the conclusion at least I've taken initially is that both EMEA and the Americas saw strengthening through the quarter. I'm just wondering if you could give us an indication of what run rates that would imply in January?

Given your comments to things that continued on trend? And then maybe just dig a little bit into the same sort of dynamics around global tech and Entrance Systems?

Thank you.

Yeah. That's hard to comment on the different terms divisions, perhaps if I start with the more difficult one Global Technologies as well HID as Global Solutions.

We definitely haven't seen a sequential improvement in the quarter. It has stayed difficult to go out in the quarter and also at the start of this year.

In a sense, also if you see nothing really has changed today compared to three, four months ago. And if you take HID, they're on one side dependent on people going back to the office when people go back to the office, they will use their cars, they will lose their cars, they will use the credentials they were new credentials things will start to break down.

That is not the case yet. We are confident as the vaccine is being rolled out as confidence comes back, because I think this – and I want to remind this is the first phase of trust issue.

When trust comes back that part of the business will come back. And I'm confident that that will come back faster.

Now, we have, of course in HID the whole business related to traveling. The whole passport business, if people don't take the plane then they don't need a new passport to renew or they don't lose the passport and so on.

And I think that will continue to suffer again until the vaccine is rolled out at a bigger scale. I guess, I hope, I'm confident too, there's the summer because then people will start to travel again at least private, whereas most probably on the business side travel regime will stay lower for quite some time, also after the pandemic, and most probably will not come back soon to the let's say 2019 levels, which means that the business on the hospitality side in the first place the hotel business, which is the biggest part for global solutions that will remain more difficult for longer period of time.

So there on global technology, definitely no improvement remains challenging. If we take Entrance Systems, like I mentioned we have seen a good momentum in three of the four segments.

We have also a slight sequential improvement even. It has been more challenging on the Pedestrian side, because again Pedestrian is more linked directly to some of the new lockdowns that we – and new restrictions that we have seen mainly in Europe.

If we then go to the three geographical divisions and we start with Americas. I think South America has been running for us on a very high level.

Of course, we were helped in 2020 also by the currency. Currency devaluation in many of the markets in South America meant that we could increase prices.

To a high extent that helped of course to boost the top line. But that was mainly in the beginning of the year.

We see now that momentum continues. We don't see of course a further acceleration, because I think a high single-digit growth in South America is already a big achievement and is definitely better than the market, but we don't see a slowdown of our activities in South America neither.

We have continued to see high like I mentioned high double-digit growth on the residential side in North America. We haven't seen a sequential improvement there because it was – and it stayed on a high level.

My comment on the sequential improvement was on the commercial side. We definitely throughout the quarter, if you compare beginning of the quarter end of the quarter and now also in January we have seen a slight improvement and we are more optimistic now going forward for the commercial side than we were three, four months ago.

And the same is true in EMEA, I would say in general, I mean, in EMEA we have also seen that slight sequential improvement with a better end of the quarter and now January than the situation we went into that quarter. So in summary, I think, -- sorry and then we have APAC.

I think situation in India and situation in Southeast Asia will on the short-term remain very difficult because the lockdowns and so on and -- or COVID-related issues are still valid if you take South Asia, for instance. Whereas I believe definitely in Greater China, we should now move from that stability profitability back into crowd.

And when I mentioned also we see a slightly better market momentum in South Korea. Market conditions are improving because our situation in the market is improving.

I would then say as a summary more optimistic on the three geographical divisions still harder low on Global Technologies.

Great. And I guess, the follow-up then just on that.

So would it be fair to assume that Q1 in EMEA started as flat to positive if it was minus 1% for the quarter? And how close to positive or zero is the Americas if it was minus 4% in the quarter?

I mean, the minus 4% in the quarter, I said that we had a sequential improvement in the quarter better at the end of the quarter the beginning of the quarter. You can compare with what it was in Q3, and I said it was a slight sequential improvement.

So I think you can put a figure for where we stand now in January Q1.

Okay, great. Thanks, Nico.

Hi. Good morning.

I'll ask two questions as well, but I'll start on the first one. On following up on raw materials, I guess, a few years ago there was some difficulty in the US in passing through steel price increases because of the way some of your competitors hedged.

I just wanted to check how you think about that now and whether you think this time around it will be easier from a competitive standpoint to fully pass through raw materials and see no impact on margin from the headwinds.

It's true that I would say in general, we have seen material prices go up significantly for raw materials if you take zinc, copper, nickel, aluminum and definitely steel. You've seen it all around the world with, of course, the highest increase is for steel in the US a bit more moderate in Europe because you have the euro-dollar exchange rate that helps.

And, I think, also in Europe there was not that much cut in capacity like it was in the US for steel. And as a matter of fact, we have seen still going up in the US again 50% compared to a year ago almost 25% over the last quarter.

In general, we have always said that we like inflation and we also like material inflation because we are in a mature market where it is possible to pass-through those cost increases through price increases into the market. And we are confident that we can do that for most of our businesses and of course, we have proactively solve to increase prices already three months ago and we continue to do that as indexes continue to move.

Like Erik said, it's indeed around six months between indexes going up or down and us seeing that in our financial statements. So we have a little bit of a buffer to anticipate.

We are in most markets I would say a strong market leaders. So it's also our goal to be a market leader when it comes to price increases.

We have done that. We have seen that many of our colleagues in the market have followed and have done the same.

So we are confident we will to a big extent be able to compensate for the material in cases it remains to be seen, of course, how indexes further evolve. But it's clear that we will not see the tailwind anymore that we saw in 2020 where we had good positive difference between price versus material that is slowly fading out.

And in Q4 it was already lower than in Q3. In Q1 this year, it will be much smaller, but we are confident that we can keep it on a neutral level.

Understood. Thank you.

And then I just wanted to ask you if you could help us with like the precise size of the smart locks business. Now I think in the past you mentioned a figure of SEK250 million a few times.

But wondering if this year like other home improvement categories how fast the growth and how much bigger it is now and what you expect going forward?

We have -- I've said that it was a year ago run rate of around SEK2.5 billion. Today it's on run rate of around SEK3 billion.

Thank you.

Good morning Nico. Good morning Erik and Björn.

Thank you very much for taking my question. I think I have two questions related to the cost savings program.

I think you mentioned SEK750 million total, I guess, SEK500 million from manufacturing program number eight and then SEK250 million additional incremental. I was wondering given that at Q4 you are at 16.1% roughly speaking adjusted by the charges that you put out today what this could mean that if you think about growth in the second half next year, and if you think about the savings on top whether you could actually be overshooting a little bit of the margin temporarily in, let's say, obviously, I know it's very difficult but I'm wondering whether this is just that scenario?

And then second the SEK250 million, can you explain the nature of the savings? Are they going to be retained even if recovery in the market happens?

Thank you.

Yes. Perhaps I can start here.

Erik can then feel free to add.

Yes

Of course, there is -- when we talk about margin there is a lot of moving variants. I mean there is of course a divisional mix.

There's a commercial residential mix. There is a new build after market mix.

And of course, there is a fact that you can't take Q4 as the reference for the full year as you know we are very seasonal and Q1 is very different from Q2, Q3 and Q4. And then like we mentioned the whole tailwind on the direct material side that we will not experience any more for the full year of 2021 at least.

All that being said, I mean, if top line stay where they are today, it's clear that we have to do more on the cost side to realize our ambition on the EBIT bandwidth and that's what we are doing. That is what we re doing with our MFP program, as we are executing new projects, new savings are coming in.

If you look a bit on the question, what is short-term? What is long-term?

It's of course very difficult to define what is long-term, what is short-term. If I take something that is definitely long-term, it's the number of people, the number of fixed people.

And if you see there and compare it to a year ago, we let go unfortunately, I would say, almost 5% of our workforce. And that is of course is a permanent cost that is gone and that helps us helped us to reduce our run rate cost level.

But I would argue that also some of the -- sorry, and we've also seen that a lot of the short term the furloughs and so on are now translated into permanent layoffs and there are also permanent cost savings. But I would argue that also some of that you could go more variable costs or more permanent.

If you take for instance travel-related costs, they went down in the quarter, I believe, 60% you take for the full year, they're also down around that number. They will not come back to 100% even if the pandemic is completely over, because obviously we have seen that some of the things where we used to travel in the past we can do it in a much more efficient way in a digital way.

So part of those costs will also become more permanent cost savings way.

And perhaps there just to add Guillermo, the SEK750 million that I talked about that's purely for the manufacturing footprint programs. It's not only the eighth, but we also have the seventh and there's a slight thing still left on the manufacturing footprint program six.

So then that's let's say for the manufacturing then as -- then of course, we do other things as well in order then to let's say adopt our cost costume, and also when we talk about the Q4, this is a net. So, of course, you have some you can say, I mean gross it's higher than the SEK500 million.

Understood. Thank you very much.

Good morning, gentlemen, and thanks for taking my question, and also thank you on a lot of helpful clarification on the margin. I was curious to know what you're seeing on the inventory side of things.

We hear a lot about destocking in various industries, but also some challenges related to freight inflation costs. So I was hoping whether you could give us some color on what you're seeing in your industry?

Well, I think there's two things. Of course, when you do price increases sometimes people will anticipate orders and depending on the lead time there for also sales.

That has happened definitely also in Q4. But I would say that's a phenomena that always happens in Q4 because that's traditionally the moment in time we do the price increases.

When it comes to stocking or destocking in the channel, I think in Europe that is not an explanation for Q4. We definitely had that coming out of Q2 into Q3 where we then had the destocking after the first wave of the pandemic in Europe, because they could not do destocking before.

We still have a little bit of that I would say in the U.S. where people are -- where the channel to the market is still very hesitant.

We see that also on the request for a very short delivery times. But they are not sure what is going to happen because it stays a very turbulent time and therefore try to keep inventories down.

And we have seen definitely a destocking in the channel in the U.S. over the last six months.

But there the good news is also you can't continue to do that. And we are definitely I think on the point where we can't continue to do that.

Thank you very much. And I guess my second question was to come back on the sequential improvement that you highlighted in commercial construction, I think both in the U.S.

and to some extent in EMEA. I was hoping maybe you could give us, which type of areas of commercial you are seeing this improvement?

And whether you are seeing actually some momentum in what I would call the renovation business rather than replacement?

Yeah. I think in Europe and in the U.S., I guess it's very, very similar.

I mean, the drops that you see I would say are not related to new build or not related to a big extent to new build in the sense that if ABI index has gone down, new construction stocks go down, it takes 12, 18 sometimes even 24 months before we see that in our results because from the time that they decide to build something and they put the foundations of the building in place until they come to the door, however, it’s 12 months to 18 months to 24 months. The only slowdown we have seen on the new build is that clearly it's more difficult to execute on construction side because of the social distancing rules, the extra measures they have to take.

Also they suffer from capacity because they also have people that have to stay home because of COVID-19 infections, contaminations in family and so on. But the main decline we see today is more aftermarket related.

And, obviously, our business is in the first place aftermarket. It's a smaller part new build.

And that is true in Europe and in the Americas. We see indeed that the ABI indexes are now a couple of months below the 50%.

We are a bit more optimistic than all the other people in the sense that we could see it’s not falling off the cliff, and you have of course a backlog of construction projects in the pipeline in the sense that if they award the project today it's not that they can start immediately. There is a backlog.

And yes, a lower ABI index will mean that that backlog will go down. But hopefully, confidently by the time they come to the -- to our part of the business that is leveled out to a bigger extent is it going to help us the evolution of the indexes?

For sure not. But we believe that the negative effect might be smaller than anticipated also because we are more confident on the aftermarket side that that part of the business will gradually come back and gradually improve as people start to go back to work as they start to use more the hardware and as we will start to see more mobility again gradually now in the remaining part of the year.

Thank you for the color.

Thank you. Nico, can I stick with that?

I thought that was quite interesting your commentary around the outlook for Americas. I wonder whether you can help us with some preliminary thoughts on how you see 2021 play out.

It sounds like you're painting a picture of a sort of grinding lower around the project of specifications business, certainly not a cliff. I'm looking at expectations for sell-side this year that suggests sort of mid-single-digit organic growth in Americas struggling a little bit with that particularly given your should we say prior commentary around group overall being sort of low single-digit this year at best.

Maybe you can help us understand a little bit better what your sort of preliminary thinking is for the year around your organic growth line? Thank you.

Yeah. Of course, we should see organic growth again in the Americas for 2021.

Otherwise, I would be very disappointed. Of course that is with the market conditions we know today because yes, if you take new build on one side, you have all the indexes showing something, but you also have the huge investments that the governments are putting in place all the funding that all the local institutions are doing.

But it's clear that we are fairly dependent on the commercial side for the Americas. 80% of our business is North America.

And in North America around 75% of that business is commercial. And our commercial business is split more or less equal between institutional and to commercial you could say.

And of course it remains very difficult to read or the different parameters will play out on one side the aftermarket and on the other side the new build. But like I said, I'm perhaps more positive today than I was 3, 4 months ago.

Again, because I believe once mobility will increase again with all the money that is put in by governments. We should see that aftermarket part that suffered today that we should gradually see coming back.

And hopefully, confidently that will overcompensate for the drop that we will see naturally on the new build side.

Can you clarify on January -- sorry.

And then -- there, I guess, is then perhaps what will happen in South America, if we can keep some momentum there and if we can keep the high-growth base on the residential side, of course. Sorry.

No, sorry. I was just going to ask can you clarify what your organic growth was in January at group level.

I appreciate regional division is getting better. Sounds like the two global divisions getting perhaps a bit worse or offsetting that.

So relative to the negative 5% organic in Q4 where did January come in if I can ask?

Unfortunately, I can not do that for you. But, like I said, we have seen slight small sequential improvement in the Americas, in EMEA, but we have not seen an improvement for Global Technologies.

I think you can estimate a little bit yourself.

Sure. Secondly and finally, can I just ask you to clarify that you don't see negative price cost in 2021 for the group and for Americas?

I think I heard you say, I think, we can offset raw material inflation. That's a bit surprising to me.

I go back to 2018 where you had a couple of quarters, a negative 100 basis points of price cost headwind in Americas after steel prices jumped about 50%. You mentioned something similar on steel prices versus one year ago.

I see something a bit higher than that. But maybe to ask a little bit differently what's changed structurally since 2018 with regards to offsetting raw material inflation?

Of course, one change that does not help you and does not help me is that, we move perimeter security from the Americas to Entrance Systems. And of course, a very important part of the dilution in the Americas came also from the steel that we use in Perimeter Security.

That challenge here [Indiscernible] to Entrance systems. Now I think there is a couple of things.

One, if you take, for instance, perimeter security, we are today less dependent from a mix perspective on pure commodity fence sales. Our mix is more towards, you could say, higher end fencing.

But, obviously, the price pressure is less. So that definitely should help us.

And I think a similar thing on our steel door business in the Americas, our operational improvements, I think, also our pricing intelligence, also what we learned from the challenges two years ago, must help us to get a better execution and less strong effect this time. I don't think we will compensate fully for steel on its own, not in the U.S.

and not in parameter security. But if you take it all together, with copper, zinc, nickel and so on and the price increases we can do overall, we will of course do our best to strive to neutralize the one versus the other.

Again, everything will depend on how index is now further evolve in the coming months, because we see them continually going up. They have further went up -- they’ve got further went up now also in January.

Very helpful. Thank you.

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

Good morning. Thanks so much for squeezing me in.

I just wanted to get the kind of final number for savings for 2021 please, if possible. So if I could have a go, so we've got SEK 750 million from the manufacturing footprint programs, and then some normal savings, which do you expect something similar to kind of the usual run rate of kind of 2% or 3% of the cost base?

And then, we could kind of think about some reversal of the temporary savings. And for that, we can make our own assumptions.

But maybe if you could tell us, how much they were is temporary savings in 2020 in total?

Do you want to answer, Erik?

I mean, I think, I mean, first of all, it's a little bit what Nico said, before is that, I mean, we have a mixed bag of -- of course we talk about the SEK 750 million that we have from the manufacturing footprint programs. Then we have some more permanent savings.

But then you also have this with the CMI permanent, which of course is very much pending on, let's say, how business evolve. I mean, we talked about before about travel cost as one of these items.

So, it's -- we don't -- I mean, it's -- and yeah, so that's a bit situation. And then of course if you look in 2020, I would say that we have gradually moved over, from temporary to permanent savings, as we have alluded to in all of these calls.

So I think more and more of these ones, that we have are permanent.

And -- thank you. And then, if I just may follow-up the SEK 750 million of savings, do you expect that to come from kind of new actions that haven't yet taken place.

Is that the right way to think about it?

Yeah. And...

And -- because the vast majority I think comes from MFP, from the new MFP program. And there we're just starting out the new projects.

Of course we have already executed on some of them. And we have started to see some savings, but more to come this year, yeah.

Great. Thank you.

And if I just may very finally to again get some clarity and final point. In terms of kind of price, versus cost, versus logistics, can you comment on that whether you expect that potentially to be, neutral or net negative?

It will definitely not be positive, for the full year. If you see where the indexes are going and definitely also, yeah, container of course from China, I assume that is what you are alluding to, is a high hopefully temporary cost.

But of course, we will do everything we can. And with the information we have today, we will of course, strive to neutralize material price increases through, price increases.

Got it. Thank you, Nico.

I was thinking about logistics costs together raw materials inflation versus price, whether you'd be able to compensate that with price or not?

Yeah. And that's what I said if you take, cost of purchasing, let's call it like that, versus price we aim.

And we will strive. And we'll do our best to look like that the strong cost price increase, material price increases, lose I think increases and compensating to price increases.

But again, everything will depend on how indexes further evolve.

Thank you, Andre.

Thank you very much both of you.

Thank you. It's now time to roundup this conference.

I hope it has been helpful. And if there are any follow-up questions or queries, don't hesitate to contact Holger [ph] or myself at Investor Relations.

And we do look forward to speaking with you, in the coming weeks then. In the meantime, stay safe.

And thank you for now. Bye.

Thank you.

Thank you.