Assa Abloy AB
STO:ASSA B
Earnings Call Analysis
Q4-2023 Analysis
Assa Abloy AB
In their 2023 year-end report, ASSA ABLOY presented a narrative of sustaining strength and resilience amid global market challenges. CEO Nico Delvaux and CFO Erik Pieder revealed a modest organic growth of 0.5% in Q4, echoing similar patterns from Q3. Despite organic growth showing only a slight uptick, strategic acquisitions propelled an impressive 12% top-line increase to SEK 37 billion. Moreover, the company's operational prowess enabled significant margin improvements, hitting an underlying margin of 16.8% excluding HHI, and a commendable 15.5% when HHI was factored in.
Performance varied across regions, with Americas experiencing slight declines due to previous year's backlog fulfillment, while Entrance Systems and other sectors improved. South American and Africa's surges were tied to large-scale HID projects, contrasting with Europe's stagnation, especially in the residential market. Asia demonstrated recovery signs, particularly in China, where a slight organic growth indicated potential market stabilization.
ASSA ABLOY's continual investment in innovation and expansion, articulated through six acquisitions and several product launches in the quarter, underscores their commitment to industrial leadership and growth. Notable project wins and the ongoing efforts to fortify their sustainability credential further reinforce their market position.
Financially, ASSA ABLOY stands on solid ground, with a full-year revenue exceeding SEK 141 billion, marking a 16% hike attributable to organic growth, acquisitions, and currency tailwinds. Operational income bolstered by 11% and a stronger EBIT margin year-over-year affirm sound cost management. Furthermore, substantial interest rates have prompted increased interest costs, forecasting an estimate of SEK 3.5 billion for 2024 without significant rate changes.
Speaking to the future, ASSA ABLOY signals cautious optimism, particularly for the residential market, expecting stabilization. Cost-saving initiatives and improved pricing strategies are slated to enhance the HHI acquisition's synergies, with executives expressing confidence in achieving a $100 million bottom-line impact. While Q1 of 2024 anticipates being tough due to fewer working days and higher performance in the preceding year, future quarters may see favorable changes with additional working days translating to likely improved outputs.
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Good morning, and welcome to the presentation of ASSA ABLOY's 2023 Year-end Report. My name is Björn Tibell. I'm heading Investor Relations. And joining me here are ASSA ABLOY's CEO, Nico Delvaux; and our CFO, Erik Pieder. 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, Björn, 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 versus slightly below 0.5%. If we rounded off to 0% in the quarter, 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% led by currency at SEK 37 billion.
And then a very strong operational execution within 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 SEK 7.3 billion.
We also continue high acquisition pace with 6 acquisitions signed in the quarter. Was a record year when it comes to the number acquisitions and, obviously, also when it comes to value of acquisitions.
If we look at the numbers, like I said, SEK 37 billion top line, 12% up; 0.5% organic growth; 11% net acquisition; and then helped by currency, 1%. And EBITA 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 SEK 5.7 billion, also 12% up.
If you look a little bit in the different regions, starting with North America, an organic growth of minus 2%, where we should make difference because the minus 2% is mainly explained by Global Technologies, HID. 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 PACS 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 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 HID.
Going to Europe, 0%. Definitely, Europe is the most challenging continent so far because of challenging conditions on the Residential side. Nothing has changed there really compared to Q3. I would not say that it's getting worse, but it's definitely not improving yet. We see 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 3%. 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 5%, where we see strong Middle East, strong India where, for the first time since many quarters, in China, we had a 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 2 large electrical vehicle battery plants in the U.S., also over here, reference projects for us. And in HID that has been awarded the contract in Finland for new high-security driver license cards. And we were able also to secure 15 mega water reservoir sites in the Middle East and equipped them with TESA SMARTair 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. Small digital door locks that have a fingerprint reading, face recognition and also digital door view capability is all integrated in the product. These products are launched in Asia, in Southeast Asia and China, in particular.
And then 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.
If I then look at the growth. So it's now 12 consecutive quarters with positive organic growth -- smaller positive organic growth in the last 2 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 bandwidth we aim for. So good top line, improved margin, therefore, also strong operating profit, 20% up in 2023.
Acquisitions, like I mentioned earlier, 6 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 SEK 20 billion.
If I highlight 2, Leone Fence complementing our Perimeter Security business in North America. They are a strong player in the Canadian market and have a sales of around SEK 300 million. And then Ghost Controls, an acquisition in Entrance Systems, a supplier of automated residential gate openers, also having a sales of around SEK 300 million.
If we then go into the different divisions, EMEIA, I would say an organic sales of -- 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 have seen good growth still in South Europe, stable growth in Central Europe, but then clearly, a sales decline in U.K. 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 leverage. EMEIA has done a very good job in adapting the cost to the lower top line. I think in the last 6 months, they took out around SEK 450 million of costs, therefore limiting the operating dilution to 50 basis points. Also did good price management and other operational gains. They were also hit by FX, 20 basis points, and then M&A was accretive, 10 basis points.
We then go to Americas. 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. That 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, the 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, a good price versus cost execution and good operational efficiency realization. Helped by FX, 30 basis points and then, of course, the dilution of HHI. HHI was having an EBIT of 8.9%. But then we have also one-off closing and integration costs for HHI, around SEK 180 million.
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 reverse some of the PPA. Erik 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 in the company out, and you correct for the divestments we did linked to the HHI acquisition, we had a slight 1% positive organic growth in China. So clearly, market bottoming out. And from here, we will see gradual improvements.
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 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 our COVID quarter a year ago. Good operating -- very strong operating leverage, actually, but then a strong dilution of FX, 90 basis points because of the weaker Australian dollar and also 40 basis points dilution 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%, where 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, PACS, 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 PACS also had an important negative mix effect on the operating margin. Therefore, only an operating margin of 15.5%, where we saw operating dilution of 40 basis points. FX, flat. And then important dilution of M&A, 120 basis points, I would say that's mainly one-off acquisition costs related to the closing and the acquisition of Evolis. 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, an organic sales of 3%. Very strong sales growth in Perimeter Security, strong sales growth in Industrial and Pedestrian and then continued sales decline on -- 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.
Also very good 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, did a very good job on the pricing side, price versus material cost and very good operational efficiency gains again in the quarter. FX, dilutive 10 basis points, and M&A, dilutive 30 basis points.
And with that, I give the word to Erik for some more details on the financial numbers, Erik.
Yes. 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 SEK 140 billion. We were close to SEK 141 billion in -- 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 EBITA, we are at the same level at Q4 2023 as what we were at the same quarter in 2022 at 16.2%. The EBIT margin is slightly lower, 20 basis points, and we ended at 15.5%. If you look then just on the full year on EBIT margin, we're actually 50 basis 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, yes, paid a bunch of money then, I would say, for HHI, which has increased our debt. So in the quarter, roughly SEK 840 million were related to interest costs, which is an increase of roughly SEK 450 million compared to the year before. If we then look for 2024, our estimate is that our interest rate cost, we are providing that the interest rate stays at this level that they are right now, roughly on SEK 3.5 billion.
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 earnings per share ended for the full year at SEK 13.54. As mentioned before by Nico, we had a record cash flow in Q4, above SEK 7.3 billion, up with 11%, and if you look in the full year, we actually generated more than SEK 25 billion, 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 basis 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 mean that we were, yes, about minus 2% when it comes to volume. Nico mentioned before, you can see that the flow-through on 337%, where I mean, 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 MFP together with the short-term cost measures, it's a little bit more than SEK 0.5 billion, of which 40% of that comes from MFP 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 Evolis, the 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 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 basis points better than what we had in Q3. There -- here, I'm excluding the closing and integration cost of SEK 180 million in Q4.
We've also started to -- we have 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. Which would, however, when we talk about that, we start to see improvement, keep in mind that Q4 and Q1 are the seasonal, more weaker quarters for HHI, and -- 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 240 basis points better than the same period last year. Of this, roughly 90 basis points is related to mix where we had a stronger Americas, a weaker EMEIA as well as a weaker APAC. But then also we have within Entrance, we have the, let's say, in the division 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 basis 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 -- yes, slightly higher at 20 basis 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 have 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 SEK 4.6 billion. There, of course, yes, we have 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 when it goes down is also, of course, purely mathematics because we get more EBITDA in every quarter then 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 SEK 13.54, which -- yes, 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 ASSA ABLOY with still a positive organic growth of 0.5%, lower organic growth, but then overcompensated with strong growth of 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 still 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 costs 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, the competitive advantage in the market.
The Board proposes a dividend of SEK 5.4 based on AGM approval. Of course, and the idea would be to split the payment in 2 equal tranches like we also did last year.
And then last but not least, Björn 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 EMEIA factory in Rychnov.
And with that, I'll give the word back to Björn 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, operator, it means that we are ready to open up for questions. Please go ahead.
[Operator Instructions] The first question from Daniela Costa, Goldman Sachs.
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.
Yes. Daniela, so of course, we come out of a very high inflationary cycle, where if you take 1.5 years ago, steel was up 200% in the U.S. That has come down. I think most materials are still on a higher stable level and still even went up again in recent months. Next to that, we continue to have higher labor inflation and general inflation.
So we also expect a better price component this year than what we used to have historically prior to COVID-19 times, I would say. And if you look prior to COVID-19 times, we were in a low inflationary world where price was around 1%, sometimes a bit lower, sometimes slightly higher. We would be disappointed if now this year the -- that 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 prices in December, January, now 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. 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 activity so that we have an idea of normalized levels given the backlog is now?
Yes, 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, also 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 PACS, cards and readers, which is by far the biggest business area in HID, where yes, 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, very much normalized.
So we have the impression at least that PACS is back on, I would call it, normal growth pattern in the sense that PACS historically has been growing this mid-single-digit stable growth. And I believe once the disturbances in the comparison with the backlog are over, that should be a good number for our PACS business in HID.
The next question from Vivek Midha, Citi.
Could I follow up on the price cost point? So I think you broke out with a 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?
As you know, we don't guide, but let me try to give a little bit of flavor.
What we said of the Q3 is that we believe that we were peaking in Q3, cost versus price, and that indeed has been the case because if you're correct for the mix, price versus cost in Q4 was 140 basis points -- 150 basis points accretion where I think it was 160 basis points in Q3. So we definitely stayed on a good positive high level in Q4. We believe that it 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 a positive accretion but on a lower level. And then where in the second half of the year, it should be normalized 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 the coming months because, as you know, there is around 6 months time difference between material indexes going up or down and are seeing it in our income statement.
The next question from Gael de-Bray, Deutsche Bank.
I appreciate the earlier comments on Global Tech that the sales decline is essentially due to pretty tough comps because of the backlog execution. But 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 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...
On the organic.
Yes, yes, organically. What has brought it a little bit down, if you look over the whole period prior to COVID and compared to now is clearly Citizen ID, where we have commented several times that with Citizen ID, we are still significantly below profit pre-COVID levels despite the fact that we have seen 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 PACS impact, again, the high backlog last year and the sales decline this year. But organically, we are higher now than prior to COVID-19. That was -- and if you take and you make the split between HID and Global Solution, on Global Solutions in the different verticals, we have seen nice higher single and even double-digit growth there. 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.
The next question from Mattias Holmberg, DNB.
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 EMEIA and other regions that you talked about earlier in the year, but it would be interesting to hear if you expanded them into any other regions or product 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 too if you have HHI or anything else on the agenda that was sort of a bit left out of the last MFP.
So the cost savings, as Erik mentioned, it's around SEK 300 million extra savings in the quarter. And you are right that most of that is in Europe. And you're right that most of that was in EMEIA. But obviously, we see the more challenging situation on the Residential side in Europe, in general, and in the Nordics, in particular, where we, like I said, adjust our cost to the lower top line to protect the bottom line and cash flow. And we have done that a little bit in all markets in Europe. Of course, we see that Residential challenge a little bit in -- yes, in most markets in Europe. But again, mainly EMEIA and a 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 yes, clearly, we're now -- with having HHI or being the owners of HHI might give us extra opportunities to do more MFP. We will see going forward. We are still very much very early in the phase of that MFP program. We are still working very hard on realizing the savings on the existing MFP program.
The next question from Andre Kukhnin, UBS.
I wondered if you could talk about how your spec [ rates ] 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 a lead indicator for more kind of traditional lead indicators for nonresidential construction activity like ABI.
Of course, there, 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 the Americas, 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 [ turncoats ], mainly in EMEIA.
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 that should not be a surprise, of offices where we see a more important negative growth in the spec business.
So that's a little bit, you could say, in contradiction with what ABI indexes show us now the last 4, 5 months. ABI index is, of course, one indicator. You can also look at Dodge 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, 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. If I may just use a follow-up to double check on the Americas HHI-related costs, if you could make it very easy for us, please. Could you just give us a 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 higher. So we were actually at SEK 80 million, and that's why you have now a reversal to talk about -- sorry, the SEK 60 million that we had then for -- which is included then for Q4. So coming back, so we can say that we started with calculating with SEK 80 million per year. And now it's -- we sort of -- we have done -- now finalized it, and now we're down to SEK 60 million.
If you look on the acquisition and integration costs, I said there then, I think we had SEK 180 million then in Q4. We had roughly the same in Q3, so let's say, about SEK 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.
On PPA, you 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 2 numbers you have in mind 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.
But you also had HHI deal-related costs in H1 of last year as well, right? Because you had the legal teams working throughout the whole DOJ process. And how much were they just for -- if you could please?
I would say, in Q1...
I think it was around SEK 90 million.
Yes, I think it was sort of the running pace in Q1 was roughly SEK 30 million per month. So I mean, SEK 90 million to SEK 100 million is sort of what you will have, I mean, as a one-off from last year, which, of course, will not be repeated in 2024 Q1.
The next question from James Moore, Redburn.
A perfect segue from Andre. I have a follow-up on HHI, if I could, in 2 parts. If the 8.9% and the 14.9% are the kind of clean base, but 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 a bit closer? And have you changed your thoughts on that? And 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 on 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 17.5% 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 we should -- 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 temper a little bit the ambition of James. The number James mentioned was the record quarter number. The real number is a little bit more in line with what Erik 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 HHI. You could argue perhaps that they were a little bit underinvested in R&D and underinvested in equipment, in the factories. And therefore, it could be a little bit lower, but that 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 start 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. 1 of the 2 buys it at a better price to combining volumes and buying -- [ I mean ] the best parts gives us good significant savings. We are starting to fill factories and in-sourcing 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 long 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.
The next question from Alexander Virgo, Bank of America.
I wonder 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 '24 -- '23, I'm sorry, and coming into Q1. I think EMEIA was possibly a little better than I had 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.
So I guess you want a bit of the run rate. Of course, it's a difficult period to really give a qualified answer in the sense that December and January are holiday months. We have Chinese New Year in between that this year is in February where it was last year in January. What is also particular in Q1 now is that we have 1 working day more in January, 1 working day more in February, but then 3 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 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, U.S. is further down in the cycle. And EMEIA is still early in the cycle. In other words, it will perhaps show faster recovery in the U.S. than it will show in Europe.
Okay. 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, 1 working day less in Q1. It was a very strong quarter a year ago for Americas and for Global Tech and, therefore, also in general. But definitely for those 2 divisions, it's a challenging comparison with the quarter -- with the year ago.
The next question from Andreas Koski, Exane BNP Paribas.
I have a question on your performance in EMEIA. 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 EMEIA? Do you think there is a risk so 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.
I think there's obviously markets where we have a stronger position. There is markets where we have a 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 have seen that we are growing very nicely in the Africa, Middle East, which is still a part of EMEIA 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.
And then clearly, the Nordics is challenging. But in general, it's more challenging on new build and on R&R. And as you know, we are less exposed to new build and more on the R&R side. EMEIA was also the division which was late with price increases in the cycle. And therefore, they're also profiting still more now from the price realization 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.
And then my -- I would like to follow up on Alex's question about the sort of this year. In Q4 '23, you also had 1 fewer working day as you have now in Q1. 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 3, have 1 working day more than a year ago. So yes, Q1 will be tough because you have 1 working day less, but then the next 3 quarters will have 1 working day better. So in total for the year, we will have 2 working days more this year as compared to last year.
The next question from Johan Sjöberg, Kepler Cheuvreux.
My question is regarding -- so to get back to you on the Americas margin here. But just to look going into 2024, looking at the underlying margin development. And 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-accretive, what sort of underlying margin development do you expect in Americas throughout 2024?
But Johan, you talked 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.
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 we 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 2 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 how the residential market will evolve in the U.S. and, therefore, what our top line will do. And there, you 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 then 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 then, 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 Americas, 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 the Residential picking up somewhat throughout the year? But we just -- is that a good starting point looking at the margin projections throughout 2024? Could you comment on that, please?
Of course, you have also a bit of seasonality in Americas. 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 the reference because it's also a little 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.
Operator, I think we have time for one more question.
[Operator Instructions] 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 3 of us, and have a good day.
Thank you.
Thank you very much.