Assa Abloy AB

STO:ASSA B

Q1-2025 Earnings Call

[Björn Tibell, executive]

Good morning, everyone, and welcome to the presentation of ASSA ABLOY's Q1 report. My name is Björn Tibell, I'm heading Investor Relations. And joining me here in the studio are ASSA ABLOY CEO, Nico Delvaux; and CFO, Erik Pieder.

We will now, as usual, start with a summary of the report and then we will open up for your questions, and we plan to round off in about 1 hour's time.

So with that, I'd like to hand over to you, Nico.

[Nico Delvaux, executive]

Thank you, Björn. And also good morning from my side. Q1 results, we had a good start of the year with a 2% organic growth of the top line and then also a good complementary growth again, growth through acquisitions of net 5% and helped by currency, 1%. So top line, up 8%.

We've seen strong sales growth in Global Tech, good sales growth in Americas, stable sales in EMEIA and Entrance Systems, and a sales decline in Asia Pacific, mainly because of Greater China.

An improved underlying operating margin. Operating margin EBIT was at 14.9%, but we had 140 basis point dilution mainly, I would say, from one-off acquisition and divestment-related costs.

We had a good cash flow, SEK 2.4 billion and a cash conversion of 51%, which is, I think, good cash flow for a seasonally lower Q1. Also with that remark that we build up inventory in the quarter to anticipate the tariff uncertainty and that, of course, had an effect on the cash flow.

A good quarter when it comes to acquisitions with 6 acquisitions completed in the quarter. And then we also launched our MFP 10 program, where Erik will give more details later in the presentation.

So in numbers, sales at SEK 38 billion, 8% up, like I mentioned; 2% organic sales; 5% net acquisition growth; and then 1% currency. And EBITA of 15.9% and an EBIT margin of 14.9%. EBIT at SEK 5.7 billion, 4% up. And earnings per share, 3% up.

If we look a little bit at the different regions, I would say a very similar situation as previous quarters where in the 3 main markets we continued to see very good momentum on the commercial nonresidential side. That's the case in North America, in Europe and in Oceania. But in all 3 markets, we also continued to see challenging market conditions on the residential side.

We had a 2% organic growth in North America. Good commercial development in North America with mid-single-digit growth, but then challenging residential conditions with a mid-single-digit negative growth. It's clear that higher interest rates and with also political and economic uncertainty in the U.S. weigh on consumer confidence affecting our Residential business.

In South America, plus 7%. So good growth, I would say, in all markets in South America, also helped by good price realization.

Europe, plus 2%, where also commercial, a similar picture as in North America, continues to grow on a solid level and where residential in general remains challenging, although we see at least some light at the end of the tunnel for residential. We have seen, definitely in Sweden, things leveling -- or bottoming out and we start to see an increase in residential replacement market in Sweden. As you know, Sweden was the first one to cut interest rates almost a year ago, May last year. They have done 4, 5 interest rate cuts in the meantime and that starts to give a positive effect on the market conditions.

We believe also that U.K. has bottomed out, and we have seen some improvement in the U.K., where, obviously, South Europe is much later in the cycle when it comes to the Residential business.

Africa, plus 8%. Oceania, minus 1%. Australia, same picture, as I mentioned, for Europe, strong commercial, more challenging residential. New Zealand is perhaps a little bit like Sweden. Also in New Zealand, there has been several interest rate cuts already. And also in New Zealand we see Residential coming back.

And then Asia, minus 6% with a strong India, but higher double-digit negative growth again in Greater China where we have seen market conditions further deteriorating and also forecast on construction side, residential, in particular, this year is even worse than last year.

A couple of highlights, and we have here a little bit the way we present. We zoom in on 2 market highlights. The first one is a joint effort between Level Lock and Baldwin. Level Lock is a technology company we acquired in the U.S. making digital connected locks. We sell those locks on the commercial side for light commercial and multifamily applications. And we also sell these locks now through the Baldwin channels, bringing digital connected locks into the house.

We can have here the same form factor as a mechanical lock now and a fully integrated digital lock that you can put on your office door or your sleeping room door without touching the aesthetics of your inner hardware in the house. So quite excited about this collaboration between Baldwin and Level.

Another highlight in Entrance Systems, we launched our Insight Mobile app, giving us the possibility to digitally remote control and access manage our doors. And I would say in that aspect, we are unique as a full solution provider in the sense that we can provide the door, we can also provide the connectivity and the insights through this Insight Mobile app. And obviously, we also do service on our doors.

So top line, again, positive organic growth, price; and positive volume growth. Top line up 57% on a 12-month moving trend since 2020. Good complementary growth again this quarter from acquisitions, 5%, like I mentioned earlier.

Operating margin on a 12-month moving trend within the bandwidth we aimed for, the 16%; and an EBITA margin on the higher end of that bandwidth at 17%.

A good operating profit for a seasonally lower Q1, EBIT up 106% if we compare with 2020.

Another quarter where we were very active from an acquisition perspective with 6 acquisitions completed in the quarter. They represent an annualized sales of around SEK 3.6 billion. And then we also divested in the quarter most of the Citizen ID business and we also booked a divestment loss of SEK 50 million for that divestment.

We still have a very small part of Citizen ID in the U.S., the Green Card business, where we are still waiting for approval from the local authorities to also divest that part.

Some highlights. InVue, a U.S.-based provider of precision engineered connected asset protection and access control solutions, really adding complementary products and solutions to our core business, a very nice new vertical in Global Solutions. Quite excited about this acquisition. They had a sales of SEK 1.9 billion last year.

And then Uhlmann & Zacher, a German supplier of access control handles, knobs and corresponding software. Adding complementary products and solutions to our core electromechanical business and increasing in a significant way our electromechanical presence in Germany. They fall under the EMEIA division, and they had a sales of SEK 240 million last year.

If we then zoom in on the different divisions, starting with EMEIA. EMEIA had a stable organic sales development in the quarter with strong sales growth in Central Europe and the Nordics, and Sweden and Finland in particular. Stable sales growth in U.K./Ireland, but then sales decline in South Europe. And in the Middle East, India and Africa region, mainly because of the Middle East.

An operating margin of 13.8%, 10 basis points better than last year. Very good strong operating leverage of 60 basis points due to positive mix, in a sense more Nordics and less South Europe. Good strong price realization and also good operational efficiencies. FX was dilutive, 30 basis points; and M&A dilutive, 20 points. So a good start of the year for EMEIA.

Americas had an organic sales growth of plus 2% with strong sales growth in Latin America and in North America Non-Residential segment, but then a sales decline in the North America Residential segment, as mentioned earlier.

An operating margin of 17.1% with a slightly negative operating leverage mainly due to continued investments in R&D and sales and also due to the negative volumes we had on the North America Residential segment side. Helped by FX, 30 basis points. And then strong dilution from M&A, 110 basis points. That's the Level Lock acquisition, integration costs around that acquisition and also investments in R&D, where we are finalizing a couple of new product launches. That dilution will continue in Q2 and then should more normalize towards the second half of the year.

If we then go to Opening Solutions Asia Pacific, an organic sales decline of 5% with stable sales growth in Pacific and Northeast Asia, that subdivision, but then significant sales decline in Greater China and South East Asia subdivision.

An operating margin of 4.1% with a negative operating average of 50 basis points. It's clear that the strong double-digit volume decline in Greater China, at a certain moment it becomes difficult to compensate through cost cutting for that decline in the top line, and that's what we have seen in the operating margin. FX was also dilutive, 50 basis points, mainly because of the weaker Australian dollar, and we have not done any M&A since several quarters in that division.

Global Tech, a strong start of the year, an organic sales growth of plus 8% with very strong sales growth in Global Solutions, in most, if not all, different verticals. Also strong sales growth in HID.

An operating margin of 13.7%. But underlying, a very strong operating margin. We have very good operating leverage of 100 basis points. Good strong price realization. Good realization of operational efficiencies. FX up, plus 10 basis points. But strong dilution of M&A, 280 basis points, that's because of the SEK 50 million capital loss for the divestment of Citizen ID and then one-off acquisition and the integration costs mainly related to InVue. But so underlying, I think, very strong performance of Global Technologies.

And then last but not least, Entrance Systems, flat organic sales development with very strong sales within Perimeter Security. Good sales growth in Pedestrian. Stable sales in Doors & Automation, and that's the new name for our Residential segment. We changed name because we believe that Doors & Automation covers better what we do in that segment. We don't only sell residential garage doors, we also sell operators. We do gate operators and we automate all the doors. A sales decline in Industrial. And then good but lower sales growth for service in the quarter.

An operating margin of 16.8%. Also here, very good operating leverage, 140 basis points accretive driven by positive mix, price/cost and also here very good operating efficiencies. FX up, plus 30 basis points, but then strong dilution from M&A, 190 basis points.

SKIDATA. As you know, SKIDATA is very seasonal. The first quarter is always much lower top line-wise. As a matter of fact, we made a lot for SKIDATA in the quarter. But then as the year evolves, the top line will seasonally improve and also the bottom line will then significantly improve.

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

[Erik Pieder, executive]

Thank you, Nico, and also a very good morning from my side. You've heard before that the sales was up with 8%, of which 2% is related to organic growth. Operating income in value was up with 4%. EBIT margin, as also mentioned before, was down with 50 basis points. And as also said is that it was mainly related to an acquisitions' integration costs and so forth like that.

Income before tax, net income and EPS were all up 3% versus last year.

Operating cash flow at SEK 2.4 billion. It's minus 22% versus, I would say, a strong quarter last year. This year, I mean, the cash conversion was at 51%, which is good. But also, of course, it's also impacted by that we have increased our inventory, let's say, ahead of the tariffs.

Finally, then on this slide, the return on capital employed ended on 14.2%. It's 40 basis points lower than the same period last year. But of course, we have been quite active on the acquisition front.

If we then look on the bridge, the 2% organic can be split in, I would say, a strong 1% on price and then about, I would say, a low 1% on volume, but there was volume growth in the quarter. You see a very good organic flow-through of 60%, a 70 basis points accretion to the result. There, we've had good help from price, mix, operational efficiencies we had in the quarter, positive savings coming out of the MFP programs of slightly below SEK 200 million.

Currency, slightly positive on 20 basis points.

And then we have the acquisition column, which in total was -- sort of had a dilutive effect of 140 basis points. Of this, roughly 70 basis points come from SKIDATA, which as mentioned before by Nico, it's predominantly seasonal. Level Lock, as mentioned also before, it's a lot of investments into R&D. We then have about 30 basis points, which comes from acquisition and integration costs, that one is mainly related to InVue. I should also mention that InVue is also seasonal, which means that they have a lower Q1, but then Q2 and Q3 are much stronger quarters for them.

And finally, then on the acquisition, we also had the SEK 50 million that we booked in divestment loss for Citizen ID. As mentioned by Nico, we have sold the international part. The American part is something that will come in the quarters to come and that will also generate roughly the same loss as what we saw from the international part.

Cost breakdown. Direct material positive with 150 basis points. Out of that, 50 is related to a positive mix, which leaves 100 basis points, which is, if I count, the true tailwind then from price versus cost.

Conversion cost is flat versus the same period last year. There, we have been able to offset inflation, higher wage costs, et cetera, with operational efficiencies. I mentioned sort of the impact of MFP before, they were roughly slightly below SEK 200 million.

SG&A is dilutive with 60 basis points. There we have not been able to offset, let's say, inflation and investments in sales organization with efficiency measures.

We now launched in Q1, the 10th Manufacturing Footprint Program. It looks a lot like the programs you have seen before. In total, it is about 60 projects. The restructuring cost is slightly higher than the MFP9. We ended up on above SEK 1.3 billion. The savings from the program by end of 2027 is estimated to be around SEK 1 billion. The payback time is fast, it is slightly below 2 years. If you look for this year, total MFP savings that comes from the 8, 9 and 10 programs, we estimate the effect for 2025 to be around SEK 800 million.

Operating cash flow, as mentioned before, SEK 2.4 billion, 22% lower than a strong -- seasonally strong quarter last year.

Cash conversion, 51%. Here, we had sort of an increase in our inventory ahead of the tariffs, but you also have on CapEx that last year we sold some buildings in APAC. This year, we have invested predominantly in some buildings in Global Tech and that also has an impact on the cash flow.

If you look on the gearing and the net debt. Net debt-to-EBITDA is the same as last year at 2.4x. Net debt to equity is slightly higher then at 70%. If you look in total value versus December, our total debt is up with SEK 1.1 billion. But then we have been rather active, I would say, on the acquisition front, which has a negative impact, but then we have also had some help almost offsetting it by the currencies.

So -- but all in all, I think we have -- continued to have a very strong balance sheet position and can continue our acquisition strategy also going forward.

And last from me is then the earnings per share. As mentioned before, up 3% versus the same period last year.

And with that, I hand back to Nico for some concluding remarks.

[Nico Delvaux, executive]

Yes. So as a summary, I think, it was a good start of the year with a strong top line growth of 8%, 2% organic, 5% net acquisition, 1% currency. A good underlying operating margin, but an operating margin that was affected by 140 basis points mainly because of temporary one-off M&A-related costs. So operating margin of 14.9%.

We launched our MFP 10 Manufacturing Footprint Program with savings of SEK 1 billion and the best payback we have had on MFP programs so far.

A solid but seasonally lower operating cash flow.

And then it's clear that we continued to operate in challenging and mainly also uncertain market conditions as well economically as politically. So it's not easy to navigate in those market conditions, but again, here, having our decentralized organization where we can anticipate local changes through the local teams and empower those local teams is -- has proven to be a good setup. And we are confident that, that setup also will help us to navigate through the market conditions that we experience today.

And then last but least, we will also have this year a Capital Markets Day on November 19 and we will have that Capital Markets Day this year in the U.S. And you have the link there where you can register yourself.

And with that, I give the word back to Björn for Q&A.

[Björn Tibell, executive]

Thank you, Nico. Well, that means it's time to open up for Q&A. [Operator Instructions]. So with that, operator, it means that we are ready to kick off the Q&A session. Please go ahead.

[Operator]

[Operator Instructions] The first question comes from Midha, Vivek, Citi.

[Vivek Midha, analyst]

My question is around price/cost. So given the tariff uncertainty, it could really help us understand what actions you've been taking around tariffs and what steps you've been taking around pricing and so on, and how you expect this to evolve over the course of the year.

[Nico Delvaux, executive]

Yes. Perhaps this is a question on both price and a question about tariffs, and if I assume that the question about tariffs will come again, perhaps I give a little bit more elaborative answer also on the tariff side.

But if we exclude tariffs, what we have said always is that we have the ambition to increase prices between 1% and 2% this year. We have said this 1.5% is a good guideline. That was without tariffs.

Then obviously, tariffs change things in a very important way. The challenge with the tariffs is a little bit that it changes every day. So it's very difficult to give guidance on price because, obviously, we have the ambition to compensate tariffs through price increases.

So the answer I can give is only the answer as it is today, as the tariffs stand today or stand this morning, because perhaps they change this afternoon. But if we take the tariffs like they are today with 10% with steel, aluminum and then 145% on China.

If you look at our U.S. business, we produce around 70% of what we sell in the U.S. we produce in the U.S. Then close to 15% we produce in North America, a little bit in Canada, a couple of percent, but mainly in Mexico a bit above 10%. And then the other 15% or so, we buy from other places in the world, mainly from China. What we buy from China is around 10%. All the other markets are in that below 1% or around that 1% range. So there is no really other market that sticks out in a very significant way.

If you take all the normal tariffs we have covered through price increases, then, obviously, China is a little bit different. If you have tariffs of 145%, you can say it's a tariff or it's almost an embargo, you could say. So also with 145%, we will increase prices, but prices will have to increase in a very significant way.

Good news is that if you look what we do in China, most of our competitors are in a similar situation. So overall, it does not give us a competitive advantage or disadvantage. So overall, everybody will try to increase significantly the prices if tariffs would stay at 145%.

And I've also heard Mr. Trump saying that he's very confident that the tariffs will go down significantly. So we will see what happens going forward. In the meantime, obviously, we're also looking in other places to produce than China and have at least redundancy in place of what we do in China, if possible, because we also believe long term that redundancy is a good thing.

With the percentage I gave, you can calculate a little bit yourself. But if tariffs would be like they are today and obviously the 145% of China is an important contributor there, but also important if we would have to increase prices around 10% to fully compensate for tariffs and keep the margins in the U.S., the 10% is price increase in the U.S.

[Vivek Midha, analyst]

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

[Nico Delvaux, executive]

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

[Operator]

The next question comes from Kukhnin, Andre, UBS.

[Andre Kukhnin, analyst]

It's Andre from UBS. Can I just follow up on tariffs first before asking a question. So for China, have you started raising the prices now in response to 145%? Or are you waiting for the end of talks and final resolution?

[Nico Delvaux, executive]

So we've -- it's not the same answer for everything. There's 3 things. Yes, we have increased prices already before the 145% because obviously the 145% didn't come immediately. So we have raised partly the prices to compensate. Then on some of the products, we have raised the price significantly. And then we have also given notice that new price increases will come into place depending on the product next month or the month after, under that footnote that those prices will come force if the 145% remains as a tariff percentage. Obviously, then tariffs would go down in the coming months and we will adjust price increases to whatever the new tariff level might be.

[Andre Kukhnin, analyst]

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

[Nico Delvaux, executive]

Specifically for Global Tech, we had, of course, the SEK 50 million Citizen ID divestment. That's a one-off. And like Erik mentioned, if and when we would close the remaining part, mainly the Green Card business in the U.S., there is the possibility that we will have to book another SEK 50 million loss when that happens. That would also be one-off. The other part of the dilution is mainly InVue related and that's also a one-off.

So what you see today in the numbers is fully only Q1 and should not have an effect Q2 and going forward with that footnote that today that we sell the remaining part of the Citizen ID business that, most probably, it will be another around SEK 50 million one-off cost for that Citizen ID remaining part.

[Operator]

The next question comes from de-Bray, Gael from Deutsche Bank.

[Gael de-Bray, analyst]

My first question relates to the targeted 16% to 17% margin and your confidence around that. I mean, over the past 7 years you've been in the range only 1 year, and I appreciate it was actually last year so it's rather fresh. But with Q1 now looking obviously weak because of M&A dilution and with tariffs creating additional headwinds, at least for the upcoming quarter, do you still see the 16% to 17% range as a good guide for the year? Or could it make sense to lower the bar or perhaps switch to an EBITA margin range?

[Nico Delvaux, executive]

It's good that you mentioned also the EBITA range because you know that there is more than 100% -- 100 basis points, sorry, difference between the two. And as reporting always EBIT perhaps not always give us the clear picture versus other companies that report other profit numbers. So I think it's good to look at both. But we reconfirm that we are very convinced that over a business cycle, we can have our EBIT margin within that 16% to 17% bandwidth.

Again, if you take the last 12 months, we are at 16% despite strong dilution from the acquisition of SKIDATA, despite still a stronger dilution also for the HHI acquisition and despite all the, I would say, above 100 basis point dilution in Q1, one-off dilution from acquisition-related costs and divestment costs. So we are very confident that over the business cycle, we will be in that 16% to 17% bandwidth.

[Gael de-Bray, analyst]

Over the business cycle? And is this -- is it also applicable for this year with the tariff situation?

[Nico Delvaux, executive]

Well, I don't know what the tariff situation is going to be. But I would if you exclude the 145% of China and if I exclude -- I mean, if tariffs on China would be on a more normal level because obviously 145%, again, it's not a tariff, it's almost an embargo, but if China would be a normal tariff, what they were talking about at the initial phase, we are confident that price versus tariffs could this -- give us even a slight accretion of the margin because we will be able to compensate through cost savings, through resourcing, renegotiation and through price increases to compensate, perhaps slightly overcompensate, for that cost tariff, costs versus price.

Obviously, if the 145% in China would remain, then it's a little bit like when we had the steel inflation a couple of years ago when steel went up in U.S. 200%. And there you see that, yes, over time, you can compensate for it, but you lack a little bit price versus cost. And that would definitely be the case also with China if the 145% would remain because then we will have to resource in a more aggressive -- or relocate in a more aggressive way things from China to other places and that obviously takes some time to do. So that's not something you can do overnight.

But let's be confident on the words that Mr. Trump said, I think, this morning or yesterday evening that they are discussing with China on much lower tariffs, that would definitely help the situation.

[Operator]

The next question comes from Featherstone, George from Barclays.

[George Featherstone, analyst]

I've got question and then maybe a follow-up on the tariffs, sorry to belabor the point. On Entrance Systems, in the previous quarter, you talked about some optimism on orders growth for the business and how that might come through in the second half. Can you maybe help us understand how ordering activity has been through the quarter for Entrance Systems?

And then on tariffs, is it better to think of them perhaps as a surcharge pricing at this stage? I appreciate there's a lot of volatility around the direction, the sort of system is quite fluid at the minute. But is it potentially the case that you might raise prices and then unwind it over time? Or would you expect to just retain the price at a certain level when you eventually implement them?

[Nico Delvaux, executive]

If I take the first question first on Entrance Systems. As you know, we don't comment on orders. But if you take the 4 different segments in Entrance Systems, starting with Perimeter Security, we had a very strong Q1. We see -- we continue to see very good momentum and there perhaps also the tariffs are helping us in a sense that some of our colleagues, competitors have more tariff challenges than us producing everything in the U.S. And then the drive for security and also the higher steel prices help us for Perimeter Security, so we are confident on market conditions for Perimeter Security.

I think Pedestrian has been growing on that mid-single-digit level since many quarters. Now we still continue to see good momentum, so we are also positive on Pedestrian.

If you take Industrial, you know that it was very much affected by the logistic warehouse vertical where, indeed, after COVID, everybody was building warehouses like mushrooms because we all wanted to have in-home deliveries and at a certain moment they realized they overbuilt and they took a pause for 12, 18 months. That pause is over now. We have seen a good momentum again. We see good activity, also quoting activity.

On the logistics vertical, we are confident that our sales will improve or recover in the second half of the year because lead times for loading docks are the longest that we have in the group.

And then last but -- Doors & Automation, so the new Residential -- modern name for the new Residential segment. There, of course, it all goes to residential houses, garages, residential houses. There, we are still very much affected by the low market activity on the residential side as well for new builders for R&R linked to the high interest rates, which are not going to come down on the short term probably, and also the consumer confidence that is not on a high level today. So the Residential part will remain challenging with that footnote that, of course, the comparison quarter after quarter becomes easier.

On the second question, on the tariff compensation through price. So at the beginning stage of the tariffs and also the normal inflationary pressure at the beginning of the year, those price increases have been implemented through price increases. So increasing list price, increasing net prices. So these are the price increases that are there to stay.

It's clear that for China, when you talk about 145%, that cannot be a price increase that is there to stay if tomorrow the 145% will be -- I'm just saying something, 20% or 30%. So that is more a temporary price increase. If you want to call it a surcharge, yes, you can call it a surcharge, which hopefully will go away as Mr. Trump and Mr. Xi agree on lower or perhaps no tariffs.

But we always have -- with the exception of that very high tariff for China, all the rest, we have always the ambition to make it permanent price increases through list price increases or net price increases because that makes it obviously much more sticky.

[Operator]

The next question comes from Maidi, Rizk from Jefferies.

[Rizk Maidi, analyst]

I'll stick to 2. So the first one is you said that you started to raise prices in advance of the tariffs, but also some notification to customers. Have you seen any sort of prebuy in your Americas growth sort of so far?

And perhaps, can you comment on the specification business in the U.S. We've seen some pretty bad ABI prints, whether this weak high interest rates, weak consumer data is actually affecting your commercial business, if you see that in your specs business. I'll start here.

[Nico Delvaux, executive]

On the prebuy, [ of course I won't be contradicting ] myself because, as I say, we don't talk about orders. But for sure, we have seen some preordering in March ahead of the more extreme tariffs because, obviously, what we have done is similar, like a lot of other people have done. We have bought more inventory in from China to the U.S. to cover at least some period where then people will negotiate on the tariffs. And there, we have seen some preordering, but that has not been translated significantly in, let's say, presales. That preordering should translate in sales now in Q2. So no significant effect in Q1.

When it comes to specifications, on group-level specifications, we're up high single digits with a good double-digit growth as well in EMEIA, higher single-digit growth in Oceania, but a slight single-digit negative growth in the U.S.

If you zoom in, in the U.S. on the different verticals, the slight negative growth was mainly because of negative growth on the education vertical, K-12 and universities, which we believe is just a 1 quarter timing effect because obviously education, K-12, universities, continues to be very strong. So we are not so concerned -- we're not so concerned yet on our specification development.

[Rizk Maidi, analyst]

Very helpful. The second one is just if you can give us a summary of the M&A dilution. We had 140 basis points in Q1. SKIDATA and InVue, from the sound of it, looks quite seasonal. Level Lock, you're doing some investments. Can you just give us a sense of how we should think about the M&A dilution for these 3 businesses sort of Q2 and the rest of the year?

[Nico Delvaux, executive]

I think the dilution was 140 basis points in Q1. I would say more than 100 basis points is one-off. So we should not see that coming back in Q2 and the coming quarters. So as of Q2, dilution should be more in line with normal dilution that we experience in normal quarters for acquisitions.

Level Lock is a good profitable business with margins in line with Global Tech...

[Björn Tibell, executive]

InVue.

[Nico Delvaux, executive]

Sorry, InVue, with Global Tech margins -- which one I said?

[Björn Tibell, executive]

You said Level Lock.

[Nico Delvaux, executive]

Sorry, sorry.

[Björn Tibell, executive]

Not Level Lock, but InVue.

[Nico Delvaux, executive]

And then SKIDATA, like we said, we bought them with a margin around 4%. Very seasonal. We made a loss in SKIDATA in Q1 and their margins improved Q2, Q3, Q4. Seasonally, Q1 is always low for SKIDATA top line-wise because, obviously, they sell to ski resorts. And in Q1, they want people to ski and use the ski lifts and so on rather than doing repairs or upgrades or maintenance. And you see also on the parking side that often it's a yearly budget-related initiatives, where a lot of the budget is spent in Q3 and Q4. That's the reason why SKIDATA is more seasonally lower in Q1.

Like I mentioned, the only one that will continue to have a stronger dilution now in Q2 is Level Lock because, there, we continue to invest in R&D because we have several projects that we want to bring to the market. And then in the second half of the year, that dilution of Level Lock should also level more out as we progress in the year.

[Operator]

The next question comes from James Moore from Redburn Atlantic.

[James Moore, analyst]

Yes. I wondered if I could get back to the tariffs, Nico, and just ask what percentage of your Mexico-Canada imports are USMCA compliant? Are they all 0 tariffs?

[Nico Delvaux, executive]

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

[James Moore, analyst]

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

[Nico Delvaux, executive]

Well, it's an ongoing progress. First of all, in China, we have also some of it that falls under the CHIP exemptions where we don't have the tariffs. And then obviously, we already started off relocating production or at least have double production for part of what we do in China. Obviously, we never have expected it to be 145% tariffs because if you have tariffs on a normal -- on a more normal level, China even with tariffs in the 10%, 20%, 30% range would still have been the best place to produce because for some things China is simply much more -- cheaper or lower cost than any other country in the world.

Now with 145%, of course, we have a wider family of products that we are looking to at least have a second source where we produce. The challenge there is that it takes longer. For some products we have, I'm just saying something, die-casting molds, if you want to produce them in a different place, you have to first build the molds and then test the molds and then start up production. That's not something that you can do in a couple of weeks. There, you talk more about several quarters. But that's things that we have started. Because, again, even if tomorrow tariffs would become lower or go away, we still believe that it's good to have a second alternative to China production going forward and that's things we are working on for the future.

[James Moore, analyst]

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

[Nico Delvaux, executive]

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

[Operator]

The next question comes from Alexander Virgo from Bank of America.

[Alexander Virgo, analyst]

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

[Nico Delvaux, executive]

Perhaps I can give a little bit of color on the 2 subdivisions. If you take Global Solutions, they have, what is it, 6 or 7 verticals. If you look at all the verticals, they have been growing close to double digit or double digit for, I would say, the last 2 years or even a little bit longer with the exception of our self-storage vertical that is a U.S. business. And self-storage in the U.S., as you know, is also fairly linked to people moving houses. And as people don't move houses, that's a more challenging vertical. But it's a relative small vertical. Like I said, all the other verticals are performing on a very high level, going from hospitality to marine, to key asset managed -- critical infrastructure, you name it.

On the HID side, with the divestment of Citizen ID, now we have also a more balanced portfolio. And there the main contributor is, of course, specs, card readers, controllers. And what is important for HID in general and for PACS, in particular, is mobility. People have to move. People have to go on vacation. People have to go to hotels. People have to go to government places, to offices. And mobility is good in the world. Mobility is good in the U.S. So it's good for our HID business as well.

[Operator]

Next question comes from Koski, Andreas, BNP Paribas.

[Andreas Koski, analyst]

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

[Nico Delvaux, executive]

Do you want to take that?

[Erik Pieder, executive]

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

[Andreas Koski, analyst]

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

[Erik Pieder, executive]

I mean, I think that this -- we have had a period here where we have been very active on the acquisition front. And that is sort of what has -- have had an impact then on the net debt-to-EBITDA. I mean, it's normally -- I mean, we always -- with the cash that we generate, we always -- if we don't have anything, let's say, to acquire then we try to pay the net debt down in order then to reduce then from the 2.4 down to, let's say, I mean, down to -- almost down to 2. But it's pending a lot on the acquisitions.

But as I said, we have been very active. It's a question if we're going to be this active then for the remaining of the year. If not, then of course, you will see sort of a net debt-to-EBITDA reduction then for the year to come. And if you look historically, I mean, we have been, I would say, around 2. And that's something that, I would say, would be more in a normalized situation, 2.0.

[Operator]

[Operator Instructions] The next question comes from Schwerin, Gustaf from Handelsbanken.

[Gustaf Schwerin, analyst]

Can I ask a follow-up on the North America Non-Res momentum. we discussed it a lot previously, but I mean, ABI doesn't really seem to have much of an effect on your growth anymore. You have mentioned things like data centers offsetting previously. How have you seen that pipeline developing over the past quarter?

And is there anything you want to call out on the other verticals other than what you mentioned on the specification business?

And then lastly, I mean, how long do you think that this momentum will keep up?

[Nico Delvaux, executive]

So if you look at the different verticals, like we mentioned earlier, the 2 more important or the biggest verticals for us in Americas is education. And I guess the specification business, as I mentioned in Q1, was a bit weaker. But we don't read anything into this. We still see good, strong momentum on the education vertical.

Second important vertical is everything that is health care related. There, we have seen good specification development also in Q1. We also see good momentum.

So those 2 core verticals, we are very positive about. Then it's true that data centers, if you go 2 years back, it was a very small vertical. It's growing in importance, I would say, in a significant way as we move on. It's by far the fastest-growing vertical for us not only in North America, but sales in many other places around the world. And it's a good extra contributor to the Non-Residential growth in that aspect, that it really starts to move the needle from an organic growth perspective.

Then we are very widespread. We have no vertical where we're exposed double digit. All of the exposures are single digit with the 2 vertical I mentioned earlier, the 2 most important ones.

So I can only say that we are still very confident on the Non-Residential side. Especially everything that is institutional, we still see a very strong momentum.

[Gustaf Schwerin, analyst]

Just a follow-up. If you look at the Residential business in North America, roughly how much was this down in the quarter?

[Nico Delvaux, executive]

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

[Operator]

We have a follow-up question from Andre Kukhnin, UBS.

[Andre Kukhnin, analyst]

I just wanted to kind of go back to SKIDATA. And could you talk us through again on what you think is the kind of right margin entitlement for this business once you've done the full integration and implemented all the manufacturing excellence and other initiatives? How would that stand versus the 16% to 17% group target, please?

[Nico Delvaux, executive]

Yes. Like we mentioned earlier, I think SKIDATA being in what they do, one of the market leaders in their field, having also a strong aftermarket revenue and strong recurring revenue, we are convinced that we should be able to increase at least with 10% their bottom line. So if they were at 4%, that 14%, I think, is a good first ambition. And obviously, at the price we were able to buy SKIDATA, if we can bring it from 4% to 14%, it would fantastic value.

Can we then bring it to 16%, 17%, the band which we aim for? Let's see. Let's first work hard on making that significant improvement I just talked about.

[Björn Tibell, executive]

Thank you. Well, that means it's time for us to round off this conference. If there are any follow-up questions, please reach out to Isabelle or myself at Investor Relations.

So that means it only remains for the 3 of us to thank you for your participation and interest. And we know that we will meet many of you in the coming weeks, so we look forward to that. And thank you for today.

[Nico Delvaux, executive]

Thank you.

[Erik Pieder, executive]

Thank you.