Assa Abloy AB

STO:ASSA B

Earnings Call Transcript 2020-Q1

[Operator]

Hello and welcome to the ASSA ABLOY's preliminary Q1 results update call. Today, I am pleased to present ASSA ABLOY's CEO, Nico Delvaux; and CFO, Erik Pieder. [Operator Instructions] I will now hand you over to the CEO, Nico Delvaux. Please go ahead with your meeting.

[Nico Delvaux]

Thank you. Good morning, everybody, and thank you for joining this call. Also joining me on the phone is our CFO, Erik Pieder. Both, as all our people from group center and as many of our people around the world, since now almost 3 weeks, working from our home offices as one of our measures against the coronavirus. As you have seen, we have published last night our preliminary results for Q1. So we'd say, following a couple of extraordinary months due to the outbreak of this coronavirus and in light of the situation, we decided to announce our preliminary results for the first quarter, immediately also to reduce the uncertainty in the market about our financial performance. And the corona crisis, often, people then try to compare with previous crises. But of course, the corona crisis is, I would say, different crisis from previous crises and is definitely also affecting us in a different way. The isolation reduces movement in societies and therefore, also reduces the use of our products. We have seen it also on the service side, where also our service was affected -- our service business was affected in a negative way as our customers don't want our technicians to come on-site because they have, of course, afraid that our technicians might be infected by the coronavirus. And I would say that's definitely also obvious for everything what is retail, B2C because they are the same thing. You don't want a locksmith to come to your home because you are afraid that, that person might also be affected by the coronavirus. But what I think that makes it also very different is, in this crisis, of course, in the first place that it's about trust. It's a trust issue. But, two, also, I mean I have seen that in many markets, when a country or a region goes in lockdown, our business really goes from 100%, day 1, to close to 0, the next day. We have seen that happening in markets like Spain, like France, like Italy, from one day to the next, business goes from 100 close to 0, and obviously, it takes some time then to adjust your cost structure to that reality. Whatsoever, we are confident that when these isolation measures are over that the normal business drivers of -- in our industry will return. But clearly, this corona crisis has resulted in a significant and very quick financial effect that I will try to summarize. You've seen that our sales increased with 3% to SEK 22.2 billion. That was an organic sales decrease of 3% versus the same quarter last year. Acquisitions were up 3%, and FX also helped 3%. On the organic growth side, the Americas increased with 1% on top of a very strong quarter last year. Organic growth in Global Technologies and in Entrance Systems was flat, 0%. EMEA decreased by 4%. And APAC was, of course, the most affected by a decrease of 34%, driven in the first place by China. We'll say that the decrease in APAC was, of course, over the whole quarter. The sale decline in EMEA came mainly in March, and mainly in the last 3 weeks of March. When we then look at our operating results, our operating profit was SEK 2.751 billion versus SEK 3.246 billion last year, a decrease of 15%, resulting in an EBIT margin of 12.4% versus 15.1% last year. We had, on group level, a dilution from merger and acquisitions of 30 basis points, where we want to note that we booked another EUR 2 million for integration cost for the agta record acquisition in the quarter. And then we also had a dilution of 30 basis points from FX. I would tell you, you should look at these results and make a difference between China and the rest of the world and a difference between February and March. If I start with China, of course, in January, we had Chinese New Year, a normal Chinese New Year month with results more or less in line with the Chinese New Year month last year. Then of course, in February, we had all the lockdown in China with all the operations closed. And I remember our discussions with many of you at that time when we had our investor rounds in New York, in London, in Paris, in Stockholm. All the questions were about how fast can you ramp up your operations again? How fast can you come back to normal from a supply chain perspective in the rest of the world? We have been working very hard on getting that supply chain up again because clearly, at that time, in the rest of the world, we were still very much in growth mode. As, obviously, the business in China itself, in February, was close to 0. Then in March, operations slowly started up again in China, first at low capacity and then slowly, yes, becoming more and more. But clearly, business in China in March also has still been on a very low level. So let's say in China, 2 things: operational challenges to get factories up and running again, and then the market, which has been completely weakest in Q1. Like I mentioned, in the rest of the world, it was slightly different. First 2 months, really preparing for an accelerated organic growth, ramping up our organization to support that faster growth. Challenges in February on the supply chain side, where obviously, disturbances in supply chain in China led to higher logistic costs, where we had to fly things to different parts in the world, where we often had to then ship half full containers rather than full containers. So increasing our logistic costs, but also increasing our operation cost in general because, obviously, we took the necessary managers -- measures in our different operations to prepare against this coronavirus and to keep our people safe. And then in, in March, mainly in EMEA in the first place, but then later, also in other parts of the world and towards the end of March, also in the U.S., then suddenly, this operation supply issue became a top line issue with the one country after the other closing itself down, starting with Italy, going over Spain, France, U.K., India, New Zealand, some countries in South America and so on, where literally from one day on the next, your top line would go from 100% to close to 0. Now if you look a little bit at our financial position, it's clear that we still have a strong financial position. We also generated a very solid operating cash flow in Q1, in line with the cash flow of Q1 a year ago. And in light of that, increased uncertainty in the market, we have also increased our cash position. As a matter of fact, it has more than tripled at the end of March compared to December. And we have, of course, still different multiple sources of financing available, such as commercial paper markets, bank loans, export credits and so on. Just to mention one to show the financing that we have available, we still have a EUR 1.2 billion in an unrevolving credit facility available. So I would say our financial position is and stays strong. Now what have we done as a response to this COVID-19 crisis. Of course, in the first place, and that's our first priority is to preserve the health of our -- health and the safety of our own employees, also of our customers and our suppliers. We have introduced stringent health checks, safety measures in our operations and in our sales offices. And where possible, we have also encouraged employees to work from home. And then, of course, to address the situation, we have taken several cost measures that will become more visible, I would say, in the second quarter. In many places, we work with reduced working hours and therefore, reduce costs. We have temporary and permanent layoffs. We've put a travel ban in place and an hiring freeze in place. We delayed, I would say, all nonessential projects. Also to protect our cash flow, and we restricted, to a very strict minimum, all the consultancy engagement. And obviously, we are also renegotiating these engagements and renegotiating also contracts with suppliers. And I would say that our order of priorities in the first place, cash flow, then profitability and after that, only growth. An update on our operations. In China, our factories started to open again, like I mentioned, mid-February somewhere at low capacity and then slowly, gradually bringing that capacity back up to normal. And I would say that today, we are fully operational again in China. We have our factory in New Zealand closed because of government decision. We have seen disruptions in our operations in Australia, where we had a corona incident in one of our factories and had to close that factory for a couple of days. Obviously, we have seen operation issues in South Korea. And in Malaysia, where also government has closed down our factory for more than a week and where we are now only running at 40% capacity, that factory in Malaysia is a very important factory for HID. When we go to EMEA, we have factories -- all factories closed in Italy, in France, in Spain. And I would say the majority of our factories are also closed in the U.K., and we see also a significant reduced capacity in the most other European countries. North America, U.S., Canada has been up till end of March, affected to a very little amount. And as a matter of fact, all our factories are still operating in the U.S. In South America, we have factories and warehouses closed in Brazil, in Colombia and in Peru. So I would conclude that we are definitely in an extraordinary situation. I would say that the situation in Q1 was the toughest in EMEA, Europe, Middle East, Africa. But on the same time, I think it's also encouraging to see that now the activity level is increasing again in China from a low level. And that we are also expecting that, that activity level will slowly return to more normal levels in the coming months. I think it's also encouraging to see that there is at least some positive signs in markets in Europe that were affected first by the coronavirus, like a country like Italy, where now number of contaminations is going down by the stress on the medical system starts to reduce. Before opening now for questions, I would like to note that these are preliminary results, which means also that our answers cannot always be as complete because they -- these results only came out yesterday. We also want to note that we will not provide comments on Q2 and future. So we will not make future-looking statements. We will not give details on the below EBIT lines. And we'll also not further detail our cash flow or our balance sheet items. We will leave that -- keep that for our Q1 results call, which is scheduled for April 29. And on April 29, we will give you also the divisional bridges. So with that, I would give then back to the operator. We then can open for questions.

[Operator]

[Operator Instructions] And our first question comes from the line of Andreas Willi from JP Morgan.

[Andreas P. Willi, Head of the European Capital Goods]

The first question I have is what have you seen from distributor actions into the quarter end maybe and also during the peak of the crisis in China? And in China now that the business is returning to more normal, do you see a catch up effect? Do you see restocking or projects being accelerated again to complete? Or is it just returning to what it was before?

[Nico Delvaux]

Yes, I would say that there is not too many special effects. Of course, you see some distributors that, yes, before lockdown still quickly place an order, just to be sure that they are in line and are served first, once the lockdowns are done in those markets, for instance, in Europe, while you have that lockdown. But I would say on the sales side that has not been affecting the pattern. Also because, I would say, for the distributors, as for us, a lot of these lockdowns came suddenly. If you take, for instance, a country like France, it was not that the government announced 2 or 3 weeks in advance that they were going to close down the country and that the next day our factories were closed down. No, it really happened overnight. And so like I said, we went from 100% to close to 0%, and the same for our distributors. There was not so much time for them to anticipate. What we have seen a little bit is that in those markets that stayed longer open, for instance, a country like Sweden that the DIY channel functions slightly better because I guess people said, okay, we will also be the next ones to be locked down in our homes. So let's go and buy some DIY stuff that we can at least do some work in our house while we are stuck at home. Of course, in most countries, that was also not the case because again, lockdowns came suddenly. When it comes to China, like I mentioned, life is slowly coming back to normal, but activity levels, also in March and now beginning of April, are still very low. I think it will take some time before the machine starts running again. And we see that it will first come back on the B2B side, and most probably a little bit later on the B2C side because on the B2C side, that trust in other people plays, of course, more than on the B2B side, 1- and 2-year, if government invest and subsidize and makes initiatives, it's obviously more on the B2B side than on the B2C side.

[Operator]

Our next question comes from the line of Andre Kukhnin from Crédit Suisse.

[Andre Kukhnin, Mechanical Engineering Capital Goods Analyst]

I wanted to talk about operational gearing. Obviously, we've seen some pretty high drop-through rates in EMEA on the low decline that we had so far and appreciate there were supply chain issues there. On the other hand, in Asia Pac, I think it was more like 40%. So what I wanted to talk about, please, is in EMEA and Americas as we go into this period of lockdowns, given the more forward warning and the measures you're taking, should we be thinking about operational gearing that is better than Asia Pac?

[Nico Delvaux]

Yes. I think it's perhaps interesting for you indeed to make the comparison between the Americas and EMEA because if you look to the Americas result, and the volume leverage, I would say, you have 2 things: you have, of course, the only 1% organic growth, which is low -- too low to get normal volume leverage. But then, of course, you have the effect of the inefficiency of the operations/supply chain out of China for the Americas. But you don't have the cost effect of the sales drop that you also have in EMEA. So you only have 1 of the 2 items in the Americas division because the sales drop only started in the last week of March. So it didn't have a significant effect on the result of Americas. Whereas in EMEA, of course, you have the double effect. You have, on one side, the effect that we were ramping up for accelerated organic growth until, I would say, beginning of March. We are even increasing our cost structure to support that organic growth. Next to that, we had those operational issues, higher logistic costs out of China, higher cost to run our operations. But then, of course, you had a more important, I would say, then second effect then kicking in, in March, especially the last 3 weeks of March, where then the one country after the other locked down and where, again, business went from 100 to close to 0. And of course, it takes some time to adjust your cost. All the cost measures I mentioned, yes, they started already in Q1. But with the delay versus the sales drop. And you will only see that full extent of those cost measures we have taken now going into Q2. That being said, obviously, Q2 will also be a very tough quarter from a top line perspective in the world in general, definitely in EMEA and also in the U.S. If you see where we start from beginning of April with many countries in lockdown in EMEA, and also the situation in the U.S., definitely getting worse before it gets better. The situation is really changing day after day, and day after day, we are taking extra measures also to cope with the new situation. You see that also every day countries, on an individual base, come with new initiatives to support their industries. And we, of course, evaluate all those support initiatives from those local governments and then take advantage of them there and where we consider that they are beneficial for us.

[Andre Kukhnin, Mechanical Engineering Capital Goods Analyst]

And if I may just follow-up. On the China situation in the last couple of weeks, you said we're still running at a reduced level. Could you quantify that at all compared to pre-COVID, are we kind of just roughly at half of the level or 3/4 or...?

[Nico Delvaux]

Yes. I would say we're only starting to see the pickup the last 2 weeks. I mean you also see on television that the people start to come out since a week or 2. So it's, I think, too early to really say on what level is it coming now. It's clear that in the first quarter, China was of very significant value. And of course, from that side, very low level, we see some improvement, but definitely not -- it's still far away from a normal level, so to speak. And I think it will take definitely a couple of months, most probably a little bit longer before we will be back to more normal levels in China.

[Operator]

Our next question comes from the line of Mattias Holmberg from DNB Markets.

[Mattias Holmberg, Analyst]

You've mentioned a number of countries where you've seen essentially demand drop from 100 to 0 from one day to another. And I understand that, that has some implications. Could you elaborate a bit on a hypothetical scenario, if you would have had some foresight into this happening? Or say that the slowdown would have been more dragged out, so that you would have more time to appropriately adjust your cost base to the changing circumstances? How much better in terms of cost control, do you think that Q1 could have been in that case?

[Nico Delvaux]

Of course, it's always difficult to speculate on hypothetical cases. But I know that you and we, of course, we look at previous crises to learn a little bit about this one. And like I mentioned in my introduction, we believe this one is different, definitely different than the financial crisis. But again the financial crisis is the best one we can compare with. There is a couple of differences with the financial crisis that once started in the U.S., and U.S. is, of course, the easiest market to adjust quickly your cost to a new reality. And of course, it was -- you saw that coming, you could anticipate things and the market was gradually going down. Again, here, it started in Europe, also from a, for instance, union perspective, country perspective and so on, difficult countries like France, Spain. And again, it came sudden from one day on the next day. So you could not really see it coming, and therefore, you cannot really anticipate it. That being said, I think it's just a timing issue. If it comes slow, we have a little bit more time to anticipate, and short term, we will not have the same effect like we have seen now, for instance, in EMEA. After some time, going into Q2 now, if you're in this, you will see that there is no difference because by the time we go in Q2, we have been -- we will be able to have taken all those cost measures and those cost savings will start to kick in.

[Mattias Holmberg, Analyst]

And just one quick follow-up. Do you think of the demand that you're losing now as there will be any pent-up demand coming to you later on? Or is this business sort of lost permanently?

[Nico Delvaux]

I guess it depends a little bit from business to business. I compare a little bit like you're building your house and your plumber is 2 weeks late or 3 weeks late. Most probably those 3 weeks are lost to a certain extent, in a sense that, yes, you can work a little bit harder and then recuperate some of it, that you will see for those construction projects that are ongoing. Once people can go back to work, they will do some overtime and you will recover some of that. You will have, of course, in several countries sign, in the first place, initiatives of the government to stimulate business, stimulate demand. And then construction is an obvious one, so that might generate extra business. If you look on the consumer side, of course, people, again, will not replace perhaps their digital door locks today because they say it's too risky to have somebody coming to my house to do that. They will just postpone that, and that to a certain extent, will come back later. Definitely, the whole lock up will also, I believe, generate more online sales in the future because people that are now forced to use online, will see that it's not such a bad thing. And they will continue to do online buying, also tomorrow when they go back to work. And then obviously, we have solutions that can help them with this home deliveries and so on. So yes, there is, part of that business is going to come back. There is also some new business opportunities, but it's clear that the part of it is also lost. I mean if you decide to lock down construction works for 3 or 4 weeks, big part of that, you will not be able to recuperate.

[Operator]

Our next question comes from the line of Guillermo Peigneux from UBS.

[Guillermo Peigneux-Lojo]

Guillermo Peigneux from UBS. I have a few follow-ups, actually. First, I wanted to ask whether you can share with us how much of your production has been curtailed or actually shut fully in -- per region, I guess, Americas and EMEA? And then, I stand back and I'll ask the second question after you finish.

[Nico Delvaux]

So yes, but I didn't get the second question. The first one was on how much capacity of production is. And the second one?

[Guillermo Peigneux-Lojo]

No, the second part is that I wait for you to finish and then I am going to ask the question.

[Nico Delvaux]

Okay. To be honest, I didn't really calculate percent per division or percent per region because you know we are very decentralized. We have more than 90 factories around the world, and we really have that decentralized approach. But if you take the big -- and surely, we have this ambition to produce locally for the local market. But if you take a little bit the big markets, like I mentioned, North America as well, Canada, as U.S., factories are open. So far, no or very little disturbance. Of course, we take more measures. We measure the temperatures of people. We segregate a little bit the compartments and to reduce risk for contamination and so on. But they are working on a more or less normal level. If you go to South America, like I mentioned, we have Brazil now, which is -- factories closed down since 2 weeks. And we have the same thing in a couple of smaller countries in South America, like Peru. But the big one, obviously, is Brazil and Mexico. Mexico is still open, Brazil, closed. If you go to Europe, if you take the big markets, Scandinavia is still open. You know that Sweden also had a rather liberal approach to coronavirus, where perhaps Norwegian and Denmark has a much more stringent approach. But factory is open. I would say there, the biggest challenge is that we have high sick leaves. We have a lot of people that are sick, not coming to work. And that affects, of course, a little bit the operations in Scandinavia. The rest of Europe, U.K. is closed now since a week, our factories, Spain since 3 weeks, France since -- same thing, and then Italy, of course, the longest one, Italy was beginning of March and already closed. East Europe is still -- factories up and running. If we go then to APAC, India is on a complete lockdown since 2 weeks. New Zealand, like I mentioned, is closed. Australia, like I mentioned, we had a couple of days to close because of the corona incident, but they are up and running again now. And then if we take China -- sorry, Malaysia, important for HID, factory in Malaysia, only at 40% capacity and was down for the week. In China, everything and also suppliers back up close to 100%, definitely on the capacity that we need. In China, we had, of course, challenges in Q1 also for Global Solutions because they have a big important factory in Shanghai that makes all the locks for marine, cruise ships and for hotel business that was affected mainly February and where it took some time to ramp up again in March. Also, Entrance's Systems has 3 factories in China that affected Entrance Systems in a negative way, February, March, but there they're also up and running again. So I would say supply chain in China is back to normal today.

[Guillermo Peigneux-Lojo]

Okay. Nico, and then when I think about Q2, and I guess, it's more from your perspective rather than precise numbers. Given the fact that demand, as you said, is not there, how likely it is that you can continue to decrease your working capital, i.e. I guess you still can't collect receivables, but what is the relationship between receivables and payables? And then second to that, are finished goods inventories are still moving in Europe, Americas?

[Nico Delvaux]

The last point, can you repeat that, Guillermo?

[Guillermo Peigneux-Lojo]

Yes, finished goods, whether you can actually still get rid of or not get rid of, but just basically decrease your finished goods inventories in Americas and EMEA?

[Nico Delvaux]

Yes. Like I mentioned at the beginning of the call, we prefer to comment on the balance sheet items in our Q1 call in 2 weeks from now. But if you take again the countries that are locked down, like France or Italy or Spain, obviously, the moment they are locked down, your business goes close to 0. So you have your stock there and nothing happens. It's only when the markets open it up again, that you will be able to sell your stock. The good thing is, of course, also when, in a lockdown, there is also nothing coming in. So it's a little bit of a stable situation. We are confident that we can continue to manage our stock in a good way, we have good monitoring tools. If you look at the other 2 items, of course, we are also negotiating with our suppliers to see how we can do something on our payment terms towards our suppliers. But it's fair to say also that we get similar requests from our customers, of course, because some of them also have challenges. We try to keep and stay rather stringent on the receivable side. Also in that sense, that every time when there is a sales opportunity, we look first at the outstanding with that customer. And if we have overdue situations, we will insist that, that overdue situation is solved before we create extra sales and increase the risk. Then of course, we have bigger customers where there are partners of us, and we have to see it together with them how we can get through this together. But I would say, in general, we are rather stringent or very stringent on the receivable side.

[Guillermo Peigneux-Lojo]

And my last one, and sorry to adventure on this one. I don't know if you already mentioned it, I'm sorry, if you did. But can you give us any kind of approximation of the cost savings that you will be achieving to some extent? Or is it too early to say?

[Nico Delvaux]

It's still too early also because it's a moving target. Again, things are changing day by day. And therefore, also our cost measures are changing day by day. Every day, you see governments coming with new support incentives, one. And two, it depends, of course, also on how long those different markets will be locked down or start to lock down. If you take Europe, how long will -- when will Italy open again, when will Spain open again. If you take the U.S., where it is very scattered, some states and some cities have -- especially Chicago has decided one day to the next, we stop all construction sites, all the people go home. How long will that take? We don't know, of course. And -- because once it open up, we have to be sure that we can be there again and grasp that business. But in the meantime, of course, we have to make sure that we keep our costs under control. So far, we have in the first place, focused on short-term cost measures, so to take costs out today and tomorrow. But next to that, we have also worked on some more permanent, long-term sustainable cost measures. So we also have done some permanent layoff of people because, obviously, we also want to lower our long run cost range because we got it from the assumption that this definitely will last till summer, but then also in the second half of the year, there will be only a recovery to a certain extent. I think it's fair to say that nobody knows. So you have to make assumptions. But we have not made the assumption that it will be overcompensated immediately. We said, let's be better on the conservative side when it comes to costs. And then we can see afterwards, how the business evolves and how the market evolves.

[Erik Pieder, Executive VP & CFO]

But perhaps just -- and again, as Nico was saying initially, I mean, our first priority is cash flow, second, profit and third is top line. And that also comes back a bit when you have the questions regarding the working capital.

[Operator]

Our next question comes from the line of Lucie Carrier from Morgan Stanley.

[Lucie Anne Lise Carrier, Executive Director]

A couple of follow-ups. The first one is around your conversation with your customers. Whether this is the distributors, whether this is property developers, real estate companies, have you already kind of drawn scenario or look at what had happened during the great financial crisis or had discussion around, what I would call, the continuity or the sustainability of their business for some of them? Because when we think about potential pickup and discussion around stimulus and so on, are you seeing or already assessing the risk that possibly that pickup could be impacted by the fact that some companies, some of your customers might actually be going out of business or some of the customers, especially on the residential side, might have a much lower income? The reason I'm mentioning this is if we look at 2010, the pickup was good, but it was not as significant as an abnormal year, I would say, from a growth standpoint. So can you maybe indicate if you're already kind of thinking about that type of scenario or have had that type of conversation with some of your customer on how they see their future?

[Nico Delvaux]

Yes. And perhaps I can start and then Erik can add. But of course, there is going to be customers of ours that will be affected by this crisis and there might be customers that will no longer exist going forward. What is good, I think, with us is that we have a very wide spectrum of customers in different industries because we have different channels to market, one. And two, we don't have really those 2, 3 big customers that we rely on, we have kind of many, many, many smaller customers. So it's not that we are at risk that if that 1 or 2 company comes in problem that we will come in problem, we are leveraged by the number of customers we have and by the variety, diversity of our customer base. But Erik, feel free to add.

[Erik Pieder, Executive VP & CFO]

No. But I think -- I mean, of course, we also sort of checked this and compare what happened in the last crisis. And I think it's also that we -- now when we sell, of course, we sort of make an additional, let's say, credit control to just to make sure that we will get paid for what we sell.

[Lucie Anne Lise Carrier, Executive Director]

And my second question...

[Nico Delvaux]

No, I just want to say, I mean, it's clear if you take, for instance, Global Solutions, they have customers in the marine sector, cruise ships. We have customers in hotel business. Of course, those industries are affected in an important way on the short term. So we will see how that evolves. But again, that's a smaller part of our total business, and that is true for every vertical, for every segment. Go ahead with your second question, Lucie.

[Lucie Anne Lise Carrier, Executive Director]

Just a second question, if we could maybe go back briefly to the drop in margin in EMEA and Global Technologies, are you able to aside the fact that the activity, of course, will start from one day to the other? When you think about either the country mix, or the product mix in those divisions, is there anything notable that dropped maybe more than expected or generated that significant decrease in the profitability? Because one element that surprised me a little bit on EMEA is, for the moment, it seems Scandinavia is maybe a bit less affected than other parts of Europe. And that tends to be -- or historically tended to be a relatively high-margin business for you. So just maybe trying to understand a little bit more the mix in EMEA and Global Tech that has led to that type of contraction.

[Erik Pieder, Executive VP & CFO]

No. But I -- of course, Lucie, you should remember that -- and as Nico mentioned that, of course, that we were, let's say, we were geared up for growth in both EMEA and Global Technologies. And until sort of, let's say, mid-March, when we then saw that, yes, it's pretty hard on the demand. So that's why -- I mean, as we said before, of course, we have had a higher impact, I think, in Q2 -- Q1, sorry, than what we will have in Q2, where, let's say, we will then be able to come back with all the cost measures that we have discussed before. I think, as you said there, Scandinavia, of course, you have still an impact of both in Denmark and in Norway, which is, of course, more locked down than I would say than what Sweden is.

[Lucie Anne Lise Carrier, Executive Director]

And maybe my last question...

[Nico Delvaux]

And if you take on special items, there were no real special items in EMEA nor in Global Technologies. With that footnote that in EMEA, we had 60 basis points negative effect of currency, which is important, of course. And in Global Technologies, we had 120 basis points dilution from acquisitions because in Global Technologies, we also bought a company called Biosite for Global Solutions, and that was the first month that they came in, and we had, of course, also the transaction and integration cost for that business.

[Lucie Anne Lise Carrier, Executive Director]

And maybe a quick one. Slightly more positive. I mean, the Americas, as you rightly pointed, was very resilient, both on top line and margin despite the comp. Can you maybe just give us bits and pieces around which part of America was -- had actually performed quite well, whether there was U.S. resi or South America, just so we can understand the overall picture as we exit the first quarter?

[Nico Delvaux]

Yes, it was very similar to previous quarters. We had still have seen a strong U.S. and a strong North America in general. Again, I would say, hit, despite the very difficult comparison with last year because last year, Americas had a growth of almost 15% in the quarter. So it was 2% initial growth, on 15% growth last year that is without Perimeter Security that moved, obviously, to Entrance Systems. But it's a very similar picture, strong North America, more on the B2B side than on the B2C side, where again, also the Smart Residential comparison was still very difficult compared to last year, as we also mentioned in previous calls. It's only the last week that we started to see some decline and effect from cities and states closing down. So we can go to the next question then.

[Operator]

Our next question comes from the line of Gael de-Bray from Deutsche Bank.

[Gael de-Bray]

I have 2 quick questions, please. The first one is about the -- trying to get a sense of how things are trending at the moment. So perhaps could you give us any color on the pace of revenue decline in the final week of March, in particular in Europe? And the second question is about the EBIT bridge in the EMEA region. Again, I think when we met in London at the end of February, I think you mentioned there were obviously some supply chain challenges in getting things like plate and nickel and so on. But that overall, the export from China into Europe, were not affected that much with only slightly higher logistic costs. So the question is, can you help me better understand the EBIT bridge in Europe? I mean what proportion of the EBIT decrease came from the negative impact from supply challenges? And how much came from the ramp-up of cost for growth that you've mentioned?

[Nico Delvaux]

So if I take the first question and perhaps Erik can elaborate on the second. But if we take the first question, we have seen till first week of March, I would say, business as normal in EMEA with good acceleration of our growth. And like we mentioned early, we were in that acceleration of growth phase and also investing. And then it's really in March that things started to go down, country after country, starting with Italy, France, Spain, U.K. and so on. And if you look at the negative organic growth that we have in EMEA, that is really coming only from, I would say, the last 2, 3 weeks. So yes, in the second half of March, we have seen a strong double-digit negative organic growth in EMEA. Again, because several markets in EMEA went from 100 to close to 0. And then perhaps, Erik, if you want to comment?

[Erik Pieder, Executive VP & CFO]

Yes. Again, I think your question was more related to, let's say, the bridge components. And we will not, let's say, give the details. But of course, one thing to mention is also that you will -- that we have a currency effect, of course, within EMEA. So that you also need to consider when you look on the results.

[Gael de-Bray]

I guess the question, I was trying to understand whether the supply chain challenges truly explained the mix on the margin side in Europe in Q1 are not that much. And actually, the mix is more in relation to the hope you had at the beginning of the quarter, that growth was about to accelerate in Europe. And then you obviously put a lot of additional cost to get prepared for that, and that did not really happen. I'm just trying to get a sense of roughly the impact of those elements here.

[Nico Delvaux]

Perhaps I can try to clarify a little bit, Gael. I would say that the second effect, the sales drop and the fact that there is a delay in adjusting the costs to the sales drop that happened in the last 2, 3 weeks of March, it's more significant than the operational cost. But of course, you should not underestimate the cost on the operations because EMEA buys from our own factories in China, but they have also suppliers in China of finished products, I would say, on the lower ends of the product change for EMEA, and also for markets like Africa, Middle East and so on. But they also buy a lot of components in China that they then assemble in their own operations factories in EMEA itself. And there has been disturbance in our own factories, but there has clearly been also a lot of disturbance in the supply chain coming out of China, which led on one side to higher logistic cost, flying things rather than bringing things by boats, a lot of half full containers rather than full containers. And post-logistic costs, in general, as such, has -- have increased in that time coming out of China. But then also that disturbs, of course, your operations in your own factories because if you don't have those parts coming in, you have to reschedule, and that all leads to some kind of inefficiency that we have seen in EMEA in our different factories in the Q1. Again, that effect is over now because China came back to normal level. But that had an effect in Q1, a most -- but more important effect than you think of, if you just look at logistics because it's also in the operational efficiency as such. And thus, we move to the next question.

[Operator]

Our next question comes from the line of Andreas Koski from Nordea.

[Andreas Juhani Koski, Analyst]

A couple of quick questions from me. Firstly, could you please quantify what the cost savings activities you have initiated will bring? And how much of that do you think will be structural and stick when demand comes back?

[Erik Pieder, Executive VP & CFO]

I mean Andreas, we certainly said before that we wouldn't quantify. But of course, we do significant changes. And as Nico said before, I mean, some of them is short term, and also some of them were also now we're looking on are more long-term initiatives, but they are significant.

[Andreas Juhani Koski, Analyst]

Okay. So what kind of margin impact do you estimate the supply chain issues and extra operating costs had in Q1? And do you think that cost increase will impact Q2 to the same extent?

[Nico Delvaux]

Like I mentioned before with Gael, these operation issues and the logistic costs out of China were for Q1. I mean they are not a challenge in Q2 because our factories and our supply chain in China is up and running again. It's going to be more of a challenge when we -- when and if we open up again the different markets like Spain, France, Italy. How is that going to work? How gradually is that going to work? And how do we make sure that we keep our factories and our operations then, let's call it, corona-free. But the issue that I mentioned from China, that I don't see as an issue in Q2. It's more then the operations themselves in the different countries.

[Andreas Juhani Koski, Analyst]

Okay. And what do you expect the estimated margin impact in Q1 from that? Do you have an estimate?

[Nico Delvaux]

Yes, we have, of course, internal estimates and internal calculations, but we prefer not to go into those details.

[Andreas Juhani Koski, Analyst]

Okay. Understood. And then you said that you think it will take a couple of months or maybe even longer to be back to normal levels in China when it comes to demand. Do you think that will be the case also for other regions when they start to come back, that it will take several months before they are back to normal?

[Nico Delvaux]

Yes. I don't want to speculate because my honest answer is that I don't know. And we, of course, would like to have an answer on that question. Like all of us would like to have an answer on that question. And most probably nobody knows, we can only make assumptions. What we have said in our organization is we have to make sure that we are agile enough to react fast when it goes up, but we have to be agile enough to further cut costs if needed as well. And again, we also said to be on the safe side, let's have a conservative approach longer-term and let's make sure that we can lower also our longer-term cost -- overall cost level to a lower level to be more on the safe side.

[Andreas Juhani Koski, Analyst]

Okay. And then finally, you mentioned that you have seen strong double-digit negative organic growth in EMEA at the end of Q1. Are you seeing the same kind of impact also for Entrance Systems, Americas and Global Tech at the end of Q1? Or are they very much better?

[Nico Delvaux]

So Global Tech trend is around 16% in Asia. But then the rest is divided between Europe and Americas. Global -- Entrance Systems, the same thing. They have an important business in Europe and Americas. And I would say, for all the divisions, you have seen the same thing in Q1. In Q1, business in North America has been very little affected topline-wise by corona. It's only the last week of March that the U.S., different states, countries -- cities started to take actions and locked down and forbid construction sites, but that was too small to have an effect or a significant effect on our business in Q1. In EMEA, it's the same story for Global Technologies and for Entrance Systems, as I explained for the EMEA division because they are in the same countries. I mean if France is locked down for the EMEA division, obviously, they are also locked down for HID Global Solutions and Entrance Systems. In the result of Entrance Systems, we should, of course, take into account that we have now also Perimeter Security in that division, so the fencing business from the U.S., and they had a very weak start of the year, last year. They had a better start this year. So that helped them also a little bit on their organic growth rate for Entrance Systems.

[Operator]

Our next question comes from the line of Rizk Maidi from Jefferies.

[Rizk Maidi, Equity Analyst]

Just a quick follow-up. It's just on the last one and how we think about the decline in Americas in the last week of March or perhaps the beginning of April. I understand you don't want to give any guidance for Q2. But it would be helpful to get your thoughts on how the pace of the decline should be there. So strong double-digit in -- decline in EMEA, should we assume low double-digit in Americas in the last week of March?

[Nico Delvaux]

Like I mentioned, the decline in the U.S. have been not significant to mention it as an important reason in Q1. That obviously will be, again, different in Q2. To what extent? We also don't know because, again, also in the U.S., things are changing every day. What we do, we look at similar KPIs in it, just as you can look at, I mean there is very nice websites for the U.S., where you can see the number of construction sites that are on hold, that are delayed, that are shut down. You will be able to see that in some parts of the U.S., there is up to 80%, 90% that is shut down or delayed. And there is other parts in the U.S. that are still 70%, 80% open. But we have seen that delay going -- or becoming worse day after day, week after week. In the U.S., again, it will depend on how fast they will react against the peak in the different regions when it comes to coronavirus. Most probably the U.S. by the nature of the economy and the nature, the nation is built, I would say, perhaps people will go faster back to work than in some European countries. But again, that remains to be seen how coronavirus evolves in the U.S.

[Rizk Maidi, Equity Analyst]

Okay. Good stuff. And then secondly, on the shape of recovery or perhaps the resilience of what you call the aftermarket business, which is 2/3 of your business or what we should perhaps call, replacement demand. I was kind of surprised to hear you're not seeing that kind of coming back or see some demand destruction there. I mean just on that replacement demand, which is 2/3 of your business, how much of that do you think -- again, it's a very difficult question to answer, but how much of that is sticky? And how much of that do you think will come back when things come back to normal?

[Nico Delvaux]

Yes, it's a difficult question. But if I try to break it up a little bit, and if I take the pure service business, so the man in the van, mainly in Entrance Systems, service technicians go and do repairs, maintenance, preventive maintenance on industrial doors, pedestrian doors and so on. Of course, those doors need maintenance today and they don't need maintenance tomorrow, so you can postpone that. And it's true, if a retail shop is closed for 3 weeks, okay, those 3 weeks ago, we're not open or close, it will need less maintenance, but that maintenance will come back. So sooner than later, people have to ask us again to come and do that maintenance on those doors. Those breakdowns, repairs on those doors because the forklift drives into the door, that will continue, once people come back to work and activity in the factories starts again. We are also looking in ways that we can show that our technicians are, let's say, in a good health to lower also the barrier for our customers to let our technicians on site. There's also some upside because there is, of course, industries that are working now faster than before, everything that has to do with medical, everything that has to do with food, and we sell of course, also doors in those industries. So once business comes back, once market will open up again, this will come back to normal levels, and you will even be able to compensate part of what you lose now in the downturn. If you take some of our recurring revenue, if you take into the hotel business, obviously, if there is no customers in a hotel, they will not need cards to get into their room. And therefore, those card business is not there today, and it will only come back when customers go back to hotels. If you then take the, the more, I would say, replacement aftermarket type of business, a door handle is broken or a cylinder needs an upgrade, same thing there, you can postpone that for a while. But at a certain moment, even if a door handle is broken, you have to replace it. It's just a delay, but that business will come back once the markets come back to a more normal level.

[Rizk Maidi, Equity Analyst]

Understood. And then finally, just to finish on a positive note. Do you see any positives out of this, i.e., people using less handles, more electrification of doors or doors -- the automatic doors, et cetera? How is the portfolio today positioned to serve this demand?

[Nico Delvaux]

Yes. I mentioned, I think earlier, for instance, in home delivery, a lot of people that are now locked down in their homes, they use much more home delivery than before. They will see that this is a nice concept. And they want most probably to continue to that tomorrow also when they go back to work. And then they are not at home, so then they need other technical solutions. And we have, of course, those technical solutions with our digital door locks to make sure that you can deliver in home when the person is really not there, as one example. For sure, to a certain extent, this will further accelerate the whole shift from mechanical to electromechanical and digital, as well on the residential side, on the commercial side because in those electromechanical and digital solutions, you have also much more automated solutions, sliding doors that open, swiping doors that open that you don't have to touch them because that all helps in the world we live in today. So fortunately, I would say, this represents a good business opportunity for us. And as one of the leaders in our industry and also definitely on the move from mechanical, electromechanical and digital, where we also believe we sit in the driver seat, this will represent a good opportunity for us going forward. So perhaps we take one more question because we are now over the hour. So if you could take the last question perhaps.

[Operator]

Our last question is from Lars Brorson from Barclays.

[Lars Wauvert Brorson, Director]

I had 2 quick ones, if I could. Maybe just to following up on the replacement question, I thought that was an interesting one, Nico. I mean if you look at your core locks replacement business or take out your services in ES and your hotels access solutions business, I guess, one of the core or unique dynamics about this downturn is sort of the stay-at-home impact on your replacement business, i.e., less break ins, et cetera, which tends to be a key driver of replacement. I guess my question is, is there any evidence as you've seen it so far in March in some of the European market that, that business, i.e., the replacement business, the core locks replacement business has fared better than the new build business?

[Nico Delvaux]

At least, I'm not aware of that, but perhaps is there, but I'm not aware of that. I think it's a little bit too early to see that. I would also say that if you look over the lifetime of the hardware that we have, where you take about the entire lifetime of, whatever, 10 years, being locked down for 2, 3, 4 weeks, a month, of course, is a very small time over the lifetime to see this kind of effect. So I would not overestimate what you say there in the bigger perspective. The trust issue on the residential side that as people are afraid that a lot of people have corona that they try to avoid to let other people come to their home on the residential side. And to a certain extent, the same on the commercial side, we see that people limited more to essential interventions. And I would say once the people go back to a restaurant, most probably, they have enough trust to sit close to strangers. And that perhaps also when they have the trust to let a stranger into their house to replace the door handle or whatever. So it will take a little bit of time, but that business is not -- it's not lost, that will come back.

[Lars Wauvert Brorson, Director]

That's helpful color. Can I squeeze in just one quick one, just on your -- any one-offs, it wasn't clear to me, I was a bit late in the call. Did you say there was a EUR 200 million charge for M&A in the quarter. Where did that come divisionally? If that's the case. And just to be clear, was there or wasn't there any one-off items in Q1?

[Nico Delvaux]

Yes. What I said is that a onetime item, if you can call it so, is that we booked EUR 2 million for additional acquisition integration costs for agta record. You will remember that we said at a different quarterly call that we booked higher cost for agta record. We booked more or less half of it last year, depending on when we close it now, finally, we have still some costs to go. And the cost in the quarter for agta record was EUR 2 million. Good. Then I think we can call it a meeting. Thank you for calling in. Thank you for all the interesting questions. And then we, of course, look forward to speak to you again after our announcement of the full complete Q1 report on April 29. Thank you, and have a good day.

[Erik Pieder, Executive VP & CFO]

Thank you. Bye-bye.

[Operator]

This now concludes today's conference call. Thank you all for attending, and you may now disconnect your lines.