ASSA ABLOY AB (publ) (ASSAB) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to the presentation of ASSA ABLOY's year-end report 2020. My name is Björn Tibell. I'm heading Investor Relations. And joining me from their home offices are ASSA ABLOY's CEO, Nico Delvaux; and our CFO, Erik Pieder. We have set aside about 1 hour for this conference, and we will now start with a summary of the Q4 report before we open up for your questions. So with that, I would like to hand over to you, Nico.

Thank you, Bjorn, and also good morning from my side. And yes, unfortunately, we have to do this call again from our home office, which, yes, as we all know, shows again that COVID-19 is not over yet. But we can present you a good Q4, definitely, if we take COVID-19 into account, a quarter with strong operational execution, the quarter in which organic sales declined with 5%, but we compensated that organic sales decline by a strong growth to acquisitions of plus 5%. If we look on the organic sales side, flat sales in EMEA and in Entrance Systems, but then declining organic sales in the other divisions. And then a solid EBIT margin in the quarter of 16.1% if we exclude acquisitions and divestments. We have, of course, agta record that came in and that diluted in the quarter with 40 basis points, but we also had a divestment of Gardesa, a residential door business in Italy, where we took goodwill cost and other related costs in the quarter of SEK 185 million. And that divestment diluted the EBIT result with 80 basis points. A very good continued cost reductions with a net cost reduction in the quarter of around SEK 500 million. We launched a new MFP program, MFP 8, and we are already executing on the first projects and start to see the first results there. And then definitely another quarter where the cash flow was the highlight. Very strong record cash flow in the quarter, 6% up versus last year, also a record cash flow for the full year. If we now look into the figures, sales of SEK 23.3 billion, 7% down. Like I mentioned, 5% drop organic, but compensated by 5% growth to acquisitions net. And then important negative effect of currency on the top line of 7%. And EBIT margin of 14.9%. But if we exclude Gardesa and acquisitions, like I mentioned, 16.1% versus 16.2% a year ago, and earnings per share of SEK 2.33, 7% down compared to the same quarter a year ago. If we then also look at the full year 2020, sales of almost SEK 88 million, 7% down compared to 2019, with an 8% negative organic growth. And that came, of course, mainly from Q2, where we had an organic decline of 18%, but good growth through acquisitions for the full year, plus 4% net and then a negative currency effect of 3%, and an EBIT margin of 13.6% versus 15.9% in 2019. If we then go back to Q4 and look a little bit into the different regions, and perhaps we start with North America, an organic growth of minus 5 on the same level as in Q3. But if we then zoom a little bit on the Americas division, we have seen a very strong residential with high double-digit growth for traditional residential and also for smart residential, where we have seen a continued more difficult commercial side with higher single-digit decline. Although I must say that in this quarter, and that's different from Q3, we have seen over the quarter, a slight gradual sequential improvement of our commercial business in the sense that it was right at the end of the quarter and at the beginning of the quarter, and that trend has now also continued in the first month of this year. So we are a bit more optimistic on the commercial side than we were perhaps 3 months ago. Then South America, minus 2%. But if you look only in the Americas division, it was a high -- very high single-digit number. We have very strong Brazil, very strong, Chile, but a very good overall performance. The reason why I chose here minus 2% is that we have difficult comparison with some project orders for global technologies in 2019. Then in Europe, minus 3%, where you could say that countries that were hit the hardest in Q2 by the very stringent lockdowns also recovered the most, and we are also here in contradiction with Q3. Now in Q4, we saw a small, gradual sequential improvement over the quarter and then also further confirm now in January. Australia and Europe, a stronger residential than commercial. And as we have a more mixed, more balanced exposure to residential commercial in Europe versus the U.S., of course, Europe profited more from that stronger momentum on the residential side. Africa, Middle East, minus 11%, mainly in the Middle East, we see that construction companies, projects, construction projects have difficulties to get executed. If you take for instance country like Saudi Arabia that has locked their borders or closed their borders, it's difficult to have people from India, people from Pakistan so to get into the country, and it's mainly those manpower that do construction projects in that part of the world. So delays there, also some challenges with financing of the project, so minus 11%. Australia, New Zealand, plus 1%, I think, a very good performance. Definitely, if we take into account that Australia, part of Australia was again in lockdown in Q4. But also here, you see a strong residential than commercial, and that's a little bit a general sense, I would say, with that the exception of China. And that brings us to Asia, where we have a minus 15%, where mainly India and Southeast Asia remain very deepest -- India and Southeast Asia are definitely the 2 countries -- regions that were hit the most and have still hit the most by COVID-19. We see Southeast Asia where many of the borders are still closed. It's the region that lives also off tourism. So very difficult business climate and the same is true for India. Whereas we have seen an incredible improvement in South Korea and are also a bit more optimistic now for South Korea going forward. And where in China, we still had a mid- single-digit decline. But then in China, definitely, on the strategy side, we are moving from the stability, profitability and are confident that we will now get back also into the [ Crossmatch ]. If we then go to some market highlights for the quarter. Also this quarter, several bigger project wins. I would just mention one, an important door hardware project for an airport in China. Also good to see here that also in this -- on this side, our new strategy, China starts to pay off. So very happy with that. Several new product launches in the quarter, automatic sliding door range with digital OLED signals incorporated in the door. That's a cooperation with some very nice high-end sliding doors. And then, of course, I would say, long-awaited New Yale Doorman for Scandinavia and great success, where our pre-relaunch at the end of last year, we were completely sold out, very good traction. And then, of course, it's good to see that also in this part, again, we get rewarded for all the innovation and R&D efforts we put in, in the organization. And it's good to see that, that work is recognized by experts in our industry. Sales growth. Yes, 4 quarters now with negative organic growth. But like I mentioned, it's very well compensated by growth through acquisitions in this quarter, offsetting each other. And then operating margin on a 12 months run rate of 13.5%. But in the quarter, if we adjust for acquisitions and mainly adjust for the divestment of Gardesa, we were at 16.1% in the quarter, so well within the bandwidth we aim for, again. Lower top line, lower margin, that, of course, also lower operating profit, 14% lower than the same quarter a year ago. On the acquisition side, still a good full active pipeline, the 4 acquisitions completed in the quarter, 12 acquisitions for the full year. Those acquisitions represent together an annualized sales of SEK 5.6 billion. And of course, we had some of these divestments we already mentioned. We have also got Adidas, together, they represent an annualized sales of SEK 1.6 billion. If we then go into the different divisions, a bit more in detail, starting with EMEA. I believe a very strong performance from EMEA in the quarter with an organic sales of minus 1%. We have strong sales growth in the U.K. and France and stable sales in Germany and in Scandinavia. An operating margin of 12.8%. Of course, that 12.8% includes the SEK 185 million capital loss and exit cost for the divestment of Gardesa. If you correct for that, EMEA would have been at 15.9% versus 16% last year. We have a very good volume leverage. We have continued savings and continued efficiency improvements in the division really lowering the cost base, 10 basis points dilution from FX. If we go to Americas, I mean, it was a very strong performance in this division, an organic sales decline of 4%, with very strong high double-digit sales growth for smart residential and traditional residential, and then high single-digit growth in Latin America. And still a more challenging situation with higher single-digit negative growth on the commercial side in the U.S. Operating margin of 20% on the same level as last year. We have a very strong volume leverage of 90 basis points. Also here, very good cost control in division. Very good savings. I would say despite a negative mix because we know that margins on the commercial side are higher than on the residential side, and margins in the U.S. are higher than in South America. 20 basis points dilution from FX and 70 basis points dilution from M&A, that's mainly an internal or only an internal thing. That's the move of Perimeter Security from Americas division to Entrance Systems. And then our third geographical division opening solutions, Asia Pacific, with an organic sales decline of 5%, with sales declining in all markets and with a high double-digit decline in India and in Southeast Asia. Operating margin of 8.2% on the same level as last year, also very good volume leverage of 40 basis points. We had our strategy for China continues to see results. Also in this quarter, our margins in China were more than double what they were the same quarter a year ago. That's not 3 or 4 quarters. That's -- we see that phenomenon. So really, China, we moved from that stability to profitability. Obviously, now the next step is to move also back into positive organic growth. And that's also one of the reasons why we have decided now to change the divisional setup for APAC. You might have seen that we have split the division into, I could say, subdivisions, 2 segments. One segment with Australia and New Zealand, Japan and Korea, we could say the more mature markets of APAC; and then another segment with China, Greater China and Southeast Asia, the more emerging part of division. I will be heading the overall division, but then we have put 2 new management teams in place that will run the 2 separate subsegments, 2 internal leaders. I think the next step after we came to that stability profitability phase. Now we need more fine-tuning and more dedicated strategy on one side for the emerging markets, on the other side, for the more mature markets. If we then go to global technologies, the division that is definitely still hit the most and the hardest by COVID-19, an organic sales decline of minus 17% for all business areas in HID, and a very strong sales decline also for Global Solutions. I don't have to tell you what's happening with the hotel business or the cruise ships. And of course, as people still are not going back to the office, they don't consume too many cars of credentials. So that also has a negative impact on our tax business in HID. As people don't travel, they don't have to renew their passport, so they don't lose their passports, also having a negative effect on our Citizen ID business in HID. I would say there's a double negative effect. It has a negative effect on top line, but it has also an important negative effect on our bottom line because obviously that aftermarket part of the business in Global Technologies is the most profitable part that we have -- that suffers by far the most. Operating margin of 16.4% versus 18.3% last year. So I think despite the very big drop on the top line, very good management of the division to cut cost and adapt the suit to the new reality, a negative volume leverage of 90 basis points and an important negative effect of FX of 70 basis points. That's mainly USD-SEK related. And then also M&A dilutive with 30 basis. And the FX, we are less optimistic than on the geographical divisions. It's clear that the negative effect of COVID-19 will continue to go on in this division. We really need people to come back to the office in the first place. And hopefully, confidently that it's going to happen soon. And then, of course, we need also people start to travel again to see the same positive effect on the hospitality business in Global Solutions. Entrance Systems and organic sales of minus 1%. Also very strong performance in this division with positive sales in all segments, except for Pedestrian, where the lockdowns had a negative effect on the sales. More positive mix towards equipment versus service, where on the service side, we have some challenges with the higher sick leave of our technicians, either because some of our technicians have COVID-19, but mainly because they have to go in quarantine because they have been in contact with people that tested positive on COVID-19. But the good news there, I guess, is that most of that business is, of course, not done. It's just a delay, just a backlog, and we will be able to execute on that service once the technicians come back up to full capacity. Operating margin of 15.8% versus 16.3% last year. Stable volume leverage than basis point dilution helped a little bit by currency, 20 basis points. And then M&A, mainly agta record on the dilutive side, 60 basis points. But good performance from the AM Group, which is also part of the acquisition column in Entrance Systems. So overall, very good performance also in this division. And with that I give the word to Erik for some more details on the financial numbers.

Thank you, Nico, and also from my side, a very good morning. The sales decreased with 7%, which you can see is equal to the FX difference that we have. So I mean, the negative organic sales of 5% is offset by the M&A activities that we have had. The operating income decreased in the quarter by 14%. But if you compare that to the 20% that we have for the full year, it shows that our cost efficiency actions that we have in place, that they are actually generating improvement. The operating margin, as you have seen before, was at 14.9%. But if you exclude acquisitions and divestments, and then in particular then Gardesa and agta record, our operating margin was just above the 16%. We had a record cash flow, which increased with 6% versus last year. And we also had a record high cash flow for the full year, which ended then on SEK 14.6 billion. This is driven by good execution on our working capital as well as lower CapEx and lower interest expenses. Finally, on this slide, you can see that the return on capital employed is down with 2% and ended at 15%, which is related to the lower earnings as well as higher capital employed. Nico mentioned before, the cost efficiency actions that we do, and we continue to implement that across the group in Q4. There was a headcount reduction in the quarter of 650 permanent reductions and during 2020, we have reduced the workforce permanently with about 5%. We have also good cost traction -- cost reduction tractions in other types such as the travel cost was down with 65%, but we can also see it in premises as well as other kind of -- other types. The net effect on the quarter was around SEK 500 million. We have also launched the eighth manufacturing footprint program now in Q4. The restructuring cost is close to SEK 1.4 billion, with an annual saving of about SEK 1 billion. This is slightly more than what we indicated in the Q3 report. The payback period for the eighth program is about 2 years. And we expect in 2021 that all manufacturing programs will generate a saving of about SEK 750 million. If we then go over to the bridge, you can see that we have a 6% lower volume, but we continue to have a benefit from the price. The operating leverage continues to improve, and now it was -- the flow-through was 14%, which is compared to the 26% that we had in Q3 shows that the operational efficiencies that we have implemented across the group yields results. And I think specifically, as was mentioned before by Nico, we had a good leverage in Americas as well as in APAC, where they actually can absorb their sales decline by lower cost. On the top line, as previously noted, the currency is down with 7%, but it has a very marginal effect, I would say, on the bottom line. The M&A, 5% plus on the top line, and it has a dilutive effect of 120 basis points. The divestment of Gardesa explains about 80 basis points, and then the remaining part is mostly driven by agta record. This is in line with the bandwidth that we have said before that where now in this has 40 basis points. And I just wanted to make a comment there that agta record is seasonally stronger in Q4 and that Q1 is the weakest quarter. If we then continue with the cost breakdown, the direct material decreased during the quarter with 40 basis points. We have a strong tailwind in APAC, and we also see improvements in EMEA as well as Entrance System. On Americas and Global Technologies, it is more or less on line than what we had in last year. What we have seen -- we see now, of course, that the raw material starts to increase. And it normally takes 1 to 2 quarter before it impacts our cost base. And of course, we are on high alert to offset this higher raw material cost with the actions that we have. The conversion cost was up with 10 basis points. And if the sales goes down, then you know that then the absolute cost continues to decrease and that we saw. So the gross margin increased with 30 basis points before acquisitions. On the SG&A, we continue to invest in R&D, but we see good savings in the sales and admin. And we can also see here sequential improvement from Q3, which is driven then by our cost measures. If we then go over to the cash flow. The cash flow was SEK 5.5 billion in the quarter, which is a record, and it's close to SEK 300 million higher than last year. It's driven by, as I said before, the strong execution that we have on our working capital, which was actually down with SEK 1.8 billion. But we also have lower interest expenses as well as lower CapEx. The cash conversion rate was very strong at 131% compared to the EBT. A comment there as well on our cash position. It came down a bit in Q4, but it's still high at SEK 2.8 billion. And looking ahead, we gradually try -- we will gradually normalize this one going further and should come back to previous levels that we've had before. On the gearing, the gearing level is down with 5% and ended at 51%. The net debt continued to decrease and is down with SEK 3.3 billion versus last year. It's, of course, contributed partially then to the strengthening of the Swedish krona, but we also had a strong operating cash flow, as we have alluded to before. The net debt versus EBITDA is at 1.9x, which is at the similar level as what there was last year. And this means that -- and I will continue to repeat that we still have strong enough balance sheet to continue our acquisition strategy. On the last slide for me is then the earnings per share, which decreased with 7% in Q4 to SEK 2.33 per share. I would also like to notice that the Board is proposing an increased dividend to SEK 3.90 per share which will be split in 2 equal payments this year. And with that said, I hand it back to you, Nico, for some final conclusions.

Thanks, Erik. So yes, I think, we can say it's a good quarter if we take COVID-19 pandemic into consideration. We have a strong operational execution in the quarter, an organic sales decline of 5%, compensated by good growth through acquisitions, net 5%; and operating margin of 16.1% if we exclude acquisitions and divestments. And then a record cash flow, up 6% versus last year, record cash flow also for the full year. But it's clear that COVID-19 continues to have a negative effect on our business. We continue to see also new lockdowns, new restrictions also in Maine, an important market in Europe. So far those restrictions are, of course, more of a social nature. So they definitely don't have the same very big negative effect that they had back in March -- in March and April last year, when countries really shut down completely. You see that governments really try to continue to keep the business going. So yes, it has a negative effect that it has much -- lower negative effect and -- back at the first wave of COVID-19. But nevertheless, therefore, we continue our strong focus on cost and cash flow remains a priority, while we also continue to invest in growth initiatives to bounce forward and to reaccelerate our organic growth again. We are convinced that our strong long-term growth drivers, that they remain valid. And therefore, also our financial targets remain unchanged. And like Erik said, the Board has then proposed a dividend of SEK 3.9 in 2 equal installments, 1 in May and 1 in November. And then we also want to remind you that we will have, unfortunately, also a virtual Capital Markets Day on May 26. And with that, I hand over back to Bjorn for the Q&A.

Thank you, Nico. And before I hand over to the operator, could I please remind you, as usual, to limit yourself to 1 question each and 1 follow-up to allow as many as possible to ask questions. Operator, this means that we are ready to kick off the Q&A session. Please go ahead.

[Operator Instructions] Our first question comes from the line of Alexander Virgo at Bank of America.

I trust everybody is safe and well. I wondered, Nico, can you talk a little bit about that some sequential development of demand through the quarters and maybe break that down a little bit for us between divisions. I think the conclusion, at least I've taken initially, is that both EMEA and the Americas saw strengthening through the quarter. I'm just wondering if you could give us an indication of what run rates that would imply in January [Audio Gap] continued on trend? And then maybe just dig a little bit into the same sort of dynamics around global tech and Entrance Systems.

[Audio Gap] Divisions, perhaps if I start with the more difficult one, Global Technologies as well HID as Global Solutions. We definitely haven't seen a sequential improvement in the quarter. It has stayed difficult to go out in the quarter and also at the start of this year. In a sense, also, if you see, nothing really has changed today compared to 3, 4 months ago. And if you take HID, they're, on one side, dependent on people going back to the office, when people go back to the office, they will use their cars, they will lose their cars, they will use the credentials, they were new credentials, things will start to break down. That is not the case yet. We are confident, as the vaccine is being rolled out, as confidence comes back because I think this -- and I want to remind, this is the first phase of trust issue. When trust comes back, that part of the business will come back. And I'm confident that, that will come back faster. Now we have, of course, in HID, the whole business related to traveling. The whole passport business. If people don't take the plane, then they don't need a new passport to renew or they don't lose the passport. And I think that will continue to suffer again until the vaccine is rolled out at a bigger scale. I guess, I hope I'm confident too, there's the summer because then people will start to travel again at least private, whereas most probably on the business side, travel regime will stay lower for quite some time also after the pandemic and most probably will not come back soon to the, let's say, 2019 levels, which means that the business on the hospitality side, in the first place, the hotel business, which is the biggest part for global solutions that will remain more difficult for longer. So there, on global technology, definitely no improvement, remains challenging. If we take Entrance Systems. Like I mentioned, we have seen a good momentum in 3 of the 4 segments. We have also a slight sequential improvement even. It has been more challenging on the Pedestrian side because, again, Pedestrian is more linked directly to some of the new lockdowns that we -- and new restrictions that we have seen mainly in Europe. If we then go to the 3 geographical divisions, and we start with Americas. I think South America has been running for us on a very high level. Of course, we were helped in 2020 also by the currency. Currency devaluation in many of the markets in South America meant that we could increase prices. To a high extent, that helped, of course, to boost the top line. But that was mainly in the beginning of the year. We see now that momentum continues. We don't see, of course, a further acceleration because I think a high single-digit growth in South America is already a big achievement and is definitely better than the market, but we don't see a slowdown of our activities in South America neither. We have continued to see high, like I mentioned, high double-digit growth on the residential side in North America. We haven't seen a sequential improvement there because it was -- and it stayed on a high level. My comment on the sequential improvement was on the commercial side. We definitely, throughout the quarter, if you compare beginning of the quarter, end of the quarter and now also in January, we have seen a slight improvement, and we are more optimistic now going forward for the commercial side than we were 3, 4 months ago. And the same is true in EMEA, I would say, in general, I mean, in EMEA, we have also seen that slight sequential improvement with a better end of the quarter and now January than the situation we went into that quarter. So in summary, I think -- sorry, and then we have APAC. I think situation in Indian and situation in Southeast Asia will, on the short term, remain very difficult because the lockdowns and so on and -- or COVID-related issues are still valid if you take South Asia, for instance, whereas, I believe, definitely in Greater China, we should now move from that stability profitability back into crowd. And when I mentioned also, we see a slightly better market momentum in South Korea. Market conditions are improving because our situation in the market is improving. I would then say as a summary, more optimistic on the 3 geographical divisions, still harder, low on Global Technologies.

Great. And I guess the follow-up then, just on that. So would it be fair to assume that Q1 in EMEA started as flat to positive, if it was minus 1% for the quarter? And how close to positive or 0 is the Americas, if it was minus 4% in the quarter?

I mean the minus 4% in the quarter, I said that we had a sequential improvement in the quarter, better at the end of the quarter, the beginning of the quarter. You can compare with what it was in Q3, and I said it was a slight sequential improvement. So I think you can put a figure for where we stand now in January Q1.

And our next question comes from the line of Daniela Costa at Goldman Sachs.

I'll ask 2 questions as well, but I'll start on the first one. On following up on raw materials, I guess, a few years ago, there was some difficulty in the U.S. in passing through steel price increases because of the way some of your competitors hedged. I just wanted to check how you think about that now and whether you think this time around, it will be easier from a competitive standpoint to fully pass through raw materials and see no impact on margin from the headwinds.

It's true that, I would say, in general, we have seen material prices go up significantly for raw materials, if you take zinc, copper, nickel, aluminum and definitely steel. You've seen it all around the world with, of course, the highest increase is for steel in the U.S., a bit more moderate in Europe because you have the euro-dollar exchange rate that helps. And I think also in Europe, there was not that much cut in capacity like it was in the U.S. for steel. And as a matter of fact, we have seen still going up in the U.S., again, 50% compared to a year ago, almost 25% over the last quarter. In general, we have always said that we like inflation, and we also like material inflation because we are in a mature market where it is possible to pass through those cost increases through price increases into the market. And we are confident that we can do that for most of our businesses 3 months ago, and we continue to do that as indexes continue to move. Like Erik said, it's indeed around 6 months between indexes going up or down and us seeing that in our financial statements. So we have a little bit of a buffer to anticipate we are in most markets, I would say, a strong market leaders. So it's also our goal to be a market leader when it comes to pricing increases. We have done that. We have seen that many of our colleagues in the market have followed and have done the same. So we are confident we will, to a big extent, be able to compensate for the material in cases, it remains to be seen, of course, how indexes further evolve. But it's clear that we will not see the tailwind anymore that we saw in 2020, where we had good positive difference between price versus material that is slowly fading out. And in Q4, it was already lower than in Q3. In Q1 this year, it will be much smaller, but we are confident that we can keep it on a neutral level.

Understood. And then I just wanted to ask you if you could help us with like the precise size of the smart locks business. Now I think in the past, you mentioned a figure of SEK 250 million a few times. But wondering if this year, like other home improvement categories, how fast the growth and how much bigger it is now and what you expect going forward?

We have -- I've said that it was a year ago, run rate of around SEK 2.5 billion. Today, it's on run rate of around SEK 3 billion.

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

I think I have 2 questions related to the cost savings program. I think you mentioned SEK 750 million total, I guess, SEK 500 million from manufacturing program #8 and then SEK 250 million additional incremental. I was wondering, given that at Q4, you are at 16.1%, roughly speaking, adjusted by the charges that you put out today, what this could mean that if you think about growth in the second half next year, and if you think about the savings on top, whether you could actually be overshooting a little bit of the margin temporarily in, let's say, obviously, I know it's very difficult, but I'm wondering whether this is just that scenario? And then second, the SEK 250 million, can you explain the nature of the savings? Are they going to be retained even if recovery in the market happens?

Yes. Perhaps I can start here. Erik can then feel free to add. Yes, of course, there is -- when we talk about margin, there is a lot of moving variants. I mean there is, of course, a divisional mix. There's a commercial residential mix. There is a new build after market mix. And of course, there is a fact that you can't take Q4, as the reference for the full year, as you know, we are very seasonal, and Q1 is very different from Q2, Q3 and Q4. And then like we mentioned, the whole tailwind on the direct material side that we will not experience any more for the full year of 2021 at least. All that being said, I mean, if top line stay where they are today, it's clear that we have to do more on the cost side to realize our ambition on the EBIT, as we are executing new projects, new savings are coming in. If you look a bit on the question, what is short term? What is long term? It's, of course, very difficult to define what is long term, what is short term. If I take something that is definitely long term it's the number of people, the number of fixed people. And if you see there and compare it to a year ago, we let go, unfortunately, I would say, almost 5% of our workforce. And that is, of course, is a permanent cost that is gone, and that helps us -- helped us to reduce our run rate cost level. But I would argue that also, some of the -- sorry, and we've also seen that a lot of the short term, the furloughs and so on are now translated into permanent layoffs and there are also permanent cost savings. But I would argue that also some of that, you could go more variable costs or more permanent. If you take, for instance, travel-related costs, they went down in the quarter, I believe, 60% you take for the full year, they're also down around that number. They will not come back to 100% even if the pandemic is completely over. Because obviously, we have seen that some of the things where we used to travel in the past, we can do it in a much more efficient way in a digital way. So part of those costs will also become more permanent cost -- cost savings.

And perhaps there just to add, Guillermo, the SEK 750 million that I talked about, that's purely for the manufacturing footprint programs. It's not only the eighth, but we also have the seventh, and there's a slight thing still left on the manufacturing footprint program 6. So then that's, let's say, for the manufacturing, then as -- then, of course, we do other things as well in order then to, let's say, [Audio Gap] this is a net. So of course, you have some, you can say, I mean, gross, it's higher than the SEK 500 million.

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

I was curious to know what you're seeing on the inventory side of things. We hear a lot about destocking in various industries, but also some challenges related to kind of freight inflation costs. So I was hoping whether you could give us some color.

Well, I think there's 2 things. Of course, when you do price increases, sometimes people will anticipate orders and depending on the lead time there for also sales. That has happened definitely also in Q4. But I would say that's a phenomena that always happens in Q4 because that's traditionally the moment in time we do the price increases. When it comes to stocking or destocking in the channel, I think in Europe, that is not an explanation for Q4. We definitely had that coming out of Q2 into Q3, where we then had the destocking after the first wave of the pandemic in Europe because they could not do destocking before. We still have a little bit of that, I would say, in the U.S., where people are -- where the channel to the market is still very hesitant. We see that also on the request for a very short delivery times. But they are not sure what is going to happen because it stays a very turbulent time and therefore, try to keep inventories done. And we have seen definitely a destocking in the channel in the U.S. over the last 6 months. But there the good news is also you can't continue to do that. And we are definitely, I think, on the point where we can't continue to do that.

And I guess my second question was to come back on the sequential improvement that you highlighted in commercial construction, I think, both in the U.S. and to some extent, in EMEA. I was hoping maybe you could give us which type of areas of commercial, you are seeing this improvement? And whether you are seeing actually some momentum in what I would call, the renovation business rather than replacement?

Yes. I think in Europe and in the U.S., I guess, it's very, very similar. I mean the drops that you see, I would say, are not related to new build or not related, to a big extent, to new build in the sense that if ABI index has gone down, new construction stocks go down, it takes 12, 18, sometimes even 24 months before we see that in our results because from the time that they decide to build something and they put the foundations of the building in place until they come to the . [Audio Gap] 18 months to 24 months. The only slowdown we have seen on the new build is that clearly, it's more difficult to execute on construction side because of the social distancing rules, the extra measures they have to take. Also they suffer from capacity because they also have people that have to stay home because of COVID-19 infections, contaminations in family and so on. But the main decline you see today is more aftermarket related. And obviously, our business is in the first place, aftermarket. It's a smaller part, new build. And that is true in Europe and in the Americas. We see indeed that the ABI indexes are now a couple of months below the 50%. We are [Audio Gap] and you have, of course, a backlog of construction projects in the pipeline in the sense that if they award the project today, it's not that they can start immediately. There is a backlog. And yes, a lower ABI index will mean that, that backlog will go down. But hopefully, confidently, by the time they come to the -- to our part of the business that is leveled out to a bigger extent, is it going to help us the evolution of the indexes? For sure not. But we believe that the [Audio Gap] anticipated also because we are more confident on the aftermarket side that, that part of the business will gradually come back and gradually improve as people start to go back to work, as they start to use more the hardware and as we will start to see more mobility again gradually now in the remaining part of the year.