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

How will ASSA ABLOY access further growth opportunities? And how do we work with accelerating our profitable growth in line with our financial targets?

In the next close to 4 hours, we will provide further material and insights that demonstrate how this can be achieved.

Ladies and gentlemen, welcome to ASSA ABLOY's Virtual Capital Markets Day in 2021. My name is Björn Tibell, and I'm heading Investor Relations.

And my name is Christiane Belfrage, I'm heading Corporate Communications. Björn and I will be your moderators and do our best to guide you through the presentations and Q&A sessions that we will have over the day.

Before we start, and noting that safety is everyone's first priority, we would like to encourage you to look around and locate where your nearest emergency exit is located. For us, the nearest emergency exit is in that direction. I would also like to note that this event is being recorded live on our website. And the presentation material that you will see during the course of the day will be made available on our website after the event.

As Björn just mentioned, this is our first Virtual Capital Markets Day, so there is a little bit of practicalities to this. You, who have registered ahead of the event, will be able to participate in a more interactive way via your Zoom browser, where you have a Q&A button. Let's ask Holger how you do to ask questions when we get to the Q&A session. Holger, please.

Yes. Thank you very much, Christiane. [Operator Instructions] The message will go through to me, and I will manage the queue line during the day. Please also note that the chat function is turned off today. Thank you, Christiane.

Thank you. And with that, we have gone through the practicalities.

The agenda should now be seen on your screens. The times, they are approximate. There will be 3 short breaks during the CMD. We will -- after now Christiane and myself have finished these housekeeping things, we will start with a presentation by our CEO and CFO, and that presentation will be followed by a Q&A session. We will then proceed with presentations by Entrance Systems, Global Solutions and EMEA. And after that, we will have a final Q&A session with all the participants before we wrap up the day.

And with that, we're ready to kick off the presentation with our CEO and CFO. Nico and Erik, please go ahead.

Thank you, Christiane. And also from my side, a warm welcome to all of you to our Capital Markets Day. In this first presentation, we will start with our vision and look back a little bit to the history of ASSA ABLOY. We will look how we are positioned in the market, and then we will also zoom in on different strategic activities and enablers that will help us to reach our financial targets. And then we will finalize the presentation with some key takeaways. Our vision. Our vision is to be the global leader in providing innovative access solutions that help people feel safe and secure so that they can experience a more open world. A more open world, it's all the Amazon-alike feeling. But as we talk about access solutions, as we talk about your family, access to your house, safety and security of your family, of your children, there's 2 words: safe and secure are, for us, 2 very important words and 2 differentiators for us in the market. And then to be a global leader, it's clear that we are a very strong leader in the mature markets. We are also a strong leader in many emerging markets. But there's also some emerging markets like China, India, and Indonesia, where we are not that undisputable leader yet. So still room for improvement. If we then look at our history, we are a young company. We are 26 years old. We came out of the merge between a Finnish company, ABLOY, and a Swedish company, ASSA. And although we are only 26 years old, our history goes, of course, much longer back to the inventors of ASSA and the inventors of ABLOY go back more than 100 years, not to talk even about the strong heritage we have with the Yale brand. And we started as one of the world's leading lock companies and then moved in to become a global leader in door opening solutions. And today, we are a global leader in access solutions, where, on one side, you have the opening, where, on the other side, you have the identity. And then we build services and solutions around that opening and that identity. You will really find us in your daily lives. It can go from a pedestrian rotating door in a hotel that, hopefully and confidently soon, you will be able to visit again when you go on vacation. It can be high security fences around an embassy, around the bank. But it can also be just access control in general, mobile keys in particular. And Erik, our CFO, will explain us a little bit how our financial journey looks over those years. Welcome also, Erik.

Thank you, Nico, and good afternoon, everybody, and thanks all of you for participating. If you look on the journey that we have had during these 26 years, we started as a SEK 3 billion company and has, over the time, grown to be a more than SEK 90 billion company. If we zoom in, in a bit on sort of the journey that we have had in the last 10 years, our sales has increased with almost 140%, our profit with 100%, total return is more than 400%. And if we look on the dividend, we have actually almost reached 200%. I mean, we had, until the pandemic, we had 27 quarters of positive organic growth, okay, but it took a pandemic to beat it. And the reason for this, I mean, like Nico talked about, that we are a part of everyone's daily life. But of course, when the movement stops, that also, let's say, stops in a way the business for us. But now when the mobility starts to come back, we look forward to reaccelerating our growth again. Another -- which is another part of our DNA is our acquisitions. We have done, since the start, more than 300 acquisitions. And we are continuing investing in new companies and have already this year been able to close 5 acquisitions, which is now integrated within our great group.

Thanks, Erik. And of course, we started now in Q1 to try to beat that old record of 27 consecutive quarters of positive organic growth. A little bit on reflections on our position in the market. We are operating in a good market, with very strong positive long-term market drivers. If you look into security, if we like it or not, but people don't have the impression that they live in a more secure world today than, let's say, 5, 10 years ago, More need for security, more business for us. Urbanization and increased wealth. It's forecasted that another 1 billion Asians will move from rural areas into cities in the next 20 years. They will all need access solutions. Hopefully, confidently, a lot of them will buy those access solutions from us, from ASSA ABLOY. Shift to new technologies, in general, and definitely also the shift from mechanical to electromechanical and digital on the residential side and on the commercial side. It, of course, drives technology up in our industry. It's something we like. Same thing is true for sustainable buildings. Today, if you look at new builds, the vast majority is built according to one or the other green standard, be the LEED certification or another sustainable standard. But the same is true more and more also when they do a refurbishment project. And again, that drives technology up in our market. And if you look like-for-like, a project built in a sustainable way versus a mechanical project, you get more money out of that project. And then we have the fact that we -- that codes and regulations are still very local, sorry. But we also see an increased level of codes and security. Also, good news for us, it makes our markets much more complex. It makes it, therefore, also difficult for a pure cost player who will work some volume in the world to enter our market. It makes it also difficult for pure technology players to enter in our market because, obviously, they have to conquer the world country by country. And in every country, the solution and the products have to be different. We have a very strong leading position in that market with positive dynamics. We do that with strong global brands, the HID brand, the Yale brand and, of course, the ASSA ABLOY brand. But we have also a lot of very strong local brands that we then often dual brand and in also the ASSA ABLOY Group brand. We have a very large installed base, the largest installed base in the market that we're now also, in a proactive way, can upgrade and move from mechanical to electromechanical and digital. The fact that we are a dynamic and decentralized organization served us also very well in COVID-19 times, as COVID-19, the pandemic, did not hit in every country at the same moment in time and as the consequences were very different country by country, as also the reactions of the local governments. And so when it comes to support incentives, we're very different. As being very decentralized, organized and being able to take decisions close to the customer, close to the local market made us very agile, made us to react very fast to changing conditions and helped us in a very important way to protect our bottom line and our cash flow during this pandemic. The innovation focus. We are really a company that wants to make the difference to innovation. And for us, innovation is much more than new product development, new solutions. It's also the way we run our processes, the way we run marketing process, definitely, also, the way we run our operations. And for us, there is always a better way. Leading with, first, sustainable products. It's clear that sustainability is on the agenda also in our markets. We want to play also here a role as a leader. And we believe that this focus on sustainability will also help us to further strengthen our competitive position. And then synergies through divisional collaborations. If you go back, perhaps, 5, 10 years in the group in a pure mechanical world, where a mechanical lock is different in Italy from Germany, from Sweden, of course, there was not so much need to work together across regions, and as the geographical divisions, where the vast majority of group's revenue, have also not so much need to work together across divisions. But today, as geographic -- regional -- sorry, global divisions, like HID and Entrance Systems, have really evolved in an important way and have become much more important relatively within the group. And as we are moving from mechanical to electromechanical and digital, where the electronics on the electromechanical side can be very similar on a global scale. And where the software support and access control can be very similar on a global scale, of course, there is much more need to work together across regions, across divisions. And that we do through our "together we" campaigns within the group: together we grow, together we innovate, yes, and so on. And then last, but not least, we have a proven strategy. We are not revolutionizing that strategy. It will be more an evolution of approval strategy that has delivered results, a strategy that is built around 4 strategic objectives: growth through customer relevance, product leadership through innovation, cost efficiency in everything we do and evolution through people. And I would say those 4 strategic objectives are really the compass for us. They really guide all the actions that we do. They all -- leads to the same goal of reaccelerating now, again, our profitable growth, growth in general, and profitable organic growth in particular. Therefore, also, we can reconfirm that our financial targets remain intact. We want to grow 10% over the business cycle, 5% organically and 5% through acquisitions. And we want to do that with an EBIT margin within the 16% to 17% bandwidth. So as a summary, you could say we are in a good industry to be in, with strong positive long-term market drivers. In that industry, we have a strong leading market position. We are evolving in a proven strategy, proven strategy that has delivered results in the past and will continue to deliver results in the future. Our innovation focus, our focus on green products and the cross-divisional collaboration will all be ingredients that will help us now to reaccelerate again our profitable growth. And with that, we can then go into activities and enablers to extend profitable growth, right, Björn? So what we have done is we have summarized for you the main items that will lead to an acceleration of the growth: acquisitions, emerging markets, recurring revenue, upgrading the installed base and sustainable solutions. And we will also highlight the main enablers for this: our culture, our R&D focus and our cost focus.

Thank you, Nico and Erik, for reconfirming our targets and the strategy. Nico, we have showed now the acquisition is one of our strategic activities. So let's start with that. Acquisitions have obviously been an important part of ASSA ABLOY's strategy since the foundation. And as mentioned by you, we have acquired more than 300 companies since the foundation. Nico, since you joined in 2018, you have been part of acquiring 44 companies. And in the first year after they've been acquired, they will add about SEK 11.5 billion in sales to the group. Can you please discuss and elaborate a bit about what type of companies you expect us to acquire looking ahead?

I never made the calculation, but it's not too bad. But of course, we want always to do more when it comes to acquisitions, Björn. But yes, I can definitely explain our acquisition strategy. It's based around 4 pillars. The first pillar is to continue to do acquisitions in the core. I would say, continue to do what we have done over the last 10 years by mechanical, but sometimes also now in electromechanical competitor, and then integrate his operations into our global operations and, therefore, realizing synergies on the operations side. And also giving that company access to the full ASSA ABLOY product range and, therefore, also realizing synergies on the SG&A side. Many good examples over recent years, LOB, a Polish company that we acquired a couple of years ago, doing locks, really, in the core of our geographical divisions. But also, agta record, I would say, a very good example, doing pedestrian sliding doors and revolving those also, really, in the core of what we do in Entrance Systems. Then the second pillar is to extend that also, doing acquisitions, not in the core, but close to the core. I think a very good example there is Planet. It's an innovative door seal company, Swiss-based, that we acquired a little bit more than 2 years ago. As doors are an important energy consumer and/or energy conserver in a building, we have the whole drive for sustainability. Obviously, the door opening also becomes important from an energy perspective. And if you seal off your door in a good way, that can, of course, make the difference. And Planet has really a fantastic innovative range of door seals. So obviously, when we bought Planet, and we bought the first seal company, no operational synergies because we didn't make seals. That will happen, of course, when you buy the second and the third seal company. But clearly, synergies on the SG&A side because you can sell those seals to your existing sales teams. Then the third pillar is service. I would say, mainly, in Entrance Systems where we want to get direct access to our installed base and then do service on that installed base in Entrance Systems. Door Control, Inc., a distributor, is a good -- that we acquired is a good example to get that direct access to that service. But also, agta record, again, is a very good example because they had a very strong servicing organization, complementing our service organization in the pedestrian segment in a very strong way. And then last, but not least, fourth pillar is new technologies. I would say, mainly in Global Technologies, in HID and in Global Solutions, technologies that complement our existing technology range. A good example, Biosite, creating a new vertical in Global Solutions, focusing on time and attendance and access control for construction workers on construction sites. And another good example, Crossmatch, a fingerprint company, border control, mainly in the U.S., that we bought 2 years ago. So I think a clear strategy that we follow throughout all the acquisitions we do.

Thank you, Nico. What parameters and criteria are we looking at before we make an acquisition? Erik, can you maybe discuss those, and if they have changed?

In reality, they haven't changed. We keep to the same when it comes to this. I mean, for us, it's -- I mean, first question is, of course, are we a better owner? Is it in line with our strategy, with the group or with the division strategy? Of course, then it should be within access control. They must have the -- either be the leader or give us the technology, which will make us -- which make us a leader. And then, of course, we look on synergies. But overall, we look to see, can this company either do they make it today or, over time, make enough profit to reach the group target of 16% to 17%? I mean, things that could sort of change a bit is, of course, if we look sort of on the growth potential, the profitability, the synergies and cost of financing. But I mean, in general, I would say that we keep to the same. And we sort of -- we keep to the same financial model as we always had. Where, I think, we have done a change is more after acquisitions, where we work much more today on the integration of the companies. We sort of appoint on each of the acquisitions, we appoint an integration manager, and we also work quite a lot also with the follow-ups when it comes to the financial follow-ups. And we even report every acquisition back up to the Board.

Thank you, Erik. If I turn back to you, Nico, given that we have acquired more than 300 companies. For how much longer can we continue and acquire companies? Or in other words, how many companies are you -- are on your target list?

That's a question we get asked often, as you know, Björn. But I would say, we are confident we can continue this journey for quite some time. As a matter of fact, we have identified close to 1,000 potential targets. Of course, we are not talking to 1,000 companies. But we see, if you start really at the beginning of the funnel, companies that would qualify, close to 1,000 potential targets, equally spread over the 3 geographies, as you can see on the slide. So we can continue this journey for quite some time.

That's very reassuring. Thanks. Well, let's now move over to the next strategic activity, which is growth in emerging markets.

Growth in emerging markets, we have said, of course, that we have the ambition to be a global leader. We are definitely a strong leader in mature markets. We are a strong leader in many emerging markets. But again, countries like China, India, Indonesia, there's clearly still room for improvement. If you look over the last 9 years, we have been showing, I would say, disappointing growth of only 5.4% in emerging markets. Of course, we know we had our challenges in China. China, as a matter of fact, brought -- grew down in a very important way. If you exclude China, we would have had double-digit growth in emerging markets. But if you look at the potential, and you'll see the sales that we do per capita in some of the Western markets, and you compare that with the rest of the world, you see that there is still fantastic opportunities to do more. And emerging markets are clearly an important driver to now accelerate our organic growth. We have the ambition to grow double digits in emerging markets over the coming years. What you need for that, of course, you need a platform to start from. That platform can come either from an acquisition, and you build on from that acquisition, like we have done in many markets. Or you choose, really, a specific niche market, where you believe you can be successful in the shorter term, and then start from that as a base to build from there. You need, obviously, the right products, the local products that fit the local market. But then, I would say, the most important, like with all our business, you need the right people. You need the right people with the local knowledge of the market. We need the right people also with the knowledge of ASSA ABLOY. To end on emerging markets, perhaps an update on our China strategy. As you know, we changed our strategy in China around 2.5 years ago, where we said we will consolidate our brands and go to market with 2 strong brands on the residential side and a strong brand on the commercial side: Pan Pan positioned as a high-quality local Chinese brand, and Yale positioned as a high-quality international brand on the residential side; and ASSA ABLOY, obviously, on the commercial side. We have consolidated our R&D centers. We have also consolidated our operations. As a matter of fact, we are close to 7 factories over the last 2 years in China. And we did all this with a new local Chinese management team. And we really wanted to go in this process of stability, profitability and growth. We are definitely, today, in a stable situation. We have that new strong Chinese management team in place. We have definitely evolved into profitability, where, before this new strategy, we were making very low single-digit profitability in China. For the last 5, 6 quarters, we have been able to do more than double. And today, we are closing around mid-single-digit profitability in China. And we have the ambition, midterm, to bring that to high single-digit, close to 10% margin. So stability, profitability, the next step is growth. We are confident that, that will happen now this year. I think we have all the ingredients in place now to start growing again in China. So very happy with the progress we make in China. I propose we take a look at a small video, where our Mr. Peng, who is heading our Pan Pan business in China, explains on the journey he did over the last 2, 3 years to reposition Pan Pan and make us more successful for the future.

Hello. I am Zhou Peng, Managing Director of Pan Pan, and I am Chinese. In my past 23 years of working experience inside China, I have dealt with exactly same business model and channel as Pan Pan, included 2 successful business turnaround. In the past 2 years, we have transformed Pan Pan from a traditional door company to an innovative company that meets the needs of modern consumers. Thanks to the technology and R&D strength of ASSA ABLOY Group, we have been able to introduce smart security doors and smart security systems as part of Pan Pan's product range. Young consumers are driving the marketing trends and the brand growth in China. By listening to their needs, we developed 18 exciting new Pan Pan door series after extensive market research. We also understand that the modern consumers expect a unique and engaging experience when they visit a brick-and-mortar store. That's why our stores now have a fresh and vibrant to provide a better in-store experience for consumers. Last year, we also launched a comprehensive customer service system that will cover a broad network more than 3,000 cities and towns, operated by more than 10,000 service personnel. The past 2 years have also seen improvements to Pan Pan's operations and production capabilities. New modern equipment were introduced to improve product quality and the speed of delivery. An R&D center was set up at the Chengdu plant in cooperation with the Sichuan Institute of Product Quality, Supervision and Inspection. RFID warehouse management system was put in place to improve process efficiency, and a new delivery platform was set up for speedy delivery. In the next chapter of growth, Pan Pan will ensure our continued success through ongoing innovation of our products and processes and by achieving manufacturing and quality excellence in its operations. Urbanization is a driver for growth. We will sustain our investments in new innovative products across our entire organization in China. With close to 1.4 billion inhabitants, China will always be a very interesting market for ASSA ABLOY.

Yes. Very excited about the journey Mr. Peng, Zhou Peng, is doing together with his team for Pan Pan in China. Of course, also more excited if you see also the financial results from all the actions coming, which is definitely the case. Now I think Mr. Peng is a good example of the new -- of the quality of the new leaders we have put in place to run our businesses in China. Time to go to the next focus point on accelerated growth, accelerated growth to recurring revenue. Erik?

So thank you. I mean, I will -- today, I will present 2 -- or actually, I will present one in reality, where we'll get some help then from Christopher Norbye, heading our Entrance Service division. If you look into the field service, that's the bigger one of these two. It, today, represents roughly -- or last year, represent roughly 25% of the sales of Entrance Systems. But with the acquisition of agta record, it actually went up to 28%. As I said, Christopher will talk a little bit more about it. But for us, we are very excited about the growth opportunities that we have had. We have increased quite a lot of service engineers and also introduced new service products into the market. We believe that we should sort of have as a target a high single-digit organic growth target for this. If I then move over to the second part, which is, today, a smaller part, Software-as-a-Service. And if you look into the Opening Solutions division, there, we will have the possibilities in -- within access control management and also in home services. Like, for instance, grocery deliveries, where, today, we are running quite a few pilots, for instance, in Norway and within the U.K. But also, if we go over to the Global Technologies division within the identity management, we would have -- within the Global Solutions as well as with HID, we would have sort of mobile keys and credentials when it then comes to offices and when it comes to hotels. We also have credentials also when it comes to identity access management and also we have the possibilities then for licensee fees within cloud solutions and hosting solutions. If we look a little bit into the numbers, we can see that over the last 3 years, we have annually grown about 20%. It's still a very small -- it's still a smaller part of our business, and today it consists of roughly 3% of out turnover. But we see great potentials in these moving forward.

Thank you very much, Erik.

You're welcome.

And now it's time to move over to our next strategic activity, which is about upgrading the installed base.

Upgrading the installed base is something we have talked about for a few years at ASSA ABLOY. And Nico, can you tell us why upgrading the installed base is such an important growth driver?

Yes, I can do that, Björn. Of course, we -- when we talk about upgrading the installed base, we're talking the first phase of moving also from mechanical to electromechanical and digital because that's the great opportunity of that installed base. And you can see on the slide that -- if you look at our pure mechanical categories, they have grown very low single digits over the last 5 years prior to the pandemic. Where our Elmech business, if you exclude Global Technologies, has grown around 13%, and where also Global Technologies, which you could say is also falling under the Elmech category, has grown high single digits. So I would say it's a very important tool to further accelerate our organic growth going forward.

Yes, upgrading the -- to electromechanical products is obviously a critical growth driver. And that includes upgrading from mechanical locks to residential smart locks. Many, including us, obviously see a significant growth opportunity in the smart locks, given the low penetration in most markets, where it's less than 10%. However, in South Korea, close to 90% of all households have a smart lock. And we have been part of that journey, Nico. Can you please share something about the background we have in South Korea and our journey that we've had there?

Yes, I can do that because we always the question, of course, how is the penetration going and market value and with digital door locks. And unfortunately, there's not so many good examples of markets that are already fully mature in the penetration. South Korea's is almost for digital only. One -- I think, one, we have a very strong position in South Korea. And I think one of the reasons why we're also a technology leader on digital door locks is thanks to South Korea because, back in '97, we bought iRevo. And iRevo was, you could say, the inventor of the digital door lock. And on this graph, you see the evolution in quantity of how many digital door locks we sold in South Korea over the years, going back from '99. And you see that, despite the fast that penetration rates, indeed, today, are above 95% in South Korea, you still see an acceleration of those quantities. If you take, for instance the period between 2010 and 2015, our volumes went up 5x, and that journey continues. So that's good news for all the markets where we have still much lower penetration rates. And mainly, most markets, I would say, penetration rates are still below -- all single digits. And if they all had a double digit, it's perhaps in the 12%, 13%, 15% range. So plenty of opportunities to go forward.

Yes. Let's hope that we see that journey now in the countries we are in now. But at the same time, and Nico, you have stresses that the largest opportunities are really in the commercial and institutional segments. Can you elaborate why?

Yes, of course. Smart locks for residential applications are definitely our fastest-growing family. But if you look at the total business, it's only around SEK 3 billion. So if you look at the total Elmech business, which is around 31% of group sales, in the total picture of Elmech, the smart residential locks for residential applications only represent about a very small part of the total. And we believe, indeed, that there is plenty of opportunities on the commercial side. Also, their penetration rates are still very low. We also believe that there is better recurring revenue possibilities on the commercial side than on the residential side. And you can see on the graph, in absolute value, how much sales we do on electromechanical side and also the fantastic growth journey that we have seen for that category based on -- for 6 years.

Thank you, Nico. Well, let's then move over to the next strategic activity, which is sustainable solutions. Nico, why are sustainable solutions listed as a growth driver? Can you please -- what growth opportunities do you see?

Of course, an easy answer could be that it's also important for shareholders' potential and shareholders in the financial world because it's clear that there is a lot of focus on sustainability by those stakeholders. We see also customers, like us, improving their focus on sustainability. But I would say, for us, the main driver is definitely the business opportunity. On 2 fronts, we are convinced that if we can run our operations in a more sustainable way that, that also means that we will run them in a more cost-efficient way, meaning that we, again, improve our relative market position. And then we're also convinced, if we put more focus on sustainability in new product development and new solutions that, that will also help and strengthen our relative position in the market and, therefore, will also be a boost to our organic growth.

Thanks. Well, as a concrete example o f what you just mentioned, we contacted Drew Shula, who is the CEO of Verdical Group, a construction company in Los Angeles. And we asked Drew what is driving clients' increased demand for sustainable buildings?

There's a couple big market drivers. The first is just operational cost savings. So if you make a building more efficient, it's more energy efficient, more water efficient, and you're reducing your utility bills. There's also the marketing benefit. So a lot of large companies, Fortune 500 companies, they are trying to attract the best talents, the best people. And so if you have a healthy building, a healthy space with wonderful daylight and ventilation, where people can do their best possible work, you are going to attract people to work in a building like that as well. Sustainable products, sustainable building products are extremely important in the overall big picture of what it takes to make a green building. They used to just be architects would look at the aesthetics design of the product. They would look at the cost of the product. Now there's this third level of screening that happens to also look at the environmental performance, the sustainability performance of the product. I think that clients today on leading-edge projects, the most progressive projects, and clients are definitely willing to pay a premium for sustainable products. But I think my big-picture response to the question is that, I think, in the future, there won't -- you won't consider it a premium at all because every product will be sustainable. That's just the direction that we're headed.

Every product in the future will be sustainable, Drew Shula says at the end of that video. Well, the increased demand for sustainable buildings also means that the requirements on our own operation will increase from a sustainability perspective. Erik, could you maybe please tell us what progress were made in relation to sustainability in our own operations?

I think that we have had a quite long journey when it comes to this. We started with the first programs in 2007 that was more or less, say, implementations of procedures, structures and policy. And in order then, I would say, to drive our -- to drive the sustainability into our day-to-day life and into our operations, 2010, we launched the first sustainability program, which was then followed by another one in 2015. And there, we focused on things like injury rate, greenhouse emission and also water intensity. And we have seen good results of this. The injury rate, for example, has gone down with more than 60%; greenhouse emission is reduced with almost 80%; and water intensity, with more than 70%, actually. We also, in 2017, also integrated the sustainability compass within our product development, which is the compass consists of 8 different, I would say, parts. And we have, for instance, in there, we have recyclability of our product. We have carbon footprint and energy use. And that is, of course, also things that we can sort over from ourselves and from our operations, also bring over to a customer advantage.

Thank you, Nico. Thank you, Erik. Nico, last year, we launched a new sustainability program and some new initiatives. Can you please tell us more about the forward-looking ambitions in relation to sustainability?

Sure. Like Erik said, we launched our third sustainability 5-year program now, 2020-2025. And I think, again, very ambitious targets around the same focus points as the previous 2 programs that Erik mentioned. But then we also decide to commit to science-based targets, so reducing by 50% the absolute carbon emission by 2019 and then become carbon neutral by 2050. We are convinced that sustainability will be key for our industry in the coming decades, and we have decided we also want to play a market leader role when it comes to sustainability in our market.

Yes. And in relation to how we will achieve this, we asked also our Head of Sustainability to explain how we can continue or achieve this 50% reduction in carbon emissions. So please play the video.

So we reduced our total carbon emissions by 47% over the last 5 years, which is already a substantial reduction. This means that the easier things or the quick wins have already been done. We need to have a very clear strategy in order to reduce our carbon footprint by a further 50%. And we see this strategy made up of 4 key components. Firstly, it's to consolidate our sites where we have a duplication of our processes. And this makes our overall operations much more efficient. Secondly, it's the phase-out of carbon-intensive production processes. Thirdly, it's to review our top 20 most energy and carbon-intensive production sites and review major overhauls and upgrades of those sites to substantially reduce their carbon footprint. And finally, we have a continuous improvement. And since the implementation of our green teams and rollout of our green team playbook, there's been lots and lots of little actions together that have a big impact. There's conducting energy workshops using the Lean Kaizen methodology and to make sure renewable energy were available throughout the group.

It will be interesting to follow our progress in relation to these KPIs and our carbon footprint looking ahead. Before we proceed now to the enablers to accelerate growth, I would like to check with Christiane and Holger if we have received any questions.

Thank you, Björn. Yes, we are receiving so many questions. Holger, please, can you read the first one out?

Thank you very much, Christiane. So one of the first questions we have received is from William Mackie at Kepler Cheuvreux. He wonders if we see any differences in the market fragmentations and competitive landscapes between emerging markets and developed markets?

Perhaps I can take that question. It depends a little bit because emerging markets is a very wide definition. But if I try to generalize a little bit, yes, I would say that, that is definitely the case. It has to do with the majority of those markets, as the standards and norms are not as developed yet in many emerging markets like they are in mature markets. You see also much more fewer cost players, people that compete with a basic product only on cost in those markets. And as those standards are not evolved yet to the same extent as in more mature markets, there is also more overlap between residential solutions and commercial solutions. The good news is, as those markets start to mature, standards become more stringent. And when standards become more stringent, of course, technology goes up in that market. And that makes us also stronger. And that's what we have seen in many emerging markets. If you take, for instance, East Europe, which, today, I would say is a mature market, that's exactly what happened there. And of course, there is a big emerging market like China. Obviously, there is a very big number of local competitors. And I would say, in a way, in China, you could say that the whole consolidation still has to happen.

Thank you, Nico. I think we have time to take yet another one. Please, Holger?

Thank you, Christiane. So a second question we have received is from Vivek Midha at Citibank. He wonders if we have any parts of the group's portfolio of products that we see as less strategic and how it's fitting with the rest of the group? His question is for you, Nico.

Yes, of course, we have a very wide product portfolio. And we are, I would say, on a constant base, looking in our product portfolio and the sites is, this specific activity and activity we want to continue to do long term is then activity where we really want to allocate the resources and capital. Always, there are better ways to allocate capital resources and investments. And that's something we do on a permanent base. And then we also, yes, from time to time take decisions to divest some of the activities. Of course, we have the ambition to be a strong net acquirer, not decisions of divestments. But we have a couple of good examples where we decided to divest activity because we believe we were not the right owner for the future. We recently, last year, divested a residential door business in Italy called Gardesa because we felt that, that type of business is -- it's a more commodity type of doors where we could not make the margins in line with the ambitions we have as a group. Another example is CEDES, an elevator sensor company in Switzerland, that we divested also around a year ago because, obviously, we are not in elevators and not in elevator sensors. We knew too little about that market to make that a sustainable for us going forward in the future. I think it's a very interesting business, but better chances for that business with another owner. And that's things that we evaluate on a permanent base, Holger.

Thank you. We will have a longer Q&A session when we close and Erik's presentation is finished. So please continue and contact Holger in the Zoom browser. We will then continue with the 3 enablers for -- to accelerate our growth. Now it's time for a little break and we will resume at 3:00 sharp. And while we have the break, we'll play a bit of a video from our different products and different units. So see you again after the break. Thank you. [Break]

Welcome back from the break. We have now gone through our 5 strategic activities, and we'll move over to 3 enablers to accelerate our growth. The first one is how we're working with our common culture and how we're strengthening our common culture. Nico, since you joined ASSA ABLOY, you have put a lot of energy and efforts into working with our internal culture. Can you please explain why have you done this?

No, indeed, and it's definitely a passionate subject for me, Christiane, as you know. Because people, clearly, are our most important assets. We can have the most fantastic ideas, most fantastic products, if you don't have the right people, it will never work. And what strike me a little bit when I joined ASSA ABLOY was that, when we looked at promotions and how we filled vacancies is that, more than 70% of all managerial positions were filled by external candidates. So less than 30% of those were filled by internal people. When I came at ASSA, I really wanted to turn that around. And eventually, 70% of all vacancies filled in the managerial positions were then with internal candidates. Because I think it has a lot of advantages. Of course, when you do that, you get mobility in your organization. You get cross-fertilization of experience. We have a lot of individual experience in the group, if we can share that by moving people around to make the company stronger. If we get, of course, cross-fertilization from the culture, [ still our own ] company, we are still building that culture. We will also keep retention up. Because if people see that they can make a career within the group, they will not go and look outside for the next opportunity. And what we also say to younger people is that we really have the ambition to give to people, when they could join us, a life-long career, and that's sometimes -- sounds a little bit old-fashioned, but it's really what we want to do. We say we are a big group, 50,000 people. We are represented in many countries all around the world. If you start a career with us in engineering, and you have the ambition to move into marketing or sales, you can do that. If you want to make a specific technology career and be a specialist in materials, you can do that, to go to [ Mozambique ]. And if you want to make an international career, start somewhere in Lund, Skåne in Sweden and go to U.S. or China, we are looking for that type of people. So I mean, if you are part of a family, and in your family, you like the values and the beliefs, why would you change the family? You should stay part of the family. And we invest in you as a family member, and you invest in the company. You can do that until, yes, it's time for retirement. And that's also why we launched, when I came, the 3 core values and beliefs for the group. So empowerment. We have trust in people. Innovation. We have the courage to change. And then integrity. We stand up for what is right. And those 3 really gave us the skeleton of this is the culture we, at ASSA ABLOY, want to stand for. And if you want to be part of the family, you should not forfeit in that culture. And another dynamic is -- that we created is all the actions around the "together we" campaigns: together we grow, together we innovate, where we really want to benefit from more cross-collaboration, collaboration among different departments, different countries, different areas, different divisions. And we see plenty of good synergies more to come to realize on that side. So quite happy with that whole subject.

Obviously, building a culture is along-term initiative a never-ending task. Now, after 3 years, can you see any progress?

Yes, we definitely can. And like I said, the one that I'm most happy with is that, indeed, today, if you look at higher management, we have more than 70% of those managerial positions filled in with internal candidates. If you go lower down in the organization, there's still work to be done. But we are making good progress. I think that also leads to lower turnover with -- for the employees. We are improving retention in the important ways. So we keep knowledge and experience within the group is a good thing. And definitely, also, on the diversity side, we see a very good progress, and not only on gender diversity, but diversity in general. We are a global group. We also want that to be represented in our teams when it comes to diversity. We have 32 nationalities represented in our senior management, I think. So we are making a good progress in general. But of course, I can page the whole culture perhaps sometimes it's better to listen to the people to see if they see the change, and I propose we hear to what -- 2 of our employees have to say on this subject.

I am Iiris Heiskanen, CFO for ASSA ABLOY Global Solutions based in Joensuu, Finland. I was very excited to join ASSA ABLOY 9 years ago, and my first position was with ABLOY Finland as their Finance Manager. And it was from the first day that I received a lot of responsibility and new challenges that really pushed me forward. So then I was promoted to a role of Senior Controller for the Market Region, Finland. After a couple of years, I moved on to Global Solutions to work as Business Controller for ABLOY Critical Infrastructure. And then it was less than a year after that, in 2020, when our previous CFO moved on to a new position within the group, and I was offered this very exciting opportunity to start as the acting CFO for Global Solutions. And then I applied for the role and was appointed a couple of months later. It is this increase in internal opportunities that has been a trend in the group during my years in ASSA ABLOY, that we focus on people development, and we are focused on diversity. And I can tell, from my own experience, that I have benefited of this as my managers have offered me interesting roles. They have trusted that I can learn, I can grow on the job, and then prove that I can meet their expectations and deliver the results.

So I started in the fall of 2003. I have just moved from Canada to Israel, and I got a job at Mul-T-Lock in Israel as a Marketing Communications Manager, actually filling in for someone who had just left on maternity leave. Since then, I've had 7 roles in the group. They've been in 3 different countries, and I've worked in 2 divisions. My current position is as the President of The Door Group in the Americas. I would say, one of the most significant is that, when I joined, it was very much about individual brands and less about ASSA ABLOY as a brand. And there was very little collaboration between brands and very -- almost no collaboration between divisions. And as I fast forward 18 years, so it's ASSA ABLOY as a brand is much stronger. We don't just talk about products, we talk about solutions. And as such, we need that collaboration between the brands, and there's more collaboration also between the divisions. There are definitely things that have stayed the same and probably some of the best things have stayed the same, and that is the culture and the structure, really, in the sense that we are decentralized. And as part of that decentralization, the strategy serves as a framework, but as a business leader, in fact, in any position in the group, you really have the opportunity to impact the business, and that's always been the case. And I would say, the culture. I've worked, again, 18 years all over the world. And everywhere I go, you see that common cultural DNA, which is really about integrity -- people's personal integrity, humility, always trying to do the right thing and really having the attitude of rolling up your sleeves and doing what's required to service our customers.

I think 2 good examples of gender diversity, but I would say, that's obviously, in the first place, good examples of people making a career within the group, people giving them the possibility to take the next step, taking a challenging job, but perhaps sometimes they are not 100% ready for yet, but supporting them in a good way that they can further develop and giving a good return on investment for the person itself and also for the company. Very happy. So...

Thank you, Nico. It's time now to move and discuss the next enabler for growth which is R&D and product innovation. As a group, we have almost doubled our investments in R&D since 2015. And set in proportion to sales, the proportion has increased from around 2.5% in 2015 to more than 4% in, yes, last year. Nico, can you please tell us why you're all so passionate about R&D?

Yes. And I'm also after people, and definitely also passionately about R&D, Björn. And I would say it's really in our genes, in our DNA. We are a company that makes the difference to innovation. We have more than 25% of our sales that comes from products launched over the last 3 years. We have more than 9,000 active patents. We have close to 3,000 R&D people working in the group. And we launched more than 400 new products in a pandemic year, 2020. And again, innovation is, for us, much more than just products and -- new products and new solutions. It's really -- the way we are in our processes, the way we have an active process, the way we have a marketing process, definitely also the way within our operations. And for us, there's 2 dimensions. It is the continuous improvements, every day do better, and continuous innovation. And then from time to time, also making this breakthrough innovation, doing a quantum leap, where you put yourself ahead of competition for a couple of years. And we have, historically, always invested on the mechanical side. We continue to do that because even if the mechanical part of our business is not growing so fast, it's still a very important part of the business, very profitable and a very important cash generator. But over recent times, we have invested heavily also on the electromechanical side to support the shift from mechanical to electromechanical and digital. And then also, as we now are adding software platforms, control systems on top of that -- of those electromechanical products, we also are further increasing customer value. So definitely, a very important enabler for us for. And like I said, we have, on a constant base, launched new products and worked on new R&D initiatives. Also, in -- during the pandemic, we did not slow down. That was a conscious decision to continue and even accelerate our spend. Because, as you rightly said, our R&D spend in 2020, the absolute value was higher than in 2019. And I think that led to a lot of new products. I would just highlight this one. The new lines look, I think, fantastic new products for European markets. I'm the part owners of one of them beyond, as I told you. I think a very good example of how to seek synergies in companies that we acquired because most people will know that we bought August, a start-up company in California, around 4 years ago. And they had invented a motorized lock that you can retrofit on an existing lock on the U.S. doors and then open and close your door remotely with your mobile phone, with an app on your mobile phone. Then the first thing that we did when we bought them, we took their software, which is definitely state-of-the-art technology when it comes to the smart residential applications, and then copied and pasted it to the rest of the world. As a matter of fact, if you, today, open your Yale locks in Sweden, it would be based on the same August platform. So we rolled that out on a global level. But then we took also the technology further, and also then developed from their motorized door lock variants for Europe on DIN standards, actually different variants because, obviously, Europe is a more complicated market. It's not one uniform market. But with those different variants, we can cover a vast majority of the DIN seen in the market in Europe today. You just can retrofit it on an existing mechanical lock and do the same thing as August has been doing for many time -- for many years in the U.S. So very excited about that product. But I think, behind to this, there's a lot of very good, nice new product on new Yale Doorman, which I think is an icon. The name Doorman is an icon in your country, being Swede, or perhaps you can explain to me better beyond what it's all about here, the new product.

Well, I'll try, at least. Well, this is the Yale Doorman lock. It's version 3, which was launched here in Sweden towards the end of last year. And I bought it myself in March this year. From an investment perspective, it's probably interesting to note that this version of the lock, so version 3 is about 30% more expensive than version 2. What are the new features then with this lock? Well, firstly, the most obvious one is you see this little button here. It's a doorbell button, which has been requested by the customers that we should integrate into the lock, and we have done that with this lock. Secondly, this Gateman lock is using the Yale Access App, which is a more user-friendly version, which Nico mentioned before. And this builds on the August IT platform that we are rolling out across the world. This lock also communicates directly with my mobile through Bluetooth, which is a new function. And as will all new locks, you also have a new design. And what's new with this lock is that it's redesigned, it can fit more wider range of doors. And so when the doors become thicker and thicker, we need also to change the lock design so it fits them. The lock connects with Google Home, Alexa and Airbnb. Well, the main advantage, of course, is still that the lock -- I can operate my home door from here in the studio. I can open up for an electrician, who happens to actually be in my home today. But even more importantly, I can see when my kids are coming home from school. And that is really comfortable to know. So in summary, Nico, it is an icon maybe in Sweden. It's becoming more and more of an icon, and it's an excellent lock.

I think it's also a very nice modern slim design and your children are still too young, but later, you will also be able to see when they come back from the party. A lot of other products also launched in COVID-19 times. A new interior door operator with mobile functions so that you can open doors without touching them with your hands. Incedo access control ecosystem, a software platform where we really bring all our access control hardware together on the same platform. Very excited about that development. And then for ABLOY Bluetooth padlock mobile app and digital key for critical infrastructure applications, and I can go on with many other examples. But than we also had specific new product launches as a response to COVID-19. Antibacterial keys, touchless door hardware that you don't have to touch the door with your hands anymore. And then in HID, different solutions around location services for contact tracing so that we guarantee social distancing beyond, but also that if I or you would be infected that we can inform the people that have been in close contact with you. But that solution, we can also use to trace critical equipment in hospital or trace even COVID-19 patients. So a lot on the plate and the story is not finished yet. More to come.

Thank you, Nico. Well, we will now move over to the next enabler for profitable growth, which is cost efficiencies. And Erik will now share how we are working with cost efficiencies.

So as said, I mean one of our 4 strategic objectives is cost efficiency in everything we do. And for cost efficiency, it's important, of course, for us, because it helps our profitability, but it also helps us by the savings that we can do through efficiency to invest more in product innovation, which in a way further than will help us to increase the growth. I will today focus in on 2 topics. One is related to sourcing. And the other one is the operational manufacturing footprint. So if we start with sourcing. We have, I would say, here, we have sort of done a bit of a change where we are now focused much more, I would say, on our largest suppliers. We have strengthened our sourcing team when it comes to buy commodity. And as I said, we focus on our largest suppliers for cost reasons. We also, as Nico talked about before, used the -- together we concept and collaborate much more over the different divisions. But we still haven't forgotten, let's say, we also need to focus on the tail in order then to create a higher customer satisfaction when it comes to, let's say, features and options, why this is also an important part for us. This is probably after Q1, the most frequently asked question. The raw material? And what is the impact? I mean, the starting point is that you can see here that steel has, in the U.S., increased with -- since August with almost 180%. In Europe, it's a little bit less, but still it's 110%. The second -- I mean, then we also have other raw materials, as an example, brass has increased with 61%. To put this a little bit into perspective, the direct material is roughly 35% of our sales. If we then dissect the direct material even more, you can see that 35% of this is related to raw material. And if we go one step even further, you can see that out of the 35%, 60% is related to steel. And of course, even if we do an excellent job when it comes to sourcing, this will, of course, have an impact. So we need to work with price increases. And that's something that we alluded to already in the April results that this will have an impact for us. We increased in Q1, the prices for the group was roughly 1.5%. But in order then to -- in order then to sort of -- to compensate for the full, we need to increase the prices with roughly between 3.5% to 4%. We are confident that we're going to be able to do it over time, but there will be a timing lag of this. This is why we highlighted this that this will be an impact in 2021. It will not be as big as the one that we have in 2018, where it was roughly 50 basis points. Still, even though we can work with prices, it's also important that we work with professional sourcing according to what I explained before. And now our COO, Chief Operating Officer, David Simonsson, will talk a little bit more about how we work with professional sourcing.

Direct material is, as you know, the biggest share of our P&L and direct material consists of large suppliers as well as multiple smaller ones. And many of these are also shared between divisions. Historically, there has been very little or limited collaboration between divisions when it comes to approaching suppliers with one voice. Also, there has perhaps been a little bit too narrow a focus on cutting the tail of suppliers rather than understanding the root cause for having the tail. So what we did in 2019, was that we launched what we call a top supplier program, focusing the 3 largest categories metals, electronics and architectural hardware. So what we did was that we selected a set of large suppliers shared between more than 1 division, and launched an initiative that really fostered collaboration and the together we spirit. This meant that divisions together approached the suppliers with one voice. And as a result, we had about 2% savings out of that program. And that program covered about 20% of our direct material spend. Now in 2021, we are expanding this program to what we now call the divisional top 20s, which is about 100 suppliers and about 40% of the direct material spend being addressed with now this more structured approach to sourcing.

So the second topic that I will talk about is our manufacturing footprint program. And this is -- I mean, programs that we have run now, we're now up to the eight program, where we realized operational efficiencies that we have within our operations. The first program that was launched in 2006. And since then, we have closed almost 100 factories, and we have a total saving of about SEK 5 billion. Last year in Q4, we announced the eighth manufacturing footprint program. It's the largest one so far, and it also has the fastest payback time. For 2021, we expect to have savings of roughly SEK 750 million. I mean this is -- I mean, we're now in the eighth program. I'm sure there will be a ninth and tenth program because, in a way, it's good to create focus within the organization, and we can also focus on traction, and we have also a very good success rate. And I think it's also a very transparent once we do. So we will continue with this. But not only -- we not only do these manufacturing footprint programs, we also work with, let's say, day-to-day operational efficiencies like lean and continuous improvement. This is also important in order then to, let's say, to be more efficient within our operations. And David will now show a video on -- from one of our American factories and how this works in practice. [Presentation]

The second initiative I would like to share with you is in the field of manufacturing. It's in our North American garage door manufacturer, SDA or Amarr. Amarr suffered from poor delivery performance, low productivity and staff turnover. There have been quite many leadership changes. There are also been quite a few technical efforts that might not have paid off as much, and the staff turnover continued to be a big issue. So by end of 2019, we used our multidimensional operation excellence program or structure that we launched early 2020, and that is a holistic approach to operations, covering technical managerial and people aspects. And we formed a cross-functional team with experts from group and division and local team that together developed a 6- to 8-month very detailed road map for lifting the plant performance. And what we can see to date is that we have a 40% productivity improvement, and we are now at a productivity level, which is also enabling us to make necessary adjustments to the shift pattern. A shift pattern that I believe has also been one of the real root causes for the big staff turnover.

So a little bit more related to, I mean, so that we can show actually what we did in 2020 where we sort of put up as a target to reduce 5% of the fixed cost. I would say, in the situation that were in 2020, we could really see that our decentralized and centralized organization has really worked. So in order for them to fulfill, let's say, the target that we have set up. If we look a little bit on from where it was coming from, roughly SEK 600 million came from MFP activities. We had then roughly SEK 1 billion coming from what I call semi-permanent actions such as reduced traveling, marketing, premises and consultancies. Then there was roughly SEK 600 million, which was related to other kind of temporary and permanent savings. And if you look in total, we reduced the permanent headcount with roughly 5%. I talked about these ones, these semi permanent, of course, when business starts to come back, certain of these things will, of course, let's say, come back a bit, but I can assure you that we will keep a very tight control of our cost also going forward.

Thank you, Erik. We have now discussed 5 strategic activities and 3 enablers for how we can accelerate our profitable growth. And it's now time to wrap up this part of the program. But before we do that, I would like to ask you, Nico, if you can go through what ambitions and targets you have for the different units and divisions we have in the group.

I can do that. Of course, we have the ambition to reaccelerate our profitable organic -- our profitable growth as well on the acquisition side. But definitely, we focus on the organic side. And in that aspect, we have reconfirmed our ambition and our target to double the size of Global Technologies, so as well Global Solutions as HID over the next 5-year time frame. That obviously has to come from acquisitions, but it also has to come from a high single-digit organic growth. Now we see all the service opportunities mainly in Entrance Systems, where we have also said that we have the ambition to grow our service business in Entrance System, high single-digit for the coming years. And in Entrance Systems, of course, we have the integration of agta record, which is on its way where we are ahead, I would say, of schedule, but where we have the ambition within margin in 3 years to bring agta record from a profit perspective to margins similar to historical Entrance Systems division level. Now we, of course, have the turnaround in China as explained why we have the ambition to grow double-digit and bring the margins close to that 10%. And then last but not least, an important organic growth accelerator, the move from mechanical to electromechanical and digital as well on the residential side as on the commercial side. Thank you.

Earlier today, you reconfirmed our financial target to grow 10% annually with a margin of 16% to 17%. If the strategic activities and enablers payoff that we have discussed today and we deliver in line with those financial targets, are you willing to discuss what we will deliver in terms of sales and profitability in, let's say, 5 years' time?

Of course, it's easy because it's just a mathematic calculation regard of what we said before. But if we reach, indeed, our financial targets, it should be possible to come close to that SEK 150 billion by 2026. And then if we, on top of that, do that with an EBIT margin within the 16% to 17% bandwidth, it should also be possible to come close to that operating profit of around SEK 25 billion by the same period. So quite exciting numbers.

They are very exciting. Thank you. Well, let's wrap up now with some key takeaways.

Yes, we can do that. So like I said, we are in a good industry to be in, with strong positive market drivers. In that industry, we are very well positioned, we have very strong market leader position. We are deploying strategic activities and enable us to now reaccelerate our profitable growth culture acquisition, but strong focus on growth organically. We have not changed our strategy. Our strategy remains intact and we'll evolve as we go. We have a strong team with a common culture and common values. And if we really are able to deliver on all these plans and respect our financial targets. We should aim and have the ambition to become SEK 150 billion revenue company and a SEK 25 billion operating profit company by around somewhere 2026, beyond.

Thank you. Christiane?

Thank you, Nico and Erik, for this very comprehensive presentation. We have now come to our first longer Q&A session. And we realize that you have found the Q&A button in the Zoom browser asking questions and lining up in the queue that Holger Lembrer is managing. If you haven't found it, it's there and keep posting messages to Holger and he will handle the queue. Holger, who is first in line now? How many questions? Do we have questions?

Yes, indeed, we have questions, Christiane. Thank you. And first in line, we have Daniela e Costa from Goldman Sachs.

So yes, I'll start with 1 -- I have 1 question basically. When you talk about your 10% target, a 5% plus 5% target, you have had that -- ASSA has had that for a number of years. We obviously recently have seen several promises of stimulus, both in Europe and in the U.S., particularly some of the Biden plan talk about housing, health care upgrades in terms of renovation and you have fairly strong positions, I think, in those segments. So is that factored in at all in your 5% organic? Or would that come sort of has incremental upside that that maybe you haven't factored in yet given it's not like fully firmed and decided? That's my question.

Yes, Daniela, you want to put our ambition even higher. We thought that the 5% plus 5% was already very ambitious. If you look over the last 10 years prior to the pandemic, we grew 9%. So you can look in 2 ways. You can say we felt miserable because the ambition was 10%, and we only did 9%. Or you can look at it like I look at it, it was a fantastic achievement that we now signed immediately to do, again, 9% for the next 10 years. Then, of course, it has to be a combination of acquisitions and organic growth. Obviously, if I can choose, I prefer more organic growth over more acquisitions because clearly, organic growth is the strongest value creator. But obviously, we'll be happy with both. But I think all the market conditions, the positive things that we explained before and then all the internal activities that we are deploying will confidently lead to reaching that ambition of that 5% plus 5%. But we -- again, we believe that's already a very ambitious target. So we have no intention to further lift that up.

Typically to the stimulus programs. Can you comment on how they impact you and whether they're in the five?

Which programs you mean? Sorry, I hadn't hear that.

Like the Biden plan, which includes several measures for housing and schooling and hospitals and segments where I guess you have a strong presence.

Yes. So obviously, the U.S. market is the most important market for us. We are not so exposed to new build in the U.S., the vast majority of our business comes from replacement market. But if you take the Americas division, around 80% comes from the U.S., the other 20% from Canada and emerging markets. And in that 80%, of course, the vast majority is on the commercial side. Very happy now to see our architecture billing indexes and other construction indexes going up again very much in the right direction. But I would say this is more leading indicator. What happens with ABI indexes today, we will see that in business in a year, 18 months from now. It might be a little bit shorter because, obviously, when things went down, there was a very big backlog of construction work. So what has happened is that backlog became a little bit smaller. So you come also faster in -- at the end of the funnel. And so it might speed up things a little bit. But definitely, things that might speed up more is all the Biden incentives and so on. If you take, for instance, particular schooling and universities, K-12 universities, if they decide to invest money in refurbishments, those cycles are much shorter. And there, we should then see faster -- an uptick of our business.

Thank you, Daniela. I think we'll move over to the next person in line, which is Rizk Maidi at Jefferies.

I hope you can hear me well. So I just have 2. So perhaps the first one is on that case study with regards to the South Korean electromechanical or residential electromechanical lots business, we see that it went from sort of early stages to now sort of more mature markets, can you just share with us how the profitability evolution of iRevo was over the last few years? Because, I guess, one of the main pushback is that your U.S. digital door business is currently margin dilutive. Do you think that business based on the experience of iRevo could actually close the gap to the group's target? And I'll start here.

Yes. I think the main point for profitability is probably the maturity of the market and how much you are in that replacement cycle versus new build. I think that's also true for digital door locks. Then of course, the dynamics in South Korea are very different from, for instance, the U.S. So I don't know how much you can extrapolate it. But to answer your question, if you look at profitability in South Korea today for digital door locks, it's on a similar level, even slightly better than for our mechanical part. So once it's in a mature market, it's a normal profitability level, I would say. But it's true that we have always said, and that's still the case today that in January, if you take in the world that smart digital door locks today are dilutive to growth in the sense that we make less margins on digital door locks than on the rest. But we are also making good progress there on the cost side and on the pricing side also with new product launches that we have done in a very intensive way over the last 9 months. So we see also the margins improving and the gap becomes smaller in general.

Okay. Good stuff. Then perhaps just a follow-up, if I could. Just on the M&A integration, I think you've mentioned some of the sort of new changes, appointing an integration manager, reporting M&A to the Board. And this is essentially tackling the new deals that you're doing. What are you doing with previously acquired businesses that haven't been sort of, say, sort of completely integrated, anything there?

You want to take this?

I mean, I think I would say the financial follow-up, the one that I talked about, let's say, that we have an increased follow-up when it comes to, let's say, the performance of the entities and also on the -- yes, on the performance of the entities, that, of course, includes also acquisitions that was done prior. So I would say that we also make sure that we include them also in the bucket of improved follow-up. And also looking, of course, also in these ones, are there additional synergies that we can find out of this. Well, I mean, like what Nico talked about with August as an example where we now use August, their software platform also for the Yale Doorman locks.

But I would say when we do an acquisition, we have a clear plan on synergies and what we want to integrate, what we want to keep stand-alone, and we just execute on that plan as long as we don't see deviations and as long as that delivers results. And of course, with acquisitions, it's like running on bike. The more you do, the better you get added and as we do 15, 20 acquisitions per year, I always say there is perhaps 1 or 2 that are perhaps not so good. There's 1 or 2 that are fantastic. But the vast majority is -- are very good acquisitions and are done in a very good way, again, because you have a process in place. And of course, if you do many of them per year, you can also permit as an exception that from time to time, you have one that is perhaps not 100% as you expected. I think it's also proven in our results that our track record when it comes to acquisition is a very strong track record also over recent year.

Thank you, Rizk. We'll move over to the next person in line. And the next person in line is Mattias Holmberg from DNBM. Mattias we can see you, but we don't hear you so maybe unmute. Mattias, do you hear us? We don't hear you. Shall we, in that case, try and take the next person in line, and then we come back to you, Mattias. So the next person in line is Lucie Carrier from Morgan Stanley.

I will leave myself -- I will try to keep myself to 2 questions. The first one is around the margin dynamic. And thank you for giving us some data around your SaaS business and also recurring revenue. I guess what I was wondering is you are keeping your margin range the same in the long term, but I would have thought that those business around recurring revenue and software as a service would carry higher-margin than your OE business or your general kind of business. So how do we think about the margin dynamics here in terms of comparing the profitability of those businesses, considering that you're not changing your margin target despite those businesses apparently growing significantly more than the rest of the business.

So we've always said that if we can choose between further improving our margin above the 16% to 17% bandwidth or see if we can grow faster, we will choose the latter because we believe growing faster is a stronger value creator and further increasing the margin. And we should not forget, if we talk about service development, if you talk about recurring revenue development that you also have to invest, you have to invest in R&D, you have to invest in software. You have to invest in a service organization. So that growth does not come for free. You also have to invest in that, definitely in the beginning when you are ramping up those new initiatives. But when you talk about mix in EBIT, I think there is so many dimensions that it's very difficult to explain in an easy way. First of all, you have already the geographical mix. Of course, if we can grow faster in the Americas and grow faster in Global Technologies, it's very accretive to the margins. If tomorrow, we do a fantastic job in China, and we grow 20% or 30%. It will be with single-digit EBIT level. And of course, it will be dilutive to the group margin. If we enter a new market, now very successfully in entering that new market, it will be the first place with new projects, new build. So again, at the beginning, it will be dilutive afterwards, it will then become accretive. Again, we still believe that the 16% to 17% bandwidth is, for us, the right target to aim for. Again, if you look over the last 10 years, we have been most of the time within that bandwidth, but rather on the lower end of the bandwidth, sometimes also just slightly dropping out and then coming back. So from there that we reconfirm the 16% to 17% EBIT target.

Okay. If I may just ask a second question around this investment you're talking about to develop your service business. I remember you had already mentioned that at the Capital Markets Day a few years ago around leveraging the installed base. Can you maybe help us understand what is concretely being done at the moment to really leverage that massive installed base that you have globally? And which type of results have you seen so far? Because in all fairness, maybe from the outside, it's not so obvious that it has -- that it has been a game-changing up to now. So just to understand a little bit better what maybe from the outside, we do not necessarily see, but obviously, you guys are working on this every day.

Well, I'm quite sure that you've asked yourself where the very good profit margin improvement in Entrance Systems comes from. And of course, there's the different arguments, but definitely one argument is also our service business because we have said if we can grow our service business faster than our equipment business that will be accretive to margins because we make better margins on the equipment side than on the new -- sorry, on the service side than on the new equipment side. And if you going back 4, 5 years ago, we were growing our service business only low single digit. It was more a passive way of developing our service business. Prior to the pandemic, we really then increased quarter after quarter in a very good way that growth, and we came toward the beginning of the pandemic to a high single-digit growth for service, the level where we want to be. And then obviously, during the pandemic that put us back again because also often, our service technicians were not even allowed to come on site. But then again, as of the second half of last year, we have seen them service picking up again. And now in Q1, we were, again, having a high single-digit service goal. So we are confident that we are delivering on that strategy of delivering high single-digit service growth. What does it mean? Impact is, of course, investing in people. I mean, if you have more service business, you need more service technicians, you need more service salespeople to sell that service business, but you also have to invest in your back office and in your systems because if you grow your organization, you also have to make sure that the systems and the customer support grow together with it because otherwise, you will give services to customer and customer will not be happy, and you will just lose that service business again over time.

Thank you, Lucie. Well, let's now try a second time with Mattias Holmberg at DNB. Mattias, go ahead please. Mattias, do you hear us? Please go ahead. No, it doesn't work. That's a shame. Well, Mattias, let's work on your technology. You can come back maybe to the next Q&A session. We will, in that case, move to the next person in line. And that's Andreas Willi from JPMorgan.

Yes. Good afternoon, everybody. I have a question first on your hardware and doors business. You showed us a slide earlier, showing that, that has slightly declined over, I think, the 2015 to 2019 period. Could you maybe elaborate a bit on that in terms of your ambitions as well for that business and how big that business is today? And the second question I have is on your R&D, mainly on R&D productivity. Are you happy with what you get out of the increased R&D and also the higher level of R&D against some of your competitors, at least from outside, it's not easy to spot that, that higher R&D investment has driven higher growth than, for example, at Allegion?

If I start with the first question, I should look at the details, but -- Erik or Björn can add. But I mean the main reason is, China, our door business in China, where, of course, we had the challenges a couple of years back and where we announced had a conservative approach of creating stability, profitability and then growing back from a lower level. That would explain I'm quite confident the difference you see on the graph. When it comes to doors, if that's the question, if we see that this is important for us as we see this as essential and as part of our core business. We see more and more projects where you can -- you sell the door together with the door hardware. Also, Neil, in his presentation in EMEIA will further elaborate on that, but we see that as a competitive advantage for us, if we can sell the whole package that we -- from specification, all the way to sales can pull-through that offer in the market. When it comes to R&D, happy or satisfied, I would say, I'm happy, but I'm never satisfied. Of course, we always want to do better. Then I mean, you can always compare with competition, and we can have -- and for sure, we have different views on how the relative performance is. When we talk about R&D as a group, of course, you not forget that you have on one side, R&D and Entrance Systems, where you could argue there's not so much synergies in that R&D with the rest of what we do within the group. Than of course, we have a very important investment in R&D and everything what is Global Technologies as well on the Global Solutions side, as on the HID, where you clearly saw prior to pandemic that higher growth and higher than the market growth, I would argue as well on HID as for Global Solutions. And then when you take the 3 geographical divisions, when you look purely on R&D for the mechanical side, of course, you have to do R&D in every market. And as the mechanical part is different, again, in Italy, from Germany, from Sweden, from the U.S., you have to do -- you could say, 4x R&D. If you only sell locks in one market, if you only sell them in the U.S., for instance, of course, you can concentrate your R&D activities on only making one range, which fits for the U.S. market. But then you miss out, of course, on all the opportunities that you have in South America, in Europe and in the rest of the world. And if you want to grab those opportunities, you have to invest also R&D on the mechanical side there. Where I think we definitely can do better and have to do a better -- that's a matter of time because we are maturing is on the electromechanical side, like I explained, if we are convinced that electronics and software can be very similar on a global level. We then having the advantage of the mechanical part is still very local. We being, by far, the biggest in the market, we should be able over time to leverage that scale to our advantage. And that's something we are working on, and we are confident we will see improvement going forward.

Just maybe a quick follow-up on your target, the 5% organic. Do you see that as a through-cycle or as a target during a normal economic cycle, outside recessions.

We see that over a normal business cycle, you could say, yes.

Thank you, Andreas. Well, let's move then to the next person. [Operator Instructions]. The next person in line now is Anders Roslund from Pareto Securities. Anders, please go ahead. If we don't get anything than we will move to the next person in line, and that's Guillermo from UBS.

Good afternoon, everyone. I guess [Audio Gap] margin range. Do you think that with the current set of variables that we have in the market when we get there this year? And the second question in regards to the growth in emerging markets. Can you explain a little bit how dilutive it is at the moment for the group margins to grow at that level? And how do you expect that to move in the subsequent years?

If I start with the first question, if I got the question correct. If you look in Q4 and in Q1, Q4 last year and Q1 this year and you normalize and you take also out the dilution of the acquisition of record, which is around 50 basis points dilutive on group level. You could say that we are on very similar profit levels as prior to the pandemic. So yes, we should continue to see the margins recovering and coming back into that 16% to 17% benefit. Then again, there is a lot of moving variables. There is a material inflation. There is the electronic shortages, but there is also in an important way, our own internal mix. Again, more growth in the Americas, more growth in Global Technologies. means much easier to come fast back to the margins, more growth in China or in APAC, in general, means more difficulties to come fast back to the margins. But as such, I hope that I can come in the coming quarters and the coming years and tell you that the margin is dilutive because we are very successful in China because, obviously, we want to see how we can accelerate growth in China and in other emerging markets. When it comes to the second question on profitability in emerging markets, it's very, very difficult or impossible to give a uniform answer. I think if you take the more mature part, East Europe, South America, margins are very much in line with our group ambition. Then if you take the complete opposite side of the spectrum, China, we have said that prior to when we started our new strategy, our margins were very low single digit. And today, they are only somewhere mid-single digit. So it really depends, again, market by market. The majority of the market itself, the level of the standards implemented in those markets. How much there is a split between residential and commercial offering. And then also on our maturity of where we stand in the market, are we just entering the market and are still building up the installed base. Or do we already have a good installed base that we can draw from and then profit more from the replacement market.

Thank you, Guillermo. We actually have now to round up this Q&A session. So I'll hand over to you, Christiane.

Thank you. There we are. Okay. Thank you for this session. We will now take a short break before we continue with the presentations from Entrance Systems, Global Solutions and EMEIA. After the presentation from EMEIA, we will again open up for a Q&A session with all the presenters from today. We will resume in 10 minutes' time. That's 4 -- 10 minutes past 4 in Swedish local time. See you after the break. [Break]

Welcome back from the break. We hope that this first part of the presentation have provided you with a deeper insight and understanding for our potential and strategy. We will now move over to the next part of the agenda, which is to go a bit deeper into 3 presentations Entrance Systems, Global Solutions and EMEIA. First out is Entrance Systems. We have Christopher Norbye, who is heading the division, is located at our site in Landskrona in the South of Sweden, and he will now present Entrance Systems. Christopher, please go ahead.

Thank you very much, and welcome to ASSA ABLOY Entrance Systems here in Landskrona Sweden, one of the 2 global divisions within the ASSA ABLOY Group. I will start today and talk a little bit about the division, where we have today 14,000 dedicated people around the world, which includes 3,500 service techs. In 2020, we reached a turnover of SEK 28 billion. Our business model is truly global. We have direct and indirect presence in over 100 countries all over the world. And we are growing in key verticals such as logistics, data centers, high security, health care and all door automation. We also serve all type of customers, ranging for small local companies to global key accounts. And we work with them with their equipment, modernization and upgrades and of course, service. Our strong business model has proven to be very successful in the past. And we could also see the performance here in 2020 that confirmed that our business model also is set up for the future. If you go into more of the financial side of the business, we can see here on the sales side that we have grown a lot through acquisitions in the past. And also, if you look specifically on 2020, you could see that we only dropped 2% of organic sales, but we added a lot of sales to our acquisition of the record group and Am group. And we also had a very good start to 2021, growing 11% organically and 12% through acquisitions. If you then move over to our margins, I believe we have made some good steps forward to improve our margins, and we could see that coming through at the end of 2020. We also saw a good continuation of this in 2021, and we expect this to continue. And then finally, on the cash flow side, this continues to be strong. It's part of our business model, and this will also continue in the future. Then maybe moving on to one of our most impressive slides, or the best slides we have. If you can see this fantastic development ongoing from SEK 200 million to -- in 2020, SEK 28 billion. Of course, a fantastic growth journey, consolidating the market, buying the best companies out there. And this is not over yet. We still see good opportunities in our different segments in geographies to continue and consolidate and drive the market. If you then move over to that, we changed our organization here in the beginning of 2020. We created 4 business segments to drive the business. We created a pedestrian segment, the industrial segment, the residential segment and also perimeter. In this reason for doing this was mainly to accelerate our ability to make fast decision, work with scalability, also drive synergies, and we can already see good effects of this new organization. So it's working out very well. Then now also to educate a little bit, everybody listening in today on our product portfolio, and I'll start with the Pedestrian segment. Here we're by far, divest this product portfolio of any company around the globe. We are the market-leading within slider, swingers and revolving doors. But lately, with a record acquisition, we have also added physical access product, sensors that will be critical to future and all this supported by the world's best and largest service organization. We now move into industrial offering. It's a similar story as to pedestrian, a global leading product portfolio from dock levelers, to industrial doors, to hangar doors, to high-performance doors and also here supported by the world's best and largest service organization. Moving into the residential offering, where we are the -- one of the market-leading positions in North America on the garage door and operators. And also here, we're moving forward more and more in the segment working together with assisted division, Yale and connecting our products, working with their ecosystem because, of course, that's a trend that's happening out in the market. And then finally, our parameter segment, working in very high-growth verticals like high security fencing, also in bollards, in crash vehicles products. So here, we also see a global or North America leading product portfolio that will continue to develop. If we then move over more to the future, focusing on our strategy going forward. We have set a strategic plan per segment, supported by the ASSA ABLOY core values. And here, we have set the financial targets of growing 10% per year in the future and also moving the EBIT to 16%. We will also continue to drive being #1 or 2 in our segments and go into the market direct and indirect. And here, I will summarize some of the initiatives to drive our profitable growth that the rest of this presentation will focus on. Of course, product leadership core to our business. Then also service where we're expanding our investments even more to drive growth. Then also emerging markets, big organic growth driver for us in the future, also focusing on verticals, such as logistics, health care and high security fencing that I mentioned before. And M&A that will continue to be core of our development in the future. And then finally, operational excellence that's a platform for everything to come together. So if I move into then product leadership and talk a little bit about that, is that we will continue to invest and drive our core portfolio that I just went over with you. But also on top of that, we're investing more and more in our service product offering and also connecting service with the equipment. And this will -- you'll see this a little bit later when I talk about connectivity, how this works together. And then sustainability, it's a core of our products, of course, energy efficiency, that we work with all our product automation, speed in our products. And then finally, I mean, we maybe called the new kid on the block, connectivity, where we now are connecting all our products that we are selling and also ability to connect our old products, to work with our customers to drive their business and also our service organization. And here, we'll show you a little clip. On one of our solution in the docking business in the U.S. under the brand foresight. So let's take a look at this video. [Presentation]

So thank you very much for that fantastic video, focusing on our connectivity in key verticals like logistics will continue and drive our business. We will now move on to our core products and product development within our pedestrian segment. And here, we'll go over more of our traditional product by some really cool features and development the web in the pipeline and as we have launched. And I will hand over here to my colleague in the product side, Johan. So please Johan, the floor is yours.

Today, I'm excited to introduce some of the products in our portfolio. I will start with our new exciting collaboration with LG Electronics. We strive to be the global leader in entrance automation. We challenge the status quo and go the extra mile to find smarter ways to improve our customer business and life. So with that in mind, imagine what an automatic sliding door could be, not only a convenient offering, but also a great opportunity to promote brands and communication. We partnered with the technology leaders at LG Electronics. The result is a door like no other. Introducing the revolutionary transparent OLED automatic door. This state of the art door features a combination of ASSA ABLOY's proven sliding door functionality with LG's cutting-edge Transparent OLED display. Here's how it works. The display is integrated into the glaze door, and it turns an otherwise unused space into a unique opportunity to display a brand or a message, picture walking into an airport and seeing advertising on the door, maybe the latest store opening of your favorite clothing brand or walking into a grocery store and seeing ads for products available in the store. You can program the door to display customized advertising in perfect quality, show dynamic animations, crisp and clear videos. With the Transparent OLED door the possibilities are endless. And this is just the beginning. We are planning future collaborations with fourth leading companies worldwide. Here at ASSA ABLOY, we are constantly looking at the needs of the market, and we have built a reputation of being one step ahead with new products that will benefit our customers. I would like to talk a bit about the growing demand for door operators with smart functions. How we, in 2020, met that demand with the launch of the innovative SW60. We developed it to meet the needs of architects and building designers, looking for a slim operator that would easily blend in with his surroundings, a sleek and modern product that even won the Red Dot product design awards in 2021. And we combine it with a smart and touchless feature that end users have come to expect. The result is a game changer for our industry. This product offers a seamless fit into any environment with a germ free touchless function, and you can easily control it with a smartphone. Just like this. As you can see, it is safe, seamless and easy to control the doors in your facility. With the successful launch of the SW60 ASSA ABLOY has set a new reality for door automation. During the past year, COVID-19 has triggered innovation across the world as the pandemic has affected our day-to-day lives and influence the way consumers behave. These are challenging times for many business owners who have to take new regulations regarding permitted people capacity and social distancing into account. The ASSA ABLOY Flow Control is an automatic counting solution that supports social distancing by limiting the number of people in shops and buildings. The sensor count the number of people entering and leaving the building while displaying the current occupancy in real time. When the limit is reached, the LED strip switches from green to red and automatic door is put in exit only mode. "Please wait here." The door is locked from the outside and a voice message, lets you know that you can't enter. "Please enter." When a person exits the premises, the traffic light switches from red to green and a person can enter. With this product, there is an automatic limitation of the number of people that can enter a building, making sure the business owners compliant with local regulations and that customers and employees feel safe. There is no need to hire extra security guards, leaving business owners with a peace of mind to focus on their business.

Thank you, Johan, for a fantastic product demo. I'm sure all of you watching this video are interested in our OLED screen door, so we can continue and talk about that after this presentation or during the Q&A, of course. Moving on then to the next profitable growth driver we have is service expansion. I think you know by now, on Entrance System of course, service is part of our core. And I think the biggest difference here going forward now is that we're also working much more on a vertical offering in logistics and other verticals to have an even better offering for our customers. And then we're also connecting all our doors where we can see now the efficiency in service improving and also the speed we fixed things for our customers. Which means that our first time fixed is going up, we'll get better response to our customers. And of course, this also leads long-term to a different type of business model where we can work with uptime, we can even fix the door before it breaks. So it's very exciting times in our service organization. And also just to show an example on the service side, and we talked a little bit from the [indiscernible] and connectivity, we also signed an agreement here with DB Schenker on one of the new logistics center, where they're also buying our dock management system, which means that all their doors will be connected for them to get more and more information on and drive efficiency. And for us, also for our service organization to be more efficiently and fix door and problems afforded happens. So it's a win-win for both companies, and this is very exciting for us going forward. If we then move from service into the emerging markets, and we showed on a couple of our first slides that we only have 6% of our sales in the emerging markets. And we believe we can grow this sales significantly going forward. And I think the biggest difference from the past is that we now identified our key markets. We're also in these markets, investing in R&D, product development, local supply chain and manufacturing. And we can already see a good progress in some of the markets. And if we focus a little bit of our largest market, China, where we already have a good presence. The difference now is that we have local product development, R&D and organization to drive and support our growth. And looking at the example I will show you, we also see success here because we recently signed a frame agreement with a local Chinese real estate developer, who's actually refitting all their residential buildings with automatic doors, which is a trend in our market. And this will never happen in our old structure because it's a local developed product, working together with the customer, both from a cost, design. And this is the reason why we won this project, and there's more of these in the pipeline. Then finally, moving into growth through acquisitions, which has always been part of the core for Entrance System and will continue to be part of the core. And here, we still see big opportunities in different parts of the market. We drive our acquisition on bolt-on, on a market presence. And these smaller, midsized acquisition will continue to roll in every year. And then we'll also look at how we can expand in certain markets or regions where we don't have the strongest footprint. Then on top of this, we continue to look at products or portfolios that will be a good add on to products. I mean, for example, record is partly this, but also the AM Group and these companies will continue to be part of our strategy going forward. And then finally, we're also expanding into looking at technologies. We're looking at Flow. We're looking at different sensors. We're looking at other parts that will drive our business going forward. So we think also here, it's an exciting time with a good pipeline going forward. A small summary or update on record that we finally closed in September 2020 after a very long process. And this is one of the largest acquisitions in the history of Entrance System and ASSA ABLOY. And we, of course, had high expectation when doing this. And as now when we are merging the companies, we can confirm those expectations and even some upside to them. We have an ambition here to grow record into the same profit level at 16%, and we have some really good initiatives to do that. I mean I think the key here to this is, of course, how we integrate our service organization, all the tools around it and also the product side, where we get new exciting products in our portfolio. And of course, from the cost side, when we're driving the synergies through. So all in all, a very promising start to the integration, and we'll see more and more of this as we move forward together. Then if we wrap everything up to be able to create this growth and margin development, we also need the operational excellence. And here, we drive and work with, of course, every single day. I think a couple of things to highlight here is, of course, safety. We have a lot of -- I said, 3,500 service techs. We have a lot of factories and people around the world and we want to make sure they come home safe from work. And I think the other part is, as we continue and consolidate our business and add acquisitions, our manufacturing footprint or supply chain will continue and consolidate, which means that if you look at this, we have closed almost 200 sites over the last 10 years, and this trend will continue. And then also putting operational excellence altogether. We also focus on automation. And of course, a key driver as we increase our volumes in our business. And here, I want to show an example, one of our factories based in Texas in the U.S. was focused on making dock levelers, a factory that over the last 5 years, have improved their productivity or expanded capacity by over 50%. So here, let's take a look at our factory and automation in the dock leveling business in the U.S. [Presentation]

So to summarize this presentation, I would like to focus on some key points. We had a very solid performance during a challenging 2020 and a good start to 2021. We have a new organization in place, and we can already see the result of this new organization. We have accelerated our focus on driving product leadership and also added focus within service and connectivity. We have a presence in a lot of high-growth verticals such as docking and logistics, health care, security fencing and data centers. We have started a good integration process and good potential within the record acquisition. And then finally, we believe that we now have also the platform for the profitable growth in reaching the 16% within Entrance System long term. So with that, I would like to thank you very much for listening, and I will hand it back over to Stockholm. Thank you very much.

Thank you very much, Christopher. Very interesting. You will be back for the Q&A session in a little while. Before we move over to Global Solutions, I would like to ask Nico if there is anything in relation to what Christopher & Entrance System just shared with us that you want to comment on?

I think it was a good presentation, fantastic story. If you see -- and go back 2002 when we bought Besam, small SEK 200 million Swedish company. And you see the journey we made and the growth we realized mainly through acquisitions and the value we create. And I think it's a fantastic story. And as Christopher said, much more to come on. And I think also very high ambitions also going forward. Also would like to take the opportunity to thank Christopher Norbye for his contribution in that journey over the last years because most of you know that Christopher will leave us, he will become the CEO of Beijer Ref, I hope I said that correctly. And of course, we have started the process now to find his replacement.

Thank you, Nico.

Let's now move to Global Solutions. Christophe Sut is heading Global Solutions. And those of you who have covered ASSA ABLOY for a while will remember that he presented at our CMD back in 2017. A lot has happened with the Global Solutions since then. Christophe Sut is now located in our Global Solutions head office in South Stockholm. Christophe, please go ahead.

Thank you, Björn. And I would like to wish you welcome in Global Solution. During the next couple of minutes, I will try to give you a glimpse of what we do. As an organization, we are 30% of global technology group. We are about 2,000 people spread all around the world. Four factories, but 31 operations in 31 different countries that are mainly service organizations. We are extremely focused on innovation and have had a big part of our revenue coming from product recently launched. So let's now go a little bit more in-depth with what we are doing. As an organization, we are focused on understanding specific vertical segment that we have targeted, identifying the pain point of our clients and out of it, building security solutions that create added value for our clients. The way we do it is by delivering 3 components that you will always find. Hardware components, mainly a lock, that will be the base of the solution. This is the device that will help us at a later stage to build all the functionality we need for our customers. On top of that hardware, we sell software platform that enhance the experience and bring functionality that create added value for our clients. And finally, we offer services. And the services are here to make sure that the solution we provide is constantly available with a high level of reliability. I would like to give you an example to help you to understand how it works in practice. So let's go to the hospitality industry that I'm sure you are very, very familiar with. We started our journey there by providing hotel locks that will be used to secure the guestroom. Then we realized that by adding a software layer to it, we could create added value to our clients and to their clients. So the first thing we did was launching mobile key by adding a software layer that will allow our clients to give the capability to hotel guests to check in their hotel room by passing the reception. As we were close to those clients, we have realized that they face many other challenges. One of them is the security of their staff because they want to make sure that if someone gets in trouble, they can assist the person and help the person as much as possible. Based on that, we realize that our technology will be able to bring a lot of value to those clients and developed a solution called location services, applying an HID technology to the hospitality industry. And we made sure that, that solution will be managed by the same software that you use to manage your room to create a seamless experience for the hotelier and to allow a very easy deployment. Today, we have a software platform based in the cloud called VOSTIO, that allow our clients to consume many different services from our part. Mobile key, location services, room and access management. This is the way being close to our clients, we create added value, and we create a long-term relationship. Realizing that, that approach could create value for other verticals, we are starting to expand the number of markets where we will produce the same approach. Hospitality was the first one. We immediately in 2016, made a major investment for the marine industry in order to also provide unique experience and added value. And we have step-by-step, increase the number of vertical markets where we develop the same type of approach and develop dedicated solutions. Starting with Senior Care, then education, critical infrastructure, key asset management and finally, construction. As a second example, I think that it may be interesting that we stop on the construction vertical. This is the last vertical we have started to penetrate. We did it by acquiring beginning of 2020, a company called Biosite in the U.K. that is focused only to provide security solution. The reason why we decided to focus on the construction industry is because we realize that this is an industry that has benefited the less of the gain of productivity over the last decade. And we believe that digitization can be a game changer. So let understand more in detail what Biosite is doing. [Presentation]

As you can see, by using standard technology and tuning them to a specific industry, we can create great value for our customer, they gain in productivity and they get an enhanced security. In summary, we allow our clients to create value out of their security solution. How we do it is by being vertical focused, having a strong direct relationship, in many cases, through direct sales and making sure that we allow our clients to scale those solutions all around the globe. What we do is we build security platforms out of software that allow us to change our revenue streams to more recurring revenue by using technology that is available all across the group from our geographical division to HID. But now let's have a look at some financials to see how that strategy has impacted our development. Between the end of 2016, towards the end of 2019, we doubled our size. Obviously, the last 12 months that we have been through have let us go a little bit backward. But let's try to understand how it impacts the different vertical and business area that we have. One way to look at it is to split the business area that are dependent to the tourism industry, hospitality and marine. And on the other hand, to put all the markets that are not tourism related. When you look at that picture, you can clearly see that even if we had a significant growth between 2016 and the end of 2019, the last 12 months have brought us back to the level we had at the time in terms of revenue. In the same time, we have continued our strategy to invest in other vertical markets. And even during the pandemic, we have kept growing those markets. We believe that it gives us a very strong combination on the long term, having a diversified portfolio, but the way to approach those market that is pretty similar. In the same time, it has transformed the way we collect our revenue. Obviously, we keep having a project part that is significant because it constituted the base for future recurring revenue. But we have started to increase our recurring revenue component and one of the very significant components that has taken off during the last 4 years is software as a service solutions. Mobile key was the first we launched on the market, but it has been complemented with solution for senior care and construction. This revenue has grown by more than 3,000% since the end of 2016, towards the end of last year. All of it is possible because we keep being very close to our customers and continue to innovate, building new solutions that they appreciate. We started with the hospitality vertical, bringing mobile to the market. As you saw earlier, we have complemented it with location services solution and access management software in the cloud with our VOSTIO cloud stuff. We have also caused the staff a number of new innovations that have come to the market over the last '19 months that are really making a difference to their industry. Beat for critical infrastructure. Solution for key management for the automotive industry with Traka. Biosite that is evolving its offering towards more features and more capabilities. All those solutions are recognized and seen by our clients and by the industry as the best available on the market. They will help us to move forward towards our new goals. We believe that those innovation will allow us to continue the digital journey we have started with our clients, allowing them to bring value out of software towards their security solutions. We will scale the solutions and continue our geographical expansion. In the same time, we are going to continue to explore other potential vertical market we will penetrate and grow them through organic growth or new acquisition. Those 3 elements will allow us to double our size again during the coming 5 years, but also to keep a level of profitability above the group average. I would like to thank you for listening, and let's go back to the studio.

Thank you, Christophe. Very interesting. And you will also be back for the Q&A session in a little while. Before we move over to EMEIA, I turn to Nico to ask, if you have anything you want to comment on what Christophe and Global Solutions just shared with us.

No, of course, an important division when it comes to accelerating our growth. As a matter of fact, this division was growing the fastest prior to COVID-19. And of course, COVID-19 hit us. And today, they also hit the most from all divisions by the pandemic because, obviously, all the tourist part as Christophe expect, and it will take some time to recover. But definitely, once we come out of that pandemic, they will be, again, a very important growth for the group. And that's also why we are differentiating, diversifying also into other verticals away from hotel business and marine business. Very excited about this division as well.

Thank you, Nico. And with that, we are heading towards a break, we will have a short break and resume again at 4:55, 16:55. And then we will get the presentation from EMEIA. So see you in a few minutes. [Break]

And we have now come to the last part of today's program. And we will listen to EMEIA, where Neil Vann will present. Neil Vann is actually another very good example of a person who has made a very successful internal career with ASSA ABLOY. He joined Union and Chubb Locks in the U.K., 1987, and at that point, as an apprentice. And now 34 years later, he's heading the division. Neil, please go ahead.

Welcome, and hello to you all live from our Portobello factory, hear in Willenhall in the U.K., the ancestral home of locks in the U.K. In EMEIA, we lead the development within door openings and products for access solutions in homes, businesses and institutions. Our extensive offering includes doors, door or window hardware, locks, access control and services. We've continued to lead the market in access solutions through a combination of great people, great processes and the best products. We have a team of over 12,000 dedicated people in over 60 countries spread across 12 market regions from the U.K. and Ireland, Western Europe through to East Europe, Middle East, Africa and now reaching as far as India and the SAARC countries. Europe, Middle East, India and Africa make up 21% of the group's sales or SEK 19 billion, and 18% of the group's EBIT. We have a footprint of over 39 factories and close to 80 office locations that all play a key role in delivering our products and services. New products play a huge part of our growth strategy. However, we've also acquired over 50 companies in the last 10 years. Primarily, our sales are in mature markets, however, 13% of our sales come from emerging markets and the recent addition of India and the SAARC countries provide us with a new 1.4 billion potential customer base. Our customer balance is 60% commercial and 40% residential. From a product point of view, the core of our business is still strong and 47% of our sales are in mechanical products. Importantly, security doors now equate for 17% of our sales. But electromechanical and access control is a major growth driver, and we have established a great presence with over 36% of our sales in 2020 from electromechanical products. 2020 saw an unprecedented impact of the global pandemic, which unfortunately meant that we have negative sales growth after 27 consecutive quarters of growth. But now we see a progressive but strong bounce back in the early part of this year. Our operating margin was also impacted during COVID, but our cash flow accelerated and was strong during 2020. Efficiency improvements will become the fuel for our investment in growth. We have a clear strategy for our growth drivers, which I'll talk about later. But importantly, I want to talk about our operational activity and the efficiencies, which will be the fuel for our growth. In operations, our factories, offices, suppliers and logistics teams are where it all happens. Our efficiency improvement plan is based around 4 key areas, and we aim to deliver EUR 20 million to EUR 30 million of efficiency improvements every year. The first efficiency activity is around our operational footprint. And we've been working very hard on improving our production footprint and overall manufacturing efficiency. The site that we're at today, Portobello, is what I call a final configuration factory and is a great example of how we consolidated our manufacturing footprint. This single site has absorbed the manufacturing activity of 5 previous acquisitions over the last few years. Every factory that we have has a defined mission, whether it's a full manufacturing site with heavy investment in automation like our Center of Excellence for cylinders in Rychnov or a specialist door factory like our Polish Mercor sites. Or it could be a close-to-market final configuration site like this one here in Willenhall. A final configuration site like this one will have machinery and automation for fast final configuration of products close to the market, like the master key machine you can see behind me and the cylinder assembly machine that you can see on the other camera. The second part of our program is around logistics. After we produce the products, then our logistics is a crucial opportunity to drive not only efficiency but improve service throughout our supply chain. As we develop a linked network of distribution centers across Europe, we can consolidate inbound shipments with fewer suppliers, reduce our warehouse footprint and where we can share stock across multiple regions and improve our service. Also, we can improve our outbound logistics spend by having that consolidated footprint. However, in order to deliver efficiencies and improvements, we will need to also introduce new logistics tools and systems to support the changing dynamics in our marketplace. The third part of our operational strategy is around procurement and VAVE. We will leverage our procurement activity through radical supply reduction and the development of key partners will be a crucial part of our strategy. We're also working with value engineering and value analysis programs to drive the right level of functionality into our products and minimize costs. Driving operational excellence is the fourth and final step in our operations strategy. And it's based around our operational excellence program. Our operational excellence program, which is focused around lean principles will continue to be an integral part of our success. So looking to the future, I'm proud to call Rychnov, our cylinder factory in the Czech Republic, a new prototype for our digital factory of the future or Factory 4.0, which will take us to the next level. By investing in new equipment and automation and then seamlessly linking processes, machines and people together, we will enable us to increase our efficiency, our quality and the supply parts produced. As you'll see from the footage I'm about to show you, we have a whole host of automation within the factory and a state-of-the-art digital command center that tracks all parts of the production process. This is a big change from where we were 5 years ago. And it's the model of the future in digitization of manufacturing and our journey of transformation. Now I'm going to show you a video of our factory in Rychnov, which will give me a chance to get back to one of our product showrooms, where we'll be able to talk about our commercial strategy moving forward. [Presentation]

Okay. So we come from a factory floor and now we're in one of our product showrooms. This product showroom is actually set up as a residential house where we can demonstrate our smart residential products. And here, I'm going to talk you through our commercial strategy. We've built a clear and strategic framework, which is in line with the group vision. Whilst building the plant, our market regions have provided input to ensure that we can deal with local market differences and standards whilst being totally aligned as a division on our growth plan. Our growth drivers are built around 3 core areas. The first is about maximize the core. Our core is what made us great, our heritage, local focus and core products like cylinder platforms, lock cases, doors and seals. You might say the traditional side of our business. You might think that this mission is complete, but it's far from it. Geographical expansion and range expansion are still big opportunities for us. Driving efficiency in our product platforms is important. A great example is the success that we've had with PERK, a new European cylinder platform, which has performed extremely well across all of our regions, providing good growth and good efficiency. Having a full specification portfolio, including doors, will be very important for us as we move forward, helping to drive our commercial business. We believe that specification and working with architects early in the process is a crucial ingredient for our success. The growth in green buildings is another important area and will contribute to our commitment to science-based targets. Expanding our product portfolio, particularly in emerging markets, will be done through product development but also through acquisitions. And lastly, we will expand our mechanical business around Yale by introducing product platforms like bore and padlocks and local initiatives like new multipoint locks in the U.K. As you are all well aware, there are some big changes happening in the market. And so the second part of our plan is about capturing the big opportunities in digitization from both the commercial side of the business as well as smart residential, whilst capturing the recurring revenue streams that really help fuel our investments. We recognize that both residentially and commercially, there is a big opportunity for converting our huge installed base, and we are not just talking about this. We are in process with this. And here are a few things that we've done. For smart residential, we have capitalized on the market-leading technology that the group got after acquiring August in the U.S. and using that platform is a great opportunity to expand and accelerate our offering in EMEA. Following on the great success with Doorman in Scandinavia and products like ENTR in parts of Europe, we have now launched a platform that gives us multicountry opportunities with Linus. Linus is a product that can be used across borders with local variations. In addition to Linus, the new Doorman L3 is a new breakthrough product in our core Swedish market. As you may be aware, both Linus and Doorman have accelerated very, very quickly after launch, and demand remains very high. But it's not only about locking, but it's also about generating a total ecosystem using smart alarms and smart cameras in that residential space. When it comes to commercial access control products, we have evolved our strategy and have moved from being a component supplier, i.e., just providing the elmech lock to a complete ecosystem provider to allow our customers to fully control access and integrate this into other building systems. This commercial market is fragmented. You normally have a specific application with a dedicated lock and a dedicated piece of software for each application. But now we're able to bring together multiple applications with an ecosystem we call Incedo. Incedo is an ecosystem that will enable us to have multiple hardware types under one control system. We expect this part of our business to grow in a big way over the coming years. Incedo gives us a unified access control security ecosystem, integrating our own intelligent hardware devices, but also enabling third-party integrations to provide the widest choice for our end users. We have used the group scale to develop this in collaboration with HID using their Origo platform, which has really enhanced our capability and given our specific market needs. Let's take a look at a video, so you can understand more about Incedo and also hear direct from one of our customers as to why they chose the ecosystem. Please play the video. [Presentation]

As you can see, this is a very exciting opportunity. And to support it, we've built a pan-European product team as well as dedicated sales organizations in every country, which we are rapidly expanding at pace. This is our clear direction of travel and an important value proposition for our commercial businesses. Our third and final growth driver is all about emerging markets. We have a fantastic opportunity in a number of emerging markets, and we have seen terrific growth development in our business in the Middle East, particularly with projects supported by our specification drive. Using tools we've developed in Europe, such as BIM and Opening Studio, our project specification system, we have made strong steps in the Middle East. And now, we are taking that same methodology and the learnings and are driving it into Africa and India. Our specification capabilities now include over 250 people working in, in specification with end users and architects. And that's a great platform for expansion in our emerging markets. But it's not just about major projects. Addressing local market needs and having specific local product is really important. The transition from mechanical to digital will happen quite quickly once it's established in emerging markets. So we have built the foundations in every one of our emerging markets. The transfer of India and the SAARC countries to our division earlier this year certainly gives us a massive opportunity. We have over 1 billion new potential customers in India, which is great for us. Within our own growth drivers, we have identified a number of focus areas, but it's not just about growth and growth drivers. It's about the enablers in the business. Strong R&D and platform development, driving efficiency in our manufacturing and logistics, developing new channels and new skills in our business like e-business, for example, driving our acquisition portfolio and tools around commercial excellence, all will play a crucial role in delivering our strategy. We believe that EMEA has strong growth potential and the ability to reach the group corridor of 16% to 17% ROS. Thank you very much for listening, and I look forward to answering any questions that you may have later. Now let's go back to the studio. Thanks.

Thank you, Neil. Excellent. The technology worked. Well, before we move over to the final Q&A, I'd like to ask you, Nico, if you have any comments in relation to what we just heard.

Yes, perhaps to repeat what Christiane said, I think Neil is indeed a good example of what we mean with lifelong career within the ASSA ABLOY group. And then I think EMEIA is also a very good example, if we say about the complexity in our markets. Only in Europe, Neil has more than 20 different lock platforms he has to support for the different local markets. So adding a lot of complexity. But obviously, we like complexity because if you can manage complexity, it gives you a competitive advantage. And then like Neil said, you heard it, I think a lot of very good opportunities still within the division. So very excited also here for the future.

Thanks, Nico. Well, it means now that it's time to round up this session and start our next Q&A. I would also like to welcome Christopher Norbye from Entrance Systems; Christophe Sut from Global Solutions; and Neil Vann from EMEIA, who are now, as you can see, in their respective location. Christiane and Holger, have we received any questions?

Thank you, Björn. Yes, we have received questions. Holger, who is first in queue?

Thank you, Christiane. First in the queue line, it will be Gael de-Bray from Deutsche Bank.

The first question I have is, you demoed some pretty interesting products earlier that appear to be suitable to the pandemic. But I was actually wondering if you've really seen some material structural changes due to the pandemic in what the customers demand in terms of being able to sort of in and out of the building without touching things? And if you expect to see some changes in terms of regulations in favor of these sort of solutions, touch-free or contactless access solutions. This is question number one. The second question is, I'm actually trying to understand what sort of pent-up demand is ahead of the group because clearly, there's been a number of retrofit and repair projects that have been pushed out because of the pandemic that have been postponed to a later stage. And I was wondering how the pipeline for these projects look like currently? If there was any way you could help us understand the sort of recovery one could anticipate once the mobility restrictions are fully lifted in a given country? Is it some kind of really strong catch up you expect to see? Or is it more gradual improvement that you are seeing in those geographies that have already started to open up?

I think this is for you, Nico.

Or perhaps we can ask Neil to comment on EMEIA because I think what Neil will say on EMEIA is, I guess, we can extrapolate for the rest of the world. And then I can add on to what Neil says.

Okay. Thanks, Nico. I mean, I'll talk a little bit about the second part of the question, which is about the pent-up demand. I think what we actually see is a steady and progressive improvement in demand at the moment. But where we really see a backlog, it's in new construction projects. Many of the new construction sites across Europe, particularly in Eastern Europe, but also in the Middle East, have a lot of demand restrictions, capacity restrictions there because of workforce constraints, people coming back, outbreaks of COVID on site, which has really slowed the construction cycle down. So I do see some pent-up demand there, for sure. We definitely have bigger backlogs than we've had for some time. And I see the project specification backlog is also starting to increase in a good way as well. So yes, it's steady, progressive improvement. And there is a bigger pent-up demand, particularly in new construction, for sure.

And perhaps if I add on the first question. Of course, if you take, for example, all these COVID-19 products that you can open a door hands-free and so on, what you see immediately is the smaller sales, somebody wants to upgrade one door or 2 doors. And that business, we have started generating already during the pandemic. But I would say if you really want to move the needle, it really has to come from specking that in, in new projects or in refurbishment projects or in upgrade projects. And there, it's too early to see that result. Yes, we see that there is more demand in our spec business for electromechanical, in general; for sustainable products, in particular. But that sales will obviously only come later because those cycles are between 12 and 24 months. And of course, if you can do a complete project in a hands-free way, in an electromechanical way, in a green way, then you can make more significant difference on the top line.

Thank you, Neil, Nico and Gael. We'll move to the next person in line. And the next person in line is Lars Brorson from Barclays.

Maybe I can start with Entrance Systems, perhaps one to Christopher and to Nico. Thank you for providing your targets. I was curious to get a little more color both around the growth target, the 10% growth target and also around the margin target. On the growth target, first, can you help us a little bit with that 10% growth target, how you see that be split between organic and inorganic? You've been highlighting this phenomenal growth story in Entrance Systems over the past decade, in particular, which is true. But of course, all of that largely has been inorganic. The organic growth pre-COVID for 10 years was 2.5%, so well below where the group has been sitting over the same period of time. So help us understand whether you see a shift in the organic growth profile in Entrance Systems? And if so, where that is coming? And I'll come back and ask specifically to your service business within that, but I'll start with that.

Christopher?

Sure. I'll add some flavor to it. Then, of course, Nico can continue and add to it. Yes, you're correct there. I won't get into detail on the split, organic or acquisition. I mean, we work with the same total on -- half of it coming from organic and the rest on acquisition. Of course, acquisition goes a little bit up and down, but it's more over a business cycle that, that ambition has continued to drive the acquisition side of growth. To address the organic one, a little bit of a shift that's done over the last couple of years from Entrance Systems is to invest more in building the organic capabilities and not focus solely on acquisitions. We can see that, as Nico talked about on the service side, we have invested much more in the backbone of service, on the commercial side of sales and service techs ahead of the game. And we could see that coming through before the pandemic. Now we can see it coming through as well. So we expect a higher growth driving from the service side, which is now almost 30% of the business that will make a difference in organic growth going forward. We also see some of our verticals where we have invested, both on the product side, acquisition, organically in docking. As you can expect, we'll grow at a much faster pace than the 5%. And we can see already, and it will continue. Also, too, on the Pedestrian side, where we see better organic growth, also the addition of record and our own business and doing the cross-selling, we can see make a difference. So I think those key parts of the business is supporting that growth rate going forward. And then we'll continue work, and we see North America continue to do well for us. And I think the last part, but that will take longer time to affect the growth rates is the emerging markets. As it's only 6% of our growth, that's a more long-term play to improve the growth rates long term. I don't know, Nico, if you want to add something to that?

Yes, perhaps I can try to add some flavor. If I start with what Christopher said on emerging markets, it's clear that from all the divisions and the systems, it's most probably the one that is the most underrepresented when it comes to emerging markets. And therefore, also has still the biggest opportunity going forward. And as a matter of fact, we are investing in an important way in many emerging markets for Entrance Systems. But if you look a little bit at the different segments and add to what Christopher said, if you take Pedestrian, you have, of course, the retail food, which is a very good business to be in today, definitely also during the pandemic. But we are perhaps one of the few people that are also still excited about nonretail because what we see is that the H&M stores, the Zara stores of the world, there will be perhaps less of these stores, but the stores that will be there will be of a higher-quality level. They don't want to have a manual door. They want to have a high-end quality door. So that's a good business opportunity for us, and that's also what we see in our numbers. And then, by the acquisition of record, we have, of course, received many additional product ranges, hermetic doors, which is a global opportunity; and then security systems, which is also a global opportunity. On the industrial side, Christopher already mentioned logistics. As we all want in-home deliveries, the Amazons of the world and so will continue to build warehouses and fulfillment centers like mushrooms, very good business for our loading dock in the first place, but also for sectional doors and sometimes high-speed doors. And then, I think on the other 2 and definitely on perimeter security, in particular, our focus really having a vertical focus and coming with dedicated specific solutions, but also dedicated sales approaches for the different verticals like data centers, like logistics and so on, really, really pays off. And so therefore, the very nice growth that we now see since many quarters in that segment.

Sorry, can I just clarify? I think Christopher, in his presentation, talked about some upside to record within that margin target that you established, 16%, i.e., a couple of hundred basis points up from current level. I didn't hear the specifics of what that upside related to.

No. It's because I probably didn't say it. But what we're saying is that, of course, we went into this acquisition with some expectations of the integration and the synergies. And I think it's too early to sit here and commit to any other targets than we -- that we have put in place. So I think it's more relating to what we're seeing right now when we're doing our synergies, both from a cost and sales perspective that we see opportunities to further accelerate the development of the plan and the targets. But a little bit, also, it's early days in that, but it looks like we have other possibilities that we didn't have as part of our integration case.

We've always said that, okay, agta is today 50 basis points dilutive on group level. And within 3 years, we have the ambition to bring agta EBIT margins on the levels of historical Entrance Systems EBITDA levels. And we are confident, and we are even more confident today than before we bought agta record that we will be able to do so. And then the second thing, what we have said is for Entrance Systems, like Christopher also mentioned in the presentation, is that we have the ambition over a longer period and over -- in a more midterm to bring Entrance Systems also closer to that 16%, 17% bandwidth. And that has to come from many things, but an important driver there is faster growth in service versus equipment.

Can I ask a second question? And just clarify, you talked about software as a service. I think you said it was 3% of group, so call it SEK 2.5 billion or so. Can I just be clear how you define that. I'm sure that's your software subscription contributions. So it excludes all readers and anything hardware-related. Where is that reported? And can you also talk a little bit about how the business model is shifting for you, if at all, Nico, in that, should we say, access control as a service model, 10 -- well, a little bit less than that, 7, 8 years ago, we saw you rollout, particularly in hospitality, with Seos, more of a full package solution, I guess, from ASSA ABLOY. More recently, we worked actually with Apple where I presume the bigger opportunity for you perhaps is on the hardware side. So can you talk a little bit about how you see the business model in the early adoption around particularly hospitality versus what you see today in areas around particularly commercial applications?

Perhaps we can start with the hotel business as an example and Christophe can definitely add more flavor to it. But if you have today the possibility to check into your hotel room with a digital credential on your phone, that is, of course, a recurring revenue model for us. And there is different models, either you pay per room, you can pay per access, you can create per key, there is different models to get that recurring revenue. But then, of course, the ambition is once you have that relation for software as a service with the customer to then build your ecosystem around that specific solution for that customer, add other services to it, and therefore, generate higher recurring revenue on a daily or a monthly, on a yearly basis. I would say, very similar like software companies are doing with us on our computers. And I would say it's not very different, if you take access control more in general on the commercial side, when Neil talks about Incedo, our software platform, that brings all our access control hardware together on the same platform. There also you will have different levels of light, medium, high version. And depending on the service you will get, you will pay more or less recurring revenue for that service. And there also Neil then has the ambition to, once you have a relation build out that ecosystem, deliver more services to the customer, creating more customer value and, in return, get more recurring revenue. I don't know, Christophe, if you want to add on your division because I think you are the farther when it comes to recurring revenue?

Yes. And I think maybe to add a little bit on hospitality, what is interesting is that, to enable those services, we delivered quite significant piece of software to connect. There is a lot of connectivity with, in the case of the hotel, the PMS system, the customer management systems. And we have a piece of software we deliver to bring the added value. So what looks like a very simple service is actually a quite complex ecosystem. And that's what allows us to generate those revenues and to make them quite sticky with the customer because you don't get this winding in one day, but when it works, it's very stable and very good things for the customers. So it's a quite interesting movement we have had in the industry from that perspective, getting very close to the customer and also really delivering added value because of the integration we create with the ecosystem of the client. And that we see in all the business we are operating into and that allows us to create real recurring revenue based on software licenses.

And before I ask Neil to comment on -- perhaps a little bit more on his business, we have also always said that we see more opportunities for recurring revenue on the commercial side than on the residential side. I have -- like I explained you our Linus lock, I have an app on my phone. I will, of course, never pay for a service to open and close my lock. Perhaps one day, if it's really sophisticated, I might consider something for in-home delivery whereas, of course, if you go to the commercial side, the return on the service that we offer for that customer is much more visible. It's really about tangible money that he can save and he is much more willing to pay back part of that saving to a recurring revenue model. But perhaps Neil, you can add some flavor there.

Absolutely. I think you described it in a very good way, Nico. It's about an evolution of services provided. I mean if you look at perhaps the audience, today's office space in banks and things, there'll be very much a value-added package there typically in an access control management system. Where we see this evolving, particularly when we're converting our installed mechanical base, is that you typically start with a much more simple system, what we call an on-premise system, with very basic functionality and very little, very -- just very limited sort of services, and therefore, a lower level of recurring revenue. Then, as the people get used to using it and then want to advance their capability, the platform that we've developed with Incedo gives us the opportunity then to upgrade different functionality. As the customer evolves and as the system that they operate with develops and their needs develop, we can evolve that software as a service provision. And I think that's where we see things really step-by-step really evolving over time. And I think it gives us a very good opportunity because the penetration into the market for that type of recurring revenue model is fairly low. So it's still very new in most commercial segments. So it's a good opportunity in the long term for sure.

Thank you, Lars. I think we need to move over to the next person in line. And the next person is Johan Sjöberg, Danske Bank.

I would like to ask a couple of questions for you, Neil, if that's possible, when it comes to, first of all, Nico talked at the Q1 con call about improving trends throughout Q1. And listening to your earlier answer to a question, I interpreted as this trend has continued throughout Q2 as well. I just want to double check that with you. And my second question is upon your M&A strategy also in EMEIA. When I look at your targets, it's a 5% through M&A. But when I look at your historical structural growth, it has been much lower than so and it's actually quite like 2 or 3 years ago since we actually saw a meaningful acquisition. How -- do you see pent-up demand or pent-up pipeline for M&A targets?

Neil, over to you.

Yes. Thanks for the questions. From a trend point of view, I think we see the emergence after the pandemic step-by-step improvement each month. So month-on-month, we've seeing a definite improvement, for sure. Hopefully, that continues. There are obviously still some hotspots across the world, particularly in India, but India representing a relatively small proportion of our business. I think step by step, we see the improvement. We see the markets opening. We see the construction sites coming back. We see the renovation projects coming back step by step. So I hope to see a continuing evolution of that step-by-step improvement. When it comes to M&A, I think we have a very clear strategic intent when it comes to M&A. In every one of our market regions, we have a clear list of targets, we have a clear list of priorities in what we want to achieve. I think we've been a little slower, for sure, during the pandemic period. Most deals, as you would probably know, tend to start at a fairly high level and as a reaching of concept and minds of the owners and the management teams, either locally or centrally. So that slowed us down a little, for sure, but our list is clear. Our pipeline is good. And I think it's about ensuring that we get our targets to the table. And of course, it takes 2 to dance when you get there. So I'm optimistic, but we're clear in what we want to achieve, and we're clear on our lists. As Nico said, there's close to 1,000 targets globally and we have a good proportion of those targets on the EMEIA list.

Thank you. Well, the next question then will actually be Mattias Holmberg, who had technical problems with -- at our previous Q&A session. There are technical issues on his side, so he has sent us the question in writing. And Holger, you have the question. Can you read it out?

Yes, I can do so. And it's a question for you, Nico. In the first session, you said you aim to grow higher than 10% in emerging markets. Is this including acquisitions? And is this ambition different from your growth target in developed markets?

Well, you should look historically. We have shown that we historically only grew, I think it was 4%, a little bit more than 4% in emerging markets. We definitely have the ambition to accelerate that in an important way. And when we talk about double-digit growth, we talk about an ambition on organic level.

Thank you. Well, let's move over then to the next person in line. And that is Andre Kukhnin at Credit Suisse.

Can I just clarify something first. And then I have a question one for EMEIA, one for Entrance. Did you say that your ambition to get into the 16% to 17% range ex agta remains for 2021 despite raw materials.

We have said that the ambition remains. We haven't said that the ambition remains for 2021. Because obviously, we don't give guidance. But it's clear that our ambition is to come as soon as possible back within the 16% to 17% bandwidth. Indeed, excluding the 50 basis point dilution from agta. And what we have said is that, if you look in Q4 and in Q1 and look at the underlying margins, that we were back at margin levels prior to COVID-19. Now, of course, we know that we have the material headwind, which will become worse before it gets better. And then I think, and a very important factor, like I mentioned earlier, is the whole mix, geographical mix, residential, commercial mix, mix between divisions. Again, more growth in Americas, more growth in Global Technologies means easier to reach the 16%. More growth in APAC and in China, in particular, means longer time to get to the 16%.

Andre, did you have any follow-up there?

Yes. The question I have really for Entrance is on, about service growth dynamics. I'd love to hear -- find out more about how that business works in terms of kind of how many doors you have under maintenance? What are the annual installations that add to that? Is there an attrition to competition or retirements? Could you just talk about that? And the question to EMEIA, I have, is on electromechanical locks pricing. You gave very interesting data point on Doorman 3 versus Doorman 2. But could you say -- could you give any idea of a broader elmech pricing trends in EMEIA on the products that are kind of like-for-like? Do prices stay where they are? Do they trend down over time or up?

I think, Christopher, you start there.

Yes. I can start with service, and I know that's been discussed in the other Capital Markets Day as well from an Entrance point of view. So I'll just add on more to that type of discussion, is I think a little bit that we alluded to before with Nico is that Entrance comes from a history of being an equipment company with service as an add-on. And the direction we started to change some years back is that driving service also as a core business, which means that in the way of getting the conversion rate, the attrition rates on our installed base and et cetera, has accelerated over the last couple of years on getting the contracts in place, getting the commercial salespeople in place, getting the process in place to make sure that every single door that we sell comes under our service contracts. So I would answer it in this way that our portfolio of chasing, or whatever word you want to use, on our own installed base is still very high, which means that there's still a very good base for us to grow on our existing installed base. So that's one part of the growth where it's coming from. The second part, of course, now is also that we make sure and the focus on converting every equipment sales into a service contract and service business. Of course, it's like everything else, it's an investment over time. As you sell a new product, you still have warranty periods, then you're into maintenance, then you're into service and then you're into replacement. So it's 2-way of addressing an effect where we can see, and that's what we've been saying that our ambition and what we've seen over the last quarters over the pandemic and you see picking up again is that we have this base to drive organic growth on the high single digits. So we feel comfortable with that target the way that the service business now is evolving.

I would also add that the target is perhaps not in the first place defined by the potential, like Christopher said, it's more also our capability to ramp up because if you want to grow high single digits, we have more than 3,000 service technicians. That means that, okay, I'd say that you want to grow 10%, you have to add a little bit of efficiency, but close to 300 technicians on top of the natural attrition that you have on technicians, people retiring and some people leaving. So it's a lot of technicians you have to hire every year, train, bring up to speed. And the same is true on the sales side because, obviously, you also have to further grow your sales organization if you want to have this type of high-growth things.

And I think the second part of the question was for Neil then. So you can go ahead, Neil.

Thanks for the questions. I think when it comes to the pricing trends on digital, let's put it into 2 parts. Let's talk about the residential side of things, first of all. The residential digital change is so new, there is no pricing trend that you can make a comparison with. It's a very new part of the market. But what we see is that it's very much a feature-driven pricing process. So entry-level products will command a much lower level price and then you add features and functionality and then you can build the pricing positions in the market. So we see that the product development is a very important factor and scalable product development, which gives you the opportunity to develop the pricing structures on a feature-based process, is a very good opportunity. When it comes to the more mature, let's say, although it's not a matured market, it's slightly more advanced in the commercial space, again, it's very, very similar. It's very much about feature-based pricing. That's where you get the benefit. It's more about providing solutions that give payback to the customer. And typically, that's a more interesting part of the sale. What can we save you in terms of your daily activity. And what we save to you, we can give you additional features to do that, and then we can manage pricing in that way. So it's a very similar scenario. So I see it as an evolutionary pricing opportunity, very much feature-driven. More features, the better the pricing opportunity we have in the market. So that -- it's a good space if you've got scalable platform-based development and R&D.

Thank you, Neil. Well, let's move over then to the next person in line, and that's James Moore from Redburn.

It's James from Redburn. I've got one on service and then one on China. So service, I think you said 7% of GT and 25% of ES is service revenue, but I don't think you said what the percentage of revenues for EMEIA, Americas and APAC. If you could just remind us of what that is and talk to us a little bit about where the profitability in service materially differs between the 5 divisions. And Nico, a really a question for you. If you do this high single-digit top line, could you quantify the potential profitability uplift across the businesses from service? That's my question on service. Maybe we'll start with that, and I'll come back to China.

Yes. Just for you to know, you're also standing -- or lying horizontally with your camera. Perhaps see if you can turn it 90 degrees. But -- and then, Neil can feel free to add on EMEIA or Christopher on Entrance Systems. But when we say that our ambition, midterm, is to go closer to the 16% for Entrance Systems. And to be clear, when we said we want to grow service high single digit, that is only for Entrance Systems. If we say that at 16 -- that we want to go to that 16%, that is for an important way thanks to the faster growth that we then will see in service and in equipment because, of course, in a normal world, once the pandemic is over, we will not grow high single digits, whatever, 9%, in equipment. So we will grow faster in service and equipment, and we make better margin on service than on equipment. How much difference? We don't want to quantify. But let's say that it's an important reason why we then can bring the margin to 16%. When we talk about service, we use it in different worlds because we use it, in Christopher in Entrance Systems really for the man in the van. The man going on site and doing preventive maintenance, repairs on industrial doors, sliding doors, a little bit like they do service on compressors or pumps or elevators. Perhaps we sometimes also talk about service in more general terms, we talk about software as a service or we talk about just aftermarket in general. And while the definition is aftermarket, we say that 2/3 of our business is aftermarket business. But in that 2/3, we also then define aftermarket as if the door handle breaks down and we replace the door handle, that we also call aftermarket. So it's a bit difficult to be specific with the answer. But if you take the 3 geographical divisions, they also obviously sell doors and doors through which people go. And we have also a smaller service business in EMEIA, a business that we are also investing in and also are developing in, I would say, in a similar way that we do with Entrance Systems. And the other 2 divisions in APAC and in the Americas, that man in the van service business is very small because our business model is a much more indirect business model. I don't know, Neil, if you want to add something on the EMEIA side?

I mean, I think you summed it up very well. When it comes to our fire door service activity, it's a very -- it's a new part of our approach, it's a new element. It's about making sure that fire doors remain compliant to standards and helping our customers ensure that they meet building codes, et cetera. So that's an area of the market that we're interested to develop. I think it's a growing -- of growing importance but still relatively small part, nowhere near the dimensions that Christopher has in the Entrance business. But of course, that other piece that you mentioned, Nico, the replacement product market, that's a very important part of our business force. And typically that market is serviced by our partners in the field, but equally, it's important. But the practical people in the van type approach on services is a much smaller part of our business, it's an evolving part, a part that we're investing in and really actually taking the together we mentality and looking at some of the systems, the tools that Entrance Systems have developed in a very professional way and adapting them to our market space and our door presence as well.

And the second part, software as a service, we said that it's around 3% of group sales. And that sits today mainly in Global Technologies, in Global Solutions and in HID. But there, we see very good opportunities to grow and to continue to grow that very high double digit, I would say, in all divisions. Definitely, also in the geographical divisions with Incedo platform as an example now with Neil in EMEIA. But even In Entrance Systems, as we get more and more doors connected and loading docks connected, we see also good recurring revenue potential for those connected doors and connected loading docks.

Great answer. And the second one was on China. I just wanted to understand the margin story there from 5% to 10%. You got your 3 brands, Pan Pan, ASSA and Yale. Is the profitability story today without being precise about the numbers, are they all roughly similar in profitability? Or is the move from 5% to 10% predominantly driven by Pan Pan or something else?

So what we have always said is that historically, we were wrongly positioned in China in the sense that we were almost exclusively in new builds, and we did not capture the aftermarket, and we all know that we make better margins in aftermarket than in new build. And we also said that we were very skewed towards residential, and we were very small on the commercial side. And we also know that we make better margins on the commercial side than on the residential side. So we are working very hard. Pan Pan is a very good example where we are really shifting away from that new build and make that relatively much less important in the total business and grasping much more of that aftermarket retail business, which helps in a very good way from a margin perspective. And then, of course, we are investing heavily on the commercial side to become a more important player on the commercial side. That, obviously, in the first place has to come from new projects. But then once you have the new projects installed, then you can, of course, start to work also on the aftermarket, and that will then again help with the margins. And that's very much in line with the strategy that we are executing on as we speak.

Just so I understand, would it be fair to say Pan Pan is the bigger driver? Or is it all 3 brands together, really?

It's really a combination of what I just said, more commercial mix and more aftermarket mix. And then, okay, also being obviously much more efficient internally. I think we have not grown in recent times also because we have been much more selective on which type of deals we want to take. Obviously, we want to do business and business means that you take orders where you make a margin in line with your ambition and where you have a very good chance of being paid in an acceptable time. And that means, of course, that part of the business for us in China is not accessible, and we don't focus on. But if you look at the remaining part of the business in China, it's still a very good opportunity, great potential for us going forward.

James, we will need to round up the Q&A session now. And we have tried to let as many as possible ask questions, but I know that there are a couple left. And please feel free to contact us at the Investor Relations for any follow-ups. Well, that means that it's -- that's time actually to wrap up this CMD. We'll now come to the end of this CMD. But before we finish, I would like to ask Nico and Erik for your final comments, and let's start with you, Erik.

First, thanks, everybody, for the attention and the interest that we have had during the day. I mean, this time, we are focused very much on reaccelerating the growth, but I just wanted to reassure you that we will keep a very close control of our costs. And we have shown during 2020 where we were actually able to reduce our fixed cost with roughly SEK 2 billion and that we will continue to have the manufacturing footprint program and the day-to-day operational efficiencies that we have. Today, we didn't have any chance to talk about what I've sort of said in every of the quarterly calls to highlight the operational cash flow, but I hope next time that we will have a chance to come back to that, the next Capital Market Day.

Let's do that. Nico, your final comments.

Yes. I can also comment on the day, but perhaps I should start with indeed also thanking all of you for listening in, taking the time for us and the time that I have to look in this camera. This gives me also the opportunity to thank the whole camera crew and the whole team behind the screen, which has done a very good job. So thank you. And then, of course, all the people that contributed to making this day a great success. So thanks. So if I summarize the day, obviously, again, we are in a good market, a market with strong positive market drivers. In that market, we have a strong market-leading position. We have a proven strategy, a strategy that has delivered very good results for 26 years. We will evolve that strategy, so no revolution, but evolution, and we will continue to deliver strong results with that proven strategy. Now as we move out of the COVID-19 pandemic, it's time for us to reaccelerate -- to focus on reacceleration of our profitable growth. Of course, growth through acquisitions but definitely, as a focus point, also, how can we reaccelerate our organic growth. Like we've always said, 1% more organic growth in a sustainable way is the difference between a good company and a great company. And obviously, we have the ambition to be a great company. And to do that, we have defined different growth projects. We highlighted the most important ones today, growth in emerging markets, the shift from mechanical to electromechanical in the residential and the commercial side, growth in aftermarket as well as service man in the van, as software as a service and then, of course, also the growth in sustainable projects, sustainable buildings. We also highlighted some of the enablers that will enable that and support that growth. We talked about culture and people. And perhaps that gives me another opportunity to thank another person, Holger. Holger Lembrer has been with us in Investor Relations for the last, I think, 3 years. He's also a good example now of an internal promotion. He will become a responsible financial director. I think that's the right word for our senior care business in Global Solutions. So a good example of internal promotions. So culture and people. People are most important assets. Innovation, innovation is within everything what we do, in our DNA. And then last enabler, like Erik mentioned, the whole focus on cost efficiency. And then we have said that if we can deliver on our results and we do the math, it should be possible to become a SEK 15 billion (sic) [ SEK 150 billion ] top line company by 2026 and then deliver around SEK 25 billion operating profit. So also from my side, thank you again.

Thank you, Nico. And with that, we have really come to the end of our CMD. Just a little bit of practicalities at this point. The presentation that we have shown today will or should now be available on our website under Investor Relations in a PDF format and also the full Capital Markets Day in an on-demand version will be available as soon as our technicians have converted it into the right format. I also want to note a few upcoming dates. We are presenting our 2021 half year reports on July 19, and we are also planning to have a physical Capital Markets Day next year in 2022, November 16, and we have already booked a venue in London where we look forward to see you. Even though being in a virtual format is great, we look forward to see you then.

Yes. We certainly look forward to seeing you face-to-face next time at our next CMD. Well, it's time to wrap up finally now. We hope that you have a better understanding now of how we will access all of the growth opportunities that are around so we can accelerate profitable growth in line with our financial targets. On behalf of the ASSA ABLOY team, we would like to thank you for all for the interest and that you spent your afternoon with us here today. Thanks for good question as well. To our internal viewers and contributors, thank you for your hard work. Without you today would obviously not have been possible. So keep doing your great job. And to all, take care of yourself now and stay safe. And thanks, everyone. Thank you.

Thank you.

Thank you.