ASSA ABLOY AB (publ) (OTCPK:ASAZF) Q1 2024 Results Conference Call April 24, 2024 3:30 PM ET
Company Participants
Björn Tibell – Head of Investor Relations
Nico Delvaux – President and Chief Executive Officer
Erik Pieder – Chief Financial Officer
Conference Call Participants
Vivek Midha – Citi
Gael de-Bray – Deutsche Bank
Daniela Costa – Goldman Sachs
Alexander Virgo – Bank of America
Johan Sjöberg – Kepler Cheuvreux
Gustaf Schwerin – Handelsbanken
Rizk Maidi – Jefferies
Andy Wilson – JPMorgan
Björn Tibell
Hi, everyone, and welcome to the presentation of ASSA ABLOY’s Q1 report in 2024. My name is Björn Tibell, I’m heading Investor Relations. And joining me here in the studio are
ASSA ABLOY’s CEO, Nico Delvaux.
Nico Delvaux
Thank you.
Björn Tibell
And our CFO, Erik Pieder.
Erik Pieder
Good morning.
Björn Tibell
Good morning. We will start today’s conference, as usual, with a presentation of the report before we open up for your questions, and then we will round up in about 1 hour’s time.
So with that little introduction, I’d like to hand over to you, Nico.
Nico Delvaux
Thank you, Björn, and also good morning from my side.
Q1 result, I would say, very similar to our Q3 and Q4 results of last year with a tough comparison compared to the same quarter a year ago, with continued challenging market conditions on the Residential side and definitely also with 3 fewer working days in March. We posted a negative organic growth of 2% for the quarter. But then also this quarter, good to see that lower, in this case, negative organic growth is overcompensated by very strong growth through acquisitions, 11% in the quarter.
Neutral currency effect, so a top line growth of 9%. And I would say a very good operational execution. Of course, despite an important volume drop, we have posted 15.4% EBIT for the quarter. That is including HHI and all related costs, a 16.3% EBITA and a record EBIT margin for Q1 in absolute value. Thanks to good price realization, lower direct material cost and then also good short- and long-term cost actions giving us a good volume leverage on that negative organic growth.
Also seasonally strong cash with a very good cash conversion of 67%, so around double of what we normally expect for Q1. And then we continue our acquisition pace with 3 acquisitions signed in the quarter.
If you look at the numbers, a sales of SEK 35 billion, 9% up. Like I mentioned, 2% negative organic growth, 11% positive net acquired growth. And EBITA margin of 16.3% and an EBIT margin of 15.4%. EBIT at SEK 5.4 billion, 5% up.
If you look a little bit at the world map, unfortunately, we see a lot of negative numbers when it comes to organic growth for the reasons I mentioned earlier. And perhaps rather than commenting continent by continent, I can repeat what I said in previous quarters. We continue to see a weak residential market as well for new build as for R&R. That is true in North America, that’s true in Europe, it’s true in Oceania, our main markets.
Perhaps we see a faster recovery on the new build and on the R&R side and where, geographically, definitely in North America stays ahead in the curve. We still expect residential market in the U.S. to turn first. We see a more challenging continued residential market conditions in Europe definitely for the coming quarters.
On the other side, we see still very good momentum on the nonresidential side, perhaps not as hot anymore as 18 months ago, but still very good market conditions; again, as well in North America, in Europe, as in Oceania, where our spec business is still up mid-single digit.
If we then go a little bit to the different market highlights and project wins also this quarter, several big project wins. Loading dock solutions delivered to 3 large distribution and logistics facilities in the U.S. and in Europe. A milestone when it comes to our Yale Doorman with 1 million Yale Doorman sold in the Nordic countries since the launch back in 2011. And then a very nice win of a large U.S. public university, one of the biggest universities in the U.S., selecting our electronic access control package for their professors and their students.
Different new product launches in the quarter. Yale Durus, a smart lock that it can fit on whatever door, adapting to the different door styles, launched here in Sweden. Twin X, a keying system for high-security environment in Australia. And then HID’s identification system with facial recognition integrated with self-check-in kiosks for use in airports, hospitals, hotels, also integrated in the gate solution, Speedgate solution from Entrance Systems.
Then also this quarter, good to see that our innovation efforts are recognized in the market. We won the iF Design awards for our Expression Speedgate series and for our Yale’s smart video doorbell, smart outdoor and indoor camera solutions. And then at ISC West, the biggest security exhibition in the world, we also won 2 important awards. Control iD won the iDFace — with their iDFace product won the Biometrics category. And then Centrios, our access solution for small and medium enterprises, won the best access control software awards. So very proud about those 2 awards as well.
Unfortunately, 13 is for us an unlucky number. We had 12 consecutive quarters with positive organic growth. Now the 13th is negative organic growth. But then like I mentioned, good to see that it’s overcompensated with very strong growth through acquisitions. A good continued operating margin execution, 16.5% EBITA margin run rate and 15.6% EBIT margin run rate on a 12-month moving trend. Operating profit, strong, a record operating profit for Q1.
And then on the acquisition side, we continue to be very active. We had 3 acquisitions signed in the quarter. They represent together an annualized sales of SEK 2 billion. The highlight in the quarter, definitely, Integrated Warehouse Solutions, a U.S. manufacturer of loading dock equipment, really complementing our product offering and also bring us several new strong brands into the North America market, helping us further strengthen our position for loading docks and loading dock solutions. They had a sales of SEK 1.9 billion last year.
If we then zoom in a little bit into the different divisions, starting with EMEIA, an organic sales decline of 3% where, like I mentioned earlier, we continued to see challenging residential market conditions that has mainly a negative effect on our Nordics sales and our U.K. sales because we continue to see strong growth in Middle East, India and Africa. We saw stable sales in South Europe, but then sales decline in the other regions.
Despite a more important negative volume growth, I would say, strong operating margin of 13.7% with a limited operating dilution of only 50 basis points. Very good actions done in EMEIA on the cost side as well short as long-term cost actions, price versus raw material kicking in, helped by FX and M&A, both 20 basis points accretive.
Americas, organic sales decline of 1%, with a stable commercial North America sales, a slightly negative sales in Latin America. Significant sales decline on the organic side of U.S. Residential, but that is a very small part of what has remained on the Residential side in the Americas. It’s more important to look at HHI, where HHI had sales down mid-single digit, what I think is a good result, taking into account the residential market conditions in North America.
A good operating margin of 18.1% now, including HHI and all related costs. But also on the HHI side, we see continuous EBIT margin improvement as well as compared to last year, as well as compared to Q4, which I think is very good, if we take into account the fact that Q1 is always seasonally, top line-wise, a weaker quarter. Dilutive FX, 20 basis points. And okay, you see the dilution of M&A, which is mainly HHI-related.
Opening Solutions Asia Pacific, an organic sales decline of 3% where we had good sales growth in Southeast Asia, but sales decline in the other regions. Again, same story linked to the residential market conditions. And of course, like I mentioned earlier, for all divisions also the fact of the 3 working days less in March.
Very good operating margin improvement, 5.1%. Very strong operating leverage, 40 basis points accretive. Helped by FX, 60 basis points due to the weaker Vietnamese currency, and then a dilution of M&A of 50 basis points that’s linked to divestment of the Smart Residential factory in Vietnam to Fortune Brands linked to the HHI acquisition.
If we then go to the global divisions, starting with Global Technologies, an organic sales decline of 9% where in HID, we had strong sales growth for Citizen ID and Identity & Access Solutions, then sales decline in the others and a significant sales decline.
In fact, you will remember that we have there a very tough comparison with the same quarter last year where we built up 18 months, 2 years ago, a big backlog because we had challenges with semiconductor shortages, but then finally able to invoice that backlog last year. And therefore, the difficult comparison in Q1, which will continue to be a tough comparison also now in Q2, by the way, affecting top line in a negative way, affecting also bottom line because PACS is a very profitable business area in HID.
Strong sales growth in Global Solutions for the different verticals we focus on. And an operating margin of 15.4%, what I believe is a good result if we take the negative mix into account, the PAC story I explained and a strong sales growth in Citizen ID where we make lower margins. And operating dilution of 110 basis points, 10 basis points dilution from FX and 20 basis points dilution from M&A.
And then last but not least, Entrance Systems, a flat organic sales development, where we see very strong sales growth in Perimeter Security. Perimeter Security is traditionally the first one in the cycle, and we see Perimeter Security really coming back now. Strong sales or continued strong sales growth in Pedestrian. And then a sales decline in Industrial, which is perhaps later in the cycle; and Residential, where we also are convinced that Residential has bottomed out and we should start to see a gradual improvement from here onwards.
Good growth in service, so a positive mix, service versus equipment; leading also to a very good operating margin, again, I would say, of 17% with very strong operating leverage, 70 basis points; helped by currency, 20 basis points, and then dilution from M&A, 10 basis points. That’s mainly linked to the IWS acquisition I mentioned earlier and related integration cost to that acquisition.
And with that, I give the word to Erik for some more details on the financial numbers.
Erik Pieder
Thank you, Nico, and also a very good morning from my side.
The sales, as we mentioned before, was in total up with 9%. If you look on the acquired growth, the 11%, that’s predominantly related to HHI as well as the new acquisition that Nico talked about, the IWS. You see very little impact of the currencies. Operating income was at a record high level for Q1 and was up with 5%. EBIT margin, for being a Q1 and also including HHI, ended at 15.4%, which is considered, I think, to be strong in a Q1.
The operating income was up with, as I said, with 5%. You see the income before tax has a minus in front of it. That’s minus 5%. That’s related to the higher interest rates cost that we have. If you look in the quarter, it was slightly above SEK 800 million compared to around SEK 340 million a year ago. If you look for the full year, we expect the interest rate cost to be roughly around SEK 3.5 billion, providing, of course, that sort of that the current — that the interest rates remain on this level. This, of course, also has an impact on the EPS, which was down with 6%.
Operating cash flow is, in value, is down with roughly SEK 1 billion, but we compared to an exceptionally strong Q1 of last year. If you look from a historical perspective, as Nico mentioned before, it is very strong, and we have a cash conversion rate of 67%, which is also a strong number. Finally, on this slide, not surprising, our return on capital employed goes down with 2.8 points, ended at 14.6%, which is, of course, related to the acquisition of HHI.
If we dissect a bit and look on the bridge, the minus 2%, there, we have a positive 2% of price, which means that we have a negative 4% in volume. The flow-through is still at 23% where we can sort of see a strong operational execution, where we have a good price versus cost when it comes to the direct material. We have done a lot of MFP. The total impact of MFP in Q1 on the positive savings side is SEK 210 million. And then also we have impact from the short-term cost measures that we implemented last year that we can also see in Q1.
If you look on the currencies, as I mentioned, on the top line before it’s negative. It’s positive on the bottom line. That’s due to positive transaction effects on different currencies. And finally, you see on the M&A, a negative dilution which predominantly come from HHI as well as the divestments of Emtek and Smart Res.
If we then take down to the cost, if we then go even further and look on the cost breakdown, direct material is positive of 2.6 points. Out of that, roughly 110 basis points comes from the mix where we have a stronger Americas and we have a weaker APAC. But then also we have a mix within divisions like, for instance, if you look into Entrance Systems where they had a stronger service versus equipment.
Both conversion cost as well as SG&A are negative there, impacted by, let’s say, the lower sales as well as the higher wage cost. We have been able to offset that partially with the MFP and the short-term cost savings. But it’s still a negative as well as it’s still negative for the quarter, as well as we have continued our investments in R&D.
Operating cash flow, as mentioned before, a little bit more than SEK 3 billion for the quarter. And we see that it’s seasonally strong with the exception of the even stronger that we have a year ago. We, of course, see here that we have the impact of increased net working capital, predominantly within inventory, as well as were impacted by the higher interest rate — interest cost that we have had in the quarter. Cash conversion, as I mentioned before, is at 67%. And if you look on a 12-month rolling, we are at 125%.
The gearing net debt-to-EBITDA went up from 2.3 end of last year to 2.4 in this quarter. The debt, as such, went up with SEK 3.4 billion. That’s — out of that, roughly SEK 3 billion is related to currencies. But then also in the quarter, we have also been active on the acquisition side with IWS and the other 2 that you saw before, which meant that our debt went up then, as I mentioned before, with SEK 3.4 billion. Still, I think that we have a very strong balance sheet and can continue our acquisition strategy also going forward.
Last slide for me, the earnings per share, I mentioned it before, it’s down with 6% versus the same period last year. The main impact on this is coming from the higher interest cost.
And with that, I hand back to Nico for some concluding remarks.
Nico Delvaux
Thank you, Erik.
So if we summarize, I would say, strong execution in a challenging market. Again, a difficult comparison with a strong quarter last year. A challenging residential market and then 3 working days less in March gave us a negative organic sales of 2%, but then overcompensated with growth of acquisitions of net 11%. Very good execution with a record high underlying Q1 margin and a record high EBIT in absolute value.
It’s clear that we continue to operate in an uncertain economic climate. And I can only say the same thing, as I said in previous quarters, we will continue to take advantage of those opportunities we see in the market. There is still regions where we see very good momentum. There is segments where we see opportunities to further significantly grow. And on the other side then, there is markets and segments that are more challenging. And there, we will, through our agile and decentralized organization, make sure that we adapt cost to the new reality, realize efficiency and protect bottom line and cash flow.
And then Björn has asked me to remind you that we have our Capital Markets Days on 14 and 15 of May, on the 14th of May in a hotel in Prague and on the 15th of May in our factory in Rychnov. And it’s not too late to register. You can still register if you are interested to join. As you can see, last register — registration date, sorry, is the end of this month.
And with that, I give the word back to Björn.
Björn Tibell
Thank you, Nico. Thanks for that reminder as well. It’s time to open up for questions now. [Operator Instructions]
So with that, operator, it means that we are ready to kick off the Q&A session. Can you please go ahead and organize that?
Question-and-Answer Session
Operator
[Operator Instructions] First question from Vivek Midha, Citi.
Vivek Midha
Can I please ask on the U.S. Residential business? So we’ve seen HHI sales down mid-single digit in Q1 versus down 1% in Q4. And you also commented that you’re more positive on new build than R&R. So how do you think about the trajectory of the improvements in HHI? Is it still reasonable to think you can go back to growth by the end of this year?
And also, on HHI, you commented that there’s been an improvement in the margin. I didn’t catch if you commented what that margin was. So could you give us more color on that, please?
Nico Delvaux
Yes. So I think it’s perhaps 2 separate questions. One is more on the residential market in general. Like I mentioned earlier, if you look at the residential markets geographically, we still are convinced that the U.S. market is further down in the cycle. So U.S. residential market is or has bottomed out, and we should start to see gradual improvement going forward. I think it depends, of course, on the interest rates, and U.S. own interest rates changes every day. The news we had over the last couple of weeks, of course, is not good news. That will definitely not accelerate the recovery. But still, we are confident.
And like I mentioned, we see, definitely on the new build housing starts, positive numbers. We see that also if we talk to our OEM window, hardware OEM window producers, for instance, I was with several of them last week in the U.S., they are positive on the new build side. R&R takes a little bit longer because people have to move houses to see the big R&R coming back. Because you do R&R when you want to sell your house or when you want – when you move into a new house, that’s when you do the big R&R.
But I would say, even with a negative top line evolution for HHI, we continue to see quarter-after-quarter EBIT improvement, and that’s irrespective of the seasonality because HHI is seasonal in the sense that Q3 is the highest quarter top line-wise. Q4, it goes down. And then Q1 is the lowest quarter. So this Q1, which is seasonally will be the lowest, we were still able to improve our EBIT margin compared to Q4 last year. And we were able to improve our EBIT margin significantly compared to the same quarter a year ago.
We are confident that we will be able, like I mentioned also earlier, to continue to do that also in the coming quarters, I would say, irrespective of where the top line goes because we see more and more synergies kicking in, and we see also good results of some of the actions that HHI did even before we acquired them mid last year. So we are confident on the further margin improvement for HHI.
Operator
The next question from Gael de-Bray, Deutsche Bank.
Gael de-Bray
Can I ask, firstly, on Global Technologies? I think the negative impact of the tougher comps and reduction of the backlog versus last year was probably around 5%. So why are GT revenues down so much, 9% in total? Do you see that as a temporary setback maybe due to timing effect this year? Or is specifically the Physical Access Control business perhaps seeing some greater competitive pressures now? That’s question number one.
And then maybe the second one, a quick one, would be around the cash flows. I appreciate the commentary on the usual seasonality. But the SEK 2 billion negative swing in working capital still looks pretty high to me given the drop in volumes. So any comment on this, please?
Nico Delvaux
Perhaps I’ll take the first question and then Erik can comment on the second one. On Global Tech, there is just one extra — you could say, extraordinary item in Q1. And that’s the one item that I mentioned also in general is the fact that we had 3 working days less in March, which obviously also affected our Global Tech results. But then apart from that, I would say that it’s mainly our PACS result and the comparison with last year that makes up more important negative organic growth in the quarter.
Traditionally, PACS has been a business that grows somewhere mid-single digits in normalized market conditions. We are still confident that, that is the case for PACS. I would say we will find out in the second half of the year because Q2 will still be an unusual quarter because, also last year, Q2, we were eating up in an important way that PACS backlog. I think it was around SEK 250 million, something around that number last year that, obviously, we will not get this year.
And as we have much shorter delivery times today than a year ago, of course, also the order pattern of our partners in the market has become shorter. So yes, Q2 will still be challenging. But then as of the second half of the year, we should see a more normal pattern, again, for Global Tech and PACS, in particular.
Erik Pieder
If we then take the cash flow, again, also remember that we get currency effects in this, which is – I mean I talked about the currency impact that we had on the debt. Of course, we also get that into our net working capital. So I would say the main reason for the working capital, and there, it’s actually the inventory, is related to currencies.
Operator
The next question from Daniela Costa, Goldman Sachs.
Daniela Costa
So a question in terms of April, sometimes you comment on the beginning of the quarter on the call, so I was wondering if you could comment now. And then more sort of towards the rest of the year, can you give us a little bit of color around how pricing is evolving and raw material mix so that we think about the margin bridge?
Nico Delvaux
Yes. So it’s a little bit difficult to comment on April with the 3 working days less in March. But if you correct for working days Q1 and you correct for working days April, because in April we have 2 working days more – by the way, in June, we will have again – or we have 3 working days more in April and we have 2 working days less in June, so you will have a little bit a similar phenomenon in Q2.
But if you compare for – if you correct for working days, sorry, and then compare with same period last year, we have seen a better April than Q1. And in that sense, I think you should also look at March and April to get a good view where we are going. And going forward, of course, our comparison will become easier. Last year, Q1, we had, I think, an organic growth of 8%. Q2 last year, the organic growth was only 3%, yes, on a high level, but percent-wise, an easier comparison.
When you look at price versus material, as Erik mentioned, we had 150 basis points net accretion price versus material cost in Q1. We have continued to increase prices in several markets and in several segments. The only place where it’s, today, difficult to further increase price is everything that is still related. There, we are happy that we can keep the existing price level. So that’s true for garage doors, for fencing business and specialty doors.
So we still should see a good accretion from price versus cost in Q2, at the lower level than Q1, at a lower level than second half last year, but still a good accretion. And then towards the second half of this year, we should then see that become more neutral, of course, under the conditions that material indexes stay where they are and that the pricing hygiene in the market stays as it is today.
Operator
The next question is from Alexander Virgo, Bank of America.
Alexander Virgo
I wondered if you could just dig a little bit deeper into some of the trends in Europe. I guess the April comment is incredibly helpful. I’m just wondering how you’ve seen things move through the month, I’m thinking specifically with respect to, I guess, renovation and the mix effect that you have in the Nordics and in Northern Europe. That would be my first question.
And then the second question would be, just picking up on the pricing comment there, I think pricing was probably a lot stronger than I had expected it to be in the quarter. So I’m just wondering if you can give us a sense, even if not the numbers, about where we should be reflecting that in the divisions themselves.
Nico Delvaux
It was a little bit difficult to understand because the line was not so clear. But I believe your first question was on – if you could comment on the market conditions in EMEIA. So like I said, we still see good momentum on the nonresidential side, commercial and institutional, where we still see our spec business up mid-single digit which is, you could say, the only leading internal indicator we see. That is around 55% of our business in EMEIA, 45% is Residential. And it’s clear that Residential remains very challenging. I would not say that it’s getting worse, but it’s definitely not getting better neither. It’s on a flat low level.
And conditions are, you could say, the worst in North Europe and in the U.K., where in U.K., for several quarters now, we have seen a depressed residential market. Same is true in the Nordics where perhaps Sweden is a little bit earlier in the cycle than Finland, where we have seen also a more important decline in Finland and in Sweden, which are the 2 more important markets for us in North Europe. And then situation also on Residential is not good in the rest of Europe, but definitely better than North Europe and the U.K.
I think the second question was around pricing. Like I mentioned earlier, we have continued to increase prices in December, January. We have also continued to increase prices now in March, April, and we will do so also in May in different markets, in different categories. So we expect also a good solid effect from price for the full year this year.
If you look traditionally, prior to COVID times, you would have a price effect of perhaps 1%, around 1% on a yearly base. As we have higher inflation now after COVID-19 times and even in a normalized market, we still see higher labor increases. We see higher energy costs. We see higher general inflation and material prices, even if they have stabilized, they have stabilized on a higher level. We need a higher price component to compensate for that inflation. And I think like I mentioned at earlier calls, I would be disappointed if we would not have at least a 2% price component for the full year this year.
Operator
The next question from Johan Sjöberg, Kepler.
Johan Sjöberg
A question maybe to Erik here. I would like to ask you about the Entrance Systems, also the margins here, looking at 80 bps improvement year-over-year. I would like to sort of break down, how much of that is raw material cost-related and how much is sort of the service business growing and the impact from that and, I mean, just going into sort of your trajectory when it comes to margins for Entrance Systems throughout 2024, also given your forecast?
Nico Delvaux
I can…
Erik Pieder
You can start.
Nico Delvaux
I can answer. I think we are obviously very pleased with the 17% EBIT margin for Entrance Systems. Like we have said always, we aim to bring Entrance Systems within the 16% to 17% bandwidth. We have as a target north of 16%. We have said a couple of times to be above 17%, over 17%, all stars have to be aligned. We still believe somewhere slightly north of 16% is a more realistic number long term for Entrance Systems.
But I think it’s a combination of a lot of good work that has been done, very good price realization in general in the 4 segments. And obviously helped by material because they have a big exposure to steel, and steel definitely went down compared to the peak of 18 months, 24 months ago. But I think they have also done a very good job in operational efficiency in the different factories in their supply chain. They’ve also done a very good job in new product development, bringing new products to the market that we can sell at a better price and that we build at the lower cost.
So I think it’s a combination of different things linked indeed also to the positive mix and the fact that we grow faster in service than equipment, which in the mix then gives us a positive effect on the margin. So I would say, a combination of a lot of good things, and very happy with the execution of Entrance Systems over the recent years.
Johan Sjöberg
Perfect. But then also just going into the next 3 quarters this year, how do you see the margin progressing here? Typically, Q1 and Q2 tends to be lower-margin quarters and then it picks up in the Q3 and Q4. Should we expect that also this year?
Nico Delvaux
We will see going forward because, obviously, a lot of things depends also on the mix. First of all, mix service versus equipment, I would love to have a negative mix because that would mean that our equipment business is going to grow much faster. But obviously, we also have an important mix effect among the different segments. We know that Perimeter Security has by far the best margins in Entrance Systems.
So it will depend also how we see the relative growth of the different segments. And it will also depend on maturity in the market, how we’ll be able to keep prices, further increase prices, what will happen to material indexes and so on. What we have said at earlier occasions, we believe the north of 16% EBIT for Entrance Systems is an ambition and reachable target, and that’s what we internally work with.
Erik Pieder
But also there, Johan, just to add, I mean you know that — I mean this is exceptionally strong for Entrance being a Q1. So don’t sort of expect, let’s say, that you would have the normal season effect within Entrance Systems because this is very strong.
Johan Sjöberg
Yes, I understand. So the more steel, the better margins right now.
Erik Pieder
All the more service we can do is also pretty good.
Operator
Next question from Gustaf Schwerin, Handelsbanken.
Gustaf Schwerin
On HHI and the topic of residential may be bottoming out in the U.S., when you look at the volume development quarter-over-quarter, would you say the drop is lower than the normal season? Or is there any improvement yet to be seen? And then related to that, can you comment on the level of price increases for Q1 in HHI versus the group average of 2%?
Nico Delvaux
Like we said, the organic growth has been minus 5%. The organic decline has been a little bit higher than in Q4 if you compare Q4 with the year before. So you could say that, that is slightly worse than Q4. But again, we have – the more important change is the seasonal change where, again, Q3 is the highest, then Q4 starts to go down and Q1 is the lowest. We will see now how our top line evolves in the coming quarters.
When it comes to pricing, we don’t want to comment specifically on HHI. Let’s say that pricing has been similar to what we mentioned on group level.
Operator
The next question from Rizk Maidi, Jefferies.
Rizk Maidi
Two quick questions. Number one is, Nico, on your outlook on non-res construction in the U.S., we had another full print from the ABI this morning. Just perhaps if you could kindly comment on what has been your specs business in the U.S. has done. I think you commented on Europe earlier on this call. How the specs business has done in the U.S.?
Secondly, how do you explain the discrepancy between ABI and your specs? I think we’ve had ABI being weak for such a long period of time that if it’s indeed it’s been — it’s a leading indicator for your business, then you would have already seen it in your numbers by now. Perhaps a commentary here and how do you see the outlook?
Nico Delvaux
So like I mentioned, in general, our spec business has been up mid-single digit, again, against a difficult comparison a year ago. Spec business was slightly better even in the Americas than in EMEIA. So we continue to see good momentum, and we see that good momentum over the different verticals, K-12, universities, health care, you name it. Obviously, offices, it should not be a surprise that office is a little bit more challenging, but that’s a smaller vertical for us. So yes, we see a discrepancy, perhaps even a big discrepancy between our spec business and, I would say, also our results, our sales results and what ABI tells us.
Now if you look a little bit deeper in ABI, you will see also that the ABI Index is better for the institutional part and from the pure commercial part. And obviously, we are more exposed to institutional than pure commercial. So that might be part of the explanation. The other part of the explanation is obviously that there is a very big, long pipeline of construction work that is being executed now. And clearly, that backlog of construction work becomes smaller as ABI indexes remain on the lower level.
But so far, we don’t see that slowdown in our commercial business or nonresidential business. We had a flat, slightly positive development in Q1 despite all the reasons I gave earlier in the call, and we are still positive on the commercial side in North America. So I guess my honest answer is that it’s difficult for me to explain the reality and what we see versus what ABI tells us. We see also discrepancies between ABI and Dodge Index, which is another indicator you can look at.
Rizk Maidi
Then the second one, perhaps for Erik. The savings, I think you talked about MSP, SEK 210 million. If you could just confirm that number is correct, if I heard it well. And also on the short-term actions, is this just a carryover from last year? What have you achieved in Q1? And maybe for both, how should we think about the incremental savings for the rest of the year?
Erik Pieder
No, Rizk, you’re absolutely right, I talked about MFP savings of SEK 210 million for Q1. There, what we believe then for the full year for MFP is about SEK 600 million. If you talk about the short-term cost savings, those ones we initiated, most of that during, I would say, end of Q2.
So if you look on Q1, I would say that the savings from that is slightly higher than the SEK 210 million that I talked about on MFP. But it’s also so that – I mean we are continuously taking actions. I mean Nico talked before that we have, let’s say, an agile and decentralized organization, so if we need to do more, we will do more.
Operator
The next question from Andy Wilson, JPMorgan.
Andy Wilson
It’s probably 2 relatively quick follow-ups, if that’s okay. Just on the pricing commentary, do you — to the best that you can see it, do you think that your competitors are making similar price adjustments?
And then secondly, just on China, I’m just interested in terms of what you’re seeing. We obviously had a sales decline in the Q1. I think from memory, it was stable in the Q4. Just, I guess, whether that’s any real change or if you can kind of give us any sort of expectation around what you might see in the year, appreciating that, that market has obviously been challenging for the companies.
Nico Delvaux
Yes. On the pricing side, as being the market leader in most markets where we operate, of course, we want to play a leading role also in increasing prices. So how does it work? We increase prices and then we see if the market follows. If the market follows, we will try then to further increase prices.
And so far, the market has been very mature, and we have seen competition in general following when we did price increases, with the exception, like I mentioned, on everything that is steel-related where we are happy that we can keep the prices on the levels where they are today, given also the steel indexes how they have evolved over recent months. I guess competition sees the same inflationary pressures as us. Because it’s not only raw material, it’s also, like I mentioned earlier, labor inflation, energy inflation, logistic inflation, general inflation.
When it comes to China, we had a mid-single digit and negative growth in the quarter. Of course, Q1 is always a difficult quarter to come to conclusions because of Chinese New Year. But clearly, China construction market is not out of the woods yet. Like I said earlier, we believe that China construction market is bottoming out. And from hereon, we should see a gradual, slow improvement. We still believe that is the case.
But you should, of course, make a difference between the market and our business. We are still very exposed to new build in China. And we have decided that we don’t want to quote even on certain new build because we want to be – to have a reasonable chance of being paid when we get orders for new build. So most probably, purely on the new build side, we might even drop more than the market. That’s a conscious decision.
But then when it comes to replacement market on the residential side, when it comes to commercial, the verticals where we decide to focus on, we are definitely doing better than the market. And if we just see a gradual improvement of the market coming back, that should be also translated into back positive organic growth numbers and also positive bottom line numbers.
Operator
[Operator Instructions] We have a follow-up question from Rizk Maidi, Jefferies.
Rizk Maidi
Just quickly on HHI margin, how much of the improvement is due to the synergies being sort of achieved? Are we too early to quantify those so far versus just improvement in the business as top line getting better and you guys getting a grip on the business overall?
Nico Delvaux
Obviously, top line is not getting better because we said that we had a 5% negative organic growth. It depends also a bit what you call our own initiative and synergy effect. Take the example of pricing, of course, they did already some pricing actions before we became the proud owner of HHI. Then of course, we invested in the pricing team, we brought our pricing experience in. So together, I think we did a better job on pricing.
Is it then synergy or is it their own previous actions? At the end of the day, it doesn’t matter. Both pricing actions give us good positive results. But definitely, we start to see the first synergies kicking in. We are buying materials and components together, consolidating volumes, giving us purchasing leverage.
We are filling the factories of HHI with things that we used to buy from external suppliers, and we produce now in the HHI factories. We are cross-selling products in the U.S. and in export markets. So yes, the synergies started definitely to kick in. That’s also why we are confident that we will continue to improve margins now going forward.
Operator
Gentlemen, there are no more questions at this time.
Björn Tibell
Thank you. That means that we — it’s time to round up this conference. And if there are any follow-up questions, you’re welcome to, as usual, reach out to us at Investor Relations.
That means that it only remains for us to thank you for your interest and participation. And we look forward to speaking and seeing you in the coming weeks and also at our CMD in the middle of May. So have a good day now.
Nico Delvaux
Thank you.
Erik Pieder
Thank you.