Earnings Call: Q2 2020

Jul 17, 2020

Morning, everyone, and welcome to the presentation of Assaploy's Q2 Report 2020. My name is Bjorn Tebel. I'm heading Investor Relations. And joining me on this call is Assaflois' CEO, Nico Delvaux and our CFO, Erik Kide. As usual, we have set aside 1 hour for this call, and we will get straight into it now with a summary of the report before we open up for your questions. So with that, I'd like to hand over to you, Nico. Thanks, Gordon. So good morning from my side. Now the second quarter in a row that we do this from our home offices because of COVID-nineteen, of course, like the title 7, next COVID-nineteen quarter. Just to remind you, we started the quarter with more than half of the world's population in the mobile or the other lockdown. And for us, many important big markets lockdown going from countries like New Zealand and many countries in Southeast Asia and definitely also a big country like India in our APAC region and then big markets in Europe like France, Italy, Spain, U. K, completely locked down and going to the Americas with big parts of Canada, locked down, challenging situation in U. S. And then of course, know the very challenging situation in South America as well. And then gradually, in the quarter, somewhere towards the second half of May, markets started to open again and then we saw further reconvene coming into June. But so negative organic sales development for all our divisions with a negative organic growth of 18% and strong sales decline for all divisions. A lot of effort in the quarter on reducing the cost in order to defend the bottom line. Very happy with the cost we could take out in the quarter, more than SEK1 1,000,000,000 net and therefore also contained an EBIT margin of 10.5%. And then definitely good to see that we continue to deliver strong cash flow also in COVID-nineteen times cash flow of SEK 3.4 billion, only slightly below the same quarter a year ago. In figures, sales of SEK20 1,000,000,000, 15 percent down, 18% negative organic growth, 3% positive growth through acquisitions and the real currency. And then like I mentioned, an EBIT margin of 10.5% versus 15.9% a year ago and in absolute value an EBIT of almost SEK 2,100,000,000, 44% down. If we look at the world map, we obviously see double digit negative organic growth figures for the quarter in all continents. And I would say that you see a difference between those regions and markets that have been in an official complete lockdown versus the markets who had perhaps a softer approach, software approach markets, markets like the U. S, perhaps Germany or DACH in general, Australia and then definitely also Scandinavia with Sweden as the biggest markets where we saw lower decline of the organic growth. And then on the other side, you have, of course, the markets where where they were in lockdown for a long period of time. India, the most extreme example, but also in Europe, markets like France, Italy, Spain and UK, where we saw a much bigger decline. China, one of the markets that opened up, again, as the first one, we saw in China still double digit negative growth in the quarter, although we saw good steadily improvement over the double quarter, sorry. And we saw a better improvement on the commercial side than on the residential side. And I would say that improvement is true basically for all markets where April was obviously very depressed, May slightly better as markets start to open and then June, again, better than May. Some market highlights. We continue to get strong project wins. I will pick one vertical out, everything that has to do with logistics as the Amazons of the world continue to build warehouses in a very intensive way, I would say, to fulfill also all those in home deliveries that we now all do in COVID-nineteen times. We also continue to get nice project wins. The logistic verticals, by the way, also one of the good reasons why the entire system decline was more contained. And we got here also a nice docking solution order for a logistics center in Sweden. Then we have had several product launches related to COVID-nineteen. We launched a new video visit solution for our senior care, for Niro business in the Nordic so that you can, from a distance, support and also have visitor visits with elderly people that fall under that vonero solution. And then in HAD, very excited about this location services for contact tracing, where we can trace, for instance, patients in a hospital, where we can see how COVID-nineteen patients move in a hospital, but where we also can trace critical equipment like breathing equipment and so on, on, where we now also can measure distances between people and then warn people when they come too close, which are 1 meter, 2 meter, and then alarms will go off. Then we have also obviously launched new ranges of contactless hardware that you can retrofit on a doorknob on a door handle in order to avoid that you have to touch the door handle or the door knob, very important, of course, in COVID-nineteen types. Some other product launches. We'll mention the Incedo access control ecosystem, very excited about that, a new platform where we bring our commercial access control solutions together, important for EMEA, but also for other markets like, for instance, Australia and New Zealand. If we then go to the sales growth, of course, now the 2nd quarter in a row with negative organic growth, compensated partly still with positive growth through acquisitions. And then the operating margin, obviously, with sharp decline in top line, also operating margins down. We are now on a run rate of 14% over the last 12 months. And top line down, margin down, so also operating profit down 44% versus the same quarter a year ago, but still 25% up in the last 5 years. We continue to be active on the acquisition front. We still have an active pipeline. We completed one acquisition in the second quarter and then had 2 more now in July. Donimat is a specialty door company in Poland for the EMEA division. And I will come back on Focus Kura on the next slide. When it comes to active record, we still have the ambition now to close that acquisition in the coming weeks. We are waiting there for a big light of the European Commission. Confident it will happen in the next weeks for sure in Q3. And then a couple of words on Focus, Cura. I would say a Fonero alike company in the Netherlands, one of the market leaders in the Netherlands. We have a very interesting technology for senior care also on the alarm side, very complementary to Foneero, company of SEK130 1,000,000 and 100 employees. And this acquisition will be dilutive to EPS from the start. If I then go into the different divisions, starting with Opening Solutions EMEA, a division that was clearly hit in an important way by COVID-nineteen with an organic sales decline of 25%. Where the sales decline was still, to a certain extent, maintained in Scandinavia, We saw very significant sales decline in all other markets. And that top line decline, of course, also had an important effect on the bottom line, an operating margin of 5.7% versus 16% a year ago. We have a negative volume leverage of 10.50 basis points. And we had, of course, in that division many markets that were completely locked down in April and for a big part of May. We've also all the factories in those markets closed. When we then opened up again, of course, we have to do it with the right social distancing and the right safety measures, also leading to lower operational efficiencies. FX was positive 20 basis points and M and A flat. We then go to Opening Solutions Americas, an organic sales decline of 18%, with significant sales decline in all business areas and all regions. But I think a very good job well done in protecting the bottom line. We have an operating margin of 17.5% versus 20.5% a year ago, a negative volume leverage of 2 70 basis points, powered by FX, 30 basis points and then dilution from an M and A 60 basis points. That's mainly or exclusively, I would say, an internal move. We moved as you know, perimeter security from the Americas divisions to Entrance Systems, and we booked that under the M and A column. Another division that also performed well in the quarter, Opening Solutions Asia Pacific, an organic sales decline of 17%, with somewhat contained sales decline in Pacific, but then significant sales decline in all other business areas. And of course, with India, the extreme example on the negative side, I would say. An operating margin of 7.1% versus 9.3% last year, so very well very good job all done there also in taking out costs in the organization, a negative leverage of only 160 basis points, of course, also helped by the mix in a sense that more Australia and less China helps. But we have also seen a nicely improved margin in China despite the double digit top line decline. So we are really confident that, that new strategy now in China starts to kick in and also starts to show financial results. FX neutral, M and A dilute of 60 basis points. Then we go to Global Technologies, also hit very much by COVID-nineteen, an organic sales decline of 25%, a stable growth in Identity and Access Solutions, declining sales in Identification Technology and then significant sales decline in all other business areas in HID and also in Global Solutions. We remind you that in Global Solutions, our 2 main verticals are hospitality, hotel business and marine cruise ships, and we all know what's happening with those 2 verticals. An operating margin of 10.1% versus 18.5% last year, an important negative volume leverage of 7.40 basis points, of course, because of the 25% decline, but also because of mix in the sense that we saw a much bigger decline in our recurring revenue part on the cards and the credential side. It's obvious if there is no customers in a hotel, for instance, then you don't need new cards and you don't need new digital credentials on your mobile phone. So that business dropped much more than the 25%, and that's obviously a more profitable business than the rest of Global Technologies. So negative mix and also a continued weak citizen ID where the bigger projects business is missing, lacking and where we have also are not taking the necessary measures to adjust the organization as explained also in previous calls. This is also definitely a vision where we continue and further accelerate our R and D investment in order to strengthen our position also more mid- and long term once we come out of this COVID-nineteen crisis. FX was diluted 50 basis points, M and A diluted 40 basis points. We then go to Entrance Systems. An organic sales decline, I would say, of only 8%, declining sales in perimeter security, residential and industrial and then a significant sales decline in pedestrian, also more sales decline in service than in equipment. And in that aspect, there's also a negative mix from a profit perspective, because we make more margin on service than on equipment, but also a negative mix in the sense that we were more down in pedestrian than in residential, and we know that pedestrian is a much better margin business than residential. But despite that negative mix, very good operating margin of 11.4% versus 13.9% last year, with a negative volume leverage of only 190 basis points. This division, like all other divisions, helped also by positive tailwind from material cost of pricing versus material cost, but also a very good job well done in cost reduction in the quarter to protect the bottom line. And FX of 20 basis points negative. M and A, 30 basis points negative, where we have to comment that we took SEK 100,000,000 in acquisition costs, mainly related to the Agte Record acquisition, also partly to the acquisition of the AM Group and some smaller projects. And with that, I give then the word to Erik, our CFO, who will then go a bit more into detail on the financial numbers. Thank you, Nico, and good morning also from my side, everybody. As outlined by Nico, the sales decreased by 15% and the organic income decreased by Working capital. Finally, our return on capital employed went down to 9%. This is due to the lower earnings and the higher capital employed. Workforce, including reduced working hours, temporary and permanent layoffs. If you look in the quarter, 20% of our workforce was side, we will not participate anymore in any trade shows, and we have also done other things when it comes to reduce our marketing costs. Our travel costs reduced in the quarter with more than 80%. That we stay on top and been able then to launch new products. In total, our net reduction of conversion and SG and A is more than SEK1 1,000,000,000. However, it's important to remember that now when the factories start to open up, that some of these cost actions will not sort of continue in the quarters to come. If you then look on the bridge analysis, we still had a positive momentum on the price with plus 1%, and the negative volume leverage was 19%. The operating leverage was significantly better than what you saw in Q1, thanks to the implemented cost measures I talked about before, and it ended at 38%. It was weak, I will say, on EMEA and Global Technologies. I think Nico outlined that a bit, while APAC was very good when it comes to this. And we also saw during the quarter a positive trend of all the implemented savings. The FX didn't really have any effect in the quarter. If you look on the M and A, it had a positive effect on the top line, whereas then on the bottom line, you can see that it was dilutive with 60 basis points. But as mentioned before by Nico, we sort of had a large portion of acquisition costs related to Aper Record as well as we have integration costs for AM Group and Biocyte. We however, looking ahead, we sort of expect that most of the costs for ACTA record has now been taken. So we should see a better leverage of this going forward. If you then look on the cost breakdown due to, I would say, the low material prices also that we have had sourcing savings. You can see that we have a positive 30 basis points impact on the direct material. The conversion cost is, of course, impacted by the lower revenues, but the absolute cost went down double digits in the quarter versus last year. If you look on the it's the same way if you look on SG and A, of course, impacted by the negative organic growth. But and we, of course, continue to invest in R and D and also some parts of the sales activities. But if you take the sales and admin costs, they were also down in absolute term, double digit versus last year. The operating cash flow was down with 6% at SEK3.4 billion, which is thanks to good execution, I would say, in our working capital. Specifically, I would like to mention that we had a good collection, as you can see that our accounts receivable went down. Our cash conversion was strong at 181 percent. If you look on 1st, before we take the gearing, you can also see that our cash position increased to SEK3.4 billion. Part of it is related to the transaction of Agta, the payment of Agta. But we have also taken a precautionary method way of now having a little bit more cash on our bank account in these uncertain times. The net gearing is at 58%, which is down from the 70% last year. The net debt also decreased and is down with SEK3.3 billion versus last year. This has to do with a stronger Swedish krona currency as well as a good operating cash flow. And the net debt to EBITDA ratio ends at 2.1%, which is down with 10 basis points versus last year, which means that we still have a very strong balance sheet and a strong financial position, and we can continue our investment strategy when it comes to acquisitions. Last slide for me is the earnings per share, which decreased with 45% and ended at 1.2 6% for the quarter. With that, I hand it back to Nico for the final conclusions. Thank you, Erik. And yes, indeed, like we started the next ordinary quarter, where sales declined strongly in all divisions, but where also over the quarter we have seen a gradual improvement, May better than April, June better than May. And then, of course, also a quarter where we reduced cost in a very important way. We took more than SEK1 1,000,000,000 net cost out of the organization in 1 quarter. And then good to see that as in COVID-nineteen times we can continue to deliver solid cash flow, a cash flow of SEK4 1,000,000,000 On the short term, of course, the high uncertainty in the market will continue. There's going to be new lockdowns to what extent are they going to be? Which markets are going to be affected? Where is the U. S? And going to there's also a lot of uncertainty. And therefore, we continue to, of course, costs as priority, constant priority, flat terms as priority. But we also expect our financial performance to further gradually improve, of course, subject to no new negative events in the market. And on the long term, it's clear that the attractive fundamentals of our industry remain intact and that the strong long term growth drivers remain valid. We will continue to see urbanization and security will become remain and become more important. We will see the shift to more green environmental friendly buildings driving technology up in our industry. And if already something with COVID-nineteen will change, we believe that it will accelerate also further to move from mechanical to electromechanical and digital, which again is a positive trend for our industry. And therefore also we reconfirm that our financial targets remain unchanged. And with that, we can open up for questions and I give back to Bjorn for the instructions. Thank you, Nico. Yes, before we open up for the questions, I would like to remind you to limit yourself to one question each and one follow-up to allow as many as possible obviously to ask questions. Operator, this means that we are ready to kick off the Q and A session. Please go ahead. Thank And our first question comes from the line of Lars Whalston of Barclays. Please go ahead. Your line is open. Great. Good morning all, Nico, Erik, 1st of all, Nico, on your exit rate from the Q2, you talk about a gradual improvement through Q2. I gather June is still down in the teens, slower recovery perhaps than I would have expected given the quarter of what was down 18% organically. Can you help me a little bit with the dynamics around that, if that's true? And specifically, whether some of the very strong growth you appear to have seen in your Logistics and Warehouse segment is starting to fade? I'll start there. Thank you. As you will start with the exit rate. Of course, we were helped in the quarter with the fact that May had 2 working days less and June had 2 working days more in a normal quarter. It's neutral 0, so it doesn't matter. But of course, in this quarter, May was still very much the lockdown market. So it didn't really matter too much to have the 2 working days less, where in June it was you could say re argument and therefore the 2 working days more really mattered. And that you see more outspoken in Entrance Systems because we know that Entrance Systems is the division most affected by the number of working days in a quarter. But if you look at June to be specific on your question, we have seen in June a higher single digit negative organic growth still. But if you would correct for the working days and you would look in, let's say, normalized days, the organic growth in June would still have been double digit negative. But clearly, very good improvement versus May and definitely versus April. What you see is that those markets that were completely locked down, markets like France, U. K. And so on, obviously, the day they locked down, their business went from 100 close to 0 in April, but then also recovered obviously much faster when you open up again, where a market for instance like Sweden that has never been in formal lockdown, Obviously, the decline was more contained, but then of course also the recovery is much less. It's a little bit a we versus you, I guess. And then on the second part of your question on answering systems, I would say there is perhaps 2 positive aspects. 1 is the residential garage door business, so the residential segment, which kept up much better than expected. That's for us a big part of the businesses in the U. S. And then the second one, indeed, I think we do with loading docks for logistics where we still saw good positive growth in the quarter. And that logistic business that falls under the industrial manufacturing part in the industrial segment of Entrance Systems. Thank you, Nico. My question specifically whether was whether you see that growth in logistics and warehouse be sustainable or whether perhaps there's been a bit of a temporary boost to your business. So specifically, I was just wondering whether as you exit June into July, I know it's a slightly longer lead time business, but whether you think that, that growth you have seen in that part of your industrial business within ES is sustainable into the second half? Of course, we don't have a glass ball, but there is nothing special in the quarter. It's not that we got 1 or 2 very big orders that made the figures in the quarter special. So we are confident that that trend will continue as the logistic business, the warehouse business continues to grow, yes. Thank you. Thank you. Our next question comes from the line of Guillermo Beignet of UBS. Please go ahead. Your line is open. Thank you for taking my question. Good morning, everyone. I have a question regarding the savings as we see basically activity recovering to a certain extent, as you alluded to your exit rates, how much of that EUR 1,000,000,000 will be sticking to the bridges in the future quarters? Or at least how much of those savings you would keep if activity goes back to normal, I guess, by Q4 presumably? And then second question probably is regarding China. How would you define the recovery there as we speak? And how far are we from normal levels from your business model? Thank you. So if we start with the costs, so more than SEK1 1,000,000,000 net. That is, of course, a combination of short term cost measures, to a certain extent also taking advantage of all the local support programs that different countries put in place. And obviously, if a country is in lockdown or we send all the people home, the factories are not working. So to turn it back, you can say that's an extreme of how low the cost can get. But next to the short term cost actions, we have also initiated more long term lasting sustainable cost actions because we also are working on lowering our run rate cost base, let's say, going into 2021 because first it's clear that after the corona crisis for sure we will also have an economic crisis. And I guess the real question is to what extent that economic crisis will hit. And I guess nobody knows, at least we don't know. But we said that doesn't mean that we should not take action today. And that's why we are lowering our run rate costs because we know that in many markets, if you take, for instance, a country like France or Spain, if you make a person redundant today, of course, you will only see the return on that in 9 months or a year from now. So if you want to reduce cost base, let's say, for 2021, we have to start acting already today. And as you can see a little bit in the numbers also of the people where we said that we have around 10,000 people affected either short term laid off or permanent laid off. And from the 10,000 we have year to date close to 3,000 now that unfortunately we had to let a permanent go. And that 3,000 is then in the category of long term cost savings. On the others, of course, some of that cost will no longer or some of that cost reduction will no longer be there in Q3 and Q3 hopefully, I would say, because when business comes back, of course, we will ramp up again our operations and therefore also add again cost in operations. But that will be more variable costs related to the business volumes that we will hopefully see go up again in the quarters to come. When we go to China, we have seen perhaps a lower recovery in China than some other industries. We have heard about other industries like elevator industry, for instance, talking about double digit growth levels again versus same period a year ago. We definitely don't see that. We have seen good improvement May over April June over May. And on the commercial side, I would say that today we are back more or less on similar levels as a year ago, where obviously on the residential side, we are still double digits behind last year. It's clear that if you have been in the Chinese locked down in your home for more than 2 months, perhaps even 3 months, it's not your first priority to replace your front door with a nice new Pampano door or replace your lock with a nice new Yale digital door lock. And as we see a little bit that are the businesses that are still more affected than our commercial side. On the commercial side, obviously, Chinese government is also putting money in, stimulating also bigger projects. We got certain nice orders for transport, for instance, metro stations and so on. But you know that in China, we are still much more exposed to the residential side than to the commercial side. But we are confident that situation will gradually further improve now also in the coming quarters. Thank you. And I have a follow-up, if I may. Your cash flow, as measured in cash and cash equivalents, has gone up from DKK400 million, speaking to DKK 4,000,000,000. So it's an exceptional development. And I think there's some seasonality to your cash flows that will basically get a bigger cash flow towards the second half, if I remember well. At what point would you start to be in terms of your priorities, we'll just have to be focusing more on margin and less than cash flow as we move into the future? I mean, as you said, we have had a strong cash flow now in the first two quarters. So and but we will I want to say your question a bit more is, of course, that I would say that as long as we sort of can keep this momentum when it comes to cash flow, of course, we will look a bit also into the margin. But one way or the other, they are both aligned. They are both aligned again. I they are both aligned. That you realize in Americas is better, more favorable than on the EMEAs. I think the volume leverage in Americas was around 32%, 33%, where volume leverage in EMEA was 47%, 48%. I think there is a couple of reasons for that. The main two reasons I would say is one of course that in Americas, you only dropped 18%, whereas in EMEA, we dropped 25%. And when you are in the 18%, obviously, you have a much better chance keep your volume leverage under control than once you go into the 25% or above. But more important to that is that how equally spread is that drop. And in Americas, if you look, you have, of course, one big country U. S, which had a drop of around 18%. Whereas in EMEA, the 25% is the average, where you have some markets like Scandinavia, DACH, which had much lower negative organic growth. And then you had other markets like France, U. K, Spain, who had much bigger organic growth. And if you have 2 markets and they both go down 25%, it's one story. If you have 2 countries and one goes down 15% and the other one goes 40, of course, your result will be much worse because the 15 you can maintain and get good operating leverage. If it's minus 40%, it's almost impossible. And we have had markets in EMEA that over the quarter are down more than 50%. It's clear that in a market where you're down more than 50%, especially as that 50% is even not uniform because it was then in March perhaps minus 70% percent and then in general a bit better. But a market that goes minus 50%, obviously you can't defend your bottom line and still show good operating leverage. So that's the two main reasons in the difference between EMEA and Americas. Yes, it's also true that it's easier to realize prominent cost savings in the U. S. Than in many markets in Europe. But as we have these subsidy programs in place in EMEA, that is not a real issue for the quarter at least. Thanks. Very helpful. If we could just have a quick follow-up on the permanent cost savings, the $2,500 permanent headcount layoffs that you highlight. I guess you probably don't have much of a benefit so far in H1 from the savings related to that program. Can you help us maybe a little bit with the phasing and how the cost savings ramp up over the next couple of quarters? Of course, it depends again a little bit if you take a country like China or the U. S, obviously, you have the savings quite fast. If you take a region like Europe, yes, there you have the cost and you don't have the savings yet. But what we have said is that, again, for us the most important question is what will be the run rate after COVID-nineteen if the economic consequences of COVID-nineteen. And we have said we don't know, but we will adapt our cost structure in a sustainable way long term to a level 6% below the cost level prior to COVID-nineteen. And I don't want to say what X is, but X is a single digit number and the single digit number Verizon a bit division by division. But we have chosen the X in a sense that we say we can do that without cutting into the muscle in a sense that we want to continue our R and D investments. In some ways, we even want to further accelerate R and D investments because we really believe this gives us today a competitive advantage. We obviously want to maintain our spec people, our specialized salespeople, our engineers. So the X is chosen in such a way that we can reduce those costs in a sustainable way without jeopardizing all the investments we want to do mid- and long term. And that's how you should see the long term versus short term cost actions. The short term, how fast with accounts we recover? Yes, it's important. I understand it's in the first place also important for you. I would say we are less concerned in the sense that if it takes a little bit longer or it goes a little bit faster, yes, it will affect, of course, short term our results, top line and therefore bottom line. But in the coming months, in the coming quarters, the local incentive programs are still there. It's much more important to understand what's going to be the long term run rate. Our next question comes from the line of Guilherme Despres of Deutsche Bank. Please go ahead. Your line is open. Good morning, everyone. Thanks very much. I've got 2 questions, please. First of all, as we are gradually coming out of the lockdown, have you started to see a trend that your clients would move to more mobile keys? And I mean, do you think we could actually start to see an upgrade cycle in buildings related to COVID concerns towards perhaps more touchless products, more automatic doors, tracking and location services, generally more advanced entrance systems. That's question number 1. And the second one is about the margin performance, which was obviously a bit better than quarter. This is the case in ASH and I think where margins recovered extremely rapidly and now nearly back to pre COVID level after being in negative territory in Q1. So I'd like to understand a bit more what drove such a quick improvement in margins and whether there is anything that can be applicable perhaps to other agents, whether we could expect to see a similar kind of improvement elsewhere even with the time lag? Thank you. The line was not very clear. So you were talking about 1 division specifically where the margins were almost back to pre COVID-nineteen level. Which division were you talking about, you said? Yes. I was talking about Yes. So clear. If I start with the first question on mobile keys, of course, the answer is on mobile keys definitely not or not yet. But if I answer a bit more in general, yes, we have launched now these retrofit ranges in all three geographical divisions that you can retrofit hardware on a door and don't have to touch the door handle or the doorknob anymore. We see very good traction on those new hardware lines. But of course, in the bigger picture, the fact that we do €9,000,000,000 top line, this is a smaller part of the business obviously. We see something similar in Entrance Systems and in the 3 geographical divisions where yes, openings are now being more automated with automatic door openers that you indeed don't have to touch the door anymore. The door opens automatically. In hands on systems, for instance, we have many different systems. Now for instance that door opening is linked to sanitizer equipment. So the door will only open if you first sanitize your hands and then the door will open or the door will only open if you wear a mask. We have also these systems now that counts the number of people that are in an office or in a supermarket. If we say that the supermarket can only be, whatever, 10 people, then the door will only go open. And when it's less than 10 people or if it's 10 people, the door will only go open after somebody comes out and then let somebody new in. All these systems, of course, take action now and there we see good growth. On the HID side, same thing. I mentioned under the highlights of the quarter that we have these new systems now in HID that can track and trace equipment or people in an hospital, in an office. We can track and trace people if they are coming too close to each other, making sure that we guarantee that social distancing distances are expected and so on. And all that starts to generate business. And we see, of course, very nice impressive growth in percentages, but it starts, of course, from a low level. So again, again, in the complete picture of the €9,000,000,000 that is not moving the needle to a big extent yet. We are convinced, however, that through COVID-nineteen, for sure, we will see now an acceleration, even I'm talking general, from the move from mechanical to electromechanical and digital, because you can do so much more with an electromechanical system than with a mechanical system. You can control things better. You can do it more hands free. So yes, that trend will definitely accelerate now after COVID-nineteen. And that's good news for us because it drives obviously 1, technology up in our industry and that's what we like because we like to make a difference to technology. But 2, also we know that like for like an electromechanical solution is a more expensive solution than a mechanical solution. So the total pie, the total markets will grow. And if we can then get a bigger part of that pie for us, then that will have a double positive effect for us. If we then go to APAC, yes, we are very happy with the margin improvement for APAC in the quarter. Of course, it's a little bit difficult to extrapolate APAC to the rest of the world because we know that we had our challenges in APAC and in China in particular. I would say there's 2 things that make the results better in APAC. That is 1, of course, the mix in the sense we had more Australia and less the rest of APAC, less China in particular. We make much better margins as you know in Australia than in China. So that helps. And 2, indeed, we have always said that we make single digits, low single digit margins in China. We have seen a doubling of that low margin in China through all the things we are doing in our new strategy for China, consolidating operations, consolidating R and D, consolidating sales organizations and also going more after profitable deals in China. There's, of course, 2 specific items for APAC that you can't easily translate to the other divisions. It's clear that the lower your organic drop, the easier it is to get a decent volume leverage and therefore the easier it is to protect your bottom line. And again, it's mainly the spreads in that organic decline that makes the difference. If you have a drop of €15,000,000 in general, that's very big variation in organic declines country by country. And going forward, under the assumption that we don't get 2nd waves or shutdowns as well, obviously, confidently, we will see less of that wide spread in spectrum of organic declines. So that should help. Thank you. Our next question comes from the line of Andreas Filipe of JPMorgan. Please go ahead. Your line is open. Yes, good morning, everybody. My question is around your kind of specification business where you get some visibility into future demand. If you look at activity there in June into July in terms of discussions with customers on kind of new construction, new projects, new offices, new hotels. What do you see there? And how does that help you with your determination of what that X should be where business normalizes next year? Maybe you can give us some indication maybe on how that activity level in that part of the business compares now compared to where it was 6 or 12 months ago? Yes. What it is as a result, I think, is different than what it tells us. When you look at our specification business, I must say it's still very healthy. It's still double digit up as well in the Americas as in EMEA. But that is, of course, architects speculating in our products for potential future projects. And I would say that's, of course, a positive news because that means that at least that part in very early in the chain continues to be, I would say, even very positive. But the real question is, of course, how many of those theoretical projects will then also become real projects? How many projects will they really decide to start and execute through? And how much delay we will get in some of those projects? And I think it's a little bit too early to say, but that is definitely an important thing to monitor because that will decide on the business levels in a year from now, so going into 2021. Because if you look at architecture building indexes and construction indexes, of course, they are down in April, May, very significant. Nobody expects something else. I would say it's more important to look at those indexes now in July, August, September, what's going to happen with those indexes because that will give us a better indication then for the quarters to come and definitely for 2021. Because definitely in the Americas there was stretch on the supply chain in the sense that it was difficult to find people and so on. So you can live a couple of months without or with a decline in new project because you will just pick up on that backlog. I don't know for the set of moment, those new projects have to start and have to begin to guarantee the business also going forward. Thank you. My follow-up question on Agta Record. You said earlier on the call that most of the acquisition costs have been paid and that we should see consolidation starting relatively soon. Maybe you could provide an update on what the underlying impact will be in terms of maybe also what the other record financial performance is relative to the expectations before, if you already have update on maybe some indication on what to expect in terms of the PPA impact or the difference between the EBITA and EBIT impact once we get consolidation? Thank you. We have said that, on a 12 month moving trend would have a dilutive effect between 30 basis points and 50 basis points that we have set prior to COVID-nineteen. Obviously, now in COVID-nineteen times, it might probably will be a little bit higher. When it comes to PPA and so on, it's still too early. We are still not the owner of Agta Accords. So we should be able to give there more details hopefully confidently in the next quarter. And when it comes to the financial performance of Active Record, okay, we only have the financial the official figures, the reported figures like you have those public figures as well. Obviously, Agta Record is also active in an important market for them is France. And we also know that France was slowed down for a long period. And our business in France was affected in an important way. So also their business was affected in an important way. Should we still expect the SEK 2,000,000,000 gain? Or is that impacted by the disposals you have to do? What do you mean with the €2,000,000,000 gain? On your the accounting impact of your own stake that you had in Agta record? Henrik is muted, but he's trying to say, yes, the SEK 2,000,000,000 in capital gain is still expected to be the case. Yes, Andreas. Yes. Thanks, Bjorn. I think we can move to the next question then, operator. Thank you. That comes from the line of Lucy Collier at Morgan Stanley. Please go ahead. Your line is open. Hi, good morning, gentlemen, and thanks for taking my question. I just have a couple left. I was hoping maybe if you could help us understand what you are seeing in terms of pipeline and conversation with your customer on the office space and also to some extent HID And maybe put that in light in terms of the size of that business versus the size of what you were highlighting earlier, your contactless businesses, for us to have a view on what potentially could be lost or impacted and how much on the other side is the opportunity? Yes. So short term, obviously, let's call it a recurring revenue, the cards, the credentials as well as for HID as for Global Solutions is affected in a very important way. If I take the extreme example, the hotel business, obviously, that recurring revenue parts, cards and credentials and hope to close to 0 because there is no people going to a hotel. And if there's no people going to a hotel, they don't need a car to check into the room. And to a certain extent, things are similar things are true for people going to the office. If people don't go to the office, they don't lose their cars and they don't upgrade the cars and they don't hire new people. And so that being said, we obviously believe are confident that that gradually will come back now. As now in summer period people will start to go on vacation, will spend some time in hotels. If I look at our people also our salespeople start to travel again locally visiting customers sometimes also staying overnight in hotels. So that recurring revenue, parked cars and the credentials is gradually going to come back. That will help top line and it will help obviously bottom line in a more important way. When it comes more to the long term picture, again, I think if you take the macro driver, I believe that we will see that acceleration from mechanical to electromechanical. Digital, which is the biggest and the most important trend. When you then zoom in and more specific on offices, I think everybody has his own opinion. Some people say, yes, there's going to be much less people in the office. There's going to be much more work from home. And other people say, once the COVID is over, Abengoa is going to be back to normal. And perhaps we even need more office space because people have to sit further away from each other. So we need also more rooms and more openings. We will see how that evolves. But I think this is a small aspect in the bigger picture. I think the bigger picture is that for sure we will see further acceleration from the move from mechanical to electromechanical and digital. Okay. Thank you. And I guess my second question is just a follow-up. You were mentioning earlier that you had benefited from local government program in various countries. Are you able to provide what was the contribution your P and L from those programs? And also, if as part of that, it creates some, I would say, requirements from your standpoint in terms of keeping employments in specific area or restriction on restructuring or maybe also kind of dividend payments and so on? Yes. We can't give an exact figure, but we can say that it's a smaller part of the SEK1 1,000,000,000 And in that way, I would say it's good news because it makes the savings, I would say, also more sustainable. And I would also say that on the second part of your question that these programs don't limit our possibilities in an important way to do the long term cost cutting actions that we have in mind and that we are executing. So we are still flexible enough even with those programs in place to do the things we have to do long term. Thank you very much. Operator, I think we have time for one more question, please. Thank you. Then the final question comes from the line of Andreas Koski of Nordea. Please go ahead. Your line is open. Thank you and good morning. I would like to come back to the discussion about the Architectural Buildings Index because when reading the ABI report, many respondents are already talking about a very weak outlook for 2021, and it does not look like that they expect a strong recovery. And looking at your recovery in China, it has not been as strong as for other manufacturing industries. So my question is really, do you see a reason why the pace of your recovery in other parts of the world should not also be slower than for many other industries? Well, of course, again, if you look and compare China with the rest of the world, we've always said that one of our challenges in China is that we are very skewed towards residential and we are also more skewed towards new build in residential. So taking China as an example where you then can extrapolate for the rest of the world would perhaps be a mistake in the sense that in the rest of the world, definitely, if you take EMEA and if you take North America, in particular, our residential exposure in North America for the Americas division is very small. When we talk about spec business in EMEA or in Americas, we talk about the commercial side. And of course, new build projects on the commercial side is only one part of our business for Americas for EMEA. A very big part in both divisions is, of course, the aftermarket, the smaller projects, the refurbishments and then just the replacement aftermarket business. So yes, architectural billing index is an important indicator for a part of our business in the U. S, but we have a very big other part in the U. S. As well. Thank you, Nikky. The reason for asking is because when looking at your organic growth recovery after the financial crisis, I know you don't drop as much as many other companies, but it was significantly slower back then. And now looking at China, it's slower. So that's why I was asking. Could I just try? You mentioned that June was down double digit for you still in terms of organic growth. Is that what you have seen also in the beginning of July? Or is it back to at least single digit declines? So I said that in June, if you take June, it was a high single digit decline. But if you would correct for the working days, the fact that we had 2 working days more, then indeed it was still double digit decline. And what we have seen when people came out of the lock down perhaps 2 things happened in some markets. We saw some destocking at the beginning of the channels because obviously they could not destock prior to shutdown because the shutdown happened suddenly from one day to the next. And so they wanted to be more prudent because they didn't know how things would recover. They were also asking for very short delivery times. And therefore, we had to deliver in short term times. And then 2, we saw in many markets opening up of construction sites going much slower than we had thought for. We thought, yes, today the market is open again. Okay, we start to see business coming back. That was not the case because, of course, on all those construction sites, people had to organize themselves with a new way of working, with social distancing, less people on-site. And also in many markets, they had to wait for the health and safety inspector to come and inspect the site and give the green light that they could start and could start with more people. And as there is only limited number of inspectors, there was also a delay there. And that acceleration we have then seen gradually improving more in the second half of June and the beginning of July. Then how it will evolve now, I think it will depend very much. We go into a holiday period July, August, but I'm not sure. And it's also not clear to me if people are going to take similar vacations as a year ago. There might be some upside in the sense that perhaps some of those construction companies say, hey, we will not take 3 weeks or 4 weeks off in the South of Europe. Let's take a week off or 10 days off because we lost already 2 months and the lockdown we will continue to work. But it's too early to have a good view on that. Okay. But during July it sounds yes. Thank you very much. Andreas, I'm sorry. We will have to finish off the conference now. We can maybe take this offline. Thank you, everyone. It's time to round up this conference. I'm sorry about some of the audio issues we had earlier in the call. We will record the cost side again, so you can hear the commentary and it will be made available via our website. Nevertheless, on behalf of the Assa Abloy team, I would like to thank you for your participation and interest. We look forward to speaking with many of you in the coming weeks again, and we hope you will have a safe and enjoyable summer break now. Thank you. Thank you. Thank you.