Earnings Call: Q3 2019

Oct 18, 2019

Good morning, everyone, and welcome to the presentation of Assa Abloy's 3rd Interim Report. My name is Jon Trebel. I'm Head of Investor Relations. And joining me here is our CEO, Nico de Voor and our CFO, Jorg Frieder. We will speak to our normal structure today. So we'll start with a short presentation of the report before we open up for your questions, and then we should round up in about 1 hour's time. So with that, I would like to hand over to you, Nico. Thank you, Guillaume. And also good morning from my side. Happy to report you good quarter 3 results for Assambloet. It was a quarter with good organic sales development, 4% up with strong growth in Americas and Global Technologies, a good growth in EMEA and Entrance Systems. And net organic growth of 4% complemented with good growth through acquisitions also of 4%. Also this quarter, the highlight of the quarter were the electromechanical products, up 16%, including currency, up 11% excluding currency. A strong EBIT growth of 14% and a stable margin, an EBIT margin of 16.2% despite the fact that we booked SEK 55,000,000 acquisition costs related to the acquisition of EKTA EKOT. And then I would say a very strong operating cash flow, up 47%, of course, thanks to a good EBIT performance, but also thanks to a good improvement in our working capital. So sales of SEK 24,000,000,000 up 13%, 4% organic, 4% acquisitions and 5% currency. And EBITDA margin 20 basis points up at 16.7 percent, EBIT margin at 16.2 percent and then an EBIT of SEK 3,900,000,000 14% up. If we look a little bit at sales per region, I would say there's perhaps less points that stick out this quarter, A very good North America, 5% organic growth. A good Europe, West Europe plus 2%, I would say, despite the economic situation in Europe. A very strong South America, plus 8, and that's mainly linked to a couple of project orders in Global Technologies, plus 6 in Africa for the same reason, couple of projects for Global Technologies and then plus 2 in Asia and plus 3 in Oceania. Of market highlights. It's good to see that all our efforts we put in our specification and our specification teams continue to pay off in all 3 geographical divisions, also in EMEA. You see here Riyadh Metro example for EMEA. And then you might have seen that announcement of Apple that they are also now focusing on university vertical. And it's in that collaboration that we got a nice order at the Clemson University for a combined offering of HID technology together with Electronic Locks of the Americas. We're also one of the founding partners of the FIRA Consortium, together with Samsung and a couple of other big multinationals. The idea there is really to promote and provide brand technology in our access control field. And then we launched several new products in our smart residential space. Another quarter with positive organic growth, now 26 consecutive quarters with positive organic growth with a very nice track record. And our operating margin, slightly below our bandwidth where we want to be of 16% to 70%, but slowly getting back into that bandwidth. And then the EBITDA margin right in the middle of that 16% to 17%. So if you can keep operating margins stable on a high level and you can increase your top line, You can accelerate your operating profit, 14% up in the quarter as compared to the same quarter last year, 67% up in the last 5 years. For the acquisitions, it has been a very active quarter with 4 acquisitions completed in the quarter and 10 year to date. And those 10 acquisitions represent an acquired annualized sales of SEK 2,400,000,000. We are still working on closing Aktter Record and Lux Indent. Akterekord is now expected to close early beginning of next year. And Lux Indent, we will close this quarter. Some more information on a couple of the acquisitions with it in the quarter. Life Safety Power, an American supplier of smart access control power solutions with a sales of SEK 290,000,000 65 employees, complementing nicely our access control portfolio and that acquisition accretive to the EPS as of the start. Black Earth, Australian Secure Card Manufacturer, with sales of SEK 420,000,000 and 70 employees, announcing our position in the smart card market in Oceania. And also this one will be accretive to EPS from the start. And then Luxe Inland, a Czech RFID component provider with sales of SEK 180,000,000, 145 employees and holding nicely our RFID component offering and optimizing our sub blow operations footprint in the sense that we were very dependent on one factory in Asia for these RFID components. Now with this Luxe Indent acquisition, we can leverage operations in a much better way. And this acquisition will be neutral to EPS. If we then go into the different divisions, starting with EMEA, an organic sales growth of 3%. And these are good results if we take into account market conditions in Europe. We have very strong growth in the Middle East, strong growth in East Europe, but negative growth in Finland, UK and South Europe. You will remember from Q2 that there were the concerns on Scandinavia that we were not sure if the downturn in Scandinavia was a temporary thing or a more permanent thing. We have seen now again good growth in Scandinavia. Of course, with one working day more as compared to the same quarter last year. I would say what's geographically almost right because we haven't seen that negative growth in Finland rather than in Scandinavia. Now in Finland, definitely, we see market conditions going down. Same is true for U. K, as mentioned earlier, with still all the discussions around the Brexit. But on the other hand, we still see good market conditions in other places in EMEA, France and East Europe, Benelux and definitely also the Middle East. An operating margin of 16.1%, 20 basis points up, We have a very good volume leverage of 40 basis points, driven by operational efficiencies. And then a negative currency effect, 40 basis points, of course, mainly because of the SAC. And then acquisitions, 20 basis points up. That is mainly the shift from our ABLOY business from EMEA to Global Solutions, the kind of internal acquisition, you could say. So overall, good performance for EMEA. And the same is definitely true for Americas, where organic sales was up 6%, 6% on top of a 10% organic growth in the same quarter last year. So this is a difficult comparison Last, I would say all business areas in U. S. Were performing strongly with the exception of perimeter security, where we saw negative growth. And then a good growth in Canada, and I would say an improving Latin America. Operating margin of 20.5%, 40 basis points up. We have a very strong volume leverage, 50 basis points, of course, driven by the good organic growth, by the fact that we were able to now fully compensate with price increases and operational efficiency measures for the raw material in cases that we experienced last year. FX flat and M and A 10 basis points diluted. Asia Pacific, a negative organic sales growth of minus 1%, with strong growth inside Asia, but negative growth in China, India, South Korea and Japan. In South Korea, we really see market conditions going down in an important way, whereas while the commercial and the residential side market is down high double digits. And South Korea is obviously further an important market. We also see still negative development in China when it comes to the market. But I would say in China, we are also now much more selective from the take orders, which orders to take, obviously, we want to take orders where we can make profit and where we will be paid in a reasonable time. So that's another explanation why we see that negative growth in China. And that strategy is also visible in our operating margin where we are 30 basis points up and where we get a leverage of 10 basis points despite that negative organic growth. And that's of course also because of the more selective approach in China. Currency, 10 basis points up and also acquisitions, 10 basis points up. We are progressing with our China business plan. I would say we are in line with expectations. But as explained earlier, this is a longer term project. If we then go to Global Technologies, another strong performance with an organic sales growth of 6% on top of an organic growth of 12% same quarter last year. We have a very strong growth in Global Solutions for all of our verticals. And then a little bit of mixed picture in HID, a very strong growth in Secure Insurance, but only stable growth in Physical Access and then some negative growth in some other business areas. An operating margin of 20.3 percent with a negative volume leverage of 20 basis points, mainly due to continued investments in R and D as well on the HID side, but mainly also on the Global Solutions side and then also the investments in the new verticals in Global Solutions. Helmed by currency, 30 basis points and then dilution from acquisitions, 120 basis points. That is three reasons. That's one. As I explained earlier, the shift from our ABLOY business from EMEA to Global Technologies. There is the acquisition of Cosmetz, big acquisition of €100,000,000 where we are performing, I would say, even better than planned. The margin is also improving faster than planned. But of course, with an operating margin of 20 more than 20%, that acquisition remains, for the time being, dilutive. And then we had some extra acquisition costs in the acquisition, be it in HID. And overall, I think also very good performance for Global Technologies. And then Entrance Systems, an organic sales growth of 3%. And here in Entrance Systems, the fact that we had one working day more in the quarter counts perhaps the most because that's a division that is mostly affected by the working days, also because of the service business. The strong growth in pedestrian doors and high performance doors and negative growth in residential doors in Europe. And I'm very happy to see our strong accelerated growth in service We see that, that strategy really pays off and it is also translated in the operating margin, 13.6%. We have a very strong volume leverage of 60 basis points due to that strong growth in service because we know we make better margins in service than on equipment. Also thanks to operational efficiencies and also thanks partly of course to the mix because we know that we make better margins on pedestrian doors and high performance doors than we do on residential doors. 30 basis points dilution of currency and then 80 basis points dilution of acquisitions, but that is mainly, I would say, exclusively the SEK 55,000,000 acquisition cost we booked for Aktarek of there. We have now booked all costs for that acquisition, I would say, project to date. And with that, I give the word to Erik for some more details on the financial figures. Thank you, Nico. And also from my side, a very good morning. Our sales grew with 13%, of which the organic part was 4%. As mentioned here before, Paneco is mainly driven by Americas and Global Technologies. And also, as mentioned, we also had 1 working day more in Q3. The acquired growth is also 4%. If we sort of what we expect then for Q4 is around 3%. The FX was 5% in the quarter. And when we look at it today, that's roughly what we expect also for Q4. What is very encouraging to see is that we can actually see that the changes that we have 13% in sales, we have a 14% improved EBITDA, we have a 13% better, yes, income before taxes, net income. So you can actually see that it flows through. What we gain on the top line, it actually flows through all the way to the bottom line. The EBITDA margin is 10 basis points better and the EBIT margin is at the same level as what it was last year. I mean, the highlight once again, I think it's now to the Q3 in a row that I said the highlight is the operating cash flow. It was this quarter up with 47%. Main reason for that is, of course, that we have a good earnings, but also that we have good efficiency in our net working capital management. Specifically, then if you look at inventory reduced, but also we see good progress also in accounts receivables. Return on capital employed remain on the at the same level as last year with a 17%. If we then look at more from a bridge perspective for the group, you can see that we had a good organic leverage. It's sort of improved the result of 30 basis points. If we look on price versus volume, the price here is rounded down to 1%. So it's a little bit higher than that. Where we see the most price coming through is actually in the Americas. Currency is slightly negative with 10 basis points, and that comes from the negative transaction effect that we have within certain divisions. Yes, and I mean, if you look in total there, the acquisitions sort of had a negative impact of 10 basis points. If we then look to a cost breakdown, you can see that now in the quarters before, we have I mean, first, we had negative impact of direct material due to the higher raw material prices, which we couldn't compensate in prices. In Q2, we were flat. And now you can actually see that in the Q3, we actually overcompensated for the raw material. But also, I would also say that we have had good work done by our sourcing team in order then to improve our costs on direct material. Conversion cost is also helping us with 10 basis points. We have had a good traction on the manufacturing cooking program, giving us about SEK 200,000,000 in the quarter. But also we have other operational efficiencies, which also helps to this. If you look on SG and A, it's flat. We have had good volume leverage, but then we have also invested quite a lot in R and D, mainly within the Global Technologies division. All in all, if we exclude acquisitions, we are 20 basis points better than the same quarter last year. As I said once again, this is the highlight. Operating cash flow improved by 47%. And as you can see, we actually have a better cash flow than earnings before tax, so at 104%. Of course, they're very happy with this, but we also know that this is not sustainable, that over time, of course, it will go down below 100%. But still, as I've mentioned before that we have done a lot of work on our operational efficiency, part of it flows into the results, but I would say even more flows into our net working capital and specifically then on the inventories. Looking on the gearing, you can see the debt versus equity is up 1% versus last year, so it ended at 64%. In actual value, it's up with SEK 5,500,000,000. But out of this, SEK 3,700,000,000 comes out of the IFRS effect of SEK 3,700,000,000. And then you have currency, which is another 1.5. So the net debt versus EBITDA is at the same level as 3.1. So I mean, our financial situation is stable, so we can continue our acquisition strategy even after we have finalized the acquisition of the Active Record. Last but not least, the earnings per share is year to date upward 20% versus last year. And with that, I'll hand back to Niko. Thanks, Erik. So as a summary, a good quarter 3 results with good organic sales development, up 4%, complemented with good product acquisitions, also 4%. Also this quarter, higher growth in electromechanical products up 16%, a strong EBIT growth of 14% with stable EBIT margins despite the SEK 55,000,000 acquisition cost puts for Hector Records, very strong operational cash flow. And then new news for you, we would like to invite you to our Capital Markets Day next year, May 13, and that Capital Markets Day will take place in London. And with that, I give back Ward to Guo for the Q and A. Thank you, Nico. Before we open up for your questions, could I just please remind you to limit yourself to one question and one quick follow-up, so we allow as many as possible to ask questions. Operator, this means that we are ready to start the Q and A session. Please go ahead. Thank The first question is from Lucy Collier from Morgan Stanley. Please go ahead. Your line is now open. Hi, good morning gentlemen. Thanks for taking my question. The first one really, Inco was a little bit more around the language you have in the kind of the comments around the quarter. You're talking about an underlying growth which has slowed in the quarter. And when we look at the number, I guess it's maybe not so clear for us to see that. And generally speaking, you're talking about market condition becoming more challenging. So I was hoping whether you could give us some color around the trends you are really seeing and how does that compare with the number you reported? That's my first question. Okay. If we talk about the underlying growth, we, of course, take the fact into account that we had one working day more in the quarter, which in general, of course, counted, like I mentioned, it comes in the first place also for Enfield Systems. If you then look a bit at market conditions, I guess my message is very similar to what I said a quarter ago. We see clearly a general slowdown in the market. We all read newspapers. We all look at the news. So I think there's consensus that there is a general slowdown. But then if we are a bit more specific for our business and our market and if I go a bit in the different regions, starting perhaps with the Americas, we clearly see a slowdown on residential newbuild. As I mentioned earlier, that is not so important for the Americas because we are not so exposed to residential newbuilds. For Americas, it's more a challenge for Entrance Systems because we have an important garage door business in North America, and that is obviously linked to a new build. But we also start to see KPIs leading indicators on the commercial side going in the wrong directions. I must say we don't see that yet in our market activity. We still have good solid market conditions on the commercial side. In North America, we still have good spec business, which is for us a little bit a leading indicator. But of course, those KPIs are at least something to look out for. And then go to Mexico. I said also in previous quarter that we are more concerned to Mexico than before also because of the political situation that has changed. Are perhaps a bit more optimistic in South America in general, countries like Chile, Colombia, but also a bit on Brazil, a bit more positive than, I would say, 6 months ago. If we then go to Europe, I think a very mixed picture where, as I mentioned before, Finland, we see definitely market conditions down. We see the same in the UK, several of our customers also went bankrupt in recent weeks and recent months. We also see France still on a low or perhaps stable level. That being said, we see also a lot of markets that are still growing strong, some markets in East Europe, Middle East, even perhaps a surprise for us, we still see good market momentum in Germany and also in the Benelux. So a little bit of mixed picture in EMEA. And then in APAC, in Australia, definitely residential business very much done. And so far, we have been able to compensate that with a very good job done on the commercial side. We will see how that now processes in the coming quarters. And then definitely Korea, as well as on the invention side as on the commercial side, market conditions are done. And like I mentioned earlier, in China, yes, market conditions are still down, but it's more us ourselves that have to execute on our new strategy irrespective of the market conditions. So a bit the global picture. If you then look at the entrance systems, of course, they are very manufacturing related. And I think it's fair to say that manufacturing in general is done. They're also partly exposed to residential. I commented on residential before. But as we are still a bit more positive on retail, because we are the only one in Europe. But we see that retail what you see there is that perhaps there's less retail, but the retail is of a higher level and you see more upgrades, which is obviously good for our pedestrian door business. Then we should also not forget that in Q4, we'll have one working day less And that also for Americas in particular, the comparison will be very difficult in the sense that we had a big order of Walmart last year that will be 0 this Q4. And then of course, that also the fact that we will nest at a big quarter Q4 last year and that has leveled much more out now on, I would say, a normal level. It was a bit long answer, Lucy, but Well, thank you. Just maybe a quick follow-up on the last point around the Smart Lock. So I understand Elmech, generally speaking, is 11% on an organic basis up in the quarter. Can you maybe just kind of separate or give us some indication on how the Smart Lock business has been growing in the quarter? I'm also asking because of course South Korea sounds to be quite on the low side as well. Yes. So if you take total electromechanical business, so the 31% of our total business, it's true that we were up 16% including currency, 11% excluding currency. And if you then take out the digital door locks for residential application, there we saw still the highest growth, but on a still a good double digit growth, but on a lower level than in Q2 and a lower level than Q1. So we really see that growth rate going down. And it is partly because of Korea. It's also because, like I mentioned earlier, Google Nest is now more than 12 months in our figures. And of course, you get a big uptick when you start from 0 and then the margin the percentages are, of course, very high. But then once you start to compare Q4, Q5, Q6 and so on the comparison, you have a high quarter in the same quarter a year before. And therefore, the comparisons become more difficult. I think for Luminess, you should expect that those levels will flatten out over time. Thank you. And the next question is from Lars Brorson from Barclays. Please go ahead. Your line is now open. Hi, thanks. Good morning, Nico. My quick follow-up just on the formal question is on Global Tech. I think I heard you mention a couple of larger contracts swinging the meter for you there. What was the boost specific to growth in GT from that? And anything major in the pipeline for Q4 that might similarly swing the meter? And then I'll come back to my primary question after that. Yes. Yes. I would say that's the nature of the business of some of our business areas in HIV. I would say there's nothing dramatic. It's not that we got a very big project. Every quarter, we get some projects of a couple of 1,000,000 or so. And it was not more outspoken this quarter than previous quarters. It was more on the geographical map. Of course, if you get a couple of 1,000,000 orders in Africa, that moves the needle and shows a nice percentage growth. But overall, I would say that is not a reason why HID or Global Technologies was performing as we presented. Thank you, Nico. That's helpful. And then just to I wanted just talk briefly about your EBIT margin range. I think it's fair to say your language has become, should you say, progressively more cautious on that as you move through the year. I think I heard you early in the year in the Q1 call talk about getting margins firmly within the range, $0.16 to $0.17 for the remainder of the year. I think I heard you on this call earlier talk about being contented, you can keep margins flat and still drive top line. I appreciate you've had some greater headwinds maybe from M and A notably, of course, from AXA this quarter maybe than you anticipated. But what has changed really through the year as far as your assessment of your ability to get it firmly within the margin range is concerned? Perhaps that I didn't express myself correctly because I think I've said from the beginning of the year that we had the ambition to bring our EBIT margin back within the 16% to 70% benefit on the low end towards the end of the year. I would say we still have that ambition. Obviously, the closer we come to the end of the year, the more challenging it will become. I would say there's 2 things that have changed since my previous statements. It's, of course, the fact that we now booked at SEK 55 million for the Agta Record acquisition, and that is our cost project to date. We will book some more costs for Act of Record in Q4 because we will continue to book the cost as they come. So that's one negative factor, I would say. And the second one is, of course, the extra import tariffs towards the U. S. I have said that it's not a problem for us to compensate by pricing cases, but of course, we always have a small delay between the costs coming and the prices being increased, and that set us back a little bit. And that's the only 2 negative comments I would say, but I reconfirm that we still have that ambition to bring it up to that 15% towards the end of the year. The ambition becomes more challenging clearly. Understood. Thank you. Next question please. Next question is from Andre Kukhnin from Credit Suisse. Please go ahead. Your line is open. Good morning. Thanks so much for taking my question. Just a quick follow-up first on the actual cost for Q4 that you just mentioned. How will they compare to Q3 from what you know right now? Yes. So we booked, like I mentioned, SEK 55,000,000. We believe that the total COGS cost, it depends a little bit on how fast administration will go. It will be more or less the double, so SEK 100,000,000, SEK 110,000,000. So we still have another SEK 50,000,000 to go. Most probably most of that cost will come in Q1 next year. So the cost should be smaller now in Q4. Very helpful. And could we just talk about restructuring a bit more? Obviously, strong quarter in Q3. You're saying that this benefit will fade in Q4 and then on the €300,000,000 for the full year 2020. Firstly, maybe could you help us quantify the Q4? And then thinking about 2020, is that kind of plan set in stone now that $300,000,000 is what we have in the program and that's what you target to deliver and that will happen? Or are there kind of contingencies there that maybe are market related? Or are there further programs? Because it's just wanted to get a color whether that's kind of executing fast in the existing program and drawing that out? Or executing fast and maybe finding further opportunities that may be a potential surprise to the upside in 2020? I mean, I could take that question. I think I mean, first of all, we're very happy that we actually have better traction in the program than what, let's say, what we had in the original plan. And that's sort of what you see that we have. I mean, we had the highest saving ever from an MSP program now that we have in the Q3. What we have done, because I think it's also normal business practice, is also that we have also added new programs within the program in order then to, let's say, also to make sure that we want to get benefits coming into next year. This will not add anything to the restructuring position that we will book in Q4. So it remains on the SEK 300,000,000 level that we would book during Q4. I was sorry, I know I'm kind of speaking 3rd time, I'm sorry. But I was just more wondering about the potential for further savings and for kind of 2020 against that €300,000,000 of savings that you mentioned in the statement, whether there is kind of room to do more of that? Of course, Andre, you can do the saving only once. We are happy that we got the savings earlier. We have said from the beginning that the payback on this project is around 3 years, a bit less than 3 years. If you will do the after calculation, we will see that it's even a little bit better. But again, you can do the savings only once. That being said, of course, after MFP 7, we will continue with the new MFP 8. I'm hoping that that projects will project principle will continue as we continue to buy companies and as we buy companies also with operations. On a constant base, we see then opportunities to further rationalize our operational footprint. Great. Thank you very much, Davosci. I appreciate it. Thank you. Next question is from Gael Dubre from Deutsche Bank. Please go ahead. Your line is open. Thanks very much for taking the question. The questions actually, the first one is about the exit rate in September when you said that the underlying growth slowed in the quarter. So I suspect that the growth rate was a bit slower in September than what it was at the beginning of the quarter. So could you be a bit more specific around that perhaps and perhaps highlight too whether that's merely a question of more limited price rises or if that's really volume driven? So that's question number 1. And the second question is actually a follow-up on the savings earlier question. Because when you guide for a level of savings equivalent to about €300,000,000 next year, so that's an average of €75,000,000 So compared to what you achieved in Q3, that's a 50 bps shortfall per quarter. And if indeed growth further slows down next year, you add as well the dilution of Agta. How do you intend to make it for that shortfall and remain within the targeted margin range of 16% to 17%? If we could start with the first question, perhaps you can take the second. Eric, if you look price volume, so we had a 4%. And as Erik explained, we show 1 and 3. That's the way we round over the figures. You should look at price around 1.5% and their volume, yes, the remaining. We have always said from the beginning that our 2% price that we experienced in the first half of the year would level out again going into the second half of the year to normal levels that we have seen historically around that 1%. And that's exactly what is happening now. So you should expect now in Q4 and going forward that price effect to level out around that 1%. We were able to increase with 2% because of the high material inflation, of course, last year or the last 18 months as material indexes have now stabilized on a high level, but a more normal level. Also pricing comes back in a more normal level. Then okay, we cannot change the market conditions. We can only do or only try to do our best in the given market conditions and why we can also to outperform the market. And that's what I think we have done in Q3. That's also what we will continue to try to do also in Q4 and going forward. I think on the margin, remember that NSP is one part of what we're doing. We're also doing other things. I mean, okay, we talked a bit about price. We would also, of course, come with new products out to the market. We're also doing quite a lot of work when it comes to sourcing activities. The NFP as such, yes, we have had a very good traction so far. So for next year, the saving tempo will go down. But that's also now where we have added new projects into the program in order then to keep, let's say, the savings out of NFP on a higher level. So as I said, you shouldn't only focus on MFP because you also do other things when it comes to operational efficiency, when it comes to sourcing, when it comes to new products out to the market. And that will help us then to come back into the 16%, 17% bandwidth. Including the dilution of Agta? We have already said before that the Agta will have a dilutive effect on the margin. Okay. Thanks very much indeed. Thanks. Thank you. Next question is from Sebastien Kreutet from Redburn. Please go ahead. Your line is open. Hi, good morning. Two questions, if I may. The first one is just about the O2 for Q4. I know a lot of things can happen, but given your comments on working days, the Yale Smartlux and pricing leveling out, do you think you can grow organically in Q4, bear in mind the comps? And I have a follow-up. Yes. Of course, we don't give forecast. As you know, I think I explained the market momentum. Let me say that, okay, I showed this graph where we had 26 quarters of positive organic growth. I would be very disappointed if we could not show you next quarter 27 quarters with positive organic growth. Like I mentioned earlier, there is headwinds in different markets, but we still see good opportunities in other markets. And again, we will try and continue to try to outperform the market by doing good job on new product development, on channel management and so on. Okay. And I was surprised by the strength of the security door business in the quarter with the course having accelerated despite we've seen some fierce warning. How do you expand this good performance? I don't have a specific answer. I think Are you specifically talking about The security door in ROL was 20% in the copper. The hardware you mean, not the doors? The security doors and hardware. In which division? In all divisions, you break down the sales by product lines. And looking at 3rd order, it seems that the growth has accelerated even on an organic basis quite strongly. You look at, of course, the total result. And of course, we did a couple of acquisitions in that field. We did acquisition of Spence Doors and we did another acquisition in Australia and in New Zealand. And that this was probably one of the expectations for why you see higher fee. They were already there in Q2. So I'm talking about the acceleration between Q3 and Q2. Yes, of course. But it cannot look like that Q2 and Q3 because you will see everything accelerating in Q3 versus Q2 because it is, of course, also linked to the seasonal way of our business loan and, of course, also to the number of working days that you have in the quarters in total. Okay. A more fair comparison is to compare with the same quarter a year. And there, of course, then Spansdorf and the other acquisitions were not in. And if I may, just a very last question on the tariff increase. I mean, you had a 15% duty tax on the locks coming into effect in 1st September. And I guess this affects your Smart Lock business. Are you confident you can pass it through to your channel, main channels, Yandex, Amazon Key and so on? Of course, it affects, I would say, everything that we buy in China and falls in that category and that we sell in the U. S. It's not only smart residential locks, also HIV to a certain extent and global solutions, but also Americas in general are affected by this. And like I mentioned earlier, in general, we can compensate those tariffs by more price increases. There's always a little bit of lag. But if you take that lag out, not in consideration, most of it you can compensate up to this level of tariffs, of course. Thank you. Thank you. Next question is from Guillermo Peigne from UBS. Please go ahead. Your line is open. Good morning. Guillermo Pene from UBS. Just a couple of questions as well. The first question is on EMEA electromechanical and electronic locks. I wonder what is happening to growth there. I guess it's very lackluster. I understand that the market is growing less, but is, if I'm not mistaken, declining to some extent on a year on year basis. If so the case, when would you expect some of the trends that we've seen in all the regions, especially Americas to start to flow through EMEA, if at all? That's the first question. I'll stay back for the second one. Yes. Perhaps I thought, Guillermo, I know we make life complicated for you, but in this one, we also need to take into consideration the move of ABLOY from EMEA to Global Technologies. And I think that's sort of that's the main reason why you see that it's flat if you look on the electromechanical in EMEA. All right. And what is the underlying growth then if we start basically look that into 2020 then? I think that what you have I think we are still very positive when it comes to the digital auction, especially then if you look on the EMEA, we will also beginning of next year also launch new products within the segment, which we think will sort of make sure that we have a good sales improvement also for next year. And when you talk about new products, so you talk about collaborations with Google Nest or Alexa? Or are we talking about new products basically from your side? I'm talking specifically here about new products. Okay. Thank you. Then can I ask about the acquisitions? Obviously, I think if you exclude that corrected, there is already €2,300,000,000 of announced acquired growth for next year. I've been thinking about the mix and some of them will be diluted, some of them will be less dilutive. But is it the case that we should think about some of these acquisitions, especially the ones that fall into the HID division as broadly less dilutive or even accretive to margins at some point? I didn't make the calculation specifically for HID. But I think in general, you should expect a similar pattern as we experience now. So it will be slightly dilutive also coming next year. Okay. So if we are if I saw if I want to share with you some calculations, I guess, if you act correctly, it is finally consolidated and you are on top €2,300,000,000 of other acquisitions that equates to and this is obviously based on 2018 numbers, which is not 2019 numbers, but roughly speaking about 7% to 8% of top line already next year? What we have so far is around 5% to top line, right? The question of Degliaro in your comparison is, of course, when Acta Record will when that acquisition will be finalized. And that's sort of that's the unsecured part if you look in your calculation there. All right. And on Agta record, I think if you look at the release, it's another 5%. No. If you take Agta record included under the assumption that we will close somewhere beginning next year, And all the acquisitions we have announced so far that are closed and still are to be closed, all that together represents around 5% growth to acquisitions for next year. Okay. And when it comes to bottom line, what we say is that if you take everything except active records, you should count with similar dilution as we have had this year in that 20 basis points type of level. And then Agta Records, we have said that depending a bit on the PPI calculation on the PPI calculation when we close, they will be around €375,000,000 top line and the bottom line, slowly slightly above 10% percent. And perhaps also to help you even further. On the acquisitions that we're closed to date, we have a run rate for next year of 1.5%, all the ones that were closed to date. And that could help you out in your calculation. Indeed. I think we need to move over to the next question. Of course. Thank you. Yes. Thank you. And next question is from Shruti Narra from Goldman Sachs. Please go ahead. Your line is open. Hi, good morning. I have one question. Can you give any details on how the takeout on any special smart lock contracts will be coming in coming quarters and whether that helps 3Q 2019 and by how much? And also, Assa's OSG drop was self inflected due to plant closure and whether that continues going forward? As we start with smart locks, I assume that you are referring to smart locks for residential applications? Yes. So to put it again in the right perspective, that's around €250,000,000 of our total business because our and our electromechanical business in total is around 31% of the total business. So in that electromechanical part, it's still a rather small part in the overall picture. But there, I mean, you should expect growth rates definitely to go down because we come, as I mentioned earlier, quarter after quarter, we compare with a more heavy quarter a year ago. And again, the 1st 4 quarters, if you talk specifically for instance for Google Nest, you compare, of course, with 0 a year ago, and then you have very high percentage of growth. Now every quarter, we compare with a strong quarter of Google Nest a year ago, And therefore, comparisons are more difficult. And that's an outspoken thing for Google Nest, but it's very similar for our other businesses in digital products where comparisons become more and more difficult. We continue to see an acceleration of the adaptation of consumers moving from mechanical to digital. And therefore, we will continue to grow that business. But clearly at a lower pace or a lower growth rate than we experienced historically. And in that respect, perhaps Q4 is the most difficult one because that is the most difficult comparison because of the reasons I mentioned earlier. And then the second question is can you repeat the second question, please? Yes. It's about Asia organic sales growth, which was growth drop, which was self inflicted due to current closures and also whether that continues going forward. So specifically for Asia or for APAC, the negative growth of minus 1% So there is two main reasons. There is Korea, where Korea is an important market for us. And like I mentioned earlier, the market in Korea is definitely high double digit down as well on the commercial side as on the residential side. And as being a strong player in that market is, of course, very difficult to do significantly better than the market. And the second reason definitely has to do with China, where market conditions are also done, but where we are also much more selective in our approach to which orders and therefore which sales we take where we have been much more selective in taking orders and therefore realizing sales in a profitable way and walking away from nonprofitable orders and sales. And that's why you see, I would say, a negative effect on the top line, but a positive effect on the bottom line. And yes, for sure, the consolidation of our operations in China where we close factories over time has a positive effect. But of course, the first moment when you close the factory, it first has a negative effect because you create some uncertainty, you create some changes. And then over time, you will see only the savings. And as we started this process a year ago or so, we are still very much in that transition phase. Thank you. One last point. Can you also highlight competitive dynamics in U. S. And some pricing outlook, if possible? Yes. On the pricing, like Erik mentioned, we had the strongest price effect in the Americas because we have a significant metal door business in the Americas. And as you remember, 18 months ago, metal prices went up in a very significant way, almost 60% in 18 months. Those metal prices have now leveled out on a lower stable level and therefore also pricing cases are coming down. The U. S. Or the Americas is definitely a market where you can pass through inflation, all kinds of inflation tariffs through price increases because it's a mature market with mature players. And when it comes to competition, I would say there is not so much difference in the dynamics. It's the similar colleagues, competitors in the market today that were there a year ago or even longer ago, and they play a similar game in the market. So no real differences in dynamics, I would say. I think we have time for one more question, operator. There are currently no questions And no further questions registered. So I'll hand the call back to the speakers. Please go ahead. Thank you very much. Well, I would like then to round up this conference and thank you very much for your participation and interest. And we look forward to seeing and speaking with you in the coming weeks.