Good morning, everyone, and welcome to the presentation of Assa Abloy's third interim report. My name is Björn Tibell. I'm heading Investor Relations, and joining me here is our CEO, Nico Delvaux, and our CFO, Erik Pieder. We'll stick to our normal structure today. 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 one hour's time. With that, I would like to hand over to you, Nico.
Thank you, Björn. Good morning from my side. Happy to report you good quarter three results for Assa Abloy. 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. That organic growth of 4% complemented with good growth through acquisitions, also of 4%. 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 million acquisition costs related to the acquisition of Agta Record. 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.
Sales of SEK 24 billion, up 13%, 4% organic, 4% acquisitions, and 5% currency. EBITDA margin 20 basis points up at 16.7%. EBIT margin at 16.2% and then an EBIT of SEK 3.9 billion, 14% up. If we look a little bit at the 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 +2%, I would say, despite the economic situation in Europe. A very strong South America, +8%, and that's mainly linked to a couple of project orders in Global Technologies. +6% in Africa for the same reason, a couple of projects for Global Technologies. +2% in Asia and +3% in Oceania. A couple of market highlights.
It is good to see that all our efforts we put in our specification and our specification teams continue to pay off, in all three geographical divisions. In EMEA, you see here Riyadh Metro example for EMEA. You might have seen that announcement of Apple that they are also now focusing on university vertical, and it is 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 are also one of the founding partners of the FiRa Consortium, together with Samsung and a couple of other big multinationals. The idea there is we need to promote and provide brand technology in our access control field. 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. Our operating margin slightly below our bandwidth where we want to be of 60%-70%. That's slowly getting back into that bandwidth. The EBITDA margin right in the middle of that 16%-17%. 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 five years. For the acquisitions, it has been a very active quarter with four acquisitions completed in the quarter and 10 year to date. Those 10 acquisitions represent an acquired annualized sales of SEK 2.4 billion. We are still working on closing agta record and LUX-IDent.
agta record is now expected to close early beginning of next year. LUX-IDent we will close this quarter. Some more information on a couple of the acquisitions we did in the quarter. LifeSafety Power, an American supplier of smart access control power solutions with sales of 290 million SEK, 65 employees, complementing nicely our access control portfolio. That acquisition will accretive to EPS as of the start. Placard, Australian secure card manufacturer with sales of 420 million SEK and 70 employees enhancing our position in the smart card market in Oceania. Also this one will be accretive to EPS from the start.
LUX-IDent, a Czech RFID component provider with sales of SEK 180 million, 145 employees, enhancing nicely our RFID component offering and optimizing our supply operations footprint in the sense that we were very dependent on one factory in Asia for these RFID components. With this LUX-IDent acquisition, we can leverage operations in a much better way, and this acquisition will be neutral to EPS. If we go into the different divisions, starting with EMEA, an organic sales growth of 3%. I believe a good result 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, U.K., and South Europe.
You will remember from Q2 that there were a bit concerned of 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 it was 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. On the other hand, we still see good market conditions in other places in EMEA, Central East Europe, Benelux, and definitely also the Middle East.
An operating margin of 16.1%, 20 basis points up, with a very good volume leverage of 40 basis points, driven by operational efficiencies. A negative currency effect, 40 basis points, of course, mainly because of the SEK. Acquisition 20 basis points up, that is mainly the shift from our Abloy business from EMEA to Global Solutions, a kind of internal acquisition, you could say. Overall, I think 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. With a difficult comparison there. I would say all business areas in U.S. were performing strongly, with the exception of perimeter security, where we saw negative growth. A good growth in Canada, and I would say an improving Latin America.
Operating margin of 20.5%, 40 basis points up, with 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 increases that we experienced last year. FX flat and M&A 10 basis points dilutive. Asia Pacific, a negative organic sales growth of -1%, with strong growth in South Asia, but negative growth in China, India, South Korea, and Japan. In South Korea, we really see market conditions going down in important way, where as well the commercial as it is in infra sides, market is down high double digits, as South Korea is obviously for us an important market. We also see still negative development in China when it comes to the market.
I would say in China, we are also now much more selective when we 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. That's another explanation why we see that negative growth in China. 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. 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. 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. A little bit of mixed picture in HID, with very strong growth in secure issuance, but only stable growth in physical access, and then some negative growth in some other business areas. An operating margin of 20.3% with a negative volume leverage of 20 basis points, mainly due to continued investments in R&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. Followed by currency, 30 basis points, 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. The acquisition of Crossmatch, big acquisition of EUR 100 million, where we are performing, I would say, even better than planned. The margin is also improving faster than planned. Of course, with an operating margin of more than 20%, that acquisition remains for the time being dilutive. We had some extra acquisition costs in the acquisition we did in HID. Overall, I think also very good performance for Global Technologies. Entrance Systems, an organic sales growth of 3%. Here in Entrance Systems, the fact that we had one working day more in the quarter counts perhaps the most because that's the division that is mostly affected by the working days, also because of the service business.
A strong growth in pedestrian doors and high performance doors, a negative growth in residential doors in Europe. 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 505 million acquisition cost we booked for agta record.
We have now booked all costs for that acquisition of the project to date. With that, I give the word to Erik for some more details on the financial figures.
Thank you, Nico. Also from my side, a very good morning. Our sales grew with 13%, of which the organic part was 4%. As mentioned here before by Nico, it's mainly driven by Americas and Global Technologies. Also, as mentioned, we also had one 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. 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 income for taxes, net income.
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 is now for the third quarter in a row, can I say 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, if you look in inventory reduced, but also we see good progress also in accounts receivables. Return on capital employed remain at the same level as last year with a 17%.
We then look at more from a bridge perspective for the group, you can see that we had a good organic leverage, which sort of improved the result for 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. If we look in total there, the acquisitions sort of had a negative impact of 10 basis points.
If we look to a cost breakdown, you can see that now in the quarters before, 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. Now we can actually see that in the Q3, we actually overcompensate for the raw material price. Also, I would also say that we have had good work done by our sourcing team in order 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 fitting program, giving us about SEK 200 million in the quarter. Also we have other operational efficiencies which also helps to this. If you look on SG&A, it's flat.
We have had good volume leverage. We have also invested quite a lot in R&D, mainly within the Global Technologies division. All in all, if you exclude acquisitions, we are 20 basis points better than the same quarter last year. As said once again, this is the highlight. Operating cash flow improved by 47%. As you can see, we actually have a better cash flow than earnings before tax. At 104%. Of course, we're very happy with this, but we also know that this is not sustainable, and that over time, of course, it will go down below 100%. 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, specifically only in inventories.
Looking on the gearing, you can see the debt versus equity is up with 1% versus last year's, we ended at 64%. In actual value, it's up with SEK 5.5 billion. Out of this, SEK 3.7 comes out of the IFRS effect of SEK 3.7, you have currency, which is another SEK 1.5. The net debt versus EBITDA is at the same level as 2.1. Our financial situation is stable, so we can continue our acquisition strategy even after we have finalized the acquisition of the Agta Record. Last but not least, the earnings per share is year to date upward 20% versus last year. With that, I hand back to Nico.
Thanks, Erik. As a summary, a good quarter three result with good organic sales development up 4%, complemented with good growth 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 million acquisition cost booked for agta record. Very strong operational cash flow. New news for you. We would like to invite you to our Capital Markets Day next year, May the 13th. That Capital Markets Day will take place in London. With that, I give back the word to Björn for the Q&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&A session. Please go ahead.
Thank you. Ladies and gentlemen, if you do wish to ask a question, please press zero one on your telephone keypad now. The first question is from Lucie Carrier from Morgan Stanley. Please go ahead, your line is now open.
Hi, good morning, gentlemen. Thanks for taking my question. The first one really, Nico, was a little bit more around the language you have in 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. Generally speaking, you're talking about market condition becoming more challenging. 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, like I mentioned, it comes in the first place also for Entrance Systems. If we now 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. I think there's consensus that there is a general slowdown. 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 new build.
As I mentioned earlier, that is not so important for the Americas because we are not so exposed to residential new build. For Americas, it's more a challenge for Entrance Systems because they have an important garage door business in North America, and that is obviously linked to new builds. 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. Of course, those KPIs are at least something to look out for. We then go to Mexico.
I said also in the previous quarter that we are more concerned for Mexico than before, also because of the political situation that has changed. We 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, six months ago. If we 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 U.K., where several of our customers also went bankrupt in recent weeks and recent months. We also see France still on a low, but perhaps stable level. That being said, we see also a local market that are still going strong.
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. A little bit of mixed picture in EMEA. In APAC, in Australia, definitely residential business very much down. 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. Definitely Korea, where as well on the residential side and on the commercial side, market conditions are down. Like I mentioned earlier, in China, market conditions are still down, but it's more us ourselves that have to execute on our new strategy irrespective of the market conditions. That's a bit the global picture. If you look at Entrance Systems, of course, they are very manufacturing related.
I think it's fair to say that manufacturing in general is down. They're also partly exposed to residential. I commented on residential before. We are still a bit more positive on retail because we are the only one in the world. We see that retail, what we 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. 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 zero this Q4.
Of course, that also the fact that Google Nest had a big quarter Q4 last year, and that has leveled much more out now on, I would say, a normal level. That was a bit long answer, Lucie, but.
Well, thank you. Just maybe a quick follow-up on the last point around the smart lock. I understand electromechanical, 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.
If you take total electromechanical business or the 31% of our total business, it is true that we were up 16% including currency, 11% excluding currency. If you take out there 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. We really see that growth rate going down. It is partly because of Korea. It is also because, like I mentioned earlier, Google Nest is now more than 12 months in our figures. Of course, you get a big uptick when you start from zero, the percentages are, of course, very high.
Once you start to compare Q4, Q5, Q6, and so on, you compare with a high quarter in the same quarter a year before, and therefore the comparisons become more difficult. I think for Google Nest, you should expect that those levels will flatten out over time.
Thank you.
Yeah.
The next question is from Lars Brorson from Barclays please. Please go ahead, your line is now open.
Hi. Thanks. Good morning, Nico. My quick follow-up, just on the former 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? Anything major in the pipeline for Q4 that might similarly swing the meter? I'll come back to my primary question after that.
Yeah. I would say that the nature of the business of some of our business areas in HID, 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 SEK million or so. 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 SEK million order in Africa, that moves the needle and shows a nice percentage growth. Overall, I would say that is not a reason why HID or Global Technologies was performing as we presented. Normal business.
Thank you, Nico. That's helpful. I wanted just to talk briefly about your EBIT margin range. I think it's fair to say your language has become, should we say, progressively more cautious on that as you've moved through the year. I think I heard you early in the year on the Q1 call talk about getting margins firmly within the range, 16%-17%, for the remainder of the year. I think I heard you on this call earlier talk about being content if you can keep margins flat and still drive top line. I appreciate you've had some greater headwinds, maybe from M&A, notably, of course, from Agta this quarter, maybe than you anticipated. 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 I then 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%-17% bandwidth on the low end toward 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 two things that have changed since my previous statements is, of course, the fact that we now booked that SEK 55 million for the agta record acquisition, and that is our cost project to date. We will book some costs for agta record in Q4 because we will continue to book the cost as they come. That's one negative factor I would say.
The second one is, of course, the extra import tariffs towards the U.S. I've said that it's not a problem for us to compensate by pricing increases, 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. Those are the only two negative comments I would say, but I reconfirm that we still have that ambition to bring it up to that 16% towards the end of the year. The ambition becomes more challenging, clearly.
Understood. Thank you.
Next question, please.
The next question is from Andre Kukhnin from Crédit 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 Agta Record costs for Q4 that you just mentioned. How will they compare to Q3 from what you know right now?
Yes. We booked, like I mentioned, SEK 55 million. We believe that the total project cost, it depends a little bit on how fast the administration will go, will be more or less double, SEK 100 million-SEK 110 million. We still have another SEK 50 million-SEK 55 million to go. Most probably most of that cost will come in Q1 next year. The cost should be smaller now in Q4.
Very helpful. Thank you. 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 only SEK 300 million for the full year 2020. Firstly, maybe could you help us quantify the Q4? Thinking about 2020, is that plan set in stone now that SEK 300 million is what you have in the program and that's what you target to deliver and that'll happen? Are there contingencies there that maybe are market related or are there further programs? Just wanted to get the color whether that's kind of executing faster than existing program and drawing that out or executing faster and maybe finding further opportunities that may be potential surprise to the upside in 2020.
I could take that question. I think, 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. That's sort of what you see that we have. We had the highest saving ever from an MFP 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 also get benefits coming into next year. This will not add anything to the restructuring provision that we will book in Q4, so it remains on the SEK 300 million level that we will book during Q4.
Sorry, I know I'm kind of speaking third time. I'm sorry, I was just more wondering about the potential for further savings, and for kind of 2020 against that SEK 300 million of savings that you mentioned in the statement, whether there is room to do more there.
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 three years, a little bit less than three years. I think if we will do the after calculation, we will see that it's even a little bit better. Again, you can do the savings only once. That being said, of course, after MFP7, we will continue with the new MFP8. I'm confident that project principle will continue as we continue to buy companies. 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, Nico Delvaux. I appreciate it.
Thank you.
Next question is from Gaël de-Bray from Deutsche Bank. Please go ahead. Your line is open.
Oh, thanks very much for taking the question. The questions, actually. The first one is about the exit rate in September when you say that the underlying growth slowed in the quarter. I suspect that the growth rate was a bit slower in September than what it was at the beginning of the quarter. 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? That's question number 1. The second question is actually a follow-up on the savings earlier question. When you guide for a level of savings equivalent to about SEK 300 million next year, that's an average of SEK 75 million. Compared to what you achieved in Q3, that's a 50 basis points shortfall per quarter.
If indeed growth further slows down next year, you add as well the dilution of Agta. How do you intend to make up for that shortfall and remain within the targeted margin range of 16%-17%?
If we have started the first question, perhaps you can take a second, Erik. If you look price, volume, we had a 4%, and as Erik explained, we show one and three. That's the way we round off the figures. You should look at price around 1.5% and then volume, yeah, 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%. That's exactly what is happening now. 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. Okay, we cannot change the market conditions. We can only try to do our best in the given market conditions and where we can also throughout perform the market. 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 MFP is one part of what we're doing. We're also doing other things. Okay, we talked a bit about price. We will 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 MFP as such, yes, we have had a very good traction so far. For next year, the saving tempo will go down. 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 MFP on a higher level. You shouldn't only focus on MFP because we 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.
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 Gruter from Redburn. Please go ahead, your line is open.
Hi, good morning. Two questions, if I may. The first one is just about the outlook for Q4. I know a lot of things can happen, but given your comments on working days, the Yale Smart Locks, and pricing leveling out, do you think you can grow organically in Q4 bearing in mind the comps? I have a follow-up.
Yeah, of course, we don't give forecasts. 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. Again, we will try and continue to try to outperform the market by doing a good job on new product development, on channel management and so on.
Okay. I was surprised by the strength of the security door business in the quarter with the costs having accelerated despite we've seen some peers warning. How do you explain this good performance?
I don't have a specific answer. I think, are you specifically talking about?
The security door and hardware was up 20% in the quarter.
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 security doors and hardware, it seems that the cost has accelerated even on an organic basis, quite strongly.
You look at, of course, at the total result, and of course, we did a couple of acquisitions in that field. We did the acquisition of Spence Doors, and we did another acquisition in Australia and New Zealand. That is most probably one of the acquisitions for why you see higher figures.
They were already there in Q2. I'm talking about the acceleration between Q3 and Q2.
Yeah, of course, you cannot look like that in 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 one, 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 ago. There, of course, then Spence Doors and the other acquisition were not in.
If I may, just the very last question on the tariff increase. You have the 15% duty tax on locks coming, I think, with first of September. I get this affects your smart lock business. Are you confident you can pass it through to your main channels, Yale Nest, 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 is not only smart residential locks, also HID to a certain extent and Global Solutions, but also Americas in general are affected by this. Like I mentioned earlier, in general, we can compensate those tariffs by more price increases. There is always a little bit of lag. 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 Peigneux-Lojo from UBS. Please go ahead, Guillermo.
Good morning. Guillermo Peigneux-Lojo 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. 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 other 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.
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.
I think that's the main reason why you see that it's flat if you look on the electromechanical in EMEA.
All right. What is the underlying growth then if we strategically look that into 2020?
I think we are still very positive when it comes to the digital locks, especially if you look in 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.
When you talk about new products, will 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. Can I ask about the acquisitions? Obviously, I think if you exclude Agta Record, that is already SEK 2.3 billion of announced acquired growth for next year. I've been thinking about the mix, and some of them will be dilutive, 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 a calculation specifically for HID, but I think in general, you should expect a similar pattern as we experience now. It will be slightly dilutive also probably next year.
If I want to share with you some calculations, I guess if Agta Record is finally consolidated and you are on top SEK 2.3 billion of other acquisitions, that equates to, and this is obviously based on 2018 numbers, which is not 2019 numbers, but roughly speaking about 7%-8% of top line already next year?
What we have so far is around 5% to top line. Right?
The question marked there, Guillermo, in your comparison is, of course, when Agta Record.
Yeah
when that acquisition will be finalized. That's the unsecure part if you look in your calculation there.
All right. Agta Record, I think if you look at the release, it's another 5%.
Well, no. If you take Agta Record included under the assumption that we will close somewhere beginning next year, then 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.
When it comes to bottom line, what we say is that if you take everything except Agta Record, you should count with similar dilution as we have had this year in that 20 basis points type of level. Then Agta Record, we have said that depending a bit on the final PPA calculation when we close, they willThe around EUR 375 million top line and the bottom line slowly and slightly above 10%, perhaps 10 or 11%.
Understood.
Perhaps in order to help you even further. On the acquisitions that were closed to date, we have a run rate for next year of 1.5%.
That could help you, I think, in your calculation.
Indeed.
I think we need to move over to the next question.
Of course. Thank you.
Yeah. Thank you.
Next question is from [Shistina Raj] 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 payout on any special smart lock contracts will be coming in coming quarters, and whether that helped Q19 and by how much? Also, Assa's OSG drop was self-inflicted due to plant closure and whether that continues going forward?
As we've established, smart locks, I assume that you are referring to smart locks for residential applications?
Yes.
To put that again in the right perspective, that's around EUR 250 million of our total business, and our electromechanical business in total is around 31% of the total business. In that electromechanical part, it's still a rather small part in the overall picture. There, you should expect growth rates definitely to go down because as I mentioned earlier, quarter after quarter, we compare with a more heavy quarter a year ago. Again, the first four quarters, if you talk specifically for instance, for Google Nest, you compare, of course, with zero 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.
That's an outspoken thing for Google Nest, but it's very similar for our other businesses in digital doors, where comparisons become more and more difficult. We continue to see an acceleration of the adaptation of consumers moving from mechanical to digital. Therefore we will continue to grow that business, but clearly at a lower pace or a lower growth rate than we experienced historically. In that aspect, perhaps Q4 is the most difficult one because that is the most difficult comparison because of the reasons I mentioned earlier. The second question is
Can you repeat the second question, please?
Yeah. It's about Asia organic sales growth drop, which was self-inflicted due to plant closures, and also whether that continues going forward.
Specifically for Asia or for APAC.
Yeah
the negative growth of -1%. I would say there is two main reasons. There is Korea. Korea is an important market for us. Like I mentioned earlier, the market in Korea is definitely a high double digits down, as well on the commercial side as on the residential side. Us being a strong player in that market, it's of course very difficult to do significantly better than the market. The second reason definitely has to do with China, where market conditions are also down, 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 non-profitable orders and sales.
That's why you see a negative effect on the top line, but a positive effect on the bottom line. Yes, for sure, the consolidation of our operations in China where we close factories over time has a positive effect. Of course, the first moment when you close a 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. 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. 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, pass through price increases because it's a mature market with mature players. 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.
No real differences in dynamics, I would say.
I think we have time for one more question, operator.
There are currently no questions registered, but if anyone has one final question, please do press zero one on your telephone keypad now. 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.