Good morning, everyone, welcome to ASSA ABLOY's half year report presentation. My name is Björn Tibell. I am heading investor relations, and joining me here is our CEO, Nico Delvaux, and our CFO, Erik Pieder. We will stick to our normal setup today, starting the conference with a short presentation of the report before we open up for your questions, and then finally round up around 10:30 local time. With that, I would like to hand over to you, Nico, to start the presentation.
Thank you. Thank you, Björn. Also, good morning from my side and welcome to our Q2 report. Report where we can report good figures. With a good organic growth in the quarter of 3%. That's a good result, definitely, if we take into account that we had two working days less in the quarter as compared to the same quarter last year. Strong growth in Americas and in Global Technologies. A good organic growth complemented by an accelerated strong growth through acquisitions of 4%. Also in this quarter, the electromechanical products were the highlight of the quarter, up 20% including currency, up 16% excluding currency. A strong EBIT growth of 13% with a good EBIT margin of 15.9%, 20 basis points up compared to the same quarter last year, and then a very strong operating cash flow up 27%.
Sales SEK 23.5 billion , 11% up, 3% organic, 4% acquisition, and also 4% positive currency effect. An EBITDA margin of 16.4%, 30 basis points up, and then the EBIT margin, like I said, 15.9%, 20 basis points up. An EBIT of SEK 3.7 billion, 13% up, and earnings per share 25% up. If we look a little bit in the sales in the different continents, a strong North America driven by U.S. with an organic growth of 6%, where on the commercial side we still see strong market conditions where, as you know, on the residential side, definitely new build, we see a decline. - 8% in South America, where market conditions definitely in our two bigger markets are not favorable. Two biggest markets being Mexico and Brazil, where we are perhaps a bit more positive when it comes to Colombia and Chile.
A good performance in Europe, + 2% organic growth. In Europe, we see a little bit a mixed picture among the different countries. Many countries still with strong market conditions, some with some weaker market conditions like, for instance, the U.K., where we have seen market conditions further declining and where there is even a more wait and see attitude today than three months ago. Africa -1 0% looks like a low figure, but we had a tough comparison because we got a big passport order for HID last year. If you exclude for that, the picture looks much better. Asia + 2%. We have a good China, where we also had positive organic growth for external sales, and then a +2% in Oceania, Australia and New Zealand.
I would say a bit despite market conditions, because definitely also the residential business in Australia is down but we were able to compensate that with some good project orders on the commercial side. Overall, like we mentioned, organic growth +3% . If we then look at some market highlights, our investments in Global Solutions continued, I would say, to show progress. Just one example, we got a nice order in Melbourne for a metro train line for our CLIQ, ABLOY CLIQ solution. We also reached an agreement with Marriott for a maid distress solution, and that perhaps needs a little bit of explanation. There's now different states in the U.S. where it became now an obligation that all the servants that go into the rooms in the hotels need a kind of panic device so if they are in problems that they can ask for help.
We have worked out a solution around our Bluvision, our positioning system, so that you have on our HID card a kind of panic button. When you push that button, then the system will know in which room you are, and then security can be sent out to help you. This is becoming, like I said, legislation in several markets or several states in the U.S., and we see that also being rolled out more on a global scale. Good progress on the service business side. We had a mid-single-digit growth for our service business in Entrance Systems. I think a good figure if we take also here into account that we had two working days less, and definitely for service business, the working days count. We continue to be recognized as a leading innovator.
We show here a couple of examples of awards that we won this quarter. Another quarter with positive organic growth. 25 consecutive quarters with positive organic growth. I believe that's a very good achievement. In this quarter, like I said, also complemented with accelerated growth through acquisitions. Operating margins also bending the trend and getting back into that 16%-17% bandwidth. If we grow top line and we improve operating margin, of course, operating profit accelerates 13% up compared to the same quarter last year, 69% up in the last five years. On the acquisitions, we have a full active pipeline. We did five acquisitions so far this year. As you know, we have the ambition to close the Agta Record acquisition somewhere towards the end of the year. We also announced that we will buy the Citizen ID business from De La Rue.
That is a business of around SEK 460 million and 200 employees, and they are a leading passport manufacturer in the U.K., very complementary to our Citizen ID business. We expect that acquisition to close in Q3. It will be neutral from an EPS point of view when we start, but we have the ambition to bring profit levels here double digit within the first year. I go in detail a bit on the different divisions and starting with EMEA, a good quarter for EMEA with an organic sales growth of 3%, strong growth in Middle East, Africa, Benelux and Finland, but a negative growth in South Europe and the U.K. Like I said, a very mixed picture in EMEA, where market conditions in France remained on a low level. We don't see them further going down.
We don't see them improving, stable, despite that, we could show some growth in France. I think year to date, we are more or less flat in France and definitely U.K., where we saw market conditions deteriorating and more wait and see attitude around the Brexit. We also have seen some slowdown over the last couple of months in Scandinavia, which is of course for us a very important market as well, top line as bottom line wise. We will follow up that situation from very close and take measures if needed. On the other hand, we still see a lot of strong markets in Europe, markets like Germany, East Europe, domestic market in Spain, Benelux and so on. It's a really mixed picture. Operating margin 16% versus 15.9% last year. Good organic growth leverage of 20 basis points with a good operational execution.
Negative FX of 40 basis points. That's of course the SEK euro effect in the first place, accretive acquisitions. Overall, a good quarter for EMEA. Americas, also a very strong quarter with organic sales growth up 6%. I would say in the U.S., strong performance overall, except for the perimeter security business, where especially at the beginning of the quarter, we still suffered a little bit from bad weather conditions, but overall, very good U.S., a good Canada and then a low Latin America, where like I mentioned earlier, we see market conditions going down in Mexico and in Brazil, our two biggest markets, but where we are perhaps a bit more optimistic when it comes to markets like Colombia and Chile. Very strong operating margin of 20.5% versus 20.1% last year. Good volume leverage of 20 basis points.
There we were capable of compensating through price increases and operational efficiency gains to compensate for the higher material prices. You remember from previous calls that I was saying that we were slowly bridging the gap that has now happened in Q2. Very good performance for Americas. Also good performance for Asia Pacific, an organic sales growth of 3% with a strong growth in India and in Pacific because of Australia. Also a better China, like I said, with positive external growth and then a negative growth in South Korea and in Japan. South Korea, where we really see residential market going down. Operating margin of 9.3% versus 8.9% last year. Good strong leverage, 60 basis points thanks to Pacific, but also thanks to better profit in China. You should not read too much yet in that result of China.
Like I also mentioned earlier, quarters, Asia Pacific because of China will continue to be a little bit bumpy for the coming quarters. We will have good quarters like this quarter that mix with not so good quarters like for instance Q1. It's still too early to really talk about a trend, but of course we enjoy the momentum. Global Technologies, I think good organic sales growth of 5%, because they also had a more difficult comparison because they got a big FIFA World Cup order last year in the quarter. The comparison was a little bit more challenging. On the HID side, a bit mixed picture with very strong growth for secure issuance and physical access, and then some negative growth for some other business areas.
Business areas are more project related. Of course, the projects come or don't come in a quarter, then you have a strong growth, or you have a negative growth in this quarter, some of the projects were not there, but no drama. We are confident that they will come. Good growth also for Global Solutions in general. An operating margin of 18.4% versus 19.6% last year, where we had a negative volume leverage of 80 basis points, and that's mainly because of investments in R&D as well on the HID side as on the Global Solutions sides, where we have invested a lot in software and in cloud solutions, and that affected the margin. Also dilution from acquisitions, 70 basis points. Remember that that was much higher in Q1, and we said that that would improve, so we kept our promise there.
Overall, I think also good performance for Global Technologies. Then last but not least, Entrance Systems, an organic sales growth of 1%, clearly a bit of a disappointment for us. Although Entrance Systems is definitely the division that is mostly affected by the two working days less, we had hoped there for a little bit more. Strong growth in pedestrian doors and in residential doors in Europe, a negative growth in high-performance doors. Positive thing here in Entrance Systems, like I mentioned earlier, is definitely the accelerated growth for service. That also helped us on maintaining our operating margin and even improving 13.9% versus 13.8% last year. We have a stable volume leverage, which I think is a good result with only 1% organic sales. With that, I then give the word to Erik for some more details on the financial side.
Thank you, Nico. Also from my side, good morning, everybody. As you saw before, we had 11% sales growth in the second quarter. 3% of that comes from the organic growth, and as mentioned by Nico, it's mainly coming from Global Technologies and Americas. The acquired growth was net acquired growth was 4%, as a guidance then, let's say for the Q3, we expect it to be somewhere between 3% and 4%. The currency was 4%, mainly due to the weaker Swedish SEK. There, as guidance, we would say also 3% for the coming quarter. The operating profit was up with 13%. This is, of course, last year is adjusted then for the non-comparable items that we have from China. You also see that the margin is up 30 basis points when it related to EBITDA, 20 basis points when it comes to EBIT.
Income before taxes is up with 27%, the net income as well as the earnings per share is up with 25%, the earnings per share and the net SEK 2.31. I mentioned last time that one of the highlights in the report was the operating cash flow. We continue to have a very strong operating cash flow, almost or a little bit more than SEK 3.6 billion, up with 27%. The return on capital employed increased with 2 points. Partially, a main reason is, of course, that the big write-down that we did last year of goodwill in China, also the improved earnings had a positive effect on the return on capital employed. If we go into the bridge analysis, I mentioned before the top line with the 3% organic, the 4% currency, and the 4% acquisition.
If we then dissect the organic part, we say that 2% is coming from price and 1% is coming from volume. As a drop through, you can see that we have an improvement of 20 basis points. Main contributor to that is Americas as well as EMEA. The currency helped us with 10 basis points. That's the top line is coming from the weaker SEK. The bottom line is coming from the stronger dollar. If you look on the acquisition part, it's down with 10 basis points. Main reason for that is the integration cost that we have in Spence Doors. As a guidance also, if we look for Q3, we would say that the currency would impact slightly negative as well as the acquisition.
If we then dissect even more and come down to the cost breakdown, you can see that now for the first time in a couple of quarters, we actually have a positive impact from the direct material. That comes from, as Nico mentioned before, the price increases that we have been able to do to compensate for the material prices, as well as we see that the material prices are going down. We had a very good performance when it comes to the conversion cost. It's up with 20 basis points. Most of that is coming from the operational efficiencies. We had a very good performance out of the MFP program with SEK 180 million for the quarter. The SG&A had a negative impact of 30 basis points. That is as also was mentioned before by Nico, is mainly due to the investments in R&D coming from Global Technologies.
Operating cash flow, as I said, was one of the highlights, SEK 3.6 billion, mainly coming from a strong profit performance, but also I would say that we see improvements also in our net working capital, mainly coming from the inventory. You can see that the cash conversion is 96% versus EBIT, which is continuous, very, very strong. Go to the gearing and the net debt. The net debt versus equity went up with 5 points to 70%. In money, it went up with SEK 6.3 million. Main part of that is related, of course, to the change in IFRS 16, which had an impact of SEK 3.7 billion. We also have currency, which has an impact of about SEK 1.2 billion. The rest is coming from higher dividend, taxes, and also acquisitions.
The net debt versus EBITDA is 2.2x, which my conclusion is that we still have a very strong financial position and we can continue our acquisition strategy, including, of course, the large acquisition that's coming towards the end of the year, Agta Record. Last but not least, the earnings per share went up with 19% and ended, as I started with, to say, at SEK 2.31. With that, I give back to Nico.
Thanks, Erik. Just as a summary, a good Q2 with good organic sales growth of 3%, mainly thanks to Americas and Global Technologies. Also, this quarter, the electromechanical products were the highlight, 20% up including currency, 16% up excluding currency. A strong EBIT growth of 13% with an improved EBIT margin, very strong operating cash flow up 27%. With that, I give the word back to Björn, and we will open for Q&A.
Thank you, Nico. Before we open up for questions, could I please ask you to limit yourself to one question each to allow as many as possible to ask questions as I otherwise might have to interrupt. With that, I think we're ready to start and open up for the questions. Please go ahead, operator.
Thank you. We will now begin the question- and- answer session. If you have a question, please press zero and then one on your touch phone. If you wish to be removed from the queue, please press zero, then two. If you're using a speakerphone, you may need to pick up the handset first before pressing the numbers. If you do have a question, please press zero and then one on your phone. Our first question comes from the line of Matthew Spurr from Exane BNP Paribas. Please go ahead.
Morning. I had a question around the resi growth, smart locks growth in Americas. I think you flagged last quarter quite clearly that it was going to slow down, it doesn't look like it has. Take the commentary today, you said very strong growth in U.S. smart resi. Actually, most of the Americas commentary is pretty similar to last quarter. Do you want to give us some extra color on where you see smart locks going? Obviously it's had a bit of an impact on the growth in Americas over the last few quarters. Thanks.
No, we can confirm indeed that the growth was slower this quarter compared to previous quarters. As we explained, one of the reasons was there also the Google Nest business, where for the first time we then compare with an order a year ago, where in previous quarters it was always compared with zero the year before. Therefore, percent-wise, comparison becomes more difficult. Also in general, as we have seen a good, strong high double-digit growth over the last four or five quarters, the comparison obviously always becomes more difficult. You have seen that electromechanical products in general went up 20%. We can say that the smart residential products went up even higher. It is above 20%, but it is lower than previous quarters.
We also believe that that will continue now on a lower rate going forward, because the arguments I mentioned earlier, of course, also remain valid for the coming quarters. You have two sides. You have one more difficult comparison. On the other side, you see a continued increased adaptation rate of people that are willing to move from mechanical to electromechanical and digital.
All right. I better stick to one and join the queue again. Thanks.
The next question comes from the line of Alasdair Leslie from Societe Generale. Please go ahead.
Oh, yeah. Hi, good morning. Thanks. I was just wondering if you could call out the pricing impact for the Americas. Also, you've lapped 2% price increases now at the group level. I think that started in Q2 2018, as far as I can see. Maybe some of that's rounding. I was just wondering if you can help us with the comps here on a more granular level, really whether you expect the top line impact from pricing to start to fade in Q3, or do you think that positive momentum can be maintained? Just as a quick add on, are you planning further price increases in H2, or do you pause here? Thank you.
Indeed, we announced a 2% price increase for the quarter, similar as Q1. Of course, we started with an accelerated price increase some 12, 18 months ago when material prices started to inflate in a significant way. Going forward now into Q2, we start to compare with quarters where we already had a significant price increase. It's realistic to expect that that price effect will go down into the second half of the year. If you see historically, we have always been around that 1% price increase, a bit linked to inflation. Like I said earlier, we are in a market where you can pass through inflation into the market. There is pricing power in the market. In that aspect, I think it's also good news to see that inflation is slowly getting up again in the world in general.
I would say we like inflation because inflation then gives us the possibility to increase prices. Yes, in the second half, you should expect that 2% to go a bit down.
Thank you.
The next question comes from the line of Andreas Willi from JP Morgan. Please go ahead.
Yeah. Good morning, everybody. My question is on the profitability development. You earlier stated an ambition to get back into the range. Maybe a bit unclear exactly when, but I think you mentioned at some point you would like to get back into the range for this year, to 16% or more. How do you see that now, given where we stand after the first half of the year, and what will be the drivers in the second half to see basically an increased margin improvement compared to what we've seen in the first half, in case you still have the ambition to get to the 16%?
Yeah, I can reconfirm that ambition that we told earlier also in the Q1 call. We definitely have that ambition to come back to that 16%-17% bandwidth. We saw an improvement now in Q2. As you remember, last year we had an important dilution from material inflation, 50 basis points over the full year, 20 basis points in Q4. We said in Q1 that was a bit lower. Now for the first time, we have seen that that became a positive. We obviously want to keep that momentum going now into the second half of the year, and that should give us some tailwind. It depends a little bit on how fast we will continue to grow our smart residential door locks, because we know that that is dilutive from a margin perspective.
Perhaps also the unknown, I would say, is China. Depends a little bit how fast we will grow China. Because if we grow tomorrow China in a faster way, even if we do a good job on EBIT improvement in China, it will of course remain dilutive. Overall, I think we have that ambition, like I mentioned, to get back to that 16%, and we are also confident that we are going there in the right direction. That with, of course, market conditions, material indexes, and tariffs as they are today, in a stable situation.
Thank you very much.
The next question comes from the line of Mattias Holmberg from DNB. Please go ahead. Your line is open.
Have a positive effect of some SEK 180 million or so from the Manufacturing Footprint Program. Could you give us some help on what we can expect here in the second half of the year? Is this a reasonable run rate, or will that increase further? Thank you.
I think we are happy with the progress we made with MFP in general and with MFP 7 in particular. We have said when we announced the program that we had a payback on that program of around three years. We were able to bring some of those efficiency gains forward. I would say we have seen a better than expected first half of the year. We should definitely not expect that to continue in the second half of the year because the total savings are what they are. It's just more a timing issue that we were able to bring some of it more forward.
Thank you.
If you have further questions, jump back into the queue again and then you can ask that probably later on.
The next question comes from the line of Lucie Carrier from Morgan Stanley. Please go ahead.
Oh, hi. Good morning, gentlemen. Thanks for taking my question. Nico, I want you to come back to your outlook statement where you are mentioning increasing uncertainties, deteriorating leading indicators. Can you maybe provide a bit more color or qualify where you see most of those increased uncertainties? Which market are we talking about? Which part of your business are you growing increasingly cautious, I would say?
Yeah, I can try to do that a little bit geographically. If I start in North America, we still see strong dynamics on the commercial side. We don't see any slowdown there, and that's for us, obviously for the Americas, the most important market. We clearly see a slowdown on the residential side for new builds. I would say that is less important for Americas division because they are less exposed to residential new build. It's a bit more a challenge for Entrance Systems because they have a residential garage door business in North America, and we follow that, of course. If I then go to South America or Latin America, clearly we don't see good market dynamics in the two main markets, Mexico and Brazil, also because of the changes in political situation and so on.
On the contrary, we are a bit more optimistic on Chile, Colombia, and definitely also on Peru. I would say in South America is a little bit a mixed picture. We then go to Europe, also there a mixed picture. Some markets continue to be very strong. Markets like Germany or DACH in general, East Europe, Spain, domestic market, like I mentioned, Benelux. We see France, which is, I would say, stabilized on a low level. We don't see France further going down, but it's not a market to be very excited about neither. U.K., definitely we see U.K. market conditions further declining, where people are really even more wait and see today than three months ago. Like I mentioned, Scandinavia, where we have seen the last couple of months a little bit of a slowdown.
We will follow that from very close and see if it's just a one or two-month thing or if it is more a systematic thing, because Scandinavia obviously is an important market for us. We go to Asia, the bigger markets, Korea, still okay on the commercial side, definitely on the residential side, down. The same is true for Australia. Still okay on the commercial side, down on the residential side. Of course, the bigger emerging market, China and India, the market is there. It's just up to us to make sure that we grasp that market. I'm not very pessimistic, but I'm perhaps a little bit more cautious than I was three months ago because of some new developments in the market.
Thank you very much. I'll go back into the queue.
The next question comes from the line of Andre Kukhnin from Credit Suisse. Please go ahead.
Yes, good morning. Thanks so much for taking my question. I just wanted to follow up first on Elmech growth. Did you say that within the 20% overall growth, resi was faster or slower?
Yeah, it was still faster. Yep. It was faster, but it was slower than previous quarters, percent-wise.
Very clear. Thank you. If I may ask, the main question was for me about this kind of growth versus margin dynamics for Elmech. We have had the margin improvement in Americas and Asia Pac, and that was mainly expected to happen with slowdown in Elmech. Now that's come through without really that much of a slowdown in Elmech. Is this just simply other components on the bridge, like net price and savings, or is there a positive margin dynamic within Elmech as well?
It's a bit different in Americas versus APAC. It's true that smart residential continues to be dilutive, and we talk about percentages, but in this aspect, of course, you should look at absolute business that we do with smart residential, and that obviously is still up and therefore still dilutive. I think in Americas, it's thanks to a very good job that we have done on the operational side by increasing prices and compensating for material inflation, and also by realizing different operational efficiencies. That's the main reason for the better EBIT in the Americas. If you go to APAC, it's thanks partly to a mix because we had good growth in Australia, and Australia with better margins. We also had a good quarter when it comes to EBIT in China. You know that we say that we make very low single-digit margins in China in general.
This quarter, this was a little bit better, that is mainly because we start now with our new strategy, with our new management team in place. We are also a bit more selective on which orders we take, and we look also better at do those orders really contribute and create value. That's, of course, something where we have an ambition to continue to improve that margin in China over the coming quarters and over the coming years.
Very clear. Thanks very much, Nico.
The next question comes from the line of Daniela Costa from Goldman Sachs. Please go ahead.
Hi, I just have one small question left. Thank you for taking it. I want to ask you about the ROCE in Europe and the drop, whether that's just simply mechanical. I think you were doing some reallocation of sales between divisions or otherwise, what is the reason for it? Thank you.
The main reason in Europe is, of course, that we did several acquisitions at the end of last year. Of course, when you do the acquisitions, the capital comes in immediately, and you see the sales only coming over the next 12 months. I would say that is the main reason for EMEA.
They also have a bit of impact of this, of the IFRS 16 as well. They have a bigger impact on that than some of the other ones.
Okay, thank you.
The next question comes from the line of Matthew Spurr from Exane BNP. Please go ahead.
Hi there. Thanks for taking another question. It was a bit of a niche question, actually, on the De La Rue acquisition. Just because if you read the newspapers here in the U.K., I thought amongst all the Brexit noise that we get, that De La Rue had lost the U.K. passport business. If I just have a quick look now, it looks like it's a 10-year contract, GBP 400 million, so GBP 40 million sterling a year, which that's basically all the sales that you're saying you're acquiring. I am not quite sure what you're acquiring with that business. Could you just give us a little bit more color there? Thanks.
Yeah, I would say that with De La Rue, we buy in the first place customers and customer relations and contracts with customers. A relation that we then can use to further upsell and further increase our customer share as well on the, let's call it, the classical hardware side, the paper side, as well as on the digital side with e-passport opportunities and so on. It's in the first place a channel to market and then also good operation capabilities.
That sales you've disclosed, will that drop to zero when the current contract runs out and you have to grow from there?
No, that's of course not the case. I think it's just one of the projects and one of the businesses they have.
Okay, thanks.
We have a follow-up question from the line of Lucie Carrier from Morgan Stanley. Please go ahead.
I was hoping we could come back to the performance in Entrance Systems, because it seems to be kind of consistently under growing industrial production, operating leverage fairly limited. I'm just trying to understand what is the outlook from here, especially if we see some deceleration in U.S. IP and especially for business that was supposed to be one of the growth driver of ASSA and see margin expansion? It doesn't really seem to materialize. What do we need here to kind of, I would say, reverse the trend?
Yeah. Why do we have the lower organic growth on the first place? There's a couple of items, like I mentioned, residential new build in the U.S. and our garage door business in the U.S., which is affected negatively by market conditions. We also have seen a slowdown on everything what is logistics, distribution centers, which is important for our high performance doors and our loading docks. I think I would say that's the two main negative drivers. On the positive side, of course, we have the service business where we see clear acceleration of the service business. I forgot to mention one other negative item is on the high performance doors, where important part of that business also goes to automotive in Europe. Okay, we all know what the situation is with the automotive business in general. We are addressing that by accelerating also new product development.
New product development that will give us the possibility to take more of the available cake. That is what we are doing. We are also investing in different markets where we feel that there is still better penetration possibilities and therefore more business for us to grasp. It is true that, on the organic side, it has been slower for several quarters, and we have compensated that, of course, through acquisitions where the Agta Record acquisition now will be an important one. What I think is good to see is that despite the lower organic growth, we managed to keep bottom line margin under control.
Thanks, Nico. Can I ask maybe, are you able to kind of quantify how much organic growth that business actually needs to properly start seeing some momentum on the margin? I mean, because 1% apparently is kind of not enough. Are we talking 3% minimum organic growth, 5%? I mean, what is the threshold here to kind of see more momentum on the business?
In stable conditions, if we are not in contingency mode, that 3% is a good ballpark figure. The 3% is a good ballpark figure in general for the group. We have always said that we need around that 2%-3% organic growth to compensate for general inflation. In that aspect, of course, if you look at this quarter, we have only 1% organic growth keeping neutral operating leverage is I think a very good performance. In order for that to happen, of course, the stars have to be aligned a little bit, which was the case in Q2. We should not expect neutral leverage all the time with only 1% organic growth. It has to be a little bit more.
Thank you very much.
The next question comes from the line of Guillermo Peigneux from UBS. Please go ahead.
Hi, Guillermo Peigneux from UBS. Thanks for taking my question and good morning, everyone. My question is on the savings. You mentioned SEK 300 million savings. I wanted to ask, what should you be achieving in terms of run rate towards the year-end? Probably in expectations on 2020 and adjacent to that, I know that you mentioned that the impact on the pricing should fade off towards the second half, which is fair. I'm more interested in the relationship between pricing and raw materials. When is the relationship between those two stopping to improve, so to say? I guess question is at what point your relationship between pricing and raw materials become neutral at this point? Thank you.
I'll start with the second part. Like we mentioned in the call, we have seen our positive pricing versus material inflation for the first time since many quarters now in Q2. Okay, we are confident giving indexes where they are today and giving import tariffs where they are today, that we should be able to further improve even that positive in the second half of the year. That should give us a good tailwind. When it comes to the MFP program, like I mentioned earlier, we have seen some of the savings coming earlier. We mentioned at the beginning when we launched the MFP 7 program about how much money we talk about, what payback we talk in the three years. You can calculate how much saving we will make over the program.
What we can say is that some of the savings came earlier, therefore, some of the savings will be lower now in the second half of the program. Don't expect those savings from the MFP program to further increase in the second half of the year. That will not happen. I don't know if you want to add something.
No. That's true. Besides the MFP, we're also doing other operational savings, and since we have seen that the MFP savings is coming faster than, let's say, was the plan, we're also, of course, looking into other opportunities as well in order to see what we can sort of get from operational efficiency.
Thank you. Maybe could you comment a little bit on the prospects for collaboration with Google or Amazon or any other brands when it comes to Europe, I guess, on launches or marketing efforts that you're putting with potential distribution channels?
Yeah, if you take Amazon, there is, I guess, two type of businesses. There is their in-house delivery, which is in the first place a program they have in the U.S. today. Then there's the traditional online sales. Of course, like our colleagues, competitors in the market, we try to sell our products online to Amazon in the markets where Amazon is, and we will continue doing that effort. As the Amazon channel becomes more important, it also becomes a more important channel for us. When it comes to Google Nest, yes, we have developed that unique lock for Google Nest on an exclusive base together with them and for them. That's a lock that is only or mainly, I would say today, for the North American market. That's the only business we have with them today.
Okay. Thank you.
The next question comes from the line of Lars Brorson from Barclays. Please go ahead.
Yeah. Hi, Nico. I just wanted to follow up on the earlier question on Entrance Systems in services in particular. I was curious as to where growth is sitting at this point, I guess around mid-single digit, which would mean the OE business flat for you to deliver 1% growth for the division overall. Could you talk a little bit about how that growth in service is accelerating? You've been targeting high single digit. That's pre-Agta. Presumably, there's further uplift as you start to deliver some revenue synergies in 2020. Talk a little bit about the growth outlook for services, please.
Yeah. Historically, our service growth has been low single digit. Indeed, we have said that we have the ambition to grow our service business high single digit for the coming years. This quarter, you are right, we were mid-single digit, but mid-single digit with two working days less in the quarter. That of course matters in the service business because it's two days less service technician hours that you can bill. If you then would compensate for those two days, you would see it's closer to high single digit in the quarter. Yeah, it's going nicely in the direction where we want to be. We are investing in service technicians. We are investing in service salespeople, and we are confident that over time we will get to that ambition of high single digit growth.
Indeed, service is around 28% of our total business for Entrance Systems. If we grow there mid-single digit, you can indeed calculate how much growth we had then on the equipment side, and that was low.
If I could do a quick follow-up, please, on the price cost, which now is turning positive in Americas. Are you able to give us some quantification of the margin tailwind to Americas in the second half as you see it now from a price cost standpoint?
Again, market conditions change day after day. Let's say that it will continue to be positive. We mentioned in 2018 that over the full year it was 50 basis points negative for the Americas. We mentioned that in Q1 it was around 10 basis points negative. We say now that in Q2 it is positive. We are confident, again, with market conditions where they are and indices where they are, that it will continue to be positive in the second half of the year, difficult to give an exact figure.
Sure. Thank you.
The next question comes from the line of Gael de-Bray from Deutsche Bank. Please go ahead.
Thanks very much. Good morning, everyone. I joined the call very late, so I'm sorry if you commented already about this before. The first question is about the market conditions in France and Scandinavia. I think you mentioned good growth in France and stable sales in Scandinavia in the quarter. I guess the question is: how do you reconcile this relatively healthy performance with the weaker indicators there in those two geographies in terms of building permits, housing starts, and so on? I have a more general question about the group's volume growth potential. You grew 1% in terms of volumes in Q2. I think that's not really better than the underlying construction markets, despite the supportive shift to electromechanical products. How do you explain that you're not really growing faster than the market itself?
Is it a question of selectivity, cannibalization effects, maybe you being too pushy on prices or something else? Thank you.
We will start with France. We have said in previous calls that market conditions were not very good in France. We said this call that market conditions in France are stable on a low level. It's true that we had lower single-digit growth in France this quarter, but if you look at the full year, we are more or less flat in France. It's always difficult to just jump to conclusions on one quarter. If you take the full year, it's more or less flat. I would say that reflects more or less also perhaps the market conditions in France. When it comes to Scandinavia, we have experienced, as you know, very good, solid, mid-single-digit growth in 2018 and over recent quarters.
That was lower in Q2 definitely because of the working days, but also because we saw some slowdown in the recent couple of months in Scandinavia. Too early to say in Scandinavia, if that's a trend or if it's just one or two months less activity. Clearly Scandinavia we'll follow from very close because that's an important market for us. When it comes to volume growth and making your link with construction indexes. You can do that to a certain extent. You must know, of course, that two-thirds of our business is replacement market. Only one-third is new build. In that new build, you have, of course, residential and you have commercial. 75% of our business is commercial, 25% is residential. If you look at all those indexes and all those dynamics, they are very different.
Very different between residential and commercial, very different by continent. I think if you look over the last 10 years, I think we grew 9%, a mix of acquisitions and organic. If you look in 2018, our organic growth was 5%. Yes, a mix of price and volume. This quarter it was a little bit lower, but like I explained, it's also linked to the two working days less in the quarter. We should not jump too fast to conclusions just on one quarter. I think when we talk about these things, you should have a longer perspective in mind. In that aspect, we reconfirm our strategic objective of growing 5% + 5% to 10% over a business cycle.
Okay, that's great. Thanks very much.
We have a follow-up question from the line of Andre Kukhnin from Credit Suisse. Please go ahead.
Hello, thanks very much for taking follow-ups. I wanted to ask about acquisitions more broadly. Is your attitude changing at all towards or appetite for M&A changing at all, given that you have been quite active, closed a couple sizable deals and across the spectrum, also at the same time, your outlook is getting less certain. If you could talk about that.
I would say no real changes. If you look at our balance sheet, we definitely still have the ammunition to shoot if we want to shoot. It's really a matter of filling the pipeline and having enough meat on the plate, and that's the work all the divisions are doing every day. When the right acquisitions come across at the right price, at the right multiples, then we will go for them. If they don't come across, of course, we cannot go for them. That we have been active in recent quarters. We still have a good pipeline. Let's see how many of those in the pipeline we can also then translate into real deals.
Thank you. If I could just ask one more on pricing for Elmech. The non-res part seems to be holding up from some checking that we have done. On resi, I think the following sort of prices that you see on websites like Amazon, there seem to be some decline on asking prices compared to maybe the original levels that were posted there when we just kicked off. Also there does seem to be sort of a number of alternatives out there from kind of unknown or at least unknown to us brands. I wanted to ask a kind of a broad question. Do you see pricing in resi electromechanical as deflationary, and do you see that as normal given adoption rates or not? Do you worry about that sort of competition ramping up?
Of course, in a way competition is good because it keeps us and the other people sharp. Of course, there is other smart people in our market that can also make good products. There is different price classes in that market, also in the smart residential market, because there is obviously people that have different needs. We don't see that price erosion. We don't see too much of a difference between smart resi and the rest of electromechanical. Perhaps if you look at those prices you mentioned on internet, you must of course make a distinction between campaigns. People like Amazon, for instance, they do a couple of times a year campaigns, of course, you have different prices than during the rest of the year. If you make exclusion for those campaigns in your comparison, you will see that prices are not going down. They're okay.
Thank you very much.
I think we have time for one more question.
We have a follow-up question from the line of Alasdair Leslie from Societe Generale. Please go ahead.
Thanks for the follow-up. Just a quick question. It really looks like Walmart is going to soon launch a home delivery service similar to Amazon Key. I was just wondering whether you were in the running for a role there. I imagine the relationship you have on the logistics side and with August previously puts you in a strong position. As a sort of follow-up, should we expect you to start to broaden the number of channel partners in residential to drive the next leg of Smart Lock growth? Some of your U.S. peers are partnering with home builders. Just wondering whether you see that as an opportunity as well, and how much interest maybe now do you see from new partners today, maybe versus a year ago? Thanks.
If I answer on in-home delivery, in general, of course, there is a lot of initiatives going on, not only Walmart, a lot of other companies are doing similar tests, not only in the U.S., also in Europe, also in the rest of the world. With many of them, we have partnered to do those pilot tests. I must say it's a bit a similar story when we started with digital door locks. I think it takes off much slower than I would have expected. I think the adaptation rate is really slow. We have a lot of projects going on, but not too much concrete business yet when it comes to in-home delivery. That being said, I'm sure that it will come. It's just a matter of time. It's just a matter of adaptation. The second part on your question on digital Smart Locks.
Clearly, we see an increase of the adaptation rate quarter after quarter. Obviously, our ambition is to put as many as we can digital smart door locks in the market, not only in the U.S., but also in other parts of the world. We use for that different channels. Clearly, we use the Amazon online channel. We have our partnership with Google Nest, but we also have our own sales through our own website on August and on Yale. We also use the DIY channel. We also use the locksmith channel. If you look at the different channels, I would generalize even in the world in general, not only in the U.S., you see very strong double-digit growth in the different channels. We don't really have an opinion on the channel. We will see which one will become stronger and which one will not be so strong.
It's important for us to be present in the different channels and also have a relation with the best partners in the different channels, and that's what we work on every day.
Very helpful. Thank you.
Thank you very much. I think this was the last question that we have time for. I guess, would you like to round up, Nico?
Yeah. No, I can say that we had a good Q2. We had a good first half of the year. I guess I want to thank all of you for a good cooperation the first six months. I wish you also a good summer and a good summer break, and then see you in the second half of the year. Thank you.