Good morning, welcome to the presentation of Assa Abloy's result for the third quarter 2018. I am Holger Lembrér, Investor Relations Officer at Assa Abloy, and with me, I have our CEO, Nico Delvaux, and our CFO, Carolina Dybeck Happe. We will kick off this webcast with a presentation, and then we will open up for questions and answers. With that, I will hand over to you, Nico.
Thank you, Holger, also good morning from my side. Assa Abloy quarter three result in brief. A very good quarter with strong organic sales development, strong growth in Global Technologies and Americas, a good growth in Entrance Systems, and a stable development in EMEA and APAC. Definitely the highlight of the quarter, our electromechanical products development up 25%. That is including currency. If you exclude currency, that family was up 17%, and all regions are growing strongly. A good, strong EBIT development, but EBIT margin diluted by FX 30 basis points and also continued raw material headwind. As a matter of fact, raw materials were on the highest level in this quarter, the highest of the year, I think also the highest for at least the last three years. Also a very strong cash flow in the quarter.
In numbers, sales SEK 21.2 billion, 15% up, 5% organic growth, 4% acquisition growth gross. We also did some divestments, 2% net acquisition growth, 8% currency. An EBITDA margin of 16.6% and an EBIT margin of 16.2%. EBIT up 11%, value of SEK 3.4 billion. If you look a little bit at the sales per region, very strong Americas, as well North America as South America. Europe in line with the year-to-date growth. A lower Africa and Middle East. A continued low Asia, mainly because of China, a flat evolution in Australia and New Zealand. Highlights for the quarter, strong progress, like I mentioned, in electromechanical in general and in smart residential in particular.
We have now also made the link between the Yale locks and our August cloud-based software, which means that we now can use that August software for smart residential all around the world in all our Yale countries and Yale applications. We also started a pilot for in-home delivery in the U.K. with John Lewis and with Waitrose. Very excited about that pilot, where they will deliver groceries into your house, into your fridge at home even. We also continue our efforts with new product development. We just mentioned one here, a new generation of overhead sectional doors. You see a picture on the right, focusing on energy efficiency. This new family is two times more energy efficient than the previous one. To give you an idea, on average, on such a door, you can save up to EUR 1,500, SEK 15,000 per year in energy cost per door.
Of course, it is good that we continue to be recognized for all our innovation efforts. I will not go through all the awards we won this quarter, but I think what is important is that these awards are given by professional people in our industry, so people that really understand our industry and therefore also can judge very good what is true innovation. Very glad with that as well. Nice growth in the quarter. Like I said, 5%, also 5% year-to-date growth, in line with our target. Now 22 quarters with positive organic growth. I believe a rather strong track record. We realize that growth with an operating margin within our bandwidth of 16%-17%, a bit on the lower side in the bandwidth. We also show the EBITDA figures on this graph.
As you know, as we do more and more technology acquisitions, we also have the amortization of the goodwill for this technology, and therefore, the gap between EBITDA and EBIT is bigger. If you keep your margins within the bandwidth and you grow your top line in important way, of course also your operating profit grows further, 11% in the quarter, 6% on a 12-month moving trend, and 67% over the last five years. We continue our efforts on manufacturing footprint. We still have two restructuring programs running, our MFP5 and MFP6 projects, where we still will have to make 675 people redundant. We are also working on a new program that we will probably launch at the quarter four call. The scope of that project will be very similar as the previous ones. An investment or a cost of around SEK 1 billion-SEK 1.5 billion.
We have a very similar payback as the previous ones, around three years. With that difference that we will now book the restructuring cost in two parts, the majority at the end of 2018, part of the cost also in 2019. We will come back there with all the details in Q4. Acquisitions, we continue our acquisition effort. We acquired four companies in the quarter, 14 year-to-date, and definitely the highlight of this quarter was the acquisition of Crossmatch, a U.S.-based leader in biometric identity management. Company with a revenue of around $125 million, 270 employees. They allow us now to offer biometric identity into critical applications, and they also help us to complement further our total solutions offering for HID. Very excited about this acquisition.
If we then go into the different divisions, starting with EMEA, I would say a little bit disappointing quarter for EMEA. We have an organic growth of only 2%. Mixed picture with a strong North Europe, Scandinavia, and Finland, a weaker U.K. and France, and a negative growth in Benelux and Africa, Middle East. That lower organic growth also led to a lower operating margin, 15.9% versus 16.8% last year, where we have to say that we had a very strong dilution by FX in the quarter, 80 basis points. Americas, I think very good performance, very strong organic growth of 10%. I would say strong organic growth in all domains and in all regions, as well North America, as South America, as well commercial, as residential. Also an operating margin of 20.1% versus 21.8% last year.
Here, continued dilution from raw material and also a dilution because of mix, where we grow faster on the residential side than on the commercial side. We know that we make lower margins on the residential side than on the commercial side. Also dilution from acquisitions, and that's mainly August. I must say that I'm very happy here with the progress we make on compensating with price increases and cost efficiency measurements to compensate for the higher material cost. Like I mentioned before, material cost was on the highest level in this quarter year-to-date, but also if you go back the last three, four years. Nevertheless, we managed to make the gap between material cost increase and price increase smaller. We really see that gap getting smaller quarter after quarter.
It was still high in quarter one, it was small in quarter two, it's even smaller in quarter three. We are confident that we further will be able to bridge that gap going to quarter four and the beginning of next year. Asia Pacific, an organic growth of only 1%. Strong growth in South Korea, but negative growth in China. You know the challenges we have in China. We also explained to you that we have implemented there a new strategy. We have now the new team on board, and it's now a matter of starting to execute that new strategy. As explained earlier, that will take more time. That is not a matter of a couple of quarters. That takes longer.
With a negative growth in China, of course, also an operating margin of only 9.2% versus 11.3% last year, where we also continue to have a dilution from the high material costs. Going to Global Technologies, I think a very strong quarter as well on the HID side as on the ASSA ABLOY Global Solutions side, as we call Hospitality nowadays. I would say strong growth in all different business areas, with the exception of Secure Issuance, where it's more a timing issue and where this will come back now in Q4. An operating margin of 21.4% versus 17.8%, very strong performance, good volume leverage, and also positive contribution from acquisitions. Perhaps a couple of words on the new name for Hospitality.
Hospitality historically was focusing mainly on the hotel business, on the hotel vertical, also doing some work on the marine side with cruise ships and so on. More and more, Hospitality is going also in other verticals. With the acquisition of Phoniro into elderly care. We also have ideas and projects around solving the last mile on the logistic side. We also focus on student accommodation. Therefore, we found that the old name, Hospitality, was not really covering what this part of our business stands for. We believe ASSA ABLOY Global Solutions is a much better name, also because we want to reinforce activities on those other verticals and also add other verticals to this part of the group. Entrance Systems, a good, solid performance with an organic growth of 4%. Strongest growth in residential doors and negative sales in high-performance doors.
That is also the explanation for the operating margin of 14.1% versus 14.5% last year. You know that we make higher margins on high-performance doors than on residential doors, it's mainly a mix effect. I will not jump too fast to conclusions here. If you look at year-to-date figures for Entrance Systems, they have a very nice volume efficiency gain, I think year-to-date is a very solid performance. We are confident that mix here will come back to normal levels in the near future. With that, I think I give the work to Carolina.
Thank you, Nico. Good morning. I will start with the financial highlights, of course, with the top line. Very happy to see the good organic growth of 5% in the quarter, that is with the same number of working days. We estimate the price increase to be 2% and the volume to be 3%. For the fourth quarter, we will have one working day less. Moving to the acquired growth. Here we had, as Nico said, 4% gross, 2% net because of the divestments that we've made. We have already for the fourth quarter, we will have 3% acquired growth looking at the companies that we've bought so far. We have a carryover effect for next year of the already acquired ones of 1.5% acquired growth. To currency.
Well, a strong effect from currency, especially on the top line in the quarter, a full 8% on the top line. If I take the rates as they are today and extrapolate them for next quarter, we will have around 5% top line added from currency, assuming they stay the same, which they almost never do. Still. Top line up 15%, bottom line followed with a full 11% improvement on the bottom line. The margin was a bit under pressure. We had both the negative drop-through from the organic as well as a negative from currency, while the acquisition part was flat. I'll come back more to that later in the bridges. You can also see that the comparison on EBIT year-over-year is 50 basis points difference, while on EBITDA, as Nico mentioned, it's only 30.
Here you see the difference on the amortization that is increasing with the increased number of technology acquisitions. From the EBIT, we had a financial net that basically went up in line with the increased debt, have a tax rate that we estimate to stay at 26%. With that, we have an earnings per share that is up with 11% in the quarter. Finally, and very importantly, the cash flow. Strong cash flow in the quarter, a full SEK 3 billion of cash flow, we're up 13% year-over-year on cash flow. More about that later. From the highlights to the details. Looking at the bridge, here we separate basically the P&L in three parts, the organic, the drop-through, we have the currency, the acquisition.
Very importantly then on the organic with the 5% top line growth, we had a negative of 20 basis points drop-through. Here, as I mentioned, we had 2% price and 3% volume, and a bit different between the divisions. You have the bridges in the appendix of the presentation so that you can look at them on a divisional level as well. There you will see that there is a mixed bag. We had a very strong help from Global Tech with very strong growth and also strong drop-through. We then had Americas, also very strong top line but not as positive on the bottom line. As we have talked about before, they are closing in on the gap from the raw material, as well as having a mixed component from more RESI for the Americas.
We move on and we have Entrance Systems, 4% top line, so a good growth and a flat on that from the margin. Year-to-date, they've seen very good development on the margin, like-for-like on organic. I think it continues to be a good development. EMEA, 2% top line and not really enough to manage to keep the margin. A slight dilution there on the margin. Finally, APAC with 1% growth and a weak China, I would have to say as expected and as we communicated, negative on the margin. The effect from APAC on the group is really 20 basis points on the margin. If we look at currency, a strong top-line development, but a bit weaker on the bottom line. Here, a big part of this is translation effect, then some part is also transaction.
Really what we can see here that it's not totally balancing, and part of that is because the Swedish krona got weaker, and we make more money in Swedish krona. In the quarter, it was tough on the bottom line from currency due to the SEK profit. Finally, acquisitions. Gross four, net two. Since we acquired companies with a high margin and also divested companies with a very low margin, we've had a good mix. Included in this is also August, which is then, as you know, strongly dilutive. Overall for the group, the net effect is flat on the margin from acquisitions. Next version of the profit and loss components of sales, here it's the year-- well, year-to-date, so January to September. Here you see the effect also like-for-like, and then adding the acquisitions.
Here you can also see the effect from the raw material that you see in direct material that we have talked about. We have increased the price with 2%, but the raw material is up 4%. On the other hand, you see the effect also from general inflation and Direct labor, we have cost savings from the good restructuring programs, as well as volume growth, which also helps on the coverage of fixed cost. Like for like, year to date, we are 20 basis points down, and that is really also the effect from APAC. Then we add the year to date 10 basis point dilutions from acquisitions, and we end on 15.7. From the P&L then to the cash. As I mentioned, a strong development of cash in the third quarter.
What you can see from the graph is that we have a very strong seasonality in our numbers. We have a very weak first quarter, good second and third quarter, and a very strong fourth quarter. This year so far has been similar, but we have started to work on different initiatives to try to smoothen out the cash flow over the year. The overall one would be good of course, but not as strong. We have some seasonality as you know, that we can't do much about, but we work on other things to try to make it more smooth. In the third quarter, good development. We saw a slight improvement on the DSO, one day. On the DPO, on the other hand, we were a couple of days lower, but we still have a positive gap between DSO and DPO.
Inventories above 100 days, a little bit higher I would say, compared to last year as well. Here we also have the effect of the increased raw material, basically the value of raw material in the volume of our inventories. Overall, good development on cash flow and up a full 13% in the quarter. Good cash flow, but then also buying nice companies like Crossmatch that we also pay for. You can see on the net debt that basically it is stable from the second quarter, 31.4 to 31.5, basically flat. The good cash flow and then the outlay on acquisitions basically kept us on the same level as we were for the half year.
I would say important here is to look at the gearing, the gearing is 63%, so it is a little bit higher than last year, but it's actually lower than the couple of years before. Good room for maneuver there. Also importantly, the net debt EBITDA ratio, which is basically staying around two. It's 2.1 in the quarter, and it's been around two for quite a long time. Very good KPIs here as well. Finally, it all boils down to this, the earnings per share. We had a strong development of the top line, the 15%, then down to the EBIT of 11. Good financial left development as well as a stable tax rate, and therefore also the earnings per share is up with a full 11% in the quarter. With that, Nico, I give back to you for conclusion.
Thank you. In summary, we can say it was a good quarter, a good third quarter with strong organic sales development, 5%. Definitely with the highlight of the quarter, the electromechanical product development, 17% up excluding currency. A strong EBIT development, a strong cash flow. Also worth to notice is that we will have our capital markets days on the 14th of November here in Stockholm. We hopefully will see all of you there. Also before we go to the Q&A, this is the 27th quarterly call for Carolina, but unfortunately it will also be the last call that Carolina does with us. You have seen that we announced Carolina's replacement, that is Erik Pieder. He is today the Vice President Finance in Atlas Copco Compressor Technique. He will join us as of the 14th of January.
I would like to take the opportunity, I think I can also speak for most of you, perhaps for all of you, to thank Carolina for I think a great contribution to these quarterly calls. I think the good relation we have with the people on the phone, with the investor community, is definitely also thanks for a big extent to all the good work you did over those 26 or 27 quarters. Thank you for that, Carolina. We will have time to celebrate or to say farewell to Carolina at the Capital Markets Day. We will keep it for the Capital Markets Day. With that, I think we can open for Q&A. I think the operator will explain how this works.
Thank you very much, Nico. Before we kick off the telephone conference, I would like to remind everybody to limit yourself to one question to give allow to as many as possible to ask questions. Before we kick off, operator, will you please remind how to ask questions?
Yes, of course. Thank you. Ladies and gentlemen, if you haven't already and you want to ask a question, please press zero and then one on your phone keypad now to enter the queue. If you wish to retract that question, just press zero and then two. As you informed, please limit it to one question per round. Our first is over to the line of Lars Brorson at Barclays. Please go ahead. Your line is now open.
Thanks very much. Good morning all, Nico, Carolina, and Holger. I'll stick to just one question, maybe more to you, Carolina. Thanks again for all your help over the years, and good luck. Before you leave, maybe I can just bore you with one question on U.S. tariffs. I appreciate it's quite a dynamic picture at the minute, but the last set of U.S. tariffs to be implemented in late September, so that's the Section 301 List 3, does seem to me to be quite a potential impact on your Americas business in 2019. Can you help me understand how to quantify the expected impact on your business? Have you done the work to break that down? If you can provide some numbers around that would be helpful. Thank you.
Lars, your questions are never boring. Now on the tariffs. We have looked into it. The regulations are partly implemented and partly coming, just as you say. For us, the effect is on the Americas division and also on the Global Technologies division. That said, it's a pretty limited effect for us. We have looked into it. We don't see a significant effect of it, both on the actions so far and what's planned to come. Of course, we don't know how that will pan out in the end. From what we know now, it's not a big effect. It's also so that it's about being adaptive. Also for Americas, I know that we have already done some resourcing to sort of adjust to the new situation, and we will continue to do so.
Perhaps also in the market we see, or we have the ambition to compensate, obviously also with price increases, mainly also with surcharges for these tariffs. We also see that the market is applying similar methods. For most of the players in our field, the situation is similar.
Thank you very much.
Encouraging. Thank you.
Thank you very much, Lars. Operator, please, next question.
Next question is over to UBS and Guillermo Peña. Please go ahead, sir. Your line is now open.
Thank you. Guillermo Peña from UBS. Another question for Carolina before she goes. Regarding the raw mats dilution and your comments, Nico, that this is probably the toughest. Can I just read that Q4 dilution will be less that Q3 dilution? Whether you can give us some color as to whether Q4 dilution that be, and what do you expect for the first half 2019, if I may? The same for FX, if I may.
Perhaps I will start with material and then Carolina can add on material and on FX. It's true that material prices are today on the highest level, or material cost for us is on the highest level this year and definitely also in history, the way we can go back, definitely the last three years. There is always a time lag between material indexes going up or down and us seeing that effect in our cost. That delay is around six months. I think the good news is that since a month or two, we have seen some material prices going down, copper, zinc, brass. That is good news if that trend continues, because that's then something that we should see on the positive side going into 2019 with that six months delay.
We are very much affected, as you know, by steel prices, they also have stabilized now on a very high level, I would say. If that trend indeed also continues, then also the continued price increases that we realize should then more and more compensate for the steel prices. Definitely in the Americas, like I said, we are making good progress, and we are confident that towards the end of the year, beginning next year, we will be able to bridge that gap.
If Americas is sort of bridging the gap, I would say if you look on all the divisions, the other ones you know are okay. The one that is still not okay then is Asia Pacific, and there it's going to be a longer journey to try to compensate for the price changes there. For the fourth quarter, assuming the raw mats stay the way they are, yes, for the whole group, there will be a sort of a smaller effect, a more better situation for the fourth quarter. You also asked about currency. With the currency as it is now if I look at the fourth quarter, we will have 5% top line effect. I know also just from making a simulation, assuming the same flows, we would have a flat margin on that.
More in line with what we usually see with the currency. Happy to say that. A comment on the third quarter where we did have dilution, that was, as I mentioned, a lot from the Swedish krona or the profit in Swedish krona that was then less in relation to the other parts of the group.
Thanks. For the first half 2019, from the raw mats perspective, will be accretive?
The first half?
Yeah.
Well, yes, price versus raw mat, yes. You have to remember, we also have other inflation, right? On general inflation, we have direct labor inflation. On the other hand, we also have positives from restructuring programs and so. Just looking at price versus raw mat, yes, assuming it stays the raw mats.
Thank you so much. I'll stay on line for the next question.
Thank you much, Guillermo. Operator, please, next question.
Okay, the next question is Andreas Willi at JPMorgan. Please go ahead, Andre, your line is now open.
Good morning, everybody. My question is on the digital business. You mentioned the John Lewis partnership or pilot that you're running. Maybe you could tell us a little bit more about what kind of business model that has in terms of, are they using your software? What's the payment structure? How does that compare to what you have been doing in the U.S.? And related to that also in terms of August, which you now said you will use some of their software for Yale globally. Maybe you could help us better understand some of the financials around August. Obviously, given you have disposals and acquisitions in the Americas division, it's a bit hard for us to figure out exactly how August is performing
Do you still expect to get to that 500 million SEK sales number, and what's the break-even target there?
Perhaps first on the in-home delivery in the U.K. Let's say that it's a pilot. It's a small pilot, so it's not a lot of business yet today. But it's an interesting pilot with those two companies. I think the pilot is around 100 families. So basically it works like that you as a family, buy grocery online in their shop, and then you ask them to deliver in your home. When they come to your home, they will have a special code that they can type in onto the Yale lock and get into your house.
They will have a video camera on their breast that they will then film while they come into your home, and they will put the grocery on the table, on the kitchen table, or into your fridge, if it has to be put in the fridge, or if you give other instructions, they will follow your instructions, and they will go out again. That's a bit the concept. The way we make business out of it is obviously by selling the hardware, our Yale locks. There is also a recurring revenue part on the software and on the service, the brokerage we do for the keys. When it comes to August, we have said from the beginning that August would be dilutive around 20 basis points for the group. This quarter, it's a little bit higher. As you know, the sales of August is very seasonal.
The first three quarters are lower. The fourth quarter is normally a big quarter for August. We are confident that indeed, quarter four now will be a very good quarter for August. We have also said that this dilutive effect of August will also continue in 2019, and that we only have the ambition by 2020 somewhere to turn that around. August is more or less going according to plan. We also see a lot of synergies with August and the Yale organization in the rest of the world. This software platform of August that we now use for Yale Smart Living in the rest of the world is one good example. We also have more and more products of August that we will also use under the Yale brand and sell under the Yale organization in the rest of the world.
A lot of interesting synergies.
Thank you, Andre.
Thank you.
Operator, please, next question.
We go to Lucie Carrier at Morgan Stanley. Please go ahead. Your line is now open.
Hi, good morning, thanks for taking my question. I wanted to go back on the Global Technologies business and maybe understanding a bit better the underlying margin dynamics and how this is sustainable. I think the 21.4% was probably ahead of expectation, and I was just wondering whether there was here any specific mix effect or project which led to this performance. As you are looking at your current backlog, how do you think that level of margin could be? Just on Crossmatch, as you were mentioning it earlier, it is relatively sizable, I would say, for the division in terms of size, based on the sales you've provided. How should we think about the impact of Crossmatch on this acquisition, on the profitability as we go into next year?
On Crossmatch, we have said that Crossmatch is accretive as of the start. If you look at the performance of Q3, it is a good question because we can also temper a little bit ambitious. Of course, if you realize the result we realized for our Global Technologies in quarter three, all the stars have to be aligned, and that is what happened in Q3. We had a solid growth in all different business areas as well on the HID side, as on the Assa Abloy Global Solutions side. We had also strong profit performance in all different business areas. We are still very optimistic when we go into Q4 and for the foreseeable future for Global Technologies. We believe that division has to grow higher than the 5% growth ambition we have as a group.
Of course, it will not be every quarter the same high performance as we had in Q3. That is true for top line as well as for bottom line. We explained in Q2 also that we grow normally on the HID side faster on all the other business areas than Physical Identity. This quarter, that was a little bit different, but normally that is the trend we see, and if we grow faster on the other business areas, we know that the margins are lower there. You also have there then a dilutive mix effect, but a dilutive mix effect, of course, on a very high level. As a summary, I think we are still confident for Q4, as well top line as bottom line, but don't expect the same high performance as in Q3.
Thank you.
Thank you very much, Lucie. Operator, please next question.
We go to the line of Ben Seccareccia at Goldman Sachs. Please go ahead, sir. Your line is now open
Hi, good morning. This is actually Daniela here. Thanks for taking my question. I wanted to ask, can you comment on the U.S. about residential versus non-residential? What drove the acceleration versus the 9% of growth in Q3 to this quarter? How do you see that going forward? What's your confidence on the market continue to accelerate there from here after several very strong quarters there?
If you realize the result that we realized in the Americas for Q3, again, there, of course, you have to have strong performance in most markets and in most business areas. That was the case in Q3, as well in South America, as in North America. I think the only lower performance countries were Colombia and Chile. For the rest, South America was strong. Definitely a very strong North America as well, Mexico, Canada, as U.S. In U.S., we had a very strong growth on the commercial side and on the residential side. I would say it was very similar as Q2, where we had a strong growth on the commercial side and even a stronger growth on residential side.
If you then zoom into residential, we had a strong growth on the, let's say, electromechanical in general, even a stronger growth than on our smart digital solutions. We had a good contribution again from Google Nest. We also had, that is new in Q3, we started to invoice now also the Walmart order that we reported about in Q1. That also had a positive contribution to the overall result. We see market conditions still very healthy. We foresee that market conditions will remain on similar levels in Q4 as Q3. We also expect a good Q4 for Americas. Again, to have the results we had in Q3, also here, most of the stars were aligned. Let's see if that is also the case in Q4.
Thank you.
Thank you very much, Daniela. Operator, do we have another question on the line?
We will go to Gael de-Bray at Deutsche Bank. Please go ahead. Your line is now open.
Thanks. Good morning, everybody. What is your take on the French market right now? I think you had said orders were pretty weak in Q2, eventually you delivered stable sales in France this quarter. What do you see in this market right now? This is actually question number one. Can I have a quick second question on the margin momentum? Because if we exclude Global Technologies, four out of your five divisions have actually shown a negative margin momentum in Q3. Outside Global Technologies, are you able to quantify what was driven by the negative mix effects related to the faster growth of your digital and residential solutions?
Yes, we can do that. First question on France. Perhaps I will answer also a bit more in general on EMEA. It's clear that we were not happy with our result in Q3 in EMEA. It's true that KPIs, construction indexes are pointing in the wrong direction for several markets. If you take a market like Sweden, if you take a market like U.K., and definitely also if you take a market like France, you see indexes going down. Performance in France was, let's say, flattish in the quarter. We don't see a real improvement for France with the visibility we have, that we have rather short visibility. Also because in France, more than 50% of our business is residential, and there the visibility is shorter. We definitely don't see an improvement in France.
That being said, I think irrespective of indexes and market indications for the future, I believe we should be able to do better in EMEA in quarter four. Let's say that we would be very disappointed if the organic growth figure would be on the same level again in Q4 as in Q3. It's true, definitely that some of the bigger markets in EMEA, the overall market conditions are weakening or definitely not strengthening. That I think is a big difference between Americas and EMEA, where in Americas, the biggest market, U.S., is strong and continues with a strong dynamic. The bigger markets in EMEA are definitely not improving. If something, they are weakening. When it comes to the second part of the question, the negative volume flow through, I think it's a very different story division by division.
If I stay with EMEA, I would say the main reason is the lower organic growth. If you only have 2% organic growth and you have your general cost inflation, and on top of that, you have also in EMEA, the highest material cost in the quarter, then it's very difficult to compensate for that with only 2% organic growth. We're also taking measures in EMEA on the cost side to further realize more cost efficiencies, because that's what we have to do, obviously, if the organic growth is lower. That, I would say, is the main reason in EMEA. Then let's not forget, we had a very strong dilution of FX in EMEA, around 80 basis points. I think it was 20 basis point volume flow-through, then 80 basis points FX.
If you go to the Americas, like I said before, very happy with the progress we make in compensating for the material price increases through price increases and through efficiency gains. We are really bridging the gap between the two. We are confident that gap will become smaller towards the end of the year, towards the beginning of next year. Obviously, in Americas, we have a higher exposure to steel because of our steel door business. I think on APAC, we should not further elaborate here. We know the challenges. It's mainly China. We have also said that China will take longer to fix. Also, in this quarter, profit in China was very low.
When we then go to Entrance Systems, like I explained, the main reason is a mix effect where we grew much faster in residential doors in the U.S. versus high-speed doors, but also versus just the standard sliding doors, the core of our Entrance Systems business. We make higher margins on sliding doors and on high-performance doors than we make on residential doors. It's really a mix issue. Again, we don't see this mix to be a structural thing. It's more a quarter issue, I would say. If you look year-to-date for Entrance Systems, you will also see that they have very nice volume leverage. Then, I think Global Technologies was a good volume leverage, so I don't think we should explain there anything.
Okay. Thanks very much, Nico.
Thank you much, Operator. Operator, do we have another question on the line?
Yes, we go to the line of Markus Almerud at Kepler Cheuvreux. Please go ahead.
Hi, good morning. Markus Almerud here. I'd like to continue on the U.S. The electromechanical locks have grown extremely rapid. You saw 37% growth year-to-date and 55% in the quarter. I'm just interested to know how much of that is, first of all, how much of that is the smart locks, then how much of that growth could be attributed to Google? Also on that topic, if you could give us an update on Amazon. You said you started to invoice Walmart, is anything at all happening with Amazon and the Amazon Key?
Yeah. If I start with Amazon, I think we should indeed make a difference between Amazon Key and just Amazon as a retail channel. I think Amazon as a retail channel is, I would say, performing on a good level, mainly for our August lock, because that's the main channel for the August lock. When you go to Amazon Key, my comments of Q1 and Q2 remain also valid now in Q3. It's on a lower than, by us at least, expected level. We see that it does not take off that fast. Definitely, it takes off much slower than the Google Nest solution.
Perhaps it has also to do with the approach where with the Amazon Key, Amazon really wants to own the entrance to the consumer in the U.S., where Google Nest has more an approach of we add another hardware component to our ecosystem. Indeed, we are happy with the orders we get from Google Nest. We see also that it's repeat orders. We see that the stuff on the shelf in the stores moves, therefore that we get these repeat orders are very positive. Of course, when you have 17% growth, you have to have strong growth on our traditional business as well as on the digital and the smart business. I would say, yeah, it's very high growth on the traditional side, it's higher growth on digital, it's, of course, the highest growth with Nest. Obviously, Nest starts from a lower level.
Out of the 2.7 that you had for electromechanical locks, how much of that is smart in Americas?
Out of the I'm not sure I understand the question.
What part of the electromechanical sales in the U.S. is smart locks? Just to get an idea.
We have said that in the world, our digital locks is around, we have said that six months ago, around 2 million locks and around 2 billion SEK business. We can say that today this is more closer to 2.5 billion SEK. That's the digital part of our business in the world. Obviously in that business, Korea is an important contributor and the U.S. is the second important contributor.
Okay. Thank you very much.
Thank you very much, Markus. Operator, do we have another question on the line?
Yes, we go to the line of Mattias Holmberg at DNB Markets. Please go ahead.
Thank you very much. When I look at the Americas division, you in the last quarter Q2 had 9% organic growth, but a 150 basis point Organic EBIT margin dilution, where, if my notes are correct here, you said that 50 basis points were related to mix and 100 basis points of the dilution were related to steel. Now when I look at Q3, you have a still strong organic growth, 10%, but only a 30% organic EBIT margin dilution. What I'm wondering here is how do we get from the 150 basis point dilution in Q2 to only a 30 basis point dilution in Q3? Where does this sequential improvement come from?
Well, what we're talking about is really two parts. Well, one part is on the residential and on the mix side, and it was even stronger in the second quarter than it is in the third. That's part of the explanation. The other part is the closing in gap on the direct material part for Americas.
Could you at all quantify if it was 100 basis points headwind from raw mats in Q2, and we're down to 30 for the division in total organically. It seems like a quite major improvement compared to Q2 then.
We don't separate it out, but it's significantly lower. I think that also relates to Nico's comment that he was very happy with the actions that Americas has taken to work on closing this gap. That's also why we believe that towards the fourth quarter and beginning of next year, we hope to have closed the gap. Of course, that is also depending on how the raw mats themselves develop. If they stay stable, and hopefully even go down.
Thank you very much.
Thank you, Mattias. Operator, do we have another question on the line?
Yes. We go to Andre Kukhnin at Credit Suisse. Please go ahead. Your line is now open.
Good morning. Thanks very much for taking my question. I wanted to talk about where you expect the electromechanical residential profitability to settle in the U.S. or Americas. Clearly, it's ramping up fast right now, and you're investing a lot in getting new customers and channels and product range. Do you expect, even with those higher ASPs, electromechanical resi to still be dilutive to your overall Americas profitability once we've had maybe a year or two of growth of the space? Do you think we can ramp up the productivity savings efficiencies to get those margins structurally higher?
It's of course, very difficult to speculate two years down the line because it all depends, of course, on the competitive landscape, one, and two, also where on electromechanical we will see the biggest growth, how the mix will move. It's clear that on the traditional electromechanical margins are very healthy. Of course, if you take the complete other side, if you have people like Amazon or Nest, then the margins are lower. It really depends on mix and on competitive dynamics. It's true that today margins on the residential side are lower than on the commercial side, it's true that they are, according to us, on a very nice, healthy level, contributing in a very important way to shareholder value. We also see that as we grow, there is definitely also on the residential side, rooms to further improve operational efficiency.
That's what we are working on every day. Going two years down the road in such a fast market where things happen with a very high speed, I think is too speculative.
Right. Got it. Can I just follow up quickly? On August, what you said earlier, do you expect 2020 to be non-dilutive to group profitability or to become non-loss-making?
We have said that August would come into the black figures in 2020, yeah.
Right. Still loss-making 2019, but at a lower level of loss than 2018, and hence small positive on the bridge. Is that a right interpretation?
Correct. That's the ambition. We have said that for this year, August would be dilutive 20 basis points. Like I said, in quarter three, it was a little bit higher. We still believe that the 20 basis points on a full year is realistic. Then obviously as we go into 2019, we should have the ambition to lower that dilution and then go by 2020 into the black figures, yeah.
Great. Thank you.
Thank you very much, Andre. I think that's concluding our questions and answers today. I would like to hand back to Nico for his closing remarks.
Yeah. No, I can only say that we're happy with the result of quarter three. I think it was also in line with most of your expectations. Thank you for the call. See, hopefully all of you also at our Capital Markets Day here in Stockholm soon. Thank you.