Earnings Call: Q2 2018

Jul 18, 2018

Morning, and welcome to the presentation of Assa Abloy's results for the Q2 2018. I'm Horvylember, Investor Relations Officer at Assa Abloy. And with me, I our CEO and President, Nico Del Voe and our CFO, Kelli Andripe Kappen. We will start the conference with a presentation of a result, and then we will follow-up with a question and answer session. With that, I hand over to you, Nico. Thank you, Holger, and also good morning from my part, perhaps good afternoon to some of you. Welcome from a very hot Stockholm and even a hotter studio here in Stockholm. Quarter 1 quarter 2 results. In brief, if we exclude the one off costs in China, which we reported 2 weeks ago, we can say that we had a good underlying performance with strong sales growth, a stable operating margin and strong cash flow. If you go a bit more in detail into the figures, sales of SEK 21,000,000,000, 9% up, 5% organic growth, 4% grown by acquisitions growth, but we also sold off some entities. We sold off the door business, the wood door business in the U. S. And we, of course, still have the ebonite divestment effect, so net a 2% acquisition growth and then also held by currency, 2%. And EBIT of SEK 3,300,000,000, 6% up, corresponding to an operating margin of 15.7% versus 16.1 percent last year. And we also mentioned the EBITDA margin. We will use that also more and more as a KPI. EBITDA of 16.1% versus 16.3% last year. If you look at the sales by region, I would say, in general, strong performance, also strong performance in the emerging markets. Look at Africa, Middle East, up 21% South America, up 24 sorry, 14%. Unfortunately, all that compensated by a very negative China with very strong or very high single digit negative growth, so bringing our total emerging market growth only to plus 1%. For marketing market highlights. The FIFA World Cup just finished last Sunday, unfortunately, with the wrong winner. The best team only ended 3rd. I was able to participate and watch some games. We provided all the ticketing for that event, more than 3,000,000 personalized tickets, but we also had an RFID pack in the tickets, where we had different layers in the printing. We also added special material that's under fluorescent light. You could see the FIFA logo. All this to make the tickets much more difficult to copy and fight counterfeit. I also had a discussion with the FIFA responsible for access control in the stadiums. He was very happy with us as a supplier. To our knowledge, no incidents with counterfeit tickets in this tournament, very different from previous tournaments. And also of the whole tournament, only a level of 12 incidents where a supporter could not get directly in to the stadium. So very, very good performance. Also very good to see that we are now, for the 4th time, recognized by Forbus in their top 100 of most innovative companies. It's very good reward for us recognizing all the efforts that we put in innovation and in R and D. And highlight on Hospitality, where they launched their cloud based access, hotel access management system, Postio. They launched that on high-tech exhibition in Houston, specialized exhibition for hotels. This cloud based solution will ensure up to date security at all times, up to date compliance and up to date business operations. And it will give us the possibility to start charging this under a SaaS model, software as a service. We will really move into that recurring revenue model that we also want to use more in other businesses. Sales growth now for the 21st quarter, positive organic growth and strong positive organic growth the last quarters. We do that by maintaining our operating margins within that 16% to 17% bandwidth and therefore also operating profit up 66% in the last 5 years. We continue also with our manufacturing footprint project. We have 2 projects still running, MFP5 and MFP6, where we still have 833 people that will be affected. We had 163 people in the quarter. And we're now also working on a new program, the MFP 7 program that we plan to launch towards the end of the year. It will be similar program, similar size, similar return on investment as the first six projects. Acquisitions has been a very busy quarter. We had a full active pipeline, 12 acquisitions done year to date. Altogether, an annualized sales of SEK 1,900,000,000. And we also have announced divested our wood door business in the U. S. That was a business of around SEK 600,000,000 with almost no profit. A couple of highlights. Bruken in Mexico, a leading player in glass and aluminum hardware, a very good example of how we want to extend in our core. We see that glass and aluminum hardware is a faster growing sub segment. And of course, we want to be one of the players also in that segment. Door systems in the U. S, company I visited myself last week, think a very good example of what we want to do in our direct channel and make sure that we capture the full value chain, so not only the sale of equipment, but also the revenue that comes via service, very impressed with their service organization. And then Planet, a leading supplier of dropdown seals and finger protection covers in Switzerland. Also a very good example. It's a company with very similar DNA as us. They really make the difference through innovation. They have a lot of patents on their products and have really a leading edge in this field. And again, it complements our product offering. If we then go a little bit more in details into the different divisions. Starting with EMEA, an organic growth of 2%. Perhaps a bit disappointing for you, I would say, a mixed picture. Overall, strong growth in EMEA, but brought down by 2 effects. One is that we had last year a very big export order for our tracker business from the U. K. For big customers in Canada. And then 2, that we are seeing again a decline of the French market. You remember that in quarter 1, I was positive on the French market and told you that we had an impression that benchmark has now really turned again positive. That seems not to be true in quarter 2. Market has gone down again, especially on the residential side with very high single digit. And as we do more than 50% of our business on the residential side in France, of course, we are directly affected. If you take those two items together and you would correct for them, we would have been between 4% 5% organic growth. So much more in line with what we should expect for this division. And the effect on both for small and similar size. Operating margin, 15.9%, very strong performance, very good volume flow through, negatively affected by acquisitions of 0.2%. We then go to Americas, very strong organic growth, 9% up. I would say, in general, everywhere, good performance with the exception of Colombia. And you remember from quarter 1 that we said that we were not so positive on the market in Colombia, and it has been confirmed now in quarter 2. Although we have to say that we are now a bit more positive in Colombia for the second half of the year, where we have a bit more doubts now for the Q2 with Mexico, with all the things happening, also with the U. S. And the political situation and so on. But overall, very, very good, very happy with that result. Operating margin on the low side, 20.1% versus 22.1% last year. Two main items, a negative mix effect where we sold more residential business and commercial business, and we make lower margins on the residential side than on the commercial side. And that would come, I would say, for 1 third of the drop. And then the main reason, continued high raw material cost, mainly steel, where we have seen a very strong cost increase in the 1st 6 months on top of an important cost increase last year and where we will see further cost increases now in the second half of the year. We have been able to increase prices, I would say, in an important way, but unfortunately not good enough yet to compensate fully for that higher raw material cost. And we also foresee that, that challenge will continue now also in the second half of the year. Asia Pacific, an organic growth of 2%. I would say a very different picture between the rest of Asia and China, where in the rest of Asia, we had good organic growth and where in China, we had strong single digit negative growth. Operating margin of 8.9% versus 11.2% last year. Also there, main contributor to the lower result is China across lower volume and on top of that also the pressure of the material price increases. And Carolina will come back in her part on the write down of the goodwill intangible assets and operating assets. Global Technologies, both parts HID and Hospitality, very strong performance. Organic growth, up 6%. And in HID, positive story for all subsegments, I would say. And then an operating margin of 19.6% versus 18.4% last year, helped by a positive contribution from acquisitions. For some of them, we were able to integrate them faster and generate synergies faster than anticipated. A negative volume flow through, and that mainly comes from HID, where we grow faster in all other segments than physical access control. You know that physical access control is our core of HID, where we also have higher margins than on the other side. I would say a positive problem to have with 19.6% margin. And then Engine Systems, another strong division, organic growth of 6%. Also here, most of the sub families growing very strongly. The only negative there, our residential door business in Europe and our door component, and I would say also elevated sense of component business, which had negative growth in the quarter. And a good solid underlying operating margin of 13.8% versus 13.4% last year. That's the overview on the divisions. And with this, I give the word to Carolina for some more details on the financials. Thank you, Nico. Good morning, everybody. I will start then with the financial highlights, and I will start with the top line. The top line grew a full 9% in the quarter. Of that, we have 5% organic growth. We estimate it to be 1 more working day, especially in European parts of the business. The split between price and volume is 2% estimated in price and 3% in volume. So continued good increase on the price. On the acquired growth, we have gross 4% acquired growth and then we have divestments of 2%. So we are on a net 2% acquired growth. And if we look at what we already have bought and so to sell, have in the books, this is also what it will continue with through the end of the year. Currency in this quarter turned positive for us because of the weakening krona. So we had a plus 2% on the top line from currency in the quarter. And if I take the rates as they are today and just extrapolate for the rest of the year, we'll have a significant growth in the Q3 from currency and then the lower effect in the 4th quarter. Also on the margin, they are probably slightly dilutive in the Q3. But for the full year, the currency on the bottom line should be basically flat effect on the margin. So the overall 9% growth then translated into 6% improvement of the EBIT, and this is then excluding the China write downs. And here we have then the mix of the drop through from the organic, which was actually negative and then slightly negative from currency and then flat from acquisitions. But I'll talk more about that when I go to the bridge. The other KPI to mention here is the EBITDA KPI that we have started to introduce also because we are acquiring more of technology companies and they then have a bit higher amortization. And therefore, to try to show the underlying performance better, we also show EBIT as well as EBITA. And as you can see, the gap between the EBIT compared to last year is 40 basis points, while it's lower on the EBITA one. Then we have the effect also from you can say, tax effect of the China write down. So our underlying tax percentage is still 26%, and we estimate it to continue like that till the end of the year. And it depends really on the country mix and the regulations. And that also includes the change of regulations in the U. S. And then for the China write down, the goodwill part is not tax efficient, but the write down of the intangibles as well as the other operating assets will have a tax effect, which you will see in the numbers. So overall, we have an EPS, including the €400,000,000 write down in China that is then 6% down year over year. Last but not least, on the highlights in the cash flow. 2nd quarter for us is low, but still better than the first when it comes to cash flow. And in this Q2, we had a good performance. So when I compare year over year, we are 11% up in the Q2 on cash flow. So good result, and I'll come back to that a bit more. With that, I will move to the bridge analysis and a deeper look into the P and L. And this continues to be very important as long as we do acquisitions to separate the FX and the acquisition. And what we see here is that we had the good organic growth of 5 the 2 price and the 3 volume split. But we have a drop through that is negative 30 basis points. And really, here, it's different stories in the different divisions. We saw positive leverage from EMEA, not having so much organic growth but a good drop through. Entrance Systems, both good growth as well as good drop through on the margin here. Then we have Americas, which had a 2 parts effect, both growing in lower margin business on the residential side with the smart door locks, but also the significant part then on the raw material effect on the door business and the perimeter business in Americas. Then we have APAC. And as flagged previously, also the underlying margin there is weak really in China. So that also had a dilutive effect for the group as a whole of 30 basis points. Currency, top line effect 2% and almost a percent margin on the bottom line, so only 10 basis points dilution from currency. And here again for the Q3, I expect a high top line effect, but not that high dilution from currency. And for the full year, basically flat effect on the margin from currency. Acquisitions then looking a little bit different. Here it's acquisitions. It's actually flat on the margin. So the gross 4% that we acquired, it's a mix of some acquisitions that have high margin and that have integrated fast and done good improvements on the margins. And then we have other businesses that are lower in margin, as earlier communicated example, August in Americas. And on the other side, we have the divestments of the wooden door companies in Americas as well as Advanite, which are very low margin business, which therefore help the margin here. So overall, it's a flat margin from acquisitions. And I was expecting the Q3 for it to be slightly dilutive. And then I think we would have to wait and see what acquisitions we do for the rest of the year. We also had a small capital gain in the acquisitions column for selling the wooden doors of €35,000,000 So that also helps. Looking then at the P and L from a little bit different perspective. As components of sales, we get this picture. This is also the, as usual, the year to date picture, so for the first half year of twenty eighteen. But what you clearly can see here is that on the direct material line, we see significantly higher numbers here, and we have a gap of 50 basis points when it comes to direct material. And of course, this comes back to the higher raw materials. And as I previously explained, it's really the big effects are both in Asia, where there's a significant effect from the raw material and not being able to offset it with price, but also in Americas for doors and perimeter, but it's also not fully compensated for. Then we also have a mix effect with higher project sales as well as the growth than in residential. Hotel conversion costs, slightly improved. And then on the SG and A, we are continuing to invest in salespeople and in R and D, but we have grown faster than we have increased. So therefore, the percentage of sales is actually lower. So we have 30 basis point improvement from that. So for the first half year, we are like for like 10 basis points lower than last year in margin. And then we add the acquisitions and then we are on 20 basis points difference. Next slide then on the China impairment, just to make it hopefully a little more clear. As we have previously communicated we did the strategic review of the business in China. And through that review, it also came out that we believe that it will take longer for the margin in China to bounce back in the short and medium term. And therefore, we did an overall write down of SEK 6,000,000,000. Out of that, SEK 5,600,000,000 is goodwill and intangibles and SEK 400,000,000 is other operating assets. And this slide is really to show what effect that has on the balance sheet really. And if we look at China, intangible assets were SEK 8,000,000,000 before the write down, and now we are on SEK 2,400,000,000 So we have decreased it with 70%. And on an APAC level, that translates to a little bit more than half in decrease since China is a big part of APAC. But for the group, China is around 6% of sales, and the whole APAC is not that large. So for the Assa Abloy Group, the effect is 8% lower intangible assets. Going back then to the cash flow. And I'm very happy to see that the Q2 cash flow picked up pretty well. We had a weak Q1, so glad to see that the 2nd quarter is up 11% year over year. And here, of course, the main contributor is the profit in the quarter, but then we keep a pretty tight ship also on the working capital. And there, we have sort of the relative KPIs to look at. And the DSO performing well. We are 52 days here, so a sit in line with last year. We have the DPO, 53 days. So still a positive gap between payables and receivables. Then also inventory, although we do see the increase of raw material and therefore value in inventory, we are on 101 days, which is basically one day up year over year. So good development on working capital for the quarter and also slightly lower CapEx. So therefore, good development here. And the good development in cash flow, of course, then also affects the debt side. So looking at our debt side, in the quarter, I would say we had a typical spend of acquisitions. We had the dividend also as usual. What we also saw is same effect basically on the top line with the currencies changing and therefore, the debt being in the underlying currencies also gets an increase from just the fact that it's translated into SEK. So therefore, we are above SEK 31,000,000,000 in debt. If you look at the relative KPIs here, you can see that the gearing is on SEK 65,000,000,000 It's a bit higher than last year, but it's really in line with the 2 previous years. So I would say it's growing in line with the company growth. Net debt EBITDA as well, slightly higher than with 2.2% compared to 1.9% a year ago. And then my final slide, earnings per share. The underlying EBIT in the quarter was up 6%, and then we have a write down of SEK 400,000,000 in China. And also, we add the slightly higher financial net as well as the 26% tax rates. And with that, in the quarter, the like for like comparison is minus 6. And on a year to date basis, we are on minus 2 on the EPS. And with that, I give back to you, Nico. Thank you, Carolina. So as a summary for the quarter, I would say solid underlying performance with top line growth of 7% excluding currency, 5% organic growth, 4% gross acquisitions, 2% net. I'd say with all divisions performing strongly with the exception APAC and perhaps, to a certain extent, EMEA. A stable operating margin of 15.7% with have been some higher raw material cost and low operating margin in China. And then, like Carolina explained, also a strong cash flow. And with that, I'll hand you back to Holger, who will explain the procedure for Q and A. Thank you, Nico. Before we kick off telephone conference with questions, I would like to remind everybody to limit yourself to one question at a time to give a chance to as many people as possible to ask questions. Operator, before we kick off, will you please remind how to ask questions? Thank you. Our first question comes from Andreas Willi from JPMorgan. Please go ahead. Your line is now open. Yes. Good morning, everybody. I have a question on margin mix in Q2 and going forward around kind of the growth in residential, particularly with the digital product? To what degree is that related to ramp up of some of these products? And to what degree is it structural? If you look at your residential business in general in terms of what we should expect going forward, maybe as the residential business grows faster? And maybe related to that, there obviously also digital opportunities in non residential. What do you see there in the commercial markets? And what are margins there of these new offerings relative to the traditional business? Want me to start? Yes. I think we should, in the 1st place, look to the Americas. And as we explained, in Americas, we see strong growth in general, but then stronger growth in residential than in commercial. And in residential, stronger growth on the digital locks than on the rest of the residential business. And it's indeed the fact that margins on residential in general are lower than on commercial. So if we continue to grow faster in residential than on commercial, we will see we will continue to see this negative mix effect. If you take the organic part in the Americas, so if you exclude acquisitions, which were dilutive with 0.5% mainly because of August, so if you exclude that part and only look at the organic part, you can say that onethree of the drop in margin comes from that mix, twothree comes from the raw material price increases. You also asked on the second question. You asked about what about on the commercial side then. I would say that we are growing very strongly on the residential smart lock side, but we're also growing very healthy continuously on the LMEK overall and therefore the commercial side. And we have said before that we grow basically double digit there, and that is still the case. And there, we see healthy margins, shorter life cycles and really nice upselling opportunity. So we are continuing that journey. Thank you, Andreas. Operator, please, next question. Thank you. The next question comes from Lars Austin from Barclays. Please go ahead. Your line is open. Hi, thanks. Good morning, Nico, Carolina, Holger. A quick follow-up just to Andreas' question and then I just want to talk a little bit about your residential business in the U. S. So can I just get the numbers clear on Americas EBIT bridge? It's a little bit unhelpful you're taking that out of your presentation ahead of the call, particularly when you get the sort of divisional impact from M and A and occupancy mix as you do it at the minute. So 200 basis point decline in Americas, of which I understand about 50 basis points to be mix sorry, 70 basis points to be mix, 50 basis points to be dilution and 80 basis points to be net raw material impact. Are those numbers roughly right? So the 200 basis point is including dilutive effect of acquisitions. The dilutive effect of acquisition is 50 basis points. So that leaves 150, let's say, for the organic flow through. And you can say that around twothree of that is material and onethree is mix. We have about 100 then from material and 50 from the mix. That's clear. And when you say you still expect that to be a challenge in the second half, Nico, should we expect that headwind from raw material to increase or decrease from these levels? Well, we see further increase for material pricing for material prices, mainly on the steel side and mainly in the U. S. Now also with the import tariffs kicking in from Europe versus U. S. So we will see an important further increase of material prices steel in the second half in the U. S. But as we speak, we are also further increasing prices. So we have the ambition to lower the gap, so to speak, from what we have in Q1, too. And that will confidently reduce that gap in quarter 3 and then further in quarter 4. But it's clear that, that head wins will continue in the second half of the year, yes. That's helpful. And just finally, my question would really be around your U. S. Residential business. Can you give us sense of what the growth level is in that business? And is there anything of larger and more lumpy content within that that's driving growth here? A couple of years ago, we saw, I think, your yield contract with AT and T boost growth to the tune of 400, 500 basis points over a few quarters. Is there anything more meaningful that's driving growth or more specific to any individual home automation contract in the quarter? Yes. Again, if you look at the growth in Americas, all we can say is that the growth is fast in North America than in South America. Of course, as I explained, we have the challenges in Colombia in the first half of the year. And of course, Brazil, as we explained in the first half, has low has leveled out and is now increasing again from a low level. So growth margins are lower in South America than in North America. And then again in North America, if you split the different items, we have good growth on the commercial side, we have faster growth on the residential side, and we have the fastest growth in residential with smart digital door locks. When it comes to what are big ticket items, we have explained a couple of times that there is cooperation with Amazon. I can say here in the second half, same as in the first half sorry, in the second quarter, same as in the Q1. That is not a significant part of the business. We see the cooperation with Google Nest for that smart door lock that we developed together with them for them as a more important contributor to our business where we also see regular replacement orders now. So it looks like that part of the business is moving fast. Thank you, Lars. Operator, please, next question. Thank you. The next question comes from Matthias Holmberg from BNB Markets. Please go ahead. Your line is open. Hi, thank you very much. I also have a question on the margin bridge for one of the quite poor operating leverage, if I recall correctly. And now in Q2, you talk about the continued unfavorable mix, as I understand. So I was just wondering if you could help us a bit on sharing some details on the margin bridge, how we get from the 18.4% margin last year to 19.6%. How much is from the acquisitions? And how much is organic, so to speak? Thank you. Well, we have tenders from dilution from the organic part, but I think it's important here to remember what level they are on because as Nico mentioned in the beginning, it's so that all areas basically are growing very well in Global Tech. But the one with the highest margin, which is physical access control and the core, is growing high, but the others are even outpacing packs. And therefore, we have a negative mix. But they're sort of all healthy businesses, and therefore, it's only the 10 basis points dilution from all the organic drop through. On the acquisition side, there we have sort of the mix of good acquisitions adding to the top line, but also still the effect of the divestment from Advanide. And therefore, we have a significant plus from acquisitions in the quarter. And that's why the overall margin increases so much for Global Tech. So is it fair to assume that the FX impacts on the margin is relatively neutral and that you have about 100 basis points accretion from the net M and A effect? Yes. And you will have the details afterwards as well. Okay. Thank you very much. Thank you very much, Matthias. Operator, please, next question. Thank you. The next question comes from Markus Almer from Kepler Cheuvreux. Please go ahead. Your line is open. Hi, good morning. Markus Almer from Kepler Cheuvreux. I'd like to continue with the smart locks and the margins that you're seeing. So is there a big differential between smart locks that you're selling outside of the home automation systems? And then also, is there a big difference in the margin between the smart locks that you sell to residential in Americas and in Europe? Well, there is a difference in margins clearly between commercial and residential. The margins are better on the commercial side than on the residential side. And then I think on the residential side, you must make a difference between the business we do with the Google Nests and the company alikes and the other business where we also sell more direct. It's clear that if you work together and have a partnership with LUBER NEST, it's a very professional purchasing organization. You talk about bigger volumes. So there, the gross margins are clearly lower than on the rest of our residential business. And that comes, of course, also with lower SG and A cost because you basically just sell bollock orders to their organization, and they carry, so to speak, as G and A cost. So if you look on net level, the differences are not so big. Everything depends a little bit on where you put your R and D cost because clearly, we do specific R and D investments for these specific customers. But a big part of that R and D cost, of course, is also used more in general on the residential side and even, to a certain extent, on the commercial side. And is most of the growth in Smart Lock for Residential in North America? Is it from the Automation Systems? Or is it also growing outside of that? Because I think this is the first time you mentioned that you see very strong growth of demand growth in. It is also strongly growing outside, but clearly, the highest growth comes from, let's call it, smart residential. But very happy also. We're very satisfied also with the older growth on smart unlocks, yes. Yes. The next question comes from Anastasia Chinejad. Please go ahead. Your line is open. Yes. Hi, good morning. First question is just on France. I think the comments that were interesting, particularly in light of your confidence that you expressed at the Q1 stage. So just wondering if you saw rapid deceleration sequentially through the quarter. And then perhaps also if you could just give us your expectations around demand going forward, just whether you expect a rebound? It's indeed true that we were rather positive from France in quarter 1. And that came because after many quarters of decline, we saw quarter 4 and quarter 1 really the market picking up in France, and we thought that, that would be a signal that positive market trends would continue. Fortunately, and these are public figures, we have seen markets dropping in a significant way again now in class 2, mainly on the residential side. The market is down very high single digits as compared to strong single digit positive growth in quarter 1. So it really dropped from something very positive to something very negative, mainly on the residential side. We have also seen a slowdown on the commercial side, but not as outspoken as on the residential side. And in France, more than 50% of our business is on the residential side. So obviously, if the market goes down high single digits, we are also affected by that. It's very difficult for us to understand why. One reason is that they definitely mentioned is the shortage of skilled labor to execute the construction projects that are out there in France, and that really slowed down the business in France. Also very difficult to predict for the future. And I definitely don't want to speculate, definitely not after Mittal in quarter 1 that France was back. And now in quarter 2, we see again a decline. I can say that our orders in the quarter were also low for France, and some of those orders will, of course, be translated into sales in Q3. But too difficult to have a prediction on more visibility, I would say, for the second half. Very interesting. Could I ask a quick follow-up on smart door locks? I see you're obviously aggressively pursuing the smart door lock opportunity in the residential space in the U. S, dilutive impact on margins. The U. S. Is arguably earlier in that transition than Europe. But kind of appreciate your starting point slightly different in terms of the mix for your EMEA business between resin and commercial. But is it fair to anticipate a similar negative mix impact is going to start to emerge in your EMEA business as well over the next year or so as digital door locks start to accelerate here too? Well, I don't want to speculate. I think the same what we said about Americas is true in EMEA, that our margins on the commercial side are higher than on the residential side. Perhaps the big difference between EMEA and Americas, of course, is that Americas is a homogeneous market. The locks that you sell in South U. S. Or North U. S, East or West Coast are the same, whereas in EMEA, the locks that you will sell in Italy are different from Germany, are different from Sweden. Should you talk much more about local variants? And so the complexity is much higher, and complexity often also means better margins. Thank you very much, Alberto. Operator, please, next question. Thank you. Our next question comes from Gail DeBrea from Deutsche. Please go ahead. Your line is open. Thanks very much. Good morning, everybody. It seems that most of the headwinds you had in Q2 will likely continue for a few more quarters at least with no near term recovery to be seen in China, an ongoing increase in steel cost, faster growth in residential and so on. So would you expect the negative margin momentum you had so far in H1 to continue in H2? And if that's not truly the case, I mean, what steps are you taking to protect margins and address these three issues, the China issue, the material cost issue and the residential mix, respectively? Thank you. Yes, we have both. Sometimes the tendency to focus perhaps too much on the negative things. Let's not forget that we had very strong bottom line performance in several divisions: HIG as well on Hospitality as on sorry, Global Tech as well on HIG as on Hospitality, strong performance also on Entrance Systems and strong performance also in EMEA when it comes to margins. But it's true that we have those 2 headwinds, China. And as we also explained in the call 2 weeks ago, we don't expect China to improve on the short or medium term. It will stay a challenge. I believe we have a solid strategy in place now for how to capture the China market and become more successful in the China market. We will also do investments in that country. But again, it will take longer than just a couple of quarters. Turning to the material price increases, of course, it's a worldwide challenge. But we manage, I would say, rather well in EMEA and in the rest of APAC with the exception of China. And we would also we also manage rather well in the Americas with the exception of our door business and our perimeter business. Our perimeter business is the fencing business, which is also a lot of steel. So I would limit the challenge to steel, and steel is in steel doors and in fencing in U. S. And like I explained before, we have started to increase prices, and we also see those price increases coming through. As a matter of fact, we have very strong price leverage on the door business in the U. S, but unfortunately, it's still not good enough to fully compensate for the material price increase. So I think the material price increases we experienced today, mainly in the U. S, again, because of that import duties now also from Europe, are very unique, are very high and therefore, very difficult to immediately compensate with price increases. We are confident that we will compensate on these price increases, but we are also as I say, that we will continue to lag behind for the remaining part of the year. But we're also confident that we will be able to limit further the gap of the difference between cost increase and price increase over the next two quarters. Sir, can I follow-up on this? I mean given the very, very strong growth you had in the Americas, the plus 9%, I mean it's still a little bit surprising that you're not passing on higher price rises to your customers. So is that the case that somehow you're buying market share in the U. S? Well, we definitely never have the ambition to buy market share. Our ambition is to gain market share by doing the right long term initiatives by further strengthening our position in the market in our distant channels by coming with new innovative products, and that's what we do all the time. We definitely are not a company that buys market share with reducing the price. That would be clearly the wrong strategy. But you should see it in the right perspective. We can get price increases in general in the market, and those price increases compensate for material increases in the vast majority of our business in the Americas. The only part of the business where we have that challenge is, like I said, perimeter business, so fencing, our Ameristar business in the U. S. And metal door business in the U. S. If you take South America, if you take Central America, if you take Canada and if you take U. S, all the other business, apart from those 2, we managed to translate material price increases into price increases. So it's really specific challenge on those two items directly related to metal prices and steel prices because we have to say that over recent weeks, we have seen even zinc, aluminum, copper leveling out and going a little bit even down. So let's be confident that, that trend continues and that will help us on the other side from the material. Okay. Very helpful. Thanks very much. Thank you very much, Gael. Operator, please, next question. Thank you. Our next question comes from Andreas Koski from Nordea. Please go ahead. Your line is open. I would like to ask a question on the organic growth in EMEA, which slowed from 3% year over year in Q1 to 2% now in Q2. I understand that you had a negative impact from Benelux and France. But looking at the calendar impact or you had 2 fewer working days in the Q1 and now in the Q2, you had 1 more working day compared to Q2 last year. So I just want to ask if you have seen a deterioration in daily sales growth in the Q2 compared to the Q1? Thank you. It depends, of course, how you compare. If you include France and if you include the big export order to Canada, I was referring to before, for sure, we have seen a decline compared to last year. As I explained, there is 2 major items. That is that TAKA specific order for a big customer in Canada that we had last year and obviously don't have this year. That came mainly in May June last year, a little bit in July, but it will affect less quarter 2. Quarter 3, it affected in an important way quarter 2. And then we have France, as I explained earlier, markets are down mainly on the residential side. If you take those two items and if you would correct for those two items, our organic growth would have been between 4% 5%. If you go a bit over the different markets, it's true that also we mentioned Benelux. We have to specify that it's in the 1st place in Netherlands, where we see the market down and where we are definitely not doing better than the market, most probably, on the contrary. But Netherlands is a relatively small part of our business in EMEA. If you see Scandinavia and Finland, despite a lot of indicators showing a negative trend, we still see good growth in Scandinavia and Finland. Of course, not the double digit growth that we have seen 2, 3 years ago, but still solid growth. But again, lower than a year ago, lower than 2 years ago. If you take Central Europe, U. K, excluding the track order, the dark haze in Germany, Swiss Autograph, very good performance. If you take South Europe, good performance in Spain, weaker in Italy, but Italy is first a smaller country. And then East Europe, again, very happy with our performance in East Europe, Part of the region is growing the fastest. And then Middle East, Africa, a bit mixed bag. I would say Middle East, okay. Africa, low. That's a little bit how you should read EMEA. Yes. And if you look at EMEA in total then, daily sales growth, it is slowing down a little bit compared to what we saw in the Q1. Is that correct? If you don't adjust for the comments that Nico made on both the UK and France, Yes, that's true. But what we're trying to show is the underlying level then of EMEA. Yes. I understand that. I mean if we had 2 fewer days in Q1, that corresponds theoretically at least to 3%. So underlying growth in Q1 was 6%. And then now in this quarter, you have one extra day instead. So I just want to try to understand if it slows down sort of when adjusting for those orders, but you say it's not. I would say it's a little slower, but it's not if you look at the numbers in total, it looks like a big difference. But it's not when you adjust then for the U. K. And for France. That's one. I think, too, we should also out a bit with one day. We cannot be too exact scientific. I ask you how many days we had working days in France in Q2 and especially in May because, of course, you have the working days, but you have the bridge days and people taking holidays. It's difficult to compare, 1. And 2, also on that type of business, the working days are not significant. It's much more on the service side, where obviously, you have a service technician and he will generate hours and he will generate business. And if he has a day more, okay, it's almost a 1 on 1 relation. With this type of business, unfortunately, it's not exact science. Thank you very much. Thank you very much, Andreas. Operator, please next question. Thank you. Our next question comes from Daniel Kallitz from Liberum. Please go ahead. Your line is open. Hello. Thanks for taking my call. Just coming to the U. S. Or the Americas margin bridge. I think the dilution you highlighted last quarter was 170 this quarter's wooden door boost? It looks like about this quarter's wooden door boost? It looks like about 80 basis points in total. And then if you can just sort of guide sort of how long do you think that dilution from August will continue? And then just as a follow-up question to the Americas division. You said that you can try to increase prices going forward to offset steel price increases. I guess the question is how easy is it given sort of the big box buying power and then the sort of fairly sharp price cuts from Amazon? Is it to actually increase pricing right now in North America from especially in the residential sort of smart lock area? Okay. So a little bit on the bridge then for Americas to start with and then Mikael also the second one. If you take as you know, we do the bridge. We have organic currency and then acquisitions. And in the acquisition one, you will have the mix then of the divestment of the doors, which just sort of started in this quarter since we just sold it. So you will see the effect of that for, well, this quarter and 3 more. And the August 1, we bought a little earlier. So you'll not have as long effect from that. We have to remember that August is a very seasonal business as well. So it's sort of slow in the beginning of the year, really picks up towards well, during the year and has a very strong Q4, a typical resi sales pattern, I would say. If you come back then to the organic one, which you asked about, there is a similar then drop through from the strong growth. And as we said, out of the 9% organic growth and the drop through there, we see that around onethree of that comes from the rescue part. And that is then really not including the latest acquisition then because that is under the acquisition column. And then twothree of the sort of missing margin in that sense in Americas really is from the effect of the raw material. And we have increased prices but not enough to offset that fully. And as we said, we are also expecting to see effect from the price increases going forward, but it will also depend on how the raw material is developing. And we know that we have a path to the Q3, and then we'll see how the raw materials continue to develop. But just to follow-up, if you exclude the wooden door boost that you put through this quarter, What is the gross dilution from the August acquisition? We don't split it like that. You get one column for those together. So you'll see that in the bridge. And then you can, I think, calculate a little bit yourself? As we mentioned earlier, the wood door business was around $70,000,000 with close to 0% bottom line. And in quarter 2, we took the door business out in June, so it's only 1 month. So you can make that calculation at least yourself. Thank you very much, Daniel. Operator, please I think we still have a second question on the question. First on pricing cases. First of all, we are not trying, Daniel. We are really increasing price increases and so hard figures. And as it comes to your question on residential locks, of course, I explained that the material price increases are mainly on the metal side. And the metal side is, again, door business and perimeter business where a vast majority, a very significant part of your total cost is steel. If you take a smart door lock, of course, there is very limited steel. It's more electronics. It's more other parts. So that material headwind is not really a big issue on the smart residential door locks. It's an issue on the door business and on the parameter business. Thank you very much, Daniel. Operator, please, next question. Thank you. The next question comes from Peter Frohnen from Handelsbanken. I mean, on company level, given the strong price contribution, I mean, the pure volume leverage is sort of negative. And coming into I read in the report that you expect a similar size of the restructuring program that will be released in the Q4. How do you think upon this on a slightly longer term horizon? I mean your business is slightly changing towards more residential, more hopefully digital home automation? And how much could you actually do by streamlining your assets in terms of production so far? Is there a time here to take a even larger restructuring in order to get the volume leverage up to be able to generate volume leverage on 2%, 3% volume growth, which is probably what we're going to say also over the coming years? So we if you go back and look at our MFP programs, also the 2 that we are still executing today, I must say, we see very good savings of those programs. And then like I said, in general, they are around €1,000,000,000,000 1,500,000,000 costs and a payback of 3 years. And if you then follow-up on those MFP programs that we executed, we also can confirm that, that is also the case in practice. Well, the strategy behind it, as we continue to acquire companies, we also acquire operations. We also acquire factories, distribution centers and let's call it customer centers or sales companies. And through those NFP programs, we then rationalize that operational footprint. We close factories. We put volumes together. We get the volume leverage. We also put distributions together, and we get the volume leverage. And we also put sales companies or customer centers together and also get their volume leverage. We will continue for the foreseeable future to do these kinds of acquisitions. So we see, at least for the foreseeable future, enough potential to do more of those MFP programs. Yes, I think that's it. Thank you very much. And I think the clock is soon 11. So this concludes the Q and A session for today. And I would like to hand back to you, Nico, for your closing remarks. Thank you. Oliver, perhaps you can go back to the conclusion slide. Again, if we exclude the one off costs in China that we announced earlier 2 weeks ago, we can say that Q2 was a good underlying performance for Assa Abloy with strong sales growth, 7% up excluding currency, 5% organic 4% gross acquisitions, 2% net, with most divisions performing in a strong way and then a stable operating margin of 15.7% with headwinds on higher raw material costs and, of course, a challenging China and then a strong cash flow in the quarter. With that, we can conclude the figure part. And let me all wish you a good summer and good vacations wherever you might be in the world and then see you after summer holidays.