Good morning, welcome to the presentation of Assa Abloy's results for the second quarter 2018. I'm Holger Lembrér, Investor Relations Officer at Assa Abloy, and with me I have our CEO and President, Nico Delvaux, and our CFO, Carolina Dybeck Happe. We will start the conference with a presentation of the results, and then we will follow up with a question and answer session. For that, I hand over to you, Nico.
Thank you, Holger, and also good morning from my part, or perhaps good afternoon to some of you. Welcome from a very hot Stockholm and even a hotter studio here in Stockholm. Quite a few results. In brief, if we exclude the one-off costs in China, which we reported two 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 billion, 9% up, 5% organic growth, 4% growth by acquisitions gross. 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 AdvanIDe divestment effect, so net a 2% acquisition growth. Also helped by currency, 2%.
An EBIT of SEK 3.3 billion, 6% up, corresponding to an operating margin of 15.7% versus 16.1% last year. 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, a strong performance. Also a strong performance in the emerging markets. Look at Africa, Middle East, up 21%, South America up 14%. Unfortunately, all that compensated by a very negative China with very high single-digit negative growth. Bringing our total emerging market growth only to plus 1%. Market highlights. The FIFA World Cup just finished last Sunday, unfortunately with the wrong winner. The best team only ended third. I was able to participate and watch some games.
We provided all the ticketing for that event, more than 3 million personalized tickets, where we also had an RFID tag in the tickets, where we had different layers in the printing. We also added special material that 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, who was very happy with us as a supplier. To our knowledge, no incidents with counterfeit tickets in this tournament, very different from previous tournaments. Over the whole tournament, only 11 or 12 incidents where a supporter could not get directly into the stadium. Very good performance. Also very good to see that we are now for the fourth time recognized by Forbes in their top 100 of most innovative companies.
It's a very good reward for us, recognizing all the efforts that we put in innovation and in R&D. A highlight on Hospitality, where they launched their cloud-based hotel access management system, Vostio. They launched that on HITEC 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. It will give us the possibility to start charging this under a SaaS model, Software as a Service, where 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%-17% bandwidth, and therefore also operating profit up 66% in the last five years.
We continue also with our manufacturing footprint project. We have two projects still running, MFP5 and MFP6, where we still have 833 people that will be affected. We had 163 people in the quarter. We are now also working on a new program, the MFP7 program, that we plan to launch toward the end of the year. It will be similar program, similar size, similar return on investment as the first six projects. Acquisitions have been a very busy quarter with a full active pipeline. 12 acquisitions done year to date, altogether an annualized sales of SEK 1.9 billion. We also, as announced, divested our wood door business in the U.S. That was a business of around SEK 600 million with almost no profit. A couple of highlights, Brüken 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., a company I visited myself last week, I 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. Planet, a leading supplier of drop-down 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. Again, it complements our product offering. If we then go a 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 two effects. One is that we had last year a very big export order for our Traka business from the U.K. for a big customer in Canada. Then two, that we are seeing, again, a decline of the French market. You remember that in quarter one, I was rather positive on the French market and told you that we had the impression that French market now really turned again positive. That seems not to be true in quarter two.
Market has gone down again, especially on the residential side, with very high single-digit. 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% and 5% organic growth, much more in line with what we should expect for this division. The effect on both was more or less similar size. Operating margin 15.9%, very strong performance, a very good volume flow through, negatively affected by acquisitions of 0.2%. If we then go to Americas, very strong organic growth, 9% up. I would say in general, everywhere good performance with the exception of Colombia.
You remember from quarter one that we said that we were not so positive on the market in Colombia, that has been confirmed now in quarter two. Although we have to say that we are now a bit more positive on Colombia for the second half of the year, where we have a bit more doubts now for the second quarter is Mexico, with all the things happening also with the U.S. and the political situation and so on. Overall, 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 than commercial business, we make lower margins on the residential side than on the commercial side. That would count, I would say, for one-third of the drop.
The main reason, continued high raw material cost, mainly steel, where we have seen a very strong cost increase in the first six months on top of an important cost increase last year. 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, unfortunately not good enough yet to compensate fully for that higher raw material cost. We also foresee 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, 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, on top of that, also the pressure of the material price increases. 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%, in HID, positive story for all sub-segments, I would say. 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, 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 others.
I would say it's a positive problem to have with 19.6% margin. Entrance Systems, another strong division, organic growth of 6%. Also here, most of the sub-families growing very strongly. The only negatives there, our residential door business in Europe and our door component, and I would say also elevator sensor component business, which had a negative growth in the quarter. 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 with the financial highlights. 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 one 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. Continued good increase on the price. On the acquired growth, we have gross 4% acquired growth. We have divestments of 2%. We are on a net 2% acquired growth. If we look at what we already have bought and so to say, 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 SEK.
We had a +2% on the top line from currency in the quarter. 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 third quarter from currency, a lower effect in the fourth quarter. Also on the margin, they are probably slightly dilutive in the third quarter, but for the full year, the currency on the bottom line should be basically a flat effect on the margin. The overall 9% growth then translated into a 6% improvement of the EBIT, and this is then excluding the China write-downs. Here we have the mix of the drop-through from the organic, which was actually negative, slightly negative from currency, flat from acquisitions. 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, they have a bit higher amortization. To try to show the underlying performance better, we also show EBIT as well as EBITDA. As you can see, the gap between the EBIT compared to last year is 40 basis points, while it's lower on the EBITDA one. We have the effect also from, you can say, tax effect of the China write-down. Our underlying tax percentage is still 26%. We estimate it to continue like that till the end of the year. It depends really on the country mix and the regulations, and that also includes the change of regulations in the U.S.
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 that you will see in the numbers. Overall, we have an EPS, including the SEK 400 write-down in China, that is then 6% down year-over-year. Last but not least, on the highlights in the cash flow. Second quarter for us is low, but still better than the first when it comes to cash flow. In this second quarter, we had a good performance. When I compare year-over-year, we are 11% up in the second quarter on cash flow. Good results, 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&L.
This continues to be very important as long as we do acquisitions to separate the organic, the FX, and the acquisition. What we see here is that we had the good organic growth of five, with the two price and the three volume split. We have a drop-through that is negative 30 basis points. 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 the two 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.
We have APAC, as flagged previously, also the underlying margin there is weak, really in China. That also had a dilutive effect for the group as a whole of 30 basis points. Currency, top line effect 2% and almost the same margin on the bottom line, only 10 basis points dilutions from currency. Here again, for the third quarter, I expect a high top-line effect, but not that high dilution from currency. For the full year, basically flat effect on the margin from currency. Acquisitions, looking a little bit different here. Its acquisitions is actually flat on the margin. The growth 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.
We have other businesses that are lower in margin as earlier communicated example, August in Americas. On the other side, we have the divestment of the wooden door companies in Americas as well as AdvanIDe, which are very low margin business, which therefore help the margin here. Overall, it's a flat margin from acquisitions. I would expect in the third quarter for it to be slightly dilutive. 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 for SEK 35 million. That also helps. Looking at the P&L from a little bit different perspective as components of sales, we get this picture.
This is also, as usual, the year-to-date picture, so for the first half year of 2018. 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. Of course, this comes back to the higher raw materials. As I previously explained, it is really the big effects are both in Asia, where there is a significant effect from the raw material not being able to offset it with price, but also in Americas for doors and perimeter where it is also not fully compensated for. We also have a mix effect with higher project sales as well as the growth and in residential. I would say conversion costs slightly improved.
On the SG&A, we are continuing to invest in salespeople and in R&D, but we have grown faster than we have increased this. Therefore the percentage of sales is actually lower. We have 30 basis point improvement from that. For the first half year, we are like for like 10 basis points lower than last year in margin. We add the acquisitions, and then we are on 20 basis points difference. An extra slide on the China impairment, just to make it hopefully even more clear. We have previously communicated, we did the strategic review of the business in China. 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.
Therefore we did an overall write down of SEK 6 billion. Out of that, SEK 5.6 billion is goodwill and intangibles, and SEK 400 million is other operating assets. This slide is really to show what effect that has on the balance sheet, really. If we look at China, intangible assets were SEK 8 billion before the write down, and now we are on SEK 2.4 billion. We have decreased it with 70%. On an APAC level, that translates to a little bit more than half in decrease, since China is a big part of APAC. For the group, China is around 6% of sales, and the whole APAC is not that large. For the Assa Abloy group, the effect is 8% lower intangible assets. Going back to the cash flow, I am very happy to see that the second quarter cash flow picked up pretty well.
We had a weak first quarter. Glad to see that the second quarter is up 11% year-over-year. Here, of course, the main contributor is the profit in the quarter, but we keep a pretty tight ship also on the working capital. There we have sort of the relative KPIs to look at. The DSO performing well. We are on 52 days here, basically in line with last year. We have the DPO, 53 days. Still a positive gap between payables and receivables. 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. Good development on working capital for the quarter, and also slightly lower CapEx. Therefore good development here.
The good development in cash flow, of course, then also affects the debt side. Looking at our debt side, in the quarter, I would say we had the typical spend of acquisitions. We had the dividend also as usual. What we also saw, the same effect basically as 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. Therefore we are above SEK 31 billion in debt. If you look at the relative KPIs here, you can see that the gearing is on 65%. It's a bit higher than last year, but it's really in line with the two previous years. I would say it's sort of 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. My final slide, earnings per share. The underlying EBIT in the quarter was up 6%. We have a write down of SEK 400 million in China. Also we add the slightly higher financial net, as well as the 26% tax rates. 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. With that, I give back to you, Nico.
Thank you, Carolina. 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 would say with all divisions performing strongly, with the exception of APAC and perhaps to a certain extent, EMEA. A stable operating margin of 15.7% with headwinds on higher raw material cost and low operating margin in China. Like Carolina explained, also a strong cash flow. With that, I give back to Holger, who will explain the procedure for Q&A.
Thank you, Nico. Before we kick off the 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. Ladies and gentlemen, if you do wish to ask a question, please press zero followed by the one on your telephone keypad. Once again, to register it's zero followed by the one. Our first question comes from Andreas Lee from JP Morgan. Please go ahead. Your line is now open.
Yeah. Good morning, everybody. I have a question on margin mix, in Q2 and going forward, around 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. Maybe related to that, there are 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?
You want me to start? Yeah, I think we should in the first place look to the Americas. 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. It's indeed the fact that margins on residential in general are lower than on commercial. If we continue to grow faster in residential than on commercial, we will continue to see this negative mix effect. If you take the organic part in the Americas, if you exclude acquisitions which were dilutive with 0.5%, mainly because of August.
If you exclude that part and only look at the organic part, you can say that one-third of the drop in margin comes from that mix, two-third 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 are also growing very healthy continuously on the electromechanical overall, and therefore the commercial side. We have said before that we grow basically double digits there, and that is still the case. There we see healthy margins, shorter life cycles, and really nice upselling opportunities. We are continuing that journey.
Thank you.
Thank you, Andreas. Operator, please, next question.
Thank you. The next question comes from Lars Brorson from Barclays. Please go ahead. Your line is open.
Hi. Thanks. Good morning, Nico, Carolina, Holger. A quick follow-up just to Andreas Koski's question, and then I just want to talk a little bit about your residential business in the U.S. Can I just get the numbers clear on Americas EBIT bridge? It's a little bit unhelpful you taking that out of your presentation ahead of the call, particularly when you get the sort of divisional impact from M&A and arguably mix as you do at the minute. 200 basis points 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?
The 200 basis points is including the dilutive effect of acquisitions. The dilutive effect of acquisitions is 50 basis points, so that leaves 150, let's say, for the organic flow through. You can say that around two-thirds of that is material and one-third is mix.
We have about 100 then from material and 50 from the mix.
That's clear. 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?
We see further increase 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. We will see an important further increase of material prices steel in the second half in the U.S. As we speak, we are also further increasing prices. We have the ambition to lower the gap, so to speak, from what we have in quarter two. That will confidently reduce that gap in quarter three and then further in quarter four. It's clear that headwinds will continue in the second half of the year, yes.
That's helpful. Just finally, my question would really be around your U.S. residential business. Can you give us some sense of what the growth level is in that business? 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 Yale contract with AT&T boost growth to the tune of 400 or 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?
Again, if you look at the growth in Americas, what we can say is that the growth is faster in North America than in South America. As explained, we have the challenges in Colombia in the first half of the year. Of course, Brazil, as we explained in the first half, has leveled out and is now increasing again from a low level. Growth margins are lower in South America than in North America. 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 we have this cooperation with Amazon.
I can say here in the second quarter, same as in the first quarter, 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. It looks like that part of the business is moving faster.
Thank you.
Thank you, Lars. Operator, please, next question.
Thank you. The next question comes from Mattias Holmberg from DNB 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 divisions, what I'm looking at particularly is for the Global Technologies division, where you in Q1 had quite poor operating leverage, if I recall correctly. Now in Q2, you talk about the continued unfavorable mix, as I understand. 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.
We have a 10 basis points dilution from the organic part, 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 Technologies, but the one with the highest margin, which is physical access control and the core, is growing high, but the others are even outpacing PACS, therefore we have a negative mix. 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. That's why the overall margin increases so much for Global Technologies.
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&A effect?
Yes, you will have the details afterwards as well.
Okay. Thank you very much.
Thank you very much, Mattias. Operator, please next question.
Thank you. The next question comes from Markus Almerud from Kepler Cheuvreux. Please go ahead. Your line is open.
Hi, good morning. Markus Almerud from Kepler Cheuvreux. I'd like to continue with the smart locks and the margins there you're seeing. Is there a big differential between smart locks that you're selling outside of the home automation systems? Also, is there a big difference in the margin between the smart locks that you sell to residential in Americas and in Europe?
There is a difference in margins clearly between commercial and residential, where the margins are better on the commercial side than on the residential side. I think on the residential side, you must make a difference between the business we do with the Google Nest 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 Google Nest, it's a very professional purchasing organization. You talk about bigger volumes. There the gross margins are clearly lower than on the rest of our residential business. That comes, of course, also with lower SG&A cost because you basically just sell bulk orders through their organization, and they carry, so to speak, the SG&A cost. If you look on net level, the differences are not so big.
Everything depends a bit on where you put your R&D cost, because clearly we do specific R&D investments for these specific customers. A big part of that R&D cost, of course, is also used more in general on the residential side and even to a certain extent, on the commercial side.
Is most of the growth in smart locks 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 or demand growth in.
It is also strongly growing outside, clearly the highest growth comes from, let's call it smart residential, very happy also, or very satisfied also with the older growth on smarter locks. Yeah.
Okay. Thank you very much.
Thank you very much, Markus. Operator, please next question.
Thank you. The next question comes from Alasdair Leslie from Societe Generale. Please go ahead. Your line is open.
Yeah. Hi, good morning. First question is just on France. I think the comments there were interesting, particularly in light of your confidence that you expressed at the Q1 stage. Just wondering if you saw rapid deceleration sequentially through the quarter, 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 on France in quarter one. That came because after many quarters of decline, we saw quarter four and quarter one, really the market picking up in France, and we thought that that would be a signal that positive market trend would continue. Unfortunately, these are public figures, we have seen markets dropping in a significant way again now in quarter two, mainly on the residential side. The market is down very high single digits as compared to strong single-digit positive growth in quarter one. 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. In France, more than 50% of our business is on the residential side.
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 that they definitely mention is the shortage of skilled labor to execute the construction projects that are out there in France, and that clearly 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 meeting in Q1 that France was back and now in Q2 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. Too difficult to have a prediction on more visibility, I would say for the second half.
Very interesting. Thank you. 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 res and commercial. 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 a 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. You talk much more about local variants. The complexity is much higher and complexity often also means better margins.
Thank you.
Thank you very much, Alasdair. Operator, please next question.
Thank you. Our next question comes from Gael de-Bray from Rothschild. 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. Would you expect the negative margin momentum you had so far in H1 to continue in H2? If that's not truly the case, 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.
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. HID as well on Hospitality as on Global Technologies as well on HID as on Hospitality. Strong performance also on Entrance Systems and strong performance also in EMEA when it comes to margins. It's true that we have those two headwinds, China, and as we also explained in the call two 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. Again, it will take longer than just a couple of quarters.
When it comes 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. 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. I would limit the challenge to steel, and steel is in steel doors and in fencing in the U.S. 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 still not good enough to fully compensate for the material price increase.
I think the material price increases we experience 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, I have to say, that we will continue to lag behind for the remaining part of the year. We are 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? Given the very strong growth you had in the Americas, the plus 9%, it's still a little bit surprising that you're not passing on higher price rises to your customers. 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 different 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. 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 two, we managed to translate material price increases into price increases. It is really specific challenge on those two items directly related to metal prices and steel prices. We have to say that over recent weeks, we have seen even zinc, aluminum, copper leveling out and going a little bit even down. Let us be confident 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.
Thank you very much. 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 two fewer working days in the first quarter, and now in the second quarter, you had one more working day compared to Q2 last year. I just want to ask if you have seen a deterioration in daily sales growth in the Q2 compared to the first quarter. Thank you.
It depends, of course, how you compare. If you include France and if you include that big Traka 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 two major items, that is that Traka 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 and June last year, a little bit in July, but it will affect less quarter two. Quarter three, it affected in an important way quarter two. We have France, as I explained earlier, market 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% and 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 first place in Netherlands, where we see the markets down and where we are definitely not doing better than the market, most probably on the contrary. 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 two, three years ago, but still solid growth. Again, lower than a year ago, lower than two years ago. If you take Central Europe, U.K., excluding the Traka order, the dark days in Germany, Swiss, Austria, very good performance.
If you take South Europe, good performance in Spain, weaker in Italy, but Italy is, first, a smaller country. East Europe, again, very happy with our performance in East Europe. Part of the region that is growing the fastest. 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.
Yeah. 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 first quarter. Is that correct?
If you don't adjust for the comments that Nico made on both the U.K. and France, yes, that's true. What we're trying to show is the underlying level then of EMEA.
Yeah, I understand that. If we had two fewer days in Q1, that corresponds theoretically at least to 3%. Underlying growth in Q1 was 6%, now in this quarter, you had one extra day instead. I just want to try to understand if it slows down also when adjusting for those orders. You say it's not.
I would say it's a little slower, but if you look at the numbers in total, it looks like a big difference. It's not when you adjust then for the U.K. and for France.
That's one. I think, two, we should also watch 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 quarter two, and especially in May. Of course, you have the working days, but you have the bridge days and people taking holidays. It's difficult to compare, one. Two, 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. If he has a day more, okay, it's almost a one-on-one relation. With this type of business, unfortunately or fortunately, it's not exact science.
Okay. Thank you very much.
Thank you very much, Andreas. Operator, please next question.
Thank you. Our next question comes from Daniel Kulitz from Liberum. Please go ahead. Your line is open.
Hello. Thanks for taking my call. Just coming back to the U.S. or the Americas margin bridge. I think the dilution you highlighted last quarter was 170 basis points from August. You said this quarter was 50. Could you just give us that calculation if you exclude this quarter's wooden door boost? It looks like about 80 basis points in total. If you can just sort of guide how long do you think that dilution from August will continue? 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? Thank you.
Okay. A little bit on the bridge then for Americas to start with. It will answer the second one. As you know, we do the bridge, we have organic currency and then acquisitions. 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. You will see the effect of that for, well, this quarter and three more. The August one we bought a little earlier. You'll not have as long effect from that. We have to remember that August is a very seasonal business as well. It's sort of slow in the beginning of the year, really picks up towards, well, during the year and has a very strong fourth quarter, a typical resi sales pattern, I would say.
If you come back then to the organic one, which you asked about, there we see a similar then drop through from the strong growth. As we said, out of the 9% organic growth and the drop through there, we see that around a third of that comes from the resi part. That is then really not including the latest acquisition then, because that is under the acquisition column. Two-thirds 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. 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.
We know that we have For the third quarter. Then we'll see how the raw materials continue to develop.
Just to follow. 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. We will do that in the bridge later.
You can, I think, calculate a little bit yourself. As we mentioned earlier, the wood door business was around SEK 70 million, with close to 0% bottom line.
Yeah.
In quarter two, we took the door business out in June, so it's only one month. You can make that calculation at least yourself.
Perfect. Thanks very much. Very helpful.
Thank you very much, Daniel. Operator, please.
I think we still have a second part.
Sorry.
Perhaps on price increases. First of all, we are not trying, Daniel, we are really increasing price increases and so half the figures. When it comes to your question on residential locks, of course, I explained that the material price increases are mainly on the metal side. 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. 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 perimeter business.
Perfect. Thanks very much.
Thank you very much, Daniel. Operator, please, next question.
Thank you. The next question comes from Peder Frölén from Handelsbanken. Please go ahead. Your line is open.
Thank you, thanks for taking my question. Thank you for giving the clarity on the different divisional bridges here. If you just look on company level, given the strong price contribution, the pure volume leverage is negative. I read in the report that you expect a similar size of the restructuring program that will be released in the fourth quarter. How do you think upon this on a slightly longer term horizon? Your business is slightly changing towards more residential, more, hopefully, digital home automation. How much could you actually do by streamlining your assets in terms of production and so forth? Isn't there a time here to take an even larger restructuring in order to get the volume leverage up to be able to just generate volume leverage on 2%, 3% volume growth? Which is probably what we're going to see also in the coming years.
If you go back and look at our MFP programs, also the two that we are still executing today, I must say, we see very good savings of those programs. Like I said, in general, they are around SEK 1 billion, SEK 1.5 billion cost and a payback of three years. If you then follow up on those MFP programs that we executed, we also can confirm that that is also the case in practice. 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. Through those MFP 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.
We also put sales companies or customer centers together and also get there the volume leverage. We will continue for the foreseeable future to do this kind of acquisition. We see at least for the foreseeable future, enough potential to do more of those MFP programs.
Thank you very much. I think the clock is soon 11, so this concludes the Q&A session for today. I would like to hand back to you, Nico, for your closing remarks.
Thank you. Holger, perhaps you can go back to the conclusion slide. Again, if we exclude the one-off costs in China that we announced earlier two 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, then a stable operating margin of 15.7% with headwinds on higher raw material costs and of course, a challenging China. Then a strong cash flow in the quarter. With that, we can conclude the figure part. Let me all wish you a good summer and good vacations wherever you might be in the world, then see you after summer holidays.