Ladies and gentlemen, welcome to ASSA ABLOY and the Q3 reporting, a quarter that is stable, with good development in all divisions. We saw in the quarter itself, good organic growth in all division with specialist Global Tech growing at a 6% pace. Good growth in EMEA has been continuously improving, you could say, and Americas a little bit weaker in this quarter, w hile we saw growth in Entrance Systems and APAC, despite that we continue to have a weak China. Also, a continued good development for smart door locks and our electromechanical new solutions. Turning to the numbers, a good evolution here. 3% top line growth to SEK 18.5 billion, on the back of 3% organic, 2% acquired, and 2% negative currency in the quarter.
EBIT improved by 2% to SEK 3.08 billion with a negative currency effect of -SEK 70 million, and e arnings per share improved by 1%, while margin was almost flat at 16.7 compared to 16.8 last year. Looking now from the beginning of the year, January to September, an 8% improvement of turnover to SEK 56 billion, with 4% organic, 2% acquired, and 2% positive, in this case, currency. EBIT improved by 8% as well, the same as our turnover to SEK 8.9 billion, or rounded off SEK 9 billion, with a positive currency effect of SEK 167 million, and EBIT 16%, down from 16.1% last year. Earnings per share likewise improved by 8%, so a ltogether, 8%, 8%, 8%
Turning now to the globe, a good situation, continued strong situation in the mature markets. America has grown organically, which is the green here, 5% since the beginning of the year. Same, in Pacific, while Europe has 4%, so t he mature market have continued to have a strong evolution, just as we have seen in the last five, six quarters. In South America, Brazil is still problematic in the sense that it doesn't take off. It's less the negative in this quarter, but it's - 6 since the beginning of the year, and it is constitutes about half or a little bit more than half of South America, which means that the rest of the South America is growing at a good pace of, in fact, very strong.
The same situation is in APAC, where China is -7 since the beginning of the year, while we have zero there, and it's something like 55% of our business there, and t hat means that the rest is growing at a +8 pace. A good evolution also here. In Africa, it's more problematic. South Africa does not have a strong situation, which is its largest market in South Africa, but we have grown 1%, and most markets are flattish in the situation. Altogether, a rather positive picture with a few problems in a way. That is China, that is Brazil, and in the Middle East, we are also doing some destocking, which also is a negative for us in the quarter, just like it was in the quarter, previous quarter.
Market highlights, exciting things happening, new progress all the time, and difficult to choose as usual. Here we see our new baby, I would call it. It's a small, it's not really a lock. It's a lock, but it's not really a key. It's in fact a sort of sword that you put into the keyhole, and then you generate the power you need to open the door. It's a completely green solution for the market, so t here's a dynamo inside, just like you have on your bike or when you're biking. You create your own power, and that is enough to solve your, the transaction that goes between the key and the door and opens the door if you have authenticated yourself as having the right owner of the key.
It is also connected to our ACCENTRA system, which is a system we've launched now for multi-housing and large facilities, which is completely in the cloud, and t his also interacts with HID Seos systems. It interacts with all smart door locks that we have and CLIQ systems. So that means for a customer that wants to configure the building, he can do anything for a fire door, entry door, exit door, any apartment door, and w e think this is very suitable for an apartment door for a residential application, but i n principle, with this now, we can solve these problems for any facility that the customer wants, like, to have digitalized, and y ou can connect to it as well, so t hat means that you can open and close your door in a free way.
Depending on what choice you make from our portfolio of various products. Very positive evolution. It is now launched in ABLOY version, and then we will launch it progressively in beginning of next year in all other brands, so very exciting evolution. On the specification side, we continue to see progress. I'll share with you about Americas and EMEA and also Pacific, where we have BIM. Now we have it also with Entrance Systems, so they have started with BIM, and we see very good pickup of specifications. In America, we still see a double-digit evolution. It isn't so that with the BIM systems that we launch, the architects can draw to some extent themselves, the building, and that means that they do part of our work.
Of course, we still are advisors to them, but it gives us much more leverage in front of the end users and the architect. The same is now happening in Entrance Systems, and the beauty there is we get higher success rate when it's drawn our stuff into the solutions, and also the margin follows in a positive direction. The virtualization, which is a la mode everywhere, is also going into inside ASSA ABLOY. We have now had one of the larger soccer events in the world where we have then had virtual keys based on the Seos system, with very good results, and this is of course very interesting for this Euro tickets.
In those kind of events or pops concerts and others, there's always a lack of or there are always a black market or copycat type of tickets, so which people then buy, and they are not valid. In this case, when you do it in an electronic way and a virtualized way, you have full control whatever of the whole value chain. Also very valuable for those arenas, so w e've had now a few tests, and it works very well, so we expect continued progress in this field. Another thing that I'm very excited about, you know we have been working on the gov side, and in this case then we have the first full win, which means that we deliver a desert in a full system.
In this case, it's for Tanzania in Africa, where we will do everything including the hardware but also the software, and this is the first time we get all the software, and i n this case, it is how to produce a very smart state-of-the-art passport and on top of that a virtualized version which you then, if you lose your passport, which happens frequently, surprisingly enough, but it happens. People lose their passport when they're abroad, and they can't get back, and then you have to go to the embassy or somewhere. If you can authenticate yourself, you will get it virtualized into your mobile phone, and you can go back again.
We are doing this not only for Tanzania, but we are going to do it for a few other applications as well, so w e see really how the virtualization is catching on in a very positive way. It is a very exciting win. Turning to our usual graph when it comes to growth, I like to underline again, if you take a five-year perspective here, we have grown more than 50%, as you can see from the graph. This quarter, we grew 5% real term, 3% organic, 2% acquired, but t he power behind what we do with acquisition on a continuous basis and the growth about 2%-4% per annum or from an organic point of view creates a very powerful cocktail over time, and in this case more than 50% in the last five years.
On the margin side, unfortunately then when you do a lot of acquisitions, they dilute you, so we in this case, in this quarter, no difference. We had - 0.2% from acquisitions, and a s we have said earlier in the year, we also lost 0.2% due to APAC that is then having a trouble as we have forespelled in the beginning of the year would happen, so w e have a dilution from APAC and altogether 0.4%, and still the margin is pretty flat. As you can see in the last 12 months, we have 16.2%, just the same margin as last year. This means underlying that we have good leverage from the business that we are running, and this I see no reason why we should not be able to continue.
Looking to profitability, same graph but now in absolute money, you see that the profit has improved by 66%, and we are now at the run rate of SEK 12.2 billion, up from SEK 11.4 billion one year back or a 7% improvement. Very powerful continuous add on quarter after quarter, year after year, and o ne of the secrets there behind to be able to have this leverage is of course our manufacturing footprint program. We have not closed any factories in this quarter, but we did convert three units into assembly, and you see there are still a lot of activities ongoing. 11 more factories to close and 33 to go. We have acquired 17 companies this year so far.
We're still a few more months. It probably will come a few more, and t hat means that we have a record number. I think you, to anticipate the question I will get, you can expect that we will have to do this once again and once again and once again, since we buy so many companies, but a ltogether, this is a very positive evolution, and you can see we have provisions then to do the remainder of this program, which is manufacturing footprint program, mainly number six that we call it, SEK 1.2 billion in the balance sheet to take care of those changes that we are implementing. On the acquisition side, very active, and I said in the beginning of the year, and it's still very active, many companies are for sale.
Unfortunately, and I think you all know that, very expensive. You need to choose what to do and not to do. We try to keep sort of a focus line where we try to buy primarily so far smaller companies, and t he reason for that is because the multiples are not that excited, exaggerated there. We have now 4% acquired growth from acquisition SEK 2.8 billion so far this year, 17 done, and one sold, which is AdvanIDe, which is our trading business within Global Technologies. You see the names of the ones that we have done this year. They are all variants, but I'm gonna share with you the most recent ones.
The one that we announced yesterday is of course an exciting one, because this is how we intend then to go into the DIY as well in the U.S. side on the smart door lock. August is rather well implemented in that field while we are more on the sort of business to business type of distribution, so t his is a very nice complementary thing for us. They also are quite good in software just like ASSA ABLOY, and together we create a very powerful constellation. Here people are looking for connected locks, and we and them are the leaders in the connected lock field, so t ogether, we can really create a powerful expansion into this sector, and August is one of the fastest-growing companies in this field in the U.S. in the DIY chains.
A very, very positive acquisition from our point of view. I should perhaps add also it's not accretive. I mean, I think that's important to say because otherwise you will complain next quarter. On the Mercury side, a very exciting company here. It is accretive, this one. Has a turnover almost SEK 0.5 billion. It is the brain of access systems. We do also these kind of panels. They work very much with system integrators. We work also so, but they are larger than we are in this field, and t ogether, again, we get very nice complementary add-on together with them. They are focused on OEM, so they pretty much supply to most independent system integrators these solutions, and w e have a number of others as well.
It really reinforces our global leadership on access control systems, so a very positive addition to the group. Here we have another one. This time we have three strategic acquisitions. This is SMI India. It is a smaller one, but quite important. In India today, we produce in China mainly, and we export into and ship into India Indian locks. The problem we have is there are heavy import duties. By going local now, we can then compete on equal terms with the Indian companies. This will take a year or two before we have converted what we import into localized products, but we think this is a very, very important step forward in order to be very competitive also in the Indian market. Today in India, we sell $70 million-$80 million, and it is probably going to be $80 million.
It's very strong growth in India right now, at the end of this year. This is then putting our, ourselves in a position that we can continue to compete in a very competitive way on the Indian market, so v ery exciting, and India is something like 1.4 billion people, so it is a market for the future. Turning now to the divisions, EMEA grew 4%, as I mentioned, pretty much positive evolution in all parts. Negative in the Middle East, it says here, it said the same last quarter. This is destocking that we do with one of our, or not one, with our largest importer there. We feel rather confident that it will be over after this quarter. We have taken out quite some inventory, and we will probably turn that also into a positive territory going forward.
Altogether in EMEA, it's a little bit weaker in the north and it's stronger in the south, and this has of course to do with that in Sweden and other markets here, we have seen growth now for five consecutive years on a very strong basis, and w e think it's gonna plateau somewhere next year or a year after. Therefore, we see more and more how it's moving down, and t o our joy, also France is starting to come to life where we haven't seen much in many years. It's still only in good growth, but France hasn't been there for many years. Margin improved by 1/10 of a percent. We had a dilution from acquisitions here and a slightly positive currency effect as well, so p ositive evolution for EMEA.
In Americas, we grew a little bit less, as I mentioned initially, 3%. Here we see two phenomenons. I should say also, altogether, we had one working day less in the quarter, even though we, you never know how much that has influenced, but that has an influence for us, but i n Americas, we grew 3%. Here we see a lot of activity in the marketplace, surprisingly strong, but t here are also a lot of delays in many projects, and at least many of our partners say that it's due to that they don't find people to do it, to really execute the jobs. That has an influence.
I don't like to say excuses, but we also have a few hurricanes coming in, disturbing a few states in the U.S. in September, and also an earthquake in Mexico, which didn't help, I could say, even though I don't want to give it too big impact. 3% is still a reasonably good number on the base of 5% we had last year, but h ere, we're also growing pretty much in all parts of the business. The only part that is not growing is in Brazil, but there we see a clear situation that Brazil is leveling. Even though we thought it would start to be flat in this quarter, it didn't happen. Hopefully, it will happen in the Q4. We will see.
Margin improved 0.1% to 21.8%, up from 21.7% last year. Asia Pacific, 2% organic. Strong growth in every part except China. China declined some 6% in the quarter. Here we continue to rationalize and improve our efficiency, and w e saw continuous growth in smart door locks. Here we see clearly in China that the market is converting from mechanical to smart door locks in new construction, so w e see a very nice upsurge on that part of our business. However, as you know, our main business in China is not smart door locks, it's steel doors. Those are not yet in growth mode.
I should add, however, that we have seen that China seems to, at least for our business, seems to level in the sense that the order intake has been positive now for three months in a row. We will see what happens in Q4. I cannot promise that we will start to grow, but it looks at least positive relative to last year. We lost 1% margin here to 11.3, down from 12.3 one year back, and i t is, in fact, organic growth that is behind it. It is mainly the price that is difficult. It is difficult to get paid for steel. Steel has gone up some 40%, zinc 80%, which is quite an important element, and copper has also gone up quite a bit.
We have increased prices net with some two, a little bit more than 2%, but it's not enough to compensate for those for those raw material increases. In the steel door, steel is the element in, and if 2% doesn't cover for 38% or 40% price increase on the raw material. We continue to work on pricing, and that is the main element because cost-wise, we are reasonably good in restructuring and keeping up with the downturn. Turning now to Global Tech, very positive growth, 6%. Here, pretty much everything is doing well except the authentication piece, identity and access management. Here, we've launched a lot of new products. We see also here positive traction but still a weak situation. It was negative in this quarter.
It's been positive every now and then, but it's not really growing, but a ll the rest is doing quite well. Hospitality on the back of virtual keys that hotels are very excited about is doing very well. We see continued strong growth, and it seems as if the hotels are converting their, especially the large chains, converting their portfolio of locks into more and more virtual locks where they see a big potential for improved relations with their customers, so t his will probably continue for a few years more. The margin declined by 0.3%, and here we had a 0.5% dilution from acquisitions. Not much to do. When you buy tech companies, they are not always ideal.
First, we take all the costs from acquisition, and i n the iRevo case, we did not see very much sales in the first month, not unusual. They only been in for one month, and Bluvision also is a tech company that is very small, which also dilutes it to some extent, but a ltogether, a positive evolution, underlying positive evolution, and very strong organic growth. Entrance Systems, 2%. Here, we saw strong growth in many areas as well, good growth in high-speed doors and U.S. residential doors, while EU industrial doors and gate automation. Gate automation is a small segment, but i ndustrial doors was not positive in this quarter. We think this is very much timing. There are quite some activities, especially on logistics centers, where we are doing quite well.
It jumps up and down. These are rather big projects that comes in, goes out. Last year, we had some very nice projects, it depends a little bit how the quarter composition is. I wouldn't draw too much conclusion out of that. Continue very good leverage. The consolidation of what we have bought, is going on in a very positive way. We have 0.4% positive leverage here, and o f course, then a piece of that disappeared through the acquisitions, where we have 0.3% dilution from acquisitions. Also here a good evolution. That concludes my overview. I'll now hand over to Carolina to guide you through the financials. Thank you.
Thank you, Johan. Good morning. Q3 gone already, happy to see that we had organic growth in all the Divisions in the Q3 . Starting with the financial highlights and the organic growth, we saw 3% organic growth in the quarter, and the separation of that is that we have 2% in price, that is really continues to be on the back of the increased raw materials, so w e have compensated for that, therefore, the price increase this year has been a bit higher than we usually see. 1% on volume in the quarter, and again, that on the back of a quarter, which has one working day less, so total of 3% here.
Similar trend to what we've seen in the beginning of the year with strong in Global Tec and then good to stable growth in the other divisions. Acquired growth, I'm gonna say net 2%. You're gonna get used to that for four quarters because we have a divestment that happened in this quarter and that will then, of course, affect the numbers for a year going forward, so gross 3% acquired growth in the quarter and a net 2% here. Then currency. Sometimes it makes you happy, sometimes it makes you less happy.
H1 of the year, it made us happy because we had a good addition on the growth, but n ow we start to see the opposite effect because of the weakening of the krona. It will continue as it looks for into the Q4 next year as well. Overall, 3% top line growth, and w ith that, we also improved the EBIT with 2%. Margin almost flat here, 16.7 from 16.8, and w e do see good help from the organic growth and from the acquisitions as well, while the effects then, the translation effect of that eats a bit of the profit. A small deviation between operating income and earnings per share. Really, the financial net is basically stable, a couple of million less.
Tax rate also stable on the 26%, but w e did have a positive one-off last year in the Q3 with the divestment of Car Lock business, so t hat makes the difference between 2% EBIT and 1% earnings per share. Last but not least, cash flow. Cash flow in the quarter was like 6% down compared to Q3 last year, but i f you look at it on a year-to-date basis, we still have a good development of + 4% on cash. I'll come back to that more later. From the highlights to more of the details, this slide, I think, with the bridge continues to be very important considering the many acquisitions we do.
We really try to show how the business is doing like for like, and this is also how we measure internally to make sure that the business is improving by itself. What we can see on the organic growth side is that we did improve because within these numbers, we have APAC that is diluting 20 base points, so i t basically means that the improvement from the other divisions more than offset that. We saw Global Tech, strong growth, strong drop-through with 40 base points there, although they did have a bit of a tough mix. We saw Entrance, not that big organic growth, but on the other hand, very good results from the consolidation and efficiency programs. EMEA, good growth and good efficiency, also good drop-through.
Americas, a little weaker on the drop-through here due to Brazil and also the doors that we have seen here, so a net effect then of 10 basis points from organic here. Currency, top line -2%, mostly translation effect and therefore also sort of the same margin, so no real dilution on the margin from the currency here. Finally, acquisitions. Here then the net of the 2%, so it's a mix of the acquired companies, and a s Johan mentioned, we had a couple of acquisitions in the quarter, so both the performance of the acquisitions and the costs for the transactions are in here. On the opposite side, we also have a slightly help from the AdvanIDe divestment, which is a positive effect because it had such a low margin.
Overall, with the graph, you can see that we come to 16.7 in the quarter. A different way to look at the P&L as components of sales. Here, we have a year-to-date view, but it's pretty similar to where we were after Q2. Now after Q3, you can see that on the material side, the direct material continues to have a big effect, and we have a full 50 basis point increase here, and o f course, we can say we have seen a very strong growth in raw materials that we have been working on compensating for, which we did pretty well in, but then w e had a second spike that we're starting to see now, which will then basically mean that we need to continue with the price increases, especially in the divisions which are heavy on the raw material side.
On the other hand, on the conversion cost, good results there, continue to see a good effect from the restructuring programs as well as the other efficiency programs, so b asically offsetting the whole increase from material. As you can see, the gross margin is stable. Then the SG&A basically growing a little bit less than we grow the top line and therefore improving with 10 basis points, znd h ere you can see it's a shift where we take out on the support function side, and we invest in front end but also in R&D here.
P&L then ends in cash, and this nice graph shows that over time, we actually managed to convert basically the full profit to cash, so v ery strong development over many years and stability here as well. Of course, the first rule for good cash flow is to have a good profit, so it starts from there, but then w e also have the working capital that we continue to measure and really in efficiency terms relating to what happens to our growth. Here, if we look at working capital on the receivable side, we are up to 55 days, so it's actually two days more than last year, so slightly worse off there. On the other hand, on the payable side, we have increased to 59 days from 54 days, so w e have a very healthy gap between the receivables and the payables.
Material throughput time or really the inventory speed, we are also down to 95 days compared to 98 days a year ago. If you can see on the 12-month rolling, we're basically on 95% cash flow conversion to EBT, so a g ood development here as well. Good cash, good debt side. On the debt side, what's really interesting to see is that basically our debt has been stable for the last couple of years while we have continued to grow as a company. It also shows that basically we have self-financed the acquisitions that we have made and the dividends that we have continued to give every year.
The slide also shows that the gearing now is down to around 50%, 53%, but also Net Debt to EBITDA is on 1.9. Even if you don't see it here, I can tell you then that the Net Debt to EBITDA ratio has been stable for many years now, which really means that we have a lot of firing power, but w e of course want to use that for assets that we believe are for the right price. Then finally, earnings per share. Earnings per share slide shows you also the rolling really nice trend that we have seen. In the quarter, it's 1%, but year to date, we are up on a full 8% improvement of EPS, so a strong development also this year.
With that, I'll give back to you, Johan, for conclusions.
Thank you, Carolina. So, I only have one slide as usual. Sales improved real term 5% in the quarter. As such, strong growth in Global Tech, good growth in EMEA and Americas, growth in Entrance Systems in APAC, despite the weak China, as we have discussed, and then i t's missing here, but August acquisition, I think, was very important in the quarter as such. We had it yesterday, we haven't put it in there yet. Also Mercury, which adds very much to our access control side, so a v ery exciting acquisitions in the quarter. Earnings per share 1% better and EBIT 2%. With those words, concluding words, I'd like to open up the floor then for Q&A. Mattias also will start by, I guess, ask the usual question to us.
Thank you, Johan and Carolina, I saw you were preempting my words here. I will first ask the participants to ask one question each only, so a llow as many people as possible to ask questions. I will do what you told, ask one question each to you guys.
How surprising.
I will start with you, Johan. We have had year-to-date organic growth of 4%, so w hat do you expect for Q4 and for next year?
Well, we don't give forecasts, as you know. That was a little bit longer question than we usually get, but what w e really have seen is that October looks pretty much in line with that 4% that you mentioned, and i t's a month of one more day, so taking that into consideration, sort of, it's a good month.
Okay. Johan, and for next year?
I don't know. It's too early to say, to be honest. This year I said 2%-4%, and w e are now 4%, so it wasn't out of that bracket, but I can't say it now. It's too early.
Okay. Thank you, Johan. Now to Carolina. Continue that sort of you've seen a new sort of hike, spike in raw material prices. You said earlier that the H2 of the year would be easier on raw material price. What do you expect now for Q4 and for next year when it comes to that raw material prices and our price increases?
Yeah, it would've been easier if the raw material prices hadn't increased again, so I would say the, the divisions which has a big raw material impact than, with the doors, with Americas entrance, but also APAC, are seeing the second spike, so w e need to continue to compensate for that, and that will take at least until the end of the year, and then we'll have to see where the raw materials go after that, and t he toughest one to mitigate is, as Johan mentioned earlier, is in China, where it's very hard to get the price increases through, on enough.
Okay. Thank you, Johan and Carolina. So we'll start here in Stockholm with a question. Please.
Eric Carlson, private investor. Entrance Systems has been a little bit slower for the last couple of quarters, 3% Q2, I think, and 2% this quarter. Given it's a younger business where you have a little bit less dominant positions than some of your other businesses, one would have thought you could outperform the market more there through innovation and investing in the front end. I appreciate your comments that you said Q3 might not be representative, but w hat do you think is a normal or trend organic growth for Entrance Systems in the quarters and years to come?
We've seen tremendous growth in the U.S., on the U.S. side for several years. I think after, now it's probably five or six years now we've seen strong growth, and w hat we have seen in the last four quarters has been that the U.S. is still growing, but not at the same high percentage. Europe has not grown that much. That is pretty much what happens when you have one strong and one normal growing, or if you call it normal, then it has leveled now around the 3%, 3%, 4%, so I really don't have a better answer than that. It's clearly so that it is the U.S. that is growing less strong in recent time that has made that.
If we listen to our customers, they tell us that this, the reason for it is because there's some kind of labor shortage in the marketplace. How much this is impacting us, I leave open. We really don't know, or i f it is simply so that growing on growth and growth and growth, that it's becoming harder and harder at the end of the day.
Thank you.
Okay. Thank you, Eric. One more here from Stockholm.
Peder Frölén, Handelsbanken Capital markets. On August Home and home automation in total, I would say, could you please, with this acquisition, give us a sense how large your home automation piece of the pie is today? Secondly, a slower U.S. residential market, is that something that affect that market at all, or is it just a conversion that is ongoing? Obviously, you not give us any data on this acquisition at this, except for it's not being EPS accretive. Is there anything you could say regarding dilution, multiples, PPAs, anything? Thanks.
How big smart door locks are altogether, without August then, we count to be at SEK 2 billion level this year, that we have already communicated last quarter, and it looks as if we're gonna be there, and i t's growing at a high pace. When it comes to the U.S. residential market, you saw that was declining. I guess that is the question why, and t here is AT&T that it was the last quarter they went out to our numbers. From now on, we should be in a position to start growing again. There we have Google Nest, and we have Vivint, and a few other customers that are adding on. Not immediately in Q4, but partly in Q4, so we will see a positive situation there.
On the dilution from, we don't know for August because August has very strong ambition to grow, but o f course, its cost is fueled by a lot of advertising and other things. We count to have a dilution effect of some 0.2% out of this acquisition, unless it goes better than we expect. It can also go worse, but t his is, in my opinion, a very necessary step for us really to manifest ourselves in this field.
Thanks for very clear answers. On the smart door locks, the SEK 2 billion, is that entirely to the residential or it's your business that is most likely more into, commercial or non-res than res?
Only res.
Okay. Very clear. Thank you.
Okay. Thank you. We will take some questions now from the telephone conference, but f irst I ask the operator to tell the audience how to pose the question.
Thank you. If you have a question over the phone line please press zero, then one on your touch phone. If you wish to be remissed from the queue, please press zero then two. If you are using a speaker phone, you may need to pick up a handset first before pressing the numbers. Our first question comes from the line of Lars Brorson from Barclays. Please go ahead. Your line is open.
Hi. Thanks. Good morning. Hi, Johan and Carolina. Couple of questions, if I could. Maybe just one quick follow-up on the industrial door question earlier. It is not positive, this quarter, and I appreciate your comment, Johan. It's partly timing, it's partly perhaps Loomis. I guess reality is we didn't grow in Q2 either, and it goes a little bit against what I've seen in terms of an industrial activity, i.e., sequentially improving through the year. Can you give me some sense of what you are seeing? You have slightly better visibility in this part of the business. What are you seeing in terms of order trends or backlog on the industrial door side, and w hat gives you confidence that we could swing back into some better growth in the next quarter?
Well, it is so that we bought Nassau one year back, and we are sort of doing, we're putting them into our organization. One plus one isn't really two, so we lose something on Nassau. If you take away that effect, which is some quite heavy on the those doors, then in fact it is growing, but o f course, we are always showing the total and not part of it or excluding anything. So, I'm rather confident that this industry is growing, especially logistic centers in Europe are quite, have a very strong trend. It's less strong so for the one-to-one doors into, in the industrial segment, but a ltogether, it's not a negative situation.
Service is a little bit less growing than we had hoped for, but that is things that we are working on where we are sorting out that used to be done on a lot of, I wouldn't call it rubbish stuff, but things that are not really doors in the past, and we are taking those things. We've been scrapping out some pieces of what we do, and this is of course, this to find better profitability, as you can see from the leverage. It is not very profitable to do on service on things that are not part of your business really, so w e are stepping out of that.
The main things that are negative is Nassau, which is then added to, bolted onto what we do, where we knew that by sort of closing their facilities in a way and put them into the ASSA ABLOY body mass, and o n the service side, we are scrapping a number of service activities, have a negative toll, but t aking that away, it's a positive evolution in my opinion. This is part of being a consolidator.
Un-understood. Thank you. I give that good call, but it sounds like it's growing but not accelerating, even if we X out Nassau.
Okay. Thank you, Lars. We will take the next question from telephone conference.
Thank you. Our next question comes from the line of Andre Willi from JP Morgan. Please go ahead. Your line is open.
Yeah, good morning. Thanks for your time. I have a question around operating leverage, if you look out the next few quarters and impact of M&A, if you could help us a little bit more, given the many moving pieces on M&A. I mean, you helpfully gave some guidance on August, which once consolidated, it seems to have about a -10% operating margin, if that's the correct assumption, how long it will take you, what your plan is to bring that to profits, and then what the general impacts from M&A is for Q4 and for next year, given also the benefit you should get from the disposal. If you look at the underlying operating leverage, obviously appreciate there's China in there, which is still a headwind.
If you strip out China, are you kind of happy with where you are or is that something we should see improving in terms of a drop-through ratio? Maybe as some of the investments in some of the new technologies or start paying off.
Okay. That was not one question, but perhaps Carolina, you can help us here.
I'll start with the margin questions, and then I leave to Johan to say how long it will take until it improves.
Okay. I'll do my best.
If we do on the M&A side for Q4, if we look what we have in the books now, including yesterday night, basically we have 4% acquired growth gross and a 3% net, and t hat will then be slightly dilutive for Q4. It's a mix of the acquired companies that we talked about, but also the divestment, which helps the margin a bit there. For the next year, we will have it's going to be between 2%-3% gross and a little bit less than 1% of that taken away from AdvanIDe, and t he dilution from that as it looks now, is probably around 20 basis points for 2018.
If you ask also about the margin and the leverage from China on the organic side, for this year, we are expecting, and we have continued to see 20 base points dilution from APAC. If we take that away and look at the other divisions, basically we will see in this quarter, we had 30 base points improvement of the margin on a 3% organic growth, so w e are pretty happy with that part. For the next year, that depends on what the organic growth will be.
Well, I think Carolina gave a very comprehensive answer. The only thing I can say is that we should be aware that when you buy tech companies, they normally have a seasonality, so they are quite strong in Q4, Q3, and they're weaker normally in the beginning of the year. That means that it will not be evenly distributed, the dilution, but a part from that, I can't say much. We will have more negative dilution in the beginning of the year than we will have towards the end. Especially in a company like August, there is a Christmas season, and Christmas season is normally very strong in that kind of business.
How long until you expect this to turn into profits and then at some point become profitable, properly profitable?
I think you know us. I don't think I even need to answer whether we make money or not. Our intention is only to make money.
Okay. When, maybe, when? On August?
We are not in the forecasting. August is, we think it's the right thing to do for us, and it's gonna give us some dilution. We are quite confident that this is the right move for us, and it gives us a good improved position in an area where we think there will be strong growth in the next coming years, so i 's very important for us. I don't, can't say much more.
Okay. Thank you. Is there another question here in Stockholm? Okay.
Follow up here, Peder Frölé n. On the raw material, I think it was very clear with the second run. If you look at the actual increase, if you look at both direct semifinished and finished, that part of the P&L, is that up 50 basis points? Is that correct? On the margins, so to speak. If I take that divided by the absolute number, I get the increase in the cost.
Yes. Yeah, on a year-to-date basis, direct material is up 50 basis points. There is an element in this that is also mix, which is not directly connected with raw material, but i f you take out of that, out of the 100% that we then sell, roughly half is then related to raw materials, and then the rest is semifinished and finished, and y ou do have a difference between the divisions depending on what kind of products they have, and of course their pricing power, so that's why you see different effects in Americas and APAC, and Entrance Systems being the three big ones in this.
But that needs to be then the gross number. I mean, when we talk about these products being up, well, between 5% and 10%, it's quite a lot. Is the second round in those numbers, or the price hikes that you were given in September, will affect more in the Q4 and forward on the contracts? Or would you say that?
Yeah. It's not done yet. They have nice calls from us regularly on that.
I wouldn't be too worried. We have seen this every time that. The Carolina was right when she mentioned this. China will continue to be a problem for us, u nfortunately, and s teel doors in the U.S. has had a lag. There we have seen now that because one of the main problem we had in the U.S. was that people had hedged their steel. I would be surprised now if competition has hedged again, because they did go up by some 40%, and then to hedge up there, then you need to be very cool and think it's gonna go 20 more.
It's not right now. I think it's 15 more or something like that. We feel that we can, there is room for improvement like usual, meaning that prices can go up, and t hat is what we have done. In Entrance Systems we didn't have any problem. In EMEA we didn't have any problem. In the U.S. we had problem with the steel doors. In Brazil and China there's depression, and b oth those markets have been difficult to raise price. Those two will remain difficult, but they are rather small as a whole in our profitability. I wouldn't be too worried.
Combining all of this, I guess, price increases will eventually eat more into, and at the same time you get higher raw materials. If you were to present a similar organic growth in the Q4 , that would be approximately the same organic leverage, I guess.
The recent hike, we most likely will not see much of in Q4, because that goes through our inventory. It will only start to come into the numbers in beginning of next year, so w e have time to raise prices. The question is then, when you do that, will you get the effect out of that immediately, or will it be some lag in between, and t hat is what we had, especially on the steel doors in the U.S. There has been a lag. The lag has been related to competition, at least to our estimate, have had hedges that protected them from price increases. Now we see some of them are running really behind, and they're taking prices up quite strongly, so w e think we can do the same.
Okay, thank you.
Thank you, Peder. We go back to the telephone conference, please.
Thank you. Our next question comes from the line of Lucie Carrier from Morgan Stanley. Please go ahead, your line is open.
Hi, good morning, Johan. Good morning, Carolina. Thanks for taking my question. Johan, I wanted to come back to the comments you have made on China, where I have to say you sounded a bit more positive than the last few quarters in the way you commented about the orders. Can you give us maybe a bit more colors in terms of, you know, that better order momentum that you've seen, whether this is for the entire of your activity in China, including the steel doors, or whether this is still kind of more focused on one part of the business? A bit more color would be helpful.
We have seen improved relative to last year, which was a rather weak year, growing order intake in the last three months. Both in China but also in the whole region. Asia is doing quite well outside of China, but also China has an improved situation, and that is valid for all pieces except the northern part of China, which is still very weak, but t here we have lost more, already lost what we have lost, that is not really a huge problem. Altogether it looks better. Whether this will continue for long or more than three months or so, it's very hard to tell. China is hard to foretell. It's sure so that China, at least from what we see, is not really growing in construction in number of houses.
It's not so that there is an underlying strong growth in the Chinese market, but I think we did rather bad, we had quite some turbulence a year back, I think we did rather bad in those days, and we are doing a little bit better now when we have management in place, so h opefully we will see some positive signs out of that, but i t's, it's early days, so I wanted to mention just that we see order intake has grown in the last quarter.
Just maybe if I can have a small follow-up on that. When you, what is normally the lead time between the conversion of those orders into your business?
Depends what it is. If it's fire doors for commercial applications, it can be up to six months. If it's residential doors, it's less, but it's a quarter or so. We should see some signs of it already in Q4.
Thank you very much.
Okay, thank you. Next question, please.
Thank you. Our next question comes from the line of Andre Kukhnin from Credit Suisse.
Yes, good morning. Thanks so much for taking my question. Can I just start with a follow-up on the size of the destock in Middle East? If you could help us quantifying that. Then more on a broader question, you've got two divisional new managers in place now. Could you talk maybe about what their priorities will be and what they bring to the table?
The destock we had some difficult to say, but there was something like EUR 20 million too much. That's quite big for a region like Middle East. There's still inventory there, but now it's more current, so w e estimate from now on we will be out of the destocking phase. When it comes to the two new managers, we have found a new head for Entrance Systems, which is Mogens Jensen. He has been heading Scandinavia for many years, and he is in the last 1.5 years been head of industrial doors within Entrance Systems, so he's very well familiar with Entrance Systems business, and he has done a tremendous good job on the Scandinavia for many years. He was the one behind the consolidation.
He's very used to restructuring and change and improvement and focus of businesses also. I feel very good about that. Then we have Anders Maltesen, which is then the new head of Asia Pacific. Anders is someone that comes from GE, and I think many of you know that GE has a very tough ways of operating. I think he's a nice guy, but I think he can also be not so nice if you don't perform. At least that is my expectation. I'm sure that Anders will bring a lot more process into what we do in the region in a positive way.
He has been there only for a few weeks, so it's early days, but I feel very confident that we have found a good, very good person there as well. A good evolution, I would say, when it comes to the management team.
Thank you.
Thank you. Next question, please.
Thank you. Our next question comes from the line of Guillermo Peigneux from UBS. Please go ahead. Your line is open.
Good morning, everyone. Guillermo Peigneux from UBS. Thank you, Johan, Carolina, and Matthias. Just wanted to ask about pricing. I think, Carolina, your commentary on pricing, which basically was up 2%, if I heard you well, in the quarter, i f we take that from the organic growth, it means that your volume, roughly speaking, was around 1%. I understand that you have some day adjustment to do there, but i s it really the case that in unit terms, volumes are slowing down? Could you also comment on pricing per region, if I may? Thank you.
Yes, you heard me right. The price increase in the quarter is 2%, we have seen that through the year really, on the back then of the increased raw material and the increased prices for that. When you talk about pricing power for the different regions, I would say the ones that have increased the most are the ones that have had the biggest raw material exposure. Unfortunately, in APAC, it's not enough, but they still have raised prices significantly. We also see good price increases, as usual in all divisions, but a gain, the ones with the bigger raw material exposure have the higher effect on price.
There was a comment on the volumes, and with one working day less in the Q3 I should also say there is one less in the Q4 . In some areas, the volumes are down. What's really positive to see is on the electromechanical side, for example, the volumes are clearly up, so i t depends a bit on in which areas you're looking.
Is it, you know, is your behavior on pricing similar to your competitors and therefore, you know, everyone is just stable in market shares? Can you identify any regions in which you're a bit slower in terms of market share gains or actually whether you're losing some market shares because of pricing?
Well, I think on the pricing, Johan always says this, no one forgets it in the group. Our role as a leader is always to increase prices, so I would say we are probably more aggressive than many of the competition, when it comes to price increases, especially in the back of raw materials. As mentioned also, sort of hedging helps you for a while, but it's only a temporary situation, and we have not done that. We have continuously increased prices.
Okay, thank you. A small one actually regarding the Q4 impact, coming from the currency. Can you guide to a number or a rough estimate at this point, or it would be difficult?
The guidance I can give you on currency is I can take the rates today and see what effect that will have on the Q4. With that, we will have -6% on the top line for the Q4, but I t should be slightly flat or slightly positive on the margin. Then for next year, if the rates stay the way they are, probably a negative between 2%-3%, and f or the full year, you know, we have some seasonality usually on currency, but for the full year, it should not have an effect on the margin.
Super helpful. Thank you.
Thank you, Guillermo. Next question, please.
Thank you. Our next question comes from the line of James Moore from Redburn. Please go ahead, your line is open.
Yeah. Hi, everybody. Thanks for taking my questions. Maybe I'll go one at a time, I've got two. On Global Technologies, you talk about a 50 basis point dilution to the margin from acquisitions. I would've thought that given AdvanIDe is a no margin distributor business, that we might have had some accretion, and I know there are a couple of other smaller acquisitions. Could you break out whether there's a specific charge in there, and how you'd expect that impact to move going forward?
Well, should I say something or?
You could.
Yeah. If you take AdvanIDe, it has not been out of the numbers for that long. It has been out for, what is it? 1.5 months.
1.5 months, yes.
Yeah. Then as I mentioned, that we have some acquisition costs. Tech companies economic does not come all that cheap, because you need to do quite some investigation. We as you know, we have 17 acquisitions this year, and we've taken them all as cost. It's not so something that you do easily. Therefore, we had only 5% EBIT on acquisitions as a whole, margin from acquisitions. You're right that AdvanIDe has a positive accretion, iRevo did not invoice much in the first months.
You can ask them why didn't that happen. Probably they tried to get as much as possible in their own books. I don't want to accuse anyone, but this is not unusual. We didn't invoice much, we have Bluvision, that is a company that is a product business. Some months it has a lot and some months it doesn't have. Unfortunately, in the quarter it didn't have much, so therefore it's also a heavy burden to carry around such a thing. You should also know that the moment we buy these tech companies, we get PPA depreciation on goodwill, which is also a heavy burden, especially if you don't sell much, then it's very heavy.
We will show more on the capital markets day about the PPA, because the more acquisitions we do on tech companies, the more we will have to lean towards showing you the EBITDA rather than EBIT, because we get more and more depreciation in our numbers.
Thanks. If I could on my second question, just circle back to the question being asked by Andre Kukhnin and Peder Frölén about the price and raw material impact on the drop-through. Is it possible in any way that you could say for APAC and Americas, what the net effect was of price and raw material to the margin? Was it 5 basis points, 35 basis points or some rough flavor? Whether you think that net number gets worse or better or the same next quarter?
I'm almost gonna answer no on that question. I think if you take Americas, the overall price increase is higher than the raw material impact. Unfortunately, that is not the case in APAC, so o verall, for the APAC division, and that's what you see also, we are a full, more than 1% down on APAC margin, and that really comes from, of course, lower volumes, but also not being able to compensate for the prices. We have done a lot on the restructuring sides. We have savings from that, but it's not been enough to offset, and that's mainly from the raw material.
I think I will invite you one day, James, to come here and read our books, and you will tell me with all these variables that are changing, which one is price and which one is raw material and which one? It's very tough to really know exactly. We are trying our best to give you as good guide as we can, but it's not easy in the forest of changes that happens in a quarter that really list out, it's 0.1% here and 0.2% there. I hope you understand that, but what Carolina says is correct, it is also, of course, a translation of what we see.
I appreciate it's difficult. I just was trying to understand. Given all the moving parts, whether the pressure gets worse or better or broadly similar going forward.
It will be a temporary worse, since the raw material is coming up again and we are doing the usual. We increase our prices, and then we will tell you then how much. I think personally, we have much better chance now to get prices through because everybody's in the same situation this time. Last time, everybody, most people had hedged, which we don't do as a group. We don't think we should wait. We should always do price increase immediately, and t hat is what we do right now.
I can work with that. Thank you. Thank you very much.
Thank you, James. It's soon 11 oclock, so we conclude the Q&A session here. We at Investor Relations are available if you have further questions. Before I turn to Johan for his final remarks, I would like to remind everyone that we have our Capital Markets Day upcoming on November 15, so i f you haven't registered, please do so. It will be a good event, don't miss it. Please, Johan, your closing remarks.
I think I open up and I will close in the same way. I feel very comfortable about the stable, continued good development within the ASSA ABLOY Group, with good growth in all parts, and China now or Asia is starting also to grow and be part of the contributors to growth.
We have a lot of new things coming into the pipeline, we have some very interesting strategic acquisitions as well, which adds more to our ability to continue to grow. I feel very good about this quarter. Thank you very much for coming.