Ladies and gentlemen, welcome to Assa Abloy and the second quarter reporting. Yet another quarter with good results and good evolution for the group. We saw in the quarter organic growth in all divisions but APAC. Good development in many mature markets as well. China and Brazil and Middle East were negative in the quarter as such. We saw also continued strong growth in digital door locks and electromechanical solutions. Pretty much the same trends as we have seen before. The only difference in this quarter was that we had an Easter effect of some 2-3 working days in a negative direction. Turnover improved by 8% to SEK 19.4 billion on the back of 2% organic, 2% acquired, and 4% currency effect.
EBIT improved by 7% to SEK 3.1 billion, with also positive currency effect and margin declined by two tenths of a percent to 16.1%, down from 16.3% the same period last year. Earnings per share improved 8% to SEK 1.96. Looking now to the first half of the year, also good evolution, 11% improvement in turnover to SEK 37.5 billion, 4% organic, 3% acquired, and 4% currency effect. EBIT improved by 11% to SEK 5.9 billion, with the currency effect positive of SEK 230 million, and the margin was flat, 15.7%, just the same as one year back. Earnings per share improved by 12% to SEK 3.69. A rather good evolution. Turning now into the globe and see where we are growing, it's the same trend as we've seen before.
It's the mature market that are doing the best, which is contrary to what we've seen a few years back in time. We see Americas organically growing, which is the green there, 6%. EMEA is growing 4% and Pacific 5%. All mature markets are doing quite well. South America grew 2%, we should remember Brazil is a rather large entity in South America, which was -5%. If you take that into consideration, we grew 5% organically in the other parts of South America. It's pretty much a good evolution, even outside of Brazil in South America, with a few exceptions. Africa grew 2% and APAC -2%. Here in this number, also the Middle East is in that number. Outside of China, it's the same situation. We are growing in pretty much every market outside of China with a few exceptions.
Also there, a good evolution. On the market side, a lot of exciting things are happening. What is happening in the world around us is that people more and more, especially on the residential side, people like to have home automation. That is something that's been going on for a few years, and we've seen good demand in that side. We see now more and more of forwarding companies that wants to deliver home deliveries. There is a very strong uptake on interest in mobile keys for that reason, both on the commercial side and on the residential side. We see also the home delivery companies that their dream, and my dream as well, by the way, as a consumer, is that I can get my groceries delivered into my, not into my fridge, but into my home.
When I come home, everything is settled for you. This is also the dream then of the home delivery companies that are really looking for how do I get through the front door of the home in a safe and secure way. Here I think they have seen Assa Abloy as one of the partners that can really give them a good solution. I personally think, and I said it last time as well, I personally think in the next decade that we will see pretty much every electronic door opening in a residential home, at least the front door, to go electronic. For us, of course, for obvious reasons, a very interesting evolution. On the innovation side, we have gone from 400 engineers now to more than 1,900 engineers. Hopefully we can say 2,000 very soon. We are launching a lot of new products.
You've seen that we have won in a number of shows, there was no show this quarter. Nevertheless, we continue to launch new, exciting products. One is the Aperio door handle, which means that you have then a reader inbuilt into the door handle. It's a miniaturization in a way of a reader that normally is on the wall. Very economical on the power consumption. It hardly consumes any power, so it lasts for years. Very interesting for an office building where you have some rooms you like to protect in a safe and secure way. Also in an office environment, but also on the commercial side, we see more and more glass doors. We're launching an innovative glass door solution range, which is in the U.S. in this case, that is, as we speak, being launched into the market.
Also with the strange cryptical name OH1042S, we are launching a new industrial door, a very nice name, by the way. This industrial door has the feature that it moves three times faster than a normal industrial door. It's a hybrid door. It's not a high-speed door, which we are world leaders in. It's a fast industrial door. This is, of course, very interesting for a customer that has a high-frequency door in an industry where he goes in and out. In this case, you see a transparent version of it where you have a fire brigade. You can imagine how important it is to have a fast-moving door and when you have a fire going on.
In most cases, you save a lot of energy because you close and open in a very fast way, and that means that you save a lot of energy through this door. An exciting addition to our range. Turning now to sales. We can see here from 2012, the last five years, we can see that we have come from something like SEK 50 billion turnover to SEK 75 billion, a little bit more than SEK 75 billion. This quarter we grew nominally 4%, you can see the power of growing organically and acquired year after year, quarter after quarter. The black here is the acquired and the blue is the organic growth. A very nice evolution that continuously grow the company into, hopefully, an ever-growing size as such. A very powerful evolution for us.
You can say this curve, sometimes I get comments, this curve is not so fun. It's just the same EBIT margin all the time. We should remember, we've gone from some 400 engineers to 1,900 engineers during this period of time. We've gone from 10% to 23% emerging market growth, and we bought something like 170 companies during this period of time with a lot of dilution, and still the margin is the same. Underlying, there is a lot of improvements taking place within the company. You can see, as we mentioned also in this quarter, we have absorbed a negative dilution from APAC, the problems we had in China mainly due to the steel by 0.3%, and still the margin is intact. We have a very good leverage apart from the APAC division.
On profitability, there is more fun because, of course, if you have the same strong growing turnover and you have a margin that stays firm, profit has improved by some 69% in the same period. A nice evolution in the last five years. Right now the run rate is SEK 12.1 billion, up from SEK 11.3 billion or 7% in the last four quarters. A good evolution. One of the secrets is that we do constantly manufacturing footprints. Our ambition is to do only assembly with the exception of steel doors, which you have to do on a local basis due to they're so expensive to transport. We convert our factories to assembly units close to the customers so we can configure what the demand is. The factories that are redundant, we close simply.
We have closed 77 factories, and there are another 11 to go. 12,500 people have left as a consequence, and we have some 1,800 people still to leave in the next 24 months, even though most of them will leave closer to that. We have SEK 1.3 billion in the balance sheet to take care of that change that we are right now implementing. This is, of course, one of the major secrets behind why we have leverage all the time. Carolina will tell a little bit more about the savings in this quarter. On the acquisition side, a lot of companies are for sale.
There are some, I would call it laggards, coming into the market that are not all that interesting because people are looking for very high price for something that's probably, in many cases, are not so fully under control or well-structured. We are a little bit cautious. Still, we have done more acquisitions than usual. Normally we do some 15 per year. We are already at 12, and I think we will see more because the pipeline is still very full. We've added 2.2%, which is a little bit less than normal, but this is due to the companies we've bought are smaller in average. This has to do with the pricing. The smaller companies are still reasonably priced. We did one acquisition in this quarter, which is Arjo in France, a very exciting one. It's a technology company.
We have a good footprint in government solutions, passports, national IDs, driving licenses, and the kind. This company mainly is a software company. You can see the turnover, SEK 550 million with only 100 employees. This is primarily a software company that adds to our ability. We are mainly a machine maker. We make printers and other equipment. This marriage is a very strong combination into this market. We think we can do, I wouldn't call it miracles, but we can do very well with this addition to the group. It is also accretive to earnings per share from day one. A very exciting addition to the group. Turning now to the divisions. EMEA, where we have the biggest piece of the Easter effect, grew 2% organically. Strong growth in the U.K. and Eastern Europe. Eastern Europe has started to grow again.
It was a few quarters when it was standstill, now we see Eastern Europe is picking up again. A very positive evolution. Goods growth, this is opposite what we've seen in the past. Southern Europe is growing. Spain, Italy, which has been declining for many years, and also Israel, you could perhaps call it Southern Europe, even though it is not exactly in Europe. We see the usual ones where we have normally very good growth. Scandinavia, Finland, flat in this quarter. This has, of course, to do with the Easter effect. That is where we have the most vacation, and Germany is also part of that, and France. They all are in the same bracket, stable evolution around the zero, all five regions there. What is growing in Europe, and it grew nicely also in this quarter, was the electromechanical.
The mechanical side of the business is declining, it is no decline in the quarter as such. It is really electromechanical conversion that takes place, which is, of course, for Assa Abloy, a very good change, and the margins are better in that field as well. You can see from the leverage, EMEA is the area where we do the most restructuring, simply because you have such a lag in change, and that means that you constantly do change in order to catch up in a way. We have there very positive leverage of 0.6%, and in this case, a margin improvement by 0.4% to 15.7%. EMEA is benefiting strongly then from the manufacturing footprint program. Here in this case, we had a little bit negative from the currency as such. Americas, a little bit less growth than we are used to.
Same reason as in EMEA, even though less strong, 3% growth in this quarter. Strong growth in security doors, perimeter solutions, high security in Mexico, Latin America, and Canada was also in a good evolution, while we saw stable on the locking side. You can say, "Why is this?" Part of it is because we had very large orders from AT&T, I mentioned that before last year, that are not repeating. I can say to my joy that we have signed a few interesting contracts for the beginning of next year, which I think will help our turnover there in those parts that will come into our numbers. Brazil continued negative in this quarter as well, even though we see now that it's every second month it's positive.
I think Brazil is coming to bottom and most likely it will start to grow, perhaps not in next quarter, but at least we think it will grow in the next coming quarters. The margin was super strong. It's the strongest we had, 22.1%, 0.2% improvement. We also here had the negative currency effect of -0.2%. Flat evolution on margin. Asia Pacific, we had -6% in the quarter. Here, of course, we have an adjustment to be done. It is -4% in like-for-like because we have pre-invoicing in our comparative numbers. We saw strong growth in Japan, South Asia, good growth in South Korea and Pacific. Here again, outside of China, every market is growing. In China we had negative evolution about -7% in the quarter itself and 4% since the beginning of the year. No drama.
This is very related to the northern part of China where we see some stocking of apartments of seven, eight years. We are not so surprised that they don't continue to build even more apartments. For a while there is overstocking of that side. Unfortunately for us, we have a very large footprint in the north. This is the same story as we have given in the past. We continue simply to adjust our organization. We have 11% then reduction of employees year-over-year, and that means that cost-wise we are rather well positioned. However, we have then the steel where we have the lack of volume that are not in all of China, but in some parts of China.
The lack of volume makes it very difficult to raise price in the way we would like to compensate for the strong steel price increases. I should also add that digital door locks are becoming increasingly popular in China. We see very good development on that product range as well. The margin dropped from 14.1% to 11.2% in this quarter, and this is very much in line what we said. We said we will lose 0.2% dilution from the problems we had in China, and right now we're a little bit higher. The other side, we dropped in the second half of last year, so we will see a little bit less most likely in the next coming quarters. Global Tech, the organic growth was 3%. Here we had 9% last quarter, so you see how it jumps a little bit.
This is also, as you know, a little bit of a project business, but also here they are affected by less working days. We saw strong growth in access control, and here this is very important. The virtual keys are doing quite well. This is not the first time we see strong growth in access control. Very positive. You see strong growth also on the hospitality side. The same reason, hotels are very increasingly interested in virtualization of keys of various kinds so that they can book customers straight into the rooms, and they don't need to spend people in the reception when you arrive as well. Very positive evolution. Identification technology did also very well, and usually the project business, normally we have a dilution from that.
Since we grew also in the top line there and hospitality, we didn't get much of a dilution this time. We had 18.4% EBIT, one tenth of a percent less than last year. We had nice leverage despite then that the growth was not that strong, and also that we have added several hundred engineers that we have to carry for the cost as well. In my opinion, a great evolution. We have acquisitions and currency weighing negative in this quarter. On Entrance, from quarter to quarter , strong growth in door components, U.S. industrial and U.S. residential. The U.S. side is growing more than the European side. Good growth in door automatics, high-speed doors and gate automation, so that continues. Industrial doors was flat in the quarter as such.
Profit-wise, we had good leverage, half a percent improvement to 34% EBIT up from 32% one year back. You can see here there is now 28% of our business, the dilution we get from Entrance Systems is big. On the other side, it's a very profitable business in relative terms for its industry, we are very pleased with what we do here. Acquisitions weighted minus 0.3% as well in the quarter, we did not get the full half a percent improvement of the EBIT. That concludes my overview. I would like now to hand over to Carolina that will give us some financial highlights.
I certainly will. Thank you very much, Johan. Good morning, everybody. Starting with the financial highlights. First half of the year already gone. Starting with the quarter. In the quarter, we had 2% organic growth, we estimate that to be 2% on price and zero on volume. The result of that is, of course, because of the Easter effect, because of the two to three working days difference that we have. It is bigger in Europe where we celebrate more Easter than the rest of the world. If you look at the first half year, you will say that we have 4% organic growth in total for the half year where you have the effect sort of neutralized then. Moving on to acquired growth in the quarter, 2% acquired growth.
For the first half, we are on 3%, that is also what we have in the books for the full year. We have 3% acquired growth for 2017 already sort of bought and waiting to be processed into the numbers, 1% over for next year already as well. Currency, still a strong effect in the quarter, plus 4% on the top line. I say still, because we did see a big change of the krona in June. We got significantly stronger, which basically means that in the third quarter we will be flat on the top line from currency, on the fourth quarter we will see a reduction. The full year, if the currencies stay the way they are, we will be on 2% from currency.
A top line improvement of 8% translated to an improvement of profit of 7%, a good result there as well. The margin decreased from 16.3 to 16.1, and within that we have both the dilution from acquisitions and currency, as well as the results from the APAC division, and I will show you a little bit more about that when I come to the bridge. Really adding the financial net, that is slightly lower than last year with the lower debt. The profit was then 8%. A stable tax rate and a net income of also 8% improvement. A good result in the second quarter, which brings the first half of the year to a full 12% improvement. Last but not least, the operating cash flow.
We have strong seasonality in the cash flow. The second quarter is still a low quarter. The year-over-year comparison show that we have a 2% improvement on the cash flow. For the full half year, also a 13% improvement. A strong development also on cash for Assa Abloy in the first half. From the highlights, a deep dive into the P&L and the bridge. Starting here with the organic growth. The 2% organic growth translated into a flat margin, and here it's really two different pieces. We saw strong leverage, especially from EMEA, also Entrance, also good leverage from Americas as well as Global Technologies, while we had, as expected, the lower margin on Asia Pacific.
The other divisions were really up around 30 basis point improvement on the margin, which was then offset by the changes in the lower margin in APAC, ending on a flat margin from organic growth. Currency, strong top line, almost the same all the way to the bottom line, it was a slight dilution from currency with the strengthening of the krona in the end of the quarter. We had 10 basis point dilution on the margin from currency. Acquisitions. The 2% acquisitions, we had some acquisitions on the same level of margin as us, as usual, they are coming a bit lower on margin being improved over time.
Here we have the Entrance Systems and also the technology acquisitions in Global Technologies diluting a bit. The total for the group was then minus 10 basis points on the margin from acquisitions as expected. With that, we go from 16.3 to 16.1 in margin in the quarter. We've talked a lot about raw materials and the effect that it has had on us for the last year. I think this slide with the P&L as component of sales shows that in a good way. If we start here with the direct material, you can see that we continue to have strong headwinds here. We have an increase of 50 basis points when it comes to direct material. Here again, it's a bit different in the different divisions depending on what you're selling and where.
In APAC, it's really a combination of both the tough market conditions as well as the strong increase of the raw material, as Johan mentioned. Here we have not managed to offset that fully, and it has an impact here. Americas, also tough on the door sides, on the steel doors especially. They've continued to increase prices but not fully offset it yet. Entrance Systems significantly improving as well, better and better there on the door side. EMEA, really in a good shape here, but also less doors and less raw materials. Global Technologies, not really affected on the raw material side like that, not those kind of products there. Different in the different divisions.
Something that's been good in all the divisions, I would say, is the conversion cost, and that is really a result of the restructuring that we do on the manufacturing footprint side, as well as the other efficiency programs that we have. We see a significant improvement that we have seen year-over-year on the conversion costs. That improved for the first half year with a full 70 basis points. In total, our gross margin improved with 20 basis points for the first half year. On the SG&A side, we continue to invest in the front-end salespeople as well as in more engineers. On the other hand, we try to become more and more efficient on the support side and move the resources more to the front end, and we continue to do so this year.
We are flat as a percentage of sales, but since we have grown, it means that we have invested a bit more here as well. Cash. Moving on to cash flow. I think important with this picture, first of all, you do see the strong seasonality that we have with the different quarters. The second quarter, it sort of goes from a low first to an okay on cash flow, but it's still a low quarter, and then main bulk of the cash comes in the second half of the year. What's important here is that we continue to see a really good trend between our profit and cash.
As you can see on the two rolling lines, the profit over time as well as the cash flow is converting, which basically means that we move all the profit into cash, which we then spend on a lot of acquisitions and other things. Working capital here is important. We continue to see good developments on the working capital. The DSO was down to 52 days, compared to 56. Here I would say we have good control and development everywhere. Still tough in China, but improving. DPO, a couple of days lower than a year ago. Sorry, higher, but that's still okay. Inventory, I mentioned in the first quarter and also in the second quarter that the inventory is a bit higher in days. It's 100 days compared to roughly 90 a year ago.
Here also, because of the value of raw material, it means that the volume hasn't increased much. It's really the value of the inventory that then has increased. Overall, really good development on working capital as well, and therefore good improvement on the cash flow. With the good cash, you also see good results on the debt side. This picture also shows that if we look from a seasonality point of view, the second quarter is our highest when it comes to debt due to the low cash side as well as the dividend. Then of course, it all depends on acquisitions. As you can see here, we are on SEK 25 billion in debt, which is SEK 2 billion lower than a year ago. Therefore, the financial net was also down a bit compared to a year ago.
Therefore, also the gearing is now down to 54%, and we continue to see a good level of net debt EBITDA on 1.9x. Finally then, a slide with a really nice and stable trend, earnings per share. In the quarter, the earnings were up 8%, and the first half year we're up on 12%. We see a really nice development over the years, but also in the first half of 2017. With that, I give back to you, Johan.
Thank you, Carolina.
So Conclusions for the quarter is that we grew 8% with 4% real growth, excluding the currency then. We saw good growth in all division except APAC. Our technology leadership continues to develop in a positive way, and we took an important step on the GovID side, where we tried to make acquisitions for quite a while, and we found a very good company that will add a lot of value to the group in Arjo, which I presented earlier today. EBIT improved by 7% and earnings per share by 8%. Altogether, a very pleasing quarter. With those words, I open up then for Q&A, and Mattias Olsson, I think you will help us raise the right questions, right? I hope so. Thank you, Johan. Thank you, Carolina. Thank you. I'm the Head of Investor Relations at Assa Abloy.
As usual, I will ask you to ask only one question per person to allow as many people as possible to pose questions. Also as usual, I will start by asking a question each to Johan and Carolina. I will start with Johan. Johan, organic growth year to date has been 4%. How has Q3 started for you? It has started, it's early days. We are not so far into the month since we report early, but the forecast says same trend as we have seen from the beginning of the year. It's 4%. Okay. Thank you, Johan. Now to Carolina. You'd comment on the manufacturing footprint program and you comment on savings. Can you quantify the savings and what also to expect for the second half of the year?
We saw good development of the footprint programs. We're sort of getting skilled on doing them now. We had SEK 90 million of savings in the quarter on the MFP. The expectation for this year, full year, is SEK 300 million in savings. For 2018, it's SEK 250 million in savings. In 2019, it'd be around SEK 100 million-SEK 150 million in savings. A really good development on the manufacturing footprint programs.
That was quick. Thank you. I think we'll start by taking a question here in the audience in Stockholm. Please.
Thank you. Peter Ryen, Handelsbanken. Just to follow up on the additional savings, could you just quantify that also? To my question then, Mattias. On acquisitions, I hear you on prices are higher, you work with more quantity. I'm very curious to hear what the long-term thinking here, because either you're sort of waiting to price to come down or you basically have to adopt to a higher price level or more resources to do smaller and more acquisitions. Please help us to understand what to expect here in a slightly longer term horizon. Personally, I think that prices on these assets will still be high in the future. Help us to understand what to expect. Thank you.
I'm trying to convey that we don't feel stressed because we are below the sort of business cycle 5%. We value money more than we value that we grow just by buying companies. What I said also is that many of the companies we have seen are late comers to be for sale, and those are the ones that were the least organized to some extent, and therefore we have chosen not to step in. I think there is a limit how many companies you can consolidate at the same time. If you get companies in less well-organized, then I think you take too big risks. Therefore, we have chosen not to do a few acquisitions. In a way, I don't think we shy away if it's the right asset. It is more that we have not seen the right asset right now.
We have seen many assets for sale, and we have acquired many assets as well. It's just that they happen to have a smaller turnover in this case. We are very interested to continue to pursue our strategy to grow in emerging markets. Even though we have put a moratorium on Asia, simply because, or at least China, simply because China is not in a shape to do this. In a shrinking market, you should be careful. We are very interested in tech, and there we have done many in recent years, and hopefully we will continue to do those. You know how high price tags there are on those. It's very difficult sometimes to make good money out of those. We have bolt-on is very interesting as well. It's not so that we have changed anything in our strategy.
It's just simply so that it happens to be a little bit less right now in value. There are many targets out there and in many areas we can grow into. Just thinking about Entrance Systems, we are now SEK 20 billion and we can grow it to SEK 30 billion easily. There are many targets out there.
I'm just curious, the interest rates are changing, return requirements, stuff like that. How is it working? The responsible manager who comes to Kurth and, "I want to acquire this." "No, it's too bad return." Do you get the WACC argument? How will you explain to investors that there's a likelihood of a 5% of inorganic growth in the long term?
Most acquisitions are not the way you think. You approach someone and then you acquire them rather quickly. Most processes are long-term things where you start to take contacts. It can be over five years. In Brazil, it took us 10 years. We talked to all these companies. All of a sudden, everybody was for sale, and we jumped in. We bought five in one go. It's not so that you rule the counterparty. It's very hard also on the pricing side because most companies, especially in emerging markets, they think they're worth 26 multiples. I think you will not be a shareholder in this company if I will say, "Yes, let's go for it." Sometimes you have to have patience for five years or something, and then the right moment is there, and then you move.
You're the preferred buyer, you're not the preferred buyer just throwing money on the table, you need to take it easy. We have our eyes out. There's a huge pipeline of companies possible to acquire, we take them one by one. I call ourselves a grinding machine. We grind the market gradually, and we consolidate where we are, and we add a little bit broader coverage as we go. Therefore, I think there is still a lot of ammunition out there to continue to add 5%. It's just that we have not bought these SEK 1.5 billion type of companies in the last few years. There are some companies of that size out there.
Thank you so much.
Thank you, Peter. I think you actually snuck in a question in the beginning as well on other savings, Carolina. Maybe you want to comment on that.
The other savings we don't have a plan for, we are happy with what we get every quarter from the divisions. In the quarter, we saw good savings of SEK 70 million from that.
Okay, thank you, Carolina. I think before we kick off the telephone conference, I will ask the operator to repeat the rules on how to ask a question.
Thank you. We will now begin the question and answer session on the audio lines. If you have a question, please press zero, then one on your touch tone phone. If you wish to be removed from the queue, please press zero, then two. Once again, if you have a question, please press zero, then one on your touch tone phone. We have a first question. It comes from Guillermo Peigneux-Lojo of UBS. Your line is now open.
Hi, good morning. It's Guillermo Peigneux-Lojo from UBS. I wanted to get some granularity on China. Quite strange to see the momentum turn again for the second time. I was wondering whether you could specify whether it's just a second turning sentiment or is more related to your particular exposure to certain markets that is just happening as we speak. Maybe if you can elaborate on market shares and whether it was steel doors or locks what actually got weaker. Thank you.
The shrinkage that we have in this quarter is mainly related to the northern part, even though we are not growing much in other parts either on the door side, and especially in this case, it's fire doors. We have orders, but we have a number of customers delaying deliveries of those. It's not so that we are standing without anything to do, but customers don't want to have it. We read that as the market has weakened somewhat. Is it going to remain like that for the rest of the year? We don't know. On the locking side, on the digital door locks, the locks as a whole are growing, and this is very much on the back of the digital door locks that more and more Chinese appreciate and put on their front door.
Still not connected to the net, but very usable nevertheless to let people in through your front door. That trend I think will persist. We see some 20%-25% penetration right now on new construction. I think it will continue to go higher. It looks pretty good from that point of view, and the margins on those kind of lockings are quite good. China is making some money, but it's only a few percent EBIT that we have there. We had 11.2% as a whole for APAC, I'm not unhappy with the situation considering that it is difficult in China.
Thank you. Are you thinking about further restructuring in China? Your structure is now lean enough to actually cope with the headwinds.
We have gone from some 17,000 people in China, or even 18,000 people. We are down now to 11,000, not in China, in APAC. We're down now to 11,000. We are restructuring on a continuous basis. We even started two years before because, perhaps you remember, I said that I think the market will shrink by 40%. It's down now 25%. I think it will continue to shrink most likely. The reason for it is because China, in my opinion, is overspending in residential construction. This cannot persist in the sense that you can't sort of construct houses in eternity. You need to maintain what you have rather, and you come into more modus operandi. We see also very strong growth in the segment of recurring revenue, meaning then distribution. Locks sold to retailers for replacement locks. There is also a very good demand situation.
China is not a uniform market where everything goes down. It's just that new construction is weak, and this is where everybody is to start with. Now we're moving over more and more into distribution, but it will take a number of years before we see stability there, or that part starts to overshadow the decline that you see on new construction.
Thank you so much. Regarding the FX impact, Carolina, can you help us understand a little bit the three Q, four Q trends on top line rather than EBIT? We were basically standing at current rates.
Yeah. Because of the increase of the Swedish krona in June, you can say that for the third quarter, we'll probably be flat on the top line. For the fourth quarter, we will go down, well, up to 4%. The full year will then be 2% on the top line. We believe that for the full year, the FX should be roughly flat on margin as well.
Thank you so much. I stay back in line. Thank you.
I'll go to the next one.
Thank you very much. The next question comes from Lars Brorson of Barclays. Your line is now open.
Hi, good morning, Johan. I will stick to one question, as Mattias had said. I had a number though, but I will go back. You say it is a good quarter. I do not accept that. It is a mixed quarter at best, and clearly very disappointing in China. Quite frankly, I wish your communication would reflect more of that reality. If I just ask specifically on the volume trend in July, as you pointed out, and into the second half, and ask you to give us some commentary on that. I think you mentioned 4% organic growth so far in Q3. If that is true, price to volumes, it looks like you are stable or if anything, going backwards, if volumes were up some 3% in Q2 on a working day adjusted basis. Can I specifically ask to Europe?
Because actually it did look like to me on a working day adjusted basis, volumes in Europe went up from about one or so in Q1 to about three. That looks like a decent sequential improvement on an underlying basis in Europe, particularly if you are telling me that non-Europe, i.e. Middle East and Africa, declined in the quarter. If you could give me some sense for what you are seeing in volume terms in Europe, and also I would be quite keen to understand what you are seeing in Americas.
Well, I think generally mature markets like the Pacific, like Americas, like Europe, are pretty good. I am a little bit cautious when it comes to Europe. We have been growing in the Scandinavian markets or Nordic markets for quite a number of years at a high pace. How much higher can it go? It is a little bit like a China case. We have grown, build construction has grown for many years at a very high pace, and we have benefited from that. Will that trend persist or are we coming to closing the sort of ceiling in that part? I do not know. There are so many parameters that you really cannot rule over. Therefore, I am cautious. I see what I see. We do not work with orders on hand except for on the doors when it comes to new construction projects. Therefore, it is very difficult.
You can have three weeks fantastic demand situation, and the fourth week there's nothing. It's very, very hard to predict. Personally, I feel positive. If I look to the Americas, there we do the RFQs, Request for Quotations, the specifications, they are growing at a double-digit pace. That is about 30, a little bit more than close to 40% of our business there. Is that enough then to say that the whole market is exploding or what is happening? We've seen very healthy demand on quotes and activity in the marketplace in the U.S. Will that then manifest itself for the fourth year of strong growth, or will it be more that we sort of grow a few percent on top of what we have grown before? I can't give you that answer. I wish I could.
Do you accept my math that basically you're going backwards in volume terms in Europe, if my math is correct?
In this quarter, yes. In this quarter, there is no volume. There is price, 2%.
As you exited Q2.
Q2 is 2% price and zero volume. As I said in my presentation, the mechanical lockings are negative and electronics is growing and continues to grow on the door locks and access control is growing at a good pace, or strong pace even.
Just a quick one. Carolina, do you see a positive net pricing in Q3 in Americas specifically?
Well, it's early to say, we know that the prices have been increased and we'll continue to see the effect of that. Yes, we continue to see price increases in Americas. Exactly how much it will offset or not, that's too early to say.
The expectation, Americas themselves is that we will have covered the gap on price in Q3, Q4 on the second half of the year. We are taking prices up for the probably fourth time now in the next coming months. Clash, take the next question from telephone conference, please.
Thank you very much. The next question comes from Andre Kukhnin of Credit Suisse. Your line is now open.
Yes, good morning. Thanks for taking my question. I have to ask on China. Can we just look into second half and take the run rate of H1, which is at -4%, that became -7% in Q2. As we look at second half, without sequential deterioration during this year, but against what should be an easier comp in the second half of this year, given that you started declining in the second half of 2015, and then that rate of decline was maintained through 2016. What should we be thinking of for the second half evolution for China?
I said in the beginning of this year, when we had loss presentation, that I think this year will end negative in China. I have not changed my opinion on that. You are right. At least on paper, there are easier comps. You should remember also the market is shrinking. Easier comp might not be easier in reality. I owe you an answer there. I think we have to wait till second half of the year is over before we really can give you an answer on this question. China is difficult. It's not only Assa Abloy. Every company has a difficult situation. We manage our business by making sure that we have an efficient organization adjusted for the situation that is present in the Chinese market. I'm not the least worried. China is fantastic.
Our market share is very small. There's a lot of growth opportunity. We are living in a market that is shrinking.
Yeah, I think it's the sequential deterioration in Q2 versus Q1 that's most concerning. I think everyone's kind of okay if it was just carrying on at a certain pace. Can I just double-check on your mix of your Chinese business at the moment in terms of north versus rest of China and doors versus locks?
While we still have the dominating part of our sales is doors for new construction. That's an exposure we can't do much about. The locks are growing, and it was rather flattish last year. Locks are doing rather well, and that is because both digital door locks are selling more, and we see also that the retail business is increasing, meaning that people do replacement of their locks more and more. Which is something we have expected all the time. When we went in here, the market was only new construction, so there was only the doors in principle that you could do. We're also growing more and more on the locks for one other reason. We sell more and more to our own door companies that install the doors complete with locks. That is also positive that we see.
70 doors, 30 locks?
Yeah. The door is ready set with all included. In the past, only the door went in one channel and the lock went in another channel. Now more and more we see that those two will come together. I think it's partly because we do it, and we sort of change the market in a way that we provide a complete solution rather than only one lock or one door.
Great, sorry to keep asking, the north as % of China sales, if we could have that.
If you go there traveling, you will be sad to see how many empty houses there are. It is empty, there are too many houses built and constructed in there. I don't think the population, I'm not so familiar with all the details of China. As far as I know, the big conglomeration like Beijing, Shanghai, Guangzhou, a few other places, they are growing at a good pace, they continue to grow at a good pace. We are growing in those areas. Unfortunately, for historical reasons, it is where, Pan Pan was a company which is our residential company, most of its premises or activities are up in the north. Therefore we are sort of living with the market that we see. Doors you can't ship across China, they will come as scrap when they arrive to the customer site.
You can't move them over very long distances, it costs a lot of money. You are sort of relying on your infrastructure. Even though we've opened two factories in the south, it takes time to grow those.
You're still over half North China in terms of your sales mix in China?
Yes. We are over-represented in the north, yes. That value is added also in part for locks, because they go also with the doors.
Yeah. Thank you.
Still, the locks are growing. Okay. Thank you, Andre. I think we try to limit it to one question because we still have a lot of people in the line. Next question, please.
The next question comes from Andreas Willi of JP Morgan. Your line is now open.
Good morning. Thanks for the time. I would like to ask a question about the management changes. You had announced yesterday the departure of Juan, who is going to Dometic, and today Magnus is leaving. Maybe you could talk a bit about these changes and what your plans are for the replacement, internal versus external, and maybe also a bit more background on the departure of Magnus. Thank you.
Magnus has been our head of APAC for the last four years. He did not get his family with him. That was the intention. The family moved out and left him, not him. He's still married and everything, so there's not that. It has been a hardship for him. He came and asked then to be relieved from his duty there and go back to Europe, which I think is perfectly understandable after four years. Unfortunately, then we had to support that. That is what we do. We repatriate him back to Europe. Will he stay in the group or not? We don't know. It looks as if he's Yeah, we will see. It might be that he starts somewhere else. He will come back to Europe at least.
On Juan Vargues, I am rather happy, in fact, very happy and very unhappy because Juan has done a fantastic job in Entrance Systems. On the other side, he's becoming a CEO of a Swedish-listed company, Dometic. I think he gets sort of his dream to be a Johan Molin, hopefully, going forward. That I support in full. Those of you that think he has done a good job and can do a good job in the future, you know what to buy him. No, but Juan, I'm very happy for him. He has grown tremendously during these years, and I think he will do a great job. The role of a company that you grow people.
What about the replacement?
Well, the replacement is for natural reasons. The processes are running, so it's too early to give any further comments, but we will have replacement people there. Some of them, hopefully, will be internal. It might be that we also have external and may be looking in both directions, but the preference is to have an internal person who understands our strategy.
Thank you very much.
Okay. The next question, please.
It comes from Markus Almeroth of Kepler Cheuvreux. Your line is now open.
Hi, Markus Almeroth, Kepler Cheuvreux. Can I continue on the management changes and on Entrance Systems in particular? Entrance Systems is quite a big contributor to the M&A growth and we've seen 5% growth from M&A in Entrance Systems. Now that you have the changes, what are the timings of Juan leaving and will I assume that this pace will change now, or how does it happen organizationally? Is it mostly Juan who has been involved in these M&As, or will the pace stop basically until we get a new replacement? If you can talk a little bit about that.
We see no reason to stop acquisitions in Entrance Systems as it is now. Juan is there another 6 months. I think we will have a strong replacer of Juan, at least that has been my role to make sure that he's not alone. As you know, we are a decentralized company. We run every business as a business. Juan has been instrumental in managing this, there are good, strong people underneath him. I'm not that worried, the strategy is very clear. Will it be a stop on acquisitions? I doubt it. I think we will continue to have it in the way we have. The local people find targets, we work from a local basis and add them into our body mass.
Okay, perfect. Thank you very much.
Okay. The next question, please.
The next question comes from James Moore of Redburn. Your line is now open.
Yeah. Hi, everyone. Can I return to China, please? Can I ask how the China steel door revenue stream, specifically excluding locks, developed quarter-on-quarter, second versus first organically, and do you still see the APAC margin decline for the full year 2016 limited to 200 basis points decline or less, which basically means a better development year-on-year in the second half, or is that now more at risk?
Well, if I start by the margin, we said we will have a dilution by 0.2%. We knew, and I think I even mentioned that the first half will be stronger, and it is around 0.3%, and it will be less in the second half. We said that we will probably have a margin level of something around 10%, 10.5%, something, and that is also what it looks like. Sometimes you're surprised how accurate you can be. Hopefully, I am that also in the second half of the year. It's very difficult to really know exactly. I'm not worried about really the situation, the margin goes down for two reasons. One is the volume is down, but that is not perhaps the main reason, because that we compensate by cost savings.
It's the steel and the market is empty, people are biting, meaning that they don't use price as the parameter to get volume. That is very hard. That is what we are fighting, therefore we can't get the price up. We foresee that. That is why we thought the margin will drop. It's not dropping because we are losing margin due to inefficiency as such. It's more due to that we don't get compensation for the steel price increases that have taken place.
That's clear. Can I get back to the China steel door revenue and how it's developing sequentially, or whether it's just a year-on-year lapping effect?
Actually, it's meaningless in our business. It's very seasonal. If you compare with the first quarter, it's growing tremendously. The first quarter is no season, and it grows the most in the fourth quarter. If I look to relative to last year, which I think is the interesting part, it's only now in the second quarter we saw also the season begin. I don't think it's going to shrink a lot this year. It has shrunk already, the market. We are sort of relying on the market, but for what it looks, it's a reasonably good demand. We have a lot of quotes out, but there is a lot of hesitancy among the customers really to take decisions. I can't do much about that. Even the decisions we have, we have good orders on fire doors for commercial usage, but we can't ship them.
No customer wants them. We'll be sitting with those doors even sometime in cases they are built and the customer refuses to take them because he has even paid for them, some of them. Amazing in China, I must say. Some of them are even paid. Customer says, "I can't take them because I don't want them." It's a difficult situation, but that is the case every time you have a market shrinking, so on. We have to manage it. As Carolina said, we are very cautious about receivables as well, which is of course not helping the volume evolution as such. There we have some good evolution, at least.
Yeah.
James? Go to the next question then.
The next question comes from Daniela Costa of Goldman Sachs. Please go ahead.
Thank you. Good morning. Just one question, actually, sort of touching upon cash conversion in Asia. You just mentioned you were very strict on receivables, but the cash conversion seems to continue to be very weak and even has sort of slowed slightly down, I guess, in Asia in Q2. In terms of cash conversion, when do you expect sort of a full normalization to happen in Asia? I guess it's due to China.
Yes, it is definitely due to China. First of all, we have to look what we're comparing with, because last year we still hadn't adjusted the numbers. If we look in this quarter, it's important to relate the efficiency of the capital to the sales and not only in absolute terms. When we talk about the receivables, for example, a year ago we were on 127 days in China. We are now down to 93 days on collections. It's a huge change there. It's still not where we want to be, but it's a big improvement there. We do have, as Johan commented also, on the inventory side. We do have a lot of inventory that isn't then moving also because the customers are not picking it up yet.
I would say the important thing is to work with the processes and have resources at it, and we do, and we see improvement then. We believe that will continue to improve over the year, but it will be related in absolute terms on how the market overall does, of course.
There's one more item as well. We spent CNY 100 million on a building that we decided to acquire, a building where we think we will produce for many years forward. We decided to go for that building. We are trying to get rid of all our joint venture partners, there we had the sort of partner, and we decided to go ourselves.
Okay. Thank you. Just one follow-up on the commentary on the inventory that is not moving. How long do you wait until deciding whether you have to impair this or not?
Well, it depends on if there are orders for it, then it's sort of been signed for, then it's a bit longer. Of course you have some things that have been there for a longer time. Everything more than a year has to be taken provisions for. You have to make estimates for many of the other customers during the year as well. In some cases, we still make provisions much earlier than that.
Thank you.
Thank you, Daniela. I think mindful of time, I think we have time for one more question from the telephone conference, please.
Thank you. The next question comes from Brian McNamara of Canaccord Genuity. Your line is now open. You can ask your question now.
Spit it out, love.
Okay. Go to the next question then please, operator.
Okay. The next question comes from Peter Reilly of Jefferies. Your line is now open.
Oh, good morning. I wanted to ask please about digital door locks in the U.S. You talked a lot on this call and previous calls about the strong growth in digital door locks, but U.S. is still very much a commercial market for you with very low residential exposure. Is it a market you're planning on acquiring in? Are there obstacles that stop you being much bigger in that market? How? I guess this is one of the biggest opportunities globally. Maybe you can talk about what you're trying to do to expand your presence in digital in North America.
Well, I'm not sure about the exact number, but we have more than 1,000 outlets now in the residential sector where we have our locks exposed. We are coming into that sector. We are interested to expand. We are, for obvious reasons, looking then, is there anything that could accelerate the presence of our locks into that segment? I have no news today about that, but for obvious reasons, there is a market that's going to explode in a way, and we think therefore you need to be in many outlets, and we are looking for that. Several of the outlets in the U.S. have also come to us, and we are having a collaboration with Google that starts from beginning of next year, and that will also pull us into a number of the large chains in the U.S.
There are numerous activities taking place in the U.S. side. We also have a strong collaboration with the biggest home automation company that also starts beginning of next year, which will then expose us to the home automation sector. I'm rather optimistic. I owe you an answer when it comes to whether we will also add acquisitions as one element to increase the speed of our presence, building our presence. On the commercial side, or multi-housing side, we launched ACCENTRA, which is a system for all electronics in a residential multi and family housing environment, and that's a large segment that we have not addressed in the past. There, our new solutions have got a lot of interest from the market, even though it is early days.
Okay. Thank you.
Okay. Thank you. I think that concludes the Q&A session. Before I let Johan make his final remarks, I would like to remind everyone about the upcoming Capital Markets Day on November 15th. Please make a mark in your calendar for that. Invitations to register will be sent out after the summer, but it will be an exciting event, I don't want you guys to miss that. Please, Johan, your final remarks.
We continue to grow 8% in the quarter, even though 4% was currency, but organically 2%, a little bit, in fact, what we said three months ago that we would. We also saw good evolution on profitability and cash flow, as Carolina showed. I feel pretty good today about the evolution. We are growing in every area except three markets. That's Brazil, and that's China, and that is Middle East, which are markets that I think we all know are in a difficult situation. Altogether, a very pleasing quarter where I feel very good and also good first half. Thank you.