Earnings Call: Q2 2017

Jul 19, 2017

Ladies and gentlemen, welcome to Assa Abloy and the 2nd quarter reporting, yet another quarter with good results and good evolution the group. We saw in the quarter organic growth in all division, but APAC, good development in many mature markets as well. And 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, so 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 to 3 working days in a negative direction. Turnover improved by 8% to €19,400,000,000 by on the back of 2% organic, 2% acquired and 4% currency effect. EBIT improved by 7% to €3,100,000,000 with also positive currency effect, and margin declined by 2 tenths of a percent to 16.1%, down from 16.3% the same period last year. And earnings per share improved 8% to DKK1.96 SEK1.96 million. Looking now to the first half of the year, also good evolution, 11% improvement on turnover to SEK37,500,000,000 4% organic, 3% acquired and 4% currency effect. EBIT improved by 11% to €5,900,000,000 with the currency effect positive of €230,000,000 and the margin was flat 15.7 percent, just the same as 1 year back. And earnings per share improved by 12% to NOK3.69, so a rather good evolution. Turning now into the globe and see where we are growing, and 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%. So all mature markets are doing quite well. South America grew 2%. But then we should remember, Brazil is a rather large entity in South America, which was minus 5%. So if you take that into consideration, we grew 5% organically in the other parts of South America. So it's pretty much a good evolution even outside of Brazil in South America, with a few exceptions. Africa grew 2% and APAC minus 2%. And here in this number also, the Middle East is in that number. And outside of China, it's the same situation. We are growing in pretty much every market outside of China with a few exceptions. So also, they are a good evolution. On the market side, a lot of exciting things are happening. What is happening in the world around 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're seeing good demand in that side. And we see now more and more of forwarding companies that wants to deliver home deliveries. So and 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. So when I come home, everything is settled for you. And 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. And 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 the residential home, at least the front door, to go electronic. So 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 1900 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, but there was no show this quarter. But nevertheless, we continue to launch new exciting products. 1 is the Aperior 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 and it hardly consumes any power, so it lasts for years. So 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 being as we speak, being launched into the market. And also with the strange, critical name, Oh1042s, we are launching a new industrial door, a very nice name, by the way. And this industrial door has the feature that it moves 3x faster than a normal industrial door. So this is a hybrid door. It's not a fast high speed door, which we are world leaders in. It's a fast industrial door. And 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. But 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 by through this door. So an exciting addition to our range. Turning now to sales. We can see here from 2012, the last 5 years, we can see that we have come from something like €50,000,000,000 turnover to €75,000,000,000 a little bit more than €75,000,000,000 List this quarter, we grew nominally 4%. But you can see the power of growing organic growth. So a very nice evolution that continuously grow the company into hopefully an ever, ever growing size as such, a very powerful evolution for us. Then 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. But we should remember, we've gone from some 400 in years to 1900 in years during this period of time. We've gone from 10% to 23% emerging market growth. And we bought more than 100 something like 170 companies during this period of time with a lot of dilution, and still the margin is the same. So underlying, there is a lot of improvements taking place within the company. And you can see, as we mentioned also, in this quarter, we have absorbed a negative dilution from APAC, the problems we had in China due to this mainly due to the steel by 0.3%, and still the margin is intact. So we have a very good leverage apart from then the APAC division. On profitability then, there is more fun because, of course, then 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, so a nice evolution in the last 5 years. And right now, the run rate is €12,100,000,000 up from 3.3 €11,300,000,000 or 7% in the last few four quarters, So a good evolution. And one of the secrets is that we do constantly manufacturing footprints. Our ambition is to do only assembly with exceptional steel doors, which you have to do on a local basis due to this expensive to transport. But we convert our factories to assembly units close to the customers so we can configure what the demand is. And the factories that are in redundant, we close simply. So we have closed 77 factories. There are another 11 to go, 12,500 people have left as a consequence, And we have some 12 say 1800 people still to leave in the next 24 months, even though most of them will leave closer to that. And we have SEK 1,300,000,000 in the balance sheet to take care of that change that we are right now implementing. And this is, of course, one of the major secrets behind why we have leverage all the time. And Carolina will tell a little bit more about the savings in this quarter. On the acquisition side, a lot of companies are for sale. However, there are some, I will 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. So we are a little bit cautious. Still, we have done more acquisitions than usual. Normally, we do some €15,000,000 per year. We're already at €12,000,000 and I think we will see more because the pipeline is still very full. And we've added 2.2%, which is a little bit less than normal, but this is due to that the companies we bought are smaller in average. And this has to do with the pricing. The smaller companies are still reasonably priced. We did one acquisition in this quarter, which is Ario in France, a very exciting one. It's a technology company. We are we have a good footprint in solutions, Passport, National IEDs, Driving License and the Klein. This company has mainly is a software company. You can see the turnover, €550,000,000 with only 100 employees. So this is primarily a software company that adds to our ability. We are mainly a machine maker. We make printers and other equipment. So this marriage is a very strong combination into this market. So we think we can do I wouldn't call it miracles, but we can do very well with this addition to the group. And it's also accretive to earnings per share from day 1. So 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 the Eastern Europe. And Eastern Europe has started to grow again. It was a few quarters when it was standstill, and now we see Eastern Europe is picking up again. So a very positive evolution. Goods growth, and 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's not exactly in Europe. And then we see the usual ones where we have normally very good growth, Scandinavia, Finland, flat in this quarter. And 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 for us, we so they all are in the same bracket, stable evolution around the CRM, all 5 regions there. What is growing in Europe and it grew nicely also in this quarter was the electromechanical. So the mechanical side of the business is declining, but it's no declined in the quarter as such. So it's really electromechanical conversion that takes place, which is, of course, for us, Abloy, a very good change. And the margins are better in that field as well. And 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. So we have there very positive leverage of 0.6 percent and in this case, the margin improvement by 0.4% to 15 point 7%. So EMEA is benefiting strongly then for 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. And you can say why is this and part of it is because we had very large orders from AT and T. I mentioned that before last year that I'm not repeating. I can say to my joy that we have signed a few interesting contracts for next year, 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 is positive. So 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, 22.2 percent 1%, 0.2% improvement. But we also here had a negative currency effect of minus 0.2%. So flat evolution on margin. On Asia Pacific, we had minus 6 percent in the quarter. Here, of course, we have an adjustment to be done. It is minus 4% in a like for like because we had pre invoicing in our comparative numbers. We saw strong growth in Japan, South Asia, good growth in South Korea and Pacific. And here again, outside of China, every market is growing. And in China, we had negative evolution about minus 7% in the quarter itself and 4% since the beginning of the year. No drama, and this is very related to the northern part of China, where we see some stocking of apartments of 7, 8 years. So we are not so surprised that they don't continue to build even more apartments. So for a while, there is overstocking of that side. And unfortunately for us, we have a very large footprint in the North. So this is the same story as we have given in the past. And we continue simply to adjust our organization. So we have 11% reduction of our employees year over year, and that means that cost wise, we are rather well positioned. However, we have then the steel where we have with the lack of volume that are 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 Brigitte door locks are becoming increasingly popular in China. We see very good development on that product range as well. So the margin dropped from 14.1% to 11.2% in this quarter, and this is very much in line with what we said. We said we will lose 0 point 2% dilution from the problems we had in China. And right now, we're a little bit higher. On 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. On Global Tech, the organic growth was 3%. Here, we had 9% last quarter. So you see how it jumps a little bit, but this is also, as you know, a little bit of a product business. But also here, they are affected by less working days. We saw strong growth in access control. And here, this is very important. There, the virtue keys are doing quite well. So this is not the first time we see strong growth in access control, very positive. And 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. So very positive evolution. Identification technology did also very well. And usually, the project business, normally, we have a dilution from that. But since we grew also in the top line there and in hospitality, we didn't get much of a dilution this time. We had 18.4 percent EBIT, oneten of a percent less than last year. So we had nice leverage despite then that the growth was not that strong and also that we have added several 100 of engineers that we have to carry for the cost as well. So in my opinion, a great evolution. And then we had acquisitions and currency weighing negative in this quarter. On entrants, from clarity to clarity, strong growth in door components, U. S. Industrial and U. S. Residential. So 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. And industrial doors was flat in the quarter as such. Profit wise, we had a good leverage, 0.5% improvement to 13.4% EBIT, up from 13.2% 1 year back. And you can see here, there's now 28% of our business. So 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. And so we are very pleased with what we do here. Acquisitions weighted minus 0.3 percent as well in the quarter. So therefore, we did not get the full 0.5% improvement of the EBIT. That concludes then my overview. I'd like now to hand over to Carolina that will give us some financial highlights. I'll start to Louis. Thank you very much, Johan. Good morning, everybody. Starting with the financial highlights. First half of the year already gone. Starting then with the quarter. In the quarter, we had 2% organic growth, and we estimate that to be 2% on price and 0 on volume. And the result of that is, of course, because of the Easter effect, because of the 2 to 3 working days difference that we have. And it's bigger in Europe, where we celebrate more Easter than the rest of the world. So if you look at the first half year, you will see 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%, and that is also what we have in the books for the full year. So we have 3% acquired growth for 'seventeen already sort of bought and waiting to be processed into the numbers and 1% over for next year already as well. Currency, still a strong effect in the quarter, plus 4% on the top line. And I say still because we did see a big change of the krona in June. So we got significantly stronger, which basically means that in the Q3, we will be flat on the top line from currency. But then on the Q4, we will see a reduction. And then the full year, if the currencies stay the way they are, will be on 2% from currency. So a top line improvement of 8% translated to an improvement of profit of 7%. So 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. Moving on then to income before tax. So really adding the financial net that is slightly lower than last year with a lower debt. And therefore, the profit was then 8%, added then a stable tax rate and a net income then of also 8 percent improvement. So good result in the second quarter, which brings the first half of the year to a full 12% improvement. And last but not least, the operating cash flow. We have strong seasonality in the cash flow, and the second quarter is still a low quarter. But the year over year comparison shows that we have a 2% improvement on the cash flow and for the full half year also a 13% improvement. So a strong development also on cash for Assafloy in the first half. From the highlights, I'll deep dive into the P and L and the bridge. Starting here with the organic growth. So the 2% organic growth translated into a flat margin. And here, it's really 2 different pieces. We saw strong leverage from especially from EMEA, but also Entrance, but also good leverage from Americas as well as Global Tech, while we had, as expected, the lower margin on Asia Pacific. So 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 and therefore ending on a flat margin from organic growth. Currency. Strong top line, almost the same all the way to the bottom line, but it was a slight dilution from currency with the strengthening of the krona then in the end of the quarter as we had 10 basis point dilution on the margin from currency. And then acquisitions. The 2% acquisitions, we had some acquisitions on the same level of margin as us. But as usual, they are coming a bit lower on margin and then being improved over time. And here, we have the Entrance Systems and also the technology acquisitions in Global Tech diluting a bit. And the total for the group was then minus 10 basis points on the margin from acquisitions, as expected. And with that, we go from 16.3% to 16.1% 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. And I think this slide with the P and L's component of sales shows that in a good way. And if we start here then with the direct material, you can see that we continue to have strong headwinds here and that we have an increase of 50 basis points when it comes to direct material. And 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. So here, we have not managed to offset that fully, and it has an impact here. America is also tough on the door side, on the steel doors especially. They've continued to increase prices but not fully offset it yet. Entrance Systems, significantly improving as well. So better and better there on the door side. EMEA, really in a good shape here, but also less doors and less raw materials. Global Tech, not really affected on the raw material side like that, not those kind of products there. So 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. So we see a significant improvement that we have seen year over year on the conversion costs. So that improved for the first half year with a full seventy basis points. So in total, our gross margin improved with 20 basis points for the first half year. On the SG and 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. So 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 2nd quarter sort of goes from a low first to an okay on cash flow, but it's still a low quarter. And then 1,000,000 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. And 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 development on the working capital. The DSO was down to 52 days compared to 56. And here, I would say we have good control and development everywhere. Still tough in China but improving. The PO, a couple of days lower than a year ago sorry, higher, but that's still okay. Inventory, I mentioned in the Q1 and also in the Q2 that inventory is a bit higher in days. It's 100 days compared to roughly 90 a year ago. But 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. But overall, a really good development on working capital as well and therefore, a good improvement on the cash flow. And with a good cash, you also can see good results on the debt side. And this picture also shows that if we look from a seasonality point of view, the 2nd quarter is our highest when it comes to debt due to the low cash side as well as the dividend. And then of course, it all depends on acquisitions. But as you can see here, we are on €25,000,000,000 in debt, which is €2,000,000,000 lower than a year ago. And therefore, the financial net was also down a bit compared to a year ago. And therefore, also the gearing is now down to 54,000,000, and we continue to see a good level of net debt to EBITDA on 1.9 percent. 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 were up on 12%. So we see a really nice development over the years, but also in the first half of twenty seventeen. And 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 Gavai 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 ARIO, so which I presented earlier today. EBIT improved by 7% and earnings per share by 8%. So altogether, a very pleasing quarter. With those words, I open up then for Q and A. And Matthias also, I think you will help us raise the right questions, right? I hope so. Thank you, Johan. Thank you, Carolina. I will facilitate the Q and A session today. I'm the Head of Investor Relations at AssaBLOY. As usual, I will ask you to ask only one question per person to allow as many people as possible to post questions. And also as usual, I will start by asking a question each to Johan and Carolina. I will start with Johan. So Johan, organic growth year to date has been 4%. So how has Q3 started for you? It has started early days. We are not so far into the mountains we report early, but the forecast is same trend as we have seen from the beginning of the year. So it's 4%. Okay. Thank you, Johan. And now to Carolina. I was you commented 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? Yes. We saw good development of the footprint programs. We're sort of getting skills on doing them now. We had €90,000,000 of savings in the quarter on the MFP. And the expectation for this year, full year, is €300,000,000 in savings. And for 'eighteen, it's €250,000,000 in savings. And then in 'nineteen, it'd be around €100,000,000 €150,000,000 in savings. So a really good development on the manufacturing footprint programs. Okay. That was quick. Thank you. I think we'll start by taking a question here in the audience in Stockholm. Please. Yes. Thank you, Peter Flue and Handelsbanken. Just to follow-up on the sort of additional savings, could you just quantify that also? But to my question then, Matthias, on acquisitions, I hear you, Johan, prices are higher. You work with more quantity. But 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 do smaller and more acquisitions. So 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. So help us to understand what to expect. Thank you. Well, I'm trying to convey that we don't feel stressed because we are below the sort of business cycle 5%. We value money than we value that we grew 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 less or least organized so and 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. And if you get companies in less well organized, then I think you take 2 big risks. So therefore, we have chosen not to do a few acquisitions. But 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. But 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. But we are very interested to continue to pursue our strategy to grow in emerging markets. That's even though we have put a moratorium on Asia simply because or at least China, simply because China is not in the shape to do this. I mean, in a shrinking market, you should be careful. We are very interested in tech. And there, we have done many in recent years, and we continue to do hopefully, we will continue to do those. And you know how high price tax there are on those. It's very difficult sometimes to make good money out of those. And we have bolt on. It's very interesting as well. So 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. But there are many targets out there and in many areas we can grow into. And just thinking about N transistors, we are now €20,000,000,000 and we can grow it to €30,000,000,000 easily. So there are many toys out there. I mean, I was curious. I mean, interest rates are changing, return requirements, stuff like that. But how is it working? I mean, the responsible manager comes to currently, I want to acquire this. No, it's too bad return. Do you get the VAC argument? I mean, how will you explain to investors that there's a likelihood of a 5% inorganic growth in the long term? But most acquisitions are not the way you think you sort of 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 5 years. In Brazil, it took us 10 years. We talked to all these companies. And all of a sudden, everybody was for sale, and we jumped in. We bought 5 in one go. So it's not so that you rule the counterparty. And it's very hard also on the pricing side because most companies, especially in the emerging markets, they think they're worth 26 multiples. And I think you will not be a shareholder in this company if I will say, yes, let's go for it. So sometimes you have to have patience for 5 years or something and then the right moment is there and then you move. So you're the preferred buyer, but you're not the preferred buyer just throwing money on the table, but you need to sort of take it easy. But we have our eyes out. There's a huge pipeline of companies possible to acquire, but we sort of take them 1 by 1 and so and grind I call ourselves a sort of grinding machine. We grind the market gradually and we consolidate where we are, and we add a little bit broader coverage as we go. And 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 this €1,500,000,000 type of companies in the last few years. But there are some companies of that size out there. Thank you so much. Thank you, Peter. And I think you actually snuck in a question in the beginning as well on savings other savings, Carolina. Maybe you want to comment on that. The other savings, we don't have sort of a plan for, but we are happy with what we get every quarter from the divisions. And in the quarter, we saw good savings of €70,000,000 from that. Okay. Thank you, Carolina. I think we 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 under our We have a first question. It comes from Guillermo Panguy of UBS. Your line is now open. Hi, good morning. It's Guillermo Panguy from UBS. I wanted to get some granularity on China. Quite strange to see the momentum turn again for the second time. And I was wondering whether you could specify whether it's just a second turn in the shares and whether it was steel doors or logs, what actually got weaker? Thank you. It's 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. And so it's not so that we are standing without anything to do, but customers don't want to have it. So and I mean 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. But on the locking side, on the dig into door locks, the locks as a whole are growing, and this is very much on the back of the digitor 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. And 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. So 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 EBITDA that we have. But we had 11.2% as a whole for APAC. So I'm not unhappy with the situation considering that it is difficult in China. And are you thinking about further restructuring in China? Your structure is now leaning off to actually cope with the weather? 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. So we are restructuring on a continuous basis. We even started 2 years before because perhaps you remember, but I said that I think the market will shrink by 40%. It's down now 25%. So and I think it will continue to shrink most likely. And the reason for it is because China, in my opinion, is overspending in the residential construction. And 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 operandum. 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. So 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. Then regarding the FX impact, Carolina, can you help us understand a little bit the 3Q, 4Q trends on top line rather than EBIT, where we're basically standing at churn rates? Yes. Because of the increase of the Swedish kroner in June, you can say that for the Q3, we'll probably be flat on the top line. And for the Q4, we will go down, well, up to 4%. So the full year will then be 2% on the top line. And we believe that for the full year, the FX should be roughly flat on margin as well. The next question comes from Lars Brorsen of Barclays. Your line is now open. Yes. Hi, good morning, Johan. I'll stick to one question, as Matthias had said. I had a number though, but I'll go back in the queue. You say it's a good quarter. I don't accept that. It's a mixed quarter at best and clearly very disappointing in China. And 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. Is that to 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 1 or so in Q1 to about 3? That looks like a decent sequential improvement on an underlying basis in Europe, particularly if you're telling me that non Europe, I. E, Middle East and Africa, declined in the quarter. So if you could give me some sense for what you're seeing in volume terms in Europe. And also, I'll be quite keen to understand what you're seeing in Americas. Well, I think generally, mature markets Pacific, like Americas, like Europe are pretty good. So but we I'm a little bit cautious when it comes to Europe. We've been growing in Scandinavian markets or Nordic markets for quite a number of years at a high pace. How much higher can it go? It's a little bit a China case. We have grown and 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 don't know. There are so many parameters that you really can't rule over. So therefore, I'm cautious. I see what I see. We don't work with orders on hand except for on the doors when it comes to new construction projects. And therefore, it's very difficult. You can have 3 weeks fantastic demand situation and the 4th week there's nothing. And it's very, very hard to predict. Personally, I feel positive. And if I look to the Americas, there with the RFQs, requests for quotations, specifications, they are growing at the double digit pace, but that is about 30% a little bit more than close to 40% of our business there. So is that enough then to say that the whole market is exploding? Or what is happening? We've seen very healthy demand on our quotes and activity in the marketplace in the U. S. Will that then manifest itself for the 4th 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 back in volume terms in Europe, if my math is correct? In this quarter, yes. I mean, this quarter, there is no volume. There is price. 2% As you exited Q2. Q2 is 2% price and 0 volume. And then and as I said in my presentation, the mechanical lockings are negative and electronics is growing continues to grow on the Giza door locks and access control is growing at a good pace, so or strong pace even. Just a quick, Paulina, do you see a positive net pricing in Q3 in Americas specifically? Well, it's early to say, but we know that the prices have been increased, and we'll continue to see the effect of that. So 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 for aircraft themselves is that we will have covered the gap on price in Q3, Q4, not the second half of the year. But and we have we are taking prices up for the probably 4th time now in the next coming months. Thanks. Good morning. We'll take the next question from telephone conference, please. Thank you very much. The next question comes from Andre Kukhnin of Credit Suisse. I have to ask on China. Can we just look into second half and take the run rate of H1, which is a minus 4% that became minus 7% in Q2. And as we look at the 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 'fifteen and then that rate of decline was maintained through 'sixteen, what should we be thinking of for the second half evolution for China? I said at the beginning of this year, when we had last presentation that I think this year will end negative in China, and I have not changed my opinion on that. But you are right. There is at least on paper, there are easier comps, but you should remember also the market is shrinking, so this EEC comp might not be easier in reality. So I owe you an answer there, and 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. And I see it's not only AssaBLOY, every company has a difficult situation. So 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. And so there's a lot of growth opportunity, but we are living in a market that is shrinking. Yes. I think it's a 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. But 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? Well, we still have the dominating part of our sales is doors for new construction. So and that's an exposure we can't do much about. And then the locks are growing and it was rather flattish last year. So locks are doing rather well, and that is because we are both negative door locks are selling more, and we see also that the retail business is increasing, meaning that people do a 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 completely locks. So that is also possible that we see. So 70 doors, 30 locks? Yes. So 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 2 are coming together. I think it's partly because we do it, and then we sort of change the market in a way that we provide a complete solution rather than only one lock or one door. Great. And sorry to keep asking, but the north percentage of China sales, if you could have that. If you go there traveling, you will be sad to see how many empty houses there are. It is an empty and there are too many houses built and constructed. And I don't think the population I'm not so familiar with all the details of China. But as far as I know, the big common emigration like Beijing, Shanghai, Guangzhou and a few other places, they are growing at a good pace and they continue to grow in a good pace. And we are growing in those areas. Unfortunately, for historical reasons, it is and Pampa was a company, which is our residential company, most of its premises or activities are up in the north. So therefore, we are sort of living with the market that we see. And doors, you can't sort of ship across China, then they will come as scrapped when they arrive to the customer site. You can't move them over very long distances and it costs a lot of money. So you are sort of relying on your infrastructure. And even though we have opened 2 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 overrepresented in the North, yes. And that value is added also in part for locks because they go also with the doors. 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 Willey of JPMorgan. Your line is now open. Yes. Good morning. Thanks for the time. I would like to ask a question about the management changes. You had announced yesterday departure of Juan, who is going to domestic, 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 departure of Magnus? Magnus has been our Head of APAC for the last 4 years, and 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. But it has had been a hardship for him. So he came and asked them to be relieved from his duty there and then go back to Europe, which I think is perfectly understandable after 4 years. So unfortunately, then we had to supply support that. So that is what we do. We repatriate him back to Europe. Will he stay in the group or not? We don't know. But it looks as if he's yes, we will see. It might be that he starts somewhere else. But he will come back to Europe at least. On Johan Vargas, I am rather happy, in fact, very happy and very unhappy because Johan has done a fantastic job in Entrance Systems. On the other side, he's becoming a CEO of a Swedish listed company, Dometic. So I think he gets sort of his dream to be Joao Mollin, hopefully, going forward. And that I've support in full. So 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 Siouhan, I'm very happy for him. He has grown tremendously during these years, and I think he will do a great job. What about the replacement? What about the replacement? Well, the replacement is for natural reasons. We are 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 an external and maybe looking in both directions. But the preference is to have an internal person that understands our strategy. Thank you very much. Okay. The next question, please. It comes from Markus Almerud of Kepler Cheuvreux. Your line is now open. Hi, Markus Almerud, Kepler Cheuvreux. Can I continue on the management changes and on Entrance in particular? So Entrance is quite a big contributor to the growth of the M and A growth and we've seen 5% growth from M and A in Entrance. 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 and As? Or will the pace stop basically until we get the new replacements? So if you can talk a little bit about that. We see no reason to stop acquisitions in Entrance Systems as it is now. I mean, Siobhan is there another 6 months. I think we will have a strong replacement of Siobhan. And at least that has been my role to make sure that he's not alone. And we have as you know, we are a decentralized company. We run every business as a business. Johan has been instrumental in managing this, but there are good strong people underneath of him. So I'm not that worried. And the strategy is very clear. So will it be a stop on acquisitions? I doubt it. I think we will continue to have it in the way we have it. The local people find targets, and we work from a local basis and add them into our body mass. The next question comes from James Muir of Redburn. Your line is now open. Yes. 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, 2nd versus 1st basically means a better development year on year in the second half? Or is that now more at risk? Well, we said that we will have a 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 0.3% and a little 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. So 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, but 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. But it's still and the I mean, the market is empty, so people are biting, meaning that they don't use price as the parameter to get volume. And that is very hard. And that is what we are fighting. And therefore, we can't get the price up. And therefore but 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 true. And 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? Pension is meaningless in our business. It's very seasonal. So you can't if you compare the Q1, it's growing tremendously, but the Q1 is no season, and it grows the most in the Q4. But if I look to relative to last year, which I think is the relative the interesting part, it's only now in the second quarter we saw also the season begin. It's not so that 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 reasonable good demand. We have a lot of calls out, but there's a lot of hesitancy among the customers. We have to take decisions. So I can't do much about it. And even the decisions we have, we have order good orders on fire doors for commercial usage, but we can't ship them. No customer wants them. So 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'm not saying some of them are even paid. Customer says, I can't take them because I don't want them. So it's a difficult situation, but that is the case every time you have a market shrinking. So we have to manage it. And as Karina said, we are very cautious about receivables as well, which is, of course, not helping the volume evolution as such. And there, we have some good evolution at least. James, go to the next question then. The next question comes from Daniela Gustaf of Goldman Sachs. Please go ahead. Just one question actually sort of touching upon cash conversion in Asia. And you just mentioned you were very strict on receivables, but the cash conversion seems to continue to be very weak and even though it has sort of slowed first one is 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 sort of comparing with because last year, we still hadn't adjusted the numbers. But if we look in this quarter, it's important to sort of relate the efficiency of the capital to the sales and not only in absolute terms. And when we talk about the receivables, for example, I mean, a year ago, we were on 127 days in China. We are now down to 93 days on collections. So it's a huge change there. It's still not where we want to be, but it's a big improvement there. Then 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. So 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. So we believe it will continue to improve over the year, but it will be related in absolute terms on how the market overall does, course. And there's one more item as well. We spent RMB 100,000,000 on a building that we decided to acquire, a building where we think we will produce for many years forward. So we decided to go for that building. We are trying to get rid of all our joint venture partners. And there we have the sort of partner, and we decided to go ourselves. Okay. And just one follow-up on the commentary on the inventory, on the inventory that is not moving. Long do you wait until deciding whether you have to impair this or not? Well, it depends on if there are orders for it and it's sort of been signed for, then it's a bit longer. But 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, but then you have to make estimates for many of the other customers during the year as well. And 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 Elmer Gerrick of Cannad Allianz. Your line is now open. You can ask your question now. Okay. Go to the next question then, please, operator. Okay. The next question comes from Peter Reilly of Jefferies. 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? And are there obstacles that stop you being much bigger in that market? And how because I guess this is one of the biggest opportunities globally. So maybe you can talk about what you're trying to do to expand your presence in digital in North America. Well, we are I'm not sure about the exact number, but we have several more than 1,000 outlets now in the residential sector where we have our locks exposed. So we are coming into that sector. So we are interested to expand. We are, for obvious reasons, looking then, is there anything that could sort of 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, there you need to be in many outlets, and we are looking for that. Several of the outlets of the U. S. Have also come to us. And we are having a collaboration with Google from that starts from beginning of next year, and that will also pull us into a number of the large chains in the U. S. So 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. So I'm rather optimistic. I owe you an answer when it comes to whether we also add acquisitions as one element to increase the speed of our presence building our presence. On the commercial side, we have a launch or multi housing side. We launched Accenture, which is a system for all electronics in the residential multi family housing environment, and that's a large segment that we have not addressed in the past. And 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 and A session. And before I let Johan make his final remarks, I would like to remind everyone about the upcoming Capital Markets Day on November 15. So please make a mark in your calendar for that. I mean, invitations to register will be sent out after the summer, but it will be an exciting event, so I don't want you guys to miss that. So please, Johan, your final remarks? Yes. We continue to grow, and 8% in the quarter, even though 4% was currency, but organically, 2 percent, a little bit, in fact, what we said 3 months ago that we would. We also saw a good evolution on profitability and cash flow, as Carolina showed. So I feel pretty good today about the evolution. And we are growing in every area except 3 markets. That's Brazil and that's China and that is Middle East, which are markets that I think we all know are in difficult situation. But altogether, a very pleasing quarter where I feel very good and also good first half. Thank you.