Earnings Call: Q3 2016

Oct 21, 2016

Ladies and gentlemen, welcome to Assa Abloy and the 3rd quarter reporting. A stable and good quarter, as usual, I only said. Turning now to the numbers. We saw stable development in the 3rd quarter with strong growth in Americas and Global Tech, good growth in Entrance Systems and growth in EMEA. APAC continued negative as we have seen in previous quarters. Sales improved by 3% to SEK 18,000,000,000 with 2% organic, 2% acquired growth and 1% negative currency effect. On the EBIT side, we improved by 2% to DKK 3.20 billion with an almost flat currency effect, only minus DKK 2 in the quarter. And we see now that the currency starts to disappear in our numbers. And earnings per share improved by 3% to NOK1.91 Looking to the full year or January to September, it looks pretty much the same, a little bit stronger growth with strong growth in Americas and Global Tech, good growth in EMEA and Entrance Systems and negative growth in APAC, just like as we saw in this quarter as well. Sales has improved by 4% to SEK51,800,000,000, 3% organic, 3% acquired growth and 2% negative currency. And profit improved by 4% to SEK 8,300,000,000 I mean, negative currency effect of SEK160 1,000,000 in the year. And earnings per share improved by 4% as well to SEK5.21 Turning now to the market side. It's always difficult to judge or not judge, but to choose what to show you. Today, I will share with you about data analytics. That's something that comes more and more into our access systems. In this case, it's click that is getting an addition of this. And what is happening there is that you can see every moment in a building. It's perhaps not so important if you are in your own home, but even there, you can do it. But it's more in an airport or other public facilities where you can see if there's any abnormalities happening in the building or any abuse of usage of accesses in various parts of the building, very important and more and more in demand from our customers. We also see more and more energy efficient solutions. We have showed you several times about our locks that have more or less are now having 0 footprint when it comes to energy consumption. Here, in this case, it's the same in entrance systems where we have launched freezer transportation doors, which are high speed doors, which in a truck container, today they lose a lot of energy when they open have open back doors or side doors on a permanent basis when they load and offload the containers or the carriers. In this case, it saves several thousands of liter of diesel fuel in a year because they are cooled by diesel fuel by having a door that closes the moment you don't need it. So it's a very, very big improvement when it comes to savings. Same in industrial systems, more or less, it's not hermetic, but as close as you can get to hermetic closures, which means that you save cool air or hot air depending on what the climate zone you are in on the inside or outside. So there is no loss of energy when you do load and offload. Customers can also be guided by return on investment calculator so that they can see themselves when do I have money for my money back on my investment as such. You also see with the digital door locks, they have been very popular for home automation, but more and more DIY chains likes to see our solutions also in to be used in by ordinary customers going and buy themselves. They're rather easy to install, so that means that you can buy them off the shelf and install them. So we see a pool from DIY chains in a number of countries in recent time. And of course, we are more than willing for us. This is a new segment because Assa Abloy normally is nonresidential company. But of course, we are not shying away from this opportunity that is occurring in several countries. In the Scandinavia sorry, in the Scandinavian markets, we have unified our locksmiths. It is so that in Sweden, we brought every all our locksmiths under the name of ZEPEGO. We did the same in Denmark and in Norway in recent time. And in the last few months, we have done the same in Finland. And this means that we can service our large customers in the Scandinavian region on a 20 fourseven basis and do installations and do quotations in a sort of standardized way to all those customers. Very important in an area in an economy where sort of access control becomes standard and electronic solutions becomes standard as well. It's very important for our customers. Turning now to the situation in the world. It is just as before. The mature markets are doing quite well this year. America has grown organically 6%. EMEA has grown 4% organically and Pacific a little bit less, only 1%, so a good evolution. Surprisingly enough, emerging markets is still 24 percent despite then the negative evolution we've seen in China with minus 12% since the beginning of the year of volume in our turnover in China. We still have 24% in emerging markets, and this is, of course, partly due to 5 acquisitions in Brazil last year, but that we are growing 6% organically in Latin America, 6% in Africa. And in Asia, there we have a negative -8. So there and that includes also the Middle East, which is also quite weak in these days. So altogether, a rather pleasing picture, a little bit better than I had expected myself, especially for the emerging market. And here, we should remember in Latin America, it includes Brazil that is minus 10%. So it's a good evolution in the other markets, I mean. Turning now to sales growth. Very good evolution if you look a little bit longer scope. You see the yellow, which is our acquired growth, it's about 2% to even up 17% in 2011. And the blue, which is our organic growth that has continued since the financial crisis, between 2% 4% per annum. This year is no exception. And this accumulated, in fact, has more than doubled our sales, up from €35,000,000,000, €35,000,000,000 back into 2010 to more than €70,000,000,000 We are just shooting through the €70,000,000,000 level right now. So more than a doubling of the business, quite encouraging evolution. And this quarter, we had 2% or 4% nominal growth, organic 2% and acquired 2%. Looking then to profitability. We buy I'd like to remind you, we buy companies that normally are not making all that much money. Despite this, by lifting the profitability in those companies, we've gone for more than a doubling of the profitability since 2010. So it's really behind that very strong upsurge on the profitability since in fact, in every year. And in the last 4 quarters, we have grown profitability by 6%. Margin wise, we are in our target zone, 16% to 17 percent EBIT, 16.2% to be exact now in the last 12 months. And in this quarter, we had no dilution from acquisitions and currency. We said in the beginning of the year, currency is negative, and now it has turned positive. So it's nullifying then the dilution we have from acquisitions in this quarter. So it's a flat situation. And you can see then in the last 4 months 4 quarters, we had 16.2% EBIT and oneten of a percent lower than last year. So very, very stable evolution, positive, I must say. And one of the reasons why this is happening is our manufacturing footprint that is doing quite well. And as you know, we are going to launch another one here in Q4, a little bit more than SEK 1,500,000,000 is the costing that we so far have seen, some 10, a little bit most likely a little bit more than 10 factories is going to be closed and a number will be converted. So far in the old program, 76 factories out of 78 are now closed. So we are almost coming to term and 101 factories have been converted to assembly. So pretty much in high cost countries today, the Assamoy Group is an assembly company. And of course, if there is a financial downturn, this means that our load or our exposure to downturn has been reduced, thanks to this rather serious work. We have seen almost 12,000 people leaving since the beginning of the program. So a good evolution, I would say. On the margin side, we lost 2,007 percent. I would say this is mainly and only almost only due to the APAC situation where we have lower margin. You will see that later on the presentation. And we have the flat situation between currency and dilution from acquisition. It was 0 in between those 2. We have savings from manufacturing footprint. Carolina will give a more exact number later on, but it is very positive and also general savings, but we must remember salaries and other raw material have now started to creep up. So it compensates for that. And the loss of 2 10ths of a percent is really related to APAC. And here, of course, due to the drop in China, I mentioned it last time and I'd like to come back to it, that in China, due to that this dropping has dropped so far at the 10%, 12% pace, that will put a load on us to really catch up when it comes to savings. We are saving a lot of money, but not fast enough when it drops at that pace. So we will see a drag from China also in a few quarters forward before we catch up with the decline that we have seen. On the acquisition side, this is the Q1 I stand here and say only one acquisition. That's unusual. There are many in the continue to have good activity, but we don't rule over the exact timing. Still, we have 10 this year, and we have added almost 3% turnover or SEK 1,900,000,000 to be exact on turnover. And we have sold 1 company as well, also really unusual for us, but it happens sometimes. Turning to this Trojan in the U. K, it's a typical bolt on acquisition, very costing. So it means that it adds nicely to our earnings per share. And in this case, it's complement very much our offering in the U. K. Market on doors and windows. And so we get a complete holistic offering to our customers, a very positive acquisition. And I wouldn't call it a no brainer because there's a lot of work behind to get it up to standards, but it is a very good accretive acquisition from our point of view. It's a pity, it's only SEK 220,000,000, but that's why we didn't make 10 acquisitions this year, so you need to do many to get a lot of add on. Turning then to EMEA, an improvement of margin by 2 10ths of a percent, despite that we only grew 2% organically. And here, in fact, it is from acquisitions that we see positive accretion, and this is because we had Carlogs sold 3 quarters away, and car locks was not very profitable. So sometimes you get the dilution in another direction. We saw, as usual, I almost said, strong growth in Scandinavia and unusual in the U. K, strong growth as well. And despite then the Brexit, and it looks rather good, the U. K. Market right now. So probably due to that, it gets a pull from the weak currency. An unusual trend up there is Israel that we haven't seen growing for a while, but in this quarter, it had a strong growth. Germany, Benelux, continue to grow in a good way. And Iberia and Italy are also coming back. There has been declining for many, many years in the past. Finland was on, I would say, unusual way. They're not growing this quarter, while Africa is declining and Eastern Europe mainly Eastern Europe is okay, but Africa is weak, just like the Middle East, as I mentioned earlier, and France is also weak as a market, and that we have seen in many quarters before. But altogether, a rather good picture. And here, I'd like to underline, we had in this quarter 2 extra working days in August when people are on vacation, and we lost 2 working days in July. So there is especially in EMEA, that's very sensitive to the working days. There was some negative effect of that. Very difficult to quantify, but it's definitely the case. In Americas, pretty much everything is growing. Margin is stable on 21.7%, down 0.1% from last year on the back of 5% organic growth. And here, we have dilution then from Brazil, where we bought 5 companies last year of minus 0.6%. So a good achievement, good leverage in what they do. Everything is pretty much growing at a good strongly or at a good pace, 5%, as I mentioned, altogether, except in the architectural hardwares, which is our basic locks. But that is because we have the very big orders on DIY sorry, on home automation for last year that has not really produced this year. So that means that we have a little bit of a drag from that for that reason on our ordinary locks. However, a lot of home automation companies are connecting to us, so we think this is only temporary. And then as I mentioned, Brazil is also negative. What is encouraging is that we see that quotation levels continue to improve on a continuous basis. So even though we know that Q4, we had growth of quite high growth, we still see the potential to continue to grow going forward, and the market is still in a good demand situation. Turning to Asia Pacific. Here is a page that you prefer not to show, but I think it's a little bit tough, but let's go through it. Pacific was growing. Korea was growing as well and South Asia was flat. So what we see is, in fact, repercussion from China where markets surrounding are weakening, at least in a with a few exceptions like India is still doing quite well and a few other markets also. But mainly what we see is that the a few markets are a number of markets are cooling off. We saw continued decline in China by 12%. And here, we continue to reduce our staffing a little bit more than 10% since the beginning of the year or in the last 12 months. So we follow-up, but not fast enough since we are dropping even faster. 12% also for the full year and in this quarter. We dropped a little bit less in the Q1, more in the Q2, a little bit less now in the Q3. Then we did also in this quarter, and I'm sure the ones that are observant have seen that we did a correction related to 2015. 2015 was a tough year, and I was standing here saying we did better than market. And unfortunately, I was wrong. Our people did better in the market in the sense that they sort of add turnover that should not be there. They sort of started to invoice earlier than they should be. We have corrected that in this quarter, and we took then 1, of course, to correct the books by EUR 260,000,000. And we have then neutralized it because due to China, it's not doing so fine. The owners that we are due to come in the market will not come then to the same extent that was planned. And that means that we had an earnout coming in positively into the books as well. So in a way, it neutralized each other itself. Profitability wise, it dropped to 12.3%, down from 15.7%. And here, we have also some one off cost. All people that were involved, which were quite a number of people, they were laid off in the quarter. And so we are looking for new management in a number of locations. We cannot tolerate in the group any kind of conduct in this case. So the moment we got to know it, we send people home straight. Something that's something you have to live within an emerging market, but I'm sure we will get over it rather fast. Organically, we declined by 7%. And we saw then, as I mentioned, then good savings on personnel and so but we had redundancy cost in this quarter in our profitability. However, I like to underline, as I said earlier, that for obvious reason with this kind of decline, if it continues, we will continue to have problems to have the same profit level as year. There's nothing much we can do about that. It's just a few quarters then and then we are back. But the balance will come. It's a matter of time. And on a group level, it has very little impact. Looking to Global Tech, a very positive picture. HIV grew everywhere strongly. Altogether, global tech grew 7%. And we have the only area that grew less fast was physical access control, which is one of the larger areas within HID. So profitability wise and sales wise, we are doing quite well. We have invested divisionalized HRD and the results are quite good and very positive, I would say. On the hospitality side, we signed more agreements on the when it comes to virtual keying on in hotels. So it is developing very well. So we saw very strong order take in the last quarter. However, we have then flat sales. We are now meeting very strong sales from one of several agreements we had last year. It's always tough when you grow fast before to grow fast again, but it looks pretty good there as well. Profit wise, we had a dilution of 0.5%. Profit wise, then we reached 18.1%, down from 18.6% 1 year 1 year back. So a rather flat situation with quite some more investments in R and D. We have almost 100 people more. So what we are working very hard on is virtualization and cloudification of our offerings. So the investment that we see is very good for the future. So a very pleasing picture here. And also in Entrance Systems, a very pleasing picture. Entrance Systems is in big transition, consolidating an industry that has not been very consolidated, doing a lot of acquisitions, having dilutions, but still growing margin to 14.3%, down from 13.9% 1 year back, despite the dilution of 0.2%. So leverage with 4% organic, leverage was 0.6%, very strong. We see strong growth in most areas and good growth in industrial forefront. And the only area that declined in this quarter was our residential doors in Europe. And the reason for that is because we have decided due to long shipments from the Scandinavian market, we will make those doors to France and to Poland that we are not going to continue those. And that means that we have a discontinuation of a part of the business. That's why it's negative. So altogether, a positive picture for Amtrail Systems. Very encouraging considering, as I mentioned, all these changes that we do in there. That concludes my overview. I'd like now to hand over to Carolina to give us some highlights on the financials. Thank you. Thank you, Johan. Good morning. The Q3 continued in a good way for Assa Bloy on most parameters, and I will take you through them here. In the financial highlights, starting with the organic growth, we saw a 2% organic growth in the quarter. We estimate that to be 1% price and 1% volume. It's in a similar trend on the top line in the divisions as in the first half year. And we do believe that we have somewhat of an working day effect in EMEA due to the shift between the holiday months that Johan mentioned. Acquired growth net of 2% in the quarter. So that means that we had the divestment of Carlot, that takes it down with 1%. So we are on growth 3 and net 1% acquired growth, as we spoke about before. The year so far is on net 3% acquired growth. And if I look at what we have in the books already, the full year will then end on the net 3% acquired growth. Finally, currencies, last year's big drama and showstopper, small effect this year, only 1%, 1% negative in the quarter. And the year so far is on minus 2%. And if we assume that the currency stays flat, which basically they never do, but still, then the year will have a full year effect of minus 2% on the top line here. So total in the quarter, up 3%. And if we then look at what it translated into 2% improvement then of the EBIT. And here, we have seen good development in most of the divisions when it comes to the profits, also based on the 2% acquired organic growth with, of course, APAC being the tough one with a lower margin. And within APAC, we have the 2 anomalies in the quarter. On one hand side, the correction from last year with the EUR260,000,000 on the other hand side, release of the earn outs back to the P and L of EUR268,000,000. So basically, wash from those two effects in the quarter. The margin, slightly down from 17,000,000 to 16,800,000,000 and that is really due to the dilution from the acquisitions. Cash flow, always important. 3rd quarter, that's when the cash flow start coming in, and this was no exception. We saw good cash flow in the quarter. And if we look at the year to date number, we are actually up 10% year over year on cash flow. So strong development as well on the cash flow. And then finally on the highlights, earnings per share, in line with the top line growth, a full 3% improvement. And here we basically have a stable financial net and a stable tax rate. And therefore, the overall improvement is 3% in the quarter. And year to date, same development, top line 4% up and earnings per share up, also with 4%. From the highlights, we'll dive into the details, bridge of the P and L. And again, starting with the organic here. The P and L, and again, starting with the organic here on the 2%. And here we can see that we have the different divisions. We have Americas and Entrance Systems, had a combination of good organic growth to strong organic growth and nice leverage both from raw material improvements, but also very strong operational efficiency gains. So we saw a really good drop through from those 2. In Global Tech, also strong growth. Here we had a little bit of a mix. Everything grew, but some grew even more. So a little bit negative mix here and also continued investment in R and D. So basically flat on the margin here. EMEA, 2% growth, little bit low to be able to offset the margin effect from inflation, but EMEA basically managed that as well, thanks to the operational savings mainly. And then we have APAC. APAC continued tough on the top line with minus 7% in the quarter and therefore an effect also on the margin. The combination of the 2 anomalies basically evening each other out, but then the underlying business and as Johan mentioned some of the redundancy costs therefore significantly lower on the margin. But overall, we managed to have only 20 basis point dilution here. Then adding currency, small effect in the quarter, only minus 1 on the top line. And I mentioned in the beginning of the year that we believe that the first half would be negative on the margin and that the second half would be slightly positive on the margin and that is also what we see in the quarter with 20 basis point improvement on the margin from currencies. Finally, acquisitions and divestments. So the net then of the 2% and I would say as expected and as usual lower on margin and therefore also dilution from acquisitions of 20 basis points in the quarter. And with that, we come to 16.8% in the quarter. A different perspective and not only quarter, but looking at the trends for the year so far in the P and L and as components of sales instead, we get this picture. And here what we can see is that direct material has had a big change, a big improvement. And there are, as usual, I would say on direct material, different pieces in this equation. One part is that around a third of this is related to raw material development, and we saw that in the divisions that are high on because they're high security doors and high on raw material content. So that improved. We also have operational efficiencies, which improves the numbers here. And then we also have a mix effect. And part of that comes from China, but also some from the other divisions. And the opposite from the mix effect you see on conversion costs, which is basically flat. And if I look at the units like for like, they are improving on conversion costs. So that's sort of the shift of the mix. But the most important, therefore, is the gross margin and the development here. We have some strong development on the gross margin in the year. So 6% development improvement here. And then part of that has been reinvested in R and D, salespeople, a little bit some IT. And therefore, the SG and A is up a couple percent points. And therefore, the EBIT for the year like for like is up 30 basis points. Then we add the acquisition and the divestments and we get back to the 16.1% because the year so far has had a dilution of around 30 basis points from acquisitions as expected. The P and L should then materialize into cash and it has continued to do so. So this is a picture that I'm very proud of. And to look at development over time, you can see that we have managed to basically transform the P and L profit to cash as well. You also see from here, it's a strong seasonality in the year with the second half being much stronger. It was similar this year. I would say that we had a very strong second quarter and therefore the Q3 is strong. But more importantly on a year to date basis, we are up 10% when it comes to the cash side. And here, you have to look at the efficiency ratios to really see how we're doing. And on the DSO, we have improved 3 days year over year to 53, part of that being the improvement then and the changes in China. On the DPO, we have also improved with 3 days. So also good development here. And then finally, on the inventories, we are a couple of days up to 98 days from 96 days, but continues to be on a good level on the inventories. So that to the cash and then the other side of it, the gearing and the net debt. And I think it's interesting here to see sort of the trend over time. We are now €25,600,000,000 in debt. And if you look at that compared to a year ago, it's basically where we were a year ago. But since the company has grown and the debt is the same, the KPIs here are improving and the gearing is really down to 57. And when I looked at this page, I can say it's only been that low, but basically just before the Cardo acquisition, so on a low level. And an important measure also net debt EBITDA ratio, which continues to be on a good level of 2, thanks to the development of the companies that we buy. Finally then, earnings per share. The quarter had a top line increase of 3% and EBIT was up 2%. And then we added to that with the stable debt situation and basically the stable financial net and the tax rate also stable. We came down to 3% improvement of the EPS in the quarter and a year to date number of 4%, also in line with the top line overall growth. And with that, I give back to you, Johan, for conclusions. Thank you, Carolina. Rather short conclusions. Good growth in the quarter, 3% altogether with 2% organic and 2% acquired growth. Strong growth in Americas, just as we've seen since the beginning of the year and Global Tech as well. And Digit door locks are progressing nicely in the DIY sector, which is a new sector to us to a very large extent. Decline in China continues just unfortunately, just like we said, and stable EBIT development and good cash flow as such as we saw from Carolina. So altogether, a stable and pleasing picture. That concludes our overview, and we'd like now to open up for the floor for Q and A. And we have Johan here. So, Yves Verstrande, so help us ask the right questions. So be nice to us now, right? That would be very nice, definitely. So My name is Johan Mette and I'm with Carnegie. I'm here to conduct the Q and A session. Before we start, I just want to ask everyone to limit themselves to one question just so that everyone get to ask their questions. I think I'll start with 2. One for you, Yuan, on China, obviously. No, but just can you elaborate a bit on what you expect from China going forward? I mean looking into Q4 and then into 20 17. I mean are we approaching some kind of bottom or? I don't know. As I mentioned last time and we talked about it, we are very exposed to the northern part of China due to our door business is quite large in the northern part of China. And that is a problem for us because that region is hard hit. While if you move into Shanghai region, southern part of China, we are growing there. So it's a a dual situation and a number of other towns are not growing either. So it's very hard to say. Personally, I think we have we're going to continue to decline. To what extent, I really don't know. And remember also, we sent home quite a number of our heads. That means that we're now in heavy recruiting to replace those people with hopefully people that are not doing any stupid things. So we are most likely, at least for a quarter forward, in a difficult situation when it comes to management. Yes. And then one for you, Carolina, on these earn outs. I mean, now you took back another SEK268,000,000, I guess in this quarter. What do you have left in terms of earn outs for the remainder of this year and then into 2017, which potentially if the China problems remain, I mean, could be taken back? Well, first I would say that China, since you mentioned that in China there's very little earn out left. So that will not have that much effect on changes. If we look at in total, we have SEK 1,900,000,000 to pay still on acquired companies, both on earn outs and holdbacks. And a couple of 100 of that is still this year and the rest is really in 2017 2018. So that is where we are. And normal situation, yes. And how much of that is from Brazil then if I And that is a little bit further since we acquired them, that's in 'seventeen and 'eighteen. So it's not really for this year, but there are a couple of 100,000,000 there as well. Thanks a lot. Then let's start here at the in Stockholm and then we move over to the telephone conference later. So, Peter, let's Okay. On the do it yourself sort of initiatives, maybe you could share a bit about the base. I mean, how limited that business is today and what you see going forward, but also what your conclusions has been from a more sorry, the U. S. Market is more normal in that sense with the big boxes and your competition there being really strong. And of course, tied to that, the what you're aiming for in terms of profitability in that specific segment. Most are doing bad. Some are doing very, very good in profitability in that specific channel. So that's my question. As I mentioned, the residential market is not very large for the group. We estimate it will be a little bit around 25%, less in the U. S. A, more in Europe and even more so in Asia Pacific. So that but the average is around 25%. So 3 fourths of what we do is non res. On the profitability side, when you move into DIY, it's not all that bad because what you do have is margin that is lower, but as a benefit you have less cost because they take care of the sales. So you don't have the same number of overheads connected to it. So profitability is surprisingly good in that sector. And especially on the I mean residential could be both do it yourself and sort of added channels. We talk about locksmiths and all of that. But if you try to extract that specific channel and try to expand the size there and hence the potential. We are quite big in the U. K. On that side. We sell close to £50,000,000 in this segment. We have it in recently in the Scandinavian markets with good success. We are progressing very nicely. You see Nest build a picture of the Nest lock that is on its way to the market. And that one will then be in Walmart in the U. S. A. So we will see some development there. But DIY has never been our focus in the past. And the reason for it is because coming with the me too offering when you haven't been there before, it's not really interesting. We've seen in Mexico and a number of other markets where we then have added the digital offering that we are very attractive as a partner because that's something new that we didn't have before. And in the U. K, we have also extended our offerings, so we have offering, so we have seen more inroads into that sector as well. So I can answer you that it's small today, but it's definitely going to grow for us. Perfect. Let's move to the do we have any more questions here in Stockholm or no? Then we move to the telephone conference. Operator, please? Thank you. We have a few questions in the queue so far. The first question is from Andreas Willi of JPMorgan. Please go ahead, sir. Your line is open. Yes. Good morning, Carolina. Good morning, Johan. My question is back to China. In terms of the restatement, if you could just explain that to us a bit more. So you said you changed the base for organic growth for the prior year, but the absolute sales number in Asia Pacific hasn't changed. And also what would have organic growth in Asia and separately in China would have been in Q3 last year without the restatement? And maybe if you could just elaborate a little bit more in terms of what exactly has you have done in terms of the accounting change over the last few quarters? And if that's just the last few quarters or is that going back further? Thank you very much. Yeah. The change is not large enough to do a restatement of the last year's numbers. So we have not restated last year's numbers. So the numbers are what they are from last year. But the correction that we have made, we have made in this quarter, it's mainly related to 2015. And what we have done is that we have taken the Plenel effect of this in the Q3 and that is the 260,000,000 that we have mentioned. What we have done though, because the very important is to understand how the China business is doing is that we have recalculated the number on organic growth, so that you can understand how we are doing compared to sort of the true underlying number in last year's China. And for this year, year to date, we are on 12% negative for China and 8% negative for the whole group in China. And as to the last year's numbers, Johan, you may want to comment on? Yes. Last year, we I stood here and was rather happy about the situation in China in the sense that the market we see since we do a lot of OEMing to other door makers, we saw that the other door makers were declining by, in many instances, 20% or more. So then we felt very good that we had a rather slow decline ourselves in relative terms. It was about 7%, 8% decline. But it was a false picture because our people that were inventive and increased the numbers without having a reason for it. So in a way, what we have done and concluded and we saw it, in fact, on the receivables that never really got paid, but they were very smart in rolling them. That's why we discovered only in the second half or after the second quarter reporting. They were rolling them by crediting and reinvoicing. So it was fresh receivables but never paid. So it's very difficult to discover. And the situation in a way is that we exaggerated the turnover from last year. We don't know the exact number, but of course, we have a rather good picture about it, and we are still working on then getting the full picture. So we will have to have some patience before I can be precise on the exact number. Thank you very much. Thank you. And our next question comes from Ben Masden of Morgan Stanley. Just a couple of questions. Firstly, on China, can you just say what percentage of group sales it is now post the restatement, post the organic decline? And then I guess in terms of growth going forward, how has this experience or the problems you've had in China just changed your view at all of the have via M and A, just to do anything differently there based on what's happened in the last 18 months? I think we need to remember 80% of the world population is not living in Europe or in America. So we are not going to shy away. China, there are several ways. You can be like the pre where I used to work at Las Copco, you can be sort of growing organically because of demand for investment goods. We have not investment goods. We have locks. So we have been forced to get into that market by acquiring local players. And I can tell you they were not very conformed with the legislation in China when we acquired them. They are nowadays. But it has been a journey, of course, to get into that position. We have not changed our idea about long term whether or not it's right to go in this direction. We have now 24% return in markets. Most of them are making good money. So it's a matter of volume and structure. Unfortunately, in China, it has been more difficult really to get solid collaborators that really work together with us. And I think one of the reasons is because these companies were manually booked. I can imagine a company with 4,000 employees and nothing is in the computer. We are now installing IT systems every unit that we have. But unfortunately, this has made it possible to have a few low poles that have in some cases been used. When we've seen it, we have immediately taken that person out, but it's still work to be done. But I'm not changing I don't think second, that is not the right thing to go into such a market with 1,300,000,000 consumers that is going to need a lock on their door going forward and most likely an electronic lock as well. So it's a very attractive territory for us. The same with Brazil that is negative now. That's why we took that decision last year. So I feel good about it, but we need to work through the difficulties we have not growing organically, but rather creating a culture that takes some time, unfortunately, but that is part of life. And just in terms of overall percentage of sales? I was coming to that. I was coming to that. I should have started there. 7.5%, down from CapEx. And if I can have a follow-up, the new restructuring program that will come in Q4, can you kind of run through what the main areas of focus are in terms of where the footprint will be taken out? And what level of cost savings should we assume for a €1,500,000,000 charge? Thank you. Yes. The program is still work in progress. We are on a little bit more than SEK 1,500,000,000 in one charge. It's around 10 factories and let's say 40 offices. So in total roughly around 50 projects. Where it is, it's still also work in progress, but a good bet is that quite a lot of that is in Europe because the cost of change in Europe is high. But that said, we have seen really nice projects from all the divisions for this program. And you'll have more information on the savings profile and so on once the program is firm and we communicate that. Got it. Many thanks. Thank you. And our next question comes from Andre Schuyken of Credit Suisse. Please go ahead. Your line is open. Hi, good morning. This is Tian Tian on behalf of Andre. So just a few more questions on China. Can we get an idea on how you're doing relative to the underlying markets specific to your own exposure? And we were wondering if there is any temporary impact from the personnel leaving the company. And related to that, can we please get a rough idea on what exactly is your exposure into the Liaoning province, which we think that's where PanPan's headquarters is based? Well, how we are doing, I think we have disclosed that is minus 12% in the quarter and also for the year. How we're doing relative to the market? I think I have to answer in the usual way. In China, statistics is not so easy to get your hands on. We can see from what we sell locks to other manufacturers that the market is not doing very well. Whether or not 12% is representative for the general market, I don't know. I think it has very much to do with what geography you are in. And we are in a geography, at least in the northern part, which is not so favorable as far as we can see. On the impact of personnel, we let go of those people that were involved, quite a number of them. There was a scheme among the Door Group people. Most of the managers were involved. So unfortunately, we had a rather big number of people leaving, including the financial because you can't do that without having support of financial people as well. Most of those people have been replaced on inter membership or by permanent people. And of course, we are in a recruiting phase. That's all we can say about that. And in the northern province, I'm not sure if I understood your last question, what really that was. Could you repeat that? Yes. What exactly your exposure to the northern three provinces or to Gjallin specifically where I believe the economy is doing very badly? Well, it is much less than before. That is what I can tell. And we don't normally go into those details, but it's less than it was before because we have dropped there quite a bit. Okay. Would you be able to say it's like more than 50% or 30%? No, it's less than 50%. But it is was a large portion of our sales and still is. So I think Okay. Understood. Thank you. Thank you. And our next It's Guillermo Peigneux from UBS. Actually, one follow-up on China regarding the underlying margins. Is there any change in the structure or the mix of the margins as now you change in a way the way you look at the market? Maybe I have a follow-up, but I will ask that later. Thank you. Well, it will take as I mentioned, it will take a few quarters before we catch up with the drop that we had in order to adjust our cost base. China is, of course, when you have a market that has been growing 30 years endlessly to the extent that it is today, And you have, for the first time then, contraction of volume, people start to buy it in the sense that people are less willing than or more willing to give concessions on price. And that is also something we have to live through, which is only natural. And that's why we think it will have a drag a few quarters forward on our profitability. And as you can see here, in this quarter, it was 0.2% on total profit. No drama. Okay. Maybe second question regarding EMEA actually. I'm interested in understanding a bit the trends in Middle East, probably Turkey and also the U. K. Can you elaborate a little bit on how those markets are evolving as we speak in terms of organic growth? Turkey has been negative in the last quarter. Turkey is not a huge market for us. Russia was negative as well, which is also not a very large market, but still an important one. When it comes to the U. K, we saw good and brisk demand. I don't know if people sort of got more positive with Brexit in the local market, but at least we got some quite some nice orders on a broad basis. It's not only from one sector. So the market was pretty good in the quarter as such. And in the Middle East, I think it has not dropped all that much yet, but we see, of course, that the number of projects that are going on in the market is declining. So I'm sure it will drop in the next few quarters. Again, Middle East is not a huge market to us. It's still an important portion of Europe, but not so much. It's like in Italy or Spain that falls off. These are things I think we have to deal with on a continuous basis. It just happens. So maybe actually, I mean sometimes the communication got broke in the conference call, but I just wanted to ask, normally you actually talk about the demand outlook in terms of growth into Q4. I didn't hear that communication and I just wanted to ask whether you see actually the same is continuing and how do you see growth going forward? We grew nicely 5% last year Q4 as an average, and that is all I can say. We have no real crystal ball for Q4. We don't work with orders on hand very much. It's what comes in that goes out pretty much. I mentioned that the quotation levels in the U. S. A. Are positive, and there's no major change in demand. Number of working days is very similar. We have a few one more working day in December, we think. But unfortunately, it's like having them in August, not much result after that. So pretty much flat number of working days. So I think no big change. And we don't give forecast, but we don't see when it comes to looking to the calendar, we don't see much of a difference. Our next question comes from Daniella Costa of Goldman Sachs. Good morning. Two questions and I'm really sorry one is a follow-up on China just to make sure, because the line was not so good that I didn't miss it. When you look at now the reset for profitability for China, is China profitable? And then the second question, you talked about the DIY opportunity. How big is that already in the numbers? And is that margin accretive? Thank you. DIY, we have never been large in DIY. We are large in a few markets. It's not significant, but we don't have the exact number. And in China, not counting them, the correction we did is profitable. Thank you. Our next question comes from Lars Wilson of Barclays. Please go ahead, sir. Your line is open. Hi, thanks. Johan and Carolina, sorry, I need to go back to China. I have just one follow-up, but I did want to just try and understand what's going on here. Can you tell us whether this is relating to one specific acquisition or for the entirety of the China business? And if it's one acquisition specifically, are we done here? And what are the implications or the implications rather as far as control and governance in that business is concerned? And are there any legal action associated with what's going on there? It's concerned Pampan and Fylo window hardware, which was managed by 1 and the same manager. So and then a number of the people that in different locations, which are 10 that were also involved in this part. So an answer to that. Could you repeat the second question? So it's 2 acquisitions, obviously, dating back a very long time. Surprisingly, we only hear about it now. And I appreciate your point you were making about rolling the receivables. I'm just trying to understand what this means the China organization and what you're doing in terms of enforcing the governance and control in that part of your business. We have changed completely, and that has happened since I could say first, why did we discover it? Because we started then to see we saw this rolling and perhaps you would like to answer Carolina. When we were looking into the receivables, there was a part that wasn't sort of being paid. And what we saw now was going really deep down into it that there was a reason for it. And that was that they were too early invoiced. And it is good to well, most likely to assume that when the normal sales started to drop, it was then enhanced by being a bit too aggressive on invoicing and too early invoicing and then basically rolling those invoices, so with time rolling them. And therefore, the biggest jump is in 2015 from this. But we have gone through the entities and we have taken external help on it as well and really go through in a deep dive to make sure that we capture the moment of this. And it's really the effect on the margin and the profit that we have taken now in the quarter, but that's for the full rolling. And it's in the entities that Johan mentioned. And there are legal consequences for that you asked about as well, of course, for the people. And you asked also about any other actions and insurance and of course we have also claimed by insurance. But that's a long process I would say. The most important thing now is to get a grip and get the new managers in and get the business going because that is by far the biggest issue when it comes to our profit, especially going forward. And we have for obvious reasons also changed who can stamp an invoice to be paid. We have changed the purchasing, but that has been done since quite a while. So no one can purchase without having a general agreement. So there are no differences there, etcetera, etcetera. So there are quite some numerous changes that have taken place, not only due to this, but we have done it on a continuous basis. And we are implementing IT systems in each and every unit, which will be concluded by end of 2018 if we follow the if the plan is followed to 100%. And we started to discover this, in fact, by installing IT system, and we started to see it doesn't fit what you have here. And what you say doesn't fit with your what you're going to enter into the system doesn't fit with what you have said before or reported before. But these things, I think, you should not neglect them, of course, but I don't think we should have been blown into a huge proportion. So these things happen when you go in this direction, acquiring a lot of local companies. And it is not so that it's only 2 acquisitions. If you find our Window Hardware Group has been or many acquisitions. So they are with different cultures, different people, different locations. So it's not so that you just take them in and as one entity, it's many entities here. We talk about 10 facilities across China in many geographies. I understand that, Johan. But just finally, you are confident that we are not going to see any more issues from any of the acquisitions that follow on from these. These are obviously very old acquisitions. You've done a full review and are confident we are done as far as these issues are concerned. Well, I can never be 100% confident or I cannot promise anything. I think that would be foolish of me. I think we have to realize what we are dealing with people. And if people are not following the way the things should be handled and we have auditors there, they have been there, they haven't seen it. So how could I see it from my office? It's not that easy. I think we have to realize that this is sort of something that we create over time. And sometimes you have to take one step back. It's no big deal. We will manage it and we will get over it. Thanks. So operator, let's move back to the floor here in Stockholm and take one question. Peter? I, on the other hand, think it's very wise to discuss this matter quite a lot and this is a good opportunity. The stock is down 7%, so the market is very worried. First of all, how large are the 2 entities in relation to the entire China exposure 7.5%. Secondly, if I understand correctly, Carolina, the earnout is basically sort of ended. So would we think about this as demand would stay at current level? There will be no need for further write downs and hence, there would well, there will be no need for reverses of earn outs either. Or and tied to that, if demand would shrink further, would potential write downs hit the P and L sort of clean them? Finally, you mentioned, Johan, you didn't know exactly how much invoicing was boosted last year. But ballpark, is the organic growth in China instead of being down 12% is it down 20% or 15% or 25% or something like that? Those are my three questions, sorry. I can start with the entities then. When we talk about the entities, there are around 10 big entities. So this is not a small part of our China business. Pan Pan is the largest that we have and this is part of sort of the findings there. So we have gone through all the large entities and sort of taken and contained this. And what you see now is the sum of that. And when you talk about the organic growth, I think it's important to realize that what we represent now for this year organic growth, that is the correct number. It's last year's numbers that were too good on organic growth. So last year's organic growth or decline was worse than we saw. This year's what you see, what we talk about the 7% for APAC in the quarter and 12% for APAC China year to date and 8% year to date China, the whole group. That is the real number for this year. And last year's numbers were too good on the decline. The 12% is comparing to an abnormal high number. That's what I mean with the adjustment. We have adjusted it. So it's like for like. We have done that on the organic growth because that is such an important number. Yes. So that's my point that you don't restate. So I want to know if it's compared to the old wrong number last year, is it minus 20 or minus 15 or is it minus 25? No, it's not irrelevant, but you can say that you have because it's through last year and the beginning of this year, most of it is in last year. And we say that probably a little less than SEK 500,000,000 is the top line effect last year and beginning this year. So that is what you're going to have to recalculate on. Okay. And on this earnout write down, this outstanding type of thinking? Well, I would say that earn out is a separate thing from whatever other issues you can have. In this case, of course, the lower performance in China resulted in lower expectant to be paid earn outs in China. But the earn outs in China are coming to an end. If you look at the profile of acquisitions, 3 years have gone. So the earnouts that we have now in the books are for other acquisitions. Could I just add one thing? We are spending a lot of time, and I can understand you're worried about China and so. But again, we have 4 divisions doing very well. Americas is growing making record profit. Europe is doing very well, increasing its margin. Entrance is doing fantastic considering all that we see is growing strongly. And we have also Global Tech growing higher than ever at 7%. So altogether very, very good picture with good organic growth. If you take away APAC, organic growth is quite strong in the group and it's in a market around us that is difficult and still we're growing strongly. And we have China that will give us a drag of a few tens of a percent. So I'm not sure if you really are focusing on the right question that if it needs that much attention. We give it a lot of attention because we don't like what we see. But this is part of birth. Being born in these markets takes some dipping your nose and getting in trouble. And we are in trouble for a short term period and we will solve it. So I don't think we should overestimate this situation. And I see no real reason why we should not carry on. We have fantastic products. We're winning prizes in every exposition we have. So don't get overexcited about China. Let's look for the total and realize that we are doing quite well. I think we have time. We have 2 minutes left. So I think we have time for one more question from the telephone conference, please. Thank you. And the final question then comes from Matthew Spur of Royal Bank of Canada. Please I was going to ask another one on China, but perhaps not given that. You're well, John. I'm very clear on China. The Q4 is the Q4 reported number from 2015, is that the right number to use that base for organic growth? That was the first one. And then I'll probably change tack and I'll just ask about France and what you saw that was changed from I think you said it was good growth in the quarter before and whether you could just elaborate there. Thanks. France has been jumping up and down since quite a while. And this situation is because it's hovering on some kind of bottom. And is it going to increase or go down? It looks as if it's slightly growing. I think we will end this year with slight growth in France as such. It's a big market for us. It's a difficult environment, but we feel that we are doing quite well. So but again, we don't give forecast. But looking to where we are in after September, it looks as if we're going to end the year in positive territory. And just on the Q4 base for China, is that the right number we can use the Q4 15 base for our number to apply organic growth to. Is that right? What do you mean? Or if you're in adjustment? Well, the P and L for Q4 will not change, obviously, but too high number to compare with Q4 in this year. And we will be very specific on what the real organic growth or organic decline would be in the Q4 also for China. But should we use something similar to the Q3 for being too high, so it's 200,000,000? I can't really get into the specifics of that. We're going to have to see that for the Q4 in detail. Okay. Thanks. Then I think we are out of time. Johan, I leave our to you. So yes, you can see I'm still smiling despite all these interesting questions about China. I feel very good. I think we are developing in a very positive way. China, we will solve. We have very strong cash flow, strong EBIT, and we're going to have an EBIT that is higher than last year despite then the difficulties we see around us in the surrounding world. So a positive evolution. So thank you very much. Looking forward to the next quarter.