Earnings Call: Q2 2016

Jul 19, 2016

Gentlemen, welcome to Assa Abloy and the 2nd quarter report, a report that I feel very proud of our good result as I almost said usual, I should be careful, but good result this time as well. Turning to the numbers in the Q2, strong growth in mature markets. So just like we saw in the Q1, we see we saw in the Q2 as well that Europe and America is continuing in a strong way. So we saw strong growth in Americas, EMEA and in Global Tech. And entrance systems that was a little bit more affected by industrial weakness, especially in the U. S. Side, grew in a good way as well. APAC was negative, and that is due to China that continues down, but a little bit weaker situation also in the rest of Asia. Sales improved by 5% to SEK 17,900,000,000 on the back of 4% organic, 4% acquired and 3% negative currency effect, And EBIT improved by 6% to EUR 2,900,000,000 minus EUR 81,000,000 from currency. And earnings per share, thanks to lower interest rates, grew by 7% to EUR 1,000,000,000 EUR 82,000,000. So altogether, a very pleasing picture, I would say. Half year is not very much different. We have seen very similar evolutions in the whole year. Strong development meant despite the challenging market, especially the emerging markets are clearly weaker right now. Strong growth in Americas, good growth in Entrance Systems, EMEA and Global Tech and negative in APAC. It's almost like the same that we saw on the other slide. Sales improved by 4% or $33,800,000,000 4% organic, 3% acquired and 3% negative currency. And profit improved by 5% to 5 point 3,000,000,000 with minus EUR 158,000,000 from currencies and earnings per share improved also 5% to TRY 3.30. We estimate that the tax rate will remain stable at NOK 26 for the year. On the market side, always difficult to choose, but one interesting news is that we are, for 2016, going to be included in the Forbes index, again, among the 100 most innovative companies in the world, which I think is quite nice for small companies like Assa Abloy to be really seen as we are, very innovative. And we have some 1800 engineers, now in fact, more than 1800 engineers turning out quite some exciting products every quarter. It's also strong development in EMEA for digital. Right now, Europe has grown so much on digital. So it's in fact now 33% of what EMEA sells or even more than that is now electronic type of locking system. So very good development. And here in this quarter, we saw a period coming strong. We are launching a new version, more enhanced functionality with very good results. And also smart door locks or digital door locks, as we normally call them, have also developed in a very good way in EMEA, even though we are in early days, I would say. We have also in the U. S. A. Quite some good evolution of our service centers. We have some 7, 8 service centers where 5 now is holding a standard, the basic number of componentry or locking solutions that are off the shelves. So we can ship within the same day if we get an order, which is certainly very appreciated by different kind of construction companies, which have then worksites that needs to have lockings in a very short lead time. So this has become very popular in the U. S. And also on top of that, we have also added bending capability for frames. I've talked about it in the past how important it is to have the frames ready more or less immediately when they are needed. If you get them in there, you also get the door as a whole. So therefore, it's important to be close to the customer, ship them by a short notice and make sure that you are also fill the hole with your door later on. So and both those things have done very well for us in this quarter. I also spoke a few quarters back on the click cylinders that we are adopting into the Asian market. And here have we also seen a very good evolution with a very strong pipeline build, mainly utility companies of various kind are interested in this kind of solution, cloud operated system that is completely electronic and completely tagging on what is happening in your systems. And we had also an order for the first time in Japan of magnitude of $3,000,000 in the quarter. So very attractive evolution here. Looking to group sales. We see good evolution in Americas, as I mentioned, 7% organic since the beginning of the year. We have in Europe, 4% organic growth, also very good score and Pacific, 1% organic growth. Here, APAC is doing very well, but other parts of the group is doing a little bit less. Looking to Latin America, which is also becoming more and more important to us, also grew organic growth 7%. And here, I was surprised because despite some of the declines on 10% in Brazil, we still drove 7% organically in this region, which I think is a very good score. And then here, we have some success with DIY chains and so we just sort of moved our positions in this region. Africa, not much fun news there, unfortunately. They are suffering in Africa or most markets are suffering in Africa for raw material prices that are low. That means the investment levels in construction are low. So we have only 1% organic, which is very unusual for us, I would say, in this region. And then looking to Asia, there China is pulling us down. We have plus -4% altogether, where China is -11%. So excluding China, we are growing. And markets like India is a nice exemption when it comes to weakness in the region, and there are a few others also growing in a nice way. So it's not all black, but we can clearly see that China is not contaminating, but it is affecting a little bit the rate of growth in the surrounding markets. And no wonder this is a big trading partner. As a consequence of China and Brazil also going down a little bit, we can see that emerging markets declined to 23% of our total sales. Last year, it was 25%, but we also made a few acquisitions in the mature markets. This one is one of my favorites. The yellow is acquired growth. The blue is organic growth. Since the financial crisis, we are close to 40% organic growth. And we have grown the yellow also at a very high pace, around a little bit more than 5% since then. So altogether, a continuous growth since 2010. And that has meant for us that our turnover has gone up from €34,000,000,000 to a little bit more than €69,000,000,000 more than doubling. And this quarter was no exemption, 8% nominal growth, not counting then the currency. This is the way we normally count. And here, we have, of course, adjusted then the currencies that you can compare. On the income statement, it's even better. We have something like SEK 5,300,000,000 back in 2010, and now we are running at €11,300,000,000 So more than a doubling on profitability, despite all those many acquisitions that have come in at low margin due to the company. 11% improvement in the last 12 months and run rate right now is €11,300,000,000 So a very good score in the last four quarters. And operating margin follows. In fact, it expanded even in this quarter despite a dilution by 0.3%. And you can see we are in our target span of 16% to 17% profitability. And underlying then, our profitability in this quarter, like most quarters, it has expanded by 0.5%. And this quarter, we had less currency that pulled us down in the previous quarters. So we are then expanding margin by 2 thirds of a percent and the last 12 months to 63%, 0.3%, exactly the same as we had 1 year back. And dilution from currency, we think if currencies are like they are, which they never are, by the way, but if they stay as they are, then we most likely will see currency fade out And we will see acquisitions on the other side. As we have done like a few new ones, some of them with not very high profitability, we'll probably be in the region of 3.0 percent of dilution. Turning now to the manufacturing footprint program, going very well. We have now closed 76 factories since the beginning, so and it continues. And of course, those of you that knows us, only 2 to go. That means we have to fill the bag, and that is exactly what we're going to do. We're going to work with some new ones. And as you know, we are have announced already in Q4, we will take a hit for that. It looks right now like we have very many good projects. We have made some 50 acquisitions since last time. And therefore, we will probably run up to EUR 1,500,000,000 rather than EUR 1,000,000,000 that I mentioned. I think it was last time I mentioned EUR 1,000,000,000. But what I did not take into consideration was that it is we have many good ideas how we can continue to improve efficiency in the group. The programs so far have reduced our staffing by 11,000 people, and we have 500,000 left for the programs that are running, and we have almost €400,000,000 in the balance sheet to commit to those changes. So and then as you can see here, equally important is the closing of factories. We have 99 factories converted to assembly, which I think is also limiting our sensitivity to downtrends, if there is one, because we shared with our suppliers and we have also less investment as a consequence for that. On the margin side, I mentioned we expanded the margin with 2 10ths of percent. We had dilution by 3.3%. So that means the leverage was 0.5%. So a good evolution. And here, price is an important parameter, of course, for profitability. And as you know, raw material has now started to rise. And that means in Q3, we will see a number of price increases to compensate for raw material. Altogether, a pleasing picture with 4% organic growth. Acquisitions. I was surprised myself when I saw I shouldn't be, but I was that we have 9 acquisitions so far this year. The pipeline is full, as usual. We divested Carlogs as we mentioned last quarter. So that is, of course, cooling down the number a little bit. But we have added, say, so EUR 1,700,000,000, about 2.5% so far in the year to our turnover. So we continue to be in the run rate something over business cycle around the 5%. So it looks pretty good. And the pipeline, as I mentioned, is quite full. So let's have a look on the a few of the ones that we did in the last quarter. We have NASA in Denmark, a very nice bolt on complementary acquisition on the industrial side in Europe. Sales and service is their specialty, and they are big in a number of markets where they complement at our footprint. So a very exciting add on to the group. And stand alone, as you can see here, it's not unusual. In neutral to earnings per share, the company did not make much money standalone. So that means it's an interesting, what I would call a target, but an interesting addition to come to our family, I would say. Looking to Demotel in the U. S, that's a tech company, software driven. In the banking world, the banks go more and more into printing cards and banking cards instantly when you move into the office to make people spend faster, a good course apparently. And that means we didn't have a software that we could offer our banks. We can offer them the printers and a number of other things. But now we also have a very powerful software, so we can add the printing, the whole infrastructure to the banking world. And this is now taking place in the U. S. Where the moteler is, and we think it's going to roll out in many other markets across the globe. And this company is a tech company and also a credit to earnings per share rather profitable, and it's definitely enhancing our position in the marketplace even though it's not a huge segment right now. In Eastern Europe, we try for years to come to take a bigger position in Eastern Europe. And you've seen quarter after quarter that we add companies to our portfolio, and MAUR is no exception. MAUR is a very good company when it comes to high end type of cylinders in So 3 interesting acquisitions. I'll turn now to EMEA. EMEA is long since I could stand here and say everything is good. We grew 6% and every market grew. But we should remember also we got a little bit positive effect from the Easter. It's mainly affecting Europe, the Easter effect. So and Europe has grown 4% at the beginning of the year. So it's pretty much in the region where it should be. Strong growth in Scandinavia, in Finland, in Germany and Iberia, Eastern Europe and Africa. And in fact, this quarter, Iberia was the highest rate growth in all companies in Europe, which is quite interesting. It has been going down, down, down, down, down for many, many years. It seems as it extends to a lot of tourists, I think, in part, that a lot of the driving force in Iberia is taking place when it comes to locking solutions. We saw good growth in the U. K, Benelux, France, Italy and Israel. So here, every market was growing. And as I mentioned earlier, LMEC is one of the main pillars. Profitability wise, we expanded margin from 15.1% to 15.3%, but we also had sunshine is there, at least for our type of business. Strong growth in doors, and this is good news because doors are new construction. So that means there is taking place in the U. S. That we haven't seen in many years for namely in within the institutions. We see LMEK very strong, residential strong, very strong, Canada, Mexico, South America, with the exception of Brazil. And Brazil had double digit declines, so which was no surprise to us. That was calculated that it would take basically be like that. And then good growth in architectural hardware, security and in Canada. So everywhere here, like in Europe, every market is, in fact, growing with a few exceptions. Organically, 8%, met by and our margin expanded to 22% to 22 0.1%. But here, you can see the dilution is rather heavy from Brazil. The companies we bought there are not very profitable and, of course, under pressure as well. So we have some dilution from that for the next 4 quarters. We have now 2 quarters with that kind of that dilution. And still, the margin holds up, and we are also investing in more specifiers. Asia Pacific, here you'd like to flip to the next page because it's also good, but still good in a way because looking to margin, 14%, I think, 40.1%, I'm rather happy with that. We see that the mitigated actions that we undertake to limit the loss from volume are working. So we had declined by 0.3%. We had strong growth in the Pacific, good growth in South Asia and Korea. So everything outside of China did rather well, while China had a rather heavy double digit decline in the quarter as such, and 11% since the beginning of the year. And here, we saw there's some 5% of our personnel leaving since the beginning of the year. Of course, we can't do this without outsources. A lot of this is not pure savings, but also that we share the burden of decline with our suppliers. And unfortunately, I can tell you, we don't see much light in the tunnel. In China, we are having a big footprint in the northern part of China, and that will continue as for what we see negative going forward into the year, unfortunately. So that concludes Asia Pacific. A difficult situation, but so far, we have been able to manage in a reasonably way. On Global Tech, here, HRD had a nice evolution. Physical access control is growing at a nice pace, and part of that is our virtualization of keys. We see good demand of Bluetooth solutions and virtual keys for HID. It Should not overestimate, but we see that customers to a very high degree are adapting the systems to go virtual on ID to pass the door. Gov ID, we saw some states now getting money. So we have good evolution on Gov ID. IDT on the Inly side, which is a little bit connected to Gav ID, also continue to grow in a good pace. And Quanta secure type of utilities, airport security, so has a very strong demand here. We have a little bit of problem to follow because the market is really looking for solutions to how to manage big subcontractors among others and a big number of personnel in critical buildings. On the hospitality side, we are now meeting Starwood invoicing last year. That means that it grew, but yes, slightly. But profitability continues to be in a good level. Organically, altogether, 5% growth, a very good score. We are adding more on R and D. So we added some 50 people and in the last year, more than 100 people in R and D. So there's quite some heavy investments there. And we expanded margin by 0.5% and leverage was 0.6%, so quite a pleasing leverage assumption. On Entrance Systems, strong growth in door automatics, European Industrial and High Speed Doors. Most of this is related to Europe. So Europe is now growing better than the U. S, which is MR and Forefront, which we're growing, but a little bit less than we've seen in the past. If you look to the U. S. Side, we've grown some 40% on MRM Forefront in the last few years. So the market has been very solid on those parts. And no wonder that goes to a little bit lower growth rate. And DTAC is mainly Italy. So Italy also was positive in the quarter, which is one of first quarters in many years. EGR Residential was a little bit negative in the quarter as such. But altogether, also here, a very positive picture. Our margin expanded from 12.9% to 13.2%, 0.3% with normal dilution of 0.3%. So leverage here, 0.6%. So a good evolution as well. That concludes my review. I'd like now to hand over to Carolina to take us through the financials. Thank you, Johan. Well, I'm here today on this sunny day, and there's actually quite some sunshine 4% organic growth in the quarter. So we saw a full 4% organic growth in the quarter. That does have a real effect from Easter being in the Q1 this year. So estimate the day effect to be around one day for the group. And also an estimate on the price and the volume, we believe that net price increase is about 1%, and we have 3% on volume. So in total, 4% organic growth, which brings the half year as well to 4%. Then moving on to acquired growth. Here, we also saw a good 4% acquired growth, and that is the net of the divestment of car locks, which is about 1%. It was 5 acquired minus 1 divested and we will see the car locks effect for Logic in Business for the full year than for 4 quarters until it goes out of the numbers. And here is really Americas with the emerging markets as well as Entrance Systems continuing with the industrial door roll up that give us this nice acquired growth. Currencies, last year, a big, big positive. As you could see last year, up EUR 2,000,000,000 in the quarter on top line. Now we're down EUR 400,000,000 and it's really around 3% minus as expected. The half year is on 3%, and we estimate then the full year to be around minus 2% on the top line. But again, with currencies, the only thing we know is that they're going to change. So overall top line, 5% increase. And then I always like to see improved profit, and we did. So full 6% improvement on EBIT. So the combination of the good top line growth as well as some raw material reserves as well as the really nice savings that we had both from MFPs and other areas helped us to improve operating income to 46%. Margin, this is an expansion of margin. And Johan mentioned, if we expanded the margin from 16.1% to 16.3%. So with the good results from the Ternel, we saw 50 basis points improvement like for like, and then we had particular, I would say, dilution from acquisitions and also some from currency. So very good to see an expansion of margin overall here. Another very important one, cash flow. So good results on the cash flow, up 27% year over year. So SEK 2,500,000,000 in cash flow and now we have SEK 3,000,000,000 for half year in cash flow. So a really good development there as well. Finally, earnings per share, even higher improvement than the EBIT. We had a slightly lower financial net, and we estimate the tax rates to be stable, so 26% like last year. And with that, we managed to increase down each percent to 7%, and therefore, the half year is up to 45%. Let's dive into the P and L and looking at the different parts of the bridge. Again, we start with the organic growth. And here, we have the 4%, and we have the divisions. We have EMEA, which had strong organic growth in combination with good efficiency savings that had done a good drop through here. Americas, very strong organic growth as well as direct material released from raw material. So also very strong drop through here. Asia Pacific, tougher, of course, with continued drop on the top line. We didn't manage to have a positive drop through, but I should say that we mitigated quite a bit of it by increased efficiencies and taking out a lot of people on the operations side. Global Technologies, also a good growth as well as a good mix, not too much project sales. So we saw a really nice drop through here as well. And then finally, Entrance Systems. Entrance Systems had good organic growth, but very good savings then coming from basically acquisition consolidation and restructuring as well as released from direct material. So overall, that's how we got to the very nice 50 basis points improvement on the margin like for like on organic. Currency then, minus 3, basically as expected. And as we sort of flagged for in the Q1 that there will be a slight dilution on the margin, and here we are, minus 10 basis points from currency. We were minus 20 in the first. And here, we expect the full year to be around 2 on the top line and hopefully be flat on the margin from currency. Acquisitions, 4% and as usual, on average, lower margins than we have and therefore, a dilution of 20 thirds points from acquisitions. Decent view of the P and L, components of sales. And here, we compare the first half year. We continue to see strong improvement on the direct material line. So for the half year as you have here, you have 70 basis points. I would say around half of that comes from underlying raw material and the other half is really from mix. Because if you move on then to conversion costs, what you can see is that the conversion cost is basically flat. So therefore, the mix shift between lower direct material products versus conversion costs. If I just look like for like at conversion costs, it's an improvement there as well, thanks to the MSP. So overall, the gross margin improved with a full 60 basis points in the first half year. And some of that we then spent on increased R and D as well as salespeople and specifiers. So for the first half year, an expansion of the margin was 30 basis points. Adding back then the acquisitions, and we are back on flat for the first half. And again, we have this curiosity with the lower direct material, including acquisitions, and that is really because we have divested car locks who are significantly higher on direct material. And therefore, the total is even lower on direct material, including acquisitions. Cash flow. EBIT is good, cash flow is better. So here we can see that in the second quarter, cash flow really came back. And we have a even year over year due to seasonality, we really need to compare year over year the quarters so that we have a significant improvement on cash flow. So we've got 27% to SEK 2,500,000,000 in the quarter for the group. Within that, you need to take into perspective our size and therefore, we follow very closely our different KPIs, especially in working capital. So if you start with the DSO, we are on 56 days, which is basically flat compared to a year ago when it was 5. And then we have the 7 on Dutio, which is an increase. So we now have no gap between Dutio and Dutio, which is very good. Inventory actually down to SEK91 from SEK99. So overall, that helped release cash and in combination with a good profit from the business, we saw a very good operating cash flow. I would say though that we continue to see tough times in China, and we continue to have to work hard on collections in China. And it's not going to be over until next quarter either. So we're going to have to just, like Johan said, there are a couple of plus times ahead, and we need to continue working also the credit risk and also on the do so in China here. But overall, a very good picture for the group on cash flow. Net debt. Well, we are on SEK 27,000,000,000 and compared to a quarter ago, the SEK 500,000,000 higher, we have the good cash flow from the approaches and then we have the dividend and some payment for acquisitions. But what I think is really interesting is actually to compare a year ago because basically, we only have increased the best with EUR 500,000,000 if you compare it to a year ago while the group is growing. So that really shows when you look at the recent KPIs. So therefore, the gearing is now down to EUR 64,000,000. And also, maybe even more importantly, in net debt, EBITDA is down to 2.1%. So good development on the KPIs here. Earnings per share then, finally. Brent, starting with the top line. It's up 5% on the top line and EBITDA increased 6%. And then with the lower finance debt, we actually increased the earnings per share with a full 7%. So a very good development for the quarter, which brings the half year to 5% increase on earnings per share. And with that, I give back to you, Johan, for conclusion. So thank you, Carolina. Conclusions are of the pleasing this time as well. Good growth by 5%, 4% organic, 4% acquired growth, as Carolina just showed. Strong growth in mature markets, which is, in fact, where we have the majority of our sales. So I think that is a solidifying factor. We chosen as one of the most innovative companies in the world, which I think is also a very strong mark for the group what we can achieve. And EBIT improved by 6%, and the cash flow improved even more by 27%. So with those positive words, I open now the floor for Q and A. Right. Thank you very much. I'm Frederic Oleg from Nordea. I'm here to facilitate the Q and A. I've been asked to instruct everyone to keep it to one question at a time so that Johan and Karolina have a chance to answer them properly. With that said, I'll start with one for Johan. 4% is obviously a very good growth number. Americas and EMEA impressed with the quarter. Is there any specific trajectory through the quarter that you'd highlight? And with that said also, what has the Q3 started like in terms of growth numbers? That was 2 questions. You're starting in that way. And if I start with the easiest one, the quarter July, for those of you that count working days, we do. It's 2 working days less. So we see 1 minus 1% in the cards right now, which I think is not a bad score, which is pretty normal. When it comes to the perspective of growing, I think we have to realize the drag that we have from APAC due to China is going to continue. So I have not changed my idea about what we're going to grow, and that is between 2% 4% for the year. Where we will land, I don't know. Mature markets are doing well, but we lose at least 1% from the drop in China, of course, internal and so on. But if you look at the Americas then and Europe, is it your opinion that you're taking market share? Or is it in line with underlying markets? It's a very, very complicated market, so it's difficult to tell. We don't have our competitors you can't compare right over. We are not doing bad because of anything like that. We are doing okay. And at least in some segments, we are growing more than the surrounding work. But it's very hard to say generalize and say everywhere, we are growing much more. So but we are doing quite okay. Okay. Carolina, then on the margin and the margin expansion in the quarter, how much of that was referring to the raw material tailwind? Yes. We have looked at the raw material and the underlying, and we should be aware of that it's quite a small part of our direct material that is related to raw material nowadays. So as Johan mentioned, tried to outsource quite a lot and have done so. We saw raw material helped basically in Americas and in Transistence. So there we had some help. But on the other hand, we had inflation sort of basically balancing that off. So what helped us with the expansion is net of that is the price increase as well as the restructuring. Okay. Can we put a number on the margin? Can't define it as tight effect. If we mark to market FX then and raw materials looking into the second half, you said FX was roughly flat. Was that for the full year? Or is it second half number? What we believe, assuming now that the FX sales as it is now, is that the full year top line effect will be 2% and that the bottom line will be flat on margin. And since we are now down 20 basis points on margin by H1, that means there will be a slight positive effect on the margin in the second half for that. And then raw material once on the raw material, what you have shown is that raw materials continue to go up actually, but that is not necessarily a bad thing for us because that's what we do then is that we can, in a very nice way, continue to increase prices, which actually gives us a better leverage than the savings we do when raw materials go down. Okay. Let's go to some questions in Lund. Peter? Helio, Handelsbanken. I'm sorry about on China then. I think an impressive margin given the circumstances. You've mentioned you've taken out almost 600 people. So how much left is there to do? I mean, you're starting to shrink the business and taking down costs quite significantly. So us a bit about the actions and if there's still flesh out there and combined to that on eventual write downs and maybe positive effects on earnouts also? Do you want to do the flash part? Yes, you can take the earn out first, I think. Yes. You talked about the first thing apart was on the possible write downs. I think what you do is as you go, you always provide for possible bad debt. But so far, the estimate we have and we did in Q4 on sort of a major chunk, that was what we estimated then. And for now, we don't know. So we do our work and we will say. When it comes to the other part of the question, the earn outs, I think with earn outs, there are some small pluses and minuses. But basically, we try to sort of balance that out so that it doesn't have any effect on sort of the margin. If there are any larger divisions, plus or negative, like we had, then we will clearly speak about that. Looking to China, then what we call Flesh, I recall it our good employees. So that's a little bit different. We are not aiming at reducing like that, but we have, of course, still quite some possibilities for continued outsourcing, which we are doing and the fact that that is what you see very much. We can leanify our factories, put a better flow in. We automate, to some extent, some of our manufacturing lines. I estimate personally that it's far from over in China when it comes to the way we can rationalize. We still have 22 facilities in China. So there is also potential then to reduce the footprint to become more efficient from a footprint point of view. So but in all these things not to lose control, you need also to have it in a structured way. So therefore, it is something that takes time. And that's why I say it's very hard to follow when you have minus 11 of turnover. We had negative leverage in APAC, and that will continue as if it's dropping at this pace. You can't reduce cost at the same pace, unfortunately. But you should remember, China is some 7% of our total, and it's not a major item of our profitability. So I think we will continue to manage it in a reasonably good way. Okay. So I think we have some questions from the telephone conference. So let's go ahead, please. First question comes from the line of Ben Maslend from Morgan Stanley. Please go ahead. Your line is now open. Thank you. Good morning, Johan. Good morning, Carolina. A question on Americas, please, and the very strong 8% growth. You mentioned that the residential market was strong. Can you talk a bit about the nonresidential market and whether the growth you're seeing is coming from the kind of commercial and office part of that segment? Or are you seeing growth in the institutional schools and hospitals? Any difference in trends that you see there? Residential is not the strongest growing. It grew strongly, but not the strongest. And it's institutions on the other side did very well in the quarter and especially the doors. And the doors is, of course, new construction. So there is some expansion of the number of buildings that are in this region where we catch a piece of. So that looks very positive. When it comes to quotes, we see that quotes are still growing at a high pace. So that means that the market is still in a decent demand mode. And then just a quick follow-up on Global Tech. You said government ID returned to growth on the back of your customer cash flow improving. Can you talk a bit about how the pipeline looks and whether you would expect that recovery to carry on through the second half of this year? If you try to predict Gav ID, I think you are making an error. So I will not predict it. I tried it in the past and I barely failed. It is very, very difficult because it's very often you have a delivery of $4,000,000 $5,000,000 which makes a difference in the quarter for you. And you have it or you don't have it. What we can say is that the total order stock has grown in the last 2 years, but still shipments have been less. So I'm rather cautious in this. Our next question comes from the line of Daniela Costa from Goldman Sachs. I wanted to ask a question about what you mentioned on Entrance Systems that the sales in European resi have weakened. I guess you also have some exposure inside EMEA to resi. So can you comment a little bit more on sort of what's the underlying trend in European resi? And I guess you had a very high good growth in EMEA overall, so you probably grew in resi inside EMEA. So what are the differences basically on why it's weakening in Entrance Systems? Thank you. It's simple. We have decided to exit France. So it's a decision taken by ourselves. It's growing in other parts. But we also, to some extent, one other market where we have decided to we are too far away with our machines. So to ship across long distances is very expensive. So the profitability of that part of the business has not been good. So therefore, we took that decision on the end of systems. So the residential is growing in Europe, but not for us right now due to that decision. Clear. Thanks. Hello. Would you like to take the next question, please? All right. Yes, go ahead from the telephone conference. Okay. The next It's Andre from Credit Suisse. I have a question on Global Tech and Hospitality. In particular, you said that we've now comped the Starwood shipments. So how is the order book and pipeline looking at the moment? And would it be reasonable to assume this business coming back to double digit growth in the second half? I remember, right, it grew nicely and strongly last year in the second half. So but business looks good. So and Americas has grown over the year before. So I think we will definitely grow, but double digit, I think it's too much to say. I don't know. I hope, of course, but I don't know. It's a reasonably good business right now. Got it. And can I just follow-up on the price increases you mentioned for Q3? Could you give us a bit more detail in terms of where you're planning them and what sort of magnitude? Because at the moment, I think you're annualizing 1% as you mentioned in the presentation. So it sounds like we can expect a little bit more for the full year if you're pushing some through in Q3. We're already in the full activity to take another round of price increases. And of course, there are many markets that have devaluated heavily. So those are, of course, our main targets. But also general price increases where the raw material has gone up in the U. S. Has gone up to quite some extent. The same is in Europe and also in China. In China, it's very tough, to be honest, simply because you have this pressure of shrinking volumes for everybody. But altogether, as was mentioned here by Carolina, it's a good situation for us in the sense that we can normally take the price up more than the raw materials, but it is in our numbers. So we are normally helped by inflationary situations on the material side. So we are not very worried. But in every division, we have undertaken price increases, of course, not across the board, in selective areas. And so my expectation is we will cover the raw material price increase. But these are not as high price increases as you've done at the beginning of this year across the board? They will be tailored for the situation, the local situation. So if your country has devaluated, like Brazil, then you increase some 10%, 15%, twenty percent. There's no other way you can do it. In a market where there is like the U. S. Dollar, which is a strong region, there you perhaps talk about 3 gross. And then, of course, it depends how much you have met. It's you don't know it upfront, but we will definitely continue to cover for the raw material price increases and inflation on salary, by the way. Great. Thank you very much. Thank you. Our next question comes from the line of Andreas Willey from JPMorgan. Please go ahead. Your line is now open. Good morning, Carolina. Good morning, Johan. I have a question on your comment you made during the conference call that you still expect kind of the 2% to 4% rate of organic growth for the year that you kind of don't know at this point where you will land. Given you've done 4% in the first half of the year, you've spoken about maybe a better pricing number in the second half. What keeps you from kind of guiding to the higher end of that rate? Because to get down to 2, you need 0 in the second half. I understand your concerns about China, but where else do you have concern that prevent you from basically guiding more to the 4% for the year? Is this the slowdown in the U. S. Despite the good dynamics we see? Or are you more concerned about Europe? Kind of where does that caution come from? China is bad. Brazil is bad. A number of regions are not doing all that well. The Middle East is heavy. Africa is heavy. So I can continue for long. So I think we must realize that growing at 4% organically is a good score. And it would be foolish of me to say that we're going to grow even more, but knowing that China is going to continue to go down. So I think, therefore, I stick to what I said in the beginning of the year. I think this year is a 2% to 4% year. Knowing now that we are at half year, I don't think 2% will be the number we will see. But it's still a very tricky thing, and we normally never predict. But I don't want you to get the wrong idea over that we can now it's from 4% to 5% to 6% to 7%. We are not there. The economies are not supporting that. We are growing in many segments more than the market is growing at our estimation, and that is, of course, benefiting us. And it will continue to benefit us as if we continue to innovate as we do. But it's not going to make us outgrow tenfold the market or anything. Our next question comes from the line of James Moore from Redburn London. Please go ahead with your question. Your line is now open. Yes. Hello, everyone. Johan, Carolina, I have a few small ones. Could I start with savings? Should we expect an MFP 6 in the second half? Yes. Great. And should we think about a charge for that in the second half, would it? Yes. And as Johan mentioned that it's actually so that we have grown quite a lot as a group. So the last one was of €1,000,000,000 But just looking FX wise and size wise, including the 50 acquisitions we have done, it says to us that we have a lot of good projects and potential cases. So therefore, I'll come back to Johan's comments that it's probably more up to SEK 1,500,000,000 and that's a one off charge. And we will package it during the Q3 and make sure that it's all done and dusted by the 4th. Force. And on acquisitions, you said, Johan, the pipe is quite full. Do you have ambitions to accelerate from the 2% to 3% acquisition pace you've done in the last couple of years to the high single digit pace you did 2010 to 2014, now your balance sheet has been redressed? Ambition is always there, but price is not there. Now the price of companies is quite high. So we've had a lot of acquisitions where we have decided not to go. And the reason for it is price. And we would like to have we don't know what will happen to the world I mean, a lot of borrowing is out there in the nature, so to speak. And we don't want to go too deep in-depth ourselves. So therefore, we keep it in a balanced way. And I think a pace of 5% is quite nice, at least I'm not aiming at for the sake of growing to go at least I'm not aiming at for the sake of growing to go much faster. If there is a good potential and opportunity, we will do, but it's not something that we're really running for. We are doing quite well already, 4% this year and the run rate and last year, the same. It's a good score in a difficult market at very high prices. Great. And LMEK, I get the sense, has it accelerated from sort of, I don't know, 10% to mid teens? It feels like it must have. And if so, why is that? Most Elmech products of newer nature are growing at the double digit pace. So but then, of course, we have also older types, just like you have in mechanical locks, and they're growing to a lesser extent. But so but altogether, it's a much higher growth rate than you have on the mechanical side of the business. And in a way, it's natural because every electronic lock you sell replaces a mechanical lock. So it's no way that mechanical can outgrow electronics. But it's a good pace. But it's not so that it's euphoric. But we see customers more and more adopting to electronic solutions, the increase and enhance their security. And this is a trend that has been there for ages, and it's going to continue. It's very good for us. And lastly, just China receivable days, I think you said 120 to 150 last. Could you perhaps give us an update? Yes. Certainly, I can. We are on 126s, and we were on almost 150 in the Q1. But that said, the Q1 due to seasonality in Chinese New Year, it is the highest quarter. So 126 is still around 30 days more than a year ago. So we are continuing to work hard on this issue. Great answers. Thanks, guys. Okay. We have a follow-up question here from room in Stockholm. Andreas, please go ahead. Thank you. So Andreas, please go ahead. So a big picture question. When I think about EMEA versus Americas, dollars 8,000,000,000 both of them is for the first half, so it's like $16,000,000,000 for the year. They're about the same size. When we look 3, 4 years out into the future, if you think about which market is more consolidated, which has more organic growth and technology, Will they be the single side here for years? Or does the 2 be does is you got feeling that one will be physically larger than the other? There are two sides to it. Europe has if the old Europe is 350,000,000, 350,000,000 people, then you have Eastern Europe that has been added. So Europe and also Middle East is a rather Africa. If you add those parts, Europe has higher potential from a population point of view than Americas. But Americas has a much higher growth rate and also population growth. So therefore, if I would estimate, I think America would probably outgrow on organic, the European side, while Europe might grow due to the acquisitions that are bolted on in the new parts of the world that didn't used to be part of Europe. But with that said, personally, I think Europe has a much tougher game to stay on the same growth rate as Americas. It's related to the population. Thank you. Okay. Let's go back to the telephone conference. Our next question comes from the line of Andreas Koski from Deutsche Bank. Please go ahead with your question. Your line is now open. It's Andreas Koski from Deutsche Bank. Firstly, on China. I understand you expect China to weaken further into the second half of the year, but just to get a sense of comparables for the second half. How far below was China in the first half of this year compared to the second half of last year? What kind of sequential decline have you seen year to date from the second half of last year? I don't have that number, I have, but if you You can't really say that because of the seasonality. The Q1 in China is 1 month really. So we try to look at it year over year to sort of have a fair comparison. But I mean, you have seen now that we are double digit down in the first half, and we were down second half of last year as well. So unfortunately, we do when we say that we see continued decline, it means comparing to the lower year over year number for the second half. So we believe we'll continue to decline. Okay. Remember, we have spoken about China. It's overinvesting in construction, especially on the residential side. And many places are standing half empty, though the big agglomerations are growing still. And we have good situation in Southern China. But in some of the areas, remote areas and Northern China, where we have a very strong footprint, is not doing at all well. So and we see on our order intake that we're going to have negative going forward into the second half as well. Yes, maybe you don't want to answer this, but you expect it to be double digit negative also in the second half of the year? No idea, but a good guess would be yes. Okay. And then may I just ask about the calendar effect because you're talking one extra day. Just looking at it mathematically, one extra day would correspond to about 1.5 to 2 percentage points of growth. I guess that sounds a bit too high. So I wonder what impact in percentage points do you think the calendar effect actually had on organic growth for the group as well as for EMEA in the quarter? But it was clearly higher in EMEA since they are not only celebrating Easter but also taking off on a less than when it is Easter. So I think the best thing is to look at the half year because then you basically erase the calendar day effect and you can see the run rates. And for Niel, then we are on 4%. So I think that's how you can see. And you do the same really for the group, where we can say that the whole group is basically on that level as well. Okay. Thank you very much. Telephone conference, please. Any further questions? Our next question comes from the line of Lance Brosnan from Barclays. Please go ahead. Your line is now open. Thanks very much. Hi, Johan. Hi, Carolina. Just a couple of quick follow ups. Just on China, I couldn't hear what you were saying earlier, Johan. Apologies for that. But obviously, in China, we did have I'm sorry to belabor the point on China, but we've some government stimulus measures over the past year. We've seen housing starts improve. Can you give us a sense of what you're seeing more broadly? To what are things stabilizing? And perhaps to what extent is your view of China impacted by your heavy North China exposure? Well, I spoke about it last time, and we see that the larger towns in China are doing quite well. Southern part of China is doing quite well. We are growing in those We have, on the other side, seen quite negative in the northern part and some other areas as well. We see on the commercial projects, the fire door type of applications, a good situation, while we see on the residential doors, quite negative situation. So it's really a mixed picture. Last year, it was the opposite. The residential did very well, while we had the problem with the commercial doors. So very difficult to predict. But I do believe a lot of investment or stimulus that have been given has gone to the commercial side. At least that is what we see now picking up a little bit. But it's I'm talking about now the decline rate that is declining less. So it's not so that is euphoric and far from. And just on EMEA and Americas, on the incrementals there, if I strip back for FX and M and A dilution, you're running in the mid-20s, mid-30s, respectively. Any reason why you can't continue to deliver that into the second half as you raise prices in terms of the operating leverage in those two divisions? I mean, if we continue to see this growth, we do have a lot of savings coming in on both. And I would say the only thing that's going to turn is most likely the raw material then, but to be compensated then by price increases. So with that kind of organic growth, we should be able to have similar nice drop throughs. And just finally on your MFP 6, I know we'll wait for the details into Q4, but should we expect that again to be weighted towards EMEA entrances into an APAC? Can you give us some sense for how perhaps this program will be weighted towards or between the divisions? And it is that we have a lot of good projects in all divisions, but let's call it change cost is high in Europe. So there are project wise more in EMEA and also where the acquisitions have been done in the last couple of years. So I would say that the majority will do that, but there will also be good projects in 2nd, some in Global Tech, some in America. Great. Thanks. Back to the floor for further questions. All right. Let's go to the one in the room here. 4 questions. Thank you. You mentioned in Europe that the electronics side is doing well. Any sense of the bread and butter old school mechanical lock? Is it growing in Europe? I mean that would be a gauge of the actual construction activity. So is that or growing? Please take out the day effects. We are winning many specification projects. That is fueling also the traditional lock insulators. Yes, it's going underneath. But of course, adding the total sum of locks since every electronic lock is a mechanical lock, it's size to electronics. It is always something holding mechanical holding a door, there is a nice growth underlying. So it's bad at all. Follow-up, Carolina, savings, the other savings and the money back in the quarter, please. Yes. For the existing programs, we have around EUR 60,000,000 in the quarter in savings from MSC. We have around SEK 50,000,000 in other savings. What is left of the existing program is roughly that run rate with SEK 60,000,000 per quarter until the end of this year and a small carryover effect stand for 'seventeen. But as you know then, then we will have good start with the new MSPs. Okay. I think we need to round it off here. Unfortunately, Johan and Karolina have a very tight schedule. So Johan, any concluding remarks here? Well, as you can see from my smile, I haven't been smiling all the time. We've also been spoken about China, but I feel very pleased with the quarter and proud also. Altogether with 5% 8% nominal growth, 5% total growth and the profit improvement on earnings per share by 7%. So very pleasing quarter, strong cash flow as well. So with those words, thank you very much. And to all your investors, thank you for supporting us, and have a good summer. See you in the autumn. That concludes our conference call. Thank you all for attending. You may now disconnect your lines. Thank