Earnings Call: Q4 2015

Feb 8, 2016

Ladies and gentlemen, welcome to Assa Abloy and the 4th quarter reporting, a quarter that has been very good for Assa Abloy despite a very challenging surrounding. We saw a strong ending of the year with strong growth in EMEA, Americas, Global Tech and Entrance. So in pretty much, the only area which did not grow well for us was APAC due to the Chinese market that continued in a weak direction. We also made a provision for receivables in the quarter of NOK 250,000,000 which was met by a release of an earn out that did not come through in China for the same reason the market is not doing very well. Sales improved by 15% on the back of 5% organic, percent acquired growth and 6% positive capital. EBIT improved by 13% to 3,000,000,000 sorry, by 13%. And earnings per share continued also to improve by 12% to TRY 1.91. So a very good evolution. Looking to the year, it looks pretty much the same, slightly better. The strong growth in Americas, Global Tech, Entrance Systems and good growth in EMEA. We saw negative growth throughout the year in APAC as well, a few percent. I will come back to that later on. Sales reached SEK 68,100,000,000, an improvement by 20% and EBIT achieved SEK 11,100,000,000, also an improvement by 20%. Just like earnings per share improved 50% to SEK 6.93 So very, very good and positive evolution throughout the company. Turning to market, my favorite slide. A lot of things happen. It's always difficult to choose really what to go after or tell you about. One thing here in the first part is entrance systems where we have seen very good traction from specification where we in fact more and more go into a building and offer the whole building, and we see a very, very good result out of that throughout the world, in fact. So customers are definitely interested to have a full portfolio, total door solution to their buildings. This is also a very exciting order, big order for Click Systems where we go now more and more into cloud. And in this case, it was for workstations where you then can manage your the whole population. In this case, was more than 100,000 units in one go that are interconnected with some 24 I'm not sure exact number, but more than 20 locations where people sit and manage the system as such, completely decentralized but centralized through cloud. And the identities are updated with our CEO systems with the help of a mobile phone. So also that is quite exciting how you can do it in the future. Many customers are requesting similar solutions to their problems or their challenges with security. We saw also very good traction from our flagship shipping system in the U. S. We have now 5 centers in the U. S. Where we can ship it in a few hours to our customers throughout the U. S. A. And we see there has become in a rather short period of time very popular where we sort of ship a given range of products with very short lead times. So strong traction there as well, and we have had this now developing on the last few years. And also on the sales side, very exciting evolution. We have now in CES 1, but today I can stand here and say we have 2 now that would like to have a virtual ID system where you in fact manage your driving licenses with the help of a mobile phone. So the mobile phone becomes the ID carrier rather than you have the plastics cards that you have today in your wallet. So more to tell as we move along in the year. Turning now to the markets. A little bit strange situation in a way because we are used to say emerging market is doing fantastic. We have 1% organic growth this year on the emerging markets, so much slower, mainly due to China, but also Brazil has been weak throughout the year. Mature markets, on the other side, have average grown 5%. And if we look to the different parts of the world, North America grew organically 7%, Europe 4% and Pacific 7%. So complete upside situation to what we have been used to in a number of years. So all mature markets are in fact doing quite well. Looking then to the emerging markets, Latin America, 6% organic growth, a little bit lower, slower this quarter than before and it's due to Brazil. All the other markets are doing fine, including Mexico in this. Looking to Africa, here we see definitely a different situation with rather negative evolution in countries that are connected to oil and also in South Africa, which is connected to raw material where we see demand is flattening as we move forward. We had organically here, minus 2% for the year. And in Asia, due to China, that decline in the year minus 6%, we had minus 1% for the region. All the other markets are almost compensating for the weak Chinese market. This is, of course, a favorite slide where you show then how since we had the recession in 2010 that we've grown here, it says 22%. But if you add 2010, 24% growth altogether. And you can see here the distribution among the regions. So it's clear that EMEA has been and is the weakest area, while Americas has been very strong to us throughout these years. The growth has been between 2% and 4% year after year after year. So it's a very, very solid development, whereas where we see there's good demand, especially on the electromechanical side, which gives us growth on a continuous basis, despite then that there are quite some changes in demand across the globe. This year, we grew 4%. This one is also very exciting in the sense that if you go back to 2010, with the help of organic tender was 24%, you add the acquired growth has been between 3% 17% per annum. You can see then that we have grown from something like SEK 30 5,000,000,000 to SEK68,000,000,000 by now, excluding currencies. So there's no currency in this and that means 94% growth in this period of time. So a very solid evolution. And profit has followed. Stroffes have improved by more than slightly more than 100% from €5,500,000,000 to €11,000,000,000 So we see a little bit margin accretion during this period of time, which you can say many people say to me this is no good. But in fact, we have since we have bought so many companies with low margin, I feel pretty happy about it, I must say. It's very good. You can see here the line on margin is rather flattish. It's 16.3%, between 16% and 70%. It's been there for quite a while, but we're adding a lot of body mass to acquisitions below margin. So I'm very happy about this evolution. This quarter, however, we could not compensate in full for the margin dilution regards to acquisitions. We did several acquisitions in Q4. And also the currencies that are diluting us by 0.4%. That's the transaction it's both transaction and conversion that we are suffering from. And this will carry on for a couple of more quarters and then we'll be gone. And if you think about this, nothing strange. Most markets in the world, with the exception of the dollar itself, have devaluated quite strongly. So it's not much we can do about this phenomena that we are losing. On a year basis, you can on acquisitions and minus 0.3% on carry We thought it would be in that magnitude in the beginning of the year. Looking to the manufacturing footprint, it carries on. We have reinforced with the money we took provision for a couple of years back. You can see here we lost 480 people. So we have extended the program. And Karina will tell about the savings that are quite good both this year, but also looking into year, even though we are planning to take another one, we have made more than 50 acquisitions just last time, we're planning to make one new provision for 2016. We have lost more than 10,000 employees and we have still SEK550 1,000,000 to carry us through this year and into next year. And then we will, of course, launch some new projects as we go along. On the margins, I mentioned that we lost 3.3%. And what is in fact hampering us a little bit is that the price, you can see there are 1.5%. It should be more really, even though I'm very happy with 1.5%. But we really need a little bit more really to compensate in full for the currencies as such. And despite that, I'm, as I say, very happy with thinking about that also raw materials are coming down. So we get help from raw material, but we need a little bit more of price really to be a wash. And therefore, we have currency minus 0.4% and acquisitions minus 0.4% as well, as I mentioned earlier, that is diluting us despite then a positive leverage of 0.5%. And you can see here when currency first dropped, we got to plus. That is what we are comparing with last year. So it's in Q4. So the first effect was plus plus and then it turned negative for us during throughout the year. On acquisitions, very active. I can tell you pipeline going forward is also full active. So it is more in the pipeline. In this quarter, we did quite some acquisitions in emerging markets again. And we added altogether in the year another 4% turnover. Going into next year, we have 3% in the portfolio, meaning that organic growth is minimum 3% into next year. Looking to acquisitions, a few exciting ones. IEI is a tech company. Those of you that are Swedes, you should open up your passport if you carry it and look through and you will see a figure, which is probably your face, if it's your passport. And that is withdrawn by this laser engraving company. So this is a very reputable laser engraving company that does a lot of advanced laser engraving in various parts of ID different kinds of IDs. And it's also, in fact, on banknotes. The first picture that you can see is banknote where they have made a laser engraven, almost impossible to forge. So this is adding very nicely to our eGOV side, more technology, but also to our printing side, the Fargo printing side, more capabilities to be do advanced printing as such. And it's accretive to earnings per share, but only slightly. So it's not a high profited company. Another tech company, very excited for Entrance Systems. This company is historically specialized in elevators intelligence, but also in the door side. So what they do is, among others, IR sensors, infrared sensors. And it really adds intelligence to the door. And these IR sensors have developed so much today that they can do almost everything except face recognition. So they can recognize you from your body or the way you move, and that means that you can also have access control with the help of an IR sensor at the door. They can also be built into the door, so you don't see it. So from an aesthetical point of view, a fantastic change in the game changer, you could say. But it can also read you when you come. Do you have the intention to go through the door or pass the door? If you pass the door, it doesn't open. If you want to go through it, then it's going to see how wide are you and it's going to open in relation to what you need, which means, in fact, that for people then, the building can then be much more sustainable. Environment is losing a lot of heat in the building. So therefore, it's very interesting to open the door in a correct way. And this company is nicely profitable, I should say, even though we will have some PPA on it. And then we have the tricky one, Papais and Udinese. With this, we bought 3 companies in Brazil and one earlier this year in Brazil. And Brazil, as you know, are in heavy recession. So these are, at best, slightly accretive to earnings per share. But of course, considering that the market has devaluated by some 70% the currency, we buy them, of course, then less expensive. So we will have a few difficult years with these companies before we come through. But I have no doubt in my mind, we have taken leadership in Brazil now on the market. And Papais, which you see here, is the leading brand in Brazil from Raputile also in South America. So we're very happy with this addition. And we think the timing was not ideal, but it was the best one because when the times are good, people ask a lot of money. Here, we got something for less money, but more difficult. Looking to EMEA. As such, EMEA is has shown strong growth in Scandinavia, Finland, Benelux, Iberia. And here Benelux, Iberia has been negative for quite some while, so they are starting to come to life. And also Eastern Europe had strong growth. We grew 5% altogether, but only France and Italy, in fact, were negative in the quarter. All the rest are growing slightly. Even Africa was not negative, which is we were very happy about. EBIT declined quite a bit to 16%, down from 17.5%. And here, we have currency 1%. So Europe is very hit. Euro is weak. We buy from other parts of the world, so 1% currency. And we had also from the acquisition side, minus 0.5%, so 1.5% dilution. And in this case, we no leverage, which is very unusual for EMEA and it was 1, to be honest, but we decided to write off receivables in Russia because, as you know, Russia is not doing very well either. And there we see that we have tremendous problems to get paid on all supply deliveries. Looking to Americas, a fantastic situation. 8% organic growth, profit 21%, same level as 1 year back with strong growth on our Architectural Hardware, which is our locks, you can say. LMEK, Canada, Mexico and South America. So pretty much across the board, very strong growth. Doors grew nicely. So you can see doors are growing, but not that strong. That means that new construction is not that much yet, but we see some good statistics. So hopefully, it will keep up the market. And residential was a little bit less strong than we have used to have seen in the last few years. We saw very high activity in home automation. So Assaflois has taken a lead in alarm systems where you use a lock for the door opening. And for the total growth in America, we had a very strong order from 1 of the our parties that, in fact, gave us 3% of the 8%. So there was a sort of exceptional strong growth. There is a rather 5% underlying growth that we had in the quarter. It's very strong leverage, 1.3 percent, eaten up by currency, minus 0.8% and acquisitions, 0.5% negative as well. And I mentioned Brazil, I don't think I need to explain why we have negative dilution from acquisitions. And of course, we took also the acquisition cost in the quarter. Looking into Asia Pacific, a very good situation in a way. Australia, South Asia doing fine, very strong growth, good growth in New Zealand, good growth in North Asia and continued decline in China. We lost 11% of turnover and we also lost likewise 11% of our employees. So we are trying to keep up with this rather bleak demand situation. Organically, the region declined by 4%. And here, we have a positive accretion, which is a little bit strange. It's the only region where we have that, but that is the case. Margin was 14.8%, up from 14.6% 1 year back, but then we had the positive accretion. So real time, we lost 0.5% EBIT margin in a way underlying. So here we are definitely under pressure, but we are, of course, doing a lot of things in order to keep it keep the profitability on a decent level. Looking to Global Tech. Here, also a strange situation. A lot of what is our traditional business is going into emerging markets where we had a lot of good projects with solid margins. Those are drying up right now. So Egal and Diosolutions are 2 of those areas affected, but also physical access control in a number of markets. So our traditional business here did not grow at all in the quarter, while we had a very strong growth in our project sales, which I mentioned those cards for the Chinese market for the banking side. So this gives us a heavy dilution, and that is the reason why we saw 18.4 percent EBIT down from 20%. I'd like to underline also 20% was all time high on margin that we have had last year. We didn't realize it was all time high because we would like to go higher going forward. But at least in those days, it was all time high. Organically, we grow nicely, 8%. So we had strong demand, but of course, the dilution was stronger than from projects. And we also see negative mix then due to that the higher margin business is in fact flat and in some cases, negative when it comes to Bio and Guard ID. Hospitality on the hotel side continues to have a very positive evolution, very much back on the Seos keys that we sell on the virtual keys to hotel chains. So very strong demand situation. Turning then to Entrance Systems. Strong growth there pretty much in most areas, high speed doors, DTEC, MR, Forefronts, American market, very solid demand, good growth also in the industrial side in Europe, which has not been the case in the past. And door automatics then also go doing well in Europe but also in the U. S. A. In the residential side, weaker, a little bit weaker and flex force, which is then component to other companies outside of the group but also to our own companies, is rather flattish as development. Margin wise, we lost 3.10 percent to 15.1 percent, down from 15.41 percent year back. Here, we have dilution from acquisitions, minus 0.4% and we have currencies, minus 0.4%. So in fact, the leverage was good in N Transistors on the back of 6% organic growth. That concludes my overview. I'd like now to hand over to Carolina that will guide you through the financials. Please. Thank you, Johan. Good morning. Strong end to 2015 for Assaf Gloy. I will start with the financial highlights And of course, with sales, a full 15% growth on the top line and very importantly, good organic growth of 5%. We estimate the net price effect to be 1.5% and the volume to be 3.5%. Acquired growth, 4%, so in line with the year so far and the full year end spend on 3% acquired growth. And the carryover effect of buying acquisitions towards the end of the year is actually full 3%. So acquired growth in the books for next year, 3%. Currency, this year's big numbers. They're a bit smaller now. The first half of the year was very strong. And now we said the second half, we've come to a level of 6% also in the Q4 on the top line. So the year as a whole has a top line effect from currency of 13%. Strong top line developed a strong bottom line EBIT, up a full 13%. And in the EBIT, we also have 2 anomalies. 1 is that with China slowing, the expectations of Arnouts is lower, and therefore, we put back around SEK 245,000,000 for that. On the other side, the weak China also brings with you credit risks, and therefore, we have taken provision for bad debt of SEK 250,000,000. The margin. Well, we saw strong dilutions both from acquisitions and from currency. And still, we almost have the same margin as last year, 16.6 compared to 16.9. Adding then to the EBIT, the financial net, a bit higher. It's not necessarily because of the debt, but if you buy companies in emerging markets and the debt balances, those emerging markets means that the interest rates on average is a bit higher. And then the tax rate stable on 26%. And with that, we came down to a full 12% on the earnings per share and a plus 20% for the full year on earnings per share. Big one this quarter though is cash flow. I will come back to that later, but it was an all time high. Cash flow, SEK 4,600,000,000 really catching up on a weaker start of 2015 on cash. With that, let's dive into the P and L. Looking at the bridge, starting again with organic. The 5% organic, well, the combination of good growth and good savings from the restructuring programs gave us a good margin and an accretion of 50 basis points. I would say we basically squeezed in half the manufacturer footprint program within the existing provision by extending the projects that we have. So we see higher savings this year and next year from that. But looking at the different divisions, you'd have to say that the ones that did very well here was Americas and Entrance Systems when it comes to drop through. Global Tech, tough because of the mix, with projects as low margin and therefore diluting on the margin here. Asia Pacific with a drop in sales, therefore also a drop in margin on the organic side. Currency, yes, 6% top line, lower margin on the currency side. It's a combination of the translation. And there, we have sort of the Swedish effect and a lot of other currencies significantly weaker and the dollar on the stronger side. But we also see some transaction effects here with countries purchasing in renminbi and in dollars mainly and therefore increasing their cost base here, compensating that then with price increases. Acquisitions, 4% in the 4th quarter, only 7% margin on those. I would say if you buy 7 acquisitions basically in December, what happens is you don't get much of the P and L into the numbers in that quarter, but you do get some of the cost. So it's a little bit higher than usual, but nothing to worry about there. A full year view on the P and L from a different perspective, components of sales for the whole year. We start with direct material. This is the most complex one. And here, it has increased. And the increase really comes from a couple of things. 1 is because we continue to outsource. Higher outsourcing will give you higher percent direct material. 2, with the mix, negative mix here with the higher direct material, like for example, the project sales in Global Tech, which are very high on material content here. And then also we can see underlying raw material. And there, we have some improvements in most of the divisions, I would say, with EMEA lacking a bit. You have to think about the time between sort of buying and it coming in here as well. Conversion cost on the other hand, very good evolution for the year, and we've seen it for a couple of years. So the manufacturing footprint has really continued to be effective here. So overall, the gross margin improved 30 basis points during the year. SG and A are basically flat. And therefore, the margin like for like improved with 20 basis points from both organic and including the currency. And then we had 20 basis points dilution from acquisitions. I will leave you with a moment to look at this nice slide. Operating cash flow, fantastic cash flow in the 4th quarter. But what the slide also shows is that we have a very strong seasonality. And as you can see, the beginning of the year was slow and then we'll soon pick up an all time high of SEK 4,600,000,000 cash flow. That said, on the working capital level, I would say we are in a very good situation. We have around 90 days on inventory, which is good considering our supply chain. And we have 53 days on DSO, also good. I would say everything is good except China. And on the DTO, we have seen significant improvement. We actually improved with the full 10 days year over year on the DPL. So up to over 60 on the DPL. So positive gap between the DPL and the DPL of almost 10 days. And the low CapEx as well. I would say that within the CapEx, there's a big shift from what used to be brewing machines in factories towards more, other types of investments like, for example, IT. Great cash flow. That's great things to your net debt. So basically, we went from over SEK 25,000,000,000 in the quarter to SEK 22,300,000,000 in net debt. That is actually what we started the year with. So the debt is on the same level as we started the year, but the company is 20% larger. And consequently, the KPIs follow, and we have a low gearing of 54,000,000 and also probably more importantly, net debt to EBITDA that is down to €1,800,000,000 Final slide for me, earnings per share. You will see it on the graph. It's improved significantly during the year. We had a top line improvement of 20%, a little bit of 20% and also earnings per share is up 20%. And therefore, the dividend proposal for the year is DKK 2.65. And with that, I give back to you, Johan, for conclusion. Thank you, Carolina. So the final slide for conclusions. We saw strong growth in the quarter, 50% for the year with 5% organic. Emerging markets also improved to 26% turnover. So we see we continue to expand into the new world and strong EBIT, strong earnings per share and super strong cash flow. So a very good quarter all together. Thank you. We open the line for Q and A. Thank you, Alkernina. My name is Olkern Karangen with Danske Bank. I'll facilitate the Q and A session today. As usual, please limit yourself to one question and one follow-up and management need to leave about 11 o'clock sharp. I'll start with one question to you, Carolina. When it comes to receivables and the problems there you had in China, I think you said before that you had 100 days outstanding in Q2, 196 days in Q3. What's this number right now post this provision? And also, I mean, how worried should we be? I mean, often you see this kind of write downs and then it becomes more afterwards when you see that things become worse. And you also mentioned that you had write downs in Russia. So how should we be about this topic? Well, in China, we are although it was year end, we are on 100 days still, so just for China. So if we hadn't taken that provision, we would have been on 110, 115 days. I think it's important to remember our customer structure, not only China, but the consequences of having a lot of small local customers is that it's very hard to have transparency on their sort of credit ratings. So this is our best estimate at year end. But you'll never know. And considering how tough it is in China right now, I think we'll have to wait and see. We will continue working very hard on the renewables and then take it from there. And demand wise in China, I think you mentioned 11% drop and you had some easier comps in the quarter. Did you see the market go down sequentially? And what's your best guess going forward now? The market continued down as we have seen before. It was really no change. We lost percent turnover. So and in fact, we don't have this kind of negative inclination of the market. So the market is in decline. And I think personally, the losses we have done on sales are rather moderate considering the market as such. If you look to exchange it than others, you talk much and much bigger customer losses. It's not so that we have lost the money, but we think we need to be careful not to sort of hope too much because many customers are in distress. Many customers will most likely go bankrupt over time or many customers will go bankrupt over time. Okay. Thank you. And just on the U. S. And Americas, you had 8% growth and 3% helped by the specific project. Can you just tell us how the some of the important segments you are doing right now, the publics, for example, I mean, is an important segment. Is that doing? What do you see in 2016? And also in terms of specification market, what do you see there? Well, the nonresidential market very well. So we have seen a lot more projects coming into market. So and that is also a reflection why we have grown 8% as such. Then it's not uniform. Offices are more stronger. Schools have been a little bit weaker. However, we see good activity levels here. So probably what we can look forward to is that we continue to grow on a decent this year. 8%, I would not say don't wait and expect that, but something more of 3%, 5%, something like that. Our quotes are going up for some 8% to 10%. So it's a good healthy situation. On the rest side, we see a little bit slower demand. If I may just finalize on my account then. What's the usual question on current trading? What do you see right now? And how much will Easter impact in Q1? Yes, exactly what you said. We have Easter in Q1, so that means a few days we move over. So we will have one working day less, so that means less demand in Q1. January started more or less in line with what we think is realistic in this environment. In mature markets, we're doing okay. Emerging markets in distress. We think something like 2% to 4% growth over the year. Year. Some questions from the floor? Pietro, Handelsbanken. My Yes. Pieter, Handelsbanken. My first question would be on Americas. You mentioned the 3 percentage points of boost to your strong sales growth there. I guess this is rather lumpy, but maybe could you talk about the outlook for this? And if it was specifically in the home automation market, could you shed some light on the profitability on such, so very big activities? Those these margins are lower, but on the other side, your cost is less simply because you have less salesmen relative to your sales. So it's the EBIT margin is quite good, to be honest. Looking then to the activity in that sector, most loan companies are moving in this direction. And Assaflo is one of the few that can offer really reliable locks that are can be connected to the Internet. So and that is the reason why we're enjoying very good demand. And my follow-up then on Global Tech. You mentioned the evolution due to mix in your businesses. Could you help us to understand the magnitude here, the I'm being sort of flattish versus the other being very strong? But we saw the magnitude is that we had hardly any growth in our basic business and decline on Egal and biometrics. Their margins are quite high. They're up in excess of 50%, and the new replacement is something where EBIT margin is only a few percent. So we have a heavy dilution for such a thing. So underlying, the basic business is flat to improving and it's, in fact, improving, to be honest. Otherwise, you will have dropped even more on the volume. Operator, can we take that sorry, one more question here in the floor and then we move to the teleconference. Erik Consul from Baudenhorn Capital. If we see good demand in EMEA and Entro Systems, which is Europe heavy, do you think you'd see better leverage on that sales than we saw in Q4 here going forward? Well, at least I hope we want the write off for Russia receivables every quarter. So the answer is yes. Then we are increasing the prices as we have done 3 times this year. This is the 4th increase that we do in Europe. And but you can't sort of recover the euro minus 20 percent of the RMB, Scandinavia minus 35% in only one go. So it takes some time, and that is what you see on the margin side in EMEA. They're a little bit under pressure. But we have pricing power in this industry, so our estimation is that this will gradually disappear. And Entrance Systems, if we see good demand there for Europe, which is the main business. It's early days there. A lot of the demand in Entrance Systems has been from the U. S. Side. We see a good pickup in Europe. It's too early to say how strong it is. The industrial side in Europe also was good in Q4, which is a little bit surprising because most industrialists have trouble really to get growth. So I'm surprised that they invest in doors. Could you just tell us roughly how big the Russian receivable write off was? It was a little bit more than €2,000,000 Operator, can we take the next question from the conference call, please? James Moore from Redburn Partners is on the line with a question. I have a question on volume leverage. If we strip out the currency and the acquisition impact, and I think something like EUR 220,000,000 of saving and allow for some inflation, there's not been a lot of volume drop through in the group in either the quarter or the second half. And that's a number that's been 30% over time, 5 years, 10 years. Are we saying that this drop through decline is entirely linked to a mismatch in timing and currency and should normalize? Or is there something else in that, that makes you worry about 2016? Well, I think I do believe that the 6 point 7% drop show is a good number. So that is what we had, and that represents 0.5% in margin improvement. So we are not disappointed in point with that number. If we had a raise in taking prices up even faster, it would, of course, have been more, but we risk them to lose business. So I think it's a delicate balance we have to strike here, how much leverage relative how much we can recover on the price. And this is a matter of time. Still, I'm not at all disappointed with that kind of leverage. Many companies have much less. Could I follow-up on the savings? You've consistently done better on the other savings line. Could you give us a view for 2016 on the MST savings and the other savings? Yes. Sure. What we have seen in this quarter is that we had around SEK 80,000,000 from MSP savings, which is much higher than the original estimate was. It was about to pan out during the second half of twenty fifteen. And if we take for EUR 6,000,000, well, we can say that around EUR 200,000,000 of savings for next year well, this year, 2016. And that's all MFP, but anything from the other savings, which seems a big number too? Yes. But from the other savings, that we don't give estimates on, and that is sort of we've gathered bottom up every quarter. Okay. Thank you very much. Next question please, operator? The next question comes from Andreas Willi from JPMorgan. Please go ahead. Good morning, everybody. My first question is on Global Technologies, where you talk about the more difficult financing conditions for projects in the emerging markets. Maybe you could elaborate a little bit on that. Which countries is it? Is it just institutional or government related projects? Or do you also see a more difficult market to finance private nonresidential buildings in general in emerging markets? We see it in for namely in the countries that were oil rich. There, we see that letter of credits are delayed or not coming, and that doesn't mean that they're canceled. We've never had so many orders in e government as we have right now, but we never had so many postponements as we have as well. So it is going on for the last half year. And this is in many oil states. On the project side, in the Middle East, we see the same thing. People are starting to delay a little bit and no wonder with the prices oil has right now. And also in South America, similar situation, especially pronounced in Brazil. And the second question I have on the reversal of the earn outs. If you could just explain to us specifically, I mean, when you booked these earn outs, they don't go through the P and L. So why do they come through the P and L when you release them again? Andreas, that is a very good question, and it's not up to me to decide. But accounting wise, it is like that nowadays that when you buy a company, you make an assessment of, first, what you pay upfront and how much of the earnout you believe that you will pay and that you book as usual sort of as goodwill. But then if that doesn't happen, you release it and you do release it to the P and L. That is how it works. But that's also why we want to be clear about it to show it because it's a one off even if it's a positive one. And the last question on physical access control side is doing quite well and growing strongly in the U. The physical access control side is doing quite well and growing strongly in the U. S, growing nicely in Europe but having problem with these projects I mentioned earlier in other printing side, reasonable good activity level, but also they are suffering from projects in 3rd world. And on the identity side, it has been growing throughout the year in a positive direction. So that seems to go on. But their banking is an important customer among others, and those have continued to buy. And the next question comes from the line of Ben Maslim from Morgan Stanley. Please go ahead. Yes, thank you. Good morning, Jan. Good morning, Carolina. Firstly, just on Americas, Jan, you mentioned strong growth in the digital door locks, lock segments. Is this the kind of residential electromechanical market accelerating now? Or is this a kind of temporary boost from the ramp up of the kind of Google Home Depot partnership? I believe it's only in the beginning phase. We have early users so far. In Europe, we see the same strong trend upwards. The Q or companies that was interconnected our lockings. So the concern with us is the programming need for programming. Unfortunately, most home automation companies have their own standards, so we have to adapt to each and every one of them. But as we go along, we will see an increased demand. The question is then how eager will the users be to use that kind of locking solutions. In the U. S, it has proven to be quite positive, meaning that customers really do appreciate. In Scandinavian markets, it is also very strong pickup. Mainland Europe, however, is still slow to adopt. And then you have markets like Korea, where you have 80%, 90% adoption rate, continues at that level, and China is around 15%, 20% today. So but I'm sure, I have no doubt in my mind, this will continue. It's just the beginning of a trend. And lucky for us, then, we are market leaders in this field. So there, you will see healthy demand going forward as well. However, not peaks in quarters like we saw in this quarter, but rather hopefully more evenly spread over the year. Got it. And then a follow-up if I can on EMEA. You said France and Italy are still fairly weak markets, but there have been some slightly better kind of construction indicators lately suggesting there's some stabilization perhaps. How far do you think we are from seeing those markets start to bottom out and pick up? Well, France is more and more leveling. So it's only slightly negative. So it looks as if it's going to come to life again. But we said it many times before and then it starts to slide again. So it's very difficult to predict. But right now, it looks reasonably good, meaning that it is not we don't see really a strong trend down, but it's rather flattish to perhaps even slightly positive going forward. Got it. Thank you. Operator, we'll cut in with a question from the floor in Stockholm. Anders, please. Yes. And just to follow-up on reversal of the earn out, a bit confused. When was this originally set up? And how was it provided for in the balance sheet then? And how much of earnouts do you now have remaining to be paid in 2016, please? I would say that basically, when you buy a company, there's no change and it doesn't go through the P and L. Then you do it the usual way and put it on to goodwill. But the difference is that the estimated earn out you book upfront and then whatever deviation you have to that earn out goes through the NAND. And what we have for next year well, this year, 2016, we have around SEK 1,000,000,000, a little bit more than SEK 1,000,000,000 in expected earn outs after now the reduction of those 2. But nothing of this reversal had gone through the CapEx number historically, right? No, no. The buying companies is as usual. It's just when you don't well, as the earn outs are not as expected, both ways up and down, that goes through. To lay to the point, but when those earn outs actually become larger than provided for, it doesn't flow through as a provision on the P and L, right? Then you have to take it through the DNL. Right. Okay. But that hasn't happened historically? No. Very successful to acquire companies, but we can't do much of a Chinese recession. And if a company if we have -ten, these companies also have -ten. And then, of course, you don't achieve what you thought you would achieve. It's very difficult to predict. We don't book 100% the goodwill of what we think is going to come in the future. So in the past years, we've seen very small amounts, plusminus coming in, but those have been rather small because we have been very successful with our acquisitions. So we intend to continue like that, but you never know. Operator, next question from the telephone lines, please. Lance Borson from Barclays is on the line with a question. Thanks. Good morning, Johan, Carolina. Just on EMEA margins, if I can just follow-up there. 100 basis points year over year, I think I understand, and the provision for receivables about 150 basis points. So adding up to 150 basis points in total, that means margins ex that is flat year over year with 5% organic growth and savings coming through. Can you just explain to us some of the dynamics there? A, is mix adverse in the quarter with growth patch coming in some of your Eastern European markets? Can you talk a little bit about seasonality in your acquisitions that perhaps means the dilution within M and A is greater than anticipated. Is there anything else going on that's to margins? And then perhaps just a follow-up to the comment earlier you had about France leveling out, seeing reasonably good growth perhaps coming through here. You're still seeing in the report that you see Europe stagnating, of course, EMEA growing 5 organically. Can you talk a little bit about what within EMEA did you see stagnating relative to where you were at quarterback? Thanks. That was a long one. You could almost sort of explain it to me. Starting by EMEA margin, it is so indeed that we had the positive leverage in the quarter. But of course, then we have currency of minus 1%, and as I mentioned, and also minus 0.5% from acquisitions. Nothing much to do about that part. And so the leverage there, and it continues to be there. EMEA has a little bit of a lag on pricing, but no wonder it's because EMEA is the worst hit when it comes to the currency. So and EMEA is in recession. Most of our competitors make single digit profits, and they are very squeezed. So it's a hard environment. Still, we are improving continuously. So I'm not worried as such, but it takes a lot of hard work from our side really to make sure we get those prices up in the to the right level. And in beginning of this year, again, oil prices are up for the 4th time in a year. So it's not so that we are sort of relaxing in that part. When it comes to the French growth, it's very difficult to predict, as I mentioned. I cannot really stand here and say about Europe, what's going to happen. If Europe is growing, Assaf Global will grow. Security is something that grows everywhere. And I'm sure that we will catch what there is there. And our electronic lockings and LMEK side is doing very well. We had in the year double digit development on that side throughout the year. So it's a very positive evolution. I don't think it will stop because it's the 1st January. Operator, next question please. Andre Kekulein from Credit Suisse is on the line with a question. Yes. Hi, it's Andre from Credit Suisse. Can I just ask on the raw material benefit in 2015? Kind of what was it for you? And what should we anticipate for 2016? On raw material, yes. We saw a release on raw material overall. So we were down a couple percent, and it's a bit different between the divisions, though. As I said, that EMEA is sort of the one lacking. But we have to remember that what we buy today is very little raw material. It's really sort of components and almost finished goods. And then we have sort of a payment term and 90 days inventory before it really comes through. And therefore, the raw material underlying was down, but direct majority is up, and that is really due to the mix and continued outsourcing. Got it. And when you talked about 1.5% pricing, just to double check, that's gross, right? That's not net of the raw material benefit? No, that's net price increase. That is net. Okay. And just last one on cash in Q4. Was there anything kind of unusual there, any kind of pull forward that we should be concerned about for 2016? Or should 2016 be a normal cash year? Well, it was unusually high, and I wouldn't want you to draw a sort of straight line on that level. But if you take the year as a whole, we had a very good cash conversion, which was in line with EBIT growth up 20%. So I think that said, we are now on a level where working capital is on a good level. And if we hopefully continue to grow, we will need some more working capital. So we have to be a bit careful in expecting improvements there. I'd like to add one thing is that we have to understand that the company is developing. We are putting more and more resources in sales in the sales side, on the specification side, which is one of the reasons why we are growing so well. And we are spending much more money than ever on innovation, which is also one of the reasons why we have cost increases. But the reward is, of course, that we are growing quite nicely as a company. So we will continue to invest in this direction. And another one, as Carolina also mentioned, is IT side where we invest a lot in new IT setup, where we, in fact, are going into a completely different IT costume. And everything is done at the same time as we sort of reshape the whole company. So it's heavy, but it works, and the models are there still. So and but it's sometimes like in EMEA. EMEA has quite some cost increases like Americas. And despite that, both taking away the write off in Europe, both have nice leverage. So I'm not disappointed in what we see there. Got it. Very helpful. Let me just clarify on the pricing. You mean the 1.5% in absolute terms, right? Just to be clear. The thing is what we do is we increase prices gross much higher. And what comes through in our total NN on the top line is the net 1.5%. And that has nothing to do directly with the raw material. Perfect. Next question please from the phone line. Sebastian Groitje from BNP Paribas is on the line with a question. Hi, good morning. Just I know it's early days, but could you give us some color on the new customer program you expect to announce later this year? Will it be largely in line in terms of scale with what you have done in the past? Where and where do you see the scope for savings? Thank you. I'm not sure if I understood the question. The next one, how big it has been? We don't know. But typically, the MFP has been around SEK 1,000,000,000. And now we have 50 new companies coming to the group since last time. I cannot tell the exact number, but it's not going to be a drama. Okay. And next question is on the M and A and FX dilution, which has been a bit higher than we expected in Q4. Could you help us to assess the impact for full year 2016 for Q1 and maybe for the full year based on current spot rates and the projections? I guess with currency, you have to be careful because it's changing every day, right? But assuming that the rates there as they are, we expect the Q1 to have an FX dilution of around 30 basis points and then that pans out during the year and towards on the first half will be more than and towards the second half, it will be much less. And on the M and A side, the 3% carryover on acquisitions, we believe we'll have 20 to 30 basis points dilution on the margin for 2016. Okay. Thank you. Next question please. Andreas Koski from Deutsche Bank is on the line with a question. Yes, good morning. So firstly coming back to the EBIT bridge. Can you please repeat what savings you had in the quarter? And how much that would you say is included in the organic part of the EBIT bridge? And how much of that is included in the acquired part? Just to get a sense what the underlying organic drop through was in the quarter. Well, most of that is in the organic one. And we had around SEK 80,000,000 from MSN in the quarter, savings. And then we had SEK 100,000,000 SEK 130,000,000 from other savings in the quarter in the organic one. And then on Global Technologies. Jeff, can you remind us how large part of Global Tech is now project related businesses? And what kind of lead times do you have in this business? And also, if you can give us an update on what you see in your product related businesses for 2016? Well, the whole business is very poorly related because they are very frequently. So the large corporation decided to go for a new IT and then use access control system. And then you talk the project. Then you have the specific point business, which is more whether it's a large banking card order or something like that, which is more opportunistic. That is the one we normally call project orders. That one has a lead time of less than a quarter. So you can get it in the quarter and ship it in the quarter, which happened to the Chinese bank cards in this quarter. And therefore, we got this dilution. And it's not so large portion of the business, but if it grows 50%, then it becomes large in that quarter. Perfect. And then my last question is on the EBIT margin EMEA because this is the first time in many years the Q4 margin is weaker than the Q3 margin. And you mentioned weak currency, you mentioned acquisitions and you know leverage due to write downs in Russia. On EMEA, historically, we have also seen a seasonal margin decline of 150 to 200 basis points from Q4 to Q1. But I guess you expect a smaller sequential drop this time. Is that right? I'm not sure. Do you mean forward, going forward or Yes. Going forward, yes. We don't give forecast, but I can tell you that we are not sitting still. So we have already, in Q4, released a number of capital of 100 people. So we are improving our cost base because we have been investing all the time. And so in the U. S, you also have to have the foundation of strong growth. EMEA growing, but we are very cautious to not to outgrow ourselves in the sense that our sort of out of control our costing. A lot of projects in MFP will carries on in EMEA and it will carry on throughout the year. So we will see good savings. I'm not worried. And the price will filter through and it's also on its way. So it's I'm rather optimistic about the situation. And also demand situation is not too bad in Europe right now. Perfect. Thank you very much. Next question please. Alastair Leslie from Societe Generale is on the line with a question. Just on mobile access, seems to be had a good start, obviously, within the hospitality industry. And we've heard about initiatives in residential markets. I was just wondering what you're doing to elicit interest in some of your other core institutional segments, particularly education and health care. And maybe what's the outlook for adoption longer term in those markets? Well, they are all in a growth mode. And if you look to the statistics, even though we have seen, as a consequence of a lot of negatives coming out from the U. S. A, we've seen in the last quarter some tendency that the number of projects are delayed. But altogether, it's a positive picture in all segments of non commercial side of the market. So very difficult to predict, but I think the U. S. A. Will carry on for what it looks throughout this year. Thanks. And then maybe just a follow-up as well. Just we've obviously seen a number of larger orders in the quarter. Do you think this is going to be another more common feature going forward as the business evolves across the group, larger projects becoming more prevalent, perhaps a more lumpy sales profile across the group? Not across the group. It's only I mean, this is the only one time we've had it in the U. S. A. We haven't had it in the past. We don't have it in Europe. Normally, you ship, but you ship over a longer period of time. So these large orders, for example, telecom industry, those are shipped over 5 year period or 3 year period. It's just that you get the same order and then you start to ship. So it's only Global Tech really that has those product orders. Operator, just cutting in with a question here from TACON. Peter, please. Yes. Peter Frieder, Hansbanken. On the sort of earn out still in the books, how much of that is related to emerging markets? Well, it's a little bit more than SEK 1,000,000,000 for next year. And total, it's probably SEK 1,700,000,000 for the following 2 years. Out of that, I would say a bit more than half is emerging markets, but then we also have a couple of, I would call them, tech acquisitions with earn up that have promised to grow a lot. Yes. Okay. And coming back to the leverage, sorry about this, but if you sort of strip out the price and even maybe the savings, the pure volumes of Dockter is negative. And we've heard about mix and we heard about decremental margins, of course, in areas where you see drop sales. But is there a balance sheet element to this as well? You mentioned this cash flow was more related to receivables and payables than actually inventory. No, it's not. What you guys often forget is inflation because you sort of you put in the positives, which we stated as one offs. But there is inflation on salaries and the general inflation that we have. And especially in parts of the emerging markets, they have more inflation than they should sometimes. They haven't realized yet that the markets are in distress. And where is that? In many of those salary increase of 10% or more. That's fair to hear. Thank you. I have a question on organic growth for the full year 2016. If we compare it to 2015, you had EMEA growth was decent, and now we see perhaps a better outlook generally for EMEA in terms of demand. That drives EMEA and also Entrance Systems. Americas, you seem to think, would be similar level. China, hopefully not worse. We don't know, but it was pretty big declines last year. And then Entrance sorry, Global Tech, you split up the 6 divisions last year to, I think, drive faster growth. And you have some businesses within that hospitality doing well. What other parts of the business you think will do materially worse this year? So with that, we could not be as good as last year, which had 4% organic still because you seem to do 2% to 4% this year, which would mean a lot of businesses would have to decelerate. Well, I dream during night. I dream out 5% or more. And when I see the reality, there are always things that you don't foresee. So I think it's cautious now that we are going to go 2% to 4%. I don't see strong weakness anywhere, but I don't see strong situation anywhere either. So it's a rather strange word, wait and see word. And many investments in the world are not carrying through. And we are also an investment type of business. So I cannot really say, I don't know where it's going to happen. My guess would be that the Middle East will run into trouble over time here because they are, of course, overspending right now with the oil prices that we see. And many other emerging markets countries are running out of funds. So it's a tough word. And of course, you see a lot of transfer of funds to Europe and America because we're not buying anymore all that expensive oil. So people are getting the consumers are getting more in the pocket. And then when they start to discover, normally, you get the other phase of the business cycle, meaning that you get more healthy demand. We are not there yet. But if it happens there, I can assure you, Asadore, will be there as well. So but right now, the outlook we have is a weak first quarter due to the Easter effects that we see and something like 2% to 4% organic, which is unfortunately perhaps disappointing, but I think that is the reality that we do see. Thank you. Thank you very much. We're at the top of the hour. And then we have some more questions, but I think we'll have to take them offline. I know you have a very tight schedule today, Johan and Karina. So please, I'll hand back to Johan for any closing remarks. Well, I feel very happy. It is a full year now and have like 2020, 2020 2021 depending on whether it's cash flow or profit, so and say. So a very good year. So thank you for your confidence, and we will try to even to beat it in the next year. Thank you.