Earnings Call: Q3 2015

Oct 20, 2015

Welcome, everybody. It must be because this is my 4th year's time I'm standing here. You would like to see me and that must be the reason why so many are here today. But you're most welcome to the Q3 report 2015 from Assa Abloy, yet again, a very positive report. We saw continued positive development in mainly in the mature markets in the quarter, just like we've seen earlier in the year with strong growth in Americas, EMEA and Entrance Systems. While Global Tech had flat, I will tell a little bit more about Global Tech later on why it was flat in the quarter. We had quite some growth in many parts, but one part was not so good. We saw also negative situation in APAC due to the weak Chinese market, but again, a market, but again, a rather modest downturn in the Asian market. Sales improved by 19% on the back of 3% organic and 4% acquired acquired growth. So a very good evolution with 12% currency. It's coming down now a little bit. Last quarter, it was 15% and now it's going a little bit slightly down. Looking then to EBIT, also very good improvement, 19% up, almost €3,000,000,000 in the quarter, €2,970,000,000 with NOK 238,000,000 of currency impact as well in positive. And earnings per share was improving also by 18% to NOK 1.86. Looking to the January now we have a problem, no, it came. January to September, we have a good evolution as well, more or less a similar situation with strong growth in Americas and here Global Cat Tech is with us. It has grown 7% since the beginning of the year. And Entrance System as well, while EMEA is a little bit less stronger, 4% since the beginning of the year. We saw negative growth in APAC just like in Q3 and it's around 3% negative, so no big deal as such. Sales is almost €50,000,000,000 21% improved to last year with 4% organic and 3% acquired growth, and EBIT is 22% improved to improved to DKK841 1,000,000 and earnings per share up 23% to DKK5. So a very, very good evolution. Turning now to the market here, it's always difficult. What should I share with you? We have many things. We continue to take very big rewards for our innovation. Apart from that, we have more than 30% of new sales coming from new innovations. We also win a lot of awards. So now we had ACES, which is the biggest award for us, but it's the biggest show in the U. S. We won 5 prizes there. We won for Quanti Secure for predictive security, Active ID, which is together with Microsoft that you can in one with your smart card log in to all your systems in one go and authenticate yourself, a very handy feature that we have added together with Microsoft. Appeario Cabinet Nox, more and more people have cloud. And in the cloud, you need to protect your data and you have it in cabinets. And here we have Appeario solution that has taken a lot of interest from the market. And then of course sustainability, we have a hoard of sustainable products coming into market. Here we have 1 first price for 2 of them, which save 97% of energy relative traditional locks, so big innovation. On the EGAV side, which you will see later did not do very well in the quarter. We won a very large contract with American with America on the U. S. Green card, dollars 88,000,000 over 5 years, so very nice win for us. And that shows also that the technology we have is a good technology, so very positive. On the Accenture side or Accenture on the digital door locks, we are now launching multifamily housing, which means that you have everything in the building electrified and you can use it out of the cloud, trace and tracking everything. You have the digitor door locks on the front door. You have on the entry, you have a high security type of solution, electronic as well, exit doors, fire doors, laundry rooms, everything is then That is that multi housing is coming more and more in the U. S. Market. So That is that multi housing is coming more and more in the U. S. Market. So this is aimed at that new segment or that growing segment. Nest, which was acquired by Google recently, they have also talked to us for quite a while, and you can see they're very pretty round lock there. It looks like a mobile phone. That's not by chance. They wanted a mobile phone look alike. So and it's called Yale. And if I look to what we are going to sell, we are going to sell it together with their thermostat. And that means that the thermostat is sort of panel communicated with the net in the cloud. And our lockdown will sort of be the first level of security of a house where you sort of can unlock and lock with the help of a mobile phone from any location you like. Very handy and you can also open with your mobile phone with a mobile key. So a very handy solution for home automation, a segment that is growing very fast, not only in the U. S, but in most markets across the globe. And here, we have a leadership as well, so very exciting. Looking then to the globe, a little bit different picture than we're used to. Mature markets are doing quite well. Americas has grown 7% since the beginning of the year organically. Pacific, the same and Europe, 3%. And less than Europe, but still 3% for Europe is not bad because the business cycle is not all that fantastic. South America, not counting a couple of government orders that should have been invoiced in the quarter, grew 6%, but counting them, we had this flat situation in South America. Africa grew 6% organically, goods evolution and APAC grew or declined 3%, mainly or not only due to China. China is the market the only market that goes down there. And since the beginning of the year, we have a minus 7% from China altogether, which I feel is not a bad score considering the rather big slump we see in the marketplace. So altogether, a pleasing picture. Important to see also is that emerging markets continues to grow in relevance and importance for us, 25% now, up from 24% last year. Not bad considering that we that's where the markets are the most depressed. And China is 10% of group sales and it's minus 7%. So that has, of course, a drag on emerging market as well. Looking to sales growth, this graph I love and the reason for it is because you look to 2010 and you go up to where we are now, it's more than 85% growth And this is a combination of more than 25% organic and then acquired growth that has been in excess of 5% per annum. So this is, of course, together creates a fantastic size increase of the group. So this year, with the currency we see and also the growth we will pass the SEK68 billion, not a bad score, up from then SEK35 billion that we were back then in 2010 after the crisis. So we have more than regained organically what we lost. We lost 12% during the crisis. So we are rather we were rather resistant to downturn. And this is, of course, due to that our locks are very much in the renovation market and not new construction market. Altogether, in this quarter, we grew normally 7%. That's a good score. Operating income, this one I almost jumped on because if we go to 2010, it's even better. We passed SEK 10,000,000,000 a couple of quarters ago, I said we will soon pass SEK 10,000,000,000 Now I will say we will soon pass SEK 11,000,000,000 because it's moving forward rather nicely. Karleen is shaking her head, but I think we will. Right now, we are DKK10.7 billion, 22 percent up to last year. So good continue good evolution. And looking to profitability in percent, it looks more dull, but this is, of course, due to that we've acquired a lot of companies with low margins that are diluting us. In this quarter, no exception. We had the 0.1% dilution, and we had an unusual dilution from currencies that we've had all year and we will continue to have in Q4 of 0.3% negative. And the reason for that is simply because Karina will show it, but simply because due to conversion into Swedish krona that we lose something on that. And there's a good reason for why we have that situation. But it will disappear for next year. Looking to manufacturing footprint, since there is an uncertain world, we decided this quarter to accelerate a little bit and that means that we continue our program with closing this 80 factors where we have closed now 72. We have 700,000,000 in the balance sheet, but we could see that and some of you have asked, do we really have everything allocated? And Hireka, we didn't. So we have decided then to do a little bit more with the same money, you could say. So in this quarter, we saw another 200 people leaving due to accelerated programs. And we had some 1,000 people more added altogether, which means then that we will not see manufacturing footprint program this year, but most likely next year since we have some 35 companies acquired since we had it last time. So it's only natural we get more and more things that we need to address. But in this case, we just settle and do with what we have. On the margin side, a flat situation, 70% margin in the last year. We have price increases, 1.5%. Very many markets have devaluated. Very difficult to really say what the percentage is. This is an estimation, we think, 1.5%, and we have volume growth of 1.5%. The margin was flat, but in reality, we had good leverage. And Carolina will show that. But of course, with currency minus 0.3% and acquisitions 0.1% negative, it became flat. On the acquisition side, a lot of activities. We continue to have a huge number of companies in dialogue. The difficulty, as you know, is regarding the what kind of price to pay. And we are a little bit shy on playing high multiples that we see sometimes in the surrounding world. So we've succeeded so far with 11 companies. We've added 3.3%. So we are heading more towards the 5% acquired growth, which is our average. I can't guarantee it, but at least the trend is reasonably good. So we will see if we will be successful also this year to acquire 5%, which means then next year we can look forward to continued acquired growth. Norgeko was the one that we did in this quarter, nice company and adding €350,000,000 to our portfolio or to our sales. This company is high speed doors. High speed doors is a sort of growing segment within industrial doors, where people use more and more for fast in and out passage, interior in the factories and outside of the factories. And this company complements us nicely both on the perox side, but mainly due to that they are very have a very good coverage in Southern Europe where we who come with our companies we have today are more Northern European oriented. So we don't have the I would not call it perhaps flimsy doors, but the more light duty doors that are used in the southern part of Europe. So this complements us and gives us the full range also for the Southern European arena. Looking now to the divisions. EMEA, good situation when it comes to growth. We had 5% organic growth with savings and efficiency kicking in, so very good leverage. Unfortunately, also here then currency negative with minus 0.6%. So it was very hard for us to absorb that and also dilution of 0.3%. So we dropped to 16.6% down from 17% last year. Northern Europe continues to grow well. Southern Europe has started to grow, which you haven't seen in many years. And then we have in between countries like France and Benelux, mainly Holland that are still difficult for us, but much less decline that we used to see in the past. So altogether, in my opinion, rather positive picture of the European in Europe. In America, our quotations continues to grow at a good pace. We see strong growth in Architectural Hardwares, which tells us there's a good activity. Elme, Canada, Mexico, South America, we are growing everywhere in fact in a good way, very positive evolution, 6% organic. Margin was flat at 21.8%, same as last year. Also here, we are suffering from currency minus 0.3% in this case, which means that we had leverage of 0.6, which is a very good leverage for America with that kind of growth. And then we should remember that we continue to invest in more sales force and also in R and D. So even within that frame, we can invest. And part of the reason why we are doing so well is has also to do with raw materials that we see now come down in price as well, but very good leverage as such. And the only area we had flat was indoors, and we had Malur in one of our factories there, which made it difficult for us to ship. So the orders are there, but it could not ship very well. So therefore, it was flat indoors, not on orders, but in shipments. In Asia Pacific, a difficult situation when it comes to China. Apart from that, everything is doing quite well and growing. The question is how long. But for the time being, it's looking very nice, very well. But we should remember China is a very big trading partner with the other markets. So most likely, we will see some effect also from that over time. But New Zealand, South Asia, North Asia and Australia are all doing fine. And China grew declined then for the group minus 7%, a little bit more for APAC. So it's a little bit better in the other divisions that this the evolution as such. Looking to margin, almost record, 15.7%, down 2 10ths of a percent. In this case, we had an accretion. So here, the currencies had helped us a little bit. They did not help us, but we had accretion from the acquisitions we've done in the last year. But altogether, a rather pleasing picture, I was surprised to see how high that we could keep the mine as good as we could. We should remember, of course, that in China, more than 40% of the staff has left and this is, of course, due to that we started to restructure 2 years before fit hits the fan in the sense that we start to see decline. So we were a little bit ahead of the curve. If you take Global Tech, HID then a good picture. I'm optimistic and positive. We see inlays doing very well. Content Secure grew very strongly. Good growth in physical access, which is the main business that we have there. Secure issues, which is printing, ID assurance, which is identity, all are growing in a decent way. Even project sales was flat. And now we have the come to what was not good and that was government ID in biometrics. In biometrics it's very much that you get for instance ATM machines for Brazil and you have tens of thousands to be shipped of readers. And then next year, you have nothing. In this case, I think you can guess where we were this quarter. There was nothing in this case. So we had quite negative on biosolutions and this comes and goes. And then on the GOV ID side, we had a number of nice orders. You saw the American green card, of course, to be shipped later on only, but we also could not ship a number of rather important orders simply because there is lack of money in most of the emerging markets. So Colombia, Brazil, a number of markets, we see that they are sort of postponing or they simply don't have the funds to pay for what should be shipped. So this I don't know if this is only 1 quarter or we will going to see it more, but the margin contribution from those two areas is quite important. So of course, we suffered and also on margin, 86%, down from the record of last year 20%. Nothing much to do. We had leverage, if you take away that drag, we had underlying leverage as such and hospitality did continue to do very well. So the picture is not bad and it's 18.6 6% in my opinion is one of our better margin scores as well. So I'm not disappointed as such. Looking then to Entrance Systems. Here, I'm really excited. Entrance System is doing well despite all the changes we've done. We closed a lot of infrastructure in Entrance Systems. Margins went up from 13.2% to 13.9%. We had dilution from acquisition by 0.1%, but we also acquired some dilution from currency in Entrance Systems. And despite that, the margin expanded by 0.7%, so very, very good evolution. Of course, we grew 6% organically as well, but very strong leverage out of that growth. And that tells me that efficiency in entrance systems is continuously improving in a very positive direction. And you can see on the blue there, the size of entrance systems now more than a quarter of the group. So it's more and more important that this part of the group is performing well. And that is, of course, in this case, very nice situation. Most companies that we bought were 6% EBIT, 8% EBIT. So I'm very pleased with this number. That concludes my overview. I'd like now to hand over to Karolina to guide us through the financials. Thank you. Thank you, Johan. Good morning, everybody. It certainly is a large crowd here today. It was Johan's 40th quarter. It's my 15th quarter, but still. Starting as usual with the financial highlights and with the sales, we saw good organic growth of 3%. And here, we have the same number of working days, so it's a like for like comparison. We also estimate the price impact to be 1.5% and the volume to be 1.5%. Moving on then to acquired growth, 4%, I would say, as expected in the quarter, a lot of smaller acquisitions in emerging markets as well as one in HID brings us to 4%. And then the big one, still currency, a full 12% increase on the top line due to currency. I'll come back to that later to explain why the effect is so large on the top line, but also why it has an effect on the bottom line. Total 19% up on the top line and very good news because also 19% up on the operating margin. So we're very happy to see SEK 2,970,000,000 in profit, so almost SEK 3,000,000,000 here. And a number that was a little bit weaker in the beginning of the year was cash flow. I mean, we have a seasonality, but even relating to that, it was a bit weaker in the first half. We saw good cash flow in the Q3 coming back, so 25% higher than previous year in Q3. And then finally, adding to the EBIT, the financial net also affected by the currency as well as the stable tax rate of 26%, we get the strong improvements of the earnings per share, so full 18% improvement here. From the overview to the details, we look at the P and L and the bridge and separate the organic, the currency and the acquisitions. Starting with the most important and the organic, we saw good organic growth of 3% and we saw a strong drop through of over 32% and 40 basis point improvement on the margin from that. And here, we can see that it was the all the divisions that had good growth in the quarter, that had good results. We saw Entrance Systems very strong here. Americas as well, but also EMEA having good results on the drop through. APAC compensating with efficiency, but a tough drop on China made it slightly down here on the drop through. And as Johan mentioned, on Global Tech, really, I would say it's a combination of the mix, but also the two areas which we had lower sales in with a very high margin last year, not repeating in this quarter and therefore also negative drop through on Global Tech. But overall, a very strong number here with plus 40 basis points improvement. The next one, currency, still strong influencer. For us, this is mainly a translation effect. And since the dollar, but also most currencies, changed significantly towards the krona end of last year. We've had strong influence the whole year so far, and we will also continue to see that in the Q4, where we estimate, assuming that the rate stays as they are, 8% effect on the top line, but a similar effect on the bottom line with the dilution. And here, translation being the big one and just one example of why the dilution comes, we don't have the same high margin on the bottom line here as our average. For example, with the Swedish krona then, as Johan mentioned, that take Entrance Systems and EMEA having very high margin business in SEK and that, of course, not being changed when the other currencies are all changing to the better towards the krona makes a mix effect here and therefore a lower margin on currency. And we expect to see that as well in the Q4. Finally, acquisitions, 4%, I would say as expected. And emerging markets and tech acquisition also lower than our average 13.3%, I would say as expected. 10 basis points dilution, not larger than that because the top line isn't that big in change. So overall, going from 'seventeen to 'seventeen, but quite some changes within that. Another picture to show for the P and L. And here, I've taken the year to date also excluded the acquisitions to make sure we compare like for like. We've also excluded the acquisitions to make sure we compare like for like. Starting with, I would say, the most complex one, direct material. Direct material year to date is up 30 basis points. And here, underlying, we see raw materials and so our view has come down significantly. And in the areas where we have higher raw material content, like in high security doors with a lot of steel, there we have seen good improvements from lower pricing in steel. And we have seen, I would say, mostly in Americas as well as in APAC, and hopefully, we will see some as well in EMEA. But the rest of this is really mix change as well as the change of the currency. So it's a mix depending on organic growth, but also depending on in which currencies the sales are and therefore this effect. And part of the opposite is on conversion costs. Conversion cost is down significantly, part of it the reverse then from direct material, but part of it clearly coming from the efficiency measures, both the restructuring programs as well as the other efficiency measures. And therefore, overall, year to date, our gross margin has improved with 30 basis points. And then SG and A. And here, we see good improvements on the support functions, so increased efficiency there. But at the same time, we continue to invest in front end, both in salespeople, specifiers as well as R and D. So basically, we're investing in future growth and therefore not optimizing short term the EBIT margin here. And you can see then that the SG and A is up 10 basis points year over year. And EBIT improvement year to date so far like for like is 20 basis points. Then we have the 10 basis points dilution from acquisitions. And you see overall an improvement of 10 basis points year to date. From the P and L to the cash, cash flow graph. I think the first thing to comment on is that we have a very strong seasonality in our numbers. And you can see that the first half of the year, we have low cash flow seasonally and then the second half of the year, we have strong cash flow. 3rd quarter, no exception. We saw strong cash flow in the 3rd quarter. And considering that the group is growing almost 20% year over year, we have to look really at the efficiency KPIs to see how we're doing on, for example, the different parts of working capital. And what we see is on the DSO, the credit days, that they have gone up 5 days, so up to 56 now. And I would say that half of that is from China and the other half is sort of more spread over the world. The DPO is also improving more everywhere with the same number of days and the inventory is flat on 96%. But even the inventory on flat and the PEO improvement is not enough to compensate for the receivable side. So therefore, we see higher working capital here. The good cash flow did good things to the debt. We didn't have that much acquisition spend in the quarter as well. So the debt is now down to SEK 25,000,000,000. And again, I think we have to put this in relation to the size of the company and we do that with the KPIs here as well and the gearing is down to 63,000,000 and probably more importantly, the net debt EBITDA is down to 2.1% compared to 2.3% about a year ago, so good development here as well. And then I guess my favorite slide then, the CFO favorite slide, earnings per share. And it has a very nice curve, as you saw, very nice and steep curve here. If you start with the EBIT, it was up full 19% and then you add the financial net, which was higher due to mainly due to currency, both because of the currencies that we are borrowing in, but also the rates that you have with those currencies. I mean, it should mirror where you are making money in your business, and it does. And then you add the tax rate of 26, you get a very strong development also on earnings per share, which is up then 18% in the quarter and an all time high of SEK1.86. So overall, a very strong quarter. And with that, I give back to you, Johan, for conclusions. See if I can get it moving. There it moves. Okay. So this is I chosen today to only conclude with numbers. So, in fact, we had strong growth 19%. We had strong earnings, EBITDA evolution and we had strong cash flow as well. We have not spoken so much about cash flow, but Terina showed it. If you look much in that chart, but this grew by 25% in the quarter, so also a good number. So altogether, a pleasing picture where we continue to see good organic growth in almost every market. With those words, I open up then for Q and A. And Anders Yborg, I think you have promised to help us with some good intelligent questions perhaps. Yes, I'm not sure about that. I'm sure it will. Let's start off anyway. Now in the report, you talked about Europe still being stagnant. And I think it's fair to say that when you look at the overall construction markets, renovation markets. But still you grow by 5% in EMEA this quarter, 6% in Entrance. I know you've implemented some price increases. My question is really what in what areas are you outgrowing the market? And those price increases, will they carry on into next year and allow you to have a good organic growth in Europe despite sort of flattish construction markets? I it is very difficult to say, are you growing market share or not. I can only say that the electronics side of the business is growing very fast. So I think that has if someone else is not growing the same pace, then we are taking share. But it is, of course, very composed of 27 markets, so it's very hard to really say what is doing what. And the last question, second question was about About the price increases basically that you've been Yes. Well, since Europe is buying a lot from Asia and mainly China, we have to take the prices up. There's no other alternative. And we are the largest player in the marketplace, so we do raise the prices. We've raised them several times on Global Tech. We've raised them several times also on Entrance Systems as well as in EMEA. The exact percentage, I don't have per region, but we have a good increase of price in the region. Yes. And obviously, now we have a slightly weaker renminbi compared to sort of the second quarter. Yes. So don't 4% sales. But the main thing for us right now has been to recover the raw material decreases. So we have renegotiated almost every supplier in Asia and everywhere, in fact. And what we have seen that we have much more credit, longer credit terms as a result of that, but also quite some price concessions on the raw material side. I see. And just a question to Caroline on this day sales outstanding. I think you mentioned after Q2 that it was up to around 100 days in China. And are you seeing a stabilization there? Or are you seeing it spreading further and wider into the Chinese market, the credit issues there? Yes. I think we have to separate us and the market. But starting with us then in China, the Chinese do so now 96 days. That's still 25 days higher than we were a year ago. So I would say we are still not happy, but we're working a lot both on credit giving, but also on the collection. Coming to the market, I mean, what we hear is that it's not pretty out there, but I think that's about as much I can say on that. All right. And finally from me, I mean, there's no way getting around to Q1. If you could just update us on the current trading and into Q4 so far? Current trading looks the same as Q3 more or less, very similar pattern. It is one day less in October, so that means that we are not going to see the same average, but on the other side, November is one day more. So that will equal itself. So altogether, I cannot see any negative trend or any positive trend. It's more or less the same. Fantastic. We'll take questions now starting here at the floor in Stockholm. Let's start here, Guillermo. Hi, good morning. It's Guillermo Pinck here from UBS. Could you comment a bit on the trends you're seeing in China with respect to the organic growth? How much is inflicted, self inflicted? I don't know how much is the underlying market? And then I have maybe a follow-up on other markets. Our team out there thinks the market goes down more than we have done. And we are think we know we are gaining a number of new customers and customers are looking for more solid partners as well. Then there has come a new fire door norm where we have all our companies have been certified, while we know that a large number of them are not. So we think we are gaining something from that part as well. So the only side where we can say the we think the market, especially on the lock side where we don't have firearms or other things protecting us in a way, we can see that the market has dropped more than 20% so also for us. So the market is not good at all. And I don't think it's over. I think it's going to carry on. I said I think once in this forum that I believe personally looking to statistics that China is probably eligible for something like 40% decline in relative where it used to be. Just looking to other emerging markets when you're over the boom of construction, which you do initially to sort of put all the infrastructure in place and then you come into the next phase, which is more maintaining and developing in a more reasonable pace. When that will happen, I don't know it, but I think it will go down to the same level as other emerging markets over time, but it will probably take a few years before we're there. That 20% you're talking about, is it something that has been accelerating during Q3? Or is it just the same through the year or Well, it's not the impression from our team out there that this is the case, but we are doing quite well. At least we feel that we are doing quite well. So I really don't know. Some segments are still holding up very nicely like specification segment for sort of foreign company investments. So probably we see a number of companies still implementing themselves. Will it continue? I don't know. We see so there are pockets of demand. Digits of door locks are doing very well. 5 certified doors are doing well, but I think that's the reason it's because a number of other companies fell out of the market. So there are segments that are carrying a good evolution. But if you look only to the naked part, then it's more than 20% decline that we have seen. And then last question regarding end markets. France, can you comment a bit on what the trends are and what you would expect actually in Q4? Cautiously optimistic. That's I think I can conclude. I think France is not really coming to growth, but it's not declining much anymore. Will it continue? I hope, but it's difficult to tell. Yes. Thank you. Peter Freljern, Handelsbanken. Johan, when China started to move sort of on demand side negatively, a while after you started to cut people, you saw possibility then for assets to being attractive. The picture you paint now with sort of halfway down to the bottom, is it fair to assume that we see your activity picking up here in the acquisition? Or do you want to wait to sort of flesh this out? Unfortunately, it takes time for people to realize what they used to have is not worth the same money. So we are negotiating with a number of people potential deeds. I just had this on the way to office this morning and a rather long discussion with our head in Asia. And it was just regarding what price are you willing to step in that. And so my feeling is it's not yet ripe the time, but so we will wait a little bit longer, but definitely so that many wants to sell. And tied to that, I mean, you mentioned early in your presentation, thank you for that, that might be another manufacturing footprint next year. Another question is, of course, on the acquisition globally. You are contributing by 4%, I guess now. You have a 5% sort of target. Should we expect this to be higher next year? Well, it's enough to make one larger one and you're there. So it's very unpredictable and we have a few larger ones that we are negotiating with. The problem we've had is with the larger ones is that they attract also private equity companies and we have seen some of them disappear at multiples that we would not even dream about. And I think it's no problem. I mean, we wait a few years, companies not for one day, it's for many years. So we wait a few years and they will come back to market and hopefully at a more reasonable price tag. Yes, that's fine. Okay. On Global Tech, I think you were pretty clear about the sort of the size and the magnitude of the weak spot. Could you help us out there? Is the rest of Global Tech sort of apart from government, I. E. In biometrics sort of growing by 4%, 5% or something like that? Global Tech is very much project oriented. And so it's difficult to predict. Some quarters it grows by 10%, next quarter nothing, very, very difficult. If I look to orders, it looks pretty good. But then of course an order needs to be the shift and if the customer is lacking funds, which we have in the GigaOve side, we're sitting with the orders, which are probably not worth that much. So I think it's a problematic situation. I'm positive to what we have. We have great innovations. I think we can if the market is bearing and people have money, we're going to continue to grow. That is at least my best guess about what is happening there. But again, then emerging markets lacking funds, raw material not at low prices, oil at low prices. Many of the economies are relying on those funds, those sources for money. And therefore, they are sort of postponing to take what they have ordered right now. What's the comps then? Sorry for all these questions. But in Q4 and going to 2016, are we facing similar comparisons as we do in the Q3 or easier or worse on Global Tech sort of the lumpiness? Well, there have been there are different parts of Global Tech with different projects. Yes, so exactly. We saw I mean, we saw 10% 1st quarter and 10% 2nd quarter, right? And now we are flat and that's due to 2 parts only. So some of them have good quarters coming up and some of them have poor quarters coming up. But overall, we have some pretty good growth. So hoping that some of the horses will run and some probably not, it should be okay. Okay. Thank you so much. Great. Take a question here as well. Stefan Andersen, SEB. Just a quick follow-up on Global Tech. If you take a bigger picture view on that annually looking order intake and looking further into the future, do you see it as a 1% to 5% growth company business or do you see it as a 5% to 10% growth business? I think it's a fast growing business if you do the right things. And I we just changed head of that division because we want someone that drives more growth. It will take some time before we're there. It's a lot of new engineers we've added to get more fuel for growth. But it's also a tricky business because it's very much project oriented. So it's not so just to push a button. We have the virtualization of identities and keys, which I think has holds a fantastic potential. We are now launching here the full virtualization in a sense also that you can easily scale it up. We have had a problem that if you order 10,000 keys, we have to more or less manually issue them. The new thing that we're launching now is that you can launch 10,000 keys in one go and all of a sudden we because there's a lot of interest in the market. So we have great innovations, but we need to carry them through and make them more products that you can really sell in large volumes. And we are on our way in a high pace into that direction. Personal and identity is something that is coming everywhere with authentication and we have good technologies for those things. E Gov is a segment that's growing a lot and here there also we will see virtualization. You will probably have your driving license and other stuff on this in the future rather than you have it on a paper and then you can't forge it, which you sometimes can do with the paper. So I think there is and we are well placed for those things. Will we get it all? No. But will the market grow there? Yes. And we should at least try to grow with in parity with those market segments. Great. We'll switch to the telephone conference. Operator? Thank you very much, Our first question comes from the line of Andre Kukhnin from Credit Suisse. Please go ahead. Good morning. Yes, it's Andre from Credit Suisse. Thanks for taking my questions. Firstly, on the headcount reduction, which accelerated substantially in the quarter, could you give us some guidance for Q4? Are you continuing to go at this sort of pace? And then just a quick follow-up on that is you seem to only utilize €65,000,000 of the provision to implement those headcount reductions. Is this just the timing? Or are you taking heads out in regions where it's cheaper, I. E. China, U. S? Or are you taking more through underlying EBIT? Okay. I think I understood your question. It was a little bit poor line. But on the restructuring and on headcounts and provisions, what we have done with the existing program is basically we have increased the scope using the same funds because the further on you come in a program towards the end, you can see then if you do have some leftovers, as Johan mentioned. So what we have done is within the frame of the existing footprint, we have added around 11.65 people actually around. And that will give us good savings towards the well, second half of this year, but also next year. And its net is around 1,000 people left to leave. Exactly when that happens, I think that would have to be up to the divisions to decide exactly when. But during, I would say, the next 6 months, the bulk of that people will most likely live. And where they are? Yes, they are in emerging markets, but it's also doing a little bit more on the existing programs that we have, both in Europe and some parts in the U. S. Great. Thank you. And can I ask that doors delivery problem in Americas in Q3, how big was that? And has that been resolved? I'm not sure. Could you repeat it? Because the line is so bad. Can you take it once again? Sorry about this. The issue that you cited in Americas on doors, the inability to ship, has that been resolved? And how big was that issue? Yes. Not so big, but yes. It's on the as I said on the wooden door side, things happens every now and then. We had the major machine breakdown and we were standing still for a while waiting for repairs. So it was not much we could do about it. But we are back in online and we have caught up with the loss there. Great. Thank you. And very final question on investment in specifiers. This has been carrying on for a while. Could you just give us an idea of how many specifiers do you have right now? What is the target or what would be the optimal amount? Did you hear that? Yes, specifiers. Specifiers, okay. I couldn't hear what you said. You asked about our targets in specification, how many we have in 500 people altogether. We normally don't disclose where they are, but we have in all areas and we have in recent time also built up quite a number of them in Asia. So we continue to pursue and the U. S, we are adding continuously as we have since we are growing rather quickly with good results. Versus that €500,000,000 what is the optimal amount? Do you need €1000,000,000 or are we just scratching the surface? I don't think there is an exact number, but I think we have a good number right now, except in the emerging markets where I think this is a new phenomena. And what we see is most of those markets are serviced by no brand import mainly from China from unlocking side. When we appear there with a specification team specifying sort of mid market type of solutions, we have a very good ground for winning the ground. So there is a lack of some sort of, let's say, organized specification in those markets. So we're going to continue to add people in those areas definitely. When it comes to the mature markets, they are not growing all that much. So I think we are not far away from an optimum already today. That's great. Thank you very much and sorry about the line. Our next question comes from the line of Daniela Costa from Goldman Sachs. Please go ahead. Hi, there. This is Jessica instead of Daniela. We just had a couple of questions. So the first year. We just were interested to see where do you year. We just were interested to see where do you think the best opportunities lie and which areas do you still find attractive? The second question was basically the evolution in market share. So do you think that you are gaining market share because the penetration of digital locks? That's all. Thank you. Acceleration when it comes to acquisitions, I mean, we are at 3.3%. So the 5% is not far away. So it's enough to continue to do what we do and have and do a couple of more before end of the year and we are there. But where do we see opportunity? We see good opportunity in China. We see good opportunity in South American submarkets. We see Mexico even though we are very large already there. And we see bolt on in many of the existing mature markets sometimes because multiples are so high. So there is more a matter of which one to acquire in that case and to what price and it's very difficult to meet on a reasonable price level. On the market share, we normally don't comment, but I can say then we are growing very fast on electronic locking. So the question is then is anyone else doing the same? We really don't know. But if they are, they're probably maintaining their share then. And we are and so we on the mechanical locks, we see a rather flattish evolution globally and it has been so for many years and they get more and more replaced by electronics. Today, more than 50% of our sales value is electronics and it's very positive for us since electronics has less lifetime and more service and maintenance and software needed to be upgraded on a continuous basis. So the recurring element of business is increasing, which is positive. Thank you. Thank you. Our next question comes from the line of Andreas Willey from JPMorgan. Please go ahead. Good morning, everybody. My first question is on price, which contributed about half to the organic growth this quarter. Maybe you could talk a little bit more about what is underlying price versus pass through of the big currency moves we have seen and whether we should expect that price component therefore to moderate as kind of the year on year currency swings start to normalize as we go into next year? Well, price is a little bit higher than it used to be. It used to be 1%, now it's 1 0.5%. So it's not so that we are jumping very high on the price increases. We try to raise price wherever we can and we do it in the beginning of the year and in some markets we've done it several times this year, but it depends of course the degree of the valuation. Where we have seen the valuation has mainly been smaller markets. So therefore, there has this price element has not sort of overshadowed so much. Only large market to us has been Sweden, in fact, that has devaluated as well. And there, of course, we have also taken some price measures. So but normally, we have a price increase of something like 1% per annum. So that is sort of normal pace. And my second question is on acquisition earnouts. If you just could give us the number that we should keep in mind as potential cash outflow in the future from acquisitions where there's still an undecided earn out in that sense? Yes, sure. I would say this is only 1 quarter left this year. So it's not much 100, 200 in the Q4 and then we have around 700, 800 for next year and something similar for the 2 years after that. Thank you very much. Thank you. Our next question comes from the line of James Moore from Redburn. Please go ahead. Yes. Good morning, everyone. Johan, Carolina. I've got one on GT and one on non res in the U. S. So on the GT division, can you at all help us with the rough size of government ID and biometry today as a proportion of GT and some rough idea as to how much above the divisional average the margin might be and some rough idea as to how much revenues fell. It sounds a lot. I don't know if that means 30% or 90%. Just trying to sort of scale it and think about how that might move going forward. And secondly, on the U. S. Business, there have been some odd worrying comments on the U. S. Nonresidential environment in August September from Dodge and some companies. And I'm trying to understand if this is just U. S. Manufacturing and the oil related part of non residential and where the buildings, offices, etcetera, are relatively unaffected. And I think you said your architectural business is holding up. Is that the door frame lead indicator piece? And are you seeing any worrying signs in U. S. Non res buildings? First, the size, we don't disclose normally the size of the businesses relative size of the businesses, but we lost some $50,000,000 of turnover and we lost about $7,000,000 of contribution, a little bit more than that even. So that is about 3% EBIT and we lost in reality less than that. So that means that we had a positive leverage taken away from that. So that is pretty much what I can give you on that element. On the nonresidential environment, it's difficult to predict. I mean, you know how unpredictable things are. We see a positive evolution in general. Offices seems to be saturated. That market has some surplus right now. We have never been extremely strong in that segment, but we have grown nicely with that segment. Hospitals are not growing that much. But education seems to be catching up, which is our main segment. So at least short term, it looks reasonably okay. Then we should remember saying this, we grew quite strongly last year in Q4. That is when it started to take off the growth. So we have, of course, high comps to live up to. But at least when I speak to our management, they are rather optimistic about that we can continue to enjoy growth probably in the proximity of where we are today. Something like between I mean, it's jumping up and down, but something between 3% 7% depending on if it's a good or bad quarter. But it's very positive altogether. And quotes are not double digit anymore, but they are not far from double digit, the growth of quotes. And door frames looking good? Sorry, door? Door frames. Door frames, we have problems to follow. Problems to follow, sorry. Yes. It is so that we have a demand that exceeds what we can ship right now or process right now. Okay. Good quality problem to have. Thank you very much. Thank you. Our next question comes from the line of Ben Maslin from Morgan Stanley. Please go ahead. Thank you. Good morning, Yaron. Good morning, Carolina. Two kind of tech questions, I guess. So firstly, Yale and a partnership with Nest. How big an opportunity do you think that is? Is it exclusive? Does it stop you partnering with other large automation ecosystems? And then what kind of growth are you seeing in home automation in the U. S. At the moment? Thank you. Since we didn't have much of it a few years back, it's a very steep growth, almost exponential, simply because we didn't have so much in the past. And the opportunity with JA, we don't know. We hope it's going to be big, but they have sold several millions of thermostats and those thermostats all can communicate with our lock. So if people find the idea tempting and I think then we will see quite some number of locks being sold. We have some other customers and like AT and T among others and they're doing quite well on this field. And we see also in Europe a lot of lineup of home automation companies who wants to connect to our locks, our locking. So there we have a problem to facilitate all the requests we get from home automation companies. So we're launching as fast as we can in a number of markets. Then, of course, this is a new phenomenon mainly in Europe. So it will take some time before it catches on. But I think looking to the markets that have been in the air for a while, we see penetration rate of 15%, twenty percent in some of the markets and up to Korea where you are almost 100%. So it's an evolution. Thank you. And then on the exclusivity point, does it stop you being part of other ecosystems or not? No, no. Okay. And then on sales, I think you This is a special design for them. So it's no one has that design. Okay. Thank you. And then on sales, you started licensing that recently to kind of accelerate the growth. Just how is that going? I think during the quarter, you had an alliance with Sure ID. And just how is that progressing? Thank you. Well, it's progressing well. They don't get 100% of the new cell they have, but they get a good fair share of locks that go together with their home automation systems and there are some retrofits as well. I am one of them and it works very well, so I can recommend it. Thanks, Jan. Operator, we have time for one final question from the telephone lines, please. Thank you so much. So our next question comes from the line of Andreas Koski from Deutsche Bank. Please go ahead. Thank you and good morning. I will also give it a try on Global Technologies. So what was the organic growth for Global Technologies if you exclude government ID and BIOSOLUTIONS? I don't have it in my head, but I think it would have been plus 4 or something, but I have it in my head. I'm just calculating in my hand, having done on paper. Between 45, but there are a little bit difference between them, but yes. And can you please clarify, do you expect the project business in these two areas to continue to be also in the Q4 and continue to contribute with a negative margin mix? If you take biometrics, we don't we are lacking orders there. It's very on off. So you can have big projects and you have no projects. Right now, we have no projects or we have projects, but not to the same extent as last year. On the eGau side, we have orders. We have shipments scheduled, but we have time after time seen rescheduling. So I really don't know. It depends and we don't ship without money. So that means that we are preferred than to sit on it till we see the money. And normally, you get irrevocable letter of credit since you have sometimes difficult markets to trade with. So and if that occurs does not occur that you get that paper, you don't ship simply. And then you sit with it and you don't get any invoicing. So but orders are there. Will this persist? I don't know. It's very difficult to tell. It is so that oil price is half or less than half, and many markets are suffering from this. That's fair. And lastly, on cost savings, what kind of savings did you have in the quarter? We have 2 types of savings. So on the footprint, we saw good savings of SEK 70,000,000. And if you do your math, then you will see that we are now year to date on around 200. So that's higher than the expectation for the full year, which was 150. And that's due then to the basically increased scope of the existing provision. And then on the other savings that we also see on efficiency, we have roughly the same amount. So also very good results. Okay. Perfect. Thank you very much. And the final one from the floor here. Thank you. It's Erik Karlsson from Bodenholm Capital. I had a question on the organic EBIT margin for next year. Your pricing power is continues strong estimated 1.5% price increases. At the same time, raw materials are falling. You seem to have had some benefit, but we have more to come. And cost savings are going very well. If we assume organic growth is okay for next year, 3% to 4%, should we expect organic EBIT margin expansion? We've had it every year irrespective of what happens. So I can't promise that. But I would say my best guess would be yes. Very clear. One final question. You were very you were spookly correct on China in advance, and you cut headcount proactively. Any other markets where you're doing taking similar actions at the moment? No, not really because there's none no other market has that big size except the U. S. A, but the U. S. A. Is right now doing fine. So no. Thank you. Great. That sums it up. Thank you very much for all your answers, Johan and Karina. Thank you very much. Thank you for coming.