Hi, everyone, and welcome to the presentation of ASSA ABLOY's third interim report in 2023. My name is Björn Tibell. I'm heading Investor Relations, and joining me here in the studio are our CEO, Nico Delvaux, and our CFO, Erik Pieder. We will stick to the usual format today and start now with a presentation of the quarterly result and then open up for your questions. With that, over to you, Nico.
Thank you, Björn, and also good morning from my side. Q3 results, we can show you good results for Q3. I would say despite very difficult market conditions on the residential side, and despite the fact that we had a difficult comparison with last year and one working day less in this quarter, we're still able to post positive organic growth of 1%. Also good to see that if we have lower organic growth, that we can overcompensate with growth through acquisitions, net + 11% in the quarter. Then very strong operational execution with a record underlying EBIT margin, if we exclude HHI and related divestment of 17.4%, a record in ASSA ABLOY history.
Thanks to strong operational execution and also thanks to good cost savings in the quarter, SEK 250 million of MFP and SEK 300 million additional one-off short-term related cost savings. So good bottom line, also a good management of the working capital, leading to a record strong operating cash flow of SEK 7.2 billion in the quarter. And a very high pace on acquisitions, with 10 acquisitions signed in the quarter. If you look at the numbers, sales almost SEK 37 billion, 16% up, 1% organic, 11% net acquisition, and 4% helped by currency. And EBITDA margin also at a record level of 18.4%, significantly up compared to the same quarter a year ago.
The EBIT margin, if we exclude again HHI and related divestment of 17.4% versus 15.6%, a year ago, and then EBIT close to SEK 6 billion , 19% up. If you look down a little bit at the different regions, a flat development in North America, where we should make a distinction between the Americas division, that posted a mid-single-digit positive growth. But what brought it down is the residential business for entrance systems, our garage door business, but where we saw double-digit negative growth, and our window hardware business that resides under the APAC division, where we also saw double-digit negative growth. In North America, we see, and we continue to see challenging situation on the residential side.
We mentioned in Q2 that we are confident that residential market is bottoming out and that, you know, slowly we should start to see an improvement. Of course, what happened in recent weeks with interest rates, long-term interest rates, most probably will make that recovery a little bit more challenging. Still, we believe we are bottoming out on residential, and we should start to see slow recovery in the coming quarters. We still see good momentum on the commercial side, and there, like in previous quarters, the market is not our biggest challenge. Our biggest challenge is there really the high comparison with previous quarters. Strong South America, +8%.
Strong performance for Americas, and then also helped by a very good performance of HID. Africa, + 15%, and then Europe, - 2%. I would say Europe is affected most by the lower residential market activity. In Europe, around 45% of our business is residential related, and we see there, you know, residential in general, as well for new build as for R&R, still on a, I would call it even depressed level in general, and in particular in the Nordics. I've seen a high single-digit decline of our business in Finland and a continued decline also in Sweden, and those markets are also important for us from a profitability perspective. Same thing here in Europe, we still see good momentum on the commercial side.
Strong Australia and New Zealand, + 9%. Very strong momentum on the commercial side. Same story on the residential side, I would say, as in Europe, or as in the Americas. If you look at the cycle, residential cycle, most probably Americas is most ahead in that negative cycle. Australia, New Zealand is a bit in between, and then Europe is lagging. If you take Asia, +2% , very strong India, very strong Southeast Asia, a flattish South Korea. And then I would say a good improvement in Greater China, where we only have seen very low single-digit negative growth.
If we look only at final customer sales, what brought it down a little bit more in Greater China was our intercompany sales to mainly Europe. So I would say good, good improvement in Greater China. We see the market also slowly, perhaps very slowly recover. And like I mentioned earlier, we should be able, if that recovery takes place, start to see positive growth numbers again in the near future for Greater China. If you then look a bit at market highlights, also this quarter, several project wins. We got a large automatic sliding door package order for a big nationwide retail chain in the U.S. We unfortunately cannot mention the name of the company.
We also had digital access and workforce management solution for Europe's largest construction site, HS2, in the UK, doing time and attendance access control for 16,000 workers. And then we have the employee badge in Apple Wallet for an important American multinational pharmaceutical and biotechnology company. Also, here we cannot mention the name, but they are a market leader in their field. Several new product launches in the quarter. Definitely the first one, very excited about this. This is really breakthrough innovation, and Yale drive technology industrial door for entrance systems, and finger protection solutions for hinge side inside of doors. And then, a new Gateman smart door lock with fingerprint reader and voice guidance for the South Korean market.
Then we continue to get good awards for our R&D efforts. Our eCLIQ electronic locking system won the Plus X Award, world's largest innovation award for technology, and Sargent and Corbin Russwin won the Security Today's New Product of the Year award for their new generation of exit devices. Now 11 consecutive quarters with positive organic growth, and this quarter, organic growth complemented with very strong growth through acquisition, like I mentioned earlier. Our margins coming back within the 16%-17% bandwidth. If we exclude HHI and the related divestment, our EBIT margin on a 12-month moving trend is 16.6%.
But even if we include all the costs, we are close to the 16% bandwidth, we are at 15.8%, and so we are really coming back in the bandwidth where we want to be. So, strong top line, improved margin, therefore, also accelerated operating profit, a record operating profit in the quarter. Acquisitions has been a very active quarter, with 10 acquisitions signed in Q3, 18 acquisitions signed year to date. They represent annualized sales of almost SEK 20 billion. HHI integration, we have the integration team in place. We started to realize the first synergies, as well on the sales, as on the cost side.
And then we have also decided to accelerate our investment in the innovation team, as well on the mechanical as on the digital side, to come faster with new products. If we zoom in on two acquisitions, Evolis in France, leading manufacturer of ID card printers and consumables, reinforcing our current offering within the secure issuance business in HID. They had sales of SEK 1.2 billion last year. Very interesting company with very good synergies. And the same is true for Forte in Peru, a leading residential door lock and padlock manufacturer in Peru, strengthening our position in emerging markets, and they had sales of around SEK 200 million last year.
If we then go into the different divisions and start with EMEIA, the division that was hit most by the downturn on the residential side. Organic sales of -3%, with strong growth in Middle East, India, and Africa. Stable growth in South Europe, but then sales decline in UK, Ireland, Central Europe, and mainly in the Nordics. And that growth, the Middle East, India, Africa, and important sales decline in Nordic also gave us an important negative mix. Therefore, we are happy with the operating margin of 13.8%. The EMEIA has done a very good job in adapting the cost structure to that lower volume and try to compensate for that negative mix.
So good operating efficiency gains, extra cost cutting leading to an operating dilution of only 80 basis points. And FX helped this quarter, 30 basis points, mainly because of the weaker Chinese renminbi and then M&A flat. Go to Americas, another very strong quarter for Americas, with an organic sales growth of +3%. We have growth, good growth in North America, non-residential, a stable growth in Latin America, and then a significant sales decline in U.S. residential, but that's of course, a small business, that's only the organic part. But Erik will show later that we have seen very similar decline for HHI in the quarter. Very strong operating margin, 16.9%, if we include yeah, HHI.
If we also include separation and integration costs related to HHI. If we take out those integration-related costs, they would be at 17.6%-18.4%, sorry. And if you take the whole HHI out, they would have been at a record 24.2%, so even 10 basis points higher than the record of Q2, where they were at 24.1%. So very good execution in the Americas with very strong operational efficiency. Very good leverage from price versus cost, helped by FX 80 basis points, and then, of course, strong dilution from the HHI acquisition.
If you then go to APAC, an organic sales decline of 7%, with a strong sales growth in Southeast Asia. A small sales decline in China, almost flat in South Korea, and then sales decline in Pacific, where we should make distinction between the local market in Australia and New Zealand, where we saw good growth. But what brings Pacific down is the window hardware business that they export to the U.S. That goes to OEMs in the residential field, and there we saw double-digit negative growth. An operating margin of 8.7%, strong improvement versus the same quarter a year ago. Also here, very strong operating leverage, good price versus cost. Also good cost measures to compensate for the lower volumes in the window hardware business in the U.S.
FX dilutive 10 basis points, and then strong accretion from M&A, 110 basis points. That's the acquisition of D&D Technologies in Australia. We then go to the global divisions. Global Technologies, a good quarter with now a normalized PACS business and organic sales growth of 4%. We have good contribution from all business areas, with the exception of Extended Access and Identification Technologies. Also strong sales growth in Global Solutions and in hospitality in particular, leading to a very strong operating margin of 18.5%. Also here, a very strong execution and then helped 40 basis points on currency and M&A dilutive 40 basis points.
Entrance Systems, a stable organic sales, but a very different picture between the different segments, where we saw strong sales growth in industrial and pedestrian segment, good growth in perimeter security. But what brought it down is our residential business, mainly in the Americas, where we saw, again, double-digit negative growth for our residential garage door business. Very good to see a continued strong growth in service. Service was up high single-digit, delivering on our ambition to grow our service business high single-digit for the coming years. An operating margin of 17%. Also here, very strong price versus cost. A very good mix in the sense that we grow faster in service than equipment. And I would say all stars aligned in the quarter for Entrance Systems when it comes to operating margin.
FX and M&A both slightly dilutive with 10 basis points. And with that, I give the word to Erik for some more details on the financials and also some more details on the HHI performance.
Thank you, Nico. Also from my side, a very good morning. The numbers that you see now, as mentioned before, also includes HHI. Obviously, on, on the sales, on, on the different pieces, organic, acquired growth, as well as FX. You have heard it before from Nico. If you look on the EBIT margin, in value, it's up with 16% and ended at roughly SEK 5.8 billion. EBITDA margin is up with 50 base points. If you look at on a, on a year basis, we're up with 80 base points. The EBIT margin was slightly up 10 base points. And then you see that we have a higher part of interest in interest cost, which is sort of widening income before taxes at 3%.
Roughly in the quarter, we had SEK 900 million in interest cost, and if you look on the full year, we expect to be somewhere around SEK 2.5 billion for the full year. Operating cash flow, I think one of the highlights in the quarter, where we ended 59% better than last year, and in actual value was almost SEK 7.2 billion in positive cash flow. And finally, on this slide, you see the return on capital employed now ended at 16.3%. Obviously, lower than last year due to the, let's say, the capital employed that we received from HHI.
If we then go more into the bridge, the organic part, if you split it, price is a low three, which sort of means that we have a roughly -2% in volume. It looks, of course, a bit strange if you look into the organic column here, with an operating margin coming out of the of the flow through of 336%. This is of course related to that we have a very strong leverage, which is due to lower material cost. We have been able to continue with price realization, and then, as Nico mentioned before, we have roughly SEK 250 million coming from MFP savings, and then we have, as we talked about in the last quarter, the short-term cost measures that we have done contributed with roughly SEK 300 million.
Currency is also positive this month due to the stronger dollar, as well as the weakening Chinese currency. Then if we take HHI aside, you can see that we have good contribution from the acquisitions, where the two main drivers would be D&D Technologies, as Nico mentioned before, as well as Control iD, which was an acquisition that we did last year in Brazil. If we then sort of zoom in a bit on the next slide on HHI, Nico mentioned before that we sort of also here see on the sales that it's lower than it was in the same period last year. It's roughly down 16%. The EBIT margin ended on 77.6, which is 330 basis points better than what we had in Q2.
If we then exclude the closing and integration cost that we had in Q3 of roughly SEK 205 million, we expect to have roughly the same number for Q4. If we then just add on the EBITDA, we ended up for HHI with an EBITDA margin just slightly below 15%. The actual number was 14.9. We expect from EBIT % that it will sort of continue to improve, but we would also just like to highlight that normally for HHI, Q4 and Q1 are seasonally weaker. We sort of maintain what we have said before, is that HHI will have a negative EPS impact for 2023, but should be accretive as from 2024.
Then you heard also from Nico before, when we talked about that we sort of see a lower activity level on the residential, but we believe that it is bottoming out and that it should sort of not get any worse than what it is right now. The cost breakdown, on the direct material, the 2.8 points, 120 basis points of that is related to positive mix, where we had a stronger Global Technologies, a stronger Americas, and then a weaker EMEIA, and then a weaker APAC, which sort of means that that's why we have a positive effect there. The other one, the 160 basis points, is due to the lower material as well as lower logistic cost. Conversion cost, as well as SG&A, you see they are negative.
Conversion cost is negative with 70 basis points. SG&A is negative with 50 basis points. There it's so that, I mean, the lower volumes, as well as inflation, as well as higher wage cost, we have partly been able to offset that with what we talked about before, the operational efficiencies, and on the SG&A, we continue to invest in R&D. But we can only partly offset that by, let's say, savings coming out of the sales as well as the administration cost. Cash flow, as I mentioned before, it's a record. It's one of the real highlights, I would say, in this quarter, having a cash flow for the quarter above SEK 7 billion.
This comes from that we had, of course, a good contribution from the EBITDA, as well as we have been able to maintain a good control, I would say, on receivables as well as payables, and then we have been able to work our inventory down. If you look on the cash conversion cycle for the quarter, it was almost 150%. It was actually 147%, to be more exact. On the gearing net debt to EBITDA, it went down from the 2.8 last quarter to 2.6. One, of course, is I would call this purely mathematics, because if we had the full net debt, but now also we start to see the contribution from HHI on the EBITDA.
But besides that, I think that also the cash flow helped us, and despite that, we have done a lot of acquisitions in the quarter. We were actually able to reduce the actual debt with SEK 1 billion in the quarter. I think that the balance sheet is continuously, it is continuously strong enough to support our acquisition strategy also going forward. Last slide for me is the earnings per share, which is up with 3% if you compare to the same period last year. And with that, I hand back to Nico for some concluding remarks.
Thanks, Erik. So like we said at the beginning, a good quarter. We have a positive organic sales development of +1%, despite very challenging market conditions on the residential side, and then a very strong complementary growth from acquisitions, net +11%. Record strong margin, if we exclude HHI, 17.4%. Record cash flow of SEK 7.2 billion , and then the integration of HHI has started going in a positive way, starting to realize the first synergies and being even more convinced now than before on the $100 million synergies that we have identified.
It's clear that we are living in a world with a soft economic climate, and it's very difficult to predict the future. What we can do and what we have to do is make sure that we are agile enough. If there is opportunities, that we continue to grasp the opportunities.
If we see markets or segments going down, that we are fast enough to adapt our cost to new realities, and therefore be able to continue to protect our bottom line and our cash flow, like we have also done this quarter, and we are very confident that our organization is tuned for that. And then last but not least, Björn asked me to inform you that we will have our capital markets day next year on the fourteenth and fifteenth of May. That will be in Prague, and then we will also visit our very interesting factory in Rychnov. And with that, I give the work back to Björn for Q&A.
Thank you very much for that, Nico. Well, it means that it's time now to open up for questions. I've been informed that we have around seven people in the queue already, so please limit yourself to one question and a follow-up so we can go through the queue. So operator, this means we're ready to kick off the Q&A session. Please go ahead.
We'll now begin the question and answer session. Anyone wish to ask a question may press star and one on their touchtone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Anyone who has a question may press star and one at this time. The first question is from Vivek Midha with Citi. Please go ahead.
Thanks very much, everyone. Good morning. My question's on non-residential. You commented that you're seeing a good development in non-residential in the U.S. and Europe. What are you seeing in your specification activity, and, and what's your latest thoughts on the end market, given the lead indicators? Thank you.
Yeah, so like I mentioned, I think we, we still see good momentum on the commercial side. Perhaps it's not as hot anymore as it was 18 months ago, but I think it's still, still very good momentum on the commercial side. Our spec business in all three main regions, if you take North America, Europe and Australia, New Zealand, has been up a higher single digit, and that in comparison with a very strong spec activity same quarter a year ago. I know that some of the indicators, like ABI indexes in the month were very negative. Like I mentioned earlier, we should look at that in over a longer period.
If you have one or two months with a lower ABI, what it does is just reducing the pipeline of projects. You've seen that perhaps also that the pipeline is still six months. So, what is more important is that we see that ABI index going up again in the coming months. But again, internally we still see good momentum. I would again say that the market is not our biggest concern. Our biggest concern remains the very difficult comparison with a year ago, and also the fact that now again in Q4, we will have one working day less as compared to the same quarter a year ago.
Thank you very much.
The next question is from Daniela Costa with Goldman Sachs. Please go ahead.
Hi, good morning. Thanks for taking my question and then also a follow-up, which is actually a follow-up on your prior comments. But starting with sort of more of the medium term, I think we've seen in July, some energy efficiency measures in Sweden targeting sort of windows and doors, and I think one of your peers yesterday talked about that. I know the market is currently very weak, but as you look forward, are you seeing any signs that that could provide some offset specific to your product categories despite the weak construction industry? And then I'll ask the follow-up afterwards.
No. Yeah, of course. I would say that energy conservation and energy in general becomes more and more important in general, not only in Sweden, in general, in Europe, and I would say in the world, in general. So that definitely helps us because it also drives specifications up in our industry and gives people that do R&D and innovation like us an advantage, and it takes the more pure cost players out of the equation. So it's definitely a plus. Is that gonna help us so much in Sweden in particular? I would say no. I think it's only a small, very small part of what we do in Sweden.
And like I explained earlier, if you take prior to COVID-19 levels, if the level of prior to COVID-19 of new housing built in Sweden was 100, today we are below 20. So it's a very important drop of new build, and we see something very similar on the R&R side. And we don't see a you know a good improvement yet in the near future. I think the only perhaps positive thing, if you can call it a positive thing, is that it's now the third quarter that we see decline in Sweden. So one more quarter to go, and then at least the comparison will become easier. But I don't expect a strong recovery in Sweden on the short term. No.
Got it. Very clear. Thank you. And then just a follow-up, just quickly, some quarters you comment on how the quarter has started. I wonder if you can tie up all the comments you've given so far into any commentary regarding how October and, and Q4 has started on a sequential term versus, versus Q3?
Yeah. So Q3, Q3 is of course a very difficult quarter because you have July and August, which are holiday months, and then September makes or breaks your, your quarter. So it's a bit difficult to comment, but if you would correct for the holiday effect and take July and August perhaps together, and then also correct for the working day corrections. Of course, you have seen lower level in Q3 because we don't have the recovery of the PACS business, but it has been rather flat development in Q3, and the same flat development has now continued the first couple of weeks into Q4.
Thank you.
The next question is from Aurelio Calderon with Morgan Stanley. Please go ahead.
Hi. Good morning, Nico, Erik. Thanks for taking my questions. Will be one and a quick follow-up. First one is on HHI, and obviously you talk about EBITDA margins getting close to that 15% band. I wonder if you can comment, and Nick, I think you made a comment saying that you're even more convinced that the $100 million synergies is achievable. So, question would be, what has surprised you now that you've fully integrated the company for three months? And, what do you think that margin trajectory, or how do you think about that margin trajectory, for the next quarters or so?
Yeah, as we have, of course, a lot of, you know, one-off costs and therefore, the comparison and reading the real figure is a bit difficult. Erik mentioned that in the quarter we had SEK 205 million SAC integration and closing costs. Erik mentioned also that we should have similar integration closing costs now in Q4, but that should be done and over going into next year. So next year should be clear from that aspect, you could say. But therefore, I think it's perhaps easier and better to look at EBITDA figures, because that gives a more correct reference.
Because also the difference between EBITDA and EBIT, we are still working on the exact PPA percentage that we should be able to finalize in the coming weeks. But EBITDA, like Erik mentioned, was at 14.9%, close to 15%. In Q3, a significant improvement over Q1 and Q2. So we really see that margins have bottomed out, and we start to see a good recovery of that margin. Like Erik mentioned, Q4 and Q1 are seasonally always lower top line quarters than Q3. Q3 is normally the higher top line quarter, seasonally.
But nevertheless, we are confident that, and we aim for that, that we will be able to continue to further increase our margins in Q4 and going forward, despite the seasonal effect. And that is because we start now to see better prices kicking in and with lower cost, lower cost for material, lower cost for logistics, logistics sorry. And we also start to see the first, you know, synergies being realized as well on the sales side, as on the cost side. Why am I more convinced? Because in the meantime, I've seen much more people. I was two weeks ago, for instance, in the Philippines, where HHI has their biggest factory. It's our biggest factory for the group today.
We have more than 1,300 people working at the factory. There again, you see the whole strong chemistry, we speak the same language. They are very happy now to be part of the ASSA ABLOY family. They see that, you know, we understand the industry, and we will do the right investments, and together our knowledge will be stronger. And by being able now to look from inside into the company and getting confirmation from inside, from some of the things we thought from before, from looking at the company from outside, it gives us that extra confidence that we will be able to realize those synergies.
That's great, thank you. And a quick follow-up, probably for Erik. Cash conversion obviously been very, very strong. Are you happy with your working capital levels? Or as volumes probably will continue to be a little bit soft, are you still going to be pushing to reduce inventories?
I mean, let's say that what Nico normally says, "I'm happy, but I'm not satisfied." I sort of still believe that we have potential to further decrease our inventory, which comes from also the better, let's say, stability we have on the supply chain, the better stability we also have on the logistics part, should also be able to generate that, we have more potential on the inventory side.
That's great. Thank you.
The next question is from Gael de Bray with Deutsche Bank. Please go ahead.
Oh, thanks very much. Good morning, Nico, Erik. Thanks for taking my question and maybe a quick follow-up. Can we start with Europe, please? The EMEIA division used to be a 16% margin business in the past, but since COVID, really, margins have been at or below 14%, and with the outlook still clouded by higher interest rates, I was wondering if you, if you're considering maybe taking even more structural actions to catch up on the lost ground. So that's question number one.
I would say everything depends on how the markets will evolve going forward. We announced, I think, in Q1, that we were gonna do SEK 900 million extra savings this year. We explained that most of those savings are for entrance systems and EMEIA, and that is also where we have seen now the savings kicking in in Q3. We are not there yet. Some of the savings that we initiated and cost measures we initiated when we announced the SEK 900 million still have to come, and they will further come now in Q4. So we will get further operational efficiency gains now in Q4.
I mean, it's not a secret that we are not happy with the margin where we are with EMEIA today. I think we had the challenge in EMEIA that we were perhaps a little bit too late with price increases when inflation started as compared to other divisions. And if you're too late to start, you of course take that headwind with you throughout the whole cycle, and that explains the EBIT performance to a certain extent over the last couple of years. And then the other important negative effect is obviously the currency, the SEK, that affected our margin in a very important way as well over the last two years.
Like I mentioned earlier in the presentation, I'm very happy now with the cost measures that EMEIA is taking, and I'm very happy that we see those costs now being translated also in the results in Q3. I'm also confident that, you know, going forward now from here, we should continue to see a further improvement on the operation side.
Okay. Thank you. Thank you very much. And maybe just checking a couple of things on HHI. What's the normal seasonality you would say between Q3 and Q4 margins? And on the PPA side, was it around SEK 150 million this quarter? And since you're still assessing PPA, do you see it rather coming down or up?
Oh, we start with the seasonality.
Start with the seasonality, yeah.
And, I sort of, the seasonality is that it is weaker in, as I mentioned before, in Q1 and in Q4 and Q1. The actual, let's say, exact number is difficult because it's also pending on how the market evolves. On the PPA, what we have said on a year basis, we've talked about SEK 800 million on a year basis. And right now, as I said in the last call, that today it's roughly 20% that we have started as an initial point. We, we're now doing the assessment. I would say that I'm confident that it's not gonna be higher than the figure that we have right now.
Okay. Thanks very much.
The next question is from, Rizk Maidi with Jefferies. Please go ahead.
Yes, good morning. Thanks for taking the questions. I'll start with pricing. So it's 3% in the quarter. Can you perhaps just give us a bit of indication there? Is it still mainly driven by EMEIA Global Tech and less price increases in Americas and Entrance Systems? And how are you thinking about your sort of pricing strategy in 2024, please?
Yeah. So, Erik mentioned it was a low 3%, so it was closer to 2.5%, in the quarter. And in the quarter, it was the same as the first two quarters this year. So, all divisions were above that 2.5%, with the exception of Entrance Systems and Americas, which were lower. And that has all to do with the fact that last year, Americas and Entrance Systems were above because they have the highest steel component in their material cost. And as you know, steel, especially in the U.S., steel cost exploded, and therefore, there was more margin to increase prices for Americas and Entrance Systems last year, and now they have the more difficult comparison.
We have said that at the beginning of the year, we had around 2% price carryover. So for the full year, you should reckon somewhere around 3% price for the full 2023. We are now preparing, and we are already informing the market on price increases that will come beginning of next year. So we will continue to increase prices next year because we continue to see inflation. Yes, material has stabilized, but has stabilized still on a higher level. We still see very strong labor inflation, and we believe labor inflation will continue to be strong next year. And we also see stronger general inflation. Therefore, it's important that we continue to increase prices.
I would say we will continue to increase prices as long as the market follows. So far, this has been the case. I would say the only exception is where we have strong steel content, like residential garage doors and fencing business for residential applications. There, I think we are happy that we can keep the prices, because obviously there we have seen significant price increases over the last two years.
That is very clear. The other one is just on the strong operating leverage, perhaps on the saving. I mean, you've done SEK 550 million now in Q3. Can you just remind us on how should we think about this number, you know, MFP and the short-term effect in just the coming quarters, Q4 and perhaps 2024, please? Thanks.
If we start with what we said on the short-term savings, was that we said for the year roughly SEK 900 million. I would say that out of the short term, we would have another SEK 300 million now coming in Q4. If you look on MFP for the Q4. My estimate is slightly above SEK 200 million. And today, with all the projects that we have, let's say, from the MFP 8 as well as for the MFP 9, for next year, it is SEK 600 million.
Perfect. Thank you very much.
The next question is from Alexander Virgo with Bank of America. Please go ahead.
Yeah, good morning. Hi, Nico. Hey, Erik. I wondered if you could just dig into the dynamics on new build versus R&R in resi, and I guess Europe and the US primarily. I'm just wondering, you've described Scandi as saying or Nordics, I beg your pardon, as saying you're seeing similar patterns to new builds where you're going from an index of 100 to less than 20. I just wanted to basically... Can you go through a little bit more on the detail of this? Because a lot of the sort of prevailing assumptions around resilience in construction outlook is predicated on renovation, and it does sound as if renovation markets, from your perspective, are pretty weak. Obviously very weak in the Nordics.
So I wonder if you could just expand that across regions and just talk to us a little bit about the trends and the dynamics of that business. And if I could follow up very quickly, just on the Americas, and talking about double-digit negative growth in garage doors. I appreciate that that business is in entrance systems. I'm just wondering if you could clarify for us what's remaining in the Americas resi exposure, given the disposal of Emtek and Yale. Thank you.
Yeah. So perhaps we should go back a couple of quarters and when the residential downturn started to hit, the first thing you of course see is that new build stops or goes down significantly. And then you get—we get a double hit because we sell to OEM window manufacturers, OEM door manufacturers, and if they see new build going down significantly, they also stop ordering from us, and we get a double dip. Once they have adjusted their stock levels, which is more or less the case today, then you continue to go down in line with how the market goes down. And market is significantly down in U.S., in Europe, and in Australia, New Zealand, for new build.
I think it's, you know, very similar, and it's still double-digit down. What I said on R&R is that last year we still had positive R&R activities on the residential side, but that we saw that growth coming down. We have continued to see that growth going more and more down in Q1 and Q2 it was negative, and now in Q3 it's more negative. Because I think what people underestimate is, of course, yes, we have the general R&R, but when do you do big R&R? That is when you move houses. When you move into a new house or when you sell your house, that's when you do the big R&R work.
And as there is also much less people that change houses, it's not only new houses that are less built, but also less people changing houses because they have all the mortgage challenges on their back. We also see that bigger R&R not happening or not happening to the same extent. I should correct myself if you interpreted that also R&R is down from a level 100 to 20 in Sweden. That is, of course, not the case, but R&R is also significantly down in Sweden, and I would say in general in the world. And then I think the second-
Thanks, Nico. Yeah, and just to follow up was just on the. Well, if I could follow up with, can you give us an indication of how much you think it's down? And then the follow-up was on the US, US or the America's business-
Yeah
... specifically the residential exposure there. Thanks.
Yeah. So again, I mean, we divested most of our residential business in the U.S. So, I mean, it's not significant what is remained. It's very little business. So I think if you look at our residential business in the U.S., you should really look at our HHI performance. That is what moves the needle or not.
Shall we go to the next question, operator?
Yeah. As a reminder, if you wish to register for a question, please press star one on your telephone. The next question is from James Moore with Redburn Atlantic. Please go ahead.
Yeah. Morning, everyone. Thanks for taking the question. I wondered if I could just go a bit further, Nico, on the Americas business. Now, you've got a great story with HHI, but as ever, it can often be the end market mix that causes issues, and I'd just like to mitigate that and understand within resi, institutional, commercial, a bit better how you now look. I know resi's gone from 25 to 45 post HHI, and LatAm's mostly resi, and I know you're all sort of 45 commercial, 55 institutional. I just think that when you bore into those three pieces, could you help me understand a little bit how much is multifamily versus single family in resi? And in institutional, when Thanasis was running the business, he'd always say, like, it's a third health, a third education, a third other.
I don't know if that's still valid... And within commercial, which is obviously an area of risk, and I know you'll say nothing's more than 10%, but could you help us rank multi-retail, office, casino, hotel? What, what are the bits that are actually more important within that? Thanks.
If you take the non-residential business in the U.S., you could say that around 55% is institutional and then 45% is, you know, you could call it commercial or non-institutional. If you look at the different verticals or segments, there is no segment that is, you know, double-digit exposure. The two main verticals or the two biggest verticals for our, for us are healthcare and education. All the others are, you know, smaller, but also healthcare and education are less than 10% of our revenue on the non-residential side. Multifamily is a bit difficult because, you know, it's, it's mainly in residential, but sometimes depending on, you know, the type of project, some of it might also slip into commercial.
But personally, different answer, different way to answer is if you look at HHI, which I think is also representative for residential business in general in the U.S., clearly the biggest channel to market is the DIY channel. The second biggest channel is the professional home builders, and then the other channels are smaller.
That's really helpful. And just within commercial, are you more skewed to office or more to retail or more to hotel? I've just never understood the non-institutional resi side of the business that well.
Yeah, we get, of course, a lot of questions on offices because people say there is gonna be less office space. Then there's other people that say there is more office space. We don't live off office space, we live off door openings. And we are convinced that even now in the future, with people working more from home, there will be more door openings, because what will disappear is those big landscapes where people sit with 200, 300 people in the same room. And the new offices will be more breakout rooms, meeting rooms, so more door openings. We're also convinced that the door openings will be more of an electromechanical nature versus mechanical, so more revenue per door. So we believe the office story is still a positive story.
But the office vertical is not a significant vertical for the Americas. It's a bit different for HID. For HID, for their PACS business, it's an important vertical.
Thank you very much.
There are no more questions at this time.
If there are no more questions, I think it's time for us to round up, but we'll give participants five seconds to press the button in case there is a follow-up.
There's a follow-up question by Vivek Midha with Citi. Please go ahead.
Thanks very much, everyone, for the opportunity for follow-up. A very quick follow-up on Asia Pacific. You printed 8.7% margin in the quarter. I understand the mix has changed quite a lot in the last few years, but could you give us any update on where the China margin sits now within that? Thank you.
Yes, I can do that. I think we are very happy with the improvement on the margin in Greater China. As you remember, a year ago, we were printing double-digit negative margins in China. We are today very close to, you know, breakeven. It's still red figures, but it's very small red figures. Therefore, we are also confident if we can continue now to grow, or we can start to grow the top line again in the coming quarters, then soon after, we should also start to deliver black numbers in Greater China. And the much less dilution of China in the quarter is an important reason why the margin improved so much as compared to the same quarter a year ago.
Thank you very much.
Thank you. Operator, is there any more question?
We have a follow-up question from James Moore with Redburn Atlantic. Please go ahead.
Oh, yeah. Thanks for the follow-up. In your GT business, Nico, you talked a couple of years ago about the depressed hospitality and marine business, and that you thought that would start to improve as we move past COVID, which would be an important lever for profitability. I don't know if you could give us a flavor for where we are these days in terms of the HID profitability versus solutions or hospitality within that, and whether you think that the GT margin story is now cooked and done, or whether you think there's still areas of, of obvious secular improvement or cyclical improvement?
So if you know, in Global Technologies, around 70% is HID, around 30% is Global Solutions. And like you mentioned earlier, in HID, the PACS business is very important from a profit perspective. In Global Solutions, the marine cruise ships and the hospitality business is very important from a profit perspective. We've have indeed said that, marine and especially hospitality, would take longer after COVID-19 to recover, because the misconception of the market was that when people started to go back to the hotel, that our business was back. Yes, our aftermarket business was back for hospitality, but that's only around 20% of our hospitality sales. Hospitality is mainly projects, upgrade projects for hotels.
It's clear that if you had a family hotel or a small chain hotel and didn't see a customer for 18 months during COVID-19 times, it was not your first priority to upgrade your project. That's why it took longer to recover on the hospitality side. Cruise ships came back a little bit earlier because those diehard cruise ship customers, they went back on the cruise ship soon after COVID. So we have seen a recovery first of the marine business, and then we have seen a good recovery of hospitality. The last quarters, we have seen very nice double-digit growth, and we are now again on those volumes that give us very good margin for hospitality. And for marine, both are again well above pre-COVID 2019 levels.
In that aspect, I think Q3 has been, again, a more normal mix that we historically have seen for Global Tech. Therefore, it should be possible, like we mentioned also earlier, to continue to post EBIT margins between 17%-18% somewhere for Global Tech. Definitely above the 17%, but not the 19% or 20% that some of you were dreaming about. We have always said that Global Tech is 17%-18% EBIT margin if mixes are correct and the volumes are where we want them to be.
That's really helpful. Just to follow up on that, on PACS, where are we, do you think, on the, on the revenue and margin cycle?
So, like we mentioned earlier, we had built up that big backlog on PACS because we had electronic component shortages. That was, you know, mainly last year. And then we started to redesign, having the right chips in production, we were able to produce, and then we started to recover on that backlog as of Q4 last year, and then Q1 and Q2 this year. That is done now. That backlog is over. We are back to, you could say, normalized PACS levels. And that's gonna be a challenge also now going forward into Q4, because obviously, Q4 last year for Global Tech was a very strong quarter.
If I remember right, the organic growth was 18% for Global Tech in Q4 last year. So it's a very difficult comparison now with one working day less, this Q4, and with a normal PACS versus an inflated backlog PACS same quarter a year ago.
Yeah. Just last one, if I could, on PACS-
James? Sorry, can I interrupt? We actually have another person in the queue, so can we move over to the next person?
Sure. Thank you.
Thank you, James.
The next question is from Johan Sjoberg with Kepler Cheuvreux . Please go ahead.
Thank you. I had a question on the margins in Americas. When I do the math here on Q3, and sort of look at the underlying margins now, including HHI and excluding that integration cost, I come up with 18.7%. I understand that you will have integration costs of the same amount now in Q4, but going into 2024, given what you're seeing in terms of future price increases, your own synergy, et cetera, and also the order backlog, you did talk about commercial and also your assumption on residential. How do you see margins in Americas in 2024? Do you... If we could talk about the first half, you know, where you feel comfortable to talk about your visibility. Do you see that deviating much from the current levels, or how should we look at about it? Thank you.
The 18.7% is a good calculation. If we indeed take the, let's call it, one-time off cost out. Like you rightly mentioned, we will see still similar one-off costs in Q4, but then as of next year, they should be clean. So I think the 18.7%, I think, is a good reference starting point to start thinking of what will happen next year. Then, of course, there's a lot of moving parameters. The, the mix between residential and commercial is, of course, very important because as you have seen, margins are still very different between HHI and our commercial business. The same is true between South America and North America.
And then a lot will depend on where material prices will go next year and how strong we will be able to further implement price increases going forward in the beginning of the year. But I think definitely the first couple of quarters for next year, that number should be a good reference. Yes.
Oh, very good. Can I also ask you about the price increases in general for the group? I understand that you will aim for higher price increases in 2024 compared to what you have seen in the history. And also, just the difference between the U.S. market and the rest of the group. Is it the same thing that the U.S. market will see higher price increases than the rest of the group, please?
We are still working on the details for the price increases for next year, but I don't think it's gonna be big differences. It's all gonna be linked to, you know, the inflation numbers in the different countries. And so depending on what you see as difference in inflation between, for instance, U.S. and Europe, that should then also be translated to a certain extent, in the difference you will see in price increases between U.S. and Europe, for instance. But we will try to increase prices in different regions, again, to compensate for that inflation.
Thank you, Johan.
Okay.
It's time for us to round up now, this conference. I would like to thank everyone for your interest and participation, and we look forward to speaking and meeting with many of you in the coming weeks. Thank you and have a good day.
Thank you.