Earnings Call: Q3 2020

Oct 21, 2020

Good morning, and welcome to the presentation of Assa Abloy's Q3 Report. My name is Bjorn Tibell. I'm heading Investor Relations. And those of you watching this via our website can see that we are back in the studio in Stockholm again. And joining me here is our CEO, Nico Del Voor and our CFO, Erik Peter. We have set aside about 1 hour for this conference, and we will start now with a summary of the report before we open up for your questions as usual. So with that, I would like to hand over to you, Nico. Thank you, Bjorn, and also good morning from my side. Q3, I would say, a good Q3 under COVID-nineteen times where we have seen a much more maintained organic decline. We only had a negative organic growth of 5% versus last year, so much better than Q2. And then strong growth through acquisitions of plus 4%. And that better top line, together with continued strong cost actions, led then also to a good EBIT of 16.2 percent on the same level as a year ago. And better EBIT margin, together with good reduction of working capital, also then led to a very strong cash flow. As a matter of fact, even slightly better than the same quarter a year ago. So overall, I think up to you to judge, of course, but I think a good quarter. So sales of SEK22.2 billion, 8% down, the minus 5% organic growth, plus 4% to acquisitions and then a strong negative currency effect on top line, minus SEK 7,000,000,000 that's mainly SEK related. EBIT margin, like I mentioned, of 16.2%, so an EBIT of almost SEK 3,600,000,000. If you look a little bit into the different regions, we start with North America, a negative organic growth of 5%. I would say a mixed picture where we have seen a strong residential as well for Americas as for our residential garage door business in Entrance Systems. We've also seen a very strong smart residential but then a weaker commercial, a weaker P2B. And then same thing in South America also, a mixed picture, minus 7% in total, but a very strong performance for the Americas division with many of the markets in South America showing even double digit growth, whereas the comparison for HID was very difficult because we got a very big project order last year in the similar quarter. If we then go to Europe. Europe definitely bounced back from a very difficult Q2 under lockdown, I would say. So minus 3% organic growth in Europe. For EMEA, we have seen in Q2 a little bit of destocking where the channel could not destock prior to the shutdowns because shutdowns happened suddenly. They did a little bit more after the shutdown. And then in Q3, as business stabilized more, we have seen then a restocking in the channel. We have also seen that people took classification in July August. And then obviously, we had one working day more in a working month, September, and one working day less in a holiday month in August. In total, the working days in the quarter were the same. So good recovery in Europe, minus 5% in Africa, minus 3% in Oceania, I would say, despite the fact that we had another lockdown in New Zealand and also had a lockdown in Melbourne and Queensland. So I think also solid performance in that part of the world. And then my understanding in Asia also there, a mixed picture where we saw good recovery in China, especially on the commercial side, where we saw, again, positive growth, where on the residential side in China, we still saw lower single digit negative growth where it takes a little bit more time to recover. But overall, I think we were around minus 3 percent negative growth in China. Whereas then the other markets in Asia were much more suffering, still very much affected by COVID-nineteen. Countries like Southeast Asia and definitely countries like India, where the effects of COVID-nineteen are still very important. And then of course, we also had stronger negative growth in South Korea. Market conditions still very much under pressure. So minus 5% in total, minus 8% in emerging markets. So market highlights. Good to see that also in COVID-nineteen times, we continue to win bigger projects. We got an order for key management systems and doors for several stadiums for the World Cup Soccer in Qatar. I told Erik that's the place where Belgium is going to become a world champion in soccer in a couple of years. We'll see if my prediction is correct. Nice orders for Docking Solutions, also for a big retail customer in the U. S. Docking Solutions is definitely a driver for the growth in entrance systems. As we all continue to work from home, we all need in home deliveries. So the Amazons of the world have to build warehouses and refillment centers in an intensive way, I would say. And then also a couple of nice new project wins in China, where the new strategy really starts to pay off. Different product launches in the quarter. I will only highlight 1. The connected doors in Entrance Systems, very excited about that evolution. And then also this quarter, we won again several awards for our designs and our new products. So it's very good to see that our R and D efforts are also recognized by the professionals in our industry. So now 3 consecutive quarters with negative organic growth, compensated partly by growth through acquisitions, where we had, again, a good growth through acquisitions this quarter of +4%. The operating margin on a 12 month moving trend now at 14% and the operating profit in the quarter 8%, down versus the same quarter last year. On the acquisition side, we continue to be active with 4 acquisitions completed in the quarter and also finally managed to consolidate Hector, a record in our figures as of the end of August. We also did one more acquisition, Olympia, now in October. So in total, now 9 acquisitions year to date, and they represent an annualized sales of around SEK5.7 billion. We also had to divest some active record entities and some Besam entities in Entrance Systems because of European antitrust linked to the acquisition of Vector Record. And then we also announced that we will divest our sensor elevator sensor business in SEDAS, a Swiss based company, and we expect that transaction to close now in this quarter. And those together represented an annualized sales of around SEK1.5 billion that we will divest. Couple of words on Olimpia. It's a leading glass hardware and accessories brand in Latin America and in the Caribbeans, very complementary to our Latin America business. They had the sales of SEK 125,000,000 in 2019, and they will be accretive to EPS as of the start. So very nice add on. If we then go into the different divisions, starting with EMEA, a division that definitely, top line wise, bounced back in an important way compared to Q2 with an organic sales decline of only 2%, with perhaps surprisingly good sales growth in the UK if we take into account all the COVID-nineteen challenge that they also have in that part of the world. Stable sales in Germany and Scandinavia, but then declining sales in the other regions in EMEA. An operating margin of 15.9% versus 16.1% last year. We have a good volume leverage, only 20 basis points dilutions. Of course, thanks to a more contained top line, but also thanks to very good cost measures in the quarter, neutral from an FX and M and A perspective. Americas, an organic sales decline of 5% with very strong sales growth on smart resi in Latin America, like I mentioned earlier, and strong sales growth in Residential, but then negative sales growth in our commercial side in the U. S. An operating margin of 20.2% versus 20.5% last year with very good volume leverage, again, thanks to very good cost control and savings. And I would say despite the negative mix in the sense that we had less commercial in the U. S, more residential and more South America. And we know that we make better margins in the U. S. Than in South America, and we make better margins on the commercial side than on the residential side. Neutral FX and then 40 basis points dilution from M and A. That's more an internal reason. That is the move of perimeter security from Opening Solutions Americas to Entrance Systems. Then our 3rd term geographic divisions, Opening Solutions Asia Pacific, an organic sales decline of 8%, with a smaller decline in Pacific and in China and a more significant sales decline in all other regions. All other regions, like I mentioned earlier, are still very much affected by COVID-nineteen. An operating margin of 7.4% versus 9.5% last year. A negative leverage of 190 basis points. I would say 2 main reasons. One, of course, is that we have seen very high double digit decline in markets like India and Southeast Asia. And of course, if you have very strong double digit declines, it's very difficult to adjust your cost to those top line levels. And therefore, it's very difficult to show a good leverage. It will be the same story as I explained for EMEA in Q2. And the second reason is the mix in the sense that we had more China and less the rest of Asia Pacific. And as we told at previous occasions in China, we used to make very low single digit EBIT margins. We see very good improvement in China. We have now several quarters in a row that we more than doubled that margin. But again, in the total picture, it's still dilutive in the mix in the sense that more China and less of the rest of APAC means a negative mix. 10 basis points positive FX and then 30 basis points dilution from M and A. Again, that's mainly the shift from critical infrastructure from APAC to Global Solutions, an internal reason. If we then go to Global Technologies, HID and Global Solutions, definitely divisions that are still affected in a big way by COVID-nineteen, and they posted an organic sales decline of 17%, where we saw sales growth in secure issuance, but we then saw negative sales evolution in all other business areas in HID and definitely also in Global Solutions. Of course, the main business for Global Solutions is our hotel business. I don't have to explain you in which situation that sector still is today. And of course, on the HID side, part of the business is also related to citizen ID, passports. As people don't travel, they don't have to renew the passport. They don't lose their passport. So that is a business that is affected. And of course, part of the business is also related to offices as people still don't go back to the office. They don't need cards. They don't need credentials. An operating margin of 16% versus 20.3% last year, a negative volume leverage of 2 10 basis points, of course, linked to the bigger drop of the top line, the 17%, but also linked to the mix in the sense that our aftermarket business, so the cards and the credentials, was much more down than the 17%. And we know that margins on the aftermarket are better than on new projects and on running business. And this is also 2 divisions where we continue to invest intensively on R and D because we really believe that's important to do that today to give us an edge tomorrow after COVID-nineteen. FX flat and then also strong dilution from M and A, 220 basis points, where 2 recent acquisitions, De La Rue and Placarte, were affected negatively because of COVID-nineteen. Again, as people stay home, not much need for cards and passports. And then we also had one off higher acquisition costs linked to some recent acquisitions we did in HID and in Global Solutions. Last but not least, Entrance Systems, very strong performance in the quarter of that division, an organic sales growth of 1% with good result in all different segments and an operating margin of 17.8 percent versus 13.6 percent last year. The 17.8 percent is, of course, inflated by SEK 252,000,000 that comes from the divestment of those 2 base home entities and several active record entities we had to do for European Commission. But even if you would exclude the SEK252,000,000, you will see that they had a very strong operating margin with very good strong volume leverage due to good top line but also good cost control and savings. And with that, I give the word to Erik for some more details on the financial numbers. Thank you, Nico, and also from my side. Good morning to everybody. As mentioned by Nico, our sales dropped with 8%, of which 7% is related to currency. And the main movement there is, of course, the strengthening of the second, of course, the weakening of the dollar. Our organic growth was down with 5%. If you then look on the operating profit, it was down with 8%, which of course is much better than what you saw in Q2. So you can see that our cost efforts are really paying off when it comes to this. On the EBIT margin, we are the same as last year with a SEK 16,200,000,000 Then as mentioned by Nico, we have the divestment from the RecordBESAM entities, but we also have other Agta related costs, which goes the opposite way. So the comparable number would be SEK 15.3 billion. Cash flow, once again, I think is a highlight of the quarter. We actually have a better cash flow this quarter than what we had the same quarter last year with SEK 6,000,000 better. And also if you look on year to date, you can see that the net profit was down with 23%, whereas then the operating cash flow was only down with 2%. Return on capital employed went down with 2 points, which is related to the lower earnings as well as higher capital employed. If we then look on the cost, the cost efficiency, what have we done? In the quarter, we have about net cost reduction of SEK 600,000,000. It consists of roughly close to 10% of our personnel is involved has been involved in 1 or the other kind of temporary layoff schemes. We have since January reduced our permanent workforce with 5%. If you then sort of add there, you can see that in the quarter, of course, this is also part of the permanent headcount savings, We had a cost reduction due to the manufacturing footprint programs of SEK 175,000,000. You can also see, of course, if you look on other cost components, travel went down with 85%, external services went down, marketing went down, premises cost for premises went down. So we have a number of things which has actually sort of resulted in this cost efficiency. We have also we also plan to launch the 8th manufacturing footprint program now during Q4. The cost for the program is roughly the same as before, but we have a much faster payback. It's close to 2 years. And I think this is for us one of the highest priorities right now is being agile on the cost. If we then look a bit on the bridge, you can see that the organic flow through is much better than what it was in Q1 and in Q2. It ended up on 26%. We have good evolution, I would say, in all the division, but specifically, I would say Americas as well as Entrance Systems. There is a 10 basis points negative impact from the currencies. And then you see on the acquisitions, it's actually in the bridge, it's 50 basis points improvement. But as we have, I think, alluded to before, the Besamrecord divestment has, of course, a positive impact. If you take that away, it would be negative 70 basis points. We have in the quarter have roughly SEK 40,000,000 in acquisition costs. And if we then look into, let's say, further on, we expect the dilutive effect from record to be roughly 50 basis points going forward. If we then look into the cost breakdown, you can see that we have 90 basis points positive coming out from direct material. We have a tailwind in EMEA, we have in APAC, But we can also see that our sourcing activities really start to pay off. Conversion cost is actually 20 basis points better despite the lower volumes that we have. So our gross profit is actually up with 1.1%. On the SG and A, we continue to invest into R and D. But if you look into the underlying, I would say our SG and A cost is going down. Operating cash flow, as I mentioned before, strong operating cash flow. We continue to have a net working capital reduction. This quarter, it was SEK 800,000,000, but we also see lower interest expenses as well as CapEx. We have reduced CapEx also in the quarter. The transition, the cash flow versus EBT is 123%. We also have a higher than normal cash position of roughly SEK 4 point 9,000,000,000. Sorry for that. There, we have already started to adjust that in Q4 with paying back a loan of SEK 2,000,000,000. And we have also already geared up for the proposed dividend, which we expect to happen in November. If we then look into the gearing, you can see that we are down from 64% a year ago to 56% this year. Our net debt to EBITDA is despite that we have done the payment to for Agta Record, it's at SEK2.2 billion. And if you look, the net debt in value is actually down with SEK1.9 billion, okay? It has also to do partially with the strengthening of the SEK and the weakening of the dollar, but we also have had the strong cash flow that I've alluded to a couple of times. I think if you look on that, I think we still can continue our acquisition strategy. Our financial position is very solid. Last but not least, our earnings per share went down with 6%. And I would also like to mention that the Board has proposed a second dividend for this year of SEK 1.85, which if you then add the SEK 2 that we then had in May, This will end up to the SEK 3.85 which was actually what the Board proposed prior to COVID time in February. And with that said, I hand the word back to Nico. Thank you, Erik. Before I summarize, you've also seen the announcement that we will commit to science based targets. We believe that sustainability will be critical for economic and business development in the coming decades. And I would say through that commitment to science based targets, we really show our willingness to lead the industry when it comes to sustainability. I'm convinced also that all the internal actions and policies that this will initiate will further strengthen our competitive position through more sustainable products and solutions and also through more sustainable operations. We also we launched a new sustainability program for the next 5 years, where we will also then set new targets for all the other sustainability efforts like water intensity, waste intensity and injury rate and so on as our existing program now finishes at the end of this year with very good results, as you can see on the slide. If I then summarize the quarter, I think a good quarter in difficult COVID-nineteen times, with an organic sales decline of 5%, a growth to acquisitions of 4% and a total sales decline of 8%. Thanks to a more contained top line and strong cost measures, Also a good strong margin recovery, 16.2 percent EBIT on the same level as last year. And then also good efforts on the working capital side, leading to a very strong cash flow of SEK4.4 billion, slightly higher even than the same quarter a year ago. On the short term, it's clear that we will have to co live with COVID-nineteen for quite some time. Therefore, we will have to continue our strong focus on the cost side. But we also will continue and even reaccelerate investments in growth. We continue on the R and D with new product developments. We invest in selective growth initiatives. We need to find ways to bounce back and reaccelerate our growth again. And then it's clear that long term, the attractive fundamentals of our industry remain intact. All the strong positive value drivers remain valid. And therefore, also our financial targets stay unchanged. And then lastly, like Erik already mentioned, the board then proposes a second dividend of SEK1.85 SEK1.85. That will be decided upon then in an additional general meeting in November. And with that, I give back the word to Bjorn for Q and A. Thank you, Nico. Before I hand over to the operator, could I just please remind you to limit yourself to 1 question each and a follow-up so as many as possible can ask questions? Operator, this means that we are ready to start the Q and A session. Please go ahead. Thank you. Our first question comes from Guillermo Peigneux from UBS. Please go ahead with your question. Good morning. Guillermo Pena from UBS. Maybe one question and one follow-up. Could you comment on exit rates and probably give some granularity on exit growth rates for U. S. And EMEA, especially what you're seeing now in EMEA with increasing number of COVID cases again? And then the second question is sort of follow-up is regarding the savings of €600,000,000 on SG and A. How much of that do you think is long term, if I may? Thank you. Perhaps I can start with the first question on exit range growth rates. I would say that it has been very stable over the quarter in the sense that we didn't see an acceleration over the quarter. The September growth rates, if you correct for the number of working days, was very similar to July August. I think that's true as well for EMEA as for the Americas. Like I mentioned earlier, definitely in EMEA, what we have seen in July August, which helped a little bit those 2 months, were 2 items. 1 was the restocking of the channel after a destocking in May June. Again, they could not destock before the crisis because many of those countries in EMEA were shut down from one day to the next. So they had to wait till markets opened again to do that destocking that happened in May June. That's also where we saw a lot of very short delivery or request for very short delivery times because people really wanted to wait in the last minute. And then of course, you can do that only for a certain period of time. And then July, August, we saw then that as things more or less stabilized, that the channel started to restock. The other item is that we have seen that traditionally, July is a holiday month for the North of Europe. August is a holiday month for the South of Europe, where countries like Italy or Spain would take 3, 4 weeks off. That happened much less this year. There were a lot of construction companies and customers of ours that only took one or 2 weeks vacation and then continued to work. So that helped activity in July August. And then like I mentioned, in September, we had one working day more, you could say, in a working month and one working day less in August, you could say, in a holiday month. So that perhaps also helped in the overall picture. But then again, if you're correct for working days, it was rather flat in the quarter. And the same is true in the U. S. When it comes to the savings, I don't know if you want to take that. You can start and then I'll pop in. So how much short term? Long term, it depends all what you call short term and long term. If you take, for instance, travel expenses, which were significantly down, as Erik explained. You could say that this, in the first place, short term actions. Obviously, we are working very hard, and we are very convinced that our travel costs will not go back even after COVID-nineteen to the levels that we experienced prior to it because we have found more efficient ways to do things limiting traveling and limiting, therefore, travel costs. Probably the best way is to look at personnel. If you look at personnel, close to 10% of workforce was on one or the other kind of temporary work regime, furloughs and so on. And around 5% of total workforce is then laid off in a permanent way. So you could say that today, most of the costs are still short term. But as we go through the quarters, as we go through the remaining part of the year, more of that will move into long term savings because, obviously, our MFP programs will start to kick in. And some of the actions we took more on the long term already today, of course, the return will come only in 3 or 6 months because it takes some time to do those exercises in many European countries like, for instance, France or Spain. We can take the next question, operator. Thank you. Our next question comes from Alexander Berger from Bank of America. Please go ahead with your question. Thanks very much. Good morning, everybody. Appreciate you taking my call. So I just wondered if you could talk a little bit about the differences between resi and non resi markets, particularly as you look at the U. S. In the context of backlog replenishment, project sanctioning and thinking about what all of that means as we look forward to 2021? I'm not sure I completely understood the question because it was difficult to hear the beginning part. Non resi and residential, Alex. In non resi and non resi in the U. S. Yes. Like I mentioned earlier, we if you look at our result of Q3, we have seen a much better result on the residential side than on the non resi side, where, for instance, for smart resi, we have seen very high double digit growth in the quarter. And where for resi, we have seen good double digit growth for Americas and a lower single digit growth for entrance systems on the garage door business. We see that confidence of American consumers is quite okay when it comes to our products. I think also it's so that they have money. So it's more a trust issue. When the trust is good enough, they invest. Where we have seen that it's more challenging on the commercial side, where on the commercial side, we saw higher single digit negative growth in Americas, where we have also seen the number of new construction project starts, going down high single digit, low double digit, We have also seen the growth in our spec business being smaller, where in Q1, Q2, we still had strong double digit growth in our spec business. This went down to single digit growth only now in Q3. Okay. Thanks. And could I just follow-up quickly? I guess the question is when you look at 20 21, to what extent do we need to reflect this? I guess, the weakness on the commercial side has a longer term implications. If your new start to download double digit, then we need to be thinking about that sort of number for next year. And in terms of revenue development, I'm just trying to get a feel for what you're seeing or how you would characterize 2021 given those trends that we're seeing now. Well, it's clear that commercial is very important for us for the Americas division. You could say that around 75%, 80% of the division is U. S. And in that, the very big part is commercial as we are much weaker on the residential side. I would say for 2021, what is also important is now what's going to happen with new construction starts. I would say, this month, next month, the coming months because in a way, it was expected that June, July, August, we would see a decline or even a strong decline in new starts because that was in the mid of COVID-nineteen in the U. S. But I would say there is enough backlog in the system to overcome a couple of months with weaker new starts. If the starts pick up now again in this month, next month, coming months, then it's just a matter of that the backlog was smaller and is going to get filled up again. And that will be good news for 2021. If, of course, new construction starts continue to decline now in Q4, that will be less good news for 2021. Then, of course, we should not forget that 75% of our business is replacement business. So yes, we are dependent on new projects, but the day to day business is much more important overall. Okay, great. Thanks, Nico. Thank you. Our next question comes from Lucy Collier from Morgan Stanley. Please go ahead with your question. Good morning, gentlemen. Thanks for taking my question. The first one is around the destocking, restocking effect that you mentioned for Europe. I was curious to know what you see as being the underlying demand in the European market ex the restocking effect. And if you could comment a little bit on what you are seeing on that front in the U. S, whether that phenomenon has happened or not, whether you're expecting it. That's the first question on the stocking, destocking. Well, it's, of course, very difficult to quantify. But I would answer for EMEA, where I said that if you take the run rate of September, it was on similar level as July, August. And you could say that the destocking was mainly at the beginning of the quarter. So September would be then a good reference for the run rate in EMEA. And we have seen that kind of run rate now also continuing in the beginning of October for EMEA. Clearly, that destocking was much more outspoken in EMEA than it was in the U. S. I would not use that as an argument for the U. S. Result. And my second question was if we could have your view or opinion on what has been announced so far for the EU Green Deal for building renovation. How do you assess this initiative for you in terms of a potential benefit, if at all? Well, of course, I would say that we will, in the first place, be indirectly helped by the green initiative because the money will, in the first place, go to whatever HVAC or lighting. But of course, it's clear that the green initiatives will lead to higher standards. And the higher standards then indirectly will give us more business because that will mean that they will upgrade or build new projects according to more stringent standards, environmental standards, LEED standard or whatever, which drives technology up, which is good news for us. And 2, of course, if the total money available is bigger, they can also spend more money on more sophisticated access solutions. So we are optimistic about the positive effect that, that can bring to our business. Our next question comes from Andreas Willi from JPMorgan. Please go ahead with your question. Yes. Good morning, Nico, Erik and Bjorn. I have a follow-up question to the earlier discussion on trends and restock, destock and then a question on margins. On the what you mentioned about the underlying demand, just to make sure that I understand that correctly. So September was similar to July August, even though July August benefited more from a restock. Is that the way to understand it? So excluding inventory moves, September improved versus July August. And the question on the margins, your 16% to 17% range, which you reiterated today. Is this an ambition for 2021 to get into that range, excluding maybe the Agta dilution? And basically, are there the cost savings as you see them now in terms of the new ones you get in terms of structural savings relative to what you lose on some of the temporary savings? Is that basically enough to get you into that target range next year on an assumption that sales were somewhere maybe be around mid single digit below where they were at the peak in 2019? On the first question on destocking, yes, that could be a way to interpret things for EMEA, yes. On the second question, the 16% to 70%, of course, we want to come back within that bandwidth as soon as possible. But of course, everything will depend on how markets evolve and how COVID-nineteen will behave. What we have said at previous occasions is that if we know the run rate, the stable run rate, and if that stable run rate is within single digit level's top line versus prior to COVID-nineteen, we are confident that in, let's say, 9 months or so, 6 to 9 months even, we can bring our margins back in or close to that bandwidth with the exception, of course, of the Agta record dilution, which is around 50 basis points. We have also said that we are adjusting our cost to a scenario because the honest answer is that we don't know what levels we're going to see in 2021. But we said let's be more conservative and go for a conservative scenario where we want to reduce our cost with x percent, x being somewhere mid single digit number. So 6% below our cost rate prior to COVID-nineteen. And then, of course, if top line would be better, we will have a positive problem in the sense that we will have to hire more people to cope with the increase in business. But I think we are agile enough, and you can get over a couple of quarters with a little bit less capacity, I would say. If, on the contrary, situation would turn out worse, then at least we have done part of cost cutting, and then we just have to work hard to further adjust the cost to that lower reality. And all that, again, with the ambition to get back within that 16% to 17% bandwidth over time, again, excluding the dilution 50 basis points from Agta record. Thank you very much. Thank you. Our next question comes from Matthias Holberg from DNB. Please go ahead with your question. Thank you. So Nico, to the point where you talked earlier about the solidity of the replacement sales, about twothree, Could you at all specify how big share of this is towards renovation projects, say refurbishments of an old complex, for instance? And how much is more traditional replacements, for instance, a lost key or broken door that needs being replaced? I would say that the bigger part is the second because really big renovation projects, we would, in a way, categorize them also as a new project. So the vast majority there is more the day to day type of business. Thank you. Thank you. Our next question comes from Alastair Leslie from Societe Generale. Please go ahead with your So I had a question and follow-up on the Americas. I was just thinking of the potential mix impacts on margins between resi and commercial in the Americas. And given the different trends and contrasting outlooks there and the fact we're coming up to the seasonally strong Q4 and kind of gifting season for resi smart locks. Has there been much of a change in the margin profile for your resi smart lock business over the last 12 months? Just wondering either on the proprietary side or maybe on those locks sold with strategic partners. And then the follow-up is, you think you're taking market share in resi smart locks in the U. S? Can you give us any more color on new product development forward momentum there, that would be great. Yes. When it first comes to smart resi and the effect on bottom line, again, to put it in the right perspective, the whole smart resi business in the whole world is only around €250,000,000 more or less. So it's still a very small part in the total business. And it's a small part in the 31 percent electromechanical business that we do in the group. So most of the electromechanical business is more on the commercial side. Now specifically for the U. S, of course, we continue to see gradual improvement, mainly also on our August business. And 2, we see, of course, a better mix in the sense that we have relatively less dependence on the Google Nest business, which was booming very much last year and the end of 2018. We have always said that we make better margins in our own, for instance, online channels to the market than in other channels and the lower margins we make on businesses like Google Nest. So in a way, that mix shift helps in the overall picture. But it's clear that a mix towards more smart resi is still dilutive overall for the margin. That being said, if you look at Q3, this was exactly what happened. We had the highest growth in smart resi in the Americas. We had very high growth in residential and in South America. So very high growth in, I would say, those areas where we have lower margin than on the commercial side. But despite that, we still showed, I think, very good solid EBIT performance for the Americas division. And it was the market share question. Sorry, on the market share, it's very difficult to comment quarter by quarter. I think when you look at market shares, you should look more on a longer period because you can, in a quarter, win again or lose. I think what is important is that indeed, we are and we came with a lot of new exciting new product developments in the whole world and also in the U. S. In particular. We have launched several new digital door ranges for Asia, for China and the remaining part of APAC. We are launching a new digital door lock for Europe called Linus. It's an August alike, you could say, retrofit lock or it's a series of locks because, obviously, standards are different country by country in Europe, but that you can mount on a DIN cylinder and works in a similar way as the August lock. So very excited about the potential of that in EMEA. We are also coming with a new Yale Doorman log for Scandinavia in this quarter. And then if you go to the U. S, we have a couple of new developments on Yale. We launched now a new August block, also Wi Fi enabled. And we also just launched a new smart delivery box where then the delivery companies not necessarily have to come into your house to do delivery. They can also do delivery in a box in front of your house or in your garden. And we see that those new products that we already launched get good traction. We're also confident that the new products that are now being launched and are in the pipeline will help us to further boost that part of our business. Thank you, Andreas. Thank you very much. Thank you. Our next question comes from Lars Bronson from Barclays. Please go ahead with your question. Yes. Hi, Nico. A quick follow-up, if I can, just on organic growth. If I can pressure a little bit on the Q4, it sounds like you've started on a par with what you saw in September, I. E. Sort of down mid single digit on a working day adjusted basis for the group, down low single for EMEA. But it also sounds like you worry about new lock down measures starting to hurt your European business. I would have thought incrementally so, particularly in some of the big markets for you in Europe in the UK and France. So maybe you can give us a little bit of a flavor for what you might expect in the Q4, ideally sort of divisionally, whether you think there's anything that might be getting worse as we progress through the Q4? Yes. So your statement on the fact that Q4 started like Q3 ended on that run rate is correct in general. When it comes to the effect of COVID-nineteen, of course, it's very difficult to predict. What you see today is that all the extra measures that are taken in Europe are mainly, I would say, social restrictions. They really try to avoid business restrictions. I'm confident, and let's hope that I'm right, that we will not see again massive lockdowns, total lockdowns like we saw in March April, that it will remain with this more social type of restrictions. And then I believe it can also be that the effect of COVID-nineteen on the business will stay limited, but of course, remains to be seen. For instance, we know that in Q2, Q3, we had challenges for our service technicians to go on-site because companies, customers wanted to avoid, let's say, strangers to come on their side because of the risk of COVID-nineteen. That has eased in Q3. Today also, we see much less restrictions. It's much easier. Of course, it remains to be seen when our more restrictions come in place again, how that, for instance, will affect the service business. But so far, I would say we are more optimistic. Can I get out a follow-up on actual record on the 50 basis point dilution? I think we've talked about a 30 basis point following the divestitures, I. E, below the original 40 to 60 basis points. Is that incremental dilution PPA related? Or is that a reassessment of the underlying margins in AXA? And I appreciate AXA is facing some of the same challenges that you are in pedestrian doors in Europe. But if you could help us with that, that would be helpful. Perhaps just to start with one thing when we talk about record. Remember that we prior we owned 39% of the shares. So then of course, we had already in our associated earnings, we already had 39% of the profit. Now we get 100% of the sales, but we get then only, let's say, 60% additional profit. So I mean that's one of those things. We are right now, we're looking into the so that's one of the factors. You also have this with the PPA. We are right now evaluating, let's see what it would be exactly. But today, to our best of our knowledge, we come up with a 50 basis points dilution. So no underlying assessment, if you like, of the margin potential in Aksana performance there? No, no. It has nothing to do with the performance of record. Thank you. Thank you. Our next question comes from Andre Kukhnin from Credit Suisse. Please go ahead with your question. Good morning. Thanks so much for taking my questions. I just wanted to follow-up on the discussion on kind of COVID compliant buildings and frictionless buildings. Have you seen any development in terms of kind of customer inquiries and demand for products that you have that relate to that? And I also want a tough question on acquisition pipeline. Given that you've closed the deal in October, could you update us on how that looks now and maybe versus kind of pre COVID times? Yes. We'll start with COVID related products. Of course, during COVID crisis, for instance, the 3 geographical divisions launched all 3 with a very fast pace, a comprehensive range of touch free door hardware that you could retrofit on existing doors, and then you don't have to touch the door knob or the door handle to open a door. We invested in more range in automatic door openers. In HID, for instance, we built a new solution that people in a factory or in an office, everybody will have a sensor, and you can decide yourself what has to be the safe distance between people, for instance, between me and Erik, 2 meters, if we both hear the sensor and we come too close to each other, we will get an alarm saying that social distance is not respected. If tomorrow one of us would have COVID-nineteen, we can log back the time we want, and then we can warn all the people that were in close contact with the person that had COVID-nineteen. We have developed a solution to trace COVID-nineteen patients and critical equipment in hospitals. So a lot of exciting new products around the crisis. So far, I would say additional business of all this has been limited. I would say it's less than 1% of total group sales because obviously, yes, today, what you get as a business is 1 door closer more, 2 door closer more. So it's a smaller many. Where you will really take the needle is when these new solutions are specced into a new project and you do a more bigger refurbishment of an office or you build a new office. And that's what we are doing as we speak. We spec those solutions in. But of course, that business will come later. Sorry. And then on the acquisition pipeline, that was a second question. Well, it's fair to say that there has been less contacts and definitely much less face to face contacts during COVID-nineteen. Luckily, we had still a lot of contacts in the pipeline from before COVID-nineteen that we continue to entertain. We still have, I would say, a good pipeline, but of course, we always want more. We always want to have more potential targets on the list. And also there, I think now with very strong restrictions that have been lifted, it's, of course, much easier today again to build those contacts with potential targets because these are, of course, things that you can do much better face to face. And that's what we are doing as we speak. But I think if you look at what we realized so far year to date on the acquisition side, I think it's more than in line with our ambition. Again, we had 4% growth to acquisitions in the quarter, and that was with only 1 month hectarecocked in the quarter because they only came in at the end of August. Thank you, Nikkyo. Unfortunately, it's time for us to round up today's conference. I hope it has been helpful. I know that there have been some questions left in the line. We don't have time to take them now. So feel free to contact us at Investor Relations, Holger or myself, and we'll try to answer your questions. And for the rest of you, we look forward to speaking with you in the coming weeks. And in the meantime, stay safe now, and have a good day. Thanks for now.