ASSA ABLOY AB (publ)

Good morning everyone from Stockholm and welcome to the presentation of Assa Abloy's first half year report in 2024. My name is Björn Tebell, I'm heading investor relations and joining me here in the studio are Assa Abloy's CEO Nico Delvaux and our CFO Erik Peder. As usual, we will now start this conference with a presentation and summary of the report before we open up for your questions. So over to you, Nico.

Thank you, Bjorn. Also, good morning from my side. Q2, a top line growth of 10% with a negative organic sales development of minus 1% due to, in the first place, a continued challenging market on the residential side. I would say global challenging market on the residential side. Good sales growth in EMEA and Americas from an organic perspective. Stable sales growth in entrance systems, but then sales decline in APAC and global technologies. But then again this quarter, good to see that a lower organic sales development is overcompensated with very good growth through acquisitions, plus 11% in the quarter. We continue to be very active on the acquisition side with eight acquisitions completed in the quarter, 11 year to date. And I would say very strong operational execution in the quarter. We have a strong operating margin of 16%, and it is now including the full HHI, leading also to a record operating profit for the quarter above 6 billion SEC. Also very good cash conversion with a cash conversion rate of 107% in the quarter. If we look at numbers, sales of 38 billion SEC, 10% up. An EBITDA margin of 16.9% and an EBIT margin like mentioned at 16%. EBIT above 6 billion SEC, 11% up. If we comment a bit on the different regions, I would say it's a very similar story to tell as in previous quarters. We continue to see challenging market conditions on the residential side in general in our main markets in North America, in Europe and in Australia and New Zealand. Whereas mentioned also in previous quarters, we believe that US North America is more ahead in that cycle. As a matter of fact, we continue to see recovery on the new build side for residential in North America where we have a positive growth of the market. But unfortunately, R&R is still bottoming out. We believe that Australia and New Zealand is somewhere in the middle of the cycle and EMEA later in the cycle. So definitely in EMEA, it will take some more quarters to start to see that recovery. But obviously, now all the talks around the interest rates going down will help us on the residential market condition side. For commercial, non-residential, same story as previous quarters, not as hot anymore as 18 months ago, but still on a very good level, as well in North America as in Europe, as in Australia and in New Zealand. If you then look perhaps at entrance systems, the retail side, on a good solid level, giving us mid-single-digit growth for our pedestrian business. Then, obviously, entrance systems are very industrial GDP-related, which is, I would say, on an okay level. And particularly this quarter, we were suffering a little bit in North America. On the loading dock side, where, as you know, the Amazons of the world have reduced their investments in warehouses some six, nine months ago, and as we have a lead time of around six to nine months for our loading docks, that has affected now our top line in entrance systems. north america minus two that's mainly linked to still the difficult comparison for packs in hid cards and readers with same quarter a year ago where you remember we had two years ago challenges with semiconductor components build up a huge backlog and then started to recover on that backlog last year and therefore difficult comparison this quarter that will continue a little bit now also in the beginning of q3 And then towards the end of Q3 and in Q4, we should then see, again, a more normalized business for PECs and HID. South America strong, plus 6%. Europe, I think, good, plus 2%. Definitely, if we take into consideration that we are very exposed to the residential market in Europe. Africa, plus 8%. Australia, New Zealand minus four, where on the residential side, I explained, and where on the commercial side, we see that we have very good order backlog, but where our customers, the construction companies, find difficulties to find people to execute on the project. And in Asia, minus 11, where we had a double-digit negative growth in Southeast Asia, mainly against a very difficult comparison a quarter, same quarter a year ago. It was a record quarter a year ago. And there, unfortunately, we continue to see very challenging market conditions in China. I said several quarters ago that we were convinced that China had bottomed out. We still believe that this is the case, but it takes obviously much longer to start to see recovery in China than we anticipated some quarters ago. The interesting to notice also is that if you take our geographical divisions, our LMEK business grew 14%, so we continue to deliver on that strategic ambition to move from mechanical to electromechanical and digital. We also have seen our service business in entrant systems growing high, single digit in line with our ambition. And if we look at emerging markets and exclude China, we were up plus 16%. So also there, that growth driver is delivering. So market highlights, also this quarter, some interesting project wins. We delivered 1,200 hurricane-approved garage doors made of recycled steel for a new residential development in Florida. One of perhaps the largest Dutch bank selected also our revolving doors, swing doors, and security lanes for the new headquarters. So interesting, exciting win for our new security line product range. And then we delivered a package of high-rated doors and door hardware for a new data center in Sweden. Several product launches. We only mentioned one here. HID's mobile credentials are now also available in Google Wallet, and therefore allowing users to access buildings, spaces, and systems now not only with Apple devices but also with Android devices. And then good to see that also this quarter we continue to be rewarded for our innovation efforts. We won two Red Dot Product Design Awards, one for the Expression Speedgate product range in entrance systems and the other one for the Traka Touch Pro intelligent key cabinets in global solutions. If we look at sales growth, so now unfortunately two quarters with negative organic growth, but then again overcompensated in a strong way by growth through acquisitions. It's now four quarters in a row that our acquisitions growth has been above 10%. And then the margins going back in that 16% to 17% bandwidth, 16% for the quarter, 15.7% run rate on a 12-month moving trend. and EBITDA margin on a high 16.6% level if you look at the run rate. So higher top line, improved margin, therefore also accelerated operating profit, record profit, like I mentioned, in the quarter above 6 billion SEC. And you can see the run rate there for the last five years on EBIT up 63%. Another quarter where we have been very active on the acquisitions side, with eight acquisitions completed in the quarter, like I mentioned, 11 year-to-date, and they represent an annualized sales of around $3 billion. If I pick two of the acquisitions this quarter, Wesco Locks, An acquisition in the core, a mechanical core, a Canadian manufacturing supplier of electronic and specialty locks, complementing our high-security products and solutions in the Americas division. They had a sales of 170 million SEC in 2023. And then Nomadics and Global Reach, further extending our ecosystem for hospitality customers in global solutions. They are a U.S. and U.K.-based provider of Wi-Fi access and engagement platform solutions for that hospitality industry. And they had a sales of 300 million SEC last year. If we then go a little bit into the different divisions, for EMEA and organic sales of plus 1%, I would say if you consider that EMEA is exposed to residential market around 45% of their sales, a good top-line achievement. We have a strong growth in Central Europe, a good growth in Nordics, I would say against the easy comparison last year. I think in Nordics we are not out of the woods yet. It will take a little bit longer before we see the residential business really recovering in Nordics, but we are convinced that it has bottomed out and from here on we should see improvement, which is also obviously important from a profitability perspective. and stable sales in the other regions. A good improvement of the operating margin to 13.6% with very strong operating leverage, 70 base points held by currency and M&A, 2 times 20 base points accretive. So a good result for EMEA in the quarter. We see a very good result for Americas in the quarter with an organic sales growth of 3%, with strong sales as well in North America, non-residential as in Latam. On the equivalent side, also a good growth of HHI, high single-digit growth for HHI. and an operating margin of 19% now, including HHI, and stable operating leverage, and then dilutive M&A 140 base points and dilutive FX10 base points. M&A, HSI, like I said, sales up high single digit and a continued EBIT margin improvement, better EBIT margin than the previous quarter and a much better EBIT margin than the same quarter a year ago. So delivering there also on our ambition as synergies are kicking in. So very good. America's more challenging APEC with an organic sales decline of 5%. with sales declining in all the different regions, like I mentioned in Southeast Asia against a very tough comparison a year ago. In Pacific, obviously linked to the residential market and the fact that it's difficult for our customers to invoice on the non-residential side. And then China clearly market conditions still very depressed and therefore also affecting our overall business. What is good is to see the operating margin improvement at 8.3% despite an organic sales decline of 5%. Also good to notice that we are back to positive margins in China, even with a double-digit negative growth in China. Thanks to strong volume leverage, helped by FX, and then M&A 10 base points by Lutif. If we then go to the global division and start with global tech, organic sales minus 7%, where we have seen a strong sales growth in global solutions in most, if not all, verticals, but where we then were hit in HID mainly by the PECS business, as explained earlier, a difficult comparison with last year. Here, global tech and operating margin of 15.8%, obviously because of the lower top line, and then definitely also the mix in the sense that we had more citizen ID with much lower margins and much less PACs with much better margins. FX neutral and then M&A also dilutive in a more important way, 100 base points. That is because we did four acquisitions in the quarter with a lot of related acquisition costs. But also because we bought some time ago Messerschmitt, which is an acquisition in the hospitality space in Global Solutions in Germany, giving us now also stronger market leadership in In Germany, unfortunately, that is a turnaround case and therefore it will take some quarters before we can bring a margin up in that business and therefore that will remain dilutive from bottom line perspective for some more quarters to come. And last but not least, entrance systems, a flat top line, 0% organic sales, with strong sales growth in pedestrian, sales decline in the other three. Parameter security, I would say just the timing effect, no drama at all. Parameter security, if you look on a longer term, is performing on a very high level. Residential, obviously linked to the residential R&R site in North America. And then industrial decline, mainly because of the loading dock business in North America. Good to see that we continue to see, like I mentioned earlier, very strong sales growth in service, very high single digit. And then strong execution and operating margin of 17%, with very good operating leverage of 80 base points, halved by currency, 20 base points, and then M&A dilutive. 20 base points. So I would say overall also good quarter for entrance systems. And with that, I give the word to Erik for some more details on the financial numbers.

Thank you, Nico. And also very good morning from my side. I think you've heard a lot, but I'll repeat a couple of things here. I mean, sales were up with 10% in the quarter, of course, very much driven by the acquisition growth of 11%. Now, we have actually been the proud owner of HHI for more than a year, which means that as from next quarter, they of course will be a part of our organic growth. But still, you heard also before that we are being quite active on the acquisition front, so we will still have in the quarters to come a good contribution from our recent acquired companies. Operating income is up with 11% and we reached above the 6 billion SEK in the quarter. Margins is the same as what it was a year ago on EBIT level at 16%, but this of course includes for the full quarter then HHI. Upper income before taxes is lower. We have roughly in the quarter about 850 million in interest cost. This is about 400 million higher than the same period last year. And of course, that comes from that we have now a higher debt, as well as we sort of also encountered the higher interest rates that is now out in the market. Net income and earnings per share is up with 5%. Operating cash flow is still very strong to be a Q2. We had, of course, an exceptionally strong quarter last year. But as mentioned before by Nico, the cash conversion in the quarter was at a good level of 107%. And last but not least on this slide, return on capital employed ended up on 14%. for the quarter if we dissect and go a bit into the bridge the minus one on the organic sales side consists of a positive two percent price which means that you know the volume was actually down with minus three percent You can see in the bridge that we have a negative top line on organic, but we have a positive contribution then on the income side, which is driven, and we have been able to offset the lower sales with pricing, lower material cost. We had savings of roughly 180 million from MFP, and then we have other strong, let's say, cost control measures that has also helped us in a positive way in the quarter. Currency, you see the same in the bridge that you see on the organic. You have a negative top line, but then you have a positive bottom line. The bottom line comes from, let's say, small positive transaction effects on various currencies that we had in the quarter. And acquisitions, as mentioned before, it sort of contributes to the 11% on the top line. It has a slight negative dilution effect on our bottom line. I think you have heard before HHI, the divestment a year ago of Emtek in the U.S., the acquisition cost, and also I think some of the acquisition, one of the acquisitions then that was before mentioned by Nikko. If you look on the cost breakdown, direct material is positive with 270 base points. Roughly half of that comes from the positive mix where we had a stronger Americas, we had a weaker APAC, but then also we have the interdivisional mix you saw before that like in entrance that we were stronger on the service side than what we were on the equipment. And for those ones who can count, half of, let's say, of the 2.7, 270 base points is roughly 135 base points, which comes from, let's say, the pure price versus cost. On both conversion cost as well as SG&A, we're impacted by the lower sales, as well as the high inflation, as well as the higher wage cost. which sort of has a negative impact. But also, if you look on SG&A, we have continued to invest in R&D as well as into our sales organization. But if you look for like, we are 40 base points better than the same quarter a year ago. Operating cash flow, mentioned before, it's strong. This is driven by, let's say, the earnings. If you look on our working capital, it's more or less on the same level as what it was before. We talked about in the quarter, the cash conversion rate was 107%. And if you look on the 12-month rolling, it's 118%. The gearing, we ended up on the same level on net debt versus EBITDA at 2.4%. That's what we had in Q1. The net debt to equity is much lower than what it was a year ago. We were at 75% last year. This year, we're at 68%. In value, the borrowings went up with roughly 700 million SECs. We've heard before that we had a very good cash flow, but then it's then offset by sort of the eight acquisitions that we have done, as well as we have paid dividend during the quarter. All in all, I think that we have a very strong financial position and can continue our acquisition strategy. The last slide from my side, you've heard the number before that earnings per share went up in the quarter with 5%. And with that, I hand it back to Nico for some concluding remarks.

Thanks, Eric. So we can conclude it was a good quarter with strong profitable growth, an organic sales decline of minus 1%, but then strongly overcompensated with very strong growth of acquisitions of plus 11%. Strong execution, giving us a bottom line EBIT margin of 16% and a record operating income above 6 billion SEC. Excellent cash conversion at 107%. And then, like in previous quarters, it's clear that we continue to operate in an uncertain economic climate. Therefore, we will continue to take advantages of the opportunities we see. We will continue to invest more. and grow in those markets and in those segments where we see the possibility to grow, but we will also adapt our cost structure in those markets where we see more challenging situations. We will remain agile and efficient, and our agility And our efficiency in a decentralized organization has given us good results this quarter and previous quarters. And we are confident that will also be the case in the quarters going forward, irrespective of what market conditions we will come across. And with that, I give the word back to Bjorn for Q&A.

Thank you very much, Nick. Well, yeah, it's time for Q&A. I've been informed that we're more than 10 people in the queue. So just a reminder to limit yourself to one question each and one follow up. So we can get through, hopefully, the queue as incomplete. So with that operated, it means that we are ready to kick off the Q&A session. Please go ahead.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the 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 with a question may press star and one at this time. The first question comes from Daniela Costa from Goldman Sachs. Please go ahead.

Hi, good morning. Thank you so much for taking my questions. I'll do two. The first one is just to ask you for maybe a little bit more color on why your confidence still on that U.S. recovery remains high or as high as before. Given where we've seen things like the Dodge institutional momentum coming down quite significantly, the housing starts have had more mixed data, so maybe a little bit more color on what we are seeing sort of in your specs, tendering and inquiries. And then the second one, just maybe I've missed it, but did you mention anything regarding July start? I know sometimes in these calls you've mentioned that, so that caller would be helpful. Thank you.

So, Daniela, was it on the residential side in the U.S. or the non-residential side?

I was actually on both. I think we have seen mixed data on housing starts and also the DOJ data and the ABI data for non-residents, so if you could comment on both.

Yes, we can try to do so. Like I said, on the residential side, we see that new build has turned and is growing again. We see that in our window hardware business, where we deliver window hardware to window OEM manufacturers in the US. And there is more of that business going to new build. And on the new build side, we see positive growth again. We see it a little bit on the HHI side where we had high single digit growth like I mentioned earlier. We don't see it yet on the residential garage door business in entry systems because they are more exposed to R&R than to new build. And R&R is definitely still declining. It's not growing yet. I think for R&R to come back, people have to move houses. And therefore, yeah, we need some interest rates cuts. And as it looks much more likely now that interest rates will come also in the U.S., therefore, we are also more optimistic now on the residential side in general that after the new build, also R&R will follow. When it comes to the non-residential side in the US, like I mentioned before, we believe it's not as hot anymore as it was 18 months ago, but we still see very good momentum. We have seen also the growth we had in America in Q2, which is basically today you could say only non-residential growth because the organic part we have on the non-residential side was very small if we exclude HHI. Talking to our channel partners, they are still very positive. A bit more positive on the institutional side perhaps than on the non-institutional side. Verticals like education, K-12, university, government verticals, still very positive. It's true that... ABI index is now, what is it, 18 months in negative territory. I would say the Dodge index is a little bit better. But what you, of course, also see is that architectural binning annex first, it's only about new build, and obviously we are much more exposed to R&R than to new build. And for new build, it's only a part of the new build. If you take, for instance, data centers, which is a smaller vertical but a very fast-growing vertical, most of those data centers are obviously not spectral architects, so they don't come into the numbers of the And I think something similar is true for many other institutional projects. So that might be one explanation why we see the deviation between ABI indexes and our business. I can only say that we are still very confident on the non-residential side for the coming quarters in the U.S. Then on the second question, your exit rate for July, I would say that in Q2, if you compare for working days and then also beginning of July, if you compare working days alike, It has been very flat. We haven't seen things going up or down. Perhaps you could argue that the deviations are perhaps a little bit in greater China, but it's small in the bigger picture. And then, of course, we had the loading dock business in North America, which had shown for us double-digit negative growth in the quarter. But apart from that, it has been very flat if you compare for working days.

thank you very much the next question comes from mida vivek from city please go ahead thanks very much everyone and good morning um i have i think the one question on global technologies you of course highlighted the impact of the backlog last year would it at all be possible to give us an estimate of the underlying growth excluding that backlog impact on the comparable And what visibility do you have on that return to more normalized underlying growth by the end of the third quarter? Thank you.

It is a little bit difficult because, of course, it's no exact science. And, you know, you have an estimate on one side of how much of the backlog you invoiced. You also have a little bit of an estimate of how the stock situation is of your channel partners. And, of course... delivery times have been very, very different two years ago, a year ago, and today. So therefore, it's not an exact science, but we still believe that once the backlog is stabilized on the packs, on the cards and the readers, that we would go back to a normal organic growth rate, which has been historically prior to this phenomenon around mid-single-digit growth, I could say.

Thank you.

The next question comes from Andre Kuknin from UBS. Please go ahead.

Good morning. Thank you very much for taking my question. Can I just ask specifically about the specified activity that you're seeing in the U.S. and Europe with kind of tracks? They proliferated those quarter to quarter, so it would be great to get an update of that of what you saw in Q2 in your own specifies.

So the spec business has been up lower single digit in the quarter. If you look for the different verticals, I would say very similar as previous quarters where obviously offices and multifamily in the U.S., are not so strong, but where we still see good momentum on K-12, universities, everything that is government-related. In the US, the deviation in the quarter was perhaps a little bit on the healthcare side, where it was weaker in the quarter. Let's say we are confident that it's just a quarterly thing, that it's not a trend because people continue to invest on the healthcare side in North America. In Europe, similar as previous quarters, the things that are growing the most is electromechanical and definitely everything what is green-related sustainability, where we continue to see very high double-digit growth on everything what is sustainability-related. But overall, lower single-digit growth.

Great. Thank you very much. And if I could follow up just on the global tech margin and the M&A dilution that you called out, could you split out of the 100 basis points how much was just the effect of closing several deals in one quarter and the acquisition closing related costs versus how much is from the Messerschmitt dilution, which will be ongoing for a little longer?

I don't know the exact number, but I estimated around one-third is the Messerschmitt-related phenomenon, and then a bit less than two-thirds is the, you could say, acquisition-related costs.

Perfect. Thank you very much.

The next question comes from Andrew Wilson from J.P. Morgan. Please go ahead.

Hi, good morning. Thanks for taking my question. I just wanted to ask on the HHI growth in terms of the high single digits you're on here. I mean, that feels a really good number in the context of basically the U.S. raising market, which we've just talked about obviously being challenging. Is there anything, I guess, in the base to be aware of there, or is that already seeing some of the benefits in terms of that being part of ASA more broadly?

I'd say that we are definitely very happy with the number, but of course we should also not forget it was an easier comparison because they already started to go down the same quarter a year ago. And that we will see now more and more also for the other residential businesses going into Q3, that the comparison becomes easier. But nevertheless, yes, I think it's a good number, a promising number also going forward.

And I guess the link being the resi side, but I just wanted to ask on Southern Europe, kind of heard from, I guess, some industry sources in terms of Southern Europe maybe weakening off a little bit after a period of sort of relative strength, certainly to Northern Europe. Is that anything you've seen or can we kind of file that under still relatively solid, as you said, for most of the rest of Europe?

You're talking specifically about the residential side now in such?

Yeah, sorry. Sorry, specifically resi. Sorry, Nico.

Of course, I mean, like in Italy, you had, of course, the tax incentives on the residential side that have stopped now. So that definitely has a negative effect on the business in Italy. But our bigger market in South Europe are France. So I think in the bigger picture, you can say that, like I mentioned earlier, the residential market is not good, but it has leveled out on a low level, and we don't see the residential market in South Europe further declining.

Thank you. Very helpful.

The next question comes from Magnus Kruber from Nordea. Please go ahead.

Hi, Nico, Peter, Bjorn, Magnus here from Nordea. Could you expand a bit further on the underlying margin progression in America's X HHI and either how much HHI improves sequentially or what the business X HHI is?

So first, if you take HHI, we delivered there on the promise to improve margin quarter after quarter. Like I mentioned earlier, HHI had a better EBIT margin this quarter than previous quarter and a much better margin than same quarter a year ago. And we are confident that that trend will also continue in the coming quarters. If you don't look on the organic part, you have seen that the leverage has been more neutral recently. And that comes, of course, because we have less price component in the Americas than the group average, which is true for Americas and for entrance systems. Like I mentioned at earlier calls, they are the two divisions that are most exposed to steel. And obviously they were profiting from price increases when steel inflation was very high. At the moment it was 200% up in North America, so they could realize good price increases at that time. Now it's clear that we are done with price increases. We are happy we can keep the prices on steel. And as inflation continues, labor inflation, energy inflation, also logistic inflation with some of the political challenges with the sea transport coming from Asia, that explains the more neutral leverage on the organic part and therefore also the more stable margin on the organic part.

Got it. Thank you so much. That's a good segue to the next one. Could you help us a little bit with what you expect in terms of cost actions and contribution from price over the balance of the year? I think you have had 2% price now for roughly a year. How does that momentum look going forward on the group now?

Like I mentioned at previous occasions, we should calculate this year with a higher price component than, let's say, prior to COVID, where we were living in a lower inflationary world, where we are now clearly living in a more high inflationary world. So I've said at previous occasions that I would be disappointed if the price component would not be at least 2% this year. And I remain with that statement. I think we should still see good price versus cost accretion in Q3. Obviously, it will be less than in Q1, Q2 because we are over the top, but it still should be a good positive. And then towards Q4, towards the end of the year, we will then more come to a neutral situation, cost versus price.

Perfect.

Thank you so much.

The next question comes from Alexander Verga from Bank of America. Please go ahead.

Yeah, morning. Thanks for taking the question. I wonder if you could just pick up a little bit back on that July comment that you gave us. So flat Q1Q, it doesn't sound like we've got an awful lot of momentum, obviously, into a second half where you would still, the market's still expecting probably high single, sorry, mid single digit, I beg your pardon, by Q4. As you look forward over the dynamics that you are seeing in the US, the dynamics that we're seeing even in Europe, it doesn't feel like there's an awful lot of momentum out there at all. I just wondered if you could comment a little bit about the broader dynamics as we start to think about how we look to 2025 as well. I appreciate you don't guide, but I just feel for how you guys think about the setup. given actually all the data we're seeing points to unlikely, at least, for any kind of meaningful growth to be sustained. And I'm guessing, I'm talking U.S. in particular here, but U.S. and Europe is, I think it's also fair to say that.

If you take the different parts, again, on the non-residential side, on the commercial side, like I mentioned earlier, we are still very confident on market conditions on the non-residential side. Again, not as hot as 18 months ago, but on a good level, and we foresee that that good level will continue in the world in general, so as well in the U.S. as in Europe as in Australia and New Zealand, so we should be helped by that. Like we said on the residential side, we are convinced that the market downturn has bottomed out in North America and that from here on we should start to see gradual improvement. We see that improvement already on new build and we are confident that that improvement will also come on the R&R side once interest rates now start to go down. In Europe, it will take a little bit longer, so perhaps that's something more for 2025, if you want to have some idea about next year. I think Europe has bottomed out, and from here on we will see gradual improvement, but it will take a little bit longer because Europe is later in the cycle on residential than America's. And like I mentioned, Australia and New Zealand, we believe it's somewhere in between. On the residential side, good news is also that the comparison obviously becomes easier because residential went already down even a little bit in Q2, but definitely Q3, Q4 last year. So that should give us a tailwind in the comparison and percentage growth. And if you then take entrance systems, we will continue to deliver on the service side with that high single-digit growth. We will have an easy comparison for the residential garage door business. And then on the negative side is more the loading dock business in the U.S., where there is the longest backlog that we have between, you could say, orders and sales between six to nine. nine months where we see that the challenge on the learning dog business will definitely continue in Q3 and where then towards Q4 we should start to see improvement because we see activity in the market being bottomed out and we see from here on gradual improvement again on the warehousing vertical in the world I would say and also in the U.S., We continue to have the pricing component, which should help. And then somewhere in the middle of Q3 also the PAX issue will fade out and we will get back to more normal levels in global tech towards the second part of Q3 and definitely in Q4. So I would say I would be very disappointed if we would not have again organic growth in the second half of the year.

Okay, thank you. And if I can follow up just on entrance systems and margins, I wondered how much of the margin there is being driven by the mixed benefit of having this service business growing high single digit and whether or not you could expand on the margin potential in that business once we, or where do we see service kind of normalizing, if you like?

Yeah, margins are obviously better in service than on equipment, and also this quarter we had a more important deviation between the growth we had on service versus the growth we had on equipment. As a matter of fact, we had negative volume growth on equipment and high single-digit positive growth on equipment. On service, that clearly helped on the margin. But I would say that we had good margin development if you take a longer period in all four segments, as well in industrial, as in pedestrian, as in residential, as in perimeter security. And you know in perimeter security and residential, we have hardly any service business. So there the margin improvement really came from the very good job done on an operational level side, price versus cost, but also operational efficiency improvements. We have always said that entrant systems long or mid-term, we have that ambition to bring them within the 60% to 70% EBIT bracket. I know that we are now several quarters around that 17%. But we still want to tamper with ambition and say if it's above 16% within that 60-70% corridor, we will be happy. Because the same story is obviously true for engine systems as for America. They are also very much steel-related with engines. steel garage doors, fencing business. And there, like I said, for the time being, we are done with pricing and inflation obviously continues, and we continue to invest also in ways to further grow the business. So that 16% to 17% bandwidth that we aim for as a group should also be a good indication for the marginal venturing systems going forward.

Okay, great. Thanks, Nick. I appreciate it.

The next question comes from Gaël Debray from Deutsche Bank. Please go ahead.

Good morning. Thanks very much for taking my questions. The first one is on global tech. If we set aside the negative impact coming from last year's exceptional backlog execution, which I think was probably around 4%, the underlying performance of global technologies is still disappointing, and it continues to underperform the growth that we currently see in the EMEA or in the Americas divisions. So any particular reason why that is the case? I mean, perhaps there is a greater competitive intensity. And is there any specific plan to try and reignite growth for physical access control specifically? Thanks very much.

If we make the calculation, I think the gap is a little bit smaller. We attribute a bit more of the difference to the PECS backlog. But I think it's fair to say that we are not entirely happy with the performance of the other business areas in HID in particular. I think on Global Solutions, we see good growth, good development of the different verticals. It's more on the other business areas in HID. There is, of course, market dynamics where we also see that some of our distributors had overstocked and are working a little bit on adjusting their stock levels. But I think where we also can do better internally to get better growth and better performance in those other business areas, that's something we are working on. But again, the main effect is the PECS backlog, and I think we will know towards the second half of this quarter, Q3, and then definitely in Q4, if our calculation, our estimates are correct. And again, we are still convinced that the underlying business of PECS, which is the majority in HID, has this, let's say, mid-single-digit organic

growth run rate so that's actually something you expect to to be visible as of q4 yes okay thanks very much the next question comes from matthias holmberg from dnb please go ahead thank you and good morning um

On net financial items, I think that you've guided earlier in the year for about 3.5 billion for 2024. Just curious as the run rate for the first half has been a bit lower than that, do you expect a higher interest cost in the second half or is it reasonable to assume that it might end up a bit lower than the 3.5 billion?

We stick still to the 3.5%. But then, I mean, obviously as interest rates now might come down, then it might be a little bit lower. But for the time being, we stick to what we've said before, the 3.5%.

And it depends, of course, on our acquisition success.

Yeah, it also depends on, let's say, on sort of the acquisitions as well.

Of course. A quick follow-up question. With your relatively high US exposure, do you think that there's any risk you might end up in sort of a crossfire on tariffs?

As you know, we have the strategy to produce locally for the local markets. And if you take, for instance, the Americas division, more than 80% of what we sell in North America is produced in North America. then we have obviously the remaining a little bit less than 20% that comes from Asia, and the vast majority of that comes from China. So clearly, if tomorrow politicians will decide to increase... import duties from from china that will affect our cost structure on that 15 to maximum 20 percent of the things we we buy in china i think the the good thing is that it's the market that buys these things in china it's more on the lower end of the market it's the less sophisticated product offering so in that aspect our competitive situation is not really changing dramatically and as we operate in a market where inflation can be put through to price increases into the market if that happens we are confident that through price increases we and the market our colleagues in the market as well can mitigate that cost increase

That's clear. Thank you.

The next question comes from Anders Idborg from ABG Sandal Kuljer. Please go ahead.

Thank you. Good morning. Just a question on the Nordics. This is the first time for a while that we've seen you growing there. I appreciate you said it was mostly due to the easier comps, but we are still very much below where we used to be, and this is a high margin business. So what's the leverage on the upside, you know, from a normalization in the Nordics? Have you managed costs down very aggressively here and need to reinvest and basically counteract some of that upside? Or do you think this is a big swing once those volumes return?

I hope this problem would come, because if this problem comes under us, it means that we are growing very fast again in the Nordics, and then it would be a positive problem to have. I mean, we are, like I said, agile. I mean, if... market starts to recover in nordics but we hope and we are confident that that will happen in the coming quarters because we believe we are bottoming out in in the nordics we should not have any any problem to ramp up again our capacity if if recovery is on normally or even on on a fast level and i mean it would be be good for us because as you know we make better margins in the nordics and in the rest of EMEA, and that's clearly something we need. We need volume growth in EMEA again and recovery of the Nordics to deliver on our ambitions or bottom-line margins for EMEA.

Okay, yeah, thanks. And a follow-up just on M&A. I mean, you spent more than $4 billion already this year, up to $68 billion of debt, about 4% accretion from M&A, do you think you can keep the pace up or are you basically fully loaded now as you see it from a balance sheet and execution point of view?

You could start. I mean, like Eric mentioned in the presentation, we believe we have a healthy balance sheet. What is important also to see is that most of the acquisitions we do deliver cash. So it's good companies. We buy so we are very confident that we can continue our acquisition strategy of buying this 2020. smaller companies per year, good companies that we then make better. It's obvious if tomorrow a big acquisition would come up, that would be a different story. Then we would have to look at other ways of financing. But for the normal, I would say, what is for us day-to-day acquisition business, we don't see any problem.

And also, I mean, you see that we continuously have a good cash flow, which means that we can also, let's say, pay for the acquisitions through, let's say, through the cash that generates through operations, whether it's in the organic part, as well as we generate also cash from the acquisitions that we acquire. Sure enough.

Thank you. The next question comes from James Moore from Redburn Atlantic. Please go ahead.

Yeah, morning, everyone. Morning, Nico. My question is really on the margin in the second half. I'd like to touch on three parts if I could. HHI, great top line growth. Margin progressing. Get those comments. Is there any seasonality on margin to consider or whatever number you just did in the second quarter? Can you keep progressing that or does it have to come back on some comp? That's really the first part. Maybe we'll go one at a time.

What was the last comment? On HHI, as we previously said, let's say from a top-line perspective, the better quarters are Q2 and Q3. Then it's a little bit weaker on top-line for Q4 and Q1. However, we have also seen that we have had a progression on EBIT, let's say, every quarter. And we still sort of expect that we should be able to continue to have, let's say, a positive EBIT evolution on HHI also for the second half of the year.

That's great. And turning to global tech, if I could, you know, the margin below 16 in the last couple of quarters. I understand the PACs. silicon backlog mix effect stuff and i understand that there's a bit more impact you know maybe for july and a bit of august and we should should we then be clean and once we're clean can we kind of get back to a 17 18 percent corridor where we used to be is that the sort of framework given where you are on global solutions i assume global solutions is now back up and normalized post-covid

Yes, that is the case. We have always said that we want to have global tech somewhere above 17%, in that 17% to 18% range. We said at previous occasions some of you were dreaming about 19, 20. That will not be the case, but we definitely have the ambition to bring it above that 17%. And once things normalize, like for like, that should be the case.

And just on global solutions, is it fair to say that that is now back to a more normalised level after all the challenges around the Covid period.

Yes, that is definitely the case, I think, in Global Solutions. Like I said, we continue to grow very nicely on all the different verticals, but obviously hospitality is the biggest vertical, and we are significant above pre-COVID levels, and that's now, again, run as, you could say, a mature business with good solid top-line growth and good margin.

The last one, if I could just try, your APAC margin has developed 50 and 80 bits in the first and second quarter. Pretty good result considering the double digit drops in China. I know there was some currency help. Can you continue to progress in that sort of dimension in the second half and profitability for the whole of APAC? Are there any other factors we should consider?

Like we mentioned, we are in Greater China, back to black numbers now in Q2, which has been a long time that was not the case. Obviously, if we get some help from the market, it will help us to further improve that margin. With existing top-line levels in Greater China, it will be difficult to do much better than just black numbers. And I would say the same is a bit true for APAC in general. It's clear that we need volume growth. We need volume growth to compensate for inflationary pressures. And therefore, commercial or non-residential market has to keep up where we are confident that that is the case. And residential should come back because Australia and New Zealand is exposed in a very important way to residential in Australia and definitely in New Zealand, but also through the fenestration business in the U.S. And fenestration business in the U.S., that should start to grow again in the second half of the year. So that should be... It should be a plus. Residential market in New Zealand and Australia, I don't think that will happen in the coming quarters. That's a little bit like Europe. It will take a little bit longer.

Very helpful. Thank you very much.

I think we have time for one more question, operator.

Okay. The last question is from Rizk Maidi from Jefferies. Please go ahead.

Yes, good morning, gentlemen. First one is on the weakness on the U.S. load index. Can you perhaps just talk us through the exposures there? I know you categorize it within industrial. Can you just give us a sense of how big this segment is within the overall entrance systems? And if I understood you well, based on your order intake or your backlog, it looks like Q3 is again weak and then Q4 went back to normalized level. Just if you could clarify this, please.

So it's around 15% to 20% of entrance systems in that ballpark. Yes, loading dogs is perhaps the product segment where we have the longest visibility. Lead times are between six to nine months. It depends a little bit. If it's a big project, it can be nine months. If it's small projects, it can also be just three months. We have a little bit better visibility on the loading dog business than we have on a lot of other things. And, yes, we have said that Q3 definitely from a sales perspective will remain challenging. And then towards the end of Q4, we should start to see improvements.

Perfect. And then the last one on my side is just on the HHI margin going back to this topic again. I see it on your EBIT bridge in America is 14.5%. Is that overall what we should basically assume for HHI? And secondly, you talk about now being even more confident to achieve the $100 million of synergies in the press release versus a year ago. Can you talk about where this sort of confidence comes from, but also whether you're getting faster synergies than perhaps initially expected?

The 14% you mentioned is, of course, in the bridge. So you should compare with the costs and all the other things that we had the same quarter a year ago. So it's not a 14% EBIT margin, if that is what you allude to. That's not the case yet. That would have been fantastic if we would already be on that level. level just after one year. So it's still lower. But it's true that our synergies start to kick in. We see good savings on the material side, where obviously HHA is buying material, we are buying material. One of the two buys it cheaper for lower cost. So combining volumes we get then the benefit. We have started to load some of the factories of HHI with more products that we were buying outside and we now produce them in-house in the HHI factories. We have started to cross-sell. In North America, we start to include some of the HSI products in our specification projects. And as we started to do that a year ago, we started to see also the first HSI. results there. We are expanding their export business in Latam through our own organizations we have there. And same is true in Southeast Asia and in Australia and in New Zealand. And then I think HHI has done also a very good job in that vacuum period where we were waiting for the approval of DOJ. They have invested in new products and they have also done a lot of efficiency measures on the operational side. That together with some better price realization leads to the continuous margin improvement that we have now seen for, I think, four quarters in a row. And we are confident that that margin improvement will continue for the foreseeable future for the quarters to come.

Thank you.

Thank you, Ries. Well, it's time now to round up this conference. Thank you very much for the participation and interest. And I think it only remains for us to wish all of you a happy summer. And we look forward to speaking to you after probably the summer break.

Thank you. Thank you.

Happy summer.