ASSA ABLOY AB (publ)

Good morning, everyone, and welcome to the presentation of Assa Abloy's third interim 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 Pieder. As usual, we will now start this conference with a summary of the report before we open up for your questions. So with that, over to you, Nico.

Thank you, Bjorn, and also good morning from my side. Q3 results, we can report good results. We went back to positive organic growth in Q3. I would say small positive organic growth of only 0.3%, but then also this quarter complemented in a good way to strong growth through acquisitions of plus 4%. And then very strong execution with an EBIT of 6.3 billion SEC, record high level, and an EBIT margin of 16.7%, the highest for a Q3 since seven years. And also good execution on the balance sheet side, working capital side, with an excellent cash conversion of 118%. We continue also our high acquisition pace with seven acquisitions completed in the quarter, 18 in the first nine months. If we look in the numbers, a sales of 37.5 billion SEC. 1% up, 5% up currency adjusted. Like I mentioned, there's a very small positive organic growth, 4% net acquired and then minus 3% on the currency. That's mainly SEC versus dollar. We also want to emphasize the EBITDA margin. of 17.7%. That's a record high number since we started reporting EBITDA margin. And as the gap between EBIT and EBITDA margin becomes bigger, you see it's now 1%. We also want to emphasize a bit more the EBITDA number as we want to make sure that you also can compare us with other people on the market in a similar way. Our EBIT margin, like I mentioned, is 16.7%. Percent, the highest number for the last seven years for Q3. A bit of 6.3 billion, 8% up. Earnings per share, 10% up. If you look a little bit at the different regions, and perhaps I comment first a bit on the different segments, I would say Q3 has been very similar as Q1 and Q2 in the sense that non-residential in our three main markets in North America, in Europe, and in Oceania, market conditions continue to be healthy on a good level in all three regions. Whereas residential markets in all three regions continue to be challenging. And like we mentioned earlier, we are still convinced that North America is further down in the cycle, in the sense that in North America, new-built residential has turned, and R&R at least has bottomed out, where Europe then in that cycle is much later in the cycle. If you look at different verticals, an important vertical for us in entrance systems is the logistic vertical, where we continue to see also challenging market conditions as well in North America as in Europe. If you look at the different regions, organic growth of plus 1% in North America. Again, different picture, good development on the commercial side, a flat development on the residential side, and then challenging conditions on the logistic vertical. A flat South America, that's mainly because of a difficult comparison for HID compared to the same quarter a year ago. Plus 2 in Europe, plus 13 in Africa, and minus 5 in Oceania, and minus 8 in Asia, where we have seen market conditions further deteriorating in greater China. We have also seen some spillover of that negative market condition into Southeast Asia. We have seen the government in China making some extra measures to help the construction market. Also some positive numbers on new houses being sold coming out this morning. But we believe that in general those measures are still moderate and it will take some time before we see the market in China recover. So market highlights. I will not go through all the project wins, but if I take a couple of them. We were also present at the Olympic Games. We were able to sell 30,000 lock handles and cylinders for the Olympic Village in Paris. and then we were able to sell dog levers and doors to the european european's largest logistic center product launches let me also only pick one here quick set unite mobile enabled wireless smart lock for multi-family properties let's say the first new product family that we launched now since we acquired quickset very excited about that product range and then on the awards side if i also pick one there i go to see that also our branding marketing activities pay off a blow in finland and fish in france were voted as the most value valued brand in their markets if you see that Abloy in Finland is overall seen as the strongest brand in that country, something we can be really very proud of. So the quarter, again, slight positive organic growth complemented with good growth through acquisitions. Our sales now 46% up on a 12-month moving trend versus 2019. A good improvement of the operating margin with the run rate, 12-month run rate now at 15.9%, so very close to the bandwidth we aim for, and an EBITDA margin of 16.8% on a 12-month moving trend. So better top line, improved margin, therefore accelerated operating profit, record operating profit in the quarter, and run rate of EBIT up 61% versus five years ago. We continue to be very active on the acquisition side with seven acquisitions completed in Q3, 18 acquisitions in the first nine months of the year. Those acquisitions represent an annualized sales of around 7 billion SEC. And then you might have read a couple of days ago that we also are divesting our citizen ID business, our passport business, you could say, in HID. That transaction is expected to close somewhere in Q1 next year. And that business represents an annualized sales of around 1.3 billion SEC. Some highlights on the acquisitions. Levelock, excited about this technology acquisition. It will be integrated in the Americas division and we will run it as a technology hub for connected wireless locks. They had a sales of 170 million SEG last year. They will be dilutive to PS from the start. And in the bigger acquisition, SkiData, an Austrian provider of access management solutions for parkings, for ski resorts and for concert halls and stadiums and so on. They had the sales of 3.5 billion SEC last year, and they will also have a small dilutive effect to EPS from the start. They will be integrated into entrance systems into the pedestrian segment. If we then go into the different divisions, starting with opening solutions in Maya, positive organic sales of plus 1%, good growth in Central Europe, good growth also in the Nordics against an easy comparison last year, I would say. Stable sales in South Europe, but then sales decline in Middle East, India, Africa, and also in UK and Ireland. Strong execution with a good operating margin of 14.5%, with good operating leverage, helped by currency 50 base points because of the stronger SEC, and then also helped by M&A, a creative 20 base points. America's another very strong quarter with an organic sales increase of 4%. Very strong sales growth in Latam. Strong sales growth also in North America, non-residential. And then a stable sales in our North America residential business, you could say the HHI business. Very strong operating margin of 19.2%. We have a very good operating leverage, 80 base points accretive. good price-cost, good margin improvement in general, and definitely also a continued margin improvement in our North America residential business, where, again, we have seen an improvement versus previous quarter and an improvement also versus the same quarter a year ago. And we're confident that that trend will continue as synergies continue to kick in. FX has been dilutive 10 base points recently, And M&A, 160 basements are creative. That has to do with, you know, all the costs that we booked for HHI a year ago. So in the bridge, it gives us a, you know, one time you could say positive effect of 205 million SEC year over year. The more important underlying, the HHI business had a stable top line development and an improved bottom line. Opening solutions, Asia-Pacific, organic sales decline of 6%, with only stable sales in South Korea and negative sales growth in the rest of the division. But like I mentioned earlier, market conditions in China are further declining. Despite the strong organic negative sales evolution, good operating margin of 7.9%, where we only had a smaller dilution because of the negative volume, because we were able to offset that to a big extent, I would say, through efficiency improvements. And then Fx stable, and we didn't do any M&A in this division. Global tech, organic sales back to positive plus 2%, where in HID now the whole story of the backlog we build up and then invoicing on the backlog of packs, cards and readers. It's over since September. September was the first, I would say, normal month again for PECS. And therefore, we have seen also, again, growth of that business area in HID. Also very strong sales growth in global solutions. And I would say strong operating margin of 18.9% with very good operating leverage, 110 base points. So even by efficiency measures, but also a positive mix where we get, again, more relative sales of PECs, which is a more profitable part of the business in global tech. FX and M&A dilutive, 30 base points and 40 base points, respectively. And last but not least, entrance systems, an organic sales decline of 2%. We have seen good sales growth in pedestrian and in perimeter security, but then sales decline in residential. Residential is for us mainly a North American business. The story I told about the residential market. And on the industrial side, very exposed to that logistic vertical where the loading dog business continues to be challenging. Good to see that our service growth continues in line with our ambition to grow high single digit. Strong operating margin of 17.1%. Definitely take into account that we acquired Ski Data in this quarter and had rather higher acquisition-related costs for Ski Data that gave a dilution of 110 base points. fx up 10 base points but then very strong operating leverage and 10 base points very good price cost realization and then also a positive mix and with that i give the word to eric our cfo to give some more details on the financial numbers eric

Thank you, Nico. And also a very good morning from my side. As you heard from Nico, we now turned, so we actually had a positive organic growth in the quarter, a small one, but still it was positive. And in total, the sales increased with 1%. Of course, we'd like also to mention that we had some records, like, for instance, that we had in EBIT value, the 6.3 billion SEC increase, It's a record for Q3 and it's up with 8% versus the same period last year. We also had a record EBITDA margin of 17.7%. It's up with a point. And we had the best EBIT margin for Q3 quarter since 2017. It ended on 16.7%. We had slightly less impacts on the interest rates. We also sort of see a bit, of course, interest rates slightly going down. So income before tax is up with 10%. It's the same with the net income as well as with the EPS versus the same period last year. Operating cash flow is lower than what it was sort of a quarter ago, but remember that we had a very strong operating cash flow in Q2, Q3, and Q4 last year. But if you compare the 6.3 then historically and with a cash conversion of 180%. 18%, it still is very strong. And it's also good to see that return on capital employed improved sequentially with 20 base points and ended the quarter at 14.2%. If we dissect a bit and go a bit to the bridge, if you look on the organic part, price is a strong one which consequently means that volume is negative with about one percent the flow through as you can see is very strong and helps the result with with 90 base points this comes from strong price realization we have lower material cost with mfp savings of roughly 130 million sec in the quarter as well as good cost control Slight negative impact on the currency where, of course, we see that the weakening of the dollar. M&A looks a bit strange this quarter. Nico mentioned it before. The main reason is, let's say, the mechanism of the bridge where we sort of had integration cost and cost related to the HHI acquisition a year ago, which was negative. And then, let's say, this year it turns positive just purely, let's say, due to how the bridge works. However, as you have seen that we have seen before that we have done some acquisitions which in reality have a dilutive impact in the acquisition column ski data as well as level lock. Going forward, ski data is estimated to have on group a negative dilutive impact of 40 base points and on entrance system consequentially roughly 120 base points. We had a good momentum still on direct material, the price versus cost. The mix in total is 240 base points. Roughly 100 base points of that comes from a mix with a stronger global technologies, weaker APAC, as well as the interdivisional mix where you heard Nico mentioned before regarding that service was strong with an equipment in entrance, which sort of helps from a mixed perspective. However, if you look sort of the total, then roughly 140 base points is if I call it the true price versus cost. So we still have a strong tailwind. We sort of we see that we also going to have a tailwind also for Q4 as well as for Q1. They're going to sort of go down slightly, but that is sort of the estimate that we do today. Conversion cost is impacted by inflation and higher wage cost. It's down with 130 base points. Sequentially, then, if you look on SG&A, it is sort of better than when it was in Q2. In Q2, we had roughly a negative impact of 80 base points, whereas then, as you can see, in this quarter, it was 30 base points. We can see sort of despite that we continue to invest in R&D as well as continue to invest in sales, we are sort of still finding efficiency measures in order to, let's say, reduce the impact that we have there. I mentioned before the cash flow of 6.3, cash conversion of 118% in the quarter. We still sort of see that, okay, we had sort of a good EBITDA flow value but we continue to sort of see that working capital is going down which is good let's say for our cash flow position. That sort of leaves that we on the gearing the net debt to EBITDA is now at 2.3 and despite that we have been rather active I would say on acquisition front we were able to reduce our net debt in total with 1.3%. Yes, we had some help from the currency, but we also sort of could see that the strong cash flow where we were able then to sort of to be able to sort of do the acquisition payments that we have done, which means that, you know, at the end of the day, we have sort of still a very strong balance sheet and financial position. So we can continue with our acquisition strategy also going forward. Last slide from me is the EPS, which I mentioned before, is up with 10% versus the same period a year ago. And with that, I hand it back to Nico for some concluding remarks. Thanks, Erik.

So Q3, a quarter where we went back to positive organic growth, slide positive organic growth. But if you look at total, currency adjusted sales growth of plus 5%. Then very strong execution with a record operating income, 6.3 billion SEC. And also very strong EBITDA and EBIT margin. Excellent cash conversion of 118%. It's clear that we continue to operate in an uncertain economic climate where definitely on the residential side market conditions remain challenging. Therefore, we continue with our approach like in previous quarters to take advantage of the opportunities that we see in the market. We will continue to invest there where we see that there is potential to grow. But then in those markets or in those segments where we see that market conditions are more challenging, we of course will adapt cost, protect bottom line and cash flow. Therefore, we will remain agile through our decentralized organization and make sure that we continue to realize efficiencies. It's clear that the lower interest rate trend that has now started, at least in North America and in Europe, will help us over time. And over time, we will then see also the residential market coming back. And with that, I give the word back to Bjorn for Q&A.

Thank you, Nico. Well, this means that we are ready to open up for questions. And can I please just remind you to limit yourself to one question each and a follow-up. And if we go through the whole list, then you can obviously indicate that you would like to ask another question. Operator, this 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 their touch-tone telephone. You will hear a tone to confirm that you've entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Anyone who has a question may press star and one at this time. The first question is from Daniela Costa from Goldman Sachs. Please go ahead.

Hi, good morning. Thanks for taking my question. I will take the question and the follow-up opportunity. But starting with the question, I was wondering if you can comment like you normally do on the start of the existing quarter and whether you see any signs of those potential recoveries that you mentioned on your kind of outlook statement in the second page of the press release.

I guess you're after the exit run rate and then the run rate in October. If you look at the quarter, obviously it's a little bit difficult to talk about the run rate because July and August are holiday months. It's always very difficult to judge the holiday months in the sense that Q3 is mainly made in September. So it's difficult to comment on September versus July, August. But if you Look at September and October, you can say that run rates, if you correct for working days, are similar. So going into October, we haven't seen up or down. It's a similar run rate as September.

Got it. Thank you. And then a second question, just regarding just – can you give us a little bit of context of like what prompted the cities and ID divestment and whether sort of you're more actively looking at parts of the portfolio or was that just like a complete one-off thing?

Yes, as you know, we constantly look at our portfolio, and from time to time we decided that something does not fit in our portfolio. I think if you look at the time that I'm here, since 2018, I think we did four or five smaller divestments, so we are clearly a net acquirer. The reason now to the West Citizen ID is that we have always the ambition to be number one or... at least the number two in the market. With Citizen ID, we were, you could say, a far number three. We were definitely not the number one or the number two. They were much stronger than us. It's very different to play a game where you are market leader versus where you are a follower. We have also seen that the market leaders in this segment at best make high single digit EBIT margins. So very difficult for us to realize the financial ambitions we have as a group and having businesses within that 16% to 17% EBIT bracket. The second thing, from a sales dynamic perspective, this is also very different from what we do in the rest of the group in the sense that these are much more long project-based sales cycles where when a country decides to do a passport business, you will engage with that country for two, three years. Then an RFQ comes out, and then when you... get that RFQ at the beginning, it will be a cash-negative project, and then over time, over the 10 years or the 15 years that you have the project, then slowly you will then start to make better margins. So it's a very lumpy on-and-off project business, which is very different from what we are used to in the group. So I would say that is the two main reasons why we decided to divest the Citizen ID business. where definitely after COVID, the weaknesses of that segment became more obvious. I would say that we had done a very good job in bringing the profit from high double-digit losses back to positive, but we didn't see a way to get to that 16%, 17%. That was the main reason.

Okay, thank you. The next question is from Andre Cochrane from UBS. Please go ahead.

Good morning. Thank you very much for taking my question. I'll ask that first and then see if I have a follow-up. At this time of the year, we usually try to think about 2025 or the following year as some of the indicators start coming out. I just wondered if you could share your thoughts, any color, on how you think your major end markets will evolve across Europe and North America in 2025.

If we all think about next year, then it's thinking and having a good idea is something else. I think it's still very difficult. Like also mentioned earlier, I think we are still working in a very fragile and dynamic market environment. You have, from one side, the political risks with all the conflicts going on, in the world and we don't know in which direction they will go. We have important elections that have taken place and will take place soon where the outcome is still uncertain. So these are a lot of moving parameters that can change direction in a positive or in a negative way. I think what... What definitely will happen is that we will continue to live in a higher inflationary world now after COVID, also next year than prior to COVID. Which means, like we always said, that we live in a market where we can push through inflation, through price increases in the market. So that should be a positive effect. I think there is also consensus that interest rates will further go down, as well in Europe as in North America, and hopefully they are confident that they will start to reduce interest rates also in Australia, which over time should give us a positive effect. With that footnote, if you take, for instance, the U.S., and as most people have a loan on their house, the people that have a loan on their house, sorry, have an interest rate at around 5%. So we need some more interest rate cuts to come to that 5% level to really start moving things in North America so that people really start to sell and buy new houses. But ultimately that will come. I think you will see first... positive effects on the more retail-related business and then later on the R&R side. And like I said, I think we will see first an upturn in the U.S. and then later in Europe. HID will also be back to a more normalized business where the whole PACS story is behind us now as of September. And in that aspect, then also next year should be a more, you could say, normal year for HID. But so, like I said, a lot of moving parameters and perhaps too early to really have a good view on what's going to happen next year.

Thank you. Thank you, Nico. And if I may just use the follow-up to ask about ski data now that you've closed the deal and had a chance to look under the hood. Could you comment on how quickly you can get the margins up in that business towards what you see acceptable for us around that $15 million? 16% and whether now that you've seen more inside the company, how's that turned out to be versus the original assessment?

I would say timeframes are very similar to what we set for HHI. I think we have a first plan to come to double-digit, and I think that we should be able to do in the first three years. And then from there, we will then further move and see how high we get. It's a bit of a different acquisition than many of the others in the sense that Skidata today, it's a business around... 300 million euro, but they make very low single-digit EBIT margin today, whereas normally our acquisitions have a little bit higher EBIT margin. So a lot of the payback will indeed come from that improved EBIT margin from very low single-digit in the first place to double-digit.

Thank you.

The next question is from Mida Vivek from Citi. Please go ahead.

Thanks very much, everyone, and good morning. Following up from Andrea's question, would you mind commenting on the latest trends in the specification activity by region? Thank you.

So if you look on group level specification, it's up mid to higher single digit. If you look at the two main regions in the U.S., it's low to mid single digit negative in the quarter. There's a bit of detail here. We have the normal suspects that are negative, multifamily offices. We have the normal suspects that are strongly positive, education, K-12, data centers, although a lot of business for data centers also doesn't go through the normal specification channel. I think the big deviation this quarter and also previous quarter has been on the healthcare side where we saw negative development. And we still believe that is a... a timing issue because we don't see any reason why healthcare would slow down. In Europe, we have seen high single-digit growth, and we have seen a continued positive shift from mechanical to electromechanical and good development on the sustainability type of spec business.

Thank you very much.

The next question is from Alexander Vergo from Bank of America. Please go ahead.

Yeah, morning, Nico. Thanks for taking the question. I wondered if you could talk a little bit about HHI for us. Obviously, that's now in the organic growth. I'm just wondering if you could give us a sense of what that growth is in HHI versus the underlying growth in the Americas, particularly given the drag that ready markets are having on entrance systems in the U.S.? That's the first question. And then as a follow-up, I wondered, Eric, if you could just comment a little bit on the regional differences in pricing dynamics and the fact that things have slowed a little bit, as you'd indicated they would. I just wondered if you could give us a sense of pricing dynamics in the market now and thinking, I guess, back to Andre's question around exit rates into 2025. Thank you.

I think on top line, HHI was flat compared to the same quarter a year ago. When it comes to pricing, Eric mentioned a strong one, so you could say it's closer to 1.5%. Region-wise, there is not so much difference. It's perhaps more material-based or related. where I said the same thing in Q1 and Q2 on everything that is steel-related, so steel doors, fencing business, loading docks, we are happy that we can keep the prices. So there we don't see the possibility short-term to further increase prices. Although with that footnote that steel has been stabilizing now and definitely going into next year we will look into possibilities and to again increase prices there. But for the time being everything that is steel related is flat. All the rest we continue to increase prices and we also will now continue to increase prices beginning next year when it's copper, zinc, aluminium, you name it. Because we also continue to see General inflation, electricity, energy inflation, logistic inflation, definitely labor inflation, which is high this year and will continue to be high also next year. So it's not so much region. The only exception is perhaps China, where it's very difficult to increase prices. And also the Hawaii Channel, where it's difficult to increase prices. In the Hawaii Channel, you indirectly increase prices more through new product launches and new product developments. So you would think more of the divisions that are more steel-related, so entrance systems and Americas, they have the lower price component and the others have a higher price component.

That's super helpful. Thank you.

The next question is from Gail Debray from Deutsche Bank. Please go ahead.

Oh, good morning. Thanks very much for taking my questions. So maybe just to follow up on the question that was just asked about pricing. So do you still expect pricing to be at least 2% for the full year? And then the second question is about global tech, which obviously had a very strong performance this quarter margin-wise. So do you still see global tech as a 17% to 18% margin business on a normalized basis? Or is there perhaps now a bit of upside following the strong Q3 performance and the divestment of citizen ID?

um yes on the on the pricing yes we will be more than two percent for the full year because again you will remember in q1 we said that price component was two percent but we set the strong two percent so right two and a half percent you could say in q1 on q2 it was a strong two percent between two and two and a half percent now we said it's a strong one so one and a half So we don't need that much price increase, you could say, now in Q4 to realize the minimum 2%. So yes, we are confident that we'll get the 2% this year. The 1% or the 1.5% in Q3 is more because of the comparison with Q4. with last year. So that's on the pricing side. The other question was? Global tech and margin. Yes, we still want to hold on the 17% to 18% margin. It's true that Q3 was high and higher than that ambition, but you should not forget that it's very seasonal. Q3 is always a good quarter for global tech. And we are now in Q3 also with that positive mix where, you know, PAX as of September is came back. So that citizenized idea will help us, I would say marginally, on the margin for global tech on 10 base points. But it's also true that we continue to invest heavily in our different verticals in global solutions, where we continue to see high double-digit growth and where we want to bring them to a higher critical volume. The same is true for some of the other business areas in HID, where we continue to invest. So that 70% to 80% EBIT margin remains our ambition for global tech going forward, yes. Thank you very much.

The next question is from Mathias Holmberg from D&D. Please go ahead.

Thank you. I'm going to stick a little bit to global tech regarding the margins. As you point towards the improvement not coming until September in the Pax business, and I hear you mentioning here of the seasonality, but I'm just curious to hear if we in Q4 get the full benefit of the Pax recovery, Would not that imply that you could get an even larger support from the Pax business going forward?

Yeah, that is true. Then, of course, there is a lot of other moving parameters in global tech. You should say global tech is around 70%. HID is around 30% global solutions. And in HID... 45% around is PECS, which is the most profitable part of HID. In global solutions, we have hospitality, which is also around 45%, and which is the more profitable part of global solutions. So depending on the mix, how much hospitality you have in global solutions versus the rest, or in HID how much PEX you have versus the rest affects the margin in an important way because all the other business areas have still lower margin, but we are investing in those other business areas to make them grow faster than PEX and definitely also make them grow faster than hospitality. And if we succeed in that, that of course gives them a negative mix overall.

Understood. So just to be clear, if you'd had the full benefit in the entire quarter of Q3 from the Pax Recovery, the margin would have been even higher or less equal?

Yes, that's correct. Yes. Thank you.

The next question is from James Moore from Redburn Atlantic. Please go ahead.

Good morning, everyone. I've got a couple, if I could. I wonder if we could talk about Europe and the EMEA margin. It's a bit below where it sort of was for some time. And obviously, Europe's been really hit by a negative construction environment. And typically and historically, you've made really great margins in Scandinavia. I'm just wondering, when you think about Scandinavia or Europe as a whole, where are volumes now versus peak and If we get volumes back, do you think profitability can go back where it used to be? I'm just trying to think about capacity utilization and what the path could be if we had a favorable two or three years of European construction recovery.

Like we also said on previous occasions, we have the ambition over time to bring EMEA to that 16% EBIT level. I think there's two important things for EMEA. One is the SEC dilution, which if you look over the years, costed us at least 150 base points. It was a bit positive this quarter, but if you look on the longer period, this has diluted the result. The second thing is, like you said, the whole negative volume growth effect. The residential segment in EMEA is around 45% of EMEA. And EMEA is a strong market leader, you could say, in most markets on the residential side. So if the residential market goes down in a very significant way, it's very difficult for EMEA to do much better than the market. So they are affected in an important way by that downturn of the residential market. I would say for us to go back to 16%, definitely what has to happen is that the residential market comes back. And we are confident now that with interest rates going down over time, that market will come back. Like I said, I think you should at least expect six to nine months between interest rate going down and us seeing that in the numbers. So as I may ask later in the residential cycle, it's definitely not something that will happen in Q4 and Q1. It will be hopefully and confidently then later next year. And when that happens, when we get, again, positive volume growth organically, then you will see that that leverage really will kick in in an important way and therefore will improve margin further in an important way.

That's very helpful. Can I follow up on the synergies? Could you say roughly what percentage is done and whether you now think that you can exceed the original target?

Like I said, we make good improvements. You can see that also on the Americas margin in the quarter, where we said over time we have that ambition to go to 20%. In the quarter, we were not so far off. So we continue to make improvements on the EBIT margin for HHI quarter after quarter in the sense that the quarter is better than the quarter before. and a quarter is better than the same quarter a year ago. We are confident that we can continue that trend as synergies continue to kick in. Can we do better than what we said initially? I would say that we are definitely much more confident today that we can do what we said at the beginning, and we are also confident that we most probably will be able to do it faster than what we said at the beginning.

Thank you very much.

The next question is from Mighty Risk from Jefferies. Please go ahead.

Yes, good morning. Thanks for the questions. I have two, and I'll take them one at a time. So, Nico, maybe just on your earlier comment around the residential sort of rebound, and I think earlier we mentioned mortgage rates needs to reach 5%. I think that was related to the U.S., Just in your head, how are you thinking about the pace of interest rate cuts to actually see an R&R sort of rebound within HHI business? And also, I think you talked about six to nine months. So are we sort of talking second part of 2025 here at the earliest?

It's perhaps a question we should ask the president of the FED or the ECB. Perhaps you have a better view even than me. I can also only read in the newspapers what people say. I think there is consensus that interest rates will further go down. And what I can say is that if interest rates go down, I think you will see the first effect in the U.S., just because of the way Americans are versus Europeans. If they are confident that things are going to improve, they start to invest. So you will see in the U.S. in the first place retail, I think, coming back. But then, like I said, on R&R, the big R&R happens when people move houses because you refurbish your old house because you want to sell it at a better price or you refurbish the new house that you bought. And for that to happen, people must see that they can finance it in a similar or better way than the finance they have today. And 70%, 72% to be exact, of American people that have a loan on their house have an interest rate at that 5% level. So for R&R really to move, for people to move houses, interest rates have to be on that level. So it will need some more interest rate cuts before we see R&R really coming back up. And depending on how fast that goes or how slow that goes, we will see faster or slower recovery of the R&R side for our residential business in the U.S. I think in Europe it's a bit different because we don't... In the U.S. also, when you have a loan, it's easy. You take a loan at whatever, 4%. If then six months later it's 3.5%, you can refinance in an easy way. Many markets in Europe is a bit different because you have a fixed interest rate for a period of time, and then you're stuck to that. So in Europe, perhaps you have the opposite. If people see that interest rates go down, they wait a little bit longer because they hope then that the interest rate further goes down. Perhaps short-term, you could even say it has a negative effect, and then mid-term, long-term, it will have a positive effect. That's also why we say that we are confident that the U.S. is further down in the cycle than Europe.

Thanks for this. The second one is just on the underlying growth within global tech. After this whole PAC story, I think you said September was a clean month. Are we running at the average sort of 5% that you're targeting for this division?

So if you take PEX historically, let's say, you know, even prior to COVID to make it easy, PEX has been, you could say, a diesel that has been growing on that mid single digit organic growth with a stable good high margin. And we are confident, let's see now in the months to come, that that diesel type of business will come back now that we are back in a normalized situation.

Okay, thank you.

The next question is from Andreas Koski from BNP Paribas. Please go ahead.

Thank you, and good morning. So just maybe a short-term related question, coming back to your comments about exit rates. So it sounds like October is similar to September, and I guess that means roughly set organic growth also in October. Do you see easier comps in November and December, which should make it possible for organic growth to clearly accelerate in Q4 versus Q3? Or is it fair to assume flattish organic growth also in the fourth quarter?

As you know, we don't forecast. What I can say is that if you look at the organic road that we had in Q3 last year and the organic road we had in Q4 last year was very similar. There was only 10 base points difference. So from a comparison perspective... growth rates are are very similar i think there is then some deviations obviously we we will have a clean quarter for packs in in hid which should should help us china is small in the bigger picture but china definitely has deteriorated like i mentioned in q3 and we don't see an improvement yet in in q4 And then the rest, let's see how the markets are evolving. That would be the main drivers, I would say.

Thank you, Mikko. And then on the MMO dilution in entrant systems of 110 basis points, how much of that can be seen as sort of one loss? Because I think you have to take some extra costs related to the data acquisition in this quarter. Yeah.

No, we said 120 base points on entrant systems, 40 base points for the group. And, I mean, you can make the calculation yourself. SKIDATA is around 300 million euro top line with a bottom line last year of around... let's say between 3% and 4%, depending a bit on which cost you take in or not. Once the PPA kicks in and we are still finalizing the exact amount of the PPA, you will see that we are close to zero. That's also why we said at the beginning dilutive to EPS. If you take 300 million top line with, let's say, 0% EBIT, then you can calculate yourself the dilution on entrance system and on group.

Okay, so you didn't have any extra costs related to closing the acquisition in the quarter?

Andreas, remember that SkiData was closed in September, which means that you only have one month of, let's say, the dilution impact that Nico talks about, and then you can say the rest then would then be acquisition-related costs, because it's about the same as we said on the run rate, but remember that Skidato was only in for a month.

Understood.

Thank you, Eric. Thank you, Nico. Can I just also indicate that we have one person left in the queue, so if there's anyone else who'd like to ask a question, you can please indicate that to the operator. Operator, please go ahead with the remaining one now.

For any further questions, please press star and one. The next question is from Jonathan Day from HSBC. Please go ahead.

Hi, good morning. Thanks for taking my question. It's about EMEA, and I was just wondering if you could comment a little bit more on what you're sort of seeing and expecting in the Nordics, given that rate cuts were perhaps a little bit earlier there for, in particular, the Riksbank than before.

the ecb so just wondering about the timing of recovery in the nordics so like we said we had positive organic growth again in the nordics that was mainly because of an easier comparison compared to the same quarter a year ago and that comparison will even become easier now in in Q4. We see Sweden a little bit ahead of Finland as being the two main markets in Scandinavia. So we are confident that we will continue to see perhaps a bumpy but at least a gradual continued recovery. of our business in as well Sweden as in Finland. As indeed now interest rates have been cut two times in Sweden and confidently that that trend will continue. And the first cut was six months ago. So we are now in that time period that we start to see, we should start to see the first results of that.

Great, thanks. And maybe just a quick follow up on the ski data deal. Could you talk a little bit about more about the synergies and whether you see some more revenue or cost synergies from from that deal?

So, Eschidate is one of the market leaders in the field where they operate. They have a high recurring revenue part. So, as such, as a company on their own, we believe we must be able to do much better margins than what they have done last year. Also, if you compare with colleagues of them in the market, we are confident that just standalone, the margins should improve. And so the biggest return comes in the first place from margin improvement. But it's also an industry they operate in where the market grows around that 4%, 5%. So we should be able also to realize organic growth in line with our 5% ambition. When it comes to synergies, we see synergies on the entrance system side and on the HID side. On the entrance system side, using service technicians in both directions, using some of the products that we have in entrance systems like turnstiles and so on and then also the cost selling because often I mean if you take a ski resort they also need sliding doors. If you take a parking environment there is a lot of other entry systems products that are sold to that garage entity. And then definitely also on the HID side with our readers, our cards, our credentials, and some of the software technology we have.

Great. Thank you very much.

We have a follow-up question from Mighty Risk from Jefferies. Please go ahead.

Yes, thank you. Just a quick one on the savings. I think you talked about MST savings being 130 million SEC in the quarter. How we should think about sort of this number heading into Q4 and Q1. And same question relates to the price costs. I think the number you mentioned was 140 basis points.

Perhaps I'll take the price cost and then Eric can take the MFP. I think on the price cost we are definitely more optimistic and positive today than after Q2 and after Q1 because previously we said that towards Q4 we would see a more neutral situation as material prices have stabilized as steel initially went down and then stabilized and And also the other materials are on a good level and we were able to continue to increase our prices. We are now very confident that also Q4 will still give us a very good accretion price versus cost. It was probably not any longer on the same level as in Q3, but still on a very good level. I think the same still should be true in Q1. Then going further into Q2, Q3, it's more difficult to say because we don't know what will happen with material indexes. And you know that there's a six-month lag between material indexes going up or down and us seeing it in the income statement. And we also don't know yet how successful we'll be with the implementation of the price increases that we have as an ambition in the different markets. But definitely Q4 and Q1 will still be better and more creative than initially or previously said.

And for the MFP, you could calculate with, let's say, about 100 million SEC in Q4, and then we will come in Q1 next year, we will come with the next program, the MFP10. So then, of course, we're going to generate synergies then for 2025 coming out of that program.

Thank you. Thank you. Well, it's time for us now to round up this conference. If there are any follow-up questions, feel welcome to reach out to Isabel or myself at Investor Relations. And with that, it remains only for us to thank you for your interest and participation. And we look forward to speaking and seeing many of you in the coming weeks. Thank you.

Thank you.