HMS Networks AB (publ)

Good morning everyone and welcome to the presentation of Assa Abloy's Q3 report in 2025. 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 kick off this conference with a summary of the report and then we will open up for your questions. So Nico that means it's over to you.

Thanks Björn, also good morning from my side. Q3 results, we can show strong numbers for Q3 with good growth and strong margins. We had a good organic sales development with a strong 3% organic growth, with good sales growth in EMEA, Antron Systems, Global Tech and Americas, and a sales decline in Asia-Pacific, mainly because of the continued challenging situation in Greater China. Good operational execution with record operating margin, highest operating margin since Q3 2015, 16.8% EBIT with excellent operating leverage offsetting our M&A and currency dilution. Also very strong cash flow, 10% up and a cash conversion of 125%. And then we completed five acquisitions in the quarter. If you look at the numbers, a sales of 38 billion SEC. Like I mentioned, 3% organic sales, a strong 2% price and 1% volume. a 5% net acquired growth, and then minus 6% from currency, mainly SEC, dollar related. So top line up 2%. Very strong EBITDA, record margin of 17.9%, and also record margin of EBIT of 16.8%. And then EBIT and EPS up 3%. EBIT in absolute value, 6.4 billion SEC. If you look a little bit on the world, I can perhaps summarize, because the picture is very similar as in Q1 and in Q2, where in our three main regions, as well in North America, as in Europe, as in Oceania, we continue to see very good momentum on the non-residential side. But also in all three regions, we continue to see more challenging market conditions on the residential side. We have seen also a slight recovery on the logistics vertical, which is important for entrance systems. Not a V-recovery, but a smaller but positive recovery. We have seen a plus 5% organic growth in North America, a very mixed picture for our Americas division where we have seen high single digit organic growth for the non-residential part and low single digit negative growth for the residential part. And then strong performance also for the other divisions with good momentum in all the different verticals. Also our spec business up double digit in the quarter. South America or Latin America plus one, where for the American division we have seen a small single digit negative decline, but then good performance for the other divisions. In Europe, plus two, same picture like I mentioned earlier on residential commercial, where we see in Sweden at least some recovery on the residential side, on the R&R side, but no real recovery yet on the new build. Obviously, the rest of Europe, which is more ECB-related, is later in the cycle on the residential side, but continued good momentum on the commercial side, also in Europe, double-digit growth of our spec business. Africa minus eight, it's a small continent, a small part of our business, and it's mainly related to a higher project business for HID. Last year, some more difficult comparison. Oceania plus three with good growth. performance as well in Australia as in New Zealand. And New Zealand is a bit in the same picture as Sweden. They also started to cut interest rates much earlier. And there we see good recovery as well on the new build as on the R&R side. And the last but not least, APEC minus four, a very mixed picture between, on one side, Greater China, where we continue to see double-digit negative growth, where market conditions remain very challenging on the residential side, where all indicators are down double-digit. And then the rest of Asia, where we have seen good momentum, good positive growth, as well in Southeast Asia as in markets like India. If we then look at some of the products we launched in the quarter, some digital products, we extended our Centrius product portfolio offering with a new mortise lock range. Centrius is our access solution for small and medium enterprises. We also launched in Latam a new range of digital door locks for residential applications with facial recognition. And InView launched a new high-security retail display system for phones, tablets, and wearables, giving much more hands-free, smooth testing environment for new tablets, phones in those high-end stores. Also interesting to see is that our electromechanical products grew 13% in the quarter. So we continue to see that shift from mechanical to electromechanical and digital. And that obviously also gives us the opportunity to get more recurring revenue. Our recurring revenue remains our strongest growth product or service offering. And today is close to 6% of top line. So continuing also in growing in relative weight. So now three consecutive quarters with good organic growth and that organic growth continues to be complemented with very good growth through acquisitions. Our sales 62% up versus 2020. And then our margins are well within the 16% to 17% bandwidth we aim for, a run rate of EBIT margin of 16.1%, and our EBITDA margin even above the 16% to 17% bandwidth at 17.1%. So good margins, increased top line, therefore also good bottom line. A record operating profit for Q3 and our run rate EBIT up 108% versus 2020. Acquisitions, we continue to be very active on the acquisition side. Five acquisitions completed in the quarter. Sixteen acquisitions completed year-to-date as of end of September. And those acquisitions represent an annualized sales of close to 5 billion SEK. Just highlighting one of the acquisitions in the quarter, Calmel, a Spanish manufacturer of smart cards, smart paper tickets and magnetic tickets. acquisition in HID. They are based in Barcelona. They will reinforce our offering within smart cards and they had a sales of around 330 million SEK in 2024. If we then zoom in into the different divisions, starting with EMEA, a very good quarter for EMEA, with a strong organic sales growth of 4%. There have been many quarters for EMEA since we have seen such high organic growth, so very happy with that. Strong sales growth in Central Europe and the Nordics. Smaller sales growth in Middle East, India and Africa. And then sales decline in UK and Ireland. That was mainly because some commercial projects are on hold because of some new government regulation. But we are confident that those projects will be released now in the coming quarters. And then also sales decline in South Europe. That's mainly linked to a more challenging residential market in France. Strong operating margin of 15%. You really see now through that organic sales, through that volume growth, that we also get very good volume leverage and therefore also better margins for EMEA. Operating average 40 base points driven by volume growth, positive mix and operational efficiencies. FX also helped us with 40 base points because of the stronger SEC. And then M&A was dilutive, 30 base points. America's organic sales of 3%. We have a strong high single-digit sales growth in the North America non-residential segment, but a small single-digit negative growth in the North America residential segment and in Latin America. where the residential segment continues to build a bit up and down, continues to be around that flat line and depending a little bit on quarter per quarter and the comparison with the quarter of the same year before, we see a small growth or in this case a small negative growth. An operating margin of 18.5%, excellent operating leverage, 70 base points. VEX dilutive, 20 base points, and then M&A continue to be strongly dilutive under 20 base points. That's still linked to the level lock acquisition. We then go to opening solutions, Asia Pacific, an organic sales decline of 4%, with good sales growth in Pacific Northeast Asia subdivision, and a significant sales decline in the Greater China Southeast Asia subdivision, where we have, like I mentioned before, that very mixed picture where Greater China is down double digit strong double digit and where we have seen good double digit growth in southeast asia so in all picks it's really greater china that brings that division down Nevertheless, a strong operating margin of 10.2%. Long time ago that we had a double-digit margin in this division. Excellent operating leverage of 260 base points. A VEX dilutive 30 base points and no M&A activity in this division. Global technologies, also strong quarter with an organic sales of 3%, with good growth in both HID and global solutions, and a very strong operating margin, I would say where all the stars are really aligned, of 19.8%. Good operating leverage, 20 base points. Dilutive FX 70 base points strongly dilutive I would say because of the weaker US dollar but then strong accretive on the M&A side 140 base points a little bit because of the divestment of Citizen ID but mainly also because of the acquisition of Inview which has been a very successful acquisition with very good accretion also bottom line wise. And last but not least, entrance systems. Also a very strong quarter again for entrance systems with an organic sales of 4%. Strong sales growth in perimeter, security and pedestrian. Good sales growth in doors, automation and industrial. So in all four segments, good growth. And also good to see that our growth in service has come back to a strong higher single digit level. Also strong operating margin of 17.4% with excellent operating leverage on the 30 base points. Dilutive have excellent base points and then still an important dilution from Ski Data on the M&A side with 80 base points. As you know, Ski Data is still very seasonal with very low sales in Q1 and Q2, a bit better sales in Q3 and then much better sales in Q4. With that, I give the word to Eric for some more details on the financial numbers.

Thank you, Nico. And good morning also from my side. I will just repeat a couple of numbers when it comes to the sales. We were up 2%. Organic growth was up with 3%. Acquisition acquired growth was plus 5%. But then you see a strong dilutive effect of the currency, of the FX of minus 6%. If we look on what it looks like today on the period end versus last year, then if you look for Q4, we expect an even higher negative impact of minus nine. And since it's mainly related to the SEC versus dollar, we will also have a clear dilutive impact on our margin. Operating income as well as income before tax, net income and EPS, they were all up with 3% versus the same period last year. As mentioned by Nico before, we had a strong cash flow. We were up in the quarter 10% versus the same period last year. And if you look on year to date, we're almost at the same level as we were a year ago. Return on capital employed remain on the same level at the 14.2%. If we look into the bridge and dissect it a bit, the organic sales, it was a strong two when it comes to price, which leaves, I would say, plus minus a bit, 1% in organic volume growth. The flow through as seen was at 41%, so it continued to be strong 41%. Of course, it's related to the price versus cost, but we also have strong operational efficiencies. We have, like this quarter, we have savings from the MFP projects of roughly 240 million SEK, but we've also done other operational efficiencies in order then to be able to perform such a good flow through that we have. currency was negative with 20 base points and then you see the dilutive impact on the m a that comes predominantly then from Skidata and Levelock. However, remember that we bought those two companies last year in September, so they are in for two months in the acquisition column and then they're in for one month in the organic column. And then, as mentioned before by Nico, we had a strong performance of Inview in the quarter. If we look on the cost breakdown, direct material was 80 base points better than the same period last year. Of that, roughly one third comes from positive interdivisional mix, which leaves, let's say, if I call it the true price versus cost, is about two thirds. So let's say almost at 60 base points. it is starting to go down and we can expect it to continue to be slightly lower in the quarters to come. Conversion cost was also positive versus the same period last year. You have the higher volumes and then the operational efficiencies as I talked about on the last slide. And then SG&A slightly worse than a year ago minus 40 base points there we have sort of you have the inflation is impacting as well as we continue to invest in r d as well as in sales so that's the reason why it's slightly negative Operating cash flow, as mentioned before, it's up 10% versus the same period last year. As mentioned before by Nico, the cash conversion was a strong 125% for the quarter. It's driven by the strong earnings as well as reduction in our working capital predominantly within receivables as well as within inventory. That sort of leaves, if you flip a slide, that you can see that the net debt to ABDA went from 2.3 the same period last year down to 2.2. If you look sequentially on the gearing, we went from 70% in Q2 down to 65% in this quarter. So we have actually reduced the actual debt. with about 4 billion SEK in the quarter. That comes from, I would say, the strong cash flow, as mentioned before. So all in all, we have a very strong financial position and we can continue with our acquisition strategy. Last but not least, from my side, the earnings per share, as mentioned before, they were up with 3% versus the same period last year. And with that, I hand it back to Nico for some concluding remarks.

Thanks, Erik. So concluding was a good Q3 for Asambloy. Good organic sales growth of strong 3%. A strong record operating margin of 16.8% with excellent operating leverage of 41%, the best operating margins over the last 10 years. A very strong cash flow, 10% up, and a cash conversion of 125%. And then it's clear that we continue to live in uncertain market conditions where things change very fast, day after day, night after night, tweet after tweet. but it's clear that our decentralized organization really helps us to make local decisions in a fast and agile way and we will continue to invest there where we see opportunities to grow fast and we will continue to adapt our cost in those markets or in those verticals where we see that the market is challenging And then Bjorn asked me to remind you that we have our Capital Markets Day on November the 19th in the US. And you see also the link where you can register yourself if you didn't do so yet. And with that, I give back the word to Bjorn for Q&A.

Thank you, Nico. Well, excellent. That means it's time to open up for the Q&A session. And as usual, can I ask that you limit yourself to one question and then follow up? And if we get around the whole queue of questions, then you can obviously line up again. The operator will tell you how to do that. So that means, operator, 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 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. Questioners on the phone are requested to disable the loudspeaker mode while asking a question. Anyone who has a question may press star and one at this time. The first question comes from the line of Andre Kuknen from UBS. Please go ahead.

Good morning. Thank you very much for taking my question. I wanted to ask really about the global tech margins now that we've had a couple of quarters of strong delivery Do you think it's time that they challenge your view, Nico, that this is a 17 to 18 percent margin business? And as we kind of look forward and see continuation of gradual recovery and operational gearing that this business can generate with this kind of cleaner form with a couple of disposals, do you think we should be thinking about maybe at least the high end of that or maybe even going through it?

You continue to challenge me, Andre, like a lot of other people continue to challenge me on the margin for global tech, and my answer remains the same. We still believe this is a business that should perform somewhere between 17% and 18%. Then you can debate if it has to be on the higher end of that bandwidth or not. I can only say that in the quarter, all stars were aligned in the sense that we had good growth, good cost savings, good price realization. And we also had a strong PECS and a strong hospitality. And that's the two best margin contributors in the mix of global tech. You should not forget that. all the other verticals in global solutions next to hospitality and all the other business units next to PECS in HID still have lower margins, are also smaller, and we continue to invest heavily in those verticals to get them on a higher volume level and therefore ultimately over time also will give better margins, but we are not there yet. Therefore, we remain with that ambition between 17% and 18%.

Very clear. Thank you. And if I may just ask a quick follow up to Eric on the price cost, just to make sure I've got that right. Did you say the pure price cost was 60 bps in Q3 and you expect that to get smaller from here? Could you just confirm that? And then also kind of what would drive that becoming smaller and coming quarters?

No, what I said was that, and you're right about the number, because I said one third was related, out of the 80 bps, one third is related to mix and two thirds is related to the true price versus cost. And then you come to around the 60 bps when you look at that. I think that, of course, what you see is that for us, the comps there is getting tougher and tougher. So, and I think that is sort of why, it's more from a comps perspective that I'm saying it. And then, yeah, so I would say that would be the main reason.

Got it. Got it. Thank you very much. Thank you.

The next question comes from the line of George Featherstone from Barclays. Please go ahead.

Hi, morning, everyone. I just wanted to touch a little bit on entrance systems because it seems as though, you know, in the industrial segment, you've been pretty constructive on the momentum in that business throughout the year. And you talked a little bit about orders before. I don't know whether you could give us a little bit more colour on how orders have evolved so far in the second half of the year to sort of paint a picture for how things might evolve into the first half of next year.

Thank you. So what we said is that we had seen good recovery on the loading dock side, on logistic vertical end of last year, November, December last year, where we got good order intake. And we have also said that typical delivery times are six to nine months. So the Q3 and the good organic growth for industrial segment that you see in antresistance in Q3 is thanks to those orders that we got later last year. I would say it has been a bit up and down. We were then very excited November, December. Then we saw things a bit calmer again at the beginning of the year. Then we got another uptick and then we saw it calmer again. So we definitely don't see that V-shaped recovery on the logistic vertical side. It's more vertical. a steady, slower recovery. But nevertheless, it's a good recovery from a lower level. And therefore, we should continue to see improvement on our industrial segment for the coming quarters.

We now have a question from the line of James Moore from Rothschild & Co. Please go ahead.

Yeah, morning, everybody. I've got a couple of questions, if I could. One on the U.S. residential environment, where it's obviously stayed soft. But when you look forward in terms of pipeline or specification, do you see any signs of improvement? I noticed that some mortgage application data is starting to tick up. I don't know if you're seeing that yourself. That's the first question. And then the second question, great to see electromechanical growing 13%. I noticed it's been a similar share of group sales for the last four or five years. Do you have a sense or could you give us a sense for the shape of organic sales growth in the last two or three years? Has that maintained itself or slowed down? Is there something behind that other than acquisition effects? Any color on that would be great, Nico, and how you see it really going forward.

I think first on the residential side in the US, yes, I agree with you that there is some positive market indicators on the residential side, but there is also, if you want to see the glass half empty, there's also negative indicators on the residential side. I think that's a little bit what we see also in our result on the residential side over the last quarter. It has been a little bit up and down around that zero level. And depending also where we were the same quarter a year ago, you have this small single digit up or small single digit down, which is the case now in Q3. We don't see really a strong pickup on the residential side yet. And internally, as a matter of fact, we don't have too much long-term indicators because when you refer to spec business, we don't spec on the residential side or spec activities on the non-residential side. So that is not an indicator for residential business. So we look at similar indicators as you do, James. I can only say that we don't see that strong uptick yet. We know that there is a significant deficit in housing in the US sooner or later. That has to come and hopefully, confidently, it will come sooner than later. When it comes to the electromechanical part of our total sales, it's around 31%. You're true that percent-wise it's not so much up, but it has all to do, like you also alluded to, to the acquisitions we do, as we do a lot of acquisitions recently also on the non-electromechanical side. that brings that percentage down. I think it's more important to look at the pure organic growth and the growth of the electromechanical side. And there we have definitely seen an acceleration, I would say after COVID, and you see that acceleration to continue. after COVID there's much more people that are looking for an electromechanical solution for a simple reason you can do so much more operational efficiency wise management wise you can do it also touch free as compared to a mechanical solution where prior to COVID we still often had specifications written pure in a mechanical way Today, that's much more electromechanical. And if they already ask for a mechanical spec, then often they also have an option, an electromechanical alternative. I don't know the exact number for the last three years, but it's around a double-digit organic road that we had on the electromechanical side, if you take the last three years.

Really helpful. Thanks.

The next question comes from the line of Gael de Vrij from Deutsche Bank. Please go ahead.

Yes, good morning. Good morning, everyone. Thanks for the time. I have two questions, please. The first one is on the pricing side. I mean, looking at the US PPI for locks and door hardware products, I mean, it's been up double digit in the past couple of months, roughly. So I was wondering, I mean, the pricing contribution to the group's top line is still more or less unchanged at about 2% plus this quarter, which looks a bit surprising in light of the PPI dynamic. So specifically, I mean, could you talk a bit about your pricing development there in the U.S.? That's question number one.

So I think price is up as you compare to Q2 because we have said that price was a strong 2% where as compared to Q2 it was a low 2% and in Q1 it was 1% so it's incredibly definitely up. we had said earlier that also in order to compensate for the tariffs in the us we needed a price increase somewhere between you know four and five percent that has come down it's today more between three and four percent and that all has to do with 3% to 4% on the US business. That has all to do with the fact that we also find other ways to compensate for the tariffs. Obviously, we have been negotiating with our suppliers and got very good results there. We have also been able to re-relocate some components some sub-assemblies and assemblies to countries that are less tariff impacted and therefore the price component that we need came a little bit down so if you take between three and four percent if you say whatever three and a half percent that means three and a half percent on the us means between one and a half and two percent on on a group level if you take on top of that the normal one percent inflationary price you look somewhere at at three percent and at least we are going in that direction with a high two in in q3 another reason why it's still lower in in q3 is the fact that we still at the beginning of the quarter had some inventory at lower cost of prior to the tariffs, which we were able then to continue to invoice at the beginning of Q3. Obviously, that is now done in the end of Q3 and going into Q4. So you should see a further higher price component now going into Q4.

Super helpful. Thanks very much. And the second question is... I mean, a few days ago, you announced the acquisition of Kentix, which is obviously a very small transaction, but in a key market, data centers, which have obviously become an increasingly important vertical for many other industrial companies. So maybe could you elaborate a bit on the addressable market size, on the growth potential in the field of monitoring and access control products for data centers?

I would say very excited about that Cantix acquisition because of really the missing link for us to really offer a complete access solution for data centers. They have particularly a very good solution for those shared data centers where you have to control in the racks different customers on the same rack. And they combine that access control with a lot of other information on the performance of the service. They measure temperature, they measure current consumption and so on. So you get also very good diagnostic data on how that part of the data center is working. So very excited about that. I can only say that Data centers, if you look a year, year and a half back, it didn't even make it to our dashboard when we were looking at specification. Today, it's by far the fastest growing vertical when we do specifications. And we don't specify all data centers. There's still a lot of data centers that are not specified and go straight into the sales funnel. But today it's not in the top three of our verticals yet, but it's growing very fast and making its way up. So it's definitely something that will move the needle for us even on group level going forward. I think we have a really complete solution from our fencing around the data center with parameter security solutions. to the entrance in a data center with our security doors in the geographical divisions and our industrial and pedestrian doors in entrance systems and then a full suite of access solution with our mechanical electromechanical offering in the geographical divisions and now nicely complemented also with that additional acquisition we we did last week so very excited about that yeah

Thank you very much, Nicole.

We now have a question from the line of Matt Yates from Morgan Stanley. Please go ahead.

Hi. Good morning. I just wanted to ask on the government shutdown that we currently have in the U.S. I mean, in your institutional business, obviously, some of these verticals, sort of government building, some of the education are probably quite important. Do you think this will have any effect on demand in your business? And are you seeing anything already in terms of some of those projects kind of being delayed or pushed out? Yeah.

So the pure central government business of the U.S. is a smaller part of our business than of some of the businesses that also continue to run. I think everything depends on how long that shutdown would last. If it's, let's call it a normal shutdown, it should not have any consequences. negative effect on our business. It's just a small stop and go on a very small part of our business. As there is a big pipeline, I think there is no effect on our business. Of course, if it would drag on and be much, much, much longer, then ultimately it could have some consequences, but let's take that challenge if that would be the case.

Great, thank you.

The next question comes from the line of from Jefferies. Please go ahead.

Oh, good morning. Thanks for taking my questions. So the first one is really whether you've seen any changes when it comes to the demand environment between the months of the summer and then September, and whether you could just give us an indication of how Q4 started for you so far.

Of course, Q3 is very, very difficult to answer that question because July and August, as you know, are holiday months and can fluctuate very much on smaller months. Obviously, September was much better than July and August because we had also one working day more and it was not a holiday month. But if you try to compare like for like, so correcting for the working days, September was slightly better than July and August. And then we have seen the same momentum now in October, or the beginning of October, as we have seen in September.

Perfect. Thank you. And then finally, just on the M&A impact on margins guidance for Q4, I think you're guiding for it to be a creative. Can you just walk us through sort of the divisional impact here on what we should be aware of? Thanks.

The main reason is that SkiData and Levelock will not be longer in the acquisition column because we are now proudly owner of both companies for more than 12 months, so they will move into the organic column. And as you could see in Q3 and also in previous quarters, they have been the main reason for the dilution. Then I think one bigger acquisition on the acquisition column, which is still there in Q4, is the InView acquisition, which has been creative and we will probably confidently will continue to be creative also in Q4.

Perfect. Thank you.

We now have a question from the line of Matthias Holmberg from D&B. Please go ahead.

Thank you. Nico, I think in the past you've talked a little bit about your window hardware business in the US as sort of a potentially a leading indicator for the US residential side. I guess it's one of the few exposures you have to direct it towards the home builders. Could you say anything about what you've seen and heard from this vertical, given that it seems like the overall residential market is hovering around this no growth environment and has been doing so for quite some time.

I think our business might not be directly representative for the market because I think we have done two good things in our window hardware business in the US. One, we were able to compensate in a good way also through pricing for the for the tariffs, which then helps obviously on the organic road side. But I think we have also been able to improve our relative position in the market through to some new wins. I think if you look at the underlying market, it's very similar as what I said before. I think on the R&R side, it's a bit more positive than on the new build side. On the new build side, we don't see any you know, real recovery yet. And we also don't see any signs of a real recovery yet. Thank you.

The next question comes from the line of Vivek Niva from Citi. Please go ahead.

Thank you very much, everyone, and good morning. My question is also on the global tech M&A performance. It looks relatively true that both companies In view on the absolute revenues and on the margin contribution, that looks to have improved. I was just wondering if you could give us color on what growth, organic growth in view delivered in the quarter within that M&A line, and more broadly, what you've been doing to drive performance within that business. Thank you.

InView does asset management protection of assets in retail stores. If you have a high-end store of iPhones or tablets, they protect that equipment that people cannot steal it. In the past, you remember there was always a cable and it was not very user-friendly. They came with different new innovative solutions. One of the latest solutions is that you don't have this wire anymore. You just have something on the phone that permits you to really... feel how the new phone feels in your hand and if you walk too far away from the station then the alarm will go off so making it much more user friendly and we have had several big bigger global companies in the phone and tablet space that have adapted that technology from us. So therefore we have seen very good higher double digit growth of that in-view business as compared to a year ago and that with also good margins and that's the reason why I see the the good acquisition column for global tech. Next to that, of course, we have the divestment of the citizen ID business.

Understood. And a very quick follow-up, just to understand the price cost, even if we're looking at the true price cost, that looks to be in broadly stable. In the past, you were guiding for this to gradually fade from the 60 basis points you saw in Q2. So just to understand what, if anything, has surprised you to the upside in the third quarter on that price cost. Thank you.

we should run our business that we don't have surprises so i would say that we also had another another surprise on the on the price cost right so if you look at the direct material percentage what what eric explained in the presentation you can clearly see that we were able to fully compensate for tariffs and other inflationary pressure yeah partly through price and partly through other actions that i mentioned uh before and we're able to maintain the margin and that has been our ambition from the beginning that said that is what we said that we would do from the beginning so in that aspect that should not be a surprise and we will continue to do so also in the in the coming in the coming quarters because I think you can also see it in a positive way despite all the inflationary pressure despite all the We still had, let's say, 60 base points pure price-cost accretion in the quarter. 60 base points of the 80 base points in total that you see on the direct material line.

Very understood. Thank you very much.

We now have a question from the line of Magnus Kuber from Nordea. Please go ahead.

Hi, Nico, Erik, Björn, Magnus. A couple of questions for me. Good to see acceleration in growth in EMEA in the quarter. Could you help us a little bit to what degree that helped us on the mix, on the margins? How many pips that helps us?

On which division? On EMEA.

So I think on EMEA, the main reasons for the improved margin is the volume. I mean, you have seen the 4% growth. They had a price in line with Group, so they had good, pure organic volume growth. And we have always said that EMEA today was on a cost structure, that once you would start to see volume growth, you would also see very good margin improvement. And that is what we have seen in the quarter. So if we are able to continue to see that volume growth in the coming quarters, we should continue to see also margin improvement for EMEA. And that is thanks to a lot of operation efficiency measures they have done. They also contributed to MFP. They did a lot of EAV actions. And then, of course, you have the price effect. Then it's true that there is... Also a positive mix effect in the sense that we are growing better in the Nordics than in the South of Europe. And you know that in EMEA, if you look, the higher you go geographically, the better the margins, the lower you go, the lower the margins. So that was a positive mix effect. Then on the other side, we have also negative mix effect in the sense that we were growing nicely also in Africa, Middle East, India, and that has also lower margins. So yes, there is a small positive mix effect, but the main reason is the organic volume growth that we experienced in the quarter.

Got it. Thank you. And my second question, could you elaborate a little bit on what we see in terms of margins across China and the other part of the APEC? You have helped us a bit with the margin levels there in the past.

Yeah, I would say also nothing has changed. We've always said that Southeast Asia, Pacific is in normal conditions, margins more or less in line with EMEA. Whereas greater China, We still have that ambition that one day over time we want to have that high single-digit EBIT. Today we are far from that. Today in Greater China we are very slightly negative, so you could say close to zero EBIT. So I think Greater China has done an excellent job in further cutting the cost to keep at least the margin close to zero in a much lower top line today than, let's say, a year or two years ago.

Got it. Thank you.

As a reminder, if you wish to register for a question, please press star and one on your telephone. The next question comes from the line of Daniela Costa for Goldman Sachs. Please go ahead.

Hi, good morning. Just have two follow-ups. On the pricing point, I think as of the 2Q call and what we had of tariffs at that point, you had said that you needed to put prices up in the U.S. 4% to 5%. Since then, we had the extra or the up on the section 232 of steel and derivatives in August. Can you comment to sort of what would be the equivalent figure now and guess sort of what's inside your going forward pricing commentary? That's question number one. I'll ask the second one afterwards.

Yes, so like I mentioned earlier, the four or five percent we mentioned earlier is more today between three and four because we were able to negotiate with suppliers better prices and we were able to move some of our components, some of our sub-assemblies and some of our final products to countries with less tariff impact. When it comes down to the new tariffs on the direct material percentages in the different products, you will appreciate it's a very difficult calculation to be made because you really have to look product by product and then you have to see how much steel content there is in every individual product. We are still very much into the calculation, but we believe it has no significant effect on the tariffs because you win and gain a little bit. So if there would be an increase of the tariff cost, again, we will just compensate that through price increases and other operational measures like we have done for all the other tariffs. So we remain very confident that we also going forward will be able to compensate tariff costs and keep margins.

Okay, so three to four, regardless of the post-development. Okay. And then just in terms of the strength you've mentioned and been talking through in Europe, driven by Central Europe, can you give us a little bit more granular, bi-vertical view? Is it resi? Is it non-resi? Is there any restocking at distributors? What are the main contributors there?

Well, definitely not restocking. That's not a significant argument. I think we should also here make a distinction between residential and non-residential. You know, residential is around 45% of EMEA. And I would say on the residential side, it remains challenging. It's most probably bottomed out on a low level if you take the bigger picture for EMEA. But for EMEA, bigger picture, definitely not a recovery yet. The only recovery we really see is in Sweden, where Sweden started to get interest rates already almost two years ago. There have been five or six interest rate cuts in the meantime. There we have seen R&R coming back from a lower level. In a way we are even a bit disappointed to see that it takes longer for the new build to come back. We haven't seen that recovery on the new build yet. We are confident it will come and hopefully it will come sooner than later. I think the rest of Europe where it is more ECB related is still later in the cycle. And the more challenging country is definitely France, where we have seen more pressure on our residential business. If you take the non-residential, it's still on a very good, strong level. very similar to what i mentioned earlier for the us our spec business is up double digit and we see a good higher single digit growth overall for that business in emea and then of course we have good good emerging market part also in emea with africa middle east and definitely also india that's still a smaller part of our business but the fast growing part got it thank you

The next question comes from the line of Andreas Koski from BNP Paribas Exane. Please go ahead.

Thank you. Good morning. I want to ask about global technologies and the organic growth of 3%, which you would say is a good organic growth in the quarter. But I think in the past you've been talking about an organic growth rate of around 5% as a level that we should expect going forward. I just want to get your thoughts on how to think about the organic growth in global tech going forward.

I think when we look at those numbers obviously we should not just look at one quarter because for the quarter also the comparison with a year ago is important and also the way we came out of you could say more turbulent cycle on especially on the HID side with all the electronic component shortages we had two years ago and therefore disturbs a bit the curve And also on the global solutions side, the very high comparison we had with last year, because you remember that we said at several occasions that global solutions for more than two years, for more than eight quarters, was growing double digits. So it's difficult to continue to do that. But I think overall, we remain with our statement that global tech is a division. that should grow higher than our 5% ambition that we have as a group. Global tech over business cycle should grow closer to that high single digit rather than the 5% we have as ambition for the group. We are confident that if you look over a longer period that you will see that acceleration again now after the turbulences around electronic component shortages.

And looking into the quarters ahead, how do the comparables look like? Will the comparables still be tough, and we should expect a more muted picture in the very near term?

I think Q4 will be still a bit more challenging, but then as of next year, we should see that acceleration.

That's great. Thank you. On the EBIT side, if I look at the other line or overhead cost line, which was negative 272, it's a very high cost number compared to previous quarters. Is that step up because of the acquisitions you have made and that higher level will now be sustainable? Or did you have some call it extraordinary or something in there and that we should expect that to come down to the low 200s that we have seen in recent quarters.

I think there, sorry, I think there, Andreas, it sort of fluctuates between the quarters. So you shouldn't read too much into now. I mean, now it's up above 270. Last year we had 192. But it's more sort of fluctuated. It has nothing to do with acquisitions at all. It's just sort of, yeah, that it fluctuates.

Okay. That's great. Thanks, Eric.

We have a follow-up question from the line of Ritzk Maidia from Jefferies. Please go ahead.

Just a very quick one. You talked about the UK being weak, and I think that was also the case in Q2 where you had some missing projects that we thought would come back in Q3, but they didn't. Can you maybe just elaborate on that and just quantify the impact? I think in Q2 you said it cost the division one percentage point. of the organic growth?

Thanks. So I think what we said at previous occasions is that if you look at the residential market, which is challenging, there's perhaps two places where we are a bit more optimistic. That is Sweden. I commented on that. And the other one, UK, also because UK has been... on the lower side residential since quite some time. And we continue to see that slight optimism on the residential side for the UK. The reason why it's lower in Q3 is more on the commercial side. where some of the commercial projects through new government legislation has been on hold. Those projects have not been released and the government is working on adapting those standards and regulations and we are confident that now Q4 and definitely in the coming quarters those projects will be released and then we will see that growth coming in also on the commercial side and that will help then the UK picture.

Thank you.

Once again to ask a question please press star and one on your telephone. We have a follow-up question from the line of James Moore from Rothschild & Co. Please go ahead.

Thanks. Just a quick one, Nico. I see that the PPI in the U.S., the purchase price index, is up 10%. It's quite a big number. I just wondered if that is a good guide for what you're seeing in the market with the current tariff environment. I understand about the inventory cycling, but maybe in the more recent months where we're now seeing a full-fat tariff impact, do you think that's a good guide for the U.S.? ?

We would like to have 10% price increase. I can tell you that is not the case for us. I think America's price component has been a little bit higher than the group average. And I want to come back to what I said before. We need that 3% to 4% for the tariffs. And if we then take another... let's say 1% or whatever normal inflation, that is more the number that I think is realistic for our business. Then, of course, if we can further increase prices, we'll always try to do so, and perhaps the PPI is a good argument to see if we can further increase prices, but it looks a little bit too high for us, at least.

Sorry, so my mistake. So the 3 to 5 comment is specifically for the USA. It's not the global impact. That's just the U S business.

Exactly. Yeah. So three to 4% U S business, which means one and a half to low 2% for the group.

You could say, thank you very much.

We have a follow-up question from a vine of Andre Cookman from UBS. Please go ahead.

Hi again. Thank you for taking the, uh, the follow-up. I just wanted to, uh, Come back to the specify activity growing double digits in U.S. and Europe. I think in U.S. we've been there, I think, for a quarter or two already. And in EMEA, I think, too. I'm just trying to understand when do we get the kind of growth, acceleration and revenues from this step up and specify activity. Could you just talk us through the cadence there?

Well, it's very difficult to say because we make specifications today and some of the projects are realized six to nine months later. Some of the projects are realized two years later. So when you look at spec, you should look more on a trend over a longer period. But I would argue that you see that acceleration already in EMEA. I mean, if you see the 4% organic growth in the quarter, that is... clearly also linked to like I mentioned earlier the commercial side because it's not so much coming from the residential side and it's on the commercial side where we spec all these projects and it's linked also to the shift from mechanical to electromechanical it's also linked to more green specifications something perhaps more specific for EMEA and we are you know We continue to see that trend on the specification side.

But is it right that the actual revenues of your commercial businesses in US and Europe are not growing double-digit at this stage? They're in high single-digit?

Yeah, I've said during the presentation that our North America commercial business was growing high single digit in the quarter. And it's a similar, it's a bit more difficult to calculate in EMEA because, as you know, why do you put multifamily in some of the semi-commercial projects? But it's a similar number in EMEA.

Great. Thank you very much.

Thank you. That means it's time for us 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 that means we look forward to seeing you in the next coming weeks and many of you also at our CMD in Milwaukee. Have a good day now and stay safe.