ASSA ABLOY AB (publ)

Good morning everyone and welcome to ASSA ABLOY's Half Year Report presentation. My name is Björn Tibell.

I'm heading investor relations. And joining me here is our CEO, Nico Delvaux and our CFO, Erik Pieder.

We will stick to our normal set-up today, starting the conference with a short presentation of the report before we open up for your questions and then finally round up around 10:30 local time. And with that, I would like to hand over to you, Nico to start the presentation.

Thank you. Thank you, Björn.

Also good morning from my side, welcome to our Q2 report, report where we can report good figures with a good organic growth in the quarter of 3%. That's a good result definitely if we take into account that we had 2 working days less in the quarter as compared to the same quarter last year.

Strong growth in Americas and in Global Technologies, a good organic growth complemented by an accelerated strong growth through acquisitions of 4%. Also in this quarter the electromechanical products were the highlight of the quarter up 20% including currency up 16% excluding currency.

The strong EBIT growth of 13% is a good EBIT margin of 15.9, 20 basis points up compared to the same quarter last year. And then a very strong operating cash flow up 27%.

So sales SEK23.5 million, 11% up, 3% organic, 4% acquisition and also 4% positive currency effect. And EBITDA margin of 16.4, 30 basis points up and then the EBIT margin like I said 15.9, 20 basis points up.

And EBIT of 3.7 billion, 13% up and earnings per share 35% up. If we then look a little bit in the sales in the different contents a strong North America driven by U.S., with an organic growth of 6%, while the commercial side we still see strong market conditions, where as you know on the residential side that's a new build this year decline.

Minus 8% in South America where market conditions definitely not two biggest markets are not favorable, two biggest markets being Mexico and Brazil where we are perhaps a bit more positive when it comes to Colombia and Chile. A good performance in Europe plus 2% organic growth in Europe, we feel that a mixed picture among the different countries -- many countries still with strong market conditions with some weaker market conditions like for instance the U.K.

where we have seen a market conditions further declining where there is even a more wait and see attitude today than three months ago. Africa minus 10 looks like a low figure, but we had a tough comparison because we got a big passport order for HID last year.

So if you exclude for that picture looks much better. Asia plus 2, we have a good China where we are also had positive organic growth for external sales.

And then a plus 2 in Oceania, Australia, New Zealand, I would say a bit despite market conditions because definitely also the residential business in Australia is down but we were able to compensate that with some good project orders on the commercial side. So, overall like mentioned organic growth plus 3.

If we then look at some market highlights, our investments in global solutions continue. I would say to show our progress.

Just one example we got a nice order in Melbourne for metro train line for our Cliq solution. We also reached an agreement with Marriott for a made destress solution and that perhaps needs a little bit of explanation.

There's now different states in U.S. where it became now an obligation that all the servants that go into the rooms in the hotels, they're kind of panic or if they are in problems that they can ask for help.

And we have worked out a solution around our blue vision positioning system, so that you have from our HID kind of panic button and when you push that button then the system will know in which room you are. And then, the security can be sent out to help you.

And this is becoming like I said legislation in several markets or several states in U.S. where we see that also being rolled out more on a global scale.

Good progress on the service business side. We had a mid-single digit growth for our service business in financial systems, it's a good figure.

If we take also year into account that we are two working days less and definitely for service business, the working days count. And then, we continue to be recognized as a leading innovator.

And we shall hear a couple of examples of awards that we won this quarter. And ended the quarter with positive organic growth now 25 consecutive quarters with positive organic growth I believe that's a very good achievement.

And in this quarter like I said also complemented with accelerated growth through acquisitions. Operating margins also bending the trend and getting back into that 16% to 17% bandwidth.

So, if we grow top-line and we improve operating margin, of course, operating profit accelerates 13% up compared to the same quarter last year, 69% up in the last five years. On the acquisitions we have a full active pipeline.

We did five acquisitions so far this year. And as you know we have an ambition to close at the record acquisition somewhere towards the end of the year.

We also announced that we will buy the citizen ID business from De La Rue. That is a business of round SEK460 million, 200 employees and they are leading passport manufacturer in the U.K.

very complementary to our citizen ID business. We expect that acquisition to close in Q3.

It will be neutral from an EPS point of view when we start that we have the ambition to bring profit levels here double-digit within the first year. Then I go in little bit on the different divisions and starting with EMEA, a good quarter for a EMEA with an organic sales growth of 3%, strong growth in Middle East, Africa Benelux and Finland.

Another negative growth in inside Europe and the U.K. And like I said a very mixed picture in EMEA where the market conditions in France remained on a low level.

We don't see them further going down. We don't see them improving stable, but despite that we could show some growth in France.

I think what we hear today is more or less flat in France. And definitely in U.K.

where we saw market conditions deteriorating and more wait and see attitude around the Brexit. And we also have seen some slowdown over the last couple of months in Scandinavia, which is of course, was a very important market as well top-line and bottom line wise, so we will follow up that situation from very close and take measures if needed.

On the other hand we still see a lot of strong markets in Europe, markets like Germany, East Europe domestic market in Spain, Benelux and so on. So it's a really mixed picture.

Operating margin 16% versus 15.9% last year. Good organic growth average of 20 basis points, very good operational execution.

And then, negative effects of 40 basis points of course the SEK Euro affect in the first place and then accretive acquisitions. So, overall a good quarter for EMEA.

Americas also a very strong quarter with organic sales growth up 6%. I would say in the U.S.

strong performance overall except for the perimeter security business especially at the beginning of the quarter we still suffered a little bit from bad weather conditions, but overall very good U.S, a good Canada, and then a low Latin America. Well, like I mentioned earlier, we see market conditions going down in Mexico and in Brazil our two biggest markets, but where we are perhaps a bit more optimistic when it comes to markets like Colombia and Chile.

Very strong operating margin of 20.5% versus 20.1% last year, good volume leverage of 20 basis points and that we were capable of compensating to price increases and operational efficiency gains to compensate for the higher material prices. You remember from previous calls that we're seeing that we were slowly bridging the gap that has now happened in Q2.

So very good performance for Americas, also good performance for Asia Pacific and organic sales growth of 3%. There is strong growth in India and in Pacific because of Australia.

Also a bit of China, like I said we have positive external growth and then a negative growth in South Korea and in Japan. South Korea where we really see residential markets going down.

Operating margin of 9.3% versus 8.9% last year, good strong leverage 60 basis points, thanks to Pacific but also thanks to better profiting in China. And we should not read too much yet in that result of China like I also mentioned earlier quarters.

Asia Pacific because of China will continue to be a bit bumpy for the coming quarters. So we will have good quarters like this quarter amidst with not so good quarters like for instance the Q1.

It's still too early to really talk about a tide. But, of course, we enjoy the momentum.

Global Technologies, I think good organic sales growth of 5% because they also had a more difficult comparison because they got a big FIFA World Cup order last year in the quarter, so the comparison was a little bit more challenging. On the HID side a bit mixed picture with very strong growth for secure issuance and physical access.

And then, some negative for some other business areas; business areas are more project related, and of course, the projects come or don't come in the quarter. And then, we have a strong growth, we have a negative then in this quarter, some other projects were not there.

But no drama, we are confident that they will come. Good growth also for global solutions in general.

An operating margin of 18.4% versus 19.6% last year where we had a negative volume leverage of 80 basis points and that's mainly because of investments in R&D as well on the HID side as on the global solution sites where we have invested a lot in software and in cloud solutions and that affected the margin. And then also dilution from acquisitions 70 basis points, remember that it was much higher in Q1.

And we say that that would improve, so we kept our promise there. So overall, I think also good performance for global technologies.

And then, last but not least, Entrance Systems, organic sales growth of 1%, clearly a bit of disappointment for us. Although Entrance Systems is definitely the division that is mostly affected by the two working days less.

We had hope there for a little bit more. Strong growth in pedestrian doors and in residential doors in Europe.

But the negative growth in high performance doors. Positive in Entrance Systems like I mentioned earlier is definitely the accelerated growth for service and that also helped us on maintaining our operating margin and even improving 13.9% versus 13.8% last year.

We have a stable volume leverage which I think is a good result with only 1% organic sales. And with that, I then give the floor to Erik for some more details on the financial side.

Thank you, Nico and also from my side, good morning everybody. As you saw before we had 11% sales growth in the second quarter, 3% of that comes from the organic growth and as mentioned by Nico, it's mainly coming from global technologies and Americas.

Net acquired growth was 4% and as a guidance then let's say for the Q3, we expect it to be somewhere between 3% and 4%. The currency was 4% mainly due to the weakest Swedish SEK and there as a guidance we would say also 3% for the coming quarter.

The operating profit was up with 13%. This is of course last year is adjusted then for the non-comparable items that we have from China.

And we also see that the margin is up 30 basis points when it related to EBITDA, 20 basis points when it comes to EBIT. Income before taxes is up 27% and the net income as well as the earnings per share is up with 25% and the earnings per share ended at 2.31.

I mentioned last time that one of the highlights in the report was the operating cash flow. We continue to have a very strong operating cash flow almost a little bit more than SEK3.6 billion up 27%.

The return on capital employed increased with two points partially a main reason is of course that the big write down that we did last year of goodwill in China, but also the improved earnings had a positive effect on the return on capital. If we then go into the bridge analysis, I mentioned before the top-line the 3% organic, the 4% currency and the 4% acquisition.

If we then dissect the organic part, we say the 2% is coming from price and 1% is coming from volume. As a drop through, you can see that we have an improvement of 20 basis points mainly contributed to that is Americas as well as EMEA, the currency helped us with 10 basis points that's the top-line is coming from the weaker SEK.

The bottom-line is coming from the stronger dollar. And if we look on the acquisition part it's down with 10 basis points main reason for that is the integration cost that we have in [expensive] [ph] doors.

As a guide and on so, if we look for Q3, we would say that the currency would impact slightly negative as well as the acquisition. If we then dissect even more and come down to the cost breakdown can see that now for the first time in a couple of quarters, we actually have a positive impact from the direct material that comes from as Nico mentioned before, the price increases that we have been able to do to compensate for the material prices as well as we see that the material prices are going down.

We had a very good performance when it comes to the conversion cost; it's up with 20 basis points. Most of that is coming from the operational efficiencies and we had a very good performance out of the MFP program with SEK180 million for the quarter.

The SG&A had a negative impact of 30 basis points that also as mentioned before by Nico is mainly due to the investments in R&D coming from Global Technologies. Operating cash flow as I said was one of the highlights, SEK3.6 billion mainly coming from a strong profit performance, but also I would say that we see improvements also in our network and capital mainly coming from the inventory.

And you can see that the flows, I mean that the cash conversion is 96% versus EBIT, which is continuous very, very strong. Then go to the gearing and net debt.

The net debt versus equity went up with five points to 70% and managed to end up with 6.3 million. Main part of that is related of course to the change in IFRS 16, which had an impact of 3.7 billion.

We also have currency, which has an impact of about 1.2. And then, the rest is coming from higher dividend, taxes, and then also acquisitions.

The net debt versus EBITDA is 2.2 to which sort of my conclusion is that we still have a very strong financial position and we can continue our acquisition strategy including of course a large acquisition that's coming towards the end of the year as the record. Last but not least, the earnings per share went up 19% and then as I started to say at 2.31.

And with that, I give back to Nico.

Thanks Erik. So, just as a summary.

Good Q2, with good organic sales growth of 3%, mainly thanks to America's and global technologies. Also this quarter the electromechanical products were the highlight of 20% up including currency 16% up excluding currency.

A strong EBIT growth of 13%, we have an improved EBIT margin and then very strong operating cash flow up 27%. And with that, I give the word back to Björn and we will open for Q&A.

Yes. Thank you, Nico.

Well, before we open up for questions. Could I please ask you to limit yourself to one question each to allow as many as possible to ask questions as I otherwise might have to interrupt.

But with that, I think we're ready to start and open up for the questions. So please go ahead operator.

Good morning. I had a question around the resi growth, smart locks growth in Americas and you flagged last quarter quite clearly that it was going to slow down.

And it doesn't look like it has, commentary today you said very strong growth in U.S. smart resi.

Actually mostly Americas commentary is pretty similar to last quarter. Do you want to give us some extra color on where you see smart locks going?

Obviously it had a bit of an impact on the growth in Americas over the last few quarters. Thanks.

Though we can confirm indeed that the growth was slower this quarter compared to previous quarters. And as we explained one of the reasons was also the Google Nest business where for the first time we don't compare it with an order a year ago where in previous quarters it was always compared to zero year before.

So, therefore, percent wise comparison becomes more difficult. But also in general as we have seen good strong high double-digit growth over the last four, five quarters.

The comparison obviously always becomes more difficult. But you've seen that electromechanical products in general went up 20%.

You can say that that the smart residential products went up even higher. So it's above 20%, but it's lower than the previous quarters.

And we also believe that that will continue now on a lower rate going forward because the arguments I mentioned earlier of course also remain valid for the coming quarters. If you have two sides, if one more difficult comparison, on the other side you'll see a continued increased adaptation rate of people that are willing to move from mechanical to electromechanical and digital.

All right. I better stick to one and jump in the queue again.

Thanks.

Good morning. Thanks.

And I just want to get, if you could call out the pricing impact for the Americas and then also you've lapped 30% price increases now at the group level. I think that started in Q2 '18 as far as I can see maybe some of that's rounding.

So I was just wondering, if you can help us with the comments here on a more granular level really whether you expect that top-line impact from pricing to start to fade in Q3. Would you feel that positive momentum can kind of be maintained and just as a quick add-on, are you planning further price increases in H2 or do you pause here?

Thank you.

I think we announced a 2% price increase for the quarter similar to Q1. Of course, we started with an accelerated price increase some 12, 18 months ago, when material prices started to inflate in a significant way.

So, going forward, we are into Q2, we then start to compare with quarters where we already had a significant price increase. So it's realistic to expect that that price effect will go down into the second half of the year.

If you see historically, we have always been around that 1% price increase a bit linked to inflation. Like I said earlier, we are in a market where you can pass through inflation into the market.

There is a pricing power in the market. And the other aspect is, I think it's also good news to see that inflation is slowly getting up again in the world in general.

I would say we like inflation because inflation then gives us the possibility to increase prices. But so, yes, in the second half you should expect that 2% to a little bit down.

Yes. Good morning everybody.

My question is on the profitability development you early state that ambition to get back into the range maybe a bit unclear exactly when, but I think you mentioned at some point, you would like to get back into the range for this year to 16% or more. How do you see that now given where we stand after the first half of the year?

What will be the drivers in the second half to see basically an increased margin improvement compared to what we've seen in the first half in case you still have the ambition to get to the 16%?

I can reconfirm that ambition that we told earlier also in the Q1 call, so we would actually have that ambition to come back to that 16% to 17% bandwidth. But, we saw an improvement now in Q2, as you remember last year we had an important dilution from material inflation 50 basis points over the full year 20 basis points in Q4.

Then we said in Q1 that was a little bit lower and now for the first time, we have seen that that became a positive. And we obviously want to keep that momentum going now into the second half of the year and that should give us some tailwind.

And it depends a little bit on how fast we will continue to grow our smart residential doors because we know that that is dilutive from a margin perspective. And it's perhaps also the -- we all know, I would say is China depends a bit how fast it will grow in China because if we grow more of China in a faster way and even if we do a good job on EBIT improvement in China, it will of course remain dilutive.

But overall I think we have that ambition like I mentioned to get back to that 16% and we are also confident that we are going in the right direction that with of course market conditions, materials indexes tariffs as they are today in a stable situation.

Thank you very much.

[indiscernible] some 180 million or so from the manufacturing footprint program and could you give us some help on what we can expect hearing in the second half of the year, is a reasonable run rate or will that increase further? Thank you.

I think we are happy with the progress we've made. With MFP in general and with MFP 7 in particular, we have said when we announced a program that we had a payback on that program of around three years.

We were able to bring some of those efficiency gains forward. So I would say we have seen a better than expected first half of the year.

So we should definitely not expect that to continue in the second half of the year because the total savings are what they are it's just more of a timing issue that we were able to bring some of it moving forward.

Thank you.

If you have further questions jump back into the queue again and then you can ask that probably later on.

Hi. Good morning gentlemen.

Thanks for taking my question. And Nico, I wanted to come back to your outlook statement where you are mentioning increasing uncertainties deteriorating leading indicators.

Can you maybe provide a bit more color or qualify where you see most of those increased uncertainties which markets are we talking about or which part of your business you kind of growing increasingly cautious, I would say.

I can try to do that little bit geographically. If I start in North America, we still see strong dynamics on the commercial side.

We don't see any slowdown there. And that's also obviously for the Americas the most important market.

We clearly see a slowdown on the residential side for new builds. I would say that is less important for Americas division because they are less exposed to residential new build.

It's a bit more a challenge for Entrance Systems because they have a residential business in North America and we follow that of course. And then, I go to South America or Latin America.

Clearly, we don't see good market dynamics in the two main markets, Mexico and Brazil also because of the changes in political situation and so on. On the contrary, we are a bit more optimistic on Chile, Colombia definitely also on Peru.

I would say in South America is a little bit of a mixed picture. If we then go to Europe, also there are mixed pictures, some markets continue to be very strong markets like Germany or Dutch in general, East Europe, Spain domestic market like I mentioned Benelux.

Now we see France, which is I would say stabilized on a low level. We don't see France further going down.

But it's not a market to be very excited about neither. And then, U.K., definitely we see U.K.

market conditions further declining where people are really even more wait and see today than three months ago. And then, like I mentioned Scandinavia where we have seen the last couple of months a little bit of a slowdown.

So, we will follow that from very close and see if it's just a one or two month thing, or if it is more a systematic thing because Scandinavia obviously is an important market for us. Then if we go to Asia, the bigger market is Korea.

Still looking on the commercial side, I feel on the residential side to down. And the same is true for Australia, still looking on the commercial side down on the residential side.

And then, of course, the bigger emerging market China and India. The market is just up for us to make sure that we grasp that market.

So I'm not very pessimistic, but I'm perhaps a bit more cautious than I was three months ago because of some new developments in the market.

Thank you very much. I go back into the queue.

Yes. Good morning.

Thanks for taking my question. I just wanted to follow up first on elmech growth.

Did you say that within the 20% overall growth resi was faster or slower?

Yes. It was still faster.

Yes. It was faster but it was slower than previous quarters percent wise.

Very clear. Thank you.

See if I may ask, the main question was for me about this kind of growth was the margin dynamic for elmech, were you have had the margin improvement in Americas and Asia Pac and that was mainly expected to happen with slowdown in elmech. Now that's come through without really that much of a slowdown in elmech.

Is this just simply other components of the bridge like net price and savings. Or is there a positive margin dynamic within elmech as well as?

It's a bit different, Americas versus APAC. It's true that that smart residential continues to be dilutive and we talk about the others but in this aspect of course you should look at absolute business that we do with smart residential.

And that obviously still up and therefore still dilutive. I think in Americas, thanks to a very good job that we have done on the operational side, [indiscernible] prices and compensating for material inflation and also by realizing different operational efficiencies.

So that's the main reason for the better EBIT in the Americas. If you go to APAC, it stands partly to a mix because we had good growth in Australia and Australia with better margins, but we also had a good quarter when it comes to a bit in China.

You know that we say that we make very low single-digit margins in China in general, this quarter, this was a little bit better. And that is mainly because we start now with our new strategy with our new management team in place.

We are also a bit more selective on which orders we take and we look also better at -- do those orders really contribute and create value. And that's of course something where we have an ambition to continue to improve that margin in China over the coming quarters and over the coming years.

Very clear. Thanks very much Nico.

Hi. I just have one small question left.

Thank you for taking it. I want to ask you about the resi in Europe and the drop whether that's just simply mechanical, I think you are doing some reallocation of sales between divisions or otherwise what is the reason for it?

Thank you.

The main reason in Europe is of course that we did several acquisitions at the end of last year. Of course, when we do the acquisitions, the capital comes in immediately and you see the sales also only coming over the next 12 months.

I would say that's the main reason for EMEA.

They also have a bit of impact of this IFRS 16 as well. They have bigger impact on that than some of the other ones.

Hi, there. Thanks for taking another question.

It was a bit of a niche question actually on the De La Rue acquisition, because if you read the newspapers here in the U.K., I saw amongst all the Brexit noise that we get that De La Rue had lost the U.K. passport business.

And if I just have an quick look now, it looks like it's a 10-year contract 400 million to 40 million sterling a year, which affect all the sales that you're saying you're acquiring. I'm not quite sure what you're acquiring with that business.

Could just give us a little bit more color there? Thanks.

Now I would say that with De La Rue we buy in the first place customers and customer relations and contacts with customers, relation as we then can use to further up sell and further in case our customer share as well on the -- let's call it the classical off Web sites the paper sites as follows on the on the digital sites, if e-passport opportunities and so on. In the first place, channel to market and then also good operation capabilities.

Okay. The sales you disclosed is that -- will that zero when the current contract runs out and you have to grow from there?

Well, that is of course not the case. I think it's just one of the projects, are one of the businesses they have.

Okay. Thanks.

I was hoping we could come back to the fulfillment entrance system because it seems to be kind of consistently under growing industrial production, operating leverage is fairly limited. I'm just trying to understand what is the outlook for the year especially if we see some deceleration in U.S.-IP and especially for business there were supposed to be one of the growth driver of Assa and see margin expansion, it doesn't really seem to materialize.

So what do we need here to kind of, I would say reverse the trend.

While we have the low organic growth on the first place and then there's a couple of items like I mentioned, the residential new built in the U.S. and our garage door business in the U.S.

which is affected negatively by market conditions. We also have seen a slowdown on everything what is logistics, distribution centers which is important for our high performance doors and our loading docks.

I think I would say that's the two main negative drivers on the positive side, of course, we have the service business where we see clear acceleration of the service business. I forgot to mention one other negative item is on the high performance those were important part of that business also goes to automotive in Europe.

And look we all know what the situation is with the automotive business in general. We are addressing that by accelerating also new product development that will give us the possibility to take more of the available cake.

That's what we are doing. We are also investing in different markets where we feel that there is still a better penetration possibilities and therefore more business for us to grasp.

But it is true that on the organic side it has been slower for several quarters. We have compensate that, of course through acquisitions, the [indiscernible] acquisition now will be an important one.

I think it's good to see that despite a low organic growth we managed to keep our bottom-line margin under control.

Can I ask maybe is it -- are you able to kind of quantify how much organic growth that business actually needs to properly start seeing some momentum on the margin. I mean because 1% apparently is kind of 9 or so, are we talking 3% minimum organic growth 5%.

I mean what's the threshold here to kind of see momentum on the business?

In stable conditions, if we are not in contingency mode that 3% is a good ballpark figure, like the 3% is a good ballpark figure in general for the group. We have always said that you need around 2% or 3% organic growth to compensate for general inflation.

And in that aspect, of course, if you look at this quarter we have only 1% organic growth keeping neutral operating leverage is, I think a very good performance. In order that to happen of course, the starts have to be aligned a little bit which was the case in Q2.

So we should not expect a neutral leverage all the time if only 1% organic growth it has to be a little bit more.

Thank you very much.

Hi. Guillermo Peigneux from UBS.

Thanks for taking my question and good morning everyone. My question is on the savings.

You mentioned 300 million savings. I wanted to ask what should you be achieving this run rate towards the year and probably expectations on 2020.

And adjacent to that, I know that you mentioned that the impact on the pricing should fade-off towards the second half which is fair, but more interested in the relationship between pricing and raw materials, when is the relationship between those two stopping to improve so to say, I guess question is at what point your relationship between pricing of raw materials become neutral at this point. Thank you.

I'll start with the second part. Like we mentioned in the call, we have seen our positive pricing versus material inflation for the first time since many quarters now in Q2.

And we are confident giving indexes where they are today and giving input tariffs where they are today that we should be able to further improve even that positive in the second half of the year and that should give us a good tailwind. When it comes to the MFP program like I mentioned earlier, we have seen some of the savings coming earlier.

We mentioned at the beginning when we launched the MFP 7 program about how much money we talk about what payback, we talk the three years. So, you can calculate how much saving we will make over the program, but we can say that some of the savings came earlier therefore some of the savings will be lower now in the second half of the program.

So don't expect those savings on the MFP program to further increase in the second half of the year that that will not happen. So, if you want to add something.

No. That's true.

But besides the MFP, we are also doing other operational savings and since we have seen that the MFP savings is coming faster than let's say what's the plan. We are also of course looking into other opportunities as well in order then to see what we can sort of get from operational efficiency.

Thank you. And maybe could you comment a little bit on the prospects for collaboration with Google or Amazon or any other runs when it comes to Europe.

I guess on launches or marketing efforts that you put in with potential distribution channels?

Yes. If you take Amazon there is I guess two type of businesses there is their in-house delivery, which is the first place a program they have in the U.S.

today. And then there is a traditional online sales and of course we like our colleagues competitors in the market.

We tried to sell our products online to Amazon in the markets where Amazon is and we will continue doing that effort and as the Amazon channel becomes more important it also becomes a more important channel for us. When it comes to Google Nest, yes, we have developed that unique look for Google Nest on an exclusive base together with them and for them and that's along that is wholly or mainly, I would say today for the North American market and that's the only business we have with them today.

Okay. Thank you.

Hi. I just want to follow up on the earlier question on entrance systems in services in particular, curious as to where growth is sitting at this point, I guess around to mid single digit which would mean, the OE business flat for you to deliver 1% growth for the divisional role.

But, could you talk a little bit about how that growth and services accelerating, you've been targeting high single-digit that's presumably that's further uplift as you start to deliver some revenue synergies in 2020, but talking a little bit about the growth outlook for services please.

So historically our service growth has been low single-digit. And then indeed we have said that we have the ambition to grow our service business high single digit for the coming years.

And this quarter you are right. We were mid single digit, but mid-single digits with two working days less in the quarter.

And that of course matters in the service business because it's two days less service technician always that you can bill. If it then would compensate for those two days, you would see its closer to high single digits in the quarter.

So yes, it's going nicely in the direction where we want to be. We are investing in service technicians, we are investing in service salespeople and we are confident that over time we will get to that ambition of high single-digit growth.

And indeed service is around 28% of our total business for entrance systems. So, if we go there, mid single digits you can indeed calculate how much -- what we are having on the equipment side and that was low.

If I could do a quick follow-up piece on the price cost, which now is turning positive in Americas, are you able to give us some quantification of the margin tailwind to Americas in the second half as you see it now from a price cost standpoint?

Yes. Again market conditions change day-after-day.

So let's say that it will be -- it will continue to be positive. We mentioned in 2018 that over the full year, it was 50 basis points negative for the Americas.

We mentioned that in Q1, it was 10 basis points -- around 10 basis points negative. We say now that in Q2 it's positive.

We are confident again with market conditions where they are and in industry where they are that it will continue to be positive in the second half of the year. But difficult to give an exact figure.

Sure. Thank you.

Thanks very much and good morning everyone. I joined the call very late, so I'm sorry if you commented already about this before.

The first question is about the market conditions in France and Scandinavia, I think you mentioned good growth in France and stable sales in Scandinavia in the quarter. So, I guess the question is how do you reconcile these relatively healthy performance with the weaker indicators there in those two geographies in terms of building permits housing starts and so on.

And then, I have a more general question about the group's volume growth potential. You grew 1% in terms of volumes in Q2.

I think that's not really better than the underlying construction markets and despite the supportive shift to electromechanical products. So, how do you explain that you're not really growing faster than the market itself?

Is it a question of selectivity, cannibalization effects maybe you're being too pushy on prices or something else? Thank you.

We'll start with France. We have said that in previous calls that market conditions were not very good in France.

We said this call that market conditions in France are stable on a low level. It's true that we had low single digit growth in France this quarter.

But if you look at the full year, we are more or less flat in France, it's always difficult to just jump to conclusions on one quarter. So, if you take the full year it's more or less flat.

I would say that that reflects more or less also perhaps the market conditions in France. When it comes to Scandinavia, we have experienced a very good solid mid to single digit growth in 2018 and over recent quarters.

That was the slow in Q2 because, yes, definitely because of the working days, but also because we saw some slowdown in the recent couple of months in Scandinavia. Too early to say in Scandinavia if that's a trend or if it's just one or two months less activity.

But clearly, Scandinavia will follow from very close because that's an important market for us. When it comes to volume growth and making new link with construction indexes, yes, you can do that to a certain extent.

You must know of course that two thirds of our business is replacement markets, only 1/3rd is new built. And okay, in that new build you have of course residential and you have commercial 75% of our business is commercial, 25% is residential.

If you look at all those indexes and all those dynamics they are very, very different, very different between residential and commercial, very different continents by continent. I think if you look over the last 10 years, I think we grew 9% mix of acquisitions and organic.

If you look in 2018, our organic growth was 5%. Yes, a mix of price and volume.

This quarter it was a little bit lower, but like I explained, it's also linked to the two working days less in the quarter. We should not jump too fast to conclusions just on one quarter.

I think when we talk about these things, you should have a longer perspective in mind and in that aspect we reconfirm our strategic objective of growing 5 plus 5 to 10% of our business cycle.

Okay. That's great.

Thanks very much.

Thanks so much for taking follow ups. I wanted to ask about acquisitions more broadly, is your attitude changing at all towards appetite for M&A changing at all given that you have been quite active for quite a couple sizable deals and across the spectrum and also at the same time your outlook is getting less certain, if you could talk about?

I would say no, no real changes, if you look at our balance sheet, we definitely still have the ammunition to shoot if we want to shoot. So it's really a matter of filling the pipeline and having enough meat on the plate and that's the work all the divisions are doing every day.

And then, when the right acquisitions come across at the right price, at the right multiples then we will go for them. If we don't come across then of course, we cannot go for them.

So, that we have been active in recent quarters. We're still have a good pipeline.

Let's see how many of those in the pipeline, we can also then translate into real deals.

Thank you. And if I could just ask one more on pricing for elmech, the non-res part seems to be holding up from the -- some checking that we have done.

But on resi, I think the following sort of prices that you see on Web sites like Amazon. There seem to be some decline on asking prices compared to maybe the original levels that were posted there when we just kicked off.

And also there does seem to be sort of a number of alternatives out there from kind of unknown or it's unknown to brands. So I wanted to ask a broad question do you see pricing in resi electromechanical as deflationary and do you see that as normal given adoption rates or not?

And do you worry about that sort of competition ramping up?

Of course, there is, in a way competition is good because it keeps us and the other people sharp. And of course, there is other smart people in our market that they can also make a good product.

And there is different price classes in that market also and this market is a residential market because there's obviously people that that have different needs. We don't see that price erosion.

We don't see too much of a difference between smart-resi and the rest of electromechanical. Perhaps, if you look at those prices you mentioned on the Internet, you must of course make a distinction between campaigns people like Amazon, for instance they do a couple of times a year campaigns.

And then, of course, you have different prices than during the rest of the year. But if you make a exclusion for those campaigns in your comparison, you will see that prices are not going down.

They are okay.

Thank you very much.

I think we have time for one more question.

Thanks for the follow up. So just a quick question.

Really looks like Wal-Mart is going to see more home delivery service in some more time in U.K. I was just wondering whether you were in the running for a role there.

And how much in the relationship you have on the logistic side previously puts you in a strong position? And then, as a sort of follow-up, should we expect you to kind of start to broaden the number of channel partners in residential to drive the next leg of smart growth.

Some of your U.S. peers are partnering with homebuilders, just wondering whether you see that as an opportunity as well.

And how much interest maybe now do you see from the new partners today maybe versus a year ago? Thanks.

If I also -- in home delivery in general of course it is a lot of initiatives going on, with only Wal-Mart, a lot of other companies are doing a similar tests not only in the U.S. also Europe, as well as in the rest of the world.

With many of them, we have partner to do those pilot tests. I must say it's a bit of a similar story when we started with the digital door locks, think it takes off much slower than, than I would have expected, I think the adaptation rate is fairly slow.

So we have a lot of projects going on, but not too much concrete business yet, when it comes to home delivery. That being said, I'm sure that it will come.

It's just a matter of time, it's just a matter of adaptation. The second part of your question on digital smart locks, clearly, we see an increase of the adaptation rate quarter-after-quarter.

And obviously, our ambition is just to put as many as we can digital smart door locks in the market not only in the U.S., but also in other parts of the world and we use for that different channels. Clearly, we use the Amazon online channel.

We have our partnership with Google Nest, but we also have our own access to our own Web site on [indiscernible]. We also use the DIY channel.

We also use the locksmith channel. And if you look at different channels, I would generalize even in the world in general, not only in U.S.

you see very strong double-digit growth in the different channels. We don't really have an opinion on the channel, we'll see which one will become stronger, which one will not be so strong.

It's important for us to be present in the different channels and also have a relationship if the best partners in the different channels and that's what we work on every day.

Very helpful. Thank you.

Thank you very much. I think this was the last question that we have time for.

So, I guess would you like to round up Nico?

No, I can say that, yes, we had good Q2. We had a good first half of the year.

And then, I guess I want to thank all of you for good cooperation in the first six months. I wish you also a good summer and a good summer break, and then, see you in the second half of the year.

Thank you.