ASSA ABLOY AB (publ)

Thanks, Björn. Also, good morning from my side.

Q2 results for ASSA ABLOY, a strong quarter with significant sales growth and strong margin recovery, a record organic coach of plus 23%. Very strong sales growth in all divisions, except for the APAC division where we saw stable sales growth.

And also, complemented with good growth through acquisitions of net plus 5%. Good operational execution, giving us a strong EBIT improvement, with an EBIT margin of 15.2% if we exclude four acquisitions and guarantee at 15.9%.

A strong operational leverage, I would say, despite higher raw materials and higher logistical cost and despite also challenges with component suppliers in different of our factories. We also signed four acquisitions in the quarter.

And also, very good operating cash flow, 6% up versus the same quarter a year ago with a cash conversion of 105%. So, in numbers, sales of SEK 23.6 billion, 90% up through the 33% organic growth, the 5% net acquisition growth, and then a headwind of currency of minus 9%.

An EBIT margin of 15.2% versus 10.5% the same quarter a year ago. An EBIT of almost SEK 3.6 billion, 71% up.

And then, earnings per share of SEK 2.89 per share, under 30% up. If you look a little bit in the different regions starting in North America.

Strong organic growth in North America of 20%. Our residential business continues to perform on a high level, but where we now also continuously see a recovery on the commercial side where really, month after month, commercial business is coming back more, as I also explained already in the previous quarters, which is obviously good news for the second half of the year.

[Technical Difficulty] most affected by COVID-19 year ago. Now also recovered the most.

The ones that were less hit by COVID-19 showed also less growth. So, the ones that showed the biggest improvement, countries like Spain, UK and France, and then the ones that show lesser growth, a region like Scandinavia, and Sweden in particular.

Also, good growth in Africa, plus 47% and in Oceania, plus 11% despite, I would say, continuous lockdowns in several parts of Australia during that quarter. And then, the flat development in Asia.

It's mainly because a continued challenging situation in Southeast Asia, the part of the world that's off very much from tourism as borders remain closed in those markets. Also, business activity remains on a lower level.

And then, also in China, we continue with our strategy where we only take orders where we can get the margins that we aim for and where we also can get paid in a reasonable amount of time. But, overall, I think very strong performance, I would say, throughout the world.

So, market highlights, also this quarter, several project wins. An important docking station project order for distribution and logistics center in Sweden, perimeter security solution for a large data center in the US, and then a next generation e-passport solution for Estonia for HIV.

And then, in biocides, construction vertical, in Global Solutions, security solution for the largest UK infrastructure project that is going on, as we speak. A lot of new products and solutions also launched to the market in the quarter.

A new high performance door in entrance system focusing on energy efficiency. And then, of course, very excited about the collaboration with Apple to provide both employee badges and hotel keys in Apple wallet and in Apple Watch.

And then, again, it's good to see that all our efforts on R&D pay off and also are rewarded by the professionals in our industry. So, also, there have been new awards won in the quarter.

So, now two consecutive quarters again this positive organic growth. So, really, bouncing forward and reaccelerating that growth, mainly through organic growth, but also very good complimentary growth through acquisitions.

And operational margin also heading again towards the 16% to 17% bandwidth. So, an improved top line, improved margins gives us also a strong improvement of operating profit, 71% up, compared to the same quarter a year ago.

On the acquisitions, we continue to be active with three acquisitions completed in the quarter, six acquisitions year-to-date. They represent an annualized sales of around SEK 400 million.

And then we will close one more acquisition now in Q3, the MR Group, that we announced already, a company in Portugal with a sales of around SEK 230 million. And then, we also informed you that we will divest CERTEGO.

That transaction is expected to close in Q3. Our locksmith channel in Scandinavia represent a divested annualized sales of around SEK 1.4 billion.

And we will also book a write down and cost associated to that divestment of around SEK 200 million now in Q3. A couple of words on Sure-Lock, an acquisition we did in the US, in the Americas, complements our mechanical hardware portfolio, the supply of residential locks and associated hardware, with a sales of around SEK 120 million and they will be accretive to EPS as of the start.

If we then go into the different division starting with the EMEIA Opening Solutions division, very strong organic sales growth in the quarter of plus 39%, with very strong sales growth in all markets except for Scandinavia, where it was only strong sales growth. A very good operating margin of 14.9% versus 5.7% a year ago, with very strong volume leverage, 910 basis points, despite the negative mix, in the sense that we have more South Europe and less North Europe and despite higher raw material costs, higher logistic costs and also challenges with availability of components in our different factories.

So, I think very good job well done on the operation side by the team. We were helped FX, 40 basis points, because of the stronger SEK.

And then, 30 basis points dilution from M&A. That's mainly only an internal transfer from India, from APAC to EMEIA.

So, strong performance in EMEIA. Definitely also very strong performance in the Americas, with an organic sales growth of 36%.

Also, a very strong sales growth in all product areas and in all regions from Canada, over US, to South America. We have a strong operating margin of 20.4% versus 17.5% a year ago.

And what I said about EMEIA is definitely also true for Americas. So, very strong volume leverage, 300 basis points, despite all the challenges in operations.

Helped by FX, 10 basis points, and then dilutive M&A, 20 basis points. And Asia-Pacific, our third geographical division, a flat organic sales development of 0% with good sales growth in Pacific, stable sales growth in South Korea, but then sales declining in Southeast Asia and China for the reasons I mentioned earlier.

And operating margin of 9% versus 7.1% a year ago. Same story here.

Very strong leverage, 130 basis points, with FX dilutive 30 basis points and M&A positive 90 basis points. That's again the transfer of India from APAC to EMEIA.

And going to Global Technologies division. That is still hit by lack of mobility, mainly on the tourist related – or people moving related businesses.

But despite that, still an organic sales of 17%, with very strong sales growth in PACs, secure issuance and identification technology. Stable sales in external access.

And then sales declining in identity and access solutions and sales declining significantly in citizen ID. And also, in Global Solutions, for the non-travel related businesses, very strong sales growth.

An operating margin of 15.7% versus 10.1% last year. Very strong volume leverage, very good cost actions done in this division, 770 basis points leverage.

And although, travel-related businesses remain very challenging, we see slowly the aftermarket business coming back as mobility starts to improve again. Dilutive FX, 100 basis points, and dilutive M&A, 110 basis points.

And then last, but not least, Entrance Systems, another strong performance in the quarter. Organic sales up 21%, very strong sales growth in all business segments and a similar growth in equipment as for service.

An operating margin of 14.9% versus 11.4% a year ago. Also here, very strong volume leverage of 450 basis points, neutral FX and then 100 basis points dilution from M&A that's obviously in the first place, and in the only place, agta record.

With that, I give the word to Erik for some more details on the financial numbers.

Thank you, Nico. And also, good morning from my side, everybody.

As mentioned before, the sales went up with 19% due to a record high organic growth, as well as a strong M&A of 5%. The currency went the other way.

It went down with 9%, which is mainly related to the strengthening of the Swedish kronor. Operating income there, a bit went up with 71%.

And if you take the percentage, it went up with 4.7 points. So, we ended at 15.2%.

The earnings, the net income went up 129% and the earnings per share went up with 130%. The reason why there is a difference between these two is due to a non-recurring event of an intergroup transfer of a trademark.

If we exclude this non-recurring event, our annualized tax rate would still be around 26%. We had another quarter of a strong operating cash flow.

We're up with 6% to SEK 3.6 billion. Return on capital employed increased with 2 points and ended up with 15%.

If we look on for Q3, the FX impact as of today, we estimate to be around minus 3%. The M&A will be lower, roughly around 3% due to that as of end of August, agta record has been within the group for a year.

And then also, I would like to remind that last year, in Q3, we had some positive tax gains which came out of the record acquisition and this year, as mentioned before by Nico, we will close the CERTEGO divestment, which will have a negative impact of roughly SEK 200 million. And this will, of course, heavily impact our M&A column in Q3.

If you look into the bridge and dissect the organic growth, roughly 20% comes from volume and 3% is related to price activities. The flow through was a strong 40%.

And there, we can see that we had help from the strong organic growth, plus that we also had a strong operational execution in the quarter. That was on the positive side.

If you look on the negative side, in Q2 last year, we had quite a lot of temporary cost reductions and also we have the high headwind that we get from the raw material and logistic cost. The currency impacted the EBIT margin with minus 20 basis points, which is related as I mentioned before to the SEK, but also to the dollar.

And then, we had the M&A column where the dilutive impact of the record acquisitions is 50 basis points. So, as mentioned before by Nico, if you exclude the currencies and exclude the record acquisition, our margin would have been at the similar level as what it was in Q2 2019 at 15.9%.

Cost breakdown. The direct material, we have a positive impact on the direct material.

This positive part comes from a positive divisional mix, with stronger Global Technologies and a flat APAC. If we look specifically then on to the raw material, it impacted the result negative with roughly the same meaning, 20 basis points negative.

If we look on the prices in Q2, for instance, on steel, they have increased with another 50% in the quarter. So, we expect that the headwind will be stronger in the quarters to come.

We've had good organic operating leverage on the conversion cost. We have good cost control.

We have efficiencies if you look on the conversion as well as within the S&A. But, however, it's important we still invest into R&D.

But the conversion cost you see is down with 1.7 points and the SG&A in total, if you compare to last year, is 3.3 points better. Operating cash flow, mentioned before, strong plus 6%.

This is mainly related to the improved earnings. If you look on the working capital, it's more or less the same as what it was the similar period last year because there, let's say, we need the net working capital in order then to facilitate the strong growth that we have had.

Our cash conversion, on a 12-month basis, was 123%. The gearing, we continue to go down on the net debt versus equity.

We are now down to 45%. In the quarter, we were able to reduce the actual net debt with another SEK 600 million.

The net debt versus EBITDA came down from 2.1 last year to 1.6 this year. So we have a strong financial position.

Our balance sheet is strong and we can continue our acquisition strategy. Last, but not least, as I mentioned before, on the earnings per share, it went up with 130% related to the improved earnings as well as this non-recurring tax impact that I mentioned before.

And with that, I hand it back to Nico for final conclusions.

Thanks, Erik. So, we can say a good second quarter for ASSA ABLOY, a significant sales growth, record organic sales growth of plus 23%, complemented with good growth through acquisitions of net plus 5%.

And then also, very good margin recovery, an operating margin of 15.2% if you exclude currency and acquisitions, 15.9% similar level as prior to COVID-19 times. Now also, good actions on working capital resulting in a strong cash flow, 6% up versus same quarter a year ago.

So, it's clear that now, as vaccines are further rolled out and COVID-19 situation is further improving, although there is of course concerns around Delta variants and we are still very much in the COVID-19 situation, I would say. We definitely are shifting gears and now focusing further on how to bounce forward and reaccelerate further our profitable growth, growth through acquisitions and definitely also growth organically.

But while we do that, of course, we will continue to focus also on operational execution. You have to have strong cost measurements.

On one side, we have to make sure that we can compensate for the much higher raw material costs through either other cost savings and definitely also through further price increases. And then, the component shortages in general and electronic components, in particular, remain, of course, a challenge that must be handled by our operations.

And with that, I give back to Björn for questions and answers, Björn.

Thank you. Thank you very much, Nico and Erik.

Yes, but before we hand over to the operator, I would like to remind you to please limit yourself to one question each with one follow-up, so as many as possible can ask questions. Operator, this means that we are ready to kick off the Q&A session.

Please go ahead.

In terms of understanding the strength you're seeing in developed markets and pent-up demand versus underlying strength, did you see any stronger trend on quotation activity as you went through the quarter?

Of course, we follow-up quotations more on country level. The only quotation activity that we really track and trace more on division level is our spec business.

And there, we definitely can see a good increase of activity, as well number of projects in value as well in North America as in Europe where we are back now in Q2 into positive growth for the spec quotation business in US and where we also see good strong growth in EMEIA.

Actually, if I just follow-up as well on the price cost, which you mentioned before, in terms of the phasing of those price cost pressures during the year, should we still expect the peak of the growth pressures to be in Q3 or is it likely to be Q4 now that you see the most pressure?

That's a difficult question to answer because I don't know what material prices are going to do from here going forward. We only see, and have seen, that material prices have further inflated in a very strong way in Q2.

Like Erik mentioned, several materials up 30%, 40%, 50% in the quarter. If you take, for instance, steel in US, price level of steel today is 200% up compared to a year ago.

I would say that's not deflation. That's hyperinflation.

That's not something you would expect from a country like US. So, yeah, we are working very hard with many sequential price increases to compensate for that.

But like we mentioned at previous occasions, we now see with that continued inflation pressure that fully compensating for those material cost increases will not be possible this year. It will go into next year.

If you see in Q1, we were almost capable of fully compensating for material increases. Now, in Q2, the headwind was around 20 basis points.

One should expect that to go further up in Q3. And as it stands today, we still believe that Q3 is the more difficult quarter.

But then again, it all depends on what happens now with material indexes in the coming weeks and in the coming months.

Can I follow-up on that, Nico. Just to your slide, the direct materials as a percentage of sales, obviously, that's not a pure price cost.

I just want to understand the message clearer. Am I right to say that the price cost equation is 20 basis point negative.

Obviously, you have gross price at 300 basis points. My understanding was that mix was a 40 basis point tailwind in the quarter.

There's obviously also within that direct material line, FX components and supply chain savings and others. So I just want to understand what the pure price cost if that's 20 basis points.

And also, if you can just clarify the price cost guidance for the year is still what you said after Q1, I think it's less than 2018. So, I take that to be less than 50 basis points.

Just want to clarify that's still the message Thank you.

You're right with everything what you said, Lars. That's the easiest answer.

Remember, in Q1, we had I think 40 or 50 basis point dilution on the material side and we explained that that was because of a negative mix, in the sense that we grow more in APAC as the main reason and less growth in Global Technologies, which affected the mix in a negative way. And we said that, if you pure look at material that we almost compensated 100% for the material inflation.

In Q2, like you say, we have 20% headwind – 20 basis point headwinds from material, but we show 20% better results and that 40 basis point is mainly mix, in the sense that, this quarter, it's better Global Technologies and less APAC. So, this quarter, compared to Q1, is a more positive quarter.

And then going forward, yes, Q3 will be more headwind, but we can repeat what we said before that we are aiming and confident that the headwinds will be less than back in 2018 when we had last time. Yeah, I would say a more modest material inflation.

You're right that, at the time, the effect was around 50, 60 basis points purely on the material side.

Can I ask secondly? Just on the sequential trend or the exit rate from the second quarter, wonder whether you can help us a little bit with that.

I think you grew sequentially 9% in Q2. I think normal seasonality would see you grow sort of at low-double digit.

I wonder what you're seeing as you exited the quarter? Historically, seasonally, you've been sort of flattish in the third quarter.

What are you seeing here. Obviously, you're flagging sort of a non-resi business starting to come back, not sure that already hits you in the third quarter on the new biz side, but just wonder whether you can give a bit of color as what you see on sort of short-term trends.

Depends, of course, a little bit how you compare. If you compare with last year, it's of course difficult to compare because if you compare, for instance, April, April was almost dead a year ago, whereas in May and June, the business slowly came back a year ago.

So, compared with last year, it's just more difficult. But what we do is we look, obviously, on sales per day or sales per week.

And there, like I mentioned, we see commercial coming back in a good way month after month, week after week. We see commercial improving as well in Europe, definitely also in North America.

As you know, North America, that's also important for us because it's also the more profitable part of our business in the Americas. That being said, it's, of course, going to be much more stuff now going into the second half because second half of the year was a good half of the year for Americas, for instance, and for Entrance Systems.

So, from a comparison perspective, it will become obviously much more challenging than Q2, which was an easy comparison, of course, because a year ago, more than 50% of world population was locked down and that was not the case anymore in Q3 and Q4.

Maybe one question, one follow-up. First, on the pricing, you said 300 basis points [indiscernible] roughly speaking.

I was wondering whether with the new price increases, whether you could indicate what kind of pricing level do you expect year-on-year for the second half, with the information that you have at this point. And then I have a second question on the smart locks or electromechanical door locks.

But I'll wait for your answer to the first question and then I ask the second one.

If I first answer the first question. Yeah, it was, like we mentioned, price was 3%.

Okay, it's not exact science, but we believe it was slightly higher than 3%. And then, obviously, we continue to increase prices and we did not do that a year ago.

So, everything what we add from a pricing perspective will also be a net further price increase. So, you should expect that number to further go up now in Q3, and that's what we have to do also, because you see, of course, material indexes and material cost also further going up.

The second question is on the smart locks, which I think in EMEIA continued to grow very steadily, very, very – rather strong and then, obviously, in Americas, it was declining and now it's back to growth. And I was wondering, on electromechanical and electronic locks, first, what are you seeing in EMEIA, is this broader adoption in the market or some of the trends that we saw in Americas two years ago deciding to take place in EMEIA.

And second, in Americas, declining and now increasing, what do you see there? Is the growth coming in residential or non-residential or both?

Growth is coming in in both. And if you look at electromechanical in general and digital door locks, in particular, digital door locks is, of course, the fastest growing sub segment that we have in the group.

And that was also the case now in in Q2 with high double-digit growth. And we see good strong performance as well in the Americas as in EMEIA.

Of course, it is also thanks to several new products that we launched today. For instance, in EMEIA, we have launched a new Linus retrofittable digital door lock, an Augusta-like solution, you could say, for Europe.

Getting very good traction. And then, we also got our new Yale Doorman for Scandinavia, which is also selling in a very good way where we even have challenges to keep up with production and to keep up with electronic components to support that growth.

So, I would say, it's in one way thanks to the new products that we launched. It's, of course, also just the market.

We continue to see a further shift from mechanical to electromechanical and digital. And we see even a further acceleration of that trend.

I would say US has the advantage, it's one that's a little bit easier. Whereas in Europe, you still, of course, see different speeds, in the sense that when new technology comes to Europe, the northern part of Europe, in Scandinavia, Finland, is often the first one to adapt.

And then afterwards, you have countries like UK and it takes much longer to adapt in, let's say, the southern part of Europe and you see something similar with our digital door locks in our different markets.

My first question is on the cash flow side. I was actually surprised not to see a bigger change in working capital this quarter, given the very strong revenue development.

So, can you comment on this, please? And on what to expect as we look forward, especially on the inventory side.

So, that will be question number one.

As we said, the cash flow this quarter is driven by the earnings. And on the working capital, it's flat.

And of course, you have the components there. Of course, if you increase the top line, then you also get more receivables.

And then, on the inventory, we need in order then to support the growth. And then, of course, in the inventory as well, we also get in the higher raw material prices in inventory as well.

So, going forward, I think we are going to see the trend that we're not going to see that much, let's say, going down on the net working capital.

I will say, on the inventory side, if we could have chosen, we would have loved to have a little bit more inventory because we have seen, like I mentioned in the presentation, some challenges on supply chain, getting the components in. So, it's already something we would have loved it to be a little bit higher for some of our businesses.

So it would make sense, right, to expect inventories to eventually go up?

Yes.

Quite substantially, in line with demand.

But of course, we have done a lot of efforts on efficiency improvements in operations in general and that you will also have seen in our inventory figures if you look over the last two, three years. We'll continue to do that efforts.

We will also see – and you should expect to see efficiency gains in inventory values as we go. But of course, with that important side remark that Erik mentioned, the inventories is higher value today than a year ago because of the material inflation.

So, like-for-like, if you put the same stuff in stock, you will see a much higher value because of material inflation.

The second question is on the margin trajectory. Are you still confident that the group will reach the 16% to 17% margin range relatively quickly.

And, of course, any indication on the potential timing to get back in the range would be pretty helpful to us?

Like we have said at several occasions, and we can repeat again, we have our financial targets to be with our EBIT margin within 16% to 17% bandwidth over a business cycle. And we're now below and we are working very hard to come back within the 16% to 17% as soon as possible.

Of course, taking into account, the 50 basis point dilution from agta record. If you look at the last quarters and you correct for agta record, you could say that we were on very similar levels as prior to COVID-19.

So, I would say just a matter of time before we will get back into that 16% to 17% bandwidth excluding agta record. Therefore, 15.5% including agta record.

But we have also said that we have the ambition to bring the margins of agta record within the normal margins of Entrance Systems within three years, realizing on the synergies of that acquisition. And here, like I mentioned earlier, we are very happy with the way that integration is going.

We are – because we're even slightly ahead of our plans to realize the synergies and, therefore, bring those margins in line.

I agree with your comment that at the group level the margin is now on par with what it was pre-COVID if you exclude FX and M&A. But if I look at the situation in Europe, in particular, the margin in Europe still looks well below that of its 2019 level, despite revenues already back above 2019 levels.

So, I wondered if in Europe, specifically, there was a need or not for an extra layer of cost optimization measures.

Of course, when we talk about the 16% to 17%, we're talking group level, and there's always moving variables in different directions. You talk about EMEIA, I can talk about a fantastic track record that we have in Entrance Systems where, obviously, margins are significantly better, whereas in APAC we continue to improve margins.

If you look in particular in EMEIA, of course, you have, on one side, the pricing, which it's very high inflation. And it's also a complicated market because it's not a uniform market where we are doing more on the passing to fully compensate for material indexes.

We've also invested heavily on the shift from mechanical to electromechanical where we believe we haven't seen the complete return on those investments yet because, of course, you first make investments in R&D and then you launch your products and then solutions and ultimately you get the growth. We see that, for instance, like I mentioned on digital door locks where we invested in an important way in new product launches where we are now starting to get the return through higher sales.

So, I think it's more, I would say, I guess, a timing issue and you should really look at the 16% to 17% as a target on group level that will always be part of the group that then outperform in your eyes and then some divisions that perhaps in your eyes have further room for improvement.

Perhaps just to add on EMEIA, remember also Nico talked about that we have moved India from APAC into EMEIA. Now you see the eye in there as well.

And that has a negative impact on their margin with roughly 30 basis points.

Returning to the kind of price cost. 20 basis point headwind from raw materials in Q2 that you called out was perhaps maybe a little bit less than I expected.

So, I was just wondering if we can follow-up on the question around sort of full-year expectations of up to a 50 basis point hit, essentially. I know you're not changing that.

But is it fair to say that you now may be a little more confident or a lot more confident even in achieving the target, given the obviously solid Q2 execution and price actions that you're taking? And then, a follow-up question would just be on China.

I was just wondering whether you could provide a bit more color on the decline there, how much of that was explained by the underlying market. This is the selectivity measures you refer to.

And given we have seen a pivot to growth, growth strategy there, when does China really return to a sort of solid and consistent growth path and kind of more in line with the growth for the rest of the group?

Start with material cost. Everything will depend, of course, on how good we will be in executing on the next price increases that we have announced because, of course, you announce the price increase and now you have to realize the price increase.

And there, a lot depends also on how the market reacts to it. We are in many markets a strong market leader and therefore also want to be that price leader, being the first one to come with price increases, second, third, fourth and fifth price increase.

And then we see how the market react. So, if the market continues to react like they have been reacting until now, then, yes, we are confident on that statement that we should be better in managing material inflation to price increases this time around than back in 2018, despite, I repeat, a much higher material price inflation this time as compared to 2018.

Again, I think the material increases that we see today, I think, are unseen in general and are definitely unseen for steel. But yes.

So, under those conditions, yes, we are more confident. When it comes to China, I would say it's not the market.

It's really us internally, the way we are implementing the strategy of stability, profitability, and then, ultimately, growth, again. We had low to mid-single digit negative growth in China in the quarter.

And there was, like I said, because we are very selective in which business we want to have going forward and which deals we don't want to take because, again, we want to have deals with margins in line with our expectations and also a good chance of being paid within reasonable time. We are definitely in that stability phase.

We further increase our margins if you look on a 12-month moving trend. Indeed, next step is the growth.

I'm most probably much less patient than you are. I don't know you that well, but I can tell you, I'm much less patient than you.

But like we said from the beginning, this is something that takes time. It's not something that we can fix in a couple of quarters.

That's much longer term. But we are we are confident that we will move now from that stability, profitability phase into growth mode again going forward.

I wanted to come back on the demand dynamic and notably related to price and supply chain constraint. Have you done any analysis from the past or now on how much you think your customer base can take price increase?

Because we talk a lot about increasing prices. But there's sometimes also challenges with acceptance.

And I think we've mentioned already earlier that the seasonality in the second quarter was maybe not as strong as usual. Do you see ongoing challenges from supply chain constraint that could also prevent you from basically kind of delivering on the demand you're seeing in the market, notably in the second half of the year?

That's my first question.

On the pricing side, it's a bit the same answer as I gave earlier. We increased prices and then receive, the market continues to follow.

And so far, the market continues to follow. If you take the more critical families, very much steel related.

I think we have already done five or six price increases, a combination of price increases with material surcharges. And so far, the market is following because it's just the fact that the cost goes up for everybody.

So, it's a similar on equal playing ground field, you could say. Everybody has the same challenge.

There is also not so much timing differences between – as in our colleagues, competitors in the market. We are confident that we can continue to increase prices as much as it takes to compensate for the cost.

But like I said, there will be some lag between material inflation and us realizing the prices and that lag will go on into next year. That's on the pricing.

On material availability, in Q2, yes, we most probably had a couple of orders that we could have delivered out if we had better flow of components into our different factories. But I would say that it's not a significant effect.

On the top line, has been very limited. Of course, it creates a lot of disturbances in our factories.

And therefore, we have to reschedule and plan in different ways all the time. I think our people in operations are doing great job to manage with those challenges.

I would say the more challenging part is that we don't have so much visibility. If you take, for instance, electronic components, it's very difficult to get hard commitment from your suppliers for longer periods of time.

So, your visibility has become much short, but the visibility we have gives us enough confidence that we should not have significant effect, again, on top line or on bottom line in the coming months and in the coming quarter.

My second question was more related to some of the comments you've made in the press release this morning around kind of shifting the growth focus and you were mentioning specifically kind of software as a service, I think, and also [indiscernible]. Can you maybe give us a couple of hints of what you're thinking to do differently now on this area versus what you were doing before?

I would say there's not so much difference what we do today to what we were doing yesterday or prior to COVID-19, in a sense, like we explained earlier, during COVID-19 times, our first focus was on cost control, on protecting the bottom line and protecting our cash flow. We have seen market dynamics and market sentiment improving in a very good way in general, I would say.

Therefore, okay, we want to now take advantage of that better market sentiment and make sure that we grow at least in line with the market or preferably even a little bit better than the market. And it's a similar trend as we have explained at earlier occasions and also in our capital markets days.

There is a whole shift from mechanical to electromechanical and digital as well on the commercial side as on the residential side. And if you have that shift, of course, yes, you also have more software as a service revenue.

We have that same focus on software as a service in our different verticals in Global Solutions. As mobility comes back, we should also see aftermarket in general coming back and also in Global Technologies.

And then we have, of course, the focus on our service business in Entrance Systems.

I just wanted to follow-up on the earlier question on China. I think, obviously, you had described your journey from stability, profitability to growth.

But what's the difference? Or is there a difference in the market that just prevents you in China from achieving longer term the same kind of profitability and cash conversion that you achieve in the rest of the world?

And in what sense is that different to maybe to what we see in other capital goods companies that don't have that same problem in China. So, basically, trying to find out to what degree China coming back to growth and good growth is dependent on your own journey versus what just the differences are in the market.

I think if we look topline wise, I think China should be able to grow faster than many of the markets in the world because the market dynamics in China are and will continue to be very good. All the macro drivers are also in favor of China urbanization, people moving from rural areas into city, population growth, and so on.

If you look at margins, we have said at several locations that our ambition in China is to bring our margins to high single-digit levels, close to 10%. And that once we are there, we will see if we can do even better.

But we've also said if we are successful in reaching that goal in China that we then also have a very nice export product solution that we also can sell in other markets like Southeast Asia, even to a certain extent Australia, New Zealand, Africa, Middle East with better margins. Why are the margins lower in China than in the Western world?

For instance, I think two reasons. One, of course, in the Western world, you have a much higher share of aftermarket business.

And we know that we have better margins on aftermarket than on new build. And then two, just because of the competitive climate in China.

I think our industry is still an industry that is not consolidated. If you take, for instance, digital door locks in mature markets, there is a limited number of competitors.

Today, digital door locks in China, most probably there is 2,000, 2,500, perhaps 3,000 players in the market. It's a much more competitive market and a much more scattered market still today that still needs and will get further consolidation.

And that consolidation then, ultimately, probably will also lead to better margins like you see in other industries. I think other industries went through a similar dynamics, perhaps a bit earlier than our industry.

My follow-up is more clarification on the organic growth number. If we look at the absolute organic growth, you reported in the statement, and divided by last year's sales, we get 21% roughly rather than 23%.

Maybe you could just clarify that.

I think, Andreas, that's something maybe you and I can take offline. It's the way it's calculated.

But we take off FX first and M&A. And then you have the residual coming.

I have the calculation here, which probably is easier to share between a spreadsheet.

I'll start with the price cost question. So, I think last quarter, you said that you needed 3.5% to 4% of price increases to compensate for cost inflation.

So, this quarter, we had 3%, slightly higher. You're guiding for even higher price increases in the coming quarters.

And yet, it is surprising that your full-year guidance for price costs sort of headwind hasn't changed. So, perhaps if you could start with a comment there.

And then, perhaps Nico, where do you see – within your different divisions, where do you think sort of it's easier to push price increases? Where is price cost positive versus where it is sort of negative amongst the different divisions?

You could say that material has inflated in an important way for all materials. If you take copper, nickel, zinc aluminum, of course, definitely steel, but even if you take plastic or cardboard or glue, you can't name it all, all materials have very high double-digit cost inflation.

And therefore, it's in the first place us doing a good price management and doing that in a proactive way to compensate for that. And I think if those increases come gradually within limits, you have time to adapt and do it with different passing cases.

Like I mentioned earlier, if the price increases 200% on steel in the US, I think we cannot do that in one go and compensate fully for it in one go. Somebody else can do it, I would like to understand how they do it.

There definitely, if you take steel in general and steel in the US, you will see some lag between price increases versus cost increases. So, it's not so much about the divisions, I would say.

It's much more about which product solutions have a lot of steel and then you come to our steel door businesses in China, in Europe and in US and you come to our perimeter security business in Entrance Systems.

The follow-up that I had was just on near-term trading. I think you touched a little bit on this.

Obviously, last year, we had quite a big swings. It would be really helpful if you could tell us how your daily sales growth has started so far in Q3 on a year-over-year basis.

Again, it's a little bit difficult to give to consolidated view on group level because you have a lot of different moving parameters between the different divisions. And also, what do you compare with?

Because we have strong seasonality in our numbers. And if you compare with last year, it's also not so easy because the way the pandemic hit last year was very different country by country and division by division.

But if try to give a little bit of flavor, again, you can say that in the US, our commercial business, like I mentioned also at earlier occasions, we see very good sequential improvement month after month, week after week now for several months, and we see that commercial business now really coming back. But the residential business stays on a similar high level.

But of course, going forward, we will compare with quarters last year that were already very strong quarters last year. So, the comparison becomes much more difficult.

That's true for residential. That's true also for South America.

But second half [indiscernible] was very strong performance in South America. I would say a similar story in EMEIA.

Residential stays on a good high level. And commercial is really coming back in a good way.

Quotation levels, like I mentioned earlier, for our spec business also good in positive territory again, now in Q2. If you take then Global Technologies, it's a very different picture between things that are perhaps less tourist, travel related where we have seen that vaccinations and contaminations of COVID-19 going down really has boosted, mobility has boosted business confidence and we see those businesses bouncing back stronger, perhaps also stronger and faster than we expected that's, for instance, the case for our PACs business in HID.

Whereas the more tourist travel related businesses, hotel, hospitality, marine, citizen ID stay much more in challenging territory. Let's call it like that.

And like we said earlier, we believe that the recovery of those businesses will take longer. The good positive sign there is at least, to a certain extent, we see some of the aftermarket going back, for instance, if you take hospitality, of course, people will now during the summer start to travel, they will go and stay in hotels.

So, you need cards, you need credentials. That business is going back.

But, of course, still far away from what it used to be prior to COVID-19. And that again will take time.

It's time now actually to round up the conference. So, I hope it has been helpful for you.

And if there are any follow-up questions, please feel welcome to contact us at Investor Relations. And we look forward to speaking to many of you then as well in the coming months.

So, thank you for today. Stay safe and have a lovely summer.

Bye.