ASSA ABLOY AB (publ) (ASSAB) Earnings Call Transcript & Summary

Hello, everyone, and welcome to the presentation of ASSA ABLOY's second interim report in 2023. My name is Björn Tibell. I'm heading Investor Relations. And joining me here in the studio are ASSA ABLOY's CEO, Nico Delvaux; and our CFO, Erik Pieder. We have set aside about 1 hour for this call, as usual, and we will now start with a summary of the report, before we open up for your questions. So with that, over to you, Nico.

Thank you, Björn. And also good morning from my side. We can report good results for Q2. I would say despite more challenging Residential market environment and despite a difficult comparison with a year ago and the fact that we have 1 working day less this quarter, we nevertheless were able to show an organic growth of 3% in the quarter. We have a very strong sales growth in Global Technologies and a continued good sales growth in Americas. We complemented that organic growth of 3% with a strong growth through acquisitions of 6% above our ambition level, and that contribution of growth of acquisitions will now also continue at least for the next 4 quarters, because we were also able now to finally close the HHI acquisition in the quarter. Very strong operational execution with a strong EBIT margin of 16.7%, if we exclude HHI. A record EBIT of SEK 5.5 billion. Also a record operating cash flow of SEK 6.7 billion, 76% up. So really outstanding performance on all 3 items. And then as we mentioned earlier, we booked one-off costs in Global Technologies related to impairment of goodwill and intangible assets in our Citizen ID business. If we look at the numbers, sales of SEK 34.5 billion, 17% up, like mentioned, 3% organic growth, 6% growth of acquisitions, and then held by currency of 8%. I will comment on profit margins, excluding HHI, and then Erik, in his part, will then comment on the margins, including HHI. So an EBITA margin of 17.3%. And like I mentioned, an EBIT margin of 16.7%. And then EBIT 29% up, and EPS 18% up. If we look then a little bit at the different regions in the world, starting with North America, a continued strong performance, an organic growth of 5%, where we continue to see good momentum on the Commercial side, where our Spec business is still up high single digit compared to a tough comparison a year ago, where we have obviously seen a decline on the Residential side in general and on new build in particular, affecting in the first place, our garage door business -- our Residential Garage Door business, our Perimeter Security business, the part that is Residential related, and then also our window hardware business, that is an export business from Australia to North America. I must say that we are a little bit more optimistic perhaps on the Residential business in the U.S. than in other parts of the world, where we believe that we might have had the worst behind us, and that we should see a bottoming out of the Residential decline and should start to see already improvement now in the second half of this year and then definitely going into next year. Continued strong South America, also here 5% organic growth with, I would say, all countries contributing in a good way; Africa plus 13%; Australia and New Zealand plus 11%, a continued strong core business in Australia and New Zealand on the Commercial side. Very similar picture on the Residential side, where also in Australia and New Zealand, Residential business suffers and new build suffers even more, but continued good momentum on the Commercial side. And then Asia, plus 9%, with a very strong Middle East, very strong India and a better Greater China, where our external negative growth in Greater China was only very small, single-digit negative. It was more down on the intercompany side because our sales towards Australia, New Zealand, EMEIA and Americas meant more done. So Greater China together had a higher single-digit negative growth still in the quarter. And then we come to Europe, the more challenging part in the world, I would say, with minus 2% organic growth, especially for EMEIA, our Residential part of the business, so an important decline as well on the R&R side, as especially on the new build side, I would say, for all regions, but in particular also for our Nordic region and Sweden in particular, where our OEM business saw a higher double-digit negative growth in the quarter. And as Residential is a bigger part of our EMEIA business, that affected the EMEIA division result in an important way. The Commercial side in Europe, very similar to the U.S., still good momentum with our Spec business up higher single digits. And I would say, in general, on the Commercial side, it's not a market that is our biggest concern, it's more the high comparison with a year ago. If we then look at some market highlights, also this quarter, some nice project wins, a service contract for more than 5,000 Pedestrian Doors for a retailer in North America. And then good to see also that our mobile credential strategy continues to pay off in different verticals. We have a leading Cruise Line company that now invested in mobile key capabilities. And we have also a significant order for Physical Access Control in a major global bank that is also calling in for our call this morning and where we also will implement mobile credentials into the Apple wallet. Our R&D efforts continue to pay off. Door Bird got a design award for the IP video solution. And then we launched also several new products in this quarter. Just to name a couple of them, we launched the first facial recognition lock in India for Yale. And we launched also a comprehensive range of IoT-enabled dock levelers that will increase operational efficiency and safety for the logistic vertical. Now 10 consecutive quarters with positive organic growth. And in recent quarters, that organic growth also complemented with very strong growth through acquisitions, and improved operating margin. Like I mentioned, if we exclude HHI in the quarter at 16.7%. If we exclude HHI on a 12-month moving trend at 16.2%, so well within the bandwidth of 16% to 17% we aim for. Even if we include HHI at 15.8% 12-month run rate, so very close to that bandwidth. So a stronger top line and improved margin, therefore, an accelerated operating profit, like I mentioned earlier, a record quarter. On the acquisitions, also an active quarter with 4 acquisitions signed in Q2, 8 acquisitions signed in the first half of the year. We announced a 9th one this morning for Secure Issuance in HID and Global Technologies. Those 8 acquisitions that we signed in the first half represent an annualized sales of SEK 17 billion, and of course, the highlight is that we finally were able to close now the HHI acquisition. We celebrated that on day 1 globally in all the HHI entities. I was myself with HHI management last week. I must say, a fantastic team. We speak the same language. We have the same chemistry -- or good chemistry between us, and they were really happy to become now part of the ASSA ABLOY family, and I'm absolutely convinced we will do very nice things together. If I then go a little bit into the different divisions, starting first with the more challenging division, EMEIA, an organic sales decline of 5% with higher single-digit negative volume growth and only strong growth in Middle East, India and Africa, sales decline in all other regions in EMEIA. And like I mentioned, still good momentum on the Commercial side, but then a strong decline on the Residential side, especially on new build, a higher double-digit negative market development. And as EMEIA, we have 45% of our business which is Residential, obviously, it affected the overall result in an important way. We saw the biggest decline in the Nordics and in Sweden in particular. That's important from a top line perspective. It's also important from a bottom line perspective because Nordics and Sweden, in particular, are higher-margin regions for EMEIA. Therefore, also an operating margin of 12.5% versus 14.4% a year ago. And I would say, despite the bigger top line drop, they have done a good job in reducing cost. They showed a good operating leverage on that negative growth of around 35%. But obviously, all the cost measures were not good enough to keep the margin up. They're also not helped by FX. Weaker SEK gave us a dilution of 50 basis points. M&A gave us a dilution of 20 basis points. We are taking extra cost measures in this division, and Erik will come back on the details. If you look at Americas and all the, I would say, star performance in the quarter. An organic sales growth of 4% on top of a very high growth a year ago with very strong sales growth in general for all countries and all business areas, and then a very strong execution with very strong operating leverage, giving us an EBIT in the quarter of 24.1% if we exclude HHI and HHI-related costs. That's a record quarter for the Americas. We also announced a new organizational setup for the Americas. We will go to a similar setup as we have in Entrance Systems with segments. So we will have a LatAm segment, we will have a North America Commercial segment, and we have a North America Residential segment. And we have appointed 3 leaders for those segments and those leaders are now building their management teams. So still, yes, very good results in Americas. APAC. Organic sales of minus 2%. We have very strong sales growth in Southeast Asia. Stable sales in South Korea, where we see also market conditions further declining. And then a sales decline in Pacific and in China. In Pacific, like I mentioned earlier, if we look at the core business in Australia and New Zealand, we saw a nice positive growth. The sales decline is related to the Window Hardware business, which is an export business from Australia into U.S., and obviously also local business in New Zealand and Australia and a little bit in Japan. And that Window Hardware business that goes mainly to Residential new build, therefore, the bigger decline. In China, like I mentioned, if you look at final customer sales, China was almost flat, very small single-digit negative growth, but the sales decline mainly comes from intercompany sales to Australia and New Zealand and to Europe and the Americas. Then a very strong operational execution in this division, leading to an operating margin of 7.8% versus 1.9% a year ago. They were helped by FX 100 basis points, and were also helped by M&A, 70 basis points, that is the D&D Technologies acquisition in Australia. The Global Technologies, I would say, the star performer of the quarter. An organic sales growth of 20% with very strong organic sales in all business areas, as well for HID, as for Global Solutions, with the exception of Secure Issuance, where we had a big order for big printers a year ago, and therefore, the comparison was more challenging. And those big printers, that's, of course, project business that goes up and down quarter by quarter. But overall, very strong performance, also very strong execution with an operating margin of 18.4% versus 15.3% a year ago. Strong operating leverage, helped by FX 70 basis points and M&A dilutive 60 basis points. And as we mentioned earlier, we also did an impairment of goodwill and intangible assets related to Citizen ID in HID in the quarter. Last but not least, Entrance Systems. Stable organic sales on top of, I think, 20% organic growth last year, so a difficult comparison, but strong sales growth in Pedestrian and in Industrial, compensating for the sales decline we see in Perimeter Security related to the Residential part of Perimeter Security in the U.S., and then a significant sales decline in Residential. Also here, the vast majority of our Residential business is in the U.S., and an important part of that is going to Residential new build. Strong growth in service, delivering on our ambition to have high single-digit service growth quarter after quarter. Very strong operational execution with an operating margin of 16.2%. Also on a 12-month moving trend, Entrance Systems is now well nicely within the bandwidth of 16% to 17%, much earlier than our initial plan. So very happy with the execution in this division. Very strong operating leverage. FX and M&A dilutive with 20 basis points and 10 basis points, respectively. And with that, I give the word to Erik for some more details on the financial numbers.

Thank you, Nico. And also, a very good morning from my side. As mentioned before, the numbers that you see here is including HHI. Nico talked before about the sales that was up 17%. If you look at the operating income, it's up 25% and we have an EBIT margin for the second quarter as well as for the full year of 16%, which is 1 point better if you compare to previous year, and it's the best first half year that we've ever had. If you look on income before taxes, it's up 20%. There, we have a higher financial net. In the quarter, it was roughly SEK 247 million, if you want to have the exact number, higher than last year, and that's related to, of course, higher interest rates as well as higher cost for the HHI acquisitions than on the bridge known. For the full year, we expect the financial net to be around SEK 2.5 billion. Net income is up 18%. There, of course, we have the tax impact from the divestment of Emtek, Yale, and August. If you look on the underlying tax rate, it still remains on the 25%. Cash flow continuously very strong. I'm very happy to see that we almost generated SEK 6.7 billion, which is up 76% versus a year ago. And we have a 12-month rolling return on capital employed above the 17% and it's 1.2 points better than the same period last year. If we dissect a bit and look into the bridge on the organic piece, we have 4% price, which then means that we have a negative 1% in volume. The flow-through ended up at 75%, 1.6 points helping on the result. This is related to price realization, lower cost for direct material, logistics, as well as operational efficiencies. If you look on the operational efficiencies, we had a saving from the Manufacturing Footprint Program of roughly SEK 200 million, and then Nico alluded to it before, but we have also implemented other short-term cost measures, which in this quarter contributed with SEK 150 million. I'll come back more to the details a little bit later on. The currency, of course, a big help on the top line due to the weakening of the SEK, but also due to the stronger dollar, it also helped us with 20 basis points on the bottom line. The acquisitions, excluding HHI, was at the same level almost as the group. So it had no impact there. We see strong performance. Nico mentioned previously, D&D Technologies. I would also like to highlight, within Americas, the Control ID acquisition in Brazil. And as you're all aware, we finally closed the HHI acquisition and the divestment also of Emtek, Yale and August, 20th of June. I would agree with what Nico said, I was also there together with the team last week, and it's a very strong team in HHI and I think this will be a very good acquisition. Anyhow, if we look on the sales. Sort of the net effect was roughly SEK 500 million. Of course, a dilutive impact of 70 basis points on the result. We took in this month acquisition cost of roughly SEK 200 million. A little bit more highlight on HHI. If we look on the performance for the first 6 months, the sales was roughly SEK 750 million with an EBITA margin of 12%. The financial impacts as we foresee now from the start, dilutive impact from HHI of roughly 70 basis points. And then we need to add also the dilutive impact on the divestments of roughly 20 basis points. It will have a negative impact on EPS for 2023. Of course, it's related to the interest rates. We will also have integration costs, but we expect it to be slightly accretive then for 2024. That is related to that we will have lower integration costs. We will also have -- the synergies will start to kick in. We also expect to have higher interest rates cost due to the cash that we're able to generate. I would also like to highlight, I know this quarter is a bit messy with things that we have, let's say, below the line. That will continue for the next quarters. One is that we will -- well, we are following the IFRS rules when it comes to evaluating the inventory at distributor level at the time of acquisition. And then we will, let's say, take that during the turn of the inventory. That we will consider to be a nonrecurring item, as well as we still have roughly another SEK 400 million to go of exit costs from the divestment that we will also book below the line as a nonrecurring item for Q3 and Q4. As I mentioned before that we expect to have a good cash generation. One of the benefits that we have from this acquisition is roughly $50 million to $60 million tax benefit that we will have each year for the coming 5 years, which will, of course, as I said, help on the cash flow. If we look on the exposure then from the group, we have previously said that we are roughly 75% Commercial and 25% Residential. With the acquisition of HHI, that would roughly go to 1/3 Residential and 2/3 Commercial. We reconfirmed the synergies and the $100 million bottom line synergies that we will realize in the first 5 years after the acquisition. It's a lot of initiatives, a lot of projects, several of which we already started. But if we group them a little bit in the main 4 pockets. It's one on innovation and expanding our mechanical offer, I would say, in the core of what HHI does today, and then also innovate and expand our electromechanical digital offering and being in the driver seat in the chief mechanical to electromechanical and digital at the front door and also in the house. Then we will continue to leverage the strong brands and further lift the brand equity of those brands in the U.S. and definitely also internationally. And they have a fantastic cost-efficient manufacturing footprint on one site in Mexico that we can leverage to do more nearshoring for our North American business. And they also have a nice manufacturing footprint in the Philippines, in Taiwan and China that we can leverage for, I would say, our global business. And then last but not least, we see good procurement and logistic efficiencies. If we then go back to, let's say, the normal -- let's say, slides that we normally show. If you look on the cost breakdown, direct material, has helped us with 2.6 points. Roughly 160 basis points is related to the mix where we have a stronger Americas, we have a stronger Global Technologies. And then we have also, on the other side, I would say a weaker EMEIA as well as a weaker APAC. But you ball down to that 1 point or 100 basis points is related to that we see lower material as well as we see lower logistic costs. Conversion cost is up with 40 basis points. We have lower volumes, of course, impacted by the general inflation as well as salary increases. But we have partly been able to offset that with the help of operating efficiencies. See the same in the SG&A, which is, I would say, diluting then on 50 basis points. The same there, of course, with the inflation, with the salaries, but we are also continuing our investments in R&D, but we have partly been able to offset that as well with efficiencies within S&A. Going more into the cost actions. We have increased our efforts on prioritizing Manufacturing Footprint Project with a faster payback. It's not so that we are increasing the provision, but it's so that we are doing a prioritization of the projects, which means that now we go from a full year saving, which previously indicated SEK 700 million. We have now added another SEK 100 million, so it will end up on SEK 800 million for the full year. Roughly half of that has already, let's say, contributed in the first half of the year. On top of that, we have also implemented a number of short-term cost measures. Expect the impact for the full year to be roughly SEK 900 million. Out of that, 1/3 has already, let's say, happened in the first half of the year. So let's say, we would have another SEK 600 million cost savings then for the second half of the year. This impact -- I mean, this is sort of, I would say, the classical things like with travel, marketing, reducing the external services, reducing overtime, as well as personnel redundancies. This is mainly implemented within EMEIA as well as Entrance Systems within Europe. Operating cash flow, as said before, it's a record SEK 6.7 billion. We have a cash conversion in the quarter of 132%. If you look on a 12-month rolling, we're at 113%. Here, I would say the star here is Entrance, which have done a really good job on creating profit, but especially then on their working capital performance. And of course, sort of if you look for the full, of course, we have a good earning as well as we've been able to reduce our working capital in a good way, which sort of is shown then in operating cash flow. The gearing, yes, it looks, I would say, of course, slightly different than what you have seen in previous quarters because, of course, naturally with the acquisition of HHI, we have increased our debt quite substantially. But still, the net debt/EBITDA is below the 3 that we previously indicated. It ended at 2.8. We're very happy to see that Standard & Poor has lifted the negative outlook and now sort of has put us on a neutral outlook because they also see that we will be able to generate cash in order to reduce our debt. We sort of still have a strong enough balance sheet to continue our acquisition strategy. And as you've seen this morning, we have just done an acquisition, as mentioned by Nico, then of Evolis within HID, which also sort of just shows that we will continue our acquisition strategy, and we have the balance sheet to support it. Last but not least, the earnings per share is up 18% for the quarter. And with that, I hand back to Nico for some concluding comments.

Thanks, Erik. So our conclusion is that it was a good quarter for us with an organic sales growth of 3%. Organic sales growth complemented with very good growth through acquisitions of 6%; a record EBIT margin of 16.7%; if we exclude HHI, a record EBIT of SEK 5.5 billion; record cash flow of SEK 6.7 billion. And then very excited that we then finally could close the HHI acquisition and embrace the HHI in the ASSA ABLOY family. We mentioned the impairment for Citizen ID and Global Technologies. And it is clear that we continue to operate in an uncertain economic climate. We still see good momentum on the Commercial side. We believe that the worst might be behind us on the Residential side in North America, but definitely in Europe, we believe that the Residential side will remain challenging now going forward into Q3. And therefore, we have taken extra short-term cost measures and brought some of the MFP programs forward in order to protect our bottom line and to protect our cash flow and to continue to deliver strong financial results with strong operational execution as we have done in Q2. With that I give the word back to Björn for Q&A.

Thank you, Nico. It's time to open up for questions now. I know that there are more than 10 people who have indicated they would like to ask questions. So please refrain yourself to ask 1 question with 1 follow-up, so we can get through as many as possible. So operator, this means we're ready to kick off the Q&A session. Please go ahead.

[Operator Instructions] Our first question comes from Daniela Costa from Goldman Sachs.

I'll ask 1 and a follow-up each at a time. But maybe starting with HHI. If you could come back with sort of like what's the plan to get HHI margins back to historical levels. I think at least looking at the discontinued operations under Spectrum, it seems like the business deteriorated quite a bit while the process was ongoing. So maybe you can tell us how quickly you think you can get it back to where it was and also maybe the net interest impact from the integration?

Yes, I can start with the first part and then Erik perhaps can comment on the net cost of the integration. Well, it is clear that indeed the HHI result has deteriorated over the last 18 months. They are, of course, operating in a challenging Residential market in North America that has had an important negative effect on top line, where they have seen around 10% negative growth in the first 6 months. And it had also an important negative effect on the bottom line, where the EBITDA level is today around 12%, where historically, the EBITDA level has been around 18%, sometimes even a little bit higher. That has to do, of course, one, with the lower top line, and two, by the fact that they have seen an important cost inflation. They import a lot of goods from China at higher material costs, higher logistic cost, and then higher labor cost and general inflation, like we have seen also. And it has been more challenging apparently for them to compensate that in a fast pace with that pricing. They are working on that today and we're very confident that result will already improve now and in the coming quarters we will see a good significant improvement already in the second half of the year. Of course, a little bit with the actions we do, but I would say mainly with the actions they have taken prior to closing of the acquisition. And we are confident that as standard synergies will start to kick as of next year that we then further will see gradual improvement. We don't see any reason why we cannot come back to those historical EBITDA levels. Historically, they have been at EBIT levels around that 16%. Of course, at the beginning, we will have a PPA dilutive effect depending a bit on where the calculation goes, but that will give us a dilution of 4%, 5%. So at the beginning, it will be a bit lower. On the synergies, like I explained earlier, there is as well top line synergies as bottom line synergies. Top line synergies are definitely through more product innovation on the mechanical side, further extending our customer share, and then being sure that we remain in the driver seat when it comes in the shift from mechanical to electromechanical and digital, not only at the front door, but also the digitalization in the house where they have the installed base and where they also have the channel to market. We will welcome the equity of their brands through innovation, through digital marketing, to further lift that brand equity. We see very good opportunities in export business, growing the business in Central and South America, growing the business in some countries in Asia. And then on the cost side, they have a very cost efficient factories and logistics in Mexico and in Asia that we can, like I explained earlier, use to put more of our products in, produce them at a lower cost and then get better cost and better margins on our traditional business. And next to that, we see common purchasing and logistic scale advantage. Many of them, of course, it will take some time to kick in, but most of them should come much earlier than the 5 years, I would say. Most of them, if you can't realize them within the first 3 years, you will not be able to realize them in 5 years either. So we are quite confident that, again, we will see good improvement already in the coming quarters.

And then if you look on the financial net, as I mentioned before, the financial net for the full year, we now estimate to be roughly SEK 2.5 billion. With the present interest rate, it could sort of be slightly below 5%. That is what we calculate right now.

And just in terms of the follow-up question, can you comment on the backlog you have left still in? And do you still have a backlog left in Global Tech? I know you mentioned it reduced this quarter, which was a great help to growth. Is there still some extras left to help in Q3, sorry if I missed that before.

No, you didn't miss it because I didn't comment on it yet. We worked away another north of SEK 200 million backlog in this quarter on PACs, Physical Access Readers and Controllers. We could say that we are almost done now. So there's almost nothing left. So as of Q3, it will be back to normal business. That being said, even if you exclude that recovery of that backlog, we had good double digit growth in Global Tech in the quarter. Of course, now in Q3, also there the comparison becomes more challenging. We had an organic growth of 19% for Global Tech last year. So... We will have 1 working day less again in Q3 this year, so the comparison will become more difficult. And on top of that, we have, of course, the backlog, which is now worked away.

The next question comes from Guillermo Peigneux from UBS.

I guess maybe a couple of questions on EMEIA organic growth and then on Americas. So the same question, but regarding both markets. I guess, comps are getting tougher for both, and I wanted to check what you saw during the quarter in EMEIA in terms of the developments there, maybe in the regions you mentioned? And then in Americas, because it seems to be that the worst is behind us. So what you saw in Americas during the quarter that makes you think that, that could well be the case? And I have a follow-up question after that.

If I start with the U.S. Like I mentioned earlier, on the Commercial side, we still see good momentum. We see our Spec business still up higher single digits. And on the Commercial side, our first concern is not necessarily the market conditions. It's more the difficult comparison with a year ago, because also in Q3 last year, we grew in the Americas 17% organically. And this year, of course, we will have, also in Americas, 1 working day less, which cost us around 2% organic growth. But I mean, on Commercial, it continues like before and the same comments as before, similar activity levels as before. And if you look through the quarter, it has been a similar pattern now also going into the beginning of July. Although it's a short month and difficult to read, it's also a similar pattern. On the Residential side, we have seen a deceleration of R&R, and we have seen a big drop in new builds. I would say that it did not affect the Americas division too much. It affected much more the Entrance Systems division with the Garage Door business and with the Fencing business. and it affected APAC because of the export out of Australia of the Window Hardware business. As you know, we, excluding HHI, definitely today are very small on the Residential side. I commented on what happened with HHI, which is 100% on the Residential side. The reason of optimism is that in recent weeks, we see in the market that people are definitely more optimistic with the new inflation figures that came out, with the expectations on interest rates, and so one effect that there is still a significant deficit in new housing in the U.S. And therefore, we believe that perhaps things have bottomed out and that we should start to see an improvement perhaps more towards the latter part of the second half of this year. The picture on the Commercial side, I think, is very similar in Europe. Also the high single-digit growth of our Spec business, still good momentum. The picture is different on the Residential side for 2 reasons because we are, if you exclude HHI, much more exposed in Europe on the Residential side, it's around 40% to 45% of our business in Europe. And there we believe we are not true yet. We continue to see challenging market conditions on the Residential side as well as on new build. We see that a little bit everywhere in Western and Eastern Europe. I would say the only bright spot for EMEIA is Middle East, Africa, India, where we have good double-digit strong growth. But all other regions are suffering from that slowdown on the Residential market. And the most decline we have seen in the Nordics, especially in Sweden, where we have relative important part of our business that goes to OEM. And OEM is, of course, new build Residential. New build Residential in Sweden has, you could say, fallen off the cliff. Normally, there is around 100,000 new houses that are -- Residential houses that are built in a yearly base in Sweden. We are today at a run rate of 20,000. So it's 5x less than the historical run rate. And of course, that has an effect on our OEM business. There's an effect on top line. It has an important effect on bottom line because Nordics is by far our most profitable region. So in the mix, that also puts challenges on the bottom line. And as we don't believe that it is over yet, we have decided to implement further cost measures. As Erik explained, we have brought forward some of the MFP programs and we'll realize another extra SEK 100 million of MFP savings this year already by bringing forward those projects. And then we have the SEK 900 million extra savings that we will do, of which 1/3 is already realized, SEK 600 million still to go, and that is mainly for EMEIA given the Residential market conditions.

Very clear detail. And I wanted to actually ask about EMEIA given the tougher comps as we come into next year or so into the second half. You did report a good operating leverage in this quarter despite the drop in activity. I just wonder how sustainable that is excluding, obviously, all these actions that you're putting in place there.

Well, it's clear that despite all the actions we do and the good operating leverage, we believe that our margin in EMEIA is too low. And therefore, also the extra measures we will take now in the second half of the year, and we expect, with what we know today, an improvement of the margins for EMEIA in the second half of the year, thanks to this extra cost measures that we will do.

The next question comes from the line of Vivek Midha from Citi.

I had a question about the construction market in Europe. You called out the OEM channel particularly difficult. On the other side, within the distribution channel, how do you view the channel inventory at this stage? Have you seen any movements in that?

Of course, if I talk about the Nordics, you also have some destocking. We have also definitely destocking with the OEMs that gives us that double dip for the OEMs in the Nordics, like we have seen in France a couple of quarters ago. But I would say that is not a significant argument that explains the results in EMEIA. The explanation for the results is really that the Residential market is down in general and that the new build Residential market is down in a very significant way in Europe.

And then my other question was just on pricing development. Any update on how you see that developing? You've done 4% in Q2, the same with Q1. Do you expect that to decelerate into the second half? Or how do you see that development?

Of course, we have had a price carryover of around 2% from last year, and then we further continue to increase prices in Q1 and even in Q2. I would say for everything that is not steel related -- for steel-related products, we were able to keep the price. And where steel indexes are today, we are happy that we can keep the prices up to the level where they are today because it gives us good equation. But for all the rest, we will continue to increase prices. Of course, when you have a market slowdown, it becomes more challenging to further increase prices. As 1 and 2, of course, the comparison with last year becomes more challenging. So therefore, you should expect a lower price effect going into the second half of the year now.

The next question comes from Lars Brorson from Barclays.

First 1 for Erik, perhaps just coming back to HHI, can you clarify, Erik, that the EPS accretion in 2024 is post synergies and post PPA. And I wonder whether just on those 2 items, you might be able to help us a little bit with what would be good numbers to assume? And maybe higher level on HHI, can you remind us of the split between revenue and cost synergies? I guess, the original $100 million was with your U.S. Residential business still in the group. So I've been assuming that you've been baking in some more cost synergies as the market deteriorate. I wonder whether the expected recovery in the U.S. Residential market changed that view on cost synergies? And if I can squeeze a quick comment in just on the noncore of HHI, Plumbing & Hardware, any update there, Nico, would be helpful.

Perhaps I can start with the Plumbing business. And like we said earlier, we were not in Plumbing business before we acquired the HHI. We started to study a little bit the Plumbing business from outside and we had 18 months' time to do. So... But it's only now 2 weeks, 3 weeks that we are the proud owner of HHI. So it's a little bit too early. We are still in the learning phase. I got my personal lesson last week when I was there. So too early to give more updates on the Plumbing business details. When it comes to the synergies, let's say that they are significant on the cost side and on the sales side. We don't want to give the exact number, but it's not so that it's very skewed towards cost of sales. Both are rather equal and important. Then I don't know if Erik wants to comment on EPS accretion.

No, one thing. When we talk about synergies to $100 million, as we've said before, it's not a hockey stick, which means that it's a gradual implementation of the synergies. If we then look more on the PPA, we, of course, are now doing the valuation to sort of come with the final number. Today, we are using roughly 20%, but we have to see what comes out of, let's say, when we do the whole valuation of the marketing, of the brand technology, and so forth like that. But as mentioned before that we foresee to have a slight positive EPS accretion from HHI during 2024.