dormakaba Holding AG (DOKA) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Welcome to today's presentation on our results of financial year 2019/'20. I will start with the presentation with some overall comments on our results and business activities for the full financial year, followed by our CFO, Bernd Brinker, who will talk about the financials in more detail. Afterwards, we'll be available for your questions. Our financial year '19/'20 was a year of 2 very different halves and this is reflected in our business performance and results. The first half year was largely in line with expectations. However, the outbreak and spread of COVID-19 led to an unprecedented slump in business activities from February 2020 to the end of our financial year. Before we come to the results, let me give you an overview on how we at dormakaba handle this crisis. We have 3 priorities in our crisis management: first, the health and safety of our employees; second, focus on supply chain and hence, business continuity, for some time now, all our factories are up and running again; and third, maintaining our financial stability by applying the Cash is King principle in our financial management. And we'll go into more details here later on, but we are able, for example, to strongly improve our operating cash flow and to decrease our net debt as compared to December 31, 2019. Our key figures for the full year in brief. We generated sales of CHF 2.539 billion. Organic sales decreased by 6.9%. EBITDA reached CHF 325 million, which amounts to an EBITDA margin of 12.8%. Net profit was at CHF 164.1 million. Based on these results, the Board of Directors proposes that CHF 10.5 per share be paid out for the financial year '19/'20. This is fully in line with our dividend policy. Now I would like to give you more insight into the performance of our 5 segments. While all segments added to the decline in operating results, their performance varied. Segment performance in the second half of 2019/'20 was marked by the severity of the COVID-19 pandemic in individual countries. I would like to start with the segment Access Solutions Americas, so North and South America, which was heavily impacted by the pandemic. The business recorded organic growth in the first half of financial year. However, in the second half, organic sales and profitability were significantly down compared to previous year. For the full year, organic sales were down 8.1%. Revenue contracted for all countries and product clusters. Our sales development was harmed by project execution constraints resulting from lockdowns in individual locations. While there was no blanket lockdown for the U.S. and construction site activities resumed to normal levels by the end of the financial year, U.S. interstate travel restrictions completely limited service and installation activities. In the fourth quarter, which means April to June, we had to initiate a cost saving and restructuring program to address the ongoing pandemic-related substantial volume contraction and to maintain operational and financial efficiency. Measures include a headcount reduction, mainly in manufacturing in Asia and the Americas. In AS Americas, the program included a reduction of around 150 FTEs, most of which are already being effective. As of July 1, the segment is led by our new COO, Alex Housten. His priorities include driving sales excellence, further operational consolidation and performance improvement, which also includes the finalization of the measures initiated at our Mesker business. These measures were slowed down due to the pandemic as rebuilding customer confidence was hampered by the restrictions. Our next segment is Access Solutions APAC, Asia Pacific, which was first impacted by the pandemic. Organic sales for the full year were 8.5% below previous year as the second half of '19/'20 was severely impacted by the pandemic. The biggest negative impact for the business was in the region South Asia. Fourth quarter sales of our Indian market organization came close to a standstill being down by roughly 90% compared to previous year's level. Nevertheless, there were also some encouraging signs in this segment. Despite the strong negative impact on sales, the segment was able to keep the EBITDA margin at a best-in-class level with 13.6%. Further, the Chinese commercial business, which was a major driver for our performance in that market, held up well. And the Pacific region and particularly Australia were less affected and even showed organic sales growth for the full year. As part of the group-wide program mentioned before, AS APAC initiated measures to adjust capacities and costs, which included a reduction of around 500 FTEs, mainly manufacturing, most of which are already being effective. Looking ahead, barring newer waves of COVID-19 outbreak, the segment expects an improvement in the first half of financial year 2021 versus the second half of financial year '19/'20. On the segment Access Solutions DACH, Germany, Austria and Switzerland, which was the least affected by the pandemic. The business experienced organic sales growth for the first 9 months of the financial year. However, for the full year, the segment reported an organic sales decline of 3.5%. The business development in the DACH markets was solid, with Switzerland our third biggest market, even achieving organic growth for the full year. The overall decline in revenues, however, is driven by lower worldwide demand for Door Hardware products, one of the 3 global product clusters attributed to this segment. This led to lower intercompany sales and to significant lower capacities in the relevant production sites for this product cluster, including the segments, sites in Asia and hence, also had a significant impact on profitability. In financial year '18/'19, so back '18,'19, the segment initiated a performance-based program that included profitability measures at its Ennepetal side. As a result, the segment was able to partially compensate the negative impact on the performance by COVID-19 in the period under review. Nevertheless, to adjust cost structures, AS DACH initiated measures as part of the group-wide program in the fourth quarter. They include headcount reduction of around 100 FTEs, mainly manufacturing to address lower volumes and price pressures in the market. Now some details on Access Solutions EMEA, Europe, Middle East and Africa, where the impact of the pandemic was in between the other segments. While AS EMEA experienced organic growth in the first 9 months of the financial year, organic sales for the full year went down 5.7%. All markets were, to some degree, negatively impacted by the COVID-19 pandemic during the last 4 months of the financial year. Moreover, even stable business activities such as services were negatively impacted due to restricted access to customer premises during the lockdowns. As part of the group-wide program, in the fourth quarter, AS EMEA had to initiate an adjustment of its market organizations with an overall headcount reduction of around 150 FTEs. As of January 1, 2020, the segment is led by our new COO, Steve Bewick. Steve and his team have successfully addressed our structural issues in the region Scanbalt, for example, with the divestment of our Norwegian project installation business announced in early July. The transaction includes around 80 FTE and was closed on August 31, 2020. On to the last segment, Key & Wall Solutions, which was the hardest hit by the pandemic. The two business units of the segment performed very differently. The business unit Key Systems was heavily impacted by the pandemic. April and May 2020, in particular, were impacted by a sales decline of more than 60% as all its major production sites around the world were unexpectedly and temporarily closed. Regional lockdowns in most of its major business markets led to a significant decline in demand, and sales were also impacted by an unprecedented slump in the global automotive industry. In contrast, the business unit, Movable Walls, achieved good organic growth and increased its profitability, despite the challenging environment. These very good results were driven by a strong performance of its North American Modernfold and Skyfold businesses as well as by a positive contribution from automation measures of the German production site in Ocholt. To adjust for significantly lower volumes of Key & Wall Solutions, the segment had to initiate a headcount reduction of around 350 FTE the fourth quarter, mainly manufacturing of the Key Systems business unit. Most of the reduction was implemented by end of June. To close the overview on the segment results, I would like to give you a short outlook on business development. We have seen some sequential improvements for all segments in June and July and expect this to continue for the coming months. Therefore, we expect on a group level that the first half of financial year 2021 will outperform the second half of the last financial years. So the second half of '19/'20. This is always under the assumption that COVID-19 or geopolitical tensions, such as trade conflict, will not create an additional significant deterioration of the business environment. Changes in the Executive Committee. I already mentioned that in the year under review, there were changes in the leadership of 2 segments: in AS EMEA as of January 1, 2020, and in AS Americas as of July 1, 2020. In addition, we decided to discontinue the chief manufacturing officer role starting July 1 as CMO, Jörg Lichtenberg decided to leave the company at the end of the financial year. Overall, the Executive Committee is now reduced from 11 to 8 members at the beginning of the merger. This concludes my short overview on our results. I would now like to add a few words on our investments. Our sound financial and business profile has enabled us to consistently execute our strategic initiatives, even during the current crisis. This includes continued investment activity in innovation, digital transformation and in sustainability. This is of key importance to ensure our competitiveness and long-term profitable growth for the post-COVID-19 period. Let me give you some examples. In the past financial year, we again invested around CHF 112 million or 4.4% of net sales in projects and activities around innovation and digital transformation. 4.4% of net sales is a high number in our industry. On this slide, you see a selection of products we launched this year, overall segments and product clusters. Let me just highlight one. Our new generation sensor barrier Argus, which was enhanced with biometric features to enable touchless access and people flow. Many of our investments are focused on meeting the changing customer requirements, especially also with regards to digital customer experience. For example, we introduced a digital subscription and billing platform, which is used for the first time for our Oracode vacation rental product range. With our offering, we are also well positioned to address the demand emerging from the pandemic, be that with regards to technology, as in the area of seamless and touchless access solutions, or for a specific vertical such as health care. For example, in just a couple of months, we developed and launched an automatic door system that uses 3D and thermal imaging to control the flow of people in stores. Sustainability has considerably gained importance as one of our key strategic objectives over the past years. Despite the challenges and disruptions brought by the pandemic, we have remained steadfast in our sustainability activities and have, again, made good progress on achieving our communicated targets. For example, we achieved a great saving on our carbon emissions and significantly improved the share of products with environmental product declarations in total sales. We also strengthened our sustainability governance within the organization. Accountabilities are now also attributed on a level of the Board with the Chairman being mandated to monitor and evaluate the implementation of the sustainability strategy. Our efforts and progress in sustainability continue to be acknowledged by independent experts in the field. For example, in December 2019, we have been awarded the gold medal for sustainability by EcoVadis, placing us in the top 5% of our assigned sector. With that, I would like to hand over to our CFO, Bernd Brinker, for more details on our financial results. Bernd, the floor is yours.

Thank you, Riet. Warm welcome to all of you from my side as well. I would like to start with a brief overview. Our results for the 2019/'20 financial year have been heavily influenced by the coronavirus pandemic. After achieving organic growth of 0.8% for the first half, there was an organic fall in sales of 6.9% for the financial year as a whole. Currency translation caused another 3.7% drop in the sales figure, while acquisitions made a net positive contribution of 0.7%. In total, therefore, our sales declined by 9.9%. We achieved an EBITDA of CHF 325 million, given an EBITDA margin of 12.8%, which is 310 basis points lower than in the previous year. This includes various one-off costs caused by the negative operational effects of the pandemic, and I will come back to these in more detail later. After taking account of a nearly unchanged net financial result and an improved income tax result, net profit came to CHF 164.1 million. Based on the resulting net profit after minority interests of CHF 84.6 million, our Board of Directors is proposing a dividend of CHF 10.50 per share. And now to the details. First, let's start with sales. There was an organic drop in sales for the 2019/'20 financial year of CHF 193.2 million, mainly because of COVID-19. The pandemic impacted our global business, initially in China from February 2020 and then from mid-March in parts of Europe and South America, and then in North America from end of March. All of our businesses and segments were, therefore, already feeling the negative consequences of the pandemic in March 2020. The effects were worst in April and May, but fortunately, in June 2020, there was already the market improvement in sales, even if they were still below the year back figures. At the same time, the strengthening of the Swiss franc also had an impact. Negative contribution from currency translation was CHF 104.3 million compared with the previous year. In the fourth quarter of financial year 2019/'20, organic growth was around 25% lower than in the same quarter of the previous year after having been just 3% lower in the third quarter. Our Key & Wall Solutions segment reported the largest organic fall in sales. The very good results of the Movable Walls business unit were not enough to offset the decline recorded by Key Systems. Our production sites for Key Systems are all located in regions where the pandemic hit hard and where extensive restrictions were imposed. Our end markets in Key Systems also suffered greatly. AS DACH has survived the pandemic best so far. Although our global Door Hardware production in Asia was significantly impacted by the fall in volumes, regional markets in Switzerland and in Germany proved highly resilient. And last but not least, our acquisitions and divestments made a positive net contribution to sales growth of CHF 19 million. Next slide is on EBITDA. The decline in sales left a significant mark on EBITDA. After posting EBITDA of CHF 214.1 million for the first half of financial year '19/'20, EBITDA for the second half sank to CHF 210.9 million, mainly because of lower sales volume. As a result, the full year EBITDA margin fell to 12.8%. The pandemic's impact on our profitability is particularly evident in the changes in our EBITDA margin throughout the financial year. In the first half of the financial year, so from July to December 2019, it was still up at 15.5%. In the third quarter, so from January to March 2020, it was, around 150 basis points lower than the equivalent period prior year quarter. And in the fourth quarter, so from April to June 2020, the EBITDA margin was more than 10 percentage points down on the prior year quarter. So for the second half of the 2019/'20 financial year, which means January to June 2020, we still managed to post an EBITDA margin of 9.6% despite COVID-19, though, this was obviously much lower than the year back 15.8%. The EBITDA figure includes extraordinary and nonrecurring expenses. These totaled almost CHF 19 million for financial year '19/'20, bringing the EBITDA margin down by around 70, 7-0, basis points. They include around CHF 12 million for COVID-19-related restructuring measures and a further CHF 7 million that we already reported for the first half. After correcting for these exceptional costs, an adjusted EBITDA margin for the '19/'20 financial year would have been at 13.5% EBITDA margin. EBITDA was also impacted by the strong Swiss franc, which caused a negative currency translation effect of CHF 16 million, 1-6. And finally, also here, acquisitions and divestments made a net positive contribution to EBITDA of 9.3%. Let's dig into our Cash is King initiative. We reacted quickly in the emerging crisis. Already in March 2020, we moved to adjust our corporate strategy, installed a comprehensive global crisis management and established the principal Cash is King. The main objective of these changes was to maintain our entrepreneurial flexibility and preserve financial stability at all times. Instead of focusing primarily on organic sales growth and EBITDA margin, we prioritized cash flow, i.e., the permanent and sufficient availability of financial resources and the inflow of funds from our operational businesses. We are in a position to monitor this financial status globally and on a daily basis. As a consequence of these measures, we introduced a global hiring freeze. We reduced overtime and holiday entitlement balances. We cut the use of temporary workers, and we introduced short-time work in some countries. The business plans and requirements of our customers and markets have changed dramatically, at least for the time being. So we are also reassessing all investments and projects that have previously been greenlighted. In addition, we have reprioritized our M&A activities, though we continue to develop selected attractive projects, which we know from experience, need several years of preparation and work to build a trusting relationship with the present owner. So we continued to work on the M&A pipeline, while we reprioritized our M&A activities, the execution. What have been these measures? What have these measures helped us to achieve so far? We can report particularly success with our trade receivables, which have gone down by more than CHF 100 million compared with the previous year, thanks to a very focused work by our whole organization. The cash received has been used to pay down financial debt and increase cash. This has allowed us to reduce our net debt by almost CHF 170 million compared with the figure on our interim balance sheet as of December 31, 2019. Let's talk a little bit more in detail on our cost savings and restructuring program. We were also quick to initiate a group-wide cost savings and restructuring program to mitigate the crisis and the attendant decline in demand. The underlying aim is to adjust our cost structures to our capacities. One of the characteristics of this unprecedented crisis is the negative effect it has on both supply and demand. Another is the series of restrictions and lockdowns imposed by governments and local authorities, which have led to much reduced economic activity around the globe. By contrast with earlier crisis, this one has also had a serious effect on businesses that were previously seen as very crisis-resistant such as Services. Here too, the aim of the measures we have taken is to maintain our entrepreneurial flexibility and financial stability at all times. These measures inevitably entail job cuts, a total of up to 1,300 staff will be affected, the vast majority of them production employees in Asia and America. We already made around 900 of these cuts by the end of the 2019/'20 financial year as of 30th of June. We expect these measures to generate a positive financial contribution that should already be visible in the 2020/'21 financial year. The associated onetime costs come to overall CHF 26 million, of which CHF 12 million will fall in the financial year '19/'20. So they are already part of our P&L, which we are presenting today. So let's turn to the income statement. The first thing to note about the chain is the change in the gross margin, driven by the negative volume effect. This more than offset the positive contributions from integration gains, operational improvements and lower raw material costs. The lower expenditure on SG&A was driven by basic successful cost management and the realization of cost synergies, but also in the fourth quarter, from capacity adjustments in response to lower demand. As Riet Cadonau has already said, we are sticking to the implementation of our long-term strategy despite the crisis. This strategy is based on issues that are priorities for us: innovation, digitization and sustainability. In the profit and loss statement, this is reflected particularly clearly in spending on R&D. In financial year '19/'20, we once again invested about CHF 112 million here. Including capitalized projects and given the lower sales figures, this comes to 4.4% of sales overall. The net financial result is largely stable, mainly because the higher level of debt on average could be offset by lower interest charges. And the income tax, we were once again able to achieve a lower income tax rate compared with the previous year. This is thanks to a onetime positive effect in the U.S.A., where we were able to carry back tax losses to higher taxed previous years. As a result, our income tax rate was only 22.3% compared to the normalized level of around 28% at the time of the dormakaba merger in year 2015. Overall, net profit fell to CHF 164.1 million, reflecting, in particular, the decline in operating profit. Now let's have a look into our cash flow statement. Our switch to the Cash is King principle led to significantly improved operating cash flow. This can be seen in the rise in the absolute figure for operating cash flow from CHF 280.7 million to CHF 328.1 million as well as the significant increase in the operating cash flow margin from 10% in the previous year to now 12.9%. The key drivers here were the substantial improvement in net working capital and especially in trade receivables. We also reduced capital expenditures compared with the previous year, though the actions taken on many long-term investment projects require time and will only have a delayed effect. We, therefore, expect another fall in CapEx in the current financial year. So in the year 2020/'21, we expect another fall in CapEx. Free cash flow before M&A rose by 35% from CHF 179.7 million to CHF 242.9 million. How does this translate into net debt development? Despite 4 to 5 months of the considerable negative influence of COVID-19 and despite the acquisition of Alvarado at the start of 2019/'20 financial year, our net debt as at June 30, 2020, was more or less stable at CHF 667.7 million, which is only CHF 16.3 million higher than at the end of the last financial year. It is worth noting the positive trend since December 31, 2019, i.e., the end of our first half where -- when net debt was still up at CHF 836.1 million. This means that we are able to reduce our net debt by CHF 168.4 million in the second half of the financial year. dormakaba thus continues to have a solid financial profile. This is reflected in the leverage ratio of net debt to EBITDA of 2.1x for the period under review. Owing to the crisis, measures introduced to ensure permanent solvency and liquidity have become much more important. We continued to have what we regard as sufficient financial room for maneuver. We have as yet unused committed credit lines granted by international and regional banks totaling more than CHF 500 million. Let's move to the dividend proposal. As in previous years, we want our shareholders to participate appropriately in our financial results for the '19/'20 financial year. We agreed and communicated a dividend policy when we merged to form dormakaba in year 2015, which commits us to a payout ratio of at least 50% of net profit after minority interests. As you can see from the chart, tracking our payout ratio, we have consistently implemented this policy for the last 5 years. It ensures that the same principles are always applied, whether we are in a boom phase, a phase of steady growth or a period of crisis. The Board of Directors is, therefore, asking the Annual General Meeting of this October 2021, so 20th of October '21 -- '22, sorry -- again, of October 20, 2020, to approve a dividend of CHF 10.5 per share. This is equivalent to a payout ratio of 52.1%. The proposed reduction in dividend compared with the previous year, where we paid CHF 16 per share correspondence exactly to the fall in net profit after minorities. Due to a recent change in the law, the dividend distribution will be different to the previous years. Previously, we paid the whole dividend from reserves from capital contributions. This form of distribution is now limited to a maximum of 50% of the whole. Therefore, half of this year's proposed dividend distribution will, therefore, come from reserves from capital contributions and the other half from retained earnings. The portion paid from reserves from capital contributions is tax privileged for private individuals in Switzerland. To finish my part of the presentation, I'd like to talk about the outlook for the 2020/'21 financial year. After a very weak business performance in the month of April and May 2020, the results for June and July and even August 2020 show a significant improvement. Based on this improvement, we currently expect to see a recovery in our business activities. However, we have to note that this recovery will not be global. In India and Australia, for example, which are important to our business, we are currently seeing negative influences and heavy restrictions as a result of COVID-19. On the other hand, there are positive signs of economic recovery in some other countries that are important to us, including the U.S.A., Germany and Switzerland. The dominant issue for our business in 2020/'21 financial year is, therefore, COVID-19. Reliable predictions about this are not possible at this time. In addition, we have to factor in geopolitical risks such as existing trade conflicts. All in all, visibility about the future course of business is very limited. Under the assumption that COVID-19 or geopolitical tensions will not create additional significant deterioration of the business environment, we expect to see a sequential improvement. In particular, we currently believe that our organic sales growth and EBITDA margin for the first quarter of our 2020/'21 financial year should be better than in the fourth quarter of the last financial year, so of '19/'20. And we expect that our organic sales growth and EBITDA margin for the first half of 2020/'21 should be better than the second half of the 2019/'20 financial year. Due to the current low visibility and attendant economic uncertainties, we are not issuing any concrete guidance for the 2020/'21 financial year or for the period thereafter. And now I'll hand back to our Chairman and CEO, Riet Cadonau.

Thank you very much. And before we conclude our presentation, there is still one major event to address, my succession. On July 9, our Board of Directors appointed Sabrina Soussan as my successor as Chief Executive Officer. She combines strong leadership and interpersonal skills, profound industrial knowledge and a successful track record of growing businesses profitably. Along with my colleagues of the Board, I'm convinced that with her global business experience, her know-how in the field of technology and her drive for innovation as well as her authentic personality, she is an excellent fit for dormakaba and has everything it takes to successfully advance our businesses. With a view to ensuring a smooth transition, Sabrina will join dormakaba on January 1, 2021, as a member of the Executive Committee and assume the CEO function on April 1, 2021. With this, in line with our previous communications, my dual mandate as Chairman and CEO will end. Until then, the leadership team and I will focus on navigating dormakaba through these challenging times as a stable, healthy company. We are confident that dormakaba has a sound foundation necessary to continue mastering this ongoing crisis while enhancing future competitiveness and long-term profitable growth for the post-COVID-19 period. Thank you very much for your attention. Now Bernd and I are ready to take your questions. And with that, let me hand over to our operator, Alice.

[Operator Instructions] The first question comes from the line of Martin Flueckiger with Kepler Cheuvreux.

I'll start off with the management changes. You've announced quite a few, I think, 3 major changes over the last few months. Just coming back to Sabrina Soussan, I'm kind of curious, what was the decisive criterion that favored the appointment of Ms. Soussan as new CEO? And also speaking of the new COOs within your organization for AS EMEA and AS Americas, what are the key capabilities of Steve Bewick and Alex Housten that made them eligible for their new positions?

Okay. Let me start. So you're right. We have communicated 3 appointments: Steve Bewick, Alex Housten and Sabrina Soussan. Let me start with your first question about the required job profile of that job the way we have defined it. And Sabrina is an excellent fit to that profile. Based on our profile, we required international leadership experience; technology and/or industry experience; leadership and personality, which was clearly defined what we mean with that; proven track record; profitable organic growth; and willingness to relocate to Switzerland. In addition, DNA for market-oriented innovation with digital competence, M&A and PMI experience and a reasonable career path ahead. These were the clearly defined criteria. And as I already said, Sabrina was a great fit to that one. And that led us to the decision to appoint her as the CEO. Alex Housten, so our COO AS Americas, has the following priorities: first, sales excellence; second, further improvement of operational excellence; and last but not least, to finally fix the Mesker issue, which is driven by customer satisfaction. At the end of the day, we need to see profitable growth in the most important country we have in our portfolio. And last but not least, Steve Bewick, who was internally appointed. So he knew dormakaba very well. And also here, it's about profitable growth. It's about profitable sales, sales excellence besides the fixing of the issue we have in Scanbalt, particularly in Norway. And you have seen the first important step. So we could close that divestment, August 31, 2020. Next question, please.

The next question comes from the line of Bernd Pomrehn with Vontobel.

Seamless and touchless Access Solutions should represent quite an opportunity for the industry, given our continued fight against the pandemic. Are you able to quantify the sales potential stemming from this opportunity? So what should this add to your top line? And how long will it take until we see significant revenues really coming from this opportunity?

So we don't disclose numbers on that, but I can give at least examples. We launched, as I said, solutions in very short time. So within 2 months. That includes facial recognition and temperature screening, sensor in the remote opening systems and that was always in connection with automatic doors, people flow management solutions. So there is a clear need even for existing products. So just to make a normal door an automatic door, we have a very good and reliable solution called ED100 or ED200, these are the 2 products we have. And we have seen there clearly increased needs and demand, in particular, in China.

The next question comes from the line of Andreas Müller with ZKB.

I've got a question on the short-term increase, sequential the next months. Can you indicate July and August, how much that was down relative to last year? That's the first question.

Okay. Thank you, Andreas, for the question. So what we -- again, I would like to indicate what has happened. The crisis started in February. March was already on a very high level, April and May were the worst months. And I've indicated that we had a negative impact by almost 25% in the fourth quarter compared to prior year period. What we've seen then in June was already a significant increase. And there in June as well as in July, we were basically on the, let's say, the end of single digits, slightly double-digit negative growth compared to prior year periods. First indications for the month of August indicate that this is still the case, although it's early days.

Okay. And then on the restructuring, what's going to be the run rate? Or basically, how will that impact the cost base for the next years, all these measures you've got in mind?

Okay. With regard to the restructuring, now we talk about the COVID-19-related restructuring, which we initiated and launched in April -- or started in April. So we talk about the layoff of up to 1,300 employees, where we have already achieved 900 at the end of June 2020. We expect, in total, restructuring costs of CHF 26 million. From those CHF 26 million, we have already absorbed in the financial year '19/'20, in the P&L, CHF 12 million. So we expect another CHF 14 million in the current financial year. With regards to the payback, let's say, in general, our expectation is that we will basically achieve double the amounts of close to CHF 50 million savings as a result of those initiatives. And we expect this that the run rate will be achieved at the end of the current financial year, some elements will even lead into the year after, so in the '21/'22 year. But let's say, as a general statement, run rate should be achieved at the end of the current financial year, and we expect something in the magnitude of CHF 50 million. However, what is also important is that those restructuring measures have been designed based on our current assumptions for the business environment. And we believe if the current business environment will continue that this is the right setup. However, if there are signs of improvement, if and when, then we will go back and we will rehire people, especially again in the production area in order to be able to meet demand. So this might lead to a change in the profile of the costs as well as in the profile of the benefits. But if this continues to be the case as we expect it to be, then the framework is, as I just defined it.

The next question comes from the line of Tobias Fahrenholz with MainFirst.

Could you speak a bit on currency and then currently quite a weak U.S. dollar, you have a certain transaction mismatch, I think, around 4% or so. What is the negative margin you're seeing due to this in the current year? And do you still have some opportunities to reduce this gap either this year or in the midterm?

Okay. Tobias, we have an appendix in our presentation. This is Slide #33, where you can see our currency exposure on the left-hand side, the sales per currency region. And on the right-hand side, the cost per currency region. As you rightfully pointed out, there is a certain mismatch. However, I would consider this -- I would say this as only a minor mismatch. But what we have is there is an over -- it's a proportional element of sales into the U.S. environment, which, from today's perspective, is not the most favorable situation. So there is also a slightly negative impact, not only from currency translation, as I already described earlier, but also from currency transaction. What is also important, I would like to use the opportunity of this question to, again, go back to our financing. We have -- I've shared with you our financial profile, our financing structure, our net debt. And as you may recall from earlier discussions, the majority of our gross financial debt is available to finance our U.S. dollar assets. So therefore, we still continued to finance our U.S. activity. So therefore, the U.S. dollar interest rate is most important when, let's say, trying to assess and trying to design the expected financing costs. So therefore, also, the U.S. dollar is also important for the financing.

The next question comes from the line of Remo Rosenau from Helvetische Bank.

At the half year results, you said that you are reviewing your midterm financial targets in view of the current environment, which was pre COVID. Now you say that you do not provide any additional financial and business guidance anymore for the financial year 2021 and beyond. Does this mean that the midterm financial targets are now dropped definitely? I mean, particularly the 18% EBITDA margin target?

So here's my answer. First of all, I think it's a logical step that we can't provide a full year guidance at this time, given the COVID. And I continue to say that COVID is not a sprint, but a marathon. So it doesn't make sense for industrial companies, from my perspective, to guide on a full year, given that COVID. Now on top of that, as you might know, our new CEO will have to work on a strategy -- project because our current strategy is called dormakaba '21. So we established that strategy in 2015, and this will end with the business year '21/'22. Therefore, something that Sabrina will initialize with this series, of course, a strategy process to assess strategy and potentially to adapt strategy. And that includes, of course, also to define new medium-term targets. That -- so that given that COVID kind of impact, it doesn't make sense to come now with new medium-term targets. So let us maneuver through the COVID, which will last for the forthcoming months for sure and to keep the company stable and healthy. And when Sabrina is going to start in January, she will initialize that strategy process and part of it will also be definition of the medium-term targets.

Okay. Understood. Then the second question, if I may, how is the status of the integration of the 2 legacy IT and ERP systems of old Kaba and old Dorma? Is that now completed or partly? If you just could update us on that.

Okay. Remo. So I will take this question. So I think we have discussed the -- our strategy in terms of IT already the years before. And I would like to frame it as following. Our integration concept, our rollout concept for IT is not something which happens overnight. It's a thing which is an evolution over time. So we differentiate between application rollout and infrastructure. In terms of IT infrastructure, we are basically there. We -- this is already something which we have achieved, I would say, a year earlier. And this was a clear driver and support for the very difficult business environment since the start of COVID-19. So thanks also to our IT infrastructure, we are able to manage our business in accordance with the underlying needs. With regard to IT applications, we talk about the rollout of ERP elements. We have started in the year 2016, and we will continue with the ERP rollouts for the years to come. So this is something we are now working. We have just finalized our work in Australia with the ERP rollout. We are now in the process to finalize this in France. And we will now go to Switzerland, and this will take some long period of time. And once we are ready, then we'll move on to other countries, and we are also working in the U.S. environment on certain rollouts. So this is much more a project which will take some years. But again, it's not a revolution. It's an evolution over time, and it's nothing which will happen overnight. And so therefore, also the risk is rather limited because it's a step-by-step approach.

Okay. And are the -- what would you estimate are the costs attached to these projects per year?

This is -- I would like to give you an indication in terms of our IT costs because it's very difficult to give you a clear guidance on the specific rollout costs because on the one side, we design templates, then we have the specific rollouts, then we have the implementation time, then we have the hypercare time. So there are plenty of additional efforts being done. In general, our current IT costs are roughly, let's say, close to 4%, a little bit less than 4% of sales. Now with a much lower sales volume, it's getting up higher in terms of relative share. But in general, a little bit less than 4%. A benchmark in our industry is something in the magnitude of 2.5%, maybe in the digital environment now a little bit higher. But the difference between those 2.5% and I would say, 3.8%, this is something which you can allocate to our IT integration and ERP rollouts.

Okay. That would be roughly CHF 30 million to CHF 40 million. The 4% is CHF 100 million.

Yes.

[Operator Instructions] We have a follow-up question from Mr. Flueckiger with Kepler.