dormakaba Holding AG (DOKA) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Half Year Results 2020/2021 of dormakaba Holding Conference Call and Live Webcast. I am Alice, the Chorus Call operator. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Riet Cadonau, Chairman and CEO of dormakaba. Please go ahead, sir.

Thank you very much. Good afternoon, ladies and gentlemen. Welcome to today's presentation on our half year results 2021. I will start the presentation with some overall comments on our results and business activities, followed by our CFO, Bernd Brinker, who will talk about the financials in more detail. Afterwards, we will answer your questions. Our results have significantly improved compared to the second half of financial year '19/'20. Our strong focus on cash as well as benefits resulting from our cost savings and restructuring program, were key drivers for our ability to face the continued negative impact of the COVID-19 pandemic on sales, to protect our EBITDA margin and to improve our cash flow. We generated sales of CHF 1.227 billion. Due to the strong Swiss franc, we had a significant negative currency translation impact of 5.5%. Organic sales were still impacted by the pandemic at minus 6% compared to the previous year. However, they improved by 8.3 percentage points against the second half year of '19/'20. EBITDA was at CHF 181.9 million, which equals an EBITDA margin of 14.8%. Exceptional onetime items in the reporting period amounted to CHF 6.6 million and, therefore, had a positive impact of 0.5 percentage points on the EBITDA margin. Net profit was at CHF 99.9 million. And finally, we achieved a strong operating cash flow margin of 15.8%. Overall, our markets saw a good sequential improvement. This is despite a continued negative impact due to the pandemic which strongly correlated from country to country depending on the severity of the pandemic and the related measures. Now I would like to give you more insight into the performance of our 5 segments. All segments showed sequential improvement in performance compared to the second half of '19/'20. I would like to start with the segment Access Solutions Americas. Just like in all other segments, organic sales were below previous year as they were still impacted by the COVID-19 pandemic. However, compared to the second half of financial year '19/'20, organic sales improved by 6.6 percentage points. There was a continued strong performance by Alvarado in the Entrance Systems product cluster, which we acquired in July 2019. The performance of the Mesker hollow metal door business improved sequentially during the period under review. Nevertheless, for the full year, we still expect an overall negative impact as the business is steadily but slowly regaining customer trust due to improved delivery and quality performance. We generated organic growth only in the Electronic Access & Data global product cluster. The global product cluster Lodging Systems has experienced the most notable decline due to its high proportion of customers in the highly impacted hospitality industry. However, the product portfolio also includes solutions aimed at the multi-family and vacation rental housing sectors, which experienced continued growth, boosted by the multi-family housing market strength in United States. Under the leap of our -- lead of our new COO, Alex Housten, investment in growth initiatives were made and are expected to improve the results over time. Implementation of these initiatives have started in the period under review and includes, for example, a dedicated sales excellence initiative which is designed to drive performance through adaptation of selling efforts to geographic and market opportunities. We are confident that with our ongoing focus on innovative products and the implementation of growth initiatives, we are well positioned in the midterm, especially for promising verticals such as education, multi-housing and health care. I'm going to continue with Slide 6 and with the segment Access Solutions APAC, Asia Pacific. Sales in the period under review improved compared to the second half of '19/'20, but we're still impacted by the pandemic. However, despite a double-digit decline in volume, the segment was able to keep its EBITDA margin close to previous year's level with 14.6%. In China, the segment experienced sequentially increasing business activities during the period under review. Performance is still impacted by project delays in the commercial sector, particularly for projects with international customers in China. We gained a strong foothold with touchless entrance solutions in the market and have a good order backlog here for the second half year 2021. Wah Yuet delivered strong growth due to improved sales to the OEM business for the United States market. In addition, we have successfully started to shift capacity to Chinese domestic customers. In Pacific, the decline in sales was partially compensated by growth in the Kilargo business and door sales business in Australia, which we acquired in July 2017. The segment expects that major markets like China and India will return to organic growth in the second half of 2021 as well as for full year 2021. We continue with the segment Access Solutions DACH, Germany, Austria and Switzerland. We had a strong performance in all 3 markets of the segment, again, Germany, Austria and Switzerland. Organic third-party sales in those 3 countries in the first half of 2021 were in total, 6% above the same period of the previous year. However, due to the pandemic, the segment plants, including the sites in Asia, still suffered from the global shortfall of intercompany demand for the 3 global product clusters attributed to the segment. This effect negatively impacted both overall segment sales and profitability. As a result, organic sales were 2.9% below previous year's level compared to the second half of financial year '19/'20, they, nevertheless, improved by 4.7 percentage points. The segment continues to explore growth opportunities in multi-housing. One of the latest examples in this vertical is a cooperation with the ARTISA GROUP for 1,000 micro apartments in Switzerland called City Pop. The cooperation includes a platform for mobile access, integrating a cloud-based solution or hardware as well as services. We come to the segment Access Solutions EMEA, Europe, Middle East and Africa. While organic sales were 3% below previous year's level, they improved by 9.6 percentage points compared to the second half of financial year '19/'20. Business performance continued to be impacted by the pandemic, with most countries faced by a second wave. However, the impact was less severe than in the first COVID-19 wave. Demand continued to be negatively impacted by post port projects, commencements, restricted access to building sites as well as lower stock replenishment among distributors. Despite that, countries such as Denmark and the Netherlands delivered solid growth, together with Norway. Following the divestment of the project installation business in Norway, the market organization, the local market organization achieved organic growth as well as improved profitability in the period under review. Sales benefited from a recovery in the Services business in major markets such as the U.K.. In some markets, the project business gained traction again with the pickup and the completion of delayed projects, for example, several airport projects. Going forward, the project pipeline is solid. On the final segment on Slide 9, Key & Wall Solutions, which was the hardest hit by the pandemic in the previous financial year '19/'20. Organic sales were still impacted by the pandemic in the period under review and declined 9.2% compared to previous year. However, compared to the second half of financial year '19/'20, organic sales improved by 11 percentage points. Despite the double-digit decline in volume, the segment successfully protected its EBITDA margin and even improved it by 0.7 percentage points to 15.7%. Sales at the business unit, Key Systems improved sequentially. There was a particularly good recovery in demand by the global automotive industry, which is an important customer group for the business unit. Sales in the Movable Walls business units were impacted by delays in the finalization of existing projects by postponed construction project as well as by regional lockdowns. Despite this, sales improved month-by-month in the period under review. As you can see on the slide, both business units will benefit from several major contracts going forward. Compared to our other segments. Raw material prices have a higher impact on Key & Wall Solutions due to the material views in the segment's product offering. Both business units have started implementing strategic pricing initiatives at the beginning of the second half of 2021 to compensate for higher raw material prices. This concludes my overview on our results. Now I would 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 challenging times. This includes continued investment activity in innovation, digital transformation and in sustainability. We see that as a key to ensure our competitiveness and long-term profitable growth going forward. Let me give you a few examples. Let me start on Slide 11 with a so-called Software-as-a Service solution called Entrivo. This digital solution aims at supporting our customers to manage their automatic door operations and maintenance. Take, for example, the current regulatory challenges due to pandemic, companies must ensure that access to their enclosed public spaces is limited to a maximum number of people at one time. Our solution enables our customers to monitor door traffic as well as current occupancy and consequently, compliance in real-time from everywhere. And door display at entrances lets people know it's okay to enter. Alerts are sent to the operator if there is a need to act. The solution is easily installed, works for any door and is offered as a subscription model. This offering ideally illustrates part of our digitalization strategy. New business models, such as Software-as-a-Service, become increasingly important to us. With new technologies, we continue to build so-called complement offerings around our core business, our actual global product clusters. In other words, complementary digital services, such as in Entrivo support and secure our Entrance Systems business, which is one of our global product clusters. These complements are intended to protect our existing business by providing added value. After all, complements can offer a competitive advantage and sustainable business opportunities in our digital world. A similar complement offering is Resivo, which is designed to enable smart access to multi-housing properties, mainly in Europe, addressing trends such as smart homes and sharing economy. This offering is closely tailored to the needs of the property management sector, and is currently installed in 3 pilot projects in Munich, Vienna and Zurich. This solution offers several advantages in comparison to mechanical keys. Resivo enables the building manager to issue and revoke access authorizations digitally to an app at any point in time. As this is already possible during the building phase, problems and delays caused by forgotten or lost keys are a thing of the past. Residents are provided with their own apps, especially tailored to their needs. If, for example, a tenant goes on a holiday and has forgotten to water their flowers, they can use Resivo to send a person of their choice a time-limited digital key on their cell phone. Both solutions, Entrivo and Resivo were developed by our internal incubator unit, dormakaba Digital, which we established 3 years ago. The benefit of our products continue to be acknowledged by our customers and industry experts. For example, our new sliding door operator ES Proline won the German innovation award in December 2020. This product, combined with our new sliding door generation ST [ Pro ] Green allows for significant savings in ongoing energy and heating costs for a building as it has been certified to have a longer life cycle and a low energy requirement. The product, therefore, contributes positively to the energy balance of a door. Reducing the carbon emissions of our products in their use space is one important and often underestimated factor to achieve long-term carbon reduction targets. As part of our commitment to the science-based targets initiative, we have defined long-term carbon reduction targets, which we are currently being validated by SBTi. Targets imply a reduction pathway of around 25% against a '19/'20 baseline. 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 very much, Riet. Ladies and gentlemen, a warm welcome from me, too. As you've just heard from Riet Cadonau, our results for the first half of the 2020/'21 financial year have to be viewed in a rather more nuanced way than normal because the corresponding year back period, i.e., July to December 2019, was completely free of any coronavirus effect. While the entire first half of the current financial year, i.e., July to December 2020, was strongly impacted by the pandemic and its economic effects. So as well as the normal reporting, we want to provide you with additional information to help you make a better assessment of our performance and isolate the impact of the pandemic. We will provide you with additional information so that you can compare our results with those from the final 6 months of the previous financial year. And most of these verbal remarks are also included in the additional short commentaries you will see on the presentation slides. We are also presenting this information because in September 2020, despite all the uncertainties caused by the pandemic, we explicitly stated that results for the first half of the current financial year would be better than for the last half of the previous financial year for all our segments and for the group as a whole. And here, we achieved this goal. I'd now like to move on to an overview of our results. Sales for the first half of the financial year, '20/'21 showed an organic decline of 6% compared with the previous financial year. Maybe you can go back 1 slide, please in the presentation. It's -- yes, thank you. So again, sales for the first half of the 2020/'21 financial year showed an organic decline of 6% compared with the previous year. But in the final 6 months of the last financial year, organic sales were down at minus 14.3%. Overall, sales were down by 11.4%. Currency translation effects caused by the appreciation of the Swiss franc during the period under review pushed the headline figure down by 5.5%, while the positive net effect of acquisitions and divestments was 0.1%. Owing to the much lower sales figure, EBITDA went down by 15% to reach CHF 181.9 million. But in the final 6 months of the previous financial year, it had been only CHF 110.9 million. So we have actually seen a substantial improvement of more than 60%. Because of the lower operating profit, net profit before minority was 16.3% lower than in the equivalent period of the previous year at CHF 99.9 million. A comparison with the last 6 months of the previous financial year gives a different perspective. By this measure, we improved by CHF 55.2 million for more than 220 -- sorry, more than 20%. Let's move on to the next slide, sales development. The upper right part of the slide shows the drivers behind the change in sales compared with the previous year. Our sales declined organically by CHF 83 million or 6% compared with the previous year. This fall was due to the economic consequences of the pandemic and the associated restrictions. Once again, for a better understanding, in the last 6 months of the last financial year, organic sales was minus 14.3%. The acquisition and divestment of businesses produced a net increase in sales of CHF 1 million as well as smaller acquisition effects, including from companies, both in England and Australia. This includes the divestment in September 2020 of our project installation business in Norway. The strengthening of the Swiss franc against all key currencies during the period under review had a significant negative currency translation effect of CHF 76.2 million. The AS DACH and AS EMEA segments did particularly well during the period under review in terms of sales, with organic sales growth of around minus 3% each, while the other segments saw sale shrink by around 10%. One of the pleasing aspects was that our third-party sales in Switzerland, Germany, Austria, the Netherlands, Denmark and Norway were actually higher than a year previously, i.e., we achieved organic growth in these places. Let's move on to the next slide. The factors mentioned in relation to sales also apply to our profitability during the period under review. The pandemic's economic consequences and restrictive were also the main course of the 15% decline in EBITDA from CHF 214.1 million to CHF 181.9 million. This gives an EBITDA margin of 14.8%. But here, too, it is important to see the trajectory of our profitability through the prism of the pandemic. In the last 6 months of the previous financial year, EBITDA was only CHF 110.9 million, and the EBITDA margin was only 9.6%. Outside of operating business, there was an extraordinary and nonrecurring income of CHF 6.6 million during the period under review, which added 50 basis points to the EBITDA margin. After adjusting for this, the EBITDA margin for the period under review is 14.3% instead of 14.8%. Organically, our EBITDA decreased by CHF 20.6 million compared to the previous year. The acquisition and divestment of businesses, as described when I was talking about sales, produced a net CHF 1.6 million increase in our EBITDA. The divestment of our project installation business in Norway in September 2020 had a particularly positive effect. Currency translation also had a negative effect on our EBITDA, pulling it down by CHF 13.2 million. Our 3 segments, AS DACH, AS EMEA and Key & Wall Solutions performed particularly positive in terms of EBITDA development during the period under review, all of them improving their EBITDA margins even compared with the pandemic-free year back periods. Let us turn next to the income statement. Lower volumes led to a fall in gross margin from 42.5% to 41.7%. And though in the last 6 months of the last financial year, it had been down at only 39.3%. Once again, the typical course profile of the pandemic can be seen in our results. The positive effect of savings and restructuring to compensate for lower sales are reflected in lower expenses for sales and marketing as well as general administration. Despite lower sales, we slightly increased our spending on R&D compared with the -- this year in accordance with our strategic focus on the importance of innovation. When capitalized projects are added, our R&D ratio rises to 4.6% because of the lower sales figure compared with the year back figure of 4.0%. We significantly improved our net financial results, thanks mainly to 2 factors: first, over the reporting period of our gross financial debt was significantly lower than in the prior year period; and second, in addition, the interest rate environment for our debt portfolio developed favorably. There was also a slight improvement in our income tax rate from 24% to 23%, owing to the country mix of our profits and some smaller positive onetime tax effects. Overall, our net profit before minorities fell by 19.5% -- sorry, fell by CHF 19.5 million or 16.3% to CHF 99.9 million. And again, to illustrate the trajectory of our financial results through the pandemic, in the last -- in the final 6 months of the last financial year, our net profit was down to CHF 44.7 million. Therefore, we outperformed this number by more than 220%. Let's move on to cash flow. There was a very pleasing increase in operating cash flow during the period under review. This is attributable to the -- to our, "cash is king," initiative, which we implemented rigorously throughout the whole company in order to manage the consequences of the pandemic. On the all aspects of our net working capital, i.e., change in trade payables and receivables as well as in inventories showed significant year-on-year improvement. This gave us the cash flow from operating activities of CHF 194.3 million, which is almost 40% higher than in the prior year period. The resulting operating cash flow margin came to 15.8% compared to 10% a year earlier. And how did we use this cash? First of all, as announced, we invested far more cautiously in our existing business because of the pandemic. Capital expenditures, therefore, amounted to CHF 30.8 million during the period under review. This is equivalent to 2.5% of sales compared with 3.6% in the previous year. And we only spent CHF 7.5 million for M&A activities during the period under review. In the pandemic environment, therefore, we scaled down our M&A activity significantly. We are currently working less on realization of M&A transactions, but more in the background to further develop our M&A pipeline. This left a very high free cash flow of CHF 153.3 million, which we used mainly to repay financial debt. So let's move on to the net debt development. Due to our very healthy cash flow, we were able to reduce net debt significantly to CHF 556.3 million, a net debt reduction of almost CHF 300 million compared to the end of the corresponding reporting period last year. This improved our leverage, i.e., ratio of net debt-to-EBITDA from 2.1x at the end of the prior year period to 1.5x now. The core of our funding rests on the 2 bonds totaling CHF 680 million that we placed in October 2017 and on a syndicated credit facility, which puts our financing on a very solid footing. I'd quickly like to take a closer look at this syndicated credit facility. Our previous facility of CHF 500 million was due in March 2021 or in the current month. In order to avoid refinancing risk, especially during the pandemic, we decided, in the second half of last year, to refinance the facility early. In November 2020, we completed this refinancing successfully on several fronts. First front, despite the pandemic, we managed to achieve another improvement in contractual terms and conditions compared with the credit facility we agreed in 2016. And second front, we also ensure that the financing clearly reflects our corporate strategies emphasis on sustainability. If we achieve certain ambitious sustainability criteria included in the credit agreement, this will have an impact on the interest margin of the credit facility going forward. With that, I would like to give you an update on the status of our cost savings and restructuring program, which, in the current pandemic environment, is extremely important for our goods development and profitability. Already back in April 2020, we initiated this group-wide cost saving and restructuring program in response to the pandemic and the attendant decline in demand. The general theme was and remains to adjust our cost structure and capacities to existing demand. One of the particular characteristics of this unprecedented pandemic is the negative effect it has had on both supply and demand. Another is the series of restrictions and lockdowns imposed by government and local authorities, which have led to much reduced economic activity around the globe. By contrast with the earlier crisis, this one has had a serious effect from businesses that were previously seen as very crisis resistant such as Services. The aim of our measures we have taken is to maintain our entrepreneurial flexibility and financial stability at all times. These measures inevitably entailed job cuts. Up to 1,300 headcount will be effected. The vast majority of them, production employees in Asia and America. By the end of the 2019/'20 financial year or 30th of June 2020, we had already made around 900 of these job cuts, rising to 1,100 by the end of calendar year 2020. The measures have had a positive impact on our results of the first half of the current financial year, and thus, we have achieved the associated objectives. With that, let me conclude on the guidance and business outlook for the full financial year 2020/'21. Owing to the COVID-19 pandemic, current business environment is still characterized by uncertainties and lack of visibility. Short-term postponements or delays may occur on the sales side, while on the procurement side, raw material costs have risen. However, we anticipate positive organic sales growth for the second half of the financial year '20/'21, resulting in a stable year-on-year organic sales growth for the financial year overall. We believe the EBITDA margin for 2020/'21, as a whole, will likely be somewhat lower than the 1 for the first half of the current financial year. The main reasons for this expected decline in EBITDA margin are the following: first, the positive nonrecurring effects, which occurred in the first half will not be repeated. Second, while net expenditures for cost savings and restructuring programs in the first half of the current financial year were close to 0, we expect significantly higher expenditures in the second half of the current financial year. And third, we are facing a significant increase in raw material costs, which can only be offset by price increases with a certain time lag. So that's from my side, thank you very much for your attention. And with that, I hand back to Riet Cadonau.

And I'm going to hand over to the operator for the Q&A session.

[Operator Instructions] The first question comes from the line of Maidi, Rizk with Jefferies.

Just, first of all, congratulations, Riet, on your tenure as CEO of dormakaba throughout the years. So my question, I'll just focus on 1 and 1 follow-up, is on the North American outlook. Maybe perhaps if you could just walk us through the exposure there, commercial institutional, what -- how your specification business there has been behaving in light of the contracting leading indicators that we've seen, such as the ADI or Dutch Momentum index? And how do you tie in your sort of rebound in the second half of this year with Allegion's more bearish guidance of minus 3% to minus 4% decline for the entirety of 2021?

Okay. Thank you very much. So let me answer that topic with regard to North America. I think it makes sense to spend some times there. Before I answer your question, let me also say to you that the new COO, who started July 1 last year, has initialized growth initiatives with 3 major, major directions, so to say. One has to do with sales excellence, as I've said beforehand. So he reorganized the go-to market, bundled also some of the product clusters and has also adapted the geographic segmentation with the goal to increase, of course, market orientation and accountability in the sales force. That is a first direction with regard to sales excellence. Then the second direction or focus is channel management, clearly, higher focus on attractive products, such as touchless and EAD, electronic access and data. That was the key area with the growth also in the first 6 months of the current fiscal year. And the third focus is increasing resources on specific verticals, such as multi-housing, just as an initial introduction to AS Americas. Now you mentioned, of course, a comparison with our peers, which is, of course, very, very important. And let me clarify that from my perspective. Both ASSA ABLOY and Allegion have mentioned weakness in the commercial business with a double-digit decline in organic sales, okay? We have experienced a similar decline. However, residential business in North America is not part of our portfolio, except for multi-housing. But you can, of course, always discuss whether multi-housing is commercial or residential. The residential business is quite resilient during the pandemic as people stuck in their homes, used their time to upgrade their homes during lockdown. So we have, first of all, at this time, not the tailwind of residential, except for multi-housing, if you allocate multi-housing to residential. And in addition, we still have a negative impact of Mesker. That is important from my perspective when it comes to comparison to our peers. Let me also mention about our verticals because often, I get the question with regard to -- about the verticals. So of course, we also focus on verticals that have good potentials, such as education, health care and, as I said, multi-housing. Of course, we are aware of that we have also other verticals in our portfolio. One is Lodging Systems. And as you all know, the majority of Lodging Systems at dormakaba, is with hospitality. And of course, that has, of course, a very different dynamic than other verticals. Nevertheless, I always would like to add that a part of that one, we have also multi-housing, and we have also vacation rental in that piece. So that is what I can say with regard to the North American market, so to say. I think, going forward, there is a limited visibility on the progression of the pandemic as well as on the yet unknown impact by the new U.S. administration and potential economic stimulus program. As I said, currently, we are experiencing a rather weak nonresidential business environment. And as such, the segment will continue to control costs while prioritizing investments in growth initiatives. I hope this answers some, at least, of your question.

Yes, Riet. The follow-up is really on the cost inflation in the business. So we've seen steel, brass, et cetera, prices going up. Add to this also freight cost as well. Can you just help us assess what will be the headwind from these cost inflation in the second half? And how is your ability to raise prices in an environment of weak macro? How does that had been sort of historically?

So I'll let that to Bernd with regard to raw material costs as well as freight costs. And he will certainly answer to your question. Bernd, please.

Sure. Rizk, so with regards to raw material pricing, you're absolutely right that we've seen a relatively strong increase in terms of some major raw material prices, which also have an impact on our portfolio, such as steel, brass. You're right that we also see higher freight costs, and we see also some impact on logistics, so ability to ship on time. The -- with regards to our ability to raise prices, given our business models, which we have, our ability to adjust prices is rather solid and good. There is only the time lag, which we need to consider. So therefore, in general, I personally expect that in the current environment, we -- where we will -- we were considering adjustments of price increases in certain areas, up to 10%. And we will be able to achieve an overall price increase for the group for the calendar year '21 and the magnitude of a little bit more than 2%. And I'm personally quite positive on -- given the business profile, which we have, we will be able to do so. But however, again, this will be -- only be possible with a certain time lag of 1 to 2 quarters.

The next question comes from the line of Martin Flueckiger with Kepler Cheuvreux.

Actually, I only got 1 left. So I was wondering in which countries do you see structural issues beyond the current pandemic and the current -- beyond also the current restructuring measures that you're undertaking? And how likely -- in this respect, how likely are further divestments of underperforming businesses or further restructuring programs from today's perspective?

Okay. I can take those questions with regards to structural issues, at least from my perspective, the challenge remains with our Access Solutions North America business as you are well aware of, and we elaborated on that. Besides that, I do not see further structural issues. Martin, you have been with us for many, many years. You have seen us solving Wah Yuet. You have seen us solving Norway. You have seen us solving growth in Germany. And I think the remaining challenge is with Access Solution North America. And at the same time, I repeat what I said. I am convinced that this new team has set up a very solid program and we will see the compact over time, from my perspective. That's with regard to your first question, Martin. Second question is with regard to divestments. We should always keep in mind that at dormakaba, we have a clear history of portfolio management. We have always assessed our portfolio, at least on a yearly basis, and we have always adapted our portfolio. So we have not only acquired, at the same time, we have also always divested units. The last one was in Norway, as you know, with this infrastructure services business. And that is, from our perspective, from an leadership perspective, a continuous task to do to assess the portfolio.

Okay. But there's nothing cooking right now?

Nothing to talk about it now.

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

I've got several. One is really on the OpEx part. How much of the OpEx reduction was because of the cost reduction program, so basically fixed and how much is related also to COVID lower travel expenses and these things. I mean, what should we expect going forward in terms of mix between fixed and variable?

I'll leave that question with regard to OpEx to Bernd.

Yes. Thank you, Andreas. So with regards to the cost reductions. So the -- currently, the savings from our cross-mentioned, and restructuring program is in the magnitude of roughly CHF 17 million at the end of the first half of this current financial year. There are obviously some elements, which are a little bit more available, such as lower travel. However, with regard to travel, I think there is also the learning that we will be able and need to be able to move certain savings and by change of behavior into the future. So we, within dormakaba, expect to be able also to reduce travel expenses going forward, not in the same magnitude as we did it in the current environment. But I think personally, I expect that we'll be able to reduce travel in the magnitude of 30% to 40% compared to what we have in the years before. So therefore, the CHF 17 million result from our cost savings and restructuring program and some of the lower spending, which we assume to be a little bit more stable going forward, will also have some flexibility to go down.

And then I was wondering, China and India are --, the prospects there are better for growth actually for the year. Can you remind us how much is China and India within APAC? And if APAC can grow as such, probably not, if I understand that right?

I will leave that to Bernd as well, but I can just start with, China and India, where it comes to third-party sales are both a top 10 countries of dormakaba. So that shows, of course, that this is important for our business, and you might add a few information to that.

I think there's not much more left for me to explain. So they are, as Riet have indicated, part of our top 10 countries. We've seen in both countries that significant organic growth since the merger. So those 2 countries are part of the success story, which we have established, especially in the Asian-Pacific region. We now see a little bit of a comeback in China for commercial business. And this is the reason for our outlook for this country. For India, it's a little bit different because in India, we suffered a lot in the first half based on COVID-19. And here, it's much more a base effect. However, we believe that based on our strong position, which we enjoy in India and the potential of the country to go back to previous year's growth levels, this will also be a significant growth driver for our company going forward.

We have a question coming from the line of Patrick Rafaisz with UBS.

My question would be around the cash flow and you did very well on working capital management in the first half. Specialty inventories but also trade payables and others. Can you talk about the scale of the reversal here you would be expecting in your second half? And also related to that, how should we think about your CapEx?

Okay. Cash flow and CapEx with Bernd, please.

Thank you, Patrick. So let's start with the potential for -- of the negative -- potentially negative impact on cash flow going forward. Let's say, I would be happy if we will see a further utilization of cash going forward because this will only happen in a more stable environment because we will continue our, "cash is king," principle as long as COVID-19 has a major negative impact on the business environment. So therefore, there is a little bit of potential in all areas especially in the area of inventories and accounts receivables. If business picks up again, I would not see the same potential in accounts payables. With regard to CapEx, we are now at 2.5% of sales. And here, as we indicated, we have revisited a lot of CapEx projects. We have postponed some of those. And we have even reconsidered certain CapEx projects. And now we might even combine the CapEx questions with some strategic review questions which come up soon. So therefore, I clearly believe that we will -- to be willing to spend a little bit more on CapEx in a new normal, in the current environment, I would expect that we continue the pass which we have successfully started in the last half of the last financial year and the first half of this financial year.

Okay. And my follow-up would be on your organics. I'm just wondering if you could add a bit of color how you exited calendar 2020 in the final few months and how you started? Was there a significant change in dynamics you're seeing on the group level?

Bernd, because you answered that question to the journalist this morning very well, up to you.

Okay. Thank you. So on the -- let's say, the profile of our organic growth. Let's start with the first half of the current financial year, so July to December. As we have indicated in our report, we have seen a sequential improvement of organic growth compared to the prior year period throughout the first half. The month of January is not a good indicator for a comparison. Because we, in the last -- in the calendar year 2020, it was Chinese New Year. And we had a start the first part of COVID-19 already in that month. This calendar year, we have Chinese New Year in the month of February. So therefore, there is a switch between those 2. Second, we have seen, in January, a later start of many of our customers into the new year. They prolonged their year-end break by almost weeks. So therefore, we had less business activity in the month of January. But to give you also that indication, this did not come as a surprise or part of our guidance, which we have shared with you is also a weaker start into the current calendar year. So therefore, those 2 months developed in a way we expected, but on a lower level.

I think that's important. It's not a surprise, January in February. And February, we only have indications, of course, not yet the consolidated numbers. But in our plan, as of March, we expect stronger month, but that is the mix that we see for the second half of the current fiscal clear. Are there further questions?

The next question comes from the line of Delphine Brault with ODDO.

I just would like to be sure that I understand correctly your guidance. When you say that the full year EBITDA margin will likely be somewhat lower than the one for the first half, do you refer to the 14.8% that has been published or to your underlying margin, which is 14.3%?

Bernd, be very clear, please.

Yes. So Delphine, thanks for the question. So as I indicated during my presentation already, the 50 basis points were a result of one-offs, which will not happen again. So therefore, our guidance is based on underlying EBITDA margin. So we, not only expect a lower margin against the 14.8% for the full financial year, we also expect a lower margin than the 14.3%. So therefore, our guidance is based upon an expectation that EBITDA margin for the full financial year 2021 will be lower than 14.3%.

[Operator Instructions] We have a follow-up question from the line of Mr. Maidi Rizk with Jefferies.

Just maybe perhaps a high-level question. I'm just wondering if you could just remind us of the exposure to your, what you call the aftermarket business or the renovation business as a percentage of the group? And how do you -- how tied do you think this business is with reduced mobility of people? And more importantly, do you see any reason why this business should not go back to its pre-COVID level even in a scenario where the working from home trend is here to stay?

Okay. I thought it's the last question. We might see, of course, changes in building -- in office buildings, that was -- we were referring to with regard mobility, et cetera, et cetera. But even if office buildings are going to be used differently, with shared space, et cetera, et cetera, you need access. So we see it as an opportunity. Of course, yes, and I also believe that post COVID, we will have a hybrid model to way we work, part of it remotely, part of it in the office. But that will mean that these spaces will be adapted from my perspective, as I said, to use the space differently. And again, I repeat, you will need to have access solutions for such spaces. And that is, from my perspective, opportunities to dormakaba. So that is with regard to that one. With regard to our dependency on new construction and installed base is about half-half, plus/minus, about half is new construction and the other half is installed base depending to how you define that. But we are certainly not only dependent on new construction. That is important, and that gives us a certain level of stability, including the corresponding services.

Okay. That's very clear. The second one that I have is perhaps for Bernd. On the headcount reduction program. I think initially, you targeted 1,300 people and it looks like given the environment has been better than what you expected, you only reduced that to 1,100. So is now the new savings target is CHF 40 million instead of CHF 50 million. And what is the savings off this?

Yes. So Rizk, you're absolutely right that the current business environment seems to be a little bit better than we expected. So our 1,300 target was based upon something which we call internal base case, and we currently are developing slightly better than base case, and we even started to rehire certain people in some of regions, as indicated by Riet during his presentation. The -- I think this goes back to the discussion, which we already had at the end of last financial year. I'm, personally, more than happy not to reduce by 1,300 business activities allow. So if we are not able to achieve the 1,300, this will be driven by business activities, which will deliver more profit than we expected from the savings program. Today, I still believe that we'll be able to achieve our savings, which are -- the run rate is close to CHF 50 million, which we expect at the end of the current financial year, early next financial year. If we will not be able to reduce by 1,300, this gap in savings will be filled by operational profits driven by the business activities. In addition, there is 1 element which needs to be understood. So in firm of our markets, in some of our countries, we are today not in the position to reduce headcount to the extent we would like to do. And this is driven by some government-related restrictions in labor law where we need to comply with. So therefore, there are also here some limitations, where some of our headcount reductions might move even into the next financial year, if still required by business activities.

Okay. Understood. And then lastly, on the price increases, I think, Bernd, just to clarify, you said you were expecting a little bit more than 2% for the current full year. Is that right? And how much have you raised prices in the first half?

Okay. So my comment was that I expect a little bit more than 2% in the current calendar year, so in 2021. In the first half, we were able to achieve in the magnitude of 1% price increases.

We have a follow-up question from Mr. Andreas Müller from Zürcher Kantonalbank.

I was wondering the onetime positive effect of CHF 6.6 million, is that buried in the other operating income line? And then what was it exactly? And then the second question is on the business mix going forward. It seems that more kind of delayed projects are coming in, so larger projects, typically the project businesses is probably at least initially not that profitable. Is that also part of the explanation why the margin comes short-term rather down than not with volume?

Okay. With regard to the onetime effect, Bernd you can elaborate but I would -- just to clarify on the second question, project business per se is not happy for lower profitability. Of course, we have very different project businesses, right? We have, as an example, the project businesses in EAD or project business in Movable Walls. And that is, of course, different businesses and different segments, but we cannot say that in general, project business has lower margins in general. That is not correct, and I leave it to Bernd to complete.

Okay. Andreas, with regard to your first question, the nonoperating positive of CHF 6.6 million. You are right, so they are part of our other operating income in the P&L. On the background, we were able, in the first half, to finally resolve 2 major cases, which resulted in these positive 1 offs. One of those cases is related to a long-lasting dispute with a licensor, but where we finally agreed upon a resolution of a claim for overpayment of royalties. And the second case is related to excess provisioning, which was up over several years for discount, customer claims, product defects, volunteers, all of this in the project business. So the items, of the CHF 6.6 million, which are part of other operating income in the P&L., they were not allocated to a segment. But are allocated on group level. So we will not find that in the segment reporting.

Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Riet Cadonau, Chairman, CEO, for any closing remarks.

So before we close this call, let me add a couple of words. As you all know, I will be handing over my CEO role to Sabrina Soussan at the end of this month. For the past 10 years, I had the honor to lead dormakaba as a CEO. And during that time, the road and access to buildings and rooms have evolved significantly. During my tenure, our company has successfully made the technological leap from the electronic to the cloud-based world, which is a cornerstone of our digitalization strategy. The main milestone, however, was the merger of former dorma and Kaba to dormakaba, which transformed both companies from niche players with international reach to one truly global full range supplier. With this move, we significantly improved our risk profile, gained scale and broadened our offer while remaining financially flexible and therefore, more resilient which is vital in today's environment. We have also substantially expanded our market position in United States, the most profitable market in our industry. While it is true that the segment AS Americas has not yet leveraged the benefits of this move, the measures we introduced makes me confident that dormakaba will also achieve its goals in this region over time. Finally, I'm proud that we have formed a company with a strong culture that has proven to be a tangible asset to help us navigate the current times and beyond. In the past 10 years, we have built a strong foundation for the future of dormakaba. Going forward, I am convinced that my successor, Sabrina Soussan, with her substantial track record and her market focus, will successfully advance and grow our business. Finally, let me say thank you very much for the good exchange over the past 10 years. With that, I would like to close this call. We appreciate your attention, and we wish you a good day. Stay safe and healthy. Goodbye.

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.