dormakaba Holding AG (DOKA) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Investor and Analyst Conference of the Full Year Results 2021/2022 of dormakaba Holding AG. I am Sandra, the Chorus Call operator. [Operator Instructions] and the conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. I would like to remind you that the conference includes forward-looking statements, which are subject to risks and uncertainties. Listeners and viewers are, therefore, strongly encouraged to refer to the disclaimer, which is part of today's call. At this time, it's my pleasure to hand over to Mr. Jim-Heng Lee, CEO of dormakaba. Please go ahead.

Thank you, operator. Good afternoon, good morning, ladies and gentlemen. It is my pleasure to welcome you here for the first time in person and without masks. And I know that some of you also follow remotely through our webcast on our full year results for '21, '22. With me today is our interim CFO, Kaspar Kelterborn thank you, Kaspar. Without further ado, allow me to give you a quick preview of the agenda for today. First, overview of our results. And I would like to give you an insight of our current operating model. At the same time, it will be good for me to stand to share with you where we are in the implementation of Shape4Growth. I will go into more details our performance at the group and at the region's level. And of course, it is also a great opportunity for all of you and for me to share with you how dormakaba differentiate itself and create values for our customers. Kaspar will be next on stage then to talk about the financial performance. You got to bear with me first. And then after Kaspar, I'd be happy to walk you through the basis of our outlook and the outlook itself and naturally comes the most interesting part, the Q&A. Our performance for '21, '22, how do I put it? I can summarize it as follows: Strong organic sales growth, significantly above our guidance. In a very challenging environment, we have strong growth in America, in Asia Pacific, and we have also good growth in Europe and Africa as well as Key & Wall Solutions. Adjusted EBITDA increased due to good growth. However, adjusted EBITDA margin at 13.5% was impacted by cost inflation as well as a negative product mix. Hence, the operating cash flow was particularly impacted by higher inventories. We can see that the net profit was impacted by Mesker divestments. Without that effect of Mesker, our net profit would have been at about CHF 184 million. Let me give you some more insights, which I'm sure you're interested in our current operating environment. We, dormakaba is well positioned due to a favorable global societal and market trends. Currently, as we speak, more than 200,000 people are moving to a city every day. We talk about that just now during lunch. I'm looking for a house in Zurich, but I'm not alone. By 2050, 7 billion people will be leaving in the urban areas. And those areas are becoming more connected, and this is precisely exactly the space where dormakaba had its strongest focus. There is a significant shift in the industry towards digital and seamless access. I know that because I've been through that. With this come increasing complexity of customer requirement to be addressed with our solution and customization approach. We have invested and will continue to invest in seamless access and with Shape4Growth. Our new operating model is well orientated towards solution selling. On the other hand, our industry like many others had experienced unprecedented supply chain and labor shortage and unprecedented inflation in labor costs, raw materials and energy. We read about them every day online, offline newspaper. Despite our good pricing power, there remain inflation effects caused by the war in Ukraine and a squeeze in global supply chain when planning assumptions shift to JIC just in case instead of just -- JIT just in time. We're talking about just in case. If I don't get the chips that I want, I better buy all chips that I need or I don't need just wait, just in case I don't get any as best practices of operational excellence just in time were over. We expect to navigate with limited visibility, limited visibility for some time to come while order intake and backlog is good for us, but we are planning for the worst and really hoping for the best outcome than ever possible. Having said that, we remain steadfast in executing Shape4Growth, which is a long-term growth strategy, it is a long-term growth strategy. What that means? The chart that you see on your left is one that was presented on the 15th of November last year on our Capital Market Days as well as I share it on 2nd of March this year in our half year results release. I said, it is a growth strategy and what does that mean? What does it build on? What is it building on what are the important parameters? We focus on our core business, we focus on our core market, we believe that ultimately, customer centricity will pay us handsomely, through further differentiation by way of digitization and sustainability that you jointly well known. This is dormakaba's forte. Consequently, Shape4Growth require obvious investment upfront. No investment, no growth, all sustainable growth come from dedicated targeted investment, specifically in the initial phase. But we strongly believe that it will ultimately lead to consistent sequential improvement in our overall performance. What have we achieved for the last 6 months in Shape4Growth? First, our new operating model is implemented with clear customer-facing orientation. And what do I mean by that? At its core, a global product development function and a global marketing and product functions as we speak, is working hand-in-hand to add speed to the market of our solution and offering. As we speak, a global product solution pipeline with clarities and priorities has now emerged targeting all our key markets and our global key accounts, which is fundamental. This is where the world is moving. Global management, we have already had numerous successes as a result. As we speak, a global operation function has been set up to reinforce the full value chain transparency and more importantly, drive operational efficiency, excellence across all our sites in dormakaba. We further invest in specification I grew up in a specification environment. I knew how powerful is this the right specification and to turn specification into your own pipeline, translate them into sales. This is particularly relevant in our commercial business environment. Visiting our core markets lately, recently, I have seen signs of early successes already. We have now 15% more FBE in specification around the world that has drive globalized lead and key account management, and this is gaining traction. In procurement and pricing, we have done what we say we will do and achieve the set agreed targets. You all know that June 22 this year, we divested Mesker, which is an important step towards improving performance in Region America and there is also one critical step towards regaining the trust that dormakaba, meant what they say and deliver what they promised. This is an important first step. We have added more bolt-on acquisitions in our core markets. Consequently, that helped us expand our market access and also further strengthen our service business, which is again another unique picture -- features of dormakaba. Now how did we perform at group and regional level? As I said before, year-on-year sales total group dormakaba 10.3%, of which organic sales grew at 7.7%. Adjusted EBITDA increased by 2.8% to CHF 372.3 million. The adjusted EBITDA margin was at 13.5%. The impact of the inflationary pressure was amplified by the war in the Ukraine, something we did not quite anticipate because when we went to inform you of our first half result, the war barely broke out. It's hard at the time to predict what happened. And now that it happened, we are impacted. We could not be completely offset by positive effect, higher volumes and price realizations. It is what it is. We are 13.5%. Item affecting comparability, also known as IAC, a.k.a. IAC came at CHF 88.6 million. They mainly related to the Mesker divestitures and the cost of driving and putting Shape4Growth in place, which I mentioned before, it requires upfront investment to bring dormakaba from good to great. Region America, a region that we often talk about. We clearly see a recovery in our commercial construction market, Latin America, market share gain and price realization. Organic sales growth stood at 8.3%. We were roughly 6% in the first half. We were roughly 14% in the second half, averaging around 8% full year. Growth was broad-based and across most of the product clusters. It's pleasing for me to inform you that the U.S. market is now helping us with attractive project wins and promising order intake. I was in U.S., not too long ago, recently, and I've seen some progress in customer centricity and satisfaction. Customer had come forward to tell me that compared with a year ago, you're a lot more responsive. You are a lot more in a listening mode. What is to my pain point. I hope there were no pain point. But the fact is that we are listening, we are taking action against those pain point. It's not a bad sign. We clearly went up a notch in meeting customer satisfaction. Mesker had a negative impact of 210 basis points on adjusted EBITDA margin as planned. We divested it. It free up so much management attention to turn around a business that would not help in the long run, focusing on our core business. It was clearly one step too late, but once definitely not too late in the right direction. Region of Asia Pacific. Here, we grew 11.3%, ladies and gentlemen. This mainly driven out of India, Southeast Asia and Middle East. We clearly defended. We clearly defended our market leadership position in Asia Pacific. No one can claim that. It's owned by dormakaba. This is on top of, as you know, there are today still occasional millions of people being quarantine and lockdown in a huge country like China. It's just a matter of local zero COVID policy. Yet, we were able to overcome with resilient single-mindedness eye on the ball. EBITDA rose by 40 basis points to 19% -- 18% close to 19%, supported by volume growth and price realization. Performance in Europe and Africa is not bad either. Bearing in mind now the current setup is a combination of former EMEA, AS EMEA, asset solution EMEA, AS DACH, minus market Middle East that went to Asia Pacific. In this current setting, solid growth register amid challenges in supply chain topic, particularly noteworthy is our strong growth in automatics, and that has resulted in double-digit growth. Why do I single out door automatic? Because this is one whereby you firmly entrench our leading position in a connected world which also had a huge impact on recurring revenue when we maintain it well. The EBITDA margin decreased by 50 percentage points to 20.6%, mainly due to lower, higher margin sales in an electronic access data space that we call EAD and the inflationary pressure. In Key & Wall Solutions it's a mixed bag. Combined, they grew 5.7%. Key Systems did better with 10% organic growth. Unfortunately, movable wall that's where we declined organically by 0.6%. And you know the reason why because it's operating in a different environment, which is very project driven, when there's a slowdown, these projects got delayed and we are stuck. Short term, there's no chance we can change that business model. We can do a lot in the long term, but we are working on it. The performance was impacted by COVID-related project delay, as I said, for movable wall. All in all, we are very happy the Key & Wall despite the adverse difficult situation in more we are able to have profitability improved at 14%, but still below last year, mainly due to time lags between price increase and price realization. Ladies and gentlemen, I have now come to a topic which I'm most passionate, why do you choose us as an investor or as a trader, as a buyer, we clearly have our differentiator. What is our value proposition because we are a truly global player with dedicated solution, no matter the challenge. One dormakaba solution, one face to the customer, and that is unique to dormakaba, nowhere else with our customers often crediting us with the one-face advantage. We are a global player when it comes to cloud-based biometric access solution, which is why Norwegian Avinor has chosen us to become their exclusive provider of self-boarding gates. In an airport environment for all their 44 state-owned is a huge country. And that means 450 gates and for a contract over a period of 10 years with serviceability. In Southeast Asia, one of the more challenging regions in our industry, we are proud to offer safe and secure access solution and people flow management in the biggest football stadium in Asia sitting in Jakarta, Indonesia. I'm very proud to share this chart next, one of the most disruptive innovative that I've seen in recent years. EntriWorX, spell as E-N-T-R-I-W-O-R-K-X. It's important the spelling is not traditional because the solution was not traditional. Why? It combined customer centricity, our deep knowledge of electromechanical offerings and unique digital powers that only dormakaba possess. It was awarded the most innovative smart building product by a renowned German trade magazine in short SMB. Whether in planning, during installation, our ongoing operation, EntriWorX simplifies collaborations. Between all trades and optimizes the process throughout this building, this something no one see it coming in this traditional industry, and we are making it happen. The increase in efficiency for architects and planners and installers in every construction phase. It has been rolled out in core markets with good reception. And we will continue to do so. Just recently, we test the market in America, the response was [ leasing ]. We have always been working on strategic lines. [ Suko ] is one such example. In July, we entered into collaboration with [ Suko ] with a clear understanding that they are managed the planning to and are planning to collaborate together and do wonder for our customers, and we did just that. We signed the agreement and more to come. How EntriWorkX could work with [ Suko, Skal, ] and that is the planning to. Another important topic I would like to move on as well as our differentiator, ladies and gentlemen, is sustainability. Because it's key to our business, it is to the industry as well as to our future. The new sustainability framework that we have put together in Shape4Growth produced more than 30 ESG targets. This is through the hard work of all of us our team within the organizations. We reduced operational carbon emission by 2.4% the year before. Our facility in India, Chennai, particularly Southern part of India, for example, expanded its on-site solar power generation capacity by 200% and this allow the site to cover 25% of its own energy through own renewable. In India, this is a big thing. It can happen here. We are also aware of the increasing demand for environmental-friendly product. And to this, we have launched energy-saving automatic sliding door. And Austria and Switzerland and other markets will follow. We are focusing on responsible business behavior of our suppliers and trading partners as well so far we have assessed almost 19% of our higher-risk supplier for their sustainability management program. We do that because we wanted to be a good corporate citizen. We ensure that our supply chain will treat us as a role model. dormakaba therefore, was named as one of the most climate conscious companies in Switzerland in the recent ranking by leading Swiss economic journals. With that, ladies and gentlemen, I have come to the end of my part of the sharing. I would now like to hand it over to Kaspar, who will give you more insights of our financial performance. Kaspar, please.

Well, thank you, Jim-Heng. Ladies and gentlemen, also from my side, a very warm welcome to our analyst conference this afternoon. I will guide you now through the financial figures of the business year '21, '22. As Jim-Heng said, we, the second half of '21, '22, we have implemented our new operating model. And that had also some substantial impact on the reporting system, especially when it comes to the segment reporting. As a consequence, we have to restate the previous year's figures on segment reporting. And therefore, I would like to give you or show you on a high level what steps we undertook in order that you can understand why the figures are looking on segment reporting a little bit different. What you see on my first chart is our starting point, the old operating model with the 4 Access Solutions segment, KWS has not been part of these changes. In the first step, then we did some organizational changes. That means, for example, we merged DACH and EMEA into region Europe and Africa. But we also reallocated certain businesses like the German Safe Lock business into Americas and the Middle East business into Asia Pacific. In the second step, we carve that out of every legal entity, the new global functions like marketing and products, like product development and the global operations, especially to form global operations, we had to split the corresponding legal entities into a plant organization and sales organization. This step was crucial towards implementing our new operating model. And in a third step, we then reallocated the global functions, operations and marketing and products back into the 3 regions based on value creation and the full value chain content so we steer according to the full value chain concept. So with that, that you also have a picture of the regional development. Product and development will remain a stand-alone segment and that should give you some good transparency on our R&D investments in the future. Now why did we do this? We have done this to have clear responsibility, clear accountability and also clear transparency for our own internal steering. We have done this to have a clear customer orientation, as Jim-Heng said, and boost customer centricity. And we have done this also to strengthen the focus on performance and value creation. Just an additional remark, for transparency reasons, we have disclosed a bridge from the old operating model to the new operating model for the full year '21, '22 in the notes to the financial statements. But please be aware that we will not be able to answer detailed questions on these changing in this conference call or in this -- in this conference. However, our Investor Relations offers to support you in building or adapting your own financial models. Please be also aware that the half year figures will be restated with the H1 '22-'23 reporting. So with that, let me go into the key figures on the next slide. Overall, our net sales ended at CHF 2.757 billion. We had sales growth of 10.3%. Organically, we reported strong organic growth of 7.7%. We generated an adjusted EBITDA of CHF 372 million, which is slightly above previous year. Our operating margin decreased to 13.5% compared to 14.5% previous year and was below market guidance, as we already communicated in July. Net profit ended at CHF 122.5 million. If we exclude the negative Mesker effect, it would have ended at CHF 183.9 million, which is 4.9% below previous year. ROCE was impacted by the increased level of net working capital and ended at 24.4%, which is 50 basis points below previous year. Now I can give you some more details on certain KPIs. Let's go to sales development. Our top line was driven by organic growth of 7.7%, there of 4.2% and volume growth and 3.5% due to pricing. M&A contributed 2.8%, which is around CHF 70 million, whereas the currency effect was almost flat. All regions contributed to organic growth. Strongest growth came from Region Asia Pacific with 11.3%, followed by Americas with 8.3% and Europe and Africa as well as KWS had good growth as well, close to 6%. On the next chart, you see the EBITDA -- the adjusted EBITDA bridge. Here, the picture looks a little bit different. The EBITDA growth of 2.8% has mainly been driven by an M&A contribution of CHF 9.4 million and some currency translation effects of CHF 3 million. The adjusted EBITDA margin declined by 100 basis points compared to previous year, and this was mainly driven by Region Americas as well as Key & Wall Solutions. Asia Pacific slightly increased the operating margin despite the challenging situation in China, while in Europe and Africa, the operating margin slightly decreased. Our pricing measures largely compensated the cost increase of raw materials and components, but additionally, inflationary pressure on energy driven by the war in the Ukraine and labor cost inflation could not be compensated. Also, the effect of labor shortage as well as a negative product mix and functional costs driven by the investments in our Shape4Growth strategy adversely impacted the adjusted EBITDA development. At this point of time, I would like to mention also the special situation of movable walls. As this business unit lost CHF 8 million adjusted EBITDA compared to previous year due to the special nature of this business, which is a pure project business, where it is difficult to adjust agreed prices to the increased raw materials on short notice. I can say, however, that movable walls started to recover and moved back to profitable growth in the past or in the last 2 months. On the next chart, you'll find the condensed income statement. I would like to give some further comments here as well. Our gross profit increased CHF 62 million, of which 1/3 is due to M&A. The gross profit margin, however, decreased by around 170 basis points, of which 20 basis points is related to M&A. The remaining part of the decline was due to the same reasons I already mentioned for the EBITDA for the adjusted EBITDA development. Also, we compensated the cost increase on raw materials and components with our pricing measures. There was, however, still a dilutive effect, a squeeze of about 100 basis points in the gross profit margin. In addition, as mentioned before, the gross profit margin was also impacted by inflationary-driven wage increases and negative product mix but also due to COVID and supply chain-related inefficiencies. The result from sale of subsidiaries is negative. And this is mainly related to the divestment of Mesker in June 2022. Now if you look at the functional cost in the P&L, keep in mind that these also include certain items affecting comparability as well as some M&A-related cost increase. Underlying the SG&A costs increased due to higher business volumes, investments into our Shape4Growth strategy as well as labor and energy cost inflation. The financial result, as you see, was negatively impacted by higher level of net debt as well as due to some or by some adverse FX impacts. While the income tax slightly decreased, the income tax rate increased to 29%, and driven by nontax deductible items in connection as well with the Mesker divestment. Items affecting comparability were at CHF 88.6 million. And also here, the major part or around CHF 57 million is related to the Mesker divestment where the goodwill had to be recycled. The remaining part comes from accelerated IT projects of around CHF 13 million as well as our Shape4Growth program. This in the Shape4Growth program, we have booked severance expenses of around CHF 6 million to CHF 7 million, which is so far substantially lower what we had originally expected. And this is mainly due to the current labor market situation where we experienced much more natural levers. Coming to the next slide, some remarks to the cash flow statement. As you see, the cash flow from operation was substantially below the very strong previous year, and this was mainly driven by the different net working capital development in these 2 years. For '21, '22, the net working capital ended at a level of 27% of net sales, and this was driven by 2 factors. On the one hand, net working capital reflects the increased business volumes, but on the other hand, the increase was also driven by additional inventory due to higher material prices, supply chain inefficiencies and a conscious decision to build up the corresponding safety stock. Further, you can see that we continue to invest in our future, and we spent around CHF 78 million on CapEx and around EUR 83 million on M&A. With this, our free cash flow ended at a negative amount of minus CHF 31.6 million. If we take M&A out, the free cash flow before M&A ended at CHF 51.2 million. Due to the elements I just mentioned, the operating cash flow margin decreased to 4.6% compared to the very strong previous year margin of 12.5%, which, as you remember, was strongly driven by the COVID-19 related cash-is-king project. On the next chart, some words to the net debt. Net debt increased by CHF 200 million to CHF 708 million, which is mainly driven by M&A activities and the buildup of the net working capital. Also, you see in the notes to the financial statement that we had a change of the mix of our financial debt. In October '21, we refinanced a bond of CHF 360 million via the second syndicated credit facility. As the planned capital market takeout in spring '22 was canceled due to the war in the Ukraine, we signed in June '22, a CHF 300 million bridge-to-bond credit facility to regain the financial flexibility and of the syndicated loan. This bridge-to-bond facility was fully drawn or is fully drawn and our current leverage is 1.9x. And finally, with my last chart, I come to the dividend proposal. Our consolidated net profit after minorities is CHF 63.2 million. If we exclude the Mesker divestments, as we communicated with the closing statement of that transaction, the corresponding adjusted net profit after minorities would be CHF 95 million. In line with our dividend policy, which we continue to apply, despite the challenging current economic environment, our Board proposes to the AGM a dividend of CHF 11.5 per share, amounting to a total amount of CHF 48.3 million and a corresponding payout ratio of 50.4%. With this, I would like to thank you for your attention, and I would like to give back to Jim-Heng. Thank you very much.

So thank you, Kaspar, for the very thorough analysis and explanations. We have looked back for the figures of the past year. I would then like to comment on the way forward and what lies ahead of us. Before to get there, there are some changes in our Board of Directors, which I would like to draw your attention to. Let me walk you through. Before I add that, when reporting on our half year results this March, we announced a plan of a staggered renewal of our Board of Directors. The Board proposes Michael Regelski, Kenneth Lochiatto, Svein Richard Brandtzaeg to be elected as independent board member at this year's AGM. Subject to his election, the Board intends to appoint Svein Richard Brandtzaeg as Vice Chair and lead independent director. With these changes, the Board also intends to enhance the expertise in the access and commercial building industry, especially in the very important American market for us. Before we start our Q&A, I would like to give you information about assessment. Our assessment of the current business environment as well as the outlook for the financial year '22, '23. The current business environment is categorized by uncertainties and lack of visibility such as geopolitical risk, higher interest rate, inflation, supply chain constraint and potentially new COVID outbreaks and lockdowns. Therefore, our outlook applies to the first half of 2022/'23. We will continue to carefully assess the economic situation in the next month and will update our guidance for the financial year 2022/'23 with our half year results. There it goes. Based on a healthy order intake and the backlog at the end of 2021/'22, we expect a good start in the financial year 2022/'23. For the first half of 2022/'23, we expect organic growth slightly above the midterm target range of annually 3% to 5%. Expecting a sequential improvement on the 2021/'22 22nd half performance, excluding the dilutive effect of Mesker business, we expect an adjusted EBITDA margin of around 13% in the first half of financial year '22/'23. Independent from macroeconomic conditions, we will continue to focus on the execution of the Shape4Growth initiatives, which include both growth and cost management measures such as pricing and cost management. With that, ladies and gentlemen, I close the presentation for the past financial year 2021 and '22. We are happy to take your question, Kaspar, and myself. And before that, I would like to invite our Head of Investor relations, Siggi to a state to join us.

So good afternoon from my side. We have, this time, similar to the Capital Market Day, a hybrid format. So we're looking for your questions here in the audience but you can address your questions remote as well. And here later on, there will be a short introduction of [ Sandra ] but you can really start with Tobi Fahrenholz.

Tobias Fahrenholz from Stifel. Could we start with the energy costs? Could you tell us about your current energy cost share? Is it in the mid-single-digit percentage area or already higher single digit. And what kind of additional profit headwind have you concretely baked into your H1 outlook where you're looking at this 13% EBITDA margin.

Maybe I can take the first question with respect to the energy, Tobias. Well, we do not report on individual cost item, but I can give you a guidance on that one. Our energy cost overall is in line with industrial standards with industrial companies, it's a low single digit in the percentage of sales, it's a low single-digit number. But interestingly, and I think this is what you have also seen in our numbers is that the increase of our energy costs was substantial. We talk about 20% to 30% increase. This is, of course, volume but also pricing driven. And we experienced quite a substantial part of this in the second half of our business here. But it's a low -- to answer your question, it's a low single -- low single-digit number.

Then I jump in. Thank you, Kaspar. If I understand you correctly, Tobi, your second part of the question was how this energy has been factored into our second half or first half guidance. Is that what it is? I think the question of energy is not just a question of profit and loss and cost to the company. It's a question of livelihood because we have taken the tasks of forming our task force to look at how in view of that natural gas not being able to be sent and deliver fluidly to countries in Europe, how does it impact us on our business and so on. The task force came to the conclusion that if natural gas are not able to reach us in Europe, particularly in Germany, German will have its first heat however, we ask ourselves with natural gas, does that stop our production? No. However, we will get a little chill because the natural gas today has contributed towards our temperature or heating environment. So therefore, it is what it is. So we are doing all that we can to mitigate that measure. The task force has represents certain steps and measures to make sure that it doesn't impact our livelihood. But to a certain extent, we concluded that the stop of natural gas will not impact our major site in Germany because we are not driven on our production by natural gas so that is not the question. Now again, we are doing what we can. How does that factor into our -- into our first half outlook. We've actually taken that as what it has been affecting us. But clearly, if any further deterioration of the situations, then you could just not affecting us, but you will catch everybody off guard.

Next question from Martin.

Martin Hüsler, Zürcher Kantonalbank. I have 2 questions. First of all, how should we look at the midterm targets that you announced last November now having such a different environment? What's your best guess if you look into '23 '24 margin target of 16% to 18%?

Okay. If I may, this is how I would advise you to look at. We make that guidance of our midterm target November 15, 2021. We clearly said that 16% to 18% has to be one number that is the target that is built on normal market condition. And we all know that the market is -- condition is hardly normal at this point of time. Albeit, as you can see, all our efforts are towards doing the best we could in terms of margin improvement, in terms of growing our top line in these market conditions hence, it goes hand in hand with our current guidance of the lack of shop visibility. In some cases, there were not even visibility. Hence, we are guiding based on the first half, consciously aware that with Shape4Growth in an adverse environment like that, we have to continue to derive value for our business and contribute to growth. We guided for sequential improvement based on our second half performance of '21, '22. And as I said in my guidance, when I released the results for the full year for the first half of '22/'23 where I could see clearer then at that time, I can see clearly now the external environment, I will be able to give further guidance at that point of time. That's how I will propose to see that way Martin I hope that is from your perspective as well.

Yes, sure. And the other question, a bit related to that, in November, you announced some cost initiatives and also some benefits that are coming through CHF 30 million in the course of the year. How do you see the improvement there? And what costs should we account for this year?

Maybe I can take the first question. I think you refer to these items affecting comparability, which was presented in November 15. I can give you an update there. we have said at that time that we would have IT-related project costs in the items affecting comparability of around CHF 15 million. Currently, I have said this in my presentation, we are at EUR 13 million. So we are pretty much in line there. On the other side, we have this part of others items affecting comparability that was around CHF 8 million, which was communicated. Here, we are a little bit above. We are at CHF 12 million. We are a little bit above that. And we said at that time also that we would provide or we would expect CHF 25 million for the FTE reduction program. And as I said in my presentation, we have currently expensed or provided around CHF 7 million. And the reason why it is much lower than what at that time was expected is because at that time, that was a rather high level estimate and we experienced now with the execution of that program that we had much more amicable settlements and a natural levers. So I can also say you with respect to that program, we are on track. The 300 positions, they are identified. About half of it, we have agreed transfer and/or leave agreements. And for that, we had made these expenses or had these expenses or these provisions. And I would expect that this program will continue. And I would expect that we will have some further expenses on this program but it will be much lower at what had originally communicated of that CHF 25 million, it would be substantially lower.

Bernd Pomrehnfrom Vontobel. You talked about the outlook, and you talked about the strong backlog, which should drive continued good growth in the next 6 months and the current 6 months. On the other hand, obviously, we have seen PMIs coming down, architecture billing index in the U.S. coming down. What activity level are you currently seeing for your spec business and your quotation levels in the 3 regions and also specifically in China, if you could speak a little bit about this market as well.

Through bank, interest regime and so on. In a sense that stable business environment amid challenging employment market. We also see increasingly difficulties getting to retain our people amid these very tight labor market. And that is driving up our cost as well. And that's where our profit and loss in America suffer because of a current situation like that. I think we are not there yet in terms of trying to say that the labor market has stabilized. Now it's an interesting situation whereby you have jobs that require the service, but you do not seem to have enough and the right people to service those jobs. We have good order intake year-on-year and we grew 8.3% last year. So let's say a lot about us. And by the way, in the 8.3% for America about half of that is coming from volume. Half of that is coming from -- and I don't think the market is growing at more than 4%. So therefore, we are winning shares. We are gaining shares. I know that you might have heard differently but from my numbers, I'm telling you, we gain shares. So I think amid the challenging environment, I think our American units are sequentially improving. Coming to China. My view of China is that we were lucky. dormakaba is lucky, but we are also good at what we are doing because we have been able to avoid the residential challenges that we're facing because of cash flow situation. You see a lot of these Chinese residential developers. They are going into some kind of a trouble because they are unable to service the construction for the down payment that was being put up. So that creates an issue for them. The lockdown in China due to COVID has contracted our single man dormakaba China sales by 40%. On that man alone, we were contracted by 40%. I hope that lockdown will not last long. But as I said in my opening statement, there are, on a daily basis, hundreds of thousands of people in different parts of China being quarantine in one way or another, albeit different magnitude. This is the current environment that we are facing. So I think if you look at these 2 economies and if you look at our exposure, yes, America, we have a bigger stake in there. China relatively, we are small stake in there. But on the whole, we are not yet in a crisis situation. So me and my team, our focus is to ensure that Shape4Growth is being executed. China and U.S.A. remain a core country in our plan for leadership in the core, whereby we will do whatever it takes to make sure that we are either 1, 2 or 3 market positioning in key clusters like access control solution, access entrance solution and the new solution clustering. And this is what we have been doing, and therefore, Shape4Growth is an investment strategy. We will invest before we see growth. Invest in not just skills that we don't own now invest and also make sure that we are skilled in certain people that are being transited into a broader population. And this is also what we are doing across the organization. I may not have answered your question directly, but that gives you a sense of from a recent.

So that was actually very helpful, the only market maybe Europe, how do you see the European market activity?

And you know Europe much better than I do. But I think from my industry, I can only tell you that our growth story in Europe continues in July. However, having said that, this natural gas issue, if that were to happen, then I think we have to go back to the drawing board with the way we look at group should be coming from where. But again, with no exception, Europe and Africa will benefit from our Shape4Growth investment like other regions. And that's what we continue to invest in the area that we should be a specification and greater centricity. And I draw a lot of comfort from EntriWorX because EntriWorX has put together a planning tool, 360 degrees that satisfy all different stakeholders. No one in this industry has ever done that before. I knew it because I've been in this industry for more than 25 years, it never happened, and now it is happening, and we stand to gain from there.

Patrick.

Patrick Rafaisz from UBS. On pricing, you talked about 3.5% I was wondering about differences across your segments, right? What you just indicated for America would suggest America was above average, right, maybe 4%, 4.5% -- would you say Key & Wall is below average? Would that make sense as an assumption, given the project business. Yes, just any color on the segmental price?

I don't want to run against our CFO. He has all the details.

I think I can give you an answer here. I mean there are regional differences because also the inflationary pressure per region is, of course, a little bit different. So you are right in the United States, the price increases were a bit higher than, for example, in Asia. And with respect to Key & Wall Solutions, we had better chances to increase prices at the Key Systems business whereas the movable walls as I explained, and there you see also the negative growth of the Movable Walls business of minus 0.6%, with that long-term fixed price contract business. There, it was difficult. We did some, but it was difficult to increase prices. So overall, there are some regional differences, but not in the ground scale U.S. was a bit higher, Asia a bit lower and Europe and Africa in the average.

A lot of questions. [indiscernible]. With respect to the high investments that you took into working capital and especially inventory. So would you feel comfortable now with the inventory level in order to reach your sales guidance for the first half of the year? And can we inspect the improvement in working capital for the first half of the year?

Yes. Thank you for this question. I think it's a very fair and a relevant question because our net working capital, indeed did grow. We have invested around CHF 110 million into the net working capital. and around CHF 86 million of this is coming from inventory. And within the inventory, as I explained, we have also due to some cautious decisions taken also some safety stock in. So the 27% for dormakaba, we look at this at a higher level. And also here, we very clearly want to go back with sequential improvements to where we came from, which was around 25% -- which was around 25%. So there is actually what we want to go back to give you a guidance, but also in sequential improvements. That will not be possible towards middle of the year where you ask me, but it very clearly, we want to also here achieve sequential improvements. It is also important to see that the new operating model makes it also very transparent and also who is very clearly responsible for inventory. So a big part of the inventory is now in global operations and is taken care thereof, whereas more of the service part of the inventory remains in the region. So that is also helpful to have this transparency to manage the net working capital and the inventory. But yes, we are working also on that part to bring it down again.

For the next question, I would like to hand over to our operator, Sandra, are there any questions from remote?

[Operator Instructions] The first question comes from Maidi, Rizk from Jefferies.

I have a few and I'll take them one on the time. So number one is I struggle to understand why you are only guiding for 13% EBITDA margin in H1. So that implies 100 -- I mean 130 basis points margin decline in H1, and that guidance is without Mesker, which is sort of helping the margin mechanically, but 50 basis points when Mesker. Correct? So we're talking about 180 basis points margin decline versus 110 basis points decline in the last period. And in H1, you're obviously going to get better pricing, so higher than the 4% to 5% achieved in H2. Steel prices are coming down. You said energy is low single digits as a percentage of sales. But yet, you are getting 1% to 2% of the CHF 1.2 billion procurement bill, CHF 30 million savings. Maybe if you could just help me with the different elements. I know I'm being too picky here, but what could be the sort of the labor bill for the year, raw mats and logistics costs, please? I'll start here.

Should I take this one? Shall I answer the maybe take the basis of the outlook. Take the -- let me go first. So is that Rizk? Rizk, how are you?

Yes. Okay. Thanks.

Yes. Good. Good you hear me. I'm not surprised by your questions. Let me just repeat what I said as far as the guidance is concerned. We guided for sequential improvement. Sequential improvement was building upon the second half of last financial year. And that's where we guided a sequential improvement 13% around 13%. We have spent enough talking about the external environment that is hardly certain. All these point towards a visibility that is totally not there. Not if for the strong orders on hand and order intake and backlog that we have now sitting since the beginning of this financial year, July 2022, we were not able to provide a guidance for the first half year. We did come forward to provide our first half year guidance, top line and bottom line. Nonetheless, it cannot take away the fact that visibility remains extremely low, if not could even get lower in the months and months ahead of us. My message here is that Rizk -- while Kaspar will be able to give you some more light and color on this, but my general statement here is that we are dealing with an unprecedented environment that is just mathematically, able to do the sum. But I think if you look at the fiscal environment we are in, I'm not a mathematician. I'm dealing with business, I'm dealing with challenges, I'm dealing with real customers and dealing with real colleagues in the organization that is the guidance that I reserved and even that, to me, the headwinds will not disappear overnight, my view. So Kaspar.

Yes, maybe I can add to that, Rizk, this is Kaspar. When you look where we start from, if you take the second half of our business year, we start from an EBITDA margin -- adjusted EBITDA margin of 12.7%. Now of course, if you add back the Mesker business, then we are around 13%, maybe a little bit above. As Jim-Heng said, our visibility is still very limited, especially when it goes into the '23 and that is the reason why we guide for whole year of this first half year. We can also see that on -- as much in Europe, there are some risks with certain delays on construction sites. There, we see a certain risk -- you are right. We do continue with price increases that should give us some tailwind. But on the other hand, you would agree to me that supply chain is not yet back to normal. We still have a shortage on larger-sized chips, which are the ones which we need and also on, for example, on panels. And also, we have additional risks with the lockdown policy in China. So there might be further lockdowns also in China and Asia. On top of this, we continue to invest in our Shape4Growth strategy, which I think is the most important thing to do because at the end, that will make our company better and stronger. And therefore, I think it is very, for us, right figure to guide for the first half year to this around 13%.