Ladies
and
gentlemen,
good
afternoon.
Welcome
to
the
Investors
and
Analysts
Conference
on
the
Half
Year
Results
2021/2022
of
dormakaba
Holding
AG.
I
am
Myra,
the
Chorus
Call
operator.
I
would
like
to
remind
you
that
all
participants
would
be
in
listen-only
mode
and
the
conference
has
been
recorded.
[Operator Instructions]
After
the
presentation,
there
will
be
a
moderated
Q&A
session.
The
conference
must
not
be
recorded
for
publication
or
broadcast.
I
would
like
to
remind
you
that
the
conference
call
does
include
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
media
release.
At
this
time,
it's
my
pleasure
to
hand
over
to
Mr.
Jim-Heng
Lee,
CEO
of
dormakaba.
Please
go
ahead.
J
Jim-Heng Lee
Chief Executive Officer, dormakaba Holding AG
Good
afternoon,
ladies
and
gentlemen.
It
is
my
pleasure
to
welcome
you
to
this
webcast
today
and
to
present
our
half-year
results
for
2021/2022.
With
me
today
is
our
CFO,
Bernd
Brinker.
Here's
a
quick
review
of
our
today's
agenda.
First,
we
will
talk
about
the
overview
of
the
results
from
a
business
perspective,
then
we
are
in
very
much
into
implementation
of
Shape4Growth.
Then,
we'll
guide
you
through
the
financial
performance,
and
I
will
come
back
and
walk
you
through
the
outlook
for
the
full
financial
year.
Before
I
do
that,
I
will
share
with
you
a
few
thoughts
that
went
through
my
mind
after
being
here
for
a
couple
of months.
When
I
was
responsible
for
Asia-Pacific,
I
was
already
deeply,
deeply
involved
in
Shape4Growth.
I
put
in
more
than
20
years
of
industry
insights,
and
more
than
seven
years
of
company
insights
into
building
Shape4Growth.
Now,
as
CEO,
I
was
to
realize
that
it
is
equally
critical
to
stabilize
our
entire
workforce
in
the
middle
of,
A,
pandemic,
B,
a
top
leadership
change
which
few
saw
coming.
Further,
we
owe –
dormakaba
owe
the
precious
team
stability
to
our
value
investors,
customers
and
partners.
The
executive
team
and
I
are
determined
to
make
it
work.
And
together,
we
shall
remind
everyone
that
dormakaba
remains
a
healthy
company
with
a
huge
potentials
worth
fighting
for.
What
worked
for
us
in
Asia-Pacific?
Like
drive
specifications,
increased
customer
centricity
and
stickiness
to
vertical
approach
and
bundled
solution
selling,
et
cetera,
could
equally
apply
across
dormakaba.
Another
learning
that
I
have
is
eyes
on
the
board.
To
deliver
business
performance,
you
need
that
focus.
And
last
but
not
least,
a
one
dormakaba
team
spirit.
A
one
dormakaba
team
spirit
that
built
on
trust
and
with
unique
competitive
advantage
to
be
one
face
to
the
customer
[indiscernible]
(00:04:00)
literally
fast
to
the
next
level.
How
did
we
perform
in
the
first
half?
This
is
a
snapshot,
dormakaba
posted
overall
good
results
for
the
first
half
of
financial
year
2021-2022
with
strong
organic
growth.
Growth
was
driven
by
continued
strong
recovery
in
Asia,
continued
good
demand
in
Europe,
and
an
improvement
of
the
US
commercial
construction
market.
Our
adjusted
EBITDA
increased
due
to
good
growth.
However,
our
adjusted
EBITDA
margin
was
slightly
below
previous
year,
this
is
an
area
we
can
clearly
do
better.
And
it
was
mainly
due
to
the
impact
of
raw
material
and
higher
freight
costs.
Our
operating
cash
flow
was
impacted
by
a
big
increase
in
net
working
capital,
particularly
inventories.
The
higher
inventory
level
was
driven
by
overall
volume
increase,
as
well
as
safety
stock
build-up
for
electronics.
On
a
more
positive
note,
we
achieved
slightly
higher
net
profit
despite
a
CHF
12
million
one-off
cost,
Bernd
will
provide
more
details
later.
What
are
the
highlights
and
headwinds?
I
would
like
to
share
them
transparently
with
you,
ladies
and
gentlemen.
On
a
positive
note,
we
had
an
overall
good
business
environment.
We
saw
organic
sales
growth
across
all
segments.
We're
promising
order
intake
and
backlog.
We
had
in
place
a
proactive
pricing
policy
and
procurement
initiatives
that
enable
us
to
manage
raw
material
and
labor
cost
inflation
and
supply
chain
issues
in
a
way
that
we
could
mostly
offset
their
negative
effects.
Therefore,
we
are
on
track
to
achieve
our
pricing
and
procurement
targets
for
the
entire
financial
year.
Our
headwinds,
and
what
are
they?
A
challenging
environment,
and
we
know
that.
Leading
on
to
labor
shortages,
supply
chain
topics
that
impacted
our
business.
Mesker
continues
to
be
a
negative
impact
on
our
business. We
will
come
back
on
this
topic
at
the
segment
performance
level.
Movable
Walls
business
remains
weak
due
to
continued
delay
in
project
execution.
Building
on
our
highlights,
allow
me
to
share
some
of
our
successes
with
our
customers.
Indeed,
we
are
a
recognized
global
player
providing
dedicated
solution
and
we
drive
market
accessibility
through
new
partnerships.
How
so?
One
dormakaba
solution,
one
face
to
the
customer,
is
uniquely
dormakaba
and
our
unique
competitive
advantage.
In
terms
of
dedicated
solution,
I'm
proud
to
showcase
examples
that
you
can
see
on
your
screen;
in
particular
Suva,
a
renowned
Swiss
insurance
company
through
over
500
mobile
access
points
and
700
standalone
components.
We
created
a
connected
yet
seamless
working
environment.
In
terms
of
driving
market
accessibility
through
partnerships,
together
with
Vanderlande,
we
jointly
offered
the
US
Department
of
Homeland
Security
an
integrated
and
self-screening
security
checkpoint
for
passenger
flow
and
efficiency
[indiscernible]
(00:08:54)
into
our
performance.
We
achieved a
year-on-year
sales
growth
of
10%.
Organic
sales
increased
6.6%.
That
contributed
quite
a
bit
to
the
overall
sales
growth.
Organic
growth
and
the
associate
higher
volume
were
also
reflected
in
a
7.9%
higher
adjusted
EBITDA,
which
exclude
IAC,
items
affecting
comparability.
The
adjusted
EBITDA margin
was
slightly
lower
than
the
previous
year
at
14.3%
due
to
higher
calls
and
sales
mix.
Looking
ahead,
we
expect
continued
organic
growth
across
all
segments
based
on
a
healthy
order
backlog
and
a
stable
order
intake.
We
had
and
will
continue
to
increase
sales
price
to
offset
higher
raw
material,
freight
and
labor
costs.
I
will
now
go
quickly
through
the
segment
performance.
In
Americas,
we
make
some
progress
with
regards
to
growth
performance;
sales
growth
organically
at
5.7%;
growth
was
broad-based
across
almost
all
product
clusters.
It
is
absolutely
pleasing
to
see
a
recovery
in
the
US
commercial
market,
which
led
to
attractive
project
wins
and
promising
order
intake.
Mesker,
as
alluded
to
earlier,
continued
to
negatively
impact
our
EBITDA
margin
in
the
first
half
year
by
230
basis
point.
As
announced
last
November
on
Capital
Market
Day,
we
have
initiated
a
structured divestment
process
for
Mesker.
This
is
an
important
step
for
the
turning
around
of
our
Americas
business
to
get
to
the
level
where
we
deserve
to
be
at.
Next,
Asia-Pacific.
I'm
personally
very
pleased
with
the
performance
for
obvious
reasons.
We
are
clearly
the
trusted
market
leader
there.
The
trusted
market
leader.
We
grew
sales
20%
year-on-year,
2-0.
Growth
was
supported
by
many
attractive
project
wins
and
by
some
catch-up
demand
from
COVID-19-related
project
delays.
All
major
region
in
Asia-Pacific
contributed
to
the
growth,
in
particular
China,
India
and
ASEAN
posted
strong
double-digit
growth.
Looking
ahead
to
Asia
Pacific,
we
continue
to
have
good
organic
growth,
but,
but
with
a
lower
growth
rate
in
the
second
half
of
2021/2022
due
to
higher
comparable
basis.
Growth
will
be
supported
by
the
recent
acquisition
in
Australia,
RELBDA
and
Solus
in
India,
this
bolt-on
acquisition.
We
focus
on
our
core
business,
[indiscernible]
(00:12:21)
accelerate
our
market
access
and
[ph]
enrich
in (12:25)
some
of
our
core
countries.
How
did
our
German-speaking
country
perform,
AS
DACH?
The
segment
saw
strong growth,
particularly
Germany,
Australia.
Organic
sales
grew
8.6%
year-on-year,
despite
headwind
of
shortages
of
materials
and
electronics
component.
EntriWorX,
it
is
a
solution
which
you
saw
us
sharing
and
presenting
on
Capital
Market
Day
November
15
last
year.
It
is
now
being
brought
to
two
countries.
And
I'm
happy
to
announce
that
we
have
seen
first
orders
streaming
in.
It
is
a
game
changer
with
huge
potential
to
upskill.
We
are
expecting
this
train
to
pick
up
based
on
the
planned
rollout
to
more
countries
also
in
line
in
our
strategy
[indiscernible]
(00:13:28)
divestiture
of
a
glass
system
business
that
was
completed
on
October
31.
It
will
enable
us
greater
focus
on
our
core
business.
AS
EMEA
is
next.
How
I
would
describe
their
performance
as
continued
good
growth
profitability,
though
a
bit
slightly
impacted
by
higher
raw
materials
and
freight
costs
there.
Underscored
by a
strong
performance
in
UK
and
Benelux
region,
especially
in
service
and
distribution,
Middle
East
order
intake
remains
strong,
with
projects
such
as
Qatar
Airport.
In
Scandinavia,
following
the
turnaround
of
our
business
in
Norway
and
successfully
divestiture
of
a
project
installation
business
in
August
2020,
we
now
achieve
organic
growth
and
profitability.
The
future
growth
prospect
for
EMEA
is
[ph]
poised (00:14:29)
by
the
Fermatic
Group,
an
acquisition
that
was
completed
in
October
last
year
of
a
French
service
business.
This
acquisition
had
already
realized
cross-selling
opportunity
between
entrance
system
and
electronic
access
data
businesses.
In
Key
&
Wall,
that's
the
final
segment
here.
Overall,
organic
sales
growth
of
2.6%
year-on-year,
Business
Unit
Key
System
and
Movable
recorded
very
different
financial
outperformances,
Key
System
had
a
strong
organic
growth
of
10%,
or
exactly
9.9%,
this
is
not
the
case
for
Movable
Wall.
Organic
sales
were
below
the
previous
year.
Project
execution
continued
to
be
delayed,
that
was
the
main
factor
for
the
weaker
organic
growth.
Order
backlog
for
Movable
had
reached
record
high
level
and
order
entry
remained
strong.
We
expect
direct
high
order
backlog
in
Walls,
Movable
Walls,
and
good
demand
in
Key
Systems
to
drive
growth
in
the
second
half
of
the
financial
year.
I
have
closed
this
detailed
overview
of
segment
and
I
would
like
to
change
to
a
topic
that
is
so
close
to
all
of
us
and
so
important
to
get
it
right.
How
we
have
been
executing
Shape4Growth?
As
this
is an
important
topic
to
my
heart,
I
would
like
to
go
a
little
slower.
You
saw
this
on
Capital
Market
Day,
November
15,
last
year.
A
quick
update
on
what
we
wanted
to
achieve,
and
how
far
we
have
now
come,
and
what
we
are
currently
at
with
the
implementation.
It
is
all
about
accelerating
profitable
growth;
through
eyes
on
the
ball,
focus
on
the
company
core
businesses
in
commercial
access
solution.
On
our
core
markets,
the
top
geographies
through
a
lot
of
customer
centricity,
to
generate
customer
stickiness,
we
want
to
achieve
the
differentiation
through
digitization
and
how
we
will
contribute
and
we
must
to
sustainability.
Consequently,
these
strategic
parameters/pillars
will
influence
the
way
we
assess
potential
candidates
for
bolt-on
acquisition.
With
regards
to
implementations,
where
are
we
now?
We
have
changed
our
operating
model
as
of
January
2022,
more
than
two
months
ago.
We
have
initiated
across
dormakaba
75
transformation
projects
in
the
following
areas:
[indiscernible]
(00:18:10)
efficiency,
understandably,
a
major
focus
at
this
time
[ph]
and
age (00:18:16).
Digital
offering
in
our
global
core are
in
accelerated
mode.
Go-to-market
excellence
in
our
core
countries,
we
call
that
LITC,
leadership
in
the
core,
one
of
which
was
investment
in
specification
capabilities.
Not
a
number
game.
Specification
is
crucial
for
our
project
business
in
order
to
ensure
that
we
are
able
to
influence
at
very
advanced
stage
of
the
design
phase
and
this
is
absolutely
crucial
for
us
to
make
sure
that
we
are
effective,
efficient,
and
we
have
the
right
tools
and
the
right
people
to
drive
these
important
capabilities.
Organizational
changes
backed
with
additional
and
accelerated
investment
in
IT
to
close
remaining
gaps.
Reduce
internal
complexity
to
enable
growth.
Of
course,
we
will
and
we
have
been
working
tirelessly
to
ensure
that
region
America
up
[ph]
their
game (00:19:33),
bring
it up
to
next
level
and
continue
to
get
to
where
they
deserve
to
be
in
terms
of
performance.
My
leadership
team
and
I
have
eyes
firmly
cast
on
the
ball.
Shape4Growth
shall
be
our
top
priority
number
one.
It
is all
about
value
creation
once
we
successfully
implement it.
To
our
shareholders,
how
is
that
so?
Successful
implementations
and
execution
of
Shape4Growth
is
not,
if
not
[indiscernible]
(00:20:19),
it's
a
must
do.
When
we
achieve
that,
we
are
committed
to
deliver
3%
to
5%
organic
growth
every
year
as
of
this
financial
year
2021-2022. And
adjusted
EBITDA
margin
ranging
from
16%
to
18%
from
the
year
after,
i.e.
2023-2024.
And
in
the
same
year,
2023-2024,
a
return
on
capital
employed,
ROCE,
of
no
less
than
30%.
And
definitely,
and
not
the
least,
our
focus
on
sustainability
will
come
true
by
delivering
on
industry-leading
ESG.
We
strive
to
reduce
carbon
footprint
of
our
purchases.
We
strive
to
reduce
carbon
emissions
of
our
purchases
from
our
suppliers
as
well.
In
short,
we
will
stick
to
our
plan
as
communicated
on
November
15, 2021
Capital
Market
Day.
With
that
I
close
my
part.
I
will
come
back
later.
For
now,
I
would
like
to
hand
it
over
to
Bernd,
whom
you are
very
familiar
with,
to
walk
you
through
the
insights
of
our
financial
performance.
Bernd?
B
Bernd Brinker
Chief Financial Officer, dormakaba Holding AG
Thank
you very
much,
Jim-Heng.
J
Jim-Heng Lee
Chief Executive Officer, dormakaba Holding AG
Thank
you.
B
Bernd Brinker
Chief Financial Officer, dormakaba Holding AG
Ladies
and
gentlemen,
a
warm
welcome
from
me,
too.
Over
the
course
of
the
next
slides,
I
will
share
some
more
details
of
our
financial
performance
in
the
first
half
of
financial
year
2021/2022.
Let's
start
with
an
overview.
Sales
for
the
first
half
of
2021/2022
financial
year
increased
by
10%.
The
major
driver
was
organic
growth,
which
contributed
6.6
percentage
points.
Adjusted
EBITDA
increased
by
7.9%,
while
the
adjusted
EBITDA
margin
went
down
by
30
basis
points
against
the
prior-year
period.
Nevertheless,
net
profit
was
slightly
higher
than
in
the
previous
year.
And,
finally,
we
increased
return
on
capital
employed,
our
newly
introduced
return-driven
KPI,
as
just
explained
by
Jim-Heng,
from
18.4%
to
25.8%.
Let's move
on
to
the
sales
development.
The
upper
right
part
of
the
slide
shows
the
drivers
behind
the
change
in
sales
compared
with
the
previous
year.
Our
sales
increased
organically
by
CHF
81
million
or
6.6%.
This
increase
was
due
to
volume
growth
as
well
as
higher
sales
prices.
The
contribution
from
higher
sales
prices
was
two
percentage
points.
All
segments
were
able
to
achieve
organic
growth
with
the
strongest
growth
rates
coming
from
AS
APAC
with
20%
and
AS
DACH
with
8.6%.
It
is
important
to
mention
that
AS
AMER
also
grew
organically,
achieving
a
growth
rate
of
5.7%.
Our
M&A
activities
contributed
a
net
increase
in
sales
of
CHF
30
million.
This
was
driven
by
acquisitions
in
Australia
and
France,
as
well
as
by
our
divestment
of
the
interior
glass
business.
Unlike
in
previous
years,
currency
translation
contributed
to
sales
growth
as
well.
Due
to
the
weaker
Swiss
franc
against
all
major
currencies,
except
the
euro,
the
positive
currency
translation
effect
amounted
to
CHF
11
million.
The
factors
mentioned
in
relation
to
sales
also
apply
to
our
profitability
during
the
period
under
review.
As
you
can
see
on
the
chart
for
EBITDA
development,
driven
by
organic
growth
as
well
as
M&A
activity,
our
adjusted
EBITDA
increased
by
7.9%
to
CHF
193.5
million.
Currency
translation
also
had
a
positive
effect
on
EBITDA.
The
corresponding
adjusted
EBITDA
margin
was
14.3%,
which
is
30
basis
points
lower
than
the
previous
year.
This
fall
was
mainly
due
to
the
impact
of
higher
raw
material,
higher
freight
and
higher
labor
costs,
as
well
as
product
mix
effects,
which
more
than
offset
the
positive
impact
of
higher
volume,
of
sales
price
increases,
and
cost
management
initiatives.
The
adjusted
EBITDA
includes
CHF
9.2
million
of
adjustments,
mainly
related
to
the
preparation
and
implementation
of
our
new
strategy,
Shape4Growth.
In
the
prior
year
period,
the
adjustments
to
EBITDA
were
positive
by
CHF
2.6
million.
At
the
segment
level,
AS
DACH
was
able
to
improve
its
adjusted
EBITDA
margin,
mainly
due
to
further
progress
on
plant
efficiency,
especially
at
the
Ennepetal
Plant.
Let's
turn
next
to
the
income
statement.
I
already
mentioned
the
change
in
net
sales.
So,
the
gross
margin
for
the
reporting
period
was
40.8%,
which
is
90
basis
points
below
the
previous
year
to
the
reasons
I
just
explained
when
I
commented
on
our
EBITDA
margin
development.
In
accordance
with
our
strategic
focus
on
the
relevance
of
innovation,
we
slightly
increased
our
spending
on
R&D
compared
with
the
previous
year.
The
R&D
ratio
is
at
4%.
We
significantly
improved
our
net
financial
result,
thanks
to
a
much
more
favorable
interest
rate
environment
for
our
debt
portfolio.
Our
income
tax
rate
remained
unchanged
at
23%.
The
total
adjustments
to
EBIT
for
the
period
under
review
came
to
CHF
12.4
million,
while
in
the
prior
year
period,
the
amount
was
positive
by
CHF
2.6
million.
In
total,
a
net
change
of
CHF
15
million.
I
would
like
to
remind
you
that
starting
with
this
financial
year,
we
introduced
the
methodology
of
items
affecting
comparability.
Thus,
adjusted
EBITDA
and
adjusted
EBIT
to
focus
on
the
underlying
financial
performance
by
removing
exceptional
items
outside
the
normal
course
of
business,
such
as
restructuring
and
reorganization,
impairments,
or
changes
in
the
scope
of
consolidation. This
will help
to
improve transparency
and
allow
a
better
understanding
of
performance
and
guidance.
In
total,
we
were
able
to
slightly
improve
our
net
profit
to
CHF
100.6
million
versus
CHF
99.9
million
for
the
previous
year.
This
offset
the
net
CHF
15
million
of
nonrecurring
items,
which
have
been
adjusted
as
just
explained.
Let's
move
onto
the
cash
flow.
Cash
flow
for
the
reporting
period
was
significantly
impacted
by
a
strong
increase
in
net
working
capital,
particularly
an
increase
in
inventories,
caused
by
higher
volumes,
safety
stock
for
electronic
components,
and
certain
other
raw
materials,
higher
goods
in
transit
due
to
freight
issues,
and
higher raw
material
prices.
This
buildup
is
a
result
of
significant
supply
chain
challenges,
as
well
as
conscious
decisions
to
prioritize
business
continuity
and
safeguard
supply.
And
the
result,
cash
flow
from
operations
decreased
to
CHF 88
million.
In
the
prior
year
period,
cash
flow
benefited
from
COVID-19-related
cash
scheme
principles.
The
operating
cash
flow
margin
came
to
only
3.7%
compared
to
15.8%
a
year
earlier.
And
how
did
we
use
this
cash?
First
of
all,
as
announced,
we
started
to
increase
investments
in
our
existing
business.
Capital
expenditures
amounted
to
CHF 36
million,
which
is
equivalent
to
2.7%
of
sales
compared
with
2.5%
in
the
previous
year.
In
addition,
we
restarted
M&A
activities
in
line
with
our
strategy.
Including
one
divestment
IGS,
we
closed
five
transactions
during
the
period
under
review
leading
to
M&A related
net
investments
of
almost
CHF
70 million.
As
a
result,
free
cash
flow
was
negative
CHF
54
million
compared
with
the
positive
CHF
153
million
in
the
prior-year
period.
And
finally,
I
would
like
to
talk
about
the
development
of
net
debt.
Net
debt
increased
by
around
CHF
150
million
against
last
year
to CHF
708
million.
The
mix
of
our
financial
debt
instruments
changed
during
the
first
half
of
2021-2022
as
one
of
our
two
corporate
bonds
fell
due
in October
2021.
The
amount
of
CHF
360 million
has
been
refinanced
via
our
short-term
syndicated
credit
facility.
The
second
corporate
bond
worth
CHF
320 million
will
fall
due
in
October
2025.
Dormakaba
thus
continues
to
have
a
solid
financial
profile.
This
is
reflected
in
the
leverage
ratio
of
net
debt-to-EBITDA
of
1.9
times
for
the
period
under
review
which
is
unchanged
on
last
year.
We
have
further
financial
room
for
maneuver
up
to
a
leverage
of
2.5
times.
We
could
even
push
the
ratio
higher
for
a
period
of
time.
And
with
this,
I
conclude
my
part
of
the
presentation
and
hand
back
to
our
CEO,
Jim-Heng,
please.
J
Jim-Heng Lee
Chief Executive Officer, dormakaba Holding AG
Thank you, Bernd. Thank you. In the next few minutes, I will give you our
full-year
outlook
for
the current
financial
year.
Before
I
get
there,
there
are
management
changes
which
I
would
like
to
draw
your
attention
to.
First,
I'm
very
pleased
that
Kaspar
Kelterborn
will
be
joining
us
as
interim
CFO
as
of
1st
of
April
2022.
He
will
stay
on
until
a
permanent
replacement
for
Bernd
has
been
appointed.
Kaspar
is
an
experienced
CFO
coming
with
broad
knowhow
in
a
global
industrial
and
publicly-listed
environment.
Kaspar's
expertise
and
experience
will
be
a
great
support
for
me
and
for
dormakaba
to
move
smoothly
through
this
transition
time,
so
that
we
can
keep
our
eyes
on
the
ball.
Next,
Andy
Jones
has
been
appointed
as
my
successor
as
President-Asia
Pacific
since
January
12, 2022,
this
year.
Andy
is
a
seasoned
industrialist,
industrial
leader
with
an
impressive
long-term
track
record
in
our
market
and
he
is
highly
regarded
in
the
region.
Before
we
start
our
Q&A,
I
would
like
to
give
you
information
about
our
assessment
of
the
current
business
environment,
as
well
as
the
outlook
for
the
financial
year
2021/2022.
The
current
business
environment
still
categorized
by
uncertainties
and
lack
of
visibility.
This
is
due
to
the
COVID-19
pandemic
and
macroeconomic
factors,
such
as
potentially
higher
interest
rates
and
geopolitical
tensions
as
well
as
to
the
potential
impact
of
a
further
deterioration
of
global
supply
chains
and
higher
inflation.
We
will
continue
to
focus
on
profitable
growth,
targeting
market
share
gains
and
accelerating
order
backlog
conversion.
We
will
also
focus
on
sales
price
increases
to
compensate
for
inflationary
effects
and
support
our
margin
progression.
Based
on
this,
we
confirm
the
outlook
for
the
current
financial
year
2021-2022.
We
anticipate
organic
sales
growth
between
3%
to
5%,
as
well
as
an
adjusted
EBITDA
margin
of
slightly
above
14.2%.
This
guidance
is
based
on
the
assumption
that
there
is
no
further
supply
chain
deterioration,
especially
for
electronic
component,
which
would
temporarily
impact
some
of
our
high-margin
businesses.
Further,
it
also
does
not
take
into
account
any
potential
impact
resulting
from
the
currently
escalating
conflict
between
Russia
and
the
Ukraine.
We
are
now
ready
to
take
your
questions.
Ladies
and
gentlemen,
for
that,
I
hand
it
over
to
operator.
Operator,
please.
Operator
We
will
now
begin
the
Q&A
session.
[Operator Instructions]
Please
limit
yourself
to
one
question
and
one
follow
up.
[Operator Instructions]
The
first
question
is
from
Maidi
Rizk
from
Jefferies.
Please
go
ahead.
R
Rizk Maidi
Analyst, Jefferies International Ltd.
Yes.
Good
afternoon,
Jim,
Bernd
and
[ph]
Sigge (00:36:03).
I'll
stick
to
two.
And
thanks
for
the
opportunity
to
ask
questions.
So,
the
first
one
for
you,
Jim.
Just
perhaps
a
high
level
question.
Shape4Growth
has
been
initiated
by
your
predecessor.
You
stated
that
you're
backing
it.
I'm
just
wondering
if
you
could
just,
as
we're
still
getting
to
know
you,
if
you
could
just
talk
about
your
industry
experience
prior
to
dormakaba.
So,
we
know
that
the
integration
was
successful
in
the
division
that
you
were
heading,
Asia-Pac.
But
perhaps
can
you
talk
about
your
experience
in
turning
around
access
control
businesses
prior
to
dormakaba.
I'll
start
there.
J
Jim-Heng Lee
Chief Executive Officer, dormakaba Holding AG
You
would
like
to
lead on
the
second
question,
or
you
wait
for
me
to
answer
the
first.
Good
afternoon.
R
Rizk Maidi
Analyst, Jefferies International Ltd.
Yes.
Just
go
ahead
and
I'll...
J
Jim-Heng Lee
Chief Executive Officer, dormakaba Holding AG
Thank
you.
R
Rizk Maidi
Analyst, Jefferies International Ltd.
...take
them
one
at
a
time.
J
Jim-Heng Lee
Chief Executive Officer, dormakaba Holding AG
Thank
you.
Thank
you.
Thanks
for
your
questions.
If
I
hear
you
correctly,
you
ask
that
we
are
back
to
Shape4Growth.
I
have
to
be
careful
with
that
because
I
was
never
out
of
Shape4Growth.
So, I
just
want
to
make
a
correction
here.
I
don't
think
that's
what
you
meant.
But
for
the
audience,
it's
very
important
for
me
to
make
that
comment.
I
contributed
to
Shape4Growth
in
my
prior
capacity
as
Asia-Pacific
COO.
And
now
that
I'm
in
this
new
capacity,
I
continue
to
believe
in
Shape4Growth
and
this
is
what
I
would
like
to
bring
together
with
my
team
to
a
new
level.
So,
it's
different
capacity
here
that
we
are
talking
about.
Now,
prior
to
dormakaba,
I
have
had
quite
a
number
of
years
that
I
spend,
continue
to
be in
this
industry,
and
notably,
my
years
spent
with
one
of
our
competition,
Assa
Abloy.
I
was
able
to
move
businesses
in
Southeast
Asia
from
a
relative
unknown
to
a
larger
player
through
specification
driving
and
focusing
on
customer-centricity.
I
was
part
of
the
team
in
China
during
my
days
in
Assa
Abloy
that
grew
our
business
again
by
focusing
on
driving
pre-sales
influence
and
pretty
much
total
solution.
I
have
also
experienced
interesting
development
in
India
whereby
we
have
grown
the
market
together
with
our
partner
to
a
level
by
capitalizing
on
a
lot
of
ensuring
that
customer
pain
points
were
addressed.
So,
I
hope
that
gives
you
some
color
of
what
I
have
done
previously
before
joining
dormakaba.
R
Rizk Maidi
Analyst, Jefferies International Ltd.
Thank
you
very
much.
The
second
one
is
on
how
should
we
think
about
the
EBITDA
bridge
in
the
second
half.
So,
perhaps
different
components
here.
Number
one
is
on
pricing.
My
understanding
is
you've
done
2%
in
H1,
which
is
shy
of
what
your
main
competitor
in
Europe
has
been
able
to
achieve
over
the
same
period,
although
that
you've
had
slightly
higher
volumes
than
them.
Like
what
sort
of
price
increases
should
we
expect
in
the
second
half
of
the
year?
And
how
should
we
think
about
the
price
cost
equation
in
H2?
B
Bernd Brinker
Chief Financial Officer, dormakaba Holding AG
Rizk,
I
will
take
that
question.
I
think,
as
I
just
mentioned
during
my
introduction
report,
we
achieved
so
far
a
price
increase
of
2%
throughout
our
portfolio.
Our
underlying
assumption
for
the
full
year
remains,
as
we
indicated
already
at
the
end
of
last
year,
that
we
achieve
a
price
increase
throughout
the
entire
portfolio
by
3%.
And
the
expectation
is,
as
you
could
see,
that
we
had
a
negative
squeeze
in
the
first
half
that
based
on
what
we
know
today,
that
we
will
be
able
to
slightly
close
that
negative
squeeze
to
neutralize
the
squeeze.
So,
we
are
optimistic
to
fully
offset
the
impact
of
higher
raw
material
costs
and
other
additional
costs
from
freight
and
labor
in
our
–
in
the
second
half.
That's
the
underlying
assumption,
which
is
also
built
into
the
outlook
which
you
have
just
seen.
R
Rizk Maidi
Analyst, Jefferies International Ltd.
Okay.
Thank
you
very much.
B
Bernd Brinker
Chief Financial Officer, dormakaba Holding AG
Rizk, thank
you.
Operator
The
next
question
is
from
Martin
Flueckiger
from
Kepler
Cheuvreux.
Please
go
ahead.
M
Martin Flueckiger
Analyst, Kepler Cheuvreux SA (Switzerland)
Yeah.
Good
afternoon,
gentlemen.
Thanks
for
taking
my
questions.
I'll
take
one
at a
time.
Firstly,
coming
back
to
your
organic
growth
outlook
for
the
full
year,
that
3%
to
5%.
Now,
I'm
trying
to
do
the
math
here.
If
I
assume
the
upper
end,
i.e.,
5%,
I
would
get
a
lower
sales
figure,
absolute
for
the
group
as a
whole
in
the
second
half.
And
that's
–
pre-COVID,
the
seasonality
pattern
was
a
different
one
that
you
were
CHF
20 million,
CHF 30
million, CHF
40
million
higher
in
the
second
half
versus
the
first
one
now.
Just
trying
to
figure
out,
what
could
be
the
reason
here
for
you
being
a
little
bit
more
cautious
on
H2
apart
from
the
geopolitical
discussion,
of
course?
That
would
be
my
first
question.
J
Jim-Heng Lee
Chief Executive Officer, dormakaba Holding AG
Yeah.
M
Martin Flueckiger
Analyst, Kepler Cheuvreux SA (Switzerland)
And
I'll
take
a
second
one
afterwards,
please.
J
Jim-Heng Lee
Chief Executive Officer, dormakaba Holding AG
Thank
you,
Martin,
for
your
questions.
We
do
not
expect
a
major
change
in
our
underlying
demand
across
dormakaba.
However,
as
I
stated
earlier,
first
half
of
this
financial
year,
in
particular,
Asia-Pacific
but
not
limited
to
Asia-Pacific,
there
were
post-COVID
catch-up
that
benefited
us.
That's
kind
of
a
headwind
–
tailwind.
So,
that
benefited
us.
So,
that
is
one
first
element.
And
we
also
know,
I
mean,
we
remain
cautious
that
in
the
coming
months,
a
high
level
of
uncertainty
underlying
due
to
geopolitical
tensions.
We
didn't
know
then
last
week,
now
we
know
what
we
know
better,
that we
will
have
a
ripple
effect,
we
hope
not.
Supply
chain
topic
and
shortages
of
electronic
components.
So,
the
recent
escalations
of
Russia
and
Ukraine
just
add
more
mist
to
the
outlook.
Hence,
we
guided
to
3%
to
5%
growth
here,
Martin.
M
Martin Flueckiger
Analyst, Kepler Cheuvreux SA (Switzerland)
Okay.
Got
it.
Thanks.
And
my
second
question
is
regarding
the
divestment
process
of
Mesker.
Just
wondering
whether
you
could
give
us
a
little
bit
more
flesh
on
the
bone
and
how
far
advanced
you
are
and
if
there's
any
particular
period
where
you
–
by
when
you
think
will
have
divested
Mesker.
J
Jim-Heng Lee
Chief Executive Officer, dormakaba Holding AG
What
I
can
say
is
that
we
make
progress
since
we
communicated
on
Capital
Market
Day
in
November
15
that
we
had
a
structured
process
of
divesting
Mesker.
We
continue
to
be
in
the
process.
Relative
to
November
15,
we
make
progress.
M
Martin Flueckiger
Analyst, Kepler Cheuvreux SA (Switzerland)
Okay.
Thanks.
J
Jim-Heng Lee
Chief Executive Officer, dormakaba Holding AG
Thank
you.
Operator
The
next
question
is
from
Patrick
Rafaisz
from
UBS.
Please
go
ahead.
P
Patrick Rafaisz
Analyst, UBS AG
Yes.
Thank
you
for
taking
my
questions.
The
first
will
be
a
follow-up
from
Martin's
question
on
the
implied
growth
outlook
for
the
second
half
because
if
we
take
the
midpoint
or
even
the
higher
end
of
the
range
and
deduct
pricing,
which
would
likely
be
around
4%,
right,
that
implies
actually
flat
volumes
in
your
second
half. And
from
your
comments,
I
gather
that
Key
&
Wall
will –
should
accelerate
assuming
execution
is
picking
up,
right,
and
the
order
books
look
good.
AsiaPac still growing
even
if
[ph]
comps
become (00:45:32)
tougher.
So,
that
leaves
me
thinking
where
should
we
– when
should
we
anticipate
negative
volumes
in
order
to
make
the
maths
work
here?
Thanks.
J
Jim-Heng Lee
Chief Executive Officer, dormakaba Holding AG
Thank
you
for
asking
that
question.
I
did
my
math
as
well.
Let
me
specifically
address
the
topic
of
Key
&
Walls.
This
is
a
project
business
and
I'm
very
familiar
with
project
business.
The
project
business
could
only
be
converted
once
the
developer
has
the
desire
and
the
appetite,
had
the
muscle,
and
had
the
resources,
and
had
the
financial
ability,
had
already
lined
up
activities
and
events
that
they
would
like
to
trigger
a
conversion
that
will
come,
and
an
order
will
come
our
way.
Otherwise,
it
remains
as
a
contract
awarded.
And
our
Movable
Wall
Systems
depend
very
heavily
on
project
business.
And
this
is
very
different
from
fast
moving
product
sales.
And
of
course,
the
other
part
of
our
business
is
really
services
and
other.
Specifically
to
Key
&
Wall,
we
have
a record
high
orders
intake
and
backlog.
Your
guess
is
as
good
as
my
guess
when
will
this
project
be
converted.
We
chose
not
to
overpromise
and
backfire
when
we
underdeliver.
With
regards
to
Asia
Pacific,
it
is
clearly
a
case
of
first
half
of
this
financial
year
whereby
my
region
benefited
from
demand
that
was
somehow
slowed
down
during
COVID.
This
will
not
repeat
in
the
second
half.
And
that
is
an
important
contributor.
Hence,
we
continue
to
guide
the
market
of
a
3%
to
5%
organic
growth,
which
we
are
rather
comfortable
within
the
range
knowing
that
we
have
returned
6.6%
in
the
first
half
on
those
caveats
that
by
now
we
can
all
remember
so
well;
supply
chain,
electronics,
escalating
tension
between
Ukraine
and
Russia,
what
have
you.
So,
this
shall
be
my
current
guidance.
P
Patrick Rafaisz
Analyst, UBS AG
Okay.
Okay.
Thanks
for
these
clarifications.
And
if
I
may,
just
another
question
on
cash
flow
in
the
second
half.
You
explained
well
what
happened
with
the
working
capital
and
the
inventories
in
the
first
half.
You
think
you
will
have
to
carry
these
safety
stocks
through
the
second
half
as
well
or
when
shall
we
anticipate
a
normalization
setting
in
for
your
inventory
levels?
B
Bernd Brinker
Chief Financial Officer, dormakaba Holding AG
Patrick, I'll
take
that
question.
So
again,
we
have
some
underlying
assumptions
on
the
second
half.
However,
we
don't
know
what
we
don't
know
yet.
We
continued
to
prioritize
availability
of
stock
to
be
able
to
deliver
to
the
market.
This
is
for
us
the
most
important
priority.
While,
second,
we
obviously
believe
that
the
current
level
of
inventories
is
not
something
which
we
would
like
to
continue
mid
to
long
term.
Currently,
the
assumption
is
that
the
level
will
normalize,
not
entirely
throughout
the
second
half,
but
we
will
see
some
normalization.
If
circumstances
changes,
we
might
change
again
our
priorities.
P
Patrick Rafaisz
Analyst, UBS AG
Excellent.
Thank
you
very
much.
B
Bernd Brinker
Chief Financial Officer, dormakaba Holding AG
Thank
you,
Martin.
Operator
The
next
question
is
from
Basic
Emrah
from
Baader
Helvea.
Please
go
ahead.
E
Emrah Basic
Analyst, Baader Helvea AG
Yes.
Hi.
Good
afternoon.
Thank
you
very
much.
My
first
question
would
be
regarding
the
one-offs
that
you're
having.
Is
it
still
that
you're
planning
to
spend
around CHF
25
million
for
the
full
year?
And
also
on
top
of
it,
I
think
you've
mentioned
last
year
that
you
have
some
IT
costs
that
you
plan
to –
I
mean,
you're
going to
have
OpEx
costs
around
CHF 15
million,
that
the
rest
will
be
cash
related.
Is
that
still
the
case?
And,
overall,
just
could
you
shed
some
light
of
this
one-off
costs
that
you
have?
Like
what
is
going
into
that?
And
then
I
will
have
a
follow-on
question.
B
Bernd Brinker
Chief Financial Officer, dormakaba Holding AG
Okay.
I
will
take
those
questions.
So,
the
first
question,
I
would
like
to
make
reference
to
the
Capital
Market
Day
presentation
and
especially
to
page
75.
That
might
be
a
good
reference
point.
So,
in
the
first
half,
we
basically
spent,
out
of
the
CHF
15
million
IT
cost,
we
spent
CHF
5
million
and
our
expectation
is
that
we
will
spend
the
remainder
in
the
second
half,
so
the
CHF
10
million.
And
in
terms
of
other
costs,
we
have
spent
so
far CHF
7
million.
So,
there
is
also
a
smaller
piece
to
go
for
the
second
half.
In
terms
of
severance
costs,
we
indicated
that
we
expect
to
reduce
our
workforce
by
around
300
FTEs.
This
is
still
the
case
and
is
confirmed.
However,
we
have
not
yet
finalized
this
restructuring
plan.
And
in
order
to
be
able
to
implement
the
provision,
we
need
to
finalize
this
plan
first.
Our
current
assumption
is
that
we will
finalize
the
restructuring
plan
in
the
remainder
of
the
second
half.
And
what
I
can
indicate,
the
CHF
25
million
severance
costs
which
we
indicated
will
be
absolutely
the
cap.
So
most
likely,
we
will
not
spend
the
entire
amount,
but
more
details
to
come
once
we
finalize
the
restructuring
plan
and
once
we
disclose
the
second
half
results.
With
regard
to
your
second
question,
in
the
items
affecting
comparability,
you
asked
what
is
included.
To
give
you
an
overall
idea,
I
think
I
already
explained
during
my
presentation
that
we
include
costs
for
reorganization
and
restructuring.
We
include
also
costs
related
to
a
change
in
the
scope
of
consolidation.
And
we
also
include
other
one-off
costs
in
the
first
half.
The
main
elements,
which
we
have
included,
are
the
costs
to
define
and
implement
the
Shape4Growth
strategy.
And
in
addition,
the
IT
costs,
which
we
deem
to
be
in
part
of
acceleration
of
our
IT
efforts.
E
Emrah Basic
Analyst, Baader Helvea AG
All
right.
So
these
CHF
12
million
so
far
at the
first
half,
they
are
there.
We
don't
have
the
CHF
25
million
severance
costs
included
yet. Not
at
all,
right?
J
Jim-Heng Lee
Chief Executive Officer, dormakaba Holding AG
Exactly.
Exactly.
Yeah.
E
Emrah Basic
Analyst, Baader Helvea AG
Okay.
Okay.
Then,
yes,
actually,
I
still
have
a
follow-up
question
if
that
will
be
okay.
Or
just
as
second
question.
That
will
be
regarding
the
EBITDA
margin
development.
So
out
of
these
30
bps
decrease,
how
much
– can
you
quantify
how
much
is
owed
to
freight
and
labor
costs?
Or
another
question,
if
we
wouldn't
have
these
disruptions,
what
would
have
the
margin
development
approximately
looked
like?
J
Jim-Heng Lee
Chief Executive Officer, dormakaba Holding AG
Okay.
So
we
are
not
disclosing
more
detail
on
the
impact
of
additional
–
of
certain
elements,
such
as
raw
material,
freight
and
labor.
However,
what
I
can
share
with
you
is
the
most
significant
impact
comes
from
raw
materials.
The
second
largest
impact
comes
from
labor,
and
the
third
largest is
freight.
E
Emrah Basic
Analyst, Baader Helvea AG
All
right.
Thank
you
very
much.
J
Jim-Heng Lee
Chief Executive Officer, dormakaba Holding AG
Thank
you.
Operator
We
have
a
follow-up
question
from
Maidi
Rizk
from
Jefferies.
Please
go
ahead.
R
Rizk Maidi
Analyst, Jefferies International Ltd.
Yes.
So,
hi
again.
Thanks
for
taking
the
follow-up.
Just
perhaps,
Bernd,
a
bit
of
clarification,
when
you
say
you're
expecting
price
to
cost
inflation
to
neutralize
in
H2,
does
that
include
the
procurement
savings
that
you
sort
of
announced
at
the
CMD,
and
I
think
that
was
1%
to
2%
net
savings
on
a
CHF 1.2
billion
spend?
And
can
you
just
remind
us
about
how
much
savings
should
we
assume
for
this
program
this
year?
B
Bernd Brinker
Chief Financial Officer, dormakaba Holding AG
Okay.
So
at
the
time
of
the
Capital
Market
Day,
we
indicated
that
our
expectation
for
procurement
benefits
as
part
of
Shape4Growth
is
in
the
magnitude
of
1
to
2
percentage
points
per
annum,
and
this
relates
to
a
total
spend
of
roughly
CHF 1.2
billion.
What
I
can
share
with
you
is
that
given
the
current
business
environment
where
we
are
in,
we
are
at
the
lower
end
of
the
procurement
savings.
However,
still
in
the
range.
With
regards
to
the
squeeze,
procurement
is
an
integrated
part
of
our
approach
to
compensate
for
raw
material
price
inflation,
for
freight
and
labor
costs,
so
it's
included
here
in
the
squeeze.
R
Rizk Maidi
Analyst, Jefferies International Ltd.
Thank
you
very
much.
And
then,
if
I
move
to
the
other
part
of
the
sort
of
EBIT
bridge,
which
is
the
operating
– what
you
call
operating
model
and
SG&A
and
the
CHF
30
million
savings.
My
understanding
is
this
is
more
backend
loaded,
so
we
shouldn't
expect
anything
here
at
least
this
year.
B
Bernd Brinker
Chief Financial Officer, dormakaba Holding AG
Yeah,
you're
right.
You
should
not
expect
significant
saving
this
year.
We
expect
already
the
first
savings
in
the
next
financial
year
and
going
back
to
our
Capital
Market
presentation,
what
I
can
confirm
is
that
we
expect
in
the
next
year
40%
of
the
savings
to
be
realized,
while
the
full
potential,
the
full
run
rate
will
be
available
the
year
after.
R
Rizk Maidi
Analyst, Jefferies International Ltd.
Okay.
Thank
you
very
much.
The
last
one
is
really
about
your
partnership
with
Latch.
So
my
understanding
is
it
is
currently
solely
focused
on
the
European
residential
business
of
them.
I
don't
know
if
you
have
any
thoughts
on
what
their
ambition
is
in
Europe
and
is
there
scope
to
expand
the
cooperation
to
Americas?
My
understanding
they
are
pretty
strong
on
the
non-residential
side
in
the
US.
J
Jim-Heng Lee
Chief Executive Officer, dormakaba Holding AG
Thank
you
for
the
question.
Again,
it's
a
very
interesting
one
because
it
addressed
what
dormakaba
can
do
in
terms
of
partnership
in
order
to
have
a
strategic
reach
so
that
we
become
a
more
integrated
complete
solution
provider.
Latch
is
one
step
in
the
right
direction.
However,
I
have
to
say
that
it
is
still
early
day
for
us.
I
think
we
announced
that
on
Capital
Market
Day
or
slightly
later
that
this
is
happening.
I
would
want
to
give
it
a
period
of
time
for
us
to
decide
if
it
works
in
Europe
and
not
just
dormakaba.
This
is
a
strategic
partnership
that
it
is
also
equally
important
for
Latch
to
tell
us
how
is
that
going
to
work
out
in
the
initial
phase.
So,
therefore,
my
question
is
that
increasingly
at
the
start,
it
looks
promising.
Otherwise,
you
would
not
have
come
into
that
partnership.
But
we
need
more
time.
We
need
more
time
in
order
to
see
if
that
is
equally
making
sense
for
us,
for
the
rest
of
dormakaba.
J
Jim-Heng Lee
Chief Executive Officer, dormakaba Holding AG
Okay.
And
thank
you
very
much
and
good
luck,
Bernd,
on
your
future
endeavors.
B
Bernd Brinker
Chief Financial Officer, dormakaba Holding AG
Thanks, Rizk.
J
Jim-Heng Lee
Chief Executive Officer, dormakaba Holding AG
Thank
you.
Thanks
a
lot.
Thanks
for
your
well-wishes.
[indiscernible]
(00:58:24).
Operator
The
next
question
is
from
Remo
Rosenau
from
Helvetische
Bank.
Please
go
ahead.
R
Remo Rosenau
Analyst, Helvetische Bank AG
Yes.
Thank
you.
About
the
potential
disposal
of
Mesker.
In
2016,
you
paid
$142.5
million.
So
all
the
goodwill
was,
of
course,
written off
against the
equity
immediately.
But
still,
by
the
time
of
disposal,
do
you
reckon
that
there
might
still
be
a
book
loss,
even
excluding
the
whole
goodwill,
which
is
not
on
the balance
sheet
anymore?
J
Jim-Heng Lee
Chief Executive Officer, dormakaba Holding AG
Okay,
and
I
take
this
question.
So
I
think
just
to
frame
it
a
little
bit
what
our
accounting
principles
are,
according
to
[indiscernible]
(00:59:17),
that
at
the
time
of
an
acquisition,
we
fully
write
the
goodwill
against
equity.
So
we
offset
it
against
equity
without
any
P&L
impact.
This
was
the
way
we
also
handled
Mesker.
At
the
time,
the
goodwill
was
roughly,
if
I'm
not
mistaken,
CHF
95
million
or
so.
And so
it
was
deducted
against the
equity.
Later
on,
what
we
did,
and
I
explained
that
during,
I
think,
the
Capital
Market
Day,
we
internally
transferred
one
piece
of
the
business,
which
we
call
architectural
hardware
from
the
Mesker
business
into
our
Door
Hardware
organization
in
the
US.
And
related
to
this
internal
transaction,
we
also
transferred
a
certain
part
of
the
goodwill
into
to
this
Door
Hardware
business.
So
the
remaining
goodwill
from
Mesker,
which
is
now
part
of
the
transaction,
is
roughly
CHF
50
million.
And
if
and
when
we
are
going
to
close
such
a
transaction,
this
goodwill
needs
to
be
recycled,
so
it
will
be
part
of
the
transaction.
It
will
also
go
through
the
P&L.
We
will
see
an
impact
from
that
goodwill
in
our
P&L
as
well
at
the
time
of
the
transaction.
R
Remo Rosenau
Analyst, Helvetische Bank AG
Yeah.
That's
clear.
So
the
thing
is,
so
you
have
to
recycle
the
goodwill,
let's
say,
CHF
50 million,
then
[indiscernible]
(01:00:57)
the
price
you
get
and
the
difference
will
be
written
off,
which
is
a
noncash
thing,
of
course.
My
question
is,
will
the
write-off
be
even
bigger
than
the
goodwill?
J
Jim-Heng Lee
Chief Executive Officer, dormakaba Holding AG
Yeah.
Okay.
R
Remo Rosenau
Analyst, Helvetische Bank AG
So,
you
know.
J
Jim-Heng Lee
Chief Executive Officer, dormakaba Holding AG
Yes.
Yeah.
Yeah.
Okay.
I
got
your
point.
So,
obviously,
Mesker
today
also
has
certain
net
assets
in
the
balance
sheet.
And
those
net
assets
are
in
the
magnitude
of,
let's
say,
roughly
CHF
20 million.
And
so
subject
to
the
divestment
agreement
and
the
divestment
price,
we
will
see
additional
impacts
on
the
one
or
the
other
side
related
to
those
net
asset
values.
R
Remo Rosenau
Analyst, Helvetische Bank AG
Okay.
Got
it.
Okay.
Thank
you.
J
Jim-Heng Lee
Chief Executive Officer, dormakaba Holding AG
Thank
you.
[Operator Instructions]
Operator
The
next
question
is
a
follow-up
question
from
Martin
Flueckiger
from
Kepler
Cheuvreux.
Please
go
ahead.
M
Martin Flueckiger
Analyst, Kepler Cheuvreux SA (Switzerland)
Yeah.
Thanks
for taking
my
follow-ups.
Actually,
I've
got
two.
Firstly,
for
Bernd,
maybe
the
tax
rate
at
23%
was
a little
bit
lower
than
what
I
had
expected.
I
was
just
wondering
whether
you
could
provide
us
an
update
on
your
guidance
with
respect
to
the
tax
rate
in
the
second
half
and
also
the
next,
say,
two, three
years
if
possible.
And
I'll
wait
for
my
second
question.
B
Bernd Brinker
Chief Financial Officer, dormakaba Holding AG
Okay.
Yeah,
Martin,
so,
tax,
income
tax
rate
is
favorable
at
23%
for
the
first
half.
We
expect
based
on
the
current
underlying
assumption
that
it
might
slightly
increase
for
the
full
financial
year.
Obviously,
we
indicated
earlier
that
we
expect
the
tax
rate
to
go
up
midterm
and
even
for
the
current
financial
year
to
something
in
the
magnitude
of
25%
to
26%.
That
is
still
my
mid-
to
long-term
guidance
based
on
the
profit
profile
of
our
company
on
a
global
level,
so
25%
to
26%
income
tax
rate
going
forward.
For
the
current
financial
year,
it
might
be
lower.
But
again,
if
we
are
able
to
close
the
Mesker
transaction,
it
might
also
have
a
slightly
negative
impact
on
the
income
tax
rate.
So
if
we
exclude
Mesker
for
the
time
being,
then
I
would
indicate
to
you
that
it
would
be
slightly
more
favorable
than
25%
to
26%
long
term.
M
Martin Flueckiger
Analyst, Kepler Cheuvreux SA (Switzerland)
Can
we
say
Mesker
might
have
a
slightly
negative
impact,
you
mean
it
could
lower
the
tax
rate?
B
Bernd Brinker
Chief Financial Officer, dormakaba Holding AG
It
could
lead
to
a
higher
income
tax
rate
because
we
most
likely...
M
Martin Flueckiger
Analyst, Kepler Cheuvreux SA (Switzerland)
How
higher?
B
Bernd Brinker
Chief Financial Officer, dormakaba Holding AG
...not
able
to
take
full
advantage
of
the
negative
contribution
in
our
tax
rate.
M
Martin Flueckiger
Analyst, Kepler Cheuvreux SA (Switzerland)
Okay.
Got
it.
Thanks.
And
then
my
second
question
is
on
Bernd's
replacement Kaspar
Kelterborn,
looks
like
a
seasoned
guy
to
me
from
his
CV,
and
I
was
just
wondering
why
you
consider
him
only
as
Interim
CFO
and
not
as
a
permanent
one?
J
Jim-Heng Lee
Chief Executive Officer, dormakaba Holding AG
Martin?
M
Martin Flueckiger
Analyst, Kepler Cheuvreux SA (Switzerland)
Yes.
J
Jim-Heng Lee
Chief Executive Officer, dormakaba Holding AG
Well,
it's
interesting
that
you
asked
me
that
question
because
the
question
could
equally
be
directed
to Kaspar,
because
we
had
an
open
discussion.
Let
me
put
it –
let
me
frame
it
this
way.
We
had
our
selection
criterias
for
what
we
believe
to
be
the
right
criteria
that
we
must
have
to
put
Bernd's
replacement
in
place.
And
we
diligently
and
with
strict
discipline
applied
that.
And
then,
that
came
out
with
a
pipeline
that
we
are
now
proceeding,
again,
diligently
trying
to
come
to
a
final
decision.
We
have
a
separate
workstream
that
will
allow
us
a
Plan
B.
So,
Kaspar
came
from
the
Plan
B
workstream.
He
was
not
into
the
Plan
A.
And
that's
where
we
are, and
we
are
happy
to
have
him,
to
step
into
the
interim
role.
M
Martin Flueckiger
Analyst, Kepler Cheuvreux SA (Switzerland)
Got
it.
Thanks.
J
Jim-Heng Lee
Chief Executive Officer, dormakaba Holding AG
You're
welcome.
Operator
There
are
no
more
questions
at
this
time.
I
would
now
like
to
turn
the
conference
back
over
to
you,
gentlemen,
for
any
closing
remarks.
J
Jim-Heng Lee
Chief Executive Officer, dormakaba Holding AG
Thank
you
so
much.
So
it
is
my
pleasure,
together
with
Bernd,
to
explain
our
result
for
the
first
half,
and
I
will
continue
to
emphasize
that
dormakaba
remain
an
extremely
healthy
company,
and
execution
is
top
of
our
mind
from
our
management
team
and
the
senior
leadership
team
as
well.
So
with
that,
I
would
like
to
close
this
session,
and
I
would
like
to
thank
you
for
your
participations,
for
your
questions,
for
your
attention
and
for
your
care.
Goodbye.
Ladies and gentlemen, good afternoon. Welcome to the Investors and Analysts Conference on the Half Year Results 2021/2022 of dormakaba Holding AG. I am Myra, the Chorus Call operator. I would like to remind you that all participants would be in listen-only mode and the conference has been recorded. [Operator Instructions]
After the presentation, there will be a moderated Q&A session. The conference must not be recorded for publication or broadcast. I would like to remind you that the conference call does include 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 media release.
At this time, it's my pleasure to hand over to Mr. Jim-Heng Lee, CEO of dormakaba. Please go ahead.
Good afternoon, ladies and gentlemen. It is my pleasure to welcome you to this webcast today and to present our half-year results for 2021/2022. With me today is our CFO, Bernd Brinker.
Here's a quick review of our today's agenda. First, we will talk about the overview of the results from a business perspective, then we are in very much into implementation of Shape4Growth. Then, we'll guide you through the financial performance, and I will come back and walk you through the outlook for the full financial year.
Before I do that, I will share with you a few thoughts that went through my mind after being here for a couple of months. When I was responsible for Asia-Pacific, I was already deeply, deeply involved in Shape4Growth. I put in more than 20 years of industry insights, and more than seven years of company insights into building Shape4Growth. Now, as CEO, I was to realize that it is equally critical to stabilize our entire workforce in the middle of, A, pandemic, B, a top leadership change which few saw coming.
Further, we owe – dormakaba owe the precious team stability to our value investors, customers and partners. The executive team and I are determined to make it work. And together, we shall remind everyone that dormakaba remains a healthy company with a huge potentials worth fighting for. What worked for us in Asia-Pacific? Like drive specifications, increased customer centricity and stickiness to vertical approach and bundled solution selling, et cetera, could equally apply across dormakaba.
Another learning that I have is eyes on the board. To deliver business performance, you need that focus. And last but not least, a one dormakaba team spirit. A one dormakaba team spirit that built on trust and with unique competitive advantage to be one face to the customer [indiscernible] (00:04:00) literally fast to the next level.
How did we perform in the first half? This is a snapshot, dormakaba posted overall good results for the first half of financial year 2021-2022 with strong organic growth. Growth was driven by continued strong recovery in Asia, continued good demand in Europe, and an improvement of the US commercial construction market.
Our adjusted EBITDA increased due to good growth. However, our adjusted EBITDA margin was slightly below previous year, this is an area we can clearly do better. And it was mainly due to the impact of raw material and higher freight costs. Our operating cash flow was impacted by a big increase in net working capital, particularly inventories. The higher inventory level was driven by overall volume increase, as well as safety stock build-up for electronics.
On a more positive note, we achieved slightly higher net profit despite a CHF 12 million one-off cost, Bernd will provide more details later.
What are the highlights and headwinds? I would like to share them transparently with you, ladies and gentlemen. On a positive note, we had an overall good business environment. We saw organic sales growth across all segments. We're promising order intake and backlog. We had in place a proactive pricing policy and procurement initiatives that enable us to manage raw material and labor cost inflation and supply chain issues in a way that we could mostly offset their negative effects. Therefore, we are on track to achieve our pricing and procurement targets for the entire financial year.
Our headwinds, and what are they? A challenging environment, and we know that. Leading on to labor shortages, supply chain topics that impacted our business. Mesker continues to be a negative impact on our business. We will come back on this topic at the segment performance level. Movable Walls business remains weak due to continued delay in project execution.
Building on our highlights, allow me to share some of our successes with our customers. Indeed, we are a recognized global player providing dedicated solution and we drive market accessibility through new partnerships. How so? One dormakaba solution, one face to the customer, is uniquely dormakaba and our unique competitive advantage.
In terms of dedicated solution, I'm proud to showcase examples that you can see on your screen; in particular Suva, a renowned Swiss insurance company through over 500 mobile access points and 700 standalone components. We created a connected yet seamless working environment. In terms of driving market accessibility through partnerships, together with Vanderlande, we jointly offered the US Department of Homeland Security an integrated and self-screening security checkpoint for passenger flow and efficiency [indiscernible] (00:08:54) into our performance.
We achieved a year-on-year sales growth of 10%. Organic sales increased 6.6%. That contributed quite a bit to the overall sales growth. Organic growth and the associate higher volume were also reflected in a 7.9% higher adjusted EBITDA, which exclude IAC, items affecting comparability. The adjusted EBITDA margin was slightly lower than the previous year at 14.3% due to higher calls and sales mix.
Looking ahead, we expect continued organic growth across all segments based on a healthy order backlog and a stable order intake. We had and will continue to increase sales price to offset higher raw material, freight and labor costs.
I will now go quickly through the segment performance. In Americas, we make some progress with regards to growth performance; sales growth organically at 5.7%; growth was broad-based across almost all product clusters. It is absolutely pleasing to see a recovery in the US commercial market, which led to attractive project wins and promising order intake. Mesker, as alluded to earlier, continued to negatively impact our EBITDA margin in the first half year by 230 basis point. As announced last November on Capital Market Day, we have initiated a structured divestment process for Mesker. This is an important step for the turning around of our Americas business to get to the level where we deserve to be at.
Next, Asia-Pacific. I'm personally very pleased with the performance for obvious reasons. We are clearly the trusted market leader there. The trusted market leader. We grew sales 20% year-on-year, 2-0. Growth was supported by many attractive project wins and by some catch-up demand from COVID-19-related project delays. All major region in Asia-Pacific contributed to the growth, in particular China, India and ASEAN posted strong double-digit growth.
Looking ahead to Asia Pacific, we continue to have good organic growth, but, but with a lower growth rate in the second half of 2021/2022 due to higher comparable basis. Growth will be supported by the recent acquisition in Australia, RELBDA and Solus in India, this bolt-on acquisition. We focus on our core business, [indiscernible] (00:12:21) accelerate our market access and [ph] enrich in (12:25) some of our core countries.
How did our German-speaking country perform, AS DACH? The segment saw strong growth, particularly Germany, Australia. Organic sales grew 8.6% year-on-year, despite headwind of shortages of materials and electronics component.
EntriWorX, it is a solution which you saw us sharing and presenting on Capital Market Day November 15 last year. It is now being brought to two countries. And I'm happy to announce that we have seen first orders streaming in. It is a game changer with huge potential to upskill. We are expecting this train to pick up based on the planned rollout to more countries also in line in our strategy [indiscernible] (00:13:28) divestiture of a glass system business that was completed on October 31. It will enable us greater focus on our core business.
AS EMEA is next. How I would describe their performance as continued good growth profitability, though a bit slightly impacted by higher raw materials and freight costs there. Underscored by a strong performance in UK and Benelux region, especially in service and distribution, Middle East order intake remains strong, with projects such as Qatar Airport. In Scandinavia, following the turnaround of our business in Norway and successfully divestiture of a project installation business in August 2020, we now achieve organic growth and profitability.
The future growth prospect for EMEA is [ph] poised (00:14:29) by the Fermatic Group, an acquisition that was completed in October last year of a French service business. This acquisition had already realized cross-selling opportunity between entrance system and electronic access data businesses.
In Key & Wall, that's the final segment here. Overall, organic sales growth of 2.6% year-on-year, Business Unit Key System and Movable recorded very different financial outperformances, Key System had a strong organic growth of 10%, or exactly 9.9%, this is not the case for Movable Wall. Organic sales were below the previous year. Project execution continued to be delayed, that was the main factor for the weaker organic growth.
Order backlog for Movable had reached record high level and order entry remained strong. We expect direct high order backlog in Walls, Movable Walls, and good demand in Key Systems to drive growth in the second half of the financial year.
I have closed this detailed overview of segment and I would like to change to a topic that is so close to all of us and so important to get it right. How we have been executing Shape4Growth? As this is an important topic to my heart, I would like to go a little slower. You saw this on Capital Market Day, November 15, last year. A quick update on what we wanted to achieve, and how far we have now come, and what we are currently at with the implementation. It is all about accelerating profitable growth; through eyes on the ball, focus on the company core businesses in commercial access solution. On our core markets, the top geographies through a lot of customer centricity, to generate customer stickiness, we want to achieve the differentiation through digitization and how we will contribute and we must to sustainability.
Consequently, these strategic parameters/pillars will influence the way we assess potential candidates for bolt-on acquisition. With regards to implementations, where are we now? We have changed our operating model as of January 2022, more than two months ago. We have initiated across dormakaba 75 transformation projects in the following areas: [indiscernible] (00:18:10) efficiency, understandably, a major focus at this time [ph] and age (00:18:16). Digital offering in our global core are in accelerated mode. Go-to-market excellence in our core countries, we call that LITC, leadership in the core, one of which was investment in specification capabilities. Not a number game. Specification is crucial for our project business in order to ensure that we are able to influence at very advanced stage of the design phase and this is absolutely crucial for us to make sure that we are effective, efficient, and we have the right tools and the right people to drive these important capabilities. Organizational changes backed with additional and accelerated investment in IT to close remaining gaps. Reduce internal complexity to enable growth.
Of course, we will and we have been working tirelessly to ensure that region America up [ph] their game (00:19:33), bring it up to next level and continue to get to where they deserve to be in terms of performance. My leadership team and I have eyes firmly cast on the ball. Shape4Growth shall be our top priority number one. It is all about value creation once we successfully implement it. To our shareholders, how is that so? Successful implementations and execution of Shape4Growth is not, if not [indiscernible] (00:20:19), it's a must do.
When we achieve that, we are committed to deliver 3% to 5% organic growth every year as of this financial year 2021-2022. And adjusted EBITDA margin ranging from 16% to 18% from the year after, i.e. 2023-2024. And in the same year, 2023-2024, a return on capital employed, ROCE, of no less than 30%. And definitely, and not the least, our focus on sustainability will come true by delivering on industry-leading ESG. We strive to reduce carbon footprint of our purchases. We strive to reduce carbon emissions of our purchases from our suppliers as well. In short, we will stick to our plan as communicated on November 15, 2021 Capital Market Day.
With that I close my part. I will come back later. For now, I would like to hand it over to Bernd, whom you are very familiar with, to walk you through the insights of our financial performance. Bernd?
Thank you very much, Jim-Heng.
Thank you.
Ladies and gentlemen, a warm welcome from me, too. Over the course of the next slides, I will share some more details of our financial performance in the first half of financial year 2021/2022.
Let's start with an overview. Sales for the first half of 2021/2022 financial year increased by 10%. The major driver was organic growth, which contributed 6.6 percentage points. Adjusted EBITDA increased by 7.9%, while the adjusted EBITDA margin went down by 30 basis points against the prior-year period. Nevertheless, net profit was slightly higher than in the previous year. And, finally, we increased return on capital employed, our newly introduced return-driven KPI, as just explained by Jim-Heng, from 18.4% to 25.8%.
Let's move on to the sales development. The upper right part of the slide shows the drivers behind the change in sales compared with the previous year. Our sales increased organically by CHF 81 million or 6.6%. This increase was due to volume growth as well as higher sales prices. The contribution from higher sales prices was two percentage points. All segments were able to achieve organic growth with the strongest growth rates coming from AS APAC with 20% and AS DACH with 8.6%. It is important to mention that AS AMER also grew organically, achieving a growth rate of 5.7%.
Our M&A activities contributed a net increase in sales of CHF 30 million. This was driven by acquisitions in Australia and France, as well as by our divestment of the interior glass business. Unlike in previous years, currency translation contributed to sales growth as well. Due to the weaker Swiss franc against all major currencies, except the euro, the positive currency translation effect amounted to CHF 11 million. The factors mentioned in relation to sales also apply to our profitability during the period under review.
As you can see on the chart for EBITDA development, driven by organic growth as well as M&A activity, our adjusted EBITDA increased by 7.9% to CHF 193.5 million. Currency translation also had a positive effect on EBITDA. The corresponding adjusted EBITDA margin was 14.3%, which is 30 basis points lower than the previous year. This fall was mainly due to the impact of higher raw material, higher freight and higher labor costs, as well as product mix effects, which more than offset the positive impact of higher volume, of sales price increases, and cost management initiatives. The adjusted EBITDA includes CHF 9.2 million of adjustments, mainly related to the preparation and implementation of our new strategy, Shape4Growth. In the prior year period, the adjustments to EBITDA were positive by CHF 2.6 million. At the segment level, AS DACH was able to improve its adjusted EBITDA margin, mainly due to further progress on plant efficiency, especially at the Ennepetal Plant.
Let's turn next to the income statement. I already mentioned the change in net sales. So, the gross margin for the reporting period was 40.8%, which is 90 basis points below the previous year to the reasons I just explained when I commented on our EBITDA margin development. In accordance with our strategic focus on the relevance of innovation, we slightly increased our spending on R&D compared with the previous year. The R&D ratio is at 4%. We significantly improved our net financial result, thanks to a much more favorable interest rate environment for our debt portfolio. Our income tax rate remained unchanged at 23%. The total adjustments to EBIT for the period under review came to CHF 12.4 million, while in the prior year period, the amount was positive by CHF 2.6 million. In total, a net change of CHF 15 million.
I would like to remind you that starting with this financial year, we introduced the methodology of items affecting comparability. Thus, adjusted EBITDA and adjusted EBIT to focus on the underlying financial performance by removing exceptional items outside the normal course of business, such as restructuring and reorganization, impairments, or changes in the scope of consolidation. This will help to improve transparency and allow a better understanding of performance and guidance. In total, we were able to slightly improve our net profit to CHF 100.6 million versus CHF 99.9 million for the previous year. This offset the net CHF 15 million of nonrecurring items, which have been adjusted as just explained.
Let's move onto the cash flow. Cash flow for the reporting period was significantly impacted by a strong increase in net working capital, particularly an increase in inventories, caused by higher volumes, safety stock for electronic components, and certain other raw materials, higher goods in transit due to freight issues, and higher raw material prices. This buildup is a result of significant supply chain challenges, as well as conscious decisions to prioritize business continuity and safeguard supply.
And the result, cash flow from operations decreased to CHF 88 million. In the prior year period, cash flow benefited from COVID-19-related cash scheme principles. The operating cash flow margin came to only 3.7% compared to 15.8% a year earlier. And how did we use this cash? First of all, as announced, we started to increase investments in our existing business. Capital expenditures amounted to CHF 36 million, which is equivalent to 2.7% of sales compared with 2.5% in the previous year.
In addition, we restarted M&A activities in line with our strategy. Including one divestment IGS, we closed five transactions during the period under review leading to M&A related net investments of almost CHF 70 million. As a result, free cash flow was negative CHF 54 million compared with the positive CHF 153 million in the prior-year period.
And finally, I would like to talk about the development of net debt. Net debt increased by around CHF 150 million against last year to CHF 708 million. The mix of our financial debt instruments changed during the first half of 2021-2022 as one of our two corporate bonds fell due in October 2021. The amount of CHF 360 million has been refinanced via our short-term syndicated credit facility. The second corporate bond worth CHF 320 million will fall due in October 2025. Dormakaba thus continues to have a solid financial profile. This is reflected in the leverage ratio of net debt-to-EBITDA of 1.9 times for the period under review which is unchanged on last year. We have further financial room for maneuver up to a leverage of 2.5 times. We could even push the ratio higher for a period of time.
And with this, I conclude my part of the presentation and hand back to our CEO, Jim-Heng, please.
Thank you, Bernd. Thank you. In the next few minutes, I will give you our full-year outlook for the current financial year. Before I get there, there are management changes which I would like to draw your attention to. First, I'm very pleased that Kaspar Kelterborn will be joining us as interim CFO as of 1st of April 2022. He will stay on until a permanent replacement for Bernd has been appointed. Kaspar is an experienced CFO coming with broad knowhow in a global industrial and publicly-listed environment. Kaspar's expertise and experience will be a great support for me and for dormakaba to move smoothly through this transition time, so that we can keep our eyes on the ball.
Next, Andy Jones has been appointed as my successor as President-Asia Pacific since January 12, 2022, this year. Andy is a seasoned industrialist, industrial leader with an impressive long-term track record in our market and he is highly regarded in the region.
Before we start our Q&A, I would like to give you information about our assessment of the current business environment, as well as the outlook for the financial year 2021/2022. The current business environment still categorized by uncertainties and lack of visibility. This is due to the COVID-19 pandemic and macroeconomic factors, such as potentially higher interest rates and geopolitical tensions as well as to the potential impact of a further deterioration of global supply chains and higher inflation. We will continue to focus on profitable growth, targeting market share gains and accelerating order backlog conversion. We will also focus on sales price increases to compensate for inflationary effects and support our margin progression.
Based on this, we confirm the outlook for the current financial year 2021-2022. We anticipate organic sales growth between 3% to 5%, as well as an adjusted EBITDA margin of slightly above 14.2%. This guidance is based on the assumption that there is no further supply chain deterioration, especially for electronic component, which would temporarily impact some of our high-margin businesses. Further, it also does not take into account any potential impact resulting from the currently escalating conflict between Russia and the Ukraine.
We are now ready to take your questions. Ladies and gentlemen, for that, I hand it over to operator. Operator, please.
We will now begin the Q&A session. [Operator Instructions] Please limit yourself to one question and one follow up. [Operator Instructions] The first question is from Maidi Rizk from Jefferies. Please go ahead.
Yes. Good afternoon, Jim, Bernd and [ph] Sigge (00:36:03). I'll stick to two. And thanks for the opportunity to ask questions. So, the first one for you, Jim. Just perhaps a high level question. Shape4Growth has been initiated by your predecessor. You stated that you're backing it. I'm just wondering if you could just, as we're still getting to know you, if you could just talk about your industry experience prior to dormakaba. So, we know that the integration was successful in the division that you were heading, Asia-Pac. But perhaps can you talk about your experience in turning around access control businesses prior to dormakaba. I'll start there.
You would like to lead on the second question, or you wait for me to answer the first. Good afternoon.
Yes. Just go ahead and I'll...
Thank you.
...take them one at a time.
Thank you. Thank you. Thanks for your questions. If I hear you correctly, you ask that we are back to Shape4Growth. I have to be careful with that because I was never out of Shape4Growth. So, I just want to make a correction here. I don't think that's what you meant. But for the audience, it's very important for me to make that comment. I contributed to Shape4Growth in my prior capacity as Asia-Pacific COO. And now that I'm in this new capacity, I continue to believe in Shape4Growth and this is what I would like to bring together with my team to a new level. So, it's different capacity here that we are talking about.
Now, prior to dormakaba, I have had quite a number of years that I spend, continue to be in this industry, and notably, my years spent with one of our competition, Assa Abloy. I was able to move businesses in Southeast Asia from a relative unknown to a larger player through specification driving and focusing on customer-centricity. I was part of the team in China during my days in Assa Abloy that grew our business again by focusing on driving pre-sales influence and pretty much total solution. I have also experienced interesting development in India whereby we have grown the market together with our partner to a level by capitalizing on a lot of ensuring that customer pain points were addressed. So, I hope that gives you some color of what I have done previously before joining dormakaba.
Thank you very much. The second one is on how should we think about the EBITDA bridge in the second half. So, perhaps different components here. Number one is on pricing. My understanding is you've done 2% in H1, which is shy of what your main competitor in Europe has been able to achieve over the same period, although that you've had slightly higher volumes than them. Like what sort of price increases should we expect in the second half of the year? And how should we think about the price cost equation in H2?
Rizk, I will take that question. I think, as I just mentioned during my introduction report, we achieved so far a price increase of 2% throughout our portfolio. Our underlying assumption for the full year remains, as we indicated already at the end of last year, that we achieve a price increase throughout the entire portfolio by 3%. And the expectation is, as you could see, that we had a negative squeeze in the first half that based on what we know today, that we will be able to slightly close that negative squeeze to neutralize the squeeze. So, we are optimistic to fully offset the impact of higher raw material costs and other additional costs from freight and labor in our – in the second half. That's the underlying assumption, which is also built into the outlook which you have just seen.
Okay. Thank you very much.
Rizk, thank you.
The next question is from Martin Flueckiger from Kepler Cheuvreux. Please go ahead.
Yeah. Good afternoon, gentlemen. Thanks for taking my questions. I'll take one at a time. Firstly, coming back to your organic growth outlook for the full year, that 3% to 5%. Now, I'm trying to do the math here. If I assume the upper end, i.e., 5%, I would get a lower sales figure, absolute for the group as a whole in the second half. And that's – pre-COVID, the seasonality pattern was a different one that you were CHF 20 million, CHF 30 million, CHF 40 million higher in the second half versus the first one now. Just trying to figure out, what could be the reason here for you being a little bit more cautious on H2 apart from the geopolitical discussion, of course? That would be my first question.
Yeah.
And I'll take a second one afterwards, please.
Thank you, Martin, for your questions. We do not expect a major change in our underlying demand across dormakaba. However, as I stated earlier, first half of this financial year, in particular, Asia-Pacific but not limited to Asia-Pacific, there were post-COVID catch-up that benefited us. That's kind of a headwind – tailwind. So, that benefited us. So, that is one first element.
And we also know, I mean, we remain cautious that in the coming months, a high level of uncertainty underlying due to geopolitical tensions. We didn't know then last week, now we know what we know better, that we will have a ripple effect, we hope not. Supply chain topic and shortages of electronic components. So, the recent escalations of Russia and Ukraine just add more mist to the outlook. Hence, we guided to 3% to 5% growth here, Martin.
Okay. Got it. Thanks. And my second question is regarding the divestment process of Mesker. Just wondering whether you could give us a little bit more flesh on the bone and how far advanced you are and if there's any particular period where you – by when you think will have divested Mesker.
What I can say is that we make progress since we communicated on Capital Market Day in November 15 that we had a structured process of divesting Mesker. We continue to be in the process. Relative to November 15, we make progress.
Okay. Thanks.
Thank you.
The next question is from Patrick Rafaisz from UBS. Please go ahead.
Yes. Thank you for taking my questions. The first will be a follow-up from Martin's question on the implied growth outlook for the second half because if we take the midpoint or even the higher end of the range and deduct pricing, which would likely be around 4%, right, that implies actually flat volumes in your second half. And from your comments, I gather that Key & Wall will – should accelerate assuming execution is picking up, right, and the order books look good. AsiaPac still growing even if [ph] comps become (00:45:32) tougher. So, that leaves me thinking where should we – when should we anticipate negative volumes in order to make the maths work here? Thanks.
Thank you for asking that question. I did my math as well. Let me specifically address the topic of Key & Walls. This is a project business and I'm very familiar with project business. The project business could only be converted once the developer has the desire and the appetite, had the muscle, and had the resources, and had the financial ability, had already lined up activities and events that they would like to trigger a conversion that will come, and an order will come our way. Otherwise, it remains as a contract awarded.
And our Movable Wall Systems depend very heavily on project business. And this is very different from fast moving product sales. And of course, the other part of our business is really services and other. Specifically to Key & Wall, we have a record high orders intake and backlog. Your guess is as good as my guess when will this project be converted. We chose not to overpromise and backfire when we underdeliver.
With regards to Asia Pacific, it is clearly a case of first half of this financial year whereby my region benefited from demand that was somehow slowed down during COVID. This will not repeat in the second half. And that is an important contributor. Hence, we continue to guide the market of a 3% to 5% organic growth, which we are rather comfortable within the range knowing that we have returned 6.6% in the first half on those caveats that by now we can all remember so well; supply chain, electronics, escalating tension between Ukraine and Russia, what have you. So, this shall be my current guidance.
Okay. Okay. Thanks for these clarifications. And if I may, just another question on cash flow in the second half. You explained well what happened with the working capital and the inventories in the first half. You think you will have to carry these safety stocks through the second half as well or when shall we anticipate a normalization setting in for your inventory levels?
Patrick, I'll take that question. So again, we have some underlying assumptions on the second half. However, we don't know what we don't know yet. We continued to prioritize availability of stock to be able to deliver to the market. This is for us the most important priority. While, second, we obviously believe that the current level of inventories is not something which we would like to continue mid to long term. Currently, the assumption is that the level will normalize, not entirely throughout the second half, but we will see some normalization. If circumstances changes, we might change again our priorities.
Excellent. Thank you very much.
Thank you, Martin.
The next question is from Basic Emrah from Baader Helvea. Please go ahead.
Yes. Hi. Good afternoon. Thank you very much. My first question would be regarding the one-offs that you're having. Is it still that you're planning to spend around CHF 25 million for the full year? And also on top of it, I think you've mentioned last year that you have some IT costs that you plan to – I mean, you're going to have OpEx costs around CHF 15 million, that the rest will be cash related. Is that still the case? And, overall, just could you shed some light of this one-off costs that you have? Like what is going into that? And then I will have a follow-on question.
Okay. I will take those questions. So, the first question, I would like to make reference to the Capital Market Day presentation and especially to page 75. That might be a good reference point. So, in the first half, we basically spent, out of the CHF 15 million IT cost, we spent CHF 5 million and our expectation is that we will spend the remainder in the second half, so the CHF 10 million. And in terms of other costs, we have spent so far CHF 7 million.
So, there is also a smaller piece to go for the second half. In terms of severance costs, we indicated that we expect to reduce our workforce by around 300 FTEs. This is still the case and is confirmed. However, we have not yet finalized this restructuring plan. And in order to be able to implement the provision, we need to finalize this plan first. Our current assumption is that we will finalize the restructuring plan in the remainder of the second half. And what I can indicate, the CHF 25 million severance costs which we indicated will be absolutely the cap. So most likely, we will not spend the entire amount, but more details to come once we finalize the restructuring plan and once we disclose the second half results.
With regard to your second question, in the items affecting comparability, you asked what is included. To give you an overall idea, I think I already explained during my presentation that we include costs for reorganization and restructuring. We include also costs related to a change in the scope of consolidation. And we also include other one-off costs in the first half. The main elements, which we have included, are the costs to define and implement the Shape4Growth strategy. And in addition, the IT costs, which we deem to be in part of acceleration of our IT efforts.
All right. So these CHF 12 million so far at the first half, they are there. We don't have the CHF 25 million severance costs included yet. Not at all, right?
Exactly. Exactly. Yeah.
Okay. Okay. Then, yes, actually, I still have a follow-up question if that will be okay. Or just as second question. That will be regarding the EBITDA margin development. So out of these 30 bps decrease, how much – can you quantify how much is owed to freight and labor costs? Or another question, if we wouldn't have these disruptions, what would have the margin development approximately looked like?
Okay. So we are not disclosing more detail on the impact of additional – of certain elements, such as raw material, freight and labor. However, what I can share with you is the most significant impact comes from raw materials. The second largest impact comes from labor, and the third largest is freight.
All right. Thank you very much.
Thank you.
We have a follow-up question from Maidi Rizk from Jefferies. Please go ahead.
Yes. So, hi again. Thanks for taking the follow-up. Just perhaps, Bernd, a bit of clarification, when you say you're expecting price to cost inflation to neutralize in H2, does that include the procurement savings that you sort of announced at the CMD, and I think that was 1% to 2% net savings on a CHF 1.2 billion spend? And can you just remind us about how much savings should we assume for this program this year?
Okay. So at the time of the Capital Market Day, we indicated that our expectation for procurement benefits as part of Shape4Growth is in the magnitude of 1 to 2 percentage points per annum, and this relates to a total spend of roughly CHF 1.2 billion. What I can share with you is that given the current business environment where we are in, we are at the lower end of the procurement savings. However, still in the range. With regards to the squeeze, procurement is an integrated part of our approach to compensate for raw material price inflation, for freight and labor costs, so it's included here in the squeeze.
Thank you very much. And then, if I move to the other part of the sort of EBIT bridge, which is the operating – what you call operating model and SG&A and the CHF 30 million savings. My understanding is this is more backend loaded, so we shouldn't expect anything here at least this year.
Yeah, you're right. You should not expect significant saving this year. We expect already the first savings in the next financial year and going back to our Capital Market presentation, what I can confirm is that we expect in the next year 40% of the savings to be realized, while the full potential, the full run rate will be available the year after.
Okay. Thank you very much. The last one is really about your partnership with Latch. So my understanding is it is currently solely focused on the European residential business of them. I don't know if you have any thoughts on what their ambition is in Europe and is there scope to expand the cooperation to Americas? My understanding they are pretty strong on the non-residential side in the US.
Thank you for the question. Again, it's a very interesting one because it addressed what dormakaba can do in terms of partnership in order to have a strategic reach so that we become a more integrated complete solution provider. Latch is one step in the right direction.
However, I have to say that it is still early day for us. I think we announced that on Capital Market Day or slightly later that this is happening. I would want to give it a period of time for us to decide if it works in Europe and not just dormakaba. This is a strategic partnership that it is also equally important for Latch to tell us how is that going to work out in the initial phase. So, therefore, my question is that increasingly at the start, it looks promising. Otherwise, you would not have come into that partnership. But we need more time. We need more time in order to see if that is equally making sense for us, for the rest of dormakaba.
Okay. And thank you very much and good luck, Bernd, on your future endeavors.
Thanks, Rizk.
Thank you. Thanks a lot. Thanks for your well-wishes. [indiscernible] (00:58:24).
The next question is from Remo Rosenau from Helvetische Bank. Please go ahead.
Yes. Thank you. About the potential disposal of Mesker. In 2016, you paid $142.5 million. So all the goodwill was, of course, written off against the equity immediately. But still, by the time of disposal, do you reckon that there might still be a book loss, even excluding the whole goodwill, which is not on the balance sheet anymore?
Okay, and I take this question. So I think just to frame it a little bit what our accounting principles are, according to [indiscernible] (00:59:17), that at the time of an acquisition, we fully write the goodwill against equity. So we offset it against equity without any P&L impact. This was the way we also handled Mesker.
At the time, the goodwill was roughly, if I'm not mistaken, CHF 95 million or so. And so it was deducted against the equity. Later on, what we did, and I explained that during, I think, the Capital Market Day, we internally transferred one piece of the business, which we call architectural hardware from the Mesker business into our Door Hardware organization in the US. And related to this internal transaction, we also transferred a certain part of the goodwill into to this Door Hardware business. So the remaining goodwill from Mesker, which is now part of the transaction, is roughly CHF 50 million. And if and when we are going to close such a transaction, this goodwill needs to be recycled, so it will be part of the transaction. It will also go through the P&L. We will see an impact from that goodwill in our P&L as well at the time of the transaction.
Yeah. That's clear. So the thing is, so you have to recycle the goodwill, let's say, CHF 50 million, then [indiscernible] (01:00:57) the price you get and the difference will be written off, which is a noncash thing, of course. My question is, will the write-off be even bigger than the goodwill?
Yeah. Okay.
So, you know.
Yes. Yeah. Yeah. Okay. I got your point. So, obviously, Mesker today also has certain net assets in the balance sheet. And those net assets are in the magnitude of, let's say, roughly CHF 20 million. And so subject to the divestment agreement and the divestment price, we will see additional impacts on the one or the other side related to those net asset values.
Okay. Got it. Okay. Thank you.
Thank you. [Operator Instructions]
The next question is a follow-up question from Martin Flueckiger from Kepler Cheuvreux. Please go ahead.
Yeah. Thanks for taking my follow-ups. Actually, I've got two. Firstly, for Bernd, maybe the tax rate at 23% was a little bit lower than what I had expected. I was just wondering whether you could provide us an update on your guidance with respect to the tax rate in the second half and also the next, say, two, three years if possible. And I'll wait for my second question.
Okay. Yeah, Martin, so, tax, income tax rate is favorable at 23% for the first half. We expect based on the current underlying assumption that it might slightly increase for the full financial year. Obviously, we indicated earlier that we expect the tax rate to go up midterm and even for the current financial year to something in the magnitude of 25% to 26%. That is still my mid- to long-term guidance based on the profit profile of our company on a global level, so 25% to 26% income tax rate going forward.
For the current financial year, it might be lower. But again, if we are able to close the Mesker transaction, it might also have a slightly negative impact on the income tax rate. So if we exclude Mesker for the time being, then I would indicate to you that it would be slightly more favorable than 25% to 26% long term.
Can we say Mesker might have a slightly negative impact, you mean it could lower the tax rate?
It could lead to a higher income tax rate because we most likely...
How higher?
...not able to take full advantage of the negative contribution in our tax rate.
Okay. Got it. Thanks. And then my second question is on Bernd's replacement Kaspar Kelterborn, looks like a seasoned guy to me from his CV, and I was just wondering why you consider him only as Interim CFO and not as a permanent one?
Martin?
Yes.
Well, it's interesting that you asked me that question because the question could equally be directed to Kaspar, because we had an open discussion. Let me put it – let me frame it this way. We had our selection criterias for what we believe to be the right criteria that we must have to put Bernd's replacement in place. And we diligently and with strict discipline applied that. And then, that came out with a pipeline that we are now proceeding, again, diligently trying to come to a final decision.
We have a separate workstream that will allow us a Plan B. So, Kaspar came from the Plan B workstream. He was not into the Plan A. And that's where we are, and we are happy to have him, to step into the interim role.
Got it. Thanks.
You're welcome.
There are no more questions at this time. I would now like to turn the conference back over to you, gentlemen, for any closing remarks.
Thank you so much. So it is my pleasure, together with Bernd, to explain our result for the first half, and I will continue to emphasize that dormakaba remain an extremely healthy company, and execution is top of our mind from our management team and the senior leadership team as well.
So with that, I would like to close this session, and I would like to thank you for your participations, for your questions, for your attention and for your care. Goodbye.
Goodbye.