Earnings Call: Q1 2017

Apr 26, 2017

Ladies and gentlemen, welcome to Assa Bloy and the Q1 reporting 2017, a quarter over which I feel very proud. Turning now to our details, our numbers. We saw a very strong start of 2017 with 6% organic growth with growth in all divisions and especially in the quarter, continued strong growth in Electromechanical Solutions for us. What also continued that we saw last year is the development of the mature markets, and that continued also in this quarter with U. S, Scandinavia, U. K. And Germany growing at a high pace. So very positive evolution, even though we have some effects of Easter since Easter moved the quarter this year. So we had a little bit day effect from that situation. And also to our joy, this is in China, our demand stabilized during the quarter, very positive. So now to sales in the different parts of the world. And you can see an amazing number, 8 percent organic growth in North America, very, very strong. Europe continued also strong with 6% organic, that's the green, and Pacific, 7%. So in mature markets grew altogether 9%, but 6% organically. So a very good and solid performance. To our surprise, mature market came also back in the quarter and became a little bit stronger. You can see here up in the right corner, plus 5%. That is the organic growth of our emerging market. So apparently, with the exception of China, this still is moderately growing. And Brazil, that is negative, is still 5% plus despite those 2 big markets were a drag to that number. So that meant that South America grew 2% Africa, 9% and Asia, including the Middle East, plus 2%. So most markets, with the exception of Middle East, China and Brazil, were growing in emerging markets, a very positive evolutionary factor. Turning to the market side. A lot of things to tell. What I see happening residential homes. And the reason for that is that we see it in a very big interest in forwarding companies for home deliveries to deliver food. Like in Sweden, some €8,000,000 per year now, the passengers are going into private homes with food, and you can't enter the door. And you can imagine what pent up demand it would be for the different door locks to have that there to allow people to get in there and deliver that food for so you can have it for dinner. And the other driver is home automation. People have more and more alarm. Safety and security is number 1 for many people. You see alarm systems taking place in many places, either you have it connected or down connected, but you have it on your app. And that means also a very big driver for growth for home automation. In Korea and a number of other markets, it's very high degree now of acceptance, but also in markets like Scandinavia and some other markets, we see how this is gradually adopting, including the U. S. On the new product side, we launched completely new revolving doors line. This is a new look. But what I would like to underline here is that the whole group is in fact going into Assa Abloy direction. Assa Abloy is now 70%, and it's more and more single branded Assa Abloy. So we are really creating strong from our 200 plus brands. We are creating a strong group with only one brand in front of the customer. So this is standardizing a lot and gives us a lot of possibility to seek synergies throughout the group. And I've shared it with you before on the geographical divisions, and now Entrance Systems is doing exactly the same going to 1 that look or 2 looks in fact because they have the indirect channel, which we look in one way and the direct channel that we look a little bit different from a design point of view, very much like all the rest of us are blowing. On the innovation, we had the biggest show in the U. S. A. In the quarter. Again, then we have exposed our products. In America, America, we will launch more than 100 new products. The same is happening in Europe this year. And we had 10 awards here given to the group and 10 awards of first prices. If 2 of them, a very important one was PIV or personal identification verification, which is a new innovation for how to identify and authenticate yourself in front of authorities, American authorities, European authorities, but they have special way of how it should be done, and they have got another one price. And also how to locate people. I can imagine in a hospital that is a big hospital, where is the doctor? With the new location services that we have together with our access control systems, you can do that instantly now in the new way we launch new products. So very exciting. And on the next slide, I will share with you the 10 number one prices we got. 9 out of those 10 are electronic products. So you can see how many new things that are going in that direction. There's one door there, which we also, of course, are very proud of, and that is, of course, due to things happening in schools in various parts of the world. This door can withstand any attack with a sledgehammer or gun firing or whatever, which is, of course, very bad that it's necessary sometimes, but still, it's available and it was also awarded a number one price for a very good innovation. Very exciting evolution in fact. Looking now to the numbers. We grew 14% in the quarter as such with 6% organic. Here, we have 2% price increase and 4% volume growth in the quarter. We had 3% acquired growth and, as I mentioned, 5% currency, altogether, 14%. Turning our right, €1,000,000,000 Profit improved 16 percent to SEK 2,800,000,000 with SEK 133,000,000 of currency effect. And we had earnings per share improving by 70% to SEK1.73 So yet again, a very good quarter. Looking a little bit longer perspective that I like to do because I think when it comes to asset law, you need to look a little bit longer also how things are developing. We constantly acquire some 15, 20 companies per year. There's no exception this quarter, 7 acquisitions. And that means that we add 3%, 4%, 5%, 6%, 7% to 100% constantly. But we're also growing on a constant basis. It is not a high pace growing industry, but it's growing something like, we think, 5% per annum, which is quite a good one. If you take a 10 year period, we've grown 8.6%. If you take a 5 year period that you see on this slide, the organic plus the acquired growth is, in fact, going we've gone from €50,000,000,000 to €75,000,000,000 So 52% growth in those 5 years. So you see the power of the combination of our constant acquisitions with organic growth. And then looking to this one, it's always difficult to explain. There's no margin improvement more or less. But there is, to be honest, there is underlying all the time because you get dilution, you can see that 0.2%. And in this quarter, we also got some drag from steel, but mainly from APAC that we also said in Q4 that APAC would mean a drag of 0.2%. It is exactly what we have in this quarter as such. But the margin was 16.2% in the last 12 months. And of course, if you're growing fast and maintain your margin or slightly improve it, if you look to the left, then profit, in fact, improved 73% during these 5 years. So not too bad, in my opinion, to €11,900,000,000 run rate in the last 12 months. So a powerful combination when you hold your margin and continuously grow. Turning now to the manufacturing footprint. That runs very well. Canlina will tell that we have nice savings of it. So I advise you to ask her that it's a nice saving there. We have closed 76 factories, but what is more interesting perhaps is there are 12 more to go and 35 factories that will convert into assembly units. This is running very well. We don't talk much about it inside the company, but the effect is quite big quarter after quarter after quarter. This year, we think we will save some SEK 300,000,000 out of those programs. And there is SEK 1,500,000,000 in the balance sheet remaining for the remainder of the program. So the next 2 years are full of activity in this field. Looking to acquisitions. We did, as I mentioned, 7 acquisitions in the quarter, so full of activity. We are a little bit holding back on larger acquisitions simply because the valuations right now are pretty high. So therefore, you will most likely not see big things happening here right now. On the other side, there are very many companies for sale. So the activity level is very high. So I can almost stand here, almost promise you that there will be many this year, but they will be lesser sized most likely simply because of pricing. The small ones are still a reasonable price. And as I mentioned, we have 7% this quarter, and we added 1% turnover. So we are pretty much in the line with our ambition to have 5 added per year average. I will share with you then 2 of them. 1 is Jarett in the U. S. A. It's a typical bolt on. We have Ameristar that we bought a few years back where we have fencing or parametric control, as it's called in U. S. And here, with this company, it's then complementing us on the lower end aluminum type of fencing. It's a company making high margins, but only in a small region, while Ameristar gives them geographical coverage. So this is a typical bolt on where you're going to also have very strong geographical effects or synergy effect by becoming part of a larger entity. So very nice acquisition, accretive to earnings per share. On the in Sweden, this is a small folding door company, also very complementary to what we do in Scandinavian markets where we are market leader on industrial doors and but not in this segment. So we add this segment. And then, of course, with our geographical coverage, again, we will see nice synergies from having a much better market coverage in this region. So very positive and also, in this case, accretive to earnings per share. Turning now to the divisions. EMEA, growth of 5%, a good evolution. Here, we see the Nordic part of Europe still continue to grow. Scandinavia and Finland had a strong development. U. K, despite that they're going Brexit and all that and all the fears we have is for the 2nd quarter at high pace growth. Germany is doing fine as well. And then we have Italy and especially Spain, where a lot of people now go for vacation, has also started to grow at a strong pace already all of last year as well. Also, France seems to be leveling. And the East while Eastern Europe, in our opinion, it's probably cooling off a little bit. That is at least what we see. I don't know if they are affected by the Middle East that is doing quite badly as such. And this is, of course, due to that there is lack of money due to the low oil prices. On Elmech, we had very strong growth throughout Europe and not much growth on the mechanicals. To us, it tells us that the market is not very strong, but we continue to lead on the electromechanical that drives really growth in this region. Margin improved by 0.5% with, in this case, very unusual accretion from acquisition by 0.1%. I didn't need to mention it because it's very unusual. But here also, we have been rather good in price increases. In Europe, we have not faced very much problems of price increases. So it has went through. So even though we have some drag from steel, it's very limited. So altogether, very pleasing picture of Europe. In Americas, we grew 7%, a very strong growth. And here, you can see Elmech is 1, very strong with security doors as well, perimeter protection. And also Mexico, South America, that can continue with the exception are the traditional locks. We had a competitor last year in the first quarter that did not deliver had problems with deliveries. So we had very, very strong numbers on those last year, Q1. And therefore, it was difficult to jump over that at the same height, even though we had good growth there. While Brazil continued negative, but the good signs that the market is recovering at least the financial indicators are indicating that this market is leveling right now. Smorging improved by 2.7%. The negative currency of 1.10%. But here, we are behind on the steel side. We have more than 40% price increases in 1 year on Morova tariff, and we use a tremendous lot of it indoors, and it's very transparent. So and unfortunately, as I mentioned last time, some of our competitors, if not all, have hedged, which we never do. And therefore, we have had promised drive through price. We think second half of this year will solve that problem. All the rest is has been raised in price and also doors in a way, but there we have to be flexible on price sometimes. Altogether, a very pleasing picture. And Asia Pacific, it's difficult to stand here and smile when you have a negative quarter on profit. At least normally, I don't do that, but it feels better in Asia. We had quite negative evolution last year. And what is very positive is we have strong growth everywhere except in China. So we see strong growth in Pacific, South Korea, South Asia and in Japan. Every part is doing very well. And Digi2 Door Locks is also doing very well in all parts of the Asia region. And here, we have a huge population. So if this really catches on, there's a good potential here for continued growth for sure. China was flat in the quarter. It depends on return because, as you know, we have reinvoicing. If you take that away, it grew some 2%. If we have it in our numbers now, it's negative because we didn't adjust our numbers this quarter. It's negative by 4% like for like in our numbers that you see here. So 3% is a good number, definitely. And we also continue to restructure China. As you know, we're going to an assembly setup in China. So we have 12% of our employees leaving in the quarter. So this will continue for another year before we think we have found the right form where we have more sub suppliers and are more concentrating our customers ourselves while pre assembly is done by sub suppliers rather than ourselves. And here, we have a drag from mainly the material cost. We have a lot of steel doors in China, and it's very hard to take those up by 20%, 30% in a very short period of time. So that will be a drag for the year, as we have said, and we think it's going to cost us some 0.2% of group margin as such. But no big deal, but I think it's better that you know it. It's no different from last quarter. On Global Tech, very positive evolution. Strong growth in Access Control. We have we see really good pickup on mobile keys, not only in access control but also on hospitality side. So this is very encouraging. I have it myself on my phone and it works beautifully. So I can recommend for those of you that haven't got it yet. We have more than 1,000,000 people that have signed in. So I think you're not the last one, but there is still room for more. So you're welcome. And more than 1,000 corporations have signed in as well. So only in the access control field. So it's really encouraging. On IAM, we had problems a few years ago with our products. We have added some almost 200 engineers into this field, both in SRA Tech but also in Global Tech. And we see now that our products are catching on, so very positive evolution there as well. And securities and Gavaidi also did well in the quarter as such. And our Poly business was flat or slightly growing and IDT was, on a temporary basis, negative. And this has to do with projects that come in or do not come in. So no big deal there. Hospitality continues strong as it has done for several years now, and this is on the back end on our mobile key system solutions. We had margin improvement of 17%, not so much perhaps that we would hope, but you see acquisitions was negative by 0.5%. And therefore, we had a little bit less organic leverage. And this has to do, of course, with our investments in R and D. It's not free of charge add so many engineers. But I'm sure long term that this will pay off very nicely for us. And this type of business is very volume related. There are high contribution margins. So very good volume for it should look reasonably good, going forward, I mean. Looking to Entrance Systems, also fantastic. Considering that we do so many changes, we do consolidate what we have. We closed a lot of factories in our entrance systems and close a lot of infrastructure and change a lot of things. That's still the growing 7% organically. So I feel very good about that. Very well done by the team there. Strong growth in door optimatics, high speed doors, door components, U. S. Industrial, U. S. Residential and good growth in EU industrial doors. So altogether, across the board growing business. And leverage is also very high, and this comes from the consolidation. A lot of changes, as I said, in a positive direction. Acquisitions also here were 7% added turnover. You can see on the black there that Entrance grew almost 20% and from a little bit more than SEK4.3 billion, SEK4.4 billion to more than SEK5 billion, SEK5.2 billion, I think it was, very strong growth. And this is coming then from also a lot of added acquisitions to the division. So very positive evolution. So with those words, very positive evolution, I'll hand it over to you, Carolina. Thank you, Johan. I will continue on that note with a very positive beginning of the year. The Q1 of 2017 was a strong quarter for Aflal. And looking at the financial highlights, with the top line and the ever so important organic growth. And in this quarter, it's a pleasure to say that we had 6% organic growth. There is a small button in this, and that is that we have the or rather the lack of is during the quarter, which we will see coming back in the Q2 where we had Easter. So 6% including the Easter effect, which is around 2 days. We also said that on the total group, we expect roughly out of the 6, 2% were price and 4% are volume. And looking at the divisions, all of them had strong growth, except Eirtek. But very positive with Eirtek is that they did have growth, and we saw 3% organic growth in the quarter. Moving on to acquired growth. 3% acquired growth, as expected, Alberto, as we said in the first for the Q1. We have in the books already acquired companies for around 2% acquired growth for the full 2017. And then currency. Currency goes up and it goes down. And in this quarter, we had a positive currency effect, a full 5% increase on the top line from currency. And here, if we do the calculation that the currencies stays stable, and please remember, it's early days in the year, but if it stays stable, we'll probably have around 3% added growth from currency for the full 2017. So total top line growth of 14% and the profit followed. Operating margin up 16% from the 14 top line, and it's a combination, of course, of the growth and efficiency programs that we have in the group. Then looking at the financial net, it was slightly down. We had a little lower debt, and we're a little bit larger company. So actually, the income before tax is up 7%. And then we expect the tax rate to be stable for this year compared to last year, so 26% tax rate estimate for €17,000,000 And therefore, we end on earnings per share and net income of a full 17% increase. And not to be forgotten, even though the Q1 is a smaller when it comes to cash flow, we also had seasonally low cash flow, but a strong improvement over previous Q1, the full 65%. From the highlights to the details, the bridge and the P and L. And here, starting with the organic and really showing what drops through we see on the organic growth, Strong 6% top line. And here, I would say that all the divisions had good leverage except APAC, which was also, as expected, significantly lower in margin. And I would say that the biggest drag that we have seen here is on the direct material and the raw material, and I'll talk a little bit more about that. We also saw currency. Currency top line translated basically to the same margin level that we are on, on average. So therefore, only 10 basis points improvement from the currency on the margin. And then acquisitions, 3% acquisitions, they were mainly in Entrance Systems on the dilution side. So I mentioned EMEA actually had a question here, but the dilution from Entrance and also the technology acquisitions in GlobalClick gave us the typical dilution of 20 basis points from acquisitions. And that's how we go from 15.2% to 15.4% in margin for the quarter. Different perspective now. Same P and L, but different perspective, looking at it as components of sales. And here, it's only a quarter. It's a Q1, so we compare the Q1. The quarter is a little bit short period of time to compare the components and the development of the components. But still, within this, we can clearly see that direct material is significantly higher as a percentage of sales. You'll see we have an increase of 60 basis points here in comparison. And really, as expected, I would say, we see the in 2016, we had a significant increase of raw materials, and that we start to see pulling through in our channel now as we flagged for the Q1, but also the Q2 and then panning out. And here, of course, the door entities are the most hit considering how much raw material goes into the doors. And therefore, we have tougher times in Americas, but also in Asia Pac, whereas Johan mentioned, the price increase is tougher to do in an overall tougher market. But also, Emgrand Systems having a lot of raw material in their products was affected here. The positive note though, conversion costs significantly improved, full 90 basis points improvement here. And this is a combination then of the growth, of course, but also of the programs as well as the other efficiency measures that we have done throughout the group. So overall, the gross margin improved with 30 basis points. And then looking at the SG and A, as a percentage of sales, slightly down. So that's good in proportion. Considering that we grew, it means that we did increase the SG and A a bit. And I would say it's a fine balance of investing in R and D as in front selling at the same time that you're growing because that is creating the growth as well. I think the balance was good in this quarter. And then of course, on top, we have the acquisitions with a little bit rather similar composition, and therefore, we go from 15.2% to 15.4% here as well. Real money, cash flow. In the Q1, this is not my favorite slide because as you can see, they have a very strong seasonality in cash flow, and the Q1 is very weak, and this year was no exception. But it did increase strongly over last year's Q1. I think it's very positive to see that after a very strong Q4, we still had a good Q1 on the cash flow. And here, it's also important to look at the KPIs, so the relation KPIs here on the working capital. So we did a good improvement on the DSO. So we improved with 5 days to 52 here, so good improvement there. The DPO was slightly weaker. We're on 54 there, but we still have a positive gap between those 2 and the so being the heavier one or, of course, larger one, therefore, having good effect from the gap here. Materials throughput time, up a bit from 93 days to 100 days and part of that being really the raw material also. That's not the volumes, but the value of the raw material in the inventories and therefore up a bit compared to a year ago. CapEx, I would say, grew basically in line with the size of the company. Important here really is to see on the 12 month rolling, and I think it's really a sign of strength to have almost 100 percent operating cash flow compared to our profits. So that's a good result here. Good cash flow and not so much payments for acquisitions. Hence, that's the Q1. We are on EUR 23,300,000,000 in debt, So only €200,000,000 higher than year end and actually almost €1,500,000,000 lower in debt compared to a year ago. So a good development here as well. And we can see then that the gearing is down to €48,000,000 And maybe more importantly for us, the ratio between net peso and EBITDA is down to 1.8. So a solid evolution here as well. Final slide for me, earnings per share. And here, we also have the 5 year graph, and I would have said very proud of this one. 71% up in 5 years and the development in the quarter after full 17%, so a strong first quarter as well. And later on today, we have our general annual meeting with a proposed dividend of DKK3 per share. So that's approved by the shareholders. Everyone will get the dividend of DKK3 per share next week, including you, Johan. And with that, I give back to you for conclusions. Why are you pointing out me? Okay. So some conclusions, and then we will open up for Q and A. So we grew 14% in the quarter and 9% excluding currency. Strong growth in all divisions, 6% altogether organic and growth in APAC, which is, of course, a highlight since we didn't grow at all last year. So that feels very good. Technology leadership was really confirmed in the quarter with this IC West show, but this is the same situation when we have shows here in Europe. And EBIT improved by 16% and earnings per share by 17%. So with those words, I open up for Q and A. And I think, Matthias, also you will help us by telling asking those crucial opening questions. Thank you, Johan. Thank you, Carolina. Yes, I'm Matthias Olsson. I'm heading the Investor Relations team at ADLOY, and I will host Q and A session today. And as usual, I ask everyone to ask only one question to allow as many people as possible to post questions. So as Johan said, I will start by asking a question each to Johan and Carolina. I will start with Johan. It was a strong start of the year. So I have to ask you, okay, how is now April looking? And what do you expect for the Q2 and the year? Well, I think we what we will see is that the 2 days more or less extra that we had in the Q1 will disappear now in the Q2 due to that Easter changes quarter. We've had it many times before. And that will mean that the second quarter will not be as strong from a growth perspective. April, as such, looks like slightly negative. It's very hard to say exactly, but slightly negative, which is just to be expected since that is the month that is short in the quarter or have lost Easter days. Okay. Thank you, Johan. That's clear. Now to Carolina. I mean, you commented a lot about raw materials during the presentation. And what do you expect to see here in the second quarter and for the half year next part of the year? Yes. The raw material is coming through our P and L as expected. And the Q1, we had a big effect on that. We believe that will continue in the Q2, and there, it will be sort of slower and panning out in the 3rd Q4. That also depends on how much of the price increases that come through in the divisions that are most affected by this. Okay. Thank you, Carolina. So I think we start here in Stockholm to take a question. We have one here. Quarter. Is that the runway we should expect for the rest of the year? In the quarter. Is that the runway we should expect for the rest of the year? The 2% is really a reflection also of the increase of raw material. So it will continue for a while, but we don't know for how long and for if it's for the full year. It's probably less for the full year, but in the first half of the year, we see that. It will continue if we have compensated for this team. However Very good. And maybe one quick one on acquisitions, given there's more of them but smaller, it's a bit easier to predict what kind of contribution those will give. Best guess, can you add around 5 percentage points of growth this year in acquisitions done this year? Well, I don't know because it depends very much what comes in. And we have LOB in Poland, Raj, just recently, we had 4 months delay due to the antitrust. So it's impossible to predict. I mean, there is more than enough in the pipeline then. It's a question of can you come to agreements or yes or no and when are they coming? And is there an antitrust behind? Because antitrust normally delays 2 to 6 months. So it's I'm afraid I can't answer. And we don't feel really about it. Our average is we think it's going to be remain around 5. If it's going to be this year, the last 2 years has not been before. There was 1 year in '17, 1 in 'nine. You never know. We have one more here in Stockholm. Ulf Lorschama from SVB. One question regarding development in Asia Pacific and China specifically. It seems like growth momentum has improved quite significantly. We're also seeing construction activity picking up in China, and you have new local management terms in close in China. What are your what's your expectations for the remainder of 2017 regarding China and APAC? APAC, I'm rather positive And as I mentioned, our smart door locks or digital door locks are doing quite well, which is a large category for us in the region. But also generally, India looks pretty good and Pacific has come more to life, perhaps with the exception of New Zealand where we have these earthquakes that are now being rebuilt. So it's probably going to cool off for a while. Japan is doing fine even though it's a small market for us. So I'm rather positive. When it comes to China, I really don't know because China is like a crystal ball where there's no really. But I was there not very recently, and I must say, I was amazed by the number of houses that were on the way up. So from that point of view, it looks good. But you shouldn't trust me. I'm not a statistician relative. But at least I felt good after being there. Okay. Thank you. We turn to the telephone conference. And before we kick off, please, Lars Brochon from Barclays. Lars Brochon from Barclays. Please go ahead. Your line is now open. Thanks. Good morning, Johan, Caroline and Matthias. I'll restrict myself to 1. Johan, I was curious about the outlook statement in your report. You talk about a trend now improving to some degree. I know it's semantics, but that's a change from the last 8 quarters when you've talked about a weak trend, I. E, since the Q1, I think, of 2015. I'm trying to reconcile that with a 2% to 4% organic growth guidance for the year. If you could help us a little bit with what you're thinking on pricing and volume for the year. Pricing, it sounds like up 1.5%, 2%. And if volumes were up 1% to 2% on a working day adjusted basis in Q1, the low end of your guidance effectively assumes sort of a flat to negative volume growth for the remaining three quarters. I'm trying to understand that in the context of what you're writing in the report. Well, the reason why I changed is because we see more activity in emerging markets that has been rather cool or rather bad, especially driven by China. But we see the bottoming out in Brazil. We see an improvement also in China as such. And that made me change a little bit foot when it comes to is it very negative or what is it. And we see also industries coming to life. And normally, that spills over after a while. Also, the construction, If you sell excavators, they are normally used for something. And that means that 1 year down the road, probably some buildings are coming up as a result of that they are working with them. So therefore, I changed my footing on that. When it comes to our growth, I don't see really any strong reason to change our 2% to 4%, even though I'm more optimistic of the higher top end of that than the lower end of it. So I remain on 2% to 4%, even though you can translate that perhaps to more positive outlook than the 2%, if I say it like that. I'm always careful as you know. Could you help us maybe just with your thoughts on Americas? Allegion came out with some good guidance recently, and that was a different of different exposures there. But how do you see Americas developing through the year, specifically in your institutional segment? We have very strong development on quotes. That's what I can say. So there's a lot of activity in the market. If the confidence in the market remains, I think that will also turn into good development in the market. But right now, I'm cautious. We see very, very high activity on Encoats. Sorry? Go ahead. This is my next question, please. Thank you. Guillermo Peigne from UBS has a question. Please go ahead. Hi, good morning. Guillermo Peigne from UBS. Just wondering on China growth, you could actually disclose how much was volume, how much was pricing? I think most of it was volume, very limited pricing. We see now only in the Q2 that there are signs that other vendors are starting to increase price. And we have taken our prices up. On the locks, prices are there, but I think the majority is really volume in China. But as I said, it's 2% organic, so there's nothing to sort of write home about. It's still very modest. And sorry, go ahead. Can I ask a follow-up? Yes. When it comes to thanks for the information on the direct materials movements into Q2. But can you quantify it with either a krona number or percentage of dilution or similar? On what? On raw materials? I would say that we tried to explain is that, well, we have around 35% of our sales is what we consider direct material, right? Around the third of that is raw material, raw material related interest and the prices, and there it's gone up significantly. And I would say that we have compensated for a little bit more than half of that with the price increases now in the Q1, and we expect the gap for the Q2 to still be tough and be there, but the gap will then close. And as Johan mentioned, to continue to increase prices. But exactly when those go through, it's going to be hard to say. But the second half of the year would surely be better. And then on the savings, how was kind of relative to how the year will look in terms of acquired savings or retained savings? On the manufacturing footprint, we'll have well, we have a plan for around €200,000,000 in savings this year in 'seventeen from MSC. And the Q1, we had a full EUR 90,000,000 of savings. So we have a good trend here. And then we have around, what, EUR250,000,000 for 2018 and around EUR150,000,000 for 2019, and that stands. Thank you very much. Andreas Willi from JPMorgan is on the line with a question. Please go ahead. Yes. Good morning, everybody. Just a few questions that you could quantify some of the comments you made earlier in terms of the very strong growth in electromechanical, whether you could give us a broad number for that and whether the mechanical lock business is still kind of roughly stable? And also, you said the Easter effect was 2 days. Is that just in Europe and some of the other countries that celebrate Easter? Or is that for the group overall and whether that equates to about 3% of sales? Is that the way you're thinking about for Q1? We think that the 2 days also affected the other parts of the world simply because more days means more days open, more days orders and more days at work. How much? To what extent is very difficult to say. On the electromechanical, we had double digit growth in all parts, where Europe was the strongest. I don't want to disclose the exact number, but Europe was very strong. And that meant that the mechanical, which is replaced by the electromechanical, is was flat. James Moore from Redburn is on the line with a question. Please go ahead. Your line is open. Yes. Thanks for taking my questions. Good morning, everyone, Yohan, Carolina, Matthias. Perhaps I could go one at a time. Firstly, on Global Technology, you mentioned the high contribution margin. I wondered if you could talk a little bit about how fast the software businesses are growing and what you think the margin trajectory could look like from here. 2nd, maybe we could go one at a time. Yes. Wow, you can wait. We will remember that. Thank you. Normally, no, no, no, 4. Well, the contribution margin is high because there's a lot of software in it. So and that means that if you sell for $1,000,000 a lot of that is contribution for obvious reasons. So but here, what we have invested heavily is in R and D, but we also had quite some salesman because I think now is the moment when you should try to expand your business when the market is in good demand. And that is what we feel, and we also have innovations that are in good many customers are appreciating what we do. So I think you will have to expect us to continue to have not that leverage that we might have had if we just went for profit. We go for a continued expansion rather. And hopefully, we can also add some additional like BlueVision and other additional good innovations to our total portfolio so we can continue to see a good evolution. But if you take, for instance, the hospitality side, it's becoming important what is then software as well because we nowadays always sell a license with every system, and that is becoming an important element. The same is with HIV, and the same is also in the geographical divisions. We don't sell software anymore without license. Okay. And on APAC, once we've stabilized the business for the issues you talk about, the headcount, etcetera, do you have a sort of ambition as to where you think the APAC margin can get now or another quarter into understanding the issues? I think the APAC margins will be like in the emerging margins lower than our average for the group, but it will move beyond I think it will move back to where we were. We used to be something close to 15%, and I see no reason why we should not be able to reset. We have this we have it in China, which is the biggest market there. We didn't have the right setup. Now we are and we've and we'll become much more light footed, but also much quicker to respond to different demands. So I think it's a matter of converting our organization in the right direction. Then it will probably take a decade in China before we see the aftermarket element coming in as we see it in many other markets. And that is something, as I've always said, we have to wait for. And while we're waiting, we will probably suffer a little bit from margin evolution for that reason. It's much more difficult in newbuild where you have big buyers to have high price than it is to sell 11, 11, 11 lock in a true distribution. So I think we have to be patient in all emerging markets for that reason as the market is gradually moving into aftermarket. Brilliant. And finally, on Entrance Systems, I know you didn't give your margins regionally, but I sense there's a U. S. Margin opportunity relative to Europe. Do you still feel that's the case? And is there any way you can help us scale that opportunity? Yes. When we've come further in Europe, so we have sort of all the pieces of the puzzle or more pieces of the puzzle in Europe. So you have sort of both the sourcing, you have the distribution and the service, which is very lucrative. In the U. S, we are sort of in the middle of that journey, and we continue to acquire to reach that journey. So without saying exactly the margins, you're right. It's sort of the opposite to geographical divisions that we are clearly more profitable in Europe than we are in the U. S, but that is also a progress and a process. And do you think there's a time frame you could close that? Or is it quite a long dated thing? Well, we've thing? Well, we've said now that the long term target will be SEK 30,000,000,000. So I guess we need to reach that first and then get the service element up properly. So that will take a while. It will take a few years before service is developed in the U. S. As we see it in Europe. And don't worry, I think Sean has said 2021, maybe he will be there with his service. We will see. I'm not saying that you said it. I encourage him to say it at least. So and I think that is at least the time it takes because we today, we don't have much at all direct service. So that will take time to develop. Thank you, James, and all the other ones. I remind everyone, please limit to one question because there are plenty of people that want to ask questions. So please, operator, go to the next one. Peter Schirlein from Handelsbanken is on the line with a question. Please go ahead. Your line is open. Yes. Thank you. Hi, Johan, Carolina, Matthias. Only one then. Okay. I think that could you share some thinking about how the new tax proposal will affect the tax rate. You mentioned Carolina that obviously you expect the same tax rate for this year. We could easily calculate sort of the gross effect from the proposed lower corporate tax, but it's a lot of other factors that stay in. So maybe you could help us to open up a bit that box. Well, first of all, it's not clear yet what is sort of what regulation would be in the U. S. So it is very hard to make sort of a concrete estimate. And you have different parts of corporate tax and you have possible import taxes versus similar ones. I think that for now, the most important thing for us is really to sort of listen and see what happens, and then we will adapt depending on what proposals actually come through and how. And then we'll come back to you when we know more. But as it looks now, the estimate for this year is 26%. Thanks. Okay. Maybe I could treat a small follow-up then with the additional savings. You mentioned the manufacturing footprint, but the ongoing sort of additional savings, is it fair to assume that they were running at maybe SEK 50,000,000 or something like that in the quarter? Pretty close. They were slightly above SEK 40,000,000. Sorry for that. I'm questioning the maybe I apologize, Peter, but be similar to 1 before Brexit. Thanks. Ben Masing from Morgan Stanley is on the line with a question. Please go ahead. Yes, thank you. Good morning, everybody. Jan, a question on Government ID, which is back to growth within Global Tech. I think you said in the past there were lots of framework agreements and you had a good pipeline, but post the oil price drop, many countries didn't have the resources to kind of draw down on those agreements. Is the pickup we see now that easing up? And do you think the improvement this quarter is sustainable? Yes. We think we're going to grow nicely this year at a double digit pace on that part, and that is because we have received a number of orders. So and it looks good. And then you never know. I mean, we've seen it before. All of a sudden, they sort of go to halt and say, we don't want it in 6 months or something. So it's very hard to predict that this kind of business is a little bit stop and go sometimes. But for the time being, it looks pretty positive. And I think this year will be one of the positive years with good growth. And we have a good pipeline of projects running. Among others, we are also seeing some virtual projects coming in as well, which means then virtual IDs of various clients. Got it. Thank you. Matthew Star from Royal Bank of Canada is on the line with the question. Please go ahead. Yes, morning there. Would you be able to repeat what you said about April and how the kind of quarter 2 has started? You said it looks slightly negative. And you said the 2 working days obviously fall in April. But in terms of sort of on a daily sales basis, obviously there's 2 on the 20 if you took that at face value, it means you grow more than 10% in April on an underlying basis. Could you just kind of find what you said there, please, Johan? Well, order intake per day, open day is pretty positive. But when you have a condensed normally, it goes higher per day because there are less working days. So that is only a normal thing. I think April looks pretty much in line with what we saw in the Q1. No real big differences. Of course, taking the relation then that there are a few working days left. There's good solid development. There's quotes are increasing in the U. S. Strongly. They're increasing in Europe. So I'm pretty optimistic from a total point of view, but I don't think we should we should remember, we are mainly an aftermarket related company that you don't sort of drill up buildings from nowhere. So it will take time before you get new build really in place. So we continue to grow at a good pace. Okay. And then a second no, I was just getting no second question, mister. Thanks. Thanks, Matt. Andreas Koski from Deutsche Bank is on the line with a question. So I was going to come back to the raw material headwind where we saw direct material cost of divestiture sales increasing by 60 basis points in the quarter. I just wanted to understand, I suppose you saw a sequential cost step up in the Q1. And do you expect the sequential cost step up in the Q2 to be in the same kind of level as you saw in the Q1? Or will the headwind accelerate or increase now going into the Q2? Well, you have to compare it year over year. So you can say that the increases were year over year in the first quarter, we will have a similar effect in the second quarter. Around 60 basis points. But on the increase, then it will depend a bit on mix and as well it will depend on how much of the price increases go through, but just looking at the new material. Okay. Thank you very much. Jeffrey Kessler from Imperial Capital is on the line with the question. Please go ahead. Yes. So I'm wondering if you could drill down a little bit into Global Technologies growth, discuss what since we saw some excellent products at ISC West. I'm wondering what areas of HID or the others parts of essentially Global Technologies were the ones that stood out or ones that were laggards? You can see it on the slide, which parks were having strong growth. But it is access control, which was the first mention there. Identity and access management, mainly authentication type of solutions. You remember, perhaps we bought Quantum Secure for a few years back, also growing at a good pace. And the only part that did not really grow at a high pace was the IDT, which was the inlay business, but that was more due to timing issues. So we have orders for growth, but there was a customer who wanted to have it delivered later on. So it's pretty much across the board. And to my feeling, the market is in good demand, but also our new products. So Axis, so those the three areas that you named all had strong growth, but did they all have strong pipelines as well? It looks good. For the time being, it looks good, yes. So if we have stability in the market, I think we will see can look forward to continued growth, not with the Easter effect in, but with a good growth. Okay. Thank you very much. Andreas Gille from JPMorgan is on the line with a question. Please go ahead. Thanks for the additional time. I just had a COVID-nineteen guidelines from the OECD coming in, which some companies have started to highlight as a headwind to tax rates as we go forward. Is that something that could impact you as well if you look out for the next couple of years? And that's what is popularly known as debts. Well, I think the first well, it's just the idea really is being transparent for each country on the tax rates. Then whether we pay higher or lower tax rates will depend on legislation in the different countries as well as where we sort of grow and make more profits. So I think that's where we will share in the future. But it's not a specific concern. It's something you may have to change how you allocate profits geographically and things like that. Thank you. We have no further questions at this time. Okay. Thank you, operator. Do we have any more We have one more question from James Moore from Redburn. Please go ahead. Yes. I think it's time, and I know I had too many earlier. But I wondered if I could just understand a little bit better the price versus raw material picture across the businesses. I sense that there's some quite big moving parts if price is up a couple of percent. Obviously, raw materials is a €300,000,000 of headwind. I guess the intensity of that is differing. Is there anything you can help us anything more you can help us understand that with? Well, I mean, on average, we would have around 1% price increase, and now we have some 1.5% to 2% price increases, and that is to compensate for raw material. But there is a lag both between when the material goes in and when the prices come through. So that is why we are highlighting it and also commenting specifically on the high number of 2. Yes. Sorry, I understand that. What I'm just trying to understand is if you look at that net difference between the 2 at a group global level, does that differ materially between EMEA Americas and APAC? Yes. EMEA has been able to compensate more, but they also have sort of less doors as a total one as a percentage of the total. Americas, higher and higher high security share, and that has been tougher, but they've done a pretty good job. And the division, which has had the toughest to compensate for it, is in APAC in China specifically, where the general market and the raw materials being a higher part also of their P and L because of labor being lower in costs. They've had a tougher time to compensate. So they have been moved sort of compensation in their numbers. We have no further audio questions. Okay. Thank you, everyone, and thank you for keeping to one question that makes everyone ask or give a possibility to ask the questions. And Carolina. So that concludes the Q1 2017 conference call. Thank you. Thank you. Thank you, everybody, for coming, and a good quarter. So I look forward to a continued good year. At least, it looks good for the time being. Thank you. Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.