Ladies and gentlemen, welcome to Assa Abloy and the first quarter 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 market, and that continued also in this quarter with U.S., Scandinavia, U.K., and Germany growing at a high pace. A very positive evolution, even though we had some effects of Easter since Easter moved a quarter this year, so we had a little bit day effect from that situation. Also to our joy in China, our demand stabilized during the quarter. Very positive.
Turning now to sales in the different parts of the world, you can see an amazing number, 8% organic growth in North America. Very, very strong. Europe continued also strong with 6% organic. That's the green. Pacific, 7%. Mature markets grew altogether 9%, but 6% organically. 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, +5%. That is the organic growth of our emerging markets. Apparently, with the exception of China, that still is moderately growing, and Brazil that is negative, it's still 5% plus, despite those two big markets were a drag to that number. That meant that South America grew 2%, Africa 9%, and Asia, including the Middle East, +2%.
Most markets, with exception of Middle East, China, and Brazil, were growing in emerging markets. A very positive evolution, in fact. Turning to the market side, a lot of things to tell. What I see happening in our industry, even though it won't happen tomorrow, is in the next decade, we believe most people will have a digital door lock on their door in their residential homes. The reason for that is that we see a very big interest in forwarding companies for home deliveries, to deliver food. Like in Sweden, some 8 million per year now, parcels are going into private homes with food. You can't enter the door. You can imagine what pent-up demand it would be for digital door lock to have that there to allow people to get in there and deliver that food so you can have it for dinner.
The other driver is home automation. People have more and more alarm. Safety and security is number one for many people. We see alarm systems taking place in many places. Either you have it connected or unconnected, but you have it on your app. That means also a very big driver for growth for home automation. In Korea and a number of other markets, it's a 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 USA. On the new product side, we launched a completely new revolving doors line. This is a new look. 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 is more and more single branded Assa Abloy.
From our 200-plus brands, we are creating a strong group with only one brand in front of the customer. This is standardizing a lot and gives us a lot of possibility for synergies throughout the group. I've shared with you before on the geographical divisions, and now Entrance Systems is doing exactly the same, going to one look or two looks, in fact, because they have the indirect channel, which will look in one way, and the direct channel that will look a little bit different from a design point of view, very much like all the rest of Assa Abloy. On the innovation, we had the biggest show in the U.S.A. in the quarter. Again, there we exposed our products. In America, we will launch more than 100 new products. The same is happening in Europe this year.
We had 10 awards given to the group, and 10 awards were first prizes. With two of them, a very important one was PIV or Personal Identity Verification, which is a new innovation for how to identify and authenticate yourself in front of authorities, American authorities, European authorities. They have a special way of how it should be done, and there we got the number 1 prize, and also how to locate people. You 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. Very exciting. On the next slide, I will share with you the 10 number 1 prizes we got.
Nine out of those 10 are electronic products, 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 1 prize 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 had 2% price increase and 4% volume growth in the quarter. We had 3% acquired growth, and as I mentioned, 5% currency, altogether 14%. Turnover was SEK 18.1 billion.
Profit improved 16% to SEK 2.8 billion, with SEK 133 million of currency effect. We have earnings per share improving by 17% to SEK 1.73, yet again, a very good quarter. Looking a little bit longer perspective that I like to do, because I think when it comes to Assa Abloy, 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 is seven acquisitions, and that means that we add 3%, 4%, 5%, 6%, 7% turnover constantly. We're also growing on a constant basis. This 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 five-year period that you see on this slide, the organic plus the acquired growth is in fact growing. We've gone from SEK 50 billion to SEK 75 billion, so 52% growth in those five years. You see the power of the combination of constant acquisitions with organic growth. Looking to this one, it's always difficult to explain. There's no margin improvement, more or less. To be honest, there is underlying all the time because we get dilution. You can see that 0.2%. 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. The margin was 16.2% in the last 12 months.
Of course, if you're growing fast and maintaining your model or slightly improve it, if you look to the left, then profit, in fact, improved 73% during these five years. Not too bad, in my opinion, to SEK 11.9 billion, our run rate last 12 months. A powerful combination when you hold your margin and continuously grow. Turning now to the Manufacturing Footprint that runs very well. Carolina will tell that we have nice savings of it. I advise you to ask her that it's a nice saving there. We have close to 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 million out of those programs, and there is SEK 1.5 billion in the balance sheet remaining for the remainder of the program. The next 2 years are full of activity in this field. Looking to acquisitions, we did, as I mentioned, 7 acquisitions in the quarter, full of activity. We are a little bit holding back on larger acquisitions simply because the valuations right now are pretty high. Therefore you will most likely not see big things happening right now. On the other side, there are very many companies for sale, the activity level is very high. I can almost stand here and almost promise you that there will be many this year, but they will be of a lesser size, most likely simply because of pricing. The small ones are still a reasonable price.
As I mentioned, 7 this quarter and we added 1% turnover. 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. One is Jerith 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 perimeter control as it's called in U.S. Here with this company is 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 geographic coverage. This is a typical bolt-on where you're going to also have very strong geographical effects or synergy effects by becoming part of a larger entity. A very nice acquisition, accretive to earnings per share.
In Sweden, this is a small folding door company, also very complementary to what we do in the Scandinavian markets where we are market leader on industrial doors, 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, Finland had a strong development. U.K., despite them that they're going Brexit and all that, and all the fears you have, is for the second quarter at high pace growth. Germany is doing fine as well.
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. France seems to be leveling, and 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. This is of course due to that there is lack of money due to the low oil prices. Elmech, we had very strong growth throughout Europe and not much growth on the mechanical. That 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 half a percent with, in this case, a very unusual accretion from acquisition by 0.1%. I need to mention it because it's very unusual. Here also we have been rather good in price increases. In Europe, we have not faced very much problems of price increases. Here it has went through. Even though we have some drag from steel, it's very limited. Altogether, a very pleasing picture of Europe. In Americas, we grew 7%, a very strong growth. Here you can see Elmech is number one, very strong with security doors as well, perimeter protection. Also Mexico and South America can continue with the exception of Brazil. Every market pretty much had a very good evolution.
There are two things that are not growing so much, that the traditional locks, we had a competitor last year in the first quarter that had problems with delivery. We had very strong numbers on those last year, first quarter, and therefore it was difficult to jump over that at the same height, even though we had good growth there. Brazil continued negative, but with good signs that the market is recovering, at least the financial indicators are indicating that this market is leveling right now. Margin improved by two-tenths of a percent, the negative currency of one-tenth of a percent. Here we are behind on the steel side. We have more than 40% price increases in one year on raw material, and we use a tremendous lot of it in doors, and it's very transparent.
Unfortunately, as I mentioned last time, some of our competitors, if not all, have hedged, which we don't ever do, and therefore we have had problems drive through price. We think second half of this year will solve that problem. All the rest 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. Asia Pacific, it's difficult to stand here and smile when you have a negative curve on profit. At least I normally don't do that, but it feels better in Asia. We had quite negative evolution last year. What is very positive is we have strong growth everywhere except in China. We see strong growth in Pacific, South Korea, South Asia, and in Japan. Every part is doing very well.
Digital door locks is also doing very well in all parts of the Asian region. 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. Depends how you count, because as you know, we had pre-invoicing. If we take that away, we grew some 2%. If we have it in our numbers now, it's negative, because we didn't adjust our numbers for this quarter. It's negative by 4% there where like-for-like in our numbers that you see here. 3% is a good number, definitely. 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.
This will continue for another year before we think we have found the right form where we have more suppliers and are more concentrating our customers ourselves, while pre-assembly is done by suppliers rather than ourselves. 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. That will be a drag for the year, as we have said. We think it's going to cost us some 0.2% of group margin as such. 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 see really good pickup on mobile keys, not only in access control, but also on hospitality side. This is very encouraging. I have it myself on my phone. It works beautifully, so I can recommend it for those of you that haven't got it yet. We have more than 1 million 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. More than 1,000 corporations have signed in as well, only in the access control field. It's really encouraging. On IM, we had problems a few years ago with our products. We have added some almost 200 engineers into this field, both in ShareTech but also in Global Tech. We see now that our products are catching on, so very positive evolution there as well.
Security Systems and Galvano also did well in the quarter as such. Our project business was flat or slightly growing, IDT was on a temporary basis negative, and this has to do with projects that come in or could or not come in, so no big deal there. Hospitality continued strong as it has done for several years now, and this is on the back then on our mobile key system solutions. We had a margin improvement to 17%, not so much perhaps that we would hope, but you see acquisitions was negative by half a percent, and therefore we had a little bit less organic leverage, and this has to do, of course, with our investment in R&D. It's not free of charge to add so many engineers. I'm sure long term that this will pay off very nicely for us.
This type of business is very volume related. There are high contribution margins. With good margin 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 close a lot of factories inside Entrance Systems and close a lot of infrastructure and change a lot of things, and still we're growing 7% organically. I feel very good about that. Very well done by the team there. Strong growth in door automatics, high-speed doors, door components, U.S. industrial, U.S. residential, and good growth in EU industrial doors. Altogether across the board, growing business. 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% at the turnover.
You can see on the black there that Entrance grew almost 20% and from a little bit more than SEK 4.3 billion-SEK 4.4 billion to more than SEK 5 billion, SEK 5.2 billion, I think it was. Very strong growth. This was coming then from also a lot of added acquisitions to the division. A very positive evolution. With those words, very positive evolution, I will hand it over to you, Carolina.
Thank you, Johan. I will continue on that note with a very positive beginning of the year. The first quarter of 2017 was a strong quarter for Assa Abloy. Looking at the financial highlights, we start with the top line and the ever-so-important organic growth. In this quarter, it's a pleasure to say that we had 6% organic growth. There is a small but in this, and that is that we have the or rather the lack of Easter in the quarter, which we will see coming back in the second quarter where we had Easter. 6% including the Easter effect, which is around two days. We also said that on the total group, we expect that roughly out of the six, 2% were price and 4% are volume. Looking at the divisions, all of them had strong growth except APAC.
Very positive with APAC 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, I would say, as we said for the first quarter. We have in the books already acquired companies for around 2% acquired growth for the full 2017. Currency. Currency goes up, it goes down, in this quarter, we had a positive currency effect, a full 5% increase on the top line from currency. Here, if we do the calculation that the currencies stay stable, please remember, it's early days in the year, if they stay stable, we'll probably have around 3% added growth from currency for the full 2017. The total top-line growth of 14% and the profit followed. Operating margin up 16% from the 14 top line.
It's a combination, of course, of the growth and the efficiency programs that we have in the group. Looking at the financial net, it was slightly down. We had a little lower debt, we are a little bit larger company, actually the income before tax is up 17%. We expect the tax rate to be stable for this year compared to last year, 26% tax rate estimate for 2017, therefore we end on earnings per share and net income of a full 17% increase. Not to be forgotten, even though the first quarter is smaller when it comes to cash flow, we also had a seasonally low cash flow, a strong improvement over the previous Q1, the full 65%.
From the highlights to the details, the bridge of the P&L, here, starting with the organic and really showing what drop-through we see on the organic growth. Strong 6% top line, here I would say that all the divisions had good leverage except APAC, which was also, as expected, significantly lower in margin. I would say that the biggest drag that we have seen here is on the direct material and the raw material, 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 average. Therefore, only 10 basis point improvement from the currency on the margin. Acquisitions, 3% acquisitions, they were mainly in Entrance Systems, on the dilution side.
Johan mentioned EMEA actually had acquisition here, the dilutions from Entrance and also the technology acquisitions in Global Tech gave us the typical dilution of 20 basis points from acquisitions, that's how we go from 15.2 to 15.4 in margin for the quarter. Different perspective now. Same P&L, different perspective, looking at it as components of sales. It's only a quarter. It's a first quarter, we compare the first quarter. The quarter is a little bit short period of time to compare the components and the development of the components. Still, within this, we can clearly see that direct material is significantly higher as a percentage of sales. You see we have an increase of 60 basis points here in comparison.
Really as expected, I would say, in 2016, we had a significant increase of raw materials, and that we start to see pulling through in our P&L now as we flagged for the first quarter but also the second quarter and then panning out. 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 APAC, where, as Johan mentioned, the price increase is tougher to do in an overall tougher market. Also Entrance Systems having a lot of raw material in their products was affected here.
The positive note, though, conversion costs significantly improved, a full 90 basis point improvement here. This is a combination then of the growth, of course, but also of the restructuring programs as well as the other efficiency measures that we have done throughout the group. Overall, the gross margin improved 30 basis points. Looking at the SG&A, as a percentage of sales, was slightly down, so that's good in proportion. Considering that we grew, it means that we did increase the SG&A a bit, and I would say it's a fine balance of investing in R&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.
Of course, on top, we have the acquisitions with a little bit, well, rather similar composition. Therefore we go from 15.2 to 15.4 here as well. Real money, cash flow. The first quarter, this is not my favorite slide because as you can see we have a very strong seasonality in cash flow. The first quarter is very weak. This year was no exception. It did increase strongly over last year's first quarter. I think it's very positive to see that after a very strong fourth quarter, we still had a good first quarter on the cash flow. Here it's also important to look at the different KPIs, so the relation KPIs here on the working capital. We did see a good improvement on the DSO. We improved with five days to 52 here, so good improvement there.
The DPO was slightly weaker. We're on 54 there. We still have a positive gap between those two. DSO being the heavier one or of course larger one, therefore have a good effect from the gap here. Material throughput time, up a bit from 93 days to 100 days. Part of that being really the raw material also, 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 months rolling. I think it's really a sign of strength to have almost 100% operating cash flow compared to our profits. Certainly a good result here. Good cash flow and not so much payments for acquisitions. That's the first quarter.
We are on SEK 23.3 billion in debt, only SEK 200 million higher than year-end and actually almost SEK 1.5 billion lower in debt compared to a year ago. A good development here as well. We can see that the gearing is down to 48%. Maybe more importantly for us, the ratio between net debt and EBITDA is down to 1.8x. A solid evolution here as well. Final slide from me, earnings per share. Here we also have the five-year graph, and I would have to say very proud of this one, 71% up in five years, and the development in the quarter up a full 17%. A strong first quarter as well. Later on today we have our general annual meeting with a proposed dividend of 3 SEK per share.
If that's approved by the shareholders, everyone will get the dividend of 3 SEK per share next week, including you, Johan. With that, I give back to you for conclusions.
Why are you pointing out me? Okay, some conclusions and we will open up for Q&A. We grew 14% in the quarter and 9% excluding currency. Strong growth in all divisions, 6% altogether organic. Growth in APAC, which is of course a highlight since we didn't grow at all last year, that feels very good. Technology leadership was really confirmed in the quarter with this ISC West show, but this is the same situation when we have shows here in Europe. EBIT improved by 16% and earnings per share by 17%. With those words, I open up for Q&A. I think Mattias Olsson, you will help us by asking those crucial opening questions.
Thank you, Johan. Thank you, Carolina. Yes, I'm Mattias Olsson. I'm heading the investor relations team at Assa Abloy, I will host the Q&A session today. As usual, I ask everyone to ask only one question to allow as many people as possible to pose questions. 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, I have to ask you, okay, how is now April looking and what do you expect for the second quarter and the year?
Well, I think what we will see is that the two days more or less extra that we had in the first quarter will disappear now in the second quarter due to that Easter changes quarter. We've had it many times before. 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 the Easter days.
Okay. Thank you, Johan. That's clear. Now to Carolina. What do you expect to see here in the second quarter and for the next part of the year?
Yeah, the raw material is coming through our P&L as expected. The first quarter we had a big effect on that. We believe that will continue in the second quarter. There it will be sort of slower and panning out in the third and fourth quarter. 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. I think we start here in Stockholm to take a question. We have one here.
Thank you. Just on the pricing, I think you mentioned there's two percentage points of pricing 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. It will continue for a while, but we don't know for how long and 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 until we have compensated for this deal.
Very good. 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 five 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 just recently. We have 4 months delay due to the antitrust. It's impossible to predict. There is more than enough in the pipeline. It's a question of can you come to agreements or yes or no, and when are they coming? Is there an antitrust behind? Antitrust normally delays 2 to 6 months. I'm afraid I can't answer, and we don't feel really pressed about it. Our average, we think it's going to remain around 5. If it's going to be this year, the last 2 years has not been. Before it was 1 year with 17, 1 with 9. You never know.
Thank you.
Okay, we have one more here in Stockholm.
Olof Larshammar from SEB . One question regarding development in Asia-Pacific, in China explicitly. 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 teams in place in China. What's your expectations for the remainder of 2017 regarding China and APAC?
APAC, I'm rather positive about, 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. Also generally India looks pretty good, and Pacific has come more to life. Perhaps with the exception of New Zealand where we had 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. 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 transparency really. I was there very recently, and I must say I was amazed by the number of houses that were on the way up. From that point of view it looks good, but you shouldn't trust me.
I'm not a statistician. At least I felt good after being there.
Okay, thank you. We turn to the telephone conference then before we kick off. Please operator, could you please remind everyone how to pose the question, and also give way for the first question please.
Thank you. If you wish to ask an audio question, press zero on your telephone keypad. If you wish to withdraw your question, you may do so by pressing zero two to cancel. Lars Brorson from Barclays , please. Please go ahead, your line is now open.
Thanks. Good morning Johan, Carolina, Mattias. I'll restrict myself to one. 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 Q1 I think of 2015. I'm trying to reconcile that with a 2%-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%-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 3 quarters.
I'm trying to understand that in the context of what you're writing in the report.
The reason why I changed is because we see more activity in emerging markets has been rather cool or rather bad especially driven by China. 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? You see also industries coming to life, and normally that spills over after a while, also to 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 that they are working with them. 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%-4%, even though I'm more optimistic of the higher top end of that than the low end of it. I remain on 2%-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. I know it's a different mix of different exposures there. How do you see Americas developing through the year, specifically on your institutional segment?
We have very strong development on quotes. That's what I can say. 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. Right now I'm cautious. We see very high activity on quotes.
Thank you.
Guillermo Peñate. Sorry?
Go ahead with the second, next question please.
Thank you. Guillermo Peñate from UBS has a question. Please go ahead.
Hi. Good morning. Guillermo Peñate from UBS. Just wondering on China growth, whether 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 second quarter that there are signs that other vendors are starting to increase price. We have taken our prices up. On the locks the prices are there, but I think the majority is really volume in China. As I said, it's 2% organic so there's nothing to sort of write home about. It's still very modest.
sorry go ahead. Can I ask a follow-up?
Yes.
Thanks for the information on the direct materials movements into Q2, can you quantify it?
With either a SEK number or a % of dilution or similar?
On what?
On raw material.
On raw material.
I would say that we try to explain is that we have around 35% of our sales is what we consider direct material. Around a third of that is raw material, or raw material related at least, and the prices, and that's gone up significantly. I would say that we have compensated for a little bit more than half of that with the price increases now in the first quarter, we expect the gap sort of second quarter to still be tough and be there, but the gap will then close, and as Johan mentioned, to continue to increase prices. Exactly when those go through, it's going to be hard to say, but the second half of the year will clearly be better.
On the savings, how was this kind of a quarter relative to how the year will look in terms of acquired savings or retained savings?
On the manufacturing footprint?
Yeah.
We have a plan for around SEK 200 million in savings this year in 2017 from MF2, the first quarter, we had a full SEK 90 million of savings. We have a good trend here. We have around SEK 250 for 2018 and around SEK 150 for 2019, and that stands.
Thank you very much.
Andreas Willi from J.P. Morgan is on the line with a question, please go ahead.
Good morning, everybody. I just have 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. 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? Whether that equates to about 3% of sales, is that the way you're thinking about for Q1? Thank you.
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, was flat.
Thank you very much.
James Moore from Redburn is on the line with a question. Please go ahead. Your line is open.
Oh yeah, thanks for taking my question. Morning, everyone, Johan, Carolina, Mattias. Perhaps I could go one at a time. Firstly, on Global Technologies, 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. Second, maybe we go one at a time.
Wow, you can wait.
We will remember that later, thank you.
Normally we load all four. Well, on the contribution margin, it's high because there's a lot of software in it. That means that if you sell for $1 million, a lot of that is contribution for obvious reasons. Here, what we have invested heavily in, is in RD, but we also add quite some salesmen, because I think now is the moment when you should try to expand your business when the market is in good demand. That is what we feel, and we also have innovations that many customers are appreciating what we do. 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.
Hopefully we can also add some additional Bluvision and other additional good innovations to our total portfolio so we can continue to see a good evolution. If you take, for instance, the hospitality side, it is 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 HID, and the same is happening also in the geographic divisions. We don't sell software anymore without license.
Okay, thanks. On APAC, once we've stabilized the business for the issues you talk about, the headcount, et cetera, do you have a sort of ambition as to where you think the APAC margin could get now we're another quarter into understanding the issues?
I think the APAC margins will be like in emerging markets, 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 reach that. We have it in China, which is the biggest market there. We didn't have the right setup. Now we are going over to a market-oriented organization where we do only assembly, and we become much more light-footed, but also much quicker to respond to different demands. I think it's a matter of converting our organization in the right direction.
It will probably take a decade in China before we see the aftermarket element coming in as we see it in many other markets, that is something, as I've always said, we have to wait for. While we're waiting, we will probably suffer a little bit from margin erosion for that reason. It's much more difficult in new build where you have big buyers who have high price than it is to sell one lock in through a distribution. I think we have to be patient in all emerging markets for that reason, as the market is gradually moving into aftermarket.
Brilliant, thanks. Finally, on Entrance Systems, I know you don'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? Is there any way you can help us scale that opportunity?
Well, we've come further in Europe, we have sort of all the pieces of the puzzle or more piece of the puzzle in Europe. 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, we continue to acquire to reach that journey. 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., that is also a progress and a process.
Do you think there's a timeframe you could close that, or is it quite a long-dated thing?
Well, we've said now that the long-term target will be SEK 30 billion, I guess we need to reach that first and then get the service element up properly. That'll take a while.
It will take a few years before service is developed in the U.S. as we see it in Europe. Don't worry, I think [Shuana] said 2021, maybe he will be there with the service. We will see.
I'm not saying that.
You said it. I encourage him to say it, at least. I think that is at least the time it takes because today we don't have much at all direct service, that will take time to develop.
Brilliant. Thanks.
Okay.
Thanks very much.
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.
Sorry
operate to go to the next one.
Peder Frölén from Handelsbanken is on the line with a question. Please go ahead. The line is open.
Yes. Thank you. Hi, Johan, Carolina, Mattias. Only one then. Okay. 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 proposal over corporate tax, it's a lot of other factors that play in, so maybe you could help us to open up that box.
Well, first of all, it's not clear yet what the sort of regulation will be in the U.S., it is very hard to make sort of a concrete estimate. You have different parts, you have corporate tax, and you have possible import taxes or similar ones. For now the most important thing for us is really to sort of listen and see what happens, then we will adapt, depending on what proposals actually come through and how. Then we'll come back to you when we know more. As it looks now, the estimate for this year is 26% tax.
Okay. Maybe I could treat a small follow-up then with the additional savings. You mentioned the Manufacturing Footprint, the ongoing sort of additional savings, it's fair to assume that they were running at maybe SEK 50 million or something like that in the quarter?
Pretty close. They were slightly above SEK 40 million.
Sorry for that.
I'm questioning the period. Maybe I apologize, Peder, but please limit to one before question. Thanks.
Ben Maslen from Morgan Stanley is on the line with a question. Please go ahead.
Yeah. Thank you. Morning, everybody. Johan, 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, you had a good pipeline, but post the oil price drop, many countries didn't have the resources to draw down on those agreements. Is the pickup we see now that easing up, and do you think the improvement this quarter is sustainable? Thank you.
Yes, we think we're going to grow nicely this year at the double-digit pace on that part, and that is because we have received a number of orders, and it looks good. You never know, and we have 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. It's very hard to predict that this kind of business, 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. We have a good pipeline of projects running. Among others also, we are also seeing some virtual projects coming in as well, which means then virtual IDs of various kinds.
Got it. Thank you.
Matthew Taylor from Royal Bank of Canada is on the line with a question. Please go ahead.
Morning there. Would you be able to repeat what you said about April and how the quarter two has started? You said it looks slightly negative, and you said there were the two working days obviously fall in April. In terms of sort of on a daily sales basis, because obviously there's two on the 20th, if you took that at face value, it'd mean you grow more than 10% in April on an underlying basis. Could you just clarify what you said there please, Johan?
Order intake per day, open day, is pretty positive. When you have a condensed month, normally it goes higher per day because there are less working days. That is only a normal thing. I think April looks pretty much in line with what we saw in the first quarter. No real big differences. Taking into relation that there are a few working days less. There's good solid development. The quotes are increasing in the U.S. strongly. They're increasing in Europe. I'm pretty optimistic from a total point of view. I don't think we should remember we are mainly an after-market related company. You don't sort of drill up buildings from nowhere. It will take time before you get new build really in place. We continue to grow at a good pace.
No, I was just kidding. No second question.
Thanks, Matt.
Andreas Koski from Deutsche Bank is on the line with a question. Please go ahead.
Thank you. I was going to come back to the raw material headwind, where we saw direct material cost as a percentage of 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 first quarter. Do you expect the sequential cost step-up in the second quarter to be in the same kind of level as you saw in the first quarter? Will the headwind accelerate or increase now going into the second quarter?
Well, you have to compare it year-over-year. 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.
Well, on the increase, it will depend a bit on mix, and as well, it will depend on how much of the price increases go through. Just looking at the raw material.
Okay. Thank you very much.
Jeffrey Kessler from Imperial Capital is on the line with a question. Please go ahead.
I'm wondering if you could drill down a little bit into the Global Technologies growth, discuss what, since we saw some excellent products at ISC West, I'm wondering what areas of HID or the other parts of essentially Global Technologies were the ones that stood out or the ones that were laggards.
You can see it on the slide, which parts were having strong growth. It is access control, which was the first mentioned 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. The only part that did not really grow at a high pace was IDT, which was the inlay business, but that was more due to timing issues. We have orders for growth, but there was a customer who wanted to have it delivered later on. It's pretty much across the board, and to my feeling, the market is in good demand, but also our new products.
Access, 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. If we have stability in the market, I think we can look forward to continued growth, not with the Easter effect in, but with a good growth.
Okay. Thank you very much.
Andreas Willi from J.P. Morgan is on the line with a question. Please go ahead.
Thanks for the additional time. I just had a follow-up question on tax. You talked about the U.S. before. We also have this Base Erosion and Profit Shifting 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?
That's what is popularly known as BEPS. I think the first, well, at least the idea with it is that being transparent for each country on the tax rates. 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. I think that we will see in the future.
It's not a specific concern in something you know you may have to change how you allocate profits geographically and things like that?
No.
Thank you.
I remind you, if you want to ask a question, please press zero one on your telephone keypad. We have no further questions at this time.
Okay. Thank you, operator. Do we have any more questions here in Stockholm? No one more on the telephone conference.
We have one more question from James Moore from Redburn. Please go ahead.
Yes, seeing as there's time, I know I had too many earlier, 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 %, obviously raw materials is a few SEK hundred million of headwind. I guess the intensity of that's differing. Is there anything more you can help us understand that with?
On average, we would have around 1% price increase, and now we have seen 1.5%-2% price increases, and that is to compensate for raw material. 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 two.
Yeah, sorry, I understand that. What I was trying to understand is if you look at that net difference between the two 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 stores as a percentage of the total. Americas, higher and higher high security share, and there it's been tougher, but they've done a pretty good job. 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&L because of labor being lower in costs, they've had a tougher time to compensate. They have the least sort of compensation in their numbers.
Thank you very much.
We have no further audio questions.
Okay. Thank you everyone, and thank you for keeping to one question that gave a possibility to ask a question. Thank you, Johan and Carolina. That concludes the Q1 2017 conference call. Thank you.
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.