Securitas AB (publ)

Alf Göransson - CEO, President and Director

Mikael Holm - Danske Bank Markets Srinivasa Sarikonda - HSBC Bilal Aziz - UBS Investment Bank Paul Checketts - Barclays PLC Aymeric Poulain - Kepler Cheuvreux Sylvia Foteva - Deutsche Bank AG Andrew Grobler - Crédit Suisse AG Henrik Nilsson - Nordea Markets Carina Elmgren - Handelsbanken Capital Markets AB Allen Wells - Exane BNP Paribas Karl-Johan Bonnevier - DNB Markets

Hello, everyone. Very welcome.

It's Alf Göransson, at Securitas, and we like to present our full year report for 2017. So we do it the normal way, I'll go through the slides fairly quickly, and then we'll allow for questions after that.

We are pleased with the year. It's our best year ever in the history of the company, again, it's happened the year before as well.

The yes before I should say as well. We are especially pleased with the growth, was very good growth in the second half of 2017 including the last quarter.

So we have a good momentum in the business and coming, I should say, into 2018 with a good speed. Good growth in North America, good growth in Europe and good growth in Ibero-America.

So in total, a good growth in the group. Also, what we have said in Europe was correct, but we are recovering the portfolio by the end of the year.

And that -- then that gives us the improvement on the margin in the European business. So a very good quarter -- the last quarter in Europe, very pleased with that both from the growth and margin perspective.

We improve and continue to improve our earnings per share with 9% real change excluding the effects of FX and the tax reform in the U.S., dividend proposed to be increased, the balance sheet in better shape, but it was a year ago, both from a free cash flow to net debt ratio as well as the net debt to EBITDA ratio. So we didn't make a lot of acquisitions yet last year, and we picked up on the cash flow in the last quarter, basically as we expected.

Slightly, slightly below, but still pretty good. We are pleased with the cash flow in the last quarter.

So we have improved our key ratios and the balance sheet during the past year. And then we continue to grow the electronic security and solution business in a good way, 19%, and now it's 18% of total sales.

So that is also as we expected and we are pleased with that. And then on top of that, we will now see -- adding to this, which basically has been organic growth, most of it during -- basically the -- by far the majority of that has been organic growth during 2017.

Now we are adding acquisitions on top of that. The first one out 2018 was the French one that we have announced on January 2.

So if we look here on the numbers, a good 6% growth in the quarter, so that was encouraging to see. And then the margins also improved in the quarter.

We're behind on the full year mainly due to the situation in Europe during the beginning of the year and the overcapacity that we breached during the first three quarters, basically. And now when we came in the last quarter, we had the right cost structure and then we also see the improvement in Europe, which also explains mainly why the margin in Q4 was better than last year.

The rest, we can come back to in case we have any questions. Then on the North American side, the market is -- we have been saying that the market has been growing 3% to 4% during 2017.

It's more likely 3% than 4%. The reason being that there was -- that conditions prevail, but it was hard to find people, in general, in the security market.

So that has hold back a bit the growth, especially in Q2 and Q3. Things are getting better in order, so I'd say now, so we think the market will grow 4% during 2018.

So good macroeconomics, good market conditions in North America, a lot of activity in the marketplace. And we also picked up a couple of small, but the number of aviation contracts in Q3 and Q4.

So that's a good sign. Still no big contracts on the horizon, but at least a lot of minor contracts one that improves our references and our footprint in the aviation business, which we expect should develop in years to come.

Very good growth. Also worth mentioning, the Pinkerton business, to some extent, supported by the climate, of the hurricane effects in September, October, which brought us quite a lot of extra sales.

But in general, good growth in North America in all our areas and high activity levels in the marketplace. On the margin side, a little bit behind in the quarter.

2 basis points -- 20 basis points, 0.2 behind compared to the year before in Q4. And that's very much related to the startup cost of some large contracts and those costs have been taken in Q4.

So nothing remaining for Q1 of that, but all in all, the full year 5.9% versus 5.9% the year before. So still all in all, good growth, stable margins and a good year in North America.

In Europe, we had a struggle little bit in the beginning of the year, but we have been picking up and now very happy to see the 4% organic growth in the last quarter. Market growth 2017, 2% to 3%, next year -- of this year 2018, more like 3%, I would say.

So good macroeconomic conditions in Europe that will prevail during 2018 based on what we know today. And also the security solution electronic security sales is growing at a good pace in Europe.

So encouraging growth and a good speed in the last quarter. On the margin side, we breached the extra overcapacity that we had and we decided to keep a number of resources, expecting that by the end of 2017, we will see a recovery in the portfolio, which happened.

So we are pleased with that, and we made the right decision -- decisions 3, 4 quarters ago to keep that capacity and the activity level in the marketplace has paid off by the good growth in Q4 and also a good margin improvement in the last quarter in Europe. So yes, basically what we hoped for materialized.

In the Ibero-America, the growth is good in Portugal and Spain. The market in Spain is growing in the range of 3% in '17, probably more or less the same range '18.

We are growing 6%, 7% in Spain and Portugal, so very encouraging to see that. And it's also a number of -- another company now has filed for Chapter 11 in December, which is another sign that the players who do not develop a business in the way that we try to do, they are suffering the pain and pain is pain, meaning that they are getting basically out of business.

But we continue to drive our strategy and investing in security solutions and technology, and that pays off and allows us to grow faster than the market in average in Spain and Portugal. So very encouraging to see that.

Also good growth in most of the countries, in Latin America, bit of a struggle in Argentina, where we have a negative net change in our portfolio. And also less inflation -- and the price increases because of lower inflation rates in Argentina.

So that hampers the growth in Argentina, which is why we see a little bit lower organic growth in the division, that's mainly inflation and the difficult market in Argentina. On the margin side, it improved in the last quarters.

So picked up on the margin there. We have solved the loss-making issues we had in Peru, in the first half of the year.

We are still taking some restructuring costs in Argentina in the last -- in the second -- in the last quarter and the second half of the year. And that has, should say, hampered the margin, the good news is the improvements in, primarily Spain, which is improving the margin.

Cash flow, basically close to what we expected. So a good last free cash flow quarter and basically everything else in line with our expectations.

So we picked up on the cash flow as we expected to do, ending up the year with SEK 2.3 billion free cash flow. And that for you, who do not follow us every second, should remember that includes investments in our technology solutions at our customer sites.

And then the free cash flow to net debt 0.19. Our target is 0.20, so we are basically on target there and we have also improved the leverage of the group.

The net debt has reduced and a piece of that coming from positive FX translation differences, but also by relatively a small amount of acquisitions made during the last year and a good cash flow for the full year. So we have improved the balance sheet and have, should say, capacity to be active in acquisitions going forward.

The security solution and electronic security piece is continuing to grow. Of course, the numbers are a bit different from the year before given that we have the huge acquisition, 2016, in Diebold and very minor influence from acquisition almost nothing in 2017.

If you look in absolute numbers, excluding Diebold, we are actually growing a bit faster in billion SEK 2017 compared to during 2016. So things are moving on as we expect.

We are happy with this. It's -- it will continue to grow at a high pace going forward.

And that is our strategy. It's what our strategy is all about, is to continue to increase this relatively -- relative share in order to be less dependent on the margin.

And we have a margin erosion in the traditional man guarding that will -- we will have to live with, should say, going forward, but then compensating that by the increased share of security solution electronic security. And as those -- that -- those proportions will improve then that will also over time support our margin.

So finally, we are in the handover process with Magnus, who is taking over March 1 as CEO of the group. This is my last quarterly report.

The 44th in Securitas, and the 72nd in -- as CEO of listed companies. So I've done my share of that by now and I feel very happy to be able to continue to advice and support Magnus in years to come on a part-time basis, and I will do my absolute best to make Securitas and Magnus and his team as successful as possible in years to come.

So I will end with my thank you slide for listening to me over all these years, to our quarterly report, and we have been trying to answer questions as good as we possibly can. So thank you for that.

And now we will allow for questions, please.

I want to start off with the North American margin in the quarter. Could you describe the size of this contract that incurred this startup cost?

And also what kind of -- type of contract it is? Is it solution-based contracts?

Or is it just man guarding? That's the first question.

It's man guarding contract. It's government-related contract, big contract for the government for guarding protection of courts and also some specialized services to the government.

And then we have also few traditional, should say, man guarding contract. But it's a man guarding contracts, which has a startup cost.

We've taken the cost in Q4. There is nothing -- there's no tale of that into Q1.

So that was the startup cost and it impacted the margin with basically 0.2 in the quarter.

Okay. And in Europe, on organic growth, you're mentioning some -- that you had [indiscernible] related sales in Q4 last year and that you also lost two contracts this year.

As we haven't heard any new large contract losses, is it fair to assume a bit of an acceleration on the organic growth rate in the short-term in Europe?

I prefer not to make any forecast going forward. We never do that and I'm not going to end up with my career with breaking that rule, so I'm not going to do that.

So but, I mean, I think, it's fair to say that the market conditions look slightly better in Europe in '18 than in '17 as what I indicated before 2% to 3% versus 3% next year growth in the total security market in Europe. And also, we are coming in to -- we are coming with a good speed.

We are ending the year with a good speed and then we'll see how that will work out during '18. But we are entering '18 with a decent speed.

Okay. And my final question is related to security solutions and electronic security sales.

Given the growth this year and how the group margins did develop, is it fair to assume still around 20 to 30 basis points of margin pressure on the traditional man guarding business?

Yes, I mean, we usually try to say, but you have a margin erosion of 0.2 in the guarding business, that's usually what we say and that's normally what we would have. So that's fair to say, yes, I would say so.

And that is mitigated to a large extent by the increased share of solutions. And then you have a whole bunch of other things influencing every year, you have the refugee business in '16 and so forth and so forth and so forth.

But still, yes, to -- not to answer your question too lengthy, that's basically what you -- what we have been used to and there's no reason to change that estimate, no.

This is Srini from HSBC. A couple of questions for me please.

First on North America. You mentioned the impact from wage inflation and what's the impact from the highest startup cost?

And I believe, there was some foster impact from extra sales and another higher sales from electronic security as well. So if you can give us the bifurcation of -- with impact from each of the basket, it'd be great...

Okay. You always have a number of things going up and down.

We have -- we had a good extra sales in the last quarter in the Pinkerton business, yes, that's correct. Normally, we've pretty good margins.

Then we have the startup cost and then you always have other -- all many other, lot of things going back and -- I mean, going up and down in any quarter. So that's no different, but we'll make our life little bit simpler by saying that the reason that we are slightly below the margin, still a good margin, 61 versus 63 the year before.

But still -- the reason we are behind is basically the startup cost. So the magnitude of those is what I said before, 0.2, that is the startup of those government -- mainly those government-related contracts, which burdens the quarter, and which we have taking the cost for in the quarter.

On the wage and pricing inflation, I mean, we have a bit too high, I would say, we have seen numbers before on the employee turnover rates, but they are high, and I would say, they are too high. We need to get those down.

There's a price tag related to that. And what I think will happen in -- to some extent, we already seen it in '17, but certainly will see more of that, I think, in '18.

It's more wage inflation in North America, in the U.S. And that we think given the good macroeconomic climate that we are able to -- we should be able to compensate that by price increases.

That is always our ambition and that is our best judgment for the time being and the same applies for Europe, by the way.

I understand. This higher startup cost, will there be any startup cost in Q1 as well or is it done in Q4 last...

No.

And one more question on GDPR. How ready are you to implement GDPR regulation?

We are fully up and running on that. Of course, it has some major impact on us given the number of employees we have.

We have a team working on that. We have people in all the countries working on it, in Europe.

And so we are pretty much in line. We've a time plan that we have to be at the right level and position on compliance when we come to May.

So it's going on. It's a lot of work for the people we have.

It's a strain on our people, because we mainly use the existing resources to do that, but we are pretty much in line with our own time plan, yes.

And do you see any costs from this?

Not of any significance, but we like to excuse ourselves for something like that. So we tried to do it -- with the existing organization, it's not fully possible, but basically, we're using the existing organization.

We have added some resources, but that's minor. And then we have to build a routine surveillance [indiscernible] managing themselves after that -- after May.

So no major cost that we should excuse ourselves for.

And just two quick questions from me, please. First, in Ibero-America, haven't you flagged that Spain was a positive contribution to the margin.

Is it fair to say you've recovered all of the 1.7% wage inflation from the previous CBA? And do you anticipate any further movements going forward within that?

And then separately, just on M&A, you've had a bit of a pickup in bolt-on activity over the past three, four months. And any reasons you would still feel you are subscale within your technology solution to business that you would need to do acquisitions and still?

We recovered the 1.7%, yes, in Spain, that's done. We had a good success of that work.

We didn't go for it all at once when it happened. So it has been a lengthy process, but it was the right thing to do in order to protect the portfolio in Spain, so that's recovered now.

We have a new increase now of the wages in Spain, early this year. And business as usual, the Spanish economy is growing, so the macroeconomic conditions to drive the price/wage balance is okay, I would say, in Spain.

But we have the wage increase now in the first quarter in Spain, which we need to manage in -- of 1.5%, 2%, that's for wage. But we think we should be able to do that.

The technical acquisitions, France was actually a place where we have been very weak in resources. So we're very pleased with acquisition we announced of the automatic alarm on January 2.

So that will create a very good platform for doing what we have done in many other countries, also in France. France has been on the bottom of the list of the percentage of total sales in technology and solutions.

So that hopefully will be a game changer, not only for us in France, but for the whole industry hopefully. In general, we are fairly well-equipped, I will say, in most of our markets.

And there is really no major market where we do not have the resources as France was actually one of them where we were behind in that respect. But of the major markets, we are in good shape.

But that doesn't limit us from making other acquisition in those markets or other markets also by the way, but because the more technology resources we have, the more acquisitions we make in that arena, the better we can -- faster we can leverage the portfolio and change the balance of 82% in guarding, and 18% in solutions. So that always speeds up that process.

So we are constantly looking. We have quite a number of acquisitions on the radar screen.

No difference from before, but we have a lot -- but from there to materializing, it takes a while, it takes a while. You never know if it happens or not.

So we continue to look primarily in Europe and in North America.

I've got four short questions, please. The first is back to the [indiscernible] of wage inflation.

Could you just clarify what level of wage inflation you're seeing in the U.S. and Europe as far as it's possible to say for Europe?

That's one -- That's the first. The second is, within Europe, how much of the segment is France now?

And related to that, will CICE have a negative impact for you in 2018 in terms of margins? The third question relates to the U.S.

and as part of the tax cuts, there was the changes to the health care sneaked in there by President Trump. Do you think that will be positive for the business?

And the last one is, you mentioned that you'll be gradually increasing investment as part of the Vision 2020. What does that actually mean for investment that's needed in 2018 and 2019, please?

Well, on the wage inflation in the U.S. and Europe, I mean, to give -- it's very -- fluctuate dramatically between different margins.

It's hard to give a specific number. But just to give you a flavor, I was estimating the range of 2% to 3%, that's probably the wage inflation we will in average see in those markets.

But that's an estimate, and it's a rough estimate, but that is probably what -- that will be my best guess at this point in time.

On both, North American and the Europe?

Yes, more or less in that range, I will say. And then it will vary dramatically from region to region, customer to customer, conditions, a million other things, but to give you a high level view on that.

On the CICE in France, France represents about 15% of the total European, 16% I have my experts here, who are always accurate, so about 15%, 16% of the total division, that's France. So it's the second largest market for us after Germany in the European market.

The CICE money has a minor impact. So in 2018, there might be a slight reduction, but that is -- has some minor impact in '18.

If it disappears or is heavily reduced, that will probably be then in 2019. It's still uncertain if that's going to happen.

But there are some indications that, that will be the case. If that is the case, it is a major thing for us and for any other company in any labor-intensive industry that needs to be managed.

So it's a little bit like the ACA or the ObamaCare situation we had in U.S. a few years ago.

It is a major thing, and we are starting to work with that, preparing ourselves for it in case that would happen, that means a major wage price discussion with our customers, which is the same for everyone. So every player would be in the same situation.

But that is something that we are watching carefully, but of any impact, it would be 2019. On the taxes, of course, the tax reform has a positive impact on us.

I wasn't sure about your question, but if that -- the tax reform, of course, has an impact. We have a tax rate of 2017 of 28.5% in our guidance.

Going forward, it's 25.5%. So we benefit -- sorry, okay, the question was about health care.

What was your question?

The tax reform had in some provisions within it which effectively had an impact on the health care, on the ACA side through a backdoor mechanism. And I'm wondering whether or not that's a positive for you?

No, I mean, nothing that we have paid attention to. So it will be okay.

If I haven't heard about it, it normally doesn't...

Fair enough.

Normally, not the major impact...

I am sure, you know about it if it was a...

If it was a major thing, I hopefully should have been fully aware and my friends around the table. They're also shaking their heads.

So let's assume that, that does not have any major impact. I have not -- no, it's not on my radar screen at least.

The CapEx need continue out of the guidance we have given. If that was your question on technology and investment in customers.

We've guided SEK 350 million to SEK 400 million, that is the guidance that we continue to wish would be valid for years to come, yes.

Three questions for me. The first one is on the transition process to increase the share of security solutions and respective growth of man guarding versus security solution reported in 2017.

Going forward, what kind of -- level of cannibalization do you expect between these two segments and how many customers are transiting to security solution on an organic basis. That's the first question.

The second question is on back, I think, over the reports you mentioned, the proposal to the Board in May for 10% share buyback. And I wondered if you could elaborate on this and also how you intend to proceed if it's something that will be an ongoing buyback with the targeted net debt to EBITDA or if it would be an opportunistic process.

And related to that question, I was wondering if that proposal reflect perhaps an admission that there are not that many big M&A targets available for you in Europe or in the U.S. So that's my questions.

I'll start with the middle one, the share buyback. It's a mandate that we had for a while.

It's really not something, which is being actively discussed for the time being. So I cannot give you any more meat to the bone on that one, really.

So it's just kind of a thing that's been there for a while and we just keep it there. So no activity for the time being.

On the split between transfers and how much of the security solutions growth is coming from transfer and how much is coming from new sales, so to say, just looking on my friend here and see if it's 50-50.

And it comes from which division...

Well, in total.

Okay. The total...

I think it's not far away. So basically half of the growth is coming from new sales of solution contracts and then the other half is coming from transfers of existing contracts.

If anything, slightly more on new sales. May be, if it's not 50-50, 60-40, that would be more or less the proportion.

To give you just a little bit more flavor to that, it's a very strong argument and that's one of the reasons we are growing faster than the market both in Europe and in North America and in many markets like Spain, Portugal and Ibero-America. Because we simply have a better story to tell.

And the customers start to really -- and the market really starts to appreciate this story that we can tell. And we are basically one of the few, if not the only one, who can really offer the complete range of services and including the ability to finance that as well in our own balance sheet and a very few, if any, really competes with us.

It's a complete solution. So also to remember in this equation is that with the strategy that we have and the way we convey in market ourselves and are able to deliver on that strategy, it allows us to grow faster than the market in average.

And that's the commitment we have said to the external world, to you guys, is that with a strategy we believe that we can grow faster than the market in average. And we so far -- that has been a very true statement if you look some years back now.

So we deliver on that. On M&A, quite a lot of activity and quite a lot of companies that we're looking at, nothing that I can talk about right now.

But in North America and Europe, in the -- primarily in the technology arena is what we are looking for. So we hope that some of that would materialize during 2018.

I just have three questions, please. So first of all, on the large contract sales.

Can you just give us a little bit of detail perhaps what the contracts are? Are they perhaps relating to the immigration courts?

Or do you win them from someone else where these big tenders, which have been existing contracts in the market? And also whether you saw any sales from these contracts in Q4.

And I do have 2 other quick ones or maybe take them after that.

Sorry, I didn't get the question, are you talking North America or Europe or...

Yes. This is north American large contract where you have the startup cost in the Q4.

Okay. Yes, but that were the contracts I mentioned before, that's the contracts, which are government-related, doing the guarding for the courts in the U.S.

and also some specialized services that we do for the U.S. government.

So that's where we have a bit of startup cost that burdens the last quarter. The costs uptaken in the quarter and the startup costs -- there's nothing remaining for Q1.

So we particularly cost in Q4.

But did you see any of the revenue actually comes through in Q4?

Sorry?

Did you see any of the revenue comes through in Q4?

Yes, we had the revenue. There was a big chunk of revenue in Q4, absolutely.

The margin of that was very, very low. And that's why it burdens the average margin, because...

So you think -- sorry, you still have someone of benefits in October from the hurricanes and then you have these contracts kind of ramping up. So if we think about it on an adjusted basis, Q4, if we adjust for the hurricanes, but then think that maybe you are ramping up during the quarter, kind of 6% is basically where you would have been any way if we include the hurricane...

I mean, without giving guidance of Q1, which I'm not allowed to do, then we had benefits, yes, we did from the hurricane work of extra sales, then we always have a few other things, which not exactly the way you expected. So we had some other things, which were negative.

But if -- to make it simple, the reason we are 0.2 behind the margin of last year is because of the startup costs if we simplify everything then that is the reason why we are behind, the startup cost in those large government-related contracts. So you -- then you can say, okay, what about the plus in the Pinkerton, yes, but what about the minus in sales.

So hopefully you had -- you don't have the same pluses, but hopefully don't have the same minuses either. So that's why we convey the message that the difference is due to the startup of those contracts.

Okay, it was more around the growth than the margin. And then on the U.S.

market growth, do you think that's going to be a little bit fast than 2018? Is that maybe because pricing will have to increase a little bit to offset the wage?

Or is it more volume-based?

I mean, it's various -- it's a combination of volume and wages, of course, 2018 market growth maybe half and half, roughly speaking. So we see -- and there has been an issue to recruit people from the industry in 2017.

So the market growth was 3%, and we will see in the range of 4% market growth 2018.

Is recruitment getting easier or...

Yes, yes, but it has improved, I think, during the last part of -- the end of 2017, but also I think you will need to -- there will be a need to manage the high employee turnover and to recruit people. We will need to see higher wage inflation also in the coming year to manage ramp-up.

Okay. And then finally, just coming back to your technology point on the previous question.

The market is still a little bit divided in terms of, I guess, security firms offering just the integration of technology or also financing as you're doing. So have you seen genuinely a benefit where you are actually winning a contract over someone else, because you are financing the CapEx as well?

Is that still a factor?

Absolutely, absolutely, every day, every week, yes, we do. Absolutely, without any doubt.

And many customers would not have gone that way without the ability to spread the cost over the length of the contract. So clearly -- it's a clearly competitive advantage without any -- that's why we use it because we have the muscles to do that, and most competitors are not too keen on doing it.

And then everyone will try to justify their strategy, of course, but I'm sure about this one, this is the right way. And you will -- if you pick many other industries, other sectors, in general, in our economy, I mean, this is a growing trend that you carry the CapEx and then you can do it in your own balance sheet or you just sublease it or any other financial arrangement.

But you will -- I mean, you have a competitive advantage if you can smooth the cost of the threshold investment in technology over the period of the contract. And then by doing that, you also offer the customer a much more attractive package on a lower -- you get more security for less money basically than -- otherwise you will have a huge threshold to invest in new technology and tear out the -- take away the old stuff that you had in place.

And then people -- many customers would not move. They will just think it's too much money.

Just one remaining, for me, please. You mentioned the wage increases in Spain of 1.5% to 2% in Q1.

Could you just give us a bit of detail. Is that a regulatory-driven or union-driven price increase?

And/or is it just the market? And that you are going to go through the same processes on previous terms where it -- that is push through on prices over a few quarters or can you do it all in one go?

I mean, we're trying to do it as quickly as possible. It's ongoing right now.

It applies to everybody. It's a CBA.

So, yes.

And just as a follow-up. Are there anymore of those kind of similar CBA or other kind of regulatory nonmarket increases that you're seeing across Europe?

Yes, I mean, we have CBAs in place or being put in place in all countries in Europe, just the normal procedure as we used to. All in all, 2%, 3% wage inflation probably what we're going to experience in Europe.

I would try to make kind of an average estimate on that. And basically, I mean, you can say, wage inflation in Europe is CBA to, I would say, 90% CBA-related.

So it means that everybody has the same play by the same rules, because the wage inflation for us is the same for competition. And then I mean, theoretically, you would expect that everyone -- well, I mean, not theoretically, practically, it means that everybody has the same CBA to base their calculations on the wages.

And everybody plays by the same rules, so to say.

Coming back to these large contracts and maybe a clarification on Sylvia's question. What was the timing of the ramp-up of the revenue recognition?

Was it 100% of revenue throughout the quarter? Or did this gradually ramp up during Q4?

In the quarter, on average, we have that business for 2 months out of 3 in the Q4 quarter. So it ramped up, so to say, during the quarter.

And now we are on some sort of ramped up levels when we enter Q1 and the startup cost is taken.

And another question on that. Did you quantify the size of this and is it ballpark...

No, we did not quantify the size of it. We decided not to do that.

The only quantification we made is what the impact had on the margin.

Okay, okay, thank you. And just going forward in these contracts and normally you have contracts and you work your way up from a lower gross margin, should we expect that the adjusted for the startup cost, you will still have a dilutive effect from a low gross margin in these contracts in the start of 2018?

I mean, these contracts are relatively low-margin contracts. So in that respect, yes.

But I should say also, I mean, you always have low and high -- and that's nothing new with that, I mean, we're used to that. So to be specific on your question, that's the answer, but you always have all kinds of -- you have higher margin contracts, sometimes you have low-margin contracts and the mix varies over the year.

This gets very complicated to try to drill deeper in that, but on those specific to contracts that I'm thinking about, which had the impact on the margin, those contracts are lower than average-margin contracts, yes, they are.

And then two more questions, if I may. On the other costs in the other segments, you -- they are materially up and it stands out from a historical perspective, what is driving that?

We are investing -- one of the main drivers is we're investing quite a bit of money in the digitalization of our business. So we are under the CIO of our company.

We are building a team of people, working with 2 kind of -- 2 big blocks, one is to modernize our IT structure. And the other one -- and trying to centralize a little bit more things that have been traditionally decentralized in the group and trying to take the benefits of centralizing that and saving money, but that needs a team to do that.

And that's for people that we have employed and impacts this line and we have been ramping up during the year, but that has an impact during the last quarter. Secondly, we are also investing in people within the same department for us to -- in the digitalization, over digitizing of this industry and what the impact will be if that investment is for years to come.

But we need to start somewhere and that's what we have done gradually during 2017. And that will be a topic that I'm sure Magnus will get back to you during 2018 in different ways or forms.

Okay. And one last question.

On the profitability in Spain, you mentioned that it continues to improve. Is it now above Ibero-American average or...

I will say, I mean, it's getting very, very close. Let me have a look here before I'm too -- depending on which period we're looking at.

So I just better double-check before I -- it's still in Spain. We are in Spain -- for the quarter, we were actually pretty much close to the average for the division while in the year-to-date slightly below given that we're a bit behind in the beginning of the year.

I have two questions. One is on the growth that you're expecting in the market for '18 following the U.S.

or entering in the -- in Europe. Are you counting in inflation in those numbers?

That's my first question. And the second question is on Argentina.

Recently, the economy has recovered there. Do you see volumes coming back?

And also do you have any restructuring costs in Q1?

The answer to the first is yes. Inflation for us means price increases.

So that's included, yes. On the Argentina, we have not seen that recovery in our business, I mean, we have a negative net change in our portfolio in Argentina, and I think, actually, we are probably performing a little bit worse on the market in average, because we have lost and have reductions in the few contracts.

So we have had, specifically in our case, a bit of a too much negative net change in our portfolio. We do not see any restructuring cost going forward.

We made the actions that have been taken. We have reduced the indirect staff people quite dramatically in Q3 and Q4.

And all those costs have been taken in Q3 and Q4, which burdened the margin for the division, but that has now been taken, so there is nothing left for Q1. So we think that we now have the right structure for the business we have in our portfolio and the business we expect during 2018.

Normally, as you'll also say, which I think would be worth saying, but traditionally, our business is late-cyclical. So when -- Argentina was in recession, if we go back a year, and we are usually 12, 18 months late-cyclical.

So now the recovery in the Argentinian economy, if the normal pattern will prevail, we will start hopefully to see a recovery in the security market. Let's say, 1 year from now or so.

Okay? Any other questions?

I've just a couple of follow-ups for me. Just very quickly, I'm not sure if you can help with this.

Just thinking about the growth acceleration at a group level in the fourth quarter. Is there any way you can provide a bit of granularity on how that sort of splits between sort of volume and price, I mean, how much of through the wage inflation benefit you're starting to see sort of coming through on that growth?

Secondly, maybe just following up, I think, on a question that Sylvia asked, I don't even recall. You talked a bit more optimistically about -- that the outlook in the U.S.

sort of a 3% to 4% market that was 3%, because of some of the challenges in getting people, now moving to 4%. Am I right in thinking that this -- just the ease of getting -- the ability to get people in as wages starts to improve is improving that situation there?

And then finally, just on capital intensity. I guess, the Capex guidance was raised as part of the longer-term plan and the push into technology.

But I'm just wondering as we look out over the medium term, are you seeing any trends as the sort of the tech solution as part of the business matures in terms of the customer preference for sort of owned technology versus leased, i.e. will you require the same level sort of capital intensity as this market matures over time?

Well, I think that on the first question on the wage and volume in Q4, I mean, it's clearly -- a piece of it is of course price, absolutely so. How much, difficult to say.

I would say if we take -- was it Europe that you were discussing or was it -- it was Europe, the question was related to, was it?

Yes, mainly Europe and more of, I guess, a general comment across the board as well...

We have a [indiscernible] element in that, how much that is, I cannot be too specific on that. I would estimate 1% to 2%.

But it kicks in more in the first half here to wages.

Yes, I mean, the wage, exactly, 2018. Yes, I mean, exactly.

You will have, let's say, if it was 1% to 2% or 1.5% to 2% in the latter part of 2017, we would probably see more of that going forward, more to the 2%, 3% in the year to come. So that meaning that, I mean, when we have a 6% in North America, which was actually a very strong 6%, should be said also, I forgot to mention before, but organic growth of 6% in Q4 in U.S.

was a strong 6%. And the 4% in Europe, there is clearly a volume and its real volume growth as well.

I mean, there is a positive net change, without any doubt, which is very encouraging, because the portfolio is bigger at the end of the year than it was in the beginning of the year. So there's a real volume change, both in North America and Europe, without any doubt.

On your question in the U.S., if I understood the question right, my answer is, yes, in short. On the Capex question, the guidance we've given going forward, yes, that's what we expect, that we will need.

Is there a change in the willingness to invest themselves the customers, I don't really think so. I mean, some customers prefer to own it themselves.

But is that pattern changing and do we see any trends in any direction, not really. There is a big interest that we take that, that the customer is then getting a flat fee for month and I think that continues.

I think that will continue. So I expect the Capex needs for us to invest in our customers will be in those SEK 350 million, SEK 400 million that we have guided for in order to continue to grow that relative share of our business.

So no real path of change there, I haven't seen any of that.

Just want to check with you, looking back at the Diebold acquisition back in 2015, you obviously had big hopes for get into organization to work in the same way from 2017. Has the year really delivered what you hoped for?

Have you managed to get what you -- the traction that you looked for, for that acquisition?

Yes, yes, we did. It's as expected or better.

Actually, I mean, we see good growth. We are happy with that in our electronic security business in North America.

So that acquisition was the right move for us to make. And it's an acquisition that adds a lot of value.

The growth picked up, I mean, definitely during -- step-by-step during 2017. So I mean, the organic growth rate, which was relatively low in the beginning of the year, has really improved during the second part of the year and especially -- and in the last 2 quarters, it has -- over the last quarter, sorry, it was very good growth in the form of Diebold Electronic Security business.

So yes, it was the right thing for us to do. It delivers.

And we are pleased with the team and the acquisition.

And similarly looking at the acquisition now in France, you alluded to that the France really has, say, lagged behind looking at technology penetration. Do you feel that the French organization is really, say, there to take on automatic alarm and do the same thing as people did for your American organization?

Yes, it's a little bit copy paste of that. I mean, it's the same situation, different scale, of course.

Given that the Diebold acquisition was 8x -- 7, 8x bigger than the one in France, but still the philosophy is exactly the same. We actually have the French team has been in the U.S.

and try to learn from what we did there. We're trying to, yes, to do it in a similar way, but it has to be done in a French way in France, of course.

So yes, I mean, that's a little bit the same game changer to the industry that Diebold acquisition has been to our U.S. organization and to the U.S.

security market, that's basically the step we are making in France as well.

And just on your comments on Turkey, it sounds like that back to business as usual. I remember about 1 year ago, you had a hiccup due to all the turbulence in the market and you kept a lot of people on board, particularly in the security -- the technology security area.

Sounds like that's like back to business now or...

Yes, it is. We are very happy with a very good growth in Turkey.

Margins are stable or improving, well, improving, especially in the last part of the year, very pleased with the technology business, developing extremely well. And doing a great job.

So the business climate and the economic conditions and the growth in the market is good in Turkey.

Alf, I mean, the market has been expecting a gradual margin expansion over the past years, and we continue to expect it in the coming years. What is your thinking about margins going into 2018 in Europe and the U.S.?

Yes, I will not make a forecast. It's a good question, it's a very relevant question.

But I'm not going to answer it. You need to rephrase your question if you want an answer.

Which factors do you see that could support margins or hamper margins going into 2018 in Europe and the U.S., please?

Yes, I mean, you have million different things that impact our margin. I mean -- may be, I mean, the most important thing for us is to manage the price/wage balance by far.

That's really the key thing. I think the conditions are good.

The macroeconomic situation is good in North America and Europe, so that needs to be managed, and I feel very confident that that's on the top of the list for our people and we have good people, good stability in the organization. And we have good growth.

So I mean, we have a good speed in the business. So even if we have to take a hit or two, we could afford to do that, but to be able to not to compromise with that target.

So that's an important thing from a margin point of view. And then it's to drive the strategy, just to keep on banging on with that strategy and it gives you two things, overtime, it will improve the margin, then you have all the other factors, which always muddy the water.

But it's just keep on delivering over strategy. And we measure it on every level, every country, everywhere and anywhere you want, all the time.

And it works. I mean, when we move contracts or we win contracts in solutions electronic security, we improve -- we double, basically the operating margin, the EBIT margin.

So there's nothing wrong with the strategy. It's just you have other factors on the erosion in the man guarding business, that's kind of dilutes this picture and other things going -- mudding the water.

But there's nothing wrong with the strategy. And as that balance shifts over time, it will leverage for margin in the group.

So I'm convinced about that. And I've been that for a long time, I'm still convinced today, as I've been all the time.

Secondly, don't forget that we've a strategy, it allows us to grow faster than the market. It should not be forgotten.

It's easily -- easily just to focus on the margin, but also remember that we do grow faster than the market in average, which gives us a leverage on the earnings per share and current shareholder value by that.

Maybe just 1 follow-up. When you say the dilution in the underlying business, is that sort of adjusted for everyone of you can imagine?

Or is that on 1 single specific contract you see a dilution in man guarding...

You have all kinds of things, I mean, business is not easy. We are 350,000 people in 55 countries, plus SEK 90 billion.

You will have surprises everywhere, always, always, always. So it's like that.

But in general, it's all -- everything. It's all-inclusive, when I say that because you have indexes, which you cannot increase your prices as much as the wages are going up in some cases.

You will have startup cost, you will have things going wrong, you have miscalculations and you have investments that you need to make, you need to hire people. You have all kinds of things, that influence that, but in man guarding business, all in all, there's always a margin erosion, that needs to be managed by all possible measures that we can take.

But still there will be various margin erosion. And the only way to move away from that or the most important way, I should say, to move away from that, is simply to shift the balance between man guarding and electronic security.

And then by that not only mitigating and compensating that erosion, but also leveraging that strategy on a group-margin basis. So that will work overtime, I'm sure, plus that it allows us to grow faster than the market.

That's the best guidance I can give you. And without giving any numbers for the coming quarters, yes.

Okay, thank you very much. And next quarter, you will enjoy listening to my successor, Magnus.

Thank you very much. Bye-bye.