Good morning, welcome to the fourth quarter presentation and full-year presentation from Loomis. This is the content of today's presentation. First of all, the highlights, then we walk through the different segment, the financials, and then last but not least, the Q&A. For the Q&A, I will invite Anders Haker, our CFO, to join me here on stage to answer any questions that might come up. The highlights for the quarter is that we had an organic growth of 2% versus 4% same quarter last year, and that's very much driven by the performance in the U.S. Operating margin at 12.5% versus 12.3% same quarter last year. EPS up to SEK 5.79 per share. Of course, here is the Trump effect included in the numbers. We'll talk more about that later.
The proposed dividend is SEK 9, which is then an increase from SEK 8 last year. Finally, we look a bit at the targets for the strategy period, which all have been reached during this year. Also a couple of words around the latest acquisitions that we have made. The operating margin is 12.5%, and that's the highest margin we've ever had in a single fourth quarter. Of course, as you have seen, the U.S. is a lot behind that development, but also that we see some improvement from the international business as well. More about that a bit later. Also on a rolling 12, the margin is up to 12.1%, and that's actually then an increase, as you can see, of 0.9%. That's the highest improvement in a single year since 2010.
Usually we say that the improvement each year should be 0.5%, and that's quite a bit more than that, of course. Let's look at the different segments and then start by talking a bit about the United States. The growth in the quarter was 7%, and that's very much in line with our expectations and what we see also for the future. The underlying trend in CIT, so the cash in transit, was just 2%. As in all other countries, we have been affected by one workday less, and that's happening in December, which is of course then affecting. It's a big month for us, and it's affecting the CIT business especially. Despite that, the growth was 2%. In the CMS business, the growth was 5%, and the SafePoint was, the growth in the quarter was 19%.
You can see now as a share of total that SafePoint is now accounting for 13% of the total sales, of the total revenue. That's an increase of two percentage points since the same quarter last year. We are very optimistic about U.S. We are winning contracts. We have momentum in the U.S. business. We have a strong pipeline of new business that we're picking up more, so to say, the smaller or mid-sized contracts. We're also gaining more share from contracts that we are splitting with one of our competitors. All in all, when it comes to the top line, a very good situation in the U.S. When it comes then to SafePoint, in total, we have now 22,775 installed on a total basis.
As we have been talking about before, we were affected by the hurricane season or the hurricanes coming in over Puerto Rico especially, but also in Florida and in Texas. That means that we were not able to install new SafePoints. We were not able to discuss with potential clients about new installations and so on. That hurted us to some extent in the third quarter, but it's very good now to see that in the fourth quarter, there was 1,200 new installs in the quarter, which is the speed that we like to have each quarter. We're bouncing back in the quarter when it comes to SafePoint, which is really nice to see. We are not reaching the target, as we said, of 5,000. Underlying, I think that the business for SafePoint is going in the right direction.
We have now almost 2,700 customers. We're increasing the customer base with about 200 customers. Just as a reference point, we checked that the same quarter last year, we were installing 520 SafePoints. It's quite an increase. One other thing that is worth mentioning is that we had 1,000 refreshes, meaning that we are refreshing, renewing the contracts, and that means that some of these SafePoints are worn out and need to refresh. That takes a lot of time, but it's a very good sign that the customers that are into the SafePoint concept keep that concept and want to continue as our customers. That's taking a lot of time. Of course, as the base gets bigger and bigger, hopefully the refreshment will be higher and higher. We are also now increasing the sales efforts when it comes to SafePoint.
We are hiring new salespeople, about 10 people have joined us the last couple of months. That's necessary to be able to talk to all customers and negotiate and sell SafePoint. Our long-term vision or long-term target is to have a yearly run rate of 10,000 SafePoints each year by the end of the strategy period. Let's then talk a bit about the margin. The margin took a big jump in the quarter from 12.1 to 13.9, as you can see. Of course, there is growth in all business lines. We had higher density in our CIT operations and that boosting efficiency and profitability of course. It also that we see that all or many of our branches in the U.S. are now performing on a very high level, improving profitability, improving efficiency.
We have also now more and more sort of been able to work with the volumes coming from the Bank of America contract implemented in 2015 and 2016. That gives us, of course, a higher efficiency. As you can see, the mix is changing, more CMS, more SafePoint, which is also driving the margin. Cost of risk, which we don't talk that much about usually, but that's also been improving over the last quarters. We talked about San Juan and Puerto Rico last time. We are now back in normal operation that went a bit faster than we expected. We had, of course, negative effects where our judgment is that $0.6 million-$0.7 million has sort of-- the whole hurricane has costed us that on a quarterly impact. Taking that into account, it's even a stronger quarter, taking that into account.
We now also increasing our investment into facilities, sales force, vehicles to be able to continue to grow the business because some of our branches, we need more space basically, as we're growing at this speed. That's U.S., a final picture maybe also to illustrate what I was talking about. CMS is continued to increasing as share of total, so now 34%, and that's of course very encouraging to see. Let's talk a bit about Europe then. As you can see, we were negative 1% in the quarter versus flat same quarter last year. That's very much to the situation in France. Let me talk a bit about France. What has happened is that, on a regular basis, let's say every three to four year, the big banks go out with tenders for the business, for the CIT CMS business.
In this respect, we were facing a hard competition from one of our competitors, and we lost volume. We don't want to decrease prices. We are working on quality, and want to keep a very high quality, and we didn't want to follow. In that respect, we lost some volume. Now this situation is now over. All these tenders are out. We have a stable situation, at least for the bigger contracts. Now we're sort of trying to work with the new volume base and of course, gaining more retail customers as we speak. This situation we also had in 2012, and it was even worse at that point. We are doing everything we can to reset the cost base, if you like. The plan is to take out 151 or 150 FTEs, and we're halfway through that program now.
Our expectation is that we will get back to the same level or better when it comes to margin, in a couple of quarters. It's not like this is continuing, it's over, and we now have to work with the situation. We have also ended a notes and coin exchange program in Sweden. Of course, we had a positive effect of that in Q4 last year. Of course, that boosted the volumes, and now we don't have that. That's quite natural that we are facing a very tough comparison in that sense. At the same time, we have very good momentum in Spain, continue to grow. It's a very important country for us. Portugal has turned into very positive growth. Turkey growing as we have been used to. Argentina, absolutely fabulous. 60% growth in the quarter.
Now it's actually one of our more profitable countries. That's why we really are very happy to talk about Chile at the later slide, because we very much like LATAM, as you can imagine. U.K. continue to grow and be positive when it comes to margin. It's very encouraging to see. Usually we don't talk too much about the workdays, but if you have one less workday in December in the middle of the Christmas sales period, of course that has an impact on the top line and bottom line. Talking about then on the bottom line, we see then a negative effect on the operating margin coming from France, both sort of the underlying business and of course the restructuring we need to do. As I mentioned, we are now looking at efficiency programs.
We always look at efficiency programs all the time, especially then in France as we speak. Last but not least, we have made recently three acquisitions. First of all, Wagner. It's a very nice company situated in Chile, which was then concluded in Q4. Chile is a country which we very much like. It's a same sort of setting as in Argentina, very cash intensive. We expect that more outsourcing will come. It's not a very big company. It's about SEK 200 million, $25 million. They have about 950 employees, but it's a good start. In Q1 here, after Christmas, we announced the acquisition of KÖTTER, who is the third player in the German market.
It's, of course, a wide spot for us, and it's very nice to put a flag in Germany, and we expect that to be a market which is going to be consolidated. It's a market which will grow in terms of outsourcing as well. I think it's a very interesting time to get into the German market. International, still low demand for the cross-border transportation. We've seen that throughout 2017. We see a bit of improvement during the end of the year. Still, it's been a challenging year from a top-line point of view. However, when it comes to operating margin, we see a bit of a jump up, and that's improvement in our storage business.
We have been able to gain better contracts, working with the cost, working with the gross margin on these contracts, and it's nice to see that that's taking a tick up. We have also done the integration projects going on there where we combine more the local Loomis business and the international business, where the Loomis companies, local companies, take care of operations, risk, HR, vetting, and so on, while then the international people are more into gaining new customers, working with new contracts, and so on. Last but not least, we made an acquisition of Sequel. Sequel is an Indian company, very big in terms of diamonds and jewelry. First of all, we are going to work very closely with them on an international basis when it comes to diamonds and jewelries, but we also then bought their U.S. operation.
That will now be combined with the international business in the U.S., but also the local international business we have. We're combining all of that into one district reporting to the CEO of United States. I think that that will be sort of a very important platform for the international business as such, but also in the U.S., of course. Financials. I think while I've touched on many of these points, it's worth mentioning that we had this one-time tax gain of SEK 70 million coming from the change of corporate tax in the U.S., as you know. EPS was up for the full year, close to 14%. That is maybe the things that's worth mentioning on this slide. We are now ending a strategy period, and I'm happy to say that we have met all of our targets.
As you can see, the turnover was at 17.2 billion for the periods 2014-2017. The EBITDA margin actually came up to 12.1%, which is above the target, actually. On an average over the years, the dividend has been at 49%. As you see, we have increased the dividend from 8 SEK to 9 SEK for 2017. Now we're moving into a new strategy period with higher targets and higher numbers. We're really keen to get going on that plan. By that, I invite Anders to come up on stage and if there are any questions, please.
Hi, Henrik Nilsson, Nordea Markets. In the U.S. now, we've seen four quarters with very strong year-on-year margin improvement. I think it's something an average of 170 basis points up year-on-year. Can you elaborate a little bit regarding what has been the driver for this? I think it was just post the financial crisis since we saw a streak this long with this strong margin trend in the U.S. Also on the Capital Markets Day, you flagged that 2018, and I think that was specifically in the U.S., it will be a year of investments for growth, and you've highlighted a few numbers now, 10 people being hired in the past month or so. Can you give us some more flavor on what type of OpEx increases you're seeing from that?
You take that start. When it comes to the U.S., I think that historically, the U.S. has been lagging behind Europe. There has been very good potential to, over time, increase the U.S. margins. I think that is what's happening now. Combining that we have a much better mix between the CIT and the CMS work
On top of that, a very nice boost in the sales and the installations of the SafePoints. All that is driving the margin up and getting closer and closer to the European margins. Also when it comes to the strategy period, I think it will be hard to defend the increase we've seen over time in the U.S. margins to make more than 1% per year. That's a real challenge. Now we will move more into an investment and building up the possibilities for future growth in the U.S., and that will probably have an impact on the margin impact for 2018 and 2019. We believe strongly that will come back in 2020 and 2021 and after that, when we build the platform for future growth in the U.S.
Okay, thank you. One more question, you touched upon this as well. In Europe, you have restructuring costs related to the, I don't know, 70, 80 FTEs that you've dropped of the total 150 planned. Can you comment on the split there between the underlying margin pressure just from revenue disappearing, basically, and what the restructuring cost has been?
Yep.
You start.
Okay. I don't think we get into the details about the exact numbers of the restructuring cost. When it comes to reducing the workforce, you have to negotiate with the employees. As soon as you start doing that and signing an agreement, then you basically take all the costs up front. That is what has happened now in Q4, and that will continue into Q1 and probably Q2 this year. I think we will see, in combination, that we have a small decline in the organic growth in France. It will also be more of a pressure on the margins until we reach mid-year this year. Then the plans should be effective as they've been before. We have been through this also in 2012 and managed the situation in a good way, and then we take it from there.
Thank you. Just one follow-up on that. I think you mentioned that the drop in Q3 in France was around three, four% organically. Is that ballpark the same number this quarter? Is that a fair assumption for the coming few quarters, or is it more or less?
More or less the same. Yes.
Thank you.
Karl-Johan Bonnevier, DNB Markets. Just to continue on the same line, if you're looking at U.S. going into this year and the investment that you have highlighted for the market, do you still see a margin upside opportunity for 2018, or should we expect more flat margins?
I think our plan is to grow the margins, I don't think you will see the margin growth as steep, if you want, as it has been in the past. We're not planning a margin decline, of course not, what we're saying is maybe the speed we have seen the last couple of quarters or years, I don't think that will happen. Anything can happen, we never know. To be honest, I think that what we see now, also what I've tried to highlight is that we're seeing a fundamental U.S. business which is stronger actually than we maybe thought. It's absolutely fantastic to see the work they have done. Of course, that will continue to drive the business, but we are now taking quite some investments in OpEx and CapEx.
When you look at U.S. deployment of SafePoint going into 2018, do you feel that you have the order backlog for getting back to 5,000, 6,000 run rate as you talked about for this year?
Yes
for 2017?
Yeah. We think so. As you saw from the fourth quarter, it was basically spot on expectation. I think that we will be back in 2018. I'm more having my eyes on 10,000 also for the year. We're now building for the 10,000. We are investing in product development, we are investing in the sales force to really to get the boost. We are back on track for the 5,000, yes.
Excellent. Just looking on France, similar thing as with the U.S. question before. If you are looking at, say, the comparison 2017 to what you expect for 2018 when getting these corrective measures in place, is it a market where you would expect better margins or worse margin than 2017?
You mean France in the long run?
France, I would say.
Yeah.
With the corrective measures.
Yeah. I think that our expectation is to get back to the same margin or higher. Why is that? I think that fundamentally, we know how to do it. Underlying, I think these events happen, and of course, it creates a lot of turbulence. Underlying, it's a very good business in France, and we are very profitable as well.
Excellent. Just one question also on Germany. You're re-entering into the German market, being out of that for now 10 years or something like that. How does the business case look? Because obviously it's a low-margin market you're now entering.
That's very right. I mean.
When you look at the company we're buying, it's a very nice company, good relation, good quality, but the margins are not on Loomis level, and that maybe we shouldn't expect. What we do now is, first of all, that we apply this Loomis Model, as we say. We're building the processes, working methods, and so on. By that, I think we can increase margin. In the short run, I think we should not expect them to come up to Loomis average. That will take a bit more time, I think. We need then more volume, more outsourcing, more CMS business. We will lift the margins from the levels they are at right now. It's more like also an investment for the future. I think that the German market will change, and I think it's very important to be part of that change already now.
One final small question. Looking at the U.S. TCJA tax situation, I guess you indicated a pay or a reported tax rate of around 25%-26% for this year. How will this U.S. change impact the paid tax rate that you will have?
That will be the same effect. I think, of course, there's a backlog when it comes to paying taxes that in 2018, we will need to pay taxes at what's recognized in the income statement in 2017. I think there will be a timing effect here, but it will level out probably from mid-year this year.
Excellent. Thank you.
Hi. Carina Elmgren from Handelsbanken.
Thinking about the timing a bit regarding your investments in the U.S., should we now expect that the quarters or the decline in the margin growth should be equal in the quarters in 2018? Are we coming, so to speak, down gradually there, or how should we see your investments there in the sales force and so forth?
I think there will be a margin uptick in the U.S. margins, also in 2019, but it will not be as rapid as we've seen historically.
Yeah, okay. I was thinking if there was any timing, if you're starting to invest now a little bit and then more maybe in the end of the year, and we will see a larger impact towards the end of the year.
No, I think that process is already ongoing, and it was initiated already in 2017, so it will be on an even level.
Okay, thank you. Another question. The margin decline now in Europe, how much approximately is due to France? Can you give any guidance on that?
The majority, absolutely the biggest impact is coming from France.
Okay. Thank you.
Thank you. Viktor Lindeberg from Carnegie. Patrik, you mentioned on the replacements on the SafePoint unit. Was it 1,000?
500. 1,500
So 1,500 in Q4?
In full year.
Full year.
Full year.
Yeah. Just to understand, when you talk 5,000-plus net installments going forward, up to 10,000 towards 2021, in that number, what is your anticipation on the refreshments? Just to understand churn rate that you are anticipating.
I think that, first of all, what we do now is, of course, we need to invest in a service organization, install organization that can handle both new installations and refreshments. It will be the same percentage. You can do the math, but because I think that each year we now are making more and more refreshments, I think that the relationship will be the same without having any numbers. I don't know if you have any views on that, but that would be considered the same relationship, I would say. Why do I say that? I think that we are just measuring net installations. Some others are measuring other things, what's sold and so on. Then, of course, we don't count the net new installation. We don't count the refreshment.
I think it's also important sign of the quality of the concept that you can have those refreshments. To answer your question, the same relationship, I would say.
Okay. Would you say there's any change in profitability on those clients that have been with you now for five years that choose to prolong but refresh? Is there an uptick, or it's basically the same?
Basically the same. We try not to price, of course, there's a general price increase and so on, but not to price it up. We like to have more of these. As you can imagine, if you get customers using SafePoint, that's a customer for many years. It's important for us to gain new customer, to get penetration in the market. We're looking at also to see can we make the service, the installation more efficient, less costly? As we get scale in this operation, we can do that in a slightly different way. Those are the things we're doing to increase the profitability somewhat or lowering the cost. On a pricing level, we take the same price.
Okay. You mentioned Argentina growing strongly at 60% in Q4. It's been a growth engine for you quite some time, and together with Turkey accounting for, I think, more than 100% of the growth in Europe, when we look how much actual revenue you add in that division. Can you break down this growth in volume price? I guess inflation has been very much a driving factor here, but maybe less so going forward. How do you view growth going forward in Argentina, and what has been the component for the 60% growth now? If you have that.
You start, Anders. Okay. Just breaking out the inflation to start with, historically, inflation is very volatile, first of all, but it's, say, roughly between 20% and 30%. They have a mechanism in Argentina that you also charge for the value you transport, and in a high inflation society, that benefits our business. The main real factor is the underlying volumes, that they actually are increasing. That's why we like Argentina, and that's why we moved into Chile. Chile is a different country. You don't have the same inflation factors, but still underlying volumes are still growing very nicely in Latin America.
If you look at the market in Argentina, it's quite consolidated. Are you gaining market share still being a quite small player in a three-player market?
What has happened is that we're gaining some small new customers, but also increasing volume with existing customer. That has been one of the key elements. You start with a customer, you get the small portion, then you grow more and more with the existing customer. That has been the basic thing. I think that, again, that Loomis Argentina has been very much helped by the Loomis Model, how to operate, how to work, how to work with sales and so on. The quality work has helped us gaining more volume from existing customers. More from existing customers. If I should add as well that the CMS portion, when we came into Argentina, I think it was 2011 or early 2012, there were hardly no CMS at all. Today that business is growing. It's been a very nice development.
Okay. Thank you.
Let's move on to the telephone conference. Operator, do we have any questions?
Yes, we do. We have a few questions on the lines. The first question comes from the line of Daniel Thorsson from ABG. Please ask your question.
Yes, hi. Thanks for taking my questions. The first one on the cash flow. The operating cash flow at SEK 482 million in the quarter was down 44% year-over-year and full year down 13% driven by working capital. Anything special here in terms of new payment terms, or is it just a timing effect?
It's entirely to timing effects. The largest factor is when we pay the salaries in the U.S. because they're not paid on a fixed date. They're paid on a two-week terms. Whether a payment to our employees in the U.S. falls within or outside that particular period you measure has a tremendous impact on the cash flow. I think that's the main driver comparing these quarters. Q4 2016 was exceptionally high. I think we reached 160%, and that's of course not an underlying steady volume. That was more of a non-recurring situation we had. Nothing has changed in the terms regarding neither customers or suppliers.
Okay, perfect. Regarding SafePoint installations during the quarter, can you say anything about the beginning of the quarter and the end of the quarter, Q4?
It was a very strong ending, as you can imagine. I think that we started off okay, but then increased as we gained momentum as we're recovering from the hurricanes and so on. I think the last month was really good. Increasing over the quarter.
Okay. Thanks for that. A last one regarding Europe and the tender effect in France. Are we entering similar processes in other markets in Europe, or is this specifically how it works in France?
We have this tender process in some other countries. We have in Spain, we have similar situation in the U.K. The thing here is that there were, I don't know, Anders, it was six, seven, eight bigger contracts at the same time, basically in the same year, and that's very unusual. I don't know if that's very special for France, but that was an unusual situation. Usually, you have one big contract, and then the next year you have one big contract. There was a coincidence or how to describe it, that there's so many contracts at the same time. We gained some volume from other contracts that was in particular won the last big negotiation that we lost. We also gained some volume in some of the contracts. Net was negative, but as I said, 2012 was even much worse than it was 2017.
Okay. Thanks for that.
Thank you. The next question comes from the line of Aymeric Poulain from Kepler. Please ask your question.
Yes. Good morning. I've got a series of question. The first one is on the organic growth outlook for the European block, bearing in mind that it includes some of the high inflation countries like Argentina and Turkey. Could you give us a clearer view on the outlook, especially given the competitive situation you faced in France, also perhaps the prospect of a higher inflation as well? How do you manage that and what can you expect for 2018 on the overall organic profile of the European region? That's the first question. Second, on the U.S. outsourcing trend. What is your best guess of the pipeline for outsourcing deals with banks, such as the one you struck with Bank of America? Do you expect other deals to come through this year?
On SafePoint, some of your competitors are targeting the large retail market with the big box retailers like Walmart and the rest with bigger boxes. I'm just wondering, is that a market opportunity you would also consider, and are you equipped to target that market opportunity? These are my questions.
The first one, I'll take the two, the other ones.
Okay, let's start off with the question regarding organic growth in Europe for 2018. We haven't guided for 2018 specifically, but we've guided for the strategy period, where we believe that the organic growth should be between 1% and 3%. The situation we are in currently, where we're working through the French situation, I think organic growth for 2018 will of course be a challenge, in particular, the first part of the year. Then we should turn into a different situation, growth should be most likely not 3%, but we should not be in the same situation as where we are today.
Just to build on that, what we're also trying now to do in Europe, as we have described in our strategy, is to launch new concepts in Europe to follow the request from our customers. One is the forecasting we talked about, we are talking to a lot of customers to install that or to launch that. We also have what we bought, Intermarketing, the company in Finland, which we're now starting to sell and to implement in many countries. We're doing a lot of measures to gain momentum also on the top line in Europe. That's just to build on what Anders was saying. In the U.S., I think that what we see now in the U.S., we talk to many customers, and we're gaining momentum from small and mid-sized customers, also from a lot of retail customers.
I don't know when a bigger deal like Bank of America, if and when that's coming. As we speak, we talk with a lot of customers and win a lot of customers on the more small scale, which in a way is quite good for us because the organization have time to adopt, and we can make our facilities ready. I think that was a big step we took with Bank of America, and was a big strain on the organization. The third one was around I forgot the third question. Was that on SafePoint?
It was on some of your peers are targeting the-
Yeah
big box retailers with bigger smart box or some of this is the size of the opportunity they describe is much larger than the one you're targeting. I'm just curious about how you're reacting to that and if it's an opportunity you're also considering.
Yeah, that's a good question. I think that we have to keep in mind that SafePoint is a locked system in the way that it's not a recycle system. You put in money, and we then collect the money. It's a different system than, for instance, than some of the bigger retail customers have, which is a recycling system. You put in the money, back office, and then you're able to take out the money, reuse it in the store, and then we come and pick up the excess money. That's basically two different concepts, and the recycling concept are more targeted towards bigger retailers. What we have said is that we are looking into, and the plan is to launch a recycling concept also during 2018.
I think that would be very much in the end of 2018, because I think it's natural now that we move into that as well. As we have bought Intermarketing in Finland, I think that we have the software solution. That is the plan. It's quite a competitive market right now. We think that with our SafePoint, with Intermarketing and the skills or the capabilities we have in CIT CMS, it's a natural step for us. Yes, we are very much looking into that.
Okay, thanks.
Thank you. The next question comes from the line of Mikael Holm from Danske Bank. Please ask your question.
I want to touch upon some of the early questions. First, regarding this step into Germany, I guess you've done some due diligence on the market. Could you share some data on that? How large is the market today? How consolidated is the market? How many players do we have there? What is the potential to accelerate this consolidation when you know how to put this flag out in the country? That is the first question.
The German market is, as some of you might remember, there were some scandals or frauds in the German market some years ago. Among other things, it was the Heros scandal, which is what I've heard, at least quite close to the Panaxia thing happening here in Sweden. It's quite a regulated market where the Bundesbank has a lot of saying. There are a lot of things that you have to take into account when you work, and you have certain rules and regulations. In that sense, it's a more regulated market. The Bundesbank has a more active role in the cash cycle. Despite that, we think that will ease up over the years to come, so following the trend in other countries. There are about 20 to 25 different players in the market.
It's very much regional players, and the company actually we bought is more regionally strong in the western part of Germany. The biggest player on the market is Prosegur, and the second one is a company called Ziemann. KÖTTER, which we bought, is number three on the market with a market share of 10%. I think it would take a couple of years, but I think that the development in Germany will follow the ones we have seen in other countries.
In terms of both banks outsourcing CMS services, could you say roughly what is the penetration today?
I think that the company we bought from the top of my head has 20% to 25% of the turnover is CMS. In general, it's a low level of CMS outsourcing. There are many local and regional banks doing that themselves. That's what I was talking about. I think that as the bank structure will change, I think that the CIT CMS part will grow. I also think that more and more retailers will look into using CIT, but also looking into things like SafePoint and so on.
Okay. I also have a top follow-up on a topic regarding the U.S. margin, because you obviously flagged for more investment in the third quarter and a flatter margin development in 2018. Now when we look at what is happening, the gross margin is up 220 basis points for the full year. It's up 210 basis points in the quarter. OpEx growth seems to be down in local currency during the fourth quarter. You guide for stable organic growth going forward. Could you help us understand? U.S. pricing has just started to move upwards according to the recent capital market presentation from Lars Blecko. Why would the gross margin improvement stop? Why wouldn't you offset some of the OpEx increases by organic growth? I don't understand it.
Mikael, it's simply because we need to invest for the future. At the same time, of course, we continue to focus on the margins. We have to be a bit careful, and we don't expect that the improvements will continue on the same levels as we've seen historically. I think the explanation is simply because U.S. were initially coming from behind, and it was much easier to correct and to learn from what we've done well in Europe for so many years. That process, of course, is still ongoing, but over time, the results will not be on the same level when it comes to efficiencies and so on, as we've seen before. We still believe there will be an expansion, but not on the historic growth rate numbers.
It's more the margin we're looking at. The organic growth should continue to be on a high level.
Yes
as we have been talking about.
The guidance on the organic one is still that we should be between 5% and 10% during this strategy period.
Mikael, are there any questions from your side?
Sorry, I was on mute. Okay, thanks for that.
Okay. Should we
Thank you. One more time, I would like to remind participants on the line, if you would like to ask a question, please press star one on your telephone keypad.
Okay.
The next question comes from the line of Philipp Richards from Goldman Sachs. Please ask your question.
Hi, good morning, gentlemen. It's actually Mila Won for Philipp. Two questions from my side. First on the M&A, you've done a couple of deals. Can you say anything in terms of pipeline and also in terms of whether you have some bigger potential targets in there. Secondly, on international. I know it's a relatively smaller business in the group total and that it's more volatile, but the growth of the last quarters has been relatively weak. You mentioned that the market circumstances. What is your outlook on the near term, and what are you doing in terms of organic developments to spur the growth here?
Let's start with the international one. I think that what we've seen is a very specific year for 2017. The market conditions have been not very favorable for us. What we've done is, of course, a couple of things. We have, despite the negative development, invested in new hubs. We have strengthened our position very much in Asia. We have strengthened our position in Middle East. We have now hubs or sales office or operations, whatever you would like to call it, in these places. We have also strengthened the position in the U.S. with the recent District 14, as we call it, which is a combination of all the international business, creating a bigger platform, but also better way to cooperate with the local business. We have invested a lot in infrastructure. On top of that, we are now moving into diamonds and jewelry.
I think that is what we have seen. That is a key element to be able to compete in the international arena, to be part of that big opportunity. Hopefully, the conditions will become better at the same time as we have, of course, trimmed the cost base of the international business. I think that we expect over the strategy period to be growing this business. As I've said many times, 5%-10% growth we should expect, but it's going to be more volatile, and we expect the margins in the long run to be on group average. That's the expectations we have. We need to have some tailwind from the market and the market conditions, I think. We expect that to come as well. Now I forgot your first question. Sorry about that.
Future M&A.
Future M&A, sorry.
On M&A.
Yeah.
Yeah.
As we communicated at the Capital Markets Day, we have a pipeline of SEK 10 billion in objects, then you have to deduct the recent ones we made. That's the pipeline we have. Things are happening. I think that as we have been quite active and also some of the competitors, there are more things happening, more discussions going on. They are coming up things as we speak to the surface, of course. Then, of course, there's a long way from initial contact to a deal. What we're also looking at more is more the tech companies to be able to offer our customers more advanced products solutions. In that space, we have found a couple of new interesting targets. Net, I think that the pipeline is at the same level or even a bit bigger right now.
When it comes to the size of these deals, it's up to from a couple of hundred million SEK to a couple of billion SEK. That's the size we're talking about, we have in our pipeline of targets.
Okay, perfect. Thank you so much.
Thank you. There are no further questions at this time. Please continue.
Okay. Thank you very much. Are there any questions from the floor right now? I say thank you very much for coming, and thank you for all the nice questions.