Earnings Call: Q4 2017

Jan 30, 2018

Morning, and welcome to the Q4 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 segments, the financials and then last but not least, the Q and A. And for the Q and A, I will invite Anders Saker, our CFO, to join me here on stage to answer any questions that might come up. So the highlights for the quarter is that we had an organic growth of 2% versus 4% last 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% last same quarter last year. EPS up to SEK 5.79 per share. And of course, here is the Trump effect included in the numbers. We'll talk more about that later. And the proposed dividend is SEK 9, which is then an increase from SEK 8, SEK 8 last year. And then finally, we'll look a bit at the targets for the strategy period, which all have been reached during this year. And then also a couple of words around the latest acquisitions that we have made. So the operating margin is 12.5%, and that's the highest margin we've ever had in a single 4th 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, but more about that a bit later. And also, on the rolling 12, the margin is up to 12.1%, and that's actually then an increase, as you can see, of 0.9%. And that's the highest improvement in a single year since 2010. And usually, we say that improvement each year should be 0.5%, and it'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. So 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%. And as in all other countries, I mean, we have been affected by 1 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. But 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%. And you can see now as a share of total that SafePoint is now accounting for 13% of the total sales of the total revenue, and that's an increase of 2 percentage points since the same quarter last year. And 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 midsized contracts. We're also gaining more share from contracts that we are splitting with 1 of our competitors. So all in all, when it comes to the top line, a very good situation in the U. S. When it comes then to save points, so in total, we have now 22,775 installed on a total basis. And 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. And that means that we were not able to sort of install new safe points. We were not able to discuss with potential clients about new installations and so on. So that hurt us to some extent in the Q3, but it's very good now to see that in the Q4, there was 1200 new installs in the quarter, which is the speed that we like to have each quarter. So we are bouncing back in the quarter when it comes to Safepoint, which is really nice to see. However, then we are not reaching the target, as we said, of 5,000. But underlying, I think that the business for SafePoint is going in the right direction. And 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 last the same quarter last year, we were installing 520 SafePoint. So it's quite an increase. And one other thing that is worth mentioning is that we had 1,000 refreshes, meaning that we are the refresh and renewing the contracts. And that means that we some of these save points are worn out and they need to refresh. So 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. So that's taking a lot of time. And of course, as the base gets bigger and bigger, hopefully, the refreshment will be higher and higher. So we are also now increasing the sales efforts when it comes to Safepoint. We are hiring new salespeople. About 10 people now have joined us the last couple of months. And that's necessary to be able to talk to all customers and negotiate and sell SafePoint. So our long term vision or long term target is to have a yearly run rate of 10,000 save points each year by the end of the strategy period. So let's then talk a bit about the margin. So the margin took a big jump in the quarter from 12.1% to 13.9%, as you can see. And of course, there is growth in all business lines, and we had higher density in our CIT operations and that's boosting efficiency and profitability, of course. But 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 2016, and that gives us, of course, a higher efficiency. And as you can see, the mix is changing more CMS, more Safepoint, which is also driving the margin. And cost of risk, which we don't talk that much about usually, but that's also been improving over the last quarters. And we talked about San Juan and Puerto Rico last time. We are now back in normal operation. It went a bit faster than we expected. And we had, of course, negative effects. We're so our judgment is that 0.6 to USD 0.7 million has sort of that the whole hurricane has cost us that on a quarterly impact. So all taking that into account, it's even a stronger quarter taking that into account. And we're 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 that speed. So that's U. S. A final picture maybe also to illustrate what I was talking about. CMS has 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. And that's very much to the situation in France. So let me talk a bit about France. So what has happened is that on a regular basis, let's say, every 3 to 4th year, the big banks go out with tenders for the business for the CITCMS business. And in this respect, we were facing 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. And in that respect, we lost some volume. Now this situation is now over. So all these tenders are out. So we have a stable situation, at least for the bigger contracts. And now we're sort of trying to work with the new volume base and, of course, gaining more retail customers as we speak. And that this situation, we also had in 2012, and it was even worse at that point. So we are doing everything we can to reset the cost base, if you like. We the plan is to take out 100 and 51 or 150 FTEs, and we're halfway through that program now. And our expectation is that we will get back to the same level or better when it comes to margin in a couple of quarters. So it's not like this is continuing. It's over, and we now have to work with the situation. We have also ended the notes and coin exchange program in Sweden. Of course, we had a positive effect of that in Q4 last year. And of course, that boosted the volumes, and now we don't have that. So that's quite natural that we are facing a very tough comparison in that sense. But 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. And now it's actually one of our more 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. And 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. And 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. And as I mentioned, we are now looking at efficiency programs. We always look at efficiency programs all the time, but then especially then in France as we speak. And last but not least, we have made recently 3 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 size sort of setting as in Argentina, very cash intensive. We expect that more outsourcing will come. And it's not a very big country. It's a company. It's about SEK 200,000,000 to $25,000,000 They have about 9.50 employees, but it's a good start. And then in Q1 here after Christmas, we announced the acquisition of Kyte, who is the 3rd player in the German market, and it's, of course, a white spot for us. And it's very nice to put the 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. So 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. But 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. So 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 then the integration projects going on that where we combine more 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. And first of all, we are going to work very close with them on an international basis when it comes to diamonds and jewelries, but we also then bought the U. S. Operation, and that will now be combined with the international business in the U. S, but also the local international business we have. So we're combining all of that into one district reporting to the CEO of United States. I think that, that would be sort of a very important platform for the international business as such but also in the U. S, of course. Financials, I think we have touched on many of these points. It's worth mentioning that we had this onetime tax gain of EUR 70,000,000 coming from the change of tax corporate tax in the U. S, as you know. EPS was up for the full year close to 14%. So 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. So as you can see, the turnover was at SEK 17,200,000,000 for the periods, 'fourteen to 'seventeen. The EBITDA margin actually came up to 12.1%, which is above the target actually. And then on an average over the years, the dividend has been at 49%. And as you see, we have then increased the dividend from SEK 8 to SEK 9 for the year 2017. So 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. Henrik Niels from Nordea Markets. In the U. S. Now, we seen 4 quarters with very, 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? It's been 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. And 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, ten 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 S. Has been lagging behind Europe. So there has been very good potential to, over time, increase the U. S. Margins. And I think that is what's happening now. Combining that we have a much better mix between the CIT and the CMS work. And on top of that, a very nice boost in the sales and the installations of the save points. And all that is driving the margin up and getting closer and closer to the European margins. And 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. I mean, that's a real challenge. And now we will move more into an investment and sort of building up the possibilities for future growth in the U. S. And that will probably have an impact on the margin impact for 2018 'nineteen. But then we believe strongly that, that will come back in 2020 2021 and after that when we sort of build the platform for future growth in the U. S. Okay. And one more question. You touched upon this as well. In Europe, you have restructuring costs related to the, I don't know, 70, 80 FT feet feet feet feet feet feet feet feet feet feet feet feet feet Feet Es that you dropped of the total 150% plan. Can you comment on the split there between the underlying margin pressure just from revenues disappearing basically and what the restructuring cost has been? You start. Okay. I don't think we get into the details about the exact numbers of the restructuring costs. But when it comes to reducing the workforce, I mean, you have to negotiate with employees. And as soon as you start doing that and signing an agreement, that will continue into Q1 and probably Q2 this year. So 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 midyear this year. And then the plans should be effective as they've been before. We have been through this also in 2012 and manage the situation in a good way, and then we take it from there. And just one follow-up on that. I think you mentioned that the drop in Q3 in France was around 3%, 4% organically. Is that ballpark the same number this quarter? And 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, one of your 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 now have highlighted for the market, do you still see a margin upside opportunity for 2018? Or should we expect more flat margins? I think we our plan is to grow the margins, but I don't think you will see the margin growth as steep, if you want, as yet it has been in the past. We're not planning a margin decline, of course not, but what we're saying is maybe the speed we have seen in the last couple of quarters or years, I don't think that will happen. Anything can happen. We never know. But 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. So of course, that was to continue to drive the business and but we are now taking quite some investments in OpEx and CapEx. And 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 for 2017? Yes, we think so. And as you saw from the Q4, it was basically spot on expectations. So I think that we will be back in 2018. And but I'm more having my eyes on 10,000 also for the we're not building for the 10,000. So we are investing in product development. We're investing in the sales force really to get the boost. But we're 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? In you mean in France in the long run? France, I would say, it would be the corrective measures. Yes, yes. I think that our expectation is to get back to the same margin or higher. And why is that? I think that fundamentally, we know how to do it. Underlying, I think there is no these events happen. And of course, this creates a lot of turbulence. But underlying, it's a very good business in France, and we're very profitable as well. Excellent. Just one question also on Germany. You're reentry into the German market being out of that for now 10 years or something like that. How does the business case look, so to speak? 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 not it's a very nice company, good relation, good quality, but the margins are on Lumi's level, and that maybe we shouldn't expect. So what we do now is, first of all, that we apply this Lumi's model, as we say. So we are building the processes, working methods and so on. And by that, I think we can increase margin. I don't in the short run, I think it's we should not expect them to come up to Lumi's average. That will take a bit more time, I think. We need then more volume, more outsourcing, more CMS business. But we will lift the margins from the levels they're at right now. But 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. And one final small question. Looking at the U. S. Tax situation, I guess you indicated a reported tax rate of around 25%, 26% for this year. How will this U. S. Change impact the paid tax rates that you will have? That will be the same effect, but I think there's a of course, there's a backlog when it comes to paying taxes in 2018. We will need to pay taxes at what's recognized in the income statement in 2017. So I think there will be a timing effect here, but it will level out probably from midyear this year. Karina Engram 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? Or are we coming, so to speak, down gradually there? Or how should we see your investments there in the sales force and so forth? Again, I think there will be a margin uptick in the U. S. Margins also in 2018, But it will not be as rapid as we've seen historically. Yes, okay. I was thinking if there was like 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, no. I think that process is already ongoing, and it was initiated already in 2017. So it will be on an even level. Okay. And then another question, the margin decline now in Europe, how much approximately is due to France? Can you give any guidance? The majority absolutely the biggest impact is coming from France. Okay. Thank you. Victor Lindebe from Carnegie. Patrick, you mentioned on the refreshments, refurbishment replacements on the Safepoint unit. Was it 1,000 in 500. 1500 in Q4. In full year. Full year. Yes. 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? So 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. But it will be the same percentage. So you can do the math, but because I think that each year, we're now making more and more refreshments. So I think that the relationship will be the same without having any numbers. I will see I don't know if you have any views on that, but that would be, say, the same relationship, I would say. But I think that why do I say that? I think that we are just measuring net installations. Some others are measuring other things with Sol and so on. And then, of course, we don't count the net new installation. We don't count the refreshment. I think it's also an important sign of the quality of the concept that you can have those refreshments. But to answer your question, the same relationship, I would say. And would you say there's any change in profitability on those clients that have been with you now for 4, 5 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, I mean, that's a customer for many, many years. So it's important for us to gain new customers, get penetration in the market. But we're looking at also to see can we make the service, the installation more efficient, less costly. And of course, as we get scale in this operation, we can do that in a slightly different way. So those are the things we're doing to increase the profitability somewhat or lowering the cost. But on a pricing level, we'll 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. Have you 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. So how do you view growth going forward in Argentina? And what has been the components for the 60% growth now, if you have that. You start, Anders. Okay. I mean just breaking out the inflation to start with, it's historically, inflation is very volatile, 1st of all, but let's say roughly between 20% 30%. And then 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. But the main real factor is the underlying volumes that they actually are increasing. And that's why I mean, that's why we like Argentina, and that's why we moved into Chile. I mean, Chile is a different country. You don't have the same inflation factors. But still underlying volumes are still growing very, very nicely in Latin America. But if you look at the margin sorry, the market in Argentina, it's quite consolidated. Are you gaining market share still being a quite small player in sort of a 3 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. So you start with a customer, you get the small portion, then you grow more and more with the existing customer. That has been sort of the basic thing. And I think that, again, that LUMIX Argentina has been very much helped by the Loomis model, how to operate, how to work, how to work with sales and so on. And that's the quality work has helped us gaining more volume from existing customers, so more from existing customers. And 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. And today, that business is growing. So it's been a very nice development. Then 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 Thomsen 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 482,000,000 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? So it's really it's entirely to timing effects. And 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 2 months or 2 week terms. So whether a payment to our employees in U. S. Falls within or outside the that particular period you measure has a tremendous impact on the cash flow. And I think that's the main driver comparing these quarters. Q4 20 16 was exceptionally high. I think we reached 160%, and that's, of course, not an underlying steady volume. That was more of a nonrecurring situation we had. But 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 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 gain momentum, as we're recovering from the hurricanes and so on. So I think the last month was really good, so increasing over the quarter. Okay. Thanks for that. 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 like in Spain. We have sort of similar situation in the U. K. But the thing here is that there were like, I don't know, Anders, it was 6, 7, 8 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 you have the next year, you have one big contract. So there was a a coincidence or how to describe it that there are so many contracts at the same time. And we gained some volume from other contracts. That was, in particular, one of the last big negotiations that we lost. So 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 Amariq Poulain from Kepler. Please ask your question. Yes. Good morning. I've got a series of questions. 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. So could you give us a clearer view on the outlook, especially given the competitive situation you faced in France? And also perhaps the prospect of a higher inflation as well. So 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. 2nd is 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 North America? Do you expect all the deals to come through this year? And 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. And 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. I'll take the other ones. Yes. Okay. Let's start off with the question regarding organic growth in Europe for 2018. We haven't guided for 2018 specifically, but we have guided for the strategy period where we believe that the organic growth should be between 1% and 3%. And the situation we are in currently where we're working through the French situation, I think organic growth in for 'eighteen will, of course, be a challenge and in particular, the first part of the year. But then we should turn into a different situation, and 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 and what we're also trying out to do in Europe, as we have described in our strategy, is then to launch new concepts in Europe to follow the request from our customers. So one is the sort of the forecasting we talked about. So we're now looking we are talking to a lot of customers to install that or to launch that. We also have what we bought into marketing, the company in Finland, which we're now starting to sell and to implement in many countries. So we're doing a lot of measures to gain momentum also on the top line in Europe. So that's just to build on what Andres was saying. Then in the U. S, I think that what we see now in the U. S, we talk to many, many customers and we have many we're gaining momentum from small and midsized 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. But 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 then the organization have time to adopt and then we can make our facilities ready. I think that was a big step we took with Bank of America and it was a big strain on the organization. And the third one was around I forgot the third question. Was that on Seg Point? It was on the yes, some of your peers are targeting the big box retailers with bigger smart boxes. So the size of the opportunity that you described is much larger than the one you were targeting. So I'm just curious about how you're reacting to that and if it's an opportunity you're also considering. Yes. That's a good question. I think that we have to keep in mind that SafePoint is a locked system in a way that it's not a recycle system. So you put in money, and we then collect the money. So it's a different system than, for instance, than some of the bigger retail customers have, which is a recycling system. So 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. So that's basically 2 different concepts. And the recycling concept are more targeted towards bigger retailers. What we have said is that we will we are looking into and the plan is to launch a recycling concept also during 2018. I think that will be very much in the end of 2018 because I think it's natural now that we move into that as well. And as we have bought into marketing in Finland, I think that we have the software solution. So that is the plan, but it's quite a competitive market right now. But 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. So yes, we are very much looking into that. The next question comes from the line of Michael 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 quite some due diligence on the market. I mean, could you share some data on that? How large is the market today? What kind of or 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. So the German market is as you some of you might remember, there were some scandals or frauds in the German market some years ago. It was among other things, it was the hero scandal, which is what I've heard at least quite close to the Panaxia thing happening here in Sweden. So it's quite a regulated market where the Bundesbank has a lot of saying and 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, that will ease up over the years to come, so following the trend in other countries. There are about 20, 25 different players in the market. It's very much regional players and the company actually we bought is more regional and strong in the western part of Germany. The biggest player in the market is Prosegul and the second one is a company called Siemann. And Qatar, which we bought, is number 3 on the market with a market share of 10%. So I think it will take a couple of years, but I think that the development in Germany will follow the ones we have seen in other countries. And in terms of banks outsourcing CMS services, could you say topping out the penetration today? I think that the company we bought from the top of my head has 20%, 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, and that's what I was talking about. I think that, that will as the bank structure will change, I think that, that the CMS part, CIT CMS part will grow. I also think that more and more retailers will look into using CIT, but also then looking into things like SafePoint and so on. Okay. And I also have a follow-up on a topic regarding the U. S. Margins because you obviously flagged for, I mean, more investments in the Q3 and a flatter margin development in 2018. But now when we look at what is happening, I mean, the gross margin is up 2 20 basis points for the full year. I mean, it's up 2 10 basis points in the quarter. I mean, OpEx growth seems to be down in locals currency during the Q4. And you guide for stable organic growth going forward. I mean, could you help us understand, I mean, U. S. Pricing had just started to move upwards according to the recent Capital Markets Day that the presentation from Lars Bleckow. Why would the gross margin improvement stop? And why wouldn't you, I mean, offset some of the OpEx increases by organic growth? I mean, I don't understand it. Mikael, it's simply because we are we need to invest for the future. But at the same time, of course, we continue to focus on the margins. But 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. And I think the explanation is simply because U. S. Were initially coming from behind and they were it was much easier to correct and to learn from what we've done well in Europe for so many years. And 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. But the organic growth should be so it's more the margin we're looking at. The organic growth should continue to be on a high level as we have been talking about. I mean that's the guidance on the organic one is still that we should be between 5% 10% during this strategy period. Michal, are there any questions from your side? Sorry, I was on mute. Okay. Thanks for that. Okay. Should we Thank you. The next question comes from the line of Philip Richards from Goldman Sachs. Please ask your question. Hi, good morning, gentlemen. It's actually Miu on for Philip. Two questions from my side. First, on the M and 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? And 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 the market circumstances. What is your sort of outlook on the near term? And what are you doing in terms of organic developments to spur the growth here? So on the let's start with the international one. So I think that what we've seen is a very specific year for 2017. So 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. So we have now hubs or sales office or operations, whatever you 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, say, a combination of all the international business, creating a bigger platform, but also better way to cooperate with the local business. So 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 international arena to be part of that big opportunity. And then hopefully, the conditions will become better at the same time as we have then, of course, trimmed the cost base of the international business. So I think that we expect over the strategy period to be growing this business. And as I've said many times, 5% to 10% growth, we should expect, but it's going to be more volatile. And we expect the margins on the long run to be on group average. That's the expectations we have. But we need to have some tailwind from the market and the market conditions, I think, but we expect that to come as well. And now I forgot your first question, sorry about that. Future M and A. Future M and A, sorry. On M and A. Yes. So as we communicated at the Capital Markets Day, we have a pipeline of SEK 10,000,000,000 in objects and then you have to deduct the recent ones we made. So that's the pipeline we have. And things are happening. I think that as we have been quite active and also some of our competitors, there are more things happening, more discussions going on. We have also so there are coming up things as we speak to the surface, of course. And 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. So in that space, we have found a couple of new interesting targets. So 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, I mean, it's up to from a couple of SEK 100,000,000 to a couple of SEK 100,000,000. 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? And I say thank you very much for coming and thank you for all the nice