Very welcome, everyone, to the Securitas Full Year 2015 report. I will right away go to the highlights. It's been a good year, 2015, for us. We have had a good growth during the year and also in the last quarter, a good growth, and we're coming into 2016 with a good speed. We have held on to our margins, and we had a real change of our earnings per share of 8%, 18% if you include the FX. Good cash flow, dividend increased. We were doing better than we expected. We had a good last quarter on the solution and technology sales, so we grew that to actually 38% compared to the year before. We had said at least 28%, so we have done well on the security solution and technology sales. We don't set a new target.
We're not going to give a number going forward. We think that we can continue to grow the Security Solution and Technology at a good pace, at a high pace, in coming years. And then on top of that, of course, we are now very pleased to be able to finalize the acquisition of Diebold Electronic Security in North America, and then being a part of Securitas Group as of February 1st. So that will also add to the total amount of sales in technology and solution because 100% of our business is in that area in 2016. If you look at the numbers, you can, of course, see that we have an exceptionally good growth in the last quarter. I think we have to go back to 2007, 2008 to find similar numbers.
Margins are flat, 0.1 up year to date, and earnings per share 8% real change improvement when it comes to excluding the FX effect on the EPS. So all in all, we had a good year and a good quarter. The last quarter was a good quarter. On the tax side, if there are detailed questions on that, it's explained in the report. You can see that that had an effect in the quarter on the EPS. And if there are questions on that, we can take that later on. North America, we think that the North American market is probably growing in the range of 3% in 2015 and probably going to continue in the same range in 2016. We are growing slightly faster than the market at the 4% rate. And even having strong comparatives in Q4 from 2014, we had a good growth also in the quarter.
So we are pleased with that, have good new sales in North America, good client retention, and coming into 2016 with a good pace. What we also see in the U.S. is a slightly increasing pressure on wages. Unemployment rates are relatively low, and we have seen probably in the range of a 1% wage inflation in 2015. But that is also probably seen in the report, relatively high employment turnover. And we are quite sure that we will see a higher wage inflation coming into 2016, more in the 2% range than in the 1% range. So that will, of course, also have an impact on the top line as we expect to increase our prices at the same rate as wage costs are going up. It varies across the country, but still, generally speaking, probably a little bit more wage inflation than we expected one quarter ago.
And then, if we look at the margin, a healthy improvement in North America, 0.3 up compared to the previous year. Also a good quarter in the last quarter in North America. We're getting leverage from a good organic sales growth. We have our costs under control. We also get the leverage from the solution and technology effect in North America and also positive effect from wage-related cost increases. So all in all, a strong, solid year in the North American business. And then, as you know, Diebold integrated now from February 1st. Europe sticks out, of course. We had a strong 8% organic sales growth in the fourth quarter. Roughly about half of that is coming from the refugee and terror-related services that we have mobilized thousands of guards in a very short period of time during the quarter.
The terror-related, we will not specify how much of the 50%, let's say, of the 8% growth of the half is terror-related and refugee, so we don't prefer to split that in any further pieces. What we can say, though, is that the experience from the Charlie Hebdo attack in February 2015 was that there was a tremendous increase in extra sales related to that terror attack and also to some extent in Belgium as a consequence. But that faded away two months later, and we see the same pattern now. So that business, the terror-related services, are basically fading away already now in January, again in France and Belgium. On the refugee situation, the situation is different. That is very hard to predict.
We're coming in with a good pace in Q1 this year, but how that will develop is impossible to make any guesses on because it's very much depending on political decisions how that's going to develop during the rest of the year. But anyhow, at the beginning of the year at least, it remains at a relatively high pace. The total European market, we said before that is probably growing 1%-2% in 2015. We are revising that to say now it's probably more like 2%-3% all inclusive, given the last quarter events. And it's probably going to stay on that level in 2016, 2%-3% growth. We are growing better than the market, mainly because we have a better story to tell.
We have a good development in Turkey, but we also have a very good pace in our security solution and technology sales, and that gives us an advantage. We have a better story to tell our clients, and we are gaining market share because of that. Yeah, so that's, I think, the main summary of that. So a very strong quarter and a good development in Europe. Margins were hit by the things that you know since before, the social cost in Sweden, but also the fact that we had enormous costs related to overtime, subcontracting, planning, and many other things because of the mobilization of thousands of guards in a short period of time. Then you could always hope that you will recover that as time goes by. It's not so certain how that will develop going forward.
The terror-related extra cost that we had for training and planning and overtime, they will basically fade away. So we lose, so to say we cannot enjoy that going forward and recover that money because the invoicing is simply going away because the volumes are businesses going back to normal, so to say. While on the refugee situation, it's a very volatile business, and it's very difficult to have a clear view on how that develops because the demand changes from area to area, country to country, from week to month to week to month, and you will have extra costs over time. So it's a bit of a tricky business to manage and drives quite some extra costs on overtime and planning-related services. Okay, but still, all in all, a good year in the European business. But yeah, all in all.
Ibero-America continues good growth, very good growth in Latin America. It continues, especially in Argentina, Colombia, Chile, very good organic sales growth. But of course, a concern in a longer perspective that the slowdown in the macroeconomic situation and the domino effect from the Brazilian weak economy will impact the other countries in Latin America. That is a concern, but right now we have not seen it in our business, and we are doing well compared to competition as well. So good development in our business. But a caveat going forward in a longer perspective, what will happen to the macroeconomic because of a macroeconomic slowdown in Latin America. Spain, we had a growth but only 1% for the full year. So not much growth, but still we were able during the full year to compensate during the second half of the loss of the airport contract in Madrid.
So that was good. But the Spanish market is flat, in my opinion, in 2015, and it's probably going to be slightly, marginally more positive in 2016, but no major change in 2016, but probably marginally better than flat, but not much more than that. And we were growing 1%, so pretty much in line with the market in 2015. But there is a good recovery in the Spanish economy. The GDP is growing 3.5%, something like that, in 2015. We are late cyclical, so eventually, hopefully, that will affect at least the retail sector, which is our largest business segment in Spain. And then eventually, we should see some effects on that in a positive way, but it probably is going to take another year or so until we really see that in our business in Spain.
The margin was slightly better than the year before, mainly driven by Spain. We've had some big issues in Peru where we have had some business-related trouble, which have cost some money to correct that and to do some restructuring in the Peruvian business. But that has been dealt with during 2015. And Portugal, we have lost some contracts with good margins, and we had some very strong positive last quarter, the year before, in 2014 in Portugal as well, which we did not have in the same manner in 2015. So still a very strong, very good business in Portugal, very solid business, but slightly lower margin than the year before because of a different mix in the portfolio. Cash flow was good also in the last quarter, as it should always be.
So we had a very good cash flow for the full year, or a good cash flow, I should say, for the full year. It has been hampered by that we had a lot of growth, especially in the last two months, November and December. So you can see that the change in accounts receivable has dramatically increased compared to the year before because we need the working capital. We pay the guards in a month, they perform the work, and we get paid from the customer one or two months afterwards. And then, of course, the working capital needs with a high growth in the last two months has an impact on the cash flow. But it's more a timing thing. But the money will collect the money, but at the year-end, of course, that had quite an impact on the free cash flow.
Still, a solid, good free cash flow, and we are above the target on free cash flow to net debt. The net debt is in good shape. Now, of course, it will change quite a bit. It changed last week when we paid for the Diebold acquisition. Still, we are with a healthy balance sheet allowing us to continue to look for acquisitions going forward, which we do. We keep looking, especially in Europe, for technology-related businesses and a few countries in the new markets, but those are relatively small in order for us to continue with the acquisition pace. Also in the fire and safety area, it's an area that we are looking for acquisition opportunities. That continues, and we have the financial resources and the balance sheet to support further acquisitions in 2016.
I expect and hope that we will be able to do some mid-size companies, hopefully, in 2016. We presented the Securitas Vision 2020 in the Q3 report and gave some wording on that, so maybe not necessary to repeat that at this moment. We will have a Capital Markets Day in June, 21st of June, in the Malmö area where we have built an experience center showing how we work with the technology piece and so forth. So then we'll also have a moment to explain a little more in-depth around the Securitas Vision 2020. The Diebold acquisition, I think you're fully aware of that. So that has now been finalized and closed February 1st, which is the point when we start to consolidate that in Securitas going forward. And then we added this slide here to show you also the journey we are making.
I mean, we are moving contract by contract from guarding to security solution, and that pace is really moving on as we expect. We have said for years now that we go from 4, 6, 8, 10 up to 10%. We basically double the margin when we move a contract from a pure manpower-based guarding contract to a security solution. That still holds. It works. It's fine. It's confirmed. It's working according to plan. When you look at the numbers, and maybe one or two of you will say, "Where is the leverage from the growth?" Of course, the security solution technology piece is still a relatively small piece share of our total business. So that one, in absolute numbers, is growing less than the traditional guarding sales, including FX and everything.
So, of course, when you put the two together, you will still get the lower margin in the guarding has, so to say, a holding back effect on the leverage that we otherwise would get, even if we have a very strong, good organic growth in the technology and solution sales. So it's important to remember that the leverage will come gradually as that piece and that share of our total business is going to develop. And now we expect to continue to grow with security solution sales at a high pace going forward, and on top of that, the Diebold acquisition. So gradually, the leverage will show up in the P&L as well on the margins. All right, I think. So all in all, a good year, a lot of things moving in the right direction, good momentum in the last quarter, and a good pace entering 2016.
So let's see if there are any questions. Thank you. Ladies and gentlemen, if you do wish to ask a question, please press the 01 on your telephone keypad. If you wish to withdraw that question, you may do so by pressing the 02 to cancel. There will be a brief pause while questions are being registered. First question comes from the line of Stefan Pålsson from Handelsbanken. Please go ahead. Your line is now open.
Thank you and good morning. Looking at the increased cost in Europe on the back of meeting the strong demand, could you please break down those costs in some way? And how long will it take before these extra sales contribute to the margin, given that you clearly state that extra sales contracts generate a higher margin?
I mean, it's clear that extra sales normally generate higher margin. This is extra sales mobilizing thousands of guards in a few actually, in some places, in weeks. And then it takes a lot of extra cost to train and plan and overtime on the people to manage the situation, which has been dramatic, especially the last quarter. So it's not extra sales in the ordinary sense. I mean, the ordinary sense, it's more planned. You get it on top of something that you already have, and you can plan it with a little bit more advance, and then you would have a higher margin. Here, it's a very volatile business. Demand changes on a weekly basis. With short notice, we need to lay off or mobilize guards. So it's very difficult to say.
So I'm sorry, I will be a bit vague on this question because the visibility is not that good. I mean, we have a margin on it. We make money on it, but not as much as we will normally do on extra sales. We have taken quite a lot of cost in Q4, as you can imagine. Some of that we will certainly recover going forward, provided that the business remains at that level, and it seems like that, especially on the refugee-related business. But the demands are changing. Things happen all the time at the different camps and facilities. We need to change the manning all of a sudden for some specific reason, and then we will have extra costs related to that. So I'm sorry.
It's very difficult to be more specific, and I will intentionally be a bit vague on this question in order not to guide it any wrong way. The fact of the matter is the visibility is relatively low of how it will develop going forward. Hopefully, some of the costs that we have had in the refugee-related businesses in the Q4 will be recovered in the coming quarters, hopefully, but uncertain.
Okay. And also on Europe, just to understand, what is the risk that you now employ too many guards only to find that you are overstaffed a few quarters down the road?
It's also, but we are pretty good in that. I mean, to manage those type of contracts and the employment conditions, we have people available that we can call on lists, so to say, with short notice, with short temporary contracts. So that methodology is working fairly well. So that we would have any one-offs of layoffs or restructuring, to me, that risk is almost zero or very, very low. I mean, then it will be very strange something happening. But that, I think, we don't expect that.
Okay. Just one more question. Looking at the Diebold acquisition, could you please outline how that integration process will look like? For example, what will the main focus be over the next six months?
Diebold is the name. They don't like if we say Diebold, so we use Diebold. I'm sorry to correct you on that, but anyway, for the sake of good order. But anyhow, the main issues there on Diebold integration are, of course, the administrative piece of that because we are disconnecting, so to say, this business now from the Diebold group. And then we need to set up a whole business administration processes in a separate entity, which was previously relying on the Diebold structure, so to say. So that's the main part of it, which will be the integration focus during 2016.
Okay. Thank you.
Thank you.
Thank you. Our next question comes from the line of Robert Plant from J.P. Morgan. Please go ahead. Your line is now open.
Morning, Alf. How are the discussions going in the UK ahead of the increase in the minimum wage, please?
We are well prepared. We have learned in the similar fashion that we had with the ACA in the U.S. So we have taken advantage of that knowledge, and it's going according to plan. So we are making the necessary increases in order to cover for those cost increases as they come in effect here in April. So yeah, no concerns there, other than it just has to be done, and we expect to compensate the wage cost-related increases by price increases.
Thanks, Alf.
Thank you. Our next question comes from the line of Andy Chu from Nomura. Please go ahead. Your line is now open.
Thanks very much. Good morning, Alf. Few questions. Just starting with France, could you give us a flavor of sort of current run rates of organic growth in France? Is that positive? I guess the extra security sort of died down in France, but is France back into sort of positive organic, please?
Well, it was certainly. Our business in France was positive around, yeah, in the range of 3% or something in the last quarter. But for the full year, it's been flat. That's the situation in France. The French market is not growing.
Right. So are you seeing? Because I think you were sort of -1 in Q3. So what's the sort of current sort of run rate of growth? Are you slightly?
We were running negative, and then due to the unfortunate situation in the last quarter of the terror-related attacks, it swung to a positive organic growth in the last quarter. But that is fading away now already in January, as I mentioned before.
Okay. Great. And then just in terms of the Diebold acquisition, and your last slide sort of looks at technology as a 10% margin, but Diebold had in the 12 months to June 2015 a sort of not even a double-digit EBITDA margin. So should we expect, as you bring Diebold into the group, for that business to be a double-digit 10% operating margin business, or?
I mean, we will decide during the year if we will provide more information that we already given in the press release. We think we gave quite a lot of data in the press release back in October. So, I mean, in the meantime, we don't know the company much better than we did actually at that point in time because we have been waiting for all the approvals and so forth. And now, as of last week, we finally own the company. So we need to wait a little bit before we say too much about what we can expect going forward. But it might be something we come back to during, yeah, maybe the Capital Markets Day or later during the year. But at this point in time, I cannot give you any more information than we gave basically in the press release.
Great. Thanks for that. Just two small ones, just in terms of any sort of tax rate guidance. I don't know if that's possible. Also in Switzerland, in your release, you just mentioned some one-offs in there. I don't know if it's possible to quantify or at least sort of explain what those one-offs were, please.
Yeah. The one-offs there, I mean, they were related to we had to write off some planning system that we have had invested in, which did not work as expected, and the margins have not been as good as they should have been. So we had to switch we had to replace a previous personnel planning system with a new one. So we had to just write off the old one. We had some pension-related costs in Switzerland and some restructuring measures taken in Switzerland. So a number of one-offs in Switzerland that's now behind us, and we can move forward in Switzerland. And the tax matter, yes. I mean, if you use something like around 30%, you will probably be fairly close to give some kind of guidance, maybe a bit on the high side.
But I mean, we will have a higher taxable base in the US, including now Diebold, than we had in the past. And then, of course, the one-offs in Norway and France, they will be positive in the year to come because now we just had to adjust the tax assets, so to say, the credits or deferred tax assets. I think that's the right name. But it's hard to give an exact guidance. But if you have 30%, you're definitely on the safe side, I would say.
Brilliant. Thanks very much.
Thank you. Our next question comes from the line of Nicolas de la Grense from Bank of America Merrill Lynch. Please go ahead. Your line is now open.
Morning, Alf. Two questions, please. The first one, just in terms of U.S. margin dynamics. You mentioned favorable price-wage dynamics in the quarter and for the full year. I was just wondering, how much of that is lower non-wage costs like ACA and workers' comp, and how much of it is actually increasing prices ahead of wage rises? And then the second question is just on Ibero-America. If you could elaborate a little bit more on what happened in Peru, what actions you've taken, and then just confirm that there won't be any further drag from Peru next year. Thanks.
I should have on the previous question on Switzerland. The reason we mention things when we normally mention things, the rule of thumb we use is it has a 0.1 impact on the margin. And that's why when we write about something that you can have that as a guidance that it has had at least that impact when we do write about something in our report. The main reason in the U.S. is the ACA rates and, so to say, the wage-related costs that have been favorable to us. And we normally, on the price and wage, apples to apples, try to keep that on par. Peru is behind us. Yes, we have sorted out the matters there, so we should be okay going forward, and we should not see any one-offs or necessary further actions taken where that has been taken during 2015.
Just on Peru, what was it that happened? Are you able to elaborate just to give us an idea of kind of?
We have had issues on contracts, on the organization. We had to make some restructuring actions in Peru, poor management of a few matters. So we had to take some actions and sort that out. And we also had it working in a difficult market where we have had some contract losses related to the mining area because of the low metal prices and reductions in those areas. So many things. But we have now balanced, so to say, our business on the conditions as we know them. So we should be enjoying a better development in Peru in the coming year.
Thank you. That's very clear. And just one quick follow-up on the U.S. margin point. In your experience, I mean, when you're able to hold onto these non-wage cost benefits, does that have any impact on future price negotiations with clients? If there's 2% wage inflation this year, will they look to the benefit that you got from lower non-wage costs and try and?
Normally, not. That's a separate chapter in a way because, I mean, that is general for the whole state. It's state by state. And there is a time lag on those matters. So usually, those are kept apart. So normally, there is a direct link, what are your wage cost increase and what will be your price increase? And then that's the way you argue in ups and downs of that, and that's how you justify that. So it's kind of disconnected. So when we see now a higher wage inflation, that simply means that we will also have to deal with that in the normal way by raising our prices. I mean, coming back also to your question on Peru, I mean, for the full year, we basically didn't make any money in Peru and also relatively low growth.
That, of course, given that we normally have in Latin America healthy margins and good growth, they have been. It's a small business, but still, it has had a drag on the Latin American piece.
Thank you.
Thank you. Our next question comes from the line of Henrik Niléhn from Nordea. Please go ahead. Your line is now open.
Good morning, and thank you for taking my questions. First one, on the growth in Europe. If I heard you correctly, Alf, you said that you do not want to specify how much is related to the events in Paris and how much is related to immigration. Can you please instead specify or give us some guidance on the level of extra sales in the quarter and how this compares to Q4 2014? Thank you.
I mean, the extra sales just a minute. I mean, yes, I was going to say that. I mean, the extra sales was substantially higher in the quarter in Europe compared to the last quarter, 2014, and the same for the full year. But this is important to say that not all of that business is classified in our accounting as extra sales because it becomes portfolio business because some of those contracts are the base of those contracts. If we take Sweden, Migrationsverket, the authorities who manage the immigration matters, we have a base contract, and that is accounted for as a portfolio, which comes into, so to say, the base of our business. And then the volatile part becomes extra sales.
Sometimes, and in other cases, those volatile sales are a little bit more long-term because we get the contract for a longer period of time, and then we account for it as a portfolio. So it's not the best indication. Anyway, it's better than last year, that's for sure. But some of it is accounted for as portfolio as well.
Okay. But you do not want to quantify how much better than last year, or?
No, no. I mean, substantially better, of course, but it doesn't give you the full guidance anyway. I mean, the best number you can use is that we had 8% growth in the quarter.
Yeah. Okay. Okay. Can you give us?
Half of it is coming from the exceptional situations and the needs and the requirements.
Okay. Can you give us some granularity on the share of new sales that now is solutions and technology?
I would say I don't have the exact number. My perception is that roughly half of it is new sales, and roughly half of it is conversion of existing contracts moving from guarding to solutions.
Okay. And of your organic growth, how much of that would you say is solutions and technology?
Well, I mean, you can take the 38% on it means, I mean, theoretically, you could say that out of the 5%, 4% would be a solution. I mean, if you take the 38% and translate its relative share, you will get somewhere around 4%. But that is not 100% true either because that 38%, the piece of that 38%, is actually moving contracts from guarding to solutions. So we already have a contract. We just made it in a different way, in a better way. So then that is not 100% correct to say that 4 out of the 5 for the full year is solution sales, because it's not. So if you use the same formula I had before, 50/50, then you will become more like probably 2%-3% of the organic growth is from solutions and technology.
Got it. Thank you. You mentioned on Peru that you've had some problems with revenues relating to mining. Could you give us some indication or quantify how much of your sales relates to mining and how much relates to oil and gas?
We cannot. But I mean, usually, any segment in our business is less than 10% of sales in any country, actually. I mean, that's the rule and it's not 100% correct always, but roughly speaking, it's so it's not a major part of our business but it's an important segment, but it's still a relatively small part. But when you lose a contract, which are normally large contracts, and you have trouble, you have to downscale or cut cost, etc., of course, you need to take some action, and it costs some money to do that. But the majority, of course, of our Latin American business is not in mining and oil-related services, for sure.
Understood. Thank you. One last question, if I may. You mentioned midsize acquisition, hopefully, during 2016. My two questions, really, are we're hearing that the turmoil is actually increasing the M&A opportunities for some companies. Do you share this view? And also for you, how much does a midsize acquisition add on topline?
I mean, midsize acquisitions, in my view, is somewhere in between EUR 20 million and EUR 50 million. That's probably the range we are talking about. That's what I refer to as midsize acquisitions, give and take on that number. There are good opportunities. We are not in a hurry. We like to make the right ones. It takes some time. Yeah, it's very difficult to predict because we don't decide everything on those. We don't want to pay the wrong price either. We have patience to wait if we have to. So there are good opportunities. We are looking at some. I expect some to materialize 2016. But I think that's the best answer I can give at this time.
Thank you, Alf.
Thank you. Our next question comes from the line of Sylvia Barker from Deutsche Bank. Please go ahead. Your line is now open.
Yes. Hi. Good morning. I've got a few, please. On Europe, can you please specify? Obviously, you've used subcontractors, you said. Have you used subcontractors for the refugee contracts as well as for the French and Belgian demand, please? And what is your gross margin on those refugee contracts? Is it higher or lower than for the rest of the business?
I mean, we use subcontractors in both the refugee-related business and in the terror-related business, but to a relatively low extent, of course. But sometimes when we have exceptional situations, we need to subcontract that. Then, of course, that eats away a lot of our margin, obviously. And related to the fact that we now have had quite a lot of cost in the quarter, the margin, as you can see, which has diluted the European margin, is a part of that explanation, has had a lower-than-average margin in those services because of the fact that we have had all these extra costs to manage the customers' needs with very short notices and then requiring us to have a lot of extra overtime and a lot of extra efforts in order to manage that.
Okay. Thank you. Then moving on to the U.S. So you hopefully said that in Spain, for example, the retail segment is quite large. Obviously, in the U.S., kind of it's well documented that manufacturing is very weak. Can you give us just a rough idea of how much of your business is kind of production-related versus, let's say, retail versus others and what you're seeing for demand?
No, I cannot do that. I mean, we are in all the sectors in the U.S. You have all the different sectors. And we are a bit of a mirror picture of a general economy, I would say. We are not significant in any segment in the U.S. Very well-distributed business in all the mirror picture of the economy in general, I would say. And we don't follow it in that way either. So that's also why I'm avoiding to be specific because we don't follow our business by segment at all. We have no major interest in that data. So we don't even follow up it in our financial accounting.
Okay. Great. Thank you. And then just on margins then for the U.S., obviously, we've talked about 2015. But if we move into 2016, I mean, the unemployment rate's been very low for a while now. So presumably, the social cost benefit are not going to be significant at all in 2016. And then have you already started putting through some price increases relating to the wage growth picking up, as you said, in your?
I mean, that is done on an individual basis, basically, in the U.S. There are very few CBAs in the U.S. So when we have the requirement to increase the wages, we initiate the discussion with the clients and discuss the price increases. So that's an ongoing process, usually triggered by the annual renewal of a contract. So it's an ongoing thing. So in some cases, yes, we have started. Otherwise, others, it will be later on.
Okay. Great. And then finally, on the other line, I noticed that the run rate is a little bit higher than it was for the rest of the year. So for whatever it's worth, compared to consensus, that seemed to be a miss. Is that due to central costs or due to any of your rest of the world businesses?
It was relatively high. Yes, correct. We have had quite some cost in business development in the quarter. We are investing in trying to find new channels of how we can improve mobile sales, for example, mobile patrol sales, how we can look into the smart home development. We have invested there. That has had an impact. I think that's one of the reasons. Yeah. I'm looking at my friends here in the office, and they seem to nod. It's probably the right answer.
Great. Thank you. Just a very last one. Are you going to be splitting out the restructuring costs for the Diebold acquisitions, please?
Sorry? But.
That's interesting.
Yeah, that's the restructuring costs. Yes, correct. I mean, that is what we have given you in the press release. So no changes from there, no.
Okay. Great. Thank you very much.
Thank you. Our next question comes from the line of Mikael Holm from Danske Bank. Please go ahead. Your line is now open.
Hi. I have two questions. The first is on the solutions and technology side of the business. You say that you see that the margin basically doubles when you transform guarding contracts into security and solution. But is that the case for the full year 2015, or have you had basically substantial costs to grow that business, which at a later point will be scalable?
I mean, basically, no. I mean, these are not the I mean, you cannot have decimals on these numbers. But I mean, generally speaking, that picture is still valid. That's why we show it. So it continues along those lines, yes.
For modeling, we could put in an 8%-10% margin on those SEK 9.3 billion in sales, basically?
Yes, basically.
Also in Ibero, just a question on the margin leverage. You had quite strong organic growth. But if you adjust for the restructuring charge last year in Spain, basically, the margin is flat. What is the reason for not seeing—I mean, is it only the Peru thing that explains that?
Strong in the last quarter. Portugal, we had a number of a few one-offs actually in the last quarter last year, which we didn't have this year. Peru has been hampering that. Spain has improved. So that has been a good development in the Spanish business on the operating result. But yeah, these are it's not a big difference when you do the mathematics that you are doing. So still, the margin did improve for the full year. And when you make that correction, it's not a big difference.
Okay. Thank you.
Thank you. Our next question comes from the line of Rajesh Kumar from HSBC. Please go ahead. Your line is now open.
Hi. I know there have been a lot of questions on Europe terror revenue. Could you explain to us why you wouldn't give us the split between immigration and terror revenues clearly when it is very material for how people will look at the forecast?
I mean, I don't think it's necessary. I think we have given good information, but at least we said that organic growth in the quarter, half and half, so to say, of this exceptional situation and the business as usual, kind of. So I think we have specified that. I don't see any major information value in splitting that in any further pieces. And still, it's a very volatile business, has been and will continue to be. So I mean, I see little value in splitting this up in bits and pieces. And I think the big picture is still clear. And whether that revenue comes from one or the other, I think it's less of value.
Have you signed any long-term contracts on this?
I mean, we have a base contract with authorities, for example, in Sweden with immigration authorities where we have a base. But then, of course, there's a lot of extra required on top of that. So that is a base contract on, so to say, an annual basis with a number of authorities in different countries. So that's the base. And then various occasional demands from week to week and month to month that changes over time.
Got it. If I look at your U.S. guidance, you clearly referred back to a 1% wage inflation in 2015. If you compare that with what Bureau of Labor Statistics measures in terms of hourly wage inflation, they're reporting something like 2.5. Could you explain why your wage inflation is different from what BLS reports? And are you playing a catch-up in 2016?
No, I don't think there's a catch-up. I mean, I'm just looking at our business. I don't follow that bureau and their numbers. And I trust my own people and my own organization more and their judgment. And the judgment from various is what I just said before, namely that we've had a wage inflation in the roughly speaking because in some areas, we don't have any at all. And in some areas, we have more. But I mean, I would say in the range of 1% or so in 2015, but it's probably going to be more like 2% or something like in that range in 2016. So that's my statement on what my team feels. And I have not connected that to any other sources from that.
I didn't feel it's a competitive issue. So your teams must be looking at what others are paying. So when you calculate this wage inflation figure, do you take a monthly wage figure, a weekly wage figure? How do you calculate it? Especially, it must be complicated given the high level of staff churn.
I'm not sure I fully understand your question. But I mean, when we have most of our business in the U.S., the wages are set on an individual and local basis. And then when we have the annual renewal of a contract, we engage in a discussion with the clients. And we feel that there is a pressure to keep the people because we have the turnover is increasing, and we like to have stability on the sides. So then, of course, we correct the wages. And at the parallel to that, at the same time, we engage with the clients, say, "Look, we need to increase our wages by 2% or 3% or 4%, whatever the number is," and then negotiate that and set that. And that will be the wage that will be the wage inflation. That's how we do it.
It's not more complicated than that, simply. Then, of course, that is then paid on a biweekly basis to the guards.
Okay. So it's calculated on a biweekly basis. So it's adjusted by how many hours they're working.
No, I mean, it's the hourly rate. It's the hourly rate we're talking about.
Okay. You're talking about the hourly rate. So we are talking about like-to-like figures because Bureau of Labor Statistics measures for your industry in the U.S. 2.5% type wage inflation in 2015. And clearly, you have managed to pay less than that, less than the industry. How have you achieved that?
I cannot comment on their numbers, simply because I don't follow that. But if that's very important for you to give a little bit more details on that, I cannot answer that at this moment. Then we'll ask our investor relation, Micaela, a person here to dig a little bit deeper on that. And then you can sort that out afterwards.
That will be very helpful. Thank you.
Thank you. Our next question comes from the line of Paul Checketts from Barclays. Please go ahead. Your line is now open.
Hi. I've just got two quick ones, please. The first is a follow-on from what you said earlier, Alf. With regard to security solutions and technology, did you say that of the 38% growth, that about half of that is coming from the conversion of existing manned guarding contracts? And the second question, back to the topic of work related to terrorism and the refugee situation, what's the actual work you're doing? Could you give us some examples, please? And you've already mentioned that it seems to be governments that are the customer. But is that the case? Thanks.
Well, on the first question, there is a piece of in the 38%, we have also a piece of acquisitions that supported that. But other than that, it's roughly along the lines that I said before. But my estimate is that approximately half of a new sales in solution technology is conversion of existing contracts. And half, roughly speaking, are new contracts, so to say. So yeah, it's not an exact science, but it gives you at least some kind of guidance. What was your second question? Sorry, I didn't.
The second is we've talked a lot about the terrorism and refugee work. But I'm just hoping you would explain exactly what it is you're doing and who the customers are in both of those cases?
No, no. I mean, our customers are the authorities in the different countries, in Germany, when it comes to the refugee situation. It's the authorities. They need help to protect and to secure the sites where the refugees are during the asylum process and the areas where they live, and then to protect those sites from any external attacks or terror. And also internally, sometimes there are trouble in those places where we need to protect and secure that there is nothing going wrong, so to say. What we do is what we do our business, basically. We are a security company, and that's what we do. And on the terror-related piece, it's mainly private companies who are asking for increased protection due to those attacks and increased threat levels.
Your view on the latter is that that demand is fleeting in the sense of.
That is basically it lasts for approximately two months, and then things go back to normal. So yes, that kind of disappears, yes.
In Turkey, is it similar to what you described with?
No, Turkey is not a very small piece of that is related to the refugee situation. We have some business in that. But the main driver is Turkey is simply that we are successful in the market and selling to the wide customer base in the Turkish market and have very good development in Turkey in general. So it's not the refugee situation driving or terror-related situations in Turkey that drives our growth in Turkey.
Okay. Thanks very much.
Thank you. Our next question comes from the line of Viktor Lindeberg from Carnegie. Please go ahead. Your line is now open.
Yes. Thank you. Going back to the technology business and the good growth that you have experienced now throughout 2015, can you comment anything about how you have seen this materializing across the different geographies that you operate? And also, if you now in the last quarter have seen any changes in the customer adaptation of these new solutions that you are now offering to the customers?
The business is the same as we've had all throughout the year. So it's the same content, the same kind of business. What is it, and it's fairly widespread. It's a good development in North America from a very low level, but now it's improving. I mean, we were at basically 0% of sales going back a few years. And now we are in the range of 3%-4% of sales in North America. So it's good development in North America, good development in Europe, and good development in America. So it's well spread between the divisions and within the divisions as well, to a large extent.
Okay. Thank you. On the extra sales volumes, can you comment about historically what kind of have you been able to achieve double-digit margins on this business historically, even though it's not the case now in this quarter?
Yes. Normally, yes. It's good margins on those. But these extra sales are, as I've explained now, and you probably understood this, that these extra sales are not normal extra sales. They are different in the content because they have been extra sales. This has been mobilization of thousands of guards in a very short period of time. And then, of course, the situation is totally different. We need to train these people. We need to get our people to work overtime in order to manage the needs, which came in the terror-related things overnight. So it's, of course, a dramatic different situation than normal extra sales. So that's why the margins are lower. But normally, the margins are very good and double-digit, yes, in extra sales.
And on the back of that, looking at the pricing component in the extra sales that you can fetch, how does that work? Is it a fixed price, or is it a variable price that you can sort of change? And have you been.
Usually, we have an agreement with a customer where we specify what is the cost for whatever extra sales is required. And then you call it off. I'm talking now about refugee-related services. So you basically have a price list. So the price is correct, is that we need to generate a lot of extra cost in order to manage big demands in a very short period of time. And that has an impact on our margin. But at the same time, we need to price the service in the correct way and not do it in any wrong way in any direction. On the terror-related situation, of course, it's from one minute to the other. And you set the price at that moment.
Still, you cannot abuse your situation with your normal client base because the main demand comes from our ordinary clients, so to say, and not new clients. Then if we would abuse that situation and take advantage of that, that would not be appreciated. We should not behave in that way.
All right. That's helpful. Thank you very much.
Thank you. Our next question comes from the line of Rory McKenzie from UBS. Please go ahead. Your line is now open.
Yeah. Morning. Thanks. Just two, please. Just following on the last one. North America, you said, is around 3%-4% technology. What's the mix in Europe and in Ibero-America, just to be clear?
What was that?
The mix of SS&T in the other division?
Sorry, I didn't catch that. Okay. I mean, it's high. It's much higher, of course. I mean, as you can see on a group basis, we are now 11%-12%. So I mean, doing the math, you will find out that we are, I mean, in the range 15%-20% range in those other two divisions.
Which one is higher? Is there much difference between the other two?
No, it's fairly Ibero-America is a little bit better than the European division. But the European division is fighting hard to catch up. They are on a good way to do that.
Yeah. That's great. Thanks. And then just secondly, can you talk about the kind of CAPEX outlook for the group? How much investment is still one-off as you're ramping up in, say, North America solutions? And how long CAPEX is ahead of depreciation?
Yeah. The rule of thumb that we gave them before the guidance was not 100% accurate for 2015. It was actually coming out a little bit lower than the guidance of SEK 350 million-SEK 400 million per year in increased CAPEX needs. But my proposal is to continue to use the SEK 350 million-SEK 400 million guidance going forward. But it came out a little bit lower than that in 2015.
Was that just timing or anything you'd highlight?
Well, it depends on the timing and mix of contracts, primarily mix of contracts. I mean, what kind of contracts we are signing and how big is the investment of those contracts. Don't change. Continue to use that guidance that we're given. I think that's the best accurate guidance you can use going forward to be, so to say, have some idea of what it will take in the continued development.
Okay. Thank you.
Thank you.
Thank you. Our next question comes from the line of Allen Wells from Morgan Stanley. Please go ahead. Your line is now open.
Hey. Good morning, Alf. Just a very quick one from me. Could you talk a little bit about just how this sort of on the immigration side, how the contracts were actually structured? So you get asked to do some extra work. Is it a fixed period of time? I mean, what sort of visibility do you have when you're hiring staff and how long these contracts are going to run and how they roll off, etc.? Thank you.
Yeah. It's a good question. But there is no simple answer to that. We have a base. We have a base. And we have continuous discussions with authorities of what we can expect because it's in our interest, of course, to have as much visibility as possible. But then things happen. So we have a base plate, let's say. And that is fairly clear that we need so many people all the time on so many locations, two guards on that location, five guards, two guards, three guards, etc., for those locations. And as long as I mean, the need is as it is, it's probably going to be fairly stable, so to say, and with a decent visibility. But then things happen all the time. And there, we have no visibility.
I mean, all of a sudden, we need to bring extra people to some kinds of sites. And then after a while, we have to go away again. So it's a bit rocky and volatile. But yeah, I'm sorry. It's hard to be more specific on this question.
That's fine. Maybe just in a sort of a slightly more bearish scenario where some of this migration work goes away quite quickly, I mean, how do you deal with that? How flexible is the workforce? How much payment do you get from the customer on these contracts that sort of gives you some protection on the people?
It's a twofold business and a twofold situation because what it is, I mean, first, you have all the people already here. That needs to be managed. That's not going to change overnight. So there, we have decent predictability and visibility. Then you have how many are coming how many are coming this week and next week and so forth, which is different. That's very difficult to have an opinion about. So we are planning and employing and managing this in a way so we can adapt if we have to. As I said before, I do not foresee us having major or any cost related to restructure because we need to change the situation overnight. I don't think so. We try to take that into consideration all the time. That's what we always do and normally do.
Great. Thanks, Alf. Thank you. Our next question comes from the line of Ed Steele from Citi. Please go ahead. Your line is now open.
Good morning, everyone. Morning, Alf. Just one question for me, please, on Argentina. You mentioned that while LatAm is strong, you are concerned about the macro. Have you seen anything change with respect to the character of the Argentinian guarding market, either around volume growth or your ability to pass through wage inflation on a timely fashion, please?
I mean, there is still a high inflation. It's probably going to continue to be a high inflation. I think there is a lot of more optimism and positive signals coming from Argentina after the election. Also, you can now float money in and out of the country in a totally different way than before. We think we're going to, I mean, most of the growth we have in Argentina and the business we have is inflation-related. And that's probably going to continue for 2016, more positive in the country. So that should be positive for the macro situation in Argentina. So more positive view on that now than it was maybe a year or a half a year ago. Then, of course, you should remember that the peso was devalued by 30%+ after it was allowed to float.
And that, of course, has an impact when we convert pesos to kronor in 2016. It basically only had an impact in the last month or so, it's only 1/12 impact in 2015. But while it's 1/12, 12/12ths in 2016. So when you convert pesos to kronor, that will have quite an impact on the number of kronor that we will have on our business coming out of Argentina in 2016.
Understood. Thanks very much.
Thank you. Our next question comes from the line of Andy Grobler from Credit Suisse. Please go ahead. Your line is now open.
Hi. Good morning. Just one housekeeping question left from me. In terms of the extra Swedish costs that you had flagged, what was the phasing of that through 2015, please?
Which one was that? Which?
The social costs.
The social costs in Sweden.
Okay. Yeah. Most of that, I mean, it started basically in August. We had a tiny piece already in June, July. But that was minimal. So it started from August. And then it has and then it's evenly spread as of August until the end of the year.
Okay. Thank you very much.
Thank you. As there appear to be no further questions, I return the conference to you.
Thank you very much, everyone. Thank you very much for calling in and for all the questions. We'll be back in a quarter. Thank you. Bye-bye.