Good afternoon, everyone, welcome to our Q4 2022 Conference Call. We finished the year with a good continued momentum and also solid results. 2022 is not only a year of significantly improved performance, it's also been a year when we have achieved some very significant strategic milestones and important steps in shaping a more technology and solutions-focused business and a stronger than ever offering to our clients. We are on a good path as a company, and I'm glad to present the Q4 results today together with our CFO, Andreas. If we go on then to the results, on a group level, we have good momentum across all parts of the business and increased the organic sales growth to 9% in the quarter. Technology and solutions growth, together with high price increases, are the two main drivers.
Our growth in North America, I wanna highlight, increased to 5%. Strong momentum across the North American business, and also then the previously announced contract expansion will positively impact the growth in Q1 2023. We had double-digit organic growth in solutions and technology also when excluding the positive contribution from Stanley Security. Technology and solutions now represent 32% of our total sales. The operating margin increased to 6.5% thanks to Stanley Security and good development in the legacy business. The Stanley Security business improved as a result of pricing recovery, cost control, and leverage, and initial execution on the value creation plan. Importantly, we have maintained a positive price-wage balance, but the labor scarcity is an ongoing challenge, especially in Europe.
Operating cash flow in the quarter was solid at 83%, and we have reduced the net debt to EBITDA ratio to 3.7 at year-end. In summary, we are delivering on our plan. Looking at the dividend, our board has proposed a dividend of SEK 3.45 for 2022. With that, let us shift to the performance in the different segments. As I mentioned, our momentum is really improving in North America. During the first half of the year, we faced top-line headwinds related to terminations of some large low-margin contracts, and comparatives that also included COVID-related extra sales. That is now behind us, and we have good momentum going into 2023. Good commercial activity with healthy new sales together with price increases contribute to strong growth in our Guardian business.
Looking at the technology installations business, that also improved in Q4, but there is still some negative impact related to component and labor shortages. We now have a really strong technology and solutions offering to our clients, and when you look at technology and solutions, these now represent 31% of total sales in North America. The profitability development is continuously very strong. We set a new record with 8.1% operating margin in North America in the quarter. The main driver of the improvement is the technology business with strong contribution from Stanley Security, as well as good development in the legacy technology business. The integration work that we are doing together with our colleagues from Stanley is progressing at a solid pace, so we are currently ahead of plan in terms of synergy realization in the North American technology business.
A very strong performance in our Pinkerton business also contributed to the positive margin development. The Guardian business development was good, with positive impact from active portfolio management and increase in value realization from the transformation investments, but with some negative impact related to year-end reconciliations. To conclude, looking at the momentum on a top-line perspective, it's really good in North America now, just wanna highlight as well, terrific work done by the team, record level margin for the first time above 8%. If we're shifting then to Europe, where we also had a historically high organic sales growth of 11%. We have been successful with high price increases to offset wage inflation. This is a major driver of the growth, obviously also some impact from the inflationary environment in Turkey.
Our European team is doing a very good job working with our clients to address their technology and solutions needs. The investments that we have done here in recent years in terms of leadership, solution support, technical support, has resulted in strong double-digit solutions growth in the quarter and also the full year. We're actively shifting the business mix, and technology and solutions now represent 35% of total sales in the division. Due to labor shortages, we do have to decline work in a few markets in Europe, and that obviously has an impact as well on profitability. When you're looking at the margin in Europe, we had a similar margin compared with the same period last year. Stanley Security, active portfolio management, and solutions are contributing positively to the margin.
We've had good progress balancing historically high wage increases with price increases in key markets such as Germany. Having said that, various effects related to the labor shortage negatively impacted the margin in Europe, such as higher costs for subcontracting, reduced capacity for high margin extra sales. Looking at absenteeism or sickness, it's still at an elevated level like the fourth quarter in 2021, and we have not seen a significant improvement in terms of the labor availability in the quarter. When you look at the totality from a profitability standpoint and how we ended the year, we are not satisfied with the profit performance in Europe at the end of 2022. Important then to highlight a few of the actions that we are taking under our European leadership to improve.
First of all, given the labor scarcity, we are now increasing the margin requirements also for new contracts while also working actively to terminate or renegotiate low-margin contracts in order for us to be able to focus our employees on clients prepared to pay for the value that we deliver. As part of this strategy, integrated security solutions, where we're combining people and technology, is an important lever, and here we have seen an increased momentum in 2022 in terms of how we're working with clients and also converting significantly more clients to integrated solutions, which is very important. The acquisition of Stanley is of course an important part to strengthen the integrated solutions offer, and here we're now increasing the speed of the important integration work to be done in the coming months and quarters in our technology business in Europe.
Moving then to Ibero-America, where we recorded 17% organic sales growth in the quarter. The inflation-driven increase in Argentina is the main driver of the high growth number. Spain continued at a good pace with 4% organic sales growth, but the growth was somewhat impacted by active portfolio management. That essentially means we were terminating contracts that are not economically sustainable or in line with our profitability requirements. Our team is driving solid focus and momentum with technology and solutions, and these sales now represent 31% of total sales in the quarter. If we shift then to the profitability, our team delivered a stable margin of 6.3% and continued improvement with a margin of 6% on a full year basis.
Spain and Portugal are the main drivers, looking at the quarter, but also the full year with year-on-year improvements also coming in Peru, where we have been driving significant turnaround efforts over the last two years. The operating conditions in Argentina remain challenging. All in all, when you look at this, solid performance and improvement by our Ibero-America team in 2022. With that, handing over to you, Andreas, for some more details related to the financials. I will make a few comments also related to the strategic journey before we open up for the Q&A.
Thank you, Magnus, and hello, everyone. As always, we start by having a look at our income statement. As Magnus mentioned, we have a strong top-line growth with 9% organic sales growth in the quarter, and our operating margin was 6.5%, where the Stanley acquisition was a strong contributor to the result. Stanley sales was approximately $4.4 billion in the quarter and $7.7 billion year to date with continued mid-single digit organic growth. Year to date, North America represents close to 65% of Stanley sales and Europe around 35%. From a profitability point of view, Stanley supported the margin positively in both segments, while the North American business had higher margins than in Europe. The difference in profitability increased in the fourth quarter after we had strong synergy takeout and development in North America.
If we have a look at the items below operating result, here the amortization of acquisition-related intangibles was SEK 155 million in the quarter. Now with the full quarterly effect for the first time from the Stanley acquisition, as we have said earlier, we have allocated a proximately S EK 5.5 billion to intangibles in the Stanley PPA, we expect to have an annual amortization rate of around SEK 375 million per year going forward. Looking at items affecting comparability. Here we had SEK 312 million of cost in the fourth quarter. SEK 158 million of this is related to the Stanley acquisition, SEK 154 million is related to the ongoing European and Ibero-America transformation programs. As usual, I will come back with more details here shortly.
We then move to the financial net. Here the cost was SEK 336 million in the quarter. The main reason for the material increase compared to last year is the financing of the Stanley acquisition, where we had SEK 243 million of cost in Q4 related to the bridge financing in place. Remember here that in Q3, we did not have a full quarter of cost in. Of the SEK 243 million, SEK 16 million is related to the bridge to equity, and this bridge was fully repaid in October after the finalization of the rights issue. There will be no further cost here going into 2023. The remaining SEK 226 million related to Stanley is the cost for the bridge to debt.
If we look at the finance net excluding the Stanley bridge cost, this was then SEK 93 million in Q4, around SEK 10 million higher than last year. However, we do see an underlying increase in interest cost of around SEK 50 million. Where the net amount between the SEK 10 million and the SEK 50 million mainly is related to positive impacts from IAS 29 hyperinflation in Turkey and Argentina. Going into the first quarter of 2023, we estimate the finance net to be in the range of SEK 400 million-SEK 450 million, while this is of course, also subject to movements in interest currencies and so on. Moving on, having a look at our tax. Here, the forecasted full year tax rate was 27.2% in Q3. As you can see, we are coming in quite a bit lower at 24.6%.
The main reason here is that we have won several old tax cases in Spain from 2006 and 2007 related to the Niscayah spin-off and acquisition interest rate deductions. This means we can now reverse provisions of around SEK 150 million, which impacts the tax rate positively 2.6% on a full year basis. Note that these reverses are non-cash and non-recurring, although the wins are of course important as it reduces our potential financial exposure. This then explains the main difference between the forecast and the full year tax rate. There is more information around these cases also in the report.
Before moving on, I just wanna remind everyone, as we did in Q3 as well, that the number of shares we use for calculating earnings per share are adjusted for the bonus element of the rights issue in line with IAS 33. Here you also find more information on page 22 in the report. If we move on to the next slide, where we have some more information related to the different programs under items affecting comparability. Here, as you know, we closed down three programs at the end of 2021, and the two remaining ones are the transformation program in Europe and Ibero-America, and the acquisition-related cost related to Stanley. Looking first at the European and Ibero-America transformation programs.
Here we had SEK 154 million of cost in Q4. For the full year the number was around SEK 630 million, which is in line with our estimate we gave in the third quarter. The Ibero-America program is running well on track. So is most of the activities in the European transformation program related to accelerating the technology and solutions business and driving cost efficiencies by professionalizing our approach to procurement. We are temporarily executing with a somewhat lower pace right now related to the core ERP platform activities that we are running. We do that to ensure we calibrate the program with the Stanley integration to ensure that we maximize the benefit realization and cost efficiency.
Since the program start, we have invested $942 million in IAC. The remaining amount for the program is around $700 million. In line with the original amount announced when we also considered the accounting changes related to cloud computing that we communicated earlier as well. Moving on to the IAC related to the Stanley Security transaction. Here we announced total cost of approximately $135 million. The integration progress is progressing well with the good start of the value creation and synergy takeout in North America, where we are also ahead of plans. Here, now in the fourth quarter, we had $158 million of cost. What is coming in so far is mainly transaction cost and cost related to the synergy takeout.
Since the announcement, we have spent SEK 516 million in this program, and we estimate the 2023 spend to be in the range of SEK 500 million-SEK 600 million . All in all, looking at the full year on the left-hand side, we have a total of around SEK 1.1 billion of IAC in the operating income after amortization from these two programs. We have the cost related to the equity bridge and the positive impact from the Spanish tax cases. They are not reported on the IAC line in the income statement, but in the financial net and tax line. However, given the non-recurring nature of these items, they are then adjusted when we report our EPS excluding items affecting comparability and should then be seen as IAC when looking at net income.
If we move on to the next slide, where we have an overview of the FX impact. Here we had the material positive impact in our income statement from FX, although it was less than in the third quarter due to a weakening U.S. dollar throughout the fourth quarter. The U.S. dollar appreciated 16% year on year and the euro 9%. The total FX impact on sales was 11% in Q4, mainly then driven by the U.S. dollar development, but also the appreciating euro. Looking at the operating result, the FX impact was slightly higher at 12% due to the higher profitability we have in the North American business. The impact was even a bit higher looking at EPS, mainly due to the impact from IAS 29 hyperinflation.
The EPS real change, excluding items affecting comparability, was -5% in the quarter, with negative impact from the adjusted number of shares from IAS 33. On a constant share basis, the real change excluding IAC was 20% in the quarter, this is derived from the real change on operating income in the quarter being strong at 28%, positively impacted by the Stanley contribution, while the increase of amortization of intangibles and financial net impacted negatively, leading then to the 20%. If we then move on and then go to cash flow. As you know, this is a prioritized area for us, as we have said before, due to the increased macroeconomic uncertainty and also as we have a strong focus on deleverage our balance sheet after the Stanley transaction.
After a strong third quarter, we also deliver solid operating cash flow now in the fourth quarter of 83% or SEK 2.1 billion. If you go into some details here, first looking at CapEx. Here we spent around SEK 1 billion in the quarter, an increase of around SEK 150 million compared to last year. We continue to see an increase in our investments into solution contracts, which confirms the positive momentum in the high-margin solutions business. We also saw investments into our existing transformation programs according to plan. The CapEx to sales was 2.7% in Q4, we are coming in below 3% for the full year, as we have also previously guided on. This includes Stanley and IFRS 16 as well.
The strong price-driven growth we have seen throughout the year and in the fourth quarter had negative impact on the account receivables both in Q4 and for the full year. However, this was also compensated by good DSO development and good working capital management in the fourth quarter, where our focus on cash flow is paying off and also supports cash generation well. I should also say that there are no major payroll timing related cash flow impacts in Q4 nor for the full year. However, as highlighted in the previous quarters, we have now in Q4 paid out close to SEK 700 million of the corona-related timing relief measures we benefited from in 2020 in North America.
This has a material impact when you compare Q4 to Q4 last year, but it has no significant impact when comparing the full years as we did one similar payment in Q3 2021. Important to say is that this was the final payment we have to do, so we have no further C-19 related payments remaining, which will also cater for a stronger cash generation into 2023. Free cash flow is coming in at SEK 1.2 billion, where increased interest costs, increased taxable earnings, and some reduced tax losses carried forward had negative impact on the cash flow from the financial net and taxes. Year to date, we are at SEK 3.4 billion of free cash flow after a strong second half of the year.
All in all, we are reasonably satisfied with the cash flow for the year, where we deliver 71% operating cash flow in an inflationary environment. Adjusted for the USD 700 million corona-related payment in the U.S., we are at 80% cash flow, which is at the upper end of our cash flow target. Cash flow will continue to be in focus throughout 2023 to ensure we see solid deleveraging. You should also remember that we have some seasonality in the cash flow, where the first half year is a bit weaker than the second half. We then move on and have a look at our net debt. Our net debt throughout the year has increased around SEK 26 billion, ending at SEK 40.5 billion in December.
The main reason for the increase is, of course, the Stanley acquisition, which is impacting the net debt SEK 32 billion. We initially financed the acquisition fully with debt throughout our bridge facility and have since partly refinanced that via the rights issue of SEK 9.5 billion in October, as you know. Outside the acquisition financing, the net debt was also negatively impacted by the annual dividend that we paid out in the second quarter, SEK 1.2 billion of spend related to items affecting comparability, and material SEK 2.5 billion translation impact due to major currency movements over the year. Although I should say that it was actually now reduced in the fourth quarter. Approximately SEK 1.3 billion related to IFRS 16 lease liabilities, where most of this is related to Stanley.
Finally, we have a positive impact from the free cash flow generation of SEK 3.4 billion for the year. The net debt EBITDA, the reported number was 4.0x in the quarter. As we also mentioned in Q3, this is not taking into account the full 12 months EBITDA from Stanley. More relevant is to look at this on an adjusted basis, taking this into account, and the ratio is then 3.7. Here we saw solid deleverage from 4.0 that we reported in Q3. As you know, we have said that we will be below our target of htree in 2024. Here we are also on a good track.
We further adjust for the items affecting comparability, the ratio is 3.3x . This also gives a good indication of the deleverage effect we will see after the IAC programs are being finalized. We have finally done a look at our financial position and debt maturity chart. Here, as you know, we have a solid financial position today. None of our facilities have any financial covenants. The liquidity position was continued strong in the fourth quarter at SEK 6.3 billion. We also have our RCF of more than EUR 1 billion in place until 2027. It is fully undrawn as per the end of the year.
If we look at the bridge facilities in place related to the acquisition of Stanley, as you already know, we have successfully completed our $9.6 billion rights issue in October and fully paid down that part of the bridge which was approximately $915 million. This left us with the remaining $2.4 billion bridge to debt facility, where the maturity is in July 2024. $2.4 billion was also the balance at the end of the year. However, in the beginning of this year, we have refinanced a major part of the facility. We first did a $75 million private placement for six years, taking effect in the beginning of the year. As you have seen, we have since quarter end also signed a long-term term loan with nine of our relationship banks.
The term loan is four years where we, together with the banks, can decide to extend one more year. The facility amount is EUR 1.1 billion. As I mentioned before, we have decided to go for a mix of different debt instruments in our takeout to make sure we get as cost-effective funding as possible, and we feel we have achieved good competitive terms in this term loan. Another important point just to highlight here as well is that the term loan can be refinanced in advance of maturity, which is another benefit of this facility, as it gives us good flexibility if the market terms would move on in a good direction going forward. The remaining amount of the bridge to debt facility after these takeouts is now around $1.15 billion.
Given we have now taken out a major part of the bridge, we are in a good position here moving forward for the remaining takeout. You can expect further activity to close most of the bridge out in 2023. Going down to rating and rating-wise, there is no change in the quarter. We of course remain with our commitment to remain investment grade. I, as I have emphasized earlier, we have strong focus on cash flow and to deleverage our balance sheets going forward. With that, I hand back over to you, Magnus.
Many thanks, Andreas. Let us now shift the perspective a little bit beyond 2022. Here I just wanted to share a few reflections and comments regarding the journey that we are on. If you're going a few months back, we announced new targets in August with our ambition to reflect what the future Securitas will look like. Here we're really focusing on two main financial targets. First one, to emphasize the shift in revenue and margin mix with an ambition to grow technology and solutions with 8%-10% per year. With the Stanley Security acquisition, we are accelerating this shift. We are differentiating and strengthening our value proposition, and I will provide also some client feedback in a few minutes to illustrate a little more what this actually means.
With the sharper solutions and technology profile of the company, we've also shared the target to reach 8% operating margin by the end of 2025, and a longer-term double-digit operating margin ambition. When you're looking at the development and the results in 2022, we feel confident that we are on the right path with healthy technology and solutions momentum, as well as the real step up in terms of the margin profile of the company. Together with the team, we're working with a clear focus in four main areas to deliver on our ambition. The first area here, taking the lead within technology. When we're joining forces with Stanley, we're building a very strong local and global technology capability.
As commented earlier, the integration and value creation work is progressing according to plan, but we have a lot of important work still ahead of us during 2023. The transformation programs and digitalization are fundamentally important to sharpen our guarding services for our clients and for our employees. To enhance value, we have a very strong focus on quality over quantity, so that means profitability over volume, and we are changing our incentive systems as well across the organization to line with our strategy. With what we have as well, the strongest people and technology offering, we're also uniquely positioned to deliver integrated solutions to our clients, and that's obviously the third category when you look at this illustration on the picture here.
With this as well, I was gonna talk more about that in detail today, also an incredibly strong platform to drive innovation where we have now millions of connected sites that we are serving our clients with. When you look at these four focus areas and our strategic ambition, it's all based on our view in terms of what it will take to be the winner in the security services industry in the future. I think some of you have heard me talk about this now for quite a while, these three circles, but I come back to them because they are fundamentally important to shaping our view in terms of why we believe that Securitas is now really becoming a unique company with a stronger offering to the clients than anyone else is able to offer.
These three main capabilities then. First one, it's about presence. Our leading presence that we have with our people, security and safety-focused. Second one is connected technology. There, as you know, we have a significantly larger footprint now, more than doubled our business, and also capability and competence, together with Stanley in the technology space. Obviously the more presence you have, the stronger the capability in terms of technology. You're also really well-positioned to leverage data in an intelligent way. The ability to leverage a combination of these capabilities to deliver the strongest integrated solutions to our clients. What are then the clients saying? Let me just share some feedback that we have received from our clients in the last six months. We are proud to count many of the world's most recognized brands as our clients.
Many of these brands are looking at Securitas as their main security partner today and for the future. Since we closed the Stanley acquisition, we've had a lot of interaction with local as well as with global clients. Some of the perspectives that you can see here, I really just wanted to share. Because when you look at this from a client perspective, ensuring a resilient operation is becoming increasingly challenging for many of our clients, and as anticipated, the combination with Stanley Security is very well received. Because when you look at this context, in an increasingly complex future, they are looking for a high quality partner that is capable of delivering solutions that address their needs. We can see an increasing need leveraging the presence, leveraging the technology capabilities of Securitas.
We're also now driving digitization and digitalization across the operations together with our clients to generate better insights and also to innovate more with the data that we're generating. When you look at commercial perspective, because this is obviously also important once we are doing the integration work, et cetera, to unlock also the opportunity in terms of commercial synergies as we are going forward. Here it's still obviously early days, but we have already now won back some business and expanded some contracts thanks to the strength of our combined capabilities. Our team is doing really good work stepping up the interaction with a number of clients, and the pipeline is looking really strong. When I say that is obviously then very much reflecting as well what we have done on the guarding side.
There is significant opportunity now in the technology space, but also to leverage these two to more integrated solutions. Delivering on our commitment is always the first priority. We're facing this work in line with our capabilities, but based on the progress in the first six months since the close, I feel really good about the opportunities ahead when we can drive the commercial synergies at scale. I hope that is useful just to give some further flavor. If we are then looking to sum up the results presentation here, we are executing on the strategy. It is generating results, 39% increase of the operating result and a 6.5% margin in the fourth quarter.
Momentum and growth, technology and solutions, maintaining a positive price wage balance in an inflationary environment are two things that we have been able to successfully do. From a strategic perspective, 2022 has been a year of significant milestones. Obviously, the main one being the acquisition of Stanley Security and now joining forces to create an incredibly strong company, which is more technology and solutions oriented going forward. We've also demonstrated our leadership in the industry by being the first major company to commit to the Science Based Targets initiative. We've driven solid progress in terms of digitalization, modernizing our systems and applications. While these are multi-year investments, they are now firmly starting to generate a positive impact by enhancing our client value proposition and profitability.
Obviously, just to reiterate that as well, when you're looking back at 2022, announced our new financial targets a few months ago with the performance and the progress in 2022, we are confident that we are on the right path. I think with that, happy to open up the Q&A session.
If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. The next question comes from Anvesh Agrawal. Please go ahead.
Hi, this is Anvesh from Morgan Stanley. I have three questions, please. First, if you can give a bit more color around the price volume split and the hyperinflation impact on your total organic growth, that would be great. Second, you talked about some changes that you're implementing in Europe to improve the margins. I mean, when do we expect the benefits to start flowing through? Also, have you already finalized some contracts that you're looking to exit, and therefore any sort of guide around the impact on the organic growth? Finally, just around the refinancing and the interest cost, if you can give any color around the rates at which you are refinancing the debt, that would be great.
I mean, the SEK 400 million-SEK 450 million of interest cost guidance that you've given for Q1, I mean, does that include some benefit of the hyperinflation as well, and therefore the underlying sort of run rate is probably even higher at this stage? Any, any comments around that would be really useful?
Thank you, Anvesh. Maybe just to start on price volume, it is as you have noted, a higher increase when you're looking at the growth rates. If I start from a business perspective, most important is solutions and technology where volume growth is fairly significant looking at North America and Europe. When I referenced 15% organic sales growth in technology and solutions, significant part of that is volume. Obviously still very meaningful part is also price increase. I think that is important in terms of, okay, the areas that you focus on in terms of driving the strategy, how are you there performing? Look obviously price increases are very significant as a main driver of the growth.
That is nothing negative. I mean, we enjoy and we like to be able to pay our people. It is important to attract and retain quality people in terms of protecting the quality offering from Securitas. Looking at the inflationary out of the total organic sales growth, I would say a bit less than a third approximately in terms of the inflation impact. They are looking at Argentina and Turkey specifically. Another major part is price increase related. There obviously, if you then ask the question, okay, how does it then look? Solutions and technology, very positive, strong volume, strong price increase.
Looking at the guarding business, that is more stable from a volume perspective, and that's simple consequence of the fact that we continuously stepping up and increasing our requirements on new business that we are taking in. We also work actively with portfolio management to make sure that we can. If we cannot improve pricing on underperforming contracts, if we cannot convert them and increase the price, then we would terminate those contracts. I think that is just really responsible management, especially given the tight labor markets that we're facing. That I would also say, coming to your second question, is the main point. The labor market is really, really tight in Europe still.
We haven't seen that much relief even though you're looking and listening to lots of news about the pending recession, et cetera. General availability of people is still limited in Europe. That is the reason that we also having to say no to quite a lot of business, having to say no to quite a lot of extra sales, which is typically a higher margin profile. If you look at what we are doing in terms of improving, it is really about stepping up and increasing the requirements in terms of what business we are taking on at which type of price levels. It is actively working with portfolio management, it's also continuing to really drive conversion and sales of integrated solutions.
Because that is the best solution as well from a client perspective, when they say that, "You know what, we have a problem in terms of accepting the price increases," well, we can always optimize the security equation when we are integrating technology and people offering into an integrated solution. I would say those are the main points. There, well, if that's gonna cost us some of the growth in Europe in terms of on-site guarding, yeah, that might be the case. We also have really good commercial activity. We have good margins on the business that we are bringing in. I think that is also a situation that we feel fairly comfortable with.
It is important that we take a really disciplined approach in terms of pricing, and I think that is the only sensible way to drive the business, but also to make sure that we are recovering from a Q4, which from a profitability standpoint in Europe was not satisfactory. Andreas, do you want to comment on the interest cost?
Yes.
I think it was the last question.
I can give a little bit more flavor on the pricing cost there as well. As Magnus said, around one third is related then to Turkey and Argentina, the hyperinflation countries. That's actually a bit less than in previous quarters, given that we see now good growth in the North American business, but we also have continued price increases also in Europe as well. Going down from that perspective due to those reasons. Then to give you some more flavor, given the question will likely come here as well, it is, if you look at Europe, it is also approximately one third there. If you look at the Ibero-America division, it's around two thirds impact from Argentina there as well.
If we then go to the refinancing, the guidance on the total financial net is between SEK 400 million-SEK 450 million. Correct on that. I think I referenced in the previous quarters as well to give you some guidance also on the cost base here, that we have our Eurobond, for example, 2028 trading in the secondary market, and I think that is a good sort of reference when you want to get a feel of what kind of interest rates that we are paying.
As an example there, that one is right now on a yield of 4.7%, the 2028 bond that we have outstanding, which is implying a margin of 180 basis points, just to give you a flavor and the benchmark. You also need to remember of course that we have a significant portion of our debt also in USD, where of course you of course need to use the US LIBOR rates as a base rather than the EURIBOR rates as well. I think if you take that on, you will be able to get a good grasp here and a good benchmark.
Just sort of to clarify on that. SEK 400 million-SEK 450 million that you're guiding for Q1, does that have some hyperinflation expected benefit? Therefore just trying to get a sense of where the underlying interest cost on a quarterly basis is, and then obviously you can multiply it with four to get an annual run rate.
I fully understand that. I mean, we haven't broken out the exact assumptions that we are doing, but the SEK 400 million-SEK 450 million is all included financial net, what we expect to come in. Our financial net is including the IAS impact as well. We are not breaking out the specific assumption around that.
Cool. That is useful. Thank you.
The next question comes from Johan Eliason from Kepler Cheuvreux. Please go ahead.
Yeah, hi. This is Johan at Kepler Cheuvreux. Just a question on this active portfolio management. Obviously, you have a growth target for the technology side, but not for the traditional guarding business. Can you sort of indicate what sort of sales impact this active portfolio management had in the quarter? I noticed, I think your retention rates overall was sort of down one percentage point or so. Is that a fair assumption to look at when you consider the sort of your active portfolio management where you're not successfully hiking prices or moving it to an integrated solution? Thank you.
Thank you, Johan. The important thing here is this is something that we have been putting increasing emphasis on over the last year and a half. Correctly pointed out, if you look at North America a year ago, I mean, there we obviously terminated some large low margin contracts. We are through that. We are also improving consistently the margin despite some of that kind of negative leverage from a top line perspective. From my perspective, it just proves that the strategy is the right one. If you're looking on the totality, there is some impact. It's not very substantial, I would say, we do have a very active and important dialogue going on in all the key markets with our clients in terms of the positioning.
That positioning, it's typically three potential outcomes to be clear about that we increase the price to a sustainable level, that we convert to an integrated solution, which is always better for the clients, because we address their needs in a more customized way. If that, you know, if one or two fails, I mean, then we would terminate those contracts. The good thing now is that we have good visibility. There is really strong alignment as well, what we have done in terms of incentive systems, et cetera, that we're also extending as of first of January this year, within countries, down to area and branch level, just to make sure that everyone is driving in the same direction.
I think that when you look at that within this environment, it is responsible thing for us to do that. Yes, some impact on the client retention, but nothing which is alarming. I think this is just important work. Then I just wanna highlight as well, when I look at the commercial activity and the new sales, the business we are winning, it is more volume, and it's at higher margins than in previous years on average. I think that is also important proof that clients value the differentiated proposition that we bring.
That is where we then put a lot of the emphasis as well, if you're looking at the new business, and how we are driving, growth, but still, really good profitability development in the coming years.
Excellent. Thank you very much. Just some minor details here. Coming back to the guidance on financial net. You obviously had some refinance during the quarter, and sometimes that includes some extra temporary cost. Is that the case including in this SEK 400-SEK 450 as well?
No, there is no non-recurring cost, so to say, assumption in that. I think the SEK 400-SEK 450 is on a fairly, how should you say, run rate basis there.
Excellent. Finally, just to remind us a little bit, now with the Stanley part of your number, should we think about a different seasonality in terms of margins, with a year in North America and Europe?
Yeah, I think we are going into kind of a new run rate. That is something that we will comment more on that. We will also provide more transparency in terms of performance, in terms of technology solutions, in the first half or starting in the first half of 2023. I wouldn't really call that out. I think what is important as well is that we've also had I mean, number one, sales in terms of technology have been strong. Order entry has been strong, very record high back order. We've also then had component shortages, which has also meant that we haven't been able to complete quite a lot of the work.
I wouldn't read too much into this when you're looking at the numbers. Generally speaking, the integration work is going well. Client feedback is really positive, as I mentioned before, in terms of the capability that we are building, and we're entering 2023 also with a strong order book on that side. I think there more to follow in 2023 as we are finalizing the integration and also creating kind of clean run rates throughout the year.
Okay. Many thanks.
The next question comes from Stefan Knutsson from ABG. Please go ahead.
Hi, congratulations on a good quarter four report. I have two questions. First, have you seen any improvements in the job market in Europe so far in 2023?
Thank you, Stefan. Taking the question immediately. No, there hasn't been much improvement. I know I mentioned that also after the end of Q3, because we're following quite closely as well in the market where do we stand. There is still significant shortage. Maybe some relief in some areas, but nothing that, you know, to emphasize too much. I think in that environment, the most important thing that we need to do is just to then say, "Okay, we need to manage regardless of that situation." There obviously the price wage balance that we are, you know, really succeeding with in 2022 is important, but also important focus area going forward.
Okay. Perfect. My second question is regarding the reconciliations you mentioned, in Q4, that it impacted margins. Can you specify if it was a lot or, yeah, give any more flavor on that?
Yeah, we can say these are sort of normal reconciliations year-end in the business. It has an impact. It's not the major impact, and it's mainly related to employee related items, et cetera, for year-end. We mention it because it has an impact, but it's not major.
Okay. Perfect. Thank you.
The next question comes from Allen Wells from Jefferies. Please go ahead.
Hey, good afternoon, guys. Just a couple from me as well. One thing I wanted to dig into, a similar question I think is, I think you had at the Q3 numbers, but if we look at the underlying margins, so we strip out the assumed benefits of Stanley, the synergies, FX, contract exits, it looks like there's not a great deal of underlying margin improvement in the core business. Actually, it's a slight decline on my estimates, this comes despite the stated positive impacts of price wage balance and the strong tech growth. I guess two questions. First of all, is my math correct? Secondly, how do we think about the trend from here? Would you expect to see some underlying improvement as we move forward? Thank you.
So when you're looking at that, thank you, Allen. Correctly stated, I think if you're looking at the full year, definitely improvement on a full year basis if you're excluding the impact from Stanley. Yeah, reference in the underlying margin. In Q4, a couple of different effects, basically. If you look at North America, progressing in a good way, with the net positive underlying development and hence also some of my earlier comments in terms of strong performance. That is offset by a weaker Q4 from a profitability standpoint in Europe. Then if you're looking at the Ibero-America, I mean, their underlying and there is no Stanley impact.
I mean, that margin is stable when you look at Q4, but clear positive progression as during 2022. We obviously don't give guidance, but we have been very clear in terms of the shape of the future Securitas or the new Securitas that we are shaping and they're obviously important improvements part of the plan in what you know, you could call the business also excluding Stanley in 2023, 2024 and 2025.
Okay, thank you. Just on the synergies, I think you commented that they're running slightly ahead of plan. Is there any way you can maybe provide indication or quantify the kind of run rate versus the $50 million target that you had just to help us with our math and the phasing over the next 12 months?
Yeah, that is something we will bring along here into the next year. We're not doing that this quarter. We're, we just wanna make sure we get good traction initially on the synergy takeout here, get everything with the integration in order. We have not provided the number there. We should say, I mean, what we have said is that we see that we will execute most of the synergies over 2023, 2024. In light of that, we feel we actually had better progress in North America than the plan. One of the main reasons for that is because we had quite a long time, as you remember, between signing and closing.
We really came after closing, we came in rolling and managed to execute on the cost synergies in a really good way in North America. Still more work to be done, but positive here at the end of the year in terms of synergies.
Okay. Then just a follow-up question just on I think you talk about obviously strategically assessing the footprint and business mix to further sharpen the performance and positioning. What do we read into that? Is that just this kind of portfolio rationalization, getting rid of some of the lower margin contracts, or should we think about this as more around further restructuring or even divestments within the business? Is that kind of sharpening performance and the positioning comment in there?
Yeah. Important here, if you're looking at the last couple of years, I mean, we have done quite a lot to make sure that we are sharpening the business. Some of those are kind of investments like driving digitization, for example, really strengthening the business. We've also divested 13 markets that were kind of the, yeah, you can call them non-strategic from a global client perspective, typically low, you know, lower margin profile, and where we also felt that, you know, it's difficult to make a really meaningful impact in terms of driving the strategy. That statement, I mean, this is what we are working on continuously, is to make sure, and we've done that for the last couple of years.
We continue to do that for the coming years as well, to make sure that all the business that we have is really in line with the strategy, that it was gonna support the journey, with the technology and solutions growth, but also then, our operating margin profile to get to 8% by 2025.
Okay. Thank you. Very final question, just the price wage balance has obviously been pretty positive all year for you guys as you highlight. As we think about 2023, do we think about that price wage balance as being continued positive, stable? Like, is this as good as it gets basically is what I'm saying? How do we think about planning for next year particularly as I think about inflation coming down as well?
Yeah. We have many years and many quarters of successful track record. I think, I mean, that as you know is fundamentally important for our type of business. That ambition has not changed. It's fundamentally important that we do that. We've also changed quite actively how we are working with price wage balance. Taken much more of a what we call a dynamic price wage approach, where it's not only kind of waiting for some type of an annual cycle or cadence, but doing it when it is required to protect the quality of our services and to ensure that we can pay our people well, but also defend reasonable margins. That ambition doesn't change.
Obviously the picture when you're looking at where we are, 12, 18 months, there was very significant wage inflation in North America. When you're looking at Europe is kind of lagging behind that, but it's also more of a, you know, a CLA influenced market with collective labor agreements, et cetera, then have a significantly bigger impact. There we had high double digit increases 14%, 15% in Germany, for example, in October last year that we have successfully handled. Beginning of this year, we're looking at Netherlands is one other market where there is similar type of increases that we are now currently managing. I think the simple answer here is that here we just have to be agile and nimble also as we go forward.
If you're looking at the job data that came out in the U.S. last week, for example, I mean, there was more than half a million new jobs in the U.S. labor market, which took a lot of people by surprise. I think we have kept on saying that we see a fairly hot labor market. Maybe not as big of a surprise to us. What's important there obviously from our perspective is that we can also start to see, and maybe because some of the more negative news are coming out that there is also tendencies from our perspective of increases in the participation in the labor market. There is a number of these different factors, but I think the ambition for us, we always have to balance.
We have also then when you look at the inflationary environment, there is also a number of other indirect cost drivers. When we look at price and total production costs also beyond wage, it is also important that we are creating a positive balance here so that we can also cover some of those under other kind of cost pressures that we are facing in this type of environment. I think this one, Allen, when, you know, being one month into 2023 is as important of a focus area today as it's been over the last six, 12, 18 months.
Great. Thank you. That's really helpful.
Thank you.
The next question comes from Andy Grobler from Exane. Please go ahead.
Hi. Good afternoon. Just a couple from me, if I may. Firstly, on the dividend, that was down year-on-year and split into two segments. Can you kind of talk us through the thinking there for both the reduction below your long-term targets and for the split? Secondly, a bit more niche just in Spain where growth was 4%. You talked about portfolio management. If you stripped out that portfolio management, what are underlying growth rates in Spain, please?
Yeah. Thank you, Andy. When you look at the dividend, it is a few percent below our range that we have between 50% and 60% of net income. There is nothing dramatic in that. I mean, why a few percent below? Well, we do have as Andreas highlighted, important financing commitments that we need to drive over 2023 in terms of the bridge financing that we have in place until the summer of 2024. We felt that this is a responsible approach. Obviously, in absolute terms it's a very significant increase. There is no change.
I mean, the range that we have between 50% and 60%, there is a very strong commitment to that from from our board and also from myself and the management team. We felt that it's a prudent approach in these circumstances and also, you know, given some of the important work that we have ahead of us over the next six to 12 months. Looking at Spain, yes, we made a reference because we have there also terminated some lower margin business and yeah, we would only highlight it if there is some impact. You know, low single digits, maybe around one or something like that.
I don't know the exact number, but I think it was in that type of a range. Once again, it's the only responsible thing to do. Labor market is tight. We're winning quite a lot of new business, and we need to make sure we allocate our effort, our people, to business which is sound from a profitability standpoint.
I think if I can just add on related to dividend. Just important, of course, to adjust for the rights issue as well when you're looking at the dividend compared to last year there as well. One comment. There was also this comment about paying out 2x , and this is something that is getting more and more common in the Swedish markets. I mean, for those of you outside Sweden, you know this is even more common there. It's been a trend. We decided now to make it for 2x . Also, the main reason there is to align it with our cash flow generation and our cash management cycle as well, where we have a stronger second year, half year cash flow as well. That would be the key reason for that.
Okay. Thank you. Should we assume that it's going to be biannual payments from now on?
Well, we normally don't do anything in for the short term only, so to say, but of course that's a board decision every year. But, yeah, I think so that would be a reasonable assumption, I think.
Okay. Thank you very much.
The next question comes from Rasmus Holm from Nordea. Please go ahead.
Sorry. Yeah. Hi. three questions from me, starting with the interest rate one. I'm just trying to see if I'm misunderstanding, but you had an attractive interest rate in the bridge loan that ran until July 2024. Why is it that you would not secure financing that would start from after that date rather than refinance a part of the bridge loan starting from January already?
That one is fairly easy. It is because, of course, this is also related to our liquidity position, and also of course our rating as well. As this step becomes current after 12 months, may, instead of long term as well, so that. That impacts our liquidity ratios and, if you get too close to it as well, of course you have an increased risk if the markets would not be there neither. It's a risk perspective on it. That is also why we're not taking out everything at the same time now, we only do part. It's also to make sure we have good liquidity also going forward.
Those would be the two key ratios, the two key reasons, and that's why, where we're also finding a balance here with this staggered takeout as well throughout the year.
All right. That makes sense. The remaining part of the bridge loan, if you refinance that, I assume, it would also lead to immediate changes to the interest rate rather than from July 2024.
Correct.
Great. Just one last one. With the newly laboring new union negotiated wages around European countries starting to kick in now in H1, do you still feel you're ahead of the curve in terms of price hikes today?
We're not commenting on current quarter, like we said, we have done a solid job in 2022. The ambition is to continue that in 2023. This is a high area of focus for us. We have a number of markets. I referenced Germany from October, 14%-15% type of range on average in wage increase. Netherlands, similar numbers right now. Belgium, when you look at indexation, et cetera, taking kind of a 12 to 18 months perspective going back, probably approaching similar numbers. There is a number of markets and that is something that it remains a very important focus area.
The ambition, very important, is to balance, but also ideally to try to create some positive net between those two as well because we also have other production costs that are impacting the results in this inflationary environment.
Great. Thank you. I'll get back in line.
Please state your name and company. Please go ahead.
Hi. Thanks for taking my question. This is Katherine Carpenter from Bank of America. Just going back to the financing, you mentioned that there's a mix of terms within the refinance portion of the bridge loan, could you please clarify how much of the refinance loan is fixed versus floating? As you look to refinance the remaining portion of the bridge loan, how are you thinking about fixed versus floating there if we are kind of at the peak of the rate hiking cycle? Thanks.
Yeah. I think we overall here when it comes to fixed floating, we, I mean, we have a policy to have a mix of both in place, and we are within those, we are within those policies as well without getting into the exact details there. We normally have a mix of that. That's something we plan to continue as well. When it comes, I think your first question there is related to what is the assumption there in the Q1 financial net forecast in terms of fixed floating. I mean, we are within our policies, but we have a mix. I think that's the best I can say without giving more details there. I think I've. Please let me know if I misunderstood the first question there.
No. I mean, I guess it just would be given the how elevated the leverage is at this point just would be quite helpful to get some understanding of the sensitivities as kind of interest rates either move higher or lower from here.
Yeah. No, but the best guidance I can give here is that it's a mix of both, right now in the portfolio depth that we're having here as we're speaking. It's not tilted to 100% in any direction, so to say, without getting into further details there.
Okay. Understood.
The next question comes from Viktor Lindeberg from Carnegie. Please go ahead.
Thank you. Some questions on Stanley. Maybe if you could give us some more color on the underlying performance, maybe from a geographical perspective now. I know you alluded to mid-single growth and margins maybe trending up a bit. Could you maybe give us some flavor on where we are relative to year-over-year or sequential? Also going into, I guess, 2023 now, is there a lot of upside in the first half year, maybe given how painful the first half was last year? I'll stop off on that question. Thank you.
Yeah. Thank you, Viktor. I mean, if you're going back to the first half of 2022, that was obviously a period when we didn't own Stanley Security, there was real weakness. Those matters in North America have been addressed in terms of the price increase mechanism and also then having up-to-date pricing in terms of all the hardware and the software in the pricing model. Because that's kinda been flowing through the business after they initiate the strong actions in the second quarter. Yeah, a few general comments. I mean, the mid-single digits, that is valid. That's a bit what we are seeing. Similar type of picture in North America and Europe from a growth perspective.
When you're looking at North America, that has a higher operating margin profile going in. I mean, that's something that we have seen when we acquired, when we closed the business, compared to Europe. Europe is a little bit more mixed profitability in terms of different markets. Not intending to go into specifics here, but there are a few markets in Europe that are low performing, and those markets we are now actively working over the next 3 to 6 months, essentially, in terms of the next phase of the integration work to make sure that we're integrating successfully, we're building a stable platform, and then leveraging this platform, focus, team, and leadership to start to drive those improvements.
The good thing here is that some of that work is gonna take a bit of time. But when we do that, it also means that we are greatly enhancing capability, competence, and also then securing critical mass in a number of the key Western European markets. That is an important focus area. If you ask the question then, which you might ask next, is okay, why is the profitability higher in North America than in Europe? Well, on the Stanley side, there is a certain argument which is just related to scale. The, you know, there is really good scale, even more so now, with the combination that we are driving through the integration work.
I think that is clearly an important one. I should also highlight, I mean, we closed the transaction a bit more than six months ago now. We have leadership mostly in place, priorities are clear, integration plans, et cetera. We are building this to create something really strong for the mid and the long term. We have done that, I know we referenced also some previous cases before Stanley. When you look at Spain, for example, where we had a similar situation of two relatively low-performing technology businesses that we acquired, one of them, we started to create something really strong. I think the playbook in terms of what we're gonna do, that is clear to us.
It's more now a matter of really driving that work, over the next, three, six months or the coming first three, six months, but then also throughout 2023. I hope that gives some understanding, but that's pretty much as much detail as we can provide at this point in time. Generally speaking, when you look at the totality, we are... but with differences between the different geographies.
That's very helpful. Thank you, Magnus. Maybe on a related question there. You mentioned the European transformation program, how you sort of put it on a bit of a pause. Now how should we think maybe combined with Stanley but also standalone in 2023? Should we, at least also put this on a pause and a hold, until going into maybe 2024, given what you see right now or will there be benefits coming outside of the scope of Stanley here as well? We know a bit moving bits and pieces on that transformation program.
Yeah. There is not really any significant change in terms of our communication that we did three months ago. Looking at and for everyone, or everyone's benefit on the call here, we decided deliberately to pause some of the integration work to cater for the Stanley integration because that is really high priority, and it's also to avoid us doing work twice in terms of system integration modernization, which is an important part. That work with our integration and value creation work, we're assessing and concluding fairly soon in terms of what's the sequence gonna be of that work. When we have more news to share there, we will do that.
This is obviously about being fiscally responsible as well with the work and also making sure that we are aligning resources in a sensible way. What I would highlight as well is that when we talk about the European transformation program, one significant part of that is not only the modernization to modern systems to support the business to operate at a different level, it's also very much the shift in the revenue mix. There we have good momentum when you're looking at solutions and technology growth stood up, you know, a focused solutions organization, team and leaders that are working on now driving that type of conversion and the growth of the solutions business.
There, Europe have done a really good job if I look at the last 12 months in terms of really building that for the benefit of the clients, but also for the benefit of Securitas. Yeah, there is different aspects. We will share more details, once we have come a little bit further along, but doing that in a responsible manner is very, very important, because we're building all of this to really have strong platforms and really strong delivery capabilities in the years to come.
Thank you.
The next question comes from Karl-Johan Bonnevier from DNB Markets. Please go ahead.
Good afternoon, Magnus and Andreas. A lot of good answers already to most of my questions, but one that I would like to hear your thinking about a little more. Looking at customer retention, do you see technology really driving that as well? Most of the downside we have seen in that number of late has really been related to guarding.
I mean, those retention numbers, they are based, Karl-Johan, on the portfolio. The kind of the going in portfolio that we would have in a specific period. Portfolio work, that is, you know, the vast majority of that is on site guarding some mobile guarding portfolio. That is more relating to those numbers. When I look at the technology part of the business, like I highlighted in the presentation, we're having a lot of really good discussions now with clients in terms of how we can partner and do more on the technology side.
I've had a couple of meetings as late as last week, with a few of our key global clients, and that is now, you know, an area where I would say that if anything is gonna help retention because we're becoming strategically even more relevant in terms of a partner on the entire security equation and the services that we bring to them. I think over time it's gonna have a very positive impact. When you look at the retention, I mean, this is nothing that we are that concerned about. Most important, we need to be really disciplined. I think that's the only responsible way to manage a business at this point in time.
Tight labor markets, inflationary environment, it's not only that we are pushing price increases on our clients, we also offer them always an option with integrated solutions. I think therein lies a lot of the strength as well, and that also enables us to be firm. That is clearly priority number one for us, when you're looking at client retention and once again, also really healthy new sales coming in.
Couldn't agree with you more. Just looking at Stanley Security as well, I guess now you have probably been in renegotiation kind of discussion with a big part of their client base. Have you say, managed to resign and retain the kind of base there looking at the larger clients that you were looking for?
Yeah. There hasn't been much movement of that. I think there is rather... If I were to portray a little bit, what does that discussion look like? Well, it's essentially that all the clients are seeing with this, first of all, from Stanley Security perspective, they are now at the center, so in the sweet spot of the Securitas strategy going forward. I mean, the colleagues who have joined us. I think that is fundamentally important because that also, I mean, all the clients know that when we are doing this, we are building and driving this for the long term. We become really focused, very solid partner, but with significant advantage also in terms of the scale of the competence and the capability that we're building up.
I think that is really a big part of the kind of the feedback that there is more, okay, let us now discuss what this means for us and what we can do going forward. Here, like I mentioned earlier, we have a growing and really attractive pipeline when I look at the technology related part of the business as well. I mean, I say that related to global clients, but they're obviously as well. Those discussions I'm more actively part of myself.
That is also the feedback that we are picking up locally as well, is that there is really, really positive response from our clients in terms of us making this investment because they know the importance of technology, and I think everyone is also looking to have a really credible partner locally or be it on a global level.
I get the feeling that you have, say, what you can call de-risk the portfolio or something like that. Is that what you would feel as well? Because I guess these problems normally turned up early in a big integration process.
I mean, Stanley Security have, if you look at the business also before being owned by Securitas, really starting to build and to drive better stability in the business. I don't think there has been anything that has been really burning. But obviously when there is a change like this, it's also a good reason and a trigger also to look at the relationships and, yeah, this has been overall a very, very positive engagement. When I listen to, you know, to our colleagues who are leading this business, who are in this business locally or in some of our global client teams.
I think it's rather a situation of a lot of positive anticipation in terms of what are the things that we are able to do as we go forward. That is just a clear validation of how strategically good it is and important for Securitas for the mid and the long term that we are now joining forces and really building this incredible technology capability in a solution which is undoubtedly much more dependent on technology for the overall security solution.
To add on that, we haven't seen anything negative when it comes to retendering of Stanley work since the closing. We have not seen any such tendencies whatsoever, just wanna highlight as well, I mean, it's not any big key dependency or large clients neither in that business as well. It's also a very broad portfolio of clients. I hope that also gives some further color to your question here.
Excellent. Good. Very good. Excellent call. Very good. Excellent call. I need to try this as well with you, Andreas. Obviously you're gonna give us the new split on profitability here coming into Q1. But if you look at the development during 2022, have you seen say positive kind of development in all the business lines you're looking at profit margin development?
That's the one that we are going to come back to in the, in the first quarter, but it was a good attempt, but I think we'll wait with that. Overall, I mean, technology and solutions very good growth as Magnus said before. Then I mean, there is, I mean, as Magnus is saying as well on the garden side of things, there we have some challenges overall when it comes to shortage and so on impacting our business, which would mostly be done on the garden side of things to give you a bit of flavor. Technology and solutions overall going well sort of from both sides there, both the sort of, organic growth side and on the margin side as well.
I guess on the Guardian side, the positive price to wage cost balance must have helped you during this year as well, so.
Agree.
Thank you very much. Looking forward to the new kind of disclosure in Q1 .
Likewise.
The next question comes from Anvesh Aggarwal. Please go ahead.
Hi there. sorry, I got one more follow-up. Obviously the technology part of the portfolio is growing quite strongly, then if you sort of look in the disclosures during in the prospectus, the working capital of Stanley is around 18% of its revenue, which is very, very high compared to your legacy business. First of all, why it is so high for Stanley, the working capital requirement? Then going forward, how are you thinking about the working capital and the free cash flow development given the dynamic?
I think I can also reference back to the Investor Day here where we went through this in some details when. Our target, including Stanley, is remaining to have a 70%-80% cash flow generation as we've had before as well. That answers your final piece there, where Stanley will also be able to have strong cash flows. When you look at this business, does it require more working capital than the El Guardian business? Overall, yes. I think we said around 15%-20% of net working capital throughout the Investor Day. Important in this business is that 40% of the technology business is recurring revenue business. This has a different net working capital profile compared to the other 60%.
This is normally a highly profitable part of the business, where you also invoice the clients earlier or even in advance. That 40% recurring business is normally also very cash generative as well. Then you have the other 60% of the business, which is more, is done the installation piece of the business. And that is basically a project-based business where the keys to good working capital management is really solid project management, that you're making sure your contracts that you have the right to bill as often as possible throughout the cycle of the contract, not only at the very end, and that you manage inventory as well.
All in all, that installation bi-business has a bit higher net working capital requirement than the RMR business, and the totality would be around the 15%-20%, as we said throughout the Investor Day. Having that said, on the CapEx side, important to say there as well, low CapEx business, very similar to our own sort of CapEx profile as a business as well. Here I can recommend to go back to the Investor Day for some more details. Low CapEx, a bit higher net working capital, but we should be able to generate good cash flows also from the Stanley business going forward.
I should say as well, we have really good best practices here on the technology side that we also, together with the Stanley team now, are working on implementing on the working capital side, going forward.
Yep. That's very clear. Thank you.
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Hi, it's Sylvia Barker from JP Morgan. Appreciate the time's running quite late, so maybe just three quick follow-ups. One on the margin impact of Stanley. Could you give us a basis point impact benefit in North America and in Europe in Q4? Secondly, on wage growth, what was your wage inflation at the group level in 2022? What do you think that will be as a percentage year-on-year number in 2023? Finally, out of the 15% growth in technology, how much was conversions from guarding contracts? Thank you.
Thank you. Thank you, Sylvia. No, we don't break out the numbers, but there is a clear positive contribution from Stanley Security in North America to the positive development that we had in the quarter. Also, as I highlighted earlier, positive underlying business also when excluding that positive impact. The question on wage, can you just repeat that, please? Was that a question in terms of our general outlook in terms of wage increases? Was that the right understanding?
Yeah, it would just be interesting, I guess, what was the level that you saw? What was the percentage change year-over-year that you had from kind of wage increases in 2022? What's your expectation for 2023, just at the group level?
Yeah. So it's a bit difficult to kind of estimate that. What I would broadly say based on what we have seen over the last 12, 18 months, we had significantly higher because of more dynamic wage adjustments in North America 12, 18 months ago. So that's kind of what we carried into 2022. We continued there to also, you know, drive price wage patterns throughout the year in 2022. That continues in 2023. When we're looking at the end of 2022 at a kind of a lower pace, because most of those adjustments had already been made. In Europe, when you look at that timing, I mean, there it's been more significant towards the back end of 2022.
There, obviously Germany, very significant because for us as well, that's a very important. It's our largest market in Europe. Then we have a few others. I referenced Netherlands now at the beginning of 2023. But then it is a little bit of a mixed picture, but I think those ones, to date, they are the highest that we have seen. That's then due to you know, legislative changes and other factors there in the bargaining agreements that you see those extremely high increases of 14%-15%. A lot of other, meaningfully, you know, large markets or maybe more in the kind of the mid-single digits type of range. But that is something that we are continuously watching.
Most important for us is just that we are really, really agile. When there is a significant change, that is something that we are then actively addressing. I hope that gives a flavor, Sylvia, to where we are. Then on the last question, I think you asked in terms of solutions conversion. Conversions are healthy. It is a very significant part in terms of the solutions growth. When we are converting, typically, you know, services with one or client contracts with one service provider such as onsite guarding, that is a significant driver. We are also with an enhanced technology offering starting to bring more and more packaged and really attractive technology solutions to our clients. They're also seeing more clients.
I mentioned Puma, for example, in one of the reference cases we shared externally, where we are then also bringing more standardized technology solutions to our clients as kind of a new client relationship and business, helping them and addressing their needs. The beauty there is that those would always also be connected to our SOC for monitoring, but also then with other guarding related services like such as call-outs, for example, as part of our mobile guarding business. That, that share I expect and would also really like to see growing over time because there we're really leveraging our increasing strength in terms of technology.
Perfect. Thank you very much.
There are no more questions at this time, so I hand the conference back to the President and CEO, Magnus Ahlqvist, for any closing comments.
Yeah. I think we are running full time here, so just wanted to say thank you for your interest. We are on a really, really promising journey. It's a solid result overall. When you look at Q4, very clear progress throughout the year. Looking forward to continued interaction and taking on 2023, which is now the full focus, creating the new Securitas. Many thanks to all of you for dialing in.