Hello everyone. Very welcome to our first quarter presentation for Securitas. We go straight to the highlights. We had a fantastic year last year. 2016 was our record year and very good growth last year. And on top of that growth, we're still growing this year. We're 4% in the first quarter, which we consider to be a good result. We have some backdrop, of course, in Europe given the extraordinarily high comparatives and also that we lost a few contracts last year. But still, all in all, good growth very much driven by North America and to some extent also by Ibero-America. Markets are growing well in North America. The market growth is about 4%. We grow a little bit faster than the market. The European market is 2%-3% growth. The Spanish market 1%-2%.
In Spain, we are actually growing very very well in the first quarter. We come back to that in a minute. Corporate demand is close to flat, 10 basis points below last year, due to some of the issues that we have in Europe. And I'll get back to that in a minute. We still improve the earnings per share in real terms 3% and in total change a bit more than that. Cash flow always weak in the first quarter. Net debt low gearing still even though the cash flow will catch up during the year. I think we will have a very good year because in the cash flows, and we will recover what we missed in the last quarter last year. So it should be a very good cash flow year this year.
That's what I expect. And the strategy that we are driving, to increase the solution electronic security piece of our business is continue to deliver. And we grow at a good pace in that respect in the first quarter. The numbers on the next slide, of course. Here you see it. Basically the same thing, as I just explained, on the highlight slides. No, not more to dig into there. North America, doing well. We grow a bit faster than the market. We have a good momentum in the market. You know that we have been spending basically all of 2016 in the integration and takeover of the Diebold electronic security. Nowadays Securitas SES Securitas electronic security.
And we really get good traction on the marketplace where a lot of customers are very interested in how we can combine the man-guarding piece with the electronic security. And that gives us good interest, good traction, good prospects, lot of activities, lot of interest in the marketplace. So we expect to see and benefit from the commercial synergies from that acquisition during 2018 and 2017 and forward. A small detail but still important is that we have one to three small aviation contracts in the U.S. in Q1. Still not a dramatic amount of money. But it's important from a reference point of view that we are winning.
And we hope to see that we will be able to continue now to see some little bit more activity in the using private security in the airports in the U.S.. So that's a good positive sign in the U.S. in Q1. Good fantastic retention also in the clients. So we really record high retention which gives, of course, which indirectly generates the organic sales growth that we have. Margin, good development. Strong team doing a great job. Very consistent. Very good execution of our strategy. So, and we leverage from we also get the leverage from the growth. So continuous improvement. And we have seen that for quite a while now in the U.S.. Good trend. And it continues in a good pace improving the operating margin.
So a lot of good work from our North American U.S. organization. In Europe, we have tough comparatives. We lost the contracts. You heard us saying that many many many times. But I mean if we take it from the positive side even though we do lose those contracts and we have that backdrop and the reduction in the refugee and terror-related business, we compensated all of that by other contracts. So I think that's good work from Europeans. So we are. I mean it's basically as we expect it to be in the range of 0% organic growth in Q1. We have changed a little bit our projection for the year. We said before that we will see a gradual recovery in the second half of 2017.
We now move out to the end of 2017. So that's a little bit of a nuance to that prediction. And the reason being that first we have more information. We see reality in a better way now than we did a quarter ago. And secondly, we have tough comparatives in Q3. We know that. And we're gonna meet those. The good news in Europe is that we have a good momentum in new sales. New sales is up compared to last year in the Q1. We don't report that. But it's a piece of information that could be relevant for you to know. And new sales eventually turn into portfolio and organic sales growth as the contract later on starts. So good activity in Europe. But of course, tough comparatives.
But we compensated the losses of the refugee and the big contracts by other businesses which I think is well done still under the circumstances. Where we are not as happy is, of course, on the operating margin. It's a bit too low, in the quarter. And of course, 40 basis points, down compared to last year. We have a higher cost in a few countries. And some of those costs we need to discontinue. And some of the costs we will keep. So, we will keep a little bit higher cost base, than we necessarily would have had if this would be, so to say continuous. But we think the recovery is gonna come by the end of the year.
So we just keep some of the indirect costs for the coming quarters in order to not have to reemploy well-qualified resources just a few quarters from now. In some other areas, we are now in the process of adjusting our costs. So that's ongoing in Q2 right now. Yeah. And we are continuing, of course, to invest in the future. Some of the costs that we have been putting into the European organization, they are supposed to pay off in a little bit longer perspective. And we will, of course, keep those as well. In Ibero-America, very good growth, very especially in Portugal and Spain compared to what we've seen for a long time. We are employing people in Portugal and Spain.
We were close to 7% organic growth in Spain in Q1. We haven't seen those numbers in a long time in a market growing 1%-2%. The reason being that a lot of competitors in Spain have difficulties. Some have actually gone bankrupt. We can take advantage of that situation and their weakness. We are gaining market share in Spain simply because we have a better strategy. We have more strength and muscles than some of our competitors have. Also good growth in Portugal, which hasn't seen in a very long time. Latin America continuing a good pace. And of course Securitas Solutions as well developing well. It's developing well in all three divisions actually. So it's not only Ibero-America but everywhere.
The margin is basically the reason we have a drop in the margin is basically in Peru. And that is because we have a market situation which is a bit tricky in Peru. We had the same thing some time ago. We took some corrective action. And we covered it a little bit during the second half of last year. But now we have some competitors who are behaving in a very strange way, and a little bit of a price war or price pressure in the marketplace. But also that's one part of the equation. The other part of the equation which is a Q1 specific effect is El Niño.
The natural disaster that was happening in Q1 which had an impact on our business, and our ability to perform work at different sites in a negative way in Q1. So that, of course, we will not suffer from going forward. But the market conditions are tough in Peru. And we are taking corrective actions looking at the cost base and whatever else we can do in Peru in order to mitigate the situation. The good news in Ibero-America is that we are recovering gradually. The price increases that we need to recover that we had an increase of 1.7% in July last year which we had difficulties recover last year.
But we have launched at the end of last year and are now executing on a price campaign in Spain and trying to recover basically that whole wage cost increase we had last year. Our ambition is to cover it, to recover it during this year. We do not expect any further wage increases in this year, also in Spain. So hopefully gradually we will be able to recover that gap that we carried with us from last year. Cash flow always weak in the beginning. We had some specific items actually in Q1. We are at the same level as last year in Q1. Excuse me. We had heavily burdened in Q1 this year by interest payment on the Eurobonds which we pay in advance. And all of that fell in Q1 this year.
So we will not have those costs, or those that negative cash flow in the coming quarters since we took all that payments in Q1. And we also have quite a lot of higher taxes and prepaid taxes that we have to pay, due to higher taxable income that has to be paid in Q1. And we also actually had, some to some extent higher bonus payments in Q1 as well, which we are more than happy to pay. That's happy cost. So we love that, because we had a very good year last year. So those are the reasons. We think that going forward we will have a very good year in on the cash flow side. We were not performing well last year, especially in Q4.
That is our plan to catch up with that during this year plus the normal cash flow so to say. So it should be a very good cash flow year in 2017. Net debt is basically mathematics as a consequence of that. Gearing of 2.4 to EBITA is where we are right now. So not a very high gearing, but hopefully improving during the year. And then of course on our strategy we keep moving along those lines that many of you have heard us saying for so many times. So I will not dwell deeper into that chapter. So I'm sure there are some questions and hopefully some answers. So we'll we'll go move forward with that and see what they are.
We had a question from Srinivasa Sarikonda from HSBC. Please go ahead.
Hi. This is Srinivasa Sarikonda from HSBC. Three questions for me please. First on Europe. What is the impact of declining extra sales on organic growth and margins? And why is the increasing electronic sales unable to offset this margin pressure? The second question is on U.S.. The staff churn continuing to increase. Do you think, you know, the taking back of Obamacare might slow down this a bit? And what is the electronics segment sales growth in U.S.? And what percentage of this margin increases because of increased electronic sales? And the third and last one was on wage inflation. In which regions and which part of the regions like in which countries do you see the wage inflation? And do you face any issues in passing through wage inflation in any of these countries? Thank you.
Extra Sales is an important part of the decline in Europe, without any doubt. It's a combination of different things. And basically I mean we have given some guidance of what the value is of the contracts of the large contract values, losses. And the extra sales is an important part. I prefer not to quantify that, as we usually don't do that. So, it has gradually also had a very good margin development in the extra sales. I mean we you might remember in Q4 2015 we didn't make everyone was expecting that we should see an improvement in margins because of extra sales. But that was not the case because the margin was kind of average on those extra sales. But then as we have kept the people and those contracts have been going on on the refugee side we have built that margin gradually.
We had a lot of initial cost in Q1 in Q4 2015. But then as time went by we kept the resources and the business. And then of course the margin has improved. So now when we lose that extra sales that put the pressure on the margin in Europe. So even if we have an improvement on the electronic security side and technology and solutions is improving the margin as we always, which is a fact. It's offset unfortunately then by the drop on the extra sales and the loss of the contracts as well. But primarily because of extra sales. It has so the extra sales had a good margin now in the end of that boom of extra sales that we've had. The staff turnover in the U.S. remains high. Absolutely it is.
On your question on the ACA on Obamacare, I mean, now it was postponed, or—I don't know—postponed or canceled or had to be reviewed after it was up for decision. So we see really no change there. I mean, we just have to wait and see what's gonna come out of that. For us, it's business as usual. And probably it's gonna be for the remainder of this year in that respect. And then we'll see if that comes back on the radar screen and in what shape and form that will happen. But for us it's not really no impact at all at this point in time. And we don't foresee it, I would think, for 2017 either. The electronic security in the U.S. is growing well. It's doing well. It's good growth in that business.
Its margin is a little bit higher than the average. So that helps us. And on the wage inflation we expect, we see a little bit more of wage inflation in the U.S. without any doubt. I mean that is a fact. I mean the unemployment is coming down. And in a few cities in Europe you see the same issue. We have difficulties to find people in a few places but not very many. But a little bit more wage inflation I would say in general in the U.S. Not too much in general in Europe. But no concerns when it comes to passing it through. We don't see any spikes or any dramatic changes. So we are confident that we should be able to keep the balance between prices and wages during this year. I understand.
In the U.S., could you give us the range of growth in electronic sales? It's growing extremely well because the base is low. But if so, it's very, very high numbers. But if you take the Diebold acquisition as such, I mean, the SES we call it nowadays, Securitas Electronic Security, is also growing well. It also has a positive growth as such. But of course you have that piece coming into our numbers. And then on top of that you have the business that we are generating in addition to that, which was in place already before that acquisition. So the base is relatively low. So we have good growth in North American Electronic Security. So we feel very confident that we made the right choice. We are on the right path.
We get good traction in the market. We foresee that we can continue to build on that.
Okay. I understand. Thank you. Thanks a lot.
Thank you.
Yeah. We have a question from Nicholas de la Grense from Bank of America Merrill Lynch. Please go ahead.
Hi, guys. Three quite quick questions. I just wanted to clarify the comment and the statement about lower client retention rates in Europe. Does that mostly are you mostly referring to the big contracts that we know you already lost or is there something else going on?
Yeah. The answer is yes. The answer is yes on that question. Yes.
Okay. Perfect. And then the second one just on European margins. You've indicated that you're gonna keep some of the extra costs, in kind of expectation that growth will come back a bit in the latter part of the year. Should we therefore assume that margins will continue to be down year on year, for the next couple of quarters? Actually related to that, Turkey had been a margin drag, or rather the lower level of activities, particularly project work in Turkey, had been a drag on the European margin. I see that's now come back. But there's no comment about that having a positive impact on the margin. I was wondering if you could clarify that. Thanks.
Yeah. It's coming back in Turkey. It's coming back. We have good growth in Turkey. We were we are more. It's more business as it normally is. And last year was with a deviation. It, but it has not had any dramatic impact on the margin. That's why we didn't write about it. When it comes to the operating margin, I mean, everything else equal. Yes. The answer is yes. I mean, we will have a little bit of pressure on the margin because we're keeping some overcapacity. And we have to adjust the overcapacity in a few countries. So, yes. Everything else equal. But everything else is never equal in reality. You know that. So, but everything else equal, yes. I mean, we think we are optimistic a little bit later on for the year. We have good indications when it comes to new sales, for example.
A good activity in the marketplace. I mean, Europeans are doing well. I mean, you have to remember we had an unprecedentedly high growth. And we're still compensated all the loss in new con in the big contracts and the refugee and terror-related business. So, I mean, they do a good job. And, but of course we are keeping a little bit more resources. And we have to take some costs. Well, not costs. We have to make some adjustments. And we are doing that gradually now in Q2. You don't should not expect any restructuring costs. That's not what I'm saying. But, we are keeping some of the resources a little bit longer than we would otherwise do if we didn't see the recovery.
But that will put a little bit of pressure on the margin in Q2 Q3. Yes.
Okay. Thank you. And may I just clarify the point you made about wage inflation in the U.S. having picked up? One of the indexes that we all look at, the Bureau of Labor Statistics data, it looks like security industry wages are growing at kind of double-digit wage rates. Can you just qualify when you talk about wage inflation in the U.S. what kind of level are you seeing in Europe?
I heard that. I heard that number also. But I don't see that. I don't see where that comes from. I mean, I cannot verify that. I mean, maybe we are in different solar systems. I'm not sure. But obviously we don't see that. I mean we haven't seen wage cost inflation of 1%-2% in the U.S. last year. And I mean we are now around the 2%. I think that's more relevant numbers. I mean double-digit wage cost inflation we don't see that. I don't see that. No.
Okay. Great. Thanks. I think it's all to do with the mix. And the data isn't particularly correct.
Yeah. I think so too. So I mean I think it's I mean I think at least from my perspective that is not a relevant number. But we do see more wage cost inflation. And normally that is not bad news for us. I mean, if we said a little bit, if it's not a spike, if it's in control, and it's sensible, and it's 1%-2% more than you usually have, then we have normally good and the market is in a good mode in North America. Good momentum.
Very good macroeconomic situation in the U.S.. Lot of optimism. So to increase your prices and compensate for wage costs should not be an issue. We should be able to do that. So then you get organic sales growth. You get leverage et cetera. So normally a little bit higher wage inflation is not a bad thing. It's good for the guys. It's good for us.
Great. Thank you very much.
Our next question comes from Robert Plant from J.P. Morgan. Please go ahead.
Hi Alf. How big is Peru? How long do you think it will take until the market rationalizes? Thank you.
I don't—I mean, Peru is not that big. I can't. May I—my friends here will help me to give you that exact number, how much a percent it is of the total division. So give me a second. I'll dig it out for you. But the behavior of the market, I don't know. I cannot tell. I mean, that's probably gonna last. It's not very sensible. It's a very strange situation. We will need to take some corrective action not to mitigate that. So we are looking into the cost side, what we can do to rationalize because we don't wanna join. We don't—we never wanna join this kind of price wars.
And then it's better to shrink the business and lose some contracts and adapt the cost structure for a different level and make money on that level. So we're looking into that and taking some corrective action as we speak basically in Peru. And it's quite easy to do that. It's no big cost attached to doing that. So and on your first question Peru is a relatively small part of the business. But well it's coming up. But just a second. We'll see. We have to translate Peruvian money into Swedish kronor and then make the calculation. And we're looking for a Peruvian exchange rate. So without making a guess of a percentage we will get the exact number. 6% of the division.
Of the whole Ibero-America division?
Yeah. 6% of the division. Yeah.
And are you committed to Peru? Do you think it's a market you can operate well in?
Yes. We think so. Okay. Yes. We think so. It's just, I mean, these things happen from time to time. Now it happened in Q1. Then we have to make some decision how to adjust and what structure to have and what balance of volume and ambition to have. And then we make those corrections. And then we should be good again. So it's, and then a part of the effect on the margin is also the El Niño effect. So it was a dramatic quarter in Peru. So we will stay in Peru. Absolutely.
Thanks.
Our next question comes from Bilal Aziz from UBS. Please go ahead.
Good afternoon everyone. Just two quick questions from my side, please. Just perhaps to understand the margin bridge in Europe a bit better for the rest of the year. Can you perhaps help us understand the phasing of the capacity reduction you are planning to do? And i.e., do you think you'll be done by the end of the first half? And separately, what broadly percent of sales-wise in Europe was a non-portfolio business in Europe in the first quarter? And very finally, I know you suggested some pickup in new sales in Europe. Can you help us understand that? Which re which countries that was specifically in? And perhaps just give us a bit more granularity around the organic growth rates in both France and Germany. Thank you.
Yeah. I mean, I didn't get your last question. Can you please repeat the last one, please?
Yeah. Just a bit more detail around where you've seen the pickup in new sales, country-wise in Europe, and specifically around France and Germany, organic growth rates.
Yeah. I mean we have a good pickup everywhere I would say in new sales. We do well in the big countries in the Nordics. And we do well in Germany France for example. So good good pickup on new sales. I think I would say more in general. I even in Eastern Europe we are performing fairly well. When it comes to the electronic security sales, as a percentage of the total in Europe did you say we are at the AGM right now. So I don't have my fine.
Question about the or mixed exit sales?
Yeah. How much of the total sales it was in. No. No. But total 8 it's about 18%, in Q1 of the total sales. And it was about 20 last year in Q1. And then on the corrective actions that we're taking in Europe that basically been taken in Q2. We make those adjustments in Q2. But that will so we hopefully see most of that effect of those corrective actions as of Q3 and onwards.
Brilliant. Thank you.
The next question comes from Andrew Farnell from Morgan Stanley. Please go ahead.
Hi there. I was just wondering if you could talk about the market share gains that you've seen in the U.S.. How much of that do you think is being driven by the integrated solutions that you're offering? And how much is coming from fallout from market consolidation?
I cannot. It's impossible to say. I think it's a combination. You cannot split them in two buckets either. I mean some of our competitors are busy with other things and have maybe less time to spend on the market. We have a very stable team. A very consistent team in the U.S. And really focus on the market work. So I think we're gaining from that. But also when we do that we tell the story we can tell which is the one you know very well of how we can optimize the value for the client. So the combination of the two of course they kind of go hand in hand. That helps us in the marketplace to be more successful than competition. I would think.
Okay. And just on that, the offering that you've got, the technology offering in the U.S., is it stronger relative to other regions? Or would you say it's equal in Europe and other America?
I mean, we have, when it comes to offering that, I mean more built it into machinery, let's call it. I mean, to the knowledge and the tradition of working with technology is stronger in Europe because we've done that for a very long period of time.
In the U.S., the collective competence I would think is higher actually now with the Diebold acquisition in-house than it is collectively in Europe because that is a very very 1,200 engineers very strong team with a very strong base and a lot of competence in one place, so to say. So that gives us a real muscle in the U.S. as such. But of course it takes a while to create the commercial synergies in the sense that you need to build it into the machinery. You need to build it into the branches to the areas to the sales forces et cetera to be used to work with that. To be used to the arguments of how to sell and how to do that. And we have prepared all of 2016 for that.
And now everything is in place. And we start to see the traction of it actually. And it's working very well. And we can spend 100% of our focus on the marketplace doing that in the U.S.. So that gives me a lot of confidence in the U.S. going forward.
Okay. And then just one finally. On the problems that you've talked about in Peru, is that the price competition mainly driven by local operators?
Yes.
Or is it?
Yes.
Just it's not really across the rest of the region then?
No. It's no, it's only some local players in Peru.
Okay. That's great. Thanks.
The next question comes from Paul Checketts from Barclays. Please go ahead.
Hi everyone. I've got three questions please. First, can I just clarify, Alf, your expectation of recovery in Europe and the fact it's been pushed back towards the end of the year? Can you just clarify what it is that's led to you pushing it back? Obviously, the Q3 comp being difficult was something you probably knew about already. Is there something else that has led to that?
No. There's not something else. I mean, I might answer right away. I mean, we have a little bit tougher competitors. We knew that over time, of course. So that's nothing really new. But I mean, we have more visibility now than we had before. And so we decided to change that to the end of last year because simply because we have better visibility.
I think that's the main reason.
Okay. There's some headlines flashing up on the newswires saying you've shelved plans to enter Malaysia. Can you just remind us which countries would be at the top of your list to enter? Which new countries that is? And the likely timeline.
I mean, we have not shelved Malaysia. On the contrary, Malaysia is on top of our list. Maybe it was I said to somebody this, a few hours ago, that we shelved the Philippines. That we have shelved because of the ownership structure is too complicated to enter the Philippines. So we put that on the back burner for the time being. But Malaysia is certainly on the top of our list. And Australia as well.
So those are the two markets where we are really working hard to try to find a good way to enter through acquisitions in those two markets, because they are being asked for all the time in the global tenders that we have a good own presence in those two markets. So that's probably Philippines that was shelved, which is.
Yeah. Yeah. I'm maybe I must have read them both. But Italy we've spoken about in the past. Is that still on the radar?
It's still on the radar. But it's still very difficult. Expectations are on the wrong planet. Some companies are not something we like to touch, and the ones we like to buy are not for sale basically. That's how it is. So it's not so easy.
But it's being followed and monitored all the time but not imminent. No.
And then my last question relates to the U.S. aviation market. What's your latest assessment of the potential of that market for. It's a $4 billion U.S. private security market.
Yeah. It's a $4 billion U.S. dollar market. We have a couple of contracts. It's in the range of $10 million-$50 million. So it's not a lot. But still it's important symbolically reference-wise. And these are annual numbers I'm mentioning here. So it's a huge potential that market. And finally that's and it's very difficult to enter. We are we I think we have some good plans. Some good a good team in place. And now finally we also got some good reference some wins. 3 small contracts.
But still important from a reference point of view. And hopefully that will start to give us now some better traction in the U.S. aviation market going forward. I think that will certainly open up gradually without any doubt. It's not going as so quick as we were hoping for some years ago. But now we I think we are a little bit more optimistic than we have been for a long time.
Thanks very much.
The next question comes from Allen Wells from Exane BNP Paribas. Please go ahead.
Hey Alf. Just a couple from me. Just following up on the questions on the electronic solutions department. I've noticed in the last few quarterly results you talk about obviously the traction in North America. There's generally less commentary on Europe. Can I just sort of ask, yeah, are you generally happy with the progress that you're making on the tech side, security solutions side, in Europe? Maybe you could update where sort of penetration or uptake rates are. And then the second question is really on Ibero-America again. Could you tell us how much of the 15% growth was price versus volume, please? Thank you.
Most of the growth in Ibero-America is real growth, so to say. You have a piece of Argentina there. But that is, I would estimate, but less than half of the growth is price related. And the rest is real growth. That's my rough estimate.
Yeah.
When it comes to the European side, I mean, in general speaking, I think we are pleased with the development in Europe. We are growing electronic security sales. We have a good organic growth in electronic security Europe in spite of the zero organic growth in the total. So that relative share is increasing well in Q1 in Europe. We have a few countries where we are a bit slow, so which we're not that happy with. But I mean, there are good plans in place. It's not very easy. We have given more of the support and confidence that we can give. But of course we have different pace in different countries. And a few countries are still relatively slow.
And we also have many branches still in Europe which have not been able to sell any cameras or any technology yet. So those we are chasing and supporting in different combinations. So it's a little bit quite a bit of big variation between the best and the lowest when it comes to that share. I mean the top performers in Europe they are close to 50% there. About 50% of total sales now in a few countries. While the ones in the bottom they are more like 4-5% of total sales.
So it sounds like there's some I guess customer acceptance challenges there. But is there any differences in the competitive landscape in Europe versus the U.S.? Or does that very much vary country by country as well on the tech side?
Well, it varies a lot. But I mean the main reason is not the clients. I would not; that's an easy excuse in a way sometimes. But it's the reality is that I think the main reason is really our own ability to drive that. And our own conviction to take that smooth in the country and in the area and in the branches. That's where it sits because we can see in one country where we have low performance we are in the 4%-6% of total sales range. We still have branches doing very very well and while others are doing nothing.
So, to generalize that and then to say that, look, it's because of that market or because of our customers in that market, I don't believe that really. So, I think it's very much our own ability and our own conviction to really drive that strategy. And we, the Europeans in general, do a very good job in pushing that. And that's why we still have a very good organic sales growth in the electronic security in Q1 in spite of the zero on the total division.
Okay. Great. Thank you.
The next question comes from Henrik Nilsson from Nordea. Please go ahead.
T hank you. And coming back to the operational overcapacity in Europe that you've talked about. Is it possible to quantify how large negative impact the choice to keep that capacity had in the quarter?
We decided not to do that, to not granulate that too much. So we discussed that a lot in the process before the Q1. But we decided to do it in the way we did it. So that's why we'll have to stick to that.
Okay. So if I say it's fair to assume that it's at least SEK 20 million, is that?
Oh, that's the same question. Sorry. That's right. That's right. But I'm not gonna answer it anyway.
Okay. Thank you. And if we go to Spain here and you previously stated that margins have dropped from high single digits or above five at least down to low single digits in the past few years with the tough market we've seen there, where are you seeing profitability in that market right now? What's your assessment of margins in the new business that you're winning?
I mean, selling guarding contracts, manpower guarding contracts in Spain, you don't make money. It's, in the best case, zero operating margin. So that doesn't make any sense unless you can convert that contract six months later to a solution with a better margin. Then you could suffer the pain for a while and then do that. But the thing I mean, the success where we are selling, where we are gaining market, is because we are selling the combination. The solution contracts. That's where we have attraction in Spain.
Okay. But is it possible to quantify on what type of level that profitability is? Is it above group average or below? Or. No,
I mean, when we do sell those contracts, we have a good profitability, but I prefer—I mean, it's definitely above the divisional average. Absolutely.
Okay. Very helpful. Coming back to one question. Maybe I missed this also. In the solutions and electronic security sales, have you quantified how rapidly that is growing now on a group level in organic terms?
No. We do that once a year. That's what we did. That's a method we put, so we did that in Q4. So the number. Okay. If you go back a quarter, you will find the numbers. Yeah.
Okay. Thank you very much.
Thank you.
Ladies and gentlemen, if you have a question for the speaker please press zero one on your telephone keypad. And the next question comes from Carina Elmgren from Handelsbanken. Please go ahead. And the next question comes from Carina Elmgren from Handelsbanken. Can I please ask you to unmute yourself?
Yes. Hi. One question on the partnership with Knightscope in California that you extended in the quarter. Could you give us maybe some more details on that? And do you have the possibility to offer the technology outside the U.S. as well? Thank you.
Now Knightscope is a, for everybody's sake of understanding, Knightscope is a small startup company in Silicon Valley with which we have an agreement. We have been buying robots from them, which we have—I think we have deployed 15-20 of those now in California at different customer sites, indoor and outdoor. And it's for us a very interesting way to test that technology and how it works and how we can then combine the use of technology and intelligence and digital data to some extent, gradually artificial intelligence, and how we can use that and then in combination with our guards on site.
So we never only have robots or so to say that this doesn't work yet. I mean you need to have a combination of somebody doing something. 'Cause you put a blanket over that robot it's kind of inactive. So we have that and we're testing that in a good way. Knightscope has so far only sold those last year in California. So we've only deployed those in California. But now they have decided to be able to serve that on a national basis in the U.S.. So those robots are only available in the U.S..
Okay. Thank you.
The next question comes from David Phillips from Redburn. Please go ahead.
Hi. Good afternoon. I just wondered if you could give an overview of how you see your M and A pipeline developing over the next 12 months. Do you expect to conclude a few deals in the remainder of 2017?
I hope so. But you never know. Unfortunately we are not 100% in control of that process. So we did one deal yesterday in Mexico. We bought a small electronic security company in Mexico from Diebold. So that's one of them. I'm sure we'll do something. But to what extent and what size it's hard to predict. We have as always a lot of opportunities in the pipeline that we're working on. And what it is is mainly electronic security companies in Europe and North America to some extent as well. And then of course to establish ourselves in a couple of the new markets in countries where we are not active. But I would th ink we will make some further acquisitions this year. Yes, I would think so.
Great. Thank you very much.
Has there any further questions at this time? Please go ahead, Alf. You're answering.
Okay. Thank you very much for calling in. We'll conclude here and we will be having our AGM here in 45 minutes. Thank you very much. Bye-bye.