Welcome. This is Alf Göransson, and I will present the first quarter results for Securitas. We'll move on straight away, and then, of course, allow for questions at the end of this presentation. We continue to have a pretty good top line growth. We have a 9% growth, including acquisition, but just 1%. It was a weak quarter from an organic point of view, but including acquisitions, we still remain at a pretty high level, 9%. Organic growth in North America, and mobile monitoring, and Ibero-America, but at lower levels than last year. The price wage, which is really key for us to keep that in balance, is lagging a little bit behind in the first quarter.
It takes a while, and it's a lot of fights and a lot of struggle and a lot of hard discussions with our clients in order to increase those prices. Some we managed to get to retroactively as of January first, others as we agree. But so we are lagging a little bit behind in Q1, but I remain pretty confident that we will be able to achieve a balance between price and wage cost increases in the group for this year. And that is actually that we didn't do last year, so that is we have pretty good visibility in this respect at this point in time.
And we still have a lot of things to do, but I dare to say that, I'm confident that we should be able to be on balance, on par between wage and price this year. We had some in France, for example, we were behind quite substantially last year, and it's too early to tell if we will be able to catch up the lag from last year. We will definitely be able to keep a balance between this year's wage and price, but if we will catch up the thing that we lag behind from last year, it's too early to tell, and I will be able to answer that question when we come to Q2. It's. I don't want to guess on that yet. We. It's our ambition to do that.
We are working really hard to try to achieve that, to also compensate the piece from last year, but it's too early to tell. Margin was due to the low top line, the weak top line. Margin was slightly behind last year, and we will continue to be restrictive on acquisitions until we have restored the cash flow net debt to 0.20. So you will see in quarters to come that we will be quite very restrictive on acquisitions, and you will not see a lot of press releases in the coming quarters in that respect. Yeah, here you see the numbers again, a weak top line organically behind last year. I think we are slightly behind the market in North America and in Europe as well.
In Europe, for example, we still have the European Commission and a little bit of the airport in Q1 last year, while it's not in this year. So there is that piece still hanging around a little bit. This is the last quarter we can use that excuse, but we are probably just slightly behind the market growth in Europe and North America in Q1. The other numbers you can see for yourself, the numbers. If we even go to North America, the growth was weak, and it's not really the core business. And by core, I mean the guarding business in all our regions and in Canada and Mexico. It's a little bit of the other activities we have in North America, which we rarely speak a lot about.
But in this quarter, we had a weak top line in the defense and aerospace segment or division in the U.S., where we have lost a major contract that hit us. The federal government services had a weak quarter, and luckily, we have won a major contract that we'll now start in April, so that will support that business going forward. The Pinkerton and C&I Consulting Investigation business is a very volatile business, and we usually have big swings in that business, and this quarter has unfortunately been very weak. But also here, we have a good pipeline of activities that we expect to start in the second quarter, and that should then recover the C&I business going forward.
But the same, basically, the same explanations have also then hit us on the margins. So when we compare it to last year, those three I just mentioned has contributed or not contributed, so to say. It's the explanation to why we are low on the operating margin compared to last year. We also have still, we didn't expect, but, we, we thought that we should be on a break-even situation on the Canadian airport contract, which we are not in Q1. We are not not very, very far behind.
So, I have just recently been to Montreal and met the team there, and we have an excellent team and a very good group of people, and they're doing excellent work, and the transition has now been done, and we are taking over these contracts. So that contract will, as of Q2, start to contribute to the results in North America. Yeah, so there might be some questions on this, but we'll come back to that at the end of the presentation. Europe, flat top line, good growth in most countries actually, under the circumstances, as the European economy in many places is a bit unpredictable, to say the least.
While we still have the, so to say, the hangover of these contract losses in Belgium as of last year, and that is really the main hampering effect to the top line in Europe. We have won some contracts. We have won the European Parliament from competition, which we have started now in mid-April, and the transition has taken place. We have then retained some contracts. The Arlanda Airport contract, which has been talked about many times and is a major contract, actually the largest in the Scandinavian countries. We have retained that contract in the Q1.
The margin is flat compared to last year, but I think it's worth to say that in this margin last year, we had a bit of a special situation in France, because in France last year, we raised the prices in January, but the wages were increased in March. So we had a little bit of two months extra months where we had price increases, but no wage increases. So that helped the margin in the first quarter in France. And still, we keep the margin on the European level this year, which means that the comparatives, specifically in France, will be totally different, because going forward, the situation, as you might remember, was not very healthy in France, where we had quite a big gap between the price and the wage balance last year.
And we are doing well this year, and the price campaign is moving on in a good way, and I just commented, I have already commented in the beginning, that I think we should be able to keep the price and wage balance in place in France for this year, on par in France this year. And then our ambition is to recover some of what we lost last year, and that is too early to tell. Yeah, and then, of course, also the U.K. situation is supporting our margin this year, and will continue to contribute in quarters to come. Mobile monitoring, a little bit better growth than last year, 3% versus 2%.
Especially the monitoring business is doing very well in many markets. And on the margin side, it's pretty flat compared to last year, and still, in spite of it, well, we kept the margin in spite of the fact that we had some integration issues with some of the acquisitions that we have made in mobile during the Q1 that hampered a little bit the margin in the mobile business. But that was largely compensated by monitoring, who had a very good first quarter. In Ibero-America, Latin America, Spain, Portugal, growth is slow. It's slow in Spain and Portugal. It's negative in Spain and Portugal, while it's positive 25% in Q1 in Latin America.
It's a big part of that explanation in Q1, but it will be even more so in quarters to come, is the big one big contract to a retail industry in Spain and one public customer that was terminated in Spain in February and March Q1, and that is worth about EUR 50 million on a full year basis. But the margins of those contracts were poor, was poor, and so that will help coming forward. But on the other hand, it will, of course, keep the top line on a lower level. So tough times in Spain and Portugal, that's for sure.
The margin, we are lagging behind on the price and wage balance in Spain and Portugal, primarily in Spain, where we have not yet been able to fully recoup the price increases. It's very tough times, very difficult that everybody understands to discuss price increases in Spain right now. The good news in Spain is about the collective bargaining agreement, which should have given 4.4% wage cost increase this year in Spain, has been renegotiated and signed by the parties, by the unions and the employers, the wage cost increase will be 2.4% this year instead of 4.4%.
We expect that we should be able to get close to that, but at least around 2%, maybe slightly, slightly below, in Spain, in price increases in that neighborhood this year. So we will probably be slightly behind, but not, not as dramatic as it would have been if that collective bargaining agreement would not have been renegotiated. Cash flow was not great, but it was a lot better than last year. The free cash flow was more or less zero in the quarter. So we are improving a little bit on the free cash flow to net debt, but we will continue to be very restrictive on acquisitions until we have come back to the 0.20 ratio of free cash flow to net debt.
I don't want to predict when we do that, but we will simply be restrictive on acquisition until we are back on that, have restored that ratio. And the net debt was pretty much flat during the quarter, so no big changes here. Yeah, and then to finalize a little bit of a new slide is that all our work and all we are spending all our efforts on is, of course, to manage the business on a daily basis, but also to move Securitas in this ladder and move up the value chain. We are happy to do guarding contracts if that's all they—we, we can offer, and that's all that the customer really wants.
Margins on those are lower than if you move up the value chain, and you can offer more specialized guarding, you segment your business to a higher degree, or that we can offer solutions to our clients with all our bits and pieces included that we do, that we can serve the clients with in guarding or even security solutions, which would imply not only guarding but also technology, consulting investigation services, technology in many different ways, and so forth and so forth. The equation that we are working with is to optimize for the clients so they get as much security as possible for as low cost as possible.
To do that, you need to solve the equation between how many guards you want at the site or we should have at the site, and to what extent we should use technology to replace guards or guards to replace technology, and then what you do on site and what you do remotely. When you solve this equation, then you move up that ladder chain, and you will improve your margins. That is what we are working on every day, every minute, every week, every year to move up that value chain.
This slide you've seen before, so I don't think it requires much of an explanation, but we spending now with an acquisition in Spain of Chillida quite a bit of money, and but we believe that that will strengthen our position within the technology bubble here, so that we will have a strong hub of technology expertise in addition to what we already have, especially in Spain and Portugal. And then to use that capability to develop the portfolio that we have in those two countries and to try to find better solutions of how we can reduce the cost for the client, but at the same time, retain the client and improve our margins. I think I'll draw a line there and then allow for questions.
So please, if you have any questions, we'll do our best to try to answer them. So please go ahead.
Ladies and gentlemen, if you have a question for the speaker, please press zero one on your telephone keypad. Our first question comes from Mr. Peter Trigarszky from Danske Bank. Please go ahead.
Yes, thank you. First, on US, could you perhaps say a bit more on your margin growth? Still, believe they should help margins. Is there something, you know, where you can, you know, push away, is there any tax impact which is explaining the margin drop, or is it just a weaker performance in the verticals you mentioned?
I mean, the main explanation is the core is doing fine. It's pretty much in line with last year. It's no big drama there, no big changes there. So the—which is the bulk of our business. But unfortunately, we had a quite negative development in these three areas that I mentioned, plus the startup in Canada. So that really explains basically the margin drop in the first quarter. That's really the explanation. Weak top line, and yeah, and the things that I mentioned before and the startup in the Canadian contract.
Then if we look forward to be a bit more optimistic about the quarters to come, is that we have won a major contract, as I said, in the federal government business starting in April. We have quite a lot of good projects that we expect to start and to get now in Q2 in the Pinkerton business. Canada will definitely contribute. I will swear, I know for sure that they are doing very well, so that should be turned around now, and we have had a positive trend month by month since we started that in November. So it looks better going forward.
It's still, it is the weakest quarter you have had since Q1, 2005.
Yes. I mean, it's a very weak quarter in... It's a weak quarter, and the explanation is the one I have. So yes, it's a disappointing low margin, weak top line, and a disappointing margin, but we will recover. And there are a lot of good news and a lot of good things happening in the North American organization that will substantiate that.
Going over to the contract losses, you have already faced in Q1 and going ahead, have you taken out enough cost, or is there measures that you need to take during Q2?
Are we talking North America, or what are you-
In general, as you have-
Well, in general, in general, we have no—I mean, it's just running business. It's daily business. We have no activities, planned or in the pipeline when it comes to major restructurings. We have an issue that we are really working with a lot, especially in Spain, but to some extent in France, is that when we have a negative top-line development, not generated by losses of contracts, because that we can live with, because what happens if we lose a contract to competition, they normally take the guards with them....
But when we have reductions, which we have right now, for example, in Spain, to quite a high extent, what happens then is that the customer just simply reduces the number of guards or hours, or they're not willing to pay more than 10% less or something like that, then we have a redundancy. The guards just get redundant. They are still employed by us, and we cannot terminate without costs. And that has been. It's a bit of an issue right now, especially in Spain, and in Portugal, but also to some extent in France, and we're dealing with that. So that will not cause any major restructurings, but it is an issue that which has an impact on our margin.
Unless we find solutions with vacations, we split shift, we share shifts in a different way, we solve it with overtime. We try to reduce our overtime and optimize that. So that's something we're working a lot with right now, which we need to do in order to protect our margins.
Just a final question on your cash flow. You are tying up more working capital, which seems to be quite high, considering that, looking at last year, you tied up quite a lot of capital in your accounts receivable.
We still had a good development on the accounts receivable in the quarter. It's, but we have some accruals which are going out. Bonuses that have been reserved, for example, have to be paid out and so forth in Q1. We always pay quite a lot of insurance premiums in Q1. We had a bit of a weak DSO in Europe because of the price increases we are fighting with in France. We have had some issues in U.K., where we are switching IT system in U.K. But these are things that will pick up, and we will recover.
Still, you also have to remember that we still had 9% total growth in Q1, which when you have high growth, we suffered from that last year, that will take some working capital needs. But we are doing a lot of good things here, and for example, now cash flow is in all bonus systems for everybody in Securitas who has a bonus as of January first, and there is an enormous focus on these things. And we also, of course, we will see a lot less growth by acquisitions and some contracts we terminate by our own initiatives, so that will also, so to say, slow down the organic growth. So these things together, they will help our cash flow on...
for the full year without making any forecast for that.
Okay. Thank you.
Our next question comes from Mr. Robert Plant from JP Morgan. Please go ahead.
Alf, can you give us some more detail, please, in terms of the North American contracts that you lost in defense, but you won in federal services? And also why you think Pinkerton has been so weak? Thank you.
Well, I prefer not to mention. I'm simply not allowed. I will break a contract if I mention the name of a contract we have lost, so we are not allowed to speak about that, so I cannot mention that. It was a sizable contract, so that has a major impact. We have won some sizable contracts as well, but I prefer not to mention the numbers and at this point in time. And your second question was the Pinkerton business, the volatility.
Mm-hmm.
It is a very volatile business, volatile business, and it very much depends. Many times if we get some major contracts where it's a need for something dramatic, where we need to send in this, this organization, then we will get a lot of work, and, and a lot of extra work with good margins when, when that happens. Now we have won, we have won, some contracts that we expect now to start in Q2, and that should also help the CNI business going forward. But I prefer not to be too specific on, on numbers and contracts and details about that. But it, it is, it is a very volatile business.
It usually never shows up in the numbers, but this quarter it actually did, so unfortunately, we have to use it as a part of our explanations. But normally, it's also by its nature, a very volatile business, because when we have big strikes, for example, when our clients needs a lot of extra officers for a temporary period of time, that will be very helpful for the CNI business. If we have natural disasters, which happens from time to time, storms or hurricanes and things like that, flooding, that will also be a lot of extra work for that organization.
And this you never know, but they come, we know that they always come every year, but they didn't come at all in Q1, and that's why it had a very negative effect on the margin in Q1.
Relating to that, you've hopefully on the slide said that the Canadian impact was 10 basis points of the 70 basis points margin decline. Could you say how much of the margin decline was Pinkerton and also the lost aerospace contracts?
Basically, I mean, the 0.1 is the Canadian startup and basically the rest, the vast majority of the rest of the explanation of the margin comes from the one I explained.
So Pinkerton?
No, no. No, no, not Pinkerton, but the other. The Pinkerton, the lower volume and the lower margin in the federal government business and the effect of the lost contract in the aerospace segment.
Thank-
Those together explains the rest, basically the rest of the margin.
Okay.
Which in a way, I think it's bad news of course, it's a weak quarter. Don't make too many conclusions from one quarter. On the other hand, the bulk of our business, which is the guarding business, in North America, is still the core is still performing pretty much in line what we expect.
... Thanks, Alf.
Thank you.
Our next question comes from Mr. Jamie Brandwood, from UBS. Please go ahead.
Morning, Alf, or afternoon, Alf, and anyone else who's on the call. Just had a few questions, if I may. I know you don't want to mention specific contracts with the U.S. government, but maybe to help us, given that you have a large contract starting up in April, can you first of all tell us when you lost the major contract that you mentioned? When did it drop out of the numbers?
Yeah. I think it was in, must have been in Q2 last year.
Q2 last year. So if you then look at the net impact from these two contracts, what is the net impact going to be? So, you know, given the revenue you lost on the previous contract and the revenue you're going to gain on this new contract, what would be the net impact on your U.S. revenue on an annualized basis?
Yeah, I prefer not to say a number, but it's negative.
It's still negative. Okay, fair enough. All right. And then, I mean, just overall, from what you're saying about new contracts coming on in Europe, as well as the annualization of contracts that you lost last year in Belgium and the UK, can we assume that the security services Europe division can see an improvement in the organic growth, in Q2 already?
Well, I mean, if you take the bits and pieces that you have in front of yourself and in front of ourselves, I mean, by definition, it would-
Yeah
because we have a major-
The other pieces.
We have a major impact from the European Commission, which we had in Q1 last year, and don't have this year.
Mm.
We had still the airport of Brussels in there for a month, I think, also-
Yeah
... slightly more than a month last year, which we don't have this year. And then we have won the European Parliament contract in Brussels, starting up 15th of mid-April, 15th of April. So that should help in Q2. So yeah, I mean, we hopefully now we will... It remains to be seen. I hope you're right, and hope I'm right because, I mean, it looks like by that we should now start to see a better development on the top line, also in Europe, than we have suffered from for the past 12-15 months.
You mentioned from a margin perspective that last year in Q1, you had a little bit of a timing benefit in France in terms of putting your prices up before the actual wage increases came through. Can you say how much that benefit was in terms of impact on the overall margin in Europe Security Services?
Yeah, I prefer, I prefer not to. I should have written it in the report then, so I prefer-
Yeah
just to mention it in this way. But it of course had an impact, and that's an important thing. It's important-
Mm
part of that, and that, since I strengthened a little bit the result this year, because last year-
Mm
we had a free ride of 2 months, I'd say-
Yeah
- last year in France. France is far, by far our largest,
Country
... It's our largest market in the European business.
So, to look at it another way, your French EBIT margin in this Q1 was down on the French EBIT margin in Q1 last year. Is that correct?
I mean, we had a pretty good quarter, Q1 in France last year, but then it dropped-
Mm
- quite a bit in Q2, Q3, and Q4.
Mm.
This year, we are now more successful on the price and the wage than we were last year, because last year we dropped - we didn't manage-
Mm
This year we are managing it.
Yeah.
So the comparatives in quarters to come will be to our advantage-
Yeah
This year compared to last year. That's what I'm trying to say.
Okay. And then you mentioned the, you're hoping now, or I think you've now agreed, a 2.2% wage increase in Spain in terms of-
2.4%. 2.4%.
2.4%, sorry.
Yeah.
Okay, so in terms of that 2.4% in Spain, can you give us some of the wage increases that you've agreed in some of the other key European countries, Sweden, France, anywhere else where this kind of thing matters?
Well, I prefer... I don't want to be impolite to you, but-
Sure, sure
I prefer not to do that because they vary quite a bit, and they don't tell you a lot, really, because I mean, the CBA in Sweden has just been agreed. It's slightly over 3%. But I mean, if I say that and then the different number to a different country, it doesn't tell you very much, really. The key, what it tells, what is the key is to discuss the delta.
Yeah, sure.
I mean, the delta between the price and the wage, because that is really the one that will have an impact on our margins. So I prefer to not take country by country, so to say, but just to concentrate on the delta. And when we look on the delta, I am confident that we should be able to be on par from a group point of view, between wage and prices, this year.
That 2.4% in Spain, has that already started? Did you already push that?
Yeah, it started already. I mean, it started already. I mean, basically the way it worked is that it was agreed in the old agreement, which was signed more than a year and a half ago.
Mm.
It was agreed to start in January first, with 4.4%, but we never paid out the 4.4%.
Mm.
There has been negotiations and discussions, I mentioned many times, back and forth, and some optimistic, some less optimistic. But the bottom line is that it was agreed 2.4, and that's as of January first. So in Q1 now, we have had the wage cost increase as of January first, while price increases come as we agreed.
Mm.
Sometimes we are able to get it retroactively. Many times in Spain, we are not. So, if we agree in March, we get it from March or April.
Mm.
So we have a time lag of price versus wage in Q1 in Spain, that we do.
But obviously, you didn't know about the 2.4% back in January, so how much did you push through in January?
We have, we have pushed, we have pushed, but we have pushed. We-- but it was totally unrealistic to get that number, so we don't, we didn't even ask for it. So we were aiming for, I said in, in February, when we had this, meeting-
Mm.
I said that we should be trying, we are aiming for in the range of 2%, and that is what we were aiming for, and that is realistic, and that is still the number. And we were hoping for that, or hoping or betting for or accounting for whatever you want, but we would be able to try to renegotiate that agreement.
Yeah.
Because if we would go to 4.4, we will lose the contract for sure.
Sure. So, there's no extra wage impact now in Spain for the remainder of the year, you've already paid them?
Well, at least it's not gonna be large. But for-
Yeah
... that, we don't expect it to be a major issue because we think we should get pretty close to, to that, to that level, as, as I just explained, roughly 2% versus the 2.4%. So, and, and it's still yet many, many, many contracts to discuss, some contracts to discuss.
Mm.
So we should be pretty close. The issue with we are a bit concerned about right now in Spain is the one I mentioned before. Maybe you heard that, we have an issue when clients reduce their contracts, we get stuck with the guards.
Yeah.
We cannot lay them off without any cost, and that we need to manage because that hits us a little bit differently from area or region to region. We have to manage that in a smart way, not to have too, too many, too much extra costs.
So you're talking here about these two large contracts where you've been left with quite a few guards on your payroll?
No, those two guards, those two contracts, fortunately, was taken over by competition. So there, the guards follow the contract, so that one did not affect us. It's more of a, the daily rough business of, where clients say, "Well, you have to reduce 2%, 5%, 7%," and then we reduce a little bit of the hours or take a guard away from the contract, and that guard is still employed by us. And we cannot just fire them without any cost in Spain. Even with the new legislation, which is much more liberal than the old one, even so, we will have a cost. And so that is something that we are struggling with right now and gives us a bit of an uncertainty in quarters to come, how that will play out.
Okay. I'll let someone else ask some questions. Thanks very much, Alf.
Thank you.
Our next question comes from Mr. Laurent Brunelle from Exane BNP Paribas. Please go ahead.
Yeah. Good afternoon. I have three questions, if I may. First, on your portfolio of contracts, is there any particular renewals to expect this year? And do you see any large bidding opportunities as well? Second, on the French market, can you update or make any comments regarding the takeover of Neo Sécurité, please? And lastly, can you maybe quantify the impact on your top line from your own consolidation of low-margin contracts, please?
Your last question, was that the extra sales, you mean, the temporary contracts?
Yes.
Yeah, I answered that. That's 13.5% in Q1, which is the same, Q1, yes, which is the same as last year. So exactly the same level as last year, extra sales-
Mm-hmm
... as part of total sales. On the renewals, on the biddings, there is really no major contracts. There's always renewals, but there is no one I would like to highlight specifically. We have some big contracts out to be that we are bidding on right now. Oslo Airport is one of those, for example. That is in the bidding process right now.
Mm-hmm.
But I think we have seen the worst of that period when we were through a recession, and we got a little bit of a hangover from that in 2011 as well, in that the clients took advantage of a recession to rebid the contract. We will have rebids over time. Sometimes we lose, now we won the European Parliament as one example, which was a rebid. We won, we kept, retained some, Arlanda being one, Stockholm Airport, and so forth. But nothing I would like to highlight too much. But that there was a high frequency of rebidding contracts during throughout 2009, 10 and partial 2011 as well, that we see that has cooled - that is cooling off, I would say.
And then when it comes to the Neo Sécurité , who is our largest competitor in France, there has been a lot of things happening with them back and forth. As far as I at least from my perspective, they are, if not in bankruptcy, at least pretty close. But I don't have the latest versions of that, but they are, of course, in very difficult financial conditions. And then there has been some debate in France that this company would that everybody will lose their job if they come into to a bankruptcy situation. They have been in Chapter 11, as you probably know, for-
Mm
... for most of last year, and then they seemed to get out of that, but I'm not so sure they really did. I don't want to be too specific on that since it's a competitor of ours. But anyhow, even if they would somehow fail to reconstruct the company, then what will then happen is that hopefully competition will take over. We or others could take over those contracts, because the security work still has to be done. And that remains to be seen. The final word is not yet said about that. They've been able to survive for quite a while.... But this is what happens when you don't have a balance in a very tough market with price and wages, then sooner or later you get in trouble.
Okay, but just to be sure to understand, you're today in the process for the takeover of this company? If this company goes to bankrupt.
No, no, no, no.
No?
No, no, we have taken over or acquired the mobile business of Neo, which is a minor business that we have done, but that was one quarter ago. When it comes to the guarding business, which is now the big remaining part of Neo, we are not interested.
Okay.
No.
Clear. Okay, thanks.
Our next question comes from Mr. Paul Checketts from Barclays Capital. Please go ahead.
Afternoon, Alf. In France, is it possible that you might, in fact, see price increases ahead of wage inflation this year?
I don't wanna. I mean, that's our plan. That's our ambition. But I don't wanna promise or speculate in that yet. It's too early to tell. I wait one more quarter about that. We recover it, we keep it on par this year. We will try to recover also a piece of last year. That's why we are fighting with that. That's in our plan, but I don't want to, and that is what the French organization is doing very well, and they are fighting very hard to achieve that, but I don't want to say something about that yet or speculate about it.
Okay. And on the Spanish, the new agreement, how does that break down more precisely? In the past, you've given us the element that's inflation and the other part of the agreement. How does it break down now?
Yeah, I can. I don't think it's related like that, but I need to check that in for to be 100% certain. At least it is 2.4%, and that's the number. Agreed for next-
How long will that last for?
Sorry?
When will the next agreement need to be made?
That agreement is now a three-year agreement, so it's already agreed for 2013 and 2014, with approximately 1.5% wage cost increase for 2013 and 1.5% for 2014.
Okay.
It's a three-year agreement that was renegotiated in that renegotiation.
Right.
Roughly 1, I say it's not exactly 1.5. I don't remember if it was 1.4 or 1.6, 1 over two years, but roughly 1.5 per year in those two years.
Okay, and lastly, on your new slide, how much of your -- how do you think your work splits between those different levels currently?
I mean, the bulk of our business is in is, of course, in the guarding and specialized guarding. But we still... I mean, we have businesses in security solutions, and we have guarding solutions. And those numbers that I plugged in there, I mean, they are not to be exact, but at least they give you an indication of the potential of when you move up that ladder, that value chain. And we have businesses in all those four, but the bulk of our business is, of course, that you can tell by our margins, is in those 4%-6%.
Mm-hmm.
That region is specialized guarding. But we are step by step moving up there, and then when we are up providing security solutions to our clients, we have 10% or higher operating margin on those contracts.
I mean, do you think it would be 95% falls in guarding and specialized at the minute?
I prefer not to give a number, because then I will be held liable to that number for every quarter to come.
Okay.
So I at least for this, you have to be satisfied with one new slide, at least for this quarter. So then, and then we'll, maybe we can give you some more information in quarters to come.
Yes, that's perfect. Thanks very much.
Thank you.
I remind you that if you'd like to ask a question, please press zero one on your telephone keypad. We have a question from Mr. Mikael Lövdahl from Carnegie. Please go ahead.
Yes, thank you. Most of my questions have been answered, but first, can you mention the organic sales decline right now in Spain? And if you also exclude perhaps the effect from the two contract losses, I guess they did hamper somewhat in Q1.
Yeah, well, I'll be kind to you, because I usually don't do that. But still, I mean, we had a negative organic sales growth in Spain in Q1 of 7%, and those two contracts represent 4 of those 7.
Okay. Okay, thanks. And would it be fair to say that these contracts were in the 0%-2% margin range? Or you said that they were hampering margins, but-
No, I mean, they were not contributing to our margins. I don't... I prefer not to say the margin. That would not be very correct to do that. So, but it was contracts with a negative operating margin.
Okay. And on the U.S., is it fair to say that last year's margin was a bit boosted by the fact that you had the payroll tax adjustment in Q4? That, what you can read into that was that you had reported too low payroll taxes in Q1 to Q3. Or sorry, too much in Q1 to Q3, and then adjusted in Q4, or sorry, too low and then too much?
Yeah, that's correct. That is correct, yes.
But, could you quantify it? I mean, we got the figure in Q4, how much it was on a year-on-year basis, and then you were a bit uncertain how this was gonna play out in 2012, and whether or not you were gonna get paid from customers and so on, in terms of pricing increases.
I prefer not to—I mean, but we gave you the numbers, roughly speaking, in Q4 report. So you have, as far as we can quantify it, we gave it in the Q4 report, and there you have roughly volume-wise, it's more or less even over four quarters. So it's not too difficult to calculate it from that, but at least to get a rougher feeling. For this year, we are aiming to get the SUI rates and the FUTA rates, and all those rates included in our price increases. And we are fighting with that, and that is always a hassle in the U.S. We have been pretty close on that in the last two years.
We've been on 85%-90% on the SUI rate increases, and we aim for the same this year. So, again, as a part of a forecast or the statement I make from a group point of view, that we expect to be able to keep the price and the wage in balance this year. I mean, I think that is as far as I can answer that question.
So you can't really quantify the difference here, because one could assume that you are more cautious now in how you account for these taxes now in Q1?
Yeah, yeah, yeah. But I don't. I cannot give you a number from where I am right now.
Okay. And in terms of building up your technical security capabilities, could you say how that is playing out now, both in terms of the speed, and if you are satisfied with that, and also in terms of the cost for hiring people in this area, if that's something that is pushing down the margin somewhat also?
Well, I will not make any excuses when it comes to margins about that. I mean, we are investing some money, but, I mean, sometimes you save something where in one place, and you invest in something else. So it's a part of our... We are building those, but I will not excuse myself for those investments, I'd say, and it doesn't make any major impact on the margins in Q1. We are investing and hiring people. We try to hire them when we have work for these people so they can contribute. Doesn't always fit exactly the same quarter, but that's basically the philosophy since we build it step by step. And we're moving on pretty well, especially in a number of countries in Europe, Spain being one.
We have quite a lot of activities throughout the eastern part of Europe via the company we have in Turkey, Sensormatic, that we bought just over well a year and a half ago. Now we're very exciting with the Segura acquisition in Spain. In Sweden, we are insourcing quite a lot of the service and maintenance work that has been outsourced to former Niscaya. And we're bringing that work into our company, and that with similar kind of work in other countries as well. We hire people one by one when we really think we can justify it and afford it, and we can also find the work that we should insource or bring in with those people.
So you should not. It doesn't have any major impact on the earnings in the quarter as such.
Okay. And in Europe, in your UK business and Chubb and Reliance, is the UK still, I guess, have slightly lower margins than the European average, but I guess they are growing now year on year, or continue to do so, did so during the last quarter, last year.
I mean, in Europe, what is happening in Europe is that they are at lower margins than the average, and UK market is a low-margin market, but the margins are moving in the right direction. And they will, UK will contribute, which I've said all along, that they will do this year. And we are roughly running on according to plan. And we took all the acquisition-related cost for the UK integration last year. Unfortunately, compared to some consensus reports that we looked at here the last week or so, is that it's been underestimated in some reports, the acquisition-related cost.
As a part of a little bit of explanation to that, I mentioned that at this time, anyway, so it is that we have a little bit of a tail, because when we make acquisitions, we have integration, we have restructuring costs and integration costs. And those costs we take during a period of time, could take roughly six to 12 months after the acquisition was made to integrate those companies into Securitas. So when you make acquisitions, you have a tail for, yeah, up to a year, more or less, for integrating those acquisitions. And we still have costs for that. For example, now in Q1, we have a Cobelguard acquisition in Belgium, which quite a bit of those acquisition costs in Q1.
And then now we're going forward, we will still have a quarter of Cobelguard cost in Q2, and then that is basically done. But now Chillida, which will probably be a couple million EUR of restructuring and integration cost of that operation into Securitas. So I think we need to, yeah, but that is—and also when we make smaller acquisition, that will be always some small integration costs when we plug them into Securitas. So you should expect that zero, that line will not be zero in quarters to come, because there will always be a little bit of a tail from older acquisitions from the last 12 months, plus the ones that I just mentioned.
Okay.
Long answer to your original question.
Yeah, thanks. Just a final question. And any news on any of your legal disputes that you have in different countries and regarding different things? And on the same theme, any disputes that seems to be coming to a close? I mean, I guess it's pretty costly to keep up all the lawyers. I'm thinking of Brazil, for instance. So any news on any of these items?
No, not really, not other than what we have written. The Spanish overtime case has come to an end now in the Supreme Court, so that we can now hopefully close that issue and finally calculate all the numbers and reduce that all those guards who have claims against us for the overtime compensation for certain years going back. The Brazilian case, there has been no real substantial development, but it's running through the courts, and we think there is no merit whatsoever to any claims on that and any accusations and also that, so there is no substance in that, and we... But it's in the court systems, and it's going back and forth.
Sometimes you win, sometimes you lose a piece in that, in that process, but nothing really substantial. And if there is which has any impact on the expectations of what it could mean for us, we are forced, we have to disclose it. And if we don't disclose anything, there is nothing really important happening that would have a financial impact on Securitas.
Okay, thanks.
Our next question comes from Miss Davina Mendelson from Deutsche Bank. Please go ahead.
Good afternoon. Just a very quick question from me. Could you quantify what the benefit of the leap year was on your organic growth rates, this year?
It was minimal, but we mentioned it because it had some effect, actually, so... But it was not very large. But, yeah, we still thought it was worth mentioning it at least, but I cannot quantify it in, it's-- if it's point whatever percentage.
Okay, understood. Thank you very much.
Thank you.
There are no further questions from the telephone.
Okay, then we'll run off to the annual general meeting in an hour from now. So thank you very much, everybody, and bye-bye.