Good morning, everyone, and warm welcome to the Q4 and the Full Year 2023 Update. We have delivered decent results in the quarter, and strong cash flows and margin improvement from Technology and Solutions are two clear highlights of the quarter. We recorded 6% organic sales growth in services. The price increases were the main driver of the growth, but we also had volume coming from the aviation business.
The growth in Technology and Solutions was 6%. The operating margin improved to 6.8% in the fourth quarter, and all three business segments contributed, and the Technology and Solutions business line was the main driver of the margin improvement. We have balanced price wage in the group for the full year, and similar to the previous quarter, I would say that we have seen some improvement in the labor market.
The operating cash flow was 166% in the quarter and 80% for the full year, and with SEK 5 billion of free cash flow in combination with favorable FX development, contributed to solid deleveraging. As we guided for in 2022, we had planned to achieve a net debt EBITDA ratio of less than three in 2024, and we are now in line with this target one year early. The integration of Stanley is progressing well, and with our greatly enhanced offering, we are seeing strong interest from existing and also potential clients.
The dividend proposal of 3.8 SEK represents a 10% increase versus last year, and 47% of net income when excluding the capital loss from Argentina. So with that, let us shift the focus to the performance in the business lines. The growth in security services was 5%, and as commented earlier, this growth is mainly driven by price increases and volume growth in the aviation segment.
The EBITDA margin of 4.9% represents a slight decline versus the previous quarter, and the price wage balance and active portfolio management helped the margin, but the Securitas Critical Infrastructure business, which is reported in other, had a significant negative impact on the margin in the quarter due to a poor-performing contract. But this is being addressed, and they are expecting an improvement during Q1.
The European services margin was below our plans, but we expect improvement going forward based on the actions initiated by our European leaders. The 9% real sales growth in technology and solution, sorry, the real sales growth in technology and solutions was 6% in the quarter and 9% for the full year. We have continued robust order intake and backlog for our installations business.
We deliver a solid 11.4% margin in the quarter, and we are proceeding well with the Stanley integration and reached a number of important milestones during the quarter, and we have realized the $50 million cost synergy target that we communicated when announcing the acquisition. And the solid progress with the cost takeout is a key driver to the margin improvement, and I should also mention that we have identified additional cost synergies on top of the SEK 50 million, but some of these will be offset by investments in the business.
Let us then shift focus to the performance in the segments, and as always, we are starting with North America. And here we recorded 4% organic sales growth. With strong new sales, the Guarding business was the main driver of growth in the quarter. Technology business was flat in the quarter, but with good commercial activity and a healthy backlog. An airport security contract with annual sales value of SEK 1.3 billion will be terminated as of March 31st this year, and the pricing of the contract didn't meet our margin requirements.
Our technology and solutions business is now representing 36% of total sales in North America, and we improved the client retention to 90%. Turning then to the profitability, where I'm glad to say that we have recorded a new quarterly margin record with 9.3% versus 8.9% in Q4 last year. The technology business was the main driver of the improvement, with positive impact from cost synergies and also, improving installations margins. Profitability in the Guarding business was slightly down due to higher medical expenses and some year-end reconciliations.
But our North America team is really leading the way in terms of profitability and entering 2024 with a stronger-than-ever client offering. We then move to Europe, where we recorded 11% organic sales growth. Strong price increases were the most important driver of the growth, but technology and solutions also contributed, as did the airport security business. The hyperinflationary environment in Turkey boosted the growth, the growth figure, as in the previous quarters. Technology and solutions represented 34% of sales, and a client retention rate was stable at 91%.
Shifting then to the profitability, where we recorded a 6.6% operating margin. The improvement was driven by technology and solutions and a particularly strong quarter in technology.... We continue to see some improvement in the labor market, but it's still challenging in many parts of Europe, and elevated costs for subcontracting had a negative impact on the services business line.
The services margin was below plan, as I commented earlier, for this quarter, and going into 2024, our team, European team is focusing on executing on a few key priorities. Increase in the margin requirements for the new contracts, working actively to convert, renegotiate, or terminate low-margin contracts, and also driving continued cost management, and all this to ensure that we drive substantial improvement in the profitability of the services business in 2024. Moving then to Ibero-America, where we had good development overall.
On a sequential basis, the organic sales growth increased to 7% organic in Q4, and as is visible in the graph, the divestment of our operations in the highly inflationary Argentinian market distorts the comparison figures. By focusing on one key market, Spain, the organic sales growth increased to 6%. Growth was supported by price increases, strong technology sales, but as in the previous quarter, the growth was negatively affected by active portfolio management. Technology and solution sales represented 35% of sales in the quarter, and the client retention was solid at 93%.
And shifting to the profitability, where our team delivered a solid margin of 7.2% in the quarter. And strong performance in technology and solutions and airport security supported the margin, and also the divestment of Argentina, where we had below average margins compared to the divisional numbers. The operating margin improved in Spain, even though wage pressure in Spain somewhat hampered the margin. So all in all, solid performance in Ibero-America in Q4 and all of 2023. So with that, shifting over to you, Andreas, for some more details on the financials.
Thank you, Magnus, and good morning, everyone. Starting with the income statement, where we had solid 6% organic growth in the fourth quarter. The operating margin improved to 6.8%, where the main driver is a strong margin development in our technology and solutions business. And to complement the overview that Magnus provided related to the segments, I want to remind you that the SCIS business is reported as other as from the third quarter.
The weak-performing contract Magnus referred to in the SCIS business impacted the group margin negatively, slightly more than 0.1 percentage points in the fourth quarter. And this was also the main reason behind the weaker performance in other, which, apart from SCIS, also includes our business in Africa, Middle East, and Asia and group cost.
Looking then below operating result, the amortization of acquisition-related intangibles was SEK 152 million in Q4, with basically no major news here since the previous quarters. Items affecting comparability was -SEK 404 million, where SEK 196 million is related to our Stanley integration, and SEK 208 million is related to the European and Ibero-America Transformation Program. As usual, I will come back with more details related to this shortly. The financial net is coming in at SEK 628 million, which is materially higher than last year, mainly due to increased interest rates.
The FX gains and losses and IAS 29 hyperinflation effects were immaterial in the quarter, and last year we had a positive effect of SEK 58 million from IAS 29. For the full year, the financial net landed at SEK 2.1 billion, in line with our guidance in the third quarter. When excluding IAS 29 and the FX gains and losses for the full year, the financial net was at SEK 2.4 billion for 2023, and we estimate that the full year 2024 financial net to be at the same levels.
In other words, around SEK 2.4 billion, when excluding then IAS 29 and FX. We will see some negative impact from refinancing fixed debt the coming quarters, but as it looks today, we will also benefit from reduced market interest rates going forward and the successful refinancing at reduced margins that we have done the second half year of 2023, leading then to our estimate of financial net remaining flat in 2024.
We had two material items impacting our tax rate throughout 2023. The first one being the non-tax-deductible capital loss from the Argentina divestment we did earlier in the year, and the second impact occurred now in the fourth quarter, where we won additional tax cases in Spain dating back to 2008 and 2009, allowing us to reverse SEK 118 million of tax provisions. This has no impact on cash, to be clear, although the wins are important as it reduces the potential financial exposure for us. You find further information on page 14 in the report.
And then the full year underlying tax rate, excluding these two events, came in at 26.9%, which is in line with our forecasted tax rate of 26.8%. Before moving on, I want to remind everyone again that the number of shares used for calculating earnings per share are adjusted for the bonus element of the rights issue in line with IAS 33, and here you find more information on page 19 in the report. Then we have a more detailed look into our IAC programs, where the two remaining ongoing programs are the European and Ibero-America Transformation Program and the Stanley Acquisition Integration.
Looking then first at the European and Ibero-America Transformation Program....Here we had SEK 208 million of spend in the quarter, leading to a full year cost of SEK 686 million, which is in line with our Q3 estimate of between SEK 650 million-SEK 700 million. The full year IAC estimate of around SEK 150 million in 2024 is unchanged compared to our previous estimates, and the same applies to capital expenditures. This also means that the total program spend over all years are within the originally estimated budget, as we have highlighted also in previous quarters.
Moving on to the IAC related to the Stanley integration then. Here we announced a total cost of approximately $135 million after the acquisition. The integration and synergy takeout continues to progress well, and we have executed on the $50 million cost synergy target. As we have mentioned earlier, we are going through a period of heavy lifts in the carve out from Stanley, mainly related to IT and support services, but we are now over the peak, and we are also executing well, but the work will continue also over the coming quarters.
For the full year, the cost of the program was SEK 662 million, slightly above the SEK 600 million-SEK 650 million estimate in the third quarter. The program will finalize throughout 2024, where you then will see the residual budget of around SEK 400 million being expensed. We have been going through a period of investments in our transformation programs and the Stanley integration, and the IAC cost now peaked in 2023, with a total cost of SEK 1.35 billion for the year.
As we are now going into 2024 and the later phases of the programs, the IAC cost will significantly reduce compared to 2023, with an estimate of around SEK 550 million for the full year 2024, and this will, of course, then also impact our cash generation positively going forward. Moving down to an overview of the FX impact on the income statement, and here we saw a reduced impact from currencies in the fourth quarter as the Swedish krona strengthened by the end of the year.
There was no impact from FX on sales and limited impact on operating result in the fourth quarter, while we had 3% positive FX impact on sales, looking at the full year and 4% related to the operating result. The fourth quarter EPS real change, excluding items affecting comparability, was -3%, with negative impact from the adjusted number of shares by IAS 33 from the rights issue.
On a constant share basis, the real change, excluding IC, was 0%, and this is derived from the real change on operating income being 9%, positively impacted by the 6% organic growth and continued margin improvements, while mainly the increase in the financial net impacted negatively, leading to the 0% in the quarter. We then move to cash flow, where we had a strong outcome in the fourth quarter.
The operating cash flow was SEK 4.5 billion or 166% of the operating result, and for the full year, we ended at SEK 8.2 billion or 80% of the operating result, which is at the higher end of our, our financial target. We saw strong cash flow development across all segments in the business, where the main drivers were strong collections and DSO, in combination with the lowered organic growth in Q4, and also improved inventory and accounts payable positions.
In the third quarter, we mentioned that we had some negative impact on our invoicing and collections from ERP integrations under the European Transformation Program and related to the Stanley integration. We saw improvements in the fourth quarter, but this continued to hamper the cash flow generation and will remain a focus area for us also going into 2024.
When comparing this quarter to Q4 last year, you should have in mind that we, in 2022, paid approximately SEK 700 million related to Corona government relief measures in North America, hampering then the comparable number, and there are no further such payments to be made. The free cash flow was strong at SEK 3.5 billion in the quarter, positively impacted, of course, by the operating cash flow and also by lower taxes paid due to tax refunds received in Sweden, while the cash flow from financial net hampered mainly due to increased interest rates.
The full year cash flow was SEK 4.9 billion, which supported strong deleveraging of our balance sheet, as you will also see further details around shortly. So to summarize, we are satisfied with the cash flow in the quarter and also for the full year, especially when considering that we, in 2023, have seen high growth rates hampering our working capital and also have gone through a period of heavy lifts on the ERP and support services side, both in our Stanley integration and in the European Transformation Program.
Q1 is seasonally a weaker cash flow quarter for us, but cash flow will remain across the business also going into 2024 to ensure we further strengthening our balance sheet and to generate room for investments into our business. We then have a look at our net debt, which landed at SEK 37.5 billion, which is down SEK 3 billion from the start of the year, supported by the strong free cash flow, but also by positive FX translation impact, especially now in the fourth quarter, when the Swedish krona strengthened.
Then we also paid out a full year dividend of SEK 2 billion, one part in May and one part in November, and had an IAC cash impact on -SEK 1.4 billion over the year, explaining then the major movements resulting in the year-end net debt of SEK 37.5 billion. The reported net debt to EBITDA is materially impacted by the capital loss from the Argentina divestment. So the more relevant net debt to EBITDA before items affecting comparability was 2.7x in Q4, down from 3.1x in Q3.
A material improvement mainly derived from the strong cash flow generation and the positive FX translation impact. This also means that we are now in line with our financial target of less than 3x net debt to EBITDA, earlier than our communicated target to achieve this throughout 2024. Moving on to have a look at our financial position, our financing and financial position, and we continue to have a solid financial position. None of our facilities have any financial covenants, and the liquidity position was strong at SEK 7.9 billion.
We also have our RCF of more than EUR 1 billion in place until 2027, and it continued to be fully undrawn as per quarter end. During the first half year of 2023, we fully refinanced the $2.4 billion Stanley bridge-to-debt facility. We did this by a mix of long-term financing instruments, including a new term loan with our banks and by issuing Schuldschein and Eurobonds.
Throughout 2023, we also continued to see positive margin developments in the credit markets, and to benefit from this, we decided to refinance the term loan early, partly through the EUR 600 million Eurobond issue in Q3, and partly by renegotiating the remaining parts of the term loan with our banks in Q4. This has supported the financial net positively in the second half of the year. Looking into 2024, we have approximately SEK 9 billion of maturities to refinance. Slightly less than 2/3 has floating interest rates, and the remaining part has fixed interest rates.
From a timing perspective, around EUR 5.5 billion of the EUR 9 billion are maturing in the first quarter, and the remaining part is maturing during the second half of the year. So we will be active in the debt markets as we are coming out of the fourth quarter reporting period. Related to our S&P rating, nothing new to report here. Our outlook was revised to positive from neutral earlier in the year, and we continue in an unchanged way to be committed to our investment grade rating and to continue our focus on cash flow and balance sheet. So with that, I hand over back to you, Magnus.
Many thanks, Andreas. So just a few updates, before we open up the Q&A. After closing the acquisition of Stanley in 2022, 2023 has been, like Andreas and I commented, a year of extensive integration efforts. And from an operational perspective, we have driven significant progress and hit a number of important milestones. We've continued to sharpen our operations, we continued active portfolio management, and also the divestment of our business in Argentina. And looking ahead, we are fully committed to delivering on our financial targets.
And two headline figures here, of course, 8%-10% growth in technology and solutions, and achieving an 8% operating margin by the end of 2025. And 2023 is now concluded, and I felt it would be relevant to look at the performance versus the target, in the last 12 months. So looking at the first category, technology and solutions growth, we recorded 9% growth in technology and solutions in 2023. Looking at the margin, we increased the operating margin with 50 basis points to 6.5% on a full year basis.
Looking at the cash, we delivered, as we commented, 80% operating cash flow, close to SEK 5 billion in free cash flow in 2023, and we are ahead in terms of deleveraging. And we've also made a prudent, prudent proposal with a 10% increase in dividend to our shareholders based on a strong financial position. And we will share a lot more about the journey, and more details how we achieve our targets at the Investor Day on the 7th of March here in Stockholm, and we're looking forward to seeing, hopefully many, many of you here.
So to wrap up, Q4, it was a decent quarter, but before we open up to Q&A, I would just like to comment that, we're driving significant change in building the new Securitas, and I would just like to take the opportunity to thank the entire Securitas team for your tremendous efforts and contribution during the past 12 months. So with that, to the operator, and we can open up the Q&A.
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 Annelies Vermeulen. Please go ahead.
Hi, good morning. I have three questions, please. So look, when you were speaking to the market in December, the message was on cash conversion was a little bit soft. I think you were saying that the cash conversion could end up below the 70%-80% range. Clearly, you've done a lot better than that, reaching 80% for full year 2023.
So my question is: how is it that you have so little visibility on your working capital management? I assume the cash performance is indeed the better receivables, or is there something else in there? Because that to me implies that there isn't a lot of visibility that you have there.
And then secondly, on the interest costs, the Q1 run rate implies around SEK 2.5 billion for full year 2024, compared to the SEK 2.1 billion, I think you did for 2023. I know you've said SEK 2.4 billion for full year 2024 net interest costs, but I think that you said that excludes the IAS and FX impacts. So how do I square that off with the Q4 run rate?
And I suppose how is it that you expect that interest cost to come down through the year, given your refinancing commitments? And then just lastly, your cash interest costs still quite a bit below your P&L interest costs. If you could help us to understand that, please.
Thank you very much. Starting with the cash flow, we don't guide on cash flow, generally speaking, but we always wanna be within our 70%-80% target. But having that said, we saw a strong cash flow development in the fourth quarter, where after, as you know, a long time of focus into cash flow, we saw really strong results. So the result came out a bit better than we expected. I agree on that as well. So very well, a lot of good work with the teams overall. So you're right that we... The cash flow came in better than we expected, but also wanna be clear that we haven't guided on cash flow before.
So that's number one. When it comes to the finance net, here, we are now excluding the hyperinflation and FX gains and losses. There has been a lot of questions around that in the past, right? So, when you look into 2023, the finance net, excluding those two, was SEK 2.4 billion, around SEK 2.4 billion, and it will remain flat into next year. That is our estimate right now, and that 2024 estimate is then also excluding any potential impact from hyperinflation and the FX gains and losses.
Trying to create more clarity here, also when it comes to these two items, on the hyperinflation side and FX, difficult to predict where this will go. We are not really forecasting this internally. It depends on currency and inflation movements. So, I want to give some more clarity here. When it comes to seasonality, I mean, you all following also the market interest rates, which are going down, right? But looking into Q1, we will have some negative impact from refinancing fixed debt, generally speaking.
So, in Q1, one could expect the finance net to continue to be higher than in Q1 2023, but then we will see more positive trend over the year. I hope that is answering your questions. Otherwise, please, come back with a follow-up.
It was just a lot on the cash interest costs and relative to your P&L interest costs.
Yeah. Over time, this will be the same. This obviously depends on when we are refinancing the different bonds, where we have annual payments on the bond, bonds, right? So there is some seasonality as we are paying annually the bonds, but over time it will be the same. So there is no structural difference there, but a bit of, call it, seasonality due to that.
Okay, understood. Thank you. I appreciate your answer, but I still think I still struggle to understand why you've had such a big inflow in December. And that's what I'm trying to square off. But perhaps we can discuss offline.
To be clear, in Q4, when it comes related to cash flow, we saw very good progress on DSO and collections, and that is our by far our biggest item in our working capital. So very good collections driving down the DSO in combination with a bit lower organic growth, which has been hampering our working capital also throughout the year. So that's the main impact, generally speaking.
Then we have also worked on reducing our other working capital, mainly then related to inventory and accounts payable, where the teams have also done a good job to take down those positions in Q4. So those are the main drivers to the very strong cash flow in the quarter.
Okay, understood. Thank you.
The next question comes from Johan Eliason from Kepler Cheuvreux. Please go ahead.
Yeah, hi, this is Johan at Kepler Cheuvreux. A bit curious on this US airport contract. You mentioned that pricing is not meeting your margin targets. Was that going forward, or was that the situation on the existing contract that you will leave end of March?
Thank you, Johan. Yeah, so I would say that the margin on that contract has been satisfactory. In the extension negotiations, or for the new RFP, essentially, that's where it didn't meet the margin target, and that's also then in line with the strategy. This is being terminated.
Okay, good. And, I was just wondering, the IAS cost you highlight for 2024, will they be the same impact on the cash flow? What was it? Around SEK 550.
... short, short answer, yes. What you can normally see is a little bit of delay in the cash flow, compared to the PNL, if there are accruals for certain costs, et cetera. But, generally speaking, yes, that, that's a reasonable assumption.
Excellent. And then my final question, network and capital. Do you think there is more releases to come on this, or will it be more of a normal pattern going forward?
I think the working capital position was strong in December from that perspective. We are working structurally on making sure that we are taking down the working capital over time. But I would not expect major improvements in the working capital position in the short term. It was a strong position in December. Also, from a seasonality perspective, that's how it's normally is looking like as well, that we are improving by the end of the year. So I wouldn't expect going into Q1, Q2 strength and working capital positions from the baseline of December.
Okay. Thank you very much.
The next question comes from Andrew Grobler from BNP Paribas. Please go ahead.
Hi, good morning. Just a couple from me, if I may. Firstly, sort of going back to free cash and the working capital achievements in Q4. To what extent do you think that this is now the new norm in terms of DSOs and so forth? Or should we expect further improvements through 2024, 2025, just as European ERP gets integrated and the Stanley processes are fully embedded into the system?
Is this... You know, can it get better from here? And then secondly, in terms of North American technology kind of growth stalled in Q4. You talked about a good order book. What are your expectations into at least the beginning of 2024, maybe for the full year there? Thank you.
Starting with the DSO development, as I mentioned earlier, strong position by the end of the year. Which, what is really good to see, our aging has strengthened a lot, not only the short-term sort of aging, but also the longer-term aging, which is a sign of strength, given also the uncertainty in the macroeconomic environment. Normally, we have a strong position in Q4 out of seasonality, and that you should also bear in mind going into the start of next year.
Having that said, yes, we still have an upside on our DSO related to the challenges that we have had in the Stanley integration mainly, but also partly in the European transformation program. So there we have upsides to work through. So if you're looking more over a full year cycle, there is opportunity to continue to improve the DSO. But also bear in mind the quarterly sort of seasonality that I mentioned a few times here, where the first half year, as you know, are weaker than the second half year.
Andrew, commenting on the second part in terms of technology. Yes, we called that out. It was flat in the quarter. And I think just for context here, we have been driving extensive integration efforts in the technology business, obviously, merging what was our electronic security business with Stanley Security, and driven phenomenal progress in North America in that work. Goes without saying that some of that also means that there's been quite a lot of internal focus.
Me, myself, and the leadership, obviously all client-oriented, but as we are now finalizing a lot of that work in North America, it will also enable us to shift significantly more focus now on driving the commercial development and also the commercial synergies between existing, call them guarding clients and technology clients, because that is something we also shared some details in the last quarter as well on one of the recent wins. With these activities, I feel confident that we're gonna be able to drive good momentum to support our targets and to achieve those.
Thank you. Can I... One follow-up, if I may. On them, on Stanley, you noted that there were some more synergy opportunities, some of which are gonna get reinvested, but can you, can you quantify on a net basis how much more you think there is to come over the next year or two?
Yeah. So, I feel really good about the fact that we have achieved the $50 million. And in that process, then we have also identified more. And when you look at, okay, where do you find those? Well, there is more identified in Europe for us, but there we have also said that we will also reinvest some of this in just a stronger operation. But we would not have commented if we didn't feel that, you know, there is gonna be a meaningful impact.
But we will share more details as well, at that level of detail, in the investor update that we have, in the beginning of March, because these are obviously important aspects as well in terms of our journey to 8% by the end of 2025.
Okay. Thank you.
The next question comes from Raymond Ke from Nordea. Please go ahead.
... Hi, Magnus and Andreas. A couple of questions from me. First one, building sort of on the last question there, I understand that most of the growth in North America was driven by guarding this quarter. Is there any read into maybe the underlying demand for technology and solution maybe being not as good as guarding, or that customers are becoming more price-sensitive? Or how should we see this information, you think?
Yeah. So, Raymond Ke, I feel really good about the capabilities we are building. But we should also not forget this is a very significant integration effort that we've been driving. I think I highlighted that from the beginning, that is priority number one, to do that well. We have done really good work there in North America. When I look at the offering and the capabilities in some of the specific client discussions that I've been part of, our capabilities are stronger than ever, thanks to this combination. So, I wouldn't read much into a flattish type of a quarter. We had decent growth if you look at the full year.
We have, like I said, a strong offering, and the intention is obviously to now start to drive a lot more of the emphasis and shifting that back to where it has to be, and that is really on our clients and the commercial development.
Got it. And you're terminating another contract there in airport security. Is it fair to say that aviation security is not as scalable and susceptible to technologies and solutions, and that maybe we should expect sales to the aviation segment overall to continue to decrease as a total of your portfolio over time as you pursue higher margins?
No, not necessarily. I think this is large, and I think we've identified or shared that before, that we have a few very significant contracts. This is one of those. I think that we have delivered really good quality in terms of delivery. There is clear price exposure on that type of a business, and there we are just disciplined. In terms of shaping the new profile of Securitas, I mean, we need to, we need to make sure that we are very disciplined in terms of the margin targets, and this is a consequence of that. But I think this is something that is just making us stronger over time.
Got it. Finally, third one. As we now head into H1 here in Europe, your continued price hikes risk being nullified by rising wages. Do you expect to raise prices sort of ASAP to not just offset margins already in H1, or should we expect sort of a more gradual price hike spread across the year to sort of increase margins?
Yeah, so that work we are starting many, many months ago, going into 2024. This is one of absolutely the most important priorities in any year, I should say, but obviously also in 2024, given that we had higher plans in terms of what we wanted to achieve in Europe in 2023. Our European leaders, they have very clear focus areas, like I mentioned before, in terms of how we drive improvement. And there, the price wage activities, we will do a lot of the groundwork end of 2023.
I mean, it is usually quite front-loaded, so the first couple of months is where we have a lot of the emphasis, and that's obviously to make sure that we manage the price wage balance in a good way as we normally do.
Okay, perfect. That's all for me. I'll get back in line.
The next question comes from Allen Wells, from Jefferies. Please go ahead.
Hey, good morning, gentlemen. Just a couple from me, please. Kind of following up on similar themes from the previous questions. Just on the tech side, obviously, so the growth slowed to kinda 6% in the fourth quarter. That's basically half of what we saw in the first half. Could you maybe talk a little bit about the price versus volume mix within that in tech?
And then maybe just provide a little bit more details about exactly why that slowdown is happening in that market. I'm just mindful that we're now below the 8%-10% guidance, and how should we maybe think about growth in technology for 2024? Would you expect that exit rate to accelerate from here? Like, how do we think about that? So that's my first question.
Then secondly, I just would like to go back onto the, to the cash side. If I just look at the receivables number, the DSO improvement that you made there, I mean, that looks to me like it's now at record levels. And intuitively, I would have expected Stanley and its project business to elongate lists, not shorten the DSO cycle within Securitas. So I just want to help understand how we should think about that, and is this level sustainable? And maybe could you just confirm that there's still no factoring or discounting or invoice discounting, et cetera, within that working capital balance, please? That'd be helpful. Thanks.
Good. So looking at the first question, in the technology and solutions, when you're looking at those, we had 9% growth for the full year. Looking at the solutions, so the integrated offering, where we combine people and technology, to put it simply. Price increases are important there, no doubt, but we also had decent portfolio development. When you're looking at technology, the installations business, there is variability in that type of business. And I think that is something that you will have seen in the past, and you will also see that in the future as well...
When I look at the backlog, in terms of where we are, we have a really robust backlog. We also have healthy order intake. And that in combination also with a significantly stronger offering and capability now, that's why, from my perspective, we are in good shape, and we will create good growth and also good value over time. So I wouldn't really read too much into that quarterly figure.
On the cash side, first, on the factoring question, just clear answer there, no, there are no such things in the quarter, and that is something we are not doing, generally speaking, as you know. When it comes to the DSO, the DSO position outside the challenges that we have mentioned, especially then related to the Stanley integration, the DSO position was very strong in the quarter, yes. And that's also where we also came in stronger than we expected. Someone commenting here on the forecasting. So, very strong there.
The opportunity is then related more to the Stanley integration, where we are seeing positive development in Q4, but we're not there yet, so there is more to come there. On the technology side, guard business is on a low level after this quarter. And then also, I mean, generally speaking, I should say, as you know as well, I agree. I mean, the technology business is running on a higher working capital than the guard business as well, and then particularly right now as well, given the challenges that we have seen in that Stanley integration.
Okay, thank you. So just, just to be clear, as, as we look into forecast working capital for the group over the next few years, you know, we shouldn't expect a kind of reversal or any deterioration in the DSOs. This is a sustainable level that we're seeing at the moment.
I think we can come back with more the longer term, also in the capital markets day, to give you, to give you good insights in the long term. I mean, generally speaking, as we are growing our technology business, that will, that will require more working capital. It's, I mean, as I said before, 20%-25% working capital there. So there you will see over time a higher requirement on our working capital. At the same time, as I think we also show here in Q4, we are continuing to work both structurally and with our sort of collections management to improve the underlying working capital position of the group.
And I think that's what you see here in Q4 as well, and that is something we will continue to work on also going forward to mitigate that increase that is required from the technology growth side. So we'll come back with more details, more in the long term, in the Capital Markets Day. But overall, in Q4, I mean, it is a very strong cash flow quarter for the reasons I mentioned, for sure. Q1 is seasonally weaker. Some of this might slip into sort of a negative impact into Q1, but over the 2024, we should still be able to deliver strong cash flow.
Okay, thank you.
The next question comes from Stefan Knutsson, from ABG Sundal Collier. Please go ahead.
Morning, Magnus and Andreas. Just on the Europe development and what will drive improvements there. I know that you have mentioned subcontracting being a problem a few times. And just wondering if you see that as something structural or something that you can actually improve going forward?
Yeah. Thank you, Stefan. So, when you look at the labor market in Europe, yeah, somewhat mixed picture. There is still a number of markets where the unemployment rates are at very low levels. And then obviously, national figures is one thing. It also matters quite a lot when you look at different economic clusters and regions within the country as well. This is the reason that we are still, yeah, I shouldn't say depending, but using subcontractors, and that has a negative impact on the margin. This is one of the key things that our European team is working on improving.
My sense is that it's going in the right direction. But then we also have—I mean, when we talk about Europe, because I also made a comment before that we are below my expectations and the plan in Q4, in terms of the services margin, we need to continue to drive the work as well.
And we've had really good progress in a few markets, when I look at all of 2023, in terms of driving active portfolio management, really driving the change, because this is also somewhat of a mindset change as well. So the focus areas from my perspective are very clear, and this is now very much about execution, and then we will also see improving margin on that part of the business.
Thank you. Just to follow up on the critical infrastructure, it sounded like it was one contract that caused the profitability to be much lower in the quarter. Can you speak anything more about that and quantify it a bit more?
Yeah, so that is correct. So, I mean, it's a contract that we lost in the SCIS business. And the significant negative impact when you're looking at the quarter, that is essentially us now having to adjust also in light of that contract loss. And this is something that is being addressed, and we're also expecting to see improvements here over the next couple of months.
To be clear there, I mean, the margin impact, 0.1 in the quarter from this specific contract-
Yes
... on a group level.
Yeah.
Okay, perfect. Thank you very much for the answers.
... The next question comes from Karl- Johan Bonnevier from DNB Markets. Please go ahead.
Yes, good morning, Magnus and Andreas. Congratulations to a good execution in 2023, no doubt. Picking you on a couple of more questions, maybe in some slightly different subjects that you have talked about already. Looking at active portfolio management, you mentioned it in a lot of different verticals, but if you look back at 2023, could you maybe help us quantify how big headwind do you think that has been, so to organic growth for you in 2023, and how big part of the margin growth that we saw in 2023 might come from that?
Yeah. So when you look at that, Karl Johan, that's, it's an important question. When you're looking at pure portfolio, it clearly has had a negative impact, and that is across North America, Europe, and also Ibero-America, as we have commented. I would say that's a few percent when you're looking at that. Obviously, we've also then been successful in terms of price increases, so from a revenue perspective, still delivering really healthy growth numbers. This work, just to give... I mean, provide some perspective to that, we've come the furthest in North America.
We still have work to be done in Europe, and that is one important part, but there is a number of key markets where we have also progressed quite a lot in 2023. So there is a positive impact on the margin, but we need to do it broadly, across all the markets. And I think that is the main, really the main, focus when you're looking at the services business in 2024. But the focus areas are clear. The team is fully committed. We've taken a number of measures. We'll also share a bit more about this as well in the investor update, at the beginning of March.
I think you mentioned when you highlighted this profit margin roadmap to get to the 8%, that maybe the active portfolio management was gonna be more geared towards the early part of that process to reach the 8%. Do you still see that, or is it a growing component going into 2024, 2025 to reach that 8% margin target?
Yeah, to be clear, I am not satisfied with the speed at which it is happening, and that's the reason that we're also identifying that we have more work to be done.
I guess when also when you look at that profit margin roadmap, you highlighted that maybe M&A was gonna be a component to reach the 8%. Now, given that you have, let's say, recreated your financial strength again and is below the 3x net debt EBITDA, do you see that the M&A might be a bigger component going into 2024?
Correct. The strong financial position, of course, over time, open up some more opportunities for, for example, M&A as well. But here, we will come back to give a more comprehensive overview also in, in our Capital Markets Day. But it's correct, it was there. Now it's been really focused on deleveraging. That work will continue, but with the strengths that we're having in the balance sheet right, right now, opens up for opportunities for other capital allocations going forward.
Excellent. Sounds like a perfect idea to come to your Capital Markets Day then. And one final for me just now then. Looking at the transformation program, the European, Ibero-American one, when you sum up the KPIs you were looking for when you started that program, do you seem to be on track to deliver on those?
Yeah, we. I think we've, I mean, we've come by far, the farthest in North America. That's also where we started the earliest. We are running and operating the business in a completely different way today when you're looking at the transparency, modern systems, but also how we are able to automate all processes from recruitment all the way through to delivery and then invoicing to our clients. So, so I think that one, it's a clear yes.
We've also made a lot of progress when I look at the European part of the transformation in terms of also starting to much more actively harmonize how we work. We've done quite a lot in terms of the solutions organization, with dedicated leadership, et cetera, to also be able to enhance the value proposition. So but there it's also gonna be more of a gradual kind of a rollout as well when we look at the system dimension of this going forward. But there we have built a really good engine, so I think there it's more a matter of how we roll that out as well.
And this is also something that we will take the opportunity at the Investor Day to also share more details in terms of where we are and also the journey ahead. But I realize these have been really significant investments. We did those to fundamentally modernize and digitize how we operate, and this is going to serve us well for many, many years to come.
Sounds excellent. Looking forward to the Capital Markets Day, and all the best out there.
Thank you.
The next question comes from Viktor Lindeberg from Carnegie. Please go ahead.
Thank you. Following up on Karl Johan's question, on the margins, maybe could you just try to crystallize the biggest building blocks from your rolling trial margin of 6.5% to the 8% by year-end 2025? Is it predominantly European, and also the transformation program benefits that should give the biggest kicker, or is it many moving bits and pieces here? Yeah, that's my first question on the building blocks. Second, looking at Europe and also a lot of sporting events in we have France, and we also have Germany this summer.
Should we expect any meaningful contracts that are now up for grabs, or is this gonna be more of the usual high-margin business that you tend to see in these event-driven countries? Starting off on those two, please. Thanks.
Yeah. Thank you, Viktor. So, I mean, well, to put some perspective, we've improved the margin 50 basis points, 2022-2023, so up at 6.5%. Put that in perspective, historically, we have been around 5, 5.1, or 5.2. It means that we have another 1.5% to go. The main components here, when you're looking at the technology, as we highlighted, we have identified more cost synergies, predominantly focused on Europe.
We're also expecting significant impact also in terms of commercial synergies, thanks to the strength of the offering, because we have, I mean, all of our competitors are essentially, either if I simplify it, guarding companies, or there are some system integrators. But I mean, we are number two now globally in terms of systems integration, and that is an incredible strength, locally, but also globally. So the strength of that offering, it's also the reason that we feel confident that we're gonna grow faster than the market.
And that obviously leads into the other kind of broader components. That's how we drive technology and solutions growth, 8%-10% per year. Looking then at the other parts, the services business, we expect further improvement in North America. We're also expecting significant improvement in Europe. So I think those are also very important part, but that's why I'm also saying, not satisfied with the speed. We need to now drive the execution.
We need to do that broadly as well, because this is obviously critical in 2024 and in 2025 to be able to hit that target. And then, as previously commented, we are continuously looking at the overall business, just to make sure that every part that we have in our company is fully supportive as well of the 8% margin profile. So the strategic assessments, we've obviously execute some important ones, but we continue to also drive that type of assessment as well going forward. So those...
I hope that is helpful because those are really the main components that we are driving, also the main KPIs and targets when we set targets for ourselves as well, in terms of what do we need to deliver in the different parts of the business and as a company. Everything is aligned around these main priorities.
Thank you.
You can question.
And on the-
Yes
-the sports,
Yeah, sorry, I almost forgot there. The big sporting events. I am generally not that keen on engaging too much on temporary events type of business. And the reason is that our team and our leaders, regardless of where they take place, they have to be focused on driving and executing the strategy and delivering on these plans. So for that reason, we are not putting a lot of emphasis in terms of committing to do a lot of work, et cetera, unless it's really in line with the strategy and where we can play a really meaningful role. But also importantly, this is also about how we allocate resources, right?
We need to make sure that we are allocating all our resources on what is sustainably really good business, so we can create good value. So, I hope that is giving kind of the general picture, but then I should also say that, I mean, if you look at the temporary business or what we call extra sales, there, we've also seen, after a number of fairly negative years after the COVID period, I mean, that type of business is now normalizing more with one-off events and also some recurring events. And there, obviously, we are playing a very meaningful role, I would say. But then that's more based on kind of ongoing, longer-term client relationships.
Okay, that's clear. And finally, maybe more detailed questions on... We had some questions on real growth, the past couple of quarters, and now it's slowing down in this quarter. But just to my, so that I also understand here, because you should have a negative effect on your real growth by deconsolidating Argentina, whereas you had a positive boost of, on the Stanley, consolidation, in the early parts of this year, or is that incorrectly understood?
Correct, that Argentina has a negative impact on the real sales growth, and correct when looking at the numbers that Stanley gives a boost. But, then we are also giving the number, when you look at the full year 9%, then we are not taking the, I mean, sort of... Then we are excluding the M&A impact from Stanley. The organic growth from Stanley comes in, but not the M&A impact. And we're doing that to give you sort of an underlying picture there, of how our performance is without the acquisition impact from Stanley.
Is that also adjusting for Argentina?
Correct.
Perfect. The critical infrastructure contract, should that lead to any IACs in Q1, Q2, when it's now being adjusted after the contract ending?
At this point in time, we don't see any IAC related to this contract.
Perfect. Thank you.
The next question comes from Suhasini Varanasi from Goldman Sachs. Please go ahead.
Hi, good morning. Just a couple from me, please. Can you please talk about price versus volume growth in Q4 and 2023 overall? 'Cause I remember a commentary that mentioned that most of the growth in 2023 came from pricing. And going into 2024, how do you see those expectations on price increase, given inflation has actually come down in many of the developed markets, and have volumes basically recovered? The second one is on the critical infrastructure business. Is the idea to ultimately exit this business via disposal? Any plans on this? Thank you.
Thank you. Yeah, so when you're looking at the growth, vast majority of the growth when you're looking at the services side of the business, that is pricing related, and that's all related to what we discussed earlier as well, that we're taking a very disciplined approach in terms of the portfolio, in terms of the profitability of every contract. I should highlight, though, that when you're looking at the aviation business, that has contributed. I mean, there has also been real volume or portfolio growth, looking at Q4. To the question, what does it look like going forward?
Well, we are definitely coming down towards more normal levels, but maybe somewhat more elevated. I would say if you're taking a 10, 15-year perspective, but we were obviously at very, very high levels in terms of price and wage increases 18, 24 months ago.
That is normalizing more now. But when you look at the labor market, on the services side of the business, it is really important to keep a close eye on the labor market, so that we are also always staying ahead and addressing and balancing necessary and also wanted wage increases with really healthy price increases. So that's something that it remains an important focus for us. Sorry, can you repeat the last question that you had?
Yeah. Yeah, sure. I mean, actually, as a follow-up to that, price versus volume, if the split was maybe 90/10 in terms of price and volume in 2023, should it be more balanced in terms of 50/50 split in 2024, your expectations?
Yeah, we don't really break that out in that way. I feel confident when you look at our path towards the financial targets, and that is really the highest priority for us that we are driving.
Understand. Thank you.
Yeah, and then-
The question was on CIS.
Yes, on the Critical Infrastructure Services.
Yes.
Like, like I mean, it's, it's crystal clear that performance related to this one contract is not good, but that is being addressed, and we're expecting improvement. We never comment. The only main general comment that I would make is that any part of the business that we have has to be fully in line with our financial target of achieving 8%. That is the important one, as we are shaping the new profile of Securitas.
Understand. You would not rule out disposals in the future? I'm not talking about critical infrastructure per se, but you would not effectively rule out disposals in the future to get your 8% margin target?
We are continuously assessing all parts of the business.
Yeah.
We've done quite a lot, and continue to assess. And if we feel that it doesn't pass the test, then that will come into question, yes.
Thank you. Thank you very much.
Thank you.
The next question comes from Raymond Ke from Nordea. Please go ahead.
Hi again. Just another question that came up. I was thinking about going back a few quarters. I recall you talking about changing the incentives for managers in Europe, and I'm wondering if it's fair to assume that the margin targets that you set for your European managers here are focused on margins, same as those in North America when you implemented the transformation program there?
Yeah, that's a very important point. We are aligning incentives and with very significant emphasis on operating margin improvement. And there, obviously, when you're looking at the relative performance, if you just generalize, you can say that anything that we are driving in terms of growth in North America is accretive to the 8% target.
In Europe, there is still work that has to be done. So, and that is something that we have rolled out in different phases over the last few years, and rolling out broad-based as of first of January 2024, and that is just to also help and ensure that we have full alignment at all levels in terms of how we are driving and shaping the business.
Okay, great. That's very helpful. Thank you.
As a reminder, if you wish to ask a question, please dial star five on your telephone keypad. The next question comes from Allen Wells from Jefferies. Please go ahead.
... Hey, so just a couple of quick follow-ups, guys. Two really. One, just around the D&A number. So I just noticed the depreciation; it seems like it's fallen. I mean, at least in my calculations, it's kind of 2.1% of sales in Q4. That's about 50 basis points decline year-on-year, and actually, it's quite a meaningful decline from the depreciation number that we saw at the third quarter. Obviously, that's quite supportive for margins in the fourth quarter as well.
I'm trying to understand why the depreciation has moved as a percentage of sales in Q4. That'd be just quite interesting. Along the similar lines, but more on the cash flow side on the CapEx. CapEx also looks like it's lower year-on-year as well as a percentage of sales.
I mean, I've got a 50 basis point decline year-on-year. Is there anything changing in terms of capital intensity within the business that's lowering the CapEx? I'd have thought it would have been the other way, given the growth in the technology business. So how can you be reducing your CapEx and investment there? Thank you.
Well, well noted, Allen. Main reason is the FX impact, by, due to the really Swedish, due to the strength in Swedish krona by year-end. That's the simple... There is no underlying structural trend difference there. Well noted.
Thank you.
It's a short, it's a short part, but I hope that's enough. It's, it's mainly FX, just to be clear to everyone here.
Okay, thank you.
There are no more questions at this time, so I hand the conference back to President and CEO, Magnus Ahlqvist, for any closing comments.
Yeah. So many thanks, everyone, for, as always, a number of relevant questions. We are really hoping and looking forward to seeing as many of you as possible here on the seventh of March at our investor update. It's an important opportunity to be able to share and with you more details in terms of the journey that we have ahead. So please mark that in your calendars, and talk to you soon. Thank you.