Securitas AB (publ)

Good morning everyone and a 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 improvements. 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 5 billion SEK of free cash flow in combination with favorable FX development contributed to solid deleveraging. And as we guided for in 2022, we... had planned to achieve a net debt to EBITDA ratio of less than 3 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 SEC 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. And 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 security as 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 Technodian 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 US dollar 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 50 million but some of these will be offset by investments in the business. And 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 garden 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 1.3 billion SEK 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%. And 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. And the technology business was the main driver of the improvement with positive impact from cost synergies and also improving installations margins. Profitability in the Guardian 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. And we then moved to Europe, where we recorded 11% organic sales growth. Strong price increases were the most important driver of growth, but technology and solutions also contributed, as did the airport security business. And the hyperinflationary environment in Turkey boosted the growth figure as in the previous quarters. Technology and solutions represented 34% of sales and the client retention rate was stable at 91%. And 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. And 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. So the services margin was below plan, as I commented earlier, for this quarter. And going into 2024, our 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. And moving then to Iberoamerica, 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. Technologian solutions 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 Technologian 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 Iberoamerica 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 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 SEIS business is reported as other as from the third quarter. The weak performing contract Magnus referred to in the SEIS 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 SEIS 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 152 million in Q4, with basically no major news here since the previous quarters. Items affecting comparability was minus $404 million, where $196 million is related to our Stanley integration, and $208 million is related to the European and Ibero-America transformation program. And as usual, I will come back with more details related to this shortly. The financial net is coming in at $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 58 million from IAS 29. For the full year the financial net landed at 2.1 billion in line with our guidance in the third quarter. When excluding IES29 and the FX gains and losses for the full year, the financial net was 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 2.4 billion when excluding then IES29 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 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 IES 33, and here you find more information on page 19 in the report. Then we have a more detailed look into our IEC 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 208 million of spend in the quarter leading to a full year cost of 686 million, which is in line with our Q3 estimate of between 650 to 700. The full year IEC estimate of around 150 million in 2024 is unchanged compared to our previous estimates and the same applies to capital expenditures. And 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 IEC related to the Stanley integration then. Here we announced a total cost of approximately 135 million USD after the acquisition. The integration and synergy takeout continues to progress well and we have executed on the 50 million USD 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 662 million, slightly above the 600 to 650 million estimate in the third quarter. The program will finalize throughout 2024, where you then will see the residual budget of around 400 million being expensed. We have been going through a period of investments in our transformation programs and the Stanley integration, and the IEC cost now peaked in 2023 with a total cost of 1.35 billion for the year. As we are now going into 2024 and the later phases of the programs, the IEC cost will significantly reduce compared to 2023 with an estimate of around 550 million for the full year 2024. And this will of course then also impact our cash generation positively going forward. Moving then to an overview of the FX impact on the income statement and here we saw 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 minus 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 impact negatively leading to the 0% in the quarter. We then moved to cash flow, where we had a strong outcome in the fourth quarter, The operating cash flow was 4.5 billion or 166% of the operating result and for the full year we ended at 8.2 billion or 80% of the operating result which is at the higher end of 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 lowered organic growth in Q4 and also improved inventory and account 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 $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 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 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 37.5 billion, which is down 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 2 billion, one part in May and one part in November, and had an IEC cash impact of minus 1.4 billion over the year, explaining then the major movements resulting in the year end net debt of 37.5. 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 2.7 times in Q4, down from 3.1 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 three times net debt, EBITDA, earlier than our communicated target to achieve this throughout 2024. Moving on to have a look at 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 7.9 billion. We also have our RCF of more than 1 billion euro 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 US$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 Schulzein and Euro bonds. Throughout 2023, we also continue 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 600 million euro bond issue in Q3, and partly by renegotiating the remaining parts of the term loan with our banks in Q4. And this has supported the financial net positively in the second half of the year. Looking into 2024, we have approximately 9 billion of maturities to refinance. Slightly less than 2 thirds has floating interest rates and the remaining part has fixed interest rates. From a timing perspective, around 5.5 billion of the 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 sheets. 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 to 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 5 billion in free cash flow in 2023. And we are ahead in terms of the leveraging. And we've also made a 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 the 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 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star 5 again on your telephone keypad. The next question comes from Annelies from Vermeulen. Please go ahead.

Hi, good morning. I have three questions, please. When you were speaking to the market in December, the message on cash conversion was a little bit soft. I think you were saying that the cash conversion could end up below the 70 to 80 range. Clearly, you've done a lot better than that, reaching 80% for full year 23. 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 $2.5 billion for full year 24 compared to the I think you did for 23. I know you've said 2.4 for full year 24 net interest costs, but I think 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 are 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 want to be within our 70 to 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 a lot of good work with the teams overall. So you're right that the cash flow came in better than we expected, but also want to 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. When you look into 2023, the finance net excluding those two was around 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 then to Seasonality, I mean, you're 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 the follow up.

It was just a lot on the cash interest costs and relative to your P&L interest costs.

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 bonds. 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 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 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 Eliasson from Kepler Chevreux. Please go ahead.

Hi, this is Johan at Kepler Chevreux. 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. 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 be they be the same impact on the cash flow what was it around 550?

Short answer, yes. What you can normally see is a little bit of delay in the cash flow compared to the P&L if there are accruals for certain costs, etc. But generally speaking, yes, that's a reasonable assumption. excellent and then my final question network and capital do you think there there is more releases to come on 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 we are working structurally on making sure that we we are taking down the the working capital capital over time but i will not I will 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 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, 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 24, 25, just as European ERP gets integrated and the Stanley processes are fully embedded into the system? 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 for the full year there thank you start 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 years, as you know, are weaker than the second half year.

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 that of standard security and driven phenomenal progress in North America in that work. It goes without saying that some of that also means that there has been quite a lot of internal focus. Me, myself and the leadership, obviously all client orientated, 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 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 on one of the recent wins with these activities i feel confident that we're going to be able to drive a good momentum to to support our targets and and to achieve those

Thank you. One follow up, if I may. On Stanley, you noted that there were some more synergy opportunities, some of which are going to get reinvested. But 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 there is going to 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 Koo from Nordia. 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?

So Raymond, 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 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 yeah specific client discussions that i've been part of our capabilities are are stronger than ever thanks to this combination so i wouldn't read much into a flat dish type of a quarter and we had decent growth if you look at the full year and we have like i said a strong offering and and the intention is obviously to now start to drive a lot more of the 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?

Not necessarily. I think this is large and I think we've 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 And there we are just disciplined in terms of shaping the new profile of security. 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. And finally, third one, as we now head into H1 here in Europe, your continued price hikes risk being notified 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?

So that work, we are starting many, many months ago, going into 2024. This is one of the 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. um our european leaders they have very clear focus areas like i mentioned before in terms of how we drive improvement and 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 so the first couple of months is where we have a lot of the emphasis and that's obviously to make sure that we 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 Alan 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 you say the growth slowed to kind of 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% to 10% guidance. And how should we maybe think about growth in technology for 2024? Would you expect the exit rate to accelerate from here? How do we think about that? That's my first question. And then secondly, I just would like to go back onto 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 this, not shorten the DSO cycle within Securitas. 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 invoice discounting, et cetera, within that working capital balance, please? That would 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's more to come there. On the technology side, garden 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 Guardian business as well. And then particularly right now as well, given the challenges that we have seen in that standard integration.

Okay, thank you. So just to be clear, 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 market state to give you good insights in the long term. I mean, generally speaking, as we are growing our technology business, that will require more working capital. 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, 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 today. 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 2024, we should still be able to deliver strong cash flow.

Okay, thank you.

The next question comes from Stefan Knudsen 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.

Thank you, Stefan. So when you look at the labor market in Europe, we 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 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 the 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. This is now very much about execution. And then we will also see improving margin on that part of the business.

Thank you. And 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. It's a contract that we lost in the SCIS business. And the significant negative impact when you're looking at the quarter, And 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.

And to be clear there, I mean, the margin impact 0.1 in the quarter from this specific contract 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, my name is 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, If you look back at 2023, could you maybe help us quantify how big headwind do you think that has been to do 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, 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 also shared 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 going to be more geared towards the early part of that process to reach the 8%. Do you still see that or is that a growing component going into 2024-2025 to reach that 8% margin target?

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.

And I guess also when you look at that profit margin roadmap, you highlighted that maybe M&A was going to be a component to reach the 8%. Now, given that you have recreated your financial strength again and It's below the three times net debt update. Do you see that 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 example, M&A as well. But here we will come back to give a more comprehensive overview also 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 now opens up for opportunities for other capital allocations going forward.

Excellent. Sounds like a perfect idea to come to capital markets, David. And one final for me just now, then looking at the transformation program, the European idea or 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, I think we've, I mean, we 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 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. But there it's also going to 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. 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 market stake and all the best out there.

Thank you.

The next question comes from Victor 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 12 margin of 6.5% to 28% by year 2025? Is it predominantly European and also the transformation program benefits that should give the the biggest kicker or is it many moving bits and pieces here? That's my first question on the building blocks. Second, looking at Europe and also a lot of sporting events. 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 going to 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.

Thank you, Victor. So, I mean, to put some perspective, we've improved the margin 50 basis points 2022 to 2023, so up at 6.5. Put that in perspective, historically, we have been around 5.1 or 5.2. it means that we have another percent and a half 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, garden 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 going to grow faster than the markets. And that obviously leads into the other kind of broader components. That's how we drive technology and solutions growth 8 to 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 parts. 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 always 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. Yes, sorry, I almost forgot there. These 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 etc 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 and and 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 of 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 question on real growth the past couple of quarters and now it's slowing down in this quarter but Just 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 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 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.

And 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 Varnosi 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? Because I remember commentary that mentioned that most of the growth in 2023 came from pricing. And going into 24, how do you see those expectations on pricing, please, 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 ultimately to exit this business via disposal? Any plans on this? Thank you.

Thank you. 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 labour 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 remains an important focus for us. Sorry, can you repeat the last question that you had?

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, it should 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. Yes, on the critical infrastructure services. I mean, 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 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.

I understand. And 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. 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.

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 margin, 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 improvements. And there, obviously, when you're looking at the relative performance, if you just generalize, you can see 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. And that is something that we have rolled out in different phases over the last few years and rolling out broad base as the 1st 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 5 on your telephone keypad. The next question comes from Alan Wells from Jefferies. Please go ahead.

Hey, so just a couple of quick follow-ups, guys. Two, really. One, just around the DNA number. So I just noticed the depreciation. It seems like it's fallen, 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 just trying to understand why the depreciation has moved as a percentage of sales in Q4. That would be just quite interesting. And 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 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.

Noted, Alan. Main reason is the FX impact due to the strength in Swedish krona by year end. That's the simple, there is no underlying structural trend difference there. Well noted. It's a short part, but I hope that's enough. 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 7th of March at our investor update. It's an important opportunity to be able to share 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.