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.