Securitas AB (publ)

Good morning everyone and welcome to our Q1 update. It is a decent quarter overall with continued operating model improvement versus the same period last year. The organic sales growth was healthy with 7% in the quarter and the real sales growth for technology and solutions was also 7% and here the divestment of Argentina last year had a negative impact on the real sales growth in technology and solutions. The operating margin improved to 6% and North America with strong improvement in technology and also Iberia America were the main contributors. The airport security business was weak in Q1 and this had a negative impact primarily then on the results in Europe. Price and wage increases were balanced in the first quarter. And looking at the operating cash flow, it was negative, 15% negative, and this was in line with expectations after a very strong Q4. And the net debt to EBITDA ratio was 2.9 at the end of the quarter. The integration of Stanley Security is progressing well, but we're also working through, as previously announced, some operational impacts related to system and support transitions in Europe and expecting to improve that situation in the second quarter. But let's then go to the view on the different business lines in our business and starting then with security services where the growth was 4%. The EBITDA margin of 4.4% represented slight improvement versus Q1 last year. but this is below our expectations, and I come into some of the reasons behind that in a minute. The European guarding margin improved in the first quarter as a result of the actions that we have initiated 2023 and continued into Q1. And this is a positive development on the guarding margin in Europe. But we're looking at the global picture for services. Price-wage balance and active portfolio management have helped the margin, but the airport security business and also Securitas' critical infrastructure services business both had a negative impact on the margin in the quarter. and the performance of a low-performing contract in SCIS improved in Q1, but further actions have been initiated to drive improvement in Q2. Looking then at technology and solutions, where the real sales growth was 7% in the quarter and the operating margin improved to 10.2%. And we are progressing really well with the Stanley integration and also their cost synergies that have a positive impact. And the performance improvement is really most visible in North America, where we're seeing clear benefits from cost synergies, but also operating at a larger scale in the business. And I will share some more comments on that after Andreas' finance section. But if we shift then to the performance in the business segments, and we start with North America as usual, and here we had 4% organic sales growth, thanks to good sales momentum and price increases. And the technology business recorded good sales growth thanks then to healthy installations and RMR growth and also with a solid order backlog. And as previously announced, an airport security contract with annual sales value of 1.3 billion SEK was terminated on March 31. And the pricing there, just to remind you of that contract, did not meet our margin requirements. If you're looking at technology and solutions as a percentage of the overall business in North America, it was 37% in the quarter. And the client retention at 90%. If we move then to the profitability in North America, we recorded an 8.6% operating margin in Q1. So a 30 basis point improvement versus the same quarter last year. And this is something we consider continued very strong development. The technology business was the main driver of the improvement with positive impacts on cost synergies. But also, as I mentioned earlier, with a lot of the integration effort now behind us in North America, we are seeing significant efficiency gains thanks to operating at a larger scale. In an area such as monitoring our installations and service and maintenance operations, This brings tangible benefit in terms of the service level that we provide to our clients, but also benefits the profitability in a meaningful way. And looking at the Guardian business, where we initiated actions during the second half of last year related to medical expenses and a few other areas, these have also delivered positive impact and the profitability in the Guardian business contributed to the strong overall performance in North America in the quarter. And moving then to Europe, where we recorded 10% organic sales growth. We had strong price increases in Europe, but the hyperinflationary impact from Turkey accounted for more than half of the 10% in the growth. Technology and solutions also contributed with good growth in the technology business. Technodium Solutions represented 33% of sales and client retention rate was stable at 91% in the quarter. By shifting then to the profitability, we recorded a 5% operating margin in Europe in the quarter. And the decline was driven by a weaker quarter within the airport security business. And the poor performance in aviation is related to efficiency and productivity challenges after ramping up a few larger contracts. And we are taking actions to improve the performance and we're driving good progress in terms of recruiting and also training. And this will have a positive impact on the performance in Q2 and in Q3. But I should also mention that the aviation business also has to support our operating margin target by the end of 2025 of 8%. a lot of attention in terms of the actions that we are taking, but also confident in terms of driving improvement in the coming quarters. The operating modern technology was hampered due to ongoing system and support transitions that we are doing with the integration effort of standard security in a number of markets, but we are expecting performance to improve during Q2 as we work through those transitions. And if you look at Europe, on the guarding side, we have put a lot of emphasis on improving the quality of the contract portfolio in the guarding business, and here the operating margin improved, as I mentioned earlier in the quarter. But having said that, we continue to drive higher margin requirements for new contracts, active portfolio management, and also a lot of emphasis on cost actions in the guarding part of the European business, to ensure that we deliver a significant improvement in the margin in the coming quarters and also in 2025. And moving then to Iberoamerica, where we had continued good development. The organic sales growth was 6% and the decline versus last year is due to the divestment of our business in Argentina. And the organic sales growth in Spain increased to 7% thanks to price increases and also strong technology and solution sales development. And the growth in Latin America was primarily driven by price increases. And technology and solutions represented 34% of sales in the quarter, and the client retention was solid at 93%. And shifting then to profitability in Iberia America, and our team delivered a great margin development with 6.7% in Q1, And improving margins in security services, including the airport security business in Iberia-America, both supported the operating margin, as did the divestment of Argentina, where we had below average margins. And the divestment of Argentina has also enabled us to now sharpen the business, and our team are delivering solid performance in Q1. And with that, conclude the segment overviews, handing over to you, Andreas.

Thank you, Magnus, and good morning, everyone. Starting with the income statement, where we had solid 7% organic growth in the quarter and the operating margin improved to 6.0%, where the main drivers were strong margin development in our North American and Iberian American business. We further had positive support from continued good group cost control reported in other Looking below operating result, there are no major news related to the amortization of acquisition related intangibles or acquisition related cost. The items affecting comparability was minus 217 million, where 128 million is related to our Stanley integration and 89 million is related to the European and Ibero-America transformation program. And as usual, I will come back with some more details here shortly. The financial net is coming in at 554 million, which is 126 million higher than last year, and this is mainly driven by increased interest rates. The 554 million was also impacted 32 million positively from IAS 29 hyperinflation, and last year this number was 51 million. In 2023, the full year financial net landed at 2.4 billion, excluding IAS 29 and FX gains and losses. And we expect the finance net to come in at around the same levels for the full year 2024. Also here then excluding any impact from IAS 29 and FX. So basically no changes to the full year estimate compared to what we communicated in the capital markets day. Moving to tax, here the forecasted tax rate for the full year is 26.5%, which is a slight decrease compared to last year, and this is mainly due to lowered expected tax in the US. Moving on then to 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. and looking first at the European and Ibero-America transformation programme. Here we had 89 million of cost in the quarter and the estimate for the full year 2024 is around 150 million. So in other words, there is no change here to our previous estimates and the same applies for CAPEX as well. And this also means that the total programme spend over all of the years are within the originally estimated budget as we have also highlighted in the previous quarters. Moving on to the IEC related to the Stanley integration. Here we announced total cost of approximately 135 million US dollar after the acquisition. The integration and synergy takeout continues to make good progress and we are now focused on finalizing the integration especially in Europe and execute on our cost synergy targets. The cost related to the program was 128 million in the first quarter and we expect the full year cost to be around 400 million. And as we have mentioned earlier, we are continuing to go through a period of heavy lifts in the IT integration and platform implementation work related to the programs. And this work will also continue the coming quarters. Looking at the left hand side here, we have been going through a period of investments into our transformation programs and the Stanley integration over the last years. The IEC cost peaked in 2023 with a total cost of 1.35 billion for the year and we are now driving so much a material reduction throughout 2024 where the IEC is estimated to land around 550 million for both programs impacting of course both our EPS growth and cash generation positively throughout 2024. Moving then to an overview of the FX impact on the income statement and here we saw limited impact from currencies in the first quarter compared to last year. On sales there was a 1% negative impact from FX and a similar impact on the operating result in the first quarter where the minor differences on EPS level mainly is due to different currency mix below operating result. The first quarter EPS real change excluding items affecting comparability was 4% in Q1. This is derived from the real change on operating income being 9%, positively impacted by our 7% organic growth in combination with the strengthened margins, while mainly the increase in the financial net impacted negatively, leading then to the 4% for the quarter. We then move to cash flow and here I first want to highlight that we in the report have done some changes related to working capital in line with our capital markets day presentation. The key KPIs related to operating cash flow and free cash flow remain the same but we have redefined working capital to provide you with further clarity and insight into our working capital development related to our trade receivables and operating payables as you see on this page and you find more information also in the report related to this. The first quarter is from a seasonality perspective our weakest operating cash flow quarter as we are making large prepayments within for example IT and insurances in the beginning of the year. We are paying out incentives in Q1 and normally collections are somewhat slower due to beginning of the year price increase work. As expected, the first quarter operating cash flow of minus 362 million came in weaker than last year due to the strong working capital position by the end of 2023 and as the quarter this year ended over the Easter holidays, which impacted collections and the DSO negatively by the end of the quarter. We have since then seen solid collection inflows in April after the public holiday period. In the previous quarters we have mentioned that we have 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 positive development now again in the first quarter but it continues to have a somewhat negative temporary impact on the cash generation as we are going through a period of heavy lifting as I also mentioned earlier. So this is a focus area for us to continue to resolve the coming quarters. The free cash flow was negative 1.4 billion in the first quarter where we had increased interest payments related to the finance net. The main reason here is that we now have a larger bond portfolio with annual maturity in the first quarter, which is then when the annual coupon payments are being paid. The coming quarters will have lower payments and we remain with the estimate that the full year cash flow from the finance net will be around minus 2.2 billion. So to summarize here, Q1 cash flow is in line with expectations and we continue to be focused on generating and operating cash flow to meet our financial target of 70 to 80% for the full year and to continue to deleverage our balance sheets. We then have a look at our net debt, which landed at 41.1 billion by the end of the quarter. And this is up 3.6 billion from the start of the year, impacted mainly by the 1.4 billion negative free cash flow in Q1, but also materially impacted by the weakened Swedish krona compared to year end, which increased our net debt with 2 billion. The net debt to EBITDA excluding items affecting comparability is down from 3.3 times in Q1 last year to 2.9 times by the end of this quarter and continues to remain below our financial target of a net debt to EBITDA of less than 3, despite then the seasonally weaker free cash flow generation and the negative FX impact. 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 in the quarter at 6.2 billion. We also have our RCF on more than 1 billion euro in place until 2027 and it remains fully undrawn as per quarter end. the first quarter we issued a six-year 500 million euro bond to refinance existing maturities of approximately five and a half billion swedish krona we raised the bond at 115 basis points margin with negative new issue premium really confirming the strong interest we see in securities in the credit markets we are now through the major refinancing work after the stanley acquisition and have replaced more than 30 billion of shorter-term debt with long-term funding over the last 15 months. And as you can see on the maturity chart, we have substantially less refinancing activities in front of us the remaining parts of 2024 and 2025. As a consequence of our strengthened financial position after the Stanley acquisition, S&P also upgraded us during the quarter and we are now having the same rating as we had pre-Stanley acquisition. And we continue in an unchanged way to continue our focus on cash flow and balance sheet and remain committed to our investment grade rating. So with that, I'm handing back over to you, Magnus.

Very good. Thanks a lot, Andreas. So just a few comments from my side related to the strategy and how we're shaping the future securities before we open up the Q&A. It is an exciting time, and in the investor update at the beginning of March, we shared details regarding the progress we have made since the update in August 2022, but also focused on the journey ahead and also our more near-term target in terms of achieving 8% by the end of 2025. And we have been driving extensive transformation and investment into our business, and we are increasingly well positioned now to deliver value at a higher level than before. And I've met with a number of clients in North America, Europe and Asia during the last couple of months. And there is a tremendous response to our strategy where we are building an unparalleled offering focused on presence, connected technology and data. And with our greatly enhanced offering, we have a promising pipeline of commercial opportunities with existing and also new clients and are also piloting comprehensive offerings with a few global clients where we are leveraging our combined people and technology expertise. And all of this is positioning us to deliver long term value. And we have clear focus areas to deliver strong operational value. If you look at the left hand side on this screen with an unmatched offering to grow with technology and solutions and also with profitability focus in our services portfolio. And as commented earlier, we are building a more scalable business now as well. And Cost efficiency and leverage will also help and contribute to the margin journey to 8% by the end of 2025. And our digital capabilities are starting to drive meaningful impact to our client value proposition and also form an important foundation for innovation leadership in our industry. And operational value creation in combination with disciplined capital allocation will lead to increasing cash flow and shareholder returns in the coming years. And we are making good progress and have strong focus areas across the company to achieve 8% target by the end of 2025. So to wrap this up, it is a decent start to 2024 and we are improving the operating margin to 6%. Very strong development in North America, driven by technology and also in Ibero-America. Guarding margins improved in Europe in Q1, but the performance in Europe is burdened. by weaker aviation quarter and also negative, more temporary matters in the technology part of the business due to integration efforts. And we continue to drive the strategic transformation and we are receiving, like I said, very positive response from existing and also potential clients regarding our offering and the partnership opportunities and the growth that we see ahead of us. So with that, let us open up the Q&A.