Securitas AB (publ)

Good afternoon everyone and a warm welcome to our Q2 update. We are shaping the leading company in the security industry and the execution of the strategy is generating results. We had solid performance in all business segments in the second quarter, delivered 5% organic sales growth and the real sales growth for technology and solutions was 8% when we were excluding the impact of the divestment in Argentina. The operating margin improved to 6.9% and this was driven by all business segments this quarter. And I want to highlight that the actions initiated in Europe with emphasis on active portfolio management and increasing price thresholds for new business are starting to generate a positive impact and Europe represented the largest year-on-year improvement in the results. And stronger demand and improved operational efficiency in aviation also contributed to the improvement in Europe. Importantly, the price-wage balance in the group is slightly positive in the first six months. And looking at the cash flow, the operating cash flow was 60% in the second quarter. This is roughly in line with our expectations, and we are in a solid position to deliver a strong full year 2024 outcome. Looking at the net debt to EBITDA ratio, it is stable at 2.9. And I just wanted to highlight as well is that as we are closing out now the first half of 2024, almost two years have passed since we made the transformative acquisition of Stanley Security. And in the process, we created security as technology. And this is a milestone, and I would just like to provide a few highlights and reflections in terms of where we are right now. So today, Securitas Technology is the second player in the electronic security market worldwide. And based on the strong offering and very good work by our team, we are developing existing business and winning new business at a healthy pace. And this is resulting in 8% organic sales growth in the most recent quarter. We have also surpassed 1.25 billion SEK in recurring monthly revenue and achieved more than $50 million in synergy takeout, and the operating margin has improved significantly in the last two years. And we largely finished now with integration work in North America and are driving good progress in Europe. So in summary, there is still work to be done, but our teams have done tremendous work during the last 24 months And when you look at Securitas as a company, we have improved our client offering to another level with the creation of Securitas technology. And this business obviously plays a very important part in our future. So building on this, let us shift to the performance in the different business lines. And we're also making very good progress in the security services business. The growth, if we start in there, in security services was 1% in Q2. And as previously announced, the termination of a larger aviation contract in North America had a negative impact on the growth. But we feel good about the commercial momentum. New sales across the group are healthy. The EBITDA margin of 5.6% represents a significant improvement versus last year, with improvements across all segments. But like I mentioned, Europe delivered the largest improvement, And here, performance in our aviation business also contributed to the good development. The real sales growth in technology and solutions was 7% in the quarter, and the operating margin improved to 10.4%. And as commented, two years after Stanley acquisition, our global technology business is stronger than ever. And as stated on the previous slide, we delivered a healthy organic sales growth of 8% in technology in the second quarter. And these numbers also represent the favorable mix change, since we are driving higher growth in the more profitable parts of our business. And shifting then to the performance in the segments, and we start with North America. And there we recorded a 2% organic sales growth. We have good installation sales momentum in technology, and we are growing the technology business at a faster pace than the market growth. But the already mentioned termination of an airport security contract had a negative impact on the services growth in the quarter. But having said that, commercial activity is good and we expect to recover top line momentum in services in the coming quarters. The share of technology and solutions represents 38% of sales in North America in Q2. Looking at the client retention, 86% I just wanted to highlight. That number is lower than normal, and it was negatively impacted by the airport contract termination. Turning then to the profitability, where we delivered a strong operating margin of 9.2% in the quarter. And the development was driven by the technology business, where cost synergies, higher operational efficiency generate a positive impact on the performance level. And after the successful integration efforts, We are now also operating at a different scale and sophistication today in North America. And this is from product installations to service and maintenance. And this is visible in higher service delivered to our clients, but also higher profitability. Looking at the services side, the operating margin in guarding was stable in the second quarter. So moving then to Europe, where we delivered 8% organic sales growth. Healthy price increases in the services business are contributing in a significant way. But as in previous quarters, the inflationary environment in Turkey account for a significant share of the growth. And technology and solutions also contributed with good growth in Europe. Shift in profitability, where we see an operating margin of 6.4%. And this is a significant improvement versus the same period last year. Security services is the main reason behind the improvement. And here, active portfolio management and increase in the price thresholds on new business are generating a positive impact on the Guardian portfolio margin. And the airport security business also contributed, as I mentioned earlier, with improved operational efficiency and also then a certain seasonality impact and stronger demand. Operating margin in technology also improved, but here we still have some negative impact from ongoing system and support transitions that we explained in the Q1 report. So I'm very pleased to see the improvement in Europe, but having said that, we do have a lot more work to do. And we continue to drive higher margin requirements for new contracts, active portfolio management and cost actions in the guarding part of the European business, to ensure that we deliver a significant improvement in the margin also going forward. Moving then to Ibero-America, where our team continued to drive positive development. The organic growth was very healthy at 8%. And when comparing versus last year, the declining growth, if you're looking at the chart here, is due to the divestment of our business in Argentina. The organic sales growth in Spain increased to 9% thanks to price increases and strong technology and solutions momentum. And in Latin America, the organic sales growth continued to be driven by price increases. Shifting then to the profitability development with 6.8% operating margin, which is a substantial improvement versus last year. And we are seeing solid margin improvements in security services as well as in technology and solutions. And a positive revenue mix change is contributing to the improvement as well as the divestment of our business in Argentina where we had below average margins. So reflecting on the segments and the state of the business, I'm really glad to conclude that we are driving improvements across all business segments and have a positive outlook for the second half of the year. And with that, over to you, Andreas, and some more details on the financials.

Thank you, Magnus. Starting with the income statement, where we had 5% organic growth in the quarter and delivered a 6.9% operating margin, where our European and Liberia America business were the main drivers of the margin improvement. Looking below operating results, there are no major news related to the amortization of acquisition related intangibles nor acquisition related costs. Items affecting comparability was minus 243 million, where 219 million is related to our Stanley integration and 24 million is related to the European and Ibero-America transformation program. And as usual, I will come back with some more details here shortly. Looking at the financial net, which is coming in at 617 million, which is 76 million higher than last year. And this is mainly due to increased interest rates. The impact from IES 29 hyperinflation was 27 million, with a similar impact also last year. Our full year estimate remains at 2.4 billion, excluding IES 29 and FX gains and losses. So in other words, unchanged compared to the estimate in Q1. Moving then to tax and here the forecasted tax rate for the full year is unchanged at 26.5% which is a slight decline compared to 26.8% last year. Let us then move to our IEC programs and looking first at the European and Liberia America transformation program. Here we had reduced cost in the second quarter. We are now leveraging our previous investments into the platform design and implementation program to have a more scalable and cost-effective rollout. In the second quarter, the cost was 24 million, and the cost run rate will continue to be at the lower level the rest of the year, and the estimate for the full year remains around 150 million. In our Stanley integration program, announced the total cost of approximately 135 million US dollar after the acquisition. The Synergy takeout and integration continues to make good progress in Europe. In North America we are closing down several integration work streams and although there are some important activities on the IT side remaining, we are at the end of the integration phase. And as we have mentioned earlier, We are also going through a period of heavy lifts in the IT integration and platform implementation work generally and this work will continue throughout 2024. We have decided to make additional investments into the program to ensure a robust IT and platform integration and estimate to land around 550 to 600 million this year compared to the previous estimate of 400 million. Looking at the left-hand side, 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 in 2024, the investments are significantly reduced and we expect to land between 700 to 750 million for the full year, impacting 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 second 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 second quarter, where the differences on EPS level mainly derived from different currency mixes below operating result. The second quarter EPS real change excluding items affecting comparability was 8%, And in essence, this is derived from the real change on operating income being 8% as well, positively impacted by the 5% organic growth, in combination with our 30 basis points margin improvement. We then move to cash flow, where we, as expected due to the Easter timing differences compared to last year, had stronger operating cash flow in the second quarter. operating cash flow was 1.7 billion or 60 percent and to be compared to last year in q2 when it was 1.2 billion or 46 percent the cash flow was further supported by reduced growth and an improved situation related to the erp challenges in our transformation and stanley integration program that we have previously communicated and these positive effects were partly mitigated by a reduced account payable position in the quarter which was against a strong comparable last year. The free cash flow was 429 million and was impacted by negative timing effects related to tax payments and increased interest payments due to the increased interest rate environment. We remain with the estimate for the full year that the finance net will be around minus 2.2 billion in terms of cash. All in all, we delivered a decent operating cash flow in the second quarter and we are in a good position to deliver a full year operating cash flow within our financial targets of 70-80% for the full year. We then have a look at our net debt, which landed at 41.9 billion. This is up 4.3 billion from the start of the year, impacted mainly by the 1.1 billion dividend we paid out in the second quarter, the negative free cash flow of 0.9 billion, but also materially impacted by the weakened Swedish krona compared to year end, which increased our net debt with 1.7 billion. Looking at the net debt to EBITDA which was down to 2.9 when comparing to Q2 last year when it was 3.3 and it continues to remain below our financial target of a net debt to EBITDA of less than 3 despite the seasonally weaker free cash flow generation the first half of the year, the dividend paid and the negative FX impact that I mentioned earlier. Moving on to have a look at our financing and financial position. We continue to have a solid financial position. None of our facilities have any financial covenants and the liquidity position remains strong in the quarter at 5.2 billion. We also have our RCF facility of more than 1 billion euro in place until 2027 and it remains fully undrawn as per the end of the quarter. And as I mentioned earlier, we currently have less maturities to refinance after the bond issuance that we did in the beginning of the year. We continue to focus on refinancing higher cost debt to minimize our interest costs. And in this quarter, we refinanced part of the Schulstein with a new bank loan facility at substantially lower margins. After the upgrade to BBB in Q1 we also continued to see strength and credit metrics from S&P as they now also increased our liquidity rating to strong from adequate. So all in all we are continuing in an unchanged way to continue on driving good cash flow generation, deleveraging our balance sheet and as always we remain committed to our investment grade rating. So with that, to you, Magnus.

Many thanks, Andreas. So just a few comments related to the strategy execution and value creation before we open up the Q&A. We are making good progress in shaping the new Securitas with a strong and comprehensive client offering. And one positive thing now is that as we are completing more of the heavy integration work, we also have more time to spend with our clients. And when I'm beginning engaging with the clients and also many of the leaders in the team, we've had quite a lot of interaction over the last couple of months. And I just wanted to share a few points in terms of what I've been hearing from them. Because when you look at the current environment, There is quite a lot of uncertainty. We have an elevated threat landscape. Clients, existing but also potential clients, are looking for a strong partner with deep security expertise. And when looking at the future, they're also looking for a long-term partnership approach. The rate of change in technology is also quite high. They're also looking for a partner that can make a complex world more simple. So a partner that not only brings technology and guarding capabilities, but a partner that is adding sharp security and risk knowledge together with digital capabilities to create the leading security equation for tomorrow. And this is something that, in a way, you can say that from a societal perspective, the uncertainty we're seeing in the world is obviously regrettable. But we are also seeing and also feeling increasingly more confident in terms of the value that we can bring to our clients. And I think this is also one of the main reasons that we are winning important contracts and also have good confidence in terms of the commercial activity going forward. And one thing that I mentioned in the quarterly in the CEO comment is that last month we signed a new global contract with the leading technology company. And this is a sizable contract with a global scope. But what makes it unique is that this is a so-called vested contract. And this means that the client has shifted the focus to the output. So that is the outcomes that they want us to deliver together with them. as opposed to the input, and the input is then more internal, so we want X number of hours or X number of cameras or sensors on a particular location. And we will work now in close partnership to build and also then optimize an advanced security program where we leverage our knowledge, presence and technology, as well as digital capabilities. And we mentioned this one, and I was keen to mention it because it's just one example But we have a very promising pipeline with opportunities that will help and also drive valuable growth as we go forward. Because this is obviously about value creation. And as we are finishing the standard security integration work, like I mentioned, we can now shift a lot more focused operational value creation and generating also enhanced shareholder value. And we have clear focus areas, as we outlined in the Capital Markets Day in March this year, to then deliver a strong operational value. But apart from a stronger offering, we're also building a more scalable business now, and our digital capabilities are starting to drive meaningful impact. So the progress is good. We have a strong focus across the company to achieve our 8% operating margin target by the end of 2025. So in summary, then looking at the quarter, we deliver across all segments, 30 basis points improvement in the operating margin to 6.9. We are improving the operating margin in security services in a significant way, as well then as in technology and solutions. So this is a clear step in the right direction. But I also want to make clear that we can and we need to do a lot more. By looking at the progress, we are executing on the strategy and this is generating results. So with that, happy to open up the Q&A.