Securitas AB (publ)

Good morning everyone and welcome to our Q3 results presentation. We are pleased to present continued good development. We are executing according to our plan with the transformation of Securitas. So let us start by looking at some of the highlights in the third quarter. The development in the quarter was good. We delivered 5% organic sales growth for the group, 6% real sales growth in technology and solutions. The operating margin improved 60 basis points to 7.5%. And when looking back the last 20 years, this is the highest margin recorded for the group and obviously something that we feel very good about. A very strong improvement in Europe in security services contributed in a significant way to the overall performance improvement. And now it's very positive that we start to operate at a high level also in Europe, which is helping and essentially means that all segments are now performing and executing on the strategic plan. Looking at the other segments, solid development in Ibero-America and other also contributed to the results while North America was slightly below last year. The price-wage balance in the group is positive in the first nine months. And looking at the cash flow, the operating cash flow was 115% in the third quarter, and this contributed to an improved leverage. So with that, let us look at the performance in the different business lines, where strong development in security services is the most notable development. The growth in security services was 4% in Q3, and we feel good about the commercial momentum across all segments New sales across the group are coming in at higher levels. And the EBITDA margin of 6.6% represents a very significant improvement versus last year, with improvements across all segments, but as I mentioned, the most notable improvement in Europe. The real sales growth in technology and solutions was 6% in the quarter. Order entry and backlog are stable. And as we are finalizing the majority of the stand integration work, we are now able to put more emphasis on driving the commercial developments. The operating margin within technology and solutions was slightly below last year due to negative cost development, and I will comment on that in a few minutes. But we continue to drive the positive exchange with high growth in the more profitable parts of the business. Shifting then to the performance in the segments, and as always, we are starting with North America. We've recorded a sequential increase in the organic growth to 3%, and here good momentum in technology sales contributed, but the previously communicated termination of an aviation contract had a negative impact on the growth in services, but commercial activity is good, and we see continued recovery in top line momentum in services in the coming quarters. Recorder positive makes change. Technology and solutions represent 38% of total sales versus 36% last year. And the client retention at 87% was negatively impacted by the man mentioned aviation contract termination. And turning then to the profitability, where we recorded an operating margin of 9.1% in the quarter. And the margin was negatively impacted by the technology business and a weaker performance in Pinkerton. We had a negative impact in the technology business unit due to negative cost development after the completed carve out. So after the successful integration work, we are now fully in control of the running of all parts of the business and to put it simply, standing on our own feet. But we've also then had some cost issues that we have seen after the completion of the carve-out. But I expect that the increased cost level will be addressed in the coming quarters. The Pinkton business was weak, as I mentioned, in the quarter. And one important reason behind the poor performance is that we are going through major modernization and upgrading the systems that are supporting the Pinkton business. And this had a negative impact on the profitability. But we expect to complete the transition work and improve the Pinkton profitability in the coming quarters. Looking to the services side, good development operating margin in the Guardian business improved in the third quarter. I would also like to highlight that we have appointed George Cotto as the new leader of our services business in North America. And George has led the Iberia America business in a very successful way during the last five plus years and started in his role now on November the 1st. And moving then to Europe, where we have really good developments. Organic sales growth was 7% in the quarter. Healthy price increases in the services business are contributing and similar to previous quarters, hyperinflationary environment in Turkey account for a significant share of the growth. The technology business, higher extra sales and a strong aviation from a seasonality perspective also contributed to the growth in the quarter. Technology and solutions represented 32% of sales. Client retention rate was good at 92%. And shifting then to the profitability development in Europe, where we achieved an operating margin of 7.7%. And as in Q2, this represents a solid improvement versus the same period last year and improvement in security services is the main driver. And the improvement here in services is important because as commented in the last couple of years now, we have been driving a focused agenda to fundamentally change the way that we are doing business with a shift to quality over quantity and a firm approach in terms of guarding services profitability. And while this has taken longer than I had expected in Europe, we started to see some improvement last year in a few markets. And this year, the improvement is more broad-based and the combination of active portfolio management and also higher margin on new sales are generating a real impact. And in addition to the structural improvement that we see in the profitability in Europe, we did record healthy extra sales but higher demand for travelling in combination with improved operational efficiency also contributed in a significant way related then to the airport security business. The operating margin in technology was somewhat weaker in the quarter. So we are on the right path in Europe and the execution of the strategy is starting to generate a significant impact. But we have more work to do. Continue to drive higher modern requirements for new contracts, active portfolio management, and also cost actions to ensure that we deliver significant modern improvement also going forward. Moving then to Iberoamerica. Our team continued to drive positive development. The organic sales growth was healthy at 5%. Spain was the main driver with 7% organic sales growth, thanks to very good momentum with technology and solution sales. Technology and solution sales represented 36% of sales in the quarter, and the client retention was solid at 92%. And looking then at the profitability, with 7.2% operating margin, which represents 20 basis points improvement versus the same period last year. And here, strong performance in technology and solutions was the main driver together with the positive revenue mix change. And here, obviously related to what I previously mentioned about George, I just would like to say thank you to George and the team for the solid development under his leadership during the last five years. And we are also very glad to appoint Zacharias Eremias to the role as leader of Iberoamerica. Zacharias has successfully transformed the business in Spain during the last decade to one of the strongest units that we have worldwide. So that concludes the overview of the performance in the different segments. And now handing over to you, Andreas.

Thank you, Magnus. Starting with the income statement where we had organic sales growth of 5% and a strong operating margin of 7.5% in the third quarter. Looking below operating result, there are no major news related to the amortization of acquisition-related intangibles or acquisition-related costs. Items affecting comparability was minus 697 million, where the provision related to the Paragon US government investigation we communicated in September was 536 million. Excluding Paragon, We continue to have significantly reduced spend in our transformation program and the Stanley integration remains on track for the full year forecast, which I will come back to in more detail shortly. The comparative last year was negatively impacted 3.3 billion by the capital loss related to the divestment of Argentina. The financial net is coming in at 577 million, which is 59 million higher than last year. The increase is mainly driven by IS29 hyperinflation and FX. The underlying interest net is down 95 million compared to last year, which mainly is due to a reduced interest net as a result of the refinancing activities we have executed over the last year. Our full year estimate is unchanged at 2.4 billion excluding IS29 and FX gains and losses. Moving to tax, and here the forecasted tax rate for the full year is 26.3%, which is a slight reduction compared to the forecasted 26.5% in the second quarter. And as a reminder, last year's tax rate was negatively impacted by the 3.3 billion non-deductible capital loss in Argentina and positively impacted by reversals of tax provisions in Q4. Adjusted for this, the tax rate for 2023 was 26.9%. Let us then move to our IC programs. And looking first at the European and Ibero-America transformation programs, where we continue to execute at a reduced cost level, similar to last quarter in Q2, we are leveraging our previous investments into the platform design and into the implementation program to have a more scalable and cost-effective rollout. And in the third quarter, the cost was 21 million. The cost run rate will continue to be at the lower level in Q4 and the estimate for the full year remains unchanged around 150 million. Related to our Stanley integration, We continue to see solid progress in the third quarter. In North America, we have concluded most integration work streams and outside some outstanding activities on the IT side, the integration is complete and we are now shifting more into market and growth focus. We continue to make good progress in Europe as well, and the full year forecast is unchanged around 550 to 600 million, where we will likely land in the upper end of that interval. Through the successful execution of these two programs, we have built a stronger and more scalable business where we are in a good position to continue to grow our high margin business, generate scale benefits across the organization and drive cost efficiencies out of our cost base in the coming phase. 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. In 2024, the investments are reduced and we expect to land between 700 to 750 million, excluding the previously communicated costs related to the Paragon US investigation provision. Moving then to an overview related to currency and the FX adjusted result development. And here we saw negative impact from currencies in the quarter and mainly related to the US dollar. On sales, there was a 5% negative impact from FX and with a similar impact on the operating result. The impact on the EPS excluding IEC was higher and that is mainly derived from us having a different currency mix below the operating result. The ratios related to EPS including IEC are less relevant in the quarter as we last year had the impact from the capital loss related to the divestment of Argentina. The third quarter EPS real change excluding items affecting comparability was strong at 24%. And in essence, this is derived from the real change on operating income also being strong at 14%, positively impacted by the 5% organic growth in combination with the strong margin development and with the further positive contribution from reduced underlying interest net and lower tax rate. All in all, a strong development in our EPS excluding IEC compared to last year. We then moved to cash flow, where we had significantly improved operating cash flow in the third quarter on a week comparative. The operating cash flow was 3.4 billion in the third quarter or 115% of the operating result. The improvement was mainly due to reduced account receivable position coming from both reduced growth levels and an improved day sales outstanding or DSO. Overall, we also had positive cash development and less negative impact from the platform integration and implementation work in the third quarter. CapEx was somewhat lower in the quarter, positively explained by lower IT and transformation program spend, and to a lesser extent explained by a correction related to IFRS 16, which has no material impact on our run rate going forward. We continue to expect our CapEx to be less than 3% of sales. On the negative side, we had a lower payables position, somewhat hampering the cash generation. Free cash flow landed at 2.3 billion, and this was supported by the improved operating cash flow. And as expected, we saw reduced cash out related to our finance net compared to last year, where we also remain with the estimate that the full year cash flow from the finance net will be around minus 2.2 billion. Increased tax payments have hampered the year-over-year free cash flow development, and year-to-date we have approximately 740 million in higher tax payments compared to last year. A majority of the increase is related to payment timing effects, and the remaining part is mainly related to higher taxable earnings. Parts of the timing effects will be regained in the fourth quarter, but the tax payments for the full year will remain higher compared to last year for the reason I have mentioned. All in all, we delivered a solid operating cash flow in the third quarter and we are in a good position to deliver a full year operating cash flow within our financial target of 70-80% for the full year. We then have a look at our net debt, which landed at 38.5 billion at the end of the quarter. This is up 1 billion from the start of the year, negatively impacted by the 1.1 billion dividend we paid in the second quarter, 0.7 billion of IC spend, and 0.7 billion negative impact from the weakened Swedish krona, while our free cash flow of positive 1.4 billion impacted them positively compared to January this year. In the quarter itself, net debt was down 3.4 billion, and that is mainly thanks to improved free cash flow generation and the strengthened Swedish krona. I want to mention as well that we have not made any payments related to the Paragon US government investigation in the third quarter. The final amount and timing of the payment is still subject to finalizations of the discussions with the US government, and we will provide more information in due time. Going to Net Depth EBITDA, here we saw good deal leverage over our balance sheet, mainly supported by solid EBITDA development, the good free cash flow generation, and the strength in Swedish krona. The net debt to EBITDA landed at 2.7 to be compared to 2.9 in the second quarter and 3.1 in Q3 last year. We have a strong balance sheet today and we are well below our target net debt to EBITDA of less than three times. Moving on to have a look at our financing and financial position where we continue to have a strong balance sheet and we remain without any financial covenants in our debt facilities. The liquidity position strengthened further in the quarter after the good cash generation. We also have our RCF of more than 1 billion euro in place until 2027 and it remained undrawn as per quarter end. And as I have mentioned earlier, we currently have less maturities to refinance after the Stanley takeout and after the bond issuance we did in the beginning of the year. We continue to make use of our strong credit position by refinancing higher cost debt to minimize our interest costs. And in the quarter, we refinanced the majority of the outstanding Schulzstein facility with the new bank loan at substantially lower margins. In October we closed out the 1.5 billion private placement with maturity in 2026, and this facility will be used to partly pay off existing maturities of around 3 billion in the fourth quarter. The residual maturing amount in Q4 will likely be paid off with cash at hand or short-term facilities. Looking at our credit rating that remained unchanged in the quarter, S&P actually confirmed our BBB stable rating. And we continue, as always, in an unchanged way to continue our focus on cash generation, strengthening our balance sheet and remain committed to our investment grade rating. So with that, I hand over back to you, Magnus.

Many thanks, Andreas, for a good overview. So let me just share a few comments related to our strategic journey before we open up the Q&A. So as commented at the beginning, we are making good progress in shaping the new Securitas. We keep executing on our strategy, enhancing the capabilities that we bring to our clients to shape what I firmly believe is the strongest client offering in the industry. And existing and potential clients are looking for a strong, partner and they appreciate also our long-term partnership approach. So the feedback from our clients is very good on the changes that we are driving in the company and we are optimistic regarding the growth opportunities in the coming years. And the performance improvement in the last couple of quarters represents another important step in our journey towards achieving 8% by the end of 2025. And this bridge is just a repetition from what we shared at our capital markets day in March this year, where we went through the key focus areas to achieve 8% by the end of 2025. And while we still have some work to be done, we are making steady progress. And getting this work done is important, elevating the performance, since it will enable us to shift the focus beyond 2025 and then optimizing the business and driving higher shareholder value for the longer term. So to sum this up, we are executing in line with our strategy. Results are now becoming visible across all segments. We feel good about the 7.5% operating margin, which is the highest quarterly margin achieved to date. And I just wanted to highlight as well the great Securitas team doing a great job in driving this transformation. So we are clearly on the right path. And with that, happy to open up the Q&A.