Securitas AB (publ)

Good morning everyone and welcome to our first quarter results presentation that Andreas and I are doing from our headquarter in Stockholm today. We're off to a good start to the year, so let us go straight to some of the highlights of the first quarter. We delivered 3% organic growth in the quarter and the operating margin improved 40 basis points to 6.4%. All business segments supported, and we have realized improvements in operating margin in the security services and technology and solutions business lines. On the negative side, Paragon and Pinkton hampered the results, and I will comment on those units later in the presentation. By looking at results growth, the EPS growth was 16% in the first quarter. Operating cash flow was 1% and the balance sheet remains strong. Commenting a little bit on the business optimization program that we announced last quarter that is running according to plan and we expect to achieve savings of 200 million SEK by the end of this year. And also wanted to comment a little bit in terms of the world around us since we have witnessed quite a lot of turbulence in the global trend landscape in the last couple of months. And I just wanted to emphasize here that we are a services business with local delivery. And from this perspective, we have limited exposure to the trade-related changes. And there has been no significant impact to the Q1 results, but we are closely monitoring any potential negative impact to our business to be able to take actions if necessary. And we also continue to assess the different parts of the business to ensure full alignment with the strategy and a good profitability profile going forward. And to this end, it's really positive that we have completed the divestment of the aviation business in France. But as part of the strategic assessments, we're also considering the options related to the Securitas Critical Infrastructure Services business in the US, and I expect that we will conclude this assessment during this year. And I will also share some more details regarding SCIS later in the presentation. But all in all, we are off to a good start of the year. So with that, let us then look at the business lines. And the real sales growth in technology and solutions was 5% in the quarter, and the growth rate is below our target, but with the Stanley integration now behind us, we have a very strong offering and can now put full focus on client engagement and commercial development. Operating margin improved with 30 basis points to 10.5%. The growth in security services was 1% in the quarter, and we recorded a 50 basis point improvements in the EBITDA margin. The growth rate in services is negatively impacted by active portfolio management, but it is essential that we address the low performing contracts in the portfolio to create a healthier business. And the commercial momentum is good, and we're continuously developing our value proposition and new sales across the group are coming in at higher levels than before. So let us move then to the segments and we start with North America as always. And here we recorded 3% organic sales growth and continued margin improvement. We had good growth in the technology and the Pinkerton businesses. And looking at guarding, commercial activity is good, but the growth in the quarter was negatively impacted by the termination of a large aviation contract last year. But important to highlight here that we recorded positive net change in the guarding portfolio for the first time in a while. And we expect significantly stronger top line momentum in guarding going into Q2 and going forward. And this is then based on a positive net change and the aviation contract no longer being in the comparatives. Technology and solutions growth was 4%, and as stated, we had healthy growth in technology but lower solutions growth, and we are fine-tuning our go-to-market approach with solutions to rebuild the commercial momentum. Looking then at the margin, we recorded a healthy 8.7% with improvement in services, stable margin in technology, but a weak performance in Pinkerton. And as previously commented, we have gone through extensive modernization of the Pinkton business and expect steady margin improvement in the coming quarters. So all in all, on the right track in North America, and let us then move to Europe, where we also recorded a significant improvement in profitability. The organic growth was 4% in the quarter, And we are now out of the high inflationary period and the growth in services was primarily price driven. Sales growth in technology and solutions was 6%. And we delivered 70 basis point improvements in the operating margin to 5.7% in Q1. And the margin improvement was driven by significant improvement in services and a good improvement in technology and solutions. And the commercial activity is good and higher margin on new sales and effective handling of low performing contracts are the two key drivers behind the margin improvement for the segment. But we continue to address and also renegotiate the lower performing contracts in the services business And there has been some negative temporary impact on the growth and the profitability in Europe as a result of these actions. And we've had a strong focus on active portfolio management as we've talked about over the last couple of years in our security services business in Europe. And combined with substantially better margins on new sales through an improved offering, we have materially also improved the profitability. And during the coming 12 months, we will address the majority of the remaining non-performing contracts in Europe. And looking at the longer term, we're continuously enhancing our offering, laying a strong foundation for sustained margin growth over time. So all in all, it's a decent start to the year in Europe, and we then shift to Ibero-America. where we had a strong start to the year. Organic sales growth was 3%, but very good growth with 9% in technology and solutions. And similar to Europe, active portfolio management, where we are pruning some of the low-performing contracts, had a negative impact on the growth, but we are making good progress in addressing the low profitability portfolio and driving good conversions over a number of those contracts to technology solutions. And this is actually the first year with the Q1 margin above 7% in Ibero-America. This improvement was driven by improvement in security services and technology solutions. So good start to the year in Ibero-America. So looking then at the totality, we are increasing the share of technology and solutions and improving the operating margin in all business segments. And despite determinations of some of the low-performing contracts, our client retention rate is solid at 90%. And this is a testament from my perspective to the great work our teams are doing across the business, leveraging a unique offering and building strong relationships with our clients. So with that, happy to hand over to you, Andreas, for some more details on the financials.

Thank you, Magnus. And we start with the income statement. where we had organic sales growth of 3% and improved the operating margin with 40 basis points to 6.4%. Magnus has gone through the developments in the segments in the quarter, and I can also highlight that Securitas' critical infrastructure, which is reported under other in the segment reporting, hampered the margin compared to last year, mainly due to losing a profitable contract in the second half of the quarter. Going below operating results, there are no material developments in amortization of acquisition-related intangibles nor in the acquisition-related cost. Items affecting comparability was 77 million, a reduction compared to last year in line with our plan that we communicated in the fourth quarter. The execution of the European Transformation Program rollouts continued well in the quarter and are tracking in line with our 150 million cost forecast for the full year, which remains unchanged. We announced a new business optimization program in February, and this is also running according to plan to achieve annualized savings of 200 million by the end of 2025, with a total cost of 225 million. The cost related to the program will increase materially in the second quarter as the program gains further traction, but the full year forecast is unchanged at 225 million. So the full year cost estimate for both the transformation and the business optimization program remain at approximately 375 million, the same amount that we also announced in the Q4 report. We also concluded the divestment of our aviation business in France in the first quarter, The capital loss was 5 million from the transaction, which has also been reported under IEC similar to our previous divestments. Moving then to the financial net, which came in at 497 million, and this is 57 million lower than last year. And when we exclude the effects from IES 29 hyperinflation, the improvement was 77 million. And this is mainly driven by positive effects from lower interest rates as well as our lower debt levels. For the full year, we expect the finance net to be around 2 billion, which is lower than our previous estimate of 2.1 to 2.2 billion for the year, and a reduction compared to 2.4 billion in 2024. All numbers here excluding the effect from hyperinflation. Moving to tax, here our full year forecasted tax rate is 26.7%, a slight increase from last year, as 2024 was somewhat positively impacted by non-recurring items. Looking then at our EPS real change growth, which was strong at 29% in the first quarter. When excluding the positive effects from reduced IEC, the EPS real change growth was 16%, supported by a solid 9% real change in our operating result and with further benefits coming from the reduced financial net. We then moved to cash flow, where our operating cash flow was 14 million or 1% of operating income in the first quarter, improving our cash generation compared to the first quarter last year when the operating cash flow came in at minus 362 million or minus 15% of the operating result. The first quarter is the weakest cash flow quarter from a seasonality point of view. this is due to several factors including that we make major prepayments related to IT and insurance in the beginning of the year, we pay annual incentives in Q1 and we have ongoing price increase discussions with our clients at the start of the year which sometimes delays our invoicing temporarily. We also had a strong year-end cash flow last year which somewhat hampered the first quarter. In Q4 We reduced our CapEx guidance for 2025 to approximately 2.5% of sales. And the reason for this was reduced CapEx requirements in our transformation programs, and we also benefit from our cloud-first strategy. And the first quarter is coming in, in line with this guidance. The free cash flow landed at minus 1 billion, where the improvements compared to last year mainly derived from the improved operating cash flow. So in conclusion, we continue to see an improved operating cash flow compared to last year, and we remain focused on strong cash generation to meet our full year target of 70 to 80% of operating income. We then have a look at our net debt, which was 37.3 billion at the end of the quarter. This is a reduction of 0.7 billion compared to Q4, despite the negative free cash flow of minus 1 billion. And the main reason is the strengthening Swedish krona leading to 2.4 billion in positive translation effects in the quarter. Cash flow from acquisitions and divestitures were minus 223 million. And this is mainly related to the smaller acquisition in technology in North America in the beginning of the quarter and the divestment of Aviation France, where the purchase price payable by the buyer is deferred. and cash related to working capital funding was left in the business at closing. The cash flow from IEC was minus 323 million, and approximately 200 million of this was related to the first of three payments to the US government related to the Paragon settlement. And as we have previously communicated, there will be two further installments in the third and the fourth quarter. And the total payments in 2025 will be approximately 53 million US dollar. Moving then to the right hand side, where the net debt EBITDA was 2.5 times at the end of the quarter. This is an 0.4 improvement compared to Q1 last year, where positive EBITDA development and good cash generation the last 12 months have supported. The main positive effect in Q1 is mainly the reduced debt due to the strengthened Swedish krona. We have a strong balance sheet today and we are well below our target net debt to EBITDA of less than 3 times. Moving on to have a look at our financing and financial position, where we continue to have a strong balance sheet, good liquidity and we remain without any financial covenants in our debt facilities. We also have our RCF of more than 1 billion euro in place until 2027 and it remained undrawn as per quarter end. In Q1 we issued a seven year 300 million euro bond which was also our first sustainability linked financing. And the bond was oversubscribed 10 times and had a negative new issue premium confirming that we have a strong position in the credit markets. and the coupon was 3.375% and the margin 110 basis points. In the fourth quarter, we signed a short-term 400 million euro bank facility to ensure we had a timing flexibility throughout our Q1 refinancing activities. This facility was never used and was also cancelled at the end of the first quarter. We are now in a good position from a refinancing perspective in 2025 where we expect to manage the smaller remaining maturities with cash at hand to reduce our debt or with short term facilities. And we remain committed to our investment grade rating. And with that, I hand over back to you, Magnus.

Many thanks, Andreas. So just a few comments from my side related to our strategy and the strategy execution before we open up the Q&A. So looking at this familiar bridge, we're making good progress with our roadmap and fully committed to reach 8% by the end of this year. And there is good progress in the last couple of years in terms of delivering in the first two areas, technology and solutions impact, and then also improving the security services profitability. And with a strong balance sheet, value-creative M&A will play an active role in the coming years. But related then to the last area of strategic assessments, as I commented at the beginning, we are making progress. And we are evaluating the strategic options related to the Securitas critical infrastructure services business in the US. So I just wanted to share some more detail related to this. Q1 2025 sales are approximately 2.2 billion SEK, but as stated with a deteriorating margin profile. And the vast majority of the business is a people intensive guarding business with the US government as the key client. But we also serve some commercial clients in this space and this is obviously an important consideration for us as we are evaluating the different strategic options. But this is a unit then within Securitas where the long-term profitability prospects are not in line with our strategy and also not with our targets. We are building as a company a winning value proposition based on presence, technology and data. And while this is a successful strategy for our business and our clients at large, when it comes to the SCIS business, this is more standardized, people-only guarding contracts. We're driving meaningful differentiation with our strategy is more challenging since mostly price-driven tender processes. And it's based on this context that we have been evaluating this business for quite some time and also now evaluating the different strategic options. And as stated earlier, we expect to conclude this assessment during this year and preferably sooner rather than later. So with that, I would like to wrap up the presentation. We're off to a good start to the year with improvements across all parts of the business. We are executing according to our plans, fully committed to achieving our target of an 8% operating margin by the end of this year. So with that, let us open up the Q&A session.