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.

If you wish to ask a question, please dial star 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star 5 again on your telephone keypad. The next question comes from Raymond Koo from Nordia. Please go ahead.

Good morning. A couple of questions from me, starting with the first one on just the SEIS. In the margin bridge to 8% that we're all familiar with, you have the strategic assessments there. Is it fair to assume that this refers to SEIS, or do you see the margin target as feasible even leaving SEIS as it is?

Thank you, Raymond. As I commented, this is an area that we have been considering different options and also evaluating for quite some time. There is nothing that we are doing which is just kind of short-term oriented. But we have landed in the conclusion where essentially we believe that this is going to be better under a different owner than Securitas. There is meaningful contribution in that margin bridge from this part. So I think that is as much as we can comment.

Yeah, that's very clear. And then just one other question. You write in the report that you will address the majority of non-performing contracts in Europe and Ibero-America in the next 12 months. Could you just help us understand, Magnus, why it's taken up until now to address them? I'm sure there's a reason, just if you could help us understand what your focus has been until now and why now this has become a bigger priority, so to speak.

Yeah, so the priority has been unchanged. But if we just, I mean, to take a little bit of a multi-year perspective in this, a couple of years ago, I think I expressed quite openly as well that I wasn't happy with the progress in Europe. We were making very good progress in North America, and there we're largely done, as we have said. So, I mean, there we can focus now on profitable growth, which is a really good position to be in. And we started in Europe really to gain some traction. Last year, I would say two years ago, it was some of the countries that really started to get moving. But it's taken some time. The good thing starting in 2024 and going into this year is that everyone is now executing on this strategy and we need to get that work done. But then the reason that some of this is taking time is that when we have low performing contracts, Well, stating the obvious, an unprofitable contract or a low profitability contract, that will never be a good sustainable business. So we essentially have three different options in those. And one option is that we just renegotiate the price with the client. That happens quite often. The other one is that we are leveraging the strengths that we have in technology to also then address the total cost of ownership with a higher technology component in converting essentially into a solutions contract. If the first two do not work out, that is when we then humbly but also firmly initiate the process to terminate the contract. And there, obviously, when you're looking at our business, everything that we do is quite long-term. Some of the contracts have been also with the contract expiry two, three, four years out. And that's something that we've also said from the beginning, that we need to be respectful of that, and we're working with each and every client where there has been an issue. And if you're then looking at the next 12 months, this is the time that we need to get the vast majority of that work done. Because then we've had a number of years to do it, and to do it in a respectful and a professional manner. But going 12 months forward from now, that is the clear expectation also knowing where we are in terms of the profiles on some of those contracts. But it is also quite painful because when you do this, it's hurting the growth near term, but it could also then have some impact in terms of stranded cost to also then be able to terminate people, et cetera, and take out costs. So these are things that we are working through, but we do that obviously 100% in line with the strategy and it's fully in line also with our ambition to shape a security, which is well positioned to drive really valuable growth over the long term and to really get that work done. And that's the reason I also call that out to say that it's not that it's more focus, it's more getting the work done over the coming 12 months.

That's very helpful. And just a follow up on that. So it sounds like it's more a matter of maybe execution from your organization here in Europe being maybe a bit slow and sticky rather than say contracting client reasons that have been preventing you from addressing it properly up until now. Is that fair to say?

I would say it's a little bit of a combination. This has been a cultural change journey as well internally, but also with the clients. And I've also personally been in a number of discussions with clients just to also help and support the team and also to be clear with the client to say that we are all about long-term value creation. We're all about long-term, really good, quality-driven partnerships. But it has to be sustainable business. That is just the key point. And I think we are... the market leader in security services and in the provisioning of quality services around the world. And we need to take that discussion to also then really make a clear point because unsustainable low profitability business is never going to be that good for the client and definitely not for us over the long term. This is work that we are driving, but we're making good progress now. We know what we need to do and we're going to get that work done because then I think we're going to have a different platform and also a different shape of the company based on where we can then really focus all efforts on high quality and profitable growth going forward.

Excellent. Thank you very much for that. I'll get back in line.

The next question comes from Annalise Vermeulen from Morgan Stanley. Please go ahead.

Hi, good morning. This is Annalise on behalf of Remy. I have a couple of questions, please. So just coming back on the strategic assessment for SCIS, you've said it's included in your margin bridge. We calculate around 20 to 30 basis points accretion to operating margin from the divestment. Is that in the right sort of ballpark, if you could quantify a bit more the impact on group margins. And similarly, do you have an idea in mind of what kind of consideration you would hope to receive from a divestment? And then secondly, related to that, would you expect the divestment of SEIS to drive higher one-off costs or impairment charges under a divestment process? And then finally, technology and solutions growth remained a little bit constrained and below your mid-term guidance. Could you break that down between price and volume in Q1? And are you still comfortable with the 8-10% mid-term guidance range? Thank you.

Thank you. So if I start with the related to the strategic assessment, but what we mentioned and as Magnus mentioned earlier, if you're looking at the profitability of the business, it is substantially below the group margin overall. And that is the guidance or insights that we give. And based on that, you can make your own assessments. So we're not commenting specifically on anything further on that right now. And then on the other questions, these questions are too early. We are still at the stage where we are assessing our different strategic options. So when it comes to purchase price impairments, those are the things we will come back to in due time as we are concluding. Step one here is to conclude our strategic assessment and then to come back to those questions later on.

And maybe to give some more flavor on your question related technology solutions, 5%, it's a bit below my own expectations. Like we've said, we have 8% to 10%. But I have to give some more detail, I think, related to that. If you're looking at the technology part, very good growth in North America, slightly lower growth in Europe. If you're looking at solutions, it's actually the opposite relationship. So in solutions, we had lower growth in North America, but healthy growth in Europe. I should also highlight that when you're looking at this, the 8 to 10 percent was also including some impact from acquisitions. And I mean, there we are responsible. We only do acquisitions when we find something which is really meaningful. There, as you know, there is no meaningful additional acquisition contributing to those numbers. So we are slightly below where we want to be. But The offering is strong. We're also working quite a lot in terms of how we enhance the commercial orchestration also around our clients. So I'm confident that this is going to be an area where we're delivering good value and healthy growth over time.

Thank you. Just to follow up on the first one, I appreciate you've said you're early in the strategic assessment in terms of your options, but I think you said earlier that you think the business would be better under a different owner. So can we assume that a divestment is the ultimate end game and also your preferred option for this business?

No, we are assessing all the different options available to us at this point in time.

Okay, thank you.

Thank you.

The next question comes from Neil Tyler from Redburn Atlantic. Please go ahead.

Thank you. Good morning. Two questions on margins again, please. Firstly, if we think about the contributors to the margin improvement in the quarter, both positives and negatives, And without assuming any sort of portfolio changes that have been mooted, can you just help us understand how might those puts and takes differ over the remainder of the year? And then equally, beyond 25, assuming you complete the objectives within portfolio optimization and the bank, the savings, how should we think about the pace of margin improvement that can be derived purely from organic portfolio mix change and the growth in technology solutions. And then just coming back to Alisa's earlier question on the growth rate there, the bridge talks about high single digit organic growth, but you're mentioning that that clearly requires commercial synergies from acquisitions, but can you just clarify what is required to reach the 8% exit rate from that component in terms of growth? Thank you.

Could you please repeat your first question?

Yeah, so in terms of the positives and negatives contributing to the 40 basis point margin improvement in the first quarter, can you help us understand how those will stay the same or change over the remainder of the year in terms of the pluses and minuses? Because obviously you've got drags from the SEIS business, improvements from year-on-year contribution from the savings programs. And if we think of it in terms of year-on-year, for the remaining three quarters, which of those differ?

Okay, I understand the question. So if we start with the first one on the 40 basis points margin improvement in the first quarter, and then, as you know, we're not giving guidance for the future, but to give you some flavor. I mean, the positive in the first quarter is that all segments are basically improving and supporting the margin journey, with Europe taking the biggest leap in terms of margin improvement, but also on the weaker comparable in Q1 last year. So it will be important to see continued strong progress from our European business going forward to achieve the 8%. But if you're then also looking a bit more granular at a few different parts in Q1, we had our Pinkerton business in North America still hampering our operating margin in the first quarter. There we expect to see good progress the coming quarters on the margin journey. As we also said, Paragon is also impacting negatively, or SEIS, I should say, is impacting our margin negatively in the first quarter as well. So there you have a few points. But Europe will be important that we continue to see really good development on the APM activities and on the margin progress, as Magnus mentioned earlier, in combination with good good growth and mixed change from technology and solutions as well. We saw positive mixed change in the first quarter, 5% compared to the overall 3%, but as Magnus also mentioned, we would like to have seen more as well, to be clear, to be fully satisfied with the outcomes. I hope that gives you some flavor, and please come back if you have follow-ups on that. Magnus, would you like to take the other two questions?

I can do that now. I probably combine the answer into one if I understood your questions correctly, Neil, here. So when you're looking at the margin journey, we are creating, I mean, it's beyond 25 is essentially a question. I think there's a few key points to keep in mind here. One is that we have an opportunity when you're looking at the client trends and the market trends to continue to drive a positive impact from a mix change. So that means a higher proportion of technology, higher proportion of integrated technology solution, higher introduction also, or more introduction also, more digital services. And all of those obviously have a higher margin profile. So I think margin change is clearly going to be one. But then also when you're looking at what we are doing We have a couple of really strong legs now in the Securitas business. One is obviously the technology. I mean, there we are number two player globally now in terms of system design integration. And when you look at installation maintenance monitoring and that type of scale also gives us opportunity to fine tune and to enhance. We also have invested quite a lot in terms of modernizing our services and guarding business. And we've obviously done that to not only deliver better to the clients, but also to enable ourselves to also enhance the efficiency with which we are running the business. And their automation and AI is something I've also highlighted before. It's also helping us. And we also expect continued impact in terms of driving improvement. So mixed change is one. The other one is obviously that the different business lines are also at the scale now where we can really drive continuous improvement. And then obviously with more and more connected client sites that we have as well, we also have really good opportunity to bring in more added value services that are also more scalable. So there is a number of different components that we have in mind as well and what we have been investing in our capabilities over the last five, six years to be able to position ourselves well. And so I think the The answer from my perspective is that that should result in continuous margin improvement over the long term, but also then that we are able to drive this profitable growth, essentially, with the overall mix. I hope that gives you a flavor. I appreciate it's a longer-term question that you're asking, but it's a very relevant one, given that we're also coming closer towards the end of 2025 when we also had the important 8% target that we want to achieve.

That's helpful. Thank you. But just within that, within that mix change, obviously crucial to that is the growth in technology. And you mentioned in your earlier remarks, you're rebuilding your go-to-market approach to rebuild the growth momentum there. Can you just Sorry to dwell on this, but can you just sort of touch a little bit on exactly what you're doing or vaguely what you're doing there to do that?

Yeah, so if you're looking at the last couple of years, when we made the Stanley acquisition, we've spent a serious effort and also invested in driving deep integration and building a strong technology business. That has been priority number one. And that always was priority number one as well. As that is now concluded, I mean, now we are focusing a lot more in terms of how do we also become better in terms of going with the full offering to the clients when that is of value to the client. And that is obviously something we talk more about our commercial orchestration in terms of being able to understand the client's needs and the risk profile in a better way, but then also recommend the risk of different protective services and the combination that is the most attractive from their perspective to address those needs. So that is the kind of the work that we have been gradually now also stepping up as we are done with the integration work. important here as well i mean everything that we're doing we're building for the long term and getting that integration work done i think the team has done a phenomenal job here in terms of really delivering and executing on that plan and now we are shifting full focus much more than dialing up if you will the the commercial emphasis and and how we how we drive this in the right way that's very helpful thank you thanks for that

The next question comes from Stefan Knudsen from ABG. Please go ahead.

Morning, gentlemen. I just have a follow-up on the Europe profitability uplift, which was impressive here in the quarter. Can you just quantify how much of that was because of a weak comparison last year and how much was from actual underlying improvement?

If you're looking at the first quarter last year, where it was mainly weak was in Europe. And there you see a 70 basis points improvement this year. I would say we have seen good. I mean, not all of that is just due to weak comparables. We see good improvements when it comes to APM. We also see really good improvements on the margins of all the new business that we are taking in as well. But that will be the main impact, Stefan, on looking at the European numbers. Q1 last year, as you remember, we were not happy with the result. It was weak on the aviation side. There were several factors that were weak last year. We didn't see enough progress on the APM. And now basically aviation is supporting. We really see the positive impact from APM. The higher margin on new sales and also the technology business is improving. So I would say that's the main impact.

Yeah, my question referred to Europe as a business area, not a group. And then also follow up on Magnus, I know that you mentioned that you didn't have any large impact from the tariffs. If you look ahead in the technology part especially, do you see any issues there with components and such?

Yeah, so that's a highly relevant question, Stefan. Like you said, there wasn't much impact in Q1. If there could be impact, that is probably one area. And that's something that we're also continuously monitoring. How do we do that? Well, it's essentially in terms of being really being on top of all the projects and the contracts that we have. It's working then with the providers of equipment, essentially, because they are the ones that would be initiating any type of a price increase related to the tariffs. And that's something that our teams are, I would say, for the last couple of months, well prepared and also quick in terms of taking proactive actions as well if there is a change. But None of those things is happening that quickly, to my understanding, when I look at our relationships with a number of the providers, because it's also being very difficult for them to assess exactly how is this going to play out. But we're monitoring closely. We also have a lot of experience from previous inflationary period of component shortages and things like that to also be quick and nimble in terms of taking action. And that focus is very high within the technology team.

Okay. Thank you very much for the clarification. That was all for me.

The next question comes from Victor Lindeberg from Carnegie. Please go ahead.

Morning. Thank you for taking my questions. I have a couple. Firstly, looking at the European contracts, you commented upon them in your initial remarks. And maybe if you could quantify on this improvement potential you see from contract portfolio management that you either target to exit or address in one way or another. Is this a meaningful portion of the total contract base today? Any numbers you could sort of help us to understand where you are underlying in terms of profitability? I guess that's my first question.

Thank you, Victor. We have done, like I said, progress quite a lot. So when you look at the totality, Last year, looking at 2024, it's clearly had a significant impact on the profitability uplift. And I would say meaningful impact when I look at what we have remaining as well. And that's the reason we also need to get this work done. But we don't quantify specifically to say it's this or that number of basis points. But it is one contract at a time. Obviously, some periods like we've had over the last couple of months, we have terminated some larger ones. But the good thing is that everyone is executing and we're going to get this work done over the next 12 months. So I think that is the the positive thing. And when you look at the totality as well, I mean, the real change in terms of the growth in the operating result is healthy. EPS growth is obviously very strong when you look at Q1. So we feel confident that we are doing the right thing. We're executing on the strategy, but it is important that we also get this remaining work done in Europe. That is very, very important so that we can then start to really shift all focus on value and creative growth going forward.

Okay, that's understood. Trying to fetch more numbers then on Europe again. The deconsolidation of France airports, one and a half billion sold in terms of revenue. When exactly did this sort of leave your P&L and could you help us any on that? How many bips of margin accretion? This could be just on a pro forma basis for Europe, maybe for the full year, or at least ballpark numbers to help us look into the second half.

It was deconsolidated in the beginning of the year, Victor, in terms of top line. If you're looking at the group level, no material impact on the margin. It had a slight positive impact on the European margin in the quarter.

that positive as accretive or just positive?

Well, it was positive margin impact compared to last year. I'm not sure the difference there, Victor, but the margin would have been slightly lower in Europe if aviation would have remained in the business.

Got it. That's good. And then more numbers from my side, 8% That's the margin ambition you've been very firm on the past couple of years and also today, 8% by year end. Just to understand more explicitly, what do you mean by 8%? Is this the quarterly expectation or hope for Q4, a standalone pro forma or the run rate pro forma obviously going into 2026? Just so that we know what your ambitions are and how we should reason about that.

We haven't been more specific than that. The ambition is by the end of the year, Victor. But in the end, end of the year, I mean, it's the second half of the fourth quarter. We will have to come back on that. But it's clearly an ambition that we will have towards the end of the year to have 8% operating margin. But we haven't been more specific than that.

So it's fair to say that seasonality will help you to get to that number?

Correct. That we've been open with seasonality is supporting us the second half year, correct.

Final from my side, I noted on your annual accounts that you've changed a bit on your provisions on accounts receivables. Do you expect to make any more meaningful provision changes in 2025? Or maybe also what was the reason for changing?

Exactly. If you go into that, the main reason for why the buckets in the aging is changing is related to the Stanley acquisition. First, when we took that over, some part of that AR was not in good shape. We knew that through the due diligence process we had managed that. But we also through the integration then worked on solidifying the cash flow performance in technology. And as you saw in 2024 Q4, we highlighted that as a strong improvement as well. So we've done some work, but the effects that you see that is sticking out is related to that call it clean up work from the Stanley acquisition. If you're looking at the account receivables overdue more than 90 days, It is fairly, well, business as usual stable between 2023 and 2024. And also, if you look at the bad debt provisioning that we are taking in the P&L, if you take a broader historical perspective, we have been normally around 0.1, 0.2% of sales. And that's where we've been the last two years as well. So there are no There are no major changes in terms of how we're viewing any bankruptcies or risks here. It's more the Stanley acquisition that you see flowing through. So with that, having that said, should stabilize going forward here, all else equally.

Okay. That's all from my side. Best of luck, the rest of Q2. Thank you.

The next question comes from Nicole Manion from UBS. Please go ahead.

Hi. Thanks for taking my question. Just one follow-up, please, on the European margin. Can you maybe give a sense of how far you are through the 200 million business optimization program? Just looking at the kind of exceptional spending Q1, that looks like a relatively small proportion of what you've guided to. So is it fair to say that will be back-end weighted this year in terms of the savings?

Thanks. Correct. It's a correct observation. And what we've said is that we're going to save 200 million by the end of the year. We started to have full impact in January 2026, basically. And we started the program in the beginning of this year. It's gaining traction. We have traction. The program is running well. But you should expect, as I mentioned as well, cost related to the program to start accelerating in Q2 compared to Q1. And then also throughout Q2, Q3, Q4, increased impacts in terms of savings as well. We had a saving in the first quarter, but it was on the smaller end. And you can also see, obviously, the savings itself are very important, but overall it's also really important with total cost control. in the business as well, so we don't have too much inflation or cost increases elsewhere. And there, in the first quarter, it was good. We had good drop through. We also saw good cost leverage. So Q1 was good from that lens. But there is more to come then over the coming quarters in terms of savings from the program.

Great. Thank you.

The next question comes from Sylvia Barker from JP Morgan. Please go ahead.

Hi, morning, everyone. Thanks for taking the questions. Three for me, please. Firstly, just a quick one. Could you give us your wage inflation expectations by region, please? Second one, there is a bit of detail around end markets. So you said no impact from... from Paris yet, and I know that your business is very late cycle, but we're quite interested to hear your observations on climate activity, especially within logistics in the US and automotive in Europe. We have seen a lot of announcements around employee cuts. Is any of that impacting you at this stage or any conversations with customers? And then final question, just another one on provisions actually. You took a lot of provisions during COVID. I've not really been able to work out whether any of them have been released or utilized. Can you just remind us what happened to all of the COVID provisions? Thank you.

Thank you, Silvia. So if you're looking at wage inflation, I would say Broadly speaking, Europe probably more in the 3-4% range this year would be my estimate. Some markets not that clear yet, but that I think is the assessment that we are making. North America is completely dynamic. There it's always a client by client discussion in terms of, are we well positioned or are we not? And there is always pockets where there is shortage in terms of good people, but we are good at handling that as we've proven historically. When you look at the tariffs, so as commented, not so much of an impact. You mentioned logistics in the US, if I heard you correctly, and also automotive in Europe. Automotive in Europe, we don't have that much exposure. We have good positioning in terms of the client segments where we have a larger exposure, and also typically segments where there is higher growth and also more focus on quality in the security and technology, life sciences, data centers, those types of segments where we have really good positioning and we really haven't seen any type of impact in that sense. But having said that, I mean, we're not immune. I think it is important that we are staying close to any type of development in our client base. the positive thing that we have is that we are proactively always working with the clients to see where can we find cost efficiency, how can we optimize the security equation, leveraging people and technology, and that is work that is as important as ever, obviously also when some of the clients or potential clients are also saying that we need to find new and more efficient ways of handling the security. But But I should also say as a general comment, I've met a number of clients in the US and across North America and Europe over the last couple of months. In times of uncertainty, I think they also really appreciate a solid, really, really strong, long-term oriented partner. So we're also having really good discussions, even though many of them are also going through quite a number of potential challenges and a period of uncertainty. And I think that's something that is just kind of reconfirming the strength of who we are and also how the clients are looking at us. Provisions, Andreas, more from your perspective.

Correct. We took additional provisions throughout COVID-19 and generally we also took a more conservative approach at that point in time. And then what has happened afterwards, it has gone into our regular bad debt provisioning policies And as you can see, I mean, we have continued to take an 0.1, 0.2 percentage points of bad debt provisions every year, net. So we haven't released anything major into the P&L. If you're looking to 2023 to 2024, our closing provision went down, closing bad debt provision went down a little bit, but it's ordinary course of business. and also impacted by the Stanley integration. So this is very much business as usual for us with two things, a little bit more conservative approach on the bear debt since COVID-19. And then we have the larger technology business today. And that I mentioned before, as a general principle, the bear debt provisions are higher in the technology business than in the garden business. So that is also a trend that we are seeing, but there has not been any major releases. from those provisions taken back then. I understand. Thanks very much for the answers. Thank you.

As a reminder, if you wish to ask a question, please dial star 5 on your telephone keypad. The next question comes from Johan Eliasson from Kepler-Tuvriax. Please go ahead.

Good morning, Magnus and Andreas. Just a question on the French airport divestment. I think you mentioned something about deferred payment there. Should we expect any additional cash to come in later on or what was that comment about?

Correct. So the purchase price for the French, the divestment of the French business is deferred, where the buyer will pay the purchase price over the coming years to us.

Aha, okay. And is that a reasonable model also for potential further divestments to come?

I would say that what we have done here, you should not take as a general rule of how we will do any strategic assessments or the like going forward. It's very much unique to the different situations. Okay, good. And as a general rule, of course, as a general rule making the divestments, the preference is to get paid up front, just to be clear as well.

Hope so. Thank you.

The next question comes from Carl Green from RBC Capital Markets. Please go ahead.

Yeah, thank you very much. Good morning. Just a question on the impact of the SCIS contract loss. I think you said that that went in the second half of the first quarter. So just wondered what the impact on the other divisions underlying EBITs will be on a full quarter basis. So just some sort of guide as to how we should expect that other line to trend. And then a second question, just in terms of the European portfolio optimization, just wondered if you could comment about the speed at which you're going to be able to eliminate any stranded costs and your process for dealing with that. Thank you very much.

If you look at OTHER in the first quarter, OTHER basically consists of three things. It is the SEIS business, it is our business in Africa, Middle East, and Asia, and the Pacific, and it is our group cost. In the first quarter, we saw good development in our Africa-Asia-Middle East business. Group cost was stable. We had a negative development in our SCIS business, and the main reason for that was the lost contract, as you also mentioned. And that one was not lost first of January, it was the second part of the quarter, so that contract loss will also have a sort of Q1 to Q2, a negative effect in the second quarter. And then we need to see, we don't guide obviously, but good progress in the African Middle East and Asia region supporting that in the first quarter.

And the second question there, Carl, on the stranded cost. We've terminated some fairly significant contracts in Europe. There is a negative impact in Q1. We expect also some negative impact from that in Q2 as well. But then related to those specifically, that is really the timeline. But some of that takes a little bit of time as well. to manage, but we expect in those cases to be largely done with those in the first half.

That's helpful, thank you.

There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

Very good. Thanks a lot, everyone, for joining. We are off to a good start of the year. We're executing according to our plans. So thank you for being part of the Securitas journey. Talk to you soon. Thank you.