Securitas AB (publ)

Magnus Ahlqvist - President and Chief Executive Officer Bart Adam - Chief Financial Officer

Bilal Aziz - UBS Investment Bank Srinivasa Sarikonda - HSBC Sylvia Barker - Deutsche Bank Mikael Holm - Danske Equities Stefan Andersson - SEB Enskilda Allen Wells - Exane BNP Paribas Henrik Nilsson - Nordea Markets Andrew Grobler - Credit Suisse

Okay. Good afternoon, everyone.

And warm welcome to the Q1 Results Presentation. And I am Magnus Ahlqvist, President and CEO of the Company since March 1 this year.

And before that I have been heading up the European Division since August 2015. I am here today together with Bart Adam, our CFO and we will do this call together as we go forward.

And maybe handing over to you Bart, just for a brief introduction.

Yes, hello – you may not have met me before. I'm here together with Magnus.

Happy to be here today and we will run you through our quarter presentation. Thank you.

Good. We have a strong foundation as a Company and I usually try to spend quite a lot of time with our team members in the countries and areas.

But since I started in March, I've also spent a lot of time in the other regions together with our customers. And I just wanted to start by saying that the customers’ value and the work that we do and they buy into our strategy and this is encouraging and I see a lot of opportunity for us to grow and develop the business in the coming years.

But so it's clear for me that the opportunity is there. But I also see that we have an opportunity to speed up the transformation with the strategy that we currently have.

And so let us look at some of the highlights from the first quarter. It is a quarter with strong growth and our team in North America or leading the way.

We also have good recovery in Europe in the fourth quarter in terms of the growth. And we achieved organic sales growth of 6% and it's good to see that we have solid growth rates across all the different business segments.

And our price increases have been on par with the wage increases. And in this quarter, we achieved an operating margin of 4.7% and 13% real change in our earnings per share.

But before we look at the performance by division, let us just take a brief look also at the progress in the strategically important security solutions and electronic security business. Here we received growth of – organic growth of 16% in the quarter and reassess growth of 20%.

And we are also ramping up some larger security solutions in this quarter and just to mention one example with automotive manufacture in Germany, where we are providing a full range of protective services in one integrated solution. And but we also have a number of solutions and new solutions that we have warn and that we’re implementing with more mid-sized customers.

We also announced a number of acquisitions in this quarter and we come back to that later in the call and I would talk little bit about the importance of some of those. So let us now look at the performance in the different segments and we start with North America.

We had a very good start to the year with good new sales and very strong organic sales skills of 8% in the quarter. The customer retention is good and as previously reported, we are ramping up a few larger contracts that we started towards the end of Q4.

And the sales of security solutions and electronic security represented 16% of the total sales in the quarter, so all-in-all from a growth perspective solid performance by our North America team. If you turn to the next page, we're looking down at the margin we had a stable margin in the quarter at 5.5% and this operating profit margin was supported by higher organic sales growth, but hampered by the lower margin on some of the new large guarding contracts.

If we then turn to Europe, we are now growing at a higher pace in organic sales growth terms than what we did before. We had the increases on the refugee-related business that we started to ramp up in the second half of 2015.

And we did have good growth in almost all the countries and organic sales growth of 4% in the quarter. And the reduction of the refugee-related business continued in Q1, and this reduction represents approximately 1% negative impact on the organic sales growth, but also positive to see.

Client retention has significantly improved and we also then had sales of security solutions, electronic security representing 21% of the sales. But we had good growth in Europe in the first quarter.

We are not happy with the operating profit margin. And there are a few factors behind the weaker operating profit margin in the first quarter.

One was a weak start in the electronic security business in Turkey, and this business I should emphasize is more volatile due to the timing of the projects, and it is a temporary impact. We have a positive outlook for the remainder of the year.

The second factor is relating to unusually high sickness rates that generated higher than normal costs. And this was in a number of countries in Europe, but particularly in Belgium and in Germany.

And then the last part, as previously mentioned we did have a reduction on the refugee-related business in the quarter which also then contributed to a slightly lower margin. And if you then turn to Ibero-America, we had a good quarter in our Ibero-America division with organic sales growth of 9%.

And if you're looking at the 9% in comparison to what we had last year and this is primarily driven to by reduction in Argentina, and part of that is inflation related, and the other part is related to some of the changes in the portfolio. But we had solid organic sales growth in Spain where the team is doing a very good job and driving growth on security solution and electronic security.

And on divisional level, solutions and electronic security represented 25% of the sales in the division in the first quarter. We had good development in terms of profitability in Ibero-America improving OPM to 4.4%.

And this posted development was driven by Spain with a very good development of high margin solutions and electronic security business. But I would also like to mention that some of the solutions contracts in Spain are short-term contracts.

Argentina burdened the margin due to start up costs and some turnover in the contract portfolio. And with that, I would like to hand over to Bart for more details on the financials.

Very good. Many thanks, Magnus.

So let's now turn to some further financial details to the quarter and we start with the income statement. Of course, on this page, the same KPIs was commented by Magnus so we'll not repeat that.

But would like to mention that 2017 comparatives for the group have been restated for IFRS 15. This restatement results in a relatively minor change for the year that is a SEK 20 million increase of the operating income for the full-year.

The reason behind is that under IFRS 15, we now activate or paid sales commissions and whereas before this sales commissions were just expensed as those who are paid. But now under IFRS, we need to treat that differently that is to activate and depreciate.

So this is in essence only a time difference and it is being accounted for at the group level. In the quarterly report, you find under note number two quite an extensive overview of the numbers affected from IFRS 15.

Turning to the tax rate, the apply tax rate was 25.5 in the quarter and that number that percentage is in line with our statement from the end of 2017 that we released just after the U.S. tax reform was announced.

We will continue to assess the tax rate as more details and interpretations to the U.S. tax reform become available.

This especially related to the so-called BEAT, which is the base erosion abuse tax which we also need to further understand how that affects certain flows. You shall remember also that the 2017 group tax rate was 28.4% and this 28.4% then exclude a percentage related to the one of negativity effect from the U.S.

tax reform related to a revaluation of certainty defer tax assets which happened at the Q4. Turning to the next Page 10 and taking a look at the effects from the different currencies.

We see here that compared to the same quarter last year both the U.S. dollar and the Argentina peso have reduced their valuation against the Swedish krona quite a bit respectively minus 6.7% and minus 29%.

Whereas the euro on the other hand has strengthened quite a bit as well and the numbers mentioned here are the quarter and rates. The net effects of this on the different lines in the income statement can then be seen from the difference between total change and real change and you notice that on the sales line the net effect that is the difference between total change and real change is 3% meaning that the real change is actually 3% higher than the total change.

So the negative effect from mainly the U.S. dollar and the Argentina peso outweighs the positive effect from the euro.

And then you can see a bit of the same development more or less in line with the sales development for operating income and earnings per share, so ending up then in the real change of earnings per share at 13%. I move to the next slide, yes, we return to the cash flow and the balance sheet.

First of all it shall be noted also that related to IFRS restatement the cash flow basically remains unchanged. But that now we have SEK 400 million extra net assets compared to IFRS – to before IFRS 15.

And these are activated historical sales commissions to the extent those have not been amortized yet. We had re-cash flow during the quarter, the first quarter is always a relatively re-cash flow because of seasonality.

But this first quarter was worse compared to other first quarters. We use some cash of course to fund the organic growth that is normal especially in the U.S.

with 8% organic sales growth lever there. But then the main reasons of the weak operating cash flow is largely due to a negative impact from Easter and such mainly in Europe.

To put it simple there some of our customers did not pay or in forces ahead of month end due to Easter Friday. And at the same time because of the timing of Easter Monday we had to pay certain employee related accruals crews and VAT for instance just before that we get.

So the two effects together then the late payments coming in from our customers and the early payments because of this employee related payments and VAT then meant a quite considerable negative cash flow at the end of the quarter. Important to mention though is that in the early days of April, we had a very good cash flow and that has been confirmed now throughout also the ending of the month of April.

Just want to flag out also just to set a bit your expectation that the Q2 closing and the Q3 closing is also quite unfavorable for the cash flow because of weekend timing in relation to the quarter end, where there is always when the last day or the two last days of the month of the quarter are ending and weekend that always put some stress on when the exact payments coming mainly from our customers. As talked about before the net investments include also the CapEx for customer solution contracts that is for the equipment that we put up at customer sites when we built and provide the security solution and then going forward the total capital expenditure including this equipment for solution contracts will be approximately 2% of group sales in total on an annual basis.

I move to the next slide, and then of course you see the effect from the cash flow on the net debt, which has increased to 14.4 and that is the result from the fee cash flow of course as a result from the operating cash flow in combination and also with certain acquisitions made. As we have announced during the quarter we have made and closer to acquisitions and Magnus will come back a little bit on the nature of those acquisitions later on.

You also see here on the slide that the relationship between net debt and EBITDA throughout the years and now also the first quarter is put there as well and you could see that at the leverage of 2.4 we are still very well in line with our own objectives here and with the recent development – with development in the past. Turning then to Slide number 17, yes, we have strong financing in place.

This chart shows the maturity of our financing that we have in place and we issued now in March new €300 million bond in replacement of a bond that matured also during the month. The coupon for the new bond was 1.25%.

And we have no other important facility maturing for the period 2018, 2019 and 2020. The first maturity now of importance is 2021.

And by this I think I hand back to Magnus. Thank you.

Okay. Thank you very much Bart.

And before we open up for questions, I just like to spend a few minutes to talk a little bit about our strategy. We talk quite a lot about security solutions and electronic security.

And I felt that to provide some context, it would be good to share just one case today was an example of a solution that we have implemented in Germany. So this is going to be a video and we are going to start streaming it now.

[Advertisement] Good. I think this is a good case for a couple of different reasons.

One is that we developed a solution after conducting a risk analysis to really fully understand the customer's needs. And then we integrated a number of different protective services into one integrated solution.

What I also like and I think also from a customer perspective is that this is also something that we have been able to replicate a similar solution for the same customer across a number of different locations as well. But if I turn down to just a few comments about the acquisitions, we have announced and/or closed a few important acquisitions during the last few months, and just want to make a few comments starting with Kratos Public Safety and Security.

This is one of the top 10 systems integrators in the U.S., and with a Kratos acquisition we're able to build on the strong foundation that we have put in place in electronic security after the acquisition of Diebold in 2016. And then if you ask the question, “What will then Kratos really add?”

Well, it’s a good team, but it will also give us a footprint and proximity to the customer through the regional branch network across the United States. And other acquisition is that we have closed is Automatic Alarm.

And this is one of the leading electronic security companies in France, strong team operation and nationwide network. So I think that this acquisition will mean a little bit to France, the Diebold acquisition to our presence in electronic security and capability in North America.

It will also help to further strengthen our leadership position in the French markets. Next one I would like to cover is Alphatron.

This is also a leading system integrator in the Dutch market that will also help us to really reinforce our position as a leader in the market, but also then significantly enhancing our electronic security capability. We also made one original acquisition in the Southwestern part of Germany, Süddeutsche Bewachung, which is a company with a combination of guarding mobile monitoring, and then also Johnson & Thomson in Hong Kong, which is helping us and strengthen our electronic security capability in that market as well.

So if we continue, I think this is a picture that you have seen before about the journey that we are making from standalone services to integrated security solutions. And we continue to drive this development towards integrated solutions and we see that as – we're going towards the right in the picture, towards more integrated solutions.

We are not only making or creating better customer satisfaction and loyalty, but also significantly higher margin on this business as well. Thanks to adding more value to the customer.

And if you look down at what our security solutions and electronic security look like in terms of total figures from 2014 onwards. We have had a good development and here obviously you see that we had 18% group sales in the full last year of security solutions and electronic security sales.

And before we wrap up, as I mentioned at the beginning, we have a solid foundation and a very exciting journey and opportunities ahead. And since I started on March 1, it has been reason to also reflect a little bit about the different stages and phases that we have gone through as a company, where we are right now, but also where we are going tomorrow as you write the next chapter in the history of Securitas.

And I think when you look at this picture. We have had a clear ambition to be a leader in security services from the 1990’s onwards, something that we have also realized that ambition on a local level and also on regional and global level.

And then a number of years ago, we launched our Vision 2020 strategy and with a clear ambition of being a leader in protective services. And this has then been a lot more about solutions, about that electronic security, fire and safety and corporate risk management.

And that where it continues. I would still argue that we are in the early stages, so this is work that we have to continue to drive for the next 5, 10, 15 years in the markets.

And then obviously when we're looking ahead, we have the exciting opportunities in terms of intelligent security. And this is all about how do we leverage information to work smarter to provide better security for our customers to work more efficiently internally.

And obviously the higher that we go in this picture, we add higher value to our customers and also to our shareholders. And so I think that there is – in terms of strategy this is just to give a little bit of a perspective on where we are and where we are going, but I’m very optimistic about the opportunities that we have in the long-term.

So to wrap up Q1, it is a quarter with strong organic sales growth, 6%. Earnings per share improvement of 13%, and we continue to deliver on our strategy in terms of security solutions and electronic security, now then accounting for 19% of our total sales in the quarter.

So I think with that, Bart and myself now happy to open up for questions.

Good afternoon, everyone. Just three quick questions from me please.

Can you perhaps breakout the contribution from the large contracts in North America within the quarter, and I appreciate margins start like that. But is there an expectation to bring these contracts to the U.S.

average or these likely to be dilutive going forward as well? And second question on average price, can you perhaps give us an indication of what level you’re currently staying in the U.S., and how that's by some of the more larger states you are presenting?

And tied to that can you give us an update on your staff turnover in the U.S. as well and how that's tracking versus the fourth quarter?

And very finally, in Europe, can you perhaps help us where exposure now stands to the total refugee-related contract, and how do you see that evolving with respect to what you see as purely one-off and allow you to fade away further this year? Thank you.

Okay, thank you. I think I can start in terms of the first question with the new contracts.

Correct, the margin is – so the initial margin is lower. But our ambition with this contract is that we improve the margin up to normal levels over time.

I think in terms of the price Bart, do you want to comment on…

Yes, I think your question related to the price within the U.S. correct??

Exactly, it relates to [indiscernible] relations.

Yes, so I mean there are some statistics floating around, which shows very high increases in wages, but we don't see those percentages. We have never seen those percentages over the last 10 years and we don't see them right now either.

I mean those statistics if you look at them just month-by-month, they can flip a little bit, but the longer trend in those statistics is probably right. However, now commenting – trying to answer your question.

We do see wage increases, which are a bit over 2% right now between 2% and 3% and the price increase in the U.S. is on par with that wage increase, and that is what we see right now going on in our business in U.S.

Then of course you do see quite some fluctuations and difference between different states. In some states, it can go up to 5%, 6% and then in some other states, it's 0% and it's the mixture of all the different states where you are in and where you have the business then dictates the average.

There was also question about the staff turnover as well?

Yes, I mean the staff turnover in U.S. has been some team in the past and we deliberately took away the reporting on that because we believed there was an over focus on that number.

I mean there are many important KPIs in our business to follow, staff turnover is one of them. But we decided then to take away the staff turnover, and the development as such has been more or less in line with previous quarters, nothing remarkable either that we want to hide or walk away from.

It just that we feel it's not that relevant in view of many other KPIs that you could – that we track internally.

And then I think the last question was related to the refugee-related situation in Europe. I think to give some contacts to that we saw a very strong increases in the second half for 2015.

And I just want to mention before anything else that we have been able to fulfill many other services and that's something that we are also proud of. But if you then look at the growth rates, it peaked in 2016 and then we had a decline in 2017, and if you look at the run rate, Q1 sales around SEK 200 million, so around SEK 800 million on an annual basis, and this is something that we are expecting to decline over time.

But it's difficult to say exactly, how quickly. It depends on a number of different factors.

Some of them are not really within our control. But it's a SEK 100 million annual run rate.

Thank you very much.

Yes, hi. Good afternoon.

Couple of questions for me please. First on cash flow.

We understand Q1 has the seasonality impact, but SEK 1.6 billion cash outflow and other operational capital employed looks too high compared to any of the quarters we have seen in the last couple of years. So could you give us some color like what's happening there or where did the cash go into?

And also on the staff churn team I understand you believe that it's not an important KPI, but just trying to understand if your staff churn goes up. Isn't you’re your staff recruitment costs and training costs go up and how will that impact your margins and are there any measures you're taking to control that?

Okay, Bart here. Maybe to start with the cash flow question.

As you rightfully said, we only have some seasonality, especially in Q1 or changing all the operating capital employed is never very good, you can also witness that from last year and from other quarters before. The difference – and that is coming from the fact that for instance we pay out certain employee related accruals that are there in the balance sheet at year end for instance related to incentives, which are then paid out during the Q1.

We also pay typically during the Q1 some insurances which are then valid for the full-year and then they are paid into Q1. So that is part of the normal seasonality.

On top of that what we had this year is because of the timing of Easter and Easter was just there right in the split between March and April. We had to pay certain employee related payables, which are normal payables for the normal payroll on a certain day.

The first day of the month they need to be paid. And that was in Easter Monday then we had to pay that, made those payments before the weekend.

The same on VAT. Some deadlines that you have to respect in relation to these payments, because of the timing of Easter Monday, we had to bring those payments over to March instead of paying in the first day of April.

So that is basically what happened in the other operating capital employed largely. As to your second question, staff churn.

Well it is an important KPI. Of course, but this one important KPI probably out of 10 all those that we follow as well which are as important and that is why by only giving this KPI to you we feel that distorts a bit of total picture.

Measures taken, of course, measures taken, maybe to mention as well, if you talk to our operational people in the U.S. they would say more important than staff turnover and staff retention.

And by staff retention, we mean, okay, I had so many people employed a year ago, how many people of those are still with me. And that number has basically not changed too much to over the last quarters.

That number has been pretty stable on an acceptable normal level. So it is the people that stay for a short time with us that churn faster.

That is basically the thing. That does not have a too big impact on our quality of the services because that is of course a key element, because the people that are there a long time in place they just stay in place.

And it's them who are delivering the basic quality of the service. The measures we take of course is to increase wages.

That is one of the measures in connection to our customers also in connection to that of course if the price – wages is too high so to say for the customer, we can always offer a solution as well which is the second way of handling it in a commercial way with the customer and helps and also to drive the strategy on electronic security and solutions. I don't know if that answer your question.

Thank you.

Follow up on the cash flow thing. You have mentioned that even Q2 and Q3 has quarter endings falling on a weekend.

So given that the Q1 had that impact or reversal of the cash in the first weeks of April means that your Q2 will be normal despite of weekends falling – I mean quarter end falling on the weekend?

Yes, normally in the sense that we have recovered from the Q1 effect, the ending of Q1, but we will have faced the same effect at the end of Q2. So from that sense, we will not recover during Q2, if you then will take you to [indiscernible].

You could expect to see more recovery in Q2, but it will be pretty much a normal Q2. That is what I want to say.

Okay. Okay.

Got it. And on the wage inflation thing, I understand you're saying you were able to pass through the wage inflation thing.

But your electronics sales as well increasing which is a pretty high margin. But two, why would the margin stable year-on-year?

I understand the new contacts have come at a low margin, but that should be now very less part of your overall revenue. I mean, just trying to understand the equation there, like how much those contracts had impact on your margins?

And how much your electronic sales has improved on the margins?

Well, we have basically scene a normal development and normal contribution from the electronic security and solutions, so nothing new there. Yes, the two or the couple of – basically two large contracts that we started in Q4.

In Q4 we were hampered a bit from the start up cost, but we also commented then that these contracts as they are so sizable. They will impact the margin a bit negatively as well.

So they are below average margin. The reason so then as that – as those contracts will run, we will then improve the margins along the contract duration, basically it means that become better at planning, less overtime, less idle time also the training cost will reduce over time, typically they higher at the start of the contract.

So that is why overtime these contracts should improve their margins. I cannot give a specific timing on that.

I understand. Yes, okay.

Thank you. Thanks a lot.

Hi, good afternoon, I’ve got three areas of questions please. Firstly starting with the organic growth in North America in Q1.

So just understand the sequential movements from six to eight, they had one extra month from the large contract. You said they have some extra sales in Q4, which they haven't necessarily repeated.

So those kind of extended further, and then maybe the final bucket in terms of the price and what has happened to pricing Q1 versus Q4? And then I'll take the other one faster, thank you.

I can start – Magnus here, I’ll make a few comments. So we do have all-in-all a strong activity overall across all the different areas over North America business and so that is in the grading side it is in the different areas of business.

So it is a very strong quarter from a general perspective. I think Bart maybe do you want to comment on some of the sequential change or you able to give some more granularity.

Yes, as commented in Q4 was held by some extra sales in U.S. coming from the.

Hurricanes, if I remember well and there were no hurricanes now in Q1, so no effect from that. Then the two large contracts were ramping up during Q4.

So we did not have a full impact during Q4, but now they had the full impact during Q1. I think that that is on that.

And then on the price, yes we commented that the price increase at this point in time is around more than 2% between 2% and 3% and that is also of course included in the organic growth.

Great, thank you. On the price increases, do you feel that as you kind of coming through just because the comments on the front page in terms of that being a focus again for Q2.

Do you have – have you increased prices for more than one quarter of declines that you wanted to increase basically or is it the same proportion as we go through the year or have you disproportionately already managed to increase prices, kind of early on in Q1? Is it going to get easier as we go through the year?

So one comment is that we are quite happy with the way that we have been able to balance prize and wage in the first quarter. And I think we also have a strong track record overall of making that happen.

The ambition of course is that we continue to do that as we go forward as well. But then there are always differences between the different regions and also between countries in terms of the timing.

And so some of this work will continue in the coming quarters, and then in some specific cases there could also be other factors that would trigger and to look at price increases, and those could also be regulatory changes et cetera as well. So I think that is the high level context in terms of where we are with important price which balance.

Just a very quick follow-up on that. By region – broad region where you matched and where you not matched running ahead?

No I don't think we comment on specifics, but in general we are in good shape. We have done a good job in Q1.

Okay, great. Thank you.

And then just two very quick one. So Europe excluding fixed pay which seems to be the only kind of one-off item perhaps in the quarter, would you have the flat margin in Europe and then would you expect for the rest of the year?

And then lastly just on the electronic solutions, should we assume that you’ve got 10% on the key space shown and would that imply and the rest is around 4% now as we see the split today, is that the right way to think about it? Thank you.

Yes. The reason that we called out the higher than average costs related to the rates is that they were unusually high in the quarter.

And there is – when we're looking into some of those there is a certain seasonality as well depending on the time of the year. In Europe as well one of the other impacts of course was weaker start in the electronic security business in Turkey.

And then I think that third one that we have commented earlier as well is revenue related decline, where it is approximately SEK 100 million less compared to Q1 last year and the first quarter.

And those three reasons are about equal in size you could say. And if you mention the reason normally it has to be around 0.1 before we mention it.

Great. Thank you.

Yes. Hello.

Two questions. First on the European margin, you are mentioning the overcapacity or the loss of refugee related sales and the higher – and Turkey, but if you look at this from a longer perspective, I mean, the worst margin in seven years and you've managed to increase the share of security solution and electronic security.

So is the main – I mean, is the main thing here still price pressure on the three traditional man guarding is that the main – if you let – look at this from a longer prospective?

Yes. I think when we – I mean first of all we have continuously invested quite a lot in the strategy and we continue to do that in Europe as well, so that is one.

When you look at the growth of solutions and electronic security that is growing at the healthy pace and it is also adding margin as we have shown on the gross margin, operating margin basis. So I think that it is a combination of factors, but having said that I mentioned earlier as well.

Q1 it is a weaker quarter than. We are not happy with that operating margin and that’s obviously something we are working to also recover as we go forward.

Okay. And just a follow-up on the earlier question regarding the price and wage balance.

Is it fair to assume that the majority of the employees get their salary increase in the beginning of the year? So the toughest quarter in terms of this equation is the first one.

Yes. That is correct.

The first quarter is the toughest one. The second quarter is also still on a reasonably high level, so by midyear normally we get a good few on the total year.

That is how it works. But the larger part is Q1 and then also quite sizable part Q2.

And just adding one comment to your previous question, what you should also consider and what we have missed out a bit maybe on the outset also the strategy is actually that the guarding is growing very fast as well. So we do see good growth in electronic security and solutions.

Yes, absolutely, but in nominal terms the guarding is growing faster if not more. If you look at the longer term perspective there on one of the slides, I mean we have grown the electronic security solutions with SEK 10 billion from SEK 6.5 billion to SEK 16.7 billion, but the guarding in the over the same period has grown from 64 to 76.

So in nominal terms that has even grown faster, so that is also a little behind the whole equation – sitting behind the whole equation on the margin question.

Okay. Thank you.

Thank you. Two questions for me then.

Sorry about being on this thing with the French increase. But coming back to the U.S., I guess, European side, you have labor agreements for most of it.

Looking at U.S., you're saying 2%, 3% wage increase at the moment. What is your ability to actually go back to clients during the year if this ends up being higher as we move along into 2018?

Let's say, it moves up to 4%, 5%. You have very employee turnover as well.

What is your opportunity there? Do you have a possibility to push that if that were to happen?

Or is that something we have to be aware of if it happens?

Yes, so the dynamics are little bit different like highlight Stefan in the U.S. It is a more dynamic and more flexible market in that sense.

So when we do see that there is for example a trigger of employee turnover increasing there will always be a discussion also then opportunity together with the customers to also then do adjustments. So I think that the capability to your question, if wage increases at the higher pace is pretty good for us in terms of then also being able to balance that.

Okay, thank you. My second question comes back to, I think, most people touched on it on the technology side.

I mean, you show on your slide there that you got from 9% to 18%, or you said 19% even of group sales. But that's a 10% increase.

And then you said the margin is roughly 6%-ish point higher. I mean, over these years, I guess, your margin on the group level should have increased roughly 0.5%, and it's actually flat in that period.

So, where do we actually see that this is materializing? Or when do you think we will see it on your accounting and also in the U internally?

Yes, I think I can make a few comments and also for Bart later on. And it is also important to recognize the fact that we are winning quite a lot of business.

Also thanks to the strategy in the direction that we have. So I think that this one important aspect in terms of us believing that we are growing faster than the market.

But we're also investing, and we continuously invest also in advancing our positions to make sure that we're able to lead the development in this market because we see not only that margins will come up in the long-term, but we also have customers that are more satisfied and also a lot of data points that indicate that the customers are also – thanks to be more satisfied also staying significantly longer with Securitas as well. So I think that those are the major points.

Bart do you want to make any other comment on this question?

I think it's also valid to comment that if you look at the U.S. where things are just more scalable from an implementation perspective that there we have seen the margin expansion and then there are million other reasons of course also explaining the margin.

But in U.S., in North America we have seen the margin expansion. In Europe, we have been a bit distracted also by the whole refugee situation, which has also caused it and burned a lot of management time and resources and we are recovering from that as well.

And as well in Europe, I mean the implementation is a little bit less scalable compared to U.S. In U.S., I think I've commented before, you make one major big acquisition and now we add a second one and you really have a sizable platform.

In Europe, we need to go country by country to find those targets just as an example and doing a small acquisition or a large acquisition just takes the same amount of time almost and resources. So that's a bit sitting behind your question.

And then of course, we have seen that the guarding has been growing as well, and yes, there is some margin pressure on the traditional business, yes we should see that as well.

Thank you. What you're saying is that we most likely will see some positive effects on the margins from this as we go forward?

Well, you know that we don't guide you for the future. So you have to make up your own conclusions here.

Okay. Thank you.

Thank you.

Good morning, guys. Just a couple of clarification questions from me.

I mean, so to go back on the point about the migrant work in Europe. I just want to understand this correctly because you are a member back in 1Q 2017.

You had this work declining, margins and once, you were falling about at 10 basis points. It sounded like listening to the transcriptions since second half of last year, there was a bit of overcapacity, this was basically been addressed and ultimately you're happy with where that were.

Well, that was sorry. So I guess there is no overcapacity issue, that you largely addressed, I'm surprised there's quantum of material drag here, could you maybe just provide a little bit about where we are in terms of what is actually dragging it?

Is it the fact you're still got overcapacity that you're happy to run with that management decision and how we should think about that being – the timing of that being removed? And then secondly, just a quick cover question.

You mentioned, I think, in your comments around Spain, you had some tech solutions contract that was shorter term in nature. I just wondered what the background is – the flag in there?

I mean are you highlighting the fact that there was some short-term growth and margin uplift from these that may drop away the share? Just any background there would be helpful is to make sure we capture this now in a model moving forward?

So when you look at the refugee business, like I said we peaked in 2016 in terms of activity where we have been doing a lot in many different countries across Europe. When it come into 2017 there was a significant reduction as the situation somewhat normalized.

But we have still kept quite a significant activity in a number of countries. And that run rate that we mentioned now SEK 200 million in the fourth quarter, so that obviously that indicates around SEK 800 million on an annual basis and that we do expect will decline over time.

To your question about the overcapacity, this is something that we always have to watch country by country and situation by situation as well. It's – in a sense, it is to ramp business up.

But if you look at Europe in general, I would say that we have taken specific actions in specific countries that this is needed, but we also have a number of countries that are in good shape and now normalized. In a sense when you look at the impact of the ramp up and also then the ramp down of the refugee related situation.

Right. Just to make it right – do we expect that this overcapacity issue relation to the migrant numbers will continue through the next two, three quarters of this year?

Well I think, I mean you know that we normally don't guide on the margin, so this gets close to that. It's not on the same extent as it was last year.

I mean last year we commented on the overcapacity then also the drop was more heavy than this year, so this year it's more part of okay, it's 1% for the total division which is important, but it's not on the same level as it was last year. So it will not help the margin in Q2 really from that perspective, but it's not comparable to last year.

Okay. Thank you.

And then on the Spanish tech solution question?

Yes. We had some short-term contracts there.

I mean contracts which were short-term in nature. They were not so much behind the growth.

I mean they are included in the growth, but these are very small contracts. I said those quite profitable contracts as well.

And those are short-term in nature, so the moment that those short-term contracts would reduce then of course that could affect EBITDA margin. So it's like alerting that the improvement that we see in this quarter could be hampered when those short-term contracts fall away some of them.

And is there anyway you could quantify that in terms of helping us over the next couple of quarters when they potentially fall away?

Yes, I mean as you say, we alluded that there was short-term in nature. So if we do that it's normally point one.

Okay. Thank you very much.

Good afternoon. Thank you for taking my questions.

Firstly on the solutions business, and thank you very much for providing organic growth in details per division there. It's very helpful.

Organic growth was 60%, it’s fairly flat year-on-year. Is this level that you're relatively happy with or what is your ambition for this segment going forward?

Magnus here. I mean this business we're growing and we're building this for the long-term.

And we started this journey a number of years ago, but we still have a lot of opportunity left. So I think that we don't really specify a specific number in terms of the target and where we want to grow it.

But if you asked a question, “Is there a lot of opportunity still out there?” Yes, absolutely.

So we know when we have a lot of validation from the customers and the solutions that we have implemented with customers that this is definitely something, which is important today, but will also be very important in the future. And then I would also say from a customer perspective, the adoption curve differs quite a lot as well based on what the customers – what they – how they look at the world.

Some people are saying, “Yes, this is the future, but we are not really ready yet.” Some others are really driving the development together with us and I think that that's also kind of normal adoption behavior over time as well.

But we do say that there is significant opportunities for us here in the mid and the long-term.

Okay, and on that subject also, do I understand correct that the margin accretion you achieve from the higher contract margin in this Solutions business is basically being reinvest to add the amount of initiatives and add further growth of that segment. Is that a fair way of looking at it?

And is it possible then to talk about a point in time where you see these investments, if that is a correct way to view it when you see these investments sort of leveling out?

Yes, it's a fair point that we continue to invest in the execution of the strategy as we work on and we will continue to invest as well and even as Magnus also set into the next part of our strategy and to what shall happen beyond 2020. So we are here for the long-term.

And so it is the right conclusion that you're making there. I don't think we want to make a reflection on the point in time what should happen when exactly.

But of course at the end of the day the goal is there to expand the margin.

Okay. And two more question for me please.

In Europe, did the sickness related issues also negatively impact your ability to deliver services and thus hurt the revenue in the quarter, was it only cost related?

It was primarily cost related.

Thank you and one last on the U.S. organic growth.

Did you have a step up in the start up of contract in Q1 compared to say the first three quarters and in 2017 or is the growth accelerating primarily related to the large contract started in Q4.

I mean the acceleration is coming from this larger contract. But we do have a very good activity and baseline of good growth in the U.S.

Okay, thank you very much.

Hi, just one quick question for me if I may. You talked about the impact of currency on revenues and EBIT during the quarter.

And Swedish Krona has been very weak relatively [indiscernible], if you mark-to-market with current or recent rate, what would the impact for the full-year be please?

I haven't really calculated or I do not – we have calculated it. But I have not have the numbers right with me right now.

But as you said, the effect ramped a bit up and then both the dollar and Argentina peso and Euro moved quite a lot during the quarter actually. So based on that you could say it then depends on how they will level out actually between the two, between the U.S.

dollar and the Euro as they are moving in opposite directions right now and that is extremely difficult to forecast. So I think from my guide is the best guidance right now is what we have seen in Q1, everything else this is more or less speculation or the foreign exchange rates will develop.

But if you assume the rates, which is going to stay where they currently are, so – now kind of forecasting or not, what would be the impact do you think on those metrics?

Yes, I mean where they currently are we have don't have – we haven't made the mathematics I mean on the exact day here today we have made the mathematics. But yes, so many moving pieces in there so as I said they are outweighing each other a bit and the net will really be what the difference is between the two, U.S.

dollar versus Euro.

Okay. Thank you.

End of Q&A

Yes. So thanks a lot everyone for participating.

We have to wrap up. We have an Annual General meeting, which is starting shortly.

So thanks a lot to all of you.

Thank you very much.

Thank you, bye.