Securitas AB (publ)

Good afternoon, everyone and welcome to our Q3 call. I'm here today with our CFO, Andreas Lindback to share some of the highlights of the business in the third quarter.

We continue to execute on our strategy, and this is generating results. The work we have been undertaken during the last 18 months to sharpen the business together, reform execution of the transformation programs is resulting in a stronger business.

And we're now delivering an operating margin which is well above pre-COVID levels. The organic sales growth in the quarter was 4%.

We are winning more business at stable or improved margins versus last year and the improving sales have helped offset the reduction in Corona-related extra sales. The operating margin improved to 5.9% and this means another quarter with substantial improvement not only versus 2020, but also in the same period of 2019.

The operating margin was supported by strong performance improvement in all business segments. We are on par in terms of price wage, despite the more challenging environment and we continue with strong focus on portfolio management to ensure a healthier portfolio across all geographies.

Growth in Solutions and Electronic Security was 7% in real terms and we're actively working to rebuild momentum as the situation normalizes and face-to-face client engagement is possible again. We also had good cash management and we generated SEK 1.2 billion operating cash flow in the quarter.

And turning then to the performance in the different divisions. And as is customary, we start with North America.

The organic sales growth in North America was 1% in the quarter and this is the result of some positive developments and some factors that negatively impact the growth. And looking at the Guarding part of the business Q3 and Q4 2020 were the peak periods in terms of COVID extra sales and towards the end of the third quarter this year, we are now back at pre-COVID levels in terms of extra sales.

And this has a temporary negative impact on the current growth in Guarding. But having said that, the underlying portfolio development is very healthy and this despite the earlier communicated termination of an aviation contract that burdened the quarter.

And looking at the other parts of the business, we see gradual recovery in Electronic Security despite some supply chain issues and solid growth in Corporate Risk Management. But also as outlined in the report, USD 150 million contract in the US will be terminated in December.

This contract has below average profitability. But as commented, we have good new sales activity in Guarding, but given the size of the contract, this termination will have an impact on the top line in the coming quarters.

By turning then to profitability in North America, we are very glad to report the second consecutive quarter with operating margins above 7% in North America. Strong performance in our Corporate Risk Management business and Electronic Security were important contributors to the positive development.

And we had stable margins in Guarding, despite lower extra sales but positively impacted by the recovery in the permanent portfolio. So in summary, continued solid development in terms of profitability in North America.

Switching then to Europe, where we had very good momentum in the third quarter with strong growth in many countries. Commercial activity is healthy and we're winning business with good margins.

Aviation demand improved significantly, but we continue the work will be reviewing all the contracts to ensure a healthier aviation portfolio as the market is improving. We're seeing some negative impact on installations related to component shortages but commercial activity and sales of Security Solutions and ES improved during the quarter.

And looking then at profitability in Europe, Q3 was a strong quarter with 6.4% operating margin and a clear improvement also when comparing to pre-COVID years. An improved business mix, the cost out programs that we have initiated last year, COVID extra sales and improved profitability in aviation contributed to the positive development.

So, all-in-all, very strong performance by our European team. And shifting then to Ibero-America, we continued on a positive curve and the growth of 10% was primarily driven by Spain and improvements in Latin America and growth in Argentina.

And mind the divisions, Ibero-America has also now leading the way with Security Solutions and Electronic Security that now represent almost a third of the sales in this division. The Techco acquisition that we finished in Spain at the beginning of last year has strengthened our offering and momentum in the markets.

And looking at the margins. We have made a step change in terms of profitability in the division during the first three quarters of this year.

The operating margin of 5.9% is one of the highest recorded and we are receiving that in challenging market conditions. And as in previous quarters, Spain is the main driver or the positive development, thanks to leading offering and solid work by our team.

Also very good report significant profitability improvements in Latin America. And I would highlight on this occasion, specifically, Peru, where we have taken actions to refine the portfolio and reduce cost under new leadership in the last 18 months and now clearly moving in a positive direction.

So all-in-all, another solid quarter by our - Ibero-America team with significant margin improvements. And now glad to hand over you - to you, Andreas for a few more details regarding the financials.

Thank you, Magnus. First of all, it's very good to meet all of you here for the first time, of course.

Just a short background before we get into the numbers related to myself. I've been with Securitas for 10 years now in different financial M&A and leadership positions.

And most recently, I was based out of Singapore to lead our EMEA business over in Asia, Africa and Middle East. I'm obviously very excited to start a new role here and actively drive the transformation journey that we are on together with Magnus and all the Securitas teams.

So at the same time, of course also to manage our financial development and position. And last but not least, we're obviously reporting well out to all of you here as well.

Going then into Q3. As Magnus mentioned, we do have a strong quarter and we are also performing well year-to-date.

This is true when comparing to 2020, but also when comparing to 2019 before COVID-19 started. We have successfully focused on profitability and cash flow throughout the pandemic and this will continue to be important focus areas for us also going forward, together of course with the execution of our transformation programs and growth of Electronic Security and Solutions.

Going into the income statement. The operating margin in the quarter was 5.9%, that is, 0.9% better than Q3 in 2020, which was negatively impacted by the COVID-19 situation.

It is also 0.3% better than 2019, confirming here really that we are going in the right direction. I should mention from the start here, that the provisions taken in 2020 were untouched also in the third quarter.

The operating income has in the quarter been supported by SEK 100 million of Corona-related government measures. And these measures partly offset the increased cost levels we have from idle time related to temporary unemployment.

So it is important to highlight here that we have additional cost partly compensated by the government measures. Comparing to both previous quarter and Q3 last year, we see a decline in the government measures overall.

Both in Q3 last year and Q2 this year, the amount here was around SEK 200 million to be compared to the SEK 100 million that we had in this quarter this year. This is also in line with us having a reduced number of people on temporary unemployment, which now in October is approximately 800 people, and that should be compared to 2,000 people we had on temporary unemployment in July and 4,000 here earlier in the year in January and 10,000 people at its peak here in April 2020.

Then moving to the line acquisition related costs. No major movements here, the cost we have for the quarter is related to transaction costs for the announced acquisitions in the quarter and integration cost of acquisitions we have made earlier in the year in previous years.

Looking then to items affecting comparability. Here we had SEK 100 million of net cost in the quarter.

SEK 35 million of this was related to the C-19 cost saving program and SEK 199 million was related to our ongoing transformation programs. This totals to SEK 234 million.

And I will come back here with some more details on these programs shortly as well. However, in the quarter we also received SEK 114 million from the AFA Insurance Company in Sweden.

This is a non-recurring repayment of historical premiums related to the AGS Group sickness insurance we have in place. So in essence, a non-recurring income.

We should also say that these payments have been distributed to all Swedish companies covered under the AGS, not only to Securitas. So this has been accounted for as items affecting - comparability and to ensure we have comparable figures in our operating result as it is a larger and non-recurring payment that does not really belong to the quarter nor to 2021.

Looking at the financial net. Here, the net cost was SEK 96 million in Q3, a reduction compared to SEK 101 million last year in - in Q3.

This is mainly related to lower interest rates and lower exchange rates. And for the full year here, we will likely land around SEK 400 million on the financial net.

Looking at the tax line, where the full year tax rate is estimated to 27.0%, compared to the 27.4% we had for the full year in 2020. So basically no changes here versus previous quarters.

The 27.4% from last year was affected by non-deductible expenses from the exit program that we executed on last year when we left several countries. As you know, there are also discussions ongoing around an increased federal corporate income tax in the US.

And here, of course, we are monitoring this closely and we are preparing for different scenarios. But today it is also too early to say what the outcome will be.

On the next slide, we have some further details related to the different programs that we are running under items affecting comparability. So far this year, we have accounted for a minus SEK 629 million in items affecting comparability related to our programs.

Then we have the effect in the quarter from the AFA repayment that I mentioned earlier of SEK 114 million, which makes - and this basically makes the net cost year-to-date minus SEK 515 million. For the full year here, we expect to land at a range between SEK 750 million to SEK 850 million net of the AFA payment that we have received.

So somewhere between SEK 235 million to SEK 335 million for the last quarter. Looking at the first two programs related to IS/IT and North America on the top.

Here we are on track to finalize both programs this year, and more into optimization focus and really focusing on benefit realization next year. And we expect to land within the announced total of the program since the start of SEK 850 million.

If we then move to the C-19 program, combined with our exit program. This program is moving on well, unless you know, we have kept this program open a bit longer than expected due to the uncertainty around COVID-19.

As temporary unemployment is going down, our ambition is now to close this program and over the fourth quarter and we expect to land at the higher end of the range of SEK 450 million to SEK 600 million in terms of total cost for the program. Moving on to the transformation program related to Europe and Ibero-America.

This program is now speeding up in its execution and Magnus will come back here with the major objectives and deliverables within this program later on. The total program cost is SEK 1.4 billion, and that is equally spread over 2021, 2022 and 2023.

And this story still remains intact, perhaps a little bit less this year, which would then go into 2022. So in essence here, we are closing all outstanding programs this year with the exception of the business transformation program in Europe and Ibero-America and we plan to have a total cost in 2021 related to items affecting comparability of SEK 750 million to SEK 850 million net of the AFA repayment.

If we move into the next page. Here we are looking at the currency impact for the quarter.

Overall, we still see a negative impact coming from FX, but the negative impact reduced compared to previous quarters for us. So in the quarter, sales was impacted minus 2% from currencies as you can see here as the difference between the total and real change.

The impact is a bit higher on the operating result at minus 3% with similar FX also to our earnings per share. So if we look at the earnings per share, the EPS adjusted for FX improved 28% in the quarter, and the EPS adjusted for both FX and items affecting comparability improved 26%.

Looking at the year-to-date numbers, we see a stronger impact from the currency, where sales was impacted minus 7% and between minus 9% to minus 10% further down in the income statement as well. We then move to cash flow.

We had a - Q3 was good from a cash flow perspective for us. The cash flow from operating activities was SEK 1.2 billion in the quarter, or 75% of the operating result.

And this is a good cash flow considering all stuff in Q3 paid approximately SEK 600 million of the COVID-19 government relief measures that impacted us positively in 2020 related to payroll tax and VAT payments that was deferred during 2020. Here, we will also pay another SEK 600 million which is the final payments during 2022 at the end of the year.

We had a slightly negative impact from account receivables in Q3. Collections were good, DSO was stable, but obviously we had some - we also had 4% growth in the quarter here that is impacting the cash flow related to receivables negatively.

Comparing to Q3 last year, we should remember that we have very strong comparables here, where organic sales growth was flat last year and we had approximately SEK 400 million in positive time impact from the government measures in North America and Europe that I referred to earlier. We also were negatively impacted this quarter by payroll timing in North America, which more or less explains the remaining difference that you can see here between the quarters in other operating capital employed.

The payroll timing in North America I should say has no effect year-to-date, nor for the full year. So this is more related to the individual quarter of Q3.

Looking at the year-to-date cash flow, our cash flow from operating activities was SEK 3.4 billion or 79% of the operating result. And here, the comparable number for 2020 was impacted SEK 1.3 billion positively from the government support measures related to C19 as I mentioned earlier.

The CapEx was close to SEK 2 billion year-to-date, and it's trending a bit lower than 3% of Group annual sales for 2021. And that CapEx numbers also including the leases for IFRS 16.

So lower financial net paid year-to-date due to lower interest rates and higher current taxes paid due to the increased profitability leads to free cash flow at approximately SEK 2.2 billion for the first nine months. We then go to the Slide on net debt.

So the net debt ended up at SEK 15.6 billion, which is up SEK 1.3 billion from the opening balance, but also unchanged compared to the previous quarter in Q2. We had a positive free cash flow as I mentioned of SEK 2.2 billion.

And then we have made acquisition payments of SEK 1.1 billion which is mainly related to the acquisitions of Protection One in Germany and Tepe in Turkey that we have announced here during the quarter and also related to the Brandteknik acquisitions earlier in the year in Denmark. We paid SEK 568 million in items affecting comparability so far this year, and in Q2, we paid the annual dividend of close to 1 - SEK 1.5 billion.

So all-in-all, these combined effects increased the net debt with SEK 756 million and then there is a further negative effect from revaluation and translation ending the net debt of SEK 15.6 billion. The net debt in relation to EBITDA is on 2.1, which is really putting us in a strong financial position overall to continue our investments in our strategy both organically and via acquisitions.

Moving then on to the next slide and looking a bit at our financial position and debt maturity shot. So first of all, our rating was confirmed earlier in the year to BBB with a stable outlook.

And we have good liquidity in the quarter with SEK 4 billion in liquid funds. And as we have earlier said, we have also renewed the RCF which is our facility with 10 core banks for a total of SEK 9.6 billion.

So the - originally this facility was for five years, we have extended with one year to 2026 with the option to extend for another year. And I should say here also that the RCF is full undrawn at this point in time.

And as you know, since earlier, we have no financial covenants in any of our facilities and nothing has changed there in the quarter neither. So as I said, based on a strong balance sheet, net debt to EBITDA of 2.1 and with our solid financing in place here as well, we believe we are in a really strong position here for the future, and also in a very strong position to continue investing into our strategy and accelerate the transformation.

So with that, I can hand over to you again, Magnus.

Very good. Many thanks, Andreas.

We feel confident about the work we're doing across the company and the actions we have taken or become investable in improving profitability. But before we open up to Q&A, I would like to provide just a brief update as Andreas referenced related to the transformation programs.

And this is an overview of the transformation programs. And as is visible in this picture, we have been and we still are in a period of extensive transformation and modernization.

But a few important messages here today, and one is that we are progressing according to plan with the different programs. And the second message is that, we will finish the first three programs as outlined in this picture at the end of this year.

So that's the global IT program, North America business transformation and then the C19 and Market Exits initiatives or decisions that we took last year. So those we have finished at the end of this year.

Now with the programs in Europe and Ibero-America, we are completing the modernization and transformation journey that we initiated across the company two years ago. And we are at an earlier stage with this programs, but the work is progressing according to plan.

So with that, we can sum up the quarter. We continue to execute on our strategy and have delivered a strong performance.

We're sharpening the business, we're managing the remaining effects of COVID and we're seeing positive development in our Solutions and Electronic Security business. But this remains a clear focus area to further accelerate momentum.

Commercial activity is improving together with new sales, but uncertainty still remaining related to the Corona pandemic. And we also had labor shortage and wage pressures that we have to manage.

But having said that, we have a strong financial position working with clear priorities as we are entering 2022. So with that, glad to open up the Q&A session.

Yes, thanks for taking my questions here. I have a few actually.

And maybe starting on the price wage mix. I was just curious to see in your discussions with your customers.

I mean, it's not a Securitas phenomenon that we see inflation trends right now. So it would be interesting to see how receptive are the clients, the customers today in light of what is going on from a macro perspective.

Is it may be easier to get this through now? Or is it always the same branding as normally?

Second, looking at your Electronic Security pipeline. From an organic perspective, can you comment a bit on how you see this trending now and what we can maybe expect in the coming quarters is to gradual pick up or we - or is it still a bit lukewarm in the wake of the COVID-19?

And just starting on those two. Thanks.

Thanks a lot, Viktor. On price wage, yeah this is an important moment, because we obviously see similar message that you referenced in terms of inflation, but there is also labor shortage in a number of key markets.

I would say that, in general, I believe that the awareness and the understanding is high. So when we are discussing this internally, and also taking that discussion that I'm part with some of our larger clients, I would say that they are quite receptive.

But it's always a situation where we're working client-by-client. But to be clear, I believe that with the kind of the context that we have, this is an area where we have to be really aggressive in terms of the position that we take going into 2022 in light of the environment, we want to pay our people well, we stand for quality and that also means that we want to be competitive both in terms of recruiting but also of retaining our good people.

But generally speaking, I would say fairly good in terms of being receptive to the environment that we face ourselves in. And there are differences when I look at the markets, in North America, usually more of a dynamic environment where we would then be confronting situations if we see that we are not competitive, we would address that depending on what region we are and also in each individual client discussion that work we are doing continuously and I would say that the rate recovery there has been good.

In Europe, obviously more of an annual cycle, you have collective labor agreements, et cetera that would also influence quite a lot. But also with our European team, they are also fully focused and they also see the picture that we have now and we believe this is extremely high priority going into 2022.

We have a good track record in terms of how we manage and most important for us is that we have good quality in terms of each and every contract. And that also means that we're taking quite a forward leaning stance in terms of really driving rate recovery and price increases so that we can continue in a positive way in terms of recruitment and also retaining people.

Looking at the second point, Electronic Security in the pipeline. I would say that we are seeing a gradual recovery of the demand.

It is not the fast recovery, it's still a little bit tentative after COVID. But that's something that I would expect should continuously improve.

We have fairly healthy metrics in terms of key metrics that we are tracking with order entry and backlog in this part of the business. So here obviously, looking at continued recovery in the quarters to come.

One point that I've highlighted in the report as well is that, there is also some impacts from some of the component shortages. And I think that is something which is affecting everything that has any type of technology dependence and that is also something that we are working through internally together with the clients, but also given that we have quite significant scale as well also with key partners or suppliers and to make sure that we can mitigate that as well as we possibly can.

But I would say, tentatively positive in terms of the continued recovery when I look at the broader picture.

Okay, thanks. And then maybe relating to that you mentioned on the component shortage, and I suspect, I mean, you have your 2023 targets of reaching hopefully SEK 40 billion of revenue by cocktail over organic and acquire growth, but now in the midst of this component shortage, this is more difficult, would you say to have M&A discussions given the landscape and uncertainty on you know for costing, et cetera.

So is that potentially something that hamper your discussions as to where you are now?

Not in terms of M&A activity. I mean, we are working with a structured target list in terms of ideal acquisitions that we would like to make.

We continue that work and there is quite a lot of activity I would say in general in the market. So the acquisition side, I think there is more a matter of us being able to find the right targets and also then a willingness obviously for some owners to also sell.

But I think that sounds that we work in a structured way, it is a very important part in terms of achieving the 2023 ambition.

Super. That's all from my side.

Thanks.

Many thanks, Viktor.

And my first question is on North America, given that you've delivered a margin above 7% in two quarters this year, would you ever revise up your target for 2022? And then secondly, in terms of your own employee turnover, how has that trended over the course of last year and this year, please?

Thank you, Kate. Well in terms of 2022 and the target, we set that targets back in 2018, beginning of 2019 in terms of the margin improvement that we would like to achieve also then to further strengthen the case as well for the transformation program.

We are on a good path in terms of the progress there. We don't give guidance.

I mean, for us, it's most important number one that we deliver on what we said, and then preferably a little bit more, of course, that would always be the preference. We will not stop.

But then I should also say that in our business, there is also a bit of seasonality as well, if you're looking within a year on the four different quarters that we operate. So I think that is also something which has an impact in terms of operating margin patterns over time.

But generally speaking, we are on a good path in terms of the margin development when you're comparing Q1, Q2 and Q3 in 2021 versus also then 2019 and 2018. So pre-COVID years in North America and on a positive path.

If you're looking at the turnover, the turnover is actually fairly stable compared to last year. But quite a number of different factors, obviously affecting the overall labor markets.

I think what has helped us in 2020, but also in 2021 in North America that we usually pay above the market rates, we usually have a handshake as well and part of our offering to the clients is better quality, better offering and also ability to offer a better team or a better people essentially to the clients. And I think that is something that has also helped us even though there has been quite a lot of turbulence in the market in 2020, but also in 2021.

But the simple answer is fairly stable when you look year-on-year.

Excellent. Thanks so much.

Hello, thank you. So I have three questions if I may.

Firstly, can you just talk about the incremental gross margin you have some of the renegotiated contracts which you're doing using big commercial momentum? That's the first question.

Second, could you just quantify given you're focusing more on pricing than volumes? Are there any other contracts at risk we should be aware of due to your termination going forward as well, please?

And my final question is in terms of your labor scarcity in North America which you referred to earlier. Did some of the federal programs been coming to end?

How you're seeing basically you know talent application tools in North America developing [technical difficulty]? Thank you.

Thank you, Rahul. I did not capture the first question on the gross margin.

I heard you mention gross margin and the contract. Can you just repeat that quickly, please?

Yes. So basically so just wanted to understand the increment gross margin on your renegotiated contracts.

Basically you know what kind of dynamics are you looking at given the increased focus on pricing you're seeing there?

Understood. Yeah so when I made the reference a couple of times earlier today that we have, we're winning more business and also then at the improved margins, that essentially means that the business that we are bringing in this year, it's more volume compared to last year, but it's also higher C - what we call [indiscernible] to our gross margin metric.

And I think that is a very important question that you bring up and that's something that we are looking at in each individual contract as well to make sure that we are consistently working with diligence and real discipline in terms of essentially creating a higher quality portfolio over time. And that has been, we don't go into details, but this is obviously one driver behind improving profitability that you see across the Board.

We're working very actively with portfolio management of existing contracts, but also very focused in terms of what is the quality of the contracts that we are bringing in to make sure that there is incremental improvement in those as well. So I think that is, the short answer is, yes, there is improvement also in terms of the gross margin models.

To the second question about, and that is also related to portfolio management and we are focusing, 100% correct. The first priority for us is quality of the portfolio and that means, good or decent or very good profitability.

We are investing quite a lot in the business. We are also then expecting with the transformation program investments that we are making that we become more efficient in terms of how we run the operations, but also enhancing the offering to our clients.

So there we are taking a very disciplined approach and I think it's also the only really sensible thing to do in this type of environment. We're talking about labor shortages and we're talking about wage inflation.

We want to pay our people well to be attractive to be the most attractive company in the industry. The clients, most of the clients also get that and understand that and I think the clients who don't, well there we need to have a tougher discussion to see either we renegotiate or we convert it to more of an integrated service contract in terms of Solutions.

And if that doesn't work, then we will terminate. But I think one thing that I would highlight is that, the contracts that we are looking at now in North America, this is not the norm.

The aviation contract was a very sizeable one, the one that we are announcing that will terminate in December, that is probably the largest local contract that we have anywhere around the world, but a below average margin contract. So, yes, a little bit painful in terms of growth in the short-term, but fully in line as well in terms of improving margins and value creation over time.

And then I think the last question that you mentioned was about the labor scarcity and the talent tool. We have seen some improvement and I know we discussed that also in the last quarter after the federal subsidies were discontinued in September this year.

But we're still seeing a market where there you know, there we have some open positions and this is something that we need to work very actively with. And I foresee that that will be the case as well in the months to come.

So we'll see some improvement but active work required and that, again, reinforces as well, the comment that I made earlier in terms of also making sure that we are also working actively to ensure the strong price increases so that we can also remain very competitive in the market.

Understood very much, thank you.

Thank you.

Good afternoon. Thanks so much.

I have three questions related to the US, just overlapping on some of those points earlier. Just to be clear so the healthcare contracts that you - that you're shedding from the beginning of December.

So was that lost due to KPIs or a retender? Or did that price wage discussion become a factor in that dialogue?

Secondly in the States, are you seeing a change in the competitive behavior of Allied has integrated the G4S acquisition? And then thirdly, I'm wondering if you might share your latest staff churn percentage in the US.

So whether you're seeing that move up in line with some of the other labor market statistics that we're seeing for blue-collar employees in the US? Thank you.

Thank you, Kean. So when you look at this contract and the first question, well, it's - it is like you said, it's very much overlapping in terms of the previous question, because our main focus is to make sure that we are working actively with our portfolio in improving the portfolio over time.

We never go into any specifics of any clients as you can understand in terms of clients' relationship, but I just wanted to emphasize that this contract was below average margin. So in a way, if there is not the way over time to then improve that well, this would be the outcome at some point in time.

It was also a contract or it is a contract where I think there's quite limited opportunity also in terms of improving the overall service mix. So I think that is another important determination factor as well, because we have quite a number of Guarding contracts that we are converting into integrated solutions on a regular basis and that is always the preference.

And most often as well the preference from the clients which based on the retention rates that we have and also customer satisfaction want to maintain and also develop the relationship with Securitas over time. In terms of the second question, Allied.

Well, it does obviously mean that you know of three main competitors in the top. There is now two.

So I think that is a clear kind of a conclusion when you look at the larger size of the business and maybe more the national side. We feel very good in terms of our portfolio development, the business that we are winning and we're definitely not winning based on price.

We are rather going up like I mentioned earlier in terms of margins, selling on quality and also the innovation agenda that we can drive over time. And that is something that I feel really good about when I look at the market dynamics as well over the last six, nine months, and together with the US team, because this is obviously something that is - something that we're watching, but also something that you know from time to time is also coming up in the client discussions.

And then when you look at staff churn. That the staff churn is fairly stable.

When you're looking at this period year-to-date, if you're looking at this period also in the quarter compared to the previous year. We don't break out the figures specifically, because we had a number of measurement interpretations of those numbers, then we decided not to do that.

But they are very stable within the present, essentially on a year - year-to-date basis.

Excellent. Thank you very much.

That was very helpful.

Well, Anvesh I don't know if you might be mute. If you can, please try again.

Hi, good afternoon. Just three for me as well.

Firstly just on the US transformation program as that comes to an end. Can you quantify the benefits you've, from a margin or have become the absolute Corona basis that you have generated from that program?

I know there's lots of moving parts within the US, it would be good to know on that score? Secondly, central costs in Q3 were up quite significantly, could you talk us through why that is?

And then lastly just to go back to wage growth in North America and you talked about kind of price and wage been imbalanced? Could you just say what level of wage increase you're seeing through Q3?

Thank you very much.

Thank you, Andy. So when you're looking at the US transformation program, we're not, I mean we've said that we're essentially finishing the program towards the end of the year, and now over the last three, six months and throughout 2022, we are shifting towards benefit realization.

And that is due to the nature of the program what we have done significant upgrades from 15, 20 year old systems and applications and manual ways of working we have upgraded to much more automated and fully modern systems and applications really help and support the business in the strongest possible way. And I would say that there is some positive benefit in the numbers now.

We had stable margins in Guarding, even though the growth was not there in the quarter. So that is obviously one indication, but we're also expecting now with increased emphasis on benefits realization quite a lot of improvement over the next 12 months essentially.

If you look in then at the central costs, we have essentially two main components here under ES, I think one is one non-recurring item, which is the cost that we had which was more significant. And we have also made some bonus top-ups as well in terms of accruals related to current year performance.

So I think those are the two main factors, Andy when you're looking at the central cost in the third quarter. And then wage growth in North America.

Do you want to comment Andreas on that?

Andy, if we're looking at this for this year, I mean as you know, and normally we would have somewhere around 2% of wage increases you know and more software 1%. And if it's more heated labor market, it could go up to sort of 3% overall.

Here, if you look now for the whole group, we are rather at that high end here so far this year around the 3% and you can add a little bit more in North America, it's a bit more than 3% that we are seeing overall in the North American markets this year.

I hope that answers your questions, Andy?

It does. Can I just go back to the very quick one on the non-recurring item?

Why does that not split out into items affecting comparability and can you quantify how big it was announced as well? Just a whole topic would be good to know.

Now, but this was more related to a strategic project cost that we've been running in the business here, Andy so it falls naturally to be at the Group cost levels from that perspective. We will not quantify that individual customer.

So more kind of normal operating expenditure, but significantly higher than in a normal quarter for that specific product.

Okay, great. Thank you very much.

Thank you.

Hi. This is Tony [indiscernible] from KLV Capital.

Just considering the strong operational performance with I think the return on capital employed now over 13% which is well above your whack you have a strong balance sheet and you have underlying growth in the market and the pricing of the company is at very low or I would say very attractive level. Is the company not considering any share buybacks at all?

It looks to me that you have the mandate.

As you say here we are in a strong financial position, but we are also obviously driving our transformation plan and we also have our strategic ambition here to double our Electronic Security and Solution business. So, we are rather focusing on continuing to investing into our strategy both from the organic and from the acquisition side.

So that's mainly our focus right now rather than any share buyback. So, we are very confident that we are going to drive the margins and the transformations here going forward.

So we will make use of our balance sheet for that purpose.

And, Tony, I would just add to that as well. I mean, we are in a period of extensive transformation further to what Andreas is commenting and we are increasingly confident as well in terms of the output and the improvements that we can expect from that modernization work.

So I think that is also something that our main priority is really to continue to drive this transformation. Now obviously it feels good that we are wrapping up three main programs, where two main programs and then the more tactical one which was C19 related, but then full focus on delivering on the remaining two, because that will also make Securitas fundamentally stronger as a company and I think that is something also that we are you know focused on achieving as well.

But then also acquisitions like Andreas mentioned will also be important in the strategy as we go forward towards to change the profile of the entire company, our service offering and value creation.

Okay, thank you.

Yeah, hi. This is Johan, hope you can hear me.

Hello, can you hear me?

Yes, we can hear you.

Okay, good. I couldn't hear any replied.

Sorry. I was [technical difficulty] some tidbits on the cash flow.

You mentioned here that you have paid roughly SEK 600 million of the relief measures in North America in the quarter. How much was that in the full year?

And then to understand you correctly that there's nothing more to be paid in the fourth quarter, but rather than sort of at the end of next year instead? Thank you.

The payment that we've done in Q3 was SEK 600 million and that's the only payment that we have done and we'll do this year related to the deferred taxes and the payroll taxes here and then we will pay another SEK 600 million end of next year. So those are the only two sort of payments we will do this year and next year.

Okay, okay. Sounds a bit lower than I thought in my numbers at least.

But anyhow, and how should I think about the fourth quarter cash flow pattern? Is there any particular seasonality or what things that will happen then in the fourth quarter?

Obviously, not including this VAT repayment anymore?

No, I would say you should - I mean, we will have to see what the fourth quarter obviously comes in with, but overall there is nothing specific to take into consideration there. And then obviously, we will not sort of forecast our cash flow here, but they're doing nothing particular compared to previous quarters or the same quarter last year from their perspective.

Okay, excellent. Thank you very much.

Yes, good afternoon. Most of my questions have been asked, but there's two follow-up so additional questions.

The first one on just could you comment on your exposure to fleet or fuel costs? If that is significant can you pass that through to customers?

And then the second question is on government grants. So you say you have 800 people in Europe, you had SEK 100 million benefit in Q3?

What - what's your initial thinking of that benefit in Q4? Do you think that will drop off further?

Thank you.

Thank you, Oscar. Yeah, correct, there is obviously some impact, we have tens of thousands of cars which are then mostly related to our mobile officers and control rounds that we do, but also when we dispatch based on alarms.

Any such cost will typically be part of the regular passing on to our clients. So you know when that sticks out, and if that becomes a very significant factor that would also then be part of the ongoing dialogue with the clients in terms of passing on cost.

When you're looking at the government grants, the good thing right now is that we are down from around SEK 200 million in Q2 also SEK 200 million in Q3, same period last year down to SEK 100 million and like you highlighted it also then going from a few thousand people down to 800 now. And what is difficult to estimate, of course, and we say in this wise from experience now with COVID since the beginning of last year, it depends quite a lot also how COVID is developing.

If we were to see like we're seeing in some countries around the world you know further restricts or restrictions being reintroduced or further lockdowns that could have an impact, of course. But to I think zoom in as well the majority of the people that we have now remaining on temporary unemployment support are in France and in Germany.

So I think an important part of that kind of answer lies there. We will look at it right now.

But we feel good about the general trend compared to where we have been. And I should also highlight that when we have received support for subsidies that has also been obviously offset with increased costs that we've had for idle time, et cetera.

So, yeah it - I would say that we're more now kind of in the remaining effects of COVID phase as opposed to or compared to six or 12 months ago.

Okay, thank you. And just on provision releases.

So you haven't released any today, when do you think you will assess the ability to release your provisions?

We have not released anything in the quarter, correct there. And then obviously, we are assessing these provisions on an ongoing basis here as well.

But we also need obviously to see how COVID-19 and the whole economy situation post-COVID-19 scenario will play out here as well. So this assessment we're doing continuously and we'll continue to do moving forward as well.

But we will have to wait and see here also to look at how the development generally in the economy and in the business is going. What I should say here though, that we have not seen any increases in bankruptcy or sort of actual realized bad debt so far.

But we will continue to assess this going forward as well.

Okay, thank you very much.

Yeah, good afternoon. Three left for me, please.

And the first question is around the contract termination again. But more broadly, I wonder whether you can offer your insights into whether there is any meaningful proportion of current revenues that remain below what you would consider your benchmark margin return.

And therefore, you might be either at risk or up for renegotiation to try to raise that margin. That's the first question.

Secondly, shorter-term, but thinking about the bridging the margin in terms of basis point improvements year-on-year, specifically, North America and Europe. So I wonder if you can help me understand the year-on-year impact either in the quarter or year-to-date of two effects really.

Firstly, the lower extra work that you've incurred and secondly, the net effect of government support against idle time costs? And third question related to that second one really.

I understand that support hasn't completely negated the cost of idle time over the last 18 months or so. So is it fair to say that the level of government support you're receiving is a useful measure just in relative scale of this negative effect this margin impact?

So are you - that negative margin impact is reducing over the course of this year? Thank you.

Yeah, thank you, Neil. Well, when you're looking at the first question in terms of contract termination, this is work that we are doing on two fronts in terms of portfolio management and one is in terms of the new business that we are bringing in, there we have extremely high focus and discipline in terms of the quality of the business that we do bring in.

But then we have also stepped up efforts quite significantly in terms of portfolio management or the broader portfolio. And part of that effort is the lessons learned from the aviation situation, because as you remember, when we went into the COVID crisis, we have been working diligently with the top 100 contracts in aviation to make sure that everything is healthy as we're coming out of COVID.

We are now in a, you know, I would say the vast majority of that work is now done. So probably a bit more than two-thirds of that work is now done.

So that means that two-thirds of the volume or the percentage of sales that we had that was not according to our benchmarks we have now dealt with. And then there is some remaining and that's out of the nature of some of the contracts also going into going into 2022.

But that work we continue and we drive that with full focus across the entire portfolio. And that's something that we have started to do a year ago.

Looking at that, there is three different outcomes. One is that, we will renegotiate the contract.

The other one is that, we would convert the contract into more of an integrated solution. Third option would be that we terminate and that is never the preference.

So I would say that when you're looking at these two big ones in North America now that I can understand are generating quite some attention, both are below average margin contracts, they happen to be fairly significant in size. But when I look at the general portfolio development in North America and also in Europe that is very healthy over the first nine months of this year, and that is obviously a combination of the volume price increases, but also then what we are gaining in terms of new sales, but also what is being terminated.

So the portfolio development is a very important metric for us in terms of how is the online business developing and that is positive. Why we're seeing negative impact, obviously, from some of the extra sales reductions.

So I hope that answers the first question, but this is something that we are doing with full focus and in an orderly manner, together with the different teams in the different markets and with the clients. Looking then at bridging the margin impact.

Well, I think it's a simple way, because there is a number of moving pieces here is that, a little bit more than half or the margin compared to 2020 is coming from more normalized provisions. We did take more of a cautious and prudent approach last year in light of the uncertainty.

So a little bit more than half of that improvement is coming from that. But the other half is really coming from improvements in portfolio and some of the other impacts that we have referred to in terms of the cost management program.

And I think also has the broader result of now a lot of the work we've been doing to sharpen the business. So I think when you look at that in combination also with aviation, where we have been improving, those have been the main drivers.

So I think from my perspective when I look at it, I'm looking more at how we're performing now compared to Q3 '19 and Q3 '18 to really understand then how is really the underlying development and that development we feel good about looking then at the entirety of the business. And then you had a third question I did not, did you capture that?

No I did not capture online?

And because - well I think I remember now, and as you can correct me if I'm wrong, but you said the government support part, is that kind of an indication of also then the type of the cost that you've had? Well, if you generalize, I think this would kind of balance each other out because we've had some cost obviously related to idle time, et cetera.

But it's very difficult to make that the perfect sense right now. Andreas, if you have any further flavor you want to add.

No, but I agree and that when it comes to the cost for the temp unemployment, obviously, we will need - we have to pay for this and for that we get some compensation here. But I would say not - it's not fully compensated.

We have a net cost here. But like you say Magnus as well, it's close there to also even it's both of them together out so to say so.

Okay, yeah. So I guess that yeah, the other part of the question was, is that net cost now, it's pretty minimal in the third quarter, because you know using the government support figure as a sort of proxy.

It has reduced in the quarter in line with the reduction on the grants received and also the number of people on the temporary unemployment, correct. Yeah.

Yeah. Okay, thank you very much.

Okay. So thanks, everyone for joining us for this quarterly call.

And looking forward to seeing you in the months ahead. Thank you.