Earnings Call: Q3 2019

Nov 6, 2019

Good morning, everyone, and welcome to our Q3 call. I'm glad to be here today as always with our CFO. Bart Adam to go through the performance in the quarter and then also a Q and A. So let us start by looking at the performance on a group level. We had decent growth in the 3rd quarter, and we continue to grow faster than the market. At operating income level, we have 5% real change during the 1st 9 months of the year. And the operating margin of 5.6 percent in the quarter is stable compared with last year. With continued strong performance in North America, while the margin in Europe is slightly below last year. As communicated with the Q2 results, we have a negative wage balance in two countries in Europe that are affecting the price wage balance for the group. We are much more satisfied with the cash in the quarter and the 1st 9 months of the year and the operating cash flow year to date of SEK3 billion represents a significant improvement versus the same period last and electronic security, we had 11% growth during the 1st 9 months. And solutions and electronic security now represent 21% of our sales. And, converting services to integrated solutions is important since we engage more closely with our clients and we deliver higher value. And so this remains an important area of focus for us as we go forward. And actually, this is also important from a revenue mix and a margin perspective. We always like to show a, customer reference case, and, we will show a brief one right now. This time is from the annual Octoberfest. In Germany, where we deliver some integrated guarding and protective services. So let us play the video, please. My name is Hans Pindler. It's been Vonched items like the physical office. It was a Homerfest is the Scruestifolk Fest developed, the Hardman's Exane Tharganeseleon in Bizuka, stop moving out any longer. The rest of the head house. About the harbinger in the Latin Zacks monoton for Finad Midman and team. Here, knop EIN 1000 tiger Heights, Floyd. Firm plans alright. The which is Tima Faktura Oldrechtnam's legal on man Candace Alice with item knopstroke, mister Ananda, for dinner. As a team for it, I would like to go, you know, here on the Okay. So my apologies, Magnus here. We had a technical glitch in the transition from the video back to the call, but we now continue, and I hope you can hear as well. Just to make a few comments about the video and the reference case from Oktoberfest that we just saw, I've had the chance to visit this client and it is an impressive event by itself, but it's also a complex operating environment. And while this is more of a guarding assignment, We are very proud of the services and the quality that we do deliver at Oktoberfest in close collaboration with event organizers and the local authorities. And with that, let us now look at the performance in the divisions and we start with North America. We had strong performance in North America with 4 percent organic sales growth. Our 5 guarding regions, the business unit critical infrastructure services, and very good performance from our Pinketon team were the main drivers of the growth. And security solutions and electronic security account for 18% of of 6.7% in the quarter. And once again, good performance across most areas of the business, 5 guarding regions contributed together with Pinkaton and securitas electronic security to the margin development. So it's a solid quarter Europe, we had good contribution to growth from Germany, Belgium, Nordics and Turkey, but the previously announced contract losses in France and UK had a continued negative impact on the growth in the division. And we recorded organic sales growth of 1% in the quarter. Security Solutions And Electronics Security accounted for 22% of sales in the business segment in the 1st 9 months. Looking at the profitability development in Europe, the operating margin was 5.9% in the quarter, and the margin was supported by the cost savings program in Europe, which is developing in line with plan. But we had a negative impact primarily from France and Sweden and the negative price which balances in the Netherlands and France are affecting the margins. Turning then to Ibera America division. We had growth of 12% in Q3, And the slightly lower growth rate is primarily due to the reduction of some short term security solutions contracts in Spain. But we have continued good development with security solutions and electronic security that are now representing 27% of sales. The operating margin in Avair America was stable at 4.7% in the quarter, and the margin was supported by continued good development in Spain despite the negative impact from the reduction of some of the, the higher margin solutions contracts that I mentioned a minute ago. So similar to the previous quarter, the margin was negatively impacted by continued challenging operating conditions in Argentina. And with that, I am handing over to you Bart for some more details regarding the financials. Good. Many thanks, Magnus. So, let's then look at the financial information to the quarter 9 months. And we start with the income statement here as usual and some further details to that. As of Q1 this year, we have adopted IFRS 16. And as mentioned before, we have implemented this standard without any restatement of the comparatives. There is a quite substantial negative net effect from IFRS 16 on our income statement, as mentioned here in the table to the upper right, on the operating result level, there is a positive effect in the 9 months of plus SEK60 1,000,000, but then offset by a larger negative effect on financial items of minus SEK 111 So leaving then a net negative of minus SEK51 1,000,000 on income before tax. When we then look at the items affecting comparability, we accounted for minus SEK60 million as items affecting comparability in the third quarter, and that is then adding up to minus SEK126 1,000,000 in the 9 These items affecting comparability relate entirely to the 2 transformation programs we have in place, as we disclosed and talked about before. Of items affecting comparability for 2019 related to these 2 programs. The speed of this depends on how fast we can implement certain matters and when exactly we will incur what costs, but we are largely in line with our planning there. The earlier referred total of SEK 650,000,000 that we have been mentioning and talking about that shall be accounted for during 2019 2020 and potentially part in 2021 is still the relevant amount to consider. In Q3, last year then for our memories, we accounted for minus SEK268 1,000,000 as items affecting comparability, and that related entirely to the European Restructuring Program. Then as to the financial income and expenses, we accounted for, minus SEK 149,000,000 in the quarter, and minus EUR 438 for the 9 months. As mentioned before, this number is negatively impacted through the adoption of IFRS 16 and such impact amounts to minus SEK 111,000,000 in the 9 months compared to 9 months 2018. The additional difference then compared to the same period in 2018 comes from the increase in net debt, the increased U. S. Dollar interest rates and then also U. S. Dollar foreign exchange rates development. Then we take a look at the tax line and no big news there, or current estimate for the full year group tax rate in 2019 is still around 27.6, and that is exactly the same as what we have mentioned before. Still an increase compared to 2018 then, mainly due to reversed effects from the U. S. Tax reform. And then there is a small in the bottom here, there's a small difference between EPS and EPS before items affecting comparability. Relating, of course, entirely to the earlier mentioned items affecting comparability. Moving then to the next page, we take a look here at the effects from the currencies. The numbers to the right are the foreign exchange end rates in Swedish kroner measured at quarter end. The U. S. Dollar further appreciated during the quarter, ending then on 9.7 8 from around around 9.30to9.40 in the previous quarter. And that is more than 10% stronger than compared to Q3 last year. So a strong appreciation on the U. S. Dollar rate. The euro continued to hover around 10.60 during the quarter and ended the quarter then at 10.69 and that is a bit more stood out a bit negatively and took after a more stable period, a new jump downwards during early August there ending somewhat like 26% lower compared to the Swedish kroner compared to 12 months ago. So some tailwind from the U. S. Dollar and the euro and some headwind from the Argentina peso. Due then to the combined effect from these different currencies or quarterly consolidated income statement was positively affected when comparing to last year. So our nominal numbers got some tailwind then from the currency. This affects, adds to we have seen similar effects in Q1 and Q2, actually. In the 9 month period then, on sales here, the total change was 11% and a real change of 7%. So there was a 4% tailwind from currency development as seen from the difference. And we see a similar effect and, of course, on operating result level, total change on 11% for a real change of 5% the difference being 6%. As mentioned also at the earlier quarters when we compare the real change between operating income and EPS, we see there is some deleverage here happening in between the 2. And that difference is then entirely related to the higher financial items, mostly as a result of IFRS 16 and due to the higher tax rate. Turning to the next page, where we look at cash flow and the balance sheet, as mentioned before, the net cash flow is not impacted from IFRS 16, but some of the individual lines are impacted. We see in the year to date net investments of SEK 1,286,000,000, and that result stands from investments of close to CHF 2,300,000,000 and reversal of depreciation of CHF 2,000,000. And it shall be understood that IFRS 16 leases increased the investments with about more than SEK700 1,000,000 and then impacted the reversal of depreciation with close to the same amount, but a little bit smaller. So we could say that with IFRS 16, our CapEx gets inflated, and that is from around SEK2 billion, which we mentioned before to an amount of now around SEK3 billion per year. Then very happy to say that we saw a good substantial cash flow improvement in Q3, adding also the improvement we saw in the first half year compared to the first half year last year. And this year, we made so far SEK3 billion in operating cash flow, compared to SEK 1,300,000,000 from 9 months ago. And that is that SEK3.3 billion is now after 9 months almost the same amount as the amount we made in the full year 2018. So a good improvement where we are satisfied with We have worked with the issue, and we will continue to do so. Then next slide and we look at the net debt here, the net debt then have ended after 9 months at 19.4 from 14.5 at the end of last year. And of course, there is a considerable impact from the implementation of IFRS 16, which made a net increase, which almost SEK 3,500,000,000 by itself. Then we paid, of course, a dividend. That was paid in May, and that is SEK 1,600,000,000. And as you can see here on the slide also, The currency development also added more than SEK 1,100,000,000 in translation. And then we had acquisitions for close to SEK 400,000,000 on the year to date. But as mentioned before, we had good cash flows coming in, so meaning that we also achieved a free cash flow then of more than SEK 1,800,000,000 after 9 months, reducing the net debt, and we are very pleased with that. When you move to the right here, the net debt in relation to EBITDA is on 2.5, and that is measured after IFRS 16. As also mentioned before, IFRS 16 has a relevant impact on this ratio because the net debt fully includes the entire effect from IFRS 16, while as our 12 month rolling EBITDA still only includes now three quarters with the effect from IFRS 16. And we can add to that that actually we have a bit of a similar effect actually from the currency development the net debt fully reflects the current currencies, well as the income statement is then taken on a yes, as the currency develops, so to say. As to net debt to EBITDA, before IFRS 16, that stands now on and everything else equal, we shall see a further reduction then towards year end. And then we move to the final slate slide here, where we have summarized the effects from IFRS 16 as we did in previous quarter and I will refrain from any further comments. I think this slide is clear by itself. So with this, I'm handing back to Magnus then. Very good, and thank you, Bart. I would just make a few comments related to the strategy and then we're going to open up for the Q and in a few minutes. But from a strategic perspective and then always taking the longer term view in terms of our strategy and direction and how we develop our offering to our clients. This is a slide that I think many of you have seen a few times before. And when you're looking at the strategy, I think in essence, continue with the work to strengthen our foundation, and that is the guarding, which is still the majority of the business that we have. And then represented in this chart by the, by the arrow at the bottom. But we also continuing to invest to be able to offer the best protective services and integrated solutions to our clients. And this is obviously very much related to the work that we initiated years ago in terms of combining more actively people and technology and integrating solutions for better value generated to our clients but also for us to start moving up in the value chain. And then looking beyond 2020, we have an ambition to lead the transformation of the entire industry with knowledge and data driven intelligent services. And we will talk a lot more about this during our Investor Day, that we have in December. And I would just like to take the opportunity to welcome you to join us on 5th December, either at our offices or, online because there, we will have the opportunity to talk more about the strategy, but also for you to meet some of the great leaders that we have in the Securitas team. So to sum this up, looking at the 1st 9 months of the year, we've had good organic growth of 5% real change, 5% and stable operating margin of 5.1%. And the strategically important solutions and electronic security on our accounting 21% of our group sales. And like I said, you see a placeholder here at the bottom on this page really looking forward to seeing you and hope that you can join us for the Investor Day that we have in December. So with that, we are now happy to open up for Q and Thank you. Now, that's for us. We'll turn to speak. Just press 0 and then 2 to cancel. And our first question is over to the line of Morgan Stanley, and that's Adam Vachargawa. Please go ahead. Your line is now open. Hi. Good morning. This is Anvesh filling in for today. Just like three questions. First, you flagged some macro weakness in the state went. And if you can just clarify which geographies you're seeing that or visitors across the board, and connected to that is, the labor problems mainly confined Europe or US is also getting worse. Then the second is you can just probably comment on the management issues you had in Argentina. What's the progress there? And if it's kind of gone is it's impacting the growth as well. And finally, in Europe, the margins were helped by the transformation program. And maybe if you can just able to quantify the impact so we can assert the underlying trend in the margins? Thank you. So a few comments related to the macroeconomic situation, broad lines and perspective, we see continued good economic activity in North America. And the reason that we make this comment here is this more of a reflection of of the economic development in some of the key countries in Europe, such as Germany, where we're seeing that there is a significant slowdown This slowdown is obviously happening at the time when unemployment is still very low, which means that continue to need to work hard, to attract and to retain people. But there is also underlying wage increase pressure as well. So it is also more a matter of saying that this is the situation that we are seeing now, primarily then in Continental Europe, this is something that we need to watch and to manage. And Historically, as you know, 1 and also now, one of the most important priorities is how we then balance wage increases with price increases, but we're also then actively as well promoting more solutions and electronic security to offer an alternative as well to customers that might be putting a lot of emphasis in terms of cost management. You also asked a question about labor situation. Like I said, now, it is still a fairly tight market in terms of availability. And that is fairly similar picture still across most markets in Europe. We haven't seen that softening much in the last couple of months. North America is more of a dynamic labor market where there is also then less of an annual cycle in terms of wage increases, etcetera, and more dynamic short term. The comments related to Argentina, it is still a externally challenging situation from macroeconomic perspective. And that is what we are referring to. We have also, as we have announced in previous quarters, also done a number of changes internally as well. So we're driving through these changes with new leadership, etcetera, and that is going in the right direction. But that is really the Argentinean situation Argentina, though I should also highlight, it is about 2% of our sales and significantly less of the overall profitability. So the impact on a group level is not that big. Bart, do you want to comment on the European margins and the program there? Yes. As mentioned earlier, The cost of that program is $268,000,000 on a for the full program. And we mentioned before that there was going to be a payback period of about 2 years. So if you divide it to 68 by 2, that should be then the run rate of the savings once it is fully implemented. And we can confirm now that in Q3, the program was, yeah, 90% up and running, so to say, So most of the effects are hitting then the 3rd quarter as a run rate. That's clear. And maybe just to kind of clarify on North America and wage command that you made. So as I understand, you are able to pass on the increases in in North America. Not real time, but with less of a lag than you can do in Europe because of where the contracts work. Right? Generally speaking, that is correct. Yes. We are now over to the line of Stifel to Deutsche Bank. Just a couple of points on the account thing and on cash flow. So firstly, the we touched on it earlier on, but improvement in working capital, if you could give them an indication of what was going on there, my understanding is that was an improvement in connection but that was obviously quite quite significant, on a year on year swing basis. And secondly, sorry, Could you just clarify the point around, leases and CapEx and depreciation around IFRS 16? I wasn't quite sure that I picked up on that. Yes. Absolutely. So, when it comes to the improvement in working capital, as you rightfully said, that is most derived from the accounts receivables. Last year, we commented that that the situation was a bit negative. So this year, this situation is much better. We have been able to focus more on it again. And of course, we should also say that we are helped by the lower organic growth. Organic growth consumes some cash flow as well and working capital. So those are the 2 main factors internal focus combined with then the lower organic growth. I should say though that that we see that there is pressure from customers on increasing their payment terms and that pressure is still there. But we have worked more with that than as I said during the previous quarters, and we start to see some results from that. Just for the voices of any doubt, we are not into any supply chain financing or into anything like that. Then, CapEx and depreciation, yes, because of IFRS 16, the net cash flow that is not affected from IFRS 16, but some of the individual lines are. So basically, what you could say is that because now we recognize what was previously, for instance, a leasing of a car, Now we rent, we recognize that as an asset, so as a CapEx. So we still continue to lease cars, for instance, but now instead of just being leased cars, they show up as an asset in our balance sheet. And that then is year to date. We had around SEK 700,000,000 investments, so to say, this type of leased assets, which are now recognized as a CapEx in our balance sheet and, hence, of course, the depreciation also increases from that. So that is the main reason behind the difference before and after IFRS 16, the everything, so to say that was leased before, is now a CapEx and sits on our balance sheet. Alright. Thanks a lot. Okay. So we're now over to the line of Paul of David Ruth from Bank of America. Please go ahead. Good morning guys. Thanks for taking my questions. Just three from my side, the first one, just coming back to the labor conditions in Europe, can you remind us what time of the year you typically negotiate wage increases with your workforce? And then secondly, on solutions and electronic security. I think it was around 2014 when you mentioned that the company to spend about 400,000,000 per year to reach its its technology goals. Give this amounts, still how we should think about the investment in technology. Mean, just lastly on Argentina, I appreciate 72% of group, but given recent capital controls, on able to repatriate cash out of the country? Thanks. Yes. I can take the first question and maybe Bart, you follow-up on the last two. In terms of the labor conditions in Europe, it is very much an annual, wage and price cycle that we're working with. And there are more collective labor agreements significantly more compared to the North American environment. A lot of the preparation for this work is typically happening now. So as you a few months before, you enter the year, And then the majority of that activity is in the 1st and second quarter. And so and that is something that we're working with and we have been successful and continuously with very high focus, of course, to manage successfully in any type of environment. But that is really the cycle when you look at Europe. So the majority in the first half of the year What that means, of course, is something we commented on in the second quarter, like in the Netherlands, for example, where we essentially then increased prices lower than the anticipated wage increase. And that then means that we are behind imbalance in the Netherlands, but that also means that you then have to put folks on recovering in the next major cycle, which is mostly then on an annual basis. Do you want to take the solutions in terms of investment? So on the investments there in Solutions, as you rightfully said, we said back in 2014 that we had about SEK 400,000,000 needed for our technology strategy, but that was SEK400 million on top of already an existing amount of some technology investments that we had already then back then as well with our customers. So the run rate amount then was around you have SEK550 1,000,000. Now we are trending a bit higher on that amount, on the total amount needed, of course, as we are further investing into technology and the company has grown so to say since 2014 as well. So but yes, I think that answers your question. On Argentina, we have no problem, so to say, on taking out cash from that country. There is no nothing so to say that is standing out here as an issue. Thank you very clear. Okay. Before going on to the next question, which is James Winckler. Jeff Reed's, is anyone else on the phone has any further questions, please do press the 0 and then one now. James, over to you. Hey, thanks guys. The first one, I was just curious about, on the European cost savings development, moving to Q4 of this year, Q4 of last year was the first quarter where you started seeing benefits I'm wondering if year over year we should be expecting fewer, comparatively benefits the year over year margin next quarter and if so, if you're able to quantify that. And then just, lastly, on, on the cash, I'm just wondering if you can give us any color on your expectations for the full year in terms of improvement of, for example, accounts receivable days or anything just because, obviously, the large inflow from accounts receivable stands out as quite, unusually strong compared to, for all what you guys have delivered on a quarterly basis? Yes. So on the, thank you. So on the cost savings program in Europe, we have benefit of around SEK 75,000,000 in the 1st 9 months expect similar run rate to that in the fourth quarter as well. Around SEK 25,000,000 in terms of the positive impact, and that is going according to plan. Bart, do you want to take the question in terms of cash? Obviously, we don't make any projections, but that, I mean, yes, as as you as you mentioned, so our our accounts receivables and days have have been reducing. It's the first time in a quite long period that we have seen a reduction actually the year on year on the DSOs days sales outstanding. So helped, of course, by the focus we had on it, helped by also reduced organic growth. That is just how it is. Organic growth is on a bit lower level than that helps our accounts receivables. And of course, our entire plan is to keep this gain for the year end as well. And I do not make any promises there, but that is what we are really working at. We are now over the line of Sylvia Barker and JP Morgan. Please go ahead. Your line is open. Sylvia, could you please take your phone off mute? Good point. Good morning, everyone. So two areas of questions one North America, just understanding the slowdown sequentially. Could you maybe give any color around, how that progressed during the quarter, so any indication of run rate or any indication of how price versus volume has been maybe North America, just to understand that move? And secondly, on Ibero America, was all the sequential slowdown due to the Spanish contracts? And is there more to come there? And then on Argentina within that, is was there any sequential impact for Argentina? And could you just remind us how you actually treat the hyperinflation with the organic, just to be clear on that. And then finally, on European margins into Q4, So you spoke about the savings, how much of a drug is the French CICE reduction year on year currently and how much better could that be sequentially into Q4? Thank you. Yes. So if you look at Sylvia, the first question related to the growth in North America. It is like a highlight a little bit lower than what we received last year. We have a few contracts that we lost in North America at the beginning of the year and also having a negative impact I would argue that that is more kind of seasonality. Sometimes we win more than what we normally do. Sometimes it's the opposite this was the situation now. Generally speaking, in terms of price wage, North America team handling very well. And I think that is also reflected in the good performance that we have. Like I highlighted, the 5 guarding regions are strong drivers and contributors to the results. And when you look at the Biramirka related questions, Spain and the Solutions contract, first of all, Yes. There was, primarily impact from a reduction in those temporary solutions contracts that we've had. And we expect the gradual decrease of those contracts over the coming quarters. But we're obviously working to mitigate some of that impact as well with new sales of solutions contracts. I think the other question, Bart, do you want to cover? Yes. So as of 1st July last year, we have at IAS 29, the hyperinflation accounting for Argentina. And when we calculate there, the key ratios such as organic growth, and real change. The impact from the remeasurement is treated in the same way as currency change. So from that perspective, the organic sales growth is the similar measurement as we did before IFRS sorry, before IAS 29. So there is no, as so to say, any impact from the remeasurement on how we measure organic growth. Sorry, just to follow-up. So essentially, you take off all the excess inflation in quotes. Offset that. I guess as I always, you still have inflation. How much inflation, I guess, did you have in Argentina in Q3? Yes. Just to be clear, so the inflation adds to the organic growth But then the remeasurement would mean that you reduce sales. The remeasurement according to IS29 would mean that you reduce sales for a certain amount because of this hyperinflation. And that the latter one does not affect on the organic sales growth. In terms of a percentage or it's too false organic? So, again, the inflation, which is around, in Argentina, then around 25%, 30% that, of course, because there we translate that into price increases for our customers. So that is measured as growth. Either we have growth coming from 2 buckets, you could say, we have growth coming from contract growth, volume, and we have growth coming from price increase. As always, that is then adding up to organic growth. The growth coming additionally or negative growth coming from foreign exchange that we take out from the organic sales growth calculation. So in this case, we have not done anything else. The growth coming from portfolio change is included. The growth coming from price increase is included, but then I have IAS 29 makes you reduce the sales for a certain amount. That we do not consider in the calculation of organic We are now over to the line of Karina Elmgren at Handelsbanken. Please go ahead. Your line is open. Yes. Good morning. I have a question regarding Germany. You mentioned, it's a country where you see the macroeconomic environment a bit softening. Would you then expect it to be more challenging to to get price hikes through, when you still see probably wages going up. And also, is it as for many other European countries than something that would happen in Q1 or Q2. And then Are there any other countries in Europe where you have a similar situation? Yes, thank you. When you're looking at this, We highlight it because it's obviously something that we're facing in the dialogue with our clients. They are now looking at a a lower 0 growth environment and kind of near term outlook. But at the same time, unemployment rates are very low. And there is, like I said, as well, increasing pressure in terms of or a continuous pressure in terms of wage increases. This is something that we just continuously need to be focused on and need to manage Historically, we have a good track record overall in terms of how we manage this, and that is obviously the ambition as we go forward. What is important though in terms of what we're driving internally with the team, but also then with our clients is to also continuously offer solutions. And when we do that, we always have a good alternative to avoid too much focus on just price per hour and and guarding only type of services. And that is obviously something which is important when we enter these types of slowdown situation that we now have. In terms of price increase, yes, similar situation to your question, majority typically in Q1 and Q2. But I would also like because I think we missed one question from Sylvia. You about CCS well in the previous question. So I can just comment on that quickly. We do see some improvement and recovery related to the phasing of season, some of the replacement measures in the 4th quarter But I should also highlight that the contract losses that we have suffered in Q2 and in Q1 this year we're obviously working hard to also get back to positive growth after those contract losses and that takes some time and that will also be an issue that we need to work with going well into 2020. So I hope that that also line, Sylvia. Would that okay to answer your follow-up questions? Thank you very much. It was more at the margin rather than the growth as well because technically if you currently have 40% of what you used to get from CICE, maybe now you get maybe you will get more into Q4, but like sequentially, how much of an impact is that on the European margin if it's material at all? Yes. So there is an improvement and some recovery in the fourth quarter in France, thanks to the phasing. Yes. Okay. Okay. Thank you. Thanks very much. Okay. So we're now over to Henrik Mahdi at Nordea. Please go ahead. Your line is open. Thank you. Can you hear me? Yes, Henrik. Hi. Good. Good morning. So coming by the U. S. Margin, it expanded 20 basis points year on year despite you having, if I'm correct, the 10 basis point margin, one off positive one off in the comparison quarter. So to me, it looks like a quite strong sequential acceleration in the margin Is that a correct way to look at it and what are the main drivers behind the sequential improvement in North America? No. It is a valid observation, that you make, Henrik. The the We had last year, we had an impact, a one off impact there that we mentioned of around 0.1% in the quarter in North America. So based on that, then we have seen a further development now during the quarter of 0.2 year on year, which then would be underlying more like 0.3 But, yeah, I mean, what we are seeing is more an under underlying development still of around 0.2. I mean, we are very happy with the development in North America. It's coming basically, as Magnus mentioned as well, from many different or different services and business lines, that we have in North America, both from the guarding, the guarding regions from as well from electronic security, for instance, and solutions. So it's a good development and the 0.2 we have seen is a really good trend. If you look also at the year to date, it looks more optically like it's 0.1, but actually underlying it's also an 0.2 there. So that is really the number we have been seeing, and we are satisfied with. Okay. Thank you. And two more questions from me, if I May, we have touched upon the accounts receivables in the quarter. There was a very strong release in working capital. Still, you know, looking at the level of accounts receivables to sales, to me, it seems like you're still on a on a slightly higher level than what is has been the historical average. If there's still further potential to get that down, then the second question is on optics. I think we're on a new record level now in the quarter. To my understanding, that includes leasing related CapEx done, but also some of it is related to the ongoing transformation program. I guess, can you comment on how much is is extraordinary in that CapEx line? Yes. So when it comes to accounts receivable and sales, Yes, you're right that we do have, compared to historical numbers, still some higher accounts receivable. And that is coming from the fact that there's quite some pressure from customers on payment terms. And you could say if you have historically, you could sell maybe at at an average of 45 days for instance payment terms. Now customers are pushing that up. And then we on the other side are taking actions to try that bring that down. Of course, we are also gearing up our negotiation capabilities and also the way we invoice and things like that. So it's attention there. We try to manage, with, with, with our environment and this quarter, then we have had further focus on that, then of course, you get you go into certain direction as well. And this is a good direction for us then. On CapEx, yes, it is affected from leasing, of course, as I said, if we were before just leasing a car, that will now be shown as a CapEx, and that is one of the major things that we have quite some cars still used in our business. And that is then one of the items that then shows up all of a sudden as a CapEx. As a general rule, as mentioned as well, we were trending before around SEK 2,000,000,000. Now it's more around SEK 3,000,000,000 then after IFRS 16, which we are working with and accounting for. The transformation programs, they affect a little bit, but not dramatically. So there's no dramatic impact there from the transformation programs. Okay. And just one follow-up on the working cap at least you there are longer payment terms. I suppose that you could take, a general trend towards longer payment term you could use it as a competitive advantage versus smaller peers with Smart Shopper, which might have less headroom in the balance sheet to actually board such an offer to the clients. Have you been using this as a competitive advantage, directly? I would say not really I also see that some of our peers, and then especially if you refer to the smaller companies are so to say happy to take on supply chain financing as well. So from that perspective, it's almost a little bit like a negative competitive matter, because we do not want to take any supply chain financing or own financing is still much cheaper. And at the same time, of course, this is still financing. At the end of the day, it's financing. So it doesn't matter where it comes from. So we don't go into supply chain financing. So from that perspective, we try to be well disciplined in this matter knowing that there is a pressure from customers. So we also need to have some commercial flexibility, but it's a balance. Okay. Our next question is from the line of Mikael Loftal at Carnegie. Please go ahead. Your line is now Yes. Hi. Most of my questions have been answered, but more general terms, if you look at the solutions, an electronic security business, growth has clearly decelerated now compared to previous quarters. And the organic growth, I guess, the Swedish. Sorry, in the European part, it's low single digits now. Meanwhile, the margins are not really improving, at least not the reported figures that we're seeing. And before, I think we got some explanations that growth, there is growth paid in some countries in regards to this business and we will wait for the margin improvements to come and so on. But now with growth coming down, margins are still not improving in Europe. I know there's other things affecting here, but is it possible to give some more color on where are you in this process of increasing these type of offerings? When will we see a margin impact from it? Yes, thank you. For the question, if This is strategically important for us, driving the solutions and technology integrated solutions to our clients like to highlight, growth rate is a little bit lower. It's around 11% year to date. There is some seasonality in that, but I also have to say that our ambition is to do more. We have been driving this strategy now over the last 5, 6 years. We have learned a lot. It differs a lot still between divisions and also within divisions either between countries in terms of the momentum that we have been able to build. But this is one critical area of focus for us as we are driving the transformation of the entire company. And I say that because we know when we have a lot of proof points that we're adding more value to the clients. We improve our margin on this part of the business, and we also have more satisfied and more loyal customers as well. Looking though, also on the margin perspective, this, we keep on driving. I think there are some other factors that that have then had a negative impact on the margin. And one of those, obviously, is that we have significant partner guardian business, which is growing still at the a fairly good pace in Europe, but that is also under continuous pressure. There is less differentiation and we are more exposed from a pricing perspective. So I think that is one. And we do also continue to invest in the strategy to strengthen our offering and protective services for the mid and the long term. And that is something that also then has a kind of a mitigating impact But the key question is continuing to really drive solutions technology this share of the overall mix as we are then shifting the revenue and the margin profile over time. And that is high focus for the entire team. But some follow-up here. Is it possible to say something about? I mean, during the last 5 years in Europe, the margin is basically down. And during the same period, you have grown this business, which should be margin enhancing And meanwhile, the macro environment has been fairly good up until at least recently for you. So Can you say something more about the mix and why the margins have not lifted? Yes. So if you look at it, the I mean, we are tracking the solutions and technology electronic security progress every month every quarter, we do it on a contract basis and then consolidated on a country division level as well. We have a lot of proof points that that part of the business is really working. The 2 main factors that I would highlight: one is regarding part of the business that is, like I said, under continuous price pressure. And that is also an area where taking more of a granular view to also then make sure that we are protecting margins better in that part of the business, where I think we can do a better job. But we are also continuously investing in shifting the offering of the portfolio. So I would say those are the main, the main drivers. Yes, correct, Magnus. Yes, I think that is what the main driver is. Sorry, during the last 5 years, you have constantly said that you are managing price, the price wage balance, which of course is key for the guarding business. And the guarding as such has enjoyed quite good times, both in the U. S. And I and I guess at least in many parts of Europe during the last 5 years. So shouldn't there be any leverage from that business as well on the margins? So why is margins sound? So in as you rightfully say, in U. S, we see those effects on the margins, and there, the margin is clearly driven from the different areas from the different businesses that we have, the issue is more in Europe, as you also mentioned. In Europe, as such, we have been managing price wage. Absolutely. When we have the price increases, we are able to pass them on will have the wage increases. We have been able to pass them on through price increases, except for this year. So in this year, this has been a little bit of a difference in Europe compared to previous years, then mainly coming from Netherlands and from France. So that is a difference there, which has not helped this year. In other years, there have been a little bit of different reasons then, why the margin has developed in a certain way. We could, of course, go back into all those different years. But in essence, we do see some pressure in the guarding, as Magnus also said, when it comes to new contracts, renewing contracts, then we see that with some pressure on the pricing there. So and that is different from, of course, just passing on, the wage increases through pricing, then it's more about, okay, you have a new contract and those contracts normally compete a little bit at sharper pricing compared to, existing contracts. And that is what we see in the market, and that is what we have commented on before as well that we have some negative effect there on our margins from those matters. Difficult to estimate all the time how big that effect is because, of course, it's coming from a large number of contracts But we also believe that there is an opportunity now that we have more, so to say, we have focused a lot on everything which relates to to solutions last year. And now we think with the strategy that we put in place, that there's also, again, an opportunity to focus more again on guarding as such and develop that business further with enhanced value for our customers as well. But more about that probably also to come in the Capital Markets Day. And then on top of that, we have had a course, everything related to the refugee sales there, which blurs the picture quite a bit. Yes, I think that is my best answer to this one. I cannot just one more. On the 22 percent of sales that you report for this quarter, security solutions, and electronic security in Europe. If due today on those 22% you have higher margins on that and the remaining 78%? Yes, the answer is clearly, yes, absolutely. I understand that you've had quite a significant margin pressure on the remaining 78%? Your conclusion is right. We have talked about before that we have yeah, around 0.1.2 margin pressure in that business. Okay. And now then the follow-up on that is when you know growing by low single digits organically. Is that deliberately that you're doing so in order consolidate this part and to improve margins even further than, or why has the growth come down as has. And also the M and A strategy, I mean, M and A has been a bit of an important piece to grow that business has also come down to M and A activities. That also deliberately so far? I would say, I mean, the contract losses that we had at the beginning of the year. Some of those, we definitely did not want to lose, to be transparent. If you So I think that, that, but then at the same time, we also need to do responsible business, in terms of the pricing and the dubility because we do invest in good quality and delivery of the services. And that's something that we continue to need to protect So I think that will be the main comment related to the organic sales growth. I mean, that is at the lower rate than what we would like to see at this point in time. And it will take some time to recover that in light of some of those contract losses then affecting us starting in the second quarter 1st quarter this year. But as to your question, is it a deliberate choice, so to say, to slow down the electronic security and solutions? No, not really we really think this is the future of the company, and we should have, and we want to grow that business further. So it's more like a temporarily so to say change or slow down a little bit in the pace, but the strategy is still there? Absolutely. One last comment, though, before we we move on I think is that we made a reference as well at the beginning of the year that we're also looking now actively at European business, which has a different starting point than the North American business in terms of how we organized. We have 28 different countries looking then at how are we able to create more synergies and scale benefit in the European operating environment for the future. And that's something that we will provide at least a brief update as well during the Capital Markets Day that we have in December in terms of how we're looking at at Europe now and also then at the next steps. Okay. So we just have a final question, and that's a follow-up question to the line of Stifel at Deutsche Bank. Please go ahead, Stifel. I don't forget. Hi. Thanks for taking my follow-up. Sorry about that. Just a couple of quick quick ones. On the on the Spanish contracts, you said here, the reductions are short term security solutions contracts. So can you just can you just clarify what exactly happened there my understanding was that a lot of these contracts were signed in Q2, Q3 last year. So now we were coming up to the annualization impact, and therefore, you wouldn't have the same year on year, the same impact on the year on year growth rate, which is understandable. But If you actually lost some of these contracts, is that having an impact? Can you just give us more clarity on on what exactly is going on there and what what you mean. And secondly, on the 10 Solutions growth of 11%. Are you able to tell us what the organic was in that? Yes. So on the first question, we have been trying to be prudent about the the contract in Spain because there have been more of a short term nature. I think that we peaked, about a year ago with some of those short term contracts. The majority of the business that we do is always longer term contracts when we talk about solutions. And we see a reduction in the 3rd quarter, which is the reason that we then highlight this as one specific point, and we also expect them to see a gradual reduction in the coming quarters. And so that is really the situation related to the to the contract in Spain. On the tech solutions there, we do not really calculate organic growth. But you could reasonably assume that the effect we have on total sales on currency is the same as we would have on tech solutions. That is very well spread. That business is very well spread over the footprint of our total business. Are you saying that the the M and A impact of the total business should be thought to apply to the M and A impact of the security solutions business? No, no, that's not what I'm saying. What I'm saying is that the currency effect impact should be the same. What I meant was, what is the M and A impact within the tech solution sales, I. E. What's the underlying organic? Okay. Okay. Now I spoil your question. Yeah. Well, if if you added the different parts there that we have acquired, then you would then you would notice that because most of the acquisitions we have been doing have been in the space of electronic security and technology. So that would basically be the impact there. Okay. Fine. Sorry. Just to revisit on the, on the, short term, the short term Spanish contract that you were talking about, are you able to tell tell me roughly what parts of growth, how much of the growth has been driven by those contracts? And then obviously that gives us a bit of an idea as those contracts roll off, you know, whether what we should be looking at and whether, actually, that provides for a very tough comp bit to next year even. No. I mean, those were good contracts. We have not really specified the volume of that, and we prefer not to do that. But it had an impact But it's, yeah, it's not the end of the world either. It's not dramatic either. So there is some impact and those contracts we could expect will reduce a bit. On the other hand, we have other contracts coming in other business developing in Spain. So we are not too concerned about that. Okay. That was the final question for today. Can we please pass it back to you for any closing comments at this stage? Yes, very good. Thanks a lot to all of you for your interest and for joining. I wish you a good day. Thank you.