Earnings Call: Q3 2022

Nov 8, 2022

Good afternoon, everyone, and a warm welcome to our Q3 conference call. We have just closed the third quarter, which has been quite an eventful quarter with good momentum in the business. We have closed the acquisition of Stanley Security, and we're progressing well with the integration process. A lot of good activity. I'm happy to present the results here together with our CFO, Andreas Lindback, and then we will open up for the Q&A. We continue to increase the business momentum in the third quarter. The organic sales growth was 7%, and we have strong momentum in North America, where we return to growth as previously expected and what we have previously also communicated. But the important thing, we now deliver positive 3% organic sales growth. We're looking at the group level, commercial momentum is continuously strong, and we recently renewed one large global contract with an expanded services scope. We are really proud to count some of the world's leading brands as major clients and partners of Securitas. If we're looking at the underlying business, so the business before we welcomed Stanley, the organic growth in solutions and technology was strong in the quarter with double-digit growth, and the acquired Stanley business had good momentum with mid-single digit growth. Technology Solutions now represent 30% of our total sales. The operating margin increased to 6.5%, and North America and Ibero-America are the main contributors, and we also had a material contribution from Stanley. The Stanley Security business improved as a result of pricing recovery, cost control, and leverage, and also some impact from initial execution on the value creation plan. If you look at the external environment, labor scarcity and inflation continue to be important factors, but we are managing well and have a positive price-wage balance. Cash flow in the quarter was strong with an operating cash flow of SEK 2.8 billion, or 122% of the operating result. Given the increased debt level after the Stanley Security acquisition, cash flow is an important focus area going forward. All in all, it's a solid quarter. I would also like to highlight that with the acquisition of Stanley Security, we are now accelerating building the future Securitas. We share the strategy and the new financial targets at an investor update in August. I will come back and talk a little bit more about this before we open up for the Q&A. We also had a successful rights issue, which was well-received and oversubscribed, and I would just like to take the opportunity to thank all shareholders for your trust and participation. We have good momentum with the integration and value creation plan with Stanley and progressing according to plan. With that, let us turn the attention now to the performance in the different segments, and we start with North America. Here, as I highlighted, we return to positive growth in the quarter. We have high price increases that are an important driver, but as commented earlier, commercial activity is strong and we are achieving 3% growth despite the one large previously announced low margin contract that is still affecting the comparatives until the end of this year. The installation business improved in Q3, and we now have a record level backlog, but we're still facing some challenges related to component shortages and labor shortage. When you look at the overall revenue and margin mix now in North America, Technology Solutions now represent 30% of our sales in North America, and this has a positive impact as well on our profitability. Here we achieved or a record level, I should say, operating margin of 7.8% in the quarter. The improvement was driven by technology, by improvements in our Guarding business and strong contribution from our Pinkerton business. Stanley Security contributed significantly. When looking at the Guarding business, disciplined pricing and portfolio management are contributing to the improvement, and we continue to realize value with the transformation program investments. On the negative side, lower extra sales and margin pressure from labor shortages had a negative impact on the margin in our Guarding business. All in all, it's very good to see continued improvements in North America. If we shift, switching then to Europe, where we generated 7% organic sales growth, with strong price increases being a major factor, as is the impact from the inflationary environment in Turkey. We see continued post-pandemic recovery in Europe, and especially in the airport security business, where activity and growth was high in the quarter. Double-digit growth in technology and solutions is another important contributor to the growth and also the profitability. The margin improved to 6.6% in the quarter, and Stanley Security was an important contributor to this margin improvement. When you look at the external environment, we face continued challenges related to sickness and labor shortages. This did have a negative impact on the profitability. Our team is driving really good progress with active portfolio management, and this is even more important now in light of the labor scarcity that we are still seeing in most markets. With a better offer than ever, we're actively promoting technology and integrated solutions to our clients, and as I highlighted, with good momentum. If we move then to Ibero-America, where we also have continuously good momentum with 16% organic sales growth in the quarter. All markets in Latin America had positive organic sales growth, but Argentina was the primary driver. If you look at Spain, which is a very important market for us, we continued at a good pace with 6% organic sales growth. Shifting to the profitability, where we recorded an operating margin of 6.1%, and I believe this is also a record in modern time, where you can also see that the execution of the strategy is delivering margins now that are on a significantly higher level compared to a few years ago. We have solid performance in Spain and Portugal, and that is really the main driver behind the margin improvement. We had more of a mixed picture in Latin America, and the operating conditions when looking at Argentina remain challenging. All in all, if you're looking at the segments, we have strong performance in the third quarter, continue to execute on the strategy, and this is generating results with improving margins. With that, Andreas, I'll hand over to you for some more details regarding the financials. Thank you, Magnus, and hello, everyone. We start as always by looking at the income statement. We continue to see high organic growth of 7% in the third quarter with good momentum in our technology and solutions business and strong price increases in light of the inflationary environment we're seeing. The operating margin is coming in strong at 6.5%, where we continue to see good margin development in our Securitas legacy business and positive margin impact from consolidating Stanley. A few words here related to the Stanley consolidation. We have consolidated Stanley into our books as of July 22, and in other words, it's not the full quarter of Stanley that you see in the result yet. You should be aware that some key ratios are impacted as Stanley has not been with us for a full year. Stanley's come in with approximately SEK 3.4 billion of sales for the period, and they are growing mid-single-digit% in the quarter with continued strong backlog. Approximately 65% of the total Stanley sales is related to North America, where the smaller healthcare and product businesses are also reported, and the remaining 35% of the sales you find in Europe. From a profitability point of view, Stanley supported the margin positively in both segments, while the North American business had higher margins than in Europe. All in all, an overall strong contribution to the group margin from the Stanley business. If we then move on and look below operating results, here amortization of acquisition-related intangibles was SEK 137 million in the quarter, a bit more than double compared to last year. This is fully explained by the amortization of intangibles related to the Stanley transaction of SEK 72 million in the quarter. We have allocated approximately SEK 5.5 billion to intangibles in the Stanley PPA. The majority of that is related to customer portfolio amortized over 15 years. We expect to have an annual amortization rate of around SEK 375 million per year going forward. This is also in line with the US dollar numbers we have communicated to you earlier. Looking then at the acquisition-related cost, here we have very limited amounts. We have paused acquisitions to focus on the Stanley integration and to deleverage our balance sheet. There may be one or two smaller exceptions to this, but there will be nothing major in the coming quarters. We expect small numbers here also going forward. Remember though, that the acquisition cost related to Stanley is reported under items affecting comparability. If we then go to exactly that, the items affecting comparability, here we had SEK 414 million of cost in the quarter. SEK 226 million of this is related to the Stanley acquisition program, and SEK 188 million is related to the ongoing European and Ibero-America transformation programs. I will come back with some more details related to items affecting comparability here shortly. If we then move to the financial net, here the net cost was SEK 266 million in the third quarter, and the main reason for the material increase compared to last year is the financing of the Stanley acquisition, where we have had SEK 170 million of cost in Q3 related to the bridge financing in place. Of the SEK 170 million, approximately SEK 50 million is related to the bridge to equity, and this bridge was fully repaid in the fourth quarter after the finalization of the rights issue. We will have an additional cost of approximately SEK 25 million more in the fourth quarter, and then there are no more cost coming related to the bridge to equity. The remaining SEK 120 million related to Stanley is then the cost for the bridge to debt. This cost will be ongoing until we take the bridge out, and it will then be replaced with new long-term financing. Important to remember that the SEK 120 million in the quarter is not for a full quarter, so all else equal here, the cost will be higher in Q4. If we then look at the finance net excluding Stanley, this was SEK 96 million in the third quarter, basically the same number as in the third quarter last year. However, we see an underlying increase in interest cost, which is compensated by positive impacts of approximately SEK 50 million from IAS 29, hyperinflation in Turkey and Argentina, and also some FX gains. If we then look at tax, here we forecast the tax rate to be 27.2% for the full year of 2022. Stanley's coming in at around 28% in their tax rate and combined with some increases in non-deductible expenses, this explains the increase compared to Q2 when it was 27.0%. Before moving on, I also want to highlight that the number of shares used for calculating earnings per share has been adjusted for the bonus element of the rights issue in line with IAS 33. The number of shares we have used is now 438 million to be compared to the 365 million used before in previous quarters. Both this year and the comparative have been amended, and you find more information here on page 21 in the report. On the next slide, we have some more information related to the different programs under items affecting comparability. Here we closed down 3 programs at the end of last year, and the 2 remaining ones are the transformation program in Europe and Ibero-America and the acquisition-related cost related to Stanley. Looking at the European and Ibero-America transformation programs, here we had SEK 188 million of cost in Q3 and almost SEK 480 million of cost year to date. Our estimate for the full year is around SEK 600 million here, or possibly a bit north of that. This includes the impact from the cloud computing accounting regulations that we implemented and communicated to you in the fourth quarter last year. All in all, we are coming in here at the upper end of the range that we communicated in Q2. Moving to the IAC related to the Stanley transaction, here we announced total cost of approximately $135 million or 1.5 billion SEK in December. The integration program is progressing well with a good start of the value creation and also good start of the synergy takeout. In the third quarter, looking at the cost here, we had SEK 226 million of costs in the third quarter, and what is coming in so far is mainly transaction cost and cost related to the synergy takeout. Year to date, we have spent almost SEK 300 million, and we expect to take the majority of the SEK 1.5 billion of cost over 2022 and 2023. I mentioned the cost of the bridge to equity here earlier as well. The SEK 51 million here is reported under financial net in the income statement and not on the line items affecting comparability. However, given the non-recurring nature of the bridge, it is adjusted for when we report our earnings per share, excluding items affecting comparability, and should then be seen as an IAC when looking at net income. All in all, looking at the year to date on the left-hand side, we have a total of around SEK 770 million of items affecting comparability in the operating income from the transformation programs and from Stanley. We're adding on the bridge to equity, and then the total items affecting comparability looking at net income is SEK 825 million. We then move on here to the next page, and here we have an overview of the FX impact on the income statement for the quarter and year to date. Here we had a major positive impact on our income statement, especially from the US dollar that appreciated 29% year-over-year compared to the Swedish krona. The total impact on sales was 13% in the third quarter, mainly then driven by the US dollar development. I should also say that the US dollar and the euro FX was a bit lower than the end rates throughout the quarter, which is explaining the somewhat lower average impact on our sales compared to the end rates. Looking at the operating result, the FX impact was a bit higher at 15%, mainly due to the higher profitability levels in our North American business and with the similar impact also when we look at earnings per share. The EPS real change, excluding items affecting comparability, was 22% in the quarter. This is derived from the real change on operating income in the quarter being strong at 30%, positively impacted, of course, by this, by the Stanley acquisition. While the increase of amortization of intangibles, the increase in the financial net and also tax impacted negatively, leading to the 22% of EPS real change. For the first nine months, the EPS real change, also excluding items affecting comparability, was 15% with less contribution from Stanley as we consolidated the acquisition in July. We move on to cash flow. This is a prioritized area for us due to the increased economic uncertainty and also of course, as we have strong focus on deleverage our balance sheet after the Stanley transaction. We have worked on improving the cash flow by focusing on our collection efforts and our working capital management. We have also strengthened our cash flow incentives across the business, and we have improved our forecasting and follow-up processes. The third quarter is coming in strong at 122% or SEK 2.8 billion operating cash flow, where we had good collections in the quarter after a weaker start of the year and overall, a stable development without major impacts, and now Stanley also contributing, of course. If we look into a bit of more details here and looking at CapEx, we had SEK 968 million in the quarter. That is an increase of SEK 315 million compared to last year. Here we see a continued increase in our investments into solution contracts, which is also confirming the positive momentum we see in the high-margin solutions business. We also saw continued investments into our existing transformation programs, going also according to plan here. The CapEx to sales was 2.7% in the quarter, and we continue here to expect to come in below 3% for the year, now also including Stanley. The accounts receivable is coming in positive at SEK 185 million in the third quarter, and, as I said before, we are satisfied with the collection effort and the focus from the teams in the third quarter after a weaker start of the year that was also impacted by the high growth we see in the current environment. Moving further down here, we also have positive effects on other operating capital employed, which is mainly coming from increasing employee liabilities in the quarter, which is explained by the growth we see in the business now also in North America. When comparing the operating cash flow in the third quarter this year to last year, we should remember that we last year repaid SEK 600 million of the COVID-related timing and relief measures that we benefited from in 2020 in North America. We also had one more payroll in North America last year impacting the Q3 comparative negatively as well. Important relating to the timing here, this payroll timing difference has no impact year-to-date nor for the full year as we in the first quarter this year had one more payroll than Q1 last year. Moving to the free cash flow, which is also coming in strong at SEK 2.4 billion, thanks to the strong operating cash flow. Although we had some additional cash going out compared to last year in the financial items, and those outflows are related to our bridge facilities. Year to date, we are at SEK 2.2 billion of free cash flow after a real strong improvement here in the third quarter. Important to remember going into the fourth quarter is that we still have the final $70 million of COVID-related timing and relief measures in North America still to be paid. All in all, concluding here, we are satisfied with strong cash flow in the third quarter. We will continue to have high cash flow, cash flow focus going forward to ensure we have a really good end of the year and continue our deleverage journey. We move on and have a look at our net debt. Our net debt has increased materially by SEK 38 billion the first nine months of the year, landing at SEK 52 billion at the end of the third quarter. The main reason here is, of course, the Stanley acquisition, which is impacting the net debt by more than SEK 32 billion. We initially financed the acquisition fully with debt through our bridge facilities and have since then partly refinanced that with equity, as you know, in October. Outside of the acquisition financing, the net debt was also negatively impacted by the annual dividend of SEK 1.6 billion that we paid out in the second quarter, SEK 800 million of spend related to items affecting comparability, a material SEK 4 billion translation impact due to the major currency movements we have seen, and approximately SEK 1 billion related to IFRS 16 lease liabilities. More or less the whole increase in lease liabilities here is related to the Stanley acquisition, taking it from GAAP to IFRS. Of course, we had the positive impact coming from the strong cash flow here in the third quarter and a total of free cash flow of SEK 2.2 billion for the first nine months. It is important to highlight that we, after the quarter end, successfully have closed our SEK 9.6 billion rights issue, which has materially, of course, reduced our net debt since the end of September. If we then looking at the net debt to EBITDA, the reported number was 5.8 times here in the quarter. This is not taking into account the rights issue proceeds nor full 12 months EBITDA from Stanley. More relevant is to look at this on an adjusted basis, taking this into account, and then the ratio is 4.0 times, which is also in line with what we presented during the recent Investor Day, supported further with the strong free cash flow in the third quarter. If we further would adjust the net debt to EBITDA with items affecting comparability, the ratio is 3.7 times, which gives a good indication of the deleverage effect after the IAC programs are being finalized going forward. There is also in the quarter a negative impact on our net debt to EBITDA ratio coming from currency, where the balance sheet debt is translated to Swedish krona at quarter-end rates while the twelve months EBITDA is translated using average rates. If we then move on to the next slide, and here we are looking at our financial position and debt maturity chart. As you know, we have a solid financial position today, and none of our facilities have any financial covenants. In the quarter here, we also had a strong liquidity position of SEK 5.7 billion. We also have our RCF still in place with more than EUR 1 billion, maturing in 2027 and that facility is still fully undrawn as per the third quarter. As you are aware, we have bridge facilities in place then also related to this Stanley transaction of $3.2 billion, and we use these facilities to finance the purchase price in July. Since then, we have successfully completed the rights issue of SEK 9.6 billion, as I mentioned earlier, and we have also fully repaid the bridge to equity of $915 million. We remain with the bridge to debt facility of close to $2.4 billion, and we are of course here preparing for the takeout, but we are also in no rush as this facility is 24 months long from closing and also have attractive terms compared to where the market is today. We are considering different options and different funding options going forward, and we will move ahead with the takeout when the price and the conditions are right. Moving on to the S&P credit rating BBB- here. Basically no change since we reported here last time. They confirmed our rating at BBB- with stable outlook after the closing of the Stanley transaction, which was also in line with our expectation at that point in time. Finally here, important to reiterate our commitment to remain investment grade. As I have emphasized earlier, we have strong focus on cash flow and also to make sure we are de-leveraging our balance sheet going forward. With that, I hand over back to you, Magnus. Many thanks, Andreas. That's probably one of the longest updates we've had, but it's warranted also given the circumstances, and the number of moving parts that we also want to provide as much transparency on as we can. Thanks a lot, Andreas. Just a few words from my side in terms of us building the new Securitas. Towards the end of August, we shared our new financial targets and we're putting all the emphasis here on achieving 8%-10% annual real sales growth in technology and solutions, and to achieve an operating margin of 8% by the end of 2025. Also the long-term ambition to achieve a 10% operating margin. If you look at the activities we're driving and the performance in the first half of this year and in Q3, we are confident that we are on the right path to achieve these targets towards the end of 2025. Looking over time, this is obviously a very significant shift in terms of the revenue and margin profile of Securitas to make sure that we enhance the value to our clients and also to Securitas. With the contribution from Stanley, technology and solution sales now account for a little less than a third of our sales, and 50% of the contribution to our operating result is now coming from technology and solutions. Based on our enhanced capabilities and strength in our client offering, our ambition is to drive the shift in revenue profile in the coming years to then be in a situation where we're targeting around two-thirds of the operating result to come from technology and solutions in the next 4-5 years. To achieve that, we're focusing on four main areas. The first one, taking the lead with technology. When joining forces with Stanley, we have an outstanding position in the industry and a platform to offer the best technology solutions to our clients. The second focus area is that we continue to develop the highest quality guarding services with a clear focus on profitability. In this area, the investments that we have been making with our transformation programs and are making in Europe and Ibero-America are critically important, as is the pricing and profitability discipline. The third focus area is to accelerate our integrated solution sales. We drive this market, and we're leveraging here our leading presence with people, technology, and other specialized protective services such as corporate risk management. Last but not least, when we're building this platform now with a modern platform and with scale, we are tremendously well-positioned to drive innovation that is meaningful to our clients. That innovation we can drive internally, but I also believe we're becoming significantly more attractive also to our partners. Building on that strong platform, we're also accelerating our sustainability agenda. Together with our clients and internally, we are now driving the sustainability agenda in the entire security services industry. I'm really proud of the fact that we are the first global security services company to commit to the Science Based Targets initiative. As we've outlined in this slide as well, beyond the environmental focus, there are a number of important areas where we make a significant positive difference, not only to our clients, but to our people and society at large. These are the main areas where we are focusing our sustainability efforts in the years to come. With that, I think we are ready to wrap up the results presentation. Just a few final words here. We are executing on our strategy. It is generating results with an improvement of the operating margin to 6.5% on a group level. As I highlighted before, the highest margin to date, I believe, in North America and Ibero-America. We have good momentum and growth with Technology Solutions, maintaining a positive price wage balance in tight labor markets. We have completed the most transformative acquisition in the history of Securitas when joining forces with Stanley Security. This means that we are further differentiating ourselves with a leading client offering and positioning ourselves for significant margin enhancement in the coming years. With that operator, we are happy to open up for the Q&A. If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. The next question comes from Anvesh Agrawal from Morgan Stanley. Please go ahead. Hi, good afternoon. I got three questions really. First, just referencing back to the numbers you reported for July and August, while doing the rights issue. It seems like there is an acceleration in organic growth in September. If you could just comment what has led to that, specifically in September. Again, just going back to that, so your margins of 6.5% are consistent with what you reported for July and August with one additional month of Stanley in, which should be higher margin than the group average. Also if we just look at the numbers, it looks like the technology had a really strong organic growth. Just wanted to check what's happening with the underlying margins. Are there any areas of softness there that is limiting the margin progression? Just on the leverage, and clearly you got about SEK 35 billion-SEK 36 billion of debt up for refinancing. I mean, you got the favorable terms on the bridge, but does it get more expensive the longer you keep it, or the rates are fixed on the bridge till 2024? Just trying to think about how should we think about the interest cost for next year really. Thank you, Anvesh. If you're looking at the first question in terms of the growth, yes, I mean, we have really good momentum in the overall business. If you're looking at what has improved significantly in Q3 over Q2 is that we are returning to positive growth in North America. That by itself is a very important factor. We're also continuing to drive price increases, and I think that's a massive strength as well, that we are able to balance and in some cases also create some positive balance. That is also testament to the strength of the offering that we have. I would really highlight those two as the main points. Margin, as you highlighted, 6.5%, that's also in line with what we had in the trading update. Similar picture in the month of September, so nothing dramatic there. What is important is that the Stanley business is continuously improving as we had anticipated and also communicated expectation of at the investor update that we had at the end of August. It's yeah, continued good development. Then I think you asked about the underlying business. I mean, if you look at the improvement here from 5.9% in margin last year to 6.5% this year, there is solid improvement in the underlying Securitas business. There is also significant contribution from Stanley, which is kind of the bridge between 5.9 up to 6.5. Regarding the question around the bridge here overall. What we can say, we have said before, we are not going into the commercial details of the bridge facility. It is attractive terms on the bridge facility we have in place compared to the market today. You can also say the attractive terms remain throughout the period also when you're comparing to the external market and the pricing you see in the external markets today there as well. Yeah, that's clear. Just to be clear, Magnus, on the margin point. The point I was trying to make is July and August was 6.5% with about one month of Stanley in. For Q3, obviously you got September with Stanley in, and that is should be a higher margin than the group average. The technology business is growing very fast. Why your margins aren't better than 6.5% that you reported for July and August? I mean, September theoretically should have a higher margin than 6.5%. I mean, there is nothing to kind of draw in terms of conclusions between the individual months. We look at the 6.5% as a solid 6.5%, very similar overall picture in the month of September as in July and August. Okay. Thank you. Thank you. The next question comes from Katherine Carpenter from Bank of America. Please go ahead. Hi, everyone. Thanks for taking my question. On Stanley, it looks like the mid-single digit organic growth was relatively steady throughout the quarter, just based on today's announcement and the trading update. Could you confirm though, whether there is any shift in momentum at the end of the quarter and heading into the fourth quarter? And then also on the cost synergies, can you quantify how much of the $50 million of synergies have been realized at this point? And how we should think about the realization of those going forward into the next few quarters? Thanks. Thank you, Kate. If you look at this, I mean, the business, we shouldn't interpret too much between the different months, typically within a quarter, because there could always be some natural variation. What I would say is, the overall kind of growth and also overall performance improvement that we saw in July and August has continued in the month of September. It is just a solid improvement compared to the first half, when we didn't own the business. I think that is number one. If you're looking then at the cost synergies of SEK 50 million, that is the target that we have. We are progressing really well in terms of this. We are saying that we are firmly on plan in terms of achieving those. We did have some benefits from the fact that the close and the transaction took 2-3 months longer than what we had anticipated. I would say we're coming out, and the team is doing a really good job here with the combined teams now with the new Securitas technology team starting to execute on the value creation plan. The vast majority of the impact here will come in 2023, and then also some in 2024. That's as much as we can say at this point. We feel really confident the team is doing a really good job, and we are, like I said, firmly on plan in terms of the synergy realization. Understood. Just a quick follow-up on that. Are the synergies pretty well-balanced between Europe and the U.S., or should we think of them as being more geared towards the U.S. in terms of thinking about FX implications? Fairly well-balanced, I think where if you're looking at a timing, I think it will be, overall a bit faster in the U.S. than in Europe in terms of execution. Perfect. Thank you. Thank you. Please state your name and company. Please go ahead. Raymond Ke, Nordea. Hi, can you hear me? Yes, we can hear you, Raymond. Yes. Okay. Sorry. Hi. Two questions from me. First one regarding bridge loan refinancing. You said that you would continue to refinance when the conditions were right. Could you help us understand a bit how you're reasoning here? Yeah. From our perspective right now, obviously, if you take a step back, of course, the markets are much more challenging today compared to when we did the transaction here in December. We are now also looking into what kind of financing we want to have in place, where there are different type of options for us. You have the bond market, you have bank loans, and you also have other options out there as well. The pricing, of course, difference between those different options. That is also what I referred to here. We will only execute on the takeout if we find the sort of terms being relatively also then attractive to us as well. I think it is from that perspective you should see it. Okay. Is there a reason to perhaps even think that you might look into a different way of financing, such as a rights issue? No. Potentially? Absolutely not. No. This is looking at, if this is comparing, for example, the bond market to the term loan market and other types of debt financing. There's no additional rights issue. Just to be very clear about that. Perfect. In terms of timeline then there, could you perhaps give any details there? Is it like, 2023 or? The bridge is 24 months long, so it will definitely be within that. Then of course, we don't want to wait here to the very end either. As I said, also, we have good attractive terms here today. There is also benefit then for us to wait and just make sure that we have good timing of the execution. We will find the balance in between those two that I mentioned there as well. We will come back to you, of course, when we do the takeout as well, but we don't have an exact time in mind today. Got it. If you were to delay the refinancing, will you be incurring any additional fees other than the interest costs for our understanding? You mean related to the existing bridge facilities today, Raymond? Yes, exactly. If there are other costs associated, if you push the timeline. No, I mean, it's normal commercial terms here in the bridge facilities. Then, I mean, as I said before, we're not going into that from that perspective, so but nothing that stands out as any major fees or so that would not be ordinary course of business in this type of bridge facilities. Perfect. I'll get back in line. Thank you very much. Thanks. The next question comes from Allen Wells from Jefferies. Please go ahead. Hey, good afternoon, guys. A couple from me, please. Firstly, I just wanted to follow up on Anvesh's question from earlier because I think I'm kind of struggling with the same thing. If I do my kind of my own assumptions around what I think the margin accretion is from Stanley plus you're probably 10 basis points from FX as well, there isn't a massive underlying performance for the core group, it seems to me. Going back to again, Anvesh's point about technology, it looks like 20%+ growth from the tech side of the business as well. Maybe just ask the question a slightly different way. You know, is there things like mobilization costs on the tech side or are there some headwinds in the guarding business that are offsetting what we would expect to see, if stronger underlying margin improvement? That's my first question, and I'll ask the other ones after, if that's okay. Yeah. Thanks, Alan. No, when you look at the business, I mean, between individual weeks and between individual months in a quarter, there will always be some variation. It's, I mean, it is a portfolio business, but then if you look at the technology business, that's more of a project business as well. I mean, that could also, there will always be variation or some fluctuation in terms of when projects are completed, et cetera. There is nothing to read in, to those numbers. We look at it as just solid continuation of the performance that we had in July and August. I wouldn't really read anything into it. You can almost look at that like, you know, when it's only really relevant to look at the full quarter for more of a complete picture. Just going back to the growth question as well. Obviously, if you look at that acceleration in growth to 7% from the 6%, you know, that basically implies a near 9% growth number for September, just simple math averaging out. How should we think about that and that exit rate? Can we extrapolate that for the fourth quarter? Or just trying to make sure my assumptions for the fourth quarter are correct. My final question was just around we see a bit of a narrative coming out of certain parts of Europe, and this isn't security specific, this is just a general comment, that some of the wages that we're seeing may be lagging CPI, may be due to some of the collective bargaining agreements in place. If there's potential for a bit of lag headwind, for some businesses as pricing is maybe ahead of some of that. Would you agree with that narrative, or would you go against that? Just trying to understand from someone who's obviously dealing with it right on the front line, it'd be really interesting to get your views there. Yeah. We have, Alan, to the question here. It's definitely the correct observation that we had stronger growth in the month of September. Like I mentioned, North America is a big and important driver because there we were returning to growth in the quarter, and we've had really good commercial momentum there. That is one. I should also highlight when you're looking at the general growth going into the fourth quarter. We are doing really well in terms of balancing price-wage balance overall. We do that with what we call kind of more of a dynamic approach in terms of not doing a regular quarterly or annual cycle, but rather doing price increases whenever they are required. I would say we have strong commercial momentum across the board. I mean, it's not only North America. We have healthy new sales with good margins in the other divisions as well, looking at the third quarter. We feel quite good about where we are. We are really disciplined because labor scarcity is a real challenge for us in terms of you know, availability and our ability to find people. Even more important that we are disciplined in terms of the portfolio management that I have referred to quite a lot over the last year and a half, that we are driving and actively executing across the board. Coming a little bit to the last question then what you said in terms of do you know, do you make the right assumption? I mean, when we are doing price increases, we always try to time those so that they coincide with the underlying wage increases. That is the general rule and methodology. What I could say, and this is nothing new because I've highlighted this in previous calls. Looking at Germany, for example, there is a very significant increase in terms of minimum wage across the market. That is obviously very relevant for us, that we make sure that we cover that completely with price increases. If you're going into the new year, Netherlands is another market where there is also strong double-digit increases expected. There is a number of those factors as well in this type of environment that will have an impact, but we typically always try to time those quite, you know, the price increase with the wage increase. Worst thing that can happen to us is that we fall behind. This is kind of DNA and a core focus of Securitas for many years, and we have a strong track record, and it's really serving us well. The clients are receptive to the price increases, and I think that is important. That is probably because they know, you know, there's generally a very good awareness in the market about the inflationary environment. It's about our ability to maintain and to continue to develop the quality that the clients are willing to pay for. This is something that we are working, and obviously, when we're strengthening our offering with more technology capability, more solutions, options, et cetera, you know, we have a really strong offering also to manage in a more complicated environment. I think that's what we've done in the first nine months of this year, and that is also our ambition as we are going forward. Great. Thank you. The next question comes from Sylvia Barker from JPMorgan. Please go ahead. Yes. Hi, good afternoon, everyone. Thanks for taking the questions. Two questions, please. First of all, on the Stanley margin, you talked about 9% EBITDA in the first half, and you said in the trading update and today that sequentially that is better. Could you give us an idea of where that margin stands, in Q3 and what you expect for the second half? Yeah. If we look at this in general terms, we were somewhat concerned in the first half when we looked at the performance. Stanley took a number of decisions. One, which was very important, was price increases. That is now starting to flow through, and that is a clear, you know, important driver behind improved margin. Another one is also executing on some decisions that I think they also held off in terms of executing, anticipating the close, which was a prudent thing to do. Now our joint team is executing with clarity. I think that is another factor. when you're looking at this, we don't break out exact numbers, Sylvia, but it is a clear improvement and we feel that we're on the right path. That would be somewhere between 9% and 12% that you've talked about before for the first half of this year and the full year last year respectively or? Just to be clear on the 12s there, Sylvia, is that, I mean, the close to 12 that we communicated in December was an EBITDA number, which I think is important to remember here. We are comparing apples to apples, so it would have been lower. The 9 is EBIT, not EBITDA. That was EBITDA that we did there as well. That's an important difference there. Okay. Clear. Thank you. Just going back to this point on the European margin. It sounds like you have already implemented price increases in Germany, let's say, and you're currently implementing them in the Netherlands. Can you just give us an idea of how progressed that is? Because obviously the German minimum wage increase happened on the first of October. Just thinking about your Q3 margin in Europe, that was flattish ex-Stanley. Just some concern whether that would still be flat or any worse in Q4. Kind of where are you on the timing of these price increases? Yeah. Generally speaking, a bit, reiterating a few key points. We are driving this hard. If you're looking at the German market, I mean, we are typically not at minimum wage. We will typically be above minimum wage, and that's also more the kind of quality and the premium positioning that we have in the security services industry and also the expectation from our clients. It's not kind of a direct impact. We don't comment on the progress beyond the third quarter. Like I said before, I hope that you feel that as well, I mean, we have really strong offering, stronger offering than we've ever had. We have very high focus on this throughout the organization, and that is the same in the German business where I spent a couple of days last week. You know, we can just reiterate those key points, and the clients are generally receptive as well. I think that that's the most important thing. We continue with high focus, strong offering, and then obviously with the ambition of making sure that we are successful in balancing also in the next couple of quarters and years in the same way that we have been, if you're looking in recent history or the last couple of years. Okay. It's clear. Thank you very much. Thank you. The next question comes from Viktor Lindeberg from Carnegie. Please go ahead. Thank you. Viktor Lindeberg from Carnegie here. Hope you can hear me. A few just questions on cash flows and also the financing. Starting on working capital seasonality, now you have a bigger project business. And just to understand the development here in the coming quarters, is there anything we should be mindful of going in now to Q4, Q1, and so forth, that is sort of tilting it to alter history? Second, looking at your multicurrency bridge financing that you now have in place, what is the mix here from euros and US dollars? Is it fairly matched with your revenue split, or can you sort of give any guidance on how to think about that given the moving landscape on FX relative to the Swedish krona? If we're starting on the currency here when it comes to the bridge, here we basically have a currency mix matching our capital employed. If you think about it, you can say if you're looking at our sales as, you know, a guidance here, obviously it's the balance sheet that we're hedging here. If you take a sort of the revenue split that we have in U.S. versus euro, you would get a fairly good understanding of the currency mix that we're having there. Because we have basically already then hedged our balance sheet in that mix, Viktor. If you're looking at cash flow, seasonality-wise, we have normally a stronger second half year in the business overall. Now, of course, with Stanley coming in, I don't see any reasons why it would be a weak or especially strong Q4 on the Stanley side coming in. Of course, I mean, we have owned them now for two months, so here we also need to learn over time, but we have not seen that in the past neither, so it shouldn't be anything new coming in there. Then, of course, as I said before, we have the $67 million that we're going to pay out related to those COVID-19 reliefs in North America. That we need to pay out in the fourth quarter. That will impact from that perspective negatively. Otherwise, I do not see anything else specific. Okay. That's clear. All my other questions were already answered, so thank you. Thank you. The next question comes from Karl-Johan Bonnevier from DNB Markets. Please go ahead. Yes, good afternoon, Magnus and Andreas. A quick one on asset management or the portfolio management. What's your early take on the efforts you have put in on that side? Well, this is something, Karl-Johan Bonnevier, that we started to drive more actively a few years ago in the aviation segment part of the business. It was a little bit triggered by yeah, not having had enough discipline or rigor historically in terms of how we manage contract profitability within aviation. After 2020 and the positive experience that we had there, we've taken that more broadly across the entire business. It's a sizable operation that we are driving. To change mindset sometimes takes a little bit of time, but I believe it's serving us well, the work that we have done over the last couple of years. I referenced you know some market visit last week, for example, and also the discussions with our leaders of the different divisions. This is firmly on the agenda. It's not only on a kind of a group or a divisional leadership level, it's also now in the countries. My feeling is good. When we do this, I mean, we always take a measured approach. We respect the contracts that we have. If something is really problematic, obviously we drive with more urgency to try to improve that. You know, looking now compared to six, seven years ago, I think that the general perception among the clients as well is that people really understand the difference between having a really good provider with really good people that are decently or well-paid, delivering really good quality in the relationship. That is the main point here. If we deliver what we believe is really, really good, we also have to charge appropriately for that. I think that's a discussion that we're having in a very pragmatic manner with the clients. We are firm about that. I mean, we are humble, but firm at the same time. I think that is the only right way to do it, because if we are fully aligned in terms of how we work, what the expectations are, and what we deliver, that is always a better foundation for a really good relationship. Then we can focus more on how we develop the relationship and the security equation, as opposed to complaining about things that are not working. I would say I feel that we are in a good place. We have been driving this more from the top from the beginning, but now it's really coming through in the countries. It's also an important time to do that, because everything else equal, you know, when you look at the availability of people, it's only responsible management from our side as well to make sure that the contracts that we have, they are contracts with healthy profitability. If we don't have something which is healthy, I mean, we always then have a structured review together with our client. Either we are increasing the prices to make sure that it's sustainable, or very often, preferably as well, we convert to solutions, leveraging our technology and a greatly increased technology capability. If the client is not willing to do that is the case when we would then say, "Then it's better that we terminate this relationship." What quite often happens in a number of cases there is that the clients all say, "Okay, I understand that you are serious about this. We want to keep the relationship and continue to working with you and your people. So let's sit down again, and we take that discussion." That's really the kind of the You know where we are right now. We've also been driving quite hard to get full and better financial visibility because here we're coming from a legacy situation where it wasn't that easy across the board. With the transformation program investments we are making, we're continuously also enhancing that, and that will be. That work will also continue in the next couple of years. Where North America is, you know, first, that's the division that is the first out, and where we see really good value as well from better systems to support this work. I hope that gives a flavor, Karl-Johan Bonnevier. I understand it's a long answer, but it's a very important aspect of how we execute on our strategy. I felt better to elaborate a little bit more in the answer as well. No, excellent. Excellent. Just to carry on the same theme, you mentioned the conversion of guarding contract into technology. Is that a part of the strong growth you're currently seeing in the technology segment legacy business, so to say? Then also, do you feel so confident about, say, moving your financial targets to also include guarding, saying by coming through 2023 and hopefully having terminated this portfolio management extra effort that you're doing for the moment? Absolutely. I mean, to the first question, when you look at conversion, yes, it is an important part. We have hundreds of thousands of clients in our portfolio of guarding clients. There is a very large and mostly loyal client base that we are continuously working with. Conversions is an important opportunity, and I think when you're getting started on the solutions journey, typically conversions are more important than new sales. As we are enhancing our technology offering, we're also starting to see more and more clients that are coming to us for the first time saying, "Can you help us with your integrated solutions?" We're building more and more good reference cases, and I think that is also expanding with a number of different vertical segments, where there are now more and more positive reference points. Obviously when you look at that in the reverse way, Stanley are also bringing a rich and very good client base. When you're looking at commercial synergies and in terms of added value sales so we can help and enhance the offering to our client, that is also something that we will start to put more focus on as well, beyond the kind of immediate integration work that we are doing, it is also then to take more structured approach in terms of commercial synergies, to help more and more clients with more of their security needs. The guarding question was the second one that you asked, and I mean, we're deliberately putting focus here in terms of the growth on technology and solutions because that is where we provide the highest value to our clients and also to Securitas. We have also said that we will and Andreas and the team are working on that as well during the first half of next year, also provide more transparency in terms of the performance in the different parts of the business. That's something that we're gonna come back to in 2023. Sounds promising. Thank you very much, and all the best out there. Thank you. The next question comes from Johan Eliason from Kepler Cheuvreux. Please go ahead. Yeah. Hi, this is Johan at Kepler Cheuvreux. I was just wondering a little bit. We have been focusing on the pandemic recovery this year and the Stanley acquisition obviously. We just hear the Swedish government talking about Sweden turning into recession next year and most likely other countries in Europe will fare likewise. How prepared are you for a potential downturn into next year? Your debt levels is quite elevated as we speak. Your resilience was fairly good in the great financial recession a decade ago. Has the Stanley acquisition sort of improved that resilience you think? How do you look at it from a potential preparedness ahead of a downturn? Thank you. Thank you, Johan. A few comments or perspective here. As you highlighted, we have been quite stable also in more challenging times economically. That is very much down to the fact that we operate a large portfolio business. I think the other factor here as well at a very high level is that the need for security is there and continuously growing. I think when you're looking at major trends beyond and outside of Securitas specifically, the need for security is there. If you're thinking from a client dimension, this is not something that we are seeing any indications that, you know, there is a kind of a broad downturn or anything like that or decrease in terms of demand. There will obviously be, you know, different sectors and vertical segments are gonna be affected in different ways. I think we're quite well-positioned in terms of our portfolio. We're working with many of the leading brands of the world are, you know, choosing Securitas, and I referenced also one contract that we have just extended as well with positive growth. I think from that dimension, if you take that lens, also quite well-positioned. Obviously, we also have a really strong offer and the security market itself is large. We are now the leading player, not only in terms of guarding, but also in terms of technology and integrated solutions with by far, I would say, the strongest offering in the industry. That helps you in good times. It also helps you in more challenging times. I think that's another one. We are working as well with contingency plans, and that's something that we did very diligently in the COVID period because then we entered a period of significant uncertainty if we go to the beginning of 2020 with scenario planning. The approach that we take there, I mean, we do that on a group level. We do it across the different segments and divisions. We do it also on a country level to make sure that we are maximizing our preparedness to stay strong also if times are turning significantly more challenging. I think those are the main points. One additional argument just to add some flavor as well is that, I mean, if you were to categorize us in a fairly simple way, you can say that we are late cyclical in terms of the general profile of our business. You need to look at the number of different lenses and perspectives here as well. Preparedness and working with this continuously, I think that we do. We have, like I said, also a number of factors that make us strong also in challenging times. This is of course also one of the reasons for the cash flow focus here as well. What we have done the last couple of months is also making sure we pick up signals from the key countries and the clients there as well when it comes to anything related to the collections, so we don't have any sort of credit risks in place. But in all honesty here as well, we are not picking up any negative signals so far. It's very much business as usual, but we're staying close to that. Also obviously now with the bigger technology business as well, important for us that we are not building up too much inventory in the business, keeping that really sharp as well, to make sure if there would be a weaker demand that we are in a sharp position there. Okay, good. I have a question about the retention rate. If you look at the different geographies, it looks sort of pretty stable or slightly increasing in Europe and Ibero-America, but it had taken a step down in North America. Is that mainly related to this big contract you walked out from, or is there a change in the North American sector? It's only related to that. If I look at, I mean, if we exclude the large healthcare contract and the aviation contract that we terminated summer last year, retention is strong in North America. Our team is doing a really good job. We are going deeper in the relationship, even more important now also when we have a stronger offering with guarding and technology. Looking at the retention overall, I feel quite good. And that's the reason that we say that we have a large and also fairly loyal client base. When you're looking at, you know, contracts that we are renewing, business that we're keeping and developing, we are in a good position. Okay, excellent. Thank you. As a reminder, if you wish to ask a question, please dial star 5 on your telephone keypad. Please state your name and company. Please go ahead. Bridge financing thing with another question, if I may. If we try to back out the interest based on how much you paid for the interest cost since July twenty-second, would that give us an idea of the annual interest rate you're paying, or is that? Are we missing something if we try to back it out that way, so to speak? It would give you an idea of the total cost of the bridge. The answer is yes there. Perfect. Secondly, if I may, could you provide a split between price and volume for the 7% organic growth you achieved in the quarter? Yeah. If you're looking at that, I mean, we do have some volume growth across the board, and I think that is important. There is only one exception, and that's relating to Johan's question before as well in terms of the large terminated contracts. There is quite significant impact when you're looking at the price increase. I mean, that is the vast majority of the 7% in growth. We feel good about that because it's also a testament to the fact that our clients they recognize the quality, they value the relationship, and they are willing to also make sure that we are staying on kind of a healthy basis in terms of the margins. That is the broad picture. Very good. Finally, the stated goal of 8% EBITDA margin by the end of 2025, is it correct to interpret this as your target of 8% EBITDA margin is applicable to perhaps Q4 of 2025 rather than full year 2025? Yeah, that's correct. That's the reason we said end of 2025. I mean, we are all about long-term value creation. Nothing that we are doing is kind of, you know, short-term ideas that we just try to implement, et cetera. I mean, everything that we are driving is based on a plan. It's based on strengthening our offering. It's based on the transformation programs that we are driving, the digitization investments that we have been making, because they also have, you know, not only efficiency, positive impact, but also on client value. All of this is really combined. Obviously together with Stanley being a very important catalyst, we're building a very strong technology offering and business with integration plan, where the emphasis in the beginning is more on the cost synergies, looking at the mid and the long term, and that perspective is more on the commercial synergies and how we unleash more of that opportunity. When we said end of 2025, it really means towards the end of that year. Thank you very much, Magnus and Andreas. I'll get back in line. Thank you. Thank you. There are no more questions at this time, so I hand the conference back to the speakers for any closing comments. Yeah. Many thanks, everyone, for joining us today. Like, we highlighted at the beginning of the call, it is a solid quarter. We feel really good about the development and looking forward to staying in contact. Thank you.