Earnings Call: Q1 2021

May 5, 2021

Good afternoon, everyone, and a warm welcome to our Q1 2021 call. Our CFO, Bart Adam and I are doing this call today as in the previous quarters from Stockholm and Brussels. We are still living in challenging times, but from a Securitas perspective, we keep working with clear direction and priorities and we've had a good start of 2021. If we're looking at the highlights from a group perspective, organic sales growth was flat in the quarter, but we recorded positive growth in all divisions in the month of March. The operating margin improved to 4.9% And this was a substantial improvement versus last year, but also an improvement versus the same period in 2019. The operating margin was supported by strong performance improvement in all business segments. And we took a number of initiatives to sharpen the business and reduce cost in 2020 and these actions contribute to the positive margin development. But at this point in time, we have 4,000 people on temporary unemployment, but government grants help offset the negative impact similar to previous quarters. We are driving a strong emphasis on portfolio management to ensure that we are coming out stronger and more profitable from some of the COVID related challenges that we have been going through. And this is especially important in the aviation business where this work is progressing well. From a cash perspective, we had solid performance in the Q1 with SEK 1 point SEK3 billion operating cash flow. And during the quarter we acquired a fire and safety company in Denmark Danske Brandtechnik and we are excited about enhancing the offering to our clients in the Danish market and more broadly we're continuing to assess acquisition opportunities to strengthen our protective services offering in the years ahead. But switching now to the performance in the different segments and we're starting with North America. So in North America we recorded growth in Guarding and Pinkerton that supported organic sales growth of 3%. And our electronic security team in North America are rebuilding momentum with clients after the pandemic and recorded positive growth in the month of March and this was for the first time in quite a period since we had the negative impact starting a little bit more than a year ago from the pandemic. So this is a positive sign and positive direction and good work by the team. Extra sales have been stable at continued fairly high levels in the quarter even though a little bit lower percent of sales compared to the second half of twenty twenty. If you're looking at the Profitability perspective in North America, we had solid improvements in all business units that contributed to an operating margin of 5.9%. Guarding improved with margin support from the higher extra sales, but we also had good support from earlier cost savings in critical infrastructure services and electronic security. So overall, It's a very strong start of the year from our North America team. And turning then to Europe, We had 1% negative organic sales growth in the quarter, but positive growth in the month of March. And as expected the aviation business had a significant negative impact to the growth in Europe in Q1 And we continue to work through all the aviation contracts to ensure that we have a healthy portfolio with good profitability when the situation is normalizing. And as I said at the beginning this is important work but we are progressing well in these activities. And we continue to shift to an improved revenue mix. Security Solutions, electronic security accounted for 24% of sales in Europe in the quarter. And we had good development from a margin perspective in Europe with an operating margin of 5.1% and this represents an improvement also versus the Q1 of 2019. An improved business mix Benefits from the cost savings program and normal levels of provisioning supported the margin development. But similar to previous quarters, negative impact and related idle time costs from the pandemic has to some extent been offset by the on our related government grants in several countries. So it's still a challenging situation in many parts of Europe and looking at the Q1 performance This is a good achievement by our European team. Let us now then shift the focus to Ibero America. We had negative 2% growth in the quarter and this was primarily related to impact from the corona pandemic and proactive portfolio refinement activities in Argentina and Peru. And on a divisional level we recorded positive growth in the month of March. This was also the case in the important business that we have in Spain. Security Solutions and Electronic Security represented 30% of sales in the quarter and supported by the Tekko acquisition that we closed a little bit more than a year ago. And the operating margin development in Iberia America is also positive with solid 5.2 percent And the operating margin in Spain was supported by improving revenue mix and efficiency gains from the integration of Techo Security. But we're taking further actions to improve performance in Argentina and Peru and the portfolio refinement activities are starting to help to achieve a better quality portfolio and positive impact on our margins. So all in all, it's a good start from a performance perspective of the year And that concludes the overview of the divisional highlights. And now handing over to you Bart for some more details related to our financials. Okay. And many thanks, Magnus. Well, while this Well, this was another quarter during which the impact from the corona What's still important, we continue to manage along the same track as in previous quarters. That is with 4 clear priorities on people, Clients, costs and cash. And I could say that we have become better and better at managing any impacts while continuing also at full Our transformation journey as well. And as Magnus also said, I believe we can say that this is a strong start of the year. When we look at the organic sales growth here of 0%, what we should understand actually was that in January was slightly positive. Then in February, it was negative, but a little bit affected from the leap day, of course, comparison where we had the leap day in 2020. And it was good to see that March was then again positive actually around 2%. So then averaging out to 0 organic sales growth for the quarter, But actually that was a slightly positive number if you would look behind the digit. The operating margin on 4.9 well off ahead of the 3.8% from 2020, which had been affected from the COVID-nineteen back then from the month of March. Back in Q1 2020, we already had a substantial negative impact there from C19. But as Magnus also mentioned, the operating margin of SEK 4,900,000,000 is actually also ahead of Q1 2019 where it was SEK 4,800,000,000 and that we see as a confirmation of a good start to the year. The operating income then here has been supported by around SEK205 1,000,000 in corona related government grants and support measures in the quarter. But of course, we shall remember that these government grants and support served to offset the increased cost levels from idle time. So they are compensating to some extent most of it It's compensation there for idle time cost. This amount of SEK205 1,000,000 was affecting All segments, but with 3 quarter of the total amount within Security Services Europe, where we also have the most people on temporary unemployment. In earlier quarters, this amount of corona related government grants and support was in Q2 of 2020 approximately SEK 350,000,000 then in Q3, SEK 200,000,000 Q4, SEK 230,000,000 So a continuation here of around SEK 200,000,000 per quarter, but slightly lowering then versus Q4. And this goes largely hand in hand with the development of the number of people that we have on these temporary unemployment schemes. We started with around 10,000 employees in April 2020, and this reduced to 7,000 Mid July further reduced to 3,000 mid October, but then resurged somewhat to 4,000 mid January And we basically continued on that level to mid April. We have seen that there was a little bit more effect from the lockdown measures again In Q1 maybe as compared to Q4, actually some countries had been again on a resurgence of the COVID-nineteen, Meaning that there were some further lockdown measures in place. On the amortization of acquisition related intangibles, that was SEK65 1,000,000. The cost level, you could say, returned to the level of the 3rd quarter and the quarters before that. And we saw a bit of a higher number in Q4, but we shall remember there was a small one off adjustment in Q4. Then the line of acquisition related costs included some of the transaction costs related to the recent acquisitions as made during 2020 and the recent acquisition also of Brand Technik in Denmark. Turning to the line of items affecting comparability. We accounted for SEK136 SEK 1,000,000 in the quarter and of this amount and there was a positive amount actually of SEK 1,000,000 relating to the exit from the 11 countries. So that was a net gain compared to our quarter for pre closing calculations and accounting and this net gain was also accounted now under items affecting comparability. Then also we had cost of negative SEK68 1,000,000 relating to the corona related cost saving programs as we announced back in Q2 of last year and then another SEK 104,000,000 negative relating to the transformation programs. And that adds up then all of that adds up to the SEK 136,000,000 for the quarter as can be found also in Note 7 to the report. I will come back in a second actually on some further detail for the full year on items affecting comparability. We turn to the financial income and expenses and you can see here a development from SEK 144,000,000 in the Q1 last year to €94,000,000 now, minus €94,000,000 in this quarter. And this was positively impacted by the favorable Net debt development, as we have seen, lower interest rates and lower exchange rates compared to the Q1 last year. Moving to the tax line, where the full year tax rate is estimated at 27.0 1st is SEK27.4 billion for the full year in 2020. So pretty much in line. The SEK27.4 billion from last year was affected by Nondeductible expenses from the exit from 11 countries. And I shall say also that the entire tax environment It's a bit more fluid, making all calculations and forecasts a bit more difficult. And this then relates to some changes in tax regimes as well as the changes and distribution of our taxable results. And we will further follow-up in next quarters on the tax calculation, but we believe that the 27 0.0 should be on the safe side. Moving then to the next slide here, And that is the items affecting comparability, as mentioned here. We have, of course, in the quarter now, we have accounted the SEK136,000,000 as I mentioned on the previous page. But for the full year 2021, one can expect a range of Items affecting comparability between SEK 750,000,000 SEK 950,000,000. I will not go into all of the details here of these different programs, but we have, of course, on the top the transformation programs as announced in Q4 from 2018. And there, Red Dot will be closed by year end, and we expect there for 2021 a total of approximately SEK 250,000,000 Then related to the COVID-nineteen and the SEK 11 exits, that should also be closed normally by end of this year, of course. For the full year, we expect a range of SEK 150,000,000 to SEK 300,000,000 The final outcome of that Will be highly depending on the C19 development and also the continuation of grants. And it's likely that this will remain open after Q2 2021 as of course COVID-nineteen is also lasting longer And we probably had expected in Q3 and Q4 of last year. And then the 2 recent announced programs, the transformation programs there In the bottom, for those programs, we had announced a total of SEK 1400,000,000 for the period 2021 to 2023, And we are now basically gearing up these projects further and go into execution mode. And of course, we in the Q1 here we had SEK 26,000,000 And that will start to grow as we are further executing and further moving from start up to further execution and gearing up these programs. Then we move to the foreign exchange development. And here, we can see that there have been Considerable effects actually from the different currencies on the quarter. There has been a relevant negative effect that is a headwind from the foreign exchange during the quarter of around minus 10% on the sales level, as you can see here from the difference between total change and real change on the line of sales. There is a total change of minus €9,000,000 but then when taking out the effects the foreign exchange, we have actually a positive real change of plus 1. And then there are even higher significant effects On the lower lines in the income statement and then if we move to the EPS before items affecting comparability that one improved actually in real terms with 36% compared to the Q1 last year. One can say that both the U. S. Dollar And the euro actually stabilized or even strengthened a bit during the quarter, but of course dropped significantly compared to the same quarter last year. Moving then to the cash flow. And here in Q1, We really had a good cash flow coming in during the quarter of close to SEK 1,300,000,000 as cash flow from Operating activities. The Q1 is traditionally a bit of a slower cash flow quarter, but now also here we can say that this was really a strong start to the year. Capital expenditures by itself was SEK 638,000,000 And then it's trending to around 3% of group annual sales for 2021 and that also is including all effects from the transformation programs And including also leases for IFRS 16. The operating cash flow was positively impacted by collections. We had good collections, But we shall also add that operating cash flow was helped by lower organic sales growth. There was no real impact Any corona payment relief measures in the quarter, no positive and no negative. We shall just remember that by year end 2021, We will have to pay about half of the SEK 1,300,000,000 we got as net support in 2020. We will have to repay half of that. So we end the quarter then with almost SEK 800,000,000 in free cash flow and that is a strong number, we believe, definitely for a first quarter. Moving then to the net debt, which ended on SEK 14,500,000,000 Pretty much on the same level as the SEK 14,300,000 from the opening. Positive free cash flow of SEK 796,000,000 as we just commented on the previous page and then an amount of SEK 179,000,000 paid for acquisitions and SEK170,000,000 in items affecting comparability. All in all, this combined effect reduced the net debt with SEK 442,000,000, but then there is a negative effect of SEK545,000,000 in translation, ending then the net debt of SEK14.5 billion. The net debt in relation to EBITDA, as we can see here, is on EUR2.1 billion, and that is compared to the EUR2.1 billion also at the end of 2020. And we had actually SEK 2.4 billion at the end of the same quarter last year. So a strong number, leaving a lot of headroom here for further for instance any further acquisitions. And then we can say that we are backed up with Solid financing, we have good liquidity at the quarter end of SEK 5,400,000,000 in liquid funds. We have, as I said earlier, renewed RCF Facility with 10 core banks for a total amount of close to SEK10 1,000,000,000 and the original facility was for 5 years. And we have now In Q1 extended with 1 year to 2026 with option to extend for another year to the end of 2027 actually. And the RCF is fully undrawn. We had a Eurobond maturing in February of €350,000,000 And we have refinanced for a similar amount actually through Eurobond. And I can say that the facility was almost 10 times oversubscribed. So we were attracting a lot of interest with that order book. We continue to have ample headroom In our rating and we have no financial covenants in any of our facilities and based on the strong balance sheet with net debt to EBITDA And with our solid financing in place, I think we are very well positioned for the future and in a strong position to accelerate our transformation. And with that I hand back to Magnus. Thank you very much, Bart. So we will open up for the Q and A very shortly, but I would like to provide just a few updates related to our transformation programs. When you look at the total picture we've had a good start to the year, but we're also actively driving the transformation of Securitas. And one important event in the Q1 was the brand update that we announced at the beginning of March and this was the first major update to our brand in 47 years. A more progressive, more digital, while at Same time human and inclusive brand identity will support our position as the leading intelligent protective services partner. We're really excited about this and the new brand identity has been very well received by our partners and also internally. But now let me just say a few words in terms of the transformation programs and this is building a little bit also on the update from Bart in terms of the items affecting comparability overview. So we are on plan to complete the work with the first two programs North America and Global IT towards the end of 2021. And in these programs we're now shifting the focus to optimization and benefit realization to ensure that we deliver the targeted impact in 2022. The COVID-nineteen cost savings program like Bart mentioned it continues but Still with some uncertainty regarding the timing of the end of this program and this is primarily related to the fact that COVID-nineteen still affecting economic activity in many countries and there is uncertainty regarding the timing of the winding down of some of these government support programs and also then our progress in renegotiating contracts and especially then related to the aviation business. But with the programs in Europe and Ebera America we are completing now the modernization and transformation journey that we started back in 2019. And the European program fundamentally important obviously to our ambition to improve performance and the value that we generate in Europe and hence also to the group. So I would just like to revisit some of the main objectives and also the levers that we have in terms of driving what are the focus areas, but also what is driving the expected margin improvement to the 6.5% in 2024. And if you look at achieving that we are focusing on a few key areas. First, it's building a common operating model for Europe that enabled us to drive the strategy at scale. The second major component is the modernization of IT systems, focus on improving HR systems, modernize ERP in a number of key markets. And the 3rd important activity is to accelerate and drive solutions in electronic security and we are receiving this now through dedicated organizations and leaders for solutions, electronic security and also related to the in the key countries. And another important enabler to this is to leverage frontline sales tools for solutions to enable the whole organization to sell in an easy way and to be able to do this with momentum. And improving the business mix Through this shift to solutions, electronic security is the main driver behind the targeted margin improvement with the transformation program that we're driving in Europe. But last we're also investing significant amounts in further digitization of our frontline people to enhance the work and the value that we're generating but also to enable more extensive digital client interaction. And this is as we highlighted when we announced this 3 months ago a multi year program, but it will fundamentally strengthen our European business and generate these few critical benefits to drive our intelligent protective services strategy at scale, Transform the guarding with improved margins supporting our ambition to double solutions electronic security that we have as a group targets and enhancing client value. We are at an early stage with this program and also with the program in Iberia America, but we will provide regular updates as suitable in the next couple of quarters. So with that we can summarize Q1. We've had a good start of the year. We've gone through a challenging period in 2020, but the entire Securitas team has worked with clear priorities on Two levels, first one taking short term actions to make sure that we are sharpening the business and improving efficiency and then strong commitment to driving and investing in the transformation programs. Looking at the key financials, 30% real change of operating result in Q1 and clear operating margin improvement versus 2020 and also 2019. Now we are still facing significant uncertainty related to the pandemic but we continue with clear priorities to ensure resilience in the short term driving a high pace of transformation. So with that now glad to open up the Q and A session. Operator. First question comes from Adi Gropolla of Credit Suisse. Please go ahead. Your line is open. Hi, good afternoon. Thanks for taking my questions. Just 3, if I may. Firstly, you talked about the €200,000,000 from government support during the quarter, but also Comments around provisions and bad debt, particularly in Latin America. Could you give a bit more detail about the movements in those items, please? Secondly, from the transformation programs, particularly in North America, are you starting to see Benefits come through to either the cost base or the business. I know you completed some major elements of that program at the end of last year. And so Is that apparent? And if not, when do you expect that to begin to flow through? And then thirdly, I think slightly related to the first one, The weakness in aviation is part of the driver of the relatively low organic growth. Can you just talk us through the balance between the government schemes on one side and the lower organic from aviation? Are those two sides of the same coin? Thank you very much. Thank you, Andy. Well, if you starting with and I'll try to take them here and Bart, Please weigh in as well with any additional comments. On the first question, yes, government grants around SEK 200,000,000 in the quarter. But we should also remember that this is obviously offsetting some of the costs that we have. The level is a little bit lower than what we had in the previous quarter, but still fairly significant. And just to give some flavor behind that I mean there are a few key countries that have experienced quite significant lockdown in the Q1 such as Germany and France to some extent the UK and these are also some of the main markets if you will that account for quite a significant part of the €200,000,000 In terms of provisions, I mean when we go 1 year back we obviously assess that there is significant uncertainty in terms of how is pandemic going to affect our industry as a business but also our clients business. So we have taken a conservative and prudent approach And when you're looking at number of the quarters in 2020 then increased provisions related to potential bad debt and I think we have also transparently been updating you on that kind of development and the approach as well in light of the uncertainty that we have been seeing. If you're looking at bad debt that has materialized I would say that is lower than what we have provided for by a wide margin and that is obviously a positive thing. We are staying close to our clients and we've done that for the last 12 months to also make sure that we are proactively managing or minimizing any potential exposures. But this is something that I mean we are now in May 2021. There is then still from our perspective uncertainty in terms of What happens with the economy, the state of our clients business etcetera after COVID. So we've maintained a conservative approach related to these provisions even though like I said we haven't had significant amounts materializing in terms of bad debt. Moving to the second question, Andy, on North America. Yes, it's absolutely correct what you said. So we have done and hit significant milestones in the transformation programs in the second half of twenty twenty. We are now shifting a lot of the focus more towards optimization and benefit realization of the investments that we have made, but also then over the next 12, 18 months also phasing out legacy related costs when we are migrating fully over to modern systems and also tools that we are adding to be able to share the objectives. So when I look at the Q1 results no material impact but we are On a good path in terms of the work with this program and we're going to start seeing gradual impact so that we can realize our targets by 2022. And then I think you had a third question and that was related to aviation and I will answer based on what I understood here Andy And then please come back in if any follow-up question. We have gone through when you look at the aviation space most of the large contracts. And if you simplify the picture you can say that we now have a situation where we have a number of contracts that were healthy and profitable before COVID-nineteen. They will be healthy and profitable in a recovery scenario or when the market is recovering. But we have also been really diligent with our teams across especially Europe and Ebera America in terms of going through all the major contracts. And the outcome of a lot of that work, I made the reference at the beginning that we've had good progress. If you're looking at last 3 to 6 months we have now gone through a number of the contracts where we've had real issues and the outcome is 1 of 2 potential scenarios. Either we are renegotiating those so that they become Profitable and healthy contracts in the near term and that is obviously the desire from our side. If we are not able to do that then we're working actively to terminate those contracts. And we have also then proactively terminated based on the situation a number or some contracts I should say, but we have also been successful in terms of working out a new contract and a new sustainable model together with the clients. But that work we need to do to protect the value and the profitability and the margin because that is the only way that we can also reinvest in the services and also generate good returns on the business. And when you're then talking about the government support schemes, it is and I think that is What you are relating to? I mean there is a number of people who are idle at this point in time in the aviation related business and that's obviously where we are then receiving temporary unemployment support for those employees. When we are highlighting uncertainty it's more than identifying the fact that we know in some of the countries Like in Germany for example they have said that these programs are going to run until the end of the year. Well then obviously there is potential uncertainty if Demand has not recovered and if programs are starting to be wind and that's something that we will we're obviously closely following that related specifically to the aviation business. And that is also the main uncertainty that we are highlighting and that we're continuously working with to minimize impact, But it is like Bart said earlier, the entire presence of an impact of COVID on society has lasted longer than what we maybe 6 or 12 months ago. But we need to be careful. We need to protect the profitability and for that reason it is contract by contract, client by client essentially work and we continue with that. But I think on the totality we have I feel pretty good about what we have achieved here in the last 3 to 6 months in terms of the aviation portfolio. And if I could just when do you think you'll have more it's probably an impossible question, but when do you think you'll have more Clarity about the aviation portfolio and know what you're going to keep, what you're not going to keep in the kind of underlying profitability long term? So 6 months ago Andy it was I would have been significantly more tentative in terms of the answer because We were just in the middle of that process and I can also tell you it's not easy when we're sitting with clients, clients that are also suffering at this point in time. But we need to go through this because we are here to generate good quality and create good value for the clients but also secure it to us. I think they all understand that, but it has been then when you look at the entire portfolio we have hundreds of contracts and the first focus was really on the top 100 contracts and that has been where the majority of the work has been done. But there are cases as well where we have contracts running until middle of 2022 for example or even in some cases end of 2022 And we also have to be respectful of the contractual obligations that we have. So in a good scenario To your question I would say if we have real stabilization especially in Europe in terms of vaccination programs and rollout that we see that underlying demand is recovering then we should have significantly better line of sight of this in the second half of the year. But that I think is the main driver. What I can say is when I look at You know contrasting with North America just in the last 4 to 6 weeks I mean I'm perceiving significant increase in aviation related activity overall. They are also ahead of large parts of Europe in terms of the vaccination program rollout. So but it is I mean we are on top of this and we're working closely with it. But I think that's as much as I can say Andy at this point in time. Great. Thank you very much. Thank you. Thank you. Our next question comes from the line of Erik Olsson of Nordea Markets. Please go ahead. Your line is open. Yes. Thank you. Hi there. So I was wondering about your installation within electronic security. Obviously, this was burden as well in the quarter Q1. But is it possible here to give an indication at what level this is running at compared where you want to be? So let's say Where you want to be is at the index level of 100. Where are you now in terms of installations? Yes. So thanks for the question. I think if you're looking at the installation activity significant negative impact in the second quarter, Some improvement in Q3, a little bit tentative in Q4 and then what we're seeing is improvement especially in North America in March this year when we are back at positive organic sales growth. But that's obviously then comparing now to a March in 2020 which was where there was a negative impact. So I think that this one it's clearly going in the right direction and we're also seeing good Indications in terms of commercial activity and that is obviously very important because we have more clients now that are more active in terms of reaching out and saying now we can get back a little bit more to business as usual and looking at solutions and the type of security equation that we provide to them. That type of activity has increased quite significantly in the last couple of months and I think that is obviously Positive indication when you look at the data point with the month of March. To your question about an indexation, Yes, I would say that we are still below where we would like to be based on the development. We have More capacity and competence and capability to do significantly more with the great electronic security team that we have. But this one we have to watch it carefully in terms of how it develops, but we are very active Us ourselves for the last 6 months in terms of being commercially active but then also starting to see more on the client side. So I feel more optimistic now in terms of where we are compared to 3 or 6 months ago. So is it possible even to double or triple this from current states, I'd say? Double or triple in what sense? The installation activity compared to what you saw in Q1? No, that I wouldn't say. I mean we've had if you're looking at positive organic sales Growth in this space in the month of March, I mean that is still we're talking single digits in terms of increased deals. I mean this is still quite early. And I should also say when you look at our installations business this is not primarily a volume for us. I mean we are fulfilling an important role in terms of technologies design and integration for the clients which is generating an installation revenue but then we are also keen and clients as well that we then have a recurring relationship in terms of maintenance service and support and so forth. And that kind of balance is always important for us. I mean this is not Volume recovery is not the primary driver but obviously we have a lot of competence and capability. So we need to make sure that we have critical mass and we are not really there yet. Understand. Just final question is on provisioning in the quarter. I don't think you gave a number in the actual report on that. What is that number in Q1? Bart, do you want to comment? Do you mean the government grants and support that we received? No, your question is for No, we have provision basically on the same business as usual. So well, in Last year, we had in several quarters there in Q2, Q3 and Q4 increased levels of provisioning Compared to business as usual, we have now gone back to normal levels. So meaning that the provisions we created during 2020 are still basically sitting In our balance sheet, as Magnus also has commented, we have not seen any higher levels of actual bad debt coming in. So the provisions are untouched as we had them at year end. But now we have basically returned to normal levels of provisioning, which Which means around 0.1%, 0.15% of sales. That is like if you look at the longer Term, that is the normal level that we are basically year after year, 0.1%, 0.15% of sales. And so and that is a normal level that we have now again In Q1, while we have not commented as it is just business as usual. Okay. Great. Thank you very much. Thank you. Our next question comes from Rahul Sherpa of HSBC. Please go ahead. Your line is open. Hello. Thank you so much. I have two questions. First, in terms of your margin target for 2024, Can you just give us a sense that how much of this is driven by technology within the mix? And how much of this is driven by underlying improvement due to the cost transformation program this year, Dorek. 2nd, in terms of the wage inflation, can you just give a sense of what is the sense of wage inflation across geographies? And how difficult is it to pass wage inflation given the current cost environment for clients? Thank you. Thank you. In terms of the margin target, quite a significant part is Business mix related. It's essential that we are enhancing the offering, higher position in the value chain, higher value to the clients and also then higher operating margin for Securitas. So that is one significant part. With the transformation programs There is obviously significant expected benefits in terms of modern stones and tools that will help us from an efficiency and productivity standpoint. And if you're looking at the North America program where we have come the furthest There obviously when I say we're shifting more towards benefit realization after some of the heavy lifting on modernization that we have been doing now successfully last year. I mean the main objective of the North America program was also done with better tools, More automated systems, better insights into the business to be able to free up more time for our branch or district managers in the front line to be able to more actively work with the clients and develop the business. So it is we're not breaking out The exact split, but I mean those 2 are the main two drivers behind the margin targets and we are fully committed to achieve those. When looking at wage inflation, I mean this is an important time now and Here I would say when you're looking at Europe first of all it's a different context due to COVID And we are not through the COVID situation yet because there is a number of countries that are still on lockdown. There were if you look 1 year ago going in to the COVID period or going into 2020 even Some expectations in terms of wage increase etcetera. Then COVID hit us and now obviously There has been a tremendous effort. I just want to highlight with all of our employees and also clients in terms of managing COVID and that was really the first priority. If you're looking at where we are right now it's a different dynamic in terms of price wage. In the little bit the aftermath of the COVID different initiatives that have been initiated and also government programs. Some of the negotiations etcetera have been a little bit delayed. So while we are in balance now we still have very important months ahead of us to make sure that we are on balance for the full year. And that's really I think to give flavor related to Europe. If you're looking at North America We are similar to Europe with a good track record in terms of dynamically adjusting price wage balance and more so in North America even because it's a faster moving labor market and more dynamic. But if you look at North America, I mean this is one very important area that we're also watching because also in North America with Especially some of the federal programs you also see that there is quite a strong incentive for people in different states to enjoy some of the support program as opposed to actively going out and applying for a new job. And that is something that we are seeing in the U. S. And also something that we are following and working very closely with across the full client base to make sure that we are managing that situation in a good way, but with quite some differences as well when looking at the different states in the U. S. So yes, that's a long answer related to wage situation, but I think those are the 2 most Important ones when I look at the overall state of the business for Securitas. And once again to highlight we have a good track record. We are good at handling price wage and this is obviously very important work that we have now in the weeks and the months ahead. Thank you. Just a follow-up question. I mean, can you give a sense of how the churn has Devlop, I mean just in the wake of COVID like how much of decrease in churn are you seeing? Just some color on that. Yes, in terms of employee turnover you mean? Yes. Yes. So we saw some decrease in 2020 especially in the U. S. If you're looking at the situation right now, yes, it's more the kind of the Application pool which is the main point of attention for us right now and that is then to be able and to recruit good people and to help deliver good services and drive the growth in North America. So There's some easening in terms of the churn or employee turnover during 2020, but no significant movements there if you look at the last couple of months. Thank you so much. Thank you. Our next question comes from the line of David Drew at Good afternoon, Magnus and Bart. Just two questions from my side. I think just starting with North America, I see that the client retention rates slipped a bit, I think about 2 Percentage points, which excludes the impact from COVID-nineteen. I'd be interested in just getting a bit of color around these contracts that are falling off. Are these being taken up by other competitors? Or is it just a reduced share of wallet from some of your clients? And then my second and final question is just a follow-up from an earlier question and my apologies if I did miss this, but could you quantify The benefits to operating profit from the bad debt recovery in our Bureau of America. And I just wanted to understand the mechanics Yes. Were these parts of the bad debt that were provisioned for last year or perhaps ones that had really been written off? Thanks very much. Yes, thank you. I'll take the first one and then Bart maybe if you want to comment on bad debt in Latin America. If you're looking at the client retention rate, yes, it is a little bit lower. But If you go a few years back, I mean it's happened from time to time that we have lost 1 or 2 significant contracts. This time that is not really the case. I think it's more of a mix of a few different contract losses primarily as the primary driver. But if you look at that as a question to say is that a major concern Then I would say no because we have good commercial activity, a strong pipeline and like I mentioned earlier Quite a lot of interest as well from clients. So this is something that I feel fairly comfortable with the work that we are doing and also the general state of the client relationships that we have. Bart, if you want to comment on the bad debt provisions and Latin America please? Yes. So just to remember or to remind ourselves, I mean the provisions as they were at year end on the group total, they are still intact as they were at year end. So we haven't touched any of those. What then specifically happened to Ibero America is that, well, the margin improved compared to last year With around 0.8%. And I think we have mentioned 4 different reasons for that in the report. So you can just think that this is like 25% of the reasons as well as it is one of the reasons. That is basically the impact. And it was bad debt that we had entirely reserved. Now we have been paid. We basically, as I said, kept the provisions on the same level, but this then has the results the payment has fueled then The operating income for the quarter in Iberia America. In all other divisions, it remained Intact as it was at year end. Okay. So if I understand you correctly, so The bad debt recovery accounted for 25% of the Ibero America Delta in margin. Is that correct? Roughly, yes, yes. It's one of the four reasons and we improved 0.8, so then you can assume that it's like 0.2 as well. Okay. Thanks very much for both those answers. Thank you. Our next question comes from the line of Kate Somerville of UBS. Please go ahead. Your line is open. Hi. Three questions for me, please. So firstly, just on the U. S. The organic growth slowed down a little bit from last quarter. I was just wondering what you think the main driver behind that was? And then I suppose kind of linked to that, in terms of some extra COVID related sales, how much did that impact So total organic growth and how long do you expect that to continue? And then finally, just on Those solutions based contracts, Jovav, what tends to be the lag between the conversations that you're having at the moment And that's coming through into growth. Thanks. Sorry, can you repeat the second question? I missed that. Yes. So through last Here you did sort of extra COVID related sales, so parts of the business that you benefited from the pandemic. Are you able to break down how much Of that within grades for this quarter. Okay. Thank you. Thanks. Bart, do you want to comment on the first one? To be honest Magnus, I missed on that one. I catch the second one. So I can comment on the second one. The COVID yes. So maybe then If I understood correctly on North America organic sales growth in the quarter, yes, it is Slightly lower compared to Q4, but generally speaking we feel quite comfortable with where we are in terms of the organic sales overall there. Should also say that we are continuously working with portfolio management to make sure that all the profitability is in good healthy shape And yes, we had a few contract losses, but we also have strong commercial activity and also indications. So We feel quite good. So nothing specific to comment beyond that related to the organic sales growth. On the second question in terms of the COVID related extra sales, they are Still higher, but a little bit less impact. I think we had a little bit more than 2% Higher extra sales in Q1 compared to a year ago. So there is Obviously still quite some activity. It has been fairly stable but there obviously we should also highlight the fact that Those extra sales there is also a lot of normal extra sales that we will typically have that we're not benefiting from. But we're continuously working with our clients primarily North America and in a few countries in Europe in terms of helping clients addressing More COVID specific needs and that's obviously meaningful work temporary nature also slightly higher margin or higher margin I should say on that. But it is a little bit tempered compared to a few quarters ago when we had a higher delta compared to the revenue mix in kind of a normal situation. And the third question was on solution based contracts, Magnus. Yes, sorry, I was can you just repeat that question please? Yes, sorry for being so unclear. So the question was when you have your you're having better conversations about those solutions based contracts. I was just wondering what tends to be the lag between when you start discussing it and when that sort of comes into your organic growth And when those should get executed? Understood. Thank you. Well, it depends quite a lot. If you're looking depending on client segment, if you're talking more kind of midsized to large client and client contracts, A solutions sell in cycle could be significantly longer and there we could be talking quarters rather than months. If we are looking at the other part or the other kind of solutions portfolio that we have and also actively developing more in the SME space. There I would say that the solutions selling cycle is significantly faster. So that is when we're making a reference in terms of commercial activity picking up and also then the important focus that we have on solutions because this I also have to emphasize. I mean We've had significant negative impact in the last 12 months and this is one very important area that we prioritize and to drive improvement across the entire company. But it does take some time as well from early dialogue until closed contract and then rolling out the solution for the client. So it is longer term work and longer cycle especially then when you're looking more at the mid and the larger solutions that we are delivering for our clients. Great. Thank you. Thank you. Thank you. Our next question comes from the line of Neil Tyler at Redburn. Please go ahead. Your line is open. Thank you. Good afternoon, gentlemen. 3 still from me, please. Firstly, a shorter term one back to the installations business in electronic security. In North America, Are those installations running at or developing at the rate you would expect as lockdowns ease Given the sorts of lead indicators that you monitor or is there any alteration in your view of the extent to which work has been Cancelled rather than simply postponed. That's the first question. Secondly, more broadly, Again, sticking with North America and the competitive landscape there and this slightly tangential question. But now that the G4S takeover has been finalized. I'd like to ask you whether based on your experience, you would have expected Different competitive dynamic for large contract type work dependent on which of the 2 bidders had won. So So leaving the question sufficiently open that you don't have to commit to your views on either competitors, but whether you would have expected the competitive dynamic to be different. And then finally, and back to your transformation program itself and the 3 drivers thereof. Am I right in thinking that these these drivers are sort of sequential as opposed to simultaneous and therefore that the way you described it Is that the margin benefit really is probably more back end loaded as the tools are put in place first and then they translate to the business mix, which you seem to be inferring is the greater contributor to the margin development. Thank you. Thank you, Neil. If you're looking at North America and the first question in terms of the installation business, I would not say that there is any pattern of cancellation. It's been more a tentative kind of approach and the fact that many of the clients essentially said that we cannot permit any people on our premises given the COVID situation and that obviously put quite a negative impact on all general activity. That one is really improving and I highlighted the organic sales growth. We also have when you're looking at the leading indicator I mean the order entry is then one of the key numbers for us. We are seeing really Healthy numbers here now for the first time in a while. So that I think is really the situation looking at electronic security business in North America. In terms of the competitive landscape I wasn't sure Niel if you were alluding to what would be the difference in terms of the competitive dynamics Had one of the 2 contenders or interested parties in the G4S business, Was it more who would have gone successful out of that? Was that your question? It was more whether you were pleasantly Surprised or otherwise as to the eventual winner. Yes. Amit, that's a bit of a sensitive question to comment on. But I think generally speaking when you look at Securitas, I mean we look at ourselves as a really high quality company with a strong innovation agenda. And I think that is the clients that decide and that want to work with us they typically share that vision and that's the reason that they come to Securitas. We keep investing in that And we're staying humble, but I believe that we have consistently been developing our offering with our Standalone protective services capabilities to become better and better, but then also working to be able to integrate different protective services to our clients and that we continue to do. What I mean what I hope is that this is You know there is plenty of opportunity in this industry. I just hope that there is also going to be continued really development of the overall industry so that we can provide good client service that we can continuously increase what we pay our employees and then also increasing our position in the value chain. And also really the main focus areas that we are driving and we will do that regardless of who the competitor is and that we're also being really responsible in terms of the contract portfolio reviews that we're driving extensively across business. I mean we do that to protect value but also to enable ourselves to invest but also to generate improving returns over time. And that's really the kind of the direction and the compass that we are driving and following as a team and we do that with full force in Securitas. On the last question on the transformation programs, Yes, I mean we have I would say there is a benefit from the fact that we have come Quite far in the North America program before we're starting to roll out some of the we're going into more of an intense phase in terms of the transformation work in Europe and Iberia America. And one is obviously that we are also learning quite a lot in the process. We're also looking at how can we make sure that we are maximizing synergies between the different programs in terms of knowledge or experience or even systems and applications. So that I think is quite Good, but then obviously we are at the period when we are driving a very high pace of change within the company with this. And that period of transformation we started at the beginning of 2019 concluding that then at the end of 2021 with the first two programs like we highlighted and now then shifting more of that emphasis over the next 24 months essentially to Europe and EBITDA America. And I think your question there in terms of the benefit, if you look at each individual program, yes, there is a certain Back end emphasis in terms of realizing the benefits because just migrating over to modern tools, etcetera. I mean that doesn't give you all the return. It's a lot of the hard work, but the important work is in the optimization and then really driving legacy costs and complexity out so that you have better systems and also more efficient overall operating model and better tools for your employees who are working in the front line. So I agree with your statement there that it is more kind of back loaded when looking at the benefit realization. Thank you. That's great. Very clear. Thank you, Neil. Thank you. Our next question comes from the line of Ed Stanley at Morgan Stanley. Please go ahead. Your line is open. Thank you for taking my questions. Follow-up very quickly. You mentioned the application pool. Are the number of applicants you're seeing lower than you'd normally expect like Other businesses are finding in Europe and the U. S. Or if I misunderstand that? The second question, following up from wage inflation, I think at your Capital Markets You suggested that you don't necessarily go head to head on salaries with the likes of Amazon and Walmart just because they raise prices, But you tend to offer incentives of various kinds rather than just matching salaries. Am I remembering that Correctly. And are you having to be more generous there? Or is that some flexibility you have in the price wage So the discussion. And then finally on government support, sorry if you've already said this, but in April last year, you had 10,000 Staff on furlough then went to 7, then 3, then back up to 4,000 in January. What is that number now? And roughly what proportion of those furloughed staff are aviation Please. Yes. Thank you, Edward. Yes. So if you're looking at the application pool, the comment that I made it's specifically related to the U. S. And it is lower than what we have seen in recent times and that is really a consequence of my main conclusion and view of the federal programs. And I think that has also been visible when we speak also with some of our clients who are more in the service related industries. They are seeing a similar situation and experiencing that as we speak. I think when and I cannot give direct answer in terms of the visibility of when will that normalize because that depends a lot on the political decisions especially on a federal level in terms of how long they continue some of those programs. So we are focusing on what we can influence and that is obviously working actively to make sure that we are becoming as efficient as we possibly can in terms of the process, the recruitment process and also which people we target etcetera. But it is an important point and that's the reason that we bring it up. If you look then at the Securitas model and looking at North America, we have and our team has continuously been refining the overall offer to our employees and there obviously salary is one important component, but where we have also put a lot more emphasis in terms of other benefits in terms of training and career development, health related benefits and so forth. And I think that is important for the I mean the entire Employee value proposition that's something we believe we are definitely on the right path, but that we need to continuously calibrate of course to make sure that we are successful in the markets. In terms of the last question on government support, Yes, the number is around 4,000 right now. The majority of those 4,000 people are in Germany and France and quite a large share of those are aviation related. So when I look at that I don't know Bart if you want to give any additional flavor to that, but I think that is it's a correct assumption Edward in terms which are the main drivers there. And it's simply related to the fact that a number of especially some of the larger contracts it's Being quite a digital environment where there simply hasn't been any demand and we then have a number of Aviation trained security experts who are then working normally on those sites and where we then have quite significant numbers then in anticipation then obviously of demand recovering. I mean, that is entirely correct, Magnus. We had 4,000 people in January and now 4,000 mid April as well, Reflecting overall that aviation demand in Europe in the Q1 has been very low, even lower compared I think to Q4 for last year. So that is the situation. And then majority of the people that are temporary unemployed are within aviation in our business. And for that then we get support from the government in compensation then for most of the costs that we also incur with those idle time employees. Great. Thank you. And to the operator and everyone on the call, we have approximately 5 minutes So if the remaining questions please be fairly quick and Bart and I try to be quick in our answers as well. So we can hopefully Get through as many questions as possible before we have to round off. Okay. Thank you. Our next question comes from the line of James Winkler of Just wondering if I could have 2. 1, just hopefully you could expand more on the receivables specifically because just As you mentioned, most of the distortion and the impacts of the free cash flow came last year and in a typical sort of Pre COVID year, you'd expect a large outflow from the working capital side of things. So wondering what the progress was that you made here. And then just from the support packages for the European margins, Could you remind us any sort of end of timelines for Cineri core markets for those support works? Thanks. Should I start with the receivables? You can do that Bart. Very good. So on the receivables, I mean, we have had a very good focus with the whole company. As I said there, one of our key focus areas was on cash. And our biggest cash impact comes from receivables. So we had a big focus on that with our clients and that has resulted into very good Payments coming in during all of last year and also now continued in Q1. As also said before, we have Increased in the provision levels for potential bad debt during Q2, Q3, Q4 last year, those provisions are still there at Year end and we haven't touched any of those. The provision levels now in Q1 are at the same level as they were in Q1 last year then I mean the effect on the income statement. But on the balance sheet they are there basically as we have provided them through 2020. On the support packages, there I can say that the biggest support package where we benefit most from is from Germany, And that is now confirmed till end of year as a minimum. The second biggest one is France. That is At least also confirmed for Q2, that is more like a rolling schedule. But if anything, in France, you could, of course, expect that they will continue as well If the situation continues with the aviation low demand. I hope that answers your question or your questions, James. Thank you. Thank you. Our next question comes from the line of Karl Johan Bonhoeffer of DNB Markets. Please go ahead. Your line is open. Excellent, excellent. Hello. Guzman, I'm just squeezing here. I noticed the extra disclaimer you put on the client retention excluding the effect COVID-nineteen. Maybe if you could you just elaborate a little what kind how big was that impact just to get a feel for, The fluid situation that you have needed to manage during the last 12 months. Yes. Hi, Karl Johan. I mean there has been it's a little bit difficult to be very specific on that If you look at 2020, I mean we had some temporary reductions of portfolio but when we define those as temporary that's with the expectation that when demand is normalizing the revenue and the business will also come back. I would not put too much emphasis in terms of the client retention related questions. If you look broadly speaking, I mean number 1 on the one hand stability of our contract. So I think the contract reviews that we are doing we're putting more emphasis on that and I think that is just A healthy approach to ensure that we have a good healthy portfolio when the economic situation is and the world is stabilizing after COVID. So that is really the first one. And then the second one is that we do have healthy commercial activity and pipeline and looking at that we feel quite good about where we are on the totality. So I won't go into more details in terms of trying to break down the numbers in any other way. Excellent. And when you look at looking at client retention for electronic security contracts, respective guarding contracts, is there any Meaningful deviations compared to the historical patterns there. No. I mean if you look at the integrated solutions contracts, we typically have higher retention rates and that's typically a function of we have built a more integrated solution for the client based on their risk and their need Typically then higher customer satisfaction and retention as the main kind of expected benefits for the clients and also for Securitas and that has not changed. Excellent. And finally, Bart, just all my best wishes for your next Ventures in Life. Thank you so much, KG. Thank you so much. Thank you. But you will meet me as well at the Q2 meeting. Look forward to that. Look forward to that. So I think we have time for one more question and then we have to round off. Okay. Then our next question comes I'm following up on this Transformation program and the margin ambitions that you've set out. And maybe I missed this, but To my understanding, the business mix change with higher electronics and technology content is one of the drivers you mentioned for realizing The margins that you're targeting. But when thinking of the growth in the Electronics and Technology Business, have you in that penciled in an expectation of M and A that growth will Sort of contribute to that business mix and then margin equation. So that's my first question. And Secondly, relating to this, maybe is that the SEK 40,000,000,000 of revenue by 2023. Obviously, looking at growth now, you would need to balance this by adding M and A. And how should we think about that in light of the transformation programs? Of course, M and A could add complexity and risk, Take away management attention and potentially then of course dilute transformation. So how should we think about the M and A in light of the transformation and growth ambition. Thank you, Victor. So if you look At the transformation programs, I mean we have put them in place Also when investing in this to be able to achieve our targets. The ambition of doubling by 2023 is that I mean that is Very significant change in terms of the revenue composition, the business mix of Securitas. So a lot of the transformation related work We are driving to enable us to become sharper and better and then to grow organically, but also adding some through acquisitions. And I mean we have a strong balance sheet and also a good track record in terms of the acquisitions that we have been able to realize. This is one important part of the agenda. And I should also say that when you look at the SEK40 1,000,000,000 This is a mix of organic sales growth in electronic security, of organic sales growth in integrated solutions or security solutions, but then also depending on successful M and A activity. So that plays an important part, but it is really a combination of the 2. And that's also the I mean that's also but the perspective you should look at the acquisitions that we finalized at the beginning of 2020 with TECO and Friedan for example, TECO in Spain and Friedan in Australia is 2 significant ones, but also then with the just that we carried from Stanley towards the end of the year and also the FMORAN acquisition that we did in the U. S. I mean even if we had fairly difficult circumstances we're able to keep driving this acquisition agenda and here the teams to your last point there have been doing a really good job in terms of driving the integration work and those are already benefiting in a solid way to the business and also to the results. All right. That's very clear. Thanks, Magnus. With that unfortunately we have to round off. So thanks a lot to all of you for your interest today and Looking forward to seeing you when we have hopefully a bit more normal situation in the coming months and quarters. Thank you.