Earnings Call: Q4 2020

Jan 27, 2021

Good morning, everyone and welcome to our Q4 2020 call. Bart Adam is sitting in Brussels and I'm Magnus Alqvist, I'm sitting in Stockholm today. 2020 has been a very different and a challenging year due to the impact from the pandemic, but it's also been a year when we have taken important steps in driving the modernization and transformation of Securitas. But before we look at the performance in the quarter I would like to express my deep gratitude to all the Securitas team members, our partners and clients for your terrific contributions and leadership in 2020. Looking at Q4 we continued a positive improvement trend from the second and the third quarter. Organic sales growth was 1% a very positive impact from North America, but continued negative impact from aviation that affected the growth rate in Europe and Iberia America. Our operating margin improved to 5.3% same as the pre COVID levels in Q4 'nineteen and the operating margin was supported by strong performance in North America and Iberia America slightly hampered by Europe and the other segments. And we were on par in terms of price wage in the full year. We had a continued strong operating cash flow in the quarter with positive timing impact related to COVID-nineteen then helping some of the cash generation in 2020 on a temporary basis. We continue to take actions to drive the transformation agenda and we're progressing well with several important electronic security acquisitions that we closed in 2020. And to sharpen the business and focus the markets we can generate significant impact and profitability we decided in 2020 to execute a market exit in 11 markets and we have now executed 9 of those in the last few months and expect the remaining 2 to be completed during the first half of this year. The Board of Directors are proposing a dividend of Swedish kronor 4 for 2020 and this is at the maximum range of our dividend policy. Turning then to solutions and electronic security. Solutions and these businesses have been negatively affected by the corona pandemic, but we achieved 5% real sales growth in the year. We realized a number of important acquisitions in 2020 and the acquisition of Stanley Entities in 5 strategic markets was closed in early November and the integration is progressing well. In December we closed the acquisition of EFI Moran in the US and EFI Moran is a high quality operation and team with strong monitoring and integration capabilities. These acquisitions are important to enhance our client offering in key markets and for our ambition to double electronic security and solutions by 2023 and we are very glad to welcome these teams to Securitas. Let us now then turn to the performance in the different business segments and as usual we're starting with North America. And we had a strong continued recovery as you can see on this slide in North America and organic sales growth in the Q4 of 4%. This improvement was driven by our guarding and critical infrastructure services businesses and we generated significant extra sales in the quarter that set some of the temporary portfolio reductions that are related to the pandemic. We had a solid operating margin in the quarter at 6.4% and we had good performance across all different areas of the business from a margin development perspective. Guarding was the main contributor thanks to higher extra sales but we also had good support from critical infrastructure services with extra sales including some retroactive billing. Shifting then to Europe where we had 1% negative organic sales growth in the quarter. This tend to be compared with 1% positive same period last year. And this was mainly due to the impact from aviation primarily then related to COVID pandemic and the impact on our airport security business and some previously announced contract losses. Slightly higher extra sales had a positive impact on the growth in Europe in the quarter. Looking at the profitability perspective and the margin, margin in Europe improved significantly versus Q2 and Q3 of 2020 to 6% in Q4. Looking at the decline versus Q4 last year and that was primarily related to the negative impact from COVID-nineteen in due to the impact on our aviation business. And similar to previous quarters the negative impact and related idle time costs have to some extent been offset by corona related government grants in several countries. Shifting then to Ibera America, we had organic sales growth of negative 1% in the quarter and the sales growth in Latin America declined due to negative impact from the pandemic primarily on airport security and weak performance in Peru. But we recorded positive growth in the important market of Spain but also Argentina but at lower levels versus the Q4 in 'nineteen. Security solutions, electronic security reached 30% in the quarter and this was supported by the Tekko acquisition that we have successfully integrated during 2020 after the acquisition in January last year. The operating margin in the quarter was a strong 5.3 percent and we had strong performance in Spain, Portugal in the quarter despite the challenging environment and the operating margin was further supported by year end reconciliation of accruals in Spain. And we are taking further actions to improve the performance in Argentina and Peru. And with that now shift the focus to our financials and handing over to you Bart. Thank you, Magnus, and welcome to all of you. Good morning here from Brussels from the home office. Sorry, we are shifting to the wrong slide here. Just a second. Here we go. Well, this was a quarter during which the impact from the corona was of course still important and And we can see that such impact further reduced compared to the earlier quarters. And our business, I would say, confirmed great resilience again and also a clear path of recovery. Of course, the operating income has been affected from the corona situation, Negatively mostly then from the airport security business and of course the idle time of some of our employees. The operating income was supported then from extra sales to support our clients with the pandemic and by different proactive cost saving actions as initiated within the different parts of the businesses. Then also the operating income has been positively affected by around SEK230 1,000,000 in corona related government grants and support measures in the quarter, but these grants and support are then offsetting to some extent the increased cost levels from the idle time. And And this amount of SEK230 1,000,000 was distributed over the totality of the business, But with the biggest weight within Security Services Europe where we also have the most people on temporary unemployment. In earlier quarters, if you remember, this amount of corona related government grants and support was in the second quarter approximately SEK350 1,000,000 and in the 3rd quarter approximately SEK200 1,000,000. And this goes largely hand in hand With the development of the number of people on temporary unemployment schemes, back in mid April, we had then at the worst point in time over 10,000 employees on temporary unemployment and this reduced then to 7,000 mid July, further reduced to 3,000 mid October, but now we search somewhat to 4,000 mid January. Of course in alignment with the development of the pandemic largely. The operating income was Then negatively impacted by increased provisioning levels of SEK80 1,000,000 in the quarter and this amount of SEK80 SEK1000000 relates to increased risks in our business environment mostly for collection risk of receivables. On the amortization of acquisition related intangibles that is a bit higher to the run rate you have seen in previous quarters, But there has been a small one off adjustment here in this number in the quarter. Then we go to the line of acquisition related costs and that included some of the transaction costs related to the acquisitions we made in the Q4 as commented by Magnus. We then turn to the line of items affecting comparability and we accounted in this quarter for SEK 420,000,000 as items affecting comparability. Of this amount SEK192 relates to the transformation programs that we accounted for in Q4. SEK113 million relates to the cost saving program as we announced back in Q2 of this year. And then I should also say that the exit from 11 countries which was mentioned as well Creates here a net expected loss of SEK117 1,000,000 on these 11 entities. So this is the what we expect as a net loss from this Exits SEK117 1,000,000 and that was also fully accounted for in the Q4 as part of items affecting comparability. And then these three items then add up to the SEK 4.22 you see here on the slide. And And further details can be found in Note 6 to the report. For the existing transformation programs, I mean for the ones we announced 2 years ago, we referred from the start to a total of SEK 650,000,000 that would come in during the period 2019 to 2021. And referring to that for 2020, we have said earlier we could see an amount of around SEK 250,000,000 for the full year and we landed actually a bit below that number. Then important to understand is also that we accounted for a bit more than SEK 100,000,000 related to the newly announced transformation program. And that explains then the higher quarterly number that you can also see in Note 6 for the transformation programs. Then we turn to the financial income and expenses. These were positively impacted of course by the favorable net debt development and also the exchange rates for the interest income and expenses. We move to the tax line and where the full year tax rate comes in at 27.4% versus 27.2% last year and an earlier estimate for this year of 27.0 The full year tax rate has been impacted from non deductible capital losses and impairment of assets relating to what we mentioned before the exit from 11 countries. So that created some non deductible costs. Okay. And then we move to the next slide. We consider here the effects from the different currencies on the quarter. And here we can see that there has been a relevant negative effect during the quarter, a headwind from the foreign exchange During the quarter of around actually 9% to 10% as you can see here on the level of sales and operating income and that you can see from the difference between total change and real change on the different lines. Actually the negative effect from foreign exchange on sales was close to SEK2.5 billion in the quarter. And on operating income, it was negative on around SEK160 SEK1000000000 in the quarter. The euro dropped a bit during the quarter here compared to the same quarter last year, But then we were especially affected from the weaker U. S. Dollar compared to a year ago, a continuation of what we started to see happening already as from Q2. We move to the next slide and that is our cash flow. And And here in the Q4 we had a good cash flow coming in of more than SEK1.5 billion as cash Flow from operating activities adding then to earlier good quarters and a total for the year of actually SEK7.2 SEK1 1,000,000,000 as cash flow from operating activities. And that is a historical number. Capital expenditure by itself was close to SEK2.8 billion and is trending to the lower side of the 3% of group annual sales and that then as you know includes IFRS 16. The operating cash flow was positively impacted by collections. We had good collections in the quarter, but we shall also add that the operating cash flow was helped by the lower organic sales growth and by the corona payment relief measures. These relief measures amounts for the full year to a bit below SEK1.5 billion from timing relief of payroll tax and value add tax in payments in Europe, But mostly from the U. S. And actually this number is a bit higher compared to our earlier expectations. So we end the year with SEK5.9 billion of free cash flow which is a strong performance. So I believe we can conclude we had a strong cash flow coming in during 2020 also actually when excluding the close to SEK1.5 SEK1 billion from the corona related relief measures. We move on to the net debt And the net debt ended at 14.3% at year end, considerably down from the 17.5% at the start of 2020. We had a positive free cash flow of SEK5.9 billion as we just commented on the previous page. And then an amount of SEK1.8 billion has been paid for acquisitions as we closed on a few larger acquisitions in Q4 as mentioned by Magnus. And then we paid a bit over SEK400 1,000,000 in items affecting comparability as well and we paid a dividend in December 2019, this dividend for SEK1.7 billion. All in all, these combined effects then reduced the net debt with around SEK1.8 billion, But then there is a further positive effect of SEK1.3 billion in translation, ending then the net debt on SEK14.3 billion. Moving to the graph on this slide, remember that the increase between 2018 and 2019 on the net debt level was a result of the implementation of IFRS 16 which increased the net debt with a bit more than SEK3 billion. So when comparing to 2018, we end 2020 now with the same net debt, But that then includes SEK3 1,000,000,000 for IFRS 16, which was not there in the 2018 number. So a remarkable development. The net debt in relation to EBITDA is on 2.1 compared to 2.2 at the end of 2019 and I believe this is a strong number as a judgment from our strong balance sheet. Okay. Then we move to the financing side and we have here our debt maturity chart. We have good liquidity at quarter end with SEK4.7 billion in liquidities. We have earlier said that we renewed RCF, a facility now with 10 core banks for a total amount of SEK10 1,000,000,000 And the facility is for 5 years with the possibility to extend to 2027 actually. And this RCF is also fully undrawn at this quarter end. We have a euro bond maturing now in February now this month of €350,000,000 and our plan is to refinance that with a similar facility. And that should be no problem of course. We continue to have ample headroom in our rating and we have no financial covenants in any of our facilities. Based on our strong balance sheet with a net debt to EBITDA there at 2.1 and with our solid financing in place, I believe we are very well positioned for the future and in a strong position to accelerate the transformation. And with that, I can hand back then to Magnus in Stockholm. Very good. Thank you, Bart. So I would now like to share a few updates regarding our transformation programs, but first a few comments related to the corona pandemic. So with the unfortunate developments of the pandemic also now during the recent months we are still facing a situation with significant uncertainty and some challenges, but we are working with clear priorities since January last year to manage the situation and always maintaining a high degree of preparedness. We have been reporting number of people on temporary unemployment schemes and as Bart mentioned we had a slightly higher number in January at 4,000 people compared to 3,000 in October. But let us now shift focus to a progress update related to the transformation programs. So 2 years ago we started a period of significant modernization and business transformation to ensure that Securitas and to ensure the leadership of Securitas in our industry. And the global IT and North America programs that we announced 2 years ago were the 1st programs in this journey. Both of these programs are running according to plan and we are expecting to reach the targeted objectives. And when you look at North America we had delivered on a number of critical milestones in the second half of twenty twenty and in that process also gaining valuable knowledge that is relevant for the programs in the other divisions that I will talk about in a few minutes. But with the Q2 2020 report we also announced a cost reduction program which was related to the impact from COVID-nineteen and these activities are progressing well, but there is still uncertainty related to a number of aviation contracts. But we're working through as swiftly as we can while maintaining our obligations to our clients. But as part of our strategic review and to sharpen our operational focus on profitability like I mentioned at the beginning we decided to exit 11 smaller countries we consider the current and future business opportunity to be limited. And we have completed 9 of these exits during the last few months and we expect to exit the 2 remaining countries during the first half. And if you then ask the question well what does that Min for Securitas as a company. Well these are smaller markets, low profitability markets, but what we are achieving is to remove complexity and to have a sharper focus and ability to drive the strategy and value creation in the remaining footprint that we have around the world. So as commented earlier we are on plan to complete the work with the first two programs North America and Global IT towards the end of 2021 and now shifting the focus to realize the targeted impact in 2022. And since we are driving quite some change in the company we made this slide just to give a simple overview also in terms of the timelines and I should highlight here that when we talk about items affecting comparability that Bart referenced essentially then those are ending in 2021 or at the end of 2021 related to the global IT program and North America business transformation. But for the programs that we're announcing today business transformation in Europe and Iberia America we're initiating the last phase of this extensive modernization and transformation journey that we initiated 2 years ago with significant investments but also with clear deliverables. And it's important to highlight that we announced the North America transformation program in 2019. We did communicate that we were going to analyze Europe and after thorough analysis and preparation we are now ready to start the 2nd major phase of this transformation program in Ebero America and in Europe. The target is to increase the operating margin in Europe to around 6.5% and the Vira America 6% by 20 24. Approximately SEK1.4 billion will be recognized as items affecting comparability between 20 21 2023 an investment of approximately SEK1.1 billion. But to give some more flavor I believe it would be valuable to look at the European program in some more detail. So that is essentially what we're in the process of doing and also the expected outcome. So looking at Europe this program represents a fundamental step. It's a strong grip to strengthen our European business and to drive the strategy at scale. And we achieve this through focus on a few key areas that you see outlined here in the blue First one is building a common operating model for Europe and key aspects of this include organizational blueprint aligning European country organizations and brand structures over time. Rolling out best practices to ensure that all business lines including guarding are performing well, but also to ensure a similar way of working enable cross country system implementation over time. And the 2nd major component is the modernization of IT systems and tools. And so a few important initiatives here include rollout of common HR systems across Europe, modernizing ERP in a few key markets where we have the largest needs and also initiatives like piloting leading edge recruiting and workforce management systems and there I should highlight there is a lot of opportunity with modern systems and tools that are highly relevant also for us to leverage given the scale and the size of our operation and the number of employees. The 3rd important activity is to accelerate and drive solutions in electronic security and we are achieving this by a dedicated organization and leaders for solutions for electronic security, but also for our security as operation centers in the key countries. Reinvesting some of the efficiency gains in operations and further capacity in solutions organizations and developing frontline sales tools for solutions enabling the entire organization to sell in an easy way and engage with a client for successful delivery. The 4th area, we're investing significant amounts for the digitization of our frontline people and all the way to the digital interaction with our clients. We do this to enhance the work for our people and hence also enabling improved client value. So this some of the key activities here then include modernizing the digital tools we use for interactions with clients and officers, further driving the use and penetration of these tools with benefits for clients and secured tasks and we also see this as formed for innovation that over time will allow us to create superior insights and value to our clients. All of this has been carefully prepared, carefully analyzed and we're obviously now launching the transformation program to achieve results but with minimal disruption. But this is a multiyear program, but we are very excited about getting started on this important journey and all of these activities are fully aligned with the strategic objectives that we have also shared on a group level to drive our intelligent protective services strategy at scale, transforming guarding with improved margins, supporting our ambition to double solutions and electronic security and enhancing client value. So with that we should sum up the quarter. So we continue to post the developments from previous quarters with improving organic sales growth and operating profit margin in Q4. We are still in a challenging situation related to the pandemic but we are actively managing this situation with clear priorities and actions. And with the announcements today we're taking the next significant step in the transformation journey that we started 2 years ago. But before the Q and A just wanted to mention that we have made a number of announcements today and one announcement is that Bart will step down from the CFO position in August this year and that Andreas Lindback who is currently leading our EMEA division will become CFO. And Bart, it's still very early days and we're going to continue working for the next 6 to 12 months but I just wanted to say thank you to you. You have contributed tremendously during many years to Securitas with your leadership and contribution and I'm still looking forward to working with you during the coming 6 to 12 months. But with that we are now ready to open up the Q and A session. Thank you. Thank Our first question comes from the line of Edward Stanley from Morgan Stanley. Please go ahead. Thank you. Good morning and thank you for taking my questions. I've got 3 please. To what extent are the extra sales driven by COVID proving stickier than you thought or some of those extra Sales now dropping away in certain geographies as potentially things look a bit brighter. The second question provisioning in Europe Seems to be increasing or that's what's alluded to in the commentary. Can you give more details on which clients are concerning you and it relates Specifically that provisioning. And then finally on the previous transformation program you guided the €350,000,000 to €500,000,000 of restructuring costs. Now it's saying that will depend on airport business and government grants, but it's not entirely clear. Do you still Expect to be in that range in total and where within that range do you think is the most likely outcome? Thank you. Thank you, Edward. In terms of the first question related to the extra sales, yes they are very much COVID related, but there has also been a certain stability in this extra sales when you're looking at the last 6, 7, 8 months and part of that is obviously related to a continued challenging situation for the world in terms of the impact from COVID. When you look in then from a longer term perspective should highlight that the extra sales obviously short term nature, but they are also helping and compensating temporary reductions that we have in the ongoing portfolio. So this is obviously something that we are carefully monitoring in terms of what is the development month by month, but also then discussing with clients as well what are the things that we also need to change in the security equation also related to health and safety for example in the post COVID era. So I think the simple answer is yes, there is stability, but we're also then working with clients to also be able to project and also try to address some of the needs that they will have after. On the provisions in Europe I can make a general comment and that is that we're still seeing significant uncertainty. We have not had significant realized bad debt or issues in terms of accounts receivable like Bart and I have commented on since the beginning of last year we're closely monitoring and obviously managing any potential exposures very, very carefully and this is the responsibility that is cascaded throughout the entire organization. But we are taking the approach that there is significant uncertainty in the environment and for that reason as well we feel that we're rather be well consolidated going into 2021. Bart, any additional comments on that one or maybe on the 3rd question in terms of the 350 to 500. Yes. And In terms of the extra sales, I would just like to comment that we also see some new services emerging then around the vaccination centers just as Additional flavor here. On the provisioning in Europe, I think there must be some misunderstanding, Edward, because we have not been Increasing compared to earlier quarters at least if that was your question not sure. But compared to earlier quarters we have reduced the provisioning levels And I think we have ended now the year as Magnus also said in a very good way with a good balance sheet in relation to potential risks that we are facing. When it comes to the transformation programs, I think you referred there to the restructuring program that we announced in Q2. And As you rightfully said that was announced with a range of SEK 350,000,000 to SEK 500,000,000. We are trending to the higher end of that range and And that is mostly related to Ibero America that also has taken compared to Q2 It has been more affected now in Q3 and Q4 from the pandemic where we are also taking then some extra Measures. But I mean that range is still the valid range, but as I said trending definitely to the higher end of that point and then it will depend on what happens to aviation, what happens also to government grants, how long will they last or not If we would be outside that range so to say, but still within the range but on the higher end of it. And then as we also commented now On the line of cost savings, we have also accounted in this quarter now for the SEK117 1,000,000 Related to the exit from the 11 countries. So the 11 countries has been in its totality accounted for when it comes to the exit costs related to that As part of the SEK230 1,000,000 that you will find in Note 6. Thank you very much. Thank you. Our next question comes from the line of Sylvia Barker from JPMorgan. Maybe just starting with the Costs related to the new transformation program to the SEK 1,400,000,000, can you split that out between write downs And then cash cost and how do you see the cash cost splitting between different buckets as well? Then on the aviation impact, so am I right in thinking that that's about a 3% to 4% negative The group organic at the moment. You have been renegotiating aviation contracts. So interested Whether you have actually now reached an agreement in some places where you might be exiting contract. Can you give us any guidance in terms of Top line impact from contracts which will not be continuing in 2021. And then finally, could you comment on the Organic development during the quarter. So you hopefully gave us September plus 1.5 percent organic Could you comment on December and into January as well? Thank you. Silvia, I can thank you few questions. I can start with number 23 and then I'll let Bart comment a little bit on the cost related items your first question in terms of the transformation programs. Aviation, well you've assumes 3% to 4%. It's a little bit lower in the lower part of that range or slightly below when you're looking at the impact in the quarter. The process in terms of aviation contracts it is not very, very easy because we have as we commented on earlier quarters a number of contracts that are still running another year or 2 years. But we are working through this all the main contracts with essentially 2 main outcomes. 1 is that we are renegotiating to a contract which is sustainable all we work towards terminating as quickly as possible. But this is fairly hard work and it does take some time. That also then means that it depends quite a lot on what happens in terms of recovery in the aviation sector in general over the next 3, 6, 9, 12 months as one important factor, but then obviously also the degree of success that we have in renegotiating this contract. So this is also the reason that I highlighted that we are still facing some uncertainty related to aviation. On the question in terms of the organic sales growth in the Q4 and we're not breaking that out, but it was fairly evenly split when you're looking in the without breaking out any detailed figures. Bart, do you want to comment on the programs and the cost assumptions and splits please. Sure. On the SEK1.4 billion Silvia that you mentioned a bit more than SEK200 1,000,000 relates to asset write offs retirements. And And then the $1,200,000 remaining so to say would be cash cost. But you also asked about the other buckets, not sure what you wanted to know there on this Then remaining 1.2? Yes. The remaining 1.2 I guess how much of that might be redundancies Versus implementation costs. No, the fast majority of that is implementation cost, integration costs. There's also only a limited part in restructuring. But all of that is cash cost to 1.2. Okay. So if we think about what you're actually doing it's mainly around the systems rather than reorganizing In any way how Europe or America run. I see historically you said that Europe is very fragmented compared to let's say the U. S. You have a lot of duplication of costs. So just trying to understand I guess where the savings will be coming from mainly. So I can comment on that part. So I mean when you look at one common and very important aspect here is when you look at back here is when you look at Europe we have obviously and if you contrast to North America we have a number of countries. We have very different degrees of maturity between different countries also in terms of the product mix where we are with the general business mix in the value chain which also means that there is a significant spread as well in terms of profitability. One very important aspect of this work is to drive more alignment of the organization, but also processes so that we can achieve real scale benefits across Europe and that obviously in combination with a sharper focus in terms of organization and resources to sell solutions with clear leadership same on electronic security, same with our operation centers. We believe that that's going to make us sharper and stronger, but also to be able to really drive a higher value business mix across all key markets over time. But some of that alignment obviously does take some time as well. So this is I mean you should look at this as an aggressive investment in terms of strengthening our capabilities, but also then with a common operating model and digitization enabling us to drive the strategy at scale across Europe. So those are really the core components here. So it is a mix of different aspects when you look at the European transformation program. That's very helpful color. Thank you. If I just final comment, In terms of how you think about when a cost item is 1 off versus just part of In our normal kind of activities or investment, what is the thinking around That 1,200,000,000 being actually split out as one asked. Bart? Yes. Well the thinking is that obviously this is something which is something Very significant investment and transformation, something which is outside business as usual definitely. So we have chosen to report this very clearly as items affecting comparability so that you can also follow Very clearly what we are investing into these programs and what they are costing. If you would mix it in the operating result, you would just have to explain all the time what the effect is. So now it's very clear that you can easy follow it. And as we say, we consider it as unusual because It is investments that you probably only face like every 10 or 15 years and it's really transformation of the business at scale and And now we are also finalized. This is the last version of it. We have done the North American transformation Which is working very well and according to plan. We have used those learnings and to also transfer that to Europe and to Iberia America to really be able also to transform these businesses like we are doing in North America and then we will be different Securitas when we come on the other side of the programs. So that is the whole thinking here. What we think It's the right approach and also the most transparent approach towards the investors. Thank you very much for your time. Thank you. Our next question comes from the line of David Rhee from Please go ahead. Your line is now open. Good day, Magnus and Bart. Just three questions from my side. The first two relate To the new transformational program that was announced. Just to follow-up on Sylvia's question, I just wanted to confirm The total cash impact here, right. The 1,100,000,000 CapEx is that in addition To the €1,200,000,000 cash impact from the P and L. Then my second question is On further sort of cost of transformational programs, I think we've had fairly good line of sight that this one was coming. Was just wondering whether there are any more potential cost programs or transformational programs in the pipeline. And then my last question is on aviation. If we look at Securitas' aviation going into the pandemic. It was about 7% of group sales which at the time was about sort of SEK8 1,000,000,000 Of revenue. I just wanted to get an understanding and assuming we get back to a normal world. Once you've renegotiated all your contracts and exited some of them. How big do you think your exposure would be thereafter if you compare it to the business running at 8,000,000,000 prior to the pandemic. Thanks very much. Thank you, David. Bart, do you want to take question number 1 and I will take the other 2. Sure. So on the first question that is a very easy one. The answer is yes. So the SEK1.1 billion CapEx comes on top of the SEK1.2 SEK SEK 1,000,000,000 cash from items affecting comparability, David. So that was a clear yes to your question there. And with that I hand back over to you Magnus on the other transformation potential, the transformation programs and the aviation. Thank you, Bart and thank you for the questions David. On the further programs, well it's very important I think to emphasize that when we started in 2019 we communicated that we are entering a period of accelerated transformation and quite extensive transformation. That's also the reason that we share that we are looking at Europe. Now we have done and our European team together with our IT team have also done a rigorous job in terms of analyzing starting point and also the wanted position where can we take the business. So there we feel very excited and also glad that we are now able to be able to drive that next step. I very much look at the announcements that we are doing today as the 2nd major step. We took the 1st major step in 2019 2020. We have been progressing really well with these programs according to plan and when you look at North America obviously as we are completing by the end of 2021 a lot of our focus there now is some benefit realization. But we also learned quite a lot in that process and we have also then looked at when you look at Europe knowing that it is more of a dispersed picture in terms of our business and the maturity and the business mix, etcetera. We're taking a very strong fundamental grip in terms of really strengthening and aligning around a higher value business mix, more digitized, more modern, better for our employees and as opposed to doing what we have done in the past we will typically do things initiative country by country. Now we're taking a strong grip looking at the best practices after then rigorous analysis to be able to launch that. So with that answer David I mean I don't have a crystal ball to look into the future, but it's very clear from my perspective that this is the 2nd major step in our transformation journey and we believe that the investments that we are doing over the next few years and what we have done in the last 2 years they will serve us really well for quite some time in terms of strengthening our overall offering and efficiency and way of working. So I hope that gives you a reasonably clear answer to the question. Looking then at aviation like you highlighted around 7% of sales before COVID-nineteen and it is a slightly a few percent lower number today based on the current run rate and also the impact in terms of Sylvia's question earlier on the organic sales growth. And the simple answer here is that we are very clear internally but also with our clients that it's got to be a sustainable business and that's something that I think anyone who is in business would also be able to understand. And if that means that we're going to have further reduction of aviation contracts if we are not able to renegotiate to sustainably decent profitable contracts well then we will have to accept that. But that is very much client by client. We feel good about our value proposition, the quality that we bring, but we have to make sure that everything that we do is good quality and that it is sustainable. That is the only way that we can deliver the services that our clients are also expecting and the quality from security as with our people. So I think the simple answer is that we are operating a few percent lower than we were before and where that will go over the next 6, 12, 18 months that depends quite a lot and also on the work that we are doing in this process with our clients. Thank you. Thank you. Our next question comes from the line of Erik Colson from Nordea. Please go ahead. Your line is open. Thank you. So two questions from my side. The first one is on those 11 countries that you are exiting. What is the margin implication for the business regarding this? And the second question is regarding the other segment in your It was minus 178,000,000 in the quarter here which is It's slightly down or up depending on how you see it compared to the going rate for the recent quarters. And what's behind this increase here? Thank you. Thank you. In terms of the exit program, I mean this represent a fairly small part of our total sales, so around SEK 460,000,000. So I think that is one important part. Should also say that they are not the most profitable markets that we have. We have a clear ambition in terms of where we are moving in the business mix, but also the value chain and there we have deemed that the opportunity in terms of improving significantly there where there is meaningful impact for the company was quite limited in relation to the investments that are required. What's also important about the exit program is because we don't take this lightly exiting markets where we have had a presence, but it is also a matter of focus. We're removing complexity. We're enhancing focus on the markets where that are really important for Securitas, but where there is also high importance for our clients as well. So I would say that the benefit that we are also seeking of course is improving simplicity by removing complexity and I should also highlight operating in a market it also then requires quite strong engagement at all levels to make sure that it's a good quality operation in line with Securitas values, ethics standards and we want to bring our protective services offering in the markets where we have a presence. So that's why we are increasing quite a lot to focus on the key markets where we can make the biggest difference for our clients but also in terms of value creation. In terms of the other segment you rightfully picked that up as well is that it is a higher cost than normal. This is related to some professional services where we had a significantly higher amount in the quarter, but that is a temporary nature, so not something that you will see permanently going into the coming quarters. All right, understand. Thank you very much. Thank you. The next question comes from the line of Kate Somerville from UBS. Please go ahead. Your line is now open. Hi, thank you. 3 for me please. So firstly, now that we're in a more business as usual environment, Are you seeing signs that clients are increasing their uptake of digital services? And what do you see in terms of the pipeline here? And the second question given that Deirdre has now been elected, what's your view on wage inflation given the backdrop On the $15 floor in the U. S. And then finally Bart I think you alluded to this earlier, But what new services do you think Eaton offer to clients in the aftermath of COVID? Thanks. Thank you. Looking at your first question there in terms of more of a business as usual, yes that is the case and we are also seeing and one important part of the discussion with our clients is also then the post COVID period what does that look like in terms of the service mix and the capabilities that we bring? We are continuously enhancing our electronic security capability and you've seen 8 different acquisitions in key markets in 2020 that are greatly enhancing our offering and capabilities within electronic security. That's important from an electronic security business standpoint by itself, but it's also enabling us to integrate electronic security with guarding into integrated solutions for our clients. So there we believe that there is this is the future. This is obviously what we are investing in and actively working to move as well more of our services into this integrated solutions. In terms of the $15 when you look at the US we like to offer attractive pay rates to our employees and that is a first message that I want to share. If you're looking at the people that we have in North America it's I mean the vast majority of our people are already above $15 So from that perspective that is not something that we are looking at as a very significant change. What we do know however and looking at the past we have always had a very strong capability in our North America team to also have a dynamic price and wage discussion and development over time and that is obviously also related to the service and the value proposition that we bring into the clients which is all about great people and good quality and experience and the service. So with the $15 obviously there is a number of discussions in terms of how that might or will be implemented etcetera, but we are continuously working to enhance our offering to the clients, but also the employee value proposition in the U. S. So in that sense I believe that we have the good tools and we're also greatly increasing our electronic security and solutions capability as well. So we also have attractive offer to complement just the traditional man guarding in that sense. So Bart I think I hand over to you. You received the last the third question. Well on the new services That you asked for, yes, we see for instance now services related to the vaccination centers, which are being put up in many different countries around the world where again we can play a role there, a good role in society as well to help out With the crowd management and all of all those places around the world. And in some countries we help then to make sure that that works well. So that is a type of New service which will also be of course an extra potential extra service then for more for the short term. On the long term, I don't think we have seen Major changes in demand, but in some countries of course we do see that there are some extra measures being taken around also Social distancing and entrance and departures as well, but nothing dramatic I would say. Okay, great. Thank you. Thank you. Our next question comes from the line of Andy Grobler from Credit Suisse. Please go ahead. Your line is open. Hi, good morning. Just 2 from me, if I may. Firstly, on the transformation programs, you've got So quite hefty targets in terms of margin improvement. When you think about the bridge from where you are to where you're going to Hopefully be in a few years. Can you split that out in terms of how much is cost, how much is efficiency and how much is mix on that path? And then secondly and just a quick one, in terms of some of the cash payments that are going to reverse in 20 2021 and 2022. Can you just split those out between the 2 years if possible? Thank you. Thank you Andy. So on the transformation program in Europe, yes, it is a clear break with the past in terms of operating profit margin if you're looking at the last 5, 6, 7 years, but we have a strong belief that with these measures that we are implementing and with the program fundamentally strengthening of the way that we are working we should be able to achieve those types of levels in this time frame. I would say that very much is mix related. It's about really improving the mix that we are driving and that's obviously why we are doubling down in terms of emphasis on solutions electronic security. That is a higher value to the clients, but it's also higher margin business for us with richer content overall. But then obviously when you're looking at operating everything or a number of processes over 20 plus countries in a fairly local way and we are also seeing that there is real efficiency and productivity gain by also leveraging knowledge and good practices modernize systems and tools to also enhance productivity and efficiency. So that is really the next part and I would say that this is not primarily a cost reduction program. It's more of an aggressive fundamental strengthening of our capabilities and really aligning around the common operating model and the different aspects that I mentioned earlier. But where we are realizing efficiency gains obviously the idea is then also that we are able to reinvest some of those in enhancing the service mix and the capabilities as we go forward. Sorry, can I just Follow-up on that, you mentioned the mix benefits over the next few years? Just When we look back over the last 5 or 6 years, you've had that quite positive mix shift towards electronic security and The margin has stayed basically flat through that period. What makes you think that the next few years are going to be markedly different From that as you go through this process. Yes. And that's the correct reflection. We have and I mean we are fully convinced about the quality and the strength of the solutions and electronic security journey that we have made in Europe and also the value creation from this. But we've also seen a really mixed picture in terms of guarding margins where there has been pressure over time. What I feel and see is very powerful in terms of the plans that we have and that we are now rolling out across Europe. Now it's really taking a lot of the best practices, but also what we know is working and rolling that out at scale. But really then enabling as well our people to do that at scale with better tools. So for example some of the tools that we are leveraging to be able to sell solutions and integrated solutions in an easier packaged way which is easier to sell, but also easier to implement for our clients to do that at scale is fundamentally important. So the last 5 years I would say what we have, we have gained quite a lot in terms of the business mix on the positive side there, but then we have also lost some due to guarding pressures and it's also important that with this program obviously with better tools end to end from recruitment of our people, but also then all the way through engagement with our clients and developing the service mix over time. We also talk about transforming our guarding and that is then to make the guarding a better performing operation and business as well. So those would be the main parts that I would highlight and in terms of what we are doing differently and it's obviously also the extent at which we are driving this now across Europe which is important and very exciting. Okay. Thank you very much. Thank you. The next question comes from the line of Neil Taylor from Redburn. Please go ahead. A few left from me please. Firstly, Going back to the 117,000,000 charge just to clarify that. Does that include the trading results All those regions that were being excluded from Q4 is this purely the cost of exiting That's the first question. Secondly, following on from your point on Regarding margins, you mentioned in October that annual contract negotiations needed to try to raise prices to recover Things like PPE cost as well as just wage inflation. Can you perhaps provide an update on the progress That you've made there. And then back to electronic security, the rate of installation in the U. S. Seems to have remained equally subdued despite fluctuations in lockdown restrictions. So the question is do you see that meaningful backlog of business as still existing or do you think that's been more permanently sort of impaired or lost? Thank you. Thank you, Bart. Do you want to start with question number 1 and I can take 23. Yes, absolutely. So under SEK 117,000,000 related to the exit of the cost that is the entire Costs related to the transaction, so taking out the assets from the balance sheet, accounting for Any costs related to the transactions accounting for any income from the transactions and then if you do that all of that you get to this net negative of SEK 117 SEK 1,000,000. So that is the answer to the first question. Thank you. And related to question number 2 on the guarding. Yes, it is a different context now due to our first priority that we stated from the beginning is the health and safety of our employees. So we do see increased PPE costs. This is obviously something that is one component in the total price production cost or price wage that equation that we are managing, but it is also I mean it's a lot of movement in the last 12 months and with that of course we have very high focus on how we manage this in the beginning and throughout 2021 with our clients. And we never guide in terms of this important activity, but we do have a strong track record in general in terms of being able to manage that and also then obviously frankly speaking also that we have clients that appreciate quality and people and also appreciate the importance of the health and safety. So those are important discussions that are ongoing in any of those negotiations. Looking to your 3rd question about electronic security, yes this is one area that has been affected and we see continued subdued type of situation to use your wording which I think is good and that's very much related to lockdowns, uncertainty, many companies restricting access to buildings, but also then a lot of companies also managing through with a lot of short term priorities that also then means that there is a little bit of the Tiv position in terms of this picking up. So this is something that we are watching carefully, but we've obviously also taken a number of measures in terms of cost base, in terms of how we manage so that we are flexible also to be able to resume and to accelerate when the situation is normalizing, but it is somewhat of a tentative situation right now. Obviously what does help is that we do have very strong team in electronic security North America doing a tremendous job also in terms of client engagement even if it's under different circumstances that we have right now. Thank you. That's helpful. Thank you. Our next question comes from the line of James Winkler from Jefferies. Please go ahead. Your line is open. Thanks guys. And most of mine Answered, but two quick ones for in terms of how to think about forecasting the cadence of the CapEx and transformation costs from today, I assume the asset impairment write downs of 200,000,000 you quoted probably instantly in Q1 of this year. Should we assume a best guess The remaining $1,200,000,000 of P and L costs is evenly split between the quarters of 2021 2023. And And then same for CapEx, the SEK1.1 billion, so we just assume that it's evenly between the same over the same period or is There another sort of consideration in that regard. And then secondly for the margin targets just want to confirm obviously you've done other programs which you expect to benefit the margin and such as the cost restructuring in Europe. So I just want to confirm that the 6.5% is inclusive Of the potential impacts from that as well and that I believe previously quoted when you said the 50 basis points in North American margin that wasn't necessarily related to the level 50 basis points higher than it was in fiscal year 2019 I believe when you Announced it. It was just 50 points above where you would expect to be all else equal. That's correct. Thanks. Maybe I should take the first question, Magnus. Go ahead, Bart. On the costs related to the transformation programs, James, the write downs, the asset Timers will also happen during the course of the 3 years. It's not that we now in Q1 will do a major write down. Some of the assets we will continue to use During the transformation as well and then it's only at the moment that the assets are taken out of their usage that we will write them down. So over the course of the program. When it comes to the other costs that will also you can assume the best assumption is as you said That it is 1 third almost each year. And of course that will also depend a bit on the more detailed planning as we will go forward. But the thinking right now to think of that as 1 third each year is the best assumption right now. And the same thing for the CapEx as well. The cash flow cadence of that will also be around 1 third each year during the program. And James on the margin targets, yes the 6.5 is inclusive of the other programs and measures. Obviously the cost reduction program that we announced in the summer was a response to the situation caused by COVID, but that has been considered and inclusive then in the 6.5. On the North America question, yes we stated an ambition there to improve the margin up to 0.5% in North America and should really look at that based on where we were at the time in terms of profitability. We announced that in February 2019 and then obviously had a full year result in North America for 2018 which is kind of a reference point there. Great. That's it for me. Thanks. Thank you. And as we have no more questions, I'm going to hand back to our speakers for any closing comments. Very good. Thanks a lot for all the good engagement and looking forward to seeing you soon. Thank you. Thank you to all of you and take good care. Bye bye.