Hello everyone. Very welcome to Securitas Q1 report for 2015. I will give you a brief overview and then we allow for questions as usual. It was a pretty good quarter. We are pleased with the quarter. Good growth stable margins. Cash flow is okay. We have. Spain is turning around and technology and solutions development is moving on as we expect and as we have planned. So good growth again 5% organic growth in Q1. Good, good, decent growth in all business areas. Spain first positive quarter in four years. Stable margins improved or flat in all the business divisions. And we keep the price wage balance on par which we expect to be for the full year. And we had an M&A I already mentioned.
So all in all we will say a good quarter in the first quarter this year. When it comes to the P&L numbers here I think the only thing worth mentioning is the tax rate goes up a little bit compared to the full year last year because we have more earnings in dollars. And then the relative weight changes of course but it's lower than the first quarter last year. So that helps now in Q1 to allow us to make 10% real change on earnings per share. We change that as you might remember in the end of last year to a full year rate of 28.8. In North America good growth. We are supported by the good macroeconomics and being late in the cycle in the business cycle.
good growth in the five geographic regions. We have to remember when I add a small caveat what should be said is that when we are saying 5% growth just like we had in Q4 last year we are comparing to Q1 last year. You see from the graph that we speeded up pretty well in the second half of the year. So when we come closer to those two last quarters our comparatives will be a little bit more difficult to beat. I'm not making any prediction but I'd just like to highlight that. So anyway we enjoy it. We are happy about that. Good growth winning contracts within a very in a market which we expect to grow in the range of 3%-4% this year in North America. Margins are good.
Get a little bit of leverage from the good growth. So 0.1 up compared to last year. And we can confirm what we already said in Q1 after Q4 that we have mitigated [audio distortion] had a little bit more time and could be more exact on checking the numbers and the impacts. And we are good when it comes to mitigating those cost increases that we were quite afraid of for the past years. In Europe the total market in Europe is growing in the range of 1%. We are growing 3%. So we are winning market shares. And one of the main reasons is that we have a good story to tell.
We of course hope that our security solution and technology strategy will improve our margins. It takes a while to do that because it's still a relatively small share of the total sales of a group. But it's proven on the sales side because we are growing faster than the market. And we are winning contracts and we are taking market share in Europe and also in the other divisions because of our great story. I mean our customers like to hear that we can deliver better security for less money. And that gives us a totally different position in front of the clients. And in the end of the day it gives organic growth. So that's good growth in many countries for these reasons and a few other reasons as well.
So Europe is doing well under the circumstances that the macroeconomics are not really changing very much. If anything slightly more positive, but that is fine-tuning in my opinion. And definitely nothing that we see in the security market. Then on the margins not much to say. Flat compared to last year. 5.2% versus 5.2%. So that's stable and good. In Ibero-America the main important thing is that the good development in Spain which has been gradually less and less negative now finally turned positive. Not very much but just above zero. But still it was in the black on the organic sales growth in the first quarter which is the first time in four years in the last four years.
So we have employed people in Spain in Q1 after having laid off about 6,000 people in the last four years. So that's really a change. And we don't think the Spanish market is gonna grow in 2015 compared to 2014. But hopefully that will be more positive than 2015 in years to come because the Spanish economy and the Spanish situation is improving without any doubt. Latin America a little bit more concerning when it comes to macroeconomics due to oil prices and metal prices. But we still have a good growth there of 23% in Q1. And the thing our companies are employing people and developing very well. Mainly for one main reason is that they are also in Latin America doing very well on the implementation of our security solution and technology strategy.
Margins improved because of Spain. Better there. That's, we have been using that as an excuse for quite some time now. Now it goes the other way around. So margins are improving in Spain and that helps the division. That's the main reason for the division improvement. Cash flow was good. A little bit boosted and, well, quite significantly boosted by payroll timing differences in the U.S. which makes a difference. But okay, everything counts. So it was good because of that. That had a big impact in Q1. But but so it was good. But if you if you adjust for that it's kind of normal for Q1. So nothing dramatic on the cash flow. And on our free cash flow to net debt we are at 0.20 which is our target.
Net debt was flat if you look without currency. But with currency, of course, the dollar versus the krona especially—then our net debt increases because of the FX. That one, I think you have seen already in the report, that the FX has quite a dramatic effect on the numbers in absolute Swedish krona terms because of the weak krona versus basically all currencies has weakened mainly the dollar but Swiss franc, euro, pound and others. Even the Argentine peso actually in Q1. So, anyhow, that was, I think, the main comments for the net debt. Yeah, I think it's not a very dramatic quarter. It's a good quarter. Not a lot of things to say about it. The positive news in Q1 is the development in Spain.
But of course, that all divisions are performing well on growth and on margins. So things are moving according to our plans, and we keep working with our strategy to increase the share of technology and solutions. We are on track to reach at least the 28% that we have promised, and that is what we're fighting for. Q1 supports that statement. All right. So let's see if anyone has any questions to this report.
Ladies and gentlemen, if you have a question for the speakers, please press zero one on your telephone keypad. It's zero one to ask a question. The first question comes from Mr. Stefan Knutsson at SEB Enskilda. Please go ahead.
Hi there. I got three questions for you here today. Could you please roughly point out how much technology grew in the different segments? Secondly, on technology, what are the key items for you in order to substantially improve the level of technology-related sales in the U.S.? And finally, all else equal, what would you say the impact on North America's organic growth was on the back of the lower fuel prices alone?
The fuel prices have a very small impact in the U.S.. So that one has a little bit of a positive impact in some of the countries in Europe. It's not all like in Sweden that we increased the taxes at the same time as the fuel prices went down. But I mean, it's marginal. It's so that one we don't have to make any adjustments for that, so to say. The fuel prices have a marginal impact. The technology per segment, you have to repeat that to remind me. What was your question there? I didn't fully understand.
I was wondering if you could roughly point out how much technology grew year over year in the three different segments?
Well, I don't want to give too many details numbers. And it's growing in all the segments. Yes. That's the case. It's a good trend. Good momentum. It's growing in all the segments. We stopped the comparison to total sales because it becomes quite irrelevant. Because if we grow a lot in the guarding business then that relative share will decline. And it looks like we're doing a bad job even if it's growing in absolute numbers compared to the previous period that we compared to. So when we look on the development in all the segments it's growing. And it's growing well. And it supports our statement for the group of at least 28% growth compared to the year before. I'm not willing to split it more than that per segment.
The technology in the U.S., I mean, that's what we are. It's quite, if you excuse me, simple installations. We put up a few cameras and connect those to the monitoring station to surveillance. And that's, and some of those are linked to the access control. So, generally speaking, it's quite, and then we connect also our mobile services to that so we can respond to those alarms. So that's mainly what we're doing. And it's just to keep on working like that. That is our agenda to work with more and more installations of cameras and to the monitoring stations at our customer sites.
Then replace static guards, permanent guards on site, and use more remote guarding, remote monitoring combined with mobile services and response services in order for the customer to get basically the same security level at a lower cost. The speed in the U.S. is good. I mean we are improving dramatically in the U.S. from very low levels to still low levels. But still the improvement is quite substantial in Q1.
Okay. Thank you.
Thank you.
We have a question from Ms. Sylvia Boteva at Deutsche Bank. Please go ahead.
Yes, thank you. Hello everyone. I've got three please. First, could you please tell us how much of the U.S. organic growth rate was due to the ACA? Are you already at the 1% run rate? Second, looking at the margin in Europe, could you just so that was flat. Could you comment on wage price balance in Europe and on what's going on in France in terms of your wage negotiations and any impact from CICE for example kind of year on year the lack of that benefit? And then lastly, the U.S. employee turnover rate continues to kind of creep up quarter by quarter. So it kind of seems to suggest that the labor market that you're saying is probably getting tighter from your point of view. Could you comment on what you're seeing for wages and non-wage costs like SUI please? Thank you.
Yeah, we are in the U.S. I'll start with the last question. In the U.S., we have not seen any; we still do not see any wage pressure. We could be a bit concerned about it long term but not for this year. It doesn't look like it even though we are; it's creeping up as you say slightly on the turnover. But I mean we don't see much of a wage pressure there. And we have no problems to recruit people. So no concern for this year and the rest is speculation for the years to come. On the ACA, yes, it's 1% correct already January first. So it's 1% in Q1. And on the CICE and wages and so forth, we are basically flat in Europe wage to price in Q1 and for the group.
The CICE effect is being diluted more and more. I mean many companies have got this money this rebate so to say or this support on the social cost. But a lot of that money is used for training in our case to start with. We invest a lot in training which is the purpose of this money. We use it for our technology investments as well. And of course it's becoming a part as this has not been there for a few years. And hopefully will continue for years to come. It seems like that. It's being more and more included in the prices. So the effect is being diluted in the pricing so to say. On wage cost increases in France we have not yet had wage cost increases in France.
But the CLA we are expecting that to happen very shortly. Probably during Q2 we will see that in France. But it seems to be a low number in France. That's the even if it's not finally agreed, that seems still to be a low number that we will be able to compensate by our price increases.
Okay. Very clear. Thank you very much.
We have a question from Mr. Rob Plant at JP Morgan. Please go ahead.
Hi, Alf. You said in Spain you're expecting a fairly flat market. You've returned to just north of 0% there. Do you think that you can do better than the market and if so how? Thanks.
Where was that? In which
In Spain.
In Spain. Now we are. I mean, yes, we were. I mean, but these are – that's really fine-tuning to say that we were. I mean, we are saying that the market is flat in 2015 compared to 2014. We had a very small growth, but it was over zero. So theoretically we did take market share, but I mean it's maybe one or two contracts that makes the difference. So I would – I mean, we think that the market will be flat this year compared to last year if we can – how are we gonna develop?
I don't want to speculate more than we usually don't give any forecasts, and I don't want to make any guesses going forward because you might win the numbers and then all of a sudden you lose one big guarding contract with low margin. You don't mind losing it anyway because it doesn't really hit your margins. Or even if it's a lost contract you'd love to lose it, but it hits the organic growth. So I think we have seen the worst in Spain. Things are moving on in the right direction. I'm optimistic about Spain. The Spanish market will probably be much better next year than it is this year, and we are doing well in Spain. And we are improving our margins compared to Q1 last year.
We are now finally growing and we are hiring people. So I think that is, that's really good news for us in Spain.
Thanks Alf.
Thank you.
Next question is from Henrik Nilsson at Nordea. Please go ahead.
Thank you. Afternoon and thank you for taking my questions. Despite the good development in Europe and the solid trend you comment on in technology and solutions, there was a flat margin in Europe. You touched upon it in the presentation, but can you please elaborate? I would expect that this should give a margin boost, but why are we not seeing that in Europe?
No, I mean, what it is is that I mean, we are improving, but I mean, it's still a relatively small part if you take on a group level, using the numbers we had last year, 90% of our business is in basic manpower-based guarding and 10% in technology and solutions. And then, of course, you have in the guarding business. It's always every year you have a certain margin erosion, and that's how this business works: price competitive, et cetera, et cetera. So there is all in that portfolio you have the 90% of a business there is a margin erosion. Then in the technology and solution we are improving. We are basically doubling our operating margin when we move from a guarding contract to a solution contract.
But that part is still relatively small 10% roughly speaking last year. It takes a while before you see, I mean the one eats the other so to say. But as this part is growing then that will help the margins. But with it has to be a bigger part of the total group to really dramatically change the margins.
Okay. And just to follow up on that, I mean, when do you see that will be a large enough share of the European business so that it should give it a material impact?
It happens all the time. It happens all the time. But I mean I don't wanna put a number or a date on that. So I mean it's gonna happen. I prefer not to put a date on that.
Okay. One more question if I may. You mentioned oil and gas exposure in Latin America. Can you give us any number on how big that exposure is?
It's a relatively small segment for us. So it doesn't, but I mean, there is a certain concern of course that the oil prices and the metal prices has an impact on the Latin American economy. Brazil is not doing very well and Argentina is suffering. We are not in Brazil so it doesn't impact us. But what happens in Brazil being half of the Latin American economy will have an impact on the neighboring countries. But we know that and it's not a surprise. We have known that for a long time. And we are not heavily exposed to the oil and gas in Latin America not at all. A little bit more to the metal in the mining industry, but we are still growing 23% even so. And why is that?
Wedll, it's because we have the right strategy. We are winning market share. We have a good story to tell our clients. So it's working. But of course if you look on the macro you could be a little bit concerned. But looking in when you stop doing that and just look at Securitas it things looks better.
Perfect. Thank you, Alf.
Thank you.
We have a question from Mr. George Gregory at Exane BNP Paribas. Please go ahead.
Good morning. Afternoon. Three questions, please. First up on the tax rates. You explained that it was slightly higher in the quarter due to U.S. Do you have any thoughts as to the full year outturn at this stage, please?
No, our estimate of it, when we use 29.2% as the tax rate, that is based on our so to say forecast for the full year. So that is, we use we make it every time when we put the tax rate into the P&L; it's based on the full year projection so to say. So 29.2%.
Very clear. On Ibero-America in the statements you note that you saw some improvements in the Iberian and the Spanish margin. That would at least on my numbers imply some dilution in the Latin American margin. What would it? Firstly, is that correct? And secondly, what led to that margin dilution?
Hang on a second. I'm just gonna change my, gonna just look here to be more clear.
Okay.
Okay. Yes. There is a small yes, we're correct. There is an improvement in Spain. It is improving. And there is a small small decline in Latin America, correct. Yes.
Do you have any idea what drove that? Was it just sort of the simple wage price balance or anything more significant?
Yeah, we had some startup cost on a couple of big contracts in Colombia, for example. So that is one piece of it. Yeah.
Okay. Thanks. And final question on the overheads. The other line came in at 0.33% of group sales. I was just wondering what your expectation for that other line was for the full year.
No, we don't. I'm sorry about that. But yes, we don't give any forecast. I prefer not to give you any number on that.
Okay. Thanks.
Thank you.
As a reminder, it's zero one on your telephone keypad if you have a question. Zero one. We have a question from Mr. Mikael Holm at Danske. Please go ahead.
It was not there obviously. Hello?
Mikael, your line is open.
Yeah, okay. Hi, Mikael Holm here at Danske. I only have one question regarding the technology services. You said it grow 20% last year, and you expect it to at least grow in the same pace this year. I guess this is referring to growth in local currency?
Yes. It's real term. Real real growth, yes.
Okay.
It's not the difference in inflation, the number with the exchange rate. No.
No. Okay. That's that's my question. Thanks.
As a reminder, it's zero one on your telephone keypad if you have a question. Zero one. We have a question from Mr. Henrik Nilsson at Nordea. Please go ahead.
Hi, follow up there on Mikael Holm's question. The 28% growth in 2014. You said that it's real growth. How much of that is organic growth?
Last year, I mean, that was very much organic growth. But this year we've a very big weakening of the Swedish krona. It will be incorrect to then it will be a piece of cake to reach that number. So that's why I'm saying it's for this year we will have to compare apples with apples. So we are comparing with the same exchange rate as we had last year.
Okay. But in 2014 you had acquisitions adding in.
It was pretty much organic growth.
Okay. Okay. Thank you.
It was organic growth. It was organic growth, yes.
Okay. Thank you.
We have a question from Mr. Paul Checketts there at Barclays. Please go ahead.
Hi, I've just got one question. Of your larger contracts which are due to rebid in 2015?
There are always contracts being rebid, but there is nothing really. I mean, mainly normally it's the airport contracts which will be up for tender and they are quite large. But there are some large tenders going on right now. For example, the European Commission we lost five years ago to G4S and that is up for bidding right now. It's a big contract in Belgium.
Mm-hmm.
Then you have at the airports. There is nothing really big that we have right now. But well, there is one. There is the Madrid airport which is up for tender right now which we have. Barajas, that's being tendered right now in tender process right now. But then you have contracts we win and lose all the time. So I mean I can make a long list and I can make a very short list. And it's business as usual I would say.
Okay.
It's not nothing of a really.
Right. Time.
I mean, yeah, I mean the two I mentioned. One, the Barajas, we run the risk of losing. The other one, we have a chance of winning. We don't have it today. But there are none of the big, really big airport contracts that we have in Europe which are up for bid. Very many of them have actually been rebid over the past 12 months, such as Amsterdam airport, Paris airport, Berlin airport, a few others, quite significant Norwegian, all the Norwegian airports. And there we have maintained our contracts.
If you bid on the European Commission contract, how would your bid differ this time to the last time? Is there more technology involved?
It will not be very smart of me to answer that question as it's being in tender process right now. So I have to keep quiet on this one.
Yeah, I understand. But in a general sense, on larger contracts, is technology a bigger part than it?
If we have a chance to offer that sometimes the customer don't ask for it. They just ask for the same thing they have. And then we have to bid according to those conditions. Some customers will then allow you to make an alternative. And then of course we will bid with more technology to in order for us to be more competitive. And others strangely enough do not even allow us to make an alternative because they have to follow some kind of public rules they think which means that we cannot bid an alternative. So it varies. But anyway whenever we have a chance to bid with a technology as an alternative or as our main offer then it makes us much more competitive and much more strong in order to win those contracts.
Thanks.
We have a question from Mr. Henrik Nilsson at Nordea. Please go ahead.
Thank you. One more if I may here. Is there any trend in the length of contracts in the market currently?
No, I would not say so. I mean, no, it's the same. Big contracts are usually three to five years with some one or two option years. And then the normal, so to say, day-to-day business smaller contracts, they are usually a one-year contract. But I should stress that what happens is that when we bid a technology solution contract, then we extend from a one-year contract to a three- or five-year contract. So it gives much more retention to our portfolio and much more stability to our portfolio because we need to amortize the investment over that period of time. So that is a clear fact. That is a trend if you but it's if you compare apples to apples it's very slow change.
That is a trend that as the part of technology and solutions is growing then the length of a contract of the contracts in the portfolio will grow as well. That is very good because that creates less turnover, better retention. At the end of the day the ratio between new sales and termination will be much more favorable and generate more growth.
Okay. Thank you. And on the margin when you've depreciated these cameras on your balance sheet what happens to the margin in these contracts when you renegotiate them?
Well, I mean, we have not had—I mean, we had some, but I mean, we have. This is relatively new with most of that sales that we are increasing now are relatively new contracts. But what usually happens is that we own the equipment and then of course we sit on a very strong card at that time when that contract is being renegotiated or extended because we can use the same technology that has been amortized. And then we can take advantage of that in the bid compared to other bidders who cannot do that because it's their equipment needs to be completely new and have to put all the equipment up for that site. So sometimes that is definitely to our advantage.
Other times it's not because the customer wants to have a possibility to buy the equipment or has a residual value on the equipment or so forth. But all in all it's for the customer, and for us it's more cost efficient. And it gives us a better chance to really continue after the end of the contract, after the three years, to give the client a very good offer for extending that contract for another two or three years.
Okay. Thank you.
As a reminder it's zero one on your telephone keypad if you have a question. Zero one. We have a question from Mr. Viktor Lindeberg at Carnegie. Please go ahead.
Yes, thanks. Hi, just a quick question regarding CapEx if you could say something about what you plan for for the full year? Thanks.
Yeah, we said last year that we were probably not gonna invest in the same. I mean, as we revised, so to say, we took 18% away. And we said that it could be likely that it will be less than the roughly SEK 400 million that we need in CapEx for technology investments. That's what we said, and that's probably still valid. It's hard to predict because, I mean, if we start to speed up and ramp up and really gain speed, even better speed, on technology and we win a couple of contracts with big investments, that number will quickly go up because we have to put up the money up front. And then it will hit the balance sheet already this year.
But I mean it will not be more than the SEK 350 million- SEK 400 million that's at least I think it's safe to say. If it's gonna be less it's not gonna be substantially less. But it might be less. But it depends a little bit on what happens the second half and how successful we are on winning heavy contracts with heavy investments on technology which needs to be invested in Q3 and Q4. So it's hard to say the numbers simply. But that's basically the reasoning I can share right now.
Okay. And in total, how much would it be roughly?
Now that's the increase. I mean, so roughly speaking.
Yeah.
We have a CapEx of roughly the same as depreciations around SEK 1 billion, right? A bit higher, SEK 1.1 billion something like that. And then you have so so yes. So those are the numbers yes.
Okay. Thanks.
There are no further questions at this time. Please go ahead, speaker.
Okay. Thank you very much for calling in. We will move on with our general assembly in 50 minutes from now. Thank you very much. Bye-bye.