Release Date: July 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Securitas AB (SCTBF, Financial) delivered 5% organic sales growth in Q2 2024, with Technology & Solutions achieving 8% growth.
- The operating margin improved to 6.9%, driven by all business segments, with Europe showing the largest year-on-year improvement.
- The company achieved SEK1.25 billion in recurring monthly revenue and more than $50 million in synergy takeout post-Stanley Security acquisition.
- North America recorded a strong operating margin of 9.2% in Q2, driven by technology business synergies and higher operational efficiency.
- Securitas AB (SCTBF) is making significant progress in active portfolio management and increasing price ratios for new business, contributing to improved margins.
Negative Points
- The termination of a larger aviation contract in North America negatively impacted the growth in the Security Services segment.
- Client retention in North America was lower than normal at 86%, impacted by the airport contract termination.
- The inflationary environment in Turkey accounts for a significant share of the growth in Europe, indicating reliance on external factors.
- The company is facing increased costs related to the Stanley integration program, with estimates rising to SEK550-600 million for 2024.
- Securitas AB (SCTBF) continues to experience challenges with ongoing system and support transitions in Europe, affecting operational efficiency.
Q & A Highlights
Q: Could you give a little more color on what's driving the increase in IAC costs linked to Stanley? Is there a risk that it goes up again in the future?
A: Andreas Lindback, CFO: The increase is due to cost pressures and an expanded scope to ensure robust IT and platform integration. We track costs monthly and expect to hold the current estimate.
Q: By when should we expect a material shift in margins to reach the 8% target?
A: Magnus Ahlqvist, CEO: We have six quarters left and clear focus areas, including driving technology and solutions, completing work on the guarding portfolio, and ensuring a meaningful revenue mix change. We are committed to achieving the 8% margin target by the end of 2025.
Q: Do you have any idea on the timing of the US government investigation into the critical infrastructure business?
A: Magnus Ahlqvist, CEO: We cannot influence the timing and are fully cooperating with the authorities. We hope to conclude it sooner rather than later. We continuously assess all parts of the business to ensure alignment with our strategy.
Q: Could you break down the pricing contribution to the 5% organic growth and its implications for volume growth?
A: Magnus Ahlqvist, CEO: Roughly 2% of the growth is related to Turkey. The services part of the business is primarily price-driven, while technology is delivering good growth with 8% organic growth in technology.
Q: Could you comment on wage inflation for this year across the three divisions?
A: Magnus Ahlqvist, CEO: Wage inflation in Europe is lower than last year but still elevated. In North America, it is lower compared to previous years. In Ibero-America, it is similar to Europe, lower than last year but still somewhat elevated.
Q: How do you expect the Euro and Olympics to impact your performance in Europe?
A: Magnus Ahlqvist, CEO: There are smaller one-off positive impacts in Q2. For the Olympics, we are focusing on existing clients and do not expect a meaningful impact.
Q: Could you elaborate on the increased scope of the Stanley integration?
A: Andreas Lindback, CFO: We have seen additional opportunities for deeper integration in terms of ERP platforms and IT tools. This will result in a more robust platform for driving profitability and operational efficiency.
Q: How do you see the clients reacting to price initiatives today compared to one or two years ago?
A: Magnus Ahlqvist, CEO: Clients usually want to keep Securitas as their partner. We are seeing improved client retention and healthier margins, indicating successful price initiatives.
Q: How do you expect AI to impact your technology business?
A: Magnus Ahlqvist, CEO: We have been investing in AI and machine learning for the last six years. AI will help optimize large-scale operations, monitoring, and client delivery, enhancing both efficiency and profitability.
Q: Could you explain the operating leverage in the Technology & Solutions business?
A: Andreas Lindback, CFO: In the solutions business, profitability is stable throughout the contract life cycle and improves upon renewal. In the technology business, strong project management ensures stable profitability, while monitoring and maintenance offer high margins and good cash flow.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
