Securitas AB (SCTBF) Q1 2025 Earnings Call Highlights: Strong EPS Growth Amid Strategic Shifts

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Fri, May 9, 2025, 1:03 AM 4 min read

Organic Growth: 3% in the first quarter.
Operating Margin: Improved by 40 basis points to 6.4%.
EPS Growth: 16% in the first quarter.
Operating Cash Flow: 1% of operating income.
Technology and Solutions Growth: 5% in the quarter.
Security Services Growth: 1% in the quarter.
North America Organic Sales Growth: 3% in the quarter.
Europe Organic Growth: 4% in the quarter.
Ibero-America Organic Sales Growth: 3% in the quarter.
Client Retention Rate: 90%.
Net Debt: SEK37.3 billion at the end of the quarter.
Net Debt to EBITDA: 2.5x at the end of the quarter.
Free Cash Flow: Minus SEK1 billion.
Finance Net: SEK497 million, SEK57 million lower than last year.
Tax Rate: Forecasted at 26.7% for the full year.
CapEx Guidance: Approximately 2.5% of sales for 2025.

Warning! GuruFocus has detected 6 Warning Sign with SCTBF.

Release Date: May 08, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Securitas AB (SCTBF) reported a 3% organic growth in the first quarter, with an operating margin improvement of 40 basis points to 6.4%.
The company achieved a 16% EPS growth in the first quarter, indicating strong financial performance.
Securitas AB (SCTBF) completed the divestment of its aviation business in France, aligning with its strategic focus on higher-margin segments.
The business optimization program is on track to achieve SEK200 million in savings by the end of the year.
The company recorded a positive net change in its Guarding portfolio in North America, expecting stronger top-line momentum in the coming quarters.

Negative Points

The performance of Paragon and Pinkerton negatively impacted the results, with Pinkerton showing weak performance in the quarter.
The growth rate in technology and solutions was below target, with a need to rebuild commercial momentum.
The termination of a large aviation contract in North America negatively impacted growth in the Guarding segment.
The Securitas Critical Infrastructure Services (SCIS) business in the US has a deteriorating margin profile, prompting strategic reassessment.
Active portfolio management in Europe and Ibero-America led to negative temporary impacts on growth and profitability due to addressing low-performing contracts.

Q & A Highlights

Q: Is the strategic assessment in the margin bridge related to Securitas Critical Infrastructure Services (SCIS)? Can the margin target be achieved without changes to SCIS? A: Magnus Ahlqvist, CEO, stated that SCIS is being evaluated for strategic options, and it is believed that the business might perform better under a different owner. The margin bridge does include contributions from SCIS, indicating its impact on the margin target.

Q: Why is addressing nonperforming contracts in Europe and Ibero-America a priority now? A: Magnus Ahlqvist explained that the focus has been consistent, but progress in Europe was slower compared to North America. The strategy involves renegotiating, converting to technology solutions, or terminating contracts. The goal is to complete this work within the next 12 months to focus on profitable growth.

Q: Can you quantify the impact of the SCIS divestment on group margins and potential considerations from a divestment? A: Andreas Lindback, CFO, noted that SCIS's profitability is below the group margin, but specific impacts on group margins or considerations from a divestment are not disclosed as the strategic assessment is ongoing.

Q: What are the contributors to the 40 basis point margin improvement in Q1, and how might they change over the year? A: Andreas Lindback highlighted that all segments improved, with Europe showing the most significant margin improvement. Pinkerton and SCIS negatively impacted margins, but improvements are expected in the coming quarters. Continued progress in Europe and technology and solutions growth are crucial for achieving the 8% margin target.

Q: How is Securitas addressing the growth momentum in technology and solutions? A: Magnus Ahlqvist mentioned that after integrating STANLEY, the focus is now on enhancing commercial orchestration and understanding client needs better to offer comprehensive solutions. This shift aims to drive healthy growth and value over time.

Q: What is the impact of the European contract portfolio optimization on profitability? A: Magnus Ahlqvist stated that significant progress has been made, with a meaningful impact on profitability. The focus is on completing the remaining work in the next 12 months to concentrate on value-accretive growth.

Q: How does the divestment of the French aviation business affect European margins? A: Andreas Lindback noted that the divestment, deconsolidated at the beginning of the year, had a slight positive impact on European margins.

Q: What are the expectations for wage inflation by region, and are there any impacts from tariffs or client activity changes? A: Magnus Ahlqvist estimated wage inflation in Europe at 3-4% and noted that North America is dynamic. No significant impact from tariffs was observed, and while some sectors face challenges, Securitas maintains strong client relationships and focuses on cost efficiency.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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