Buried within Securitas AB's Q1 2022 and Q4 2021 earnings call transcripts, hidden beneath the excitement surrounding the Stanley Security acquisition, lies a tantalizing clue, a silent force quietly reshaping the company's future. It's not a new technology, a groundbreaking contract, or a radical restructuring. It's something far more fundamental: an unprecedented shift in Securitas' financial strategy.

While analysts and investors focus their microscopes on the Stanley integration, Securitas is playing a different game, one with higher stakes and potentially greater rewards. They're laser-focused on portfolio quality over top-line growth. This represents a fundamental departure from the volume-driven strategy typical of the security services industry, and it's already yielding impressive results.

Let's delve into the evidence. Throughout 2021 and into Q1 2022, Securitas repeatedly emphasized its focus on 'quality and profitability of the portfolio,' 'healthy profitability,' and 'good quality in the portfolio.' This is not just empty corporate rhetoric. Their actions paint a far more compelling picture.

Evidence of Securitas' Financial Shift

1. Contract Terminations

Securitas deliberately walked away from two major contracts in North America:

These were substantial revenue streams, but Securitas deemed them not worth pursuing in a tight labor market. Instead of absorbing the revenue hit, Securitas proactively adjusted its cost base, ensuring no negative leverage on the income statement. This proactive cost management, coupled with a higher-margin portfolio, directly contributed to the impressive margin improvement in North America.

2. Aggressive Price Increases

Securitas has been aggressively raising prices, far beyond the typical 2-3% annual increases seen in 'normal' years. In Q4 2021, price increases were estimated to contribute 3-4% to organic growth, and they continued to accelerate in Q1 2022. Securitas acknowledged that these increases were significantly higher than in previous years.

This aggressive pricing strategy is tied to the labor market challenges. By passing these costs onto clients, Securitas prioritizes long-term sustainability and service quality over short-term volume gains.

3. Unwavering Focus on Cash Flow

Despite the challenges posed by COVID-19 and a tight labor market, Securitas delivered strong cash flow throughout 2021. In Q4 2021, they achieved an impressive operating cash flow conversion rate of 131%, driven by 'very good collections of accounts receivables and reduced DSO.'

This laser-focus on cash flow is a strategic imperative as they prepare for the Stanley integration and subsequent deleveraging.

Impact of the Portfolio-Centric Strategy

This portfolio-centric strategy is already bearing fruit. Securitas achieved its highest operating margin in over a decade in 2021, reaching 5.6%. North America, despite the contract terminations, saw its margin surge to 6.8% in Q4 2021. Even Ibero-America, a historically challenging region, delivered an impressive 6.3% margin in Q4 2021, driven by strong performance in Spain and active portfolio management in Latin America.

These results speak for themselves. Securitas is demonstrating that prioritizing portfolio quality and profitability can unlock significant margin expansion and cash flow generation, even at the expense of short-term volume growth.

Conclusion

While the Stanley Security acquisition may grab headlines, Securitas' silent revolution in financial strategy is the real story to watch. This laser-focus on portfolio quality, combined with aggressive pricing and a commitment to strong cash flow, is laying the foundation for a leaner, more profitable, and ultimately more resilient Securitas, ready to capitalize on the evolving security landscape.

"Fun Fact: Did you know that Securitas traces its roots back to a small Swedish security company founded in 1934? From these humble beginnings, they've grown into a global security powerhouse, employing over 341,000 people worldwide."