Securitas AB (publ)

Good morning, everyone, and welcome to our first half update. We're making good progress, and we are glad to deliver a strong Q2 report. So let us go straight to the highlights. We're recording good development across all segments, and the organic growth increased sequentially to 5% in the quarter from 3% in Q1. And a very strong recovery in North America is the driver of the increase. The operating margin improved 40 basis points versus last year to 7.3. And all business segments supported the profitability improvements and we noted improvements in both business lines and especially strong in technology and solutions. As announced last quarter, we have done an extensive strategic assessment of the government business within critical infrastructure services and have decided to close this down. business is not aligned with our long-term strategy the outlook in terms of value creation opportunities and healthy profitability in this part of the market is limited and we have assessed a number of different options the last few years but due to the underlying performance of the business we have concluded that the best option is to close the business down and we will of course do this in an orderly fashion supporting both our clients and people from a strategic perspective This is another important step in creating a sharper and more focused company. The group operating margin excluding this business would have been 7.5% in the second quarter, and Andreas will share more details in the finance section. Continue then with the group level performance. Solid growth and operating result together with positive development in the finance net contribute to 25% growth in EPS in the quarter. The operating cash flow was 106% and this represents significant improvement versus last year and is in line with our ambition to achieve a more consistent cash flow performance throughout the year. The business optimization program that we announced last quarter is running according to plan, and we expect to see savings of 200 million SEK by the end of this year. And looking then at the world around us, the uncertainty in the geopolitical and also macroeconomic environment continues. But being a services business with local delivery, our exposure is limited. But having said that, we continue to assess the situation to be able to take swift actions if necessary. And let us then shift to the performance in the business lines and the segments, and starting with the business lines, where the operating profit margin of 11% in technology and solution represents a strong 60 basis point improvement. The growth of 4% is below our target, but we're now putting a higher focus on client engagement and commercial development to improve the growth going forward. The growth in security services was 3% in the quarter, and the growth here is negatively impacted by us proactively addressing low-performing contracts. But it's also essential that we deal with these contracts in the portfolio to create a healthier business. But the margin on the new business remains at very good levels. With that, let us then move to the segments. And as always, we're starting with North America, where we recorded significant improvement in organic sales growth and also margin improvement. The growth is primarily driven by the garden business with good price and volume increases. And the Pinktown business recorded double-digit growth and the performance in the technology business supported. Technology and solutions growth was 3% and growth here in technology was good, but we had lower solutions growth. And as commented last quarter, we are fine-tuning our go-to-market approach with solutions to rebuild the commercial momentum. Looking at the margin, we delivered 40 basis point improvement to 9.6%, and very good performance in technology and guarding were the main drivers. And the Pinkton business continues to improve after the modernization work done in the last few years. So all in all, very strong performance by our North America team. So let us then move to Europe, where we recorded significant improvement in profitability. Organic growth was 5% in the quarter, and the high wage inflation period is now behind us, and the growth in services was primarily price-driven. Aviation contributed with strong growth in the quarter, while active portfolio management had a negative impact on the growth. And sales growth in technology and solutions was healthy at 6%. We delivered 50 basis point improvement in the operating margin to 6.9% and the margin improvement was driven by both business lines with support from the business optimization program that we are successfully executing on. Security services business was positively impacted by high margins on new sales, active portfolio management and the airport security business, including then the impact from the divestiture of the airport security business in France. But as I commented at the beginning, we continue to address and renegotiate lower performing contracts in the services business in Europe, And this has a temporary impact on the growth and profitability, but it is absolutely essential to finish this work to create a healthier business. And the expectation that I have is that by the spring of 2026, we're going to be largely done with that work. Looking at the longer term, we have been and continue to invest in our offering, laying a strong foundation for sustained margin growth over time. So looking at the total picture, very good development by our European teams. And we then shift to Ibero-America, where we have also recorded continued strong development, especially in the operating margin. The organic growth was 2%, but we recorded 4% in technology and solutions. Active portfolio management had a negative impact on the growth, but we're making good progress in addressing the low profitability portfolio and driving good conversions to technology solutions. The operating margin of 7.5 represents a significant improvement versus the previous period, and this was driven by improvement in security services and technology and solutions. So to conclude, it's also a very good quarter and first half in Ibero-America. So to summarize then the performance overview in the segments, we are on the right track. We have a stronger offering than ever before, and despite the negative impact from active portfolio management, our client retention is improving. And we're driving significant improvement in the operating margin in all segments. So with that, handing over to you, Andreas, for some more details regarding our financials.

Thank you, Magnus. And we start with the income statement, where we had organic sales growth of 5% and improved the operating margin with 40 basis points to 7.3%. We had good margin development in all segments, but Securitas' critical infrastructure, which is reported under other in the segment reporting, hampered the margin mainly due to the profitable contract loss we communicated in the first quarter. As Magnus mentioned, we have initiated the close down of the government business within SEIS. Adjusted for the business to be closed down, the operating margin was 7.5% in the quarter and I will come back with further details related to the close down shortly. Looking below operating results, there are no material developments in amortization of acquisition related intangibles nor in the acquisition related costs. Items affecting comparability was 166 million, a reduction of nearly 80 million compared to last year in line with our plan. The European transformation program continued to progress well and the business optimization program accelerated in the second quarter and we have now executed a majority of the target to save 200 million by the end of 2025. The full year estimated cost of approximately 375 million for both the European transformation and the business optimization program combined are unchanged compared to our estimate in the first quarter. Moving to the financial net which came in at 479 million and this is 138 million lower than last year and we continue to see positive development as interest rates and our debt levels are going down. And for the full year we expect the finance net to come in slightly below 2 billion, which is lower than our estimate in Q1, and the material decrease compared to the 2.3 billion in 2024. Moving to tax, here our full year forecasted tax rate remained 26.7%, basically the same as in the first quarter. It is a strong quarter. Our currency adjusted real EPS growth was 25% in Q2. When excluding the positive effects from reduced IEC, the EPS real change growth was 20%, supported by a solid 10% real change in our operating result and with further benefits coming mainly from the reduced financial net. And when looking at the first six months, our currency adjusted EPS increased 18% compared to last year. We then moved to cash flow, where our operating cash flow was strong at 3 billion or 106% of operating income, improving our cash generation significantly compared to last year. The capital expenditures continue to remain around 2.5% of sales and we expect it to continue to be at these levels going forward as we see reduced cap expense from our transformation programs and IT. However, the strong operating cash flow outcome in the second quarter was mainly due to solid working capital management, where we saw good development in our day sales outstanding or DSO. And as I have mentioned at several occasions, we are driving a number of initiatives to trim our working capital and to improve our cash flow consistency throughout the year. And these actions are positively impacting the cash generation. We also had very strong collection activities towards the end of June, which may put some pressure going into the third quarter. But it is the longer term trend which is most important related to our cash generation, and we are seeing a positive trend linked to the focus and work we are doing in this area. The free cash flow landed at 2.2 billion, supported then by the strong operating cash flow, reduced interest payments due to the lower interest rates and debt levels, and temporary positive timing impacts in the US related to tax payments in the quarter. All in all, a strong first half year cash flow, and we are in a good position to meet our full year target of 70 to 80% of operating income, where the ambition always is to be at the upper end of that interval. We then have a look at our net debt, which was 36 billion at the end of the quarter. This is a reduction of 1.3 billion compared to Q1, mainly supported by the strong cash flow and the strengthening Swedish krona, while negatively impacted by the 1.3 billion dividend paid. And as you know, we have an additional dividend payment of the same amount to be paid in the fourth quarter. As a reminder, in 2025 we will pay the $53 million US dollar settlement related to the US government and Paragon in three approximately equal installments. The first installment was paid in the first quarter. The second installment will be paid in Q3 with the final payment in the fourth quarter. Moving then to the right hand side, where the net debt to EBITDA was 2.4 times. This is half a turn improvement compared to Q2 last year, where positive EBITDA development, good cash generation the last 12 months and the strengthened Swedish krona have supported positively. We continue to deleverage our balance sheet and are well below our target net debt to EBITDA of less than 3 times. Moving on to have a look at our financing and financial position, where we continue to have a strong balance sheet, good liquidity in place, and we remain without any financial covenants in our debt facilities. In the second quarter, we renewed our revolving credit facility, and the new facility consists of two tranches, one 900 million euro tranche mature in 2030, and one 200 million euro tranche mature in 2028. And each of these tranches may be extended up to two years. The new facility replaces the existing one billion euro RCF that we signed in April 2020, and it remained undrawn as per quarter end. In the quarter we also signed a new private placement and a new bank loan facility of a total of 390 million USD. Approximately half has been used to amortize on the 600 million USD term loan expiring next year, and the other half will be used for the same purpose but will be executed in the third quarter. We are executing on this refinancing now to further strengthen our liquidity and also to reduce our financing costs. And after these refinancing activities, we are in a good position with limited refinancing need coming 18 months, and we plan to pay off the remaining maturing debt in 2025 with cash at hand or short-term facilities. And we continue committed to our investment grade rating. Finally, I want to share some more details related to the close down of our government business within Securitas Critical Infrastructure Services. And as Magnus mentioned, we have reviewed several strategic options over the last years related to the business and now decided to close the government business down. We started the execution of the closed-down in the beginning of July and we estimate to be largely completed by the end of 2026 with positive impact to our long-term profitability and cash generation as we finalize the work. The government business had 3.2 billion Swedish krona in revenue for the first six months of 2025 accounting for 77% of the total SEIS revenue in the same period. The business had a low single-digit operating margin in 2024 with declining performance the first six months of 2025. And the group's operating margin adjusted for the business to be closed down was 7.1% for the first six months of 2025 compared to the 6.8% as reported. It is also a relatively working capital intensive business. In the second quarter, the net working capital was 68 million US dollar, which will be released into cash and impact the operating cash flow positively as we are executing on the closed down plan. The cost of the close-down is estimated to $150 million, of which approximately one-third will impact cash flow mainly over 2025 and 2026. And this cost will be reported as an item affecting comparability in the third quarter. So the net impact from the close-down, when considering the expected working capital release and the cash portion of the close-down cost, is estimated to be cash neutral. The remaining part of SEIS, not part of the closed down plan, is mainly focused on providing security services to the commercial and private critical infrastructure sector where government security clearance is required. Reporting wise, SEIS, including then the government business to be closed down, will continue to be reported under the heading other in the segment reporting going forward. And to reflect our underlying growth and profitability during the closed down period, we have started to report the operating margin excluding the business to be closed down in this quarter and we will also report adjusted organic sales growth as from the third quarter. By exiting the government business, we take another step in sharpening and strengthening Securitas' competitive position and as leader in the global security technology and solutions market. It will also strengthen the company's margin and cash flow profile and allow us to focus on the areas where we can maximize long-term shareholder value. And with that, I'm handing over back to you, Magnus.

Thanks a lot, Andreas. So before we are opening up for the Q&A, let me just provide a bit of a longer-term perspective related to the transformation of our company. So three years ago, in conjunction with the Stanley acquisition, we communicated the ambition to create a different type of Securitas, to create a company with strong technology and digital capabilities in combination with a higher quality guarding business. And in conjunction with that, we also share the ambition to improve the operating margin from the historic level where we had been for around a decade, around 5% to 8% by the end of 2025. And here we identified four main areas as the main drivers to achieve this type of a shift and change also from a margin perspective. First one was to drive a strong impact with technology and solutions. Second one improving the security services profitability. Third one M&A activity and the fourth one strategic assessments. And as we're entering now the second half of 2025, we are executing in all areas and on a good track to reach 8%. While the impact from M&A activity has been low in this period, we have made considerable progress in the other three areas. And just to build a bit on what I commented on earlier and also what Andrea shared, in terms of the strategic assessments, we have also assessed all parts of the business to ensure that they are in line with our strategy and also meet the long-term profitability expectations. And as a direct result of these assessments, we exited the Argentina business, we divested the airport security business in France, And with the close down of the government-related business and SCIS, we are now also completing another important action to create a more focused and sharper security. But as we're getting closer to the end of 2025, we have also received a question on a number of occasions on what basis we consider reaching the 8%. And in simple terms, if we reach the 8% operating margin, excluding then the SCIS business that we are closing down, In the second half of this year, we will then have reached that ambition and that is really how we hold ourselves accountable also to deliver on the ambition that we set. And now then we have all actions in place to make this happen. And from my perspective, if we land slightly below or slightly above the target in 2025, is not what matters most and I say this for two reasons. First one is that we set this ambition a number of years ago and we were clear from the beginning that this is an aggressive ambition and if we are close to fulfilling the targets we have made a historical shift in the profitability profile of Securitas from five to eight percent. But then secondly, we are always focused on long term value creation. And while this has been an important milestone internally, I would say even more important than externally, it's still just a milestone on a longer term journey. We will continue to strive to build a stronger and more profitable Securitas also beyond the end of 2025. And we are committed to reach the 8%, but what is certain is that today we have the strongest offering in the industry, and everything we do is centered on creating a compelling value proposition and being the most attractive partner to our clients. So with that, let us wrap up the presentation. We are driving performance improvement across all business segments, delivering 25% EPS growth. cash flow as we highlighted is strong at 106 percent and our balance sheet is strong and we are executing according to our plans and fully committed to achieving our target of an eight percent operating margin in the second half of this year so with that let us open up the q a session if you wish to ask a question please dial star five