Securitas AB (publ)

So welcome to the Q2 and the first half report that Matteo and I are sharing from Stockholm this morning. And today we will provide an update on the performance and before the Q&A, I will also make some comments related to the capital markets day that we had in London last month. But if we are switching then straight to the performance highlight, this is a quarter with some clear positive developments, but also a few areas where we are performing below our plan. And starting with the growth, the adjusted sales growth was 3%, and the growth in technology in North America was a clear positive development, while the growth in Europe was lower as a result of active portfolio management and significant negative impact in aviation. Real sales growth in technology and solutions improved sequentially to 5%, and this recovery was supported by improved performance in technology in North America. And what is really positive is that the order entry and the backlog in the technology installations business increased significantly across all geographic regions and technology momentum is building as we're going into the second half. And from a strategy execution perspective, we are increasing the share of technology solutions across all segments, which is fully in line with the strategy. The adjusted operating margin improved to 7.6% and this was the result of positive exchange when we are growing T&S or technology solutions at the higher pace but with some negative impact from lower top line growth in services. We have now improved the operating margin 22 quarters in a row. And looking at the earnings growth, operating income increased 3% in the quarter and it should be noted that we had approximately 1% negative impact on the real change due to the divestment of the GEG aviation business in North America. Earnings per share improved 7% in the quarter and 11% in the first half. And the cash flow was healthy at 87%. The strategic assessment program was finalized in Q2 as was the active portfolio management activities in Europe and Ibero-America. And we have been driving these programs over multiple years with a significant positive impact on the company with a stronger focus and a higher quality of our business. But as we look ahead, it remains important to continuously work to optimize and calibrate the business, but it's good to have those programs behind us since we can dedicate more focus on client engagement and driving the commercial agenda. At the Capital Markets Day in London in June, and there I just want to say thank you to all of you who were participating, we announced the strategy and how we are winning during the coming period towards 2030. And we also announced the headline target of achieving average annual growth in EPS of 10%. So let's then move to the performance in the business lines and the segments. and we delivered margin improvement in both business lines with 11.3% for technology and solutions and 6.3% for services. The real sales growth in technology and solutions was 5% in the quarter and as commented earlier, strong recovery and installation in North America contributed. And the commercial activity in electronic security around all regions around the world is very good now and we are noting a strong order intake and backlog development in the second quarter. The real sales growth in security services was 0% in the quarter when excluding the impact of the government business to be closed down in North America. And this flat development is a consequence of active portfolio management, a negative development in aviation, but also a mixed picture in terms of the dynamics in the development of our customers business in different vertical segments. So with that we're shifting to the reporting segments and starting as always with North America where the sales growth increased sequentially and the margin was stable. Technology installation sales improved in Q2 after a very slow start in Q1 and sales growth was stable in the guarding business. The Pinkton business is smaller, but continued to hamper the North America growth as a result of the termination of a large temporary contract. And when comparing to last year, we should also highlight that the recent divestment of the GEG Aviation business had a negative impact on the real change in operating income in the quarter. Real sales growth in Technodium Solutions was 5% in the quarter, and as highlighted earlier, we're seeing an increase in momentum in Technodium installations significant growth in order entry and backlog. But despite some of the top-line softness, the operating margin was stable in the second quarter, 20 basis points up in the first half of the year. And we were then moving to Europe, where we generated continued margin improvement despite negative impact from the airport security business. The organic growth was 2% and the growth was supported by price increases and primarily related to Turkey. And looking at the services business, active portfolio management had a clear negative impact on the growth. The aviation business was negatively impacted, like I said earlier, and this was now throughout the quarter, and it's all related to the situation in the Middle East and the reduced number of flights. So we have seen demand reduction in aviation in key markets like Germany of approximately 20%, and this had a significant impact on sales and profitability. From a total growth perspective, the impact from aviation is approximately 1% negative impact on the overall growth in Europe. Real sales growth in technology and solutions was 4%. The operating margin in Europe was 7% in the quarter. The margin improvement was driven by technology and solutions business lines. Security services margin was positively impacted by active portfolio management but negatively impacted by aviation. So all in all, somewhat mixed results development in Europe in the second quarter. So let's then shift to Ibero-America where we had a decent development of the business. Organic growth was 5% and this was driven by very strong growth in technology and solutions and price increases in security services. There is a negative impact on the growth from Active Portfolio Management, but our team are driving good conversions to technology solutions. And the real sales growth in technology and solutions was very strong at 13%. And similar to the European division, we have now completed the Active Portfolio Management program in Iberia, America, and now transitioning to business as usual with ongoing portfolio optimization. The operating margin was flat at 7.5% and strong growth in technology and solutions contributed, but overall margin was held back by negative leverage on the cost base in security services. By looking at the first half, it's a good start to the year by our Ibero America team. So to summarize the performance, we are driving disciplined execution of our strategy with continued margin development, And as previously commented, growth came in below expectations in some areas, but we are seeing increasing momentum in the technology business. And while not reported externally, we had very strong sales growth and margin development in the AMEA business, which is reported in the other segment. Client retention is stable when you exclude the impact from the close down of the government business in North America. And with that, handing over to you, Matteo, for the finance update.

Thank you, Magnus. We start with the income statement, where we had organic sales growth of 0% and improved the operating margin with 20 basis points to 7.5%. Now, when we look at our performance, excluding the government business to be closed down within SEIS, we deliver an OSG of 3% and an operating margin of 7.6%, which is 10 basis points better than last year. The operating income adjusted for currencies improved in the quarter by 3% and in the quarter we had, as Magnus already mentioned, circa 1% impact on real change due to the aviation business disposal in the US made in the first quarter. Looking below operating result, there are no material developments in amortization of acquisition related intangible nor in the acquisition related costs. Item affecting comparability was minus 46 million, which is a reduction of 120 million compared to last year and in line with our plan. This is related to our transformation program that will continue throughout 2026. And as previously also communicated, we estimate to have a full year 2026 program cost between 225 and 250 million SEC. When we look at the year-to-date ISC, are still positive 138 million due to the capital gain of 213 million that we realize in quarter one, primarily for the divestment of global elite group in the US. Our finance net came in at 355 million, which is a reduction of 124 million compared to last year. We continue the positive trend of reduced financing costs as interest rates and our debt level are decreasing. As communicated in Q1, we estimate finance net for 2026 continuing to reduce and land below 1.6 billion compared to the 1.8 billion for the full year 2025. Now, moving to tax. Here, our full year forecasting tax rate remained at 27.5%, excluding the capital gain related to the divestiture of Global Elite Group, which is the same level as we had in the first quarter. Our EPS real change growth was at 14% in the second quarter. When excluding the effect of ISE, the EPS real change growth was 7%. supported by a 3% real change in our operating result and by a strong leverage from the reduced finance net. For the first half of 2026, our currency adjusted EPS, excluding ISE, increased 11% compared to last year. Quarterly results reflect FX headwinds, which were largely driven by USD, but as you can see here, lower than quarter one. Turning to cash flow, we deliver another good quarter ending at 2.5 billion, which is corresponding to 87% of operating income. For the first six months, cash generation improved by $458 million, reaching 65% of operating income. The year-to-date position is positively impacted by $41 million in Q1 due to the payroll timing in our gardening business in North America and by Paragon Networking Capital release related to the close-down. The trade receivable negative change we see at quarter end was primarily driven by strong sales growth, particularly in North America, with a significant share of sales happening late in the quarter. In addition, the ERP go-live in Norway temporarily delay invoicing and collection processes. This timing effect are expected to normalize during quarter three. RESULTING IN A RECOVERY OF TRADE RECEIVABLE AND SUPPORTING CASH CONVERSION. THE CAPITAL EXPENDITURE REMAINED BELOW OUR TARGET AT AROUND 2.8% OF SALES IN THE QUARTER. THE FREE CASH FLOW ENDED AT 1.7 BILLION SUPPORTED BY THE STRONG Q2 OPERATING INCOME AND REDUCED FINANCIAL INCOME AND EXPENSES PAID FROM THE IMPROVED DEBT PROVISION. The first half free cash flow improved by 752 million compared to last year. We continue to see an improved operating cash flow and we remain focused on strong cash generation to meet our full year target of 80 to 90% of operating income. We then move and look at our net debt, which was 32.7 billion at the end of the quarter. This is an increase of 495 million compared to Q1 this year, primarily related to the dividend payment of 1.5 billion and the negative translation difference of minus 513 million due to the weakened Swedish krona. Item affecting comparability remain according to plan, And as we anticipated during Q1, we are forecasting a cash flow for the full year 2026 in the range between 800 and 815 million SEC. Looking at the right hand side, our net debt to EBITDA remain at the same level as Q1 at 2.2 times. which is an improvement of 0.2 times compared to Q2 last year. We are below our target and we want to continue to be below 2.5 times and expect to continue to leverage our balance sheet in the short term. Looking at our financing and financial position, where we continue to have a strong balance sheet, strong liquidity, and we remain without any financial covenant in our debt facilities. In the second quarter, we extended by one year our evolving credit facility, and the new facility consists of two tranches, one of €900 million, which will mature in 2031, and one for €200 million, which will mature in 2029. Each of these tranches might be extended for another extra year. Going forward and looking at the maturity chart, we have very limited refinancing needs throughout 2026. and our focus will be to continue to amortize debt supported by a strong free cash flow generation. And finally, we remain committed to our investment grade rating. And with that, Magnus, I hand it over back to you.

Many thanks, Matteo. So before we open up the Q&A, I would like just to share a few key messages related to the CMD announcements and our journey ahead. And as communicated at the CMD in London last month, we are well positioned for profitable growth. The winners in the security industry in the future must deliver quality and offer the clients technology, digital and intelligence-led capabilities. And with these capabilities, we are very well positioned to capitalize on the changing dynamics and to drive profitable growth. And with our new financial targets, we emphasize 10% annual average EPS growth over a cycle, and to us this refers to the period leading up to 2030, which is the target year for our next strategic phase. And we have a long-term ambition to reach 10% operating margin, but after a period of extensive transformation, we are now making this shift to focus on profitable growth. And leveraging our unique offering, which is future-proof and clearly differentiated from our competition, we target around 4-6% organic growth and expect a continued mixed shift to contribute to margin improvement. And we are now intensifying our efforts to commercialize, monetize the capabilities we have built, and this includes strengthening our commercial capabilities, implementing incentives to drive cross and upselling at scale, but also training our client teams to sell more integrated services and transforming the business towards intelligence-led. And all of these efforts will have a positive impact on the overall growth and driving the mix change towards higher added value services. And then, regarding capital allocation, after a period of deleveraging after the Stanley acquisition, we have a strong balance sheet. We're building the M&A pipeline with emphasis on teknologi boltons. And we will be disciplined and will return excess capital to shareholders. So to conclude this section due to the changing market dynamics and rapid developments in technology, automation and AI, I expect the coming five years in this industry to be more transformative than the last 25. But when you look at our presence, our technology and digital capabilities, we are very well positioned for the next phase. and of stepping up the engagement with our clients and we continue to drive the execution of our strategy to be the trusted partner in intelligence-led security. So with that, Matteo and I are happy to open up the Q&A.