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. 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 improvement. We noted improvements in both business lines and especially strong in technology 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. The 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. 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. Continuing then with the group level performance, solid growth in 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 by the end of this year. Looking at the world around us, the uncertainty in the geopolitical and also macroeconomic environment continues. Being a services business with local delivery, our exposure is limited. Having said that, we continue to assess the situation to be able to take swift actions if necessary. Let us then shift to the performance in the business lines and the segments, starting with the business lines where the operating profit margin of 11% in technology and solutions 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 U.S. proactively addressing low performing contracts. It is also essential that we deal with these contracts in the portfolio to create a healthier business. The margin on the new business remains at very good levels. With that, let us then move to the segments. 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 guarding business with good price and volume increases.
The Pinkerton 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. 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. The Pinkerton business continues to improve after the modernization work done in the last few years. All in all, very strong performance by our North America team. Let us then move to Europe where we record a significant improvement in profitability. Organic growth was 5% in the quarter and the high wage inflation period is now behind us. 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. 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. It is absolutely essential to finish this work to create a healthier business.
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. 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 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 solutions.
To conclude, it's also very good quarter and first half in Ibero- America. To summarize 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. With that, handing over to you, Andreas, for some more details regarding our financials.
Thank you Magnus. 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 Services, 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 SCIS. 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 result, 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. 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 a 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 DPS, 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. 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 capital expenditure spend 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.
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 SEK 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 U.S. 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%- 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 SEK 36 billion at the end of the quarter.
This is a reduction of SEK 1.3 billion compared to Q1, mainly supported by the strong cash flow and the strengthening Swedish krona, while negatively impacted by the SEK 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 settlement related to the U.S. government and Paragon in approximately three 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 x. This is half a turn improvement compared to Q2 last year, where positive EBITDA development, good cash generation the last 12 months, and the strength in 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 three 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 EUR 900 million tranche maturing in 2030 and one EUR 200 million tranche maturing in 2028, and each of these tranches may be extended up to two years. The new facility replaces the existing EUR 1 billion 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.
Approximately half has been used to amortize on the $600 million U.S. dollar 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. After these refinancing activities, we are in a good position with limited refinancing need the 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 close 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 in revenue for the first six months of 2025, accounting for 77% of the total SCIS 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, which will be released into cash and impact the operating cash flow positively. As we are executing on the close down plan, the cost of the close down is estimated to $150 million, of which approximately 1/3 will impact cash flow mainly over 2025, and this cost will be reported as an item affecting comparability in the third quarter.
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 SCIS, not part of the close down plan, is mainly focused on providing security services to the commercial and private critical infrastructure sector where a government security clearance is required. Reporting wise, SCIS, including the government business to be closed down, will continue to be reported under the heading Other in the segment reporting going forward. To reflect our underlying growth and profitability during the close 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.
As the 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. With that, I'm handing over back.
Thank you very much, Andreas. Before we open up for the Q and A, let me just provide a little bit of a longer-term perspective related to the transformation of our company. 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. In conjunction with that, we also shared the ambition to improve the operating margin from the historic level where we had been for around a decade, around 5%- 8% by the end of 2025.
Here we identified four main areas as the main drivers to achieve this type of shift and change also from a margin perspective. The first one was to drive a strong impact with technology and solutions. The second one was improving the security services profitability. The third one was M&A activity, and the fourth one was strategic assessments. 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.
Just to build a bit on what I commented on earlier and also what Andreas 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. 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 in SCIS, we are now also completing another important action to create a more focused and sharper Securitas. 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%.
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. Now we have all actions in place to make this happen. From my perspective, if we land slightly below or slightly above the target in 2025, it's not what matters most. 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. If we are close to fulfilling the targets, we have made a historical shift in the profitability profile of Securitas from 5%- 8%. Secondly, we are always focused on long-term value creation.
While this has been an important milestone internally, I would say even more important than externally is 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 8%. 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. 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% and our balance sheet is strong and we are executing according to our plans and fully committed to achieving our target of an 8% operating margin in the second half of this year.
With that, let us open up the Q and A session.
If you wish to ask a question, please dial 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial 5 again on your telephone keypad. The next question comes from Raymond Ke from Nordea. Please go ahead.
Hi, my name is. Good morning, a couple of questions from il. I'll take them one at a time. First on SCIS, the remaining part there, is there any plan to review what to do with this part further down the road, or is this what you sort of consider attractive business from a profitability perspective and something that is viable over the long term in Securitas.
Good morning, Raymond. That part of the business is towards the commercial sector, and there we have also much, much better strategic alignment in terms of being more technology and solutions oriented. That is the business that we intend to keep and also to develop.
Very good. The second question, your CapEx guidance of 2.5% of sales. Just thinking, how should we look at this when we also consider the higher CapEx needs of solutions? I think in the past you've mentioned sort of 5% investment CapEx and some 8% in maintenance CapEx. Has your CapEx needs changed materially in your organization over time as you implemented efficiency measures so that these old numbers are no longer relevant, or how should we think about that?
It's a good point. I mean the reason historically, Raymond, we have said less than 3% capital expenditure to sales and now we're saying around 2.5%. The main driver behind that is because we see reduced capital expenditure requirements from our transformation programs, and you also see that the items affecting comparability from the transformation programs are also reducing. It's sort of in line with that. The second trend that we have seen for a while is also reduced capital expenditures generally related to IT. That also has more to do with the cloud computing accounting regulation that came in place 12 years ago, where you basically put less of the investments into the balance sheet. Those are the trends that are making us take down the guidance from less than 3% to around 2.5%. It does not have so much to do with the solution sales.
I would be happy to invest a little bit more or have a little bit higher CapEx to sales if we see then also increased solutions growth. Even if it would increase the solution growth from the current numbers, if there's nothing drastic happening, I still think we will be able to live with this guidance of around 2.5% to sales.
Right. Just a third and final one for me, also on SCIS. With the close down of it, you said that by the end of 2026 you expect it to be completed. Should we sort of expect a fairly even distribution in terms of when you see margin improvement over time up until.
We will have to execute the operational plan here first. I wouldn't expect too much of an impact this year, and the impact that you're referring to would come throughout 2026. That's how I would look at it today.
Great, thanks a lot. I'll get back in line.
The next question comes from Remi Grenu from Morgan Stanley. Please go ahead.
Good morning gentlemen. Thanks for taking my question. Just a few on my side. First is on your technology and solution business, the higher growth part of Securitas, which has probably underperformed expectations over the last few quarters, especially in the U.S. Can you try to explain to us what's happening there? Is it due to the addressable market, which is not as supportive as what you would have expected, or is there any company specific issues that you need to fix? How do you plan to fix it? In terms of expectations over the next few quarters, would you say that we've reached a trough or could there be another deterioration before we see a recovery there? That would be the first question. The second one is on the close down of SCIS. I'm just wondering why you've decided to close it down instead of a divestment.
I mean, you've divested other parts of the business to local management teams for Argentina and the French aviation business. Why was the local management not really interested there? If you can give us more flavor on that. The last question is, should we take from your comment during the call that in terms of divestment, close down, the current perimeter feels like something which is closer to your ambition to reach the 8% operating margin? That is, should we expect other parts of the business to be assessed or you think you're pretty much done with the divestment?
Thank you, Remi. On the three questions, first on the technology and solutions growth, just to give some flavor there to North America, the growth in technology. Essentially what we do with what we call electronic security, so installations, maintenance, monitoring, we're delivering healthy growth in the second quarter in North America. That is a business, though, where there is also some seasonality, depending a little bit on projects and how we're facing projects. That will always be the case. Technology growth is definitely healthy. If looking at the solutions there, we are doing a bit of fine tuning in terms of our go to market approach to leverage now also more the scalability or the scale that we have with our in-house technology capabilities. There has been a shorter term negative impact.
My expectation is that that's growth that will also come back because we do have a really strong value proposition and an opportunity to also convert guarding contracts. That is really the context in terms of technology and solutions. If looking at the SCIS, this is a business that we have been assessing for a number of years and, frankly speaking, we are doing what is best from a shareholder perspective. If there would have been a situation where we would have been in a good position to divest it and that would have created better value from a shareholder perspective, then we would have done so rather than the close down. The close down is the best option to protect shareholder value and that's the reason we decided to do that and to do that in an orderly fashion.
If you're looking then at the third question in terms of perimeter, the SCIS business or the government part, I should say, of the SCIS business, and that is a really significant part. We don't have any other part under consideration of that type of magnitude, but we continue to assess all parts of the business, like I've said from the beginning, just to ensure that they are fully aligned with the strategy and also longer term value creation. The perimeter is on a high level. We feel pretty good about that. We also continue to assess the different parts of the business as we go forward.
Understood. Thanks very much.
The next question comes from Allen Wells from Jefferies. Please go ahead.
That's okay. Just following up on Remi Grenu's question. Just on the technology solutions side, I guess given the slightly slower growth that you've seen in that period since the period you've acquired that business, would you argue that the amount of kind of portfolio reshaping contract rationalization has been more significant than the original plan when you bought that business in 8% margin target. My second question, just a clarification question. You talk about hitting 8% in the second half is viewed as achieving that target. Could you maybe just elaborate on what that might actually mean for 2026 margins moving forward? That is, if you're hitting the 8% in the second half, given the seasonality, is it fair to assume that for the full year margins in 2026 we should be at or above the 8% target, particularly given the further divestment of SCIS? Thank you.
Thank you, Allen. If you look at the technology part, since we acquired Stanley, we've had a lot of emphasis obviously in terms of building a really strong and scalable electronic security business. That work is now largely done. If I look at, and I just came back from a number of different client sessions in the U.S. a couple of weeks ago, our value proposition offering is strong. Our capabilities in terms of installations are strong. Maintenance and monitoring capabilities, I would say, are second to none in a number of the key markets where we have a presence around the world. The offering is strong and on the technology side we have good growth. If you're looking at North America, like I said, on the solution side, that's essentially where we're combining different protective services, so people and technology, to put it simply.
There we are doing somewhat of a fine tuning. That is having a negative impact. There is also some portfolio cleanup in that work as well, which is then having a negative impact. This is not something that I'm that concerned about because the strength of the offering is clearly there and we intend to grow that at a really healthy pace also going forward. Andreas, maybe you want to take the.
Second question
just to add on the first question, I mean, important to distinguish between the technology business and the solutions business. When we acquired Stanley, obviously one of the most common questions was how will you grow this business given that the growth had been more or less very low during Stanley's ownership. I think we have proven that we are doing that on the technology side also with decent growth in this quarter. That is working well. I should say we have also seen really good profitability develop in the technology business over the last years. Talking about, you know, that's an area where we have also compensated for any lack on top line growth during the last quarters. Good performance by the team there when it comes to 2026.
We're not obviously guiding anything when it comes to 2026, but you are right that we have a seasonality in the business. We're doing the first half year now we're doing 6.8% operating margin the second half year. Last year we did 7.4%. As we go in to the second half year of 2025 and if we would then meet our target of 8%, it doesn't mean that the full year run rate is 8% obviously for this year, but we will continue the work to strengthen our margins throughout 2026 as well. It is as Magnus said before, I mean, it is an important milestone with the 8% but the work continues to build a stronger Securitas over time.
As a reminder, if you wish to ask a question, please dial five on your telephone keypad. The next question comes from Viktor Lindeberg from DNB. Please go ahead.
Good morning and congratulations on good progress on the margins guys, three questions from my side if I may. Firstly, just to clarify on the CapEx that you comment upon Andreas, is the lower, call it, run rate now slightly also related than when we think about the business mix technology solutions and if there's a client preference in there of owning the equipment or leasing and renting it. Starting on that.
No, I don't think that's the case that there is a clear trend towards technology rather than having it balanced in the balance sheet. It is as Magnus referred to the solutions business that we have had. We have taken a grip internally in North America to reshape our solutions organization and go to market, which have had a negative impact the last quarters while we actually see continued good growth in the other segments in solutions. On that one I would say no.
Okay, looking at project completions, they can be sizable locationally and also thinking about contract renewals or exits now the coming six months. Is there in your crystal ball any sizable items that we should be mindful of here when looking at the second half of this year?
Good morning Viktor. No, nothing more than usual when we're looking at the next 6- 12 months.
You announced this cost optimization program a couple of quarters ago, and it's in part driven by AI or digital initiatives. You are now in part through that and harvesting. Can you see and share maybe some details, and if there is scope for expanding, scaling this up even further, if there has been good progress and NPV on these AI driven initiatives?
Have seen really good progress in the business optimization program in the second quarter. Going into confident in the third and fourth quarter where we should continue to see even more positive impact given we have executed more the majority of the $200 million. We still have work to be done here. We're in a good place when it comes to additional potentials. That's honestly not something we are focusing on, really executing on the plan here. If there would be more potential we will need to come back on that later on. A key point for us now is obviously to see the cost savings falling into the P&L and our operating margin, which we saw in a good way in the second quarter. We have more ambitions or we expect to see more the coming quarters, that's really where our focus is, Viktor, today.
If there would be an upside, we would have to come back on that.
I would say, Viktor, that one thing that I've been highlighting for the longer term is that we have been focusing very intentionally in terms of building more scalable platforms and a more scalable way of working. If you go five, 10 years back, a lot of the work in our company in this industry was quite a lot of manual work where we can try to automate and also then find more efficiency. There is a real case for that if you look in three, five years out. That's obviously also an important point and reason why we have invested in modernizing our digital platforms and aligning data models and things like that so that we can also operate the business across all parts of the business in a more efficient and more productive manner. Longer term, I would say the answer is yes.
The quantification of that and what that looks like, I mean that's something like Andreas said, focus now is on what we're doing in this phase. Longer term there is definitely opportunity and that's something that we're also thinking about quite a lot also in terms of our strategy for the next phase. Got it.
Maybe following up on that, it was about three years ago since you announced the 8% ambition and we are nearing that. At that point, you also mentioned longer term 10% EBITDA margins. If we look at the past three years, a lot of things have happened when it comes to AI and digitalization. I think we've been, at least I have been, a bit surprised about the fast pace. The question is really when you look at the 10% today in light of the progress we've made in society, but also in Securitas, would you say 10% in light of that digital opportunity, are you surprised and regard the 10% as more realistic today? Would you say this is more in line with your longer term ambitions and views that have been there all along?
I think the 10% was a long-term ambition. It is a long-term ambition. The important thing is the shift that we have made in the last couple of years because when we announced 8%, we didn't have that many believers internally or externally, I would say, because we had a very flat type of operating margin for the prior 10 years or something like that. If you ask the question, how do we feel about where we are right now? We feel good about where we are right now in terms of our commitment and also the actions that we have been driving to shift the profile to become more of an 8% company. For the next phase, I think the most important is going to be how we maximize shareholder value. We need to think about growth rate and we also need to think about continuous margin improvement.
That's something that we're going to come back to in 2026, also in terms of sharing more about the strategy for the next phase and how we're looking at that. I think it's been extremely important for us, and I can't overemphasize that enough, to drive this type of a shift that we are in the process of driving now, because we will also then be in a different position to also think about how we maximize value then in the next phase.
Okay, thank you guys.
Victor.
There are no more questions at this time, so I hand the conference back to the President and CEO, Magnus Ahlqvist, for any closing comments.
Okay, thanks a lot everyone for joining and for being part of the journey. Those who are taking summer vacation, I wish you a good time in the month of August and looking forward to seeing you all soon. Thanks a lot.