Earnings Call: Q2 2020

Jul 29, 2020

Good afternoon, everyone and welcome to our Q2 call. I'm Magnus Alqvist, and I'm here today in Stockholm, while our CFO, Bart Adam, is in Brussels. First, I would like to start by highlighting the tremendous contributions by our people together with our clients in the last few months. This have been very challenging times and a very different quarter. And the Securitas team has shown incredible resilience and ability and adding important value in helping our clients and society at Arch. But let us now turn performance in the quarter and the overall situation, which is heavily impacted by COVID-nineteen. So like I said, this has been a, different and a challenging quarter. Organic sales growth was a negative 4%. And there was a COVID-nineteen impact on all segments, the most significant impact in Europe, mostly related to our larger aviation presence. While we had more negative growth in April and May, we recorded minus 2% organic sales growth in the month of June. The operating income and margin were impacted by COVID-nineteen, and we had a negative impact in all business segments but as stated earlier, the largest impact in Continental Europe. Operating margin of 4% compared with 5% last year and the operating model was supported by short term cost savings activities, but also supported by various government grants. In the quarter. But we were on par in terms of price wage in the first half. And this is, as you all know, always very important for us. We had a strong operating cash flow in the quarter on nearly SEK2.7 billion and this was supported by lower organic sales growth and positively impacted by timing effects related to payroll and VAT in Europe and North America. But looking ahead, we face continued uncertainty during the coming 6 to 12 months And we continue to take actions to ensure that we come out stronger from this situation. And in light of the COVID-nineteen situation and the general uncertainty, we are launching a cost savings program. And the emphasis for these activities is in Europe and we expect the cost between SEK 350,000,000 to SEK 500,000,000 and a 2 year payback period. But I will come back and talk a little bit more about this program later on. In terms of COVID-nineteen, demand impact, we see differences. Positive and negative between divisions and countries and within countries. And looking across the segments, our aviation business is the most severely hit. But security services are considered essential services, and we have seen increased demand for several temporary services especially then from Healthcare, Retail And Banking sectors and also for Corporate Risk Management. And due to the Corona pandemic, there has been a clear reduction in commercial activity, and this is also something that has affected our important solution sales in a negative way during this period. But having said that, this is an extraordinary situation And, while we are managing the short term challenges with our clients, we're also having a lot of discussion with the clients about how do we provision and build the security equation in the new normal situation. And I believe that with our offering, this is significant opportunity for Securitas as we go forward. Various government programs have helped them mitigate the negative impacts, and we currently have around 7000 people on temporary unemployment schemes And this is 3000 less versus 3 months ago, and the number is reducing. But in light of the situation and continued uncertainty, we have taken a conservative approach and increased provisions. Now let us turn to the progress of solutions and electronic security and then to the different business segments. And looking at solutions in electronic security business, these areas have been affected by the Corona pandemic. And in terms of electronic security, we had a strong negative top line impact at the beginning of the quarter, a situation which has improved, but was still negative at the end of the quarter. By looking at recent acquisitions, the integration activities of TECCO in Spain and Freedom Australia are progressing well. Despite the circumstances. And while we post all acquisition activities to the COVID 19 situation, are now looking forward to resuming this as soon as the situation normalizes. And let us now turn to the performance in the different business segments and we are starting with North America. So we had negative 2% organic sales during the quarter, and this, I should highlight this on strong comparatives. And the negative organic sales goals was related to electronic security installation business and critical infrastructure services. Corona related restrictions and lockdowns had a negative impact in both of these areas. And reduced service levels due to the Corona pandemic were partially offset by extra sales related to the pandemic. Gardening was stable in the quarter, and our team did a very good job compensating reduced portfolio sales with extra sales and helping meet client needs. And from a margin perspective, operating profit margin declined to 5.6% in the quarter, And this decline was primarily related to the already mentioned electronic security installation related and critical infrastructure services. And both then related to Corona. And we have undertaken short term cost savings actions in North America and here, our team have been proactive and doing a very good job to mitigate the negative impact. And the operating profit margin in guarding contributed positively. Thanks then to favorable service mix with more temporary services, as I mentioned earlier. But in light of the increased risks in the business environment, we have increased provisions related to employee benefits, and collection of outstanding accounts receivable, and these provisions had a negative impact on the margin. Turning then to our other large segment, which is Europe, we had negative 6% organic sales growth in the quarter, and this then compared to 1% positive in the same period last year. And this was mainly explained by the impact from COVID nineteen and a significant impact on our aviation business, but growth was also negatively impacted by the previously announced contract losses in France UK and an aviation contract in Norway. A few countries, such as Sweden, had positive organic sales growth in the quarter. And when looking at the quarter, we saw significantly less decline in June compared with the previous months, but still negative numbers in the month of June. From a profitability perspective, the operating profit margin in Europe in Q2 was 3.6% and the decline was primarily related to the negative impact from COVID-nineteen significant negative impact from aviation. And this negative impact and the related idle time costs have, to some extent, been off set by Corona related government grants and support in several countries. A few countries supported the operating margin primarily a few countries in the Nordic region and France. And with that, we then turn to Ibero America. And looking at the Vira America, organic sales growth was minus 1% in the quarter on very strong comparatives, especially then from Spain. Organic sales growth turned negative in Spain due to the corona pandemic as well as the previously communicated reduction of short term security solutions contracts. And we saw a mixed picture in Latin America with negative development in a number of countries, significant part of this impact and related again to airport security. Security solutions, electronic security reached 30% in the quarter, and this was also supported by the TECCO acquisition. The operating margin in the quarter was 3.9% and the decline was primarily related to the negative impact from COVID-nineteen and the previously mentioned factors in Spain. Government grants and supporting several countries have helped offset costs for idle time. And Peru burden the margin in the quarter, and we have continued challenging conditions in Peru as well as in Argentina. And with that, now handing over to our CFO Bart for more details. On the financials. Handing over to you Bart. Thank you, Magnus. And so we turn now to the financial information to the quarter. And as Magnus has explained, quite some underlying pieces that moved in the quarter, and it was for sure not a business as usual quarter, but the quarter during which, all of our people and our business, I think, has demonstrated great resilience. I can confirm that since the start of the COVID 19, we have really focused on the 4 key matters. That is or people to start with or clients to continue render services, and then the financial stability, sustainability of our business to focus on cost control and focus on cash flow. And I think we have seen tremendous efforts from the team, from our officers, or technicians or branch managers or commercial people or business leaders, I I should say really many thanks to all of you. Also, tremendous efforts from, all of our people that work with the back office and company infrastructure. I can say that there are different processes and functions. All of this works well, and that is thanks to good business continuity planning combined with, strong cooperation amongst the team and commitment of each individual. Now turning back to the financials, I mean, the operating income has been helped by proactive cost savings actions initiated within the different businesses and within very different parts and lines of our income statement. And that has been done largely within all the different businesses. Further then, the operating income has been positively affected by around SEK 350,000,000 in corona related, governments and grants, and support, and that is offsetting then to some extent, increased cost levels, mostly from idle time that we have, in the business. The vast majority of these government grants lay to the Segment Security Services Europe and the part also to Ibera America, but very little of such in North America. And that is, of course, consistent with the fact that we have most of the people on, on temporary unemployment in Europe as well. The operating income was further negatively impacted by, an increased level of provisions of SEK300 million, and this to reflect increased risk that we see. We see we see in general increased risks in our business environment, relating mostly to certain employee benefits, such as for instance, health care related, and also increased risk related to collection of outstanding receivables. For these matters, we always have provisions in our balance sheet all the time but now in view of the increased risk environment, we have increased some of these provision levels. And so based on such, we have then increased, up to an amount of over SEK300 1,000,000,000 hitting them this quarter, in the income statement for such an amount. And here, the provisions were more spread over the totality of the business with a bit of an overweight in security services North America. Then we turn to the line of acquisition related costs. The reported amount of minus 63, uh,000,000 here in the quarter ending up then at minus, 80 for the first half year. And this entirely relates to the earlier closed acquisitions as referred to mostly in Australia and Spain. For these acquisitions, we could expect another, minus SEK 25,000,000 for the remainder of the year, adding them to round and expect the town that will set for the full year, unless of course we would make any further acquisitions during the remainder of the year. And here we accounted for minus 61,000,000 sec in the 2nd quarter. And these, items affecting comparability relate entirely to the 2 transformation programs we talked about before. We had 42 programs minus 209,000,000 for the full year 2019. And now we have minus 106,000,000 for the half first half year. So we continue at more or less the same average speeds from 2019. We referred earlier to a total of 6 50,000,000 sec of items affecting comparability that shall be accounted for related to these 2 programs and that during the period, 2019, 2020, and some product in 2021. And that 650,000,000 is still the relevant amount to consider. For 2020, we have said before, we could see an amount of around SEK 250,000,000, everything, depending a bit and the speed of the different implementations, and and we can confirm that our ambition with the programs has not changed and broadly speaking the 2 programs are on track. And there might be some delays as a result of COVID-nineteen, but so far nothing out of the extraordinary Then, on financial income and expenses, a bit lower amount here as an expense in this quarter. Reflecting then the development in the net debt as we will turn to in a second. Moving to the tax line. Here, the estimated full year 2020 tax rate is 27.00, a bit below the earlier estimated 27.2, ending then in the quarter at 26.8. And if anything, we see some downward effect on the tax rate resulting, then from the different mix in results compared to business as usual. Then I go to the next slide, and here we consider the impact from the different currencies and the development thereof. And we can be rather short here as there have been very little, very limited effect from the foreign exchange development. We see here that, the end rates from the bid from the US dollar and the euro to the Swedish kroner are pretty much on similar levels as they were 12 months ago. And these rates were actually dropping a bit during the quarter after reaching a 10 year peak level towards the Swedish kroner at the end of March, actually. We then move to the cash flow, and here, as in the first quarter as well, we have a strong cash flow coming in during the second quarter. We see in the first half year, net investments of 1,000,000, 61, minus 61, and that results from investments of a bit more than SEK1.4 billion and then reversed from depreciation of a bit below 1,400,000,000 stack. And as you know, with IFS 16 or CapEx gets inflated, and that is from around 2,000,000,000 sec previous year, per year to an amount of 3,000,000,000 sec. So capital expenditure, including the IFRS 16 is 3% of group annual sales, and that would make around 2% if we were to exclude leases as it was before IFS 16. The operating cash flow was, very much positive, positively affected impacted by collections. We had good collections in the quarter, and that is through a lot of focus and efforts from the field on this matter. And then we shall also add that the operating cash flow was helped also by lower organic sales growth. And that by itself is an important impact. What I mean is that the lower organic sales growth adds about an estimated to 1,000,000,000 set to an operating cash flow at the end of H1. Then we also had a positive effect on the operating cash flow of approximately SEK 900,000,000 from timing and from relief matters of payroll, tax, and value add tax payments in Europe and in the US. In the first half year. So we had about 350,000,000 set of such matters in the first quarter and now another 5,950,000,000 of relief was added in Q2, ending then to 900,000,000 sec in the first half year. About half of that 900,000,000 relates to Europe and the other half to North America. And going forward, then we should take into consideration that for the European effect, that will mostly neutralize during the remainder of the year, as we will have to make such payments during then the second half of twenty twenty. Only small amount is expected to remain at year end. We do expect to have a positive effect from the US measures on a full year basis, as payments are due only in 2021, and 2022. And the total amount we expect for 22, then from the U. S. Is over US100 $1,000,000. So all in all, I believe we can conclude we had a strong cash flow, also when we would exclude this Corona related effects. And we will continue to work closely with our cash and liquidity, and we will continue, of course, with implemented measures related to to COVID 19, and that is close monitoring of accounts receivable with strict collection procedures. We are postponing certain discretionary projects. And we also, of course, closely follow the cash relief programs from the different governments. Which brings us then to the net debt. And here we can see that the net debt in, end of June ended at 15.9000000000 stack, and that is considerably down from the 17.5 at the end of last year. Remember that the jump when you look at the graphs here in between 2018 2019, as a result of the IFRS 16 implementation, which by itself made an net debt increase with 3.3 And now in the first half of twenty twenty, we had a positive free cash flow of SEK 2,100,000,000 as we have seen also on the previous page, and then we paid an amount of a bit more than 400,000,000 set for acquisitions. And then those 2 matters combined to a large extent and reduce the net debt with around 1.5. 1,000,000,000 from around sek17.5, as set to just a bit below SEK16 1,000,000,000. Then we would normally have paid a dividend in May, but then that proposal was withdrawn by the board, and as previously communicated, the board may consider later to resolve on the new dividend proposal. And then when you move to the graph again, we see here that the net debt in relation to EBITDA is on 2.1 and that is also after IFRS 16 which then I believe is a very good number by itself, which stood actually, I think, at 2.912 months ago. Then we go to our financing. We have our debt maturity chart here. And we have earlier commented that we renewed the RCF. We further added meanwhile 1 more bank to the consortium and is now a facility with 10 core banks for a total amount of SEK10 1,000,000,000. The facility is for 5 years, 10 with a possibility to extend to 2027, and the facility is totally unused at this point in time. Standard and Poor confirmed our rating on BBB but changed the outlook from positive to neutral and NIP belief that that is more a consequence of the general uncertain environment rather than a specific security matter. We continue to have ample headroom in that rating. We have very good liquidity at quarter end with amongst all the SEK 4,500,000,000 in cash and then as said before, the RCF fully undrawn. As also discussed before, we have no financial covenants in any of our facilities. And as you know, as well, we do not use any of balance sheet factoring or supply chain financing. I'm always happy to answer that question, but now I'm giving it to you right now. And then based on our strong balance sheet, written a debt to EBITDA at 2.1. And I should also say then with this combined, solid financing in place here, I believe we are very well positioned for the future, and, we strongly believe in a strong position to continue and to execute on our strategy, as we have laid it out with you and shared it with you at the end of last year. And with this, I'm handing back then to Magnus. Very good, and thank you Bart. So before we open up for the Q and A in a few minutes, I just wanted to share some more context and updates related to COVID nineteen. And also then priorities for the coming months. So as we communicated earlier, we started the crisis the first, I should say, Crisis's response team in January this year. Both Bart and myself are highlighted the 4 main focus areas. We have kept on working with these 4 main priorities for the last 5, 6 months and we continue to work with this also in the coming months given the general uncertainty in the global environment. And looking then at the first 2, first priority from the beginning has been the health and safety of our employees. And to this end, we have continuously been working and to build and share knowledge and practices, leveraging our global and local presence. And, and here it's become clear that from a Securitas perspective, we are strong believers in a strong decentralized business model. And the leadership that we have and this model has really helped us by staying close to our employees and clients to manage this type of crisis situation in a very strong way. And once again, thanks to the fantastic leadership of many, many 1000 of people within the security testing. From a client perspective, we are working on the near term priorities and that is continuously how we'll handle the situation right now and how we leverage our range of protective services and our capabilities to to meet and address the, the needs and the pain points from the clients, in the short term. But as I mentioned, at the introduction, we're also having a lot of discussions with clients now in terms of how we then looking and clients looking for new solutions, in what will be a new normal as this situation is normalizing. And given the strength and the investments that we have been making in terms of not only very strong guarding, but also strong technology, electronic security and solutions capability. This is the real opportunity for Securitas as we go forward. Looking at cost control and cash management, Bart already highlighted and we also shared a fairly similar view, with the Q1 results. And, and as you can see here, we've implemented, comprehensive set of measures to manage cost as well as cash. But now, I would also like to share just a few more comments and some context to the cost savings program. And as we've highlighted earlier, we are continuously monitoring and taking actions to protect our financial position. And in light of the impact from COVID-nineteen and the uncertainty in the environment during the coming 6 to 12 months We have started to implement the cost savings program. And we are taking a more comprehensive view to secure that we improve profitability across all parts of the business in the mid and the long term. And we are doing this not only, I should say, in the light of the current situation, but also to accelerate and strengthen our strategic execution. All the decisions that we are taking are also fully in line with the strategy that we communicated, externally in December. So this means looking at direct and structural or indirect cost savings, where we see that this is needed. And while a group program, I should say that the emphasis of this program is in division Europe. And we estimate the restructuring costs to be in the range of SEK 350,000,000 to SEK 500,000,000 with the payback time of 2 years. And we expect the first positive impact from this to to Brazil in the fourth quarter of this year. So with that, let us sum up the quarter organic sales growth of negative 4% in Q2 and minus 1% in the first half. A 19% negative real change in operating income. And this is the challenging situation. Significant amount of uncertainty regarding the development also as we go forward. But we have a strong position strongest offering in the market, strong balance sheets, very good client relations, and cash position. And we are actively managing monitoring, I should say, and managing the situation, with a clear priority and actions and always ensuring that we have a readiness to take further actions as required. So with that, let us now open up the Q and The first question comes from the line of Edward Stanley from Morgan Stanley. Please go ahead. Afternoon. Thanks for taking my questions. I've got 3 quick ones. The you talked about the extras business now being 17%. So there's been 300 basis points net increase assuming some events and things have dropped out of there. Which is obviously great. I'm just trying to establish where most of that business is coming from. I aspectors across a number of industries, but is the majority coming from retailers or shops open or offices as people go back to work? Can you I'm just trying to understand how long these contracts may go on for whether it's a quarter or half a year or a year, for example? And the second question, on these provisions, I think you alluded to Secure Solutions North America having a larger portion. But if we think about the provisions linked to receivables, are these on receivables of existing customers or is this on new work that you've won from new first time outsourcing and you're concerned about, receivable risk because their new customers to you? I'm just trying to understand a bit more about why the receivables are suddenly at risk. And And finally, you've had a billion swing in free cash flow, which is obviously fantastic, but to what degree do you think some of those tax deferrals and postponements with unwind in the second half? So I guess the question is of that billion swing how much should we expect to sort of swing back the other way in the second half? Thank you. Thank you, Edward. I will, as start and address the first question. Then I think I'll hand over to you, Bart, if you want to take a question related provisions and cash. So so when you look at the extra sales to give some more context, first of all, we have seen more extra sales in North America, in general. And there, the extra sales have then helped them and compensate some of the temporary reductions in portfolio business. And the main drivers, if you look at segments, very much related to health, where we then have a few, or or clients that are essentially looking for for support to be able to manage in the COVID environment. Retail and retail could be different types when I look at it from a guarding perspective, some of the the just to protect idle assets has been one aspect of this work that has been quite important. Another one has been also to make sure that, that the retailers as responsible businesses are also COVID-nineteen compliance. So that could also then be controlling and essentially then ensuring that they're not too many people in the store. Those types of, of, or measures banking, same from a number of customers that we've also then had increased demand from the banking segment. And those examples are very much from the kind of the on-site guarding. We also have, the leading mobile guarding network in North America. And we've also seen increased demand there. And those could be, for example, closed offices, etcetera, and that require surveillance and, that we control or do control rounds, build patrol, etcetera. As one other example. What we're also looking at, but that is also a little bit depending on viability of technology is also then, to a lesser extent, I should say, but where there is clearly a need in the market, but we always only want to provide solutions that are really effective. That is also then when we are leveraging technology. So there are electronic security team also, working with very high standards in terms of how can we leverage technology also to help with screening procedures, etcetera as well. And second, I think the second part of your question And I hope the first part of the answer, addressed some parts of that question. But that's also then how long is this going to last? And frankly speaking, that's a bit difficult to tell at this point in time because We have been quick in mobilizing quick in or thanks to good client relationships to be able to understand the needs and also be able to meet them. But it is difficult to say how long will that, will that last in a more normalized situation? Because it depends a lot on when will the situation normalize? And now obviously, we see very different picture when I look across the U. S. In terms of the overall COVID-nineteen situation. If you're looking at Europe, just to complete the answer as well, less extra sales in general compared to what we have seen in North America, but clearly demand for a number of temporary services and also fairly similar in nature to the examples I mentioned for North America. So with that part, if hand over to you then related provisions and the cash. Yes. Very good. So, when it comes to provisions, yes, we have, of course, existing accounts receivable from invoices that we have sent out to our customers. And and we follow a a staircase model to put up certain provisions. That is the old of that those received will guess. We will then reserve a certain provision. We will set aside the provision for some customers that might not be paying. And that is a model that has proven self over a very long period and in many different circumstances to work well so that we are well provided for, any accounts received that might that might not be paid in the future. What we have done now, we have really and that is a judgment call to a large extent, and from our different people working with this, we have increased that provisioning level in this quarter so that the totality of what provisions are on the higher end of our normal staircase model, reflecting basically the increased risk environment. We could see that so far, we haven't seen too much of of bad debt, I should say, nothing out of the extraordinary that we believe, of course, in in view of the uncertainty that is caused by COVID-nineteen, that it might come to a situation where there's a little bit of an increase in some customers not paying parts of their invoice. And that is why then our our provision that is dealing with this matter and that is sitting in our balance sheet has been increased during this quarter so that the the total provision then reflects, so to say, the new risk environment that we could see in relation to receivables. So it's it's mainly to existing customers, where we could see an existing services that there is, might be potential problem, going forward. It's a judgment call at the end of the day. When it comes to the free cash flow, we had, in the first half year, 2,100,000,000 sec in free cash flow and then 0.9,900,000,000 sec, was coming from, relief, measures from the governments. Half of that in in Europe, you could say half of that in North America. So, SEK 900,000,000 in in the year to date in the first half year, half of that will go away. The European part will largely go away. And so that will reverse in the 2nd part in the 2nd part of the year. The North American parts will increase. The North American parts, we expect them at the end of the year, we will have over 100 1,000,000 US dollar, support or timing relief support in in the US So all in all, for the full year, you could then expect that like a 1,000,000,000 or sec will will be more than a 1,000,000,000 sec will actually be helping our free cash flow for the full year 2020. And I think with that, I have answered those questions. That's really helpful. Thank you. And the next question comes from the line of Andrew Grommer from Credit Suisse. Please go ahead. Hi, good afternoon. Just a couple from me, if I may. You hopefully gave the asset rates in June for the group. Could you give that for the regions as well, if possible, please? And then secondly, as you talked about the government support in terms of furlough schemes and such a proper P and L. In the first half. What are the expectations for the second half at this point? I realize things may well change. Before we get that, but what are you thinking at this point? Yes. So, thank you for the question. In terms, I take one on the exit rate, and then I hand over to Bartle the second. We we had, like I said, we we had an a negative 2% exit rate in the month of June, compare them to, to minus 4% in the full quarter And we are a few percent better in North America. We are a few percent better in Europe. Smaller difference in Iberia America. So encouraging from that perspective, May was was the toughest month in the quarter, but encouraging signs towards the end of the quarter. On the sec sorry. You want to continue my list? No. On the second question then about the government support measures. And I understand you refer now more to the income statement support measures throughout that to the cash flow measures because we just handled those ones in the previous question. So, we have you may remember that that's when it came to the Q1 call, we said that at that point in time, we had around 10,000 people on temporary unemployment. That has now reduced to 7000. So we we hope that we believe that we will further reduce that during the next month but of course, everything depends a bit on the situation as well. So we believe that or call upon some of these government measures will probably reduce then the second question, of course, to what extent will this government measures remain in place? And that is really difficult to say but but we believe that they will not be just cut like that, but it's it's very many different schemes and many very different countries involved in this. We monitored very closely, or people are on top of it all the time, And we do not think that they would just be cut like that. And then some of the major programs have been prolonged or at least will also continue for the next quarter, we think. At the same time, everything is a bit uncertain environment, but as I said, we managed it in a best possible ways or 2 effects as a conclusion. First of all, the number of people that, within the company have to rely on these schemes are reducing Secondly, we do believe that that the government measures will stay in place during a certain period of time going forward, but we cannot say how long exactly because I think no one really knows Thank you. It's important. Just a quick follow-up on that. In terms of the 3000 people that have come off those schemes, have they or the vast majority of those people gone back into revenue generating role? Yes, that is correct. And the next question comes from the line of Rory McKenzie from UBS. Please go ahead. Good afternoon. It's Rory here. And my first question is, could you say how big the drag was from the delays in electronic installation work that you referenced? And also have you seen any actual cancellations or is it all just being pushed back? And then related to that, are you seeing any signs or are there any hopes that any of the short term work, could actually convert into new instrations or new longer term contracts? Thank you. Yes. So when we look at the electronic security on a top line perspective, North America is the region where we see the biggest impact. So, a few percent negative when you look at the overall impact on the division, guarding positive growth in the quarter, And so so I think for for completeness of the picture, it's essentially electronic security, if you present negative, critical infrastructure services, a few percent negative and then you have a few percent positive on guarding, if you look at the impact One important part here, of course, is that the backlog is something that we are following because that should also be an opportunity to recover. And generally speaking, the order backlog is good. So I think those are the most material impacts worth commenting on in terms of installations as part of the electronic security business. Okay. Thank you. And second question then on the cost base. You've been clear about how the government support schemes are now kind of tapering off. Are there any other temporary cost measures that might take off into H2. For example, salary reductions or other cost freezes and just obviously you had a really strong, well, a better than expected margin performance this quarter. So interested to know if any of that was also more short term benefits? Yes. I mean, when you look at the total picture, we had a decent start of the year before COVID-nineteen, and had expectations on, on pretty good development in North America stable development in, in Europe. And looking then obviously to your direct question comparing second half to the first half there are a few that are more kind of self regulating, and that's obviously, with restricted travel bonuses, etcetera, that are very closely tied to operating results real change. Those are kind of self regulating and obviously helping, but we also see some of that impact also in the second quarter. And the next question comes from the line of Sylvia Barker from JP Morgan. Please go ahead. Hi, good afternoon. And three questions for me, please. Just going back to the provisions point, Could you maybe just talk about the types of customers that you're providing against? Obviously you have a lot of SMEs on the mobile side sounds like you're seeing some additional demands, but are you concerned that some of them might actually, be insolvent perhaps? Or is it more related to larger customers? And then secondly, on the European cost savings program, could you maybe elaborate a little bit more how much of that will be labor related savings versus other savings? Obviously, you've had you have one program not so long ago. And do you have been talking about doing a similar transformational program to the one that you're doing in North America? So to what extent is this like the North American program in any way? And then finally on Aviation, could you comment on the revenue trends that you're seeing or you saw during the quarter and where you are now? And maybe whether most of the furloughs relate to or employees do on furlough relate to that business? Thank you. Bart, do you want to take the first and then I can take the second or the the second plus question, I should say. Yeah. On the provision still here, so under IFRS 9, we need now to to work and provision for potentially expected loss models. So the moment you you you account for an invoice, you also need to have a model that basically says, look, this is what we, in general, might expect as bad debt coming up from this invoicing. So as we have now, basically invoice all of our customers during the quarter, we have been also in line with IFRS 9, then, made our provisions for any expected losses from that. And and that is basically what has happened now. We we we we believe that in general, there's a higher risk that some of those receivables will not be paid compared to before COVID 19, which I think is a fair assumption to make. And for that reason, we have increase the totality of our provision, and then to say what type of customers, well, the model is not it's not based on individual assessment. So it's not like an individual, assessment we have done, customer by customer. Of course, there are customers where we know that there is a certain risk, then we will take that into consideration. But, in general, you could say that that the the the concern is more around SMEs and smaller customers compared to to larger customers. But then you also know if a larger customer would have problem, then it would also be larger invoices. So, it's a bit of a generic answer, but that is really how it works as a model and then how we have now worked with that model and put some judgment on top of that during this quarter in order to make sure we have the right provisions then for where we are today. Yes. And then to the second question about, I mean, it is a group cost savings program. Want to emphasize that, but the emphasis is, correctly, like you said, in Europe. We had negative 6% organic sales growth in the quarter. And when you look at that, we need to be in good shape also from management, indirect cost perspective. And with that type of development, we're always in happy with the margin that we did, that we generate. So, yes, some part of this will be related to to employees. But details of that, we have not finalized yet, but we have obviously, and that is part of the reason for the estimates. And then the other very important part is that we have some parts of the business that are challenged in light of the current situation. And we are doing this to undertake in this program to also be able to be strong in terms of ensuring return to profit and that we have good profitability on all parts of the business. And that is the same in Europe, but applicable for us around the world. This program is also in addition to the other programs that we are driving. And we have previously also highlighted that we will come back with the updates related to the business transformation program in Europe. And that is something that we intend to do in the fall. But this is a program then that we are really driving now to make sure that we are enhancing profitability and coming back to a good level But as I mentioned earlier, as we are making sure that any decisions we make are also helping and strengthening and accelerating the strategic direction that we are on. I think the other question was related to development during the quarter within Aviation. It was not a very strong quarter in general. Some is seeing towards the end, but nothing that remarkable, I would say. So obviously, a lot of this, we have in aviation presence at more than 200 airports around the world. And you all know as well, the general situation related to air travel at this point in time. And in terms of the furlough, yes, significant part of the people who are on temporary unemployment are related to aviation. But we don't have an exact split to share there. I hope that answers your questions, Sylvia. Yes, thank you very much for the detail. Maybe if I could just follow-up on the aviation just briefly. Is there any potential for you to maybe renegotiate any of the tax and the way that you get paid on that? Or if there is a volume element, normally? Yes. And that is an important question. I'm glad you bring that up. This is important. We, we are in a new situation. And, we are focused on delivering really good services with high quality, but those services, they generate value for the clients, but they also generate value for us. If we are not able to, to find solutions there in terms of renegotiating, to satisfactory development so that we can see that we have good profitability in, in the middle of the long term, then we will work to terminate those contracts. So, that is work in a task force that that we started a number of months ago. Some contracts, we have longer contractual periods and we obviously have to be respectful of any commitments that we have made, but this is one important part. And also one reason that we have indicated a range between 3500 We don't know the outcome of all of that, but the ambition is very clear in terms of what our teams and what we are working on with these clients. And the next question comes from the line of David Ruh from Bank of America. Please go ahead. Good day, gentlemen. Two questions from my side. The first relates to restructuring and integration costs relating to acquisition. Quite a pickup in this number. I think it was about 50,000,000 up to 60,000,000 for the first half. Which acquisitions do these costs relate to exactly? Just given that M and A activity has been quite low over the last two quarters? And then secondly, can you remind us how much critical infrastructure services contributes to, revenue for both North America and the group. Should I take the first question then, Magnus, on restructuring, Yep. Yes, the items affecting comparability sorry, the integration costs, acquisition related costs, relate, of course, to acquisitions. And in this case, they relate to, mostly the technical acquisition that we did in Spain in January, of this year and then the Freedom acquisition in Australia that we also closed in, January of this year, I believe it was. So that, those those amounts entirely relate to the very recent acquisitions that we have been doing. And for these acquisitions, we could see another 25 20 to 25,000,000 set that will hit during, the remainder of the year, and that will then, so to say, conclude on the, acquisition related costs needed for for those acquisitions from the recent history. I hope this answers your question there, and and, yeah, I think that is more or less it's from my side. The second question, Marcus, will you take Yeah. So so when when you look at that part of the business, vast majority of that is in North America, And I mean, there, we don't split the exact figures, but clearly double digits And then if you look at that, then obviously on a group level that is then a single digit figure in terms of the importance of that part of the business. But there, I should also highlight that when you when you look at this part of the business, there was a significant impact related to COVID-nineteen. We had some issues in Q3 4 in Q1 in terms of an important transition. And we're starting to recover, but then because of lockdowns and restrictions, there was a significant negative impact, but that we're obviously working to recover as we go forward. And the next question comes from the line of Thomas Kraft from Handelsbanken. Please go ahead. Magnus and Bart. Thanks for taking my call. I was just wondering if you could highlight some of the stated on the event business that was affected and you mentioned it in Q1, but not so much in Q2. How is that current state and how was it in the quarter? If you could give some flavor that would be helpful. Thanks. Yes. So the event business, Thomas, we highlighted in Q1. That was also partly because there were some events of more importance as well in the affected period in Q1. We have seen a similar impact, negative, clear negative impact also in the second quarter. And that's obviously related to the fact that there in most countries, not possible for more than a few people to together in the same place, so clear negative impact also in Q2. All right. And also could you give some comments on the employee turnover rate in the quarter, how is that compared to Q1? And would be great. Thanks. Yes. So the general trend is some easing, and and that we have seen, if you look at our most dynamic market being in the US and North America, clear easing in terms of turnover, but we don't break out or report specific figures within the quarters. I think we want to do that on an annual basis. But the reason is, which is in line with expectations as well given the general environment. Thank you. And the next question comes from the line of Rishi Chopra from HSBC. Please go ahead. Hello. Good afternoon. Thank you so much. I have three quick questions. 1 on extra sales, could you please give us a bit more color in terms of drop through margins for this extra sales. And again on margin, could you give us an impact on is on margin across the impacts of either margin across regions. So secondly, I have pushed in around collections cash collection. Can you give us a sense of how we should think of cash solution in second half given seasonality in the business. And finally, in terms of competition, Could you give us some more details in terms of what you're seeing in terms of competition across different regions, particularly in the U. S. And concluding, across countries? Thank you. Yes. So we had a little bit of a challenge hearing well, but I will try to the first and the third question, extra sales, and also related to competition. And then, I hope that Bart captured the cash collection question. Yeah. You're giving me the thumbs up. In terms of extra sales, the the way it has looked in the second quarter is that we had a strong uptake in North America. Very much, from our guarding side, but also for some of the other protective services. And when we talk about guarding, I should just reiterate what I mentioned earlier. That's from on-site guarding, but also our mobile guarding capability, which is, which is becoming strong also in North America. And a little bit less impact in terms of on the totality of extra sales in Europe. But, I should also highlight that a lot of this is short term work. We're working hard to mobilize and, and it is also higher margin work. So so, obviously, if you're trading 1 for 1, then you would have a positive margin impact, when increasing the extra sales and, then the increase in corresponding amounts of, or temporary reduction of portfolio? Competition. Yeah. It's it's it's a fairly fragmented business. We have a very clear focus in terms of building a very strong protective services offering, specializing in in our different protective services. So I think our our strength from that perspective really puts us in a good position. We also had a number of clients, at the time of crisis who have also, reached out and, and just to reiterate the fact that they are glad that they were working with a stronger professional player, which has been able to mobilize and and do, tremendous things in a very short and, short period of time, but also very challenging times. So I I feel very proud to be honest, of the of the effort, but also the when getting the feedback is where from a number of clients around the world in terms of the work that we are doing. So I think that that's as much as we can, as we can see. But I should also highlight that maybe one thing that, differentiates secured us from anyone else is that even though we are facing some short term challenges, we're handling those, but we continue to invest and drive our strategic transformation agenda. And that we are not taking our eyes off of that ball and we are really pushing forward in a strong way with the business transformation program in North America when they look at the global IT program that we're driving on a global level. And then Bart, did you capture the question in terms of cash collection? Yes. I think in general, your question was about how we collect cash from our customers. And I can say that we had a and even further increased focus on this method during the second quarter, because of the COVID-nineteen, of course, so that has worked well, and we have seen our days sales outstanding actually coming down a little bit. So if anything or collections have been faster compared to usual, nothing dramatic, but a little bit better actually and maybe with the COVID-nineteen, you would expect that it would be the only way around. Still as explained before, we have increased in some of our risk provisions for future collection. Meaning with that that, we have, as I said, before, a certain model or accounting rules. And now we have never been asked to be provided for any, methods or any collection matters as we are right now. That has been basically a judgment matter from our side that under these circumstances, we need to be at the higher end of what our provision should be. The same thing related to the employee, some employee related provisions, We also followed their actuarial models to calculate those provisions. And then under the accounting, you can move in a certain event with around the midpoint then from what the actuarial calculate. And now we have also put ourselves there a bit on the higher end of the midpoint. So also in view of that, we see actually some increase risk compared to a normal environment. I hope that I could answer your question, with this. Yes. Thank you so much. Alan, just in terms of the follow-up question on margins, could you also give a sense of impact of idling time across different geographies, how should we think about that theory often? Impact of what, who said? Yes. I mean, the impact has been mostly in idle time in Europe. And as in North America, it works a bit different in that sense that people are not so much guaranteed minimum number of hours in Europe under collective labor agreement, people have such guarantees in place on a monthly basis. So the the element has been mostly in Europe and then of course also the benefit the government support measures have been compensating some of that. Some of those costs, not entirely, but some of those costs. And the next question comes from the line of Neil Tyler from Redburn. Please go ahead. Good afternoon. Thank you. 2 for me. Just going back to the, a little bit more detail on the additional provisions. The 300 you said you mentioned a figure of 300,000,000. Can you give us an idea of how that fits between bad debt and those employee provisions that you just described? And secondly, on the topic of the electronic security information backlog. Do you are you confident you have the capacity to work off this backlog at an accelerated rate when restrictions are lifted or would you have to either recruit or perhaps retrain? In order to achieve that? I suggest I start with the first question. On the additional provisions, it is 300,000,000 sec, and it's, a bit more on the embryo related side than on the bad debt side. On the accounts receivable side. So, you could roughly put, 6040. Yeah. Even 2 thirds, one third. Yeah. Please, Mike, just go ahead. Yeah. And in terms of electronic security, We we received a question also about competition before. We are obviously watching carefully and our teams are or managing the situation, but we are also trying to make sure that we are not reducing in terms of capability because of what will hopefully be looked back as a short term crisis. And so the, the general assumption should be that we have strong capability as we're coming out And I should also mention that. I mean, the general COVID 19 situation, we entered from a position of strength And we set also the ambition as the leadership team, all people in group management at the very beginning that regardless of what happens, we want to come out stronger. And that is really what is guiding us in a lot of these decisions as well. And same there in relation with our key electronic security leaders. So that we maintain strength and a lot to the know how because this is very much a knowledge based business, and we have a lot of technical electronics security know how. And the next question comes from the line of James Wickler from Jefferies. Please go ahead. Hey, good morning. Thanks guys. Most of mine have been answered, but I just wanted to reiterate, I believe it was Sylvia's question that this cost cutting program in Europe is incremental and separate from the potential investment program, which you've talked about previously that deal could come in Europe. And I think you said that you'll come back to that, for example, in the fall. And then separately, if you could touch on how the infrastructure services have developed and come back towards the end of the quarter and how you'd expect that impact to be in Q3 hopefully better than it was in Q2, because it was also headwind in Q1 as well. Thanks. Yeah. Thank you, James. Yes. So so the the cost savings program, is in addition to, to any other activity that we have either announced or what we will announce, related to business transformation program in Europe. In terms of critical infrastructure services business, we were on a good path to recovery going into the month of March. But then, unfortunately, had a setback related to COVID-nineteen our, team there and the leaders, they have been doing a really good job in terms of adapting to the situation And there, obviously, the ambition is that we are recovering, but I cannot give specific guidance given that there is still a lot of uncertainty in the US environment related to the pandemic. And the next question comes from the line of Peter Kressa from 3. I'll go one at a time please. 1 is just when looking at the extra business, I was wondering 2 things. Firstly, the degree to which you're starting to see that turn into permanent business as you talk to clients and the reopening becomes more of an established pattern? And then secondly, whether as you go through the period of time is reopening, whether that extra business is trending up or trending down, in response to the normalization versus the actual need for managing handling customers. To see at this point in time. So we were and looking at North America because that's like I said, also related to Sylvia's question, we were able to quickly mobilize and to help our clients That business has remained fairly stable. If you're looking at the weekly, the week by week development, for a number of months now, But it's also a very unique situation, a situation that, that we haven't faced, in the past. So so it is difficult to give, to give a forecast to the second part of the question there, will some of that become permanent? Well, if we're making this assumption that we will have to work in new ways or at least in modified ways in the post COVID-nineteen world. Then there is obviously opportunity to, to, to be able to, to build those types of solutions for the clients. And that's obviously an ambition that we have but difficult to forecast exactly how it's going to play out. But the ambition is obviously we are leveraging all the protective services capabilities that we have very strong, in our different divisions around the world and that we are finding those solutions as we go forward. Okay. But if you found engaging with customers, your existing as you mentioned earlier in your presentation that that's gaining traction now and you're starting to sign these agreements or has there remained an ambition at this point? It's a we we are more with the number of the clients, still in the kind of handling the current situation mode. And having discussions about how do we and more dialogue about how do we build for the new normal? Because if you're looking on the client side, many of the people who we are dealing with just like we have been building crisis response teams, etcetera, and where I think that we have really excelled in terms of the way that we have been operating and adding value to the clients It has by really working in lockstep in terms of protecting business continuity, protecting supply chains And in many cases, we are still a little bit in that mode. But now then increasing in the last couple of weeks months, starting to have more dialogue about what does this really mean? And that is a bit the reason I made a comment earlier as well that with our strength and also focused investments in solutions and electronic security, we are well placed to really be able to do good work with our clients in this new normal depending a little bit, obviously, what that will be. It shouldn't be exaggerated, but that is clearly an ambition that we have and all something that really are proactively bringing up with the clients, but many of them are also coming and asking us, how do you think we should now structure the work as we go forward? Right. And then the second question on the electronic security. Can you talk a bit about your the degree to which you're now able to reopen the installation teams and make them more active to handle the pipeline as you finish the quarter and just some situation, maybe also on how the pipeline of that is developing of new business? Yes. So, it was negative very negative in some key parts, North America throughout the quarter when you look at Q2, some normalization, as a number of states started to reopen, etcetera. But then, I would also say that there is a, a little bit of a in terms of the approach from a number of clients, because of of the development and also then you see, quite a different picture between different states and even within states. So looking at North America, cannot really give, and a better insight in terms of the direction as we were leaving the quarter. In that sense. What we'll do, of course, is that we continue to also drive the commercial effort. And this is one very important part in electronics if you look at the stand alone electronic security business. And there, there was a negative impact in terms of commercial activity, difficult to see clients, etcetera, in the lockdown situation. That is starting to normalize somewhat, but we are not back up to the kind of the speed where we were before COVID-nineteen not close to it. All right. And the last question please was just as you reopen in Europe. Can you give a sense of how the people who are on temporary assignment or temporary employment as it are being reengaged? Is it a sort of very linear arrangement whereby you're seeing customers return and absorbing the people? Or is somehow a pause or how do you just understand that transition back into some version of normal? Yes. So it depends on the nature of the services. And and just to give 2 examples from the aviation space. If we have an airport that has been, shut down for a period. And if we have there the perimeter security and, and some of the non passenger screening related. Well, there it's more of a digital type of relationship, either, you or or or engage and and providing then a number of those services or your notes. And and if you then look at the other extreme, some of the passenger screening related. That is then much more volume related. And there obviously, a significant part of the recovery will depend as well on passenger numbers coming up and general travel starting to normalize. And so it does differ when you look at the impact, depending on what types of services we are providing. And if you're looking at the aviation space, I mean, we have a very significant part, which is screening related. Okay. Thank you very much for the answers. And the next question comes from the line of Karl Johanwani from DNB Markets. Please go ahead. Yes. Good afternoon. I noticed in the report that your customer retention numbers is starting to head in the right direction. Again, And just if you could help me then get that to also work out with the movement we have seen in this sales and portfolio sales, is it existing clients that is really then having a different mix of their services or Is it the existing clients still opting out and new clients coming in and doing doing this extra sales? How does that turn out? Yes. So, thank you, Karl Johan. Yes, it is true. I mean, when you look at, especially at North America, we have a better retention development for staff for this year compared to 4 first half of last year. First half of last year, we lost 2 larger contracts. And that is one important part that was obviously then bringing down the retention figures last year. When you look at the extra sales, Those are not part of the portfolio. So I think that is one important thing to keep in mind in terms of how do we should then calculate the retention figure. And when you look at the mix of, say, your existing clients taking extra sales, is that a major part of it. So maybe clients that don't really have an on-site guard now is taking mobile monitoring for a while or how does that work? Yeah. And it could also be that you're going from, especially more in the extreme period when there were a lot of idle facilities, etcetera. Where we would then perhaps then shift from having people on-site to having schedule control runs around schedule control bit runs, etcetera as well. So that could be a little bit of dynamic. And I think that is also where the strength in our protective services portfolio is also helping us in this type of situation, in terms of meeting the client needs, but also to be able to adapt. Excellent. And do you know where junk is for information? Will you continue to give us these extra sales breakdown? Oh, I it depends a little bit on how things are developing. I we've felt quite strongly. I mean, these are extraordinary circumstances. We always try to make make it easy as well for or as easy as possible for you to understand the business without complicating with too much information at the same time. So if we consider that something is highly relevant, I mean, then we would always strive to share it. I'm certain we will ask your questions about this, if not. So thank you very much. And the next question comes from the line of Michael Luedel from Carnegie. Please go ahead. Yes. Thanks. Hi guys. So two or actually three questions for me. First, is it possible to say something about the negative impact from COVID-nineteen on your direct cost And then I guess, 1st of all, extra costs for keeping your staff safe and so on, and put that in relation to the grants and also the sort of drop through from more idle time. So is it possible to get some feeling of that, I mean, COVID-nineteen obviously has a negative net impact for you, but could you elaborate a bit on that? And on the same topic then, how these type of extra costs that you currently are having how are they trending now compared to April, for instance? Then Next question on aviation. Is it possible to say how much your aviation volumes have declined on a year on year basis. We know how much it is of your total or was of your total sales last year, but how much is it currently And then last question, and this is maybe a bit too early to answer, but, have you seen any signs where you can approach customers with your solutions and electronic security offering any signs that customers are more willing to sort of transform their current guarding contracts into more bundled solutions, where they want to both save money, lower their costs, maybe they are more open to those type of suggestions now in a bit more difficult times and also reducing the number of physical people in terms of security guards with technology instead because of the pandemic as such. Thanks. Bart, do you want to start with the first question? And then I can comment on the aviation related question. Yes. Absolutely. So on the first question that the negative impact of COVID nineteen's on mostly than direct costs. That is a very good question, a very difficult question to answer because what we seen is that there is no standard reaction to to any of this. I mean, it's really different, can country by country, client by client, business by business. Also, how COVID 19 exactly impacts But, to try to to to provide still an answer to your question, I mean, we have all these quotes from idle time mainly. That is really a big the biggest impact in our income statement combined and with some increased costs for a sickness, but not so much compared to the idle time and then also of course cost connected to, for instance, increased protective personal protective equipment. And then we have to support measures that have compensated to some extent to support. And as we know exactly, that is, the the 350,000,000 that we referred to And then the net of all of this wealth has might be also tried to say, we we we preemptive to hear in definitely North America in a strong position, and we expect it to see some good improvement in our top line and also some margin development. In in Europe, we expected that the to go further in a stable way at least. So everything that net in this that is remaining the margin drop that we see now is really, I think, almost entirely related to the COVID 19. Then we had some other contracts that we referred before to that we lost and those also had a certain impact, but most of the of the of the, the net effect is really what we see in the margin development combined and also with the extra provisions we have been taking hitting the margin as well. The trending of these extra costs well, if anything, costs for idle time are going down as we have commented, we have more than 10,000 employees as a reference point then during Q2. And now it's more like, 7000 people going into Q3. 3. So that has been going down. Sickness caused not a dramatic change there. If anything, going down actually, So that is also, that's something that we see. And then, the protective equipment, that is something which is more, yes, stabilizing if anything increasing a little bit as well as we are also deploying again more and more people to the field. So I think that answers your question then in terms of the the the negative impact that we see. And then I think your other question was about, aviation, volumes. And there, we can say that, those who have around 7% for the total group, and and they have a bit more than 7% actually for the total group, and they have dropped with around 3% of total sales within the group. And I think the last question, Magnus, you intended to handle that. Yes. And I think in addition, to what you mentioned, Bart, I mean, we also announced one contract in Norway Aviation related that we lost, and that will not recover There is also then the profitability and the commercial viability of some of the contracts, which is an uncertainty as we go forward, but we will have to take a tough stance to make sure that we run a profitable business. And to to the last question, yeah. So so the offering is strong. The dialogue is there, client in terms of solutions, electronic security, we have the capabilities. And there, it's it's really a matter of, us taking an active role, but also that the clients are also willing to look at this in an active way. Some clients are more forward looking and significantly faster. And with some of that are not as fast. I mean, then, I think this type of a situation makes everyone realize as well that that more of an integrated solution makes a lot of sense. So that is obviously important work for us and also an opportunity and focus here going forward. Okay. Thanks a lot. Thank you. And the last question is a follow-up question from the line of James Winkler from Jefferies. Please go ahead. Hi, sorry guys. Just quickly on the math of the payback period for the cost cutting program. You said 2 year period, but it's going to take four quarters to actually spend the whole amount outlined. So I mean, you just take the midpoint of the $360,000,000 to $500,000,000, that should suggest sort of 20 basis points of support for this year and next year. Is that the right thinking or is it going to be more sort of gradual given actually now you said it started in Q4, the benefit. So I guess, but for next year about 20 basis points or is that too much? I mean, your calculation is is the right one. And then, of course, comes to timing question, which is your actual question. We we we do see, I mean, at this point in time, we have the general program laid out. We will further work with the details during the next 2 months, and that will then further decide on how exactly things will impact and how exactly things will roll out. So it's a bit too early to give a precise answer to your question, but if there is any assumption to be made, that this probably a good assumption, the one that you were making there. But as I said, we will have to come back on the further details of that. Okay. Great. That's it. Thanks. So let me then thank you, for your engagement. And I hope this session has been informative and we'll speak to you soon. Thanks a lot, everyone. Thank you, everyone, and good. Take care.