Good afternoon, everyone, and welcome to our Q2 call. I'm Magnus Ahlqvist, 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. These have been very challenging times and a very different quarter, and the Securitas team has shown incredible resilience and ability in adding important value in helping our clients and society at large. Let us now turn to performance in the quarter and the overall situation, which is heavily impacted by COVID-19. Like I said, this has been a different and a challenging quarter. Organic sales growth was a negative 4%, and there was a COVID-19 impact on all segments. The most significant impact in Europe, most related to our larger aviation presence.
While we had more negative growth in April and May, we recorded -2% organic sales growth in the month of June. The operating income and margin were impacted by COVID-19, and we had a negative impact in all business segments. As stated earlier, the largest impact in continental Europe. Operating margin of 4% compared with 5% last year, and the operating margin was supported by short-term cost savings activities, but also supported by various government grants in the quarter. 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 of nearly SEK 2.7 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.
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. In light of the COVID-19 situation and the general uncertainty, we are launching a cost savings program. The emphasis of these activities is in Europe, and we expect the cost between SEK 350 million-SEK 500 million and a two year payback period. I will come back and talk a little bit more about this program later on. In terms of COVID-19 demand impact, we see differences, positive and negative, between divisions and countries and even within countries. Looking across the segments, our aviation business is the most severely hit.
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. 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. Having said that, this is an extraordinary situation, and while we are managing the short-term challenges with our clients, we are also having a lot of discussion with the clients about how do we provision and build the security equation in the new normal situation. I believe that with our offering, this is a significant opportunity for Securitas as we go forward.
Various government programs have helped and mitigated the negative impact. We currently have around 7,000 people on temporary unemployment schemes, and this is 3,000 less versus three months ago, and the number is reducing. In light of the situation and continued uncertainty, we have taken a conservative approach and increased provisions. Let us turn to the progress of solutions and electronic security and then to the different business segments. Looking at solutions electronic security business, these areas have been affected by the corona pandemic. 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. Looking at recent acquisitions, the integration activities of Techco in Spain and Fredon Australia are progressing well despite the circumstances.
While we paused all acquisition activities due to the COVID-19 situation, we are now looking forward to resuming these as soon as the situation normalizes. Let us now turn to the performance in the different business segments, and we are starting with North America. We had negative 2% organic sales during the quarter, and I should highlight this on strong comparatives. The negative organic sales growth 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. Reduced service levels due to the corona pandemic were partially offset by extra sales related to the pandemic.
Guarding 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. 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 Securitas Critical Infrastructure Services, and both of them then related to COVID-19. 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. The operating profit margin in Guarding contributed positively, thanks then to favorable service mix with more temporary services, as I mentioned earlier.
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 to our other large segment, which is Europe, we had negative 6% organic sales growth in the quarter, this compared to 1% positive in the same period last year. This was mainly explained by the impact from COVID-19 and the significant impact on our aviation business. Growth was also negatively impacted by the previously announced contract losses in France, U.K., and an aviation contract in Norway. A few countries, such as Sweden, had positive organic sales growth in the quarter. When looking at the quarter, we saw significantly less decline in June compared with the previous months, 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-19, with significant negative impact from aviation. This negative impact and the related idle time costs have, to some extent, been offset by COVID-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. With that, we then turn to Ibero-America. Looking at Ibero-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 COVID pandemic, as well as the previously communicated reduction of short-term security solutions contracts.
We saw a mixed picture in Latin America, with negative development in a number of countries, significant part of this impact then related again to airport security. Security solutions, electronic security reached 30% in the quarter, this was also supported by the Techco acquisition. The operating margin in the quarter was 3.9%, the decline was primarily related to the negative impact from COVID-19 and the previously mentioned factors in Spain. Government grants and support in several countries have helped offset costs for idle time. Peru burdened the margin in the quarter, we have continued challenging conditions in Peru as well as in Argentina. With that, now handing over to our CFO, Bart, for more details on the financials. Handing over to you, Bart.
Thank you, Magnus. We turn now to the financial information to the quarter. 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 a 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 four key matters. That is for people to start with, for clients to continue render services, and then the financial stability, sustainability of our business through focus on cost control and focus on cash flow. I think we have seen tremendous efforts from the team, from our officers, our technicians, our branch managers, our commercial people, our business leaders. I should say really many thanks to all of you.
Tremendous efforts from all of our people that work with the back office and company infrastructure. I can say that our 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. Thank you so much. Now, turning back to the financials, 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. That has been done largely within all the different businesses. Further, the operating income has been positively affected by around SEK 350 million in corona related governments and grants and support. 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 relate to the segment Security Services Europe and the part also to Ibero-America, but very little of such in North America. That is, of course, consistent with the fact that we have most of the people on temporary unemployment in Europe as well. The operating income was further negatively impacted by an increased level of provisions of SEK 300 million, and this to reflect increased risk that we see. We see in general increased risks in our business environment relating mostly to certain employee benefits, such as, for instance, healthcare-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.
Based on such, we have then increased up to an amount of over SEK 300 million, hitting then this quarter in the income statement for such an amount. Here the provisions were more spread over the parity of the business with a bit of an overweight in Security Services North America. We turn to the line of acquisition related costs, the reported amount of minus SEK 63 million here in the quarter, ending up then at minus SEK 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 million for the remainder of the year, adding then to around an expected SEK 100 million for the full year, unless of course, we would make any further acquisitions during the remainder of the year.
We move to the line items affecting comparability, and here we accounted for minus SEK 61 million in the second quarter, and these items affecting comparability relate entirely to the two transformation programs we talked about before. We had for these two programs minus SEK 209 million for the full year 2019, and now we have minus SEK 106 million for the first half year, so we continue at more or less the same average speeds from 2019. We referred earlier to a total of SEK 650 million of items affecting comparability that shall be accounted for related to these two programs, and that during the period 2019, 2020, and some part in 2021. That SEK 650 million is still the relevant amount to consider.
For 2020, we have said before we could see an amount of around SEK 250 million, everything depending a bit on the speed of the different implementations, and we can confirm that our ambition with the programs has not changed, and broadly speaking, the two programs are on track. There might be some delays as a result of COVID-19, but so far nothing out of the extraordinary. 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 27.0%, a bit below the earlier estimated 27.2%, ending then in the quarter at 26.8%.
If anything, we see some downward effect on the tax rate resulting then from the different mix in results compared to business as usual. 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 US dollar and the euro to the Swedish krona are pretty much on similar levels as they were 12 months ago. These rates were actually dropping a bit during the quarter after reaching a 10-year peak level towards the Swedish krona 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 SEK 61 million, minus SEK 61 million, that results from investments of a bit more than SEK 1.4 billion and then reverse of depreciation of a bit below SEK 1.4 billion. As you know, with IFRS 16, our CapEx gets inflated, that is from around SEK 2 billion previous year, per year to an amount of SEK 3 billion. Capital expenditure, including IFRS 16, is around 3% of group annual sales, that would make around 2% if we were to exclude leases as it was before IFRS 16. The operating cash flow was very much positively affected, impacted by collections.
We had good collections in the quarter. That is through a lot of focus and effort from the field on this matter. We shall also add that the operating cash flow was helped also by lower organic sales growth. That by itself is an important impact. What I mean is that the lower organic sales growth adds about an estimated 1 billion SEK to our operating cash flow at the end of H1. We also had a positive effect on the operating cash flow of approximately 900 million SEK from timing and from relief matters of payroll tax and value-add tax payments in Europe and in the U.S. in the first half year.
We had about SEK 350 million of such matters in the first quarter, now another SEK 550 million of relief was added in Q2, ending to SEK 900 million in the first half year. About half of that SEK 900 million relates to Europe and the other half to North America. Going forward 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 the second half of 2020. Only a small amount is expected to remain at year-end. We do expect, however, a positive effect from the U.S. measures on a full-year basis, as payments are due only in 2021 and 2022. The total amount we expect for 2022 from the U.S. is over $100 million.
All in all, I believe we can conclude we had a strong cash flow also when we would exclude these COVID-19-related effects. We will continue to work closely with our cash and liquidity, and we will continue, of course, with the implemented measures related 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. This brings us then to the net debt. Here we can see that the net debt at the end of June ended at SEK 15.9 billion, and that is considerably down from SEK 17.5 billion at the end of last year.
Remember that the jump when you look at the graphs here in between 2018 and 2019 as a result of the IFRS 16 implementation, which by itself made a net debt increase with SEK 3.3 billion. Now in the first half of 2020, we had a positive free cash flow of SEK 2.1 billion, as we have seen also on the previous page. Then we paid an amount of a bit more than SEK 400 million for acquisitions. Then those two matters combined to a large extent then reduced the net debt with around SEK 1.5 billion from around SEK 17.5 billion, as set to just a bit below SEK 16 billion. We would normally have paid the dividend in May, but then that proposal was withdrawn by the board. As previously communicated, the board may consider later to resolve on a new dividend proposal.
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 2.9 12 months ago. We go to our financing. We have our debt maturity chart here. We have earlier commented that we renewed RCF. We further added meanwhile one more bank to the consortium, and it's now a facility with 10 core banks for a total amount of SEK 10 billion. The facility is for five years then with the possibility to extend to 2027, and the facility is totally unused at this point in time. Standard & Poor's confirmed our rating on BBB but changed the outlook from positive to neutral.
I believe that that is more a consequence of the general uncertain environment rather than a specific Securitas matter. We continue to have ample headroom in that rating. We have very good liquidity at quarter end, with amongst all the SEK 4.5 billion 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. As you know as well, we do not use any off-balance sheet factoring or supply chain financing. I'm always happy to answer that question, but now I'm giving it to you anyhow. Based on our strong balance sheet with net 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.
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. With this, I'm handing back then to Magnus.
Very good, thank you, Bart. Before we open up for the Q&A in a few minutes, I just wanted to share some more context and updates related to COVID-19, and also then priorities for the coming months. As we communicated earlier, we started the first, I should say, crisis response team in January this year. Both Bart and myself highlighted the four main focus areas. We have kept on working with these four main priorities for the last five, six months, and we continue to work with these, also in the coming months, given the general uncertainty in the global environment. Looking then at the first two, first priority from the beginning has been the health and safety of our employees.
To this end, we have continuously been working and to build and share knowledge and practices, leveraging our global and local presence. Here it's become clear that from a Securitas perspective, we are strong believers in a strong decentralized business model. 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. Once again, thanks to the fantastic leadership of many, many thousands of people within the Securitas team. From a client perspective, we are working on the near-term priorities, and that is continuously how we handle the situation right now, and how we leverage our range of protective services and our capabilities to meet and address the needs and the pain points from the clients in the short term.
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. 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 a 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. As you can see here, we've implemented a comprehensive set of measures to manage cost as well as cash. Now I would also like to share just a few more comments and some context to the cost savings program.
As we've highlighted earlier, we are continuously monitoring and taking actions to protect our financial position. In light of the impact from COVID-19 and the uncertainty in the environment during the coming 6 to 12 months, we have started to implement the cost savings program. We're taking a more comprehensive view to secure that we improve profitability across all parts of the business in the mid and the long term. 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. This means looking at direct and structural or indirect cost savings where we see that this is needed.
While a group program, I should say that the emphasis of this program is in Division Europe. We estimate the restructuring costs to be in the range of SEK 350 million-SEK 500 million with a payback time of two years. We expect the first positive impact from this to be seen in the fourth quarter of this year. With that, let us sum up the quarter. Organic sales growth of -4% in Q2 and -1% in the first half. -19% real change in operating income. This is a challenging situation. Significant amount of uncertainty regarding the development also as we go forward. We have a strong position. Strongest offering in the market, strong balance sheet, very good client relations, and cash position.
We are actively monitoring, I should say, and managing the situation with clear priorities and actions and always ensuring that we have a readiness to take further actions as required. With that, let us now open up the Q&A. Handing over to the operator.
Thank you. Ladies and gentlemen, if you have a question for the speakers, please press zero one on your telephone keypad and you'll enter a queue. After you're announced, please ask your question. 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 three quick ones. You talk about the extras business now being 17%, so there's been a 300 basis point 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 suspect it's across a number of industries, but is the majority coming from retail, the shops open, or offices as people go back to work? 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.
The second question, on these provisions, I think you alluded to Security Services North America having a larger portion, 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 they're new customers to you? I'm just trying to understand a bit more about why the receivables are suddenly at risk. Finally, you've had a SEK 1.8 billion swing in free cash flow, which is obviously fantastic, to what degree do you think some of those tax deferrals and postponements will unwind in the second half? I guess the question is, of that SEK 1.8 billion swing, how much should we expect to sort of swing back the other way in the second half? Thank you.
Yes. Thank you, Edward. I will start and address the first question, then I think I'll hand over to you, Bart, if you want to take a question related to provisions and cash. 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. There, the extra sales have then helped them and compensate some of the temporary reductions in portfolio business. The main drivers, if you look at segments, very much related to health, where we then have a few clients that are essentially looking for support to be able to manage in the COVID environment. Retail, and retail could be different types when you look at it from a guarding perspective. 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 the retailers, as responsible businesses, are also COVID-19 compliant, that could also then be controlling and essentially then ensuring that there are not too many people in the store. Those types of measures. Banking, same from a number of customers that we've also then had increased demand from the banking segment. Those examples are very much from the onsite guarding. We also have the leading mobile guarding network in North America, and we've also seen increased demand there. Those could be, for example, closed offices, et cetera, that require surveillance and that we control or do control rounds, beat patrol, et cetera, 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. There our electronic security team are also working with very high standards in terms of how can we leverage technology also to help with screening procedures, et cetera, as well. 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?
Frankly speaking, that's a bit difficult to tell at this point in time because we have been quick in mobilizing, thanks to good client relationships, to be able to understand the needs and to also be able to meet them. It is difficult to say how long will that last in a more normalized situation, because it depends a lot on when will the situation normalize. Now, obviously, we see a very different picture when I look across the U.S. in terms of the overall COVID-19 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 a demand for a number of temporary services, and those are fairly similar in nature to the examples I mentioned for North America.
With that, Bart, if I hand over to you then related to provisions and cash.
Yes, very good. When it comes to provisions, yes, we have, of course, existing accounts receivable from invoices that we have sent out to our customers, and we follow a staircase model to put up certain provisions. That is, the older that those receivable gets, we will then reserve a certain provision. We will set aside a provision for some customers that might not be paying. That is a model that has proven itself over a very long period and in many different circumstances to work well so that we are well provided for any accounts receivable 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 then from our different people working with this, we have increased that provisioning level in this quarter so that the totality of our provisions are on the higher end than of a normal staircase model, reflecting basically the increased risk environment. We could see that so far we haven't seen too much of that debt, I should say. Nothing out of the extraordinary, we believe, of course, in view of the uncertainty that is caused by COVID-19, 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.
That is why 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 total provision reflects the new risk environment that we could see in relation to receivables. It's mainly to existing customers, where we could see in existing services that there might be a 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 SEK 2.1 billion in free cash flow, SEK 900 million was coming from relief measures from the governments. Half of that in Europe, and half of that in North America. SEK 900 million 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 second part of the year. The North American part will increase. The North American part, we expect then at the end of the year, we will have over $100 million support or timing relief support in the U.S. All in all, for the full year, you could then expect that more than SEK 1 billion will actually be helping our free cash flow for the full year 2020. I think with that, I have answered those questions.
That's really helpful. Thank you.
The next question comes from the line of Andy Grobler from Credit Suisse. Please go ahead.
Hi, good afternoon. Just a couple from me, if I may. You helpfully gave the exit rate in June for the group. Could you give that for the regions as well, if possible, please? Secondly, you talked about the government support in terms of furlough schemes and so forth from a P&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 there, but what are you thinking at this point?
Yeah. Thank you for the question. I'll take the one on the exit rate, and then I hand over to Bart on the second. Like I said, we had a -2% exit rate in the month of June, compare them to -4% in the full quarter. We are a few % better in North America. We are a few % better in Europe, smaller difference in Ibero-America. Encouraging from that perspective, May was the toughest month in the quarter, but encouraging signs towards the end of the quarter.
You want to continue, Magnus? No. On the second question about the government support measures, and I understand you refer now more to the income statement support measures rather than to the cash flow measures, because we just handled those ones in the previous question. We had, you maybe remember that 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 7,000. We hope and we believe that we will further reduce that during the next months. Of course, everything depends a bit on the situation as well. We believe that our call upon some of these government measures will probably reduce. The second question, of course, to what extent will these government measures remain in place?
That is really difficult to say. We believe that they will not be just cut like that, but it's very many different schemes and many very different countries involved in this. We monitor it very closely. Our people are on top of it all the time, and we do not think that they will just be cut like that, and that 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 an uncertain environment. As I said, we manage it in the best possible way. Two 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 the government measures will stay in place during a certain period of time going forward. We cannot say how long exactly, because I think no one really knows.
Thank you.
Just a quick follow-up on that. In terms of the 3,000 people that have come off those schemes, have they or the vast majority of those people gone back into revenue generating roles?
Yeah. That is correct.
The answer to that is yes.
Yeah.
Yeah. Brilliant. Thank you very much.
The next question comes from the line of Rory McKenzie from UBS. Please go ahead.
Good afternoon. It's Rory here. My first question is, could you say how big the drag was from the delays in electronic installation work that you referenced? Also, have you seen any actual cancellations or is it all just being pushed back? 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 installations or new longer-term contracts? Thank you.
Yeah. When we look at electronic security on a top-line perspective, North America is the region where we see the biggest impact. A few percent negative, when you look at the overall impact on the division. Guarding, positive growth in the quarter. I think for completeness of the picture, it's essentially electronic security, a few percent 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. Generally speaking, the order backlog is good. 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. Second question 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 taper off into H2? For example, salary reductions or other cost freezes? Just obviously you had a really strong, well, a better than expected margin performance this quarter. Interested to know if any of that was also more short-term benefits.
When you look at the total picture, we had a decent start of the year before COVID-19, and had expectations on pretty good development in North America, stable development in Europe. Looking 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, et cetera, that are very closely tied to operating result real change. Those are kind of self-regulating and obviously helping. We also see some of that impact also in the second quarter.
Okay, thank you.
Sure.
The next question comes from the line of Sylvia Barker from JP Morgan. Please go ahead.
Hi, good afternoon. Three questions from 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? 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 had one program not so long ago, and you have been talking about doing a similar transformational program to the one that you're doing in North America. To what extent is this like the North American program in any way?
Finally on aviation, could you comment on the revenue trends that you are seeing or you saw during the quarter and where you are now? Maybe whether most of the furloughs relate to, or employees still 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 second plus question I should say.
On the provisions, Sylvia. Under IFRS 9, we need now to work and provision for potentially expected loss models. The moment 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 out from this invoicing. As we have now basically invoiced 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. That is basically what has happened now. We believe that in general, there is 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. For that reason, we have increased the totality of our provision.
To say what type of customers, well, the model it's not based on individual assessments, it's not like an individual assessment we have done customer by customer. Of course, if there are customers where we know that there is a certain risk, we will take that into consideration. In general, you could say that the concern is more around SMEs and smaller customers compared to larger customers. You also know if a larger customer would have problem, it would also be larger invoices. It's a bit of a generic answer, that is really how it works as a model, 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 for where we are today.
Yeah. To the second question about, it is a group cost savings program. I want to emphasize that, the emphasis is correctly, like you said, in Europe. We had negative 6% organic sales growth in the quarter. When you look at that, we need to be in good shape also from a management indirect cost perspective. With that type of development, we are obviously not happy with the margin that we generate. Yes, some part of this will be related to employees. Details of that we have not finalized yet, but we have obviously, and that is part of the reason for the estimate.
Then the other very important part is that we have some parts of the business that are challenged in light of the current situation. We are doing this or undertaking this program to also be able to be strong in terms of ensuring a return to profitability, and that we have good profitability on all parts of the business. 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 updates related to the Business Transformation Program in Europe, and that is something that we intend to do in the fall. This is the program then that we are really driving now to make sure that we are enhancing profitability and coming back to a good level.
As I mentioned earlier as well, 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 easing towards the end, but nothing that remarkable, I would say. Obviously, a lot of this we have in aviation presence at more than 200 airports around the world. You all know as well the general situation related to air travel at this point in time. In terms of the furlough, yes, a 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.
Yeah, 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 contracts and the way that you get paid on that, if there is a volume element normally?
That is an important question. I'm glad you bring that up. This is important. 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 client, but they also generate value for us. If we are not able to find solutions there in terms of renegotiating to a satisfactory development so that we can see that we have good profitability in the medium to long term, then we will work to terminate those contracts. That is work in a task force 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. This is one important part and also one reason that we have indicated a range between SEK 350 and SEK 500.
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.
Thank you very much.
The next question comes from the line of David Roux 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. There's quite a pickup in this number. I think it was about SEK 50 million up to SEK 60 million for the first half. Which acquisitions do these costs relate to exactly? Given that M&A activity has been quite low over the last two quarters. Secondly, can you remind us how much Critical Infrastructure Services contributes to revenue for both North America and the group? Thank you.
Should I take the first question there, Magnus, on restructuring?
Yeah.
Yes, the items affecting comparability, sorry, the integration cost, acquisition-related costs, relate of course to acquisitions, and in this case, they relate to mostly the Techco acquisition that we did in Spain in January of this year, and then the Fredon acquisition in Australia that we also closed in January of this year, I believe it was. Those amounts entirely relate to the very recent acquisitions that we have been doing. For these acquisitions, we could see another SEK 20 million-SEK 25 million that will hit during the remainder of the year, and that will then, so to say, conclude on the acquisition-related costs needed for those acquisitions from the recent history. I hope this answers your question there. Yeah, I think that is more or less it from my side. The second question, Magnus, will you take?
Yeah. When you look at that part of the business, vast majority of that is in North America. There we don't split the exact figures, but clearly double digits. 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. There I should also highlight that when you look at this part of the business, there was a significant impact related to COVID-19. We had some issues in Q4 and Q1 in terms of an important transition, and we're starting to recover. Because of lockdowns and restrictions, there was a significant negative impact. That we're obviously working to recover as we go forward.
Thanks. That's very useful.
The next question comes from the line of Thomas Graf from Handelsbanken. Please go ahead.
Hello, Magnus and Bart. Thanks for taking my call. I was just wondering if you could highlight some of the status 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.
The event business, Thomas, we highlighted in Q1, that was also partly because there were some events of more importance as well in the effective period in Q1. We have seen a similar impact, clear negative impact also in the second quarter. That's obviously related to the fact that they're, in most countries not possible for more than a few people to gather in the same place. Clear negative impact also in Q2.
All right. 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.
Yeah. The general trend is some easing, and that we have seen if you look at our most dynamic market being in the U.S., North America, clear easing in terms of turnover, but we don't break out or report specific figures within the quarters. I think we only do that on an annual basis. There is an easing, which is in line with expectations as well, given the general environment.
All right. That's it for me. Thank you.
Thank you.
The next question comes from the line of Rahul Chopra from HSBC. Please go ahead.
Hello, good afternoon. Thank you so much. I have three quick questions. One on extra sales. Could you please give us a bit more color in terms of drop through margins for these extra sales? Again, on margin, could you give us an impact of idle margin across regions? First. Secondly, I have question around collection, cash collection. Can you give us a sense of how we should think of cash collection in second half given seasonality in the business? Finally, in terms of competition, could you give us some more details in terms of what you are seeing in terms of competition across different regions, particularly in U.S. and some countries across Europe? Thank you.
Yeah. We had a little bit of a challenge hearing well, but I will try to address the first and the third question, extra sales, and also related to competition. I hope that Bart captured the cash collection question. Yeah, you're giving me the thumbs up. In terms of extra sales, 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 from some of the other protective services. 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 becoming strong also in North America. A little bit less impact in terms of on the totality of extra sales in Europe. I should also highlight that a lot of this is short-term work.
We're working hard to mobilize, and it is also higher margin work. Obviously if you're trading one for one, then you would have a positive margin impact when increasing the extra sales and then decreasing corresponding amounts of or temporary reduction of portfolio. Competition. It's a fairly fragmented business. We have a very clear focus in terms of building a very strong protective services offering, specializing in our different protective services. I think 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 just to reiterate the fact that they're glad that they're working with a strong and professional player, which has been able to mobilize and do tremendous things in a very short period of time, but also in very challenging times.
I feel very proud, to be honest, of the effort, but also when getting the feedback as well from a number of clients around the world in terms of the work that we are doing. I think that's as much as we can say. I should also highlight that maybe one thing that differentiates Securitas 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 I look at the global IT program that we're driving on a global level. 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. I can say that we had an even further increased focus on this matter during the second quarter because of the COVID-19, of course. That has worked well, and we have seen our days sales outstanding actually coming down a little bit. If anything, our collections have been faster compared to usual, nothing dramatic, but a little bit better, actually, and maybe with the COVID-19, you would expect that it would be the other way around. Still, as explained before, we have increased then some of our risk provisions for future collection. Meaning with that we have, as I said before, a certain model under our accounting rules, and now we have never been as good provided for any bad debt 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 a higher end of what our provision should be. The same thing related to some employee-related provisions. We also follow their actuarial models to calculate those provisions, and then under the accounting, you can move in a certain bandwidth around the midpoint then from what the actuaries calculate. Now we have also put ourselves there a bit on the higher end of the midpoint. Also in view of that, we see actually some increased risk compared to a normal environment. I hope that I could answer your question with this.
Yeah. Thank you so much. Then just in terms of the follow-up question on margins, can you also give a sense of impact of idle time across different geographies? How should we think about that during autumn?
Impact of what, you said?
Idle time.
Of idle time.
Idle time.
Yes. The impact has been mostly in idle time in Europe, 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 agreements, people have such guarantees in place on a monthly basis. The element has been mostly in Europe. Of course, also the benefit the government support measures have been compensating some of those costs, not entirely, but some of those costs.
Okay. Thank you so much.
The next question comes from the line of Neil Tyler from Redburn. Please go ahead.
Good afternoon. Thank you. Two from me. Just going back to a little bit more detail on the additional provisions. You mentioned a figure of SEK 300 million. Can you give us an idea of how that splits between bad debt and those employee provisions that you just described? Secondly, on the topic of the electronic security installation backlog, 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? Thank you.
I suggest I start with the first question. On the additional provisions, it is SEK 300 million, and it's a bit more on the employee-related side than on the bad debt side, on the accounts receivable side. You could roughly put 60 and 40. Yeah, even two-thirds, one-third.
And in-
Yeah. Please, Magnus, go ahead.
Yeah. In terms of electronic security, we received a question also about competition before. We are obviously watching carefully, and our teams are 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. The general assumption should be that we have strong capability as we're coming out. I should also mention that the general COVID-19 situation, we entered from a position of strength, and we set also the ambition as a leadership team, all people in group management at the very beginning that regardless of what happens, we want to come out stronger.
That is really what is guiding us in a lot of these decisions as well. Same there in relation with our key electronic security leaders, so that we maintain strength and a lot of the knowhow because this is very much a knowledge-based business. We have a lot of technical electronic security knowhow.
Thank you. That's helpful.
The next question comes from the line of James Winckler from Jefferies. Please go ahead.
Hey, morning to you, guys. 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 still could come in Europe. I think you said that you'll come back to that, for example, in the fall. 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 a headwind in Q1 as well. Thanks.
Thank you, James. The cost savings program is in addition to any other activity that we have either announced or what we will announce related to business transformation program in Europe. In terms of Securitas Critical Infrastructure Services business, we were on a good path to recovery going into the month of March. Unfortunately had a setback related to COVID-19. Our team there and the leaders there have been doing a really good job in terms of adapting to the situation. There obviously the ambition is that we are recovering, I cannot give specific guidance given that there is still a lot of uncertainty in the U.S. environment related to the pandemic.
Okay, great. Thank you.
The next question comes from the line of Peter Kesser from 101 West. Please go ahead.
Hi. Thank you for taking the question. There's three. I'll go one at a time, please. One is just when looking at the extra business, I was wondering two 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. Secondly, whether as you go through the period of time as 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 say at this point in time. 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 week-by-week development for a number of months now. It's also a very unique situation, a situation that we haven't faced in the past. It is difficult to give a forecast. To the second part of the question there, will some of that become permanent? If we're making the assumption that we will have to work in new ways or at least in modified ways in the post-COVID-19 world, there is obviously opportunity to be able to build those types of solutions for the clients, and that's obviously an ambition that we have.
Difficult to forecast exactly how it's going to play out. 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. Have you found engaging with customers, your existing customers, as you mentioned earlier in your presentation, that that's gaining traction now and you're starting to sign these agreements, or does it remain an ambition at this point?
We are more with a number of the clients still in the kind of handling the current situation mode, and more dialogue about how do we build for the new normal? 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, et cetera, 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. In many cases, we are still a little bit in that mode.
Now then increasing in the last couple of weeks and months, starting to have more dialogue about what does this really mean. 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 on what that will be. It shouldn't be exaggerated, but that is clearly an ambition that we have and also something that we are proactively bringing up with the clients. Many of them are also coming and asking us, how do you think we should now structure the work as we go forward?
Right. The second question on the electronic security. Can you talk a bit about 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? Just some situation maybe also on how the pipeline of that is developing of new business.
It was 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, et cetera. I would also say that there is a little bit of a tentativeness in terms of the approach from a number of clients, because of the developments, and also then you see quite a different picture between different states and even within states. Looking at North America cannot really give any better insight in terms of the direction as we were leaving the quarter, in that sense. What we do, of course, is that we continue to also drive the commercial effort. This is one very important part in electronic security.
If you look at the standalone electronic security business, there was a negative impact in terms of commercial activity, difficult to see clients, et cetera, in the lockdown situation. That is starting to normalize somewhat, we are not back up to the kind of the speed where we were before COVID-19. Not close to it.
Right. 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 situations are being re-engaged? Is it a sort of very linear arrangement whereby you're seeing customers return and absorbing the people, or is it somehow a pause, just to understand that transition back into some version of normal?
Yeah. It depends on the nature of the services. Just to give two 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 some of the non-passenger screening related, well, there it's more of a digital type of relationship. Either you are engaged and providing then a number of those services or you're not. If you then look at the other extreme, some of the passenger screening related, that is then much more volume related. There obviously a significant part of the recovery will depend as well on passenger numbers coming up and general travel starting to normalize. It does differ when you look at the impact, depending on what types of services we are providing.
If you're looking at the aviation space, we have a very significant part which is screening related.
Yeah. Okay. No, thank you very much for the answers.
The next question comes from the line of Karl-Johan Bonnevier 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. Just if you could help me then get that to also work out with the movement we have seen in this extra 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 that still opting out and the new clients coming in and doing this extra sales? How does that pan out?
Yeah. Thank you, Karl-Johan. Yes, it is true. When you look at, especially at North America, we have a better retention development first half of this year compared to first half of last year. First half of last year, we lost two 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. I think that is one important thing to keep in mind in terms of how do we actually then calculate the retention figure.
When you look at the mix of, say, your existing clients taking extra sales, is that a major part of it? Maybe clients that don't really have an on-site guard now is taking mobile monitoring for a while, or how does that work?
It could also be that you're going from, especially more in the extreme period when there were a lot of idle facilities, et cetera, where we would perhaps then shift from having people on site to having then scheduled control rounds or unscheduled control beat rounds, et cetera as well. That could be a little bit the 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. You know we're junkies for information. Will you continue to give us these extra sales breakdowns?
It depends a little bit on how things are developing. We've felt quite strongly, these are extraordinary circumstances. We always try to 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. If we consider that something is highly relevant, then we would always strive to share it.
I'm certain we will ask you questions about this if not. Thank you very much.
Thank you.
The next question comes from the line of Michael Ludell from Carnegie. Please go ahead.
Yes. Thanks. Hi, guys. Two or actually three questions from me. First, is it possible to say something about the negative impact from COVID-19 on your direct costs and I guess first of all, extra costs for keeping your staff safe and so on, and put that in relation to the government grants and also the sort of drop-through from more idle time. Is it possible to get some feeling of that? COVID-19 obviously has a negative net impact for you, but could you elaborate a bit on that? 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? 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. How much is it currently? 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 more difficult times, and also reducing the number of physical people in terms of security guards with technology instead because of all the pandemic as such? Thanks.
Yeah. Bart, do you want to start with the first question and then I can comment on the aviation related question?
Yes, absolutely. On the first question there, the negative impact of COVID-19 on mostly then direct costs. That is a very good question, a very difficult question to answer because what we have seen is that there is no standard reaction to any of this. It's really different country by country, client by client, business by business also how COVID-19 exactly impacts. To try to provide still an answer to your question. We have all these costs from idle time mainly. That is really the biggest impact in our income statement, combined then with some increased cost for sickness, but not so much compared to the idle time. Then also of course, cost connected to, for instance, increased personal protective equipment. Then we have the support measures that have compensated to some extent.
The support measures we know exactly that is the SEK 350 million that we referred to. The net of all of this, well, as Magnus also tried to say, we entered the year definitely in North America in a strong position, and we expected to see some good improvement in our top line and also some margin development. In Europe, we expected that to go further in a stable way at least. Everything, the net of this that is remaining, the margin drop that we see now is really, I think almost entirely related to the COVID-19. We had some other contracts that we referred before to that we lost, and those also had a certain impact.
Most of the net effect is then really what we see in the margin development combined then 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 7,000 people going into Q3, so that has been going down. Sickness cost, not a dramatic change there. If anything, going down actually. That is also something that we see. The protective equipment, that is something which is more stabilizing, if anything actually increasing a little bit as well as we are also deploying again more and more people to the field.
I think that answers your question then in terms of the negative impact that we see. I think your other question was about aviation volumes. There we can say that those were around 7% for the total group. A bit more than 7% actually for the total group, and they have dropped with around 3% of total sales within the group. I think the last question, Magnus, you intended to handle that one.
Yeah. I think in addition to what you mentioned, Bart, we also announced one contract in Norway aviation related that we lost, and that will not recover. There is also the profitability and the commercial viability of some of the contracts, which is an uncertainty as we go forward. We will have to take a tough stance to make sure that we run a profitable business. To the last question. The offering is strong, the dialogue is there with the client in terms of solutions, electronic security. We have the capabilities, there it's really a matter of us taking an active role, 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 that are not as fast, then I think this type of a situation makes everyone realize as well that more of an integrated solution makes a lot of sense. That is obviously important work for us and also an opportunity and focus there going forward.
Okay, thanks a lot.
Thank you.
The last question is a follow-up question from the line of James Winckler from Jefferies. Please go ahead.
Hey, sorry guys, just quickly on the math, the payback period for the cost-cutting program, you said two-year period, but it's going to take four quarters to actually spend the whole amount outlined. If you just take the midpoint of the SEK 360-SEK 500, 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, as you know, you said it started in Q4, the benefit. I guess for next year, about 20 basis points or is that too much?
Your calculation is the right one. Of course comes the timing question, which is your actual question. At this point in time, we have the general program laid out. We will further work with the details during the next two months. That will then further decide on how exactly things will impact and how exactly things will roll out. It's a bit too early to give a precise answer to your question. If there is any assumption to be made, that is probably a good assumption, the one that you were making there. As I said, we will have to come back on the further details of that.
Okay, great. That's it. Thanks.
Let me then thank you for your engagement, and I hope this session has been informative, and we speak to you soon. Thanks a lot, everyone.
Thank you everyone. Take good care.