Earnings Call: Q2 2019

Jul 31, 2019

Alright. So good afternoon, everyone, and welcome to our Q 2 call. I'm glad it's usual to be here with our CFO, Bart. Adam. So let us turn to the, view on the Q2 results. We had healthy growth of 5% during the quarter, and we grew faster than the market. The operating margin in the quarter of 5% was stable compared with last year, and we had very strong support for North America, while Europe and Iberia America had weaker performance in the quarter. In Europe, we had a slightly negative price wage balance in two countries, and we will come back to this in more detail later on. From a cash flow perspective, we received an operating cash flow of SEK 950,000,000, which is an improvement versus last year. And all in all, a stronger first half in terms of cash collection and operating cash flow. And during the quarter, we also announced some leadership changes and the creation of 3 expertise units and I would talk more about this after, the review of the financials. So let us now turn to security solutions and electronic security. Delivering solutions strengthening our electronic security capability is one of our most important priorities. And we had 15% growth of solutions and electronic security in the first half. And during the quarter, we have started the integration of 2 acquisitions Stay safe and all Cooper. And those 2 are in Australia and in the UK, respectively. But we're also happy to say that the integration of Kratos in the U. S. Has been progressing very well under the leadership of our North America electronic security team, and that integration is now concluded. And as in previous quarters, we always want to share a customer reference case, and we wanted to do the same today as well. And this time, it's not the global case, rather focusing on a smaller contract. And this case is from Belgium where we have implemented it our RVS Go concept for interbiton, which is part of the Hydrovag Cement group. And so let us play the video, please. Today from. And for the Don't hear me here at. So we should go on the department if you see the a lot of planning Let's see. On the remote reconfirm. Yeah. I should make a a comment here that this is obviously in French audio, but on the if you're following us through the web conference, you will be able to also then see the subtitles, which are then translated into English, of course. But when you look at this reference case, this is relatively small, but standardized solution, where we have addressed the client security needs with our standardized obvious Go concept. And here, we are combining the latest technology with our mobile guarding and our ability to respond. So really, a good example of a solution that we're rolling out across a number of similar sites, we're combining people and technology into a complete solution. So let us now then look at the performance in the different divisions. And starting with North America, we had a very good performance with 5% organic sales growth on strong comparatives. And our safeguarding regions and the unit critical infrastructure services were the main drivers of the growth. Security solutions and electronic security accounted for 18% and 18% of the sales in the quarter. And we continued the very positive trend, from previous quarters, and the operating margin was 6.3%. And this is a solid improvement of 0.2% versus last year. Security as electronic security contributed to the positive margin improvement, as did our 5 guarding Regions. So to conclude, we have very good momentum across all parts of the business in North America. And looking at Europe, we had more of a mixed picture in terms of top line growth. We had good performance in a number of countries such as Germany, Belgium, the Nordics and the Guardian business in Turkey, but the overall growth was negatively impacted by contract losses in France and the UK. And as we have previously announced, the loss of an aviation contract in France also had a negative impact, but we also then had a few guarding contract losses in France and also in the UK, that hurt the growth on a division level. And looking then at the margin development, we had an operating margin, which was below our expectations for Europe during the second quarter. And this was related to 3 main factors. 1 was a negative results development in France, where the contract nominations mentioned earlier, in combination with impacts from regulatory changes resulted in a negative development in France compared to last year. A second factor is that we continue to work in tight labor markets across Europe, and we're not able to fully set, which increase with price increases in France and the Netherlands. And then Obviously, the previously announced loss of a profitable contract in Sweden from the end of last year had a negative impact. And if we looked then at the cost savings program that we announced, at the similar time last year, this is running into plan, but the impacts from the cost saving program was then offset by some of these negative factors. And so to conclude on Europe, we have a number of areas that are performing well, but we are now working to regain the momentum in a few of the key markets. And with that, we then turn to Ibero America. And we had good growth in the Ibero America division in the quarter, similar to previous quarter. This was driven by very strong performance in Spain. In Spain, we are winning quite a lot of business, strong organic sales growth and also then thanks to really driving the strategy and successful resolution solutions for our customers, driving significant improvements. And price increases in Argentina also then contributed to the organic sales growth in the quarter. But if you look at the client retention, slightly lower compared to the same period last year. But security solutions and electronic security accounted for 28% of our total sales in Argentina in sorry, in the division in the quarter. And if we then look at the margin perspective, Operating margin in Bear America was driven by the strong performance that I mentioned in Spain. So very much, and thanks to the positive development of security solutions, from top line perspective and also profitability, but we have Darden from Argentina. So the overall margin came in at four point 6%. And we expect continued challenges in our business in Argentina also, as as we enter the 3rd quarter. And this is due to a combination of 2 different factors, and challenging macroeconomic environment but also the internal changes that we are implementing in the markets. And so with that, I will now hand over to you Bart for an update on the financials. Very good. Thank you so much, Magnus. So let's turn to some for the financial information to the quarter and as usual, we start with the income statement. As of, Q1, as you know, we have adopted IFRS 6 team, and that is the standard that deals with, leasing contracts in essence, meaning that as of 2019, all equipment and all premises that we lease or rent is considered then as an asset for accounting reasons. As mentioned also at the Q1, we have implemented this standard without any restatement of comparatives. What we then see is that there is a quite substantial negative effect from IFRS 16 on our net income. With a very similar magnitude, you could say, in the first quarter and in the second quarter. When you look here at the H1 numbers in the table, here, to the upper right, of the slide, you notice there is a positive effect of plus 34,000,000 sec on the operating results But then, there is an even larger negative effect on financial items of minus SEK 73,000,000. And all in all that, at least then a net negative of minus 39 on income before tax. So that is IFRS 16 moving then to the line items affecting comparability. We accounted in this quarter for 46,000,000 stack as, items affecting comparability in the quarter, and that is then adding up to minus 66 in the first half year. And these items affecting comparability relate entirely to the 2 transformation programs we have in place as we announced also at the reporting of Q4 2018. As per our planning and in line with what we said at the first quarter, we expect to recognize around SEK 200,000,000 of items affecting comparability for 2019. Here, everything depends a bit on how fast we can implement certain matters and when exactly we'll incur what costs. What I can also add is that the earlier referred total of 650,000,000 that shall be accounted for during 2019 2020 and potentially part us apart in 2021, it's still the relevant amount to consider and calculate with. Then as to the financial income and expenses, that is, a SEK 150,000,000 negative in the quarter, and minus SEK 389,000,000 in the year to date for the first half year. As said, this number is negatively impacted through the adoption of IFRS 16 for 30,000,000, 37,000,000 in the quarter. The additional difference then compared to Q2 comes from Q2 2018 comes from increased net debt, increased U. S. Dollar interest rates and also apart from U. S. Dollar foreign exchange rate development. Turning then to the tax line. Or current tax estimate is that the full year group, tax rate in 2019 would be around 27.6. We estimated 27.8% in the previous quarter. That is still an increase, of course, compared to 2018, mainly due to reversed effects then from the U. S. Tax reform, related to the introduction of, of tax on foreign payments to so called beat. I should also add that the beat makes the effective tax rate, the group effective tax effective tax rate, a bit more difficult to forecast as it is more sensitive to certain elements in the in the income statement and in the calculation. In the bottom then, you notice there was a small difference between EPS and EPS before items affecting comparability. Of course, entirely relating to the earlier mentioned items affecting comparability for the 2 transformation programs. Turning to the next slide, we then look at the effects from the different currencies And, the numbers here to the right as always are the foreign exchange and trade in Swedish kroner, measured at quarter end. And, we can say that the US dollar has been moving around 9.39.4 in the quarter. It was at some point, even up at 9.60 to the kroner, but then ended the quarter at 9.27, and that is some 3% stronger than the same quarter 2018. And the euro during the quarter was around 10.6 fee, even with the peak also up to 10.80 and end the tender quarter at 10.55, and that is a bit more than 1% over last year. So it starts to be more stable also on the euro. The Argentine peso then starts to come closer to the weak rates from the second half of last year, that's still a negative 33% compared to the krone of 12 months ago. The drop in the Argentine peso, especially happened during May, September, 2018. And since then, the the peso, you haven't seen a peso has been a bit more stable one can say. So as a summary then due to especially the effect from the U. S. Dollar, or quarterly consolidated income statement was positively affected when comparing to last year. So our nominal numbers got some tailwind from the currency in the quarter. On sales, the total change was 11% and a real change of 8%. So there was a 3% tailwind as seen from the difference. And then on operating result level, the total change was 12% for a real change of 7%, so a little bit larger difference here being 5%. So in real terms, apples to apples or operating result improved with 7% in the first half year over 2018. Then one sees that for EPS before items affecting comparability, there's a total change of 5% and a real change of minus 2. And when we then compare the the real change between operating income on the one hand and EPS before items affecting comparability, On the other hand, we see there is a deleverage happening in between the 2. And the difference is, of course, entirely due to the higher financial items mostly as a result of IFRS 16, and then also due to the higher tax rate. Then we turn to the next page and we take a look at the cash flow and the balance sheet and and as commented before by Magnus, we have a healthier cash flow this year than last year. It shall be noted that the net cash flow is not impacted from IFRS 16 leases. However, it shall also be noted while the net amount is not impacted, some of the individual lines are impacted, especially the net investment, the investments and so to say the, reverse of depreciation. We see here in the year to date net investments of minus SEK 187,000,000, and that results from investments of close to SEK 1,500,000,000 and the reversal of depreciation of 1.3. And it shall be understood that these numbers that I just mentioned that then include, the amounts related to IFRS 16. And that is the investments are increased with SEK 456,000,000, and then it also impacted the reversal of depreciation with SEK 4.22. So with IFRS 16, our CapEx gets inflated, and that is around from around, yeah, the usual 2,000,000,000, which we commented before 2% of sales, then to an amount of 2,900,000,000 just by the fact that we have implemented IFRS 16. There is always a seasonality in our operating cash flows. We see substantial cash flow improvement compared to the first half of last year. This year, it was, yeah, almost SEK900 1,000,000. During the first half year, while last year it was -124,000,000. So a good improvement. We have worked more with the issue, and we'll continue to do so And then normally also the second half year is a much more operating cash flow in a rich half year compared to the first half year. We turn into the next slide, and then we take a look at an debt, and then a debt now stands at 20 point 4,000,000,000, up from 14.5 at the start, or at the at the end of last year, I should say. The main difference then relates to, of course, the implementation of IFRS 16, which has, hit impacted with almost SEK3.5 billion. Then of course, we have, the acquisitions we paid for during the first half year, and that is 382,000,000 Swedish. The dividend of, 1,600,000,000 said that was paid out And then the net debt was also impacted by some foreign exchange translation, as you can see here, with SEK456 1,000,000 in the first half year. And most of that actually happened in the first quarter of the year, the translation difference. When you move to the graph and to the right of the slide, the net debt in relation to EBITDA is on 2.9, and that is, again, measured after IFRS 16. As mentioned, IFRS 16 had quite substantial impact because the net debt now fully includes the entire effect from leased assets, and rent at premises. Through our, though, on on the other hand, our 12 month rolling EBITDA only includes now two quarters with the effect from IFRS 16, So that makes that on net debt, after IFRS 16 is a bit inflated from that, and it will go down by itself as we add more quarters with EBITDA including our IFRS 16. And that, they should also normally go down with a further healthy cash flow during the second half of the year. And then without, so to say, any further main acquisitions or anything like that, we should then end up normally around 2.3 as well as we have ended last year, before IFRS 16, of course. Yeah. I think that is largely it from my side. We can go to the next slide where we have tried to summarize all these effects from IFRS 16, I will refrain from a lot of comments. I think you understand that now, and all of that is available. In, or report as well in node 2 to the report where we provide all these different KPIs and write and compare. As mentioned before, the rating agencies to large extent followed already this same reasoning from IFRS 16, in their, evaluations and in their ratings. And during the April, security costs have been moved up from standard and pours from BBB, with a stable with a stable outlook to BBB with a positive outlook. And with this, I'm handing back to Magnus. All right. Thank you very much Bart. And so before we open up for the Q and A, I would like to provide a brief update regarding near term priorities as well as the progress of some of the strategic transformation programs. First of all, this is a simple outline of our presence today around the world. We do have a strong position And for those of you who follow us still see, you also know that we see a future which is more knowledge and database. And we will, or continuing the work to leverage our position to invest in our protective services capability to leverage the data that we're generating, combining that, with other data to then enhance knowledge and how we handled risk and provide better security and solutions to our local and global clients. But while we're investing in and the strategy beyond 2020, our priorities, that we are working on a lot at this point in time is, 1st of all, the client engagement. And that is how we are, not only winning, but also engaging and developing our relation ships and the value clients over time, driving down specialization of our protective services. So to ensure that we strengthen and further our protective services leadership and also then driving the modernization of our business including quite a lot of focus on cost efficiency. And when you look at the first two points on this slide, We made a few important leadership announcements, as I commented on at the beginning of the call. And, and created 3 new units that are really focused on addressing a few of these key objectives. First two units, and the ambition is to strengthen the specialization of our guarding. First of all, and second, electronic security capability. And the third one is to strengthen our engagement with an offering to our global clients. And we have appointed, very experienced and capable leaders for these 3 units And this work is starting just a few weeks ago, but with high expectations in terms of the impact that we will generate in the mid and the long term, in this areas. And as announced, ordered year. And our 2 major transformation programs, first one, to address some strengths in our global ISIT foundation and capability And the second one, the transformation, business transformation program in North America. Both of these programs are running according to plan. But I would like to emphasize that they are extensive and long term programs, but it will greatly enhance our capability to deliver and also efficiency across the company over time. And when you're looking at the journey, that we are on and our focus areas. And I always show this picture because it is important to put things a little bit in perspective and transfer wherever coming from, but also where we are heading. And we do have quite a lot of emphasis in the lower part of this slide, and that is obviously roughly 80% of our business today focused on guarding. So looking at how can we continuously strengthen and our foundation, which is really our guarding part of the business. 2nd one then, of course, is that we are on a journey since the formulation of our Vision 2020 Fenton strategy to establish clear leadership in protective services, and this work continues in terms of strengthening, guarding electronic security, mobile monitoring, etcetera, but also then in integrating solutions to our clients. And then as we look in then more beyond 2020, to ensure that we're establishing ourselves as the leader in intelligent security. So to sum this up, when you're looking at the forest house, we've had a little bit of a mix of a slower Q2 in terms of growth. Organic sales growth of 6% operating income real change in the first half of 7%. And continue to grow in Transco Solutions, electronic security, but are now accounting for 21% of our group sales. But apart from the focus of managing the results in the near term, we are driving quite a lot of work and related them to the modernization activities that we are undertaking with the progress I just mentioned to make sure that we can deliver a very strong offering to our clients in years to come, and that will continue to lead the development of the industry. So with that, Bart and I are now happy to open up for Q And A and, and handing over to the moderator. Thank you. Our first question comes from the line of Bilal Aziz of UBS. Please go ahead. Your line is open. Just a few from my side, please. And, firstly, can you give a bit more detail on the way you choose, er via Netherlands and analogue? Are these ready to move the chalk on sort of wage prices aren't much anymore or relatively more recent ones. I'm expected your site from issues last year, and, also action plan That's what sort of action plans you have, seeing. Technically, you stated the 2 transformation programs are going on track, and you've suggested the options in Europe. Can you update us where you're on a European plan so you can expect a lot to update on that? Yeah. So, so, Magnus here, the the line is not entirely good or clear. So but I if I understood correctly, the first question was related to the contract in France and the UK. Please feel free to Okay. Was it which? Sorry. So I didn't hear that properly. Okay. Yeah. So I I didn't hear you properly. If I may interfere, transformation program number. Yeah. That one, I'll take that. Yeah. Okay. So to the first question, when you're looking at France, there have been a number of regulatory changes. And the most significant one is the, this is related subsidy scheme that was changed towards the end of 2018. And that has had quite an impact in the short term, on our price wage balance. And that is the main reason that we are behind in France when looking at the 4 6 months and the current situation in France. And when we're looking at the Netherlands, there, we had, and, basically, been driving our price increase related activities together with the clients. And, that is something that we planned in the second half of twenty eighteen, but then there was a collective labor agreement that came in at a higher level than anticipated and also timing, not fully anticipate. So that means that we're essentially behind, the curve is an evidence. And what then happens is that there are customers and contracts. So we'll have price indexation clauses, etcetera, which means that it does take some time until we're then able to recover. And I think one follow-up question that you asked was then also what was the kind of the actions? Well, obviously, this is very high focus for us within these countries. It is high focus in terms of what we're doing in the near term. And while in some of the cases, there is also certain lag impact, which means that order now then obviously we need to look at how we're also recovering and also reestablishing balance as we go into 2020. And that is the same in France as it is in the Netherlands. And if I can comment on the second question that you had as well, and that was related to the transformation programs. Yes, we mentioned when we announced the transformation programs on a global level related to IT and also then North America business transformation program that We are looking at Europe, and we have promised to come back in the second half. What we have concluded so far is that a very similar program to what we do in North America did not make any sense from a return on investment perspective. Everything that we do has to generate a solid return, medium, long term. And the reason behind that is that the stock in position is quite different. When we're looking at Europe, we have a presence in 28 different countries. And we have also less of a shared service set up in Europe between the countries and within the division compared to what we have in North America. So the starting point is quite different. But we continue with this, So under the leadership of, of our new leader for the European division since the beginning of this year, This is high priority, and we will come back with updates once we have come further with that work and also then to be able to communicate what is longer term structured improvements are going to look like? Okay. Our next question comes from the line of Edward Stanley at Morman's County. Please go ahead. Your line is open. Good afternoon. Thank you. Following up from one of the last on on the wage inflation point, if we think beyond France and Netherlands, are there any other countries globally where negotiations are upcoming or ongoing, where you're now incrementally a bit more cautious? Secondly, on the IT spend, 60,000,000, also outflow. When we think about the phasing of those, it doesn't sound like there's any change to the overall amount of the projects, but I'm just wondering on the phasing on timing of the exceptional items. And thirdly, on the Ibero America outlook or in the statement you talk about in proper behavior by management, are you able to elaborate on what exactly that means? Yeah. I can start with the third question. Maybe what you can then handle, number 1 and number 2. And so when you look at this situation, I mean, from a securitized perspective, our values, our code of conduct is always of the highest priority. From from the comments that we have made, we have also shared that we are conducting an investigation. And for that reason, we are not able to, enter in more detail at this point in time. So I think that that's something which is important. I should also highlight that, even though Argentina is not a very big country, representing around 2% of our global sales, significantly less than that of the profitability. Our values are in and we always then investigate anything which is escalated as well to our intention. So This is something that we will have to, to come back and inform when the appropriate time. And also then if we take actions, obviously then we would assess what are the relevant actions to initiate. But if you wanna handle it, yes, for example. As to the wage inflation, so as Magnus pointed out, this is an issue that was, affecting Netherlands and France for specific reasons and Netherlands. I mean, they were a bit surprised, you could say, by the magnitude of the wage increase after, so to say they had already initiated the price increases. That was, from a timing perspective, not very good. And in France, and it's more related to the c c, matter. In other countries, as you know, the I mean, most of our price wage increases happen in Q1 and Q2 each year. So the majority of that work is now after ourselves. And and we can say that on the other countries, we have a balance there. So that is clear as well now. So so that is, I think, the answer to your question. On the IT spend, when we announced these 2 programs, we we mentioned that that we would make these capital expenditures and that we would, so to say, along the line also, take this items affecting comparability. But as to the the savings and and the benefits from that, that will mostly kick in, as from 2022. Actually, where we then expect the benefits coming in. We are spending the money now, and it's quite substantial programs, of course, and project and a substantial project that we are running there, both on the global IT side and on the North American business transformation, and, and, but the benefits will only kick in as of mostly then as of 2022. Thank you. Just tell me on the first point you made on the investigation, I appreciate you can't necessarily say, well, what's happened, but is would there be any financial liability further down the line that we should all need to be aware of? Yes. So I think from my perspective, it's, it's like a highlighted And we investigate anything that is being escalated through which it lowers, etcetera. And so it's difficult to comment on the investigation per se. And when when you're looking at the, the financial impact, this is obviously a critical question that we have been looking at as well. And and You just have to think or put things in perspective that it looks like I said, that's the size of the business, Argentina, it represents around 2%. Of our sales and significantly less than that, of the, of the of the operating profit. And so I think that is as much as we can comment on at this point in time. Thank you. Our next question comes from the line of Sharak Sadia of HSBC. Please go ahead. Your line is open. Hi, there. Thank you for taking my questions. Just on the margin contribution, from the cost savings program initiated in 2018. Could you give us, how many bps that was, in Europe and secondly, on M and A activity in the U S, with possibly entering the market, do you have any kind of view or take on how this would affect the U. S. Market? Thank you. Yes. As to the cost saving programs in Europe, we announced that there would be a bit of a 2 year return on the investment there or on the cost that we incur in that program. So that would be a little bit more than 130, 140,000,000 sec on an annual basis once everything is implemented. The majority of those measures have been implemented. We have also said that there would be a little bit of investments as well into new people So the net of that we estimate will be about to be a bit, more than 100,000,000 on an annual basis. And that has also been what we had mostly then been hit on a half year of basis, of course, in 2019 now, a bit less than 50,000,000. And to your second question about North American acquisitions, when you look at our business and our capabilities, we have a a very strong team. We have strong guarding capability with significant scale. And we have a strong electronic security capability. This was obviously very much boosted by the Diebold integration back in 2016. With further strengthened our capability and ability to deliver on a national, but also local level with the successful integration of Kratos. And then we have strong also corporate risk management and a number of other capability. So when you look at North America and Securitas, I dare say that there is no one that has anything similar in terms of strength. The Wolf into the clients. That is the most important for us. Having said that, we are continuously looking at other opportunities to further strengthen, then we are happy to invest in further strength, but this is really our basic view when it looked at the North American situation. Sizable platform, ma'am, over almost 20 years. And of course, we welcome any other professional people as well into the market. And there's It's a big market. There's still a lot of space as well. Thank you. Our next question comes from the line of Sylvia Barker at JP Morgan. Please go ahead. Your line is open. Okay, good afternoon everyone. Two questions, please. First of all, can you just tell us what the volume growth was overall for the group in Q2? And then in either America, would you be able to split out the Spanish growth and the Argentinian growth if possible? Then finally, on the margins in Europe, so you've, I guess, cost savings were probably about 10 basis points based on your comments, IFRS 16 was probably another 5 to 10 So clearly, the margins went backwards kind of organically. Could I, so you've given comments around but could you just check one point? So when you say in the statement that, in other, you've got investments for Vision 2020, Is that the data scientist teams who obviously work in Europe, and I have I have presumed that the cost base would actually be within the European cost base, but that's shown in the other segment. Can you just clarify where those costs it or indeed what the Vision 2020 related costs are, if that's not them. And a stop here, thank you very much. What was your first part of the question, Sylvia? So first question was just volume growth for the group, if you can give that for Q2. Yes. I mean, in in general, overall, we have commented before that we see normally price increases around 2%. Across the cycle. And then if times are better now, we see it more between 2 and 3. And we have commented before that now we are even a little bit ahead of 3% for the total totality of the group. So that is where we are in price. And then anything remaining is, of course, the volume change compared to last year. Is then consisting of both portfolio changes and potentially extra sales changes. When it comes to Spain, Ibero America, we do see very good growth in Spain, and that has been double digit growth that we have seen. And in, so that is what we have. Well, I think that answers your question. Then about the other costs, Europe is Europe and what is going on in Europe there with a saving program that affects Europe the costs we are incurring at the group level has basically not so much to do with Europe. Those are really investments that we are making mostly in people then. That are working with a further, strategy implementation for the entire group. I don't know, Magnus, if you want to comment anything to Yes, so like Gord said, essentially strengthening in two areas. And one of those is in Global IT and the second one is in Intelligent sort of for intelligent products. Thank you. So the team payload that's actually sitting other as a cost item rather than in your just to be clear. Yes. Yes. Okay. And for the IFRS 16 for Europe, that is about 10 basis points in line with the group. Is that fair? Correct. Thank you. Our next question comes from the line of Henrik Mulberry of Nordea. Please go ahead. Your line is open. Thank you. Can you hear me? Yes, we can. Hi, Henrik. Hi. Is it reasonable to expect that this, sorry, the weak net portfolio development in Europe, explaining the step down in organic growth. In your view, are there any structural changes to the environment, or what do you think explains that you're suddenly running into a tougher portfolio development in Europe? Yes. So when we look at, at, I mean, the contracts that we have lost, essentially guarding contracts, as a standalone guarding. It's difficult to conclude or I wouldn't really conclude and say that it's more competitive now. We always have to deliver good quality and value for money. Some, some, periods. You win more and some you lose more. Now we, we kind of had a few, then, significant contract is coinciding at the same point in time. What's obviously important then from my perspective and for the tune is that we are looking into as well. And analyzing why have we lost them. It's always easy to say we just lose them because of price. But there, I think it's customer by customer to really understand that situation and the specifics. And then I think I would also comment that there is contract losses then obviously we had announced 2 significant ones. 1 was Swedish 1 end of last year and then a French aviation contract all of those obviously now have full impact in the quarter as well. So there is but but it's it primarily related as well to, to to France and the UK. So so it's not something that we're seeing as a as an issue all over Europe. It's really focused on those 2 key markets and guarding contracts. Thank you. And is it reasonable to expect that if you a few contracts had sort of been stopped in the beginning of the quarter and the impact was through the quarter. Then is it reasonable to expect that the negative impact on the EBIT is larger in Q2 than what we should expect in the coming quarters as sort of the initial ramp down cost is higher. I think we, I mean, the fact is that we have highlighted that the determinations took place at the beginning of the quarter to give an understanding of what is the impact. Then I think you know the nature of our business is where we're working a fairly long contracts and extensive contracts and longer cycles as well. So I think that's all we can comment on in terms of of these losses. And in these specific cases, there were not very much important, termination costs, so to say. And the ramp down costs were not very high, not very relevant. Thank you. A couple of more questions for me, if I may. How should we think about your ability now to raise prices in France and Netherlands going forward? I mean, should we expect that you've done what you can and that this will be a head head to expect in in the second half as well, or or are there more contracts where where you have still have windows to raise prices? Yeah. When when you look, if I generalize, that we have a lot of emphasis on on the price increase related activities in the beginning of this year. Now we're obviously end of end of July. And that means that that in some of these cases, like indicated earlier, the next major opportunity when you look at achieving a balance has done really, with the next kind of annual cycle, because that is typically the way that it is working with a number of clients and in the majority of the countries as well. Thank you. And last one for me coming back to the costs on a group level that you mentioned, is sounds like it's reasonable to expect that these costs are that they are structural costs in Greece to expect going forward as well. Yes, they are. Thank you very much. Thank you. Our next question comes from the line of Paul Markets at Barclays Capital. Please go ahead. Your line is open. Good afternoon, everyone. I've I've got a I believe, I just want to follow-up on the contract losses, comments you just made, you said you'd like to go through them and understand why you lost them. What was the outcome from that if you've had got it yet? And then the second is, are you able to quantify the collective revenue of the lost contracts? And the last one, can you give us the level of wage inflation you're seeing in the Netherlands and France, please? Yes. So on the contract losses, I think I got the question related to the French aviation contract. In the previous court announcement. And that's essentially a contract where we have been delivering good service, but and also all indications that I have received and also experienced myself have been positive in terms of delivery. So that was then very much price driven And when you look at some of the others, we haven't gone through all of those because this is an activity we take quite seriously to also get feedback when we are not winning from the customers. One another, I mean, another one was also retail related contract that where price was a very significant factor. And from us, obviously, we have, I mean, we're investing in quality we are investing in delivering for the long term. And so, sometimes it does happen that we are losing out to price, but this is something that we continue that work. And I mean, I'm working quite actively with the team as well to get the better understanding internally, but also directly from the customers. As to quantifying the collective revenue of the lost, contracts, I mean, or organic sales growth has dropped from, yeah, Q1 around, what was it, 4% in our 1% in the quarter. So Yeah. A little bit less than 3% than of our total revenue in in Europe, you could say, is is then if you add up all these lost contracts, that is what it, relates to. What was your specific question on wage inflation? I just wanted to know what actual level of wage inflation you are experiencing in France and the Netherlands at the minute. In Netherlands, it's quite well ahead of the 3% we mentioned before. That is more on the 4.5%, 5% level. In France, I don't know exactly, but it's more related that the issue is more, France is more average the issue is more related to the CC subsidies which have disappeared. So that is more the issue there in or part of the CC subsidies which have disappeared. Which are difficult to compensate for in the price increases. Thank you. And our next question comes from the line of Jennifer in Jefferies. Please go ahead. Your line is open. Hi. Thanks guys. I apologize if, I'm I'm missing you already touched on it, but I'm just curious if you could give a bit more color on the timing of the cash impact of the transformation programs, at a bit higher end this year, because I was, I believe, there's flag about a 150,000,000 from European Restructuring programs to come in terms of cash cost in 2019, plus any cash impact from obviously transformation programs. Wondering if you could give a bit more color on how, how how much cash impact you expect in the second half from those items affecting comparability And then secondly, just based on growth, I think people were expecting a bit of deceleration rates on some of the you flagged some lost contracts, some software comparables. Into the second half of the year, current expectations are about sort of flat relative to the first half of the year. Is that consistent with the way you guys see current trading and the way you expect the graph happen right now to, to unfold? As to the items affecting comparability, Yes, the cash flow impact is a bit higher, mainly than coming from the European transformation program, which is is hitting cash wise now, in 2019. And all of that is, of course, also explained in Note 8 of our statement. We expect around the same amount for the give and take for the Europe, for Europe. And then all the costs that we should have in relation to the transformation programs, that is most most of that will be actually cash flow. And the second question, I must say the deceleration of growth and view on the second half. Is that the right? Yes. Just it looks like current sort of meeting expectations are for sort of H2 to look similar in terms of, growth to H1. I'm wondering if you can comment and if that's reasonable to, to expect and how you're seeing current trading? I mean, we typically don't, we don't guide on the forward looking periods, but If you look at some of these contract losses, when I look at Europe, it's, I think, like I mentioned earlier as well, we're working with fairly long cycles. So obviously, this is the situation as we have it, at this point in time. When we look at the gross numbers, What what I think it's important to understand, of course, that we achieved now 5% in the 2nd quarter on quite high comparatives from last year. So that is to remember. And then, of course, also important to understand is that in Europe, most of these effects hit the full quarter. So I think those are 2 important elements, at least to take into consideration in judging the future growth. Okay. Thank you. Thank you. And our next question comes from the line of Anmer Keppalan of Kepler Cheuvreux. Please go ahead. Your line is open. Yes, thank you. Most of my questions have been answered. So I'd be very briefly one question I had left to us on the retention rate, coming down across the board. I was wondering if you could explain what was behind this and also remind us what was the retention rate on the electronic security solutions segment and see why you see one security solution going up and retention rate going down. That would be helpful. Thank you. Yes. So when you look at the, it's the correct reflection. I want to look at North America. We had 2 fairly sizable contracts, that we lost at the beginning of this year. So that is the main reason related to 2 specific contracts. Europe, I think we have covered in quite some detail than some of the contract losses that we've had in France and the UK specifically. And when you look at the other regions, I mean, sometimes it's also a timing matter. We were obviously always working with retaining and developing existing relationships just as much as we are on new sales activity. And that could also vary a little bit between the quarters And when I think the second question that you had was done related to solutions, we see very clearly with all customers where we have implemented solutions, we typically have higher customer satisfaction at Promoter Scores We also then have higher retention figures as well. And that is typically, I mean, it's coming down to a few basic points. One is that we had to find a solution based on their risk and their needs. So it's either built for them. So addressing their needs in the possible way, but also then that we have typically gone into a closer relationship overall and also then addressing the value for money equation as well. We're able to leverage technology to a greater extent in combination with our people. And so long answer to the second question, but the fact is that retention is higher on the solutions customers overall. Actually, as that overall, we still see retention rates on the level of 90%, 91% in all of the business segments. So we still think that is on a healthy level. It has been very high, actually, 92, 93 in some of the cases, which is, very high. And now it has come down. Still we think a good level. Perfect. Thank you very much. Thank you. Our next question comes on the line of Madad Baidu of Theresa Securities. Please go ahead. Your line is open. Thank you. My question is, regarding the lost contracts in the European market. Was this mostly because pricing or the quality of the service? And, should we expect more of this going forward in the French and the UK market? Thank you. So when you look at this, I think I commented we're giving quite some background. Some of those contracts, first of all, I mean, we look into the seriously with every individual customer if we're losing up only when we're winning, including customers. So this is something and part of that work is still ongoing. And one contract, significant aviation contract. I mean, there are no for effect. It was very much down to price because quality of service, etcetera, was very good. Unfortunately, that happens sometimes. And we had another one that I referenced earlier as well, which was more of a retail related customer where pressure on price was very significant. And then we also need to decide how do we also protect margins to be able to deliver the value and the quality to the customers in a sustainable way for the mid and the long term. Sometimes We have to make that decision. Sometimes the customer would make that for us. And but like I said, I mean, this is now a few of those contracts and in the France and the UK coinciding at the similar point in time, but we are continuously working with our customer engagement, not only winning, but like I said, also how do we keep and how do we develop by continuously then offering as well broader range of services and solutions to our clients. And that work continues. Okay. Thank you. Thank you. Our next question comes from the line of Miguel Medina of JB Capital. Please go ahead. Your line is open. Yeah. Good afternoon. Just just one question from from my side. It's on the, either American edition. I understand that one of your one of the largest security companies in Spain has filed for, creditors protection. My understanding is that, you know, the vast majority of the contract with public administration, so I guess they are of no interest to you. But my question is whether you think that, the fact that you have had another security company, which mainly have contract with public administration going under might trigger eventually a change in how public administration attend the possibility contracts in Spain. Yeah. My my simple comment, I hope you are right. They call that, that is one important part. I don't want to comment on specific competitors. But there is no secret that there has been a brutal price competition when I look at guarding an on-site guarding in Spain. And that's something that we've had to tackle as well. What are we doing? Well, we are focusing and investing more for the last 6, 7, 8 years in terms of strengthening our offering and climbing up the value chain. And we do that because with a combination of technology and people were able to enhance the value but also then be able to manage their costs. And because if cost is one very important task, but from a client perspective, we have to respect that and then we try to optimize It's an issue for us and we can do that with much better impact when we're leveraging our electronic security. And that's our way of working, and that is proving very successful in the Spanish market. But to your comments, I agree with you. We are always promoting, paying our digital well, investing in training and in quality because that will be better for the clients, better for the industry overall. And and very importantly also for the people. And because there is a terrible impact, of course, in the number of people as well, when you have these these types of situations that you referenced. Thank you. Our next question comes from the line of Karl Johan Bonneberg of DNB Markets. Please go ahead. Your line is open. Yes, good afternoon. Just a quick question on technology solution. When I look at the geographic mix there, it seems that you have quite a different kind of growth momentum going on in your U. S. Business compared to the European business for the moment. Could you elaborate a little what's holding back development in Europe and driving the one in the U. S? Yes. I mean, I can start maybe you want to fill in as well. And if you're looking at electronic security, because we obviously have an electronic security and solutions reporting in one category, there there is some season degree of seasonality when you look at the electronic security. And and we typically comment, when there has been a significant impact then from from one of the countries, maybe a few specific projects as well. And that can vary over time. And so I think that is from an overall sales perspective, a key factor The other one, which is not effective, but the focus area for us is we are continuously working to drive deeper and higher penetration of solutions in the total portfolio with our clients. And this is the focus we have across all the countries and areas and branches, regardless if we are in North America or in Europe. I think those will be the main comments. Anything else from your side, Bart? No. Other than it's a correct observation that, that growth has, slow down a little bit in Europe. Now, last year, we had a couple of larger, solution contracts really quite sizable. We have been working with the implementation also of those that has taken some time and effort. And now we are moving on again, but there should be no structural reasons, so to say, why that that should continue. And I'm looking at Spain, you keep mentioning these, what you call, more short term kinds of technology contract. Is there any change in the outlook or should we expect those to remain there also in coming after the second half of this year? Yeah. Very difficult to predict. We have been saying from the beginning that there was short term nature in these contracts. But of course, as long as the need is there, we will service and we will service that to the customer. So it's extremely difficult to predict from our side as well. We basically don't So if we would know more, we would probably tell you that we don't know ourselves either. But they have been there for quite some time now, and it's still someday, they will terminate, but that, they have not, so to say reached us yet. Thank you. And our next question comes from the line of Krina Elmgren of Handelsbanken. Please go ahead. Your line is open. Good afternoon. I have 2 questions. One is regarding the margin development in Spain. If you could say something about that, And also if you see any changes when the when it comes to wage price balance in North America, changes since Q1 or since last year? As to the the Spain margin development, we do not really, provide details details around the country, but obviously, the margin has developed very well over the last 2, 3 years now. And it was well below group. At some point in time, it was well ahead of group average. That it was well below group average, and now it has moved up again. Very good. And and you're happy with that. Compensating and setting up also some of the difficult conditions we have had in Argentina. And then as to price wage in the U. S, I mean, also there, the the the the general rule is still valid. Normally, we are around 2% price increases, wage increases. And then we have also been higher now, more closer to the 3% actually in North America. In the year to date, that is what we haven't seen. So we are trending that around 3% as well, as as we see in other places around the world. Okay. Thank you. Thank you. Our next question comes from the line of Stephen Gordon at Deutsche Bank. Please go ahead. Your line is open. Thanks. Just in terms of the kind of higher level yeah, macro high level macro conditions that we've been seeing. Just in terms of, obviously, you've talked about France and Netherlands being quite challenging, but they those, they seem somewhat idiosyncratic. Can you just give us a bit of a bit of color on, you know, how you see the wider the wider European market? And also, regard to the U. S, you were just saying there that you're seeing roughly 3% wage inflation. How are you seeing customers in the U. S? Are you seeing any incremental signs of caution? Are you able to pass prices through? So horrible macro things would be very interesting there. And then the second question I've got would just be on the security solutions, a slightly slower growth I saw than Q1. But and within that, clearly, some in organic. Can you tell us what the organic security solutions growth was for Q2? That's it for me. Thanks. Yeah. So if you look at the macroeconomic conditions in in Europe. And now we've had tight labor markets, and we commented on that for a number of years. And And what then happens is that, well, obviously, retention becomes a challenge, but also then, hiring becomes more challenging as well. So when we're looking at direct impact, if you ask the question, what does that mean in terms of numbers for us? Well, there is a negative impact from that. In terms of sickness, in terms of overtime, in terms of training. And there, I mean, we're seeing a number of significant basis point impact when you combine those across the different markets. And because it is more of an extreme situation now, so in a sense, more structural, What are we then doing about that? Well, when we are looking at price wage, we are also now kind of elaborate in the price searching equation to also then include a slightly broader, perspective. And that is time to look at price, but then price in relation to production costs. And we then have a wider definition than wage costs alone to be able to also reflect that and to be able to also then work that through with our customers. And so I think those are the main points and the main impact that I would highlight in terms of the of the macroeconomic situation. When it comes to the security solutions growth, in general, the real sales growth was around 12% 45% of that was acquired. So anything remaining then was organically. Great. Thank you very much. Thank you. And the last question on the queue so far is from the line of from Rick Mulberry of Mobia. We rather discuss this in connection with secured us, but I think, you know, or I know that in in Europe, not in Europe, there's been a significant calendar effect in this quarter. You know, some companies are towards 3% on organic growth. I suppose it's less unsecured as always has been. Can you comment on how large the calendar effect was in Europe and the U. S. In the quarter? And also can you comment on the dynamic all of this in relation to EBIT? Thank you. There was, yes, it's a short answer, Henry. There is no significant effect neither on the top line nor on the bottom line, other than the same quarter last year, so to say. So what do you mean by other than the last same quarter last year? Because there are more working days more working days or less working days. No. What I mean is that we have some seasonality in our operating margins. From 1 quarter to the other. And then the the second half of the year is normally a bit better than the first half of the year. But quarter on quarter comparison, there is no effect from the calendar this year, significant effect from the calendar this year compared to last year. Thank you. And as there are no further questions, I'll hand back to our speakers for the closing comments. Okay. So, I think with that, we will conclude the call. Thanks to all of you for, for joining us today.