Our customers are at the center of what we do, and we are working to deliver the best possible value to our customers. We do this through a combination of people, knowledge and technology. Let us look at some of the highlights. Of course, you should realize that this growth is good in the first half, but we're also facing tougher comparatives in the second half. There is growth in all business segments and also strong commercial activity, and this together with excellent customer retention have contributed to this growth. The customer retention is important since that is one of the indications of how satisfied the customers are in terms of the services that we provide.
The wage cost increase in the first half is on par with the price increase, which we are happy about, and we are also delivering an operating margin of 4.9% in the first half, which is slightly better than the first half of. The earnings per share 15% real change in the first half. Let us now look at the progress in Security Solutions and Electronic Security. In the second quarter, we have seen good activity with a number of mid-sized solutions, where we deliver a range of protective services, and the growth is in the first half, 21%. We're making good progress with integration of the acquisitions in France and the Netherlands and completed the acquisition of Kratos in the month of June. These acquisitions will strengthen our technical capability in these important markets. Good.
Let us now then look at the performance in the different divisions. We've had a very strong quarter and first half in North America, and solid customer retention. I would also like to highlight that we have good growth in Electronic Security and Security Solutions that represented roughly 17% of the total sales in the quarter. When looking at the profitability in North America, we also see good development. First half margin improving to 5.8%. The operating margin was supported by leverage through organic sales growth. I should also mention that the Q2 operating margin contained a positive one-off impact. Looking at Europe, we are very happy about the fact that the recovery is continuing. We see stronger growth now than what we have seen in the previous quarters. 4% in the first half and 5% in the second quarter.
It's also good to see that the client retention is improving, now at 93%. When we're looking at the growth, almost all countries in Europe are supporting the growth, but we should highlight Belgium, Germany, and also the guarding business in Turkey as important contributors. The refugee-related sales continue to decline, and this has had approximately 1% negative impact on the organic sales growth. We have good growth in Security Solutions and Electronic Security, which now represented 21% of the sales. While we have significantly improved the growth in Europe, based on this development, we have initiated a cost savings program for the second half of 2018. We estimate that the restructuring costs will be SEK 93 million and good growth overall.
We achieved 10% organic sales growth in the first half. The decline in organic sales growth is mainly due to Argentina, but we have continued very strong development in Spain, which is helping the growth in the quarter. When looking at the operating margin, our Ibero-America team has delivered a very strong first half with an increase to 4.6%. Spain is the main driver behind this improvement, and we're improving thanks to strong development in Security Solutions sales. I'm also happy to say that we're also seeing improving margins in the guarding part of the business. To me, this is also an indication that the customers are appreciating the quality and the value that we bring. We do have a more challenging situation in Argentina with negative leverage and also turnover in the contract portfolio.
All in all, I would say it's a very positive development in the Ibero-America division. With that, I would like to hand over to our CFO, Bart Adam. Bart.
Many thanks, Magnus. Hello to all of you, wherever you are in the heat in Europe. Let's now turn to some further financial details to the first half year and the second quarter. We will start with the income statement here. As mentioned also at our Q1 meeting, I would like to confirm that the 2017 comparatives for the group have been restated according to IFRS 15. This results in a relatively minor change for the year. The change is about SEK 20 million positive increase of the operating income for the full year. It relates to that now we need to activate and then further depreciate sales commissions.
When we turn now to the numbers, yes, as Magnus commented, both the quarter and the first half year showed good organic sales growth. The operating margin improved 0.1, both in the quarter and in the first half year. When we move to the acquisition related costs, we move a bit further down in the income statement. The acquisition related costs, you see that in the first half year, these were SEK 25 million compared to SEK 13 million in the first half of last year. Then about half of that SEK 25 relates to the Kratos acquisition in the U.S. You shall expect that the total estimated acquisition related costs for Kratos are about SEK 75 million for the full year. We expect that all of these costs will be recognized, as I said, in 2018.
When we go further down in the income statement and we look at the financial income and expenses, these are flat in the first half year compared to the first half last year at, minus SEK 196 million. Note, however, that financial income and expenses amounted to a bit over minus SEK 100 million in the quarter compared to minus SEK 94 million Q2 last year. This step up in the quarter is due to combination of the development of the U.S. dollar interest rates, also, of course, this weaker Swedish krona and increase net debt during the quarter as a result of the acquisitions. This step up also happened a bit gradually during the quarter. We move the step up, I mean, compared to last year, same quarter. We move to the tax line.
The applied tax rate for the first half year is 25.0%, that is compared to 25.5% at Q1 and compared to 29.0% for the first half of last year. This reduction from 29% to 25% is largely due to lower U.S. tax rates as of 2018 as a result, of course, of the U.S. tax reform. As you can see, the 2017 full year tax rate was 31.5%. That is, however, including a one-off tax expense of 3.1% that was booked in Q4 last year. Excluding this one-off tax expense, it was 28.4% last year. We will, of course, continue to assess the tax rate going forward as more details and interpretations to U.S. tax reform become available, especially related to the so-called BEAT, the Base Erosion and Anti-Abuse Tax.
When we move to the next page, we take a look primarily at the effects from the different currencies. The numbers mentioned here to the right of the slide are the foreign exchange end rates in Swedish krona at the quarter-end. We see that both the U.S. dollar and the euro has strengthened now quite a bit versus the Swedish krona at the end of Q2 compared to Q2 last year, respectively +5.5% and +7.2% up. The euro has continued from Q1 at SEK 10.3 to SEK 10.4 level. The main swing then compared to Q1 is the movement of the U.S. dollar rate. The U.S. dollar has continued its increase since the start of 2018, and our Q1 consolidated results.
Our first quarter consolidated results were negatively affected from the U.S. dollar when comparing to last year, whereas now in Q2, we got some tailwind from the U.S. dollar development. The Argentina peso, however, further reduced somewhat its valuation against the Swedish krona, and that is now on close to a -37% at quarter-end. All in all, the net effects on the different slides in the income statement can be seen from the difference between total change and real change. If you turn to the box to the left, you notice that regarding sales for the first half year, the net effect, that is the difference between total change at 7% and real change at 8%, you notice that the net difference is 1%. The real change is 1% higher than total change.
This difference was more like 3% after Q1. Where Q1 was hampered from the currency rates, as said, we had exchange tailwind in Q2. The negative currency effect from Q1 has been almost fully compensated by tailwind from currency during Q2, mainly as a result from the swing in the US dollar. As regards to earnings per share, there you can see that there is actually no more difference between total change and real change for the first half year, where the difference was also 3% for Q1. Let's turn to the next slide, cash flow and balance sheet. Here it shall be noted that related to IFRS 15, we have restated the balance sheet, but there is no change to the cash flow. That remains unchanged after IFRS 15. We had, I would say for Q2, an okay cash flow during the quarter for Q2.
In the second quarter, our cash flow from operating activities recovered from the negative cash flow effect at the end of the first quarter. You remember there that we had some negative effects from the timing of Easter, and we saw that money coming from the balance sheet into the cash flow during April. We also suffered in the second quarter from a few other negative effects then. There is a negative effect related to regulatory change in Social Security payment timing in France. We need to pay faster now in France, the Social Security, compared to how it was before. We have an invoicing system change transition in the Netherlands. That is not a major issue, but at least it's causing some invoicing and payment delays from our customers.
Finally, we were also affected from the interest rate hike in Argentina that is causing some payment delays also from our customers in Argentina. That will probably be a bit more difficult to recover from. Not so much concerned about bad debt, but it's just that people, companies, or our customers are paying slower compared to how it was before. In France, the situation will not change. The situation in Netherlands will gradually improve, whereas the situation in Argentina could take a bit longer to resolve. I should also add, of course, that the strong organic sales growth, especially in North America, resulted in increases in operating capital employed, impacting the cash flow negatively. When we see this type of strong growth rates, we of course need to fund that growth also from the balance sheet.
I should also remind you that the quarter two ended in the weekend. That did not help either to the cash flow from operating activities. I just want to flag that also the timing of Q3 closing is unfavorable for the cash flow because of the weekend timing in relation to the quarter end. When we move to the next slide, we look at the net debt. It stands now at SEK 16.7. The development from year-end, of course, reflects the development from the operating cash flow as just explained. We paid out a bit more than SEK 1.2 billion related to acquisitions, all of which, of course, were disclosed to the market. We paid over SEK 1.4 billion in dividend, which hopefully our shareholders are happy with. Magnus will come with some further details on the acquisitions.
The net debt was also impacted from the foreign exchange development. You can see there a translation difference of 837 million SEK, and that is purely the development also of both the euro and the US dollar. That compared to January 1st. You then see also that for Q2, to the far right of the slide, the net debt in relation to EBITDA is still on a healthy 2.6. We see here the development over the years, and we compare this quarter and then to the year-end from previous years. We are now at a leverage of 2.6, knowing that our Q2 tends to be our highest leverage point during the year due to seasonality. You can expect that based on the same seasonality and of course everything else equals, this shall go down by year-end.
By this, I would like to hand back to Magnus, and then we will be happy to answer any questions later on in the call.
Okay. Thank you, Bart. Similar to last quarter, I would like to share also a few updates related to the work that we do with our customers, but also the work related to the strategy. When we look at Security Solutions, we talk quite a lot about them. I think that it's also important that we take a look at these examples also from the customer perspective. We would like to show a brief video, and this is a reference case then from a business park customer in Finland. If we can then roll the tape, please.
We are operating in six different countries. There are more than 1,700 companies, and we serve more than 50,000 people each day.
Well, business parks. They're an interesting environment since they are always occupied 24/7. From security point of view and safety point of view as well, they actually create different kinds of challenges. You need to be creative in this sense that you need to use different kinds of solutions to actually maintain the required level of security and also the usability of the building.
Nobody knows yet what there will be after two years, what kind of solutions. That's the reason that we need to have that kind of partner who find out the best solutions and be aware what there will become.
We are providing them with mobile patrol guards that are circling the sites. Then we have remote services. We can remotely take a look at their surveillance cameras, their CCTV systems. Immediately when there is an alarm, we can see what caused it and then respond accordingly. These are from a security point of view, and then we have a lot of safety solutions.
When we are building a new construction site, Securitas take our security plans, and they are auditing all the time when we have this kind of in building.
We maintain their rescue plans. We have created them, and we annually update them. Based on that rescue planning, we have created these safety organizations in these campuses. We have rescue and fire safety training for Technopolis's own staff and their tenants, and we also provide them with fire drills.
If the customer needs something specific, we offer through Securitas those services, and they could be tailor-made solutions What the customer needs. That's one of the reasons that Securitas is our partner, because they have almost the same corporate values as we. They have the integrity, vigilance, and helpfulness, and I think the helpfulness is same as the service in our side.
We take care of the security and safety of Technopolis so that they can focus on their business.
We like to have that kind of partners, which are the pioneer or forerunners on their own business, that make my life much more easier.
Well, as you can see, we recorded this video, I think in the spring or the early spring. It was with different temperature with snow than what we're having and seeing right now. When you look at this case, I think it's a good example of a solution that we have developed for Technopolis because it's a range of protective services, close integration with the customer to add value and to really address their critical needs. As you can see in this case, it's also a good combination of people, technology, and knowledge. If we turn to the next page, looking a bit at the acquisitions. We are making good progress with the acquisitions in the company, and have now completed the acquisition of Kratos Public Safety and Security division in the U.S.
This is an important acquisition because it will help and enhance our proximity to the customers with a good branch network across the U.S. This week, we also closed the acquisition of Pronet in Turkey. Pronet will further strengthen our leading position in the security services market in Turkey. I would like to say that we are very happy to welcome the teams from not only Kratos and Pronet, but also from the other companies that have become part of Securitas in the last six months. If we turn then to the next picture, this is a picture that we like to show, and it's also important for our strategy. It does show the development of our services and the impact on the value that we are creating.
Value to the customer, but also then value that we're creating for Securitas as we're developing from our quality guarding to the more integrated Security Solutions and Electronic Security. We have a good recent example, I think from the Spanish market, where we have strong momentum with Security Solutions in generating higher customer value and also higher value to Securitas. I would also like to emphasize that we have a big part of the business which is guarding. We are proud of this business, and it's also a part of the business that we are constantly looking at how can we develop this, how can we protect the value, and then develop that part of the business also as we go forward. When you look at the first half in terms of the progress on Security Solutions and Electronic Security, we have good growth.
Security Solutions, Electronic Security are now accounting for approximately 20% of our group sales. Before we conclude, just wanted to repeat the slide that we shared three months ago when we presented the Q1 results. This is a little bit outlining the journey that we are on, where we're coming from in terms of the strong foundation that we have built in security services. Obviously the drive and the transformation towards a richer protective services offering, and also then the next phase that we're calling intelligent security and our ambition to be a leader in intelligent security. I think to wrap this up, we have strong growth across the business, 7% organic sales growth in the first half, and EPS improvement of 15%. I would like to emphasize again that we are meeting much stronger comparatives in the second half of this year.
We have a feeling that most things have gone well this quarter in terms of the general development. We have good momentum. Before we start the Q&A, I would also like to highlight that we have an investor update in September, on September 20th that we're going to do in Stockholm. There will also be possibility to follow that on the web as well. We would be very happy to see you there when we talk a bit more about the business, where we are right now, and also some thoughts about the future. I think with that, I turn over to the moderator, and we open up the Q&A. Thank you.
Thank you. Ladies and gentlemen, if you wish to ask a question, please dial zero one on your telephone keypads now. Our first question comes from the line of Srini Srikonda of HSBC. Please go ahead. Your line is open.
Hi, this is Srini. Spain has driven your strong growth and margins. You have also mentioned that short-term contracts has contributed to the growth basically. May I know how From these short-term contracts, and what's it like short-term services to the clients? Is it correct, and have they contributed to the margin expansion in this quarter?
Yes. Bart here, I take the question. Yes, these are more short-term nature contracts. We cannot exactly tell how long they could last or could not last. That is an unknown to us as well, so I cannot guide you on that one. As to the impact on the volume, that is a bit more than 1%, between 1% and 2%. Then on the impact on the margin, you could say that has quite also a significant impact on the margin in Ibero-America, around 0.3%, actually.
Okay. Basically, I think 30 basis points improvement has come from these contracts.
Yes
for Ibero-America.
Yes.
Okay.
Don't bother too much about it. It is basically, if you look at the comparatives from last year, that is where you.
Good afternoon, everyone. Just two questions from me, please. Firstly, regarding the one-off in North America, can you perhaps quantify that and also reveal what the exact reason for that one-off positive impact was? Separately, in Argentina, you haven't quite used the phrasing that you expect it to get worse from here as you perhaps did in the last quarter. Do you perhaps think you've bottomed out to this in terms of the sales decline and the margin headwinds as well in that business? Thank you.
I think in terms of the one-off in North America, that is related to a revaluation of work in progress. When you look at Argentina, it is a less stable and more uncertain situation. I think it's difficult to project at this point in time if it's going to get worse and exactly what the developments are going to be. But we are looking carefully, obviously, and working with the team as well to make sure that we manage through the situation.
As to the one-off that you mentioned for North America, when we mention one-off it's normally 0.1 or more, in this case, it's also 0.1. Basically it relates to a revaluation of the work in progress in a larger contract in the U.S. You should also remember that last year as well, we had a positive one-off of the same magnitude in the quarter.
Brilliant. Thank you.
Thank you. Our next question comes from the line of Paul Checketts of Barclays Capital. Please go ahead, your line is open.
Hi, everyone. I've got a couple of questions, please. The first is on wage inflation. Can you give us a sense for the level of wage inflation you're seeing in the U.S. market, please, and a sense of how pricing negotiations have gone? It sounds like you've managed to pass it on. On the same topic, in Europe, perhaps you would give us an update on the negotiations that you've already passed through, and those which are upcoming in the rest of the year. On a slightly separate topic on the restructuring costs, could you elaborate, please, on which cost it is that you're intending to take out of that European business? When you talk about the payback, do you think the entire amount will flow back to the operating profit? Thanks.
Magnus here. I can start, and then I invite Bart to make a few additional comments. If you look at the price wage balance, in general, in North America and also in Europe, we have managed to balance that quite well. If you're looking at the specific number in terms of the restructuring program, we estimate the restructuring cost around SEK 200 million-SEK 250 million, and then we say 2 years payback. There will obviously be some differences in timing of that program. Some things we'll be able to start to do in the fourth quarter this year, and then obviously expecting to drive full impact the closer we get to the 2-year timeframe as well. It is correct that, when we say 2 years, that is essentially to then recover the restructuring charge that we're taking in the third quarter.
Bart, do you want to quantify anything more on that to comment?
2%-3%. Basically the same thing overall in the group. It's around 2%-3%. The restructuring, SEK 200 million-SEK 250 million with a 2-year payback, meaning that we expect about half of that amount as savings. They will flow in, as Magnus said, during Q4, but then mostly as of 2019. We have not seen, I know there are statistics around which show 5% and 6%, but that we do not see, we do not recognize that. Those statistics, I can confirm to you that we think they are right on a long-term. The long-term perspective in those statistics is correct, but we cannot confirm the short term, like month-on-month development that sometimes is shown in the statistics.
Okay. Maybe while I've got you, I could ask one more, which is around the interest charge. It was SEK 102 million in the quarter. Is that a fair reflection of the quarterly level now, or were there any one-offs in there that meant it was slightly higher?
No, no one-offs in there. As I mentioned, it's a reflection of higher U.S. dollar interest rates, so that was staged, and on the fact that the debt was higher. It ramped a bit up. The cost ramped a bit up during the quarter. That you should also know. This is the quarterly average, but it ramped a bit up during the quarter.
Thank you. Our next question comes from the line of Mikael Holm of DNB. Please go ahead. Your line is open.
Yes. First, just a question on the organic growth in Ibero-America. Historically, you have given us the organic growth rate for Latin America in the report. Would it be possible to say something about where it was, and also the level of organic growth in Spain for the quarter?
Okay. We stopped putting that. I think we did not really put that in the report, but sometimes we put it as a comment in the report. It was not all the time there. I think we can confirm Ibero-America is still growing. Absolutely. It's still double-digit growth that we see. As a consequence, Spain together with Portugal should also be around that range in view of the divisional average then.
Okay. Just a clarification on the cost savings is roughly 50 basis points on the margin. How much of that will you invest into more of the new strategy, and how much do you think you could keep as a gain more long-term?
Not sure how you get to the 50 basis points. If you take the average of 200 and 250, say 225, and then a two-year payback, that should be then a saving of around half of that, so say 110.
Oh, okay.
That is how you should reason. 110 on, yeah, we have more than SEK 40 billion sales in Europe, it's more, I think, on the level of 0.25, 0.3.
Okay. I understand. Just my final question is regarding, looking at the margin development for the group, 10 basis points up. Could you say something about the margin development in manned guarding? Is it still 20, 30 basis points annual pressure, or is it stabilizing?
There is always pressure on the margins. I think that that's something that has not fundamentally changed. I mentioned briefly in some of the comments that in some markets where the margin has been under severe pressure, we do see, like in Spain, for example, that some customers are also coming back because they value the quality and they realize that there is value in the service that we bring. That is obviously positive, and it's also healthy. There is also companies that have gone bankrupt in the last couple of years, that's probably also helped that situation overall. I think that is the general situation. What we obviously focus on is to deliver good quality. We're proud of the guarding activities that we have, and we're also looking at how can we become good at also protecting the value and the services that we bring.
That's obviously an important division, given that guarding is still a very significant part of the overall business. The price pressure is always there.
Okay. Thank you.
Thank you. Our next question comes from the line of David Fernandez at Mercuria. Please go ahead. Your line is open.
Hi. Good afternoon. Thank you for taking my question. I only have one question, if I may, please. In my view, the key attraction of Securitas investment case is a transition from manned guarding to technology and the impact that is going to have on organic growth and margins. I think we are seeing the organic growth coming through, but we are not seeing that margin expansion coming through despite technology growing much faster than manned guarding, so you should get a mixed benefit. We have oftentimes discussed what is going on the manned guarding and margin side of things, but I still struggle to understand why our group margin is not expanding. My question is, what are the all-in margins that you are currently having on technology? We always discuss this 10%, but this excludes ramp-up cost and investment on countries which are subscale.
I was really trying to understand, if I may please, what are the current margins that you are having on technology?
I think this is always an important question, we're building this for the long term. We are happy about the growth that we have in Electronic Security and Security Solutions. We are also constantly looking at and making sure that we're also improving or having significantly higher margins. I think the 10% there is definitely the benchmark, which is fully valid. It's also important because as like you're pointing out, we're also investing in these contracts and in these relationships and thereby adding more value, and it's also competitive edge for us. Other factors, the guarding part of the business is still growing fast. That is obviously reflected also in some of the organic sales growth figures that we are delivering.
I think that this is long-term work, we are convinced as well that when we are converting customers, we bring more value, then we will also be able to improve those margins over time. We have many good examples when we're looking at that across different divisions, also in different regions and in different countries.
Could you at least give us a feeling on when do you think you're going to reach 10% on technology?
Yeah, we don't give.
Today is clearly lower than 10%.
We don't give any guidance, but I think we are convinced about the value of the strategy and the work that we do, so this is just that we keep on driving this. I think one other point as well is that we are also investing, and we have been investing quite a lot in the future strategy, and that has also then meant also greatly expanding and improving our technical capability, hiring quite a number of people to also be able to deliver this. I think the big difference now compared to a few, say four or five years ago, is that now we have more of a strong platform as well on which we can build, and that we can also then really bring that more actively to the customers.
Could you at least confirm whether technology margins are higher than group average today?
Yeah, absolutely. Yeah.
Okay. Thank you.
Thank you. Our next question comes from the line of Adam Wells with Exane. Please go ahead, your line is open.
Hey, good afternoon, Magnus. Two quick ones. One clarification question for me. You're talking about the one-offs in the U.S. Am I right in thinking you said that was 0.1% or 10 basis point impact on the margin? Just to clarify that, second question, is it possible to get a little bit more granularity about exactly what's going on in the restructuring in Europe? I mean, is this headcount reduction? Are you looking at sort of reducing HQ or office costs? Maybe could you talk a little bit about regionally, what countries you're mainly focused on here? Thank you.
I was commenting before on the question related to North America. Bart here. I can confirm that it's 0.1%, the one-off there that we talked about before, the revaluation of the WIP, the work in progress in a larger contract in North America. I turn the question for Europe to Magnus.
Yeah. I can gladly give a little more flavor. When you look at Europe, like I mentioned at the beginning, we have good growth. We're also driving the transformation in terms of improving as well an increase in the share of Electronic Security and Security Solutions in Europe for a number of years now. We have not been happy with the margin that we are generating because we do feel that we are adding more value to the customers in the business, and that should obviously also reflect over time. In some of the countries, because this program is roughly 10 countries, where we're implementing this. It's not everywhere.
It is around 10 countries, what has been kind of a common trend is that we've had cost increases that have been a little bit too high, and that then when I say too high, obviously costing growing at a higher pace than sales or margin. That is obviously not sustainable over time. That has been a trigger to make this program, when you look at where, well, like I said, it's about 10 countries, but we are then primarily as well focused on management functions and some of the support functions when you look at those cost savings, it's primarily people related. That is the basics of the program, and we're now rolling this out. We're starting the rollout of this in the third quarter.
Maybe just as a sort of follow-up there. My concern would be that you hired an awful lot of people leading into the migrant contract opportunity that you had there. Is this restructuring basically an effort to reduce headcount off the back of that? You carried additional headcount for at least a year as part of that strategy, as you expected the markets to pick up, or am I slightly misinterpreting what you're saying here?
When you look at the whole refugee situation, that really started in the second half of 2015, there we peaked during 2016 in terms of that demand. There I should just highlight as well, we fulfilled a very important role from a society perspective, and I feel that we've also done a really good and an important job with that. Most of those activities were also then temporary in nature, so short-term contracts. We've seen this kind of gradual decline of that business in 2017, and we also highlighted, I think, in the comments around 1% of the organic sales growth also negative impact in the first half of this year as well. We still have quite some refugee business, and it's difficult to say, is it only that? I would say no.
We have had a situation where some countries are really performing well, strong performance, strong financial management. Others, we felt that it was time to take a stronger grip, and that's what we are doing now to realize those cost savings, but then also to be able to free up resources to also continue to invest in the strategy in the future.
Okay. Thank you.
Thank you. Our next question comes from the line of Andy Robler of Credit Suisse. Please go ahead. Your line is open.
Hi, good afternoon. Just one from me, if I may. Just on the cash flow, which was weaker again in Q2. Bart, you mentioned the three reasons for that change. I guess two questions flowing from that. One, have you seen a reversal from the quarter ending on a weekend into early July? Secondly, of those three issues you highlighted, how much of that is structural, and we just have to accept that the working capital going forward is going to be more of a drain than it has been historically, and how much is temporary?
As to the quarter end, yes, we have seen that the beginning of July was recovering from that. That is that. As to the three reasons mentioned, France will stay. That is just a piece of legislation where we now need to pay faster, so that will not go away. Netherlands, that is a matter now of going through the process and to say, the delay we had in regenerating the invoices, we recover from that, and that should be recovered by year-end. Argentina is a bit more difficult. The interest rate hike has really been important in Argentina, which meant that I would say together, there's two effects. It was that one, but it was also the fact that the interest starts to move in the U.S., actually, which means that some people are moving their investments or their monies from Argentina to U.S. dollar.
There's less cash around in the Argentina interest space. That is more difficult to predict. We will work with those customers, but we are not willing to accept any bad debt on those customers as well. It could also mean that we maybe have to clean out some of our customers and say, "Well, sorry, if you cannot pay in time or not at least within a certain reasonable timeframe, we cannot longer serve you." We have to flush that effect now. Bit more difficult to say how long that will take, but at the end of the day, we should come back to pretty normal rates as well. I cannot say if that takes six months or nine months or three months. I cannot say that.
If we looked over two years, say, do you think that working capital as a percentage of sales as an easy proxy will revert back to where you have been historically or is it going to be structurally worse?
Well, it's a good question. There are, of course, reasons why it has increased. The first reason relates to our Security Solutions. We are consuming cash capital employed, the balance sheet for investing into the solutions. Of course, you don't see that, but that also means that our EBITDA margins are going up, but we never talk about EBITDA margins. That is that, and that piece will just continue. We should accept that. Second thing is, of course, also that the Electronic Security business by itself is consuming a bit more cash by the fact that we have inventories and by the fact that we have work in progress, which we don't have so much in the guarding business at month end. That is also consuming some cash.
The more Electronic Security business we add, the more working capital we will add, the average should move a bit from that. Then, of course, there's also the aspect of growth. As you know, a large part of our growth has been coming from North America the last two, three years, actually. They have been really growing very well in North America organically. The operating capital employed, even in the guarding business, is quite higher in North America compared to, for instance, Europe. There are two reasons for that. One is the fact that in U.S., you have no VAT. In Europe, you get payments from your customers, including VAT, then you have to pass on the VAT later on to the government. That's a liability that's sitting in your balance sheet. You don't have that in U.S.
Second thing is that you have employee-related accruals in Europe, which are far much higher than in U.S. In U.S., it's more cash-based, also in U.S., we actually pay out a lot of our guards to weekly rather than monthly in Europe. Those two effects, VAT and employee-related accruals, makes that you need more operating capital employed in U.S. to grow the business compared to the average country in Europe. That has also been sitting behind this driver of operating capital employed that you referred to over the last two, three years. What I hope U.S. could continue to grow on these levels, we are very happy to support them further from the balance sheet to make that growth happen. On top of that, what we also see is payment terms from customers. Some of our larger customers are pushing the payment terms.
We are pushing back, of course, but there's also You need to find some balance in that, how much you push back and how much you could accept, of course. I hope that gives an answer to your question.
In summary, it got progressively a bit tougher over the past two, three years, it's likely going to stay that way as we go forward. That would be the reality of the market situation and your strategy. Cash return on capital would be a bit lower than it would have been historically. Is that fair to say?
I think it's fair to say that the things I refer to are a bit more structural. It's not just cyclical.
Yeah.
As a consequence, it's correct what you say.
Okay, brilliant. Thank you very much.
Thank you. Our next question comes from the line of Henrik Nelson of Nordea Markets. Please go ahead, your line is open.
Good afternoon. Focusing on Europe again. Last year you highlighted, I think it was four different extraordinary factors pressuring margins year-on-year then. Sticking to your rule of 10 basis points, I guess that would be 40 basis points margin pressure from those. Now you highlight two, but you're still down year-on-year. These are more specifically, are they related to the restructuring program that you're taking now? Also on the second point you highlight on Vision 2020. It's been highlighted for a number of quarters now as a factor pressuring margins in Europe. I assume those investments or higher costs will not increase on a never-ending basis. When should we assume that they will level out or that you're happy with the structure you've put in place? Thank you.
Hi, Henrik. I think when you look at the investments, we make those investments because we have belief in the strategy, and it is a number of countries, of course. We are in the process of building the capability to be able to bring and to deliver the protective services. I think that one significant difference today versus four or five years ago, like I mentioned earlier, is that today we have more of a platform that we can leverage, and that is obviously then very much related to have more technical expertise, the more technical profiles as part of the team who are then helping and also then driving the transformation. You also asked about the operational inefficiencies. There are a few countries where we've had a more challenging operating environment.
One of those is in France, where we have also seen that there are a few areas where we need to improve efficiency and in a number of cases, also the costs. I think that is one of the examples, but that is a combination of few things that we need to address internally where we need to do a better job, but where there's also some changes in the external environment. When you look at France, for example, there's also changes in some of the regulations and the laws that is affecting as well in terms of the subsidies which are declining this year with the percent when you look at CICE subsidies, and plan is then to abolish those next year. That is also then creating quite a lot of change in the external environment also from a competitive perspective.
I think that when you look at the restructuring program, and we make this now because we're not happy with the margin development, like I said. Big part is obviously to reduce costs, but it's also then to be able to help and continue to drive the transformation, also to free up some resources, also to be able to invest as we go forward. We're doing that then in a selection of countries, and also then looking at efficiency as well on a division level to make sure that we can become stronger as we go forward.
Okay, thank you. One follow-up, if I may. Are there any of the factors you mentioned as a margin pressure in the quarter, any of those substantially larger than 10 basis points?
No.
No.
No.
Not really.
Okay, thank you.
Okay, we have one further question in the queue so far. Once again, if there are any further questions, please dial 01. Our next question comes from the line of Karina Elmgren of Handelsbanken. Please go ahead. Your line is open.
Yes, two questions for me. The first one, sorry if I missed this, could you say what the organic growth in Security Solution was in Q2 and in H2? Also maybe a bit still on the restructuring. What was it that triggered it? Was it something that you felt you need to do to stop the margin to go down further? Is this an opportunity for you to start to increase margins in Europe or in the near term? That was my questions.
We are looking for the exact numbers on the organic sales growth in Security Solution. The major part of that was organic sales growth. What was your second question again? Sorry.
Yes, the trigger for the restructuring program in Europe, is it to prevent the margin to deteriorate further, or is it an opportunity for you to start to increase margins, or how should we view this?
Well, I think I mentioned that we are not satisfied with the margin. We believe that we should deliver on a higher level. That has been an important reason for undertaking this program.
Okay, great.
What has happened, basically, you could say, is that together there with a very fast increase in the top line coming from the refugee-related activities, that in the wake of that, our countries have started to recruit extra people and employ extra people. To say, and that has been a bit of a triggering point then where the cost started to grow faster than the top line, especially then when the top line was falling back from those refugee-related sales, and we were sitting still with the recruitments. We need to recruit also people to further work with the strategy. At the same time, of course, the gap that we took there in growing the costs faster than the top line, we now need to correct that. It's a correction to that. We would have liked to avoid it, I think, if we could.
It's not something we like to do. It has consequences on people, of course, and we really regret that, but it's something that we need to do then because we need to recover from the period there that the costs were growing faster than the top line.
Okay.
On sales growth in Q2, 17% was organically out of the 21% real. I mean, 17% compared to 21.
Okay, thank you.
Four was coming from acquisitions.
Thank you. There are no further questions on the line at this time, I'll hand back to our speakers for the closing comments.
Okay. Thanks a lot to all of you for dialing in. Like I said earlier, we have an investor update in September. Looking forward to hopefully seeing many of you there as well. Thanks a lot.
Thank you.