Earnings Call: Q2 2021

Jul 29, 2021

Good afternoon, everyone, and a warm welcome to our Q2 call. We are on the right path as a company and implementing our strategy with full force. And today, We are proud to present a solid set of results for the Q2. Q2 It's a strong quarter with solid results. We have been working quite hard over the last 18 months with sharpening the business And the transformation programs are running according to plan. And this work is generating results. Organic sales growth was 8% in the quarter and the comparatives from Q2 were obviously weak, But we have increased commercial activity like we commented after Q1 as well and momentum in the last 6 months is also improving. The operating margin improved to 5.6%, which is a substantial improvement versus the same period last year, but also when comparing with 2019. And the margin was supported by Strong performance improvement in all business segments and by returning to more normal levels of provisioning. And we are on par in terms of price wage balance despite the more challenging environment. In the U. S. In particular we faced a Greatly reduced applicant pool, but our team has been doing a good job in terms of recruitment and optimizing wages and prices together with our clients. So we've handled that quite well. There are still significant positive and negative impacts and effects from the pandemic. And if we're looking at the number of people on temporary unemployment that number is now down to 2,000 people in the middle of July compared to 4,000 people in middle of April. And growth in Solutions and Electronic Security, which is a very important focus area for us, has been very negatively affected by the pandemic, But we have started to improve in terms of commercial activity and also growth in the Q2. But having said that, We are not at the level where we want to be and this remains a very important focus area in the second half. And from a cash perspective, we had solid performance with SEK930,000,000 operating cash flow in the quarter. And we continue to execute on the strategy. So this morning we announced the acquisition of a leading company in Germany is called Protection 1. Protection 1 has built a very strong business which is specialized in remote technology driven security solutions. And Germany is a very important market for us and the Protection 1 business is right in the sweet spot of our strategy with the strong technology competence, client delivery and very much focused on the SME segment. And this acquisition will be accretive to earnings per share as of 2022. And we are very much looking forward to welcoming the Protection 1 leaders and team to secure with us hopefully in the next couple of months. So with that, let us then shift the performance in the different segments. And starting as usual with North America, we had a very strong performance in North America in the quarter with 8% organic sales growth and the growth in guarding was stable. And here this is Essentially thanks to recovery in the permanent portfolio which was offset by a decline of COVID related temporary services. The improvement that we started to see at the end of Q1 in electronic security and critical infrastructure services continued And this contributed to the strong growth on the totality. And Earlier, we had a reduction in COVID related extra sales during the quarter and we also terminated an aviation tracked at the end of the quarter and this will have a negative impact on the Garden growth in the coming 12 months. And looking then at the profitability, all business units contributed to a strong operating profit margin 7.1% in Q2. And we had stable margins in guarding and this as a result of recovery in the permanent portfolio and also the impact from declining extra sales. We had solid profitability improvements in electronic security, critical infrastructure Services and also Pinkerton that contributed to the highest quarterly operating margin actually ever recorded in North America. And This was the first time then that we have a margin that is starting with a 7%. So that we're very happy about. And we're also seeing A positive impact from the FMORAN electronic security acquisition that we closed towards the end of 2020 and the team and the operations are now fully integrated. So in conclusion, a terrific job done by our North America team. And turning then to Europe, we had a strong recovery also in Europe in the Q2. And the comparative from Q2 was very weak, but we are seeing a positive The impact from the easing of restrictions and lockdowns and improving commercial activity. Aviation improved versus last year, but we continue the contract review work in aviation to ensure that we have a strong and healthy business going forward. Commercial activity and growth in security solutions and electronic security improved in the last few months, but this remains an important focus area to rebuild full momentum in the second half. Looking then at the profitability, we had an operating margin of 5 point 5% in Europe and this also represents a very significant improvement versus last year, but also the same quarter in 2019. And here I want to comment and highlight that this is the result of an improved business mix benefit obviously from the cost savings program, but also returning to normal levels of provisioning that all supported the margin improvement. But the improvement in profitability was broad based and most Countries contributed. One consequence of the pandemic is that we've had an intention and a plan to invest in significantly more resources in to support the solutions momentum in Europe and that's essentially technical expertise and also sales. And this is an activity that has been negatively affected in terms of the ramp up during the pandemic, but we are now aiming to accelerate that investment pace in the next 6 to 9 months. So in conclusion, Our European team are still facing a challenging situation due to the pandemic, but are delivering and doing a very good job managing the business together with our clients. Shifting then to Ibera America and Spain was the main driver of the growth in Q2. We had more of a mixed picture in Latin America and the portfolio refinement activities in Argentina and Peru continue and this results in some pressure as well on the growth. Secured Solutions, electronic security represented 31% of sales in the first half And this was also positively supported by the Tecco acquisition and improving momentum in solutions. The operating margin in the quarter of 5.5 percent was a solid achievement in challenging market conditions and the The margin in Spain was supported by improving revenue mix, improving solution sales and efficiency gains related to the integration of Teco security. And while the portfolio refinement activities in Argentina and Peru are burdening the sales growth, we are also seeing a positive impact on the margin, Thanks to renegotiating or terminating lower profitability contracts. So looking at the total picture, very strong quarter by our So I think that concludes the overview of the different divisions and now glad to hand over to you Bart for Some more details regarding the financials. Okay. And many thanks, Magnus. Well, I think it's fair to say here that we have seen a good quarter, I believe, with a good development. And during this Quarter, we have further focused on managing any COVID-nineteen impact, and I think we have become better and better on that. But especially, we have continued at full force to implement our strategy and our transformation journey, and we also benefit from that. Now as Magnus said, operating margin was on 5.6% and that is well ahead from the 4.0% from 2020, Which had been affected by then back then by COVID-nineteen. And this operating margin of 5.6% is actually also well ahead of the Q2 of 2019 where it was NOK 5.0. And that we see as a confirmation of a good quarter. Then the operating income has been supported by around SEK 195,000,000 in related in corona related governments and grants in the quarter. But I should emphasize that these grants and support serve to offset The increased cost levels from the idle time. We have people on idle time and for that we get partially then compensated for the costs related to that We get partially compensated from the government. This amount of SEK 195,000,000 Was affecting all segments, but then with 3 quarter of that total amount within Security Services Europe, where actually we also have the most people on temporary unemployment. In earlier quarters, the amount of corona related government grants and support Was in Q2 last year, in Q2 2020, approximately SEK 350,000,000. And then in the following quarters, we have seen on average An amount a bit north of SEK 200,000,000, so now slightly lowering versus the earlier quarters. And this, of course, goes largely hand in hand with the development of the number of people on temporary unemployment schemes. And now as mentioned also by Magnus, in mid July, we have approximately 2,000 people left on temporary unemployment. If you remember, we started with around 10,000 employees on temporary unemployment in April 2020. We then in this year around 4,000 in January and we continued on that level to mid April And further in May as well, but start then to further reduce during June. And I said now in mid July, we have approximately 2,000 people left on Temporary unemployment. Then we move here to the acquisition related cost. Included in here some of the transaction costs related to the recent acquisitions as made during 2020 And the recent acquisition also of Brandechnik in Denmark. However, nothing included in there from the earlier announced today acquisition in Germany. We then turn to the line of items affecting comparability, and we accounted here In the quarter for minus SEK259,000,000 and of this amount then we have a cost of minus SEK 112,000,000 relating to Cost saving programs related to COVID-nineteen and then SEK 147,000,000 relating to the transformation programs. And that adds up then to the SEK259,000,000 for the quarter and that can be found, of course, in Note 7 to the report. And that then also means that for the first half year now, we have SEK 395,000,000 in items affecting comparability. And that all relates to the early announced programs and cost saving program. And I will come back in a second on some further detail for the full year on items affecting comparability. Turning then to the financial income and expenses, SEK 91,000,000 In the quarter and you can see here, of course, development from the SEK137,000,000 from the Q2 last year to now minus SEK91,000,000 in this quarter. And this was positively impacted by the favorable net debt development, lower interest rates and lower exchange rates compared to the Q2 last year. Moving then to the tax line at 27.0 percent And that is the full year tax rate as estimated versus 27.4% for the full year last year in 2020. So pretty much in line. And of course, we shall remember that this 27,400,000 from last year was a bit affected by Non deductible expenses from the exit from the 11 countries. Moving then to the next slide. And here you have Further detail on items affecting comparability. And as mentioned here, we have so far accounted during this year For SEK 395,000,000 in items affecting comparability. And for the full year, you can expect a range there of SEK 800,000,000 to SEK 9 And SEK 50,000,000. So let's say, on average, then an amount of around SEK 250,000,000 for the 2 remaining quarters each. And as of next year then going into 2021, it's only the last transformation program here related to Europe and Ibero America, Which is really still relevant and that should then be running on a speed of around SEK 450,000,000 per year assuming then an equal execution over the time period. Then we go to the foreign exchange development, And we consider here the effects from the different currencies on the quarter. And here we can see that there has been a substantial negative effect that is a head Wind from the foreign exchange during the quarter of actually minus 9% of the level of sales, As you can see from the difference between total change and real change in relation to sales. When taking out effects from foreign exchange, we actually have a positive then real change of 9% plus 9% on the sales line. And then there are even higher significant effects on the lower lines in the income statement. The EPS improved in real terms with actually 52% compared to The Q2 last year and EPS before items affecting comparability improved in real terms with 75% compared to the Q2 last year. Actually, both the U. S. Dollar and the euro weakened during the quarter, But then recovered somewhat towards the end of the quarter. And we can then see here that they were ending on minus 8% compared to the end of last Q2 last year and minus 3% each. And we see then a pretty similar effect actually for the first half year as well. If you then look at the sales line here, the total on minus €5,000,000 but a real change on plus €5,000,000 meaning then a headwind from foreign exchange of minus 10% on the level of sales. Moving then to the cash flow. And here in Q2, I think we had another good cash flow actually coming in of close to SEK930,000,000 as cash flow from Operating activities. The operating cash flow in the quarter was somewhat negatively impacted by an increase In the receivables, we had good collections with a good and stable number of days sales outstanding. But we shall add that the operating cash flow was, of course, a bit negatively affected by the higher organic sales growth. Of course, the comparatives from last year were very strong, but we shall remember that last year, we had a positive effect On the operating cash flow from corona related measures of SEK550 1,000,000 in the quarter And actually SEK 900,000,000 for the first half year in 2020. Now this year and this quarter, there was no real impact Any corona payment relief measures in the quarter, no positive and no negative, so no effect in this quarter. But by year end, we shall also remember that have to pay some amount back to the government, mostly there to the U. S. Government, where last year in our full year cash flow, we benefit from Around SEK1.3 billion, SEK1.4 billion as relief measures, positive cash flow measures then from the government in U. S. We got us a net support. And this repayment is split out over this year, 2021, and the other half in 2022. And the half for this year that we have to repay will very likely happen in Q3 now. So then we move to the first half year column and we are ending then the first half year with SEK 2.2 SEK 1,000,000 as cash flow from operating activities. Capital expenditures by itself was SEK 1 point SEK 3,000,000,000 in the first half year and that is trending then to around, yes, 3% of group annual sales for 2021, including all effects from the transformation programs and including also leases for IFRS 16. So we end in the first half year with SEK 1,173,000,000 in free cash flow. We then move to the net debt. And the net debt ended at SEK 15,600,000,000 and that is up SEK 1,300,000,000 from the opening at SEK 14,300,000,000 We had a positive free cash flow of SEK 1.173 billion as just mentioned on the previous And then an amount of SEK 295,000,000 has been paid for acquisitions and we paid a bit over SEK 411,000,000 in items affecting We paid a dividend of close to SEK 1,500,000,000 and that then all of that added in up Together in net debt deterioration of SEK 916,000,000 mostly affected then as you can see here from the paid dividend. And then of course, there is a well, there is a further negative effect from revaluation and translation. And then with that, we end the net debt on SEK 15,600,000 at the quarter end. As you can see here To the graph, we entered the net debt in relation to EBITDA on 2.2% compared to 2.1% at the end of 20 20 1 2020, sorry, so continued strong number leaving a lot of headroom. And then we move to the debt maturity. And I think it's fair to say that we are backed up with solid financing. Our rating has been confirmed here during the quarter by Standard and Poor's to BBB with a stable outlook. We had good liquidity at the quarter end of SEK 4,200,000,000. And we have, as earlier said, also renewed The RCF and extended that actually now as well in 2021 with our 10 core banks. And this RCF is for a total amount of or close to SEK 10,000,000,000 right now. The original facility was for 5 years and we have now in April With 1 year to 2026, and we actually have another option to extend it next year for another year than to 2027. The RCF is fully undrawn at quarter end, and we have continued to have ample headroom, as I said, in our rating, And we have no financial covenants in any of our facilities. And with that, I would say that based on the strong balance sheet With then the net debt to EBITDA at EUR 2,200,000 and with our solid financing in place, I think we are very well positioned for the future and in a strong position to accelerate the further transformation. And so I can now hand back to you, Magnus. Thank you very much, Bart, for a good overview. So while we're delivering a strong performance, We're also maintaining a high focus on the transformation programs. And we're progressing according to plan with these programs. And just to recap a little bit because there are no new Announcements made now it's more about executing what we have previously announced. We're finishing the first two programs in North America and Global IT towards the end of 2021 and now shifting the focus toward value optimization and to ensure then that we deliver the targeted impact in 2022. And the COVID-nineteen cost savings program continues, but as Bart Indicated earlier, there is some uncertainty regarding the timing of the end of this program. But a number of the actions that we have undertaken during the last 12 months contribute to reduced cost levels and also sharper focus in the business. And as an example, we exited 9 markets in a 90 day period around the end of 2020 beginning of 2021. We have exited one more since then and then expecting to exit the last market fairly soon and That would also mean that that program which is also helping us in sharpening the business will also then be completed. With the programs in Europe and Iberia America, we are completing the modernization and transformation journey that we initiated a couple of years ago And this work is progressing according to plan and we'll come back with further updates in the coming quarters. So I think with that we can sum up the quarter and we had a strong Q2, broad based improvement across all parts of the business And this is coming as a result of continued sharpening of the strategy and the transformation programs and also of course improving market conditions. And we're looking at the key financials 5.6% operating profit margin and 50% real change in operating income. But before we open up for the Q and A, I just wanted to share one last message and this is obviously the last quarter that we are reporting under Bart's watch as the CFO. And Bart will remain with Securitas until next year, But you're officially stepping down on the 15th August from the CFO role. And I just wanted to say Bart to say thank you on behalf The entire team at Securitas for outstanding contributions as a person and a professional in the team over many, many years. And we are on a good path as a company and you've had a very important role in this development. But I would also like to take the opportunity to welcome Andreas. And Andreas has a very strong track record in and knowledge of our business, strategy, driving performance and finance, and really looking forward to welcoming you into the new role towards the middle of August. So I think with that, wrapping up the presentation part and happy to open up for the Q and A. Thank you. And we have a few questions in the queue. The first is from the line of Rahul Chopra of HSBC. Please go ahead. Your line is open. Hello. Thank you so much for taking my question. I have 3 questions if I may. First, can you give us a sense of what is the wage inflation in the U. S. Is doing? Maybe some steer of numbers and maybe some comments on your ability to maintain price which balance if the labor scarcity continue. Secondly, in terms of the margins, could you give us a sense of basically margin mix, What was the mix given by portfolio refinement program versus the mix effect and probably also remind us the benefit of provisions This was last year in terms of Comtech. And my final question is in terms of idle grid time. So you said that there will be corona related payments back to U. S. So just wanted to understand the margin implication or is it just Cash flow impact on that. Thank you so much. Thank you. So I can address The first two here maybe you Bart want to take the last one related to the U. S. Payments. So first of all when you look at the U. S, Yes, it's been a challenging period. And as a combination, I mean, obviously related factors when you look at The scarcity in terms of the talent pool and that is something that we started seeing around 3, 4 months ago with a more significant impact. First of all, We have managed through that in a really good way. And that is obviously thanks to the team that we have, but it's also Just to mention one specific point as well, we also have better systems and tools to also be able to manage ups and downs in a much faster, more dynamic fashion. So I think it's a combination there of very good work from the team together with the clients, but also then the support that we have and a lot of that is also actually coming out of some of the investments that we have made as part of the North America transformation program. I should also highlight that when you look at Securitas, I mean we are not A cost leader in the business, we are a quality and innovation focused company. I think that's the reason that clients Choose us and that also means that we are not at the very lowest levels in terms of wage. And that has also helped us quite significantly when I look in the overall situation. It has been challenging, but the adjustments that we had to make and have for that simple reason not been that dramatic even though we are seeing a higher inflation environment in general. But I think one other point which is important to know as well is that some of the federal programs are ending in September And that will also mean that the incentives will also be stronger starting in the next 30 to 60 days to actually apply for a job and departure the job market as opposed to rather enjoying some of the support that has been provided due to the extraordinary circumstances. So I think that I hope addresses the first question and then I think you also asked about the margin mix. And this is a very important point and one of the main drivers behind the improving results that we see in the second quarter. We have been working hard and we've spoken quite a lot about the aviation segment and I think that is a good example where we have made really good progress where yes, we have a smaller business today and we'll most likely have a smaller business in the near future. But what we have is a significantly higher quality, I. E, better margin and more sustainable contracts where we are able to invest and provide good quality to the clients, but also to make a decent return. That kind of a mindset we're also taking across the entire portfolio actively working with what we call portfolio management to make sure that The business that we have should be good healthy business. And some of that work is long term work. But I think one clear message from my side is that we are fully focused on the quality of the portfolio and not so much about Just driving volume, I mean we have good critical mass in most of the markets where we operate and We want to make sure that we have good quality on the portfolio and even if that comes at the price of some of the growth. Solutions are starting to improve and we had some improvement in the Q1 and that was a stronger improvement when you look at Q2. Too. So solutions and electronic security we had 11% real sales growth now in the second quarter We feel good about that because this is obviously an area where we are investing a lot and also have high expectations as well in terms of shifting the overall margin mix and the revenue mix in the years to come. So that is a positive step in the right direction, but not really there yet in terms of the momentum that we want to have to be able to hit our longer term ambition. But it's been a tough period with COVID since we haven't been able to visit many clients on-site etcetera. And then I think there's just one last comment I would like to make about the margin and that is related to the extra sales. I mean we are still operating with extra sales which are a little bit higher than a normal Q2 If you compare them back to 2 years like 2018 2019. But the extra sales are a little bit lower now than what we have seen in previous quarters And that is essentially primarily driven by some reduction like I mentioned at the beginning in the COVID related extra sales in North America while we have slightly higher extra sales still in Europe. So there we have both positive and kind of negative. But on the other hand, we're also seeing a recovery in the permanent portfolio and that is then also helping in offsetting and if that trend continues for the next couple of months with extra sales decline related to COVID. I mean then we are expecting that we should also have decent the continuation also of the permanent portfolio recovery as well. So I hope that addresses the First two questions, they are fairly broad questions, but I hope that gave some flavor and maybe Bart if you want to take the last one on the payments related to the U. S. Thanks. Yes, absolutely. In the first one, can you just confirm that the wage inflation you're referring, is it closer to 7% to 8% You're what we are seeing in the BLS data or is it some or is it similar lines? Can you confirm us? It is. It's So from our perspective definitely less than 7% or 8%. I don't think that we are publishing the numbers specifically, but it is significantly lower. But there is variation if you look at different parts of the U. S, Difference in situation, but I think one important thing is that I mean our team really focused on quality and innovation to the clients. We are not really at the lower levels in terms of wage. And for that reason, we also have been in a better position and more resilient and been able to also maintain strong continuity in the delivery to our clients also in a more challenging period. I can provide a bit more flavor there to the data point around that. I mean, we always say In the longer term, on average, our wage increases in the U. S. Are around 2% and that is in worser times 1% And in good times, 3%. And in 2019, we also commented actually remember it was also quite heated market back then That we were above the 3% also, that we were outside that normal range based on the then heated situation. Last year, we were back to pretty normal year. And then this year, we are again a little bit outside that range, but it's not that we are on a different planet. We basically Forecast that also then for this year, we will be a little bit outside the range of 1% to 3%, but nothing more than that And as Magnus commented, we strongly believe that we have been really helped by the implementation of our new systems To manage this situation and secondly also by our portfolio, existing portfolio focusing On good clients as well that basically are not entirely focusing on price only. So that is important to understand. When it comes to the provisions, Yes. Last year, we commented that we took extra provisions related to potential risk that we saw, mostly related to potential bad debt. I can confirm that there has been no reversal of any of these provisions. So Everything is in the balance sheet still as we still are unsure about the final outcome of COVID-nineteen related To any of those matters. I hope that answers your question. And then the other question on the cash flow. So we have had cash flow relief measures from different governments, which do not impact at all the income statements. So they are independent From the income statement and this cash flow relief measures in the U. S. Then mostly added up to SEK1.3 billion at year end 2020. We will have to pay half of that during this year in Q3, as I mentioned, very likely and then the other half During next year and with the half then I mean half of the SEK1.3 billion, SEK1.4 billion I mentioned before. But that has nothing to do with the income statement. That is pure on the operating cash flow side. Understood. Thank you so much. Very good. Thank you. Thank you. Our next question comes from the line of Erik Paulsson at Nordea. Please go ahead. Your line is open. Yes, thank you. So first of all, our thinking about the strategy to double your security solutions and electronic security sales by 2023. And obviously, this new acquisition of Protection 1 helps a bit on this journey, but still you're quite a bit far from this of doubling it up to SEK 40,000,000,000 in 2023. How do you feel about this at the moment? Yes, thank you. It's It's a very important reflection. When you look at the last year and a half, It's no secret that this has been a challenging period to drive electronic security, but also then to convert client base into integrated solutions because all of that work requires that you are or most of that I should say that you see the customers to do a site visit risk analysis and that we have a good understanding of what are the risks and the needs that we are building a strong solution for. So I mean if you take a hard view you can kind of say that we lost a year and a half on that journey. That means that the ambition which was quite an ambitious ambition when we set it and communicated end of 2019. I mean that's become a taller order. But then on the other hand I should also say that I mean we are taking a lot of initiatives to drive solutions of the business and to really rebuild this and we're doubling down in terms of the efforts across all divisions Starting to have some positive movements, but this is obviously also one of the main focus areas for us to make sure that we are really rebuilding to Strong double digit type of growth in this space because that would be needed to really make sure that we're on the right path. Electronic Security, Very happy about the acquisition that we have announced this morning. And this is an area where we are continuously also working and scanning for good opportunities. And that is a focus here which is as high on the agenda as it's ever been. And that could obviously also have an impact as well in terms of our or it will have an impact I should say in terms of our ability to hit the doubling target in 2023 or not. But I hope that gives you some flavor. That's the way that we look at it, But we will come back as well with further updates along this obviously how it progresses and how we are driving the progress here. The longer term vision there is no doubt about. I mean we are really driving the business to become A lot more of a solutions electronic security focused company with very drone protective services capabilities. There is no doubt around that. So I mean that we're continuously driving, but it has become a taller challenge to be able to hit that one. Understand. And just a final one also on you mentioned there on North American airport contract, which you had ended there and That will affect your guarding business negatively for the next 12 months here. How large is this contract in sales you? Yes, so that contract was around $50,000,000 on an annual basis and we terminate that towards the end of June. So that means that I mean in the second half there is then around 25,000,000 dollar negative impact compared to the previous year. So that is a fairly significant one, But it was a lower margin contract. It would have been a low margin contract. And for that reason, I mean, we are focused on quality and margins. And for that reason, I mean, we can just reflect then some negative impact on the top line. Okay. Thank you very much. Thank you. Thank you. Our next question comes from the line of Shamana Shale of Bank of America. Please go ahead. Your line is open. Yes. Good afternoon, gentlemen, and thank you very much for taking my questions. So I have Few follow ups. So you mentioned that you didn't reverse any provisions in H1. Assuming that the situation stands as it is, what could be the potential Reversal and margin impact in the second half of the year. Secondly, for your existing employee base, When do you usually renegotiate wages and how does that work? And lastly, one clarification On government grants. So if I understood correctly, in Q2, it was the magnitude of these government grants was Pretty much similar to Q1. However, looks like the people that you had on a temporary unemployment scheme Significantly reduced over Q2 versus 4,000 people in Q1. So how do we square that In terms of a similar magnitude of government grants and also an acceleration sequentially in organic growth? Thank you. Yes. So maybe I can take the last 2. And Bart, if you don't want to comment on the provisions. And then to the second question about the employee base, if you generalize, you can say that In North America, it's more of a dynamic environment in general, where we would be doing more Dynamic changes in terms of wages to make sure that we are attractive as an employer and that we are Incentivizing and retaining good people, but less than CLA based in terms of collective bargaining agreements or labor agreements. Mentioning those in Europe it's more of an annual cycle and that is the type of work that we are going through Every year we have a strong track record in terms of balancing wages with price increases. But we should highlight that if you look at the last 6, 18 months because of the pandemic, there's been more of a extraordinary situation with some delays of some of those agreements, but also then a more kind of dynamic environment and also expectations going into 2022. So this is an important focus area for us, but those are roughly the timelines. I should say that with the environment that we have this is a very important focus area for 2022. And in Europe a lot of that would normally be in the first half for the year, but always with some exceptions, but the majority We'll be there in terms of the wage negotiations, but we are also in light of Some of the COVID related impact and also then planning quite a lot for this now in terms of How we manage this across all major markets, but with a lot of focus in Europe and North America to be able to do this in a strong way. So I hope that gives some flavor in terms of the second question. If you look at the government grants, yes, your reflection It's correct in terms of the number of people, but the number of people on temporary unemployment has also moved quite a lot within Q1 and within Q2. And so when I look at the 4,000 people that was in kind of a middle of April number and the 2,000 people is a middle of July number. But then there has been movement throughout these quarters where I think if you average Them out in terms of the number of people on temporary unemployment relief they would have been more similar as well which is also in line with more similar grants I mean, there was a time when we had around 10,000 people in the spring of 2020 on temporary unemployment and that I mean now we are quite far from that and going in a much better overall direction, but then it does depend a little bit also on how the situation is developing now primarily in Europe, partly also in Argentina in the next couple of months. Bart, do you want to take the provisions question. Yes, exactly, Magnus. On the last question there, I can confirm that the 4,000 people And they moved into 2000 mid July from 4000 mid April. That decrease largely started to happen only in the month of June. So I think that explains then why you see similar level of government grants as Magnus also explained. On the reversal of provisions, it's just too early to have a view on It's too early to have a speculation around that. We believe that at this point in time, it would be too early to say, well, all of COVID-nineteen has been digested now. All our clients are entirely back on track. The economy is basically where it was business as usual. I think it's still we think as a company that it's still too early to say that. So we will come back to that when we have taken that more Particular view, but that is a judgment we make together with our auditors, of course, as well. And at this point in time, it's just too early To have any speculation there. When you look back, you could think we were maybe thinking in Q4 last year, okay, COVID-nineteen, that will be gradually going down now. And by mid next year, then where we are now, mid-twenty 21, everything should be over. But we see that there has been resurgence during Q1, Q2 instead of going down. There was resurgence. A little bit the same thing happening now, some resurgence. So I think the overall direction is very good on COVID-nineteen with the vaccination, but it's still too early to say this is the final view on this. So, like, yes, anything else would be speculation right now. Okay. Thank you. Can I ask then a follow-up? Then how should we think about margins going into the second half of the year? And what are The moving parts that we should take into consideration. Thank you. Yes. On the margins, basically, If you leave out these provisions, the effects from these provisions, we have clearly commented on these provisions as well During 2020, when we were taking and the amounts we were taking there. So basically, you should isolate that effect from the results and from the margins. There has been no positive effect whatsoever in this quarter margin from any reversal or so. So also that is just a pure margin then from that perspective. There is no positive effect in our results from the temporary unemployment measures that we get From the government because that is offset by equal cost. So everything else is more or less business as usual. Of course, important questions will continue to be A little bit the level of extra sales, what happens there? The effect from our normal business as usual, wins and losses in our portfolio, The effects from how well can we still manage the price wage equation, basically the normal questions that we always have on the table. And then you could see our focus is really on profit improvement rather than organic sales growth. Magnus has commented Quite elaborate on that. That is really where we want to focus. And that is, I think and then on top of that, we hope to get more traction again In the Security Solution, Electronic Security side of the business as well. So it is hoping to return to business as usual and further execution Of our normal strategy and that should drive the margin. Okay. Thank you. Thank you. Our next question comes from the line of Andy Grobler of Credit Suisse. Please go ahead. Your line is open. Hi, good afternoon. Just 2 from me, if I may. Firstly, on the U. S. Or North American transformation program, which is kind of coming towards its end. Can you comment on any benefits that accrued through the first half of this year and kind of what your expectations are For the full year from that program in isolation. And then secondly, for Bart, just in terms of the interest charge, that's remained, I think lower than consensus expectations in the first and well in Q2, what are your what's your guidance for the full year as of now for Cash and P and L interest charge, please. Thanks, Andy. On the U. S, I mean, when we communicated this, we said that we're going to achieve our objectives that we then communicated with There was really impact there in 2022 and with some gradual impact starting at this point in time and that's essentially what's happening. There is not a lot What's happening? There is not a lot of impact, but there is some. And that's very much due to the nature of the work that we have been doing in terms of fundamentally upgrading Our systems and applications to be able to run the operation more efficiently to have better tools for our People in the front line are working with our clients and also then closest to our people. And we can also I mentioned one comment earlier on the question related to the wage inflation that we're also seeing as one practical example that Better systems and more kind of intelligent support from the applications that we are running now It's helping us to run the business in a better way and that was the overall promise of the transformation program from the beginning. And we have done some very important transition work. If you look over the last 8, 9 months in terms of the business in the U. S. Where we hit a number of key milestones in terms of transitioning on to new systems covering all essential parts of the business from payroll to billing and how we integrate everything to run the operation more efficiently. But then also now shifting a lot from kind of transitioning over systems to now Really make sure that we are realizing the value from this and therein I mean there is still quite a lot of work for us to be done and that is now for the team in North America. That's the highest area of attention and focus. So While we were previously kind of planning for a lot of the upgrades and migrations and the detailing a lot of this, Now it's more focused on value realization. So when you look at this some early benefits We expect this to increase throughout 2022 so that we are able to hit the targets and objectives that we set. Bart, I assume you want to comment on the interest the lower interest charge. Yes, absolutely. Last year, we had for the full year financial items of SEK 500,000,000. And now for the first half of this year, we have SEK 185,000,000. Yes, we are working with an assumption there for the second half of the year So that we would end up the full year around 4.20, 4.30, Andy. Thanks, Bart. And why the increase in the second half? Well, increase basically because we have paid a dividend now In the Q2, but that was there only in the middle of the quarter as well. So that will affect a little bit. We have the acquisition announced, which Unfortunately, also have to pay. So that will charge us with some interest rates. So that is basically where we could think as a running rating and for the full year, 4.20 something around that 4.20 I would say, yeah. Thank you very much. Thank you. Our next question comes from the line of Neil Tyler at Redburn. Please go ahead. Your line is open. Yes, hi, good afternoon. A couple of questions, please. Back on the topic of the transformation programs And I suppose in the context of the Hawaii airport contract that you've talked about, can you give us an indication of Any indication of what proportion of revenues remaining in the business still stem from contracts where either you think the margin Is unsatisfactory or where the terms of those contracts Lee, you exposed the margin, should costs inflate or circumstances change. Any indication either overall or by region would be very helpful, but I assume mostly What's left there will be outside of North America? And then just secondly, probably an easier question. In terms of the in the Solutions business, the installations business in North America, can you give us an indication of Where that stands revenue wise relative to 2019 currently? Thank you. Thank you. So if you look, if I understood your question correctly, on the aviation side, we were Back in 2019 around 7% or 8% of sales on the totality And then I think we had around 12%, 13% in Europe. If you're looking on aviation overall, I would say that We are probably going towards a situation where we're going to have 1 third less of overall business compared to 2019 And that is the business that we would have terminated or we terminated together with the clients because of, yeah, essentially not a healthy margin situation. So that's probably where we are trending right Now the progress has been good in this space. Quite a lot of hard work, but we also have a lot of respect for the clients. So when you look at the early So this work in the middle of the worst periods of last year, I mean the clients also had a lot of challenges. So we also took a You know the approach that we need to build something. I mean we need to manage the short term, but then we also have to make sure that we are building a sustainable business for the long term. And I think that's something that most clients have also recognized and appreciated. But that has meant that we have then gone through a significant part of the portfolio now. There is still some remaining And I think if you convert it into SEK 1,000,000,000 well that means that there is still Probably a few billion, but if you look a year ago it was several SEK10000000000 that we still had ahead of us. And I think now we are more coming in towards the kind of the last third of that process. And So if you look at that, yeah, long term impact, I think we are trending towards roughly a third less of aviation business, but The business that we have then is going to be good quality business with healthy margins where we can deliver and we can also invest in the quality through to the clients. And then on the second question, I think you asked about solutions in North America, if I understood that correctly. Yes. And specifically the installation business, because I know that's the ground pretty much to a halt for a period of time during last year And has picked up since, but I just wonder if you level of activity relative to where it had been. Yes. So if you look at that, I communicated after Q1 that we were starting to see an improving conditions overall in terms of the commercial activity That has really continued as well in the Q2. So if you're looking in the Q2, I mean we had The strong double digit organic and stronger even real sales growth I. E. Also when then looking or including the especially then the F. V. Moran acquisition in North America. So we are At the much healthier pace now compared to 4 or 5 months ago and that is really a continuing trend from I would say the end of the Q1 where we started to see that and that has really continued and now at the stronger momentum in the second quarter. Great. Thank you very much. Yes. Specifically on the installation side there, Yes. The organic sales growth was almost driven then for the total division by a little bit less than 1% from the installation side. Okay. Fantastic. Thank you. Thank you. And we have one third question in the queue. And that question comes from the line of Oskar Wahl of JPMorgan. Please go ahead. Your line is open. Yes. Good afternoon, Magnus and Bart. I have two questions. The first one on the Extra sales. So it's declined a bit 16%, but it's still above the 14% from 2019. Can you just remind me of those extra sales? How much is COVID and how much Is the events in travel coming back? And is there any visibility for Q3 for Extra sales? When should we start to think about that business Going back to normal. And then the second question is just around your North American your large North American competitor. Have you seen any change in behavior in terms of pricing now that they're integrating the big acquisition? Yes, thank you. On the first question, it is an interesting one for us and we're following every month and also analyzing and discussing with the clients in terms of the demand. If you look at the dynamics in the second quarter, We did see a decline or really starting to decline in North America, the COVID related extra sales, But then still at a fairly high level in Europe compared to a year ago. So we're looking at slightly different dynamics there when you look at the extra sales related to COVID. I would say that in the short term, I mean, we I would almost expect that we will probably see a faster decline of The COVID related extra sales before we see normalization of the normal type of extra sales that we will typically have had we not had a COVID situation. And that is then related to what you correctly highlighted specific events or activities that we are driving throughout the year in a lot of activities that could then be more considered as kind of one off activities. So Giving a guidance on that one, well, it has been fairly stable on the totality and the rates if you're going back to kind of June last year up until now, but we are then starting to see a negative trend in North America as society has been going back to normal and I think that's as much as we can comment in terms of where we are right now. Obviously, we are all hoping that The societies will be able to go back now to more normal ways of working, but unfortunately seeing a number of indications that we still have sometime ahead that will require quite some adjustment in terms of how we all live and travel. Okay. Quickly as a follow-up, have you ever have you given or can you give the amount of extra sales in Europe versus The U. S? Yes. So I think if you're looking at Europe, it is in the kind of the high teens Around 18%, North America in the same quarter similar. If you're looking at the quarter in totality. I think if you're looking on the company level, We were probably around 17% last year and I think closer to 16% this year. So on the totality is around 1% lower overall. And then on the question about competition, I yeah, We are very focused on the work that we are doing, but obviously have noted and well aware that there is some changes in the marketplace there. I mean, from my perspective, we have a very strong offering, very good team, Very strong client relationships and always kind of a dual dialogue with the clients in terms of this is what we're delivering today and this is is how we're looking at how do we develop the relationship and the value to you over time. And I think there we are on a very Good path and journey in general. I do believe it is important when looking back over the last 15 months Security services extremely important and have been deemed essential services in most and that has been a really good feeling also for looking at the hundreds of thousands of people that we have in our team. People have really stood up and done a phenomenal job and fulfilling an important role in society. I think as the industry leader, I mean Securitas, we should always drive quality, we should always drive innovation and we should always charge for that as well that value that we bring. So we will never be the one that is kind of leading a race to the bottom here. We are rather on the opposite journey to make sure that we are continuously increasing the value and the content of what we deliver to the clients. And that is what we are doing in the relationship to the clients, It's also what we want to do in the relationship to our employees as well. We want to pay them more and we want to have better people, Better opportunities and benefits, but also then clients that are willing to pay for that. And that is really the journey that we are on, but then at the same time Putting a lot of emphasis on the protective services that we have. And if you're looking at that in North America with electronic security, our on-site mobile and remote guarding. I mean we have a really strong proposition and that is really what we focused on bringing to the market. Okay, great. Thank you. Thank you. And we have one further question in the That's from the line of Anvesh Agarwal at Morgan Stanley. Please go ahead. Your line is open. Hi, guys. Good afternoon. Just One follow-up on the provisions. I know you've been asked a lot on that, but I appreciate there has been no sort of reversal of any provision from last year. But if I remember correctly, in last year's Q2, there was like €300,000,000 of provision that you would have taken. And presumably, this Quarter, you have not taken anything. So if you can just tell us like how much the actual provision in P and L is lower versus last year? And then any specifically within North America, how much of benefit you have got from that? So not just from the reversal, but just in the absolute terms of So, in absolute numbers last year, As also written then, we had SEK 300,000,000 in provisions, and that was outside our normal provisions. So that was Extra provisions compared to our normal levels of provisions for different matters. In this quarter, we have our normal levels Of provisions hitting the income statement in all of our business segments. Okay. So There is no additional provision. And how much of that is in North America, if you can quantify? There is For this year, there is the normal level of provisioning Compared to in the income statement, compared to any other year, so to say. So business as usual. In what is your second question then? How was it spread? Was that the question? Of the 300,000,000 Americas specifically. About half of that. Okay. Well, that's all I had. Thank you so much. Thank you. Thank you. As there are no further questions, I'll hand back to our speakers for the closing comments. All right. So a solid quarter. All in all, thanks a lot to all of you for joining us for the call today. Thank you. Thank you, everyone.