Hello everyone. Securitas calling, and we would like to present to you the second quarter of 2017. If we just give you the quarter in summary, I said it's a pretty decent quarter. It's pretty much in line with what we expected ourselves, and very much the same story as we conveyed a quarter ago. So not very many breaking news, but still a few minor things which we would like to highlight. We are happy we're still growing. We are growing on top of very tough comparatives this quarter, both in North America and in Europe. But even so, still 3% growth, so we'll come back to that, but what we think is good.
And we also, we've had in the quarter we had a positive growth, actually, in Europe, which we didn't expect. It was a little bit better than we expected in the quarter, in spite of the tough comparatives. The operating margin pretty much in line with last year. We'll get back to the details there, and we improve the in real change in without the FX, we still improve the earnings per share. Cash flow was okay in the quarter, but we'll have a good cash flow now in the second half of the year. So, yeah, we should reduce the leverage now when we come by the when we are coming closer to the end of the year. The numbers you see, they are I guess you've already seen those.
I can come back to that in case you need to. We can also mention that we have a little bit lower tax rate than you have usually seen us having. So, that is the mix, let's say, of a different taxations throughout the group and also a little bit more positive development on the tax rate. So, that is a little bit lower, and that has an impact in the quarter but also on the year-to-date number. So a little bit lower there on the tax rate to be used, let's say, going forward. In North America, we have on the growth side very tough comparatives. We had a lot of extra sales in May and June last year. So that's why the growth is on 2% this quarter.
If we wouldn't have had that and would compare without it, it would be 4% or even a little bit higher than 4%, actually, in the quarter. But that was just the peak in Q2 last year. So now when we come to the coming quarters, we'll get back, so to say, to normal on the comparatives. So good activity in the North American market. A lot of things going on. We see no, no signs of any reduction or decline in the market activities. A lot of tenders, a lot of customer activities, a lot of meetings, very good interest of a combination of electronic security and manned guarding.
And we are now spending a lot of time with existing and potential clients explaining and marketing our story because we've done all the integration work of a Diebold acquisition, and now we are on the marketplace telling our story. And that is giving us very good traction and a lot of activity on the tender phase. So good activity in the North American market, good market activity, no signs of decline. What we do see is a little bit more wage inflation in North America, and unemployment is coming down in North America, in the US. And I would expect to see a little bit more of wage inflationary increases on prices going forward. We've said that before, and that those signals are getting stronger and stronger.
In a good macroeconomic situation with a booming economy, that is usually not a problem. So if we would have a little bit higher wage inflation, we would increase the prices accordingly. And sometimes that's even good news when you get a bit of leverage on your indirect cost. The margin was very good in the quarter. We had a tough quarter to compare to, because Q2 last year with a temporary extra sales had a very good margin. So but still, we are improving 0.1 on the margin compared to last year in Q2.
And the support we had last year in Q2, helping our margin in last year is basically equivalent to the one-off releases from various different cases that we've had that we released in Q2 this year. So those two extras, the one last year from extra sales and the one-offs this year, are basically of the same size, meaning that with or without that, we improve the margin 0.1 in Europe, a little bit better situation than we ourselves expected. We were on 0 before, and we are that year to date. But a little bit of growth in Europe, good activity in the marketplaces, still tough comparatives. We're going to face tough comparatives also in Q3. I'm not going to speculate what our growth rate will be in Q3, but we still have tough comparatives.
But we have good new sales in Europe, good activity in a number of markets. So, we still believe, and the same message as we had in Q1, that we will have a gradual recovery towards the end of 2017. And if you, so to say, add the two years together, then you see that we are growing faster than the European security market, which is growing in the 2%-3% range. And North America, I forgot to say, but that's in the range of 4% or 4%+. So, in all, if you add it all together, we are still growing faster than the market given and very much driven by that we have a strategy which is better than most of our competitors, simply. Margin also very much in line with what we said in Q1.
We have taken actions on the operational overcapacity. Some of those resources are now being discontinued in Q2 and gradually more and more so in Q3 and Q4. We start to get more fully effective at. We will have no restructuring costs related to that. The ones we had were minor and managed within the reserves, so to say, that we had allocated for such things or other things. We could use those, that space, so to say. So those actions are taken on the cost side, and we will have a gradual support of that in the quarters to come. Yeah. But some of the overcapacity we will also keep, because we see we will expect a recovery on the sales side towards the end of the year.
Other than that, it's basically the same situation as it was a quarter ago. In North America, still good growth, a little bit tougher macroeconomic situation in Latin America. Argentina is in recession. How that will impact us, difficult to say, but still, it's still a concern that the macroeconomic situation is weakening in Latin America in general, very much because of indirect impact of Brazil situation and Argentina in poor conditions right now. Even so, we still grow well, very much driven by inflation in Argentina, in all honesty. But even so, I mean, we're doing well on the growth side. So, what has been very encouraging is the situation in Spain and Portugal. We have had very good development in Spain and Portugal.
One important explanation of that is that some of our competitors have gone bankrupt or are in difficulties, and those customers are then switching supplier, and we can then benefit from that. So we picked up a number of contracts, actually, during Q2, especially in Spain, from one large competitor going in liquidation. And that's helping our situation. So we are growing in Spain 7% organically first half, and the market is more like 1%-2%. So good development in Spain and but also in Portugal, historically good numbers for various reasons in Portugal. On the margin side, we have difficulties in Peru, same as we had in Q1. We have taken actions, there.
We are reducing cost, and also, yeah, taking all actions that we can to on contracts which are not good enough or indirect costs that we can reduce. So we have been loss-making in Peru all the way up till the end of May. June was black numbers, black figures in June, in the month of June. So hopefully, the situation will now during the second half of the year be improving in Peru as we turned it around in June. So we expect that to last and that the performance in Peru will be better the second half than it was in the first half when we lost money. Yeah. Cash flow okay in Q2, better than last year, but okay.
We expect to have a very good cash flow now in the second half as we usually have. Net debt is just a mathematical consequence of the cash flow. The dividend was paid, of course, in Q2, so that's a big chunk of money. Translation is positive to us. But still, the leverage EBITDA to net debt is not dramatic, but it will be reduced now. The leverage will be reduced when we come towards the end of the year. Of course, our strategy that you heard many times. We keep executing that. So we keep, we have a good pace in the electronic security sales, and the relative share is improving. So that is moving on in a good way.
We expect it to continue to be a high pace of growth in that piece of our business during 2017. But the final number will be disclosed after in Q4. All right. So that's the short version of the Q2. So we'll see if we have any questions. Please go ahead.
The first question comes from the line of Srinivasa Sarikonda from HSBC. Please go ahead. Your line is open.
Hi. Good morning. I have a couple of questions. First on U.S. What are the underlying margins in U.S., this one-off, in this quarter, and last year extra sales? Will this continue going forward?
Well, in the U.S., I mean, we had the margin supported, I would say, 1.1, 0.2 last year by the temporary sales, high margin, development last year, and the same of the one-offs this year. So they even out. So you need to take that in consideration. And then you look on the seasonality of the quarters in the past, so then you get the pattern from there. So it was even so, even if no matter how you calculate and I was trying to explain before, if you take it with or without the extras of both quarter Q2 this year and Q2 last year, we still improve the margin 0.1.
Okay. But going forward in Q3, Q4 are probably the next year's quarters.
Yeah. But I'm not making any forecasts. I won't give you a number for the coming quarters. But I mean, we have a good margin development in North America. And I mean, all in all, however you calculate, we improve the margin in North America. And so margin has been gradually improving over the past years. And year to date, we are improving margin 0.1%.
Thanks. Got it. And Ibero-America, Peru is just like 6% of your business there. So what other factors are dragging your margins down 30 basis points in this quarter?
Sorry. I didn't get the question. Could you repeat it, please?
So Peru is just a small part of your relatively small part of your business.
Yes. But what other factors are causing your margin declines in that segment?
No, I mean, it's Peru. I mean, basically, it's all Peru. Peru has, it's a small part of our business, but we have had severe losses. And due to the situation that there has been a very tough price pressure in the marketplace, and we had to adapt the cost structure for that. So we have taken costs during Q1, Q2 to adapt the structure. And all the losses of the business, the adaptation of the business to reduce the size of the business and to lay off people, that is what has caused the losses. And those losses even if it's a small part, those losses on the margin is basically the whole difference of why we have a lower margin in the division, compared to last year.
Now we turned it around. So hopefully, it will be black numbers during the second half. That's why it looks as June was positive. So that gap shouldn't now reduce going forward.
Got it. Thank you. And one last question on Europe. You're still saying that you'll keep some of the costs in Europe. But going forward, this margin decline of 13, 30 basis points year-on-year will come down, will moderate going into Q3, Q4?
I mean, we are keeping some of overcapacity. And yes, we're keeping that because we think it's rather not very clever to lay off people and take costs for that, and then we need to reemploy people six months later. So that's why we decide to keep some of these resources.
So we will have some overcapacity, until we see the growth coming back. And that will, of course, put some pressure on the margin. We will also in Q3, more so in Q3 than Q4, still have tough comparatives with high refugee sales-related sales in Q3. That then reduced quite sharply in Q4. So Q4 will be easier, so to say, comparatives, and a different mix in the portfolio.
Got it. Thank you.
Thank you.
And the next question comes from the line of Bilal Aziz from UBS. Please go ahead. Your line is open.
Good morning, everyone. Just three quick questions for me, please. You mentioned our wages in the U.S. But equally, we can see your U.S. turnover is now at 75%, which is the highest it has been for a while.
So I suppose how confident are you in managing that without any negative spillover for the margin over the next 12 months? Yeah. No, it's okay. Sorry. Yes. I will ask some too later.
No, it is a concern. We are on the highest. I mean, we manage. It's very much on the high side. Sorry. It's, it's on close to a little bit too high, I would say. I mean, it happened before, and we have managed before.
So you will also need, if you look on that. I mean, depending on what kind of projects that we have and where, how we staff those projects, some have a very high turnover, and many don't have any turnover at all, depending on what we pay people for different positions and the quality, or the qualifications needed, I should say, of those posts of those guards at those posts. Anyhow, we are on the high side now. We were on those levels before, just before the Lehman Brothers crash. So you go back 2007 and 2008, you'll find more or less the same numbers. So it's not unusual for us to manage, but it's on the high side.
And that's why I think that we will start to see more wage inflation in order to keep or reduce the turnover of the people. And I think it's a good timing to manage that because the economy is good, and the possibility to push those wage cost increases to the market is good. So we—I wouldn't say that we are at the limit, but we are on the high side. And yeah, I think that's the best I can say.
Sure. Brilliant. And just on the remaining two questions, in Europe, I believe you flagged that the margin was impacted by reduced client retention. I know you've previously already flagged the contracts in the U.K. and Sweden. Is anything over and above that, and if so, which regions were those contracts in?
Finally, just to clarify the comments on Peru, I know you mentioned some of the trading in June. Is now the expectation that the business should be profitable, in the whole of the second half? Thank you.
Question on the second one. Yes. On the first one, I mean, yes. We, I mean, we have a relatively low client retention, 89%, which is historically low. We are usually at 90% or above. That means that we have had a higher turnover in our portfolio, and when we start many contracts, that has a bit of a pressure on the margin. And that's why we have used this, as an explanation as well.
We usually has as a rule of thumb to give you any guidance is that when we mention something, it has an impact of 0.1 on the margin. So, yes, it does. We hope to be able to reduce to improve the client retention going forward. And then, of course, as we do that, that will improve also that will have a positive impact on the margin.
Brilliant. Thank you.
And the next question comes from the line of Stefan Andersson from SEB. Please go ahead. Your line is open.
Thank you. Two questions. First, a little bit maybe overview question or a broader question. I mean, you've been working on the technology side and growing that rather well. And we know margins are should be higher in that area.
Looking at the last few years, going into a stronger economy, leverage on some growth, extra sales and so on, that should also contribute on the margin. So, and still, we don't see much of a margin movement. So my question is really, do you—I mean, starting out the technology side, you need density. You need the high utilization to really get good margins. Are you not really there yet? That's one part of the question. Or the other part would be, is it so that when you do combined solutions, that you have to give away a little bit of that upside to get those contracts? Or, and I'm yeah. Could you elaborate on how you see that margin, the mix change actually playing out in the longer term?
Why aren't we seeing it clearer at the moment? That's the first question. The second question is you're thinking around M&As at the moment. Are you, you know, how do you see the balance sheets? Are you willing to do more M&A in which areas? Thank you.
Yeah. We are on the last one first. It's a shorter answer, but yes, we are. I mean, we are not concerned about the leverage. We are very confident. We have good cash flows, so we reduce the leverage, and it's not high at the point being anyway. So, yeah. So, absolutely. I mean, we are active in the M&A field. We are looking for small, medium-sized, technology acquisitions primarily. And we have a couple that we are working on, which looks pretty encouraging.
We see if they will materialize during the second half. So yeah, we continue there in a sensible way, so to say, given the situation we have. But we are not slowing down, really. We keep entertaining the opportunities we find. On the first question, it's a very relevant question. And the answer to that one is if everything else was equal, then you would have seen the margin improvement because that's the reality. But everything else is not always equal. You have bits and pieces up and down. You're diluting that picture. But certainly, the margin on electronic security solution sales is improving, the way we always say, and especially on this slide that we are using here all the time. That math, those mathematics works all the time.
Still, the part is when you have all the ups and downs for all kinds of reasons, we have revenue sales, temporary things, other things going the wrong way, Peru right now in Ibero-America, etc., etc., etc. But we also is the fact that still, we have a margin dilution on the guarding piece, which is, I mean, 85% of our business in that range, 80%-85% of our business. And that margin dilution, I mean, that if that increases a little bit on the traditional man-guarding piece, and if that changes 0.1, 0.2, that margin dilution, then, of course, that eats very much of the improvement we do in the electronic security sales.
So you will going forward, I mean, we have to keep changing that balance between the 85% and the 15% or 16% or whatever it's going to be this year. And as that balance changes, you will see an exponential effect because the dilution will reduce on the guarding sales, and the security solution electronic security piece will grow in proportion to the total sales. So I'm convinced that this is going to work. But the picture is muddied a little bit by different other things, plus that the guarding erosion, I should say, not dilution, erosion on the guarding sales is constantly there. And it's tough to win those contracts, and you have all kinds of issues affecting that. So that margin erosion is always there.
But I mean, if we wouldn't have driven the strategy the way we have and moved ourselves the way we had, you would have our margin would have been much lower than they are today, for sure.
Okay. Thank you. Very clear answer. Thank you.
And the next question comes from the line of Henrik Nilsson from Nordea Markets. Please go ahead. Your line is open.
Good morning, everyone. Thank you for taking my questions. On the previous question here on the margin pressure you've seen on the man-guarding side, is this dilution broad-based and related to all markets, or is there any specific markets where this is coming from?
No, I mean, that's a general. I will say you'll see that in all markets. I mean, we have it in all markets. And, yes, the answer is yes.
It's in all markets. I need to reiterate that, I mean, this, the way we are driving our strategy. You need to have patience. But when that will definitely, without any doubt, have a very positive impact on our margins going forward. And again, if we wouldn't have done what we did, the margins would have been much lower than they are today. So this is the right way to go. And I'm 100% convinced because we follow this weekly, monthly, branch-by-branch 2,500 branches around the world, all the areas, all the countries. Is this equation really working? Do we improve the margins from the 4%-6% to the 8%-10% when we do sell solutions? Yes, we do. Yes, we do.
Yes, we do everywhere all the time. But we have to fight this still disproportionate imbalance between what that piece of the business and the guarding piece and the erosion of that. The strategy works. You will be happy shareholders going forward, because we just need to keep banging on with that strategy, and it's going to work. I'm 100% sure it's going to work. You will see margin improvements in the long run because of that.
Okay. Thank you for a good elaboration. But still sticking to this question, I mean, manned guarding has been around for decades, if not much longer. And it's always been quite a, you know, pressured industry. What do you think is this margin pressure or dilution you're seeing in this business? Is it something new over the past few years?
No. No.
And what is the
but it's not new. It's not new. It's been there all the time. It's been there all the time because of the mechanics of that business. But because if you like to fast forward, what happens to companies who are not making this shift, strategic shift or willing to make that step? You can look in Spain because that's where you can fast forward the future of the rest of the world because there has been a crisis where the market collapsed five years ago completely.
And some people made the choice, like we did, of starting to invest when in the middle of a crisis. We bought companies, we invested, we hired people, and we were beaten up by you guys and everybody else in the marketplace, but we were considered more or less stupid of investing in the middle of a crisis. And we did. And now we are gaining market share. We're growing 7% in Spain. We are picking up contracts from the companies who stick to man-guarding. And what happens to them? They go bankrupt. They're going out of business. And this will happen everywhere. This market will consolidate tremendously over the coming 5-10 years, not because companies will buy each other, simply because the companies who stick to the old-fashioned strategy, they will simply die. They will not survive.
Or they will because the cash flow is, I mean, you pay your guards for months of work, and then you get paid by the customer two, three months later. So I think this is, we need to, yeah, we need to, we think we are on the right path, and we do the right things. And when you see more differentiation in the market as well, that will also speed up this process because then the companies who just keep hanging on to the old-fashioned strategy of guarding, they will quicker go out of business because the other ones will create more customer value simply because reducing the cost for the customer and improving security at the same time. Let me,
Okay. Thank you.
Two more questions from me if we have time here. In Europe, you mentioned this overcapacity that you've chosen to keep on line. And is there any specific markets where this overcapacity is more severe? So it's really those specific markets we need to see growing more rapidly for it to you know be offset?
No, it's mainly the markets where we had a lot of extra sales, where we are making adaptations. We are doing that in the Nordic countries. We're doing that in Belgium, in France. We take some actions. I mean, it's the sales refugee and terror-related sales, so which was very much so in France on the latter part, in France and Belgium, U.K. So it's U.K., Belgium, France, a little bit in Germany, and the Nordics.
That's where most of the actions are taken.
Okay. Thank you. And one last from my side. In Ibero-America, I mean, Spain has been returning to growth now for the past few quarters. Over the past few years, you've taken a massive hit in Spain on the margins, if I'm correct. How is the margin in Spain developing now with these new volumes? And can you give us a ballpark indication of the, you know, run-rate level in Spain?
Slowly improving margins is the case. Improving. Yes, it is. But not very big numbers yet. But I think we are creating a good base for improving the margins going forward.
Still below two then?
I haven't said that.
Okay. Thank you. That's it for me.
And the next question comes from the line of Mikael Holm from Danske Bank. Please go ahead. Your line is open.
Yeah. Two questions. The first is a follow-up on the earlier one regarding the margin pressure on man-guarding. You earlier talked about 20-30 basis points annually. Is that still trend?
Still valid. Still valid. Just to add to what I said before as well, I mean, you can look in North America where we have had a more steady situation. Europe is very much diluted by or impacted, I should say, by the ups and downs of the refugee and terror-related and extra sales, which has been big numbers going back and forth. But if you look in North America, it's a steady positive trend over the past years, on the margin side, improving the margins.
So I think that's another good example of proving that we are on the right path. And now the inclusion of Diebold is supporting that, or what we now call SES, Securitas Electronic Securities, is also supporting the margin in North America. So that trend is there, and it's substantiated, so to say, by the move in our strategic move.
And considering that we have a fairly strong underlying market for the moment, I mean, good growth both in North America and in Europe, do you think this will become that the margin erosion will accelerate if in a market downturn or if it?
I think the guarding erosion margin, the 0.2-0.3, I think that we will just I mean, that is not going to change overnight because there are still thousands and thousands and thousands of guarding companies fighting for their lives and trying to win contract on the wrong price level. So that margin erosion will remain. And then you always have the mechanics of this business. You start up contracts if and if you don't always get not everyone is always getting exactly the balance between price and wage increases. You have social cost increases from governments. You cannot always pass things on exactly the same month as the cost is increasing, whereas a number of factors influencing that.
So I think you should assume that the 0.2-0.3 will probably last three years to come.
Okay. And I also just a question on the growth rate of electronic security and solutions. Just looking at the investments, I mean, they were down 22% in the quarter and 6% year to date. Is that an indication of a slight slowdown in growth opportunities?
No, it's not. It's a mix of different. Some contracts have a high content, others have a lower. So there's no indication of any slowdown now.
Or are there any changes in terms of how customers want to have it? Do they want to take more CapEx themselves or any?
No, no, no. Not at all. There, it's the same. Mostly in absolutely the majority of the cases, we are investing.
In the end, there is no change in that pattern that we prefer to invest in our own balance sheet, in the equipment at the customer's side. I should also say on your previous question that last year we moved headquarters in the U.S. We had quite substantial investments last year in that move in of CapEx related to the move in the U.S. And so when you compare those 20 whatever percent you mentioned, that should be taken into consideration.
Okay. Thank you.
And the next question comes from the line of Andrew Farnell from Morgan Stanley. Please go ahead. Your line is open.
Hi there. Morning. Just on this wage inflation point in North America, I mean, this was something that you asked about at the start of the year.
I'm just wondering why I mean, at the time, you weren't seeing anything coming through. Just why do you think there has been a delay on that? Why is it coming through now as being an issue?
No, I mean, the unemployment rates are very low. If you take, so to say, higher-level positions in the U.S., you start to see quite some wage inflation on indirect people, so to say. In the category of people that we from where we recruit for guards, the unemployment rates are higher. So that is a difference compared to the general economy, I would say. But even so, I think it starts creeping on us now.
I mean, we start to see more wage inflation in the U.S. to retain people, to reduce the to improve the turnover of our employee rate, and also to get the right quality people. I think going forward, that will be the case. It's not necessarily bad news in any way and sometimes even good news because we assume that we can push it onto the marketplace, and that gives organic growth, and it gives sometimes some leverage as well on your indirect cost.
Okay. Also just in Spain and Portugal, you call out bankruptcies there as being a support to organic growth. Have you seen any other markets where that kind of stress is being supported?
Portugal is similar. It's another competitor in Portugal in difficulties. So that happened there as well.
Other than that, not of any significance in any other market.
Okay. Fine. And then just finally, has anything changed in terms of the pace of which you think the markets will recover towards the end of 2017 and therefore the level of overcapacity you're going to keep within your business?
No, we keep. I mean, we have set. We have made all the choices. The actions are taken. Not all people have left yet who should leave. So we will get a gradual effect during the second half without being splitting it quarter by quarter. So we are making the adaptations of the structure. And then we see we expect the growth to come back by improving by the end of the year. So we keep that overcapacity for the coming two quarters.
And, yeah, I don't, I cannot be much more specific than that. So, so I mean, but I mean, if you try to make some kind of distinction between Q3 and Q4, I mean, we'll have a gradual effect on that, on, on the adaptation of the structure. We will still have some overcapacity at least in Q3, possibly part of Q4, less so, but still less so. And then we have tougher comparatives in Q3 than Q4.
Okay. That's all helpful. Thank you.
And we do have a follow-up question from Srinivasa Sarikonda from HSBC. Please go ahead. Your line is open.
Hi. Just one follow-up question on U.S., please. What are your emerging thoughts on U.S. healthcare costs? Arguably, with 75% churn, recruitment and training costs should be up a lot. If the churn comes down, can it offset the wage inflation pressures?
I mean, you have it's that there are a couple of factors that influence that. Of course, it's a cost related to if the churn comes down. We think we are a little bit on the high side now. We have had it before, but it's on the high side. So if we reduce that, that will support our cost. There is the other side of the same coin is that then we need to increase wages to reduce that, whereas that's the only way, really. And doing that, we need to be certain that we can manage that. So we cannot increase too much.
We can increase more than we have done, but we cannot increase too much because then there is a risk that we don't get the price increases. The hit from that, if you have a delta between price and wage, that's, that's hurts much more than having a higher turnover of people. So, so we need to manage that in a prudent way. I can just set the direction. It's hard to give any more specific numbers, but the direction is definitely we'll see more wage inflation going forward. Hopefully, that will have a positive impact on the turnover rate among our people.
Got it. Thank you.
The next question is from the line of Henrik Nilsson from Nordea Markets. Please go ahead. Your line is open.
Hi. Thank you for taking a few questions again here.
Can you quantify the losses during the first half in Peru, or at least give us some ballpark indication of how large they were?
No, I mean, the main difference on margin is basically explained by Peru.
Okay. Thank you. And coming back to M&A, you completed a small acquisition in Australia, after the quarter closed. And I think you've been mentioning Australia, Malaysia, Philippines, and other markets as well as markets where you're lacking or missing exposure. Two questions on this. Are there any larger assets in these markets that you are looking at or would be interested in, in buying? And in terms of expansion into new markets, is this something that's still on your agenda, and what is the primary rationale for it?
Yeah. I mean, the primary rationale is that many of our global clients ask us to be there and that we have our own subsidiaries there so we can make the calls and make the decisions quickly in case something needs to be decided. So basically, it's very much the tenders from the big global clients that decides where we're going to be, which means that we need to be in another 10-15 countries. That's Australia being one. Now we're there, which has been on the list all the time requesting that. Malaysia is another one. It's always on the list, and we are not there. So we are actively looking in Malaysia. There are no large assets in any of those countries.
It's small assets, first, because it's risky to buy a large asset in a market we don't understand. Secondly, because if we buy a large asset, there is a high risk of noncompliance in those businesses, and we don't want to be—we don't want to be dirtied by that. So we are looking for small, medium-sized companies that we can then leverage by bringing the global client portfolio to those companies in Malaysia, for example, instead of giving that to potential partners or other companies that we partner with. Then we will bring that all in-house, and then we can leverage that acquisition. So that makes a lot of financial sense to do it in that way. So we're also looking in a few other countries, actually, right now to establish ourselves in a minor way.
But, hopefully, we'll put up a new couple of more flags here in the coming 6-12 months. But any of those no matter which ones they are in the new markets, so to say, will never be large M&A investments. They will be small, medium-sized, larger, so to say. That's more technology acquisitions in the existing markets because the leverage from that and the shareholder value creation from those acquisitions is much higher, because we can leverage the portfolio we have in the guarding side if we can speed up on the electronic security side. So we create a lot more synergy and customer shareholder value by doing that than expanding into whatever country we need to be. So we will do both for the reasons I mentioned, but that's the philosophy.
So the big cap the big investment on the M&A side is more into the electronic security investments.
Thank you.
Ladies and gentlemen, as a reminder, if you do have a question, please press zero one on your telephone keypad now. And we do have a question from Allen Wells from Exane. Please go ahead. Your line is now open.
Hey. Good morning, Alf. Three very quick ones from me. Just following up on Andrew's question from earlier around the portfolio recovery in the second half. And where does the confidence come from on the timing of this? Is this contracted work that you can see coming in already? Is it just, sort of, inquiries from customers? Just trying to understand where you get your confidence from there.
Secondly, just in terms of sort of contract attrition, obviously, there was a couple of contracts that dropped out earlier in the year. Anything sort of significant up for rebid, or, or at risk over the next 12 months that we need to be aware of? And then finally, maybe just on, on sort of cash and working capital. I just noticed that the receivables balances for the first half were much lower. What are the drivers here? Would you expect that to reverse in the second half for sort of a normal change in working capital for the year? Thank you.
Okay. Now, what gives us the confidence in Europe is that we have a good new sales. That is, I mean, new sales is before, I mean, we sell a contract. We win the contract.
And then it takes normally two, three, four months before we start the contract. So it's not until we start the contract that you will see it in the organic growth. But we have good activity in the new sales. So we are winning. We have a good and these are contracts that we have won or are about to win. So that gives us confidence in this respect. Also, the activity level in Europe is good. I mean, the European economy, in my book, is booming. So there's a good market situation in Europe. A lot of activities, a lot of customer interaction, a lot of focus on sales and marketing in our organization. We have made quite some push on that. We have changed some of our incentive system in that direction.
And we are driving that with a lot of force in the European organization. So that gives me confidence that we are on the right path and hopefully then this will really materialize in the organic growth when we come towards the end of the year. On the large contracts out for bid in the next 12 months? No, not really. Nothing of any significance. And on the cash side, on the DSO, it has improved quite a bit. And it's hopefully going to, well, I expect it to be a continuous improvement because we have had a big drop in North America and the U.S. specifically because we initiated a project, driven by our CFO, Bart Adam, together with the U.S. organization in the last quarter of last year.
That project has been giving the DSO a lot of focus in the U.S. And now we start to see the benefits, especially in the second quarter and towards the end of the second quarter. So improvements in our receivables, in our DSO in North America, we think, is an improvement that we can keep going forward.
Great. Thank you.
As there are no further questions registered at this time, I will hand the call back to the speakers. Please go ahead.
Okay. Thank you very much, everyone. Thank you very much for calling in. If you have vacation left, have enjoy your vacation. Thank you. Bye-bye.