Good afternoon, everyone. Thank you for joining us for SGS first half results, which are in quite unusual circumstances. I'm sitting in London. Frankie and Dominik are in Geneva, without any of us being able to see any of your smiling faces. I'll come back for Q&A, and we hope to be wrapped up in just over an hour. That's the presentation, including Q&A. Let me pass you on to Frankie, who will start the presentation. Frankie, please.
Thank you, Toby. Yes, indeed, it's a bit unusual to have just Dominik and I sitting in the boardroom here in Geneva. Good afternoon to everyone. As usual, I will give you a highlight of our first half performances, then Dominik will give you a more detailed financial review, and I come back with the business outlook. Let me flip the slide if it works. Okay. Before I go through the financial highlight, I would like to take this opportunity to thank my colleagues of the entire SGS Group and the Operations Council for their dedication and courage during this unprecedented and difficult period. We have worked all together to ensure continuity of the businesses, as well as support to our customers.
At the same time, we have managed to ensure the health and safety of all our colleagues in the network, which remains our first priority. Let me give you a few examples of actions that we have taken during the first half of this year to ensure the health and safety of the network and our colleagues. A travel ban was put in place in mid-February, and we also installed a global work from home policy starting in March. Those policies have since been relaxed in some regions as the pandemic has evolved. We will continue to prioritize the safety of our colleagues, and in most of the offices, working from office is still an option, so our colleagues can stay home if they wish to.
For our laboratory and field colleagues, we have enhanced our hygiene and social distancing procedures and also implemented additional duty shift to reduce the total number of people in the office, in the facilities at any times to make sure that we keep the lowest level of cross-infection possible. One of the challenges we have faced during the first half is sourcing of PPEs, Personal Protective Equipment, especially during March and April where the global world was looking at trying to source those products. It was a difficult period for us, but I'm glad to say that we managed to ensure that every one of our colleagues was properly equipped and protected. This thanks to our global procurement as well as the operational integrated teams. They've done a fantastic job to ensure that we have a constant supply of those Personal Protective Equipment.
Another of the challenge that we have faced during the first half were the lockdown measures by the different authorities. Wherever our activities were designated as essential services, the operations managed to continue, but often at a reduced productivity rate. Other operations like statutory inspection, statutory vehicle inspections were totally stopped during the duration of the lockdown. I'm pleased to say that nevertheless, the network managed to remain resilient with our broad geographical coverage and good balance across the eight business line. If I go through the result, the highlight would be total revenue decline of 14.9% at constant currency, while the organic decline was 10.4%. Our adjusted operating income stand at CHF 330 million, a 26.8% decline compared to H1 2019. Free cash flow improved to CHF 310 million, an increase of 43.5% compared to last year.
Our ROIC for the last 12 months stands at 18.7%. During the first half, we made two acquisitions, one in the U.S. for consumer retail, which is Stephens. Stephens is an acquisitions in the field of cosmetics where we're expanding our network in the U.S., which is in line with the previous acquisition we made there already called HRL. This will complement our footprint in the U.S. market. The other acquisition we made is in France on the GIS mobility. CTA Gallet is basically to enhance the density of our statutory inspection network in France to ensure that we have the best coverage possible for these activities in France. We also made one disposal, is our pest control activities in Belgium and the Netherlands, which was labeled as non-core for the SGS group.
During this pandemic, we're also been looking at different services and support that we can provide to society and our customers in dealing with the crisis. If you look at this slide, let me give a couple of examples. We have announced last week that our Life Science Services facility in Glasgow will be involved in the biosafety testing of AstraZeneca vaccine. Another one is we have already increased our PPE, Personal Protective Equipment, testing capabilities across the network to service the sharp increase in demand. In fact, together with other TIC Council members in China, we have implemented a free PPE inspection program when shipment are ordered by government, NGOs, and nonprofit associations. In term of service delivery, the remote inspection tools that we implemented since 2018 has seen an increased acceptance by the market.
The number of inspection performed remotely has more than doubled in Q2 of this year compared to last year. These are a couple of examples what we have done so far for our customers during this COVID period, and those services will carry on in the second half of the year and certainly into 2021. On that, I will pass the floor to Dominik, who will give you a more detailed financial review.
Thank you, Frankie. Good afternoon, ladies and gentlemen. I will start with the overview of the financial highlights for the first half 2020. Frankie already mentioned the operating highlights in his introduction, with revenues of CHF 2.6 billion, adjusted operating income of CHF 330 million, and a free cash flow of CHF 310 million. Revenues for the group in constant currency decreased by 14.9%, driven by an organic decline of 10.4% across all segments, reflecting the impact of the COVID-19 pandemic and the net effect of acquisitions and disposals. The adjusted operating income decreased by 26.8% in constant currency to CHF 330 million, leading to a margin decline of 200 basis points in constant currency to 12.5% in the first half. In addition to the operational performance, the operating income of CHF 302 million was primarily impacted by the following items with one-off character. Re structuring cost of CHF 35 million.
Goodwill impairment of CHF 35 million, partly offset by the gain of the disposal of pest control business in Belgium, while in the prior year, operating income was favorably impacted by the net gain of disposal of PSC, partly compensated at the time by other one-off items. The effective tax rate increased from 34% in the prior year to 35% in the period under review, impacted by an increase in non-deductible items related to goodwill impairment and a portion of the restructuring costs. Adjusted for those items, the underlying tax rate was 29%. Subsequently, net profit after minority interest decreased by 54.6% to CHF 171 million in the period under review. Cash flow performance was strong, with cash flow from operating activities up 21.1% and free cash flow grew up 43.5%.
The decline in net profit was more than offset by strong net working capital management, lower tax payments, as well as lower CapEx. As a result of the impact of the COVID-19 pandemic, organic revenue declined by 10.4%, acquisitions added 1.1%, and disposals had a negative impact of 5.6%, leading to a constant currency decline of 14.9%. The negative currency impact of 5.8% was due to the strengthening of the Swiss franc against all major currencies. Moving on to the revenue growth by business. Agri, Food and Life declined by 6.5% in constant currency. Revenue decline in Food and Life were partly compensated by solid growth in trade. Minerals posted a revenue decline of 8.7% in constant currency. While trade activities showed a similar decline than the division, metallurgy was weaker, and the decline in Geochem was very limited given the continued growth in on-site laboratories.
Organic decline in Oil, Gas and Chemicals was 7%. Trade, as well as the majority of the activities, posted a similar decline rate as the whole division, while upstream was more negatively impacted. With a revenue decline of 4.1%, Consumer and Retail showed its resilience during the COVID-19 pandemic. While for H1 2020, revenue decline for softline, hardline, and E&E was broadly mid-single digit, softline and E&E turned recently back to growth. The recovery in softline is driven by PPE, while for E&E, we experienced strong growth in the areas of product safety tests. CBE declined organically by 17.8% as the division was impacted by travel restrictions and lockdowns preventing auditors from visiting customer premises. Management certification declined less than the divisional average, helped by the implementation of remote audit solutions. Other CBE activities declined stronger than the average of the division.
In technical consultancy, several large projects were stopped or postponed as customer dealt with the effects of the COVID-19 pandemic. Revenues in Industrial business declined organically by 18.2%. One third of the decline is related to last year's decision to focus on value-creating businesses, while two third of the decline is related to the pandemic. Infrastructure as well as Power and Utilities were ahead of the division average, while Oil and Gas, Manufacturing, and Transportation were in line or below. Environment, Health and Safety declined organically by 11.5%. A strong start of the year was interrupted by the pandemic, which was especially evident in health and safety given the inability to access sites and constructions, hospitality and industrial hygiene. Revenues in GIS declined by 17.4% in constant currency. Mobility was heavily impacted by the global lockdown measures, while other activities performed better than the division.
From a regional point of view, organic decline in Europe, Africa, Middle East was 11.9%. The Eastern Europe and Middle East countries delivered low single-digit decline as key markets such as Russia and UAE continued to grow. The majority of the key markets in Europe post a double-digit decline, while the decline in Germany was single digit. Revenue decline in the Americas was 11.8% on an organic basis. USA and Canada posted high single-digit decline, while the performance in several key markets in Latin America were more severely impacted by the COVID-19 pandemic. Asia Pacific was, with a decline of 7.2%, more resilient. Northeast Asia countries returned back to growth in the second quarter, driven by a strong recovery in China, growth throughout H1 in Taiwan, and very strong growth in Vietnam. While revenues in several Southeast Asian countries declined double digit.
Our resilient performance was, amongst others, driven by the very efficient approach when it comes to workforce management. Salary and wages, who account for 52% of revenues, decreased in actual currency by 20.5%. Stripping out the currency impact as well as the restructuring cost in both years, the underlying reduction was 14.2%, almost matching the revenue decline in constant currency of 14.9%. The underlying reduction was driven by the active portfolio management, the benefits of the structural cost optimization program implemented in the second half of last year, as well as various measures taken to mitigate the impact of the pandemic. FTEs at the end of H1 2020 declined by 7% versus the prior year.
This is primarily a function of the structural cost optimization program implemented in the second half of last year, measures taken to adapt to the trading conditions, as well as the net impact of acquisitions and disposals. Average FTEs per June 2020 reduced by 7.2%. The magnitude of the change by region needs to be set in perspective with the revenue decline. The strong decline in Americas is also related to the disposal of PSC in the prior year. Overall, we adjusted the FTEs to trading conditions, have, in all regions, sufficient capacity in place to convert incremental demand with good incremental margins. The adjusted operating income decreased at constant currency by 26.8%, which reflects the organic decline of 23.5%, as well as the effect of disposals of 3.3%. Currency had an adverse impact of 5.7%, leading to a reported decline of 32.5% in the period under review.
Also throughout the COVID-19 pandemic, we continued to focus on financial discipline, leading to the following achievements during the period under review. Two CHF bonds with a combined nominal value of CHF 500 million for attractive conditions were issued. Continued strong focus on price discipline. The structural cost optimization program launched in the second half last year delivered annualized savings of more than CHF 90 million. This, coupled with strong cost control in general, led to a drop-down ratio of 26% in the first half 2020. Strong free cash flow up 43.5% to CHF 310 million, driven by tight net working capital management and lower tax payments. Adjusted operating margin decline in Agri, Food, and Life was, with 100 basis points, limited. Margins in Trade increased, while margins in Life were stable despite revenue decline, and margins declined given lower utilization rates in laboratories and audit activities.
Limited margin decline as well of 100 basis points for Minerals. Margin Trade was resilient, while a good margin increase in Geochem was partly offset by a decline in the metallurgy business. Margins in Oil, Gas and Chemicals were, with minus 40 basis points, very resilient, benefiting from the structural cost measures taken in the prior year and this year. Our most profitable segment, Industrial, showed a margin decline of 210 basis points to 21.8% on a constant currency basis, reflecting slightly lower lab utilization rates, temporary closures of some locations, but also continued strategic investments in new technology and cybersecurity. The margin decline in CBE was driven by a material revenue decline, especially in the technical consultancy, training, as well as the aviation activities. Margin decline in Management System Certification was less severe than the whole division.
In Industrial, structural cost optimization, the change in the portfolio towards value-creating business and other cost-saving activities were partly able to compensate the revenue decline, leading to a good drop-down ratio of 24% for the Industrial business. Margin decline in EHS was more severe than in other business lines, reflecting the lower utilization levels, temporary stopped activities, but also the retention of technical capabilities to support the rebound of the business in the second half given the launch of COVID-19 related services. The margin decline in GIS of 230 basis points is essentially due to the mobility segment, given the lockdown of inspection stations in various countries. Margins in the legacy GIS business increased strongly. In respect of the 150-plus units in scope under the EVA performance management review, significant progress has been achieved despite the impact of COVID-19.
10% of the units were in the meantime closed, 40% are very well on track to be EVA accretive in 2020, 25% are on the way to improve their position, and for the remaining 25%, which are not on track, partly because of the pandemic, additional actions were defined and being implemented. Moving on to the balance sheet. The reduction in unbilled revenues, work in progress, and trade AR is driven on one hand by lower revenue levels in general, but also by our strong focus on collection. Cash is almost on the same level as at year-end 2019, despite the outflow for the dividend and share buybacks in the first half, which were compensated by the issuance of CHF 500 million bonds and a strong free cash flow management.
The increase of CHF 530 million of net debt to CHF 1.3 billion compared to year-end 2019 was very limited given the payment of the dividend and the share buybacks executed in the first half 2020. Cash flow from operating activities increased from CHF 341 million in the prior year to CHF 417 million in the current period, reflecting the strong management of net working capital and lower tax payments. Furthermore, free cash flow increased by 43.5%, also benefiting from the slightly lower CapEx. We paid dividends of CHF 600 million, bought back shares for consideration of CHF 189 million and issued two Swiss franc bonds, which led to an inflow of CHF 499 million. The management of net working capital continues to be a very strong feature of SGS.
Operation net working capital stands at -0.2% of revenues at half year 2020, reflecting lower trade ARs given lower revenues, an increase in advanced payments applied in several jurisdictions for certain services and client segments, as well as the strong focus on collection. CapEx for H1 2020 declined slightly less than revenues, leading to a moderate increase in percentage of revenues from 3.9% the prior year to 4.1% in the current period. While we have delayed some non-essential and maintenance CapEx projects, our level of investment into strategic priorities has been maintained. To sum it up from my side, our revenue in H1 2020 declined by 14.9% in constant currency, of which 10.4% is organically. Multiple actions on the cost management side limited the decrease in the adjusted operating income of 26.8% or 200 basis points in constant currency.
We achieved a strong free cash flow of CHF 310 million and a very solid return on invested capital of 18.7%, especially considering the economic circumstances in the first half of 2020. With this, I hand back to you, Frankie.
Thank you, Dominik. It's very hard to give any meaningful outlook per business for the full year considering the current circumstances. However, I thought it would be useful to give you an indication of how the different businesses should perform relative to the total group full year 2020 organic growth. Let me start with AFL. AFL should outperform the group organic rate. Our trade business should continue the growth trends in line with H1. Our volume should return to our food and Life Sciences laboratories. Food audit and certification, which was badly hit during H1 due to lockdown measures, should recommence. Our clinical research activity should improve at the end of the year as new studies start and biometrics should continue strong performances. For Minerals. Minerals should be broadly in line with group organic level.
In second half, we expect some improvement in growth as some Latin American countries remain in lockdown and coal is under pressure in the U.S. Metallurgy should continue to recover. Sample volume should improve in both our commercial labs, commercial Geochem labs, sorry, and plant operations services. Oil, Gas and Chemicals should be broadly in line with group organic level. Oil is being impacted by the low oil price, which has driven production cut and project delay. The rest of the business is volume-based. It is under pressure now, but should improve toward end of the second half and into 2021. For CBE should be below the group organic level for the year. The management system business model remains intact. Activities should resume gradually in the second half.
However, the current crisis has certainly put some of our SMEs customers under pressure, and we need more time to assess how this part of the market will change moving to the second half of this year and into 2021. Technical consultancy should also gradually resume activities while training budgets remain at risk for the year. For all management system, technical consultancy, and training, we have already introduced and accelerated the adoption of remote execution tools to support our customers. Industrial services should be below the group organic level. The industrial inspection business is one of the sector hardest hit by the lockdown related to COVID-19. As Dominik already mentioned, a third of the revenue decline year-on-year is due to SGS exiting some low-margin contract, and we should still see some of the negative effect in the second half of this year.
Statutory work should recover in power and utilities, manufacturing and infrastructure. The oil and gas end market will likely remain under pressure. GIS. GIS should perform below group organic level, but the gap will be much smaller than in the first half of the year. Second half should show some improvement as our product conformity assessment recovery recovers. The reopening of our vehicle inspection network in Europe has shown good momentum. We expect a similar pattern as the network reopened in other regions throughout the second half. We also expect stable activity in our border solution in the second half. This includes our TransitNet services, which has performed well during the first half. EHS. EHS should perform broadly in line with the group organic level.
Statutory activity in the U.S. and Europe should restart to regain momentum in the second half, including some catch-up of orders from the first half. Regionally, Northeast Asia should show good growth in our China and Taiwan laboratories, audit and marine activities. The business will also benefit from the new COVID-19 related services released end of the first half. I think there's a link to the press release that we issued this morning, so you can have a look at the exact kind of services that we offer and the kind of contract we have for. To conclude, Consumer and Retail should be ahead of the full year group organic level. We continue to benefit from a growing exposure to our China domestic market. Our E&E and chemical testing operation has been rather resilient during the first half.
Supply should remain the business under pressure, while the strong demand for PPE testing should support growth to a certain extent. If we go into our outlook. Here, I would like to mention here that the outlook that, again, I have given you in the first half of this year, beginning of this year in January, about the full year will not be achieved, certainly due to unprecedented circumstances we're facing here. Considering the current COVID-19 situations, the volatility of the market, and also the uncertainty regarding action of different government related to the lockdowns and border measures, it remains difficult for me to give you any meaningful group guidance for the full year 2020 at this stage.
As it stands today, we are looking at the second half that should be materially better than the first half, as the momentum in Q2 was positive in countries that came out of lockdown earlier. The long-term drivers of the TIC sectors remain strong, in fact, many of the services will become even more relevant post-crisis as many of our customers adapt to new business environment. On that, I just want to conclude as a reminder that we have postponed our Investors' Day 2020 event due to the uncertainty regarding travel restrictions and other health and safety concerns. The event will now take place in May 27 and 28, 2021 in Spain. We are looking forward to hosting you all. On that, I'm handing back to you, Toby, for the Q&A session.
Okay. Thank you. As you heard it, guys, that's two questions, please, if we keep it to that. The first person to ask a question, please, Alex.
Hi, Toby. Can you hear me gentlemen?
Yes.
Yes.
Great. Yeah. Firstly, I wonder if you can comment on what proportion of revenue that you lost in H1 is likely to have been lost permanently, and how much you expect to recover in H2 through catching up. Secondly, I wonder, Dominik, do you think the very low ratio of net working capital to sales can be sustained into the future and into H2 specifically? Thank you.
You want me to try the first questions? It's difficult to say, but I would say if you take three part of our businesses, what we are call the statutory activities, the voluntary activities, and the transactional ones. Certainly, the transactional activities would not be recovering because they are specific season-related, like in consumer goods. If you are looking at about the Easter season, then the Easter season is gone. If you're looking about the back-to-school season, then there's opportunity for us to catch up on that one. Each of the season are different. We see already, for example, the vehicle inspection are coming back. In fact, the demand is quite high because our customers is trying to catch up for the work they have not done so far.
The middle part, which we call the voluntary, is like the ISO 9000 audit, some of those food auditing. They are needed, the timeline at which this will coming back is uncertain. It could be in the second half of this year, could be beginning of next year. This one would be uncertain. What I want to give the proportion of the three, I would avoid that, but you see the three category, I would say.
To the second question. Obviously, we have always required a strong working capital. It was very strong for the first half. It's partly also related, obviously, that we have clearly less revenue, have less AR. It really depends how the second half will develop, and especially the last month of the second half will determine to a certain extent how much working capital we need. Of course, there will be a little bit of a need. I don't think it will be very material. Another part is obviously a key feature of the first half that we get quite some increase in advance payments, which was also a specific situation because from a client risk point of view, it was appropriate time to ask certain clients or for certain services some advance payments. We will see how this evolve in the second half.
Definitely, there will be a bit of need in the working capital in the second half, but I think it will be still very good. I think in general, cash flow will be also rather good, because tax payments will be materially lower this year than the prior year.
That's great. Thank you very much.
Thank you very much.
Thank you. If we could move on to Paul.
Yeah. Hi, Toby. Can you hear me?
Yes, we can.
Great. Just to follow up on that, in terms of the speed of recovery, where do you think we'll see the biggest or where do you think you'll see the biggest delta in the second half on a divisional basis from an organic growth perspective? Then just on some of the COVID-19 related revenue opportunities, we've seen various press releases over the last few weeks. How big in aggregate do you think that sort of opportunity is? Is it temporary, permanent, and can it really move the needle on a group basis? Thank you.
Maybe I'll answer the second part of the question first. In terms of different new services that we have proposed, I would say you look at the performances of our Softlines activities where we have the PPE included. I think the rather strong performance we have in Softlines is partly linked to the quite sizable volume of PPE that we're testing in Asia, specifically China for the time being, and we're expanding the capacity in Europe and the U.S. as well. I would say this is quite material. It does move the needle for our consumer goods Softlines sectors. This is something that we see carrying on because the volume actually has picked up since the second quarter of the year, and we see quite strong momentum moving into second half.
I don't see that disappearing because the need for those PPE are still quite high, and there's a lot of concern about possible new waves in specific locations. The demand is there. For some of the vaccines, some things, we are now working with one of the first vaccines that has been developed by the Oxford University together with AstraZeneca. We're doing just the European batches, so there will be additional batches in Asia and the U.S., and there will be other vaccines that we also are trying to tender. The market will keep developing, and there will be additional opportunity. Some of the batches, the numbers are quite interesting for us. We don't disclose the amount because it's confidential, but they are not a small amount in term of contractual agreement. I would say they would be also interesting.
The new next normal services that we have in term of for the hospitality sectors and so on, these are new. We're still looking at the evolutions, but I think the demand is extremely high. We have a lot of demand from the hotel industry, from the real estate sectors, shopping mall and so on. I would say these would be all accumulated, would be an interesting evolutions to compensate for some of the softness of the other sectors, I would say.
To the other question, if you look to the delta, if you compare, let's say, what we achieved in H1, what we think the relative performance of the division will be in H2, just in terms of change rates. We believe actually the ones who were more the weaker spots have a bit more potential, not because the starting point is weak, more for some underlying reasons. If you look to GIS, where we now show the mobility segment, which was a major part of the transportation unit last year. Obviously, since we had lockdown in the vehicle inspection testing in a lot of key markets, we had materially less revenues in the first half, and these vehicle inspections open up now. Clients have to test their car. They maybe can do it one or two months later, but not one year later.
There's obviously some, I would say, demand or supply of demand switching into the second half. Within CBE, part of the certification business is postponed and as soon as travel restrictions are relaxed or clients allowing, let's say, the visits, there should be some movement in that respect. As Frankie mentioned, within EHS, we have quite some new services. We are winning a lot of clients, which most likely will also impact more 2021, but there should be also some upside from COVID-related services. The Industrial business, I would not say there's now underlying already strong growth trend, but obviously, as you know, the EVA approach to stop certain contracts started throughout last year. It comes from a base effect. It becomes a bit easier. In H1, we have seen the full effect.
There's still some effect from this, but it will be less in the second half.
Okay. Thank you very much. Next we have Ed Stanley from Morgan Stanley. Ed, do you want to go ahead?
Thank you. I've got one for Dominik and one for Frankie, please. If we think about the CHF 90 million in cost savings that you'd planned and annualized, you're ahead of that. If we try and tally that with slide 14, it looks like the structural cost optimization program, that bar is about, I don't know, CHF 40 million or CHF 45 million. Does that mean that in the second half of the year, you expect to do underlying another CHF 40 or CHF 45 to make up for the total amount that you'd originally guided for in November? Have you already pulled forward some of that incremental cost saving? I'm just trying to understand that bridge a little bit better. In the second question, I guess to Frankie is, you've talked about in the past the tech industry going back to mid-single digit organic growth levels.
That's sort of what you talked about in November. A lot's changed since then. Do you still think that's possible, given what's happened? When do you envisage that that may become the reality?
I take the first question, Ed. You have very good eyes, so your numbers make sense there. That's actually the impact of the first half. The second half will, of course, also happen. We have then annualized the run rate is somewhat above CHF 90 million. From a year-over-year comparison, just consider that or remember when we announced the program, when we announced the full year, we said we had already recognized towards the end of last year, CHF 15 million, just from a year-over-year comparison. On the other hand, we also had a bit of more restructuring costs in the first half. You see this also on slide 15 with the impact of disposal restructuring. This is primarily restructuring. Disposal were not that much, as was only pest control and transportation business in the U.S.
There will be also new savings kicking in, given the fact that we have this restructuring cost now towards the first half of this year, which is not yet fully in the run rate, right? Because these things were implemented basically in Q2.
Okay. Hi, Ed. For your second question, I still believe that the mid-single digit is possible, and this is still a target of ours to do it and to improve on that. In fact, the market in the short term has been impacted by COVID-19, there's no question about that. This year will be a challenging year, which you see it already from the numbers. You move into future, a lot of the services that we're offering are becoming more and more relevant to our customers, whether you talk about the migration or transformation of the supply chain, they would need most of our support to help them to move to new sourcing locations or whether some of the automotive sectors that you see a decline for the time being, they're also evolving to more electronics, more EV vehicles and so on.
We're seeing a lot of demand on these sectors. You need to look at these industries as an evolving industry. There will be cycles within each of the business sectors, but those cycles need to be compensated by additional new services within those specific industry. Even in more cyclical businesses like Minerals and Oil, Gas and Chemicals, we see quite strong pocket of demand for specific services like recycling and sustainability services in the mining sectors nowadays. I would say it's really about how the TIC sectors can adapt to the demand of those industries, and I believe the 5% mid-single digit, I would say is absolutely possible. In our timeline, it's difficult to say because the economic situation is quite uncertain.
I would say we'll need to have a clear view on the second half of this year, moving to 2021 to have probably a better visibility on where and when we can achieve back to this mid-single digit.
Thank you.
Next, it's David Roux from Bank of America.
Hi, guys. Thanks very much for the insights. From my side, Frankie, perhaps could you share what the organic growth rate was in June? That's my first question. My second question is just on GIS. With the Ghanaian contract now terminated in May, does this now mean that there are no further concerns around collections within that business? Perhaps leading on from that, do you expect a potential pickup in bad debt provisions going into the second half?
Maybe Dominik can answer the first question.
We said in the press release that.
Oh, sorry, Dominik.
We said in the press release that basically lowest level was April. Since then, it improved. Normally we don't give exit rate, but I also understand the circumstances. It was more high single digit in June. When? Decline.
Yeah.
Organic. High single-digit decline in June. Yeah. Organic. On the bad debt, I think in general, of course, you have certain clients there's a bit of risk, and we see also the DSO increasing a little bit, not materially. Actually, bad debt expenses compared to prior in the first half were somewhat better. To be fair, we had also, last year, if you recall in the first half, a bit higher bad debt expenses. We covered part of this in that respect. In general, I think we focus a lot on this, we don't think it's the major concern for the second half bad debt expenses.
Thank you very much, guys.
All right, great. Thank you.
Next, we've got JP from Vontobel. Do you want to go ahead, JP?
Thanks. Good afternoon. Jean-Philippe Bertschy from Vontobel. The first one would be on your EVA review. You're still talking about, I think, 25% of the critical focus. If you can share with us how much does it represent in terms of sales, and what are the options for those businesses? One for Frankie. I think you know, Frankie, my traditional question on clinical research. I think you made another impairment in H1. If you can share with us what was the impairment for, and if this business is still strategic going forward.
If we start with the EVA review. Basically the 25% who are not on track, they are rather the smaller ones, to be fair, where we missed the critical size, where we basically expected also, let's say, delivery more on revenue growth. If they are small, it's a question of this one. To be fair to these kind of subunits, obviously the pandemic was, for them, not helpful. We are assessing case by case, in what respect we give them a bit more time. Some of them will be closed, some of them will be integrated in other businesses. Here and there is also some changes in management.
Yeah. On the second part of the questions, Jean-Philippe, as I mentioned earlier already, we don't comment on the disposals of any unit before it happens. What I can say is Life Sciences is critical to the SGS group, is core of our long-term evolution. Within the Life Sciences portfolio, there are certainly areas that we want to focus more than others, and we will make our reviews on a regular basis, and we'll decide in due time whether each one of those specific services that we're providing within the business unit of Life Sciences will be relevant anymore to our long-term strategy or not. This will include as well the clinical research activities that we have. For the Goodwill impairment, maybe Dominik, you can.
The impairment is related to a clinical activity which was closed but not related to the activities which we're doing in Belgium, which is the more important size of it.
Yeah. The larger size.
Yeah.
Okay. Thank you very much. Next, Rory Mackenzie from UBS. Go ahead, please, Rory.
Hi all. Yeah, it's Rory here. Firstly, about innovation. Can you talk about how receptive customers and regulators have been to some of the new ways of working within TIC? I think in the past, the uptake of new digital services such as remote inspections has been fairly low. You find that's changing in a post-COVID-19 world? Secondly, can you talk about the performance in China and in particular, the growth rates or range of growth rates for the domestic Chinese market and the reminder of the size of the business there? Thank you.
Yeah. Maybe I go for the first half of questions. You're absolutely right, Rory. In fact, it's less about regulators, it's more about our customers. A lot of the tools that we are putting in place these days is really to facilitate us delivering the services to our customers and facilitate their traveling requirement and so on. In the past, a lot of our customers, in term of market adoption of these services was not very high because they don't really see a value and they like to stick a bit to the more traditional ways. It is clear that since the COVID-19 crisis, a lot of our customers seized the benefit and seized the natural evolution of the services. As I mentioned, the remote inspection that we're doing has more than doubled in term of numbers in the second quarter of this year.
The customers start to understand how this works and what is the additional value, especially in the new world where traveling is becoming more complicated, especially cross-border traveling, and a lot of those face-to-face meeting are complex. The customers adoption of those new tools that we're putting in place are actually quite high, and I do believe that this will carry on into the future. There's no questions that they will be pushing more and more of those, and there is a natural evolution of our services. On the other part of the questions, can you remind me the?
Recovery in China, how strong and how much domestic demand?
Oh, yes. You know what? I'm not sure whether Dominik can decide whether he want to give a number on the China growth. I can say that the international business was the international trade part of the China activities was the softer one, and we have certainly moved further into the domestic market in China. I think beginning of the year, we mentioned 55% domestic, and let's say we are above that now. The evolution of the market is strong. We have a lot of new activities, whether it's in EHS, food, consumer good as well. The Chinese market for consumer good is becoming interesting as well. We certainly have other activities related to industrial services and so on. There are some evolution of the portfolio.
You look at the core businesses, because of the tensions in Asia, where the Chinese decide not to buy coal from other countries. We see some more local demand for local inspection of coal. It's an evolution of the services migration as well of some of those activities from an international aspect to a local aspect.
I mentioned in my remarks, the Northeast Asian countries are back to growth in the whole 2nd quarter, and this was driven by China, despite the fact that Taiwan, the people who were with us at the investor relations have seen this is a big operation, has seen growth throughout the 1st half. China's basically all the months in the 2nd quarter growing and month by month, slightly increasing their growth rate so that we have now, in the meantime, a really solid single-digit growth rate in China in the last couple of months. Obviously, there's also quite some demand for PPE who drove this as well.
Got it. Thank you.
Thank you. Next, Rajesh Kumar from HDFC. Go ahead, Rajesh.
Hi, good afternoon. A couple, if I may. What commentary have you heard from your customers in terms of how they're thinking about revising their supply chains, especially given what is happening with the disruption in terms of international travel, in terms of procuring goods from China? If we could get some color there, that would be very helpful. The second one is for Dominik. If we look at the margin declines in quite a lot of businesses, the percent of completion revenue recognition is higher. It is higher. Obviously, there's an economic factor there. In terms of revenue recognition or recognition of bad debt, how easy or difficult it was in the first half, given all the disruption in terms of the testing?
When you were doing that, did you choose to err on the more cautious side, with potential to adjust it at the full year level?
Okay. Let me start with the first part of the questions, Rajesh. In fact, the transformation of supply chain is quite interesting. Certainly, it depends on the industry and the business, the sectors. Not all of them are identical. If I take the more link to China one is the consumer goods. It is certainly an evolution. We see more and more of our customers migrating out of China for the basic textile product as well as some of the hard goods product. Having said that, China has such a capacity in terms of productions, it is almost impossible for everything to be moved out of China in those categories in the near term. You take quite some time. Typically, the locations that our customers is targeting is Indonesia. Vietnam is a hotspot, I would say. Bangladesh, India to some extent.
You have more the concept of near-shoring, which is going back to Turkey. The European market is quite focused on Turkey, while the U.S. is more and more trying to focus a bit more on Mexico and Central America as the evolution of the textile hard good product. Interestingly, for the more higher technological product, E&E product, the migration is much slower. China is still a dominant player, I think in term of knowhow, in term of design, manufacturing. China is still quite leading in that, and we see less movement there. It doesn't mean that there's not none, but there is, but it's much less obvious than for the other categories. I would say look at the different level food sectors. More and more, we talk about consume local.
You will have a small fluctuation of that, but I think this kind of trend is not significant enough for the time being to disturb a little bit the supply chain of food product from China yet. You have the Industrial sectors as well that see some migration of some of the heavy industries to other locations. I would say these are the more minor ones. Automotive sectors, a little bit of moving back to North America or to Europe. I would say to a much less extent that we see in the consumer good migrations.
To your second question. Basically, I think first of all, we are pleased with the drop-down ratio for the first half of 26%. I think there are three components. First of all, obviously, one key point that we achieved is was the structural cost optimization from last year. This was implemented before COVID. It was basically done, have nothing to do with COVID, but obviously, the savings are now there. The second point is really about to try to use all levers to stay flexible and try to adjust the cost base based on the needs, whether it will be overtime, whether it is flexible workspace or workforce, excuse me, to be used and manage this. I think the organization did this extremely well because we have to consider that the drop happened quite significantly in certain jurisdictions.
The challenge, I would say, is more about sometimes regulatory environment, right. Because there are still jurisdictions where you cannot do it because of temporary regulation. By the end of the day, that's the same for the competition, right. That's just how it is, and management has to deal with this. The third point is really, and this is what we and the whole team at OC intensively did, is really to assess business by business. Are there maybe some concerns that the pickup will come not that quickly or that it will not go that quickly to a new normal, right. If you think about the aviation industry, it will take a long time until the aviation industry will come back, and maybe they have less needs. Obviously there needs to be a further push in structural optimization.
This is what we did and applied this or are still in the process, because in some cases, it's still an ongoing discussion. The majority, as I mentioned, was recognized in the restructuring cost for the second half. I think it's just management responsibility, but we always did this in a way that we take out cost, what is needed, what is necessary, but should not interrupt us if the demand is coming back, that we cannot supply. I think, frankly, myself and the team, we feel comfortable. As soon as demand is coming back, we are able to provide the service in very good quality and show the right returns out of it.
Understood, sir. Thank you.
Okay. Thank you very much. Next, George Gregory from Exane. George, go ahead, please.
Thanks, Toby. Afternoon. Thanks. Afternoon, Dominik. Just following up on that previous question, on the drop-through. The organic drop-through in the first half, I think was around 30% or in the low 40s, if we adjust for the CHF 45 million structural savings. Are there any reasons why we should expect that to be materially different in the second half, excluding the structural savings, the incremental savings? I know it's obviously difficult when we don't know what the pace of recovery might look like, but how should we think about the drop-through next year, as hopefully revenue starts to recover? Thanks.
I think in general, even for the second half, it depends also a lot how the revenue is developing. If you have 1% more or less revenue growth, it impacts the drop-through. In underlying, there are no general reasons to think differently about it. Obviously, you need to consider that the annualized CHF 90 million savings towards the second half or at the later stage of the second half, you come to a base effect because this program last year started to build the first CHF 50 million. As I mentioned in the other question before, we also have new savings kicking in from the measures we have taken now. In general, I think it's a fair assumption what you just said. Now, when it comes to next year, we still have uncertainty and don't give an outlook for this year.
I think it's not appropriate to give a complete outlook for next year. In general, I would say that if the recovery at a certain moment comes, we will have, relatively to the history, rather strong drop-through ratios. Let's answer this in this way.
Thanks, Dominik.
As an increment margin, they said, sorry.
Next we've got Andy Grobler from Credit Suisse. Andy, go ahead, please.
Hi. Good afternoon. Just a couple if I may. Sticking on the theme of costs, within the first half, to what extent were the savings related to furlough schemes, and how much of that is going to drop out into the second half? Secondly, within consumer, the E&E division was strong. Do you think you're taking share within that end market? If so, what is driving that change?
The first question was regarding furloughs? The basic government subsidies. Is this correct, Andy?
Yeah, government subsidies.
Basically, we recognized in the first half, CHF 20 million. It will be somewhat less in the second half, it will be not materially less because often the systems are basically implemented by governments until the end of the year. In some areas, we have people, they will come back to work and then there is no need anymore for using it. I do believe there is still a relevant impact in the second half, and if it's less, then it's actually also a good sign because that means that our people have more work and we can bill more.
On the E&E product evolutions, we've been quite strong indeed. There's different services where we've been pretty good and we're gaining volumes, whether it is safety, whether it is chemical testing on some of the electrical product. I would say the crisis is also hitting some of our smaller competitors because of their abilities to deal with the lockdowns. I would say, I don't know who was taking market share from. I would simply say that we know which customers is giving us more volumes, but I would assume that some of those volume would be coming from smaller competitors that cannot deal with the current lockdown situations. Some of the markets is also growing. There are pocket of the global market in the E&E side, it is still growing, which will also benefit things from that growth.
Okay. Thank you.
Thank you. Next, we have Julien from Societe Generale.
Hi, Toby. Thank you. Most of my questions were already answered, just two questions. The first one on the Industrial division. Do you expect the division to remain under pressure over 2021 due to the situation on the oil and gas market? The second one is, could you give us an update on your 5G activities? Do you see slowing trends due to the current situation? Thank you.
That's the five years.
Oh, I didn't-
I'm sorry.
I did not understand.
The second question was on the what activities?
5G.
5G.
Sorry, I apologize. Yes, I apologize for that.
Yeah.
I'll take the 5G.
Yeah.
In fact, not really. In fact, if you look at our 5G labs in China as well as in Korea and Taiwan, the activities in Taiwan has been very strong. The Korean activities, it's been delayed because of our customer's launch date. Obviously, when you have a soft consumer market, some of the 5G activities linked to our mobile phone and so on, they have tendency of trying to time little bit the launch of their new models and so on. We see a delay on that, but the orders are not canceled. In fact, we're seeing some of those going back into our laboratories. China is quite steady as well. You look at the evolution of what we call the connectivity, where the 5G is more than just mobile phones.
You see this kind of 5G technology in more and more of the automotive sectors and some of the other industrial sectors. In fact, we are seeing quite strong momentum for the 5G sectors. When Dominik spoke about investment in the future into core strategic development in our CapEx for this year, 5G is one of the sectors that we have invested, and we believe that the market will pick up in strength and momentum.
Regarding Industrial, as I mentioned before, one-third of the decline rate in Industrial is also related to the fact that we focus on value-creating business. This will, of course, over time, in terms of decline rate into second half, also into the following year, phase out. Obviously, we have a certain exposure to Oil and Gas. How this is developing next year, it really depends on what's happening in the oil market or oil and gas market. Obviously, strategically, we focus also on other segments, or we'll focus more within Industrial and other segments, who are maybe in the long term, less under pressure than Oil and Gas. Have more opportunities, put it this way.
Thank you. Right. Okay, we've got one more question on the call, and then there's a couple which have been submitted by the webcast, which I'll read out. [Tom Belsom John O from Berenberg], will you ask the final couple of questions?
Thanks, Toby. Good afternoon, guys. Just two from me. Just on the new COVID related sort of revenue streams and opportunities, I'm just curious, given it didn't seem to make a huge revenue impact in the first half. I'm wondering whether there were any sort of, whether there's any front-loading of costs, maybe on any of those contracts or those new wins. I'm just wondering whether there might be any sort of margin impact, I guess, if you front-loaded costs and maybe taking the revenues or starting to book revenues then in the second half. The second one is just to follow up on one of the earlier questions regarding new modes of working in the tech sector.
If there's a sort of increasing uptake on remote inspection or so forth, whether you expect any sort of notable impact on either sort of pricing, productivity or margin that we might see coming through sort of over the medium term. Thank you very much.
Let me start with the first question. It's not that a lot of these contracts were recently signed, because also for clients, it has taken some time what they need and want to do, but very strong pipeline. We signed a lot of contracts. I think we have also an internet link where you can see all these new services. When we are allowed by our client to talk about it, we of course also mention this there. There are not really a lot of, let's say, upfront costs, but what is fair to say, given the fact that we have seen this opportunity, we also stick to a certain level of capacity. We're anticipating delivery in that respect, and we want to deliver this in a very good way.
It's more anticipation of that service generating revenue, but not contract-related pre-costs to be considered.
If I go to your second question. Interestingly, for the time being, I don't see any price pressure or cost pressure with those new solutions. In fact, our customers see that as an added value as well, because we spoke about earlier about evolution of the supply chain. Of the new normal, I would say, where a lot of our customers do not necessarily want to travel. In fact, we ended up in the situations where we become kind of their QA, QC eyes and ears in the ground more than before. We're starting to do those activities beyond the traditional inspection activities we're having. We're actually doing some of their QC, QA, QC work as well, which usually is done by their own procurement arms.
We are expanding these services, and they're quite happy about that because both ways, the customers could do some of those remote activities by themselves, or we can do those remote activities on their behalf. The two actually add value into their supply chain. In the medium term, I don't see any particular pressure on the price, on the cost. In fact, we bundle that solution into our total services, and it's something that allows us to be more efficient as well.
Okay. Thank you very much. That's the end of the conference call questions. There are a couple on the webcast, which I will read out. The first is, could you comment on the commitment to the dividend, given that we've been running a 90% plus payout ratio since full year 2015?
We have a clear dividend policy and in line with earnings growth, but at least stable in general. If we look to the strength of the balance sheet, if we look to the free cash flow, which we generated, we are not concerned about this.
Okay. Thank you very much. Very clear. The final question is, how much revenue did the Ghana contract contribute in 2019? Was it close to the divisional average margins? What is the expectation regarding the recovery of the Ghana contract bad debt provision?
If we look to the Ghana contract, the Ghana contract was stopped towards the first half this year, and it contributed this year. It was pretty stable business, around CHF 12 million. Last year, around CHF 24. You basically miss from a year-to-year comparison in the second half the CHF 12 million. The profitability of these kind of contracts usually are somewhat higher than the group average. From a bad debt point of view, we recovered some bad debt, but not all outstandings. I clearly want to point out that in terms of service delivery and quality, this was everything perfect. The government walked away out of existing conflicts, so it's basically a breach by the government, where we currently assessing the opportunity for a claim.
Okay. Thank you very much. Well, that brings us to the end of the call and the end of the webcast. Thank you very much for everyone joining, also for those who asked questions. We look forward to speaking to you and hopefully seeing you at some point in the not too distant future. Have a good afternoon. Bye-bye.
Thank you.
Thank you.