Securitas AB (publ) (SECUB) Earnings Call Transcript

Good afternoon, everyone, and welcome to our Q2 call. I'm Magnus Ahlqvist, and I'm here today in Stockholm, while our CFO, Bart Adam, is in Brussels. First, I would like to start by highlighting the tremendous contributions by our people, together with our clients, in the last few months. These have been very challenging times and a very different quarter, and the Securitas team has shown incredible resilience and ability and adding important value and helping our clients and society at large. But let us now turn to performance in the quarter and the overall situation, which is heavily impacted by COVID-19. So like I said, this has been a different and a challenging quarter. Organic sales growth was a negative 4%. And there was a COVID-19 impact on all segments, the most significant impact in Europe, mostly related to our larger aviation presence. While we had more negative growth in April and May, we recorded minus 2% organic sales growth in the month of June. The operating income and margin were impacted by COVID-19, and we had a negative impact in all business segments, but as stated earlier, the largest impact in Continental Europe. Operating margin of 4% compared with 5% last year, and the operating margin was supported by short-term cost savings activities but also supported by various government grants in the quarter. But we were on par in terms of price wage in the first half. And this is, as you all know, always very important for us. We had a strong operating cash flow in the quarter of nearly SEK 2.7 billion, and this was supported by lower organic sales growth and positively impacted by timing effects related to payroll and VAT in Europe and North America. But looking ahead, we face continued uncertainty during the coming 6 to 12 months, and we continue to take actions to ensure that we come out stronger from this situation. And in light of the COVID-19 situation and the general uncertainty, we are launching a cost savings program. And the emphasis of this activity is in Europe and we expect the cost between SEK 350 million to SEK 500 million and a 2-year payback period. But I will come back and talk a little bit more about this program later on. In terms of COVID-19 demand impact, we see differences, positive and negative, between divisions and countries and even within countries. And looking across the segments, our aviation business is the most severely hit. But security services are considered essential services, and we have seen increased demand for several temporary services, especially then from health care, retail and banking sectors and also for corporate risk management. And due to the corona pandemic, there has been a clear reduction in commercial activity. And this is also something that has affected our important solutions sales in a negative way during this period. But having said that, this is an extraordinary situation. And while we are managing the short-term challenges with our clients, we're also having a lot of discussion with the clients about how do we provision and build the security equation in the new normal situation. And I believe that with our offering, this is a significant opportunity for Securitas as we go forward. Various government programs have helped and mitigated the negative impact, and we currently have around 7,000 people on temporary unemployment schemes. And this is 3,000 less versus 3 months ago, and the number is reducing. But in light of the situation and continued uncertainty, we have taken a conservative approach and increased provisions. Now let us turn to the progress of solutions and electronic security and then to the different business segments. And looking at solutions and electronic security business, these areas have been affected by the corona pandemic. And in terms of electronic security, we had a strong negative top line impact at the beginning of the quarter, a situation which has improved but was still negative at the end of the quarter. But looking at recent acquisitions, the integration activities of Techco in Spain and Fredon in Australia are progressing well despite the circumstances. And while we paused all acquisition activities due to the COVID-19 situation, we are now looking forward to resuming these as soon as the situation normalizes. And let us now turn to the performance in the different business segments. And we are starting with North America. So we had negative 2% organic sales during the quarter, and this, I should highlight, is on strong comparatives. And the negative organic sales growth was related to electronic security installation business and critical infrastructure services. Corona-related restrictions and lockdowns had a negative impact in both of these areas, and reduced service levels due to the corona pandemic were partially offset by extra sales related to the pandemic. Guarding was stable in the quarter, and our team did a very good job compensating reduced portfolio sales with extra sales and helping meet client needs. And from a margin perspective, operating profit margin declined to 5.6% in the quarter. And this decline was primarily related to the already mentioned electronic security installation-related and critical infrastructure services, and both of them then related to corona. And we have undertaken short-term cost savings actions in North America. And here, our team have been proactive and doing a very good job to mitigate the negative impact. And the operating profit margin in guarding contributed positively, thanks then to favorable service mix with more temporary services, as I mentioned earlier. But in light of the increased risks in the business environment, we have increased provisions related to employee benefits and collection of outstanding accounts receivable, and these provisions had a negative impact on the margin. Turning then to our other large segment, which is Europe. We had negative 6% organic sales growth in the quarter, and this then compared to 1% positive in the same period last year. And this was mainly explained by the impact from COVID-19 and a significant impact on our aviation business. But growth was also negatively impacted by the previously announced contract losses in France, the U.K. and an aviation contract in Norway. A few countries such as Sweden had positive organic sales growth in the quarter. And when looking at the quarter, we saw significantly less decline in June compared with the previous months, but still negative numbers in the month of June. From a profitability perspective, the operating profit margin in Europe in Q2 was 3.6%. And the decline was primarily related to the negative impact from COVID-19 with significant negative impact from aviation. And this negative impact on the related idle time costs have, to some extent, been offset by corona-related government grants and support in several countries. A few countries supported the operating margin, primarily a few countries in the Nordic region and France. And with that, we then turn to Ibero-America. And looking at Ibero-America, organic sales growth was minus 1% in the quarter on very strong comparatives, especially then from Spain. Organic sales growth turned negative in Spain due to the corona pandemic as well as the previously communicated reduction of short-term security solutions contracts. And we saw a mixed picture in Latin America with negative development in a number of countries, significant part of this impact then related again to airport security. Security solutions and electronic security reached 30% in the quarter, and this was also supported by the Techco acquisition. The operating margin in the quarter was 3.9%, and the decline was primarily related to the negative impact from COVID-19 and the previously mentioned factors in Spain. Government grants and support in several countries have helped offset costs for idle time. And Peru burdened the margin in the quarter, and we have continued challenging conditions in Peru as well as in Argentina. And with that, now handing over to our CFO, Bart, for more details on the financials. Handing over to you, Bart.

Thank you, Magnus. And so we turn now to the financial information to the quarter. And as Magnus has explained, quite some underlying pieces that moved in the quarter, and it was, for sure, not a business-as-usual quarter, but a quarter during which all of our people and our business, I think, has demonstrated great resilience. I can confirm that since the start of the COVID-19, we have really focused on the 4 key matters: That is our people, to start with; our clients to continue vendor services; and then the financial stability, sustainability of our business to focus on cost control and focus on cash flow. And I think we have seen tremendous efforts from the team, from our officers, our technicians, our branch managers, our commercial people, our business leaders, I should say, really, many thanks to all of you. Also tremendous efforts from all of our people that work with the back office and company infrastructure. I can say that all different processes and functions, all of this works well, and that is thanks to good business continuity planning, combined with strong cooperation amongst the team and commitment of each individual. Thank you so much. Now turning back to the financials. I mean, the operating income has been helped by proactive cost savings actions initiated within the different businesses and within very different parts and lines of our income statement. And that is -- has been done largely within all the different businesses. Further then, the operating income has been positively affected by around SEK 350 million in corona-related governments and grants and support, and that is offsetting then, to some extent, increased cost levels mostly from idle time that we have in the business. The vast majority of these government grants relate to segment security services Europe and a part also to Ibero-America, but very little of such in North America. And that is, of course, consistent with the fact that we have most of the people on temporary unemployment in Europe as well. The operating income was further negatively impacted by an increased level of provisions of SEK 300 million, and these, too, reflect increased risk that we see. We see, in general, increased risks in our business environment, relating mostly to certain employee benefits such as, for instance, health care-related, and also increased risk related to collection of outstanding receivables. For these matters, we always have provisions in our balance sheet all the time. But now in view of the increased risk environment, we have increased some of these provision levels. And so based on such, we have then increased up to an amount of over SEK 300 million hitting then this quarter in the income statement for such an amount. And here, the provisions were more spread over the totality of the business with a bit of an overweight in Security Services North America. Then we turn to the line of acquisition-related costs. The reported amount of minus SEK 63 million here in the quarter, ending up then at minus SEK 80 million for the first half of the year. And this entirely relates to the earlier closed acquisitions, as referred to, mostly in Australia and Spain. For these acquisitions, we could expect another minus SEK 25 million for the remainder of the year, adding then to around an expected SEK 100 million for the full year, unless, of course, we would make any further acquisitions during the remainder of the year. We then move to the line items affecting comparability. And here, we accounted for minus SEK 61 million in the second quarter. And these items affecting comparability relate entirely to the 2 transformation programs we talked about before. We had for these 2 programs minus SEK 209 million for the full year in 2019, and now we have minus SEK 106 million for the half -- first half year. So we continue at more or less the same average speed from 2019. We referred earlier to a total of SEK 650 million of items affecting comparability that shall be accounted for and related to these 2 programs and that during the period 2019, 2020 and some part in 2021. And that SEK 650 million is still the relevant amount to consider. For 2020, we have said before, we could see an amount of around SEK 250 million, everything depending a bit on the speed of the different implementations. And we can confirm that our ambition with the programs has not changed. And broadly speaking, the 2 programs are on track. And there might be some delays as a result of COVID-19. But so far, nothing out of the extraordinary. Then on financial income and expenses. A bit lower amount here as an expense in this quarter, reflecting then the development in the net debt, as we will turn to in a second. Moving to the tax line. Here, the estimated full year 2020 tax rate is 27.0%, a bit below the earlier estimated 27.2%, ending then in the quarter at 26.8%. And if anything, we see some downward effect on the tax rate resulting then from the different mix in results compared to business as usual. Then I go to the next slide. And here, we consider the impact from the different currencies and the development thereof. And we can be rather short here as there have been very little -- very limited effect from the foreign exchange development. We see here that the end rates for the U.S. dollar and the euro to the Swedish kroner are pretty much on similar levels as they were 12 months ago. And these rates were actually dropping a bit during the quarter after reaching a 10-year peak level towards the Swedish kroner at the end of March, actually. We then move to the cash flow. And here, as in the first quarter as well, we had strong cash flow coming in during the second quarter. We see in the first half year net investments of SEK 61 million, minus SEK 61 million, and that results from investments of a bit more than SEK 1.4 billion and then reversal of depreciation of a bit below SEK 1.4 billion. As you know, with IFRS 16, our CapEx gets inflated, and that is from around SEK 2 billion previous year per year to an amount of SEK 3 billion. So capital expenditure, including IFRS 16, is around 3% of group annual sales. And that will make around 2% if we were to exclude leases as it was before IFRS 16. The operating cash flow was very much positively affected -- impacted by collections. We had good collections in the quarter, and that is through a lot of focus and effort from the field on this matter. And then we shall also add that the operating cash flow was helped also by lower organic sales growth, and that by itself is an important impact. What I mean is that the lower organic sales growth adds about an estimated SEK 1 billion to our operating cash flow at the end of H1. Then we also had a positive effect on the operating cash flow of approximately SEK 900 million from timing and from relief measures of payroll tax and value-add tax payments in Europe and in the U.S. in the first half year. So we had about SEK 350 million of such matters in the first quarter and now another SEK 550 million of relief was added in Q2, ending then to SEK 900 million in the first half year. About half of that SEK 900 million relates to Europe and the other half to North America. And going forward, then we should take into consideration that for the European effect, that will mostly neutralize during the remainder of the year as we will have to make such payments during then the second half of 2020. Only a small amount is expected to remain at year-end. We do expect, however, a positive effect from the U.S. measures on a full year basis as payments are due only in 2021 and 2022. And the total amount we expect for '22 then from U.S. is over USD 100 million. So all in all, I believe we can conclude we have a strong cash flow also when we would exclude these corona-related effects. And we will continue to work closely with our cash and liquidity. And we will continue, of course, with the implemented measures related to the COVID-19, and that is close monitoring of accounts receivable with strict collection procedures. We are postponing certain discretionary projects. And we also, of course, closely follow the cash relief programs from the different governments. Which brings us then to the net debt. And here, we can see that the net debt in end of June ended at SEK 15.9 billion, and that is considerably down from the SEK 17.5 billion at the end of last year. Remember then the jump when you look at the graphs here in between 2018 and 2019 as a result of the IFRS 16 implementation, which by itself made the net debt increase with SEK 3.3 billion. And now in the first half of 2020, we had a positive free cash flow of SEK 2.1 billion, as we have seen also on the previous page. And then we paid an amount of a bit more than SEK 400 million acquisitions. And then those 2 matters combined, to a large extent then, reduced the net debt with around SEK 1.5 billion from around SEK 17.5 billion, as said, to just a bit below SEK 16 billion. Then we would normally have paid a dividend in May, but then that proposal was withdrawn by the Board. And as previously communicated, the Board may consider later to resolve on a new dividend proposal. And then when you move to the graph again, we see that the net debt in relation to EBITDA is on 2.1. And that is also after IFRS 16, which then I believe is a very good number by itself, which stood -- actually ending at 2.9, 12 months ago. Then we go to our financing. We have our debt maturity chart here, and we have earlier commented that we renewed the RCF. We further added, meanwhile, 1 more bank to the consortium, and it's now a facility with 10 core banks for a total amount of SEK 10 billion. The facility is for 5 years then with a possibility to extend to 2027, and the facility is totally unused at this point in time. Standard & Poor's confirmed our rating on BBB but changed the outlook from positive to neutral, and I believe that, that is more a consequence of the general uncertain environment rather than a specific Securitas matter. We continue to have ample headroom in that rating. We have very good liquidity at quarter end, which amounts to over SEK 4.5 billion in cash. And then, as said before, the RCF, fully undrawn. As also discussed before, we have no financial covenants in any of our facilities. And as you know as well, we do not use any off-balance sheet factoring or supply chain financing. I'm always happy to answer that question, but now I'm giving to you anyhow. And then based on our strong balance sheet, with net debt-to-EBITDA at 2.1, and I should also say that with this combined solid financing in place here, I believe we are very well positioned for the future and, we strongly believe, in a strong position to continue and to execute on our strategy as we have laid it out, which you -- I shared it with you at the end of last year. And with this, I'm handing back then to Magnus.

Very good. And thank you, Bart. So before we open up for the Q&A in a few minutes, I just wanted to share some more context and updates related to COVID-19 and also then priorities for the coming months. So as we communicated earlier, we started the crisis -- the first, I should say, crisis response team in January this year. Both Bart and myself have highlighted the 4 main focus areas. We have kept on working with these 4 main priorities for the last 5, 6 months, and we continue to work with this also in the coming months given the general uncertainty in the global environment. And looking then at the first 2. First priority from the beginning has been the health and safety of our employees. And to this end, we have continuously been working then to build and share knowledge and practices, leveraging our global and local presence. And here, it's become clear that from a Securitas perspective, we are strong believers in a strong decentralized business model. And the leadership that we have and this model has really helped us by staying close to our employees and clients to manage this type of crisis situation in a very strong way. And once again, thanks to the fantastic leadership of many, many thousands of people within the Securitas team. From a client perspective, we are working on the near-term priorities. And that is continuously how we handle the situation right now and how we leverage our range of protective services and our capabilities to meet and address the needs and the pain points from the clients in the short term. But as I mentioned at the introduction, we're also having a lot of discussions with clients now in terms of how we -- then looking and clients looking for new solutions in what will be a new normal as this situation is normalizing. And given the strength and the investments that we have been making in terms of not only very strong guarding but also strong technology, electronic security and solutions capability, this is a real opportunity for Securitas as we go forward. Looking at cost control and cash management. Bart already highlighted and we also shared a fairly similar view with the Q1 results. And as you can see here, we have implemented a comprehensive set of measures to manage costs as well as cash. But now I would also like to share just a few more comments and some context to the cost savings program. And as we've highlighted earlier, we are continuously monitoring and taking actions to protect our financial position. And in light of the impact from COVID-19 and the uncertainty in the environment during the coming 6 to 12 months, we have started to implement the cost savings program. And we are taking a more comprehensive view to secure that we improve profitability across all parts of the business in the mid and the long term. And we are doing this not only, I should say, in the light of the current situation but also to accelerate and strengthen our strategic execution. All the decisions that we are taking are also fully in line with the strategy that we communicated externally in December. So this means looking at direct and structural or indirect cost savings where we see that this is needed. And while a group program, I should say that the emphasis of this program is in division Europe. And we estimate the restructuring costs to be in the range of SEK 350 million to SEK 500 million with a payback time of 2 years. And we expect the first positive impact from this to be seen in the fourth quarter of this year. So with that, let us sum up the quarter. Organic sales growth of negative 4% in Q2 and minus 1% in the first half, a 19% negative real change in operating income. And this is a challenging situation, significant amount of uncertainty regarding the development also as we go forward. But we have a strong position, strongest offering in the market, strong balance sheet, very good client relations and cash position. And we are actively managing -- monitoring, I should say, and managing the situation with clear priorities and actions and always ensuring that we have the readiness to take further actions as required. So with that, let us now open up the Q&A. So handing over to the operator.

[Operator Instructions] The first question comes from the line of Edward Stanley from Morgan Stanley.

I've got 3 quick ones. The -- you talked about the extras business now being 17%. So there's been a 300 basis point net increase, assuming some events and things have dropped out of there, which is obviously great. I'm just trying to establish where most of that business is coming from. I suspect it's across a number of industries. But is the majority coming from retailers, shops open or offices as people go back to work? Can you -- I'm just trying to understand how long these contracts may go on board, whether it's a quarter or half a year or a year, for example. And the second question, on these provisions, I think you alluded to Security Solutions North America having a larger portion. But if we think about the provisions linked to receivables, are these on receivables of existing customers? Or is this on new work that you've won from you first-time outsourcing and you're concerned about receivable risk because they're new customers to you? I'm just trying to understand a bit more about why the receivables are suddenly at risk. And finally, you've had SEK 1.8 billion swing in free cash flow, which is obviously fantastic. But to what degree do you think some of those tax deferrals and postponements will unwind in the second half? So I guess the question is, of that SEK 1.8 billion swing, how much should we expect to sort of swing back the other way in the second half?

Thank you, Edward. I will start and address the first question. And then I think I'll hand over to you, Bart, if you want to take question related to provisions and cash. So when you look at the extra sales, to give some more context, first of all, we have seen more extra sales in North America in general. And there, the extra sales have then helped and compensate some of the temporary reductions in portfolio business. The main drivers, if you look at segments, very much related to health, where we then have a few -- or clients that are essentially looking for support to be able to manage in the COVID environment. Retail -- and retail could be different types when you look at us from a guarding perspective. Some of the adjusted project idle assets has been one aspect of this work that has been quite important. Another one has been also to make sure that the retailers as responsible businesses are also COVID-19-compliant. So that could also then be controlling and essentially then ensuring that there are not too many people in the store, those types of measures. Banking, same from a number of customers that we've also then had increased demand from the banking segment. And those examples are very much from the kind of the on-site guarding. We also have the leading mobile guarding network in North America, and we've also seen increased demand there. And those could be, for example, closed offices, et cetera, that require surveillance and that we control or do control runs, so beat patrol, et cetera, as one other example. What we are also looking at, but that is also a little bit depending on viability of technology, is also then, to a lesser extent, I should say, but where there is clearly a need in the market. But we always only want to create solutions that are really effective. That is also then when we are leveraging technology. So there, our electronic security team are also working with very high standards in terms of how can we leverage technology also to help with screening procedures, et cetera, as well. Second, I think the second part of your question, and I hope the first part of the answer addressed some parts of that question, but that's also then how long is this going to last? And frankly speaking, that's a bit difficult to tell at this point in time because we have been quick in mobilizing, quick in -- or thanks to good client relationships, to be able to understand the needs and to also be able to meet them. But it is difficult to say how long will that last in a more normalized situation because it depends a lot on when will the situation normalize. And now obviously, we see a very different picture when I look across the U.S. in terms of the overall COVID-19 situation. If you're looking at Europe, just to complete the answer as well, less extra sales in general compared to what we have seen in North America, but clearly, demand for a number of temporary services and also fairly similar in nature to the examples I mentioned for North America. So with that, Bart, if I hand over to you then, related provisions and cash.

Yes. Very good. So when it comes to provisions, yes, we have, of course, existing accounts receivable from invoices that we have sent out to our customers. And we follow a staircase model to put up certain provisions. That is the older that those receivable gets, we will then reserve a certain provision. We will set aside a provision for some customers that might not be paying. And that is a model that has proven itself over a very long period and in many different circumstances to work well so that we are well provided for any accounts received that might not be paid in the future. What we have done now, we have really -- and that is a judgment call, to a large extent then, from our different people working with this, we have increased that provisioning level in this quarter, so that the totality of our provisions are on the higher end than over normal staircase model, reflecting basically the increased risk environment. We could see that so far, we haven't seen too much of bad debt, I should say, nothing out of the extraordinary. But we believe, of course, in view of the uncertainty that is caused by COVID-19, that it might come to a situation where there's a little bit of an increase in some customers not paying part of their invoice. And that is why then for a provision that is dealing with this matter, and that is sitting in our balance sheet, has been increased during this quarter, so that the total provision then reflects, to say, the new risk environment that we could see in relation to receivables. So it's mainly to existing customers where we could see an existing services that there is -- might be a potential problem going forward. It's a judgment call at the end of the day. When it comes to the free cash flow, we had, in the first half year, a SEK 2.1 billion in free cash flow and then SEK 0.9 billion, SEK 900 million, was coming from relief measures from the governments, half of that in Europe, you could say, and half of that in North America. So SEK 900 million in the year-to-date in the first half year, half of that will go away. The European part will largely go away. And so that will reverse in the second part of the year. The North American part will increase. The North American part, we expect then at the end of the year, we will have over USD 100 million support or timing relief support in the U.S. So all in all, for the full year, you could then expect that like SEK 1 billion will be -- more than SEK 1 billion will actually be helping our free cash flow for the full year 2020. And I think with that, I have answered those questions.

And the next question comes from the line of Andy Grobler from Crédit Suisse.

Just a couple from me, if I may. You hope -- you gave the exit rate in June for the group. Could you give that for the regions as well, if possible, please? And then secondly, you talked about the government support in terms of furlough schemes in total from a P&L [ perspective ] in the first half. What are the expectations for the second half at this point? I realize things may well change before we get there. But what are you thinking at this point?

Yes. So thank you for the question. In terms -- I'll take the one on the exit rate, and then I hand over to Bart on the second. We had -- like I said, we had a negative 2% exit rate in the month of June compared then to minus 4% in the third quarter. And we are a few percent better in North America. We are a few percent better in Europe, smaller difference in Ibero-America, and so encouraging from that perspective. May was the toughest month in the quarter, but encouraging signs towards the end of the quarter.

And the -- sorry, do you want to continue, Magnus?

No.

On the second question then about the government support measures, and I understand you refer now more to the income statement support measures rather than to the cash flow measures because we just handled those ones from the previous question. So we have -- you maybe remember that when it comes to the Q1 call, we said that at that point in time, we had around 10,000 people on temporary unemployment. That has now reduced to 7,000. So we hope and we believe that we will further reduce that during the next months. But of course, everything depends a bit on the situation as well. So we believe that our color on some of these government measures will probably reduce. Then the second question, of course, to what extent will these government measures remain in place? And that is really difficult to say, but we believe that they will not be just cut like that, that it's very many different schemes and many very different countries involved in this. We monitor it very closely. Our people are on top of it all the time, and we do not think that they will just be cut like that. And some of the major programs have being prolonged or at least will also continue for the next quarter, we think. At the same time, everything is a bit in uncertain environment. But as I said, we manage it in the best possible way. So 2 effects as a conclusion: First of all, the number of people that -- within the company that have to rely on these schemes are reducing. Secondly, we do believe that the government measures will stay in place during a certain period of time going forward. But we cannot say how long exactly because I think no one really knows.

I just have a quick follow-up on that. In terms of the 3,000 people that have come off those schemes, have they or the vast majority of those people gone back into revenue-generating roles?

Yes. That is correct.

Yes. [ We had some profits ], yes.

And the next question comes from the line Rory McKenzie from UBS.

It's Rory here. My first question is, could you say how big the drag was from the delays in electronic installation work that you referenced? And also, have you seen any actual cancellations? Or is it all just being pushed back? And then related to that, are you seeing any signs or are there any hopes that any of the short-term work could actually convert into new installations or new longer-term contracts?

Yes. So the -- when we look at electronic security on a top line perspective, North America is the region where we see the biggest impact, so a few percent negative when I look at the overall impact on the division. Guarding, positive growth in the quarter. So I think for completeness of the picture, it's essentially electronic security, a few percent negative; critical infrastructure services, a few percent negative; and then you have a few percent positive on guarding if you look at the impact. One important part here, of course, is that the backlog is something that we are following because that should also be an opportunity to recover. And generally speaking, the order backlog is good. So I think those are the most material impacts worth commenting on in terms of installations as part then of the electronic security business.

Okay. A second question then on the cost base. You've been clear about how the government support schemes are now kind of tapering off. Are there any other temporary cost measures that might taper off into H2, for example, salary reductions or other cost freezes? And just obviously, you had a really strong -- well, a better-than-expected margin performance this quarter. So interested to know if any of that was also more short-term benefits.

Yes. I mean, when you look at the total picture, we had a decent start of the year before COVID-19 and had expectations on pretty good development in North America, stable development in Europe. Looking then obviously to your direct question, comparing second half to the first half, there are a few that are more kind of self-regulating. And that's obviously with restricted travel, bonuses, et cetera, that are very closely tied to operating result real change. Those are kind of self-regulating and obviously helping, but we also see some of that impact also in the second quarter.

And the next question comes from the line of Sylvia Barker from JPMorgan.

Three questions for me, please. Going back to the provisions point, could you maybe just talk about the types of customers that you're providing against? Obviously, you have a lot of SMEs on the mobile side, sounds like you're seeing some additional demand. But are you concerned that some of them might actually be insolvent perhaps? Or is it more related to larger customers? Then secondly, on the European cost savings program, could you maybe elaborate a little bit more how much of that will be labor-related savings versus kind of other savings? Obviously, you had one program not so long ago, and you have been talking about doing a similar transformational program to the one that you're doing in North America. So to what extent is this like the North American program in any way? And then finally, on aviation, could you comment on the revenue trends that you're seeing or you saw during the quarter and where you are now? And maybe whether most of the furloughs relate to -- or employees still on furlough relate to that business.

Bart, do you want to take the first? And then I can take the second -- or the second last question, I should say.

Yes. On the provision, Sylvia, so under IFRS 9, we need now to work and provision for potentially expected loss model. So the moment you account for an invoice, you also need to have a model that basically says, look, this is what we, in general, might expect as bad debt coming out from this invoicing. So we have now basically invoiced all of our customers during the quarter. We have been also in line with IFRS 9, then major provisions for any expected losses from that, and that is basically what has happened now. We believe that in general, there's a higher risk that some of those receivables will not be paid compared to before COVID-19, which I think is a fair assumption to make. And for that reason, we have increased the totality of our provision. And then to say what type of customers, well, the model is not -- it's not based on individual assessment. So it's not like an individual assessment we have done customer by customer. Of course, if there are customers where we know that there is a certain risk, then we will take that into consideration. But in general, you could say that the concern is more around SMEs and smaller customers compared to larger customers. But then you also know if a large customer would have a problem, then it will also be larger invoices. So yes, it's a bit of a generic answer. But that is really how it works as a model and then how we have now worked with that model and have put some judgment on top of that during this quarter in order to make sure we have the right provisions then from where we are today.

Yes. And then to the second question about -- I mean, it is a group cost savings program, I want to emphasize that. But the emphasis is correctly, like you said, in Europe. We had negative 6% organic sales growth in the quarter. And when you look at that, we need to be in good shape also from management/indirect cost perspective. And with that type of development, we're obviously not happy with the margin that we did generate. So yes, some part of this will be related to employees, but details of that we have not finalized yet. But we have obviously -- and that is part of the reason for the estimate. And then the other very important part is that, that we have some parts of the business that are challenged in light of the current situation. And we are doing this or undertaking this program to also be able to be strong in terms of ensuring return to profitability and that we have good profitability in all parts of the business. And that is the same in Europe but applicable for us around the world. This program is also in addition to the other programs that we are driving, and we have previously also highlighted that we will come back with updates related to the business transformation program in Europe. And that is something that we intend to do in the fall. But this is a program then that we are really driving now to make sure that we are enhancing profitability and coming back to a good level but, as I mentioned earlier as well, making sure that any decisions we make are also helping and strengthening and accelerating the strategic direction that we are on. I think that the other question was related to development during the quarter within aviation. It was not a very strong quarter in general. Some easing towards the end, but nothing that remarkable, I would say. So obviously, a lot of this we have, in aviation, presence at more than 200 airports around the world, and you all know as well the general situation related to air travel at this point in time. And in terms of the furlough, yes, a significant part of the people who are on temporary unemployment are related to aviation. But we don't have an exact split to share there. I hope that answers your questions, Sylvia.

Maybe if I could just follow up on the aviation just briefly. Is there any potential for you to maybe renegotiate any of the contracts and the way that you get paid on that, if there is a volume element normally?

Yes. And that is an important question. I'm glad you bring that up. This is important. We are in a new situation, and we are focused on delivering really good services with high quality. But those services, they generate value for the client, but they also generate value for us. If we are not able to find solutions there in terms of renegotiating to satisfactory development so that we can see that we have good profitability in the middle or the long term, then we will work to terminate those contracts. So that is worked in a task force that we started a number of months ago. Some contracts we have longer contractual periods, and we obviously have to be respectful of any commitments that we have made. But this is one important part and also one reason that we have indicated a range between SEK 350 million and SEK 500 million. We don't know the outcome of all of that, but the ambition is very clear in terms of what our teams and what we are working on with these clients.

And the next question comes from the line of David Roux from Bank of America.

Two questions from my side. The first relates to restructuring and integration costs relating to acquisition. There's quite a pickup in this number. I think it was about SEK 50 million up to SEK 60 million for the first half. Which acquisitions do these costs relate to exactly, just given that M&A activity has been quite low over the last 2 quarters? Then secondly, can you remind us how much infrastructure services contributes to revenue for both North America and the group?

Should I take the first question then, Magnus, on restructuring?

Yes.

Yes. The items affecting comparability -- sorry, the integration costs, acquisition-related costs relate, of course, to acquisitions. And in this case, they relate to mostly the Techco acquisition that we did in Spain in January of this year and then the Fredon acquisition in Australia that we also closed in January of this year, I believe it was. So that -- those amounts entirely relate to the very recent acquisitions that we have been doing. And for these acquisitions, we could see another SEK 25 million -- SEK 20 million to SEK 25 million that will hit during the remainder of the year. And that will then, so to say, conclude on the acquisition-related costs needed for those acquisitions from the recent history. I hope this answers your question there. And yes, I think that is -- more or less, is from my side. The second question, Magnus, will you take it?

Yes. So when you look at that part of the business, vast majority of that is in North America. And I mean, there, we don't split the exact figures, but clearly double digits. And then if you look at that and obviously on a group level, that is then single-digit figure in terms of the importance of that part of the business. But there, I should also highlight that when you look at this part of the business, there was a significant impact related to COVID-19. We had some issues in Q4 and Q1 in terms of an important transition, and we're starting to recover. But then because of lockdowns and restrictions, there was a significant negative impact. But that we're obviously working to recover as we go forward.

And the next question comes from the line of Thomas Graf from Handelsbanken.

I was just wondering if you could highlight some of the status on the event business that was affected. And you mentioned it in Q1 but not so much in Q2. How is that current state and how was it in the quarter? If you could give some flavor, that would be helpful.

Yes. So the event business, Thomas, we highlighted in Q1, that was also partly because there were some events of more importance as well in the affected period in Q1. We have seen a similar impact, negative -- clear negative impact also in the second quarter, and that's obviously related to the fact that they're, in most countries, not possible for more than a few people to gather in a same place. So clear negative impact also in Q2.

All right. And also, could you give some comments on the employee turnover rate in the quarter? How is that compared to Q1? And it would be great.

Yes. So the general trend is some easing and that we have seen. If you look at our most dynamic market being in the U.S., North America, clear easing in terms of turnover, but we don't break out or report specific figures within the quarter. So I think we want to do that on an annual basis. But there is an easing, which is in line with expectations as well given the general environment.

And the next question comes from the line of Rahul Chopra from HSBC.