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Growing electronic security

  • 08 Feb 17

In Q4 16, sales grew strongly (+13%, o/w +5% organically) above expectations. Conversely, the operating income before amortisation increased at a lower pace than revenue (+10%) and was 3% below our estimate. The operating margin rate decreased by 0.2pts to 5.2% of sales. Q4 16 figures: Sales reached SEK23,715m (+13%). Organic sales growth slowed (+5% vs +7% in Q4 15) due to Security services Europe as expected (+2% vs +8% in Q4 15). The trend remained buoyant in Security services North America (+6% vs +4% in Q4 15) and Security services Ibero-America (+16% vs +14% in Q4 15). The operating income before amortisation increased by 10% to SEK1,241m, corresponding to a lower margin rate (-0.2pt to 5.2% of sales). By division, Securitas had a higher margin rate in Security services North America (+0.2pt to 6.3% of sales), a stable margin rate in Security services Ibero-America (4.4% of sales) and a lower margin rate in Security services Europe (-0.4pt to 5.8% of sales). Group net profit was SEK701m (+5%) after higher restructuring and integration costs (SEK-35m vs SEK-4m in Q4 15), an increase in financial net expenses (SEK106m, +34%) and a lower income tax rate (-1.3pts to 30%). FY2016 figures: Securitas posted sales of SEK88,162m (+9%, o/w +7% organically). Organic sales growth was similar in the Security services North America and the Europe divisions (both +6% vs +4% in 2015) and higher in Security services Ibero-America (+14% vs +13% in 2015). Operating income before the amortisation of acquisition-related intangible assets increased to SEK4,554m (+11%), corresponding to a slight improvement in the operating margin to 5.2% of sales (+0.1pt). By division, the operating margin improved in Security services North America (5.9% of sales, +0.3pt) and Europe (5.8% of sales, +0.1pt) and declined slightly in Ibero-America (4.4% of sales, -0.1pts). Group net profit was SEK2,642m (+8%) after higher restructuring, integration and transaction costs (SEK-108m vs SEK-34m in 2015), an increase in net financial expenses (SEK-390m, +26%) and a rather similar income tax rate at 29.9%. FCF pre-dividend decreased to SEK1,721m (-20%) due to a strong increase in the change of trade receivables and higher capex (+25% to SEK1,658m). Cash-out flows included significant net investments in shares (SEK3,566m including the acquisition of Diebold’s North American Electronic security activities) and the dividend of SEK1,278m. At year-end 2016, financial net debt surged to SEK13,431m (+36%) and represented 93% of shareholders’ equity. The FCF/net debt ratio deteriorated to 0.13x (vs 0.22x in 2015). The proposed dividend is SEK3.75/share (+7%).

Strong organic sales growth, flat operating margin

  • 10 Nov 16

In Q3 16, organic sales growth remained significant (+7% vs +4% in Q3 15) but the operating margin was a little disappointing as it was flat (5.5% of sales) and FCF decreased by 16%. Q3 16 figures: Sales reached SEK22,316m (+9%). Organic sales growth (+7% vs +4% in Q3 15) remained dynamic in all divisions. The trend was buoyant in the mature markets (Security services North America: +6% vs +3% in Q3 15, Security services Europe: +5% vs +3% in Q3 15) and continued to grow at a strong pace in emerging markets (Security services Ibero-America: +14% vs +14% in Q3 15). The operating income before amortisation increased by 10% to SEK1,230m, corresponding to a stable margin rate of 5.5% of sales. By division, the operating performance was mixed. Securitas had a higher margin rate in Security services North America (+0.3pt to 6% of sales), a stable margin rate in Security services Europe (6.4% of sales) and a declined margin rate in Security services Ibero-America (-0.5pt to 4.2% of sales). Group net profit was SEK729m (+6%) after higher restructuring and integration costs (SEK-21.5m vs SEK-3.6m in Q3 15), an increase in the financial net expenses (SEK101.9m, +31%) and a higher income tax rate (+0.7pt to 30%). 9 months 16 figures: Securitas posted sales of SEK64,447m (+8%, +8% organically, o/w +6% in Security services North America, +7% in Security services Europe, +13% in Security services Ibero-America, an operating income before amortisation of SEK3,313m (+12%) corresponding to a 5.1% margin (+0.2pts). Group net income increased to SEK1,941m (+10%). FCF (after financial income/expenses paid) decreased to SEK857m (-37%) after a significant increase in capital expenditure (SEK1,250m, +25%) and an increase in the change of trade receivables and other operating capital employed. Investments in shares amounted to SEK3,461m (vs SEK136m in 9m15) including the price paid for the Diebold electronic security activities and the dividend paid to shareholders was SEK1,278m. On 30 September 2016, net debt was SEK13.9bn (vs SEK9.9bn at year-end 2015) representing 105% of shareholders’ equity. Currency translations increased net debt by SEK205m. The FCF/net debt ratio was low at 0.12, largely below the internal financial goal of 0.20.

High level of extra sales

  • 05 Aug 16

Q2 16 was a strong quarter. Organic sales growth was 8%, boosted by a high level of extra sales in North America and Europe and the group’s operating margin (before amortisation) improved by 0.4pt to 5.1% of sales. Q2 16 figures: - Sales reached SEK21,517m (+8%). Organic sales growth accelerated yoy (+8% vs +4% in Q2 15). All divisions grew organically: +7% (vs +3% in Q2 15) in Security services North America, +8% (vs +3% in Q2 15) in Security services Europe, +12% (vs +13% in Q2 15) in Security services Ibero-America. - The operating income before amortisation increased to SEK1,087m (+17%), corresponding to a margin rate of 5.1% of sales (+0.4pt). All divisions contributed to the operating improvement. The highest margin increase came from the Security services North America division (SEK518m, +25% including the Securitas Electronic Security ex-Diebold electronic security, 5.9% of sales, +0.5pt), followed by the Security services Europe division (SEK537m, +14%, 5.5% of sales, +0.4pt) and the Security services Ibero-America (SEK111m, flat, 4.4% of sales, +0.2pt). - Group net profit of SEK632m (+15%) after higher amortisation of acquisition-related intangible assets and acquisition costs (a total of SEK-90m vs SEK-73m in Q2 15), an increase in financial net expenses (SEK-97m vs SEK-76m in Q2 15) and a lower income tax rate (-1.6pts to 23.3%). H1 16 figures: - Securitas posted sales of SEK42,131m (+7%, +8% organically, o/w +6% in North America, +8% in Europe, +13% in Latin America/Spain-Portugal) and an operating income before amortisation of SEK2,083m (+14%) due to higher contributions from the Security services North America division (SEK953m, +19% including the Securitas Electronic Security ex-Diebold electronic security), the Security services Europe division (SEK1,053m, +13%). Conversely, the contribution from the Security services Ibero-America division decreased (SEK225m, -5%) due to the negative effect of the devaluation of the Argentine peso. – Group net income was SEK1,212m (+12%) after higher amortisation of acquisition-related intangible assets and acquisition costs (a total of SEK-176m, +17%), an increase in net financial expenses (SEK-182m, +20%) and a rather similar income tax rate (-0.1pt to 24.9%). FCF (after financial income/expenses paid) turned negative (SEK-12m vs SEK326m in H1 15) due to an unfavourable change in other WCR and after a significant increase in capital expenditure (SEK867m, +21%). Investments in shares surged to SEK3,381m (vs SEK120m in H1 15), reflecting the consideration price paid for the Diebold electronic security activities and the dividend paid to shareholders was SEK1.3bn. On 30 June 2016, net debt was SEK14.6bn (vs SEK9.9bn at year-end 2015) and gearing was 119%.

More tech is the watchword

  • 22 Jun 16

As expected the highlight of the Securitas’ Investor Day on 21 June 2016 was innovation in security services. Securitas is targeting improved security services content with the integration of higher-value-added solutions taking into account the fact that the rapid technological development (‘everything becomes digital’) is providing a wide range of applications. This strategy enables the provision of better and more efficient security services for customers and differentiation from the competitors. All of this is perfectly summarized in the picture below (extract from the company presentation – source: Securitas). On the financial side, the impact of this strategy should be significant security solutions and technology sales growth (vs +38% in 2015), longer contract duration, higher client retention and lower competition with a positive effect on the operating margin (10% of sales in the security solutions vs 4% of sales in manned guarding and 6% of sales in specialised guarding), higher capex considering investments of SEK10-20m for every SEK100m in annual sales from new sales or conversions. All in all, this should increase the ROCE (11.3% in 2015 based on our figures). Finally, Securitas also intends to continue to make selective acquisitions in principally but not only security solutions and electronic security in North America and Europe, and in fire and safety in Europe and the Ibero-America geographic area.

Strong organic sales growth

  • 05 May 16

Q1 16 earnings Sales reached SEK20,614m (+6%) including a change of perimeter with the integration of the Diebold Electronic security activities in North America. Organic sales growth accelerated (+8% vs +5% in Q1 15) driven by all divisions. Organic sales growth remained steady in the Security services North America division (+5% vs +5% in Q1 15), accelerated significantly in the Security services Europe division (+8% vs +3% in Q1 15) and was strong in the Security services Ibero-America division (+13% vs +11% in Q1 15). The operating income before the amortisation of acquisition-related intangible assets increased to SEK996m (+10%) and the operating margin improved very slightly to 4.8% of sales (+0.1pt). The margin improvement was attributable to the Security services North America (+0.2pt to 5.3% of sales) and the Security services Europe (+0.2pts to 5.4% of sales) divisions. The operating margin declined in the Security services Ibero-America division (-0.1pt to 4.6% of sales). Group net profit was SEK580m (+9%) after higher acquisition-related costs (SEK20m vs SEK10m in Q1 15), higher net financial costs (SEK84m, +11%) and income tax rate (+0.6pts to 29.9%). FCF (after financial income/expenses paid) turned negative (SEK-227m vs SEK67m in Q1 15) after an increase in the change in the WCR and higher capital expenditure (SEK325m, +3%). Investments in shares were significant (SEK3,200m vs SEK90m in Q1 15) including the acquisition of the Diebold Electronic security activities (EV of SEK3,110m). On 31 March 2016, net debt amounted to SEK13.1bn (vs SEK9.9bn at year-end 2015) and represented 105% of the shareholders’ equity.

Greater need for security services in Europe at lower margin

  • 09 Feb 16

+Q4 15 figures+ Sales reached SEK21,031m (+11%). Organic sales growth was significant (+7% vs +5% in Q4 14). All the Security services divisions showed organic sales growth (North America: +4% vs +6% in Q4 14; Europe: +8% vs +3% in Q4 14; Ibero-America: +14% vs +9% in Q4 14 mainly driven by Iberia, Argentina, Chile and Colombia). The operating income before the amortisation of acquisition-related intangible assets increased to SEK1,133m (+11%), corresponding to a stable operating margin of 5.4% of sales. The operating margin improved in the Security services North America and Ibero-America (both +0.3pt to respectively 6.1% and 4.4% of sales) and deteriorated in the Security services Europe (-0.3pt to 6.2% of sales). Reported operating income was SEK1,051m (+11%) after the amortisation of acquisition-related intangible assets and acquisition-related costs of respectively SEK-73m and SEK-8m. Group net profit was SEK669m (+5%) after lower net financial expenses (SEK-79m, -4%) and a higher income tax rate at 31.2% (+4.7pts) due to the strengthening of the $ exchange rate and a one-off revaluation of deferred tax assets due to new tax rates in France and Norway. +FY2015 figures+ Securitas posted sales of SEK80,860m (+15% o/w +5% organically). Organic sales growth was similar in the Security services North America and Europe divisions (both +4%) and higher in the Security services Ibero-America (+13%). Operating income before the amortisation of acquisition-related intangible assets increased to SEK4,089m (+17%), corresponding to a slight improvement in the operating margin to 5.1% of sales (+0.1pt). By division, the operating margin improved in the Security services North America (5.6% of sales, +0.3pt) and Ibero-America (4.5% of sales, +0.2pt) and declined in Europe (5.7% of sales, -0.2pts). The reported operating income was SEK3,785m (+17%) after the amortisation of acquisition-related intangible assets and acquisition-related costs of SEK-274.5m and SEK-29.5m respectively. Group net profit was SEK2,436.5m (+18%) after lower net financial expenses (SEK-308m, -6%) and an income tax rate of 29.9% (vs 28.9% in 2014). FCF pre-dividend surged to SEK2,163m (+17%) after higher capex at SEK1,329m(+19%), which included investments in security solutions contracts. Cash-out flows included moderate net investment in shares (SEK147m), the dividend paid of SEK1,095m and a net decrease in borrowings of SEK-2,208m. At year-end 2015, the financial net debt declined to SEK9,863m (-5%).