Securitas AB Full Year Report January–December 2018
07 February 2019
• Total sales MSEK 26 824 (24 024)
• Organic sales growth 5 percent (6)
• Operating income before amortization MSEK 1 475 (1 269)
• Operating margin 5.5 percent (5.3)
• Items affecting comparability (IAC) MSEK –187 (0) relating to IS/IT transformation programs
• Earnings per share SEK 2.02 (1.77)
• Earnings per share, before IAC, SEK 2.39 (2.11)
• Total sales MSEK 101 467 (92 197)
• Organic sales growth 6 percent (5)
• Operating income before amortization MSEK 5 304 (4 697)
• Operating margin 5.2 percent (5.1)
• Items affecting comparability (IAC) MSEK –455 (0)
• Earnings per share SEK 8.26 (7.53)
• Earnings per share, before IAC, SEK 9.17 (7.87)
• Tax rate 25.0%. Expected around 28.5% for 2019
• Free cash flow/net debt 0.13 (0.19)
• Proposed dividend SEK 4.40 (4.00)
COMMENTS FROM THE PRESIDENT AND CEO
Fourth quarter and full year performance 2018
The fourth quarter confirmed the strong market momentum seen in the Group throughout 2018. Organic sales growth for the quarter was 5 percent (6), again on high comparatives. The full year ended with solid organic sales growth of 6 percent (5) and we grew faster than the security market in general. We have good traction with our offering and commercial activities in the market and we continue to push our strategy of combining different protective services into security solutions for our customers. Security solutions and electronic security sales grew by 21 percent compared with 2017 and represented 20 percent of total Group sales.
The operating margin was 5.5 percent (5.3) for the quarter and 5.2 percent (5.1) for the full year, with a strong performance in North America throughout 2018. Ibero-America also improved over the full year, however in the fourth quarter the situation in Argentina worsened. The operating margin in Europe improved in the fourth quarter lifting the full-year operating margin to be on par with last year. In 2018, we were able to balance wage cost increases with price increases, and in 2019, our focus remains the same while offering alternative solutions to our customers.
The cost-savings program in Security Services Europe that was initiated in the third quarter of 2018 is progressing according to plan, with some savings achieved in the fourth quarter of 2018 and the majority expected in 2019. The total payback period is about two years and is expected to reverse the negative cost development we have seen during previous quarters to allow a year-on-year operating margin improvement, everything else equal.
Earnings per share, adjusted for changes in exchange rates and items affecting comparability, improved by 12 percent in 2018. This growth derives from our strategic and commercial development and a positive impact from the US tax reform.
Strategy beyond 2020
When I started as CEO, we initiated a strategy review with the objective of delivering on our Vision 2020 but also to start shaping the strategy beyond 2020. Much of this work focuses on client centricity, how we strengthen our guarding core, and how we lead the industry through innovation. The strong organic sales growth and improved margins are proof of delivering on our Vision 2020 and we see significant opportunities by speeding up. Accelerating the modernization of our IS/IT capability and digitization of our operations will enable us to offer greatly improved data-driven and intelligence-based services. In a future where scale and data availability are critical, we will drive the next big shift in the security services industry to benefit our customers and society as a whole. This will also enable us to grow faster than the market and deliver profitable growth.
We are now initiating two major transformation programs in the further digitization of the company. The first program will radically modernize our global IS/IT foundation throughout the Group. This investment into our global IS/IT foundation and the creation of a global IS/IT organization will make us more efficient. With the second program we are driving a business transformation of our North American operations with the objective to operate in a more effective way, with expected positive impact on our customer offering, competitiveness and bottom line. The programs have been initiated and are expected to be completed over the next 24 to 36 months.
Related to these two programs, MSEK –187 has been recognized as items affecting comparability in the income statement in the fourth quarter. An additional amount of approximately MSEK –650 will be recognized as items affecting comparabiliy over the course of the next two years. Such costs relate primarily to the impairment of assets, organizational restructuring charges and other non-recurring items. Furthermore, an estimated amount of MSEK 550 related to these two programs will be capitalized and amortized over the life time of the assets.
When fully implemented, we expect to have a more technology-enabled platform across the Group, creating the capability to develop and launch digital services at scale for our customers, as well as a more cost-efficient base. Upon expected completion in 2022, the investment into our global IS/IT foundation is expected to reduce our current IT costs across the Group by MSEK 300. With higher efficiency and productivity, we will free up resources to invest in speeding up the development and delivery of intelligent services and to improve margins. The business transformation program in North America will, everything else equal, support our North American operating margin up to 0.5 percentage points, with a first positive impact starting in 2021 and gradually increasing during 2022.
We will analyze further opportunities similar to the North American business transformation initiative.Our focus is on our European operations to assess the feasibility of such an initiative and the business case and we expect to provide further information in the second half of the year.
We have good momentum as a company and team. In 2018, we took important steps and initiatives to put Securitas in a strong position. We are now speeding up the pace of change and leading the transformation of the global security services industry.
President and Chief Executive Officer
PRESENTATION OF THE FULL YEAR REPORT
Analysts and media are invited to participate in a telephone conference on February 7, 2019 at 9:30 a.m. (CET) where President and CEO Magnus Ahlqvist and CFO Bart Adam will present the report and answer questions. The telephone conference will also be audio cast live via Securitas website. To participate in the telephone conference, please dial in five minutes prior to the start of the conference call:
US: + 1 855 269 2605
Sweden: + 46 8 519 993 55
UK: + 44 203 194 0550
To follow the audio cast of the telephone conference via the web, please follow the link
www.securitas.com/investors/webcasts. A recorded version of the audio cast will be available at www.securitas.com/investors/webcasts after the telephone conference.
FOR FURTHER INFORMATION. PLEASE CONTACT:
Micaela Sjökvist, Head of Investor Relations.
+ 46 761167443
FINANCIAL INFORMATION CALENDAR
May 6, 2019, app. 1.00 p.m. (CET) Interim Report January–March 2019
May 6, 2019, 4.00 p.m. (CET) Annual General Meeting 2019
July 31, 2019, app. 1.00 p.m. (CET) Interim Report January–June 2019
November 6, 2019, 08.00 a.m. (CET) Interim Report January–September 2019
For further information regarding Securitas IR activities, refer to
Securitas is a knowledge leader in security and offers protective services in North America, Europe, Latin America, Africa, the Middle East, Asia and Australia. The organization is flat and decentralized with three business segments: Security Services North America, Security Services Europe and Security Services Ibero-America. Securitas serves a wide range of customers of all sizes in a variety of industries and customer segments. Security solutions based on customer-specific needs are built through different combinations of on-site, mobile and remote guarding, electronic security, fire and safety, and corporate risk management. Securitas can respond to the unique and specific security challenges facing its customers, and tailor its offering according to their specific industry demands. Securitas employs more than 345 000 people in 56 markets. Securitas is listed in the Large Cap segment at Nasdaq Stockholm.
Our strategy is to offer complete security solutions that integrate all our areas of competence. Together with our customers, we develop optimal and cost-efficient solutions that are suited for the customers’ needs. This brings added value to the customers and results in stronger, more long-term customer relationships and improved profitability.
Group financial targets
Securitas focuses on two financial targets. The first target relates to the statement of income: average growth of earnings per share of 10 percent annually. The second target relates to the balance sheet: free cash flow in relation to net debt of at least 0.20.
This is information that Securitas AB is obliged to make public pursuant to the EU Market Abuse Regulation and the Securities Markets Act. The information was submitted for publication, through the agency of the contact person set out above, at 8.00 a.m. (CET) on Thursday, February 7, 2019.