Securitas Annual Report 2007

Our Strategy for the Future
In 2007 we began the implementation of our strategy for the future. Step by step our customers will see a more specialized organization, where we will develop our knowledge and expertise according to the needs of each customer segment. The most important challenge for Securitas in 2007 was to deal with the weak performance of our cash handling division Loomis. The unsatisfactory financial performance of the Group as a whole was primarily related to this problem.
Security Services
Profitability rather than volume has been the prime focus in Security Services North America. With this focus well managed, in combination with stability and high quality services, we improved our operating margin satisfactorily from 5.0 percent to 5.2 percent.
The organic sales growth of 4 percent was slightly below the market growth. The weak US Dollar negatively affected earnings in Swedish kronor, but the growth in real terms was 8 percent.
Security Services Europe had an impressive 8 percent organic sales growth in 2007 and has increased its market share by growing faster than the market. The operating profit improved by 9 percent in real terms.
The Toolbox, Securitas’ management model, enhancing our culture and values.
The main concern within our European operations is pressure on and decline in gross margins with new sales coming in at lower margins than the average portfolio. Short term, profitability rather than volume will also be prioritized in Europe, and in the long term, the strategic measures will aim to level off the trend of declining gross margins.
Mobile and Monitoring
In Mobile and Monitoring, major investments were initiated in sales resources and opening up new routes in order to speed up organic sales growth. These investments have impacted the operating margin, which has declined from 13.5 percent to 12.0 percent. The sales force was increased by around 40 people in 2007 and the plan is to continue to increase it during 2008.
This investment is expected to improve organic sales growth in 2008 in comparison with the 7 percent achieved in 2007.
Loomis
The main reason for the unsatisfactory financial performance of the Securitas Group in 2007 is the weak performance of the cash handling division Loomis, which achieved an operating margin of 2.6 percent and an operating profit of MSEK 293 (838). Excluding the cash handling operations Loomis Cash Management (LCM) in the United Kingdom, Loomis’ operating margin was 5.7 percent.
In November 2007, Loomis sold the LCM business to Vaultex Ltd, which is owned by the banks HSBC and Barclays. The result of the final stock-taking meant that no further provisions for historic variances were necessary beyond the provision of MSEK 824 established as of December 31, 2006. A provision of MSEK 160, related to the sale, was made in the fourth quarter of 2007. A provision for non-compliant declarations under the Note Circulations Rules of MSEK 375 was also made. As of year end, discussions between the Bank of England and Securitas regarding the final amount had not been finalized. Compared to 2006, Loomis has also had weak performance in operating profits in countries such as USA, France, Sweden and Denmark. Actions have been taken in a number of countries to manage the pressure from cost inflation through efficiency improvements and/or price increases.
As soon as stability has been restored with Loomis, primarily by the actions described above, the listing process will be initiated, with the aim of listing Loomis by the end of 2008 on the OMX Nordic Exhange.
Strategy for the future
The Securitas strategy for improved profitability is simply to put the customer in focus and make sure that we make a difference by adding more value for our customers. We will do this on a two dimensional basis.
The first dimension is the classical approach in service businesses, by climbing the value chain and providing more technology, combined contracts with an optimal mix of patrolling and specialized guarding, pre packaged solutions, high quality services, integrity, and an ability to serve our customers on a global basis.
In Latin America, we made acquisitions in Argentina, Colombia, Uruguay and Peru in 2007. In Asia, we have acquired a large part of the Indian security company Walsons. We also acquired European security companies in Turkey, The Netherlands and Romania. In addition to the acquisitions, we have allocated resources to start operations in China, the Middle East and in most countries in Eastern Europe.
Although we will boost our strategy with a sharpened focus and greater resources and investments in the years to come, this is not “breaking news” for Securitas or for the security industry. But we are now “taking it from the drawing board into reality.”
The second dimension is a more substantial change for Securitas and it is my belief that we will set a trend in the industry and make a difference to the customers in the sense that they will see more expertise and specialization. Securitas will, step by step, move from a geographical market driven organization to a more customer segment focused organization. The strong functional line of command and the culture of decentralized profitability responsibility will remain in place, even though branch offices, where market penetration allows and justifies it, will become specialized by customer segments.
It is my belief, as proved in a few but significant cases in Securitas, that specialization will lead to improved margins and higher growth, as well as improved customer focus and closer relationships. This will allow us to improve the status of the security officers, pay higher wages and reduce turnover.
The pace and degree of specialization and segmentation will vary from country to country, and it will be supported, among other activities, by Securitas new websites where our customers and our sales force will have access to a “best practice” search service on a global basis.
Many people I have met tell me that business is local. I disagree – relationships are certainly local, but knowledge is global. Securitas will organize itself accordingly.
High quality guarding services
Is Business Class always better than Economy Class? Is First Class always better than Second Class? My answer is that you get what you pay for, and you ask for what you need.
Even though Securitas will be organizing itself for specialization and more of value-added services, most of our guarding business will for many years remain geographically focused and will keep providing high quality guarding services. In these areas there will be no need for additional technology, combined contracts, service kits or sophistication. We will provide pure guarding services and we will organize our branch offices accordingly, making sure we keep our operations lean. In my opinion, there is nothing wrong with keeping it simple, on the contrary, it is another form of specialization.
Step by step transformation
Our challenge is to get a large organization like Securitas, with more than 250,000 employees, to be motivated to transform the Group in this direction. I believe that changes and improvements are made in increments of 0.1 percent at a time. We can not experiment in such a large organization like ours; we need to move carefully and systematically in line with Securitas’ Toolbox for building our corporate culture and values. Changes take time, and patience is likely to be needed companion during the years to come, even if impatience is a prerequisite for motion and success.
Our multicultural organization, the geographically wide-spread operation and the various levels of development on the specialization ladder, makes my job so much more interesting and exciting. I am sure that every ounce of motivation that we can create in this direction is worth more than every tonne of facts.
Alf Göransson President and CEO Securitas AB
Our Strategy for the Future
 
In 2007 we began the implementation of our strategy for the future. Step by step our customers will see a more specialized organization, where we will develop our knowledge and expertise according to the needs of each customer segment. The most important challenge for Securitas in 2007 was to deal with the weak performance of our cash handling division Loomis. The unsatisfactory financial performance of the Group as a whole was primarily related to this problem.
 
Security Services
Profitability rather than volume has been the prime focus in Security Services North America. With this focus well managed, in combination with stability and high quality services, we improved our operating margin satisfactorily from 5.0 percent to 5.2 percent.
 
The organic sales growth of 4 percent was slightly below the market growth. The weak US Dollar negatively affected earnings in Swedish kronor, but the growth in real terms was 8 percent.
 
Security Services Europe had an impressive 8 percent organic sales growth in 2007 and has increased its market share by growing faster than the market. The operating profit improved by 9 percent in real terms.
 
 
The Toolbox, Securitas’ management model, enhancing our culture and values.
 
The main concern within our European operations is pressure on and decline in gross margins with new sales coming in at lower margins than the average portfolio. Short term, profitability rather than volume will also be prioritized in Europe, and in the long term, the strategic measures will aim to level off the trend of declining gross margins.
 
Mobile and Monitoring
In Mobile and Monitoring, major investments were initiated in sales resources and opening up new routes in order to speed up organic sales growth. These investments have impacted the operating margin, which has declined from 13.5 percent to 12.0 percent. The sales force was increased by around 40 people in 2007 and the plan is to continue to increase it during 2008.
 
This investment is expected to improve organic sales growth in 2008 in comparison with the 7 percent achieved in 2007.
 
Loomis
The main reason for the unsatisfactory financial performance of the Securitas Group in 2007 is the weak performance of the cash handling division Loomis, which achieved an operating margin of 2.6 percent and an operating profit of MSEK 293 (838). Excluding the cash handling operations Loomis Cash Management (LCM) in the United Kingdom, Loomis’ operating margin was 5.7 percent.
 
In November 2007, Loomis sold the LCM business to Vaultex Ltd, which is owned by the banks HSBC and Barclays. The result of the final stock-taking meant that no further provisions for historic variances were necessary beyond the provision of MSEK 824 established as of December 31, 2006. A provision of MSEK 160, related to the sale, was made in the fourth quarter of 2007. A provision for non-compliant declarations under the Note Circulations Rules of MSEK 375 was also made. As of year end, discussions between the Bank of England and Securitas regarding the final amount had not been finalized. Compared to 2006, Loomis has also had weak performance in operating profits in countries such as USA, France, Sweden and Denmark. Actions have been taken in a number of countries to manage the pressure from cost inflation through efficiency improvements and/or price increases.
 
As soon as stability has been restored with Loomis, primarily by the actions described above, the listing process will be initiated, with the aim of listing Loomis by the end of 2008 on the OMX Nordic Exhange.
 
Strategy for the future
The Securitas strategy for improved profitability is simply to put the customer in focus and make sure that we make a difference by adding more value for our customers. We will do this on a two dimensional basis.
 
The first dimension is the classical approach in service businesses, by climbing the value chain and providing more technology, combined contracts with an optimal mix of patrolling and specialized guarding, pre packaged solutions, high quality services, integrity, and an ability to serve our customers on a global basis.

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In Latin America, we made acquisitions in Argentina, Colombia, Uruguay and Peru in 2007. In Asia, we have acquired a large part of the Indian security company Walsons. We also acquired European security companies in Turkey, The Netherlands and Romania. In addition to the acquisitions, we have allocated resources to start operations in China, the Middle East and in most countries in Eastern Europe.
 
Although we will boost our strategy with a sharpened focus and greater resources and investments in the years to come, this is not “breaking news” for Securitas or for the security industry. But we are now “taking it from the drawing board into reality.”
 
The second dimension is a more substantial change for Securitas and it is my belief that we will set a trend in the industry and make a difference to the customers in the sense that they will see more expertise and specialization. Securitas will, step by step, move from a geographical market driven organization to a more customer segment focused organization. The strong functional line of command and the culture of decentralized profitability responsibility will remain in place, even though branch offices, where market penetration allows and justifies it, will become specialized by customer segments.
 
It is my belief, as proved in a few but significant cases in Securitas, that specialization will lead to improved margins and higher growth, as well as improved customer focus and closer relationships. This will allow us to improve the status of the security officers, pay higher wages and reduce turnover.
 
The pace and degree of specialization and segmentation will vary from country to country, and it will be supported, among other activities, by Securitas new websites where our customers and our sales force will have access to a “best practice” search service on a global basis.
 
Many people I have met tell me that business is local. I disagree – relationships are certainly local, but knowledge is global. Securitas will organize itself accordingly.
 
High quality guarding services
Is Business Class always better than Economy Class? Is First Class always better than Second Class? My answer is that you get what you pay for, and you ask for what you need.
 
Even though Securitas will be organizing itself for specialization and more of value-added services, most of our guarding business will for many years remain geographically focused and will keep providing high quality guarding services. In these areas there will be no need for additional technology, combined contracts, service kits or sophistication. We will provide pure guarding services and we will organize our branch offices accordingly, making sure we keep our operations lean. In my opinion, there is nothing wrong with keeping it simple, on the contrary, it is another form of specialization.
 
Step by step transformation
Our challenge is to get a large organization like Securitas, with more than 250,000 employees, to be motivated to transform the Group in this direction. I believe that changes and improvements are made in increments of 0.1 percent at a time. We can not experiment in such a large organization like ours; we need to move carefully and systematically in line with Securitas’ Toolbox for building our corporate culture and values. Changes take time, and patience is likely to be needed companion during the years to come, even if impatience is a prerequisite for motion and success.
 
Our multicultural organization, the geographically wide-spread operation and the various levels of development on the specialization ladder, makes my job so much more interesting and exciting. I am sure that every ounce of motivation that we can create in this direction is worth more than every tonne of facts.
Alf Göransson President and CEO Securitas AB