Securitas Annual Report 2007

decisive in determining how much capital is tied up in accounts receivable. These factors are followed up on an ongoing basis at all levels in the organization.
One measure of capital usage is operating capital employed as a percentage of total sales. Operating capital employed is calculated as operating non-interest-bearing assets less operating non-interest-bearing liabilities.
External financial key ratios
For external communication Securitas has decided to refine the financial key ratios and to focus on two objectives: 1. Earnings per share. 2. Free cash flow in relation to net debt.
Earnings per share
Earnings per share is income for the year after tax after deducting possible minority interests in relation to the average number of outstanding shares. Since all of the outstanding convertible debenture loans have been repaid there is no potential dilution effect.
Adjusted for impairment losses of goodwill, items affecting comparability and the LCM and NCS investigation costs bur not for the LCM operational losses, the earnings per share was SEK 5.36 in 2007. Securitas consider this to be the relevant basis for the objective going forward. The objective is for the average annual growth in earnings per share to reach 10 percent.
Free cash flow in relation to net debt
The Group’s free cash flow is cash flow from operations less financial items paid and current taxes paid. Free cash flow indicates how much cash flow can be used for dividends to shareholders, for acquisitions and for amortization of net debt. Change in net debt is free cash flow less items such as dividends and acquisition related payments.
The objective is for free cash flow in relation to net debt to be at least 0.20. This means that the net debt should be able to be paid off in five years.
Securitas’ financial objectives
    Previous accounting principles     IFRS      
        Securitas all businesses Securitas excluding Systems and Direct
MSEK     2003 2004 2005 2004 2005 2006 2007
INCOME                  
Total sales   58,850.3 59,686.6 66,013.6 53,404.1 58,200.6 60,523.0 62,907.6
of which acquired business     964.0 1,519.0 2,074.3 818.8 1,399.5 970.5 1,355.8
Acquired sales growth, %1     1 3 3 2 3 2 2
Organic sales growth, %     –3 3 5 3 4 6 5
Operating income before amortization   3,732.0 4,027.3 4,445.7 3,272.2 3,526.0 3,591.1 3,182.3
Operating margin, %     6.3 6.7 6.7 6.1 6.1 5.9 5.1
Amortization of goodwill   –1,137.0
Amortization and impairment of acquisition related intangible assets     –99.6 –122.5 –85.4 –98.1 –93.3 –458.0
Acquisition related restructuring costs     –26.5 –35.1 –23.0 –1.1 –0.4 –39.0
Items affecting comparability     –150.6 –150.6 –2,060.2 –718.1
Financial income and expenses excluding revaluation of financial instruments   –596.8 –516.6 –523.1 –500.6 –483.2 –519.8 –565.2
Revaluation of financial instruments     36.2 36.2 –35.8 –6.7
Share of income in associated companies     11.8 11.8 1.2 2.2
Income before taxes   1,998.2 3,384.6 3,662.4 2,663.2 2,841.0 882.8 1,397.5
Taxes     –754.1 –855.5 –948.7 –637.2 –683.0 –369.3 –871.5
Net income for the year   1,244.1 2,529.1 2,713.7 2,026.0 2,158.0 513.5 526.0
Minority share in net income     –1.8 0.7 1.5 1.6 1.6
Average number of shares after dilution (‘000)   382,417 382,409 378,712 382,409 378,712 376,165 369,366
Earnings per share, after dilution (SEK)     3.45 6.79 7.31 5.47 5.84 1.41 1.44
CASH FLOW                  
Operating income before amortization   3,732.0 4,026.4 4,293.6 3,272.2 3,526.0 3,591.1 3,182.3
Investments in fixed assets   –1,718.6 –1,969.9 –2,220.4 –1,408.5 –1,496.0 –1,511.8 –1,574.8
Reversal of depreciation   1,564.1 1,613.0 1,948.6 1,270.3 1,509.7 1,477.9 1,448.0
Changes in other operating capital employed2     –650.3 –39.5 50.6 –209.4 88.1 –492.1 519.1
Cash flow from operating activities   2,927.2 3,630.0 4,072.4 2,924.6 3,627.8 3,065.1 3,574.6
as % of operating income before amortization     78 90 95 89 103 85 112
Financial income and expenses paid     –615.0 –518.4 –485.2 –502.2 –445.3 –516.1 –505.5
Current taxes paid     –510.9 –581.5 –926.1 –428.3 –796.9 –769.0 –656.7
Free cash flow   1,801.3 2,530.1 2,661.1 1,994.1 2,385.6 1,780.0 2,412.4
as % of adjusted income     73 93 94 96 105 75 115
Acquisitions, including cash payments from restructuring reserves   –1,307.8 –2,362.3 –1,213.2 –686.0 –862.5 –361.2 –901.8
Cash flow from items affecting comparability     19.5 –129.3 –564.0
Cash flow from financing activities   1,572.3 –1,495.3 –1,192.6 –2,040.1 –3,313.5 –1,106.3 1,745.9
Cash flow for the year, continuing operations   2,065.8 –1,327.5 255.3 –732.0 –1,770.9 183.2 2,692.5
Cash flow for the year, discontinued operations     –595.5 2,026.2 –1,251.0
Cash flow for the year, all operations   2,065.8 –1,327.5 255.3 –1,327.5 255.3 –1,067.8 2,692.5
Interest-bearing net debt at beginning of year adjusted for new principle   –9,886.8 –10,686.8 –10,636.9 –10,686.8 –10,636.9 –11,944.8 –9,734.6
Change in loans   –2,095.5 765.2 97.4 765.2 97.4 966.6 –2,877.6
Revaluation of financial instruments     51.8 51.8 –16.2 –35.2
Translation differences on interest-bearing net debt     834.0 616.0 –1,712.4 616.0 –1,712.4 695.2 76.9
Effect of dividend of discontinued operations     1,632.4
Interest-bearing net debt at year-end   –9,082.5 –10,633.1 –11,944.8 –10,633.1 –11,944.8 –9,734.6 –9,878.0
CAPITAL EMPLOYED AND FINANCING                  
Fixed assets excluding acquisition related items   8,047.6 7,971.5 8,390.4 7,971.5 8,390.4 7,383.5 6,898.8
Accounts receivable   6,736.0 8,828.0 10,362.5 8,828.0 10,362.5 8,855.6 9,889.4
Other operating capital employed   –9,262.2 –10,135.4 –10,844.7 –10,135.4 –10,844.7 –11,569.9 –12,617.2
Operating capital employed, all operations   5,521.4 6,664.1 7,908.2 6,664.1 7,908.2 4,669.2 4,171.0
as % of total sales     9 11 12 10 10 8 7
Operating capital employed, continuing operations   5,521.4 6,664.1 7,908.2 5,265.4 5,923.7 4,669.2 4,171.0
Operating capital employed, discontinued operations     1,398.7 1,984.5
Goodwill, all operations   14,777.8 15,301.9 17,792.4 15,301.9 17,792.4 14,031.6 13,793.5
Of which goodwill, continuing operations   14,777.8 15,301.9 17,792.4 13,352.5 15,317.6 14,031.6 13,793.5
Of which goodwill, discontinued operations     1,949.4 2,474.8
Acquisition related intangible assets, all operations     433.2 638.5 433.2 638.5 464.2 624.0
Of which acquisition related intangible assets, continuing operations     433.2 638.5 212.3 359.3 464.2 624.0
Of which acquisition related intangible assets, discontinued operations     220.9 279.2
Shares in associated companies, all operations     178.6 178.6 172.7 103.5
Of which shares in associated companies, continuing operations     178.6 178.6 172.7 103.5
Of which shares in associated companies, discontinued operations    
Capital employed, all operations   20,299.2 22,399.2 26,517.7 22,399.2 26,517.7 19,337.7 18,692.0
Return on capital employed, %     18 18 16 17 16 8 13
Of which capital employed, continuing operations   20,299.2 22,399.2 26,517.7 18,830.2 21,779.2 19,337.7 18,692.0
Of which capital employed, discontinued operations     3,569.0 4,738.5
Net debt   9,082.5 10,633.1 11,944.8 10,633.1 11,944.8 9,734.6 9,878.0
Net debt equity ratio, multiple     0.81 0.90 0.80 0.90 0.82 1.01 1.12
Interest coverage ratio, multiple     5.3 6.5 6.0 5.5 5.5 4.4 3.9
Free cash flow in relation to net debt     0.20 0.24 0.22 0.19 0.20 0.18 0.24
Minority interests     15.6 16.6 1.5 16.6 1.5 0.4 1.9
Shareholders’ equity attributable to equity holders of the Parent Company 11,201.1 11,749.5 14,571.4 11,749.5 14,571.4 9,602.7 8,812.1
Return on equity, %     9 17 17 14 14 6 5
Equity ratio, %     30 30 32 30 31 27 22
Financing of capital employed   20,299.2 22,399.2 26,517.7 22,399.2 26,517.7 19,337.7 18,692.0
1 Acquired sales growth is calculated as the year’s acquisitions as a percentage of the previous year’s total sales. 2 Including changes in accounts receivable.      
For definitions and calculations of key ratios refer to Note 3, page 56.                  
  • Group key ratios.
  •                  
    decisive in determining how much capital is tied up in accounts receivable. These factors are followed up on an ongoing basis at all levels in the organization.
     
    One measure of capital usage is operating capital employed as a percentage of total sales. Operating capital employed is calculated as operating non-interest-bearing assets less operating non-interest-bearing liabilities.
     
    External financial key ratios
    For external communication Securitas has decided to refine the financial key ratios and to focus on two objectives: 1. Earnings per share. 2. Free cash flow in relation to net debt.
     
    Earnings per share
    Earnings per share is income for the year after tax after deducting possible minority interests in relation to the average number of outstanding shares. Since all of the outstanding convertible debenture loans have been repaid there is no potential dilution effect.
     
    Adjusted for impairment losses of goodwill, items affecting comparability and the LCM and NCS investigation costs bur not for the LCM operational losses, the earnings per share was SEK 5.36 in 2007. Securitas consider this to be the relevant basis for the objective going forward. The objective is for the average annual growth in earnings per share to reach 10 percent.
     
    Free cash flow in relation to net debt
    The Group’s free cash flow is cash flow from operations less financial items paid and current taxes paid. Free cash flow indicates how much cash flow can be used for dividends to shareholders, for acquisitions and for amortization of net debt. Change in net debt is free cash flow less items such as dividends and acquisition related payments.
     
    The objective is for free cash flow in relation to net debt to be at least 0.20. This means that the net debt should be able to be paid off in five years.
     
    Securitas’ financial objectives
     

    Page 29

     

        Previous accounting principles     IFRS      
            Securitas all businesses Securitas excluding Systems and Direct
    MSEK     2003 2004 2005 2004 2005 2006 2007
    INCOME                  
    Total sales   58,850.3 59,686.6 66,013.6 53,404.1 58,200.6 60,523.0 62,907.6
    of which acquired business     964.0 1,519.0 2,074.3 818.8 1,399.5 970.5 1,355.8
    Acquired sales growth, %1     1 3 3 2 3 2 2
    Organic sales growth, %     –3 3 5 3 4 6 5
    Operating income before amortization   3,732.0 4,027.3 4,445.7 3,272.2 3,526.0 3,591.1 3,182.3
    Operating margin, %     6.3 6.7 6.7 6.1 6.1 5.9 5.1
    Amortization of goodwill   –1,137.0
    Amortization and impairment of acquisition related intangible assets     –99.6 –122.5 –85.4 –98.1 –93.3 –458.0
    Acquisition related restructuring costs     –26.5 –35.1 –23.0 –1.1 –0.4 –39.0
    Items affecting comparability     –150.6 –150.6 –2,060.2 –718.1
    Financial income and expenses excluding revaluation of financial instruments   –596.8 –516.6 –523.1 –500.6 –483.2 –519.8 –565.2
    Revaluation of financial instruments     36.2 36.2 –35.8 –6.7
    Share of income in associated companies     11.8 11.8 1.2 2.2
    Income before taxes   1,998.2 3,384.6 3,662.4 2,663.2 2,841.0 882.8 1,397.5
    Taxes     –754.1 –855.5 –948.7 –637.2 –683.0 –369.3 –871.5
    Net income for the year   1,244.1 2,529.1 2,713.7 2,026.0 2,158.0 513.5 526.0
    Minority share in net income     –1.8 0.7 1.5 1.6 1.6
    Average number of shares after dilution (‘000)   382,417 382,409 378,712 382,409 378,712 376,165 369,366
    Earnings per share, after dilution (SEK)     3.45 6.79 7.31 5.47 5.84 1.41 1.44
    CASH FLOW                  
    Operating income before amortization   3,732.0 4,026.4 4,293.6 3,272.2 3,526.0 3,591.1 3,182.3
    Investments in fixed assets   –1,718.6 –1,969.9 –2,220.4 –1,408.5 –1,496.0 –1,511.8 –1,574.8
    Reversal of depreciation   1,564.1 1,613.0 1,948.6 1,270.3 1,509.7 1,477.9 1,448.0
    Changes in other operating capital employed2     –650.3 –39.5 50.6 –209.4 88.1 –492.1 519.1
    Cash flow from operating activities   2,927.2 3,630.0 4,072.4 2,924.6 3,627.8 3,065.1 3,574.6
    as % of operating income before amortization     78 90 95 89 103 85 112
    Financial income and expenses paid     –615.0 –518.4 –485.2 –502.2 –445.3 –516.1 –505.5
    Current taxes paid     –510.9 –581.5 –926.1 –428.3 –796.9 –769.0 –656.7
    Free cash flow   1,801.3 2,530.1 2,661.1 1,994.1 2,385.6 1,780.0 2,412.4
    as % of adjusted income     73 93 94 96 105 75 115
    Acquisitions, including cash payments from restructuring reserves   –1,307.8 –2,362.3 –1,213.2 –686.0 –862.5 –361.2 –901.8
    Cash flow from items affecting comparability     19.5 –129.3 –564.0
    Cash flow from financing activities   1,572.3 –1,495.3 –1,192.6 –2,040.1 –3,313.5 –1,106.3 1,745.9
    Cash flow for the year, continuing operations   2,065.8 –1,327.5 255.3 –732.0 –1,770.9 183.2 2,692.5
    Cash flow for the year, discontinued operations     –595.5 2,026.2 –1,251.0
    Cash flow for the year, all operations   2,065.8 –1,327.5 255.3 –1,327.5 255.3 –1,067.8 2,692.5
    Interest-bearing net debt at beginning of year adjusted for new principle   –9,886.8 –10,686.8 –10,636.9 –10,686.8 –10,636.9 –11,944.8 –9,734.6
    Change in loans   –2,095.5 765.2 97.4 765.2 97.4 966.6 –2,877.6
    Revaluation of financial instruments     51.8 51.8 –16.2 –35.2
    Translation differences on interest-bearing net debt     834.0 616.0 –1,712.4 616.0 –1,712.4 695.2 76.9
    Effect of dividend of discontinued operations     1,632.4
    Interest-bearing net debt at year-end   –9,082.5 –10,633.1 –11,944.8 –10,633.1 –11,944.8 –9,734.6 –9,878.0
    CAPITAL EMPLOYED AND FINANCING                  
    Fixed assets excluding acquisition related items   8,047.6 7,971.5 8,390.4 7,971.5 8,390.4 7,383.5 6,898.8
    Accounts receivable   6,736.0 8,828.0 10,362.5 8,828.0 10,362.5 8,855.6 9,889.4
    Other operating capital employed   –9,262.2 –10,135.4 –10,844.7 –10,135.4 –10,844.7 –11,569.9 –12,617.2
    Operating capital employed, all operations   5,521.4 6,664.1 7,908.2 6,664.1 7,908.2 4,669.2 4,171.0
    as % of total sales     9 11 12 10 10 8 7
    Operating capital employed, continuing operations   5,521.4 6,664.1 7,908.2 5,265.4 5,923.7 4,669.2 4,171.0
    Operating capital employed, discontinued operations     1,398.7 1,984.5
    Goodwill, all operations   14,777.8 15,301.9 17,792.4 15,301.9 17,792.4 14,031.6 13,793.5
    Of which goodwill, continuing operations   14,777.8 15,301.9 17,792.4 13,352.5 15,317.6 14,031.6 13,793.5
    Of which goodwill, discontinued operations     1,949.4 2,474.8
    Acquisition related intangible assets, all operations     433.2 638.5 433.2 638.5 464.2 624.0
    Of which acquisition related intangible assets, continuing operations     433.2 638.5 212.3 359.3 464.2 624.0
    Of which acquisition related intangible assets, discontinued operations     220.9 279.2
    Shares in associated companies, all operations     178.6 178.6 172.7 103.5
    Of which shares in associated companies, continuing operations     178.6 178.6 172.7 103.5
    Of which shares in associated companies, discontinued operations    
    Capital employed, all operations   20,299.2 22,399.2 26,517.7 22,399.2 26,517.7 19,337.7 18,692.0
    Return on capital employed, %     18 18 16 17 16 8 13
    Of which capital employed, continuing operations   20,299.2 22,399.2 26,517.7 18,830.2 21,779.2 19,337.7 18,692.0
    Of which capital employed, discontinued operations     3,569.0 4,738.5
    Net debt   9,082.5 10,633.1 11,944.8 10,633.1 11,944.8 9,734.6 9,878.0
    Net debt equity ratio, multiple     0.81 0.90 0.80 0.90 0.82 1.01 1.12
    Interest coverage ratio, multiple     5.3 6.5 6.0 5.5 5.5 4.4 3.9
    Free cash flow in relation to net debt     0.20 0.24 0.22 0.19 0.20 0.18 0.24
    Minority interests     15.6 16.6 1.5 16.6 1.5 0.4 1.9
    Shareholders’ equity attributable to equity holders of the Parent Company 11,201.1 11,749.5 14,571.4 11,749.5 14,571.4 9,602.7 8,812.1
    Return on equity, %     9 17 17 14 14 6 5
    Equity ratio, %     30 30 32 30 31 27 22
    Financing of capital employed   20,299.2 22,399.2 26,517.7 22,399.2 26,517.7 19,337.7 18,692.0
    1 Acquired sales growth is calculated as the year’s acquisitions as a percentage of the previous year’s total sales. 2 Including changes in accounts receivable.      
    For definitions and calculations of key ratios refer to Note 3, page 56.                  
  • Group key ratios.
  •