Securitas Annual Report 2007

Security Services North America provides specialized guarding services in Canada, USA and Mexico. The division consists of 17 business units – one organization for national and global accounts, 10 geographical regions and three specialty regions (Automotive, Government Services and Energy) in the USA, plus Canada, Mexico and Pinkerton Consulting & Investigations (C&I). In total, there are 97 geographical areas, over 600 branch offices and more than 100,000 employees.
Financial information
Organic sales growth was 4 percent, compared to 5 percent last year. The operating margin was 5.2 percent (5.0). There are several factors leading to this improvement. The main one is the focus on profitability and supporting incentive systems. The organic sales growth and client retention was strong and internal efficiency was improved. The improvement in the operating margin was driven by improved gross margins in the US guarding operations, while the development in Canada and C&I was less than anticipated. The weaker US dollar negatively affects operating income in Swedish kronor. The real change was 8 percent for the full year.
The client retention rate remained at over 90 percent. The employee turnover increased slightly to 71 percent (70). The increase from last year is due to sustained improvement in the labor market in the USA.
In 2007 new value-added services that incorporate technical solutions were introduced. These are helping to speed up growth and further improve margins. Pilot programs and partnerships for these services are now in place, and they will continue to be rolled out progressively over the next two years.
Service offering
The service offering ranges from security consulting, mobile patrols, specialized guarding, receptionist services, console operations, alarm response and event security to onestop security solutions. The customer base represents many industries and sectors, including banking and finance, manufacturing, education, high-tech, healthcare, residential areas, utilities, power, entertainment and retail. In certain regions, Securitas has a greater presence in specific customer segments, such as ports and gated communities, high-rise buildings and the petrochemical industry. In addition, the National Accounts team has a high level of specialization in customer segments such as high-tech and telecom.
Securitas wholly-owned subsidiary Pinkerton Consulting & Investigations provides security consulting and investigative services such as fraud investigations, due diligence, computer forensics, and intellectual property and brand protection services. It operates from 32 branch offices throughout the world, serving customers in the pharmaceutical, electronics, consumer goods and financial sectors among others. Multi-country contracts play a significant role in the process of increasing long-term and regular business, and C&I is therefore seeking an even larger international presence.
Market
The North American market for contracted security has been relatively stable over the past three years and currently stands at 55 percent, compared to 45 percent for proprietary security. In Canada and Mexico most of the market is outsourced - almost 80 percent in Canada and close to 90 percent in Mexico. The Securitas market share remains stable at 18 percent in the USA and 12 percent in Canada. The main competitors in the USA are Allied Barton and G4S through Wacken-hut Corp. In the US security market there are seven major players that have a combined market share of 56 percent. The rest of the US security market is very fragmented. In Canada, the market is more consolidated with the top four companies holding 70 percent of the market. In Mexico the market consists of a large number of companies, each with almost an equal share. The main competitor is the private security division of the State Police in Mexico City.
Strategy and objectives
The overall long-term financial objective for Security Services USA, Canada and Mexico is to grow at least in line with the market for private security and to improve profitability year-on-year. To develop the business further, Securitas has a clear strategy of shifting from merely selling service hours to providing customized solutions adapted to the clients’ needs. The division will strive to maintain its strong leadership, raise industry standards, increase the level of specialization, introduce value-added services and solutions, and continue to maintain a high client retention rate.
Our employees
The branch manager training program in the USA, which was introduced in 2004, continued and more training modules were added in 2007. The primary purpose of this training process is to ensure a consistent level of service quality throughout the country. It also aims to drive the decentralization process within the organization and encourage local responsibility. Similar training processes were introduced in Canada and Mexico in 2007. This process, combined with our Securitas Services Excellence program, improved our performance in 2007. The Securitas Services Excellence program, which aims to promote and maintain high and consistent service quality, was a major contributor to our high client retention rate of more than 90 percent. This forms a good platform for continued growth in the years to come.
Key figures and events in 2007
  • Total sales amounted to MSEK 20,933 (21,736). Organic sales growth amounted to 4 percent (5).
  • Operating income amounted to MSEK 1,080 (1,088). The operating margin was 5.2 percent (5.0).
  • Return on total capital employed amounted to 17 percent (14).
  • The Securitas Service Excellence program has helped to significantly improve consistency in service quality over the past year.
Financial key ratios    
MSEK 2007 2006
Total sales 20,933 21,736
Organic sales growth, % 4 5
     
Operating income before amortization 1,080 1,088
Operating margin, % 5.2 5.0
Real change, % 8
     
Cash flow from operating activities 1,036 877
Cash flow from operating activities, % 96 81
     
Operating capital employed 952 1,163
Operating capital employed as % of sales 5 5
     
Total capital employed 6,513 7,116
Return on capital employed, % 17 14
Santiago Galaz, Divisional President, Security Services North America
Security Services North America provides specialized guarding services in Canada, USA and Mexico. The division consists of 17 business units – one organization for national and global accounts, 10 geographical regions and three specialty regions (Automotive, Government Services and Energy) in the USA, plus Canada, Mexico and Pinkerton Consulting & Investigations (C&I). In total, there are 97 geographical areas, over 600 branch offices and more than 100,000 employees.
 
Financial information
Organic sales growth was 4 percent, compared to 5 percent last year. The operating margin was 5.2 percent (5.0). There are several factors leading to this improvement. The main one is the focus on profitability and supporting incentive systems. The organic sales growth and client retention was strong and internal efficiency was improved. The improvement in the operating margin was driven by improved gross margins in the US guarding operations, while the development in Canada and C&I was less than anticipated. The weaker US dollar negatively affects operating income in Swedish kronor. The real change was 8 percent for the full year.
 
The client retention rate remained at over 90 percent. The employee turnover increased slightly to 71 percent (70). The increase from last year is due to sustained improvement in the labor market in the USA.
 
In 2007 new value-added services that incorporate technical solutions were introduced. These are helping to speed up growth and further improve margins. Pilot programs and partnerships for these services are now in place, and they will continue to be rolled out progressively over the next two years.
 
Service offering
The service offering ranges from security consulting, mobile patrols, specialized guarding, receptionist services, console operations, alarm response and event security to onestop security solutions. The customer base represents many industries and sectors, including banking and finance, manufacturing, education, high-tech, healthcare, residential areas, utilities, power, entertainment and retail. In certain regions, Securitas has a greater presence in specific customer segments, such as ports and gated communities, high-rise buildings and the petrochemical industry. In addition, the National Accounts team has a high level of specialization in customer segments such as high-tech and telecom.
 
Securitas wholly-owned subsidiary Pinkerton Consulting & Investigations provides security consulting and investigative services such as fraud investigations, due diligence, computer forensics, and intellectual property and brand protection services. It operates from 32 branch offices throughout the world, serving customers in the pharmaceutical, electronics, consumer goods and financial sectors among others. Multi-country contracts play a significant role in the process of increasing long-term and regular business, and C&I is therefore seeking an even larger international presence.

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Market
The North American market for contracted security has been relatively stable over the past three years and currently stands at 55 percent, compared to 45 percent for proprietary security. In Canada and Mexico most of the market is outsourced - almost 80 percent in Canada and close to 90 percent in Mexico. The Securitas market share remains stable at 18 percent in the USA and 12 percent in Canada. The main competitors in the USA are Allied Barton and G4S through Wacken-hut Corp. In the US security market there are seven major players that have a combined market share of 56 percent. The rest of the US security market is very fragmented. In Canada, the market is more consolidated with the top four companies holding 70 percent of the market. In Mexico the market consists of a large number of companies, each with almost an equal share. The main competitor is the private security division of the State Police in Mexico City.
 
Strategy and objectives
The overall long-term financial objective for Security Services USA, Canada and Mexico is to grow at least in line with the market for private security and to improve profitability year-on-year. To develop the business further, Securitas has a clear strategy of shifting from merely selling service hours to providing customized solutions adapted to the clients’ needs. The division will strive to maintain its strong leadership, raise industry standards, increase the level of specialization, introduce value-added services and solutions, and continue to maintain a high client retention rate.
 
Our employees
The branch manager training program in the USA, which was introduced in 2004, continued and more training modules were added in 2007. The primary purpose of this training process is to ensure a consistent level of service quality throughout the country. It also aims to drive the decentralization process within the organization and encourage local responsibility. Similar training processes were introduced in Canada and Mexico in 2007. This process, combined with our Securitas Services Excellence program, improved our performance in 2007. The Securitas Services Excellence program, which aims to promote and maintain high and consistent service quality, was a major contributor to our high client retention rate of more than 90 percent. This forms a good platform for continued growth in the years to come.
 
Key figures and events in 2007
  • Total sales amounted to MSEK 20,933 (21,736). Organic sales growth amounted to 4 percent (5).
  • Operating income amounted to MSEK 1,080 (1,088). The operating margin was 5.2 percent (5.0).
  • Return on total capital employed amounted to 17 percent (14).
  • The Securitas Service Excellence program has helped to significantly improve consistency in service quality over the past year.
 

Financial key ratios    
MSEK 2007 2006
Total sales 20,933 21,736
Organic sales growth, % 4 5
     
Operating income before amortization 1,080 1,088
Operating margin, % 5.2 5.0
Real change, % 8
     
Cash flow from operating activities 1,036 877
Cash flow from operating activities, % 96 81
     
Operating capital employed 952 1,163
Operating capital employed as % of sales 5 5
     
Total capital employed 6,513 7,116
Return on capital employed, % 17 14