Right. Hello everyone and very welcome to Securitas' first nine months over here. I will quickly go through the main highlights for the first nine months. We have had, we think, a good third quarter report, a solid report where we are good on margins, good on growth, good on cash flow, and we developed the technology and solution business as we expect. So good growth year-to-date and in the quarter. Operating margin year-to-date we are flat to last year, but we are better in the quarter, up 0.2 compared to last year and driven very much by very good work and very good development in North America. Price-wage balance is on par. EPS up 10%. Free cash flow is good. Good quarter. We should have a good quarter in Q4 as well as we usually do.
On the development of a solution and technology, we think that we will reach at least 28% compared to last year as we did, and the Q3 supports that. As we have already announced, we are very excited about the acquisition of Diebold Electronic Security in North America, which really is a game changer and gives us a unique position in North America compared to competition by being a very strong player in both guarding number one in guarding industry but also having now a very, when the acquisition closes in Q1, of course, a very strong position also in the electronic security.
Then the ability to combine the two will be a very strong differentiator compared to the rest of the competition basically in North America and allow us to use the high competence that the Diebold organization has and to use that to leverage our portfolio in the North American in the North American business and to offer our clients a combined solution and also to be more competitive when we are fighting for new contracts in the U.S. primarily. So that's when we are very very happy about that. We worked on it for a long time and we were very very proud and pleased to be able to announce that last week. Yeah here you see the numbers. Good growth in the quarter, 4% margins up as I said and that gives some leverage down on the earnings per share.
So 11% real change in the quarter and so year to date it's also good numbers. So that's moving on in the right direction. North America though good growth in North America. The market is very active. High activity. We sell well and new sales and a lot of things to bid on. So strong strong development in the U.S. and a lot of things going on in the market. We think the market is growing in the range of 3% this year the security market and it's probably going to continue to grow in the same range next year so probably around 3%. And we probably are slightly ahead of that market growth right now. It's not easy to say. It's not an exact science to make that statement but that's our gut feeling I would say.
Yeah, I think that basically summarizes what is on this or which is on this slide. We also see an increasing speed on the solution and technology in North America, which has been basically close to zero if we go back two years, and now it starts to be a more and more significant part of our business, and it's roughly speaking about 3% of total sales in North America. But of course with the acquisition that will completely change once we start to include those numbers coming into next year. Margins were strong 5.8 in the quarter. That was a very good quarter in North America and good leverage from the sales and also positive price wage difference. We also see some contribution from an increased share of solution and technology giving a higher margin than the traditional guarding business does.
In Europe, the market is probably growing in the range of 1% to 2% this year. It's probably going to be something like that next year. It's never great. It's never terrible. But in Europe, it's no big numbers, but it's quite okay, I would say, in general, the general situation in Europe, and we are slightly ahead of the growth in Europe. That is clearly my opinion as we have a very strong offering to our clients with offering the possibility of security solutions and technology, including the financing possibility of that. We had good extra sales in Europe as well in Q3. But that is, I should say, a European phenomenon while we as a group are flat compared to last year.
But in the quarter, in Europe, it was good in the quarter, and one of the reasons being that we see in quite a number of countries a lot of extra sales related to the need for protection or extra protection concerning the refugees coming to Europe in high volumes. But it's only one of the reasons. There are other reasons as well, but that's one of the more important ones. So good development on the technology side and good development on the sales side. And in markets like Sweden, for example, we haven't seen much of a growth for a while, and now we have quite good growth actually in the Swedish market as well.
Margins were flat 6.4%-6.4% in the quarter, slightly behind because of the gap we had already the first half year and the social cost you have we have informed about already before. So but it was a good quarter in Europe, a good 6.4% compared to the same level the previous year. So in all in all I think Europe did well in the third quarter. In the Latin American division we have a very good growth in countries like Chile and Colombia where we have increased the number of employees with more than 1,000 people since the beginning of the year in both those countries around 1,100 people in Chile and about 1,000 in Colombia.
Argentina, we are more or less the same number of employees, but we still have growth in the numbers because of inflation in Argentina, and Spain is turning around. We lost the Barajas Madrid Airport contract July 1, so we have lived without that one in all of Q3. But in spite of that, we were still at zero flat organic growth in Q3 compared to Q3 last year. So we were able to compensate the loss of Madrid airport contract, which was a negative margin contract for us. So we've been able to compensate those EUR 15 to 20 million on an annual basis with other wins in Spain. So all in all, we were still on zero organic growth in the quarter in Spain. And Spain generally is coming around. Good growth in the macro on the macro side, 3% to 4% GDP this year in Spain.
The security market, as always, late cyclical, so we see no growth in Spain this year compared to last year and maybe 1% to 2% but still no big numbers for next year. It will take a while until we see the recovery of the Spanish macroeconomic situation to also have a positive impact to the security market in Spain. Still things are moving on in the right direction including top line and including margins as well. Yes, that summarizes basically that. Then on the margins it was okay. A good 4.7% in the quarter and year- to- date we are slightly ahead of last year and very good development in all the markets when it comes to technology and solution sales. That is supporting us quite well. We move to the cash flow as always.
It should be good in Q3 and Q4 and it has been as well and it was better than last year. So it was according to plan and we should expect also a good cash flow in the fourth quarter and net debt, consequently, a consequence of that. So no surprises there. And then, when it comes, finally a few words about the Vision 2020 and the acquisition in North America. We have for quite some time now, well, actually, since the beginning of the year, we've been working hard on trying to define the scope and the way we're going to operate in the next coming five years. And we call this the Vision 2020, which has now been finalized and launched and communicated and started also to be implemented during the third quarter. And we are, it's building very much on the past.
It's not a revolution in any way. It's more an evolution of what we have done for quite some time. But still widening the scope is at least one important part of that and meaning that we move so to say from traditional guarding to security solution and technology. That's what's been our journey the past four years. And now we call it Protective Services and Protective Services is a wider scope than just security solution and technology because in that we include also fire and safety to a higher degree and corporate risk management also too to a higher degree. And these are areas especially fire safety which is a good growth area good margin area. It is an area where we can grow organically.
We already have in Europe, for example, 150,000 people. We have in the range of 6,000-7,000 people who are working on fire protection in one way or the other. But we think we can continue to grow that organically. We think we can grow it by acquisition, and then we can widen the scope, and we can differentiate us to competition by being able to offer a wider scope and finance that during the length of the contract, et cetera. And we can also take advantage of the guards on site to do some of those fire protection inspections and work and actions that needs to be taken because they are there anyway. And then we can find cost savings. We can be more competitive.
We can take a bigger responsibility in front of our clients so they get more for their money. And at the same time we can use that to be more successful to grow faster than the market which we think is possible and to improve our margins. So a wider scope more of the same but the wider scope and also to work in a more consistent way as a group and take advantage of the economy of scale in certain areas like for example IT and security operations centers. So that's a little bit the agenda for the coming years for us.
We are very excited and happy then to be able to take a step in that direction and a big step in that direction by the disclosure of the largest acquisition we made in 15 years and that one is Diebold Electronic Security North America. We have been quite explicit in the press release so I think we hopefully have answered most of the questions related to that already in the release and you see some of the key key financial information here on this slide. The game changer is the one I mentioned in the beginning that we will be completely unique in North America by being able to do guarding with mobile and monitoring and with the technology and being strong in this area with substantial resources which basically differentiates us from everybody in North America. So this is not a cost synergy acquisition.
This is a growth synergy acquisition which will allow us to leverage our portfolio and to win contracts with a total different capability than competition is able to offer in North America. So we will now have some conditions that needs to be fulfilled in the coming months and once that is in place we expect this acquisition to close during the first quarter next year and then it will be consolidated in Securitas. All right. So that was in a high speed some of the key things from the third quarter. So we'll allow for questions now and see if there is anyone who has any questions please.
Thank you. Ladies and gentlemen, if you do wish to ask a question, please press the zero one on your telephone keypad. If you wish to withdraw that question, you may do so by pressing the zero two to cancel. There will be a brief pause while questions are being registered. Our first question comes from the line of Staffan Åberg from Handelsbanken Capital Markets. Please go ahead.
Hello, everybody. You state that the margin in the U.S. was supported by a positive difference between price adjustments and wage-related costs. Could you elaborate a bit on that, and is this something that can reverse already in the next quarter?
Well, I mean, it's a number of things, of course, but it's a normal price and wage fight you always have, and sometimes it's slightly positive, sometimes slightly negative. We don't see much of a wage inflation yet in the U.S. We can be a bit concerned longer term, but still, because we have some difficulties in certain areas to find people, basically. But we are, I mean, that's how we are organized. It's in our DNA to be if salaries wages are increasing in Kansas, then we adjust that and we increase our prices, and we know how to do that so that we can manage.
So, right now, a slight positive difference on the price wage, and then we have some of the unemployment, the SUI rates , and some of those social costs, let's say, or wage-related costs. That's too are playing in our favor as well in the quarter. So, yeah, those are, I guess, our main components.
Okay. You say also that you aim to increase the density of mobile patrol of the mobile patrol operations. Would you mind putting a number to that or maybe explain exactly what you aim for?
We think it's no, I will not give you a number, but today we have quite the variance in density in certain markets like the Scandinavian markets. We are Nordic markets. We have a very high density and we can respond very quickly when something happens while in other markets it takes much longer time because the density is too low. So density is key because when something goes wrong it's the time to respond that is really the differentiator and then you need volume you need density to be able to respond faster than competition. So we like to increase the mobile business, which is a good margin business to start with.
That's one good reason, but also to be able to show the value of our offering because we have the one with the highest density should be able to get to is the one who is able to offer the highest value to the client, and then hopefully also have a good margin on that. That's why density is key. We look for acquisitions. It's not usually. These are quite small companies, but we have made a couple of those in Sweden in Denmark. We have looked in other countries. We made some minor acquisitions in order to increase our density.
But we also need to look for other ways, other channels, other possibilities of how we can increase density in the mobile operation because I think in a longer perspective the mobile business and the ability to not only have guards on site full time 24/7 but to optimize the cost equation for the customer by a combination of guards on site and mobile response and thus and consequently then you will be able to optimize the cost. That will be a key differentiator and a strong competitive advantage as customers probably long term will be questioning more and more how do how do companies security companies optimize between on site guarding, mobile response, and remote guarding by using the means of technology to be able to do that. And that's why mobile is extremely important.
That's why we like to put that in as a key component in the Vision 2020 to really grow the density of that.
Okay. And finally, looking at the Diebold Electronic Security business, how much overlapping security systems and products do you have when comparing with them, and assuming that there are overlaps, which systems are most up to date? And also, given the acquisition, given that the acquisition goes through, what's your best guess when in the first quarter the figures will be consolidated, and what impact it will have on amortization and impairment of intangible assets? Also, if you could tell us a bit about the effect on CapEx needs going forward.
Well, on all your six different financial questions, I will not answer any of them. I'm sorry about that because then we need to issue a press release and we think we were quite unusually extensive in our press release, so I will not give any more financial data on that. We do not want to speculate when in the first quarter. So we expect it to be in the first quarter but earlier or late we don't want to make any speculation on that. It doesn't entirely depend on us either. So I prefer not to set a date because it's probably going to be wrong anyway. And then I mean the overlap question there I mean we have a relatively small but growing business there. They will support each other.
Of course Diebold is tremendously much more much larger and has tremendous competence to the small group of people that we have. But there is very I mean there are no cost synergies or anything like that. We will just continue with everything and just try to use this to grow our business opportunities. So I mean it doesn't change anything for Diebold and it doesn't change anything for Securitas the small team we have in Securitas in the U.S. already. They can just continue to work in the same way as we've done and they will just support each other so to say.
Okay. Thank you.
Thank you.
Thank you. Our next question comes from the line of Sylvia Barker from Deutsche Bank. Please go ahead.
Hi, good afternoon, everyone. I have three questions, please. First one on Europe, and I guess just the spot sales that you've had. Could you possibly quantify, and also could you please talk a little bit about the margin on these sales compared to just your regular kind of European margins? I.e., how much of the margin beat in the quarter was due to these one-off sales? And just if you could tell us something a little bit about the run rate of these one-off sales into Q4. Sorry, it's a bit of a long question. The second one on the U.S., so you did mention SUI and other rates. I mean, comments that we've had from the staffing companies have been that they've never seen kind of such a drastic reduction, I guess, in labor-related costs.
So again it would be very helpful if you could either quantify or at least give us the direction and be kind of the run rate just qualitatively of these benefits that you've seen in Q1, Q2 and Q3 so far. And then just finally touching on your kind of Vision 2020 and the acquisition that you've made in the U.S. could you talk a little bit about how you see the group now in building I guess the mobile offering et cetera compared to what the group was like before I guess Loomis, Securitas Direct et cetera were split out of the group. Thank you.
Well, let me start with the extra sales. The extra sales in Europe in the quarter was up about 1%. I mean it usually in Europe if you look last year in the quarter it was around 18% of total sales and this year was close to 19. So that's I mean so yes it was a lot it was a good increase but I mean we should not over dramatize that. Usually extra sales has better margin than traditional sales of course. So and we I don't want to speculate too much. I mean one component of this extra sales is the one I mentioned is concerning the is to manage the protection and the need for protection on a lot of temporary and complicated locations for the volumes of refugees. And that has continued in October.
I think that's my best forecast so far I can give on that. So it has continued in October, but I don't want to estimate that for the coming quarter, and some of the places where has been very nasty things going on and stupidities, and hopefully the authorities of a place could catch these guys, and then that then the need of that protection will hopefully reduce. When it comes to North America, I think I answer more or less as well as I can. I mean, it's not the good margin in North America in the quarter. One part of it, I mean, you have three components, and one is the positive price wage, and I have no more else to say. I cannot specify that in any more detail, and I prefer not to than the two components I mentioned before.
And then you have two more things and it's the leverage of the growth with leverage our indirect cost and that supports us. And then you have the increase in a high good speed of increasing solution and technology that actually also improves the margin. And we usually use as a rule of thumb that if we're going to make an explanation it means 0.1 or more. And we have 0.4 up on the margin and we have three explanations. So I think I mean none of them really are is the sole explanation but they together create the improvement from 5.4% to 5.8% in the quarter. On the mobile business I mean I mean the spin off of Loomis and Direct and the technology business systems and so forth that goes back such a long time so that we can leave behind us.
I see that as a very key area, and we will, in our five-year plan, [make] this a key component for us to strengthen our offering: to increase the density of our mobile network. So that is an area where we'll look for all possible ways of doing that and channels of how we can increase mobile sales. And some will be trial and error. Some will be we'll probably fail. Some may be more successful than others, but we need to try different ways by acquisition and by organic growth and by corporations and by partnerships and by different ways. And this is more a statement of direction than concrete plans at this point in this point in time. But certainly it is the key area. It's a good-margin business.
It's a key differentiator and it would allow us to grow faster than the market as one key component in the years to come. In summary our Vision 2020 and the strategy that we are running is that we should be able to grow faster than the security market in the North American and European market. We already do that and very much because of that strategy. But we think that with Protective Services and the widening scope we should be able to sustain that for the five-year period.
Okay. Thank you. And can you have two quick follow-ups please? On the U.S. again, so on the price-wage balance, obviously we've kind of touched on the, I guess, on the social costs, but you previously made a comment that the wage increases are probably around the corner. We've seen that your churn has increased again this quarter sequentially. Could you just update us on your thinking about it? And then just secondly, just catching up on the mobile business, what kind of investment do you envision? What's the shape of your CapEx going forward, or is it going to be just kind of based on whatever the opportunity is at that particular time?
Now, the mobile business—I mean, we'll look for some small acquisitions, but you will know well below the level that we make press releases. So that's the kind of size of those. I mean very small family companies which are very local and that we can acquire and we just plug them kind of into our business. The CapEx needed to grow mobile is minimal. We need to buy some cars. That's it basically. And so that one is negligible. So growing mobile from a CapEx point of view is not a big deal. So no, there is no need for that. So let's see what was.
Wages.
The wages. Yeah, we do see we do see we do see yes, as I said before, we do see some pressure in certain places, and then we have to adjust to get the right quality of people. And then we have, but as you know in the U.S. there are basically no CBAs, very few, and which means that we have to manage that individually. We do it by individual. We do it by branch. And if we have a wage inflation in New York in Manhattan, okay, fine, then we'll need to adjust our prices immediately. And we are geared and we are used to do that. It's nothing strange. It's nothing worrying because we are good in that. So that doesn't concern me at all, I would say, because we are so well into that.
If we have a wage inflation in Manhattan, we don't have it in Kansas at the same time or in Seattle or in Austin in Texas. I mean, so that since wages are to the majority, to high majority, is set very locally, that means that we can very quickly manage and adjust, and we don't have any big bangs like we have with the ACA and things like that, which is totally different ball game. So this is a part of our DNA is to manage this. So we'll we have to pay more attention to it. We have to be more on top of that because, as you correctly say, the retention of our employees is changing. We have difficulties in some places, but I'm not concerned that we cannot manage it. I'm not because we are used to that.
Very helpful. Thank you very much.
Thank you. Our next question comes from the line of Rajesh Kumar from HSBC. Please go with the question.
Hello, good afternoon, Alf. Just trying to understand a couple of issues. First, if we look at the U.S. headline wage data coming from BLS on the security industry, it's down 1.5. And when you say price wage balance within your firm, was your experience different in terms of wage deflation in the U.S.? Second, on the U.K. side, what proportion of your 14,000 staff in the U.K. are below GBP 9, and what is the plan to get them on the living wage over the next three years? And finally, just moving on the technology side, last quarter I tried to understand; you said you will work that out by now. How much of the growth you're getting in technology is coming because you are basically moving businesses from Niscayah to in-house, i.e., removing the subcontracting, and how much of that is actual market growth?
Well, I can answer the last question quickly. Basically zero comes from Niscayah to moving that we move from Niscayah to ourselves. That is basically nothing by now that journey we have done. We went after that volume after the attempt to acquire Niscayah back in 2011. I was, yes, when we put a bid on that and were not successful. So then we went after that volume. So that volume is whatever we could do there is basically done. So now everything that we are growing comes from other sources than from them. When it comes to the U.S., I mean this is not an exact science and of course you can count the number of guards and the hours and all those things from the statistics. Then you have to put the wage inflation on that and whatever other components there would be to that.
Our estimate, right or wrong, our estimate is that the market is growing in the range of 3%. I cannot prove that with anything else than our basic our feeling our discussions our estimates, and they are usually quite correct. We think we are growing slightly ahead of that, and we think we are successful in the market. We sell well. We have a strong team. We do the right things. We focus on the right things. We are very market oriented focused and do a good job basically. So we are growing slightly ahead of the market. So that's our estimate, and that's the best we can say on that topic. In the U.K., the National Living Wage first of April next year, absolutely. In certain areas of the U.K., we have no problem at all. London, for example, we are already okay.
While in other areas we are definitely not and we will have to have wage increases of 7%-10% in a number of areas where wage levels are more depressed. We have already started the job. We have already started to communicate with the customers to make the necessary adjustments so we will increase the prices in order to follow the National Living Wage fully and be all set by April first about on that topic. The same way the same methodology that we used when it came to the ACA in North America. So that work is ongoing. It's the same for everybody so it's competition neutral in every individual market and or part of the UK.
And I don't see, and it's also the U.K. is also a low-margin market, so I mean there is no room for anyone to kind of just absorb or swallow this huge increase in both areas. So I think everybody is facing exactly the same problem on the same merits and on the same conditions, and it just needs to be managed. So we are on top of it, and I think we will just be able to manage this wage-price difference and have everything in place when it comes into effect.
That's useful. So should we expect staff churn in the U.K. to go up as well like we've seen in the U.S.?
I don't know. I mean it will drive growth. I mean that's for sure. I mean this is I mean price increase becomes organic growth. So from that perspective it will drive growth. I'm not sure. I'm not sure. I mean everyone has the same problem. So why would it theoretically you would question why would it change retention? Well maybe people will stay a little bit longer. Retention will come down because we pay better salaries. Could be. Could be. But they already work for. Well I don't know. I have no qualified guess on that. That's pure speculation. I don't know. I think too for us it's just we have an increase. We have to manage it. We are on top of it. We already started the process. We already communicate with the clients. We think we can manage.
Okay. Basically next year it won't be the full nine, isn't it? It will be 7% increase next year and then a follow up for the next couple of years after that.
I mean yes. I mean so yes exactly. And now I think the big change comes April first next year. So that one is what we are looking at right now. And yeah we are working on it and we think we can manage.
Thank you.
Thank you. Our next question comes from the line of Nicholas de la Grense from Bank of America Merrill Lynch. Please go with the question.
Hi, afternoon, guys. A couple of questions on the Diebold acquisition from me, please. You've effectively given us the EBITDA margin in giving us the multiple, and in the past you've said that technology contracts typically have a depreciation of about 3% of sales. Is that a reasonable assumption to make for Diebold when thinking about accretion?
I prefer not to. I mean, we gave the numbers we could give and we thought that was enough at this point in time when we have closed the acquisition and everything is in place. And when we come into basically Q1, it will be next time for us when we have, I mean, we will decide how to what and how to communicate about that because I understand that you need, you want some more guidance on many details. On the other hand, I think we gave quite, we gave enough for you to at least have a good feel for what is the financials of this business. So I prefer not to give any other numbers at this point in time.
Okay. So you do anticipate being able to give a bit more detail.
I mean, of course. I mean, once it comes into our numbers, you will we will, it's a whole different thing. But if we will give something more along the road, we'll have to decide when we come to the coming quarter or the coming next two quarters.
Okay. And just one other one on the acquisition. You mentioned that most of the value would come from revenue synergy. So I was wondering how quickly you anticipated being able to kind of combine your sales functions or capabilities in the U.S. so that you might start to realize those revenue synergies?
That's also a very difficult question to answer. I mean now the first thing is that we need to close the deal which will be Q1 next year. We need to learn the business. We need to know the team the people. We need to understand each other. We need to find the ways of how to work together. I'm sure we can start address some of our customers in our portfolio already during 2016 and that's what we hope and expect. To what level and what number to plug in and to use I don't want to I don't want to be you have to bear with us that we don't want to be more specific than this at this point in time. And then we have to adjust our communication as time moves on what to say and not to say.
But I mean the reason we one of the strong reasons to revive this company is that we think that we can leverage this acquisition in the portfolio that we have because Diebold Electronic Security is to about two thirds geared for the financial market and that's where we have our sales the main segment of the sales of course for obvious reasons being a part of a Diebold group. And a minor part of Diebold Electronic Security is to other segments in the market while we are strong in many many many different segments. So we think there will be good synergies good possibilities for us to go together to those clients and find cost efficiency for the client and a better solution for ourselves with those clients. And I don't want to give a number.
I don't want to be more specific than that at this point in time. But that's of course where we expect a good leverage from this acquisition.
Thanks very much. That's very helpful anyway. Thanks.
Thank you. Our next question comes from the line of Robert Plant from J.P. Morgan. Please go ahead.
Afternoon Alf. France is mentioned in the statement as an area where you'd seen an improvement. I think at Q2 you said it was down in Q2 had been up in Q1. Is France now seeing a sustained improvement? Thank you.
Well, France is unfortunately still—I mean, France in the period is basically flat if we look on the organic sales growth for a period of nine months. And it was a little bit negative actually in Q3 minus 1%. So still close to flat basically. But now nothing the top line is not improving in France. It's not. We have good we have a good development on the margins so we protect our margins in a good way. And if we look on the year- to- date we actually and also the quarter we had slightly better margins in France than we had last year.
Thanks Alf.
Thank you.
Thank you. Our next question comes from the line of Henrik Nielsen from Nordea. Please go with the question.
Afternoon all and thank you for taking my questions. First one is it fair to assume that the SEK 20 million higher cost you have from youth employment taxes in Sweden is equally split between Q3 and Q4 and then you only have a small part of it in Q2?
Yes.
Thank you. And on the extra sales in Europe, then is it also fair to assume that this boosted the profit then with about SEK 7-9 million or?
No, I don't want to give you a number on that. I mean, the margins are higher than the average in extra sales. Usually always is like that. So, but I don't want to give any. I don't want to give you a number on that.
Okay. But you do mention in the report that the higher costs in Sweden are offset by the extra sales.
In Sweden. Yes in Sweden. In Sweden.
Okay. Sweden only.
Only Sweden, yes.
I understand. I understand. You also mentioned during the call now that on a group level extra sales were flat. So in which region did it decline year-on-year?
It declined in North America.
Okay. Thank you. Also you mentioned as you always do that security solutions and technology in the quarter were sales of security solutions and technology supported the target of growing it above 28%. Can you quantify? Are you in line with the target or are you substantially beating the target as of right now?
We stick to our target that we will at least reach the 28% improvement in technology and solutions compared to the previous year. There’s a quarter and the results in Q3 support that and we stick to the full year number and I don’t want to give you the nine-month number. But we feel confident that we will be able to at least reach the 28% at the end of the year. Yes.
Thank you. One last question if I may. In the Vision 2020 you mentioned new sales channels and maybe I missed it during the call but can you elaborate on what these new sales channels are?
This is more of a, we're looking for that in different ways and we have some ideas which are more imminent than others and but we will it's and as when we have something more specific we'll certainly disclose that. But I don't want to be more specific right now. But we have some that will hopefully we can disclose shortly and others that are more long term. But we need to look. It's more a general statement saying that if we're going to grow the mobile we cannot just do it in a traditional way. It's not going to be good enough. We will need to how we can find ways so we can sell those services through other channels.
We can also do that in the healthcare sector, where I think we can build a competence to be able to respond to elderly people. For example could be one area when they fall in their homes and they need some assistance. Somebody needs to have the keys and somebody needs to go there and help them up and then to get up again or to call the ambulance or whatever. Around those kind of areas there is a business opportunity because there is a growing need and you need to respond and you need to respond fairly quickly. Those kind of that will give us monitoring volume because the alarm or the device has to be connected to somebody and that will be us. It will create volumes for the mobile organization.
By doing these things and finding different channels we will be able to grow the mobile density which is a key competitive advantage for us in the five year perspective. That will be one that's another example and there will be others to come.
Thank you, Alf. Thank you. Our next question comes from the line of Paul Checketts from Barclays. Please go with the question.
Hi. I've got a couple of questions relating to the technology and fire and safety sides. On technology, can I ask how much of each of your segments now would you classify as technology if that's something you're prepared to give? And on the technology discussions with customers, are you finding some of the clients prefer to own their own equipment rather than you owning it?
Yes. Yes on that question. Yes. That happens. Not a lot but it happens. Some people like to spend their money and then they do that and then they buy the equipment and then we deliver it and they buy it and it's just a normal sale. It's not a lot of that. It's a minor part. Normally we are the owner of equipment.
Do you have a preference?
The preference is that we own the equipment during the contract period and we take the complete responsibility including the technical maintenance everything. But if we can make money and we can make our customers happy and we can solve their problems we're more than happy to do that in any way.
Okay. And proportion of each segment that you would consider as technology?
I can't answer that. I don't even have those numbers.
Fine. On the fire and safety side can you just clarify what services you're actually proposing Securitas will be able to offer in that area?
Well, I mean, first I should say I misunderstood. I thought you meant market segments when you said segments. You probably meant a different division, so.
Yeah, I meant in each region, how much would you say technology.
Still I won't give you the number.
Okay. Right.
So it has to be because my answer that I don't know. I know in fact I understood your question but you meant banking or retail or et cetera. So then that I do not know. But the different business segments of course we know those numbers. Still I won't give it. Anyhow on the fire and on the fire side I think I mean there are many services today if you look on companies what they you have a first of all you can outsource your whole fire and safety department. We do the fire and safety at Stockholm Arlanda Airport for example. All the fire trucks are equipped by us and we are and we have the people there employed so it's our team there. We do it in some petrochemical sites some steel mills and things like that where we do the whole thing.
We have a whole fire brigade and we equip it. It's our cars, it's our trucks, it's our people, it's our training, it's everything. So that will be, but that's customer by customer, side by side. But I think the interesting more and even maybe more interesting part in this area is that with all our customers, they have legal requirements to do, in certain intervals, inspections of their fire and safety installations. You have to inspect the alarms that they are working. You have to check the fire exits. You have to check the extinguishers that they are okay. You have to check a lot of things and you have to document that and you have to make protocols and then you have to fix things if they are not working very well.
Those are, I mean, those are important things, but they can be performed by our people. We do that many times already, but we can elaborate that and we can extend that work and we can grow that work and take advantage of the cost base and the people we have by offering those services which are normally performed by another supplier by which the customer has a contract. So then we tell the customers, why do you have two different suppliers? We can do the same thing. You can reduce your cost, and we do it with our people, and you save a lot of money, and we can share or take a part of that gain for you. We do that more and more, and that is very much appreciated, and that brings us extra business.
In order to do that, then we can grow that even more to more and more sophisticated services. In doing that, we need to complement that journey by acquisitions. So we look for organic growth in the first way I explained and we look for acquisitions in the fire and safety area because we think there is good synergies on the top line on the cost line and on the back office side. And it's a good healthy recurring stable portfolio business so it fits with our structure as well. So we think this is a good area for us to differentiate ourselves even more compared to competition who will normally traditionally just provide guarding services.
The last question is on both technology and fire and safety. Who do you classify as the main competitors?
Oh, I mean, there are a few very large companies in these areas, but there is also a huge amount of small medium sized companies. It's primarily those small medium sized companies who do this kind of work in the full scope or partly in part scopes or partly that we can that we would then compete with or be possible to acquire. There are possibilities to make such acquisitions in a number of not every country but in a number of countries.
Okay. Thank you.
Thank you. Our next question comes from the line of Viktor Lindeberg from Carnegie. Please go to the question.
Yes. A lot of my questions have already been answered, but I have two relating to the Diebold acquisition and then I follow up on that one on synergies from coordinating IT investments. But looking at the Diebold acquisition, assuming for one reason or another that this acquisition does not go through, is there any kind of breakup fee that you potentially will have to pay for this? And secondly, looking at historical growth on the operation that you now acquire, can you mention anything about how that has been the past, let's say five years, if that is something that you have available? So starting with those.
There is no breakup fee. The growth has been good in the company. They've been growing well. I prefer not to at this point in time. Again, I'm sorry. I will just stick to the information we have already provided, and then we'll probably disclose more and more as time goes by. But at this point in time they have been growing well over the past years. I think they have done well in the past.
On synergies you mentioned coordinating IT investments with surveillance. Is this something that may be margin accretive going forward or should we see this more as a necessity to sort of mitigate cost inflation elsewhere in the organization?
I don't think you should see it as very much margin accretive, at least not in the short term, because this is it costs money to do that at the same time as you probably save something. So it's more for us to be more consistent as a group to be able to, because I mean this company has very much been built through acquisitions for very very very many years and we are in such a size now but with many many many different IT systems in different places that we need to. We're not going to make, I mean, we're not going to spend a lot of money extra. We're not going to. It's not going to be negative in that sense, so don't. It will be good but it will not be accretive either.
So I mean we will just take it one by one and be more consistent as a group and pick the ones which makes the most sense for customers and our operations and coordinate that in a better way as a group going forward. So neither way I would say not adding cost and not decreasing cost in any substantial way. But it will be an area where we'll spend some more attention a little bit or more money going forward but at the same time it should also give us some benefit and economy of scale.
Okay. Thank you. And my final question you've touched upon this on the technology side with 28% growth or more for 2015. And just so I understand it correctly I'm just assuming now 9 months of sales and I'm looking at the organic growth of 5% for the group as such and penciling in that you also grow 28% for this security solution division. Then underlying growth is closer to 2% if we adjust for that. Is there anything else we should think about when making this sort of calculation or is that a prudent way to do it do you think?
I mean very much of the reason to why we are doing very well in the market is because we have a better strategy than competition has and we have a better offering. We have alternatives. We have a better story to tell. So that supports our growth very very well. Then you can speculate forever if we're going to win if we would have won that contract without the technology or not. So it's not as simple as that. But definitely it's I mean we think that our that the philosophy and the strategy we have is definitely supporting our growth. And the more we develop that strategy the more we elaborate it the more we invest in that the better it will be and securing that we will grow faster than the market in average.
Okay. Thank you. That's all for me.
Thank you.
Thank you. Our next question comes from the line of Alan Wells from Morgan Stanley. Please go ahead.
Hey. Good afternoon Alf. Most of my questions have been answered, but a very quick one just on technology as well. You made some comments I think which we've alluded to before in the past about sort of technology and technology acceptance in the U.S. security market being a bit slower, but that you're now seeing things accelerate a little bit here. I just wondered if you could talk a little bit about some of those headwinds that you've seen in the past. What's exactly changing there? Maybe also outside of the sort of the financial sector where the Diebold is sort of a strong presence, where you potentially see the most potential near term acceptance from other end markets where you are resisting strong in the core Securitas business. Thank you.
I mean that market is a very different history in North America and primarily the U.S. market compared to Europe because it's kind of split. You have a guarding by itself and you have a technology by itself. And those have very different channels and different approach and different ways of go to market in the U.S. compared to Europe. So and I don't think that's going to be different in the coming years but the difference here is that now compared to the past there is a player, us, who is able to integrate that in a completely different way than anybody else is able to do. And we think it's a winner. We think that will make a difference and it will differentiate us from competition. So it's our strong belief that that is possible.
It's based on early stages, small volumes, but still successful that we have been able to grow from nothing to 3% of sales in North America in a couple of years. And so we have proven for ourselves and convinced ourselves and believe ourselves that it is possible. And now, bringing in a big national player like AlliedBarton being a very strong national coverage company with high competence, we think that that concept is going to change the market dynamics in North America, not in any radical way and not in any substantial way, but at least in such a way that we will be able to benefit from that and primarily, of course, in the non-financial segments, of course, because that's where we see the big leverage possibility.
From a competitive standpoint as well, I mean, of your competitors in the US, is anyone else looking at a similar strategy, doing something or maybe a bit further?
I mean now there has been quite a bit of a bit of a changes in the market where AlliedBarton they were got different owners. Universal changed Guardsmark. There has been quite some movement where ownership has changed for guarding companies and there is some consolidation going on in the U.S. with some of the bigger players. But that is different. I mean consolidation and acquisition of guarding companies is different from what we are doing. So we think that our strategy is a bit different and I don't know I have not seen I have not heard that competition is doing anything similar of the size that we are doing. I mean if you look in the if you look on the electronic security in North America there are three big players who have national coverage. It’s Tyco, it’s Stanley, and it’s Diebold .
Now we buy we acquire the number three, the Diebold Electronic Security, which is a good company. It's in good shape and it has proven itself and it's good team with good managers with a lot of experience and it has been growing well over the past years. They make they have a good decent profitability as well. So I mean from that perspective I mean we are different and we are unique and we believe that that concept will be totally different than what competition is able to offer. We have seen no signs of them making any moves of that significance in the U.S. that we are doing.
Okay. Thanks Alf. Thank you. As there appeared to be no further questions, I return the conference to you.
Okay. Thank you very much for tuning in. Thank you very much. Bye bye.
Thank you. This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.