Hi, everyone. I'm Mikaela Sjöqvist, Head of Investor Relations at Securitas. A warm welcome to you all to Securitas Investor Day 2016, to you participating here in Malmö, and to you participating via the webcast. We are here at our offices in the south of Malmö, where we have our Experience Center, and in addition to seeing that, you will hear group management present the progress of our strategy of Security Solutions and Electronic Security . I think we will start like that. Please, Alf.
Okay.
Go ahead.
Thank you very much. Thank you very much. Very, very welcome, everybody, to Malmö, and I hope you will have an exciting day. My colleagues in my team, in our group management team are here today, and together with me, we present our testimonies of our strategy today. It's Santiago Galaz, Head of North American Division, it's Luis Posadas, Head of the Ibero-American Division, Magnus Ahlqvist, Head of the European Division, and Bart Adam, the CFO, will be on stage, during the day together with myself. We are leading the transformation of this business, of this industry. It's a huge paradigm shift taking place, and either you are ahead of the game or you're behind, basically.
We think that we are really leading this change in this industry, and it's really exciting what's going on inside the industry, but also on the macroeconomic situation that we are facing. The market that we are living in is also dramatically changing the context for us as a security company. We have a urbanization, we have a segregation, we have immigration, and many other trends which are mega trends, but influence our sector quite dramatically, and how we act and how we have to provide services in a new context in front of our clients. We also have a very strong development within the technology field, and technology is changing faster and faster, and more and more a commodity.
It's not so much about which camera you use or which access control system you use, it's really how, how do you use all those technologies available and all those softwares that you can, that you can put into those tech- those cameras or those detection systems that are at the site? How do you use those in order to create a service? How do you combine the technology with the service, with the people, and the knowledge that you apply to that? That is the equation you need to solve. And when you're good in doing that, you create a difference. You create value creation for your clients, and that is what we are obsessed about doing, and I think we're doing it very, very, very well. And we are in the lead in this industry.
So it's how to monetize all those technologies that are available to us as an industry and how we apply it into our business. What we love to do is to detect the crime before it happens. That sounds great. Everyone likes to do that. But it's possible, and we can do it in different ways. You will see here today at our Experience Centers how we apply modern technology in the Remote Video Solutions that we have, the RVS technology, where you basically make the camera intelligent to detect the crime before it has taken place.
How you can do that in darkness, how you can do that in fog, in snowfall, in a good day, in a rainy day, and you can then see, and you tell the camera to react on certain patterns. And that is what you will see inside here, among other things, and you will experience and touch it and feel it. And that is a very smart way of increasing the security level and contribute to a better society, because you basically will detect the crime before it's too late. And then you can... There is an alarm coming to the monitoring station when we detect that crime, that there should not be somebody there at that moment. And then we can, through the loudspeaker, we can then say that the guard or police is on its way.
We dispatch the guard, and then normally, nine out of ten are going away, going somewhere else. One out of ten is unfortunately continuing for different reasons. But anyhow, that is what you do, and you can detect the crime before it happens. Fascinating technology, really good development, and we are very far in this, and we have rolled it out in all our countries. But you will also see other pieces of that, how we can apply and how we can detect the crime before it has happened. And using more and more the knowledge piece, which is an increasingly important part of our total offering. It's not only people, it's not only technology, it's also the knowledge. And when you apply those three things together, you really create the difference in front of the client.
We do it in the traditional way, so let's say, of corporate risk management. We have our operation center that we are making homogeneous throughout the whole group. That's one of our Vision 2020 projects, is to make all our monitoring stations, our operation centers, identical. So they are the same machine, they're receiving the same data, and then the data output from those machines will be identical. That's a big job going on, that is taking place right now, especially in Europe and North America. It's also to improve our way to make a risk assessment, a risk analysis for our clients. And that is really how you make the best way to enter and create the value from a customer. So we are moving from, let's say, the traditional...
This industry, and we are moving from a traditional guarding with less value creation than it will be in the future. As you know, Electronic Security , the mobile and remote guarding, that we can do the guarding from the monitoring stations or from the operation centers, and more professional risk analysis. That is the step you heard me saying and us talking about for quite a while, but basically the past five years, and we are doing well in that. It's a good progress organically through acquisitions. Lately, one minor one in Germany and the large one in the U.S., that we now consolidate as of February 1st, the Diebold acquisition in North America. You will hear more about that from Santiago very soon.
And then the next step is the Protective Services, which we're already working on, especially fire and safety, which is a really exciting possibility for us to increase value for our customers. Because we can use the guards, the idle hour, idle hours of the guards, and use those guards in order to do other services. And then the customer can cancel the contract with somebody else who is actually providing fire and safety. You do preventative fire and safety services, and then we can do that with the guards in the idle hours of the 24/7 that we are at the site. So that is a good opportunity. We have 7,000 guards, 7,000 people full-time in fire and safety today in Europe, and it's going to continue to grow. It's a good business.
It's high margin, high growth business, and we can create even more value by reducing the cost for the customers. This is a market growing 5%-10% annually, margins 5%-10% as well. Easy to remember, the same, same numbers. And that is an attractive marketplace for us. But we create more value for the clients because we use it with the people, and we create those synergies that you cannot do if you're not a security provider. So very good opportunity that we are investing organically and through acquisitions. We are actually right now looking at one such acquisition in Europe that might be possible to realize this year. The next big area for us to develop the security industry is collecting all the data and using the data in a digital format. Today, it's not.
Today, it's a big chunk of that data is digital, but some of that data is pencil and paper, it's verbal, it's Excel, it's Word, it's all kinds of different things. So we will make that homogeneous and collect that data in all our operation center in a digital format and in homogeneous way. And by doing that, we can, based on the history of what has happened at the sites, at the customer sites, we can predict the future. We are piloting that right now in the UK with two retail customers in commercial terms, and it's working very well. Very interesting. We can then see that there are more incidents happening in certain areas of the shops, of a shopping center, of the stores, at certain hours of the day, certain days of the week.
More wine and beer being stolen at certain hours, no big surprise maybe, at certain hours of the week, and while meat and clothes and others. You see quite an amazing pattern, how that is really based on that historical data, the incidents happening, we can see what's really going on. In the U.K., we can actually also combine it with police data, and then together, we get a very good picture of what is the, what is the risk at that particular site, which day of the week, which hour of the week. Then we can optimize the guarding, and we can also create intelligence for the customer, reduce the losses. This has been this very successful, and we continue to develop that, and that is the pilot that we are running in the U.K.
And based on all the data coming in and the homogeneous structure in our operation center, we will go to the digital age in the security industry in this way. Really exciting. We can create value for the customer, reduce the cost for the customer, and we can optimize, get productivity improvements on, in our own business and drive margin as well. So that's the next big phase in our industry. So as you can see, this industry is tremendously developing in a way it hasn't happened ever before. And we think that doing all these things, we are creating ourselves into a situation where there will be a different competition landscape than it has been in the past. Registered in Europe, in the European Union, 41,000 security companies registered.
Of course, many small, not very active, et cetera, but still a very non-consolidated market. But as you move step by step, to consolidate the market like that is impossible, so it's not even thinkable. But what... by moving in the direction where we are creating more value, by having more competence, investing in CapEx, investing in the resources, and growing all the pieces that I've talked about, and you will hear more about today, and that's what, why you're here today, to learn more about how we physically do it in the Experience Center and from the testimonies of the team here, you will see that the landscape will be different. And we are convinced that this will allow us to grow faster than the market. We have already proven that. That is what we are doing presently.
We are growing faster than the market, and we think that this strategy allows us to grow faster than the market. We think that we've, we see that happen also in a way today, that when you're really having the lead in this and you make things happen, and you don't just wonder what happened, you will be in a different situation than competition. So we win contracts in traditional guarding today because we simply have a better story to tell. We tell our story, we think, our dreams, our vision, our thinking about the future, and how we think we are transforming this industry in a very rapid and successful way, then we have a good story. We, of course, have to deliver on that story, but we will, and we are.
But having that story in front of a client means that we are presenting something that the client likes. They say: "Well, this company, Securitas, they make a difference. They seem to know what they're talking about. They seem to invest. They make acquisitions. They invest for CapEx. They do all these things. They have the 4,000 engineers," which we have today in technology area, plus 4,000 engineers. So we do the right thing. So we sign up with these guys for the guarding contract, and then maybe during the three-five-year contract, whatever time we have with us, we have a chance to create those values step by step in an ordinary fashion, in a smart way, and create the value from the customer that we are talking about.
But we don't do it day one, but we win guarding contracts simply because we are in the lead, because we are making things happen. Exciting times, lovely times. Future is bright. We think we are doing the right things. We are transforming this industry. We are in the lead, and we are obsessed and excited about it. And now you will listen to some of my, my friends here on the first row, and they will give you more verification of what we are doing. So by that, I would like to introduce Santiago Galaz, Head of the North American Division. Please.
Thank you. I hope I don't change the brightness you present to us. Okay, very nice. Listen, I, I don't know, the people in the webcast cannot see how nice this room looks like and how close can be here. Very happy to be in front of you today. I represent North America, right? I will try to summarize our situation in 20 minutes, which is a challenge for me.
I like to talk longer than that, but they give me very clear instruction, "Don't go, don't move from that line over there, and don't go exceed the 20 minutes to allow some question and answer at the end." So I'm very proud to represent, be here in front of you, representing more than 100,000 associates in North America, and I would like, I will try to do the best to don't disappoint them. I represent in U.S., Canada, Mexico, and Pinkerton, who exceed the limits of the geography and understanding North America as a global company. So that's the business I will try to present to you. We are in a market which is growing and is growing in a steady way.
I know some of you follow the BLS statistics, and maybe for a couple of years was not that strong, but now you see the number of officers growing steady in the 10-year trend and especially in the last 5 years. You see another, you know, on the left side of the chart, you see the level of outsourcing. It's going from 56 to 59, something maybe people follow in the industry for long, they never will move from the 55, 56. Now we are in a little bit over the 59, which for us is like a reservoir water. We are able to present a good message to the client. This is still untapped potential for us. It's not growing steady with the market growth.
You can take money, so, sorry, money as well, obviously, but the revenue for the in-house program as well. So the growth is good overall idea, and especially good in the outsource market. For the price increase point of view, something you always keep attention, we have like four years in a very low numbers. We are back to the standards in U.S., we're a little bit different than the Europeans, around the 2% range. So all combined, you have a solid, I would say, 3.4% growth. And that's the way I see the future as well. And we think we can do a little bit better than that, the expectation we have, but this is nice to be in a market which is already growing, give a nice start.
For the consolidation point of view, it's a very hectic times in North America. In the guarding side, you have some consolidation in 2015, more in 2016, creating a company over $4 billion, almost our size. And you see another transaction here about in the Electronic Security . All these consolidation are cost-based. This means, we think we can give, they give us short-term opportunities, and we think a more consolidated market is giving even better opportunities moving forward in the long perspective. So the things, this consolidation are a little bit different, like we are talking in other part of the world, that is very strong here and can help in our strategy.
I would like to stop a little bit in our understanding and the way we, how we can put a meaning for Protective Services. For us, Protective Services are six pillars, six different kind of business. When we refer to guarding, we don't talk about guarding as just only on-site guarding, the traditional guard on site. For us, guarding is at least three components. The on-site guarding, of course, which is still a very important component of offering. The people, the security officer on site, is still the most important component of offering. But we have other ways to provide the guarding. Can be remotely done, like Alf was advancing in his presentation, in his opening statement, but can be done in mobile, some very traditional in security. We're doing for more than 100 years, I would say. That's important.
For us, this is the new guarding. For us, we don't see, we don't understand guarding just on the on-site. You have to have the three components, where that's a strong belief of us. But we, we see the guarding with other components that can be Electronic Security to find efficiencies, right? This is important for us. That will be the fourth pillar. We see the fire and safety, something we are doing. In scenarios, we are more specialized than other. Scenario for us, we have to keep improving and maybe get more critical mass. And the last component is the risk management, right? That's the sixth pillar. And the idea, you have to be strong in all of them. You cannot be strong in protective service as a whole, if you are not strong in all the components.
So the idea, you have to be the best in class and be competitive enough in each and every, and be specialized enough to be good in each of these six pillars, to become really a true provider of Protective Services. And that's the idea and the plan. In one of them, we were not maybe strong enough, and we make some moves. Understanding in correlation and in relation with that view, in Electronic Security, we're not strong enough to support our Protective Services strategy, and we make a move, and we were looking for the right target. We acquire, and we create. And then, the last part of my presentation now, for now on, will be primarily about this.
I will try to spend maybe two-thirds of my time here talking about where we are in the progressing with the acquisition of Diebold Electronic Security. For us now, it's Securitas Electronic Security, and maybe I will confuse a couple of times, but I still calling Diebold, but it's not Diebold anymore. But it was Diebold before, and I will try to unconfuse you too much, but now I will explain how this company have been built, right? We put down and define some, like a wish list, right? Like a Christmas Santa Claus, what kind of company we're looking for, barn, house. Okay, and now we put this factor. We're looking for somebody who can really have a nice coverage.
We are a national player in Canada, and in the U.S., we need somebody who can support us for the coast-to-coast support, somebody who can have a full spectrum. Somebody who can do high-end integration and the simple one, the cookie cutter as well. Somebody who can have a strong service mentality. As you know, we are in the service industry. We really care about our clients, and we look at somebody who can help us, not just the hit and run, right? Install something and run, you know, really take care of the installation after that was produced. And somebody with a solid brand, with a quality reputation. And our dreams became true, right? We realized, and we found the right one, and Diebold Electronic Security satisfy all of them.
But when you buy something good, something who was progressing, growing, and doing pretty well in the market, one of the top three companies, one of the thing you have to do, and one of the thing we're really, we're very careful, you don't destroy it. Don't lose this position, and don't be absorbed into creating a guarding company and lose the expertise and the level proven in the market, competing with the top three of the U.S. or the North America market. So one of the things we had to do is say, we, we had to protect the sales speed. You don't buy something, and then they have to try to slow down. We don't like to destroy the production in that unit, who is completely different than the one we had in the guarding side. And we did that.
I'm very successful in front of you saying we didn't slow down in sales, and we didn't destroy the production. More or less, or the other way around, we introduced the production routines in our Electronic Security business. But one thing we had to be aware, we didn't buy a company. We bought a division who was part of the Diebold ATM business, right? And then with that, we need to carve out, we have a lot of things to do, and one of the weakest part is the back office. That's the area we had to improve. So we said, "Protect, respect, improve." And the fourth is the most exciting time, right? Our acquisition is not a cost synergy base. This means this is the good news.
I didn't have to fire even one single person, who is the first time maybe in my career, when you acquire a company, you have this not very fun, responsibility to have to downsize. It was very different. Was based in commercial synergies, and this is very excited. That's the leverage factor. That's the magic, and this is make this much easier. We had to do, like always, different things at the same time, and, now I try to explain a little bit two streams of work we had to do in parallel. Of course, the first stream is more important. We had to achieve that. Was a long process for the signing to the closing. We did this in February.
Now we are in the TSA integration, going for the back office support from Diebold to our own, integration, maybe integrating systems, something like that. And the idea will be at the end of the year that we'll be completely separate. It's a lot of things that you can imagine behind that, allowing us to really become an independent company from Diebold. A lot of the processes were commingled, as now we are separating those things. It's going well, but there's a lot of work behind. Another stream is how we're welcoming this company to us, how integrating Securitas. The first step was to protect, like I said, what they're doing well, the team, the strategy. Don't destroy it. Something was already working. We take that.
Second was, how we can enjoy the production efficiencies, and we move all the Electronic Security production for Securitas to the new Securitas Electronic Security unit to be more efficient in what we do in this area. The first step is to start to cross-selling, start to enjoy the commercial synergies. That's why we're doing it step by step. First, it's in a controlled base. That's where we are right now. We're thinking in the third quarter, will be more the systematic approach, where we have processes implemented with our clients, can be seen, can be bought, and can enjoy services in a more systematic way. We have 600 branch managers. Obviously, we cannot, for the day one, put all the relation between the all the 100 or 120 salespeople in the Electronic Security unit working with the 600.
We're doing it step by step, but that will be full speed, I would say, in the last part of the year. And we try to do even something more. Start with the bundling, the contract, the Integrated Guarding, we call in the States, and start to be implemented at the end of the year and enjoy more in next year, the benefit of the selling of this more value-added kind of product. So there's a lot of things that you see here, a lot of in the left side. You got to separate. It's not that fun to do, but you have to do it. And the more exciting is in the right to me. It's more the sales, it is connecting, building this contract who can be very valuable for the client and very good for us as well.
It's when you become more satisfied what you do, but it's a step-by-step process, you have to do everything. One of the great things is the team. We bought the right company, and behind this, good strategy, good processes in the production, is a main reason to have a fantastic team. Tony Byerly create a great team in the last, I would say, four or five years, and you see here some of the pictures. I cannot put up all of them. I put, I select some of them. Felix, Kevin, Raymond, you have a lot of people, Kathy, a lot of people here.
I would like to be in front of you, and unfortunately, cannot be all of them, but they will do a better presentation than me, especially talking about the technicalities and the specific, but I will try to do my best here with you today. But I face this amazing team, and it looks to me now after a few months working with them, like they were in Securitas for 20 years, even more than me. And it really was a nice fit. There was a great team working in a company which didn't belong. Now they're very happy to be in a security company, where they are important. And they, for them, is very motivated and very excited to see the CEO of the company referring to Electronic Security in the way I believe, right?
That is very good for the first, my life was very easy. You buy the right company, who are doing well, a great team, a boss who support the strategy, and enjoy myself. That's easy. So the key was not destroy something what was really good. We have a nice coast-to-coast coverage. I will not bother you with all the details here, but we have 1,100 associate in our payroll and a nice network of partners who work with us. I would like to highlight the Center of Excellence in New York, which is unique in the industry, and maybe one of the next ones. We do a capital market, we can go that way. And so how good we do? You have to travel a little bit longer, but you can do, right?
Close Atlantic is not too far, and we can show you something very interesting, maybe two years' time, something like that. Very nice network, one of the top three in North America, and is one of the reasons we can guarantee the quality of the service that Diebold Electronic Security was doing, and now we do. Historically, they were focusing in four main channels, the four tops you see there, and we had a fifth one. So they were not going for everything in the market. They really go for the segment of the market that fit the best for them, and the competition was less, numbers of competitors, and they can receive more for their work. So now we have four plus one, the way we refer.
We have the four traditional, one strategy with that channel. These four segments represent around $9 billion opportunity market. That was the way they were pursuing. It's a big pie of services, and in the area where they compete the best. They are really in the international. You see the whole, the light blue covering all the national. Almost two-thirds of the enterprise. They don't do everything enterprise, but they go very high-end and very sophisticated systems, and that's is one of the reason the light blue doesn't go all the way. This is the $6.4 billion. And you have the $6.4 billion in the local, where they only touched before a little bit. It was maybe one-fourth or something like that, the total number. That's the benefit to have Securitas. We see SM Bs.
Now we can touch that. So we have the workforce to tap untapped that part of the market. Now we can say the $9 billion is $9 billion+. I don't know exactly the number, I cannot quantify, but Securitas can cover a lot of ground, but the opportunity is really large, and it's larger than before for them. So it's more areas and more revenue to conquer than they had before. It's, that's where we are. Of course, the level of competition, and Tony Byerly was presenting this with the author of that slide. He will explain more in detail the different, but I think I give you my summary version. I hope it's good enough. Some examples about what we do. We do, and then maybe everybody recognize downtown New York, iconic site over there.
We're doing that project, and we're doing something very in the enterprise high-end. So we do the more sophisticated system you can imagine, we are doing that right now. But we do the national headquarters or telecommunication company in the US, but we don't do that, just the campus, we do the 1,000 stores around the country. That's unique in the industry. Not that many people can do the integration of the high-end system, at the same time, taking care of the consistency, coast to coast, or the 1,000 or 4,000 coffee stores in the States. So they guarantee the consistency of the system plan. Magnus, right? Magnus was visiting, what are the things impressed the most was that, right?
So we do the high-end, we do the high campus, at the same time, the stores, and we do, of course, the bread and butter of this company. They have 18% of the financial market in the States, the national banks, with 3,000 stores, branch, bank branches, in this case, or the regional stores. They combine these, the abilities to produce this kind of diversity and tackle this $9 billion opportunity every year in an efficient way. Okay? The magic. The magic for us, we have highly synergetic services. We have six pillars. The magic or the trick is how we combine that. I think we have learned in the past, maybe the way to don't do this.
We try to do combi, and we like to do the cross-selling in the past, not very successfully, maybe, but I think we learn, and we are able now to take advantage of that. We believe that, of course, we can go to the market in the, we call the channel three, the standalone. You always can sell on-site guarding only or Electronic Security only. You can sell one by one, it's okay. We do it, and we have been doing for many years. But the magic when you can sell more to the same clients, and the client like to buy more from you, and with a multiply factor in the middle, become magic, and the revenue and the enjoyment for everybody is greater. It's a little more complicated, but it's possible.
We have now the processes, the incentive for our people, the way to measure success or not in the cross-selling. We're very strong. We strongly believe this will work pretty well for us. The next level, like Alf was referring, the bundling, where you build the concept, the solution, which is likely more complicated, but it's possible. When you really can create a better solution for the client and a better solution for us as well, and a more, interesting financial, financially for both, for the client and for us, more attractive. I think we have the. We figured out the tricks of that, and I think we resolved this factor in the middle, and, that will really bring a lot of good news for us and a successful quarterly income presentation for our boss, to you.
I hope I can summarize enough this. Now we can go for question and answers?
Thiago, we'll stay on the stage here, and try to do our best to answer any questions together here. So please, if we have any questions? We'll have to manage the microphone so the webcast people can hear, that's why you have... No, you can move ahead.
Thanks. It's Rob Plant from J.P. Morgan. You mentioned that, pre-Diebold, you perhaps didn't have as much Electronic Security-
Mm-hmm.
As you wanted. Post-Diebold, have you got enough? How does it compare to what you've got in Europe?
For me, we in the U.S. start from scratch, so we didn't have anything. In Europe, they didn't start from scratch. They start. They always keep something. Even with the scale of separation, they never lost all the knowledge and the people. And it's hard to start at the level we require, when you start from scratch. We can hire engineers, people, but it's not that easy to create the processes behind to support your growth. So when you buy a $350 million company, one of the top three Electronic Security company in the States, we are good already. So I think we have the critical mass, not just to provide and satisfy our Securitas needs, so you know, continue competing and try to challenge the leader in this specific Electronic Security segments as well.
So I'm really confident we have the best-in-class and the capacity to do, like I tried to explain maybe a little bit too fast, the big, sophisticated, high-end, high-volume systems and the simple. But it's, I guess, a cookie-cutter installation you need to do so, so satisfy in a consistent way your clients around the country. So we, I think we bought... It's more like a, like a miracle, I would say. The, the right company at the right time for us to support. Now we have to challenge the European leadership, right, internally. It's internal competition Securitas, but I think we can do a little bit better than we were doing in the past.
I'll do everything I can to fuel that competition. That's great. We love that.
We didn't like to be between 0% and 5%, the same case that we saw in our report, right? We like the 0, we will try to move. I would say, we don't promise much, we will try to deliver, and I think I'm really confident we will do great, and then we come back here with good results in the future.
Please.
Karl-Johan Bonnevier, DNB Markets. Do you think the U.S. market is ready for this paradigm shift? Because obviously, these services has been sold in very separate, say-
Yeah
silos going back.
I think it's a process. I don't think it would be too naive to think it would change overnight. And it's, I think but it will be a process. We're in a direction. We start to see the growth, but I will see the 50% or 60% of the revenue will be like that, but will be 10, 20, 30, and we will see how far we can go. But it's a process, but there is a change. The clients are used to buy one by one. We are used to provide one by one, and maybe the cross-selling start to be the first step.
And the second will be just when they see, maybe for a budget challenge, who is normally is a good motivator of people, they have to find the way to do the same thing or even more with less budget. You have to do things slightly different. I think the bundling concept can give the answer for that. It's not a miracle, but it's possible to find efficiency when you combine these services in one. We prove it. But it's some change, but it's a process. I don't think this will change in a year or two, but you will see the progression during the years. That's my belief, and I think our belief, right?
Yeah, absolutely. Stefan, you had a question.
Stefan Andersson. Just the first question on to you, Alf. You mentioned moving into to fire and safety. Just curious to understand which portion of the segments that's that you're interested in. I guess you can start with hardware, you can then move into installation, consultancy, monitoring, and in the end, having the firemen even. So just elaborate a little bit.
What we do today already is that we have, I mean, the 7,000 people we have in Europe, we do preventative fire inspections. But we also have fire brigades at certain clients. We do. We have at some airports, we have, we do the whole fire, we man the fire brigade. The trucks might be owned by the airport itself, but we've managed with our people. We have a number of those cases, but we also have a fire brigade, including all the CapEx, including all the cars and the trucks and everything. So we do that as big, for example, petrochemical sites, to give us up. You will see some more examples of that later on. So that is. But the work that we are looking for is the portfolio parts of side of business.
Meaning that, to try to do the inspections, to check that the fire alarms are working, to do the regular tests for your insurance coverage to be valid, to check that fire exits, extinguishers, all those things are in place. And you have to do that regularly, for insurance reasons. And that portfolio business, that repetitive, preventative, fire, and safety work is very interesting because it fits our structure, and we can use the people on site to do that. We have some examples. We have...
I'm personally involved in an example here, very close, Medicon Village in Lund, where we have the former AstraZeneca site, where we do that, where we basically put the invoices on the table and saw how can we, step by step, take over those work using the people on site, and then we drive the cost out of the system for the customer. Then you have a more sophisticated piece of that fire safety, which is very complex, and that we are not going to enter to start with, where you'd give a lot of advice and consultancy, and you take a higher responsibility, so to say, of the total complexity of the fire installation. And then you have the installation work, install the sprinkler systems, install the piping and all that. That's construction. We are not there.
So it's the first piece. That's the interesting part. That's where we see the synergies. That market is sizable, and various. It's growing well, and it's good margin business, and we can even do it even better and at the same time create value. So that's what we're looking for. When we look on acquisitions, that is the type of acquisition that we are looking for.
Okay, thank you. And then, if I may, to Santiago, there's an election coming up, and Donald Trump seems to be more eager to protect the country. Is there any areas where you see an opportunity to take part if that side would win?
I think it's hard to predict politicians on both sides of the pond, right? I will not try to do that here. But I see we are prepared for any environment. We don't. I don't see any situation we cannot be fine. It's more. It's hard for me to translate some of the things people say in meetings and political events to business, a useful decision. But it's very interesting times, but we will be fine either way.
The final question on aviation. It's been... You've been talking a little bit about the
Yeah
... aviation side opening up in the U.S., and it's been a little bit slower, I guess, than, than-
Yes
one could have hoped. So what is the latest progress?
Of course, I know, again, politics are behind that, and the motivation for the airports to make the move. So we already formally qualify to be a vendor in that area. That we are happy to say here. How many airports will be open? It's hard to predict. We are now competing for one, but I think there will be more to come, especially based on some of the challenges that the TSA is facing right now in some of the major airports and the big delays for passengers. That's a reality, not a political statement. And I think we can help, and we'll be happy to help, and we are prepared for that. How quick they can open is hard to predict, but we are ready. So we are ready for the legal point of view.
We have the qualification with TSA, and operationally, we have a strong division, as you know, with Mark Pearson in charge. We proved, like we did in Canada, where we start at that time from scratch there. So we have more closer knowledge now, but we are prepared operationally and legally to do it. It's, when they are open, we'll be there.
We are 1 out of 10, 12-
Yeah
companies approved to do TSA work.
It's hard to predict if it can go big or not. I think we'll be opening.
We're bidding on San Francisco. We don't know the outcome yet, but there will be others coming.
Thank you.
Okay, we have some questions over there, on the left-hand side, please. Yeah, go ahead.
Morning. Ed Steele from Citi. Two questions, please. First of all, on the outsourcing penetration rate that, as you point out, has been ticking up a bit the last couple of years-
Yeah
... what sort of companies or organizations are you seeing outsource for the first time, please?
I cannot highlight any specific, but as you know, it's more when the economic situation is bad, trigger more the outsourcing. But the budgets are, more under pressure. I think it depends on the industry. But we see retail, is, hospitality was one of the highest, in-house program going a little bit more outside. But I cannot highlight any specific. It's more like a general trend, and I cannot, I cannot give you one or two specific segments, I think. But it wasn't a surprise, as some of you are watching these numbers for years, right? And you see the steady 55, 56 almost forever. You almost forget to check anymore, right?
Mm.
But now you have to check.
Yes.
I'm very excited. If we introduce the value like we're talking about, we are really able to not just provide manpower. You are able to go to the client, and so we can combine and find efficiencies in other areas. Maybe will be more motivation for the clients to go outsource.
We know that when you have it insourced, it's more expensive than having it outsourced.
Yeah, but they do it for other reasons.
Yes.
Some cases it makes sense, and some cases, in our opinion, it doesn't make that sense. But we always will be an in-house brand, at least in the way we see in the state. But I think we can reduce a little bit of pie and move more to our size.
And when this is moving on, as you say, with technology and how you can optimize things, you can-
I think he's really friendly, of course.
You can really, you can really be excited about that. It could change dramatically.
Would you include the public sector in the outsourcing trend?
We do a lot in the public, as in the public is pretty much like we do now with Paragon and in the federal buildings, something like that. That's pretty outsourced. I think it's, I would say the big, for the TSA is one of the things we have just talked, right? And this is part of the numbers in the in-house program. I would say more in the commercial opportunity more than the government, if I can.
Great, thank you. And second question. You mentioned the consolidation of the industry, but you've still got maybe 70% plus of the industry outside of the hands of the top three organizations. So are you seeing any impact on pricing as a result of consolidation?
I think it's more, now it's more concentrated than that. As you go through the big numbers, I think the two big company will be over $4 billion. That's the new company and us. I don't see a prices, U.S. is very competitive market. I don't see any big changes. Will be always a very competitive market. The key is how you present, like, like how many solutions, how many alternatives you present to your clients, and I think we are pretty good in that. We were successful with the ACA cost increases. We are pretty successful with the, now with some of the wage increases. But I don't see a big change. Of course, consolidation is always good for, I think, for a reduced number.
It's less, more professional companies in front of you with more or less the same target, not just short-term targets. In that case, it is not that good to have competitors that only think short term. We like to have competition who really thinks long term, and they are here for the long run. That normally is better, not just for us, it's better for the industry, who include us and, of course, the clients and the service we provide. So this could be more a long term, more stable market, who we develop more value, more of the things, not just the price, price competition and destroy the industry, destroy the wages, and destroy the benefit for our people, who is not the best game for us and never have been.
Thanks very much.
Thank you.
Thank you. Thank you. We have a question up there. We'll have you next.
Thanks. It's Nicolas de la Grense from Merrill Lynch. Just a follow-up on the Fire and Safety point. I mean, historically, the big installers in that market have seen the after-sales and service component as quite a kind of core element of their revenue stream. Presumably, they're not just rolling over as you kind of go in and try and take that part off them. I was wondering what response you've seen from them and why the Securitas proposition is more favorable?
It's still early days to, so you have not seen much of that yet, because those are very numerous players, and some are relatively large in that field. So you have not seen any reaction in that sense. But the way we are doing it is the way I was starting to explain on your question, is that we go to the customer and say: Look, you have a security provider, and you have a fire and safety provider. It's two different companies. Show us the invoice. Let's have a look how we can use the people who are there, and when they patrol the area and the site, they do those things, and we report it in the digital format that we have, and then they can do what they...
And then you can reduce or cancel that contract. And that works. That's the value proposition. They cut the cost dramatically, and then we get a piece of it, and the customer is happy they get value creation. That's how it works, and it works very well. And we do that now more and more and more, especially in a few countries in Europe, where we are really successful in that. And it's a great business, and it's a good opportunity for us. And it very much fits together with the type of service that we are doing, security, fire, and safety at the site.
Thank you. And then just one more on, on Diebold. In terms of the... It sounds like in order to sell the bundled offering, are you gonna be putting in a new sales team to, to do that, to avoid disruption to the existing sales team, or? I'm just trying to understand how that process-
Yeah, we have really a special team to do that, who is a, I would say, a hybrid between engineers for the Electronic Security and guarding experts. That's the team we put down. Therefore, we have, like, more than 50 people in that area right now, and growing, who are the bridge between the two different business line. That's the people who drive this whole. And then we see this opportunity as we engage them, and we have an incentive plan to be sure that our people don't suffer, and we do an organized way. So our first try, always, we try to go to the bundle solution, and that's the step number one. It's normally coming more for the guarding organization. The Electronic Security continue doing it in their own way, but we have a special team to do that.
Thank you very much.
Mm-hmm. That was you?
Paul Checketts from Barclays Capital. I've got one on Diebold first, please. Can you give us a sense of the average size of the contract within the business that you bought and how long they are?
They have a very different, they have, like, a $5 million project. You're talking about the project, the clients?
Yeah, I'm interested in how big the contracts are. You highlighted a strong market share in financial services.
Yes.
I would guess that they're quite big, big contracts.
Yeah, the big, there's... Yes, normally you have, you can be the sole supplier, or you can share the network with other vendors. So that you can have other competitor provider. You don't always have the whole thing, right? Especially some of the big banks, they share, but we have, we earn, in some cases, the, to be the sole supplier. Can be very large, can be $50 million, or can be $20 million, or can be $2,000. That's a very different, depending what you're talking about. But normally, yes, it's large. Okay, but I don't have a number, like I give you an average rate. I don't, we don't have that number, and it would be very misleading, depending what you are playing. And some cases, it's installations, we would have a beginning and an end.
In some cases, it's part of the RMR, the recurring revenue, who is the most interesting, obviously, piece for us, who is not that much, but it's very, very good for the stability to the business.
If you're thinking about the opportunity and technology-
Mm-hmm.
Would you say there are particular verticals that really provide the immediate opportunity? And is it at certain contract size levels? Can it go all the way down to very small contract, or is it really larger customers in the financial services?
So I tried to explain the slide. You have the national companies, like you have the coffee shops, right? You have 4,000 of those with a client of Diebold. You have the telecommunication company. Now, we play very well with the national client who have a chance of stores, offices, and we do that, and the campus, and the headquarters. That's the base, that's the core for us. We do big project, like we do in the Northeast region, like one I saw in the slide, right? The with iconic symbol in downtown New York. We can do, we can do that as well. But I lost the track of the question, by the way, with my answer.
It sounds like you're saying you can do pretty much everything at the minute. You may be-
Yes.
Targeting towards-
The thing we were not doing, and I tried to do with a light blue bar, they didn't do the local. Was not a lack of capacity, it was too many competition, and they didn't have the, the sales force to do it. Now, with our Securitas branch network, we are everywhere, and we have clients in almost all the states and all the countries, you can say. Now, this can be the sales force for, from the old Diebold, now Securitas Electronic Security. And now we can open the, the bottom part of my slide, with the SEK 9 billion, the other, they didn't touch in the past. And how far we can go? I don't know.
That would be a smaller project, maybe 10,000, 20,000, but very good for us, especially we have already, is a client of the guarding, become the cross-selling, and you can satisfy the client need, not just for the guarding, for the Electronic Security. And, but that's, they didn't have the capacity in the past. But we had to do an organized way. So we don't try to run this marathon in 10 minutes. We have to do little by little, and, this is, well, the reason the step-by-step slide I put together today for you is more, okay, this is a step-by-step process. Not everything, no, we'll. Don't expect everything coming to us next quarter. It's a process, but I think we will be heading in the right direction.
I just had one for you, Alf, as well, on the fire side. What extra training and accreditation would a guard require to do that? On the liability, is there an extra litigation angle that you need to consider if they're doing that sort of accreditation?
Yes, yes. I mean, there is—I mean, some of the things are you don't need anything. You just do it. You just have to check certain things, and you don't need much of a training or education. In other areas, you need something, and then we have done that. In many countries, we've already trained our people to have a qualification. It's not very sophisticated or very extensive training, but it's still a training, and then we do that. Then we have to watch out for the liability matter. So we have a cap on the contract, and we cover that in ways if we have a responsibility for...
If what we do is sort of, say, creating a liability risk or a responsibility for the fire, if the place will burn down, or something will go really wrong, that we need to be a little bit even more careful on that when fire is an important part of the contract. But that is already in place. So all those mechanics are in place. So now it's just a matter of just accelerating that and try to drive more business. And I think it's a very interesting opportunity for us, and we're looking into some acquisitions and organically as well.
It's a part of our business planning, was already a year ago when we did the business plan for this year, and will be again even more so now when we do the business planning for the coming year, now in September, August, September.
What would an acquisition add? It sounds like it's something you can do organically.
It would add a portfolio; it adds competence, portfolio, understanding of a business, higher level of knowledge in that area. So if we haven't got very far in a country, which is the case for one we are looking at right now, but it's always asked for by the client, and we need to leapfrog the process. So say we take it, have to take a good step forward, then it would make sense to acquire a company in the EUR 10-20 million range of sales, get the portfolio in, get the knowledge, the people, the footprint, and then start to cross-sell between their portfolio, and we can maybe cross-sell the security piece and the other way around, right? And then try to optimize the synergies on the cost side.
So it's possible, I mean, the price level of these companies are relatively high compared to buying a guarding company, which you can buy as many as you want in a second in Europe today for almost very low price. But still, it makes a very interesting financial sense for us because of the synergies, both from the portfolio level and on the cost synergy side, and the competence that we bring, and also the credibility to the full story in front of all our other clients. So we can justify a little bit higher multiple on those kind of acquisition than we would normally do on a guarding. We don't buy any guarding company, but if we would, that would be the case.
It's very interesting financially, and you can make the return on capital very, very, very good.
Thanks.
Thank you. Henrik Nilsson from Nordea. Alf, I suppose the opportunity to use idle guards for fire services has been there all along.
Mm-hmm.
What is driving you to pursue this opportunity now and not-
Well, we have 7,000 guards for a reason in Fire and Safety, so it's been there. But we think we can make much more out of it in a more consistent way than we have done in the past. It's been a little bit more depending on which ambition the country set and the tradition of the country. So we can do it as a part of a conceptual way, of our vision, our strategy, our dreams, of how we can drive this, and we can do more acquisitions. It has been basically built organically throughout the years, and now we can put more emphasis on it because we see it makes a lot of sense, and we also have a better total package to offer the clients. So that's what we're doing.
Okay, thank you. And Santiago, on the contract length in Diebold, is it about the same as in the solutions and services in Securitas Europe or?
The installation, not. The installation have a more clear beginning or end, right? You do the project, but the portfolio, yes, for the RMR is pretty much the same. Even I would say longer terms, but it's not that easy to replace vendors in that industry. They're more stable, I would say.
Have you communicated anything relating to the split of installations versus contracts?
No.
Okay. Thank you very much.
Thank you.
Any more questions? We have a clock here, so we know that there's not that many questions left.
2 minutes and 3 seconds.
Exactly. Maximum. Okay, we have one.
Santiago, you mentioned in your presentation that one of the key things at the early stage of the Diebold acquisition was to keep up the sales speed. Obviously, you got your own business off the ground quite rapidly when you look at going from 0% to 3%-4% penetration in North America. Have you been able to keep that-
Yes
... almost, logarithmic kind of growth rate up?
I'm still smiling, yes. Yes. Well, what's very important for us to, and I think the way the transition was made facilitate my work in that area, they, they didn't slow down, so they continue growing. Now, I think they're going to speed up during the second half of the year with the synergies we are bringing, the commercial synergy we're talking about. That will be more the second part of the year, even more, I would say, next year. Next year will be when you will see the full effect. That's our expectation. I don't like to promise too much. I'm very excited when we put all this together in a fuller speed, but a lot of things are happening right now at the same time.
So it was. It's distraction to the people, but they didn't slow down, and that was a good same thing.
Very well. Then we'll thank you very much.
Thank you very much.
Thank you very much for your presentation. We will now move on to the Security Services Europe division, and Magnus Ahlqvist, who will be happy to present that. So Magnus, please.
Do I need to put the jacket on now?
Yeah, well.
That's okay. Good morning, everyone. Very happy to see you all here. I just want to make one comment about the Experience Center and a little bit of a sales pitch, because I think it's a great opportunity for you to get a real first-hand experience of how we can leverage technology to also then improve security, and also hopefully have a little bit of fun. So one small hint, don't touch the candy. There is candy in the Experience Center, and I think you have a good chance to see what happens if you do. So I joined Securitas last year in August, and before that, I just want to make a brief introduction to give you background as well.
So when I finished my studies, I had a real ambition to work for a technology company. I want to work for a company that working with real products and real services, and I then started out with Ericsson back in 1999. That was kind of the beginning for me of living in exile, if you will. What was starting out as a two-year program, I then continued with Sony Ericsson, where I had a number of different positions, and then also with Sony. So I was leading or basically building up the global customer business in with Vodafone and Telefonica, and then I had different general manager positions in Canada, I was leading the business, and Spain and Portugal.
And then, as president of the business in China, I was also overseeing all the activities of Sony Mobile in China, which was also a very exciting time. But then Google acquired Motorola, and they were basically building a new management team or some new management team members. And I got a phone call where they said: "We're looking for a new head of the rest of the world business." And I said, "Okay, what is the rest of the world business?" From an American perspective, that's basically everything outside of the U.S. and the Americas. So I was then heading up Europe, Middle East and Africa, and Asia Pacific, and that was the most recent position I had before I joined.
But I can tell you after nine months, very happy to be part of the Securitas team and also the journey that we are on, because it's a very exciting time, and I think we have significant opportunity to go do very good things, in the market. So let's just take a quick look at our presence in Europe. We're present in 26 countries, across Europe, where we provide security services, and, in 15 countries, we also then have aviation related services. It's a fairly big team, so a bit less than 120,000 people, but I would say a very strong foundation.
I'm gonna talk a little about that, and also then to relate how we are working with our Vision 2020 plan, which is basically the strategy for 2020. In that, I would also then, I think, to address partly some of the questions as well that came up in the previous Q&A, I'm gonna show a few reference videos as well. You can argue reference videos stem from customers, that means they're gonna say Securitas is great. But I think we are doing a really good job in a number of places, and also then to give you a flavor of the six pillars that Santiago touched upon as well, what do those mean in real action, if you will?
But if you then look at the trends and the opportunities in this business, we have a continuous kind of upward pressure on labor cost. And I think one of the more recent example is the national living minimum wage, if you will, in the UK, where between 2015 and 2020, you're gonna see a 35% increase. That is obviously then triggering a lot of customers to say that, okay, a big part of the security cost is then gonna come up because we're still fairly people intensive, if you will.
So that trend in combination then with the competitive pressures in many of our customers' industries mean that many of them are coming to us and saying: "Securitas, what are the things that we can really do together to try to maintain or even improve the security level?" But hopefully then also kind of containing or in some cases, they even argue for reducing the cost. And those I think are two trends that are quite important also for the next five or 10 years. The other part, which is more of a temporary trend, is then related to the refugee situation. And we also then talk about the terror alert.
The refugee situation has driven significant demand for security services in Europe, but it's a very short-term nature of the business, so the contracts are typically shorter term, and it's also for that reason, more or less predictable, if you will, exactly how long is that gonna to continue, and also to what extent. And then the terror-related is obviously more related to some of the terrible events that happened in France and in Belgium in the last six months, where we have then seen a temporary kind of increase in demand for security services, but it has also then come down fairly quickly as well after. Another question that came up, I think, in Santiago's presentation, was also about the public sector.
While it's still fairly early days, there is obviously one thing that I have seen since I started is that almost every country that we are in, there is a discussion then between the public resource or, like, fire departments, for example, or police authorities, et cetera, where they say that they are actively now looking at what is the role that private security could potentially play to then take over some of the tasks, if you will, and then also complement their services. But it's not only fire and police. We see similar things also with a number of universities. We see a similar thing with a number of museums as well, where there is basically pressure on the resources, and I think that this would also then, in the longer term, create real opportunity for us to...
Yeah, to build the business. So you have the trends on one side, and then you look at the opportunities on the other, and they're obviously quite related. And I think that when you look at the trends that we have in Europe, we have been building for a number of years, the kind of foundation for what we call solutions and technology in Europe. And I think that now is really a good time, because of this, where we see technology prices is going down, and obviously, with more affordable technology, we can also then provide better security and also then managing the cost level in a good way. So I think that this as a trend for the next five or 10 years is really important.
And then it's not happening overnight because not all the customers are ready for that. Some customers are still saying, "We just want your good guards and your officers." But more and more are actually saying, "Yeah, we're seeing what other people are doing now," and I think that we're gonna see more and more of an increase, and also then receptiveness, if you will, to do that. The next part is then the broadening of the scope because we have a more mature and quite a strong presence in Europe, but the broadening also then from security to Protective Services. I believe there is a lot more opportunity also as we go forward. And then on cross-border, I'm gonna touch upon that in the next slide.
So when I, when I started in August, I was then sitting down with Aimé and the other people in the team, and we're then looking at what is the presence we have across Europe. And, and what you see here in the middle is basically the Securitas position. We have one competitor to the left, one to the right, and that is the presence that we have built up. And I think from my perspective, the important thing is not that we have put the Securitas flag down in a number of these countries, 26, to be specific. But consistently, with strong management, we have been able to build and increase the quality, but also then the kind of consistency that we can deliver with the services within the countries and then also between the countries.
So I think that this, to sum this part up, we have a very strong foundation in Europe. And when you look at then the cross-border related sales, we have around 80 customers in Europe today that we call European or global accounts. And I believe that these numbers are also gonna keep on increasing because there are a number of customers who also say that we wanna have the quality and the consistency. They also want to be able to oversee and to have consistent Security Solutions on a European level or even on a global level, and there, obviously, we are extremely well placed to meet some of those demands as well. If you...
I'm just gonna share a few reference cases in a few minutes, but before I do that, I wanted to give you a brief kind of strategic framework because we have the journey and an ambition for 2020. And when you look at this slide, I think the most important thing is when you look at the gray area, this is then about driving performance. And one reflection from my side is that we have a very strong performance ownership in Securitas. And in Europe, for example, we have around 900 branch managers who are ultimately responsible for everything in terms of operation, commercial, and then also leading their teams, and they also then have very strong P&L ownership.
Personal reflection, I've seen many companies that say that they have a strong P&L, ESOS, et cetera, but here we really have it, and we have it very close to the customer. So I think with this picture, what I would like to highlight is that this will have a very strong, strong performance and foundation. The other areas is then sales excellence. That's about how do we engage with the customers. But here, we're always starting with kind of a risk analysis to really understand what does the customer really need. Protective Services and solutions, this is kind of the broadening of the scope, if you will. And IT and intelligence, this one is interesting because here you can say, a few years ago, if it's only traditional guarding, the synergies are not that significant between the countries, potentially.
Now we're making bigger and bigger kind of technology investments, and we have a huge case for also driving synergies between the countries in that sense. Then we have the partnerships and the acquisitions. What I would like to do now is to show two reference cases, and first I'm gonna take you to a place called Kanyon in Turkey, which is a shopping center, to give you a view also then of a customer perspective on the services that we bring.
My name is Alpar. I'm head of operations, and I work here in Kanyon Shopping Mall in Turkey, in Istanbul. This complex is top five shopping mall chosen by TIME Magazine. This is a center which people socialize with each other. Our visitor numbers daily is approximately 40,000, and this brings us a potential risk. Most of the risk in shopping center is wrong parking, unauthorized entry, unattended luggages, baggages, suspicious objects, and theft. Securitas came and said, "We have a technology center. We have partners. We are improving our technology. We have a financial method," and of course, Securitas is Securitas.
Hello, Securitas, how can I help you?
Leader in knowledge, leader in know-how.
... leader in intelligence. I count five things, and that's enough for us to make the decision. Yeah.
So isn't that a great case? I, I really like the guy who is parking his car outside of the fire exit, and then he's being called upon, quickly acknowledging fault, and then driving it to a correct position. But I think it's a simple case just to show some of the value that we, that we can bring. In this case, Kanyon were asking us for a high-security solution. So, so they were saying: We want complete kind of peace of mind, but we want you to handle everything as we go from more traditional guard into then also then a, a full end-to-end solution, if you will. So, so this case is interesting. We're leveraging technology.
For example, with the cameras, we have a number of then CCTV cameras, we have thermal cameras, and we also then have cameras with analytics, for example. So there is a quite a sophisticated solution then to be able to oversee the total operation. We also then, I think, in this case, see another interesting shift, and that is then from CapEx to OpEx. So in this case, we made a fairly significant upfront investment, and then Kanyon obviously then has the peace of mind, not having to invest in the technology. They don't have to worry about products becoming obsolete, for example. They don't have to worry about basic things like maintenance and service. So they also then know that they are taken care of, if you will, with this solution.
When you look then also at the parking related, for example, we also have some fairly sophisticated solutions in the parking lot, not just to keep the parking in good order, but also then to capture more information, so Kanyon can also use that to optimize their operation. So, so the big question then, of course, in all these cases, is the customer happy? And I think what you can hear in this case is absolutely yes, and for two different reasons. One is that we've helped them to manage the kind of the cost level, but we've also then optimized how they are spending their budget, if you will, and they got improved security at the same time.
So I think this is a very good case in that sense of when does the solution really make sense from a customer perspective and how does it make sense to them? So with that, we're then gonna make a journey to a chemical site now in Germany called Bitterfeld, which I think is another really interesting case, but obviously, a very different type of solutions we have in place.
Bitterfeld is the largest chemical park in Europe.
On the site, we are talking about more than 300 companies, like Bayer, Evonik, AkzoNobel, Heraeus, so, quite some big players. We have about 12,000 employees. It's very important to save not only the life of the employees, but also to cope with the security feelings of the region. And especially here, we are surrounded by a city, the city of Bitterfeld-Wolfen, so there is also a responsibility that we have for the people who live here and who work here, and this is what we do with the help of Securitas.
45 seconds. If you want, let the camera run, we give an alarm, and within 45 seconds, they will leave this building.
In order to control an open area like this, you need a new perspective, and I'm talking about the air as a new level.
This drone has been developed in cooperation of Securitas and Ai Drones. There are features in there, like explosion-proof certification, multi-gas sensors, et cetera, that have not been implemented in any other drone system yet. Bitterfeld is the cutting edge in Securitas technology, application, if you will.
If there's an alarm and the drone can fly to this accident place and can, during the flight, send us pictures and also data about the air and so on, it can save lives.
Exactly. It works. I can say that because we have a close contact also to the chemical companies here, which are producing and which are, at the end, protected also, and I hear no complaints.
If you are a security company, and you are able to understand what your client want to have and what's the need and the risk, then you are also be able to build up a process to find the right people, to train the right people, to buy the right equipment, and so on. But the main thing is to understand and to know and to speak the language of your client.
Good. So, so this is the Bitterfeld case. And, and I think here you also then see a case where we are providing the entire range of Protective Services. So we have a number of guards at this chemical site, and, and I think it's one of the biggest in Europe. So we have the guards, we have highly trained firefighters, and we're then also overseeing the operations from the control room, but also then with the people that we have across the site. This is also then a solution where we have invested quite significant amounts, but, but also then able to offer an end-to-end solution, a very close partnership together with the customer.
I think the drone obviously looks a little bit futuristic, but I think it's a good example here of how we can also then leverage technology to do a better job and work smarter. So in this case, I think, like they highlighted in the video, we can basically then leverage the drone to get more accurate and faster information as we're responding as well to an incident. So the Bitterfeld site is something that we've had or a site that we've had as a customer for quite a long period of time.
But I'm also happy to tell you that we just recently were awarded a contract with the sports car manufacturer Porsche in Leipzig, which is nearby, which was very much built on the credibility and the work that we have done at Bitterfeld for a long period of time. So I think it also proves that we're building the kind of the competence and also the reputation and the trust, if you will, to be able to deliver. To wrap this up, as we are then moving towards 2020, I always ask the question, then why should this customer choose Securitas? And when I ask the customers today, and I met a lot of customers in the last 9-10 months, the number one answer is always because of the people.
So people say: Securitas, we choose you because you have really good people. And I think that is obviously number one, and that is a very important and strong foundation for us to build upon. But as we are then embarking on the journey, we also then need to look at what are the kind of areas of differentiation that we can bring versus our competitors, if you will, and, and, and I just tried to highlight some of those in this slide as well. And I think in simple terms, it's really about us knowing more about security than anyone else, so to be the leading kind of security provider. The second one is about quality consistency, and there are many aspects of this.
So when we talk about the mobile networks, for example, which are very important for us in Europe, it's not only to have coverage, but also to have density. Density then gives us faster call-out times, for example, and response times. It also goes when you look at things like reporting. I think we can still improve quite a way how we're actually visualizing the value that we bring to the customer as well, and, and there, reporting plays a, a very important role. To provide the range of Protective Services and then obviously to leverage then the information and the intelligence that we can build to also work smarter. I think those are the kind of the four areas where we can drive real differentiation, but, but also drive innovation, during the next five to 10 years.
So with that, I would like to, to just highlight, I think we are on a very exciting journey. We have really good opportunities and also a number of good proof points that's showing that we're on the right way. So now welcoming a few questions together with Alf.
Yep, very well.
Yeah.
Thank you, Magnus. Let's see if we have any questions regarding Europe. Yep, please.
Hi, it's Nicholas de la Grense from Merrill Lynch. Just in regard to the firefighting contract you had at Bitterfeld, how many opportunities like that are there across Europe? Obviously, that's quite a specialized case. How much competition is there? Are you generally taking those contracts, or would you be taking them off the public sector, or are there other private sector operators?
Yes, I think in a number of cases, we have built those contracts, and they've been, in many cases, expanding from providing guarding services. And then we establish a relationship, and we then have that type of dialogue with the customer as well, where they are saying that there are a few other areas that we believe you can do a really good job. But it's also then a matter of proving that, right? So I think I'll share before that we have around 7,000 people that are working with fire-related services today, and that covers quite the range of different activities. But we haven't really pushed it that hard and consistently across all the countries. So there are also some countries where we're significantly stronger. Germany is one of those.
I think in terms of the market opportunity, we know quite well how big the traditional guarding market is, but one of the exercises that I'm doing with the team as well for our strategy for 2020, is that we're also then trying to assess how big is the fire and safety business, for example. And the fact is that that is a very significant segment. So I think it's not so much about the size of that segment, it's rather which are the areas of that segment that makes sense for us to address, if you will, and that is then related to what the customer says, that we can play a role in also where it's, relatively speaking, more attractive for us as well to actually play a role.
I think that is the work that we are doing right now. So difficult to say exact numbers, but some of the early numbers that I have seen in the countries, they indicate that there is a significant market, more a matter of where do we focus our efforts, if you will.
And then presumably, those contracts tend to be longer term in nature and one would presume, higher margined than guarding activity.
I think when we have solutions in general, we typically have four or five percentage points higher profitability, if you will. Fire would then be one part of the solution, and that's obviously the ambition as well, that when we bring more value in those, we can also then charge a little bit more for those services as well.
And then just a final point of clarification. When you talk about 7,000 people involved in fire activities, does that include manned guards who do a kind of check a fire exit here and there? Or is that dedicated like firefighters?
It's full-time, full-time employees.
Okay, thank you.
FTs, yes, 7,000. Mm-hmm. Okay, please.
Mikael Holm from Danske. You mentioned Germany, that you've been successful in Fire and Safety there, and could you give us some feeling for about how large share of the business in Germany that is related to fire and safety, to get a feeling for the opportunity in other countries?
Yeah, I don't think we comment on specific split, if you will, but obviously, when you look at this case, there you can see that the fire and safety related is quite a significant part of the overall contract. So the 7,000 that Alf referred to, we are also working on breaking down and trying to tie those more specifically to the different areas, if you will, of the Protective Services. So that's actually work that is ongoing right now.
Yeah, you can say in Germany, we have 20...
... 2,000, something like that, employees. I would estimate in that range, plus 20,000 at least. We have about 1,500-1,600 in Fire and Safety full-time.
Mm.
It's less than 10% of our business in Germany, but the potential is large, as we have said many times. Please.
Hi, it's Paul Checketts from Barclays again. You referred to the fact that you've got 80 European or global contracts. I think that was the number.
Mm.
Do you think it's a trend that's likely to continue, that you'll see contracts become larger and more negotiated regionally or across borders?
So, I mean, we are happy to handle customers on a local level, but we're also then obviously very well placed to provide a good solution across the countries, if you will. There's different categories, right? So some of the customers would say that, "Well, we wanna kind of combine our services just to negotiate the price," and that could be one case. There is a number of customers who are also saying that we wanna have a really consistent service level, and we wanna know that we have oversight as well in terms of the service and the solutions that we're implementing across the countries. And that is obviously one which is more attractive for us as well in terms of pursuing and developing those relationships.
So I think that there is an increasing demand, but it's still not the majority of the business. It never will be, but it's one area where I think we are very well placed to also then leverage the great presence that we have, not only in Europe, but on a global level as well.
Do you have a sense of how much of the business at the minute is contracts you would consider in that category?
In
A proportion of Europe, how much... What do you think would be-
Do we comment on those figures or-
Sorry, I didn't, I don't get your question.
If you think of contracts being sort of larger, either nationally or cross-border negotiations, what sort of proportion of Europe do you think would be?
I would certainly less than 10%, but I can't give you a specific number.
It's around 10%.
What do you think, Bart?
80 represent a bit less than 10%.
Yeah, something like that.
Then the second question I had was the comment you made where, referring to the Turkish example, and that one of the attractions was that the customer doesn't have to take on the risk of obsolescence.
Mm.
So by definition, that's one of the risks you're taking on. Can you, can you talk a bit about-
Yeah
... how you will, you'll manage that?
Yeah, that, that's a good question. I think when we do that, obviously, we then make a significant investment up front. But we then also, throughout the course of the contract, so say if it's a 3-year contract or a 5-year contract, we typically have an interest, as does the customer, to continue to look at what is the solution that we have in place and that we're also then continuously upgrading that. So I think that when we do the solutions contracts, I would argue that they become more sticky, in a positive way because it's a deeper integration, but where we also have aligned interests in terms of developing the solution over time.
So I don't look at it so much as there is kind of a beginning and an end, if you will, but it's rather a beginning of an evolution as we are then able to actually mature that relationship and also the solution that we have over the course of the contract and then after.
And then you can build in different gain- share models into that contract. So if we can reduce the obsolescence, or we can reduce the shrinkage or whatever is important for the customer, we get a piece of that.
Yeah.
It can be more and more gain-sharing models of how we can take advantage of reducing the cost for the client.
Is there a secondary market?
It's a margin. It's a margin opportunity for us, sorry.
Is there much of a secondary market for older technology as it matures?
Well, as the technology comes to the end of its lifetime, so to say, which it would normally do probably in a five-year contract, then we hopefully can renew that. Maybe some of the installation can still be used, but most of it will be replaced. Then, we also allow the customer to decide. We give full flexibility. We don't try to lock in the customer. So they can buy out the equipment at residual value if they would like to at that moment, like you would lease a car, basically. Or we have it, they don't have it, or if they don't prefer to do that, then we use that equipment at the retendering phase and try to prolong the contract using the installed pieces and replace the other ones.
If something breaks during the contract period, it's our responsibility to keep it running and maintain it and so forth. So, there are all combinations, but it creates... In the end of the day, I think it's not. It's less than—it's not so much a financial matter. It's more a way for us to how we can reduce, improve security and do it, and create value for a client, and hopefully at a lower cost? That is what we, the customer, appreciates.
Thank you.
Mm-hmm. Please.
Have a question in the middle here. I have to throw the microphone. Oh, it's too dangerous. Safety.
Karl-Johan Bonnevier, DNB Markets. You have a long history of benchmarking and best in practice, and I guess driving performance in these 900 branches you talked about. Was it 700? 900.
Mm.
How has the KPI changed over time and driving these kind of things? Now, particularly looking at technology and becoming more and more of a key feature in all of these, I guess.
I can start, but I can just give you the kind of the snapshot of the more recent history, right? So, obviously, we have. There is a very strong focus on the profit and the profitability development over time, and I think that is obviously a very sound driver. Because if you are a branch manager, you will then obviously look after how do I optimize the business for today, but I also then build it for tomorrow, if you will. So, that is one critical part. What we're also doing, we're also then following up as well on the solutions and technology share of the total business mix, if you will. And that is also to share the examples, because the journey is not only the customer side....
It's also very much on internal side as well, that we want to get the branch managers to really embrace this, this strategy and, and also to see the value, if you will. So, so that we're trying to elevate, and, and I think from my perspective, I also try to make sure that we share a lot more as well between the countries and, and within the countries, between the different segments as well, the success stories that we have. Because it's not a matter of, are we able to make it? I think we have plenty of proof points, if you will, that we have a strategy that works. But one of the opportunities for us is to also then share that more actively between, between the branches as well.
And we put in place all kinds of—like in North America and in the different other divisions, we also have competitions of who is developing this the best. We can follow it, all the branch managers, all the area managers, the country presidents, who is most successful in transforming their existing portfolio or selling new contracts. And then there is a Gold Club, and there is different things like that. So it's a way for us also. But it gives us an indication. It's where, it's where movement, it's where, it's where activity is going on, what's happening, who is moving, who is not moving, you will see. So that's one, another KPI that we're using.
Mm-hmm.
The best KPI in the end of the day is that we grow faster than the market. That I think is the most important, and that's the whole idea-
Mm-hmm.
That we can get that growth. And, you know, in a portfolio business, if you have a good growth in a portfolio business, you leverage your margin, normally. And that is really the... In the end of the day, the best indication if this strategy is working or not. All right? Yes. In the back there.
Thank you. Viktor Högberg from Carnegie. Magnus, you showed a slide in the beginning of your presentation on the landscape in Europe, and you mentioned you're present in 26 countries today. And how do you view the footprint going forward? I know a few years ago, Alf, you were a bit more explicit about growth and entering new markets. And, Italy, for instance, isn't really where you are today, but can you elaborate a bit on how you view investments in the existing footprint versus new markets? Thank you.
Yes. So, I think, I mean, it's, we obviously have most of the markets covered, if you will, right? And I think we've also started to build the quality and the consistency for quite a long period of time in those markets where we have a presence. When you look at Italy specifically, that would obviously be an interesting market for us, but there, I think we're also looking at the general environment to see when is the right time to also enter. It would obviously help because we can also then kind of complete the picture in the top five markets, if you will, in Europe. So something that we're looking at. But we're not just gonna go in and chase a position to be able to put the flag down.
I think we want to do that when we also see that it's a sound business and the right time to enter. I think the other point I want to mention as well, the majority of the focus for us is more on technology and expanding the Protective Services. It's not so much about just building traditional guarding size anymore, because that we know quite well, and we have a pretty strong position in most of the countries already.
Mm-hmm. Italy, we studied very closely. That's really the major country kind of missing, if you look on that map.
Mm-hmm.
But we studied Italy very, very carefully. It goes back seven, eight years, something like that. And then we realized that the time was wrong to do that. Multiples were extremely high, margins were higher than you would normally expect. So there was a lot of things that we didn't feel like the right time. Well, I should not try to say that we did the right thing, but I think we did, because we decided not to enter at that time. And now a number of companies have come in financial difficulties, some have gone bankrupt, margins have come down. The macroeconomic situation has been very bad for quite some time in the Italian market. So it's becoming in a better position.
So we are reactivating ourselves now to start studying the Italian market. We visit, we meet some customers, some potential acquisition candidates and spending some time on it again to sort of re-energize that process that we had some years ago, because we think that timing point is coming closer now. So in the coming years, it's probably the right time to enter. But we need to buy a reasonable, sizable player to be able to cover a geographical area, because most companies in Italy are very regional based, and they just work in certain areas. And then we miss to be in Italy because we are just a part of it. We need to have a presence and then you need to buy a relatively large company.
So it's... but anyway, it's on the map now. It's, we're working on it, but it's gonna take a little bit of time to really do the right thing.
Yeah, it sounds like it's more about timing for you-
Yes.
rather than just
Yes. No, we will be there, but it's a question of which year.
Okay, that's clear. Thanks.
Thank you. Mm-hmm. Okay.
Do ask more questions because we have time.
We are-
We have a few more minutes before we have the coffee break.
I'd like to have some coffee also.
Take the opportunity.
We will be here, of course, all of us, this morning, and up to lunch, so feel free to ask any questions. We will try to answer almost any question. We'll see, but, we are here, so we're available during the break. Any more questions before we break up? Please, go ahead.
I must come back to this benchmarking. You talk about a gold standard level. How much better is that gold standard compared to the average, if you take it? What does it take to become, say, a gold member in Securitas World?
Can I start?
Go ahead.
Yeah, so you can almost look at this, there is a certain adoption curve, right? And I think that the Gold Club is what Alf and Aimé called us when they started that a few years ago. That was then to really highlight the branch managers that have been the most successful in the early stages, if you will. And that's probably around 20%-30%, who of the 900 who are taking a lead, if you will. But what we have seen as well is that once they've had one success, if you will, of actually converting a customer or winning a new customer with solution, confidence typically builds. They are more certain also about the arguments, and then they are also more able to replicate that within their territories or their areas as well.
So it's really to highlight, if you will, the ones that are the leading examples, because I think there is a big value for that, right? Also to be able to share internally, but also to share customer to customer that we do. So I think that is the reference to the Gold Club, and that is obviously the group that have then done the most, if you will, in terms of breaking new ground with solutions.
You saw one of them. He was on the picture, Axel Leindecker from Germany.
Yes.
He is a gold. He's a Gold Member.
From the Bitterfeld site.
Yep, yep.
Could you allude a little to how the Gold Members spread over your footprint? Is it a big concentration in certain markets, or you have gold candidates in all markets?
It's a good one. I think the good thing for us is that it's not only in affluent markets, if you will. It's we actually have Gold Club winners from a number of different countries, from north to south and east and west, and also across different segments. So I think that is also addressing one of the other points, is when we talk about solutions and technologies, is that only for the rich, if you will, or affluent countries? No, it's not, because it's based on kind of sound fundamentals in terms of providing better security at a better cost level, if you will. And we have a number of good cases from Bosnia, for example.
I've seen some great cases in Serbia, doing some really good things in the Czech Republic as well, and then across the other countries of Europe. So it's actually fairly even distribution, if you will, of the winners.
The winners this year, too. I mean, just to give you some kind... You have to help me if I remember them all, but this year's winners or last year's winners that we recently celebrated-
Mm-hmm.
They were representing UK, Netherlands, Belgium, Germany, Denmark, Switzerland, Poland, Hungary.
Bosnia.
Bosnia.
That's about it.
That's about it, yeah.
And not Sweden?
No, not this year. They've been there before, but not this year.
But we have a pretty high maturity in Sweden. Many, many really strong performers in this market as well.
Okay, let's meet back in here a few minutes to eleven, because we start at eleven sharp, with Luis Posadas.
Okay.
Good. Thank you.
Thank you.
All right, welcome back. Welcome back, and, may I introduce Luis Posadas, in charge of Ibero-American Division. Please, Luis.
Thank you, Alf. Thank you. Good morning, everyone. I'm Luis Posadas, represent the Latin part of our family, and I'm very proud to try to show you what is our experience of our businesses in, in, Ibero-America. The first slide is, in a sentence, is: One strategy for success in different markets. This is so important for us to explain what means the different markets. We are two different realities in our division. One is Iberia, of course, Spain and Portugal, very close to Europe, and another one in South America, Latin America, and then our seven countries. This is part of our idea, is to show our strategy work in different markets. We have right now our footprint, our market share. This is on a strong position.
If you look at the figures, we are at 12% of the sales of the group, 11% of our result. But if you look at the figure, we have our market share difference. In Spain, Portugal, Argentina, Uruguay, with more than double-digit, more than 15%, and a strong position in the market. But if you look at the rest of the countries, it's in a strong position with the figures less than 10%, but this is a big opportunity. It's extremely fragmented markets. If you look at Colombia or Ecuador or Costa Rica or Chile, extremely fragmented market, and for us, it's a very big opportunity to grow in these countries. This is the reason we have a strong position in the market.
We have a very nice organization, and we have very nice peoples to develop businesses in the markets, but it is possible to continue growth. The different realities we have in Iberia, mature markets. Of course, this is in historical markets. We're talking about... We recently celebrated in Portugal 50 years from Securitas in Portugal. In Spain, we have more than 25 years. The industry is more than 30 years, are extremely mature markets. But one of the reason for the market put up a lot of pressures in the prices and in the crisis. Indeed, in this country's worst important part of their activity. And right now, we have some signals to recover the economic activity in Spain. And of course, Latin America is opposite.
It's an area where the macroeconomy is—we look at it—it's starting to slow down right now, but still continues to grow. Our market, or the market, the security market, is still continuing to grow. Despite the slow economy. And we grow better than the market on average. This is part of our strong position in this area. If you look at one of the countries more important for us, it is Argentina right now, with a new economic situation, with a new economic environment. And we have a very nice opportunity to show our difference and to sell new products in a market like that. That is so important for us, but this is... and a good opportunity.
We're in a strong company, with a strong position, with a nice product to develop businesses in these areas. Okay, now our idea is to go from personnel intensive to CapEx intensive. This is a strategy that showed off previously, but for us, it is so important to show in this picture, we are not in the traditional guarding, not only in traditional guarding. In all the countries, we have a structure to provide Electronic Security, Mobile Services, Remote Services, Professional Analysis, in all the countries. And in the more mature market, what we have in Spain, Argentina, or Uruguay, we're making another step more, with the fire and consulting and risk and analysis. But that's very important.
We are, we have in all the countries, the correct structure to develop businesses in our strategy with technology, not only pure manned guarding. Example for our strategy and looking what happened in the market is Spain. The Spanish market is starting to recover the situation, but we need to look at what happened in our strategy in the past. If you look at the market, this is the market in Spain, where during the crisis, starting in 2009, 2008 to 2009, the market decreased dramatically. It's an effect for the service in general, but the security services in particular, during a lot of years with decreasing the market share, the size for the market was tremendous effect.
a tremendous effect, very affected by the economic, and of course, this affected a lot of companies with not correct strategy, in the end of the day, disappearing. We have now more than 10,000 employees affected in companies disappearing in this period. But the reason was to decide, drop the prices, destroy the market, and the effect was our sector was tremendously affected. Now, of course, the situation is changing, but in this moment, during this period, we adjust our strategy. We changed the idea. When all the companies, the most important part of our competitors, decided to drop the prices and to stretch the margins, we decided opposite strategy. We adjust our strategy, and we're starting to create value for to implement the technology. We're starting in 2011.
If you look at the figure, during the years, we decreased the number of full-time employees in traditional guarding, and we increased our people working, full-time working in technology. Starting with the create the base, acquired a company in 2012, and during the rest of the years, we continued to increase our presence, our experts, engineers, designers, of course, the people in the, in the field, but to create a correct company to, develop our strategy in Security Solutions and Technology. The result is very clear in the figures. You look at, decreasing the revenues in Spain related with the market, we are in the same average to the market, but increases our Security Solutions and Technology to achieve in 2015, more than 20% of our portfolio is related with the Security Solutions and Technology.
If you look at the adjustment means change the trend. If our competitors fight only on the price, we create value above with the technology, with the knowledge, and with our people. This is a very clear effect in Spain, and it shows our experience. Some cases to illustrate this: One in Spain is Cosentino. It's a nice company, high technology surfaces. It is very famous in the world. It's the leader. It's working in Europe and U.S. A strong company with an extremely fast growth. And of course, they needed a security, the starting point of security is very traditional, hours per week in the front of the gate.
Of course, when they start to develop the businesses in Spain and in the rest of the part of the world, the starting point traditional is not enough. We are on a strategy to create a step-by-step value together with our customer. What's the idea? Implement in the first time of the risk analysis, the key for to know what happened. It is to be confident with our customer if what kind of needs they have, and starting with a guarding system. It's not enough. If you look at the facilities, it's part of the facilities in Spain, it's a huge factories, a lot of employees, growth month by month, more expertise, more knowledge, more needs in logistic, in a lot of things.
We go together with our customer to create other kind of services, starting with the Mobile Services, so important, technology, of course. Remote services, SOC, our Securitas Operational Center, is connected with this customer, is so important, but this is part of the value we provide to the customer, and remote services. And finally, fire. We have in our organization, an important part of our offer is design it and implement fire solutions included to the Security Solutions. But this is an example, but it's very complex, very technical, and very important facilities. We provide all the services related with the protection. This is a part of our target, and this is a good example, but we are the partner for the this customer in security.
We are advisors, and we implement the measures. Of course, we create value for the customers. We manage in a more profitable way the budget for the customer, and we create value and the future development in the newest facilities in Spain and, of course, in the rest of the world. But this is a typical effect, but we build an organization in Spain, not only in pure man- hours per week create more valuable technology, knowledge and expertise. Right now, we are in a capability to develop nice businesses, nice businesses together with this kind of customers. I have another case, different, in Latin America, in Peru. Peru is a huge country, extremely different to the rest of Europe, and we have a good example. It's a communications company, Claro.
You know, that is part of the— It's one of the biggest in Latin America, together with the Telefónica, the main competitors. But the Claro is in a typical example for the traditional security services, managed in traditional way, and we using our expertise and our capability in technology and in the services to change, absolutely. It's an example, if you look at it, this is an antenna, and there's typical needs in a country with a very complicated geographical situation, with the high mountains, jungle, deserts. And this is a typical to cover the communication in the country.
This is antennas in the top of the hill, on the top of the mountains, very hard conditions, very hard, situation for to protect, with the very traditional guards, putting one, two guards, 24 hours a day, every day, in the, in the, in the top of the hill, with the no, no very well condition. But this, of course, it's not easy to protect. What is the situation? Always is the price competition, always is the cheaper achieve the contract and never had a good service. And we propose different approach to this customer. And if you look at the country, this is a huge country, and they have a lot of installation in, like that, more than 240 antennas.
And we put in the different option, and we start to create value for to implement technology. The services remote in our SOC, connected with the mobile, it decreases the number of guards, increases the security condition, better condition for our guards. We reduce the turnover, is so important, and to find the correct people for to work. We increase the condition for our people in a salary point of view and in a labor condition. We specialize more. In the end of the day, we invest in our customer, and we achieve the more level of security, like in previous, only made by men, by hours per week. This is a very important issue for us.
We create value, and of course, in the end of the day, we make another question important. This, the sustainability is the part of our businesses. If we design services to provide better conditions for our workers, but it's so important. It's so important in our countries, in Latin America, it's so important with the formality. It's a specialty. We are very formal company. We are looking and fighting against with the informality, but for us, it's so important to create with our technology, investment, with our way to make services, it is to be different in the rest of the competitors. This is very, very well appreciated, not only for our customers, but our employees. Our employees is the key.
If we invest money into train and to protect the jobs for the people, it is absolutely interesting using all the knowledge and expertise made in a different division in our company for to create value for our customers in the end of the day. We protect the relationship with our employees, the key for our future, and we create a very good relationship in long term with our customers. I show you two examples for our performance in the country, in a division, and I'm very happy to share with you.
Thank you very much.
Thank you.
Thank you, Luis. Let me also underline the sustainability and the CSR matter, which is becoming increasingly important in global tenders and also in local tenders. But we see it as a gateway, more and more, that if we do not have perfect order and work with these questions in a systematic methodological way, you simply don't qualify to bid on those contracts. So it's an important part of our total corporate governance in the Securitas business. All right.
Okay.
Thank you, and, let's see if we have any questions for Luis. Any questions, Stefan?
Yeah, I have a question on the market growth. You, I think you said 10%-12%?
Twelve, yes.
Yeah. I suppose that's the revenue increase, so that's including price increase, inflation, so on.
Yes.
So if we split it out and look at number of guards, or if you want to, number of guard hours, how is that developing in the, in the region?
This is including the inflation, of course, if you look at the global figures. But increases the number of guards. Year by year, we increases the number of work, of guards. It depend on the country, but in general, increases. But one of the question is, we have a lot of guards. The salaries are less than the average in general, but it's, it, today, all the countries increases the number of guards. What is the reason? What Alf explained in the beginning for the process, the urbanization, the difference in the society, but of course, the difference in Latin America are important. The public sector is not enough to protect all the industries, but increases the number of guards for sure.
But this included the inflation, yes, right, but, but the increases day by day.
If you try to estimate the percentage of increasing number of guards, are we talking about low single digits or mid-single digits?
Very, very close to the 2 digits, very close. Between 8-10, maybe.
And then if you look at your countries there, which one would you say, or you can mention more than one, of course, where you have the biggest potential going forward? Where do you see the strong growth currently, and where do you think the potential is the greatest?
In the countries. But there's very potential there at the Pacific Coast, there's very potential. Colombia, Peru, Chile are great, but Colombia is very potential, of course. And the Atlantic part is, we have a nice position, but this is more slowly development. But the Pacific area and Central America, of course.
Colombia is growing tremendously.
Colombia is-
We have very, very good growth in Colombia. Fantastic growth for the last couple of years. We have won, for example, a lot of airports in Colombia, but the economy is growing well. It's a strong country, and we have had a fantastic development in Colombia, in a very fragmented market, actually.
Yes, extremely fragmented.
Extremely. It's maybe the most fragmented market of all in Latin America.
Mm-hmm.
We are doing very well there. A very strong team.
Thank you.
Thank you.
Thank you.
I'll make the microphone directly and Karl-Johan Bonnevier, DNB. Luis, looking at the Spanish case you showed us with taking the technology penetration, right? If I got my calculations right, from around 4%, 2011, now to around 17%-
Yes
of this. How do you see that evolving from here now, when you're back to market growth again in the total market? Is it possible to continue that kind of tremendous growth?
Yes. We are. We think it's possible. What is the reason? If you look at the market, it's impossible to sell traditional services in Spain. It's impossible to compete by price. A lot of companies, the strategy for their companies is to drop the prices and to create no current margins, but that's impossible. For us, 100% of our new tenders are related with the technology.
Mm.
They still continue growth in Spain. But this, this means if we growth, we growth with the technology plus the services. But we are absolutely convinced this is a correct way to develop.
One thing which is important, so we sometimes also make. The Cosentino case is a good example, like Luis explained.
Mm-hmm.
Is that we make an assessment early in the project because the tender is for a traditional guarding contract, and normally it's a loss. We don't make money. And if in Spain today, and it has been for a long time, it's minus, negative operating result-
Mm.
EBIT, if we bid on that. That's basically the situation. But we could still do that. It doesn't mean that we should not do that. We, we could still do that if we consider that there is a very good opportunity within 6-12 months to transform that contract from no margin, low margin, negative margin contract into a solution contract, which has been a good margin. So we, we make an assessment and sometimes even a commitment with the customer in a contract that, "Well, okay, we'll, we'll give you this price, and we'll give you this contract today in those conditions, but conditional that either we have a right to step out or if you do not fulfill the plan, or that we have a commitment within 6 or 12 months to transform that contract to something different.
Mm-hmm.
But in order to get going, so to say. So that, that could be the case, and that is the entry ticket, so to say, to get that possibility.
But now, sorry, but now at the beginning of the process in 2011, with the crisis at the top of the hill. But it's so important to show to the market our idea to change, to be different, to create a strong organization, and to be recognized as a technology company working to provide security services. And it was gonna be an effort, was gonna be the effort, but the effect now, we are in a nice position from a technological point of view, and of course, in the combination, in our strategy, we are a leader for sure in a, in-
We are coming out of the crisis in a better shape than we went into the crisis, that's for sure.
Mm-hmm.
In Spain.
So a quick follow-on to that. When you look at your contract portfolio in terms of how it looks today, if you take a three-five-year view on that, what kind of natural maturity would technology penetration have in the portfolio then?
In Spain we're talking about?
Yes. I guess that's a good, could be a good role model.
It will be higher.
Yes, it will be higher, yes.
Higher. Convincing.
I'm saving Luis here.
Thank you, Alf. Thank you very much.
No, but, it will be higher-
Yes
... and we will continue this journey. Bart, Bart will give you soon some indications of levels that we can reach and to give you a little bit more flavor to that question. So if you—I don't want to be impolite, but, I mean, let me let us, Bart or myself, come back to that question when you see the context of the other countries and—
Excellent.
But it certainly will continue to grow, that's for sure. Please.
Thanks, Ed Steele from Citi again. On that same chart, on the EUR 89.5 million of revenue in 2015, that was total sales, security solutions, and technology, does that include guard wages?
Yes.
So, what's the rough composition of that or proportion that's guard wages in that 89.5, please?
No, we don't measure whether the proportion depend on the contract. We have a long-term contract. If you look at the Cosentino, we are starting with 2 guards, and we have five guards. But the proportion right now in the technology and the other kind of services is so different. But it's-
We don't measure it.
We don't measure it.
We don't measure it.
I mean, we-
But when we say a solution contract, it includes the guarding piece-
Yes
... of that contract as well, which is usually the relatively large part. But then, of course, you reduce the guard piece, and then you do all the other things, and then you improve your margin.
That could be 80% of that number is, is guard wages?
It could be that.
Yeah.
It could be lower, so it could be a substantial part. But when you do all this because you have the contract, but then at the same time, you have reduced the cost for the client.
Mm-hmm.
And then, taken advantage of that, and we keep a part of that, so to improve our margin. So we double the EBIT margin when we move from a traditional guarding contract to a solution contract. We go from the 4%-5%, 3%-5% to the 8%-10%.
That includes on the proportion of revenue that's guard wages?
Yes.
Yes.
Yeah, okay.
But that guard contract looks different before than after. So the guarding tasks that we do will, of course, be less in the new solution contract than it was before when it was just guarding. Simply because that's the way we finance the investment in the technology piece.
Thanks.
Okay. All right? So we don't follow that number internally even. Please, we had a question here somewhere.
Yeah, that, that was me. Daria Fomina from Goldman Sachs. Another question on Spain. The market, as you said, historically, was incredibly competitive and still is, and it was mostly price-driven competition. Now, when you are or you've been very successful with your switch to technology and the different type of contracts, I guess your competitors seeing you be, being very successful in that. Is there a risk that the market will just switch from price competition to ultimately CapEx competition when your competitors will start investing more and more into technology, and you'll be forced to reduce again the prices and invest even more?
Mm, okay.
Or do you see that happening already?
A good question, but the... Unfortunately, we don't have competitors in the same way like us, not too much, one or two maybe. We need competitors, strong competitors, to show the difference, for to look... One of the problems that we're starting to have with a customer, when we show a different solution related with the technology, with the CapEx, our customers say, "Okay, it is impossible for me to compare." We have a lot of people only working with the price per hour. We need strong competitors. It's not that, for us, it's not on a risk. We are convinced we are better. It's not on a risk. We prefer the competition. We prefer the competition. But right now in Spain, unfortunately, we don't have nice competitors in this way.
But it's starting to know, it's starting to look at what happened in Securitas. It's continued development, new customers, look on better profitability, but we are, we are leaders and an example maybe. But now in Spain, at the moment, we don't have competitors.
No, and also to add to that, and we also have to think about next step, the next step as well. Fire and Safety, we can add that. We create another opportunity. Digital information is the next step, and we have new waves coming. So to differentiate us, that's one thing, which the other ones are not, in my opinion. The second thing is that a lot of our traditional competitors in Spain, they simply don't have the financial muscles to do that.
Mm.
It's simple as that because they have been taking on contracts throughout the last 5 years with low margins. They don't make almost no money or any money at all. And then you need to invest in CapEx, you need to invest in engineers, you need to invest in infrastructure, you have to put the systematic methodology in place. And customers are paying on 90 days or 80 or 100 days, and you pay your guards on day one. So financially, to make that is a huge step. And many of these companies, as you show, 10,000 employees have been left over or have been-
Mm-hmm
... unemployed because the companies that they were working for went bankrupt, simply because of these reasons. That is going to continue. We will see more companies going bankrupt going forward in Spain, as we have seen also in the past here. That will continue because they simply do not have the means to invest. That means that you, that I think we have a unique position. Maybe, I mean, some of them will be identical or catching up, or then we will try to move on as well. We are quite bullish and optimistic that we can differentiate ourselves, not only today, but also tomorrow.
Mm-hmm.
I guess that, that was the question basically. With some software integrators now offering a relatively cheap solutions, I guess for the competitors-
Okay.
I mean, basically, how sustainable the competitive advantage is?
Now, because, I mean, what the difference is, this is a global question, in a way. And the difference is that we will see new players coming to this market. I'm not worried about the man guarding companies. They. Yes, I am in the tender today and tomorrow, next week, next month, we are fighting with them. But if you take a five-year perspective, the competitive landscape will look different, and many of those will not survive, because they simply don't have the means to do that. While we will see other competitors coming into this place, we will see system integrators subcontracting the guarding, we will see smart home providers eating into the SME market, we will see technology providers trying to build smarter cameras or access control system, which do some kind of guarding.
You will see drones, robotics, you will see different things trying to eat into our market in different manners. And those are the ones we need to watch out for, and we need to be ahead of that, the game and try to... But the difference is that we are at the site. We are at the customer site. We know what's going on. We are there 24/7. We can make the risk analysis and the risk assessment much better than anybody else because we should, because we are there. We know what's happening... And we have the combination of people, technology, and knowledge, which is impossible, I would think, hope, that to almost copy, because we have a unique situation. And then on top of that, you need the density, you need the CapEx to combine everything into a package, and that makes us absolutely unique.
I think that competitive formula will last for, for, for a long, long period of time. Please.
Anvesh Agrawal from Morgan Stanley. Just to follow up on Spain, you're saying that many of your competitors have disappeared from the market, and a lot of employees have been affected because of that. So going forward, do you see a better, better price wage dynamic for you in the market? Or you still see losses in the traditional manned guarding contracts?
The traditional guarding company is still continuing under pressure, for sure. But this is a good opportunity to show the difference again. But traditionally, it is impossible to compete. In Spain, we continue with the. If you look at the number of companies, we have more than 600 companies in the market in Spain, traditional guarding companies. Of course, the competition is in base to the price, but for us, it's not interesting, to compete in prices. It's an opportunity to show our, the customer we create value, we manage the budget better than the only hours per week or hours per month. We're absolutely sure, and we are certified. We have a high standard quality. Related with these companies, it's only focused on the prices, on to the revenue. No, no, not the margin focus.
For us, it's an opportunity, but they still continue with under pressure in Spain, for sure.
I think so, too.
So we should go on-
Okay.
in the program?
All right.
Mm-hmm.
Gracias.
Thank you.
Señor.
Gracias. Thank you very much.
Thank you very much. And now Bart, CFO, Bart Adam, CFO. Please, Bart, it's your turn.
Thank you, Alf. Yes, I'm not sure if it's last but not least, but it's definitely last. Let's now move a little bit into reaching our financial targets and look, take a closer look at that. We have, in the company, very clear targets. We have very clear targets on four dimensions to drive shareholder value, and those dimensions are the financial performance. We measure the EPS, and we want to improve that year after year. We have a financial stability target, very closely linked to the balance sheet, of course. Then we move into a dividend policy. We want to guarantee to you, owners, investors, a certain return, annual return, and we have never lowered our dividend. And then, of course, we have the strategic development target.
So those are four dimensions, and the value of this is not that this is a slide sitting in my drawer. The value of this is that this is understood by the whole company. Every single decision we take, every action we take, is basically measured against those four dimensions. Does it serve this dimension? And I would say especially the last one, does it serve the strategic development? And we sometimes even make sacrifices to the other dimensions in favor of the strategic development. We have been investing into people and into knowledge, and that serves the strategic development at the cost to you sometimes of the EPS performance. But we have done quite well, of course.
2015, you see the numbers there, and you know those numbers by heart, and we have been growing then the Security Solutions, Electronic Security, with 38%, and we are proud of that. That is a big achievement. That has not just changed overnight. That is the result of many years of working in one direction. Now, when we look a bit more at certain details of that, one thing is, of course, we want to grow the top line. You can see there, connected to that, the most important internal and external drivers and influencers for that performance. Then, of course, we want to translate that into growth of operating income, and you also see there the most important positive contributors, helpers, and hurters sometimes as well.
But when we look at what has happened from 2007 to 2015, is that the company has grown from SEK 51 billion to more than SEK 80 billion. And that has been a combination of average organic growth of 3% and acquired growth also of 3% during that period. And that has translated into an operating income from SEK 2.9 billion to SEK 4.1 billion, which I think is a quite consistent performance based by the targets you have seen before. What you should not forget is that during this period also, we had the aftermath of divesting three important legs of the company. We should not forget that. I mean, during that period, we had to look for a new identity. We divested three important legs, and we were sitting sometimes, how you said that, Santiago? As the-
Homeless.
Yeah, a bit homeless, yeah. We, we lost three important parts of the family. And then we had to look for a new identity. What is our own journey? And that took some time to find that and to work with that and to establish also within the company that new positive spirit. So that you should not forget. And then on top of that, you should not forget that we have lived through one of the most difficult, economical periods during this period, at least during my life, which is now close to more than 50 years. So that has been the most difficult period in, economical period that we have then discounted into these numbers as well. So I will not go into all the details, but if you are living in Belgium, which I am, you feel the growing need for security.
Sometimes people ask me: What do you think will happen to security as such? And I always return with the question: Well, what do you think?... will be there be less need or more need for security tomorrow compared to today? And I haven't come across anyone who says less. So that is a basic driver in our society. Of course, it's, it's sometimes made very clear by terrible events, but even more, what is more important for our business is that it is just built on the fact that our society is becoming more complex. That is the main driver for need for more security. If your society becomes more complex, then, of course, the consequences of what could happen becomes also more difficult, and more difficult to handle, and that is why you don't want those things to happen.
So that is a basic driver, long-term driver for security. Then, of course, when you will visit the Experience Center, and some of you have already done, and I have tried to explain that so many times already, then you will feel that that opens both opportunities for top line growth. In theory, when we implement solutions, it should dilute our top line, or it should reduce our top line, but that is the theory. In practice, you feel that we open up for new opportunities. We have simply a better story, like Alf said, we have a better story in front of our customers.
Even if you don't sell the solution, it makes it a little bit easier to sell guarding, because the company, the customer says: "Here is a company that has a different idea, that has a different idea for the future. We go with you because you have, you will help us going forward." So it's not only about selling guarding, of course, it's also about selling solutions, and that grew 38% last year. It's also about new opportunities. There are simply new opportunities, new solutions that did not exist two, three years ago, and now we can implement those in front of our customers. So it's helping top line as well, of course, helping the bottom line as well. The mix of our service offering is changing, and by that, that also helps our bottom line.
Then, of course, we also support by acquisitions, and Santiago has explained that in detail, how we work with the acquisitions. We have set out a strategy, and I will come back to that later on also, on how we have decided on these are the things where we want to focus with our acquisitions. That is also as a detail, further detail of that, how we came up with a wish list for this is what we would like to have as an acquisition for U.S. We felt we were ready for that. We felt that we had a wish list ready, and then by coincidence, you could say, but nothing in life is coincidence, then we came across the right target.
So if we then move on, we then need to translate that income statement, top line, bottom line, into strong operating cash flows and strong free cash flows. These are then what you see here, the most important factors, again, influencing that. That is where we focus on. That is where we, during all of our work, we focus on these, on these elements. And then, of course, at the end of the day, that should result also in a controlled net debt. If, again, we look at the period 2007-2015, this has been our performance. We have been able to translate 91% of our operating income into operating cash flow on average. We have been able to generate free cash flow on close to 90% as well, 86% to adjusted income.
The net debt has moved from 2.7 to 1.9 over this period, an average of 2.2. It's this focus that allows you to make the acquisitions like the type of Diebold in the United States. This is where we have been working for many... during many years to get in this point where you say: "Now I'm in a position to do done, something which is not just make an acquisition in U.S., this is transforming the business in U.S." This is not one plus one, this is one plus one is more than two. And, and that is by systematically working, having a good focus, making sure that everyone in the country, in the company understands our strategy, that we are in this position. You have seen this slide definitely before.
This is how we have moved the Security Solutions and Electronic Security from 6.5 to 9.3 in 2015 then, and then we also moved the margin. What we were a bit surprised on this was actually that the guarding was also growing so very good during the last year. But that's fine, and we are happy with that. That's good business as well, and it provides us also more opportunity to bring solutions as we have, as we have learned. Now, why is it driving the margin? The main answer to the question is, it's simply because we increase customer value. I hope you have been able, through the cases from Luis and from Magnus, and you will definitely see that also in the experience, and I hope you will feel, here is margin.
Then you can ask if it's 7% or 8% or 10% or 12% or 15%, and that sometimes varies, but in average, you will feel that margin is just there. This is something totally different than just answering to, can you provide me some hours of guarding. That is a totally different game we are entering and we have been working on. So it's better security for our customers, it's more proactive, it's more convenient. He does not have to address himself, the customer, to many different places. It's just one person, one company he can address all his needs to. It's opportunities for ourselves, for scale, which we have in man guarding, you have very little opportunities for scale. Here, you have opportunities.
And then, of course, as Alf has explained, there's also reduced number of competitors in this area. I will come back a little bit more in detail... Now, next question, what is the potential then? And some of you have, during the Q&A, tried to also understand what then is then the potential of this journey that you're making? And these are just this is the numbers from last year. Last year, we, as a group, we have been able to increase this business with 38%, and it represented 11.5% of our total company. Now, if you look a bit more in detail, the devil is always in the detail. It's not too much detail here, but at least you see that North America, as Santiago explained, he and his people had to start from zero, which is a difficult journey.
In Europe, we had some history that we could still build some, so like the monitoring centers, the traditional monitoring centers, but Santiago started from zero, and he has been able to move that also during 2015. Still it was below 5%, but now, of course, with Diebold in place, that will put him in a different league and provide totally different opportunities for to North America. Ibero-America has been the lead, 20%-25% of our sales in Ibero-America is within Security Solutions and Electronic Security. And then we move to Europe, which is in the bandwidth of 15%-20%. Now, the next point is then, if we look at the countries in Europe, how is that then looking? How is that distribution?
And we see here on the chart, just to explain, there are four countries now in Europe which have a penetration on Security Solutions and Electronic Security between 0% and 10%. But there are also two countries which are already between 40% and 50%. So the trick is now to move the 0%-10%, 10%-20% to the next bandwidth, and by that, that will improve, of course, the European average, and that will improve the group average. So that is where we are, and then we see different dynamics in different countries. Sometimes it's because of the history, sometimes it's because people understand it easier or more difficult, or it's the competitive environment.
There are many different reasons, but as we have said before, the most difficult thing is to, first of all, to convince our own people, and I think we have done that by now. The second thing, of course, is to convince the customer, and it's that journey that takes place in every single country in Europe. You see here, you could see the potential, and if we are moving these blue stacks to the other side of the chart, then, of course, we will increase this proportion of sales for the goal group. Yeah, when you move into Security Solutions, and I think you have also witnessed that from the different presentations, you add skills. You need to add capabilities to your offering.
And when you do that, and I think you will also witness that in the Experience Center. When you do that, then as Alf has explained, we are basically reducing a lot of competition. When you go from guarding, you add mobile capabilities, you add Electronic Security capabilities, and so on and so on. Basically, if we then are also willing to invest, which so far in the commercial environment, I think we are the only one who is willing to invest into the customer. Then you have, you are basically by yourself, which sometimes is a bit maybe lonely as well. We would like that maybe someone or more are there, but at least we believe this is a very good place to be. We prefer to be on that side of the chart rather than on that side of the chart.
But of course, as explained as well, connected to the question here that arose to Spain, you need to have a strong balance sheet in place in Spain, and there are very few companies in Spain, guarding companies that do have that strong balance sheet. It's more the opposite. If they are talking to you and, "Yeah, we would like to sell the company to you." Well, the value of the company is more or less the debt they have in the best case. So you need a strong balance sheet to be able to finance this journey. This is an example, and it's exactly the same example as you have seen two years ago when we had the previous day like this. It's exactly the same example. So the mathematical case has not changed.
This is still how we believed it would look like, and this is still how it looks like. So when we invest into, we reduce the on-site guarding, this is a conversion. We reduce on-site guarding, we introduce remote services technology, we sign a five-year contract, in this case, we invest 60,000 EUR of CapEx, so which is, in this case, 15% of first-year sales. It's being depreciated over the contract duration. Then you move basically your operating income, operating margin from 5% to 10%, and you improve your return on capital employed from 29% to 44%. These are the simple mathematics. Of course, then you would say: "Oh, but now you're eating your own top line." In theory, yes. In theory, this would hurt the top line.
In practice, from what you have seen, it's not. We open up for a new offering. If you're just selling guarding, basically, you can sell, you can try to sell more guarding, but now we are selling other things. We're cross-selling, we are bundling, we have new ideas, we have better ideas to attack certain problems. So this is why, in reality, actually, it helps top line. Where we are working well with this strategy, it helps our top line. It drives our return on capital employed, and this is the guidance we have also provided you before, that we think that we have to spend in capital expenditures SEK 350 million-SEK 400 million on top of what we had already, like we had, like SEK 1 billion, a little bit less, maybe, on an annual basis, capital expenditures.
The big difference is that the SEK 1 billion, that is like more back office, a type of capital expenditures, which a customer, I mean, a customer is not really interested in the type of car I have, for instance, but that is a back office capital expenditure. But the customer is really interested into this type of investments. These are by far the best investments you can make. And the mathematics that we thought would apply, 2.5 years ago, 3 years ago, when we start, they still apply. It's still the same mathematics which are in place. So it, it provides, this capital expenditures provides for improved margins, longer contract duration. When the time is there for contract renewal, we are in a strong position, but as Magnus has also tried to explain, this is more a journey.
You embark on a different journey with your customer, where you advise more on what is possible, and you, so to say, renew the contract step by step. So this is about Security Solutions, and what has happened there. And then Santiago has mainly worked on the acquisition part. There has been other acquisitions. There has been more recently now in Germany. We have executed on an acquisition that has been in Belgium, and there are a few more here and there. But this was also decided, when we were looking at the strategy, where will we spend our money? And this is where we will spend our money.
This is primarily then in Security Solutions and Electronic Security, North America and Europe, where we think we can be stronger even, and we can, there is opportunities there to acquire portfolio, to acquire capabilities. We will also look at Fire and Safety. You can see that is a bit, maybe the newer part of our strategy, so we are a bit more cautious there. We need to learn that as well. We want to enlarge our global footprint. We have not talked too much about that, but we do still have an ambition to go from the 53 countries today to go to, like, 60, but we haven't set any timeline on that either. When we have done that, then we feel we have basically over-covered the global needs for our customers.
So that is where we want to spend our money, and it's based on that strategy that we also came across targets like Diebold in the United States and like Draht+Schutz in Germany. One of the drivers behind our balance sheet is the biggest part in our balance sheet is the DSOs, so we need to manage those very well, closely, and this is how we have been doing the last four years, actually. You see here the rolling 12-month DSO from Securitas Group, and we have moved that. Basically, we have improved that with 3 days on the total- on the totality of the group. We have also been working very closely at overages, and that we have been able to move from around 16% of sales to now 11%, 11%-12%.
So we reduced that. We improved that with 5%. And that is also allowing you then to pursue your strategy. If you would eat all your balance sheet with receivables, then you would not be able in a position to pursue the strategy that we are pursuing, doing the investments into customer equipment and doing also acquisitions on top of that. All of this could not happen if we do not have strong financing in place, and we do have that in place, and we are very happy also to see here that some of our relationship bankers are here. Thank you for that. But this is basically how we have been working with the funding recently. We have our RCF, which is largely used as a backup facility, $1.1 billion is there and has been extended now to 2021.
And then we have also issued a Euro bond on EUR 350 million with a maturity of six years and with a coupon of 1.25%. We swapped 287 of that into dollars for six years at an all-in of 3.35%. That is to make sure that the investment in U.S., so to say, matches also our debt, so that the equity matches with the debt. And that is fixed also. So we are committed to solid investment grade rating. We have good headroom in place, no financial covenants. When I meet bankers, they're always surprised, "Oh, you have no?..." No, we have no financial covenants, and of course, BBB stable outlook.
The net debt, of course, with the acquisition of Diebold has moved to 2.5, which is still a very manageable number, I would think. And then you see the group maturity profile as well on this slide. So with that, I am in the red zone of the timer, and we can move, I think, to Q&A now.
Thank you very much, Bart. Any questions to Bart? Any questions, please, Stefan?
Okay, I think you mentioned something about the difference between theory and reality on one of your slides. So going back to the slide where you showed that you had two c ountries being at 40%-50% in the Security Solutions, and four countries in 0%-10%. Since you haven't said what countries it is, I'm just wondering, could you maybe elaborate what kind of margins would those two have that are at the 40%-50%, and what kind of margins would the four in the end have just as a reality check?
It confirms the theory. It is like that the countries that have this higher penetration have far much better margin, far much better than European average, and the other way around as well.
Is it, is it eight or nine, or is it-
Yes.
Thank you.
I think the lowest margin we have in Europe is in the country 2% operating margin, and the highest is just over 10%.
Thank you.
Well, you have four financial targets, and three of them has, say, number things, and I love numbers. Is it possible to put a number on the last financial targets as well?
Well, I mean, yes. We had, last year, we had 38% growth of, in Security Solutions technology. We believe that is a high pace, and that is also the target, to have a high pace, which I'm not saying that it will be 38%, but there's a bandwidth there, of course, and, and we would not be happy with 5%, definitely not. And there is no roof to it either. So we are looking hard, working hard to, to have a very good growth there. Of course, as we will grow the base, it will be difficult to, to sustain the percentage level there, but we are looking at, at good opportunities here.
Do you know how you will communicate that target and how you reach it going forward?
Other than that, we have not decided, no. No, we have not decided on how we want to do that. We don't want to set a limit. We don't want to set a ceiling to it. We did that before a bit with the previous target there. We had a target on 18% of group sales, and there was, two annoying things with that. Some countries had over-succeeded that already, and then they said, "Should we stop now?" No, you should not. And the other thing was that as the guarding was growing also, that was also a bit hindering that target as well. So based on that experience, we have set a high pace, and, and I think, that is what we want to keep as well.
Yeah, exactly. And of course, when we come to the end of the year, we will communicate what it was 2016, but we will let you know. But I think we also took it away for a reason, but I think we needed that communication to set targets and to put ourselves a little bit more on the stream. But now I think we have proven the last few years that we deliver on those targets and over-delivered, actually. So I think the credibility, in our opinion, is fair. Internally, we have targets. Every single solitary area, country, branch, et cetera, have targets, so we follow it internally.
That we have it by numbers, but we said we don't think we need to set a number right now. We will have a high pace, as Bart said, but we will communicate by the end of the year what it was this year. And then on top of that, you have the acquisition that will support quite a bit as well this year.
Yeah.
Mm-hmm.
I don't think that was the desired answer to your question, but that is how it is.
You will not get a-
I think I was-
You will not get a number.
Um-
Not today, at least. Please.
Sorry again. Daria Fomina from Goldman Sachs. I have very quick one. On that country in Europe, you said you have a range of margins between 2% to just above 10. On the returns level, I mean, margins by themselves don't say much. On the returns level, is it more homogeneous, or the country with a 10% margin also has a high return, or it's in line lower? Can you give a bit more color on that?
It follows the same logic.
Exactly.
I mean, if you have higher returns, you have better return on capital employed as well.
There's not a big difference between the accounts receivable collection DSO between countries. It's fairly... It's not a big swing between the different countries, so the working capital needs are fairly similar in all the countries.
What about CapEx with a higher share of technology?
No, but of course, but that still works. You have to get a higher return, like Bart shows.
Yeah.
Okay.
It does. It does.
Yeah.
Now, the numbers work. We get a good proof of that all the time.
Gustav Rosén with RBS. Will the sort of intellectual capsule that came with Diebold, will that also benefit, you know, the European countries?
Yeah.
Yes, but not now. Future, yes, but now we don't want to confuse any of the plans that we have, as Santiago described. We really need to get that commercial leverage from that, primarily next year, and see the benefits of that. Now we need to get the pieces together and then start to see the commercial leverage of that in 2017. And we don't. We should not start to have any other plans than just focus on that in the coming two years, I would say. Potentially, yes. There is a lot of knowledge, very high, very competent team, very high knowledge that we could benefit from, but we will refrain from that for the time being, not to disturb the integration process.
Step by step.
Step by step, exactly.
Yes.
Mikael Holm from Danske. I have a question on the cost structure in the technology and solution part of the business. I guess, for example, the surveillance centers, I mean, that should be a fixed cost that you should be able to leverage as this business grows.
Absolutely.
So, if you would split the cost today into more like fixed, semi-fixed, and variable in the solution part of the business, how would that look like?
We haven't really done that exercise on a larger scale. But it is like you say, some costs are... If you are running guarding, then there is very little opportunity from an operational perspective to leverage your... Because guarding is just, well, you render hours, and then you render more hours or less hours, but there's very leverage there. With the, like you say, the centers are a very clear case where you can leverage that cost structure. And by putting more customers to the same center, you will leverage that. So that gives us opportunities, but we haven't really measured in detail what the opportunity is there. We have not done that.
But if you look at the most successful countries, this, that has a 40%-50% share of revenues coming from this, what kind of incremental margins do you see in growth in those, I mean, quite successful countries, then?
Yeah, what, what we see is that, I mean, the 10% where we say solutions, where we move to solutions, so that is just there. And depending on exactly the type of solution, that could really move up as well. So it, it is, it is, yeah, there is no... well, there is a limit, of course, 100% is the limit, but there is 10% is not just, just the limit either there. So we see it case by case, it depends, 15%, 20% could be possible. But of course, as a bandwidth, we talk about 10%, and, and that is still the number you should think about when, when you make your, your mathematics.
You can say, if you take the big picture, I mean, last year we had 11.5% in solution sales. We doubled the margin, the EBIT on that. On the 89%, we have margin erosion of basically 0.2, 0.2 every year for all kinds of million reasons. It's a long story, but that's how it is. Anyway, so they kind of even out, roughly speaking. But of course, you will imagine, if we move those 11.5% now, mathematically, by putting Diebold on the small German acquisition, we are 14%, 15% just by that. Then any of the organic growth of this year on top of that. So we, we change that relationship dramatically, then you will get, you will get a, a very good margin expansion because the erosion decreases and you get the benefit of that.
So you get the... Not an exponential, that might be to exaggerate, we need to be careful. But still, you get, you understand that mathematics that has a dramatic impact on our margin when we change this balance. So that's the game plan, and so it will plus that it gives a better story to the customer, it's also driving the margins.
Could I just a last question then. I think at the last Capital Markets Day back in 2013, I think it was, you mentioned Sweden as one of the most successful countries back then. But just looking at the, the numbers for the Swedish business, it seems like margins have slightly deteriorated during, yeah, since 2013 into 2015. Could you just say some, some reasons behind that, given that that was an example you gave back then?
Well, I think we do have not disclosed. Maybe you looked at the PRV.
Yeah.
Pull out the balance sheet and the P&L on that. That you cannot make too many conclusions because that's a little bit of a muddy picture. So when we look it from an operational point of view, which is different from the legal structure, you get a different picture. Sweden is improving. They're doing well. They have still very good margins, and then I will say, I can't remember by heart exactly the number, but I my qualified guess is that the margin today is actually higher than it was back in 2012 and 2013. And at that time, we had a different structure, also as well, from a legal and operational structure, we have different divisions and so forth.
So, unfortunately, they still have it operate in a very good margin. We are running out of time. Let's take one more question, but then we'll need to, I need to wrap it up and move on.
Quick one from me. It's Ed Steele again from Citi. In the guarding side of things, the industry has historically seen large companies come back to you for price renegotiations periodically, irrespective of contract lengths. Are you more insulated from that experience if you've got a combined contract, a Security Solutions contract? What's your experience been to date of larger clients having longer term contracts, but coming back during the contract period, asking for better pricing? Has that happened at all, please?
You enter into a totally different relationship with your customer when you go for a solution. So when you are in only guarding activity, it's more like a tendering relationship. I'm exaggerating a bit, but it's like, okay, here is a tender, answer to the tender, multiply the number by hours, hours by the price per hour, and this is your proposal. And then everybody tries to explain that they have the best uniforms and the best guards. I'm exaggerating. But when you enter into the type of solution we propose here, you go much more into consultative selling.
You build up a totally different relationship with your customer, which it does not say that, that the customer cannot put pressure on you, either from a price perspective, but you enter into a totally different relationship, which protects you somehow from these nasty discussions on, "Change the price, or I will put someone else." You, you really protect yourself to a large extent from that.
And also what you do is you move your contract length from traditionally one-year contract to a three- or five-year contract. That's because you need to amortize the investment in the technology over a period of time. Our belief is that it will drive customer retention. It will support that, which in the end of the day is growth, because we will simply keep the customer. If we do a good job, we have to deliver and do a good job and behave and not misuse the situation in any way. But if we do that, we will keep those customer. We think we can extend the customer retention, which is a reason to why we think we can grow faster than the market. We can also keep the customers for a longer period of time.
The basic thing of everything is that we simply deliver better value for the customers.
Yes.
And that is the basic-
Continuously, continuously do that.
That's the base for improving the margins. It's not the other way around.
We are obsessed by that, right?
Yes.
Thank you. Thank you, Bart.
Thank you.
Thank you very much, Bart. I will just, we are a little bit, 2 minutes and 35 seconds behind schedule. But anyway, I think we'll catch up during the lunch and the tour. Thank you very much, everybody, for coming. You hope you get a feel for that we are moving this industry, and we are leading this transformation from a personnel, guarding-intensive, people-intensive business to a more of a CapEx, technology and knowledge-intensive business. That is a huge transformation, which we are in the beginning of, and where we're trying to take the lead. And if you don't do that, you will not be around, in my opinion. The question is when? So there is a saying that, I mean, if you're not around the table, you will be on the menu.
I think basically that's what's the case, because you will basically be eaten. And if you don't move in this direction, you will be on the menu sooner or later. And I think that is really, really what's happening. And it's quite a dramatic change that has ever never happened before to our industry, and this is really exciting. Now, we like to share that excitement with you in physical terms, here, just after lunch, I think, right? And we'll move to the Experience Center, where you can touch and feel and see this a little bit more in reality, and I hope you will enjoy that, and you will have time to ask more questions to other members of our team as well.
Actually, the first tour is immediately.
Okay.
Yes, and that group will have lunch after.
All right.
Vice versa.
Everybody knows who, which group they are in?
They should.
They should.
Tour B is on now.
Okay. If you make a mistake, it's not a big deal. We'll take care of you.
Yeah.
Thank you very much-
Thank you for coming.
... for coming, everybody, and we will be around during the lunch, and then we will depart from here in the management team. Thank you. Thank you very much.
Thank you for participating via the webcast.