Securitas AB Annual Report 2005

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The Group – Financial control and fi nancial objectives Six Fingers – fi nancial controls ensure correct and timely action To guide employees and the organization towards its stated objectives, the Group has an established fi nancial framework and fi nancial reporting that continuously measures results from the more than 3,000 branches up to the consolidated Group. The fi nancial reporting makes it possible to follow on a monthly basis a number of simple fi nancial ratios that are understood by every employee. The Six Fingers model leads to timely and correct actions for better results. Four cornerstones form a solid platform and serve as the framework for fi nancial reporting: ■ Securitas Financial Policies and Guidelines, is the Board of Directors’ policy document built around three central themes: transparent and coherent reporting internally and externally, proactive risk management and continuous improvement in fi nancial oversight and control. ■ Securitas Reporting Manual, provides all managers and fi nancial professionals with detailed instructions and defi nitions for fi nancial reporting. ■ Securitas Financial Model – Six Fingers outlines the guidelines for the divisions’ fi nancial focus and the delegation of responsibilities between different levels of the organization in terms of fi nancial key ratios including cash fl ow and capital employed. ■ The Controller has a key role, acting with integrity and professionalism on his or her own and teamed with others, to inspire high ethical standards, competence and dedication as well as to continuously strive for accurate, transparent, relevant and timely fi nancial information. To create a simple reporting method for timely and accurate follow-up, Securitas has used a fi nancial model since the late 1980s called Six Fingers. It serves as the basis for internal follow-up and was developed for the security services operations and later modifi ed Our most important key ratios can be measured at all levels of the company. This means that everyone speaks the same language when results are analyzed. Thus the quality of our fi nancial reporting also improves. and adapted to the divisional structure. In 2005, Six Fingers was further developed to refl ect the ongoing specialization and differentiation of the divisions and the introduction of IFRS. Six Fingers focuses on key factors that impact profi t, not on the profi t trend itself. These factors are clearly linked to operations and are used from branch offi ces upward. They are grouped into categories: volumerelated factors, effi ciency-related factors and capital usage related factors. For managers, this provides a better understanding of the reasons behind current earnings and better precision in decisions to quickly take action to improve them. The model is also used to analyze acquisition targets. Our most important key ratios can be measured at all levels of the company. This means that everyone speaks the same language when results are analyzed. Thus the quality of our fi nancial reporting also improves. Six Fingers – Volume-related factors Håkan Winberg Executive Vice President and Chief Financial Offi cer To sell, to retain and to increase revenue are based on the establishment of long-term customer relationships. Guarding services, alarm monitoring, systems maintenance and cash handling services are often purchased on an annual or multi-year basis. The fi rst three key factors therefore relate to the development of the customer contract portfolio: 22 SECURITAS 2005
New sales of customer contracts that are added to the portfolio when the work begins. Net change in the portfolio of customer contracts, which includes new sales plus any increases in sales in existing contracts, less terminated customer contracts and reductions in sales in existing contracts. Price changes are monitored separately and added to the net change to arrive at the closing balance of the overall portfolio at the end of the period.. Total sales, include contract-based sales as well as temporary assignments. Specifi cation of contract portfolio (example) Value % change in op. portfolio Opening balance 100 + New starts 15 + Increases 5 – Terminations 12 – Reductions 4 Net change 4 +4 Price change 3 +3 Closing balance 107 +7 Six Fingers – Effi ciency-related factors Effi ciency-related factors provide managers with instruments to monitor service effi ciency and costs. The fourth and fi fth key factors in Six Fingers are: Six Fingers – Securitas’ Financial Key Ratios Volume related factors Effi ciency related factors Capital usage related factors The Group key ratios used externally Organic sales growth Total sales Financial control and fi nancial objectives Gross margin defi ned as total sales less direct expenses in relation to total sales. Indirect expenses focus on the organizational structure and include administration, that is, expenses for branch, area and regional/country offi ces. Gross income less indirect expenses equals operating income before amortization. When this is expressed as a percentage of total sales, it indicates the Group’s operating margin, which in Securitas’ fi nancial model is shown before amortization. Six Fingers – Capital usage related factors Accounts receivable is the sixth key factor: Days of sales outstanding (DSO), payment terms and effective claim processing routines are decisive in determining how much capital is tied up in accounts receivable. These factors are continuously monitored at all levels in the organization. Although Securitas’ operations essentially are not capital intensive, there are differences between the divisions. Security Services has the lowest capital requirements and Cash Handling Services has the highest. For every division, accounts receivable tie up signifi cant amounts of capital at the same time that they serve as a measure of the quality of operations. Old receivables are often a sign that other problems may exist in operations. Security Services Securitas Systems Key ratios per division Direct Cash Handling Services New sales of customer contracts Customer retention Net changes in portfolio of customer contracts Offers made, installation Offers outstanding, installation Order bookings Order backlog New sales of service contracts Net changes in portfolio of customer contracts No. of new installations Delta growth in installations made No. of monitored alarms Net changes in portfolio of customer contracts No. of new ATM’s and SafePoints No. of serviced ATM’s and SafePoints New sales of customer contracts Net changes in portfolio of customer contracts Organic sales growth Organic sales growth Organic sales growth Organic sales growth Total sales Total sales Total sales Total sales Employee turnover Cost per taken order Cash handling losses Gross margin Gross margin Gross margin Gross margin Indirect expenses Indirect expenses Indirect expenses Indirect expenses Operating margin Operating margin Operating margin Operating margin Operating margin Income before taxes Operating capital employed in % of total sales Days of sales outstanding (DSO) Operating capital employed as % of total sales Free cash fl ow Cash fl ow from operating activities as % of operating income before amortization Return on capital employed Return on capital employed Days of sales outstanding (DSO) Operating capital employed as % of total sales Cash fl ow from operating activities as % of operating income before amortization Return on capital employed Days of sales outstanding (DSO) Operating capital employed as % of total sales Cash fl ow from operating activities as % of operating income before amortization Payback time Return on capital employed Interest coverage ratio Free cash fl ow in relation to net debt Earnings per share The table provides an overview of how the model for internal reporting, Six Fingers, is linked to the external key ratios in the diagrams on page 24–25. Days of sales outstanding (DSO) Operating capital employed as % of total sales Cash fl ow from operating activities as % of operating income before amortization Return on capital employed SECURITAS 2005 23
Page 1 and 2: Securitas AB Annual Report 2005
Page 3 and 4: Sales per region A world
Page 5 and 6: A positive 2005 lays the foundation
Page 7 and 8: A history of growth Securitas was f
Page 9 and 10: The wheel of fortune Rationalizatio
Page 11 and 12: Koncernen 12 Comments by the CEO 14
Page 13 and 14: and customers have been convinced t
Page 15 and 16: The Securitas Group - sales growth,
Page 17 and 18: From multi-service providers to sec
Page 19 and 20: The entire organization supports th
Page 21: Our values Our values - Integrity,
Page 25 and 26: 25 20 15 10 5 0 Return on capital e
Page 27 and 28: Risk business plans Each division a
Page 29 and 30: Swedish GAAP IFRS MSEK 2001 2002 20
Page 31 and 32: Income 2004 MSEK IFRS Q1 2004 IFRS
Page 33 and 34: Market capitalization & Enterprise
Page 36 and 37: Report of the Board of Directors -
Page 38 and 39: Financial overview BDM, Switzerland
Page 40 and 41: Financial overview Divestment of re
Page 44 and 45: Security Services USA Security Offi
Page 46 and 47: Security Services USA Security Offi
Page 50 and 51: Security Services Europe In order t
Page 52 and 53: Security Services Europe Securitas
Page 56 and 57: Securitas Systems In the fall of 20
Page 58 and 59: Securitas Systems Bell Security, ac
Page 62 and 63: Direct Mikael Sundberg holds the fr
Page 64 and 65: Direct Directs model for expansion
Page 68 and 69: Cash Handling Services Route Superv
Page 70 and 71: Cash Handling Services One of the s
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Annual Report - Financial statement
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Statement of cash fl ow MSEK NOTE I
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Supplementary information Securitas
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Financial statements - Notes and co
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net assets, and qualify for the hed
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Recognition and subsequent measurem
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NOTE 3 CRITICAL ESTIMATES AND JUDGE
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Table 3A. Maturity structure of iss
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a certain percentage of the fi nal
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NOTE 10 OPERATING EXPENSES Income s
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Notes and comments to the consolida
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Goodwill is tested on an annual bas
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NOTE 28 CHANGES IN SHAREHOLDERS’
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Pension cost MSEK IFRS 2005 Notes a
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Table 1A. Adjusted Consolidated Sta
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Free cash fl ow was not impacted by
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elating to the tax calculated on th
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Table 5. Consolidated Balance Sheet
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NOTE A GOODWILL MSEK Jan 1, 2004 De
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Statement of income MSEK NOTE Paren
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Parent Company changes in sharehold
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NOTE 42 PERSONNEL Average number of
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NOTE 50 LIQUID ASSETS Liquid assets
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To the Annual General Meeting of th
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Corporate Governance - Board of Dir
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Corporate governance - Report of th
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Report of the Board of Directors -
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Corporate Governance - Report of th
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Corporate Information
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Corporate Information - Financial i
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Securitas Services Ltd. Berkshire H
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Securitas AB Annual Report 2005

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