Leading the security industry through innovation Annual and Sustainability Report 2018 ABOUT SECURITAS Leading the transformation Securitas is leading the transformation of the global security industry, from traditional guarding to a wide range of protective services, including on-site, mobile and remote guarding, electronic security, fire and safety, and corporate risk management. Founded in Helsingborg, Sweden in 1934, we have a long and successful track record. We are located in 58 countries in Europe, North America, Latin America, Africa, the Middle East and Asia and have 370 000 employees. Securitas serves a wide range of clients of all sizes in a variety of driven and intelligent service solutions, we can be more proactive industries and client segments. With our long experience and in- in our security work. At the same time, we pride ourselves on depth security knowledge, we can respond to our clients complex having the best team in the industry, with a culture and values that security needs through tailor-made security solutions. We have 44 guide our way of working in an ethical manner. We believe that the Securitas Operation Centers around the world that help us mitigate combination of people, knowledge and technology will enable risks and take action for our clients 24/7. Through increased data- Securitas to meet the security challenges of tomorrow. Operations in Total 370 000 58 101 467 employees countries sales, MSEK Earnings per share Free cash flow Proposed 8.26 0.13 4.40 SEK to net debt ratio dividend, SEK More than Global Client 150 000 140 91% clients clients retention rate excluding monitoring-only clients Securitas Annual and Sustainability Report 2018 SECURITAS 2018 ABOUT SECURITAS Year in brief 2 CEO statemaent 4 Market and trends 6 Value creation 10 Our strategy 12 Targets 14 The Global goals 15 OUR OPERATIONS Customer segments 16 Our responsibilities 22 CORPORATE GOVERNANCE AND MANAGEMENT Compliance with the Code 32 Comments by the Chairman 33 Securitas governance model 34 Board of Directors 40 Group Management 42 Enterprise risk management and internal control 44 ANNUAL REPORT Report of the Board of Directors 57 Consolidated financial statements 66 Notes and comments to the consolidated financial statements 73 Parent Company financial statements 128 Notes and comments to the Parent Company financial statements 131 Signatures of the Board of Directors 138 Auditor’s report 139 SUSTAINABILITY NOTES 144 Assurance report 158 Quarterly data 160 The Securitas share 162 Financial information and invitation to the Annual General Meeting 164 This is a translation of the original Swedish Annual Report. In the event of differences between the English translation and the Swedish original, the Swedish Annual Report shall prevail. Securitas Annual and Sustainability Report 2018 1 YEAR IN BRIEF Year in brief 2018 was a strong year for Securitas. We achieved a milestone as sales reached over MSEK 100 000 for the first time. Organic sales growth increased to 6 percent (5) and the operating margin improved to 5.2 percent (5.1). HIGHLIGHTS DURING THE YEAR • Sales of security solutions and electronic security were 20 percent of total sales, an increase with 21 percent compared with 2017 • Two major transformation programs in the further digitization of the company were initiated • Important acquisitions of electronic security companies, such as Automatic Alarm in France and Kratos Public Safety and Security in the US • New tools to improve communication and knowledge sharing between employees worldwide were introduced, for example Workplace by Facebook KEY RATIOS MSEK 2016 2017 2018 Sales 88 162 92 197 101 467 Organic sales growth, % 7 5 6 Operating income before amortization 4 554 4 697 5 304 Operating margin, % 5.2 5.1 5.2 Income before taxes 3 764 4 018 4 028 Net income for the period 2 646 2 751 3 021 Earnings per share, SEK 7.24 7.53 8.26 Free cash flow 1 721 2 290 1 884 Free cash flow to net debt ratio 0.13 0.19 0.13 Dividend per share, SEK 3.75 4.00 4.40* * Proposed dividend Diagram_BV_sid 117 / 1 Diagram_BV_sid 117 / 2 TOTAL SALES AND ORGANIC OPERATING INCOME BEFORE Diagram_BV_sidEARNINGS PER 117 SHARE / 3 SALES GROWTH AMORTIZATION AND OPERATING MARGINOperating income Total sales and before amortization organic sales growth and operating margin Earnings per share SEK MSEK % MSEK % 10 6 000 5.5 100 000 10 8 5 000 5.3 80 000 8 4 000 6 5.1 60 000 6 3 000 4.9 4 40 000 4 2 000 2 20 000 2 1 000 4.7 0 0 0 0 4.5 14 15 16 17 18 14 15 16 17 18 14 15 16 17 18 Organic sales growth, % Operating margin, % 2 Securitas Annual and Sustainability Report 2018 YEAR IN BRIEF STRONG GLOBAL PRESENCE Securitas combines global reach with extensive local expertise in our 1 400 branch offices, which promotes close and long-term relationships with our clients. NORTH AMERICA EUROPE IBERO–AMERICA AMEA • Sales in 2018: • Sales in 2018: • Sales in 2018: • Accelerated growth and MSEK 42 366 MSEK 45 040 MSEK 12 315 increased market share in • Number of employees: • Number of employees: • Number of employees: the AMEA region 122 000 128 000 63 000 • The acquisition in Australia • Organic sales growth • Organic sales growth • Organic sales growth was has been successfully increased to 6 percent (5) increased to 4 percent (2) 12 percent (13) integrated • Security solutions and • Security solutions and • Security solutions and • Growing number of global electronic security sales electronic security sales electronic security sales clients represented 17 percent (15) represented 21 percent (20) represented 27 percent • Technology capacity is of total sales of total sales of total sales (24) being built in the region • The operating margin • The operating margin • The operating margin • The AMEA division is inclu- improved to 6.1 percent was 5.6 percent (5.6) increased to 4.5 percent ded under Other in our seg- (5.9) • The client retention rate (4.2) ment reporting • Solid client retention rate increased to 93 percent (91) • Client retention rate was of 91 percent (91) 92 percent (91) Securitas Annual and Sustainability Report 2018 3 CEO STATEMENT Strong momentum Securitas has the best offering of protective services in the security industry, and we are growing faster than the market. Our solid growth across all divisions in 2018 is proof not only of a strong portfolio of services but also that our clients value the work we do. Looking at our progress over the last five years, we are delivering on our Vision 2020 strategy to become a leader in protective ser- vices. Looking ahead, our strong guarding capability and presence, in combination with technology and data, creates leverage to drive innovation and the creation of intelligent security services. THE POWER OF PRESENCE percent of total Group sales. The operating margin improved to 2018 was my first year as President and CEO and I have spent 5.2 percent (5.1). We have loyal but demanding clients who considerable time with both our clients and our employees to believe in our direction, which is manifested in an excellent client gain a deeper understanding of Securitas’ history, our present sit- retention rate. Our average client retention rate in 2018 was 91 uation and the future. We have operations in 58 countries and percent. 370 000 employees. With outstanding people across a vast foot- Security Services North America delivered solid growth and print, our presence – together with our ability to combine different profitability improvement. We enjoyed stronger growth in Secu- protective services into security solutions – creates a strong plat- rity Services Europe compared with last year, but we were not form for future long-term growth. satisfied with the operating margin in Europe and identified some During 2018, we initiated a strategy review to ensure that we improvement areas. We initiated a cost savings program that will deliver on our Vision 2020 goals, but also to start shaping the contribute to the operating result of the business segment going strategy beyond 2020. Looking back at the last five years, we forward. We experienced a favorable overall development in have greatly strengthened our offering, adding a broad range of Security Services Ibero-America and continued strong growth in protective services, and we now have a significant electronic our AMEA (Africa, the Middle East and Asia) division. security and solutions capability. Looking forward to the next Earnings per share improved by 12 percent, after adjustments phase, our plan is to emphasize client centricity, how to continu- for changes in exchange rates, items affecting comparability and ously strengthen our core guarding services, and how we can the impact of the US tax reform. lead the industry through innovation and enhanced knowledge in During 2018, we continued our efforts and investments to a more data-driven, intelligent security future. We are also strengthen our protective services offering. We completed sev- emphasizing our purpose as a company and involved thousands eral important electronic security acquisitions in the US, France, of employees around the world to create engagement. We play the Netherlands and Hong Kong, and are happy to welcome an important role in society when it comes to providing security these teams to Securitas. Through these acquisitions, we have and safety, and this is a role that we are proud of. further strengthened our capability in electronic security across The vision for beyond 2020 is to become the leader in intelli- key markets. gent security. With our outstanding people and strong protective services offering, we already have a solid presence and capability. INCREASED CLIENT FOCUS The next phase is about increasing knowledge, and we will do We have approximately 150 000 clients globally, excluding mon- this by using data and smart data processing to create client itoring-only clients.