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We achieved a strong set of results across the group in 2006, with excellent growth in New Markets and strong margin progression in Cash Services. |
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Chief Executive’s Review |
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2006 Performance
2006 was the final year of merger consolidation. It was a period during which we bedded down the integration of our various businesses and made the final strategic changes to the management structure and processes which will enable us to move into a new phase of enhanced growth and development in 2007.
It was also a period during which we implemented the new corporate brand identity across the world – no mean feat across 100 countries and a workforce approaching half a million.
At the same time, the businesses continued to perform strongly and those parts of the group which had under-performed in the previous year began to show signs of positive development.
When we presented our full year results, we were pleased to report that:
> We had strong organic turnover growth of 7.1%
> Group turnover was up 8.4%* to £4,353.6 million
> PBITA was up 10%* to £277.0 million
> The group margin had improved from 6.3% to 6.4%
> Cash flow generation increased to £241.1 million, 88% of PBITA from 79% in 2005
> Adjusted earnings per share increased 9% to 12.2p
> We were recommending a 13% increase in the final dividend to 2.52 pence (DKK 0.277) per share
* at constant exchange rates
I would like to pay a personal tribute to everyone across the organisation who contributed to the business performance. Focusing on business performance during a time of incredible change can be extremely challenging and I am proud of the fact that we have the quality of people and a positive attitude which enables us to deliver on our promises.
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ORGANIC GROWTH INCREASED TO
7.1%
MARGIN
IMPROVED TO
6.4%
ADJUSTED EARNINGS
PER SHARE
INCREASED BY
9% |
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Historical Performance Analysis
As the group has now been established since 2004 and has a performance history, we are able to analyse our performance in terms of historical trends.*
The rationale for creating Group 4 Securicor focused on five key areas:
1. Creating a global leader in security services
2. Strong foundation for developing security solutions model
3. Enhanced platform across developing markets
4. Leveraging expertise and operational flexibility in cash services
5. Cost synergies
We are proud of the fact that we have achieved the goals that we set out some three years ago: |
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We are proud of the fact that we have achieved the goals that we set out some three years ago. |
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1. Creating the global leader in security solutions
By bringing together the various aspects of the two organisations we committed to becoming the global leader in providing security solutions.
Revenues have increased from £3.7 billion in 2003 to over £4.3 billion in 2006 and organic growth has increased to 7.6% from 6.2% in just two years.**
We are now the largest employer listed on the London Stock Exchange. |
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We are now the largest employer listed on the London Stock Exchange. |
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| Revenue & Organic Growth Development* |
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Average employee numbers from 2003-2006* |
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For the purposes of comparison, we also show figures for 2003 and 2004 on a proforma basis, i.e. based on the combined figures for Securicor plc and the security businesses of the former Group 4 Falck A/S |
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Growth rates have been adjusted to remove the effect of temporary, hurricane-related revenues in 2004 and 2005 |
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2. Strong foundation for developing security solutions model
We also saw the merger as a strong foundation for developing a security solutions model where customer relationships were driven by risk management and the ability to pull together a range of specialist security services to manage risk, security and safety.
In 2006, we combined our expertise in manned security and security systems under a single organisational structure providing one “security solutions” approach to the customer. By combining this approach with our unique geographic reach, we have achieved a distinct competitive advantage.
3. Enhanced platform across developing markets
Developing markets, which we define as New Markets, are playing an increasingly significant part in the group’s development. They continue to grow strongly and make a substantial contribution to the group’s performance. |
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| New Markets PBITA Development* |
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In 2003, our New Markets businesses generated £34 million in profits, representing 17% of the group’s total. In 2006, this has increased to £66 million, or 24% of the group’s total PBITA.
We expect the contribution from our New Markets businesses to accelerate in the coming years. |
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4. Leveraging expertise and operational flexibility in cash services
2006 was a very strong year for the performance of the cash services division. This has been achieved by spreading best practice and expertise across the group. |
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| Cash Services PBITA Development* |
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In 2003, the cash services business contributed £56 million to the group’s PBITA, representing a PBITA margin of 7.6%. This year, these businesses have contributed almost £90 million and a PBITA margin of over 10%. |
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5. Cost Synergies
The final area of focus was the delivery of the synergy targets that we promised at the time of the merger. We are very pleased that the integration of the businesses was extremely successful and that we achieved our synergy targets ahead of the planned timetable.
Alongside this and a strong business performance in 2006, we have focused on making sure the structures and strategies are in place for the next phase of the group’s development. |
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| * |
For the purposes of comparison, we also show figures for 2003 and 2004 on a proforma basis, i.e. based on the combined figures for Securicor plc and the security businesses of the former Group 4 Falck A/S |
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Future Development
We knew that there would be additional strategic benefits to the creation of the group over and above the initial merger rationale.
We have created a market facing organisation which is focused on key sectors and on further developing a thorough understanding of our customers’ needs. With a strong underlying performance, unique market positions, excellent customer relationships and an international, highly skilled senior management team, we are confident that we can take advantage of these additional strategic benefits and are optimistic about the future of the group.
We have excellent relationships with governments in many of the countries in which we operate – the US and UK governments are particularly key to our future development. We expect governments around the world to become increasingly important to our organisation – both as a customer and regulator – and we will continue to build on our expertise in the sector.
Another key element of our future strategy will be to evaluate new service opportunities which meet the growing needs of our customers. Security expertise is one of our core values and this will remain at the heart of our service offering, but we intend to broaden our horizons on service development in the coming months and years.
Group Targets
In 2004 we set ourselves an overall organic growth target of 6% per year. In 2006 we have exceeded that target and delivered organic growth of over 7%. We are confident that we can continue to grow at this level into the future and are increasing our minimum organic growth target to 7% for the group. |
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We continue to target a PBITA margin of 7% which we believe is achievable within the next two to three years.
We have had very strong cash generation in the year. We are increasing our cash generation target to 85% from the current 80% target.
We announced last year our intention to increase dividends over time and will aim to reduce our dividend cover to around 2.5 times – our target is to achieve this level of cover within the next two years.
Acquisitions
In 2006, we made a number of acquisitions in many different countries, with a particular focus on New Markets, including Chile, Hong Kong, Guatemala, Mozambique, Democratic Republic of Congo, Indonesia, Saudi Arabia and United Arab Emirates.
We have already made several acquisitions in 2007 in a variety of countries including the UK, Saudi Arabia, the Netherlands, South Africa and the Czech Republic. |
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Security expertise is one of our core values and this will remain at the heart of our service offering. |
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Alongside our strategies for organic growth development, we will continue to invest in relevant acquisitions.
We expect to invest over £100 million per year in acquisitions across all service areas which provide additional scale or expertise to our businesses or assist in consolidating fragmented markets. We will also:
> fill appropriate geographic gaps in the security services businesses
> increase our presence in new markets
> make targeted acquisitions in cash services
Summary & Outlook
We have achieved a strong set of results across the group in 2006, with excellent growth continuing in New Markets and strong margin progression in cash services.
We have delivered on the synergies and strategic objectives outlined at the time of the merger and are now moving into a phase of enhanced growth and development.
We are confident about the future and are therefore targeting accelerated growth and higher cash generation. We are expecting to make good progress towards these targets in 2007 and we are excited about the future development of the group. |
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We are confident about the future and are therefore targeting accelerated growth and higher cash generation. |
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