Securitas : Interim Report January–September 2018

Securitas AB

Interim Report January-September 2018

JULY-SEPTEMBER 2018

JANUARY-SEPTEMBER 2018

• •Total sales MSEK 25 821 (22 651)

  • •Total sales MSEK 74 643 (68 173)

• •Organic sales growth 6 percent (5)

  • •Organic sales growth 6 percent (4)

• •Operating income before amortization

  • •Operating income before amortization

• MSEK 1 452 (1 235)

• MSEK 3 829 (3 428)

  • •Operating margin 5.6 percent (5.5)

• •Operating margin 5.1 percent (5.0)

  • •Items affecting comparability

• •Items affecting comparability

  • MSEK-268 (0)

• MSEK-268 (0)

  • •Earnings per share SEK 2.07 (2.15)

• •Earnings per share SEK 6.24 (5.76)

  • •Earnings per share, before IAC,

• •Earnings per share, before IAC,

  • SEK 2.61 (2.15)

  SEK 6.78 (5.76)

• •Free cash flow/net debt 0.12 (0.12)

COMMENTS FROM THE PRESIDENT AND CEO

The Group continued with strong market momentum reaching organic sales growth of 6 percent (4) in the first nine months, despite facing tougher comparatives in the third quarter. We benefit from successful commercial activities in combination with excellent client retention, and we grew faster than the security market in general. We continue to drive our strategy of combining different protec-tive services into security solutions to our customers. Security solutions and electronic security sales grew by 22 percent compared with the first nine months 2017 and represented 20 percent oftotal Group sales.

The operating margin was 5.1 percent (5.0), with improvements in both North America and Ibero-America while there was a slight decline in Europe. We have been able to balance wage cost increases with price increases in the first nine months. We see favourable macroeconomic conditions and labor shortage becoming more prominent in many markets. This situation is creating both challenges and opportunities and going into 2019 we continue with a strong focus on balancing prices and wages and offering alternative solutions to our customers.

The previously communicated cost savings program in Security Services Europe was initiated in the third quarter. The program will result in improved efficiency and includes 13 countries. Restructuring costs of MSEK 268 were recognized in the third quarter 2018 as an item affecting comparability.

The payback period is about 2 years, some savings will start to come in during the fourth quarter 2018but mostly during 2019.

Contents

January-September

summary ........................... 2

Earnings per share, adjusted for changes in exchange rates and items affecting comparability, improved by 14 percent. This growth is based on our strategic and commercial development and positively impacted by the US tax reform.

Group development .............. 3

Development in the Group's

business segments ............... 5

Cash flow ........................... 8

Capital employed

and financing ...................... 9

Acquisitions ..................... 10

Other significant events ....... 12

Risks and uncertainties ........ 12

Parent Company

operations ....................... 13

Annual General

During our investor update that took place in Stockholm in September, we were able to meet with many investors, analysts and media and I had the opportunity to share my view on the industry, our current situation and the journey ahead. Security is a good industry to be in and Securitas has a leading position in the market. We have demanding and loyal customers that believe in our direction and weare in a good position to create enhanced value for our customers and drive profitable growth. We aredetermined to deliver on our Vision 2020 strategy and lead the transformation of the global security industry. With intelligent security we will be able to further enhance the value for our customers throughbetter security solutions. We will continue to invest and restructure in order to drive the digitization and modernize our information systems and capabilities. These are our focus areas as we go forward.

Meeting 2019 ................... 14

Consolidated financial

statements ....................... 15

Segment overview ............. 19

Magnus Ahlqvist

Notes ............................. 21

President and Chief Executive Officer

Parent Company ................ 29

Financial information ........... 30

January-September summary

ACCOUNTING PRINCIPLES

Comparatives have been restated for the Group due to the transition to IFRS 15. The restatement has been recognized on Group level and thus had no effect on the Group´s segments. As of July 1, 2018, Securitas has adopted IAS 29 Financial reporting in hyperinflationary economies for our operations in Argentina. When calculating the key ratios for organic sales growth percentage and real change percentage, the impact from the remeasurement is treated similarly to currency change. The calculated key ratio percentages are thus comparable as to how these were calculated before the adoption of the IAS 29. Further information can be found in notes 1, 2 and 3 on pages 21-23.

FINANCIAL SUMMARY

MSEK Sales

Organic sales growth, %

Operating income before amortization

Operating margin, %

Amortization of acquisition-related intangible assets

Acquisition-related costs

Items affecting comparability*

Operating income after amortization

Financial income and expenses

Income before taxes

Net incomefor the period

Earnings per share, SEK

EPS before items affecting comparability, SEK**

Cash flow from operating activities, %

Free cash flow

Free cash flow to net debt ratio

Net debt to EBITDA ratio

* Items affecting comparability in the third quarter and in the first nine months 2018 consists in its entirety of one-off effects from the cost savings program in Security Services Europe.

** EPS before items affecting comparability in the third quarter and in the first nine months 2018 excludes the one-off effect before tax amounting to MSEK -268 and after tax MSEK -198 from the cost savings program in Security Services Europe. EPS before items affect-ing comparability in full year 2017 excludes the one-off tax effect amounting to MSEK -123 from the revaluation of US net deferred tax assets due to the US tax reform enacted in December 2017.

ORGANIC SALES GROWTH AND OPERATING MARGIN DEVELOPMENT PER BUSINESS SEGMENT

Organic sales growth

Operating margin

Q3	9M	Q3
%	2018	2017	2018	2017	2018	2017	2018	2017
Security Services North America	5	6	7	5	6.5	6.2	6.1	5.9
Security Services Europe	5	2	4	1	6.0	6.1	5.3	5.4
Security Services Ibero-America	14	13	11	14	4.7	4.2	4.6	4.1
Group	6	5	6	4	5.6	5.5	5.1	5.0
2

9M

Group development

Group quarterlyGroup quarterlysales developmentsales development

JULY-SEPTEMBER 2018

Sales development

MSEK %

26 000 7

25 0006

24 0005

23 000 4

22 000 3

21 0002

Sales amounted to MSEK 25 821 (22 651) and organic sales growth was 6 percent (5). Also the third quarter showed strong sales momentum across the Group. In Security Services North America, organic sales growth was 5 percent (6) with strong comparatives. In Security Services Europe organic sales growth was 5 percent (2) with almost all countries contributing. In Security Services Ibero-America, organic sales growth improved to 14 percent (13).

Real sales growth, including acquisitions and adjusted for changes in exchange rates, was 8 percent (6).

Q3 Q4 Q1 Q2 Q3

20172018

Sales of security solutions and electronic security sales amounted to MSEK 5 215 (4 032) or 20 percent (18) of total sales in the third quarter 2018. Real sales growth, including acquisitions and adjusted for changes in exchange rates, was 24 percent (16).

Organic sales growth, %

Operating income before amortization

Operating income before amortization was MSEK 1 452 (1 235) which, adjusted for changes in exchange rates, represented a real change of 12 percent (5).

Group quarterlyGroup quarterlyoperating incomeoperating incomedevelopmentdevelopment

The Group's operating margin was 5.6 percent (5.5). Leverage from good organic sales growth, good performance in our guarding business and continued growth of security solutions contributed to the operating margin. However, there was a hampering impact on the operating margin related to the performance in Security Services Europe.

Operating income after amortization

MSEK %

Amortization of acquisition related intangible assets amounted to MSEK -67 (-59).

• 1 500 6.0

• 1 400 5.6

  Acquisition related costs were MSEK -16 (-7). For further information refer to note 7.

• 1 3005.2

• 1 2004.8

  Items affecting comparability were MSEK -268 (0) and related to the previously communicated cost savings program in Security Services Europe.

• 1 100 4.4

• 1 0004.0

Financial income and expenses

Q3 Q4 Q1 Q2 Q3

20172018

Operating margin, %

Financial income and expenses amounted to MSEK -91 (-86), positively impacted by MSEK 18 that relate to hyperinflation accounting in Argentina. The negative development of the underlying finan-cial income and expenses is due to a combination of the development of USD interest rates, a weaker Swedish krona and increased net debt.

Income before taxes

Income before taxes was MSEK 1 010 (1 083).

Taxes, net income and earnings per share

The Group's tax rate was 25.0 percent (27.7). The tax rate adjusted for tax on items affecting compa-rability was 25.3 percent. The reduction is mainly due to lower US tax rates as from 2018 as a result of the US Tax reform. The 2017 full year tax rate was 28.4 percent, excluding a one-off tax expense of 3.1 percent, referring to a revaluation of US net deferred tax assets, due to new US tax rates as from 2018. We continue to assess the US tax reform as more details to the law and interpretations become available and how the development of our business activities impacts our tax situation.

Net income was MSEK 757 (783). Earnings per share amounted to SEK 2.07 (2.15). Earnings per share before items affecting comparability was SEK 2.61 (2.15).

Group development

JANUARY-SEPTEMBER 2018

Sales development

Sales amounted to MSEK 74 643 (68 173) and organic sales growth was 6 percent (4). Strong port-folio development and favorable market conditions supported the positive sales development in the Group. Security Services North America delivered organic sales growth of 7 percent (5) and Security Services Europe was strong at 4 percent (1). Security Services Ibero-America showed 11 percent (14), a decline due to Argentina, but supported by Spain.

Real sales growth, including acquisitions and adjusted for changes in exchange rates, was 8 percent (5).

Sales of security solutions and electronic security sales amounted to MSEK 14 803 (11 995) or 20 percent (18) of total sales in the first nine months 2018. Real sales growth, including acquisitions and adjusted for changes in exchange rates, was 22 percent (20).

Operating income before amortization

Operating income before amortization was MSEK 3 829 (3 428) which, adjusted for changes in exchange rates, represented a real change of 10 percent (3).

The Group's operating margin was 5.1 percent (5.0). The operating margin in Security Services North America improved as well as in Security Services Ibero-America where Spain showed a strong performance. In Security Services Europe the operating margin declined slightly. Total price adjust-ments in the Group were on par with wage cost increases.

Operating income after amortization

Amortization of acquisition related intangible assets amounted to MSEK -195 (-183).

Acquisition related costs were MSEK -41 (-20). The acquisition of Kratos Public Safety and Security in the US was closed in the second quarter. Acquisition related costs for this acquisition is estimated to be MSEK -75 for the full year 2018, whereof MSEK -21 is included in the first nine months. For further information regarding acquisition related costs refer to note 7.

Items affecting comparability were MSEK -268 (0), related to the previously communicated cost sav-ings program in Security Services Europe.

Financial income and expenses

Financial income and expenses amounted to MSEK -287 (-282), positively impacted by MSEK 18 that relate to hyperinflation accounting in Argentina. The negative development of the underlying financial income and expenses is due to a combination of the development of USD interest rates, a weaker Swedish krona and increased net debt.

Income before taxes

Income before taxes was MSEK 3 038 (2 943).

Taxes, net income and earnings per share

The Group's tax rate was 25.0 percent (28.5). The tax rate adjusted for tax on items affecting compa-rability was 25.1 percent. The reduction is mainly due to lower US tax rates as from 2018 as a result of the US Tax reform. The 2017 full year tax rate was 28.4 percent, excluding a one-off tax expense of 3.1 percent, referring to a revaluation of US net deferred tax assets, due to new US tax rates as from 2018. We continue to assess the US tax reform as more details to the law and interpretations become available and how the development of our business activities impacts our tax situation.

Net income was MSEK 2 278 (2 104). Earnings per share amounted to SEK 6.24 (5.76). Earnings per share before items affecting comparability was SEK 6.78 (5.76).

Development in the Group's business segments

Quarterly salesQuarterly salesdevelopmentdevelopment

SECURITY SERVICES NORTH AMERICA

MSEK % 11 000 10

10 500 8

10 000 6

9 500 4

9 000 2

8 5000

Security Services North America provides protective services, including on-site, mobile and remote guarding, electronic security, fire and safety services and corporate risk manage-ment in the US, Canada and Mexico and comprises 13 business units: the national and global accounts organization, five geographical regions and five specialized business units in the US - critical infrastructure services, healthcare, Pinkerton Corporate Risk Management, mobile and Securitas Electronic Security - plus Canada and Mexico. In total, there are approximately 750 branch managers and 114 000 employees.

Q3 Q4 Q1 Q2 Q320172018

Organic sales growth, %

Quarterly operatingQuarterly operatingincome developmentincome development

July-September 2018

MSEK %

Organic sales growth was 5 percent (6), reflecting a solid portfolio development across the business segment. Last year organic sales growth was positively impacted by extra sales due to hurricanes.

700 6.7

650 6.4

6006.1

Security solutions and electronic security sales represented MSEK 2 025 (1 356) or 18 percent (15) of total sales in the business segment in the third quarter 2018, including the acquisition of Kratos Public Safety and Security.

550 5.8

500 5.5

4505.2

The operating margin was 6.5 percent (6.2), supported by leverage from the topline growth, strong performance in on-site guarding and risk management, good momentum of security solutions sales as well as a positive one-off effect related to payroll taxes.

Q3 Q4 Q1 Q2 Q3

20172018

The Swedish krona exchange rate weakened against the US dollar, which had a positive effect on operating income in Swedish kronor. The real change was 14 percent in the third quarter.

Operating margin, %

January-September 2018

Organic sales growth was 7 percent (5). Good portfolio momentum with a solid client retention of 91 percent (91) contributed to the development. Almost all units showed organic sales growth with the main contribution coming from the five geographical regions and the business unit critical infrastruc-ture services.

Security solutions and electronic security sales represented MSEK 5 317 (4 114) or 17 percent (15) of total sales in the business segment in the first nine months 2018.

The operating margin was 6.1 percent (5.9), supported mainly by leverage from the strong organic sales growth, solid performance in on-site guarding and risk management and good momentum of security solutions sales.

The Swedish krona exchange rate weakened against the US dollar, which had a positive effect on operating income in Swedish kronor. The real change was 11 percent in the first nine months.