Securitas AB :SCTBF-US: Earnings Analysis: Q3, 2016 By the Numbers : January 4, 2017

Securitas AB reports financial results for the quarter ended September 30, 2016.

Highlights

  • Summary numbers: Revenues of USD 2,618.56 million, Net Earnings of USD 85.56 million.
  • Gross margins widened from 17.22% to 17.36% compared to the same period last year, operating (EBITDA) margins now 6.91% from 6.74%.
  • Change in operating cash flow of -1.88% compared to same period last year is about the same as change in earnings, likely no significant movement in accruals or reserves.
  • One-time items weakened operating performance.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2016-09-30 2016-06-30 2016-03-31 2015-12-31 2015-09-30
Relevant Numbers (Quarterly)
Revenues (mil) 2618.56 2618.92 2436.71 2474.56 2411.85
Revenue Growth (%YOY) 8.57 10.87 4.32 -3.14 -6.93
Earnings (mil) 85.56 76.94 68.52 78.67 80.89
Earnings Growth (%YOY) 5.76 17.76 7.51 -7.85 -1.73
Net Margin (%) 3.27 2.94 2.81 3.18 3.35
EPS 0.23 0.21 0.19 0.22 0.22
Return on Equity (%) 22.82 20.55 18.06 21.57 23.09
Return on Assets (%) 6.24 5.59 5.27 6.38 6.45

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Market Share Versus Profits

Revenues History
Earnings History

Compared to the same period last year, SCTBF-US‘s change in revenue was close to the amount of its change in earnings. It remains to be seen how the rest of its peer group’s results will turn out and if SCTBF-US‘s performance is a sign of any major shift in the composition of market share in this sector. Also, for comparison purposes, revenues changed by -0.01% and earnings by 11.20% compared to the previous period.

Earnings Growth Analysis

The company’s earnings growth was influenced by year-on-year improvement in gross margins from 17.22% to 17.36% as well as better cost controls. As a result, operating margins (EBITDA margins) rose from 6.74% to 6.91% compared to the same period last year. For comparison, gross margins were 17.16% and EBITDA margins were 6.32% in the last reporting period.

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

SCTBF-US‘s improvement in gross margin has been accompanied by an improvement in its balance sheet as well. This suggests that gross margin improvements are likely from operating decisions and not accounting gimmicks. Its working capital days have declined to 8.49 days from 14.37 days for the same period last year.

Cash Versus Earnings – Sustainable Performance?

SCTBF-US‘s year-on-year change in operating cash flow of -1.88% is around its change in earnings. This suggests that there are likely no significant movement in accruals or reserves for managing earnings this period.

Margins

The expansion in operating (EBIT) margins from 5.11% to 5.15% has also impacted the company’s earnings growth. However, one-time items have been a drag on the operating performance. As a result, the company’s pretax margins contracted from 4.72% to 4.60%.

EBIT Margin History
PreTax Margin History

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Company Profile

Securitas AB engages in the provision of security services. It operates through the following segments: Security Services North America, Security Services Europe, Security Services Ibero-America and Other. The Security Services North America segment provides specialized security services in the U. S., Canada and Mexico. The Security Services Europe segment offers airport security, mobile security services, and electronic alarm surveillance services. The Security Services Ibero-America segment provides specialized security services in seven countries in Latin America, as well as in Portugal and Spain in Europe. Its services include aviation security, corporate investigation, loss prevention, security consulting, and specialized guarding. The Other segment includes guarding operations in the Middle East, Asia and Africa. The company was founded by Erik Philip-Sörensen in 1934 and is headquartered in Stockholm, Sweden.

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