Electronic Security
In November, the group announced that it was undertaking a strategic review of the Electronic Security business. A formal sale process commenced in January 2007 and completion is expected by the end of June.
MARKET CONDITIONS
The overall electronic security market is relatively mature. Although there are a large number of operators providing installation services, only a small number offer monitoring and maintenance services. There are a few large players and a few of intermediate size plus many very small operators.
2006 REVIEW
The division performed well in 2006. In the UK, revenue was 6.9% higher than last year with increases for both Fire & Security and Systems. Adjusted operating profit was also higher for both businesses resulting in an increase of 9.4% for the UK as a whole. UK Systems was impacted in the first half of the year by a delay in the start-up of business already won but this reversed to a certain extent in the second half. The UK portfolio increased, largely as a result of the two acquisitions made during the year but also due to higher retention. Specific programmes aimed at tackling terminations introduced in the second half helped to increase retention by one percentage point to 90.0%.
Revenue and adjusted operating profit increased by 9.9% and 8.5% respectively in the French business. Portfolio growth of £2.2 million came from organic net gain through the branch network and from acquisitions, of which five were made in 2006. Retention remained at a solid 91%.
The Netherlands, which has been the subject of a performance improvement programme for the past year, saw revenue fall by 4.1% as less profitable work was shed. Despite lower revenue, adjusted operating profit increased by 10.9% due to gross margin improvements and cost base reductions achieved by the performance improvement programme. The portfolio grew due to net gain and retention is the highest in the division at 93%.
In the small US business, strong revenue and operating profit increases were recorded, mostly as a result of acquisitions. Revenue was 63% higher and adjusted operating profit almost tripled.
2007 PREVIEW
With 2006 ending with a record level of work in hand, there is a good base for performance in 2007. The market environment is positive in our markets for 2007, particularly in France and the USA. Although margin pressure from price competition in installation is likely to continue, we are confident of our ability to mitigate gross margin pressure through productivity and efficiency savings. A sale process commenced in January 2007 with completion expected by the end of June.
