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The board of directors’ report 2020 for Avarn Security AS
from AVARN Security
by CoreTrek
Operations and locations
Avarn Security (formerly Nokas) is a strategic and responsible security partner for corporate customers and public sector organizations. We secure people and values, and our mission is to help our customers succeed by creating smooth and secure operational environments. We provide security services and solutions in the Nordic market, with main operations in Norway, Sweden, Denmark and Finland. The head office is located in Oslo, Norway, and it is headed by Group CEO Vidar Berg.
Avarn Security Group delivers an important part of the infrastructure of a modern society. We have the responsibility for safety across a large number of customers and at airports, nuclear power plants, shopping malls, train and subway stations. Through our services in Nokas Cash Handling, we also ensure that money can be used as a legal, accessible and alternative means of payment. The business is run according to the company values and has an ongoing focus on the work of quality assurance throughout all parts of the business. Our vision is to be a full-service security provider and to deliver first-class security solutions. Our three core values are rooted in our daily work: Commitment, Compassion and Collaboration.
These values are important guiding principles in our business and form the basis of all our decisions, services and products. Internally, these core values help us maintain a steady course, as we work to uphold our commitment to our customers.
Avarn has been an important player in the consolidation of the Nordic security and cash handling market. The latest significant consolidation in the market is the merger between ‘old’ Nokas and ‘old’ Avarn in 2019. With solid operations and footprints in the Nordic market, together with a strong common culture, we are prepared for further growth. This will primarily be achieved through profitable organic growth, efficiencies, automation and digitalization. During 2020, we have invested further in our IT platform, which has been an important element in the integration process in Sweden.
As a result of the Nokas-Avarn merger in 2019, Avarn Security was chosen to be the new brand for all security services and companies within the group. During 2020 Avarn Security as a brand was implemented in Sweden, while Norway will finalize the rebranding process during 2021. Employees, customers and partners are all positive to Avarn Security brand, and has given the group some compelling advantages in tender processes both in Sweden and Norway.
Comments related to the financial statements
Major acquisitions in recent years have affected the consolidated financial statements with significant values of
intangible assets, such as goodwill and customer contracts. The consolidated financial statements comply with IFRS accounting principles where customer contracts are depreciated over a period of up to 13 years, which is based on experiences from previous acquisitions and individual assessments. Over the last three years, the customer portfolio has been depreciated by a total of TNOK 156 million.
Depreciations do not reflect the value of the company, as the depreciation are replaced with organic growth, but the depreciations have negative effect on the result and equity during the period.
Avarn Security has the last couple of years invested heavily in mergers and rebranding, which in the short term have affected the results negatively, with a large amount of restructuring costs. However, Avarn Security delivers strong underlying results in 2020, and increased both revenues and EBITDA, despite a significantly drop in revenue in the Aviation business in both Norway, Sweden and Finland, due to Covid-19. The results in 2020 were according to plan and significantly better than last year, and contribute to a positive development in the cash flow. The Margin Improvement Program (MIP) continues as planned, and new improvement initiatives are added for the next period, to ensure further development in accordance with the long-term plan.
Nokas Cash Handling has during 2020 experienced a major volume drop, and hence a drop in revenues, as a result of Covid-19. The strike in Norway had also negative impact on both revenue and EBITDA in the last quarter of 2020. Mitigating actions to increase both volume and margins are identified, and will be implemented, to secure profitability in the coming periods.
The Group’s revenues increased from TNOK 7 150 569 last year to TNOK 8 041 928 in 2020. Net income in 2020 was TNOK -78 080.
Increased efficiency in operations and cost effective initiatives contributed to a significant improvement from 2019 for Avarn Security in all countries, and overall satisfactory financial results from the operations in 2020.
During 2020 research and development costs amounted to TNOK 36 001. The cost has been capitalized as incurred, as the requirements for a balance sheet disclosure are considered to have been met. The research and development have a long-term
Net income is explained by the following:
EBITDA from operations in Avarn Security EBITDA from operations in Nokas Cash Handling EBITDA effect IFRS 16 Net proceeds from sales NV AB Restructuring costs (one off costs) Earnings before interests, taxes, depreciation and amortization
Depreciations assets Depreciations customer portfolio Depreciations IFRS 16 Earnings before interests and taxes
Net finance from operations Currency effects Net finance IFRS 16 Income tax expense Net income 2020 NOK 257 mill NOK 34 mill
2019 NOK 82 mill NOK 99 mill NOK 305 mill NOK 230 mill
NOK 46 mill NOK -106 mill NOK -102 mill NOK 536 mill NOK 309 mill
NOK -134 mill NOK -127 mill NOK -71 mill NOK -48 mill NOK -263 mill NOK -203 mill NOK 68 mill NOK -69 mill
NOK -90 mill NOK -98 mill
NOK -4 mill NOK 4 mill NOK -49 mill NOK -47 mill
NOK -3 mill NOK 18 mill NOK -78 mill NOK -192 mill
perspective, and is anticipated to result in positive changes in the product portfolio in the coming year.
Total cash flow from operating activities was TNOK 289 756 in 2020, and the operating profit constituted TNOK 535 554. The difference mainly concerns depreciations on both tangible and intangible assets and changes in net working capital.
Total assets at year end amounted to TNOK 5 439 767, compared to TNOK 5 407 273 last year. The equity ratio was 15,0% as of 31.12.2020, compared to 15,9% the year before.
Financial risk
Overall view on objectives and strategy The Group is somewhat exposed to changes in exchange rates, however trading in local currency where the agent takes the greatest risk of negatives changes in currency reduces the overall risk in Avarn Security. Nokas’ sale of currency is hedged against exchange rate changes.
The company is partially exposed to changes in interest rates as part of the company’s debt has a floating interest rate. Significant changes in interest rates will be able to influence the investment opportunities and profitability within some business areas. In 2020 the exchange rate risk was primarily reduced by ensuring that 29% of the company’s debt was in foreign currencies (SEK and Euro).
Market risk
The Group is exposed to exchange rate risk, especially SEK and EUR, as a substantial part of the Group’s revenue is in foreign currency. The company’s current strategy does not include extensive use of financial instruments. This is however, continuously being assessed by the Board of Directors.
Credit risk
The risk for losses on receivables is considered to be low. The Group has not yet experienced significant losses on receivables and turnover in the group is distributed on a large number of customers. Public enterprises represent approx. 40% of the group total turnover. Gross credit risk exposure per 31.12.2020 is TNOK 1 053 335 for the Group and TNOK 221 411 for the parent company. This is increased from 2019 for the Group when the exposure was TNOK 921 528 and a reduction for the parent company when the exposure was TNOK 231 919.
Liquidity risk
The Group’s liquidity is improving according to the growth on top and bottom line and is now considered good. We have a constant focus on overdue receivables as well of payment terms on both incoming and outgoing invoices.
Going concern
In accordance with the Accounting Act § 3-3a, we confirm that the financial statements have been prepared under the assumption of going concern. This assumption is based on profit forecasts for the year 2021 and the Group’s long-term strategic forecasts. The Group’s economic and financial position is sound.
In general, the Security market is growing in all Nordic countries. Avarn Security experience increase in revenue in all countries, however we experience increased competition by medium sized competitors in the Swedish market. Especially the Aviation business and Cash Handling business will continue to be heavily affected until the pandemic is under control and the societal restrictions are removed in all countries.
Allocation of net income
The Board of Directors has proposed the net income of Avarn Security AS to be attributed to:
Retained Earnings TNOK -165 055 Net income allocated TNOK -165 055
Retained earnings in Avarn Security AS is negatively affected by write-downs of shares in subsidiaries of TNOK 177 600 in 2020.
The working environment and the employees
Number of employees in Avarn Security Group is 15.457 in 2020.
Avarn Security Group had short term sick leave of 1,88% (2,7% in 2019), and long term sick leave of 5,72% (5,9% in 2019) in 2020. We estimate that 1% was related to Covid-19.
2020 has been a particularly testing year with many employees affected by Covid-19. There has been laid off personnel in all countries, and personnel has been isolated or confined to working from home due to closed schools and nurseries/ safety & infection demands.
There are no incidences or reporting of work related accidents resulting in significant material damage or personal injury occurred during the year. We have completed 5 audits from the labour inspection authorities with a clean bill of health being declared in all the cases.
The working environment is considered to be good. The annual workers survey estimates that over 90% of our employees are satisfied with their workplace. The HR strategies are evaluated and revised in 2020, such that our efforts towards becoming the preferred employer in the security & safety industry will continue and improvements are ongoing. A number of activities have been implemented to increase our active and including work profile. This is based on our approach to employees and their connection to the work place – “The whole person, all of the time”. Even though we experienced a historically long strike amongst the security guards in Norway the cooperation with employee trade unions has been constructive and contributed positively to operations throughout the year. We have implemented a number of improvements to increase employee participation and empowerment.
Avarn Security Group works actively to curb gender equality and prevent discrimination of any kind such as gender, disability, ethnicity, national origin, skin colour, religion or outlook on life.
Avarn Security is a collective bargaining company, and the guardianship agreement has equal pay for women and men. Our commission schemes are gender neutral and the wage level is the same for women and men in management and mercantile functions on same level. In Avarn Security Group the proportion of women is approx. 25%. The group has three executive vice presidents, one of whom is a woman. In the land-based management the proportion of women is in average 20%.
Avarn Security Group have set clear ambitions regarding environment goals with the following targets; reducing our footprint with 30% by 2030, 50% by 2040 and close to zero by 2050. We have several areas with clear actions like optimizations of our operations, using new technology to help us achieve our targets, digitalization, have our offices close to public communications and follow strict environment criteria’s to get zero emission buildings. We also continuously focus on replacing fossilize cars with electric cars where this is economical and practical, as an example we have in the Oslo area close to 25% electrical cars. Avarn Security Group also have the same environment demands for our partners and sub-contractors. During the last year we have implemented common KPI’s for measuring and reporting, where business units on country level are reporting quarterly on set targets.
Amund Skarholt Chairman
Bjørnar Olsen Board member Vidar Berg CEO
Ole Morten Karlsen Board member/ Employee representative
Mikael Aro Board member
Gunnar Bentehaugen Board member/ Employee representative Stein Egil Valderhaug Board member
Hege-Charlotte Jacobsen Board member/ Employee representative
