By Anna Ringstrom and Olof Swahnberg
STOCKHOLM (Reuters) - Securitas (STO:SECU B) may struggle to reach its target to triple revenues from contracts that combine high-tech surveillance with traditional manned guarding by the end of 2015, its CEO said, due in part to delays in a reform of U.S. health insurance.
The Swedish firm, the world's second-biggest security firm after Britain's G4S (LSE:GFS), makes nearly all of its money from manned guarding, but is aiming to cut costs and improve profit margins by selling more contracts that combine a smaller number of guards with equipment such as motion detectors and cameras.
It has set a target for such packages, where it expects an operating profit margin around 8-10 percent versus 4-5 percent for traditional guarding, to account for about 18 percent of group revenue by the end of 2015 from 6 percent in 2012.
Chief Executive Alf Goransson told Reuters the strategy was right, but the specific target could be a stretch.
"Where we put a question mark is when it comes to converting the share of technology and security solutions from 6 percent to 18. That's where the challenge is," he said, adding, however, that he saw no reason to revise the target.
Goransson said the contracts were likely to sell best in markets where wages and other staff costs are higher.
As such, demand in the United States could be held back by a delay in a reform of health insurance which Securitas expects to lift staff costs by 10 percent. That reform has been postponed by a year to 2015.
"We aren't that stressed now about going through with this in the U.S. since the healthcare reform is no longer around the corner," he said, adding most of the sales increase from the new contracts was likely to come towards the end of the forecast period.
Securitas made 66.5 billion Swedish crowns ($10.3 billion) of sales in 2012, of which 23.5 billion were in North America.
The firm grew profits in the second quarter, despite tough trading in its main cash-strapped European markets, due largely to cost cutting.
From next year, the technology push will hopefully take over as the engine of growth, Goransson said, adding the brunt of the investment involved in the drive had been done.
Technology-based contracts were also likely to grow substantially as a share of group sales beyond 2015, he said.
"The security sector is shifting in that guarding hours will gradually be replaced with technology - because the technology is getting better and cheaper while costs increase for (manned) services," he said.
($1 = 6.4683 Swedish crowns)
(Editing by Mark Potter)