It needs to be pointed out that, to reflect the reality of the Italian security market as faithfully as possible, only firms, Italian or multinational, that had an Italian value-added tax (VAT) number and that were entirely dedicated to security were included. Also, all monetary figures have been converted from the euro to the U.S. dollar at 1:1.38, the exchange rate on April 16 when this report was compiled.
Based on 2012's revenue, the top five of the Italian Security 25 were Notifier Italia, Project Automation, Hesa, Saima Sicurezza and Tecnoalarm. It is worth noting that their rankings either stayed the same or, in the case of Notifier, Hesa and Tecnoalarm, rose from 2011. Of the top five, three were manufacturers, one was a distributor, and one a systems integrator. This discernibly reflects the distribution of revenue across the supply chain, with sales generated by manufacturers, distributors, systems integrators and manufacturers/distributors accounting for 46 percent, 23 percent, 22 percent and 9 percent of the total, respectively.
Overall, the average turnover of the Top 25 in 2012 was US$28.19 million, a decline of 13 percent compared with 2011 when the 25 made $32.94 million. This was hardly a surprise due to the overall gloomy macroeconomic conditions in Italy. Similarly, the average turnover f all firms included in the sample declined, from $7.64 million to $5.78 million. The ratio of the average revenue of the Top 25 to that of the entire sample was 4 to 1.
REVENUE VS. REVENUE GROWTH
An examination of the Top 25 by revenue growth between 2011 and 2012 results in a reshuffling of rankings, with Laserline Safety & Security Systems, INIM Electronics, Pilomat, Combivox and Atral Italia at the top five positions. On average, the Top 25 grew 9 percent, significantly lower than the 19 percent for the entire sample. The discrepancy might have resulted from the decision to include in the survey only companies that were small-medium enterprises (with sales above $6.9 million) or corporations (with sales above $69 million) to prevent a skewing of the survey by smaller companies, which had the most striking percentage variations in their revenues.
PROFITABILITY
When EBITDA margin was used as the perimeter, the Top 25 had an average of 16 percent, compared to the 4 percent for the entire sample. This finding confirms the notion that the Top 25 had better performances and overall health than the rest of the group, since EBITDA, which measures a firm's earnings before payable interest, taxes and amortization, is a fundamental indicator of profitability.
Manufacturers
It is also interesting to note that for the Top 25 by EBITDA margin, those on the top were mostly manufacturers as opposed to distributors. Overall, manufacturers registered an average EBITDA margin of 11 percent.
Distributors
Distributors, on the other hand, had a mere average margin of 5 percent. This figure is fully in line with the global trend that sees "pure" and traditionally oriented distributors attempting to recover profit margins by absorbing business units dedicated to integration.
Systems Integrators
Systems integrators, meanwhile, led distributors in profitability with an overall 2012 EBITDA margin of 7 percent, same as the figure for 2011.
These findings were consistent with the distribution of EBITDA margin according to typology of activity. Distributors in general report margins of 4 to 8 percent. A similar margin for a manufacturer, on the contrary, would produce completely negative results since it would be unable to recover the necessary investments, which are much lower for distributors.
REVENUE GROWTH VS. PROFIT
It could be said that companies across the supply chain were able to maintain their positions in 2012 in spite of Italy's macroeconomic deterioration that resulted in a decline in revenue. EBITDA margins for manufacturers, distributors, systems integrators and manufacturers/distributors stood at 11 percent, 5 percent, 7 percent and 1 percent, respectively, while growth figures for these players were -1 percent, 2 percent, -3 percent and -14 percent. The figures also confirmed the notion, as they did in the previous report, that it doesn't pay to be a "jack of all trades." For producers operating in several segments and companies with a mixed production and distribution operations, they saw declining turnovers and modest profitability.
On the contrary, companies focusing on specific operative segments seemed to have elivered much better results. Even more than in the previous report, the "specialist" image was key to driving a company's business and promoting its know-how.
Anti-intrusion
Among manufacturers, those making anti-intrusion devices were the most profitable, with average EBITDA margin of 15 percent, followed by fire-fighting products, video surveillance and access control, whose margins were 11 percent, 5 percent and 3 percent, respectively. The reason for the wide gap between the margins of anti-intrusion and surveillance manufacturers is twofold. First, as mentioned, the survey excluded certain multinationals, most of which were decidedly devoted to surveillance technologies. Second, surveillance was a rising market where manufacturers were subject to intense competition and price wars.
Anti-intrusion players, on the other hand, has long developed good customer fidelity, a feature that sets them apart from the CCTV segment where the supply is continually growing and operators sprout up like mushrooms. The presence of Italian and European companies in the anti-intrusion business has also avoided an excessive lowering of prices, limiting
any contraction of profit margin.
Video Surveillance
Video surveillance manufacturers saw 2012 revenue decline by 11 percent, as opposed to growth of more than 30 percent back in 2011. Their profitability was nevertheless moderate, with EBITDA margin of 5 percent, which might have been contributed by a strong and constant increase in supply and the contemporaneous reduction in the costs of the items sold, especially with regard to new-generation technologies such as IP video.
Access Control
Access control operators posted revenue growth of 10 percent in 2012 yet saw moderate profit margin of 3 percent. This was a sharp reversal from 2011, when they had high profitability (10 percent) yet did not grow.
VALUE GENERATORS
The Italian security industry in 2012 generated truly genuine values, as indicated by its index of financial value (IFV) of 43 percent, which means that for every 100 euros ($138) of turnover generated in these companies, 43 euros ($59.34) of financial value was created. The figure was higher than the 30 percent for the entire manufacturing sector. Meanwhile, the security industry earned a KF rating of KR5. The KF rating measures an industry's financial solidity and employs a scale that goes from KR1 (companies at high risk of insolvency) to KR7 (companies at low risk of insolvency).
In terms of value generation and financial solidity, the anti-intrusion sector was definitely the most brilliant, with an IFV of 88 percent and KF rating of KR6, thanks to a renaissance of the residential market in 2012. Buzzwords such as "wireless," "remote control of mobile devices," "touch," "home automation" and "IP platforms" deluged the housing market as people utilized more advanced technologies to make their homes safe and secure.
Things were also pretty good for surveillance players, which had IFV of 49 percent and KF rating of KR6 in 2012, a year that saw a rise in the following: video intelligence, unification between video surveillance and access control under a single platform, network cameras used for perimeter protection, and integration between vendors to create increasingly complete and unified solutions. It was also the year of video management software, especially open-platform ones. But above all, 2012 was the year of IP video, which established itself as a preferred technology across the board and enabled videos with high-quality and multi-megapixel resolutions.
MANUFACTURERS
Among manufacturers, those making anti-intrusion devices led in both total revenue and revenue growth. Together, these players churned out total turnovers of $315.26 million, followed by physical security, fire prevention, video surveillance and access control. By revenue growth, anti-intrusion makers grew nearly 8 percent between 2011 and 2012, while all the others experienced negative growth, with video surveillance manufacturers losing 11 percent compared to 2011. The top five manufacturers by turnover were Notifier Italia, Saima Sicurezza, Tecnoalarm, Bentel Security and Selesta Ingegneria.
DISTRIBUTORS
Distributors, specifically those distributing video surveillance products and solutions, struggled to stay profitable in 2012. While the Top 25 distributors (the first five being Hesa, Sicurtec, DIAS, S&A and Sicurtec Brescia) saw revenue growth of 94 percent compared to the 31 percent for the entire sample, their average EBITDA margin was 4 percent, only 1 percent above the 3 percent for the entire group. Meanwhile, distributors showed less financial solidity in 2012, earning a rating of KR4+, which indicates higher risk of insolvency. Manufacturers, on the other hand, had a rating of KR5. This indicated that distributors bore the risk of unsold items in their warehouses and faced intensifying competition, which mostly came from IT distributors who worked with lower margins. Making matters worse, other players also entered the fray. These included systems integrators, who oftentimes worked as distributors as well. Distributors indeed had a rough 2012.
SYSTEMS INTEGRATORS
The high revenues generated by the Top 25 systems integrators had benefited them at an economic-financial level. The top five by 2012 revenue were Project Automation, which retained its No. 1 position from 2011, followed by Sistemi Integrati, DAB Sistemi integrati, Consorzio Nazionale Sicurezza Scarl, and CISA. Overall, the Top 25 saw average turnover of $10.64 million, more than double the figure for integrators as a whole at $4.92 million. In terms of EBITDA margin, the Top 25 averaged at 7 percent, in stark contrast with the 2 percent for the group as a whole. While revenue growth for the Top 25 stayed flat at 0 percent, it was higher than the -2 percent for the entire sample. The overall health of the segment gave them a rating of KR5, putting systems integrators at the top in terms of financial solidity.
MANUFACTURERS/DISTRIBUTORS
By 2012's revenue, the top five manufacturers/distributors, which focused on production and distribution equally, were UTC Fire & Security Italia, Honeywell Security Italia-ADI Global, Gunnebo Italia, Sicurit Alarmitalia and Bettini. For the top manufacturers/distributors, their average turnover was $14.27 million, a decline of 15 percent from 2011, and EBITDA margin averaged 0 percent. Nevertheless, in terms of ratings, manufacturers/distributors garnered KR5+, above the KR5 for manufacturers and KR4+ for distributors. This confirms the notion that, while the "hybrid" formula penalizes profit margins, the financial solidity for these players offsets certain distribution problems, for example financing the supply chain.
CONCLUSION
The survey gave a detailed analysis of the Italian security industry, which showed resilience in spite of ominous macroeconomic conditions in 2012. While the Top 25 firms by revenue reported an overall year-over-year decline in sales, they were able to register average EBITDA margin of 8 percent, compared to the 4 percent for the overall industry in the midst of austerity and tax hike measures at the time. It could therefore be pointed out that Italian security firms gave a performance that was more than remarkable.
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