“Low cost delivery demands continue to push down prices, making competitive contract bids even more difficult for smaller firms in the manned security industry. Larger facilities management companies that can offer customers greater economies have a price advantage, but are also seeing a fall in revenues achieved per contract. Upcoming minimum wage increases and the introduction of the living wage in 2016 will add further pressure to a market traditionally reliant on lower waged staff, with the manpower-intensive manned security sector particularly affected”
– Ambreen Ahmad, Research Analyst

The market

Custodial services driving growth

The UK’s manned security market is expected to grow by 4% across 2015, reaching a value of more than £3.7 billion. This growth is predominately driven by the custodial services sector, where the outsourcing of probation services has improved trading conditions for some large operators. Despite this public sector boost, companies of all sizes undertook internal cost cutting and restructuring to remain competitive in what remains a price sensitive market in the last year. Many larger operators are also investing in technology to reflect the change occurring in the closely-related security equipment market.

Contract wins and renewals helped push up revenues in 2014-15; however, there is an over reliance on large public sector contacts as the commercial sector’s recovery is still cautious.

Figure 1: UK market for manned security, 2010-15
(£ Million)
[graphic: image 1]
Source: MBD and trade estimates

Vulnerable guarding sector faces threat from price-sensitive contracts

The manned guarding sector continues to face strong price competition as contract bids are still predominately cost focussed, with some customer segments still perceiving manned guarding services as low skilled. New contract wins throughout the year have, however, helped increase revenues for the companies profiled in this report.

In a competitive marketplace, companies are increasingly investing in technology and integrating security equipment solutions into their portfolio, reducing the reliance on manpower in the medium to long term.

The guarding sector’s market share remains steady but vulnerable at 56% over the last three years, with an estimated value of £2.06 billion in 2015.

Central government continues to seek outsourced prison and custodial solutions

The public sector continues to seek efficiencies in service delivery with another round of spending cuts announced in 2015. This has led to increased outsourcing, which has benefited the custodial services sector as prison contracts are provided by large preferred suppliers, including Serco and G4S. The privatisation of large parts of the probation service has further boosted custodial services growth in 2015.

Growth in the custodial services sector is therefore the strongest in the manned security industry, increasing by an estimated 6% in 2015 and now equivalent to a 20% market share.

Figure 2: Segmentation of the UK market for manned security, by sector, 2011-15
(£ Million)
[graphic: image 2]
Source: MBD and trade estimates

Market factors

Business licencing implementation delayed further

In March 2014, the Home Office announced that the implementation of the new business licensing regulatory system was being delayed as the necessary arrangements to take applications were not in place. Although implementation was initially planned for April 2015, a new date has not been announced. Costs have also not yet been fixed, but will be dependent on company size.

Technological innovation by larger companies

Electronic security is increasingly seen as a cost-effective substitute to manned guards, and the industry is responding with increased technological innovations. Securitas Security Services (UK), for example, has created a new specialist technology team to ensure traditional manned guarding is integrated with evolving technologies. Other companies have also integrated technology into the delivery of security services, such as Geo Amey PECS’ use of logistics technology to track prisoner movement when transporting them. Opportunities for smaller companies come from partnerships with electronic security providers.

Manned guarding demand as retail and factory numbers rise

There is some positive news for the security guarding sector with a rise in the number of business premises. A return to growth in new construction output in 2015 is particularly good news for security guarding demand, which has suffered from the decline in retail stores and factories since the 2008 recession. The number of retail outlets also increased in 2015, generating some security demand, though the trend towards electronic security continues to threaten the market. The London and South East region registered the most business premises in 2015, pointing to a concentration of security guarding demand in the south of England. Future demand in other regions will be created by policies, such as the £30 million allocated for the creation of Transport North.

Figure 3: Number of business premises in the UK, 2011-15
(Number of outlets)
[graphic: image 3]
Source: ONS UK Business Activity data


The industry is polarised. At one end are the largest, national service providers, often with relatively diversified security offerings, high brand recognition and strong reputations. The competition for large, high profile and national contracts with significant customers is restricted due to the relatively small number of market players with sufficient resources to deliver them. A number of larger companies, such as Kingdom Security and Loomis UK, undertook acquisitions of smaller security firms in 2014 and 2015.

However, at the other end of the scale, the barriers to entry for setting up local manned security services are low, with minimal capital investment required. Competition among such firms is intense depending on geographic location, with some regions, particularly urban areas, suffering from greater overcapacity than others.

Rising costs

Operation costs have risen for firms as minimum wage rates have increased over the past 10 years. Upcoming increases will see costs rise further in an industry that has traditionally been reliant on low waged staff. The national minimum wage is set to increase to £6.70 for those aged 21 and over, and the national living wage will be set to £7.20 an hour for workers aged 25 and older from April 2016. Increased staff costs will challenge competitiveness, as they are passed on to customers in contract bids. This comes on top of many firms already initiating internal cost-cutting measures throughout 2014-15 to remain competitive.

Figure 4: Minimum wage level in the UK 2005-15
[graphic: image 4]
Note: The quoted wage level takes affect from October of the given year
Source: Department for Business, Innovation and Skills data

Cash-in-transit services

The cash-in-transit sector is looking to do more to differentiate itself in a mixed market where cash-payments are declining but the number of ATMs is still increasing. G4S Cash Solutions, for example, has recently launched a new website to support its cash solutions and delivery service in 2014.

Figure 5: Number of cash machines in the UK, 2009-14
[graphic: image 5]
Source: UK Payments Statistics 2015 (previously Payments Council prior to 2014)

What we think

The strength of the manned security market is highly dependent on the public sector outsourcing climate. While the recent outsourcing of probation services has helped strengthen the custodial services sector, larger firms with the capabilities to deliver such contracts are the biggest winners. There are, however, opportunities for smaller operators as the government is encouraging more SMEs and voluntary organisations to take part in contract bids, realistically in partnership with larger security providers. Smaller companies can also increase commercial opportunities by marketing the specialist nature of their services, building partnerships with electronic systems manufacturers, and developing deep customer relationships that differentiate them from larger multi-service brands. Relationship building is therefore key to strengthening both the reach and revenue of smaller operators.

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