Challenges facing Security Companies in 2016

1 Challenges facing Security Companies in 2016 Manned Guarding Market Research Report - March 2016 The Organised Cleaning Company Contact For more information please contact Matt Harris on Te l : + 4 4 ( 0 ) 2 0 7 4 5 8 4 4 3 3 Email: The Organised Cleaning Company Challenges facing Security Companies in 2016 The Organised Cleaning Company2. Commoditisation of the manned Security sector Low cost deliver demands for manned guarding continues to push down prices, making competitive contract bids even more difficult for smaller Companies in the Security industry. FM Companies can offer client greater economies of scale and have a price advantage.

2 In addition, the increase in the living wage in April 2016 will add further pressure on a market that is traditionally reliant on low paid staff, with the labour intensive manned guarding sector particularly affected as a result. Tr a d i t i o n a l l y t h e s e c u r i t y i n d u s t r y h a s d o n e l i t t l e t o h i g h l i g h t t h e difference between price and service levels. The historic trend of clients buying Security on input specifications continues today. Security industry legislation has not encouraged enough differentiation in the market as regards service levels.

3 This has resulted in the continual patter of clients buying on input specification, meaning that buying decisions are largely driven by price rather than service requirements. 3. Lack of margin in the manned Security sector A round table event organised by Incentive FM Group in February 2015, which included representatives from Lynx Security , Axis Security and Emprise, addressed the issues of margin erasing for manned guarding services. The general consensus was that low margins are now the norm in the industry, with prices having fallen steadily for many years. It was also agreed that the margin issue has not been helped by FM Companies offering manned guarding and other Security services with an extremely low (or zero) margin so that they can get other elements of the client s operation such as M&E, which attracts a much higher margin.

4 In response to the margin erosion, the representatives came to the same conclusion, which was for Security Companies to offer a wider range of FM services either through taking on additional non- Security related series, offering a broader range of Security services or being acquired by large organisations, be they FM or Security Organised Cleaning Company is a nationwide commercial cleaning company with its head office in London. We offer an Outsourced Cleaning Solution for Security Companies , which enables them to provide a dual or multi service offering to clients. To get a better understanding of the Security industry , in particular the manned guarding sector, we conducted research into both the Security & facilities management industries and have identify current trends and Challenges faced by Security Companies .

5 We also contacted 200 Security Companies based in London & the Home Counties for feedback on the innovative approaches they are taking to adapt to the current Challenges . Our research findings have been summarised in this report. THREE Challenges facing Security Companies IN 2016 The results of our research has identified three trends & Challenges which are having an impact on the manned guarding sector: functions offered by FM Companies of the manned Security sector; and of margin in the manned Security sector. The effect each of these factors is having on the manned guarding sector is summarised briefly in this report.

6 1. Multi-service functions offered by FM Companies In recent years, there has been an increasing trend of FM Companies providing manned guarding services as part of their core soft service offering to clients. The 2014 Annual Review of Top 20 Security Companies found that 54% of Security services are now supplied by FM Companies , with the figure set to increase year on year. An Interserve, Sheffield Hallam and i-FM facilities management research report carried out in 2013 identified Security (69%) as third in the list of services most outsourced by clients to a multi-service provider (FM Companies ) behind cleaning ( ) and M&E ( ).

7 These findings are confirmed as several of the leading FM Companies , such as G4S, MITIE, Compass, Serco and Sodexo, are providing Security as part of their broad range of FM services. For FM Companies the logic is compelling as the incremental revenues from cross-selling of Security can increase revenue per customer and hence drive profitability. | The Organised Cleaning Company Limited | Unit 5, 1000 North Circular Road London NW2 7JP | | Tel:020 7458 4433 | | | Co Reg No: 07783081 | VAT No: 202 3700 68 | | The Organised Cleaning Company Limited | Unit 5, 1000 North Circular Road London NW2 7JP | | Tel:020 7458 4433 | | | Co Reg No: 07783081 | VAT No.

8 202 3700 68 | INNOVATIVE APPROACH What came to light as a result of the research carried out by The Organised Cleaning Company, is that there is a proportion of Security Companies that are offering additional Security & non- Security related services to counter-balance the trends affecting the industry. Security Companies are providing either an additional soft service to compliment their core manned guarding provision, offer a range of facilities management services or a more diverse mix of Security related products such as integrated technology systems and other electronic solutions.

9 A Security Research Initiative Report published in August 2012 surveyed 509 Security Companies and found that almost half of respondents said they carried out or arranged non- Security related functions for their clients alongside their manned guarding service. MARKET RESEARCH RESULTS The Organised Cleaning Company contacted 200 Security Companies based in London & the Home Counties (including 150 SIA Approved contractors) and the general feedback highlighted that: are looking for a dual or multi-service solution when it comes to soft services; have terminated contracts with Security Companies that could only provide Security services, and appointed either a dual or multi-service provider.

10 And number of tenders requiring both Security & cleaning to be supplied by the same service provider is becoming more of a standard requirement for public & private sector contracts. To p o f t h e l i s t o f a d d i t i o n a l s e r v i c e s c l i e n t s a r e l o o k i n g t o p a i r Security with is cleaning. Out of the 200 Security Companies we spoke with: a)39% already offer cleaning as a complimentary service to manned guarding - either through an in-house cleaning division, partnering with or sub-contracting to a cleaning company; b)49% are interested in or would consider offering cleaning to compliment their manned Security service, either through partnering with or sub-contracting to a cleaning company; and c)Only 12% wanted to focus on offering additional Security services rather than offer cleaning.