COVID-19 Review: Impacts on the Door Supervision & Event Security Sector(s) - Confronting the Brutal Facts.

I am hoping this paper provides some food for thought for these two segments of the UK Manned Security Industry.

It is based on a combination of my industry readings over the past decades, and much of my own personal experience. It is not intended to be too precise; however, I welcome feedback and input, especially on refining any figures I have quoted. I also welcome any of the industry’s professional MD’s or our customers to please reach out and let me know your thoughts, or how the current situation is affecting your organisation.

I am concentrating solely on the Door Supervision and Event Security sectors. Covid-19 will have an impact on more traditional Security Guarding (asset protection/ retail security), but not to the same extent as these two smaller segments.

Overall UK Manned Security Industry

Best estimates place the total market value of the industry to be just above ￡4 billion per annum. At times over the past decade, this has fallen slightly, often due to technology replacing the typical Security Guard. Terror incidents on UK soil have pushed spend higher again, primarily on the Door Supervision and Event Security fronts.

Door Supervision – The Market

Most typically, this involves licensed premises: pubs, clubs, bars, casinos, bingo halls, hotels, cinemas, etc. My best estimate on the pre-Covid-19 market size was around ￡300m per annum. I have not found any research on this figure but have discussed the estimated figures with fellow MD’s/ CEO’s and FD’s from the industry. Two options for methods of calculation include:

1.      Looking at the sum of the spend of large customers on security e.g. large breweries, plus their share of the licensed market, and estimating the market size from here.

2.      Looking at the Revenue/ Turnover/ Sales figures of larger Door Supervision companies on Company’s House, plus their share of a sample market and multiplying outwards.

Event Security – The Market

Typically, this involves larger licensed premises: concert halls, arenas, sports stadia and horse racing, festivals and arts performances, council-run festivities e.g. parades/ carnivals. Again, my best estimate at the market size is around ￡300m per annum. I have again not found any research on this figure, so base my estimate on similar methods to the above.

Competitive Markets

Wages have been relatively static over my two decades in the industry. They only really get pushed up by increases in NMW. Many companies will operate on an “NMW+” pay model e.g. always trying to stay two pounds above the NMW figure.

There are few barriers to entry and frequent new entrants to the market, often with little in terms of overheads.  It is very easy for a small operator to build up to a ￡1m turnover with minimal investment in infrastructure, zero real spendings on anything, and take on work at the smaller end of the market.

Buyers are wise to the fact there is quite a lot of competition, and as any business should, they will push for competitive prices and often stipulate charge rates or push back on annual increases.

All the above makes for highly competitive rivalry and a mix that results in lower profit margins and lower margins of error available.

General Financial Health – Individual Companies

There is not generally a lot of surplus cash held in reserves in most security companies. Profit levels are almost always single-digit percentages.

Almost all the industry’s companies are owner-managed. I can think of only two exceptions to this rule, both within the Event Security sector, where a group or PLC owns the security company.

Often, a hard-working MD rightly wants a fair salary for the long hours and hard work, and also expects a return on his/ her investment, and/ or risk is taken in establishing and running their company. For this reason, profits are often withdrawn in the year they are made.

Wage terms with frontline workers are almost always shorter than payment terms from customers. Factoring is commonplace as payment terms from customers have extended. 

A liquidity test is a financial measure to see how a company can meet its financial obligations. A typical test is a current ratio (current assets/current liabilities). In five minutes, I have conducted a quick check on Companies House. I included my own company (FGH Security), plus nine well established, market-leading, sample organisations:

Combined Sales/ Turnover: ￡175m

Average Current Ratio:            1.28

Current Ratio (Data):                0.8, 0.94, 0.99, 1.04, 1.05, 1.21, 1.48, 1.56, 1.71, 2.04          

Sectors:                                     4 x mainly DS, 2 x mainly Events, 4 x mixed (DS or Events plus some SG)

It’s worth mentioning that this is historic data, sometimes from up to two years ago. The situation could have changed. Typically, most accountants would say a good ratio is between 1.5 and 2.0. Anything less than this could result in difficulties, anything more and it means the company is potentially sat on too much cash.

I would expect the balance sheets of the sample to be stronger than almost all the micro-companies or other SME’s who are competing for space in the sector.

The 3 Points in Time – Main Elements Impacting Individual Companies

1.      Pre-Covid-19 Debtor Book:

I think it would be prudent for any MD or FD to be risk assessing their current debtor book. With many payment processing teams furloughed or working from home, parts of the usual payment process will obviously slow down. Some businesses have frozen all out-goings.

Likely to come in: Security Guarding work, public sector, and council work, stronger long-term customers.

Less likely to come in: smaller promoters, companies within the licensed sector.

The effect any bad debts will have on a companies current ratio i.e. ability to meet its liabilities is negative. For every percent of bad debts, it would be likely the current ratio would fall 0.1%.

2.      The Current Situation:

A business needs to know at what rate it is currently burning cash.

Any typical Door Supervision or Event Security work is pretty non-existent during lock-down. Some teams and front-line operatives will have been completely furloughed. Other companies may attempt to pivot, and transition into spaces their skills and SIA licenses can be used: healthcare or retail, but both are already quite saturated markets.

Items that still need paying for, even in the current lock-down situation: rent, rates, vehicles, insurances, non-furloughed personnel, communications devices, software licenses, sponsorship and advertising packages, bank interest, professional memberships, and accreditations. Many of these items are not available on flexible payment terms and need to be paid – lockdown or no lockdown.

3.      The Future Situation:

I read the papers fanatically, I study what is happening abroad vividly, I speak to my industry colleagues (co-workers and customers, plus fellow MD’s) daily. I cannot see the future, but it is my job to constantly attempt to predict what could happen and to plan for and react to a range of potential scenarios.

Door Supervision: If the lock-down is released in stages, then licensed premises are possibly one of the last places that will lift. When they are lifted, control measures will be put in place. Bookings may be required, and bars may operate table service with slots available on minimum spends. What this means, is licensed venues that may previously have had a larger team, will probably be able to operate with less than half the team and control measures at the door. Some smaller operators or struggling operators may not re-open at all. Some members of the public will choose to continue isolation, or at least avoiding crowded spaces after the lockdown is removed.

It would be prudent for MD’s or FD’s of Door Supervision companies to perhaps forecast for 50% of their revenue, for 50% of the year.

Events: as much as it pains me to say this, I have a strong feeling that large gatherings (events) may not happen this summer (and summer festivals is where more than 75% of the annual revenue lies for many companies).

It would be wise for MD’s or FD’s of Event Security companies to forecast for perhaps 10 - 20% of their revenue this year, but even this could be too optimistic.

Full ‘back-to-normal’ levels of provision (supply of door supervisors and event security) will not regain for some time until we either develop herd immunity (and testing is rolled out on mass to the public), or a vaccine is rolled out.

Further Work

It is worth mentioning that in just over two years, many of us will need to stand tall, put on our best show, and protect millions of visitors to the UK as part of the Commonwealth Games.

Another factor worth a deeper look is our people; our industry has many great people. It is full of professionals who have made it their mission in life to continually protect others from harm and keep people safe whilst they are having fun. Where are these people now?  Hopefully, they are reading this. I hope they will still be available next year. Industry pressures, such as the new SIA training program for Door Supervisors, may well result in another barrier and fewer people wishing to join our industry.

I plan to write again on what I feel the medium and longer-term market will look like i.e. 2021 onwards.

There is an opportunity for those that survive through this period to continue to raise standards, to streamline processes, to bring in better technology, gear for growth and increase service levels within the industries.

Conclusion

The financial situation inside our industry looks bleak. 

I do not know what the answer is, and I am unsure if anyone else in my industry does right now. However, I do know that we will be stronger together. Collectively I feel we have a better chance of coming out the other side intact.

My telephone is always on, I am open to discussions, collective thinking and helping others if I can do.

Stay safe everyone.