by Real Business - Thursday, 30th August 2007

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Big brother is minting it

The security market is less affected by economic cycles than most. In boom times, companies have cash to invest in security. In downturns, crime tends to increase, hence additional demand.

Many businesses have opted for CCTV rather than security personnel. This has led to a halving in the number of people employed by the in-house manned security sector over the past decade. Alongside the reduced labour costs, the falling price of CCTV technology and improved image quality (making it easier for recordings to be accepted in court to secure convictions), makes the CCTV sector one of the tastiest around.

This spells grand times for the likes of Warrington’s Anglo Design Holdings. And CEO Michael Newton and MD Adam Wiseberg are two entrepreneurs really making the most of the downturn.

Anglo Design Holdings owns two CCTV firms, one security firm and one executive jet hire firm outright. It also owns 36 per cent of Dedicated Microcomputers, which is among the biggest five companies in the CCTV sector.

Sales at the R&D-focused manufacturing firm read like an entrepreneur’s dream: £930k in 1998, £1.3m in 1999, £1.97m in 2000, a leap up to £8.8m in 2001 and the colossal hike to £48.9m in 2002 (see graph). And there’s nothing wrong with the margins either – racking up £3.3m in 2001 and £16.4m in 2002. Staff levels jumped from 71 to 294 over the same period.

“We bought a minority holding in Dedicated Microcomputers in 2001. This became a subsidiary and the core-business started to show dividends,” says Weisberg. And the 33 per cent margins? “We’re continuing to develop cutting-edge products where we can achieve high prices.”

Weisberg’s secret is to target sectors, think long term and international. Weisberg: “To supply aerospace, you need CAA and FAA approval. After 9/11 lots of companies jumped on the bandwagon but more than 90 per cent didn’t have approval. And you can’t get that overnight. We made a huge investment in our subsidiary, AD Aerospace. Now we’re a Boeing-approved supplier and have our first fleet-wide contract with Jet Blue.” (Two-thirds of turnover came from overseas in 2002 – up from 42 per cent in 2001.)

The future for CCTV? “There are areas where there is huge growth. Hopefully we’ve identified some of those,” says Weisberg, cautiously. He’s planning for turnover to double in two years.

Wokingham-based Norbain SD, run by Dermot Grace, is one of the biggest players in the market. It’s the largest UK distributor of CCTV and access control equipment and exports to 36 countries. Last year it reported a turnover of £75m. Parent company, Norbain Ltd, also owns the South-African based Reditron and has a 90 per cent stake in Alarm Express Portugal. The parent firm reported profits of £2.8m in 2001 up from £400k in 2000.

The sector can probably support further growth. New applications such as intruder alarm verification, facial-recognition technology and mobile CCTV surveillance are on stream. Businesses involved in system upgrades and extensions should also enjoy good times.

In 2001, the CCTV business was reckoned to be worth £374m, with the government investing £250m in CCTV security. Schools, hospitals, zoos, car parks, banks, sport stadiums and shopping centres have all seen the arrival of cameras.

The British Security Industry Association estimates that more than one million CCTV cameras have been installed in the UK. Today, it’s industrial usage that’s taking off as factory bosses install cameras to monitor efficiency and stock on production lines. Companies are also keen to oversee factory areas containing hazardous material. You are being watched.

Indebted

Interest rates are low. Mortgage borrowing is at an all-time high. Consumer debt is soaring. And in Glasgow, BCW Group – and many other firms like it – are on a roll.

BCW Group collects business, consumer and public debt. This year it featured at number 36 in the Real Business/Vantis Hot 100 ranking of fast-growing private companies. And it’s not all baseball bats and Rottweilers, either. Essentially a call-centre, this company oozes people-power with its staff newsletter, a lively intranet and baskets of fresh fruit around the offices. “Debt levels have never been higher,” says founder Paul Fraser. “We’ve never been busier. And this is before things start to get tight.” It’s like being in the eye of a storm, says Fraser. People are still borrowing money like it’s going out of fashion. To handle the mega-demand, Fraser hires “people who are ten or 11 years older than the industry average – the type of people who can relate to the debtors.” Fraser: “It’s more expensive but it’s the right way.”

“Debt collection swings with the credit sector,” says Kurt Obermaier of the trade body, the Credit Services Association (CSA). “If lending is growing, it follows.” The current boom is particularly driven by unsecured lending and plastic card balances. And as credit lending continues, business increases for the debt collectors. “However, more business doesn’t always mean higher profits,” says Obermaier, “as the debt becomes more difficult to collect.”

Across the UK, the CSA estimates there are 270 sizeable debt-collection agents (and 400-500 self-labelled debt collectors). About 20,000 people work in the sector. And some 64 per cent of the CSA membership also provide investigation services.

“Letters don’t collect debts, they just remind people of indebtedness,” says ex-copper Steve Rowland of debt collection and investigations firm, Vilcol. The firm is 12 years old and has a turnover of £1.2m. According to Rowland, it holds the record for getting Investors In People status in just six weeks.

“We’re not a sausage-making machine,” says Rowland. “Lots of clients want a quick hit but we’re more long term.” The firm has developed and introduced a top-up card to make it easier for debtors to manage their own repayments.

In times of stability, says Rowland, around 1.5 per cent of a firm’s customers will become debtors. In a downturn that increases to three per cent. “We’ve seen a 25 per cent increase in instruction rates in the last two months,” says Rowland, adding that he doesn’t take on any old client.

Vilcol’s specialisation is debtor investigation – tracking down the four in ten debtors that are assigned “gone away” status. “It’s getting harder to locate people,” says Rowland. “The first question we ask a client is how many phone numbers they have for the debtors. There’s no 192 [directory enquiries] for mobiles.”

There’s plenty of potential for growth. Total consumer and trade debt continues to increase. The value of debts outplaced to debt collectors is just £3.5bn and interest rates show no signs of rising.

Another firm doing well is Morecroft Group, a well-established family-owned agency run by Neil McRoberts. Wescot Credit Services is one of the larger traditional players and is showing fast growth, too – ranked 40 in the Real Business/Vantis Hot 100 in 2003.

Industry insiders identify some niche markets. The US has had a vibrant debt purchasing sector for 20 years and the UK is just starting to buy its debt. Says CSA’s Obermaier. “Debt purchasing in the UK hasn’t nearly reached saturation.” So that’s good news for the debt collection boys then? BCW’s Fraser is cautious: “Handled badly, it can be a poisoned chalice.” BCW Group only buys debt from its own clients. Fraser talks of “red faces and red statements in 18 months” at some of the firms that are purchasing debt. It takes up to four years for purchased debt to be realised or written off, warns Fraser. And the price of debt is rising, too. Fraser:“Two years ago the banks were selling at 2 or 2.5p in the pound; now they’re getting up to 13 or 14p in the pound. There have been some blind auctions of debt where crazy money is being spent.”

Pawn Stars

Pawnbroking may have a ropy image, but it’s an industry that thrives when times get tough.

Keith Newlan has been in the jewellery business for as long as he can remember. Then, during the last recession, he saw a new opportunity. “We have a steady business,” says Newlan. “But during times of recession, better pieces come in.”

Newlan’s business is based in a working-class area in Borehamwood, Hertfordshire. Crucially, though, it is surrounded by wealthy suburbs. Location is very important, says Newlan. His average loan is £150. So why go to a pawnbroker rather than a bank? “It’s cheaper to get a short-term loan of a few weeks from a pawnbroker than a bank.”

Pawnbroking has been growing for 15 years. In the past three years there’s been a marked increase in activity. The banks’ physical withdrawal from the high street has created increased demand for pawnbroking as the brokers fill the gap for short-term loans. Plus more firms pay salaries on a monthly basis, and people spend their salaries in the front half of the month. “Mainstream lenders are getting cautious,” says Nathan Finch of the National Pawnbrokers Association (NPA). “And the banks make moral judgments. Customers go to the pawnbroker first, rather than a bank manager.”

Harvey & Thompson is one of the big players. The firm has 52 stores (increasing to 60 this year) and a pledge balance of £19m. John Nichols is MD of the 106-year-old firm.

“People come to get a loan just as you would put a card in an ATM machine.” says Nichols. “In good times, people buy gold, to use as collateral when times aren’t so good.” So who are Nichols’ customers? “It’s 50/50 male or female, 35-45 years old, self-employed or manual worker, taking out a loan for three to four months worth £80,” explains Nichols. “Our customers use us all the time,” he adds, saying that some customers will come in on a weekly basis. Interest rates are six per cent per month (yes, you read that correctly) which, says Nichols, is to cover store, insurance and rental costs. “We’re better value in the short term than banks – and they can take two to three days to make a decision.”

His views on the economy? “It isn’t that buoyant. The extra NI changes are just coming in. In retail, it’s tougher to sell, people are more careful.” But, says Nichols, “our growth is being limited by people. It’s not easy to get qualified staff. Nobody leaves school wanting to be a pawnbroker.” Nichols: “We suffer from the old notions and stigma. We need to be more transparent and should be as professional as Abbey National.” He is keen to push the business into new services and locations; they just launched Western Union services and are experimenting with units in shopping malls.

Nearly all (97 per cent) goods pawned are jewellery. Pawnbrokers themselves are usually jewellers by trade. As consumer spending falls, jewellers move into pawnbroking – they have the safes, they can carry out the valuations and the people who need the cash are very often the jeweller’s clients.

Eighty-five per cent of goods pawned are reclaimed by owners within the six-month contract period. When the six-month period passes without the item being reclaimed, the pawnbroker sells the item and forwards the value of the sale (minus the value of the loan taken out plus the interest, which depends on the value of the item) to the original owner.

Although Mintel estimates that there are around 800 pawnbrokers, Harvey & Thompson and Albemarle & Bond are the major players. Albermarle’s half-year figures to February 2003 showed a turnover of £9.42m with profits of £1.84m. (Turnover in 2002 was £17.8m with profits of £3.7m.) In addition to pawnbroking in gold and diamond jewellery, the firm provides third-party cheque-cashing and micro-loans. But the growth isn’t limited to the big boys. Says NPA’s Finch: “The UK market is enormous – there aren’t enough companies.”

No waste

Barry Bolton and Andy Jacobs used to sell IT systems in the City until 1991, when they realised the opportunities in waste disposal. They set up ACM Waste Management and sold waste compaction equipment until landfill tax was introduced in 1996 when they started offering fully managed waste disposal contracts. Ninety-one per cent of their profits now come from these contracts. The firm has grown by an average of 91 per cent over the past four years – making it the 14th fastest-growing firm in the 2003 Real Business/Vantis Hot 100 ranking. The founders are making a reasonable living while much of the economy is suffering. And they expect to grow its turnover to £10m in the next three years.

Behind the boom is the European environmental legislation to reduce global warming. In response, the UK government is using a mix of regulation, planning and local government funding to target (and reduce) the waste sent to landfill. And although that’s bad news for traditional waste collectors, it spells boom time for firms involved in recycling, waste compaction and waste treatment. The Environmental Services Association (ESA) reckons the waste disposal sector is worth up to £3bn.

Bolton: “Our approach is to avoid landfill so we recycle or compact.” ACM imports waste compacting machinery from Germany to resell or supply out to clients such as Safeway, the FT, Marriott Hotels and public-sector clients. And the benefits aren’t just financial, says Bolton. “I’m a hero at my kids school since one of the other kids said: ‘I wish my dad saved the environment’.”

The public sector is a huge source of income for the new breed of waste disposal business, as it sends 80 per cent of its waste to landfill (compared to 55 per cent in the private sector).

One of the government’s weapons in stimulating recycling is the landfill tax. This has been raised from £7 per tonne in October 1996 to £14 per tonne today. (Inert waste, such as building materials, is charged at £2 per tonne.) No wonder public and private sectors are looking for ways to reduce their waste-to-landfill through waste minimisation, re-use and sorting.

“The landfill tax has been extremely important because it has made recycling a far more financially viable proposition for most medium to high-volume waste producers,” says ACM’s Jacobs. And the next growth areas in this sector? Recycling of packaging materials, composting of food and green waste and development of alternative clinical waste treatments, says Jacobs. He also expects to establish partnerships with clients to investigate and implement sustainable waste management practices.

Another top performer in this sector is Grundons. Founded in 1929 by Steven Grundon, the family-owned company operates in southern England and is run by son Norman. (Grandson Neil is a director.) It’s always been an early adopter of new technologies, investing in high-density waste baling in the late-seventies. In 1990 it developed a high-temperature clinical waste incinerator. In 1995 it built a materials recovery facility. The latest project is a £75m plant producing energy from waste.

The outlook for waste is good. The ESA expects the sector will double its value to £6bn by 2013 if the UK complies with European regulation. Dirk Hazell, chief executive of the trade body: “I anticipate the growth of a higher value-add industry if taxes are raised. And the creation of environmentally friendly waste treatment plants close to business parks around the UK.”

Building blocks

Tried booking a builder recently? Then you’ll know that this is one boom sector that’s showing no sign of slowdown.

“There’s always cycles in construction but it’s become less cyclical,” says Steven Hindley of the Midas Group. “Rather than building one store, a firm could be taken on to build ten or 20 on an open-book basis,” he explains. “In response to buildings being over time and over budget, companies such as Tesco have led these changes.”

The public sector has become a growth market, too. “The councils have changed, the MOD is moving towards partnerships and the NHS has Procure21. Companies, that five years ago wouldn’t have ventured into the public sector, have been given a bigger marketplace.”

Midas is testament to this new style of doing business. £45m of its turnover is from retailers such as Tesco, Sainsbury, Marks & Spencer and Safeway. And it has projects on its books for the next three years. Hindley reckons the sector is safe until the next election at least. “All they can do is tax and borrow more.” And what if the economy goes pear-shaped? “Refurbishment does well in a downturn,” says Hindley,” but we haven’t seen that happen yet. We’ve been in a boom for five years – it’s steady now.”

This sector traditionally tracks the broader economy. So surely builders should be feeling the pain. “Because it’s an investment industry driven by low interest rates, demand is continuing,” says William Hawkins of the Construction Industry Council. Good news for the firms that provide one-tenth of the UK’s GDP and employ 1.4 million people.

Another driving force? PFI projects, which demand more upfront management on the part of the contractor, provide growth opportunities for the larger construction firms. Financial, legal and facilities management firms are benefiting, too.

One building firm worth watching is O’Rourke plc. Recent projects included the Scottish Parliament, the Citigroup tower at Canary Wharf, a £29m accommodation programme contract in Cheltenham and phase two of Chiswick Business Park. Teague Homes is another high-flier. This Scottish family business is run by six brothers. It has developed apartments overlooking the Scottish Parliament. Turnover for the year ending June 2002 was £19m – of which £8.8m was profits. This was dramatically up from Teague’s previous year.

The future looks bright. Public-sector expenditure on construction is due to grow by six per cent this year, 4.7 the next and then 3.4 per cent.

And finally…
If you’re not in a sector that’s counter-cyclical, what does the year ahead hold? “Most forecasts expect 2003 to be better than 2002 but not as good as Gordon Brown’s growth expectations of 2-2.25 per cent,” says David Kern of Kern Consulting, former chief economist with NatWest. But Kern warns: “Most businesses are still making profits but they are conserving cash-flow. This is wise in the short term but can be damaging and dangerous to the economy in the long term.”

You want advice? Take advantage of the downturn. Continue to invest in your product or service because that’s what will differentiate you from your competition. Invest in the people that are key to your company. And cut your costs by outsourcing non-core activities such as credit control to the professionals. And finally, make a financial adviser available to your staff once a year to ensure their personal finances don’t take control of their working lives.

Pamela Cahill is assistant editor of Real Business.

Where next?
British Security Industry Association. Tel 01905 21464 www.bsia.co.uk
Environmental Services Association. Tel 020 7824 8882 www.esa-uk.org
Credit Services Association. Tel 0191 213 2509 www.csauk.com
National Pawnbroking Association. Tel 020 7242 1114 www.thenpa.com
Construction Industry Council. Tel 020 7637 8692 www.cic.org.uk
Key Note Market Reports. Tel 020 8481 8750 www.keynote.co.uk
AMA Research. Tel 01242 235724 www.amaresearch.com
Kern Consulting. Tel 020 8904 6293 E-mail david.kern@btinternet.com

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