Securing growth

The security and investigative services industry has been enjoying solid if unspectacular profit growth in recent years. But as IBISWorld’s general manager ROBERT BRYANT reveals, better times could be around the corner.

By Robert Bryant

The security and investigative services industry has been enjoying solid if unspectacular profit growth in recent years. But as IBISWorld reveals, better times could be around the corner.

The security and investigative services industry conjures up images of crack squads of armed protectors in gumshoes cracking cases. But Australia’s security sector isn’t quite that glamorous.

The cornerstone of the sector – which is dominated by large companies such as Chubb, Linfox (which owns the Armour Guard brand) and ISS Facility Services – is the humble security guard, providing crowd control at a concert, a mobile patrol of an industrial park, stocking an ATM or transporting confidential documents.

IBISWorld estimates that this industry grew at an average annual rate of 3.3% during the five year period to 2007-08. Growth during this period was boosted by increased demand for security services stemming from heightened fears of terrorist attacks on major infrastructure assets. Big security efforts at the Commonwealth Games in Melbourne and last year’s APEC conference in Sydney also helped to increase industry revenue.

Products and service segmentation

While strong economic growth has also helped the sector expand, recent increases in fuel prices and interest rates have increased churn rates for household monitored security systems and slowed growth in the connection of new clients.

IBISWorld estimates that industry revenue will grow at an average annual rate of 3.2% during the five year period to 2012-13. In 2008-09, industry revenue growth is expected to grow moderately, with slower economic growth expected to lead to sluggish demand for security services associated with ATM servicing, retail sales and gaming machine turnover.

But the outlook does get better, with economic conditions expected to improve after a year of slower growth in 2009-10. Increasing public surveillance by CCTV and other systems is expected to continue to lead to above-average revenue growth potential. On top of this, increasing demand for ATM and other cash-related services should also support industry growth as the economy picks up. IBISWorld forecasts industry employment will grow steadily over the period.

The other potential boon for the security sector is the impact of new technology. For example, the use of the optical fibre networks to provide effective and cheap electronic security monitoring services of commercial, industrial and domestic premises could help the industry enter a new strong growth phase.

Major market segments

It is also expected that the major companies will continue to expand their services internationally, particularly in Asia.

Key factors

The key sensitivities affecting the performance of the security and investigative services industry include:

Competition from substitutes (information storage and retrieval services) – security and investigative services (except police): There has been some change in demand from using on-site visible security personnel towards using off-site or back-of-house monitored security systems.
Downstream demand – general insurance in Australia: Insurance companies are increasingly demanding the upgrading of security systems for business and households as part of their policies.
Level of criminal activity: The actual and perceived increase in crime has led to an increase in demand for security services and systems.
Pervasive technology (banking) – number of ATMs: Servicing of ATMs have been outsourced to security firms and is a growth area for some companies.

Real GDP growth: Changes in economic growth has an effect on the demand for security systems, including the level of security required and the price clients are willing to pay.