Westminster Group CEO Interview Q4 FY13: Emerging Markets Potential

Westminster (LON:WSG) is an AIM listed specialist security group operating worldwide through an extensive international network of a100 agents and of?ces in 48 countries.  The Westminster Group has been trading on AIM since its IPO in 2007 and has been led by the current CEO Peter Fowler since 1996.

The Westminster Group focuses on provision of Fire, Safety, Security and Defence products and services, to a customer base comprising predominately within the Commercial, Industrial, Banking, Governmental, Military, Telecommunications, Automotive, Aviation and Marine sectors. As an investment case The Westminster Group hopes that the extent and strength of its network, which has taken years to build, sets the company apart from much of its competition and is something that is very difficult for competitors to emulate. Within the security sector, the large London listed investment option would be G4S (LON:GFS) and some small cap payers include, Pentagon Protection (LON:PPR) and newly listed Falanx (LON:FLX).

Following a busy year, Peter Fowler the Westminster Group Chief Executive Officer has taken time out to discuss various aspects of the business, including, the products and services on offer, customer base, market potential, the East African airport prospect and its recent €350k contract.

 

Q1. Briefly, could you set the scene with a bit of background on Westminster Group and its management team?

Westminster began life as a traditional UK focused security business.  Several years ago I recognised that there was a market gap and opportunity in emerging markets overseas, and we re-focussed the business to create an international business, floating on AIM in 2007.

In doing this we were fortunate to have a team made up of security industry experts of many years’ broad experience. I personally have been involved in the security industry for over 40 years and during that time have grown and sold a number of security companies, travelled extensively and built up a significant and valuable contact base including numerous high level contacts within governments and major corporations around the world. My fellow directors are equally experienced and bring a wide range of valuable skills to our operations.  We are fortunate to have non-executive directors with huge international and diplomatic/governmental experience which is proving invaluable to our business model.

We have all seen the security industry evolve over the last 20-30 years. However in the last few years the speed of change has increased as the challenges and demands are now more serious than ever before.  We believe that Westminster is one of relatively few companies that has recognised this trend and can provide the market with the style of solution and support required.

 

Q2. Could you please explain the Westminster Group business model and outline its mission?

Our vision has been to build a global security business focussed on delivering ‘end to end’ integrated security solutions to high growth and emerging markets around the world. Our target customer base is predominantly governments and governmental agencies, non-governmental organisations and blue chip commercial organisation.

Over the past few years much of our efforts have been employed in building our international presence.  We have invested heavily in developing our global footprint and establishing a strong corporate brand which is well recognised by our target customer base. We are now seeing the benefit of that effort and investment. We have a truly global footprint with representation in 48 countries covering every continent, with the exception of Antarctica, particularly covering key countries in our target markets of Africa, Middle East and Asia. Our representation model is built on a network of over 100 agents, being well placed companies and organisations within their respective countries.  These agents provide Westminster with extensive in-country contacts and intimate knowledge of the commercial environment in their territory, thus allowing the Group unparalleled in-country knowledge, support and manpower, as and when required. It is good model for us as it means we have a cost effective, scalable business and it is good for our clients as they have the comfort and benefit of knowing that they have local technical support backed by Westminster’s expertise. This is a key factor in our growth strategy and our future success and is proving invaluable now as we look to roll out our managed services model for airports and similar major infrastructure projects. The extent and strength of our network, which has taken years to build, sets us apart from much of our competition and is something that is very difficult for competitors to emulate.

 

Q3. Why the focus on Africa, the Middle East and Asia, and how difficult is it for Westminster as a British company to gain leads?

I mentioned in response to an earlier question that we are focussed on high growth and emerging markets around the world and these three regions offer immense growth potential for our business; being high growth markets with significant and growing security requirements but lacking, to a great extent, an indigenous sophisticated security industry to supply it. 

As a British company with a strong brand and an extensive track record of delivering high end security solutions around the world, backed by our agent network and coupled with our access to, and knowledge of, leading edge security solutions, this gives us a very considerable marketing advantage.  We are helped by Britain’s strong relationships in these parts of the world and in particular by the UK’s enviable reputation as a provider of professional and dependable defence and security solutions.

 

Q4. Can you please explain the services offered by Westminster Group and an overview of your customer base?

Our customer base comprises mainly of governments and governmental agencies (police, border control and security services etc.), non-governmental organisations (NGO's such as the United Nations) and blue chip multinational corporations (oil and gas companies, transport organisations etc.). Our clients share a common need to protect critical infrastructure, assets and people in a professional, dependable way.

Our services can span a relatively simple supply agreement for specialist security equipment via our website, which is one of the largest security equipment websites in the world, to fully integrated large scale security solutions utilising a wide range of technologies together with training and maintenance services.

We are not a manufacturer, although we do provide specialist in-house software solutions, and are therefore product agnostic which allows us to provide the best technology for any given application to best meet the needs of our customers and to produce innovative customer solutions!

We deliver our solutions through two divisions:

Managed Services Division - focusing on long term, recurring revenue, managed services contracts such as the management and running of complete security services and solutions in airports, ports and other such facilities and the provision of manned services, consultancy and training etc.

Technology Division - focusing on providing advanced technology led security solutions and equipment encompassing a wide range of surveillance, detection, tracking and interception technologies.

 

Q5. Generally, how is the market for security equipment and services looking? And do you foresee some market consolidation activity going forward?

The market is looking very positive.  The annual market for security equipment and services is expected to be in the region of $700billion in 2013 with a growth of 7.4% expected in 2014. The IMF expects the Middle East to have an average annual GDP growth of between 5% - 8% across the period to 2018 and 7 of the top 10 fastest growing economies in the world are in Africa. The global aviation security market is expected grow from $19bn per annum now to $45bn per annum by 2018. We spotted these trends a number of years ago which is why we set about building our international presence in those regions and those sectors, something that cannot be done overnight but which now vindicates all our efforts and investment in so doing.

We are receiving record numbers of enquiries both as a result of our increasing global profile and the continuing security threat to high profile and high value assets. We are particularly pleased that we have a strengthening pipeline of opportunities for managed services projects and we now have interest from other sites such as ports as well as airports. 

The daily news is dominated by insurgent activity and the responsibility of governments and corporate leaders is to protect people and assets. Established large scale multi-national vendors are often slow to respond to customers’ needs and some have been experiencing operational issues which can also represent an opportunity for more agile and innovative suppliers like Westminster. There is scope for consolation in most markets and that certainly true of the market in which we operate. I believe we are building a successful global security business with a strong corporate brand and an extremely impressive client base with long term recurring revenue contracts, that is able to compete with and win business from large scale global security organisations and that is a good position to be in.

 

Q6. Back in February 2012 WSG announced a 15 year airport security contract with a potential value in excess $150m over the first 8 years of the contract alone, what does this contract entail and are you on track with your estimations?

Your question refers to the project Westminster has supplied and is running, under a managed services contract, being an end to end security service for the airport which meets international aviation industry standards.   Since our taking over the security operations the airport has been praised for the dramatic improvement of security operations and has been independently and successfully audited by ICAO and commended on meeting the high standards required of global carriers such as British Airways. Importantly for an economically active region such as West Africa, the transport infrastructure is a key factor determining the extent of the achievable economic benefit.   As we have seen from this instance alone, the ability for global corporations to access the region efficiently and safely prioritises projects and commercial opportunities in this region over others with less dependable transport links.  The attractiveness of this region has been enhanced through the increased numbers of carriers putting on services to this airport.  For Westminster, our own productivity is determined by the number of passengers passing through the airport so our priorities are absolutely aligned. We have built an operation with capacity for significantly higher volumes with only a marginal increase in cost.  Our first 18 months of operations have been to focus on bringing the technology, manpower and services up to international standards creating a world-class airport security operation, this we have achieved. Our expectations of growth recognised this and the fact that passenger numbers and other services would increase over time once security was improved to the required standards. We are very happy with the way the contract has developed and have had some excellent feedback from those using the airport and the local community. We believe that this could lead to further related services being offered as well as security.

 

Q7. WSG recently announced a new €350k contract for the supply of advanced technology personnel screening equipment for three international airports in East Africa, could you please explain how you gained this work, what’s included and do you anticipate gaining similar contracts in the future?

The contract to which you refer is a good example of the business model I explained earlier. By combining the services of our local agents with Westminster’s global brand and acknowledged experience means we are well placed to discover, develop and bid for such requirements. As with many such enquiries, not only are we able to design the best solutions and provide the local logistics and support structure required but we are able to actually demonstrate the effectiveness of our solutions to visiting delegations to our corporate headquarters in the UK where we have a 4.5 acre site complete with demonstration grounds and equipment. We regularly host visiting delegations from governments and overseas clients for ‘proof of concept’ trials and this was the case with this project and helped us secure the order.

In answer to the latter part of your question, we are actively pursuing many similar contracts and in other areas of security products and services.  What is particularly exciting is the momentum that we are seeing in the quality of sales enquiries.  As the number of reference sites and our reputation increases, so do the enquiries from customers who are looking to Westminster to address their own security needs. Whilst many of these enquiries can be long term in the development stage the size and potential rewards of such projects are most exciting and underpin our growth expectations.

 

Q8. WSG recently announced that the East African airport prospect which is under a signed MoU continues to progress through the local statutory contract process, do you get frustrated by the bureaucratic process?

Naturally, we are always looking to complete the negotiations and pre-contract work on these projects as quickly as possible however we are more concerned to ensure any such contract is properly structured and in the best interests of Westminster and our shareholders.  It must also be recognised that such large scale contracts are long term in nature (typically 15-25 years), potentially involving hundreds of millions of USD and affecting national security. It is only right and proper therefore that the governments concerned properly evaluate the benefits and implications of such contracts both in terms of security and economically. We also need to recognise that in dealing with governments and the characteristics of the territories we are targeting that there are processes and formalities that have to be undertaken, which can be time consuming and bureaucratic at times. In addition there are many issues that have nothing to do with our projects or negotiations that can affect timing and progress, such as the recent passing of Nelson Mandela. Such processes and delays do present inevitable frustrations at times but that is a price worth paying for the potential long term benefits of such contracts! Indeed when we are looking at contracts that potentially will run for 15-25 years, delays of a few weeks or even a few months are of little real consequence.  Obviously we are working to complete the formalities as soon as is practicable but as ever in these situations we cannot always control the customer’s timescales and internal processes.

 

Q9. In summary, what can Westminster Group shareholders look forward to over the next 12 to 18 months?

Firstly, I would like our shareholders for supporting us.  We are working hard to deliver projects which will give the Group a robust long term revenue stream which is supported by very strong macroeconomic drivers and has good margin potential.  The managed services model appeals to customers as it allows them to access world class security services with a minimal cost outlay.  Our ambition is to make sure that this template is rolled out globally and therefore creating significant value for our shareholders.  I hope that we will be able to update the market shortly on further progress in this area. 

 

Thanks Peter for taking the time to discuss the various business aspects and for sharing your thoughts.

 

The interviewer holds shares in The Westminster Group.