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G4S Estonia boss Priit Sarapuu: economic crisis always reaches security companies with a delay

Priit Sarapuu (50), who has worked for the largest security company in Estonia for 24 years and has been managing it for the last ten years, says that the economic crisis always reaches security companies with a delay, their customers start to suffer before. Now the third major economic crisis has reached the company as well, manifesting itself first of all in strong wage pressure.

Colleagues wrote before the song and dance celebration that you had made very strict schedules for the security guards of the dance celebration: long workdays and little rest in between. How much feedback do you get from your employees that they are not satisfied with their working conditions?

After all, we comply with the law – this is regulated by the Working and Rest Time Act – and we also have to see how these schedules collide with the customer’s wishes. This is a temporary job, it is not permanent. The work schedule for temporary events is different and depends on the nature of the event. Sometimes the shifts are longer, for example at rallies. At the end of the day, it’s a person’s free choice – if they want to do the job, they know what they’re signing up for.

How is the workforce situation in your sector? Is there a lot of staff turnover and few workers, or is the picture more diverse?

As of this morning (3 July), we are 62 employees short. However, when it comes to staff turnover, G4S has it the best of any security company. According to the Estonian Association of Security Companies, last year’s statistics were 22.3% for us, 28.7% for Forus and 36% for Viking. These are the three largest security companies in Estonia with a very large proportion of manned guards.

We also have security equipment companies, but the workforce there is much more permanent. Where manned security has a higher proportion and labour is cheaper, turnover tends to be higher. We have been dealing with this for years. When I started running the company ten years ago, it was 45%. Back then, there were more employees in the security market: ten years ago there were 5,000 employees, now there are only 3,000 left.

I assume that our competitors are also short, so there could be 200-300 more workers in the market. The fact that we are currently 60 people short is actually a very good thing. The range of 30-60 is optimal for us, we will never get it down to zero. We also saw figures like 150 and 160 after the end of the pandemic, when there was a terrible shortage of workers.

Why were there so many workers not available after the end of corona?

Everything was suddenly opened up.

People had more choices?

Yes. We are good employers in times of crisis, when working in a stable company is very important to our employees. But when there were many temptations and opportunities, companies were able to open again, a wage rally began. We had a severe labour shortage, it was especially difficult in those places where we had been forced to lay off workers, such as at the airport. There were simply no more workers to hire.

We are talking about a highly qualified workforce, their recruitment is very expensive and difficult. We tried to retain those employees as much as possible, but we still weren’t prepared for that kind of jump in aviation overnight. Everything became open and everyone wanted to go on holidays. The rest of Europe was not ready for that either.

You said you were trying to maintain jobs. Did you direct the people who worked at the airport elsewhere?

We tried because we knew how hard it was to find and train these people, and various agencies had to do security background checks on them as well. We were able to direct these highly trained people to less responsible work at the airport, but unfortunately we still had to lay off some people because the volumes decreased very much at that time.

How much did you lay off?

Not many, 16 employees, most of whom were customer service, not aviation security.

What is your average salary and how does it compare to other Estonian security companies?

We’re up there, number 2, when talking about security staff salaries. There are different categories, so it is difficult to compare them. If we compare a technology company and a company that has manned security, then obviously the gap is very wide.

The average salary of our security employees in 2022 was €1,144, while €1,986 for employees in the field of security systems. The amount of remuneration varies among security staff – there are different sites, site fees, and patrol service with a slightly higher remuneration. The more qualified you are, the more bonuses you get.

When was the last time you raised the salary of most of your employees?

We raise it every year. The salary increase percentage this year was more than ten. This was the first year that we also raised the salaries of our office workers quite a lot, because inflation is just so high. Of course, productivity must also improve.

G4S has been operating on the Estonian market for over 30 years. When was the most difficult time for the company in economic terms?

I have worked in the company for 24 years, but held different positions. There have been three difficult times. I remember the crisis of 2009-2010 and the end of the 1990s. It was then more difficult. Patterns tend to repeat themselves.

In the case of security services, the reaction is about half a year or a year off. If our customers start to struggle, we don’t feel the same right away, but half a year later. Then they usually start reviewing their fixed costs, and the security service is definitely one place where they can cut back.

At the same time, we also have a longer start-up time – if things start to get better elsewhere, we are still fighting and trying to get back on track. I can’t say which of them has been the most difficult time.

So the third was the time of the pandemic?

The third is actually now. The corona was quite mild for us, we managed quite well, we adapted quickly. During the corona period, our costs were low – there was not much revenue, but there were also not very many costs – we were able to operate more economically.

But now getting out of the corona, plus the energy crisis and the war in Ukraine have caused a lot of changes – it is very difficult. On the one hand, there is no labour force, on the other hand, wages are rallying and inflation as well – there is no way to catch up.

But we are in a good position, we have learned from previous crises. Actually we can manage, I’m not complaining. It’s just a slightly more difficult time.

How competitive is the Estonian security market now?

It varies from sector to sector. The most competitive is the field of security equipment installation. There are a lot of small companies that specialize in a certain product or industry and do it very well. Therefore, it is very difficult to compete with them.

In the case of manned guarding and technical surveillance, the traditions have remained in place. We have not yet reached such a situation where customers would be able to appreciate how innovatively you solve their security problem.

I look forward to it, and we try to point our customers to the direction where they could express their security concerns, after which we could explain the risks and provide a complete solution. This approach is much more common in other parts of the world and the trend is for large companies to behave this way.

Would there be room for new players in the Estonian security market? Or should we look towards consolidation instead? Will big companies eventually swallow up the small niche players in their industry?

There is always room for both those who have good ideas and those who can realize them. The Estonian market is so small that it is rather a question of whether one wants and dares to take financial risks.

I can give you an example of the launch of Nublu (smoke and carbon monoxide detector – S.L.). We have reached 50,000 customers in 3.5 years. This is a very serious achievement in the Estonian market. I think that reaching such a number of customers is also a challenge in telecom. It was a completely new service, there was a need for it, we entered the market while taking a very big risk.

What was the financial risk?

These numbers can be viewed in different ways, but we are currently very much in profit. There are a lot of costs involved: product development, marketing and sales costs that can run into the millions.

But that’s not the point. The point is that in small markets you have to have the experience, the money and the belief that it will work out in order to take such a risk. We’ve tried to take it outside, replicate it in other G4S countries, and even if you have the money, the experience and belief tends to be more lukewarm.

What I want to say about new entrants is that I think anyone who has a good idea and can get it to the market with their hands, feet, money or anything else will win.

I believe that a kind of sharing economy will exist in the security business in the future – I see it in a joint patrol network where the market consolidates, because it becomes very expensive and difficult for us to maintain a competitive advantage when 70 patrol cars drive around Estonia.

Not to mention that with the warming of the climate, we may soon have a chance to react with scooters in winter as well. It’s about sustainability and what options we have besides cars.

The car tax will come soon.

The car tax and all the other nice taxes they have come up with recently, plus the tax increases – they’re definitely going to put a stamp on us with their costs and we’re going to have to respond. Drones have been used for surveillance, electric devices have been used for responding. You can’t ride a scooter in winter at the moment, but why not in summer.

Since the topic of taxes came up, how satisfied are you with all the government decisions that will lead to tax increases in the coming years?

As a leader, I understand that in a crisis situation you have to act, find means, be specific and take responsibility, but I don’t like the fact that there was no dialogue and no impact assessments were asked from experts. I feel like it was done over the top. You can only do this once.

Absolutely every time they talk about how “when we come to power, we are going to cut government spending”. I don’t understand what happens when that time comes. Or actually I understand very well. Ministries are headed by secretary generals and officials, they are executive directors. The poor ministers are run over by them.

Unfortunately, ministers are not entrepreneurs, they do not have the competence to start making major reforms, and without them the costs will not decrease either. And so they talk about public sector expenses from election to election. In my opinion, we have a lot of room [for savings] there. The last wage rallies have been led by the public sector after all.

Let’s come back to the topic of Tallinn Airport. Last summer, the Estonian media was full of stories that G4S could not handle security checks and people had to stand in line for more than two hours. What have you changed in your work arrangements to prevent this from happening again?

Last summer was the post-corona situation I was talking about. But we did very well compared to other airports. We cannot say that the quality of security work at Tallinn Airport was bad, rather it was the best in Europe.

The queues were the result of the pandemic, we couldn’t maintain all the jobs, we had no money to pay them. After that, it was not possible to find a qualified workforce in a situation where the labour crisis was so big and wages had gone up. But we managed: we raised the salaries from our own funds, the airport also supported. It was a great experience.

Despite this, G4S lost part of its airport security services to Forus. Why?

The procurement has previously taken place in one part, but this time it was divided into two, and Forus made a more favorable offer for one of them. Since the winner of the tender was decided only by price, Forus was chosen. Unfortunately, there were no other criteria, such as quality or experience. Forus’s cheaper offer essentially means they expect to find cheaper labor. As salary pressure continues, we did not find an opportunity to make a more favorable tender while paying a decent salary.

Last year, you promised to compensate passengers if they missed their flight. How much compensation did you pay?

We did not receive any compensation claims.

How many individuals use your service?

We have 24,000 customers under home surveillance. Many of our customers have several places – summer home, house, apartment – under our supervision. The number of households in Estonia is 600,000 or more, while 30,000-32,000 of them use home security. There is a huge opportunity to grow in this segment, but we need better products. It is also a question of what people want.

G4S Estonia belongs to the international security group Allied Universal. How much does the parent company influence your operations in Estonia?

This can be answered in two ways. On the one hand, it does not influence at all. We act taking into account our long-term goals and strategies that we have set ourselves. On the other hand, it has a lot of influence, because for some reason our parent company’s mishaps in English prisons from years ago have been covered a lot, and then the sentence “We don’t have such problems in Estonia yet” is added. It makes me want to scream out loud.

We support basketball and culture in Estonia, we are green, we just received the silver label of a responsible company, and then they find some article written five years ago. They influence us, yes, in addition to the positive things in terms of branding and corporate rules. We also deal with our suppliers, there are all kinds of quality requirements, sometimes higher than Estonian laws and internal audits.

Your sales revenue increased from 55.7 million to 59.5 million in 2022, and instead of a loss in 2021, you made a profit of 1.1 million. What influenced this growth?

It’s not about making a profit. Profit is not at all mysterious to me, rather the loss of last year and the year before last is mysterious to me. We monitor other indicators that do not appear in the profit and loss statement. We look at EBITDA instead. The numbers are quite different there.

As for the turnover, we were affected by security technology’s very best result ever. We paid more attention to selling our technology and also to small customers and small businesses. Increasing sales revenue was one of our most important goals for the year.

Our salaries increase every year and therefore we are forced to raise prices. We have become very unpopular because we contact some customers even several times a year, but there is nothing we can do, life dictates it and the service costs money. We have always tried to offer alternative solutions.

We have already seen a very rapid increase in the number of users of our video surveillance service. We have nearly 2,000 cameras that we monitor from our control centre, and the number is increasing every year. I believe it will continue to grow. The cameras do need maintenance, but they don’t ask for a raise every year. There will certainly be places where people will be needed.

It will be another decade at least before we start seeing unmanned security checks at airports. It is the capacity – to make everything smooth in order to get on the plane on time – this is holding us back now, and it will be a long time before we can start saving on human labor.

To what extent has the current security situation affected your activities?

It would be easiest to say that it has not. We are good employers. We support our employees. When they attend training, we pay them full salary. We also received strong national recognition that we are partners of the defense forces. That’s a big compliment. At the same time, there have been quite a few exercises recently and they certainly have not come out of nowhere.

On the other hand, it provides us with business opportunities in terms of the border. Yes, the eastern border should have been completed a long time ago. It has been dealt with for at least ten years. We have been involved in it by submitting offers on technology and participating in tenders. It is definitely the biggest security project in Estonia, looking at the technology that is planned for the border. It provides business opportunities for the security sector.

Domestically, I don’t see us having any security issues. It was rather when there was a refugee crisis in Europe. It was accompanied by a huge growth in home security, people started ordering it. We couldn’t explain it with anything else. We installed more home security than usual without having to do any campaigns.

Source: g4s.ee.

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