FM FIRMS FACING ‘STAGNATING PROFITABILITY’ IN 2018

Date: 06th Feb 2018

A review of the available accounts for 22 facilities management firms with operations in the UK, revealed that the average (EBITDA) margins has remained stagnant at around 7% during the last three years. In comparison, revenues grew at an average of 14% from last year.

The forecast came shortly before the collapse of the Support Services giant Carillion last month. The government has subsequently announced that it is to launch a £12bn tender for cleaning and maintenance services at schools, hospitals and in other public buildings.

The move comes in the wake of Carillion's collapse and is part of the government's aim to give a third of public sector work to SMEs by 2020.

Tim Wainwright, Industrial Products Sector Leader at EY comments:

“The facilities management sector has experienced low margins for some time, with no sign of picking up. As we look into 2018, the wider economic and geo-political environment will conspire, alongside competition and cost inflation, to pile the pressure on FM providers. Our analysis indicates that facilities management providers have not been able to take advantage of scale whilst growing and so we are likely to see new approaches to corporate strategy in the sector.”

Brexit will also deter workers from EU markets and put further pressure on profitability. Although the FM sector is not as heavily dependent on material imports, compared to the construction sector, for example, the lower value of Sterling following the EU referendum can make the UK market less attractive for labour force from the EU. The FM sector also employs a number of workers from the European Union (EU) and changes to immigration policies resulting from Brexit could impact labour availability from EU countries.

The introduction of the National Living Wage (NLM) in April 2016 resulted in a cost increase for FM companies since labour is a significant proportion of their overall cost structure. Data from the Office of National Statistics shows that Cleaning and Hospitality were the two service sectors most impacted by the National Living Wage prior to its introduction with 41.9% and 33.2% of the workforce affected.

In addition, the facilities management sector, by its nature, is extremely fragmented due to the variety of services offered such as security, building and grounds maintenance and cleaning. We are seeing a high number of recent SMEs entrants, particularly focussed on cleaning, which has created even further pricing pressure.

* Please enter an email address