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FM market keeping its head above the surface

07 June 2012

An interesting report arrived in my inbox this morning that showed the resilience of the FM sector through these difficult economic times.

It comes at a time when we are coming up to the four-year anniversary of the collapse of Lehman Brothers, a period of time that will have seen many FM contracts re-tendered and re-negotiated. That the report shows the FM Market to be keeping its head above water is probably therefore as much about flexibility as resilience, as FM companies continue to strive to work in their customers’ best interests.

Based on financial data from more than 60% of the FM market by value, the report has found that whilst there was a slowdown in growth in 2011 and early 2012, market performance continues to be underpinned by longer term contracts coupled with innovative differentiation driving value growth. MTW point to the growing role of ‘strategic integrated FM’ as a key tactic for enhancing margin opportunities whereby FM providers seek to offer services which ‘fit’ the client’s strategic direction as well as support day to day operational needs. The report states that ‘strategic FM’ contracts are likely to offer reasonable opportunities for growth in H2 2012 and beyond as FM suppliers seek to develop a new depth of knowledge and expertise across a wider range of issues, ranging from clients’ environmental policies, working practices, future growth directions etc.

Government austerity and the impact of reduced public sector spending is also addressed by MTW, with the report highlighting that the Government is only one quarter through their deficit reduction programme and public spending has only reduced by around 2% thus far. The report indicates that more severe public sector cuts are yet to be felt by the FM industry, though the forecasts suggest that whilst there may be a growing pressure on prices, the need for the public sector to continue to divest risk and seek to reduce costs through outsourcing should underpin this sector in terms of market value. Additionally, the recent announcement of an additional £2 billion of PFI spending on new schools in the next two years and real term growth in spending on Health is offering some moderate optimism for FM contractors active in these sectors.

Lacklustre demand patterns from the private sector have continued to dampen FM market growth in the last 12-18 months, and the report highlights the fact that around 45% of single service FM providers reported either declining or static sales in the last 12 months. Conditions are clearly tough at present for smaller companies who are less able to differentiate and are experiencing an increasing squeeze on margins as a result of pricing pressure. However, larger, multi-service FM providers are growing share of the FM market in 2012, with these companies generally reporting more favourable trading conditions as a result of their ability to offer a wider range of services at competitive prices. Despite this polarisation in terms of performance between single and multi-service providers, the research found that 90% of FM contractors still have either a ‘fair’ to ‘excellent’ credit rating, with liquidity and stability continuing to characterise the UK facilities management market.

MTW suggest that the ‘Total Facilities Management’ market is driving growth at present with this sector continuing to change in 2012. The report suggests that acquisitional activity and consolidation is likely to become increasingly evident in the longer term, as greater economies of scale in terms of operations and procurement are sought. Further, indications are that further international integration and market development is also likely to occur as FM providers seek to capitalise on economies of scale on a cross border basis, rather than focus on one particular geographical market.

The report provides a comprehensive review of the UK FM market in 2012, forecasts to 2016 with product and end use sector shares alongside 4 year financial analysis for the key FM contractors.

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