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Big business still winning

31 October 2012

Its not been easy, but progress continues to be made. Mike Daniels examines the performance of the FM industry and looks at some of the opportunities.

Mike Daniels is Managing Director and Head of Business Services at Barclays

Despite the challenging economic climate, some of the largest FM and outsourcing companies have been performing well this year. Companies have taken advantage of the opportunities within the Government arena and the Eurozone crisis has also provided businesses with new wins.

Indeed, earlier in the year, when Barclays asked FM providers and the outsourcing market on their views of the market, FM companies were optimistic. Confidence was expressed for 2012, with 96 per cent planning to expand their businesses and increase headcount.

It seems this confidence was justified, as a number of FM businesses have delivered robust results thanks to new business wins, a healthy outsourcing market and the opportunities within the Government space.

It is a credit to the larger FM companies that they are harnessing opportunities when they appear and prospering during such a bleak economic period. However, it’s undoubtedly still tough for some of the smaller to mid-size FM companies who may need a financial helping hand to aid them weather the storm and deliver growth.

They could also be forgiven for thinking banks are not open for business when, on an almost daily basis, it seems remarks are made about the sector’s apparent reluctance to lend. Yet, contrary to popular belief, the banks, including Barclays, are working hard to ensure there is adequate funding in the market for all businesses, including FM companies, which present a realistic business proposition.

A case in point is the Government-backed National Loan Guarantee Scheme (NLGS). Under NLGS some £2.5 billion was made available to businesses. Of this, Barclays lent £1.5 billion with the remaining £1 billion coming from RBS, Lloyds and Santander. NLGS has since been replaced with the Bank of England’s Funding for Lending scheme which builds on the success of NLGS. Under the new scheme, Barclays is offering an instant cashback injection of two percent on loans of three years or more, which will help boost a business’ cash flow. But, in many instances it is not a lack of availability of funding but, a lack of appetite to borrow or a sensible business plan which is stifling lending.

The cost of borrowing is currently at a 25-year low for small to medium sized enterprises. The last time it was this affordable to borrow Los Lobos were at the top of the charts with “La Bamba”, but, British businesses have been borrowing less for some time and accumulating cash. Mirroring the same way that we have seen consumers paying down credit card bills and other personal debts, so too have businesses. With no real certainty as to when growth will return to the UK economy what should FM companies be thinking about in the current climate?

An important trend we’re likely to see more often is the popularity of fully integrated facilities management. More than ever, clients are favouring one-point of contact in the provision of their FM services, both in services and also across different jurisdictions. These fully integrated contracts are likely to become more prevalent in the future and offer a golden opportunity for the larger FM players in the market.

For those who have the financial strength and the ambition to grow, investing overseas is an option, whether it is making a first move abroad or developing an existing global footprint as opportunities in emerging markets appear.

Capita, Carillon, Mitie and OCS have been expanding internationally for some time and it’s likely more UK-based FM companies will also follow this trend.

However, this does not mean overseas growth is the right strategy for all businesses. It’s important that management teams consider carefully the reasons why they want to expand overseas. Whether business drivers or a move in response to clients’ own overseas expansion, it may be that similar growth can be achieved organically or through an acquisition closer to home.

Many facilities management companies have demonstrated in recent years that expanding through established sectors and specialisms into new geographies can prove strategically beneficial. With the right planning, support and commitment, along with good business advisors, a move beyond UK borders can be remunerative – but make sure you are armed with all the facts.

Back on UK shores, one of the biggest opportunities for the FM sector lies within in the central and local Government space. All Government departments are now under increased pressure to drive down costs and operate in a leaner fashion, and outsourcing is an effective way of achieving this.

Councils are losing 27% of their grant over four years and local authorities plan to outsource 32% of all services by 2014/15. A number of councils which need to make greater than average savings (over 25%) or have larger budgets (over £100m) plan to outsource up to 60% of all services.

With a rumoured £4bn of tenders being negotiated this year, there’s never been a better time for FM companies to capitalise on the opportunity.

The Government outsourcing market will undoubtedly gain further traction in the years to come, and will drive growth in the FM market for the foreseeable future.

Mike Daniels is Managing Director and Head of Business Services at Barclays


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