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27 April 2018
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Graham Davies
Graeme Davies writes for Investors Chronicle

9 January 2017 | Graeme Davies

2017 could look a lot like 2016 in the UK FM sector, writes Graeme Davies, but the weakened state of the pound could prompt overseas players to buy their way in.

As the dust settles on another challenging year for the FM sector, thoughts turn to what 2017 may bring. The past year saw the sector facing continued tight budgets in the public sector, tough competition in the private sector, the turbulence of the EU referendum vote, and the rise in the national living wage that will affect margins and profitability at many operators to the end of the decade and beyond. 

Perennial strugglers like Serco and G4S finally showed signs of sustained recovery in 2016, but others such as Mitie and Capita replaced them in the doghouse with investors as challenging conditions in some sectors, particularly healthcare, coupled with acquisitive growth finally coming unstuck, prompted profit warnings as the year drew to a close. 

But the whole sector faces significant struggles, as the start of Article 50 negotiations with the EU over the UK’s divorce looms large. The start of Brexit talks could cast a cloud over much of the economy as the private sector looks for more clarity on the shape of our relationship with the EU and government departments reassess spending plans. For FM firms in the property sector, and more specifically those serving property owners in London, budgets could come under pressure or spending decisions could be delayed. And across the UK, FM companies who employ a lot of overseas workers are also likely to be concerned about the outcome of negotiations and whether this will affect their workforces and, consequently, costs. 

Although the initial worries about a post-referendum recession were unfounded, there is also much uncertainty about how the UK’s economy will fare through 2017 and into 2018. On the flip side, Theresa May’s government has promised to spend more on infrastructure, which could help prop up the economy. And big-spending departments, such as the NHS, are likely to ramp up outsourcing, which could push more work the way of FM firms, as illustrated by Serco’s recent £600 million FM services deal with St Barts in London and Virgin Care’s £700 million deal to supply 200 NHS and social care services in Somerset. 

So for the FM sector, 2017 could look a lot like 2016 – and it is also likely to see a continuation of the consolidation of recent years as companies seek scale and specialist skills while the weakened state of sterling could prompt overseas players to try to buy their way into the market too.

Graeme Davies writes for Investors Chronicle