BIFM

Facilities Management

Industry in Ireland

4th March, 2005Martin McMahon

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Introduction

• Martin McMahon

• Vector Workplace & Facility Management

• Founder & managing director

• 00 353 1 864 5292

• 00 353 86 820 6770

• martin.mcmahon@vector-fm.com

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Economic Environment in Ireland

• In the last 10 years, economic growth has been rapid

• 2000-2003, GNP increased by 20.6%, GDP by 24.5%

in Republic of Ireland

• Economic activity in NI increase by approximately

15% over the same period

• Manufacturing output increased by 27.5%

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Economic Environment in Ireland

£16,000

£18,000

£20,000

£22,000

£24,000

2000 2001 2002 2003

GDP - per capita GNP - per capita

CSO Data

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• Fueled a dramatic rise in building stock

• Oversupply ensued

• Vacancy rates of 12-15%

• isolated pockets over 70%3

Economic Environment in Ireland

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Background to Industry

• Origin in 1990’s in Property Management

• Rapid growth in key market sectors – ICT, Financial Services and Healthcare

• Drivers came from the private sector in ROI, with NI and UK drivers being Govt & Public Sectors

• In 10 years, PFI accounted for £40 billion of projects, in Ireland still in its infancy

• ROI market driven by MNC’s and indigenous corporates

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MARKET ESTIMATES

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Market Sizing

• 10-15% of potential market currently being addressed, compared to c.35% in the UK

• Market sizing is highly subjective, with widely differing estimates – conservatively market size is £1.1 billion per annum

• 40% of the market is currently addressable - £409 m

• Top 15 companies account for £103 m, equating to an existing market size of £154 m

• Less than 50% of market opportunity being exploited

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Market Sizing

Business Type No of Companies

Annual Revenues

Average Revenue

Property/Real Estate/FM

1,375 £ 347 m £ 252,000

Technical Services 2,724 £ 1,200 m £ 440,000

Cleaning & Security 594 £ 389 m £ 655,000

Total 4,693 £ 1,936 m £ 413,000

CSO Data, 2001

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Structural Changes – in ROI

• In 2000, 70% of top 10 FM Companies were indigenous companies

• In 2005, 2 of the 7 are still independently operated

• 3 acquisitions by European companies

• 1 acquisition by UK based operator

• 2 of the companies merged

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M&A Activity

• Indicative of both a maturing and an attractive market

• Buy vs build decision needed by potential market entrants

• Barriers to entry are local customs, practices and relationships

• Low level of corporate activity in FM sector in NI

• High level of M&A activities among focused service providers, in both NI & ROI

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INDUSTRY DRIVERS

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Drivers

• Despite attempts to differentiate, cost has become the primary motivator

• In the last 18 months, 4 major MNC’s have undertaken Reverse Internet Auctions, with contract values in excess of £30 million

• Typically will result in reductions of 10-15% in cost but with may result issues in quality & service delivery

• Ignores the intangibles of a service industry

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Dynamics in Northern Ireland

• Market driven by public sector

• High profile contracts include

– Equality Commission Court Services

– CSA PSNI

• PPP/PFI important to the NI FM Market

• DBO contracts with 20+ year contracts

• FM companies origins in the construction industry

• Less emphasis on cost, with wider range of criteria

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Public Sector in Ireland

• Low level of outsourcing in ROI

• OPW has led the way in a number of pilot projects

• In general, have examined discreet packages of single focused services, rather than integrated systems

• Outsourcing has strong political and social issues, with less emphasis on cost motivations

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International Trends

• Trend by MNC’s towards international contracts

• Ireland, both North & South get incorporated to larger UK and European regional contracts

• C&W, Hewlett-Packard, IBM, Ericsson

• Can be both a threat & opportunity to firms

• Local companies need to create alliances and JV’s with companies in other geographical zones to compete

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ALIGNMENT & DEVELOPMENT

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• Corporate goals must be supported by a companies business goals

• Award criteria should reflect this objective

• Where appropriate cost should be criteria, but should vary for different business cycles and sectors

• Inclusion of the Intelligent Client Function

• Outsourcing should never include responsibility and strategy

Alignment

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• Lack of strategic vision within the industry

• Position and perception of FM’s both within client and supplier organisations is low

• Trend now developing towards improving education for the sector

• Degree level, MSc, MBA, CPD all now available

Education

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OUTSOURCING CRITERIA

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Service Positioning

L

High

Co

mp

lex

ity

Customer Business Risk

Cleaning

Catering

Security

ITTelecom

Energy

PM

Maintenance

CAFM

Space Mgt

Landscaping

Acquisitions

HighLow

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In House

Outsource

Redefining the Core Business

High

Co

mp

lex

ity

Customer Business Risk

HighLow

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• Outsourcing and integrating services, including the management of the services and systems

• Out tasking of services, and retaining the service management within the client organisation

• Demise of the managing agent business model

• Perception of control is illusory

• Efficiencies & quality typically improved with the use of a quality integrated service provider

Outsourcing of Activities

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PPP/PFI PROJECTS

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PPP/PFI

• Ireland’s first PPP project in 1816 – follow up was slow !

• In ROI there are currently 69 projects underway

Roads and Transport

Water & Waste Treatment

Education & Health

Others

20 % 68 % 7 % 5%

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• 3 main FM contracts in Republic of Ireland

• Schools project – 5 no schools in Cork, Monaghan, Clare & Sligo

• National Maritime College

• Cork School of Music

• Feedback on those in the operational phase has been positive

PPP/PFI – in South

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• Market place more sophisticated & mature

• Wider range of projects

– Drumglass High School

– Wellington College

– Balmoral School

– Belfast City Hospital

• Quality, deliverables, environment and most importantly the customer output has all improved

PPP/PFI – in North

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• Level of adoption and expenditure far higher in the UK

• FM element for the School of Music estimated at £1 m per annum, over 30 years

• Maritime College + 5 Schools has a combined value of £75 m

• In North Lanarkshire, R&M contract was valued at £300 m over 10 years, which won an award for best practice in an FM PPP Initiative

• Norwich City council, FM contract for £300m, again over 10 years

Contracts Between Ireland & UK

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• UK Market is substantially more mature than the Irish market

• Irish local authorities substantially more fragmented, with lower population densities

• Housing stock in North Lanarkshire – 143 local authority dwellings per 1,000 population, in Ireland, the comparative figure is 21

• Again political and social environment mitigates against service outsourcing and PPP unlikely ever to be adopted to the same level as in the UK

Contracts Between Ireland & UK

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Market Dynamics for LA Outsourcing

Area No of Dwellings Population Average per1000

Ireland (ROI)* 107,253 3,917,000 27.4

North Lanarkshire 46,000 321,000 143.3

*CSO Data, 2002

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THE FUTURE

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• High level of mergers & acquisitions taking place, reducing the number of competitors in the market

• FM Providers vertically integrating along the value chain

• Need to provide a full range of services to the customer

End Result

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• Continual erosion in margins for suppliers, coupled with increases in quality demands

• Improvement in public perception of the role of Facilities Management Professionals

• Increased competition for construction looking for recurring income streams

The Future

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THANK YOU

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