NETWORKING EVENT November 27th, 2013

Sponsored by

CREDO BUSINESS CONSULTING &

IDAMA FACILITIES MANAGEMENT SOLUTIONS

Opportunities & Challenges for

the GCC FM Industry

27th November 2013

3

Example Credo FM clients

Strategy consultancy specialising in business services

Deep experience in FM globally

– Client list includes many of the world’s leading FM players

Offices in London and Dubai

Introduction to Credo

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Credo GCC FM Survey

Example survey participants

Survey conducted June / July 2013

Interviewed 35 of the leading FM customers, suppliers and experts in the region

Supported with additional Credo research and analysis in the region and internationally

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Three key issues concerned our interviewees

Market growth Supplier margins Contract and

delivery dynamics

Where is growth going to come from?

Will margins continue to be squeezed?

Will there be more opportunity for new

contract types / delivery methods?

Historically Dubai’s infrastructure investment and growing use of outsourcing has driven the region’s market

Supplier margins were very high before the financial crisis (10 – 15%) but are now closer to developed market levels (5%)

For the most part contracts are very basic. Attempts to introduce more sophisticated structures to regain control of margins have met with little success

1. 2. 3.

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UAE, $5.3bn

UAE, $2.5bn

KSA, $9.5bn

KSA, $1.8bn

Qatar, $2.7bn Qatar, $1.0bn

Bahrain, $1.7bn Bahrain, $0.6bn

Kuwait, $1.6bn Kuwait, $0.3bn

Oman, $0.9bn Oman, $0.1bn $21.8bn $6.4bn

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Total spend on FM Outsourced FM spend

1. Market Growth

Total FM spend in the region is $22bn. Around 30% is currently outsourced in

total but the outsource rate varies considerable from country to country

Outsource rate

c.15% c.20%

c.35%

c.35%

c.20%

c.45%

GCC FM Market size

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1. Market Growth

In much of the region, growth will come from both increasing investment and

higher rates of outsourcing. UAE will be more dependent on investment growth

UK

US

UAE

Spain

Qatar

Scandinavia

Kuwait

KSA

France Germany

Oman

Italy

0%

1%

2%

3%

4%

5%

0% 10% 20% 30% 40% 50% 60% 70%

To

tal

spen

d o

n F

M m

ark

et a

s a

% G

DP

Growth driven mainly by increasing outsourcing

Relatively small markets High potential for growth

Outsourcing rate

Growth driven mainly by increasing spend on FM

Relatively large markets Low potential for growth

GCC

Other

Key

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1. Market Growth

Nevertheless, survey participants still expected UAE (Dubai in particular) to

lead FM market growth going forward, with KSA and Qatar close behind…

Survey results; geographic growth

Weighted # of mentions Drivers

• Revived construction market

• Strong construction market, some outsourcing growth

• Rapid construction in preparation for World Cup 2022

• Public spending continues to drive construction

• Under-developed outsourcing, no imminent increase expected

• Some outsourcing, relatively limited construction

• Awareness of outsourcing low, construction relatively limited

• Few projects expected outside of key cities

Dubai

Saudi Arabia

Qatar

Abu Dhabi

Oman

Bahrain

Kuwait

Other UAE

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1. Market Growth

… a view supported by some of the fundamental industry drivers

Forecast GDP Growth

Forecast Construction Growth

Bubble size represents total spend on FM

Saudi

Arabia

United Arab

Emirates

Qatar

Kuwait

Bahrain

Oman

5%

6%

7%

8%

9%

10%

11%

1% 2% 3% 4% 5% 6%

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2. Supplier Margins

Average margins in the UAE fell substantially during the recession and are now

at developed market levels. There is little to suggest that this will be reversed

Margins

Price Costs

Need for quality

Competition Visa

requirements Inflation / FX Wages

Price pressure

Flat

Positive impact on margins

Negative impact on margins

Historic

Future

Key

• Developed customer procurement

• Growing sub-set of market

• No change (excl. JOP)

• Domestic & international pressure

• Further cost increases expected

• Weakening currencies of labour sources

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2. Supplier Margins

Suppliers’ experience is that customers are almost entirely focussed on price,

although their may be a growing subset with a need for quality

Key Purchase Criteria

Suppliers

Customers

Key

Price

Quality

Track record

Specialisation

Individuals on bid team

Specific relationships

Scale

Int’l name & experience

Accrediations

Level of self delivery

Level of customisation

Service breadth & bundling

Weighted importance of criteria “The market in the entire region is completely cost-driven…customers are unwilling to pay the higher price for a more professional service.”

Hard FM Supplier, Dubai

“A combination of price and quality is key. A good price draws the eye, but then you would evaluate the quality and technical capabilities.”

Multi-sector customer, Dubai

“Our building is very technical and requires technical specialist knowledge, which is the primary attribute we look for in a supplier.”

Multi-sector customer, Dubai

Margins are likely to continue to decline towards mature market levels of 5% and under

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3. Contracts & Delivery Development

In more mature FM markets suppliers need to look to more sophisticated

contract & delivery mechanisms to combat margin pressure

All single service contracts

Fully outsourced TFM

Headcount based Performance based – supplier has complete control of delivery

Short contracts, no customer loyalty

Long term collaborative partnership, shared benefits

Basic systems, high subcontracting

Tech. supports optimum quality & cost; specialist subcontracting only

UK

UK

Nascent Developing Developed

Bundled, but excluding management provision

Some outcome based metrics but headcount still included

Technology enhances delivery, reduced subcontracting

Longer term contracts; some use of performance rewards

UAE

UK

UAE

UAE

UAE

UK Bundling & TFM

Performance & Control

Contract Length & Investment

Delivery

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3. Contracts & Delivery Development

Performance & Control is the area in which customers are most interested.

There was also demand for increased use of bundling and technology

All single service contracts

Headcount based

Short contracts, no customer loyalty

Basic systems, high subcontracting

Nascent Developing

Bundled, but excluding management provision

Some outcome based metrics but headcount still included

Technology enhances delivery, reduced subcontracting

Longer term contracts; some use of performance rewards

Bundling & TFM

Performance & Control

Contract Length & Investment

Delivery

UAE

UAE

UAE

UAE

• Customers typically appreciate value in bundling

• Difficulties with licensing and subcontracting

• Customers want more KPI based contracts

• Focus on headcount as driver of value remains

• Long term contracts generally viewed poorly by customers who dislike being ‘locked in’

• Customers excited to drive savings through use of tech.

• Reluctance from suppliers to invest in delivery R&D

Likely evolution

Key

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Conclusions

Our survey indicates the shape of the GCC FM market going forward and

some of the challenges that participants will face

Where is growth going

to come from?

Will margins continue

to be squeezed?

Will there be

opportunities for new

contract types /

delivery methods?

UAE (Dubai) is expected to lead the region’s growth again

KSA and Qatar are also forecast to grow strongly but opportunities may be harder to access

Prices in the UAE are not expected to rise and cost increases look set to continue

Other markets / niche sectors may offer better margins to those willing to go after them

The bulk of the market is likely to continue to use basic contracts

However, some customers are open to more sophisticated approaches, particularly outcome-based contracts & technology enhanced delivery

Growth is returning

Where should suppliers position themselves to take

advantage?

Opportunities for new contract structures exist

What can suppliers do to access these?

Margin decline looks set to continue

How can suppliers adapt in order to manage this?

Implementing Strategy:

It's a people thing

BEN CHURCHILL

Managing Director

Emrill

PANEL DISCUSSION

• Alistair Stranack

Director Middle East - Credo Business Consulting

• Ali Al Suwaidi

MEFMA Board Member / VP – Idama Facilities Management

Solutions

• Ben Churchill

Managing Director - Emrill Services

• Moayyad Massad

Head/Branch Manager of Abu Dhabi - Imdaad

NETWORKING EVENT November 27th, 2013

Sponsored by

CREDO BUSINESS CONSULTING &

IDAMA FACILITIES MANAGEMENT SOLUTIONS