22 September 2016 | Herpreet Kaur Grewal

Organic revenue in the EMEA facilities management sector will grow in the low to mid-single digits (including market share gains) over the next two years on the back of increased outsourcing, says Moody’s Investors Service in its latest report.

Moody’s report is titled Facilities Management – EMEA Corporates, Business Services: Increased Outsourcing to Drive Growth Despite Emerging Market Headwinds.

The report focuses on food service, cleaning, security, workwear and laundry services, as well as property management and integrated services.

Martin Hallmark, a Moody’s senior credit officer and author of the report, said: “Facilities managers’ organic revenues will grow by one to 2 per cent above GDP as more companies outsource non-core functions, particularly in emerging markets. Although, this is likely to be dampened in the next one to two years by weak commodities and oil and gas markets slowing emerging markets’ growth.”

Margins will remain relatively low but stable or growing as companies drive scale efficiencies. Customer retention rates and revenue diversity will remain high, although with intense competition on contract renewal. These trends will result in firms retaining solid credit characteristics overall, says the report.

The larger more diverse players, such as Compass Group Plc, ISS Global A/S and Sodexo, are predicted to continue to demonstrate positive growth well ahead of GDP – benefiting from their scale advantages and revenue diversity.

Greater potential earnings volatility could hit smaller facilities management companies, such as La Financière ATALIAN S.A. and Manutencoop Facility Management S.p.A., however, as they have higher country and customer concentration.

Merger and acquisition activity will continue apace in the sector, although firms will focus on smaller mainly debt and cash-funded bolt-on acquisitions because of the greater number of opportunities, lower integration complexity, and lower valuations.

Technology will be a key area of focus in coming years, leading to more collaboration between technology and the larger facilities players, as seen with the recent ISS and International Business Machines Corporation partnership in integrated facilities services and building management, states the report.

Facilities Management – EMEA Corporates, Business Services: Increased Outsourcing to Drive Growth Despite Emerging Market Headwinds, is available on www.moodys.com