BIFM Facilities Management Industry in Ireland Martin Mc

BIFM Facilities Management Industry in Ireland Martin Mc. Mahon 4 th March, 2005

BIFM Introduction • • • Martin Mc. Mahon Vector Workplace & Facility Management Founder & managing director 00 353 1 864 5292 00 353 86 820 6770 martin. mcmahon@vector-fm. com

BIFM 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%

BIFM Economic Environment in Ireland CSO Data

BIFM Economic Environment in Ireland • • Fueled a dramatic rise in building stock Oversupply ensued Vacancy rates of 12 -15% isolated pockets over 70%3

BIFM 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

BIFM MARKET ESTIMATES

BIFM 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

BIFM 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 4, 693 £ 1, 936 m £ 413, 000 Total CSO Data, 2001

BIFM 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

BIFM 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

BIFM INDUSTRY DRIVERS

BIFM 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

BIFM Dynamics in Northern Ireland • Market driven by public sector • High profile contracts include – Equality Commission – CSA • • Court Services 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

BIFM 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

BIFM 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

BIFM ALIGNMENT & DEVELOPMENT

BIFM Alignment • 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

BIFM Education • 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

BIFM OUTSOURCING CRITERIA

BIFM Service Positioning High Complexity CAFM Acquisitions Energy Space Mgt PM Catering Telecom IT Landscaping Maintenance Cleaning L Security Low High Customer Business Risk

BIFM Redefining the Core Business High Complexity In House Outsource Low High Customer Business Risk

BIFM Outsourcing of Activities • 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

BIFM PPP/PFI PROJECTS

BIFM 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%

BIFM PPP/PFI – in South • 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

BIFM PPP/PFI – in North • 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

BIFM Contracts Between Ireland & UK • 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 £ 300 m, again over 10 years

BIFM Contracts Between Ireland & UK • 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

BIFM Market Dynamics for LA Outsourcing Area Ireland (ROI)* North Lanarkshire No of Dwellings Population Average per 1000 107, 253 3, 917, 000 27. 4 46, 000 321, 000 143. 3 *CSO Data, 2002

BIFM THE FUTURE

BIFM End Result • 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

BIFM The Future • 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

BIFM THANK YOU