Despite profit margins soaring to decade highs and values leaping across the cleaning sector, storm clouds are gathering.
A recent survey of leading commercial cleaning and facilities management companies cited a lack of available workforce as the biggest challenge of 2022. 46% of all companies suggested that an inability to hire skilled, experienced staff is compromising commercial performance.
Despite unprecedented demand for cleaning services as consumers and employees become increasingly “clean conscious” in a post-pandemic world, the warning signs are flashing as wage and material cost pressures are building.
Strike action across the public sector is likely to spill into the private sector. The hiring crisis across the UK economy means that employees have unprecedented power in terms of wage demands and working conditions. Companies are having to adapt and absorb additional HR costs as the post-Brexit talent pool shrinks and those remaining demand higher salaries. With UK inflation reaching/stretching to/stuck in double digits, wage demands look to remain high for the foreseeable future.
Other input costs are also likely to pressure margins in the coming year or two as cleaning companies struggle to pass on increases to clients. Costs of branded cleaning materials have soared more than 11% year on year and don’t appear likely to fall in the near term.
So, how are all of these challenges affecting the overall values of UK cleaning companies? Based on the latest financial data for the thousands of leading firms, values are growing as the market emerges from the pandemic years. Values are up nearly 6% across the cleaning market. This compares to a UK-wide average increase of 2% growth.
The top-level average masks some serious fragmentation in business value by the size of the company and the type of cleaning services offered within the wider sector. In total, over a quarter of the UK’s leading firms saw their value fall in the latest year despite strong average growth. Only 269 firms have seen their value rise in each of the previous three years.
Within the industry, there is a growing divide in valuation performance based on size. The 10 largest major companies have seen values plummet by more than a third. In contrast, the next tier of companies, large but not the industry titans, have seen a more stellar 16% growth in value.
According to the latest Plimsoll Analysis, average company values across the cleaning market have risen in the latest year by around 6%. This is more than double the near 0% rise we saw in the previous, pandemic-ravaged year and beats the all-industry, UK average of just 2%.
The final area worth mentioning is the niche service providers within the wider cleaning sector. There are sharp contrasts in fortunes depending on the type of service offered. Valuations in the carpet and upholstery cleaning segment have seen values fall by almost 1% in the latest year. Elsewhere, supplier cleaning and janitorial supplies have seen average values recover by almost 10% in the same period.
It is clear that the cleaning sector has enjoyed a bounceback after the pandemic as people have returned to the office and normality has returned to most aspects of daily life. However, with rocketing costs and scarce human resources putting profit margins under intense pressure, where are values in the UK’s cleaning industry heading next?
For a free copy of the latest Insights Report, please click on the link here or email us at c.evans@plimsoll.co.uk.