Sector trends & challenges
There have been operational impacts seen across the sector; however, there are significant variations by location and subsector. We may see an increase in insourcing, so businesses have greater control over outputs and costs.
Intense competition is common across the entire sector which is exerting downward pressure on margins. Competition in combination with increasing costs is leading to sector consolidation in order to support overhead reduction.
Debt & liquidity
Businesses may review external contracts to identify savings, in order to manage liquidity. Stretching of payment terms may create working capital challenges for those businesses who do not manage their cash flow optimally.
Sector rating profile
Business Services is a highly diversified segment of the economy and market participants are often traversing many different service offerings. Benefiting over the longer-term from a pervasive management culture that demands a 'focus on the core', and by implication, 'outsourcing the rest', the sector has faired well until recently. The pandemic has however transformed the working model for so many businesses and a reduction in scope for support services combined with a desire to identify cost savings is likely to leave a permanent scar on the Business Services sector.
A recurring concern for business service providers is how they manage financing high debt levels, limited liquidity combined with lower returns from contracts, and the impact of COVID-19 and regulatory changes.
There have been operational impacts seen across the sector; however, there are significant variations by location and type of work. Recruitment for permanent roles for example has been heavily impacted by the pandemic, whereas we are seeing a potential uptick in temporary labour recruitment within certain sectors.
Intense competition is common across the entire sector which is exerting a downward pressure on margins. Likewise increased costs, in the form of an increase in national minimum wage, the apprenticeship levy, and workplace pension minimums is also putting a strain on working capital and liquidity.
Businesses are likely to review external contracts to identify savings, in order to manage liquidity and protect margins. Stretching of payment terms may create working capital challenges for those businesses who do not manage their payment cycles optimally. We may see some insourcing across the sector in order for businesses to retain greater control over outputs and costs. Sector consolidation may be required to support overhead reduction and cash flows.
An accelerated transition to digital operations might adversely impact some outsourced services such as call centres. It remains unclear if and how COVID-19 will impact outsourcing activity across both the public and private sectors. Although a trade deal was agreed, a Brexit-driven skills shortage may become more pronounced in the coming months.
Find Your Expert
Rick Harrison is Interpath Sector Lead for Services which includes Business Services as one of two core segments. Beatriz Miguez Armada leads Interpath's approach to the Business Services sector nationally. For a full list of our senior people with experience in this sector use the button below.Our senior team