Parasites on exploitation: The outsourcing firms sweating the rail sector
RMT Report 2025
Executive summary
1. Every year, in excess of £100 million is taken out of the rail industry by outsourcing companies who profit from contracts for cleaning, security, catering an gateline services. Last year these profits are likely to have amounted to around £126 million
2. RMT has analysed the UK group profits of six if the outsourcing firms in rail – Mitie, OCS, Bidvest Noonan, Churchill, Carlisle and ABM. The gross profit or Return on Sales of these companies represents the margin on their contracts and it averages 12%. 80-90% of their costs are the wages and salaries of their workers.
3. Analysis of outsourcing firms accounts shows that they have retained these healthy profit margins in spite of the cost-of-living crisis and the rises in the National Minimum Wage by using contracts that pass the costs on to the government. The same is true of rising National Insurance costs. The outsourcing firms’ margins are protected at the expense of the taxpayer.
4. The outsourcing firms tend to be owned by super-rich financial institutions and private equity funds who use clever financial engineering to extract more profits and turn them into shareholder value. This involves holding down workers’ wages, passing costs onto the taxpayer and sometimes loading the companies with debts to fund dividend and interest payments.
5. Mitie Plc paid out £41.5 million to its investment bank shareholders last year and rewarded its CEO with a staggering £14 million remuneration package.
6. OCS has been bought by a large US Private Equity Fund, CD&R, which has loaded it with £500 million of debt to fund the company’s expansion and growth.
7. Churchill Group was bought and sold by a Private Equity fund between 2020 and 2023. A £43 million dividend was extracted from Churchill and then used by the Private Equity Find to buy itself out, selling its stake to an Employee Owned Trust set up specially for the purpose and paying back £37 million for a £25 million loan. The EOT now owes £30 million in debts to financial institutions, while the owners paid another £12 million dividend to the ultimate parent company. The employees know nothing about what has been done in their name. Nor have they received anything from the Trust. Churchill’s highest paid director received a remuneration package of £863,000 in 2024, an uplift of 230% on the previous year.
8. Catering multinational giant SSP Group did not stop paying out dividends during the pandemic and the company has paid out £544 million to its shareholders since 2018, at an average of £68 million a year.
Profits of outsourcing firms from rail contracts - £126 million
Alongside rolling stock leasing and Network Rail sub-contracting, the profits extracted by outsourcing firms from ancillary services contracts on the railway constitute a significant route through which passenger fares and public funding are turned into private profits.
Estimating scale of this profit leakage is not simple as they are not transparently accounted in either company accounts or in the ORR’s data. However, we can get some sense of this from ORR data on Train Operating Company costs.
Outsourcing costs form part of the ‘other costs’ category of train operating companies in the ORR’s financial data.1 Last year’s ORR data show that ‘other costs’ were £2.8 billion. Assuming, conservatively, that outsourcing contracts account for just 50% of these other costs, that would mean that outsourcing costs would be £1.4 billion across the sector. Outsourcing firms typically make a gross profit of around 9% on their contracts, meaning that profit leakage for 2023/24 would be £126 million.2
Gross profits on outsourcing – 12%
RMT has analysed the UK group profits of six of the outsourcing firms in rail – Mitie, OCS, Bidvest Noonan, Churchill, Carlisle and ABM. The gross profit or Return on Sales of these companies represents the margin on their contracts and it averages 12%. This is the difference between what their clients pay them and the basic cost of delivering the work. In ancillary services contracts, between 80 and 90% of this cost is wages and salaries of staff.3
Q: Who pays for rising costs? A: The taxpayer.
As Figure 1 shows, the profit margins of the outsourcing firms have been largely unaffected by the cost-of-living crisis since the pandemic. They have been able to retain these margins in the face of inflation and rises to the National Minimum and Real Living Wages, which governs their cost of sales. How have they managed to do this?
The answer is helpfully contained in the outsourcing firms’ accounts. In OCS Group’s annual report, we read how the Group manages the risk of wage rises: “The Group is focused on entering into contracts that will perform well financially by,
1 In 2012, the ORR published a Train operating company cost benchmarking report in which they explained that “Other Costs (includes fuel, EC4T charges, in-house train maintenance, train cleaning, other contractor charges, rail replacement, utilities, commission payable, catering, car park management fees, NRES ATOC charges, British Transport Police charges, station access, marketing, telecoms and IT, legal & professional, insurance and depreciation and amortisation)”. https://www.orr.gov.uk/sites/default/files/om/toc-benchmarking-report-2012.pdf
2 https://dataportal.orr.gov.uk/statistics/finance/rail-industry-finance
3 Analysis of Annual Reports for Mitie, OCS, Bidvest Noonan, Churchill, Carlisle and ABM, 2016-24.
amongst other things, maintaining a low level of operational gearing within the profit and loss account and by recognising the factors that are likely to result in cost increases during the life of our contracts (such as minimum wage increases) and looking to include contractual mechanisms to pass such costs back to the relevant customer by way of a price increase in order to avoid loss of margin.”4
Similarly, Mitie Plc’s annual report for 2024 reveals that the company’s strategy for managing cost risk includes ‘Utilising contract mechanisms to recharge cost increases’ and the outsourcing giant boasts that it has a ‘diversified customer base with inflation protection on the majority of contracts’.5
In summary, in the case of public sector contracts, the taxpayer is paying for the increased wage bill through contractual mechanisms that raise the outsourcing firms revenue and protect their gross margins.
Similarly, as Churchill’s annual report notes, the impact of rising minimum wages is offset as ‘our contracts allow for government led increases’:
Annual price increases in relation to national living wage increases together with inflationary increases have also contributed to the increase in revenue for the 2024 financial year and the maintenance of healthy profit margins.6
The same applies in the case of the government’s National Insurance rises. As a business magazine recently reported, outsourcing firms are already using these contractual mechanisms to pass on the costs of National Insurance to the government:
“Churchill Group, which cleans railway carriages for train companies under Department for Transport oversight, has confirmed it is raising rates to offset wage and NI rises. Mitie expects to recoup 60% of its additional NIC bill about £35 million through similar pass-through clauses. Mace will open discussions with government departments to recover costs for building and infrastructure projects, including hospitals.”
Given that labour costs account for 80-90% of the cost base of these contracts, the ability to pass any rise in these costs back to the public purse calls into question the entire model. What exactly does the government get out of them?
4 https://ucarecdn.com/8433a04a-05c5-4b5f-a100-0ae6986cfc01/
5 https://www.mitie.com/wp-content/uploads/2024/06/Mitie-Annual-Report-2024.pdf, p. 5.
6 https://find-and-update.company-information.service.gov.uk/company/07317156/filinghistory/MzQ0ODE3ODQxOGFkaXF6a2N4/document?format=pdf&download=0
Q: Who gets that cash? A: Financial interests.
Many outsourcing firms have become large multinational companies with super-rich financial firms as their ultimate owners. This gears them toward aggressive growth strategies, acquisitions, significant distributions of dividends and large CEO pay packages.
Below we explore the ways in which outsourcing companies siphon taxpayers’ money, maximised through the exploitation of their workforces, up toward financial interests in the City of London and beyond.
Mitie Plc:
Mitie, for example, has a turnover of £4.5 billion and an estimated 13% share of the UK outsourcing market. Mitie is 76% owned by ‘institutional investors’, but in practice this tends to be large investment banks and their investment funds.
53% of Mitie’s stock is owned by 10 investment funds like Blackrock, Vanguard, and JP Morgan. 24% of its stock is owned by US investors.7
Mitie has paid out £290 million in dividends since 2014 and in recent years has been pushing up distributions to its investment banks owners. Last year it paid out £41.5 million in dividends. It also spent £148 million in the last two years on buying back its own shares to ramp up their value in the stock market.
So well has Mitie done for its shareholders that as a special reward it paid its CEO a package
7 https://uk.marketscreener.com/quote/stock/MITIE-GROUP-PLC-9590156/company-shareholders/
Figure 1: gross profits of outsourcing firms 2020-24
Fig 1: Gross profits of outsourcing firms 2020-24
Mitie
OCS
Bidvest Noonan
Churchill
ABM
Carlisle
of £14 million last year.
Table 1: Top investors in Mitie9
8 https://www.mitie.com/wp-content/uploads/2024/06/Mitie-Annual-Report-2024.pdf
https://uk.marketscreener.com/quote/stock/MITIE-GROUP-PLC-9590156/company-shareholders/
Mitie Annual Reports 2014-24.
Figure 2: Mitie Plc dividends, 2014-2410
OCS:
OCS has a turnover of £1.9 billion. The group is majority owned by the US Private Equity giant Clayton, Dubilier and Rice (CD&R).
CD&R operates globally through a number of different funds. According to its own website, CD&R has managed the investment of more than $40 billion in more than 100 companies with an aggregate transaction value of more than $175 billion. In 2022, CD&R acquired both OCS and Atalian Servest, the UK and Ireland arm of French outsourcing giant Atalian.
Private Equity Funds look to grow business scale and profitability rapidly and then profit themselves from a cut of the company’s sale price, typically ‘exiting’ within 3-7 years of acquisition.
OCS reported a gross profit of £258 million last year. It made a loss for the year as a consequence of one-off costs associated with the acquisition and integration of the company but is expected to report positive results in the next year.
The company also has large finance costs as a consequence of the acquisition. CD&R’s acquisition was largely debt-financed and involved the owners using OCS as collateral for raising banks loans of £489 million to buy the companies, and then saddling the company with the burden of repaying. Interest on these loans last year amounted to £56 million and its total finance burden for the year was £87 million. That’s 4.5% of turnover. OCS is a highly leveraged firm with a Long-Term Debt to Equity ratio of 10:1. OCS will be under pressure to generate dividends rapidly and to keep growing in order to achieve a good sale price with CD&R decide to sell up.
Churchill Group:
Churchill is a smaller outsourcing firm than Mitie or OCS. Its turnover in 2024 was £380 million but like OCS, they also attracted the attention of private equity investors. In 2020 Churchill was partly acquired by ESO Capital Advisers LLP, a private equity fund based in London. This company renamed itself Soho Square Capital and then sold its stake in the company in 2023, just three years after the purchase.
The result of this acquisition was a series of complex debt and equity transactions whereby ESO extracted value from Churchill. A key part of this was the establishment of an Employee Owned Trust. This fine-sounding vehicle was set up to take a majority share in the company, 53% to be precise. ESO then sold its equity stake in Churchill to the Employee Owned Trust, which was in effect a bespoke buyer, set up by the seller to sell at a price of its choosing. The sale of an EOT is also free of any Capital Gains Tax.
£43.9 million was taken out of Churchill Group in the form of a dividend to its parent company, Churchill Managed Services, which then passed £31 million on to its parent Oscar Midco, which then passed £23 million to Oscar Topco. This was then divided between £12 million to cover ESO Capital’s equity stake and £11.9 million to the owners.
But ESO’s gains didn’t stop with dividends because ESO also loaded Churchill Group with debts that were repaid with heavy interest. This included the repayment of more than £37
million for a £25 million loan carrying interest at 8% from ESO Capital dating from its acquisition in 2020.
In addition, the Employee Owned Trust now owes £30 million to ‘three financial institutions’ as part of the transaction to pay ESO Capital for its stake in the company, which must be repaid by 2030, while another group company owes £20 million.
Needless the say, the employees in whose name this has happened know nothing about it, nor do they report having seen any benefit themselves.
Churchill’s highest paid director received a remuneration package of £863,000 in 2024, an uplift of 230% on the previous year.11
SSP Group Plc
SSP Group Plc is a multinational travel food company with operations in the USA, Europe and the UK. 26% of its £3.4 billion revenue is generated in the UK and it has contracts with private train operating companies in Britain as well as on stations.
The group is 51% owned by a handful of investment banks and asset management funds with strikingly similar names to those who own Mitie: Schroders, Vanguard, JP Morgan and Norges (Table 2). The company is 94% owned by such institutional investors, including 15% US based investors.
Table 2: SSP Group shareholders
Unlike the cleaning companies, SSP’s operations were disrupted by the Covid pandemic, with SSP laid off thousands of staff as catering operations were closed down.
11 Annual Reports and Financial Statements for the Year Ended June 2024 for Churchill Group, Oscar Midco Ltd and Oscar Topco Ltd.
12 https://www.marketscreener.com/quote/stock/SSP-GROUP-PLC-57195142/company-shareholders/
However, SSP did not stop paying out dividends and the company has paid out £544 million to its shareholders since 2018, at an average of £68 million a year.13
Figure 3: SSP dividends 2017-24
SSP’s AGM authorised the company to repurchase its own shares up to 10% of the value of its issued share capital.14
13 SSP Group Plc Annual Reports, 2018-24. 14 ttps://www.foodtravelexperts.com/media/eyjht3eo/ssp-group-plc_annual-report-andaccounts_2024.pdf