While 2020 and 2021 were defined by the coronavirus crisis, since 24 February 2022 the Russian invasion of Ukraine has controlled the world news as a humanitarian crisis that knows no equal. The war appears to affect all countries in the world, and its political and economic consequences are difficult to predict. The aftermath of COVID-19, and especially the war in Ukraine, will certainly have an impact on Vebego, but the extent of this impact in the short and longer term is hard to determine at present.
Consequences of the war in Ukraine
The macroeconomic consequences of the war are already visible. The sharply rising raw material and energy prices are the first to stand out and are affecting Vebego directly. Fuel costs are rising quickly, and the purchase costs for cleaning products and materials are also increasing as never before. We also see risks for our customers and our employees, and in the development of the cost prices of our services. For example, many customers are indirectly affected by the various boycott measures. Vebego employees are also going to feel the consequences of the war; the sharply rising prices for food and energy are putting a heavy burden on a large number of our employees. Pressure on our employees’ purchasing power can lead to more stress and therefore to a higher chance of absenteeism and long-term loss, Especially if we consider the fact that the coronavirus crisis is still lingering. Many variables are not yet easily quantifiable and there is still little insight into – government implemented – economic recovery packages and sector-oriented subsidies related to the war in Ukraine.
The companies’ management teams are working hard to prepare mitigating measures in all of these areas, but it is still very unclear how long the war will last and what the final consequences will be. Vebego can currently exercise the most influence by supporting its own employees as much as possible and helping them where possible. Attention to the causes of absenteeism and employee guidance is high on the agenda. Maintaining ongoing discussions with clients is of course already a part of Vebego’s service provision, but the intensity of this will certainly increase in the coming period so that we can quickly scale our services up or down, and so that we can fully assist our customers, even during these uncertain times.
The war in Ukraine has made nearly all other risks seem less important. Nevertheless, Vebego must continue to keep an eye on other developments that may affect the company. The coronavirus crisis seems to be over, but what will the consequences be if it turns out that the coronavirus keeps coming back every year or every autumn? The expectation is that absenteeism will then structurally increase. In addition, there remains the risk of a temporary lockdown in the event of a sharp increase in the number of infections, with all the consequences this would have for both the financial results and the mental resistance of Vebego. Rising inflation has been a concern for quite some time; the war in Ukraine has only driven that inflation further. The pressure to increase the minimum wages (particularly in Germany) or to adjust collective labour agreements will in the meantime entail an increase in the cost price for Vebego. The development of the office market in the post-coronavirus era is an important issue for all companies operating in facility services. The amount of m2 required will shrink, which poses a risk for the cleaning companies. At the same time, it is also expected that the office spaces will be used differently, which creates opportunities for our cleaning companies and the companies operating in facility management.
The remaining challenge: attractive employership
The impact of the coronavirus crisis and the war in Ukraine are significant, but affect us indirectly. Furthermore, nothing is changing with regards to our vision and what we stand for as an organisation. We still want to be that meaningful employer. The pandemic has opened up new opportunities and accelerated a number of issues, and has also shown us what is possible even when there is not much that we are able or allowed to do. COVID has called for a different focus or for the adjustment of priorities on a number of themes.
The shortage in the labour market poses a direct risk to Vebego and its services. At all levels, finding and retaining well-qualified staff is a challenge. Individual subsidiaries sometimes have hundreds of open positions. In the current market, job seekers have plenty of choice and all the room to be more critical in their job search. In time, this may have direct consequences for our services: will we still able to deliver on our promises to customers?
The most important mitigating measures are to reduce staff turnover and absenteeism. You don’t have to look for a replacement for something (or someone) if it doesn’t go away. In addition, hybrid working – for our colleagues who support the primary process – will continue to play a role in the requirements of a potential employee. We are also offering this to our current employees, as well as communicating it via our job vacancies.
We believe in the power of differences. Our family business must be a place where everyone can work, regardless of ethnicity, origin, age, ability to work, or gender. A place without a glass ceiling. We are convinced that our organisation will become stronger if we embrace diversity, which will at the same time enable us to (partially) compensate for the shortage in the labour market. One of the ways we are achieving this is through the Talent in Sight programme, which allows us to see what talents someone has, which role fits with those talents what kind of development is desired. In this way, we can deploy people’s talents optimally and respond to the market in a timely manner.
The flip side of the war in Ukraine is that the people who have fled their country can immediately start work in the Netherlands. This will offer them livelihood security and self-esteem and can help us deal with the shortages in the labour market.
Complexity in laws and regulations
Vebego’s choice to move towards a limited number of large companies is, in view of the increasingly complex laws and regulations that we are faced with, a good decision. The government, accountants and the tax authorities are setting more and more requirements. In order to remain in control, we work from the holding company with an internal audit process that provides a comprehensive checklist and a data book every quarter. The checklist is continuously monitored and adjusted to current relevant laws and regulations and any incidents. The large companies within Vebego go over this checklist every quarter. The holding’s internal audit team checks the completed checklists by means of a sampling procedure. For this purpose, they primarily verify whether the rules have been properly observed and whether any deficiencies have been resolved. In 2021, we set up a Tax Control Framework in the Netherlands that will be further rolled out in the other countries from the first quarter of 2022. Our external audit of the financial statements is performed by Deloitte.
The arrival of the large companies also gives a further boost to the quality improvements within the administrative organisation. In Switzerland, more and more administrative tasks are carried out centrally by the largest operating company: Vebego AG in Zurich. In the Netherlands, the arrival of shared services has been an important step in the efficient organisation of administrative and back-office processes (including remuneration, purchasing, invoicing). Nearly all Vebego cleaning companies within the Netherlands are already making full use of this. Vebego is actively ensuring that companies are organising their back offices in a more collective way within each country. In the Netherlands, the shared service centre has been expanded with the expertise teams for HR, sustainable employability, IT, procurement and legal affairs as of 2022. All Dutch companies will purchase these services from the collective back office.
The results of the annual security audits show that information security at Vebego is continuing to improve year to year. As previously announced, data classification was implemented in the central IT environment in 2021. It was also decided that a larger number of Vebego companies will use the central IT infrastructure. This facilitates the mutual cooperation between the Vebego companies and ensures the improvement of their IT security. This will be implemented over the next few years.
Financial impact risks
The risk profile is on the one hand determined by the geographical spread of the services across Belgium, Germany, the Netherlands and Switzerland, and on the other hand by the diversification in the services such as facility services, care, landscaping, facility management and products & systems. Due to this combination of factors, there is a varying risk appetite. The business model, the focus on the market, the processes and the continuous monitoring of KPIs make it possible for the individual companies to anticipate any growth or decline in the market very quickly. Risks and opportunities are assessed and addressed both centrally and locally.
The risk appetite follows from the strategy and the set goals, and can be divided into the following categories:
Strategic: risks are taken in order to enable autonomous growth. With the commitment, drive and innovative capacity of the employees, Vebego is able to convert risks into opportunities.
Operational: through years of experience in the companies, it is possible to take risks in a well-considered fashion. Proven concepts and working methods are implemented both centrally and de-centrally. In addition, Vebego also takes well-considered large corporate (IT) project risks if there is necessity and if doing so supports the long-term strategy;
Financial: the financial policy is cautious, with a focus on (organic) growth and financing without dependence on credit institutions. Liquidity and credit risks are kept to a minimum*;
Financial reporting: There are limited estimation uncertainties in the financial administration;
Compliance: Vebego’s objective is to be 100% compliant with laws and regulations and with its own internal procedures and rules of conduct. A dedicated Risk & Compliance department monitors this compliance. Fulfilling agreements made with customers and suppliers and good employership are of paramount importance at Vebego.
Vebego is active in the European Union. The currency risk is minimal because the Vebego companies invoice their customers in local currency, and also pay their employees and suppliers in local currency.
Price, cash flow, liquidity or credit risk
Liquidity risk is the risk that Vebego will not be able to meet its financial obligations. Vebego’s approach to liquidity risk is to ensure that Vebego always has sufficient liquid assets available to meet the obligations when they are due, both under normal circumstances and under stressful circumstances. This risk is controlled by sufficient availability of money and credit lines.
Credit risk within Vebego arises from the possibility that customers and other counterparties may not be able to settle their obligations towards Vebego. The debtor management departments of the Vebego companies monitor this credit risk on a weekly basis. Vebego’s credit risk is limited, given the distribution of the many customers across a large number of sectors and countries.
The extent and duration of the war in Ukraine, in combination with the aftermath of the coronavirus crisis, are the most important factors influencing our strategic and operational risks. The impact on Vebego depends on individual factors as well as factors that are related to each other. We do not see any cause to further adjust the system of internal risk management in 2022. It is not possible to determine the consequences of risks that may occur in the future but are not addressed in the current system of risk management. Vebego has shown in the past that it is resilient in this area and is able to adapt the organisation to rapidly changing circumstances. Vebego is a strong and solid family business that is conservatively financed and can tolerate a blow.
Our external audit of the financial statements is performed by Deloitte.