Opportunities and risks

In recent years, we have been confronted with a number of crises that were also significant in 2022. For example, COVID was also an important factor in 2022, in addition to the war in Ukraine. Both have had an influence on Vebego and will continue to have in the future. The extent of this influence in the short and longer term is hardly possible to determine at this time. Besides these two issues, in 2022 we had to deal with skyrocketing inflation, which continues even now.

Inflation

The macroeconomic consequences of inflation are already visible. The sharply rising raw material and energy prices are the first to affect Vebego directly. Vebego employees also experience the consequences of inflation. The sharply rising prices for food and energy are a heavy burden for a large portion of our employees. The pressure on our employees’ purchasing power can lead to more stress and therefore a higher likelihood of absenteeism and long-term absence. This risk is compounded by the fact that the pandemic is still lingering. The pressure to increase the minimum wages or to adjust collective labour agreements will in the meantime entail an increase in the cost price for Vebego. Many variables are not yet easily quantifiable. There is also little insight into economic recovery packages and sector-oriented subsidies, which were introduced by the government. As a social partner, we also consider, in consultation with trade unions, how we as an employer can contribute to compensate for the consequences of inflation. Another effect we see directly within Vebego is the increase in the purchasing costs for cleaning products and materials. This has a direct effect on the development of the cost prices of our services.

In all these areas, the companies’ management teams are working hard to take mitigating measures. At the same time, it remains unclear how long the Ukraine crisis 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. Constantly being and remaining in dialogue with clients has naturally always been part of Vebego's service provision. The intensity of this will certainly increase in the coming period so that we can quickly scale up or down our services and so that we can facilitate our customers to the maximum, even in these uncertain times.

Other risks

Vebego must continue to keep an eye on other developments that may affect the company. The COVID crisis seems to be over, but we are still seeing a peak in the number of infections and sick reports at events where many people are present, such as carnival and winter sports. Absenteeism increases structurally at such times, which is expected and experienced. 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. The development of the office market in the post-pandemic 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.

Attractive employership, the ongoing challenge

The above crises have a major impact. But they affect us indirectly. Furthermore, nothing is changing regarding our vision and what we stand for as an organisation. We still want to be that meaningful employer. In this area, the crises also offer new possibilities and have accelerated a number of things. For example, the need to use sustainable means of transport has increased sharply due to the energy crisis. In addition, we see that, due to inflation, our employees indicate that they want to work more hours, where there was a greater need for part-time employment in the past.

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. Job seekers have plenty of choice in today's market and plenty of room to be critical during their job search. Reward and life/work balance play a decisive role in this. It is evident that this affects us and that this may have direct consequences for our services in the long term. The question that arises is, ‘Are we still able to deliver on our promises to clients?’.

As in previous years, the main mitigating measures are reducing turnover and absenteeism. If a colleague does not drop out, there is also no need for replacement. Furthermore, hybrid working (for colleagues who support the primary process) remains an important desire/requirement for many potential employees. 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. We achieve this partly through the Talent in View programme, which gives us a picture of which talents someone has, which role fits them and which development is desired. In this way, we can deploy people’s talents optimally and respond to the market in a timely manner.

Increasingly complex 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. Governments, external financiers, auditors, regulators, tax authorities are making increasing demands. To stay 'in control', we work from the holding company with an internal audit process that provides a comprehensive country-focused checklist and balance sheet data book every quarter. The checklist is monitored annually and adjusted to current relevant laws and regulations and any incidents. The large companies within Vebego go over this checklist every quarter. The holding company's internal audit team reviews these completed checklists quarterly. In addition, this team conducts an internal audit at all Dutch companies using a sampling method that is based on the way in which the Dutch tax authorities perform audits. During these audits, an internal audit verifies that the rules are being followed correctly and that any deficiencies have been resolved.

In mid-2022, Vebego and the Tax Authority extended the Horizontal Supervision covenant. The Tax Authority offers large Dutch companies the opportunity to work within the Netherlands according to the principles of Horizontal Supervision (HT). Here, the tax authorities cooperate with companies on the basis of trust, transparency and good agreements in advance, and - in principle - do not carry out an audit. This type of supervision is ratified by a covenant. Vebego concluded the first form of HT with the Tax Authority in 2017. In recent years, the HT has been further developed and the requirements to comply with this have been tightened. This includes being demonstrably fiscally in control. Vebego has taken steps in the past two years to meet these requirements, such as clearly formulating a fiscal strategy, and the development and implementation of a Tax Control Framework, including monitoring. It has resulted in a three-year extension of the covenant as of 21 July 2022.

The formation 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. This ensures uniformity in the work processes and reduces the risks. 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, as are our products & systems businesses. 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 in 2022. All Dutch companies, including those not connected to the administrative shared service centre, will source these services from the joint back office.

IT Security

The results of the annual security audits show that information security at Vebego is continuing to improve year to year. The implemented data classification, implemented in the central IT environment, works properly and ensures improved security of our documents. Connecting multiple Vebego companies to the central IT infrastructure is steadily ongoing. This facilitates the mutual cooperation between the Vebego companies and ensures the improvement of their IT security. We will also continue this implementation in the coming 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, Austria 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 (see below).

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 clients and suppliers and good employership are of paramount importance at Vebego.

Currency risk

Vebego is active in the European Union. The currency risk is minimal because the Vebego companies invoice their clients 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 it 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 clients 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 clients across numerous sectors and countries.

Resilience

The high inflation, the continued movement in the labour market (particularly the tightness) and the duration of the war in Ukraine are – in combination with the aftermath of the pandemic – the most important factors that influence our strategic and operational risks. The impact on Vebego depends on individual factors on the one hand, and on the other on factors that are interrelated and mutually reinforcing. We do not see any cause to further adjust the system of internal risk management in 2023. It is impracticable to determine the consequences of risks that might occur in the future, but which are not or insufficiently 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 where necessary. The companies are able to anticipate change quickly. Vebego is and remains a strong and solid family company that is conservatively financed and can take a (little) bump.

Our external audit of the financial statements is performed by Deloitte.