Gareme Davis assesses the impact the coronavirus has had on the FM sector.
The breadth and pace of economic slowdown in the wake of the surge of Covid-19 cases in March was sharper than almost anything seen in living memory. As the government ordered the public to stay at home and closed down all but the most essential business activities, companies scrambled to react. Many FM companies shut down operations while some were in the unenviable position of having to rapidly adapt working practices as workers have become frontline operatives servicing hospitals and other facilities tasked with coping in the wake of the pandemic.
The financial impact of the crisis is still almost impossible to quantify, although the early signs are that the economy shrank dramatically in March and concern across the corporate world about the hit to profits is illustrated by the number of companies cancelling dividend payments, withdrawing financial forecasts and imposing pay cuts across their workforces – something already seen at the likes of Rentokil, Mears and Serco. Some companies have been able to offer investors a little comfort on public sector contracts, but private sector business prospects are far more uncertain.
The government signalled in early May that it intends to begin the process of bringing the economy back online but uncertainty remains about how long this will take, or if further lockdowns will be required should infections spike again. And the return to work in the private sector is likely to thrust yet more FM employees onto the frontline in alien office environments dominated by social distancing rules. The government’s furlough scheme has been extended to October, which suggests that there is little expectation of a return to anything like normality this side of Christmas.
Almost every FM company saw its valuation take a pounding. But those that have been able to reassure investors on contracts and their capital position, such as Serco, have bounced back more strongly than others.
As thoughts start to turn to the ‘new normal’ and a return to more widespread economic activity, which companies could bounce back quickest? Those with considerable public sector exposure and also international reach could be viewed as more likely to weather the storm. Some smaller operators could struggle to survive, leaving those with stronger foundations well placed to pick up market share in their wake. And companies with specialised skills suited to the zeitgeist such as Rentokil, with its specialisation in hygiene and pest control, could see demand for their services thrive. Rentokil has also developed an enviable reputation for growing through acquisition and could find itself in a strong position to consolidate and grow its position across its many global markets by picking off weakened competitors.
Graeme Davies [email protected]