They came through the Covid outbreak and the downturn associated with it pretty well. We never fell below 20-30 million underlying profit from memory. And just prior to that, when the We Work monster was rampant, there was all sorts of talk about how it would destroy businesses like Servcorp. But Alf seemed pretty unfazed at the time…he had full confidence in the quality of our service offering. He mocked the quality of We Work’s service offering relative to ours…even their coffee on one memorable profanity laden occasion!
And again, profits held up quite well at the time, despite a large share price fall (since then largely retraced), a lot of doom and gloom prognostications, and Victory collapsing. And it seemed to me that everyone was missing that SRV provides for niche, upmarket clients who want a higher level of service, beyond what the likes of We Work could provide, and that such demand was (and is) still there even as the “masses” headed for the bargain basement service providers.
The only impact I can recall the We Work threat having was Alf raiding the 100 million dollar cash reserves to rapidly upgrade a lot of offices for transformation to co-working suitability, to better compete with the monster. In due course strong free cash flow allowed the reserves to be restored to 100 million again. I think it’s 115 million now. I’ve often felt that this reserve is entirely overlooked when folks crunch their numbers. We are not only debt free, we have this substantial cash pile and have had it a long time! I mean, at one point a few years back the market cap was less than 200 million, we had this 100 million in cash, no debt, and the whole business as well, which was was still making 30 million a year even in a downturn! Even today, the market cap is approaching 500 million now, but you gotta take off that 115 million. The return on capital STILL looks quite appealing.
Of course, one can argue whether “sitting” on that 115 million over such a long time is a good use of it. But I think Alf is very patiently waiting for another significant downturn, of the type mentioned by you, and the cash will not only get us through it, but can be deployed to take advantage of the opportunities that present themselves at such times. In the meantime, it’s adding around 4 million to our annual profit.
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