The Covid pandemic has had a startling affect on the global economy. Paul Milligan looks at the damage it has caused, the way back and how Brexit has muddied things too.
The last 12 months have been like no other in modern times. The Covid-19 pandemic has caused an unprecedented shock to the global economy. According to trade and development body UNCTAD, the global economy posted its sharpest annual drop in output since records began to be aggregated in the 1940s, ‘with no region spared’. The pandemic has also triggered an effective loss of 255 million full-time jobs worldwide, according to the International Labour Organisation. Many countries have actually surpassed the metrics used to measure whether an economy has entered recession or not. For example, the UK saw its largest annual GDP fall on record in 2020, with its central bank confirming its economy shrank by 11% in 2020. The figures for most global economies last year, if you are feeling masochistic and want to seek them out, are truly terrifying.
However, all is not lost, the OECD last month raised its expectations for global GDP growth to 5.5% this year and 4% next year.
One of the frustrating aspects of Covid’s effect on the economy in the last 12 months was that the AV world was in healthy shape pre-2020. M&A activity was rife, new products were being launched weekly, and projects were being signed off and spread around integrators both large and small. So just how did all this global financial disruption affect the AV world in 2020?
The consensus seems to be if you were lucky enough to provide something in demand (e.g. tech for schools or video conferencing for remote meetings) then 2020 was probably ok for you. “We’ve been fortunate that education remains a priority for all countries in EMEA/APAC,” says Simon Port, head of channel operations (EMEA and APAC), for education technology provider Promethean. “Depending on where you were based, installations were able to take place in May and June when the schools were closed. Some of the work that may have traditionally fallen in the summer came forward slightly and was fulfilled earlier. The second half of 2020 bounced back to levels that were beyond what we would normally forecast for that period and almost took back everything that was lost in first half of 2020.”
While some companies continue to work at a level close to normality, for others, especially if you relied on live events or equipment hire, 2020 was a battle for survival. Over the past 12+ months we’ve had some work coming in, so we’ve been able to struggle through,” says James Cooper, managing director of AV hire and install business Flipside. “On the install side we have continued to work everywhere from office meeting spaces to houses of worship.
The hire side has significantly reduced as you would expect. Through the combination of some installation work still coming in, and various loans we’ve been able to access we’ve made it this far which, unfortunately, is better than many can say. The initial brunt wasn’t too bad as there was good support around. However, like most people in the sector we’re now struggling through with about 50-60% of the turnover but 90-100% of the costs.”
Universal AV is like Flipside and has two strands to its business; installs and live events. Primarily the install business has been heavily higher education focused, but many universities have been shut for long periods in the last 12 months. “Education is a big part of our business, we can’t ignore it, we have that and live events. We saw a battlefront on both fronts,” says Nick Fitzpatrick, managing director, Universal AV. One upside for Universal has been that a drop in university projects has run alongside a growth in corporate clients seeking remote collaboration technology.
So how will 2021 and 2022 pan out, is the vaccine key to returning us all to some form or normality again? “Obviously, the vaccine is the road out of this, however, I doubt it’s going to be a straight road,” says Cooper. "I believe it’ll be another winter before we see a predictable return to the usual patterns, particularly when it comes to the hospitality sector.”
Geoff Hellyer, business development manager (Europe) from manufacturer Sound Control Technologies agrees we’ll all need to be patient; “This is going to be a very long climb back to what we might call normal, there are things that can come along that can make the road a little bit bumpy. Looking ahead numbers wise, things will probably be pretty flat I’d expect,” he says. Others remain optimistic, like Promethean’s Port, “If you look at the projections for the market, there’s consistent 6% growth forecast across EMEA between now and 2025. We see the market being there.”
The vaccine is not going to be a miracle cure for all businesses says Siya Fakher, managing director from AV consultants Broadtek, “Recovery is definitely going to be a gradual thing, it doesn’t matter what happens with vaccines, you’ve got to
get your business prepared for working with pandemics being around. And whether or not it’s Covid or something else, you’ve got to work in a way that you’re comfortable having a very strong digital strategy. And if you don’t have a digital strategy, fundamentally you’ve got a massive weakness.”
To try and stem the tide of infections lockdown periods were imposed across EMEA, but when infections began to fall these restrictions were lifted or lessened, what effect did this on/off approach have on AV businesses? “Lockdown meant we weren’t able to rely on any kind of consistency,” says Anna Marie Constantinou, business unit director from AV distributor Maverick AV Solutions. “Many people across the industry were on and off furlough, projects were on and off hold and it meant it was very difficult to plan and operate as a team. The shake-up to the way people work has opened some incredible opportunities for our sector, which we need to be agile to take advantage of as an industry.”
Agility is a term we have heard a lot of in the last 12 months and many AV businesses have had to offer new services in the last year, or like Universal AV and Flipside, concentrate on one sector rather than two. For others like AV distributor Visualization the opportunity was there for something more radical. “Covid has given us the opportunity to restructure the company,” says managing director Nick Pidgeon. “We took the opportunity to invest in our team with training to build our expertise and skillset in a number of areas as we transitioned the business to a true value-add distributor.”
The live events arm of Universal AV has pivoted (another term we heard a lot of in 2020) to supplying online live events. It has transformed three of its warehouses into studios, with big LED walls, stages and lighting etc to host award ceremonies broadcast in multiple languages at once. Flipside has been another company to look at online events, with mixed results admits Cooper. “We’ve pushed all available man hours at install and skilled ourselves up on video which has seen a big uptick in work. The only problem we’ve found is that that side of things is pretty appalling in terms of profit margins.” For a product that previously relied exclusively on in-person demos, Promethean created ways for staff to hold demos at their homes or when the restrictions allowed, created hubs in serviced offices where customers could visit in a Covid-safe way and see its range of interactive flat panel displays.
Something that has been pushed off the top of the news agenda due to Covid has been Brexit, which came into effect on 31 January when the UK finally left the European Union, four years after a narrow referendum victory. While the issue is primarily a British one, it will affect all countries in Europe who deal in/out of the UK. Has the deal had a positive or negative effect so far on AV companies? The early signs were not good, according to the Office for National Statistics, UK goods exports to the European Union fell 40% in January, while imports plunged 28%. Depending on which side of the Brexit fence you sit on, this was either an ominous sign of things to come, or just a temporary blip attributed to stockpiling in November and December as companies tried to head off any potential disruption. The response from the AV companies we spoke to was that it was difficult to ascertain the extent of Brexit because Covid was also affecting issues such as product availability and delivery timescales.
“Transactionally, the world is a very different place as we are no longer a part of a single market, however, Covid has undoubtedly overshadowed this, so time will tell,” says Pidgeon.
Those who had seen a change said Brexit had been a negative so far, “In the past it was cheap to just send out a product, the person tries it out for a couple of weeks, and they send it back. That has changed massively because to send anything anywhere now is time consuming and requires customs duty,” says Hellyer. Brexit is adding cost as well as increased admin says Cooper, “So far we have seen a price increase from our suppliers in Europe combined with delivery delays for the equipment we install. This obviously combines to increase the cost and timescales of install projects which isn’t good for anybody.”
Because of the free movement within the EU, companies have got used to moving stock between countries easily, but Brexit has changed matters slightly, at least in its infancy while solutions are found. “We have seen some delays with customs clearance, where we’ve brought product in from a hub we have in Europe where we do hold stock. One of the things we had to consider was the hub services Ireland and we’ve always traditionally routed that stock through the UK. We have to explore contingencies around looking at whether we routed the stock around the UK and straight into Ireland from Europe to avoid any delays,” says Port. One thing we all saw was the motorways of Kent (the nearest areas of the UK to France) full
of lorries awaiting customs clearance, causing havoc to deliveries of goods, and the AV industry was not immune.
“I think we can be absolutely clear that we have been challenged by delays, predominantly in early January, where we saw products taking longer than they would otherwise have taken to come through. We had to look at when you bring a product across, historically there was no export or import consideration there. And now there is so you have to obviously work with your partners on that,” adds Port. As the UK enters its third post-Brexit month it seems some of those delay issues, while not 100% sorted, have lessened to a degree.
The main effect of Brexit so far seems to be an increase in paperwork, some added complication here and there and product delays, but everyone we spoke to had already allowed for both factors on both sides of the sales (buyer/seller) equation.
We may only know the full extent of Brexit on AV companies once Covid is no longer something we have to worry about, which for the sake of the overall economy and the survival of many AV businesses, we hope is as soon as humanly possible.