S POT L IGHT
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“You need to run multiple models and
scenarios, ‘worst case’, ‘mid-case’ and ‘best case’,
to say this is our starting point and based on this
set of variables, this is where we are likely to be in
six-months’ time.
“This allows you to track and adapt your
approach as the market comes back. If you don’t
do that you can’t plan and manage effectively and
that is where a lot of businesses are going to be
exposed.”
THE RISKS OF RECOVERY
This includes coming back too soon, which carries
a large number of potential pitfalls. David argues
that un-furloughing your workforce too early is a
significant risk. You also need to know that your
supply chain is ‘pump-primed’ to make sure that
you in turn, can meet supply demands.
He explains: “If you take our specific scenario,
we need to know that our key UK steel suppliers
are in a position to deliver raw material to us.
What do we need to do to release supply, how
much do we need to pay them and what are our
credit terms going to be?
“As we scale inventory, we know it’s going to
place growing demands on our working capital.
Our model is based on buying raw material from
our suppliers, getting decent terms, turning it into
product and then getting paid by our customers.
“What we don’t want is that model turned on
its head where we are operating under reduced
credit terms and we’re not being paid on time,” he
explains.
“That’s going to be a challenge for every
business as we come back because those
pressures on your working capital are going to be
very difficult to predict – and if you get that wrong
it can cost you dearly.”
UNDERSTAND THE IMPACT ON YOUR
WORKING CAPITAL CYCLE
He warns that the industry needs to pay particular
attention to its working capital cycle – the time
that it takes for cash to come back in, after going
out.
“There are some big and very stable names
in this industry – but they are not immune from
running out of cash. The pain is going to be spread
across the industry,” David continues.
He urges fabricators to take advantage of
support offered by HMRC, including VAT and
PAYE payment deferral as a way for fabricators
and installers to preserve cash within their
business.
“Speak to your bank. There are governmentbacked
loans available, although they may
not come through quickly enough for a lot of
businesses,” David says.
“Speak to HMRC, see what you can postpone,
because that’s money that you already have. A lot
of businesses are finding that HMRC are being
very flexible in letting them hold onto the cash
they have a little longer.”
LOWER VARIABLE COSTS
With cost control a key priority for those
businesses now coming back to work, David
points out that buying reinforcement direct
from source – for example Anglo – can support
fabricators in keeping control on their overheads.
This includes average savings of “”-•”% on
steels, equating to up to £˜•”,””” a year
depending on the size of your operation.
“Any FD worth their salt should constantly be
looking at ways to reduce costs. If you can shave a
percentage off the cost of your raw materials, why
wouldn’t you?
“In a situation like this, you have two costs in your
business, you have fixed costs, for example rent,
and variable costs, such as your raw materials.
“You wouldn’t buy electricity from the most
expensive provider, so why would you continue
to purchase reinforcement at a higher price if you
could reduce your variable costs by going direct to
someone like Anglo. It doesn’t make sense.”
MARKET RESTRUCTURE
While emphasising the importance of cash
control and getting your timing right for the return
to work, David does, however, see reason for
optimism.
“I can’t tell you when this will be over,” he says
“but what I can comfortably say, is that for the
companies that get through this, who can hang on
and position themselves well, who batten-downthe
hatches and manage their working capital and
stage the return well – then there are going to be
some huge opportunities when we come through,”
he concludes.
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