Deep dive into cash management during a crisis

In a year marked by economic uncertainty, cash management and forecasting have become more difficult than ever.

It’s up to CFOs and finance teams to guide their businesses through this crisis and find solutions that will drive business forward.

With the sage advice from Dynshaw, Edward, and Adrian, you’ll learn:

📒 Budgeting approaches you can easily adopt, such as ZBB and government schemes.

🌐 How you can pivot your business to react to market needs and make the most of a difficult situation.

⚙️ Why automation is a game-changer when you need more visibility and control over spending.

ABOUT THE SPEAKERS

Dynshaw Italia
CFO at Soldo

Dynshaw Italia is Soldo’s CFO. He has over 20 years experience working and developing fast growing brands and has worked for Cobra, Lebara, and CreditEnable. His specialities include building a finance function to deal with fast growth business and scale and maximising working capital finance.

Edward Parkes
CFO at LHi group

CFO/FD in the recruitment sector for the past 14 years

Currently work for a global recruitment company called LHi Group with offices in London, Bristol, Manchester, Paris, Munich, NYC, LA, and Austin. We currently have a sales turnover of £100m and 225 employees

Adrian Lee
Group Financial Controller at Passion Pictures

Adrian Lee is the Group Financial Controller at Passion Pictures, a London-based Academy Award-winning animation and documentary production studio. There he oversees the accounting, business support, financial planning and analysis, and production finance functions.

Previously, Adrian was part of the team that established startup STX International’s EMEA film distribution arm, building out its financing and operating facilities.

Adrian has an audit background in tech and media having qualified at BDO, and began his professional career in Vancouver, Canada.

Michael McCaw 00:05

Hello and welcome to this virtual CFO agenda deep dive into cash management during a crisis. I’m Michael McCaw, editor of Financial Director and Moderator of today’s discussion.

We’re going to be looking at how organisations approach variable spend. So those products and services used for business operations such as office supplies, software, subscriptions, flights. The type of things that often go on cards, whether on company credit cards or through reimbursements.

00:31

A challenge is to keep things under control, particularly in times of crisis. Over 50% of companies admit to not having full control and visibility over spending, so we’re going to be touching on how technology can really assist during our conversation today.

00:47

So with me today we have Dynshaw Italia, CFO of Soldo, Adrian Lee, Group Financial Controller at Passion Pictures, and Edward Parkes, CFO at LHi group. Gentlemen thank you for joining me today.

And, dear audience, if you’d like to submit a question, please do so using the function above the viewing window and we’ll come to you during the discussion or at the end. We’ve also got a poll which you can fill in beside the Q&A, and the question is:

“Variable spends are a real bug bear for finance departments, how comfortable are you that you have them under control?”

So if you’d like to fill out either now or in the next 15-20 minutes we’ll come back to that and then review the responses.

Also, worth a note, if you’d like to provide feedback on the session today please do so again just above the screen.

Without further ado, let’s jump straight in. Edward, how have the past few months been?

Edward Parkes 01:45

Certainly very different to normal. I’ve had to scratch my head and remember the 2008-2009 recession and work out what we were doing there. My business is in recruitment, so 60% of our cost is people around the world. I think we’re lucky we’re in 4 or 5 different verticals, so whilst a couple of verticals were hit harder than others, we still had some clients in some hot areas.

02:13

So certainly the finance teams got to work making sure that survival mode was achieved, we had sufficient cash flow, our debtors were going to pay us, the forward invoice book was still going to be a forward invoice book. Yeah, we worked fairly quickly as a team, we made sure we had sufficient cash flow and got into survival mode and then saw if there were opportunities for moving forward to help the business expand.

Certainly stressful work for 2 or 3 months.

Michael 02:43

Absolutely and different realities as time progresses. Dynshaw, how have the last few months been?

Dynshaw Italia 02:50

I would say challenging, yet you have to adapt. I always believe that in circumstances like this you adapt or you die, it’s as simple as that. I know it’s a bit drastic but that’s the reality. For us it’s about extending cash as much as possible, doing that through controlling costs, looking at other sources of financing, looking at new use cases, because you can always pivot your business, obviously looking at trying to look after your employees, working with customers and suppliers and just doing whatever we can to get through this crisis and, most importantly, be ready for when the crisis is over.

Michael 03:29

And Adrian, what are your thoughts, how have the last few months been?

Adrian Lee 03:32

It’s been different. We have two different studios. We’re an animation studio and a documentary production studio. Both sides have been very different, obviously because you can’t do a lot of live action. So on that hand, everything is on pause, a lot slower, a lot fewer projects coming in.

04:01

But vice versa, animation, because a lot of our work is already on computers or a lot of our work is done remotely already, so animation is a lot more prepared to answer to this COVID crisis, which is quite interesting. On top of that, a lot of places that used to do live action are now looking at alternatives like animation to see how they can use another form of media to help backfill whatever they need.

04:34

But of course, animation production also has a more timetable and production schedule than live action so it’s trying to accommodate where we can and respond where we can. I guess what I’m saying is “it’s different, but we’re not in as bad a place as we originally thought and as what most of our colleagues of the industry are experiencing.” I’m quite grateful for that.

Michael 05:08

In many ways it’s about how prepared you were as the crisis hit.

Adrian 05:13

Yeah very much so. Again, I think we’re quite fortunate that we’re already putting in place capabilities that were off-site, like pushing for cloud computing because we do so much server-side rendering for animation, so things like that we’ve already been pushing towards that cloud-based SAS architecture. So it just kind of pushed things forward a lot quicker, and it did make things a lot smoother and easier honestly.

Michael 05:56

I guess it’s about how well you have embraced agility. Have cash flow priorities really changed? And how will that change as we emerge from current market difficulties or as conditions weaken? Ed, what are your thoughts there?

Edward 06:14

Obviously now it’d be more of a weekly review of our cash probably looking at 13 weeks in advance. We already had in place a spend limit for most of our budget holders, so we knew what kind of outflows we were going to incur, so we were able to control that fairly quickly.

06:36

And it was really just getting on top of our cash collection, getting that in, making sure that our various clients, were they having difficulties, were they extending terms? Do we have sufficient to get us through that 3-month period? So I think it was a bit more focussed but certainly manageable.

Michael 06:54

Good. And Dynshaw, from what you’ve seen your experiences, how have those cash flow priorities really changed?

Dynshaw 07:02

I think priorities is the right word. The way I look at it is, they always used to say ‘cash is king’. I think cash is no longer king. I think it’s become God, and I use that term a lot because it becomes so important. And like I said, it’s about cash conservation now in this short-term period of this crisis. So we need to become more efficient, we need to reduce costs, make use of the government schemes that are available to us.

07:35

And what gets pushed back is the long-term investment. You’re not going to stop long-term investment but you’re just pushing that back to the future. But you can reduce costs and go really drastic, but you have to get the balance right. It’s about survival, it’s not about killing your business. So the idea is survive through this crisis and make sure that you’re strong enough so that when you’re coming out of the crisis you’re able to then put back those priorities of investing back into long-term projects.

Michael 08:03

Almost about foreseeing those next steps. Ed you’re nodding your head there.

Edward 08:09

Yeah I think cash is king, I get that, and I think what we get around, with being a global business, each country was offering different things, whether it was the UK with the furlough scheme or loans, different ones in the US, different ones in Europe. So we have been applying for the funding, not necessarily as a survival mechanism but also potentially as an opportunity.

08:35

So if we could use that existing cashflow to get through this difficult period, we could start to see green shoots, and we use some of that cheaper debt funding to help us as an opportunity in Q4 onwards to expand our business as a result. So it began by having to be able to prove to the bank that what we were doing with that cash flow was profitable.

Michael 08:54

Interesting. And Adrian, what are your thoughts? How have your cash flow priorities changed?

Adrian 09:01

I think very much in agreement with Dynshaw and Ed. We had things that were planned for this year. Things we were looking into doing more R&D in but now we’ve had to push back. We’re not cancelling it obviously because, like Dynshaw said, we’re in survival mode, we’re not getting rid of the company altogether obviously. So it’s a matter of how do we deal with this short-time period? We are looking into every government opportunity and trying to manage our liabilities including differing back payments etc.

09:38

And trying to foresee in every way possible as much as we possibly can, to focus on what we really need to do in the next few months.

Michael 09:53

Interesting. And again, you’re in agreement with Adrian there.

Edward 09:58

Yeah definitely. I just think the key is once things like deferments end, the business still needs to move from survival mode and pay that debt and move on. I don’t think any business is going to make a big cash inflow at the moment but you still need to have plans in place. Most businesses have aggressive growth plans, as we do. We still make sure we can get ahead of that competition and really proceed. Our business can’t do that unless myself, the CFO says, this is what we’re comfortable with and scenario plan with our cash availability.

Michael 10:41

I guess in some way, looking at the different variables that organisations have in front of them, or the states of unknown, as I read somebody this morning referring to it, you’ve got some fairly big unknowns when the government will draw back the different policies, which organisations will have to prepare for, and then there’s the very deep unknowns of how the economy is going to shape up and other things. So bearing that in mind, how does that change your forecasting Adrian, and the way you can look ahead?

Adrian 11:19

Well one aspect of our company does a lot of advertising. So our company has innately always had to respond to clients that come in further down the road. Advertising is not necessarily one that generates a lot of repeat business, they might look for different agencies, even within the agency they might look for different production studios to provide a type of look or feel and so we’re constantly looking for pitches.

11:57

So how we’re trying to deal with that is trying to double down more on how we pitch and who we pitch to. Again, a lot of people that might usually have gone for live action, we’re trying to bank on them to look into doing more animation. So it’s trying to draw on those to try and smooth out what could be potential gaps in the revenue this year.

Michael 12:23

Really controlling those unknowns. Dynshaw, what are your thoughts? How have approaches to forecasting changed recently?

Dynshaw 12:32

One is that it becomes more frequent, because you have to forecast in shorter cycles because you don’t know what’s going to happen. We actually moved to zero-based budgeting as soon as the crisis hit and the reason for that is we wanted the mindset of the organisation to change so that it focuses on the parameters that have changed, the outlook has changed, and based on those parameters hanging, can you forecast your budget just based on that?

13:03

Of course, in order to do that, you still have to look at your legacy payments to ensure that you don’t miss any. But it’s that starting from scratch that’s really important. And you can’t do it in isolation, you have to get the involvement of people who are responsible for the budget because you have to push that responsibility to them to make sure they’re delivering. And then you have to get more granular. Normally you forecast using P&L and maybe adding some CAPEX expenditure. I think you have to go much deeper into your cash flow because working capital becomes a much trickier thing to forecast, the customers who were paying before may not be paying you now, so how do you take that into account?

So working capital, forecasting the balance sheet, much more detailed P&L, much more granular forecasting on the revenue side. And then of course the trickiest bit as you said is when do we forecast to come out of this? And for that you probably have multiple scenarios to actually deal with.

Michael 14:10

Interesting. And Ed, what are your thoughts? How has forecasting really changed?

Edward 14:16

Yeah we were quite granular, every week had activity, we looked at activity and how many new jobs we get from clients, how many CVs or interviews we get from clients. We also know our conversion ratios. So we know if we get a certain number of jobs in the week, we should know that we convert those in 4 to 5 weeks’ time and therefore what amount of revenue this generates.

14:43

We have seen some improvement. What we try and do in terms of our forecast is, we try to model it out and say well, if we flex it forward and get 15% improvement over the next 4 weeks, so our revenue streams and so forth. So just trying to go “right based on those forecasts, what is that looking like?” and that gives us that next 4 to 13 weeks, how many positions have moved forward and are spending more money? Or we think there’s a concern coming, let’s hold fire on investment decisions until we get some more data on board.

Michael 15:19

Really by being reflective and being able to move.

Great, I think maybe now we’ll jump to the poll. Maybe we’ll get those results up on screen just go through them. So the question was:

‘Variable spends are a real bug bearer for finance departments. How comfortable are you that you have them under control?’

15:42

20% are very comfortable. 54% fairly uncomfortable. A quarter completely in the dark. So we’re looking at about 80% are fairly uncomfortable or completely in the dark. I’d ask you guys how you feel about those results. Anything concerning there?

Adrian 16:13

I feel like I’m probably in the middle one as well. Not entirely 100% know what is coming and what could possibly happen. But it’s also like what Ed said, you’re trying to plan for all the different scenarios that could happen and try to be as responsive as they can. We have a few different scenarios. So, whatever happens, we know how to respond. We obviously have lead times that are timed with our production schedules, so we have ways to either flex or build on our contingencies and do what we could possibly do to be as responsive as we can.

But I think the reason why we have contingencies is because we don’t have as good as real-time cash predictions as we would like. So, we’re doing the best we can I think.

Michael 17:09

Dynshaw, what are your thoughts on those responses? Does it surprise you?

Dynshaw 17:15

It doesn’t surprise me because we have had similar responses in the research we have done as a company as well. Of course, Soldo as a product, one of the key things we do is have the tech to ensure that you can have real-time tracking of variable spend. So any spend that you make on your cards, you should instantly be able to look at that spend. So obviously we use our own technology and our own company, which is a must, and therefore we have a good handle on that.

We don’t get any surprises, we are able to see spend and act very quickly. And the surprising piece for me is that it doesn’t take much to actually address the issue that people are facing. So technology does exist today and it’s quite easy to get on board, to get people to actually track expenditure and track variable spend on a real-time basis.

Michael 18:17

Excellent. It actually mimics the research we did recently with the Financial Director not long ago. Just looking through the results this morning. 70% of respondents said that they spend between a day and two weeks dedicated to investing company-wide spending, which shows how many resources really end up in trying to get insights. Do you think that still holds true?

Dynshaw 18:49

Generally, what we find is that you need to invest time in setting up the controls that you need on your spend. Once it’s set up, it’s very easy to manage, control and track. That’s the key. But it shouldn’t be as big a problem as it is, that’s the reality.

Michael 19:19

And Ed, what are your thoughts?

Edward 19:21

We moved to a sort of online technology, to Soldo, two years ago. We had exactly the same problem with scratching our heads with the expense claims, uncontrolled expenses and no chance of claiming back. So as our business was growing overseas, I could log in online now and see any of my office holders in any country and set their limits, so I know they can’t over spend. They know what the arrangement is in terms of what they can and can’t spend on. They have receipts, otherwise they can’t sue the product going forward.

19:52

In terms of visibility and tracking, it’s worth it. Originally I was put off: I didn’t want to spend money on cards but in terms of the time it saves my team and the visibility and the flexibility, it’s a no brainer, especially having local currency rather than just sterling. Again, our staff don’t want to spend their own money incurring work costs. It works on both sides: the employees like it and we can see the flexibility while controlling the spend.

Michael 20:19

And that really lifts the insights that you’re able to pull from the information you’re able to get.

Edward 20:25

Yeah completely. You can see where they’re spending and what they’re spending it on, so it’s not a burden for them to have a shoebox full of receipts at the end of the month. I think it works for both parties very well.

Michael 20:41

Thanks to the audience for submitting those votes. We’ve got a few questions in, please do keep them coming! Dynshaw, how important is the ability to assess on the real-time basis at the moment?

Dynshaw 20:59

I think it’s fundamental whether you’re in a normal business or in a crisis like it is right now. So I think it’s important in both ways. It obviously enables decision making to be much quicker, you can’t afford to wait one or two months to know how you performed and where your expenses are. You can’t do that anymore You can’t wait to know that you’ve overspent somewhere.

21:27

But also one of the things that I find is that real-time tracking allows you to fail faster. And let me explain that. It means that when you’re growing as a business, you’re always needing to experiment and try out new things. Some of it’s going to work and some of it’s not goint o work. The things that don’t work, you want to switch off as soon as possible. And if you don’t have that real-time tracking, you’re going to continue to bleed cash, trying to see whether the thing is going well. And if you wait too long, you’ve lost too much money.

22:08

So the ability to fail faster if really critical. Especially in growing businesses. And that’s why I think real-time tracking is absolutely fundamental and of course, quicker decision-making is essential today.

Michael 22:24

Adrian, I believe you utilise real-time insights on spending and budgeting. Was that always the plan or did you decide you had to do so as markets deteriorated?

Adrian 22:38

We’ve always had the goal of getting there. Real-time tracking is the gold standard, I feel like for a lot of finance departments it’s where we always want to be. Get as much data as possible as live as we possibly can. We always moved towards that like with, again, when we used Soldo for a while. I think that really helps with getting as much transparency as you possibly can, it really helps.

23:07

One thing I did find interesting was that our variable spend has actually decreased since lockdown. So if anything it’s been a lot easier. We’ve always had a really strong focus on project budgeting and I guess maybe because there’s less client T&E and things of that nature, less travel, so variable expenses have invariably dropped. But real-time spending was always something we were trying to get that.

Michael 23:47

And Ed, what about for yourself? Was it something you decided you needed to quickly move through or was it a long-term progression?

Edward 23:55

Yeah it’s something we’ve had for a little while, now more just because I think growth and assistance. Before we had the cloud, systems just weren’t fit for purpose. We had finance teams in different parts of the world getting very cranky, they couldn’t log in at the same time and give us that visibility. We thought it was part of growth. We needed systems that could provide us with that information. The majority of our finance function comes from the UK, so we want them to have that visibility across all geographic locations so we decided to move that.

Michael 24:28

interesting. And just on that, and given the pressure on organisations at the moment, how do you assess which variable spends to prioritise? Ed, sticking with you.

Edward 24:43

I think looking at variable spend, I normally ask two questions: Is it buying us time? Well I think we’re out of that stage now, so it’s more “is that variable spend, what revenue is going to be created out the back of it?” It’s an easier discussion to have with marketing. The Head of Marketing wants to generate new revenue. Whereas if it’s business services and office costs I might be more conservative.

So at least I think, with that visibility and if there’s a decent business argument, it’s a lot easier to sign up for an educated decision with that sort of visibility partnered rather than just sort of in the air going “alright, yes or no”.

Michael 25:26

That’s interesting. And Adrian, do you guys have a similar approach?

Adrian 25:30

I guess slightly different because where we do variable spend it’s usually related to freelancers since we have so many of them. Even though a lot of them are relatively regulated by the APA or different film industry standards, it is still a variable cost because it’s not payable. So I think, especially during the past three months, what has still remained our focus it’s been trying to make sure that we are encouraging talent and keeping them where we can. Still using them where possible. I think that has been our main priority.

26:14

I think freelancers and contractors have had a particularly difficult time. Especially when during the government announcements when we weren’t really sure who was supported and who wasn’t supported, outside of the furlough scheme. So that was very much our main focus.

Michael 26:38

On stability again, as well. And as the government support is reshuffled, do you think you’ll be re-analysing things?

Adrian 26:55

Possibly. I think it’s because of the past few months and we really do have nowhere to nurture more of. Like we have a department called Greenhouse where we’re looking for younger talent and drawing them more into the fold and trying to encourage them and give them more avenues to be creative.

27:25

Finding different ways to make their work more commercial.

Michael 27:31

It’s interesting to think of the number of organisations we heard of trying to be innovative and looking to their different resource bases. It can even be restaurants saying to give takeaways or cook at home yourself. I guess that’s another example of organisations having to change the way they do things short and medium term.

Adrian 27:55

Yeah exactly. So it’s not taking advantage I suppose, but it’s more of trying to see how we can react well to pressure that is already in the industry and how to make the best of a difficult situation.

Mchael 28:15

And Dynshaw, just thinking about the tech side of things, how can advances in tech help the prioritisation process around that variable spend?

Dynshaw 28:28

So I’ll give you a few examples. So, if you start with, let’s take pain points. One of the big pain points you face is that spend is controlled with one or two people and it’s very difficult to delegate payments. So without technology for example you can create multiple wallets, you can create multiple currencies, different departments you can delegate the payments process by delegating permissions and roles. So that’s 1 area tech can help.

28:57

The second is trying to control spend at source. Again, with technology, you can set it up such that you have a physical card that’s linked in to a department or a cost centre or even a single supplier, and then the ability to control spend at source by setting up parameters so you can set daily, monthly, or weekly budget, by restricting budget to spend in a particular geography, by restricting a maximum per transaction, by restricting by expense category of spend, and by restricting people to spend online. So here’s another example of how tech can really help. So, it totally eliminates the risk of over-spending because you just can’t spend above the budget that you set.

29:41

The third point that you touched on was the reconciliation at month end. Chasing people for receipts. Manually inputting information into your accounting system. Again, with our tech, this is fully automated, including integrating directly with your accounting package so that automatically gets done.

29:59

And then finally, the one that we’ve been talking a lot about, is how are you able to track in real-time. And because we own our entire tech stack, we’re able to provide real-time analysis of spend with relevant analytics and the time that you spend. And you know how much has been spent, and you can look at this granularly, by department, by division, by company, so you don’t have to wait a month to know what has happened with your spend and you avoid overspending.

So tech is fundamental. It just makes life so much easier and so easy to implement.

Michael 30:38

And looking at the large proportion of firms that admit to not having visibility on spending at all, does that really increase counter-party risk? Is that much of an issue that you’re coming up against Dynshaw?

Dynshaw 30:57

I’m not sure actually. Because counter-party risk is the risk that somebody won’t pay you at the end of it. So it’s a difficult one, I don’t have a clear answer to that actually.

Michael 31:14

And any thoughts on that? Is that a concern for you guys? The rise in counter-party risk?

Edward 31:21

No, we haven’t experienced any counter-party risk on our side so not a huge concern from our end.

Adrian 31:28

I think for us, well our collections have been quite fantastic actually, must give credit to my team for that. But that being said, it has been quite noticeable that the days that it takes to collect is much longer. Everyone’s clearly holding on to their cash for a longer period of time – just in case, I imagine.

But apart from that, we’re actually still doing quite well with our collection, so it hasn’t really increased much.

Michael 32:04

And, there are a lot of firms who had not embraced tech solutions pre-lockdown. We’re still hearing from finance departments who lean very heavily on spreadsheets and excel and, of course, it’s a powerful tool, but it does have its limitations. How much of a disadvantage do you think those organisations would have today?

Edward 32:28

I think there’s the human error issue as well with spreadsheets if you’re having to update them more frequently in such economic scenarios. They can take quite a long time to update and obviously you can question the accuracy of it. So I think if you don’t have that technology available, it is going to put pressure on your business about how accurate it is. And also just your finance team, they’re not going to enjoy updating with historic manual processes, it’s not really a value-add to their job process, they’re not enjoying it, especially when they know there are other products out there. So I think it’s important, I know it’s a big step, moving and changing your process. A lot of finance people don’t like change. But I think it’s important finance leaders embrace and get on top of their finance technology.

Michael 33:17

It almost feels like over the last few years we’ve seen the innovation curve, often pictured as some roller coaster, it’s been speeding up and innovation across fintech has been insane. And if you haven’t gone onto that ladder at some point, you’re going to seriously struggle.

Edward 33:40

Yeah no I think very fair, I think the amount of time it can actually save is important. I think it would take a lot of laborious tasks away from your staff and automate it, and it saves time so they can do far more interesting tasks in their job to get them more engaged.

Michael 33:56

Adrian what are your thoughts there?

Adrian 33:59

At the beginning we were with very much just everything on hold. But now that we can start breathing again, it’s just trying to see where else can we move forward with different ways that we can implement technology to help our staff like Ed said, trying to automate more areas, especially the more data entry areas or different areas that are more prone to human error.

34:23

But in contrast, I think ultimately even with tech-heavy situations or a process that can really help, it is still heavily reliant on good quality data. And I think that my experience is of trying to make sure that we are continuing to put in data well and making sure that everyone who is using the technology’s putting in data the way it should be used and using it in the way that is most helpful to them. Otherwise your changing technology but it’s not really helping and I don’t think that goes anywhere.

Michael 35:07

Of course, that type of tech stack falls apart. Dynshaw, what are your thoughts there?

Dynshaw 35:16

I agree with what Adrian said, the data piece is actually fundamental. But if you just take out technology for example, it needn’t be a disadvantage to people because it’s so easy to sign up with us for example, you can be up and running in 24 hours, you just have to download an app or web console, set up how you want to control the expenses, order some cards and you’re ready to go.

35:41

So there are going to be some pieces of tech like ours that shouldn’t be a disadvantage because you can instantly go with them. There are going to be other pieces of tech that maybe need more implementation and more investment of time, but they’re long term investments that you need to do because if you don’t you’re going to be left behind.

36:01

So tech is absolutely critical and what’s happening in today’s world is that everybody’s getting so used to working in an on-demand environment in the consumer and physical world, in their day-to-day lives, and that sort of demand is coming in business lives as well. People demand things much quicker, much faster and without tech you can’t get there. While two or three years ago, maybe even 5 years ago, the ability to produce management accounts every month, at the end of the month or the end of the next month was fine. Now they want it within the first few days of the month. Nobody’s expecting that you wait for 30 days. The demand for real-time information is there now and we have to fulfil it in some way or the other or we just get left behind. Decisions then become meaningless if you can’t make it in real time.

Michael 37:00

Interesting. And just thinking about one thing that’s interesting from the tech perspective and thinking about the innovation curve and it just keeps rumbling on. Soldo has a very unique offering but how do you stay ahead in that curve, how do you keep it moving to make sure you’re right ahead of the competition?

Dynshaw 37:22

One is that you’ve got to keep track of what the competition is doing but, more importantly, you’ve got to keep pivoting your business and keep moving forward. So, when this crisis happened for example, one of our key use cases was using the Soldo cards for travel and entertainment business. With travel and entertainment going down to zero, what else could we use our card for? Of course, we knew you could use it across the entire spend area, but now we’re looking at how we can push people using it for other use cases: for software, for SaaS services, for digital marketing services.

38:00

And we had an amazing use case recently where the Italian municipality came to us. They were looking at trying to get food vouchers to people within a particular municipality and we said why don’t you use Soldo cards instead because 1. you can give people cards rather than vouchers, 2. you can control the amount of spend that they have on food and limit them to spending them an amount per week rather than spending the full amount in one go. And then, later on, if you want to extend this, you just top up the cards and you don’t have to keep sending them food vouchers again. And then the last piece that they really loved is that fact that if somebody’s not used the particular money on their card, they could just take it back. Because the money is still there.

38:50

So this is an example of a use case. We’ve invested so much in our technology that it’s about adapting it to what’s available in the markets and continuing to be innovative and creative.

Michael 39:04

Excellent. Thank you for that. Good to get an insight into what that corner of the market is doing and how it’s dragging things on.

A few questions from our audience. So: did our panelists’ cash forecasts include assumptions of when they expect a return to normality and, if so, when is that for their individual businesses? I mean, you can put the “individual businesses” to one side if you wish. But is that something that you build into your forecasts? The return to normality?

Edward 39:41

Yeah we do. Again, we factor it in with doing gradual increases. We look at 4, 8, and 13 week historical data, seeing how we’re performing, and then on that basis we do our forward forecasting. So you look at our cash flow of thirteen weeks and 6 months and we’ll factor it in. And say right well there’s a 20% increase in sales over 2-4 weeks and then we’re more confident about weeks 5-8 so we might increase that to 30-40% increase and so forth. With the view, we know when our seasonal peak times are, we still see our clients engaging with us, so we do a gradual increase over that 13 week period.

Michael 40:25

And Dynshaw, what are your thoughts there? Are you including assumptions?

Dynshaw 40:31

Yes I do. So we start off with the long pessimistic scenario that nothing gets back to normal till Q1 next year, so maybe April next year, and then we create multiple scenarios before that. So what if things get better from the first of Jan? What if things get better from the 1st of October? Nothing’s going to get better till the end of June, we know that.

40:57

But we’re in a fortunate situation where we do see trends of spend in our business so we can see whether travel & entertainment spend is picking up, whether other spend is picking up at a granular level. So we’re able to see recovery quite quickly and we’re seeing for example, in Europe, travel and entertainment is starting to get back, it went down to about 10%, now it’s back to about 40% in terms of spend. The UK is still very low, it hasn’t started to kick off. So based on that we adjust our forecast. The challenge, like we said, do you forecast, for example, a second wave? It may happen or may not happen and history has shown us with SARS that a second wave could happen.

41:47

You have to have a scenario for it so you know that if it does happen, what is it going to be in terms of impact to your business and can you survive through that or do you have the buffers to survive through that? So we look at those scenarios as well. Maybe not focusing too much on it but at least back of mind it’s there, if it does happen we know what to do and how to react. But yes, you have to forecast that into your plan, or else how would you know how much cash you require or what you would need to do as a business?

Michael 42:20

And Adrian, what are your thoughts there?

Adrian 42:23

Yeah, same as Dynshaw, we definitely had to forecast different scenarios. We forecasted for if we were going to have a U-shaped economy or if it was going to be a W. We even looked at whether or not the second dip in the W is going to be a much longer, deeper dive than otherwise. But it’s not just that, it’s also trying to time that. Like I said earlier, we have a sales team that we rely heavily on. So looking at seeing what potentially is coming in and their discussions with different advertising agencies and the planning and trying to tie that to what we think could possibly happen. I don’t think we’re as timely as Ed can be at LHi, but it’s definitely trying to see what the market is reacting to so we can react accordingly. But it’s difficult.

Michael 43:22

Absolutely. And Ed, what are your thoughts there?

Edward 43:25

Yeah it sounds like we do have a bit more flexibility. We can move quickly. I think there will be pressure on our business and a lot of businesses when the furlough money ends and that creates a wave of redundancies and consumer /market confidence drops again. We’re certainly wary of that so we’re certainly making conservative decisions whilst we have some confidence. And we’re certainly not making big cash outlays. We know that until this side of Christmas, there’s going to be a lot of market uncertainty, so we are just treading carefully but trying to get as much data in as possible to support our decisions.

Michael 44:11

Knowledge is power. Also, we spoke earlier about deferring investments, so a great question here. Do you plan or anticipate a sharp catch-up period and if so, what are your plans for a rephasing of those investments?

Edward 44.31

Yeah, I think, as I said earlier, we’re trying to preserve a normal operating cash flow as much as possible, making sure the business is in a reasonable position.

And we have taken out some of the government-backed funding across our group. But with the view that we might be able to use it as an opportunity, you know… a) it’s cheap debt, b) we think our competition, some of our competition might not be performing as well. So, we see that as a position where we could get some increased market share, whether that is through acquisition or marketing spend or increased employee head count.

45.04

We think there’s potential opportunity there. If we could see that market continue to rise.

Michael 45.10

Interesting. So Dynshaw, I suppose it’s a curious situation for you guys. I’ve been informed that tech spending at major institutions has increased, maybe that’s because of connectivity or something more advanced.

But do you see investments in projects taking off? Is that going to be a sharp reaction or a phased out period?

Dynshaw 45.37

I think it will depend on the opportunity. So I think the reality is that, at the end of this crisis, a lot of businesses won’t survive. It’s unfortunate but that’s going to be the reality. The question then, is there an opportunity for businesses that do survive to take market share at that point in time?

46.01

So do you then over invest at that point in time? Again, it’s very difficult to say, will we accelerate our investment or will we not. It will depend on the circumstance – if there’s an opportunity to accelerate and there’s a benefit to do that, of course we will accelerate it because we’ve kept the cash to do so.

I wouldn’t say we’ll do it or not. All I will say is at the time we will decide, but we will have the option to overinvest, should we need to

Michael 46.32

Excellent. And Adrian, what are your thoughts there?

Adrian 46.35

I think we were already before March, looking to see the different industries or different media that we could expand into.

We’re already launching our experiential, immersive media arm. We also were looking at expanding into bulking up our real-time animation productions.

46.59

So I think what this period has, if anything, has sharpened or honed our minds to focus on specific areas to invest, rather than just having a more broad brush stroke.

I think we should look into one, two and three, but it was less focus on these two areas and let’s focus on how we want to approach it. I think that has been the silver lining of this period.

Michael 47.29

Interesting. Yeah, I think you take what benefits and plus points you can at the moment. That seems to be the underlying impact we’re seeing today. So, gentlemen, I think we’ll wrap it up there, if that’s good with you guys. I’ve certainly learned a lot , I’ve been scribbling down quite a few notes. We’ve had a couple more questions from the audience, which we’ll pick up a bit little bit later today and come back to everybody.

47.57

Otherwise, Adrian, Ed and Dynshaw, it’s been an absolute pleasure. Thank you for joining us today. Thank you to our audience. And, we’ll be back with the next CFO panel discussion on Thursday.