Costs of coronavirus – coping financially with COVID-19

The costs of the coronavirus pandemic are wide ranging. It has impacted all aspects of our lives more than any other event since the Second World War. It is a truly global phenomenon.

As well as the tragic human cost of the pandemic we are also faced with the extraordinary economic implications. On a macro level, all major economies have suffered while under national lockdowns. GDP’s have plummeted and government borrowing has rocketed. Unemployment rates are the highest in decades and the number of business failures has increased dramatically.

Under this climate of significant economic uncertainty it is my responsibility, as CFO of Vectair, to ensure that the financial stability of the business is maintained.

The costs of coronavirus

Vectair manufacture aircare and hygiene products with many of our customers in the away from home washroom and cleaning industries

We are in a more fortunate position than many other businesses at this time as our ability to provide hygiene products has afforded us “essential” status and so we have been able to continue trading during lockdown. However we have seen much of our customer base, particularly those who service the hospitality and leisure industry, being severely hit as these sectors have been closed during lockdown. This has seen a significant decline in our sales, even allowing for increased sales of our hygiene products that are used to battle the coronavirus. The main costs of coronavirus on our business can be summarised below:

• Lower sales caused by the lockdown adversely impacting profitability and cash receipts.
• Greater economic uncertainty increasing the risk of bad debts. We view the relationship with our customers as a partnership and we need to work with customers to navigate through this difficult period together.
• Issues in Supply Chain. Vectair have experienced a far greater demand for hygiene products in this pandemic than we have been able to supply. We are not alone in this and it has caused supply chain issues throughout the industry resulting in delayed deliveries, extended lead times and exceptional product price increases due to shortages in key raw materials such as alcohol. We have every sympathy with our suppliers as they are doing all that they can at a time when there is unparalleled increases in demand. It does however pose additional operational and financial challenges that need to be managed. We will continue to do all we can to work with our suppliers to meet our customer’s needs.
• All of the above puts pressure on cash flow.

Maintaining financial stability

As a business we need to do our best to manage the difficulties noted above so that we can maintain the financial stability of the company.

Any well run business will have a budget or forecast that it uses to monitor performance. During uncertain times, it becomes even more important to develop forecasts that can be used to evaluate the business. The nature of the pandemic makes it very difficult to make assumptions about the future. As an international business this is even more difficult for Vectair. Different countries are in different stages of lockdown with different plans on how to start re-opening their economies. However, you need to put a forecast in place based on best estimates established at that time that gives you some visibility on future likely trading and cash flow.

We have also been working closely with our bankers, both in the UK and the US to ensure that we have the appropriate facilities in place to provide the financial support we need.  At the same time, we also have to manage the Company’s resources to reflect current activity. Even a business with healthy financial foundations such as ourselves, needs to be financially “smart”. Accordingly, we have made some use of the Job Retention Scheme in the UK and Payroll Protection Program in the USA that has allowed us to better manage our overheads in line with our current level of activity without the need for more drastic action to be taken.

Cash really is king

The old saying “cash is king” really does hit home in our current situation. Preservation of cash is paramount during difficult times. The support of our bankers and the schemes implemented by the UK and US governments have helped us up to this point. At the time of writing this blog we were just starting to ease our way out of lockdown. So here is hoping to brighter times ahead for us all.

Finally, I was asked to finish this sentence, “COVID-19 has…”. For me, even though I am “the numbers guy” business will always be about people.

So for me:

“COVID-19 has highlighted the commitment and dedication of my Finance and Operations Teams. They have all worked extremely hard, in difficult circumstances and I am proud of them all.”

Colin Davies | CFO & Finance Director | Vectair Systems