2021 Outlook Series:
Part 2 – Treasury’s Support of the Business

INTRO  0:13   

Welcome to The Treasury Update Podcast presented by Strategic Treasurer, your source for interesting treasury, news, analysis, and insights in your car at the gym, or wherever you decide to tune in. On this episode of the podcast, host Craig Jeffery continues the 2021 Outlook Series with Royston Da Costa, Assistant Group Treasurer at Ferguson PLC on Part Two Treasury’s Support of the Business. Topics of discussion center around liquidity during the depths of the pandemic, and throughout the recovery, and key success factors to help navigate potential changes in the year ahead. Listen in to find out more. 

 

Craig Jeffery  0:55   

Royston, welcome back to The Treasury Update Podcast.  

 

Royston Da Costa  0:59   

Hello, Craig, good to speak to you again.  

 

Craig Jeffery  0:56   

This particular podcast and discussion stemmed out of our last conversation where we we kept talking about some items and we wanted to capture some of that discussion, because we had spoken earlier about how did treasury support the business particularly earlier on in the pandemic, the move to the work from home, and then we wanted to extend that into what’s what Treasury does to help support the business and communicate with the business going forward. But I was wondering, in the beginning, if you could just do a short, short overview of the four areas, just a summary of those four areas that we spoke about the first time in terms of how Treasury supported the business? 

 

Royston Da Costa  1:50   

Of course, Craig. I mean, none of these areas are really new, to be fair. And I think the fact that everywhere you look, and we read about the way that treasury played a key or pivotal part, in a lot of companies, in navigating through this pandemic, I think just reinforces the point that these areas shouldn’t be taken lightly, frankly. I think the first ones no surprise, cashflow and liquidity, pretty much every company looked at that immediately, as soon as the pandemic became apparent. And we were very fortunate in FX, in that we had sufficient facilities in place and sufficient headroom, because obviously, like any good company, our size, we’d already ensured that we had facilities to withstand our normal business requirements for at least three to four years ahead. But we were also then making sure that, you know, in terms of short-term liquidity, that we had that additional headroom, if you like. So, I think from a liquidity perspective, we had more than enough to keep us and to sustain us through that period. But we shouldn’t forget that when we look at, you know, sort of cash flow and liquidity, we’re also looking at the ongoing business, and therefore, that’s the area, I felt that from a treasury perspective, certainly in my role, I will became involved with the business in, not just looking to get more information from them, but also looking to, in some respects, educate some of our colleagues, but also to be able to impart to them the critical kind of metrics, and also the sort of data that we required. You know, sort of on almost a day-to-day basis, you know, in terms of what was like the default rates like, you know, were our customers continuing to pay on time, you know, sort of, were orders looking healthy. These were, you know, sort of more weekly calls, to be fair, but you know, when I say daily, I’m thinking in terms of, you know, each day was something that we were having relatively close visibility on, because it was something unknown to us at that time for legal and the government’s companies were not sure where this was going to lead. So, I think we’ve all heard the topic cashflow forecasting mentioned so much in the past, and certainly is, continues to be a top area of concern for a lot of treasurers, but in this particular case, I think it really developed into to … because of the fact that, you know, we were reliant on trying to get a feel for what our customers were facing on the ground, so to speak. And I think from a business perspective, it’s worth mentioning that with the business that we’re in for …. in need, we’re the leading distributor of plumbing and heating products through trade. We are fairly decentralized, and currently we’re operating in North American, the US and Canada and our largest business is in the US, we’re in every one of the 50 states. But we like to pride ourselves in the fact that we have very good solid relationships with our customers and this played a key part in helping to navigate through this pandemic, because at a time when you’re not quite sure, what’s going to happen tomorrow kind of thing, our associates in the ground, due to the strong relationships they had with all our customers and the supply chain, they will be they were able to have fairly good visibility of where any potential bottlenecks were occurring, or in fact, whether they were going to be any potential default. And thankfully, you know, this wasn’t as big an issue for us, because of the fact that all of our relationships, majority of our actions have such strong relationships that we could have, we could actually fend off some potential issues occurring, 

 

Craig Jeffery  5:59   

Are these bottlenecks, this could be something that delays an order, something that delays payment, is that what you’re referring to? 

 

Royston Da Costa  6:07   

Correct, more likely to be a payment delay, I’ll say, but also in terms of being able to have that visibility on the ground, not just in terms of our customers, but also in terms of some of the manufacturers, that are supplying our customers. And if you look at some of the municipalities that we deal with, I can’t go into too much detail, because I’m not an expert on this, but my understanding the US, there is an ability where we could if we wanted to securely add on some of the payments, because of the way the system is set up and the relationships we have with the different stakeholders in that process.  

 

Craig Jeffery  6:52   

I want to come back to the area we talked about the first part, you know, this, this access to liquidity, capital, and communication that we started on and, and come back to that at the at the end. And then in this middle section, you know, you’ve started talking about how the business is close, they have their fingers on the pulse, they’re communicating well, maybe you could talk about how the business gets close to their customers? 

 

Royston Da Costa  7:22   

Oh, absolutely. And look, I understand that normally speaking from when we work in treasury, we don’t typically get close to the customer, or even the associates, our colleagues that work with the customers, it’s not been necessary. But in this particular case, it was quite insightful for us to understand the reasoning for how confident our colleagues were about dealing with customers and, of say, being certain about the fact that they weren’t going to default, or that they were in a good place. And a lot of the customers were quite open with our associates. And this is not unusual, because the nature of our business is such that the majority of our customers have been customers, for us for a long time. And its nature of this type of industry where you’re going to have relations with some of the major suppliers anyway. So, if you want to operate and you want to continue operating successfully, it is actually in your best interest to keep up your payments and to ensure that you have a good relationship with your supplier. It kind of makes sense, right? But the other factor I think I’d like to draw attention to is the fact that our associates through this pandemic, when they spoke to our customers, particularly on the receivable side, your first question to them wasn’t when you’re going to pay us? The first question the most, how are you? And how your families? Are you keeping well? And it sounds that I didn’t want to say that that was not clear at all, that’s not being …. This is exactly how our businesses operated and continue to operate. It’s about relationships. It’s about building those long-term relationships so that when you come across times like this, you can see that there’s were obviously, we’re a business. We’re not naive that, we’re also there to ensure that our customers are successful, because it’s going to benefit us as much as it benefits them. I think that’s an important point. I’ve read stories and anecdotes about particularly the US where some of our associates have gone the extra mile I’m told where, and it’s not unusual as well, l I believe in terms of meaning in the US kind of market but certainly our business we’ve had associates that you know, gone to their open their store on weekend for a particular customer because they needed product urgently or someone needs to meet an order on a Monday and they rang up the branch manager because they need them quite well, on a Friday night said, “Look, can you get me this product?” And the drive three, four hours across the state just to get the order. When these are not unusual stories, I’m told, and this is part of the reason for our success in our business. It’s so kind of encouraging for me to hear and say this because it’s what we believe is good customer service and does walk back through some of the kind of results that we’ve seen from this particular pandemic where our customers are stood by us as much as we’ve stood by them. 

 

Craig Jeffery  10:37   

That example of driving maybe three or four hours or driving to another. 

 

Royston Da Costa  10:42   

I think, sorry, Craig, when I say three or four hours for us here in the UK, three or four hours is a long time, I’m sure the US is nothing is probably what I seven or eight hours in the US. 

 

Craig Jeffery  10:54   

Well, the point though, I think with you, there’s been a shortage, I mean, due to manufacturing slowdowns or shutdowns, due to the pandemic, and in some robust demand, it’s hard to get all the materials. I’m sure it’s hard for individual associates. And if you can solve that need that issue somehow not just say, I don’t have it, but I can get it somewhere else. That’s a powerful way to be with your customers. 

 

Royston Da Costa  11:28   

And to get to it another good point you make there. So another kind of strength that we’ve been able to show in tip with our customers, wherever we’re based, is we’re able to deliver not just the product in the timeframe that it required, but you it’s critical mass, if you’re talking about the large industrial, sometimes projects that we get involved in, you know, not many companies are in a position to deliver, you know, sort of 1000s of skews to the customer within 24 to 48 hours. And that’s what we do. That’s part of our, you know, sort of our business model we deliver, we’re able to deliver these large quantities of product within a short space of time. Yeah, again, this is where our customers value that level of service. And it’s good. And it’s not just the large industrial that I that’s a good example of that type of scenario. But certainly, for the week, they are calling the mom-and-pop type of business, we have many of those type of customers as well. And those cases they tend to I’m this not the benefit they get, but in some cases those case they tend to use our warehouses as a kind of storage place, because they haven’t got the, you know, they own storage facilities for to hold that amount product. So, it’s quite useful for them to be able to also, you know, partner with us and those type of instances. 

 

Craig Jeffery  12:53   

Yeah, leveraging your balance sheet in your warehouse. That’s a core way of supporting your business. Now, you had a when we were talking before, we started recording, you had mentioned a way you describe that being in deep with your customers. What term did you use? 

 

Royston Da Costa  13:12   

I use the English expression which not sure how it translates into North American but it’s called meeting or it’s getting sort of a feel for what’s at the coalface call spelled c-o-a-l face and it’s really farewell to the coal mining days, I think in this is in the UK, where, you know, if you’re the coalface you really down in the trenches, I think, is the expression that you mentioned earlier. So, it’s a kind of akin to that, really. And I think, for me, what I’ve really tried to express is the fact that, you know, I don’t want to think that we treasure in some sort of ivory tower, because clearly you can’t afford to be you know, you have to understand how the business operates best times when there’s a pandemic, but I think in this particular case, what was interesting is the fact that as much as we are say, we’re familiar with all the general kind of reporting mechanisms we have within Ferguson, it required us to take it to the level of where we were actually having that conversation. And this is where the coalface comes in the people that were liaising with the customers on the ground. So, they were able to give us a good feeling. And this wasn’t just anecdotal. This is actual, you know, sort of, you know, they were talking to, you know, customer, Mr. Jones, who said, or Mrs. Jones, for that matter, who said, you know, what, we’ve got a good order book. The issue we’ve got at the moment isn’t kind of finding new orders or being able to meet those orders. It’s, it’s about liquidity. So, there was one of the issues that some of our customers face initially Anyway, was just the ability to source or get access to the funding that, you know, some of the governments and regulatory authorities locally had provided it. That was just something that that come, but I think, then, thankfully didn’t last long. But it was quite encouraging for us to hear that they weren’t really concerned, if you like, from the perspective that there was going to be a meltdown in the economy. I mean, I know, there’s been other aspects of the economy that have suffered, unfortunately. But it was kind of reassuring that in terms I understand of two other indices, I’m sure you’re aware of that. That wasn’t as severe. Yeah, no. 

 

Craig Jeffery  15:41   

That’s good. And I’m going to try to remember the coalface you know, being down in the mines working together willing to get dirty, you know, that I think you gave good examples of that, and that’s going to stick with me. So maybe you’ll be responsible for making that that expression jumped upon on the Treasury communication and Treasury work for the business, you know, support of the business, you know, you know, post the initial, the stages and, you know, moving on, you know, you’ve mentioned, the need to communicate and back and forth with likely your associates, for example. What are those things that you that you’ve seen that that have worked? Well, I would say it’s communication in both directions, what? What’s going on there? 

 

Royston Da Costa  16:32   

Yeah, that’s a good question, Craig. I mean, I’d like to think that in the first place, we have a very strong network within folks. And I’m talking about not social network, necessarily. I’m talking about network of colleagues that work closely together on a day-to-day basis. So that in itself was a good starting point. But in terms of additional lessons learned, I think it helped us to recognize that we could turn around very, very quickly, the necessary tools and the people that needed to be involved and engaged in the calls that we had initially. And I have to keep going back to that, because as much as we have all the technology that we have, it was being able to communicate using a simple phone call or Zoom meeting or Teams meeting, to flush out and to discuss at length in some cases, what exactly what’s happening at the coalface. Sometimes the system isn’t able to capture all that. And so, it was good to be able to, to learn from that and also to share with our colleagues because sometimes you don’t always have that opportunity. And perhaps they’re not necessarily, given the, the kind of the arena to kind of hear that information. So, we were able to share with us colleagues about what we’ve done in Treasury for the group, by making sure that they felt, you know, reassured if they needed it, that we had all the right facilities in place, we had the funding in place. And you know that this wasn’t where we, you know, it’s not like we were going to be short of cash tomorrow, or any of those kinds of issues that were going to happen, we just wanted to be very prudent and wanted to plan ahead like any good business. And in turn, we need the information that they had access to and also be able to steer them to what information was most important to us. And as I said before, it was about those orders about the customers are continuing to pay, what was the default rate like you know, it was getting higher, was it was staying the same, was it getting lower. And, you know, keeping a constant monitor on those sorts of metrics, as we’re going through those calls from week-to week, apart from the other meetings that will be had, obviously, within the organization just ensure that the right reporting was coming through. And obviously, in terms of that being fed up all the way to the board. 

 

Craig Jeffery  19:04   

Is that that communication, getting more information about orders and payments, are they slowing down? Or defaults? Is that getting additional information that confirms and I’m saying this isn’t either or it may not be an either? Is that confirming what you’re hearing and seeing coming through the bank accounts, right, the collection activity?  

 

Royston Da Costa  19:32   

No. It’s a bit of both actually, to be honest. I mean, you’ve got to think of the time lag as well. So, when we were looking at the pandemic, back in March last year, a lot was coming through the bank account was based on orders that had been put through in January or perhaps even December previous year. So, we couldn’t really rely on the cash that we were seeing being collected in March because that was the, you know, not representative of what was happening at the time. The calls that we were having at the time was really to help us to gauge what was likely to happen in a couple of months’ time or maybe six, seven weeks’ time, because we knew that whatever was going through at that point would have an impact or would affect what we could expect, in a sort of, in six weeks to two months’ time. The other important point to remember, Craig is obviously like, again, you know, we have a forecasting tool and system in place already, these forecasts had already been put into the system for the year ahead. Now, obviously, those forecasts are always being updated as a normal course of business. And you wouldn’t have expected those forecasts to dramatically change. But in this case, we had to expect there could be a huge impact to those forecasts. So, that’s the other reason we were watching and looking closely at what was happening on the ground, or the coalface, as I said, so that we could help to qualify some of those forecasts that may have been impacted, you know, sort of in that window. 

 

Craig Jeffery  21:07   

Yeah, this is really interesting, you know, you have, in a sense, talked about the need for earlier information and indicators in times of, well in times of change, this dramatic environment. And, you know, you also use the term lag. And I just spoke to one of your fellow countrymen just a few days ago about alternative data. And we talked about lag data as one element. So, data that’s older, data is not as relevant. And you know that the idea of the need for more current information, and you just gave another great example for that. Just like how can we how can we see something more contemporaneously? And how will that impact us? Right, there’s, there’s a potential for a major change. And you’ve seen it, and so what are the early indicators, and that this has been fascinating, and understandable. And the fact that you also use the word lag, when he used the term lag data was fun for me intellectually to hear that. 

 

Royston Da Costa  22:17   

Okay. Yeah. And I think, again, just to reiterate the point, it’s, you know, for us, it’s in a normal cycle, we have peaks and troughs, like any business, and we know, what the kind of typical variants that might occur in one month or next, and it does vary a bit. Like, for example, you know, what’s happened in Texas with the abnormal weather that they’ve had that affects our business to a degree, you know, how people can continue to, you know, sort of do to do conduct their orders and what have you. So, we adjust our forecast based on those sort of factors that we come across. But this was something new, this was something that was going to be unknown in terms of the period how long with last, the impact, we didn’t quite know that at the outset, how much it impacted customers. And I guess in terms of what else could have happened, that was always going to be that’s the kind of unknown unknown that we were having to keep an eye on. 

 

Craig Jeffery  23:24   

Royston thank you so much for your comments, and your time, you’ve been very generous in appearing on multiple podcasts. Thank you so much. 

 

OUTRO  23:36   

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