The impact of COVID-19 on the Central South – Q&A with Craig Barlow, Chief Financial Officer, Apello

November 2020

Craig Barlow, Chief Financial Officer, Appello

Appello provides technology enabled care - digital services that integrate both safety and wellbeing technologies to monitor and support the health, safety and security of vulnerable people. Chief Financial Officer, Craig Barlow, shares his thoughts on the latest findings from our Rethinking the Economy survey in the Central South and his experiences over the last eight months.

Our latest survey has shown that whilst nearly all respondents in the Central South have made redundancies due to the impact of COVID 19, two thirds expect their workforce to increase between 50-100% in the next 12 months. 56% also believe they can survive a second wave of COVID without further financial support – is this reflected in what you are seeing in your business and the people you talk to?

For us over the next year, we will grow our employee base slightly on the back of new business, but it will be pretty modest – 10% maybe. We have made some redundancies but it would appear a small amount compared to others in the region. Some of the other businesses I speak to needed to reduce costs quickly due to nervousness about future cashflows and when they bounce back out of this, they will have to rehire people. That is good for the local economy, but I think a large portion of growth will be recovery back to pre-Covid trading positions.

There has been a lot of learnings from the first lockdown which we obviously have taken into this lockdown period. People having to work from home is something we are now set up for, so there is less of an impact this time. We’ve taken advantage of some of the Government support in the interim and so don’t expect this lockdown to have a material impact, certainly on our cash flow. The big thing for us, and it won’t be the same for all businesses, is that tradesman are allowed onto sites, so now by being vigilant and taking the proper precautions we can still deploy our systems whereas last time half of our business couldn’t operate. We were lucky for the first lockdown that the other half of our business operates on annuity contracts delivering a critical service that was required throughout and so the cash kept coming in. 

What has been the biggest learning curve for your business in the last six months? 

There were a few, some positive and some negative. We’d already set up a lot of our processes collaboratively with customers, mostly to facilitate operational performance, reporting and to help with the credit control process. Some businesses I know have talked about delays of four or five months in getting paid – we definitely benefitted from having processes that synced with our customers as it made everything a bit smoother than it could have been.

A good example is the way we invoice for our deployments, we ensure we have a signed completion certificate from the customer’s surveyor before the invoice is sent with the internal paperwork that they need – not something we have to do but which had previously helped speed up payment. As we went into the pandemic it meant that customers had everything they needed without chasing around for it from people who might be furloughed, so we were still getting paid and only slightly slower than normal. It made us realise that integration with our customers’ processes makes it easier for us to absorb shocks and we are definitely looking at where else we can integrate better into our customers and suppliers.

The other two positives were staff related. We found we could rely on staff to pull together, there was a real siege mentality which benefitted us and allowed us to keep delivering a great service through the adverse times. Thirdly our ability to roll out projects quickly under pressure was excellent. Getting our monitoring systems working from home was a two-year ambition and we turned it around in 14 days and we want to take some of that learning forward when the pressure is off, we delivered a great project at a much lower cost and benefitted from being much more agile.

The flip side is the unexpected inefficiency and extra effort that the uncertainty creates in every aspect of the business – in reassuring staff, in shareholder and customer engagement, the amount of time it takes is a huge drain on everyone in the business. For me I’m losing up to 40% of my time managing shareholder expectations and speaking to our key customers and suppliers, which means I’m not spending as much time driving the business forward as I would like. That drain on management time is really inefficient. It has eased off, but it hasn’t gone away and there are definitely things we have had to put on hold as a result. Most of our business improvement programmes have been delayed and that adds cost and delays strategic objectives. We made an acquisition at the end of last year which is not yet fully integrated as the program had to be put on hold, it would have completed by May but there are now additional hurdles to go through. While you’re tackling those you’re not as focused on the actual operational piece.
 
As business adapts to a new reality what is your biggest concern for the Central South as a region?

Departure from the EU – most businesses I talk to haven’t focussed on it at all because we’ve obviously been distracted by the pandemic. We are six weeks away and we still don’t know the regulatory conditions we are going to be operating in come January to a full extent. For us and most businesses Brexit planning has slipped out of the priority list. This time last year we had put in huge provisions for how we were going to operate and got stock in place and this time we haven’t done that to the same extent and everyone I speak to is in the same boat. I think that’s a huge risk for the first part of next year, businesses in this and all regions are going to be poorly prepared. 

For us there was a real concern about workforce post Brexit with scarce resource of labour in the national living wage bracket. This is now less of a concern in the immediate future because of the impact of the pandemic on employment levels but it’s only a medium-term easing as it will become an issue again as we get further away from the impacts of coronavirus. We are now concerned about the time it will take things to get through ports and if there are new tariffs, given we are importing non-perishable items they could sit in bonded warehouses for four or five months which is a huge amount of cost and operational disruption and we still don’t have answers to those questions.

Ultimately, if there is a struggle to get products into the country or the cost of them goes up significantly, it either hits viability, margins, timescales or the pricing, and for many businesses they won’t have the contractual flexibility to increase prices or their customers won’t be able to absorb additional costs. For us if, for example, the cost of our components doubled then we would have to go back to customers and I’m not sure how that would impact the business.

What are you hoping to see from the government in the coming months?

You would hope for a decent operational programme to get any vaccine rolled out – whilst well intentioned, career politicians are not necessarily the people you’d pick to run big operational programmes so it will be a challenge for them to make that happen. The big thing for me goes back to my last point, the government have done a good job with the furlough scheme and support packages they have put in place but I’m not seeing a lot of focus from ministers or clarity about what things are going to look like post Brexit and I think that’s because they don’t know yet. It would be great to have some guidance about what it looks like on the 2 January when we want to import something.

On a positive note, we have seen from businesses we are close to that there has also been a huge amount of opportunity, particularly for PE houses or those with money to spend and invest. For economic recovery in the Central South and elsewhere this means that companies will still potentially see investment and support through the recovery, which will be much needed in the short term. The next two or three years are going to be tough, we are definitely expecting increased taxes, reduced activity levels and struggles across the board, so investment will be a big help and the Central South has some fantastic businesses so will be really well placed to benefit from that.

If you are concerned about your own Brexit preparedness, please visit our Brexit hub.  
 


 

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