COVID-19’s impact on the CFO office – Manufacturing

In domains ranging from food to high-tech equipment: the COVID-19 pandemic has created an unprecedented combination of supply and demand shocks for most products – and, hence,  nearly every manufacturer. So, how did family-owned Agristo, a Belgian leader in frozen potato products, weather the first weeks and months of this crisis, and how does their approach compare to that of Gantrex, Nivelles-based market leader in crane rail solutions?

Far-reaching supply chain disruption

With food a basic need, Belgium honored its ‘food heroes’ during the crisis and there was a lot of talk about protecting the agri-food supply chain. How did Agristo cope with the COVID-19 pandemic?

Warnez: “As a private-label producer, we provide frozen potato products to both retailers and food services providers, in a roughly 50/50 ratio. 98% of what we produce is exported abroad to 115 countries. As soon as the lockdown was imposed, demand from restaurants and other food service establishments around the world dropped dramatically. In the first weeks, that decline was largely offset by a 20% growth in demand from retail, as people in supermarkets started hoarding food. However, that effect disappeared in April. So all in all, we only compensated for part of the demand lost due to the closure of food businesses. It’s unclear what will happen in the coming weeks. Now that restaurants are reopening, it may take a long time for them to regain pre-COVID-19 business levels. We expect the demand for processed potato products to remain weaker in the coming months. Before the crisis, Agristo had projected a 15% to 20% growth rate in 2020.”

Deedene: “As we have branches in 20 countries on five continents, the corona crisis had a step-by-step impact on our operations. Just when we were ready to resume production in China, Europe was heading towards a lockdown. Activities slowed down significantly as customers postponed their orders, and many sites where we had to deliver and install products became inaccessible. Most of our suppliers didn’t close entirely, though. The most important rolling mills, for example, kept delivering steel, so we could continue delivering our products and solutions. In the US, COVID-19 hit a bit later. Overall, we had to entirely review our forecast as the initial budget for 2020 was completely outdated.”

Picture: Xavier Deedene, CFO Gantrex

How did that disruption affect the workforce?

Deedene: “Production workers were impacted first, so we had to put many of them on temporary unemployment. Later on, we had to do the same for all departments, from sales to marketing, including finance – first in Spain, where production shut down almost entirely, and then in Belgium, the UK and Germany. In total, 40 to 50% of our Belgian workforce was temporarily unemployed between mid-March and mid-May. Many office workers teleworked, which made it easy for the people who really had to be present in the offices to respect social distancing rules.” 

Warnez: “The first few weeks required huge flexibility from all of us and were quite hectic. While we struggled with staffing concerns (many people were afraid to come to work), had to comply with the social distancing measures and provide protective gear, we had to cater to the sudden high demand for retail products. That implied modifying the production planning from for food services to French fries, croquettes, mashed potatoes etc. for retail. When the demand for retail dropped as well, we slowed down production to avoid stock overload: while our production lines normally run 24/7, we decided to stop production lines periodically, such as during long weekends. No one in production, however, was put on temporary employment. In fact, our production lines are automated to such an extent that we never need more than two to three people to keep them running. The staff involved in packaging did other jobs when less capacity was needed, like packaging potato product stock. White-collar workers were each temporarily unemployed for ten days over a period of three months.”

Picture: Nele Warnez, CFO Agristo

Scenarios, scenarios, scenarios

What was your focus as a CFO in the first days and weeks?

Warnez: “I monitored our cash position much more frequently than before, keeping a close eye on incoming and outgoing cash, and helped the sales team follow up on the customer portfolio. As soon as Italy went into lockdown, for example, we noticed that it became difficult for some of our customers to pay the bills. We resolutely chose not to allow them to defer payments, but we did ask our sales teams to maintain close bonds, communicate openly about the situation and see what they could do. Openness and flexibility are really core values for Agristo and we know that customers appreciate us for that. Apart from that, I recalculated our budgets and made countless scenarios, which the management team and supply chain personnel used to make decisions, e.g. regarding stock levels.”

Deedene: “Together with our shareholders, we immediately assessed the impact of the crisis on our cashflow. In addition, we asked banks to review our business loans. Scenario generation and stress testing were never more critical than they were in these weeks: together with the banks, we made forward-looking scenarios based on best- and worst-case scenarios (e.g. resume normal activities in April vs. May vs. later in the summer, etc.).  To avoid temporary liquidity problems and safeguard our business during this tough period, we benefited from the moratorium on financial debts that Belgian authorities put into place. While specific terms and conditions apply, we have been allowed to delay payments on debts that were due between March and September.”

Warnez: “Until now, we haven’t put any running investments on hold. Agristo is on a steep growth path and we are currently constructing our new headquarters in Wielsbeke. In addition, we are implementing SAP S/4HANA right now – we want to be ready for go-live at the end of 2020. We decided to keep these projects going. On the one hand, stepping on the brakes keeps cash under control, but on the other hand, we really want to be ready when the economy picks up again. Moreover, there’s a bit more time now to follow up on all these new projects.”

Sustainable globalization

How do you see the short- and long-term future of your company? Is the COVID-19 pandemic the start of a new world?

Deedene: “I don’t really believe in a new world and Gantrex does not plan to change its business models. I do think, however, that teleworking is here to stay. And now that everyone has experienced the possibilities and ease of videoconferencing, I expect less business travel in the future. For a group like Gantrex, which is active in more than 20 different countries, that can make a huge difference in terms of organization, cost savings and environmental footprint.”

Warnez: “The crisis has, in a way, highlighted the danger of globalization. At Agristo, however, we believe that our business model remains the right one, but we do make great efforts to boost sustainability. We deliberately chose to expand our production sites close to the source of our raw materials, our potatoes, and close to a container terminal (Wielsbeke and Tilburg), so that end products can be shipped as much as possible via waterways – a more sustainable alternative to road transport. So, if we make globalisation more sustainable, I am sure it’s valuable.”

Finance teams need a vision

Do you feel like this crisis has strengthened the position of finance as a strategic partner to the management team? Does technology help you in this?

Warnez: “I am pretty new to the role of CFO, but I do see how our responsibilities change due to the increased digitisation of finance. While finance used to be very task-oriented, it is much more strategic now: we need a vision of the future of the company, which we are invited to share with the other members of the management team. At Agristo, we expect SAP S/4HANA to help us strengthen the role of finance, through embedded reporting, for example.” 

Deedene: “More than CFO, I am also responsible for IT at Gantrex. During this crisis, I noticed how everyone appreciated the choices we made for IT in the past few months. The switch to teleworking, for example, was surprisingly smooth, thanks to our cloud and videoconferencing solutions – many colleagues had been skeptical about that change at the time, but they are now convinced that the transition was worthwhile. Apart from that, the business has understood how important scenarios and forecasting are to keeping our business running, now and in the coming months. Here, too, technology is important – automated reports, for example, ensure more speed and a helicopter view on the business. So, we have big expectations for our new ERP Dynamics 365 system that is about to go live.  So yes, I feel that this crisis has strengthened our position and I expect even more collaboration between the finance and business teams in the future.”

Agristo in numbers (2020)

• Activities: frozen potato products
• Founded: 1986
• Head office: Harelbeke
• Employees: 1000

Gantrex in numbers (2020)

• Activities: crane and specialty rail tracks 
• Founded: 1971
• Head office: Nivelles
• Employees: 370

This is the second in a series of interviews on how the COVID-19 pandemic is affecting finance teams in various sectors. Did you miss previous articles covering the impact of COVID-19 on transport and logistics? Keep an eye on our LinkedIn account and check out the last post in this series!