1 00:00:03,440 --> 00:00:06,100 Sean Aylmer: Welcome to the Fear and Greed Daily Interview. I'm Sean 2 00:00:06,100 --> 00:00:10,190 Sean Aylmer: Aylmer. We've spoken in the past about cashflow and working capital. 3 00:00:10,340 --> 00:00:13,380 Sean Aylmer: Anybody running a business knows how challenging they can be. 4 00:00:13,780 --> 00:00:15,980 Sean Aylmer: Now, a new report has looked at the working capital 5 00:00:15,980 --> 00:00:21,620 Sean Aylmer: performance of 137 ASX- listed companies across seven sectors. How 6 00:00:21,620 --> 00:00:24,800 Sean Aylmer: much money was locked up within these businesses, how quickly 7 00:00:24,800 --> 00:00:27,790 Sean Aylmer: they collected cash from customers, and the impact on payments 8 00:00:27,790 --> 00:00:31,530 Sean Aylmer: to suppliers. There are really important insights with implications not 9 00:00:31,530 --> 00:00:34,530 Sean Aylmer: just for ASX- listed companies, but clients and suppliers all 10 00:00:34,530 --> 00:00:37,670 Sean Aylmer: the way through the supply chain. Jason Ireland and Sean 11 00:00:37,729 --> 00:00:41,380 Sean Aylmer: Wiles are partners at McGrathNicol Advisory and co- authors of 12 00:00:41,380 --> 00:00:45,129 Sean Aylmer: the report, which enables McGrathNicol to anticipate how companies and 13 00:00:45,130 --> 00:00:48,790 Sean Aylmer: sectors will perform when facing any turbulence in the next 14 00:00:48,790 --> 00:00:51,710 Sean Aylmer: 12 months or so. McGrathNicol is a supporter of this 15 00:00:51,710 --> 00:00:54,180 Sean Aylmer: podcast. Jason, Sean, welcome to Fear and Greed. 16 00:00:54,460 --> 00:00:54,731 Jason Ireland: Thank you, Sean. 17 00:00:54,731 --> 00:00:54,871 Sean Wiles: Thanks, Sean. 18 00:00:56,400 --> 00:01:01,090 Sean Aylmer: First, let's start with some definitions, Sean. What's the difference between cash flow and working capital? 19 00:01:01,740 --> 00:01:05,290 Sean Wiles: Well, Sean, we often talk about operating cashflow as being 20 00:01:05,290 --> 00:01:09,540 Sean Wiles: a businesses' receipts and payments from trading, from doing business. So, 21 00:01:09,540 --> 00:01:12,630 Sean Wiles: unless a business operates purely on cash- on- delivery, at 22 00:01:12,630 --> 00:01:14,910 Sean Wiles: any point in time, it will be owed money from 23 00:01:14,910 --> 00:01:18,539 Sean Wiles: its customers for sales that it's already made and it will also 24 00:01:18,540 --> 00:01:22,560 Sean Wiles: owe money to its suppliers for purchases that it has made. And these, 25 00:01:22,640 --> 00:01:26,209 Sean Wiles: really, are the two key components of a business' working capital, its 26 00:01:26,209 --> 00:01:30,140 Sean Wiles: accounts receivable and accounts payable. And the third element is 27 00:01:30,150 --> 00:01:33,660 Sean Wiles: obviously inventory. So, the inventory or stock that a business has 28 00:01:33,660 --> 00:01:37,899 Sean Wiles: on hand ready for sale at any point in time. Essentially, 29 00:01:38,150 --> 00:01:43,100 Sean Wiles: a businesses' accounts receivable, accounts payable and inventory; these three components 30 00:01:43,430 --> 00:01:47,900 Sean Wiles: comprise a businesses' networking capital. It's the part of trading 31 00:01:48,380 --> 00:01:51,750 Sean Wiles: that is not yet translated into cash flow. So, working capital 32 00:01:51,750 --> 00:01:55,760 Sean Wiles: management drives cash flow, in our view, and the better that businesses can do it, 33 00:01:56,030 --> 00:01:59,430 Sean Wiles: the quicker they'll convert their effort or their trading into cash. 34 00:01:59,720 --> 00:02:02,600 Sean Aylmer: Okay, and the report also talks about the networking capital 35 00:02:02,600 --> 00:02:05,870 Sean Aylmer: cycle. What is that a proxy for? How do I 36 00:02:05,870 --> 00:02:06,540 Sean Aylmer: think about that? 37 00:02:07,480 --> 00:02:09,839 Sean Wiles: Well, we think about the performance of a business in 38 00:02:09,840 --> 00:02:13,020 Sean Wiles: managing its working capital as the amount of time it takes 39 00:02:13,020 --> 00:02:16,200 Sean Wiles: to collect from its customers, the time it takes to 40 00:02:16,200 --> 00:02:18,889 Sean Wiles: pay its suppliers, the time it takes to hold its 41 00:02:18,889 --> 00:02:24,389 Sean Wiles: inventory. So, collectively, those three parts of a businesses' trading 42 00:02:24,389 --> 00:02:26,330 Sean Wiles: make up its networking capital cycle. 43 00:02:26,590 --> 00:02:29,370 Sean Aylmer: Great. So, this is the ninth edition of your Annual 44 00:02:29,419 --> 00:02:32,389 Sean Aylmer: Working Capital Report. But, of course, this one's a little 45 00:02:32,389 --> 00:02:36,070 Sean Aylmer: different because of the overall impact of COVID- 19. Sean, what 46 00:02:36,070 --> 00:02:39,359 Sean Aylmer: were the main changes you noticed in working capital cycles 47 00:02:39,430 --> 00:02:42,730 Sean Aylmer: across last year and even the year before, I suppose, 48 00:02:42,730 --> 00:02:43,540 Sean Aylmer: because of COVID? 49 00:02:44,050 --> 00:02:47,790 Sean Wiles: So, interestingly, at a fundamental level, we saw how resilient 50 00:02:47,919 --> 00:02:52,520 Sean Wiles: Australian businesses were, Sean. So, trading activity actually increased during 51 00:02:52,520 --> 00:02:55,860 Sean Wiles: the year with about 70% of our sample reporting revenue 52 00:02:55,860 --> 00:02:59,900 Sean Wiles: growth, but businesses did carry higher levels of working capital 53 00:02:59,950 --> 00:03:03,510 Sean Wiles: to deliver this outcome. And the average working capital cycle, 54 00:03:03,590 --> 00:03:07,240 Sean Wiles: that we talked about, increased by 3. 1 days, which 55 00:03:07,380 --> 00:03:11,100 Sean Wiles: in itself might not sound too significant, but this translated 56 00:03:11,100 --> 00:03:14,700 Sean Wiles: into an additional five and a half billion dollars of 57 00:03:14,700 --> 00:03:17,530 Sean Wiles: cash being locked up within the companies that we looked at. 58 00:03:18,020 --> 00:03:21,609 Sean Aylmer: Wow. So, just breaking that down then into the collecting 59 00:03:21,610 --> 00:03:24,810 Sean Aylmer: cash from customers or holding more inventory or paying suppliers, 60 00:03:25,120 --> 00:03:26,780 Sean Aylmer: whereabouts did that play out? 61 00:03:27,280 --> 00:03:30,010 Sean Wiles: Yeah, that's right. Companies collected cash from their customers more 62 00:03:30,010 --> 00:03:34,430 Sean Wiles: slowly. They did hold more inventory and they paid their supplies more 63 00:03:34,430 --> 00:03:35,110 Sean Wiles: slowly as well. 64 00:03:35,810 --> 00:03:40,400 Sean Aylmer: Okay. And did the impact of COVID change as the pandemic went on? Because we went in 65 00:03:40,400 --> 00:03:41,230 Sean Aylmer: and out of lockdown. 66 00:03:41,800 --> 00:03:44,750 Sean Wiles: Yeah, the COVID impact was really felt in two ways 67 00:03:44,750 --> 00:03:48,880 Sean Wiles: during 2021, Sean. Firstly, there did appear to be a 68 00:03:48,880 --> 00:03:51,630 Sean Wiles: correction in working capital cycles in the first half of 69 00:03:51,630 --> 00:03:55,100 Sean Wiles: the year, and the stock buildup that was reported in 70 00:03:55,100 --> 00:03:58,070 Sean Wiles: the second half of 2020 was actually released and the 71 00:03:58,070 --> 00:04:01,840 Sean Wiles: supply payment cycles lengthened. And this came after a period 72 00:04:02,320 --> 00:04:04,880 Sean Wiles: during the first wave of COVID where businesses had to 73 00:04:04,880 --> 00:04:08,960 Sean Wiles: accelerate payments to shore up supply. So, that was released 74 00:04:09,040 --> 00:04:13,050 Sean Wiles: and businesses' working capital cycles actually got shorter in the first half 75 00:04:13,050 --> 00:04:13,460 Sean Wiles: of the year. 76 00:04:14,810 --> 00:04:17,339 Sean Aylmer: In my mind, I'm thinking that a shorter cycle is better, 77 00:04:17,339 --> 00:04:18,430 Sean Aylmer: but is that always the case? 78 00:04:18,890 --> 00:04:21,200 Sean Wiles: Yeah, we're looking for businesses, when we are talking to 79 00:04:21,200 --> 00:04:26,640 Sean Wiles: businesses about optimising working capital, it's not always the lowest 80 00:04:26,640 --> 00:04:29,419 Sean Wiles: level of inventory, but it's the optimal level of inventory 81 00:04:29,420 --> 00:04:31,420 Sean Wiles: for them to be able to service their customers, to 82 00:04:31,420 --> 00:04:35,610 Sean Wiles: meet their customer promise. But, when you're thinking about the 83 00:04:35,610 --> 00:04:38,640 Sean Wiles: other aspects of working capital, you do want to try 84 00:04:38,640 --> 00:04:41,229 Sean Wiles: and bring in cash as quickly as you can from customers. 85 00:04:41,230 --> 00:04:43,370 Sean Wiles: And you do want to manage your supply payments to 86 00:04:43,370 --> 00:04:46,979 Sean Wiles: try and, I suppose, manage and balance against the time 87 00:04:46,980 --> 00:04:49,300 Sean Wiles: it's taking you to get that money in from your customers. 88 00:04:49,730 --> 00:04:52,650 Sean Aylmer: Jason, I wanted to bring you in here and look at a couple of 89 00:04:52,650 --> 00:04:55,930 Sean Aylmer: sectors, particularly. Let's start with construction. Obviously, one of the 90 00:04:55,930 --> 00:04:59,360 Sean Aylmer: most working capital intensive sectors in the economy, how has 91 00:04:59,360 --> 00:05:00,570 Sean Aylmer: it done in the last year or so? 92 00:05:01,000 --> 00:05:03,370 Jason Ireland: You're right, Sean, it is one of the most working capital- 93 00:05:03,370 --> 00:05:08,070 Jason Ireland: intensive sectors. And that's because of at least one characteristic 94 00:05:08,180 --> 00:05:10,700 Jason Ireland: across many of the operators in the sector. And that 95 00:05:10,700 --> 00:05:14,980 Jason Ireland: is that they tend to pay their suppliers more quickly 96 00:05:14,980 --> 00:05:17,409 Jason Ireland: than they collect from their customers. So, you can see 97 00:05:17,410 --> 00:05:20,690 Jason Ireland: automatically there is a gap; a funding gap. So, you 98 00:05:20,690 --> 00:05:23,390 Jason Ireland: need to manage your working capital really well in the 99 00:05:23,390 --> 00:05:28,210 Jason Ireland: construction sector or you run into trouble with cash flow. And so, 100 00:05:28,210 --> 00:05:33,089 Jason Ireland: the sector, it's one of the more impacted sectors by COVID- 19, 101 00:05:33,089 --> 00:05:35,760 Jason Ireland: in that we had lockdowns, we had restrictions on some 102 00:05:35,760 --> 00:05:38,430 Jason Ireland: sites for a period of time, mainly in the second 103 00:05:38,430 --> 00:05:42,670 Jason Ireland: wave of lockdowns. And it actually fared a little poorly. It 104 00:05:42,670 --> 00:05:47,450 Jason Ireland: took five days longer to collect from its customers. So, 105 00:05:47,450 --> 00:05:50,700 Jason Ireland: as I mentioned before, already a sector that needs to 106 00:05:50,700 --> 00:05:53,440 Jason Ireland: really collect quite quickly that the extension of time to 107 00:05:53,440 --> 00:05:56,049 Jason Ireland: collect is a bit of a concern. And what it 108 00:05:56,050 --> 00:06:02,190 Jason Ireland: did was it compensated by carrying less inventory and paying 109 00:06:02,190 --> 00:06:06,300 Jason Ireland: its suppliers more slowly so that it conserved that cash 110 00:06:06,300 --> 00:06:10,240 Jason Ireland: that it was effectively not yet collecting. And we don't 111 00:06:10,240 --> 00:06:13,150 Jason Ireland: think that's sustainable for the sector, that sector needs to 112 00:06:13,150 --> 00:06:15,500 Jason Ireland: get back to collecting really well so that it can 113 00:06:15,500 --> 00:06:18,779 Jason Ireland: shore up its supply for what should be a really 114 00:06:18,779 --> 00:06:22,370 Jason Ireland: good period for construction in Australia. So, getting working capital 115 00:06:22,370 --> 00:06:25,210 Jason Ireland: right in that sector is going to be an essential 116 00:06:25,210 --> 00:06:27,450 Jason Ireland: part of the management team's focus this year. 117 00:06:28,120 --> 00:06:31,290 Sean Aylmer: Okay because that sector is certainly done well out of some government 118 00:06:31,290 --> 00:06:35,620 Sean Aylmer: subsidies, which are still flowing through the economy. But if 119 00:06:35,620 --> 00:06:39,150 Sean Aylmer: they're not managing their working capital, they're not taking best 120 00:06:39,150 --> 00:06:40,060 Sean Aylmer: benefit out of that. 121 00:06:40,720 --> 00:06:44,549 Jason Ireland: That's right. That sector is working capital intensive. It is 122 00:06:44,550 --> 00:06:49,330 Jason Ireland: tough though, because you've got multiple supply coming from multiple 123 00:06:49,330 --> 00:06:52,360 Jason Ireland: creditors. You need to manage all of that supply chain. 124 00:06:52,660 --> 00:06:55,920 Jason Ireland: It's a tough sector. It is a sector that we have seen 125 00:06:55,920 --> 00:07:00,779 Jason Ireland: companies fail while winning work and while contracting because purely 126 00:07:00,779 --> 00:07:03,839 Jason Ireland: of working capital management, it's really tough in that sector. 127 00:07:04,290 --> 00:07:05,970 Sean Aylmer: Stay with me. We'll be back in a minute. 128 00:07:11,040 --> 00:07:17,320 Sean Aylmer: I'm talking to Jason Island and Sean Wiles, partners at McGrathNicol Advisory. Okay. Sean, 129 00:07:17,320 --> 00:07:20,350 Sean Aylmer: the food and beverage sector. Another interesting one, hard hit 130 00:07:20,350 --> 00:07:24,220 Sean Aylmer: by COVID. How big was the impact on its working capital? 131 00:07:25,070 --> 00:07:28,320 Sean Wiles: Yeah, Sean, the food and beverage sector experienced the largest 132 00:07:28,320 --> 00:07:31,880 Sean Wiles: deterioration in working capital performance of all the sectors we covered 133 00:07:32,260 --> 00:07:35,520 Sean Wiles: in our report, and the networking capital cycle lengthened by 134 00:07:35,920 --> 00:07:39,070 Sean Wiles: just over two weeks, actually one of the biggest changes 135 00:07:39,070 --> 00:07:42,750 Sean Wiles: in working capital that Jason and I have seen in the nine years 136 00:07:42,840 --> 00:07:46,480 Sean Wiles: of writing this report, and it translated into, talking in 137 00:07:46,480 --> 00:07:50,190 Sean Wiles: dollar terms, about $ 400 million in cash locked up in the 138 00:07:50,190 --> 00:07:52,830 Sean Wiles: working capital of those operators in addition to what it 139 00:07:52,830 --> 00:07:53,730 Sean Wiles: did the previous year. 140 00:07:54,450 --> 00:07:57,300 Sean Aylmer: Okay. Then retail, Jason, bringing you back in, there was 141 00:07:57,300 --> 00:08:00,560 Sean Aylmer: a concern for a number of Australian retailers before COVID 142 00:08:00,560 --> 00:08:02,400 Sean Aylmer: hit. How'd they cope with the pandemic? 143 00:08:02,970 --> 00:08:05,500 Jason Ireland: Retail, I think was one of the big winners out 144 00:08:05,500 --> 00:08:09,770 Jason Ireland: of the pandemic, Sean, because we had some of those 145 00:08:09,820 --> 00:08:13,660 Jason Ireland: government incentives that you spoke about before. We also had 146 00:08:13,660 --> 00:08:17,650 Jason Ireland: people in many sectors feeling okay because they were on 147 00:08:17,670 --> 00:08:20,910 Jason Ireland: JobKeeper but were not able to travel so had more 148 00:08:20,910 --> 00:08:23,900 Jason Ireland: money in their pocket. So, the retail sector in terms 149 00:08:23,900 --> 00:08:27,220 Jason Ireland: of sales across our whole sample, and in fact, if 150 00:08:27,220 --> 00:08:30,120 Jason Ireland: you have a look at ABS retail sales data, retail 151 00:08:30,120 --> 00:08:33,040 Jason Ireland: has done very well in the last 18 months. And then, 152 00:08:33,040 --> 00:08:35,790 Jason Ireland: if you turn to working capital, it was a really 153 00:08:35,790 --> 00:08:40,270 Jason Ireland: tough working capital year for them though, because of much publicised 154 00:08:40,270 --> 00:08:44,770 Jason Ireland: supply chain impacts and problems particularly in the second half. 155 00:08:44,770 --> 00:08:48,040 Jason Ireland: So overall though, we saw a lengthening of the working 156 00:08:48,040 --> 00:08:50,910 Jason Ireland: capital cycle in retail by two and a half days. 157 00:08:51,490 --> 00:08:53,300 Jason Ireland: Two and a half days doesn't sound like a lot, 158 00:08:53,300 --> 00:08:57,300 Jason Ireland: but in retail that equates to $ 1. 2 billion. So, $ 1. 159 00:08:57,670 --> 00:09:01,859 Jason Ireland: 2 billion tied up in working capital is a significant 160 00:09:01,860 --> 00:09:07,410 Jason Ireland: number and it actually happened in their inventory. So, seven 161 00:09:07,440 --> 00:09:12,330 Jason Ireland: days more inventory than last year. Now, in one sense, 162 00:09:12,540 --> 00:09:15,020 Jason Ireland: why did that happen? And is inventory so a bad 163 00:09:15,020 --> 00:09:18,030 Jason Ireland: thing for retailers? Well, it's good to have the inventory 164 00:09:18,030 --> 00:09:20,300 Jason Ireland: because we think there will be a bit of a 165 00:09:20,300 --> 00:09:25,189 Jason Ireland: supply chain impact coming retailers' way in the next 12 months. 166 00:09:25,190 --> 00:09:27,729 Jason Ireland: So in one way, that's not so bad because they've 167 00:09:27,730 --> 00:09:30,260 Jason Ireland: stocked up. But of course, as we know for retailers, 168 00:09:30,260 --> 00:09:33,140 Jason Ireland: it needs to be the right inventory. So, working capital 169 00:09:33,140 --> 00:09:35,740 Jason Ireland: management for retailers is key because you need to keep 170 00:09:35,740 --> 00:09:40,170 Jason Ireland: turning your inventory over. And so that seven day increase 171 00:09:40,170 --> 00:09:43,480 Jason Ireland: in inventory is a significant number for the retail sector. 172 00:09:43,900 --> 00:09:46,640 Sean Aylmer: Okay. Along the same lines, we're going to see lots 173 00:09:46,640 --> 00:09:50,090 Sean Aylmer: of growth opportunities as the economy emerges from the pandemic. 174 00:09:50,090 --> 00:09:52,890 Sean Aylmer: We're already seeing some of that. What impact does working 175 00:09:52,890 --> 00:09:55,939 Sean Aylmer: capital have on the ability of a business to take advantage 176 00:09:55,970 --> 00:09:57,410 Sean Aylmer: of these opportunities, Jason? 177 00:09:57,809 --> 00:10:01,020 Jason Ireland: Huge, because to take advantage of opportunities in business you 178 00:10:01,020 --> 00:10:04,710 Jason Ireland: need cash. There's not much point in having all of 179 00:10:04,710 --> 00:10:07,540 Jason Ireland: that cash tied up in working capital, your cash needs 180 00:10:07,540 --> 00:10:10,400 Jason Ireland: to turn over. So, we actually think you're right, there'll 181 00:10:10,400 --> 00:10:14,330 Jason Ireland: be opportunities for pretty much every sector as we emerge 182 00:10:14,640 --> 00:10:16,870 Jason Ireland: from COVID- 19, or at least to emerge from the 183 00:10:16,870 --> 00:10:20,010 Jason Ireland: lockdowns and we start to see international travel back on 184 00:10:20,010 --> 00:10:22,900 Jason Ireland: the cards, and in fact, interstate travel. So, we think 185 00:10:22,900 --> 00:10:27,110 Jason Ireland: every sector will have options which are more and varied 186 00:10:27,110 --> 00:10:30,670 Jason Ireland: and the ability to grow will return. But if they 187 00:10:30,679 --> 00:10:33,160 Jason Ireland: don't have the cash available to them, they'll be left 188 00:10:33,160 --> 00:10:37,960 Jason Ireland: behind. So, working capital management, we think for 2022, it's 189 00:10:37,960 --> 00:10:40,569 Jason Ireland: got to be right up there with strategy and safety. 190 00:10:40,570 --> 00:10:43,770 Jason Ireland: Of course, safety is the number one for all sectors, 191 00:10:43,770 --> 00:10:47,820 Jason Ireland: but working capital management is right there with strategy. 192 00:10:48,120 --> 00:10:50,860 Sean Aylmer: When I think that through, the inventory part of the 193 00:10:50,860 --> 00:10:54,520 Sean Aylmer: equation must be difficult, particularly with all the supply chain 194 00:10:54,980 --> 00:10:58,730 Sean Aylmer: problems going on and just the ability to secure stock 195 00:10:58,760 --> 00:10:59,980 Sean Aylmer: in coming months, Jason. 196 00:11:00,380 --> 00:11:04,130 Jason Ireland: It will be. I think it's the biggest headwind for 197 00:11:04,130 --> 00:11:08,190 Jason Ireland: businesses generally, will be supply chain, because what we've seen 198 00:11:08,190 --> 00:11:11,360 Jason Ireland: is that other large economies around the world emerge from 199 00:11:11,360 --> 00:11:15,000 Jason Ireland: lockdown and emerge from COVID earlier. So, they've pulled on 200 00:11:15,000 --> 00:11:19,720 Jason Ireland: the demand and taken demand away from the transport lines 201 00:11:19,720 --> 00:11:23,470 Jason Ireland: that we usually use in Australia. So, you've actually seen 202 00:11:23,530 --> 00:11:27,250 Jason Ireland: already a disruption to supply chain. So, what do you 203 00:11:27,250 --> 00:11:29,869 Jason Ireland: do then if you're in a situation where you're a 204 00:11:29,870 --> 00:11:32,550 Jason Ireland: bit concerned about the supply chain? Again, I keep coming back 205 00:11:32,550 --> 00:11:34,450 Jason Ireland: to it, you need to have cash available so that 206 00:11:34,450 --> 00:11:36,969 Jason Ireland: you can pay. You might need to pay more quickly. 207 00:11:36,970 --> 00:11:39,250 Jason Ireland: You might need to pay more up front. And so, 208 00:11:39,250 --> 00:11:41,860 Jason Ireland: you need to be able to access cash from your 209 00:11:41,860 --> 00:11:44,640 Jason Ireland: own working capital cycle. The other thing we've seen, and 210 00:11:44,640 --> 00:11:47,429 Jason Ireland: I think businesses will increasingly need to do this is, 211 00:11:47,429 --> 00:11:50,000 Jason Ireland: you need to have more options than you had before. 212 00:11:50,000 --> 00:11:53,290 Jason Ireland: The idea which was in place for many years was that 213 00:11:53,809 --> 00:11:56,720 Jason Ireland: you narrowed your supply down to one or two suppliers 214 00:11:56,720 --> 00:11:59,960 Jason Ireland: and then negotiated the cheapest price possible. Well, we've seen 215 00:11:59,960 --> 00:12:03,020 Jason Ireland: people be caught out by that by only having one option. So, 216 00:12:03,400 --> 00:12:06,240 Jason Ireland: I think we might see some more onshore supply. I 217 00:12:06,240 --> 00:12:09,080 Jason Ireland: think we'll certainly see businesses need to pay more for 218 00:12:09,080 --> 00:12:13,020 Jason Ireland: supply and probably have more than one or two suppliers. And all of 219 00:12:13,020 --> 00:12:16,589 Jason Ireland: those things cost money and all of those things cost cash. 220 00:12:16,910 --> 00:12:19,851 Jason Ireland: And so, working capital management, more important than ever. 221 00:12:19,851 --> 00:12:24,300 Sean Aylmer: Okay. Now this report was on ASX- listed companies, Sean, but 222 00:12:24,360 --> 00:12:27,100 Sean Aylmer: what are the key messages from it for small and 223 00:12:27,100 --> 00:12:28,270 Sean Aylmer: medium sized businesses? 224 00:12:28,650 --> 00:12:32,160 Sean Wiles: I think, Sean, as Jason said, managing working capital is going 225 00:12:32,240 --> 00:12:35,500 Sean Wiles: to be hard in 2022, and we think this will 226 00:12:35,500 --> 00:12:39,010 Sean Wiles: be hard for businesses of all sizes and an added 227 00:12:39,010 --> 00:12:42,110 Sean Wiles: challenge for SMEs is that they don't often have the 228 00:12:42,110 --> 00:12:45,679 Sean Wiles: same level of commercial leverage, especially when dealing with the 229 00:12:45,679 --> 00:12:48,800 Sean Wiles: larger businesses, in their supply chain and they sometimes don't 230 00:12:48,800 --> 00:12:53,080 Sean Wiles: have the same access to working capital and other funding as well. So, 231 00:12:53,080 --> 00:12:55,950 Sean Wiles: they're going to have to be particularly disciplined in the 232 00:12:55,950 --> 00:12:58,620 Sean Wiles: way that they manage working capital in the next year, 233 00:12:58,950 --> 00:13:02,410 Sean Wiles: the way they foster relationships with their customers and suppliers, 234 00:13:02,710 --> 00:13:05,890 Sean Wiles: and the way that they embed processes and protocols that give 235 00:13:05,890 --> 00:13:09,610 Sean Wiles: them the best chance to hold the optimal level of stock, 236 00:13:09,610 --> 00:13:11,500 Sean Wiles: as I mentioned earlier, and to get paid on time. 237 00:13:12,350 --> 00:13:15,190 Sean Wiles: And Jason alluded to this as well, there's a material 238 00:13:15,190 --> 00:13:19,240 Sean Wiles: competitive advantage to be gained, we see, from implementing best practice, 239 00:13:19,240 --> 00:13:22,599 Sean Wiles: and it comes through in our numbers, Sean, there's usually, 240 00:13:23,090 --> 00:13:26,670 Sean Wiles: across most sectors, a big disparity between the best and 241 00:13:26,670 --> 00:13:30,059 Sean Wiles: worst operators when it comes to managing working capital. So, this 242 00:13:30,059 --> 00:13:33,200 Sean Wiles: analysis shows that it only gets magnified in times of 243 00:13:33,200 --> 00:13:35,160 Sean Wiles: volatility and disruption as we've seen through COVID. 244 00:13:36,140 --> 00:13:38,360 Sean Aylmer: Jason and Sean, thank you for talking to Fear and Greed. 245 00:13:38,679 --> 00:13:39,179 Jason Ireland: Thanks, Sean. 246 00:13:39,350 --> 00:13:39,660 Sean Wiles: Thanks, Sean. 247 00:13:40,250 --> 00:13:43,670 Sean Aylmer: That was Jason Island and Sean Wiles, partners at McGrathNicol 248 00:13:43,670 --> 00:13:46,809 Sean Aylmer: Advisory and supporters of this podcast. This is the Fear 249 00:13:46,809 --> 00:13:48,980 Sean Aylmer: and Greed Daily Interview. Join me every morning for the 250 00:13:48,980 --> 00:13:51,710 Sean Aylmer: full Fear and Greed Podcast, with all the business news 251 00:13:51,710 --> 00:13:54,330 Sean Aylmer: you need to know. I'm Sean Aylmer, enjoy your day.