September 16, 2022
20:42
How are leaders factoring the impact of the price explosion into their budgets for 2023? Internal savings and alternative energy sources in the program.
In the current context ofcost explosion energy, raw materials and wages, how do companies prepare their budget for 2023? Does the expenditure and revenue forecasting exercise prove tithe most delicate than usual? Do they have adjustment variables or other solutions to adapt their copy to these hazards? The Echo has posed the question to a series of companies from different sectors. First observation: despite the current crisis situation, many did not anticipate work and have not yet started, or completed, the exercise. Second: the question bothers many, because they believe that it is indoor cooking and that revealing the recipes might inspire competition. Fortunately, there are also courageous leaders and spokespersons who do not hesitate to respond and take a stand…
Located between producers-suppliers and consumers, retail is at the center of several issues. A good reason to start with them. At Colruyt, we cannot be answered because the company is holding its annual meeting of shareholders next week: we are in the period of radio silence imposed by the regulations. No “stand still” on the other hand at Delhaize: “We are in the process of defining our objectives and our provisions for 2023”, answers the director of communication Roel Dekelver. “We’re going work on two points. One, strengthen our commercial dynamism and adapt our strategy to customer needs. For now, it’s mostly their purchasing powert which is concerned and which we seek to maximize through actions at low prices. Two, we are appealing to our entire organization internally, in order to reduce our costs where possible and to gain in efficiency.”
“For the moment, it is above all the purchasing power of customers that is concerned and that we seek to maximize through actions at low prices.”
Delhaize had already initiated these steps earlier in the year, adds Roel Dekelver, but he will continue on this path, because inflation should remain at a high level at the end of this year and early 2023 at least.
Upstream of distribution, the agri-food sector is hard hit by the rise in energy and commodity prices. The producer of mineral waters and drinks He fell evokes agility and resilience as qualities to face it. “The strategic orientations of the Spadel group for the year 2023 are not defined to date, because the 2023 budget exercise is still in progress”, replies its spokesperson Bérénice Decharneux. The finding a balance between these different variables and retail selling prices is undoubtedly a major challenge for the group in the months to come.” Price discussions between supermarkets and their suppliers remain tense, as we know, the former arguing the interests of their clients to counter the intentions to transfer price increases suffered by the latter.
B plans for energy
Let’s go back a bit further upstream still in the same family of sectors… For the sugar producer Refinery Tirlemontoise (RT)this crisis generates different impacts, not all negative. “No sugar price has grown very strongly on the European market following its boom on the world market”, notes its CEO Guy Paternoster. “We have gone from around 550 euros per ton to a thousand euros.” An evolution due to the invasion of Ukraine and its effect on the markets, but not only: “For two years, the European Union has had a sugar production deficit and must, to meet consumer demand, obtain supplies on the world market.” This increase obviously comes from a timely moment for European growers like RT, following years of very low prices in Europe, as well as for farmers growing beets.
“We are less affected by the scarcity of gas expected this winter than our German colleagues, but we have planned plans B like them.”
“But the unknown remains for us also energy prices and the availability of different energies”, continues the CEO of RT. “We are less affected by the scarcity of gas expected this winter than our German colleagues (the German Sudzucker is the parent company of RT, editor’s note), but we have planned like them plans B.“In other words, refineries may have to resort to to sources other than gas to run their lines. A competing producer, the Belgian Iscal, has already indicated that it might replace gas with fuel oil to produce the steam it needs. And RT? “We have alternatives possible, but we do not communicate on it.
These various elements will influence RT’s 2023 budget. “That plus salary indexation, with an increase of 8% expected at the beginning of next year which, for us, will amount to the equivalent of 50 new commitments”concludes Guy Paternoster.
Target the most energy-efficient niches
In the constructionthe impact of rising costs is also very marked. Laurent Riche, CEO of Stabilame, a Walloon SME specializing in the construction of wooden buildings (houses, schools, offices, etc.), sent a press release this week in which it expressed its fed up with the explosion in the price of wood. energy and their devastating impact on otherwise healthy businesses. “Our annual electricity bill has gone from 260,000 to 800,000 euros,” he explains. “We need to rationalize our production to generate savings while our order book is full for 6 to 7 months. We had also planned to install photovoltaic panels to ensure 45% of our consumption, but due to supply difficulties, its start-up has been delayed and will only take place next month.
“We have the advantage that our basic product, wood, is bio-sourced and that its transformation requires little energy, compared to generic constructions, which are much more dependent on electricity and oil.”
What other solutions for Stabilame in 2023? “We plan to produce four days a week instead of five, but also to promote production in the workshop (pre-assembly) rather than on site, as this reduces costs, or to use less energy-intensive products.” And in terms of the budget, might he touch staff costs? “No, we don’t want to touch employment. We remain optimistic for the future. We have the advantage that our basic product, wood, is bio-sourced and its transformation requires little energyin comparison to generic constructions, much more dependent on electricity and oil.”
It is paradoxically a positive effect of this crisis for a company like Stabilame. Energy-saving manufacturing, such as wooden constructions, become more interesting than conventional models. “We are already seeing it in prices: that of wood has increased less than those of PVC or aluminum.”
Build multiple scenarios
And what regarding the side of public or semi-public companies? Chez post, we are content to refer to the comments of management issued during the half-year results: “We continue to monitor our costs, but also to invest.” Same story at Next: “We have already started the search for savings exercise before this crisis, in our 2020-22 strategy, because we are investing 5 billion euros in fiber.”
“For us, the real impact of these increases will depend on the means that the State will put at our disposal.”
Chez infrared, the rail infrastructure manager, we are waiting for important decisions from the federal government. “We are confronted like everyone else with these price increases”, underlines its spokesperson Frédéric Sacré. “We do not yet have a view, for the moment, on our budgets for 2023: it will be decided at the Federal level in October, then we will adapt. For us, the real impact of these increases will depend on the means that the ‘State will make available to us.’
In the meantime, the only budget work possible is to make assumptions and develop different scenarios. But, basically, given the magnitude of the current uncertainties, isn’t this the lot of everyone?
The summary
- In the current context of exploding costs of energy, raw materials and wages, how do companies prepare their budget for 2023?
- Despite the crisis situation, many of them have not anticipated the work and have not yet approached the exercise.
- In retail, Delhaize wants to combine price actions for customers and internal savings.
- The Raffinerie Tirlemontoise is considering a plan B for its gas supply.
- Stabilame brings its sites back to the workshop while seeing the prospects for bio-sourced wood improve, because this niche is energy-efficient.