[MUSIC] Where we just left in the previous clip, we were talking about the action plan, right. We've been looking at trying to change the upper part of the crocodile, trying to lower the NFO. And we saw that it's a little difficult to reduce receivables, reduce inventory, or to increase payables. Now in this clip, what we're going to see is continuing with the action plan. Then, instead of changing the upper part of the mouth, the lower part, which is working on the working capital part. As you saw, to address the problem of growth of NFO bigger than working capital, basically we work on the upper on the lower part. Now, let's try to work on the working capital part. What is working capital? Working capital is basically long-term liabilities, plus equity minus fixed assets, right? Can we work on long-term debt? You could say well if this is the situation, let's just ask for more long term debt, or let's delay the payment of long-term debt. Right now we are in this situation. We have on the balance sheet 150, and we are paying back 30 every year.. So it would go from 150, 120, 90, 60. Now, what if we delay payments to the bank? I think that might not be the best idea, all right? We have a pretty good history of payment in the past, right, with the bank. We are pretty good paying back and delaying payments would hurt our reputation and would hinder our relationship in the bank with the future. Another option is say what about asking for another loan? Why don't we ask for another loan instead of a credit? Let's just ask for loan to get a better sense of the working capital, right? Well, it's a good point but would the bank be willing to give us a loan or not? I mean, it turns out that the bank is hesitating to give us credit. It would hesitate to give us along because normally when you ask for a loan, what is the bank asking of you, almost always. Collateral. The bank asks for collateral. A guarantee, something that you can put as a collateral. Now what do we have as collateral? The warehouse is rented. You have panels. You can give the bank some panels as collateral. What is the bank going to do with the panels? He's going to sell them at a discount somewhere. The bank wants collateral, and we don't have collateral. So it's probably not feasible to ask for a long term debt because the bank will not grant them to us. How ever imagine even if the bank were to give us the long term debt even if the bank was to say yes, what would happen? Because here is the situation, we have a problem of increasing the NFO and much higher than increasing the working capital, right. And if we increase long-term debt, imagine 100,000 Euros in 2008, we are just shifting the lower bar by 100,000, but we are not changing the slope. So the problem in a way is persistent. We are just delaying the problem a little bit, but the mouth of the crocodile It is still opening. So this does not seem to solve the problem right. Now can we actually change something in the fixed assets? Well what do we have, a half a hundred thousand Euros in fixed assets? The warehouses is rented, there is no much we can do in the fixed assets to be honest, right. I mean do you agree with me, there is not much. The amount is very small, we cannot do strategic decision changing about fixed assets. What about the equity? Why don't we get more shareholders? Well, who do we ask the money for? I mean that you remember that we put our own money put his own money. He asked his father, he asked some friends, he mortgaged his house, he's tried to do almost everything. Who in his own sense would give more money to this guy? This is not like a super techy start up that has a lot of potential, this is a a panel distribution company in the south of Germany. So I mean, it's not clear you're going to get another inflow of capital there, right? But again, even if we were to get that capital, even if we were to get that capital, we'll be in the same situation as with long-term debt where you would get a shift of the working capital line but no change in the slope. Which means that the problem still persist, right? So it doesn't seem to find an effective solution. You might say, Miguel you're a little bit pessimistic, and I'll said, no, it's not that I'm pessimistic it's that it is difficult to change something in the NFO and to change something in the working capital. Where else can we work on? Well, it turns out, we can work on the P&L. NFO isn't on the balance sheet, working capital is in the balance sheet. But if you remember the connection between the balance sheet and the P&L, it's basically the profit. The profit goes into the equity, and the equity goes into the definition of the working capital. So, perhaps by increasing the profit, it would increase the working capital, and we might be able to solve the problem. There are basically two places where we can work in the P&L if you agree with me. Because you cannot change financial results, you cannot change depreciation, you can basically change Operational Expenses, the OPEX, or the Gross Margin. Can you change the OPEX? Well, remember that the OPEX was in 29% of sales. Then it went to 24% of sales, then to 20% and then to 19%. [MUSIC]
