 Stuck in the traps for this October round?
March 13th 2008
With the Cheltenham festival now underway, Encore International managing director Mark Dickinson takes a look at the October round and how it is affecting you.
We are not even at the end of Q1 and already those of you with electricity contracts that expire at the end of September are having to turn your attention to the race for power that is the October round.
Unfortunately as you come to address this issue you may be feeling like you are a little stuck in the traps as the price of electricity for an October 2008 start has soared by over 30% since October 2007. It can be tempting when seeing that the market is so far ahead of you to give up on the race; however you need to remember that the management of electricity costs for the October round is a steeplechase and not a sprint and there is a long time to go until the end of September 2009.
When starting so far behind the field, if you want to have a chance of catching up with the leading pack, you are going to need to change your tactics. Encore customers have been changing their tactics to deal with the changeable course conditions for a number of years now and have been outperforming the field whether it be on the ‘good to firm’ of 2007 or on the ‘heavy’ conditions currently facing you for October 2008.
The form guide shows that Encore customers are buying electricity for October 2008 on average 16% cheaper than you can buy it today with the best ones out performing by a staggering 40%. In addition these customers are already outperforming for October 2009 and October 2010 contract rounds by roughly the same margin.
To put this into context, if energy is 10% of your cost base and you as a company have a 10% net margin, then you would need to increase sales by 2.7% just to compensate for the increase in energy costs that you are going to bear this October round. More dramatically if you don’t increase sales by 2.7% the failure to manage your energy costs effectively will have wiped 27% off your company’s bottom line.
It’s not too late to run the race, but you do need to find a way to adapt to all market conditions and not continue to pick horses that only work when the going is good and prices are falling.
You, your business and your colleagues will all benefit when you get your horse out of the traps and run this race, but you are going to need help and you are going to need some new tactics.
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