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CONFERENCE

Finance & Accounting #9

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Case study

Background – 2025 Trade Policy Shift

In early 2025, amid mounting U.S. protectionist sentiment, the U.S. government reinstates and expands tariffs on strategic imports from Canada.

  • 30% tariffs are reintroduced on Canadian aluminum and steel
  • 15% duties are added to precision machinery, automotive parts, and green energy components
  • U.S. Dollar strengthens against the CAD, increasing FX volatility

The Canadian government considers subsidies and retaliatory tariffs, but uncertainty in trade policy creates major financial stress for Canadian exporters, especially mid-sized manufacturers.

Company: CanWeld Fabricators Inc. – 2025 Profile

  • Industry: Precision steel/aluminum structures for clean energy, transport, and infrastructure
  • Headquarters: Hamilton, ON
  • Clients: 55% U.S., 30% Canada, 15% EU
  • Employees: 270
  • Annual Revenue: $74 million (2024)
  • Net Profit Margin (2024): 6.2%
  • New U.S. Tariff Exposure (2025): $31 million of exports impacted
  • Main U.S. Clients: EV infrastructure and solar energy firms

2025 Financial Snapshot

Metric Value (Pre-Tariff) Notes
Revenue from U.S. Exports $41 million 55% of total revenue
Average Gross Margin 21% Higher on domestic contracts
Material Costs (Steel/Alum) $22 million Will rise 30% due to tariffs
FX Rate (USD/CAD) 1.38 CAD weakens amid global volatility
Cash on Hand $6.8 million Buffer for 2–3 months
Loan Payments $2 million/quarter Interest reset to 7.5% in 2025
Inventory on Hand 60 days of materials Due to pre-purchase hedging

Challenges and Risks

🔺 1. Tariff Inflation

  • Input costs rising by ~$6.6 million annually (30% increase)
  • U.S. buyers resisting price increases, expecting CanWeld to absorb costs
  • Some U.S. contracts signed in 2024 now locked in at outdated rates

💸 2. FX Volatility

  • 55% of revenue is in USD, 85% of costs in CAD
  • Strong USD helps top-line but introduces hedging complexity
  • Company lacks an FX hedging strategy and is exposed to swings

📉 3. Margin Erosion

  • If prices remain unchanged, estimated drop in gross margin from 21% → 12%
  • Several product lines now operate near break-even or at a loss

📦 4. Cash Flow Stress

  • Operating cash flow in Q1 2025: $1.2M (↓ 40% YoY)
  • Major U.S. client delayed $2.5M payment due to project pause
  • Q2 bonus and vendor payments approaching ($2.2M in next 45 days)

Key Questions and Strategic Options

1. Pricing, Contracts & Segmentation

  • Should they re-negotiate U.S. contracts, or pivot focus to EU/domestic buyers?
  • Can they offer multi-year agreements with blended pricing models?
  • What financial risks exist in shifting client base mid-year?

2. Cash Flow & Working Capital

  • Should the company dip into the emergency line of credit ($3M at 8%)?
  • Are there opportunities to refinance equipment, delay bonuses, or reduce supplier orders?

3. FX Risk Management

  • Should they initiate forward contracts or explore natural hedging?
  • What new reporting tools or KPIs should they track (e.g., real-time FX-adjusted margins)?

4. Cost Accounting & Profitability

  • Can the team build a tariff-adjusted cost-per-unit model?
  • Should they launch a product line rationalization analysis?

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