CFOs Look to Boost Cash Holdings, Cut Costs Amid Coronavirus Outbreak
March 05 2020 - 6:10PM
Dow Jones News
By Nina Trentmann
Finance chiefs are boosting cash holdings, slashing costs and
collecting outstanding payments to ensure their companies remain
sufficiently capitalized to withstand financial hits from the
coronavirus epidemic.
Companies across sectors are exposed to outbreak-related losses
and challenges, including in the manufacturing, retail and travel
industries amid factory closures, travel restrictions and changes
in consumer behavior.
Sabre Corp., a Southlake, Texas-based travel technology company
that builds reservation systems for airlines and hotels, began
implementing expense control measures last month in response to the
anticipated impact of the virus, according to a spokeswoman. "While
we hope its impact will be short-term in nature, coronavirus will
have a material impact on our 2020 financial results," the company
said in February.
United Airlines Holdings Inc. said Wednesday it plans to store
some wide-body jets and is offering staff unpaid leaves of absence
in April. The airline scrapped its full-year guidance citing
uncertainty about how the virus outbreak could impact its
business.
Lufthansa AG said in February it would start slashing costs to
offset a coming hit to revenue and profit from canceled flights.
Among other measures, Lufthansa is offering its staff voluntary,
unpaid leave. Other carriers, including Cathay Pacific Airways Ltd.
and Singapore Airlines Ltd., have taken similar steps. European
budget airline easyJet PLC also vowed to bring down costs.
Many other companies are expected to announce cost-cutting
measures in the weeks and months to come. Car manufacturers,
technology companies, retailers and luxury-goods makers --
including many U.S. companies -- have all reported lower sales
because of the spread of the virus.
"It's important to think in scenarios, for example about what
would happen if there was a vaccine, or if the virus went away like
a flu," Craig Bailey, an associate principal at consulting firm
Hackett Group Inc., said.
Fort Lauderdale, Fla.-based software company Citrix Systems
Inc., for instance, keeps a business continuity plan for natural
disasters, credit-market challenges and health issues. "You are
prepared for these kinds of situations," said Arlen Shenkman,
finance chief at Citrix.
Mr. Shenkman has regular meetings with the company's internal
audit team and evaluates sales and cash forecasts, he said. "You
monitor your cash balances and make sure that you have working
capital," Mr. Shenkman said.
Citrix has an untapped $250 million credit facility, and around
$600 million in cash on hand, Mr. Shenkman said. "I consider that
adequate," he said.
The outbreak is testing CFOs' liquidity plans and overall
preparedness.
"The key element is to be not dependent on the availability of
[external] capital," said Jaap Tonckens, finance chief at
Unibail-Rodamco-Westfield SE, a global real-estate company with
dozens of shopping malls in the U.S.
The company has $9.2 billion in undrawn credit lines and usually
collects rents a quarter in advance. Mr. Tonckens said he is
watching foot traffic -- which mostly held up in February -- and
wider supply-chain issues that could result in tenants closing
shop. "That would be a much bigger issue," Mr. Tonckens said.
Companies also should look at their outstanding bills and
payments to reduce risks to their balance sheet, according to
Hackett Group. Management should watch closely whether business
customers delay payments, and offer discounted rates for early
payments, Mr. Bailey said. "That is easier with a healthy cash
position," Mr. Bailey said.
Companies should set weekly and monthly cash collection targets,
and make sure they avoid billing errors to make sure business
customers don't use those as an excuse to delay settling their
bills, Mr. Bailey said.
In some instances, it might make sense for companies to extend
their payment terms to reduce pressure on suppliers, but that
requires careful case-by-case analysis, Hackett said.
Write to Nina Trentmann at nina.trentmann@wsj.com
(END) Dow Jones Newswires
March 05, 2020 17:55 ET (22:55 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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