Last week, AFP CEO Jim Kaitz held a webinar to discuss what the CEO and the board are asking of treasury and finance departments during the coronavirus crisis. By and large, senior leadership and finance are aligned in their focus on several critical factors—employee and customer safety, access to liquidity and business continuity.

Watch the Full Recorded Webinar Here

SAFETY FIRST

Most importantly, when dealing with a pandemic, the top priority for the entire organization should be the safety of employees and customers.

Anthony Scaglione, CTP, Executive Vice President and CFO of ABM Industries and former Chairman of AFP, began by explaining that his company is a facilities solutions provider that services end markets in aviation, education, large commercial real estate, manufacturing and corporate campuses. Because ABM works to cleaning and maintain facilities and equipment, it has been deemed an essential worker from the guidelines issued by federal and state mandates.  

ABM is headquartered in New York, and even before the state issued its stay-at-home order, the company had already enacted a work-from-home policy for support functions. “At first, it was to test it out, but now that test is six-plus weeks in,” Scaglione said.

To guarantee the safety of its employees, ABM made sure anyone working in third-party facilities was properly equipped. Additionally, the head office ensured that it had clear communication and contact with management at the regional and local levels.

The finance department also had to keep abreast of rapid changes in demand; some facilities might be continuing operations, whereas others shut down entirely. “So as sites either go dark or begin to scale down, we have to make sure we're modulating our staffing levels appropriately,” he said.

One of the industries that has been hit hardest by the crisis has been the hospitality sector. Some had a head start on preparing; Fred Schacknies, CTP, Senior Vice President and Treasurer for Hilton, explained that his company has a large presence in China. Therefore, it has had a response team in place for months, monitoring the virus and the response by governments around the world. That team has been directing how the company reacts in both its hotels and its corporate locations. “On that front, obviously, all of us on the corporate side around the world have been working remotely,” Schacknies said.

SECURING LIQUIDITY

Once the safety of employees and customers has been guaranteed, the next priority of the CEO and the board is ensuring the liquidity and the cash position of the company.

At ABM, the finance department enacted a liquidity plan that was tied to its 13-week cashflow and its business drivers. The plan also had to provide good visibility into the marketplaces that the company serves.

One of the first steps in ABM’s plan was to draw down its credit facility. “That was a preemptive measure. Understanding that credit markets in these environments become dynamic, we wanted to be prudent,” Scaglione said. “From a liquidity standpoint, we feel like we have ample liquidity to manage through the process. Given our position in the marketplace in terms of the services we provide, we have not yet been impacted in the same degree that many other organizations have, but we were able to draw down the facility and ensure liquidity on the balance sheet.”

Again, a lot of the impact on ABM is around the specific industries that it serves. Scaglione noted that ABM’s FP&A team has been crucial in helping the entire company understand exactly how those demand shifts are occurring. “It ensures that we have the ability to be fluid in terms of how we manage those shifts from an operational standpoint,” he said. “Then we can look at all discretionary spend levers to keep the costs down and keep the preservation of that capital in the next couple of months. It’s been a very collaborative approach between FP&A, the operators and other parts of the business.”

Similarly, Hilton has also drawn on its revolver and is taking other steps to secure access to liquidity. Schacknies explained that nearly all of his company’s revenue comes from collection of management and franchise fees from hotels. So when people aren’t staying in those hotels, that’s a huge hit to the Hilton’s bottom line.  As such, Hilton has announced significant furloughing to contain costs.

“Our treasury team, for example, is 50% furloughed, which is pretty comparable with the rest of the finance organization,” he said. “Organizationally, across the enterprise, we're furloughed even deeper. And at the hotels, obviously, it’s even deeper than that.”

In addition to furloughing, Hilton has begun a swift and aggressive cost containment exercise across all of its overhead. Schacknies noted that treasury has been focused on “optimizing the machine,” scrutinizing costs that might have flown under the radar before. “There's been a pretty concerted effort to look through the different payment channels and different operating mechanisms, and to understand what impact each of those have on working capital,” he said.  

BUSINESS CONTINUITY  

Business continuity is a critical focus of senior leadership. Most treasury and finance departments have business continuity plans in place, but this particular crisis is unique and has forced many companies to start from scratch.

Wolfgang Koester, Chief Evangelist and Global Head of Financial Institutions for Kyriba, noted that when it comes to his treasury clients, data has been the key cog to keep operations going. Practitioners have had many requests from CEOs and boards on access to data, and how quickly they could get it. Most importantly, they need to be confident in that data so that they can run scenarios around cashflow and liquidity.

“Those were kind of the basics,” he said. “When they knew that they had access to the data and they can run the scenarios, then they started looking at, ‘How does this affect us from a payables and receivables perspective, and then long-term, from a monetary assets and liabilities perspective? Can we actually access that data and be comfortable with it?’”

Another area that Koester has observed boards asking about is whether organizations have key person risk in places that need to continue operations. And if so, what are treasury and finance doing about it?

Lastly, Koester is seeing a trend towards implementing active liquidity networks (ALNs) that go beyond the traditional treasury systems and extend to CFOs and CEOs. “They see tremendous value in understanding the liquidity not just on cash but also on risk and working capital,” he said.

ABM is working diligently on scenario planning that extends out a little bit more than just the next several weeks and months. “We’re looking at this from a stress-testing perspective to ensure that we have adequate liquidity,” Scaglione said. “The point on key person risk that was raised by Wolfgang is also one that we're looking at. You’re relying on operations that, for us, are in the field, and ensuring that we have adequate understanding of contingency plans for those operators is key.”

In speaking with his clients, Scott Satriano, CFA, Head of Financing and Risk Solutions at NatWest, has also observed a heavy focus from senior leadership on business continuity. In particular, his bank has been working to instill confidence in its clients that the banking system will be resilient and that this is not a banking crisis. This is a health crisis that is severely disrupting business operations. So banks like NatWest have been working with clients to ensure uninterrupted delivery of routine payments and other transactions such as FX settlements.

In addition, with the cascade of new programs from central banks and governments to support businesses, banks like NatWest have been working with their clients to help them understand the options they have and which ones will work best for them. “I think what clients wanted to know is that we would help them synthesize those programs while they were trying to understand the availability of credit,” Satriano said. “We spent a lot of time, really line-by-line with every client, to help them understand their needs from a liquidity perspective.”

UNCERTAIN FUTURE

The coronavirus pandemic, more than the Financial Crisis of 2007-2008 and the Great Recession, is changing what is expected treasury and finance, and we’re only at the beginning. With the global economy effectively shut down, practitioners have many tough months and possibly years ahead of them.

“I know we’re all trying to take a deep breath here and figure out when we’ll get back to some level of normalcy,” said Kaitz. “Now is the time for finance and treasury professionals to shine in this time of unprecedented disruption.”

For more insights during this difficult time, visit AFP’s Coronavirus Resource Center.