As a result of rising COVID-19 cases and uncertainty surrounding the extent of the spread, most of the sectors have be impacted significantly. With the government going all guns blazing to curb the spread of the virus, several sectors have had to bear the brunt. One sector which has been in the forefront is the travel sector.
As reported by the Australian government on 3 April 2020 at 6:00 AM, there are 5,224 confirmed cases of COVID-19 and 23 have died till now.
Travel and tourism sectorhave been hit hard by this black swan event and the longer the delay the more the cash crunch. Under this backdrop, several companies are taking precautionary measures to protect their employees and at the same time the business.
In this article, we would be discussing two companies from this sector and see the preventive measures as well as the cost reduction measures implemented by these companies.
Serko Limited (ASX: SKO) is an integrated cloud-based corporate travel booking as well asexpenditure management solution company. It aims to transform the way companies manage their travel and expenses. SKO helps businesses in reducing their cost of travel using smart technology and making the act of booking & managing travel as well as reconciling expenditures a positive experience for their people.
On 3 April 2020, Serko Limited provided a market update where it highlighted abouthow the business travel disruption due to COVID-19 has impacted the travel transactional revenue. The company has a strong cash balance post the capital raising in October 2019. As on 31 March 2020, the company’s available cash balance is at $42 million.
In this current scenario, Serko has implemented a cost reduction program that eliminates non-essential expenses and reduces operating expenditure. It includes the cost of sales & hosting, in proportion to decreased customer activity followed by the lessened transaction volume.
Other than this, the company stated that it would preserve its core development teams. It was able to attain cost savings via reducing of the external contractors & restructuring of non-essential staff. On the brighter note, the government subsidy programs announced in countries like New Zealand, Australia and the United States could support the employee’s salary cost.
Meanwhile, the Company is utilising this time in a constructive way, where it is strengthening its core technology and anticipates being placed well for global growth when business travel resumes. The company anticipates tokeep a strong focus on the safety & wellbeing of its people. Serko’s team has also adapted to remote working with marginal disruption to working ways.
At present, the Company has no debt facilities, and it considers that there is no need to secure any debt funding.
By the end of the trading session on 3 April 2020, SKO shares zoomed up by ~ 10.22% from its previous close and settled at $2.05. SKO has a market cap of 172.49 million and ~ 92.74 million outstanding shares.
SkyCity Entertainment Group Limited
SkyCity Entertainment Group Limited (ASX: SKC) is one of the leading gaming and entertainment companies in Australasia.
On 3 April 2020, SkyCity Entertainment Group released an announcement providing staff update. The company’s CEO Graeme Stephens highlighted on the impact of COVID-19 as well as the changes implemented to lessen the impact.
In the short-term, the Company is dealing with the direct impact of shutdowns along with the ambiguity of containing the disease to protect lives. On this note, the company is fully supportive of the programs taken up by the Australian as well as the New Zealand Governments. It will also contribute to assist in dealing with the current crisis.
In the present scenario, all the hotels, casinos, restaurants, bars & attractions are shut throughout 5 SkyCity properties in New Zealand as well as Adelaide, South Australia. The Company has more than 5,000 people on the payroll.
During the closure, the Company experienced a loss in the revenue of $90 million a month, and it continues to suffer significant costs like utilities, lease payments & labour. The labour cost alone is ~ $20 million per month.
CEO Graeme Stephens stated that the virus would pass ultimately. However, its consequence would not be for a short period. He expects that even if the business is fully operational, the economy would be weaker, lower personal disposable income & different entertainment habits, plus longer-term travel controls. This would result in restarting like a smaller, locallycenteredcompany. He also highlighted that the International business activities maypick upfast once travel controlsgets lifted. However, in other segments of the business that is driven by corporate travel as well as by tourism like the Sky Tower & hotels would take a longer time to recuperate.
Further, he also informed that the business has fundamentally changed for the near future and the Company has taken actions to address this.Further, the Company’s management has conducted an intensive evaluation of the strategic options and would be implementing a wide range of changes across all its business. It has taken steps to reduce the operating costs as well as protecting the funding liquidity.
Reduction in Capital Expenditures:
- $15 million is reduced in stay-in-business capital expenditure for the remaining part of FY2020 ending 30 June 2020. The remaining stay-in-business capex in FY2020 relating only to key ICT projects would be continued remotely and to Adelaide master plan projects.
- Other than the NZICC and Horizon Hotel project, all the capital development projects in New Zealand have been paused
- In the present situation, the Company stated that there is no work feasible on the NZICC & Horizon Hotel project. Thus, the payment for this project will be postponed. This step would help maintain its debt position.
Lessening of Other Operating Cost:
- Operating costs across all properties & corporate functions have been examined & all non-essential costs removed for the remaining part of FY2020.
- The leadership team agreed to the executive salary cuts ranging from 20% to 40% at Group and property level for the remaining part of FY2020. The salaries of the CEO and CFO would be reduced by 40% for the remaining FY2020.
- The Board of Directors also agreed to cut itsfees by 50% for remaining FY2020.
The company has also reorganized the leadership team as well as the position of Chief Property Officer that was held by Peter Alexander.
By the closure of the market on 3 April 2020, the shares of SKC dropped by ~ 11.75% from its previous close and settled at $1.690. SKC has a market cap of ~ $1.28 billion, annual dividend yield of 9.88%, ~ 667.2 million outstanding shares and a PE ratio of 3.42x.