• Strategy
  • CFO Asia

Standing Up to SARS

Finance and risk management in the time of contagion.

There’s a certain zest brought on by a crisis that suits Martin Cubbon, group finance chief of Swire Pacific, a Hong Kong — based conglomerate that owns beleaguered airline Cathay Pacific. Even as the deadly Sars virus rampages across Asia, he coolly taps his fingers on his desk and rattles off calculations that would have lesser men reaching for the door.

Take Cathay Pacific’s cash flow. “We can’t sustain this level of cost forever,” he says calmly, noting that passenger traffic through Hong Kong’s Chek Lap Kok airport — Cathay’s main hub — was down almost 70 percent in April thanks to Sars fears.

“We have a burn rate of US$3 million a day — and a war chest of HK$13 billion (US1.6 billion). Work it out: we can keep going for ten to 12 months. But obviously, if the situation continues, no one here is going to sit on their haunches.” Another drum roll of his fingers. “At some point there will have to be a more dramatic restructuring of operations.”

Welcome to Sarsville. Cathay Pacific may be one of the hardest -hit companies in Asia, but it’s by no means the only business feeling the economic grip of the contagion. As we go to press, the scourge has found its way to 32 countries around the world, and led economists to slash their growth forecasts for many of them.

What’s more, the outlook for the disease is, at best, uncertain. True, some of the more badly stricken territories, such as Singapore and Hong Kong, appear to have brought Sars under control, with a steady reduction in new cases each day. But the situation in China remains dangerously volatile, and who’s to say that this little understood virus won’t re — emerge in new places and in new ways? For finance chiefs like Cubbon and others across Asia, the dangers are undeniably great and their response at this stage could have far — reaching implications.

Quick to Action

Important questions about risk management emerge, such as how soon did CFOs recognize the crisis, and when were contingencies put into place? Did CFOs wait for governments to react, or did they make their own decisions? Were they protected against liquidity risk? Were they prepared for the crisis to affect their supply chain? And looking ahead, have they shored up their companies against further possible ravages of the disease?

The answer is that big, well — managed companies — multinationals like Eastman Kodak, Hewlett Packard, AstraZeneca, Siemens, and the major banks — reacted quickly and with little need to wait for government encouragement. But where businesses were tied to China, where the government only admitted to the scale of the Sars crisis long after it had spiralled out of control, companies were reluctant to second — guess the powers that be.

At Hewlett Packard, the Asia Pacific leadership team swung into action in the last week of March and formed a Sars crisis management team to formulate policy and firm up contingency plans. For two weeks after that, says Gilbert Ponniah, vice president of finance for HP Services in Asia, the team met on a daily basis, consulting with government officials and health authorities to stay informed.

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