• Strategy
  • CFO Europe Magazine

Go with the Flow

A new scorecard highlights Europe's top companies when it comes to generating cash.

The German media group already generated a lot of cash, leading its sector with a CCE of 60% last year, compared with a 14% sector average. In 2006, operating cash flow rose by 9%, to €1.3 billion, as sales grew by 6%, to €2.1 billion. That sort of robust cash generation allowed the firm to cut net debt to €122m at the end of last year, down sharply from €665m three years earlier.

Last December, when KKR and Permira first acquired their majority stake in ProSiebenSat.1, the private equity firms said they would consider combining the company with SBS, which the same duo took private in 2005. The plan came to fruition this July, financed by €3.6 billion in term loans and a €600m revolving credit facility, secured just before the debt markets seized up. (“Thank God for that,” says CFO Lanz.)

The German company “can learn some things” from its new acquisition, Lanz notes, given SBS’s experience of operating under much higher leverage. While it wouldn’t make sense to “centralise everything,” the CFO adds, he is planning to exert stronger top-down control on areas such as capex at the enlarged group. This reflects the shuffling of priorities among the three “central financial control variables” that executives use to steer the company, Lanz explains. Previously at the bottom of the list, cash flow now takes precedence over Ebitda and Ebitda margin. The CFO hopes this will sharpen employees’ focus amid the integration work, proving to the markets that the company can maintain its previous momentum on cash and profit generation despite markedly different financing conditions.

Hitting Turbulence

One company that owes its current cash flow success to a previous external shock is Unique Flughafen Zürich, the SFr737m (€448m) holding company that operates Zurich airport. “2001 was a really bad year for us,” Beat Spalinger, the CFO, says with great understatement. That year, in the midst of a SFr2 billion expansion programme, traffic levels at the airport collapsed after the terrorist attacks on September 11th, which drove flag carrier Swissair into bankruptcy shortly after. Investments were quickly cut to the “absolute minimum,” staff were laid off and salaries were slashed, Spalinger recalls.

“It took quite some time to survive the crisis, and it had a huge impact on the culture of the company,” the CFO says. “Even today, when we are highly profitable again, everyone is still very conscious of costs.”

Since the crisis, sales, profits and cash flow at the company have all risen strongly. Despite nearly doubling investments last year, cash flow rose by 7%, to SFr252m. The airport operator’s 2006 CCE of 50% lifted it into the top three of the transport infrastructure sector.

Since its near-death experience in 2001, the airport has taken subsequent shocks in its stride. Consider the decision prohibiting passengers from carrying liquids on to aeroplanes last summer. Given only a couple of weeks to implement the new security measures, it was up to the airport to “ensure smooth passenger flow at any cost,” says Spalinger. “An absolute headache from a CFO’s point of view,” it took nine months before the airport could recoup the heavier cost of security screening via increased passenger charges. The company’s ability to protect budgets and plans, and conserve cash, in the face of such events is its key strength, the CFO maintains. The markets seem to agree. Having fallen below SFr20 in early 2003, the company’s share price recently reached above SFr500, setting record highs.


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