But long-term profitability still important, despite focus on survival
By CONRAD TAN 9 March 2009
The suggestions differed, but they centred on the same concern: how to ride out the triple whammy of tighter credit, falling asset prices and collapsing demand in the face of Singapore’s worst recession.
At the inaugural BT-IBM CFO Roundtable seminar on Friday, chief financial officers at a variety of Singapore companies exchanged tips on how to selectively reduce costs and keep staff morale up, and talked candidly about some of their fears.
‘Cost-cutting is almost always done from the top down,’ said John Chang, CFO of hotel and property firm Overseas Union Enterprise. ‘Try talking to your staff and doing it from the bottom up - you’ll be amazed with the results,’ he suggested. ‘Sometimes, the chambermaids, the security guards, can come up with ideas that you as a CFO or a board member may not have thought of, such as different ways to reduce utility costs.’
Unsurprisingly, how to manage the various demands on their cash flow emerged repeatedly as one of the top worries of the financial chiefs who attended the discussion.
‘In this environment, liquidity is the key concern,’ said Quah Ban Huat, CFO of shipping trust Rickmers Maritime. ‘What keeps me awake at night is whether we have sufficient cash to pay all our costs, though clearly we’re not in a situation where we are desperate.’
At some companies, ‘they’ve got cash but no order book and you see this cash balance depleting over time’, he said. ‘And if you do a cash projection, you’ve got this finite time that’s staring at you’ before the cash runs out, he added. ‘That’s quite worrying.’
‘Also worrying is when you get out to the banks and ask if they can lend you money - and the banks are having trouble themselves and they’re not able to lend you money.’
And with the prices of nearly all types of assets plunging as investors stay away, the ability to secure new financing using a company’s assets as collateral is limited, he added. ‘That’s quite scary as well.’
But both Mr. Quah and Mr. Chang said that they did not believe in firing staff as a means to reduce costs.
‘We do not advocate job cutting. No retrenchment. In our discussions with all our employees, everybody - not just the management but employees too - agreed that everyone will have more tight controls and no job will be sacrificed,’ said Mr. Chang.
Still, Mr. Quah said ‘we must recognise that we’re going through a rough period, and sometimes the numbers have got to work’.
A snap poll conducted before the seminar found that the CFOs were overwhelmingly concerned with cashflow issues, as well as the difficult problem of how best to divide scarce funds between operating expenses necessary to keep a business running and new capital investments that could generate profits in the future.
Colin Powell, who heads IBM’s financial management consulting business in Asia-Pacific, said that firms needed to take a hard look at their different business segments and sell unprofitable, non-core assets if necessary, even at depressed prices.
‘Even though the asset on your balance sheet may be depreciating in value, you’ve got to look at the broader environment,’ he said. ‘If we were to axe that asset and inject that cash into another asset that added more value, is that not the right decision?’
Sarjit Singh, CFO of insurance company AIA Singapore, said that it was important to keep the customer in mind when slashing costs, to avoid doing lasting damage to the firm. ‘Put yourself in the customer’s shoes and think about how you can reduce costs without affecting the service quality - that’s critical.
‘In a time like this, your service to the customer is what will make the organisation distinctive in the long run.’
But Ng Siew Quan, an auditor who heads the private client services practice at PricewaterhouseCoopers, cautioned that CFOs should keep one eye firmly fixed on the profitability of different parts of their business. ‘Cash management is very important, but it’s actually just a short-term measure.’
While proper cash management ‘will help you survive this period’, profitability ‘is the only long-term solution’, he said.
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Cash flow tops CFOs’ concerns
But long-term profitability still important, despite focus on survival
By CONRAD TAN
9 March 2009
The suggestions differed, but they centred on the same concern: how to ride out the triple whammy of tighter credit, falling asset prices and collapsing demand in the face of Singapore’s worst recession.
At the inaugural BT-IBM CFO Roundtable seminar on Friday, chief financial officers at a variety of Singapore companies exchanged tips on how to selectively reduce costs and keep staff morale up, and talked candidly about some of their fears.
‘Cost-cutting is almost always done from the top down,’ said John Chang, CFO of hotel and property firm Overseas Union Enterprise. ‘Try talking to your staff and doing it from the bottom up - you’ll be amazed with the results,’ he suggested. ‘Sometimes, the chambermaids, the security guards, can come up with ideas that you as a CFO or a board member may not have thought of, such as different ways to reduce utility costs.’
Unsurprisingly, how to manage the various demands on their cash flow emerged repeatedly as one of the top worries of the financial chiefs who attended the discussion.
‘In this environment, liquidity is the key concern,’ said Quah Ban Huat, CFO of shipping trust Rickmers Maritime. ‘What keeps me awake at night is whether we have sufficient cash to pay all our costs, though clearly we’re not in a situation where we are desperate.’
At some companies, ‘they’ve got cash but no order book and you see this cash balance depleting over time’, he said. ‘And if you do a cash projection, you’ve got this finite time that’s staring at you’ before the cash runs out, he added. ‘That’s quite worrying.’
‘Also worrying is when you get out to the banks and ask if they can lend you money - and the banks are having trouble themselves and they’re not able to lend you money.’
And with the prices of nearly all types of assets plunging as investors stay away, the ability to secure new financing using a company’s assets as collateral is limited, he added. ‘That’s quite scary as well.’
But both Mr. Quah and Mr. Chang said that they did not believe in firing staff as a means to reduce costs.
‘We do not advocate job cutting. No retrenchment. In our discussions with all our employees, everybody - not just the management but employees too - agreed that everyone will have more tight controls and no job will be sacrificed,’ said Mr. Chang.
Still, Mr. Quah said ‘we must recognise that we’re going through a rough period, and sometimes the numbers have got to work’.
A snap poll conducted before the seminar found that the CFOs were overwhelmingly concerned with cashflow issues, as well as the difficult problem of how best to divide scarce funds between operating expenses necessary to keep a business running and new capital investments that could generate profits in the future.
Colin Powell, who heads IBM’s financial management consulting business in Asia-Pacific, said that firms needed to take a hard look at their different business segments and sell unprofitable, non-core assets if necessary, even at depressed prices.
‘Even though the asset on your balance sheet may be depreciating in value, you’ve got to look at the broader environment,’ he said. ‘If we were to axe that asset and inject that cash into another asset that added more value, is that not the right decision?’
Sarjit Singh, CFO of insurance company AIA Singapore, said that it was important to keep the customer in mind when slashing costs, to avoid doing lasting damage to the firm. ‘Put yourself in the customer’s shoes and think about how you can reduce costs without affecting the service quality - that’s critical.
‘In a time like this, your service to the customer is what will make the organisation distinctive in the long run.’
But Ng Siew Quan, an auditor who heads the private client services practice at PricewaterhouseCoopers, cautioned that CFOs should keep one eye firmly fixed on the profitability of different parts of their business. ‘Cash management is very important, but it’s actually just a short-term measure.’
While proper cash management ‘will help you survive this period’, profitability ‘is the only long-term solution’, he said.
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