The Corporate Travel Management Ltd (ASX: CTD) share price has climbed a massive 17% today following its latest coronavirus update. The travel group reassured investors there was no need to raise equity currently, although it did defer its interim dividend.
Corporate Travel said it is experiencing a significant impact on its business following the introduction of additional government-imposed restrictions on international travel and major reductions in domestic capacity.
The company advised, however, that a large proportion of its cost base was variable, with no retail footprint and a high use of technology to deliver services.
Cost reductions
Corporate Travel is implementing further comprehensive cost reduction actions with a target of $10 million in cost reductions per month, effective from the end of March. The company, however, failed to specify what these additional cost reductions entailed other than noting that they would include redundancies.
Previously, Corporate Travel implemented cost reduction measures including non-executive directors and the managing director taking a 20% reduction in their fees and fixed remuneration for the remainder of the financial year. Staff have also been asked to take paid and unpaid leave and work shorter weeks on proportionate pay.
Corporate Travel told the market that further adjustments to the cost base would be considered based on conditions. It emphasised that its business model enables it to retain the capacity to quickly scale up when travel activity recovers.
Liquidity position
Corporate Travel said that its liquidity position remains strong and it has no current need to raise equity. Operating cash exceeds Corporate Travel's drawn debt as at today.
The company also has a committed debt facility of $250 million which matures in August 2022. Combined with its cost-savings measures, Corporate Travel believes this places it in a strong position to withstand sustained reductions in activity.
Travel activity
The recent introduction of further government-imposed restrictions on international travel and domestic capacity have significantly impacted Corporate Travel's business. Nonetheless, it reports that many of its clients across all of its regions continue to travel, albeit at low levels.
Over half of Corporate Travel's total transaction value is domestic in nature, representing travel within a country's borders. The company has stress-tested cash flows using modelling which assumes no international travel and domestic activity in line with current capacity cuts for six months.
Dividend deferred
Given the current extraordinary circumstances and uncertainty over recovery timeframes globally, Corporate Travel has chosen to defer its dividend payment.
The company believes that the prudent course of action is to defer payment of the interim dividend of 18 cents per share until 2 October 2020, with the decision to be reviewed closer to this date.
