What can leading companies do on the ghost train ride that is the current global economy: the ASX pops out like a spook with a $24 billion yesterday wipe-out yesterday and recovers most of it today; Europe’s scream echoes through the darkness as it draws closer to an economic precipice, with daily news from Greece and Spain loosening its precarious toehold on order; America’s jobs growth suddenly falters.
The solution? It’s back to the balance sheet to buy some flexibility.
Some listed companies are moving fast: yesterday, recruitment site Seek.com.au raised $125 million in capital to pay down debt, while Brambles used an accelerated rights issue to improve its balance sheet by $448 million.
All leading companies, public or private, are tackling the issue of uncertainty.
Until now, chief financial officers were not strongly focused on reducing debt in the first quarter of the year according to a CFO Survey by accounting firm Deloitte, with only 9% naming it as a strong priority in their business strategies. Most (65%) were focused on growth and increasing cashflow (44%).
That is because the balance sheets of public and private companies are in pretty good shape. In fact, 44% of CFOs thought their balance sheets were ungeared, and 46% aimed to increase debt over the next year.
But as the headlines ring increasingly with gloomy predictions about the “spectre of the GFC”, leading companies can build a bulkhead against the possibility of a return of the global crisis.
1. Put or keep the expansion plans on hold
Frustrated as leaders and their CFOs are to get on with business growth, staying conservative is the strategy de jour. If the balance sheet is in good shape, it’s best for the moment to keep it that way. Now is not the time to increase gearing.
2. Probe the bank
Moments like these, the wise leader of every leading company, no matter how big, make an appointment with the bank manager to run through the financials of the business, answer any questions and respond to any concerns. That way, leaders know if they can depend on the bank’s help if need be.
3. Top up owner’s investment
Private companies can return to their shareholders just like public companies. Private companies can call together all owners, executive and non-executive, to discuss whether there is capital to commit if need be in the coming months. Public companies can return to their shareholders, as Seek and Brambles have done, to reduce debt or build a war chest