The Corporate Travel Management Ltd (ASX: CTD) share price has dropped more than 7% this morning following a market update which included a suspension of its FY20 guidance. This suspension has been triggered by growing uncertainty in regards to the duration and severity of the coronavirus.
Corporate Travel's falling share price is on par with the S&P/ASX 200 Index (ASX: XJO)'s steep drop today, with the benchmark Aussie index plummeting 7% in morning trade.
Suspension of FY20 earnings guidance
Corporate Travel had previously provided revised FY20 guidance on 19 February 2020, which included a downwards revision of underlying earnings before interest, tax, depreciation and amortisation guidance of between $15 and $40 million. However, in this morning's announcement Corporate Travel pointed out that this guidance was based on a number of assumptions regarding the severity and duration of the coronavirus at that time. As the global impact has worsened, it is now too difficult for the company to give an accurate guidance range.
Corporate Travel outlined two key reasons for this worsening situation. First, actions by a number of governments to close their borders and suspend travel in and out of their countries, and second, decisions by corporate organisations to ban or limit immediate travel. This is leading to reduction in its client activity across all its regions.
Corporate Travel highlighted that it currently doesn't know how long there will be a significant downturn in its clients' travel activity, however, the company does expect current activity levels to recover in time.
Still retaining and winning clients
On a more positive note, Corporate Travel pointed out that it is continuing to retain clients at consistently high levels and has continued to win over new clients since the release of its half year results for FY 2020, including new client wins in North America.
High proportion of domestic travel clients
Corporate Travel pointed out that it has a high percentage of domestic transactions, with domestic travel accounting for approximately 65% of total transaction value (TTV) in Australia and New Zealand, while in the US market domestic travel accounts for 70%. In Europe, around 70% of Corporate Travel's TTV is within the UK market. However, in Asia most of its clients undertake predominantly international travel.
Strategy to retain costs during the crisis
Some of the strategies put into place by Corporate Travel to keep costs down include staff leave, shorter working weeks and staff taking leave without pay. The company pointed out further measures include a freeze on all non-essential recruitment, and delaying non-client facing project work.
Corporate Travel's non-executive directors and the managing director will take a 20% reduction in fees and salary, respectively.
In this morning's announcement, Corporate Travel pointed out that the group has positive net cash and a committed debt facility that is not due to expire until August 2022. The company further commented that it believes that its strong balance sheet position will enable it withstand a prolonged period of reduced client activity.
The company also confirmed that its interim dividend of 18 cents will be going ahead and is payable on 14 April 2020.
