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For Corporate Travel Management (ASX: CTD) the free flow of movement between countries is an essential component of its business.
So naturally, with access to China cut off and flight paths cancelled as coronavirus Covid-19 continues to wreak havoc on the global economy, CTM is currently in a sticky situation.
As a result of the virus CTM has reduced its FY20 EBITDA guidance by $15-$40 million (or 16.6 per cent) to $125-$150 million.
Pre-Covid-19 the company was tracking toward the lower end of full year guidance between $165 million and $175 million.
But the company has a plan to stem the outflow of cash as its business hits a brick wall.
Its strategy revolves around a key assumption, based on historical virus outbreaks, that the peak of the virus' impact will subside quickly in March with trade to return to normal levels by July 2020.
However, as noted by CTM, unlike previous pandemics governments have decided to effectively close borders and suspend travel to and from China.
This will likely affect the severity of the impact on CTM considering one out of every three transactions made by the company in the Asian market relate to flights to and from China.
So far, CTM has seen post-Chinese New Year client activity down 50 per cent as a result of these border closures and travel bans.
As for the rest of the world, the company has witnessed minimal impact by Covid-19 on its transactions relating to Europe and the USA, while in ANZ CTM is experiencing an activity decline primarily because of the outbreak.
To hit the higher end of its revised guidance, the duration of the Covid-19 impact will need to be less than CTM's assumptions.
If the group is to hit the lower end of its guidance it will be because client activity does not recover through the entire remainder of FY20.
"Despite the challenges from Covid-19 on our business, we are not standing still," says managing director Jamie Pherous.
To manage costs against reduced corporate travel activity the group has implemented a number of plans including reducing staff work weeks to four days, bringing forward leave, freezing non-essential expenses and delaying non-client facing project work.
CTM's action plan comes as the group has posted its 1H20 financial results this morning.
During the half the group increased its total transaction value (TTV) by 12 per cent to $3.31 billion despite global headwinds.
CTM's EBITDA was flat with the corresponding period at $64.5 million and underlying NPAT declined by 8 per cent to $39 million because of software amortisation, and a higher effective tax rate.
"We maintained steady operating momentum in 1H20 despite the macro-economic impacts from Brexit, demonstrations in Hong Kong and the US/China trade war," says Pherous.
"These one-off events have masked an otherwise solid business performance where we have been winning customers, managing costs and growing market share."
Shares in CTD are up 2.25 per cent to $16.56 per share at 2.01pm AEDT.
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