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The Kiwi Businesses Surviving And Thriving Through A Pandemic

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Covid sent businesses all over the world into crisis mode. Some failed, some thrived, many are still just hanging on. But the thriving businesses weren’t always the ones you’d expect. In the first of a two-part series, Nikki Mandow talks to the CEOs of cinema giant Vista and freight company Mainfreight about Covid’s lessons in leadership, crisis management and trust. 

At the height of the early Covid awfulness, a couple of investment managers at Fisher Funds had an idea. Get on the phone and find out how things were going with the 90 or so local and overseas listed companies they had in their portfolio.

Over the next few weeks Sam Dickie and Ashley Gardyne and their teams made hundreds of calls asking senior executives four questions: How are you looking after your people; how much cash could you get your hands on if you needed to; what are your bear and bull revenue and profit scenarios during the crisis; and how are you going to come out the other side stronger than your competitors?

They called some people multiple times over the period, tracking progress. And they started to get a feel for how listed companies were dealing with the pandemic. The good, the bad, and the ugly. Particularly the good.

“The good ones were happy to talk to us. The bad ones were running around fighting fires, deer in the headlights,” Dickie says.

And they realised this was important information.

“Covid is a test – a once in a 10 to 15 year test. Like the global financial crisis,” Dickie says. “It’s not often you get a chance to look at management under pressure.”

Sam Dickie says some companies with too much debt had to make short term decisions. Photo: Supplied
Sam Dickie says Covid is a chance to examine how companies cope under extreme pressure. Photo: Supplied

They also found during the calls many of the company bosses would ask them questions: How were other businesses doing? What were other businesses doing?

“It became like a giant feedback loop. The best corporates talked about what they did in the GFC, what they had learnt and how they were using it with Covid. They wanted to know what the leaders of the best companies were doing.”

Gardyne says it became clear some of the companies you might have thought would be hammered by the lockdowns, hadn’t been. Some were growing, not shrinking. And there were some common threads.

“If you had too much debt, not enough access to funds, it was tough. Or if you didn’t look after your people. 

“Some people cut costs to survive, but others spent money to position themselves after the crisis.”

Our best leaders were calm, compassionate, prepared, and able to be flexible, Gardyne says. 

“A lot of companies made their own luck.”

Ashley Gardyne says the best leaders were calm and compassionate. Photo: Supplied

Newsroom asked Fisher Funds for a list of New Zealand listed companies it thought handled the Covid crisis well. It sent back eight names. We contacted them all. Fisher & Paykel Healthcare apologised: the company is flat-out making and selling respiratory gear to help Covid patients breathe, and its executives have talked to a lot of media over recent months. 

(In fact if you want a great story about how F&P Healthcare responded to Covid-19, check out Newsroom broadcaster Sharon Brettkelly’s podcast for The Detail here.)

Wine company Delegat keeps a low profile and wasn’t keen to be featured “in any significant manner” – and that’s fine too. Summerset chief financial officer Scott Scoullar was crazy busy, but apparently company staff called thousands of people on its “possibilities” database early in the pandemic, not to sell them anything, but to make sure they were OK. That’s kinda cool, Dickie says.

One company on Newsroom’s list didn’t reply.

But top executives from four companies agreed to be interviewed about their pandemic experience. All of them are internationally-focused businesses in industries that were (actually still are) seriously impacted by the global crisis – cinemas, travel agencies, international transport, and churches. All of them had big, hairy decisions to make at the start of the pandemic, and almost all have against-the-odds seen their businesses grow. 

Today and tomorrow we bring you their stories, starting with giants of the film industry and freight and logistics. 

Case #1: Cinema giant Vista – testing a $100 million Covid survival buffer

In the first week in March, Vista Group CEO Kimbal Riley and CFO Matt Cawte were on an investor roadshow in Australia. Same old, same old.

The film industry software and data analytics company had just released its 2019 financial results and was celebrating good revenue growth in its own business, and record box office sales worldwide.

There were a few red flags around the impact of Covid on its China operations, but basically the company was selling a growth story for 2020 too. Hundreds more cinemas taking its theatre management software, pushing its global market share beyond 50 percent, double digit growth in its film industry marketing product.

And then everything changed.

“We were tramping around Sydney talking to investors, and half way through the day people started saying they didn’t want to shake hands with us,” Riley remembers. “One of the big law firms sent people home. By the time we got to Melbourne we were getting questions about the impact on our business. We started qualifying our 2020 outlook with ‘contingent on what happens with Covid-19…’”

Kimbal Riley and Matt Cawte wanted enough cash in the bank to make long term decisions. Photo: Nikki Mandow

Riley and Cawte returned to New Zealand, and all hell broke loose in the movie world. 

On March 8, Italy joined China in closing all its cinemas, and customers worldwide started to abandon film going. In a single week, the US, Malaysia, Thailand, the UK, Australia and New Zealand closed all their cinemas in quick succession.

Eighty percent of Vista’s business is from cinemas. 

“Daily, multiple countries were shutting down. Our customers were shutting down. We weren’t sure what was going to happen. We couldn’t tell how long it was going to last and how impactful it was going to be.”

And, Vista executives figured, if customers’ cinemas had no money coming, they weren’t going to be in a position to pay for their cinema managements software.

“In theory we could have billed all our customers, but if they didn’t have money it was debatable how useful that was,” Riley says. 

They starting calling customers, talking about what they needed, discussing options for payment.

It was possible, Cawte says, that the company was facing near-zero or dramatically reduced incomings for months – maybe a couple of years. Worst case scenario, people would never return to the cinema.

Nobody knew.

Cash is critical

In the short term, Vista needed to reduce its cash burn. Contractors were given notice immediately, and around 130 of the company’s 730 staff in nine countries were made redundant. The rest were asked to volunteer to reduce their hours – and their pay. More than 85 percent did. The executive team and the board took pay cuts – Riley took 30 percent off his salary – but didn’t reduce their workload.

“We decided we needed enough cash to get ourselves through to the end of 2021.”  – Kimbal Riley

The more gnarly decisions were long term. But they were about cash too.

“We started to model scenarios. It was possible if cinemas stayed shut for the rest of 2020, into 2021, the majority of our customers will be under significant financial stress and wouldn’t be able to pay us.

“We decided we needed a more sustainable cash buffer – enough cash to get ourselves through to the end of 2021.” 

You’ve heard right: enough cash to make it possible to go more than 18 months with no or limited revenue. But the alternative –  muddling through the pandemic worrying about survival week by week was potentially more disastrous.

“If the first thing you are thinking is ‘Can we make payroll?’ you make shorter term decisions and you make decisions faster than you should,” Riley says. “We wanted to be in a position where we could make long term decisions.”

Vista already had a $44 million debt expansion facility available with ASB, but Cawte and his team didn’t think that was enough. They decided on a $65 million capital raise as well.

“We thought we would be able to survive to the end of 2021 if we raised $65 million.”

From the outside it seems amazing investors were prepared to put that much money into a company utterly reliant on an industry virtually shuttered worldwide, and with no long term certainty.

But they were. In fact potential investors bid considerably more than the $65 million the company was looking for.

Riley says he never had a doubt they would get the money.

“By early April we were beginning to understand that compared to the GFC it wasn’t a financial crisis, it was a health crisis inducing a short term business crisis,” Riley says. “Social interaction might take time to recover, maybe one, maybe three years, and it’s a painful process. But the outlook is good, so our position is still fundamentally sound.”

Short versus long term thinking

Joanne Ogg is Auckland managing partner at accounting and business consultancy firm EY and leads its risk management team. She describes her role as “striving to help companies keep out of trouble, and make their business better for long term success”.

EY’s Joanne Ogg says cutting staff can be a short-sighted fix. Photo supplied

Ogg says organisations that coped best with Covid balanced their short term needs with a long term view. While it might have felt logical when the crisis hit to cut staff, push out lead times for customers and delay payments for suppliers, the risk was that attitude would bite you on the bottom later on.

“It was easy to get into this short term mindset – ‘Gosh, everyone’s living hour to hour and making decisions on information changing daily’. But companies that kept true to purpose, and had faith they would get to a better place, didn’t make short term decisions.

“For example, suppliers which paid and collected on time built more trust and more loyalty within their ecosystem.

“On the other side, companies which were all about maintaining profit, that put their people and their customers down the list – making it difficult to deal with them, making people wait, not having different channels of communication during the crisis, or refusing to give refunds – they lost trust.”

Designing a Covid movie “reopening kit”

Back to Vista, and with more than $100 million of working capital under their belts, the 2019 final dividend cancelled and an agreement to buy a further 14.5 percent stake in Vista China shelved, the company set about finding out what products its customers were going to need in a new world.

“It gave us time to talk to our customers around how they could recover and what software they would need to come out of this.”

Around 50 percent of the world’s cinema chains outside China run on Vista. The company has offices in New Zealand, Australia, Malaysia, South Africa, the UK, Netherlands, China, the USA and Latin America and its products range from film scheduling to ticket and food sales to mobile phone-based loyalty programmes.

The more different Vista modules a movie theatre uses, the more it pays. A cinema taking the full suite of products could pay Vista approximately 1.5 percent of total expenditure; on average it’s 0.5 percent.

Vista saw an opportunity to increase its sales by designing products that cinemas couldn’t do without in and after a pandemic.

They set to work designing software that could handle social distanced seating and could adapt to different countries’ rules – adjusting where people sat according to the number of people that were allowed to sit together and how much spacing was required between groups. 

They designed software that could support contact tracing, if someone who’d been to a movie later tested positive. And they set up systems that helped keep the contact between staff and customers as low as possible when it came to buying tickets and receiving food and drinks at a theatre. Online sales. Click and collect.

It also expanded marketing options for cinemas, so they could encourage people back into theatres once it was safe. “We delivered that while cinemas were shut – we called it our ‘reopening kit’. 

A witty marketing creative soon took this Vista logo and designed a Covid-appropriate one with separated hands. Photo: Nikki Mandow

Vista also fast-tracked a $22 million transition of its core Vista cinema product from a on-premise server model to cloud-based technology. 

“One of the early questions we asked ourselves was should we still do that transition. We pressed on and we pushed the accelerator.”

Will it work? It’s too early to know, but Riley hopes so. He says Covid has brought Vista closer to its customers, and already there have been some market share gains,

“We think we will come out of it stronger and more closely entwined with our customers. Before we’d see them in trade shows. Now we are talking to customers about how we can help them. We are saying ‘We are doing everything you want’, and then we are hoping we are high on their payments list.

“It’s a strong conversation.” 

“We had a good first quarter, the second quarter was pretty shit …” – Matt Cawte

The company’s financial result for the first half of 2020 was pretty grim for a company that was growing 20 percent a year for five years. Revenue down 34 percent to $44.8 million, an ebitda (net income before interest, tax, depreciation and amortisation)  loss of $6.5m, and a pre-tax loss before tax of $47.9 million, including non-cash impairment charges and credit provisions of $36.1 million.

“We had a good first quarter, the second quarter was pretty shit,” Cawte says.

But Riley believes cinemas’ move to a more digital way of working is here to stay.

“In 2019 they could lob up a blockbuster, sell some popcorn. Now they will need to be much more focused on their customers and how they connect with them.

“We describe ourselves as a Covid recovery stock.”

Vista hopes it is positioned to take advantage of a return to cinema going – when it happens

Case #2: Mainfreight – a crazy ride

If you’d told Mainfreight chief executive Don Braid in March that in November he’d be reporting a 23.4 percent increase in pre-tax profit for the six months ended September 30, and a 17 percent reduction in net debt, I suspect he’d have said you were crazy.

Freight volumes were down 30-40 percent, most planes had stopped flying, shipping was massively restricted, and New Zealand lockdown restrictions were delaying truck movements.

“For the first couple of weeks we were really worried about how bad this would be,” Braid tells Newsroom. “But we faced it day by day and each day it got better. Now we’ve got record tonnage and fantastic trading results. 

Mainfreight has 291 branches in 26 countries – nine more than before Covid hit. Photo: Nikki Mandow

“Profit in Australia is up 104 percent, in Asia it’s up 60 percent.”

And the trick?

Not too much debt on the balance sheet, a focus on retaining staff and not letting customers down, a decision to let regional branch managers take charge of decision making for their patches, and making sure customers paid on time.

Simple? Not.

When crisis preparedness just doesn’t cut it

“We had disaster preparedness – we’d been through the Christchurch earthquake which disrupted our warehouse and people in Christchurch. We’ve faced the Kaikoura quake, disrupting the rail line and access to the South Island. As a global business we’ve come up against wars. 

“But we had nothing written down about how you deal with a global pandemic. This has really honed our skills to react quicker on behalf of our people and our customers.”

The first thought when the reality of the situation struck, Braid says, was to make sure none of the company’s 8700 or so staff lost their jobs and to protect them as much as possible from getting sick. 

The second was how to look after customers’ supply chains – to make sure the freight someone needed to move from A to B didn’t rot in a warehouse or sit on a wharf somewhere.

The two goals often coincided, Braid says. Mainfreight needed its staff for the often impossible-seeming task of moving goods around; for that it needed systems that protected its people against Covid. By the same token those systems should protect customers from the potentially disastrous consequences if, say, the pandemic closed a Mainfreight regional operation.

Mainfreight made big changes to warehouse operations to protect staff and customers. Photo: Nikki Mandow

“Our customers entrust us to look after their stock in our warehouses, and trust that we will pick up their goods and distribute them every day. What would have happened if a warehouse had to shut?

“We had to adjust the way we operated to get around the possibility of Covid infection.”

Dividing people into separate shifts, for example, so if one shift had to be quarantined, another could still operate.

And it wasn’t just in New Zealand. Mainfreight has 291 branches in 26 countries. They didn’t have Covid cases in local teams, but they did overseas, Braid says. They tested often, managed cases and kept international goods moving – in very tough times. 

Take airfreight. The standard process is Mainfreight and its competitors around the world put perishable goods on standard flights. Passengers on top, freight underneath.

Suddenly there were almost no standard flights. Mainfreight found itself in the extraordinary position of having to hire whole planes to get goods out of New Zealand – and bring PPE back in. Where there were flights they had to be super-flexible. 

“We had lots of people working late at night meeting plane schedules.”

Mainfreight split out its airfreight team from the sea freight group, and bolstered their capability.

Sending goods by plane became very expensive but volumes didn’t go down, Braid says. “People were in desperate need to get goods out and the Government was in desperate need to bring PPE in.

“With the vaccine we are going to need that capability again.”

Don Braid joined Mainfreight in 1994. He’s seen a fair few crises, but not one like this. Photo: Nikki Mandow

Mainfreight started picking up business from customers let down by their normal transport operator, Braid says. And all that hustling of Air New Zealand and international airlines to hire planes to move freight saw new customers coming in with goods to fill those planes.

“We saw it as an opportunity. There were instances of some transport companies not having the resources we had.” 

Investors have rewarded Mainfreight for putting customers and staff first

Mainfreight has added 106 new big customers into its top 500 customer list, Braid says.

Though that has its challenges too. 

Logistics are still super-tight all round the world.

“There are fewer planes, so what is on those planes is arriving as urgent freight. And shipping lines are sailing less frequently. Then everything arrives here in surges and we have to get it out. 

“There’s only a certain number of trucks, trains, ships. Another consequence of the Covid-induced logistics imbalance is you have empty container equipment in the wrong place.”

Demand is strong worldwide, but logistics are disrupted. Photo: Nikki Mandow

And demand is strong, Braid says.

“Take New Zealand, for example. All that money we spent on international travel, now we are spending it internally, often on consumables.” DIY stuff, new gadgets, furniture, sports equipment, technology, a wider variety of yummy food.

“It’s really different from the norm of supply chains – more consumer demand and less capacity. We will have a surge coming into Christmas, but that could continue for the foreseeable future.”

“People” not “workers”

Every company says its staff are important. But talk to anyone who knows Mainfreight well, and they say it really does think its workers matter. For a start, don’t call them “workers” or “staff”, Braid says, they are “people”.

“Responsibility and decision-making needs to be as close to the customer as possible.” – Don Braid

And he trusts his people. He doesn’t talk about “head office” either. 

“We are just a support office. We give guidance and support, but we leave implementation to people in the branches. 

“Our view is responsibility and decision-making needs to be as close to the customer as possible.”

Branch managers know the customers, the freight, the problems on any particular day, and they can focus on doing what needs to be done.

“We could never have achieved what we did with high-level corporate decisions – there was just too much to do. You couldn’t physically and mentally cope with making decisions for the whole network.”

Take the early decision to focus hard on getting payments from customers on time. Braid and his team were concerned customers might find it tough to pay bills and wanted to avoid that becoming a problem for the company. 

They put the branch managers on the job, and not only did cash flow not suffer during the pandemic, it improved $40 million over the year.

“We were able to make a quick decision and get it implemented and acted upon.”

EY’s Joanne Ogg says Covid has provided a rare opportunity to look at how company leaders around the world handled an unprecedented situation – and what lessons can be learned for the future. 

And ‘trust’ is pretty at the top of her list. Companies where the board trusted management, and management trusted staff were able to move more quickly than companies where that trust didn’t exist, she says. 

It might have been introducing drive-through collection at a store, shifting to online medical consultancies, or tightening processes for payment collection.

Often changes were things companies already had in their plans of things to do over time, particularly when it came to introducing new technology, Ogg says.

“Suddenly there is a cliff and you don’t have months or year, you have to do it now. You may not have followed the plan, but in terms of the outcome, a lot of businesses got there.”

Ogg says many organisations have a lot of process around change. 

“When you get an event like this and change is a necessity, you have to have different models of trust to get an outcome quickly. Companies that had that trust and were able to pivot quickly were the winners.”

She says some of the best companies parked the normal corporate decision-making processes and gave a small number of people clear roles and decision-making authority.

“The CEO and board would have said to a few people: ‘You have this responsibility, you can make these decisions, now just get on with it.

“Anyone that had to go through piles of bureaucracy, asking for permission, might have missed the boat on change when it needed to happen.”

Mainfreight delegates decision-making as close to the customer as possible. Photo supplied

Braid talks about providing an environment for people to flourish and take responsibility. He talks about hard work and attitude and a culture “we work hard on every day”. It’s about promoting internally wherever possible and rewarding staff.

“Every year in April we increase people’s salaries with a cost of living increase, in April and May we wondered if we could do it this year – in July we did. Every year in July or August we pay bonuses based on profitability the year prior. It would have been easy to hold onto that $27 million, but we paid it. 

“We have the best people, no wonder we wanted to look after them.”

Wednesday: Why corporate travel agent software company Serko adopted a “buy now, pay next year” strategy, and US church donation technology business Pushpay lifts profits 50 percent – despite churches being largely closed. Find out how.

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