Cash flow is king, said Finance Indaba Network panellists
Having sufficient liquid assets is an important safety net in times of crisis, the Finance Indaba heard.
Throughout history, gold has proven itself to be the most resilient precious metal in terms of value. Its value increases along with demand, and gold often moves higher when economic conditions worsen. That has been the experience for DRDGOLD.
“We were fortunate to be in a very good cash position before March,” said DRDGOLD CFO Riaan Davel. The company is one of the oldest continuously listed companies on the Johannesburg Stock Exchange (JSE) and it is also has a secondary listing on the New York Stock Exchange (NYSE).
In July 2018, DRDGOLD bought the gold assets of Sibanye-Stillwater’s West Rand Tailings Retreatment Project – now known as Far West Gold Recoveries. The acquisition was instrumental to the company’s growth strategy, increasing its gold reserves by 90%.
Riaan said that gold prices continued to increase gradually over the next year, which meant the company made enough liquidity to survive the pandemic. “Looking back, that gave us a huge cash injection, and it gave the market confidence, especially with a big player like Sibanye,” said Riaan.
Riaan said changing the business model from underground mining to surface operations also helped them during Covid-19 because they could successfully implement social distancing measures without disrupting operations. DRDGOLD met health and safety standards because miners did not have to go underground and into shafts to work. The company also invested in automating certain functions in the production line, and teams managed operations remotely.
Nopasika Lila, CFO at Barloworld, said the group had learned a lot from its Russian business operations when managing the pandemic’s impact. “Russia shut down before us, so a lot of the policies, communication, strategies for the various businesses were already in place,” said Nopasika. She said while they prepared from a readiness point of view, the challenge was implementing these contingencies.
“What do these policies translate into, and do the people implementing these have the understanding and appreciation of what it means to execute those plans?” asked Nopasika. She told the panel that lockdown also demonstrated the resilience of the IT sector. “We underestimated the importance of IT in the business as a key foundation for businesses to operate.” She said the IT sector kept the economy going and continues to do so as the restrictions continue.
Nopasika also related the importance of liquidity and the impact on retailers during Level 5 lockdown. “Businesses were closed, there was no business and no revenue, but it didn’t mean that from a cost point of view that the till was not running, so cash management was key.”
Standard Bank CFO Sibusiso Xaba said helping clients and businesses to survive the pandemic was its primary focus. “If our businesses are not doing well, we as a bank are not doing well,” said Sibusiso. He said South Africa’s healthy financial system and Reserve Bank under the skilled leadership of Lesetja Kganyago helped the banking sector survive Covid-19. “The Reserve Bank reduced some of the capital adequacy requirements for us to ensure that we had money to assist businesses and clients,” said Sibusiso.