Normally, if John Batten walked out of his office at Twin Disc’s Racine headquarters at 11 a.m. on a Thursday, he’d be met with a rush of interaction with other people.
Instead, Batten walks out to an empty office. It is dark because it doesn’t make sense to turn the lights on. When he looks outside there is no traffic.
“It is very strange to be here on weekdays during normal business hours and to be one of only four people in the building,” said Batten, chief executive officer of the maker of power transmission equipment.
Twin Disc is no stranger to managing through the ups and downs of business cycles. The company has significant exposure to oil and gas markets and was already seeing a downturn for six months before coronavirus hit.
“It was painful, but we were adjusting,” Batten said.
The company, which has two plants in Italy, one each in Switzerland and Belgium, offices in China, and distribution in Singapore and Australia, could see the coronavirus outbreak emerging.
“It’s like a big giant Slinky,” Batten said. “We saw things getting worse in Europe first and then maybe naively believed it wouldn’t hit us and then wham, it hit us pretty quickly.”
Twin Disc’s products and customers, including the military, generally allow it to continue operating, but Batten said it is challenging to be productive without knowing which employees will be able to show up for work or which parts will come in from suppliers on a given day.
“If you make too many wrong decisions for too long, that’s when a healthy company becomes an unhealthy company very quickly,” he said.
In the oil and gas downturn in 2015 or in the Great Recession, Batten said he could generally count on healthy companies and suppliers continuing to operate.
“That part was predictable, so you could base decisions on some fundamental facts that you had. Right now, the fundamental facts keep changing every day,” he said.
Batten said he expects the economic challenges from the coronavirus to be measured in quarters, not months. Twin Disc is already taking actions to conserve cash for the future. Those actions included layoffs for 10 salaried employees, a 25% cut in paid hours for other salaried positions and a 15% salary reduction for all remaining full-time employees. Batten and chief operating officer James Feiertag took 20% salary reductions.
In total, the cuts will save around $4.1 million annually and Twin Disc has also deferred all non-essential spending and capital expenditure projects.
“It’s been strange making a lot of decisions on questions that you’ve never had to address before in such a short amount of time,” Batten said, adding that managing through a downswing is a skill Twin Disc’s team has developed. “You’re glad you have it, you don’t like developing it.”
The hardest part, Batten said, is making calls with employees being furloughed or taking a salary reduction. In normal times, those would be in-person meetings.
“The big difference though, just on a personal level, is that you can’t be in a room with anyone, so you’re having all of these discussions remotely via phone or video conference,” he said of managing the situation overall.
To figure out which actions the company needed to take, Batten said the first step was to try to get a sense of how long the crisis could last. He looked to the experience of Wuhan, China and projections for Europe and said the best-case scenario will be two months.
From there, the company tried to estimate how quickly it would burn through cash with severely reduced order rates and how it could keep the business healthy and meeting existing debt covenants. Then it was a matter of staffing the business appropriately position-by-position.
“You want to share the pain as fairly and as equally as you can and then as you move up the organization chart there’s more pain as you go up higher. It’s as much a science as it is art. It’s trying to be respectful for each employee and each position,” he said. “You’re in the middle trying to take care of everyone but understanding that you’re facing two months to six months of extraordinary operating circumstances and how do you do that.”
Batten is optimistic Twin Disc will be able to receive some support from programs included in the federal government’s CARES Act, although he isn’t counting on it.
“At the end of the day, you want to manage your balance sheet and P&L as best you can because everyone is going to need help and you just want to be the healthiest, I refer to it as the prettiest train wreck in front of the banks,” Batten said.
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