Finance leaders see uneven recovery, business impact still unfolding

Table of Contents Business impact still unfoldingRecovery is unevenGeopolitical tensionsBarriers to digital transformationWhat companies are…

Economists have been trying to predict whether there will be a V, U, or L-shape COVID-19 recovery in countries, and, increasingly, we hear that it may be a case of a K-shape recovery where cash-rich companies or businesses in certain industries — technology, pharmaceutical, and grocery — will thrive, alongside those hardest hit by the pandemic — hospitality and tourism, aviation, and retail — which will continue to struggle.

In a recent discussion with members of the Association’s regional advisory panels for Australasia; Middle East, South Asia, and North Africa (MESANA); and South East Asia, such seems to be the case across the regions. These are some of the main themes:

Business impact still unfolding

Although COVID-19 was officially declared a pandemic in mid-March by the World Health Organization, its impact on businesses and industries is still unfolding. In other words, the worst is yet to come for some. One finance leader in the financial services sector in Australia said that impacts on the industry will only be clear in the next three to six months, as fund managers reassess the value of their holdings, warning that some funds may go under.

Another member in the construction industry said the company is already seeing a decline in sales conversion and had lost clients in some instances but expects to see real depression in the business in the first quarter of 2021.

Recovery is uneven

Businesses are recovering at different paces depending on their industry and whether the local COVID-19 infections are under control. In countries that had successfully contained the virus’s spread, governments are encouraging workers to return to offices and “be out and about”, one member said, so that business activity can pick up again.

In countries where there are second waves of infection, schools are still closed and industries such as manufacturing, construction, and logistics are still being disrupted. One member who works for the largest telecommunication company in a Southeast Asian country said that while its services are essential for many households and businesses, its revenue has seen a negative impact because many of its clients are SMEs, and small businesses are struggling to survive.

In contrast, businesses such as online education and e-commerce are thriving. Hospitals that have pivoted to online channels by providing services virtually are also seeing opportunities for growth. Overall, however, businesses across the regions are still in survival mode, prioritising cash management and cost reduction.

Geopolitical tensions

Uncertainty resulting from trade tensions between China and the US is also a concern for finance leaders. The geopolitical tensions have dampened business confidence and disrupted supply chains. In a Southeast Asia country, however, Chinese investors continued investing into its manufacturing sector where the products are bound for the US and European markets. The country has, in one way, benefited from the trade tensions.

Barriers to digital transformation

While many companies across the region are accelerating digital transformation projects, small and medium enterprises are struggling to digitise processes and business models because of the capital expense required.

Another barrier to digitalisation is the mindset of senior management. A member in Singapore observed that a company with senior management that is technology-savvy is doing well even in the current pandemic environment, including announcing bonuses for employees, whilst companies in the same industry that fear adopting new technologies struggle to transform.

Returning to offices could also undo progress achieved on the digital transformation front. A member in South Asia whose company has reopened its office shared that employees reverted to the old ways of doing things once they were back in the office, losing the opportunity to continue the positive change that occurred during remote working months.

What companies are doing

Members share some approaches companies have taken over the past few months:

  • Banks that are seeing higher nonperforming loan rates are restructuring loans to give borrowers more feasible repayment timelines.
  • Universities have been impacted by lower enrollment, especially from international students, and are laying off staff, offering voluntary redundancies, and downsizing or centralising departments.
  • Companies are instituting temporary salary freezes to save cash reserve.
  • Businesses are introducing “talent loaning” programmes to reduce staff overhead while keeping talent in the company. An example is the collaboration between the airline Qantas, which had to furlough its employees, and supermarket chain Woolworths, which needed extra help during the earlier months of the pandemic.
  • Organisations are preserving cash by freezing discretionary costs and postponing noncritical projects.
  • Property companies are supporting tenants by postponing rental payments in land and commercial properties.
  • Trading companies are offering goods on cash instead of credit to maintain a healthy cash flow.

What’s next

Some companies are planning for 2021 and are forensically looking at how much cash is needed to stay afloat and if job cuts need to be revisited. Decisions on discretionary operating expenses and noncritical projects will also be revised.

A member emphasises the importance of stress-testing the business as financial impacts from COVID-19 will go on for a longer time. Another member added that businesses will have to learn to live with the risks resulting from the pandemic by weighing and making the best possible decisions.

Business continuity planning and scenario planning are also important in preparation for second, third, or even fourth waves of infections to ensure that the organisation can adjust to a remote working mode on a day’s notice, if need be. This is especially important for businesses providing essential services.

Finance leaders are also looking into reinventing business models and increasing digitalisation while prioritising cybersecurity, especially if remote working and cashless payments will become a mainstay in the coming months.

Resource

Reimagine Business Resilience in the COVID-19 World

— Andrew Harding, FCMA, CGMA, is chief executive–Management Accounting, and Venkkat Ramanan, FCMA, CGMA, is regional vice-president–Asia Pacific, both at the Association of International Certified Professional Accountants. To comment on this article or to suggest an idea for another article, contact Alexis See Tho, an FM magazine associate editor, at [email protected].