Cash & Working CapitalCOVID-19Treasury Management

Preparing for a (Grand?) Reopening

By April 16, 2020 No Comments

Founder’s Edition, by Joseph Neu

How should finance and treasury professionals prepare for an economic reopening following the COVID-19 lockdown?

Since March 10, I have attended most of the 40-plus Zoom meetings NeuGroup has held with members. These include virtual peer group meetings, COVID-19 discussions, weekly office hours and interactive sessions devoted to other subjects. Below are some of my takeaways and insights.

Forecasting is paramount. The emphasis every company is placing on forecasting began with determining how long they could last with the liquidity on hand, without new cash flow. Then it incorporated expectations on new revenue expected in two weeks, one month, next quarter, in two quarters and so on, all under various scenarios, including a realistic worst case.

  • Members continue to monitor collections closely and have switched on cash preservation protocols with varying severity, depending on the expected impact from COVID-19, how much liquidity they had, and how much access they had to new sources.
  • Forecasting, business planning and replanning now turn to the reopening and figuring out how soon lines of business may recover, how fast new cash flow arrives (and for how long) and what the recovery will look like—V-shaped, U-shaped, a flat-line or something else?

Stratification is key. The insight from China, courtesy of this week’s Zoom with our AsiaCFO peer group, is that financial planning must be stratified. For example, the recovery in China is V-shaped, helped by pent-up demand and stimulus. Yet there is great uncertainty and an expectation the recovery will be upset by demand and supply shocks caused by the global nature of the pandemic and the economic recession it has triggered. That means economic forecasts and corporate cash flow forecasts must factor in:

  • The impact in each country, region, sector and market. For example, food service and hospitality will be hit much harder than professional services in most markets, and areas with higher population densities will be affected more severely.
  • Timing differences. Companies must account for the different stages and severity of COVID-19 in different countries, from the initial curve of infections in their markets, in others they sell into or source from, and then the curve of subsequent infections until a vaccine emerges or the virus dies out. China is a few weeks to a month out of lockdown, Australia is midway, Thailand is just starting, and Singapore, Japan and South Korea are going through various second waves of lockdown.
    • In late Q1, MNC affiliates in China helped fund their parents by sending cash home to the US and Europe, as they were getting hit with the first wave.
    • Make hay while you can: April, May and June will be big months for a lot of business in China due to the reopening, before the next wave hits. Where can MNCs turn to next to make hay during another market’s reopening phase?
  • The opportunity to reacquire customers and competitors’ customers when the economy reopens. In many business lines, from food service to health care, homebound customers will be open to new products, new stores, new treatments. How aggressively will your company compete to reacquire and acquire them?

It can get complex quickly, and with each new forecast or plan, businesses need to balance the upside opportunity against the danger risk. Therefore:

  • Agility and smart decisions. “What sets the most successful firms apart in this environment is agility and decision making,” one Asia CFO from a consultancy said. “Agility is really critical, but also the speed of how you make decisions.” People need clarity on what decisions need to be made and when, and who needs to make them. And with so many decisions, there must be a good delegation process so employees can make them quickly and then take action.

Do we have enough capital? Given this complexity, uncertainty and opportunity, there is already a lot of second-guessing by those with access to capital: Do we have enough? Should we have issued more bonds? Should we go back into the market again? The second-guessing isn’t helped by the fact that bond offerings continue to be oversubscribed, spreads keep narrowing in secondary markets for those who have already issued, and bankers keep calling and emailing to ask issuers if they want to go back for more. So the internal conversations for reopening might shift from liquidity to growth capital for some.

  • This gets to the final stratification of haves and have nots in this new world: Those with liquidity and access to capital to survive and then thrive and those who do not. The former might possibly look forward to a grand reopening, whereas others are just hoping to reopen.
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Antony Michels

Author Antony Michels

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