Chapter 1
Advanced manufacturing and mobility
The industry faces disrupted supply chains and a significant drop in consumer demand.
From end-user demand to supply-chain disruptions and plant closures, companies in each of these sectors are facing monumental COVID-19 impacts. The automotive sector is facing significant disruption in production, global supply chain and customer demand – everything from a dramatic drop in new vehicle sales in China to supply-chain stoppages and plant closures.
Industrial-products and chemical-products companies are facing deferred demand, supply disruptions and potential plant closures, dramatically impacting retail and purchasing prices. Finally, airlines and transportation companies globally are severely impacted by the significant drop in demand for freight and passenger transport, as well as the cancellation of events.
Actions you can take
Global production and supply chain disruption
- As your business continuity plans take effect, keep assessing the impact on your supply chain and operations
- Synchronize supply, manufacturing, logistics and fulfillment and re-position inventory
- Increase focus on your supplier risk programs
Increasing customer uncertainty
- Understand your opportunities and risks with legislative stimulus plans
- Aggressively focus on liquidity and working capital
- Review inventory and optimize production
- Evaluate impairment and other estimates
- Start updating business plans to reflect the changes in the marketplace, supply chains and trade relationships
Stress test for crisis management
- Engage your employee population and manage its concerns regarding the risk of virus infections in the workplace, in client interactions, in business travel, etc.
- Address communication in cases of employee infections
Regulatory and legal issues
- Provide legal guidelines in terms of employer/employee rights and obligations
- Account for business interruption losses under guidelines in local areas and global headquarters
- Comply with business-loss insurance claim requirements
- Plan for tax implications and analyze tax impact of changes to the supply chain
Questions you should ask
- How do we adapt our business continuity and crisis-management plans as the situation changes?
- How can we best manage liquidity issues resulting from interruption to our business?
- As production is reduced, which investments should be reconsidered?
Chapter 2
Consumer
The seismic changes reshaping consumer industries have accelerated and will have lasting impact on the way people shop and what they buy.
In the short term, the global spread of COVID-19 has led to a third of consumers experiencing some sort of lockdown, and significant supply and demand volatility. Consumer staples companies are struggling to keep up with demand from panic buying, but non-essential stores are closing either voluntarily or due to containment measures which have disrupted supply chains, production, and consumption. Digital channels are backing up as fulfillment and replenishment for spiking demand tests existing capabilities.
Companies are pivoting to ensure the supply of essentials while suspending activities for discretionary goods. Many are increasingly having to balance liquidity needs with the physical and financial well-being of employees, while also navigating emergency regulation and proactively building brand integrity by being part of the solution.
Actions you can take
Maintain liquidity and cash flow
- Draw down available lines of credit to ensure continuity during volatility
- Tap into available government or trade stimulus measures and incentives
- Freeze capital expenditure and reallocate funds to where they are needed
Manage workforce needs carefully
- Ensure best practice in communicating with and financially supporting furloughed staff
- Where workforce demand is high, streamline recruitment processes but continue to prioritize employee safety
- Consider pooling labor to match extremities of demand between companies
Refocus operations to have the greatest impact
- Consolidate the manufacture and supply of goods to focus on those most needed
- Be prepared to pivot operations to make new products
- Continually reshape portfolio and range as the situation changes
Work together to be part of the solution
- Develop lines of communications with governments, competitors and ecosystem partners to identify how you can help
- Identify and communicate the barriers faced to enable successful collective navigation
- Develop measures to support value chain partners where possible
Assess what is beyond
- Build efficiencies and best practice that will benefit operations in the longer term
- Plan for the fundamental changes in employee and consumer behaviors that might result from the outbreak
- Learn and refine business continuity processes to ensure resilience to future shock
Questions you should ask
- How do we navigate the complexity of supply disruption brought on by trade barriers, border closures and market lockdowns?
- How can we tap into the right stimulus measures to keep liquidity stable and maintain operational resiliency?
- What capabilities will I need to build to adapt to the long-term impacts of the outbreak?
Chapter 3
Energy and resources
Companies must prepare for a period of intense disruption and increased risks.
Energy groups have been squeezed by a big drop in demand for both oil and natural gas stemming from the outbreak of COVID-19, which has led to lockdowns, a collapse in industrial activity and travel bans all over the world. Oil prices have been sent crashing to their lowest level since 2001, while gas demand has fallen by as much as 20% in some cases. Mineral and metals demand forecasts have been revised downward based on the impact on the Chinese economy, and the global spread will only broaden and deepen those impacts.
Regional power markets are increasingly at risk of prolonged demand destruction and there are heightened liquidity fears, especially for energy retailers. With events fast-moving and widespread, energy and resource companies should consider how best to respond to these challenges now, which actions to put in place over the near term and how to plan for recovery over the long term.
Actions you can take
Prioritize people safety and continuous engagement
- Follow government advice regarding best practice around cleaning and social distancing
- Employees critical to maintaining critical assets and services need to have access to personal protective equipment and be kept safe through regular health screening
Reshape strategy for business continuity
- Continue to assess financial and operational risks and evaluate short-term liquidity
- Identify and postpone noncritical maintenance but prioritize emergencies
- Review the resilience of tier-one suppliers, prepare a list of alternatives and plan for possible delays of raw materials
- Identify required skill sets from within the existing or recently retired workforce to cover critical operations
- Increase focus on cash management and reprioritize capital expenditure investment
Communicate with relevant stakeholders
- Ensure clear, transparent and timely communications to secure ongoing support from customers, employees, regulators, governments and investors
- Designate single points of contact to facilitate seamless engagement with regulators, local and national authorities, as well as other key internal and external stakeholders
Maximize the use of government support policies
- Explore available fiscal stimulus and assistance programs to consider how they may best serve individual circumstances
- Renegotiate exploration and production profit sharing agreements with government
- Hold proactive dialog with debt and finance providers. Capital raising, debt financing or additional credit options may be needed to ensure continuous business operations
Build resilience in preparation for the new normal
- Review and renew business continuity plans as new strategies are solidified. Planning for future contingencies based on risk intelligence scenario planning and modeling is critical given the unknown duration and impact of the crisis
- Establish lessons learnt from an increased proportion of the workforce working from home. This could create opportunities and increase future resilience
Questions you should ask
- What interim policies are required to protect reliability, safety, security, and employee well-being?
- How do we proactively serve our customers facing immediate financial hardship?
- How do we avoid stranded assets?
- How do we navigate the complexity of supply chain disruption?
Chapter 4
Financial services
Financial-market volatility and a looming global recession are amplifying impact.
We’ve already seen the market volatility sparked by COVID-19 and forecasts of its likely worldwide economic impact, weakening investment returns and potentially adversely affecting the capital position of financial institutions. A sustained economic slowdown triggered by the outbreak will also put negative pressure on revenue and lead to a material increase in credit risk and a potential spike in claims including for health, credit and event cancellation insurance.
Navigating this challenging environment requires financial services firms focus on better communication, enhanced consumer relationships and acting more transparently with customers and investors. Over the short term, we see support for a shift toward online distribution and testing business continuity policies; over the longer term, firms should introduce comprehensive enterprise and cyber resilience models to prepare, sense and respond to disruption.
Actions you can take
Stakeholder health and safety
- Communicate health and safety priorities to personnel
- Discuss alternative customer trust and engagement priorities in the event of disrupted channels
Financial risk exposure
- Consider potential financial impact of volatility in earnings, increased cost of business, loss in revenue
- Assess liquidity and capital impact on own business and clients due to market volatility, credit impairment, and a potential global economic downturn; assess forbearance impacts, and understand accounting implications
- Evaluate exposure to business interruption, supply claims and event cancellation claims
Loss of productivity and workforce strategy
- Consider accelerated process to provision access and entitlements for repositioned resources
- Enhance use of digital distribution platforms for marketing and distribution
- Manage workforce to allow for timely processing (e.g. asset servicers, custodians and third party administrators) as more employees work remotely
Non-financial risk exposure
- Understand critical technology and cyber operations in the event of nearly remote-only work force
- Introduce comprehensive enterprise and cyber resilience model to prepare, sense, and respond to most forms of disruption
- Understand third party resilience and confirm alignment with your own plans
- Understand implications of client restructuring due to covenant breaches and defaults
Questions you should ask
- Are we prepared to respond to regulatory scrutiny of our preparedness for continuity?
- Banking and capital markets: Are we updating our credit risk models?
- Insurance: How will we manage a potential spike in claims?
- Wealth and asset management: Are we preparing for potential triggers to investment mandates and increased redemptions?
Chapter 5
Government and public sector
Policymakers have a clear mission: protecting the lives and livelihoods of citizens.
Governments and public-sector organizations are at the frontline of responding to COVID-19. They face three urgent tasks. First, preserving life by limiting contagion and building capacity and supplies in health services. Second, protecting people’s livelihoods by taking action to subsidise wages, support business and facilitate rent, mortgage and other repayment holidays. Third, maintaining vital public services such as social care and education. Keeping supermarkets stocked and scientific research for vaccines and testing are other key priorities that government can help facilitate.
Once the immediate crisis has passed, attention will focus on how policymakers can help revive economies that has gone into deep freeze, while at the same time repairing fiscal positions that will be damaged significantly by the economic rescue packages now being implemented. With international debt levels at the highest in 50 years and interest rates at record lows, governments have fewer monetary and fiscal policy instruments to stabilize the global economy. This will constrain future spending, while simultaneously increasing demand for government services. As a result, transformation programs to make government more effective and efficient will become even more urgent.
Actions you can take
Significant global economic downturn
- Optimizing budgets
- Supporting the end-to end realignment of services and restructuring of government
- Prioritizing technologies to upgrade procurement management
Economic fragility and targeted stimulus measures
- Conduct a risk analysis to assess public health and economic vulnerabilities
- Evaluate stimulus measures for rapid recovery
- Identify policies to build resiliency and absorb negative shocks over the medium- and long-term
Increased citizen vulnerability and demand for services
- Use predictive analytics to prioritize service delivery to populations most at risk
- Leverage publicly available data sources to triage information and limit disruption
- Increase agency collaboration to breakdown organizational silos
Strained crisis management resources
- Offer best practices for crisis management and incident response
- Help develop strategies for emergency management
- Develop crisis communication, skills development and training programs
Questions you should ask
- Do you have robust and accurate data on which to base decisions on how best to respond to the emergency? If not, could you build communication channels enabling people to tell government they are in need of help?
- Do your ministries/departments/agencies need help to facilitate remote working?
- Are the financial support measures you have announced reaching the citizens and businesses that need help?
Chapter 6
Real estate, hospitality and construction
The sectors are battling travel restrictions, behaviour shifts and supply-chain issues.
Hospitality and tourism have seen the most significant impact from COVID-19 with an almost complete shut-down in activity and bookings in many countries. However, tentative signs of recovery are however beginning to emerge in China. The construction sector has been hit by an inconsistent response to site closures and significant supply chain disruption leading to delays which are both expensive and challenging to manage. Real-estate buildings are either closed (such as retail malls and offices) or accommodating extremely high levels of use (such as residential, care homes and food distribution). Access to capital remains a priority and volatile market conditions are particularly challenging. Engagement and communication with financial counterparties and investors is critical, as are government initiatives to ensure the ongoing provision of capital.
The severity of the economic downturn and unprecedented disruption to consumer activity will impact all sectors this year with many companies having already withdrawn guidance. Demand shocks will have a significant negative impact in the near-term, but the longer-term consequence is likely to be an acceleration in the transformation of how people live, work and shop with important implications for how they use the built environment.
Actions you can take
Global disruption to business and supply chains
- Validate business plans to incorporate crisis response and business preservation concerns
- Develop customer-focused response to ensure safety, preserve loyalty and brand value
- Conduct end-to-end supply chain risk assessments
Disruption driven change
- Undertake enterprise transformation strategy to validate and target technology implementation
- Implement intelligent spaces solutions to allow for faster and better-informed strategic decision making
- Automate enterprise services to improve operations, processes and asset optimization
Interruption to capital, debt and liquidity
- Assess shifting capital needs and availability
- Review debt structure, focusing on optimization, covenant compliance and credit needs
- Ensure adequate liquidity given shift in business dynamics and demands
Shifts in real estate demand and usage
- Assess customer/tenant implications
- Develop usage policies responsive to customer needs
- Consider impact on acquisition, merger, divestiture, and transformation efforts
- Conduct portfolio risk assessment
Questions you should ask
- What is the cash burn / liquidity need? How do I balance short-term liquidity needs with longer term business impacts / risks?
- What operational cost savings and working capital opportunities can I access?
- What are the implications of any potential debt restructuring?
- Will any actions I take give rise to compliance issues, such as for example REIT compliance?
- What tax implications do I need to consider when making changes?
- What capabilities will I need to develop for the long-term to respond to the likely change in consumer, tenant and employee behavior?
Chapter 7
Health sciences and wellness
The industry is straining to cope with incoming demand and critical shortages.
Health systems and life-sciences companies face challenges on two fronts: preventing the spread of COVID-19 while caring for those affected with the virus or ill with other conditions, and managing business continuity issues, including both workforce health and supply-chain disruptions. With community transmission of COVID-19 widespread, life-sciences companies must address potential disruptions to the supply chain, including delays in ongoing or new clinical trials as health systems prioritize treating coronavirus patients. Current high stock levels of routine medicines and manufacture of branded products outside China have blunted shortages of most drugs and devices, though shortages of medical equipment (e.g., ventilators, masks) exist and shortages of generics are possible. To reduce the demand for critical care and improve outcomes, health systems and governments need to take steps to slow COVID-19’s spread, reduce the surge in demand, enable access, expand testing and tailor isolation solutions.
Health systems must also cope with multiple business continuity issues, including shortages of staff and essential testing, protective and treatment equipment. Beyond medical equipment, supply chains for medicines, devices and blood products have been disrupted. In addition, providers must still deliver essential non–COVID-19 health care while simultaneously responding to the crisis. Increased expenditures linked to testing, hospitalizations and support for vulnerable individuals will affect payers and government.
Actions you can take
Supply chain fragility and/or disruptions
- Conduct end-to-end supply-chain risk assessments and build a diverse base of suppliers and channels
- Control potential patient surge using telemedicine and triage systems and chatbots as symptom checking and risk screening tools
- Use artificial intelligence to model the spread of the disease and inform real-time health care staffing
- Introduce supply conservation protocols and adjust care models and processes to stretch personal protective equipment and other critical supplies as long as possible
- Conduct rapid supply and demand analyses to understand vulnerable population characteristics, clinical staffing, beds and supply impact and potential alternatives
Regulatory/governmental actions linked to supply and price
- Quickly scale early or conditional approvals of drugs/vaccines to treat/prevent COVID-19
- Maximize access to drugs and supplies while limiting potential price controls through partnerships with governments, payers and health systems
Balancing crisis management and routine business
- Create a crisis team to centralize messaging and proactively respond to misinformation
- Organize geographically diverse teams to limit impact to business as COVID-19 spreads
- Create COVID-19 triage centers to limit hospital spread and ensure essential non–COVID-19 care
- Meet care demands using telemedicine, robotic technology and first responders
Disruptions to cash flow and liquidity
- Shift capital allocation and secure short-term credit to ensure liquidity
- Create contingencies for defaults among product suppliers or distributors
Questions you should ask
- How will I preserve system integrity and continue to serve?
- How will I keep core business processes at optimal levels?
- How can I make my supply chain more resilient?
- How does my business change with more flexible regulations?
Chapter 8
Private equity
The industry must manage portfolios while assessing the potential impact on fundraising and new deals.
With more than US$3.4t in assets under management, ownership of companies across a wide range of industries, and more than 20m people employed across the world, private equity (PE) will run the full gamut of effects from COVID-19. For most funds, tackling thorny issues at the portfolio level is the first priority. PE firms have been preparing for a potential economic downturn for the past 2-3 years with significant EBITDA declines already modeled into most deals.
Firms are setting up crisis management teams, working to understand supply chain issues across the portfolio, and working to ensure sufficient liquidity. However, as logjams in the deal market resolve in coming months, PE will focus on deploying the approximately US$750b in dry powder available to fund new deals. Firms are taking a number of steps to respond to the outbreak, including limiting travel, adding pandemic-related language to new deal and fundraising documents, and deploying additional operating resources to work closely with firms in functions like supply chain. We see fundraising potentially impacted over the near term as travel restrictions prevent limited partners from finalizing diligence.
Actions you can take
Liquidity constraints driven by credit tightening
- Maintain liquidity through cash management, cash-generating action programs and stakeholder management
- Update your strategy or business plan while responding via crisis management
- Perform working-capital assessments across your portfolio
Private credit funds get more active
- Assess current portfolio risk factors
- Extend credit to cash-constrained companies, particularly in the middle market
New acquisitions
- Examine ability to take companies private and undertake distressed-asset deals amid heightened market volatility
- Undertake greater diligence around assessing new risks
Uncertainty of impact across the portfolio
- Understand current and future vulnerabilities through portfolio review
- Stress test and scenario plan for operational disruptions and potential significant declines in demand
Questions you should ask
- How vulnerable is our portfolio to disruptions to our supply chain, human capital, or liquidity?
- What’s our deployment strategy as volatility increases?
- What contingencies do we have in place for sourcing and diligence?
Chapter 9
Technology, media and entertainment, telecommunications
Businesses are rising to the challenge of increased demand by providing critical infrastructure and services in unprecedented times.
Around the world, as lockdown becomes a reality for many, the number of people working remotely and the amount of leisure time spent in the home have both reached new levels. It means the TMT sector is experiencing unprecedented demand. Not only is there a spike in the use of existing services, but consumers are embracing new technologies and changing their behaviours. Television consumption has risen significantly since the lockdown and is proving to be a catalyst for the adoption of streaming video services.
News is a key driver of demand for content but, in the absence of sport and live events, other genres, such as movies and drama, as well as gaming, are all experiencing an increase. At the same time, there’s a spike in demand for connectivity and communications, for both business and personal use. Video conferencing apps are being downloaded in record numbers, previously physical activities are shifting online at pace and network traffic is rising as consumers adapt to new realities and adopt new behaviours.
Managing these heightened levels of demand presents challenges in the technology and telecommunications sectors. There is increased demand for network capacity but also pressure on other areas of their business, from supply chain and customer service to data protection and workforce well-being. As a result, telcos are carefully monitoring network resilience while adapting pricing plans and usage limits to ensure access and affordability. In collaboration with telcos, streaming companies have committed to reducing their output quality from high to standard definition to limit their bandwidth needs and ensure continuity of service.
Despite the increasing demand for their services there are pressures on all TMT businesses, not least working capital and cash management. As an example, a fall-off in advertising expenditure by key sectors such as travel, consumer goods and sports is impacting the liquidity of many media businesses which rely on advertising revenue. Companies across TMT need to reforecast their working capital models and think of new forms of cash pooling. They’re also working with regulators and stakeholders on options to defer tax obligations, upcoming debt covenants and ultimately seek net operating loss carry-back opportunities.
Additionally, many companies, particularly those that rely on live events that have been cancelled or deferred (such as concerts, film releases and software-user conferences) are reviewing the impact on revenue, income, and ultimately their sales pipeline. They are also assessing potential impairment issues relating to business once the impact of the crisis is understood and the recovery underway.
Actions you can take
Customer engagement
- Adapt communications, product offering and value proposition with sensitivity to increased customer financial hardship
- Scale digital customer support channels and self-service options to support higher levels of customer outreach
- Move to e-retail direct-to-consumer sales
- Ensure continuity of call center and customer operations
Service resilience
- Prioritize data privacy and security considerations as customers move to remote service usage
- Monitor availability and resilience of networks and infrastructure, adapting planned capex and opex as required
- Collaborate with peers, partners and stakeholders to optimize service quality and continuity
Supply-chain disruption
- Conduct end-to-end supply chain risk assessments,including programs for a supplier counter-party risk assessment
- Model alternate supply scenarios and trade-offs
- Actively review and test controls that monitor for supply-chain fraud and compliance
- Develop new supply chain forecasting models to understand product availability
Working capital
- Segment receivables by COVID-19-affected customers to understand exposure
- Model impact on delayed receivables against opportunity to delay payments
Claims and compliance
- Evaluate client loss/risk situations and engage with claims services to analyze, prepare, present and settle complex business continuity claims
- Evaluate effectiveness of compliance and integrity management to avoid non-compliance
Financial matters and tax
- Assess financial impact of closures and stranded costs such as risks, provisions and impairments
- Ensure forecasting of changing supply/business models is robust and understood by markets
- Evaluate and advise on treatment of potential catastrophic losses for tax purposes
People measures and restrictions
- Explore human capital considerations, including crisis management frameworks and contingencies
- Support frontline staff and government-identified key workers (e.g. field technicians, network engineers) with new protocols, tools and capabilities
- Test and implement new technologies/remote collaboration platforms while the COVID-19 pandemic persists
- Explore and implement managed services to allow companies to focus on core activities
Questions you should ask
- Do we have a full global view of the COVID-19 tax incentives and stimulus packages that are available?
- Can we work with technology and ecosystem partners to quickly understand how our markets have changed, and adapt to those new dynamics and risks? Do we have the tools and models to develop new supply chain, cash, revenue, and cost models?
- Are we considering all of the physical and cyber security threats our company and people are exposed to?
Summary
How should leaders respond to the unprecedented disruption of the COVID-19 pandemic? Here we breakdown the impact on nine key industries, actions organizations can undertake, and questions to help push your thinking.
