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Headline Verdana Bold
18 March 2020
Webinar: Responding to COVID-19Updates and practical steps
COVID-19 webinar© 2020 Deloitte Belgium 2
Experts
Stijn DemeestereTax & Legal
Koen MagnusCrisis Management
Jürgen EggerTax & Legal
Kevin OverdulveSupply Chain
Stephan BrouwersFinancial Advisory
Ian StewartChief Economist
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COVID-19: current pictureKoen Magnus, Partner, Crisis Management
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Cases in 150 territories
Current outbreak picture (16/03/2020)
Source: World Health Organization
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>1.200 cases, >350 in hospital, 79 intensive care
Current outbreak picture in Belgium (16/03/2020)
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The economy: temporary shock, or something worse?Ian Stewart, Partner & Chief Economist
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Growth to slow in 2020, rebound in 2021What are the risks of a protracted economic crisis?
Projections from the 2 March 2020 OECD Interim Economic Outlook and the November 2019 OECD Economic Outlook
Source: OECD Economic Outlook Database
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History of economic shocksExternal shocks differ in nature and impact from other shocks
Type Examples Impact Nature
Financial shocks 1929 Wall Street crash2000 Dot-com bubble burst2008 Global financial crisis
Severe & protracted Fundamental economic reset
Inflationary shocks 1973, 1980, 1990 recessions
Severe & protracted Fundamental economic reset
External shocks 9/11 terrorist attacks2002-03 SARS outbreakCOVID-19
Severe & temporary Temporary shock to output and consumption
Internal to economy
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Liquidity
• Restricted mobility, illness & caretaking limit ability to workIncome
• Households spend less, firms cut investmentConfidence
• Firms & banks face cash crunch
Credit • Banks reluctant to lend
How shocks can develop into protracted crisesPolicy will seek to support these channels
“Shutting down the economy --and more importantly turning it back on again -- is not like shutting down and turning on a light bulb. It's more like shutting down and restarting a nuclear reactor. You need to do it carefully, and make sure the parts survive the shutdown intact.”
John Cochrane, Hoover Institution
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Largescalecoordinated
response
Rate cuts
Liquidity
Credit
Tax cuts
Health spending
Income support
Fiscal
Monetary
Economic policy responseHow to keep growth going
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Stress indicators ticking up
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Policy to the rescueDeploy the “bazookas”
Monetary policy Fiscal policy
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Impact of China’s lockdown already visibleWhen will it return to business as usual?
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GDP forecasts cut for 2020, raised for 2021
Quarter-on-quarter GDP growth, %
2020 Q1
Q2 Q3 Q4 2021 Q1 Q2 Q3 Q4
US 0.2 -2.2 0.3 1.0 1.0 0.8 0.6 0.6
Euro area -1.6 -0.3 0.8 0.5 0.4 0.4 0.3 0.3
UK -0.4 -1.6 1.4 0.8 0.2 0.4 0.2 0.1
ING GDP forecast, 15 March 2020 & Deloitte calculations
YoY GDP growth
Previous 2020
Current 2020
Previous 2021
Current 2021
US 1.9 -0.4 2.0 2.4
Euro area 0.9 -1.2 1.2 1.6
UK 1.1 -0.6 1.5 1.4
Full-year GDP growth, %
Previous forecasts from Consensus Economics as at 10 February 2020, current forecasts from ING as at 15 March 2020
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CFO response to uncertaintyCost control, cash and de-leveraging
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Conclusions
This time itis different
Major mobility, workforce, de-globalisation shock
Recessions likely, rich world growth
goes negative in 2020
Very strongpolicy response
Income support, bailouts, capital, loans essential –
and are coming
This is a one-off shock: big policy boost + more
movement = H2 rebound
For business:it’s all about stakeholders,
cash, balance sheets
Volatility, reduced visibility BUT watch fundamentals,
medium-term
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COVID-19 response planning and assumptionsKoen Magnus, Partner, Crisis Management
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Five qualities of a leader that distinguish between surviving and thriving amidst crisis
MISSION FIRST
Stabilize today, and harness both the energy and the constraints of volatile conditions to spark innovation tomorrow.
• How are you turning the COVID-19 crisis into an opportunity to emerge stronger?
SPEED OVER ELEGANCE
Decisive action – with courage – is often more essential than getting it perfect.
• How are you empowering your teams to take courageous action in a volatile environment?
OWN YOUR NARRATIVE
Paint a picture of a compelling future and path forward that your stakeholders can support and rally around
• How are you proactively filling the information vacuum to combat the spread of misinformation and rumor?
EMBRACE THE LONG VIEW
Stay focused on what’s on the horizon to instill confidence and steadiness across your ecosystem
• How are you anticipating and responding to the new business models likely to emerge post COVID-19?
DESIGN FROM THE HEART
Seek and reinforce solutions that align to your purpose, your
societal obligations, and serve the
heart of the organization.
• How are you demonstrating to your employees, customers, communities and ecosystem that you have their best interests at heart?
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The heart of resilient leadership: responding to covid-19In the crucible of crisis, resilient leaders are defined first by who they are….
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Priorities
The six functional areas most at risk during this
COVID-19 crisis
Time Frame
Thoughtfully selecting when to pivot from Respond to Recover to
Thrive
Accountability
Defining who is responsible and accountable in the business
! A & B teams !
The heart of resilient leadership: responding to covid-19Resilient leaders are then defined by what they do along three dimensions
, CPO
, CPO
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Managing supply chain risk & disruptionKey considerationsKevin Overdulve, Director, Supply Chain
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Plan
Source
Make
Deliver
Serve
The heart of resilient leadership: responding to COVID-19Respond & Recover | Prepare & manage continuity, learn & emerge stronger
Visibility is Vital• Establish multi-tier supplier network visibility to identify Tier
1 suppliers, risks & constraints
• Enhance inbound & outbound materials visibility
Plan what’s
Probable &
Unprobable
• Identify & understand likely supply chain disruptions of yesterday, today and tomorrow
• Understand demand impact specific to your business and geography & prepare for short-term channel shifts
• Develop short-term contingency plans for operational disruptions and confirm short-term demand-supply synchronization, a.o. current available-to-promise
• Run business stress tests for a range of scenarios, from mild contaminated regions to a global pandemic
Secure Supply
• Work closely with Tier 1 suppliers: get visibility, understand flexibility and allocation logic, establish crisis governance
• Activate secondary supply sources: secure alternative capacity & inventory, ecosystems for shared resources
Be intelligent on
Inventory
• Re-evaluate stocking strategy in light of supply risk, supply & demand volatility, cash, perishability, etc.
• Update inventory & planning parameters
Mind agile
Manufacturing
• Prepare for plant closures & evaluate alternative production
• Ensure production schedule agility in light of product importance, demand volatility and inventory available
• Focus on labor planning, domestic & international
• Pay additional attention to quality of work delivered
Flex your
Fulfillment
• Evaluate alternative logistics options assuming decrease in air traffic and enhanced unavailability of truck drivers
• Secure logistics capacity with key LSPs
• Analyze alternative routes and modes of transport
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Plan
Source
Make
Deliver
Serve
Illuminate your
Supply Chain
• Illuminate the extended supplier network to picture supply dependencies and identify bottlenecks of consolidation
• Monitor status (finance, performance, …) up until the bottleneck
• Proactively buffer risky supply nodes (secondary & tertiary options)
Establish 1 E2E
Supply Chain
Control Tower
• Define & implement E2E visibility for your supply chain
• Implement a Sense & Respond capability to identify, predict & prescribe responses to supply or demand disruptions
• Evaluate I4.0 solutions to improve Supply Chain synchronization & optimization
Bake Resilience
into your Supply
Chain
• Restructure the Supply Chain network to build in resilience in supply, inventory, manufacturing & logistics
• Revise the supply chain operating model with continuity in mind
• Prepare business continuity plans for a wide range of scenarios and test in real-life
Be Customer-
Centric
• Reimagine customer (supply chain) engagement models
• Establish & implement a segmented supply network
• Establish open communication channels with customers
• Evaluate capacity / incentives to provide financial support and develop contingency plans for financial disruption
The heart of resilient leadership: responding to COVID-19Thrive | Prepare for the next normal
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Employment & Benefit considerations
Stijn Demeestere, Partner, Tax & Legal
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COVID-19 – Employment Law Concerns
Safety personnel
Other
• Risk analysis & safety measures
• Consult with HSC & company doctor
• Restricting workplace access – medical checks
• Impose travel restrictions & quarantaine
Business continuity
• Remote work (telework)
• Requiring employees to continue coming in
• Clear telework policies • Check work accident
Save cost
• Requiring medical certification
• Temporary unemployment
• Paid time off
• Salary and/or working time reduction
• Payment plan social charges & taxes
• Check contractual arrangements
• Check tax impact• Communication authorities
• Equity plans
• Expats
• Develop cost reduction plan
• Communication authorities
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Legal considerations
Jürgen Egger, Partner, Tax & Legal
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COVID-19 – Commercial Law Concerns
Insurance
Financial distress
Legal checks to be done: • Analysis of insurance
policies • Negotiation with insurance
companies
• Type of insurance
• Exclusion of coverage
• Future coverage
Force majeure
• Legal vs. contractual definition
• Suspension of obligations
• Documenting your case
• Interpretation of contractual provisions
• Decide on a consistent/uniform approach
Claims and dispute resolution
• Letters of default
• Litigation (arbitration or courts)
• Attachment proceedings
• Court representation• MDM advice (Legal +
Financial Advisors)
• Customers or suppliers
• Creditor protection
• Insolvency
• Amicable settlement • Court representation • Cross-border strategy
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COVID-19 – State aid and competition law concerns
State aid
Competition law
• Discussions and agreements with competitors or customers
to alleviate consequences of COVID-19 may be illegal –
fines go up to 10% worldwide turnover
• The fact that the government asks you to do something
does not always protect you
Legal checks to be done: • Legality of the measure• Convince government to
take certain measures• Guide through approval
process with European Commission
Mrs Vestager says it is the Commission’s goal to make sure “that businesses have the liquidity they need to keep operating and to make sure the support reaches the companies that need it”
Legal checks to be done: • Legality of the intended
agreement• Can you follow
government wish or do you need to take protective measures?
• Governments want to intervene to support business
• Many interventions require European Commission approval
for legal state aid
• Sanction for illegal state aid: company has to pay back the
aid with interest
• Hidden consequences when rescue and restructuring aid:
you have to restructure and you have to compensate (limit
business, sell off activity) to level playing field (see financial
crisis and the banks)
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COVID-19 – Corporate law concerns
Corporate Governance and
business continuity
Corporate housekeeping
• Possibility for board of directors’ meetings and
shareholders’ meetings to be held by conference call or
written resolution (check articles of association and
consider to align articles of association with the new
Company Code)
• Approval annual accounts mandatory within 6 months
following financial year close. Requirement to report on
important events post year-end closing (COVID-19 in case
important business impact)
Legal checks to be done:
• Corporate Governance in
times of crisis
• Business continuity measures
• Going concern
Legal checks to be done:
• How to organise board and
shareholders’ meetings
remotely?
• Possibilities under the new
Company Code
• Directors have a collective duty to safeguard the company’s
going concern and act in the interest of the company and
its stakeholders (including its personnel, customer,
suppliers, etc.)
• Good governance requires tailored measures and close
monitoring of the situation
• In case the going concern is impaired, appropriate
measures should be taken (cfr. alarmbell procedure,
involvement of the auditor, financial monitoring, business
continuity or reorganisation vs bankrupcty)
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COVID-19 – Regulatory, GDPR, e-commerce and IP concerns
Regulatory andGDPR
IP and IT Law
• Increase of online sales and … counterfeits
• In most jurisdictions, an imminent threat to public health is likely to
justify the grant of a compulsory license (exception to patent rights)
• Remote working is often less secure (old VPN, insecure WIFI, BYOD,
etc.) – make sure to have up to date systems in place and prepare for
cyber incidents
• Impose security measures on employees in an Information Security
Policy.
Legal checks to be done: • Compliance with the (new)
regulatory framework and
guidance
• GDPR compliance of
measures in relation to
employees installed to
combat COVID-19
Legal checks to be done:
• IP enforcement
• Advice on compulsory
licensing
• Is you cyber incident plan
up-to-date
• Review / update
Information Security Policy
• Export control measures (eg. personal protective equipment);
• New regulatory guidance in the LSHC sector (eg. pending clinical trials,
teleconsultations) – The outbreak impacts the existing regulatory
frameworks;
• Emergency procedures for market access of medicinal products and
medical devices become more relevant
• COVID-19 combatting measures should still be GDPR compliant: the
processing of personal data concerning health is subject to strict rules,
also in the context of employer – employee
• Several European Data Protection Authorities issued guidance: apply
proportionality and data minimization principles
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COVID-19 – Public law challenges
Government contracting
Government powers re
requisition and expropriation
• When taking a decision, the government has to take general principles such as proportionality & non-discrimination into consideration.
• These principles are applicable even in times of crisis
Legal checks to be done: • What exceptions can be
used & to what extent? • What formalities are to be
followed when requesting compensation
Legal checks to be done: • What are your rights and
obligations in case you are directly impacted by a government decision?
• Public authorities need to abide by public procurement rules when procuring works, supplies and services
• Exceptions are foreseen but should be motivated and are limited in use
• Also the execution of public contracts can be impacted. What procedures need to be followed when claiming unforeseen circumstances?
Government liability
• In times of crisis, Government has the power to requisition certain crucial or critical goods
Legal checks to be done: • What are your rights and
obligations in such a case?
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Bridging to a Better FutureLeadership Priorities & Financial ImperativesStephan Brouwers, Director, Financial Advisory
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Thinking through Financial Implications
Understand and monitor liquidity
impact
• Prepare 13 week cash flow forecast
• Track and assess virus/policy impact daily
• Flag upcoming issues and develop mitigation plans
Manage Working Capital and Profitability
• Trading and cash flow forecast for the next 6 months:
- Be realistic: Base case and downside scenarios
• Focus on collecting trade debtors
• Manage inventory and supplier payments
• Minimise all discretionary opex and capex
Seek additional funding early
if required
• Seek new committed facilities (even if not drawn):
- Review existing facility/inter-creditor documentation
- Identify potential collateral for additional borrowing
• Evaluate business interruption cover/claims
Assess impact on sales
• Will customers disappear, defer or cancel?
• Will there be goods for them to buy?
• What is the medium term outlook?
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Proactively manage key stakeholders
• Key stakeholders:
- Customers
- Key suppliers
- Investors, lenders and trade financiers
• Pro-actively communicate to manage expectations
Test need/ opportunity for
more radical restructuring
• Consider need for corporate or financial restructuring
• Exit non-core assets
• Evaluate alternative financing options
Take advantage of relevant
Government policies & support
• Take advantage of Government/Regulatory support:
- Tax deductions
- Deferred payments
- Rental reductions/deferrals
Thinking through Stakeholder Management
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Final remarks
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x
Time Frame Accountability
P r e p a r e f o r t h e N e x t N o r m a l
T H R I V ER E S P O N DP r e p a r e / M a n a g e C o n t i n u i t y L e a r n a n d E m e r g e S t r o n g e r
R E C O V E R
CFO, COO
CRO, GC
CTO, CPO
Maintain robust financial forecasts and scenario planning
Stress test corporate model and capital structure
Build resilience into operations and financing
Ensure actions uphold Responsible Business principles
Implement cash conservation and recovery actions
Evaluate working capital and liquidity requirements
Rapid working capital optimization and credit solutions
Control discretionary operating costs and capex
Negotiate more flexible financing terms with lenders
Communicate with other key financial stakeholders
Understand impacts on contractual obligations
(e.g. loss quantification, force majeure)
Gather documentation for contract negotiations and claims
Implement cash tax strategies / leverage government incentives
Initiate claims and contract dispute resolution
Ramp-up to normalized financial reporting
Ensure internal audit resources reallocated based on risk
Right size and operating model of support function
(e.g. fixed vs variable resources; manpower vs technology)
Implement equity raising and low-cost debt refinancing
Exit of non-core and under-performing assets
CMO, CIO
CFO, CHRO
GC, CTO
Update digital properties to synch with availability
Design digitally-enabled flexible work arrangement
Optimize e-commerce and customer / channel strategy
Assess and address systems and cyber vulnerabilities
Enable data-driven insights and situational awareness
Develop real-time sensing / red flag reporting dashboard
Implement digitally-enabled future of work including for
business processes and back-office functions
Reflect on lesson learned and share best practices
CMO
Establish open communication channels with customers
Evaluate capacity / incentives to provide financial support
Develop contingency plans for financial disruption
Reimagine the operational model to strengthen customer engagement
Engage with key customers to support business continuity
Reinforce loyalty by protecting and rewarding customers
Secure commercial and financial support from customers
Develop communication strategy with front line employees
Review orders vs commitments and inventory
Use advanced technology in customer communications
Reset receivables cycle and collections process and KPIs
CEO with
CHRO, CSO
Rework employment arrangements to reflect next normal
Employee education and training in crisis and resilience
Consider shape of business models and ecosystems of the future
Build scenario thinking / sensing into strategic decision-making
Optimize corporate HR policy – leave, travel, global mobility
Review employment contracts for potential issues
Implement and monitor safe / flexible working
arrangements
Prioritize strategic choices and investments
Reimagine talent strategy and operating model
Adopt “above-the-bar” regulatory / governance protocols
Manage rapid employee return and ramp-up (future state)
Execute on strategic growth, partner and M&A ambitions
Institute crisis and resilience planning as Business As Usual
Update crisis playbook to reflect COVID-19 lessons learned
Organizational design for resilience and flexibility
Regularly refresh vulnerabilities assessment
Institute crisis and resilience planning
Nominate task force leadership team (and back-up)
Activate and empower COVID-19 Command Centre
Itemize organizational vulnerabilities by impact and value
Develop and launch Communications Plan and Strategy
Activate and communicate Pandemic Preparedness strategy
Scenario plan to determine decisions to make today or defer
Activate recovery contingency plan if required
Reflect on lessons learned and rebuild with resilience
Formalize and update crisis and resilience playbook
Embed relevant Command Centre protocols into BAU CEO
Priorities
Talent &
Strategy
Command
Centre
Business
Continuity
& Financing
Supply
Chain
Customer
Engagement
Digital
Capabilities
Detailed briefings further covering these priority areas can be found on Deloitte.com.
COO, GC
CTO, CPO
Identify supply chain risks and potential disruptions
Develop contingency plans for operational disruption
Understand demand and supply side shocks and develop
inventory strategies to buffer volatility and risk
Establish multi-tier supplier network visibility to risks
Collaborate with customers and suppliers to synchronize
operations to priorities within constraints
Manage inventory and cash flow through agile execution
Establish control towers to predict, sense and prescribe risk responses
Restructure supply chain to improve resilience
Implement Industry 4.0 and Digital Supply Network (DSN) solutions to
improve end-to-end visibility, synchronization, optimization, and agility
The heart of resilient leadership: responding to COVID-19Resilient leaders in a crisis take specific actions across these three dimensions
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