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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

© 2020 Deloitte Belgium 3COVID-19 webinar

COVID-19: current pictureKoen Magnus, Partner, Crisis Management

4COVID-19 webinar© 2020 Deloitte Belgium

Cases in 150 territories

Current outbreak picture (16/03/2020)

Source: World Health Organization

5COVID-19 webinar© 2020 Deloitte Belgium

>1.200 cases, >350 in hospital, 79 intensive care

Current outbreak picture in Belgium (16/03/2020)


The economy: temporary shock, or something worse?Ian Stewart, Partner & Chief Economist

7© 2020 Deloitte Belgium© 2020 Deloitte Belgium COVID-19 webinar

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


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

9© 2020 Deloitte Belgium COVID-19 webinar

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


Largescalecoordinated

response

Rate cuts

Liquidity

Credit

Tax cuts

Health spending

Income support

Fiscal

Monetary

Economic policy responseHow to keep growth going


Stress indicators ticking up


Policy to the rescueDeploy the “bazookas”

Monetary policy Fiscal policy


Impact of China’s lockdown already visibleWhen will it return to business as usual?


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


CFO response to uncertaintyCost control, cash and de-leveraging


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


COVID-19 response planning and assumptionsKoen Magnus, Partner, Crisis Management


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?

x

The heart of resilient leadership: responding to covid-19In the crucible of crisis, resilient leaders are defined first by who they are….


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


Managing supply chain risk & disruptionKey considerationsKevin Overdulve, Director, Supply Chain


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


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


Employment & Benefit considerations

Stijn Demeestere, Partner, Tax & Legal


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


Legal considerations

Jürgen Egger, Partner, Tax & Legal


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


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)


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


• 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)


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


• 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


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?


Bridging to a Better FutureLeadership Priorities & Financial ImperativesStephan Brouwers, Director, Financial Advisory


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?


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


Final remarks


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

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide services to clients. Please see www.deloitte.com/about for a more detailed description of DTTL and its member firms.

Deloitte provides audit, tax and legal, consulting, and financial advisory services to public and private clients spanning multiple industries. With a globally connected network of member firms in more than 150 countries, Deloitte brings world-class capabilities and high-quality service to clients, delivering the insights they need to address their most complex business challenges. Deloitte has in the region of 286,000 professionals, all committed to becoming the standard of excellence.

This publication contains general information only, and none of Deloitte Touche Tohmatsu Limited, its member firms, or their related entities (collectively, the “Deloitte Network”) is, by means of this publication, rendering professional advice or services. Before making any decision or taking any action that may affect your finances or your business, you should consult a qualified professional adviser. No entity in the Deloitte Network shall be responsible for any loss whatsoever sustained by any person who relies on this publication.

© March 2020, Deloitte Belgium

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