TLCA Session#3 Why a crisis response needs a strategy and ... · - Raising additional funding...

COVID-19

TLCA Session#3

Why a crisis response needs a strategy and why

cash is truly king

5 May 2020

PwC

1. Introduction2. Why Crisis Response Needs a Strategy

3. Why Cash is Truly King

- Understanding cash and liquidity

- Assessing the impact of COVID-19 on your business model

- Raising additional funding

Meeting agenda

2

5 May 2020TLCA Session#3: Why crisis response needs a strategy and why cash is truly king

Introduction

Why crisis response needs a strategy

PwC

Wave 1 - Immediate Wave 2- Medium term Wave 3 - Long term

Waves

Pain Points

Focus Areas

● Incomplete & shifting

information

● Stakeholder communications

● Workforce disruption

● Inadequate mobile technology

● Stabilize workforce

● Supply & manufacturing impacts

● Operational disruption

● Liquidity concerns & scenario planning

● Access to support

● Recovery & growth strategy

● Deals

● Changing regulatory environment

● Claims & disputes

● Transformation opportunities

Crisis

Management

Workforce Ops &

supply chain

Tax &

trade

Finance &

liquidityStrategy & brand

Corporate crises typically evolve in three waves. Organizations that are able to successfully

accelerate the speed with which they progress through the waves tend to emerge stronger

5

MobilizeSecure the safety of your workforce and establish

response structure

StabilizeTactical responses to the

challenges of navigating the COVID-19 “new normal”

StrategizeDevelop a strategy for emerging stronger in the post COVID-19 economy

COVID-19: Three waves of crisis response

PwC

Types of Crises

6

TLCA Session#3: Why crisis response needs a strategy and why cash is truly king

Financial• Global financial crisis

• Significant asset devaluation

• Bankruptcy, insolvency

• Fraud and financial crime

Legal• Sanctions

• Organisational Conflicts of Interest (OCI)

• Compliance failures

• Regulatory violations, e.g. FCPA and antitrust

Human capital• High staff turnover / low retention

• Strikes

• Succession

• Insider threat, Tampering

Operational• Supply chain disruption

• Infrastructure failure

• Facilities breach

• Product recall

Humanitarian• War, refugees

• Terrorism

• Natural disaster

• Infectious disease

Reputational• Adverse association with brand

• Losing market position

• Communication breakdown with stakeholders

• Public misconduct by key personnel

Technological• Cyber breach

• Intellectual property theft

• R&D failure

• Technology breakdown

5 May 2020

PwC

Responding to Business Impacts of COVID-19

7


Crisis planning

A strongly developed crisis response capability is required to effectively navigate

through a crisis. Many organisations have these plans in place, but COVID-19 has

unveiled flaws in some of their crisis response plans

Effective communication

Proactive and factual communication for all stakeholder groups is essential to manage

perception of the outbreak, minimise misinformation and associated panic, and reduce

the detrimental impact on the economy and individuals

Focus on information

Capturing correct and sufficient information and verifying its reliability is vital. Reliable

information underpins both crisis planning and response and allows organisations to

make informed decisions.

1

2

3

5 May 2020

PwC

Crisis Planning

8

• Establish the narrative

around the Transformation

Story for all stakeholders

• Align workstream activities

to strategic business

objectives

• Provide a framework to

track progress

StoryStructure Strategy

“The How” “The Why”“The What”

• Organize and track

response and remediation

activity with clear

ownership and

accountability

• Enable transparent flow of

information for decision

making and feedback

• Establish guiding principles

• Determine core response

priorities and transformation

strategic objectives

• Develop stakeholder

engagement strategy and

perform scenario planning

TLCA Session#3: Why crisis response needs a strategy and why cash is truly king 5 May 2020

PwC

Crisis Planning (Cont’d)

9


There are several core elements

that contribute to a successful

response:

• A cross-functional core leadership team

• Establishing and communicating roles,

responsibilities, and accountability

• Clearly defined functional workstreams

• Consistent meeting cadences across workstreams

• Cross-functional working sessions

• Standard reporting templates

• Integrated project plans and milestone calendars Operational / Response

Incident

Coordinator

X-Functional Core Team

Leadership/Board

Workstreams

5 May 2020

PwC

Effective Communications

10


Company

External

Stakeholders

Internal

Stakeholders

Board of Directors

Management

Employees

Customers

Suppliers

Distributors

Investors

Creditors

Media

Regulators

Unions

Trade Organisations

Regulators

5 May 2020

PwC

Effective Communication (Cont’d)

11


Board of Directors

Core TeamClient names

Crisis Command Center

Workstream:

Security

Workstream:

Stakeholders

Client owner

Mike Simonds

Scott CarterSub-Workstreams:

● Workforce Health

and Safety

● Cyber Security

● Physical Security

Sub-Workstreams:

● Supply chain

● Business

Continuity / Crisis

Management

● Distribution

● Business impacts

and metrics

Workstream:

Operations

Client owner

Workstream:

WorkforceClient owner

Sub-Workstreams:

● People/Events

● Workforce

mobilization

● Network Planning

● IT Infrastructure

● Vendor

Management

Workstream:

PR/Comms

Sub-Workstreams:

● Internal

stakeholders

● External

stakeholders

● Media

engagement

Client owner

Workstream:

Legal & Reg

Sub-Workstreams:

● Regulatory mgmt

● Litigation mgmt

● Contract mgmt

● Labor &

employment

● Financial Disclosure

Client owner

Regulatory PR/Comms Operations/Response

Workstream:

Strategy & OutlookClient owner

Workstream:

FinancialClient owner

Sub-Workstreams:

● Finance

● Tax / Trade

Regulations

● Recovery tools

● Scenario

planning

5 May 2020

PwC

Focus on Information

12

Source: International Federation of Library Associations and Institutions

How to

spot fake

news

Check the

author

Do a quick search on

the author.

• Are they credible?

• Are they real?

Check the

date

Reposting old news

stories doesn’t mean

they’re relevant to

current event

Read beyond

Headlines can be

outrageous in an

effort to get clicks.

What’s the whole

story?

Is it a joke?

If it is too outlandish,

it might be satire.

Research the site

and author to be sure

Consider the

sources

Click away from the

story to investigate

the site, its mission

and its contact

information

Ask the

experts

Ask the experts, or

consult a fact-

checking site.

Check your

biasesConsider if your own

beliefs could affect

your judgement

Supporting

source

Click on those link.

Determine if the

information given

actually supports the

story


Our risk consulting and crisis team

PwC

Please contact us for more information

14

Our dedicated team

Khwanhathai Kashemasanta

PwC Thailand

T: +66 2 844 2214

E:khwanhathai.k.kashemasanta

@pwc.com

Shin Honma

PwC Thailand

T: +66 (0)6 55215891

E: [email protected]

Eiichi Yoshikawa

PwC Thailand

T: +66 2 344 1249



Why Cash is Truly King

PwC

1. Understanding cash and liquidity

2. Assessing the impact of COVID-19 on your business model

3. Raising additional funding

Agenda

16


PwC

The COVID-19 crisis creates pressure on liquidity. Businesses need to ensure high transparency on cash to ride out the crisis

17

The COVID-19 outbreak has caused huge impact on people’s lives, families and communities. Businesses are facing

potentially significant challenges, especially to cash flow, to which they need to respond rapidly.

High cost, short term

financing relied on

Unable to make key

operational payments

(payroll, key suppliers)

Default on debt or

interest repayments

Breach of loan

covenants

Non-essential spend

not sufficiently

controlled

Therefore, it is critical to have high transparency on cash so issues can be identified and

addressed early – implementing a cash forecast will be critical

The current situation puts businesses at risk of:


PwC

It is important to address immediate liquidity concerns as well as determine any longer term impact on your business

18

Understand the potential impact on

business model and how to respond

Assess funding needs and funding

options

• Crisis management workshop

• Strategic & operational

repositioning

• Access to alternative sources of

capital

Understand cash position

Understand and access government

support available

• Review and challenge existing

cashflow model or build / guide if

one does not exist

• Give discipline and structure via

cash / crisis management office

• Educate and assist application to

government support

Conserve and collect cash

PwC can provide

capacity while

management run

the business

OR

We can share

insights and

experiences from

our Thailand /

Global networks.

Right

now

Coming

weeks

Business priority How PwC can help


Understanding cash & liquidity

PwC

We can help clients stress test their existing cash forecast or build a forecast using our ready to go tool

20

Dynamic tool with user friendly

functionality for weekly updates

Building a forecast – the PwC

toolTesting existing forecast – Case Study

Background

What we did

Outcome

• A precision engineering client was facing liquidity issues and concerned

about ability to repay upcoming debt

• Asked for support to stress test their 8 week cash forecast and provide

suggestions on how they could improve

• Tested assumptions used to build their forecasts for all 10 entities, and

ran scenarios to assess impact on ability to repay debt

• Gained understanding of the key processes surrounding cash and how

they could improve

• Assessed what measures could be put in place to conserve and

release cash

• Determined there was a funding gap to meet current debt obligation

and supported client prepare for lender conversations

• Supported business improve forecasting accuracy so they could reduce

cash buffer by 25% to increase cash available for debt servicing

• Identified further self help measures to release an additional USD50m

cash

Automatically forecasts based on

AR/AP data

Has manual adjustment functionality

for knowledge of customers /

prioritisation of payments

Built in dashboard to allow rapid

analysis and decisions

Assesses forecasting accuracy over

time to facilitate improvements


PwC

Key characteristics of a good cash forecasting tool and typical issues clients face

21

5 May 2020

- A good forecasting tool is dynamic, rather than a point in time

- It would be updated weekly (or daily!) and have a 13/26 week

look ahead

- It should have a built in dashboard which helps the business

identify issues rapidly and improve forecasting accuracy over

time

Issues clients face..

• Can only forecast cash 6-8 weeks ahead

• Process to update forecast is manual and slow, as a result clients

struggle to update weekly

• Forecast typically inaccurate and no mechanism to assess

forecasting accuracy

• Does not involve the right people within the business and relies

purely on Finance team to update

Typical forecast and dashboard


PwC

If liquidity issues are identified by your cash forecast, rapid action may be needed

22

Cash health check

Liquidity issues

identified

No liquidity issues

identifiedContinue to monitor the situation

Cash conservation

Operational and strategic

repositioning

Undertake additional fundraising

Asset disposal / divesture

Rapid cost reduction

Seek stakeholder support

Understand cash position1

Identify issues2

Take action to address issues identified3

1

2

3

4

6

5


PwC

How you can conserve cash

23

• Are there many points

for cash to exit the

business?

• Have you revisited

approval limits? Have

you reviewed all of your

commitments?

• Have you prioritised

your spend buckets –

what’s critical, what can

be deferred?

• What creditors are

operational and

therefore should be

prioritised?

• Are any offering relief?

• Could processes be

improved e.g. overdue

collections?

• Do you have customer

collections strategy?

E.g. offering discounts

for early payment

• Are there inventory

quick wins?

• Have you engaged with

key stakeholder to

identify support

available? Including:

o Government

o Suppliers

o Customers

o Landlord

o Insurance

o Lenders

o Investors

• Is there a reliable short-

term cash forecast that

is updated and

reviewed regularly?

• Is there involvement of

commercial teams to

ensure accuracy and

reliability

Control

cash

outflows

Creditor

repayment

strategy

Working capital

quick wins

Seek

stakeholder

support

Cash

forecasting &

visibility


Assessing the impact of COVID-19 on your business model

PwC

Case study – supporting a retail client reposition their business model to emerge stronger

25

Worked with a loss making retail business with significant footprint across South East Asia. The business made a loss of S$20m inIndonesia in FY19 and had debt of S$20m coming due within 12 months. They relied heavily on selling on credit but were suffering heavywrite offs due to high delinquency rates as well as reduced income because of increased regulation of credit.

Project background

Rapid options assessment to determine if exiting or staying in

Indonesia was best option

Determined changes to business model required and built

turnaround plan with client including identifying:

1. Optimal store footprint

2. Streamlined head office headcount and cost

3. Rationalisation of SKUs

4. Outsourcing of credit offering

5. Possible upside and revenue enhancements which

could be adopted (e.g. renting out unused shop space)

Scope and approach

✔Determined staying in Indonesia with reduced footprint

delivered best outcome

✔Built credible turnaround plan which allowed the business to

refinance

✔Eliminated the loss of S$20m so the business was breakeven

within one year, through:

✔Reducing head office costs by 50%

✔Identifying and closing worst performing stores, store

footprint reduced by 30%

✔Eliminating significant credit write offs by outsourcing

credit to third party

✔Rationalising loss making SKUs

✔Reducing non essential spend such as advertising

Results and value delivered


PwC

Assessing the required changes to your business model post COVID-19 will allow you to emerge stronger

26

Revenue streams

Will all your existing products / services still be

relevant? Have new opportunities opened up?

Supply Chain

Is your current supply chain fit for your future

business model?

Digital transformation

Can you take advantage of the accelerated

transition to ecommerce resulting from

COVID-19?

Footprint

Are there any geographies which are no

longer practical to cover? Does increased

digitalisation result in a lower need for

physical footprint?

Investment / divestment

Can you invest in growth opportunities? Are

there any underperforming areas of the

business to wind down / exit?

Workforce & ways of working

Is org structure aligned to strategy? Can

flexible working boost employee experience

whilst lowering costs?


PwC

How you can improve operations and reduce costs

27

Potential cost-reduction levers for firms facing challenging external environments

LeverOperating

strategy and

targets

Procurement

effectivenes

s

Site

operations

improvement

Footprint

optimisation

Overhead

optimisation

Value

• Market and channel

strategy

• Sales force

effectiveness

• Differentiation/

competitive

advantage

• Principle policies

• Maximise revenue

opportunities

• Improve

procurement costs

• Commodity

purchasing

effectiveness

• New supply/

sourcing models

• Improve

performance within

the boundaries of

what the site can

control and

recognise the

particular

constraints at each

site

• Optimise the

number of sites

• Improve logistics

(inbound and

outbound)

• Minimise capex

requirements

• Optimise the

overhead cost

structure for the

agreed business

objectives

• Leverage shared

services

Value

impact5-10% 3-5% 16-22% 20-25% 20-25%

IT

optimisation

• Utilisation of

existing and new

technology to

enable margin and

revenue

improvement

• Optimisation of the

IT infrastructure

and estate

10-15%


Raising additional funding

PwC

How we have helped clients raise additional funds…

29

Select examples – not exhaustive


Project Evolution

PwC advised on raising

financing (senior debt) for to

support growth in Singapore for

a leading regional K-12 School

Group

2019S$150 million

Project Rise

PwC advised on raising staple

financing for the acquisition of

one of the largest wholesale

and retail food operator in

Singapore

2016S$150 million

Precision engineering

business

PwC advised the key

shareholder in raising bank

financing to help fund a

management buyout of the

business. The company is a

precision manufacturer in the

oil field services space

2015S$17 million

Transhipment business

PwC advised the Company, a

commodity transhipper based

in Indonesia, on refinancing its

existing debt and then

increased the total debt to fund

a shareholder dividend

2014US$65 million

Crane rental business

PwC introduced an investor

through a S$65 million PIPE

deal in order to help the

company expand in Australia

and China

2009S$65 million

Crude oil and refined

products trading business

PwC supported the business

with a debt raising to construct

an oil terminal in Fujairah, UAE

2013US$250 million

Project Atlas II

PwC advised on raising

financing (junior debt) for to

refinance existing debt across

different countries for a leading

regional K-12 School Group

2018S$105 million

Project Imagine

PwC advised on raising equity

capital for a large private K-12

provider in Myanmar to

materially reduce the debt

levels supporting the business

2018US$70-75 million

PwC

Options for raising funds

30

We can also support businesses looking for opportunities to invest

Funding options

Bank Debt Private Equity

Banks (Domestic /

International)

Distressed / Special

Situation FundsCorporate

Diversified

Structured Funds

Structured Funds

• Companies are usually (a) Stressed, (b) Undergoing a short term liquidity crunch, (c)

Experiencing specific issues, and / or (d) Mispriced – and therefore require time to

recover from the current situation and start operating normally

• Unsecured funding in the form of mezzanine debt or preference shares

• More expensive vs senior secured funding

• Can customize repayment structure based on a given business’ cash flow profile

• Principal amount can be repaid at maturity, or can have features to convert to equity

• Key is flexibility in structures especially for SS and Diversified Structured funds.

Examples include :

- Pay If you Can / Pay In Kind,

- Upside linked to business parameters (eg EBITDA growth)

- quasi equity type structures to facilitate exit from investments (esp useful for end of

life funds in this environment) and with potential share of upside beyond a certain

IRR at the eventual exit

Traditional Credit Funds

• Equity solution required (a) when debt capacity is

reached, (b) if a business is looking for a strategic

partner, or (c) if a pre-IPO investor needs to be brought

into a business

• Target companies have strong business models that

require growth capital for expansion (domestically /

internationally). However, in the current COVID-19

environment, are also looking for companies that are

experiencing short term cash flow concerns

• Different investment horizons (Private equity funds 3-7

years; Family offices and private investors can have a

similar horizon, but could also be longer; and Corporates

tend to have longer horizons

• Banks (both local players

and foreign banks) focus

on their core lending

universe (based on

country of origin and

trade flows), and so this

source of capital is well

known

• May require collateral

• Usually the most cost

effective solution

• May be a cap on the total

amount raised

Private

Equities

Family

offices

Private

investors


PwC

Alternatively, you could divest or dispose of assets

31

Businesses may use the crisis to re-evaluate their structure. This may be a time to focus on key growth

priorities and divest any non-core businesses

Critical factors to achieve to achieve good price Key operational considerations

Positioning to achieve high multiple

Identify the right buyer

Undertake strong preparation to ensure value

proposition is well defined

Is there high separation complexity of carving out

the business (e.g. is it stand alone already or are

back office functions, systems and people shared

across the business?)

What will be the cost involved in carve out and

divesture?

Will there be a significant tax or accounting

impact?

1

2

3


Our team

PwC

Please contact us for more information

33

Our dedicated team

Ay Wen Lie

PwC Singapore

T: +65 9178 7453


Chantanuch Chotikapanich

PwC Thailand

T: +66 2 844 1000

E: chantanuch.chotikapanich

@pwc.com

Vishal Thapliyal

PwC Singapore

T: +65 9007 7041


Ukrit Karoonyavanich

PwC Thailand

T: +65 9030 8948

E:[email protected]

Anongnuch Cheewaratanaphan

PwC Thailand

T: +66 2 844 1000

E: anongnuch.cheewaratanaphan

@pwc.com

Amit Gupta

PwC Singapore

T: +65 8722 4315



pwc.com

Thank you

© 2020 PwC. All rights reserved. Not for further distribution without the permission of PwC. “PwC” refers to the network of member firms of PricewaterhouseCoopers

International Limited (PwCIL), or, as the context requires, individual member firms of the PwC network. Each member firm is a separate legal entity and does not act as

agent of PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any of its

member firms nor can it control the exercise of their professional judgment or bind them in any way. No member firm is responsible or liable for the acts or omissions of

any other member firm nor can it control the exercise of another member firm’s professional judgment or bind another member f irm or PwCIL in any way. 715220-2020

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