The Challenges Facing CFO’s in the “new normal” CV-19 world | Deloitte UK has been saved
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For those of you who have not seen it, Deloitte released the latest CFO survey for Q2 2020, providing some key insight into what CFO’s are thinking in this new COVID-19 world we find ourselves in. Unsurprisingly, the results show a challenging environment, with CFOs expecting i) revenues to fall by 22% this year compared to pre-Covid plans, ii) risk appetites at similar levels to those recorded during the 2008 financial crisis and iii) recovery to pre-pandemic levels unlikely to be post Q2 2021. This, together with CFOs reporting a deterioration in the availability and cost of debt in the past 3 months has led to a re-focus from growth to strengthening balance sheets through cost control, cash conservation and deleveraging. That said, the CFOs expect recovery in demand to start coming through in H2 2020, indicating some near term cause for positivity. Given the challenges facing businesses right now, especially in certain more COVID-19 exposed sectors, the sentiment from the CFO Survey does not come as a surprise to me.
Whilst the survey covers CFOs across the UK, I believe the above is representative of how CFOs in Scotland will be viewing the COVID-19 situation. From discussions with various CFOs and indeed CEOs in the Scottish market, a number of the outcomes of the survey align with the local viewpoint. Over the past 10-12 weeks since lockdown was put in place, Scottish businesses have very much been focused on near term cash flows, identifying expected stress points over the coming months, and where necessary working with their funding providers to formulate a plan to work through COVID-19 until we can return to something akin to “normal”. Clearly the level of stress is dependent to a large degree on the sector a business is in and ultimately the impact COVID-19 has had on both its supply chain and customer base. This has very much been seen in Scotland across the diverse sector spread that the economy benefits from.
It is key for businesses to continue to self-appraise, by taking the time to properly assess their business and operating models to ensure that risks are properly mitigated and a robust plan is in place for the future. This will include i) difficult decisions around cost reductions, ii) scenario planning and stress testing on when revenue demand may return, and iii) potential deleveraging of non-profitable parts of the business. This is done with the key focus being ensuring that the business has the balance sheet strength and cash reserves to get through this period of uncertainty.
When faced with this new environment we all find ourselves in, the short term focus has necessarily been on survival. However, to thrive in the longer term, attention must turn to strategy sooner rather than later. Historical strategies that have led businesses to success in the past are likely to be based, in part or in full, on pre-Covid assumptions that may not apply in the “new normal” moving forward. Businesses will need to assess their capabilities, key areas of focus (product, sales channels, sectors and geography), and their systems / processes for the post Covid environment to formulate revised strategies around customers, products, supply chain, funding etc. to ensure they are best placed to drive growth in the future.
COVID-19 has brought about the most challenging market conditions in my career to date, both economically and probably more importantly, the impact on society. This is very much reflected in the CFO survey outcomes and highlights the continued impact COVID-19 is likely to have well into 2021.
Roger is a Director in the Advisory Corporate Finance team based in Edinburgh, covering the Scottish region. He has over 13 years’ experience within Corporate Finance, advising Shareholders, Corporates, Government Entities and Financial Institutions on a wide range of deals, including disposals, acquisitions, early stage fund raising and accelerated M&A. Roger is sector agnostic, but has significant experience of cross border M&A transactions.