The on-going COVID-19 pandemic has irrevocably disrupted the global economy at an unprecedented scale – forcing manufacturing facilities to shut down, grounding thousands of land, air and sea transportation, and compelling companies to adapt work-from-home arrangement when authorities put quarantine measures in place.
With the health crisis about to cross the half-year mark, companies have to rethink their business strategies moving forward, as many go on survival mode as drastic revenue decline becomes the order of the day.
CFOs and their finance teams are faced with the unenviable task of re-jigging corporate financials to ensure sufficient cash flow and working capital to make it through the end of the year, with healthy liquidity to rebuild a battered business through a post-COVID world.
FutureCFO recently gathered a multi-industry panel of senior finance executives from across the Asia Pacific for a C-Engage virtual roundtable to discuss how they are coping with current challenges. Organised in partnership with Oracle, the event entitled “Finance Leadership in the Age of Disruption” sought to find out how they optimise resources and develop business scenarios amid uncertainty.
Running business scenarios in time of uncertainty
Coming out with realistic business scenarios in a volatile situation, where there are many moving parts, is the major challenge for CFOs and finance heads. With COVID-19, they are flying blind through uncharted territory. Furthermore, the pandemic does not impact companies equally, it varies across industries and geographies, and each company has to make its own path.
Indonesia media company PT Media Nusantara Citra (MNC) has seen a surge of viewership – with demand high for family-oriented programmes with millions of children housebound, but a decline in advertising revenues. MNC operates three national television stations and one regional television network.
“With the sales being affected with advertisers not placing the ads, we are mulling over scenarios where we adapt a revenue-share or profit-share basis to be able to fund new programmes. Because programming licenses are very high, and we may not meet some profitability scenarios that we have. So those are things that we need to change in our strategies,” said Jarod Suwahjo, director of finance at MNC.
Suwahjo is also watching how other industries are faring with the pandemic to get a pulse of the advertising landscape, particularly when MNC is now facing a problem with a collection. “We need to do a few scenarios in giving some discounts to make sure that the sales come in,” he said.
Malaysian group Ahmad Zaki Resources Berhad (AZRB), on the other hand, has been trying to ensure that its construction business has some breathing space in its cash flow as the government recently lifted the lockdown that kept the industry into a standstill for more than two months.
“While we were working from home, we started to look at the cash flow forecast for the next six months to anticipate the cash flow issues that we are going to face. We did a lot of videoconferencing during the lockdown period, so once the business is allowed to operate, we hit the ground running to advise the senior management about what steps to take to address the issue. It is an immediate challenge that if left unchecked may threaten the survival of the business but we are fortunate that in Malaysia, the government is very proactive,” said Iskandar Sham, group chief financial officer at AZRB.
Indeed, the Malaysian government announced in late March an automatic six-month moratorium on loan repayments for individuals and small-medium enterprises (SME's) involving about RM100 billion starting April 1, 2020.
“For corporations like AZRB, it is not automatic and we have to apply for it. At this moment, we are getting almost 100% approval on the moratorium so at least it gives us six months to gain back the momentum which was lost during the unprecedented lockdown period,” he added.
Likewise, with the business slowdown, Philippine conglomerate Aboitiz Equity Ventures is directed by its management “to protect the group”.
“We are currently evaluating all our CAPEX and asking ourselves whether these investments a must during this period. If not, we probably have to defer it to protect the group and conserve the cash as we wait and see what’s in store for everybody in the industry,” said Marlita Villacampa, AEV controller at Aboitiz Equity Ventures.
Another delegate to the roundtable acknowledged that they perform simulations on their cash situation against current market conditions. The goal is to continually calculate working capital and figure out how to generate the cash flow.
According to Maria Christina Viola, senior vice president for Finance at Seaoil Philippines, Inc., the COVID-19 pandemic coupled with the current volatility in oil price is forcing the company to be more resilient in running business scenarios.
“At the end of the day, what’s important is to know your business very well,” she said. “Knowing the variables that need to be recalibrated and what affects which to be able to run a good scenario.”
Accelerated digital transformation
The on-going health crisis has become a tipping point for companies in markets like the Philippines to finally bow down to the demand of digitisation.
Villacampa of Aboitiz Equity Ventures noted that COVID-19 has accelerated digital transformation in their organisation.
“We have implemented our agile workspaces and we have several digital strategies and I guess if you look at it, COVID has fast-tracked the adoption of our strategies. We don’t have a choice but to adjust,” she said.
She added that before the lockdown in Manila, the company reassessed its OracleFusion solution feature by feature to ensure that they are prepared. “Oracle assisted us with additional strategies, enabling us to automate and into the data analytics to help in the accuracy of our financial reporting.”
One delegate echoed the same sentiment about the important role of business systems amid the COVID-19 pandemic. “The systems have become more critical in allowing us to be able to generate the information that we need faster so we can manage as the situation changes.”
Reginald Asuncion, director for finance of Philippine construction firm Atlantic, Gulf and Pacific Company (AG&P) said that COVID-19 is an eye-opener in the way that “we need to reassess how we do business”. “Right now, there is an initiative for us in finance and supply chain in improving our processes. We are ensuring that we are addressing all the risks that we are facing now,” he added.
Indeed, Sumesh Balakrishnan, senior director for finance at Hitachi Vantara based in Singapore said there is a demand spike on how to build a digital model among its enterprise customers in the manufacturing, public utility systems-ports and airports, automotive, F&B and retail sector.
“Many of them had been slow to embrace digital technologies, but the last few months’ changes has been phenomenal – workforce management, smart campuses, and digital command centre. I see a huge leap in the mindset of a lot of customers as they go digital,” he said. “Because data helps in making the right decisions, the challenge for some of these customers in the quality of the data. Having said that, I see many embracing particularly this analytics piece – which is not limited to dashboards but solutions that help generate real business model insights.”
Michael Lim, Oracle’s director for ERP and digital supply chain for ASEAN and North Asia, observed that all countries across the region are going through their own issues and companies have to respond to their business situation very quickly.
“We have to retrain a lot of our sales forces and readjust the focus on how we can sell into the market virtually. We cannot meet customers face to face and we had to make a lot of adjustments to the field sales with our CX Cloud and CPQ. We have to adjust the balance sheets. Cash is King and we had to make some scenario planning on how we can address our balance sheet in our favour and consider the impact such as cost adjustment of our new marketing events and marketing activities to reach out to our target market segments, virtually.
“We use our products, EPM to do a lot of these scenario planning as well as revisiting our balance sheets as well as forecast on users and sources of cash. This is what we practice, and we also recommend to our clients,” Lim said.
He pointed out that Oracle leans on its own experience when providing strategic advice to enterprises on how they can leverage technology to get better visibility into their financial status and deliver accurate forecasts.
“We apply this concept to a lot of our service industry customers as well as manufacturing and some of the retailers who are struggling at the moment. We also help them to manage their human capital management in the way that we do,” added Lim.
Meanwhile, majority of the senior finance executive at the online roundtable raised the importance of videoconferencing and other productivity tools; and how as remote collaboration becomes the norm, it showed gaps in their company’s technology mix that companies are rushing to fill.
For one, electronics component manufacturer found while their Oracle systems provide online access to its business applications – and investments in new software, firewall and remote connections to desktops - made the company more than ready for the mandatory work-from-home arrangement, they had to address mobility issues.
“Most of our computers are desktops so we have invested in a remote link into the desktops. And we have arranged with a few vendors to send us laptops in short notice,” recalled one of the delegates to the roundtable.
Seaoil Philippines also faced the similar challenge of having its business applications primarily accessed through desktops in the office. When the lockdown was announced in Manila, the company prepared for the work-from-home set up by enabling online collaboration using Google productivity tools.
“[The quarantine measure] puts a lot of pressure on our IT group to enable all our back-office processes to be fully online,” Viola said. “And we are working with regulators, so we can issue invoices and receipts via soft copies already. We are making the necessary preparations in case finance, accounting and analytics remain under a WFH arrangement for an extended period.”
Post-COVID: Operating in the new normal
As different countries begin to kickstart their stalled economy while the COVID-19 pandemic is yet to run its course, some participants of the C-Engage virtual roundtable are leaning towards extending the work-from-home setup beyond their respective government’s mandate.
With remote connection and remote access to business systems now in place, coupled with the mass adoption of online collaboration by the global workforce, the work-from-home arrangement is being seen as a way to save costs on office space and co-related expenses.
Umer Zahoor, finance director at Multinet Pakistan (Private) Limited, said by extending the work-from-home arrangement, the company homes to mitigate the expected revenue loss of between 4% and 5% this year.
“We are using ERP software from Oracle Cloud, so it was easy for our staff to work from home. We have decided is if the government lift the work from home rule, we will still be working from home for another three months. We may go to a smaller office then and we perhaps able to save many costs from rent to electricity.
We will use this to mitigate the hit that will affect the bottom-line,” he said.
However, others believe that the expected rise of telecommuting post-COVID does not mean smaller offices but a sea-change in the layout where meeting rooms among others will be given higher priorities.
“If work from home becomes a permanent feature moving forward, then our office spaces will no longer have a permanent workstation per person. A lot reconfiguration can be done such that we will have more open workspaces,” noted a delegate to the roundtable. “We should start looking at it that may give away a better room instead of thinking about how to cut it away so that we can save some costs, the working space can be larger and roomier to give our staff more breathing space especially in countries like Singapore where space is a challenge.”
“Office space will continue to serve a purpose as actual face time is still required in order to cultivate corporate culture and identity,” she said
In a similar vein, the mass adoption of digital tools that enable the business to be conducted through virtual meetings will not completely replace face-to-face interaction.
“Human touch is more required in our business, where you interact with the clients through engagements. Doing this virtually is difficult for us,” said Herbert Joei Bactong, director, advisory services at P&A Grant Thorton in the Philippines. “This is the biggest challenge for the moment, especially for business development where you need to shake hands with the person to see them eye to eye. It is really difficult right now.”
Furthermore, the blurring of work-life balance has an adverse effect in productivity, according to Balakrishnan of Hitachi Vantara in Singapore.
Asked for advice on how to align the organisation’s technology roadmap with business realities in the post-COVID-19 world, Lim said companies must first determine their bottlenecks and where their inefficiencies are in terms of the end-to-end supply chain, business operations and financial management.
“This is time for you to carefully look at where you take your innovations or transformations from where you are to the end of this year and beyond. I think there will be a new norm and we need to adjust to that new norm by transforming to the new requirements and new challenges,” concluded Lim.