Covid-19 driven shifts will affect pace of recoveries for companies, says KPMG

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The easing of restrictions under the Conditional Movement Control Order (CMCO), which came into effect on May 4, has provided welcomed reprieve to most companies. Even as business leaders and owners are mobilised to re-open, the realisation that companies will be operating in a new normal has been evident while Covid-19 infections continue to permeate the community.

KPMG’s Head of Advisory in Malaysia, Chan Siew Mei, advises business leaders to first conduct a triage and then prepare for the best business recovery plan befitting their situation, explaining: “Given the unprecedented impact this global pandemic has had on the bottom line, companies are driven to reset quickly to address immediate cash burn and attain a minimum viable business model within the shortest time possible.

She added that each company’s pathway to recovery will vary according to the sector they operate in, where some companies may experience a slower pace of recovery compared to others, depending to their degree of risk exposure to COVID-driven shifts. Chan said this citing KPMG’s Post MCO Reset guide that was published recently.

Based on KPMG’s insights, there are four possible paths to business recovery:

  1. Hard reset: this would apply to companies that struggle to recover from Covid-19 due to permanently lowered demand for offerings, insufficient capital to ride out extended recession, and/or poor execution of digital transformation. The obvious sectors likely requiring a hard reset would be the airlines (carriers and manufacturers), hotels, restaurants, entertainment, brick and mortar retail, energy, and higher education.

 

  1. Transform to re-emerge: applies to companies that will recover but along a protracted path requiring reserves of capital to endure, and transform operating models to emerge stronger and more in line with changed consumer priorities. This scenario would apply to companies specialising in professional services, insurance, healthcare, travel and leisure, automotive, durable goods, industrial manufacturing, real estate or construction.

 

  1. Modified business-as-usual: within the banking, consumer goods, agriculture, and transportation sectors, companies seen as daily essentials will suffer effects of the consumer shutdown/recession but will recover more quickly as consumer demand returns in similar volumes. For these sectors, crises provide the opportunity for companies to innovate offerings to capture consumers who will be breaking their ‘auto pilot’ purchasing behaviour.

 

  1. Surge: companies whose consumer behaviour was altered in their favour during the crisis will find this to be their recovery pathway. Hence, this pathway applies to those in online retail, technology, media & telecommunications, food delivery, asset management/private equity, life sciences/pharmaceuticals, and interaction platforms. Companies that manage their business strategies and operations well and can demonstrate business sustainability will attract investors to provide the capital to scale aggressively towards quick recovery.

According to KPMG, irrespective of the recovery pathway that applies, the key to a quick reset is to focus efforts towards the organisations’ Financial, Operational, and Technology & Data pillars. Keeping this pillar strong requires companies to adapt existing financial frameworks to a more hostile and volatile environment in which profitability, cash flow and access to finance are coming under simultaneous pressure.

KPMG further urges companies to be cognisant to protect their assets by ensuring their IT infrastructure is secure and resilient to cyberattacks.

Chan concluded, “Businesses were already working hard to maintain resilience in the face of fast-moving trends, including relentless technology innovation, extended supply chains and managing shifting customer expectations and behaviours. In the face of Covid-19, businesses must now

urgently assess all aspects of their resilience, hone in on the key issues and keep them under review for continued survival and future success. Hopefully once this crisis story stabilises into some form of norm, we will see more companies being able to move beyond recovery towards profitability and growth.”

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