By: Merv Merzoug, Director
Key questions for Corporates to Successfully Address
Shocks Related to the Coronavirus Outbreak
Managing Business in a Post-COVID-19 Environment
COVID-19 recently turned the world on its head. While the impact of the pandemic is unclear and unprecedented, SCP’s experienced team of professionals has spent considerable time visualizing the “new normal” and is well-suited to work closely with clients across industries to navigate such crises.
Enclosed are the key questions we suggest that management teams and advisors ask to survive and prosper in the months ahead. While we do not profess to address all industries, we provided a sample that we hope will elucidate issues that many businesses will face. We hope you find them helpful.
Our approach involves three core categories: Revenue, Margins, and Liquidity. When it comes to revenue, the goal is to evaluate top-line risks and identify potential alternative sources of revenue. For many companies, this is where the biggest impact will occur. It will be very difficult to replace pre-crisis revenue sources, but opportunities to be creative exist. As for margins, the goal is to reduce total cost structure, most specifically fixed costs. Companies with high operative leverage will struggle and will need to restructure cost base. It is imperative to leverage and deploy existing human capital towards efficient and accretive workflows. With liquidity, the point is to ensure the company has enough cash on hand to ride out the storm. Management teams will need to dig deep to identify sources of cash.
Travel & Leisure
We anticipate massive disruption to travel and leisure companies.
Key Segments: Transportation (Airlines, Cruise Operators, Bus Operators), Lodging (Hotels, Peer-to-peer accommodation), Food & Beverage (Restaurants, Bars, Alcoholic beverage manufacturers.
Recent price war between Saudi Arabia & Russia couples demand shock associated with COVID-19 suggest natural resource players are likely to be hit very hard.
Key Segments: Oil & Gas (Biofuels, E&P, Transportation, Refiners & Marketers), Power Generation (Coal powered, Natural gas powered, Renewable powered), Mining/Forest Products (Coal, Pulp and paper, Metals)
Since durables are cyclical and are especially dependent on employment, expect significant disruption to manufacturers.
Key Segments: Big Ticket (Autos), Medium Ticket (Refrigerators, Washers/Dryers, Stoves/Oven), Small Ticket (Microwave ovens, Toaster ovens, Consumer electronics)
The impact to consumer cyclicals will vary widely, depending mostly on sensitivity to changes in disposable income and where goods /content are consumed.
Key Segments: Retail (Essential- Supermarkets, Hardware, Non-Essential- Apparel, Consumer electronics), Entertainment (Streaming services, At home fitness, Box office, Physical gyms), Housing (Home builders, Construction, Leasing & Brokerage, Mortgage)
This is the frontline response of the COVID-19 crisis and segments will be affected differently based on relevance to emergency response.
Key Segments: Services (Care facilities, Ambulatory care, Practitioners & professionals), Devices & Pharma (Manufacturers, Distributors), Insurance (Insurers, Brokerages)
At SCP, we are working closely with clients across industries to navigate the current business climate. We would be happy to have a more tailored conversation about your and your clients’ situations.