COVID-19 : What do we do next? Rethinking & Rebuilding Business Models

Version 3rd May 2020 It’s a quadruple shock.

We cannot predict the eventual impact on Malaysia of a global pandemia coupled with low oil prices, high household debt and low economic density.

I urge MDs, CEOs and public sector leaders to use this time to rethink and rebuild your business models. Seize this opportunity to transform your organisations by embracing technologies of the fourth industrial revolution.

I also call for more Malaysian entrepreneurs to brainstorm and create more jobs in digital eco- systems. We see opportunities in this crisis. GIRISH RAMACHANDRAN Executive Director 27Group COVID-19

Objectives of this paper

The COVID-19 pandemic, since its first reported case in November 2019, has brought unprecedented impact on governments, businesses and societies around the world. As of 3rd May 2020, it has infected more than 3.4 million people worldwide, causing more than 240,000 fatalities.¹

Started-off as a health crisis, it is now turning into a global financial crisis as the various public health measures such as movement control, travel restriction and social distancing to break the infection chain are affecting the continuity of economic activities across all sectors.

This document is meant to provide a systematic framework for government, industry groups and companies to examine the impact of COVID-19 in their own environment, and formulate the necessary steps that will help them to navigate through the crisis.

1. World Health Organization (3rd May 2020)

3 Updated as of 3rd May 2020 Executive Summary

What is the situation now? • Public healthcare measure such as movement controls have shown improvement on the number of cases and slowly reducing the infection rates in Malaysia • The businesses are suffering from major revenue drop and lacking of cash buffer that can help them to weather the crisis Both the Government & • The reduced household expenditure and shrinking businesses cash flow will create a private sector companies Domino effect that would bring devastating impact and cripple the economy will need a framework for What would be the potential pathways moving forward? strategy development • The extended movement control is giving more pressure to economic activities, and both with sufficient “breadth” government & businesses will need to start thinking about the post-crisis recovery options (coverage of area) • Economic shock is unavoidable, but the future is yet concluded. The government’s policy response to curb the virus & revitalise economy will be instrumental to the recovery path & “depth” (level of • Both government & businesses will need to make difficult decisions to survive in the New practicality) in Normal, a nationwide digital transformation could be the answer in the post-crisis world “chronological order” What should the governments and businesses do now? (time-phased) to navigate • It is imperative to lift the MCO to prevent major business failure, but it has to be done in a through the crisis right way with strict protocol & enforcement for different economic sectors • Businesses will need to be ready for the New Normal by being proactive in scenario planning and recalibrating business model by leveraging on digital technologies • Both government & private companies need to be ready for the continuously changing ecosystem and prepared for rapid adjustment

4 What is the current situation of the COVID-19 pandemic in Malaysia’s context? Updated as of 3rd May 2020 How is the current global situation? COVID-19 became a global pandemic with most of the countries imposed travel restriction and limited business operations to essential services only

Daily no. of confirmed cases Daily no. of recovered & death cases COVID-19 is a (Thousands) (Thousands) respiratory virus 4,000 1,200 spreads primarily through droplets (1st March – 2nd May) 3,500 generated when an infected USA 1,000 person coughs or sneezes. Spain 3,000 There are no specific vaccines or Italy treatments for COVID-19 as of 800 France 2,500 now. Germany

2,000 600 UK 3,481,349 Iran Global Cases

1,500 Turkey 400 Belgium 1,000 Other Countries 244,663 (7%)

200 China Death 500 Recovered Cases

Deaths Cases 0 - 1,120,908 (32%)

1-Mar Recovered

15-Apr 30-Apr

16-Mar 31-Mar

(Daily data, updated as of 3rd May 2020) 1. Worldometers

6 Updated as of 3rd May 2020 How is the pandemic situation in Malaysia? The growth of cases in Malaysia has seen a reducing trend soon after the Movement Control Order (MCO) was introduced in mid-march, suppressing the spreading of the virus

Total Cumulative Confirmed Cases in Malaysia Daily Growth Rate of Cases in Malaysia (number of people) (7-day CAGR, %) MCO Phase 1 MCO Phase 2 MCO Phase 3 7,000 40% (18 Mar – 31 Mar) (1 Apr – 14 Apr) (15 Apr – 28 Apr) 6,000 5,000 30% 4,000 Total Cases Total Death 20% 3,000 Growth Rate (7-day CAGR) 2,000 10% 1,000 - 0% 0 10 20 30 40 50 Number of Days since 100 confirmed cases in Malaysia

# of days to double the COVID cases in Malaysia

The longer the time required to double the number of case, 4 5 9 13 20 38 66 the slower is the pandemic spreading 15 Mar 22 Mar 29 Mar 5 Apr 12 Apr 19 Apr 26 Apr

(Extracted on 3rd May 2020) 1. Wordometers; 2.Our world in data; 3. Qithub; 4. Johns Hopkins CSSE; 5. Outbreak.my

7 Updated as of 3rd May 2020 How is Malaysia responding to the pandemic so far? Following the lockdown in Wuhan, Malaysia has responded quickly enough with the MCO since mid-March, coupled with several economic stimulus packages & recovery plan

Timeline of major events in relation to the COVID-19 outbreak & situation in Malaysia

Dec 31 Jan 11 Jan 23 Jan 25 Jan 30 Feb 11 Feb 27

First case of China Wuhan, China Malaysia’s Health WHO declares WHO names virus Interim PM Tun M pneumonia detected announced declares Minister confirmed first outbreak a Public SARS-CoVs & the announced RM 20 in Wuhan, China 1st death lockdown case of COVID-19 Health Emergency disease COVID-19 billion Economic Stimulus Package

Apr 10 Apr 8 Apr 6 Mar 27 Mar 25 Mar 18 Mar 11

Announcement Wuhan, China Additional Prihatin PM Tan Sri Muhyiddin Announcement on PM Tan Sri Muhyiddin WHO declares on MCO extension lifted the lockdown SME Economic Yassin announced MCO extension to Yassin announced COVID-19 a to Phase 3 (76-day) Stimulus Package Economic Stimulus Phase 2 14-day Movement pandemic (15 Apr – 28 Apr) (RM 10 billion) Package (RM 250 billion) (1 Apr - April 14) Control Order (MCO) (18 Mar – 31 Mar)

Apr 21 Apr 24 Apr 25 May 1 The Ministry of Finance (MoF) Malaysia has announced that an U.S. Oil Prices Announcement on MoF announced that PM Tan Sri Muhyiddin Economic Recovery Plan is in the Plunge Into Negative MCO extension to together with EPU, they Yassin announced the Territory, affecting Phase 4 are formulating an decision to reopen the pipeline, targeting to revitalise global sentiment (29 Apr - May 12) Economic Recovery economy under Malaysia’s economy through various Plan for the short, Conditional Movement short, medium & long term plans medium & long term Control Order (CMCO) starting 4th May 2020 (Extracted on 26th April 2020) 1. NewStraitTimes; 2. Treasury.gov.my; 3. New Malaysia Times; 4. New York Times; 5. Channel News Asia

8 What is the current situation of businesses in Malaysia? The low cash buffer of consumers has led to reduced household expenditure & shrinking businesses cash flow which creating a Domino effect that would cripple the economy

Cash Buffer of Malaysian Workers by Employment Status Significant drop in household (%) expenditures after MCO is imposed Average Monthly Household Expenditure in Malaysia Self-Employed 43% 28% 18% 5% 3%2% (Before & After MCO imposed, RM/month)

Employers 22% 27% 28% 10% 7% 6%

Private Employees 27% 31% 25% 8% 5% 4% 55%

GLC Staff 14% 25% 28% 12% 11% 10% 6,317

MNC Staff 12% 20% 28% 16% 14% 11% 2,813

0% 20% 40% 60% 80% 100% Pre MCO During MCO < 2 weeks 2-4 weeks 1-2 months 3-4 months 5-6 months > 6 months Source: DOSM’s Special Survey on Effects of COVID-19 on Economy & Individual ROUND 1 (N = 168,182)

> 50% of Companies 44% of Companies 43% Self-employed ≈ 2.1 Million Surveyed suffer > 50% Surveyed only have personnels only have savings workers have lost revenue drop within the first enough cash buffer for 3 enough for 2 weeks¹ source of income¹ week of MCO (N = 15,627)² months (N = 419)³

(Extracted on 26th April 2020) 1. DOSM; 2. SME Malaysia & Bizsphere & Marketing Group; 3. Survey done by the Federation of Malaysian Manufacturers; 4. Markets; 5. ; 6. Recommend.my; 7. The Malaysian Reserve

9 What are the other implications of the pandemic? The income of oil producing countries such as Malaysia will get a direct hit from the reducing oil demand & on-going price war, affecting the government budgeting & planning

Government’s oil-related revenue proportionate to oil price movements Daily Brent Oil Futures Price ($US/Barrel) Malaysia Government’s Brent Crude Oil Revenue By Source (RM Billion) Price ($US/Barrel) 160 Oil peaked above $US 100/barrel 300.0 80.0 Non-renenue Receipts & on the back of rapid world’s Revenue from Federal 140 economic growth led by China Oil dropped below $US 70.0 Territories 20/barrel after US crude oil 250.0 Non-Tax Revenue prices turned negative (Others) 120 60.0 200.0 Non-Tax Revenue 100 50.0 (Petronas Dividends) 80 150.0 40.0 Direct Tax - Petroleum 60 30.0 100.0 Direct Taxes Oil crashed as the marker flooded with oil due to the 20.0 40 boom of shale oil in the US 50.0 Indirect Tax 10.0 20

- - Brent Price ($US/Barrel) 0 2016 2017 2018 2019* 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Malaysia as a net oil and gas exporting country, is highly vulnerable to If the oil price declines significantly price fluctuations in the global crude oil market. As of 2018, the oil- below our annual average estimates, related revenue contributed ≈ 20% of the federal government’s the government will reprioritise revenue. AmBank Research estimated that, for every US$1 per barrel drop in oil price, it will reduce the oil revenue by RM300 million. expenditures to meet the fall in revenue. With the on-going price war between Saudi Arabia & Russia, coupled YB Senator Tengku Dato' Sri with lower oil demand due to the COVID-19, the oil producing countries such as Malaysia is expected to lose billions of ringgit in oil revenue. Zafrul bin Tengku Abdul Aziz, Minister of Finance Note: 2019 revenue figures are extrapolated based on data from Q1 to Q3. (Extracted on 3rd May 2020) 1. Accountant General’s Department; 2. BNM 3. AmBank Research; 4. Investing.com; 5. 27Advisory Analysis

10 What are the other implications of the pandemic? (cont.) The elevating household debts is already burdening the people, the MCO cutting off income source to most people, intensifying the situation especially for vulnerable groups

Malaysia Household Debt/ GDP Annual Change of Household Higher impaired loan growth for residential properties (% of GDP, 2013-2019) Debt & Financial Assets Household Sector – Annual Growth of Impaired Loans (%, 2013-2019) (%,2017-2019) “The elevated household debt could pose a 10 6.9 7 87.0 risk to macroeconomic and financial stability 12 5 3.4 2.4 while the Covid-19 pandemic will likely impact -0.1 2.9 the finances of households.” 0 2.7 86.0 Extracted from BNM (3 Apr 2020) -0.3 10 -5

-10 85.0 8 -11.8 -11.4 8.4 -15 6.5 Dec-17 Jun-18 Dec-18 Jun-19 Dec-19 84.0 Housing Debt Overall Housing Debt 5.4 5.1 6 4.9 • Demand for residential property loans in 2H of 2019 was 83.0 5.3 5.4 bolstered by the Home Ownership Campaign launched by the government. 4.7 4 • This was largely attributed to lending by development 82.0 financial institutions to civil servants, according to BNM.

Risks from pandemic: 2 81.0 MCO has imposed huge burden for many in the bottom 40 (B40) and medium (M40) segment with loss of income during 86.5 82.7 82.0 82.7 the period which results in lack of financial buffers to meet debt 80.0 0 obligations. 2016 2017 2018 2019 Moving forward: Household Debt/ GDP Growth of household debt Growth of Household Financial Assets Over the long term, it is important to secure financial resilience by ensuring further debt accumulation is undertaken prudently, (Extracted on 28th April 2020) 1. BNM; 2. Various news especially those in vulnerable segment.

11 What are the other implications of the pandemic? (cont.) The economic density in Malaysia is relatively lower as compared to other countries & it is more challenging now in view of the pandemic

Economic Density for Selected Countries in Asia (USD Million per km², 2018) 16.6 13.6 Country Level 11.8 Malaysia’s economic density is at similar level with its peer countries in Asia. However, it is still lagging behind the 2.2 1.4 1.1 1.1 1.0 0.9 0.6 developed countries

Korea Japan UK US China Phillipines Malaysia Thailand India Indonesia Cities & City-States Level: Similarly, Kuala Lumpur as the capital state is having an economic density that is within the range of other peer cities in Asia, but only about 25 – 40% of other Economic Density for Selected Cities and City-States in Asia top cities around the World (USD Million per km², 2018)

908.3 According to BNM’s forecast, Malaysia’s economy could shrink up to 2% this year 513.6 due to the covid-19 outbreak, giving more pressure for the government to 387.4 345.4 255.8 209.5 207.4 uplift the national’s GDP 105.9 61.5

New York Singapore London Hong Kong Jakarta Manila Kuala Lumpur Bangkok New Delhi

Note: Economy density is calculated as GDP in USD Million divided by land area in square kilometer. (Extracted on 29th April 2020) 1. DOSM; 2. World Bank

12 What are the other implications of the pandemic? (cont.) The over-reliance on foreign workers has been a persistent issue in Malaysia, and this could potentially be an obstacle for Malaysia’s economic recovery route

Share of Workers By Industry in Malaysia¹ Post-pandemic, the nation will be in a recovery mode where the (Percentage of workers, 2019) government will be focusing on revitalising the economy. It is crucial to provide the necessary job opportunities for Malaysian Agriculture 68% 32% by reducing reliance on foreign workers. The overall Construction 77% 23% productivity level could also be improved with the adoption of Manufacturing 79% 21% 4IR technologies especially in the 3D jobs segment. Administrative & Support Services 85% 15% Increasing foreign workers’ remittance in recent years Wholesale & Retail 89% 11% ICT 90% 10% Total Foreign Workers’ Remittances (RM billion, 2016-2019) Tourism 91% 9% 14.4% CAGR Arts, Entertainment & Recreation 91% 9% 30 Mining & Quarrying 94% 6% 20 29.2 Transportation & Logistics 97% 3% 10 22.3 23.3 Professional, Scientific & Technical 97% 3% 0 Finance, Insurance/ Takaful Activities 97% 3% 2016 2017 2018 Healthcare 97% 3% Real Estate Services 98% 2% RM 29.2 Billion The high number of foreign workers has caused Energy/ Utilities 98% 2% Registered Foreign significant value leakages & capital outflow in the form of outward worker’s remittance Education 99% 1% Worker Remittances Malaysian Worker Foreign Worker ≈ 2.1 Million The 2.1 million jobs undertaken by foreign Registered Foreign workers are potential employment Foreign worker contributed to a large chunk of the labour force in Worker opportunities for the Malaysian Malaysia, made up about 14% of the total labour force, across all ≈ 4.0 Million Furthermore, the Immigration Department industry sectors. They mainly work on the 3D (Dirty, Dangerous, estimated that there could be about 4 million Est. Illegal Difficult) jobs which are not preferred by the Malaysian due to social illegal foreign workers working in various recognition and pay scale. Foreign Worker² industries. Indicating a much larger outward remittance & value leakage in reality (Extracted on 26th April 2020) 1. DOSM; 2. Ministry of Higher Education World Bank; 3. Immigration Department; 4. World Bank 5. BNM

13 What are the other implications of the pandemic? (cont.) The other side of the coin: A rare opportunity for family bonding & reprioritising lifestyle habit that would have a long lasting impact on the people

Family wellbeing & bonding Reprioritising eating habits

% of Respondents who said they would eat at home 86% more post-pandemic (selected Asia countries only) 77% 62% 62% 62% 56% 54% 50% 37% 38% 37%39% 30% 26% 23% 30%

7% 14%

China

South

Korea

Taiwan

Vietnam

Thailand

Malaysia

Phillipines

Singapore Hong Kong Hong

Source: Nielsen’s “COVID-19 Where consumers are heading” Study There are always two-side to a coin. (N = 500 – 1,000 per market, for 74 markets)

The movement control measures have also A recent consumer study suggests that the pandemic might change the caused positive changes in the cultural & consumers’ eating habit permanently.² social habits among the society.¹ There is evidence that a “safe in-home consumption” trend is emerging and Working adults who usually spent most of the time consumers in the markets surveyed are slowly shifting away from “on-the-go earning a livings are now forced to stay for longer lifestyle”. A number of Asian markets have seen an uplift of 20%-25% in sales hours at home, giving them opportunity to spend across Fast Moving Consumer Goods (FMCG) in the first quarter of 2020. quality time together. Health & Technology factors have growing importance in influencing the spending behavior, where technologies such as AI, blockchain, augmented reality are revolutionising the industry landscape. (Extracted on 26th April 2020) 1. Institute of Family Studies; 2. Nielsen Research

14 What are the other implications of the pandemic? (cont.) The lockdown or movement control as a measure to break the chain of infection has reduced the anthropogenic activities which could potentially decrease the level of pollution

Air Pollution Level in China Natural environment improvement in other parts of the world

Klang River free from Endangered sea turtles laying eggs floating garbage & waste in India, Beach of Odisha

Endangered sea turtle eggs Pink jellyfish sunbathing in the hatched in Brazil, Paulista shoreline Philippine, Palawan Island

There is evidence that the massive lockdown in China There has been reports that show the natural environment are slowly healing, has led to significant drop in air pollution level, thanks to the reduced human activities during the movement control period. mainly due to the slowdown of economic activities. (Extracted on 26th April 2020) 1. NASA, Earth Observatory; 2. ; 3. Daily; 4. The Rakyat Post

15 What does this mean to the government? The pandemic has urged companies to go digital, reducing human contact and this is strongly encouraged as it will improve Malaysia’s labour productivity growth

Labour Productivity of Selected Countries¹ Labour Productivity Growth (USD per Person Employed, 2018) (%, 2018)

160,000 Labour Productivity per Person Employed 8.0% Productivity Growth 145,864 140,000 7.5% 7.0% 126,979 6.0% 120,000 101,875 5.0% 100,000 The business community needs to 4.0% 76,850 80,571 4.5% adapt to the “new normal” and 80,000 68,321 3.8% rely less on the labour force when 3.7% 3.0% reopening businesses. Companies 60,000 2.8% need to focus more on automation 2.0% 2.2% and use of technology in these times 40,000 2.0% 33,839 32,848 28,057 1.0% when the country is facing Covid-19. 1.5% 1.1% 21,300 20,000 -0.4% 0.0% Digitisation is not a choice now but a need to ensure continuity of - -1.0% businesses for a long period. USA Australia Korea Japan Singapore Malaysia Thailand China Indonesia Philipines Companies need to speed up their digitalisation process in reducing • Malaysia’s productivity remained very much ahead when compared with selected Asian countries such as human contact. Thailand, China, Indonesia and Philippines. However, its productivity remained low compared to other developed countries like the US, Australia and Japan. • It is observed that labour productivity growth in selected Asian countries is accelerating with China YB Dato’ Seri Mohamed Azmin Ali, experienced the highest productivity of 7.5% in 2018. On the other hand Malaysia only recorded a growth Senior Minister and Minister of of 2.8% in 2018. International Trade & Industry • Malaysia’s labour productivity can be improved by tapping into the advantage of technology.

(Extracted on 3rd May 2020) 1. Malaysia Productivity Report 2018/2019, MPC

16 What does this mean to the government? (cont.) The unpredictability of disease dynamic has made the decision making challenging, a greater scale of fourth industrial revolution might happen sooner than we think

Key decisions to make Some of the key challenges to be considered now Factors in play

• How to ensure the government administration is functioning well amid the crisis? • Is there a need to expand healthcare capacity? How much to increase? • Public’s health & safety Public healthcare • How to “flatten the curve” without overwhelming the healthcare system? • Government’s cost to measures to contain the • When will there be a “successful” vaccine to contain this pandemic? implement healthcare & pandemic • What if the healthcare measure is not effective? What to change? economic stimulus • What if there is new cluster of infections due to imported transmission? measure • How to fund for the on-going healthcare measure & digitisation of government administration? • Post-crisis economy system recovery • What need to be done to rescue the private sector companies? • How to helps the companies to embrace technology revolutions & continue their businesses? • Employment market & Economic stimulus • How to retain jobs while not putting too much burden to companies? people income measures to revitalise the • How to encourage digitisation in private sector without laying off manual workers? • The cost of national economy • Which industry sectors should be allowed for operation first? transformation to the • What if there is resurgence of virus after movement control is lifted? New Normal • What if the prolonged movement control crippled the economy system?

While COVID-19 has caused an unprecedented impact The process of digitalisation in government on the whole economic system, the digital tools and administration, business matters, our daily platforms have been playing their parts to keep the lives will be the trend in our future and I government administration & business world running. think the impact will be huge. There is an imperative need for both public & private th YAB Tan Sri Muhyiddin Yassin, sectors to embrace the 4 Industrial Revolution in Malaysia Prime Minister every facet of the economy that would cushion the damage of such crisis towards the national economy

17 How will COVID-19 impact the Malaysian businesses going forward? This pandemic potentially changes everything. But where will it take us?

How will the landscape of economic and social life change in months and years ahead? COVID-19 will bring various degrees of impact on different industries Most of the industry sectors are expecting a declining revenue and demand in view of the economic slowdown & changing consumers’ sentiment

Airlines’ Revenue ¾ of Companies The impact on estimated to drop by RM 14bil Surveyed considering to Malaysia’s industries for 2020 with passenger demand layoff up to 30% of workforce reduced by 39% Some preliminary views

International Air Transport Federation of Association (IATA) Manufacturers (FMM)

Hotel Occupancy Tourism Receipt estimated Vehicle sales dropped estimated to be ≤ 25% in the to drop RM 50bil–RM 60bil, 26.22% for the period from Jan coming months, after the MCO while Tourism Arrival to Mar as compared to last year decline 60% for 2020 Malaysian Association Malaysian Automotive Affin Hwang Capital of Hotels (MAH) Association (MAA)

Property Sentiment Lost in Crops estimated at Retail Sales Growth Rubber Industry estimated Index dropped to 42 points RM 430Mil (500k tonnes) estimated at – 5.5% for 2020, to grow by 5%–25% in 2020, from 44 points for the same from 14-day closure first time in 22 years due to higher demand on gloves period last year RGM’s Preliminary report on PropertyGuru’s Malaysia Malaysian Palm Oil Malaysia retail industry Malaysian Rubber Consumer Sentiment Study Association (MPOB) during Covid-19 pandemic Board (MRB)

(Extracted on 29th April 2020) 1. Various news

19 How would this play out for Malaysia? The level of recovery will largely depend on government’s policy response & public health measures

Hypothetical Scenarios for Malaysia’s Gross Domestic Product (GDP) Level (RM Billion, 2015¹ – 2025² F) Three (3) of the possible scenarios for 2,250 ILLUSTRATIVE A global economy slowdown and potential recession 1 Malaysia economic level post-COVID 19, two 2,000 is foreseeable but the level of severity would very of which are extreme cases where the GDP much dependent on the individual government’s recovered to pre-crisis level (ideal case), and 1,750 measures to suppress the pandemic and reduce the overall economic shock to local economy. 2 a prolonged recession which bring a long lasting impact on the nation’s output (worst 1,500 possible case). 3 1,250 Malaysia economic recovery path will 1,000 likely fall somewhere in between the 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 extreme scenario 1 and 3.

U SHAPE: Stabilise and grow at a L SHAPE: Prolonged recession at V SHAPE: Speedy recovery to rate similar to pre-crisis level but lower GDP growth rate & lower 1 original output level 2 3 lower overall output output level ❑ GDP dropped initially but rebound greatly ❑ GDP dropped and eventually stabilised, ❑ GDP dropped and followed by right after the recession, and eventually followed by a growth rate that is similar to insignificant growth over short- to mid- recovered to pre-crisis level. pre-crisis level. terms. ❑ This will require a speedy policy response ❑ Government’s policy response and public ❑ Ineffective government policy and effective public health measure from health measures are somewhat response and public health measures the government to contain the pandemic effective. However, there are certain which lead to virus resurgence and from resurgence & revitalise the national level of virus resurgence, causing structural damages in economy, in the economy through effective stimulus prolonged movement control which forms of massive business failure, packages that can resolve companies’ slowdown the recovery of economy. unemployment and long-lasting financial stress & retain jobs. recession. 1. DOSM; 2. 27Advisory Analysis

20 The lifecycle of the pandemic will be depending on various factors It will take a right combination of government policies and society response to effectively suppress the pandemic & revitalise economy

Pandemic Containment measures kick in and decelerate the Recovery is slowly taking place & outbreak spreading of virus the New Normal is emerging

MCO Phase 1 MCO Phase 2 MCO Phase 3 MCO Phase 4 (18 Mar 2020) (1 Apr 2020) (15 Apr 2020) (28 Apr 2020)

3.5 How long will the MCO last? 3

Economic 2.5 Activity Business Restricted business Progressive uplift of MCO uplift, business activities resume as Usual activities and social business activities ✓ Customer preferences and perceptions will shift distancing restriction ✓ Maintain social distancing 2 Uncontrollable Protective measures keep ✓ Travel restriction pandemic our healthcare system from spread being overwhelmed 1.5

1

0.5 Economic stimulus packages Growth of to revitalise the national economy COVID-cases0 Illustrative 01-3 months2 4 2-64 months 8 10 12 14 6-12+ months16 18 20

1. Bursa Malaysia; 2. 27Advisory Analysis

21 COVID-19 will bring various degrees of impact on different industries In Malaysia, Energy, Construction and Financial Services are the most badly hit industries over the last two months while Healthcare and Transport & Logistics show increasing trend

Containment Malaysia: Market Recovery Capitalisation Phase Pandemic measures kick in Recovery is slowly Selected Industries outbreak and decelerate the taking place Change (%) (Future (Jan to Apr 2020) Impact) spreading of virus Illustrative Healthcare Est 12% Healthcare The graph is produced based on the selected Possible trend Real Estate Est 8% stocks in each industry in Bursa Malaysia. 3.5 This is illustrative only and does not represent Technology Utilities Est 14% any market forecast on the real situation.

Healthcare & Logistics seen with an Consumer Products Transport & Logistics Est 15% 3 obvious growing trend, mainly due to the increasing demand on healthcare Transportation & Consumer Products Est 21% supplies & e-commerce downstream Logistics Malaysia Telecommunication & Media Est 22% Economic2.5 Malaysia Average Industrial Products Activity Property Utilities Est 27% Plantation 2 Telecommunication Technology Est 27% Real Estate Property Financial Services Est 29% Construction 1.5 Financial Services Plantation Est 34% Energy Construction Est 34%

1 Industrial Products Est 36%

Energy Est 42%

0.5 01-3 months 5 2-4 months10 6-12+15 months 20 Speedy recovery of Slow recovery of th (Extracted on 26 April 2020) 1. Bursa Malaysia; 2. 27Advisory Analysis economic activities economic activities 22 How will this change the business models? Samples of innovative business models under the New Normal using 4IR technologies

Government Office: Bluetooth & Cryptography use Real estate agents New Normal needs a for Privacy-Preserving Contact go virtual to sell properties Tracing A navigable 3D “doll’s house” view more comprehensive digitalisation system

I’m told that the current e- government system is probably at 30-40 percent. So, I have directed that we speed up the process of digitalization in government and accelerate it so that in any societal Food delivery Apple and Google partner on Notification will be sent to with drivers’ situation, if the government is COVID-19 contact tracing technology, ahead, then the people will adjust. buyer to inform on health body focusing on Privacy, Transparency & status of driver and pick up YAB Tan Sri Muhyiddin Yassin, Consent location of food temperature Malaysia Prime Minister tracked

4IR technologies such as IoT, Executive dashboards to artificial intelligence, big data or E-commerce platform for farm blockchain are best deployed on display business status update products direct sale to customers the cloud as they rely on the cloud Accounting and Sustainable computing capabilities to provide financials dashboard farming, low-cost the required computing resources KPI dashboard & and cost-saving to analyse tremendous amount of Sales performance data to solve complex problems. dashboard

1. Apple; 2. Financial Times; 3. Agriculture.com; 4. 27Advisory Analysis

23 How the industry can improve their productivity with technologies? Samples of 4IR technologies use case in selected industries in near future

Healthcare Construction Consumer Products

Digital technology could help Construction technology helps transform unsustainable healthcare improve productivity, reduce workplace Tourism systems into sustainable ones injuries and digitise the industry IoT and Big Data AI Improve • Chatbot with Artificial intelligence (AI) AI & Machine personalisation from rapid response Redesign healthcare by designing Building hotel bookings, food time to queries Learning new drugs, disrupting medical Information discoveries as well • Hotels draw Improve job site safety imaging and medical records mining as travelling routes insights on biz via field observation and Modelling (BIM) planning & highlight performance Virtual Reality (VR) / Augmented help in bid prepare, Drawing and Reality (AR) estimation and project management planning software Food & Beverages Train future & actual surgeons to that contains Blockchain Service practice operations to be faster and actionable Rising demand for food Robots & more accurate AR / VR information in the transparency & traceability Restaurant Used in training workers model with time encouraged the use of Digitisation Robotics on the required skillsets and costs blockchain to provide fast E-restaurant Surgical robots, pharmabotics, to reduce risks of getting management injured data integration & with online disinfectant robots or exoskeletons identification of quality services Drones Nanotechnology Accurate land surveying, Autonomous Fashion/ Lifestyle Nanoparticles and nanodevices use for footage captured used to Equipment VR Sensors and AI precise drug delivery systems, cancer improve job site safety Construction treatment tools or tiny surgeons vehicles operated Enable consumers Sensor wearables Robots without human on to “attend” fashion measure fitness level shows, adding a and AI can learn the 3D-printing Supplement human the site to survey depth of experience health status and Print biotissues, artificial limbs, pills, labourers on repetitive and capture to a brand or advise suitable blood vessels to benefit patients as videos/ photos motions that often hurt product fitness package well as pharmaceutical industry human workers

1. Medical Futurist; 2. 27Advisory Analysis

24 What does this mean to the businesses? The only thing certain in business world is the uncertainty. The pandemic has started a new revolution of business models, and there is no guarantee outcome in the New Normal

Key decisions to make Some of the key challenges to be considered now Factors in play

• Should employees be instructed to work-from-home immediately? • What to do with employees who need to be physically on-site? Immediate actions • What are the digital technologies required for the employees to operate as usual? • Employees’ health & required to address the • How to deal with the inventory, production line, suppliers & agents etc.? safety business interruptions • Does the company has sufficient cash flow for the fixed expenditures? • How should the company approach shareholders / investors? • Business continuity • How to secure the capital required for the next 30 days / 3 months? during the pandemic • Post-crisis business • How would the COVID-19 transforms the consumer markets? recovery • Is there a need to re-adjust business models & services delivery channel? • Adapting the business to Business planning for • What is the “best” business model in the New Normal? Is full digitisation a must? the New Normal post-crisis scenarios to • Can the company survive a second hit if the virus resurgence? ensure business continuity • What will the competitors do to survive and overtake us? • Cost of transformation • How to revitalise the business and return to scale soonest? • What would be the cost to transform my business for the mid- & long-term?

Due to the unpredictability of disease dynamic and lack of prior experience, a series of difficult choices need to be made and there are a series of “what if” scenarios to be considered. Trade-offs will need to be made between ideal outcomes and the multiple constraints in order to craft sensible goals during the crisis.

Businesses are in need of a systematic framework that would navigate them though the crisis, helping them to transform the business models and adapt the New Normal, leveraging on the next generation technologies & digital tools.

25 If you are a Corporate Leader or Government Agency

… What do you need to do in responding to the impact of COVID-19 on your organisation? Crisis Response Scenario Planning & Actions Navigator A framework for strategy development with sufficient “breadth” (coverage of area) & “depth” (level of practicality) in “chronological order” (time-phased) to navigate through the crisis

Review the impact on business Recalibrate the ways of working Reassess the mid- to long-term Roll-out the viable strategies & and examine the magnitude of based on the latest market strategies under different deploy necessary resources. impact on key areas including dynamics & New Normal, and scenarios by simulating the new Frequent monitoring & rolling cash flow, supply chain & strategise to get the business business models and test with forecast to prepare for rapid operations back on track internal & external stakeholders adjustment

Review Recalibrate Reassess Roll-out

For urgent matters which demand for immediate decision may skip Establish Cross- Identify immediate the reassessment & syndications 1 functional Crisis 4 actions to ensure Response Taskforce business continuity Simulate new business 7 models & perform cash flow stress-test Review employees’ Understand market Execution & progress 2 health & safety 5 dynamics & simulate 9 monitoring for conditions possible crisis scenarios continuous calibration Engage external parties 8 (i.e. lenders, suppliers, clients) for idea testing Develop mid- to long- Examine COVID-19 term strategy for 3 impact on business 6 different crisis scenarios

Now more than ever, the top executives need to rethink their business models and formulate a crisis coping mechanism that will adjust their organisation to a more resilient state and prepare for the New Normal Review Recalibrate Reassess Roll-out Summary 1 2 3 4 5 6 7 8 9

Key action items (1 of 9) Review the impact on business and examine the magnitude of impact on key areas Review including cash flow, supply chain & operations

1 Establish Cross- 01 Set-up a dedicated cross-functional crisis response team (PMO) to follow through functional Crisis the situation Response Taskforce Set-up & mobilise “War Room” as the centralised command & control centre with 02 the company’s key info (i.e. cash flow, operations, supply chain) on a live dashboard

03 Conduct daily review & update the impact on business

Facilitate two-way communication with internal stakeholders (employees, 04 management, shareholders) & external stakeholders (suppliers, clients, investors, business partners)

Provide clear direction & set accountabilities for all crisis response strategies to 05 prevent confusion

Establish digital workplaces to ensure essential business units (i.e. payroll, IT, 06 marketing) can continue with their operations

28 Review Recalibrate Reassess Roll-out Summary 1 2 3 4 5 6 7 8 9

Key action items (2 of 9) Review the impact on business and examine the magnitude of impact on key areas Review including cash flow, supply chain & operations

2 Review employees’ 01 Perform sanitisation & hygiene check at all workplaces health & safety condition Conduct corporate-wide health-check for all employees at workplaces & provide 02 guidance on healthcare assistance for those in need

Establish & enforce policies on Work-From-Home (WFM), Travel & Quarantines 03 matters and ensure employees have clear understanding on operational protocols under the new environment

Provide the necessary technology/infrastructure with sufficient guidance on usage 04 & other support

Ensure proactive communications across all levels of the organisation to manage 05 anxiety & confusion

29 Review Recalibrate Reassess Roll-out Summary 1 2 3 4 5 6 7 8 9

Key action items (3 of 9) Review the impact on business and examine the magnitude of impact on key areas Review including cash flow, supply chain & operations

Cash flow – assess the liquidity position & working capital available, examine the 3 Examine COVID-19 01 impact on short-term cash flow, assess ability to service short-term debts and fixed impact on cost, identify funding shortfall business Operations – review operation & production capacity, develop new protocol & line 02 of command for essential business units, develop contingency plan for units which need to cease operations

Suppliers – assess the production capacities & financial health of suppliers, 03 review vendors & partner agreements

Inventory & purchase order – proper management of inventory especially for 04 perishable products to maximise salvage value, review purchase order made & make cancellation where necessary

Marketing & client management – proactive communication with customer, 05 gauge the consumer sentiment, understand expectations and needs on service level, review marketing operations, media utilisation, improve marketing efficiency

Contractual obligation – review the short-term contractual obligation in the form 06 of production, interest, dividend etc., examine the ability to meet the obligation & ascertain the potential impact

30 Review Recalibrate Reassess Roll-out Summary 1 2 3 4 5 6 7 8 9

Key action items (4 of 9) Recalibrate the ways of working based on the latest market dynamics & New Normal, Recalibrate and strategise to get the business back on track

4 Identify immediate 01 Review the pre-crisis targets / KPIs at corporate & business unit level and adjust actions to ensure where necessary business continuity Develop prioritisation mechanism to identify areas which need immediate actions 02 to ensure business continuity

Individual business unit leaders to conduct self-assessment & prioritisation 03 exercise

Devise action plan on the top-priority areas with clear accountability for adjustment 04 to address the immediate challenges (workforces, clients, technologies, partners etc.) and stabilise the business

05 Reallocate budgets & resources available for the execution of action plan

31 Review Recalibrate Reassess Roll-out Summary 1 2 3 4 5 6 7 8 9

Key action items (5 of 9) Recalibrate the ways of working based on the latest market dynamics & New Normal, Recalibrate and strategise to get the business back on track

5 Understand market 01 Scenarios modelling for the macroeconomic, potential impact & risk on specific dynamics & industry segments simulate possible crisis scenarios Observe competitors’ situation & strategic actions undertaken (i.e. operations, 02 financial, products) to establish new market landscape

Observe the customers’ sentiment and potential shifts in spending behavior & 03 preference

Conduct sectoral analysis and identify critical constraints (internal & external) on 04 each value chain element in your industry and re-prioritise revenue generation activities

Actively look for opportunities in organic growth (output optimisation) and inorganic 05 growth (M&A)

Determine the strategic posture: ✓ As Leader to drive change that will shape the New Normal; or 06 ✓ As Follower to adapt to the changes as it emerged; or ✓ As Observer to reserve resources while building up capacity to response in a much later stage

32 Review Recalibrate Reassess Roll-out Summary 1 2 3 4 5 6 7 8 9

Key action items (6 of 9) Recalibrate the ways of working based on the latest market dynamics & New Normal, Recalibrate and strategise to get the business back on track

6 Develop mid- to 01 Develop scenarios for multiple possible New Normal with reasonable assumptions long- term strategy on the post-crisis impact & recovery situation towards the business for different crisis scenarios Consider possible changes in the business dynamics & develop corresponding 02 strategic moves to revitalise the business and return to the scale. Some key areas to consider (non-exhaustive): ✓ Liquidity position – reduce short-term outflow, divestment strategy, unlock working capital ✓ Customers segment – changing customers’ demand/preference & emerging customer groups ✓ Marketing & Branding – emerging channels to reach customer & re-evaluate branding strategy ✓ Capital expenditure – consider to postpone CAPEX & reduce unnecessary spending/investment ✓ Organic growth – needs for new products/services to preserve revenue in the New Normal ✓ Inorganic growth – potential strategic collaboration and M&A opportunities

03 Setting trigger points for deployment & executions of the strategies

33 Review Recalibrate Reassess Roll-out Summary 1 2 3 4 5 6 7 8 9

Key action items (7 of 9) Reassess the mid- to long-term strategies under different scenarios by simulating the Reassess new business models and test with internal & external stakeholders

7 Simulate new 01 Develop multiple scenarios for strategy adoption based on the possible business models & macroeconomic scenarios perform cash flow stress-test Identify the necessary technologies & digital infrastructures to implement the 02 strategies and transform the existing business model into the New Normal business models

Evaluate the options on technology & digital infrastructure in the New Normal 03 business model, in particular the functionality & practicality aspects

Estimate the cost required for each strategy (i.e. hard & soft infrastructure, 04 upskilling & reskilling training) and potential value creation in the form of revenue/profit generation, cost savings, capital unlocked etc.

Build a dynamic financial model for rolling forecast and stress testing on the 05 liquidity position & funding shortfall based on different scenario (on-going process)

Build a live Cash Flow Management Dashboard to visualise financial position for 06 effective management reporting & strategic decision-making

34 Review Recalibrate Reassess Roll-out Summary 1 2 3 4 5 6 7 8 9

Key action items (8 of 9) Reassess the mid- to long-term strategies under different scenarios by simulating the Reassess new business models and test with internal & external stakeholders

8 Engage external Engage external parties for idea testing & terms negotiation. 01 This shall include but not limited to: parties for idea ✓ Technology providers – syndication with providers for technology or digital infrastructure, short-term partnership to test new business delivery model, testing specifications for digital infrastructure ✓ Creditors – facilities draw down, repayment term, loan moratorium / deferment, refinance ✓ Suppliers – deferment or cancellation of purchase order made, defer payment terms ✓ Investors / Shareholders – expectations on business performance, capital injection ✓ Business partners – strategic collaboration for value optimisation ✓ Clients – installment terms, demand on new products / services

02 Formalisation of new terms agreed in written formats

35 Review Recalibrate Reassess Roll-out Summary 1 2 3 4 5 6 7 8 9

Key action items (9 of 9) Roll-out the viable strategies & deploy necessary resources. Frequent monitoring & Roll-out rolling forecast to prepare for rapid adjustment

Set quantifiable & time-phased performance KPIs, develop communication action 9 Execution & 01 plan & detailed RACI (Responsible, Accountable, Consulted, Informed) Matrix for progress each strategy monitoring for continuous 02 Engage with relevant stakeholders (i.e. shareholders, management, business units calibration leaders, executives) for briefing on execution plan

Perform daily checks on the implementation progress & weekly reporting in “War 03 Room” dashboards

Identify, evaluate & mitigate or prevent risks pertaining to the strategy 04 implementation

Weekly recalibration review to ascertain the needs to readjust the strategy as the 05 macroeconomic situation evolves

36 Overall Programme (indicative) Illustrating the Crisis Response Scenario Planning & Actions Navigator framework in a chronological flow

Overall Programme Management by the cross-functional Crisis Response Taskforce

Review

Set-up Cross-functional Crisis Response Taskforce Review employees’ health & safety conditions Examine COVID-19 impact on business Recalibrate

Identify immediate actions to ensure business continuity Understand market dynamics & simulate possible crisis scenarios Develop mid- to long- term strategy for different crisis scenarios Reassess

Simulate new business models & perform The above serves as an indicative timeline of the cash flow stress-test overall programme for the Crisis Response Scenario Engage external parties Planning & Actions Navigator. for idea testing The actual programme duration might be different on Roll-out a case to case basis, subject to the company’s scale, complexity, data availability and other factors. Execution & progress monitoring

37 Disclaimer

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