How Resilient Companies Deal with COVID-19 and the Threat of a Global Economic Recession? Deloitte Oy Crisis & Restructuring Services The COVID-19 outbreak has advanced rapidly and the number of confirmed cases worldwide has surpassed 410,000 (status 25th of March) Worldwide - Cases and deaths - Daily Worldwide - Cases and deaths - Cumulative The number of COVID-19 cases has surpassed 50 000 38 876 500 000 416 916 400.000 globally with most cases in China (82k), 40 000 400 000 Italy (69k), USA (55k) and Spain (40k). 30 000 300 000 20 000 200 000 10 000 2 200 100 000 18 565 0 0 31.12.2019 31.1.2020 29.2.2020 31.12.2019 31.1.2020 29.2.2020 The number of confirmed COVID-19 cases may be accelerating, as 79.6% of the total cases have Cases Deaths Cases Deaths occurred in March Nordics - Cases and deaths - Daily Nordic - Cases and deaths - Cumulative 734 800 10 000 CEBM’s early estimated IFR* is 0.20% as of 7 869 22nd of March – In comparison, WHO’s reported 600 8 000 fatality rate for swine flu in the first 12 months of 400 6 000 the pandemic was estimated at 0.02%. 4 000 200 21 2 000 81 0 0 31.12.2019 31.1.2020 29.2.2020 31.12.2019 31.1.2020 29.2.2020 In the Nordics and Finland, the number of cases Cases Deaths Cases Deaths has reached 7.869 and 734, respectively. The number of deaths stands at 81 with 3 in Finland. Finland - Cases and deaths - Daily Finland - Cases and deaths - Cumulative 150 1 000 792 750 100 92 China’s experience in containing the spread of the 500 COVID-19 demonstrates that the course can be 50 250 altered but the epidemic peak is yet to come. 3 2 0 0 31.12.2019 31.1.2020 29.2.2020 For daily updated COVID-19 data: Tableau COVID-19 Data Hub 31.12.2019 31.1.2020 29.2.2020 Cases Deaths Cases Deaths © 2020 Deloitte Oy, Group of Companies. 2 Source: CEBM, Deloitte analysis, European Center for Disease Prevention and Control (25.3.), Reuters, THL *Note: Infection fatality rate, see https://www.cebm.net/global-covid-19-case-fatality-rates/ for methodology and more details Financial markets have been hit hard and fears of a global recession have intensified following the spread of COVID-19 pandemic and the implosion of the OPEC+ alliance OMX Helsinki 25 OMX Nordic 40 Stoxx Europe 600 YTD YTD YTD -18% -25% Since the beginning of this year, OMXH25 has 5 000 -23% 2 000 450 declined 23.0% from 4,222 to 3,252 points which 4 500 1 750 400 is the lowest since 2016. 4 000 1 500 350 3 500 1 250 300 3 000 2 500 1 000 250 2.1.2017 2.1.2018 2.1.2019 2.1.2020 2.1.2017 2.1.2018 2.1.2019 2.1.2020 2.1.2017 2.1.2018 2.1.2019 2.1.2020 Nearly all major stock indices worldwide have crashed since the beginning of this year and are now close or below values at the start of 2017. S&P 500 Nikkei 225 Shanghai Composite YTD YTD YTD -24% -16% -10% 3 500 25 000 4 000 3 000 23 000 3 500 The CBOE Volatility Index (VIX) reached an 21 000 2 500 3 000 all time high of 82.7 on 16.3. and despite having 19 000 fallen below 65 is still ca. 50 points above Jan-Feb. 2 000 17 000 2 500 1 500 15 000 2 000 3.1.2017 3.1.2018 3.1.2019 3.1.2020 4.1.2017 4.1.2018 4.1.2019 4.1.2020 3.1.2017 3.1.2018 3.1.2019 3.1.2020 Oil prices have plummeted to lowest levels since 2002 following the implosion of the OPEC+ Brent Crude Oil per Barrel (USD) Gold per Troy Ounce (USD) Bitcoin USD alliance and intensifying fears of a global recession. YTD YTD YTD -63% +5% -9% 100 2 000 25 000 80 1 500 20 000 60 15 000 1 000 40 10 000 500 Investors have not been able to find refuge from 20 5 000 gold which is considered a safe heaven asset 0 0 0 – instead many prefer the most basic refuge: cash. 3.1.2017 3.1.2018 3.1.2019 3.1.2020 3.1.2017 3.1.2018 3.1.2019 3.1.2020 2.1.2017 2.1.2018 2.1.2019 2.1.2020 Crude Oil Prices: Brent - Europe, USD per Gold Fixing Price 3:00 P.M. (London time) in barrel, daily, not seasonally adjusted London Bullion Market, based in USD, USD per troy ounce, not seasonally adjusted © 2020 Deloitte Oy, Group of Companies. Source: Wall Street Journal Market Data (25.03.2020), St. Louis Federal Reserve (oil 23.3.2020, gold 25.3.2020) 3 YTD: Gold 25.3., Crude Oil 23.3., BTC-USD 25.3., and all others 25.3. The short-term economic impacts have been dramatic and the Finnish GDP is expected to decrease significantly despite government economic stimulus package Short-Term Economic Impact of COVID-19 (Indicative) Low Medium High The COVID-19 epidemic has had a dramatic short-term impact on many industries e.g. airlines, restaurants and leisure & tourism. • Food / food retail • Manufacturing • Airlines • Pharmaceutical retail • Chemicals • Restaurants • Waste management • Service companies • Leisure & tourism • Telecoms • Internet & technology • Sports & entertainment The impacts of the COVID-19 epidemic and the likely global recession will vary significantly by • Gaming • Online retail • Retail (non-food) industry and even by sectors and companies. Bank of Finland and ETLA Economic Research have Perspective Key Measures (non-exhaustive) Key Questions estimated that the Finland’s GDP in 2020 decreases by 1.5-4.0% and 1-5%, respectively. • Restrictions on international travel When will we see the Containment of • Limitations on social gatherings to max. 10 persons epidemic peak and are the COVID-19 • Closing of schools, education institutions and other public places e.g. libraries the containment outbreak • Promotion of social distancing and high-levels of hygiene measures adequate? • National emergency supply agency inventories used for the healthcare sector The Finnish government’s economic stimulus package of €15bn corresponds to 6% of the • The European Central Bank unveiled a €750bn stimulus package GDP and is aligned with other EU-countries. Is the economic Institutional • The Finnish government announced a €15bn stimulus package stimulus package economic response • Finnvera’s guarantee limit has been raised from €2bn to €12.0bn enough and will it reach plans • Tax and TyEL payment postponements amounting to of €3-4.5b SMEs effectively? • Business Finland and Ely Centres prepared for €200m financing The Finnish Parliament approved emergency • Banks offer instalment-free months for their customers powers legislation which enables authorities to How are the long-term Corporate and • Companies promote telecommuting and have eased policies on e.g. sick leaves take extraordinary measures to fight COVID-19. impacts to our values, private person’s • Companies offering free products and services e.g. distance learning resources consumer behaviors responses • Social media promotes shared responsibility and measures to support SMEs and work practices? • Private citizens supporting local shops and neighbors © 2020 Deloitte Oy, Group of Companies. 4 Source: Valtioneuvosto, Kauppalehti Resilient companies take decisive action amidst uncertainty to ensure business continuity and prepare for a rapid recovery – How have you responded? #1 - RESPOND #2 - RECOVER #3 - THRIVE Take control, implement emergency Focus on core business performance Leverage advantage to capture growth actions and ensure business continuity and restructure non-core activities opportunities of the next normal Key Activities (Non-Exhaustive) Self-Assessment of Maturity Key Questions − Nominate task force leadership team Strategy & − Set-up a Command Centre incl. communications Very Very Do you have a clear Command Centre − Form a fact-based view of key issues & impacts low high plan of action? − Initiate crisis and contingency planning − Evaluate working capital and liquidity requirements Financing & − Implement cash conservation and recovery actions Very Very Is your business Business Continuity − Control discretionary operating costs and CapEx low high continuity at risk? − Re-negotiate flexible financing terms − Identify supply chain risks and potential impacts Operations & − Develop contingency plans e.g. inventory strategies Very Very Have you optimized Supply Chain − Prepare supplier negotiation packs & tactics low high your supply chain? − Negotiate with suppliers to implement risk-mitigation − Calibrate HR policies e.g. travel, mobility and leaves Resource & Talent − Review employment contracts for potential issues Very Very Are you prepared Management − Set-up crisis-time performance management low high to right-size rapidly? − Establish touch plan and feed-back mechanisms − Prepare customer communications packs & tactics Revenue & − Engage with key customers to support continuity Very Very How do you keep Customer Engagement − Protect and reward customers to reinforce loyalty low high your customers? − Re-negotiate commercial terms & practicalities − Enable data-driven insights & situational awareness Technology, Data & − Develop real-time sensing & reporting dashboards Very Very Is your company Digital Enablement − Enable digitally-enabled remote work arrangements low high digitally-enabled? − Assess and address systems and cyber vulnerabilities © 2020 Deloitte Oy, Group of Companies. 5 Adapted from: Deloitte’s Resiliency Framework We can support you to take control of the crisis along with determining and driving pragmatic actions to ensure business continuity and value creation Crisis & Restructuring Services Strategic Review & Options Operational Turnaround Corporate Restructuring We support our clients recover and optimize shareholder value of underperforming businesses We help clients form a fact-based view of We help clients identify and capture We help clients critically review their and ensure business continuity in highly volatile business performance & outlook and opportunities with direct impact on business portfolios and take required and uncertain business environments.