Coronavirus, cash, and consumers

COVID-19 is causing severe challenges for people and the economy, and we’ve seen a broad spectrum of impacts across industries. Some businesses have struggled to keep up with increased demand, while for others, unfortunately, commercial activity has all but dried up.

In this episode, our expert panel discusses how businesses can stabilise their cash position and shore up their defences against the worst impacts of the pandemic. Joining our host, Rowena Morris, are Lisa Hooker, PwC's Leader of Industry for Consumer Markets, and Zelf Hussain, who specialises in helping businesses experiencing financial distress.

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Rowena Morris (RM): Welcome back to PwC’s COVID-19 podcast series, where we explore the business impacts of coronavirus. I’m Rowena Morris, a director at PwC, and I help clients prepare and respond to crisis situations, and I’m your host for this series.

As coronavirus continues to cause severe challenges for people and the economy, we’ve seen a broad spectrum of impacts across industries. Some businesses have struggled to keep up with increased demand, while for others, unfortunately, commercial activity has all but dried up.

In this episode, we’ll be discussing the cash and liquidity challenges that businesses are facing. We’ll set out practical steps to help businesses stabilise their cash position, and we’ll be discussing how they can shore up their defences against the worst business impacts of the pandemic. I’m delighted to be joined today by Zelf Hussain and Lisa Hooker. Zelf specialises in helping clients who are experiencing financial distress, and Lisa is our leader of industries for consumer markets, so I’d like to welcome them both to our virtual studio.

Lisa Hooker (LH): Hello everyone!

Zelf Hussain (ZH): Hi and thanks for inviting us to the virtual studio.

RM: No problem, great to have you. So Zelf, to kick things off, when it comes to liquidity and cash management, what are the main areas that you are seeing that our clients have been focusing on?

ZH: Well right now, for most of our clients, revenues have all but dried up, so cutting cost and doing it quickly is the key focus for all of them, and it’s not just stopping all non-essential costs such as capex, but also more importantly some of the other costs, such as employee costs, property costs, and supplier payments – deferring those or even cancelling those. At the same time, they’re also looking at whether or not they can get money from their lenders or owners, just to increase that liquidity in the business, and then some of the attention is starting to turn towards starting to plan for the recovery – what will that look like, business as usual in the future?

RM: Yeah, interesting, and what we’ll do I think is pick up on that a little bit later on in the podcast about how businesses can start to plan for the new normal. Before we go to that, can we talk a little bit around how companies should be thinking about accessing and making use of the government support that’s available?

ZH: It’s quite helpful, the government has actually provided a number of schemes to try and help businesses in this difficult time. One is that they just allow businesses to defer their VAT and PAYE. Another one which is very helpful is the job retention scheme, where the government has agreed to cover 80 percent of wages for those furloughed, and it’s up to businesses themselves whether they cover the other 20 percent, and there’s a mixed response with those business on that front – whether they are or not.

A number of government loans are now being made available, and each of those has different criteria, and application processes, so there’s a bit about navigating around those. And again, all of those will at some stage release cash, and we’re probably looking at towards the end of the month.

One final one that the government has been quite helpful is, it’s also provided a bit of respite on directors’ duties around wrongful trading, just to give directors a bit of breathing space as well.

LH: Zelf, I’d just like to remind people though that the public markets are not shut. In my consumer markets sector, we’ve seen a variety of clients raise a mixture of debt and equity including WHSmith, SSP, Asos, TK Maxx, and I understand debt is easier to raise if you combine it with equity. Also, the placing rules have been recently relaxed to speed up the process of raising equity. And we have a blog out on our PwC site providing more advice on access to the capital markets.

RM: Great, thanks Lisa, and we’ll give details on websites at the end of the podcast. And building on what we just talked about Lisa, how much variation in impact are we seeing across the various different industries?

LH: As you can imagine there is quite a variation, but not just across industries but within industry groupings. The hardest hit include consumer markets, but also manufacturing, and areas such as automotive and industrial products. Areas less affected, which may not be that surprising, is technology, probably because we’re all using more technology now a lot of us are working from home. But also telecoms, health and pharma. Financial services is quite mixed, but even within consumer markets, it’s really polarised, with food and essentials performing relatively well, but non-essentials, hospitality and leisure have been some of the worst-hit sectors.

RM: So I think it would be interesting for everyone to hear a bit more from you around how different businesses, whether they fall into the essentials or non-essentials bucket, how they’re dealing with those challenges.

LH: For essentials, it’s all about looking after your people and community, ensuring robustness of supply and getting products to the shelves and to peoples’ homes. For non-essentials, it’s as Zelf’s already discussed – it’s all about cash management. As a number of companies have significantly reduced revenue, or even no revenue, but a relatively fixed cost base.

RM: Yeah, so lots of lessons to be learned I suppose by other industries, and the steps those businesses have taken, so it would be interesting to get your thoughts on what those lessons might be.

LH: Zelf’s discussed the immediate cash and liquidity actions, but you need to also start thinking about the medium term, for example when looking to save costs, it may be an opportunity to look at those hard-to-reach areas that everyone had said through the crisis were just too difficult to address.

Also, I think you can use this crisis as an opportunity in a number of areas. Firstly, you could potentially right-size your business so it’s in a good shape for post the crisis, and possibly much quicker than you may have planned previously. You can embed new working models and practices that might be evolving at the moment, and you could potentially improve your future operating model, as all of these will make the business more agile to address the changes happening in all sectors even prior to the crisis. And for an example, if you’re investing in working from home for your staff, how are you going to leverage that investment going forward?

The other thing for business is that you do need to think about your cash position as you come out of this crisis, because a lot of businesses will be more indebted, but you will need quite a lot of cash to make a fast recovery.

RM: So picking up on that cash point, so as people are looking forward and starting to plan for the new normal, what top tips do you both have for businesses looking to stabilise their cash position, and maybe Zelf, if you could go first, that would be helpful.

ZH: I think there’s three areas for me. Firstly, as well as deferring as much cost as possible, I think it’s important to keep stress-testing scenarios around the cashflow. The starting point for me is develop and maintain a robust 13-week cashflow. Regularly challenge it and revise the assumptions to reflect changing events, and sensitise it to understand what may happen in these different scenarios. The thing is, no one really knows how long this will last so being prepared for all scenarios is going to be pretty essential.

Secondly, keep exploring which of the government’s support schemes can help: they are changing and being updated, almost on a daily basis.

Thirdly, managing your stakeholders. We talked about lenders and shareholders who can provide funding and they’re the obvious ones, but also your customers, suppliers, employees, pension trustees and HMRC as well if you’re deferring taxes. And my advice is to engage with them early, keep them updated, and be clear on what you need from them.

LH: I think from me, it’s all about looking to the future and how you can come out of this crisis fast. There is a lot of talk globally about a phased reopening for different sectors, so where does your sector or subsector stand? How will you give the consumer and maybe the government confidence to either shop with you or let you reopen, and what are your enhanced plans regarding health and safety? For example, I’ve heard restaurants talk about halving the number of tables in a restaurant to help aid social distancing post the crisis.

Also, given the crisis, how are your consumer preferences changing, and how can you adapt and react to these changes? Is your supply chain robust, and will you have stock to service your customers post the crisis to enable a quick recovery?

And the other thing we’re doing is we’re looking at places like China for clues around the recovery, given they have already started to come out of lockdown, and what we are seeing is spending is coming back in areas such as essentials, health and wellbeing and even your pets. And also, online is now above pre-crisis levels. But areas such as luxury and offline continue to suffer. So you need to think, how are you going to make the most of these trends that might come across the globe to the UK and Europe.

RM: Great conversation, so thanks Zelf and Lisa for your thoughts, and of course, thanks everyone for listening. So you can read more of our insights that we mentioned today, including our sector-specific coronavirus checklist at pwc.co.uk/covid-19, and we’ll hope that you’ll join us for the next instalment of the podcast, where we’ll be discussing the coronavirus job retention scheme, so do please subscribe to keep up to date with all our latest episodes, and until then, stay safe and well at home.

Participants

  • Rowena Morris, director, PwC
  • Lisa Hooker, PwC
  • Zelf Hussain, PwC
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