When a crisis or recession hits, we often fall back on the idea that the emerging challenges have been tackled before. The coronavirus pandemic is different, of course, impacting globally in ways that have not been experienced in living memory.
Looking at this year’s events so far, from the vantage point of working within a UK corporate, my concerns – but also hopes – are as follows.
The pandemic has had an immense impact on the global economy and serious adverse consequences on people’s health. Many will view this situation as vastly negative, but as we highlight the risks generated by COVID-19, let us explore the opportunities that have been created and explain where it may be possible to build the more positive aspects into corporates’ long-term strategies.
Macroeconomically, the country has officially entered into a recession for the first time since the financial crisis of 2008.
Since the beginning of the pandemic, the UK economy has shrunk by a fifth, public debt has surged, productivity and consumer confidence have sharply fallen and three-quarters of a million people have lost their jobs with more to come.
Financial markets have been volatile, supply chains stressed and some industries, such as tourism and hospitality, have collapsed in recent months.
Similar effects can be witnessed worldwide, with big shifts in the Nikkei, Dow Jones and FTSE 100 indices alike, unemployment rates increasing across all major economies, a significant drop in consumer confidence and a majority of countries in or on the brink of recession.
As a result, we have witnessed a decrease in turnover for many corporates. The uncertainty has meant that business leaders have left growth opportunities aside and delayed investment projects to favour defensive strategies focusing on cost control, tight liquidity and debt management (by preventively drawing on their revolving credit facilities to build up cash reserves, for example), and in more extreme cases, disposal of assets.
Stressed revenues, lower access to liquidity and higher corporate taxes have exposed some companies to credit-ratio breaches and made others more vulnerable to payment fraud and cyberthreat.
On the human side, the lack of face-to-face contact is putting a strain on teamwork, creativity, personal development and networking opportunities.
The resulting economic crisis has also exposed some businesses’ flaws and the need to shift from a reactive approach to forward-planning strategies. These potential shortfalls could be viewed as an opportunity for corporates to grow and evolve.
Key areas of focus for organisations should include:
From a finance perspective, with cash buffers and access to funding becoming more challenging and profit margins being stressed, managing liquidity positions and reviewing business models to include what-if scenario analysis, more granular sensitivities, stress-testing and more robust cash forecasting, has become of paramount importance.
Also, now more than ever, teams will also need to sharpen their understanding of tax and regulatory systems, as well as financial reporting considerations.
Within the debt markets specifically, 2020 has so far proven to be a strong backdrop for GBP issuers – some corporates have taken advantage of historically low yields, strong investor appetite and relatively low new issue premiums to raise cheap debt opportunistically or to refinance existing facilities early.
Others, via their relationship banks, have subscribed to one of the many subsidy schemes offered by governments. Financial markets have generally shown resilience, perhaps due to the way that banks have improved their models, systems and processes following the global financial crisis of 2008.
Will the pandemic and economic crisis have the equivalent effect on the broader corporate world?
In conclusion, I would like to remind our readers that the objectives of the Association of Corporate Treasurers’ (ACT’s) Future Leaders in Treasury group are to engage with younger treasury professionals, to provide support in networking, career development and thought leadership, and to promote the ACT through building a strong and sustainable relationship.
Emilie Helps is deputy treasurer at Eversholt Rail and chairs the ACT’s Future Leaders in Treasury group. For more about the group, click here
This article was taken from the December 2020/January 2021 issue of The Treasurer magazine.