Deloitte Thailand: Combating Covid-19 with resilience | a ...

Deloitte Thailand: Combating Covid-19 with resilience | a webinar series #10Enhancing financial flexibility for strategic agilityOctober 27, 2020

© 2020 Deloitte Touche Tohmatsu Jaiyos Co., Ltd. 2Deloitte Thailand: Combating Covid-19 with resilience | a webinar series 2

Speakers

Kamolwan ChunhagsikarnPartner, Restructuring ServicesDeloitte Thailand

Dr. Narain ChutijirawongDirector, Clients & IndustriesDeloitte Thailand


Economic Highlights

Deloitte Thailand: Combating Covid-19 with resilience | a webinar series© 2020 Deloitte Touche Tohmatsu Jaiyos Co., Ltd. 4

-4.4%

-1.7%

3.0 2.3

2.0 1.8

7.56.5 4.9 4.8

6.0

0.9 1.0

2018 2019F

2018 2019F

2018

2018 2019F

2018 2019F

2018 2019F

2.2

-4.3

2019 2020F

1.3

-8.3

2020F2019

6.1

1.9

2019 2020F

0.7

-5.3

2019 2020F

4.2

-10.3

2019 2020F

4.9

-3.4

2020F2019

2

As a result of the COVID-19 pandemic, the IMF projects the global GDP to shrink by 4.4% in 2020, the worst-hit to global GDP since the Great Depression

Source: IMF WEO Oct 2020Note: 1 Asia refers to Emerging and Developing Asia2 ASEAN refers to ASEAN-5; Indonesia, Malaysia, Philippines, Thailand, Vietnam


Source: SCB EIC (Outlook Q3/2020)

4.502.80

1.400.20

-3.20-5.40

-2.30

-12.60

2.50

8.10

-10.40

-15.30

Public investment

Public consumption

Private consumption

Private investment

Exports of goods

Imports of goods

2.40

-7.80

GDP growth

Thai economy was forecasted a contraction of 7.8% in 2020 mainly due to the global economic downturn, a sharp decline in the no. of foreign tourist arrivals and private investment as well as a lockdown.

2019 2020F39.80

6.70

Foreign tourist arrivals(Million persons)

-83.2%


Source: IMF WEO Jun 2020 and SCB EIC (Outlook Q3/2020)

In the baseline, global activity is expected to trough in the second quarter of 2020, recovering thereafter. The Thai economy also recorded the lowest growth in 22-year span at -12.2% YoY, reflecting large and abrupt impacts from nationwide lockdown measures. However, after lockdown easing, several economic activities have improved such as private consumption, manufacturing production, capacity utilization, business and consumer confidence indices as well as export values.

Quarterly World GDP (Index 1Q2019=100) Quarterly Thailand’s GDP in 2020 (%YoY)

-1.8

-12.2

-9.2

-6.7

1Q 2Q 3Q 4Q85

90

95

100

105

110

1Q2019 3Q2019 4Q20203Q20202Q2019 2Q20204Q2019 1Q2020

Emerging market and developing economies excluding China

World

Advanced Economies

China

Forecast


>20%

10-20%

<10%

2H 2020 1H 2021 2H 2021 2022 2023 onwards

In Thailand, some sectors can quickly recover by this year, while some esp. tourism related businesses and durable goods have to wait until 2022 and beyond

Source: SCB EIC (Outlook Q2/2020)

Speed of recovery

De

gre

e o

f im

pac

tsR

even

ue

in 2

02

0 d

ecre

ase

by.

.

Telecom

Airline

• Healthcare*

• Life Sciences*

• Insurance*

• Consumer product*

• Wholesale & Retail* (Grocery)

• Residential estate

• Petrochemical

• Refinery

• Metal

• Banking & Capital markets*

• Wholesale & Retail* (Non-Grocery)

• Electronic

• Building material

Industrialproducts &

construction*

• Hotel

• Restaurant

• Automotive*

• Oil, Gas & Chemicals*

Note: * Priority Sectors

88

Business

Future of work

Continued shift to virtualization and how, when, where, and by whom work

gets done dramatically reshape the nature of work

Social license

Investors, consumers and activists increasingly drive focus on climate change, purpose, triple bottom line

Society

Health & safety

Collective imperative of public health and accessibility as a shared rather

than a primarily individual responsibility increase demand for the

upgrade of healthcare systems

Supply chain resilience

Greater resilience of supply chains is required potentially at the expense of efficiency, triggering or accelerating

supply chain reconfigurations

Contracting credit

Low interest rates increase economic fragility to recessions, challenge the banking system and reduce credit to

enterprises

Industry shifts

Some industry sectors (e.g. travel & hospitality, gig economy) are significantly weakened; others converge to meet new

demand (e.g. healthcare & consumer)

Economy

Economic recoveryHow deep and how long will the recessionary impact last?

How effective will be the current stimulus & government driven debt responses?

How quickly will the economy take to resume to pre-Covid-19 rates of growth?

Geo-politicsWhat new geopolitical tensions & alliances will emerge?

How long will countries take to re-open and re-integrate?

How will the relationship between US & China evolve and impact the rest of the world?

What is likely to accelerate under the next normal…

What is mostly uncertain about the future…

Nationalism

Nationalism and desire for economic sovereignty lead to trade frictions and

temporary decline in international institutions, albeit without fundamentally

questioning globalization

Big government

High level of fiscal stimulus to support economic recovery, rising taxation &

interventions in building infrastructures of the future lead to expanding government

Politics

Rise of Asia

Rising economic & political powerof Asia owing to its coming out of the crisis first and less indebted than West

Industry 4.0

Fast adoption of digital, cloud, cyber, AI, automation, human experience (AR/VR) & other technologies dramatically transform

industries

New business models

New consumer demands lead to a proliferation of new business models, incl. direct-to-customer, contactless, subscription & ‘anything as a service’ supported by ubiquitous ecosystems

Trust

Increasing unemployment and inequality strengthen people’s desire to have

governments, institutions and businesses they can trust

What are the Big Shifts we will see in society?The environment in which we operate is bound to shift substantially


Increased Corporate Stress

Simultaneous increase in economic, business and financial challenges increase corporate stress – potential simultaneous adverse affects on company’s profitability, cash flows, leverage, liquidity and financial flexibility.

Increased challenges

• Severe economic contraction

• Market disruption and drop in demand/ consumption

• Operational disruption

• Supply chain disruption

• Counter-party failure

• Legal and contractual issues

• Working capital and liquidity pressures

• Commodity markets shock

• Financial market volatility and financing risk

• Increased financial risks - interest rate and FX volatilities ValueValue


How most companies respond…

Maintain going concern status and facilitate turnaround to maximize stakeholder values.

Engage Stakeholders

Preserve Business

Stabilization

Prepare for Next Normal

Trust

• Engage stakeholders for continued and additional supports• Implement comprehensive immediate and long term action plan to protect

and build trust

Liquidity Management

• Detail forecasting and scenario analysis• Tight liquidity monitoring and management• Optimize working capital

• Prioritize critical business payments• Lock to turn fixed costs into variables costs• Limit personal cost and keep flexible where

possible• Step discretionary spend and capital

expenditure• Review and focus essential maintain capex

Cost reduction

Financial restructuring

• Explore alternative fund resources – asset based financing, alternative lenders and special situation funds

• Renegotiate with creditors• Leverage government initiatives and support• Pursue waivers and deferral of payments if

needed• Develop contingency planning and damage

limitation

Strategic (Turnaround) Plan

• Navigate short-term operational and financial challenges• Amend business objectives and operating model to win in the

future, making difficult decisions in an uncertain market• Operate in “next normal” environment with new competitive

dynamic• Products/services portfolio review• Fund strategic response

Operations Optimization

• Dispose non-core operations and assets• Opportunistic acquisitions for seizing market

opportunities and assets• Asset footprints and facilities review and

implementation• Tactical purchasing to manage cash flows• Delivery of cost and commercial synergies


Trust

As we recover, reopen, and rebuild, it’s time to rethink about the importance of Trust. At no time has it been more tested or more valued in our leaders and each other. Trust is the basis for connection. Physical. Emotional. Digital. Financial. Ethical.


Trust

Trust is the foundation of all relationships. Built on competence and intent, trust amplifies the organization’s brand promise. A trusted organization is resilient and adaptive to its ever-evolving external forces.

A TRUSTED

ORGANIZATION

INTENT

COMPETENCE

INTENT

COMPETENCE

• Lead by example

• Deliver with excellence

• Perform with distinction

• Secure the foundation

• Amplify core values

Which core tenets are

critical to achieving trust?

Who are our most important stakeholders

and what is most important to them?

• Board & shareholders

• Customers

• Employees

• Partners & vendors

• Regulators

• Community


Enhanced cash flow forecasting

In response to the COVID-19 crisis, many CFOs have shifted focus from long-term P&L and growth planning to more immediate business continuity risks and cash positions.

Forecasting Methodologies

Source: Deloitte Development LLC, 2020


Enhanced cash flow forecasting

Forecasting Framework

Source: Deloitte Development LLC, 2020

Connectivity and predictive capabilities across all three statements

Outcome:

• Hybrid cash flow methodology (indirect + direct) that enables greater visibility into P&L and balance sheet

• Enhanced balance sheet forecast that drives greater accuracy in the corresponding cash flow


Restructuring

Restructuring Strategies:

Restructuring objectives are achieved through a combination of operational and financial strategies. Combined implementation of strategies normally pursued to achieve a holistic and sustainable solution.


Restructuring

Restructuring strategies will be tailored to company position and requirements.

Business Rehabilitation

Automatic Stay/ Planner and Plan Administrator Appointed/

Voting Procedure/ Priority of Debt or Fund Incurred/

More restructuring schemes

Restructuring options:


Strategic turnaround plan

In today’s environment, while organizations are in critical business situation and look to recover from the Covid-19 crisis, some focus on stabilization and set up the levers for growth by gaining a better understanding of internal and external unknown challenges.

Asset Efficiency

Growth

Liquiditymanagement

ResourceAllocation

Cost Optimization

StrategicTurnaround

Plan

Strategic Change Framework• Redefine Purpose• Evaluate Impact• Develop Capacity • Drive through

Excellence

Simple three-step process to frame the unknowable intruders:1) Don’t be shackled to the value

chain2) Adopt a “why not?” mindset in

order to turn weak spots into opportunities

3) Use the analysis of weak spots for strategic planning


ContactFinancial Services Advisory

Kamolwan ChunhagsikarnPartner, Restructuring ServicesDeloitte Thailand

Email: [email protected]

mailto:[email protected]

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