Argentina
Press Release

Business challenges post-coronavirus

Bnamericas Published: Monday, June 08, 2020
Business challenges post-coronavirus

KPMG Argentina PRESS RELEASE

June 8, 2020

(Please note that this is a machine translation) 

In Argentina, more than 70 days after the quarantine of Covid-19 was completed. This situation has negatively impacted economic and financial activity, and the consequences of which will be a significant fall in the Gross Domestic Product (GDP) for this year. The problem arises inversely proportional to the solution adopted: the longer the quarantine, the greater the deterioration of the economy and the shorter the quarantine time, the probable risk of an increase in the number of infected people. The balance between both postures would be the most prudent so that in a reasonable time and not too far away, activities can be normalized. For that moment it is important that companies can plan and organize now so that the reactivation is a faster and more consistent process. The strategy that an organization selects will depend largely on the sector in which it operates and among the most probable options in that decision, the following patterns of return to normality can be cited: a) take advantage of the moment to grow; 2) go through the crisis and then return to operate at a level similar to the previous one; 3) transform to resurface; and 4) eventually, discontinue the business or restart it, but with a profile probably very different from the previous one.

Given the current scenario, the question that arises is: Are companies ready for the Post-COVID-19 stage? According to the analysis carried out by the KPMG team based on the information gathered about the effects and evolution of the crisis in the region and in Argentina, concrete strategies and actions emerge that should be applied, basically, on 5 simultaneous fronts :

1. Personnel: everything related to the management of remote work teams or “virtual leadership” is key, and maintaining constant communication, containment and security for all the human resources of the organization. In the return to normal stage, it will also be very important to implement sanitary control processes that minimize the risks of contagion;

2. Finance and Liquidity: it is essential to develop a strategy supported by cash management tools that allows the projection of alternative short and medium-term scenarios.

3. Supply chain and operations : Analyze the impact of quarantine on turnover and assess the need to restructure the supply chain and the operating model, taking into account the need to renegotiate contracts based on current legislation.

4. Operations support technology : Strengthen computer security systems, mainly tools for remote work. Consider that there will be a high demand for IT equipment.

5. Fiscal and labor aspects: Work on the adjustments of employment contracts based on the new scenario. Have government measures to support employers evaluated and categorized in order to use them.

Reactivation curves according to sectors

Growth: These will be the companies with a fast recovery and that have been able to change favorably during the crisis based on the new consumer behavior. In this sector, future investors realize its potential to lead this stage and the need to provide capital to aggressively scale during the revival. Those who are best going through the crisis are the cases of retail and online pharmacies, food delivery, chemicals and petrochemicals, streaming media, telemedicine and preventive medicine, digital education and food and beverages.

Return to normality: Corresponds to the sectors that will be able to normalize their activity the most in the medium term. They are companies that are part of the essential category but have suffered the impact of economic paralysis and will recover as demand returns to similar volumes from before quarantine. This stage includes financial services (banks and insurance); seasonal consumer goods, urban and cargo transport, technology and telecommunications, health; agriculture, private equity and asset management, and public utilities.

Transform to resurface: Involves companies that will recover through a long road and that require capital reserves that allow them to resist and transform both operational and commercial business models with the aim of re-emerging stronger and in line with the changes that are taking place in clients, consumers and users. This group includes the tourism and leisure industry, the automotive, energy, mining, consumer goods and real state-construction sectors.

Restart: These are the companies that operate in sectors that will have to make a great effort to recover due to delayed demand and will face a reduced supply of goods and services. They will have insufficient capital to avoid a prolonged recession and / or poor execution of a digital transformation that is strategic for the future today. In this phase, airports, retail, hotels, government, industrial markets, sports and media stand out.

The importance of preserving liquidity

A central issue today and for the coming months is to preserve the liquidity that companies must have to face and manage the crisis. So far, a very strong impact has been observed in the liquidity position of organizations that vary in intensity depending on the sector. The most important consequences are: 1) increase in defaults on accounts receivable; 2) reduced demand for products and services; and 3) retraction of banks with respect to the availability of credit lines. That is why it is essential to ensure and increase liquidity, project "cash spending" and its future availability during the "stabilization" period, and later with the "resumption" of activities. This evaluation will determine the degree of intensity of the measures that must be adopted to preserve the "box" of the organization.

From this follows the importance of efficient management in the company in terms of its cash and financial liquidity. Recommended measures to implement include the use of short-term cash control and analysis instruments, examining working capital, and additional fundraising and deferred payment measures. Some points to consider in this line of action are:

• Implementation of the Cash and Crisis Management Committee with the Finance, Commercial and Operations Directors;

• Development of a cash control tool to visualize and control daily cash flows;

• Focus on working capital management and short-term cash preservation prioritizing critical and essential payments;

• Simulation and projection of possible scenarios, identification of alternative sources of resources, priority cash outflows and flow mismatches;

• Continuously make cash tests;

• The result of the analysis will define the degree of intensity and urgency of the stabilization actions; and

• Have a lot of discipline and agility in decision making and its implementation.

Manage cash

In this crisis scenario, the "Cash Management" tool should be used to improve the operating model and increase business efficiency. It allows simulating different scenarios and actions to maximize the cash surplus, and simulating various operational actions such as:

• Reduction of costs and expenses;

• Decisions made with clients to ensure collections;

• Develop different strategic scenarios to adjust the capital and liquidity structure;

• Restructure short-term debt;

• Sell tax credits and non-strategic assets;

• Start up M&A processes; and

• Capture new resources.

In this action plan, 4 alternative immediate liquidity approaches for companies are presented:

Banks

• Use of limits and contracting of new lines.

• Additional sources of liquidity (special funds, public banks)

• Negotiate the deferment of the maturity dates of principal and interest

Providers

• Increased credit limit

• Extension of the payment term

• Alternative providers

Taxes

• Monitor the government-approved deferral program

Staff payroll

• Flexibility in the employment contract

• Other alternatives to apply: vacations, reduction of the working day, suspension of the contract.

According to Mariano Sánchez, Lead Partner of the Deal Advisory department at KPMG Argentina, “the way out of the current crisis with the resumption of business activities must be faced, avoiding making impulsive decisions and planning that considers the short and medium term until stabilizing the organization. Many companies will have incredible opportunities to overcome the crisis and be in better conditions, with greater agility for their businesses and gaining more market share. To a large extent everything will depend on the decisions that are made in this present. ”

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About KPMG International

KPMG is the global network of professional services firms that provide tax audit and advisory services. We operate in 147 countries and territories and we have more than 219,000 professionals working around the world. Independent member firms of the KPMG network are affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Each member firm of KPMG is a separate and independent legal entity and each describes itself as such.

KPMG Argentina

In Argentina we are a multidisciplinary team made up of more than 1,250 professionals who offer advisory, tax and legal and audit services. We have offices in the City of Buenos Aires, Martínez, Córdoba and Rosario, and commercial representations in Mendoza, Salta and Tucumán that allow us to consolidate our position in the market and strengthen our presence in the strategic centers of the country.


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