A Bridge Past Covid-19 › ... › ro › pdf › 2020 › prezentare-en-07-05.pdf · 2020-06-07 · A Bridge Past Covid-19 Business planning for the post lockdown period Webinar

A Bridge Past Covid-19Business planning for the post lockdown periodWebinar no. 3May 7, 2020

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Document Classification: KPMG Confidential

© 2020 KPMG AG is a subsidiary of KPMG Holding AG, which is a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved.

Speakers

Bogdan VaduvaPartner, Head of Deal Advisory

KPMG Romania

Richard PerrinPartner, Head of Advisory

KPMG Romania

Marius TurcanuDirector, Restructuring

KPMG Romania

George DumitrascuDirector, Deal Advisory

KPMG Romania

Gabriel TanasePartner, Technology & Cyber

SecurityKPMG Romania

Cristiana FernbachPartener, KPMG LegalToncescu & Asociatii

3



Agenda

Business planning in the new environment01

Financing and equity options in the financial restructuring02

Cyber security & Privacy Legal Considerations03

Q&A04

Business planning in the new environment


KPMG Romania


KPMG Romania

5



Key questions for long-term planning

2. TimelineWhen will it all end?Is it cyclical?

3. Maximizing potentialDo I understand the new normal?Should I…revisit assumptions about customer relationships?…rethink strategic priorities?…review cost optimization plans?…monitor for signals of economic recovery?

What are the levers for new growth?Are there any suitable strategic partners?Where can I find finance?

What should I do about operations?Invest in digital tools to increase productivity and reap potential cost efficiency benefits?Should I restructure supply chain?Are flexible contracts an option?

1. ApproachShould I forget about the 2020 budget?Is my incremental planning approach right?

6



Business plan preparation is an essential part for business continuity

Incremental

Activity based

Value proposition

Zero based

Rolling / continuous

Top-down budgeting

Bottom-up budgeting

Probabilistic business plans

Sensitivity analysis

Why do I need a business plan? How do I start? Which approach

to choose?What are the

options?

Business plan

Should I prepare different

scenarios?

Feasibility

Focus

Foresight

Raising capital

Target costing

Cost-plus

7



History repeated?Crises represent excellent opportunities for those well-positioned to navigate them all the way

Expect the best… … but prepare for the worse

Turnover of top 1000 companies EUR mn

Number of employeesmn - evolution by sector

Companies with robust long-term strategic view will re-invent themselves and benefit from the current turmoil Crises have long-term direct or indirect impact on all industries

GDP EUR mn

Real GDP Romania Forecast

Real GDP EU Forecast

BET 2000 - 2020

Real salary development

91,915109,787

139,149

2008 2013 2018

+4%

145,679 124,831150,159

222,442

20102008 2014 2019

8%

31%

63%

8%29%

58%

2%

9%

27%

2008

2%

62%

2010

2%28%

62%

2014

2%

7%

2018

5.24.6 4.9

5.4

AgricultureServicesIndustryConstructions

Net FDIEUR mn

9,496

2,263 2,421

5,266

20102008

7% 2% 3%2%

2014 2018Net FDI flow % of GDP

3.9%

-5%

0%

5%

2021

-5.0%

2020

-7.5%

4.4%

-10%

-5%

0%

5%

2020 2021Source: IMF

Source: INS, BVB

Jun 2002

Aug 2007

Feb 2009

Jan 2020

May 2020

0

50

100

150

200

2 124 86 10

2003

1996

2014

20182008

Base year 1990Base year 1996

Base year 2008Source: INS, BNR

8



-5%

-9%

-11%

End of May

End of May

End of May

Current lockdown ends

Secondary lockdowns

none

August and November 2020

August and November 2020 & February 2021

2020 vs 2019 GDP contraction

Define key value drivers and analyze sensitivity

Values presented are for illustrative purposes only

September 2020

January 2021

July 2021

Pandemic contained

Con

tribu

tion

to G

DP

(%)

10%

15%

5%

20%

25%

-40%

-30%

-20%

-10%

10% 20%-70%

-50%

-60%

ConstructionAgriculture

Real estate

HoReCa TransportTravel and leisure

Retail

Industrial manufacturing

Financial services

Telecom Healthcare

Looking forwardScenarios are of paramount importance Disruption effect is different across industries

Best case

Base case

Worst case

0%4%

-17%

-5%

0% 5%0%4%

-17%

-13%

-9%-3%

0%4%

-17%-15% -12%

190

210

230

250

270

290

310

Q4 - 2019 Q1 - 2020 Q2E - 2020 Q3F - 2020 Q4F - 2020 Q1F - 2021

GDP quarterly evolution (RON billion)Best case

Base case

Worst case

Initial 17% GDP drop due to lockdown

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KPMG 9 Levers of Value

2. Markets

The 9 Levers of Value form an intuitive framework that can be used to deconstruct, analyze and re-orient a business by focusing on both its business model, as well as on its operating model

1. Financial outcomes

3. Propositions & Brands

4. Customers & channels

5. Core business

processes6. Technology &

infrastructure7. Governance, structure & risk

8. People & culture

9. Measures & incentives

Financial Goals and Constraints

Vision, Mission and Values

Strategic Priorities

Industry Structure & Dynamics

Market Definition & Segments

Competitive Landscape

Products Brand,

positioning & promotion

Pricing

Customer Segmentation & Targeting

Customer Experience & Loyalty

Customer Profitability

Sales & Channel Effectiveness

Industry Structure & Dynamics

Supply Chain and Logistics

Core Competencies & Company Value Chain

Facilities and Infrastructure

Information and Technology

Non-core and Support Services

Governance Organization

Structure Risk Controls

Leadership Skills and

Capabilities Culture

Performance Measures

Performance Targets

Incentive System

Finance P&L CAPEX

P&L topline P&L topline P&L marketing

P&L topline P&L expenses Working

capital

P&L COGS P&L logistics

CAPEX Working capital

P&L training P&L salaries

Can I get more funding to finance working capital? (Food producer)

Should I reconsider my product portfolio? (FMCG producer)

What brand strategy is required to compete on-line? (Specialized off-line retailer)

Do I have a close understanding of customer economics and a clear segmentation to allow for laser focus?

Do I know which parts of my full supply chain are potentially affected and can I assess financial impact?

Do collaboration tools and remote working solutions have enough capacity to cope with exponential demand driven by remote working?

Does my response team have immediate access to the full organization and board level decision makers?

Has my leadership team the authority to take the required decisions to solve disruptions?

Do I have the right KPIs in place and can I measure performance accordingly?

Lever

Key components

Business plan

Considerations

Financing and equity options in the financial restructuring


KPMG Romania


KPMG Romania

Marius TurcanuDirector, Restructuring

KPMG Romania

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© 2020 KPMG Romania S.R.L., a Romanian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

Sources of financing - OverviewMezzanine

Mezzanine financing is a capital resource that sits between (lower risk) senior debt and (higher risk) equity that has both debt and equity features.

Companies use mezzanine financing to achieve goals that require capital beyond what senior lenders will extend.

Financial institutions Loans represent a simple, quick, accessible

financing option with lower risk involving periodical repayments of equal or uneven installments.

The basis for a loan is the expected cash flow and the loan may be secured by a borrower's assets and it may be converted into shares or be equity-linked.

Capital resource between senior debt and equity

Maximizes total leverage with little to no equity dilution

Fixed interest rate with no amortization

Asset based or cash flow based, depending on company size

Typically with no equity dilution

Interest rate exposure if not fixed

Flexible principal amortization

Private Equity Private equity is risk capital provided in

a wide variety of situations, ranging from finance provided to business start-ups to the purchase of large, matured companies.

Achieves maximum liquidity but with higher dilution

Backed by pension funds, family offices, sovereign wealth funds, fund of funds, high net worth individuals

Common equity often requires control position, preferred equity does not

Higher cost of capital and investor growth expectation

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Financial institutionsProfile of target company

Pros & Cons

× Strict covenants

× Amortization of the principal is required

× Might be interested in taking equity positions

Long-term strategic approach

Dedicated financing programs for existing clients

Quickest to access of the three types of financing

Typically no dilution involved

Diversified range of credit products

The longer the track-record the better

Solid financials (P&L and BS) and business plan showing how the company plans to grow revenues and profits in the next three to five years

Good collateral mix

Good business credit score with clean history of payments

Headed by strong management teams

Set for long-term growth and profitability

A good level of maturity in terms of operating systems and processes

Providers of this type of financing

“Our goal is to absorb our full IMM Invest allocation and to help as many companies as possible”

“We are focused on our current portfolio of clients, rather than

new opportunities ”

13



Mezzanine fundsProfile of target company

Pros & Cons Allows existing owner to retain majority control of the company

Provides more flexibility than bank loans, through looser financial covenants, reduced to no amortization and fewer restrictions

Acquire capital beyond senior debt availability

Less costly and less dilutive than a direct equity issuance

Higher maturities, of up to 7-8 years

× More costly than debt, due to equity features

× May involve some equity dilution, typically small

Mid-market businesses, well established and with growing opportunities

Proven competitive advantage

Proven management with solid track-record

Competitive products and services in the marketplace

High quality, cash generative and stable businesses and/or assets with safe capital structures

Operating in low-volatility sectors and environment


“Our mezzanine product will be ready to deploy soon, as it is

adapted to market conditions”

“We are cautious, but expecting to analyse leads to finance when

things settle”

14



Private equityProfile of target company

Pros & Cons Active participation with long term view

Flexibility in the stake size, often with bespoke investment structure

Dedicated regional/global experts deployed towards accelerated revenue growth

M&A capabilities to source, execute and integrate strategic opportunities to consolidate or grow market share

Ability to grow value over the investment period

Established market position or domestic champion

Stable and growing market demand

Ability to maintain and grow business in existing or new markets

Good and effective corporate governance and proven management team

Small and mid-cap company

Diversified customers, markets and suppliers

Sustainable free cash flow

Care for social, environmental and economic development

Potential to be a strategic add-on acquisition to current portfolio of companies

Interested in “platform” companies in fragmented industries where proven business models can be expanded through strategic acquisitions or add-ons to current portfolio of companies

× Strong preference for control positions

× Most dilutive and most expensive of the three types of financing


“We are open to new opportunities in the current

context”

“We still have firepower in our funds and are ready to invest in

new businesses”

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Investment process timelinePreparation Marketing Due diligence Confirmation DD/Negotiations

Understand and prepare your business case

Business Plan with a Financial Model

Teaser - anonymous 2-3 pages document about the company

Information Package – a more detailed presentation of the company, market and financials

Prepare a list of potential investors

Mix of financial (private equities, mezzanine funds, financial institutions etc.) and strategic investors

Prepare contact matrix

Approach potential investor

Provide information about company, market, investment goal and business plan

Receive an indicative offer

Provide additional information

Management meeting

Site visits

Information on operations, employees, suppliers, customers, legal, financial and others

Receive the final offer

Negotiations on financial and commercial terms

Sign agreement

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Basic requirements for a financial restructuring process

LIQUIDITYOur approach is determined by whether there is a liquidity, or an underperformance issue. If a liquidity issue exists, immediate cash controls should be implemented over collections, payments and purchases.

VIABLE CORE BUSINESSHaving assessed the ability to navigate short-term liquidity pressures, the next step is assess business viabilityAt a high level we look at the market in which the business operates, its products/services, and competitors.

CREDIBLE MANAGEMENTIncumbents will be associated with the business’ problems. Changes might be required but knowledge retained.The turnaround team will need to win confidence and rebuild trust with external stakeholders.

FUNDABLE BUSINESS PLANWith consideration to the above a credible business plan is key to stakeholder support and attracting funding which can be serviced by realistic operating profits and cash flows.

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In simplicityRESTRUCTURING PROCESS OVERVIEW

Initial appraisal

Implement standstill

Assess performance

and cash projections

Identify restructuring

options

Negotiate selected

restructuring solution

Implement restructuring

solutionMonitor

performance

Select restructuring

solutionStabilisation

Negotiate fall-back

scenarios

Prepare fall-back

scenarios

Implement fall-back

scenarios

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Financial restructuring framework

Pragmatic project management

Initial appraisal and stabilisation

Agree next steps with stakeholders

Develop stakeholder map

Assess short term liquidity

Complete solvency test

Assess short term value options and risks

Development of solutions

Stakeholder negotiation and alignment

Agree restructuring option

Agree appropriate restructuring option(s)

Prepare contingency plans

Prepare steps plan for taking control

Assess stakeholder appetite and motivation

Monitor cash flow and trading performance

Re-fresh options for any changes in stakeholders

Diagnostic and options assessment

Agree negotiation strategy

Review points of stakeholder leverage

Assess business value and value break

Review performanceand strategy

Challenge the business plan

Establish M&A options

Identify appropriate restructuring options

Develop capital structure options

On-going monitoring

Monitor performance and plan deviation

Assess need for further review of work

Implementation

Draft debt/equity term sheets and agreements

Assist in steps plan execution

Advise on covenants and lock-up arrangements

Execute any disposals

Support inter-stakeholder negotiations

Cyber security & Privacy Legal Considerations


SecurityKPMG Romania

Cristiana FernbachPartner, KPMG LegalToncescu & Asociatii

20



Work from home - privacy and cyber legal considerations

530,918 Total security

incidents reported in the last 7 days in

Romania

Source: Orange Romania Report on internet security incidents: https://bis-threatmap.orange.ro/insights

Agriculture

Insurance

Manufacturing

Healthcare

Food, Beverage & Tobacco

Automotive

Service

Technology

Energy

Pharmaceutical

Transportation

Retail

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

Threatened industries in Romania

https://bis-threatmap.orange.ro/insights

21



Legal and cybersecurity risks

Data protection Intellectual property

Cybersecurity

Infringement of employees’ right for privacy

Data breach affecting data stored on employees' devices

• Disclosure of trade secrets• Disclosure of source code• Disclosure of drug and

chemical formulas (know-how)

• Disclosure of unregistered designs

Vulnerability of devices used by employees

Use of personal devices that are not enrolled in the IT system of the company

RISK

22



Main challenges for companies

Ensuring data security

Regulating theuse of

personal devices

Preventing cyber attacks

Identifying methods of concluding distance contracts

Cloud migration

23



Main recommendations for companies

Corporate governance

• IT policy• Data breach policy• BYOD policy• Telecommuting policy• Business continuity plan

HR Legal and IT

• Confidentiality clause • Training for employees• Ensuring personal data

protection of employees• Legal monitoring of the work

activity

• Collaboration of Legal and IT teams

• Data/Business flow organization

• Assessment of the Cloud provider

• Assessment of the video conference solutions

24



The next steps

Ensuring social distancing measures

Gradual return to office policy

Minimisation of processed health data

Personal data protection of the employees that

have tested positive for Covid-19

Ensuring non-excessive verifications

Protecting the identityof the person tested

Covid-19 positive andensuring the health of

the employees

Working from Home Cyber Secure

26



Emerging threats

Masqueradeas health

organisation (E.g. WHO or

CDC)

TrojanisedCoronavirus maps and resources

Fake sites selling

Coronavirus key supplies

Masquerade as government providing tax and benefits

advice

Setup fake Coronavirus information

sites

Fake charitable

collections for health workers

XX,000sites in last month

Ransomware

CEO/BEC Fraud

Crypto currency

frauds

Credentials theft

Unauthorized access to

sensitive info

“Free” online resources for easier “stay at

home”

27



Tactical actions to remain safeAspects to consider:

Remote access infrastructure

Secure adoption of BYOD

End point security

Identity & Access Management

Collaboration platforms

Shadow IT & Cloud SaaS services proliferate

Cloud brings capacity but security challenges

Testing security controls

28



Thinking more strategicallythe new normal

Within the CISO function

— Key personnel

— Virtual war rooms

— Dependence on key suppliers

— Augmentation

— Disruption of security operations

Beyond the CISO function

— Securing the digital footprint

— Security for a new normal

— Working in regulated industries

29



End Point Security Home

network (WiFi)

Phishing emails BYOD

1 2 3

Users awareness andresponsibilities

+

Q&A

Contact:


[email protected]

Richard PerrinPartner, Head of Advisory

[email protected]

Marius TurcanuDirector, [email protected]


[email protected]


[email protected]

Cristiana FernbachPartner, KPMG Legal

[email protected]


The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.

The information contained herein is of a general nature and is not intended to address the circumstances of any particularindividual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that suchinformation is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act onsuch information without appropriate professional advice after a thorough examination of the particular situation.

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© 2020 KPMG Romania S.R.L., a Romanian limited liability company and a member firm of the KPMG network of independentmember firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

Documents

A Bridge Past Covid-19 › ... › ro › pdf › 2020 › prezentare-en-07-05.pdf · 2020-06-07 · A Bridge Past Covid-19 Business planning for the post lockdown period Webinar