PwC’s COVID-19 CFO Pulse Survey

Eighty percent of finance leaders now say they expect a decrease in revenue or profit for the full year. Two weeks ago, only 58% anticipated decreased revenue and/or profits in 2020, and 40% said it was difficult to assess.

While visibility into the effects of the virus are improving, uncertainties are rising. Worries over the financial impacts of COVID-19, including on liquidity and capital resources, are cited by 64% of finance leaders, compared with 48% in the survey taken the week of March 9. The potential for the outbreak to lead to a global economic downturn remains the top concern.

Implications

Cash flow scrutiny will be critical in the days and months ahead, as will the speed at which the $2 trillion economic stabilization package starts to flow through the economy. Managing cash pressures often falls directly on finance departments during a crisis. Executives will balance this against the prospects for relief as details continue to unfold about the package’s significant tax provisions and other measures to assist individuals and businesses. 

In our latest survey, 76% told us they expect that their business would be back to normal within three months if COVID-19 were to end immediately. However this is down from 90% during the week of March 9. The realization that the effects of COVID-19 aren’t going away quickly is settling in. It is important to note that respondents were surveyed before the US Labor Department reported a record 3.28 million jobless claims for the week ending March 21.

Much will also depend on the ability of the workforce to recover at pace. Findings make clear that employees, as well as employers, are experiencing multiple challenges as a result of shelter-in-place measures, which are affecting millions of people and raising the complexities involved in getting back to normal. Strain on the workforce is creating a greater need for support and benefits, as employees are suffering.

When asked about expectations for the next month, 25% of finance leaders expect to face insufficient staffing, resulting in an inability to get critical work done. Businesses are experiencing capacity constraints due to COVID-19 disruptions, along with growing customer and employee demands for services and expertise, such as call center or technology support.

Some 60% say productivity is dipping due to a lack of remote work capabilities. This isn’t surprising. Companies and employees are dealing with a range of challenges in the shift to remote working — from technical issues like broadband access to personal and family well-being. In addition, 44% expect furloughs, and 16% expect layoffs. Separation of the workforce, or layoffs, is typically considered a last resort.

The impact of the outbreak on mergers and acquisitions (M&A) strategies is divided and remains unclear at the moment. A majority of finance leaders surveyed are still assessing whether or not to change their approach. However, 13% report an increasing appetite for M&A, indicating that some leaders are looking to the future and evaluating businesses and assets that have healthy underlying operations and are now affordable.

Learnings from crisis likely to accelerate supply chain shifts

At the same time, more leaders are starting to look outward to assess impacts of COVID-19’s global developments on their supply chain. As the crisis evolves, complexities and vulnerabilities in global supply chains, which extend beyond China’s central role in manufacturing and goods trade, are coming to the fore. For example, as China’s production ramped up in March, the outbreak spread to regions that are integral to outsourced technology and business process services, such as India, which told most of its 1.3 billion people to stay indoors for three weeks starting March 25.

While it’s too soon to say whether large-scale sustained adjustments will be made, given the extreme labor cost arbitrage, the change in sentiment caused by COVID-19 is striking and worth watching. When asked whether they are considering changing the breadth of their supply chain as a result of the virus, the percentage of respondents who say they don’t expect to make any changes dropped from 52% to 31%. US businesses have had to contend with a number of supply disruptions in the past three years, including escalations in US-China tariffs and a spate of natural disasters. This crisis may be a tipping point for what’s likely going to be a strategic shift in where supply is sourced and products are assembled.

Relationships with suppliers and scenario planning capabilities have been put to the test during the crisis. Companies should now be planning for recovery, while also taking time to remodel their supply chains in light of new risk and competitive performance dimensions. This was already under way, as some US companies diversify their Asia operating models in response to shifting trade policies and begin to build workflow automations.

Deeper look at financial actions

The survey results suggest many businesses are not sticking with budgets that were put in place before the crisis. When asked about actions already taken, 67% of survey respondents say they’ve already implemented cost containment. These typically include stopping discretionary spending, such as travel and expenses, though 58% report they deferred or cancelled planned investments.

When asked what actions they’re considering going forward (shown below), an increasing number of respondents are evaluating additional steps to conserve cash. For example, 64% of leaders are now considering canceling or delaying planned investments, up from 32% during the week of March 9. Facilities and/or IT are the most likely areas targeted for deferrals or cancellations. 

These findings indicate that cash management priorities are exerting operational pressure across a broad range of companies — not just in businesses with short cash runways or those in industries, such as transport and hospitality, where demand has evaporated because of shelter-in-place ordinances.

Outlook for guidance and disclosures

We expect more companies to explore different scenarios regarding the duration of the outbreak and to assess the range of potential impacts on their financial performance. Close to half (49%) say they are considering adjusting guidance. Separately, when asked about plans to change disclosures, 68% say they’re planning changes as a result of COVID-19, up from 48% during the week of March 9. It is worth noting that 24% of the surveyed CFOs believe it’s currently too difficult to assess what changes, if any, will need to be made to disclosures.

Looking ahead

These findings underscore the reality that companies’ pre-crisis targets have been overtaken by events. PwC believes the goal for the leaders of most large companies should be to address the threat of the financial fallout caused by widespread unemployment. This will mean working with boards, other leaders and investors to pivot, recalibrate and, wherever possible, to adopt a longer-view perspective. 

As the crisis unfolds, we will continue to regularly track leadership’s efforts to do that in future installments of PwC’s COVID-19 CFO Pulse Survey.