COVID-19: 5 insights from European finance leaders

Europe still has widespread lockdown measures in place as governments try to limit the spread and impact of COVID-19. Nevertheless, some continental European countries are starting to relax their most severe restrictions, with policymakers balancing the desire to protect lives with the need to revive battered economies.

As the situation evolves, finance leaders will play a key role in supporting their organisations to adapt to the new business environment that emerges post-lockdown. In a recent videoconference, members of CIMA’s Europe regional advisory panel shared their top insights and priorities.

Five key themes emerged:

The full financial impact of the crisis remains unclear. Companies in certain sectors, such as aviation and automotive, are clearly suffering negative financial consequences due to the COVID-19 crisis. Fleets are grounded, factories have closed, and customers are cancelling orders. In other sectors, such as technology, the picture is opaque, and finance leaders do not yet have clear visibility of the impact of COVID-19.

Much depends on factors such as how customer behaviours change in response to the crisis, the company’s ability to successfully fulfil orders, and how individual business units perform. Some business units may generate increased revenues as a result of the crisis, while others will fail to meet their targets. Meanwhile, auditing is being delayed because auditors cannot access offices and factories to review companies’ books or undertake inventory counts.

Forward planning is key. Despite the uncertainty, many finance leaders and teams are using this time to plan ahead and undertake forecasting for the rest of the year. Their aim is to maintain the resilience of their business by mitigating — as far as possible — the risks that it faces. They also want to ensure that the business is well placed to capitalise on the global economic recovery as and when it occurs.

Alongside financial planning, companies are undertaking planning that will enable them to restart their operations. For example, in some countries it will be mandated that workers have masks and protective equipment if factories are to reopen. They will also need to follow health and safety measures, such as handwashing, and have work stations that are two metres apart. Many workers will not be able to return to the workplace unless schools reopen, because of their caring responsibilities.

Supply chains are fragile. Many European companies are experiencing significant supply chain challenges. Suppliers around the world have had to shut down their operations while lockdowns are having an impact on the transit and supply of goods across borders. In sectors such as automaking, manufacturers are struggling to get the parts they need to supply finished products, exposing the risks involved with just-in-time production processes. Companies depend on third-party logistics providers to bring them raw materials and distribute their goods, but logistics networks are currently suffering disruption as a result of staff illness and unavailability.

Where companies are suffering serious financial challenges as a result of the crisis, they will need to make cutbacks that will inevitably have an impact on the cash flow and liquidity of their suppliers. They should do this in a way that ensures their supply chain can survive into the future.

Look for learnings. Where possible, companies are learning from their subsidiaries in other markets. One approach that is used in Asian factories is the concept of “red and blue teams” — where machine operators are divided into two teams, with just one team being on-site at any one time. Then, if a team member presents with COVID-19 symptoms, the site is cleaned and the teams swap over.

Financial learnings can also be made. Following the large-scale switch to remote working, companies will review the significant overheads involved with maintaining commercial premises and question whether these are still necessary. They may also identify an opportunity to trim travel budgets by asking staff to hold internal meetings and training sessions using virtual tools. Nevertheless, there will still be certain working environments, and certain business situations, where face-to-face contact is preferable or necessary.

Data management presents another opportunity for learning. Companies can make better decisions if they have access to the right data, at the right time. By investing in technology and supporting a mindset shift amongst their staff, companies can make more effective use of data and therefore be more agile in their response to future crises.

Focus on motivating remote workers. The shift to remote working has been very successful in Europe, particularly given the suddenness and scale of the shift. Companies’ technological infrastructure is proving resilient, and teams are adapting well to the new environment.

Nevertheless, some people do not find remote working easy — which is why finance leaders are focused on wellbeing and ensuring that their staffs feel connected. Teams are engaging with each other via a variety of virtual channels including videoconferencing, dial-in quizzes, and virtual coffee mornings. Remote-working practices in Europe are expected to continue beyond the lifting of strict lockdown rules. As a result, companies will need to be innovative about how they recruit and onboard staff.

Looking ahead

It is still comparatively early days for the COVID-19 crisis in Europe, so it’s impossible to tell what long-term impact it will have on companies and their finance teams. However, the insights outlined here offer some indication of what the immediate future might look like. They also highlight the likely challenges and opportunities that finance leaders will face.

For more news and reporting on the coronavirus and how management accountants can handle challenges related to the pandemic, visit FM’s coronavirus resources page.

— Andrew Harding, FCMA, CGMA, is chief executive–Management Accounting, and Jakub Bejnarowicz is regional director–Europe, both at the Association of International Certified Professional Accountants. To comment on this article or to suggest an idea for another article, contact Oliver Rowe, an FM magazine senior editor, at Oliver.Rowe@aicpa-cima.com.