Finance basics to beat the coronavirus

As London-headquartered global pharma giant GSK collaborated with former competitors to develop a COVID-19 vaccine, the company's finance team focused on getting the basics right, informing decisions in a constantly changing environment, and looking after each other's wellbeing.

Despite the company's prominent role amid this crisis, for the GSK finance team it has been business as usual in providing insights and informing business decisions, albeit delivered by individuals often balancing their work at home with caring responsibilities.

"This is not about finance doing something more or differently," GSK CFO and chartered accountant Iain Mackay explained in an interview. "It's about finance doing what its core responsibilities are really well, consistently and sustainably in very difficult operating circumstances. It's about the finance team being able to contribute flawlessly to the overall continuity."

Mackay's role, which covers technology and operations in addition to finance, has also not fundamentally changed, although "points of emphasis within that role [have varied] over different stages of this crisis", he suggested.

Across the world, pharmaceutical companies have been collaborating with their competitors — and university research teams — in the race to defeat the coronavirus.

GSK is collaborating with its peer Sanofi to develop a COVID-19 vaccine that could be available in the second half of 2021 following clinical trials later this year.

Finance is playing a crucial role to enable this and other collaborations to work successfully, Mackay said. "There is obviously a fiduciary responsibility to make sure that each of the enterprises in a collaboration are protected both from a regulatory and as well [as] from … a shareholder perspective," he explained.

Mackay added: "One of the important [questions] for organisations just now is do we actually have the financial capacity to do these things in terms of conserving liquidity and resources, keep operations running smoothly, and support what we do in research and development?"

GSK's work towards solving the COVID-19 challenge is cost-neutral — profits generated during the pandemic will be reinvested specifically in solutions to overcome it.

Cash resources

Mackay and GSK corporate treasury teams worked to ensure the company "had the cash resources to meet all of our obligations, keep the company operating, pay our staff on a timely basis, and do all of that without having to resort to government furlough schemes, any kind of government support". Also at the front of his mind were questions such as, "Are we pricing contracts appropriately? Are we doing external reporting really well too?"

GSK has gone through the crisis from a position of strength, announcing at the end of April a 19% increase in first-quarter group sales and an 87% rise in earnings per share. He said the company had strong cash balances but "as the market knows, quite a lot of debt on the balance sheet". He added: "Ensuring our ability to refinance or pay down maturities coming through over the next 12 months has been a focus — with successful outcomes — of our corporate treasury team."

Putting in place liquidity to support the company's efforts on a coronavirus vaccine, therapeutic drugs, and COVID-19 testing has been a priority for Mackay, as well as at the same time making sure staff are supported.

He said: "When you get through that first wave of crisis, how do you keep people engaged and motivated and focused on what we do with changing priorities?" Mackay said that this involved taking things off priority lists as a way of "giving people room to breathe".

The GSK finance team has always had a risk management role, which "at its most fundamental level [is about] do we have good financial controls in place?" said Mackay, who also co-chairs the company's risk oversight group.

He added: "In this environment, fraud risk goes absolutely through the roof. So … we reinforced and supplemented existing control frameworks with an extra layer of control, for example, around suppliers calling in because they want to change bank account details."

Using data

Instead of GSK's normal weeks-long bottom-up process of target setting involving all its global markets, and each business and product line, the company took a top-down approach looking at risks and opportunities. "That's required people to think a little bit about the day-to-day dynamic of using data and becoming a little bit more comfortable with using data that is forward looking and less … historical," Mackay said. It has involved challenging the finance team to use the data it has "to build scenarios and build risks with mitigating actions".

The crisis hit in the midst of a finance transformation programme that continues to 2022. Mackay said GSK had deployed more than 100 "bots" across what were previously "manual reconciliation processes, downloads of data from the general ledger into the analytical systems, [and] running the analytics".

The finance function will be "oriented and aligned toward our major commercial markets with a much higher degree of centralised control around how we deploy technology, how we deploy products, how we deploy processes", he explained.

'Rebalancing the equation'

Asked to look to the future — to a world beyond the immediate coronavirus threat — Mackay said: "I think a rebalancing of the equation around the importance of innovation, life sciences, and how that's made available to huge segments of the global population from all social, socioeconomic, demographic [groups] is really important."

He added that deciding what matters "is not easy and is not always obvious", but there needed to be a "robust, sensible, and fair commercial model [which means that] a company can cover its costs, make a half decent return on its capital deployed; otherwise, shareholders won't give you that capital".

As a result of the coronavirus, in April the International Monetary Fund (IMF) projected a 3% decline in global GDP for 2020, with 1.2% growth in China and contractions of 5.9% in the US and 7.5% for the Euro area.

Mackay said the future for some industries will be difficult for a prolonged period, despite the IMF's 5.8% global economic growth prediction for 2021 — assuming the pandemic subsides in the second half of this year. He said that government policy to support recovery "is probably the most interesting thing that is going to play out over the course of the next two, three, [or] six months".

The question then, he said, is how do governments recover "the huge amounts they put in place to support economies and businesses and households? And what does that translate into in terms of higher income tax, corporation tax, and what does that do to consumption and inflation, for example?"

Advice for other finance leaders

Mackay offered the following advice for other finance leaders:

• Focus on getting the basics right. In the pharmaceutical industry, causing harm by the medicines or the vaccines you deploy is "catastrophically damaging", Mackay said. However, if a company publishes numbers that are materially wrong, that mistake can cause massive reputational damage and loss of credibility in the markets. The basics are "good old-fashioned books and records", he suggested.
• Cash is king. Whether working with bankers or using government schemes, ensure you've got the cash to do what you need to do to keep the business going.
• Ensure you focus on your team's resilience and provide support for team members.
• Communicate with your team. At a very human level, have a reasonable understanding of how people are feeling and how they are dealing with the crisis. Are they in a position to support their family, and how is their mental health?

He said: "So it's the people, get the basics right, and make sure you've got the resources to keep the business on track." When you get that right, he said, you can go on to, "right, how do you make the business better".

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 Oliver Rowe is an FM magazine senior editor, 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 at Oliver.Rowe@aicpa-cima.com.