CFO Insights on the Impact of COVID-19

In 2020, the advent of COVID-19 has imposed both operating and financial challenges on businesses across sectors and geographies. In this liquidity-constrained environment, we conducted a survey of CFOs across Ireland to gauge their views on the quantum of the expected impact, the timeline to recovery and other insights as they continue to steer their businesses in choppy waters.

Key Survey Findings

• The biggest concern that CFOs have from a long-term lens is the impact on customer demand – and consequently, growth – if a recession materialises. 64% of executives surveyed reported forecasts of a 20% reduction or higher in revenues this year.
• From a financial management standpoint, retaining access to sufficient liquidity to meet obligations as they come is a top priority – particularly as 91% of respondents indicate they are likely to receive slower payment from debtors.
• Beyond the financial impacts, the broader cultural changes include a greater acceptance of remote working as a feasible option on an ongoing basis and a growing focus on contingency planning in case of unprecedented emergencies on short notice.

To illustrate the findings, we have segmented the questions asked into two categories: Present Implications vs. Future Ramifications. In the former, we discuss current assessments of the situation and the actions that executives are taking in the short to medium-term to navigate global headwinds. In the latter, CFOs were asked about the long-term trends and paradigm shifts that they see to their businesses and industries.

Present Implications

Recessionary and liquidity fears: 60% of survey respondents reported that the most worrying impact the pandemic could bring about was a potential global recession that would slow demand and halt growth. A similar number of respondents were also concerned with the financial impacts on liquidity and available capital resources if the pandemic was prevalent for a protracted period. Other important risks identified included not having enough time to make good decisions (1 of 3 respondents), and the reduction in productivity as a result of work-from-home mandates (27%).

Cost containment is top of mind: A strong majority (73%) reported that near-term cost containment measures had already been taken or were imminent as lower revenues impacted operating cash flows and access to capital markets remained significantly challenged. Other common responses were changes to investment policies to reduce or defer planned capital expenditures (53%), adjusting financing plans and capital structures to de-risk the business (47%), and holding off on M&A (especially big-ticket acquisitions) until some normalcy was restored (33%)

Short-term Staffing Problems: 36% of respondents mentioned that employees in their companies have already faced or will face pay reductions to reduce operating expense burden on P&Ls. A similar proportion responded that they expect to face a mix of temporary layoffs, redundancies, reduced working days and pay reductions as the situation evolves. In terms of the timeline that these staffing decisions will be in effect for, the majority leaned towards less than 12 months with only 9% of CFOs saying that the impact on staff compensation and/or headcount would last more than 12 months.

Budget Cuts: With cost containment being identified as a major objective, our next question revolved around what departments would be the most impacted at the conventional firm. The results were heavily skewed towards Sales, HR and Finance (63% for each). This is expected considering that social distancing guidelines have placed a limit on the in-person interactions that define sales and hiring processes. Other common responses included Facilities and Marketing (55% each) as work-from-home and lower customer demand respectively reduce the need for outsized expenditures in these two functions.

Future Ramifications

Cultural Changes: 82% of CFOs state that after transitioning into a work-from-home model of working, there is likely to be a long-term trend to enabling employees to work remotely. The impacts of the pandemic have caused a direct cultural change where executive teams are now actively reviewing the feasibility of continuing this over an extended period to save on commercial office space. 45% of CFOs also reported a greater focus on accelerating the pace of digital innovation going forward. However, while working from home has gained broader acceptability, it is pertinent to note that while 73% of respondents were likely to utilise it more, they would not do so on a full-time basis.

Demand-side Issues: Even after liquidity hurdles have been cleared, CFOs anticipate that the pandemic is likely to handicap customer demand for an extended period. Only 9% of respondents said that demand was expected to slow for only a quarter. 45% of respondents expected demand weakness to sustain into Q3 and/or Q4 while the remaining 45% expect it to continue even longer. As a direct result of this, 63% of CFOs expect a 20+ reduction or higher in revenues for this fiscal year.

About the survey

Lincoln conducted this survey of Irish CFOs and finance leaders between May 11-22, 2020. If you would like to discuss the results of this survey further, please get in touch with me directly.

About the Author

Shay Dalton

Managing Director

sdalton@lincoln.ie+353 16498583

Shay Dalton is the Managing Director of Lincoln Recruitment Group. Shay is a qualified ACCA Accountant with over 20 years’ experience specialising in the placement of senior positions across a broad spectrum of Accountancy and Finance positions within the industrial and financial services sectors. Having been involved in the establishment of some of the most respected financial recruitment brands in the Irish market, Shay subsequently set up Lincoln Recruitment Specialists in 2008. He also hold’s an MSc in Organisational Management and is a member of BPS, qualified to conduct and interpret psychometric testing as well an EQi testing.