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Reshaping results
Liquidity and cash management
for advanced manufacturing and
mobility companies
Response to the COVID-19 crisis
6 April 2020
Reshaping resultsPage 2
What we are seeing related to COVID-19 liquidity issues
With a global economy in free fall due to actions taken in response to the COVID-19 outbreak, companies
are searching for near-term solutions to these issues.
► Securing short- and long-term liquidity to fund
business operations
► Conducting cash forecasting under crisis
scenario
Cash
shortage
► Vendors requiring scheduled payments,
customers not paying – thereby driving hasty
behavior under duress to shore up liquidity
Credit
squeeze
► Allocating liquidity buffers and identifying
essential business operation activities
Cash
management
► Sector-based challenges emerging; refinancing
uncertainty; insurance policy review
Access to
capital
► Governments around the world are formulating
various ways to support businesses and to
maintain economic stability; tax relief and
stimulus
Government
support
► Abrupt sales decline and uncertainty resulting in
need for cost cuts/revised guidance/scenario
planning
Contingency
planning
► Reduced headroom, limited ability to access
new/existing capital
Covenant
compliance
► Distressed suppliers requiring special assistance
impacting liquidity
Supply chain
disruption
Reshaping resultsPage 3
A reliable cash flow forecast creates transparency over our clients’ cash flows
and forecasting processes and allows for the deduction of insights and measures
Short-term
cash flow
forecast
Forecasting
processes
Key
considerations
Measures
Key
results
► Elaboration of relevant considerations
concerning:
► Liquidity situation and financing
requirements
► Significant cash in- and outflows
► Potential internal/external financing
sources
► Certainty over director duties with
regard to liquidity position, covenants,
liabilities and insolvency-specific
regulations
► Deduction of measures with impact on
cash position, such as:
► Renegotiation of payment terms
► Collection of accounts receivable
► Negotiations concerning deferral
interest/debt repayment
► Setup of cash office for stringent
controlling of all cash in- and outflows to
preserve liquidity position (spend control)
► Setup of a reliable short-term cash flow forecast via the:
► Review and validation of existing forecast with regard to methodology and accuracy
► Creation of bottom-up indirect/direct 13 WCFC model
► Creation of transparency across all cash in- and outflows via overview of, for example:
► Perform a risk assessment and plan for various scenarios:
► Carry out E2E risk assessments across all functions
► Conduct scenario planning to identify medium-term potential impacts
► Identify key intervention actions, mitigation and contingency plans
► Available liquidity
► Trapped cash
► Pledged cash
► Foreign accounts
► Single entity level
► Key cash drivers
► Methodological and technical evaluation of currently applied
cash flow forecasting processes
► Deduction of procedural and methodological improvements
to current cash flow forecasting process
Reshaping resultsPage 4
A liquidity quick scan is the first step to assess the financial resilience of the
company and can highlight the necessity for a proper cash office
Typical insights
Potential quick
win improvements
Potential longer-term
improvement measures
Cash flow
forecasting
► Cash flow forecasts are produced on an
intermittent basis and are not compared
with actual cash flows
► Company does not predict periods of
negative cash flow correctly and therefore
incurs costly overdraft charges
Working
capital
management
► Aged debtors are high and the company
has no process in place to chase debtors
and encourage prompt payment
► Suppliers are regularly paid within agreed
payment terms without early payment
discounts
Cash
generation
► Bank service fees and charges are high
due to the regular use of the company’s
overdraft
► Produce regular cash flow forecasts
and compare forecasts to actuals on a
weekly basis
► Implement a forecasting strategy and
rollout training on leading practice
processes to the finance team
► Negotiate favorable payment terms or
early settlement discounts with suppliers
► Send accurate invoices where payment
terms and methods of payment are
clearly outlined
► Short-term review to consider
opportunities to release trapped cash
over a three-month period
► Turn non-operating assets into cash
► Develop and implement governance
processes around cash, assigning
accountability within the finance team
► Implement an integrated P&L, balance
sheet and cash forecasting process
and tool
► Implement processes to review
outstanding debtors and send
chasers regularly
► Review inventory and warehouse
management processes
► Engage tax experts to advise on tax
efficient strategies that could be
implemented to release cash
► Review of bank charges and options to
reduce these in the future by agreeing
long-term financing with the bank
Achieving visibility and control over cash flows and driving sustainable working capital improvements is the most
cost-effective form of finance for most organizations.
Reshaping resultsPage 5
A structured process is key to establish an efficient cash flow forecast and derive
appropriate conclusions
Short-term cash flow forecasting
1
Kickoff
workshop
2
► Discuss current
processes
► Data quality
► Data completeness
► Model check
(if available)
Review of existing
processes and
tools
Considerations and liquidity management
3
Liquidity forecasts
on entity/business
unit level
4
► Align inter-
company
transactions
► Match joint credit
lines/cash pooling
Consolidation
of forecasts
6
► Measures by single
cash flow
► Possible impact of
measure on
liquidity situation
► Merit of measures
Derive
measures
Continuous process
► Current situation
► Timeline
► Key drivers
► Business model
► Available
information
► Contact persons
► Deduct separate
cash flows (e.g.,
business unit,
plant, project,
entity)
► Discussing
different elements
(e.g., accounts
receivable,
accounts payable,
available liquidity)
5
Evaluation
of results
► Key cash drivers
► Cash needs/cash
coverage
► Possible
insolvency risk
► Indication of
liability risks for
management
7
Implementation
of measures and
next steps
Optional:
► Implementing
measures
► Set up cash
management
office
► Target and actual
comparisons
► Regular updates
Core modules
Optional modules
Reshaping resultsPage 6
Financial resilience from short-term actions and activation of longer-term
contingencies is key — uncommitted facilities and soft credit are high-risk areasLiquiditypressure/cashrequirementLowHigh
Time required to implement
Manage committed credit
Regulatory and government support
Review capital
market options
Review asset
disposal options
Defer pension
payments
Partner solutions,
e.g., suppliers,
lessors
Working capital
Repatriate
cash balances
Use headroom
in facilities
Stop non-essential spendRollover LCs/
guarantees
Use existing
cash buffer
Capex/investment
on hold
Cut share buyback
and dividends
Suspend tax
payments
Debt repayment
schedulesReview hedging
arrangements
Actions driven from our work will balance
the following factors:
„ Speed, cost, time and availability
„ Implementation ease
„ Suitability
„ Reversibility – long-term impact
„ Impediments – sequencing
Maintain uncommitted credit and
build cash buffer where possible
Cooperate with
partners
Reduce discretionary costs
Stimulate customer orders
Financial Operational Strategic
Reshaping resultsPage 7
Leading practices taken by peers — establishment of a cash management/liquidity
office
► Provide concise reporting to
all stakeholders
► Develop stakeholder-specific
communication plans
► Coordinate all stakeholders
with a swift results-oriented
approach toward resolving
capital structure issues
► Create trust among stakeholders
with transparent process
management
Key stakeholder considerations► Meet frequently to review liquidity initiatives and near-term cash flow needs,
e.g., payroll, AP, interest, rent
► Manage disbursements through a daily meeting to review and approve all
disbursements
► Instill discipline in management to focus critical liquidity needs
Manage
liquidity on
a daily basis
► Create a rolling daily cash flow forecast (~90 days) to manage short-term liquidity
needs
► Review and manage inflows and outflows against forecast and make adjustments on
at least a weekly basis
► Identify potential areas to pursue cost savings initiatives and release additional cash,
e.g., review all long-term contracts to determine ability to renegotiate
► Review short-term forecast with lenders to demonstrate control of short-term liquidity
needs
Short-term
forecasting
► Review existing financing agreements to determine flexibility with upcoming principal
and interest payments
► Review existing capital structure and identify any need for additional short-term
financing
► Review outstanding accounts receivable and develop disciplined approach to pursue
cash collections
► Manage working capital and identify areas of liquidity enhancement, e.g., propose
vendor discounts for prompt payment
► Create headroom for unanticipated cash needs
Other
liquidity
enhancements
Communication
Integrated
planning
Reshaping resultsPage 8
EY Advanced Manufacturing & Mobility contacts
Jerry Gootee
Partner, EY Manufacturing Leader
+1 216 583 8647
jerome.gootee@ey.com
Kris Ringland
Partner, EY Global Automotive Leader
Strategy & Transactions
+46 8 520 592 78
kristin.ringland@se.ey.com
Gaurav Malhotra
Partner, EY Americas Restructuring Leader
+1 312 879 4020
gaurav.malhotra@ey.com
David Gale
Partner, EY Global Manufacturing Leader
Strategy & Transactions
+1 612 371 8482
david.gale@ey.com
Falco Weidemeyer
Partner, EY EMEIA Restructuring Leader
+49 160 939 18335
falco.weidemeyer@de.ey.com
Randy Miller
Partner, EY Global Manufacturing &
Automotive Sector Leader
+1 313 628 8642
randall.miller@ey.com
Reshaping resultsPage 9
Industry
case studies
Reshaping resultsPage 10
Automotive OEMs are threatened by short- and medium-term disruptions and
especially vulnerable due to the already strained competitive situation
► COVID-19 disruptions hit the industry in a transition
phase, reinforcing already prevalent industry
disruption effects
Short term:
► Drop in sales (production and mobility services)
► Supply chain disruptions
► Securing liquidity
► Plant closures as direct effect or indirect
Medium term:
► Slow ramp-up of production
► Re-establishment of supply chain and partial mitigation
of effects by adjusting supply chains
Long term:
► Partial recovery of sales; overall reduction compared
with pre-crisis due to weakened overall economic
situation
► Building of more resilient supply chains (e.g., multiple
sources instead of single source)
► Increased need for partnerships to be able to finance
future-relevant investments (e.g., alternative
powertrains, car automation)
Automotive – OEM1
1Focus on passenger cars and light commercial vehicles
low
high
Ability to operate
Revenue
sensitivity
Supply chain
effects
Cash availability
Financing
risk
Geographical scope
and dependency
► Ability to operate: high – complex production with need for large number of workers; adverse effects
can only be partially mitigated by social distancing measures (remote work for non-production
functions)
► Revenue sensitivity: high – short-term hit to sales and longer–term reduced sales due to worsening
overall economy
► Supply chain effects: very high – strong dependency on global supply chain with very limited buffers
(e.g., due to just in time or just in sequence)
► Cash availability: moderate – strong ties with capital providers and existing cash buffers mitigate
adverse effects for the short term
► Financing risk: high – already tense competitive situation with industry disruption mitigated by strong
ties with capital providers
► Geographical scope and dependency: high – worldwide (internal) supply chain effects with tasks along
value creation spread across the globe
Expected effectsCOVID-19 exposure
Reshaping resultsPage 11
COVID-19 works as an accelerator for an automotive supplier crisis, which was initiated
by sector-inherent regulatory insecurity and resulting market declines
► COVID-19 interruptions are hitting the automotive
supplier industry in a already difficult phase – current
structural change and the impact on many suppliers:
Short term:
► Volume drops/demand break
► Supply chain disruptions
► Plant closures as direct or indirect effect
► Insolvencies
Medium term:
► Increased sales volatility/volume drop
► Slow ramp-up of production
► Transfer-business from insolvent competition
► Weakened and fragile supply chains and suppliers;
lack of supply
► Partially new suppliers required
Long term:
► Further supplier consolidation
► Recovery of sales; but overall reduction compared with
pre-crisis due to weakened overall economic situation
► Building of more resilient supply chains (e.g., multiple
sources instead of single source) and stronger or more
trustworthy customer relationships
Automotive – supplier
Ability to operate
Revenue
sensitivity
Supply chain
effects
Cash availability
Financing
risk
Geographical scope
and dependency
COVID-19 exposure
► Ability to operate: very high – medium complex production requiring partly specialized workforce on
specific machines/tools; work outside the factory is not possible; often no backup for key personnel
► Revenue sensitivity: very high – short-term revenue losses and longer-term revenue losses due to the
closure of the OEM’s production facilities
► Supply chain effects: high – strong dependence on few suppliers with very limited buffers – often
single source
► Cash availability: very high – especially medium players often do not have notable liquidity reserves;
pre-COVID-19 margins did not allow building up buffers; pre-COVID-19 crisis (i.e., diesel) led to a
already stressed situation
► Financing risk: very high – financiers shifted away from the automotive supplier industry already before
COVID-19, due to sector inherent risks
► Geographical scope and dependency: high – global supply chain effects, dependence of suppliers’
production plants on local OEM plants
low
high
Expected effects
Reshaping resultsPage 12
The mobility services sector impacts of COVD-19 are expected to be severe — long-term
impact will depend on government stimulus and interventions
Short term:
► Curfews are expected to be more widely spread and
business activity will further decline limiting revenue
potential to almost zero
Medium term:
► Revenue potential is likely limited in the medium term
► Employee retention will depend strongly on trajectory
of future COVID-19 cases as government support will
be important
► Retaining people will be key to be able to fully
participate in a long-term rebound of business and
leisure activity
Long term:
► Impact of COVID-19 is possible for an extended period
of time (beyond 18 months), depending on
macroeconomic outcomes
► Asset-heavy business models in the sector could be less
affected long-term provided that financing is available,
as they are may be able to rebound more quickly
► Very long-term effects should be limited, smaller
businesses could be more affected than larger
ones and hence consolidation may take effect to
some degree
Mobility services (transportation)
Ability to operate
Revenue
sensitivity
Supply chain
effects
Cash availability
Financing
risk
Geographical scope
and dependency
COVID-19 exposure
► Ability to operate: moderate – key input is labor on a given asset base, as long as work force is in place
effects should be moderate
► Revenue sensitivity: very high – severe effects as offerings rely on underlying business and leisure
activities that may be subdued for a longer period of time
► Supply chain effects: low – should be quite limited, as local labor is the key
► Cash availability: high – substantial cash flow impact on foregone revenue expected; companies usually
have little cash bound in their supply chain; depending on workforce flexibility and sick leave pay
ensured by governments cash consumption can be wound down to some extent
► Financing risk: moderate – depending on business model, financing requirements are structurally less
high in the sector
► Geographical scope and dependency: moderate – limited exposure due to often local nature of
services, international travel severely affected
low
high
Expected effects
Reshaping resultsPage 13
The construction and industrial products is primarily exposed due to its huge workforce
and tight timelines
► COVID-19 slows down the positive growth, especially
when construction workforce/planners/engineers will
be affected
Short term:
► Stable sales – projects will be completed
► Disruptions when workforce is infected
► Declining sales in machinery/machine building as
industry is retaining investments
Medium term:
► Recovery based on state subsidies and infrastructure
investments/needed renovation
► Supply chain recovers in machinery/machine building
Long term:
► Construction material suppliers drive prefabrication
to increase efficiency levels
► Further consolidation of fragmented landscape of
suppliers and services providers – forward integration
and new business models
Construction material/industrial products
Ability to operate
Revenue
sensitivity
Supply chain
effects
Cash availability
Financing
risk
Geographical scope
and dependency
COVID-19 exposure
► Ability to operate: very high – huge workforce (skilled and unskilled) is endangered by COVID-19 –
timelines will be difficult to keep in a seasonal business; specialized installers remain a critical
bottleneck, also on side of engineers/planners
► Revenue sensitivity: moderate – short term stable as projects are planned and need to be completed;
long term declining investments in selected segments
► Supply chain effects: low – construction material is sourced locally, many suppliers in a fragmented
market; selected categories sourced globally
► Cash availability: moderate – installers are basically short on cash, suppliers and distribution allow for
sufficient cash
► Financing risk: moderate – low interest rates and state subsidies
► Geographical scope and dependency: moderate – as sector is highly local, only limited risk for global
material suppliers
low
high
Expected effects
Reshaping resultsPage 14
The short-term effects on the chemicals sector are expected to be severe, driven by
significant price effects and the industry’s global geographical scope
► COVID-19 crisis may offer opportunities
Short term:
► Short-term stress will be significant
► Keeping license to operate is key
► Preparation how to benefit from the crisis should
start immediately
► A drop in oil prices may help lower feedstock (input)
cost and boost margins
► Cash flow and working capital is not an issue right now
Medium term:
► In the expected rebound, agility is key to capture
opportunities and maintain/grow market share
Long term:
► Depending on what the world will conclude from
COVID-19 crisis, there may be significant changes to
global supply chains, more resilience and reserves in
supply chains and possibly more regional and less
global supply chains
Chemicals
Ability to operate
Revenue
sensitivity
Supply chain
effects
Cash availability
Financing
risk
Geographical scope
and dependency
COVID-19 exposure
► Ability to operate: moderate – critical issues are both availability to shift personnel and critical support
functions such as fire brigades in order to maintain license to operate; physical separation of shifts,
etc., needed to avoid entire shifts to off duty
► Revenue sensitivity: very high – with demand of customer industries (e.g., automotive) plummeting and
imports increasing, we expect significant price effects. Excess demand in plastics, packing, textiles and
fibers may compensate, but remains to be seen
► Supply chain effects: high – while supply side mostly stable, key effects are in outbound; however,
overall effects have potential to be significant
► Cash availability: low – cash will need close consideration in the future
► Financing risk: high – effects of raw material (oil related) and product prices on the balance sheet will
be significant, especially in base chemicals
► Geographical scope and dependency: very high – impact will vary by region, but global scope of most
chemical markets is expected to prolong the impact of COVID-19 as the crisis migrates across the
globe
low
high
Expected effects
Reshaping resultsPage 15
Aerospace and defense will be under significant stress as a result of commercial
airlines grounding planes and canceling orders
Short term:
► Short-term stress will be significant
► Keeping workforce at the ready is key, despite some
potential for disruptions
► Defense and govt. contractors will focus on their
requirements and rights under government contracts
to recover costs and maintain continuity of operations
Medium term:
► Government assistance package will focus on keeping
the supply chain afloat until demand recovers
► Airline orders deferred and cancelled
► With the competitive talent market, companies
will have key decisions to make around layoffs
and furloughs
Long term:
► Commercial aerospace resurgence will be tied to
the global health recovery from COVID-19 when
restrictions on air travel are lifted
► Defense and government services may have a
sharper recovery than others given direct linkage
to government spending
► Pension fund positions could be eroded leading to
cash funding requirements
Aerospace and defense
Ability to operate
Revenue
sensitivity
Supply chain
effects
Cash availability
Financing
risk
Geographical scope
and dependency
COVID-19 exposure
► Ability to operate: high – critical workforce is vulnerable and not able to operate effectively; new
protocols adding to inefficiency and cost to avoid the potential for temporary factory closures halting
production
► Revenue sensitivity: high – near-term demand for commercial aircraft being deferred with later-term
effect on aftermarket
► Supply chain effects: very high – complex and highly interconnected and dependent supply base;
small businesses need certainty of cash flow to remain operational
► Cash availability: high – potential delays in customer payments, although US Federal Government
seems focused on keeping money flowing
► Financing risk: moderate – uncertainty around the access to credit markets for the broader supply
chain
► Geographical scope and dependency: low – as sector is highly localized (particularly defense and
government services), only limited risk
low
high
Expected effects
EY | Assurance | Tax | Transactions | Advisory
About EY
EY is a global leader in assurance, tax, transaction and advisory services. The insights and
quality services we deliver help build trust and confidence in the capital markets and in
economies the world over. We develop outstanding leaders who team to deliver on our
promises to all of our stakeholders. In so doing, we play a critical role in building a better
working world for our people, for our clients and for our communities.
EY refers to the global organization, and may refer to one or more, of the member firms of
Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global
Limited, a UK company limited by guarantee, does not provide services to clients.
Information about how EY collects and uses personal data and a description of the rights
individuals have under data protection legislation are available via ey.com/privacy.
For more information about our organization, please visit ey.com.
About EY's Global Advanced Manufacturing & Mobility Sector
Urbanization, changing consumer expectations and emerging digital technologies are
reshaping what’s possible, from the production and distribution of goods to the
transportation of people. To succeed in this new world of mobility and smart manufacturing,
incumbents must transform themselves at unprecedented speed — to think like an innovative
start-up, tap into new talent and engage the customer. With experience across the value
chain and key technology alliances, our teams show clients how to create efficiencies now
while adopting digitization and optionality for long-term growth. Automotive,
transportation, aerospace, defense, chemicals and industrial products companies can draw
on the strength of our network of cross-industry players and put our diverse range of
approaches to use today to equip their businesses for tomorrow.
© 2020 EYGM Limited.
All Rights Reserved.
EYG no. 001832-20Gbl
BMC Agency
GA 1015271
ED None
This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax or other
professional advice. Please refer to your advisors for specific advice.
ey.com/mfg
ey.com/futureofmobility

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Liquidity for advanced manufacturing and automotive sectors in the face of Covid-19

  • 1. Reshaping results Liquidity and cash management for advanced manufacturing and mobility companies Response to the COVID-19 crisis 6 April 2020
  • 2. Reshaping resultsPage 2 What we are seeing related to COVID-19 liquidity issues With a global economy in free fall due to actions taken in response to the COVID-19 outbreak, companies are searching for near-term solutions to these issues. ► Securing short- and long-term liquidity to fund business operations ► Conducting cash forecasting under crisis scenario Cash shortage ► Vendors requiring scheduled payments, customers not paying – thereby driving hasty behavior under duress to shore up liquidity Credit squeeze ► Allocating liquidity buffers and identifying essential business operation activities Cash management ► Sector-based challenges emerging; refinancing uncertainty; insurance policy review Access to capital ► Governments around the world are formulating various ways to support businesses and to maintain economic stability; tax relief and stimulus Government support ► Abrupt sales decline and uncertainty resulting in need for cost cuts/revised guidance/scenario planning Contingency planning ► Reduced headroom, limited ability to access new/existing capital Covenant compliance ► Distressed suppliers requiring special assistance impacting liquidity Supply chain disruption
  • 3. Reshaping resultsPage 3 A reliable cash flow forecast creates transparency over our clients’ cash flows and forecasting processes and allows for the deduction of insights and measures Short-term cash flow forecast Forecasting processes Key considerations Measures Key results ► Elaboration of relevant considerations concerning: ► Liquidity situation and financing requirements ► Significant cash in- and outflows ► Potential internal/external financing sources ► Certainty over director duties with regard to liquidity position, covenants, liabilities and insolvency-specific regulations ► Deduction of measures with impact on cash position, such as: ► Renegotiation of payment terms ► Collection of accounts receivable ► Negotiations concerning deferral interest/debt repayment ► Setup of cash office for stringent controlling of all cash in- and outflows to preserve liquidity position (spend control) ► Setup of a reliable short-term cash flow forecast via the: ► Review and validation of existing forecast with regard to methodology and accuracy ► Creation of bottom-up indirect/direct 13 WCFC model ► Creation of transparency across all cash in- and outflows via overview of, for example: ► Perform a risk assessment and plan for various scenarios: ► Carry out E2E risk assessments across all functions ► Conduct scenario planning to identify medium-term potential impacts ► Identify key intervention actions, mitigation and contingency plans ► Available liquidity ► Trapped cash ► Pledged cash ► Foreign accounts ► Single entity level ► Key cash drivers ► Methodological and technical evaluation of currently applied cash flow forecasting processes ► Deduction of procedural and methodological improvements to current cash flow forecasting process
  • 4. Reshaping resultsPage 4 A liquidity quick scan is the first step to assess the financial resilience of the company and can highlight the necessity for a proper cash office Typical insights Potential quick win improvements Potential longer-term improvement measures Cash flow forecasting ► Cash flow forecasts are produced on an intermittent basis and are not compared with actual cash flows ► Company does not predict periods of negative cash flow correctly and therefore incurs costly overdraft charges Working capital management ► Aged debtors are high and the company has no process in place to chase debtors and encourage prompt payment ► Suppliers are regularly paid within agreed payment terms without early payment discounts Cash generation ► Bank service fees and charges are high due to the regular use of the company’s overdraft ► Produce regular cash flow forecasts and compare forecasts to actuals on a weekly basis ► Implement a forecasting strategy and rollout training on leading practice processes to the finance team ► Negotiate favorable payment terms or early settlement discounts with suppliers ► Send accurate invoices where payment terms and methods of payment are clearly outlined ► Short-term review to consider opportunities to release trapped cash over a three-month period ► Turn non-operating assets into cash ► Develop and implement governance processes around cash, assigning accountability within the finance team ► Implement an integrated P&L, balance sheet and cash forecasting process and tool ► Implement processes to review outstanding debtors and send chasers regularly ► Review inventory and warehouse management processes ► Engage tax experts to advise on tax efficient strategies that could be implemented to release cash ► Review of bank charges and options to reduce these in the future by agreeing long-term financing with the bank Achieving visibility and control over cash flows and driving sustainable working capital improvements is the most cost-effective form of finance for most organizations.
  • 5. Reshaping resultsPage 5 A structured process is key to establish an efficient cash flow forecast and derive appropriate conclusions Short-term cash flow forecasting 1 Kickoff workshop 2 ► Discuss current processes ► Data quality ► Data completeness ► Model check (if available) Review of existing processes and tools Considerations and liquidity management 3 Liquidity forecasts on entity/business unit level 4 ► Align inter- company transactions ► Match joint credit lines/cash pooling Consolidation of forecasts 6 ► Measures by single cash flow ► Possible impact of measure on liquidity situation ► Merit of measures Derive measures Continuous process ► Current situation ► Timeline ► Key drivers ► Business model ► Available information ► Contact persons ► Deduct separate cash flows (e.g., business unit, plant, project, entity) ► Discussing different elements (e.g., accounts receivable, accounts payable, available liquidity) 5 Evaluation of results ► Key cash drivers ► Cash needs/cash coverage ► Possible insolvency risk ► Indication of liability risks for management 7 Implementation of measures and next steps Optional: ► Implementing measures ► Set up cash management office ► Target and actual comparisons ► Regular updates Core modules Optional modules
  • 6. Reshaping resultsPage 6 Financial resilience from short-term actions and activation of longer-term contingencies is key — uncommitted facilities and soft credit are high-risk areasLiquiditypressure/cashrequirementLowHigh Time required to implement Manage committed credit Regulatory and government support Review capital market options Review asset disposal options Defer pension payments Partner solutions, e.g., suppliers, lessors Working capital Repatriate cash balances Use headroom in facilities Stop non-essential spendRollover LCs/ guarantees Use existing cash buffer Capex/investment on hold Cut share buyback and dividends Suspend tax payments Debt repayment schedulesReview hedging arrangements Actions driven from our work will balance the following factors: „ Speed, cost, time and availability „ Implementation ease „ Suitability „ Reversibility – long-term impact „ Impediments – sequencing Maintain uncommitted credit and build cash buffer where possible Cooperate with partners Reduce discretionary costs Stimulate customer orders Financial Operational Strategic
  • 7. Reshaping resultsPage 7 Leading practices taken by peers — establishment of a cash management/liquidity office ► Provide concise reporting to all stakeholders ► Develop stakeholder-specific communication plans ► Coordinate all stakeholders with a swift results-oriented approach toward resolving capital structure issues ► Create trust among stakeholders with transparent process management Key stakeholder considerations► Meet frequently to review liquidity initiatives and near-term cash flow needs, e.g., payroll, AP, interest, rent ► Manage disbursements through a daily meeting to review and approve all disbursements ► Instill discipline in management to focus critical liquidity needs Manage liquidity on a daily basis ► Create a rolling daily cash flow forecast (~90 days) to manage short-term liquidity needs ► Review and manage inflows and outflows against forecast and make adjustments on at least a weekly basis ► Identify potential areas to pursue cost savings initiatives and release additional cash, e.g., review all long-term contracts to determine ability to renegotiate ► Review short-term forecast with lenders to demonstrate control of short-term liquidity needs Short-term forecasting ► Review existing financing agreements to determine flexibility with upcoming principal and interest payments ► Review existing capital structure and identify any need for additional short-term financing ► Review outstanding accounts receivable and develop disciplined approach to pursue cash collections ► Manage working capital and identify areas of liquidity enhancement, e.g., propose vendor discounts for prompt payment ► Create headroom for unanticipated cash needs Other liquidity enhancements Communication Integrated planning
  • 8. Reshaping resultsPage 8 EY Advanced Manufacturing & Mobility contacts Jerry Gootee Partner, EY Manufacturing Leader +1 216 583 8647 jerome.gootee@ey.com Kris Ringland Partner, EY Global Automotive Leader Strategy & Transactions +46 8 520 592 78 kristin.ringland@se.ey.com Gaurav Malhotra Partner, EY Americas Restructuring Leader +1 312 879 4020 gaurav.malhotra@ey.com David Gale Partner, EY Global Manufacturing Leader Strategy & Transactions +1 612 371 8482 david.gale@ey.com Falco Weidemeyer Partner, EY EMEIA Restructuring Leader +49 160 939 18335 falco.weidemeyer@de.ey.com Randy Miller Partner, EY Global Manufacturing & Automotive Sector Leader +1 313 628 8642 randall.miller@ey.com
  • 10. Reshaping resultsPage 10 Automotive OEMs are threatened by short- and medium-term disruptions and especially vulnerable due to the already strained competitive situation ► COVID-19 disruptions hit the industry in a transition phase, reinforcing already prevalent industry disruption effects Short term: ► Drop in sales (production and mobility services) ► Supply chain disruptions ► Securing liquidity ► Plant closures as direct effect or indirect Medium term: ► Slow ramp-up of production ► Re-establishment of supply chain and partial mitigation of effects by adjusting supply chains Long term: ► Partial recovery of sales; overall reduction compared with pre-crisis due to weakened overall economic situation ► Building of more resilient supply chains (e.g., multiple sources instead of single source) ► Increased need for partnerships to be able to finance future-relevant investments (e.g., alternative powertrains, car automation) Automotive – OEM1 1Focus on passenger cars and light commercial vehicles low high Ability to operate Revenue sensitivity Supply chain effects Cash availability Financing risk Geographical scope and dependency ► Ability to operate: high – complex production with need for large number of workers; adverse effects can only be partially mitigated by social distancing measures (remote work for non-production functions) ► Revenue sensitivity: high – short-term hit to sales and longer–term reduced sales due to worsening overall economy ► Supply chain effects: very high – strong dependency on global supply chain with very limited buffers (e.g., due to just in time or just in sequence) ► Cash availability: moderate – strong ties with capital providers and existing cash buffers mitigate adverse effects for the short term ► Financing risk: high – already tense competitive situation with industry disruption mitigated by strong ties with capital providers ► Geographical scope and dependency: high – worldwide (internal) supply chain effects with tasks along value creation spread across the globe Expected effectsCOVID-19 exposure
  • 11. Reshaping resultsPage 11 COVID-19 works as an accelerator for an automotive supplier crisis, which was initiated by sector-inherent regulatory insecurity and resulting market declines ► COVID-19 interruptions are hitting the automotive supplier industry in a already difficult phase – current structural change and the impact on many suppliers: Short term: ► Volume drops/demand break ► Supply chain disruptions ► Plant closures as direct or indirect effect ► Insolvencies Medium term: ► Increased sales volatility/volume drop ► Slow ramp-up of production ► Transfer-business from insolvent competition ► Weakened and fragile supply chains and suppliers; lack of supply ► Partially new suppliers required Long term: ► Further supplier consolidation ► Recovery of sales; but overall reduction compared with pre-crisis due to weakened overall economic situation ► Building of more resilient supply chains (e.g., multiple sources instead of single source) and stronger or more trustworthy customer relationships Automotive – supplier Ability to operate Revenue sensitivity Supply chain effects Cash availability Financing risk Geographical scope and dependency COVID-19 exposure ► Ability to operate: very high – medium complex production requiring partly specialized workforce on specific machines/tools; work outside the factory is not possible; often no backup for key personnel ► Revenue sensitivity: very high – short-term revenue losses and longer-term revenue losses due to the closure of the OEM’s production facilities ► Supply chain effects: high – strong dependence on few suppliers with very limited buffers – often single source ► Cash availability: very high – especially medium players often do not have notable liquidity reserves; pre-COVID-19 margins did not allow building up buffers; pre-COVID-19 crisis (i.e., diesel) led to a already stressed situation ► Financing risk: very high – financiers shifted away from the automotive supplier industry already before COVID-19, due to sector inherent risks ► Geographical scope and dependency: high – global supply chain effects, dependence of suppliers’ production plants on local OEM plants low high Expected effects
  • 12. Reshaping resultsPage 12 The mobility services sector impacts of COVD-19 are expected to be severe — long-term impact will depend on government stimulus and interventions Short term: ► Curfews are expected to be more widely spread and business activity will further decline limiting revenue potential to almost zero Medium term: ► Revenue potential is likely limited in the medium term ► Employee retention will depend strongly on trajectory of future COVID-19 cases as government support will be important ► Retaining people will be key to be able to fully participate in a long-term rebound of business and leisure activity Long term: ► Impact of COVID-19 is possible for an extended period of time (beyond 18 months), depending on macroeconomic outcomes ► Asset-heavy business models in the sector could be less affected long-term provided that financing is available, as they are may be able to rebound more quickly ► Very long-term effects should be limited, smaller businesses could be more affected than larger ones and hence consolidation may take effect to some degree Mobility services (transportation) Ability to operate Revenue sensitivity Supply chain effects Cash availability Financing risk Geographical scope and dependency COVID-19 exposure ► Ability to operate: moderate – key input is labor on a given asset base, as long as work force is in place effects should be moderate ► Revenue sensitivity: very high – severe effects as offerings rely on underlying business and leisure activities that may be subdued for a longer period of time ► Supply chain effects: low – should be quite limited, as local labor is the key ► Cash availability: high – substantial cash flow impact on foregone revenue expected; companies usually have little cash bound in their supply chain; depending on workforce flexibility and sick leave pay ensured by governments cash consumption can be wound down to some extent ► Financing risk: moderate – depending on business model, financing requirements are structurally less high in the sector ► Geographical scope and dependency: moderate – limited exposure due to often local nature of services, international travel severely affected low high Expected effects
  • 13. Reshaping resultsPage 13 The construction and industrial products is primarily exposed due to its huge workforce and tight timelines ► COVID-19 slows down the positive growth, especially when construction workforce/planners/engineers will be affected Short term: ► Stable sales – projects will be completed ► Disruptions when workforce is infected ► Declining sales in machinery/machine building as industry is retaining investments Medium term: ► Recovery based on state subsidies and infrastructure investments/needed renovation ► Supply chain recovers in machinery/machine building Long term: ► Construction material suppliers drive prefabrication to increase efficiency levels ► Further consolidation of fragmented landscape of suppliers and services providers – forward integration and new business models Construction material/industrial products Ability to operate Revenue sensitivity Supply chain effects Cash availability Financing risk Geographical scope and dependency COVID-19 exposure ► Ability to operate: very high – huge workforce (skilled and unskilled) is endangered by COVID-19 – timelines will be difficult to keep in a seasonal business; specialized installers remain a critical bottleneck, also on side of engineers/planners ► Revenue sensitivity: moderate – short term stable as projects are planned and need to be completed; long term declining investments in selected segments ► Supply chain effects: low – construction material is sourced locally, many suppliers in a fragmented market; selected categories sourced globally ► Cash availability: moderate – installers are basically short on cash, suppliers and distribution allow for sufficient cash ► Financing risk: moderate – low interest rates and state subsidies ► Geographical scope and dependency: moderate – as sector is highly local, only limited risk for global material suppliers low high Expected effects
  • 14. Reshaping resultsPage 14 The short-term effects on the chemicals sector are expected to be severe, driven by significant price effects and the industry’s global geographical scope ► COVID-19 crisis may offer opportunities Short term: ► Short-term stress will be significant ► Keeping license to operate is key ► Preparation how to benefit from the crisis should start immediately ► A drop in oil prices may help lower feedstock (input) cost and boost margins ► Cash flow and working capital is not an issue right now Medium term: ► In the expected rebound, agility is key to capture opportunities and maintain/grow market share Long term: ► Depending on what the world will conclude from COVID-19 crisis, there may be significant changes to global supply chains, more resilience and reserves in supply chains and possibly more regional and less global supply chains Chemicals Ability to operate Revenue sensitivity Supply chain effects Cash availability Financing risk Geographical scope and dependency COVID-19 exposure ► Ability to operate: moderate – critical issues are both availability to shift personnel and critical support functions such as fire brigades in order to maintain license to operate; physical separation of shifts, etc., needed to avoid entire shifts to off duty ► Revenue sensitivity: very high – with demand of customer industries (e.g., automotive) plummeting and imports increasing, we expect significant price effects. Excess demand in plastics, packing, textiles and fibers may compensate, but remains to be seen ► Supply chain effects: high – while supply side mostly stable, key effects are in outbound; however, overall effects have potential to be significant ► Cash availability: low – cash will need close consideration in the future ► Financing risk: high – effects of raw material (oil related) and product prices on the balance sheet will be significant, especially in base chemicals ► Geographical scope and dependency: very high – impact will vary by region, but global scope of most chemical markets is expected to prolong the impact of COVID-19 as the crisis migrates across the globe low high Expected effects
  • 15. Reshaping resultsPage 15 Aerospace and defense will be under significant stress as a result of commercial airlines grounding planes and canceling orders Short term: ► Short-term stress will be significant ► Keeping workforce at the ready is key, despite some potential for disruptions ► Defense and govt. contractors will focus on their requirements and rights under government contracts to recover costs and maintain continuity of operations Medium term: ► Government assistance package will focus on keeping the supply chain afloat until demand recovers ► Airline orders deferred and cancelled ► With the competitive talent market, companies will have key decisions to make around layoffs and furloughs Long term: ► Commercial aerospace resurgence will be tied to the global health recovery from COVID-19 when restrictions on air travel are lifted ► Defense and government services may have a sharper recovery than others given direct linkage to government spending ► Pension fund positions could be eroded leading to cash funding requirements Aerospace and defense Ability to operate Revenue sensitivity Supply chain effects Cash availability Financing risk Geographical scope and dependency COVID-19 exposure ► Ability to operate: high – critical workforce is vulnerable and not able to operate effectively; new protocols adding to inefficiency and cost to avoid the potential for temporary factory closures halting production ► Revenue sensitivity: high – near-term demand for commercial aircraft being deferred with later-term effect on aftermarket ► Supply chain effects: very high – complex and highly interconnected and dependent supply base; small businesses need certainty of cash flow to remain operational ► Cash availability: high – potential delays in customer payments, although US Federal Government seems focused on keeping money flowing ► Financing risk: moderate – uncertainty around the access to credit markets for the broader supply chain ► Geographical scope and dependency: low – as sector is highly localized (particularly defense and government services), only limited risk low high Expected effects
  • 16. EY | Assurance | Tax | Transactions | Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. Information about how EY collects and uses personal data and a description of the rights individuals have under data protection legislation are available via ey.com/privacy. For more information about our organization, please visit ey.com. About EY's Global Advanced Manufacturing & Mobility Sector Urbanization, changing consumer expectations and emerging digital technologies are reshaping what’s possible, from the production and distribution of goods to the transportation of people. To succeed in this new world of mobility and smart manufacturing, incumbents must transform themselves at unprecedented speed — to think like an innovative start-up, tap into new talent and engage the customer. With experience across the value chain and key technology alliances, our teams show clients how to create efficiencies now while adopting digitization and optionality for long-term growth. Automotive, transportation, aerospace, defense, chemicals and industrial products companies can draw on the strength of our network of cross-industry players and put our diverse range of approaches to use today to equip their businesses for tomorrow. © 2020 EYGM Limited. All Rights Reserved. EYG no. 001832-20Gbl BMC Agency GA 1015271 ED None This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax or other professional advice. Please refer to your advisors for specific advice. ey.com/mfg ey.com/futureofmobility