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Financial professionals predict painful recovery

Financial planning and analysis (FP&A) professionals expect the crisis caused by the COVID-19 pandemic to be long-lasting and severely damaging to earnings and revenue, according to a new survey by the Association for Financial Professionals (AFP).

In mid-April, AFP conducted a survey of more than 600 FP&A professionals across 20 industries on COVID-19. The goal of the survey is to help members of the FP&A community calibrate their own responses to the pandemic by learning how peer organisations are adjusting and planning for the months ahead.

The survey asked practitioners about the expected fiscal year decline in revenue and earnings. Finance professionals are anticipating the impact of the pandemic to be severe. Fully 85% predict earnings to be significantly or severely below plan, and 71% project the same for revenue.

FP&A professionals have a sober view of the duration of this crisis. The majority expect it to last for many months and they don’t anticipate a quick recovery. Nearly two-thirds (66%) estimate that the crisis will last for three quarters or more. Only 10% estimate a quick return pre-crisis operations, while the largest share (45%) expect a slow ramp up to pre-crisis operations.

On a slightly more optimistic note, the survey revealed that many companies appear to be pivoting their business as they adapt to the new normal. Some 64% of companies indicated that they are looking for opportunities to invest in themselves or their products or see an opportunity to expand their market share during this time. Many survey respondents are looking to upgrade technology, setting their sights set on digital revenue streams (27%) and digital transformation projects (27%).

“Although the outlook for the remainder of 2020 is grim, FP&A professionals are always forward-thinking,” said Jim Kaitz, president and CEO of AFP. “Digital transformation became a necessity before this crisis began, and practitioners aren’t going to let even a deadly pandemic slow down their efforts.”

CFOs have no contingency plans for second wave of COVID-19

On the less upbeat side of things, a recent Gartner survey of 99 CFOs and finance leaders also taken in mid-April revealed that 42% of CFOs are not incorporating a second wave outbreak of COVID-19 in the financial scenarios they are building for the remainder of 2020.

Additional survey data showed that that only 8% of CFOs have a second wave factored into all their planning scenarios, and only 22% have a second wave factored into their “most likely” scenario. The lack of planning comes even as CFOs express a cautious approach as to when they will fully reopen their operations and bring employees back to their normal office routines.

“As CFOs are attempting to project revenue and profits for 2020, it’s surprising that 42% are not baking a second wave of COVID-19 into any of their scenarios” said Alexander Bant, practice vice president, research, for the Gartner Finance practice. “Our latest CFO data also reveals that most executive teams are still trying to decide what factors they should use to determine how and when to reopen their offices and facilities.”

While 81% of CFOs report that they will look to state and local authorities for clearance on when to restart their operations, 55% of CFOs reported that they will take a measured approach as to when their employees will return to offices, while 44% are unsure how employees will be brought back to work). 

A growing concern among CFOs about the pandemic’s duration, severity and related macroeconomic implications may be contributing to a disconnect between when CFOs perceive they are allowed to reopen their facilities for business, compared with their own specific plans for accelerating employees return to physical locations.  

“Many CFOs seem to be conscious of moving too quickly, with only 4% of CFOs telling us that their organisations will require employees to immediately return to the office, even after receiving approval from state and local authorities to reopen their physical facilities,” said Bant.

Despite the lack of contingency planning for a second wave of COVID-19, CFOs have clearly become more concerned about the risks associated with the pandemic broadly, with CFOs citing “macro-pandemic concerns” as their top concern at more than double the rate they did at the beginning of April. These concerns have grown while fears about revenue losses and employee management issues, such as productivity losses and meeting payroll, have declined.

The concerns about the big picture implications of the pandemic have grown to tie cash flow worries as the top concern cited by CFOs in April about the COVID-19 crisis, with each category selected by 28% of the CFOs surveyed.

 

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Risk Management
ERM - Enterprise Risk Management
Financial Risk Management
Cash & Liquidity Mngm in North America
COVID-19
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