Whilst the rest of Australia is opening up, Victoria is locked down, with Metropolitan Melbourne two weeks into stage 4 lockdown and regional Victoria now returned to stage 3 restrictions. As non-essential industries are placed under the strictest lockdown measures seen in Australia to date, we take a look at which industries are hardest hit, what assistance is available and some strategies that may assist businesses navigate these unchartered waters.
Hardest hit industries
One of the largest contributors to the Victorian economy contributing approximately 9% of 2019 Gross State Product and employing 300,000 workers, large scale construction is now limited to 25% of workers allowed on-site at one time, which will undoubtedly lead to project delays but also have impacts on ancillary support services to the sector, both up and down stream.
Retail and consumer goods
The sector has had to act swiftly in response to emerging trends brought on or accelerated through the lockdown measures. We have seen retailers proactively manage their inventory in light of decreased demand, tailor and pivot product offerings in response to changing consumer behaviour, navigate regulatory changes including a state wide closure of its brick and mortar network in Victoria, extend its digital and supply chain capabilities and protect their workforce.
Once again cafés and restaurants are limited to take away only and the implementation of a strict COVIDSafe plan. Restricting people’s time outside and an evening curfew may also impact demand for takeaway services. Many restaurants and cafés have been unable to sell perishable goods and have had to write these off. Tourism providers had begun to ramp up activity for local tourists but are once again forced to shut-down with no certainty as to when they will be able to re-open. Hospitality providers will be hesitant to re-open once restrictions are eventually lifted to avoid a stop-start return to business and further working capital write-offs.
Another large contributor to the Victorian economy (approximately 13% of 2019 Gross State Product), the impact on manufacturers will very much depend on the type of manufacturer they are. Whilst many manufacturers are still able to operate under stage 4 restrictions, production continues at a restricted capacity. Given the challenge of workers within close proximity making social distancing difficult, adhering to COVIDSafe plans is extremely important to prevent further disruption in the event of positive cases. Manufacturers are focusing on securing their supply chain (particularly if sourcing materials overseas) and putting contingency plans in place for suppliers that may be affected. Supply chain disruption could also lead to a possible cash squeeze if manufacturers are required to resource raw materials from new suppliers at unfavourable trade terms.
Each of the above industries face immediate challenges for businesses being asked to “hibernate” in the near term, but also raises questions about how long businesses can hibernate for, what impacts will arise as a result of the shutdowns and what the road out will look like once restrictions ease.
Financial assistance available
First and foremost, businesses need to be aware of the various financial support announced at both the State and Federal Government levels. We have summarised the key financial support programs below, including those recently announced by the Victorian Government.
|Federal Government||Victorian State Government|
Some practical considerations for navigating stage 4
Whilst the challenges being faced by business are unprecedented, businesses should continue to focus on:
- preserving cash – stress test your forecasts and create a short term weekly cash flow forecast to understand immediate cash flows and identify any near-term funding requirements;
- ensure you are aware of the government grants and assistance programs that may assist where eligible;
- delay all non-essential spending – cash is a finite resource and focus on essential spending only;
- proactively engage with financiers where additional funding is likely to be necessary;
- urgently assess your cost base – identify those levers that can be pulled immediately and other mitigating actions that can be taken to preserve cash in the short/medium term;
- open dialogue with landlords to negotiate rent reduction or abatements;
- negotiate payment plans with bankers, suppliers and other key stakeholders; and
- assess customer and supply chains to determine any potential indirect disruptions and create contingency plans where appropriate (this will be important when planning for coming out the other side).
Opportunities are also out there
With every challenge, opportunities present. Businesses with excess capital to deploy should be on the lookout for opportunities to acquire assets below long term valuations that may arise. Our distress-driven deals blog series provides insights on what should be front-of-mind when assessing and rescuing a business from distress.
Where to from here?
One key variable on senior management and directors’ minds is the upcoming decision on extending (or not) the moratorium on director liability for insolvent trading beyond 23 September 2020, as well as statutory demand thresholds. In light of the tougher restrictions in Victoria, directors are awaiting guidance on whether the Federal Government will announce an extension to the moratorium before its current expiry date, which we consider will need to be announced in the coming weeks as management teams and directors’ sights lift to a horizon that includes the end of September 2020.