Uthaya Ponnusamy advises businesses on restructuring finances during the pandemic | Retail Asia

Uthaya Ponnusamy advises businesses on restructuring finances during the pandemic

RSM Singapore’s Partner advises close monitoring of cost, re-forecasting liquidity, and developing new growth strategies when considering financial restructuring.

RSM Singapore’s Partner for F&B, Retail, and Consumer Products Uthaya Ponnusamy draws on more than 18 years of audit experience at Big 4 firms in Singapore and New York to assist businesses through their food & beverage, retail and consumer products practice. She also helps clients in due diligence and reporting accountant assignments for initial public offerings on the Singapore Exchange.

Before joining the firm, Uthaya was the Chief Financial Officer at a public-listed company in Singapore. Her experience includes serving public-listed companies and multinationals in sectors such as retail, consumer products, aviation leasing, shipping, real estate, and industrial products, as well as non-profit organisations.

Uthaya is one of the judges at this year’s Retail Asia Awards 2021. Here, she shares some of her insights about what the internal auditor of the future would look like; what retail trends to watch out for, and how to survive the financial crisis during the pandemic. 

Can you share with us any backstory that has contributed to your professional career?

 I remember a memory early on my career from an audit client in the luxury handbag sector. Every time we met up, her eyes would discreetly check the brand of the handbag I was carrying before she shook my hands. After a few such episodes, I called her out on it. She laughingly admitted doing that because she was checking if I was supporting them and that quality will always speak for itself and went on to expound passionately about their branding. It just stuck on me from that meeting that it is important to have passion in what we do and always strive for the best quality. 

With digital transformation as the current mantra for many retailers, what does the landscape for internal audit functions look like?

With digital transformation being the buzzword, the internal auditor of the future will need to be agile and able to embrace technology to continuously improve their digital capabilities. They will also need to continuously revamp their audit procedures to see if they remain relevant in light of these changes. 

The internal auditor of the future can expect that stakeholders will be more interested to obtain more real-time informal updates so they can improve their controls promptly rather than formal quarterly or annual updates. 

The global financial crisis has pushed many retail businesses into a state of instability, with some businesses filing for bankruptcy. Many, however, are exploring strategies to borrow or restructure their finances. What would be your advice to them?

In several markets including Singapore, affected companies were able to avail themselves of grants and bank moratoriums to help them with their current commitments. With the path to recovery still uncertain, it is important that other than looking at external financing, the companies continue to closely monitor and right-size their cost structure, re-forecasting liquidity and their cash flows and develop new growth strategies.

If not already done, my advice would be to--

  1. Conduct an honest and objective review of the business model, especially the historical performance in recent years. 

Has the business been fundamentally sound and strong? Is the current predicament due to the negative macro-environment that is affecting most businesses? Or has the company been suffering losses and facing serious challenges even before the pandemic? If the current slump is purely due to the short-term effects of the COVID-19 fallout, then it is worthwhile to seek financial assistance and restructuring. 

Conversely, if the business is no longer viable putting aside the pandemic, then kicking the can down the road may cause more harm not only to the company but also to its stakeholders. Looking at data objectively and answering the questions honestly will help.

        2.  Look towards the future and start making changes. 

Even if the company is successful in obtaining credit and restructuring its debt, has the market evolved in such a way that an operational and business restructuring will also be required to ensure the company’s long-term survival? 

Very often, a crisis changes the market conditions and environment that the company is operating in. Companies need to be agile, adapt to changes and seize new opportunities, or they will simply be pushed out of the competition, Covid or not. Management needs to ask whether financial restructuring alone will suffice to ensure the company's survival for the longer term.

        3.  Beware of higher debt levels. 

To ease tight cash flow situations, companies typically seek access to additional credit and loans, or restructure the current debt in such a manner that the company makes reduced repayments on existing loans either by lengthening the loan tenure or deferring a substantial portion of the principal repayment to a later period within the same loan tenure. 

When considering additional credit and loans, business owners ought to ask themselves if the company can service the higher debt level sustainably in the medium to longer term. Whilst it is important that companies avoid maturity mismatches, i.e. using short-term debts to finance a long-term asset or project, in reality, we see many companies falling foul of this principle.

          4.  Prepare financial statements on a timely basis.

We have seen many companies that focus on revenue and neglect important aspects of the business. No business can survive and run profitably for the longer term if owners and managers do not have accurate and timely insight on the dollars and cents. 

The importance of this is further amplified when seeking additional credit or restructuring of debt as financial institutions usually require companies to provide updated historical and projected financial information. We have encountered many companies that struggle to provide even basic, reliable financial information and end up spending precious time scrambling to get their books in order. Without this, the financial institutions will not be able to assess any request or applications at all.

           5.  Know when to seek professional help. 

There are professional financial advisory firms in the market that specialise in assisting companies in situations like these. These professionals assist in reviewing the company’s financials, determine the sustainable debt level vis-a-vis their income-generating ability, recommend actions that need to be taken by the company to improve its position/ performance, and represent the company in the negotiations with its lenders. 

There are remedies available to companies in financial trouble under the present restructuring regime in Singapore which business owners may not be familiar with or have knowledge of. By engaging a professional firm early in the process, companies will find that they have more options to consider and choose from. When too late, the company may already be heading towards insolvency to the point of no return. Lastly, a steady pair of hands to assist the business owners in navigating the debt restructuring process would ease their load and provide a good sounding board.

Which trends will define the retail industry in the years to come?

Scrolling through Instagram, we can see that several retailers have already introduced demand-based or one-to-one models eliminating the need for middlemen and reaching out directly to their target consumers. This has already started disrupting the current mass production and mass consumption models, not to forget the inaccessibility to labour markets. Overstocking may be a trend of the past and retailers will find themselves questioning their commitments for warehousing and logistics.

It will be increasingly common for consumers to customise the products per their tastes which will then be fed to the supply chain. With enhanced data mining, retailers will be equipped to provide uniquely tailored products.

This will set the tone and promote more sustainable production and consumption in the future.

With consumer spending on the decline, how can retailers survive—and even flourish—during the pandemic?

With the current second wave/third wave of the pandemic across various markets and varying lockdown situations, the reality is consumers are reducing their expenses as they face their challenges of job security in the coming months. More time is spent indoors and we see retailers who are into daily essentials and home entertainment markets thriving. 

Under this grim reality, retailers who rebuild their customer experience by appealing to changing consumer values and continuously investing more in their online presence and online marketing that targets their users will flourish. 

At the same time, the unfortunate players who are not on the current bandwagon have to accept that there is no choice but to play the waiting game and conserve their cash and reduce their commitments.

What are your thoughts about this year's competitive entries for the Retail Asia Awards?

Without giving too much away, what stood out this year was the various entrants’ resilience when faced with the current pandemic conditions. They were prompt and willing to reinvent their wheels and remain competitive and accessible to their stakeholders. 

The business leaders nominated did not just think of growing their company—they thought about the value they are creating for their consumers and employees. This translated to significant growth in their markets despite the current climate even whilst they see their competitors struggle.

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