The war in Ukraine forces CEOs to engage in crisis management

22 Mar 2022

The war has plunged Ukraine into a humanitarian catastrophe. At the same time, the ripple effects of the war are having an impact on businesses. We believe the main risks for Swiss companies are higher commodity prices and supply disruptions, followed by tighter financial conditions, which forces CEOs to engage in crisis management. Read below how PwC’s three-step approach can help companies to navigate through uncertainty and mitigate the negative consequences from this crisis.

There are two main risks through which the war could weigh on Swiss business activity.

We believe the biggest economic risk stems from higher commodity prices and supply disruptions, as Russia accounts for 10% of global oil production and 40% of European gas imports. Besides energy, Russia is a critical supplier of nitrogen fertilisers, palladium, nickel, potash, aluminium, and agricultural commodities to Europe. Any sanctions on Russia could result in significant shortfalls across a range of these commodities. A disruption of these flows could lead to production cuts, lowering industrial output by around one per cent in Switzerland. Closure of Russian airspace and port disruptions around the Black and Baltic seas could exacerbate the ongoing supply challenges.
Another risk is that tighter financial conditions could have sizable effects on global growth. Capital flows between Russia and Switzerland are heavily restricted and foreign direct investments (FDI) in Russia and Ukraine are highly at risk. Switzerland is among the countries with the highest number of sanctions against Russia as well as the most FDI projects in Russia, see graphs below. Moreover, inflationary pressure may force central banks to tighten monetary policy.

PwC's Joint Crisis Center

Crisis management: we help your business navigate through complexity and uncertainty

Learn more

How CEOs can assess how their companies might be affected by the war

The war in Ukraine followed by far-reaching sanctions from the West immediately affected Swiss businesses in many ways. In response to CEO requests, PwC is supporting various companies in assessing the potential short- and long-term impacts.

In a first step, implications along the following dimensions will be identified:

1. Direct financial implications

Identify potential liquidity, funding and transactional issues due to relationships with Russian or Ukrainian business partners
Assess impact of higher energy and raw material prices on input and logistics costs
Identify balance sheet topics (e.g. re-valuation of receivables, fixed assets, and IP related to Russia or Ukraine)

2. Operational implications

Assess supply chain resilience
Create supplier risk map (for Tier 1, 2 and 3 suppliers)

3. Strategic implications

Price sensitivity analysis to better respond to inflationary pressures
Assess implications of war on global footprint and overall strategy

In a second step, PwC will support its clients in quantifying and modelling the impact on P&L, cash flow and equity using scenario planning in combination with short- and mid-term sensitivity analysis.

In a third and last step, PwC will typically define concrete mitigating actions and set up a contingency plan. A contingency plan includes trigger points, or warning signals. When the trigger indicates that the risk is now likely, management will switch to the alternative plan (so called contingency plan) that includes an effective risk response.

The more prolonged the war in Ukraine will be, the more serious and longer-lasting implications we expect for Swiss businesses but also the global economy as whole. Inflationary pressure from even higher commodity prices and supply disruptions could lead to extensive production cuts, which would result in lower industrial output. Hence, we advise CEOs to take a cautious approach in business planning and to be prepared if pessimistic scenarios should come true.

#social#

Contact us

Reto Brunner

Partner, Advisory, PwC Switzerland

Tel: +41 58 792 14 19

Kevin Templer

Advisory, Manager, PwC Switzerland

Tel: +41 58 792 14 03