CGS UPDATE – the CGS Journal

>>> Corona crisis - a field report

Uncharted Territory for everyone

Von Christoph Haller, Managing Partner

Economic crises are nothing new. Especially not for CGS portfolio companies. They have learned to cope with economic cycles and to adjust their capacities to fluctuating demand within the business-to-business environment. In contrast, a pandemic was new for all of them, presenting an enormous – and continuing – challenge. We cannot compare the corona crisis with previous downturns. Neither falling demand, nor reduced supply, nor a liquidity tight spot triggered the crisis, but a pandemic of a magnitude not seen for generations. The result: government-imposed lockdowns in many countries, plummeting demand, disrupted supply chains, and immediate liquidity bottlenecks. 

Rigorous crisis management

It was clear right away that taking rapid pragmatic action, focusing on the essentials, and staying in close contact at all levels, including with investors, were the decisive ways to cope well with this unprecedented situation. With all portfolio companies affected, CGS was given a key role: to ensure a well-organized crisis response, effective management mechanisms, and the coordination of measures. The employees’ health was the top priority, followed by measures to secure ongoing business operations and sufficient liquidity. Even before the European lockdown, CGS sent out an initial risk alert with an assessment of the situation and possible consequences. The second alert contained specific instructions for action and requirements for focused weekly reporting in order to assess the situation at the individual companies.

No immediate existential threat

None of the portfolio groups was exposed to a direct threat to its existence. There were only isolated cases of illness and quarantine, the plants continued manufacturing with few exceptions, and problems with procuring materials largely subsided. Yet the closed borders had a severe impact. It was practically impossible to work locally for customers abroad, whether in sales and distribution or in the final assembly of facilities.

Resilience yet to be proven

These limitations, and above all the great uncertainty among customers about the future of their own business, are the most serious consequences of COVID-19 for the CGS portfolio groups. In addition to major delays in commissioning various customer projects, some companies have seen a sharp decline in the volume of new orders. If this decline continues over several months, structural adjustments will unfortunately become unavoidable. Such decisions are not taken lightly because a company runs the risk of limiting its growth potential in the short and medium term. Capacity adjustment depend on how quickly and to what extent a recovery can be expected.

Backed by expertise and experience

As the corona situation is new, there is no relevant past data. Accordingly, the only modus operandi that makes sense is to work with scenarios and conditional decisions derived from them. CGS explained scenario development measures to the portfolio groups in its third risk alert. All groups now have a well-defined, flexible basis for managing the crisis going forward. The corona crisis has shown that proven crisis management methods also work in utterly unfamiliar circumstances. Yet companies must understand and deploy these strategies correctly within the context at hand, which requires broad knowledge and in-depth practical experience in similar settings. The portfolio companies receive just such advice and support from the partners and investment teams of CGS, who have industry experience as managers and specialists. Apart from being able to share best practices among themselves, the portfolio firms also benefit from a cluster of expertise that would hardly ever be available to an SME standing alone.

Communicating with investors
The greater the uncertainty, the greater the need for information: this maxim also applies to the corona crisis. CGS developed a special COVID Bulletin to keep investors of CGS Partnerships III and IV up to date on the status of crisis management. This newsletter covered the most important indicators and latest developments in the individual portfolio groups. CGS brought it out initially once a week, then less and less often. The portfolio companies’ weekly reports provided the necessary data.

Uncharted Territory for everyone
Christoph Haller
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