Session #5: BCG Live: How To React To COVID-19 Implications?

BCG Live Session #5:
How to react to COVID-19

implications?
April 17th, 2020

BCG Brazil COVID Task Force
bcg.brazil.covid19@bcg.com
The situation surrounding COVID-19 is dynamic and rapidly

evolving, on a daily basis. Although we have taken great care prior
to producing this presentation, it represents BCG’s view at a
particular point in time. This presentation is not intended to: (i)
constitute medical or safety advice, nor be a substitute for the
same; nor (ii) be seen as a formal endorsement or recommendation
of a particular response. As such you are advised to make your own
assessment as to the appropriate course of action to take, using
this presentation as guidance. Please carefully consider local laws
and guidance in your area, particularly the most recent advice
issued by your local (and national) health authorities, before
making any decision.
1
The situation surrounding COVID-19 is dynamic and rapidly evolving, on a daily basis. Although we have taken great care prior to producing this presentation, it represents BCG’s view at a particular point in time. This presentation is not intended to: (i) constitute medical or safety advice, nor be a substitute for the same; nor (ii) be seen as a formal endorsement or recommendation of a particular response. As such you are
advised to make your own assessment as to the appropriate course of action to take, using this presentation as guidance. Please carefully consider local laws and guidance in your area, particularly the most recent advice issued by your local (and national) health authorities, before making any decision
Otavio Dantas Julien Imbert
Managing Director and Partner Managing Director and Partner
Today's São Paulo São Paulo
presenters
Philipp Carlsson-Szlezak Michael Grebe

Chief economist, Managing Managing Director and Sr Partner
Director and Partner, New York Munich
2
Agenda
COVID-19 evolution update 10 min.
Macro scenarios and micro implications 20 min.
Performance improvement through digitization in response to Covid19 crisis 15 min.
Q&A 15 min.
3
COVID-19 evolution update
4
Recap: Three phases of the COVID-19 development

Flatten Fight Future
Re-start Cure
Healthcare
system GDP
capacity
Critical care
patients
Time
5
COVID Dashboard – World View, Selected Countries

Data as of 16 April
VIRUS SPREAD ISOLATION
Current Total Avg. daily Tests per Country in Lockdown Isolation
phase cases growth1 1M hab. lockdown duration2 index3
Brazil Early Flatten 31K 8.8% 0.30K 27(50) days (SP) 49%
UK Early Flatten 103K 5.2% 6.15K 25(45) days 69%
USA Early Flatten 671K 4.8% 10.26K 28(56) days (NY) 44%
France Flatten 109K 3.5% 5.11K 32(56) days 73%
Spain Flatten 183K 2.6% 19.90K 34(42) days 80%
Germany Flatten 134K 2.3% 20.63K 26(42) days 44%
Italy Flatten 169K 1.9% 19.49K 39(54) days 75%
Japan Fight 9K 6.2% 0.75K Did not adopt 33%
S. Korea Fight 11K 0.2% 10.51K Did not adopt 12%
China Fight 84K 0.2% N/A 76(76) days (Wuhan) N/A
Lockdown lifted Localized lockdown National lockdown New daily cases/deaths decreasing4 …increasing …stable
Note: Authorities in Wuhan have revised its death toll upwards by ~50% from 2,579 to 3,869 in 16 April. As, according to officials, the revision was due to delayed reporting, this information is not considered in the avg. daily growth calculation.
1. Average daily growth of past 4 days, 2. Lockdown durations based on lockdown start date until dashboard update date and until public announced date 3. Data from Google Community Mobility report from April 15 – Isolation index is the
average reduction in mobility compared to a baseline in three areas: Retail & recreation, Transit stations and Workplaces, 4. Compares avg. daily new cases form current week versus previous week
Source: Johns Hopkins CSSE; Press search; IBGE; Google Community Mobility; BCG analysis 6
COVID Dashboard – Brazil View, All States

Data as of 16 April VIRUS SPREAD ISOLATION SUPPLY
Total Avg. daily State in Isolation ICU beds per Cases per ICU
cases growth1 Lockdown2 index3 70% 100k hab. bed
SP 11,568 9.2% 52% 18.2 1.4
RJ 3,944 6.9% 52% 23.0 1.0
CE 2,412 7.6% 61% 8.8 3.0
AM 1,719 10.5% 51% 6.4 6.5
PE 1,683 13.4% 53% 14.5 1.2
BA 967 10.2% 57% 10.1 0.6
MG 958 5.5% 43% 14.9 0.3
SC 926 3.9% 51% 12.0 1.1
ES 856 22.7% 48% 17.8 1.2
PR 845 3.2% 44% 17.8 0.4
RS 781 4.5% 47% 14.6 0.5
DF 728 4.3% 46% 30.4 0.8
MA 695 13.3% 53% 8.1 1.2
PA 487 16.2% 44% 7.3 0.8
RN 400 2.1% 50% 12.6 0.9
AP 362 14.1% 57% 5.4 7.9
GO 318 10.9% 43% 14.8 0.3
PB 165 6.7% 52% 11.8 0.3
MT 156 5.2% 37% 16.7 0.3
RR 142 7.9% 51% 4.1 5.7
MS 131 5.1% 35% 13.0 0.4
AC 115 8.5% 51% 5.4 2.4
PI 102 20.7% 66% 6.9 0.4
RO 92 29.9% 44% 13.0 0.4
AL 89 15.3% 55% 8.6 0.3
SE 48 2.2% 56% 10.5 0.2
TO 29 3.7% 47% 7.9 0.2
Social distancing recommended Social distancing in some cities Social distancing in the whole State
1. Average daily growth of past 4 days, 2. Measures to close businesses taken into account, data as of March 29 3. Data from Google Community Mobility report from April 15 – Isolation index is the average reduction in mobility compared to a 7
baseline in three areas: Retail & recreation, Transit stations and Workplaces; Source: Ministry of Heath; States Health Secretaries; Press search; IBGE; Google Community Mobility; Poder 360; BCG analysis
Most affected countries in Europe preparing to flex

isolation policies after 40 to 60 days of lockdown
Data as of 17 Apr
Current
(announced)
22/jan. 16/apr 11/may lockdown
23/1 25/3 (Hubei) 8/4 (Wuhan)
duration1
76 (76) days
9/3 3/4 12/4 2/5
(Wuhan)
Extended to 02/05
39 (54) days
14/3 25/4
2 weeks lock down Extended to 12/4 Extended to 25/4
34 (42) days
16/3 11/5
2 weeks lock down Extended to 15/4 Extended to 11/05
32 (56) days
23/3 3/5
26 (42) days
16/3 (NY) 29/4 (NY)
Extended to 15/05
28 (56) days
23/3 3/4 7/5
(NY)
Extended to 07/05
25 (45) days
21/3 (SP) 22/4 10/5 (SP)
Extended to 10/05
27 (50) days
(SP)
Number of daily reported new cases

10 100 1000
1. Duration of lockdowns as announced by government officials of respective countries in public announcements or press releases; Data from SP for Brazil, NY for the US and Wuhan for China
Source: Johns Hopkins CSSE, Press search, BCG analysis 8
Data as of 16 Apr
Three recommended conditions for COVID-19 lockdown exit:
decrease in cases, secured healthcare capacity and
appropriate monitoring capacity, including large-scale testing
UK - 23 Mar – 7 May (45 days)

• For officials, it is too early for easing restrictions
• Lockdown measures extended by three weeks
Germany - 16 Mar – 3 May (42 days)

EU countries • Small nonessential stores allowed to reopen next
week, with hygiene precautions
• Schools and hairdressing to reopen from May 4
take first • No definition on bars and restaurants reopening

• Mask-wearing recommended, but not mandatory
• Major gatherings won’t be permitted until Aug31
cautious France - 16 Mar – 11 May (56 days)
steps out of • Creches and schools able to reopen after 11 May

• Universities, bars, restaurants, museums and
cinemas will remain closed until mid-July
coronavirus • Tests for all symptomatic people
• Borders remain closed
lockdown Spain - 14 Mar – 25 Apr (42 days)

• Factory and construction workers back on job
• Most shops and services remain closed
• Masks are handed out in public transport stations
• Lockdown likely to be extended
Exit plan begun Exit plan announced Italy - 9 Mar – 3 May (54 days)
• Bookshops, laundries, stationers, children’s clothes
No plan yet No lockdown in place stores reopened in some regions
• Forestry industry and IT equipment factories
No information workers were been allowed to return to work
• Lombardy still with full lockdown 9
Source: Press search, BCG analysis
BCG Brazil COVID Task Force Backup
As of April 16th, there are ~2.2M confirmed cases globally;

India and Brazil cases doubling every ~8 days
Data as of 16 Apr
Daily growth rate of total cases (4-day avg, %) Reported cases may be underestimated
given low number of testing in countries
Flatten
15
Cases doubling:
5 days
Rates improving from top to bottom

10
India Brazil Cases doubling:
8 days
Growth rate
Japan Canada
5 UK US
Belgium Cases doubling:
France Spain 14 days
Portugal
Netherlands Iran Italy
South Korea Switzerland China Germany
0
1,000 10,000 100,000 1,000,000 Fight
Size Cumulative # of confirmed cases
Europe Rest of World North America

10
Source: National Health Commission China (China-specific data), Johns Hopkins CSSE(Non-China Data), BCG analysis
As of April 16th, there are ~145k confirmed deaths globally

Data as of 16 Apr
Daily growth rate of total deaths (4 day avg, %)
20
Switzerland
15
Canada Deaths doubling:
5 days
Brazil US
Japan
10
Growth rate
India Germany
Belgium Deaths doubling:
8 days
Netherlands UK
France
5 Portugal
Deaths doubling:
Spain 14 days
Italy
Iran
South Korea China
0
100 1,000 10,000 100,000
Size Cumulative #of deaths
Europe Rest of World North America

Note: Authorities in Wuhan have revised its death toll upwards by ~50% from 2,579 to 3,869 in 16 April. As, according to officials, the revision was due to delayed reporting, this information is not 11
considered in the avg. daily growth calculation. Source: National Health Commission China (China-specific data), Johns Hopkins CSSE(Non-China Data), BCG analysis
In Brazil, SP remains as most impacted state; ES cases

growing rapidly
Data as of 16 Apr
Daily growth rate of total cases (4-day avg, %) Reported cases may be underestimated
given low number of testing
25
ES
20
15
PE Cases doubling:
5 days
Growth rate
10 BA AM
SP
CE Cases doubling:
MG RJ 8 days
RS
5
DF SC Cases doubling:
14 days
PR
0
100 1,000 10,000 100,000
Size Cumulative #of confirmed cases
South East North East North South Central West

12
Source: Ministry of health, BCG analysis
COVID-19 is spreading across the country

Data as of 16 Apr
Confirmed cases per state… …with 9% avg. growth in the past 4 days
Cumulative # of cases, by # of days since 10th case (log scale)
100,000
Cases double
…every 3 days …every 4 days
every 2 days
SP
10,000
CE RJ
AM
PE
MG
1,000
ES BA
100
10
0 5 10 15 20 25 30 35 40 45
Number of days1
1. Number of days after exceeding 10 confirmed cases; Source: Ministry of health, BCG analysis 13
Confirmed deaths in every state, however still very

concentrated in SP
Data as of 16 Apr
Confirmed deaths per state… …with 12% avg. growth in the past 4 days
Cumulative # of deaths, by # of days since 10th case (log scale)
10,000
Deaths double
…every 2 days …every 3 days
every day
1,000 SP
RJ
PE
AM
100 CE
10
1
0 5 10 15 20 25 30
Number of days1
1. Number of days after first death; Source: Ministry of health, BCG analysis 14
Disclaimer: studies suggest that real number of cases in Brazil, and other
countries, is beyond the reported ones
Data as of 14 Apr
Countries are under reporting Estimates for the percentage of cases

cases reported per country (95% IC)
Different testing capacity and criteria across countries
UK 3.1-7.7%
France 3.6-8.2%
Italy 5.1-11%
Different testing criteria across cities in Brazil Spain 5.5-12%
Brazil 6.4-18%
USA 11-26%
China 27-43%
Relevant number of asymptomatic cases
Japan 22-74%
Germany 24-56%
S. Korea 41-89%
0% 20% 40% 60% 80% 100%
Source: CMMID, Brazil Ministry of Health, Press Search 15
Macro scenarios and micro
implications
16
Social distancing —
real economy freeze
Weekly initial unemployment claims (US)
4/2 print
3/26 print
~10x the prior peak or peak in Global Financial Crisis

(arrows)
Subway 7 on March 17th at 1:30 PM Source: NBER, Department of Labor, and BCG Center for Macroeconomics analysis 17
between Grand Central and Times Square Photo credit: Author
A hierarchy of thought
Disease (SARS-CoV-2) Disease properties

Disease Epidemiology Disease interpretation
Public policy Disease mitigation and response
Geometry of shock (supply-side) Growth path and rebound

Intensity of shock (demand-side) GDP drawdown and duration
Macro Real economy Liquidity/capital problems
Copyright © 2020 by Boston Consulting Group. All rights reserved.

Financial economy Stability risks
Policy (monet., fiscal, regul.) Containment and stabilization
Financial markets Feedback loops
Industry, firms, households: tactical Confidence

Micro
Industry, firms, households: Structural Behavioral changes
Source: BCG Center for Macroeconomics 18

Infection — inflection (?)

China: First or final inflection? Italy, Spain inflection?
Early window actors
(China ex Hubei,
Singapore, SK…) at
risk of new waves
Late window actors

(Italy, Spain, …)
plausibly at inflection
U.S. late window and

US – peaking? New York – peaking? behind curve, possibly
peaking
Underlying
epidemiology unclear:
 "Relapse until
vaccine in hand" or
 "herd immunity"
within reach?
19
Source: Johns Hopkins University, BCG Center for Macroeconomics
Testing — virus, antibodies
Testing (virus) - levels Testing (virus) - scaled Testing (antibodies)
?
Need serological (antibodies) testing to
determine degree of asymptomatic

infections and likelihood of "herd
immunity"
In U.S., testing had gotten off to a … though when scaled for the larger Implications for duration of social
slow start, thus no reliable U.S. population it is still insufficient distancing and thus extent of
quantitative baseline. macroeconomic damage
Now moving in right direction…
Source: Covidtracking.com, German Hospital Society (DKG), Korean Center for Disease Control, BCG Center for Macroeconomics 20
GDP forecasts — short shelf life, need scenarios

Decay of median 2Q2020 forecast Min and Max 2Q2020 forecast
(March 1 – April 10) (March 1 – April 10)

 Median broker forecast is positive well into  Wide distribution of growth forecasts,
March frequently > 2000 bps
 Then drops ~30%-points in just 3 weeks
Note: Uses actively maintained brokerage forecasts 21

Source: Bloomberg, BCG Center for Macroeconomics analysis
Scenarios — Understanding "shock geometry"

Illustrative
V – at least this U – the main risk L – still unlikely

Growth path and growth rate Growth path not recovered, Growth path not recovered,
are recovered but growth rate is recovered neither is growth rate
Perpetually growing
Post-shock, no Some perpetually lost output
lost output lost output
Lost output
Lost output Lost output

Time periods Time periods Time periods
V shape leaves de minimis impact One-off damage to economy's Recurring or irreparable damage to
on the present value of future supply side (capital, labor, economy's supply side leads to
output productivity) leads to more and perpetually growing loss of present
perpetual loss of present value of value of future output
future output
22
Source: BCG Center for Macroeconomics analysis
V-U-L empirics — same shock, three shapes
V-shape U-shape L-shape

2008 Canada 2008 United States 2008 Greece
Growth never
comes back to
prior trend and
growth rate
remains depressed
Eventually returns to
trend but can take a
Never comes back to prior
long time

growth trend (U) – even as
growth rates approach
their old pace
 Canada closest to V-shape  U.S. clear U-shape (returning to  Greece experienced a sustained
(returns to prior trend) growth rate, but at a lower trend) depression and L-shape
 No systematic banking crisis – no  Driven by severe banking crisis – a  Growth has struggled at a much
damage to economy's supply side one time hit to capital formation slower pace, with recurring
(supply side) damage to supply side
Note: Canada trend (1985-2008); US trend (2003-2007); Greece trend (1995-2006) 23
Source: NBER, BEA, Statistics Canada, Hellenic Statistical Authority (ELSTAT), BCG Center for Macroeconomics analysis
Leaders forced to make two macro calls in CV-19 crisis
Strategic macro call Tactical call

What will be the present value of future What will be the depth, speed, and
growth under COVID-19? duration of COVID-19 shock?
I.e. "geometry" of the shock: will it be a I.e. "intensity" of the shock, a different
V, U, or L shape and what does it imply dimension from "geometry"

Will be basis for strategic response (capex Will be basis for near-term response
decisions, business model adjustments,…) (activity, output, staffing, suppliers, etc)
24
Shock geometry vs. shock intensity

Illustrative
Intensity, geometry, and the last 3 US recession

2001 recession 1991 recession
Real GDP (-0.4%/1Q) (-1.4%/2Q)
Drawdown
The last three U.S. recession provide empirical
grounding for geometry and intensity
V U L • 1991 was a V shape recession – 1.4% GDP
Intensity of shock
(~0%) 2001
1991 drawdown over 2Q, with a hint of U as for a

long time it looked as if growth wouldn't
(~2.5%) V U L return to trend

2008 • 2001 was a classic mild V shape – with only
a 0.4% GDP drawdown lasting 1Q
(>6%) V
Trend growth
U L
Trend growth
• 2008 was a severe U shaped recession as
GDP drew down 4% over 6 quarters and
unaffected
2008 recession
downgraded never returned to the prior trend
(-4.0%/6Q)
Geometry of shock (V-U-L)

25
Scenario 2: Covid-19 a deep V-shape, skewed on U
Scenario description The path we're on

Current view of
Real GDP COVID-19 impact
Drawdown
 Following belated but now aggressive social
distancing in advanced economies, global
V U L recession is all but guaranteed
Intensity of shock
(~0%) 2001
1991  First half of 2020 is a severe economic

drawdown in U.S. – likely larger than 2008
(~2.5%) V U L  As activity comes to virtual standstill, one-

2008 off shock to labor, capital, and productivity
growth must be considered - this shifts the
(>6%) V
Trend growth
U L
Trend growth
geometry of shock risk towards U
 The battle to avoid a recession is lost – the
battle for the shape of the shock is not yet
unaffected downgraded
lost
 Key question: Can policy prevent a shift to a
Geometry of shock (V-U-L) U shape where potential GDP (level) is
impaired?
26
Source: NBER, BEA, BCG Center for Macroeconomics analysis
Scenario 3: Clear U-shape is the dominant risk now

Requires damage to capital formation (economy's supply side)
Scenario description What you'd have to believe

Main risk, policy can
Real GDP reduce risk
Drawdown
A "U-shape" downturn would require sustained
damage to the potential of the economy – a
V U L permanently lower level of capital, labor, or
Intensity of shock
(~0%) 2001
1991
productivity.
(~2.5%) V U L Two Covid-19 paths to a U-shape:

1. Financial system shock that cripples
2008 credit intermediation and thus damage
capital formation
(>6%) V
Trend growth
U L
Trend growth
2. Extended real economy "freeze" which
also damages capital formation
unaffected downgraded
Coronavirus has unique risk profile in that both
paths to structural damage are plausible/likely
Geometry of shock (V-U-L) and are also interdependent
27
Policy will decide if deep V or U

Two paths to damaging capital formation on economies' supply side
Financial system shock Real economy freeze

Liquidity
Known problems • Ensure that the banking
system is liquid
• Ensure business that are
experiencing a cash crunch
Uncharted
territory • Excess reserves, direct and don't fold due to a mismatch territory
indirect interventions in cash in payment timing
and credit markets • Don't allow "going concern"
Significant businesses to fail
Capacity and
capacity and institutional
institutional Policy proficiency to stave

objectives
proficiency in off real economy
policy • Ensure banking system has an • Ensure broken firm balance liquidity/capital
abundance of capital sheets don't impair investment
response crisis far less clear
• To keep this problem from • To keep this problem from
turning V into U, may require turning V into U, requires
early recapitalization recuperation via bailout and
Capital (bailouts), a political question efficient reorganization
problems (bankruptcies)
28
Real economy is large and unique policy challenge
Policy capacity assessment

Financial system shock Real economy freeze (summary)
Liquidity
problems • Ensure that the banking • Ensure business that are
Capacity/ability: Significant fiscal capacity
system is liquid experiencing a cash crunch
but modest ability as pipes are not set up
• Excess reserves, direct and don't fold due to a mismatch
and channels are indirect
indirect interventions in cash in payment timing
and credit markets • Objective don't allow "going Proficiency: Many politically unpopular
concern" business to fail choices – any fiscal action is politically
contentious, but crisis can drive fast action
Policy

objectives
• Ensure banking system has an • Ensure broken firm balance Capacity/ability: Fiscal capacity very high
abundance of capital sheets don't impair investment in U.S., despite high debt and deficit
• To keep this problem from • To keep V from turning into U, (structurally anchored inflation regime)
turning V into U, may require requires recuperation via Proficiency: Politically challenging
early recapitalization bailout and efficient (unpopular) and technically challenging
Capital (bailouts) reorganization/recapitalizatio (targeting)
problems ns
29
Basic real economy dashboard — Long run

Last updated 4/11
Initial claims Unemployment Payrolls Retail sales
Cons. Confidence Housing and auto sales PMI (manufacturing) PMI new orders

30
Source: NBER, Department of Labor, BLS, Redbook, The Conference Board, National Association of Realtors, Autodata, Institute for Supply Management, BCG Center for Macroeconomics
Basic financial economy dashboard — Long run

Last updated 4/11
CP rates Libor v. OIS Repo v. Fed Funds Fin. Stress Index
CP issuance Fed balance sheet U.S. Com. Bank BS Delinquency rates

31
Source: Federal Reserve Board, ICE, Refinitiv, Tullett Prebon Information, Office of Financial Research, Federal National Mortgage Association, BCG Center for Macroeconomics
Basic market dashboard — long run

Last updated 4/11
Equites (S&P 500) Implied Vol (VIX) US 10Y rate US 3M rate
IG & HY spreads Infl. breakeven $ Index Gold

32
Source: Haver, U.S. Treasury, Federal Reserve Board, ICE/Bank of America Merrill Lynch, BCG Center for Macroeconomics analysis
Macro shape is context, not destiny for firms
Macro context Firm-level reality

Macro scenarios describe the context within Important to recognize firm and industry-level
which firms operate idiosyncrasy within shared macro context
As outlined, have some confidence on drivers of Even as e.g. V-shape plays out at macro level,
shock geometry (strategic call), less so on individual firms could still face U or L scenarios
intensity/duration of shock (tactical call) (e.g. airlines, cruise lines, live entertainment

businesses come to mind)
Framework broadly applicable across regions
and situations, however each sets of Also, even a V-intensity could represent an
circumstances (economy, industry, firm) needs existential threat at firm-level
its own evaluation
33
To illustrate, some companies flourish in downturns…
14% of companies improve growth and margin …and the performance gap
in downturns, while 44% decline in both… between them is substantial
Increasing sales growth
Revenue growth Change in
A (CAGR)2 EBIT margin2
8.8% +14pp
14% 14%

Shrinking Expanding +7pp
EBIT margin EBIT margin 2.9pp
44% 28%
-4.7% -4.4pp
B
Falling sales growth
A B A B
1. Average across last four U.S. downturns since 1986; based on performance compared to three-year pre-downturn baseline for U.S. companies with at least $50M sales 2. Annualized 34
revenue growth during the downturn period 3. Compared to three-year average pre-downturn EBIT margin | Source: S&P Compustat and Capital IQ, BCG Henderson Institute
…and that holds across all industries
Distribution of company performance in downturns, by sector1
Falling
32% 34% 28%
B growth and 36%
47% 45% 46% 45%
EBIT margin 54% 53%
Avg:
44%

Other 41% 48% 50% 57%
39% 41% 41% 44%
34% 37%
Increasing
Avg:
growth and
A 22% 20% 16% 16% 14%
14%
EBIT margin 14% 12% 11% 11% 10%
Health Cons. Communic. Utilities Materials Industrials Cons. Energy Financials Information
Care Staples Services Discretionary Technology
1. Average across last four U.S. downturns since 1986; based on performance compared to three-year pre-downturn baseline for U.S. companies with at least $50M sales 35
Note: Sectors based on GICS definitions | Source: S&P Compustat and Capital IQ, BCG Henderson Institute
Performance improvement
through digitization in
response to Covid19 crisis
36
COVID-19 with significant impact on companies – focus so far on
protecting measures, less on business action
COVID-19 will hurt Significant issues in Lack of business Long-term effect on

revenues & earnings supply chain and labor measures taken so far remote working

• 60% of companies expect • >60% of companies • Most companies are active • Majority of companies
negative revenue and already faced supply chain in ensuring employee want to change remote
earnings impacts in FY 20 issues safety working policies and
• ~70% of companies expect • Further increase expected • But only 1/3 have taken improve crisis response
normalcy to return within as more issues already measures to capture long-term
6 months reported in regions where demand rebound • Some companies already
outbreak spread first expediting their plans
Source: BCG COVID-19 Company Survey; BCG Henderson Institute Analysis 37

Digital & Technology levers help for responding to the crisis
Now Near term Medium term

Protect your people, ensure continuity, Pro-actively seize demand rebound and Build advantage by making strategic
and mitigate short-term losses bring business back on track enhancements and building resilience
1 Analytics driven transparency 1 Push of online channels, distribution, 1 Performance improvement Focus of this
(people, finance, supply chain) inside sales, digital demand through digitization/cost-out deck
2 Analytics and AI simulations 2 Digital marketing & personalization 2 Analytics based reconfiguration
(demand, supply chain, cash, patient finder, (eCommerce) of supply chain
pricing)
Actionable steering cockpit Dynamic supply chain Business model innovation & digital

3 3 3
planning driven go-to-market approach
4 New remote ways of working 4 Demand/stock – 4 IT cost reduction & simplification

(tools, principles, practices) global sourcing platform
Increase resilience and value from Technology

New ways of working, critical 4 Data and digital platforms for
Continuity Remote working 2 Portfolio triage and acceleration 3
1 technology capabilities, speed and agility
Cyber resilience of critical business outcomes
Agile@Scale
Detailed approaches across levers available upon request 38

Companies with high Digital maturity outperform peers
~1.5× higher spend Enterprise value more than

1.8× higher earnings growth p.a. on innovation p.a. doubling p.a.
2.4×
1.8× 1,5×
8.7%

7.2% 7.2%
4.1% 4.7% 3.5%
EBITDA R&D expenditure Total enterprise value
Digital leaders Digital laggards
Source: Capital IQ, DAI Global Database, n=224 39

Digital & Technology help to boost performance along 5 dimensions
DIGITIZE THE CORE
(1) Customer offer & Go-to-market (2) Operations (3) Support functions
(1.1) Research & product development (2.1) Manufacturing (I4.0) (3.1) Corporate center
(1.2) Personalization & Digital marketing (2.2) Digital supply chain (3.2) Shared services & centers of excellence
(1.3) Next-generation sales (2.3) Procurement (3.3) Customer services
(1.4) Digitally driven pricing (2.4) Service operations

(4.1) Organization & governance (5.1) World Class Tech Function
(4.2) Skills & people Data strategy & governance
Leadership & culture Artificial intelligence
Agile@Scale & Digital Delivery (DevOps) Digital & data platforms
Digital transformation accelerator Internet of Things
(4) Changing ways of working (5) Leveraging the power of data & technology
Dimension with short- to mid-term performance impact Enablers supporting relevant PID dimensions
40
There is a long list of performance improvement levers available
# of levers
Domains & dimensions Digital Trad. Total EXAMPLES
(1) Customer offer & Go-to-market 23 16 39
(1.1) Research & product development 5 3 7
(1.2) Personalization & Digital marketing 6 1 7 Reduce customer churn with predictive models
(1.3) Next-generation sales 7 7 14 Up to 3% increase in revenue | 30-50% increased customer retention | 5-10% churn reduction
(1.4) Digitally driven pricing 5 5 10
(2) Operations 32 16 48
(2.1) Manufacturing (I4.0) 10 5 15
(2.2) Digital supply chain 7 4 11 Real-time dashboards for data-driven E2E SC mgmt
(2.3) Procurement 8 3 11 3-5% product cost reduction | 2-5% improvement in customer service | 10-20% lower logistics cost
(2.4) Service operations 7 4 11

(3) Support functions 9 8 17
(3.1) Corporate center 2 6 8
RPA and AI enabled support processes
20-30% personal cost reductions | 25% reduction in cost per invoice | 10-30% reduction in overdue
(3.2) Shared services & centers of excellence 4 1 5
(3.3) Customer services 3 1 4
(4) Changing ways of working 3 5 8 Shift from indirect to direct activities
(4.1) Organization & governance 1 4 5 15-20% decrease in non-value creating activities | Up to 20% more direct value
(4.2) Skills & people 2 1 3
(5) Leveraging the power of data & tech 6 7 13
(5.1) World Class Tech Function 6 7 13 Rapid portfolio reset, accelerate cloudification
10-15% improvement in business value created | 15-25% increase in efficiency
Grand Total 73 52 125
41
Example levers on level 2
(2) Operations
Sample lever: (2.2) Digital supply chain
Preliminary impact/payback figures collected from KDPs—to be detailed and refined to make them more concrete
(2.2) Digital supply chain Typical performance improvement levers:

2.2.D1 Automate supply chain planning with AI/ML, RPA and IoT
6-12 months EBIT 2.2.D2 Build real-time dashboards for data-driven E2E supply chain mgmt. Example
impact:
0-1pp 2.2.D3 Implement dynamic E2E inventory reduction
2.2.D4 Leverage analytical models/simulations for optimizing logistics
Full EBIT impact: 1-2pp network and planning routes & goods mix
2.2.D5 Optimize S&OP (sales and ops planning) with advanced analytics
Revenue uplift: n/a 2.2.D6 Use adv. analytics to improve forecast accuracy & drive
better supply decisions
(2) Operations 2.2.D7 Use linear optimization algorithms to optimize supply networks
Cost reduction: 10-20% SC infrastructure costs 2.2.T1 Optimize logistics spend via load consolidation and efficient

sourcing & contracting
Typical payback: <3 yrs 2.2.T2 Re-design workflows to drive higher volume throughput (13 levers)
2.2.T3 Reduce maldistribution via. efficient inventory placement
Required 2.2.T4 Utilize analytics-driven zero-based budgeting
investment:
Medium
for supply chain infrastructure
Specific impact • 10-20% logistics cost red.

examples: • 15-30% inventory reduction
Digital levers: New levers improving performance based on the power of digital, tech, and data
Traditional levers: Proven levers which have been used for many years to improve performance. Levers make use of digital elements as well
42
Note: This deck focuses on digital levers only. The traditional levers have been listed as reference and addressed by TURN Rapid Assessment Toolbox
Companies can expect significant uplift already with 6-12 months ROI
Customer offer & Operations Support Functions Changing ways of Leveraging the
Go-to-Market working power of data &
tech.
6–12 months
0-2pp 0-2pp 0–1pp 0–0.5pp 0–1pp
EBIT impact (pp)
Full mid-term

2-4pp 1-4pp 1–2pp 0.5-1pp 0.5–3pp
EBIT impact (pp)
Revenue
5-15% n/a n/a n/a n/a
uplift (%)
Examples for cost 10-40% 10-20% 5-20% 5-25% 15-30%

reduction (%) of marketing costs of conversion costs of SG&A costs of personnel costs of IT/Tech cost base
Source: BCG DAI/PID 43

Two questions
Have you already defined your measures for now, short

and medium term?
What additional potential do Digital & Technology levers

offer to further improve your company's performance?
44
Example Vignette / Use case Backup
Control Tower: E2E SC visibility enables +2-5 p.p. customer service,

3-5% cost & 5-7% working capital reductions
Solution and technology Benefits and costs
Integrate data sources … map end-to-end supply chain ... deliver insights to sources Benefits
providing visibility including raw materials and of volatility and drill-downs • 2-5 ppt improvement in customer service
level –Agility in supply
beyond ERP … components to workcenter operations
Active Pharmaceutical Ingredient
• 3-5% cost reduction – Workcenter-level
ERP1 performance
Drug Product
• 5-7% working capital reduction – Lead
LIMS2 time variability reduction
• 10-15% cost avoidance - Downstream
QMS3 inefficiency mitigation
Investment
MES4 (OEE) Packaging

• Dedicated supply chain data
management team, analytics capabilities
EAMS5
High volatility in Large inventory
• Hardware requirements + ability to
quality process buffers and
aggregate data from different sources
EBR6
lead time inconsistent wait
Use case in action

Global • High complexity (markets, SKUs, technologies) • Easy-to-use digital dashboard providing real-time updates to material flow
• Inter-connected global supply chain disruptions and dill downs
Pharmaco • Global ERP implementation, inconsistent system usage • Smart analytics to identify root causes and leveraging predictive power of big
• Multi-year OpEx program extracted “low hanging fruit” data and machine learning
• Access to next level value opportunity (see benefits above)
1. Enterprise resource planning 2. Laboratory information management system 3. Quality management system 4. Manufacturing execution system
5. Enterprise Asset Management Software 6. Electronic batch record 45
Boston Consulting Group Answers and suggestions
at LinkedIn BCG.Brazil.Covid19@bcg.com
BCG is helping hundreds of companies around the world to overcome the COVID Reach out to us if your
crisis, to support the society, and to capitalize on emerging opportunities company needs support
46
The situation surrounding COVID-19 is dynamic and rapidly

evolving, on a daily basis. Although we have taken great care prior
to producing this presentation, it represents BCG’s view at a
particular point in time. This presentation is not intended to: (i)
constitute medical or safety advice, nor be a substitute for the
same; nor (ii) be seen as a formal endorsement or recommendation
of a particular response. As such you are advised to make your own
assessment as to the appropriate course of action to take, using
this presentation as guidance. Please carefully consider local laws
and guidance in your area, particularly the most recent advice
issued by your local (and national) health authorities, before
making any decision.
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Session #5: BCG Live: How To React To COVID-19 Implications?

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Session #5: BCG Live: How To React To COVID-19 Implications?

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BCG Live Session #5:

How to react to COVID-19

April 17th, 2020

The situation surrounding COVID-19 is dynamic and rapidly

Philipp Carlsson-Szlezak Michael Grebe

Recap: Three phases of the COVID-19 development

COVID Dashboard – World View, Selected Countries

UK Early Flatten 103K 5.2% 6.15K 25(45) days 69%

France Flatten 109K 3.5% 5.11K 32(56) days 73%

Spain Flatten 183K 2.6% 19.90K 34(42) days 80%

Germany Flatten 134K 2.3% 20.63K 26(42) days 44%

Italy Flatten 169K 1.9% 19.49K 39(54) days 75%

Japan Fight 9K 6.2% 0.75K Did not adopt 33%

S. Korea Fight 11K 0.2% 10.51K Did not adopt 12%

China Fight 84K 0.2% N/A 76(76) days (Wuhan) N/A

COVID Dashboard – Brazil View, All States

Most affected countries in Europe preparing to flex

Number of daily reported new cases

UK - 23 Mar – 7 May (45 days)

Germany - 16 Mar – 3 May (42 days)

take first • No definition on bars and restaurants reopening

steps out of • Creches and schools able to reopen after 11 May

lockdown Spain - 14 Mar – 25 Apr (42 days)

As of April 16th, there are ~2.2M confirmed cases globally;

Rates improving from top to bottom

Size Cumulative # of confirmed cases

Europe Rest of World North America

As of April 16th, there are ~145k confirmed deaths globally

Size Cumulative #of deaths

Europe Rest of World North America

In Brazil, SP remains as most impacted state; ES cases

Size Cumulative #of confirmed cases

South East North East North South Central West

COVID-19 is spreading across the country

Confirmed deaths in every state, however still very

Countries are under reporting Estimates for the percentage of cases

~10x the prior peak or peak in Global Financial Crisis

Disease (SARS-CoV-2) Disease properties

Public policy Disease mitigation and response

Geometry of shock (supply-side) Growth path and rebound

Macro Real economy Liquidity/capital problems

Copyright © 2020 by Boston Consulting Group. All rights reserved.

Industry, firms, households: tactical Confidence

Source: BCG Center for Macroeconomics 18

Infection — inflection (?)

Late window actors

U.S. late window and

Copyright © 2020 by Boston Consulting Group. All rights reserved.

Testing — virus, antibodies

Testing (virus) - levels Testing (virus) - scaled Testing (antibodies)

Copyright © 2020 by Boston Consulting Group. All rights reserved.

GDP forecasts — short shelf life, need scenarios

Copyright © 2020 by Boston Consulting Group. All rights reserved.

Note: Uses actively maintained brokerage forecasts 21

Scenarios — Understanding "shock geometry"

V – at least this U – the main risk L – still unlikely

Copyright © 2020 by Boston Consulting Group. All rights reserved.

V-U-L empirics — same shock, three shapes

V-shape U-shape L-shape

Copyright © 2020 by Boston Consulting Group. All rights reserved.

Leaders forced to make two macro calls in CV-19 crisis

Strategic macro call Tactical call

Copyright © 2020 by Boston Consulting Group. All rights reserved.