Galaxy BoD recommendations COVID19 crisis

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COVID19 A C T I O N S TO TA K E

NOW

POLICY NOTE This guide is prepared by Galaxy Group of Companies as a Recommendation paper to its Executives.

Dissemination to 3rd parties is strictly prohibited.

March 20, 2020

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THE “WAIT AND SEE�

APPROACH IS A NON-STARTER The challenges and changes that our businesses are facing from the global COVID-19 outbreak and its local impact are unprecedented.

As our CEOs are trying to figure out the best course of action for their businesses, we at GALAXY believe it's helpful to look at the ways others in the community are responding from global companies.

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STANDING STRONG TOGETHER

This document is meant to help senior leaders in Galaxy Group of Companies to understand the COVID-19 situation and how it may unfold as well as take steps to protect their employees, customers, supply chains and financial results.

Board of Directors, Galaxy Group of Companies

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EXECUTIVE SUMMARY

Current situation

Possible future scenarios

COVID-19 has seen a consistent case decline in countries that had experienced rapid case growth early (esp. China, South Korea).

Delayed Recovery: The virus continues to spread across the Middle East, Europe and US until mid Q2, when virus seasonality combined with a stronger public health response drives case load reduction.

However, cases outside of Asia are growing dramatically, driven primarily by complexes in Europe, CIS, the Middle East. The United States, while having confirmed only a limited number of new cases, appears to be set for a large increase in cases once testing kits become widely available.

Prolonged Contraction: The virus spreads globally without a seasonal decline, creating a demand shock that last until Q2 2021. Health systems are overwhelmed in many countries, especially the poorest, with large-scale human and economic impact.

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OUR VIEW ON THINGS COVID-19 is unlike any previous crisis

Significant revenue disruption

Traditional “crisis response” approach will not be sufficient

Chances are high there will be substantial revenue disruption for many, leading to a potential liquidity crisis. The recovery may not be a quick bounce back, so plan for multiple quarters of lower revenue.

Major disruptions on the way

Fear/panic among customers & employees

The process of ‘containment’ and ‘slowing the spread’ that is phasing in country by country will create major disruption in itself, irrespective of the seriousness of the virus spread itself

Customers will change behaviors in non-reversible ways, accelerating prior trends; bold action on the field of brand and reputation now can set you up for success through the downturn and beyond.

Prepare for the worst

CEO functions during the crisis

While hoping that the virus doesn’t eventuate, it is best to prepare for the worst-case scenario. In this case, a “wait and see” approach is a non-starter.

As CEO, it’s critical for you to be out in front with a planned fold, likely more aggressive than your team cascade of possible actions based on which scenarios can imagine right now. You need to appoint a senior, fully dedicated COVID-19 “war room” team, focused on this all day

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CEO CHECKLIST Organizing efforts around the following six urgent priorities

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Protect your employees and customers

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Stabilize operations to new normal

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Model your exposure; Stress test P&L & liquidity

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Defend against revenue declines

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Plan urgent cost takeout to conserve cash

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Plan ahead and prepare for recovery

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1. PROTECT YOUR EMPLOYEES & CUSTOMERS

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Protect your Employees & Customers Employee safety ü Follow the most conservative epidemic protocols ü Follow official advice on deep cleaning and sanitization of most used areas/facilities in offices ü Implement requirements for frequent hand-washing ü Equip employees with any needed sanitary or personal protection equipment (disinfecting wipes, masks, gloves, etc.) ü Re-iterate the importance of staying home if you are feeling ill – Consider screening employees for symptoms (temperature, etc.) and sending home staff that display signs of illness – Policies around sick and personal time may need to be relaxed during this time in order to ensure employee and

Customer safety ü Frequently communicate potential impacts to customers; shift online where possible (sales and servicing) ü Reach out to key accounts and maintain open lines of communication; implement voice of customer monitoring / social listening to understand consumer and customer experience and sentiment ü Prepare communications plan to re-assure customers on product and operational safety concerns and communicate measures to monitor ü - Maintain consistent “brand image”

CSR efforts & Reputation

customer safety ü Consider shifts to alternative working arrangements (e.g. working remotely) and leverage best practices and infrastructure to engage

ü Mobilize impactful donations / supplies to provide assistance to epidemic-ridden geographies ü Support epidemic limiting efforts in any way possible

employees (e.g. videoconferences) ü Cancel non operationally-critical gatherings of 20 people or more ü Regulate/minimize visits from third-parties to offices; implement visit declaration forms and visitor screening policy

Ensure you are over-­communicating with full transparency to employees and customers

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2. MODEL YOUR EXPOSURE; STRESS TEST P&L & LIQUIDITY

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Model your exposure; stress test P&L & liquidity PROJECTED WORLD GDP GROWTH

Consensus expectation before coronavirus

Increasingly worse outcomes

3.3%

L e v e l 2 – S e v e re D o w n t u r n

Level 1 – Missing Plan LEVEL OF I M PAC T F O R YO U R B U S I N E S S

EXAMPLE AC T I O N S YO U S H O U L D TA K E

-X%

0%

Ø Noticeable changes in customer behavior Ø Flat to mild decline in revenue Ø Manageable disruption in operations and business continuity

Ø Dramatic impact to P&L with likelihood of multi-year effect Ø Certain BU’s, geos, channels no longer operating with positive contribution margin Ø Uncontrollable operational disruptions

Level 3 – Liquidity Crisis Ø Severe drop in revenue and negative cash risking near term liquidity Ø Future viability of parts of business in question

Defend against revenue declines

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Shift marketing spend to optimize demand

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Employ aggressive promo strategies

Stabilize operations to “new normal”

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Ensure security of supply

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Te m p o r a r i l y c l o s e l o c a t i o n s o r s u s p e n d operations

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Implement spend handbrakes and noregrets cost reduction

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Implement aggressive “break glass” cost reductions

Plan urgent cost takeout to conserve cash

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3. DEFEND AGAINST REVENUE DECLINES

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Defend against the Revenue Declines

Take a customer centric view – build trust, loyalty, market share

Build specific mitigation actions for core revenue stream declines

ü Proactively contact all customers to let them know about ‘business continuity’ and ‘extraordinary actions’ being taken ü Issue targeted account management / PR & Marketing campaigns directed at highest risk segments to proactively double down on potential segment / customer specific concerns

ü Develop and execute on actions to mitigate downside risks, identifying the best way to approach the most affected customer segments, geographies, channels ü Review current sales pipeline and orchestrate executives to reach out on all late stage opportunities ü Develop clear pricing strategy to maximize revenue for the short and long term - e.g. segmented value-based pricing, dynamic pricing as market conditions fluctuate - avoid slashing prices indiscriminately, findings show that this can take 2+ years to recover

Pivot resources to current & future growth In the short- and medium-term, identify new / accelerated revenue opportunities E.g., pushing e-commerce as opposed to in-person purchases capitalizing on ‘in-demand’ products or services

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4. STABILIZE OPERATIONS TO “NEW NORMAL”

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Stabilize Operations to “New Normal” Sourcing, manufacturing, supply chain

Build contingency plans for all aspects of business

ü Begin daily calls with impacted teams (sourcing, manufacturing, engineering, etc.) to track latest risks ü Assemble fact base to track all sourced components from at-risk geographies ü Work with suppliers to conduct a joint assessment of supply risks, including up-stream risks in their supply chain, and set-up joint process to monitor ü For at-risk components: -Seek commitments on supply minimums -Increase stock levels where possible -Increase delivery frequency to smooth supply -Begin to qualify new suppliers with sourcing ü Ramp up / down manufacturing efforts to meet changing customer supply needs ü Review planned deliveries and develop contingency plans if demand rapidly decelerates

ü Consider adjusting operating hours (or temporary store closures), or pushing customers online to address slower traffic and labor shortages ü Flex labor as needed to meet an increase or decrease in demand – Increase: Consider borrowing staff from less critical roles if needed; add capacity to certain account teams or call centers in anticipation of customers reaching out – Decrease: Consider redeploying labor in other units if suitable, or implement furloughs – Load-balance: Shift labor as much as possible to virtual customer service / maintaining inventory / online order fulfillment ü Defer non-essential tasks to free up labor and stay ready for potential greater disruption ü Consider implementing “Red” and “Blue” teams: Split core functions into teams that go to work every other day or are segregated within the office. If someone gets sick on the “red team,” the “blue team” can still function while the other is quarantined ü Ensure IT functions are equipped for continuity in any circumstance

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5. PLAN URGENT COST TAKE-OUT TO CONSERVE CASH

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Plan Urgent Cost takeout to Conserve Cash

Spend handbrakes

“Break glass” decisions

Improvement in cost position for mid-to-long-term

Ø Freeze hiring plans as relevant Ø Cancel all travel and/or training that is not operationally-critical Ø Pause/furlough contingent workforce Ø Freeze marketing/advertising selectively Ø Stop non-critical consulting engagements Ø Extend payables with suppliers to preserve cash Ø Postpone major investments

Ø Determine future crisis milestones that would trigger additional corrective actions (e.g. major RIF, store closures, production line shut down, route closures, geography exits etc.) – no ideas are too extreme Ø Line up owners and build 80/20 blueprint for each corrective action to be ready to deploy once milestones are reached Ø Benchmark proposed action plans/milestones with competitors to ensure timely responses are planned

Ø Assess cost position and build longer-term roadmap of cost saving opportunities, without cutting ‘muscle’ – Optimize supply chain to reduce cost of logistics/storage/labor, increase automation and shock resistance – Drive procurement savings program to reduce spend with vendors – Right size G&A costs – Establish Zero Based Budgeting – Shift to a more variable cost structure Ø Put the financial house in order: diligently manage liquidity and balance sheet

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6. PLAY OFFENSE, NOT JUST DEFENSE

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Play Offense Not Just Defense Define how you will outperform competitors and take share through and beyond the crisis Ø Enact bold actions now to help outpace competitors in recovery – M&A consolidation roadmap – Strategic product, customer intimacy, or service investments Ø Review pitfalls and update supply chain to achieve greater agility and increased capabilities Ø In case of persistent low consumer demand, lay out a path to build sustained relative cost advantage Ø Ensure balance sheet is robust enough to create a safety net and resilience against hostile approaches

Prepare for ‘bounce back’ and recovery

Plan For & Leverage a ‘Leapfrog’ change in Customer Behaviors & Technology

Ø Continue sales, marketing, and R&D investments to maintain market share; prepare supply chain for bounce-back

Ø Plan for and leverage sustainable shifts in customer behaviors – e.g. digital solutions, automation

Ø Leverage macro trends and industry signals to identify comeback point; have clear “if, then” moves identified in advance

Ø Act swiftly with investments to maintain competitive advantage as customers ‘leapfrog’ through traditional S-curve progression

Ø Learn from this crisis to ‘build the resilience muscle’ for future external shocks (economic downturns, terror attacks, natural disasters) Ø Invest in the teams, tools, systems and redundancies that will protect your business going forward.

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STARTING NOW We recommend immediately launching three actions in parallel

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Your “War Room” Setting Align your senior team with a wake up call Illustrate the potential magnitude of the impact in the worst-case scenario, underscoring the highest risk areas (e.g., what is the total dollar/AMD revenue if we went to zero in all biggest red dots on the map?) .

Start managing your communications/ engagement plan and day-to-day responses – war room leaders must be ‘100% time dedicated’.

Establish a dedicated senior team in a “war room” setting Stand-up the team, prioritize, action major work streams.

Put in place complete tracking tool now – doing this by the time you desperately need them will be too late .

Over-communicate relevantly, consistently, and transparently to all stakeholders.

Outline macro scenarios & translate to contingency plans Outline specific macroCOVID-19 scenarios, by Armenia, Georgia, Belarus and countries you have operations with. Translate those scenarios into tangible revenue decline and operational disruption scenarios.

Begin to outline no-regret moves– there will be an impact, start acting.

This needs to be done in days, not weeks (and from there can iterate).

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“See the opportunity in every obstacle; even if its as fearful as coronavirus.

GROW through what you GO THROUGH”

Board of Directors, Galaxy Group of Companies

MINIMAL STYLE

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THANK YOU

POLICY NOTE This guide is prepared by the Galaxy Group of Companies as a Recommendation paper to its Executives.

Dissemination to 3rd parties is strictly prohibited.

info@galaxygroup.am w w w. g a l a x y g r o u p . a m