COVID-19: The Pandemic's Impact on Czech Companies

Context

In response to the COVID-19 epidemic, which had a major impact on a large number of economic entities in the Czech Republic, BizMachine published the "COVID-19" (C19) indicator from April 1, 2020 until further notice. This indicator classifies entities according to the estimated impact of the COVID-19 epidemic on their operations.

This document is divided into the following sections

1. Purpose: describes the goals and ways to use C19
2. Assumptions: describes the assumptions about the epidemic and its impact on the Czech economy in the context of which C19 was created
3. Methodology: describes how C19 is calculated

1. Purpose

The goal of C19 is to provide companies (suppliers, investors, partners) with the ability to assess the expected impact of the epidemic on their business partners and potential business partners. We anticipated three main use cases:

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1. Risk assessment in the portfolio
2. Identifying entities that remain operationally capable in the current situation and are therefore worth approaching regarding potential collaboration
3. Preparing a list of entities to approach after the situation normalizes

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C19 replaced the existing long-term growth dynamics indicator and was available in the Prospector application as the first of the indicators, including the reasons for classification, for example:

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In the Prospector application, entities could be filtered in bulk according to how significantly they were advantaged or disadvantaged by the situation.

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C19 was also available through the BizMachine API, and we were preparing its inclusion in exports from the Prospector application.

2. Assumptions

We assumed successful mitigation of the epidemic in the Czech Republic and gradual easing of restrictive measures transitioning to "smart quarantine" from the second half of April, based on the following:

1) The previously exponential growth in infections was gradually transitioning to linear growth, i.e., the R0 factor was approaching 1. This was key for controlling the COVID-19 epidemic and "capping" the maximum number of currently sick individuals (source: IHIS CR)

• Early introduction of strongly restrictive measures on people's activities and (relatively) good compliance with rules compared to other EU countries
• Gradual improvement of key systems and capabilities for fighting the epidemic:

1. Testing capacity and number of tests conducted vs. number of positives (comparable to South Korea per capita. Source: WHO)
2. Ability to accurately trace positives and isolate exposed individuals (the COVID-19 technology initiative significantly improved this, including with the help of complete BizMachine data on business premises and POIs)
3. Healthcare sector readiness (e.g., the number of ventilators in the Czech Republic was more than 4x higher than in Spain. Source: Czech Government Office, WHO); hospital processes and capacities were gradually improving after initial major problems (e.g., VFN Prague. Source: interview)
4. Availability of protective equipment (initially poor and gradually improving. Source: Czech Government Office)

2) We assumed the lifting of blanket closures of most establishments in the last week of April / beginning of May and a transition to a "targeted long-term mitigation" regime.

3) We assumed a GDP decline in the Czech Republic over the following 12 months. We did not estimate its depth, given the current volatility of the global situation and the lack of current authoritative estimates in the Czech Republic. For comparison, in 2009 (financial crisis), GDP in the Czech Republic fell by 4.1% (source: MIT). Given warning signals about the severe course of the epidemic in the USA, economic stagnation in China (1.5% growth, source: OECD), the decline in consumer and business confidence in the CNB's March 2020 conjunctural survey (source: CZSO), and the relatively limited volume of economic support in the Czech Republic compared to countries like Germany, Spain, or the United Kingdom, we considered a serious impact on a number of sectors and entities to be likely. An estimate of the severity of impact on individual sectors was part of C19.

4) We assumed that the forced experience with remote work and restricted movement would accelerate the "digital economy" and develop sectors supporting contactless activities (both work and leisure). An estimate of the strengthening of individual sectors was part of C19.

From the above, we inferred the existence of significant differences in the ability of individual economic entities to cope with the situation. These differences are reflected in C19.

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3. Methodology

C19 was designed as a synthetic indicator taking normalized values of 0–100, where 0 represents a very significant negative impact on the entity's operations and 100 represents a very strong positive impact on the entity's operations. All positive and negative facts identified for a given entity (so-called markers) are reflected in the final indicator value. Individual markers may have different weights. Normalization was performed based on the distribution (clusters) of the resulting score.

From the above, it is clear that the resulting score was not based on any interaction with the assessed entity, nor on individually conducted human analysis of a specific entity.

The underlying markers were continuously supplemented and updated based on feedback from customers using the indicator and based on actual observations.

Various groups of markers were taken into account when calculating C19 (direction of influence in parentheses), examples listed below. Access to detailed marker descriptions and update overviews available on request.

1. Subject/field of business using BizMachine proprietary classification methods and algorithms, e.g.:

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• International tourism (–)
• Healthcare services (+)
• and others

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2. Behavioral indicators of activity dynamics

• Hiring activity (+)
• Expanding or renewing vehicle fleet (+)
• and others

3. Financial and asset situation

• Resources covering less than 1 month of operations (–)
• Resources covering more than 3 months of operations (+)
• and others

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4. Significance of connection to the public sector, planned during April

• High share of public procurement volume in revenue (+)
• and others

5. Degree of involvement in digital business

• Online sales / e-shop as a sales channel (+)
• Providing/using cloud services (+)
• and others