Restructuring to Preserve Value

Noiembrie 2010

CODRUŢ PASCU - Managing Partner ROLAND BERGER STRATEGY CONSULTANTS S.R.L.

TRENDS, PATTERNS AND KEY FACTORS IN RESTRUCTURING

According to around 500 companies worldwide*, the world economy bottomed out between the end of 2009 and the start of 2010. During the crisis, 40% of companies around the globe experienced critical liquidity situations, with 20% still facing tight liquidity even at this moment. Under these circumstances, for the last 18 months, restructuring has become the key watchword in business for companies all over the world.

As the financial turmoil proved even more challenging for small countries depending on foreign capital, Romania made no difference. Romanian managers and entrepreneurs were forced to quickly adapt in order to face the abrupt transition from two-digit growth rates to two-digit drops. Some of them did not survive, others are still struggling, but some managed to successfully achieve turnaround. Financial restructuring, cost cutting and operational optimization actions were common levers for managers crossing turbulent times. However, the general manner by which they undertook restructuring was the main element making the difference. A comprehensive and holistic approach has proved crucial to successful restructuring; management commitment and fast implementation constitute other key success factors.

With many restructuring processes now coming to an end, companies focus on the longer-term implementation of growth and sales actions. Nevertheless, as the painful restructuring experience will most probably linger long in most companies' memory, key lessons learnt from the recent turmoil should not be easily forgotten.

 

Economic developments and prospects

The world economy is expected to grow by 1.1% in 2010 and 1.6% in 2011, with more optimism targeting China (expected growth of 8.5% in 2010) and the USA (2% in 2010)**. More modest developments are envisaged for CEE (Central and Eastern Europe), WE (Western Europe) and Japan, but growth is still expected in 2010, with even more hopeful prospects for 2011. In Romania, the mood remains rather gloomy, as recent political and economic developments postponed all growth hopes towards 2011, in an unexpectedly “best case scenario”.

On average, globally, the respondent companies feel that the economy bottomed out between the end of 2009 and the start of 2010. The USA, Japan, Western Europe and Middle East experienced the worst of the crisis at the end of 2009. CEE crisis is considered to have bottomed out in the first half of 2010 – for Romania it will most probably be the second half.

Moreover, respondent companies around the world expect the next clear phase of growth to settle in the middle of 2011. The USA is perceived to be first to achieve sustainable growth, while CEE, WE and ME (Middle East) anticipate their next phase of growth in Q2 or Q3 2011. Romania is in line with regional expectations, with sustainable growth projected to start in the second quarter of 2011.

Among areas where the situation is expected to deteriorate further, unemployment and taxes are of particular concern, along with lending practices becoming more restrictive. Government regulation and protectionism are top issues in Middle East and China, while in Romania the further decline in private consumption is seen as a serious, imminent threat.

Regarding the industries most likely to quickly absorb the economic recovery worldwide, energy & utilities, pharma & healthcare and financial service providers are perceived as the sectors with the highest potential. In Romania, financial services prospects are not regarded with such enthusiasm, the general impression being that trade and retail would most likely benefit faster from a potential economic pick up.

* Responding to a global restructuring survey conducted by Roland Berger Strategy Consultants in 2010

** All figures in the document have been excerpted from the 2010 Global Restructuring Study by Roland Berger Strategy Consultants

 

Restructuring to overcome the crisis

Impact of the crisis on companies

During the crisis, companies worldwide were mainly hit by falling sales volumes. 58% of the interviewed companies worldwide reported strong business declines, with regional variations spreading from 100% in the USA to only 38% in China. Limitations on investments and worse payment behavior by clients followed in the top negative crisis effects, with 53% and 42% respectively of global companies reporting a "strong" or "very strong" impact in these areas.

In Romania, the decrease in sales volume was surpassed by worse payment behavior by clients, as more than half of the responding Romanian companies had to place collecting receivables on top of their priority list.

The crisis seems to have eased up in 2010 – falling sales in particular are becoming less relevant (29%) this year. In spite of planned growth however, 37% of companies worldwide still anticipate a curb on investments. In Romania, 2010 seems to have brought only a slight improvement, with 46% of companies still struggling to compensate and reduce bad payment behavior.

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