CEE after the crisis: Back to business as usual?
 |
August 2011 |
 |
CODRUŢ PASCU - Managing Partner
ROLAND BERGER STRATEGY CONSULTANTS S.R.L. |
Adresa
Strada Dr. Burghelea, Nr. 5
024031 Bucureşti, Sector 2
Telefon
+40-21-306.05.00
Fax
+40-21-306.05.10
Website
www.rolandberger.com
www.rolandberger.ro
CODRUŢ PASCU
Managing Partner
ROLAND BERGER STRATEGY CONSULTANTS S.R.L.
Based on the “CEE Growth Study” 2011* by Roland Berger Strategy Consultants and Erste Group
And now what’s next? This seems to be the question on everyone’s lips these days. The economic downturn is becoming somewhat of a trivial subject, people have become rather resigned with what seems to be a slow, tiresome recovery and all eyes seem to be pointed towards potentially crisis-reinflating events such as the Greek “situation”, for example. In the meanwhile, business has resumed, more or less, its normal path, especially in the private sector. Restructuring and cost cutting are in many cases over and a large number of companies are increasingly searching for new opportunities and growth options.
But which exactly is the new CEE growth story after the global recession? This was the main scope of a recent Roland Berger Strategy Consultants CEE study analyzing data of almost 1,200 companies (89% of them listed on the stock exchange) in 13 countries in the region. Its purpose was therefore to quantify the immediate impact of the financial crisis on large companies in CEE, assess the long-term growth potential after the recession and identify success factors for companies in the region, in order to derive recommendations for managing the next economic cycle. Results are unambiguous: the future belongs to the big and the bold!
DEVELOPMENT OF SALES AND PROFITS
The crisis separates the wheat from the chaff
Most Central and Eastern European companies made it through the financial downturn in one piece. In many cases sales have returned to pre-crisis levels, although profits are still lagging behind. However, despite the fact that returns are lower than the cost of capital (and have been so since 2008) investors are confident of the region’s future development and, in many cases, EBITDA multiples are approaching pre-crisis levels.
One third of companies were able to even increase their sales and profits during the crisis. Especially Polish, Austrian and Czech firms saw their business develop better than the overall region, whereas companies from Romania, Hungary and Croatia displayed below average results.
What is noticeable is that the gap between small companies (< EUR 50 mn in sales) and their larger peers is constantly growing in terms of sales and profitability. Small companies, which were already growing at a much slower pace before the crisis, reacted relatively late to the crisis and are now struggling to catch up again. This is reflected in profitability (EBIT margins) above all else. Whereas CEE companies enjoyed average profitability of 10 to 12% before the crisis, the figure is now one third lower (5-7%). Smaller companies even had to stomach negative EBIT (-5%) in 2009 and were able to raise their EBIT margins to just 4% in 2010. Generally speaking, it seems unrealistic that EBIT margins will reach pre-crisis levels anytime in the near future, and a sideways trend is expected in the coming years.
Moreover, the gap between low and top performers is widening in Central and Eastern Europe, and the crisis served to accelerate this development even more. In the period 2004 through 2010, 58% of the companies surveyed across the region and 32% in Romania saw sales increase and profits rise. In the years between 2007 and 2009, the figure dropped to 28% in CEE and only 15% in Romania, with the 30% difference in CEE (and 17% in Romania) registering declines during 2007-2009, but compensated by larger growth rates either prior or after the crisis, or both. Romania, in fact, was somewhat de-correlated from the overall region, as crisis effects were only felt as of the last quarter of 2008. At the other end, the low-performers group has stagnated since 2004. Thus, the fact that at a regional level almost one third of companies grew even during the crisis shows that well managed companies can develop in any market environment.
REGIONAL CHAMPIONS: POLAND AHEAD OF CZECH REPUBLIC AND AUSTRIA
Romania, Hungary and Croatia lag behind
How little correlation exists between company development and the trend in GDP is shown by an international comparison: Polish companies generated more than 12% sales growth per year between 2005 and 2009, while Czech and Austrian firms managed around 8%. GDP growth in these countries was much lower. In Romania and Russia, on the other hand, sales grew less than 2% per year – in spite of the economy growing almost 4% p.a.
