3% of the companies operating in Romania have an impact on the economy, yet half of them are struggling
- If the trend of the past years continues, we will have 15,000 impactful companies by the end of 2018, which could generate a domino effect on the economy
- We have a performing economy, that stands on a thin foundation
- Investors should consider businesses in difficulty for the opportunities they present
- A healthy economy requires local entrepreneurs
Bucharest, April 26th, 2017: 3% of all the Romanian companies account for the driver of domestic economy, yet half of them are struggling, according to the third edition of the CITR Group study on the evolution of impactful companies between 2013 and 2015. The number of these impactful businesses is declining, from 23,384 in 2013 to 19,564 in 2015. If this decline continues, the entire economy may be affected, due to a spillover effect. All these, considering that Romania is uncapable of generating sufficient new entrepreneurs to restore the balance in the Romanian business environment.
CITR Group conducted the third edition of its study on impactful companies operating in Romania, covering the time span 2013 – 2015. The analysis of these companies took into consideration the year-end financial results. The study also included companies with total assets exceeding one million euros which were not in insolvency. The analysis also focused on state-owned companies, but excludes nongovernmental organizations, banks, insurance companies, brokerage companies and pension funds, whose financial situation was different from the other companies.
The study reveals that, at least for the past three years, we have been witnessing a paradox of the Romanian economy: despite registering the highest growth rate in Europe, the field of insolvency remains active and turbulent. Only in 2016, the total debt of the 314 companies under analysis which filed for insolvency amounted to EUR 2.4 billion, equal to approximately 1.5% of the GDP. In terms of numbers, the ratio between healthy companies and struggling businesses (in various phases of difficulty) is almost equal.
Although 19,564 impactful companies only account for 3% of all the companies in Romania, they generate 68% of the cumulated turnover at national level and employ 41% of the workforce in Romania. The number of employees in these 19,564 companies dropped between 2013 and 2015, and almost 19,000 jobs were lost. Approx. 36% of the impactful companies reported a profitability between 0% - 5%, a level much too low to support a level of indebtedness over 70%. Nevertheless, 39% of the companies with such low profitability have an indebtedness level of 70 – 100%.
“For the period 2013 – 2015, the study indicates a concentration towards the top of the companies operating in the Romanian economy. The number of impactful companies decreased, yet they generate more, are more profitable and use fewer employees. In other words, the pyramid of the Romanian economy is taller, with a sharper tip, while at the base it may suffer from seismic movements that may destroy the entire system. Every year, over 1,000 major companies in Romania lose relevance, becoming smaller – with their assets decreasing below one million euros. At this pace, we will only have 15,000 relevant companies at the end of next year, which is less than one per one thousand habitants. This reduction should not be seen in isolation. The collateral implications are similar to the domino effect and may impact the entire economy”, explained Rudolf Vizental, CEO of CIT Resources.
The pyramid of impactful companies is based on many companies with assets worth more than one million euros, without exceeding 10 million euros. This level also concentrates the greatest number of employees of all impactful companies. At the same time, the tip of the pyramid consists in fewer businesses, each with assets worth of more than 50 million Euro, however, cumulated, this class has assets of a higher value, bigger debt and registers more sales.
In the study conducted by CITR Group, impactful companies were divided in fundable, restructurable and insolvent. The number of the businesses in the first category increased, the second decreased, while the number of insolvent companies halved.
An analysis of the category of fundable companies proves that it was the main winner in the past several years. The period of hardship was used as an opportunity to grow and consolidate, and these companies continued to be the driver of the Romanian economy. However, according to the study, based on the indicators, healthy company may face difficulties in the next year or even insolvency. The reasons may be manifold: from wrong management decisions to unforeseen structural changes in market conditions or applicable legislation.
As for restructurable companies, their indicators improve overall, while their number decreases, they generate a higher turnover and enhance the productivity of the employees. In terms of net results however, they contribute less to the cumulated net profit of impactful companies. Their major issue lies in a high debt rate and low liquidity. Restructurable companies are concentrated in the debt range 70% - 100% – this concentration is expressed both quantitatively (approximately three quarters of the total number), as well as in value of the turnover, total assets and debt.
At the same time, the number of insolvent companies was reduced, but this reduction is not qualitative and does not reflect an improvement; the indicators of the businesses facing imminent insolvency degrade constantly during the period of reference. This category features a high net loss rate sharply growing in 2015 vs. the previous years (-21% net loss in 2015, vs. 13% net loss in 2014 and 12% in 2013), negative profitability of assets and a one-year delay in the collection of receivables in 2015. All these cause companies to maintain reduced stocks and a productivity of the employees below half of the productivity of the employees working in the companies included in the other categories.
“Companies do not become naturally healthy, they require an intervention: investments, turnaround strategies and community support. In order for the recovery of almost half of the impactful companies to be not only possible, but also likely, we must give a second chance to entrepreneurs who have dealt or are dealing with difficulties or insolvency. Studies prove that, once they went through this experience, they become more efficient and more cautious to danger and estimate more accurately the risks and opportunities. The Romanian business environment cannot afford to lose them. A healthy economy needs local entrepreneurs”, stated Alexandru Tănase, Managing Partner CITR.
About CITR Group
CITR Group supports companies throughout their recovery process by providing reorganization, restructuring and investment solutions. The group has the resources to manage all business areas, both within and outside judicial proceedings. Established in 2014, its mission is to anticipate the needs of entrepreneurs and constantly improve the services offered to companies, so that any economic issue is transformed into a business opportunity. CITR Group consists in CITR, CIT Restructuring and CIT Resources.
CITR is a society of insolvency practitioners, leader of this market in Romania. With over 16 years of experience and a portfolio of more than 850 projects, it currently manages affairs of over four billion Euro and assets worth of EUR 650 million. Over the past five years, CITR has distributed to creditors more than EUR 400 million, of which EUR 100 million only in 2016. CITR has 10 subsidiaries across the country and provides customized solutions through 120 experts.
CIT Restructuring is a company focused on business restructuring other than through insolvency, comprising experts with more than 16 years of experience in this field. The company specializes in transactions and debt restructuring, financing and management solutions, diagnosis and strategic planning.
CIT Resources is a company focused on funding struggling Romanian companies with immediate operational recovery capacity through direct investments.