Companies adjust strategies in face of market unpredictability

The unforeseen economic twists and turns of late have made it difficult for CEOs and CFOs from across the sectors to draw up accurate budgets for the year ahead. Some companies are waiting for the first quarter of the year to finalize their 2009 budgets, despite usually drafting next year's budget in the last months of the year. Across the world, the depth of the recession is an unknown quantity for CEOs.

“The severity and duration of the recession are difficult to predict and CEOs are balancing the challenges of successfully managing through the downturn while also remaining prepared fo

r economic turnaround,” said Vasile Iuga, country managing partner of PricewaterhouseCoopers Romania.

His sentiments were echoed elsewhere in the firm. “The speed and intensity of the recession has rocked the psyches of CEOs and created a global crisis of confidence. CEOs are most concerned about the immediate survival of their companies. Even in once rapidly emerging economies, companies are now coping with issues

like unavailable credit, sluggish capital markets, and collapsing demand,” said PricewaterhouseCoopers' global CEO, Samuel A. DiPiazza, Jr.

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In a recent PwC survey, pessimism prevailed across all geographical regions, business sectors and levels of economic development. Only 15 percent of CEOs in North America and 15 percent in Western Europe expressed confidence about growth prospects for the next 12 months. This compared with 21 percent in the emerging economies of Central and Eastern Europe, 31 percent in Asia Pacific, and 21 per cent in Latin America.

“Currently we are constantly and carefully monitoring costs. Even as we speak, we are unfolding a program meant to reduce expenses so that the efficiency rates stay within acceptable limits,” Mihai Rohan, president and general manager of Carpatcement Holding, told Business Review.

“In terms of the financial forecast, in the current economic context, it is difficult to make predictions. On the short term we estimate that activity will slow down, mostly due to the stagnation of the residential sector. In the coming period, developers will probably focus more on completing and selling projects that are already underway, and less on starting new ones,” Rohan says.

Activity in the commercial sector will depend on access to – and affordability of – financial products, he goes on.

He doesn't envisage a change in the company's investment strategy for 2009. “However, if the economy doesn't bounce back, we might reconsider these programs and postpone some of the investments planned for this year,” Rohan tells BR.

The GM estimates that the evolution of the cement market will stagnate or even contract in 2009. “The lack of liquidities and the difficult access to financing products will significantly impact consumption. If demand decreases, the price and consequently the production costs will play an essential role in achieving performance rates,” he explains.

In Romania, infrastructure and agro-industrial projects are expected to be the growth engines for the building materials industry.

“However, there might be money problems even here if European Union funds cannot be accessed. Still, we estimate that the construction market will increase by up to 2 percent from the level registered in 2008,” Rohan forecasts.

Mobile firm Orange expects to be able to comment more on its financial indicators in March, when it will announce its annual results for 2008. “The telecom industry will continue to grow this year, but the growth rate will slow down significantly compared to the previous years, considering the difficult economic context and the regulated reductions in mobile termination rates and roaming charges,” Richard Moat, CEO of Orange Romania, tells BR.

Competition on the market is one of the main criteria the firm looks at when drafting its future plans, says Moat.

“While the strong increase in competition has led to price erosion on the voice segment, the data revenues have a solid outlook for the next period. So we plan to continue investing significantly in network development and optimization, especially in our wireless data network, as well as in new product and service launches,” said the Orange CEO.

The telecom company plans to invest a similar amount this year as it did last year, around EUR 200 million, which will go into the 2G and 3G networks. However, Orange's investments this year will depend on the market evolution, said Moat.

Rival telecom operator Cosmote wants to continue its aggressive strategy in 2009, with a focus on the corporate segment, company representatives told BR. Without disclosing its financial expectations for this year, Cosmote says it will also target the residential segment with new offers. The telecom company hopes to increase its residential and corporate customer network, which stood at 5.2 million customers in September last year.

Some companies have drawn up even more versions of their budgets for this year. Office furniture retailer Corporate Office Solutions (COS), is working with four alternative budgets for 2009, ranging from the most optimistic to most pessimistic. Its best-case scenario is sales of EUR 17 million.

“In the worst-case scenario, we would have one third of the current sales, and we would need to cut staff,” said Christophe Weller, managing partner with Corporate Office Solutions, quoted by the local media.

Meanwhile, OMV, the majority shareholder in local oil and gas company Petrom, thinks its Central and Eastern European markets will still provide growth for the company.

“The crisis is affecting us. The halving of the price of oil will diminish our cashflow-generating capacity and implicitly profitability, but we estimate we'll see growth on Central and Eastern European markets, although it will be small,” said Wolfgang Ruttenstorfer, executive president of OMV. “The lack of financing will trigger a slowdown in development in the years to come,” said Ruttenstorfer.

The impact of the recession on the world's major economies, cited by 85 percent of respondents worldwide to a recent PwC survey, continued to dominate CEOs' concerns, and was the only risk factor to increase in their view.

Other major risk factors included disruption in the capital markets, cited by 72 percent; over-regulation, 55 percent; energy costs, 50 percent; and availability of key talent, 46 percent.

CEOs said they recognised the need to collaborate with governments to address systemic problems. However, while 55 percent of CEOs remain concerned about overregulation as an obstacle to growth, nearly half also said their governments have not done enough to create a skilled workforce, and 38 percent said governments could do more to improve infrastructure.

Likewise, more than 80 percent of CEOs favoured clear, consistent government policies to address climate change, but just 28 percent believe that their governments have such policies in place.

For the PricewaterhouseCoopers 12th Annual Global CEO Survey, 1,124 interviews with CEOs were conducted in 50 countries during the last quarter of 2008.

Corina Saceanu