1 risk minimising strategies 2006. june 15-16 romanian-hungarian business forum cluj-napoca
TRANSCRIPT
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Risk minimising strategies
2006. june 15-16
Romanian-Hungarian Business Forum
Cluj-Napoca
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Themes
Is it risky to do business in Romania and/or Hungary:
Country risk in comparison
Payment morale in comparison
What to do – how to minimise actual trade risk:
Credit reports
Debt Collection Services
Credit Insurance
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Coface in our region
Established 1990 in HU, 1996 in RO
(first Intercredit, then Coface Intercredit, now Coface Hungary)
Since 1996 the leading information provider in RO, market leader also in Hungary
More than 60.000 delivered Credit reports per annum in both countries
Debt Collection portfolio of more than 62M EUR in HU and RO
Since january 2005: credit insurance activity in Hungary, coming soon in Romania, 2006 June: already 11% market share
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Coface Country Risk rating
Hungary
Romania
A1 A2 A3 A4 B C D
Credit Rating of Hungary and Romania
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A comparison
A1 countries (excerpt):
Germany, Spain, France, United Kingdom, Sweden
A2 countries (excerpt):
Italy, Czech Republic, Hungary, Portugal, Slovenia
A3 countries (excerpt): Poland, Slovakia, Malta, Lithuania
A4 countries: Romania, Croatia
B countries: Bulgaria
C and lower: Bosnia, Serbia, Moldovia, Turkey, Albania
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Trade risk situation Hungary
Structure of economy:
1,1 million established companies incl sole proprietors (10m population!)
460.000 Bt., Kft., Rt.
98% of these smaller than 80 KEUR turnover (!)
Just some 4700 companies larger than 2M EUR t/o
Payment morale:
since June 2003 constantly worsening
Non payment affects 96% of all questioned companies
Payment deadline is now a feature, as important as price itself
Payment terms: 30 asked, 95 on average
Non payment leads to highest insolvency rate in EU 25
Mature market – price war – concentrations expected
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Insolvency situation in Hungary
Insolvencies in Hungary:
Every 30th company goes insolvent every year, officially
Grey Zone is approx 10-20% higher due to slow courts and simple closures
Every (remaining) company is statistically affected by 2,7 insolvencies
Pace of Insolvency growth +15% in Q1 2006
Toplist branches:
Agriculture: 4,08% insolvency rate
Textile: 3,78%
Wholesale: 3.35%
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Trade risk situation in Romania
Structure of economy:
525.000 million active companies
82% smaller than 100 KEUR turnover
Just some 950 companies larger than 10M EUR t/o
Payment morale:
since 2004 constantly improving!
But non payment still affects almost 90% of all companies
Payment deadline – relatively stable, but will rise to 30 days soon
Payment terms: 15 asked – 80 on average ( 75% delayed )
Romania has the 2nd highest insolvency rate in the region, ..but:
Striving, booming economy – still more chances than risks
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Insolvency situation in Romnia
2005: Over 3500 insolvencies in Romaina Grey Zone estimated to be over 10% ( 3900 – 4100 companies
affected) Romania has the highest growth rate in Insolvencies in the Region
(in Europe, actually) with +54%!
The most difficult sectors• textiles manufacture• furniture• construction industry• Transports
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Outlook EU accession Romania
What will happen:
Tougher competition from EU25 in most economic areas
Market concentration – survival of the fittest
Non payment and insolvency rates will possibly grow
Rise in domestic competition must be counterweighted by export success
State sector will spend more – EU funding – chance for local companies
What will probably NOT happen:
Half of Romanian companies will not dissapear
It is not going to be better for ALL, regardless of product and services
Real estate prices are NOT going to rocket forever
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Hungarian experience
250.000 Companies insolvent because of EU ?
Highest insolvency rate, but still more foundations than insolvencies
Number of companies however, never reflect the real business situation. One „economical unit” often consists of 5-6 companies (one owner)
In general there is an ongoing concentration of companies. Hungary has 54.000 companies within the construction sector – Austria has 8000, but they make 5x the t/o.
Hungary still has 800 fodder mixing units – germany has only 6 !
Concentration towards fewer, well capitalised, market players is inevitable, but will not happen overnight.
Workforce will shift to fewer but larger units
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Hungarian experience II
Real estate price will rocket ?
In Hungary, particulary in Budapest, there was a high expectation that the accession will push the prices further.
Since end 2004 (EU accession year) the prices are falling / stagnating
Pre-accession boom was mainly fired by governmental loan guarantees, and NOT by millions of foreigners wanting to buy flats.
Commercial real estate is another story: offices moderately up, commercial and logistical green-fields and prime spots still on the way up.
Residential: only the top locations, or other objects qualifying as financial investments are moderately sought after now.
Standard housing, as flats, periphery etc. are falling, as the prices were too high exactly due to EU expectations.
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So, what should be done?
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Risk minimising strategies
The three pillars of risk management:
1. Know your buyers well before delivering goods on credit.
Decide how much credit they are worth and stick to your decision
CREDIT REPORTS / MONITORING
2. If client is late with a payment, react quickly and effectively
INKASSO / DEBT MANAGEMENT
3. If you are not sure that a client will pay in the end – secure yourself with an insurance policy
CREDIT INSURANCE
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CREDIT REPORTS
What is a credit report?
A reactive researched credit opinion, which shows the clients financial standing at the moment, and gives an exact credit limit suggestion.
When should it be used?
Always when new business contacts are established – especially export
What does it cost?
Depending on the country and the spedd required, between EUR 25 and EUR 80 per report.
Is it complicated?
No, at Coface, reports can easily be ordered or downloaded online
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Debt Collection
What is professional Debt Collection? A professional Debt Collection company collects your debts
nationally and internationally fast, reliable and legally correct. Especially internationally we have a strong persuasion power as multinational collectors.
When should it be used? As soon as you experience a change in the payment behaviour of
your client, and don’t get a fully credible answer on the reason why this happened.
What does it cost? Depending on the country, between 5 and 25% of the actually
collected amount.
Is it complicated? No, at Coface, debt collection can easily be ordered online. You
have a 24/7 insight to all of your DC cases.
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Credit Insurance:
What is credit insurance?
An insurance against the insolvency of your client OR against simple non-payment of your invoices.
When should it be used?
In our opinion – always when you are delivering goods on open invoices
What does it cost?
Approximately 3-5 promille of your annual turnover
Is it complicated?
A bit, yes, but it gives you absolute security in your business!
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Summary
The EU accession of Romania will bring chances and raised risks at the same time. It is an exciting opportunity for our region.
Competition will get tougher, as cross-border business will (and should) increase largely.
Companies will have to cope with more competition and more sophisticated financial and business techniques.
but
We do not expect dramatical changes to the worse, not even in the real estate market.
It is a great chance for all of us – let’s go out and grab it!
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Köszönöm a megtisztelő figyelmüket!Thank you for your attention !
Multumesc pentru atentie !