Challenging times demand convincing strategies
Commodity cost and supply chains return to normal — but the impact of crisis might be retarded
The last two years have been marked by major challenges for companies in Europe. First, the pandemic and
related lockdowns have led to significant sales losses and supply chain issues. Already in 2021, and again
exacerbated by the war in Ukraine in early 2022, there was a significant increase in the cost of key raw
materials as well as freight capacity and energy. Prices have gradually returned to pre-crisis levels, but
the impact on the liquidity of companies in sectors with long order cycles has yet to materialize. And
interest rates are on the rise, which will be an additional challenge for highly indebted companies.
Financial performance of corporates remains strong, but debt loads have increased
On average, companies in Europe were able to increase revenues and maintain strong earnings before interest,
taxes, depreciation and amortization (EBITDA) margins over the past few years. The number of insolvencies in
Europe, meanwhile, has fallen by around 20% since the beginning of 2020. This was due to the availability of
debt capital to close liquidity gaps, partly supported by government guarantees for loans to companies in
crisis. As a result, loans to companies in the eurozone rose by 16% from the beginning of 2020 to the end of
2022. However, the increased debt of companies could turn out to be a burden in the future if profitability
does not improve at the same rate.
Financing becomes more difficult and requires a compelling plan
69% of the lenders we surveyed said their requirements have increased when they consider providing capital
to companies with poor financials. However, they said they still grant loans when management teams provide a
compelling strategy and financial plan that addresses the challenges in the specific market and competitive
Disruption is back on the agenda
The situation is further exacerbated by market changes, some of which are disruptive, and which have been
temporarily out of focus during the pandemic. The study participants cited changing customer needs and
technologies (30% of respondents) and geopolitical risks (26%) as potential causes of crises in the coming
years. Some of the industries currently under the greatest strain are particularly exposed to these
challenges — for individual companies, this could mean a "perfect storm" is gathering.
However, the study also shows that many banks and other financiers are still willing to provide capital to
companies in difficult times, so long as the borrower can demonstrate a resilient plan to overcome the
crisis. So, companies can still navigate stormy times successfully if they have a transformation strategy to
adapt their portfolios and business model to disruptive market changes and to make their supply chains more
resilient against geopolitical risks.
of surveyed lenders said they have increased their requirements
when granting loans to companies in distress