Signals of coming crisis

It will take some time – and a more careful reading of the financial statements – before we can reach definitive conclusions about corporate results for 2002. This year, the notes by chartered accountants at the bottom of financial statements are more voluminous and detailed than in years past. This is to be expected. After all, it is only recently that there was an international uproar about companies’ accounting practices. The accountants want to be certain that all the bases are covered and they also want to explain why the companies are now taking certain measures to straighten out their finances rather than, say, during the two previous years. So, let us observe, first of all, that the results of the last quarter of 2002, included in the financial statements, are worse than those of the previous three quarters. This means there was a recent downturn and that, quite likely, the results of the first quarter of 2003 will be even worse. The prevailing climate is indisputably pessimistic and will worsen further in coming months, for a simple reason: Most market players (analysts, brokers, investors and businesspeople) expected better results. Disappointment results in stock sales, which explains the continuing decline of the Athens Stock Exchange. These dashed expectations increase concerns, as there is no positive news on the domestic or international front. As for the government, it is hiding behind last year’s relatively high growth figure of 4 percent to disguise the real state of the economy. But even the results of construction companies, the sector that drives the growth, are not a cause for celebration. The best way to illustrate the problem is to point to the turnover – sales or revenues – of listed companies. In most corporations, turnover does not exceed inflation or nominal GDP growth. This means that the market is slowly shrinking. There are cases of dramatic declines in sales. Let us look briefly at the overall picture: Turnover increased in mobile telecommunications, games of chance, construction and leasing companies (thanks to a law allowing the sale and lease-back of properties). It stagnated in foods and drinks, cement – although Greek cement companies expanded sales abroad – and banks. There was a drop in turnover in water companies, information technology, energy – with the triumphant exception of Public Power Corporation – insurance firms and OTE Telecom. We must hail, however, a positive development: Many companies purged their financial statements of tricky practices that hid losses up to and including the first half of 2002. Now we have a clearer picture of their finances. This purge was necessary because there is no reason to pay taxes on bogus earnings now that investors are less likely to be fooled. It also shows how much work corporations must do to improve their results. Now is the time for corporations to restructure, fast, to sell or shut down their lossmaking activities, to put their egos aside and seek partnerships and mergers with like firms, to look for foreign partners, to reorganize their operations and to boost their capital base. Restructuring is urgent. Corporate debts have increased dramatically and many of them are now endangered under a mountain of debt. Their turnover is lower than their debts. Banks and suppliers will not be forever patient; this is already evident. Restructuring the debt – especially debt with shares used as collateral – provides some breathing space, which, however, cannot last longer than 12-18 months. Finally, a first reading of financial statements shows that, for a good number of listed firms, survival is doubtful. About 40-50 firms have a negative position, that is, their debts exceed their assets. They have exhausted their capital and their statements are full of the accountants’ dire warnings. Moreover, at least 20 big companies are doing worse than six months ago, a development that will have an impact on the smaller firms cooperating with them. This is, perhaps, the cause for the gravest concern. There are thousands of small, non-listed firms facing increasing difficulties. Their survival may be at stake.