Roland Berger study: Only 9% of German companies are worried about direct consequences from the subprime crisis – Three fourths want to restructure

German executives estimate the consequences of the subprime crisis for their own companies as less severe than for the economy at large. That was one of the results of a recent study by Roland Berger Strategy Consultants. The study surveyed approximately 800 CEOs and managing directors at German companies. Of those surveyed, only 9% believe that their companies will experience substantial direct effects (overall economy 35%). However, the majority of companies in the study are expecting lending terms to get worse and economic growth to slow down. The most important topics for the future are strategic issues such as growth, expanding market share and investing in research and development. The funds for these plans are to come primarily from operating business. 73% of the companies said that they would have to restructure in the medium term.

Companies underestimate effects of the subprime crisis

Just 9% of the CEOs and managing directors of German companies surveyed believe their own company to be strongly affected by the subprime crisis. However, 35% of those surveyed from 15 industries and companies of all sizes feel that there will be a strong impact on the domestic economy as a whole. The ramifications of the subprime crisis are perceived as a problem mainly for the financial services industry. However, most of those surveyed are concerned about indirect consequences: Some 68% expect more conservative lending, 61% stifled economic growth and 52% worse loan terms. About 40% are figuring on more conservative investing and weaker imports and exports. Michael Blatz, Partner and Head of the Corporate Performance Competence Center at Roland Berger Strategy Consultants, says: "These estimates of the indirect consequences contradict companies' general expectations, namely that the subprime crisis will have only a limited effect on their own business."

Loan scarcity endangers growth and investment

Strategy topics such as growth, partnerships and M&A activities are on the agenda for many companies. In numbers, 42% of companies are attempting to grow internationally, 31% want to expand their domestic market share and 22% are forging strategic alliances. "The indirect consequences of the subprime crisis will make it harder for companies to reach their strategic goals," notes Roland Berger Partner and study author Max Falckenberg. "Getting financing will become more difficult, thus endangering growth." Bank loans are still the second most important source of financing. At any rate, 40% of companies want to achieve the necessary liquidity in their operating business.

Three-fourths want to restructure in the medium term

Of those surveyed, 73% expect that they will have to restructure in the next two to three years or consider restructuring to be an ongoing task. Key external factors such as competitive pressure, globalization and an overreaction in the industry make restructuring more probably.

Best-practice companies respond quickly

Compared with the 2006 survey, the most critical success factors of successful restructuring – support from management, intensive project monitoring and quick action at the first signs of crisis – have become less important in the opinion of companies surveyed. In particular, only 32% still view the speed with which companies implement restructuring actions as very important (2006: 52%). However, 62% of successfully restructured companies rate rapid implementation as a key success factor. "Companies that respond quickly are also especially successful," says Falckenberg. "And nearly half of the best practice companies needed longer than 18 months to restructure."

Successful restructuring projects increase profits by more than 15%

Two-thirds of successfully restructured companies report sales increases of more than 15%. About three-fourths were able to clearly improve profit and cashflow. 83% were able to reduce their bank loans and 67% could reduce their working capital by more than 15%. The most important restructuring action is still cost cutting, especially in staff and material costs as well as overhead functions. Changing the product and investment portfolio comes in as second most important.