Summary of news published in March 2023 on the Restructuring Website
The last month was full of events showing dynamic changes in the economy. A lot has happened both internationally and domestically. Although the events in the banking sector undoubtedly come to the fore, the problems have also affected other industries, in particular clothing. On the other hand, ownership changes within the dairy industry were significant in Poland.
We have been closely monitoring these and other topics, publishing information on our Website on an ongoing basis. Below is a summary of the news for the entire month.
Domino bank failure stopped?
Silicon Valley Bank’s situation came as a surprise to its depositors, who deposited funds there significantly exceeding the amount of guaranteed deposits. This, in turn, after the bank’s liquidity problems were revealed, caused panic and a massive outflow of customers trying to withdraw the accumulated funds. Interestingly, shortly before losing liquidity, SVB was listed by Forbes as one of the best American banks.
The Swiss bank Credit Suisse was also considered one of thirty banks too big to fail. His assessment changed dramatically over the course of one weekend. While on Wednesday and Thursday (March 15-16) announcements were issued that the situation of Credit Suisse was not at risk, on Sunday, before the Monday opening of the stock exchanges, it was reported that the bank had been taken over by its competitor UBS.
This shows how important it is for the mechanisms to guarantee deposits and protect the stability of the banking sector to function efficiently. After the experience of the financial crisis of 2008, the problems of one bank may potentially lead to mass withdrawals of funds accumulated on bank accounts and, consequently, to liquidity problems of the entire banking sector. At present, however, we cannot yet talk about a new financial crisis or the prospect of mass bankruptcies.
The clothing industry is facing a crisis
Recent events, first the coronavirus pandemic and then the invasion of Ukraine, have had an impact on the global economic situation. They systematically leave their mark on individual sectors of the economy. Some of them react faster and others later. We are currently observing intensified changes taking place within the clothing industry.
Only last month we received information about the difficult financial situation of several popular clothing chains. And so, with a long history, vast experience and a large number of stores located around the world, the German chain Peek&Cloppenburg and the Dutch chain Scotch&Soda declared bankruptcy. Representatives of these brands declared that this decision only applies to their local stores and will not affect other stores located in other countries, whose operation is to remain unchanged. The Massimo Dutti brand belonging to the Spanish clothing holding Inditex is also struggling with financial problems.
Representatives of these brands agree that the beginning of the problems was the coronavirus pandemic, which forced the remodeling of existing operations. Firstly, due to the spread of remote work, it was unnecessary to buy formal, elegant clothes, which were the basic assortment of some clothing stores (the case of Massimo Dutti). Secondly, the popularity of then-dominating stationary shopping, for natural reasons, had to give way to e-commerce. Therefore, clothing chains began to invest or co-invest in the development of the online shopping sector. Some of them even overinvest (the case of Peek&Cloppenburg). At the same time, they verified the profitability of their current operations. Cost optimization prompted some of them to withdraw, e.g. from the Polish market. This was done by: Promod, Camaieu, Orsay. These were the first but clear symptoms of the crisis. It was hoped that as the pandemic situation improved, the economy would regain balance and stabilize. But there was no chance. The crisis deepened even more with the Russian invasion of Ukraine. The current financial problems faced by subsequent clothing chains are a consequence of the accumulation of problems, lack of time and opportunities to rebuild the lost position.
It is worth noting that these problems are currently felt mainly by global clothing chains. So what is the situation of Polish brands? In the previous summary, we informed about the success of the LPP Group, which systematically implements the strategy of international expansion. What’s more, the data presented by the Central Statistical Office (GUS) showed that the sale of clothing and footwear is still unflaggingly popular. However, that seems to be changing. The number of people declaring a reduction in clothing purchases is increasing. It is therefore necessary to observe how this will translate into the functioning of Polish brands. Well, in March, the Polish company Marie Zélie, which has been in restructuring for a year, announced that the arrangement was not approved by the court and the need to file for bankruptcy. Its representatives, however, declare that they see the sense in continuing their activities. According to them, this is possible through the purchase of the brand by a new American investor. This is what happened with the bankrupt Scotch & Soda chain, which, thanks to the acquisition of an investor, will ensure continuity of existence, but, as announced, in a truncated form.
Dynamic changes in the dairy industry
In March, we also wrote many times about the financial problems faced by dairy cooperatives. March was full of information about this industry. Representatives of the District Dairy Cooperative (OSM) Czarnków pointed out that the financial problems affecting it were not an isolated case, but a phenomenon on a massive scale. Indeed, the cases of subsequent dairy plants seem to confirm this. Only last month, information appeared that Mlekpol was finalizing the takeover of the dairy cooperative Jogo, and the District Dairy Cooperative (OSM) Końskie would join the ranks of the Polmlek Group. In this context, the case of the Bielmlek cooperative, which has been struggling with financial problems since 2020, should also be recalled. Their dissolution took place in 2022 with the acquisition by the Polindus-Laktopol Group.
So many ownership changes that have recently taken place in the dairy industry are the result of several variables. Well, in recent years there has been a decrease in the number of farms engaged in milk production. According to forecasts, this trend will continue and even deepen. This is due to the systematic decrease in milk prices and the increase in production costs. Therefore, the currently observed consolidation appears to be the best way out of the crisis situation. The new owners, i.e. Mlekpol, the Polindus-Laktopol Group and the Polmlek Group, are the largest Polish dairy plants with a long history, rich experience and large-scale development strategies, which, as you can see, they consistently implement.
Sporty (re)construction
The sports industry is another sector of the economy that is experiencing a common accumulation of problems and is looking for ways to deal with them. Many of them revise the developed development strategies, adapting them to the changing economic situation and strive to implement them. This is the case with the Polish branch of the Intersport network. It has acquired a Ukrainian investor – EpicentrK – and declares that from now on it can focus on further activities. Therefore, it assumes that the demand for sports products will not weaken. This is evidenced by the data for the previous year. According to them, Poles are more and more willing to practice sports and are willing to finance various types of sports activities. This seems to be confirmed by the good financial results obtained by Benefit System.
However, the developed development plan and attracting an investor are not always sufficient. This is proved by the example of the German chain of sports shops – Keller Sport, which has just declared bankruptcy. Why is this happening? There is no clear and universal answer to this question. This is usually the result of a number of factors, including the economic situation, the condition of the enterprise, the moment of making decisions activating corrective actions, the possibility of obtaining financial support, the effectiveness of actions.
Restructuring and bankruptcy proceedings in practice
In March, we informed about several entities that either decided to initiate restructuring proceedings, or are in the process of implementing corrective actions, or ended their operations by declaring bankruptcy.
Among the enterprises that have decided to initiate arrangement proceedings, one can mention the company dealing with the implementation of electrical installations and trade in energy sources – Carbon Group.
Meanwhile, the US tech giant Meta is still undergoing restructuring. As part of corrective actions, it focuses on continuing downsizing. This is now quite common among large tech companies. It is worth recalling that such steps have already been taken by, among others: Microsoft, Philips and Ericsson. This is how they react to the drastic reduction in demand for their services, which enjoyed great popularity during the coronavirus pandemic and resulted in the dynamic development of IT companies.
The restructuring plan continues to be implemented by the European Compensation Center (EuCo). Its representatives declare that the first effects of the actions taken are already visible.
In turn, the Rzeszów Poultry Plant Res-Drob, which has been operating for nearly 70 years, is closing down. Since the outbreak of the coronavirus pandemic, they have systematically started to record losses. Currently, their debt is estimated in millions of zlotys.
At the beginning of April, the once popular titles included in the portfolio of the Motor-Presse Polska publishing house went down in history. The publishing house was declared bankrupt in mid-December 2022, but until the end of March, the time was set to search for investors willing to purchase and continue operating individual titles. Despite initial interest, ultimately no offer was received.
Summary
Summarizing the above analyzes and comments, it should certainly be said that the March information was dominated by significant changes taking place within three sectors: banking, clothing and dairy. We expect that they may continue in the coming months, so we will certainly keep an eye on it. So far, we have done it with entities representing other sectors of the economy that are in the course of ongoing restructuring proceedings (the case of EuCo) and/or bankruptcy proceedings (the case of Motor-Presse Polska).
Among such diverse topics concerning so many different industries, one common denominator can be found. Well, they are the causes of problems that affect individual entrepreneurs. They are generated by the difficult economic situation, which began to deteriorate with the outbreak of the coronavirus pandemic and intensified by the outbreak of war in Ukraine. Thus, our conclusions are confirmed that the group of industries facing the current economic situation is constantly expanding.
The summary was prepared by: Ph.D Maria Wąsicka-Sroczyńska, restructuring advisor Hubert Zieliński and attorney at law Maciej Wozniak.
