Markets hot but growing signs of distress. How can companies respond?

Indicators of distress in Switzerland are on the rise

The Swiss economy was running hot after the pandemic. The Swiss stock market index, residential house prices and private debt reached record highs in late 2021, while corporate insolvencies dropped far below pre-pandemic levels. On the other hand, rising inflation, high levels of debt, increasing energy prices and supply chain disruptions are threatening the post-pandemic recovery. The Swiss Manufacturing Purchasing Managers Index has slid back since July 2021 and the Swiss economic sentiment index turned negative in August and November. Between September and November corporate insolvencies saw a sharp year-on-year increase.

The reasons for this development include increasing working capital requirements due to strong order intake growth in combination with supply chain disruptions; rising inflation and the fear of interest rate increases paired with high leverage, threatening businesses with weak liquidity and balance sheets; high energy and commodity prices; and the recent strengthening of the Swiss franc, which is not good news for highly export-oriented SMEs. All these factors pose a threat to companies in Switzerland, especially those that are vulnerable or not in such robust shape.

Another potential threat is the fact that the COVID-19 loan programme backed by the Swiss government ended on 31 July 2020, and repayment obligations are planned to start in early 2022. Also, Swiss regulations for extended and simplified short-time work are due to expire in February 2022.

How to preserve value during crises and to unlock value levers in periods of growth

When facing uncertainty, decisive action counts. To successfully plan your path to recovery, you need to know what challenges are standing in your way. Because sometimes it’s not as simple as acting on the issue you’re aware of; those that you didn’t foresee often cause the biggest problems.

Restructuring services aren’t just for businesses who have lost control and face insolvency. They are a way to proactively take – and retain – control of your business. There are four areas that you need to take action around to quickly gain control:

• Optimising cash: Actively managing your liabilities and improving the accuracy and consistency of your liquidity planning across your organisation.
• Improving supply chain resilience: Sophisticated analytics can be used to identify bottlenecks in your inventory and weaknesses in your supply chain mix.
• Controlling operational costs: Aligning your cost structure and investment plans with your strategy and exploring how technology such as automation can reduce operational costs.
  
• Focusing on key capabilities: It’s important to understand your strategic options, including options involving M&A, joint ventures, alliances and managed exits.

You can read in more detail about the current situation in Switzerland and the options for strengthening your response in PwC’s latest Restructuring Update, out in January. And feel free to contact us if you’d like to discuss the value drivers most relevant to your business. 

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