The first effects of the crisis will be visible in the financial results

As of this week, the companies listed at the Bucharest Stock Exchange are expected to make public their earning reports for 2008. Insiders say the effects of the financial crisis will be visible in these balance sheets, although the real declines will be included in 2009’s outcomes.

“The issuers’ results will be positive and negative, as usual, with wide-bandwidth variations. At yearend, the companies usually do some accounting operations that untune the rhythm throughout the year, for example, the provisions or reassessment of accounts receivable and debts in other currencies than local currency. And as the financial reports of listed companies rarely enclose any information on these aspects, it is difficult to estimate what would be the impact on their Q4 results”, said Paul Brendea, analyst at Prime Transaction.

Andreea Gheorghe, director of analysis department at Intercapital Invest, told Wall-Street that he expected weaker financial performance of issuers in fourth quarter than in first quarters last year, if the activity of the companies was not a seasonal one.

“When I say performances, I mean profitability above all, which should be crippled both by rising financing costs (banking loans), and by weakening growth pace of turnovers. The average indebtedness level registered by the companies floated at the regulated market of BSE was about 35% after Q3 2008 (counting down the banks and Oltchim). The depreciation of the leu against the foreign currencies and the growth of loan rates will surely add one-time charges from the first three quarters of 2008, therefore a higher pressure to be exerted on the end profit”, the analyst explained.

Furthermore, a slowing dynamics of turnovers of listed companies will also add pressure over the after-tax profits, due to low flexibility of fixed costs and lower predictability of managers towards the business climate at the end of 2008, said Andreea Gheorghe.

Cristian Negoita, broker at Confident Invest said he expected positive results for last year, yet with a weakening activity in the final quarter.

Brokers say the first effects of the crisis in the issuers’ activity will be visible especially in the last quarter 2008, yet with a milder impact.

“We will see a full-fledged crisis reflecting in companies’ earning reports in 2009. For 2008, we will probably see an increase in provisions, and thus a reduction of operating results”, Brendea added.

Actually, the first effects of the crisis were evident since last year, when various companies announced massive layoffs and temporary shutdown of activity.

“However, this should be mirrored in Q4 financial results for 2008”, Negoita pointed out.

As for the reaction of the market to issuers’ results, insiders have different opinions. Paul Brendea thinks it is possible for the market to promptly react more than before, and to start shifting focus to internal macroeconomic factors, in default of external incentives.

“Lately, the market hasn’t responded to any impulse coming from foreign stock exchanges, probably because the news from developed economies is not new anymore”, he said.

Nevertheless, Negoita said he didn’t expect a major impact in the stock market’s trend, saying that the results have already been absorbed by the stock prices.