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backEUROtalk May, 2012

Businesses ill prepared for Eurozone breakup

Specialists at KPMG have warned that more than 75% of businesses they have spoken with are failing to consider the full repercussions of serious disruption in the Eurozone. In recent months, KPMG has talked through Eurozone crisis response plans with more than fifty Fortune 500 or equivalent companies to assess what they are doing to prepare.

- Some companies claim “just another Y2K”
- 48% have made no contingency plans
- 30% have taken some defensive steps

Simon Collins, chairman elect of KPMG in the UK, commented:
“The majority of companies we have spoken to are not well prepared for serious disruption in the Eurozone. Most companies are looking hard at treasury and at contract terms but have no concrete plans to address operational issues such as counterparty failure, business continuity, or the increased risk of error and fraud. Some businesses have not realised that they are materially exposed to the situation, directly or indirectly through their customers, distributors or suppliers.”

Roger Bayly, Head of Turnaround and restructuring partner at KPMG, added:
“We have been told by more than one executive that ‘this is just another Y2K, it won’t happen’. There are exceptions though: some clients are taking the risk very seriously indeed. For example, in the pharmaceutical sector a large amount of continuity planning has been done to ensure life saving drugs will be available to those who need them. Other clients in the consumer products sector with material exposures have had robust and comprehensive plans and monitoring in place since last summer.

“It is our view that companies with material exposures should understand their risks and have contingency plans in place or have taken defensive actions. We talked with one company which was confident its customer base was solid because 80% of sales were with five large European corporates – three of which were on our internal failure watch list. The flip side of the coin, of course, is that a breakup also presents opportunity. It may give some businesses the opportunity to gain market share or radically change business models as customer demands change but we have found that companies, on the whole, are not thinking this way.”

Source: KPMG - GAI

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