Economic downturn remains major risk in Portugal–Portugal

Portugal is going through a protracted financial crisis that has been compounded by years of austerity policies imposed by the European Union, the European Central Bank and the International Monetary Fund. Its economy shrank by 1.4% in 2013, the third straight year of negative growth. Portugal’s GDP is expected to expand by a mere 1.1% in 2014. The struggling economy has affected the spending power of Portuguese consumers that in turn has affected the performance of its companies.hide“We are producers of fast-moving consumer goods and our performance is closely linked to the purchase power of families,” said Mariana Lopes, Director of Financial Management and Risks at drinks company Unicer. “Portugal has been through an economic and financial crisis for some years already, and this fact creates pressure on prices and margins. There has also been a drop in sale volumes. In the case of beer, for instance, Portugal is posting levels of consumption that are equivalent to the 1970s. The way people are consuming drinks is changing as well. People are consuming much more at home than in restaurants or bars. This has a direct impact on our margins,” she added. The situation is complicated by the fact that competition remains fierce in many sectors. “A risk that has gained importance compared to last year is competition in the domestic market,” said Pedro Cupertino, Risk Manager at retail and finance group Sonae. “New players have come to Portugal and current competitors have increased their promotional activity which has had an effect on our performance. Therefore, this is something that we need to continually keep an eye on. People are very sensitive today to sales promotions and lower prices, and we need to maintain our market share.” Ensuring payment from clients and business partners is also a growing concern for certain Portuguese companies. “The risks that are on the rise are those related to making sure that we are going to be paid,” said António Cândido, Chief Risk Officer at electromechanics and electric infrastructure group Efacec. “We are paying much attention to the financial solidity of our clients, partners or subcontractors, and to credit risks too. Cash flow is fundamental today. In previous years, people did not talk much about cash flow. But today it is a major subject.” Although Portugal’s economy remains in the doldrums, some improvement has taken place in the past year, especially in terms of access to financial markets. “One risk that has lost some severity compared to last year is the availability of capital,” Mr Miranda said. “We believe that today this is not so much of an issue for us.” Another concern that continues to require attention is environmental risk, especially for an energy group such as EDP. According to Demetrio Tahoces, Director of Insurable Risks at the company: “Among the most traditional risks, it is the one that has received more emphasis recently thanks to the attention that has been given to it by the top management. The fact that we are included in the Dow Jones Sustainability Index reflects the commitment of the company to this particular area.” He added: “There are also the risks linked to climatic events. This is nothing new, but natural catastrophes, possibly aggravated by climatic conditions, have been more frequent, not only in Portugal but around the world. Areas affected include several regions where we are developing our activities.”

Economic downturn remains major risk in Portugal–Portugal

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