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7/28/2019 The Need of Change_tradus
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The need of change
The year 2009 has been a particularly difficult year for the Romanian economy, retail
being one of the most affected. The economical crisis has generated on one hand the downfall oftraffic in the commercial space as well as the loss in buying power, effects being the fall of
transactions and average consumption. Under the current circumstances, Diverta retail storeshave been strongly affected by the fall in the Romanian economy since last year. The retail chainclosed 2009 with net sales of 30 milion Euro, 37% less that the preceding year (48 million Euro
in 2008) and approx. 55%, if you take into account the organic decrease, as company officials
state. This is the first year the company has closed at a loss.
Last year, the top 10 highest turnover stores contributed 17.4 million Euro of the overall30 million figure, which is more than 50%, which in turn means the rest of the stores are not so
profitable. On the other hand, the most profitable 1- stores have had a profit of 2.77 million Euro,
given the rest have had operational losses of 600.000 Euro1. Practically, these 10 stores were
sustaining the rest of the network, the stores with the biggest turnover werent necessarily the
most profitable. Current market circumstances, investor inflexibility and the reduction of thenumber of customers have made impossible the reduction of squandering resources. The lack of
liquidities has had final word and so the Diverta network fell victim to the economical crisis.
Economic decline since last year led to a decrease in both the number of clients and the
value of the average shopping basket. This company adds to 10,000, some well-known already in
various stages of insolvency, Flamingo, Leonardo and PIC is in a similar situation. Latest
statistics show that at the end of March more than 5,600 companies were in the process ofinsolvency, and more than 4000 have not been able to avoid bankruptcy.
Diverta asked to enter insolvency proceedings because of the debts of 10 million tosuppliers. The application was approved on 28 May 2010, the firm's judicial administrator beingBanca Transylvania. Establishment of insolvency is now the company's protection againstcreditors, Diverta intends to pay current debts, however, since these debts exceeding 10 million,
Diverta chosen as a method to overcome the crisis judicial reorganization.
The current conditions of the economy and the inflexibility of developers (i.e. theshopping centres where Diverta has stores opened) have given rise to the current cash flow
problems.
Currently, the stock is 7.5 million and trade creditors (suppliers of goods and services)
are 10 million. Diverta has 8.5 million Euro of bank loans, half of it being for investments. Alpha
Bank is the main creditor for both working capital and for investment. Its net value of FixedAssets of the company is EUR 6 million.2
One of the main causes of the decline was that some stores had started to "eat" more than
they yielded (gross margin), which led to debts to suppliers and developers and payment
1Octavian Radus interview for Capital magazine, May 27, 20102 Press release, May 28, 2010
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problems. Crisis and growing number of younger customers who have purchased products
conflicted with the expenditure, which, despite the efforts society could not be reduced.
At the same time, there was no action in 2008 to negotiate rents, which are the mostimportant costs that the company supports them, i.e. 25% of total costs, while wages are 12%.
Total area of shopping centers Diverta was at the end of 2009, 24,000 sqm. As surface, thelargest space is rented Diverta in Plaza Romania, Bucuresti Mall and Magheru. The company
pays rent to the largest fund Bluehouse Capital, owner of commercial space on Magheru, theAnchor Group and the network of shopping malls Iulius Mall.
Looking into the past Diverta prosperity can be summarized in a few figures and
significant actions (Table 1).
In 2008, Diverta invested around 3.5 million euros in 12 new locations. Also that yearthe largest bookstore in the country, Diverta Magheru, was inaugurated after an investment of
approximately two million euro. The contract value to the investment fund Bluehouse Capital,
for a period of 20 years after nine months of negotiations to lease space occupied by former Evashop on the Magheru Boulevard, was not disclosed. The location represented most expensive
contract in the history of this group, according to CEO Diverta.
Diverta registered in 2008 a turnover of 48 million. From total turnover, 27% represented
book sales, an increase by 18% compared to 2007, 7% toy, 35% up relative to the previous year,16% multimedia products, with a 10% increase over 2007, and 50% the rest, other ranges. In
2007 Diverta invested 2.5 million Euros in new locations. 3
In early 2008, Diverta was present in 70 locations in 41 cities, mainly in major
commercial centers, the company forecast a turnover of over 56 million Euros.
Table 1. Divertas evolution in the crisis period
2008: SUCCES PERIOD 2009: DECLIN PERIOD 2010: CURRENT TIME
INSOLVENCY
EUR 3.5 million investment
Launching a new concept by
opening Diverta Magheru.
Turnover: 48 million EUR
Units in the country and
abroad: 70 Number of employees: 788
Sales: 30 million, -37%
compared to 2008
Operating result (EBITDA):
-0.6 million euro
Salary: -45% compared to
2008
Units: 64
Retail Employees: 579(-25%)
Investment: 1.5 million euro
Debt: 10 millin euro
Bank loans (made over
time): 8.5 million euro
The stock value: 7.5
million euro
Net value of fixed assets:
6 milioane euro
Employees: 441 (-40%)
Units: 63
3 Financial data processed from Financiarul newspaper, May edition
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Figure 1. Evolution of turnover and employees number
28.2
37.9 40.8
27.5
750
840788
411
579
0
5
10
15
20
25
30
35
40
45
0
100
200
300
400
500
600
700
800
900
Turnover
Emplyees number