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Managingthe DownturnPresentation to ABAF

Paris, 10 June 2009

PricewaterhouseCoopers

June 2009

Introduction

• UK chartered accountant specialised incorporate recovery based in Paris forover 10 years.

• Assist international and local lenderswith French corporates in difficulty andadvise on restructuring and/or exitstrategies in France

• Authority in use if European insolvencyregulation

• Leader of 4 Himalayan climbingexpeditions

• €5bn technology group

• €1bn auto parts distributor

• Representing Administrators ofLehman Brothers and MG Rover inFrance

• IBR of Alstom at the time of itsrestructuring

• Multi sector experience.

• Auto, property

Chuck EvansPartner PwC ParisBusiness Restructuring Services


June 2009

Where are we now (1) ?

• All major industrialized nations are in recession. The crisis is global and simultaneous…and still getting worse?

-1.1

-1,0

-1,5

-3,3

-1,5

-1,6

-2,1

T4 2008

-1.5 ***(2e plus forte baisse depuis

1974)

-1.8(unprecedented since 1945)

-1,9

N.a.

-1,9(steepest drop in 30 years)

-1.5

-3.5

T1 2009

-0,5-0,4

-0,5-0,4

+0,1-0,3France

-0,2-0,2

-0,6

0,0

0,7

T2 2008

-0,5

-0,7

-0,1

T3 2008

Eurozone

Pays

-1.1

-1,0

-1,5

-3,3

-1,5

-1,6

-2,1

Q4 2008

-1.5(2nd steepest drop

since 1974)

-1.8

-1,9

N.a.

-1,9

-1.5

-3.5

Q1 2009

-0,5-0,4Japan

-0,5-0,4Germany

+0,1-0,3France

-0,2-0,2Spain

-0,6

0,0

0,7

Q2 2008

-0,5

-0,7

-0,1

Q3 2008

Eurozone

UK

USA

Country


June 2009


… with an unprecedented volatility of key economicfactors

Oil shocks: ups and downs


June 2009


Crisis mainly impacting industrial sector : 12 ye ars growth lost over a few months

Note : (*) all industries – data adjusted for seasonality

Evolution of industrial production* in France (100 : 2005)

70

75

80

85

90

95

100

105

110

janv

-90

juil-

90

janv

-91

juil-

91

janv

-92

juil-

92

janv

-93

juil-

93

janv

-94

juil-

94

janv

-95

juil-

95

janv

-96

juil-

96

janv

-97

juil-

97

janv

-98

juil-

98

janv

-99

juil-

99

janv

-00

juil-

00

janv

-01

juil-

01

janv

-02

juil-

02

janv

-03

juil-

03

janv

-04

juil-

04

janv

-05

juil-

05

janv

-06

juil-

06

janv

-07

juil-

07

janv

-08

juil-

08

janv

-09

The drop started before the stock exchange crisis

Feb. 2009 : 88.1


June 2009

Where we now (4)?

• Largest quarterly drop in GDP since 1974


June 2009

Where are we now (5)?

• Household confidence at an all-time low in July 2008 and now bumping along the bottom?


June 2009


What is happening to employment?


June 2009

Where are we now (7)?

• Strong contraction of demand (-20%, -30%, -40%...-80%/-90%!)

• General decrease in profits and cash generation

• Risks on / deterioration of working capital

• High debt gearing (including for companies under LBO structures)

• Lack of financing resources

• Unknown duration and depth of the crisis

• Coupled to :

• Increasingly stringent environmental regulations

• Other regulatory changes (IFRS, « LME » law in France, etc.)

Key issues raised by the global crisis…


June 2009

Why we are here (1)


June 2009

Why we are here (2)


June 2009

Why we are here (3)


June 2009

Why we are here (4)

0

10

20

30

40

50

60

2000 2001 2002 2003 2004 2005 2006 20070

2

4

6

8

10

12

14

B- & Below (left axis) Europe HY Default Rate (right axis) (%)(%)


June 2009

Why we are here (5)

1.0x

2.0x

3.0x

4.0x

5.0x

6.0x

Jan-98M

ar-98May-98Jul-98Sep -98Nov-98Jan-99M

ar-99May-99Jul-99Sep-99Nov-99Jan-00M







ar-06May-06Jul-06Sep-06Nov-06Jan-07

Sr Debt/EBITDA Other Debt/EBITDA

Total leverage hits record 5.7x ebitda in Mar 06

• Increasing debt multiples


June 2009

Why we are here (6)

LBO 3 Eur400mSPV - issuer of

notes

Class A (AAA)

Class B (AA)

Class C (A)

Class D (BBB)

Class E (BB-)

Equity (not rated)

Principal, margin paid

down through the

structure

Losses, incurred up through the

structure

THIRD PARTY INVESTORS

ARRANGER

Rated notes

Eur400m

Income

LBO 4

LBO 5

LBO 6

LBO 1

LBO 2

LBO 8

LBO 7

Participation

Eur400m

CDO FUND

LBO 3 Eur400mSPV - issuer of

notes

Class A (AAA)

Class B (AA)

Class C (A)

Class D (BBB)

Class E (BB-)

Equity (not rated)

Principal, margin paid

down through the

structure

Losses, incurred up through the

structure

THIRD PARTY INVESTORS

ARRANGER

Rated notes

Eur400m

Income

LBO 4

LBO 5

LBO 6

LBO 1

LBO 2

LBO 8

LBO 7

Participation

Eur400m

CDO FUND

The search for yield appears to have led to investors taking more financial risk than that implied by the default risk rating on the instrument


June 2009

Why we are here (7)

How has this been possible? Do investors really know what they are buying?


June 2009

What happened last time? (1)

In the last recession, consumer spending declined by 3.5% in real terms, and took a total of 13 quarters to recover to pre-recession levels

Source: ONS, PwC Analysis

Real Consumer Spending - 1990s Recession

114

116

118

120

122

124

126

128

130

1989

Q1

1989

Q3

1990

Q1

1990

Q3

1991

Q1

1991

Q3

1992

Q1

1992

Q3

1993

Q1

1993

Q3

1994

Q1

1994

Q3

1995

Q1

£bn


70727476788082848688

1972

Q1

1972

Q3

1973

Q1

1973

Q3

1974

Q1

1974

Q3

1975

Q1

1975

Q3

1976

Q1

1976

Q3

1977

Q1

1977

Q3

1978

Q1

£bn


808284868890929496

1978

Q1

1978

Q3

1979

Q1

1979

Q3

1980

Q1

1980

Q3

1981

Q1

1981

Q3

1982

Q1

1982

Q3

1983

Q1

1983

Q3

1984

Q1

£bn

7 quarters to decline to bottom of

cycle

3.5% decline

6 quarters to recover

to pre-recession

levels

12 quarters to recover to pre-recession levels

17 quarters to recover to pre-recession levels


June 2009


Consumer spending vs Consumer confidence

(35)

(30)

(25)

(20)

(15)

(10)

(5)

-

5

10

15

20

25

30

35

40

Jan-87 Jan-88 Jan-89 Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00

Con

sum

er c

onfid

ence

inde

x

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

Cha

nge

in c

onsu

mer

spe

ndin

g

Real change in consumer spending

Consumer confidence index

While consumers started spending relatively quickly following the early 1990s recession, overall consumer sentiment took a lot longer to recover

7 quartersfrom peak

to trough…

7 quartersfrom peak

to trough…

…but 7 years for consumer confidenceto recover to pre-recession levels

…but 7 years for consumer confidenceto recover to pre-recession levels

Consumer confidence negative, despite recovery in spending

Source: ONS, GfK, PwC Analysis


June 2009


Last time around, big ticket and discretionary items were harder hit…

Length of decline (quarters)

Depth of decline(% spending)

Deeper decline

More prolonged decline

-30%

-20%

-10%

0%5 15 2010

Furniture

Major appliances

Vehicle sales

Furniture

Major appliances

Vehicle sales

Housing and utilitiesFood

Hotel accommodation

Air Travel

Recreational and sporting services

Restaurants and cafes

Non-air travel

Hotel accommodation

Air Travel



Non-air travel

Clothing access-ories

Garments

Jewellery, clocks and watches

Small electricals

Clothing access-ories

Garments


Small electricals


June 2009


Source: ONS, PwC Analysis

Technical Recession

'91 Q4

'91 Q3

'91 Q2

'91 Q1

'90 Q4

'90 Q3

'90 Q2

'90 Q1

'89 Q4

'89 Q3

'89 Q2

'89 Q1

'88 Q4

'88 Q3

Total consumer expenditure starts to

decline

Timeline of when categories started to real decline

Furniture

Major appliances

Vehicle salesFurniture

Major appliances

Vehicle sales Hotel accommodation

Air Travel



Non-air travel

Hotel accommodation

Air Travel



Non-air travel Garments


Small electricals

… and started to decline 2 years before the recession. Decline in smaller ticket items were more delayed

How will this time line compress due to the high le vels of borrowing?


June 2009

What you can do?

4 Focus on what really matters

2 Act decisively 3 ‘Cash is king’

5 Manage your cost base

6 Reliable information is key

7 Plan for different scenarios

8 Recognise value of your people

9 Take stakeholders with you

Working with you to protect your business and help you to survive

the downturn

1 Take a closer look

10 Take advantage of the opportunities

• 10 fundamental priorities


June 2009

Facing the global crisis

• General decrease of profitsand cash availability

Lack of financing

• Contraction of demand

• Unknown duration and depth of the crisis

• Increasingly stringent environmental regulations

• Adapt the product and service offering to propose BIQEs : Basic Is Quite Enough

• Save money by improving cost structure

• Help customers finance their purchases

• Lower the break-even point

Cash is king : generate cash, including through Working capital management

•

• Risks or opportunities?


June 2009

What we see our clients are doing

“Survival mode” – internal focus:

� Optimize and mobilize all working capital components : receivables, stocks, payables, all cash tied up in operations

� Adapt capacity; cut cost; lower the break-even point (e.g.: short work)

� Improve monitoring tools – focused on cash generation / forecasts

� Redraw business plans – focusing on cash – in order to anticipate difficulties (e.g. breach of covenants, liquidity crisis)

� Anticipate impact of regulatory changes on working capital (“LME”)

“Survival mode” – external focus:

� Try to take advantage of the national recovery packages available (Oseo, Public credit insurance, “Mediateur du crédit”, fiscal incentives – eg. CIR, carry back -, etc.)

� Seek sources of financing (in debt and equity, private & public)


June 2009

What we see our clients are doing (Cont’d)

“Survival mode” external focus (Cont’d):

� Negotiate with creditors in order to refinance / adjust the debt, preventively or in emergency (banks, state, suppliers)

+ M&A options :

� Try to attract investors, in particular sovereign funds (e.g. FSI / FMEA in France)

+ Starting to rethink the business models and the p roduct and service offerings, like today !


June 2009

A deep change of logicB

efor

e

Customerrequests

Internal processes

• Working capital requirement

• Investment needs

Financing need

Now

Customer requests

Internal processes

Working capital and investment potential

Financing availability


June 2009

How to secure financing: a few key questions

• What do I have to finance?

• Can I reduce my financing needs, given lower demand?

• Can I get through 2009 in a “worst case” scenario?

• Can I confirm the adequacy of my debt package with my cash flows?

• Can I improve alignment between my financing and my activities?

• How can I finance what I need to finance?

• Are my banks & creditors behind me? How to (re)establish trust?

• Can I find new sources of financing, from financial or operational partners? From private and public sources?

• How can I lower the actual & perceived risk of my business?

• What guarantees am I able and willing to give?


June 2009

Restructuring strategy

Progressiveclosure

Sell as is

Improve to sell

Stabilise

Analyse

Options

Implement

Turnaround

Beware “green shoots”

“April is the cruelestmonth…..”

Thank you

© 2005 PricewaterhouseCoopers AG/SA. All rights reserved. PricewaterhouseCoopers AG/SA refers tothe Swiss firm of PricewaterhouseCoopers AG/SA and the other member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.

Chuck Evans

[email protected]

+33 1 56 57 85 23+33 6 82 58 57 67

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