The corporate financial strains in Europe grew by 20% compared to the pre-pandemic period and almost 22% of Italian companies in the media and entertainment sector are in difficulty. That’s according to the global professional services firm’s new semi-annual report Alvarez & Marsal, which evaluates the financial performance and balance sheet strength of over 7,000 European companies.
In Europe, there is a risk of restructuring
Quasi 700 companies are in a stressful situationlikely to require an action of renovation. I am currently in Europe 2,000 companies with balance sheets showing weaknesses, 27.7% of all companies assessed. This figure reflects the huge amount of debt that companies contracted during an extended period of ultra-low interest rates and post-pandemic secured loans, and which today find themselves with a limited ability to repay these higher debt levels due to the rising cost of debt. The ability of companies to passing the higher costs on to final customers is decreasing and margins are expected to tighten over the course of the year, with a corresponding impact on profitability.
The most vulnerable sectors in Italy
Italy, together with Germany and the Nordic countriesis one of the three areas that saw the increase in 2022 number of companies in difficulty compared to 2021, passing dal 5,7% al 6,9%. Among the sectors in greatest difficulty in terms of performance, the sub-fund stands out Media & Entertainment with 21.9% of companies in stress. Followed by the sector ofInformation Technology16% of companies under stress, and that dell’Healthcare with 13.5%, except for pharmaceuticals.
Media & Entertainment businesses have been affected by the poor performance of some large operators in the sectorincluding suppliers of communication services and large sports clubs. The football clubfor example, have historically always had high levels of debt, while communication service providers, due to the low investments made in the last decade, have found themselves in a position of strong weakness compared to emerging operators specializing in new technologies and platforms.
Last year the Italian information technology sector suffered a sharp slowdown compared to the rest of Europe. Also in this case, the cause is to be found in the lack of investment by the majority of large multinationals It is in the technological gap among the smallest operators in Italy and their international competitors. Even the companies in the Commodity sector, with a drop of 6.5% compared to the previous year,
Future in the balance for consumer goods and energy-intensive companies
The sector of consumer goods has registered a significant increase of 25.44% compared to the previous year, with 12,3% of companies in difficulty. This group, which includes fashion, electronics and furniture stores, depends more on discretionary spending, and the increase in hardship reflects the deterioration of the macroeconomic picture and the compression of household budgets. Even the vulnerabilities of the automotive sector have accelerated in 2022, with 10.5% of these companies in difficulty, up 13% compared to last year. This highlights the long-term challenges such as the transition to new power technologies, such as electric and hydrogen.
A difficult autumn
“At this stage of the economic cycle, the liquidity reserve deriving from the massive disbursement of post-pandemic secured loans was largely absorbed by increases in raw materials, high energy costs and inflation– explains Jacopo Barontini, Head of Financial Restructuring Services in Italy for Alvarez & Marsal, – and the theme of shortage of available cash for businesses it is starting to make itself felt. An increasing number of businesses are starting to adopt countermeasures aimed at reducing the debt burden, especially as a translation of maturities of the principal shares, in order to avoid default. We therefore expect a substantial increase in operational and financial restructurings starting in autumn 2023”.