One in three Belgian SME's recorded a decline in turnover in 2009

27% of SME's face problems to pay off debts - SME loses a third of its value due to crisis - Deloitte Fiduciaire's "SME Compass 2010"first to map the total impact of the crisis on Belgian SMEs
27 Oct 2010

Brussels, 27th October 2010 – Deloitte Fiduciaire, Belgium's market leader in accountancy, tax and legal matters, as well as financial advice to family businesses and SMEs, today announced the results of its SME Compass 2010 survey. This particular edition of the study compares the financial performance of Belgian SMEs at the mid-point of the crisis (2009) with how they stood before the GFC burst on the scene (2007). Longer-established companies suffer less from the crisis than younger businesses

The main conclusions reached by the survey are as follows:

This survey is unique in that Deloitte Fiduciaire is the first consultancy to collate and publish the very latest financial data available – in this case for the 2009 financial year. The study is based not only on "public" information, but also on "non-public" data, such as turnover, current accounts and detailed operating costs. It also focuses entirely on actual operating companies: every single business included in the benchmark is involved in a genuine activity within the construction, industrial, trading, farming or services sectors.

Actual capital of the average SME holding firm in the crisis

An initial noteworthy observation is that despite the effects of the crisis, the average operating company has consolidated its solvency over the past 2 years. Better still, solvency has strengthened by 1.7% during that time and is now 36.8% for the median company. Although the past 2 years have seen the performance – and hence also the profits – of the average SME come under immense pressure, these companies have opted in the first instance to steer a conservative course within their business and to guarantee their own resources and solvency by doing so. Last year only 17.5% of SMEs paid out a dividend or bonuses.

The SME Compass survey also calculates actual solvency levels by extending own resources to include virtual own resources – more specifically by including the deferred loans and current accounts of shareholders/partners, directors and business owners as part of the business's own resources or equity capital. These current accounts are a fiscally-attractive funding alternative for share capital and constitute – particularly within family SMEs – an equally good form of funding by the shareholders. Here again the SME Compass survey shows that the average SME managed to sustain its actual solvency level last year. At the end of 2009, this figure was no less than 49.3% for the median business. "In practical terms, this means that half of Belgian SMEs are funding themselves 50% or more with their own (or almost all their own) resources," states Nikolaas Tahon, Managing Partner of Deloitte Fiduciaire.

6 out of 10 SMEs recorded a reduction in turnover for the second successive year

At least 54% of operating SMEs in Belgium have seen their turnover decline over the past two years. Growth in turnover was less than the average rate of inflation for 8% of SMEs. This figure was 4.4% for the past two years and is attributable entirely to the record inflation figures of 2008. As a result, we can only speak of a nominal growth in turnover for this latter group of SMEs.

"Industrial companies have borne the brunt of the crisis," adds Nikolaas Tahon. "At least 71% of these businesses have seen their turnover decline over the past 2 years – or at least have seen their sales grow at less than the rate of inflation. By contrast, food and agriculture have felt the impact of the crisis least on their turnover."

When we look more closely at the group of SMEs having to cope with a decline in turnover, the SME Compass 2010 survey shows that 50% of these SMEs have seen their turnover fall by as much as 17.2% or more in the past 2 years. But a quarter saw their turnover climb by more than 31.8%.

In 2009, both operating and financial returns fell further

Whereas at the end of 2007 the average operating company still had an operating return of 8.7%, by the end of 2009, this figure had fallen to 7.8%. Indeed, at the end of 2009, as many as 13% of companies recorded a negative operating return. The same also applies to net financial returns, which fell away from 9% to 6.3%. In fact, for the first time at the end of 2009, more than 30% of Belgian SMEs (34% to be precise) recorded a loss.

Return on capital employed (ROCE), indicates the profitability for shareholders and other providers of funds (banks and lease companies). At the end of 2009, every 100 EUR invested in the average SME generated a gross return of 5.3 EUR. Two years previously, at the end of 2007, that figure was still 7.3 EUR for the median company. Yet at the end of 2009, 26% of SMEs recorded a negative ROCE.

Longer-established companies were affected a little less severely by the GFC than younger businesses (see table below).

For example, over a period of 2 years, the ROCE for the average company established for less than 10 years fell from 8.3% to 5.3%, which represents a decrease of 36%. By contrast, with the average company established for more than 25 years, the ROCE fell by "only" 27%, from 6.9% to 5% during the same period, thus remaining structurally low. Another noteworthy observation is that the more staff employed by a company, the further the net financial return and ROCE fell.

Almost 30% of SMEs are unable to meet their financial obligations

Because the return of the average operating company is being adversely affected, this raises the question of whether Belgian SMEs are generating sufficient cash flow to be able to meet their financial obligations (i.e. paying their debts and interest charges).

At the end of 2009, the average operating SME had a repayment capacity of 194%. "In other words, they still have a handy "buffer" in place that will enable them to continue meeting their financial obligations if there is a further decline in net cashflow," says Nikolaas Tahon. At the same time, 27% of SMEs have a ratio of less than 100%. This means that in 2009, this group of companies had too little net cashflow and hence had to draw on any other liquid assets present to pay their bank debts as arranged. By comparison, at the end of 2007, only 1 SME in 5 had an insufficient ability to make its repayments.

Another positive note is that at the end of 2009, approximately 20% of Belgian SMEs had no outstanding short-term financial debts.

Half of Belgian SMEs have lost more than a quarter of their value during the crisis

Business leaders looking to chart the financial performance of their company can now set up a benchmark for their own business – "Your Company's SME Compass" – by contacting the Deloitte Fiduciaire office in their area, or by visiting www.kmokompas.be.