Signs of recovery of Italian companies but the gap with the pre-crisis levels has not yet been filled and above all the loss of competitiveness remains their Achilles heel.
The picture of Italian companies in industry and services that emerges from the traditional annual survey by Mediobanca's Research Office on the cumulative data of over 2 thousand companies is clear. The survey concerns exactly 2030 Italian companies which represent approximately 50% of the turnover of industry, 68% of that of public services, 31% of transport and 24% of retail distribution. With reference to manufacturing alone, the representation is 43% of turnover, 55% of exports and 31% of employees. In 2030, the aggregate of the 2010 companies recorded a recovery in turnover of 8,2% on 2009, lower than the 16,2% drop suffered that same year.
The dynamism of the export turnover was approximately double that of the domestic component (+12,6% against +6,5%), but also in this case 2009 had brought about a deeper decline, dropping by 19,1% exports and 15% national sales. For the third consecutive year, employment fell (-1,9% in 2010), although to a lesser extent than in 2009 when it lost 2,8% (page XXXVII, Tab. 2). In previous years it had moved in a marginally positive way (+0,1% in 2006, +0,2% in 2007).
The growth in sales in 2010 benefited industrial companies more (+9,4%) than those in the tertiary sector (+3,4%). Among the former, energy companies grew by 12,4%, outperforming manufacturing (+8,2%) and much better than construction companies (+2,9%), which however had kept their 2009 sales unchanged (page XIII). Public and private sectors moved together (+8,2% and +8,1%). The sectoral changes (pages XV and XXXVIII, Tab. 3), signal generalized recoveries on 2009, with metallurgy in the lead (+31,8%) and rubber-cables (+20%) and chemicals ( +19,5%), while building products are in a more marked countertrend, registering a -7,1%.
The generalized commercial recovery in 2010 over 2009 did not erase the gap that opened up with respect to 2007, before the crisis (but perhaps this will happen in 2011). An immediate evaluation can be obtained from Table 1 at the foot of this note. At the end of 2030, all the 2010 companies were around 4% below the level of sales developed in 2007. The marginal failure to recover can be entirely attributed to privately controlled companies (-6,7%) which canceled the good increases in public enterprises (+6,3%). Service sector activities recorded an increase of 4,8%, having gone through 2009 with limited turnover losses (-1,4%) and benefiting in 2010 from the strong recovery of transport (+10,1%), driven by logistics (p. XV).
Manufacturing dropped 10,1% of sales over 2007, the major groups reached -11,6% (but as we shall see, they pushed foreign-to-foreign activities); The medium-sized companies did better, whose decline was limited to 7,6% and even better the Made in Italy patrol, which at the end of 2010 had 6% left to recover in order to return to pre-crisis levels. Compared to 2007, things went worse on the domestic market (-4,6%) than on the export market (-2%), where however the exceptionally positive trend of the public industrial sector (+34,7%) weighed , while private companies recorded lower volumes on 2007 in the order of 8,4%, doing worse abroad than at home where they fell back by 6% on 2007. It has been said of the tertiary sector that, in addition to being above the level of 2007 (+4,8%), boasts a conspicuous increase abroad (+9,7%).
At the sectoral level, the set of food activities marks considerable progress on 2007 (confectionery is striking at +10,3%), especially in the foreign component, just as the evolution marked by construction companies is positive (+9,2% ), also thanks to the explosion of the foreign component (+39,5%), pharmaceuticals and cosmetics (+7,6) and transport (+6%). The levels of sales marked by the sectors of building products (-2007%), metallurgical (-28,8%), household appliances (-24,2%) and printing and publishing are significantly lower than in 22,2 (-20%). But it is the income statement margins that mark the most marked distance from pre-crisis levels (Table 2 at the foot of this note). 2011 will perhaps bring a good recovery, but a reset seems unlikely.
In sequence for the mass of 2030 companies, 2010 over 2007 marked: added value -6,9%, EBITDA -14%, MON -23%, current result -11,3%. The private sector generally reports worse changes than the public (MON: -26,3% against -13,7%; current result -19,1% against +5,1%), while the changes in the tertiary sector are positive (+3% around all margins, with the current result even at +23%). Compared to 2009, Mon grew by 6,6% (page XXI), an average between 11,6% of industry and 0,3% of the tertiary sector, with manufacturing in great evidence (+45,6% ), although very far from 2007 (-37,6%).
But it is the net profit of the aggregate that marks a highly evident progress in 2010, equal to +64,2% (page XX), while remaining 12% lower than the maximum of the decade, marked in 2007. This recovery it came only for a minor part, about a fifth, from higher operating margins (which, as just mentioned, remain far from the 2007 levels); the decisive contribution came from net financial income (six tenths of the higher profit) and from net non-recurring income (about 25% of the higher profit).
The modest increase in taxes did the rest (+7,2%). The financial balance benefited from the reduction in interest rates which moderated interest expense on debt (on average from 5,9% to 5,5% for the accumulation, page XLIII, Tab. 9) and from the strong inflow of dividends (+ 47% on 2009), mainly from the foreign subsidiaries of energy companies (57% of the total) and to a lesser extent from manufacturing (24%) and tertiary (19%). For the aggregate of 2030 companies, the financial balance reached 19,9% of the Mon, even reaching 53,3% for public companies and 5,7% for private companies, a significant value considering that since 2006 it was been always negative (page XLIII). The decreased incidence of net extraordinary charges brought the current result to 89% of the 2007 level.
Furthermore, against an expansion of 42% on 2009 of aggregate gross profit, taxes grew, as mentioned, by only 7%. This is the effect of the tax losses of the previous year as well as the contribution of dividends which, like capital gains, are not subject to Ires. Indeed, the tax rate falls for the aggregate from 30,1% to 25,6%. The relative penalty remains for medium-sized companies whose tax rate is 34,6% against the average 25,6% and 18,8% attributable to listed companies (page XXII).
The recovery in commercial levels has not eased the employment picture. In 2010, the fall in the workforce came close to 2%, bringing the decrease to 5,1% compared to the end of 2007 (Table 1). The decline over the three-year period largely involved the public sector (-6,9%), the private sector (-4,7%), just less the tertiary sector (-4,1%). Heavy downsizings of foreign-controlled manufacturing companies (-10,1%), contained those of medium-sized enterprises (-2,2%). At the sectoral level, the greatest job losses afflicted construction companies (-17%), textiles (-16,8%), household appliances (-12,7%) and printing-publishing (-11,7% ).
There were few positive changes, in some food specialties (+3,1% confectionery), in large-scale distribution (+1,4%), in plant engineering (+3,5%), in hides and leather (+1,8% ) and in glass (+2,1%). Investments also remain at a standstill, although still showing a recovery of 5,8% on 2009. In monetary terms in 2010 their volume was 16,2% lower than in 2007 (Table 1). Private individuals cut more heavily (-22,7%), while public companies cut marginally (-1,9%). Manufacturing reduced investments by 22,1%, the major groups by 29%. Also from this point of view the performance of medium-sized enterprises is relatively better (-7,1%).
If examined in real terms, investments settled in 2010 at a level 21,1% lower than in 2001, a dynamic which involved both public industry (-18,5%) and private industry (-22,6 %), industry (-16,5%) as well as the tertiary sector (-27%), with the sole exception of medium-sized enterprises (+1,3%) (page XLIV, Tab. 10). The level of use of the plants remains lower than in 2007: the ratio between turnover and net technical fixed assets stood at 105% from 111,3% in 2007 (page XLI, Tab.7).
In other publications recently presented to the press (see R&S Yearbook 2011) about the major Italian industrial groups, consistent but less weighty results had emerged. In particular, it should be noted that a recovery has already taken place in terms of turnover compared to before the crisis and a more limited distance in terms of margins. This survey concerns only the activities of our industry in Italy, thus excluding the volumes and margins deriving from the activities that operate from abroad to foreign countries. They represent important shares of the turnover of groups organized in the form of multinationals and a very dynamic component of it.
Table 3 at the end of this note provides an estimate. Foreign-over-foreign turnover, generally produced by production sites located in countries with low input costs to serve emerging markets, generated 2010% of manufacturing revenues in 31 and 42% of those of the energy industry, coming to represent 51% of the total foreign sales of manufacturing and 79% of those of the energy industry. Growth differentials are symptomatic. Limiting ourselves to manufacturing in 2010: +1,4% sales to Italian customers, +19,4% sales abroad, +24,7% only the foreign component on foreign countries.
The margins accrued in foreign-to-foreign activities are also significant: it is 40% of the Mon for manufacturing, a share that rises to 73% in the energy sector. The manufacturing Mon, foreign on foreign countries, grew in 2010 by 78%, the domestic one by 9,3%. These dynamics partly explain the less brilliant performances of the major Italian groups in relation to Italian activities only (see, for example, the margins compared to 2007). In 2010, labor productivity grew (+8,9%) due to the recovery in sales and production, but remains 7,7% lower than the 2007 level (Table 4).
The value of production per person employed, on the other hand, decreased by 7%, highlighting an increase in the quality of production (+0,7% the price effect). Since 2001, the value of the goods produced by each employee has grown by 21,3%, supported by productivity gains (+7,8%) and price advantages linked to the qualitative content of the goods (+12,6%), but wage dynamics were more aggressive, accumulating an increase of 28,6%, with an overall loss of competitiveness of over 7 points. The deterioration took place despite the simultaneous reduction since 2001 in the number of employees (-9,4%).
In the last three years, the loss of competitiveness was even higher, reaching 9,7 pp The sectoral detail (page XIX) highlights the critical issues of goods for the person and the house (-29,6 pp competitiveness, with productivity drop of 16,6%) and paper-publishing (-21,3 pp, labor productivity -3,1%); the chemical/fibers/rubber sectors (1,5 pp gain in competitiveness, with labor productivity at +23%) and the mechanics of means of transport (+7,3 pp gain in competitiveness) are reported positively.
As for financial flows (page XLVII, Tab. 11 et seq.), recalling the recovery of investments (+5,8%), it should be noted the important increase in 2010 of cash-flow (+21,5 %), which returned to levels not far from the highs of the decade, alone sufficient to finance all loans, leaving room for the distribution of dividends and the net repayment of financial debt (about 6 billion euros, first net reduction since 2002) , which took place without affecting the liquidity stock. This had increased the previous year by 5 billion. (+14,1%), reaching the maximum consistency for the period at 41,5 billion. of Euro.
The repayment of the debt was entirely carried out by the public sector, which also supported the volume of investments (+22,3%) which, on the other hand, decreased slightly among privately controlled companies (-1,7%). The financial structure in 2010 marks a strengthening, with the reduction of the ratio between financial debt and shareholders' equity from 103,4% to 96,3% (page LX, Tab. 23). This is a trait common to all companies, with the sole exception of medium-sized ones which increased their financial funding (from 94,7% to 95,3% of equity), after having suffered a contraction in debt in the previous year which was paid for a reduction in working capital, however reaching the historic lows of the decade.
Foreign-controlled companies have replaced portions of bank debt with intercompany loans and non-financial debt (the ratio between total debt and equity rises from 194,4% to 201,8%). Bank debt represents 36,6% of total loans (it was 54,6% in 2001), down by around 7,4 billion. in 2010 (of which 4,7 billion long-term and 2,7 billion short-term). The trends that emerged in the first six months of 2011, for a representative sample of around one fifth of the turnover of the aggregate, indicate a recovery of around 11% in turnover over the previous six months for energy and a 14% increase in manufacturing turnover. If confirmed, these data would lead, on an annual basis, to a recovery of pre-crisis sales.
Margins also show signs of further recovery (+7% approximately), slight in energy (+1% approximately), but very significant in manufacturing (+40% approximately), which would lead to an annual level equal to 9/10 of that before the crisis. Employment shows no signs of recovery (-0,5%) and this suggests that the productivity recovery started in 2010 is continuing, supporting the growth in sales. The financial structure of manufacturing shows some signs of deterioration deriving from the greater financial debt (+6,7%) and the growth of intangible assets (+10%), against a substantially constant equity. This is a dynamic that can be ascribed to the manufacturing sector which, against a constant shareholders' equity, registers higher financial debts of around 17 billion. euros (+28%).
Source:
Mediobanca R&D
