The 2007 Eurofactor Barometer of the management of customers account

More than 3,000 European companies reflect the leading trends in 2007

• Nearly half of all SMEs in Europe forecast revenue growth for 2007.
  
• Without being over the top, the outlook on recruitment in Europe looks good, which should have a favourable impact on the job market. This trend is more pronounced in Belgium.
  
• Investment is expected to continue to grow, but more for raising productivity than expanding production capacity.
   
• Raw materials and energy prices are key concerns for European SMEs, although fears of an oil crunch are no longer on the agenda. 
   
• Three quarters of all European companies reported outstanding accounts in 2006, with French companies being the least affected. 
   
• Payment time stabilised in 2006; Germany and the UK, countries that already scored highest in prior years, increased their lead in this area.
   
• Financing needs are expected to increase slightly. Access to credit is judged easy everywhere, except in Spain. 
   
• German and French SMEs lag behind in the field of environmental protection.
   

Issy-les-Moulineaux, 11 January 2007 - The results of 2007 Eurofactor Barometer, which surveyed over 3,000 companies with between 6 and 500 employees in seven European countries (Germany, Belgium, France, Spain, Italy, Portugal and the UK), provides reasonable grounds for optimism in 2007.  

The survey was conducted by the CSA polling organisation in partnership with the AFDCC (Association Française des Credit managers and Conseils, or French Association of Credit Managers and Advisors). 

Business, employment, profitability: a fairly positive outlook  

The general outlook seems favourable (with the percentage of companies expecting sales growth being significantly higher than the percentage of companies expecting lower sales). In certain countries, however, companies show a relative degree of pessimism with regard to their forecasts reflecting the difficult business climate they experienced in 2006:

• Portugal, a country that had trouble keeping government finance under control in the past, has been pursuing an energetic policy of fiscal restraint that has hit household spending.
• In Italy, where the indicators covered by the survey point to stagnation, industry suffers from direct competition from a number of emerging economies, particularly China.
• Germany has been on the brink of deflation for several years. Domestic demand has been penalised by widespread wage restraint, job creation has fallen victim to the race for productivity, whilst consumers have mainly borne the brunt of the recent reforms. The improved business climate mentioned by German companies thus pertains more to manufacturing and services (probably driven by B-to-B contracts with major exporting companies).
• The Eurofactor Barometer suggests greater confidence among French SMEs-SMIs. Although the French economy may not be in outstanding shape, growth has held up thanks to sustained consumer spending, made possible by increased borrowing. As with the upturn in Germany, the confidence evinced by French SMEs-SMIs seems to be moving into line at last with economic fundamentals, after the excessively glum atmosphere that marked 2005. Even so, industry in France has not picked up entirely, with service and trading companies being the most confident.
• Belgium is the country with the brightest outlook on jobs, with 36% of all companies planning to recruit and only 5% expecting to cut back on staff.
• As key indicators point down, the Spanish economy appears to be slowing, although growth remains quite strong.
• Finally, the UK shows the greatest confidence in the business environment, with 90% of all companies surveyed expressing a positive outlook.

Whilst only a minority of companies forecast considerably higher profit margins, if we include those predicting a moderate rise in margins, the optimists far outnumber the pessimists. On the whole, European companies are expecting a slight improvement in profitability. They are undoubtedly hoping that their efforts carried out over the past two years (de-leveraging, restructuring, raising productivity) coupled with sales growth will generate higher profit margins.  

The improved prospects for top and bottom line growth are expected to have a positive impact on employment (with disparities between countries, as in the past). In the vast majority of the countries surveyed, the companies with optimistic staffing forecasts largely outnumbered the pessimists, but this trend is less pronounced in Germany, Portugal and Italy. 

Three important points stand out:

1.      The anticipated improvement in employment lags behind business growth in all the countries surveyed. Employment figures are particularly low in Italy and Portugal, and show near-stagnation in Spain.

2.      The majority of companies (between 59% and 80%, depending on the country) expect their workforce to remain unchanged. As in 2005, we are still dealing with a modest upturn on the job market that has not yet produced anything like the peaks seen in 2000.

3.      The German economy is starting to pick up in this respect, after a long period in which companies concentrated on raising productivity. A new wave of recruitment in the country could stimulate the much-awaited take-off of domestic demand - still the Achilles heel of the country's economic acceleration.

Higher investments forecast for 2007 

Investment is expected to continue its upward climb. The Eurofactor Barometer shows that the percentage of companies planning to invest more in 2007 is infinitely higher than companies planning to scale back investment. However, this percentage is lower than in the previous year, suggesting that the pace of investment growth will level off.

 Moreover, given that there is no sign of production capacity tightening, it can safely be predicted that investment in new capacity will remain low, the bulk of new outlays being used to upgrade existing plant and equipment. This corroborates the assumption that the drive for higher productivity is still a key feature in corporate strategies today. Indeed, boosting productivity is cited as a top strategic priority in dealing with competition from emerging countries.

 The survey reveals that in four countries namely Spain, Italy, Belgium and the UK, some 40% of all companies plan to raise capital expenditure.

 Along with Portugal and Germany, France is the most cautious; only 29% of French companies forecast larger investment budgets. One might have expected a greater urge to catch up in a country whose companies have kept their investment programmes lean for several years now.

Concerns of European companies

•  Raw materials and energy

 The past few quarters have seen a sharp hike in the price of raw materials. Although this has been mitigated so far by greater productivity, wage restraint and margin cuts, companies are legitimately worried that there may be further price rises to come. Additionally, SMEs-PMIs find it more difficult to pass on higher production costs to their customers. As in the previous year, close to nine out of ten German companies accused higher energy prices of putting them at a disadvantage, a view shared by only 56% of the French companies surveyed. 

• Competition from emerging countries 

Competition from emerging countries is a concern shared by most top executives at European SMEs-SMIs, with the Italians being in the forefront. In 2006, however, this concern clearly waned. The main emerging countries targeted as serious competitors were China and, to a lesser extent, the new European Union member states (the NEMs). The relatively greater concern in Germany about the NEMs may be chiefly explained by their geographical proximity and to widespread relocation of production capacity to those countries in the past.  

• The trend in labour legislation 

The trend is labour legislation also remains a major concern of corporate executives in Europe. Somewhat ironically, this is the number one concern voiced by British employers. It is also the second leading concern of French SME-PMI heads. 

Payment time can vary ? 

On average, a European SME-SMI is paid within two and a half months, but large differences can be seen. The UK and Germany, already with the best results in this area, have made further progress, with payment time dropping respectively to 45 and 49 days (down from 52 and 51 last year). France and Belgium show stable performance with 66 and 62 days respectively. In contrast, Portugal is losing ground; it now ranks the lowest, with average payment time of 95 days (just after Italy, with 94 days), i.e. 12 days longer than in 2005. The public sector has heavily contributed to this trend toward later payment, above all in Italy (111 days), Portugal (109 days) and Spain (100 days). 

According to the Eurofactor Barometer, a stabilisation process in payment is under way. The European economic climate improved in 2006 for virtually all economic agents (individuals, privately owned companies and the public sector). For this reason, business customers are less inclined to attempt off-loading their difficulties on to suppliers by delaying payment. 

 ...and so can collection policies 

Time limits for initiating collection processes also vary considerably. Although at least 80% of all European SMEs-SMIs initiate a collection procedure, the proportion is lower in Spain and Portugal (three quarters in 2005). The European record in this area is shared by Germany, the UK and Belgium (91% in each case). 

There are also great disparities in late payment charges. In Germany and, to a lesser extent, Belgium, such charges are commonplace (respectively 47% and 36% of all companies charge interest on late payments). Mediterranean countries are less strict, given that only 22% of all companies in Italy and Spain, and only 20% in Portugal, charge for late payment. As for French and British companies, they may be considered the most indulgent of all, as only 15% of them charge for late payment. In these two countries, the change from 2005 to 2006 was similar as well (respectively + 4% and + 2%). 

In 2007, European companies will need funding 

Financing needs is expected to continue growing, but slower than in the preceding year. In all the countries surveyed, there are many more companies that foresee greater financing needs than those anticipating less. In France, almost one out of every four companies (23%) expects to have greater financing needs, whereas only 10% anticipate lower needs.  

The solutions adopted in this area vary from country to country. Bank overdrafts are widely used in Germany (46% of all SMEs) and the UK (57%), as are supplier lead-time negotiations. Italy is the country that makes the most extensive use of discounts (59%), whilst 52% of all Spanish companies make use of accounts receivable financing (as under France's Dailly Act). 

Outstanding accounts: three quarters of European companies are exposed 

The Eurofactor Barometer shows that almost three quarters of all European companies are directly exposed to the risk of outstanding accounts, which represent on average 0.9% of sales. 

Germany is the country in which SMEs-SMIs would appear to be most affected (85% of all German companies have unsettled bills, putting the country just ahead of Portugal). In Germany, total outstanding accounts amount to 1.2% of revenues. 

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Environmental protection: from awareness to actually implementing a corporate strategy 

Although the issue of ensuring a sustainable environment and managing resources and energy looms increasingly large in political and economic discussion across Europe, the adoption and implementation of strategies or plans for protecting the environment by SMEs is less clear-cut. 

Surprisingly enough, Portugal is in first place. A full 68% of its SMEs (all categories combined) have already adopted environmental protection policies. The country is followed by the United Kingdom, Italy and Spain, where respectively 62%, 61% and 57% of all companies have done likewise. In Belgium, slightly under half of all companies have adopted such an approach (48%). France shares last place with Germany, a country that despite its pioneering efforts in the ecology achieves only a 38% rate on this scale.  

Preparations for company transfer: great national disparities 

Questioned on the prospects of a change in shareholders or owners in the next five years, the vast majority of SME?PMI heads in Spain and Portugal (93% and 94%) declared that they do not expect any changes of major shareholder. In contrast, one out of five companies should be changing hands over the next five years in Italy, and one out of four in France and the UK. 

The survey further shows that, for companies facing such a transfer in the next five years, German corporate heads are the most cautious of all. Close to two out of every three of them have already made their succession decisions. Next come the British and Spanish corporate heads, with over half of them prepared for a change in five years, whereas that is true of less than half of their Belgian and Italian counterparts. The French and the Portuguese are the least concerned with planning ahead, as only one out of every three companies in France and Portugal has succession plans.  

Subsidies: low familiarity, uneven requests 

Multiple subsidies available to companies exist in a variety of forms. Companies can be assisted on the basis of their business sector, their geographic area, at various administrative levels (town, region, country, Europe), etc. SMEs-SMIs state that they are relatively unfamiliar with such programmes, particularly in Germany (61%), Italy (57%) and France (56%), whereas 66% of the Spanish companies surveyed claim to be well acquainted with them. 

The number of companies actually making use of available subsidies also varies considerably. Whilst 54% of all companies in Spain and 45% in Belgium follow through with their requests, this is true of only just over a third of all companies in the UK and Portugal, barely a quarter of all companies in France and Germany, and only 22% of all companies in Italy. 

Although administrative complexity is not put forward as the decisive factor in this respect, it does, however, discourage one out of every five French companies, one out of every four Italian companies and one out of every three German companies from obtaining such subsidies. 

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Eurofactor, Europe's foremost integrated factoring network, is a member of the Crédit Agricole S.A. group. Eurofactor supports all companies in their business development. It offers trade receivables management solutions tailored to their strategy, their business sector, their size and client profile, both in France and abroad, notably through a pan-European service called European Pass®. 

For further information :

Nathalie Paquet
Eurofactor 
Tel: +33 (0)1 43 23 72 72
nathalie.paquet@groupe-eurofactor.com

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