The number of insolvencies in the first half of the current year is at the minimum of the last ten years, but the losses generated to the creditors are at the highest level in the period analysed, Coface informs in a press release.
Although the number of insolvencies in the first semester of 2017 is similar to that of the last year, namely 4,442 new proceedings, the companies with a turnover of more than EUR 1 million which became insolvent in the time interval analyzed increased by almost 20 percent, reaching 180 companies.
“The paradox, namely a minimum of insolvencies correlated with a maximum of losses caused to the business environment, is explained by the profile of the companies. More specifically, of the total insolvent companies in the first semester of the current year, 20 companies had revenues higher than EUR 10 million in the previous year, out of which 11 carried out distribution, trade or energy supply activities. These companies have a low level of fixed assets and a very high degree of indebtedness, which may predispose the creditors to significant losses,” the release reads.
The degree of indebtedness of the companies which subsequently became insolvent has constantly increased, from 72 percent in 2008 to approximately 97 percent in 2016. This dynamics was determined by the accumulation of losses which have eroded the level of equity, the low capitalization contribution from the shareholders and the need for supplementing the debts in order to manage the liquidity pressures, Coface points out.
Of the 4,442 insolvent companies in the first semester of 2017, 2,244 companies submitted their financial returns for the activity carried out in 2016. According to the Coface analysis, one of the main causes which fueled the risk of becoming insolvent was the accelerated increase of the debts well above the advance of revenues, coupled with the accumulation of increasing losses.
However, an evolution of the companies’ revenues was noticed in the years before the insolvency.
“The level of the companies’ revenues significantly increased in the past 3-4 years before becoming insolvent mainly as a result of significant investments. The average turnover in 2016 was of RON 4.57 million, more by 26 percent compared to the previous year and almost twice more than that in 2008. However, the companies did not use all the resources to become efficient, accumulating increasing losses. This dynamics was registered as a result of the evolution of the degree of indebtedness, which generated an increasingly important financial burden”, Eugen Anicescu, Country Manager, Coface Romania says.
Also, the increase in the value of instruments refused for payment by almost 50 percent in the first half of the current year compared to the same period of the previous year also seems to be paradoxical given that the liquidity registered at the level of the business environment is at a historic high. According to the study, the added value of the treasury of the companies from the active business environment in Romania has constantly evolved since the impact of the financial crisis at the local level, reaching RON 128 billion at the end of 2016 compared to RON 78 billion in 2007.
“If there are companies which benefit from cash, and the insolvencies in the first semester of the current year remain at a historic low, why do we register an increase in the value of the instruments refused for payment? This apparent paradox is explained by the increase of the phenomenon of polarization of revenues, profits and liquidity among large companies. According to data, the first largest 1 percent of the active companies in Romania, approximately 5,000 concentrate 58 percent of the liquidity of the entire business environment at the end of 2016, compared to only 43 percent at the end of 2007. In conclusion, the consolidated cash in the entire business environment register indeed an increase, but the surplus is concentrated among the large companies. The concentration of the cash among the large companies is generated by the increase of the polarization phenomenon from the perspective of revenues and profits of the active companies in Romania”, says Iancu Guda, Services Director, Coface Romania.
Thus, the largest 1,000 companies generated a share of 50 percent of all the companies’ revenues at the end of 2016, a less visible phenomenon in the countries of the region.
“More exactly, 6 out of 10 active companies in Romania register profit, out of which 75 percent is concentrated in the largest 10 percent companies. On the other hand, 4 out of 10 active companies register losses while only 42 percent are concentrated in the largest 10 percent companies”, Guda adds.