CORPORATE DISTRESS RISES TO RECORD LEVEL IN EUROPE - SWISS COMPANIES WERE RESILIENT IN 2023, BUT RESTRUCTURING ACTIVITY IS ON THE RISE
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CORPORATE DISTRESS RISES TO RECORD LEVEL IN EUROPE SWISS COMPANIES WERE RESILIENT IN 2023, BUT RESTRUCTURING ACTIVITY IS ON THE RISE Nearly 900 companies facing financial distress in Europe Swiss companies proved to be the most robust in Europe Healthcare and chemicals sector are the most critical industries in Switzerland
Zurich, 22 July 2024 – Global professional services firm Alvarez & Marsal (A&M) has today published its bi-annual Alvarez & Marsal Distress Alert (ADA), which assesses the financial performance and balance sheet robustness of more than 8,200 companies across Europe. The alert finds that financial distress across European corporates has risen by 10% year-on-year, with 9.2% of European corporates now in distress. Ten out of 16 sectors saw a deterioration in corporate financial health, and over half (55%) of countries saw distress levels rise. The analysis also shows that the share of businesses with weak balance sheets has reached a record 31.2%, which represents over 2,500 corporates. This reflects the impact of increased leverage, lower revenue generation, hit by slower consumer spending and increased expenses resulting from inflation, which is eroding companies’ ability to service their debt. The dismal economic outlook has been especially problematic for corporates with overleveraged capital structures. With interest rates expected to come down slowly and remaining inflationary pressures proving difficult to tame, A&M expects a further increase in financial distress as cash flow pressures continue and maturities loom, giving rise to more restructuring activity. UK and Germany among most distressed in Europe The UK has seen the biggest year-on-year increase in corporate distress, with nearly one in ten (9.9%) companies now in distress, compared to 8.4% a year earlier. The stagnant economic conditions in the UK have also weighed on performance, with 15.1% of companies lacking performance in the past year. The proportion of companies lacking balance sheet robustness has also topped 30% for the first time since before 2020. A similar proportion of German companies face distress (9.4%), which is the highest level since the start of the pandemic. The number lacking performance and balance sheet robustness has also grown in recent years, now accounting for 15.7% and 27.8% of all German corporates respectively. Consumer-facing industries see the highest levels of distress in Europe with fashion retail emerging as the most distressed sector (18.8%). Falling consumer spending and the lingering impact of inflation on costs have weighed on the sector, as well as the recent supply chain crisis. Media and entertainment companies have also seen an increase in levels of corporate stress, with 14.4% of companies now facing corporate distress. Businesses in the construction and chemicals space are facing high levels of stress, too, with 10% and 11.7% of these companies in distress respectively. Chemicals companies have seen distress rise more than 40% since 2020, thanks to sagging demand, sustainability pressures and competition from other regions. Similarly, construction has suffered from a severe hit to demand owing to higher interest rates, plus rising costs and labour disruptions. Alessandro Farsaci, Managing Director at A&M Switzerland says: "Economic growth across Europe remains weak affecting the Swiss export oriented companies and domestic consumer spending is depressed due to various factors, hitting financial performance and weakening the ability of highly leveraged businesses to service their debt and/or to adhere to their covenants. We are seeing a substantial increase in restructuring activity since a few months, and we expect more to come particularly as refinancing dates come closer. However, this turbulent period also presents an opportunity for companies to radically reassess their positions, particularly by enhancing balance sheets and operational efficiency, to emerge stronger for the long-term." Distress level 2023 in Switzerland improved and remains at a low level Additional features: File: ADA Swiss Media Release 22.7.24_ Final_E File: 9348_AM_444112_RES_EMEA_AM Distressed Alert 2024 Summer Edition_FINAL
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1950469 22.07.2024 CET/CEST