Insolvencies on the rise across the entire French business landscape

​In the absence of investment, consumption and export growth drivers, Euler Hermes revised its French GDP growth forecast downward for 2013 (-0.3%) and in 2014 (+0.4%) Insolvencies remain at a very high level (61,250 cases over 12 months to May 31, 2013), nearly equal to the 2009 high. Recently, large companies have been affected to an acclerating extent (+15.7% during the first five months of 20131 for companies with sales of more than €15 million). Among the difficulties faced by companies is a surge in so-called safeguard procedures, which rose by 13.9% in the first five months of 20131, and a growing number of court-ordered liquidations. 70% of all companies in court-ordered restructurings are eventually liquidated

Following the decline in consumption and investment, exports – the final growth driver – are also losing steam

“Given the widespread contraction in the main components of economic growth, we’ve revised growth forecasts downward to -0.3% for the full year 2013,” explained Ludovic Subran, chief economist at Euler Hermes. “A return to modest 0.4% growth will occur only in 2014, due to an increase in exports, followed more gradually by increased consumption.”

Low household confidence levels weighing on personal consumption. The increase in unemployment (expected to reach 11% in 2014) combined with declining household purchasing power will weigh on personal consumption. That is expected to decrease by 0.2% in 2013 before rebounding slightly (+0.2%) in 2014, supported by a continued high level of savings.

Company investment remains sluggish. The tax burden on companies has increased steadily since 2010, and uncertainty surrounding new measures should continue to weigh on company investment outlooks (-2.3% in 2013 and -0.1% in 2014). In fact, business confidence levels have been depressed for more than one year, and company profit margins have remained at their lowest levels since 1988. Finally, the impact of the reduction in social contributions in 2014 as a result of the tax credit for competitiveness and employment (Crédit d’Impôt pour la Compétitivité et l’Emploi - CICE) appears to be limited, given the lack of a policy supporting promising sectors that are exposed to international competition.

Exports showing signs of weakening. Given anemic demand in neighboring countries, demand for exports will be very limited in 2013 and are expected to decline by 0.5%. However, the more pronounced recovery forecast for Germany, as well as a slowdown in the rate of economic contraction in the peripheral countries in 2014, should enable exports to rebound significantly in 2014 (+1.3%).

The surge in insolvencies is spread across the entire economic landscape, especially high for large companies.

In France, company insolvencies continued to rise during the first five months of 2013, with more than 26,600 since the beginning of the year (+0.8%), and more than 61,250 over 12 months (+3.8%). These figures are near the records set 1993, 1996 and 2009, supporting an outlook for increased defaults during the full year 2013 (+2% to approximately 62,000), before, at best, a slight decline in 2014 (-1% to 61,800).
While the insolvency trend is on the rise for companies of all sizes, large companies are experiencing a particularly sharp increase.

“During the first five months of 2013, companies with more than €15 million in sales recorded a 15.7% increase in insolvencies and those with more than 200 employees recorded a 33.3% increase,” noted Nicolas Delzant, chairman of the Executive Board of Euler Hermes France. “With a domino effect threatening the supply chain, it is even more imperative to manage company payment default risks.”

Since the beginning of the year, aggregate sales for the 15 largest French insolvencies totaled €2.7

 

Company	Reorganization/Liquidation/safeguard	SALES (K€)
KEM ONE	march 13	700 000
GAD SAS	feb. 13	459 223
VIRGIN STORES	jan. 13	304 947
Groupe Continentale Nutrition	May 2013	270 201
Huis clos	May  2013	146 473
Groupe AXSOL TWINTEC	jan. 2013	100 000
GOSS INTERNATIONAL FRANCE	apr. 13	96 927
MULTITEC	march 13	86 886
Distribution Pays de l’Ouest	Jan. 2013	79 103
SPANGHERO SAS	feb. 13	78 922
BIJOUX GL	feb. 13	75 115
OXXO	feb. 13	72 196
Yvanbeal	May 2013	59 610
Phone and Phone	May 2013	54 032
MANUFACTURE DE PRODUITS D'HYGIENE	jan. 13	51 851
Top 15		2 635 496