Real growth in turnover of Belgian SMEs for the first time in 4 years, although returns are again under pressure
8th Deloitte SME Compass survey resultsDOWNLOAD
Brussels, 16th of October 2012 – Deloitte Fiduciaire, the market leader in accountancy, tax, legal and financial advice to family-run entrepreneurs and SMEs, today published the noteworthy results from its SME Compass 2012. This survey, conducted for the eighth time this year, compares the financial performance of Belgian SMEs in 2011 with results prior to the outbreak of the financial crisis (2007). After positive developments at the end of 2010, returns from the average SME were again back under pressure at the end of 2011. Despite this, the SME Compass 2012 also highlights a number of positive trends.
Some of the main conclusions
This study is unique because Deloitte Fiduciaire is the first source to collect the latest financial information – in this case for the 2011 financial year – for over 2,300 companies. The survey is also based on “non-public” information as well as “public” data, such as turnover, current accounts and detailed operating overheads.
Real growth in turnover for the first time in four years
For the first time in four years, more than half of Belgian SMEs achieved real growth in turnover last year. ‘Real growth’ means growth in turnover that exceeds the average rate of inflation. Nikolaas Tahon, Managing Partner of Deloitte Fiduciaire, explains: “In 2011, we recorded an average inflation rate of 3.23%, whereas half of the SMEs generated a minimum growth of 4.1%. A quarter of SMEs were even able to achieve increased turnover of 15% or more.” 10% of SMEs recorded a growth in turnover that was lower than the average rate of inflation. In this particular case, we are talking about a nominal growth in turnover. Finally, last year there were still 38% of SMEs that had to contend with a fall in turnover.
In fact, last year all sectors managed to achieve a good rise in turnover on average. The outstanding performer was agro-food, where a quarter of companies recorded a growth in turnover of at least 25%. Only the services industry lagged behind somewhat, with average growth of just 2.8%, which was less than the average rate of inflation.
Increase in productivity per employee
As its second positive observation, the SME Compass 2012 reflects an increase in productivity per employee. In 2011, the average turnover per employee was 262,084 EUR, which corresponds to a rise of 3.4% in comparison with 2010. And last year, it wasn’t just turnover per employee that rose, but also added value. As it was, half of the Belgian SMEs recorded an increase in productivity of 2.6% or more. Finally, operating returns, expressed in EBITDA per FTE, rose minimally last year from 18,498 EUR per FTE at the end of 2010 to 18,622 EUR per FTE at the end of 2011.
Caution governing investment policy
The number of companies investing in tangible fixed assets increased by 5% in 2011. This figure again matched the levels for 2008. Nikolaas Tahon: “Despite this, we should also point out straight away that the average amount invested by the average SME fell for the fifth year in a row, from 38,634 EUR at the end of 2007 to 33,301 EUR at the end of 2011”. Start-up companies in particular have strictly limited their investment budgets. Whereas at the end of 2007 start-up businesses were still investing 25,952 EUR, by the end of 2011 that figure had fallen back to 12,830 EUR.
Returns for the average SME again under pressure
After positive developments at the end of 2010, by the end of 2011, half of the Belgian SMEs saw their operating return (EBITDA/turnover) fall again. Whereas at the end of 2010 half of the companies had operating returns at pre-financial crisis levels of 8.7% or more, that figure had fallen back to 8.2% by the end of 2011.
Net financial returns were also back under pressure at the end of 2011. In 2010, the average company managed to achieve a net financial yield of 8%. At the end of 2011, returns were down to 7.8%. Tahon stated: “This shows that we are again a long way from the super-returns we were seeing prior to the outbreak of the financial crisis.”
Return on capital employed, or ROCE, indicates profitability for shareholders and other providers of funds (banks and lease companies). Last year, every 100 EUR invested in a Belgian SME generated an average gross return of 6.2%. Although this was only a very small improvement compared with 2010, it will still be long before we are back to pre-crisis yields. Nikolaas Tahon explains: “Despite everything it still pays to invest in Belgian SMEs. In fact when you compare this return with a risk-free interest rate, such as a 10-year OLO, which is currently producing 2.40%, 6.2% is a very attractive return.”
Belgian SMEs again retained strong equity capital in 2011
Solvency provides an idea of the financial buffer that the company has in reserve to accommodate unexpected risks, overheads and losses without placing the continuity of the company under threat. The average Belgian SME still enjoys cast-iron solvency. At the end of 2011, the average SME had a real solvency level of 48.9%. In practical terms, this means that for every 100 EUR of available financial resources in the company, 48.9 EUR came from own resources such as capital, profit reserves, current accounts or advances granted by shareholders or directors.
The number of companies paying a dividend and/or bonus increased from 21% at the end of 2007 to 25% by the end of 2011. However, the amounts paid out have not risen systematically in the past five years. In 2011, the average dividend was 114,000 EUR. The amount paid out in bonuses was an average of 50,000 EUR. As a result, we can conclude that in the first instance, Belgian SMEs are still keeping their available profits within the company.
One very striking feature is the leap made in the real equity capital of start-up companies last year: from 34.2% at the end of 2010 to 45.3% by the end of 2011. This can be explained partly by the increased importance of the current accounts and advances granted by shareholders and directors as a source of funding. The SME Compass recorded a growth of 11.5% at the end of 2007 to 17% by the end of 2011. A quarter of start-up companies were even funding themselves 35% or more via current accounts and through advances from shareholders or directors.
By way of comparison: in companies that have been in business for 25 years or more, the degree of financing via current accounts or advances from shareholders or directors was just 6.8% of total assets.
Family-run SMEs recorded appreciable losses in value for the fourth year in a row
Compared with 2010, the average SME had lost 12% of its value by the end of last year. The average operating company even saw its value shrink by 16% or more. A quarter of SMEs recorded a loss of 55% or more.
Last year, it was the agro-food and construction sectors that were hit the hardest, losing value by 29% and20% respectively. The bigger the company (expressed in FTEs), the greater the impact the crisis has had on the value of the company. Last year, half of the companies employing staff of more than 50 saw their value fall by 28% or more. In businesses employing no staff, this reduction in value was limited to “only” 9%.
Nikolaas Tahon: “If we compare the value of Belgian SMEs at the end of 2011 with their value prior to the financial crisis, we can see that there has been an average loss in value of 38%. That loss rises to as much as 43% for the average operating company. A quarter of Belgian SMEs also had to contend with a loss in value of 80% or more.”
Industrial companies suffered the most, losing 54% in value. They were followed closely by wholesalers and retailers, who lost 47% of their value on average. Companies that have been operating for longer than 10 years in their sector have seen their value over the past 5 years fall by an average of 44%. This is a good 10% more than young companies, where the value of the average business has fallen by 34%.
Business managers wanting to chart the financial performance of their company in detail can now have a benchmark drawn up – “The SME Compass for your company”. They can do this by contacting the Deloitte Fiduciaire office in their area or by going to www.KMOkompas.be