Value of SMEs still 40% lower than before the crisisDOWNLOAD
Brussels, 23rd October 2013 – Deloitte Fiduciaire, the market leader in accountancy, tax, legal and financial advice to family-owned businesses and small and medium-sized enterprises (SMEs), is today announcing the results of its SME Compass 2013 survey. Now in its ninth consecutive year, this survey measures the impact that the recent years of crisis have had on the financial performance of Belgian SMEs. The survey also highlights the fiscal pressures placed on SMEs.
Some of the major conclusions include:
• Half of SMEs saw their turnover decline in 2012; only the services sector was able to limit the damage.
• Only 31% of family-owned SMEs are recruiting; 4 in 10 non-family SMEs provide more employment.
• The number of businesses investing is at an all-time low; those companies that are investing increased their investment budgets by 22%.
• 1 in 2 SMEs paid more than 37% of their EBITDA in taxes and social security contributions; fiscal impact on small SMEs equivalent to half of the wages bill.
• The strength of Belgian SMEs remains their level of self-funding; reduction in assets from banks as a source of funding.
• Value of SMEs still 40% lower than before the crisis; construction and manufacturing sector continue to lose value.
This survey is the only one of its kind: Deloitte Fiduciaire is the first consultancy to collate the latest financial data for the 2012 financial year for approximately 2,500 companies. The survey is based not only on “public” data, but also on “non-public” information, such as turnover, current accounts and detailed operating overheads.
In 2012, only 44% of SMEs recorded a real increase in turnover – i.e. where growth exceeded inflation. Just about every sector shared in the knocks last year. Nikolaas Tahon, Managing Partner of Deloitte Fiduciaire, explains: “No fewer than 57% of the companies operating in the construction sector had to deal with a significant fall in their turnover. More than half of businesses in commerce and industry also saw their sales shrink. Only the services sector managed to limit the damage to some extent, with ‘only’ 4 out of 10 SMEs recording a loss of turnover.”
Half of the companies that saw their turnover fall recorded a decline of at least 9.1%. A quarter of this group of businesses suffered a reduction in turnover of 21% or even more. By contrast, half of the companies that grew did so by a maximum of 8.8%. As a result, the loss of turnover comfortably exceeded any growth in sales.
As a result, this contributed to placing Belgian SMEs under further pressure in terms of operating and financial returns. In fact, operating returns (i.e. EBITDA on turnover) fell for the second year in succession, from 8.7% at the end of 2010 to 8.2% at the end of 2012. The net financial yield has also fallen systematically over the past 2 years, from 8.1% at the end of 2010 to 7.1% by the end of 2012.
Return on capital employed, ROCE, reflects the level of profitability for shareholders and other providers of funds (banks and leasing companies). Last year, every 100 EUR invested in a Belgian SME generated a yield of 5.8%, which was down 0.3% on 2010.
Whereas a small majority of non-family SMEs saw their turnover grow last year, more than half of family-owned SMEs had to deal with a decline in turnover during the same period. At the same time, 28% of family-owned SMEs found themselves obliged to reduce their workforce last year. This was in contrast to non-family businesses, where 4 in 10 SMEs were able to provide more employment.
In 2007, the last year before the financial and economic crisis erupted, 66% of SMEs were still investing. However, by the end of 2012, the number of companies still investing had fallen back to 58%. The number of businesses reducing their investments on balance was historically high at 23%. One positive note was that the amount being spent on investments by those companies still investing rose by 22% to an average of 41,100 EUR.
The fiscal impact takes all tax and related charges together and measures how much a company is paying to the government. The large proportion of employer contributions – representing 63.7% of the total fiscal impact – stands out immediately.
The second biggest component is company tax, which represents 23.5% of the total fiscal impact. Half of profitable companies in 2012 paid at least 26.7% corporation tax on their book profit. One quarter of them even paid more than the normal rate of 33.99%. Even the average management company, which is currently strictly audited, paid 32.5% company tax in 2012.
The various types of tax include non-deductible VAT, excise tax, traffic tax, the various provincial and municipal taxes and environmental levies. Henk Hemelaere, Partner of Deloitte Fiduciaire: “Together, these represent 12.6% of the total fiscal impact. As a result, we should not underestimate the importance of these various taxes.”
For each 100 EUR of turnover generated by the average Belgian SME, it pays 5.8 EUR in taxes or social security contributions. But a good half of companies pay a minimum of 37.6% for their operating cash profit or EBITDA in fiscal and related charges. This has meant an increase of 2.6% in the space of two years.
Among small companies employing fewer than 10 people, 52% of their operating profit or EBIT went to the government. In this category of businesses, the wages bill represents 110% of EBIT. So, taking these together, we can determine that for every 2 EUR spent by this group on gross wages, virtually 1 EUR is paid to the government in the form of taxes or social security contributions.
Finally, the SME Compass 2013 survey shows that of gross book profit, a good half (53.7%) is paid to the State.
The average Belgian SME enjoys cast-iron real solvency. This became even stronger over the past year. Nikolaas Tahon explains: “We calculate the real solvency of a company by enlarging its equity capital by its virtual equity capital, which includes in particular the subordinated loans and current accounts of shareholders, partners, directors and business managers in ‘equity capital’. Usually, though, family shareholders finance their business to a large extent with current accounts, which we have to take into account as much as risk capital.”
At the end of 2011, the real solvency of the average SME was 48.3%. At the end of 2012, this ratio had risen to 51.7%. One quarter of SMEs fund themselves 74.4% or more using their own resources. This means that the company’s own shareholders and directors/business managers are by far the most important providers of assets for SMEs in Belgium.
By contrast, the importance of bank finance as a source of funding fell by a good 2.8% last year. Also, whereas the average SME at the end of 2011 drew down 15.6 EUR per 100 EUR of real equity capital, this ratio had fallen to 12.8% by the end of 2012. It was in retailing that the contribution of bank funding fell the most: from 16.8% at the end of 2011 to 11.1% at the end of 2012.
Although at the end of 2012 the average SME had regained 3% in value compared with 2011, it had still sustained an accumulated loss in value of 39% in relation to 2007, the year before the financial and economic crisis erupted.
In the past year, both the services and retail sector managed to recover some of their loss in value of the 3 previous years. In the services sector, half of SMEs regained at least 5% of their value, with as much as 7% in retail. However, the construction and manufacturing sectors continued to stack up the losses. In the building sector, half of companies saw their value decline further, to less than 48% of what it was prior to the crisis. The value of the average manufacturing company has even contracted to just 44% of its pre-crisis value.