Deloitte Fiduciaire publishes the results of its “SME Barometer 2009”

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Key findings

6 SMEs out of 10 lost turnover in real terms in 2008

1 SME in 2 experienced a fall in its operating and financial returns during 2008

SMEs recorded a 20% loss of value, even though they stood up to the downturn better than the companies listed on the BEL20

Brussels, 21st October 2009 – Deloitte Fiduciaire, the market leader in accounting expertise, as well as tax and financial advice for family-run companies and SMEs, is today publishing the results of its “SME Barometer 2009”, a survey that sheds some revealing light on the financial performance of over 550 companies viewed over a period of 5 years.

This business study is the only one of its kind, because Deloitte Fiduciaire is also the first provider to put together the latest financial data and include details of the 2008 financial year. More interestingly, the survey is based not only on “public” figures, but also on “non-public” data such as turnover, current accounts and details of operating overheads.

The SME Barometer focuses solely on operating companies: every company featured in the survey is involved in an ongoing business in the construction sector, industry, commerce, agriculture or services.

20% drop in value for SMEs in 2008

“Res tantum valet quantum vendi potest”: “A thing is only worth the price someone is willing to pay for it”. It is, of course, market forces that determine the value of a business. In practical terms, this value is made up of market multiples and the results hoped for.

Analysis of the Belgian market for SMEs shows that the median SME managed to increase its competitive value from 3.4% to 11.4% between 2004 and 2007. By contrast though, SMEs recorded a significant fall in value (-19.4%) for the first time in 2008.

This means that SMEs appear to be tracking movements in the BEL 20 index, albeit to a lesser extent. Between 2004 and 2007 the average closing level of the BEL 20 rose regularly, recording respective increases of 24.8%, 22.1% and 13.1%. In 2008, though, it fell by no less than 29.2%.

The Deloitte Fiduciaire survey indicates that it is industry that is suffering the most from the decline in company values, with a fall of 25.8%. The construction sector was the least affected, with a loss in value of “only” 8.5%.

For the first time in 4 years, there was no real growth in turnover. 6 SMEs out of 10 recorded a loss of turnover in real terms in 2008.

Between 2004 and 2007, Belgium experienced relatively moderate inflation, with the rate fluctuating between 1.8% and 2.78%. During the same period, the average SME saw its turnover rise by 2.83% in 2005 and 5.2% in 2006. This means that there was “real” growth in turnover – i.e. more than the average rate of inflation.

However, with a rate of 4.5%, 2008 was a record year for inflation in Belgium. According to Dominique Deliège, an associate at Deloitte Fiduciaire, “The impact of the economic and financial crisis has been so great that many companies recorded a simultaneous and sharp downturn in their turnover during the final quarter of the year. For the first time in 5 years, the average rate of inflation was greater than the growth in turnover of the median SME. And also for the first time in 5 years, the average SME saw no real growth in turnover, but only nominal growth.

While in 2007, 60% of SMEs achieved real growth in their turnover, one year later, only 40% of them managed to pass on price rises to their own selling prices. In fact, in 2008, 42% of Belgian SMEs found themselves having to deal with a decline in turnover.

Here again, industry was the area most affected: 1 industrial company in every 2 saw its turnover fall in 2008. Construction was the only sector to escape the general economic malaise in 2008, with the median company managing to boost its turnover by 9.3%, a full 4.8% more than the average rate of inflation.

SMEs came under heavy pressure in 2008, both operationally and financially: 1 SME in every 2 experienced a fall in its operating and financial returns during 2008

In 2008, the median SME not only experienced a fall in turnover, but also in its EBITDA, which declined by no less than 7%. EBITDA measures operating yields by eliminating the impact of the business’s financial structure (interest charges), the valuation methods applied (depreciation) and the tax system that applies to the company. By way of comparison, between 2004 and 2007, the median SME managed to retain its EBITDA or even increase it slightly.

As a logical consequence of these changes, operating returns (EBITDA / turnover) also suffered in 2008. Whereas returns for the median SME were between 8.1% and 9% for the period between 2004 and 2007, they fell back to 7.8% in 2008.

Last year, net financial returns also declined, falling from 10.1% in 2007 to 8.3% in 2008. At the same time, ROCE (return on capital employed) fell by 1.4%.

Fall in the ability of SMEs to repay debt in 2008

Pressure on turnover and returns naturally has a direct knock-on effect on net operating cashflow and, as a result, on the ability of an SME to repay its debt. This ability indicates the extent to which the company generates sufficient cashflow to be able to meet its financial obligations (repaying the principal and interest on debt). The Deloitte Fiduciaire survey shows that the median SME lost 8% of its ability to repay debt in 2008.

To sum up, SMEs in Belgium were already being affected adversely during the first 4 months of the GFC. This can be seen from the fall in turnover and declines in operating and financial returns. It remains to be seen whether, despite a further fall in business volumes in 2009, the median SME will be able to preserve its financial structure. More than ever it will be those SMEs that take steps to implement a more efficient company structure, as well as favour sustainable growth rather than absolute growth and plan properly for the future, that will be better equipped to emerge stronger from the crisis. To help them do just that, Deloitte Fiduciaire has developed a powerful yet simple tool. By answering fewer than 50 practical questions, the directors of SMEs can take a critical look at the way their company operates. To do so, these business leaders should visit www.renforcezvotrepme.be

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