One in 15 European companies face significant pressure to restructure this year after being hit by higher financing costs and weakening consumer demand, with Germany, Austria and the Nordics particularly put to the test, according to a report from the Boston Consulting Group.
About a third of companies in Germany and Austria are also facing what BCG calls “transformation pressure” or early signs of weakening performance and financial stability that require improvement, the firm said on Monday. advice in a presentation. This compares to around 21% across Europe as a whole, an increase from 14% in 2023.
The company compiled financial information from more than 2,000 public companies in Europe and relied on statements and interviews from these companies.
The pressure in Austria and Germany comes partly from the “structure of the sectors,” said Jochen Schönfelder, senior partner at BCG in Cologne. “One reason is high exposure to China and Russia, the second being high exposure to energy-intensive industries. He also noted that both countries had been particularly affected by the “consumption crisis”, with a drop in demand for fashion and other items.
Real estate, telecommunications, media and technology and retail were the three most affected sectors in Europe. According to BCG, around 68% of real estate companies are showing these first signs of stress, compared to around 26% in 2023.
Data shows the continent still faces the consequences of rapidly rising central bank interest rates, as well as soaring commodity and energy prices following Ukraine’s invasion of Ukraine. Russia. Although there are signs of economic recovery In Europe, financing costs are expected to remain high, with markets only factoring in two rate cuts from the European Central Bank this year.
Higher rates
According to the report, rising interest rates were a key factor in the weakness of more capital-intensive sectors such as telecommunications and manufacturing. Additionally, industrial companies across Europe face constant competition from countries like China and must invest in their businesses to adapt to regulations such as the EU Green Deal.
The retail sector also faces increased sensitivity to risk from banks, with limited availability of debt and equity for commercial real estate development, according to BCG. This comes with headwinds such as rising labor costs and supply chain disruption.
However, despite this pressure, debt restructuring processes have been fewer than expected, according to Schönfelder. This is partly because lenders have been willing to enter into modification and extension transactions, which extend the maturity of the debt and modify some of its terms.
“In many refinancing situations, companies and creditors simply try to get rid of the problem later,” Schönfelder said, adding that the problem will still have to be resolved when the new deadline is reached.
