More than 44% of non-financial companies lost money in 2020

Over 44% of non-financial companies lost money in 2020, with turnover down 9.7% and return on equity falling to 3.8%, half the value of 2019, the Bank of Portugal said on Wednesday.

According to the Annual Economic and Financial Indicators of Non-Financial Companies of the Bank of Portugal, updated this Wednesday for 2020, “the profitability of companies fell” that year, penalised by the pandemic, pointing to statistics based on information from the IES (Simplified Business Information) for a decline in turnover of around 9.7%.

“This decline, which affected most companies, was more pronounced in the sectors most affected by the pandemic, namely hotels and restaurants (-42.5%), arts, entertainment, sports and recreation (-35.5%) and transport and storage (-24.2%),” the central bank said.

Even so, it said, “in some sectors, turnover increased, namely in construction (3.0%) and in information and communication activities (4.4%).”

According to the BoP, this reduction in activity affected corporate results, which, measured before depreciation, amortisation, interest and taxes (EBITDA), decreased by 18.9% compared to 2019.

Last year, return on assets (ratio of EBITDA to total assets) fell to 5.9% (7.6% in 2019) and return on equity (ratio of net income to equity) fell to 3.8%, half the 2019 figure.

“In other words, for every €100 invested by shareholders, €3.8 of net income was generated (€7.4 in 2019),” explains the BdP.

This drop in profitability was “worse” in companies in the transport, storage, accommodation, and catering sectors, which recorded close to -20%.

With 44.5% of companies expected to have negative net results in 2020 (compared to 36.9% in 2019), the central bank warns that the percentage of companies “in a potential situation of risk” has increased.

This increase in the percentage of companies in a potential situation of risk was “more expressive” in the accommodation and catering sector, where the percentage of companies with negative net results rose from 45.7% in 2019 to 67.3% in 2020.

Additionally, “38% of companies showed negative EBITDA (31.1% in 2019) and, for 18.7% of companies, the EBITDA generated was not enough to cover financing expenses (14.1% in 2019).”

The BoP data also points to a “slight increase” in the percentage of companies with negative equity (companies whose value of liabilities exceeded the value of assets), which rose from 25.5% in 2019 to 26.4% in 2020.

Although the reduction in activity has been generalised to the various sectors of activity, the central bank points out that “the economic situation of companies has not been affected in the same way”: “On the whole, companies have continued to strengthen equity and financial autonomy (measured by the weight of equity on the balance sheet) has increased to 38.1% in 2020 (36.5% in 2019),” it says.

The exception was companies in the transport and storage and accommodation and catering sectors, whose financial autonomy fell from 23.3% to 18.6% and from 32.7% to 30.2%, respectively.