One in fifteen European companies is facing significant restructuring pressure this year after being hit by high financing costs and weak consumer demand, with Germany, Austria and the Nordic countries particularly under pressure, according to a report issued by Boston Consulting Group.
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(Bloomberg) — One in fifteen European companies faces significant restructuring pressure this year after being hit by rising financing costs and weak consumer demand, with Germany, Austria and the Nordics particularly under pressure, according to a report from Boston Consulting Group.
About a third of companies in Germany and Austria are also facing what Boston Consulting Group calls “turnaround pressures,” or early signs of poor performance and financial stability that requires improvement, the consulting firm said in a presentation on Monday. This compares to about 21% across Europe as a whole, up from 14% in 2023.
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The company compiled financial information from more than 2,000 public companies in Europe, and relied on company data and interviews.
The pressure in Austria and Germany comes partly from “sector structure,” said Jochen Schoenfelder, a senior partner at Boston Consulting Group in Cologne. “One reason is the large exposure to China and Russia, while the second reason is the large exposure to heavy energy industries.” He also noted that both countries have been particularly affected by the “consumer crisis,” with demand for fashion and other items declining.
Real estate, telecoms, media, technology and retail were the three sectors most under pressure across Europe. About 68% of real estate companies are showing these early signs of stress, up from about 26% in 2023, according to Boston Consulting Group.
The data highlights how the continent is still facing the effects of the rapid rise in central bank interest rates, as well as the rise in raw material and energy prices in the wake of the Russian invasion of Ukraine. While there are signs of an economic recovery in Europe, financing costs are still expected to remain at elevated levels, with markets fully pricing in only two interest rate cuts this year from the European Central Bank.
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Higher prices
Higher interest rates were the main driver of weakness in more capital-intensive sectors such as telecommunications and manufacturing, according to the report. In addition, industrial companies across Europe have faced constant competition from countries such as China and need to invest in their businesses to adapt to regulation such as the EU Green Deal.
The retail sector is also seeing increased sensitivity to risk from banks, with limited availability of debt and equity for retail property development as well, according to Boston Consulting Group. This comes alongside headwinds such as increased labor costs and supply chain disruption.
However, even with this pressure, debt restructurings have been lower than expected, according to Schoenfelder. Part of this is due to the fact that lenders have been willing to conduct modification and extension transactions, delaying the maturity date of the debt and modifying some terms.
“In many refinancing situations, companies and creditors are just trying to push things down the road,” Schoenfelder said, adding that the issue will still need to be addressed when the new due date is reached.
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