Trend in the financial structure and results of firms in 2004

Each year, in the 4th quarter’s Economic Review, the National Bank examines the situation regarding the annual accounts of Belgian non-financial corporations. By that time, the Central Balance Sheet Office has already collected a representative number of annual accounts for the preceding year. The article is in three parts. The first part describes the methodology used and the sample. The second part studies the main developments in the profit account. Finally, the third part contains a financial analysis of Belgian companies ; this analysis is completed by the interpretation of the results of the default model developed by the Bank. The main findings of the study can be summarised as follows. In 2004, the total value added created by Belgian non-financial corporations increased by 6.3 p.c., which is the best result since 2000. At the same time, the operating costs (mainly personnel costs and depreciation) grew by 2.7 p.c. So, as in 2003, value added growth far exceeded the rise in operating costs. As a result, the net operating profit increased by more than 24 p.c. After taking into account the other elements of the results, and particularly the financial and exceptional results, non-financial corporations made a net profit after tax of 26 billion euros, representing a stagnation in comparison with 2003. This stagnation is almost entirely due to the considerable reduction in the exceptional result which, having shown a substantial surplus in 2003, produced a zero balance in 2004. This reduction in the exceptional result almost cancelled out the growth in the net operating profit. As far as the companies’ financial position is concerned, having clearly suffered from the weak economic situation in 2001 and 2002, in 2004 it generally maintained the recovery which had begun in 2003. However, as regards the return on equity, a distinction must be made according to company size : while the globalised rate of return achieved by small and medium enterprises continued to increase in 2004, there was a slight fall in the case of large companies, mainly because of the decline in the exceptional result. As for the financial risks, they once again diminished, reverting to the levels prevailing in 1999, that is before the period of weak economic activity. Yet, according to the model, a large number of companies are still in difficulties : the proportion of companies experiencing problems amounts to 16.6 p.c. for large companies and 19.8 p.c. for small and medium enterprises. These distressed companies employ 215,000 workers.