ITALIAN NON-FINANCIAL COMPANIES ECONOMIC OUTLOOK 2018Milan April 2018
Rating Agency
Dati societari
Rating Agency
HEADQUARTERS
Cerved Rating Agency SpAVia dellrsquoUnione Europea 6A 6B
San Donato Milanese (MI)
COMPANYrsquoS STATUTORY DATA
Subscribed and paid-in share capital of 15000000 eurosMilan REA No 2035639
Tax ID and VAT No IT08445940961Website ratingagencycervedcom
Contact Information
Izuela StafaResearch Analyst
P +39 027754797E izuelastafacervedcomA Via della Unione Europea 6A 20097 San Donato Milanese - (MI)
Riccardo GottardiStatistical Analyst
P +39 027754404E riccardogottardicervedcomA Via della Unione Europea 6A 20097 San Donato Milanese - (MI)
Milovan MilovicCredit officer
P +39 027754345A Via dellrsquoUnione Europea n 6A-6B 20097- San Donato Milanese - (MI)
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Table of contents
Preface
Assumptions
Executive summary
World economy Outlook 2018
European economy Outlook 2018
Highlights on italian economy
Italian non-financial companies economic Outlook 2018
3
4
6
8
10
12
22
3
Preface
The projections in this study reflect Cerved Rating Agencyrsquos opinion on the economic and financial situation and the
general risk level of Italian non-financial companies in 2018
The study is the product of the analysis of the Global European and Italian macroeconomic historical data between
2000 and 2017 and the forecasts for 2018 combined with specific individual data between 2000 and 2017 related to
Italian non-financial companies with turnover exceeding euro5 million
CERVED RATING AGENCY SpA | Preface
4
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Assumptions
5
A number of assumptions have been adopted for the projections exposed in this study more specifically
the Italian economy is expected to grow at a slower pace in 2018 with GDP forecast at 15 compared to 16
recorded in 2017
the inflation rate is expected to decrease from 14 recorded in 2017 to 12 in 2018 remaining below the
European Central Bank target rate of 20
the average price of oil is expected to be close to $60 a barrel in 2018 whilst the prices of non-fuel commodities
are expected to remain mostly unchanged
actual exchange rates are expected to remain relatively stable at the levels of the last three months of 2017 ie
we do not expect the average EuroUS Dollar exchange rate to exceed 12 at this level exports will gain pace
driven also by a general improvement in the economic cycle and therefore resulting in a higher demand
the European Central Bank is expected to leave the key interest rates at the present low levels and to continue
to apply non-standard monetary policy measures ie net asset purchases at a monthly pace of euro30 billion until
the end of September 2018 despite the reduction in size of the net asset purchases Italian credit institutions
are likely to expand their credit activities partially also due to a significant reduction in the amount of non-
performing loans thus supporting the momentum
the investments are expected to gain strength due to fiscal incentives higher domestic demand and supportive
credit conditions
in the next twelve months we do not envisage room for a significant change in Italian economic and financial
policies in particular regarding the fiscal system and public debt reduction due to the result of the general
political elections scheduled in Italy for 2018 moreover we believe that the results of the referendum for
autonomy held in Lombardy and Veneto will not have any significant impact on the general economic trend in
2018
finally the study does not consider the impact of extraordinary events such as an undesirable further escalation
of USA-North Korea andor USA-Iran disputes or the European disintegration processes on the economic and
financial trends underlying the analysis
Assumptions
CERVED RATING AGENCY SpA | Assumptions
6
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Executive summary
7
This research aims to present two outputs
- projected economic and financial performances in 2018 of the Italian non-financial companies
- the expected risk level of such entities at the end of 2018
the sample extracted for the analysis consists of Italian joint stock and limited liability companies with turnover
exceeding euro5 million and includes on average roughly 50000 entities per year operating in 10 macro industries
(manufacturing further detailed in 10 micro-sectors) the related revenues in 2016 amounted to euro18 billion
representing 769 of total revenues of all Italian joint-stock and limited liability companies
the World European and Italian historical (2000-2016) and estimatedprojected (2017-2018) macroeconomic
data are combined with specific individual company data with the aim of obtaining accurate and reliable
forecasts
the Cerved database was the main source for the analysis of economic and financial performances of the
companies included in the sample Cerved Rating Agency database highlighted the risk level of such entities
based on the credit rating activities performed by the Agency
the research output affirms that gradual recovery of Italian non-financial companies is expected to continue in
2018 both in terms of revenue growth and improvement of the financial structure primarily for manufacturing
and accommodation and food services industry the trend is mainly fostered by positive global economic cycle
low interest rates and favorable regulatory framework supporting firm funding investments innovation and
employment
the general risk level in 2018 is assumed to remain approximately at the levels recorded at the end of 2017
a slight improvement in terms of rating upgrades is expected for 9 of the companies analyzed mainly
concentrated in the manufacturing wholesale and retail trade and the accommodation and food service
industry
Executive summary
CERVED RATING AGENCY SpA | Executive Summary
8
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
World economy Outlook 2018
9
Growth is predicted to gain strength
The predicted global economic growth rate is 39
in 2018 (against 36 in 2017) According to the
International Monetary Fund forecast in 2018 the
two biggest world economies US and China will
grow at 23 and 65 rate respectively
Consumer price inflation rate to rise
The global consumer price inflation rate is expected
to rise assisted by higher commodity prices Oil price
averaged $54barrel in 2017 and is predicted to remain
close to $60barrel in 2018 whilst oil consumption is
forecast to record an uptick of 14 in 2018 In addition
also metal prices are expected to increase modestly in
2018
Trade to increase
Global world trade is predicted to increase further
in 2018 fostered by a recovery in manufacturing
activity and an increase in investment especially
in advanced economies In addition a recovery for
the commodity exporters is expected
Global risks remain tilted to the downside
These include increased trade protectionism as well
as economic policy uncertainty possible adversity
in the financial system due to easy monetary
conditions and over the longer term weaker
potential growth In addition the upcoming political
events and the current political uncertainties may
negatively affect the general economic conditions
Commodity Fuel Price Index
Metals Price Index
Source IMF ECB OECD
20022000 20062004 2008 20122010 F201820162014
50
0
150
100
200
250
1
0
3
2
5
4
7
6
Exhibit 2
Volume of imports of goods and services (Y-o-Y change)
Volume of exports of goods and services (Y-o-Y change)
Current account balance ($ billion) Source IMF
20112010 20132012 2014 20162015 F20182017
2
0
8
4
10
12
14
100
0
300
200
400
500
Exhibit 3 Global trade and current account balance world
EPU Index World
VIX Source FRED
20112010 20132012 2014 20162015 F20182017
50
0
100
150
200
250
5
0
15
10
20
25
30
Exhibit 4
Euro Area
EMDEs
United StatesWorld
Other advanced economies
China
OthersSource IMF and Cerved Rating Agency elaboration
20112010 20132012 2014 20162015 F20182017
20
0
60
40
80
100
1
0
3
2
5
4
6
Exhibit 1 Contribution to global growth world
CERVED RATING AGENCY SpA | World economy Outlook 2018
10
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
European economy Outlook 2018
11
Euro area gdp grows unemployment falls
GDP growth in the euro area rose around 21 in
2017 and is predicted to continue at a broadly similar
pace in 2018 Furthermore the unemployment
rate will continue to follow a declining trend and is
forecast to fall to 87 in 2018 (from 92 in 2017)
Industrial production improvement
Investments will accelerate and the international
environment will contribute positively to an increase
of exports (in line with the global growth) which will be
one of the principal driver of an industrial production
improvement in 2018
Further credit activity expansion
Across the euro zone countries companies are
benefiting both from eased lending conditions
and increase in the number of alternative lenders
The total amount of loans to households and non-
financial corporations grew by approximately 14
in 2017 whilst in 2018 it is predicted to increase more
slowly especially in the non-financial corporate
sector
Inflation rate to be stable
Consumer price inflation accelerated at the
beginning of 2017 mainly due to a rise in energy
prices The harmonized index of consumer prices
(HICP) is estimated at 15 in 2017 In 2018
the impact of energy inflation is expected to
decline resulting in a lower inflation rate outlook
(approximately 14)
Germany
France
ItalyEuro Union
Spain
UK
OthersSource IMF ECB OECD
20112010 20132012 2014 20162015 F20182017
20
0
60
40
80
100
0
-1
2
1
3
4
Exhibit 5 Contribution to European growth European Union
EPU Index euro areaIndustrial production euro area (Y-O-Y change)
Source IMF ECB OECD
2011 2015 2017
-2
-2
-3
-1
-1
1
1
0
2
2
3
100
0
300
200
250
400
450
500
Exhibit 7 Industrial production and policy uncertainty index euro area
2010
350
150
50
20182013 2014 20162012
Euro Area
Source ECB
20112010 20132012 2014 20162015 2017
500
0
1500
2500
2000
3000
1000
10000
9900
9800
9700
9600
9500
9400
9300
9200
Germany Spain France Italy
20112010 20132012 2014 20162015 20182017
BCI euro area
CCI euro area
Source IMF ECB OECD
96
95
98
97
99
101
102
100
103
0
-1
2
1
4
3
5
Exhibit 6
CERVED RATING AGENCY SpA | European economy Outlook 2018
12
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Highlights on italian economy
13
Gdp growth is under way to consolidate in 2018
From 2000 to 2017 the Italian economy was more
vulnerable compared to other highly developed
countries in particular those of the euro area
The Italian real GDP at the end of 2017 was roughly
at the same level recorded in 2000 whilst the euro
area countries and specifically Germany and France
experienced a considerable growth in the same period
(188 205 and 198 respectively)
The Italian GDP has started to increase moderately only
since 2014 mainly due to an improvement in domestic
demand but its growth still remains below the growth
rates of the majority of euro zone countries The poor
performance of the labor and total productivity factor
accounts for most of the difference
An ageing population and a weak labor market
participation have also contributed negatively to
potential growth Structural reforms in particular the
Jobs Act and tax incentives on new labor contracts
contributed to the increase in employment making the
Italian labor market more flexible and efficient
In 2018 we expect the economic growth to be slightly
below the level reached in 2017 The trend will be
sustained by the world economy positive cycle
including higher levels of international trade volume
Italian companies will benefit from favorable credit
lending conditions due to an expanding credit activity
of the banking system and low interest rates
Whilst the Italian government adopted a set of dynamic
and diverse policies for 2018 we believe that some of
those previously introduced have already contributed
to the GDP growth in 2016 and 2017 thus reducing the
combined effect in 2018
Source World Bank
2000 2002 2004 2006 2008 2010 2012 2014 2016
1500
1000
500
0
2500
3500
3000
4000
2000
13000
9500
10000
11000
12000
12500
10500
11500
Exhibit 10 GDP in Europe ($ billion)
Germany Italy Euro areas (11countries)France
Total multifactor productivityEmployment growth
Source OECD
-2
-4
-6
-8
2
0
4
6
Exhibit 9 Italian GDP employment and total multifactor productivity (Y-o-Y change)
2000 2002 2014 20162004 2006
GDP growth
20122008 2010
CERVED RATING AGENCY SpA | Highlights on italian economy
14
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The number of active companies has increased buthellip
The number of active companies in Italy registered at
the Chamber of Commerce as of December 31st 2016
amounted to 5145995 305629 more than in 2000
(63)
The increase in registered active companies is the result
of the positive trend from 2000 to 2008 (98) partially
cancelled by the decrease from 2009 to 2016 In 2017 a
slight improvement is expected to be recorded however
the number of active companies remains below its peak
value (5316104 entities) reached at the end of 2008
Exhibit 11 shows both the trend of active Italian companies
in the period 2000-2016 and their breakdown by legal
form We observe that the increased number of Joint Stock
Companies and particularly Limited Liability companies
(1206) was able to compensate the decrease in Unlimited
Partnerships (-62) and Sole Proprietorships (-79)
Companies are abandoning traditional sectors
Exhibit 12 shows the breakdown of the Italian active
companies at the end of 2000 and 2016 by industry
It can be observed that in many traditional sectors
the number of active companies decreased eg in
agriculture (-294) and manufacturing (-226) whilst
the number of companies increased in construction
(273) and wholesale and retail trade (39)
A very significant rise in the new registered companies
(456) occurred in other industries in particular
in the service industry offering information and
communication IT and professional scientific and
technical services
Joint Stock and Limited Liability Unlimited Partnership Sole proprietorshipO ther forms
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 2012 2013 2014 2015 20160
6000000
5000000
4000000
3000000
2000000
1000000
Exhibit 11 Italian active companies 2000-2016
Total
Source Movimprese and Cerved Rating Agency elaboration
Exhibit 12
Breakdown of the Italian active companies by industry 2000-2016
2000
635286 13
1059005 22
639778 13
589707 12
183 856 4 226964 5 150772 3
1354998 28
965452 19
747738 14
495247 10
750863 15
150888 3
379899 7 247187 5
1408721 27
2016
C Manufacturing
F Construction
H Transporting and storage
I Accommodation and food service activities
L Real estate ativities
G Wholesale and retail traderepair of motor vehicles and motorcycles
X Other
15
Number of bankruptcy and other legal proceedings to decrease further
From 2000 to 2016 the number of bankruptcies and
other legal proceedings protests and prejudicial
acts in Italy mirrored the general trend of the
Italian economy
After reaching its minimum level in 2007 (5969)
the number of bankruptcy procedures in the
period 2009-2014 increased dramatically reaching
its peak value of 15608 in 2014
With the improvement in the economic and financial
environment starting from 2015 the number of
bankruptcy procedures decreased sharply in all
macro sectors returning approximately to the
levels recorded from 2000 to 2006 A positive
trend was recorded also in 2017 bankruptcy
procedure initiated for 11937 companies -113
when compared to the same period in 2016 In
absolute terms the highest number of bankruptcy
procedures was recorded in the service sectors
followed by the construction and manufacturing
Worth mentioning is the design of a new Italian
bankruptcy law that should be approved by
October 2018 The regulatory framework aims at
more efficient resolutions of cases of company
crisis supporting continuity of its operating
activities and safeguarding the interest of creditors
by introducing innovative solutions such as pre-
crisis warning mechanisms
Other legal proceedings after reaching its
maximum level in 2013 (3593) in 2016 came down
to 1993 and the trend continues in 2017 evidencing
1866 procedures -64 when compared to the
same period in 2016
In the last five years new protests and prejudicial
acts have also shown a decreasing trend with
ndash527 and ndash70 of acts respectively in 2017
compared to the numbers recorded in 2013
-6
Exhibit 13 Bankruptcy
BankruptcySource Cerved databaase
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
10729 108311163612287
10338
59697307
9189
1108812022
12437
14031
1560814682
13459
11937
Other legal procedingsSource Cerved database
1500
1000
500
02000
940 994 1125 1211
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
2500
3500
3000
4000
2000
1110
16691540
18702094 2057
2342 2475
3593
3132
2720
1993 1866
Exhibit 14 Other legal procedings
1211
100 45000
4000090
80
70
60
50
40
30
20
10
02015
35000
30000
25000
20000
15000
10000
5000
02013 2014
Protets
703
297
41438
Total
Source Cerved database
Prejudicial acts
2016 2017
665
335
34527
570
43032660
527
473
546
454
2523828929
Exhibit 15 Protests and prejudical acts
CERVED RATING AGENCY SpA | Highlights on italian economy
16
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Core inflation rate to rise
Italian headline inflation will experience a modest
decline in 2018 compared to the previous year
(12 and 14 respectively) Core inflation
however is predicted to increase to 12 in 2018
(up from 10 in 2017)
Exports and import are accelerating
Exports and imports will both accelerate in 2018 (41
and 44 respectively) mirroring the positive trend
and expectations in global trade and the rising of the
external demand Machinery and equipment industry
will still remain in ldquopole positionrdquo due to companies
generous investment and tax incentives In general
in 2018 Italian exports will increase more in the Extra
European Union countries
Investment continues to gain strength
Investment has gained strength and will continue to
do so at a relatively fast pace supported by effects of
the tax incentives (Stability Low 2017) low interest rate
and improvements in business confidence Indeed
investments are expected to increase 30 in 2018
(up from 24 in 2017) Construction investments are
forecast to accelerate slightly also thanks to more
resources earmarked for public investment
Harmonised core infation
Source OECD and IMF
2003 2006 20092000 2012 2015 F2018
2
1
-1
0
4
3
5
6
Exhibit 16
Imports of goods and services (Y-o-Y change)
Exports of goods and services (Y-o-Y changes)
Total dometic demand (Y-o-Y change)
Source OECD and IMF
20062000 2015 F2018-5
-15
-20
5
0
-10
10
15
Exhibit 17 Exports imports and demand Italy
20122003 2009
Wholesale and retail trade (Y-o-Y change)
Total investments ( of GDP)
Heavy industry (Y-o-Y change)
Other services (Y-o-Y change)
Source IMF and ISTAT
Construction (Y-o-Y change)
20062000
-20
-30
10
0
-10
20
30
20
25
15
10
0
5
F2018
Exhibit 18 Investments by industry Italy
2003 2009 2012 2015
17
No room for significant public debt reduction
At the end of 2016 the Italian government debt-to-GDP
ratio was significantly above its level at the beginning of
the century In particular as of December 31st 2016 the
ratio was 1326 (262 with respect to 100 recorded
at the end of 2000)
In the same period the ratio for the euro area increased
from 681 to 913 (341) in Germany from 589 to
683 (159) and in France from 586 to 960 (638)
At the end of 2017 the Italian government debt increased
further to more than euro2300 billion 1350 of GDP The
debt servicing in terms of interests accounts roughly
50 of Italian GDP
In our view the high level of government debt
represents a key factor limiting Italian economic growth
and contributes eo ipso to increasing country risk
with a possible negative impact on the stability of the
international financial system
A possible increase in interest rates would raise the
cost of debt service potentially triggering a crisis due to
larger governmental deficits a slowdown in economic
activity and growing debt refinancing difficulties due to
higher risk perceived by investors
Hence it seems that a significant reduction in
government debt should be the main goal of the Italian
economic and financial policy in our opinion however
the achievement of such a result is not realistic neither
in the short nor in the medium term due to the following
factors
middot economic growth in the coming years is expected
to be moderate not sufficient to be the main source of
the government debt reduction
middot macroeconomic policy is expected to prioritize
investments employment social security and welfare
rather than government debt reduction
middot even if the inflation rate hits the target value (20) the
impact on the government debt in the short term is not
expected to be considerable
middot finally in Italy election will take place in spring 2018
with a new government taking over the economic
program that has already been approved and become
fully executive
Euro area
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 2012 2013 2014 2015 20160
20
40
60
80
100
120
140
Exhibit 19 Public debt as GDP
France
Source AMECO and Cerved Rating Agency elaboration
CERVED RATING AGENCY SpA | Highlights on italian economy
18
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Table 1
Amount ( 407 312
-327
327754
216074 190881
163248 345604188167
869
1543
2213
1793
CAGR (base year 2000)
CAGR (base year 2008)
NPL ratio ()
Ndeg debtors
Averae debt debtor
Valueindicator 2000 2008 2016
Source Bank of Italy and Cerved rating Agency elaboration
Credit activity to be expanded interest rates to remain at very low levels
As of December 31st 2016 the volume of bank loans
granted to Italian non-financial corporations amounted to
euro8604 billion
The period 2000-2016 was characterized by two different
trends from 2000 to 2011 the annual outstanding loans
value increased by 841 (euro454 billion reaching in 2011 its
highest level ever of euro993 billion thanks to 57 CAGR far
above the Italian GDP growth) whilst in the period from
2012 to 2016 loans decreased by 134 (euro130 billion)
reflecting a negative -28 CAGR The loan reduction hit
sharply construction and manufacturing (accounting
for about 400 of all loans) which experienced -227
and -135 decrease in loan volumes whilst agriculture
forestry and fishing and wholesale and retail trade
(including repairs of motor vehicles and motorcycles)
had more limited loan contraction (-08 and -53
respectively)
In the observed period due to the negative impact of the
global financial crisis 200708 and to structural changes in
the world economic and financial environment a radical
decrease in interest rates was recorded In 2017 the
interest rates charged to Italian non-financial corporates
were on average less than half compared to those charged
in 2000 In the medium term low interest rates will remain
a positive factor fostering investments and consumption
Non-performing loans to be further reduced due to innovative measures
The credit crunch had a huge and dramatic impact on
the Italian economy hitting especially small businesses
which are not able to survive in a radically changed market
conditions The evidence of such outcome can be seen not
only through the decreased number of active companies
but also via the enormously increased volume of the
non-performing loans (NPLs) In particular these loans
amounted to euro324 billion at the end of 2016 of which euro154
billion were granted to the non-financial corporations as
shown in table 1
Following the principles outlined in the ECB guidelines
published in March in 2017 Italian Banks made significant
progress in reducing the amount of the NPLs ndash estimated
to be over euro50 billion debt reduction Any further actions
aimed to improve the banking balance sheets should not
increase the financial hardship of still operating companies
North - East SouthNorth - West Center Islands
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 2012 2013 2014 2015 20160
1200000
1000000
800000
600000
400000
200000
NPLs ratio
Source Bank of Italy and Cerved Rating Agency elaboration
20
1816
14
1210
8
6
42
0
446393
euro billion)
19
Modest role of italian equity capital markets
Despite the number of listed companies increasing
from 297 to 421 in the period 2000-2017 the role
of the stock markets remains modest in Italy
As of December 31st 2017 the market capitalization
was euro640 billion (375 of the estimated Italian GDP
in 2017) representing only 782 of the overall
market capitalization recorded in 2000 (equal
to euro818 billion 687 of GDP) mainly due to
an unfavorable economic cycle in the observed
period
This situation shows the structural weaknesses of
the Italian economic and financial system especially
when compared to other highly developed
European economies The low propensity to
raise equity capital through organized markets
is linked to an unfavorable macroeconomic and
fiscal framework as well as to the predominance
of SMEs mostly unfit for listing and presenting
cultural obstacles (ie company owners and managers are often reluctant to accept wider company control and
transparency)
Hence self-financing and bank borrowing remain the main sources of finance for Italian companies which are
generally speaking undercapitalized with a negative impact on their investment capabilities Very frequently the
lack of medium-long term financing means forces companies to focus their attention on running current activities
postponing or abandoning strategic projects fundamental for company growth
A wide range of innovative initiatives have been undertaken with the aim of fostering market based company
funding in particular
middot AIM (Alternative Investment Market) - a specialized market segment dedicated to SMEs growth (95 companies and
market capitalization around euro56 billion as of December 2017)
middot ELITE - a programme designed to help SMEs prepare and structure for the next stage of growth their through
access to long-term financing opportunities
middot PIR - Piani individuali di risparmio (Individual Savings Plan) - an innovative way to fund Italian SMEs by offering retail
investors resident in Italy tax incentives (full exemption of 260 income tax) if the savings stay invested for at least
five years A minimum of 700 of such credit assets must be invested in financial instruments issued by Italian or
foreign (EU and EEA) companies permanently established in Italy
FTSE (MIB)Enterprises
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 20132012 20152014 201720160
100
200
300
400
500
600
700
800
900
100029681 29525
14623
1765216121
12259
13512
16048
15988
19012
21428
21853
2185322232
16954
297 294 295 279 282278 311 336 332 332 328 323 326344 342 356 387 421
19483
22886
26056
31005
Exhibit 21 Italian listed enterprised and FTSE (MIB) index trend
Source Borsa Italiana
300000
250000
200000
150000
100000
5000
0
Capitalization of GDP
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 20132012 20152014 201720160
100
200
300
400
500
600
700
800
900
1000
Exhibit 22 Italian market capitalization of listed companies ( of GDP)
Source Borsa Italiana
80
70
60
50
40
30
20
10
0
8184
5923
354 365418 473
524475
239301 275
210233
287 295348
318375
4580 4875
5809
6766
77857336
37474571
4251
3324
44664678
56765249
6400
3655
474
68
CERVED RATING AGENCY SpA | Highlights on italian economy
20
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Italian debt capital market is growing but still remains behind needs
At the end of 2016 the outstanding amount of debt
securities issued by Italian financial and non-financial
corporations was euro8615 billion 510 of the countryrsquos
GDP The table below shows the breakdown by issuer
type of Italian German French British and United States
outstanding amounts of debt securities as of December
2016 issued by financial and non-financial corporations
with the respective debt-to-GDP ratio
Despite the outstanding debt at the end of 2016 being
almost double compared to 2000 it represents only 23
of its peak value reached in 2012 (euro1290 billion Exhibit
23) The main reason for such a significant debt reduction
is the huge bond reimbursement realized by banking
institutions from 2013 to 2016 and the related negative
net flow of debt securities (respectively -80 -153 -106
and -67 billion of euro as shown in Exhibit 24)
The decrease in debt securities funding of Italian banks
has been compensated by a wider use of deposits and
resources available under the Eurosystem refinancing
operations framework
The outstanding amount of debt securities issued by
non-financial corporations at the end of 2016 also
doubled its value with respect to the amount recorded
at the end of 2000 The main characteristic of this cluster
is the high concentration of issuancesdebt to a small
number of issuers
Due to both more favourable general economic
conditions and active ECB monetary policy bond yields
have decreased significantly providing room for a
convenient fund raising
Since the introduction of a new regulatory framework
(lsquoDecreto Svilupporsquo) in 2012 up to October 2017 Italian
market saw 300 small-size listed bond issues (ie so
called minibonds) amounting approximately to euro143
billion Issued mainly by SMEs they offer interesting
yields to institutional investors
) Source Business support SpA ndash Minibonditalyit
BanksTotal
Source Bank of Italy and Cerved Rating Agency elaboration
2006 20082000
-200000
200000
250000
-150000
-100000
150000
100000
-50000
50000
02012 2014 20162002 2004 2010
Banks debt securities outstanding
Banks Debt to GDP ratio
Source Bank of Italy and Cerved Rating Agency elaboration
0
10
20
30
40
50
60
70 1400000
1200000
1000000
800000
600000
400000
200000
0201620142012201020082006200420022000
Table 2 Outstanding securities debt (euro Million)Debt-to-GDP ratio()
Financial corporates
Total
Debtsecurities
outstanding
Italy German rance United Kingdom United States
739
123
862
440 340 470
21
680380
40
1279 1331 4 50
880
30
14271
14820
549180
10202767
590
19211436
15770
510
Debtsecurities
outstanding
Debtsecurities
outstanding
Debtsecurities
outstanding
Debtsecurities
outstanding
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Source Bank of Italy
0
0
21
CERVED RATING AGENCY SpA | Highlights on italian economy
22
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Italian non-financial companies economic Outlook 2018
23
Data and method
This research focuses on Italian non-financial companies
with an annual turnover exceeding euro5 million With the
aim of using only reliable data joint stock and limited
liability companies have been considered only these
entities according to Italian law file complete annual
financial statements in the Chamber of Commerce
together with anagraphical company data other
legal forms such as unlimited partnerships and sole
proprietorships are not included in this sample due to
the lack of publicly available standardized financial data
We believe that this cutoff is reasonable and allows us to
perform a methodologically correct analysis In 2016 the
above mentioned companies despite representing only
42 of all registered and active joint stock and limited
liability companies accounted for 769 of their total
turnover
Moreover cluster specialization has been obtained by
NACE activity classification from A to J (thus not including
in the sample financial and insurance companies and
some service industries) The statistics regarding specific
industries provide important key data and enable us to
examine historical and prospective trends and cross-
sector comparisons
The Cerved database which contains legal anagraphical
financial and market information on all Italian registered
legal entities (approximately 6 million comprising 5
million active ones) was the most important database
used for this research Long time series and broad
homogenized and standardized data covering different
economic cycles were the building blocks to perform
the regression and predictive analysis
Historical and forecast macroeconomic data and
analysis performed by the International Monetary Fund
OECD the World Bank European Central Bank Bank
of Italy and ISTAT completed the dataset used for the
analysis
Several analyses were performed in order to examine
the structural differences within the sample in terms of
company legal form and geographical area (Exhibit 25)
company age (Exhibit 26) and company size and industry
As a result we verified a considerable heterogeneity of
companies in particular with regard to the company size
across various industries
The relevant observation period comprises the years
between 2000 and 2016 Table 3 describes some
characteristics of the sample
Exhibit 25 Sample break-down by legal form and geographic area (2016)
Joint stock Company
Limited liability Company
Area 1 (Northwest)
Area 3 (Center)
Area 2 (Northeast)
Area 4 (South)
39
20
27
14
33
67
33
Table 3 Sample characteristics 2000-2016
TotalTurnover
gt euro5million
Turnover gt euro5 million(industry
from A to J)
TotalTurnover
gt euro5million
ofTotal
Turnover gt
euro5 million(industry
from A to J)
Source Cerved database
Entreprises Turnover billion
2000 659867700717738558772442812025847334883122915172937018949708965744969581
953505945825922513883224
4215144587462234694749640518205596459226595385246754808563745362752074519385289450123
3686139038411864118843547454704921752274526974633848778504734806246843468384771845288
16151740177018472002212923302477256822562421257025202446243224392295
12661362139214561588169818752000208317861944208720541992198419871905
11141205124013041430152316891801189716191764191218831839183518371765
689693700
716
706714
725
718729744748752754753769
727739
200120022003200420052006
200820092010201120122013201420152016
2007
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
24
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Furthermore in order to guarantee more detailed and
accurate analyses and projections we decided to create
a static pool to show consistently long time horizon
economic trends (17 years) by sealing off all the active
companies over the 2000-2016 horizon
The outcome obtained by considering the behaviour of
specific variables related to the companies included in
the static pool was extended as a performance indicator
for the whole sample (turnover over euro5 million and
industry from A to J)
According to the European Communityrsquos definition of
SMEs using annual turnover and employee headcount
as quantitative criteria the initial sample of companies
and the static pool can be classified by size classes on
the basis of the financial statements for the year 2016
as shown in Table 4
For the sake of this analysis we defined specific size
classes for each industry thus deviating from the
European Commissionrsquos recommendation which
presents undifferentiated upper and lower bounds of
quantitative criteria for SMEs in all industries To define
the thresholds of such classes we used both a statistical
approach (a specific cluster procedure by minimizing
the within-cluster turnover standard deviation) and a
judgmental approach by relying on the experience and
opinion of our industry expert analysts Table 5 shows
the results of such analysis referring to the sample in
2016 (45288 entities) and the NACE sections from A
to J Moreover the NACE section C and G were further
disaggregated into sub-industry classes as shown in
Exhibit 27 in order to consider the specific business
differences within these NACE sections thus ensuring
a good fit and a satisfactory accuracy of the estimation
Exhibit 26 Sample break-down by company age classes
0-2 Years 2-5 Years 5-10 Years 10-20 Years gt20 YearsSource Cerved database and Cerved Rating Agency elaboration
0 20 40 60 80 100
ABCDEFGHIJ
A = AgricolutreB=Mining and quarryingC=ManufacturingD=Electricity and gasE=Water supplyF=ConstructionG=Wholesale and retail tradeH=Transporting and storageI=Accomodation and food serviceJ=ICT
Small
Annul Turnover
Empolyees
Static Pool
Enterprises(Turnover gt euro5 million)
Enterprises(Turnover gt euro5 millionindustry from A t J)
Medium Large
lt 50 lt 250lt 36774 11113
1005333223
8741
2236
2012
154818645
gt euro50 million
gt 250
lt euro50 million
Source Cerved database
NACE Micro industry
B-Mining and quarryingAutomotive
Automotive
Retail
Wholesale
T gt 480
T gt 80
T gt 260
T gt 265T gt 270
T gt 230
T gt 120
T gt 80
T gt 43
T gt 65
T gt 106T gt 106
T gt 360T gt 155T gt 150T gt 100
T gt 120
T gt 225T gt 1400T gt 27500
T gt 1500
ChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther Manifacturing
ICTTextile
Paper Packaging ampForest products
C-Manifacturing
F-Construcion
H-Transportig and storageI-Accommodation and food service activities
J-Information and communication
D-Electricity gas steam and aircoditioning supply
G-Wholesale and reatail traderepair of motor vehicles and motorcycles
E-Water supply sewerage waste management and emediation activities
Large (Turnover
in euro million)
Medium(Turnover
in euro million)
Small(Turnover
in euro million)
Source Cerved database and Cerved Rating Agency elaboration
60 lt T lt 480 5 lt T lt 60
5 lt T lt 20
5 lt T lt 36
5 lt T lt 35
5 lt T lt 44
5 lt T lt 40
5 lt T lt 20
5 lt T lt 26
5 lt T lt 250
5 lt T lt 185 lt T lt 305 lt T lt 265 lt T lt 205 lt T lt 37
5 lt T lt 335 lt T lt 40
5 lt T lt 255 lt T lt 585 lt T lt 1155 lt T lt 1005 lt T lt 27
20 lt T lt 80
36 lt T lt 26035 lt T lt 26544 lt T lt 270
40 lt T lt 230
20 lt T lt 120
26 lt T lt 80
18 lt T lt 43
250 lt T lt 1500
20 lt T lt 6537 lt T lt 29540 lt T lt 15533 lt T lt 15025 lt T lt 100
27 lt T lt 120
58 lt T lt 225
100 lt T lt 27500 115 lt T lt
30 lt T lt 10626 lt T lt 106
25
Exhibit 28 shows the breakdown of macro industries
analysed including disaggregation of the NACE section C
(manufacturing) and G (wholesale and retail trade repair
of motor vehicles and motorcycles)
In order to carry out the analysis and projections this study
is focused on we used simple multiple linear regression
model for each industry and company size classes
considering macroeconomic and individual companiesrsquo
economic and financial data
The analysis enables us to develop an econometric
model used to estimate likely credit quality changes (in
terms of rating class and probability of default) for single
industries and company size classes
Automotive
Retail
Wholesale
21
1366
1
42
1
26
35
232
6
A B C D
F G H I
46
7
21
1318
9
15
34
Automotive
Chemistry amp pharmaceutics
Clothing
Equipment
Food Beverage and Tabacco
Heavy Manifacturing
Other Manifacture
Paper Packaging amp Forest Products
ICT
Textile industry
Large SmallMedium
Source Cerved database and Cerved Rating Agency elaboration
0
Wholesale
Retail
Automotive
20 40 60 80 100
Automotive
Chemistry amp pharmaeutics
Clothing
Equipment
Food beverage and Tabacco
Heavy Manifacturing
Other Manifacturing
Paper Packaging amp Forest Products
ICT
Textile
0 20 40 60 80 100
ABCDEFGHIJ
0 10 30 40 60 70 80 90 100
Exhibit 28 Sample break-down by industry (2016)
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
26
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Performance indicators to improve further
The annual financial statements available through public
registers provide a clear economic and financial picture
of the Italian joint-stock and limited liability non-financial
companies The individual historical data available from
2000 to 2016 enriched with 2017 preliminary results and
with the expected 2018 macroeconomic scenario enabled
us to build up the 2017 and 2018 projections regarding
the following four performance indicators related to the
analyzed sample 1) growth rate - revenues YoY change
2) EBITDA margin 3) net financial debtEBITDA and 4) net
financial debtEquity Afterwards the median values of the
resulting data were used to obtain the summary output
which we consider as a representative proxy for the overall
market
From 2000 to 2016 the observed companies experienced
a very irregular trend both in terms of growth rate and
EBITDA margin In the aftermath of the global financial crisis
the lowest growth rate value (-120) was recorded in 2009
manufacturing transporting - storage and wholesale and
retail trade were the industries showing the biggest fall of
business volume (-155 -121 and -104 respectively)
whilst water supply accommodation and food service and
electricity and gas showed the highest level of resilience to
the adverse economic and financial environment (-01
-23 and ndash26 respectively) Exhibit 29 shows that in
terms of median value there are no significant differences
in the growth rate taking into consideration company size
classes as we previously defined them Only from 2010 the
growth rates turned positive but still remaining below the
levels recorded in 2000
The analysis of the EBITDA margin changes in the same
period also does not highlight significant differences
between large companies and SMEs as shown in Exhibit
30 The lowest median EBITDA margin value (52) was
recorded in 2012 regarding in particular accommodation
and food service transporting and storage and agriculture
sectors (28 40 52 respectively) while electricity
and gas ICT and water supply were relatively immune to
the unfavorable economic and financial circumstances
(showing 113 109 and 105 EBITDA margin
respectively) At the end of 2016 the median EBITDA margin
(60) still remains below the levels recorded in 2000 (72)
Positive trends emerging from the last publicly available
financial statements (2016) the 2017 preliminary results
and the optimistic macroeconomic forecasts for 2018
confirm improvement of the Italian economy Looking
ahead we expect the Italian non-financial companies to
continue to experience gradual recovery in 2018 They are
going to take advantage of the favorable global economic
cycle low interest rates and supportive regulations that
inter alia foster the use of alternative non-bank financial
sources for company funding The financial resources raised
through Individual Savings Plans (PIR ndash Piani individuali di
risparmio) introduced by the 2017 Budget Law are driven
in primis by a favorable tax regime for savers and might
become an important additional source for SMEs funding
injecting new liquidity The government objective fixed euro68
billion as a target value and in 2017 nearly euro10 billion had
already been raised
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2004 2006 2014 20162000
5
20
10
0
15
-15
-10
-5
Exhibit 29 Growth rate (revenue YoY change) by size classes (median)
medium small
2008 2010 2012
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2004 2006 2008 2010 2012 2014 20162000
7
10
9
8
6
5
4
3
7
10
9
8
6
5
4
EBITDA margin by size classes (median)
medium small
27
So far one of the main obstacles PIR are facing is the limited
number of available assets which may lead to a possible
concentration of this financial resources in a small share of
the market comprising mainly relatively large companies
as shown by the early data in 2017
Another obstacle to rapid adoption of the newly available
financial resources is the lack of a standardized and broadly
accepted methodology for the risk assessment of potential
bond issuers
Generally speaking in 2018 we expect SMEs to contribute
more significantly to growth employment and innovation
whilst on average the respective EBITDA margin will remain
broadly stable (as shown in Exhibit 31) However 2018 will
still be a challenging year for SMEs and innovative startup
companies as they will have to face tougher barriers in
accessing bank credit andor approaching capital markets
compared to large companies We also expect some new
innovative solutions aimed at meeting SMEs financial needs
to become effective the SMEs current financial structure
together with new business opportunities prove their
ability in terms of rational use of the additional financial
resources
The new investments will allow most industries to thrive
also assisted by the Italian Governmentrsquos adoption of the
National Industry 40 Plan
The companies which will take up this opportunity may
improve their cash-flows even in the short-medium term
Finally companies with strong international market
positioning and large product diversification will have
stronger sales and margins growth
The key ratio values recorded from 2000 to 2016 related to
the analyzed entities show the improved financial health of
the companies proving good capability to strengthen their
equity base as shown in Table 6
Growth rate (2016)Medium
Total
Small Large
Growth rate (2018)Growth rate (2017)
Source Cerved database and Cerved Rating Agency elaboration
50
40
Exhibit 31 Growth rate and EBITDA margin forecast by size classes
EBITDA margin (2016)EBITDA margin (2018)
EBITDA margin (2017)
40
30
0
10
20
Medium
Total
Small Large
7570
65
0
6 5560
5550
4540
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
28
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The recorded financial ratios in the 2000-2016 horizon
indicate that on average
middot liquidity maintained a satisfactory level in the whole
observed period due to the positive economic cycle in
2017 and 2018 we expect a slight improvement in the ratio
middot the EBITDAinterest coverage ratio almost doubled its
value in 2016 compared to what was recorded in 2000
primarily due to a general reduction in the interest rates
particularly in the last three years we believe that in 2017
and 2018 the average ratio value will remain roughly at the
same level recorded in 2016
middot in 2016 ROE shows further improvement but is still
slightly lower compared to the value recorded at the
beginning of the observed period mainly due to the equity
base strengthening trend
middot Equity Ratio rose from 250 to 350 due to a significant
increase of equity capital in 2018 we expect further
strengthening of the ratio
middot Financial LiabilitiesTotal Assets ratio remained mostly
unchanged ndash financial debts representing roughly 30 of
the total assets
A positive trend regarding the net financial debt was also
observed in fact in 2016 70 of the sample improved their
NFDEBITDA and 73 the NFDEquity
Positive performances were found especially in the SMEs
segment as shown in Exhibit 32 in particular referring to
NFDEquity small and medium-sized companies recorded
a positive trend standing respectively at 092 and 089 in
2016 compared to 132 and 136 in 2000
Hence the financial risk profile appears to be well balanced
leaving no room for specific concerns regarding the
prospects of the Italian non-financial companies in 2018
In 2016 the median values for the total sample referring to
NFDEquity and NFDEBITDA remained respectively at 089
and 389 levels respectively
Looking ahead we expect these indicators to remain at
healthy levels in 2017 and 2018 with a slight improvement
in NFDEBITDA and a broadly stable level of the NFDEquity
ratio as shown in Exhibit 33
NFDEBITFA (2016) NFDEBITFA (2017)NFDEBITFA (2018)
40
Exhibit 33 NFDEquity and NFDEBITDA forecast by size classes
Source Cerved database and Cerved Rating Agency elaboration
404
20
25
45
35
30
NFDequity (2016) NFDequity (2017)NFDequity (2018)
05
06
09
10
08
07
Exhibit 32 NFDEquity and NFDEBITDA by size classes (median)
largemediumsmall
2016
2015
2014
000 5 10 15
Average2008-2013
Average2000-2007
total largemediumsmall total
Source Cerved database and Cerved Rating Agency elaboration
2016
2015
2014
203 0 405 0
Average2008-2013
Average2000-2007
29
Growth and profitability improvement spanned over all sectors
Exhibit 34 shows the relative positioning of the 10
macro-industries in the short-medium term considering
the median values related to revenue growth rate and
EBITDA margin
The historical median values are calculated on the basis
of financial data obtained from the annual financial
reports 2014-2016 filed in the Chamber of Commerce
public registers the projected median values for 2017
and 2018 are the result of the analysis of this study
As expected there are significant differences in
positioning between different industries in terms of
both historical and projected values
In 2018 we expect manufacturing and accommodation and
food services to maintain top positions already reached in
2016 and 2017
For the electricity gas mining and quarrying industry
2018 may be the turning point showing the first positive
signals after experiencing some difficulties over the last
few years
None of the other industries show significant changes in
2018 compared to their 2016 positioning
Source Cerved database and Cerved Rating Agency elaboration
A 50
57599586886358
3849
3620083721
-110320
-1112
210322
-1814021122
1413
030124
-5010284025
0555
20-4614
-4607212105
0430
210328-2310203218
0832
2310300512233720
1637
BCDEFGHIJ
A 625296
1441401016934
15352
504969
103121916227
10639
4764676185562639
68112
4873687090592845
75120
456772928856
45
7898
4667759090573147
7698
4668769394583147
77102
EBITDAmarigin
BCDEFGHIJ
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018Growthrate
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
Exhibit 34 Growth rate and EBITDA margin by industry
-70 -50 -30 -10 10 30
2016E2017F2018
50 70 90
Median=68
Median=2100
20
40
60
80
100
120
A=Agricolture B=Mining and quarrying C=Manifacturing D=Electricity and gas E=Water supply F=Construction G=Wholesale and retail trade H=Transporting and storage I=Accomodation and food service J=ICT
D
B
E
FHA G
C
I
J
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
30
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Further strenthening in companiesrsquo financial structure
Exhibit 35 shows the relative positioning of the 10 macro
industries in the short-medium term considering the
median values related to NFDEBITDA and NFDEquity
ratios
The historical median values are calculated on the basis
of financial data obtained from the annual financial
reports 2014-2016 filed in the Chamber of Commerce
public registers the projected median values for 2017
and 2018 are the result of the analysis of this study
There are even more significant differences in
positioning between industries regarding NFDEBITDA
and NFDEquity ratios when compared to growth rate
and EBITDA margin differences
Generally in the observed period there is no evidence of
significant changes among industries considering their
relative positioning related to NFDEBITDA and NFD
Equity ratios
In 2018 we expect accommodation and food services
and information and communication services to
maintain top positions already reached in 2016 and
presumably confirmed in 2017
Exhibit 35 NFDEquity and NFDEBITDA by industry
2016E2017F2018
Median=37
Median=08500
030 5 070 9 111 3
20
30
40
50
60
70
10
A=Agricolture B=Mining and quarrying C=Manifacturing D=Electricity and gas E=Water supply F=Construction G=Wholesale and retail trade H=Transporting and storage I=Accomodation and food service J=ICT
EH
C
BF
G
A
D
J
I
A 150101113081112149151120
079131
123075088101097125123103
072079
114067083052090108119102
067076
113060080045089096114092
074069
125076080045089106109086
050060
127072080044091
108084
051056
128067079043093106107081
051051
BCDEFGHIJ
NFDEquity
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
A 597219280305251301338250
153260
676394388342298453499349
254337
707482387293277498532337
277334
696392373254305484494308
231315
747401358330285544483294
183312
722390340341280511470290
178293
710380310329272492452281
177289
NFDEBITDA
BCDEFGHIJ
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
Source Cerved database and Cerved Rating Agency elaboration
106
31
Exhibit 36 Equity ratio by industry
Average 2000-2007 2014 2015Average 2008-2013 2016
Source Cerved database and Cerved Rating Agency elaboration
05
10
20
30
15
25
3540
5045
AB C DE FG HI J
Exhibit 37 EBITDA interest coverage by industry
Average 2000-2007 2014 2015Average 2008-2013 2016
Source Cerved database and Cerved Rating Agency elaboration
0
5
10
20
15
AB C DE FG HI J
A 1113140911151211
1408
1013131012131209
1208
1114151012131311
1309
1214151012151312
1309
1215161113161412
1409
BCDEFGHIJ
Liquidity ratio Median2000-07
Median2008-13 2014 2015 2016
A 0377677447858463
8960
0332
8145524536
4832
0342486042273848
3246
0537606853395765
4069
0743676559416378
5882
BCDEFGHIJ
ROE Median2000-07
Median2008-13 2014 2015 2016
Table 7 Liquidity ratio by industry Table 8 ROE by industry
Source Cerved database and Cerved Rating Agency elaboration
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
32
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Agriculture
Considering the recent price decline for agricultural
products putting EBITDA margin under pressure for
most of the industry participants we anticipate a slow
revenue growth in 2018 We also foresee more stable
margins in 2018 and investments to continue at a faster
pace in the near future mainly aimed at transforming the
agricultural activities into a high-tech industry Climate
and cultural changes are the main exogenous risks that
may negatively influence the sector
Mining and quarrying
Over the last few years the mining industry has been
challenged by record low metal prices and this has
resulted in a weak growth of supply and a cut in
investments especially in the new mines opening We
foresee a modest revenue growth in 2018 supported
by more stable prices rather than by government
infrastructural investments Margin pressure will remain
mostly unchanged in 2018 We do not expect a significant
increase in capital expenditure for most companies
while only a minority of industry participants will invest
in new capacities searching for new growth opportunities
by introducing new higher margin outputs Overall we
anticipate relatively stable key financial indicators
Manufacturing
We believe that in 2018 Italian manufacturing
representing 2nd European and 7th world player in 2016
will remain the beating heart of the national economy
In our view the expansion of internal demand the
improvement of business and customer confidence and
the wider export opportunities are the key drivers for
revenue growth (up to nearly 30) Despite the natural
selection the occurred during the economic recession
domestic competition and especially the competition
from lower income countries will remain challenging in
2018 creating further profitability pressure especially in
some highly fragmented segments
As a conditio sine qua non for market survival many
companies will be involved in a ldquowinning the innovation
gamerdquo process translated into a considerable capex
expenditure directed at process optimization which
inevitably must be accompanied by innovative marketing
and commercial strategies The companies especially
smaller ones which are not ready lsquoto play the gamersquo
remaining risk averse are likely to fall behind
Key financial indicators referring to the industry in terms
of net financial debt to equity and net financial debt to
EBITDA are likely to remain overall stable in 2018
In our view the best performing manufacturing industries
in 2018 will be the following
Automotive
extensive vehicles replacement process in 2018
high competition pressure China maintaining a key role
high level of innovation in mobility and connectivity
new strategic partnerships and MampAconservative stand towards EBITDA margin improvement
Chemistry amp Pharmaceutics
solid macroeconomic fundamentals will support
the revenue growth driven mainly by large companies
on average a stable EBITDA margin of about 10
is expected global presence is a must to achieve higher
level of profitability
RampD remain key factors for further market expansion
moderate level of MampA operations in 2018 slowing
down when compared to those carried out in the
previous year
Machinery amp Equipment
revenue growth in 2018 up to nearly 25 reflecting
the fact that all manufactures remain focused on RampD
and NPI (new product introduction)
cost management strategies are going to persist
but generally speaking with no significant impact on
EBITDA margin in 2018
heavy equipment manufactures still under pressure in
2018 to provide engineering capability and capacity
33
Energy and gas
Italian companies operating in the energy industry are
facing a complex market environment with many open
questions about risks related to regulations a drop
in consumption high competition levels and EBITDA
erosion
Generally we expect a more stable landscape in 2018 in
terms of commodity prices and consumption However
risk regarding prices and volumes will remain strong
resulting in a higher volatility of revenues In our view
the current margin pressure is unlikely to ease over the
next two years The final overcoming of the sondashcalled
ldquoMaggior Tutela Regimerdquo may lead to almost zero margin
for the retail operators We expect industry participants
to continue to focus their attention on cost efficiency and
on protecting profitability by embracing new business
models and examining the role that digital technology
can play in improvement of EBITDA margins We believe
that the above described strategies will be a central
topic for the operators intending to attract capital We
also believe that energy producers could see a slight
debt increase in 2018 aimed at improving productivity
and synergies Finally in 2018 we envisage a significant
number of MampA operations in the sector led by synergy
effects such operations might produce
Water supply waste management and sewerage
In recent years the water supply waste management
and Italian sewerage industry has recorded a slower
growth compared to the pre-crisis period However
due to the last two yearsrsquo important investments in the
water infrastructure waste sorting and recycling Italy
ranks as one of the top European countries in terms
of growth rate of recycling and packaging recovery
We believe that the expected general increase in
industrial output will produce a slight growth in water
consumption and waste treatment The demand for
sustainable solutions will continue to persist requiring
new investment in technologies based on a customer-
centric and sustainable approach aimed at improving
efficiencies and facilitating reuse Expectations also
reflect our view in terms of wider government interest
and spending in this industry We expect profitability
to remain broadly in line with the results obtained in
2016
Construction
After a weak increase in revenues recorded by the
construction industry operators in 2016 and the
modest result anticipated in 2017 both reflecting
a deteriorating demand and decreased volumes of
bank loans (mainly those for small and medium-
sized companies) we expect 2018 to be the turning
point for this industry We foresee that the volume of
residential and private non-residential constructions
will remain at relatively low levels in 2018 and that
the positive trend in housing renovation and public
works investments will continue taking advantage of
the allocated funds established by the Budget Law for
2017 Small and medium-sized businesses focused on
residential construction may face a slight profitability
erosion while we believe some growth in EBITDA
margin may be recorded by large Italian companies
operating internationally Due to the high perceived
risk historically there has been a strong financial
market mistrust of the construction companies which
we believe is likely to ease over the coming years
Wholesale and retail trade
During the crisis period wholesale and retail trade
industry faced a sudden interruption of the gradual
growth that had taken place up to that moment mainly
due to a loss in real purchase power and in consumer
confidence also translated into profitability erosion
In 2016 the data showed how the industry is moving
toward a recovery period Looking forward in 2018 we
expect to record a steady revenue growth supported
by an increase in global trade and improved consumer
confidence Despite the foreseen growth operators
will continue to face consistent pressure mainly in the
retail segment due to the high proliferation of new retail
purchase channels and market fragmentation
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
34
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Transportation and Storage
After a troubled 2016 characterized by an overcapacity
and a decrease in commodity demand hitting shipping
revenues in particular we foresee a moderate overall
recovery in 2018 driven mainly by an increase in
international shipments and air traffic The growing
number of innovative startups will continue to persist
increasing the competitive pressure in the industry We
anticipate a constant growth of e-commerce enabling a
quick reaction of on-line retailer and logistics providers
We believe that operators will continue to invest in
new high-tech solutions experimenting new models of
mobility and smart logistics
Despite very strong competition we expect the median
operating margins to remain steady However global
political uncertainties and related risks are strong with
possible quick and sharp negative impact on business
volumes and margins of the companies operating in
these industries
Accommodation and food services activities
In the last two years operators in the accommodation
and food service activities industry mainly medium
and small sized enterprises have seen steady revenue
growth and satisfactory profitability ratios Many
operators were focused on reviewing their business
models and offering additional services to their
customers a necessary strategy to maintain or expand
market positioning strengthen margins and improve
customer experience We expect the revenue growth
to continue in 2018 with a minimal median margin
improvement We believe accommodation and food
service activities will attract new capital investments
in 2018 to help the ongoing transformation process
and improve the accommodation infrastructure and
services
Information and communication technologies
The Italian information and communication technology
industry took longer to recover from the economic
crisis recording overall a negative median growth
rate until 2014 Software services and innovation
technology were the major contributors to revenue
growth (as a percentage) in 2016
Over the forecast period we foresee a modest revenue
growth for the ICT operators as a whole while the
technology industry will continue to achieve rapid
growth focusing on maintaining the competitive pace
of innovation In our view a key challenge for the ICT
operator may be the availability of matching skills
The outlook is relatively stable in terms of profitability
and key financial indicators
The following two pages show the details of the
previously discussed key performance indicators
35
Exhibit 38 Growth rate and EBITDA margin manifacturing sectors
-70- 50 -30 -10 103 0
2016E2017F2018
50 70 90
Median=76
Median=3000
20
40
60
80
100
120
1=Automotive 2=Chemistryamppharmaceutics 3=Clothing 4=Equipment 5=Food beverage and Tabacco 6=Heavy Manifacturing 8=Paper and Packaging 9=Tecnology and Telecomunication 10=Textile industry
6
10 5
3
8
91
74
2
50AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
57599586886358
3849
3620083721
-110320
-1112
210322
-1814021122
1413
030124
-5010284025
0555
20-4614
-4607212105
0430
210328-2310203218
0832
2310300512233720
1637
Growth rate Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
EBITDA margin Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
Source Cerved database and Cerved Rating Agency elaboration
625296
1441401016934
15352
504969
103121
916227
10639
4764676185562639
68112
487368
7090592845
75120
456772
9288562845
7898
4667759090573147
7698
4668769394583147
77102
1=Automotive 2=Chemistryamppharmaceutics 3=Clothing 4=Equipment 5=Food beverage and Tabacco 6=Heavy Manifacturing 8=Paper and Packaging 9=Tecnology and Telecomunication 10=Textile industry
2016E2017F2018
Median=30
700
600
500
400
300
200
100
000000 020 040 060 080 100 120
Median=08
Exhibit 39 NFDEquity and NFDEBITDA for manifacturing sectors
2
4 8
101
9
9
3
57
Source Cerved database and Cerved Rating Agency elaboration
096AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
104146095152117112109
098087
087080116068118083088086
084078
075074104069107082080079
084083
072064100065105084122081
079081
082066104065105080091079
077082
081067103065105079087079
077081
076067101064104077083078
076080
NFDEQUITY Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
227AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
258334222397249255259
315202
338313443305495363403412
480337
315306436328479373380397
482316
264269490303467366403383
515317
269243507090106127090106
106106
413343478088105127088105
105105
399333465086104127086104
104104
NFDEBITDA Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
36
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Exhibit 40 Growth rate and EBITDA margin for wholesale and retail trade sectors
20 40 60 80 100 120 140 160
2016E2017F2018
Median=31
Median=33
0000
20
10
30
60
50
70
1=Automotive 2=Retail 3=Wholesale
40
3
12
2016E2017F2018
Median=45
700
600
500
400
300
200
100
000050 070 090 110 130 150 170 190
Median=11
Exhibit 41 NFDEquity and NFDEBITDA for wholesale and retail trade sectors
1=Automotive 2=Retail 3=Wholesale
21
3
37
Ratings will remain broadly stable
The following section presents a risk profile analysis
based on Cerved Rating Agencyrsquos outstanding and
monitored public and private ratings issued from
2013 to 2017 on Italian non-financial companies
and operating in the industries discussed in this
study (data as of 31 December)
Exhibit 42 and Table 9 show an overview of 1-year
effective default rates over the 2000-2017 horizon
related to the sample bankruptcy and other legal
proceedings and debt restructurings as default
events
The default rate trend shows a general
improvement from 2014 onwards both by
company size classes and by industry however
considering the entire sample the overall default
rate still remains higher when compared to its pre-
crisis level especially regarding smaller companies
operating in the construction sector
Exhibit 43 shows the effective default rates over
2013-2017 horizon based on Cerved Rating
Agencyrsquos definition which considers as default
events
middot bankruptcy and other legal proceedings
middot debt restructuring
middot missed or delayed disbursement of a contractually
required interest or principal payment ie missed
payment on bonds material protests (on cheques
or trade bills) or prejudicial acts (judicial mortgages
distraint of property)
The effective default rates over the 2013-2017
horizon show decreasing trend and satisfy the
monotonicity constraint regarding all Cerved
Rating Agencyrsquos rating classes (Exhibit 44)
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2003 2004 2005 2006 2007 2014 2015 2016 20172000 2001
5678
12
3
4
0
Exhibit 42 Avarage 1-year default rate by size over 2000-2017 horizon
medium small
2008 2009 2010 2011 2012 2013
Mining and quarring
Manifacturing
Electricity gas steam and air conditioning supplyWater supply sewerage
Construction
Wholesale and retail trade repair of motorTransporting and storage
Accomodation and food service activities
Information and communication
24221809
5212
282915
2529
38533424
13027
454830
4838
36542537
15929
424421
4323
23461921
13226
293226
3022
Source Cerved database and Cerved Rating Agency elaboration
Table 9 Default rate by industry over 2000-2017 horizon
Total
NACE Average2008-2015
Average2000-2017 2016 2017
2016
Source Cerved database and Cerved Rating Agency elaboration
C21C12C11B22B21B12B11A11 A12 A13 A21 A22 A31
60
50
40
30
20
10
0
Exhibit 43 1-year default rate over 2013-2017 horizon
20172013 2014 2015
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
38
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The analysis of historical rating distributions in the
same period shows clear differences in terms of modal
rating class by company size As shown in Exhibit 43
the modal rating class for the large companies is A31
B11 for the medium and B12 for small companies
(considering company size classes as they have been
defined ad hoc by Cerved Rating Agency for the
purposes of this study)
Overall the corporate rating distribution in the
Source Cerved database and Cerved Rating Agency elaboration
C21C12C11B22B21B12B11A11 A12 A13 A21 A22 A31
30
25
20
15
5
10
0
Exhibit 44 Rating distribution frequency by size classes
large
30
25
20
15
5
0
10
medium smallRating 2013 total Rating 2017 total Rating 2017 forecast
observed period is skewed towards the investment-
grade rating categories (ie Cerved Rating Agency
rating classes from A11 to B12) representing 700 of
the whole sample 250 is concentrated in the safety
(A rating classes) and 450 in the solvency (B11-B12)
classes
We anticipate the rating distribution to remain
broadly unchanged in 2018 with the rating migration
concentrated mainly in the B category
39
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100543
2414
4407
4407
2636
4554 4558
2403 2311
535 527
90
10
0
Exhibit 45 Rating distribution frequency by area of risk - Total companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency]I nvestment GradeA11-A31 [Safety]
2509 2604
704 4407706 4407716
324
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
985
5658
4407
3033 2992 2898
925 907
300 318
90
10
0
Exhibit 46 Rating distribution frequency by area of risk - Large companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
5783 5878
869 4407878 4407878
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
4407
4407
3626
4080
17591695
439 449
90
10
0
Exhibit 47 Rating distribution frequency by area of risk - Medium companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
3571 3776
7044407780 4407786
456
1805
774
4113 4232
603
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
2824
1900
4407
4673 4850 4761
2833 2754
600 633
90
10
0
Exhibit 48 Rating distribution frequency by area of risk - Small companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
1716 1852
657 4407657 4407661
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
40
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Slight improvement in general creditworthiness
In our opinion in 2018 the creditworthiness of the
observed Italian non-financial companies will remain
stable for almost 86 of entities Migration of ratings is
expected to be moderate resulting in approximately 14
of rating upgrades (9) and downgrades (5) at the end
of 2018 compared to the outstanding ratings at the end
of 2017 The vast majority of the rating changes (921)
will be limited to one-class migration as shown in the
1-year projected transition matrix (Table 10) We believe
that more than one third of the expected downgrades
will be concentrated in the energy gas mining and
construction sectors Over the last years the average
credit profile of companies active in these industries has
been relatively weak and due to the forecast market and
regulatory conditions we do not envisage opportunities
for a significant risk profile improvement in 2018
Despite the expected rating migrations for individual
entities in 2018 the current industry modal rating
classes are unlikely to change
On the other hand stable and positive outlooks will
prevail in the manufacturing industry wholesale and
retail trade and accommodation and food service This
is due to the increase in the number of companies
active in these sectors which will maintain andor
improve their business and financial performances
Indeed as shown in Table 11 in 2018 the rating outlook
remains differentiated by industry whilst in terms of
the expected general probability of default we foresee
a modest improvement (349) compared to the one
recorded in 2017 (366)
Table 10 1-year transition matrix
Source Cerved database and Cerved Rating Agency elaboration
2017
A11
A31
B11
C11
C12
B21
C21
B22
B12
A12
A13
A21A22
F 2018A11 A12 A13 A31 B11 C11 C12B21 C21B22B12A21 A22
000 530
066
054 451034 435
027 753055 901
1033121247 1624
260 1038088
000
000000037
028
295
290
1063
179
455050647
043425
026490020208
000208
000152
000000
00000010000
9821
9318
92679015
87708583
81497646
8665
9617
9710
8605
419024
41
The information and data supporting Cerved Rating Agency rating opinions related research and credit opinions originate from sources Cerved Rating Agency considers to be accurate however Cerved Rating Agency cannot independently verify the reliability and accuracy of the information and data in every instance This publication may not be reproduced retransmitted or distributed in any form without the prior written consent of Cerved Rating Agency Cerved Rating Agency assumes no liability for correctness completeness and topicality of the information contained in this publication The analyses underlying this study do not provide advice of any sort
26
n
6670
486
59
Exhibit 49 Ratings outlooks by size
Large
Medium Positive Stable Negative
Small
21
13
Large
Medium
Small
Source Cerved database and Cerved Rating Agency elaboratio
Table 11 Ratings and probability of default 2018 outlook by industry
Source Cerved database and Cerved Rating Agency elaboration
NACE Micro industryDowngrade
B-Mining and quarryingAutomotive
900814
848
812
880812
847
813 172
170
174
144
8264 36
08
104 433 436
392 373
22724815
362 360
876
876
914
848
849
804
887
882
916
901835870899 64
866760
43
68
5659
58
47
61
49
74
78 75
14
50
37
36
5393
32
50
41
45
3899
77
91
316
372
355
364
308
491
326
318 296
331
312
381
367
359
322
495
452
433
403429
389
364369
363
313
452
323
594
38
315358
603
307
345 350
67 5318
469289 274
470
147
116
138
851
821AutomotiveRetail
Wholesale
Total
Chemistryamppharmaceutics
ClothingEquipment
Food Beverage and Tabacco
Heavy Manifacturing
Other Manifacturing
Textile industry
Total
Tecnology Media ampTelecomunication
Paper Packaging ampForest products
C-Manifacturing
D-Electricity gas steam and air conditioningsupply
F-Construcion
H-Transportig and storageI-Accommodation and food service activitiesJ-Information and communication
G-Wholesale and reatail traderepair of motor vehicles and motor-cycles
E-Water supply sewerage waste
Average ForecastPD 2018
Expectedtrend
Average PD 2018
Ratings outlooks
Stabl pgrade
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Cerved Rating Agency SpAVia dellrsquoUnione Europea n 6A-6B20097- San Donato Milanese (MI)
Tel +39 02 77541 - Fax +39 02 76020458
ratingagencycervedcom
Rating Agency
Dati societari
Rating Agency
HEADQUARTERS
Cerved Rating Agency SpAVia dellrsquoUnione Europea 6A 6B
San Donato Milanese (MI)
COMPANYrsquoS STATUTORY DATA
Subscribed and paid-in share capital of 15000000 eurosMilan REA No 2035639
Tax ID and VAT No IT08445940961Website ratingagencycervedcom
Contact Information
Izuela StafaResearch Analyst
P +39 027754797E izuelastafacervedcomA Via della Unione Europea 6A 20097 San Donato Milanese - (MI)
Riccardo GottardiStatistical Analyst
P +39 027754404E riccardogottardicervedcomA Via della Unione Europea 6A 20097 San Donato Milanese - (MI)
Milovan MilovicCredit officer
P +39 027754345A Via dellrsquoUnione Europea n 6A-6B 20097- San Donato Milanese - (MI)
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Table of contents
Preface
Assumptions
Executive summary
World economy Outlook 2018
European economy Outlook 2018
Highlights on italian economy
Italian non-financial companies economic Outlook 2018
3
4
6
8
10
12
22
3
Preface
The projections in this study reflect Cerved Rating Agencyrsquos opinion on the economic and financial situation and the
general risk level of Italian non-financial companies in 2018
The study is the product of the analysis of the Global European and Italian macroeconomic historical data between
2000 and 2017 and the forecasts for 2018 combined with specific individual data between 2000 and 2017 related to
Italian non-financial companies with turnover exceeding euro5 million
CERVED RATING AGENCY SpA | Preface
4
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Assumptions
5
A number of assumptions have been adopted for the projections exposed in this study more specifically
the Italian economy is expected to grow at a slower pace in 2018 with GDP forecast at 15 compared to 16
recorded in 2017
the inflation rate is expected to decrease from 14 recorded in 2017 to 12 in 2018 remaining below the
European Central Bank target rate of 20
the average price of oil is expected to be close to $60 a barrel in 2018 whilst the prices of non-fuel commodities
are expected to remain mostly unchanged
actual exchange rates are expected to remain relatively stable at the levels of the last three months of 2017 ie
we do not expect the average EuroUS Dollar exchange rate to exceed 12 at this level exports will gain pace
driven also by a general improvement in the economic cycle and therefore resulting in a higher demand
the European Central Bank is expected to leave the key interest rates at the present low levels and to continue
to apply non-standard monetary policy measures ie net asset purchases at a monthly pace of euro30 billion until
the end of September 2018 despite the reduction in size of the net asset purchases Italian credit institutions
are likely to expand their credit activities partially also due to a significant reduction in the amount of non-
performing loans thus supporting the momentum
the investments are expected to gain strength due to fiscal incentives higher domestic demand and supportive
credit conditions
in the next twelve months we do not envisage room for a significant change in Italian economic and financial
policies in particular regarding the fiscal system and public debt reduction due to the result of the general
political elections scheduled in Italy for 2018 moreover we believe that the results of the referendum for
autonomy held in Lombardy and Veneto will not have any significant impact on the general economic trend in
2018
finally the study does not consider the impact of extraordinary events such as an undesirable further escalation
of USA-North Korea andor USA-Iran disputes or the European disintegration processes on the economic and
financial trends underlying the analysis
Assumptions
CERVED RATING AGENCY SpA | Assumptions
6
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Executive summary
7
This research aims to present two outputs
- projected economic and financial performances in 2018 of the Italian non-financial companies
- the expected risk level of such entities at the end of 2018
the sample extracted for the analysis consists of Italian joint stock and limited liability companies with turnover
exceeding euro5 million and includes on average roughly 50000 entities per year operating in 10 macro industries
(manufacturing further detailed in 10 micro-sectors) the related revenues in 2016 amounted to euro18 billion
representing 769 of total revenues of all Italian joint-stock and limited liability companies
the World European and Italian historical (2000-2016) and estimatedprojected (2017-2018) macroeconomic
data are combined with specific individual company data with the aim of obtaining accurate and reliable
forecasts
the Cerved database was the main source for the analysis of economic and financial performances of the
companies included in the sample Cerved Rating Agency database highlighted the risk level of such entities
based on the credit rating activities performed by the Agency
the research output affirms that gradual recovery of Italian non-financial companies is expected to continue in
2018 both in terms of revenue growth and improvement of the financial structure primarily for manufacturing
and accommodation and food services industry the trend is mainly fostered by positive global economic cycle
low interest rates and favorable regulatory framework supporting firm funding investments innovation and
employment
the general risk level in 2018 is assumed to remain approximately at the levels recorded at the end of 2017
a slight improvement in terms of rating upgrades is expected for 9 of the companies analyzed mainly
concentrated in the manufacturing wholesale and retail trade and the accommodation and food service
industry
Executive summary
CERVED RATING AGENCY SpA | Executive Summary
8
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
World economy Outlook 2018
9
Growth is predicted to gain strength
The predicted global economic growth rate is 39
in 2018 (against 36 in 2017) According to the
International Monetary Fund forecast in 2018 the
two biggest world economies US and China will
grow at 23 and 65 rate respectively
Consumer price inflation rate to rise
The global consumer price inflation rate is expected
to rise assisted by higher commodity prices Oil price
averaged $54barrel in 2017 and is predicted to remain
close to $60barrel in 2018 whilst oil consumption is
forecast to record an uptick of 14 in 2018 In addition
also metal prices are expected to increase modestly in
2018
Trade to increase
Global world trade is predicted to increase further
in 2018 fostered by a recovery in manufacturing
activity and an increase in investment especially
in advanced economies In addition a recovery for
the commodity exporters is expected
Global risks remain tilted to the downside
These include increased trade protectionism as well
as economic policy uncertainty possible adversity
in the financial system due to easy monetary
conditions and over the longer term weaker
potential growth In addition the upcoming political
events and the current political uncertainties may
negatively affect the general economic conditions
Commodity Fuel Price Index
Metals Price Index
Source IMF ECB OECD
20022000 20062004 2008 20122010 F201820162014
50
0
150
100
200
250
1
0
3
2
5
4
7
6
Exhibit 2
Volume of imports of goods and services (Y-o-Y change)
Volume of exports of goods and services (Y-o-Y change)
Current account balance ($ billion) Source IMF
20112010 20132012 2014 20162015 F20182017
2
0
8
4
10
12
14
100
0
300
200
400
500
Exhibit 3 Global trade and current account balance world
EPU Index World
VIX Source FRED
20112010 20132012 2014 20162015 F20182017
50
0
100
150
200
250
5
0
15
10
20
25
30
Exhibit 4
Euro Area
EMDEs
United StatesWorld
Other advanced economies
China
OthersSource IMF and Cerved Rating Agency elaboration
20112010 20132012 2014 20162015 F20182017
20
0
60
40
80
100
1
0
3
2
5
4
6
Exhibit 1 Contribution to global growth world
CERVED RATING AGENCY SpA | World economy Outlook 2018
10
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
European economy Outlook 2018
11
Euro area gdp grows unemployment falls
GDP growth in the euro area rose around 21 in
2017 and is predicted to continue at a broadly similar
pace in 2018 Furthermore the unemployment
rate will continue to follow a declining trend and is
forecast to fall to 87 in 2018 (from 92 in 2017)
Industrial production improvement
Investments will accelerate and the international
environment will contribute positively to an increase
of exports (in line with the global growth) which will be
one of the principal driver of an industrial production
improvement in 2018
Further credit activity expansion
Across the euro zone countries companies are
benefiting both from eased lending conditions
and increase in the number of alternative lenders
The total amount of loans to households and non-
financial corporations grew by approximately 14
in 2017 whilst in 2018 it is predicted to increase more
slowly especially in the non-financial corporate
sector
Inflation rate to be stable
Consumer price inflation accelerated at the
beginning of 2017 mainly due to a rise in energy
prices The harmonized index of consumer prices
(HICP) is estimated at 15 in 2017 In 2018
the impact of energy inflation is expected to
decline resulting in a lower inflation rate outlook
(approximately 14)
Germany
France
ItalyEuro Union
Spain
UK
OthersSource IMF ECB OECD
20112010 20132012 2014 20162015 F20182017
20
0
60
40
80
100
0
-1
2
1
3
4
Exhibit 5 Contribution to European growth European Union
EPU Index euro areaIndustrial production euro area (Y-O-Y change)
Source IMF ECB OECD
2011 2015 2017
-2
-2
-3
-1
-1
1
1
0
2
2
3
100
0
300
200
250
400
450
500
Exhibit 7 Industrial production and policy uncertainty index euro area
2010
350
150
50
20182013 2014 20162012
Euro Area
Source ECB
20112010 20132012 2014 20162015 2017
500
0
1500
2500
2000
3000
1000
10000
9900
9800
9700
9600
9500
9400
9300
9200
Germany Spain France Italy
20112010 20132012 2014 20162015 20182017
BCI euro area
CCI euro area
Source IMF ECB OECD
96
95
98
97
99
101
102
100
103
0
-1
2
1
4
3
5
Exhibit 6
CERVED RATING AGENCY SpA | European economy Outlook 2018
12
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Highlights on italian economy
13
Gdp growth is under way to consolidate in 2018
From 2000 to 2017 the Italian economy was more
vulnerable compared to other highly developed
countries in particular those of the euro area
The Italian real GDP at the end of 2017 was roughly
at the same level recorded in 2000 whilst the euro
area countries and specifically Germany and France
experienced a considerable growth in the same period
(188 205 and 198 respectively)
The Italian GDP has started to increase moderately only
since 2014 mainly due to an improvement in domestic
demand but its growth still remains below the growth
rates of the majority of euro zone countries The poor
performance of the labor and total productivity factor
accounts for most of the difference
An ageing population and a weak labor market
participation have also contributed negatively to
potential growth Structural reforms in particular the
Jobs Act and tax incentives on new labor contracts
contributed to the increase in employment making the
Italian labor market more flexible and efficient
In 2018 we expect the economic growth to be slightly
below the level reached in 2017 The trend will be
sustained by the world economy positive cycle
including higher levels of international trade volume
Italian companies will benefit from favorable credit
lending conditions due to an expanding credit activity
of the banking system and low interest rates
Whilst the Italian government adopted a set of dynamic
and diverse policies for 2018 we believe that some of
those previously introduced have already contributed
to the GDP growth in 2016 and 2017 thus reducing the
combined effect in 2018
Source World Bank
2000 2002 2004 2006 2008 2010 2012 2014 2016
1500
1000
500
0
2500
3500
3000
4000
2000
13000
9500
10000
11000
12000
12500
10500
11500
Exhibit 10 GDP in Europe ($ billion)
Germany Italy Euro areas (11countries)France
Total multifactor productivityEmployment growth
Source OECD
-2
-4
-6
-8
2
0
4
6
Exhibit 9 Italian GDP employment and total multifactor productivity (Y-o-Y change)
2000 2002 2014 20162004 2006
GDP growth
20122008 2010
CERVED RATING AGENCY SpA | Highlights on italian economy
14
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The number of active companies has increased buthellip
The number of active companies in Italy registered at
the Chamber of Commerce as of December 31st 2016
amounted to 5145995 305629 more than in 2000
(63)
The increase in registered active companies is the result
of the positive trend from 2000 to 2008 (98) partially
cancelled by the decrease from 2009 to 2016 In 2017 a
slight improvement is expected to be recorded however
the number of active companies remains below its peak
value (5316104 entities) reached at the end of 2008
Exhibit 11 shows both the trend of active Italian companies
in the period 2000-2016 and their breakdown by legal
form We observe that the increased number of Joint Stock
Companies and particularly Limited Liability companies
(1206) was able to compensate the decrease in Unlimited
Partnerships (-62) and Sole Proprietorships (-79)
Companies are abandoning traditional sectors
Exhibit 12 shows the breakdown of the Italian active
companies at the end of 2000 and 2016 by industry
It can be observed that in many traditional sectors
the number of active companies decreased eg in
agriculture (-294) and manufacturing (-226) whilst
the number of companies increased in construction
(273) and wholesale and retail trade (39)
A very significant rise in the new registered companies
(456) occurred in other industries in particular
in the service industry offering information and
communication IT and professional scientific and
technical services
Joint Stock and Limited Liability Unlimited Partnership Sole proprietorshipO ther forms
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 2012 2013 2014 2015 20160
6000000
5000000
4000000
3000000
2000000
1000000
Exhibit 11 Italian active companies 2000-2016
Total
Source Movimprese and Cerved Rating Agency elaboration
Exhibit 12
Breakdown of the Italian active companies by industry 2000-2016
2000
635286 13
1059005 22
639778 13
589707 12
183 856 4 226964 5 150772 3
1354998 28
965452 19
747738 14
495247 10
750863 15
150888 3
379899 7 247187 5
1408721 27
2016
C Manufacturing
F Construction
H Transporting and storage
I Accommodation and food service activities
L Real estate ativities
G Wholesale and retail traderepair of motor vehicles and motorcycles
X Other
15
Number of bankruptcy and other legal proceedings to decrease further
From 2000 to 2016 the number of bankruptcies and
other legal proceedings protests and prejudicial
acts in Italy mirrored the general trend of the
Italian economy
After reaching its minimum level in 2007 (5969)
the number of bankruptcy procedures in the
period 2009-2014 increased dramatically reaching
its peak value of 15608 in 2014
With the improvement in the economic and financial
environment starting from 2015 the number of
bankruptcy procedures decreased sharply in all
macro sectors returning approximately to the
levels recorded from 2000 to 2006 A positive
trend was recorded also in 2017 bankruptcy
procedure initiated for 11937 companies -113
when compared to the same period in 2016 In
absolute terms the highest number of bankruptcy
procedures was recorded in the service sectors
followed by the construction and manufacturing
Worth mentioning is the design of a new Italian
bankruptcy law that should be approved by
October 2018 The regulatory framework aims at
more efficient resolutions of cases of company
crisis supporting continuity of its operating
activities and safeguarding the interest of creditors
by introducing innovative solutions such as pre-
crisis warning mechanisms
Other legal proceedings after reaching its
maximum level in 2013 (3593) in 2016 came down
to 1993 and the trend continues in 2017 evidencing
1866 procedures -64 when compared to the
same period in 2016
In the last five years new protests and prejudicial
acts have also shown a decreasing trend with
ndash527 and ndash70 of acts respectively in 2017
compared to the numbers recorded in 2013
-6
Exhibit 13 Bankruptcy
BankruptcySource Cerved databaase
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
10729 108311163612287
10338
59697307
9189
1108812022
12437
14031
1560814682
13459
11937
Other legal procedingsSource Cerved database
1500
1000
500
02000
940 994 1125 1211
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
2500
3500
3000
4000
2000
1110
16691540
18702094 2057
2342 2475
3593
3132
2720
1993 1866
Exhibit 14 Other legal procedings
1211
100 45000
4000090
80
70
60
50
40
30
20
10
02015
35000
30000
25000
20000
15000
10000
5000
02013 2014
Protets
703
297
41438
Total
Source Cerved database
Prejudicial acts
2016 2017
665
335
34527
570
43032660
527
473
546
454
2523828929
Exhibit 15 Protests and prejudical acts
CERVED RATING AGENCY SpA | Highlights on italian economy
16
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Core inflation rate to rise
Italian headline inflation will experience a modest
decline in 2018 compared to the previous year
(12 and 14 respectively) Core inflation
however is predicted to increase to 12 in 2018
(up from 10 in 2017)
Exports and import are accelerating
Exports and imports will both accelerate in 2018 (41
and 44 respectively) mirroring the positive trend
and expectations in global trade and the rising of the
external demand Machinery and equipment industry
will still remain in ldquopole positionrdquo due to companies
generous investment and tax incentives In general
in 2018 Italian exports will increase more in the Extra
European Union countries
Investment continues to gain strength
Investment has gained strength and will continue to
do so at a relatively fast pace supported by effects of
the tax incentives (Stability Low 2017) low interest rate
and improvements in business confidence Indeed
investments are expected to increase 30 in 2018
(up from 24 in 2017) Construction investments are
forecast to accelerate slightly also thanks to more
resources earmarked for public investment
Harmonised core infation
Source OECD and IMF
2003 2006 20092000 2012 2015 F2018
2
1
-1
0
4
3
5
6
Exhibit 16
Imports of goods and services (Y-o-Y change)
Exports of goods and services (Y-o-Y changes)
Total dometic demand (Y-o-Y change)
Source OECD and IMF
20062000 2015 F2018-5
-15
-20
5
0
-10
10
15
Exhibit 17 Exports imports and demand Italy
20122003 2009
Wholesale and retail trade (Y-o-Y change)
Total investments ( of GDP)
Heavy industry (Y-o-Y change)
Other services (Y-o-Y change)
Source IMF and ISTAT
Construction (Y-o-Y change)
20062000
-20
-30
10
0
-10
20
30
20
25
15
10
0
5
F2018
Exhibit 18 Investments by industry Italy
2003 2009 2012 2015
17
No room for significant public debt reduction
At the end of 2016 the Italian government debt-to-GDP
ratio was significantly above its level at the beginning of
the century In particular as of December 31st 2016 the
ratio was 1326 (262 with respect to 100 recorded
at the end of 2000)
In the same period the ratio for the euro area increased
from 681 to 913 (341) in Germany from 589 to
683 (159) and in France from 586 to 960 (638)
At the end of 2017 the Italian government debt increased
further to more than euro2300 billion 1350 of GDP The
debt servicing in terms of interests accounts roughly
50 of Italian GDP
In our view the high level of government debt
represents a key factor limiting Italian economic growth
and contributes eo ipso to increasing country risk
with a possible negative impact on the stability of the
international financial system
A possible increase in interest rates would raise the
cost of debt service potentially triggering a crisis due to
larger governmental deficits a slowdown in economic
activity and growing debt refinancing difficulties due to
higher risk perceived by investors
Hence it seems that a significant reduction in
government debt should be the main goal of the Italian
economic and financial policy in our opinion however
the achievement of such a result is not realistic neither
in the short nor in the medium term due to the following
factors
middot economic growth in the coming years is expected
to be moderate not sufficient to be the main source of
the government debt reduction
middot macroeconomic policy is expected to prioritize
investments employment social security and welfare
rather than government debt reduction
middot even if the inflation rate hits the target value (20) the
impact on the government debt in the short term is not
expected to be considerable
middot finally in Italy election will take place in spring 2018
with a new government taking over the economic
program that has already been approved and become
fully executive
Euro area
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 2012 2013 2014 2015 20160
20
40
60
80
100
120
140
Exhibit 19 Public debt as GDP
France
Source AMECO and Cerved Rating Agency elaboration
CERVED RATING AGENCY SpA | Highlights on italian economy
18
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Table 1
Amount ( 407 312
-327
327754
216074 190881
163248 345604188167
869
1543
2213
1793
CAGR (base year 2000)
CAGR (base year 2008)
NPL ratio ()
Ndeg debtors
Averae debt debtor
Valueindicator 2000 2008 2016
Source Bank of Italy and Cerved rating Agency elaboration
Credit activity to be expanded interest rates to remain at very low levels
As of December 31st 2016 the volume of bank loans
granted to Italian non-financial corporations amounted to
euro8604 billion
The period 2000-2016 was characterized by two different
trends from 2000 to 2011 the annual outstanding loans
value increased by 841 (euro454 billion reaching in 2011 its
highest level ever of euro993 billion thanks to 57 CAGR far
above the Italian GDP growth) whilst in the period from
2012 to 2016 loans decreased by 134 (euro130 billion)
reflecting a negative -28 CAGR The loan reduction hit
sharply construction and manufacturing (accounting
for about 400 of all loans) which experienced -227
and -135 decrease in loan volumes whilst agriculture
forestry and fishing and wholesale and retail trade
(including repairs of motor vehicles and motorcycles)
had more limited loan contraction (-08 and -53
respectively)
In the observed period due to the negative impact of the
global financial crisis 200708 and to structural changes in
the world economic and financial environment a radical
decrease in interest rates was recorded In 2017 the
interest rates charged to Italian non-financial corporates
were on average less than half compared to those charged
in 2000 In the medium term low interest rates will remain
a positive factor fostering investments and consumption
Non-performing loans to be further reduced due to innovative measures
The credit crunch had a huge and dramatic impact on
the Italian economy hitting especially small businesses
which are not able to survive in a radically changed market
conditions The evidence of such outcome can be seen not
only through the decreased number of active companies
but also via the enormously increased volume of the
non-performing loans (NPLs) In particular these loans
amounted to euro324 billion at the end of 2016 of which euro154
billion were granted to the non-financial corporations as
shown in table 1
Following the principles outlined in the ECB guidelines
published in March in 2017 Italian Banks made significant
progress in reducing the amount of the NPLs ndash estimated
to be over euro50 billion debt reduction Any further actions
aimed to improve the banking balance sheets should not
increase the financial hardship of still operating companies
North - East SouthNorth - West Center Islands
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 2012 2013 2014 2015 20160
1200000
1000000
800000
600000
400000
200000
NPLs ratio
Source Bank of Italy and Cerved Rating Agency elaboration
20
1816
14
1210
8
6
42
0
446393
euro billion)
19
Modest role of italian equity capital markets
Despite the number of listed companies increasing
from 297 to 421 in the period 2000-2017 the role
of the stock markets remains modest in Italy
As of December 31st 2017 the market capitalization
was euro640 billion (375 of the estimated Italian GDP
in 2017) representing only 782 of the overall
market capitalization recorded in 2000 (equal
to euro818 billion 687 of GDP) mainly due to
an unfavorable economic cycle in the observed
period
This situation shows the structural weaknesses of
the Italian economic and financial system especially
when compared to other highly developed
European economies The low propensity to
raise equity capital through organized markets
is linked to an unfavorable macroeconomic and
fiscal framework as well as to the predominance
of SMEs mostly unfit for listing and presenting
cultural obstacles (ie company owners and managers are often reluctant to accept wider company control and
transparency)
Hence self-financing and bank borrowing remain the main sources of finance for Italian companies which are
generally speaking undercapitalized with a negative impact on their investment capabilities Very frequently the
lack of medium-long term financing means forces companies to focus their attention on running current activities
postponing or abandoning strategic projects fundamental for company growth
A wide range of innovative initiatives have been undertaken with the aim of fostering market based company
funding in particular
middot AIM (Alternative Investment Market) - a specialized market segment dedicated to SMEs growth (95 companies and
market capitalization around euro56 billion as of December 2017)
middot ELITE - a programme designed to help SMEs prepare and structure for the next stage of growth their through
access to long-term financing opportunities
middot PIR - Piani individuali di risparmio (Individual Savings Plan) - an innovative way to fund Italian SMEs by offering retail
investors resident in Italy tax incentives (full exemption of 260 income tax) if the savings stay invested for at least
five years A minimum of 700 of such credit assets must be invested in financial instruments issued by Italian or
foreign (EU and EEA) companies permanently established in Italy
FTSE (MIB)Enterprises
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 20132012 20152014 201720160
100
200
300
400
500
600
700
800
900
100029681 29525
14623
1765216121
12259
13512
16048
15988
19012
21428
21853
2185322232
16954
297 294 295 279 282278 311 336 332 332 328 323 326344 342 356 387 421
19483
22886
26056
31005
Exhibit 21 Italian listed enterprised and FTSE (MIB) index trend
Source Borsa Italiana
300000
250000
200000
150000
100000
5000
0
Capitalization of GDP
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 20132012 20152014 201720160
100
200
300
400
500
600
700
800
900
1000
Exhibit 22 Italian market capitalization of listed companies ( of GDP)
Source Borsa Italiana
80
70
60
50
40
30
20
10
0
8184
5923
354 365418 473
524475
239301 275
210233
287 295348
318375
4580 4875
5809
6766
77857336
37474571
4251
3324
44664678
56765249
6400
3655
474
68
CERVED RATING AGENCY SpA | Highlights on italian economy
20
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Italian debt capital market is growing but still remains behind needs
At the end of 2016 the outstanding amount of debt
securities issued by Italian financial and non-financial
corporations was euro8615 billion 510 of the countryrsquos
GDP The table below shows the breakdown by issuer
type of Italian German French British and United States
outstanding amounts of debt securities as of December
2016 issued by financial and non-financial corporations
with the respective debt-to-GDP ratio
Despite the outstanding debt at the end of 2016 being
almost double compared to 2000 it represents only 23
of its peak value reached in 2012 (euro1290 billion Exhibit
23) The main reason for such a significant debt reduction
is the huge bond reimbursement realized by banking
institutions from 2013 to 2016 and the related negative
net flow of debt securities (respectively -80 -153 -106
and -67 billion of euro as shown in Exhibit 24)
The decrease in debt securities funding of Italian banks
has been compensated by a wider use of deposits and
resources available under the Eurosystem refinancing
operations framework
The outstanding amount of debt securities issued by
non-financial corporations at the end of 2016 also
doubled its value with respect to the amount recorded
at the end of 2000 The main characteristic of this cluster
is the high concentration of issuancesdebt to a small
number of issuers
Due to both more favourable general economic
conditions and active ECB monetary policy bond yields
have decreased significantly providing room for a
convenient fund raising
Since the introduction of a new regulatory framework
(lsquoDecreto Svilupporsquo) in 2012 up to October 2017 Italian
market saw 300 small-size listed bond issues (ie so
called minibonds) amounting approximately to euro143
billion Issued mainly by SMEs they offer interesting
yields to institutional investors
) Source Business support SpA ndash Minibonditalyit
BanksTotal
Source Bank of Italy and Cerved Rating Agency elaboration
2006 20082000
-200000
200000
250000
-150000
-100000
150000
100000
-50000
50000
02012 2014 20162002 2004 2010
Banks debt securities outstanding
Banks Debt to GDP ratio
Source Bank of Italy and Cerved Rating Agency elaboration
0
10
20
30
40
50
60
70 1400000
1200000
1000000
800000
600000
400000
200000
0201620142012201020082006200420022000
Table 2 Outstanding securities debt (euro Million)Debt-to-GDP ratio()
Financial corporates
Total
Debtsecurities
outstanding
Italy German rance United Kingdom United States
739
123
862
440 340 470
21
680380
40
1279 1331 4 50
880
30
14271
14820
549180
10202767
590
19211436
15770
510
Debtsecurities
outstanding
Debtsecurities
outstanding
Debtsecurities
outstanding
Debtsecurities
outstanding
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Source Bank of Italy
0
0
21
CERVED RATING AGENCY SpA | Highlights on italian economy
22
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Italian non-financial companies economic Outlook 2018
23
Data and method
This research focuses on Italian non-financial companies
with an annual turnover exceeding euro5 million With the
aim of using only reliable data joint stock and limited
liability companies have been considered only these
entities according to Italian law file complete annual
financial statements in the Chamber of Commerce
together with anagraphical company data other
legal forms such as unlimited partnerships and sole
proprietorships are not included in this sample due to
the lack of publicly available standardized financial data
We believe that this cutoff is reasonable and allows us to
perform a methodologically correct analysis In 2016 the
above mentioned companies despite representing only
42 of all registered and active joint stock and limited
liability companies accounted for 769 of their total
turnover
Moreover cluster specialization has been obtained by
NACE activity classification from A to J (thus not including
in the sample financial and insurance companies and
some service industries) The statistics regarding specific
industries provide important key data and enable us to
examine historical and prospective trends and cross-
sector comparisons
The Cerved database which contains legal anagraphical
financial and market information on all Italian registered
legal entities (approximately 6 million comprising 5
million active ones) was the most important database
used for this research Long time series and broad
homogenized and standardized data covering different
economic cycles were the building blocks to perform
the regression and predictive analysis
Historical and forecast macroeconomic data and
analysis performed by the International Monetary Fund
OECD the World Bank European Central Bank Bank
of Italy and ISTAT completed the dataset used for the
analysis
Several analyses were performed in order to examine
the structural differences within the sample in terms of
company legal form and geographical area (Exhibit 25)
company age (Exhibit 26) and company size and industry
As a result we verified a considerable heterogeneity of
companies in particular with regard to the company size
across various industries
The relevant observation period comprises the years
between 2000 and 2016 Table 3 describes some
characteristics of the sample
Exhibit 25 Sample break-down by legal form and geographic area (2016)
Joint stock Company
Limited liability Company
Area 1 (Northwest)
Area 3 (Center)
Area 2 (Northeast)
Area 4 (South)
39
20
27
14
33
67
33
Table 3 Sample characteristics 2000-2016
TotalTurnover
gt euro5million
Turnover gt euro5 million(industry
from A to J)
TotalTurnover
gt euro5million
ofTotal
Turnover gt
euro5 million(industry
from A to J)
Source Cerved database
Entreprises Turnover billion
2000 659867700717738558772442812025847334883122915172937018949708965744969581
953505945825922513883224
4215144587462234694749640518205596459226595385246754808563745362752074519385289450123
3686139038411864118843547454704921752274526974633848778504734806246843468384771845288
16151740177018472002212923302477256822562421257025202446243224392295
12661362139214561588169818752000208317861944208720541992198419871905
11141205124013041430152316891801189716191764191218831839183518371765
689693700
716
706714
725
718729744748752754753769
727739
200120022003200420052006
200820092010201120122013201420152016
2007
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
24
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Furthermore in order to guarantee more detailed and
accurate analyses and projections we decided to create
a static pool to show consistently long time horizon
economic trends (17 years) by sealing off all the active
companies over the 2000-2016 horizon
The outcome obtained by considering the behaviour of
specific variables related to the companies included in
the static pool was extended as a performance indicator
for the whole sample (turnover over euro5 million and
industry from A to J)
According to the European Communityrsquos definition of
SMEs using annual turnover and employee headcount
as quantitative criteria the initial sample of companies
and the static pool can be classified by size classes on
the basis of the financial statements for the year 2016
as shown in Table 4
For the sake of this analysis we defined specific size
classes for each industry thus deviating from the
European Commissionrsquos recommendation which
presents undifferentiated upper and lower bounds of
quantitative criteria for SMEs in all industries To define
the thresholds of such classes we used both a statistical
approach (a specific cluster procedure by minimizing
the within-cluster turnover standard deviation) and a
judgmental approach by relying on the experience and
opinion of our industry expert analysts Table 5 shows
the results of such analysis referring to the sample in
2016 (45288 entities) and the NACE sections from A
to J Moreover the NACE section C and G were further
disaggregated into sub-industry classes as shown in
Exhibit 27 in order to consider the specific business
differences within these NACE sections thus ensuring
a good fit and a satisfactory accuracy of the estimation
Exhibit 26 Sample break-down by company age classes
0-2 Years 2-5 Years 5-10 Years 10-20 Years gt20 YearsSource Cerved database and Cerved Rating Agency elaboration
0 20 40 60 80 100
ABCDEFGHIJ
A = AgricolutreB=Mining and quarryingC=ManufacturingD=Electricity and gasE=Water supplyF=ConstructionG=Wholesale and retail tradeH=Transporting and storageI=Accomodation and food serviceJ=ICT
Small
Annul Turnover
Empolyees
Static Pool
Enterprises(Turnover gt euro5 million)
Enterprises(Turnover gt euro5 millionindustry from A t J)
Medium Large
lt 50 lt 250lt 36774 11113
1005333223
8741
2236
2012
154818645
gt euro50 million
gt 250
lt euro50 million
Source Cerved database
NACE Micro industry
B-Mining and quarryingAutomotive
Automotive
Retail
Wholesale
T gt 480
T gt 80
T gt 260
T gt 265T gt 270
T gt 230
T gt 120
T gt 80
T gt 43
T gt 65
T gt 106T gt 106
T gt 360T gt 155T gt 150T gt 100
T gt 120
T gt 225T gt 1400T gt 27500
T gt 1500
ChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther Manifacturing
ICTTextile
Paper Packaging ampForest products
C-Manifacturing
F-Construcion
H-Transportig and storageI-Accommodation and food service activities
J-Information and communication
D-Electricity gas steam and aircoditioning supply
G-Wholesale and reatail traderepair of motor vehicles and motorcycles
E-Water supply sewerage waste management and emediation activities
Large (Turnover
in euro million)
Medium(Turnover
in euro million)
Small(Turnover
in euro million)
Source Cerved database and Cerved Rating Agency elaboration
60 lt T lt 480 5 lt T lt 60
5 lt T lt 20
5 lt T lt 36
5 lt T lt 35
5 lt T lt 44
5 lt T lt 40
5 lt T lt 20
5 lt T lt 26
5 lt T lt 250
5 lt T lt 185 lt T lt 305 lt T lt 265 lt T lt 205 lt T lt 37
5 lt T lt 335 lt T lt 40
5 lt T lt 255 lt T lt 585 lt T lt 1155 lt T lt 1005 lt T lt 27
20 lt T lt 80
36 lt T lt 26035 lt T lt 26544 lt T lt 270
40 lt T lt 230
20 lt T lt 120
26 lt T lt 80
18 lt T lt 43
250 lt T lt 1500
20 lt T lt 6537 lt T lt 29540 lt T lt 15533 lt T lt 15025 lt T lt 100
27 lt T lt 120
58 lt T lt 225
100 lt T lt 27500 115 lt T lt
30 lt T lt 10626 lt T lt 106
25
Exhibit 28 shows the breakdown of macro industries
analysed including disaggregation of the NACE section C
(manufacturing) and G (wholesale and retail trade repair
of motor vehicles and motorcycles)
In order to carry out the analysis and projections this study
is focused on we used simple multiple linear regression
model for each industry and company size classes
considering macroeconomic and individual companiesrsquo
economic and financial data
The analysis enables us to develop an econometric
model used to estimate likely credit quality changes (in
terms of rating class and probability of default) for single
industries and company size classes
Automotive
Retail
Wholesale
21
1366
1
42
1
26
35
232
6
A B C D
F G H I
46
7
21
1318
9
15
34
Automotive
Chemistry amp pharmaceutics
Clothing
Equipment
Food Beverage and Tabacco
Heavy Manifacturing
Other Manifacture
Paper Packaging amp Forest Products
ICT
Textile industry
Large SmallMedium
Source Cerved database and Cerved Rating Agency elaboration
0
Wholesale
Retail
Automotive
20 40 60 80 100
Automotive
Chemistry amp pharmaeutics
Clothing
Equipment
Food beverage and Tabacco
Heavy Manifacturing
Other Manifacturing
Paper Packaging amp Forest Products
ICT
Textile
0 20 40 60 80 100
ABCDEFGHIJ
0 10 30 40 60 70 80 90 100
Exhibit 28 Sample break-down by industry (2016)
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
26
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Performance indicators to improve further
The annual financial statements available through public
registers provide a clear economic and financial picture
of the Italian joint-stock and limited liability non-financial
companies The individual historical data available from
2000 to 2016 enriched with 2017 preliminary results and
with the expected 2018 macroeconomic scenario enabled
us to build up the 2017 and 2018 projections regarding
the following four performance indicators related to the
analyzed sample 1) growth rate - revenues YoY change
2) EBITDA margin 3) net financial debtEBITDA and 4) net
financial debtEquity Afterwards the median values of the
resulting data were used to obtain the summary output
which we consider as a representative proxy for the overall
market
From 2000 to 2016 the observed companies experienced
a very irregular trend both in terms of growth rate and
EBITDA margin In the aftermath of the global financial crisis
the lowest growth rate value (-120) was recorded in 2009
manufacturing transporting - storage and wholesale and
retail trade were the industries showing the biggest fall of
business volume (-155 -121 and -104 respectively)
whilst water supply accommodation and food service and
electricity and gas showed the highest level of resilience to
the adverse economic and financial environment (-01
-23 and ndash26 respectively) Exhibit 29 shows that in
terms of median value there are no significant differences
in the growth rate taking into consideration company size
classes as we previously defined them Only from 2010 the
growth rates turned positive but still remaining below the
levels recorded in 2000
The analysis of the EBITDA margin changes in the same
period also does not highlight significant differences
between large companies and SMEs as shown in Exhibit
30 The lowest median EBITDA margin value (52) was
recorded in 2012 regarding in particular accommodation
and food service transporting and storage and agriculture
sectors (28 40 52 respectively) while electricity
and gas ICT and water supply were relatively immune to
the unfavorable economic and financial circumstances
(showing 113 109 and 105 EBITDA margin
respectively) At the end of 2016 the median EBITDA margin
(60) still remains below the levels recorded in 2000 (72)
Positive trends emerging from the last publicly available
financial statements (2016) the 2017 preliminary results
and the optimistic macroeconomic forecasts for 2018
confirm improvement of the Italian economy Looking
ahead we expect the Italian non-financial companies to
continue to experience gradual recovery in 2018 They are
going to take advantage of the favorable global economic
cycle low interest rates and supportive regulations that
inter alia foster the use of alternative non-bank financial
sources for company funding The financial resources raised
through Individual Savings Plans (PIR ndash Piani individuali di
risparmio) introduced by the 2017 Budget Law are driven
in primis by a favorable tax regime for savers and might
become an important additional source for SMEs funding
injecting new liquidity The government objective fixed euro68
billion as a target value and in 2017 nearly euro10 billion had
already been raised
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2004 2006 2014 20162000
5
20
10
0
15
-15
-10
-5
Exhibit 29 Growth rate (revenue YoY change) by size classes (median)
medium small
2008 2010 2012
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2004 2006 2008 2010 2012 2014 20162000
7
10
9
8
6
5
4
3
7
10
9
8
6
5
4
EBITDA margin by size classes (median)
medium small
27
So far one of the main obstacles PIR are facing is the limited
number of available assets which may lead to a possible
concentration of this financial resources in a small share of
the market comprising mainly relatively large companies
as shown by the early data in 2017
Another obstacle to rapid adoption of the newly available
financial resources is the lack of a standardized and broadly
accepted methodology for the risk assessment of potential
bond issuers
Generally speaking in 2018 we expect SMEs to contribute
more significantly to growth employment and innovation
whilst on average the respective EBITDA margin will remain
broadly stable (as shown in Exhibit 31) However 2018 will
still be a challenging year for SMEs and innovative startup
companies as they will have to face tougher barriers in
accessing bank credit andor approaching capital markets
compared to large companies We also expect some new
innovative solutions aimed at meeting SMEs financial needs
to become effective the SMEs current financial structure
together with new business opportunities prove their
ability in terms of rational use of the additional financial
resources
The new investments will allow most industries to thrive
also assisted by the Italian Governmentrsquos adoption of the
National Industry 40 Plan
The companies which will take up this opportunity may
improve their cash-flows even in the short-medium term
Finally companies with strong international market
positioning and large product diversification will have
stronger sales and margins growth
The key ratio values recorded from 2000 to 2016 related to
the analyzed entities show the improved financial health of
the companies proving good capability to strengthen their
equity base as shown in Table 6
Growth rate (2016)Medium
Total
Small Large
Growth rate (2018)Growth rate (2017)
Source Cerved database and Cerved Rating Agency elaboration
50
40
Exhibit 31 Growth rate and EBITDA margin forecast by size classes
EBITDA margin (2016)EBITDA margin (2018)
EBITDA margin (2017)
40
30
0
10
20
Medium
Total
Small Large
7570
65
0
6 5560
5550
4540
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
28
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The recorded financial ratios in the 2000-2016 horizon
indicate that on average
middot liquidity maintained a satisfactory level in the whole
observed period due to the positive economic cycle in
2017 and 2018 we expect a slight improvement in the ratio
middot the EBITDAinterest coverage ratio almost doubled its
value in 2016 compared to what was recorded in 2000
primarily due to a general reduction in the interest rates
particularly in the last three years we believe that in 2017
and 2018 the average ratio value will remain roughly at the
same level recorded in 2016
middot in 2016 ROE shows further improvement but is still
slightly lower compared to the value recorded at the
beginning of the observed period mainly due to the equity
base strengthening trend
middot Equity Ratio rose from 250 to 350 due to a significant
increase of equity capital in 2018 we expect further
strengthening of the ratio
middot Financial LiabilitiesTotal Assets ratio remained mostly
unchanged ndash financial debts representing roughly 30 of
the total assets
A positive trend regarding the net financial debt was also
observed in fact in 2016 70 of the sample improved their
NFDEBITDA and 73 the NFDEquity
Positive performances were found especially in the SMEs
segment as shown in Exhibit 32 in particular referring to
NFDEquity small and medium-sized companies recorded
a positive trend standing respectively at 092 and 089 in
2016 compared to 132 and 136 in 2000
Hence the financial risk profile appears to be well balanced
leaving no room for specific concerns regarding the
prospects of the Italian non-financial companies in 2018
In 2016 the median values for the total sample referring to
NFDEquity and NFDEBITDA remained respectively at 089
and 389 levels respectively
Looking ahead we expect these indicators to remain at
healthy levels in 2017 and 2018 with a slight improvement
in NFDEBITDA and a broadly stable level of the NFDEquity
ratio as shown in Exhibit 33
NFDEBITFA (2016) NFDEBITFA (2017)NFDEBITFA (2018)
40
Exhibit 33 NFDEquity and NFDEBITDA forecast by size classes
Source Cerved database and Cerved Rating Agency elaboration
404
20
25
45
35
30
NFDequity (2016) NFDequity (2017)NFDequity (2018)
05
06
09
10
08
07
Exhibit 32 NFDEquity and NFDEBITDA by size classes (median)
largemediumsmall
2016
2015
2014
000 5 10 15
Average2008-2013
Average2000-2007
total largemediumsmall total
Source Cerved database and Cerved Rating Agency elaboration
2016
2015
2014
203 0 405 0
Average2008-2013
Average2000-2007
29
Growth and profitability improvement spanned over all sectors
Exhibit 34 shows the relative positioning of the 10
macro-industries in the short-medium term considering
the median values related to revenue growth rate and
EBITDA margin
The historical median values are calculated on the basis
of financial data obtained from the annual financial
reports 2014-2016 filed in the Chamber of Commerce
public registers the projected median values for 2017
and 2018 are the result of the analysis of this study
As expected there are significant differences in
positioning between different industries in terms of
both historical and projected values
In 2018 we expect manufacturing and accommodation and
food services to maintain top positions already reached in
2016 and 2017
For the electricity gas mining and quarrying industry
2018 may be the turning point showing the first positive
signals after experiencing some difficulties over the last
few years
None of the other industries show significant changes in
2018 compared to their 2016 positioning
Source Cerved database and Cerved Rating Agency elaboration
A 50
57599586886358
3849
3620083721
-110320
-1112
210322
-1814021122
1413
030124
-5010284025
0555
20-4614
-4607212105
0430
210328-2310203218
0832
2310300512233720
1637
BCDEFGHIJ
A 625296
1441401016934
15352
504969
103121916227
10639
4764676185562639
68112
4873687090592845
75120
456772928856
45
7898
4667759090573147
7698
4668769394583147
77102
EBITDAmarigin
BCDEFGHIJ
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018Growthrate
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
Exhibit 34 Growth rate and EBITDA margin by industry
-70 -50 -30 -10 10 30
2016E2017F2018
50 70 90
Median=68
Median=2100
20
40
60
80
100
120
A=Agricolture B=Mining and quarrying C=Manifacturing D=Electricity and gas E=Water supply F=Construction G=Wholesale and retail trade H=Transporting and storage I=Accomodation and food service J=ICT
D
B
E
FHA G
C
I
J
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
30
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Further strenthening in companiesrsquo financial structure
Exhibit 35 shows the relative positioning of the 10 macro
industries in the short-medium term considering the
median values related to NFDEBITDA and NFDEquity
ratios
The historical median values are calculated on the basis
of financial data obtained from the annual financial
reports 2014-2016 filed in the Chamber of Commerce
public registers the projected median values for 2017
and 2018 are the result of the analysis of this study
There are even more significant differences in
positioning between industries regarding NFDEBITDA
and NFDEquity ratios when compared to growth rate
and EBITDA margin differences
Generally in the observed period there is no evidence of
significant changes among industries considering their
relative positioning related to NFDEBITDA and NFD
Equity ratios
In 2018 we expect accommodation and food services
and information and communication services to
maintain top positions already reached in 2016 and
presumably confirmed in 2017
Exhibit 35 NFDEquity and NFDEBITDA by industry
2016E2017F2018
Median=37
Median=08500
030 5 070 9 111 3
20
30
40
50
60
70
10
A=Agricolture B=Mining and quarrying C=Manifacturing D=Electricity and gas E=Water supply F=Construction G=Wholesale and retail trade H=Transporting and storage I=Accomodation and food service J=ICT
EH
C
BF
G
A
D
J
I
A 150101113081112149151120
079131
123075088101097125123103
072079
114067083052090108119102
067076
113060080045089096114092
074069
125076080045089106109086
050060
127072080044091
108084
051056
128067079043093106107081
051051
BCDEFGHIJ
NFDEquity
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
A 597219280305251301338250
153260
676394388342298453499349
254337
707482387293277498532337
277334
696392373254305484494308
231315
747401358330285544483294
183312
722390340341280511470290
178293
710380310329272492452281
177289
NFDEBITDA
BCDEFGHIJ
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
Source Cerved database and Cerved Rating Agency elaboration
106
31
Exhibit 36 Equity ratio by industry
Average 2000-2007 2014 2015Average 2008-2013 2016
Source Cerved database and Cerved Rating Agency elaboration
05
10
20
30
15
25
3540
5045
AB C DE FG HI J
Exhibit 37 EBITDA interest coverage by industry
Average 2000-2007 2014 2015Average 2008-2013 2016
Source Cerved database and Cerved Rating Agency elaboration
0
5
10
20
15
AB C DE FG HI J
A 1113140911151211
1408
1013131012131209
1208
1114151012131311
1309
1214151012151312
1309
1215161113161412
1409
BCDEFGHIJ
Liquidity ratio Median2000-07
Median2008-13 2014 2015 2016
A 0377677447858463
8960
0332
8145524536
4832
0342486042273848
3246
0537606853395765
4069
0743676559416378
5882
BCDEFGHIJ
ROE Median2000-07
Median2008-13 2014 2015 2016
Table 7 Liquidity ratio by industry Table 8 ROE by industry
Source Cerved database and Cerved Rating Agency elaboration
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
32
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Agriculture
Considering the recent price decline for agricultural
products putting EBITDA margin under pressure for
most of the industry participants we anticipate a slow
revenue growth in 2018 We also foresee more stable
margins in 2018 and investments to continue at a faster
pace in the near future mainly aimed at transforming the
agricultural activities into a high-tech industry Climate
and cultural changes are the main exogenous risks that
may negatively influence the sector
Mining and quarrying
Over the last few years the mining industry has been
challenged by record low metal prices and this has
resulted in a weak growth of supply and a cut in
investments especially in the new mines opening We
foresee a modest revenue growth in 2018 supported
by more stable prices rather than by government
infrastructural investments Margin pressure will remain
mostly unchanged in 2018 We do not expect a significant
increase in capital expenditure for most companies
while only a minority of industry participants will invest
in new capacities searching for new growth opportunities
by introducing new higher margin outputs Overall we
anticipate relatively stable key financial indicators
Manufacturing
We believe that in 2018 Italian manufacturing
representing 2nd European and 7th world player in 2016
will remain the beating heart of the national economy
In our view the expansion of internal demand the
improvement of business and customer confidence and
the wider export opportunities are the key drivers for
revenue growth (up to nearly 30) Despite the natural
selection the occurred during the economic recession
domestic competition and especially the competition
from lower income countries will remain challenging in
2018 creating further profitability pressure especially in
some highly fragmented segments
As a conditio sine qua non for market survival many
companies will be involved in a ldquowinning the innovation
gamerdquo process translated into a considerable capex
expenditure directed at process optimization which
inevitably must be accompanied by innovative marketing
and commercial strategies The companies especially
smaller ones which are not ready lsquoto play the gamersquo
remaining risk averse are likely to fall behind
Key financial indicators referring to the industry in terms
of net financial debt to equity and net financial debt to
EBITDA are likely to remain overall stable in 2018
In our view the best performing manufacturing industries
in 2018 will be the following
Automotive
extensive vehicles replacement process in 2018
high competition pressure China maintaining a key role
high level of innovation in mobility and connectivity
new strategic partnerships and MampAconservative stand towards EBITDA margin improvement
Chemistry amp Pharmaceutics
solid macroeconomic fundamentals will support
the revenue growth driven mainly by large companies
on average a stable EBITDA margin of about 10
is expected global presence is a must to achieve higher
level of profitability
RampD remain key factors for further market expansion
moderate level of MampA operations in 2018 slowing
down when compared to those carried out in the
previous year
Machinery amp Equipment
revenue growth in 2018 up to nearly 25 reflecting
the fact that all manufactures remain focused on RampD
and NPI (new product introduction)
cost management strategies are going to persist
but generally speaking with no significant impact on
EBITDA margin in 2018
heavy equipment manufactures still under pressure in
2018 to provide engineering capability and capacity
33
Energy and gas
Italian companies operating in the energy industry are
facing a complex market environment with many open
questions about risks related to regulations a drop
in consumption high competition levels and EBITDA
erosion
Generally we expect a more stable landscape in 2018 in
terms of commodity prices and consumption However
risk regarding prices and volumes will remain strong
resulting in a higher volatility of revenues In our view
the current margin pressure is unlikely to ease over the
next two years The final overcoming of the sondashcalled
ldquoMaggior Tutela Regimerdquo may lead to almost zero margin
for the retail operators We expect industry participants
to continue to focus their attention on cost efficiency and
on protecting profitability by embracing new business
models and examining the role that digital technology
can play in improvement of EBITDA margins We believe
that the above described strategies will be a central
topic for the operators intending to attract capital We
also believe that energy producers could see a slight
debt increase in 2018 aimed at improving productivity
and synergies Finally in 2018 we envisage a significant
number of MampA operations in the sector led by synergy
effects such operations might produce
Water supply waste management and sewerage
In recent years the water supply waste management
and Italian sewerage industry has recorded a slower
growth compared to the pre-crisis period However
due to the last two yearsrsquo important investments in the
water infrastructure waste sorting and recycling Italy
ranks as one of the top European countries in terms
of growth rate of recycling and packaging recovery
We believe that the expected general increase in
industrial output will produce a slight growth in water
consumption and waste treatment The demand for
sustainable solutions will continue to persist requiring
new investment in technologies based on a customer-
centric and sustainable approach aimed at improving
efficiencies and facilitating reuse Expectations also
reflect our view in terms of wider government interest
and spending in this industry We expect profitability
to remain broadly in line with the results obtained in
2016
Construction
After a weak increase in revenues recorded by the
construction industry operators in 2016 and the
modest result anticipated in 2017 both reflecting
a deteriorating demand and decreased volumes of
bank loans (mainly those for small and medium-
sized companies) we expect 2018 to be the turning
point for this industry We foresee that the volume of
residential and private non-residential constructions
will remain at relatively low levels in 2018 and that
the positive trend in housing renovation and public
works investments will continue taking advantage of
the allocated funds established by the Budget Law for
2017 Small and medium-sized businesses focused on
residential construction may face a slight profitability
erosion while we believe some growth in EBITDA
margin may be recorded by large Italian companies
operating internationally Due to the high perceived
risk historically there has been a strong financial
market mistrust of the construction companies which
we believe is likely to ease over the coming years
Wholesale and retail trade
During the crisis period wholesale and retail trade
industry faced a sudden interruption of the gradual
growth that had taken place up to that moment mainly
due to a loss in real purchase power and in consumer
confidence also translated into profitability erosion
In 2016 the data showed how the industry is moving
toward a recovery period Looking forward in 2018 we
expect to record a steady revenue growth supported
by an increase in global trade and improved consumer
confidence Despite the foreseen growth operators
will continue to face consistent pressure mainly in the
retail segment due to the high proliferation of new retail
purchase channels and market fragmentation
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
34
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Transportation and Storage
After a troubled 2016 characterized by an overcapacity
and a decrease in commodity demand hitting shipping
revenues in particular we foresee a moderate overall
recovery in 2018 driven mainly by an increase in
international shipments and air traffic The growing
number of innovative startups will continue to persist
increasing the competitive pressure in the industry We
anticipate a constant growth of e-commerce enabling a
quick reaction of on-line retailer and logistics providers
We believe that operators will continue to invest in
new high-tech solutions experimenting new models of
mobility and smart logistics
Despite very strong competition we expect the median
operating margins to remain steady However global
political uncertainties and related risks are strong with
possible quick and sharp negative impact on business
volumes and margins of the companies operating in
these industries
Accommodation and food services activities
In the last two years operators in the accommodation
and food service activities industry mainly medium
and small sized enterprises have seen steady revenue
growth and satisfactory profitability ratios Many
operators were focused on reviewing their business
models and offering additional services to their
customers a necessary strategy to maintain or expand
market positioning strengthen margins and improve
customer experience We expect the revenue growth
to continue in 2018 with a minimal median margin
improvement We believe accommodation and food
service activities will attract new capital investments
in 2018 to help the ongoing transformation process
and improve the accommodation infrastructure and
services
Information and communication technologies
The Italian information and communication technology
industry took longer to recover from the economic
crisis recording overall a negative median growth
rate until 2014 Software services and innovation
technology were the major contributors to revenue
growth (as a percentage) in 2016
Over the forecast period we foresee a modest revenue
growth for the ICT operators as a whole while the
technology industry will continue to achieve rapid
growth focusing on maintaining the competitive pace
of innovation In our view a key challenge for the ICT
operator may be the availability of matching skills
The outlook is relatively stable in terms of profitability
and key financial indicators
The following two pages show the details of the
previously discussed key performance indicators
35
Exhibit 38 Growth rate and EBITDA margin manifacturing sectors
-70- 50 -30 -10 103 0
2016E2017F2018
50 70 90
Median=76
Median=3000
20
40
60
80
100
120
1=Automotive 2=Chemistryamppharmaceutics 3=Clothing 4=Equipment 5=Food beverage and Tabacco 6=Heavy Manifacturing 8=Paper and Packaging 9=Tecnology and Telecomunication 10=Textile industry
6
10 5
3
8
91
74
2
50AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
57599586886358
3849
3620083721
-110320
-1112
210322
-1814021122
1413
030124
-5010284025
0555
20-4614
-4607212105
0430
210328-2310203218
0832
2310300512233720
1637
Growth rate Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
EBITDA margin Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
Source Cerved database and Cerved Rating Agency elaboration
625296
1441401016934
15352
504969
103121
916227
10639
4764676185562639
68112
487368
7090592845
75120
456772
9288562845
7898
4667759090573147
7698
4668769394583147
77102
1=Automotive 2=Chemistryamppharmaceutics 3=Clothing 4=Equipment 5=Food beverage and Tabacco 6=Heavy Manifacturing 8=Paper and Packaging 9=Tecnology and Telecomunication 10=Textile industry
2016E2017F2018
Median=30
700
600
500
400
300
200
100
000000 020 040 060 080 100 120
Median=08
Exhibit 39 NFDEquity and NFDEBITDA for manifacturing sectors
2
4 8
101
9
9
3
57
Source Cerved database and Cerved Rating Agency elaboration
096AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
104146095152117112109
098087
087080116068118083088086
084078
075074104069107082080079
084083
072064100065105084122081
079081
082066104065105080091079
077082
081067103065105079087079
077081
076067101064104077083078
076080
NFDEQUITY Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
227AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
258334222397249255259
315202
338313443305495363403412
480337
315306436328479373380397
482316
264269490303467366403383
515317
269243507090106127090106
106106
413343478088105127088105
105105
399333465086104127086104
104104
NFDEBITDA Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
36
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Exhibit 40 Growth rate and EBITDA margin for wholesale and retail trade sectors
20 40 60 80 100 120 140 160
2016E2017F2018
Median=31
Median=33
0000
20
10
30
60
50
70
1=Automotive 2=Retail 3=Wholesale
40
3
12
2016E2017F2018
Median=45
700
600
500
400
300
200
100
000050 070 090 110 130 150 170 190
Median=11
Exhibit 41 NFDEquity and NFDEBITDA for wholesale and retail trade sectors
1=Automotive 2=Retail 3=Wholesale
21
3
37
Ratings will remain broadly stable
The following section presents a risk profile analysis
based on Cerved Rating Agencyrsquos outstanding and
monitored public and private ratings issued from
2013 to 2017 on Italian non-financial companies
and operating in the industries discussed in this
study (data as of 31 December)
Exhibit 42 and Table 9 show an overview of 1-year
effective default rates over the 2000-2017 horizon
related to the sample bankruptcy and other legal
proceedings and debt restructurings as default
events
The default rate trend shows a general
improvement from 2014 onwards both by
company size classes and by industry however
considering the entire sample the overall default
rate still remains higher when compared to its pre-
crisis level especially regarding smaller companies
operating in the construction sector
Exhibit 43 shows the effective default rates over
2013-2017 horizon based on Cerved Rating
Agencyrsquos definition which considers as default
events
middot bankruptcy and other legal proceedings
middot debt restructuring
middot missed or delayed disbursement of a contractually
required interest or principal payment ie missed
payment on bonds material protests (on cheques
or trade bills) or prejudicial acts (judicial mortgages
distraint of property)
The effective default rates over the 2013-2017
horizon show decreasing trend and satisfy the
monotonicity constraint regarding all Cerved
Rating Agencyrsquos rating classes (Exhibit 44)
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2003 2004 2005 2006 2007 2014 2015 2016 20172000 2001
5678
12
3
4
0
Exhibit 42 Avarage 1-year default rate by size over 2000-2017 horizon
medium small
2008 2009 2010 2011 2012 2013
Mining and quarring
Manifacturing
Electricity gas steam and air conditioning supplyWater supply sewerage
Construction
Wholesale and retail trade repair of motorTransporting and storage
Accomodation and food service activities
Information and communication
24221809
5212
282915
2529
38533424
13027
454830
4838
36542537
15929
424421
4323
23461921
13226
293226
3022
Source Cerved database and Cerved Rating Agency elaboration
Table 9 Default rate by industry over 2000-2017 horizon
Total
NACE Average2008-2015
Average2000-2017 2016 2017
2016
Source Cerved database and Cerved Rating Agency elaboration
C21C12C11B22B21B12B11A11 A12 A13 A21 A22 A31
60
50
40
30
20
10
0
Exhibit 43 1-year default rate over 2013-2017 horizon
20172013 2014 2015
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
38
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The analysis of historical rating distributions in the
same period shows clear differences in terms of modal
rating class by company size As shown in Exhibit 43
the modal rating class for the large companies is A31
B11 for the medium and B12 for small companies
(considering company size classes as they have been
defined ad hoc by Cerved Rating Agency for the
purposes of this study)
Overall the corporate rating distribution in the
Source Cerved database and Cerved Rating Agency elaboration
C21C12C11B22B21B12B11A11 A12 A13 A21 A22 A31
30
25
20
15
5
10
0
Exhibit 44 Rating distribution frequency by size classes
large
30
25
20
15
5
0
10
medium smallRating 2013 total Rating 2017 total Rating 2017 forecast
observed period is skewed towards the investment-
grade rating categories (ie Cerved Rating Agency
rating classes from A11 to B12) representing 700 of
the whole sample 250 is concentrated in the safety
(A rating classes) and 450 in the solvency (B11-B12)
classes
We anticipate the rating distribution to remain
broadly unchanged in 2018 with the rating migration
concentrated mainly in the B category
39
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100543
2414
4407
4407
2636
4554 4558
2403 2311
535 527
90
10
0
Exhibit 45 Rating distribution frequency by area of risk - Total companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency]I nvestment GradeA11-A31 [Safety]
2509 2604
704 4407706 4407716
324
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
985
5658
4407
3033 2992 2898
925 907
300 318
90
10
0
Exhibit 46 Rating distribution frequency by area of risk - Large companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
5783 5878
869 4407878 4407878
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
4407
4407
3626
4080
17591695
439 449
90
10
0
Exhibit 47 Rating distribution frequency by area of risk - Medium companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
3571 3776
7044407780 4407786
456
1805
774
4113 4232
603
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
2824
1900
4407
4673 4850 4761
2833 2754
600 633
90
10
0
Exhibit 48 Rating distribution frequency by area of risk - Small companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
1716 1852
657 4407657 4407661
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
40
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Slight improvement in general creditworthiness
In our opinion in 2018 the creditworthiness of the
observed Italian non-financial companies will remain
stable for almost 86 of entities Migration of ratings is
expected to be moderate resulting in approximately 14
of rating upgrades (9) and downgrades (5) at the end
of 2018 compared to the outstanding ratings at the end
of 2017 The vast majority of the rating changes (921)
will be limited to one-class migration as shown in the
1-year projected transition matrix (Table 10) We believe
that more than one third of the expected downgrades
will be concentrated in the energy gas mining and
construction sectors Over the last years the average
credit profile of companies active in these industries has
been relatively weak and due to the forecast market and
regulatory conditions we do not envisage opportunities
for a significant risk profile improvement in 2018
Despite the expected rating migrations for individual
entities in 2018 the current industry modal rating
classes are unlikely to change
On the other hand stable and positive outlooks will
prevail in the manufacturing industry wholesale and
retail trade and accommodation and food service This
is due to the increase in the number of companies
active in these sectors which will maintain andor
improve their business and financial performances
Indeed as shown in Table 11 in 2018 the rating outlook
remains differentiated by industry whilst in terms of
the expected general probability of default we foresee
a modest improvement (349) compared to the one
recorded in 2017 (366)
Table 10 1-year transition matrix
Source Cerved database and Cerved Rating Agency elaboration
2017
A11
A31
B11
C11
C12
B21
C21
B22
B12
A12
A13
A21A22
F 2018A11 A12 A13 A31 B11 C11 C12B21 C21B22B12A21 A22
000 530
066
054 451034 435
027 753055 901
1033121247 1624
260 1038088
000
000000037
028
295
290
1063
179
455050647
043425
026490020208
000208
000152
000000
00000010000
9821
9318
92679015
87708583
81497646
8665
9617
9710
8605
419024
41
The information and data supporting Cerved Rating Agency rating opinions related research and credit opinions originate from sources Cerved Rating Agency considers to be accurate however Cerved Rating Agency cannot independently verify the reliability and accuracy of the information and data in every instance This publication may not be reproduced retransmitted or distributed in any form without the prior written consent of Cerved Rating Agency Cerved Rating Agency assumes no liability for correctness completeness and topicality of the information contained in this publication The analyses underlying this study do not provide advice of any sort
26
n
6670
486
59
Exhibit 49 Ratings outlooks by size
Large
Medium Positive Stable Negative
Small
21
13
Large
Medium
Small
Source Cerved database and Cerved Rating Agency elaboratio
Table 11 Ratings and probability of default 2018 outlook by industry
Source Cerved database and Cerved Rating Agency elaboration
NACE Micro industryDowngrade
B-Mining and quarryingAutomotive
900814
848
812
880812
847
813 172
170
174
144
8264 36
08
104 433 436
392 373
22724815
362 360
876
876
914
848
849
804
887
882
916
901835870899 64
866760
43
68
5659
58
47
61
49
74
78 75
14
50
37
36
5393
32
50
41
45
3899
77
91
316
372
355
364
308
491
326
318 296
331
312
381
367
359
322
495
452
433
403429
389
364369
363
313
452
323
594
38
315358
603
307
345 350
67 5318
469289 274
470
147
116
138
851
821AutomotiveRetail
Wholesale
Total
Chemistryamppharmaceutics
ClothingEquipment
Food Beverage and Tabacco
Heavy Manifacturing
Other Manifacturing
Textile industry
Total
Tecnology Media ampTelecomunication
Paper Packaging ampForest products
C-Manifacturing
D-Electricity gas steam and air conditioningsupply
F-Construcion
H-Transportig and storageI-Accommodation and food service activitiesJ-Information and communication
G-Wholesale and reatail traderepair of motor vehicles and motor-cycles
E-Water supply sewerage waste
Average ForecastPD 2018
Expectedtrend
Average PD 2018
Ratings outlooks
Stabl pgrade
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Cerved Rating Agency SpAVia dellrsquoUnione Europea n 6A-6B20097- San Donato Milanese (MI)
Tel +39 02 77541 - Fax +39 02 76020458
ratingagencycervedcom
Rating Agency
Contact Information
Izuela StafaResearch Analyst
P +39 027754797E izuelastafacervedcomA Via della Unione Europea 6A 20097 San Donato Milanese - (MI)
Riccardo GottardiStatistical Analyst
P +39 027754404E riccardogottardicervedcomA Via della Unione Europea 6A 20097 San Donato Milanese - (MI)
Milovan MilovicCredit officer
P +39 027754345A Via dellrsquoUnione Europea n 6A-6B 20097- San Donato Milanese - (MI)
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Table of contents
Preface
Assumptions
Executive summary
World economy Outlook 2018
European economy Outlook 2018
Highlights on italian economy
Italian non-financial companies economic Outlook 2018
3
4
6
8
10
12
22
3
Preface
The projections in this study reflect Cerved Rating Agencyrsquos opinion on the economic and financial situation and the
general risk level of Italian non-financial companies in 2018
The study is the product of the analysis of the Global European and Italian macroeconomic historical data between
2000 and 2017 and the forecasts for 2018 combined with specific individual data between 2000 and 2017 related to
Italian non-financial companies with turnover exceeding euro5 million
CERVED RATING AGENCY SpA | Preface
4
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Assumptions
5
A number of assumptions have been adopted for the projections exposed in this study more specifically
the Italian economy is expected to grow at a slower pace in 2018 with GDP forecast at 15 compared to 16
recorded in 2017
the inflation rate is expected to decrease from 14 recorded in 2017 to 12 in 2018 remaining below the
European Central Bank target rate of 20
the average price of oil is expected to be close to $60 a barrel in 2018 whilst the prices of non-fuel commodities
are expected to remain mostly unchanged
actual exchange rates are expected to remain relatively stable at the levels of the last three months of 2017 ie
we do not expect the average EuroUS Dollar exchange rate to exceed 12 at this level exports will gain pace
driven also by a general improvement in the economic cycle and therefore resulting in a higher demand
the European Central Bank is expected to leave the key interest rates at the present low levels and to continue
to apply non-standard monetary policy measures ie net asset purchases at a monthly pace of euro30 billion until
the end of September 2018 despite the reduction in size of the net asset purchases Italian credit institutions
are likely to expand their credit activities partially also due to a significant reduction in the amount of non-
performing loans thus supporting the momentum
the investments are expected to gain strength due to fiscal incentives higher domestic demand and supportive
credit conditions
in the next twelve months we do not envisage room for a significant change in Italian economic and financial
policies in particular regarding the fiscal system and public debt reduction due to the result of the general
political elections scheduled in Italy for 2018 moreover we believe that the results of the referendum for
autonomy held in Lombardy and Veneto will not have any significant impact on the general economic trend in
2018
finally the study does not consider the impact of extraordinary events such as an undesirable further escalation
of USA-North Korea andor USA-Iran disputes or the European disintegration processes on the economic and
financial trends underlying the analysis
Assumptions
CERVED RATING AGENCY SpA | Assumptions
6
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Executive summary
7
This research aims to present two outputs
- projected economic and financial performances in 2018 of the Italian non-financial companies
- the expected risk level of such entities at the end of 2018
the sample extracted for the analysis consists of Italian joint stock and limited liability companies with turnover
exceeding euro5 million and includes on average roughly 50000 entities per year operating in 10 macro industries
(manufacturing further detailed in 10 micro-sectors) the related revenues in 2016 amounted to euro18 billion
representing 769 of total revenues of all Italian joint-stock and limited liability companies
the World European and Italian historical (2000-2016) and estimatedprojected (2017-2018) macroeconomic
data are combined with specific individual company data with the aim of obtaining accurate and reliable
forecasts
the Cerved database was the main source for the analysis of economic and financial performances of the
companies included in the sample Cerved Rating Agency database highlighted the risk level of such entities
based on the credit rating activities performed by the Agency
the research output affirms that gradual recovery of Italian non-financial companies is expected to continue in
2018 both in terms of revenue growth and improvement of the financial structure primarily for manufacturing
and accommodation and food services industry the trend is mainly fostered by positive global economic cycle
low interest rates and favorable regulatory framework supporting firm funding investments innovation and
employment
the general risk level in 2018 is assumed to remain approximately at the levels recorded at the end of 2017
a slight improvement in terms of rating upgrades is expected for 9 of the companies analyzed mainly
concentrated in the manufacturing wholesale and retail trade and the accommodation and food service
industry
Executive summary
CERVED RATING AGENCY SpA | Executive Summary
8
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
World economy Outlook 2018
9
Growth is predicted to gain strength
The predicted global economic growth rate is 39
in 2018 (against 36 in 2017) According to the
International Monetary Fund forecast in 2018 the
two biggest world economies US and China will
grow at 23 and 65 rate respectively
Consumer price inflation rate to rise
The global consumer price inflation rate is expected
to rise assisted by higher commodity prices Oil price
averaged $54barrel in 2017 and is predicted to remain
close to $60barrel in 2018 whilst oil consumption is
forecast to record an uptick of 14 in 2018 In addition
also metal prices are expected to increase modestly in
2018
Trade to increase
Global world trade is predicted to increase further
in 2018 fostered by a recovery in manufacturing
activity and an increase in investment especially
in advanced economies In addition a recovery for
the commodity exporters is expected
Global risks remain tilted to the downside
These include increased trade protectionism as well
as economic policy uncertainty possible adversity
in the financial system due to easy monetary
conditions and over the longer term weaker
potential growth In addition the upcoming political
events and the current political uncertainties may
negatively affect the general economic conditions
Commodity Fuel Price Index
Metals Price Index
Source IMF ECB OECD
20022000 20062004 2008 20122010 F201820162014
50
0
150
100
200
250
1
0
3
2
5
4
7
6
Exhibit 2
Volume of imports of goods and services (Y-o-Y change)
Volume of exports of goods and services (Y-o-Y change)
Current account balance ($ billion) Source IMF
20112010 20132012 2014 20162015 F20182017
2
0
8
4
10
12
14
100
0
300
200
400
500
Exhibit 3 Global trade and current account balance world
EPU Index World
VIX Source FRED
20112010 20132012 2014 20162015 F20182017
50
0
100
150
200
250
5
0
15
10
20
25
30
Exhibit 4
Euro Area
EMDEs
United StatesWorld
Other advanced economies
China
OthersSource IMF and Cerved Rating Agency elaboration
20112010 20132012 2014 20162015 F20182017
20
0
60
40
80
100
1
0
3
2
5
4
6
Exhibit 1 Contribution to global growth world
CERVED RATING AGENCY SpA | World economy Outlook 2018
10
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
European economy Outlook 2018
11
Euro area gdp grows unemployment falls
GDP growth in the euro area rose around 21 in
2017 and is predicted to continue at a broadly similar
pace in 2018 Furthermore the unemployment
rate will continue to follow a declining trend and is
forecast to fall to 87 in 2018 (from 92 in 2017)
Industrial production improvement
Investments will accelerate and the international
environment will contribute positively to an increase
of exports (in line with the global growth) which will be
one of the principal driver of an industrial production
improvement in 2018
Further credit activity expansion
Across the euro zone countries companies are
benefiting both from eased lending conditions
and increase in the number of alternative lenders
The total amount of loans to households and non-
financial corporations grew by approximately 14
in 2017 whilst in 2018 it is predicted to increase more
slowly especially in the non-financial corporate
sector
Inflation rate to be stable
Consumer price inflation accelerated at the
beginning of 2017 mainly due to a rise in energy
prices The harmonized index of consumer prices
(HICP) is estimated at 15 in 2017 In 2018
the impact of energy inflation is expected to
decline resulting in a lower inflation rate outlook
(approximately 14)
Germany
France
ItalyEuro Union
Spain
UK
OthersSource IMF ECB OECD
20112010 20132012 2014 20162015 F20182017
20
0
60
40
80
100
0
-1
2
1
3
4
Exhibit 5 Contribution to European growth European Union
EPU Index euro areaIndustrial production euro area (Y-O-Y change)
Source IMF ECB OECD
2011 2015 2017
-2
-2
-3
-1
-1
1
1
0
2
2
3
100
0
300
200
250
400
450
500
Exhibit 7 Industrial production and policy uncertainty index euro area
2010
350
150
50
20182013 2014 20162012
Euro Area
Source ECB
20112010 20132012 2014 20162015 2017
500
0
1500
2500
2000
3000
1000
10000
9900
9800
9700
9600
9500
9400
9300
9200
Germany Spain France Italy
20112010 20132012 2014 20162015 20182017
BCI euro area
CCI euro area
Source IMF ECB OECD
96
95
98
97
99
101
102
100
103
0
-1
2
1
4
3
5
Exhibit 6
CERVED RATING AGENCY SpA | European economy Outlook 2018
12
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Highlights on italian economy
13
Gdp growth is under way to consolidate in 2018
From 2000 to 2017 the Italian economy was more
vulnerable compared to other highly developed
countries in particular those of the euro area
The Italian real GDP at the end of 2017 was roughly
at the same level recorded in 2000 whilst the euro
area countries and specifically Germany and France
experienced a considerable growth in the same period
(188 205 and 198 respectively)
The Italian GDP has started to increase moderately only
since 2014 mainly due to an improvement in domestic
demand but its growth still remains below the growth
rates of the majority of euro zone countries The poor
performance of the labor and total productivity factor
accounts for most of the difference
An ageing population and a weak labor market
participation have also contributed negatively to
potential growth Structural reforms in particular the
Jobs Act and tax incentives on new labor contracts
contributed to the increase in employment making the
Italian labor market more flexible and efficient
In 2018 we expect the economic growth to be slightly
below the level reached in 2017 The trend will be
sustained by the world economy positive cycle
including higher levels of international trade volume
Italian companies will benefit from favorable credit
lending conditions due to an expanding credit activity
of the banking system and low interest rates
Whilst the Italian government adopted a set of dynamic
and diverse policies for 2018 we believe that some of
those previously introduced have already contributed
to the GDP growth in 2016 and 2017 thus reducing the
combined effect in 2018
Source World Bank
2000 2002 2004 2006 2008 2010 2012 2014 2016
1500
1000
500
0
2500
3500
3000
4000
2000
13000
9500
10000
11000
12000
12500
10500
11500
Exhibit 10 GDP in Europe ($ billion)
Germany Italy Euro areas (11countries)France
Total multifactor productivityEmployment growth
Source OECD
-2
-4
-6
-8
2
0
4
6
Exhibit 9 Italian GDP employment and total multifactor productivity (Y-o-Y change)
2000 2002 2014 20162004 2006
GDP growth
20122008 2010
CERVED RATING AGENCY SpA | Highlights on italian economy
14
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The number of active companies has increased buthellip
The number of active companies in Italy registered at
the Chamber of Commerce as of December 31st 2016
amounted to 5145995 305629 more than in 2000
(63)
The increase in registered active companies is the result
of the positive trend from 2000 to 2008 (98) partially
cancelled by the decrease from 2009 to 2016 In 2017 a
slight improvement is expected to be recorded however
the number of active companies remains below its peak
value (5316104 entities) reached at the end of 2008
Exhibit 11 shows both the trend of active Italian companies
in the period 2000-2016 and their breakdown by legal
form We observe that the increased number of Joint Stock
Companies and particularly Limited Liability companies
(1206) was able to compensate the decrease in Unlimited
Partnerships (-62) and Sole Proprietorships (-79)
Companies are abandoning traditional sectors
Exhibit 12 shows the breakdown of the Italian active
companies at the end of 2000 and 2016 by industry
It can be observed that in many traditional sectors
the number of active companies decreased eg in
agriculture (-294) and manufacturing (-226) whilst
the number of companies increased in construction
(273) and wholesale and retail trade (39)
A very significant rise in the new registered companies
(456) occurred in other industries in particular
in the service industry offering information and
communication IT and professional scientific and
technical services
Joint Stock and Limited Liability Unlimited Partnership Sole proprietorshipO ther forms
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 2012 2013 2014 2015 20160
6000000
5000000
4000000
3000000
2000000
1000000
Exhibit 11 Italian active companies 2000-2016
Total
Source Movimprese and Cerved Rating Agency elaboration
Exhibit 12
Breakdown of the Italian active companies by industry 2000-2016
2000
635286 13
1059005 22
639778 13
589707 12
183 856 4 226964 5 150772 3
1354998 28
965452 19
747738 14
495247 10
750863 15
150888 3
379899 7 247187 5
1408721 27
2016
C Manufacturing
F Construction
H Transporting and storage
I Accommodation and food service activities
L Real estate ativities
G Wholesale and retail traderepair of motor vehicles and motorcycles
X Other
15
Number of bankruptcy and other legal proceedings to decrease further
From 2000 to 2016 the number of bankruptcies and
other legal proceedings protests and prejudicial
acts in Italy mirrored the general trend of the
Italian economy
After reaching its minimum level in 2007 (5969)
the number of bankruptcy procedures in the
period 2009-2014 increased dramatically reaching
its peak value of 15608 in 2014
With the improvement in the economic and financial
environment starting from 2015 the number of
bankruptcy procedures decreased sharply in all
macro sectors returning approximately to the
levels recorded from 2000 to 2006 A positive
trend was recorded also in 2017 bankruptcy
procedure initiated for 11937 companies -113
when compared to the same period in 2016 In
absolute terms the highest number of bankruptcy
procedures was recorded in the service sectors
followed by the construction and manufacturing
Worth mentioning is the design of a new Italian
bankruptcy law that should be approved by
October 2018 The regulatory framework aims at
more efficient resolutions of cases of company
crisis supporting continuity of its operating
activities and safeguarding the interest of creditors
by introducing innovative solutions such as pre-
crisis warning mechanisms
Other legal proceedings after reaching its
maximum level in 2013 (3593) in 2016 came down
to 1993 and the trend continues in 2017 evidencing
1866 procedures -64 when compared to the
same period in 2016
In the last five years new protests and prejudicial
acts have also shown a decreasing trend with
ndash527 and ndash70 of acts respectively in 2017
compared to the numbers recorded in 2013
-6
Exhibit 13 Bankruptcy
BankruptcySource Cerved databaase
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
10729 108311163612287
10338
59697307
9189
1108812022
12437
14031
1560814682
13459
11937
Other legal procedingsSource Cerved database
1500
1000
500
02000
940 994 1125 1211
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
2500
3500
3000
4000
2000
1110
16691540
18702094 2057
2342 2475
3593
3132
2720
1993 1866
Exhibit 14 Other legal procedings
1211
100 45000
4000090
80
70
60
50
40
30
20
10
02015
35000
30000
25000
20000
15000
10000
5000
02013 2014
Protets
703
297
41438
Total
Source Cerved database
Prejudicial acts
2016 2017
665
335
34527
570
43032660
527
473
546
454
2523828929
Exhibit 15 Protests and prejudical acts
CERVED RATING AGENCY SpA | Highlights on italian economy
16
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Core inflation rate to rise
Italian headline inflation will experience a modest
decline in 2018 compared to the previous year
(12 and 14 respectively) Core inflation
however is predicted to increase to 12 in 2018
(up from 10 in 2017)
Exports and import are accelerating
Exports and imports will both accelerate in 2018 (41
and 44 respectively) mirroring the positive trend
and expectations in global trade and the rising of the
external demand Machinery and equipment industry
will still remain in ldquopole positionrdquo due to companies
generous investment and tax incentives In general
in 2018 Italian exports will increase more in the Extra
European Union countries
Investment continues to gain strength
Investment has gained strength and will continue to
do so at a relatively fast pace supported by effects of
the tax incentives (Stability Low 2017) low interest rate
and improvements in business confidence Indeed
investments are expected to increase 30 in 2018
(up from 24 in 2017) Construction investments are
forecast to accelerate slightly also thanks to more
resources earmarked for public investment
Harmonised core infation
Source OECD and IMF
2003 2006 20092000 2012 2015 F2018
2
1
-1
0
4
3
5
6
Exhibit 16
Imports of goods and services (Y-o-Y change)
Exports of goods and services (Y-o-Y changes)
Total dometic demand (Y-o-Y change)
Source OECD and IMF
20062000 2015 F2018-5
-15
-20
5
0
-10
10
15
Exhibit 17 Exports imports and demand Italy
20122003 2009
Wholesale and retail trade (Y-o-Y change)
Total investments ( of GDP)
Heavy industry (Y-o-Y change)
Other services (Y-o-Y change)
Source IMF and ISTAT
Construction (Y-o-Y change)
20062000
-20
-30
10
0
-10
20
30
20
25
15
10
0
5
F2018
Exhibit 18 Investments by industry Italy
2003 2009 2012 2015
17
No room for significant public debt reduction
At the end of 2016 the Italian government debt-to-GDP
ratio was significantly above its level at the beginning of
the century In particular as of December 31st 2016 the
ratio was 1326 (262 with respect to 100 recorded
at the end of 2000)
In the same period the ratio for the euro area increased
from 681 to 913 (341) in Germany from 589 to
683 (159) and in France from 586 to 960 (638)
At the end of 2017 the Italian government debt increased
further to more than euro2300 billion 1350 of GDP The
debt servicing in terms of interests accounts roughly
50 of Italian GDP
In our view the high level of government debt
represents a key factor limiting Italian economic growth
and contributes eo ipso to increasing country risk
with a possible negative impact on the stability of the
international financial system
A possible increase in interest rates would raise the
cost of debt service potentially triggering a crisis due to
larger governmental deficits a slowdown in economic
activity and growing debt refinancing difficulties due to
higher risk perceived by investors
Hence it seems that a significant reduction in
government debt should be the main goal of the Italian
economic and financial policy in our opinion however
the achievement of such a result is not realistic neither
in the short nor in the medium term due to the following
factors
middot economic growth in the coming years is expected
to be moderate not sufficient to be the main source of
the government debt reduction
middot macroeconomic policy is expected to prioritize
investments employment social security and welfare
rather than government debt reduction
middot even if the inflation rate hits the target value (20) the
impact on the government debt in the short term is not
expected to be considerable
middot finally in Italy election will take place in spring 2018
with a new government taking over the economic
program that has already been approved and become
fully executive
Euro area
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 2012 2013 2014 2015 20160
20
40
60
80
100
120
140
Exhibit 19 Public debt as GDP
France
Source AMECO and Cerved Rating Agency elaboration
CERVED RATING AGENCY SpA | Highlights on italian economy
18
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Table 1
Amount ( 407 312
-327
327754
216074 190881
163248 345604188167
869
1543
2213
1793
CAGR (base year 2000)
CAGR (base year 2008)
NPL ratio ()
Ndeg debtors
Averae debt debtor
Valueindicator 2000 2008 2016
Source Bank of Italy and Cerved rating Agency elaboration
Credit activity to be expanded interest rates to remain at very low levels
As of December 31st 2016 the volume of bank loans
granted to Italian non-financial corporations amounted to
euro8604 billion
The period 2000-2016 was characterized by two different
trends from 2000 to 2011 the annual outstanding loans
value increased by 841 (euro454 billion reaching in 2011 its
highest level ever of euro993 billion thanks to 57 CAGR far
above the Italian GDP growth) whilst in the period from
2012 to 2016 loans decreased by 134 (euro130 billion)
reflecting a negative -28 CAGR The loan reduction hit
sharply construction and manufacturing (accounting
for about 400 of all loans) which experienced -227
and -135 decrease in loan volumes whilst agriculture
forestry and fishing and wholesale and retail trade
(including repairs of motor vehicles and motorcycles)
had more limited loan contraction (-08 and -53
respectively)
In the observed period due to the negative impact of the
global financial crisis 200708 and to structural changes in
the world economic and financial environment a radical
decrease in interest rates was recorded In 2017 the
interest rates charged to Italian non-financial corporates
were on average less than half compared to those charged
in 2000 In the medium term low interest rates will remain
a positive factor fostering investments and consumption
Non-performing loans to be further reduced due to innovative measures
The credit crunch had a huge and dramatic impact on
the Italian economy hitting especially small businesses
which are not able to survive in a radically changed market
conditions The evidence of such outcome can be seen not
only through the decreased number of active companies
but also via the enormously increased volume of the
non-performing loans (NPLs) In particular these loans
amounted to euro324 billion at the end of 2016 of which euro154
billion were granted to the non-financial corporations as
shown in table 1
Following the principles outlined in the ECB guidelines
published in March in 2017 Italian Banks made significant
progress in reducing the amount of the NPLs ndash estimated
to be over euro50 billion debt reduction Any further actions
aimed to improve the banking balance sheets should not
increase the financial hardship of still operating companies
North - East SouthNorth - West Center Islands
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 2012 2013 2014 2015 20160
1200000
1000000
800000
600000
400000
200000
NPLs ratio
Source Bank of Italy and Cerved Rating Agency elaboration
20
1816
14
1210
8
6
42
0
446393
euro billion)
19
Modest role of italian equity capital markets
Despite the number of listed companies increasing
from 297 to 421 in the period 2000-2017 the role
of the stock markets remains modest in Italy
As of December 31st 2017 the market capitalization
was euro640 billion (375 of the estimated Italian GDP
in 2017) representing only 782 of the overall
market capitalization recorded in 2000 (equal
to euro818 billion 687 of GDP) mainly due to
an unfavorable economic cycle in the observed
period
This situation shows the structural weaknesses of
the Italian economic and financial system especially
when compared to other highly developed
European economies The low propensity to
raise equity capital through organized markets
is linked to an unfavorable macroeconomic and
fiscal framework as well as to the predominance
of SMEs mostly unfit for listing and presenting
cultural obstacles (ie company owners and managers are often reluctant to accept wider company control and
transparency)
Hence self-financing and bank borrowing remain the main sources of finance for Italian companies which are
generally speaking undercapitalized with a negative impact on their investment capabilities Very frequently the
lack of medium-long term financing means forces companies to focus their attention on running current activities
postponing or abandoning strategic projects fundamental for company growth
A wide range of innovative initiatives have been undertaken with the aim of fostering market based company
funding in particular
middot AIM (Alternative Investment Market) - a specialized market segment dedicated to SMEs growth (95 companies and
market capitalization around euro56 billion as of December 2017)
middot ELITE - a programme designed to help SMEs prepare and structure for the next stage of growth their through
access to long-term financing opportunities
middot PIR - Piani individuali di risparmio (Individual Savings Plan) - an innovative way to fund Italian SMEs by offering retail
investors resident in Italy tax incentives (full exemption of 260 income tax) if the savings stay invested for at least
five years A minimum of 700 of such credit assets must be invested in financial instruments issued by Italian or
foreign (EU and EEA) companies permanently established in Italy
FTSE (MIB)Enterprises
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 20132012 20152014 201720160
100
200
300
400
500
600
700
800
900
100029681 29525
14623
1765216121
12259
13512
16048
15988
19012
21428
21853
2185322232
16954
297 294 295 279 282278 311 336 332 332 328 323 326344 342 356 387 421
19483
22886
26056
31005
Exhibit 21 Italian listed enterprised and FTSE (MIB) index trend
Source Borsa Italiana
300000
250000
200000
150000
100000
5000
0
Capitalization of GDP
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 20132012 20152014 201720160
100
200
300
400
500
600
700
800
900
1000
Exhibit 22 Italian market capitalization of listed companies ( of GDP)
Source Borsa Italiana
80
70
60
50
40
30
20
10
0
8184
5923
354 365418 473
524475
239301 275
210233
287 295348
318375
4580 4875
5809
6766
77857336
37474571
4251
3324
44664678
56765249
6400
3655
474
68
CERVED RATING AGENCY SpA | Highlights on italian economy
20
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Italian debt capital market is growing but still remains behind needs
At the end of 2016 the outstanding amount of debt
securities issued by Italian financial and non-financial
corporations was euro8615 billion 510 of the countryrsquos
GDP The table below shows the breakdown by issuer
type of Italian German French British and United States
outstanding amounts of debt securities as of December
2016 issued by financial and non-financial corporations
with the respective debt-to-GDP ratio
Despite the outstanding debt at the end of 2016 being
almost double compared to 2000 it represents only 23
of its peak value reached in 2012 (euro1290 billion Exhibit
23) The main reason for such a significant debt reduction
is the huge bond reimbursement realized by banking
institutions from 2013 to 2016 and the related negative
net flow of debt securities (respectively -80 -153 -106
and -67 billion of euro as shown in Exhibit 24)
The decrease in debt securities funding of Italian banks
has been compensated by a wider use of deposits and
resources available under the Eurosystem refinancing
operations framework
The outstanding amount of debt securities issued by
non-financial corporations at the end of 2016 also
doubled its value with respect to the amount recorded
at the end of 2000 The main characteristic of this cluster
is the high concentration of issuancesdebt to a small
number of issuers
Due to both more favourable general economic
conditions and active ECB monetary policy bond yields
have decreased significantly providing room for a
convenient fund raising
Since the introduction of a new regulatory framework
(lsquoDecreto Svilupporsquo) in 2012 up to October 2017 Italian
market saw 300 small-size listed bond issues (ie so
called minibonds) amounting approximately to euro143
billion Issued mainly by SMEs they offer interesting
yields to institutional investors
) Source Business support SpA ndash Minibonditalyit
BanksTotal
Source Bank of Italy and Cerved Rating Agency elaboration
2006 20082000
-200000
200000
250000
-150000
-100000
150000
100000
-50000
50000
02012 2014 20162002 2004 2010
Banks debt securities outstanding
Banks Debt to GDP ratio
Source Bank of Italy and Cerved Rating Agency elaboration
0
10
20
30
40
50
60
70 1400000
1200000
1000000
800000
600000
400000
200000
0201620142012201020082006200420022000
Table 2 Outstanding securities debt (euro Million)Debt-to-GDP ratio()
Financial corporates
Total
Debtsecurities
outstanding
Italy German rance United Kingdom United States
739
123
862
440 340 470
21
680380
40
1279 1331 4 50
880
30
14271
14820
549180
10202767
590
19211436
15770
510
Debtsecurities
outstanding
Debtsecurities
outstanding
Debtsecurities
outstanding
Debtsecurities
outstanding
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Source Bank of Italy
0
0
21
CERVED RATING AGENCY SpA | Highlights on italian economy
22
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Italian non-financial companies economic Outlook 2018
23
Data and method
This research focuses on Italian non-financial companies
with an annual turnover exceeding euro5 million With the
aim of using only reliable data joint stock and limited
liability companies have been considered only these
entities according to Italian law file complete annual
financial statements in the Chamber of Commerce
together with anagraphical company data other
legal forms such as unlimited partnerships and sole
proprietorships are not included in this sample due to
the lack of publicly available standardized financial data
We believe that this cutoff is reasonable and allows us to
perform a methodologically correct analysis In 2016 the
above mentioned companies despite representing only
42 of all registered and active joint stock and limited
liability companies accounted for 769 of their total
turnover
Moreover cluster specialization has been obtained by
NACE activity classification from A to J (thus not including
in the sample financial and insurance companies and
some service industries) The statistics regarding specific
industries provide important key data and enable us to
examine historical and prospective trends and cross-
sector comparisons
The Cerved database which contains legal anagraphical
financial and market information on all Italian registered
legal entities (approximately 6 million comprising 5
million active ones) was the most important database
used for this research Long time series and broad
homogenized and standardized data covering different
economic cycles were the building blocks to perform
the regression and predictive analysis
Historical and forecast macroeconomic data and
analysis performed by the International Monetary Fund
OECD the World Bank European Central Bank Bank
of Italy and ISTAT completed the dataset used for the
analysis
Several analyses were performed in order to examine
the structural differences within the sample in terms of
company legal form and geographical area (Exhibit 25)
company age (Exhibit 26) and company size and industry
As a result we verified a considerable heterogeneity of
companies in particular with regard to the company size
across various industries
The relevant observation period comprises the years
between 2000 and 2016 Table 3 describes some
characteristics of the sample
Exhibit 25 Sample break-down by legal form and geographic area (2016)
Joint stock Company
Limited liability Company
Area 1 (Northwest)
Area 3 (Center)
Area 2 (Northeast)
Area 4 (South)
39
20
27
14
33
67
33
Table 3 Sample characteristics 2000-2016
TotalTurnover
gt euro5million
Turnover gt euro5 million(industry
from A to J)
TotalTurnover
gt euro5million
ofTotal
Turnover gt
euro5 million(industry
from A to J)
Source Cerved database
Entreprises Turnover billion
2000 659867700717738558772442812025847334883122915172937018949708965744969581
953505945825922513883224
4215144587462234694749640518205596459226595385246754808563745362752074519385289450123
3686139038411864118843547454704921752274526974633848778504734806246843468384771845288
16151740177018472002212923302477256822562421257025202446243224392295
12661362139214561588169818752000208317861944208720541992198419871905
11141205124013041430152316891801189716191764191218831839183518371765
689693700
716
706714
725
718729744748752754753769
727739
200120022003200420052006
200820092010201120122013201420152016
2007
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
24
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Furthermore in order to guarantee more detailed and
accurate analyses and projections we decided to create
a static pool to show consistently long time horizon
economic trends (17 years) by sealing off all the active
companies over the 2000-2016 horizon
The outcome obtained by considering the behaviour of
specific variables related to the companies included in
the static pool was extended as a performance indicator
for the whole sample (turnover over euro5 million and
industry from A to J)
According to the European Communityrsquos definition of
SMEs using annual turnover and employee headcount
as quantitative criteria the initial sample of companies
and the static pool can be classified by size classes on
the basis of the financial statements for the year 2016
as shown in Table 4
For the sake of this analysis we defined specific size
classes for each industry thus deviating from the
European Commissionrsquos recommendation which
presents undifferentiated upper and lower bounds of
quantitative criteria for SMEs in all industries To define
the thresholds of such classes we used both a statistical
approach (a specific cluster procedure by minimizing
the within-cluster turnover standard deviation) and a
judgmental approach by relying on the experience and
opinion of our industry expert analysts Table 5 shows
the results of such analysis referring to the sample in
2016 (45288 entities) and the NACE sections from A
to J Moreover the NACE section C and G were further
disaggregated into sub-industry classes as shown in
Exhibit 27 in order to consider the specific business
differences within these NACE sections thus ensuring
a good fit and a satisfactory accuracy of the estimation
Exhibit 26 Sample break-down by company age classes
0-2 Years 2-5 Years 5-10 Years 10-20 Years gt20 YearsSource Cerved database and Cerved Rating Agency elaboration
0 20 40 60 80 100
ABCDEFGHIJ
A = AgricolutreB=Mining and quarryingC=ManufacturingD=Electricity and gasE=Water supplyF=ConstructionG=Wholesale and retail tradeH=Transporting and storageI=Accomodation and food serviceJ=ICT
Small
Annul Turnover
Empolyees
Static Pool
Enterprises(Turnover gt euro5 million)
Enterprises(Turnover gt euro5 millionindustry from A t J)
Medium Large
lt 50 lt 250lt 36774 11113
1005333223
8741
2236
2012
154818645
gt euro50 million
gt 250
lt euro50 million
Source Cerved database
NACE Micro industry
B-Mining and quarryingAutomotive
Automotive
Retail
Wholesale
T gt 480
T gt 80
T gt 260
T gt 265T gt 270
T gt 230
T gt 120
T gt 80
T gt 43
T gt 65
T gt 106T gt 106
T gt 360T gt 155T gt 150T gt 100
T gt 120
T gt 225T gt 1400T gt 27500
T gt 1500
ChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther Manifacturing
ICTTextile
Paper Packaging ampForest products
C-Manifacturing
F-Construcion
H-Transportig and storageI-Accommodation and food service activities
J-Information and communication
D-Electricity gas steam and aircoditioning supply
G-Wholesale and reatail traderepair of motor vehicles and motorcycles
E-Water supply sewerage waste management and emediation activities
Large (Turnover
in euro million)
Medium(Turnover
in euro million)
Small(Turnover
in euro million)
Source Cerved database and Cerved Rating Agency elaboration
60 lt T lt 480 5 lt T lt 60
5 lt T lt 20
5 lt T lt 36
5 lt T lt 35
5 lt T lt 44
5 lt T lt 40
5 lt T lt 20
5 lt T lt 26
5 lt T lt 250
5 lt T lt 185 lt T lt 305 lt T lt 265 lt T lt 205 lt T lt 37
5 lt T lt 335 lt T lt 40
5 lt T lt 255 lt T lt 585 lt T lt 1155 lt T lt 1005 lt T lt 27
20 lt T lt 80
36 lt T lt 26035 lt T lt 26544 lt T lt 270
40 lt T lt 230
20 lt T lt 120
26 lt T lt 80
18 lt T lt 43
250 lt T lt 1500
20 lt T lt 6537 lt T lt 29540 lt T lt 15533 lt T lt 15025 lt T lt 100
27 lt T lt 120
58 lt T lt 225
100 lt T lt 27500 115 lt T lt
30 lt T lt 10626 lt T lt 106
25
Exhibit 28 shows the breakdown of macro industries
analysed including disaggregation of the NACE section C
(manufacturing) and G (wholesale and retail trade repair
of motor vehicles and motorcycles)
In order to carry out the analysis and projections this study
is focused on we used simple multiple linear regression
model for each industry and company size classes
considering macroeconomic and individual companiesrsquo
economic and financial data
The analysis enables us to develop an econometric
model used to estimate likely credit quality changes (in
terms of rating class and probability of default) for single
industries and company size classes
Automotive
Retail
Wholesale
21
1366
1
42
1
26
35
232
6
A B C D
F G H I
46
7
21
1318
9
15
34
Automotive
Chemistry amp pharmaceutics
Clothing
Equipment
Food Beverage and Tabacco
Heavy Manifacturing
Other Manifacture
Paper Packaging amp Forest Products
ICT
Textile industry
Large SmallMedium
Source Cerved database and Cerved Rating Agency elaboration
0
Wholesale
Retail
Automotive
20 40 60 80 100
Automotive
Chemistry amp pharmaeutics
Clothing
Equipment
Food beverage and Tabacco
Heavy Manifacturing
Other Manifacturing
Paper Packaging amp Forest Products
ICT
Textile
0 20 40 60 80 100
ABCDEFGHIJ
0 10 30 40 60 70 80 90 100
Exhibit 28 Sample break-down by industry (2016)
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
26
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Performance indicators to improve further
The annual financial statements available through public
registers provide a clear economic and financial picture
of the Italian joint-stock and limited liability non-financial
companies The individual historical data available from
2000 to 2016 enriched with 2017 preliminary results and
with the expected 2018 macroeconomic scenario enabled
us to build up the 2017 and 2018 projections regarding
the following four performance indicators related to the
analyzed sample 1) growth rate - revenues YoY change
2) EBITDA margin 3) net financial debtEBITDA and 4) net
financial debtEquity Afterwards the median values of the
resulting data were used to obtain the summary output
which we consider as a representative proxy for the overall
market
From 2000 to 2016 the observed companies experienced
a very irregular trend both in terms of growth rate and
EBITDA margin In the aftermath of the global financial crisis
the lowest growth rate value (-120) was recorded in 2009
manufacturing transporting - storage and wholesale and
retail trade were the industries showing the biggest fall of
business volume (-155 -121 and -104 respectively)
whilst water supply accommodation and food service and
electricity and gas showed the highest level of resilience to
the adverse economic and financial environment (-01
-23 and ndash26 respectively) Exhibit 29 shows that in
terms of median value there are no significant differences
in the growth rate taking into consideration company size
classes as we previously defined them Only from 2010 the
growth rates turned positive but still remaining below the
levels recorded in 2000
The analysis of the EBITDA margin changes in the same
period also does not highlight significant differences
between large companies and SMEs as shown in Exhibit
30 The lowest median EBITDA margin value (52) was
recorded in 2012 regarding in particular accommodation
and food service transporting and storage and agriculture
sectors (28 40 52 respectively) while electricity
and gas ICT and water supply were relatively immune to
the unfavorable economic and financial circumstances
(showing 113 109 and 105 EBITDA margin
respectively) At the end of 2016 the median EBITDA margin
(60) still remains below the levels recorded in 2000 (72)
Positive trends emerging from the last publicly available
financial statements (2016) the 2017 preliminary results
and the optimistic macroeconomic forecasts for 2018
confirm improvement of the Italian economy Looking
ahead we expect the Italian non-financial companies to
continue to experience gradual recovery in 2018 They are
going to take advantage of the favorable global economic
cycle low interest rates and supportive regulations that
inter alia foster the use of alternative non-bank financial
sources for company funding The financial resources raised
through Individual Savings Plans (PIR ndash Piani individuali di
risparmio) introduced by the 2017 Budget Law are driven
in primis by a favorable tax regime for savers and might
become an important additional source for SMEs funding
injecting new liquidity The government objective fixed euro68
billion as a target value and in 2017 nearly euro10 billion had
already been raised
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2004 2006 2014 20162000
5
20
10
0
15
-15
-10
-5
Exhibit 29 Growth rate (revenue YoY change) by size classes (median)
medium small
2008 2010 2012
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2004 2006 2008 2010 2012 2014 20162000
7
10
9
8
6
5
4
3
7
10
9
8
6
5
4
EBITDA margin by size classes (median)
medium small
27
So far one of the main obstacles PIR are facing is the limited
number of available assets which may lead to a possible
concentration of this financial resources in a small share of
the market comprising mainly relatively large companies
as shown by the early data in 2017
Another obstacle to rapid adoption of the newly available
financial resources is the lack of a standardized and broadly
accepted methodology for the risk assessment of potential
bond issuers
Generally speaking in 2018 we expect SMEs to contribute
more significantly to growth employment and innovation
whilst on average the respective EBITDA margin will remain
broadly stable (as shown in Exhibit 31) However 2018 will
still be a challenging year for SMEs and innovative startup
companies as they will have to face tougher barriers in
accessing bank credit andor approaching capital markets
compared to large companies We also expect some new
innovative solutions aimed at meeting SMEs financial needs
to become effective the SMEs current financial structure
together with new business opportunities prove their
ability in terms of rational use of the additional financial
resources
The new investments will allow most industries to thrive
also assisted by the Italian Governmentrsquos adoption of the
National Industry 40 Plan
The companies which will take up this opportunity may
improve their cash-flows even in the short-medium term
Finally companies with strong international market
positioning and large product diversification will have
stronger sales and margins growth
The key ratio values recorded from 2000 to 2016 related to
the analyzed entities show the improved financial health of
the companies proving good capability to strengthen their
equity base as shown in Table 6
Growth rate (2016)Medium
Total
Small Large
Growth rate (2018)Growth rate (2017)
Source Cerved database and Cerved Rating Agency elaboration
50
40
Exhibit 31 Growth rate and EBITDA margin forecast by size classes
EBITDA margin (2016)EBITDA margin (2018)
EBITDA margin (2017)
40
30
0
10
20
Medium
Total
Small Large
7570
65
0
6 5560
5550
4540
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
28
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The recorded financial ratios in the 2000-2016 horizon
indicate that on average
middot liquidity maintained a satisfactory level in the whole
observed period due to the positive economic cycle in
2017 and 2018 we expect a slight improvement in the ratio
middot the EBITDAinterest coverage ratio almost doubled its
value in 2016 compared to what was recorded in 2000
primarily due to a general reduction in the interest rates
particularly in the last three years we believe that in 2017
and 2018 the average ratio value will remain roughly at the
same level recorded in 2016
middot in 2016 ROE shows further improvement but is still
slightly lower compared to the value recorded at the
beginning of the observed period mainly due to the equity
base strengthening trend
middot Equity Ratio rose from 250 to 350 due to a significant
increase of equity capital in 2018 we expect further
strengthening of the ratio
middot Financial LiabilitiesTotal Assets ratio remained mostly
unchanged ndash financial debts representing roughly 30 of
the total assets
A positive trend regarding the net financial debt was also
observed in fact in 2016 70 of the sample improved their
NFDEBITDA and 73 the NFDEquity
Positive performances were found especially in the SMEs
segment as shown in Exhibit 32 in particular referring to
NFDEquity small and medium-sized companies recorded
a positive trend standing respectively at 092 and 089 in
2016 compared to 132 and 136 in 2000
Hence the financial risk profile appears to be well balanced
leaving no room for specific concerns regarding the
prospects of the Italian non-financial companies in 2018
In 2016 the median values for the total sample referring to
NFDEquity and NFDEBITDA remained respectively at 089
and 389 levels respectively
Looking ahead we expect these indicators to remain at
healthy levels in 2017 and 2018 with a slight improvement
in NFDEBITDA and a broadly stable level of the NFDEquity
ratio as shown in Exhibit 33
NFDEBITFA (2016) NFDEBITFA (2017)NFDEBITFA (2018)
40
Exhibit 33 NFDEquity and NFDEBITDA forecast by size classes
Source Cerved database and Cerved Rating Agency elaboration
404
20
25
45
35
30
NFDequity (2016) NFDequity (2017)NFDequity (2018)
05
06
09
10
08
07
Exhibit 32 NFDEquity and NFDEBITDA by size classes (median)
largemediumsmall
2016
2015
2014
000 5 10 15
Average2008-2013
Average2000-2007
total largemediumsmall total
Source Cerved database and Cerved Rating Agency elaboration
2016
2015
2014
203 0 405 0
Average2008-2013
Average2000-2007
29
Growth and profitability improvement spanned over all sectors
Exhibit 34 shows the relative positioning of the 10
macro-industries in the short-medium term considering
the median values related to revenue growth rate and
EBITDA margin
The historical median values are calculated on the basis
of financial data obtained from the annual financial
reports 2014-2016 filed in the Chamber of Commerce
public registers the projected median values for 2017
and 2018 are the result of the analysis of this study
As expected there are significant differences in
positioning between different industries in terms of
both historical and projected values
In 2018 we expect manufacturing and accommodation and
food services to maintain top positions already reached in
2016 and 2017
For the electricity gas mining and quarrying industry
2018 may be the turning point showing the first positive
signals after experiencing some difficulties over the last
few years
None of the other industries show significant changes in
2018 compared to their 2016 positioning
Source Cerved database and Cerved Rating Agency elaboration
A 50
57599586886358
3849
3620083721
-110320
-1112
210322
-1814021122
1413
030124
-5010284025
0555
20-4614
-4607212105
0430
210328-2310203218
0832
2310300512233720
1637
BCDEFGHIJ
A 625296
1441401016934
15352
504969
103121916227
10639
4764676185562639
68112
4873687090592845
75120
456772928856
45
7898
4667759090573147
7698
4668769394583147
77102
EBITDAmarigin
BCDEFGHIJ
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018Growthrate
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
Exhibit 34 Growth rate and EBITDA margin by industry
-70 -50 -30 -10 10 30
2016E2017F2018
50 70 90
Median=68
Median=2100
20
40
60
80
100
120
A=Agricolture B=Mining and quarrying C=Manifacturing D=Electricity and gas E=Water supply F=Construction G=Wholesale and retail trade H=Transporting and storage I=Accomodation and food service J=ICT
D
B
E
FHA G
C
I
J
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
30
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Further strenthening in companiesrsquo financial structure
Exhibit 35 shows the relative positioning of the 10 macro
industries in the short-medium term considering the
median values related to NFDEBITDA and NFDEquity
ratios
The historical median values are calculated on the basis
of financial data obtained from the annual financial
reports 2014-2016 filed in the Chamber of Commerce
public registers the projected median values for 2017
and 2018 are the result of the analysis of this study
There are even more significant differences in
positioning between industries regarding NFDEBITDA
and NFDEquity ratios when compared to growth rate
and EBITDA margin differences
Generally in the observed period there is no evidence of
significant changes among industries considering their
relative positioning related to NFDEBITDA and NFD
Equity ratios
In 2018 we expect accommodation and food services
and information and communication services to
maintain top positions already reached in 2016 and
presumably confirmed in 2017
Exhibit 35 NFDEquity and NFDEBITDA by industry
2016E2017F2018
Median=37
Median=08500
030 5 070 9 111 3
20
30
40
50
60
70
10
A=Agricolture B=Mining and quarrying C=Manifacturing D=Electricity and gas E=Water supply F=Construction G=Wholesale and retail trade H=Transporting and storage I=Accomodation and food service J=ICT
EH
C
BF
G
A
D
J
I
A 150101113081112149151120
079131
123075088101097125123103
072079
114067083052090108119102
067076
113060080045089096114092
074069
125076080045089106109086
050060
127072080044091
108084
051056
128067079043093106107081
051051
BCDEFGHIJ
NFDEquity
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
A 597219280305251301338250
153260
676394388342298453499349
254337
707482387293277498532337
277334
696392373254305484494308
231315
747401358330285544483294
183312
722390340341280511470290
178293
710380310329272492452281
177289
NFDEBITDA
BCDEFGHIJ
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
Source Cerved database and Cerved Rating Agency elaboration
106
31
Exhibit 36 Equity ratio by industry
Average 2000-2007 2014 2015Average 2008-2013 2016
Source Cerved database and Cerved Rating Agency elaboration
05
10
20
30
15
25
3540
5045
AB C DE FG HI J
Exhibit 37 EBITDA interest coverage by industry
Average 2000-2007 2014 2015Average 2008-2013 2016
Source Cerved database and Cerved Rating Agency elaboration
0
5
10
20
15
AB C DE FG HI J
A 1113140911151211
1408
1013131012131209
1208
1114151012131311
1309
1214151012151312
1309
1215161113161412
1409
BCDEFGHIJ
Liquidity ratio Median2000-07
Median2008-13 2014 2015 2016
A 0377677447858463
8960
0332
8145524536
4832
0342486042273848
3246
0537606853395765
4069
0743676559416378
5882
BCDEFGHIJ
ROE Median2000-07
Median2008-13 2014 2015 2016
Table 7 Liquidity ratio by industry Table 8 ROE by industry
Source Cerved database and Cerved Rating Agency elaboration
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
32
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Agriculture
Considering the recent price decline for agricultural
products putting EBITDA margin under pressure for
most of the industry participants we anticipate a slow
revenue growth in 2018 We also foresee more stable
margins in 2018 and investments to continue at a faster
pace in the near future mainly aimed at transforming the
agricultural activities into a high-tech industry Climate
and cultural changes are the main exogenous risks that
may negatively influence the sector
Mining and quarrying
Over the last few years the mining industry has been
challenged by record low metal prices and this has
resulted in a weak growth of supply and a cut in
investments especially in the new mines opening We
foresee a modest revenue growth in 2018 supported
by more stable prices rather than by government
infrastructural investments Margin pressure will remain
mostly unchanged in 2018 We do not expect a significant
increase in capital expenditure for most companies
while only a minority of industry participants will invest
in new capacities searching for new growth opportunities
by introducing new higher margin outputs Overall we
anticipate relatively stable key financial indicators
Manufacturing
We believe that in 2018 Italian manufacturing
representing 2nd European and 7th world player in 2016
will remain the beating heart of the national economy
In our view the expansion of internal demand the
improvement of business and customer confidence and
the wider export opportunities are the key drivers for
revenue growth (up to nearly 30) Despite the natural
selection the occurred during the economic recession
domestic competition and especially the competition
from lower income countries will remain challenging in
2018 creating further profitability pressure especially in
some highly fragmented segments
As a conditio sine qua non for market survival many
companies will be involved in a ldquowinning the innovation
gamerdquo process translated into a considerable capex
expenditure directed at process optimization which
inevitably must be accompanied by innovative marketing
and commercial strategies The companies especially
smaller ones which are not ready lsquoto play the gamersquo
remaining risk averse are likely to fall behind
Key financial indicators referring to the industry in terms
of net financial debt to equity and net financial debt to
EBITDA are likely to remain overall stable in 2018
In our view the best performing manufacturing industries
in 2018 will be the following
Automotive
extensive vehicles replacement process in 2018
high competition pressure China maintaining a key role
high level of innovation in mobility and connectivity
new strategic partnerships and MampAconservative stand towards EBITDA margin improvement
Chemistry amp Pharmaceutics
solid macroeconomic fundamentals will support
the revenue growth driven mainly by large companies
on average a stable EBITDA margin of about 10
is expected global presence is a must to achieve higher
level of profitability
RampD remain key factors for further market expansion
moderate level of MampA operations in 2018 slowing
down when compared to those carried out in the
previous year
Machinery amp Equipment
revenue growth in 2018 up to nearly 25 reflecting
the fact that all manufactures remain focused on RampD
and NPI (new product introduction)
cost management strategies are going to persist
but generally speaking with no significant impact on
EBITDA margin in 2018
heavy equipment manufactures still under pressure in
2018 to provide engineering capability and capacity
33
Energy and gas
Italian companies operating in the energy industry are
facing a complex market environment with many open
questions about risks related to regulations a drop
in consumption high competition levels and EBITDA
erosion
Generally we expect a more stable landscape in 2018 in
terms of commodity prices and consumption However
risk regarding prices and volumes will remain strong
resulting in a higher volatility of revenues In our view
the current margin pressure is unlikely to ease over the
next two years The final overcoming of the sondashcalled
ldquoMaggior Tutela Regimerdquo may lead to almost zero margin
for the retail operators We expect industry participants
to continue to focus their attention on cost efficiency and
on protecting profitability by embracing new business
models and examining the role that digital technology
can play in improvement of EBITDA margins We believe
that the above described strategies will be a central
topic for the operators intending to attract capital We
also believe that energy producers could see a slight
debt increase in 2018 aimed at improving productivity
and synergies Finally in 2018 we envisage a significant
number of MampA operations in the sector led by synergy
effects such operations might produce
Water supply waste management and sewerage
In recent years the water supply waste management
and Italian sewerage industry has recorded a slower
growth compared to the pre-crisis period However
due to the last two yearsrsquo important investments in the
water infrastructure waste sorting and recycling Italy
ranks as one of the top European countries in terms
of growth rate of recycling and packaging recovery
We believe that the expected general increase in
industrial output will produce a slight growth in water
consumption and waste treatment The demand for
sustainable solutions will continue to persist requiring
new investment in technologies based on a customer-
centric and sustainable approach aimed at improving
efficiencies and facilitating reuse Expectations also
reflect our view in terms of wider government interest
and spending in this industry We expect profitability
to remain broadly in line with the results obtained in
2016
Construction
After a weak increase in revenues recorded by the
construction industry operators in 2016 and the
modest result anticipated in 2017 both reflecting
a deteriorating demand and decreased volumes of
bank loans (mainly those for small and medium-
sized companies) we expect 2018 to be the turning
point for this industry We foresee that the volume of
residential and private non-residential constructions
will remain at relatively low levels in 2018 and that
the positive trend in housing renovation and public
works investments will continue taking advantage of
the allocated funds established by the Budget Law for
2017 Small and medium-sized businesses focused on
residential construction may face a slight profitability
erosion while we believe some growth in EBITDA
margin may be recorded by large Italian companies
operating internationally Due to the high perceived
risk historically there has been a strong financial
market mistrust of the construction companies which
we believe is likely to ease over the coming years
Wholesale and retail trade
During the crisis period wholesale and retail trade
industry faced a sudden interruption of the gradual
growth that had taken place up to that moment mainly
due to a loss in real purchase power and in consumer
confidence also translated into profitability erosion
In 2016 the data showed how the industry is moving
toward a recovery period Looking forward in 2018 we
expect to record a steady revenue growth supported
by an increase in global trade and improved consumer
confidence Despite the foreseen growth operators
will continue to face consistent pressure mainly in the
retail segment due to the high proliferation of new retail
purchase channels and market fragmentation
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
34
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Transportation and Storage
After a troubled 2016 characterized by an overcapacity
and a decrease in commodity demand hitting shipping
revenues in particular we foresee a moderate overall
recovery in 2018 driven mainly by an increase in
international shipments and air traffic The growing
number of innovative startups will continue to persist
increasing the competitive pressure in the industry We
anticipate a constant growth of e-commerce enabling a
quick reaction of on-line retailer and logistics providers
We believe that operators will continue to invest in
new high-tech solutions experimenting new models of
mobility and smart logistics
Despite very strong competition we expect the median
operating margins to remain steady However global
political uncertainties and related risks are strong with
possible quick and sharp negative impact on business
volumes and margins of the companies operating in
these industries
Accommodation and food services activities
In the last two years operators in the accommodation
and food service activities industry mainly medium
and small sized enterprises have seen steady revenue
growth and satisfactory profitability ratios Many
operators were focused on reviewing their business
models and offering additional services to their
customers a necessary strategy to maintain or expand
market positioning strengthen margins and improve
customer experience We expect the revenue growth
to continue in 2018 with a minimal median margin
improvement We believe accommodation and food
service activities will attract new capital investments
in 2018 to help the ongoing transformation process
and improve the accommodation infrastructure and
services
Information and communication technologies
The Italian information and communication technology
industry took longer to recover from the economic
crisis recording overall a negative median growth
rate until 2014 Software services and innovation
technology were the major contributors to revenue
growth (as a percentage) in 2016
Over the forecast period we foresee a modest revenue
growth for the ICT operators as a whole while the
technology industry will continue to achieve rapid
growth focusing on maintaining the competitive pace
of innovation In our view a key challenge for the ICT
operator may be the availability of matching skills
The outlook is relatively stable in terms of profitability
and key financial indicators
The following two pages show the details of the
previously discussed key performance indicators
35
Exhibit 38 Growth rate and EBITDA margin manifacturing sectors
-70- 50 -30 -10 103 0
2016E2017F2018
50 70 90
Median=76
Median=3000
20
40
60
80
100
120
1=Automotive 2=Chemistryamppharmaceutics 3=Clothing 4=Equipment 5=Food beverage and Tabacco 6=Heavy Manifacturing 8=Paper and Packaging 9=Tecnology and Telecomunication 10=Textile industry
6
10 5
3
8
91
74
2
50AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
57599586886358
3849
3620083721
-110320
-1112
210322
-1814021122
1413
030124
-5010284025
0555
20-4614
-4607212105
0430
210328-2310203218
0832
2310300512233720
1637
Growth rate Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
EBITDA margin Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
Source Cerved database and Cerved Rating Agency elaboration
625296
1441401016934
15352
504969
103121
916227
10639
4764676185562639
68112
487368
7090592845
75120
456772
9288562845
7898
4667759090573147
7698
4668769394583147
77102
1=Automotive 2=Chemistryamppharmaceutics 3=Clothing 4=Equipment 5=Food beverage and Tabacco 6=Heavy Manifacturing 8=Paper and Packaging 9=Tecnology and Telecomunication 10=Textile industry
2016E2017F2018
Median=30
700
600
500
400
300
200
100
000000 020 040 060 080 100 120
Median=08
Exhibit 39 NFDEquity and NFDEBITDA for manifacturing sectors
2
4 8
101
9
9
3
57
Source Cerved database and Cerved Rating Agency elaboration
096AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
104146095152117112109
098087
087080116068118083088086
084078
075074104069107082080079
084083
072064100065105084122081
079081
082066104065105080091079
077082
081067103065105079087079
077081
076067101064104077083078
076080
NFDEQUITY Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
227AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
258334222397249255259
315202
338313443305495363403412
480337
315306436328479373380397
482316
264269490303467366403383
515317
269243507090106127090106
106106
413343478088105127088105
105105
399333465086104127086104
104104
NFDEBITDA Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
36
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Exhibit 40 Growth rate and EBITDA margin for wholesale and retail trade sectors
20 40 60 80 100 120 140 160
2016E2017F2018
Median=31
Median=33
0000
20
10
30
60
50
70
1=Automotive 2=Retail 3=Wholesale
40
3
12
2016E2017F2018
Median=45
700
600
500
400
300
200
100
000050 070 090 110 130 150 170 190
Median=11
Exhibit 41 NFDEquity and NFDEBITDA for wholesale and retail trade sectors
1=Automotive 2=Retail 3=Wholesale
21
3
37
Ratings will remain broadly stable
The following section presents a risk profile analysis
based on Cerved Rating Agencyrsquos outstanding and
monitored public and private ratings issued from
2013 to 2017 on Italian non-financial companies
and operating in the industries discussed in this
study (data as of 31 December)
Exhibit 42 and Table 9 show an overview of 1-year
effective default rates over the 2000-2017 horizon
related to the sample bankruptcy and other legal
proceedings and debt restructurings as default
events
The default rate trend shows a general
improvement from 2014 onwards both by
company size classes and by industry however
considering the entire sample the overall default
rate still remains higher when compared to its pre-
crisis level especially regarding smaller companies
operating in the construction sector
Exhibit 43 shows the effective default rates over
2013-2017 horizon based on Cerved Rating
Agencyrsquos definition which considers as default
events
middot bankruptcy and other legal proceedings
middot debt restructuring
middot missed or delayed disbursement of a contractually
required interest or principal payment ie missed
payment on bonds material protests (on cheques
or trade bills) or prejudicial acts (judicial mortgages
distraint of property)
The effective default rates over the 2013-2017
horizon show decreasing trend and satisfy the
monotonicity constraint regarding all Cerved
Rating Agencyrsquos rating classes (Exhibit 44)
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2003 2004 2005 2006 2007 2014 2015 2016 20172000 2001
5678
12
3
4
0
Exhibit 42 Avarage 1-year default rate by size over 2000-2017 horizon
medium small
2008 2009 2010 2011 2012 2013
Mining and quarring
Manifacturing
Electricity gas steam and air conditioning supplyWater supply sewerage
Construction
Wholesale and retail trade repair of motorTransporting and storage
Accomodation and food service activities
Information and communication
24221809
5212
282915
2529
38533424
13027
454830
4838
36542537
15929
424421
4323
23461921
13226
293226
3022
Source Cerved database and Cerved Rating Agency elaboration
Table 9 Default rate by industry over 2000-2017 horizon
Total
NACE Average2008-2015
Average2000-2017 2016 2017
2016
Source Cerved database and Cerved Rating Agency elaboration
C21C12C11B22B21B12B11A11 A12 A13 A21 A22 A31
60
50
40
30
20
10
0
Exhibit 43 1-year default rate over 2013-2017 horizon
20172013 2014 2015
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
38
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The analysis of historical rating distributions in the
same period shows clear differences in terms of modal
rating class by company size As shown in Exhibit 43
the modal rating class for the large companies is A31
B11 for the medium and B12 for small companies
(considering company size classes as they have been
defined ad hoc by Cerved Rating Agency for the
purposes of this study)
Overall the corporate rating distribution in the
Source Cerved database and Cerved Rating Agency elaboration
C21C12C11B22B21B12B11A11 A12 A13 A21 A22 A31
30
25
20
15
5
10
0
Exhibit 44 Rating distribution frequency by size classes
large
30
25
20
15
5
0
10
medium smallRating 2013 total Rating 2017 total Rating 2017 forecast
observed period is skewed towards the investment-
grade rating categories (ie Cerved Rating Agency
rating classes from A11 to B12) representing 700 of
the whole sample 250 is concentrated in the safety
(A rating classes) and 450 in the solvency (B11-B12)
classes
We anticipate the rating distribution to remain
broadly unchanged in 2018 with the rating migration
concentrated mainly in the B category
39
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100543
2414
4407
4407
2636
4554 4558
2403 2311
535 527
90
10
0
Exhibit 45 Rating distribution frequency by area of risk - Total companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency]I nvestment GradeA11-A31 [Safety]
2509 2604
704 4407706 4407716
324
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
985
5658
4407
3033 2992 2898
925 907
300 318
90
10
0
Exhibit 46 Rating distribution frequency by area of risk - Large companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
5783 5878
869 4407878 4407878
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
4407
4407
3626
4080
17591695
439 449
90
10
0
Exhibit 47 Rating distribution frequency by area of risk - Medium companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
3571 3776
7044407780 4407786
456
1805
774
4113 4232
603
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
2824
1900
4407
4673 4850 4761
2833 2754
600 633
90
10
0
Exhibit 48 Rating distribution frequency by area of risk - Small companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
1716 1852
657 4407657 4407661
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
40
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Slight improvement in general creditworthiness
In our opinion in 2018 the creditworthiness of the
observed Italian non-financial companies will remain
stable for almost 86 of entities Migration of ratings is
expected to be moderate resulting in approximately 14
of rating upgrades (9) and downgrades (5) at the end
of 2018 compared to the outstanding ratings at the end
of 2017 The vast majority of the rating changes (921)
will be limited to one-class migration as shown in the
1-year projected transition matrix (Table 10) We believe
that more than one third of the expected downgrades
will be concentrated in the energy gas mining and
construction sectors Over the last years the average
credit profile of companies active in these industries has
been relatively weak and due to the forecast market and
regulatory conditions we do not envisage opportunities
for a significant risk profile improvement in 2018
Despite the expected rating migrations for individual
entities in 2018 the current industry modal rating
classes are unlikely to change
On the other hand stable and positive outlooks will
prevail in the manufacturing industry wholesale and
retail trade and accommodation and food service This
is due to the increase in the number of companies
active in these sectors which will maintain andor
improve their business and financial performances
Indeed as shown in Table 11 in 2018 the rating outlook
remains differentiated by industry whilst in terms of
the expected general probability of default we foresee
a modest improvement (349) compared to the one
recorded in 2017 (366)
Table 10 1-year transition matrix
Source Cerved database and Cerved Rating Agency elaboration
2017
A11
A31
B11
C11
C12
B21
C21
B22
B12
A12
A13
A21A22
F 2018A11 A12 A13 A31 B11 C11 C12B21 C21B22B12A21 A22
000 530
066
054 451034 435
027 753055 901
1033121247 1624
260 1038088
000
000000037
028
295
290
1063
179
455050647
043425
026490020208
000208
000152
000000
00000010000
9821
9318
92679015
87708583
81497646
8665
9617
9710
8605
419024
41
The information and data supporting Cerved Rating Agency rating opinions related research and credit opinions originate from sources Cerved Rating Agency considers to be accurate however Cerved Rating Agency cannot independently verify the reliability and accuracy of the information and data in every instance This publication may not be reproduced retransmitted or distributed in any form without the prior written consent of Cerved Rating Agency Cerved Rating Agency assumes no liability for correctness completeness and topicality of the information contained in this publication The analyses underlying this study do not provide advice of any sort
26
n
6670
486
59
Exhibit 49 Ratings outlooks by size
Large
Medium Positive Stable Negative
Small
21
13
Large
Medium
Small
Source Cerved database and Cerved Rating Agency elaboratio
Table 11 Ratings and probability of default 2018 outlook by industry
Source Cerved database and Cerved Rating Agency elaboration
NACE Micro industryDowngrade
B-Mining and quarryingAutomotive
900814
848
812
880812
847
813 172
170
174
144
8264 36
08
104 433 436
392 373
22724815
362 360
876
876
914
848
849
804
887
882
916
901835870899 64
866760
43
68
5659
58
47
61
49
74
78 75
14
50
37
36
5393
32
50
41
45
3899
77
91
316
372
355
364
308
491
326
318 296
331
312
381
367
359
322
495
452
433
403429
389
364369
363
313
452
323
594
38
315358
603
307
345 350
67 5318
469289 274
470
147
116
138
851
821AutomotiveRetail
Wholesale
Total
Chemistryamppharmaceutics
ClothingEquipment
Food Beverage and Tabacco
Heavy Manifacturing
Other Manifacturing
Textile industry
Total
Tecnology Media ampTelecomunication
Paper Packaging ampForest products
C-Manifacturing
D-Electricity gas steam and air conditioningsupply
F-Construcion
H-Transportig and storageI-Accommodation and food service activitiesJ-Information and communication
G-Wholesale and reatail traderepair of motor vehicles and motor-cycles
E-Water supply sewerage waste
Average ForecastPD 2018
Expectedtrend
Average PD 2018
Ratings outlooks
Stabl pgrade
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Cerved Rating Agency SpAVia dellrsquoUnione Europea n 6A-6B20097- San Donato Milanese (MI)
Tel +39 02 77541 - Fax +39 02 76020458
ratingagencycervedcom
Rating Agency
Table of contents
Preface
Assumptions
Executive summary
World economy Outlook 2018
European economy Outlook 2018
Highlights on italian economy
Italian non-financial companies economic Outlook 2018
3
4
6
8
10
12
22
3
Preface
The projections in this study reflect Cerved Rating Agencyrsquos opinion on the economic and financial situation and the
general risk level of Italian non-financial companies in 2018
The study is the product of the analysis of the Global European and Italian macroeconomic historical data between
2000 and 2017 and the forecasts for 2018 combined with specific individual data between 2000 and 2017 related to
Italian non-financial companies with turnover exceeding euro5 million
CERVED RATING AGENCY SpA | Preface
4
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Assumptions
5
A number of assumptions have been adopted for the projections exposed in this study more specifically
the Italian economy is expected to grow at a slower pace in 2018 with GDP forecast at 15 compared to 16
recorded in 2017
the inflation rate is expected to decrease from 14 recorded in 2017 to 12 in 2018 remaining below the
European Central Bank target rate of 20
the average price of oil is expected to be close to $60 a barrel in 2018 whilst the prices of non-fuel commodities
are expected to remain mostly unchanged
actual exchange rates are expected to remain relatively stable at the levels of the last three months of 2017 ie
we do not expect the average EuroUS Dollar exchange rate to exceed 12 at this level exports will gain pace
driven also by a general improvement in the economic cycle and therefore resulting in a higher demand
the European Central Bank is expected to leave the key interest rates at the present low levels and to continue
to apply non-standard monetary policy measures ie net asset purchases at a monthly pace of euro30 billion until
the end of September 2018 despite the reduction in size of the net asset purchases Italian credit institutions
are likely to expand their credit activities partially also due to a significant reduction in the amount of non-
performing loans thus supporting the momentum
the investments are expected to gain strength due to fiscal incentives higher domestic demand and supportive
credit conditions
in the next twelve months we do not envisage room for a significant change in Italian economic and financial
policies in particular regarding the fiscal system and public debt reduction due to the result of the general
political elections scheduled in Italy for 2018 moreover we believe that the results of the referendum for
autonomy held in Lombardy and Veneto will not have any significant impact on the general economic trend in
2018
finally the study does not consider the impact of extraordinary events such as an undesirable further escalation
of USA-North Korea andor USA-Iran disputes or the European disintegration processes on the economic and
financial trends underlying the analysis
Assumptions
CERVED RATING AGENCY SpA | Assumptions
6
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Executive summary
7
This research aims to present two outputs
- projected economic and financial performances in 2018 of the Italian non-financial companies
- the expected risk level of such entities at the end of 2018
the sample extracted for the analysis consists of Italian joint stock and limited liability companies with turnover
exceeding euro5 million and includes on average roughly 50000 entities per year operating in 10 macro industries
(manufacturing further detailed in 10 micro-sectors) the related revenues in 2016 amounted to euro18 billion
representing 769 of total revenues of all Italian joint-stock and limited liability companies
the World European and Italian historical (2000-2016) and estimatedprojected (2017-2018) macroeconomic
data are combined with specific individual company data with the aim of obtaining accurate and reliable
forecasts
the Cerved database was the main source for the analysis of economic and financial performances of the
companies included in the sample Cerved Rating Agency database highlighted the risk level of such entities
based on the credit rating activities performed by the Agency
the research output affirms that gradual recovery of Italian non-financial companies is expected to continue in
2018 both in terms of revenue growth and improvement of the financial structure primarily for manufacturing
and accommodation and food services industry the trend is mainly fostered by positive global economic cycle
low interest rates and favorable regulatory framework supporting firm funding investments innovation and
employment
the general risk level in 2018 is assumed to remain approximately at the levels recorded at the end of 2017
a slight improvement in terms of rating upgrades is expected for 9 of the companies analyzed mainly
concentrated in the manufacturing wholesale and retail trade and the accommodation and food service
industry
Executive summary
CERVED RATING AGENCY SpA | Executive Summary
8
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
World economy Outlook 2018
9
Growth is predicted to gain strength
The predicted global economic growth rate is 39
in 2018 (against 36 in 2017) According to the
International Monetary Fund forecast in 2018 the
two biggest world economies US and China will
grow at 23 and 65 rate respectively
Consumer price inflation rate to rise
The global consumer price inflation rate is expected
to rise assisted by higher commodity prices Oil price
averaged $54barrel in 2017 and is predicted to remain
close to $60barrel in 2018 whilst oil consumption is
forecast to record an uptick of 14 in 2018 In addition
also metal prices are expected to increase modestly in
2018
Trade to increase
Global world trade is predicted to increase further
in 2018 fostered by a recovery in manufacturing
activity and an increase in investment especially
in advanced economies In addition a recovery for
the commodity exporters is expected
Global risks remain tilted to the downside
These include increased trade protectionism as well
as economic policy uncertainty possible adversity
in the financial system due to easy monetary
conditions and over the longer term weaker
potential growth In addition the upcoming political
events and the current political uncertainties may
negatively affect the general economic conditions
Commodity Fuel Price Index
Metals Price Index
Source IMF ECB OECD
20022000 20062004 2008 20122010 F201820162014
50
0
150
100
200
250
1
0
3
2
5
4
7
6
Exhibit 2
Volume of imports of goods and services (Y-o-Y change)
Volume of exports of goods and services (Y-o-Y change)
Current account balance ($ billion) Source IMF
20112010 20132012 2014 20162015 F20182017
2
0
8
4
10
12
14
100
0
300
200
400
500
Exhibit 3 Global trade and current account balance world
EPU Index World
VIX Source FRED
20112010 20132012 2014 20162015 F20182017
50
0
100
150
200
250
5
0
15
10
20
25
30
Exhibit 4
Euro Area
EMDEs
United StatesWorld
Other advanced economies
China
OthersSource IMF and Cerved Rating Agency elaboration
20112010 20132012 2014 20162015 F20182017
20
0
60
40
80
100
1
0
3
2
5
4
6
Exhibit 1 Contribution to global growth world
CERVED RATING AGENCY SpA | World economy Outlook 2018
10
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
European economy Outlook 2018
11
Euro area gdp grows unemployment falls
GDP growth in the euro area rose around 21 in
2017 and is predicted to continue at a broadly similar
pace in 2018 Furthermore the unemployment
rate will continue to follow a declining trend and is
forecast to fall to 87 in 2018 (from 92 in 2017)
Industrial production improvement
Investments will accelerate and the international
environment will contribute positively to an increase
of exports (in line with the global growth) which will be
one of the principal driver of an industrial production
improvement in 2018
Further credit activity expansion
Across the euro zone countries companies are
benefiting both from eased lending conditions
and increase in the number of alternative lenders
The total amount of loans to households and non-
financial corporations grew by approximately 14
in 2017 whilst in 2018 it is predicted to increase more
slowly especially in the non-financial corporate
sector
Inflation rate to be stable
Consumer price inflation accelerated at the
beginning of 2017 mainly due to a rise in energy
prices The harmonized index of consumer prices
(HICP) is estimated at 15 in 2017 In 2018
the impact of energy inflation is expected to
decline resulting in a lower inflation rate outlook
(approximately 14)
Germany
France
ItalyEuro Union
Spain
UK
OthersSource IMF ECB OECD
20112010 20132012 2014 20162015 F20182017
20
0
60
40
80
100
0
-1
2
1
3
4
Exhibit 5 Contribution to European growth European Union
EPU Index euro areaIndustrial production euro area (Y-O-Y change)
Source IMF ECB OECD
2011 2015 2017
-2
-2
-3
-1
-1
1
1
0
2
2
3
100
0
300
200
250
400
450
500
Exhibit 7 Industrial production and policy uncertainty index euro area
2010
350
150
50
20182013 2014 20162012
Euro Area
Source ECB
20112010 20132012 2014 20162015 2017
500
0
1500
2500
2000
3000
1000
10000
9900
9800
9700
9600
9500
9400
9300
9200
Germany Spain France Italy
20112010 20132012 2014 20162015 20182017
BCI euro area
CCI euro area
Source IMF ECB OECD
96
95
98
97
99
101
102
100
103
0
-1
2
1
4
3
5
Exhibit 6
CERVED RATING AGENCY SpA | European economy Outlook 2018
12
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Highlights on italian economy
13
Gdp growth is under way to consolidate in 2018
From 2000 to 2017 the Italian economy was more
vulnerable compared to other highly developed
countries in particular those of the euro area
The Italian real GDP at the end of 2017 was roughly
at the same level recorded in 2000 whilst the euro
area countries and specifically Germany and France
experienced a considerable growth in the same period
(188 205 and 198 respectively)
The Italian GDP has started to increase moderately only
since 2014 mainly due to an improvement in domestic
demand but its growth still remains below the growth
rates of the majority of euro zone countries The poor
performance of the labor and total productivity factor
accounts for most of the difference
An ageing population and a weak labor market
participation have also contributed negatively to
potential growth Structural reforms in particular the
Jobs Act and tax incentives on new labor contracts
contributed to the increase in employment making the
Italian labor market more flexible and efficient
In 2018 we expect the economic growth to be slightly
below the level reached in 2017 The trend will be
sustained by the world economy positive cycle
including higher levels of international trade volume
Italian companies will benefit from favorable credit
lending conditions due to an expanding credit activity
of the banking system and low interest rates
Whilst the Italian government adopted a set of dynamic
and diverse policies for 2018 we believe that some of
those previously introduced have already contributed
to the GDP growth in 2016 and 2017 thus reducing the
combined effect in 2018
Source World Bank
2000 2002 2004 2006 2008 2010 2012 2014 2016
1500
1000
500
0
2500
3500
3000
4000
2000
13000
9500
10000
11000
12000
12500
10500
11500
Exhibit 10 GDP in Europe ($ billion)
Germany Italy Euro areas (11countries)France
Total multifactor productivityEmployment growth
Source OECD
-2
-4
-6
-8
2
0
4
6
Exhibit 9 Italian GDP employment and total multifactor productivity (Y-o-Y change)
2000 2002 2014 20162004 2006
GDP growth
20122008 2010
CERVED RATING AGENCY SpA | Highlights on italian economy
14
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The number of active companies has increased buthellip
The number of active companies in Italy registered at
the Chamber of Commerce as of December 31st 2016
amounted to 5145995 305629 more than in 2000
(63)
The increase in registered active companies is the result
of the positive trend from 2000 to 2008 (98) partially
cancelled by the decrease from 2009 to 2016 In 2017 a
slight improvement is expected to be recorded however
the number of active companies remains below its peak
value (5316104 entities) reached at the end of 2008
Exhibit 11 shows both the trend of active Italian companies
in the period 2000-2016 and their breakdown by legal
form We observe that the increased number of Joint Stock
Companies and particularly Limited Liability companies
(1206) was able to compensate the decrease in Unlimited
Partnerships (-62) and Sole Proprietorships (-79)
Companies are abandoning traditional sectors
Exhibit 12 shows the breakdown of the Italian active
companies at the end of 2000 and 2016 by industry
It can be observed that in many traditional sectors
the number of active companies decreased eg in
agriculture (-294) and manufacturing (-226) whilst
the number of companies increased in construction
(273) and wholesale and retail trade (39)
A very significant rise in the new registered companies
(456) occurred in other industries in particular
in the service industry offering information and
communication IT and professional scientific and
technical services
Joint Stock and Limited Liability Unlimited Partnership Sole proprietorshipO ther forms
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 2012 2013 2014 2015 20160
6000000
5000000
4000000
3000000
2000000
1000000
Exhibit 11 Italian active companies 2000-2016
Total
Source Movimprese and Cerved Rating Agency elaboration
Exhibit 12
Breakdown of the Italian active companies by industry 2000-2016
2000
635286 13
1059005 22
639778 13
589707 12
183 856 4 226964 5 150772 3
1354998 28
965452 19
747738 14
495247 10
750863 15
150888 3
379899 7 247187 5
1408721 27
2016
C Manufacturing
F Construction
H Transporting and storage
I Accommodation and food service activities
L Real estate ativities
G Wholesale and retail traderepair of motor vehicles and motorcycles
X Other
15
Number of bankruptcy and other legal proceedings to decrease further
From 2000 to 2016 the number of bankruptcies and
other legal proceedings protests and prejudicial
acts in Italy mirrored the general trend of the
Italian economy
After reaching its minimum level in 2007 (5969)
the number of bankruptcy procedures in the
period 2009-2014 increased dramatically reaching
its peak value of 15608 in 2014
With the improvement in the economic and financial
environment starting from 2015 the number of
bankruptcy procedures decreased sharply in all
macro sectors returning approximately to the
levels recorded from 2000 to 2006 A positive
trend was recorded also in 2017 bankruptcy
procedure initiated for 11937 companies -113
when compared to the same period in 2016 In
absolute terms the highest number of bankruptcy
procedures was recorded in the service sectors
followed by the construction and manufacturing
Worth mentioning is the design of a new Italian
bankruptcy law that should be approved by
October 2018 The regulatory framework aims at
more efficient resolutions of cases of company
crisis supporting continuity of its operating
activities and safeguarding the interest of creditors
by introducing innovative solutions such as pre-
crisis warning mechanisms
Other legal proceedings after reaching its
maximum level in 2013 (3593) in 2016 came down
to 1993 and the trend continues in 2017 evidencing
1866 procedures -64 when compared to the
same period in 2016
In the last five years new protests and prejudicial
acts have also shown a decreasing trend with
ndash527 and ndash70 of acts respectively in 2017
compared to the numbers recorded in 2013
-6
Exhibit 13 Bankruptcy
BankruptcySource Cerved databaase
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
10729 108311163612287
10338
59697307
9189
1108812022
12437
14031
1560814682
13459
11937
Other legal procedingsSource Cerved database
1500
1000
500
02000
940 994 1125 1211
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
2500
3500
3000
4000
2000
1110
16691540
18702094 2057
2342 2475
3593
3132
2720
1993 1866
Exhibit 14 Other legal procedings
1211
100 45000
4000090
80
70
60
50
40
30
20
10
02015
35000
30000
25000
20000
15000
10000
5000
02013 2014
Protets
703
297
41438
Total
Source Cerved database
Prejudicial acts
2016 2017
665
335
34527
570
43032660
527
473
546
454
2523828929
Exhibit 15 Protests and prejudical acts
CERVED RATING AGENCY SpA | Highlights on italian economy
16
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Core inflation rate to rise
Italian headline inflation will experience a modest
decline in 2018 compared to the previous year
(12 and 14 respectively) Core inflation
however is predicted to increase to 12 in 2018
(up from 10 in 2017)
Exports and import are accelerating
Exports and imports will both accelerate in 2018 (41
and 44 respectively) mirroring the positive trend
and expectations in global trade and the rising of the
external demand Machinery and equipment industry
will still remain in ldquopole positionrdquo due to companies
generous investment and tax incentives In general
in 2018 Italian exports will increase more in the Extra
European Union countries
Investment continues to gain strength
Investment has gained strength and will continue to
do so at a relatively fast pace supported by effects of
the tax incentives (Stability Low 2017) low interest rate
and improvements in business confidence Indeed
investments are expected to increase 30 in 2018
(up from 24 in 2017) Construction investments are
forecast to accelerate slightly also thanks to more
resources earmarked for public investment
Harmonised core infation
Source OECD and IMF
2003 2006 20092000 2012 2015 F2018
2
1
-1
0
4
3
5
6
Exhibit 16
Imports of goods and services (Y-o-Y change)
Exports of goods and services (Y-o-Y changes)
Total dometic demand (Y-o-Y change)
Source OECD and IMF
20062000 2015 F2018-5
-15
-20
5
0
-10
10
15
Exhibit 17 Exports imports and demand Italy
20122003 2009
Wholesale and retail trade (Y-o-Y change)
Total investments ( of GDP)
Heavy industry (Y-o-Y change)
Other services (Y-o-Y change)
Source IMF and ISTAT
Construction (Y-o-Y change)
20062000
-20
-30
10
0
-10
20
30
20
25
15
10
0
5
F2018
Exhibit 18 Investments by industry Italy
2003 2009 2012 2015
17
No room for significant public debt reduction
At the end of 2016 the Italian government debt-to-GDP
ratio was significantly above its level at the beginning of
the century In particular as of December 31st 2016 the
ratio was 1326 (262 with respect to 100 recorded
at the end of 2000)
In the same period the ratio for the euro area increased
from 681 to 913 (341) in Germany from 589 to
683 (159) and in France from 586 to 960 (638)
At the end of 2017 the Italian government debt increased
further to more than euro2300 billion 1350 of GDP The
debt servicing in terms of interests accounts roughly
50 of Italian GDP
In our view the high level of government debt
represents a key factor limiting Italian economic growth
and contributes eo ipso to increasing country risk
with a possible negative impact on the stability of the
international financial system
A possible increase in interest rates would raise the
cost of debt service potentially triggering a crisis due to
larger governmental deficits a slowdown in economic
activity and growing debt refinancing difficulties due to
higher risk perceived by investors
Hence it seems that a significant reduction in
government debt should be the main goal of the Italian
economic and financial policy in our opinion however
the achievement of such a result is not realistic neither
in the short nor in the medium term due to the following
factors
middot economic growth in the coming years is expected
to be moderate not sufficient to be the main source of
the government debt reduction
middot macroeconomic policy is expected to prioritize
investments employment social security and welfare
rather than government debt reduction
middot even if the inflation rate hits the target value (20) the
impact on the government debt in the short term is not
expected to be considerable
middot finally in Italy election will take place in spring 2018
with a new government taking over the economic
program that has already been approved and become
fully executive
Euro area
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 2012 2013 2014 2015 20160
20
40
60
80
100
120
140
Exhibit 19 Public debt as GDP
France
Source AMECO and Cerved Rating Agency elaboration
CERVED RATING AGENCY SpA | Highlights on italian economy
18
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Table 1
Amount ( 407 312
-327
327754
216074 190881
163248 345604188167
869
1543
2213
1793
CAGR (base year 2000)
CAGR (base year 2008)
NPL ratio ()
Ndeg debtors
Averae debt debtor
Valueindicator 2000 2008 2016
Source Bank of Italy and Cerved rating Agency elaboration
Credit activity to be expanded interest rates to remain at very low levels
As of December 31st 2016 the volume of bank loans
granted to Italian non-financial corporations amounted to
euro8604 billion
The period 2000-2016 was characterized by two different
trends from 2000 to 2011 the annual outstanding loans
value increased by 841 (euro454 billion reaching in 2011 its
highest level ever of euro993 billion thanks to 57 CAGR far
above the Italian GDP growth) whilst in the period from
2012 to 2016 loans decreased by 134 (euro130 billion)
reflecting a negative -28 CAGR The loan reduction hit
sharply construction and manufacturing (accounting
for about 400 of all loans) which experienced -227
and -135 decrease in loan volumes whilst agriculture
forestry and fishing and wholesale and retail trade
(including repairs of motor vehicles and motorcycles)
had more limited loan contraction (-08 and -53
respectively)
In the observed period due to the negative impact of the
global financial crisis 200708 and to structural changes in
the world economic and financial environment a radical
decrease in interest rates was recorded In 2017 the
interest rates charged to Italian non-financial corporates
were on average less than half compared to those charged
in 2000 In the medium term low interest rates will remain
a positive factor fostering investments and consumption
Non-performing loans to be further reduced due to innovative measures
The credit crunch had a huge and dramatic impact on
the Italian economy hitting especially small businesses
which are not able to survive in a radically changed market
conditions The evidence of such outcome can be seen not
only through the decreased number of active companies
but also via the enormously increased volume of the
non-performing loans (NPLs) In particular these loans
amounted to euro324 billion at the end of 2016 of which euro154
billion were granted to the non-financial corporations as
shown in table 1
Following the principles outlined in the ECB guidelines
published in March in 2017 Italian Banks made significant
progress in reducing the amount of the NPLs ndash estimated
to be over euro50 billion debt reduction Any further actions
aimed to improve the banking balance sheets should not
increase the financial hardship of still operating companies
North - East SouthNorth - West Center Islands
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 2012 2013 2014 2015 20160
1200000
1000000
800000
600000
400000
200000
NPLs ratio
Source Bank of Italy and Cerved Rating Agency elaboration
20
1816
14
1210
8
6
42
0
446393
euro billion)
19
Modest role of italian equity capital markets
Despite the number of listed companies increasing
from 297 to 421 in the period 2000-2017 the role
of the stock markets remains modest in Italy
As of December 31st 2017 the market capitalization
was euro640 billion (375 of the estimated Italian GDP
in 2017) representing only 782 of the overall
market capitalization recorded in 2000 (equal
to euro818 billion 687 of GDP) mainly due to
an unfavorable economic cycle in the observed
period
This situation shows the structural weaknesses of
the Italian economic and financial system especially
when compared to other highly developed
European economies The low propensity to
raise equity capital through organized markets
is linked to an unfavorable macroeconomic and
fiscal framework as well as to the predominance
of SMEs mostly unfit for listing and presenting
cultural obstacles (ie company owners and managers are often reluctant to accept wider company control and
transparency)
Hence self-financing and bank borrowing remain the main sources of finance for Italian companies which are
generally speaking undercapitalized with a negative impact on their investment capabilities Very frequently the
lack of medium-long term financing means forces companies to focus their attention on running current activities
postponing or abandoning strategic projects fundamental for company growth
A wide range of innovative initiatives have been undertaken with the aim of fostering market based company
funding in particular
middot AIM (Alternative Investment Market) - a specialized market segment dedicated to SMEs growth (95 companies and
market capitalization around euro56 billion as of December 2017)
middot ELITE - a programme designed to help SMEs prepare and structure for the next stage of growth their through
access to long-term financing opportunities
middot PIR - Piani individuali di risparmio (Individual Savings Plan) - an innovative way to fund Italian SMEs by offering retail
investors resident in Italy tax incentives (full exemption of 260 income tax) if the savings stay invested for at least
five years A minimum of 700 of such credit assets must be invested in financial instruments issued by Italian or
foreign (EU and EEA) companies permanently established in Italy
FTSE (MIB)Enterprises
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 20132012 20152014 201720160
100
200
300
400
500
600
700
800
900
100029681 29525
14623
1765216121
12259
13512
16048
15988
19012
21428
21853
2185322232
16954
297 294 295 279 282278 311 336 332 332 328 323 326344 342 356 387 421
19483
22886
26056
31005
Exhibit 21 Italian listed enterprised and FTSE (MIB) index trend
Source Borsa Italiana
300000
250000
200000
150000
100000
5000
0
Capitalization of GDP
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 20132012 20152014 201720160
100
200
300
400
500
600
700
800
900
1000
Exhibit 22 Italian market capitalization of listed companies ( of GDP)
Source Borsa Italiana
80
70
60
50
40
30
20
10
0
8184
5923
354 365418 473
524475
239301 275
210233
287 295348
318375
4580 4875
5809
6766
77857336
37474571
4251
3324
44664678
56765249
6400
3655
474
68
CERVED RATING AGENCY SpA | Highlights on italian economy
20
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Italian debt capital market is growing but still remains behind needs
At the end of 2016 the outstanding amount of debt
securities issued by Italian financial and non-financial
corporations was euro8615 billion 510 of the countryrsquos
GDP The table below shows the breakdown by issuer
type of Italian German French British and United States
outstanding amounts of debt securities as of December
2016 issued by financial and non-financial corporations
with the respective debt-to-GDP ratio
Despite the outstanding debt at the end of 2016 being
almost double compared to 2000 it represents only 23
of its peak value reached in 2012 (euro1290 billion Exhibit
23) The main reason for such a significant debt reduction
is the huge bond reimbursement realized by banking
institutions from 2013 to 2016 and the related negative
net flow of debt securities (respectively -80 -153 -106
and -67 billion of euro as shown in Exhibit 24)
The decrease in debt securities funding of Italian banks
has been compensated by a wider use of deposits and
resources available under the Eurosystem refinancing
operations framework
The outstanding amount of debt securities issued by
non-financial corporations at the end of 2016 also
doubled its value with respect to the amount recorded
at the end of 2000 The main characteristic of this cluster
is the high concentration of issuancesdebt to a small
number of issuers
Due to both more favourable general economic
conditions and active ECB monetary policy bond yields
have decreased significantly providing room for a
convenient fund raising
Since the introduction of a new regulatory framework
(lsquoDecreto Svilupporsquo) in 2012 up to October 2017 Italian
market saw 300 small-size listed bond issues (ie so
called minibonds) amounting approximately to euro143
billion Issued mainly by SMEs they offer interesting
yields to institutional investors
) Source Business support SpA ndash Minibonditalyit
BanksTotal
Source Bank of Italy and Cerved Rating Agency elaboration
2006 20082000
-200000
200000
250000
-150000
-100000
150000
100000
-50000
50000
02012 2014 20162002 2004 2010
Banks debt securities outstanding
Banks Debt to GDP ratio
Source Bank of Italy and Cerved Rating Agency elaboration
0
10
20
30
40
50
60
70 1400000
1200000
1000000
800000
600000
400000
200000
0201620142012201020082006200420022000
Table 2 Outstanding securities debt (euro Million)Debt-to-GDP ratio()
Financial corporates
Total
Debtsecurities
outstanding
Italy German rance United Kingdom United States
739
123
862
440 340 470
21
680380
40
1279 1331 4 50
880
30
14271
14820
549180
10202767
590
19211436
15770
510
Debtsecurities
outstanding
Debtsecurities
outstanding
Debtsecurities
outstanding
Debtsecurities
outstanding
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Source Bank of Italy
0
0
21
CERVED RATING AGENCY SpA | Highlights on italian economy
22
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Italian non-financial companies economic Outlook 2018
23
Data and method
This research focuses on Italian non-financial companies
with an annual turnover exceeding euro5 million With the
aim of using only reliable data joint stock and limited
liability companies have been considered only these
entities according to Italian law file complete annual
financial statements in the Chamber of Commerce
together with anagraphical company data other
legal forms such as unlimited partnerships and sole
proprietorships are not included in this sample due to
the lack of publicly available standardized financial data
We believe that this cutoff is reasonable and allows us to
perform a methodologically correct analysis In 2016 the
above mentioned companies despite representing only
42 of all registered and active joint stock and limited
liability companies accounted for 769 of their total
turnover
Moreover cluster specialization has been obtained by
NACE activity classification from A to J (thus not including
in the sample financial and insurance companies and
some service industries) The statistics regarding specific
industries provide important key data and enable us to
examine historical and prospective trends and cross-
sector comparisons
The Cerved database which contains legal anagraphical
financial and market information on all Italian registered
legal entities (approximately 6 million comprising 5
million active ones) was the most important database
used for this research Long time series and broad
homogenized and standardized data covering different
economic cycles were the building blocks to perform
the regression and predictive analysis
Historical and forecast macroeconomic data and
analysis performed by the International Monetary Fund
OECD the World Bank European Central Bank Bank
of Italy and ISTAT completed the dataset used for the
analysis
Several analyses were performed in order to examine
the structural differences within the sample in terms of
company legal form and geographical area (Exhibit 25)
company age (Exhibit 26) and company size and industry
As a result we verified a considerable heterogeneity of
companies in particular with regard to the company size
across various industries
The relevant observation period comprises the years
between 2000 and 2016 Table 3 describes some
characteristics of the sample
Exhibit 25 Sample break-down by legal form and geographic area (2016)
Joint stock Company
Limited liability Company
Area 1 (Northwest)
Area 3 (Center)
Area 2 (Northeast)
Area 4 (South)
39
20
27
14
33
67
33
Table 3 Sample characteristics 2000-2016
TotalTurnover
gt euro5million
Turnover gt euro5 million(industry
from A to J)
TotalTurnover
gt euro5million
ofTotal
Turnover gt
euro5 million(industry
from A to J)
Source Cerved database
Entreprises Turnover billion
2000 659867700717738558772442812025847334883122915172937018949708965744969581
953505945825922513883224
4215144587462234694749640518205596459226595385246754808563745362752074519385289450123
3686139038411864118843547454704921752274526974633848778504734806246843468384771845288
16151740177018472002212923302477256822562421257025202446243224392295
12661362139214561588169818752000208317861944208720541992198419871905
11141205124013041430152316891801189716191764191218831839183518371765
689693700
716
706714
725
718729744748752754753769
727739
200120022003200420052006
200820092010201120122013201420152016
2007
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
24
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Furthermore in order to guarantee more detailed and
accurate analyses and projections we decided to create
a static pool to show consistently long time horizon
economic trends (17 years) by sealing off all the active
companies over the 2000-2016 horizon
The outcome obtained by considering the behaviour of
specific variables related to the companies included in
the static pool was extended as a performance indicator
for the whole sample (turnover over euro5 million and
industry from A to J)
According to the European Communityrsquos definition of
SMEs using annual turnover and employee headcount
as quantitative criteria the initial sample of companies
and the static pool can be classified by size classes on
the basis of the financial statements for the year 2016
as shown in Table 4
For the sake of this analysis we defined specific size
classes for each industry thus deviating from the
European Commissionrsquos recommendation which
presents undifferentiated upper and lower bounds of
quantitative criteria for SMEs in all industries To define
the thresholds of such classes we used both a statistical
approach (a specific cluster procedure by minimizing
the within-cluster turnover standard deviation) and a
judgmental approach by relying on the experience and
opinion of our industry expert analysts Table 5 shows
the results of such analysis referring to the sample in
2016 (45288 entities) and the NACE sections from A
to J Moreover the NACE section C and G were further
disaggregated into sub-industry classes as shown in
Exhibit 27 in order to consider the specific business
differences within these NACE sections thus ensuring
a good fit and a satisfactory accuracy of the estimation
Exhibit 26 Sample break-down by company age classes
0-2 Years 2-5 Years 5-10 Years 10-20 Years gt20 YearsSource Cerved database and Cerved Rating Agency elaboration
0 20 40 60 80 100
ABCDEFGHIJ
A = AgricolutreB=Mining and quarryingC=ManufacturingD=Electricity and gasE=Water supplyF=ConstructionG=Wholesale and retail tradeH=Transporting and storageI=Accomodation and food serviceJ=ICT
Small
Annul Turnover
Empolyees
Static Pool
Enterprises(Turnover gt euro5 million)
Enterprises(Turnover gt euro5 millionindustry from A t J)
Medium Large
lt 50 lt 250lt 36774 11113
1005333223
8741
2236
2012
154818645
gt euro50 million
gt 250
lt euro50 million
Source Cerved database
NACE Micro industry
B-Mining and quarryingAutomotive
Automotive
Retail
Wholesale
T gt 480
T gt 80
T gt 260
T gt 265T gt 270
T gt 230
T gt 120
T gt 80
T gt 43
T gt 65
T gt 106T gt 106
T gt 360T gt 155T gt 150T gt 100
T gt 120
T gt 225T gt 1400T gt 27500
T gt 1500
ChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther Manifacturing
ICTTextile
Paper Packaging ampForest products
C-Manifacturing
F-Construcion
H-Transportig and storageI-Accommodation and food service activities
J-Information and communication
D-Electricity gas steam and aircoditioning supply
G-Wholesale and reatail traderepair of motor vehicles and motorcycles
E-Water supply sewerage waste management and emediation activities
Large (Turnover
in euro million)
Medium(Turnover
in euro million)
Small(Turnover
in euro million)
Source Cerved database and Cerved Rating Agency elaboration
60 lt T lt 480 5 lt T lt 60
5 lt T lt 20
5 lt T lt 36
5 lt T lt 35
5 lt T lt 44
5 lt T lt 40
5 lt T lt 20
5 lt T lt 26
5 lt T lt 250
5 lt T lt 185 lt T lt 305 lt T lt 265 lt T lt 205 lt T lt 37
5 lt T lt 335 lt T lt 40
5 lt T lt 255 lt T lt 585 lt T lt 1155 lt T lt 1005 lt T lt 27
20 lt T lt 80
36 lt T lt 26035 lt T lt 26544 lt T lt 270
40 lt T lt 230
20 lt T lt 120
26 lt T lt 80
18 lt T lt 43
250 lt T lt 1500
20 lt T lt 6537 lt T lt 29540 lt T lt 15533 lt T lt 15025 lt T lt 100
27 lt T lt 120
58 lt T lt 225
100 lt T lt 27500 115 lt T lt
30 lt T lt 10626 lt T lt 106
25
Exhibit 28 shows the breakdown of macro industries
analysed including disaggregation of the NACE section C
(manufacturing) and G (wholesale and retail trade repair
of motor vehicles and motorcycles)
In order to carry out the analysis and projections this study
is focused on we used simple multiple linear regression
model for each industry and company size classes
considering macroeconomic and individual companiesrsquo
economic and financial data
The analysis enables us to develop an econometric
model used to estimate likely credit quality changes (in
terms of rating class and probability of default) for single
industries and company size classes
Automotive
Retail
Wholesale
21
1366
1
42
1
26
35
232
6
A B C D
F G H I
46
7
21
1318
9
15
34
Automotive
Chemistry amp pharmaceutics
Clothing
Equipment
Food Beverage and Tabacco
Heavy Manifacturing
Other Manifacture
Paper Packaging amp Forest Products
ICT
Textile industry
Large SmallMedium
Source Cerved database and Cerved Rating Agency elaboration
0
Wholesale
Retail
Automotive
20 40 60 80 100
Automotive
Chemistry amp pharmaeutics
Clothing
Equipment
Food beverage and Tabacco
Heavy Manifacturing
Other Manifacturing
Paper Packaging amp Forest Products
ICT
Textile
0 20 40 60 80 100
ABCDEFGHIJ
0 10 30 40 60 70 80 90 100
Exhibit 28 Sample break-down by industry (2016)
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
26
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Performance indicators to improve further
The annual financial statements available through public
registers provide a clear economic and financial picture
of the Italian joint-stock and limited liability non-financial
companies The individual historical data available from
2000 to 2016 enriched with 2017 preliminary results and
with the expected 2018 macroeconomic scenario enabled
us to build up the 2017 and 2018 projections regarding
the following four performance indicators related to the
analyzed sample 1) growth rate - revenues YoY change
2) EBITDA margin 3) net financial debtEBITDA and 4) net
financial debtEquity Afterwards the median values of the
resulting data were used to obtain the summary output
which we consider as a representative proxy for the overall
market
From 2000 to 2016 the observed companies experienced
a very irregular trend both in terms of growth rate and
EBITDA margin In the aftermath of the global financial crisis
the lowest growth rate value (-120) was recorded in 2009
manufacturing transporting - storage and wholesale and
retail trade were the industries showing the biggest fall of
business volume (-155 -121 and -104 respectively)
whilst water supply accommodation and food service and
electricity and gas showed the highest level of resilience to
the adverse economic and financial environment (-01
-23 and ndash26 respectively) Exhibit 29 shows that in
terms of median value there are no significant differences
in the growth rate taking into consideration company size
classes as we previously defined them Only from 2010 the
growth rates turned positive but still remaining below the
levels recorded in 2000
The analysis of the EBITDA margin changes in the same
period also does not highlight significant differences
between large companies and SMEs as shown in Exhibit
30 The lowest median EBITDA margin value (52) was
recorded in 2012 regarding in particular accommodation
and food service transporting and storage and agriculture
sectors (28 40 52 respectively) while electricity
and gas ICT and water supply were relatively immune to
the unfavorable economic and financial circumstances
(showing 113 109 and 105 EBITDA margin
respectively) At the end of 2016 the median EBITDA margin
(60) still remains below the levels recorded in 2000 (72)
Positive trends emerging from the last publicly available
financial statements (2016) the 2017 preliminary results
and the optimistic macroeconomic forecasts for 2018
confirm improvement of the Italian economy Looking
ahead we expect the Italian non-financial companies to
continue to experience gradual recovery in 2018 They are
going to take advantage of the favorable global economic
cycle low interest rates and supportive regulations that
inter alia foster the use of alternative non-bank financial
sources for company funding The financial resources raised
through Individual Savings Plans (PIR ndash Piani individuali di
risparmio) introduced by the 2017 Budget Law are driven
in primis by a favorable tax regime for savers and might
become an important additional source for SMEs funding
injecting new liquidity The government objective fixed euro68
billion as a target value and in 2017 nearly euro10 billion had
already been raised
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2004 2006 2014 20162000
5
20
10
0
15
-15
-10
-5
Exhibit 29 Growth rate (revenue YoY change) by size classes (median)
medium small
2008 2010 2012
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2004 2006 2008 2010 2012 2014 20162000
7
10
9
8
6
5
4
3
7
10
9
8
6
5
4
EBITDA margin by size classes (median)
medium small
27
So far one of the main obstacles PIR are facing is the limited
number of available assets which may lead to a possible
concentration of this financial resources in a small share of
the market comprising mainly relatively large companies
as shown by the early data in 2017
Another obstacle to rapid adoption of the newly available
financial resources is the lack of a standardized and broadly
accepted methodology for the risk assessment of potential
bond issuers
Generally speaking in 2018 we expect SMEs to contribute
more significantly to growth employment and innovation
whilst on average the respective EBITDA margin will remain
broadly stable (as shown in Exhibit 31) However 2018 will
still be a challenging year for SMEs and innovative startup
companies as they will have to face tougher barriers in
accessing bank credit andor approaching capital markets
compared to large companies We also expect some new
innovative solutions aimed at meeting SMEs financial needs
to become effective the SMEs current financial structure
together with new business opportunities prove their
ability in terms of rational use of the additional financial
resources
The new investments will allow most industries to thrive
also assisted by the Italian Governmentrsquos adoption of the
National Industry 40 Plan
The companies which will take up this opportunity may
improve their cash-flows even in the short-medium term
Finally companies with strong international market
positioning and large product diversification will have
stronger sales and margins growth
The key ratio values recorded from 2000 to 2016 related to
the analyzed entities show the improved financial health of
the companies proving good capability to strengthen their
equity base as shown in Table 6
Growth rate (2016)Medium
Total
Small Large
Growth rate (2018)Growth rate (2017)
Source Cerved database and Cerved Rating Agency elaboration
50
40
Exhibit 31 Growth rate and EBITDA margin forecast by size classes
EBITDA margin (2016)EBITDA margin (2018)
EBITDA margin (2017)
40
30
0
10
20
Medium
Total
Small Large
7570
65
0
6 5560
5550
4540
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
28
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The recorded financial ratios in the 2000-2016 horizon
indicate that on average
middot liquidity maintained a satisfactory level in the whole
observed period due to the positive economic cycle in
2017 and 2018 we expect a slight improvement in the ratio
middot the EBITDAinterest coverage ratio almost doubled its
value in 2016 compared to what was recorded in 2000
primarily due to a general reduction in the interest rates
particularly in the last three years we believe that in 2017
and 2018 the average ratio value will remain roughly at the
same level recorded in 2016
middot in 2016 ROE shows further improvement but is still
slightly lower compared to the value recorded at the
beginning of the observed period mainly due to the equity
base strengthening trend
middot Equity Ratio rose from 250 to 350 due to a significant
increase of equity capital in 2018 we expect further
strengthening of the ratio
middot Financial LiabilitiesTotal Assets ratio remained mostly
unchanged ndash financial debts representing roughly 30 of
the total assets
A positive trend regarding the net financial debt was also
observed in fact in 2016 70 of the sample improved their
NFDEBITDA and 73 the NFDEquity
Positive performances were found especially in the SMEs
segment as shown in Exhibit 32 in particular referring to
NFDEquity small and medium-sized companies recorded
a positive trend standing respectively at 092 and 089 in
2016 compared to 132 and 136 in 2000
Hence the financial risk profile appears to be well balanced
leaving no room for specific concerns regarding the
prospects of the Italian non-financial companies in 2018
In 2016 the median values for the total sample referring to
NFDEquity and NFDEBITDA remained respectively at 089
and 389 levels respectively
Looking ahead we expect these indicators to remain at
healthy levels in 2017 and 2018 with a slight improvement
in NFDEBITDA and a broadly stable level of the NFDEquity
ratio as shown in Exhibit 33
NFDEBITFA (2016) NFDEBITFA (2017)NFDEBITFA (2018)
40
Exhibit 33 NFDEquity and NFDEBITDA forecast by size classes
Source Cerved database and Cerved Rating Agency elaboration
404
20
25
45
35
30
NFDequity (2016) NFDequity (2017)NFDequity (2018)
05
06
09
10
08
07
Exhibit 32 NFDEquity and NFDEBITDA by size classes (median)
largemediumsmall
2016
2015
2014
000 5 10 15
Average2008-2013
Average2000-2007
total largemediumsmall total
Source Cerved database and Cerved Rating Agency elaboration
2016
2015
2014
203 0 405 0
Average2008-2013
Average2000-2007
29
Growth and profitability improvement spanned over all sectors
Exhibit 34 shows the relative positioning of the 10
macro-industries in the short-medium term considering
the median values related to revenue growth rate and
EBITDA margin
The historical median values are calculated on the basis
of financial data obtained from the annual financial
reports 2014-2016 filed in the Chamber of Commerce
public registers the projected median values for 2017
and 2018 are the result of the analysis of this study
As expected there are significant differences in
positioning between different industries in terms of
both historical and projected values
In 2018 we expect manufacturing and accommodation and
food services to maintain top positions already reached in
2016 and 2017
For the electricity gas mining and quarrying industry
2018 may be the turning point showing the first positive
signals after experiencing some difficulties over the last
few years
None of the other industries show significant changes in
2018 compared to their 2016 positioning
Source Cerved database and Cerved Rating Agency elaboration
A 50
57599586886358
3849
3620083721
-110320
-1112
210322
-1814021122
1413
030124
-5010284025
0555
20-4614
-4607212105
0430
210328-2310203218
0832
2310300512233720
1637
BCDEFGHIJ
A 625296
1441401016934
15352
504969
103121916227
10639
4764676185562639
68112
4873687090592845
75120
456772928856
45
7898
4667759090573147
7698
4668769394583147
77102
EBITDAmarigin
BCDEFGHIJ
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018Growthrate
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
Exhibit 34 Growth rate and EBITDA margin by industry
-70 -50 -30 -10 10 30
2016E2017F2018
50 70 90
Median=68
Median=2100
20
40
60
80
100
120
A=Agricolture B=Mining and quarrying C=Manifacturing D=Electricity and gas E=Water supply F=Construction G=Wholesale and retail trade H=Transporting and storage I=Accomodation and food service J=ICT
D
B
E
FHA G
C
I
J
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
30
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Further strenthening in companiesrsquo financial structure
Exhibit 35 shows the relative positioning of the 10 macro
industries in the short-medium term considering the
median values related to NFDEBITDA and NFDEquity
ratios
The historical median values are calculated on the basis
of financial data obtained from the annual financial
reports 2014-2016 filed in the Chamber of Commerce
public registers the projected median values for 2017
and 2018 are the result of the analysis of this study
There are even more significant differences in
positioning between industries regarding NFDEBITDA
and NFDEquity ratios when compared to growth rate
and EBITDA margin differences
Generally in the observed period there is no evidence of
significant changes among industries considering their
relative positioning related to NFDEBITDA and NFD
Equity ratios
In 2018 we expect accommodation and food services
and information and communication services to
maintain top positions already reached in 2016 and
presumably confirmed in 2017
Exhibit 35 NFDEquity and NFDEBITDA by industry
2016E2017F2018
Median=37
Median=08500
030 5 070 9 111 3
20
30
40
50
60
70
10
A=Agricolture B=Mining and quarrying C=Manifacturing D=Electricity and gas E=Water supply F=Construction G=Wholesale and retail trade H=Transporting and storage I=Accomodation and food service J=ICT
EH
C
BF
G
A
D
J
I
A 150101113081112149151120
079131
123075088101097125123103
072079
114067083052090108119102
067076
113060080045089096114092
074069
125076080045089106109086
050060
127072080044091
108084
051056
128067079043093106107081
051051
BCDEFGHIJ
NFDEquity
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
A 597219280305251301338250
153260
676394388342298453499349
254337
707482387293277498532337
277334
696392373254305484494308
231315
747401358330285544483294
183312
722390340341280511470290
178293
710380310329272492452281
177289
NFDEBITDA
BCDEFGHIJ
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
Source Cerved database and Cerved Rating Agency elaboration
106
31
Exhibit 36 Equity ratio by industry
Average 2000-2007 2014 2015Average 2008-2013 2016
Source Cerved database and Cerved Rating Agency elaboration
05
10
20
30
15
25
3540
5045
AB C DE FG HI J
Exhibit 37 EBITDA interest coverage by industry
Average 2000-2007 2014 2015Average 2008-2013 2016
Source Cerved database and Cerved Rating Agency elaboration
0
5
10
20
15
AB C DE FG HI J
A 1113140911151211
1408
1013131012131209
1208
1114151012131311
1309
1214151012151312
1309
1215161113161412
1409
BCDEFGHIJ
Liquidity ratio Median2000-07
Median2008-13 2014 2015 2016
A 0377677447858463
8960
0332
8145524536
4832
0342486042273848
3246
0537606853395765
4069
0743676559416378
5882
BCDEFGHIJ
ROE Median2000-07
Median2008-13 2014 2015 2016
Table 7 Liquidity ratio by industry Table 8 ROE by industry
Source Cerved database and Cerved Rating Agency elaboration
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
32
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Agriculture
Considering the recent price decline for agricultural
products putting EBITDA margin under pressure for
most of the industry participants we anticipate a slow
revenue growth in 2018 We also foresee more stable
margins in 2018 and investments to continue at a faster
pace in the near future mainly aimed at transforming the
agricultural activities into a high-tech industry Climate
and cultural changes are the main exogenous risks that
may negatively influence the sector
Mining and quarrying
Over the last few years the mining industry has been
challenged by record low metal prices and this has
resulted in a weak growth of supply and a cut in
investments especially in the new mines opening We
foresee a modest revenue growth in 2018 supported
by more stable prices rather than by government
infrastructural investments Margin pressure will remain
mostly unchanged in 2018 We do not expect a significant
increase in capital expenditure for most companies
while only a minority of industry participants will invest
in new capacities searching for new growth opportunities
by introducing new higher margin outputs Overall we
anticipate relatively stable key financial indicators
Manufacturing
We believe that in 2018 Italian manufacturing
representing 2nd European and 7th world player in 2016
will remain the beating heart of the national economy
In our view the expansion of internal demand the
improvement of business and customer confidence and
the wider export opportunities are the key drivers for
revenue growth (up to nearly 30) Despite the natural
selection the occurred during the economic recession
domestic competition and especially the competition
from lower income countries will remain challenging in
2018 creating further profitability pressure especially in
some highly fragmented segments
As a conditio sine qua non for market survival many
companies will be involved in a ldquowinning the innovation
gamerdquo process translated into a considerable capex
expenditure directed at process optimization which
inevitably must be accompanied by innovative marketing
and commercial strategies The companies especially
smaller ones which are not ready lsquoto play the gamersquo
remaining risk averse are likely to fall behind
Key financial indicators referring to the industry in terms
of net financial debt to equity and net financial debt to
EBITDA are likely to remain overall stable in 2018
In our view the best performing manufacturing industries
in 2018 will be the following
Automotive
extensive vehicles replacement process in 2018
high competition pressure China maintaining a key role
high level of innovation in mobility and connectivity
new strategic partnerships and MampAconservative stand towards EBITDA margin improvement
Chemistry amp Pharmaceutics
solid macroeconomic fundamentals will support
the revenue growth driven mainly by large companies
on average a stable EBITDA margin of about 10
is expected global presence is a must to achieve higher
level of profitability
RampD remain key factors for further market expansion
moderate level of MampA operations in 2018 slowing
down when compared to those carried out in the
previous year
Machinery amp Equipment
revenue growth in 2018 up to nearly 25 reflecting
the fact that all manufactures remain focused on RampD
and NPI (new product introduction)
cost management strategies are going to persist
but generally speaking with no significant impact on
EBITDA margin in 2018
heavy equipment manufactures still under pressure in
2018 to provide engineering capability and capacity
33
Energy and gas
Italian companies operating in the energy industry are
facing a complex market environment with many open
questions about risks related to regulations a drop
in consumption high competition levels and EBITDA
erosion
Generally we expect a more stable landscape in 2018 in
terms of commodity prices and consumption However
risk regarding prices and volumes will remain strong
resulting in a higher volatility of revenues In our view
the current margin pressure is unlikely to ease over the
next two years The final overcoming of the sondashcalled
ldquoMaggior Tutela Regimerdquo may lead to almost zero margin
for the retail operators We expect industry participants
to continue to focus their attention on cost efficiency and
on protecting profitability by embracing new business
models and examining the role that digital technology
can play in improvement of EBITDA margins We believe
that the above described strategies will be a central
topic for the operators intending to attract capital We
also believe that energy producers could see a slight
debt increase in 2018 aimed at improving productivity
and synergies Finally in 2018 we envisage a significant
number of MampA operations in the sector led by synergy
effects such operations might produce
Water supply waste management and sewerage
In recent years the water supply waste management
and Italian sewerage industry has recorded a slower
growth compared to the pre-crisis period However
due to the last two yearsrsquo important investments in the
water infrastructure waste sorting and recycling Italy
ranks as one of the top European countries in terms
of growth rate of recycling and packaging recovery
We believe that the expected general increase in
industrial output will produce a slight growth in water
consumption and waste treatment The demand for
sustainable solutions will continue to persist requiring
new investment in technologies based on a customer-
centric and sustainable approach aimed at improving
efficiencies and facilitating reuse Expectations also
reflect our view in terms of wider government interest
and spending in this industry We expect profitability
to remain broadly in line with the results obtained in
2016
Construction
After a weak increase in revenues recorded by the
construction industry operators in 2016 and the
modest result anticipated in 2017 both reflecting
a deteriorating demand and decreased volumes of
bank loans (mainly those for small and medium-
sized companies) we expect 2018 to be the turning
point for this industry We foresee that the volume of
residential and private non-residential constructions
will remain at relatively low levels in 2018 and that
the positive trend in housing renovation and public
works investments will continue taking advantage of
the allocated funds established by the Budget Law for
2017 Small and medium-sized businesses focused on
residential construction may face a slight profitability
erosion while we believe some growth in EBITDA
margin may be recorded by large Italian companies
operating internationally Due to the high perceived
risk historically there has been a strong financial
market mistrust of the construction companies which
we believe is likely to ease over the coming years
Wholesale and retail trade
During the crisis period wholesale and retail trade
industry faced a sudden interruption of the gradual
growth that had taken place up to that moment mainly
due to a loss in real purchase power and in consumer
confidence also translated into profitability erosion
In 2016 the data showed how the industry is moving
toward a recovery period Looking forward in 2018 we
expect to record a steady revenue growth supported
by an increase in global trade and improved consumer
confidence Despite the foreseen growth operators
will continue to face consistent pressure mainly in the
retail segment due to the high proliferation of new retail
purchase channels and market fragmentation
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
34
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Transportation and Storage
After a troubled 2016 characterized by an overcapacity
and a decrease in commodity demand hitting shipping
revenues in particular we foresee a moderate overall
recovery in 2018 driven mainly by an increase in
international shipments and air traffic The growing
number of innovative startups will continue to persist
increasing the competitive pressure in the industry We
anticipate a constant growth of e-commerce enabling a
quick reaction of on-line retailer and logistics providers
We believe that operators will continue to invest in
new high-tech solutions experimenting new models of
mobility and smart logistics
Despite very strong competition we expect the median
operating margins to remain steady However global
political uncertainties and related risks are strong with
possible quick and sharp negative impact on business
volumes and margins of the companies operating in
these industries
Accommodation and food services activities
In the last two years operators in the accommodation
and food service activities industry mainly medium
and small sized enterprises have seen steady revenue
growth and satisfactory profitability ratios Many
operators were focused on reviewing their business
models and offering additional services to their
customers a necessary strategy to maintain or expand
market positioning strengthen margins and improve
customer experience We expect the revenue growth
to continue in 2018 with a minimal median margin
improvement We believe accommodation and food
service activities will attract new capital investments
in 2018 to help the ongoing transformation process
and improve the accommodation infrastructure and
services
Information and communication technologies
The Italian information and communication technology
industry took longer to recover from the economic
crisis recording overall a negative median growth
rate until 2014 Software services and innovation
technology were the major contributors to revenue
growth (as a percentage) in 2016
Over the forecast period we foresee a modest revenue
growth for the ICT operators as a whole while the
technology industry will continue to achieve rapid
growth focusing on maintaining the competitive pace
of innovation In our view a key challenge for the ICT
operator may be the availability of matching skills
The outlook is relatively stable in terms of profitability
and key financial indicators
The following two pages show the details of the
previously discussed key performance indicators
35
Exhibit 38 Growth rate and EBITDA margin manifacturing sectors
-70- 50 -30 -10 103 0
2016E2017F2018
50 70 90
Median=76
Median=3000
20
40
60
80
100
120
1=Automotive 2=Chemistryamppharmaceutics 3=Clothing 4=Equipment 5=Food beverage and Tabacco 6=Heavy Manifacturing 8=Paper and Packaging 9=Tecnology and Telecomunication 10=Textile industry
6
10 5
3
8
91
74
2
50AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
57599586886358
3849
3620083721
-110320
-1112
210322
-1814021122
1413
030124
-5010284025
0555
20-4614
-4607212105
0430
210328-2310203218
0832
2310300512233720
1637
Growth rate Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
EBITDA margin Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
Source Cerved database and Cerved Rating Agency elaboration
625296
1441401016934
15352
504969
103121
916227
10639
4764676185562639
68112
487368
7090592845
75120
456772
9288562845
7898
4667759090573147
7698
4668769394583147
77102
1=Automotive 2=Chemistryamppharmaceutics 3=Clothing 4=Equipment 5=Food beverage and Tabacco 6=Heavy Manifacturing 8=Paper and Packaging 9=Tecnology and Telecomunication 10=Textile industry
2016E2017F2018
Median=30
700
600
500
400
300
200
100
000000 020 040 060 080 100 120
Median=08
Exhibit 39 NFDEquity and NFDEBITDA for manifacturing sectors
2
4 8
101
9
9
3
57
Source Cerved database and Cerved Rating Agency elaboration
096AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
104146095152117112109
098087
087080116068118083088086
084078
075074104069107082080079
084083
072064100065105084122081
079081
082066104065105080091079
077082
081067103065105079087079
077081
076067101064104077083078
076080
NFDEQUITY Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
227AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
258334222397249255259
315202
338313443305495363403412
480337
315306436328479373380397
482316
264269490303467366403383
515317
269243507090106127090106
106106
413343478088105127088105
105105
399333465086104127086104
104104
NFDEBITDA Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
36
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Exhibit 40 Growth rate and EBITDA margin for wholesale and retail trade sectors
20 40 60 80 100 120 140 160
2016E2017F2018
Median=31
Median=33
0000
20
10
30
60
50
70
1=Automotive 2=Retail 3=Wholesale
40
3
12
2016E2017F2018
Median=45
700
600
500
400
300
200
100
000050 070 090 110 130 150 170 190
Median=11
Exhibit 41 NFDEquity and NFDEBITDA for wholesale and retail trade sectors
1=Automotive 2=Retail 3=Wholesale
21
3
37
Ratings will remain broadly stable
The following section presents a risk profile analysis
based on Cerved Rating Agencyrsquos outstanding and
monitored public and private ratings issued from
2013 to 2017 on Italian non-financial companies
and operating in the industries discussed in this
study (data as of 31 December)
Exhibit 42 and Table 9 show an overview of 1-year
effective default rates over the 2000-2017 horizon
related to the sample bankruptcy and other legal
proceedings and debt restructurings as default
events
The default rate trend shows a general
improvement from 2014 onwards both by
company size classes and by industry however
considering the entire sample the overall default
rate still remains higher when compared to its pre-
crisis level especially regarding smaller companies
operating in the construction sector
Exhibit 43 shows the effective default rates over
2013-2017 horizon based on Cerved Rating
Agencyrsquos definition which considers as default
events
middot bankruptcy and other legal proceedings
middot debt restructuring
middot missed or delayed disbursement of a contractually
required interest or principal payment ie missed
payment on bonds material protests (on cheques
or trade bills) or prejudicial acts (judicial mortgages
distraint of property)
The effective default rates over the 2013-2017
horizon show decreasing trend and satisfy the
monotonicity constraint regarding all Cerved
Rating Agencyrsquos rating classes (Exhibit 44)
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2003 2004 2005 2006 2007 2014 2015 2016 20172000 2001
5678
12
3
4
0
Exhibit 42 Avarage 1-year default rate by size over 2000-2017 horizon
medium small
2008 2009 2010 2011 2012 2013
Mining and quarring
Manifacturing
Electricity gas steam and air conditioning supplyWater supply sewerage
Construction
Wholesale and retail trade repair of motorTransporting and storage
Accomodation and food service activities
Information and communication
24221809
5212
282915
2529
38533424
13027
454830
4838
36542537
15929
424421
4323
23461921
13226
293226
3022
Source Cerved database and Cerved Rating Agency elaboration
Table 9 Default rate by industry over 2000-2017 horizon
Total
NACE Average2008-2015
Average2000-2017 2016 2017
2016
Source Cerved database and Cerved Rating Agency elaboration
C21C12C11B22B21B12B11A11 A12 A13 A21 A22 A31
60
50
40
30
20
10
0
Exhibit 43 1-year default rate over 2013-2017 horizon
20172013 2014 2015
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
38
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The analysis of historical rating distributions in the
same period shows clear differences in terms of modal
rating class by company size As shown in Exhibit 43
the modal rating class for the large companies is A31
B11 for the medium and B12 for small companies
(considering company size classes as they have been
defined ad hoc by Cerved Rating Agency for the
purposes of this study)
Overall the corporate rating distribution in the
Source Cerved database and Cerved Rating Agency elaboration
C21C12C11B22B21B12B11A11 A12 A13 A21 A22 A31
30
25
20
15
5
10
0
Exhibit 44 Rating distribution frequency by size classes
large
30
25
20
15
5
0
10
medium smallRating 2013 total Rating 2017 total Rating 2017 forecast
observed period is skewed towards the investment-
grade rating categories (ie Cerved Rating Agency
rating classes from A11 to B12) representing 700 of
the whole sample 250 is concentrated in the safety
(A rating classes) and 450 in the solvency (B11-B12)
classes
We anticipate the rating distribution to remain
broadly unchanged in 2018 with the rating migration
concentrated mainly in the B category
39
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100543
2414
4407
4407
2636
4554 4558
2403 2311
535 527
90
10
0
Exhibit 45 Rating distribution frequency by area of risk - Total companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency]I nvestment GradeA11-A31 [Safety]
2509 2604
704 4407706 4407716
324
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
985
5658
4407
3033 2992 2898
925 907
300 318
90
10
0
Exhibit 46 Rating distribution frequency by area of risk - Large companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
5783 5878
869 4407878 4407878
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
4407
4407
3626
4080
17591695
439 449
90
10
0
Exhibit 47 Rating distribution frequency by area of risk - Medium companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
3571 3776
7044407780 4407786
456
1805
774
4113 4232
603
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
2824
1900
4407
4673 4850 4761
2833 2754
600 633
90
10
0
Exhibit 48 Rating distribution frequency by area of risk - Small companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
1716 1852
657 4407657 4407661
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
40
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Slight improvement in general creditworthiness
In our opinion in 2018 the creditworthiness of the
observed Italian non-financial companies will remain
stable for almost 86 of entities Migration of ratings is
expected to be moderate resulting in approximately 14
of rating upgrades (9) and downgrades (5) at the end
of 2018 compared to the outstanding ratings at the end
of 2017 The vast majority of the rating changes (921)
will be limited to one-class migration as shown in the
1-year projected transition matrix (Table 10) We believe
that more than one third of the expected downgrades
will be concentrated in the energy gas mining and
construction sectors Over the last years the average
credit profile of companies active in these industries has
been relatively weak and due to the forecast market and
regulatory conditions we do not envisage opportunities
for a significant risk profile improvement in 2018
Despite the expected rating migrations for individual
entities in 2018 the current industry modal rating
classes are unlikely to change
On the other hand stable and positive outlooks will
prevail in the manufacturing industry wholesale and
retail trade and accommodation and food service This
is due to the increase in the number of companies
active in these sectors which will maintain andor
improve their business and financial performances
Indeed as shown in Table 11 in 2018 the rating outlook
remains differentiated by industry whilst in terms of
the expected general probability of default we foresee
a modest improvement (349) compared to the one
recorded in 2017 (366)
Table 10 1-year transition matrix
Source Cerved database and Cerved Rating Agency elaboration
2017
A11
A31
B11
C11
C12
B21
C21
B22
B12
A12
A13
A21A22
F 2018A11 A12 A13 A31 B11 C11 C12B21 C21B22B12A21 A22
000 530
066
054 451034 435
027 753055 901
1033121247 1624
260 1038088
000
000000037
028
295
290
1063
179
455050647
043425
026490020208
000208
000152
000000
00000010000
9821
9318
92679015
87708583
81497646
8665
9617
9710
8605
419024
41
The information and data supporting Cerved Rating Agency rating opinions related research and credit opinions originate from sources Cerved Rating Agency considers to be accurate however Cerved Rating Agency cannot independently verify the reliability and accuracy of the information and data in every instance This publication may not be reproduced retransmitted or distributed in any form without the prior written consent of Cerved Rating Agency Cerved Rating Agency assumes no liability for correctness completeness and topicality of the information contained in this publication The analyses underlying this study do not provide advice of any sort
26
n
6670
486
59
Exhibit 49 Ratings outlooks by size
Large
Medium Positive Stable Negative
Small
21
13
Large
Medium
Small
Source Cerved database and Cerved Rating Agency elaboratio
Table 11 Ratings and probability of default 2018 outlook by industry
Source Cerved database and Cerved Rating Agency elaboration
NACE Micro industryDowngrade
B-Mining and quarryingAutomotive
900814
848
812
880812
847
813 172
170
174
144
8264 36
08
104 433 436
392 373
22724815
362 360
876
876
914
848
849
804
887
882
916
901835870899 64
866760
43
68
5659
58
47
61
49
74
78 75
14
50
37
36
5393
32
50
41
45
3899
77
91
316
372
355
364
308
491
326
318 296
331
312
381
367
359
322
495
452
433
403429
389
364369
363
313
452
323
594
38
315358
603
307
345 350
67 5318
469289 274
470
147
116
138
851
821AutomotiveRetail
Wholesale
Total
Chemistryamppharmaceutics
ClothingEquipment
Food Beverage and Tabacco
Heavy Manifacturing
Other Manifacturing
Textile industry
Total
Tecnology Media ampTelecomunication
Paper Packaging ampForest products
C-Manifacturing
D-Electricity gas steam and air conditioningsupply
F-Construcion
H-Transportig and storageI-Accommodation and food service activitiesJ-Information and communication
G-Wholesale and reatail traderepair of motor vehicles and motor-cycles
E-Water supply sewerage waste
Average ForecastPD 2018
Expectedtrend
Average PD 2018
Ratings outlooks
Stabl pgrade
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Cerved Rating Agency SpAVia dellrsquoUnione Europea n 6A-6B20097- San Donato Milanese (MI)
Tel +39 02 77541 - Fax +39 02 76020458
ratingagencycervedcom
Rating Agency
3
Preface
The projections in this study reflect Cerved Rating Agencyrsquos opinion on the economic and financial situation and the
general risk level of Italian non-financial companies in 2018
The study is the product of the analysis of the Global European and Italian macroeconomic historical data between
2000 and 2017 and the forecasts for 2018 combined with specific individual data between 2000 and 2017 related to
Italian non-financial companies with turnover exceeding euro5 million
CERVED RATING AGENCY SpA | Preface
4
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Assumptions
5
A number of assumptions have been adopted for the projections exposed in this study more specifically
the Italian economy is expected to grow at a slower pace in 2018 with GDP forecast at 15 compared to 16
recorded in 2017
the inflation rate is expected to decrease from 14 recorded in 2017 to 12 in 2018 remaining below the
European Central Bank target rate of 20
the average price of oil is expected to be close to $60 a barrel in 2018 whilst the prices of non-fuel commodities
are expected to remain mostly unchanged
actual exchange rates are expected to remain relatively stable at the levels of the last three months of 2017 ie
we do not expect the average EuroUS Dollar exchange rate to exceed 12 at this level exports will gain pace
driven also by a general improvement in the economic cycle and therefore resulting in a higher demand
the European Central Bank is expected to leave the key interest rates at the present low levels and to continue
to apply non-standard monetary policy measures ie net asset purchases at a monthly pace of euro30 billion until
the end of September 2018 despite the reduction in size of the net asset purchases Italian credit institutions
are likely to expand their credit activities partially also due to a significant reduction in the amount of non-
performing loans thus supporting the momentum
the investments are expected to gain strength due to fiscal incentives higher domestic demand and supportive
credit conditions
in the next twelve months we do not envisage room for a significant change in Italian economic and financial
policies in particular regarding the fiscal system and public debt reduction due to the result of the general
political elections scheduled in Italy for 2018 moreover we believe that the results of the referendum for
autonomy held in Lombardy and Veneto will not have any significant impact on the general economic trend in
2018
finally the study does not consider the impact of extraordinary events such as an undesirable further escalation
of USA-North Korea andor USA-Iran disputes or the European disintegration processes on the economic and
financial trends underlying the analysis
Assumptions
CERVED RATING AGENCY SpA | Assumptions
6
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Executive summary
7
This research aims to present two outputs
- projected economic and financial performances in 2018 of the Italian non-financial companies
- the expected risk level of such entities at the end of 2018
the sample extracted for the analysis consists of Italian joint stock and limited liability companies with turnover
exceeding euro5 million and includes on average roughly 50000 entities per year operating in 10 macro industries
(manufacturing further detailed in 10 micro-sectors) the related revenues in 2016 amounted to euro18 billion
representing 769 of total revenues of all Italian joint-stock and limited liability companies
the World European and Italian historical (2000-2016) and estimatedprojected (2017-2018) macroeconomic
data are combined with specific individual company data with the aim of obtaining accurate and reliable
forecasts
the Cerved database was the main source for the analysis of economic and financial performances of the
companies included in the sample Cerved Rating Agency database highlighted the risk level of such entities
based on the credit rating activities performed by the Agency
the research output affirms that gradual recovery of Italian non-financial companies is expected to continue in
2018 both in terms of revenue growth and improvement of the financial structure primarily for manufacturing
and accommodation and food services industry the trend is mainly fostered by positive global economic cycle
low interest rates and favorable regulatory framework supporting firm funding investments innovation and
employment
the general risk level in 2018 is assumed to remain approximately at the levels recorded at the end of 2017
a slight improvement in terms of rating upgrades is expected for 9 of the companies analyzed mainly
concentrated in the manufacturing wholesale and retail trade and the accommodation and food service
industry
Executive summary
CERVED RATING AGENCY SpA | Executive Summary
8
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
World economy Outlook 2018
9
Growth is predicted to gain strength
The predicted global economic growth rate is 39
in 2018 (against 36 in 2017) According to the
International Monetary Fund forecast in 2018 the
two biggest world economies US and China will
grow at 23 and 65 rate respectively
Consumer price inflation rate to rise
The global consumer price inflation rate is expected
to rise assisted by higher commodity prices Oil price
averaged $54barrel in 2017 and is predicted to remain
close to $60barrel in 2018 whilst oil consumption is
forecast to record an uptick of 14 in 2018 In addition
also metal prices are expected to increase modestly in
2018
Trade to increase
Global world trade is predicted to increase further
in 2018 fostered by a recovery in manufacturing
activity and an increase in investment especially
in advanced economies In addition a recovery for
the commodity exporters is expected
Global risks remain tilted to the downside
These include increased trade protectionism as well
as economic policy uncertainty possible adversity
in the financial system due to easy monetary
conditions and over the longer term weaker
potential growth In addition the upcoming political
events and the current political uncertainties may
negatively affect the general economic conditions
Commodity Fuel Price Index
Metals Price Index
Source IMF ECB OECD
20022000 20062004 2008 20122010 F201820162014
50
0
150
100
200
250
1
0
3
2
5
4
7
6
Exhibit 2
Volume of imports of goods and services (Y-o-Y change)
Volume of exports of goods and services (Y-o-Y change)
Current account balance ($ billion) Source IMF
20112010 20132012 2014 20162015 F20182017
2
0
8
4
10
12
14
100
0
300
200
400
500
Exhibit 3 Global trade and current account balance world
EPU Index World
VIX Source FRED
20112010 20132012 2014 20162015 F20182017
50
0
100
150
200
250
5
0
15
10
20
25
30
Exhibit 4
Euro Area
EMDEs
United StatesWorld
Other advanced economies
China
OthersSource IMF and Cerved Rating Agency elaboration
20112010 20132012 2014 20162015 F20182017
20
0
60
40
80
100
1
0
3
2
5
4
6
Exhibit 1 Contribution to global growth world
CERVED RATING AGENCY SpA | World economy Outlook 2018
10
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
European economy Outlook 2018
11
Euro area gdp grows unemployment falls
GDP growth in the euro area rose around 21 in
2017 and is predicted to continue at a broadly similar
pace in 2018 Furthermore the unemployment
rate will continue to follow a declining trend and is
forecast to fall to 87 in 2018 (from 92 in 2017)
Industrial production improvement
Investments will accelerate and the international
environment will contribute positively to an increase
of exports (in line with the global growth) which will be
one of the principal driver of an industrial production
improvement in 2018
Further credit activity expansion
Across the euro zone countries companies are
benefiting both from eased lending conditions
and increase in the number of alternative lenders
The total amount of loans to households and non-
financial corporations grew by approximately 14
in 2017 whilst in 2018 it is predicted to increase more
slowly especially in the non-financial corporate
sector
Inflation rate to be stable
Consumer price inflation accelerated at the
beginning of 2017 mainly due to a rise in energy
prices The harmonized index of consumer prices
(HICP) is estimated at 15 in 2017 In 2018
the impact of energy inflation is expected to
decline resulting in a lower inflation rate outlook
(approximately 14)
Germany
France
ItalyEuro Union
Spain
UK
OthersSource IMF ECB OECD
20112010 20132012 2014 20162015 F20182017
20
0
60
40
80
100
0
-1
2
1
3
4
Exhibit 5 Contribution to European growth European Union
EPU Index euro areaIndustrial production euro area (Y-O-Y change)
Source IMF ECB OECD
2011 2015 2017
-2
-2
-3
-1
-1
1
1
0
2
2
3
100
0
300
200
250
400
450
500
Exhibit 7 Industrial production and policy uncertainty index euro area
2010
350
150
50
20182013 2014 20162012
Euro Area
Source ECB
20112010 20132012 2014 20162015 2017
500
0
1500
2500
2000
3000
1000
10000
9900
9800
9700
9600
9500
9400
9300
9200
Germany Spain France Italy
20112010 20132012 2014 20162015 20182017
BCI euro area
CCI euro area
Source IMF ECB OECD
96
95
98
97
99
101
102
100
103
0
-1
2
1
4
3
5
Exhibit 6
CERVED RATING AGENCY SpA | European economy Outlook 2018
12
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Highlights on italian economy
13
Gdp growth is under way to consolidate in 2018
From 2000 to 2017 the Italian economy was more
vulnerable compared to other highly developed
countries in particular those of the euro area
The Italian real GDP at the end of 2017 was roughly
at the same level recorded in 2000 whilst the euro
area countries and specifically Germany and France
experienced a considerable growth in the same period
(188 205 and 198 respectively)
The Italian GDP has started to increase moderately only
since 2014 mainly due to an improvement in domestic
demand but its growth still remains below the growth
rates of the majority of euro zone countries The poor
performance of the labor and total productivity factor
accounts for most of the difference
An ageing population and a weak labor market
participation have also contributed negatively to
potential growth Structural reforms in particular the
Jobs Act and tax incentives on new labor contracts
contributed to the increase in employment making the
Italian labor market more flexible and efficient
In 2018 we expect the economic growth to be slightly
below the level reached in 2017 The trend will be
sustained by the world economy positive cycle
including higher levels of international trade volume
Italian companies will benefit from favorable credit
lending conditions due to an expanding credit activity
of the banking system and low interest rates
Whilst the Italian government adopted a set of dynamic
and diverse policies for 2018 we believe that some of
those previously introduced have already contributed
to the GDP growth in 2016 and 2017 thus reducing the
combined effect in 2018
Source World Bank
2000 2002 2004 2006 2008 2010 2012 2014 2016
1500
1000
500
0
2500
3500
3000
4000
2000
13000
9500
10000
11000
12000
12500
10500
11500
Exhibit 10 GDP in Europe ($ billion)
Germany Italy Euro areas (11countries)France
Total multifactor productivityEmployment growth
Source OECD
-2
-4
-6
-8
2
0
4
6
Exhibit 9 Italian GDP employment and total multifactor productivity (Y-o-Y change)
2000 2002 2014 20162004 2006
GDP growth
20122008 2010
CERVED RATING AGENCY SpA | Highlights on italian economy
14
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The number of active companies has increased buthellip
The number of active companies in Italy registered at
the Chamber of Commerce as of December 31st 2016
amounted to 5145995 305629 more than in 2000
(63)
The increase in registered active companies is the result
of the positive trend from 2000 to 2008 (98) partially
cancelled by the decrease from 2009 to 2016 In 2017 a
slight improvement is expected to be recorded however
the number of active companies remains below its peak
value (5316104 entities) reached at the end of 2008
Exhibit 11 shows both the trend of active Italian companies
in the period 2000-2016 and their breakdown by legal
form We observe that the increased number of Joint Stock
Companies and particularly Limited Liability companies
(1206) was able to compensate the decrease in Unlimited
Partnerships (-62) and Sole Proprietorships (-79)
Companies are abandoning traditional sectors
Exhibit 12 shows the breakdown of the Italian active
companies at the end of 2000 and 2016 by industry
It can be observed that in many traditional sectors
the number of active companies decreased eg in
agriculture (-294) and manufacturing (-226) whilst
the number of companies increased in construction
(273) and wholesale and retail trade (39)
A very significant rise in the new registered companies
(456) occurred in other industries in particular
in the service industry offering information and
communication IT and professional scientific and
technical services
Joint Stock and Limited Liability Unlimited Partnership Sole proprietorshipO ther forms
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 2012 2013 2014 2015 20160
6000000
5000000
4000000
3000000
2000000
1000000
Exhibit 11 Italian active companies 2000-2016
Total
Source Movimprese and Cerved Rating Agency elaboration
Exhibit 12
Breakdown of the Italian active companies by industry 2000-2016
2000
635286 13
1059005 22
639778 13
589707 12
183 856 4 226964 5 150772 3
1354998 28
965452 19
747738 14
495247 10
750863 15
150888 3
379899 7 247187 5
1408721 27
2016
C Manufacturing
F Construction
H Transporting and storage
I Accommodation and food service activities
L Real estate ativities
G Wholesale and retail traderepair of motor vehicles and motorcycles
X Other
15
Number of bankruptcy and other legal proceedings to decrease further
From 2000 to 2016 the number of bankruptcies and
other legal proceedings protests and prejudicial
acts in Italy mirrored the general trend of the
Italian economy
After reaching its minimum level in 2007 (5969)
the number of bankruptcy procedures in the
period 2009-2014 increased dramatically reaching
its peak value of 15608 in 2014
With the improvement in the economic and financial
environment starting from 2015 the number of
bankruptcy procedures decreased sharply in all
macro sectors returning approximately to the
levels recorded from 2000 to 2006 A positive
trend was recorded also in 2017 bankruptcy
procedure initiated for 11937 companies -113
when compared to the same period in 2016 In
absolute terms the highest number of bankruptcy
procedures was recorded in the service sectors
followed by the construction and manufacturing
Worth mentioning is the design of a new Italian
bankruptcy law that should be approved by
October 2018 The regulatory framework aims at
more efficient resolutions of cases of company
crisis supporting continuity of its operating
activities and safeguarding the interest of creditors
by introducing innovative solutions such as pre-
crisis warning mechanisms
Other legal proceedings after reaching its
maximum level in 2013 (3593) in 2016 came down
to 1993 and the trend continues in 2017 evidencing
1866 procedures -64 when compared to the
same period in 2016
In the last five years new protests and prejudicial
acts have also shown a decreasing trend with
ndash527 and ndash70 of acts respectively in 2017
compared to the numbers recorded in 2013
-6
Exhibit 13 Bankruptcy
BankruptcySource Cerved databaase
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
10729 108311163612287
10338
59697307
9189
1108812022
12437
14031
1560814682
13459
11937
Other legal procedingsSource Cerved database
1500
1000
500
02000
940 994 1125 1211
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
2500
3500
3000
4000
2000
1110
16691540
18702094 2057
2342 2475
3593
3132
2720
1993 1866
Exhibit 14 Other legal procedings
1211
100 45000
4000090
80
70
60
50
40
30
20
10
02015
35000
30000
25000
20000
15000
10000
5000
02013 2014
Protets
703
297
41438
Total
Source Cerved database
Prejudicial acts
2016 2017
665
335
34527
570
43032660
527
473
546
454
2523828929
Exhibit 15 Protests and prejudical acts
CERVED RATING AGENCY SpA | Highlights on italian economy
16
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Core inflation rate to rise
Italian headline inflation will experience a modest
decline in 2018 compared to the previous year
(12 and 14 respectively) Core inflation
however is predicted to increase to 12 in 2018
(up from 10 in 2017)
Exports and import are accelerating
Exports and imports will both accelerate in 2018 (41
and 44 respectively) mirroring the positive trend
and expectations in global trade and the rising of the
external demand Machinery and equipment industry
will still remain in ldquopole positionrdquo due to companies
generous investment and tax incentives In general
in 2018 Italian exports will increase more in the Extra
European Union countries
Investment continues to gain strength
Investment has gained strength and will continue to
do so at a relatively fast pace supported by effects of
the tax incentives (Stability Low 2017) low interest rate
and improvements in business confidence Indeed
investments are expected to increase 30 in 2018
(up from 24 in 2017) Construction investments are
forecast to accelerate slightly also thanks to more
resources earmarked for public investment
Harmonised core infation
Source OECD and IMF
2003 2006 20092000 2012 2015 F2018
2
1
-1
0
4
3
5
6
Exhibit 16
Imports of goods and services (Y-o-Y change)
Exports of goods and services (Y-o-Y changes)
Total dometic demand (Y-o-Y change)
Source OECD and IMF
20062000 2015 F2018-5
-15
-20
5
0
-10
10
15
Exhibit 17 Exports imports and demand Italy
20122003 2009
Wholesale and retail trade (Y-o-Y change)
Total investments ( of GDP)
Heavy industry (Y-o-Y change)
Other services (Y-o-Y change)
Source IMF and ISTAT
Construction (Y-o-Y change)
20062000
-20
-30
10
0
-10
20
30
20
25
15
10
0
5
F2018
Exhibit 18 Investments by industry Italy
2003 2009 2012 2015
17
No room for significant public debt reduction
At the end of 2016 the Italian government debt-to-GDP
ratio was significantly above its level at the beginning of
the century In particular as of December 31st 2016 the
ratio was 1326 (262 with respect to 100 recorded
at the end of 2000)
In the same period the ratio for the euro area increased
from 681 to 913 (341) in Germany from 589 to
683 (159) and in France from 586 to 960 (638)
At the end of 2017 the Italian government debt increased
further to more than euro2300 billion 1350 of GDP The
debt servicing in terms of interests accounts roughly
50 of Italian GDP
In our view the high level of government debt
represents a key factor limiting Italian economic growth
and contributes eo ipso to increasing country risk
with a possible negative impact on the stability of the
international financial system
A possible increase in interest rates would raise the
cost of debt service potentially triggering a crisis due to
larger governmental deficits a slowdown in economic
activity and growing debt refinancing difficulties due to
higher risk perceived by investors
Hence it seems that a significant reduction in
government debt should be the main goal of the Italian
economic and financial policy in our opinion however
the achievement of such a result is not realistic neither
in the short nor in the medium term due to the following
factors
middot economic growth in the coming years is expected
to be moderate not sufficient to be the main source of
the government debt reduction
middot macroeconomic policy is expected to prioritize
investments employment social security and welfare
rather than government debt reduction
middot even if the inflation rate hits the target value (20) the
impact on the government debt in the short term is not
expected to be considerable
middot finally in Italy election will take place in spring 2018
with a new government taking over the economic
program that has already been approved and become
fully executive
Euro area
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 2012 2013 2014 2015 20160
20
40
60
80
100
120
140
Exhibit 19 Public debt as GDP
France
Source AMECO and Cerved Rating Agency elaboration
CERVED RATING AGENCY SpA | Highlights on italian economy
18
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Table 1
Amount ( 407 312
-327
327754
216074 190881
163248 345604188167
869
1543
2213
1793
CAGR (base year 2000)
CAGR (base year 2008)
NPL ratio ()
Ndeg debtors
Averae debt debtor
Valueindicator 2000 2008 2016
Source Bank of Italy and Cerved rating Agency elaboration
Credit activity to be expanded interest rates to remain at very low levels
As of December 31st 2016 the volume of bank loans
granted to Italian non-financial corporations amounted to
euro8604 billion
The period 2000-2016 was characterized by two different
trends from 2000 to 2011 the annual outstanding loans
value increased by 841 (euro454 billion reaching in 2011 its
highest level ever of euro993 billion thanks to 57 CAGR far
above the Italian GDP growth) whilst in the period from
2012 to 2016 loans decreased by 134 (euro130 billion)
reflecting a negative -28 CAGR The loan reduction hit
sharply construction and manufacturing (accounting
for about 400 of all loans) which experienced -227
and -135 decrease in loan volumes whilst agriculture
forestry and fishing and wholesale and retail trade
(including repairs of motor vehicles and motorcycles)
had more limited loan contraction (-08 and -53
respectively)
In the observed period due to the negative impact of the
global financial crisis 200708 and to structural changes in
the world economic and financial environment a radical
decrease in interest rates was recorded In 2017 the
interest rates charged to Italian non-financial corporates
were on average less than half compared to those charged
in 2000 In the medium term low interest rates will remain
a positive factor fostering investments and consumption
Non-performing loans to be further reduced due to innovative measures
The credit crunch had a huge and dramatic impact on
the Italian economy hitting especially small businesses
which are not able to survive in a radically changed market
conditions The evidence of such outcome can be seen not
only through the decreased number of active companies
but also via the enormously increased volume of the
non-performing loans (NPLs) In particular these loans
amounted to euro324 billion at the end of 2016 of which euro154
billion were granted to the non-financial corporations as
shown in table 1
Following the principles outlined in the ECB guidelines
published in March in 2017 Italian Banks made significant
progress in reducing the amount of the NPLs ndash estimated
to be over euro50 billion debt reduction Any further actions
aimed to improve the banking balance sheets should not
increase the financial hardship of still operating companies
North - East SouthNorth - West Center Islands
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 2012 2013 2014 2015 20160
1200000
1000000
800000
600000
400000
200000
NPLs ratio
Source Bank of Italy and Cerved Rating Agency elaboration
20
1816
14
1210
8
6
42
0
446393
euro billion)
19
Modest role of italian equity capital markets
Despite the number of listed companies increasing
from 297 to 421 in the period 2000-2017 the role
of the stock markets remains modest in Italy
As of December 31st 2017 the market capitalization
was euro640 billion (375 of the estimated Italian GDP
in 2017) representing only 782 of the overall
market capitalization recorded in 2000 (equal
to euro818 billion 687 of GDP) mainly due to
an unfavorable economic cycle in the observed
period
This situation shows the structural weaknesses of
the Italian economic and financial system especially
when compared to other highly developed
European economies The low propensity to
raise equity capital through organized markets
is linked to an unfavorable macroeconomic and
fiscal framework as well as to the predominance
of SMEs mostly unfit for listing and presenting
cultural obstacles (ie company owners and managers are often reluctant to accept wider company control and
transparency)
Hence self-financing and bank borrowing remain the main sources of finance for Italian companies which are
generally speaking undercapitalized with a negative impact on their investment capabilities Very frequently the
lack of medium-long term financing means forces companies to focus their attention on running current activities
postponing or abandoning strategic projects fundamental for company growth
A wide range of innovative initiatives have been undertaken with the aim of fostering market based company
funding in particular
middot AIM (Alternative Investment Market) - a specialized market segment dedicated to SMEs growth (95 companies and
market capitalization around euro56 billion as of December 2017)
middot ELITE - a programme designed to help SMEs prepare and structure for the next stage of growth their through
access to long-term financing opportunities
middot PIR - Piani individuali di risparmio (Individual Savings Plan) - an innovative way to fund Italian SMEs by offering retail
investors resident in Italy tax incentives (full exemption of 260 income tax) if the savings stay invested for at least
five years A minimum of 700 of such credit assets must be invested in financial instruments issued by Italian or
foreign (EU and EEA) companies permanently established in Italy
FTSE (MIB)Enterprises
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 20132012 20152014 201720160
100
200
300
400
500
600
700
800
900
100029681 29525
14623
1765216121
12259
13512
16048
15988
19012
21428
21853
2185322232
16954
297 294 295 279 282278 311 336 332 332 328 323 326344 342 356 387 421
19483
22886
26056
31005
Exhibit 21 Italian listed enterprised and FTSE (MIB) index trend
Source Borsa Italiana
300000
250000
200000
150000
100000
5000
0
Capitalization of GDP
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 20132012 20152014 201720160
100
200
300
400
500
600
700
800
900
1000
Exhibit 22 Italian market capitalization of listed companies ( of GDP)
Source Borsa Italiana
80
70
60
50
40
30
20
10
0
8184
5923
354 365418 473
524475
239301 275
210233
287 295348
318375
4580 4875
5809
6766
77857336
37474571
4251
3324
44664678
56765249
6400
3655
474
68
CERVED RATING AGENCY SpA | Highlights on italian economy
20
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Italian debt capital market is growing but still remains behind needs
At the end of 2016 the outstanding amount of debt
securities issued by Italian financial and non-financial
corporations was euro8615 billion 510 of the countryrsquos
GDP The table below shows the breakdown by issuer
type of Italian German French British and United States
outstanding amounts of debt securities as of December
2016 issued by financial and non-financial corporations
with the respective debt-to-GDP ratio
Despite the outstanding debt at the end of 2016 being
almost double compared to 2000 it represents only 23
of its peak value reached in 2012 (euro1290 billion Exhibit
23) The main reason for such a significant debt reduction
is the huge bond reimbursement realized by banking
institutions from 2013 to 2016 and the related negative
net flow of debt securities (respectively -80 -153 -106
and -67 billion of euro as shown in Exhibit 24)
The decrease in debt securities funding of Italian banks
has been compensated by a wider use of deposits and
resources available under the Eurosystem refinancing
operations framework
The outstanding amount of debt securities issued by
non-financial corporations at the end of 2016 also
doubled its value with respect to the amount recorded
at the end of 2000 The main characteristic of this cluster
is the high concentration of issuancesdebt to a small
number of issuers
Due to both more favourable general economic
conditions and active ECB monetary policy bond yields
have decreased significantly providing room for a
convenient fund raising
Since the introduction of a new regulatory framework
(lsquoDecreto Svilupporsquo) in 2012 up to October 2017 Italian
market saw 300 small-size listed bond issues (ie so
called minibonds) amounting approximately to euro143
billion Issued mainly by SMEs they offer interesting
yields to institutional investors
) Source Business support SpA ndash Minibonditalyit
BanksTotal
Source Bank of Italy and Cerved Rating Agency elaboration
2006 20082000
-200000
200000
250000
-150000
-100000
150000
100000
-50000
50000
02012 2014 20162002 2004 2010
Banks debt securities outstanding
Banks Debt to GDP ratio
Source Bank of Italy and Cerved Rating Agency elaboration
0
10
20
30
40
50
60
70 1400000
1200000
1000000
800000
600000
400000
200000
0201620142012201020082006200420022000
Table 2 Outstanding securities debt (euro Million)Debt-to-GDP ratio()
Financial corporates
Total
Debtsecurities
outstanding
Italy German rance United Kingdom United States
739
123
862
440 340 470
21
680380
40
1279 1331 4 50
880
30
14271
14820
549180
10202767
590
19211436
15770
510
Debtsecurities
outstanding
Debtsecurities
outstanding
Debtsecurities
outstanding
Debtsecurities
outstanding
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Source Bank of Italy
0
0
21
CERVED RATING AGENCY SpA | Highlights on italian economy
22
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Italian non-financial companies economic Outlook 2018
23
Data and method
This research focuses on Italian non-financial companies
with an annual turnover exceeding euro5 million With the
aim of using only reliable data joint stock and limited
liability companies have been considered only these
entities according to Italian law file complete annual
financial statements in the Chamber of Commerce
together with anagraphical company data other
legal forms such as unlimited partnerships and sole
proprietorships are not included in this sample due to
the lack of publicly available standardized financial data
We believe that this cutoff is reasonable and allows us to
perform a methodologically correct analysis In 2016 the
above mentioned companies despite representing only
42 of all registered and active joint stock and limited
liability companies accounted for 769 of their total
turnover
Moreover cluster specialization has been obtained by
NACE activity classification from A to J (thus not including
in the sample financial and insurance companies and
some service industries) The statistics regarding specific
industries provide important key data and enable us to
examine historical and prospective trends and cross-
sector comparisons
The Cerved database which contains legal anagraphical
financial and market information on all Italian registered
legal entities (approximately 6 million comprising 5
million active ones) was the most important database
used for this research Long time series and broad
homogenized and standardized data covering different
economic cycles were the building blocks to perform
the regression and predictive analysis
Historical and forecast macroeconomic data and
analysis performed by the International Monetary Fund
OECD the World Bank European Central Bank Bank
of Italy and ISTAT completed the dataset used for the
analysis
Several analyses were performed in order to examine
the structural differences within the sample in terms of
company legal form and geographical area (Exhibit 25)
company age (Exhibit 26) and company size and industry
As a result we verified a considerable heterogeneity of
companies in particular with regard to the company size
across various industries
The relevant observation period comprises the years
between 2000 and 2016 Table 3 describes some
characteristics of the sample
Exhibit 25 Sample break-down by legal form and geographic area (2016)
Joint stock Company
Limited liability Company
Area 1 (Northwest)
Area 3 (Center)
Area 2 (Northeast)
Area 4 (South)
39
20
27
14
33
67
33
Table 3 Sample characteristics 2000-2016
TotalTurnover
gt euro5million
Turnover gt euro5 million(industry
from A to J)
TotalTurnover
gt euro5million
ofTotal
Turnover gt
euro5 million(industry
from A to J)
Source Cerved database
Entreprises Turnover billion
2000 659867700717738558772442812025847334883122915172937018949708965744969581
953505945825922513883224
4215144587462234694749640518205596459226595385246754808563745362752074519385289450123
3686139038411864118843547454704921752274526974633848778504734806246843468384771845288
16151740177018472002212923302477256822562421257025202446243224392295
12661362139214561588169818752000208317861944208720541992198419871905
11141205124013041430152316891801189716191764191218831839183518371765
689693700
716
706714
725
718729744748752754753769
727739
200120022003200420052006
200820092010201120122013201420152016
2007
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
24
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Furthermore in order to guarantee more detailed and
accurate analyses and projections we decided to create
a static pool to show consistently long time horizon
economic trends (17 years) by sealing off all the active
companies over the 2000-2016 horizon
The outcome obtained by considering the behaviour of
specific variables related to the companies included in
the static pool was extended as a performance indicator
for the whole sample (turnover over euro5 million and
industry from A to J)
According to the European Communityrsquos definition of
SMEs using annual turnover and employee headcount
as quantitative criteria the initial sample of companies
and the static pool can be classified by size classes on
the basis of the financial statements for the year 2016
as shown in Table 4
For the sake of this analysis we defined specific size
classes for each industry thus deviating from the
European Commissionrsquos recommendation which
presents undifferentiated upper and lower bounds of
quantitative criteria for SMEs in all industries To define
the thresholds of such classes we used both a statistical
approach (a specific cluster procedure by minimizing
the within-cluster turnover standard deviation) and a
judgmental approach by relying on the experience and
opinion of our industry expert analysts Table 5 shows
the results of such analysis referring to the sample in
2016 (45288 entities) and the NACE sections from A
to J Moreover the NACE section C and G were further
disaggregated into sub-industry classes as shown in
Exhibit 27 in order to consider the specific business
differences within these NACE sections thus ensuring
a good fit and a satisfactory accuracy of the estimation
Exhibit 26 Sample break-down by company age classes
0-2 Years 2-5 Years 5-10 Years 10-20 Years gt20 YearsSource Cerved database and Cerved Rating Agency elaboration
0 20 40 60 80 100
ABCDEFGHIJ
A = AgricolutreB=Mining and quarryingC=ManufacturingD=Electricity and gasE=Water supplyF=ConstructionG=Wholesale and retail tradeH=Transporting and storageI=Accomodation and food serviceJ=ICT
Small
Annul Turnover
Empolyees
Static Pool
Enterprises(Turnover gt euro5 million)
Enterprises(Turnover gt euro5 millionindustry from A t J)
Medium Large
lt 50 lt 250lt 36774 11113
1005333223
8741
2236
2012
154818645
gt euro50 million
gt 250
lt euro50 million
Source Cerved database
NACE Micro industry
B-Mining and quarryingAutomotive
Automotive
Retail
Wholesale
T gt 480
T gt 80
T gt 260
T gt 265T gt 270
T gt 230
T gt 120
T gt 80
T gt 43
T gt 65
T gt 106T gt 106
T gt 360T gt 155T gt 150T gt 100
T gt 120
T gt 225T gt 1400T gt 27500
T gt 1500
ChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther Manifacturing
ICTTextile
Paper Packaging ampForest products
C-Manifacturing
F-Construcion
H-Transportig and storageI-Accommodation and food service activities
J-Information and communication
D-Electricity gas steam and aircoditioning supply
G-Wholesale and reatail traderepair of motor vehicles and motorcycles
E-Water supply sewerage waste management and emediation activities
Large (Turnover
in euro million)
Medium(Turnover
in euro million)
Small(Turnover
in euro million)
Source Cerved database and Cerved Rating Agency elaboration
60 lt T lt 480 5 lt T lt 60
5 lt T lt 20
5 lt T lt 36
5 lt T lt 35
5 lt T lt 44
5 lt T lt 40
5 lt T lt 20
5 lt T lt 26
5 lt T lt 250
5 lt T lt 185 lt T lt 305 lt T lt 265 lt T lt 205 lt T lt 37
5 lt T lt 335 lt T lt 40
5 lt T lt 255 lt T lt 585 lt T lt 1155 lt T lt 1005 lt T lt 27
20 lt T lt 80
36 lt T lt 26035 lt T lt 26544 lt T lt 270
40 lt T lt 230
20 lt T lt 120
26 lt T lt 80
18 lt T lt 43
250 lt T lt 1500
20 lt T lt 6537 lt T lt 29540 lt T lt 15533 lt T lt 15025 lt T lt 100
27 lt T lt 120
58 lt T lt 225
100 lt T lt 27500 115 lt T lt
30 lt T lt 10626 lt T lt 106
25
Exhibit 28 shows the breakdown of macro industries
analysed including disaggregation of the NACE section C
(manufacturing) and G (wholesale and retail trade repair
of motor vehicles and motorcycles)
In order to carry out the analysis and projections this study
is focused on we used simple multiple linear regression
model for each industry and company size classes
considering macroeconomic and individual companiesrsquo
economic and financial data
The analysis enables us to develop an econometric
model used to estimate likely credit quality changes (in
terms of rating class and probability of default) for single
industries and company size classes
Automotive
Retail
Wholesale
21
1366
1
42
1
26
35
232
6
A B C D
F G H I
46
7
21
1318
9
15
34
Automotive
Chemistry amp pharmaceutics
Clothing
Equipment
Food Beverage and Tabacco
Heavy Manifacturing
Other Manifacture
Paper Packaging amp Forest Products
ICT
Textile industry
Large SmallMedium
Source Cerved database and Cerved Rating Agency elaboration
0
Wholesale
Retail
Automotive
20 40 60 80 100
Automotive
Chemistry amp pharmaeutics
Clothing
Equipment
Food beverage and Tabacco
Heavy Manifacturing
Other Manifacturing
Paper Packaging amp Forest Products
ICT
Textile
0 20 40 60 80 100
ABCDEFGHIJ
0 10 30 40 60 70 80 90 100
Exhibit 28 Sample break-down by industry (2016)
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
26
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Performance indicators to improve further
The annual financial statements available through public
registers provide a clear economic and financial picture
of the Italian joint-stock and limited liability non-financial
companies The individual historical data available from
2000 to 2016 enriched with 2017 preliminary results and
with the expected 2018 macroeconomic scenario enabled
us to build up the 2017 and 2018 projections regarding
the following four performance indicators related to the
analyzed sample 1) growth rate - revenues YoY change
2) EBITDA margin 3) net financial debtEBITDA and 4) net
financial debtEquity Afterwards the median values of the
resulting data were used to obtain the summary output
which we consider as a representative proxy for the overall
market
From 2000 to 2016 the observed companies experienced
a very irregular trend both in terms of growth rate and
EBITDA margin In the aftermath of the global financial crisis
the lowest growth rate value (-120) was recorded in 2009
manufacturing transporting - storage and wholesale and
retail trade were the industries showing the biggest fall of
business volume (-155 -121 and -104 respectively)
whilst water supply accommodation and food service and
electricity and gas showed the highest level of resilience to
the adverse economic and financial environment (-01
-23 and ndash26 respectively) Exhibit 29 shows that in
terms of median value there are no significant differences
in the growth rate taking into consideration company size
classes as we previously defined them Only from 2010 the
growth rates turned positive but still remaining below the
levels recorded in 2000
The analysis of the EBITDA margin changes in the same
period also does not highlight significant differences
between large companies and SMEs as shown in Exhibit
30 The lowest median EBITDA margin value (52) was
recorded in 2012 regarding in particular accommodation
and food service transporting and storage and agriculture
sectors (28 40 52 respectively) while electricity
and gas ICT and water supply were relatively immune to
the unfavorable economic and financial circumstances
(showing 113 109 and 105 EBITDA margin
respectively) At the end of 2016 the median EBITDA margin
(60) still remains below the levels recorded in 2000 (72)
Positive trends emerging from the last publicly available
financial statements (2016) the 2017 preliminary results
and the optimistic macroeconomic forecasts for 2018
confirm improvement of the Italian economy Looking
ahead we expect the Italian non-financial companies to
continue to experience gradual recovery in 2018 They are
going to take advantage of the favorable global economic
cycle low interest rates and supportive regulations that
inter alia foster the use of alternative non-bank financial
sources for company funding The financial resources raised
through Individual Savings Plans (PIR ndash Piani individuali di
risparmio) introduced by the 2017 Budget Law are driven
in primis by a favorable tax regime for savers and might
become an important additional source for SMEs funding
injecting new liquidity The government objective fixed euro68
billion as a target value and in 2017 nearly euro10 billion had
already been raised
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2004 2006 2014 20162000
5
20
10
0
15
-15
-10
-5
Exhibit 29 Growth rate (revenue YoY change) by size classes (median)
medium small
2008 2010 2012
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2004 2006 2008 2010 2012 2014 20162000
7
10
9
8
6
5
4
3
7
10
9
8
6
5
4
EBITDA margin by size classes (median)
medium small
27
So far one of the main obstacles PIR are facing is the limited
number of available assets which may lead to a possible
concentration of this financial resources in a small share of
the market comprising mainly relatively large companies
as shown by the early data in 2017
Another obstacle to rapid adoption of the newly available
financial resources is the lack of a standardized and broadly
accepted methodology for the risk assessment of potential
bond issuers
Generally speaking in 2018 we expect SMEs to contribute
more significantly to growth employment and innovation
whilst on average the respective EBITDA margin will remain
broadly stable (as shown in Exhibit 31) However 2018 will
still be a challenging year for SMEs and innovative startup
companies as they will have to face tougher barriers in
accessing bank credit andor approaching capital markets
compared to large companies We also expect some new
innovative solutions aimed at meeting SMEs financial needs
to become effective the SMEs current financial structure
together with new business opportunities prove their
ability in terms of rational use of the additional financial
resources
The new investments will allow most industries to thrive
also assisted by the Italian Governmentrsquos adoption of the
National Industry 40 Plan
The companies which will take up this opportunity may
improve their cash-flows even in the short-medium term
Finally companies with strong international market
positioning and large product diversification will have
stronger sales and margins growth
The key ratio values recorded from 2000 to 2016 related to
the analyzed entities show the improved financial health of
the companies proving good capability to strengthen their
equity base as shown in Table 6
Growth rate (2016)Medium
Total
Small Large
Growth rate (2018)Growth rate (2017)
Source Cerved database and Cerved Rating Agency elaboration
50
40
Exhibit 31 Growth rate and EBITDA margin forecast by size classes
EBITDA margin (2016)EBITDA margin (2018)
EBITDA margin (2017)
40
30
0
10
20
Medium
Total
Small Large
7570
65
0
6 5560
5550
4540
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
28
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The recorded financial ratios in the 2000-2016 horizon
indicate that on average
middot liquidity maintained a satisfactory level in the whole
observed period due to the positive economic cycle in
2017 and 2018 we expect a slight improvement in the ratio
middot the EBITDAinterest coverage ratio almost doubled its
value in 2016 compared to what was recorded in 2000
primarily due to a general reduction in the interest rates
particularly in the last three years we believe that in 2017
and 2018 the average ratio value will remain roughly at the
same level recorded in 2016
middot in 2016 ROE shows further improvement but is still
slightly lower compared to the value recorded at the
beginning of the observed period mainly due to the equity
base strengthening trend
middot Equity Ratio rose from 250 to 350 due to a significant
increase of equity capital in 2018 we expect further
strengthening of the ratio
middot Financial LiabilitiesTotal Assets ratio remained mostly
unchanged ndash financial debts representing roughly 30 of
the total assets
A positive trend regarding the net financial debt was also
observed in fact in 2016 70 of the sample improved their
NFDEBITDA and 73 the NFDEquity
Positive performances were found especially in the SMEs
segment as shown in Exhibit 32 in particular referring to
NFDEquity small and medium-sized companies recorded
a positive trend standing respectively at 092 and 089 in
2016 compared to 132 and 136 in 2000
Hence the financial risk profile appears to be well balanced
leaving no room for specific concerns regarding the
prospects of the Italian non-financial companies in 2018
In 2016 the median values for the total sample referring to
NFDEquity and NFDEBITDA remained respectively at 089
and 389 levels respectively
Looking ahead we expect these indicators to remain at
healthy levels in 2017 and 2018 with a slight improvement
in NFDEBITDA and a broadly stable level of the NFDEquity
ratio as shown in Exhibit 33
NFDEBITFA (2016) NFDEBITFA (2017)NFDEBITFA (2018)
40
Exhibit 33 NFDEquity and NFDEBITDA forecast by size classes
Source Cerved database and Cerved Rating Agency elaboration
404
20
25
45
35
30
NFDequity (2016) NFDequity (2017)NFDequity (2018)
05
06
09
10
08
07
Exhibit 32 NFDEquity and NFDEBITDA by size classes (median)
largemediumsmall
2016
2015
2014
000 5 10 15
Average2008-2013
Average2000-2007
total largemediumsmall total
Source Cerved database and Cerved Rating Agency elaboration
2016
2015
2014
203 0 405 0
Average2008-2013
Average2000-2007
29
Growth and profitability improvement spanned over all sectors
Exhibit 34 shows the relative positioning of the 10
macro-industries in the short-medium term considering
the median values related to revenue growth rate and
EBITDA margin
The historical median values are calculated on the basis
of financial data obtained from the annual financial
reports 2014-2016 filed in the Chamber of Commerce
public registers the projected median values for 2017
and 2018 are the result of the analysis of this study
As expected there are significant differences in
positioning between different industries in terms of
both historical and projected values
In 2018 we expect manufacturing and accommodation and
food services to maintain top positions already reached in
2016 and 2017
For the electricity gas mining and quarrying industry
2018 may be the turning point showing the first positive
signals after experiencing some difficulties over the last
few years
None of the other industries show significant changes in
2018 compared to their 2016 positioning
Source Cerved database and Cerved Rating Agency elaboration
A 50
57599586886358
3849
3620083721
-110320
-1112
210322
-1814021122
1413
030124
-5010284025
0555
20-4614
-4607212105
0430
210328-2310203218
0832
2310300512233720
1637
BCDEFGHIJ
A 625296
1441401016934
15352
504969
103121916227
10639
4764676185562639
68112
4873687090592845
75120
456772928856
45
7898
4667759090573147
7698
4668769394583147
77102
EBITDAmarigin
BCDEFGHIJ
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018Growthrate
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
Exhibit 34 Growth rate and EBITDA margin by industry
-70 -50 -30 -10 10 30
2016E2017F2018
50 70 90
Median=68
Median=2100
20
40
60
80
100
120
A=Agricolture B=Mining and quarrying C=Manifacturing D=Electricity and gas E=Water supply F=Construction G=Wholesale and retail trade H=Transporting and storage I=Accomodation and food service J=ICT
D
B
E
FHA G
C
I
J
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
30
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Further strenthening in companiesrsquo financial structure
Exhibit 35 shows the relative positioning of the 10 macro
industries in the short-medium term considering the
median values related to NFDEBITDA and NFDEquity
ratios
The historical median values are calculated on the basis
of financial data obtained from the annual financial
reports 2014-2016 filed in the Chamber of Commerce
public registers the projected median values for 2017
and 2018 are the result of the analysis of this study
There are even more significant differences in
positioning between industries regarding NFDEBITDA
and NFDEquity ratios when compared to growth rate
and EBITDA margin differences
Generally in the observed period there is no evidence of
significant changes among industries considering their
relative positioning related to NFDEBITDA and NFD
Equity ratios
In 2018 we expect accommodation and food services
and information and communication services to
maintain top positions already reached in 2016 and
presumably confirmed in 2017
Exhibit 35 NFDEquity and NFDEBITDA by industry
2016E2017F2018
Median=37
Median=08500
030 5 070 9 111 3
20
30
40
50
60
70
10
A=Agricolture B=Mining and quarrying C=Manifacturing D=Electricity and gas E=Water supply F=Construction G=Wholesale and retail trade H=Transporting and storage I=Accomodation and food service J=ICT
EH
C
BF
G
A
D
J
I
A 150101113081112149151120
079131
123075088101097125123103
072079
114067083052090108119102
067076
113060080045089096114092
074069
125076080045089106109086
050060
127072080044091
108084
051056
128067079043093106107081
051051
BCDEFGHIJ
NFDEquity
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
A 597219280305251301338250
153260
676394388342298453499349
254337
707482387293277498532337
277334
696392373254305484494308
231315
747401358330285544483294
183312
722390340341280511470290
178293
710380310329272492452281
177289
NFDEBITDA
BCDEFGHIJ
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
Source Cerved database and Cerved Rating Agency elaboration
106
31
Exhibit 36 Equity ratio by industry
Average 2000-2007 2014 2015Average 2008-2013 2016
Source Cerved database and Cerved Rating Agency elaboration
05
10
20
30
15
25
3540
5045
AB C DE FG HI J
Exhibit 37 EBITDA interest coverage by industry
Average 2000-2007 2014 2015Average 2008-2013 2016
Source Cerved database and Cerved Rating Agency elaboration
0
5
10
20
15
AB C DE FG HI J
A 1113140911151211
1408
1013131012131209
1208
1114151012131311
1309
1214151012151312
1309
1215161113161412
1409
BCDEFGHIJ
Liquidity ratio Median2000-07
Median2008-13 2014 2015 2016
A 0377677447858463
8960
0332
8145524536
4832
0342486042273848
3246
0537606853395765
4069
0743676559416378
5882
BCDEFGHIJ
ROE Median2000-07
Median2008-13 2014 2015 2016
Table 7 Liquidity ratio by industry Table 8 ROE by industry
Source Cerved database and Cerved Rating Agency elaboration
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
32
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Agriculture
Considering the recent price decline for agricultural
products putting EBITDA margin under pressure for
most of the industry participants we anticipate a slow
revenue growth in 2018 We also foresee more stable
margins in 2018 and investments to continue at a faster
pace in the near future mainly aimed at transforming the
agricultural activities into a high-tech industry Climate
and cultural changes are the main exogenous risks that
may negatively influence the sector
Mining and quarrying
Over the last few years the mining industry has been
challenged by record low metal prices and this has
resulted in a weak growth of supply and a cut in
investments especially in the new mines opening We
foresee a modest revenue growth in 2018 supported
by more stable prices rather than by government
infrastructural investments Margin pressure will remain
mostly unchanged in 2018 We do not expect a significant
increase in capital expenditure for most companies
while only a minority of industry participants will invest
in new capacities searching for new growth opportunities
by introducing new higher margin outputs Overall we
anticipate relatively stable key financial indicators
Manufacturing
We believe that in 2018 Italian manufacturing
representing 2nd European and 7th world player in 2016
will remain the beating heart of the national economy
In our view the expansion of internal demand the
improvement of business and customer confidence and
the wider export opportunities are the key drivers for
revenue growth (up to nearly 30) Despite the natural
selection the occurred during the economic recession
domestic competition and especially the competition
from lower income countries will remain challenging in
2018 creating further profitability pressure especially in
some highly fragmented segments
As a conditio sine qua non for market survival many
companies will be involved in a ldquowinning the innovation
gamerdquo process translated into a considerable capex
expenditure directed at process optimization which
inevitably must be accompanied by innovative marketing
and commercial strategies The companies especially
smaller ones which are not ready lsquoto play the gamersquo
remaining risk averse are likely to fall behind
Key financial indicators referring to the industry in terms
of net financial debt to equity and net financial debt to
EBITDA are likely to remain overall stable in 2018
In our view the best performing manufacturing industries
in 2018 will be the following
Automotive
extensive vehicles replacement process in 2018
high competition pressure China maintaining a key role
high level of innovation in mobility and connectivity
new strategic partnerships and MampAconservative stand towards EBITDA margin improvement
Chemistry amp Pharmaceutics
solid macroeconomic fundamentals will support
the revenue growth driven mainly by large companies
on average a stable EBITDA margin of about 10
is expected global presence is a must to achieve higher
level of profitability
RampD remain key factors for further market expansion
moderate level of MampA operations in 2018 slowing
down when compared to those carried out in the
previous year
Machinery amp Equipment
revenue growth in 2018 up to nearly 25 reflecting
the fact that all manufactures remain focused on RampD
and NPI (new product introduction)
cost management strategies are going to persist
but generally speaking with no significant impact on
EBITDA margin in 2018
heavy equipment manufactures still under pressure in
2018 to provide engineering capability and capacity
33
Energy and gas
Italian companies operating in the energy industry are
facing a complex market environment with many open
questions about risks related to regulations a drop
in consumption high competition levels and EBITDA
erosion
Generally we expect a more stable landscape in 2018 in
terms of commodity prices and consumption However
risk regarding prices and volumes will remain strong
resulting in a higher volatility of revenues In our view
the current margin pressure is unlikely to ease over the
next two years The final overcoming of the sondashcalled
ldquoMaggior Tutela Regimerdquo may lead to almost zero margin
for the retail operators We expect industry participants
to continue to focus their attention on cost efficiency and
on protecting profitability by embracing new business
models and examining the role that digital technology
can play in improvement of EBITDA margins We believe
that the above described strategies will be a central
topic for the operators intending to attract capital We
also believe that energy producers could see a slight
debt increase in 2018 aimed at improving productivity
and synergies Finally in 2018 we envisage a significant
number of MampA operations in the sector led by synergy
effects such operations might produce
Water supply waste management and sewerage
In recent years the water supply waste management
and Italian sewerage industry has recorded a slower
growth compared to the pre-crisis period However
due to the last two yearsrsquo important investments in the
water infrastructure waste sorting and recycling Italy
ranks as one of the top European countries in terms
of growth rate of recycling and packaging recovery
We believe that the expected general increase in
industrial output will produce a slight growth in water
consumption and waste treatment The demand for
sustainable solutions will continue to persist requiring
new investment in technologies based on a customer-
centric and sustainable approach aimed at improving
efficiencies and facilitating reuse Expectations also
reflect our view in terms of wider government interest
and spending in this industry We expect profitability
to remain broadly in line with the results obtained in
2016
Construction
After a weak increase in revenues recorded by the
construction industry operators in 2016 and the
modest result anticipated in 2017 both reflecting
a deteriorating demand and decreased volumes of
bank loans (mainly those for small and medium-
sized companies) we expect 2018 to be the turning
point for this industry We foresee that the volume of
residential and private non-residential constructions
will remain at relatively low levels in 2018 and that
the positive trend in housing renovation and public
works investments will continue taking advantage of
the allocated funds established by the Budget Law for
2017 Small and medium-sized businesses focused on
residential construction may face a slight profitability
erosion while we believe some growth in EBITDA
margin may be recorded by large Italian companies
operating internationally Due to the high perceived
risk historically there has been a strong financial
market mistrust of the construction companies which
we believe is likely to ease over the coming years
Wholesale and retail trade
During the crisis period wholesale and retail trade
industry faced a sudden interruption of the gradual
growth that had taken place up to that moment mainly
due to a loss in real purchase power and in consumer
confidence also translated into profitability erosion
In 2016 the data showed how the industry is moving
toward a recovery period Looking forward in 2018 we
expect to record a steady revenue growth supported
by an increase in global trade and improved consumer
confidence Despite the foreseen growth operators
will continue to face consistent pressure mainly in the
retail segment due to the high proliferation of new retail
purchase channels and market fragmentation
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
34
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Transportation and Storage
After a troubled 2016 characterized by an overcapacity
and a decrease in commodity demand hitting shipping
revenues in particular we foresee a moderate overall
recovery in 2018 driven mainly by an increase in
international shipments and air traffic The growing
number of innovative startups will continue to persist
increasing the competitive pressure in the industry We
anticipate a constant growth of e-commerce enabling a
quick reaction of on-line retailer and logistics providers
We believe that operators will continue to invest in
new high-tech solutions experimenting new models of
mobility and smart logistics
Despite very strong competition we expect the median
operating margins to remain steady However global
political uncertainties and related risks are strong with
possible quick and sharp negative impact on business
volumes and margins of the companies operating in
these industries
Accommodation and food services activities
In the last two years operators in the accommodation
and food service activities industry mainly medium
and small sized enterprises have seen steady revenue
growth and satisfactory profitability ratios Many
operators were focused on reviewing their business
models and offering additional services to their
customers a necessary strategy to maintain or expand
market positioning strengthen margins and improve
customer experience We expect the revenue growth
to continue in 2018 with a minimal median margin
improvement We believe accommodation and food
service activities will attract new capital investments
in 2018 to help the ongoing transformation process
and improve the accommodation infrastructure and
services
Information and communication technologies
The Italian information and communication technology
industry took longer to recover from the economic
crisis recording overall a negative median growth
rate until 2014 Software services and innovation
technology were the major contributors to revenue
growth (as a percentage) in 2016
Over the forecast period we foresee a modest revenue
growth for the ICT operators as a whole while the
technology industry will continue to achieve rapid
growth focusing on maintaining the competitive pace
of innovation In our view a key challenge for the ICT
operator may be the availability of matching skills
The outlook is relatively stable in terms of profitability
and key financial indicators
The following two pages show the details of the
previously discussed key performance indicators
35
Exhibit 38 Growth rate and EBITDA margin manifacturing sectors
-70- 50 -30 -10 103 0
2016E2017F2018
50 70 90
Median=76
Median=3000
20
40
60
80
100
120
1=Automotive 2=Chemistryamppharmaceutics 3=Clothing 4=Equipment 5=Food beverage and Tabacco 6=Heavy Manifacturing 8=Paper and Packaging 9=Tecnology and Telecomunication 10=Textile industry
6
10 5
3
8
91
74
2
50AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
57599586886358
3849
3620083721
-110320
-1112
210322
-1814021122
1413
030124
-5010284025
0555
20-4614
-4607212105
0430
210328-2310203218
0832
2310300512233720
1637
Growth rate Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
EBITDA margin Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
Source Cerved database and Cerved Rating Agency elaboration
625296
1441401016934
15352
504969
103121
916227
10639
4764676185562639
68112
487368
7090592845
75120
456772
9288562845
7898
4667759090573147
7698
4668769394583147
77102
1=Automotive 2=Chemistryamppharmaceutics 3=Clothing 4=Equipment 5=Food beverage and Tabacco 6=Heavy Manifacturing 8=Paper and Packaging 9=Tecnology and Telecomunication 10=Textile industry
2016E2017F2018
Median=30
700
600
500
400
300
200
100
000000 020 040 060 080 100 120
Median=08
Exhibit 39 NFDEquity and NFDEBITDA for manifacturing sectors
2
4 8
101
9
9
3
57
Source Cerved database and Cerved Rating Agency elaboration
096AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
104146095152117112109
098087
087080116068118083088086
084078
075074104069107082080079
084083
072064100065105084122081
079081
082066104065105080091079
077082
081067103065105079087079
077081
076067101064104077083078
076080
NFDEQUITY Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
227AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
258334222397249255259
315202
338313443305495363403412
480337
315306436328479373380397
482316
264269490303467366403383
515317
269243507090106127090106
106106
413343478088105127088105
105105
399333465086104127086104
104104
NFDEBITDA Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
36
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Exhibit 40 Growth rate and EBITDA margin for wholesale and retail trade sectors
20 40 60 80 100 120 140 160
2016E2017F2018
Median=31
Median=33
0000
20
10
30
60
50
70
1=Automotive 2=Retail 3=Wholesale
40
3
12
2016E2017F2018
Median=45
700
600
500
400
300
200
100
000050 070 090 110 130 150 170 190
Median=11
Exhibit 41 NFDEquity and NFDEBITDA for wholesale and retail trade sectors
1=Automotive 2=Retail 3=Wholesale
21
3
37
Ratings will remain broadly stable
The following section presents a risk profile analysis
based on Cerved Rating Agencyrsquos outstanding and
monitored public and private ratings issued from
2013 to 2017 on Italian non-financial companies
and operating in the industries discussed in this
study (data as of 31 December)
Exhibit 42 and Table 9 show an overview of 1-year
effective default rates over the 2000-2017 horizon
related to the sample bankruptcy and other legal
proceedings and debt restructurings as default
events
The default rate trend shows a general
improvement from 2014 onwards both by
company size classes and by industry however
considering the entire sample the overall default
rate still remains higher when compared to its pre-
crisis level especially regarding smaller companies
operating in the construction sector
Exhibit 43 shows the effective default rates over
2013-2017 horizon based on Cerved Rating
Agencyrsquos definition which considers as default
events
middot bankruptcy and other legal proceedings
middot debt restructuring
middot missed or delayed disbursement of a contractually
required interest or principal payment ie missed
payment on bonds material protests (on cheques
or trade bills) or prejudicial acts (judicial mortgages
distraint of property)
The effective default rates over the 2013-2017
horizon show decreasing trend and satisfy the
monotonicity constraint regarding all Cerved
Rating Agencyrsquos rating classes (Exhibit 44)
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2003 2004 2005 2006 2007 2014 2015 2016 20172000 2001
5678
12
3
4
0
Exhibit 42 Avarage 1-year default rate by size over 2000-2017 horizon
medium small
2008 2009 2010 2011 2012 2013
Mining and quarring
Manifacturing
Electricity gas steam and air conditioning supplyWater supply sewerage
Construction
Wholesale and retail trade repair of motorTransporting and storage
Accomodation and food service activities
Information and communication
24221809
5212
282915
2529
38533424
13027
454830
4838
36542537
15929
424421
4323
23461921
13226
293226
3022
Source Cerved database and Cerved Rating Agency elaboration
Table 9 Default rate by industry over 2000-2017 horizon
Total
NACE Average2008-2015
Average2000-2017 2016 2017
2016
Source Cerved database and Cerved Rating Agency elaboration
C21C12C11B22B21B12B11A11 A12 A13 A21 A22 A31
60
50
40
30
20
10
0
Exhibit 43 1-year default rate over 2013-2017 horizon
20172013 2014 2015
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
38
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The analysis of historical rating distributions in the
same period shows clear differences in terms of modal
rating class by company size As shown in Exhibit 43
the modal rating class for the large companies is A31
B11 for the medium and B12 for small companies
(considering company size classes as they have been
defined ad hoc by Cerved Rating Agency for the
purposes of this study)
Overall the corporate rating distribution in the
Source Cerved database and Cerved Rating Agency elaboration
C21C12C11B22B21B12B11A11 A12 A13 A21 A22 A31
30
25
20
15
5
10
0
Exhibit 44 Rating distribution frequency by size classes
large
30
25
20
15
5
0
10
medium smallRating 2013 total Rating 2017 total Rating 2017 forecast
observed period is skewed towards the investment-
grade rating categories (ie Cerved Rating Agency
rating classes from A11 to B12) representing 700 of
the whole sample 250 is concentrated in the safety
(A rating classes) and 450 in the solvency (B11-B12)
classes
We anticipate the rating distribution to remain
broadly unchanged in 2018 with the rating migration
concentrated mainly in the B category
39
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100543
2414
4407
4407
2636
4554 4558
2403 2311
535 527
90
10
0
Exhibit 45 Rating distribution frequency by area of risk - Total companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency]I nvestment GradeA11-A31 [Safety]
2509 2604
704 4407706 4407716
324
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
985
5658
4407
3033 2992 2898
925 907
300 318
90
10
0
Exhibit 46 Rating distribution frequency by area of risk - Large companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
5783 5878
869 4407878 4407878
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
4407
4407
3626
4080
17591695
439 449
90
10
0
Exhibit 47 Rating distribution frequency by area of risk - Medium companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
3571 3776
7044407780 4407786
456
1805
774
4113 4232
603
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
2824
1900
4407
4673 4850 4761
2833 2754
600 633
90
10
0
Exhibit 48 Rating distribution frequency by area of risk - Small companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
1716 1852
657 4407657 4407661
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
40
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Slight improvement in general creditworthiness
In our opinion in 2018 the creditworthiness of the
observed Italian non-financial companies will remain
stable for almost 86 of entities Migration of ratings is
expected to be moderate resulting in approximately 14
of rating upgrades (9) and downgrades (5) at the end
of 2018 compared to the outstanding ratings at the end
of 2017 The vast majority of the rating changes (921)
will be limited to one-class migration as shown in the
1-year projected transition matrix (Table 10) We believe
that more than one third of the expected downgrades
will be concentrated in the energy gas mining and
construction sectors Over the last years the average
credit profile of companies active in these industries has
been relatively weak and due to the forecast market and
regulatory conditions we do not envisage opportunities
for a significant risk profile improvement in 2018
Despite the expected rating migrations for individual
entities in 2018 the current industry modal rating
classes are unlikely to change
On the other hand stable and positive outlooks will
prevail in the manufacturing industry wholesale and
retail trade and accommodation and food service This
is due to the increase in the number of companies
active in these sectors which will maintain andor
improve their business and financial performances
Indeed as shown in Table 11 in 2018 the rating outlook
remains differentiated by industry whilst in terms of
the expected general probability of default we foresee
a modest improvement (349) compared to the one
recorded in 2017 (366)
Table 10 1-year transition matrix
Source Cerved database and Cerved Rating Agency elaboration
2017
A11
A31
B11
C11
C12
B21
C21
B22
B12
A12
A13
A21A22
F 2018A11 A12 A13 A31 B11 C11 C12B21 C21B22B12A21 A22
000 530
066
054 451034 435
027 753055 901
1033121247 1624
260 1038088
000
000000037
028
295
290
1063
179
455050647
043425
026490020208
000208
000152
000000
00000010000
9821
9318
92679015
87708583
81497646
8665
9617
9710
8605
419024
41
The information and data supporting Cerved Rating Agency rating opinions related research and credit opinions originate from sources Cerved Rating Agency considers to be accurate however Cerved Rating Agency cannot independently verify the reliability and accuracy of the information and data in every instance This publication may not be reproduced retransmitted or distributed in any form without the prior written consent of Cerved Rating Agency Cerved Rating Agency assumes no liability for correctness completeness and topicality of the information contained in this publication The analyses underlying this study do not provide advice of any sort
26
n
6670
486
59
Exhibit 49 Ratings outlooks by size
Large
Medium Positive Stable Negative
Small
21
13
Large
Medium
Small
Source Cerved database and Cerved Rating Agency elaboratio
Table 11 Ratings and probability of default 2018 outlook by industry
Source Cerved database and Cerved Rating Agency elaboration
NACE Micro industryDowngrade
B-Mining and quarryingAutomotive
900814
848
812
880812
847
813 172
170
174
144
8264 36
08
104 433 436
392 373
22724815
362 360
876
876
914
848
849
804
887
882
916
901835870899 64
866760
43
68
5659
58
47
61
49
74
78 75
14
50
37
36
5393
32
50
41
45
3899
77
91
316
372
355
364
308
491
326
318 296
331
312
381
367
359
322
495
452
433
403429
389
364369
363
313
452
323
594
38
315358
603
307
345 350
67 5318
469289 274
470
147
116
138
851
821AutomotiveRetail
Wholesale
Total
Chemistryamppharmaceutics
ClothingEquipment
Food Beverage and Tabacco
Heavy Manifacturing
Other Manifacturing
Textile industry
Total
Tecnology Media ampTelecomunication
Paper Packaging ampForest products
C-Manifacturing
D-Electricity gas steam and air conditioningsupply
F-Construcion
H-Transportig and storageI-Accommodation and food service activitiesJ-Information and communication
G-Wholesale and reatail traderepair of motor vehicles and motor-cycles
E-Water supply sewerage waste
Average ForecastPD 2018
Expectedtrend
Average PD 2018
Ratings outlooks
Stabl pgrade
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Cerved Rating Agency SpAVia dellrsquoUnione Europea n 6A-6B20097- San Donato Milanese (MI)
Tel +39 02 77541 - Fax +39 02 76020458
ratingagencycervedcom
Rating Agency
4
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Assumptions
5
A number of assumptions have been adopted for the projections exposed in this study more specifically
the Italian economy is expected to grow at a slower pace in 2018 with GDP forecast at 15 compared to 16
recorded in 2017
the inflation rate is expected to decrease from 14 recorded in 2017 to 12 in 2018 remaining below the
European Central Bank target rate of 20
the average price of oil is expected to be close to $60 a barrel in 2018 whilst the prices of non-fuel commodities
are expected to remain mostly unchanged
actual exchange rates are expected to remain relatively stable at the levels of the last three months of 2017 ie
we do not expect the average EuroUS Dollar exchange rate to exceed 12 at this level exports will gain pace
driven also by a general improvement in the economic cycle and therefore resulting in a higher demand
the European Central Bank is expected to leave the key interest rates at the present low levels and to continue
to apply non-standard monetary policy measures ie net asset purchases at a monthly pace of euro30 billion until
the end of September 2018 despite the reduction in size of the net asset purchases Italian credit institutions
are likely to expand their credit activities partially also due to a significant reduction in the amount of non-
performing loans thus supporting the momentum
the investments are expected to gain strength due to fiscal incentives higher domestic demand and supportive
credit conditions
in the next twelve months we do not envisage room for a significant change in Italian economic and financial
policies in particular regarding the fiscal system and public debt reduction due to the result of the general
political elections scheduled in Italy for 2018 moreover we believe that the results of the referendum for
autonomy held in Lombardy and Veneto will not have any significant impact on the general economic trend in
2018
finally the study does not consider the impact of extraordinary events such as an undesirable further escalation
of USA-North Korea andor USA-Iran disputes or the European disintegration processes on the economic and
financial trends underlying the analysis
Assumptions
CERVED RATING AGENCY SpA | Assumptions
6
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Executive summary
7
This research aims to present two outputs
- projected economic and financial performances in 2018 of the Italian non-financial companies
- the expected risk level of such entities at the end of 2018
the sample extracted for the analysis consists of Italian joint stock and limited liability companies with turnover
exceeding euro5 million and includes on average roughly 50000 entities per year operating in 10 macro industries
(manufacturing further detailed in 10 micro-sectors) the related revenues in 2016 amounted to euro18 billion
representing 769 of total revenues of all Italian joint-stock and limited liability companies
the World European and Italian historical (2000-2016) and estimatedprojected (2017-2018) macroeconomic
data are combined with specific individual company data with the aim of obtaining accurate and reliable
forecasts
the Cerved database was the main source for the analysis of economic and financial performances of the
companies included in the sample Cerved Rating Agency database highlighted the risk level of such entities
based on the credit rating activities performed by the Agency
the research output affirms that gradual recovery of Italian non-financial companies is expected to continue in
2018 both in terms of revenue growth and improvement of the financial structure primarily for manufacturing
and accommodation and food services industry the trend is mainly fostered by positive global economic cycle
low interest rates and favorable regulatory framework supporting firm funding investments innovation and
employment
the general risk level in 2018 is assumed to remain approximately at the levels recorded at the end of 2017
a slight improvement in terms of rating upgrades is expected for 9 of the companies analyzed mainly
concentrated in the manufacturing wholesale and retail trade and the accommodation and food service
industry
Executive summary
CERVED RATING AGENCY SpA | Executive Summary
8
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
World economy Outlook 2018
9
Growth is predicted to gain strength
The predicted global economic growth rate is 39
in 2018 (against 36 in 2017) According to the
International Monetary Fund forecast in 2018 the
two biggest world economies US and China will
grow at 23 and 65 rate respectively
Consumer price inflation rate to rise
The global consumer price inflation rate is expected
to rise assisted by higher commodity prices Oil price
averaged $54barrel in 2017 and is predicted to remain
close to $60barrel in 2018 whilst oil consumption is
forecast to record an uptick of 14 in 2018 In addition
also metal prices are expected to increase modestly in
2018
Trade to increase
Global world trade is predicted to increase further
in 2018 fostered by a recovery in manufacturing
activity and an increase in investment especially
in advanced economies In addition a recovery for
the commodity exporters is expected
Global risks remain tilted to the downside
These include increased trade protectionism as well
as economic policy uncertainty possible adversity
in the financial system due to easy monetary
conditions and over the longer term weaker
potential growth In addition the upcoming political
events and the current political uncertainties may
negatively affect the general economic conditions
Commodity Fuel Price Index
Metals Price Index
Source IMF ECB OECD
20022000 20062004 2008 20122010 F201820162014
50
0
150
100
200
250
1
0
3
2
5
4
7
6
Exhibit 2
Volume of imports of goods and services (Y-o-Y change)
Volume of exports of goods and services (Y-o-Y change)
Current account balance ($ billion) Source IMF
20112010 20132012 2014 20162015 F20182017
2
0
8
4
10
12
14
100
0
300
200
400
500
Exhibit 3 Global trade and current account balance world
EPU Index World
VIX Source FRED
20112010 20132012 2014 20162015 F20182017
50
0
100
150
200
250
5
0
15
10
20
25
30
Exhibit 4
Euro Area
EMDEs
United StatesWorld
Other advanced economies
China
OthersSource IMF and Cerved Rating Agency elaboration
20112010 20132012 2014 20162015 F20182017
20
0
60
40
80
100
1
0
3
2
5
4
6
Exhibit 1 Contribution to global growth world
CERVED RATING AGENCY SpA | World economy Outlook 2018
10
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
European economy Outlook 2018
11
Euro area gdp grows unemployment falls
GDP growth in the euro area rose around 21 in
2017 and is predicted to continue at a broadly similar
pace in 2018 Furthermore the unemployment
rate will continue to follow a declining trend and is
forecast to fall to 87 in 2018 (from 92 in 2017)
Industrial production improvement
Investments will accelerate and the international
environment will contribute positively to an increase
of exports (in line with the global growth) which will be
one of the principal driver of an industrial production
improvement in 2018
Further credit activity expansion
Across the euro zone countries companies are
benefiting both from eased lending conditions
and increase in the number of alternative lenders
The total amount of loans to households and non-
financial corporations grew by approximately 14
in 2017 whilst in 2018 it is predicted to increase more
slowly especially in the non-financial corporate
sector
Inflation rate to be stable
Consumer price inflation accelerated at the
beginning of 2017 mainly due to a rise in energy
prices The harmonized index of consumer prices
(HICP) is estimated at 15 in 2017 In 2018
the impact of energy inflation is expected to
decline resulting in a lower inflation rate outlook
(approximately 14)
Germany
France
ItalyEuro Union
Spain
UK
OthersSource IMF ECB OECD
20112010 20132012 2014 20162015 F20182017
20
0
60
40
80
100
0
-1
2
1
3
4
Exhibit 5 Contribution to European growth European Union
EPU Index euro areaIndustrial production euro area (Y-O-Y change)
Source IMF ECB OECD
2011 2015 2017
-2
-2
-3
-1
-1
1
1
0
2
2
3
100
0
300
200
250
400
450
500
Exhibit 7 Industrial production and policy uncertainty index euro area
2010
350
150
50
20182013 2014 20162012
Euro Area
Source ECB
20112010 20132012 2014 20162015 2017
500
0
1500
2500
2000
3000
1000
10000
9900
9800
9700
9600
9500
9400
9300
9200
Germany Spain France Italy
20112010 20132012 2014 20162015 20182017
BCI euro area
CCI euro area
Source IMF ECB OECD
96
95
98
97
99
101
102
100
103
0
-1
2
1
4
3
5
Exhibit 6
CERVED RATING AGENCY SpA | European economy Outlook 2018
12
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Highlights on italian economy
13
Gdp growth is under way to consolidate in 2018
From 2000 to 2017 the Italian economy was more
vulnerable compared to other highly developed
countries in particular those of the euro area
The Italian real GDP at the end of 2017 was roughly
at the same level recorded in 2000 whilst the euro
area countries and specifically Germany and France
experienced a considerable growth in the same period
(188 205 and 198 respectively)
The Italian GDP has started to increase moderately only
since 2014 mainly due to an improvement in domestic
demand but its growth still remains below the growth
rates of the majority of euro zone countries The poor
performance of the labor and total productivity factor
accounts for most of the difference
An ageing population and a weak labor market
participation have also contributed negatively to
potential growth Structural reforms in particular the
Jobs Act and tax incentives on new labor contracts
contributed to the increase in employment making the
Italian labor market more flexible and efficient
In 2018 we expect the economic growth to be slightly
below the level reached in 2017 The trend will be
sustained by the world economy positive cycle
including higher levels of international trade volume
Italian companies will benefit from favorable credit
lending conditions due to an expanding credit activity
of the banking system and low interest rates
Whilst the Italian government adopted a set of dynamic
and diverse policies for 2018 we believe that some of
those previously introduced have already contributed
to the GDP growth in 2016 and 2017 thus reducing the
combined effect in 2018
Source World Bank
2000 2002 2004 2006 2008 2010 2012 2014 2016
1500
1000
500
0
2500
3500
3000
4000
2000
13000
9500
10000
11000
12000
12500
10500
11500
Exhibit 10 GDP in Europe ($ billion)
Germany Italy Euro areas (11countries)France
Total multifactor productivityEmployment growth
Source OECD
-2
-4
-6
-8
2
0
4
6
Exhibit 9 Italian GDP employment and total multifactor productivity (Y-o-Y change)
2000 2002 2014 20162004 2006
GDP growth
20122008 2010
CERVED RATING AGENCY SpA | Highlights on italian economy
14
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The number of active companies has increased buthellip
The number of active companies in Italy registered at
the Chamber of Commerce as of December 31st 2016
amounted to 5145995 305629 more than in 2000
(63)
The increase in registered active companies is the result
of the positive trend from 2000 to 2008 (98) partially
cancelled by the decrease from 2009 to 2016 In 2017 a
slight improvement is expected to be recorded however
the number of active companies remains below its peak
value (5316104 entities) reached at the end of 2008
Exhibit 11 shows both the trend of active Italian companies
in the period 2000-2016 and their breakdown by legal
form We observe that the increased number of Joint Stock
Companies and particularly Limited Liability companies
(1206) was able to compensate the decrease in Unlimited
Partnerships (-62) and Sole Proprietorships (-79)
Companies are abandoning traditional sectors
Exhibit 12 shows the breakdown of the Italian active
companies at the end of 2000 and 2016 by industry
It can be observed that in many traditional sectors
the number of active companies decreased eg in
agriculture (-294) and manufacturing (-226) whilst
the number of companies increased in construction
(273) and wholesale and retail trade (39)
A very significant rise in the new registered companies
(456) occurred in other industries in particular
in the service industry offering information and
communication IT and professional scientific and
technical services
Joint Stock and Limited Liability Unlimited Partnership Sole proprietorshipO ther forms
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 2012 2013 2014 2015 20160
6000000
5000000
4000000
3000000
2000000
1000000
Exhibit 11 Italian active companies 2000-2016
Total
Source Movimprese and Cerved Rating Agency elaboration
Exhibit 12
Breakdown of the Italian active companies by industry 2000-2016
2000
635286 13
1059005 22
639778 13
589707 12
183 856 4 226964 5 150772 3
1354998 28
965452 19
747738 14
495247 10
750863 15
150888 3
379899 7 247187 5
1408721 27
2016
C Manufacturing
F Construction
H Transporting and storage
I Accommodation and food service activities
L Real estate ativities
G Wholesale and retail traderepair of motor vehicles and motorcycles
X Other
15
Number of bankruptcy and other legal proceedings to decrease further
From 2000 to 2016 the number of bankruptcies and
other legal proceedings protests and prejudicial
acts in Italy mirrored the general trend of the
Italian economy
After reaching its minimum level in 2007 (5969)
the number of bankruptcy procedures in the
period 2009-2014 increased dramatically reaching
its peak value of 15608 in 2014
With the improvement in the economic and financial
environment starting from 2015 the number of
bankruptcy procedures decreased sharply in all
macro sectors returning approximately to the
levels recorded from 2000 to 2006 A positive
trend was recorded also in 2017 bankruptcy
procedure initiated for 11937 companies -113
when compared to the same period in 2016 In
absolute terms the highest number of bankruptcy
procedures was recorded in the service sectors
followed by the construction and manufacturing
Worth mentioning is the design of a new Italian
bankruptcy law that should be approved by
October 2018 The regulatory framework aims at
more efficient resolutions of cases of company
crisis supporting continuity of its operating
activities and safeguarding the interest of creditors
by introducing innovative solutions such as pre-
crisis warning mechanisms
Other legal proceedings after reaching its
maximum level in 2013 (3593) in 2016 came down
to 1993 and the trend continues in 2017 evidencing
1866 procedures -64 when compared to the
same period in 2016
In the last five years new protests and prejudicial
acts have also shown a decreasing trend with
ndash527 and ndash70 of acts respectively in 2017
compared to the numbers recorded in 2013
-6
Exhibit 13 Bankruptcy
BankruptcySource Cerved databaase
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
10729 108311163612287
10338
59697307
9189
1108812022
12437
14031
1560814682
13459
11937
Other legal procedingsSource Cerved database
1500
1000
500
02000
940 994 1125 1211
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
2500
3500
3000
4000
2000
1110
16691540
18702094 2057
2342 2475
3593
3132
2720
1993 1866
Exhibit 14 Other legal procedings
1211
100 45000
4000090
80
70
60
50
40
30
20
10
02015
35000
30000
25000
20000
15000
10000
5000
02013 2014
Protets
703
297
41438
Total
Source Cerved database
Prejudicial acts
2016 2017
665
335
34527
570
43032660
527
473
546
454
2523828929
Exhibit 15 Protests and prejudical acts
CERVED RATING AGENCY SpA | Highlights on italian economy
16
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Core inflation rate to rise
Italian headline inflation will experience a modest
decline in 2018 compared to the previous year
(12 and 14 respectively) Core inflation
however is predicted to increase to 12 in 2018
(up from 10 in 2017)
Exports and import are accelerating
Exports and imports will both accelerate in 2018 (41
and 44 respectively) mirroring the positive trend
and expectations in global trade and the rising of the
external demand Machinery and equipment industry
will still remain in ldquopole positionrdquo due to companies
generous investment and tax incentives In general
in 2018 Italian exports will increase more in the Extra
European Union countries
Investment continues to gain strength
Investment has gained strength and will continue to
do so at a relatively fast pace supported by effects of
the tax incentives (Stability Low 2017) low interest rate
and improvements in business confidence Indeed
investments are expected to increase 30 in 2018
(up from 24 in 2017) Construction investments are
forecast to accelerate slightly also thanks to more
resources earmarked for public investment
Harmonised core infation
Source OECD and IMF
2003 2006 20092000 2012 2015 F2018
2
1
-1
0
4
3
5
6
Exhibit 16
Imports of goods and services (Y-o-Y change)
Exports of goods and services (Y-o-Y changes)
Total dometic demand (Y-o-Y change)
Source OECD and IMF
20062000 2015 F2018-5
-15
-20
5
0
-10
10
15
Exhibit 17 Exports imports and demand Italy
20122003 2009
Wholesale and retail trade (Y-o-Y change)
Total investments ( of GDP)
Heavy industry (Y-o-Y change)
Other services (Y-o-Y change)
Source IMF and ISTAT
Construction (Y-o-Y change)
20062000
-20
-30
10
0
-10
20
30
20
25
15
10
0
5
F2018
Exhibit 18 Investments by industry Italy
2003 2009 2012 2015
17
No room for significant public debt reduction
At the end of 2016 the Italian government debt-to-GDP
ratio was significantly above its level at the beginning of
the century In particular as of December 31st 2016 the
ratio was 1326 (262 with respect to 100 recorded
at the end of 2000)
In the same period the ratio for the euro area increased
from 681 to 913 (341) in Germany from 589 to
683 (159) and in France from 586 to 960 (638)
At the end of 2017 the Italian government debt increased
further to more than euro2300 billion 1350 of GDP The
debt servicing in terms of interests accounts roughly
50 of Italian GDP
In our view the high level of government debt
represents a key factor limiting Italian economic growth
and contributes eo ipso to increasing country risk
with a possible negative impact on the stability of the
international financial system
A possible increase in interest rates would raise the
cost of debt service potentially triggering a crisis due to
larger governmental deficits a slowdown in economic
activity and growing debt refinancing difficulties due to
higher risk perceived by investors
Hence it seems that a significant reduction in
government debt should be the main goal of the Italian
economic and financial policy in our opinion however
the achievement of such a result is not realistic neither
in the short nor in the medium term due to the following
factors
middot economic growth in the coming years is expected
to be moderate not sufficient to be the main source of
the government debt reduction
middot macroeconomic policy is expected to prioritize
investments employment social security and welfare
rather than government debt reduction
middot even if the inflation rate hits the target value (20) the
impact on the government debt in the short term is not
expected to be considerable
middot finally in Italy election will take place in spring 2018
with a new government taking over the economic
program that has already been approved and become
fully executive
Euro area
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 2012 2013 2014 2015 20160
20
40
60
80
100
120
140
Exhibit 19 Public debt as GDP
France
Source AMECO and Cerved Rating Agency elaboration
CERVED RATING AGENCY SpA | Highlights on italian economy
18
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Table 1
Amount ( 407 312
-327
327754
216074 190881
163248 345604188167
869
1543
2213
1793
CAGR (base year 2000)
CAGR (base year 2008)
NPL ratio ()
Ndeg debtors
Averae debt debtor
Valueindicator 2000 2008 2016
Source Bank of Italy and Cerved rating Agency elaboration
Credit activity to be expanded interest rates to remain at very low levels
As of December 31st 2016 the volume of bank loans
granted to Italian non-financial corporations amounted to
euro8604 billion
The period 2000-2016 was characterized by two different
trends from 2000 to 2011 the annual outstanding loans
value increased by 841 (euro454 billion reaching in 2011 its
highest level ever of euro993 billion thanks to 57 CAGR far
above the Italian GDP growth) whilst in the period from
2012 to 2016 loans decreased by 134 (euro130 billion)
reflecting a negative -28 CAGR The loan reduction hit
sharply construction and manufacturing (accounting
for about 400 of all loans) which experienced -227
and -135 decrease in loan volumes whilst agriculture
forestry and fishing and wholesale and retail trade
(including repairs of motor vehicles and motorcycles)
had more limited loan contraction (-08 and -53
respectively)
In the observed period due to the negative impact of the
global financial crisis 200708 and to structural changes in
the world economic and financial environment a radical
decrease in interest rates was recorded In 2017 the
interest rates charged to Italian non-financial corporates
were on average less than half compared to those charged
in 2000 In the medium term low interest rates will remain
a positive factor fostering investments and consumption
Non-performing loans to be further reduced due to innovative measures
The credit crunch had a huge and dramatic impact on
the Italian economy hitting especially small businesses
which are not able to survive in a radically changed market
conditions The evidence of such outcome can be seen not
only through the decreased number of active companies
but also via the enormously increased volume of the
non-performing loans (NPLs) In particular these loans
amounted to euro324 billion at the end of 2016 of which euro154
billion were granted to the non-financial corporations as
shown in table 1
Following the principles outlined in the ECB guidelines
published in March in 2017 Italian Banks made significant
progress in reducing the amount of the NPLs ndash estimated
to be over euro50 billion debt reduction Any further actions
aimed to improve the banking balance sheets should not
increase the financial hardship of still operating companies
North - East SouthNorth - West Center Islands
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 2012 2013 2014 2015 20160
1200000
1000000
800000
600000
400000
200000
NPLs ratio
Source Bank of Italy and Cerved Rating Agency elaboration
20
1816
14
1210
8
6
42
0
446393
euro billion)
19
Modest role of italian equity capital markets
Despite the number of listed companies increasing
from 297 to 421 in the period 2000-2017 the role
of the stock markets remains modest in Italy
As of December 31st 2017 the market capitalization
was euro640 billion (375 of the estimated Italian GDP
in 2017) representing only 782 of the overall
market capitalization recorded in 2000 (equal
to euro818 billion 687 of GDP) mainly due to
an unfavorable economic cycle in the observed
period
This situation shows the structural weaknesses of
the Italian economic and financial system especially
when compared to other highly developed
European economies The low propensity to
raise equity capital through organized markets
is linked to an unfavorable macroeconomic and
fiscal framework as well as to the predominance
of SMEs mostly unfit for listing and presenting
cultural obstacles (ie company owners and managers are often reluctant to accept wider company control and
transparency)
Hence self-financing and bank borrowing remain the main sources of finance for Italian companies which are
generally speaking undercapitalized with a negative impact on their investment capabilities Very frequently the
lack of medium-long term financing means forces companies to focus their attention on running current activities
postponing or abandoning strategic projects fundamental for company growth
A wide range of innovative initiatives have been undertaken with the aim of fostering market based company
funding in particular
middot AIM (Alternative Investment Market) - a specialized market segment dedicated to SMEs growth (95 companies and
market capitalization around euro56 billion as of December 2017)
middot ELITE - a programme designed to help SMEs prepare and structure for the next stage of growth their through
access to long-term financing opportunities
middot PIR - Piani individuali di risparmio (Individual Savings Plan) - an innovative way to fund Italian SMEs by offering retail
investors resident in Italy tax incentives (full exemption of 260 income tax) if the savings stay invested for at least
five years A minimum of 700 of such credit assets must be invested in financial instruments issued by Italian or
foreign (EU and EEA) companies permanently established in Italy
FTSE (MIB)Enterprises
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 20132012 20152014 201720160
100
200
300
400
500
600
700
800
900
100029681 29525
14623
1765216121
12259
13512
16048
15988
19012
21428
21853
2185322232
16954
297 294 295 279 282278 311 336 332 332 328 323 326344 342 356 387 421
19483
22886
26056
31005
Exhibit 21 Italian listed enterprised and FTSE (MIB) index trend
Source Borsa Italiana
300000
250000
200000
150000
100000
5000
0
Capitalization of GDP
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 20132012 20152014 201720160
100
200
300
400
500
600
700
800
900
1000
Exhibit 22 Italian market capitalization of listed companies ( of GDP)
Source Borsa Italiana
80
70
60
50
40
30
20
10
0
8184
5923
354 365418 473
524475
239301 275
210233
287 295348
318375
4580 4875
5809
6766
77857336
37474571
4251
3324
44664678
56765249
6400
3655
474
68
CERVED RATING AGENCY SpA | Highlights on italian economy
20
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Italian debt capital market is growing but still remains behind needs
At the end of 2016 the outstanding amount of debt
securities issued by Italian financial and non-financial
corporations was euro8615 billion 510 of the countryrsquos
GDP The table below shows the breakdown by issuer
type of Italian German French British and United States
outstanding amounts of debt securities as of December
2016 issued by financial and non-financial corporations
with the respective debt-to-GDP ratio
Despite the outstanding debt at the end of 2016 being
almost double compared to 2000 it represents only 23
of its peak value reached in 2012 (euro1290 billion Exhibit
23) The main reason for such a significant debt reduction
is the huge bond reimbursement realized by banking
institutions from 2013 to 2016 and the related negative
net flow of debt securities (respectively -80 -153 -106
and -67 billion of euro as shown in Exhibit 24)
The decrease in debt securities funding of Italian banks
has been compensated by a wider use of deposits and
resources available under the Eurosystem refinancing
operations framework
The outstanding amount of debt securities issued by
non-financial corporations at the end of 2016 also
doubled its value with respect to the amount recorded
at the end of 2000 The main characteristic of this cluster
is the high concentration of issuancesdebt to a small
number of issuers
Due to both more favourable general economic
conditions and active ECB monetary policy bond yields
have decreased significantly providing room for a
convenient fund raising
Since the introduction of a new regulatory framework
(lsquoDecreto Svilupporsquo) in 2012 up to October 2017 Italian
market saw 300 small-size listed bond issues (ie so
called minibonds) amounting approximately to euro143
billion Issued mainly by SMEs they offer interesting
yields to institutional investors
) Source Business support SpA ndash Minibonditalyit
BanksTotal
Source Bank of Italy and Cerved Rating Agency elaboration
2006 20082000
-200000
200000
250000
-150000
-100000
150000
100000
-50000
50000
02012 2014 20162002 2004 2010
Banks debt securities outstanding
Banks Debt to GDP ratio
Source Bank of Italy and Cerved Rating Agency elaboration
0
10
20
30
40
50
60
70 1400000
1200000
1000000
800000
600000
400000
200000
0201620142012201020082006200420022000
Table 2 Outstanding securities debt (euro Million)Debt-to-GDP ratio()
Financial corporates
Total
Debtsecurities
outstanding
Italy German rance United Kingdom United States
739
123
862
440 340 470
21
680380
40
1279 1331 4 50
880
30
14271
14820
549180
10202767
590
19211436
15770
510
Debtsecurities
outstanding
Debtsecurities
outstanding
Debtsecurities
outstanding
Debtsecurities
outstanding
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Source Bank of Italy
0
0
21
CERVED RATING AGENCY SpA | Highlights on italian economy
22
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Italian non-financial companies economic Outlook 2018
23
Data and method
This research focuses on Italian non-financial companies
with an annual turnover exceeding euro5 million With the
aim of using only reliable data joint stock and limited
liability companies have been considered only these
entities according to Italian law file complete annual
financial statements in the Chamber of Commerce
together with anagraphical company data other
legal forms such as unlimited partnerships and sole
proprietorships are not included in this sample due to
the lack of publicly available standardized financial data
We believe that this cutoff is reasonable and allows us to
perform a methodologically correct analysis In 2016 the
above mentioned companies despite representing only
42 of all registered and active joint stock and limited
liability companies accounted for 769 of their total
turnover
Moreover cluster specialization has been obtained by
NACE activity classification from A to J (thus not including
in the sample financial and insurance companies and
some service industries) The statistics regarding specific
industries provide important key data and enable us to
examine historical and prospective trends and cross-
sector comparisons
The Cerved database which contains legal anagraphical
financial and market information on all Italian registered
legal entities (approximately 6 million comprising 5
million active ones) was the most important database
used for this research Long time series and broad
homogenized and standardized data covering different
economic cycles were the building blocks to perform
the regression and predictive analysis
Historical and forecast macroeconomic data and
analysis performed by the International Monetary Fund
OECD the World Bank European Central Bank Bank
of Italy and ISTAT completed the dataset used for the
analysis
Several analyses were performed in order to examine
the structural differences within the sample in terms of
company legal form and geographical area (Exhibit 25)
company age (Exhibit 26) and company size and industry
As a result we verified a considerable heterogeneity of
companies in particular with regard to the company size
across various industries
The relevant observation period comprises the years
between 2000 and 2016 Table 3 describes some
characteristics of the sample
Exhibit 25 Sample break-down by legal form and geographic area (2016)
Joint stock Company
Limited liability Company
Area 1 (Northwest)
Area 3 (Center)
Area 2 (Northeast)
Area 4 (South)
39
20
27
14
33
67
33
Table 3 Sample characteristics 2000-2016
TotalTurnover
gt euro5million
Turnover gt euro5 million(industry
from A to J)
TotalTurnover
gt euro5million
ofTotal
Turnover gt
euro5 million(industry
from A to J)
Source Cerved database
Entreprises Turnover billion
2000 659867700717738558772442812025847334883122915172937018949708965744969581
953505945825922513883224
4215144587462234694749640518205596459226595385246754808563745362752074519385289450123
3686139038411864118843547454704921752274526974633848778504734806246843468384771845288
16151740177018472002212923302477256822562421257025202446243224392295
12661362139214561588169818752000208317861944208720541992198419871905
11141205124013041430152316891801189716191764191218831839183518371765
689693700
716
706714
725
718729744748752754753769
727739
200120022003200420052006
200820092010201120122013201420152016
2007
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
24
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Furthermore in order to guarantee more detailed and
accurate analyses and projections we decided to create
a static pool to show consistently long time horizon
economic trends (17 years) by sealing off all the active
companies over the 2000-2016 horizon
The outcome obtained by considering the behaviour of
specific variables related to the companies included in
the static pool was extended as a performance indicator
for the whole sample (turnover over euro5 million and
industry from A to J)
According to the European Communityrsquos definition of
SMEs using annual turnover and employee headcount
as quantitative criteria the initial sample of companies
and the static pool can be classified by size classes on
the basis of the financial statements for the year 2016
as shown in Table 4
For the sake of this analysis we defined specific size
classes for each industry thus deviating from the
European Commissionrsquos recommendation which
presents undifferentiated upper and lower bounds of
quantitative criteria for SMEs in all industries To define
the thresholds of such classes we used both a statistical
approach (a specific cluster procedure by minimizing
the within-cluster turnover standard deviation) and a
judgmental approach by relying on the experience and
opinion of our industry expert analysts Table 5 shows
the results of such analysis referring to the sample in
2016 (45288 entities) and the NACE sections from A
to J Moreover the NACE section C and G were further
disaggregated into sub-industry classes as shown in
Exhibit 27 in order to consider the specific business
differences within these NACE sections thus ensuring
a good fit and a satisfactory accuracy of the estimation
Exhibit 26 Sample break-down by company age classes
0-2 Years 2-5 Years 5-10 Years 10-20 Years gt20 YearsSource Cerved database and Cerved Rating Agency elaboration
0 20 40 60 80 100
ABCDEFGHIJ
A = AgricolutreB=Mining and quarryingC=ManufacturingD=Electricity and gasE=Water supplyF=ConstructionG=Wholesale and retail tradeH=Transporting and storageI=Accomodation and food serviceJ=ICT
Small
Annul Turnover
Empolyees
Static Pool
Enterprises(Turnover gt euro5 million)
Enterprises(Turnover gt euro5 millionindustry from A t J)
Medium Large
lt 50 lt 250lt 36774 11113
1005333223
8741
2236
2012
154818645
gt euro50 million
gt 250
lt euro50 million
Source Cerved database
NACE Micro industry
B-Mining and quarryingAutomotive
Automotive
Retail
Wholesale
T gt 480
T gt 80
T gt 260
T gt 265T gt 270
T gt 230
T gt 120
T gt 80
T gt 43
T gt 65
T gt 106T gt 106
T gt 360T gt 155T gt 150T gt 100
T gt 120
T gt 225T gt 1400T gt 27500
T gt 1500
ChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther Manifacturing
ICTTextile
Paper Packaging ampForest products
C-Manifacturing
F-Construcion
H-Transportig and storageI-Accommodation and food service activities
J-Information and communication
D-Electricity gas steam and aircoditioning supply
G-Wholesale and reatail traderepair of motor vehicles and motorcycles
E-Water supply sewerage waste management and emediation activities
Large (Turnover
in euro million)
Medium(Turnover
in euro million)
Small(Turnover
in euro million)
Source Cerved database and Cerved Rating Agency elaboration
60 lt T lt 480 5 lt T lt 60
5 lt T lt 20
5 lt T lt 36
5 lt T lt 35
5 lt T lt 44
5 lt T lt 40
5 lt T lt 20
5 lt T lt 26
5 lt T lt 250
5 lt T lt 185 lt T lt 305 lt T lt 265 lt T lt 205 lt T lt 37
5 lt T lt 335 lt T lt 40
5 lt T lt 255 lt T lt 585 lt T lt 1155 lt T lt 1005 lt T lt 27
20 lt T lt 80
36 lt T lt 26035 lt T lt 26544 lt T lt 270
40 lt T lt 230
20 lt T lt 120
26 lt T lt 80
18 lt T lt 43
250 lt T lt 1500
20 lt T lt 6537 lt T lt 29540 lt T lt 15533 lt T lt 15025 lt T lt 100
27 lt T lt 120
58 lt T lt 225
100 lt T lt 27500 115 lt T lt
30 lt T lt 10626 lt T lt 106
25
Exhibit 28 shows the breakdown of macro industries
analysed including disaggregation of the NACE section C
(manufacturing) and G (wholesale and retail trade repair
of motor vehicles and motorcycles)
In order to carry out the analysis and projections this study
is focused on we used simple multiple linear regression
model for each industry and company size classes
considering macroeconomic and individual companiesrsquo
economic and financial data
The analysis enables us to develop an econometric
model used to estimate likely credit quality changes (in
terms of rating class and probability of default) for single
industries and company size classes
Automotive
Retail
Wholesale
21
1366
1
42
1
26
35
232
6
A B C D
F G H I
46
7
21
1318
9
15
34
Automotive
Chemistry amp pharmaceutics
Clothing
Equipment
Food Beverage and Tabacco
Heavy Manifacturing
Other Manifacture
Paper Packaging amp Forest Products
ICT
Textile industry
Large SmallMedium
Source Cerved database and Cerved Rating Agency elaboration
0
Wholesale
Retail
Automotive
20 40 60 80 100
Automotive
Chemistry amp pharmaeutics
Clothing
Equipment
Food beverage and Tabacco
Heavy Manifacturing
Other Manifacturing
Paper Packaging amp Forest Products
ICT
Textile
0 20 40 60 80 100
ABCDEFGHIJ
0 10 30 40 60 70 80 90 100
Exhibit 28 Sample break-down by industry (2016)
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
26
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Performance indicators to improve further
The annual financial statements available through public
registers provide a clear economic and financial picture
of the Italian joint-stock and limited liability non-financial
companies The individual historical data available from
2000 to 2016 enriched with 2017 preliminary results and
with the expected 2018 macroeconomic scenario enabled
us to build up the 2017 and 2018 projections regarding
the following four performance indicators related to the
analyzed sample 1) growth rate - revenues YoY change
2) EBITDA margin 3) net financial debtEBITDA and 4) net
financial debtEquity Afterwards the median values of the
resulting data were used to obtain the summary output
which we consider as a representative proxy for the overall
market
From 2000 to 2016 the observed companies experienced
a very irregular trend both in terms of growth rate and
EBITDA margin In the aftermath of the global financial crisis
the lowest growth rate value (-120) was recorded in 2009
manufacturing transporting - storage and wholesale and
retail trade were the industries showing the biggest fall of
business volume (-155 -121 and -104 respectively)
whilst water supply accommodation and food service and
electricity and gas showed the highest level of resilience to
the adverse economic and financial environment (-01
-23 and ndash26 respectively) Exhibit 29 shows that in
terms of median value there are no significant differences
in the growth rate taking into consideration company size
classes as we previously defined them Only from 2010 the
growth rates turned positive but still remaining below the
levels recorded in 2000
The analysis of the EBITDA margin changes in the same
period also does not highlight significant differences
between large companies and SMEs as shown in Exhibit
30 The lowest median EBITDA margin value (52) was
recorded in 2012 regarding in particular accommodation
and food service transporting and storage and agriculture
sectors (28 40 52 respectively) while electricity
and gas ICT and water supply were relatively immune to
the unfavorable economic and financial circumstances
(showing 113 109 and 105 EBITDA margin
respectively) At the end of 2016 the median EBITDA margin
(60) still remains below the levels recorded in 2000 (72)
Positive trends emerging from the last publicly available
financial statements (2016) the 2017 preliminary results
and the optimistic macroeconomic forecasts for 2018
confirm improvement of the Italian economy Looking
ahead we expect the Italian non-financial companies to
continue to experience gradual recovery in 2018 They are
going to take advantage of the favorable global economic
cycle low interest rates and supportive regulations that
inter alia foster the use of alternative non-bank financial
sources for company funding The financial resources raised
through Individual Savings Plans (PIR ndash Piani individuali di
risparmio) introduced by the 2017 Budget Law are driven
in primis by a favorable tax regime for savers and might
become an important additional source for SMEs funding
injecting new liquidity The government objective fixed euro68
billion as a target value and in 2017 nearly euro10 billion had
already been raised
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2004 2006 2014 20162000
5
20
10
0
15
-15
-10
-5
Exhibit 29 Growth rate (revenue YoY change) by size classes (median)
medium small
2008 2010 2012
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2004 2006 2008 2010 2012 2014 20162000
7
10
9
8
6
5
4
3
7
10
9
8
6
5
4
EBITDA margin by size classes (median)
medium small
27
So far one of the main obstacles PIR are facing is the limited
number of available assets which may lead to a possible
concentration of this financial resources in a small share of
the market comprising mainly relatively large companies
as shown by the early data in 2017
Another obstacle to rapid adoption of the newly available
financial resources is the lack of a standardized and broadly
accepted methodology for the risk assessment of potential
bond issuers
Generally speaking in 2018 we expect SMEs to contribute
more significantly to growth employment and innovation
whilst on average the respective EBITDA margin will remain
broadly stable (as shown in Exhibit 31) However 2018 will
still be a challenging year for SMEs and innovative startup
companies as they will have to face tougher barriers in
accessing bank credit andor approaching capital markets
compared to large companies We also expect some new
innovative solutions aimed at meeting SMEs financial needs
to become effective the SMEs current financial structure
together with new business opportunities prove their
ability in terms of rational use of the additional financial
resources
The new investments will allow most industries to thrive
also assisted by the Italian Governmentrsquos adoption of the
National Industry 40 Plan
The companies which will take up this opportunity may
improve their cash-flows even in the short-medium term
Finally companies with strong international market
positioning and large product diversification will have
stronger sales and margins growth
The key ratio values recorded from 2000 to 2016 related to
the analyzed entities show the improved financial health of
the companies proving good capability to strengthen their
equity base as shown in Table 6
Growth rate (2016)Medium
Total
Small Large
Growth rate (2018)Growth rate (2017)
Source Cerved database and Cerved Rating Agency elaboration
50
40
Exhibit 31 Growth rate and EBITDA margin forecast by size classes
EBITDA margin (2016)EBITDA margin (2018)
EBITDA margin (2017)
40
30
0
10
20
Medium
Total
Small Large
7570
65
0
6 5560
5550
4540
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
28
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The recorded financial ratios in the 2000-2016 horizon
indicate that on average
middot liquidity maintained a satisfactory level in the whole
observed period due to the positive economic cycle in
2017 and 2018 we expect a slight improvement in the ratio
middot the EBITDAinterest coverage ratio almost doubled its
value in 2016 compared to what was recorded in 2000
primarily due to a general reduction in the interest rates
particularly in the last three years we believe that in 2017
and 2018 the average ratio value will remain roughly at the
same level recorded in 2016
middot in 2016 ROE shows further improvement but is still
slightly lower compared to the value recorded at the
beginning of the observed period mainly due to the equity
base strengthening trend
middot Equity Ratio rose from 250 to 350 due to a significant
increase of equity capital in 2018 we expect further
strengthening of the ratio
middot Financial LiabilitiesTotal Assets ratio remained mostly
unchanged ndash financial debts representing roughly 30 of
the total assets
A positive trend regarding the net financial debt was also
observed in fact in 2016 70 of the sample improved their
NFDEBITDA and 73 the NFDEquity
Positive performances were found especially in the SMEs
segment as shown in Exhibit 32 in particular referring to
NFDEquity small and medium-sized companies recorded
a positive trend standing respectively at 092 and 089 in
2016 compared to 132 and 136 in 2000
Hence the financial risk profile appears to be well balanced
leaving no room for specific concerns regarding the
prospects of the Italian non-financial companies in 2018
In 2016 the median values for the total sample referring to
NFDEquity and NFDEBITDA remained respectively at 089
and 389 levels respectively
Looking ahead we expect these indicators to remain at
healthy levels in 2017 and 2018 with a slight improvement
in NFDEBITDA and a broadly stable level of the NFDEquity
ratio as shown in Exhibit 33
NFDEBITFA (2016) NFDEBITFA (2017)NFDEBITFA (2018)
40
Exhibit 33 NFDEquity and NFDEBITDA forecast by size classes
Source Cerved database and Cerved Rating Agency elaboration
404
20
25
45
35
30
NFDequity (2016) NFDequity (2017)NFDequity (2018)
05
06
09
10
08
07
Exhibit 32 NFDEquity and NFDEBITDA by size classes (median)
largemediumsmall
2016
2015
2014
000 5 10 15
Average2008-2013
Average2000-2007
total largemediumsmall total
Source Cerved database and Cerved Rating Agency elaboration
2016
2015
2014
203 0 405 0
Average2008-2013
Average2000-2007
29
Growth and profitability improvement spanned over all sectors
Exhibit 34 shows the relative positioning of the 10
macro-industries in the short-medium term considering
the median values related to revenue growth rate and
EBITDA margin
The historical median values are calculated on the basis
of financial data obtained from the annual financial
reports 2014-2016 filed in the Chamber of Commerce
public registers the projected median values for 2017
and 2018 are the result of the analysis of this study
As expected there are significant differences in
positioning between different industries in terms of
both historical and projected values
In 2018 we expect manufacturing and accommodation and
food services to maintain top positions already reached in
2016 and 2017
For the electricity gas mining and quarrying industry
2018 may be the turning point showing the first positive
signals after experiencing some difficulties over the last
few years
None of the other industries show significant changes in
2018 compared to their 2016 positioning
Source Cerved database and Cerved Rating Agency elaboration
A 50
57599586886358
3849
3620083721
-110320
-1112
210322
-1814021122
1413
030124
-5010284025
0555
20-4614
-4607212105
0430
210328-2310203218
0832
2310300512233720
1637
BCDEFGHIJ
A 625296
1441401016934
15352
504969
103121916227
10639
4764676185562639
68112
4873687090592845
75120
456772928856
45
7898
4667759090573147
7698
4668769394583147
77102
EBITDAmarigin
BCDEFGHIJ
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018Growthrate
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
Exhibit 34 Growth rate and EBITDA margin by industry
-70 -50 -30 -10 10 30
2016E2017F2018
50 70 90
Median=68
Median=2100
20
40
60
80
100
120
A=Agricolture B=Mining and quarrying C=Manifacturing D=Electricity and gas E=Water supply F=Construction G=Wholesale and retail trade H=Transporting and storage I=Accomodation and food service J=ICT
D
B
E
FHA G
C
I
J
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
30
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Further strenthening in companiesrsquo financial structure
Exhibit 35 shows the relative positioning of the 10 macro
industries in the short-medium term considering the
median values related to NFDEBITDA and NFDEquity
ratios
The historical median values are calculated on the basis
of financial data obtained from the annual financial
reports 2014-2016 filed in the Chamber of Commerce
public registers the projected median values for 2017
and 2018 are the result of the analysis of this study
There are even more significant differences in
positioning between industries regarding NFDEBITDA
and NFDEquity ratios when compared to growth rate
and EBITDA margin differences
Generally in the observed period there is no evidence of
significant changes among industries considering their
relative positioning related to NFDEBITDA and NFD
Equity ratios
In 2018 we expect accommodation and food services
and information and communication services to
maintain top positions already reached in 2016 and
presumably confirmed in 2017
Exhibit 35 NFDEquity and NFDEBITDA by industry
2016E2017F2018
Median=37
Median=08500
030 5 070 9 111 3
20
30
40
50
60
70
10
A=Agricolture B=Mining and quarrying C=Manifacturing D=Electricity and gas E=Water supply F=Construction G=Wholesale and retail trade H=Transporting and storage I=Accomodation and food service J=ICT
EH
C
BF
G
A
D
J
I
A 150101113081112149151120
079131
123075088101097125123103
072079
114067083052090108119102
067076
113060080045089096114092
074069
125076080045089106109086
050060
127072080044091
108084
051056
128067079043093106107081
051051
BCDEFGHIJ
NFDEquity
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
A 597219280305251301338250
153260
676394388342298453499349
254337
707482387293277498532337
277334
696392373254305484494308
231315
747401358330285544483294
183312
722390340341280511470290
178293
710380310329272492452281
177289
NFDEBITDA
BCDEFGHIJ
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
Source Cerved database and Cerved Rating Agency elaboration
106
31
Exhibit 36 Equity ratio by industry
Average 2000-2007 2014 2015Average 2008-2013 2016
Source Cerved database and Cerved Rating Agency elaboration
05
10
20
30
15
25
3540
5045
AB C DE FG HI J
Exhibit 37 EBITDA interest coverage by industry
Average 2000-2007 2014 2015Average 2008-2013 2016
Source Cerved database and Cerved Rating Agency elaboration
0
5
10
20
15
AB C DE FG HI J
A 1113140911151211
1408
1013131012131209
1208
1114151012131311
1309
1214151012151312
1309
1215161113161412
1409
BCDEFGHIJ
Liquidity ratio Median2000-07
Median2008-13 2014 2015 2016
A 0377677447858463
8960
0332
8145524536
4832
0342486042273848
3246
0537606853395765
4069
0743676559416378
5882
BCDEFGHIJ
ROE Median2000-07
Median2008-13 2014 2015 2016
Table 7 Liquidity ratio by industry Table 8 ROE by industry
Source Cerved database and Cerved Rating Agency elaboration
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
32
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Agriculture
Considering the recent price decline for agricultural
products putting EBITDA margin under pressure for
most of the industry participants we anticipate a slow
revenue growth in 2018 We also foresee more stable
margins in 2018 and investments to continue at a faster
pace in the near future mainly aimed at transforming the
agricultural activities into a high-tech industry Climate
and cultural changes are the main exogenous risks that
may negatively influence the sector
Mining and quarrying
Over the last few years the mining industry has been
challenged by record low metal prices and this has
resulted in a weak growth of supply and a cut in
investments especially in the new mines opening We
foresee a modest revenue growth in 2018 supported
by more stable prices rather than by government
infrastructural investments Margin pressure will remain
mostly unchanged in 2018 We do not expect a significant
increase in capital expenditure for most companies
while only a minority of industry participants will invest
in new capacities searching for new growth opportunities
by introducing new higher margin outputs Overall we
anticipate relatively stable key financial indicators
Manufacturing
We believe that in 2018 Italian manufacturing
representing 2nd European and 7th world player in 2016
will remain the beating heart of the national economy
In our view the expansion of internal demand the
improvement of business and customer confidence and
the wider export opportunities are the key drivers for
revenue growth (up to nearly 30) Despite the natural
selection the occurred during the economic recession
domestic competition and especially the competition
from lower income countries will remain challenging in
2018 creating further profitability pressure especially in
some highly fragmented segments
As a conditio sine qua non for market survival many
companies will be involved in a ldquowinning the innovation
gamerdquo process translated into a considerable capex
expenditure directed at process optimization which
inevitably must be accompanied by innovative marketing
and commercial strategies The companies especially
smaller ones which are not ready lsquoto play the gamersquo
remaining risk averse are likely to fall behind
Key financial indicators referring to the industry in terms
of net financial debt to equity and net financial debt to
EBITDA are likely to remain overall stable in 2018
In our view the best performing manufacturing industries
in 2018 will be the following
Automotive
extensive vehicles replacement process in 2018
high competition pressure China maintaining a key role
high level of innovation in mobility and connectivity
new strategic partnerships and MampAconservative stand towards EBITDA margin improvement
Chemistry amp Pharmaceutics
solid macroeconomic fundamentals will support
the revenue growth driven mainly by large companies
on average a stable EBITDA margin of about 10
is expected global presence is a must to achieve higher
level of profitability
RampD remain key factors for further market expansion
moderate level of MampA operations in 2018 slowing
down when compared to those carried out in the
previous year
Machinery amp Equipment
revenue growth in 2018 up to nearly 25 reflecting
the fact that all manufactures remain focused on RampD
and NPI (new product introduction)
cost management strategies are going to persist
but generally speaking with no significant impact on
EBITDA margin in 2018
heavy equipment manufactures still under pressure in
2018 to provide engineering capability and capacity
33
Energy and gas
Italian companies operating in the energy industry are
facing a complex market environment with many open
questions about risks related to regulations a drop
in consumption high competition levels and EBITDA
erosion
Generally we expect a more stable landscape in 2018 in
terms of commodity prices and consumption However
risk regarding prices and volumes will remain strong
resulting in a higher volatility of revenues In our view
the current margin pressure is unlikely to ease over the
next two years The final overcoming of the sondashcalled
ldquoMaggior Tutela Regimerdquo may lead to almost zero margin
for the retail operators We expect industry participants
to continue to focus their attention on cost efficiency and
on protecting profitability by embracing new business
models and examining the role that digital technology
can play in improvement of EBITDA margins We believe
that the above described strategies will be a central
topic for the operators intending to attract capital We
also believe that energy producers could see a slight
debt increase in 2018 aimed at improving productivity
and synergies Finally in 2018 we envisage a significant
number of MampA operations in the sector led by synergy
effects such operations might produce
Water supply waste management and sewerage
In recent years the water supply waste management
and Italian sewerage industry has recorded a slower
growth compared to the pre-crisis period However
due to the last two yearsrsquo important investments in the
water infrastructure waste sorting and recycling Italy
ranks as one of the top European countries in terms
of growth rate of recycling and packaging recovery
We believe that the expected general increase in
industrial output will produce a slight growth in water
consumption and waste treatment The demand for
sustainable solutions will continue to persist requiring
new investment in technologies based on a customer-
centric and sustainable approach aimed at improving
efficiencies and facilitating reuse Expectations also
reflect our view in terms of wider government interest
and spending in this industry We expect profitability
to remain broadly in line with the results obtained in
2016
Construction
After a weak increase in revenues recorded by the
construction industry operators in 2016 and the
modest result anticipated in 2017 both reflecting
a deteriorating demand and decreased volumes of
bank loans (mainly those for small and medium-
sized companies) we expect 2018 to be the turning
point for this industry We foresee that the volume of
residential and private non-residential constructions
will remain at relatively low levels in 2018 and that
the positive trend in housing renovation and public
works investments will continue taking advantage of
the allocated funds established by the Budget Law for
2017 Small and medium-sized businesses focused on
residential construction may face a slight profitability
erosion while we believe some growth in EBITDA
margin may be recorded by large Italian companies
operating internationally Due to the high perceived
risk historically there has been a strong financial
market mistrust of the construction companies which
we believe is likely to ease over the coming years
Wholesale and retail trade
During the crisis period wholesale and retail trade
industry faced a sudden interruption of the gradual
growth that had taken place up to that moment mainly
due to a loss in real purchase power and in consumer
confidence also translated into profitability erosion
In 2016 the data showed how the industry is moving
toward a recovery period Looking forward in 2018 we
expect to record a steady revenue growth supported
by an increase in global trade and improved consumer
confidence Despite the foreseen growth operators
will continue to face consistent pressure mainly in the
retail segment due to the high proliferation of new retail
purchase channels and market fragmentation
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
34
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Transportation and Storage
After a troubled 2016 characterized by an overcapacity
and a decrease in commodity demand hitting shipping
revenues in particular we foresee a moderate overall
recovery in 2018 driven mainly by an increase in
international shipments and air traffic The growing
number of innovative startups will continue to persist
increasing the competitive pressure in the industry We
anticipate a constant growth of e-commerce enabling a
quick reaction of on-line retailer and logistics providers
We believe that operators will continue to invest in
new high-tech solutions experimenting new models of
mobility and smart logistics
Despite very strong competition we expect the median
operating margins to remain steady However global
political uncertainties and related risks are strong with
possible quick and sharp negative impact on business
volumes and margins of the companies operating in
these industries
Accommodation and food services activities
In the last two years operators in the accommodation
and food service activities industry mainly medium
and small sized enterprises have seen steady revenue
growth and satisfactory profitability ratios Many
operators were focused on reviewing their business
models and offering additional services to their
customers a necessary strategy to maintain or expand
market positioning strengthen margins and improve
customer experience We expect the revenue growth
to continue in 2018 with a minimal median margin
improvement We believe accommodation and food
service activities will attract new capital investments
in 2018 to help the ongoing transformation process
and improve the accommodation infrastructure and
services
Information and communication technologies
The Italian information and communication technology
industry took longer to recover from the economic
crisis recording overall a negative median growth
rate until 2014 Software services and innovation
technology were the major contributors to revenue
growth (as a percentage) in 2016
Over the forecast period we foresee a modest revenue
growth for the ICT operators as a whole while the
technology industry will continue to achieve rapid
growth focusing on maintaining the competitive pace
of innovation In our view a key challenge for the ICT
operator may be the availability of matching skills
The outlook is relatively stable in terms of profitability
and key financial indicators
The following two pages show the details of the
previously discussed key performance indicators
35
Exhibit 38 Growth rate and EBITDA margin manifacturing sectors
-70- 50 -30 -10 103 0
2016E2017F2018
50 70 90
Median=76
Median=3000
20
40
60
80
100
120
1=Automotive 2=Chemistryamppharmaceutics 3=Clothing 4=Equipment 5=Food beverage and Tabacco 6=Heavy Manifacturing 8=Paper and Packaging 9=Tecnology and Telecomunication 10=Textile industry
6
10 5
3
8
91
74
2
50AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
57599586886358
3849
3620083721
-110320
-1112
210322
-1814021122
1413
030124
-5010284025
0555
20-4614
-4607212105
0430
210328-2310203218
0832
2310300512233720
1637
Growth rate Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
EBITDA margin Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
Source Cerved database and Cerved Rating Agency elaboration
625296
1441401016934
15352
504969
103121
916227
10639
4764676185562639
68112
487368
7090592845
75120
456772
9288562845
7898
4667759090573147
7698
4668769394583147
77102
1=Automotive 2=Chemistryamppharmaceutics 3=Clothing 4=Equipment 5=Food beverage and Tabacco 6=Heavy Manifacturing 8=Paper and Packaging 9=Tecnology and Telecomunication 10=Textile industry
2016E2017F2018
Median=30
700
600
500
400
300
200
100
000000 020 040 060 080 100 120
Median=08
Exhibit 39 NFDEquity and NFDEBITDA for manifacturing sectors
2
4 8
101
9
9
3
57
Source Cerved database and Cerved Rating Agency elaboration
096AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
104146095152117112109
098087
087080116068118083088086
084078
075074104069107082080079
084083
072064100065105084122081
079081
082066104065105080091079
077082
081067103065105079087079
077081
076067101064104077083078
076080
NFDEQUITY Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
227AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
258334222397249255259
315202
338313443305495363403412
480337
315306436328479373380397
482316
264269490303467366403383
515317
269243507090106127090106
106106
413343478088105127088105
105105
399333465086104127086104
104104
NFDEBITDA Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
36
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Exhibit 40 Growth rate and EBITDA margin for wholesale and retail trade sectors
20 40 60 80 100 120 140 160
2016E2017F2018
Median=31
Median=33
0000
20
10
30
60
50
70
1=Automotive 2=Retail 3=Wholesale
40
3
12
2016E2017F2018
Median=45
700
600
500
400
300
200
100
000050 070 090 110 130 150 170 190
Median=11
Exhibit 41 NFDEquity and NFDEBITDA for wholesale and retail trade sectors
1=Automotive 2=Retail 3=Wholesale
21
3
37
Ratings will remain broadly stable
The following section presents a risk profile analysis
based on Cerved Rating Agencyrsquos outstanding and
monitored public and private ratings issued from
2013 to 2017 on Italian non-financial companies
and operating in the industries discussed in this
study (data as of 31 December)
Exhibit 42 and Table 9 show an overview of 1-year
effective default rates over the 2000-2017 horizon
related to the sample bankruptcy and other legal
proceedings and debt restructurings as default
events
The default rate trend shows a general
improvement from 2014 onwards both by
company size classes and by industry however
considering the entire sample the overall default
rate still remains higher when compared to its pre-
crisis level especially regarding smaller companies
operating in the construction sector
Exhibit 43 shows the effective default rates over
2013-2017 horizon based on Cerved Rating
Agencyrsquos definition which considers as default
events
middot bankruptcy and other legal proceedings
middot debt restructuring
middot missed or delayed disbursement of a contractually
required interest or principal payment ie missed
payment on bonds material protests (on cheques
or trade bills) or prejudicial acts (judicial mortgages
distraint of property)
The effective default rates over the 2013-2017
horizon show decreasing trend and satisfy the
monotonicity constraint regarding all Cerved
Rating Agencyrsquos rating classes (Exhibit 44)
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2003 2004 2005 2006 2007 2014 2015 2016 20172000 2001
5678
12
3
4
0
Exhibit 42 Avarage 1-year default rate by size over 2000-2017 horizon
medium small
2008 2009 2010 2011 2012 2013
Mining and quarring
Manifacturing
Electricity gas steam and air conditioning supplyWater supply sewerage
Construction
Wholesale and retail trade repair of motorTransporting and storage
Accomodation and food service activities
Information and communication
24221809
5212
282915
2529
38533424
13027
454830
4838
36542537
15929
424421
4323
23461921
13226
293226
3022
Source Cerved database and Cerved Rating Agency elaboration
Table 9 Default rate by industry over 2000-2017 horizon
Total
NACE Average2008-2015
Average2000-2017 2016 2017
2016
Source Cerved database and Cerved Rating Agency elaboration
C21C12C11B22B21B12B11A11 A12 A13 A21 A22 A31
60
50
40
30
20
10
0
Exhibit 43 1-year default rate over 2013-2017 horizon
20172013 2014 2015
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
38
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The analysis of historical rating distributions in the
same period shows clear differences in terms of modal
rating class by company size As shown in Exhibit 43
the modal rating class for the large companies is A31
B11 for the medium and B12 for small companies
(considering company size classes as they have been
defined ad hoc by Cerved Rating Agency for the
purposes of this study)
Overall the corporate rating distribution in the
Source Cerved database and Cerved Rating Agency elaboration
C21C12C11B22B21B12B11A11 A12 A13 A21 A22 A31
30
25
20
15
5
10
0
Exhibit 44 Rating distribution frequency by size classes
large
30
25
20
15
5
0
10
medium smallRating 2013 total Rating 2017 total Rating 2017 forecast
observed period is skewed towards the investment-
grade rating categories (ie Cerved Rating Agency
rating classes from A11 to B12) representing 700 of
the whole sample 250 is concentrated in the safety
(A rating classes) and 450 in the solvency (B11-B12)
classes
We anticipate the rating distribution to remain
broadly unchanged in 2018 with the rating migration
concentrated mainly in the B category
39
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100543
2414
4407
4407
2636
4554 4558
2403 2311
535 527
90
10
0
Exhibit 45 Rating distribution frequency by area of risk - Total companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency]I nvestment GradeA11-A31 [Safety]
2509 2604
704 4407706 4407716
324
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
985
5658
4407
3033 2992 2898
925 907
300 318
90
10
0
Exhibit 46 Rating distribution frequency by area of risk - Large companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
5783 5878
869 4407878 4407878
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
4407
4407
3626
4080
17591695
439 449
90
10
0
Exhibit 47 Rating distribution frequency by area of risk - Medium companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
3571 3776
7044407780 4407786
456
1805
774
4113 4232
603
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
2824
1900
4407
4673 4850 4761
2833 2754
600 633
90
10
0
Exhibit 48 Rating distribution frequency by area of risk - Small companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
1716 1852
657 4407657 4407661
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
40
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Slight improvement in general creditworthiness
In our opinion in 2018 the creditworthiness of the
observed Italian non-financial companies will remain
stable for almost 86 of entities Migration of ratings is
expected to be moderate resulting in approximately 14
of rating upgrades (9) and downgrades (5) at the end
of 2018 compared to the outstanding ratings at the end
of 2017 The vast majority of the rating changes (921)
will be limited to one-class migration as shown in the
1-year projected transition matrix (Table 10) We believe
that more than one third of the expected downgrades
will be concentrated in the energy gas mining and
construction sectors Over the last years the average
credit profile of companies active in these industries has
been relatively weak and due to the forecast market and
regulatory conditions we do not envisage opportunities
for a significant risk profile improvement in 2018
Despite the expected rating migrations for individual
entities in 2018 the current industry modal rating
classes are unlikely to change
On the other hand stable and positive outlooks will
prevail in the manufacturing industry wholesale and
retail trade and accommodation and food service This
is due to the increase in the number of companies
active in these sectors which will maintain andor
improve their business and financial performances
Indeed as shown in Table 11 in 2018 the rating outlook
remains differentiated by industry whilst in terms of
the expected general probability of default we foresee
a modest improvement (349) compared to the one
recorded in 2017 (366)
Table 10 1-year transition matrix
Source Cerved database and Cerved Rating Agency elaboration
2017
A11
A31
B11
C11
C12
B21
C21
B22
B12
A12
A13
A21A22
F 2018A11 A12 A13 A31 B11 C11 C12B21 C21B22B12A21 A22
000 530
066
054 451034 435
027 753055 901
1033121247 1624
260 1038088
000
000000037
028
295
290
1063
179
455050647
043425
026490020208
000208
000152
000000
00000010000
9821
9318
92679015
87708583
81497646
8665
9617
9710
8605
419024
41
The information and data supporting Cerved Rating Agency rating opinions related research and credit opinions originate from sources Cerved Rating Agency considers to be accurate however Cerved Rating Agency cannot independently verify the reliability and accuracy of the information and data in every instance This publication may not be reproduced retransmitted or distributed in any form without the prior written consent of Cerved Rating Agency Cerved Rating Agency assumes no liability for correctness completeness and topicality of the information contained in this publication The analyses underlying this study do not provide advice of any sort
26
n
6670
486
59
Exhibit 49 Ratings outlooks by size
Large
Medium Positive Stable Negative
Small
21
13
Large
Medium
Small
Source Cerved database and Cerved Rating Agency elaboratio
Table 11 Ratings and probability of default 2018 outlook by industry
Source Cerved database and Cerved Rating Agency elaboration
NACE Micro industryDowngrade
B-Mining and quarryingAutomotive
900814
848
812
880812
847
813 172
170
174
144
8264 36
08
104 433 436
392 373
22724815
362 360
876
876
914
848
849
804
887
882
916
901835870899 64
866760
43
68
5659
58
47
61
49
74
78 75
14
50
37
36
5393
32
50
41
45
3899
77
91
316
372
355
364
308
491
326
318 296
331
312
381
367
359
322
495
452
433
403429
389
364369
363
313
452
323
594
38
315358
603
307
345 350
67 5318
469289 274
470
147
116
138
851
821AutomotiveRetail
Wholesale
Total
Chemistryamppharmaceutics
ClothingEquipment
Food Beverage and Tabacco
Heavy Manifacturing
Other Manifacturing
Textile industry
Total
Tecnology Media ampTelecomunication
Paper Packaging ampForest products
C-Manifacturing
D-Electricity gas steam and air conditioningsupply
F-Construcion
H-Transportig and storageI-Accommodation and food service activitiesJ-Information and communication
G-Wholesale and reatail traderepair of motor vehicles and motor-cycles
E-Water supply sewerage waste
Average ForecastPD 2018
Expectedtrend
Average PD 2018
Ratings outlooks
Stabl pgrade
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Cerved Rating Agency SpAVia dellrsquoUnione Europea n 6A-6B20097- San Donato Milanese (MI)
Tel +39 02 77541 - Fax +39 02 76020458
ratingagencycervedcom
Rating Agency
5
A number of assumptions have been adopted for the projections exposed in this study more specifically
the Italian economy is expected to grow at a slower pace in 2018 with GDP forecast at 15 compared to 16
recorded in 2017
the inflation rate is expected to decrease from 14 recorded in 2017 to 12 in 2018 remaining below the
European Central Bank target rate of 20
the average price of oil is expected to be close to $60 a barrel in 2018 whilst the prices of non-fuel commodities
are expected to remain mostly unchanged
actual exchange rates are expected to remain relatively stable at the levels of the last three months of 2017 ie
we do not expect the average EuroUS Dollar exchange rate to exceed 12 at this level exports will gain pace
driven also by a general improvement in the economic cycle and therefore resulting in a higher demand
the European Central Bank is expected to leave the key interest rates at the present low levels and to continue
to apply non-standard monetary policy measures ie net asset purchases at a monthly pace of euro30 billion until
the end of September 2018 despite the reduction in size of the net asset purchases Italian credit institutions
are likely to expand their credit activities partially also due to a significant reduction in the amount of non-
performing loans thus supporting the momentum
the investments are expected to gain strength due to fiscal incentives higher domestic demand and supportive
credit conditions
in the next twelve months we do not envisage room for a significant change in Italian economic and financial
policies in particular regarding the fiscal system and public debt reduction due to the result of the general
political elections scheduled in Italy for 2018 moreover we believe that the results of the referendum for
autonomy held in Lombardy and Veneto will not have any significant impact on the general economic trend in
2018
finally the study does not consider the impact of extraordinary events such as an undesirable further escalation
of USA-North Korea andor USA-Iran disputes or the European disintegration processes on the economic and
financial trends underlying the analysis
Assumptions
CERVED RATING AGENCY SpA | Assumptions
6
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Executive summary
7
This research aims to present two outputs
- projected economic and financial performances in 2018 of the Italian non-financial companies
- the expected risk level of such entities at the end of 2018
the sample extracted for the analysis consists of Italian joint stock and limited liability companies with turnover
exceeding euro5 million and includes on average roughly 50000 entities per year operating in 10 macro industries
(manufacturing further detailed in 10 micro-sectors) the related revenues in 2016 amounted to euro18 billion
representing 769 of total revenues of all Italian joint-stock and limited liability companies
the World European and Italian historical (2000-2016) and estimatedprojected (2017-2018) macroeconomic
data are combined with specific individual company data with the aim of obtaining accurate and reliable
forecasts
the Cerved database was the main source for the analysis of economic and financial performances of the
companies included in the sample Cerved Rating Agency database highlighted the risk level of such entities
based on the credit rating activities performed by the Agency
the research output affirms that gradual recovery of Italian non-financial companies is expected to continue in
2018 both in terms of revenue growth and improvement of the financial structure primarily for manufacturing
and accommodation and food services industry the trend is mainly fostered by positive global economic cycle
low interest rates and favorable regulatory framework supporting firm funding investments innovation and
employment
the general risk level in 2018 is assumed to remain approximately at the levels recorded at the end of 2017
a slight improvement in terms of rating upgrades is expected for 9 of the companies analyzed mainly
concentrated in the manufacturing wholesale and retail trade and the accommodation and food service
industry
Executive summary
CERVED RATING AGENCY SpA | Executive Summary
8
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
World economy Outlook 2018
9
Growth is predicted to gain strength
The predicted global economic growth rate is 39
in 2018 (against 36 in 2017) According to the
International Monetary Fund forecast in 2018 the
two biggest world economies US and China will
grow at 23 and 65 rate respectively
Consumer price inflation rate to rise
The global consumer price inflation rate is expected
to rise assisted by higher commodity prices Oil price
averaged $54barrel in 2017 and is predicted to remain
close to $60barrel in 2018 whilst oil consumption is
forecast to record an uptick of 14 in 2018 In addition
also metal prices are expected to increase modestly in
2018
Trade to increase
Global world trade is predicted to increase further
in 2018 fostered by a recovery in manufacturing
activity and an increase in investment especially
in advanced economies In addition a recovery for
the commodity exporters is expected
Global risks remain tilted to the downside
These include increased trade protectionism as well
as economic policy uncertainty possible adversity
in the financial system due to easy monetary
conditions and over the longer term weaker
potential growth In addition the upcoming political
events and the current political uncertainties may
negatively affect the general economic conditions
Commodity Fuel Price Index
Metals Price Index
Source IMF ECB OECD
20022000 20062004 2008 20122010 F201820162014
50
0
150
100
200
250
1
0
3
2
5
4
7
6
Exhibit 2
Volume of imports of goods and services (Y-o-Y change)
Volume of exports of goods and services (Y-o-Y change)
Current account balance ($ billion) Source IMF
20112010 20132012 2014 20162015 F20182017
2
0
8
4
10
12
14
100
0
300
200
400
500
Exhibit 3 Global trade and current account balance world
EPU Index World
VIX Source FRED
20112010 20132012 2014 20162015 F20182017
50
0
100
150
200
250
5
0
15
10
20
25
30
Exhibit 4
Euro Area
EMDEs
United StatesWorld
Other advanced economies
China
OthersSource IMF and Cerved Rating Agency elaboration
20112010 20132012 2014 20162015 F20182017
20
0
60
40
80
100
1
0
3
2
5
4
6
Exhibit 1 Contribution to global growth world
CERVED RATING AGENCY SpA | World economy Outlook 2018
10
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
European economy Outlook 2018
11
Euro area gdp grows unemployment falls
GDP growth in the euro area rose around 21 in
2017 and is predicted to continue at a broadly similar
pace in 2018 Furthermore the unemployment
rate will continue to follow a declining trend and is
forecast to fall to 87 in 2018 (from 92 in 2017)
Industrial production improvement
Investments will accelerate and the international
environment will contribute positively to an increase
of exports (in line with the global growth) which will be
one of the principal driver of an industrial production
improvement in 2018
Further credit activity expansion
Across the euro zone countries companies are
benefiting both from eased lending conditions
and increase in the number of alternative lenders
The total amount of loans to households and non-
financial corporations grew by approximately 14
in 2017 whilst in 2018 it is predicted to increase more
slowly especially in the non-financial corporate
sector
Inflation rate to be stable
Consumer price inflation accelerated at the
beginning of 2017 mainly due to a rise in energy
prices The harmonized index of consumer prices
(HICP) is estimated at 15 in 2017 In 2018
the impact of energy inflation is expected to
decline resulting in a lower inflation rate outlook
(approximately 14)
Germany
France
ItalyEuro Union
Spain
UK
OthersSource IMF ECB OECD
20112010 20132012 2014 20162015 F20182017
20
0
60
40
80
100
0
-1
2
1
3
4
Exhibit 5 Contribution to European growth European Union
EPU Index euro areaIndustrial production euro area (Y-O-Y change)
Source IMF ECB OECD
2011 2015 2017
-2
-2
-3
-1
-1
1
1
0
2
2
3
100
0
300
200
250
400
450
500
Exhibit 7 Industrial production and policy uncertainty index euro area
2010
350
150
50
20182013 2014 20162012
Euro Area
Source ECB
20112010 20132012 2014 20162015 2017
500
0
1500
2500
2000
3000
1000
10000
9900
9800
9700
9600
9500
9400
9300
9200
Germany Spain France Italy
20112010 20132012 2014 20162015 20182017
BCI euro area
CCI euro area
Source IMF ECB OECD
96
95
98
97
99
101
102
100
103
0
-1
2
1
4
3
5
Exhibit 6
CERVED RATING AGENCY SpA | European economy Outlook 2018
12
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Highlights on italian economy
13
Gdp growth is under way to consolidate in 2018
From 2000 to 2017 the Italian economy was more
vulnerable compared to other highly developed
countries in particular those of the euro area
The Italian real GDP at the end of 2017 was roughly
at the same level recorded in 2000 whilst the euro
area countries and specifically Germany and France
experienced a considerable growth in the same period
(188 205 and 198 respectively)
The Italian GDP has started to increase moderately only
since 2014 mainly due to an improvement in domestic
demand but its growth still remains below the growth
rates of the majority of euro zone countries The poor
performance of the labor and total productivity factor
accounts for most of the difference
An ageing population and a weak labor market
participation have also contributed negatively to
potential growth Structural reforms in particular the
Jobs Act and tax incentives on new labor contracts
contributed to the increase in employment making the
Italian labor market more flexible and efficient
In 2018 we expect the economic growth to be slightly
below the level reached in 2017 The trend will be
sustained by the world economy positive cycle
including higher levels of international trade volume
Italian companies will benefit from favorable credit
lending conditions due to an expanding credit activity
of the banking system and low interest rates
Whilst the Italian government adopted a set of dynamic
and diverse policies for 2018 we believe that some of
those previously introduced have already contributed
to the GDP growth in 2016 and 2017 thus reducing the
combined effect in 2018
Source World Bank
2000 2002 2004 2006 2008 2010 2012 2014 2016
1500
1000
500
0
2500
3500
3000
4000
2000
13000
9500
10000
11000
12000
12500
10500
11500
Exhibit 10 GDP in Europe ($ billion)
Germany Italy Euro areas (11countries)France
Total multifactor productivityEmployment growth
Source OECD
-2
-4
-6
-8
2
0
4
6
Exhibit 9 Italian GDP employment and total multifactor productivity (Y-o-Y change)
2000 2002 2014 20162004 2006
GDP growth
20122008 2010
CERVED RATING AGENCY SpA | Highlights on italian economy
14
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The number of active companies has increased buthellip
The number of active companies in Italy registered at
the Chamber of Commerce as of December 31st 2016
amounted to 5145995 305629 more than in 2000
(63)
The increase in registered active companies is the result
of the positive trend from 2000 to 2008 (98) partially
cancelled by the decrease from 2009 to 2016 In 2017 a
slight improvement is expected to be recorded however
the number of active companies remains below its peak
value (5316104 entities) reached at the end of 2008
Exhibit 11 shows both the trend of active Italian companies
in the period 2000-2016 and their breakdown by legal
form We observe that the increased number of Joint Stock
Companies and particularly Limited Liability companies
(1206) was able to compensate the decrease in Unlimited
Partnerships (-62) and Sole Proprietorships (-79)
Companies are abandoning traditional sectors
Exhibit 12 shows the breakdown of the Italian active
companies at the end of 2000 and 2016 by industry
It can be observed that in many traditional sectors
the number of active companies decreased eg in
agriculture (-294) and manufacturing (-226) whilst
the number of companies increased in construction
(273) and wholesale and retail trade (39)
A very significant rise in the new registered companies
(456) occurred in other industries in particular
in the service industry offering information and
communication IT and professional scientific and
technical services
Joint Stock and Limited Liability Unlimited Partnership Sole proprietorshipO ther forms
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 2012 2013 2014 2015 20160
6000000
5000000
4000000
3000000
2000000
1000000
Exhibit 11 Italian active companies 2000-2016
Total
Source Movimprese and Cerved Rating Agency elaboration
Exhibit 12
Breakdown of the Italian active companies by industry 2000-2016
2000
635286 13
1059005 22
639778 13
589707 12
183 856 4 226964 5 150772 3
1354998 28
965452 19
747738 14
495247 10
750863 15
150888 3
379899 7 247187 5
1408721 27
2016
C Manufacturing
F Construction
H Transporting and storage
I Accommodation and food service activities
L Real estate ativities
G Wholesale and retail traderepair of motor vehicles and motorcycles
X Other
15
Number of bankruptcy and other legal proceedings to decrease further
From 2000 to 2016 the number of bankruptcies and
other legal proceedings protests and prejudicial
acts in Italy mirrored the general trend of the
Italian economy
After reaching its minimum level in 2007 (5969)
the number of bankruptcy procedures in the
period 2009-2014 increased dramatically reaching
its peak value of 15608 in 2014
With the improvement in the economic and financial
environment starting from 2015 the number of
bankruptcy procedures decreased sharply in all
macro sectors returning approximately to the
levels recorded from 2000 to 2006 A positive
trend was recorded also in 2017 bankruptcy
procedure initiated for 11937 companies -113
when compared to the same period in 2016 In
absolute terms the highest number of bankruptcy
procedures was recorded in the service sectors
followed by the construction and manufacturing
Worth mentioning is the design of a new Italian
bankruptcy law that should be approved by
October 2018 The regulatory framework aims at
more efficient resolutions of cases of company
crisis supporting continuity of its operating
activities and safeguarding the interest of creditors
by introducing innovative solutions such as pre-
crisis warning mechanisms
Other legal proceedings after reaching its
maximum level in 2013 (3593) in 2016 came down
to 1993 and the trend continues in 2017 evidencing
1866 procedures -64 when compared to the
same period in 2016
In the last five years new protests and prejudicial
acts have also shown a decreasing trend with
ndash527 and ndash70 of acts respectively in 2017
compared to the numbers recorded in 2013
-6
Exhibit 13 Bankruptcy
BankruptcySource Cerved databaase
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
10729 108311163612287
10338
59697307
9189
1108812022
12437
14031
1560814682
13459
11937
Other legal procedingsSource Cerved database
1500
1000
500
02000
940 994 1125 1211
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
2500
3500
3000
4000
2000
1110
16691540
18702094 2057
2342 2475
3593
3132
2720
1993 1866
Exhibit 14 Other legal procedings
1211
100 45000
4000090
80
70
60
50
40
30
20
10
02015
35000
30000
25000
20000
15000
10000
5000
02013 2014
Protets
703
297
41438
Total
Source Cerved database
Prejudicial acts
2016 2017
665
335
34527
570
43032660
527
473
546
454
2523828929
Exhibit 15 Protests and prejudical acts
CERVED RATING AGENCY SpA | Highlights on italian economy
16
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Core inflation rate to rise
Italian headline inflation will experience a modest
decline in 2018 compared to the previous year
(12 and 14 respectively) Core inflation
however is predicted to increase to 12 in 2018
(up from 10 in 2017)
Exports and import are accelerating
Exports and imports will both accelerate in 2018 (41
and 44 respectively) mirroring the positive trend
and expectations in global trade and the rising of the
external demand Machinery and equipment industry
will still remain in ldquopole positionrdquo due to companies
generous investment and tax incentives In general
in 2018 Italian exports will increase more in the Extra
European Union countries
Investment continues to gain strength
Investment has gained strength and will continue to
do so at a relatively fast pace supported by effects of
the tax incentives (Stability Low 2017) low interest rate
and improvements in business confidence Indeed
investments are expected to increase 30 in 2018
(up from 24 in 2017) Construction investments are
forecast to accelerate slightly also thanks to more
resources earmarked for public investment
Harmonised core infation
Source OECD and IMF
2003 2006 20092000 2012 2015 F2018
2
1
-1
0
4
3
5
6
Exhibit 16
Imports of goods and services (Y-o-Y change)
Exports of goods and services (Y-o-Y changes)
Total dometic demand (Y-o-Y change)
Source OECD and IMF
20062000 2015 F2018-5
-15
-20
5
0
-10
10
15
Exhibit 17 Exports imports and demand Italy
20122003 2009
Wholesale and retail trade (Y-o-Y change)
Total investments ( of GDP)
Heavy industry (Y-o-Y change)
Other services (Y-o-Y change)
Source IMF and ISTAT
Construction (Y-o-Y change)
20062000
-20
-30
10
0
-10
20
30
20
25
15
10
0
5
F2018
Exhibit 18 Investments by industry Italy
2003 2009 2012 2015
17
No room for significant public debt reduction
At the end of 2016 the Italian government debt-to-GDP
ratio was significantly above its level at the beginning of
the century In particular as of December 31st 2016 the
ratio was 1326 (262 with respect to 100 recorded
at the end of 2000)
In the same period the ratio for the euro area increased
from 681 to 913 (341) in Germany from 589 to
683 (159) and in France from 586 to 960 (638)
At the end of 2017 the Italian government debt increased
further to more than euro2300 billion 1350 of GDP The
debt servicing in terms of interests accounts roughly
50 of Italian GDP
In our view the high level of government debt
represents a key factor limiting Italian economic growth
and contributes eo ipso to increasing country risk
with a possible negative impact on the stability of the
international financial system
A possible increase in interest rates would raise the
cost of debt service potentially triggering a crisis due to
larger governmental deficits a slowdown in economic
activity and growing debt refinancing difficulties due to
higher risk perceived by investors
Hence it seems that a significant reduction in
government debt should be the main goal of the Italian
economic and financial policy in our opinion however
the achievement of such a result is not realistic neither
in the short nor in the medium term due to the following
factors
middot economic growth in the coming years is expected
to be moderate not sufficient to be the main source of
the government debt reduction
middot macroeconomic policy is expected to prioritize
investments employment social security and welfare
rather than government debt reduction
middot even if the inflation rate hits the target value (20) the
impact on the government debt in the short term is not
expected to be considerable
middot finally in Italy election will take place in spring 2018
with a new government taking over the economic
program that has already been approved and become
fully executive
Euro area
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 2012 2013 2014 2015 20160
20
40
60
80
100
120
140
Exhibit 19 Public debt as GDP
France
Source AMECO and Cerved Rating Agency elaboration
CERVED RATING AGENCY SpA | Highlights on italian economy
18
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Table 1
Amount ( 407 312
-327
327754
216074 190881
163248 345604188167
869
1543
2213
1793
CAGR (base year 2000)
CAGR (base year 2008)
NPL ratio ()
Ndeg debtors
Averae debt debtor
Valueindicator 2000 2008 2016
Source Bank of Italy and Cerved rating Agency elaboration
Credit activity to be expanded interest rates to remain at very low levels
As of December 31st 2016 the volume of bank loans
granted to Italian non-financial corporations amounted to
euro8604 billion
The period 2000-2016 was characterized by two different
trends from 2000 to 2011 the annual outstanding loans
value increased by 841 (euro454 billion reaching in 2011 its
highest level ever of euro993 billion thanks to 57 CAGR far
above the Italian GDP growth) whilst in the period from
2012 to 2016 loans decreased by 134 (euro130 billion)
reflecting a negative -28 CAGR The loan reduction hit
sharply construction and manufacturing (accounting
for about 400 of all loans) which experienced -227
and -135 decrease in loan volumes whilst agriculture
forestry and fishing and wholesale and retail trade
(including repairs of motor vehicles and motorcycles)
had more limited loan contraction (-08 and -53
respectively)
In the observed period due to the negative impact of the
global financial crisis 200708 and to structural changes in
the world economic and financial environment a radical
decrease in interest rates was recorded In 2017 the
interest rates charged to Italian non-financial corporates
were on average less than half compared to those charged
in 2000 In the medium term low interest rates will remain
a positive factor fostering investments and consumption
Non-performing loans to be further reduced due to innovative measures
The credit crunch had a huge and dramatic impact on
the Italian economy hitting especially small businesses
which are not able to survive in a radically changed market
conditions The evidence of such outcome can be seen not
only through the decreased number of active companies
but also via the enormously increased volume of the
non-performing loans (NPLs) In particular these loans
amounted to euro324 billion at the end of 2016 of which euro154
billion were granted to the non-financial corporations as
shown in table 1
Following the principles outlined in the ECB guidelines
published in March in 2017 Italian Banks made significant
progress in reducing the amount of the NPLs ndash estimated
to be over euro50 billion debt reduction Any further actions
aimed to improve the banking balance sheets should not
increase the financial hardship of still operating companies
North - East SouthNorth - West Center Islands
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 2012 2013 2014 2015 20160
1200000
1000000
800000
600000
400000
200000
NPLs ratio
Source Bank of Italy and Cerved Rating Agency elaboration
20
1816
14
1210
8
6
42
0
446393
euro billion)
19
Modest role of italian equity capital markets
Despite the number of listed companies increasing
from 297 to 421 in the period 2000-2017 the role
of the stock markets remains modest in Italy
As of December 31st 2017 the market capitalization
was euro640 billion (375 of the estimated Italian GDP
in 2017) representing only 782 of the overall
market capitalization recorded in 2000 (equal
to euro818 billion 687 of GDP) mainly due to
an unfavorable economic cycle in the observed
period
This situation shows the structural weaknesses of
the Italian economic and financial system especially
when compared to other highly developed
European economies The low propensity to
raise equity capital through organized markets
is linked to an unfavorable macroeconomic and
fiscal framework as well as to the predominance
of SMEs mostly unfit for listing and presenting
cultural obstacles (ie company owners and managers are often reluctant to accept wider company control and
transparency)
Hence self-financing and bank borrowing remain the main sources of finance for Italian companies which are
generally speaking undercapitalized with a negative impact on their investment capabilities Very frequently the
lack of medium-long term financing means forces companies to focus their attention on running current activities
postponing or abandoning strategic projects fundamental for company growth
A wide range of innovative initiatives have been undertaken with the aim of fostering market based company
funding in particular
middot AIM (Alternative Investment Market) - a specialized market segment dedicated to SMEs growth (95 companies and
market capitalization around euro56 billion as of December 2017)
middot ELITE - a programme designed to help SMEs prepare and structure for the next stage of growth their through
access to long-term financing opportunities
middot PIR - Piani individuali di risparmio (Individual Savings Plan) - an innovative way to fund Italian SMEs by offering retail
investors resident in Italy tax incentives (full exemption of 260 income tax) if the savings stay invested for at least
five years A minimum of 700 of such credit assets must be invested in financial instruments issued by Italian or
foreign (EU and EEA) companies permanently established in Italy
FTSE (MIB)Enterprises
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 20132012 20152014 201720160
100
200
300
400
500
600
700
800
900
100029681 29525
14623
1765216121
12259
13512
16048
15988
19012
21428
21853
2185322232
16954
297 294 295 279 282278 311 336 332 332 328 323 326344 342 356 387 421
19483
22886
26056
31005
Exhibit 21 Italian listed enterprised and FTSE (MIB) index trend
Source Borsa Italiana
300000
250000
200000
150000
100000
5000
0
Capitalization of GDP
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 20132012 20152014 201720160
100
200
300
400
500
600
700
800
900
1000
Exhibit 22 Italian market capitalization of listed companies ( of GDP)
Source Borsa Italiana
80
70
60
50
40
30
20
10
0
8184
5923
354 365418 473
524475
239301 275
210233
287 295348
318375
4580 4875
5809
6766
77857336
37474571
4251
3324
44664678
56765249
6400
3655
474
68
CERVED RATING AGENCY SpA | Highlights on italian economy
20
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Italian debt capital market is growing but still remains behind needs
At the end of 2016 the outstanding amount of debt
securities issued by Italian financial and non-financial
corporations was euro8615 billion 510 of the countryrsquos
GDP The table below shows the breakdown by issuer
type of Italian German French British and United States
outstanding amounts of debt securities as of December
2016 issued by financial and non-financial corporations
with the respective debt-to-GDP ratio
Despite the outstanding debt at the end of 2016 being
almost double compared to 2000 it represents only 23
of its peak value reached in 2012 (euro1290 billion Exhibit
23) The main reason for such a significant debt reduction
is the huge bond reimbursement realized by banking
institutions from 2013 to 2016 and the related negative
net flow of debt securities (respectively -80 -153 -106
and -67 billion of euro as shown in Exhibit 24)
The decrease in debt securities funding of Italian banks
has been compensated by a wider use of deposits and
resources available under the Eurosystem refinancing
operations framework
The outstanding amount of debt securities issued by
non-financial corporations at the end of 2016 also
doubled its value with respect to the amount recorded
at the end of 2000 The main characteristic of this cluster
is the high concentration of issuancesdebt to a small
number of issuers
Due to both more favourable general economic
conditions and active ECB monetary policy bond yields
have decreased significantly providing room for a
convenient fund raising
Since the introduction of a new regulatory framework
(lsquoDecreto Svilupporsquo) in 2012 up to October 2017 Italian
market saw 300 small-size listed bond issues (ie so
called minibonds) amounting approximately to euro143
billion Issued mainly by SMEs they offer interesting
yields to institutional investors
) Source Business support SpA ndash Minibonditalyit
BanksTotal
Source Bank of Italy and Cerved Rating Agency elaboration
2006 20082000
-200000
200000
250000
-150000
-100000
150000
100000
-50000
50000
02012 2014 20162002 2004 2010
Banks debt securities outstanding
Banks Debt to GDP ratio
Source Bank of Italy and Cerved Rating Agency elaboration
0
10
20
30
40
50
60
70 1400000
1200000
1000000
800000
600000
400000
200000
0201620142012201020082006200420022000
Table 2 Outstanding securities debt (euro Million)Debt-to-GDP ratio()
Financial corporates
Total
Debtsecurities
outstanding
Italy German rance United Kingdom United States
739
123
862
440 340 470
21
680380
40
1279 1331 4 50
880
30
14271
14820
549180
10202767
590
19211436
15770
510
Debtsecurities
outstanding
Debtsecurities
outstanding
Debtsecurities
outstanding
Debtsecurities
outstanding
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Source Bank of Italy
0
0
21
CERVED RATING AGENCY SpA | Highlights on italian economy
22
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Italian non-financial companies economic Outlook 2018
23
Data and method
This research focuses on Italian non-financial companies
with an annual turnover exceeding euro5 million With the
aim of using only reliable data joint stock and limited
liability companies have been considered only these
entities according to Italian law file complete annual
financial statements in the Chamber of Commerce
together with anagraphical company data other
legal forms such as unlimited partnerships and sole
proprietorships are not included in this sample due to
the lack of publicly available standardized financial data
We believe that this cutoff is reasonable and allows us to
perform a methodologically correct analysis In 2016 the
above mentioned companies despite representing only
42 of all registered and active joint stock and limited
liability companies accounted for 769 of their total
turnover
Moreover cluster specialization has been obtained by
NACE activity classification from A to J (thus not including
in the sample financial and insurance companies and
some service industries) The statistics regarding specific
industries provide important key data and enable us to
examine historical and prospective trends and cross-
sector comparisons
The Cerved database which contains legal anagraphical
financial and market information on all Italian registered
legal entities (approximately 6 million comprising 5
million active ones) was the most important database
used for this research Long time series and broad
homogenized and standardized data covering different
economic cycles were the building blocks to perform
the regression and predictive analysis
Historical and forecast macroeconomic data and
analysis performed by the International Monetary Fund
OECD the World Bank European Central Bank Bank
of Italy and ISTAT completed the dataset used for the
analysis
Several analyses were performed in order to examine
the structural differences within the sample in terms of
company legal form and geographical area (Exhibit 25)
company age (Exhibit 26) and company size and industry
As a result we verified a considerable heterogeneity of
companies in particular with regard to the company size
across various industries
The relevant observation period comprises the years
between 2000 and 2016 Table 3 describes some
characteristics of the sample
Exhibit 25 Sample break-down by legal form and geographic area (2016)
Joint stock Company
Limited liability Company
Area 1 (Northwest)
Area 3 (Center)
Area 2 (Northeast)
Area 4 (South)
39
20
27
14
33
67
33
Table 3 Sample characteristics 2000-2016
TotalTurnover
gt euro5million
Turnover gt euro5 million(industry
from A to J)
TotalTurnover
gt euro5million
ofTotal
Turnover gt
euro5 million(industry
from A to J)
Source Cerved database
Entreprises Turnover billion
2000 659867700717738558772442812025847334883122915172937018949708965744969581
953505945825922513883224
4215144587462234694749640518205596459226595385246754808563745362752074519385289450123
3686139038411864118843547454704921752274526974633848778504734806246843468384771845288
16151740177018472002212923302477256822562421257025202446243224392295
12661362139214561588169818752000208317861944208720541992198419871905
11141205124013041430152316891801189716191764191218831839183518371765
689693700
716
706714
725
718729744748752754753769
727739
200120022003200420052006
200820092010201120122013201420152016
2007
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
24
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Furthermore in order to guarantee more detailed and
accurate analyses and projections we decided to create
a static pool to show consistently long time horizon
economic trends (17 years) by sealing off all the active
companies over the 2000-2016 horizon
The outcome obtained by considering the behaviour of
specific variables related to the companies included in
the static pool was extended as a performance indicator
for the whole sample (turnover over euro5 million and
industry from A to J)
According to the European Communityrsquos definition of
SMEs using annual turnover and employee headcount
as quantitative criteria the initial sample of companies
and the static pool can be classified by size classes on
the basis of the financial statements for the year 2016
as shown in Table 4
For the sake of this analysis we defined specific size
classes for each industry thus deviating from the
European Commissionrsquos recommendation which
presents undifferentiated upper and lower bounds of
quantitative criteria for SMEs in all industries To define
the thresholds of such classes we used both a statistical
approach (a specific cluster procedure by minimizing
the within-cluster turnover standard deviation) and a
judgmental approach by relying on the experience and
opinion of our industry expert analysts Table 5 shows
the results of such analysis referring to the sample in
2016 (45288 entities) and the NACE sections from A
to J Moreover the NACE section C and G were further
disaggregated into sub-industry classes as shown in
Exhibit 27 in order to consider the specific business
differences within these NACE sections thus ensuring
a good fit and a satisfactory accuracy of the estimation
Exhibit 26 Sample break-down by company age classes
0-2 Years 2-5 Years 5-10 Years 10-20 Years gt20 YearsSource Cerved database and Cerved Rating Agency elaboration
0 20 40 60 80 100
ABCDEFGHIJ
A = AgricolutreB=Mining and quarryingC=ManufacturingD=Electricity and gasE=Water supplyF=ConstructionG=Wholesale and retail tradeH=Transporting and storageI=Accomodation and food serviceJ=ICT
Small
Annul Turnover
Empolyees
Static Pool
Enterprises(Turnover gt euro5 million)
Enterprises(Turnover gt euro5 millionindustry from A t J)
Medium Large
lt 50 lt 250lt 36774 11113
1005333223
8741
2236
2012
154818645
gt euro50 million
gt 250
lt euro50 million
Source Cerved database
NACE Micro industry
B-Mining and quarryingAutomotive
Automotive
Retail
Wholesale
T gt 480
T gt 80
T gt 260
T gt 265T gt 270
T gt 230
T gt 120
T gt 80
T gt 43
T gt 65
T gt 106T gt 106
T gt 360T gt 155T gt 150T gt 100
T gt 120
T gt 225T gt 1400T gt 27500
T gt 1500
ChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther Manifacturing
ICTTextile
Paper Packaging ampForest products
C-Manifacturing
F-Construcion
H-Transportig and storageI-Accommodation and food service activities
J-Information and communication
D-Electricity gas steam and aircoditioning supply
G-Wholesale and reatail traderepair of motor vehicles and motorcycles
E-Water supply sewerage waste management and emediation activities
Large (Turnover
in euro million)
Medium(Turnover
in euro million)
Small(Turnover
in euro million)
Source Cerved database and Cerved Rating Agency elaboration
60 lt T lt 480 5 lt T lt 60
5 lt T lt 20
5 lt T lt 36
5 lt T lt 35
5 lt T lt 44
5 lt T lt 40
5 lt T lt 20
5 lt T lt 26
5 lt T lt 250
5 lt T lt 185 lt T lt 305 lt T lt 265 lt T lt 205 lt T lt 37
5 lt T lt 335 lt T lt 40
5 lt T lt 255 lt T lt 585 lt T lt 1155 lt T lt 1005 lt T lt 27
20 lt T lt 80
36 lt T lt 26035 lt T lt 26544 lt T lt 270
40 lt T lt 230
20 lt T lt 120
26 lt T lt 80
18 lt T lt 43
250 lt T lt 1500
20 lt T lt 6537 lt T lt 29540 lt T lt 15533 lt T lt 15025 lt T lt 100
27 lt T lt 120
58 lt T lt 225
100 lt T lt 27500 115 lt T lt
30 lt T lt 10626 lt T lt 106
25
Exhibit 28 shows the breakdown of macro industries
analysed including disaggregation of the NACE section C
(manufacturing) and G (wholesale and retail trade repair
of motor vehicles and motorcycles)
In order to carry out the analysis and projections this study
is focused on we used simple multiple linear regression
model for each industry and company size classes
considering macroeconomic and individual companiesrsquo
economic and financial data
The analysis enables us to develop an econometric
model used to estimate likely credit quality changes (in
terms of rating class and probability of default) for single
industries and company size classes
Automotive
Retail
Wholesale
21
1366
1
42
1
26
35
232
6
A B C D
F G H I
46
7
21
1318
9
15
34
Automotive
Chemistry amp pharmaceutics
Clothing
Equipment
Food Beverage and Tabacco
Heavy Manifacturing
Other Manifacture
Paper Packaging amp Forest Products
ICT
Textile industry
Large SmallMedium
Source Cerved database and Cerved Rating Agency elaboration
0
Wholesale
Retail
Automotive
20 40 60 80 100
Automotive
Chemistry amp pharmaeutics
Clothing
Equipment
Food beverage and Tabacco
Heavy Manifacturing
Other Manifacturing
Paper Packaging amp Forest Products
ICT
Textile
0 20 40 60 80 100
ABCDEFGHIJ
0 10 30 40 60 70 80 90 100
Exhibit 28 Sample break-down by industry (2016)
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
26
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Performance indicators to improve further
The annual financial statements available through public
registers provide a clear economic and financial picture
of the Italian joint-stock and limited liability non-financial
companies The individual historical data available from
2000 to 2016 enriched with 2017 preliminary results and
with the expected 2018 macroeconomic scenario enabled
us to build up the 2017 and 2018 projections regarding
the following four performance indicators related to the
analyzed sample 1) growth rate - revenues YoY change
2) EBITDA margin 3) net financial debtEBITDA and 4) net
financial debtEquity Afterwards the median values of the
resulting data were used to obtain the summary output
which we consider as a representative proxy for the overall
market
From 2000 to 2016 the observed companies experienced
a very irregular trend both in terms of growth rate and
EBITDA margin In the aftermath of the global financial crisis
the lowest growth rate value (-120) was recorded in 2009
manufacturing transporting - storage and wholesale and
retail trade were the industries showing the biggest fall of
business volume (-155 -121 and -104 respectively)
whilst water supply accommodation and food service and
electricity and gas showed the highest level of resilience to
the adverse economic and financial environment (-01
-23 and ndash26 respectively) Exhibit 29 shows that in
terms of median value there are no significant differences
in the growth rate taking into consideration company size
classes as we previously defined them Only from 2010 the
growth rates turned positive but still remaining below the
levels recorded in 2000
The analysis of the EBITDA margin changes in the same
period also does not highlight significant differences
between large companies and SMEs as shown in Exhibit
30 The lowest median EBITDA margin value (52) was
recorded in 2012 regarding in particular accommodation
and food service transporting and storage and agriculture
sectors (28 40 52 respectively) while electricity
and gas ICT and water supply were relatively immune to
the unfavorable economic and financial circumstances
(showing 113 109 and 105 EBITDA margin
respectively) At the end of 2016 the median EBITDA margin
(60) still remains below the levels recorded in 2000 (72)
Positive trends emerging from the last publicly available
financial statements (2016) the 2017 preliminary results
and the optimistic macroeconomic forecasts for 2018
confirm improvement of the Italian economy Looking
ahead we expect the Italian non-financial companies to
continue to experience gradual recovery in 2018 They are
going to take advantage of the favorable global economic
cycle low interest rates and supportive regulations that
inter alia foster the use of alternative non-bank financial
sources for company funding The financial resources raised
through Individual Savings Plans (PIR ndash Piani individuali di
risparmio) introduced by the 2017 Budget Law are driven
in primis by a favorable tax regime for savers and might
become an important additional source for SMEs funding
injecting new liquidity The government objective fixed euro68
billion as a target value and in 2017 nearly euro10 billion had
already been raised
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2004 2006 2014 20162000
5
20
10
0
15
-15
-10
-5
Exhibit 29 Growth rate (revenue YoY change) by size classes (median)
medium small
2008 2010 2012
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2004 2006 2008 2010 2012 2014 20162000
7
10
9
8
6
5
4
3
7
10
9
8
6
5
4
EBITDA margin by size classes (median)
medium small
27
So far one of the main obstacles PIR are facing is the limited
number of available assets which may lead to a possible
concentration of this financial resources in a small share of
the market comprising mainly relatively large companies
as shown by the early data in 2017
Another obstacle to rapid adoption of the newly available
financial resources is the lack of a standardized and broadly
accepted methodology for the risk assessment of potential
bond issuers
Generally speaking in 2018 we expect SMEs to contribute
more significantly to growth employment and innovation
whilst on average the respective EBITDA margin will remain
broadly stable (as shown in Exhibit 31) However 2018 will
still be a challenging year for SMEs and innovative startup
companies as they will have to face tougher barriers in
accessing bank credit andor approaching capital markets
compared to large companies We also expect some new
innovative solutions aimed at meeting SMEs financial needs
to become effective the SMEs current financial structure
together with new business opportunities prove their
ability in terms of rational use of the additional financial
resources
The new investments will allow most industries to thrive
also assisted by the Italian Governmentrsquos adoption of the
National Industry 40 Plan
The companies which will take up this opportunity may
improve their cash-flows even in the short-medium term
Finally companies with strong international market
positioning and large product diversification will have
stronger sales and margins growth
The key ratio values recorded from 2000 to 2016 related to
the analyzed entities show the improved financial health of
the companies proving good capability to strengthen their
equity base as shown in Table 6
Growth rate (2016)Medium
Total
Small Large
Growth rate (2018)Growth rate (2017)
Source Cerved database and Cerved Rating Agency elaboration
50
40
Exhibit 31 Growth rate and EBITDA margin forecast by size classes
EBITDA margin (2016)EBITDA margin (2018)
EBITDA margin (2017)
40
30
0
10
20
Medium
Total
Small Large
7570
65
0
6 5560
5550
4540
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
28
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The recorded financial ratios in the 2000-2016 horizon
indicate that on average
middot liquidity maintained a satisfactory level in the whole
observed period due to the positive economic cycle in
2017 and 2018 we expect a slight improvement in the ratio
middot the EBITDAinterest coverage ratio almost doubled its
value in 2016 compared to what was recorded in 2000
primarily due to a general reduction in the interest rates
particularly in the last three years we believe that in 2017
and 2018 the average ratio value will remain roughly at the
same level recorded in 2016
middot in 2016 ROE shows further improvement but is still
slightly lower compared to the value recorded at the
beginning of the observed period mainly due to the equity
base strengthening trend
middot Equity Ratio rose from 250 to 350 due to a significant
increase of equity capital in 2018 we expect further
strengthening of the ratio
middot Financial LiabilitiesTotal Assets ratio remained mostly
unchanged ndash financial debts representing roughly 30 of
the total assets
A positive trend regarding the net financial debt was also
observed in fact in 2016 70 of the sample improved their
NFDEBITDA and 73 the NFDEquity
Positive performances were found especially in the SMEs
segment as shown in Exhibit 32 in particular referring to
NFDEquity small and medium-sized companies recorded
a positive trend standing respectively at 092 and 089 in
2016 compared to 132 and 136 in 2000
Hence the financial risk profile appears to be well balanced
leaving no room for specific concerns regarding the
prospects of the Italian non-financial companies in 2018
In 2016 the median values for the total sample referring to
NFDEquity and NFDEBITDA remained respectively at 089
and 389 levels respectively
Looking ahead we expect these indicators to remain at
healthy levels in 2017 and 2018 with a slight improvement
in NFDEBITDA and a broadly stable level of the NFDEquity
ratio as shown in Exhibit 33
NFDEBITFA (2016) NFDEBITFA (2017)NFDEBITFA (2018)
40
Exhibit 33 NFDEquity and NFDEBITDA forecast by size classes
Source Cerved database and Cerved Rating Agency elaboration
404
20
25
45
35
30
NFDequity (2016) NFDequity (2017)NFDequity (2018)
05
06
09
10
08
07
Exhibit 32 NFDEquity and NFDEBITDA by size classes (median)
largemediumsmall
2016
2015
2014
000 5 10 15
Average2008-2013
Average2000-2007
total largemediumsmall total
Source Cerved database and Cerved Rating Agency elaboration
2016
2015
2014
203 0 405 0
Average2008-2013
Average2000-2007
29
Growth and profitability improvement spanned over all sectors
Exhibit 34 shows the relative positioning of the 10
macro-industries in the short-medium term considering
the median values related to revenue growth rate and
EBITDA margin
The historical median values are calculated on the basis
of financial data obtained from the annual financial
reports 2014-2016 filed in the Chamber of Commerce
public registers the projected median values for 2017
and 2018 are the result of the analysis of this study
As expected there are significant differences in
positioning between different industries in terms of
both historical and projected values
In 2018 we expect manufacturing and accommodation and
food services to maintain top positions already reached in
2016 and 2017
For the electricity gas mining and quarrying industry
2018 may be the turning point showing the first positive
signals after experiencing some difficulties over the last
few years
None of the other industries show significant changes in
2018 compared to their 2016 positioning
Source Cerved database and Cerved Rating Agency elaboration
A 50
57599586886358
3849
3620083721
-110320
-1112
210322
-1814021122
1413
030124
-5010284025
0555
20-4614
-4607212105
0430
210328-2310203218
0832
2310300512233720
1637
BCDEFGHIJ
A 625296
1441401016934
15352
504969
103121916227
10639
4764676185562639
68112
4873687090592845
75120
456772928856
45
7898
4667759090573147
7698
4668769394583147
77102
EBITDAmarigin
BCDEFGHIJ
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018Growthrate
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
Exhibit 34 Growth rate and EBITDA margin by industry
-70 -50 -30 -10 10 30
2016E2017F2018
50 70 90
Median=68
Median=2100
20
40
60
80
100
120
A=Agricolture B=Mining and quarrying C=Manifacturing D=Electricity and gas E=Water supply F=Construction G=Wholesale and retail trade H=Transporting and storage I=Accomodation and food service J=ICT
D
B
E
FHA G
C
I
J
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
30
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Further strenthening in companiesrsquo financial structure
Exhibit 35 shows the relative positioning of the 10 macro
industries in the short-medium term considering the
median values related to NFDEBITDA and NFDEquity
ratios
The historical median values are calculated on the basis
of financial data obtained from the annual financial
reports 2014-2016 filed in the Chamber of Commerce
public registers the projected median values for 2017
and 2018 are the result of the analysis of this study
There are even more significant differences in
positioning between industries regarding NFDEBITDA
and NFDEquity ratios when compared to growth rate
and EBITDA margin differences
Generally in the observed period there is no evidence of
significant changes among industries considering their
relative positioning related to NFDEBITDA and NFD
Equity ratios
In 2018 we expect accommodation and food services
and information and communication services to
maintain top positions already reached in 2016 and
presumably confirmed in 2017
Exhibit 35 NFDEquity and NFDEBITDA by industry
2016E2017F2018
Median=37
Median=08500
030 5 070 9 111 3
20
30
40
50
60
70
10
A=Agricolture B=Mining and quarrying C=Manifacturing D=Electricity and gas E=Water supply F=Construction G=Wholesale and retail trade H=Transporting and storage I=Accomodation and food service J=ICT
EH
C
BF
G
A
D
J
I
A 150101113081112149151120
079131
123075088101097125123103
072079
114067083052090108119102
067076
113060080045089096114092
074069
125076080045089106109086
050060
127072080044091
108084
051056
128067079043093106107081
051051
BCDEFGHIJ
NFDEquity
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
A 597219280305251301338250
153260
676394388342298453499349
254337
707482387293277498532337
277334
696392373254305484494308
231315
747401358330285544483294
183312
722390340341280511470290
178293
710380310329272492452281
177289
NFDEBITDA
BCDEFGHIJ
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
Source Cerved database and Cerved Rating Agency elaboration
106
31
Exhibit 36 Equity ratio by industry
Average 2000-2007 2014 2015Average 2008-2013 2016
Source Cerved database and Cerved Rating Agency elaboration
05
10
20
30
15
25
3540
5045
AB C DE FG HI J
Exhibit 37 EBITDA interest coverage by industry
Average 2000-2007 2014 2015Average 2008-2013 2016
Source Cerved database and Cerved Rating Agency elaboration
0
5
10
20
15
AB C DE FG HI J
A 1113140911151211
1408
1013131012131209
1208
1114151012131311
1309
1214151012151312
1309
1215161113161412
1409
BCDEFGHIJ
Liquidity ratio Median2000-07
Median2008-13 2014 2015 2016
A 0377677447858463
8960
0332
8145524536
4832
0342486042273848
3246
0537606853395765
4069
0743676559416378
5882
BCDEFGHIJ
ROE Median2000-07
Median2008-13 2014 2015 2016
Table 7 Liquidity ratio by industry Table 8 ROE by industry
Source Cerved database and Cerved Rating Agency elaboration
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
32
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Agriculture
Considering the recent price decline for agricultural
products putting EBITDA margin under pressure for
most of the industry participants we anticipate a slow
revenue growth in 2018 We also foresee more stable
margins in 2018 and investments to continue at a faster
pace in the near future mainly aimed at transforming the
agricultural activities into a high-tech industry Climate
and cultural changes are the main exogenous risks that
may negatively influence the sector
Mining and quarrying
Over the last few years the mining industry has been
challenged by record low metal prices and this has
resulted in a weak growth of supply and a cut in
investments especially in the new mines opening We
foresee a modest revenue growth in 2018 supported
by more stable prices rather than by government
infrastructural investments Margin pressure will remain
mostly unchanged in 2018 We do not expect a significant
increase in capital expenditure for most companies
while only a minority of industry participants will invest
in new capacities searching for new growth opportunities
by introducing new higher margin outputs Overall we
anticipate relatively stable key financial indicators
Manufacturing
We believe that in 2018 Italian manufacturing
representing 2nd European and 7th world player in 2016
will remain the beating heart of the national economy
In our view the expansion of internal demand the
improvement of business and customer confidence and
the wider export opportunities are the key drivers for
revenue growth (up to nearly 30) Despite the natural
selection the occurred during the economic recession
domestic competition and especially the competition
from lower income countries will remain challenging in
2018 creating further profitability pressure especially in
some highly fragmented segments
As a conditio sine qua non for market survival many
companies will be involved in a ldquowinning the innovation
gamerdquo process translated into a considerable capex
expenditure directed at process optimization which
inevitably must be accompanied by innovative marketing
and commercial strategies The companies especially
smaller ones which are not ready lsquoto play the gamersquo
remaining risk averse are likely to fall behind
Key financial indicators referring to the industry in terms
of net financial debt to equity and net financial debt to
EBITDA are likely to remain overall stable in 2018
In our view the best performing manufacturing industries
in 2018 will be the following
Automotive
extensive vehicles replacement process in 2018
high competition pressure China maintaining a key role
high level of innovation in mobility and connectivity
new strategic partnerships and MampAconservative stand towards EBITDA margin improvement
Chemistry amp Pharmaceutics
solid macroeconomic fundamentals will support
the revenue growth driven mainly by large companies
on average a stable EBITDA margin of about 10
is expected global presence is a must to achieve higher
level of profitability
RampD remain key factors for further market expansion
moderate level of MampA operations in 2018 slowing
down when compared to those carried out in the
previous year
Machinery amp Equipment
revenue growth in 2018 up to nearly 25 reflecting
the fact that all manufactures remain focused on RampD
and NPI (new product introduction)
cost management strategies are going to persist
but generally speaking with no significant impact on
EBITDA margin in 2018
heavy equipment manufactures still under pressure in
2018 to provide engineering capability and capacity
33
Energy and gas
Italian companies operating in the energy industry are
facing a complex market environment with many open
questions about risks related to regulations a drop
in consumption high competition levels and EBITDA
erosion
Generally we expect a more stable landscape in 2018 in
terms of commodity prices and consumption However
risk regarding prices and volumes will remain strong
resulting in a higher volatility of revenues In our view
the current margin pressure is unlikely to ease over the
next two years The final overcoming of the sondashcalled
ldquoMaggior Tutela Regimerdquo may lead to almost zero margin
for the retail operators We expect industry participants
to continue to focus their attention on cost efficiency and
on protecting profitability by embracing new business
models and examining the role that digital technology
can play in improvement of EBITDA margins We believe
that the above described strategies will be a central
topic for the operators intending to attract capital We
also believe that energy producers could see a slight
debt increase in 2018 aimed at improving productivity
and synergies Finally in 2018 we envisage a significant
number of MampA operations in the sector led by synergy
effects such operations might produce
Water supply waste management and sewerage
In recent years the water supply waste management
and Italian sewerage industry has recorded a slower
growth compared to the pre-crisis period However
due to the last two yearsrsquo important investments in the
water infrastructure waste sorting and recycling Italy
ranks as one of the top European countries in terms
of growth rate of recycling and packaging recovery
We believe that the expected general increase in
industrial output will produce a slight growth in water
consumption and waste treatment The demand for
sustainable solutions will continue to persist requiring
new investment in technologies based on a customer-
centric and sustainable approach aimed at improving
efficiencies and facilitating reuse Expectations also
reflect our view in terms of wider government interest
and spending in this industry We expect profitability
to remain broadly in line with the results obtained in
2016
Construction
After a weak increase in revenues recorded by the
construction industry operators in 2016 and the
modest result anticipated in 2017 both reflecting
a deteriorating demand and decreased volumes of
bank loans (mainly those for small and medium-
sized companies) we expect 2018 to be the turning
point for this industry We foresee that the volume of
residential and private non-residential constructions
will remain at relatively low levels in 2018 and that
the positive trend in housing renovation and public
works investments will continue taking advantage of
the allocated funds established by the Budget Law for
2017 Small and medium-sized businesses focused on
residential construction may face a slight profitability
erosion while we believe some growth in EBITDA
margin may be recorded by large Italian companies
operating internationally Due to the high perceived
risk historically there has been a strong financial
market mistrust of the construction companies which
we believe is likely to ease over the coming years
Wholesale and retail trade
During the crisis period wholesale and retail trade
industry faced a sudden interruption of the gradual
growth that had taken place up to that moment mainly
due to a loss in real purchase power and in consumer
confidence also translated into profitability erosion
In 2016 the data showed how the industry is moving
toward a recovery period Looking forward in 2018 we
expect to record a steady revenue growth supported
by an increase in global trade and improved consumer
confidence Despite the foreseen growth operators
will continue to face consistent pressure mainly in the
retail segment due to the high proliferation of new retail
purchase channels and market fragmentation
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
34
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Transportation and Storage
After a troubled 2016 characterized by an overcapacity
and a decrease in commodity demand hitting shipping
revenues in particular we foresee a moderate overall
recovery in 2018 driven mainly by an increase in
international shipments and air traffic The growing
number of innovative startups will continue to persist
increasing the competitive pressure in the industry We
anticipate a constant growth of e-commerce enabling a
quick reaction of on-line retailer and logistics providers
We believe that operators will continue to invest in
new high-tech solutions experimenting new models of
mobility and smart logistics
Despite very strong competition we expect the median
operating margins to remain steady However global
political uncertainties and related risks are strong with
possible quick and sharp negative impact on business
volumes and margins of the companies operating in
these industries
Accommodation and food services activities
In the last two years operators in the accommodation
and food service activities industry mainly medium
and small sized enterprises have seen steady revenue
growth and satisfactory profitability ratios Many
operators were focused on reviewing their business
models and offering additional services to their
customers a necessary strategy to maintain or expand
market positioning strengthen margins and improve
customer experience We expect the revenue growth
to continue in 2018 with a minimal median margin
improvement We believe accommodation and food
service activities will attract new capital investments
in 2018 to help the ongoing transformation process
and improve the accommodation infrastructure and
services
Information and communication technologies
The Italian information and communication technology
industry took longer to recover from the economic
crisis recording overall a negative median growth
rate until 2014 Software services and innovation
technology were the major contributors to revenue
growth (as a percentage) in 2016
Over the forecast period we foresee a modest revenue
growth for the ICT operators as a whole while the
technology industry will continue to achieve rapid
growth focusing on maintaining the competitive pace
of innovation In our view a key challenge for the ICT
operator may be the availability of matching skills
The outlook is relatively stable in terms of profitability
and key financial indicators
The following two pages show the details of the
previously discussed key performance indicators
35
Exhibit 38 Growth rate and EBITDA margin manifacturing sectors
-70- 50 -30 -10 103 0
2016E2017F2018
50 70 90
Median=76
Median=3000
20
40
60
80
100
120
1=Automotive 2=Chemistryamppharmaceutics 3=Clothing 4=Equipment 5=Food beverage and Tabacco 6=Heavy Manifacturing 8=Paper and Packaging 9=Tecnology and Telecomunication 10=Textile industry
6
10 5
3
8
91
74
2
50AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
57599586886358
3849
3620083721
-110320
-1112
210322
-1814021122
1413
030124
-5010284025
0555
20-4614
-4607212105
0430
210328-2310203218
0832
2310300512233720
1637
Growth rate Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
EBITDA margin Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
Source Cerved database and Cerved Rating Agency elaboration
625296
1441401016934
15352
504969
103121
916227
10639
4764676185562639
68112
487368
7090592845
75120
456772
9288562845
7898
4667759090573147
7698
4668769394583147
77102
1=Automotive 2=Chemistryamppharmaceutics 3=Clothing 4=Equipment 5=Food beverage and Tabacco 6=Heavy Manifacturing 8=Paper and Packaging 9=Tecnology and Telecomunication 10=Textile industry
2016E2017F2018
Median=30
700
600
500
400
300
200
100
000000 020 040 060 080 100 120
Median=08
Exhibit 39 NFDEquity and NFDEBITDA for manifacturing sectors
2
4 8
101
9
9
3
57
Source Cerved database and Cerved Rating Agency elaboration
096AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
104146095152117112109
098087
087080116068118083088086
084078
075074104069107082080079
084083
072064100065105084122081
079081
082066104065105080091079
077082
081067103065105079087079
077081
076067101064104077083078
076080
NFDEQUITY Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
227AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
258334222397249255259
315202
338313443305495363403412
480337
315306436328479373380397
482316
264269490303467366403383
515317
269243507090106127090106
106106
413343478088105127088105
105105
399333465086104127086104
104104
NFDEBITDA Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
36
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Exhibit 40 Growth rate and EBITDA margin for wholesale and retail trade sectors
20 40 60 80 100 120 140 160
2016E2017F2018
Median=31
Median=33
0000
20
10
30
60
50
70
1=Automotive 2=Retail 3=Wholesale
40
3
12
2016E2017F2018
Median=45
700
600
500
400
300
200
100
000050 070 090 110 130 150 170 190
Median=11
Exhibit 41 NFDEquity and NFDEBITDA for wholesale and retail trade sectors
1=Automotive 2=Retail 3=Wholesale
21
3
37
Ratings will remain broadly stable
The following section presents a risk profile analysis
based on Cerved Rating Agencyrsquos outstanding and
monitored public and private ratings issued from
2013 to 2017 on Italian non-financial companies
and operating in the industries discussed in this
study (data as of 31 December)
Exhibit 42 and Table 9 show an overview of 1-year
effective default rates over the 2000-2017 horizon
related to the sample bankruptcy and other legal
proceedings and debt restructurings as default
events
The default rate trend shows a general
improvement from 2014 onwards both by
company size classes and by industry however
considering the entire sample the overall default
rate still remains higher when compared to its pre-
crisis level especially regarding smaller companies
operating in the construction sector
Exhibit 43 shows the effective default rates over
2013-2017 horizon based on Cerved Rating
Agencyrsquos definition which considers as default
events
middot bankruptcy and other legal proceedings
middot debt restructuring
middot missed or delayed disbursement of a contractually
required interest or principal payment ie missed
payment on bonds material protests (on cheques
or trade bills) or prejudicial acts (judicial mortgages
distraint of property)
The effective default rates over the 2013-2017
horizon show decreasing trend and satisfy the
monotonicity constraint regarding all Cerved
Rating Agencyrsquos rating classes (Exhibit 44)
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2003 2004 2005 2006 2007 2014 2015 2016 20172000 2001
5678
12
3
4
0
Exhibit 42 Avarage 1-year default rate by size over 2000-2017 horizon
medium small
2008 2009 2010 2011 2012 2013
Mining and quarring
Manifacturing
Electricity gas steam and air conditioning supplyWater supply sewerage
Construction
Wholesale and retail trade repair of motorTransporting and storage
Accomodation and food service activities
Information and communication
24221809
5212
282915
2529
38533424
13027
454830
4838
36542537
15929
424421
4323
23461921
13226
293226
3022
Source Cerved database and Cerved Rating Agency elaboration
Table 9 Default rate by industry over 2000-2017 horizon
Total
NACE Average2008-2015
Average2000-2017 2016 2017
2016
Source Cerved database and Cerved Rating Agency elaboration
C21C12C11B22B21B12B11A11 A12 A13 A21 A22 A31
60
50
40
30
20
10
0
Exhibit 43 1-year default rate over 2013-2017 horizon
20172013 2014 2015
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
38
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The analysis of historical rating distributions in the
same period shows clear differences in terms of modal
rating class by company size As shown in Exhibit 43
the modal rating class for the large companies is A31
B11 for the medium and B12 for small companies
(considering company size classes as they have been
defined ad hoc by Cerved Rating Agency for the
purposes of this study)
Overall the corporate rating distribution in the
Source Cerved database and Cerved Rating Agency elaboration
C21C12C11B22B21B12B11A11 A12 A13 A21 A22 A31
30
25
20
15
5
10
0
Exhibit 44 Rating distribution frequency by size classes
large
30
25
20
15
5
0
10
medium smallRating 2013 total Rating 2017 total Rating 2017 forecast
observed period is skewed towards the investment-
grade rating categories (ie Cerved Rating Agency
rating classes from A11 to B12) representing 700 of
the whole sample 250 is concentrated in the safety
(A rating classes) and 450 in the solvency (B11-B12)
classes
We anticipate the rating distribution to remain
broadly unchanged in 2018 with the rating migration
concentrated mainly in the B category
39
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100543
2414
4407
4407
2636
4554 4558
2403 2311
535 527
90
10
0
Exhibit 45 Rating distribution frequency by area of risk - Total companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency]I nvestment GradeA11-A31 [Safety]
2509 2604
704 4407706 4407716
324
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
985
5658
4407
3033 2992 2898
925 907
300 318
90
10
0
Exhibit 46 Rating distribution frequency by area of risk - Large companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
5783 5878
869 4407878 4407878
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
4407
4407
3626
4080
17591695
439 449
90
10
0
Exhibit 47 Rating distribution frequency by area of risk - Medium companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
3571 3776
7044407780 4407786
456
1805
774
4113 4232
603
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
2824
1900
4407
4673 4850 4761
2833 2754
600 633
90
10
0
Exhibit 48 Rating distribution frequency by area of risk - Small companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
1716 1852
657 4407657 4407661
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
40
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Slight improvement in general creditworthiness
In our opinion in 2018 the creditworthiness of the
observed Italian non-financial companies will remain
stable for almost 86 of entities Migration of ratings is
expected to be moderate resulting in approximately 14
of rating upgrades (9) and downgrades (5) at the end
of 2018 compared to the outstanding ratings at the end
of 2017 The vast majority of the rating changes (921)
will be limited to one-class migration as shown in the
1-year projected transition matrix (Table 10) We believe
that more than one third of the expected downgrades
will be concentrated in the energy gas mining and
construction sectors Over the last years the average
credit profile of companies active in these industries has
been relatively weak and due to the forecast market and
regulatory conditions we do not envisage opportunities
for a significant risk profile improvement in 2018
Despite the expected rating migrations for individual
entities in 2018 the current industry modal rating
classes are unlikely to change
On the other hand stable and positive outlooks will
prevail in the manufacturing industry wholesale and
retail trade and accommodation and food service This
is due to the increase in the number of companies
active in these sectors which will maintain andor
improve their business and financial performances
Indeed as shown in Table 11 in 2018 the rating outlook
remains differentiated by industry whilst in terms of
the expected general probability of default we foresee
a modest improvement (349) compared to the one
recorded in 2017 (366)
Table 10 1-year transition matrix
Source Cerved database and Cerved Rating Agency elaboration
2017
A11
A31
B11
C11
C12
B21
C21
B22
B12
A12
A13
A21A22
F 2018A11 A12 A13 A31 B11 C11 C12B21 C21B22B12A21 A22
000 530
066
054 451034 435
027 753055 901
1033121247 1624
260 1038088
000
000000037
028
295
290
1063
179
455050647
043425
026490020208
000208
000152
000000
00000010000
9821
9318
92679015
87708583
81497646
8665
9617
9710
8605
419024
41
The information and data supporting Cerved Rating Agency rating opinions related research and credit opinions originate from sources Cerved Rating Agency considers to be accurate however Cerved Rating Agency cannot independently verify the reliability and accuracy of the information and data in every instance This publication may not be reproduced retransmitted or distributed in any form without the prior written consent of Cerved Rating Agency Cerved Rating Agency assumes no liability for correctness completeness and topicality of the information contained in this publication The analyses underlying this study do not provide advice of any sort
26
n
6670
486
59
Exhibit 49 Ratings outlooks by size
Large
Medium Positive Stable Negative
Small
21
13
Large
Medium
Small
Source Cerved database and Cerved Rating Agency elaboratio
Table 11 Ratings and probability of default 2018 outlook by industry
Source Cerved database and Cerved Rating Agency elaboration
NACE Micro industryDowngrade
B-Mining and quarryingAutomotive
900814
848
812
880812
847
813 172
170
174
144
8264 36
08
104 433 436
392 373
22724815
362 360
876
876
914
848
849
804
887
882
916
901835870899 64
866760
43
68
5659
58
47
61
49
74
78 75
14
50
37
36
5393
32
50
41
45
3899
77
91
316
372
355
364
308
491
326
318 296
331
312
381
367
359
322
495
452
433
403429
389
364369
363
313
452
323
594
38
315358
603
307
345 350
67 5318
469289 274
470
147
116
138
851
821AutomotiveRetail
Wholesale
Total
Chemistryamppharmaceutics
ClothingEquipment
Food Beverage and Tabacco
Heavy Manifacturing
Other Manifacturing
Textile industry
Total
Tecnology Media ampTelecomunication
Paper Packaging ampForest products
C-Manifacturing
D-Electricity gas steam and air conditioningsupply
F-Construcion
H-Transportig and storageI-Accommodation and food service activitiesJ-Information and communication
G-Wholesale and reatail traderepair of motor vehicles and motor-cycles
E-Water supply sewerage waste
Average ForecastPD 2018
Expectedtrend
Average PD 2018
Ratings outlooks
Stabl pgrade
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Cerved Rating Agency SpAVia dellrsquoUnione Europea n 6A-6B20097- San Donato Milanese (MI)
Tel +39 02 77541 - Fax +39 02 76020458
ratingagencycervedcom
Rating Agency
6
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Executive summary
7
This research aims to present two outputs
- projected economic and financial performances in 2018 of the Italian non-financial companies
- the expected risk level of such entities at the end of 2018
the sample extracted for the analysis consists of Italian joint stock and limited liability companies with turnover
exceeding euro5 million and includes on average roughly 50000 entities per year operating in 10 macro industries
(manufacturing further detailed in 10 micro-sectors) the related revenues in 2016 amounted to euro18 billion
representing 769 of total revenues of all Italian joint-stock and limited liability companies
the World European and Italian historical (2000-2016) and estimatedprojected (2017-2018) macroeconomic
data are combined with specific individual company data with the aim of obtaining accurate and reliable
forecasts
the Cerved database was the main source for the analysis of economic and financial performances of the
companies included in the sample Cerved Rating Agency database highlighted the risk level of such entities
based on the credit rating activities performed by the Agency
the research output affirms that gradual recovery of Italian non-financial companies is expected to continue in
2018 both in terms of revenue growth and improvement of the financial structure primarily for manufacturing
and accommodation and food services industry the trend is mainly fostered by positive global economic cycle
low interest rates and favorable regulatory framework supporting firm funding investments innovation and
employment
the general risk level in 2018 is assumed to remain approximately at the levels recorded at the end of 2017
a slight improvement in terms of rating upgrades is expected for 9 of the companies analyzed mainly
concentrated in the manufacturing wholesale and retail trade and the accommodation and food service
industry
Executive summary
CERVED RATING AGENCY SpA | Executive Summary
8
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
World economy Outlook 2018
9
Growth is predicted to gain strength
The predicted global economic growth rate is 39
in 2018 (against 36 in 2017) According to the
International Monetary Fund forecast in 2018 the
two biggest world economies US and China will
grow at 23 and 65 rate respectively
Consumer price inflation rate to rise
The global consumer price inflation rate is expected
to rise assisted by higher commodity prices Oil price
averaged $54barrel in 2017 and is predicted to remain
close to $60barrel in 2018 whilst oil consumption is
forecast to record an uptick of 14 in 2018 In addition
also metal prices are expected to increase modestly in
2018
Trade to increase
Global world trade is predicted to increase further
in 2018 fostered by a recovery in manufacturing
activity and an increase in investment especially
in advanced economies In addition a recovery for
the commodity exporters is expected
Global risks remain tilted to the downside
These include increased trade protectionism as well
as economic policy uncertainty possible adversity
in the financial system due to easy monetary
conditions and over the longer term weaker
potential growth In addition the upcoming political
events and the current political uncertainties may
negatively affect the general economic conditions
Commodity Fuel Price Index
Metals Price Index
Source IMF ECB OECD
20022000 20062004 2008 20122010 F201820162014
50
0
150
100
200
250
1
0
3
2
5
4
7
6
Exhibit 2
Volume of imports of goods and services (Y-o-Y change)
Volume of exports of goods and services (Y-o-Y change)
Current account balance ($ billion) Source IMF
20112010 20132012 2014 20162015 F20182017
2
0
8
4
10
12
14
100
0
300
200
400
500
Exhibit 3 Global trade and current account balance world
EPU Index World
VIX Source FRED
20112010 20132012 2014 20162015 F20182017
50
0
100
150
200
250
5
0
15
10
20
25
30
Exhibit 4
Euro Area
EMDEs
United StatesWorld
Other advanced economies
China
OthersSource IMF and Cerved Rating Agency elaboration
20112010 20132012 2014 20162015 F20182017
20
0
60
40
80
100
1
0
3
2
5
4
6
Exhibit 1 Contribution to global growth world
CERVED RATING AGENCY SpA | World economy Outlook 2018
10
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
European economy Outlook 2018
11
Euro area gdp grows unemployment falls
GDP growth in the euro area rose around 21 in
2017 and is predicted to continue at a broadly similar
pace in 2018 Furthermore the unemployment
rate will continue to follow a declining trend and is
forecast to fall to 87 in 2018 (from 92 in 2017)
Industrial production improvement
Investments will accelerate and the international
environment will contribute positively to an increase
of exports (in line with the global growth) which will be
one of the principal driver of an industrial production
improvement in 2018
Further credit activity expansion
Across the euro zone countries companies are
benefiting both from eased lending conditions
and increase in the number of alternative lenders
The total amount of loans to households and non-
financial corporations grew by approximately 14
in 2017 whilst in 2018 it is predicted to increase more
slowly especially in the non-financial corporate
sector
Inflation rate to be stable
Consumer price inflation accelerated at the
beginning of 2017 mainly due to a rise in energy
prices The harmonized index of consumer prices
(HICP) is estimated at 15 in 2017 In 2018
the impact of energy inflation is expected to
decline resulting in a lower inflation rate outlook
(approximately 14)
Germany
France
ItalyEuro Union
Spain
UK
OthersSource IMF ECB OECD
20112010 20132012 2014 20162015 F20182017
20
0
60
40
80
100
0
-1
2
1
3
4
Exhibit 5 Contribution to European growth European Union
EPU Index euro areaIndustrial production euro area (Y-O-Y change)
Source IMF ECB OECD
2011 2015 2017
-2
-2
-3
-1
-1
1
1
0
2
2
3
100
0
300
200
250
400
450
500
Exhibit 7 Industrial production and policy uncertainty index euro area
2010
350
150
50
20182013 2014 20162012
Euro Area
Source ECB
20112010 20132012 2014 20162015 2017
500
0
1500
2500
2000
3000
1000
10000
9900
9800
9700
9600
9500
9400
9300
9200
Germany Spain France Italy
20112010 20132012 2014 20162015 20182017
BCI euro area
CCI euro area
Source IMF ECB OECD
96
95
98
97
99
101
102
100
103
0
-1
2
1
4
3
5
Exhibit 6
CERVED RATING AGENCY SpA | European economy Outlook 2018
12
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Highlights on italian economy
13
Gdp growth is under way to consolidate in 2018
From 2000 to 2017 the Italian economy was more
vulnerable compared to other highly developed
countries in particular those of the euro area
The Italian real GDP at the end of 2017 was roughly
at the same level recorded in 2000 whilst the euro
area countries and specifically Germany and France
experienced a considerable growth in the same period
(188 205 and 198 respectively)
The Italian GDP has started to increase moderately only
since 2014 mainly due to an improvement in domestic
demand but its growth still remains below the growth
rates of the majority of euro zone countries The poor
performance of the labor and total productivity factor
accounts for most of the difference
An ageing population and a weak labor market
participation have also contributed negatively to
potential growth Structural reforms in particular the
Jobs Act and tax incentives on new labor contracts
contributed to the increase in employment making the
Italian labor market more flexible and efficient
In 2018 we expect the economic growth to be slightly
below the level reached in 2017 The trend will be
sustained by the world economy positive cycle
including higher levels of international trade volume
Italian companies will benefit from favorable credit
lending conditions due to an expanding credit activity
of the banking system and low interest rates
Whilst the Italian government adopted a set of dynamic
and diverse policies for 2018 we believe that some of
those previously introduced have already contributed
to the GDP growth in 2016 and 2017 thus reducing the
combined effect in 2018
Source World Bank
2000 2002 2004 2006 2008 2010 2012 2014 2016
1500
1000
500
0
2500
3500
3000
4000
2000
13000
9500
10000
11000
12000
12500
10500
11500
Exhibit 10 GDP in Europe ($ billion)
Germany Italy Euro areas (11countries)France
Total multifactor productivityEmployment growth
Source OECD
-2
-4
-6
-8
2
0
4
6
Exhibit 9 Italian GDP employment and total multifactor productivity (Y-o-Y change)
2000 2002 2014 20162004 2006
GDP growth
20122008 2010
CERVED RATING AGENCY SpA | Highlights on italian economy
14
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The number of active companies has increased buthellip
The number of active companies in Italy registered at
the Chamber of Commerce as of December 31st 2016
amounted to 5145995 305629 more than in 2000
(63)
The increase in registered active companies is the result
of the positive trend from 2000 to 2008 (98) partially
cancelled by the decrease from 2009 to 2016 In 2017 a
slight improvement is expected to be recorded however
the number of active companies remains below its peak
value (5316104 entities) reached at the end of 2008
Exhibit 11 shows both the trend of active Italian companies
in the period 2000-2016 and their breakdown by legal
form We observe that the increased number of Joint Stock
Companies and particularly Limited Liability companies
(1206) was able to compensate the decrease in Unlimited
Partnerships (-62) and Sole Proprietorships (-79)
Companies are abandoning traditional sectors
Exhibit 12 shows the breakdown of the Italian active
companies at the end of 2000 and 2016 by industry
It can be observed that in many traditional sectors
the number of active companies decreased eg in
agriculture (-294) and manufacturing (-226) whilst
the number of companies increased in construction
(273) and wholesale and retail trade (39)
A very significant rise in the new registered companies
(456) occurred in other industries in particular
in the service industry offering information and
communication IT and professional scientific and
technical services
Joint Stock and Limited Liability Unlimited Partnership Sole proprietorshipO ther forms
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 2012 2013 2014 2015 20160
6000000
5000000
4000000
3000000
2000000
1000000
Exhibit 11 Italian active companies 2000-2016
Total
Source Movimprese and Cerved Rating Agency elaboration
Exhibit 12
Breakdown of the Italian active companies by industry 2000-2016
2000
635286 13
1059005 22
639778 13
589707 12
183 856 4 226964 5 150772 3
1354998 28
965452 19
747738 14
495247 10
750863 15
150888 3
379899 7 247187 5
1408721 27
2016
C Manufacturing
F Construction
H Transporting and storage
I Accommodation and food service activities
L Real estate ativities
G Wholesale and retail traderepair of motor vehicles and motorcycles
X Other
15
Number of bankruptcy and other legal proceedings to decrease further
From 2000 to 2016 the number of bankruptcies and
other legal proceedings protests and prejudicial
acts in Italy mirrored the general trend of the
Italian economy
After reaching its minimum level in 2007 (5969)
the number of bankruptcy procedures in the
period 2009-2014 increased dramatically reaching
its peak value of 15608 in 2014
With the improvement in the economic and financial
environment starting from 2015 the number of
bankruptcy procedures decreased sharply in all
macro sectors returning approximately to the
levels recorded from 2000 to 2006 A positive
trend was recorded also in 2017 bankruptcy
procedure initiated for 11937 companies -113
when compared to the same period in 2016 In
absolute terms the highest number of bankruptcy
procedures was recorded in the service sectors
followed by the construction and manufacturing
Worth mentioning is the design of a new Italian
bankruptcy law that should be approved by
October 2018 The regulatory framework aims at
more efficient resolutions of cases of company
crisis supporting continuity of its operating
activities and safeguarding the interest of creditors
by introducing innovative solutions such as pre-
crisis warning mechanisms
Other legal proceedings after reaching its
maximum level in 2013 (3593) in 2016 came down
to 1993 and the trend continues in 2017 evidencing
1866 procedures -64 when compared to the
same period in 2016
In the last five years new protests and prejudicial
acts have also shown a decreasing trend with
ndash527 and ndash70 of acts respectively in 2017
compared to the numbers recorded in 2013
-6
Exhibit 13 Bankruptcy
BankruptcySource Cerved databaase
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
10729 108311163612287
10338
59697307
9189
1108812022
12437
14031
1560814682
13459
11937
Other legal procedingsSource Cerved database
1500
1000
500
02000
940 994 1125 1211
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
2500
3500
3000
4000
2000
1110
16691540
18702094 2057
2342 2475
3593
3132
2720
1993 1866
Exhibit 14 Other legal procedings
1211
100 45000
4000090
80
70
60
50
40
30
20
10
02015
35000
30000
25000
20000
15000
10000
5000
02013 2014
Protets
703
297
41438
Total
Source Cerved database
Prejudicial acts
2016 2017
665
335
34527
570
43032660
527
473
546
454
2523828929
Exhibit 15 Protests and prejudical acts
CERVED RATING AGENCY SpA | Highlights on italian economy
16
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Core inflation rate to rise
Italian headline inflation will experience a modest
decline in 2018 compared to the previous year
(12 and 14 respectively) Core inflation
however is predicted to increase to 12 in 2018
(up from 10 in 2017)
Exports and import are accelerating
Exports and imports will both accelerate in 2018 (41
and 44 respectively) mirroring the positive trend
and expectations in global trade and the rising of the
external demand Machinery and equipment industry
will still remain in ldquopole positionrdquo due to companies
generous investment and tax incentives In general
in 2018 Italian exports will increase more in the Extra
European Union countries
Investment continues to gain strength
Investment has gained strength and will continue to
do so at a relatively fast pace supported by effects of
the tax incentives (Stability Low 2017) low interest rate
and improvements in business confidence Indeed
investments are expected to increase 30 in 2018
(up from 24 in 2017) Construction investments are
forecast to accelerate slightly also thanks to more
resources earmarked for public investment
Harmonised core infation
Source OECD and IMF
2003 2006 20092000 2012 2015 F2018
2
1
-1
0
4
3
5
6
Exhibit 16
Imports of goods and services (Y-o-Y change)
Exports of goods and services (Y-o-Y changes)
Total dometic demand (Y-o-Y change)
Source OECD and IMF
20062000 2015 F2018-5
-15
-20
5
0
-10
10
15
Exhibit 17 Exports imports and demand Italy
20122003 2009
Wholesale and retail trade (Y-o-Y change)
Total investments ( of GDP)
Heavy industry (Y-o-Y change)
Other services (Y-o-Y change)
Source IMF and ISTAT
Construction (Y-o-Y change)
20062000
-20
-30
10
0
-10
20
30
20
25
15
10
0
5
F2018
Exhibit 18 Investments by industry Italy
2003 2009 2012 2015
17
No room for significant public debt reduction
At the end of 2016 the Italian government debt-to-GDP
ratio was significantly above its level at the beginning of
the century In particular as of December 31st 2016 the
ratio was 1326 (262 with respect to 100 recorded
at the end of 2000)
In the same period the ratio for the euro area increased
from 681 to 913 (341) in Germany from 589 to
683 (159) and in France from 586 to 960 (638)
At the end of 2017 the Italian government debt increased
further to more than euro2300 billion 1350 of GDP The
debt servicing in terms of interests accounts roughly
50 of Italian GDP
In our view the high level of government debt
represents a key factor limiting Italian economic growth
and contributes eo ipso to increasing country risk
with a possible negative impact on the stability of the
international financial system
A possible increase in interest rates would raise the
cost of debt service potentially triggering a crisis due to
larger governmental deficits a slowdown in economic
activity and growing debt refinancing difficulties due to
higher risk perceived by investors
Hence it seems that a significant reduction in
government debt should be the main goal of the Italian
economic and financial policy in our opinion however
the achievement of such a result is not realistic neither
in the short nor in the medium term due to the following
factors
middot economic growth in the coming years is expected
to be moderate not sufficient to be the main source of
the government debt reduction
middot macroeconomic policy is expected to prioritize
investments employment social security and welfare
rather than government debt reduction
middot even if the inflation rate hits the target value (20) the
impact on the government debt in the short term is not
expected to be considerable
middot finally in Italy election will take place in spring 2018
with a new government taking over the economic
program that has already been approved and become
fully executive
Euro area
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 2012 2013 2014 2015 20160
20
40
60
80
100
120
140
Exhibit 19 Public debt as GDP
France
Source AMECO and Cerved Rating Agency elaboration
CERVED RATING AGENCY SpA | Highlights on italian economy
18
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Table 1
Amount ( 407 312
-327
327754
216074 190881
163248 345604188167
869
1543
2213
1793
CAGR (base year 2000)
CAGR (base year 2008)
NPL ratio ()
Ndeg debtors
Averae debt debtor
Valueindicator 2000 2008 2016
Source Bank of Italy and Cerved rating Agency elaboration
Credit activity to be expanded interest rates to remain at very low levels
As of December 31st 2016 the volume of bank loans
granted to Italian non-financial corporations amounted to
euro8604 billion
The period 2000-2016 was characterized by two different
trends from 2000 to 2011 the annual outstanding loans
value increased by 841 (euro454 billion reaching in 2011 its
highest level ever of euro993 billion thanks to 57 CAGR far
above the Italian GDP growth) whilst in the period from
2012 to 2016 loans decreased by 134 (euro130 billion)
reflecting a negative -28 CAGR The loan reduction hit
sharply construction and manufacturing (accounting
for about 400 of all loans) which experienced -227
and -135 decrease in loan volumes whilst agriculture
forestry and fishing and wholesale and retail trade
(including repairs of motor vehicles and motorcycles)
had more limited loan contraction (-08 and -53
respectively)
In the observed period due to the negative impact of the
global financial crisis 200708 and to structural changes in
the world economic and financial environment a radical
decrease in interest rates was recorded In 2017 the
interest rates charged to Italian non-financial corporates
were on average less than half compared to those charged
in 2000 In the medium term low interest rates will remain
a positive factor fostering investments and consumption
Non-performing loans to be further reduced due to innovative measures
The credit crunch had a huge and dramatic impact on
the Italian economy hitting especially small businesses
which are not able to survive in a radically changed market
conditions The evidence of such outcome can be seen not
only through the decreased number of active companies
but also via the enormously increased volume of the
non-performing loans (NPLs) In particular these loans
amounted to euro324 billion at the end of 2016 of which euro154
billion were granted to the non-financial corporations as
shown in table 1
Following the principles outlined in the ECB guidelines
published in March in 2017 Italian Banks made significant
progress in reducing the amount of the NPLs ndash estimated
to be over euro50 billion debt reduction Any further actions
aimed to improve the banking balance sheets should not
increase the financial hardship of still operating companies
North - East SouthNorth - West Center Islands
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 2012 2013 2014 2015 20160
1200000
1000000
800000
600000
400000
200000
NPLs ratio
Source Bank of Italy and Cerved Rating Agency elaboration
20
1816
14
1210
8
6
42
0
446393
euro billion)
19
Modest role of italian equity capital markets
Despite the number of listed companies increasing
from 297 to 421 in the period 2000-2017 the role
of the stock markets remains modest in Italy
As of December 31st 2017 the market capitalization
was euro640 billion (375 of the estimated Italian GDP
in 2017) representing only 782 of the overall
market capitalization recorded in 2000 (equal
to euro818 billion 687 of GDP) mainly due to
an unfavorable economic cycle in the observed
period
This situation shows the structural weaknesses of
the Italian economic and financial system especially
when compared to other highly developed
European economies The low propensity to
raise equity capital through organized markets
is linked to an unfavorable macroeconomic and
fiscal framework as well as to the predominance
of SMEs mostly unfit for listing and presenting
cultural obstacles (ie company owners and managers are often reluctant to accept wider company control and
transparency)
Hence self-financing and bank borrowing remain the main sources of finance for Italian companies which are
generally speaking undercapitalized with a negative impact on their investment capabilities Very frequently the
lack of medium-long term financing means forces companies to focus their attention on running current activities
postponing or abandoning strategic projects fundamental for company growth
A wide range of innovative initiatives have been undertaken with the aim of fostering market based company
funding in particular
middot AIM (Alternative Investment Market) - a specialized market segment dedicated to SMEs growth (95 companies and
market capitalization around euro56 billion as of December 2017)
middot ELITE - a programme designed to help SMEs prepare and structure for the next stage of growth their through
access to long-term financing opportunities
middot PIR - Piani individuali di risparmio (Individual Savings Plan) - an innovative way to fund Italian SMEs by offering retail
investors resident in Italy tax incentives (full exemption of 260 income tax) if the savings stay invested for at least
five years A minimum of 700 of such credit assets must be invested in financial instruments issued by Italian or
foreign (EU and EEA) companies permanently established in Italy
FTSE (MIB)Enterprises
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 20132012 20152014 201720160
100
200
300
400
500
600
700
800
900
100029681 29525
14623
1765216121
12259
13512
16048
15988
19012
21428
21853
2185322232
16954
297 294 295 279 282278 311 336 332 332 328 323 326344 342 356 387 421
19483
22886
26056
31005
Exhibit 21 Italian listed enterprised and FTSE (MIB) index trend
Source Borsa Italiana
300000
250000
200000
150000
100000
5000
0
Capitalization of GDP
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 20132012 20152014 201720160
100
200
300
400
500
600
700
800
900
1000
Exhibit 22 Italian market capitalization of listed companies ( of GDP)
Source Borsa Italiana
80
70
60
50
40
30
20
10
0
8184
5923
354 365418 473
524475
239301 275
210233
287 295348
318375
4580 4875
5809
6766
77857336
37474571
4251
3324
44664678
56765249
6400
3655
474
68
CERVED RATING AGENCY SpA | Highlights on italian economy
20
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Italian debt capital market is growing but still remains behind needs
At the end of 2016 the outstanding amount of debt
securities issued by Italian financial and non-financial
corporations was euro8615 billion 510 of the countryrsquos
GDP The table below shows the breakdown by issuer
type of Italian German French British and United States
outstanding amounts of debt securities as of December
2016 issued by financial and non-financial corporations
with the respective debt-to-GDP ratio
Despite the outstanding debt at the end of 2016 being
almost double compared to 2000 it represents only 23
of its peak value reached in 2012 (euro1290 billion Exhibit
23) The main reason for such a significant debt reduction
is the huge bond reimbursement realized by banking
institutions from 2013 to 2016 and the related negative
net flow of debt securities (respectively -80 -153 -106
and -67 billion of euro as shown in Exhibit 24)
The decrease in debt securities funding of Italian banks
has been compensated by a wider use of deposits and
resources available under the Eurosystem refinancing
operations framework
The outstanding amount of debt securities issued by
non-financial corporations at the end of 2016 also
doubled its value with respect to the amount recorded
at the end of 2000 The main characteristic of this cluster
is the high concentration of issuancesdebt to a small
number of issuers
Due to both more favourable general economic
conditions and active ECB monetary policy bond yields
have decreased significantly providing room for a
convenient fund raising
Since the introduction of a new regulatory framework
(lsquoDecreto Svilupporsquo) in 2012 up to October 2017 Italian
market saw 300 small-size listed bond issues (ie so
called minibonds) amounting approximately to euro143
billion Issued mainly by SMEs they offer interesting
yields to institutional investors
) Source Business support SpA ndash Minibonditalyit
BanksTotal
Source Bank of Italy and Cerved Rating Agency elaboration
2006 20082000
-200000
200000
250000
-150000
-100000
150000
100000
-50000
50000
02012 2014 20162002 2004 2010
Banks debt securities outstanding
Banks Debt to GDP ratio
Source Bank of Italy and Cerved Rating Agency elaboration
0
10
20
30
40
50
60
70 1400000
1200000
1000000
800000
600000
400000
200000
0201620142012201020082006200420022000
Table 2 Outstanding securities debt (euro Million)Debt-to-GDP ratio()
Financial corporates
Total
Debtsecurities
outstanding
Italy German rance United Kingdom United States
739
123
862
440 340 470
21
680380
40
1279 1331 4 50
880
30
14271
14820
549180
10202767
590
19211436
15770
510
Debtsecurities
outstanding
Debtsecurities
outstanding
Debtsecurities
outstanding
Debtsecurities
outstanding
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Source Bank of Italy
0
0
21
CERVED RATING AGENCY SpA | Highlights on italian economy
22
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Italian non-financial companies economic Outlook 2018
23
Data and method
This research focuses on Italian non-financial companies
with an annual turnover exceeding euro5 million With the
aim of using only reliable data joint stock and limited
liability companies have been considered only these
entities according to Italian law file complete annual
financial statements in the Chamber of Commerce
together with anagraphical company data other
legal forms such as unlimited partnerships and sole
proprietorships are not included in this sample due to
the lack of publicly available standardized financial data
We believe that this cutoff is reasonable and allows us to
perform a methodologically correct analysis In 2016 the
above mentioned companies despite representing only
42 of all registered and active joint stock and limited
liability companies accounted for 769 of their total
turnover
Moreover cluster specialization has been obtained by
NACE activity classification from A to J (thus not including
in the sample financial and insurance companies and
some service industries) The statistics regarding specific
industries provide important key data and enable us to
examine historical and prospective trends and cross-
sector comparisons
The Cerved database which contains legal anagraphical
financial and market information on all Italian registered
legal entities (approximately 6 million comprising 5
million active ones) was the most important database
used for this research Long time series and broad
homogenized and standardized data covering different
economic cycles were the building blocks to perform
the regression and predictive analysis
Historical and forecast macroeconomic data and
analysis performed by the International Monetary Fund
OECD the World Bank European Central Bank Bank
of Italy and ISTAT completed the dataset used for the
analysis
Several analyses were performed in order to examine
the structural differences within the sample in terms of
company legal form and geographical area (Exhibit 25)
company age (Exhibit 26) and company size and industry
As a result we verified a considerable heterogeneity of
companies in particular with regard to the company size
across various industries
The relevant observation period comprises the years
between 2000 and 2016 Table 3 describes some
characteristics of the sample
Exhibit 25 Sample break-down by legal form and geographic area (2016)
Joint stock Company
Limited liability Company
Area 1 (Northwest)
Area 3 (Center)
Area 2 (Northeast)
Area 4 (South)
39
20
27
14
33
67
33
Table 3 Sample characteristics 2000-2016
TotalTurnover
gt euro5million
Turnover gt euro5 million(industry
from A to J)
TotalTurnover
gt euro5million
ofTotal
Turnover gt
euro5 million(industry
from A to J)
Source Cerved database
Entreprises Turnover billion
2000 659867700717738558772442812025847334883122915172937018949708965744969581
953505945825922513883224
4215144587462234694749640518205596459226595385246754808563745362752074519385289450123
3686139038411864118843547454704921752274526974633848778504734806246843468384771845288
16151740177018472002212923302477256822562421257025202446243224392295
12661362139214561588169818752000208317861944208720541992198419871905
11141205124013041430152316891801189716191764191218831839183518371765
689693700
716
706714
725
718729744748752754753769
727739
200120022003200420052006
200820092010201120122013201420152016
2007
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
24
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Furthermore in order to guarantee more detailed and
accurate analyses and projections we decided to create
a static pool to show consistently long time horizon
economic trends (17 years) by sealing off all the active
companies over the 2000-2016 horizon
The outcome obtained by considering the behaviour of
specific variables related to the companies included in
the static pool was extended as a performance indicator
for the whole sample (turnover over euro5 million and
industry from A to J)
According to the European Communityrsquos definition of
SMEs using annual turnover and employee headcount
as quantitative criteria the initial sample of companies
and the static pool can be classified by size classes on
the basis of the financial statements for the year 2016
as shown in Table 4
For the sake of this analysis we defined specific size
classes for each industry thus deviating from the
European Commissionrsquos recommendation which
presents undifferentiated upper and lower bounds of
quantitative criteria for SMEs in all industries To define
the thresholds of such classes we used both a statistical
approach (a specific cluster procedure by minimizing
the within-cluster turnover standard deviation) and a
judgmental approach by relying on the experience and
opinion of our industry expert analysts Table 5 shows
the results of such analysis referring to the sample in
2016 (45288 entities) and the NACE sections from A
to J Moreover the NACE section C and G were further
disaggregated into sub-industry classes as shown in
Exhibit 27 in order to consider the specific business
differences within these NACE sections thus ensuring
a good fit and a satisfactory accuracy of the estimation
Exhibit 26 Sample break-down by company age classes
0-2 Years 2-5 Years 5-10 Years 10-20 Years gt20 YearsSource Cerved database and Cerved Rating Agency elaboration
0 20 40 60 80 100
ABCDEFGHIJ
A = AgricolutreB=Mining and quarryingC=ManufacturingD=Electricity and gasE=Water supplyF=ConstructionG=Wholesale and retail tradeH=Transporting and storageI=Accomodation and food serviceJ=ICT
Small
Annul Turnover
Empolyees
Static Pool
Enterprises(Turnover gt euro5 million)
Enterprises(Turnover gt euro5 millionindustry from A t J)
Medium Large
lt 50 lt 250lt 36774 11113
1005333223
8741
2236
2012
154818645
gt euro50 million
gt 250
lt euro50 million
Source Cerved database
NACE Micro industry
B-Mining and quarryingAutomotive
Automotive
Retail
Wholesale
T gt 480
T gt 80
T gt 260
T gt 265T gt 270
T gt 230
T gt 120
T gt 80
T gt 43
T gt 65
T gt 106T gt 106
T gt 360T gt 155T gt 150T gt 100
T gt 120
T gt 225T gt 1400T gt 27500
T gt 1500
ChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther Manifacturing
ICTTextile
Paper Packaging ampForest products
C-Manifacturing
F-Construcion
H-Transportig and storageI-Accommodation and food service activities
J-Information and communication
D-Electricity gas steam and aircoditioning supply
G-Wholesale and reatail traderepair of motor vehicles and motorcycles
E-Water supply sewerage waste management and emediation activities
Large (Turnover
in euro million)
Medium(Turnover
in euro million)
Small(Turnover
in euro million)
Source Cerved database and Cerved Rating Agency elaboration
60 lt T lt 480 5 lt T lt 60
5 lt T lt 20
5 lt T lt 36
5 lt T lt 35
5 lt T lt 44
5 lt T lt 40
5 lt T lt 20
5 lt T lt 26
5 lt T lt 250
5 lt T lt 185 lt T lt 305 lt T lt 265 lt T lt 205 lt T lt 37
5 lt T lt 335 lt T lt 40
5 lt T lt 255 lt T lt 585 lt T lt 1155 lt T lt 1005 lt T lt 27
20 lt T lt 80
36 lt T lt 26035 lt T lt 26544 lt T lt 270
40 lt T lt 230
20 lt T lt 120
26 lt T lt 80
18 lt T lt 43
250 lt T lt 1500
20 lt T lt 6537 lt T lt 29540 lt T lt 15533 lt T lt 15025 lt T lt 100
27 lt T lt 120
58 lt T lt 225
100 lt T lt 27500 115 lt T lt
30 lt T lt 10626 lt T lt 106
25
Exhibit 28 shows the breakdown of macro industries
analysed including disaggregation of the NACE section C
(manufacturing) and G (wholesale and retail trade repair
of motor vehicles and motorcycles)
In order to carry out the analysis and projections this study
is focused on we used simple multiple linear regression
model for each industry and company size classes
considering macroeconomic and individual companiesrsquo
economic and financial data
The analysis enables us to develop an econometric
model used to estimate likely credit quality changes (in
terms of rating class and probability of default) for single
industries and company size classes
Automotive
Retail
Wholesale
21
1366
1
42
1
26
35
232
6
A B C D
F G H I
46
7
21
1318
9
15
34
Automotive
Chemistry amp pharmaceutics
Clothing
Equipment
Food Beverage and Tabacco
Heavy Manifacturing
Other Manifacture
Paper Packaging amp Forest Products
ICT
Textile industry
Large SmallMedium
Source Cerved database and Cerved Rating Agency elaboration
0
Wholesale
Retail
Automotive
20 40 60 80 100
Automotive
Chemistry amp pharmaeutics
Clothing
Equipment
Food beverage and Tabacco
Heavy Manifacturing
Other Manifacturing
Paper Packaging amp Forest Products
ICT
Textile
0 20 40 60 80 100
ABCDEFGHIJ
0 10 30 40 60 70 80 90 100
Exhibit 28 Sample break-down by industry (2016)
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
26
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Performance indicators to improve further
The annual financial statements available through public
registers provide a clear economic and financial picture
of the Italian joint-stock and limited liability non-financial
companies The individual historical data available from
2000 to 2016 enriched with 2017 preliminary results and
with the expected 2018 macroeconomic scenario enabled
us to build up the 2017 and 2018 projections regarding
the following four performance indicators related to the
analyzed sample 1) growth rate - revenues YoY change
2) EBITDA margin 3) net financial debtEBITDA and 4) net
financial debtEquity Afterwards the median values of the
resulting data were used to obtain the summary output
which we consider as a representative proxy for the overall
market
From 2000 to 2016 the observed companies experienced
a very irregular trend both in terms of growth rate and
EBITDA margin In the aftermath of the global financial crisis
the lowest growth rate value (-120) was recorded in 2009
manufacturing transporting - storage and wholesale and
retail trade were the industries showing the biggest fall of
business volume (-155 -121 and -104 respectively)
whilst water supply accommodation and food service and
electricity and gas showed the highest level of resilience to
the adverse economic and financial environment (-01
-23 and ndash26 respectively) Exhibit 29 shows that in
terms of median value there are no significant differences
in the growth rate taking into consideration company size
classes as we previously defined them Only from 2010 the
growth rates turned positive but still remaining below the
levels recorded in 2000
The analysis of the EBITDA margin changes in the same
period also does not highlight significant differences
between large companies and SMEs as shown in Exhibit
30 The lowest median EBITDA margin value (52) was
recorded in 2012 regarding in particular accommodation
and food service transporting and storage and agriculture
sectors (28 40 52 respectively) while electricity
and gas ICT and water supply were relatively immune to
the unfavorable economic and financial circumstances
(showing 113 109 and 105 EBITDA margin
respectively) At the end of 2016 the median EBITDA margin
(60) still remains below the levels recorded in 2000 (72)
Positive trends emerging from the last publicly available
financial statements (2016) the 2017 preliminary results
and the optimistic macroeconomic forecasts for 2018
confirm improvement of the Italian economy Looking
ahead we expect the Italian non-financial companies to
continue to experience gradual recovery in 2018 They are
going to take advantage of the favorable global economic
cycle low interest rates and supportive regulations that
inter alia foster the use of alternative non-bank financial
sources for company funding The financial resources raised
through Individual Savings Plans (PIR ndash Piani individuali di
risparmio) introduced by the 2017 Budget Law are driven
in primis by a favorable tax regime for savers and might
become an important additional source for SMEs funding
injecting new liquidity The government objective fixed euro68
billion as a target value and in 2017 nearly euro10 billion had
already been raised
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2004 2006 2014 20162000
5
20
10
0
15
-15
-10
-5
Exhibit 29 Growth rate (revenue YoY change) by size classes (median)
medium small
2008 2010 2012
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2004 2006 2008 2010 2012 2014 20162000
7
10
9
8
6
5
4
3
7
10
9
8
6
5
4
EBITDA margin by size classes (median)
medium small
27
So far one of the main obstacles PIR are facing is the limited
number of available assets which may lead to a possible
concentration of this financial resources in a small share of
the market comprising mainly relatively large companies
as shown by the early data in 2017
Another obstacle to rapid adoption of the newly available
financial resources is the lack of a standardized and broadly
accepted methodology for the risk assessment of potential
bond issuers
Generally speaking in 2018 we expect SMEs to contribute
more significantly to growth employment and innovation
whilst on average the respective EBITDA margin will remain
broadly stable (as shown in Exhibit 31) However 2018 will
still be a challenging year for SMEs and innovative startup
companies as they will have to face tougher barriers in
accessing bank credit andor approaching capital markets
compared to large companies We also expect some new
innovative solutions aimed at meeting SMEs financial needs
to become effective the SMEs current financial structure
together with new business opportunities prove their
ability in terms of rational use of the additional financial
resources
The new investments will allow most industries to thrive
also assisted by the Italian Governmentrsquos adoption of the
National Industry 40 Plan
The companies which will take up this opportunity may
improve their cash-flows even in the short-medium term
Finally companies with strong international market
positioning and large product diversification will have
stronger sales and margins growth
The key ratio values recorded from 2000 to 2016 related to
the analyzed entities show the improved financial health of
the companies proving good capability to strengthen their
equity base as shown in Table 6
Growth rate (2016)Medium
Total
Small Large
Growth rate (2018)Growth rate (2017)
Source Cerved database and Cerved Rating Agency elaboration
50
40
Exhibit 31 Growth rate and EBITDA margin forecast by size classes
EBITDA margin (2016)EBITDA margin (2018)
EBITDA margin (2017)
40
30
0
10
20
Medium
Total
Small Large
7570
65
0
6 5560
5550
4540
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
28
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The recorded financial ratios in the 2000-2016 horizon
indicate that on average
middot liquidity maintained a satisfactory level in the whole
observed period due to the positive economic cycle in
2017 and 2018 we expect a slight improvement in the ratio
middot the EBITDAinterest coverage ratio almost doubled its
value in 2016 compared to what was recorded in 2000
primarily due to a general reduction in the interest rates
particularly in the last three years we believe that in 2017
and 2018 the average ratio value will remain roughly at the
same level recorded in 2016
middot in 2016 ROE shows further improvement but is still
slightly lower compared to the value recorded at the
beginning of the observed period mainly due to the equity
base strengthening trend
middot Equity Ratio rose from 250 to 350 due to a significant
increase of equity capital in 2018 we expect further
strengthening of the ratio
middot Financial LiabilitiesTotal Assets ratio remained mostly
unchanged ndash financial debts representing roughly 30 of
the total assets
A positive trend regarding the net financial debt was also
observed in fact in 2016 70 of the sample improved their
NFDEBITDA and 73 the NFDEquity
Positive performances were found especially in the SMEs
segment as shown in Exhibit 32 in particular referring to
NFDEquity small and medium-sized companies recorded
a positive trend standing respectively at 092 and 089 in
2016 compared to 132 and 136 in 2000
Hence the financial risk profile appears to be well balanced
leaving no room for specific concerns regarding the
prospects of the Italian non-financial companies in 2018
In 2016 the median values for the total sample referring to
NFDEquity and NFDEBITDA remained respectively at 089
and 389 levels respectively
Looking ahead we expect these indicators to remain at
healthy levels in 2017 and 2018 with a slight improvement
in NFDEBITDA and a broadly stable level of the NFDEquity
ratio as shown in Exhibit 33
NFDEBITFA (2016) NFDEBITFA (2017)NFDEBITFA (2018)
40
Exhibit 33 NFDEquity and NFDEBITDA forecast by size classes
Source Cerved database and Cerved Rating Agency elaboration
404
20
25
45
35
30
NFDequity (2016) NFDequity (2017)NFDequity (2018)
05
06
09
10
08
07
Exhibit 32 NFDEquity and NFDEBITDA by size classes (median)
largemediumsmall
2016
2015
2014
000 5 10 15
Average2008-2013
Average2000-2007
total largemediumsmall total
Source Cerved database and Cerved Rating Agency elaboration
2016
2015
2014
203 0 405 0
Average2008-2013
Average2000-2007
29
Growth and profitability improvement spanned over all sectors
Exhibit 34 shows the relative positioning of the 10
macro-industries in the short-medium term considering
the median values related to revenue growth rate and
EBITDA margin
The historical median values are calculated on the basis
of financial data obtained from the annual financial
reports 2014-2016 filed in the Chamber of Commerce
public registers the projected median values for 2017
and 2018 are the result of the analysis of this study
As expected there are significant differences in
positioning between different industries in terms of
both historical and projected values
In 2018 we expect manufacturing and accommodation and
food services to maintain top positions already reached in
2016 and 2017
For the electricity gas mining and quarrying industry
2018 may be the turning point showing the first positive
signals after experiencing some difficulties over the last
few years
None of the other industries show significant changes in
2018 compared to their 2016 positioning
Source Cerved database and Cerved Rating Agency elaboration
A 50
57599586886358
3849
3620083721
-110320
-1112
210322
-1814021122
1413
030124
-5010284025
0555
20-4614
-4607212105
0430
210328-2310203218
0832
2310300512233720
1637
BCDEFGHIJ
A 625296
1441401016934
15352
504969
103121916227
10639
4764676185562639
68112
4873687090592845
75120
456772928856
45
7898
4667759090573147
7698
4668769394583147
77102
EBITDAmarigin
BCDEFGHIJ
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018Growthrate
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
Exhibit 34 Growth rate and EBITDA margin by industry
-70 -50 -30 -10 10 30
2016E2017F2018
50 70 90
Median=68
Median=2100
20
40
60
80
100
120
A=Agricolture B=Mining and quarrying C=Manifacturing D=Electricity and gas E=Water supply F=Construction G=Wholesale and retail trade H=Transporting and storage I=Accomodation and food service J=ICT
D
B
E
FHA G
C
I
J
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
30
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Further strenthening in companiesrsquo financial structure
Exhibit 35 shows the relative positioning of the 10 macro
industries in the short-medium term considering the
median values related to NFDEBITDA and NFDEquity
ratios
The historical median values are calculated on the basis
of financial data obtained from the annual financial
reports 2014-2016 filed in the Chamber of Commerce
public registers the projected median values for 2017
and 2018 are the result of the analysis of this study
There are even more significant differences in
positioning between industries regarding NFDEBITDA
and NFDEquity ratios when compared to growth rate
and EBITDA margin differences
Generally in the observed period there is no evidence of
significant changes among industries considering their
relative positioning related to NFDEBITDA and NFD
Equity ratios
In 2018 we expect accommodation and food services
and information and communication services to
maintain top positions already reached in 2016 and
presumably confirmed in 2017
Exhibit 35 NFDEquity and NFDEBITDA by industry
2016E2017F2018
Median=37
Median=08500
030 5 070 9 111 3
20
30
40
50
60
70
10
A=Agricolture B=Mining and quarrying C=Manifacturing D=Electricity and gas E=Water supply F=Construction G=Wholesale and retail trade H=Transporting and storage I=Accomodation and food service J=ICT
EH
C
BF
G
A
D
J
I
A 150101113081112149151120
079131
123075088101097125123103
072079
114067083052090108119102
067076
113060080045089096114092
074069
125076080045089106109086
050060
127072080044091
108084
051056
128067079043093106107081
051051
BCDEFGHIJ
NFDEquity
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
A 597219280305251301338250
153260
676394388342298453499349
254337
707482387293277498532337
277334
696392373254305484494308
231315
747401358330285544483294
183312
722390340341280511470290
178293
710380310329272492452281
177289
NFDEBITDA
BCDEFGHIJ
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
Source Cerved database and Cerved Rating Agency elaboration
106
31
Exhibit 36 Equity ratio by industry
Average 2000-2007 2014 2015Average 2008-2013 2016
Source Cerved database and Cerved Rating Agency elaboration
05
10
20
30
15
25
3540
5045
AB C DE FG HI J
Exhibit 37 EBITDA interest coverage by industry
Average 2000-2007 2014 2015Average 2008-2013 2016
Source Cerved database and Cerved Rating Agency elaboration
0
5
10
20
15
AB C DE FG HI J
A 1113140911151211
1408
1013131012131209
1208
1114151012131311
1309
1214151012151312
1309
1215161113161412
1409
BCDEFGHIJ
Liquidity ratio Median2000-07
Median2008-13 2014 2015 2016
A 0377677447858463
8960
0332
8145524536
4832
0342486042273848
3246
0537606853395765
4069
0743676559416378
5882
BCDEFGHIJ
ROE Median2000-07
Median2008-13 2014 2015 2016
Table 7 Liquidity ratio by industry Table 8 ROE by industry
Source Cerved database and Cerved Rating Agency elaboration
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
32
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Agriculture
Considering the recent price decline for agricultural
products putting EBITDA margin under pressure for
most of the industry participants we anticipate a slow
revenue growth in 2018 We also foresee more stable
margins in 2018 and investments to continue at a faster
pace in the near future mainly aimed at transforming the
agricultural activities into a high-tech industry Climate
and cultural changes are the main exogenous risks that
may negatively influence the sector
Mining and quarrying
Over the last few years the mining industry has been
challenged by record low metal prices and this has
resulted in a weak growth of supply and a cut in
investments especially in the new mines opening We
foresee a modest revenue growth in 2018 supported
by more stable prices rather than by government
infrastructural investments Margin pressure will remain
mostly unchanged in 2018 We do not expect a significant
increase in capital expenditure for most companies
while only a minority of industry participants will invest
in new capacities searching for new growth opportunities
by introducing new higher margin outputs Overall we
anticipate relatively stable key financial indicators
Manufacturing
We believe that in 2018 Italian manufacturing
representing 2nd European and 7th world player in 2016
will remain the beating heart of the national economy
In our view the expansion of internal demand the
improvement of business and customer confidence and
the wider export opportunities are the key drivers for
revenue growth (up to nearly 30) Despite the natural
selection the occurred during the economic recession
domestic competition and especially the competition
from lower income countries will remain challenging in
2018 creating further profitability pressure especially in
some highly fragmented segments
As a conditio sine qua non for market survival many
companies will be involved in a ldquowinning the innovation
gamerdquo process translated into a considerable capex
expenditure directed at process optimization which
inevitably must be accompanied by innovative marketing
and commercial strategies The companies especially
smaller ones which are not ready lsquoto play the gamersquo
remaining risk averse are likely to fall behind
Key financial indicators referring to the industry in terms
of net financial debt to equity and net financial debt to
EBITDA are likely to remain overall stable in 2018
In our view the best performing manufacturing industries
in 2018 will be the following
Automotive
extensive vehicles replacement process in 2018
high competition pressure China maintaining a key role
high level of innovation in mobility and connectivity
new strategic partnerships and MampAconservative stand towards EBITDA margin improvement
Chemistry amp Pharmaceutics
solid macroeconomic fundamentals will support
the revenue growth driven mainly by large companies
on average a stable EBITDA margin of about 10
is expected global presence is a must to achieve higher
level of profitability
RampD remain key factors for further market expansion
moderate level of MampA operations in 2018 slowing
down when compared to those carried out in the
previous year
Machinery amp Equipment
revenue growth in 2018 up to nearly 25 reflecting
the fact that all manufactures remain focused on RampD
and NPI (new product introduction)
cost management strategies are going to persist
but generally speaking with no significant impact on
EBITDA margin in 2018
heavy equipment manufactures still under pressure in
2018 to provide engineering capability and capacity
33
Energy and gas
Italian companies operating in the energy industry are
facing a complex market environment with many open
questions about risks related to regulations a drop
in consumption high competition levels and EBITDA
erosion
Generally we expect a more stable landscape in 2018 in
terms of commodity prices and consumption However
risk regarding prices and volumes will remain strong
resulting in a higher volatility of revenues In our view
the current margin pressure is unlikely to ease over the
next two years The final overcoming of the sondashcalled
ldquoMaggior Tutela Regimerdquo may lead to almost zero margin
for the retail operators We expect industry participants
to continue to focus their attention on cost efficiency and
on protecting profitability by embracing new business
models and examining the role that digital technology
can play in improvement of EBITDA margins We believe
that the above described strategies will be a central
topic for the operators intending to attract capital We
also believe that energy producers could see a slight
debt increase in 2018 aimed at improving productivity
and synergies Finally in 2018 we envisage a significant
number of MampA operations in the sector led by synergy
effects such operations might produce
Water supply waste management and sewerage
In recent years the water supply waste management
and Italian sewerage industry has recorded a slower
growth compared to the pre-crisis period However
due to the last two yearsrsquo important investments in the
water infrastructure waste sorting and recycling Italy
ranks as one of the top European countries in terms
of growth rate of recycling and packaging recovery
We believe that the expected general increase in
industrial output will produce a slight growth in water
consumption and waste treatment The demand for
sustainable solutions will continue to persist requiring
new investment in technologies based on a customer-
centric and sustainable approach aimed at improving
efficiencies and facilitating reuse Expectations also
reflect our view in terms of wider government interest
and spending in this industry We expect profitability
to remain broadly in line with the results obtained in
2016
Construction
After a weak increase in revenues recorded by the
construction industry operators in 2016 and the
modest result anticipated in 2017 both reflecting
a deteriorating demand and decreased volumes of
bank loans (mainly those for small and medium-
sized companies) we expect 2018 to be the turning
point for this industry We foresee that the volume of
residential and private non-residential constructions
will remain at relatively low levels in 2018 and that
the positive trend in housing renovation and public
works investments will continue taking advantage of
the allocated funds established by the Budget Law for
2017 Small and medium-sized businesses focused on
residential construction may face a slight profitability
erosion while we believe some growth in EBITDA
margin may be recorded by large Italian companies
operating internationally Due to the high perceived
risk historically there has been a strong financial
market mistrust of the construction companies which
we believe is likely to ease over the coming years
Wholesale and retail trade
During the crisis period wholesale and retail trade
industry faced a sudden interruption of the gradual
growth that had taken place up to that moment mainly
due to a loss in real purchase power and in consumer
confidence also translated into profitability erosion
In 2016 the data showed how the industry is moving
toward a recovery period Looking forward in 2018 we
expect to record a steady revenue growth supported
by an increase in global trade and improved consumer
confidence Despite the foreseen growth operators
will continue to face consistent pressure mainly in the
retail segment due to the high proliferation of new retail
purchase channels and market fragmentation
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
34
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Transportation and Storage
After a troubled 2016 characterized by an overcapacity
and a decrease in commodity demand hitting shipping
revenues in particular we foresee a moderate overall
recovery in 2018 driven mainly by an increase in
international shipments and air traffic The growing
number of innovative startups will continue to persist
increasing the competitive pressure in the industry We
anticipate a constant growth of e-commerce enabling a
quick reaction of on-line retailer and logistics providers
We believe that operators will continue to invest in
new high-tech solutions experimenting new models of
mobility and smart logistics
Despite very strong competition we expect the median
operating margins to remain steady However global
political uncertainties and related risks are strong with
possible quick and sharp negative impact on business
volumes and margins of the companies operating in
these industries
Accommodation and food services activities
In the last two years operators in the accommodation
and food service activities industry mainly medium
and small sized enterprises have seen steady revenue
growth and satisfactory profitability ratios Many
operators were focused on reviewing their business
models and offering additional services to their
customers a necessary strategy to maintain or expand
market positioning strengthen margins and improve
customer experience We expect the revenue growth
to continue in 2018 with a minimal median margin
improvement We believe accommodation and food
service activities will attract new capital investments
in 2018 to help the ongoing transformation process
and improve the accommodation infrastructure and
services
Information and communication technologies
The Italian information and communication technology
industry took longer to recover from the economic
crisis recording overall a negative median growth
rate until 2014 Software services and innovation
technology were the major contributors to revenue
growth (as a percentage) in 2016
Over the forecast period we foresee a modest revenue
growth for the ICT operators as a whole while the
technology industry will continue to achieve rapid
growth focusing on maintaining the competitive pace
of innovation In our view a key challenge for the ICT
operator may be the availability of matching skills
The outlook is relatively stable in terms of profitability
and key financial indicators
The following two pages show the details of the
previously discussed key performance indicators
35
Exhibit 38 Growth rate and EBITDA margin manifacturing sectors
-70- 50 -30 -10 103 0
2016E2017F2018
50 70 90
Median=76
Median=3000
20
40
60
80
100
120
1=Automotive 2=Chemistryamppharmaceutics 3=Clothing 4=Equipment 5=Food beverage and Tabacco 6=Heavy Manifacturing 8=Paper and Packaging 9=Tecnology and Telecomunication 10=Textile industry
6
10 5
3
8
91
74
2
50AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
57599586886358
3849
3620083721
-110320
-1112
210322
-1814021122
1413
030124
-5010284025
0555
20-4614
-4607212105
0430
210328-2310203218
0832
2310300512233720
1637
Growth rate Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
EBITDA margin Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
Source Cerved database and Cerved Rating Agency elaboration
625296
1441401016934
15352
504969
103121
916227
10639
4764676185562639
68112
487368
7090592845
75120
456772
9288562845
7898
4667759090573147
7698
4668769394583147
77102
1=Automotive 2=Chemistryamppharmaceutics 3=Clothing 4=Equipment 5=Food beverage and Tabacco 6=Heavy Manifacturing 8=Paper and Packaging 9=Tecnology and Telecomunication 10=Textile industry
2016E2017F2018
Median=30
700
600
500
400
300
200
100
000000 020 040 060 080 100 120
Median=08
Exhibit 39 NFDEquity and NFDEBITDA for manifacturing sectors
2
4 8
101
9
9
3
57
Source Cerved database and Cerved Rating Agency elaboration
096AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
104146095152117112109
098087
087080116068118083088086
084078
075074104069107082080079
084083
072064100065105084122081
079081
082066104065105080091079
077082
081067103065105079087079
077081
076067101064104077083078
076080
NFDEQUITY Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
227AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
258334222397249255259
315202
338313443305495363403412
480337
315306436328479373380397
482316
264269490303467366403383
515317
269243507090106127090106
106106
413343478088105127088105
105105
399333465086104127086104
104104
NFDEBITDA Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
36
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Exhibit 40 Growth rate and EBITDA margin for wholesale and retail trade sectors
20 40 60 80 100 120 140 160
2016E2017F2018
Median=31
Median=33
0000
20
10
30
60
50
70
1=Automotive 2=Retail 3=Wholesale
40
3
12
2016E2017F2018
Median=45
700
600
500
400
300
200
100
000050 070 090 110 130 150 170 190
Median=11
Exhibit 41 NFDEquity and NFDEBITDA for wholesale and retail trade sectors
1=Automotive 2=Retail 3=Wholesale
21
3
37
Ratings will remain broadly stable
The following section presents a risk profile analysis
based on Cerved Rating Agencyrsquos outstanding and
monitored public and private ratings issued from
2013 to 2017 on Italian non-financial companies
and operating in the industries discussed in this
study (data as of 31 December)
Exhibit 42 and Table 9 show an overview of 1-year
effective default rates over the 2000-2017 horizon
related to the sample bankruptcy and other legal
proceedings and debt restructurings as default
events
The default rate trend shows a general
improvement from 2014 onwards both by
company size classes and by industry however
considering the entire sample the overall default
rate still remains higher when compared to its pre-
crisis level especially regarding smaller companies
operating in the construction sector
Exhibit 43 shows the effective default rates over
2013-2017 horizon based on Cerved Rating
Agencyrsquos definition which considers as default
events
middot bankruptcy and other legal proceedings
middot debt restructuring
middot missed or delayed disbursement of a contractually
required interest or principal payment ie missed
payment on bonds material protests (on cheques
or trade bills) or prejudicial acts (judicial mortgages
distraint of property)
The effective default rates over the 2013-2017
horizon show decreasing trend and satisfy the
monotonicity constraint regarding all Cerved
Rating Agencyrsquos rating classes (Exhibit 44)
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2003 2004 2005 2006 2007 2014 2015 2016 20172000 2001
5678
12
3
4
0
Exhibit 42 Avarage 1-year default rate by size over 2000-2017 horizon
medium small
2008 2009 2010 2011 2012 2013
Mining and quarring
Manifacturing
Electricity gas steam and air conditioning supplyWater supply sewerage
Construction
Wholesale and retail trade repair of motorTransporting and storage
Accomodation and food service activities
Information and communication
24221809
5212
282915
2529
38533424
13027
454830
4838
36542537
15929
424421
4323
23461921
13226
293226
3022
Source Cerved database and Cerved Rating Agency elaboration
Table 9 Default rate by industry over 2000-2017 horizon
Total
NACE Average2008-2015
Average2000-2017 2016 2017
2016
Source Cerved database and Cerved Rating Agency elaboration
C21C12C11B22B21B12B11A11 A12 A13 A21 A22 A31
60
50
40
30
20
10
0
Exhibit 43 1-year default rate over 2013-2017 horizon
20172013 2014 2015
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
38
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The analysis of historical rating distributions in the
same period shows clear differences in terms of modal
rating class by company size As shown in Exhibit 43
the modal rating class for the large companies is A31
B11 for the medium and B12 for small companies
(considering company size classes as they have been
defined ad hoc by Cerved Rating Agency for the
purposes of this study)
Overall the corporate rating distribution in the
Source Cerved database and Cerved Rating Agency elaboration
C21C12C11B22B21B12B11A11 A12 A13 A21 A22 A31
30
25
20
15
5
10
0
Exhibit 44 Rating distribution frequency by size classes
large
30
25
20
15
5
0
10
medium smallRating 2013 total Rating 2017 total Rating 2017 forecast
observed period is skewed towards the investment-
grade rating categories (ie Cerved Rating Agency
rating classes from A11 to B12) representing 700 of
the whole sample 250 is concentrated in the safety
(A rating classes) and 450 in the solvency (B11-B12)
classes
We anticipate the rating distribution to remain
broadly unchanged in 2018 with the rating migration
concentrated mainly in the B category
39
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100543
2414
4407
4407
2636
4554 4558
2403 2311
535 527
90
10
0
Exhibit 45 Rating distribution frequency by area of risk - Total companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency]I nvestment GradeA11-A31 [Safety]
2509 2604
704 4407706 4407716
324
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
985
5658
4407
3033 2992 2898
925 907
300 318
90
10
0
Exhibit 46 Rating distribution frequency by area of risk - Large companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
5783 5878
869 4407878 4407878
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
4407
4407
3626
4080
17591695
439 449
90
10
0
Exhibit 47 Rating distribution frequency by area of risk - Medium companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
3571 3776
7044407780 4407786
456
1805
774
4113 4232
603
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
2824
1900
4407
4673 4850 4761
2833 2754
600 633
90
10
0
Exhibit 48 Rating distribution frequency by area of risk - Small companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
1716 1852
657 4407657 4407661
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
40
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Slight improvement in general creditworthiness
In our opinion in 2018 the creditworthiness of the
observed Italian non-financial companies will remain
stable for almost 86 of entities Migration of ratings is
expected to be moderate resulting in approximately 14
of rating upgrades (9) and downgrades (5) at the end
of 2018 compared to the outstanding ratings at the end
of 2017 The vast majority of the rating changes (921)
will be limited to one-class migration as shown in the
1-year projected transition matrix (Table 10) We believe
that more than one third of the expected downgrades
will be concentrated in the energy gas mining and
construction sectors Over the last years the average
credit profile of companies active in these industries has
been relatively weak and due to the forecast market and
regulatory conditions we do not envisage opportunities
for a significant risk profile improvement in 2018
Despite the expected rating migrations for individual
entities in 2018 the current industry modal rating
classes are unlikely to change
On the other hand stable and positive outlooks will
prevail in the manufacturing industry wholesale and
retail trade and accommodation and food service This
is due to the increase in the number of companies
active in these sectors which will maintain andor
improve their business and financial performances
Indeed as shown in Table 11 in 2018 the rating outlook
remains differentiated by industry whilst in terms of
the expected general probability of default we foresee
a modest improvement (349) compared to the one
recorded in 2017 (366)
Table 10 1-year transition matrix
Source Cerved database and Cerved Rating Agency elaboration
2017
A11
A31
B11
C11
C12
B21
C21
B22
B12
A12
A13
A21A22
F 2018A11 A12 A13 A31 B11 C11 C12B21 C21B22B12A21 A22
000 530
066
054 451034 435
027 753055 901
1033121247 1624
260 1038088
000
000000037
028
295
290
1063
179
455050647
043425
026490020208
000208
000152
000000
00000010000
9821
9318
92679015
87708583
81497646
8665
9617
9710
8605
419024
41
The information and data supporting Cerved Rating Agency rating opinions related research and credit opinions originate from sources Cerved Rating Agency considers to be accurate however Cerved Rating Agency cannot independently verify the reliability and accuracy of the information and data in every instance This publication may not be reproduced retransmitted or distributed in any form without the prior written consent of Cerved Rating Agency Cerved Rating Agency assumes no liability for correctness completeness and topicality of the information contained in this publication The analyses underlying this study do not provide advice of any sort
26
n
6670
486
59
Exhibit 49 Ratings outlooks by size
Large
Medium Positive Stable Negative
Small
21
13
Large
Medium
Small
Source Cerved database and Cerved Rating Agency elaboratio
Table 11 Ratings and probability of default 2018 outlook by industry
Source Cerved database and Cerved Rating Agency elaboration
NACE Micro industryDowngrade
B-Mining and quarryingAutomotive
900814
848
812
880812
847
813 172
170
174
144
8264 36
08
104 433 436
392 373
22724815
362 360
876
876
914
848
849
804
887
882
916
901835870899 64
866760
43
68
5659
58
47
61
49
74
78 75
14
50
37
36
5393
32
50
41
45
3899
77
91
316
372
355
364
308
491
326
318 296
331
312
381
367
359
322
495
452
433
403429
389
364369
363
313
452
323
594
38
315358
603
307
345 350
67 5318
469289 274
470
147
116
138
851
821AutomotiveRetail
Wholesale
Total
Chemistryamppharmaceutics
ClothingEquipment
Food Beverage and Tabacco
Heavy Manifacturing
Other Manifacturing
Textile industry
Total
Tecnology Media ampTelecomunication
Paper Packaging ampForest products
C-Manifacturing
D-Electricity gas steam and air conditioningsupply
F-Construcion
H-Transportig and storageI-Accommodation and food service activitiesJ-Information and communication
G-Wholesale and reatail traderepair of motor vehicles and motor-cycles
E-Water supply sewerage waste
Average ForecastPD 2018
Expectedtrend
Average PD 2018
Ratings outlooks
Stabl pgrade
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Cerved Rating Agency SpAVia dellrsquoUnione Europea n 6A-6B20097- San Donato Milanese (MI)
Tel +39 02 77541 - Fax +39 02 76020458
ratingagencycervedcom
Rating Agency
7
This research aims to present two outputs
- projected economic and financial performances in 2018 of the Italian non-financial companies
- the expected risk level of such entities at the end of 2018
the sample extracted for the analysis consists of Italian joint stock and limited liability companies with turnover
exceeding euro5 million and includes on average roughly 50000 entities per year operating in 10 macro industries
(manufacturing further detailed in 10 micro-sectors) the related revenues in 2016 amounted to euro18 billion
representing 769 of total revenues of all Italian joint-stock and limited liability companies
the World European and Italian historical (2000-2016) and estimatedprojected (2017-2018) macroeconomic
data are combined with specific individual company data with the aim of obtaining accurate and reliable
forecasts
the Cerved database was the main source for the analysis of economic and financial performances of the
companies included in the sample Cerved Rating Agency database highlighted the risk level of such entities
based on the credit rating activities performed by the Agency
the research output affirms that gradual recovery of Italian non-financial companies is expected to continue in
2018 both in terms of revenue growth and improvement of the financial structure primarily for manufacturing
and accommodation and food services industry the trend is mainly fostered by positive global economic cycle
low interest rates and favorable regulatory framework supporting firm funding investments innovation and
employment
the general risk level in 2018 is assumed to remain approximately at the levels recorded at the end of 2017
a slight improvement in terms of rating upgrades is expected for 9 of the companies analyzed mainly
concentrated in the manufacturing wholesale and retail trade and the accommodation and food service
industry
Executive summary
CERVED RATING AGENCY SpA | Executive Summary
8
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
World economy Outlook 2018
9
Growth is predicted to gain strength
The predicted global economic growth rate is 39
in 2018 (against 36 in 2017) According to the
International Monetary Fund forecast in 2018 the
two biggest world economies US and China will
grow at 23 and 65 rate respectively
Consumer price inflation rate to rise
The global consumer price inflation rate is expected
to rise assisted by higher commodity prices Oil price
averaged $54barrel in 2017 and is predicted to remain
close to $60barrel in 2018 whilst oil consumption is
forecast to record an uptick of 14 in 2018 In addition
also metal prices are expected to increase modestly in
2018
Trade to increase
Global world trade is predicted to increase further
in 2018 fostered by a recovery in manufacturing
activity and an increase in investment especially
in advanced economies In addition a recovery for
the commodity exporters is expected
Global risks remain tilted to the downside
These include increased trade protectionism as well
as economic policy uncertainty possible adversity
in the financial system due to easy monetary
conditions and over the longer term weaker
potential growth In addition the upcoming political
events and the current political uncertainties may
negatively affect the general economic conditions
Commodity Fuel Price Index
Metals Price Index
Source IMF ECB OECD
20022000 20062004 2008 20122010 F201820162014
50
0
150
100
200
250
1
0
3
2
5
4
7
6
Exhibit 2
Volume of imports of goods and services (Y-o-Y change)
Volume of exports of goods and services (Y-o-Y change)
Current account balance ($ billion) Source IMF
20112010 20132012 2014 20162015 F20182017
2
0
8
4
10
12
14
100
0
300
200
400
500
Exhibit 3 Global trade and current account balance world
EPU Index World
VIX Source FRED
20112010 20132012 2014 20162015 F20182017
50
0
100
150
200
250
5
0
15
10
20
25
30
Exhibit 4
Euro Area
EMDEs
United StatesWorld
Other advanced economies
China
OthersSource IMF and Cerved Rating Agency elaboration
20112010 20132012 2014 20162015 F20182017
20
0
60
40
80
100
1
0
3
2
5
4
6
Exhibit 1 Contribution to global growth world
CERVED RATING AGENCY SpA | World economy Outlook 2018
10
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
European economy Outlook 2018
11
Euro area gdp grows unemployment falls
GDP growth in the euro area rose around 21 in
2017 and is predicted to continue at a broadly similar
pace in 2018 Furthermore the unemployment
rate will continue to follow a declining trend and is
forecast to fall to 87 in 2018 (from 92 in 2017)
Industrial production improvement
Investments will accelerate and the international
environment will contribute positively to an increase
of exports (in line with the global growth) which will be
one of the principal driver of an industrial production
improvement in 2018
Further credit activity expansion
Across the euro zone countries companies are
benefiting both from eased lending conditions
and increase in the number of alternative lenders
The total amount of loans to households and non-
financial corporations grew by approximately 14
in 2017 whilst in 2018 it is predicted to increase more
slowly especially in the non-financial corporate
sector
Inflation rate to be stable
Consumer price inflation accelerated at the
beginning of 2017 mainly due to a rise in energy
prices The harmonized index of consumer prices
(HICP) is estimated at 15 in 2017 In 2018
the impact of energy inflation is expected to
decline resulting in a lower inflation rate outlook
(approximately 14)
Germany
France
ItalyEuro Union
Spain
UK
OthersSource IMF ECB OECD
20112010 20132012 2014 20162015 F20182017
20
0
60
40
80
100
0
-1
2
1
3
4
Exhibit 5 Contribution to European growth European Union
EPU Index euro areaIndustrial production euro area (Y-O-Y change)
Source IMF ECB OECD
2011 2015 2017
-2
-2
-3
-1
-1
1
1
0
2
2
3
100
0
300
200
250
400
450
500
Exhibit 7 Industrial production and policy uncertainty index euro area
2010
350
150
50
20182013 2014 20162012
Euro Area
Source ECB
20112010 20132012 2014 20162015 2017
500
0
1500
2500
2000
3000
1000
10000
9900
9800
9700
9600
9500
9400
9300
9200
Germany Spain France Italy
20112010 20132012 2014 20162015 20182017
BCI euro area
CCI euro area
Source IMF ECB OECD
96
95
98
97
99
101
102
100
103
0
-1
2
1
4
3
5
Exhibit 6
CERVED RATING AGENCY SpA | European economy Outlook 2018
12
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Highlights on italian economy
13
Gdp growth is under way to consolidate in 2018
From 2000 to 2017 the Italian economy was more
vulnerable compared to other highly developed
countries in particular those of the euro area
The Italian real GDP at the end of 2017 was roughly
at the same level recorded in 2000 whilst the euro
area countries and specifically Germany and France
experienced a considerable growth in the same period
(188 205 and 198 respectively)
The Italian GDP has started to increase moderately only
since 2014 mainly due to an improvement in domestic
demand but its growth still remains below the growth
rates of the majority of euro zone countries The poor
performance of the labor and total productivity factor
accounts for most of the difference
An ageing population and a weak labor market
participation have also contributed negatively to
potential growth Structural reforms in particular the
Jobs Act and tax incentives on new labor contracts
contributed to the increase in employment making the
Italian labor market more flexible and efficient
In 2018 we expect the economic growth to be slightly
below the level reached in 2017 The trend will be
sustained by the world economy positive cycle
including higher levels of international trade volume
Italian companies will benefit from favorable credit
lending conditions due to an expanding credit activity
of the banking system and low interest rates
Whilst the Italian government adopted a set of dynamic
and diverse policies for 2018 we believe that some of
those previously introduced have already contributed
to the GDP growth in 2016 and 2017 thus reducing the
combined effect in 2018
Source World Bank
2000 2002 2004 2006 2008 2010 2012 2014 2016
1500
1000
500
0
2500
3500
3000
4000
2000
13000
9500
10000
11000
12000
12500
10500
11500
Exhibit 10 GDP in Europe ($ billion)
Germany Italy Euro areas (11countries)France
Total multifactor productivityEmployment growth
Source OECD
-2
-4
-6
-8
2
0
4
6
Exhibit 9 Italian GDP employment and total multifactor productivity (Y-o-Y change)
2000 2002 2014 20162004 2006
GDP growth
20122008 2010
CERVED RATING AGENCY SpA | Highlights on italian economy
14
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The number of active companies has increased buthellip
The number of active companies in Italy registered at
the Chamber of Commerce as of December 31st 2016
amounted to 5145995 305629 more than in 2000
(63)
The increase in registered active companies is the result
of the positive trend from 2000 to 2008 (98) partially
cancelled by the decrease from 2009 to 2016 In 2017 a
slight improvement is expected to be recorded however
the number of active companies remains below its peak
value (5316104 entities) reached at the end of 2008
Exhibit 11 shows both the trend of active Italian companies
in the period 2000-2016 and their breakdown by legal
form We observe that the increased number of Joint Stock
Companies and particularly Limited Liability companies
(1206) was able to compensate the decrease in Unlimited
Partnerships (-62) and Sole Proprietorships (-79)
Companies are abandoning traditional sectors
Exhibit 12 shows the breakdown of the Italian active
companies at the end of 2000 and 2016 by industry
It can be observed that in many traditional sectors
the number of active companies decreased eg in
agriculture (-294) and manufacturing (-226) whilst
the number of companies increased in construction
(273) and wholesale and retail trade (39)
A very significant rise in the new registered companies
(456) occurred in other industries in particular
in the service industry offering information and
communication IT and professional scientific and
technical services
Joint Stock and Limited Liability Unlimited Partnership Sole proprietorshipO ther forms
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 2012 2013 2014 2015 20160
6000000
5000000
4000000
3000000
2000000
1000000
Exhibit 11 Italian active companies 2000-2016
Total
Source Movimprese and Cerved Rating Agency elaboration
Exhibit 12
Breakdown of the Italian active companies by industry 2000-2016
2000
635286 13
1059005 22
639778 13
589707 12
183 856 4 226964 5 150772 3
1354998 28
965452 19
747738 14
495247 10
750863 15
150888 3
379899 7 247187 5
1408721 27
2016
C Manufacturing
F Construction
H Transporting and storage
I Accommodation and food service activities
L Real estate ativities
G Wholesale and retail traderepair of motor vehicles and motorcycles
X Other
15
Number of bankruptcy and other legal proceedings to decrease further
From 2000 to 2016 the number of bankruptcies and
other legal proceedings protests and prejudicial
acts in Italy mirrored the general trend of the
Italian economy
After reaching its minimum level in 2007 (5969)
the number of bankruptcy procedures in the
period 2009-2014 increased dramatically reaching
its peak value of 15608 in 2014
With the improvement in the economic and financial
environment starting from 2015 the number of
bankruptcy procedures decreased sharply in all
macro sectors returning approximately to the
levels recorded from 2000 to 2006 A positive
trend was recorded also in 2017 bankruptcy
procedure initiated for 11937 companies -113
when compared to the same period in 2016 In
absolute terms the highest number of bankruptcy
procedures was recorded in the service sectors
followed by the construction and manufacturing
Worth mentioning is the design of a new Italian
bankruptcy law that should be approved by
October 2018 The regulatory framework aims at
more efficient resolutions of cases of company
crisis supporting continuity of its operating
activities and safeguarding the interest of creditors
by introducing innovative solutions such as pre-
crisis warning mechanisms
Other legal proceedings after reaching its
maximum level in 2013 (3593) in 2016 came down
to 1993 and the trend continues in 2017 evidencing
1866 procedures -64 when compared to the
same period in 2016
In the last five years new protests and prejudicial
acts have also shown a decreasing trend with
ndash527 and ndash70 of acts respectively in 2017
compared to the numbers recorded in 2013
-6
Exhibit 13 Bankruptcy
BankruptcySource Cerved databaase
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
10729 108311163612287
10338
59697307
9189
1108812022
12437
14031
1560814682
13459
11937
Other legal procedingsSource Cerved database
1500
1000
500
02000
940 994 1125 1211
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
2500
3500
3000
4000
2000
1110
16691540
18702094 2057
2342 2475
3593
3132
2720
1993 1866
Exhibit 14 Other legal procedings
1211
100 45000
4000090
80
70
60
50
40
30
20
10
02015
35000
30000
25000
20000
15000
10000
5000
02013 2014
Protets
703
297
41438
Total
Source Cerved database
Prejudicial acts
2016 2017
665
335
34527
570
43032660
527
473
546
454
2523828929
Exhibit 15 Protests and prejudical acts
CERVED RATING AGENCY SpA | Highlights on italian economy
16
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Core inflation rate to rise
Italian headline inflation will experience a modest
decline in 2018 compared to the previous year
(12 and 14 respectively) Core inflation
however is predicted to increase to 12 in 2018
(up from 10 in 2017)
Exports and import are accelerating
Exports and imports will both accelerate in 2018 (41
and 44 respectively) mirroring the positive trend
and expectations in global trade and the rising of the
external demand Machinery and equipment industry
will still remain in ldquopole positionrdquo due to companies
generous investment and tax incentives In general
in 2018 Italian exports will increase more in the Extra
European Union countries
Investment continues to gain strength
Investment has gained strength and will continue to
do so at a relatively fast pace supported by effects of
the tax incentives (Stability Low 2017) low interest rate
and improvements in business confidence Indeed
investments are expected to increase 30 in 2018
(up from 24 in 2017) Construction investments are
forecast to accelerate slightly also thanks to more
resources earmarked for public investment
Harmonised core infation
Source OECD and IMF
2003 2006 20092000 2012 2015 F2018
2
1
-1
0
4
3
5
6
Exhibit 16
Imports of goods and services (Y-o-Y change)
Exports of goods and services (Y-o-Y changes)
Total dometic demand (Y-o-Y change)
Source OECD and IMF
20062000 2015 F2018-5
-15
-20
5
0
-10
10
15
Exhibit 17 Exports imports and demand Italy
20122003 2009
Wholesale and retail trade (Y-o-Y change)
Total investments ( of GDP)
Heavy industry (Y-o-Y change)
Other services (Y-o-Y change)
Source IMF and ISTAT
Construction (Y-o-Y change)
20062000
-20
-30
10
0
-10
20
30
20
25
15
10
0
5
F2018
Exhibit 18 Investments by industry Italy
2003 2009 2012 2015
17
No room for significant public debt reduction
At the end of 2016 the Italian government debt-to-GDP
ratio was significantly above its level at the beginning of
the century In particular as of December 31st 2016 the
ratio was 1326 (262 with respect to 100 recorded
at the end of 2000)
In the same period the ratio for the euro area increased
from 681 to 913 (341) in Germany from 589 to
683 (159) and in France from 586 to 960 (638)
At the end of 2017 the Italian government debt increased
further to more than euro2300 billion 1350 of GDP The
debt servicing in terms of interests accounts roughly
50 of Italian GDP
In our view the high level of government debt
represents a key factor limiting Italian economic growth
and contributes eo ipso to increasing country risk
with a possible negative impact on the stability of the
international financial system
A possible increase in interest rates would raise the
cost of debt service potentially triggering a crisis due to
larger governmental deficits a slowdown in economic
activity and growing debt refinancing difficulties due to
higher risk perceived by investors
Hence it seems that a significant reduction in
government debt should be the main goal of the Italian
economic and financial policy in our opinion however
the achievement of such a result is not realistic neither
in the short nor in the medium term due to the following
factors
middot economic growth in the coming years is expected
to be moderate not sufficient to be the main source of
the government debt reduction
middot macroeconomic policy is expected to prioritize
investments employment social security and welfare
rather than government debt reduction
middot even if the inflation rate hits the target value (20) the
impact on the government debt in the short term is not
expected to be considerable
middot finally in Italy election will take place in spring 2018
with a new government taking over the economic
program that has already been approved and become
fully executive
Euro area
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 2012 2013 2014 2015 20160
20
40
60
80
100
120
140
Exhibit 19 Public debt as GDP
France
Source AMECO and Cerved Rating Agency elaboration
CERVED RATING AGENCY SpA | Highlights on italian economy
18
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Table 1
Amount ( 407 312
-327
327754
216074 190881
163248 345604188167
869
1543
2213
1793
CAGR (base year 2000)
CAGR (base year 2008)
NPL ratio ()
Ndeg debtors
Averae debt debtor
Valueindicator 2000 2008 2016
Source Bank of Italy and Cerved rating Agency elaboration
Credit activity to be expanded interest rates to remain at very low levels
As of December 31st 2016 the volume of bank loans
granted to Italian non-financial corporations amounted to
euro8604 billion
The period 2000-2016 was characterized by two different
trends from 2000 to 2011 the annual outstanding loans
value increased by 841 (euro454 billion reaching in 2011 its
highest level ever of euro993 billion thanks to 57 CAGR far
above the Italian GDP growth) whilst in the period from
2012 to 2016 loans decreased by 134 (euro130 billion)
reflecting a negative -28 CAGR The loan reduction hit
sharply construction and manufacturing (accounting
for about 400 of all loans) which experienced -227
and -135 decrease in loan volumes whilst agriculture
forestry and fishing and wholesale and retail trade
(including repairs of motor vehicles and motorcycles)
had more limited loan contraction (-08 and -53
respectively)
In the observed period due to the negative impact of the
global financial crisis 200708 and to structural changes in
the world economic and financial environment a radical
decrease in interest rates was recorded In 2017 the
interest rates charged to Italian non-financial corporates
were on average less than half compared to those charged
in 2000 In the medium term low interest rates will remain
a positive factor fostering investments and consumption
Non-performing loans to be further reduced due to innovative measures
The credit crunch had a huge and dramatic impact on
the Italian economy hitting especially small businesses
which are not able to survive in a radically changed market
conditions The evidence of such outcome can be seen not
only through the decreased number of active companies
but also via the enormously increased volume of the
non-performing loans (NPLs) In particular these loans
amounted to euro324 billion at the end of 2016 of which euro154
billion were granted to the non-financial corporations as
shown in table 1
Following the principles outlined in the ECB guidelines
published in March in 2017 Italian Banks made significant
progress in reducing the amount of the NPLs ndash estimated
to be over euro50 billion debt reduction Any further actions
aimed to improve the banking balance sheets should not
increase the financial hardship of still operating companies
North - East SouthNorth - West Center Islands
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 2012 2013 2014 2015 20160
1200000
1000000
800000
600000
400000
200000
NPLs ratio
Source Bank of Italy and Cerved Rating Agency elaboration
20
1816
14
1210
8
6
42
0
446393
euro billion)
19
Modest role of italian equity capital markets
Despite the number of listed companies increasing
from 297 to 421 in the period 2000-2017 the role
of the stock markets remains modest in Italy
As of December 31st 2017 the market capitalization
was euro640 billion (375 of the estimated Italian GDP
in 2017) representing only 782 of the overall
market capitalization recorded in 2000 (equal
to euro818 billion 687 of GDP) mainly due to
an unfavorable economic cycle in the observed
period
This situation shows the structural weaknesses of
the Italian economic and financial system especially
when compared to other highly developed
European economies The low propensity to
raise equity capital through organized markets
is linked to an unfavorable macroeconomic and
fiscal framework as well as to the predominance
of SMEs mostly unfit for listing and presenting
cultural obstacles (ie company owners and managers are often reluctant to accept wider company control and
transparency)
Hence self-financing and bank borrowing remain the main sources of finance for Italian companies which are
generally speaking undercapitalized with a negative impact on their investment capabilities Very frequently the
lack of medium-long term financing means forces companies to focus their attention on running current activities
postponing or abandoning strategic projects fundamental for company growth
A wide range of innovative initiatives have been undertaken with the aim of fostering market based company
funding in particular
middot AIM (Alternative Investment Market) - a specialized market segment dedicated to SMEs growth (95 companies and
market capitalization around euro56 billion as of December 2017)
middot ELITE - a programme designed to help SMEs prepare and structure for the next stage of growth their through
access to long-term financing opportunities
middot PIR - Piani individuali di risparmio (Individual Savings Plan) - an innovative way to fund Italian SMEs by offering retail
investors resident in Italy tax incentives (full exemption of 260 income tax) if the savings stay invested for at least
five years A minimum of 700 of such credit assets must be invested in financial instruments issued by Italian or
foreign (EU and EEA) companies permanently established in Italy
FTSE (MIB)Enterprises
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 20132012 20152014 201720160
100
200
300
400
500
600
700
800
900
100029681 29525
14623
1765216121
12259
13512
16048
15988
19012
21428
21853
2185322232
16954
297 294 295 279 282278 311 336 332 332 328 323 326344 342 356 387 421
19483
22886
26056
31005
Exhibit 21 Italian listed enterprised and FTSE (MIB) index trend
Source Borsa Italiana
300000
250000
200000
150000
100000
5000
0
Capitalization of GDP
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 20132012 20152014 201720160
100
200
300
400
500
600
700
800
900
1000
Exhibit 22 Italian market capitalization of listed companies ( of GDP)
Source Borsa Italiana
80
70
60
50
40
30
20
10
0
8184
5923
354 365418 473
524475
239301 275
210233
287 295348
318375
4580 4875
5809
6766
77857336
37474571
4251
3324
44664678
56765249
6400
3655
474
68
CERVED RATING AGENCY SpA | Highlights on italian economy
20
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Italian debt capital market is growing but still remains behind needs
At the end of 2016 the outstanding amount of debt
securities issued by Italian financial and non-financial
corporations was euro8615 billion 510 of the countryrsquos
GDP The table below shows the breakdown by issuer
type of Italian German French British and United States
outstanding amounts of debt securities as of December
2016 issued by financial and non-financial corporations
with the respective debt-to-GDP ratio
Despite the outstanding debt at the end of 2016 being
almost double compared to 2000 it represents only 23
of its peak value reached in 2012 (euro1290 billion Exhibit
23) The main reason for such a significant debt reduction
is the huge bond reimbursement realized by banking
institutions from 2013 to 2016 and the related negative
net flow of debt securities (respectively -80 -153 -106
and -67 billion of euro as shown in Exhibit 24)
The decrease in debt securities funding of Italian banks
has been compensated by a wider use of deposits and
resources available under the Eurosystem refinancing
operations framework
The outstanding amount of debt securities issued by
non-financial corporations at the end of 2016 also
doubled its value with respect to the amount recorded
at the end of 2000 The main characteristic of this cluster
is the high concentration of issuancesdebt to a small
number of issuers
Due to both more favourable general economic
conditions and active ECB monetary policy bond yields
have decreased significantly providing room for a
convenient fund raising
Since the introduction of a new regulatory framework
(lsquoDecreto Svilupporsquo) in 2012 up to October 2017 Italian
market saw 300 small-size listed bond issues (ie so
called minibonds) amounting approximately to euro143
billion Issued mainly by SMEs they offer interesting
yields to institutional investors
) Source Business support SpA ndash Minibonditalyit
BanksTotal
Source Bank of Italy and Cerved Rating Agency elaboration
2006 20082000
-200000
200000
250000
-150000
-100000
150000
100000
-50000
50000
02012 2014 20162002 2004 2010
Banks debt securities outstanding
Banks Debt to GDP ratio
Source Bank of Italy and Cerved Rating Agency elaboration
0
10
20
30
40
50
60
70 1400000
1200000
1000000
800000
600000
400000
200000
0201620142012201020082006200420022000
Table 2 Outstanding securities debt (euro Million)Debt-to-GDP ratio()
Financial corporates
Total
Debtsecurities
outstanding
Italy German rance United Kingdom United States
739
123
862
440 340 470
21
680380
40
1279 1331 4 50
880
30
14271
14820
549180
10202767
590
19211436
15770
510
Debtsecurities
outstanding
Debtsecurities
outstanding
Debtsecurities
outstanding
Debtsecurities
outstanding
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Source Bank of Italy
0
0
21
CERVED RATING AGENCY SpA | Highlights on italian economy
22
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Italian non-financial companies economic Outlook 2018
23
Data and method
This research focuses on Italian non-financial companies
with an annual turnover exceeding euro5 million With the
aim of using only reliable data joint stock and limited
liability companies have been considered only these
entities according to Italian law file complete annual
financial statements in the Chamber of Commerce
together with anagraphical company data other
legal forms such as unlimited partnerships and sole
proprietorships are not included in this sample due to
the lack of publicly available standardized financial data
We believe that this cutoff is reasonable and allows us to
perform a methodologically correct analysis In 2016 the
above mentioned companies despite representing only
42 of all registered and active joint stock and limited
liability companies accounted for 769 of their total
turnover
Moreover cluster specialization has been obtained by
NACE activity classification from A to J (thus not including
in the sample financial and insurance companies and
some service industries) The statistics regarding specific
industries provide important key data and enable us to
examine historical and prospective trends and cross-
sector comparisons
The Cerved database which contains legal anagraphical
financial and market information on all Italian registered
legal entities (approximately 6 million comprising 5
million active ones) was the most important database
used for this research Long time series and broad
homogenized and standardized data covering different
economic cycles were the building blocks to perform
the regression and predictive analysis
Historical and forecast macroeconomic data and
analysis performed by the International Monetary Fund
OECD the World Bank European Central Bank Bank
of Italy and ISTAT completed the dataset used for the
analysis
Several analyses were performed in order to examine
the structural differences within the sample in terms of
company legal form and geographical area (Exhibit 25)
company age (Exhibit 26) and company size and industry
As a result we verified a considerable heterogeneity of
companies in particular with regard to the company size
across various industries
The relevant observation period comprises the years
between 2000 and 2016 Table 3 describes some
characteristics of the sample
Exhibit 25 Sample break-down by legal form and geographic area (2016)
Joint stock Company
Limited liability Company
Area 1 (Northwest)
Area 3 (Center)
Area 2 (Northeast)
Area 4 (South)
39
20
27
14
33
67
33
Table 3 Sample characteristics 2000-2016
TotalTurnover
gt euro5million
Turnover gt euro5 million(industry
from A to J)
TotalTurnover
gt euro5million
ofTotal
Turnover gt
euro5 million(industry
from A to J)
Source Cerved database
Entreprises Turnover billion
2000 659867700717738558772442812025847334883122915172937018949708965744969581
953505945825922513883224
4215144587462234694749640518205596459226595385246754808563745362752074519385289450123
3686139038411864118843547454704921752274526974633848778504734806246843468384771845288
16151740177018472002212923302477256822562421257025202446243224392295
12661362139214561588169818752000208317861944208720541992198419871905
11141205124013041430152316891801189716191764191218831839183518371765
689693700
716
706714
725
718729744748752754753769
727739
200120022003200420052006
200820092010201120122013201420152016
2007
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
24
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Furthermore in order to guarantee more detailed and
accurate analyses and projections we decided to create
a static pool to show consistently long time horizon
economic trends (17 years) by sealing off all the active
companies over the 2000-2016 horizon
The outcome obtained by considering the behaviour of
specific variables related to the companies included in
the static pool was extended as a performance indicator
for the whole sample (turnover over euro5 million and
industry from A to J)
According to the European Communityrsquos definition of
SMEs using annual turnover and employee headcount
as quantitative criteria the initial sample of companies
and the static pool can be classified by size classes on
the basis of the financial statements for the year 2016
as shown in Table 4
For the sake of this analysis we defined specific size
classes for each industry thus deviating from the
European Commissionrsquos recommendation which
presents undifferentiated upper and lower bounds of
quantitative criteria for SMEs in all industries To define
the thresholds of such classes we used both a statistical
approach (a specific cluster procedure by minimizing
the within-cluster turnover standard deviation) and a
judgmental approach by relying on the experience and
opinion of our industry expert analysts Table 5 shows
the results of such analysis referring to the sample in
2016 (45288 entities) and the NACE sections from A
to J Moreover the NACE section C and G were further
disaggregated into sub-industry classes as shown in
Exhibit 27 in order to consider the specific business
differences within these NACE sections thus ensuring
a good fit and a satisfactory accuracy of the estimation
Exhibit 26 Sample break-down by company age classes
0-2 Years 2-5 Years 5-10 Years 10-20 Years gt20 YearsSource Cerved database and Cerved Rating Agency elaboration
0 20 40 60 80 100
ABCDEFGHIJ
A = AgricolutreB=Mining and quarryingC=ManufacturingD=Electricity and gasE=Water supplyF=ConstructionG=Wholesale and retail tradeH=Transporting and storageI=Accomodation and food serviceJ=ICT
Small
Annul Turnover
Empolyees
Static Pool
Enterprises(Turnover gt euro5 million)
Enterprises(Turnover gt euro5 millionindustry from A t J)
Medium Large
lt 50 lt 250lt 36774 11113
1005333223
8741
2236
2012
154818645
gt euro50 million
gt 250
lt euro50 million
Source Cerved database
NACE Micro industry
B-Mining and quarryingAutomotive
Automotive
Retail
Wholesale
T gt 480
T gt 80
T gt 260
T gt 265T gt 270
T gt 230
T gt 120
T gt 80
T gt 43
T gt 65
T gt 106T gt 106
T gt 360T gt 155T gt 150T gt 100
T gt 120
T gt 225T gt 1400T gt 27500
T gt 1500
ChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther Manifacturing
ICTTextile
Paper Packaging ampForest products
C-Manifacturing
F-Construcion
H-Transportig and storageI-Accommodation and food service activities
J-Information and communication
D-Electricity gas steam and aircoditioning supply
G-Wholesale and reatail traderepair of motor vehicles and motorcycles
E-Water supply sewerage waste management and emediation activities
Large (Turnover
in euro million)
Medium(Turnover
in euro million)
Small(Turnover
in euro million)
Source Cerved database and Cerved Rating Agency elaboration
60 lt T lt 480 5 lt T lt 60
5 lt T lt 20
5 lt T lt 36
5 lt T lt 35
5 lt T lt 44
5 lt T lt 40
5 lt T lt 20
5 lt T lt 26
5 lt T lt 250
5 lt T lt 185 lt T lt 305 lt T lt 265 lt T lt 205 lt T lt 37
5 lt T lt 335 lt T lt 40
5 lt T lt 255 lt T lt 585 lt T lt 1155 lt T lt 1005 lt T lt 27
20 lt T lt 80
36 lt T lt 26035 lt T lt 26544 lt T lt 270
40 lt T lt 230
20 lt T lt 120
26 lt T lt 80
18 lt T lt 43
250 lt T lt 1500
20 lt T lt 6537 lt T lt 29540 lt T lt 15533 lt T lt 15025 lt T lt 100
27 lt T lt 120
58 lt T lt 225
100 lt T lt 27500 115 lt T lt
30 lt T lt 10626 lt T lt 106
25
Exhibit 28 shows the breakdown of macro industries
analysed including disaggregation of the NACE section C
(manufacturing) and G (wholesale and retail trade repair
of motor vehicles and motorcycles)
In order to carry out the analysis and projections this study
is focused on we used simple multiple linear regression
model for each industry and company size classes
considering macroeconomic and individual companiesrsquo
economic and financial data
The analysis enables us to develop an econometric
model used to estimate likely credit quality changes (in
terms of rating class and probability of default) for single
industries and company size classes
Automotive
Retail
Wholesale
21
1366
1
42
1
26
35
232
6
A B C D
F G H I
46
7
21
1318
9
15
34
Automotive
Chemistry amp pharmaceutics
Clothing
Equipment
Food Beverage and Tabacco
Heavy Manifacturing
Other Manifacture
Paper Packaging amp Forest Products
ICT
Textile industry
Large SmallMedium
Source Cerved database and Cerved Rating Agency elaboration
0
Wholesale
Retail
Automotive
20 40 60 80 100
Automotive
Chemistry amp pharmaeutics
Clothing
Equipment
Food beverage and Tabacco
Heavy Manifacturing
Other Manifacturing
Paper Packaging amp Forest Products
ICT
Textile
0 20 40 60 80 100
ABCDEFGHIJ
0 10 30 40 60 70 80 90 100
Exhibit 28 Sample break-down by industry (2016)
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
26
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Performance indicators to improve further
The annual financial statements available through public
registers provide a clear economic and financial picture
of the Italian joint-stock and limited liability non-financial
companies The individual historical data available from
2000 to 2016 enriched with 2017 preliminary results and
with the expected 2018 macroeconomic scenario enabled
us to build up the 2017 and 2018 projections regarding
the following four performance indicators related to the
analyzed sample 1) growth rate - revenues YoY change
2) EBITDA margin 3) net financial debtEBITDA and 4) net
financial debtEquity Afterwards the median values of the
resulting data were used to obtain the summary output
which we consider as a representative proxy for the overall
market
From 2000 to 2016 the observed companies experienced
a very irregular trend both in terms of growth rate and
EBITDA margin In the aftermath of the global financial crisis
the lowest growth rate value (-120) was recorded in 2009
manufacturing transporting - storage and wholesale and
retail trade were the industries showing the biggest fall of
business volume (-155 -121 and -104 respectively)
whilst water supply accommodation and food service and
electricity and gas showed the highest level of resilience to
the adverse economic and financial environment (-01
-23 and ndash26 respectively) Exhibit 29 shows that in
terms of median value there are no significant differences
in the growth rate taking into consideration company size
classes as we previously defined them Only from 2010 the
growth rates turned positive but still remaining below the
levels recorded in 2000
The analysis of the EBITDA margin changes in the same
period also does not highlight significant differences
between large companies and SMEs as shown in Exhibit
30 The lowest median EBITDA margin value (52) was
recorded in 2012 regarding in particular accommodation
and food service transporting and storage and agriculture
sectors (28 40 52 respectively) while electricity
and gas ICT and water supply were relatively immune to
the unfavorable economic and financial circumstances
(showing 113 109 and 105 EBITDA margin
respectively) At the end of 2016 the median EBITDA margin
(60) still remains below the levels recorded in 2000 (72)
Positive trends emerging from the last publicly available
financial statements (2016) the 2017 preliminary results
and the optimistic macroeconomic forecasts for 2018
confirm improvement of the Italian economy Looking
ahead we expect the Italian non-financial companies to
continue to experience gradual recovery in 2018 They are
going to take advantage of the favorable global economic
cycle low interest rates and supportive regulations that
inter alia foster the use of alternative non-bank financial
sources for company funding The financial resources raised
through Individual Savings Plans (PIR ndash Piani individuali di
risparmio) introduced by the 2017 Budget Law are driven
in primis by a favorable tax regime for savers and might
become an important additional source for SMEs funding
injecting new liquidity The government objective fixed euro68
billion as a target value and in 2017 nearly euro10 billion had
already been raised
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2004 2006 2014 20162000
5
20
10
0
15
-15
-10
-5
Exhibit 29 Growth rate (revenue YoY change) by size classes (median)
medium small
2008 2010 2012
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2004 2006 2008 2010 2012 2014 20162000
7
10
9
8
6
5
4
3
7
10
9
8
6
5
4
EBITDA margin by size classes (median)
medium small
27
So far one of the main obstacles PIR are facing is the limited
number of available assets which may lead to a possible
concentration of this financial resources in a small share of
the market comprising mainly relatively large companies
as shown by the early data in 2017
Another obstacle to rapid adoption of the newly available
financial resources is the lack of a standardized and broadly
accepted methodology for the risk assessment of potential
bond issuers
Generally speaking in 2018 we expect SMEs to contribute
more significantly to growth employment and innovation
whilst on average the respective EBITDA margin will remain
broadly stable (as shown in Exhibit 31) However 2018 will
still be a challenging year for SMEs and innovative startup
companies as they will have to face tougher barriers in
accessing bank credit andor approaching capital markets
compared to large companies We also expect some new
innovative solutions aimed at meeting SMEs financial needs
to become effective the SMEs current financial structure
together with new business opportunities prove their
ability in terms of rational use of the additional financial
resources
The new investments will allow most industries to thrive
also assisted by the Italian Governmentrsquos adoption of the
National Industry 40 Plan
The companies which will take up this opportunity may
improve their cash-flows even in the short-medium term
Finally companies with strong international market
positioning and large product diversification will have
stronger sales and margins growth
The key ratio values recorded from 2000 to 2016 related to
the analyzed entities show the improved financial health of
the companies proving good capability to strengthen their
equity base as shown in Table 6
Growth rate (2016)Medium
Total
Small Large
Growth rate (2018)Growth rate (2017)
Source Cerved database and Cerved Rating Agency elaboration
50
40
Exhibit 31 Growth rate and EBITDA margin forecast by size classes
EBITDA margin (2016)EBITDA margin (2018)
EBITDA margin (2017)
40
30
0
10
20
Medium
Total
Small Large
7570
65
0
6 5560
5550
4540
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
28
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The recorded financial ratios in the 2000-2016 horizon
indicate that on average
middot liquidity maintained a satisfactory level in the whole
observed period due to the positive economic cycle in
2017 and 2018 we expect a slight improvement in the ratio
middot the EBITDAinterest coverage ratio almost doubled its
value in 2016 compared to what was recorded in 2000
primarily due to a general reduction in the interest rates
particularly in the last three years we believe that in 2017
and 2018 the average ratio value will remain roughly at the
same level recorded in 2016
middot in 2016 ROE shows further improvement but is still
slightly lower compared to the value recorded at the
beginning of the observed period mainly due to the equity
base strengthening trend
middot Equity Ratio rose from 250 to 350 due to a significant
increase of equity capital in 2018 we expect further
strengthening of the ratio
middot Financial LiabilitiesTotal Assets ratio remained mostly
unchanged ndash financial debts representing roughly 30 of
the total assets
A positive trend regarding the net financial debt was also
observed in fact in 2016 70 of the sample improved their
NFDEBITDA and 73 the NFDEquity
Positive performances were found especially in the SMEs
segment as shown in Exhibit 32 in particular referring to
NFDEquity small and medium-sized companies recorded
a positive trend standing respectively at 092 and 089 in
2016 compared to 132 and 136 in 2000
Hence the financial risk profile appears to be well balanced
leaving no room for specific concerns regarding the
prospects of the Italian non-financial companies in 2018
In 2016 the median values for the total sample referring to
NFDEquity and NFDEBITDA remained respectively at 089
and 389 levels respectively
Looking ahead we expect these indicators to remain at
healthy levels in 2017 and 2018 with a slight improvement
in NFDEBITDA and a broadly stable level of the NFDEquity
ratio as shown in Exhibit 33
NFDEBITFA (2016) NFDEBITFA (2017)NFDEBITFA (2018)
40
Exhibit 33 NFDEquity and NFDEBITDA forecast by size classes
Source Cerved database and Cerved Rating Agency elaboration
404
20
25
45
35
30
NFDequity (2016) NFDequity (2017)NFDequity (2018)
05
06
09
10
08
07
Exhibit 32 NFDEquity and NFDEBITDA by size classes (median)
largemediumsmall
2016
2015
2014
000 5 10 15
Average2008-2013
Average2000-2007
total largemediumsmall total
Source Cerved database and Cerved Rating Agency elaboration
2016
2015
2014
203 0 405 0
Average2008-2013
Average2000-2007
29
Growth and profitability improvement spanned over all sectors
Exhibit 34 shows the relative positioning of the 10
macro-industries in the short-medium term considering
the median values related to revenue growth rate and
EBITDA margin
The historical median values are calculated on the basis
of financial data obtained from the annual financial
reports 2014-2016 filed in the Chamber of Commerce
public registers the projected median values for 2017
and 2018 are the result of the analysis of this study
As expected there are significant differences in
positioning between different industries in terms of
both historical and projected values
In 2018 we expect manufacturing and accommodation and
food services to maintain top positions already reached in
2016 and 2017
For the electricity gas mining and quarrying industry
2018 may be the turning point showing the first positive
signals after experiencing some difficulties over the last
few years
None of the other industries show significant changes in
2018 compared to their 2016 positioning
Source Cerved database and Cerved Rating Agency elaboration
A 50
57599586886358
3849
3620083721
-110320
-1112
210322
-1814021122
1413
030124
-5010284025
0555
20-4614
-4607212105
0430
210328-2310203218
0832
2310300512233720
1637
BCDEFGHIJ
A 625296
1441401016934
15352
504969
103121916227
10639
4764676185562639
68112
4873687090592845
75120
456772928856
45
7898
4667759090573147
7698
4668769394583147
77102
EBITDAmarigin
BCDEFGHIJ
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018Growthrate
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
Exhibit 34 Growth rate and EBITDA margin by industry
-70 -50 -30 -10 10 30
2016E2017F2018
50 70 90
Median=68
Median=2100
20
40
60
80
100
120
A=Agricolture B=Mining and quarrying C=Manifacturing D=Electricity and gas E=Water supply F=Construction G=Wholesale and retail trade H=Transporting and storage I=Accomodation and food service J=ICT
D
B
E
FHA G
C
I
J
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
30
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Further strenthening in companiesrsquo financial structure
Exhibit 35 shows the relative positioning of the 10 macro
industries in the short-medium term considering the
median values related to NFDEBITDA and NFDEquity
ratios
The historical median values are calculated on the basis
of financial data obtained from the annual financial
reports 2014-2016 filed in the Chamber of Commerce
public registers the projected median values for 2017
and 2018 are the result of the analysis of this study
There are even more significant differences in
positioning between industries regarding NFDEBITDA
and NFDEquity ratios when compared to growth rate
and EBITDA margin differences
Generally in the observed period there is no evidence of
significant changes among industries considering their
relative positioning related to NFDEBITDA and NFD
Equity ratios
In 2018 we expect accommodation and food services
and information and communication services to
maintain top positions already reached in 2016 and
presumably confirmed in 2017
Exhibit 35 NFDEquity and NFDEBITDA by industry
2016E2017F2018
Median=37
Median=08500
030 5 070 9 111 3
20
30
40
50
60
70
10
A=Agricolture B=Mining and quarrying C=Manifacturing D=Electricity and gas E=Water supply F=Construction G=Wholesale and retail trade H=Transporting and storage I=Accomodation and food service J=ICT
EH
C
BF
G
A
D
J
I
A 150101113081112149151120
079131
123075088101097125123103
072079
114067083052090108119102
067076
113060080045089096114092
074069
125076080045089106109086
050060
127072080044091
108084
051056
128067079043093106107081
051051
BCDEFGHIJ
NFDEquity
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
A 597219280305251301338250
153260
676394388342298453499349
254337
707482387293277498532337
277334
696392373254305484494308
231315
747401358330285544483294
183312
722390340341280511470290
178293
710380310329272492452281
177289
NFDEBITDA
BCDEFGHIJ
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
Source Cerved database and Cerved Rating Agency elaboration
106
31
Exhibit 36 Equity ratio by industry
Average 2000-2007 2014 2015Average 2008-2013 2016
Source Cerved database and Cerved Rating Agency elaboration
05
10
20
30
15
25
3540
5045
AB C DE FG HI J
Exhibit 37 EBITDA interest coverage by industry
Average 2000-2007 2014 2015Average 2008-2013 2016
Source Cerved database and Cerved Rating Agency elaboration
0
5
10
20
15
AB C DE FG HI J
A 1113140911151211
1408
1013131012131209
1208
1114151012131311
1309
1214151012151312
1309
1215161113161412
1409
BCDEFGHIJ
Liquidity ratio Median2000-07
Median2008-13 2014 2015 2016
A 0377677447858463
8960
0332
8145524536
4832
0342486042273848
3246
0537606853395765
4069
0743676559416378
5882
BCDEFGHIJ
ROE Median2000-07
Median2008-13 2014 2015 2016
Table 7 Liquidity ratio by industry Table 8 ROE by industry
Source Cerved database and Cerved Rating Agency elaboration
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
32
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Agriculture
Considering the recent price decline for agricultural
products putting EBITDA margin under pressure for
most of the industry participants we anticipate a slow
revenue growth in 2018 We also foresee more stable
margins in 2018 and investments to continue at a faster
pace in the near future mainly aimed at transforming the
agricultural activities into a high-tech industry Climate
and cultural changes are the main exogenous risks that
may negatively influence the sector
Mining and quarrying
Over the last few years the mining industry has been
challenged by record low metal prices and this has
resulted in a weak growth of supply and a cut in
investments especially in the new mines opening We
foresee a modest revenue growth in 2018 supported
by more stable prices rather than by government
infrastructural investments Margin pressure will remain
mostly unchanged in 2018 We do not expect a significant
increase in capital expenditure for most companies
while only a minority of industry participants will invest
in new capacities searching for new growth opportunities
by introducing new higher margin outputs Overall we
anticipate relatively stable key financial indicators
Manufacturing
We believe that in 2018 Italian manufacturing
representing 2nd European and 7th world player in 2016
will remain the beating heart of the national economy
In our view the expansion of internal demand the
improvement of business and customer confidence and
the wider export opportunities are the key drivers for
revenue growth (up to nearly 30) Despite the natural
selection the occurred during the economic recession
domestic competition and especially the competition
from lower income countries will remain challenging in
2018 creating further profitability pressure especially in
some highly fragmented segments
As a conditio sine qua non for market survival many
companies will be involved in a ldquowinning the innovation
gamerdquo process translated into a considerable capex
expenditure directed at process optimization which
inevitably must be accompanied by innovative marketing
and commercial strategies The companies especially
smaller ones which are not ready lsquoto play the gamersquo
remaining risk averse are likely to fall behind
Key financial indicators referring to the industry in terms
of net financial debt to equity and net financial debt to
EBITDA are likely to remain overall stable in 2018
In our view the best performing manufacturing industries
in 2018 will be the following
Automotive
extensive vehicles replacement process in 2018
high competition pressure China maintaining a key role
high level of innovation in mobility and connectivity
new strategic partnerships and MampAconservative stand towards EBITDA margin improvement
Chemistry amp Pharmaceutics
solid macroeconomic fundamentals will support
the revenue growth driven mainly by large companies
on average a stable EBITDA margin of about 10
is expected global presence is a must to achieve higher
level of profitability
RampD remain key factors for further market expansion
moderate level of MampA operations in 2018 slowing
down when compared to those carried out in the
previous year
Machinery amp Equipment
revenue growth in 2018 up to nearly 25 reflecting
the fact that all manufactures remain focused on RampD
and NPI (new product introduction)
cost management strategies are going to persist
but generally speaking with no significant impact on
EBITDA margin in 2018
heavy equipment manufactures still under pressure in
2018 to provide engineering capability and capacity
33
Energy and gas
Italian companies operating in the energy industry are
facing a complex market environment with many open
questions about risks related to regulations a drop
in consumption high competition levels and EBITDA
erosion
Generally we expect a more stable landscape in 2018 in
terms of commodity prices and consumption However
risk regarding prices and volumes will remain strong
resulting in a higher volatility of revenues In our view
the current margin pressure is unlikely to ease over the
next two years The final overcoming of the sondashcalled
ldquoMaggior Tutela Regimerdquo may lead to almost zero margin
for the retail operators We expect industry participants
to continue to focus their attention on cost efficiency and
on protecting profitability by embracing new business
models and examining the role that digital technology
can play in improvement of EBITDA margins We believe
that the above described strategies will be a central
topic for the operators intending to attract capital We
also believe that energy producers could see a slight
debt increase in 2018 aimed at improving productivity
and synergies Finally in 2018 we envisage a significant
number of MampA operations in the sector led by synergy
effects such operations might produce
Water supply waste management and sewerage
In recent years the water supply waste management
and Italian sewerage industry has recorded a slower
growth compared to the pre-crisis period However
due to the last two yearsrsquo important investments in the
water infrastructure waste sorting and recycling Italy
ranks as one of the top European countries in terms
of growth rate of recycling and packaging recovery
We believe that the expected general increase in
industrial output will produce a slight growth in water
consumption and waste treatment The demand for
sustainable solutions will continue to persist requiring
new investment in technologies based on a customer-
centric and sustainable approach aimed at improving
efficiencies and facilitating reuse Expectations also
reflect our view in terms of wider government interest
and spending in this industry We expect profitability
to remain broadly in line with the results obtained in
2016
Construction
After a weak increase in revenues recorded by the
construction industry operators in 2016 and the
modest result anticipated in 2017 both reflecting
a deteriorating demand and decreased volumes of
bank loans (mainly those for small and medium-
sized companies) we expect 2018 to be the turning
point for this industry We foresee that the volume of
residential and private non-residential constructions
will remain at relatively low levels in 2018 and that
the positive trend in housing renovation and public
works investments will continue taking advantage of
the allocated funds established by the Budget Law for
2017 Small and medium-sized businesses focused on
residential construction may face a slight profitability
erosion while we believe some growth in EBITDA
margin may be recorded by large Italian companies
operating internationally Due to the high perceived
risk historically there has been a strong financial
market mistrust of the construction companies which
we believe is likely to ease over the coming years
Wholesale and retail trade
During the crisis period wholesale and retail trade
industry faced a sudden interruption of the gradual
growth that had taken place up to that moment mainly
due to a loss in real purchase power and in consumer
confidence also translated into profitability erosion
In 2016 the data showed how the industry is moving
toward a recovery period Looking forward in 2018 we
expect to record a steady revenue growth supported
by an increase in global trade and improved consumer
confidence Despite the foreseen growth operators
will continue to face consistent pressure mainly in the
retail segment due to the high proliferation of new retail
purchase channels and market fragmentation
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
34
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Transportation and Storage
After a troubled 2016 characterized by an overcapacity
and a decrease in commodity demand hitting shipping
revenues in particular we foresee a moderate overall
recovery in 2018 driven mainly by an increase in
international shipments and air traffic The growing
number of innovative startups will continue to persist
increasing the competitive pressure in the industry We
anticipate a constant growth of e-commerce enabling a
quick reaction of on-line retailer and logistics providers
We believe that operators will continue to invest in
new high-tech solutions experimenting new models of
mobility and smart logistics
Despite very strong competition we expect the median
operating margins to remain steady However global
political uncertainties and related risks are strong with
possible quick and sharp negative impact on business
volumes and margins of the companies operating in
these industries
Accommodation and food services activities
In the last two years operators in the accommodation
and food service activities industry mainly medium
and small sized enterprises have seen steady revenue
growth and satisfactory profitability ratios Many
operators were focused on reviewing their business
models and offering additional services to their
customers a necessary strategy to maintain or expand
market positioning strengthen margins and improve
customer experience We expect the revenue growth
to continue in 2018 with a minimal median margin
improvement We believe accommodation and food
service activities will attract new capital investments
in 2018 to help the ongoing transformation process
and improve the accommodation infrastructure and
services
Information and communication technologies
The Italian information and communication technology
industry took longer to recover from the economic
crisis recording overall a negative median growth
rate until 2014 Software services and innovation
technology were the major contributors to revenue
growth (as a percentage) in 2016
Over the forecast period we foresee a modest revenue
growth for the ICT operators as a whole while the
technology industry will continue to achieve rapid
growth focusing on maintaining the competitive pace
of innovation In our view a key challenge for the ICT
operator may be the availability of matching skills
The outlook is relatively stable in terms of profitability
and key financial indicators
The following two pages show the details of the
previously discussed key performance indicators
35
Exhibit 38 Growth rate and EBITDA margin manifacturing sectors
-70- 50 -30 -10 103 0
2016E2017F2018
50 70 90
Median=76
Median=3000
20
40
60
80
100
120
1=Automotive 2=Chemistryamppharmaceutics 3=Clothing 4=Equipment 5=Food beverage and Tabacco 6=Heavy Manifacturing 8=Paper and Packaging 9=Tecnology and Telecomunication 10=Textile industry
6
10 5
3
8
91
74
2
50AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
57599586886358
3849
3620083721
-110320
-1112
210322
-1814021122
1413
030124
-5010284025
0555
20-4614
-4607212105
0430
210328-2310203218
0832
2310300512233720
1637
Growth rate Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
EBITDA margin Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
Source Cerved database and Cerved Rating Agency elaboration
625296
1441401016934
15352
504969
103121
916227
10639
4764676185562639
68112
487368
7090592845
75120
456772
9288562845
7898
4667759090573147
7698
4668769394583147
77102
1=Automotive 2=Chemistryamppharmaceutics 3=Clothing 4=Equipment 5=Food beverage and Tabacco 6=Heavy Manifacturing 8=Paper and Packaging 9=Tecnology and Telecomunication 10=Textile industry
2016E2017F2018
Median=30
700
600
500
400
300
200
100
000000 020 040 060 080 100 120
Median=08
Exhibit 39 NFDEquity and NFDEBITDA for manifacturing sectors
2
4 8
101
9
9
3
57
Source Cerved database and Cerved Rating Agency elaboration
096AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
104146095152117112109
098087
087080116068118083088086
084078
075074104069107082080079
084083
072064100065105084122081
079081
082066104065105080091079
077082
081067103065105079087079
077081
076067101064104077083078
076080
NFDEQUITY Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
227AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
258334222397249255259
315202
338313443305495363403412
480337
315306436328479373380397
482316
264269490303467366403383
515317
269243507090106127090106
106106
413343478088105127088105
105105
399333465086104127086104
104104
NFDEBITDA Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
36
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Exhibit 40 Growth rate and EBITDA margin for wholesale and retail trade sectors
20 40 60 80 100 120 140 160
2016E2017F2018
Median=31
Median=33
0000
20
10
30
60
50
70
1=Automotive 2=Retail 3=Wholesale
40
3
12
2016E2017F2018
Median=45
700
600
500
400
300
200
100
000050 070 090 110 130 150 170 190
Median=11
Exhibit 41 NFDEquity and NFDEBITDA for wholesale and retail trade sectors
1=Automotive 2=Retail 3=Wholesale
21
3
37
Ratings will remain broadly stable
The following section presents a risk profile analysis
based on Cerved Rating Agencyrsquos outstanding and
monitored public and private ratings issued from
2013 to 2017 on Italian non-financial companies
and operating in the industries discussed in this
study (data as of 31 December)
Exhibit 42 and Table 9 show an overview of 1-year
effective default rates over the 2000-2017 horizon
related to the sample bankruptcy and other legal
proceedings and debt restructurings as default
events
The default rate trend shows a general
improvement from 2014 onwards both by
company size classes and by industry however
considering the entire sample the overall default
rate still remains higher when compared to its pre-
crisis level especially regarding smaller companies
operating in the construction sector
Exhibit 43 shows the effective default rates over
2013-2017 horizon based on Cerved Rating
Agencyrsquos definition which considers as default
events
middot bankruptcy and other legal proceedings
middot debt restructuring
middot missed or delayed disbursement of a contractually
required interest or principal payment ie missed
payment on bonds material protests (on cheques
or trade bills) or prejudicial acts (judicial mortgages
distraint of property)
The effective default rates over the 2013-2017
horizon show decreasing trend and satisfy the
monotonicity constraint regarding all Cerved
Rating Agencyrsquos rating classes (Exhibit 44)
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2003 2004 2005 2006 2007 2014 2015 2016 20172000 2001
5678
12
3
4
0
Exhibit 42 Avarage 1-year default rate by size over 2000-2017 horizon
medium small
2008 2009 2010 2011 2012 2013
Mining and quarring
Manifacturing
Electricity gas steam and air conditioning supplyWater supply sewerage
Construction
Wholesale and retail trade repair of motorTransporting and storage
Accomodation and food service activities
Information and communication
24221809
5212
282915
2529
38533424
13027
454830
4838
36542537
15929
424421
4323
23461921
13226
293226
3022
Source Cerved database and Cerved Rating Agency elaboration
Table 9 Default rate by industry over 2000-2017 horizon
Total
NACE Average2008-2015
Average2000-2017 2016 2017
2016
Source Cerved database and Cerved Rating Agency elaboration
C21C12C11B22B21B12B11A11 A12 A13 A21 A22 A31
60
50
40
30
20
10
0
Exhibit 43 1-year default rate over 2013-2017 horizon
20172013 2014 2015
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
38
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The analysis of historical rating distributions in the
same period shows clear differences in terms of modal
rating class by company size As shown in Exhibit 43
the modal rating class for the large companies is A31
B11 for the medium and B12 for small companies
(considering company size classes as they have been
defined ad hoc by Cerved Rating Agency for the
purposes of this study)
Overall the corporate rating distribution in the
Source Cerved database and Cerved Rating Agency elaboration
C21C12C11B22B21B12B11A11 A12 A13 A21 A22 A31
30
25
20
15
5
10
0
Exhibit 44 Rating distribution frequency by size classes
large
30
25
20
15
5
0
10
medium smallRating 2013 total Rating 2017 total Rating 2017 forecast
observed period is skewed towards the investment-
grade rating categories (ie Cerved Rating Agency
rating classes from A11 to B12) representing 700 of
the whole sample 250 is concentrated in the safety
(A rating classes) and 450 in the solvency (B11-B12)
classes
We anticipate the rating distribution to remain
broadly unchanged in 2018 with the rating migration
concentrated mainly in the B category
39
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100543
2414
4407
4407
2636
4554 4558
2403 2311
535 527
90
10
0
Exhibit 45 Rating distribution frequency by area of risk - Total companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency]I nvestment GradeA11-A31 [Safety]
2509 2604
704 4407706 4407716
324
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
985
5658
4407
3033 2992 2898
925 907
300 318
90
10
0
Exhibit 46 Rating distribution frequency by area of risk - Large companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
5783 5878
869 4407878 4407878
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
4407
4407
3626
4080
17591695
439 449
90
10
0
Exhibit 47 Rating distribution frequency by area of risk - Medium companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
3571 3776
7044407780 4407786
456
1805
774
4113 4232
603
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
2824
1900
4407
4673 4850 4761
2833 2754
600 633
90
10
0
Exhibit 48 Rating distribution frequency by area of risk - Small companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
1716 1852
657 4407657 4407661
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
40
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Slight improvement in general creditworthiness
In our opinion in 2018 the creditworthiness of the
observed Italian non-financial companies will remain
stable for almost 86 of entities Migration of ratings is
expected to be moderate resulting in approximately 14
of rating upgrades (9) and downgrades (5) at the end
of 2018 compared to the outstanding ratings at the end
of 2017 The vast majority of the rating changes (921)
will be limited to one-class migration as shown in the
1-year projected transition matrix (Table 10) We believe
that more than one third of the expected downgrades
will be concentrated in the energy gas mining and
construction sectors Over the last years the average
credit profile of companies active in these industries has
been relatively weak and due to the forecast market and
regulatory conditions we do not envisage opportunities
for a significant risk profile improvement in 2018
Despite the expected rating migrations for individual
entities in 2018 the current industry modal rating
classes are unlikely to change
On the other hand stable and positive outlooks will
prevail in the manufacturing industry wholesale and
retail trade and accommodation and food service This
is due to the increase in the number of companies
active in these sectors which will maintain andor
improve their business and financial performances
Indeed as shown in Table 11 in 2018 the rating outlook
remains differentiated by industry whilst in terms of
the expected general probability of default we foresee
a modest improvement (349) compared to the one
recorded in 2017 (366)
Table 10 1-year transition matrix
Source Cerved database and Cerved Rating Agency elaboration
2017
A11
A31
B11
C11
C12
B21
C21
B22
B12
A12
A13
A21A22
F 2018A11 A12 A13 A31 B11 C11 C12B21 C21B22B12A21 A22
000 530
066
054 451034 435
027 753055 901
1033121247 1624
260 1038088
000
000000037
028
295
290
1063
179
455050647
043425
026490020208
000208
000152
000000
00000010000
9821
9318
92679015
87708583
81497646
8665
9617
9710
8605
419024
41
The information and data supporting Cerved Rating Agency rating opinions related research and credit opinions originate from sources Cerved Rating Agency considers to be accurate however Cerved Rating Agency cannot independently verify the reliability and accuracy of the information and data in every instance This publication may not be reproduced retransmitted or distributed in any form without the prior written consent of Cerved Rating Agency Cerved Rating Agency assumes no liability for correctness completeness and topicality of the information contained in this publication The analyses underlying this study do not provide advice of any sort
26
n
6670
486
59
Exhibit 49 Ratings outlooks by size
Large
Medium Positive Stable Negative
Small
21
13
Large
Medium
Small
Source Cerved database and Cerved Rating Agency elaboratio
Table 11 Ratings and probability of default 2018 outlook by industry
Source Cerved database and Cerved Rating Agency elaboration
NACE Micro industryDowngrade
B-Mining and quarryingAutomotive
900814
848
812
880812
847
813 172
170
174
144
8264 36
08
104 433 436
392 373
22724815
362 360
876
876
914
848
849
804
887
882
916
901835870899 64
866760
43
68
5659
58
47
61
49
74
78 75
14
50
37
36
5393
32
50
41
45
3899
77
91
316
372
355
364
308
491
326
318 296
331
312
381
367
359
322
495
452
433
403429
389
364369
363
313
452
323
594
38
315358
603
307
345 350
67 5318
469289 274
470
147
116
138
851
821AutomotiveRetail
Wholesale
Total
Chemistryamppharmaceutics
ClothingEquipment
Food Beverage and Tabacco
Heavy Manifacturing
Other Manifacturing
Textile industry
Total
Tecnology Media ampTelecomunication
Paper Packaging ampForest products
C-Manifacturing
D-Electricity gas steam and air conditioningsupply
F-Construcion
H-Transportig and storageI-Accommodation and food service activitiesJ-Information and communication
G-Wholesale and reatail traderepair of motor vehicles and motor-cycles
E-Water supply sewerage waste
Average ForecastPD 2018
Expectedtrend
Average PD 2018
Ratings outlooks
Stabl pgrade
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Cerved Rating Agency SpAVia dellrsquoUnione Europea n 6A-6B20097- San Donato Milanese (MI)
Tel +39 02 77541 - Fax +39 02 76020458
ratingagencycervedcom
Rating Agency
8
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
World economy Outlook 2018
9
Growth is predicted to gain strength
The predicted global economic growth rate is 39
in 2018 (against 36 in 2017) According to the
International Monetary Fund forecast in 2018 the
two biggest world economies US and China will
grow at 23 and 65 rate respectively
Consumer price inflation rate to rise
The global consumer price inflation rate is expected
to rise assisted by higher commodity prices Oil price
averaged $54barrel in 2017 and is predicted to remain
close to $60barrel in 2018 whilst oil consumption is
forecast to record an uptick of 14 in 2018 In addition
also metal prices are expected to increase modestly in
2018
Trade to increase
Global world trade is predicted to increase further
in 2018 fostered by a recovery in manufacturing
activity and an increase in investment especially
in advanced economies In addition a recovery for
the commodity exporters is expected
Global risks remain tilted to the downside
These include increased trade protectionism as well
as economic policy uncertainty possible adversity
in the financial system due to easy monetary
conditions and over the longer term weaker
potential growth In addition the upcoming political
events and the current political uncertainties may
negatively affect the general economic conditions
Commodity Fuel Price Index
Metals Price Index
Source IMF ECB OECD
20022000 20062004 2008 20122010 F201820162014
50
0
150
100
200
250
1
0
3
2
5
4
7
6
Exhibit 2
Volume of imports of goods and services (Y-o-Y change)
Volume of exports of goods and services (Y-o-Y change)
Current account balance ($ billion) Source IMF
20112010 20132012 2014 20162015 F20182017
2
0
8
4
10
12
14
100
0
300
200
400
500
Exhibit 3 Global trade and current account balance world
EPU Index World
VIX Source FRED
20112010 20132012 2014 20162015 F20182017
50
0
100
150
200
250
5
0
15
10
20
25
30
Exhibit 4
Euro Area
EMDEs
United StatesWorld
Other advanced economies
China
OthersSource IMF and Cerved Rating Agency elaboration
20112010 20132012 2014 20162015 F20182017
20
0
60
40
80
100
1
0
3
2
5
4
6
Exhibit 1 Contribution to global growth world
CERVED RATING AGENCY SpA | World economy Outlook 2018
10
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
European economy Outlook 2018
11
Euro area gdp grows unemployment falls
GDP growth in the euro area rose around 21 in
2017 and is predicted to continue at a broadly similar
pace in 2018 Furthermore the unemployment
rate will continue to follow a declining trend and is
forecast to fall to 87 in 2018 (from 92 in 2017)
Industrial production improvement
Investments will accelerate and the international
environment will contribute positively to an increase
of exports (in line with the global growth) which will be
one of the principal driver of an industrial production
improvement in 2018
Further credit activity expansion
Across the euro zone countries companies are
benefiting both from eased lending conditions
and increase in the number of alternative lenders
The total amount of loans to households and non-
financial corporations grew by approximately 14
in 2017 whilst in 2018 it is predicted to increase more
slowly especially in the non-financial corporate
sector
Inflation rate to be stable
Consumer price inflation accelerated at the
beginning of 2017 mainly due to a rise in energy
prices The harmonized index of consumer prices
(HICP) is estimated at 15 in 2017 In 2018
the impact of energy inflation is expected to
decline resulting in a lower inflation rate outlook
(approximately 14)
Germany
France
ItalyEuro Union
Spain
UK
OthersSource IMF ECB OECD
20112010 20132012 2014 20162015 F20182017
20
0
60
40
80
100
0
-1
2
1
3
4
Exhibit 5 Contribution to European growth European Union
EPU Index euro areaIndustrial production euro area (Y-O-Y change)
Source IMF ECB OECD
2011 2015 2017
-2
-2
-3
-1
-1
1
1
0
2
2
3
100
0
300
200
250
400
450
500
Exhibit 7 Industrial production and policy uncertainty index euro area
2010
350
150
50
20182013 2014 20162012
Euro Area
Source ECB
20112010 20132012 2014 20162015 2017
500
0
1500
2500
2000
3000
1000
10000
9900
9800
9700
9600
9500
9400
9300
9200
Germany Spain France Italy
20112010 20132012 2014 20162015 20182017
BCI euro area
CCI euro area
Source IMF ECB OECD
96
95
98
97
99
101
102
100
103
0
-1
2
1
4
3
5
Exhibit 6
CERVED RATING AGENCY SpA | European economy Outlook 2018
12
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Highlights on italian economy
13
Gdp growth is under way to consolidate in 2018
From 2000 to 2017 the Italian economy was more
vulnerable compared to other highly developed
countries in particular those of the euro area
The Italian real GDP at the end of 2017 was roughly
at the same level recorded in 2000 whilst the euro
area countries and specifically Germany and France
experienced a considerable growth in the same period
(188 205 and 198 respectively)
The Italian GDP has started to increase moderately only
since 2014 mainly due to an improvement in domestic
demand but its growth still remains below the growth
rates of the majority of euro zone countries The poor
performance of the labor and total productivity factor
accounts for most of the difference
An ageing population and a weak labor market
participation have also contributed negatively to
potential growth Structural reforms in particular the
Jobs Act and tax incentives on new labor contracts
contributed to the increase in employment making the
Italian labor market more flexible and efficient
In 2018 we expect the economic growth to be slightly
below the level reached in 2017 The trend will be
sustained by the world economy positive cycle
including higher levels of international trade volume
Italian companies will benefit from favorable credit
lending conditions due to an expanding credit activity
of the banking system and low interest rates
Whilst the Italian government adopted a set of dynamic
and diverse policies for 2018 we believe that some of
those previously introduced have already contributed
to the GDP growth in 2016 and 2017 thus reducing the
combined effect in 2018
Source World Bank
2000 2002 2004 2006 2008 2010 2012 2014 2016
1500
1000
500
0
2500
3500
3000
4000
2000
13000
9500
10000
11000
12000
12500
10500
11500
Exhibit 10 GDP in Europe ($ billion)
Germany Italy Euro areas (11countries)France
Total multifactor productivityEmployment growth
Source OECD
-2
-4
-6
-8
2
0
4
6
Exhibit 9 Italian GDP employment and total multifactor productivity (Y-o-Y change)
2000 2002 2014 20162004 2006
GDP growth
20122008 2010
CERVED RATING AGENCY SpA | Highlights on italian economy
14
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The number of active companies has increased buthellip
The number of active companies in Italy registered at
the Chamber of Commerce as of December 31st 2016
amounted to 5145995 305629 more than in 2000
(63)
The increase in registered active companies is the result
of the positive trend from 2000 to 2008 (98) partially
cancelled by the decrease from 2009 to 2016 In 2017 a
slight improvement is expected to be recorded however
the number of active companies remains below its peak
value (5316104 entities) reached at the end of 2008
Exhibit 11 shows both the trend of active Italian companies
in the period 2000-2016 and their breakdown by legal
form We observe that the increased number of Joint Stock
Companies and particularly Limited Liability companies
(1206) was able to compensate the decrease in Unlimited
Partnerships (-62) and Sole Proprietorships (-79)
Companies are abandoning traditional sectors
Exhibit 12 shows the breakdown of the Italian active
companies at the end of 2000 and 2016 by industry
It can be observed that in many traditional sectors
the number of active companies decreased eg in
agriculture (-294) and manufacturing (-226) whilst
the number of companies increased in construction
(273) and wholesale and retail trade (39)
A very significant rise in the new registered companies
(456) occurred in other industries in particular
in the service industry offering information and
communication IT and professional scientific and
technical services
Joint Stock and Limited Liability Unlimited Partnership Sole proprietorshipO ther forms
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 2012 2013 2014 2015 20160
6000000
5000000
4000000
3000000
2000000
1000000
Exhibit 11 Italian active companies 2000-2016
Total
Source Movimprese and Cerved Rating Agency elaboration
Exhibit 12
Breakdown of the Italian active companies by industry 2000-2016
2000
635286 13
1059005 22
639778 13
589707 12
183 856 4 226964 5 150772 3
1354998 28
965452 19
747738 14
495247 10
750863 15
150888 3
379899 7 247187 5
1408721 27
2016
C Manufacturing
F Construction
H Transporting and storage
I Accommodation and food service activities
L Real estate ativities
G Wholesale and retail traderepair of motor vehicles and motorcycles
X Other
15
Number of bankruptcy and other legal proceedings to decrease further
From 2000 to 2016 the number of bankruptcies and
other legal proceedings protests and prejudicial
acts in Italy mirrored the general trend of the
Italian economy
After reaching its minimum level in 2007 (5969)
the number of bankruptcy procedures in the
period 2009-2014 increased dramatically reaching
its peak value of 15608 in 2014
With the improvement in the economic and financial
environment starting from 2015 the number of
bankruptcy procedures decreased sharply in all
macro sectors returning approximately to the
levels recorded from 2000 to 2006 A positive
trend was recorded also in 2017 bankruptcy
procedure initiated for 11937 companies -113
when compared to the same period in 2016 In
absolute terms the highest number of bankruptcy
procedures was recorded in the service sectors
followed by the construction and manufacturing
Worth mentioning is the design of a new Italian
bankruptcy law that should be approved by
October 2018 The regulatory framework aims at
more efficient resolutions of cases of company
crisis supporting continuity of its operating
activities and safeguarding the interest of creditors
by introducing innovative solutions such as pre-
crisis warning mechanisms
Other legal proceedings after reaching its
maximum level in 2013 (3593) in 2016 came down
to 1993 and the trend continues in 2017 evidencing
1866 procedures -64 when compared to the
same period in 2016
In the last five years new protests and prejudicial
acts have also shown a decreasing trend with
ndash527 and ndash70 of acts respectively in 2017
compared to the numbers recorded in 2013
-6
Exhibit 13 Bankruptcy
BankruptcySource Cerved databaase
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
10729 108311163612287
10338
59697307
9189
1108812022
12437
14031
1560814682
13459
11937
Other legal procedingsSource Cerved database
1500
1000
500
02000
940 994 1125 1211
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
2500
3500
3000
4000
2000
1110
16691540
18702094 2057
2342 2475
3593
3132
2720
1993 1866
Exhibit 14 Other legal procedings
1211
100 45000
4000090
80
70
60
50
40
30
20
10
02015
35000
30000
25000
20000
15000
10000
5000
02013 2014
Protets
703
297
41438
Total
Source Cerved database
Prejudicial acts
2016 2017
665
335
34527
570
43032660
527
473
546
454
2523828929
Exhibit 15 Protests and prejudical acts
CERVED RATING AGENCY SpA | Highlights on italian economy
16
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Core inflation rate to rise
Italian headline inflation will experience a modest
decline in 2018 compared to the previous year
(12 and 14 respectively) Core inflation
however is predicted to increase to 12 in 2018
(up from 10 in 2017)
Exports and import are accelerating
Exports and imports will both accelerate in 2018 (41
and 44 respectively) mirroring the positive trend
and expectations in global trade and the rising of the
external demand Machinery and equipment industry
will still remain in ldquopole positionrdquo due to companies
generous investment and tax incentives In general
in 2018 Italian exports will increase more in the Extra
European Union countries
Investment continues to gain strength
Investment has gained strength and will continue to
do so at a relatively fast pace supported by effects of
the tax incentives (Stability Low 2017) low interest rate
and improvements in business confidence Indeed
investments are expected to increase 30 in 2018
(up from 24 in 2017) Construction investments are
forecast to accelerate slightly also thanks to more
resources earmarked for public investment
Harmonised core infation
Source OECD and IMF
2003 2006 20092000 2012 2015 F2018
2
1
-1
0
4
3
5
6
Exhibit 16
Imports of goods and services (Y-o-Y change)
Exports of goods and services (Y-o-Y changes)
Total dometic demand (Y-o-Y change)
Source OECD and IMF
20062000 2015 F2018-5
-15
-20
5
0
-10
10
15
Exhibit 17 Exports imports and demand Italy
20122003 2009
Wholesale and retail trade (Y-o-Y change)
Total investments ( of GDP)
Heavy industry (Y-o-Y change)
Other services (Y-o-Y change)
Source IMF and ISTAT
Construction (Y-o-Y change)
20062000
-20
-30
10
0
-10
20
30
20
25
15
10
0
5
F2018
Exhibit 18 Investments by industry Italy
2003 2009 2012 2015
17
No room for significant public debt reduction
At the end of 2016 the Italian government debt-to-GDP
ratio was significantly above its level at the beginning of
the century In particular as of December 31st 2016 the
ratio was 1326 (262 with respect to 100 recorded
at the end of 2000)
In the same period the ratio for the euro area increased
from 681 to 913 (341) in Germany from 589 to
683 (159) and in France from 586 to 960 (638)
At the end of 2017 the Italian government debt increased
further to more than euro2300 billion 1350 of GDP The
debt servicing in terms of interests accounts roughly
50 of Italian GDP
In our view the high level of government debt
represents a key factor limiting Italian economic growth
and contributes eo ipso to increasing country risk
with a possible negative impact on the stability of the
international financial system
A possible increase in interest rates would raise the
cost of debt service potentially triggering a crisis due to
larger governmental deficits a slowdown in economic
activity and growing debt refinancing difficulties due to
higher risk perceived by investors
Hence it seems that a significant reduction in
government debt should be the main goal of the Italian
economic and financial policy in our opinion however
the achievement of such a result is not realistic neither
in the short nor in the medium term due to the following
factors
middot economic growth in the coming years is expected
to be moderate not sufficient to be the main source of
the government debt reduction
middot macroeconomic policy is expected to prioritize
investments employment social security and welfare
rather than government debt reduction
middot even if the inflation rate hits the target value (20) the
impact on the government debt in the short term is not
expected to be considerable
middot finally in Italy election will take place in spring 2018
with a new government taking over the economic
program that has already been approved and become
fully executive
Euro area
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 2012 2013 2014 2015 20160
20
40
60
80
100
120
140
Exhibit 19 Public debt as GDP
France
Source AMECO and Cerved Rating Agency elaboration
CERVED RATING AGENCY SpA | Highlights on italian economy
18
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Table 1
Amount ( 407 312
-327
327754
216074 190881
163248 345604188167
869
1543
2213
1793
CAGR (base year 2000)
CAGR (base year 2008)
NPL ratio ()
Ndeg debtors
Averae debt debtor
Valueindicator 2000 2008 2016
Source Bank of Italy and Cerved rating Agency elaboration
Credit activity to be expanded interest rates to remain at very low levels
As of December 31st 2016 the volume of bank loans
granted to Italian non-financial corporations amounted to
euro8604 billion
The period 2000-2016 was characterized by two different
trends from 2000 to 2011 the annual outstanding loans
value increased by 841 (euro454 billion reaching in 2011 its
highest level ever of euro993 billion thanks to 57 CAGR far
above the Italian GDP growth) whilst in the period from
2012 to 2016 loans decreased by 134 (euro130 billion)
reflecting a negative -28 CAGR The loan reduction hit
sharply construction and manufacturing (accounting
for about 400 of all loans) which experienced -227
and -135 decrease in loan volumes whilst agriculture
forestry and fishing and wholesale and retail trade
(including repairs of motor vehicles and motorcycles)
had more limited loan contraction (-08 and -53
respectively)
In the observed period due to the negative impact of the
global financial crisis 200708 and to structural changes in
the world economic and financial environment a radical
decrease in interest rates was recorded In 2017 the
interest rates charged to Italian non-financial corporates
were on average less than half compared to those charged
in 2000 In the medium term low interest rates will remain
a positive factor fostering investments and consumption
Non-performing loans to be further reduced due to innovative measures
The credit crunch had a huge and dramatic impact on
the Italian economy hitting especially small businesses
which are not able to survive in a radically changed market
conditions The evidence of such outcome can be seen not
only through the decreased number of active companies
but also via the enormously increased volume of the
non-performing loans (NPLs) In particular these loans
amounted to euro324 billion at the end of 2016 of which euro154
billion were granted to the non-financial corporations as
shown in table 1
Following the principles outlined in the ECB guidelines
published in March in 2017 Italian Banks made significant
progress in reducing the amount of the NPLs ndash estimated
to be over euro50 billion debt reduction Any further actions
aimed to improve the banking balance sheets should not
increase the financial hardship of still operating companies
North - East SouthNorth - West Center Islands
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 2012 2013 2014 2015 20160
1200000
1000000
800000
600000
400000
200000
NPLs ratio
Source Bank of Italy and Cerved Rating Agency elaboration
20
1816
14
1210
8
6
42
0
446393
euro billion)
19
Modest role of italian equity capital markets
Despite the number of listed companies increasing
from 297 to 421 in the period 2000-2017 the role
of the stock markets remains modest in Italy
As of December 31st 2017 the market capitalization
was euro640 billion (375 of the estimated Italian GDP
in 2017) representing only 782 of the overall
market capitalization recorded in 2000 (equal
to euro818 billion 687 of GDP) mainly due to
an unfavorable economic cycle in the observed
period
This situation shows the structural weaknesses of
the Italian economic and financial system especially
when compared to other highly developed
European economies The low propensity to
raise equity capital through organized markets
is linked to an unfavorable macroeconomic and
fiscal framework as well as to the predominance
of SMEs mostly unfit for listing and presenting
cultural obstacles (ie company owners and managers are often reluctant to accept wider company control and
transparency)
Hence self-financing and bank borrowing remain the main sources of finance for Italian companies which are
generally speaking undercapitalized with a negative impact on their investment capabilities Very frequently the
lack of medium-long term financing means forces companies to focus their attention on running current activities
postponing or abandoning strategic projects fundamental for company growth
A wide range of innovative initiatives have been undertaken with the aim of fostering market based company
funding in particular
middot AIM (Alternative Investment Market) - a specialized market segment dedicated to SMEs growth (95 companies and
market capitalization around euro56 billion as of December 2017)
middot ELITE - a programme designed to help SMEs prepare and structure for the next stage of growth their through
access to long-term financing opportunities
middot PIR - Piani individuali di risparmio (Individual Savings Plan) - an innovative way to fund Italian SMEs by offering retail
investors resident in Italy tax incentives (full exemption of 260 income tax) if the savings stay invested for at least
five years A minimum of 700 of such credit assets must be invested in financial instruments issued by Italian or
foreign (EU and EEA) companies permanently established in Italy
FTSE (MIB)Enterprises
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 20132012 20152014 201720160
100
200
300
400
500
600
700
800
900
100029681 29525
14623
1765216121
12259
13512
16048
15988
19012
21428
21853
2185322232
16954
297 294 295 279 282278 311 336 332 332 328 323 326344 342 356 387 421
19483
22886
26056
31005
Exhibit 21 Italian listed enterprised and FTSE (MIB) index trend
Source Borsa Italiana
300000
250000
200000
150000
100000
5000
0
Capitalization of GDP
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 20132012 20152014 201720160
100
200
300
400
500
600
700
800
900
1000
Exhibit 22 Italian market capitalization of listed companies ( of GDP)
Source Borsa Italiana
80
70
60
50
40
30
20
10
0
8184
5923
354 365418 473
524475
239301 275
210233
287 295348
318375
4580 4875
5809
6766
77857336
37474571
4251
3324
44664678
56765249
6400
3655
474
68
CERVED RATING AGENCY SpA | Highlights on italian economy
20
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Italian debt capital market is growing but still remains behind needs
At the end of 2016 the outstanding amount of debt
securities issued by Italian financial and non-financial
corporations was euro8615 billion 510 of the countryrsquos
GDP The table below shows the breakdown by issuer
type of Italian German French British and United States
outstanding amounts of debt securities as of December
2016 issued by financial and non-financial corporations
with the respective debt-to-GDP ratio
Despite the outstanding debt at the end of 2016 being
almost double compared to 2000 it represents only 23
of its peak value reached in 2012 (euro1290 billion Exhibit
23) The main reason for such a significant debt reduction
is the huge bond reimbursement realized by banking
institutions from 2013 to 2016 and the related negative
net flow of debt securities (respectively -80 -153 -106
and -67 billion of euro as shown in Exhibit 24)
The decrease in debt securities funding of Italian banks
has been compensated by a wider use of deposits and
resources available under the Eurosystem refinancing
operations framework
The outstanding amount of debt securities issued by
non-financial corporations at the end of 2016 also
doubled its value with respect to the amount recorded
at the end of 2000 The main characteristic of this cluster
is the high concentration of issuancesdebt to a small
number of issuers
Due to both more favourable general economic
conditions and active ECB monetary policy bond yields
have decreased significantly providing room for a
convenient fund raising
Since the introduction of a new regulatory framework
(lsquoDecreto Svilupporsquo) in 2012 up to October 2017 Italian
market saw 300 small-size listed bond issues (ie so
called minibonds) amounting approximately to euro143
billion Issued mainly by SMEs they offer interesting
yields to institutional investors
) Source Business support SpA ndash Minibonditalyit
BanksTotal
Source Bank of Italy and Cerved Rating Agency elaboration
2006 20082000
-200000
200000
250000
-150000
-100000
150000
100000
-50000
50000
02012 2014 20162002 2004 2010
Banks debt securities outstanding
Banks Debt to GDP ratio
Source Bank of Italy and Cerved Rating Agency elaboration
0
10
20
30
40
50
60
70 1400000
1200000
1000000
800000
600000
400000
200000
0201620142012201020082006200420022000
Table 2 Outstanding securities debt (euro Million)Debt-to-GDP ratio()
Financial corporates
Total
Debtsecurities
outstanding
Italy German rance United Kingdom United States
739
123
862
440 340 470
21
680380
40
1279 1331 4 50
880
30
14271
14820
549180
10202767
590
19211436
15770
510
Debtsecurities
outstanding
Debtsecurities
outstanding
Debtsecurities
outstanding
Debtsecurities
outstanding
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Source Bank of Italy
0
0
21
CERVED RATING AGENCY SpA | Highlights on italian economy
22
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Italian non-financial companies economic Outlook 2018
23
Data and method
This research focuses on Italian non-financial companies
with an annual turnover exceeding euro5 million With the
aim of using only reliable data joint stock and limited
liability companies have been considered only these
entities according to Italian law file complete annual
financial statements in the Chamber of Commerce
together with anagraphical company data other
legal forms such as unlimited partnerships and sole
proprietorships are not included in this sample due to
the lack of publicly available standardized financial data
We believe that this cutoff is reasonable and allows us to
perform a methodologically correct analysis In 2016 the
above mentioned companies despite representing only
42 of all registered and active joint stock and limited
liability companies accounted for 769 of their total
turnover
Moreover cluster specialization has been obtained by
NACE activity classification from A to J (thus not including
in the sample financial and insurance companies and
some service industries) The statistics regarding specific
industries provide important key data and enable us to
examine historical and prospective trends and cross-
sector comparisons
The Cerved database which contains legal anagraphical
financial and market information on all Italian registered
legal entities (approximately 6 million comprising 5
million active ones) was the most important database
used for this research Long time series and broad
homogenized and standardized data covering different
economic cycles were the building blocks to perform
the regression and predictive analysis
Historical and forecast macroeconomic data and
analysis performed by the International Monetary Fund
OECD the World Bank European Central Bank Bank
of Italy and ISTAT completed the dataset used for the
analysis
Several analyses were performed in order to examine
the structural differences within the sample in terms of
company legal form and geographical area (Exhibit 25)
company age (Exhibit 26) and company size and industry
As a result we verified a considerable heterogeneity of
companies in particular with regard to the company size
across various industries
The relevant observation period comprises the years
between 2000 and 2016 Table 3 describes some
characteristics of the sample
Exhibit 25 Sample break-down by legal form and geographic area (2016)
Joint stock Company
Limited liability Company
Area 1 (Northwest)
Area 3 (Center)
Area 2 (Northeast)
Area 4 (South)
39
20
27
14
33
67
33
Table 3 Sample characteristics 2000-2016
TotalTurnover
gt euro5million
Turnover gt euro5 million(industry
from A to J)
TotalTurnover
gt euro5million
ofTotal
Turnover gt
euro5 million(industry
from A to J)
Source Cerved database
Entreprises Turnover billion
2000 659867700717738558772442812025847334883122915172937018949708965744969581
953505945825922513883224
4215144587462234694749640518205596459226595385246754808563745362752074519385289450123
3686139038411864118843547454704921752274526974633848778504734806246843468384771845288
16151740177018472002212923302477256822562421257025202446243224392295
12661362139214561588169818752000208317861944208720541992198419871905
11141205124013041430152316891801189716191764191218831839183518371765
689693700
716
706714
725
718729744748752754753769
727739
200120022003200420052006
200820092010201120122013201420152016
2007
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
24
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Furthermore in order to guarantee more detailed and
accurate analyses and projections we decided to create
a static pool to show consistently long time horizon
economic trends (17 years) by sealing off all the active
companies over the 2000-2016 horizon
The outcome obtained by considering the behaviour of
specific variables related to the companies included in
the static pool was extended as a performance indicator
for the whole sample (turnover over euro5 million and
industry from A to J)
According to the European Communityrsquos definition of
SMEs using annual turnover and employee headcount
as quantitative criteria the initial sample of companies
and the static pool can be classified by size classes on
the basis of the financial statements for the year 2016
as shown in Table 4
For the sake of this analysis we defined specific size
classes for each industry thus deviating from the
European Commissionrsquos recommendation which
presents undifferentiated upper and lower bounds of
quantitative criteria for SMEs in all industries To define
the thresholds of such classes we used both a statistical
approach (a specific cluster procedure by minimizing
the within-cluster turnover standard deviation) and a
judgmental approach by relying on the experience and
opinion of our industry expert analysts Table 5 shows
the results of such analysis referring to the sample in
2016 (45288 entities) and the NACE sections from A
to J Moreover the NACE section C and G were further
disaggregated into sub-industry classes as shown in
Exhibit 27 in order to consider the specific business
differences within these NACE sections thus ensuring
a good fit and a satisfactory accuracy of the estimation
Exhibit 26 Sample break-down by company age classes
0-2 Years 2-5 Years 5-10 Years 10-20 Years gt20 YearsSource Cerved database and Cerved Rating Agency elaboration
0 20 40 60 80 100
ABCDEFGHIJ
A = AgricolutreB=Mining and quarryingC=ManufacturingD=Electricity and gasE=Water supplyF=ConstructionG=Wholesale and retail tradeH=Transporting and storageI=Accomodation and food serviceJ=ICT
Small
Annul Turnover
Empolyees
Static Pool
Enterprises(Turnover gt euro5 million)
Enterprises(Turnover gt euro5 millionindustry from A t J)
Medium Large
lt 50 lt 250lt 36774 11113
1005333223
8741
2236
2012
154818645
gt euro50 million
gt 250
lt euro50 million
Source Cerved database
NACE Micro industry
B-Mining and quarryingAutomotive
Automotive
Retail
Wholesale
T gt 480
T gt 80
T gt 260
T gt 265T gt 270
T gt 230
T gt 120
T gt 80
T gt 43
T gt 65
T gt 106T gt 106
T gt 360T gt 155T gt 150T gt 100
T gt 120
T gt 225T gt 1400T gt 27500
T gt 1500
ChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther Manifacturing
ICTTextile
Paper Packaging ampForest products
C-Manifacturing
F-Construcion
H-Transportig and storageI-Accommodation and food service activities
J-Information and communication
D-Electricity gas steam and aircoditioning supply
G-Wholesale and reatail traderepair of motor vehicles and motorcycles
E-Water supply sewerage waste management and emediation activities
Large (Turnover
in euro million)
Medium(Turnover
in euro million)
Small(Turnover
in euro million)
Source Cerved database and Cerved Rating Agency elaboration
60 lt T lt 480 5 lt T lt 60
5 lt T lt 20
5 lt T lt 36
5 lt T lt 35
5 lt T lt 44
5 lt T lt 40
5 lt T lt 20
5 lt T lt 26
5 lt T lt 250
5 lt T lt 185 lt T lt 305 lt T lt 265 lt T lt 205 lt T lt 37
5 lt T lt 335 lt T lt 40
5 lt T lt 255 lt T lt 585 lt T lt 1155 lt T lt 1005 lt T lt 27
20 lt T lt 80
36 lt T lt 26035 lt T lt 26544 lt T lt 270
40 lt T lt 230
20 lt T lt 120
26 lt T lt 80
18 lt T lt 43
250 lt T lt 1500
20 lt T lt 6537 lt T lt 29540 lt T lt 15533 lt T lt 15025 lt T lt 100
27 lt T lt 120
58 lt T lt 225
100 lt T lt 27500 115 lt T lt
30 lt T lt 10626 lt T lt 106
25
Exhibit 28 shows the breakdown of macro industries
analysed including disaggregation of the NACE section C
(manufacturing) and G (wholesale and retail trade repair
of motor vehicles and motorcycles)
In order to carry out the analysis and projections this study
is focused on we used simple multiple linear regression
model for each industry and company size classes
considering macroeconomic and individual companiesrsquo
economic and financial data
The analysis enables us to develop an econometric
model used to estimate likely credit quality changes (in
terms of rating class and probability of default) for single
industries and company size classes
Automotive
Retail
Wholesale
21
1366
1
42
1
26
35
232
6
A B C D
F G H I
46
7
21
1318
9
15
34
Automotive
Chemistry amp pharmaceutics
Clothing
Equipment
Food Beverage and Tabacco
Heavy Manifacturing
Other Manifacture
Paper Packaging amp Forest Products
ICT
Textile industry
Large SmallMedium
Source Cerved database and Cerved Rating Agency elaboration
0
Wholesale
Retail
Automotive
20 40 60 80 100
Automotive
Chemistry amp pharmaeutics
Clothing
Equipment
Food beverage and Tabacco
Heavy Manifacturing
Other Manifacturing
Paper Packaging amp Forest Products
ICT
Textile
0 20 40 60 80 100
ABCDEFGHIJ
0 10 30 40 60 70 80 90 100
Exhibit 28 Sample break-down by industry (2016)
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
26
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Performance indicators to improve further
The annual financial statements available through public
registers provide a clear economic and financial picture
of the Italian joint-stock and limited liability non-financial
companies The individual historical data available from
2000 to 2016 enriched with 2017 preliminary results and
with the expected 2018 macroeconomic scenario enabled
us to build up the 2017 and 2018 projections regarding
the following four performance indicators related to the
analyzed sample 1) growth rate - revenues YoY change
2) EBITDA margin 3) net financial debtEBITDA and 4) net
financial debtEquity Afterwards the median values of the
resulting data were used to obtain the summary output
which we consider as a representative proxy for the overall
market
From 2000 to 2016 the observed companies experienced
a very irregular trend both in terms of growth rate and
EBITDA margin In the aftermath of the global financial crisis
the lowest growth rate value (-120) was recorded in 2009
manufacturing transporting - storage and wholesale and
retail trade were the industries showing the biggest fall of
business volume (-155 -121 and -104 respectively)
whilst water supply accommodation and food service and
electricity and gas showed the highest level of resilience to
the adverse economic and financial environment (-01
-23 and ndash26 respectively) Exhibit 29 shows that in
terms of median value there are no significant differences
in the growth rate taking into consideration company size
classes as we previously defined them Only from 2010 the
growth rates turned positive but still remaining below the
levels recorded in 2000
The analysis of the EBITDA margin changes in the same
period also does not highlight significant differences
between large companies and SMEs as shown in Exhibit
30 The lowest median EBITDA margin value (52) was
recorded in 2012 regarding in particular accommodation
and food service transporting and storage and agriculture
sectors (28 40 52 respectively) while electricity
and gas ICT and water supply were relatively immune to
the unfavorable economic and financial circumstances
(showing 113 109 and 105 EBITDA margin
respectively) At the end of 2016 the median EBITDA margin
(60) still remains below the levels recorded in 2000 (72)
Positive trends emerging from the last publicly available
financial statements (2016) the 2017 preliminary results
and the optimistic macroeconomic forecasts for 2018
confirm improvement of the Italian economy Looking
ahead we expect the Italian non-financial companies to
continue to experience gradual recovery in 2018 They are
going to take advantage of the favorable global economic
cycle low interest rates and supportive regulations that
inter alia foster the use of alternative non-bank financial
sources for company funding The financial resources raised
through Individual Savings Plans (PIR ndash Piani individuali di
risparmio) introduced by the 2017 Budget Law are driven
in primis by a favorable tax regime for savers and might
become an important additional source for SMEs funding
injecting new liquidity The government objective fixed euro68
billion as a target value and in 2017 nearly euro10 billion had
already been raised
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2004 2006 2014 20162000
5
20
10
0
15
-15
-10
-5
Exhibit 29 Growth rate (revenue YoY change) by size classes (median)
medium small
2008 2010 2012
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2004 2006 2008 2010 2012 2014 20162000
7
10
9
8
6
5
4
3
7
10
9
8
6
5
4
EBITDA margin by size classes (median)
medium small
27
So far one of the main obstacles PIR are facing is the limited
number of available assets which may lead to a possible
concentration of this financial resources in a small share of
the market comprising mainly relatively large companies
as shown by the early data in 2017
Another obstacle to rapid adoption of the newly available
financial resources is the lack of a standardized and broadly
accepted methodology for the risk assessment of potential
bond issuers
Generally speaking in 2018 we expect SMEs to contribute
more significantly to growth employment and innovation
whilst on average the respective EBITDA margin will remain
broadly stable (as shown in Exhibit 31) However 2018 will
still be a challenging year for SMEs and innovative startup
companies as they will have to face tougher barriers in
accessing bank credit andor approaching capital markets
compared to large companies We also expect some new
innovative solutions aimed at meeting SMEs financial needs
to become effective the SMEs current financial structure
together with new business opportunities prove their
ability in terms of rational use of the additional financial
resources
The new investments will allow most industries to thrive
also assisted by the Italian Governmentrsquos adoption of the
National Industry 40 Plan
The companies which will take up this opportunity may
improve their cash-flows even in the short-medium term
Finally companies with strong international market
positioning and large product diversification will have
stronger sales and margins growth
The key ratio values recorded from 2000 to 2016 related to
the analyzed entities show the improved financial health of
the companies proving good capability to strengthen their
equity base as shown in Table 6
Growth rate (2016)Medium
Total
Small Large
Growth rate (2018)Growth rate (2017)
Source Cerved database and Cerved Rating Agency elaboration
50
40
Exhibit 31 Growth rate and EBITDA margin forecast by size classes
EBITDA margin (2016)EBITDA margin (2018)
EBITDA margin (2017)
40
30
0
10
20
Medium
Total
Small Large
7570
65
0
6 5560
5550
4540
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
28
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The recorded financial ratios in the 2000-2016 horizon
indicate that on average
middot liquidity maintained a satisfactory level in the whole
observed period due to the positive economic cycle in
2017 and 2018 we expect a slight improvement in the ratio
middot the EBITDAinterest coverage ratio almost doubled its
value in 2016 compared to what was recorded in 2000
primarily due to a general reduction in the interest rates
particularly in the last three years we believe that in 2017
and 2018 the average ratio value will remain roughly at the
same level recorded in 2016
middot in 2016 ROE shows further improvement but is still
slightly lower compared to the value recorded at the
beginning of the observed period mainly due to the equity
base strengthening trend
middot Equity Ratio rose from 250 to 350 due to a significant
increase of equity capital in 2018 we expect further
strengthening of the ratio
middot Financial LiabilitiesTotal Assets ratio remained mostly
unchanged ndash financial debts representing roughly 30 of
the total assets
A positive trend regarding the net financial debt was also
observed in fact in 2016 70 of the sample improved their
NFDEBITDA and 73 the NFDEquity
Positive performances were found especially in the SMEs
segment as shown in Exhibit 32 in particular referring to
NFDEquity small and medium-sized companies recorded
a positive trend standing respectively at 092 and 089 in
2016 compared to 132 and 136 in 2000
Hence the financial risk profile appears to be well balanced
leaving no room for specific concerns regarding the
prospects of the Italian non-financial companies in 2018
In 2016 the median values for the total sample referring to
NFDEquity and NFDEBITDA remained respectively at 089
and 389 levels respectively
Looking ahead we expect these indicators to remain at
healthy levels in 2017 and 2018 with a slight improvement
in NFDEBITDA and a broadly stable level of the NFDEquity
ratio as shown in Exhibit 33
NFDEBITFA (2016) NFDEBITFA (2017)NFDEBITFA (2018)
40
Exhibit 33 NFDEquity and NFDEBITDA forecast by size classes
Source Cerved database and Cerved Rating Agency elaboration
404
20
25
45
35
30
NFDequity (2016) NFDequity (2017)NFDequity (2018)
05
06
09
10
08
07
Exhibit 32 NFDEquity and NFDEBITDA by size classes (median)
largemediumsmall
2016
2015
2014
000 5 10 15
Average2008-2013
Average2000-2007
total largemediumsmall total
Source Cerved database and Cerved Rating Agency elaboration
2016
2015
2014
203 0 405 0
Average2008-2013
Average2000-2007
29
Growth and profitability improvement spanned over all sectors
Exhibit 34 shows the relative positioning of the 10
macro-industries in the short-medium term considering
the median values related to revenue growth rate and
EBITDA margin
The historical median values are calculated on the basis
of financial data obtained from the annual financial
reports 2014-2016 filed in the Chamber of Commerce
public registers the projected median values for 2017
and 2018 are the result of the analysis of this study
As expected there are significant differences in
positioning between different industries in terms of
both historical and projected values
In 2018 we expect manufacturing and accommodation and
food services to maintain top positions already reached in
2016 and 2017
For the electricity gas mining and quarrying industry
2018 may be the turning point showing the first positive
signals after experiencing some difficulties over the last
few years
None of the other industries show significant changes in
2018 compared to their 2016 positioning
Source Cerved database and Cerved Rating Agency elaboration
A 50
57599586886358
3849
3620083721
-110320
-1112
210322
-1814021122
1413
030124
-5010284025
0555
20-4614
-4607212105
0430
210328-2310203218
0832
2310300512233720
1637
BCDEFGHIJ
A 625296
1441401016934
15352
504969
103121916227
10639
4764676185562639
68112
4873687090592845
75120
456772928856
45
7898
4667759090573147
7698
4668769394583147
77102
EBITDAmarigin
BCDEFGHIJ
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018Growthrate
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
Exhibit 34 Growth rate and EBITDA margin by industry
-70 -50 -30 -10 10 30
2016E2017F2018
50 70 90
Median=68
Median=2100
20
40
60
80
100
120
A=Agricolture B=Mining and quarrying C=Manifacturing D=Electricity and gas E=Water supply F=Construction G=Wholesale and retail trade H=Transporting and storage I=Accomodation and food service J=ICT
D
B
E
FHA G
C
I
J
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
30
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Further strenthening in companiesrsquo financial structure
Exhibit 35 shows the relative positioning of the 10 macro
industries in the short-medium term considering the
median values related to NFDEBITDA and NFDEquity
ratios
The historical median values are calculated on the basis
of financial data obtained from the annual financial
reports 2014-2016 filed in the Chamber of Commerce
public registers the projected median values for 2017
and 2018 are the result of the analysis of this study
There are even more significant differences in
positioning between industries regarding NFDEBITDA
and NFDEquity ratios when compared to growth rate
and EBITDA margin differences
Generally in the observed period there is no evidence of
significant changes among industries considering their
relative positioning related to NFDEBITDA and NFD
Equity ratios
In 2018 we expect accommodation and food services
and information and communication services to
maintain top positions already reached in 2016 and
presumably confirmed in 2017
Exhibit 35 NFDEquity and NFDEBITDA by industry
2016E2017F2018
Median=37
Median=08500
030 5 070 9 111 3
20
30
40
50
60
70
10
A=Agricolture B=Mining and quarrying C=Manifacturing D=Electricity and gas E=Water supply F=Construction G=Wholesale and retail trade H=Transporting and storage I=Accomodation and food service J=ICT
EH
C
BF
G
A
D
J
I
A 150101113081112149151120
079131
123075088101097125123103
072079
114067083052090108119102
067076
113060080045089096114092
074069
125076080045089106109086
050060
127072080044091
108084
051056
128067079043093106107081
051051
BCDEFGHIJ
NFDEquity
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
A 597219280305251301338250
153260
676394388342298453499349
254337
707482387293277498532337
277334
696392373254305484494308
231315
747401358330285544483294
183312
722390340341280511470290
178293
710380310329272492452281
177289
NFDEBITDA
BCDEFGHIJ
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
Source Cerved database and Cerved Rating Agency elaboration
106
31
Exhibit 36 Equity ratio by industry
Average 2000-2007 2014 2015Average 2008-2013 2016
Source Cerved database and Cerved Rating Agency elaboration
05
10
20
30
15
25
3540
5045
AB C DE FG HI J
Exhibit 37 EBITDA interest coverage by industry
Average 2000-2007 2014 2015Average 2008-2013 2016
Source Cerved database and Cerved Rating Agency elaboration
0
5
10
20
15
AB C DE FG HI J
A 1113140911151211
1408
1013131012131209
1208
1114151012131311
1309
1214151012151312
1309
1215161113161412
1409
BCDEFGHIJ
Liquidity ratio Median2000-07
Median2008-13 2014 2015 2016
A 0377677447858463
8960
0332
8145524536
4832
0342486042273848
3246
0537606853395765
4069
0743676559416378
5882
BCDEFGHIJ
ROE Median2000-07
Median2008-13 2014 2015 2016
Table 7 Liquidity ratio by industry Table 8 ROE by industry
Source Cerved database and Cerved Rating Agency elaboration
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
32
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Agriculture
Considering the recent price decline for agricultural
products putting EBITDA margin under pressure for
most of the industry participants we anticipate a slow
revenue growth in 2018 We also foresee more stable
margins in 2018 and investments to continue at a faster
pace in the near future mainly aimed at transforming the
agricultural activities into a high-tech industry Climate
and cultural changes are the main exogenous risks that
may negatively influence the sector
Mining and quarrying
Over the last few years the mining industry has been
challenged by record low metal prices and this has
resulted in a weak growth of supply and a cut in
investments especially in the new mines opening We
foresee a modest revenue growth in 2018 supported
by more stable prices rather than by government
infrastructural investments Margin pressure will remain
mostly unchanged in 2018 We do not expect a significant
increase in capital expenditure for most companies
while only a minority of industry participants will invest
in new capacities searching for new growth opportunities
by introducing new higher margin outputs Overall we
anticipate relatively stable key financial indicators
Manufacturing
We believe that in 2018 Italian manufacturing
representing 2nd European and 7th world player in 2016
will remain the beating heart of the national economy
In our view the expansion of internal demand the
improvement of business and customer confidence and
the wider export opportunities are the key drivers for
revenue growth (up to nearly 30) Despite the natural
selection the occurred during the economic recession
domestic competition and especially the competition
from lower income countries will remain challenging in
2018 creating further profitability pressure especially in
some highly fragmented segments
As a conditio sine qua non for market survival many
companies will be involved in a ldquowinning the innovation
gamerdquo process translated into a considerable capex
expenditure directed at process optimization which
inevitably must be accompanied by innovative marketing
and commercial strategies The companies especially
smaller ones which are not ready lsquoto play the gamersquo
remaining risk averse are likely to fall behind
Key financial indicators referring to the industry in terms
of net financial debt to equity and net financial debt to
EBITDA are likely to remain overall stable in 2018
In our view the best performing manufacturing industries
in 2018 will be the following
Automotive
extensive vehicles replacement process in 2018
high competition pressure China maintaining a key role
high level of innovation in mobility and connectivity
new strategic partnerships and MampAconservative stand towards EBITDA margin improvement
Chemistry amp Pharmaceutics
solid macroeconomic fundamentals will support
the revenue growth driven mainly by large companies
on average a stable EBITDA margin of about 10
is expected global presence is a must to achieve higher
level of profitability
RampD remain key factors for further market expansion
moderate level of MampA operations in 2018 slowing
down when compared to those carried out in the
previous year
Machinery amp Equipment
revenue growth in 2018 up to nearly 25 reflecting
the fact that all manufactures remain focused on RampD
and NPI (new product introduction)
cost management strategies are going to persist
but generally speaking with no significant impact on
EBITDA margin in 2018
heavy equipment manufactures still under pressure in
2018 to provide engineering capability and capacity
33
Energy and gas
Italian companies operating in the energy industry are
facing a complex market environment with many open
questions about risks related to regulations a drop
in consumption high competition levels and EBITDA
erosion
Generally we expect a more stable landscape in 2018 in
terms of commodity prices and consumption However
risk regarding prices and volumes will remain strong
resulting in a higher volatility of revenues In our view
the current margin pressure is unlikely to ease over the
next two years The final overcoming of the sondashcalled
ldquoMaggior Tutela Regimerdquo may lead to almost zero margin
for the retail operators We expect industry participants
to continue to focus their attention on cost efficiency and
on protecting profitability by embracing new business
models and examining the role that digital technology
can play in improvement of EBITDA margins We believe
that the above described strategies will be a central
topic for the operators intending to attract capital We
also believe that energy producers could see a slight
debt increase in 2018 aimed at improving productivity
and synergies Finally in 2018 we envisage a significant
number of MampA operations in the sector led by synergy
effects such operations might produce
Water supply waste management and sewerage
In recent years the water supply waste management
and Italian sewerage industry has recorded a slower
growth compared to the pre-crisis period However
due to the last two yearsrsquo important investments in the
water infrastructure waste sorting and recycling Italy
ranks as one of the top European countries in terms
of growth rate of recycling and packaging recovery
We believe that the expected general increase in
industrial output will produce a slight growth in water
consumption and waste treatment The demand for
sustainable solutions will continue to persist requiring
new investment in technologies based on a customer-
centric and sustainable approach aimed at improving
efficiencies and facilitating reuse Expectations also
reflect our view in terms of wider government interest
and spending in this industry We expect profitability
to remain broadly in line with the results obtained in
2016
Construction
After a weak increase in revenues recorded by the
construction industry operators in 2016 and the
modest result anticipated in 2017 both reflecting
a deteriorating demand and decreased volumes of
bank loans (mainly those for small and medium-
sized companies) we expect 2018 to be the turning
point for this industry We foresee that the volume of
residential and private non-residential constructions
will remain at relatively low levels in 2018 and that
the positive trend in housing renovation and public
works investments will continue taking advantage of
the allocated funds established by the Budget Law for
2017 Small and medium-sized businesses focused on
residential construction may face a slight profitability
erosion while we believe some growth in EBITDA
margin may be recorded by large Italian companies
operating internationally Due to the high perceived
risk historically there has been a strong financial
market mistrust of the construction companies which
we believe is likely to ease over the coming years
Wholesale and retail trade
During the crisis period wholesale and retail trade
industry faced a sudden interruption of the gradual
growth that had taken place up to that moment mainly
due to a loss in real purchase power and in consumer
confidence also translated into profitability erosion
In 2016 the data showed how the industry is moving
toward a recovery period Looking forward in 2018 we
expect to record a steady revenue growth supported
by an increase in global trade and improved consumer
confidence Despite the foreseen growth operators
will continue to face consistent pressure mainly in the
retail segment due to the high proliferation of new retail
purchase channels and market fragmentation
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
34
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Transportation and Storage
After a troubled 2016 characterized by an overcapacity
and a decrease in commodity demand hitting shipping
revenues in particular we foresee a moderate overall
recovery in 2018 driven mainly by an increase in
international shipments and air traffic The growing
number of innovative startups will continue to persist
increasing the competitive pressure in the industry We
anticipate a constant growth of e-commerce enabling a
quick reaction of on-line retailer and logistics providers
We believe that operators will continue to invest in
new high-tech solutions experimenting new models of
mobility and smart logistics
Despite very strong competition we expect the median
operating margins to remain steady However global
political uncertainties and related risks are strong with
possible quick and sharp negative impact on business
volumes and margins of the companies operating in
these industries
Accommodation and food services activities
In the last two years operators in the accommodation
and food service activities industry mainly medium
and small sized enterprises have seen steady revenue
growth and satisfactory profitability ratios Many
operators were focused on reviewing their business
models and offering additional services to their
customers a necessary strategy to maintain or expand
market positioning strengthen margins and improve
customer experience We expect the revenue growth
to continue in 2018 with a minimal median margin
improvement We believe accommodation and food
service activities will attract new capital investments
in 2018 to help the ongoing transformation process
and improve the accommodation infrastructure and
services
Information and communication technologies
The Italian information and communication technology
industry took longer to recover from the economic
crisis recording overall a negative median growth
rate until 2014 Software services and innovation
technology were the major contributors to revenue
growth (as a percentage) in 2016
Over the forecast period we foresee a modest revenue
growth for the ICT operators as a whole while the
technology industry will continue to achieve rapid
growth focusing on maintaining the competitive pace
of innovation In our view a key challenge for the ICT
operator may be the availability of matching skills
The outlook is relatively stable in terms of profitability
and key financial indicators
The following two pages show the details of the
previously discussed key performance indicators
35
Exhibit 38 Growth rate and EBITDA margin manifacturing sectors
-70- 50 -30 -10 103 0
2016E2017F2018
50 70 90
Median=76
Median=3000
20
40
60
80
100
120
1=Automotive 2=Chemistryamppharmaceutics 3=Clothing 4=Equipment 5=Food beverage and Tabacco 6=Heavy Manifacturing 8=Paper and Packaging 9=Tecnology and Telecomunication 10=Textile industry
6
10 5
3
8
91
74
2
50AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
57599586886358
3849
3620083721
-110320
-1112
210322
-1814021122
1413
030124
-5010284025
0555
20-4614
-4607212105
0430
210328-2310203218
0832
2310300512233720
1637
Growth rate Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
EBITDA margin Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
Source Cerved database and Cerved Rating Agency elaboration
625296
1441401016934
15352
504969
103121
916227
10639
4764676185562639
68112
487368
7090592845
75120
456772
9288562845
7898
4667759090573147
7698
4668769394583147
77102
1=Automotive 2=Chemistryamppharmaceutics 3=Clothing 4=Equipment 5=Food beverage and Tabacco 6=Heavy Manifacturing 8=Paper and Packaging 9=Tecnology and Telecomunication 10=Textile industry
2016E2017F2018
Median=30
700
600
500
400
300
200
100
000000 020 040 060 080 100 120
Median=08
Exhibit 39 NFDEquity and NFDEBITDA for manifacturing sectors
2
4 8
101
9
9
3
57
Source Cerved database and Cerved Rating Agency elaboration
096AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
104146095152117112109
098087
087080116068118083088086
084078
075074104069107082080079
084083
072064100065105084122081
079081
082066104065105080091079
077082
081067103065105079087079
077081
076067101064104077083078
076080
NFDEQUITY Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
227AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
258334222397249255259
315202
338313443305495363403412
480337
315306436328479373380397
482316
264269490303467366403383
515317
269243507090106127090106
106106
413343478088105127088105
105105
399333465086104127086104
104104
NFDEBITDA Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
36
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Exhibit 40 Growth rate and EBITDA margin for wholesale and retail trade sectors
20 40 60 80 100 120 140 160
2016E2017F2018
Median=31
Median=33
0000
20
10
30
60
50
70
1=Automotive 2=Retail 3=Wholesale
40
3
12
2016E2017F2018
Median=45
700
600
500
400
300
200
100
000050 070 090 110 130 150 170 190
Median=11
Exhibit 41 NFDEquity and NFDEBITDA for wholesale and retail trade sectors
1=Automotive 2=Retail 3=Wholesale
21
3
37
Ratings will remain broadly stable
The following section presents a risk profile analysis
based on Cerved Rating Agencyrsquos outstanding and
monitored public and private ratings issued from
2013 to 2017 on Italian non-financial companies
and operating in the industries discussed in this
study (data as of 31 December)
Exhibit 42 and Table 9 show an overview of 1-year
effective default rates over the 2000-2017 horizon
related to the sample bankruptcy and other legal
proceedings and debt restructurings as default
events
The default rate trend shows a general
improvement from 2014 onwards both by
company size classes and by industry however
considering the entire sample the overall default
rate still remains higher when compared to its pre-
crisis level especially regarding smaller companies
operating in the construction sector
Exhibit 43 shows the effective default rates over
2013-2017 horizon based on Cerved Rating
Agencyrsquos definition which considers as default
events
middot bankruptcy and other legal proceedings
middot debt restructuring
middot missed or delayed disbursement of a contractually
required interest or principal payment ie missed
payment on bonds material protests (on cheques
or trade bills) or prejudicial acts (judicial mortgages
distraint of property)
The effective default rates over the 2013-2017
horizon show decreasing trend and satisfy the
monotonicity constraint regarding all Cerved
Rating Agencyrsquos rating classes (Exhibit 44)
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2003 2004 2005 2006 2007 2014 2015 2016 20172000 2001
5678
12
3
4
0
Exhibit 42 Avarage 1-year default rate by size over 2000-2017 horizon
medium small
2008 2009 2010 2011 2012 2013
Mining and quarring
Manifacturing
Electricity gas steam and air conditioning supplyWater supply sewerage
Construction
Wholesale and retail trade repair of motorTransporting and storage
Accomodation and food service activities
Information and communication
24221809
5212
282915
2529
38533424
13027
454830
4838
36542537
15929
424421
4323
23461921
13226
293226
3022
Source Cerved database and Cerved Rating Agency elaboration
Table 9 Default rate by industry over 2000-2017 horizon
Total
NACE Average2008-2015
Average2000-2017 2016 2017
2016
Source Cerved database and Cerved Rating Agency elaboration
C21C12C11B22B21B12B11A11 A12 A13 A21 A22 A31
60
50
40
30
20
10
0
Exhibit 43 1-year default rate over 2013-2017 horizon
20172013 2014 2015
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
38
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The analysis of historical rating distributions in the
same period shows clear differences in terms of modal
rating class by company size As shown in Exhibit 43
the modal rating class for the large companies is A31
B11 for the medium and B12 for small companies
(considering company size classes as they have been
defined ad hoc by Cerved Rating Agency for the
purposes of this study)
Overall the corporate rating distribution in the
Source Cerved database and Cerved Rating Agency elaboration
C21C12C11B22B21B12B11A11 A12 A13 A21 A22 A31
30
25
20
15
5
10
0
Exhibit 44 Rating distribution frequency by size classes
large
30
25
20
15
5
0
10
medium smallRating 2013 total Rating 2017 total Rating 2017 forecast
observed period is skewed towards the investment-
grade rating categories (ie Cerved Rating Agency
rating classes from A11 to B12) representing 700 of
the whole sample 250 is concentrated in the safety
(A rating classes) and 450 in the solvency (B11-B12)
classes
We anticipate the rating distribution to remain
broadly unchanged in 2018 with the rating migration
concentrated mainly in the B category
39
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100543
2414
4407
4407
2636
4554 4558
2403 2311
535 527
90
10
0
Exhibit 45 Rating distribution frequency by area of risk - Total companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency]I nvestment GradeA11-A31 [Safety]
2509 2604
704 4407706 4407716
324
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
985
5658
4407
3033 2992 2898
925 907
300 318
90
10
0
Exhibit 46 Rating distribution frequency by area of risk - Large companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
5783 5878
869 4407878 4407878
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
4407
4407
3626
4080
17591695
439 449
90
10
0
Exhibit 47 Rating distribution frequency by area of risk - Medium companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
3571 3776
7044407780 4407786
456
1805
774
4113 4232
603
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
2824
1900
4407
4673 4850 4761
2833 2754
600 633
90
10
0
Exhibit 48 Rating distribution frequency by area of risk - Small companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
1716 1852
657 4407657 4407661
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
40
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Slight improvement in general creditworthiness
In our opinion in 2018 the creditworthiness of the
observed Italian non-financial companies will remain
stable for almost 86 of entities Migration of ratings is
expected to be moderate resulting in approximately 14
of rating upgrades (9) and downgrades (5) at the end
of 2018 compared to the outstanding ratings at the end
of 2017 The vast majority of the rating changes (921)
will be limited to one-class migration as shown in the
1-year projected transition matrix (Table 10) We believe
that more than one third of the expected downgrades
will be concentrated in the energy gas mining and
construction sectors Over the last years the average
credit profile of companies active in these industries has
been relatively weak and due to the forecast market and
regulatory conditions we do not envisage opportunities
for a significant risk profile improvement in 2018
Despite the expected rating migrations for individual
entities in 2018 the current industry modal rating
classes are unlikely to change
On the other hand stable and positive outlooks will
prevail in the manufacturing industry wholesale and
retail trade and accommodation and food service This
is due to the increase in the number of companies
active in these sectors which will maintain andor
improve their business and financial performances
Indeed as shown in Table 11 in 2018 the rating outlook
remains differentiated by industry whilst in terms of
the expected general probability of default we foresee
a modest improvement (349) compared to the one
recorded in 2017 (366)
Table 10 1-year transition matrix
Source Cerved database and Cerved Rating Agency elaboration
2017
A11
A31
B11
C11
C12
B21
C21
B22
B12
A12
A13
A21A22
F 2018A11 A12 A13 A31 B11 C11 C12B21 C21B22B12A21 A22
000 530
066
054 451034 435
027 753055 901
1033121247 1624
260 1038088
000
000000037
028
295
290
1063
179
455050647
043425
026490020208
000208
000152
000000
00000010000
9821
9318
92679015
87708583
81497646
8665
9617
9710
8605
419024
41
The information and data supporting Cerved Rating Agency rating opinions related research and credit opinions originate from sources Cerved Rating Agency considers to be accurate however Cerved Rating Agency cannot independently verify the reliability and accuracy of the information and data in every instance This publication may not be reproduced retransmitted or distributed in any form without the prior written consent of Cerved Rating Agency Cerved Rating Agency assumes no liability for correctness completeness and topicality of the information contained in this publication The analyses underlying this study do not provide advice of any sort
26
n
6670
486
59
Exhibit 49 Ratings outlooks by size
Large
Medium Positive Stable Negative
Small
21
13
Large
Medium
Small
Source Cerved database and Cerved Rating Agency elaboratio
Table 11 Ratings and probability of default 2018 outlook by industry
Source Cerved database and Cerved Rating Agency elaboration
NACE Micro industryDowngrade
B-Mining and quarryingAutomotive
900814
848
812
880812
847
813 172
170
174
144
8264 36
08
104 433 436
392 373
22724815
362 360
876
876
914
848
849
804
887
882
916
901835870899 64
866760
43
68
5659
58
47
61
49
74
78 75
14
50
37
36
5393
32
50
41
45
3899
77
91
316
372
355
364
308
491
326
318 296
331
312
381
367
359
322
495
452
433
403429
389
364369
363
313
452
323
594
38
315358
603
307
345 350
67 5318
469289 274
470
147
116
138
851
821AutomotiveRetail
Wholesale
Total
Chemistryamppharmaceutics
ClothingEquipment
Food Beverage and Tabacco
Heavy Manifacturing
Other Manifacturing
Textile industry
Total
Tecnology Media ampTelecomunication
Paper Packaging ampForest products
C-Manifacturing
D-Electricity gas steam and air conditioningsupply
F-Construcion
H-Transportig and storageI-Accommodation and food service activitiesJ-Information and communication
G-Wholesale and reatail traderepair of motor vehicles and motor-cycles
E-Water supply sewerage waste
Average ForecastPD 2018
Expectedtrend
Average PD 2018
Ratings outlooks
Stabl pgrade
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Cerved Rating Agency SpAVia dellrsquoUnione Europea n 6A-6B20097- San Donato Milanese (MI)
Tel +39 02 77541 - Fax +39 02 76020458
ratingagencycervedcom
Rating Agency
9
Growth is predicted to gain strength
The predicted global economic growth rate is 39
in 2018 (against 36 in 2017) According to the
International Monetary Fund forecast in 2018 the
two biggest world economies US and China will
grow at 23 and 65 rate respectively
Consumer price inflation rate to rise
The global consumer price inflation rate is expected
to rise assisted by higher commodity prices Oil price
averaged $54barrel in 2017 and is predicted to remain
close to $60barrel in 2018 whilst oil consumption is
forecast to record an uptick of 14 in 2018 In addition
also metal prices are expected to increase modestly in
2018
Trade to increase
Global world trade is predicted to increase further
in 2018 fostered by a recovery in manufacturing
activity and an increase in investment especially
in advanced economies In addition a recovery for
the commodity exporters is expected
Global risks remain tilted to the downside
These include increased trade protectionism as well
as economic policy uncertainty possible adversity
in the financial system due to easy monetary
conditions and over the longer term weaker
potential growth In addition the upcoming political
events and the current political uncertainties may
negatively affect the general economic conditions
Commodity Fuel Price Index
Metals Price Index
Source IMF ECB OECD
20022000 20062004 2008 20122010 F201820162014
50
0
150
100
200
250
1
0
3
2
5
4
7
6
Exhibit 2
Volume of imports of goods and services (Y-o-Y change)
Volume of exports of goods and services (Y-o-Y change)
Current account balance ($ billion) Source IMF
20112010 20132012 2014 20162015 F20182017
2
0
8
4
10
12
14
100
0
300
200
400
500
Exhibit 3 Global trade and current account balance world
EPU Index World
VIX Source FRED
20112010 20132012 2014 20162015 F20182017
50
0
100
150
200
250
5
0
15
10
20
25
30
Exhibit 4
Euro Area
EMDEs
United StatesWorld
Other advanced economies
China
OthersSource IMF and Cerved Rating Agency elaboration
20112010 20132012 2014 20162015 F20182017
20
0
60
40
80
100
1
0
3
2
5
4
6
Exhibit 1 Contribution to global growth world
CERVED RATING AGENCY SpA | World economy Outlook 2018
10
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
European economy Outlook 2018
11
Euro area gdp grows unemployment falls
GDP growth in the euro area rose around 21 in
2017 and is predicted to continue at a broadly similar
pace in 2018 Furthermore the unemployment
rate will continue to follow a declining trend and is
forecast to fall to 87 in 2018 (from 92 in 2017)
Industrial production improvement
Investments will accelerate and the international
environment will contribute positively to an increase
of exports (in line with the global growth) which will be
one of the principal driver of an industrial production
improvement in 2018
Further credit activity expansion
Across the euro zone countries companies are
benefiting both from eased lending conditions
and increase in the number of alternative lenders
The total amount of loans to households and non-
financial corporations grew by approximately 14
in 2017 whilst in 2018 it is predicted to increase more
slowly especially in the non-financial corporate
sector
Inflation rate to be stable
Consumer price inflation accelerated at the
beginning of 2017 mainly due to a rise in energy
prices The harmonized index of consumer prices
(HICP) is estimated at 15 in 2017 In 2018
the impact of energy inflation is expected to
decline resulting in a lower inflation rate outlook
(approximately 14)
Germany
France
ItalyEuro Union
Spain
UK
OthersSource IMF ECB OECD
20112010 20132012 2014 20162015 F20182017
20
0
60
40
80
100
0
-1
2
1
3
4
Exhibit 5 Contribution to European growth European Union
EPU Index euro areaIndustrial production euro area (Y-O-Y change)
Source IMF ECB OECD
2011 2015 2017
-2
-2
-3
-1
-1
1
1
0
2
2
3
100
0
300
200
250
400
450
500
Exhibit 7 Industrial production and policy uncertainty index euro area
2010
350
150
50
20182013 2014 20162012
Euro Area
Source ECB
20112010 20132012 2014 20162015 2017
500
0
1500
2500
2000
3000
1000
10000
9900
9800
9700
9600
9500
9400
9300
9200
Germany Spain France Italy
20112010 20132012 2014 20162015 20182017
BCI euro area
CCI euro area
Source IMF ECB OECD
96
95
98
97
99
101
102
100
103
0
-1
2
1
4
3
5
Exhibit 6
CERVED RATING AGENCY SpA | European economy Outlook 2018
12
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Highlights on italian economy
13
Gdp growth is under way to consolidate in 2018
From 2000 to 2017 the Italian economy was more
vulnerable compared to other highly developed
countries in particular those of the euro area
The Italian real GDP at the end of 2017 was roughly
at the same level recorded in 2000 whilst the euro
area countries and specifically Germany and France
experienced a considerable growth in the same period
(188 205 and 198 respectively)
The Italian GDP has started to increase moderately only
since 2014 mainly due to an improvement in domestic
demand but its growth still remains below the growth
rates of the majority of euro zone countries The poor
performance of the labor and total productivity factor
accounts for most of the difference
An ageing population and a weak labor market
participation have also contributed negatively to
potential growth Structural reforms in particular the
Jobs Act and tax incentives on new labor contracts
contributed to the increase in employment making the
Italian labor market more flexible and efficient
In 2018 we expect the economic growth to be slightly
below the level reached in 2017 The trend will be
sustained by the world economy positive cycle
including higher levels of international trade volume
Italian companies will benefit from favorable credit
lending conditions due to an expanding credit activity
of the banking system and low interest rates
Whilst the Italian government adopted a set of dynamic
and diverse policies for 2018 we believe that some of
those previously introduced have already contributed
to the GDP growth in 2016 and 2017 thus reducing the
combined effect in 2018
Source World Bank
2000 2002 2004 2006 2008 2010 2012 2014 2016
1500
1000
500
0
2500
3500
3000
4000
2000
13000
9500
10000
11000
12000
12500
10500
11500
Exhibit 10 GDP in Europe ($ billion)
Germany Italy Euro areas (11countries)France
Total multifactor productivityEmployment growth
Source OECD
-2
-4
-6
-8
2
0
4
6
Exhibit 9 Italian GDP employment and total multifactor productivity (Y-o-Y change)
2000 2002 2014 20162004 2006
GDP growth
20122008 2010
CERVED RATING AGENCY SpA | Highlights on italian economy
14
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The number of active companies has increased buthellip
The number of active companies in Italy registered at
the Chamber of Commerce as of December 31st 2016
amounted to 5145995 305629 more than in 2000
(63)
The increase in registered active companies is the result
of the positive trend from 2000 to 2008 (98) partially
cancelled by the decrease from 2009 to 2016 In 2017 a
slight improvement is expected to be recorded however
the number of active companies remains below its peak
value (5316104 entities) reached at the end of 2008
Exhibit 11 shows both the trend of active Italian companies
in the period 2000-2016 and their breakdown by legal
form We observe that the increased number of Joint Stock
Companies and particularly Limited Liability companies
(1206) was able to compensate the decrease in Unlimited
Partnerships (-62) and Sole Proprietorships (-79)
Companies are abandoning traditional sectors
Exhibit 12 shows the breakdown of the Italian active
companies at the end of 2000 and 2016 by industry
It can be observed that in many traditional sectors
the number of active companies decreased eg in
agriculture (-294) and manufacturing (-226) whilst
the number of companies increased in construction
(273) and wholesale and retail trade (39)
A very significant rise in the new registered companies
(456) occurred in other industries in particular
in the service industry offering information and
communication IT and professional scientific and
technical services
Joint Stock and Limited Liability Unlimited Partnership Sole proprietorshipO ther forms
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 2012 2013 2014 2015 20160
6000000
5000000
4000000
3000000
2000000
1000000
Exhibit 11 Italian active companies 2000-2016
Total
Source Movimprese and Cerved Rating Agency elaboration
Exhibit 12
Breakdown of the Italian active companies by industry 2000-2016
2000
635286 13
1059005 22
639778 13
589707 12
183 856 4 226964 5 150772 3
1354998 28
965452 19
747738 14
495247 10
750863 15
150888 3
379899 7 247187 5
1408721 27
2016
C Manufacturing
F Construction
H Transporting and storage
I Accommodation and food service activities
L Real estate ativities
G Wholesale and retail traderepair of motor vehicles and motorcycles
X Other
15
Number of bankruptcy and other legal proceedings to decrease further
From 2000 to 2016 the number of bankruptcies and
other legal proceedings protests and prejudicial
acts in Italy mirrored the general trend of the
Italian economy
After reaching its minimum level in 2007 (5969)
the number of bankruptcy procedures in the
period 2009-2014 increased dramatically reaching
its peak value of 15608 in 2014
With the improvement in the economic and financial
environment starting from 2015 the number of
bankruptcy procedures decreased sharply in all
macro sectors returning approximately to the
levels recorded from 2000 to 2006 A positive
trend was recorded also in 2017 bankruptcy
procedure initiated for 11937 companies -113
when compared to the same period in 2016 In
absolute terms the highest number of bankruptcy
procedures was recorded in the service sectors
followed by the construction and manufacturing
Worth mentioning is the design of a new Italian
bankruptcy law that should be approved by
October 2018 The regulatory framework aims at
more efficient resolutions of cases of company
crisis supporting continuity of its operating
activities and safeguarding the interest of creditors
by introducing innovative solutions such as pre-
crisis warning mechanisms
Other legal proceedings after reaching its
maximum level in 2013 (3593) in 2016 came down
to 1993 and the trend continues in 2017 evidencing
1866 procedures -64 when compared to the
same period in 2016
In the last five years new protests and prejudicial
acts have also shown a decreasing trend with
ndash527 and ndash70 of acts respectively in 2017
compared to the numbers recorded in 2013
-6
Exhibit 13 Bankruptcy
BankruptcySource Cerved databaase
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
10729 108311163612287
10338
59697307
9189
1108812022
12437
14031
1560814682
13459
11937
Other legal procedingsSource Cerved database
1500
1000
500
02000
940 994 1125 1211
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
2500
3500
3000
4000
2000
1110
16691540
18702094 2057
2342 2475
3593
3132
2720
1993 1866
Exhibit 14 Other legal procedings
1211
100 45000
4000090
80
70
60
50
40
30
20
10
02015
35000
30000
25000
20000
15000
10000
5000
02013 2014
Protets
703
297
41438
Total
Source Cerved database
Prejudicial acts
2016 2017
665
335
34527
570
43032660
527
473
546
454
2523828929
Exhibit 15 Protests and prejudical acts
CERVED RATING AGENCY SpA | Highlights on italian economy
16
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Core inflation rate to rise
Italian headline inflation will experience a modest
decline in 2018 compared to the previous year
(12 and 14 respectively) Core inflation
however is predicted to increase to 12 in 2018
(up from 10 in 2017)
Exports and import are accelerating
Exports and imports will both accelerate in 2018 (41
and 44 respectively) mirroring the positive trend
and expectations in global trade and the rising of the
external demand Machinery and equipment industry
will still remain in ldquopole positionrdquo due to companies
generous investment and tax incentives In general
in 2018 Italian exports will increase more in the Extra
European Union countries
Investment continues to gain strength
Investment has gained strength and will continue to
do so at a relatively fast pace supported by effects of
the tax incentives (Stability Low 2017) low interest rate
and improvements in business confidence Indeed
investments are expected to increase 30 in 2018
(up from 24 in 2017) Construction investments are
forecast to accelerate slightly also thanks to more
resources earmarked for public investment
Harmonised core infation
Source OECD and IMF
2003 2006 20092000 2012 2015 F2018
2
1
-1
0
4
3
5
6
Exhibit 16
Imports of goods and services (Y-o-Y change)
Exports of goods and services (Y-o-Y changes)
Total dometic demand (Y-o-Y change)
Source OECD and IMF
20062000 2015 F2018-5
-15
-20
5
0
-10
10
15
Exhibit 17 Exports imports and demand Italy
20122003 2009
Wholesale and retail trade (Y-o-Y change)
Total investments ( of GDP)
Heavy industry (Y-o-Y change)
Other services (Y-o-Y change)
Source IMF and ISTAT
Construction (Y-o-Y change)
20062000
-20
-30
10
0
-10
20
30
20
25
15
10
0
5
F2018
Exhibit 18 Investments by industry Italy
2003 2009 2012 2015
17
No room for significant public debt reduction
At the end of 2016 the Italian government debt-to-GDP
ratio was significantly above its level at the beginning of
the century In particular as of December 31st 2016 the
ratio was 1326 (262 with respect to 100 recorded
at the end of 2000)
In the same period the ratio for the euro area increased
from 681 to 913 (341) in Germany from 589 to
683 (159) and in France from 586 to 960 (638)
At the end of 2017 the Italian government debt increased
further to more than euro2300 billion 1350 of GDP The
debt servicing in terms of interests accounts roughly
50 of Italian GDP
In our view the high level of government debt
represents a key factor limiting Italian economic growth
and contributes eo ipso to increasing country risk
with a possible negative impact on the stability of the
international financial system
A possible increase in interest rates would raise the
cost of debt service potentially triggering a crisis due to
larger governmental deficits a slowdown in economic
activity and growing debt refinancing difficulties due to
higher risk perceived by investors
Hence it seems that a significant reduction in
government debt should be the main goal of the Italian
economic and financial policy in our opinion however
the achievement of such a result is not realistic neither
in the short nor in the medium term due to the following
factors
middot economic growth in the coming years is expected
to be moderate not sufficient to be the main source of
the government debt reduction
middot macroeconomic policy is expected to prioritize
investments employment social security and welfare
rather than government debt reduction
middot even if the inflation rate hits the target value (20) the
impact on the government debt in the short term is not
expected to be considerable
middot finally in Italy election will take place in spring 2018
with a new government taking over the economic
program that has already been approved and become
fully executive
Euro area
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 2012 2013 2014 2015 20160
20
40
60
80
100
120
140
Exhibit 19 Public debt as GDP
France
Source AMECO and Cerved Rating Agency elaboration
CERVED RATING AGENCY SpA | Highlights on italian economy
18
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Table 1
Amount ( 407 312
-327
327754
216074 190881
163248 345604188167
869
1543
2213
1793
CAGR (base year 2000)
CAGR (base year 2008)
NPL ratio ()
Ndeg debtors
Averae debt debtor
Valueindicator 2000 2008 2016
Source Bank of Italy and Cerved rating Agency elaboration
Credit activity to be expanded interest rates to remain at very low levels
As of December 31st 2016 the volume of bank loans
granted to Italian non-financial corporations amounted to
euro8604 billion
The period 2000-2016 was characterized by two different
trends from 2000 to 2011 the annual outstanding loans
value increased by 841 (euro454 billion reaching in 2011 its
highest level ever of euro993 billion thanks to 57 CAGR far
above the Italian GDP growth) whilst in the period from
2012 to 2016 loans decreased by 134 (euro130 billion)
reflecting a negative -28 CAGR The loan reduction hit
sharply construction and manufacturing (accounting
for about 400 of all loans) which experienced -227
and -135 decrease in loan volumes whilst agriculture
forestry and fishing and wholesale and retail trade
(including repairs of motor vehicles and motorcycles)
had more limited loan contraction (-08 and -53
respectively)
In the observed period due to the negative impact of the
global financial crisis 200708 and to structural changes in
the world economic and financial environment a radical
decrease in interest rates was recorded In 2017 the
interest rates charged to Italian non-financial corporates
were on average less than half compared to those charged
in 2000 In the medium term low interest rates will remain
a positive factor fostering investments and consumption
Non-performing loans to be further reduced due to innovative measures
The credit crunch had a huge and dramatic impact on
the Italian economy hitting especially small businesses
which are not able to survive in a radically changed market
conditions The evidence of such outcome can be seen not
only through the decreased number of active companies
but also via the enormously increased volume of the
non-performing loans (NPLs) In particular these loans
amounted to euro324 billion at the end of 2016 of which euro154
billion were granted to the non-financial corporations as
shown in table 1
Following the principles outlined in the ECB guidelines
published in March in 2017 Italian Banks made significant
progress in reducing the amount of the NPLs ndash estimated
to be over euro50 billion debt reduction Any further actions
aimed to improve the banking balance sheets should not
increase the financial hardship of still operating companies
North - East SouthNorth - West Center Islands
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 2012 2013 2014 2015 20160
1200000
1000000
800000
600000
400000
200000
NPLs ratio
Source Bank of Italy and Cerved Rating Agency elaboration
20
1816
14
1210
8
6
42
0
446393
euro billion)
19
Modest role of italian equity capital markets
Despite the number of listed companies increasing
from 297 to 421 in the period 2000-2017 the role
of the stock markets remains modest in Italy
As of December 31st 2017 the market capitalization
was euro640 billion (375 of the estimated Italian GDP
in 2017) representing only 782 of the overall
market capitalization recorded in 2000 (equal
to euro818 billion 687 of GDP) mainly due to
an unfavorable economic cycle in the observed
period
This situation shows the structural weaknesses of
the Italian economic and financial system especially
when compared to other highly developed
European economies The low propensity to
raise equity capital through organized markets
is linked to an unfavorable macroeconomic and
fiscal framework as well as to the predominance
of SMEs mostly unfit for listing and presenting
cultural obstacles (ie company owners and managers are often reluctant to accept wider company control and
transparency)
Hence self-financing and bank borrowing remain the main sources of finance for Italian companies which are
generally speaking undercapitalized with a negative impact on their investment capabilities Very frequently the
lack of medium-long term financing means forces companies to focus their attention on running current activities
postponing or abandoning strategic projects fundamental for company growth
A wide range of innovative initiatives have been undertaken with the aim of fostering market based company
funding in particular
middot AIM (Alternative Investment Market) - a specialized market segment dedicated to SMEs growth (95 companies and
market capitalization around euro56 billion as of December 2017)
middot ELITE - a programme designed to help SMEs prepare and structure for the next stage of growth their through
access to long-term financing opportunities
middot PIR - Piani individuali di risparmio (Individual Savings Plan) - an innovative way to fund Italian SMEs by offering retail
investors resident in Italy tax incentives (full exemption of 260 income tax) if the savings stay invested for at least
five years A minimum of 700 of such credit assets must be invested in financial instruments issued by Italian or
foreign (EU and EEA) companies permanently established in Italy
FTSE (MIB)Enterprises
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 20132012 20152014 201720160
100
200
300
400
500
600
700
800
900
100029681 29525
14623
1765216121
12259
13512
16048
15988
19012
21428
21853
2185322232
16954
297 294 295 279 282278 311 336 332 332 328 323 326344 342 356 387 421
19483
22886
26056
31005
Exhibit 21 Italian listed enterprised and FTSE (MIB) index trend
Source Borsa Italiana
300000
250000
200000
150000
100000
5000
0
Capitalization of GDP
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 20132012 20152014 201720160
100
200
300
400
500
600
700
800
900
1000
Exhibit 22 Italian market capitalization of listed companies ( of GDP)
Source Borsa Italiana
80
70
60
50
40
30
20
10
0
8184
5923
354 365418 473
524475
239301 275
210233
287 295348
318375
4580 4875
5809
6766
77857336
37474571
4251
3324
44664678
56765249
6400
3655
474
68
CERVED RATING AGENCY SpA | Highlights on italian economy
20
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Italian debt capital market is growing but still remains behind needs
At the end of 2016 the outstanding amount of debt
securities issued by Italian financial and non-financial
corporations was euro8615 billion 510 of the countryrsquos
GDP The table below shows the breakdown by issuer
type of Italian German French British and United States
outstanding amounts of debt securities as of December
2016 issued by financial and non-financial corporations
with the respective debt-to-GDP ratio
Despite the outstanding debt at the end of 2016 being
almost double compared to 2000 it represents only 23
of its peak value reached in 2012 (euro1290 billion Exhibit
23) The main reason for such a significant debt reduction
is the huge bond reimbursement realized by banking
institutions from 2013 to 2016 and the related negative
net flow of debt securities (respectively -80 -153 -106
and -67 billion of euro as shown in Exhibit 24)
The decrease in debt securities funding of Italian banks
has been compensated by a wider use of deposits and
resources available under the Eurosystem refinancing
operations framework
The outstanding amount of debt securities issued by
non-financial corporations at the end of 2016 also
doubled its value with respect to the amount recorded
at the end of 2000 The main characteristic of this cluster
is the high concentration of issuancesdebt to a small
number of issuers
Due to both more favourable general economic
conditions and active ECB monetary policy bond yields
have decreased significantly providing room for a
convenient fund raising
Since the introduction of a new regulatory framework
(lsquoDecreto Svilupporsquo) in 2012 up to October 2017 Italian
market saw 300 small-size listed bond issues (ie so
called minibonds) amounting approximately to euro143
billion Issued mainly by SMEs they offer interesting
yields to institutional investors
) Source Business support SpA ndash Minibonditalyit
BanksTotal
Source Bank of Italy and Cerved Rating Agency elaboration
2006 20082000
-200000
200000
250000
-150000
-100000
150000
100000
-50000
50000
02012 2014 20162002 2004 2010
Banks debt securities outstanding
Banks Debt to GDP ratio
Source Bank of Italy and Cerved Rating Agency elaboration
0
10
20
30
40
50
60
70 1400000
1200000
1000000
800000
600000
400000
200000
0201620142012201020082006200420022000
Table 2 Outstanding securities debt (euro Million)Debt-to-GDP ratio()
Financial corporates
Total
Debtsecurities
outstanding
Italy German rance United Kingdom United States
739
123
862
440 340 470
21
680380
40
1279 1331 4 50
880
30
14271
14820
549180
10202767
590
19211436
15770
510
Debtsecurities
outstanding
Debtsecurities
outstanding
Debtsecurities
outstanding
Debtsecurities
outstanding
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Source Bank of Italy
0
0
21
CERVED RATING AGENCY SpA | Highlights on italian economy
22
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Italian non-financial companies economic Outlook 2018
23
Data and method
This research focuses on Italian non-financial companies
with an annual turnover exceeding euro5 million With the
aim of using only reliable data joint stock and limited
liability companies have been considered only these
entities according to Italian law file complete annual
financial statements in the Chamber of Commerce
together with anagraphical company data other
legal forms such as unlimited partnerships and sole
proprietorships are not included in this sample due to
the lack of publicly available standardized financial data
We believe that this cutoff is reasonable and allows us to
perform a methodologically correct analysis In 2016 the
above mentioned companies despite representing only
42 of all registered and active joint stock and limited
liability companies accounted for 769 of their total
turnover
Moreover cluster specialization has been obtained by
NACE activity classification from A to J (thus not including
in the sample financial and insurance companies and
some service industries) The statistics regarding specific
industries provide important key data and enable us to
examine historical and prospective trends and cross-
sector comparisons
The Cerved database which contains legal anagraphical
financial and market information on all Italian registered
legal entities (approximately 6 million comprising 5
million active ones) was the most important database
used for this research Long time series and broad
homogenized and standardized data covering different
economic cycles were the building blocks to perform
the regression and predictive analysis
Historical and forecast macroeconomic data and
analysis performed by the International Monetary Fund
OECD the World Bank European Central Bank Bank
of Italy and ISTAT completed the dataset used for the
analysis
Several analyses were performed in order to examine
the structural differences within the sample in terms of
company legal form and geographical area (Exhibit 25)
company age (Exhibit 26) and company size and industry
As a result we verified a considerable heterogeneity of
companies in particular with regard to the company size
across various industries
The relevant observation period comprises the years
between 2000 and 2016 Table 3 describes some
characteristics of the sample
Exhibit 25 Sample break-down by legal form and geographic area (2016)
Joint stock Company
Limited liability Company
Area 1 (Northwest)
Area 3 (Center)
Area 2 (Northeast)
Area 4 (South)
39
20
27
14
33
67
33
Table 3 Sample characteristics 2000-2016
TotalTurnover
gt euro5million
Turnover gt euro5 million(industry
from A to J)
TotalTurnover
gt euro5million
ofTotal
Turnover gt
euro5 million(industry
from A to J)
Source Cerved database
Entreprises Turnover billion
2000 659867700717738558772442812025847334883122915172937018949708965744969581
953505945825922513883224
4215144587462234694749640518205596459226595385246754808563745362752074519385289450123
3686139038411864118843547454704921752274526974633848778504734806246843468384771845288
16151740177018472002212923302477256822562421257025202446243224392295
12661362139214561588169818752000208317861944208720541992198419871905
11141205124013041430152316891801189716191764191218831839183518371765
689693700
716
706714
725
718729744748752754753769
727739
200120022003200420052006
200820092010201120122013201420152016
2007
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
24
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Furthermore in order to guarantee more detailed and
accurate analyses and projections we decided to create
a static pool to show consistently long time horizon
economic trends (17 years) by sealing off all the active
companies over the 2000-2016 horizon
The outcome obtained by considering the behaviour of
specific variables related to the companies included in
the static pool was extended as a performance indicator
for the whole sample (turnover over euro5 million and
industry from A to J)
According to the European Communityrsquos definition of
SMEs using annual turnover and employee headcount
as quantitative criteria the initial sample of companies
and the static pool can be classified by size classes on
the basis of the financial statements for the year 2016
as shown in Table 4
For the sake of this analysis we defined specific size
classes for each industry thus deviating from the
European Commissionrsquos recommendation which
presents undifferentiated upper and lower bounds of
quantitative criteria for SMEs in all industries To define
the thresholds of such classes we used both a statistical
approach (a specific cluster procedure by minimizing
the within-cluster turnover standard deviation) and a
judgmental approach by relying on the experience and
opinion of our industry expert analysts Table 5 shows
the results of such analysis referring to the sample in
2016 (45288 entities) and the NACE sections from A
to J Moreover the NACE section C and G were further
disaggregated into sub-industry classes as shown in
Exhibit 27 in order to consider the specific business
differences within these NACE sections thus ensuring
a good fit and a satisfactory accuracy of the estimation
Exhibit 26 Sample break-down by company age classes
0-2 Years 2-5 Years 5-10 Years 10-20 Years gt20 YearsSource Cerved database and Cerved Rating Agency elaboration
0 20 40 60 80 100
ABCDEFGHIJ
A = AgricolutreB=Mining and quarryingC=ManufacturingD=Electricity and gasE=Water supplyF=ConstructionG=Wholesale and retail tradeH=Transporting and storageI=Accomodation and food serviceJ=ICT
Small
Annul Turnover
Empolyees
Static Pool
Enterprises(Turnover gt euro5 million)
Enterprises(Turnover gt euro5 millionindustry from A t J)
Medium Large
lt 50 lt 250lt 36774 11113
1005333223
8741
2236
2012
154818645
gt euro50 million
gt 250
lt euro50 million
Source Cerved database
NACE Micro industry
B-Mining and quarryingAutomotive
Automotive
Retail
Wholesale
T gt 480
T gt 80
T gt 260
T gt 265T gt 270
T gt 230
T gt 120
T gt 80
T gt 43
T gt 65
T gt 106T gt 106
T gt 360T gt 155T gt 150T gt 100
T gt 120
T gt 225T gt 1400T gt 27500
T gt 1500
ChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther Manifacturing
ICTTextile
Paper Packaging ampForest products
C-Manifacturing
F-Construcion
H-Transportig and storageI-Accommodation and food service activities
J-Information and communication
D-Electricity gas steam and aircoditioning supply
G-Wholesale and reatail traderepair of motor vehicles and motorcycles
E-Water supply sewerage waste management and emediation activities
Large (Turnover
in euro million)
Medium(Turnover
in euro million)
Small(Turnover
in euro million)
Source Cerved database and Cerved Rating Agency elaboration
60 lt T lt 480 5 lt T lt 60
5 lt T lt 20
5 lt T lt 36
5 lt T lt 35
5 lt T lt 44
5 lt T lt 40
5 lt T lt 20
5 lt T lt 26
5 lt T lt 250
5 lt T lt 185 lt T lt 305 lt T lt 265 lt T lt 205 lt T lt 37
5 lt T lt 335 lt T lt 40
5 lt T lt 255 lt T lt 585 lt T lt 1155 lt T lt 1005 lt T lt 27
20 lt T lt 80
36 lt T lt 26035 lt T lt 26544 lt T lt 270
40 lt T lt 230
20 lt T lt 120
26 lt T lt 80
18 lt T lt 43
250 lt T lt 1500
20 lt T lt 6537 lt T lt 29540 lt T lt 15533 lt T lt 15025 lt T lt 100
27 lt T lt 120
58 lt T lt 225
100 lt T lt 27500 115 lt T lt
30 lt T lt 10626 lt T lt 106
25
Exhibit 28 shows the breakdown of macro industries
analysed including disaggregation of the NACE section C
(manufacturing) and G (wholesale and retail trade repair
of motor vehicles and motorcycles)
In order to carry out the analysis and projections this study
is focused on we used simple multiple linear regression
model for each industry and company size classes
considering macroeconomic and individual companiesrsquo
economic and financial data
The analysis enables us to develop an econometric
model used to estimate likely credit quality changes (in
terms of rating class and probability of default) for single
industries and company size classes
Automotive
Retail
Wholesale
21
1366
1
42
1
26
35
232
6
A B C D
F G H I
46
7
21
1318
9
15
34
Automotive
Chemistry amp pharmaceutics
Clothing
Equipment
Food Beverage and Tabacco
Heavy Manifacturing
Other Manifacture
Paper Packaging amp Forest Products
ICT
Textile industry
Large SmallMedium
Source Cerved database and Cerved Rating Agency elaboration
0
Wholesale
Retail
Automotive
20 40 60 80 100
Automotive
Chemistry amp pharmaeutics
Clothing
Equipment
Food beverage and Tabacco
Heavy Manifacturing
Other Manifacturing
Paper Packaging amp Forest Products
ICT
Textile
0 20 40 60 80 100
ABCDEFGHIJ
0 10 30 40 60 70 80 90 100
Exhibit 28 Sample break-down by industry (2016)
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
26
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Performance indicators to improve further
The annual financial statements available through public
registers provide a clear economic and financial picture
of the Italian joint-stock and limited liability non-financial
companies The individual historical data available from
2000 to 2016 enriched with 2017 preliminary results and
with the expected 2018 macroeconomic scenario enabled
us to build up the 2017 and 2018 projections regarding
the following four performance indicators related to the
analyzed sample 1) growth rate - revenues YoY change
2) EBITDA margin 3) net financial debtEBITDA and 4) net
financial debtEquity Afterwards the median values of the
resulting data were used to obtain the summary output
which we consider as a representative proxy for the overall
market
From 2000 to 2016 the observed companies experienced
a very irregular trend both in terms of growth rate and
EBITDA margin In the aftermath of the global financial crisis
the lowest growth rate value (-120) was recorded in 2009
manufacturing transporting - storage and wholesale and
retail trade were the industries showing the biggest fall of
business volume (-155 -121 and -104 respectively)
whilst water supply accommodation and food service and
electricity and gas showed the highest level of resilience to
the adverse economic and financial environment (-01
-23 and ndash26 respectively) Exhibit 29 shows that in
terms of median value there are no significant differences
in the growth rate taking into consideration company size
classes as we previously defined them Only from 2010 the
growth rates turned positive but still remaining below the
levels recorded in 2000
The analysis of the EBITDA margin changes in the same
period also does not highlight significant differences
between large companies and SMEs as shown in Exhibit
30 The lowest median EBITDA margin value (52) was
recorded in 2012 regarding in particular accommodation
and food service transporting and storage and agriculture
sectors (28 40 52 respectively) while electricity
and gas ICT and water supply were relatively immune to
the unfavorable economic and financial circumstances
(showing 113 109 and 105 EBITDA margin
respectively) At the end of 2016 the median EBITDA margin
(60) still remains below the levels recorded in 2000 (72)
Positive trends emerging from the last publicly available
financial statements (2016) the 2017 preliminary results
and the optimistic macroeconomic forecasts for 2018
confirm improvement of the Italian economy Looking
ahead we expect the Italian non-financial companies to
continue to experience gradual recovery in 2018 They are
going to take advantage of the favorable global economic
cycle low interest rates and supportive regulations that
inter alia foster the use of alternative non-bank financial
sources for company funding The financial resources raised
through Individual Savings Plans (PIR ndash Piani individuali di
risparmio) introduced by the 2017 Budget Law are driven
in primis by a favorable tax regime for savers and might
become an important additional source for SMEs funding
injecting new liquidity The government objective fixed euro68
billion as a target value and in 2017 nearly euro10 billion had
already been raised
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2004 2006 2014 20162000
5
20
10
0
15
-15
-10
-5
Exhibit 29 Growth rate (revenue YoY change) by size classes (median)
medium small
2008 2010 2012
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2004 2006 2008 2010 2012 2014 20162000
7
10
9
8
6
5
4
3
7
10
9
8
6
5
4
EBITDA margin by size classes (median)
medium small
27
So far one of the main obstacles PIR are facing is the limited
number of available assets which may lead to a possible
concentration of this financial resources in a small share of
the market comprising mainly relatively large companies
as shown by the early data in 2017
Another obstacle to rapid adoption of the newly available
financial resources is the lack of a standardized and broadly
accepted methodology for the risk assessment of potential
bond issuers
Generally speaking in 2018 we expect SMEs to contribute
more significantly to growth employment and innovation
whilst on average the respective EBITDA margin will remain
broadly stable (as shown in Exhibit 31) However 2018 will
still be a challenging year for SMEs and innovative startup
companies as they will have to face tougher barriers in
accessing bank credit andor approaching capital markets
compared to large companies We also expect some new
innovative solutions aimed at meeting SMEs financial needs
to become effective the SMEs current financial structure
together with new business opportunities prove their
ability in terms of rational use of the additional financial
resources
The new investments will allow most industries to thrive
also assisted by the Italian Governmentrsquos adoption of the
National Industry 40 Plan
The companies which will take up this opportunity may
improve their cash-flows even in the short-medium term
Finally companies with strong international market
positioning and large product diversification will have
stronger sales and margins growth
The key ratio values recorded from 2000 to 2016 related to
the analyzed entities show the improved financial health of
the companies proving good capability to strengthen their
equity base as shown in Table 6
Growth rate (2016)Medium
Total
Small Large
Growth rate (2018)Growth rate (2017)
Source Cerved database and Cerved Rating Agency elaboration
50
40
Exhibit 31 Growth rate and EBITDA margin forecast by size classes
EBITDA margin (2016)EBITDA margin (2018)
EBITDA margin (2017)
40
30
0
10
20
Medium
Total
Small Large
7570
65
0
6 5560
5550
4540
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
28
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The recorded financial ratios in the 2000-2016 horizon
indicate that on average
middot liquidity maintained a satisfactory level in the whole
observed period due to the positive economic cycle in
2017 and 2018 we expect a slight improvement in the ratio
middot the EBITDAinterest coverage ratio almost doubled its
value in 2016 compared to what was recorded in 2000
primarily due to a general reduction in the interest rates
particularly in the last three years we believe that in 2017
and 2018 the average ratio value will remain roughly at the
same level recorded in 2016
middot in 2016 ROE shows further improvement but is still
slightly lower compared to the value recorded at the
beginning of the observed period mainly due to the equity
base strengthening trend
middot Equity Ratio rose from 250 to 350 due to a significant
increase of equity capital in 2018 we expect further
strengthening of the ratio
middot Financial LiabilitiesTotal Assets ratio remained mostly
unchanged ndash financial debts representing roughly 30 of
the total assets
A positive trend regarding the net financial debt was also
observed in fact in 2016 70 of the sample improved their
NFDEBITDA and 73 the NFDEquity
Positive performances were found especially in the SMEs
segment as shown in Exhibit 32 in particular referring to
NFDEquity small and medium-sized companies recorded
a positive trend standing respectively at 092 and 089 in
2016 compared to 132 and 136 in 2000
Hence the financial risk profile appears to be well balanced
leaving no room for specific concerns regarding the
prospects of the Italian non-financial companies in 2018
In 2016 the median values for the total sample referring to
NFDEquity and NFDEBITDA remained respectively at 089
and 389 levels respectively
Looking ahead we expect these indicators to remain at
healthy levels in 2017 and 2018 with a slight improvement
in NFDEBITDA and a broadly stable level of the NFDEquity
ratio as shown in Exhibit 33
NFDEBITFA (2016) NFDEBITFA (2017)NFDEBITFA (2018)
40
Exhibit 33 NFDEquity and NFDEBITDA forecast by size classes
Source Cerved database and Cerved Rating Agency elaboration
404
20
25
45
35
30
NFDequity (2016) NFDequity (2017)NFDequity (2018)
05
06
09
10
08
07
Exhibit 32 NFDEquity and NFDEBITDA by size classes (median)
largemediumsmall
2016
2015
2014
000 5 10 15
Average2008-2013
Average2000-2007
total largemediumsmall total
Source Cerved database and Cerved Rating Agency elaboration
2016
2015
2014
203 0 405 0
Average2008-2013
Average2000-2007
29
Growth and profitability improvement spanned over all sectors
Exhibit 34 shows the relative positioning of the 10
macro-industries in the short-medium term considering
the median values related to revenue growth rate and
EBITDA margin
The historical median values are calculated on the basis
of financial data obtained from the annual financial
reports 2014-2016 filed in the Chamber of Commerce
public registers the projected median values for 2017
and 2018 are the result of the analysis of this study
As expected there are significant differences in
positioning between different industries in terms of
both historical and projected values
In 2018 we expect manufacturing and accommodation and
food services to maintain top positions already reached in
2016 and 2017
For the electricity gas mining and quarrying industry
2018 may be the turning point showing the first positive
signals after experiencing some difficulties over the last
few years
None of the other industries show significant changes in
2018 compared to their 2016 positioning
Source Cerved database and Cerved Rating Agency elaboration
A 50
57599586886358
3849
3620083721
-110320
-1112
210322
-1814021122
1413
030124
-5010284025
0555
20-4614
-4607212105
0430
210328-2310203218
0832
2310300512233720
1637
BCDEFGHIJ
A 625296
1441401016934
15352
504969
103121916227
10639
4764676185562639
68112
4873687090592845
75120
456772928856
45
7898
4667759090573147
7698
4668769394583147
77102
EBITDAmarigin
BCDEFGHIJ
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018Growthrate
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
Exhibit 34 Growth rate and EBITDA margin by industry
-70 -50 -30 -10 10 30
2016E2017F2018
50 70 90
Median=68
Median=2100
20
40
60
80
100
120
A=Agricolture B=Mining and quarrying C=Manifacturing D=Electricity and gas E=Water supply F=Construction G=Wholesale and retail trade H=Transporting and storage I=Accomodation and food service J=ICT
D
B
E
FHA G
C
I
J
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
30
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Further strenthening in companiesrsquo financial structure
Exhibit 35 shows the relative positioning of the 10 macro
industries in the short-medium term considering the
median values related to NFDEBITDA and NFDEquity
ratios
The historical median values are calculated on the basis
of financial data obtained from the annual financial
reports 2014-2016 filed in the Chamber of Commerce
public registers the projected median values for 2017
and 2018 are the result of the analysis of this study
There are even more significant differences in
positioning between industries regarding NFDEBITDA
and NFDEquity ratios when compared to growth rate
and EBITDA margin differences
Generally in the observed period there is no evidence of
significant changes among industries considering their
relative positioning related to NFDEBITDA and NFD
Equity ratios
In 2018 we expect accommodation and food services
and information and communication services to
maintain top positions already reached in 2016 and
presumably confirmed in 2017
Exhibit 35 NFDEquity and NFDEBITDA by industry
2016E2017F2018
Median=37
Median=08500
030 5 070 9 111 3
20
30
40
50
60
70
10
A=Agricolture B=Mining and quarrying C=Manifacturing D=Electricity and gas E=Water supply F=Construction G=Wholesale and retail trade H=Transporting and storage I=Accomodation and food service J=ICT
EH
C
BF
G
A
D
J
I
A 150101113081112149151120
079131
123075088101097125123103
072079
114067083052090108119102
067076
113060080045089096114092
074069
125076080045089106109086
050060
127072080044091
108084
051056
128067079043093106107081
051051
BCDEFGHIJ
NFDEquity
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
A 597219280305251301338250
153260
676394388342298453499349
254337
707482387293277498532337
277334
696392373254305484494308
231315
747401358330285544483294
183312
722390340341280511470290
178293
710380310329272492452281
177289
NFDEBITDA
BCDEFGHIJ
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
Source Cerved database and Cerved Rating Agency elaboration
106
31
Exhibit 36 Equity ratio by industry
Average 2000-2007 2014 2015Average 2008-2013 2016
Source Cerved database and Cerved Rating Agency elaboration
05
10
20
30
15
25
3540
5045
AB C DE FG HI J
Exhibit 37 EBITDA interest coverage by industry
Average 2000-2007 2014 2015Average 2008-2013 2016
Source Cerved database and Cerved Rating Agency elaboration
0
5
10
20
15
AB C DE FG HI J
A 1113140911151211
1408
1013131012131209
1208
1114151012131311
1309
1214151012151312
1309
1215161113161412
1409
BCDEFGHIJ
Liquidity ratio Median2000-07
Median2008-13 2014 2015 2016
A 0377677447858463
8960
0332
8145524536
4832
0342486042273848
3246
0537606853395765
4069
0743676559416378
5882
BCDEFGHIJ
ROE Median2000-07
Median2008-13 2014 2015 2016
Table 7 Liquidity ratio by industry Table 8 ROE by industry
Source Cerved database and Cerved Rating Agency elaboration
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
32
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Agriculture
Considering the recent price decline for agricultural
products putting EBITDA margin under pressure for
most of the industry participants we anticipate a slow
revenue growth in 2018 We also foresee more stable
margins in 2018 and investments to continue at a faster
pace in the near future mainly aimed at transforming the
agricultural activities into a high-tech industry Climate
and cultural changes are the main exogenous risks that
may negatively influence the sector
Mining and quarrying
Over the last few years the mining industry has been
challenged by record low metal prices and this has
resulted in a weak growth of supply and a cut in
investments especially in the new mines opening We
foresee a modest revenue growth in 2018 supported
by more stable prices rather than by government
infrastructural investments Margin pressure will remain
mostly unchanged in 2018 We do not expect a significant
increase in capital expenditure for most companies
while only a minority of industry participants will invest
in new capacities searching for new growth opportunities
by introducing new higher margin outputs Overall we
anticipate relatively stable key financial indicators
Manufacturing
We believe that in 2018 Italian manufacturing
representing 2nd European and 7th world player in 2016
will remain the beating heart of the national economy
In our view the expansion of internal demand the
improvement of business and customer confidence and
the wider export opportunities are the key drivers for
revenue growth (up to nearly 30) Despite the natural
selection the occurred during the economic recession
domestic competition and especially the competition
from lower income countries will remain challenging in
2018 creating further profitability pressure especially in
some highly fragmented segments
As a conditio sine qua non for market survival many
companies will be involved in a ldquowinning the innovation
gamerdquo process translated into a considerable capex
expenditure directed at process optimization which
inevitably must be accompanied by innovative marketing
and commercial strategies The companies especially
smaller ones which are not ready lsquoto play the gamersquo
remaining risk averse are likely to fall behind
Key financial indicators referring to the industry in terms
of net financial debt to equity and net financial debt to
EBITDA are likely to remain overall stable in 2018
In our view the best performing manufacturing industries
in 2018 will be the following
Automotive
extensive vehicles replacement process in 2018
high competition pressure China maintaining a key role
high level of innovation in mobility and connectivity
new strategic partnerships and MampAconservative stand towards EBITDA margin improvement
Chemistry amp Pharmaceutics
solid macroeconomic fundamentals will support
the revenue growth driven mainly by large companies
on average a stable EBITDA margin of about 10
is expected global presence is a must to achieve higher
level of profitability
RampD remain key factors for further market expansion
moderate level of MampA operations in 2018 slowing
down when compared to those carried out in the
previous year
Machinery amp Equipment
revenue growth in 2018 up to nearly 25 reflecting
the fact that all manufactures remain focused on RampD
and NPI (new product introduction)
cost management strategies are going to persist
but generally speaking with no significant impact on
EBITDA margin in 2018
heavy equipment manufactures still under pressure in
2018 to provide engineering capability and capacity
33
Energy and gas
Italian companies operating in the energy industry are
facing a complex market environment with many open
questions about risks related to regulations a drop
in consumption high competition levels and EBITDA
erosion
Generally we expect a more stable landscape in 2018 in
terms of commodity prices and consumption However
risk regarding prices and volumes will remain strong
resulting in a higher volatility of revenues In our view
the current margin pressure is unlikely to ease over the
next two years The final overcoming of the sondashcalled
ldquoMaggior Tutela Regimerdquo may lead to almost zero margin
for the retail operators We expect industry participants
to continue to focus their attention on cost efficiency and
on protecting profitability by embracing new business
models and examining the role that digital technology
can play in improvement of EBITDA margins We believe
that the above described strategies will be a central
topic for the operators intending to attract capital We
also believe that energy producers could see a slight
debt increase in 2018 aimed at improving productivity
and synergies Finally in 2018 we envisage a significant
number of MampA operations in the sector led by synergy
effects such operations might produce
Water supply waste management and sewerage
In recent years the water supply waste management
and Italian sewerage industry has recorded a slower
growth compared to the pre-crisis period However
due to the last two yearsrsquo important investments in the
water infrastructure waste sorting and recycling Italy
ranks as one of the top European countries in terms
of growth rate of recycling and packaging recovery
We believe that the expected general increase in
industrial output will produce a slight growth in water
consumption and waste treatment The demand for
sustainable solutions will continue to persist requiring
new investment in technologies based on a customer-
centric and sustainable approach aimed at improving
efficiencies and facilitating reuse Expectations also
reflect our view in terms of wider government interest
and spending in this industry We expect profitability
to remain broadly in line with the results obtained in
2016
Construction
After a weak increase in revenues recorded by the
construction industry operators in 2016 and the
modest result anticipated in 2017 both reflecting
a deteriorating demand and decreased volumes of
bank loans (mainly those for small and medium-
sized companies) we expect 2018 to be the turning
point for this industry We foresee that the volume of
residential and private non-residential constructions
will remain at relatively low levels in 2018 and that
the positive trend in housing renovation and public
works investments will continue taking advantage of
the allocated funds established by the Budget Law for
2017 Small and medium-sized businesses focused on
residential construction may face a slight profitability
erosion while we believe some growth in EBITDA
margin may be recorded by large Italian companies
operating internationally Due to the high perceived
risk historically there has been a strong financial
market mistrust of the construction companies which
we believe is likely to ease over the coming years
Wholesale and retail trade
During the crisis period wholesale and retail trade
industry faced a sudden interruption of the gradual
growth that had taken place up to that moment mainly
due to a loss in real purchase power and in consumer
confidence also translated into profitability erosion
In 2016 the data showed how the industry is moving
toward a recovery period Looking forward in 2018 we
expect to record a steady revenue growth supported
by an increase in global trade and improved consumer
confidence Despite the foreseen growth operators
will continue to face consistent pressure mainly in the
retail segment due to the high proliferation of new retail
purchase channels and market fragmentation
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
34
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Transportation and Storage
After a troubled 2016 characterized by an overcapacity
and a decrease in commodity demand hitting shipping
revenues in particular we foresee a moderate overall
recovery in 2018 driven mainly by an increase in
international shipments and air traffic The growing
number of innovative startups will continue to persist
increasing the competitive pressure in the industry We
anticipate a constant growth of e-commerce enabling a
quick reaction of on-line retailer and logistics providers
We believe that operators will continue to invest in
new high-tech solutions experimenting new models of
mobility and smart logistics
Despite very strong competition we expect the median
operating margins to remain steady However global
political uncertainties and related risks are strong with
possible quick and sharp negative impact on business
volumes and margins of the companies operating in
these industries
Accommodation and food services activities
In the last two years operators in the accommodation
and food service activities industry mainly medium
and small sized enterprises have seen steady revenue
growth and satisfactory profitability ratios Many
operators were focused on reviewing their business
models and offering additional services to their
customers a necessary strategy to maintain or expand
market positioning strengthen margins and improve
customer experience We expect the revenue growth
to continue in 2018 with a minimal median margin
improvement We believe accommodation and food
service activities will attract new capital investments
in 2018 to help the ongoing transformation process
and improve the accommodation infrastructure and
services
Information and communication technologies
The Italian information and communication technology
industry took longer to recover from the economic
crisis recording overall a negative median growth
rate until 2014 Software services and innovation
technology were the major contributors to revenue
growth (as a percentage) in 2016
Over the forecast period we foresee a modest revenue
growth for the ICT operators as a whole while the
technology industry will continue to achieve rapid
growth focusing on maintaining the competitive pace
of innovation In our view a key challenge for the ICT
operator may be the availability of matching skills
The outlook is relatively stable in terms of profitability
and key financial indicators
The following two pages show the details of the
previously discussed key performance indicators
35
Exhibit 38 Growth rate and EBITDA margin manifacturing sectors
-70- 50 -30 -10 103 0
2016E2017F2018
50 70 90
Median=76
Median=3000
20
40
60
80
100
120
1=Automotive 2=Chemistryamppharmaceutics 3=Clothing 4=Equipment 5=Food beverage and Tabacco 6=Heavy Manifacturing 8=Paper and Packaging 9=Tecnology and Telecomunication 10=Textile industry
6
10 5
3
8
91
74
2
50AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
57599586886358
3849
3620083721
-110320
-1112
210322
-1814021122
1413
030124
-5010284025
0555
20-4614
-4607212105
0430
210328-2310203218
0832
2310300512233720
1637
Growth rate Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
EBITDA margin Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
Source Cerved database and Cerved Rating Agency elaboration
625296
1441401016934
15352
504969
103121
916227
10639
4764676185562639
68112
487368
7090592845
75120
456772
9288562845
7898
4667759090573147
7698
4668769394583147
77102
1=Automotive 2=Chemistryamppharmaceutics 3=Clothing 4=Equipment 5=Food beverage and Tabacco 6=Heavy Manifacturing 8=Paper and Packaging 9=Tecnology and Telecomunication 10=Textile industry
2016E2017F2018
Median=30
700
600
500
400
300
200
100
000000 020 040 060 080 100 120
Median=08
Exhibit 39 NFDEquity and NFDEBITDA for manifacturing sectors
2
4 8
101
9
9
3
57
Source Cerved database and Cerved Rating Agency elaboration
096AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
104146095152117112109
098087
087080116068118083088086
084078
075074104069107082080079
084083
072064100065105084122081
079081
082066104065105080091079
077082
081067103065105079087079
077081
076067101064104077083078
076080
NFDEQUITY Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
227AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
258334222397249255259
315202
338313443305495363403412
480337
315306436328479373380397
482316
264269490303467366403383
515317
269243507090106127090106
106106
413343478088105127088105
105105
399333465086104127086104
104104
NFDEBITDA Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
36
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Exhibit 40 Growth rate and EBITDA margin for wholesale and retail trade sectors
20 40 60 80 100 120 140 160
2016E2017F2018
Median=31
Median=33
0000
20
10
30
60
50
70
1=Automotive 2=Retail 3=Wholesale
40
3
12
2016E2017F2018
Median=45
700
600
500
400
300
200
100
000050 070 090 110 130 150 170 190
Median=11
Exhibit 41 NFDEquity and NFDEBITDA for wholesale and retail trade sectors
1=Automotive 2=Retail 3=Wholesale
21
3
37
Ratings will remain broadly stable
The following section presents a risk profile analysis
based on Cerved Rating Agencyrsquos outstanding and
monitored public and private ratings issued from
2013 to 2017 on Italian non-financial companies
and operating in the industries discussed in this
study (data as of 31 December)
Exhibit 42 and Table 9 show an overview of 1-year
effective default rates over the 2000-2017 horizon
related to the sample bankruptcy and other legal
proceedings and debt restructurings as default
events
The default rate trend shows a general
improvement from 2014 onwards both by
company size classes and by industry however
considering the entire sample the overall default
rate still remains higher when compared to its pre-
crisis level especially regarding smaller companies
operating in the construction sector
Exhibit 43 shows the effective default rates over
2013-2017 horizon based on Cerved Rating
Agencyrsquos definition which considers as default
events
middot bankruptcy and other legal proceedings
middot debt restructuring
middot missed or delayed disbursement of a contractually
required interest or principal payment ie missed
payment on bonds material protests (on cheques
or trade bills) or prejudicial acts (judicial mortgages
distraint of property)
The effective default rates over the 2013-2017
horizon show decreasing trend and satisfy the
monotonicity constraint regarding all Cerved
Rating Agencyrsquos rating classes (Exhibit 44)
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2003 2004 2005 2006 2007 2014 2015 2016 20172000 2001
5678
12
3
4
0
Exhibit 42 Avarage 1-year default rate by size over 2000-2017 horizon
medium small
2008 2009 2010 2011 2012 2013
Mining and quarring
Manifacturing
Electricity gas steam and air conditioning supplyWater supply sewerage
Construction
Wholesale and retail trade repair of motorTransporting and storage
Accomodation and food service activities
Information and communication
24221809
5212
282915
2529
38533424
13027
454830
4838
36542537
15929
424421
4323
23461921
13226
293226
3022
Source Cerved database and Cerved Rating Agency elaboration
Table 9 Default rate by industry over 2000-2017 horizon
Total
NACE Average2008-2015
Average2000-2017 2016 2017
2016
Source Cerved database and Cerved Rating Agency elaboration
C21C12C11B22B21B12B11A11 A12 A13 A21 A22 A31
60
50
40
30
20
10
0
Exhibit 43 1-year default rate over 2013-2017 horizon
20172013 2014 2015
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
38
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The analysis of historical rating distributions in the
same period shows clear differences in terms of modal
rating class by company size As shown in Exhibit 43
the modal rating class for the large companies is A31
B11 for the medium and B12 for small companies
(considering company size classes as they have been
defined ad hoc by Cerved Rating Agency for the
purposes of this study)
Overall the corporate rating distribution in the
Source Cerved database and Cerved Rating Agency elaboration
C21C12C11B22B21B12B11A11 A12 A13 A21 A22 A31
30
25
20
15
5
10
0
Exhibit 44 Rating distribution frequency by size classes
large
30
25
20
15
5
0
10
medium smallRating 2013 total Rating 2017 total Rating 2017 forecast
observed period is skewed towards the investment-
grade rating categories (ie Cerved Rating Agency
rating classes from A11 to B12) representing 700 of
the whole sample 250 is concentrated in the safety
(A rating classes) and 450 in the solvency (B11-B12)
classes
We anticipate the rating distribution to remain
broadly unchanged in 2018 with the rating migration
concentrated mainly in the B category
39
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100543
2414
4407
4407
2636
4554 4558
2403 2311
535 527
90
10
0
Exhibit 45 Rating distribution frequency by area of risk - Total companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency]I nvestment GradeA11-A31 [Safety]
2509 2604
704 4407706 4407716
324
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
985
5658
4407
3033 2992 2898
925 907
300 318
90
10
0
Exhibit 46 Rating distribution frequency by area of risk - Large companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
5783 5878
869 4407878 4407878
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
4407
4407
3626
4080
17591695
439 449
90
10
0
Exhibit 47 Rating distribution frequency by area of risk - Medium companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
3571 3776
7044407780 4407786
456
1805
774
4113 4232
603
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
2824
1900
4407
4673 4850 4761
2833 2754
600 633
90
10
0
Exhibit 48 Rating distribution frequency by area of risk - Small companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
1716 1852
657 4407657 4407661
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
40
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Slight improvement in general creditworthiness
In our opinion in 2018 the creditworthiness of the
observed Italian non-financial companies will remain
stable for almost 86 of entities Migration of ratings is
expected to be moderate resulting in approximately 14
of rating upgrades (9) and downgrades (5) at the end
of 2018 compared to the outstanding ratings at the end
of 2017 The vast majority of the rating changes (921)
will be limited to one-class migration as shown in the
1-year projected transition matrix (Table 10) We believe
that more than one third of the expected downgrades
will be concentrated in the energy gas mining and
construction sectors Over the last years the average
credit profile of companies active in these industries has
been relatively weak and due to the forecast market and
regulatory conditions we do not envisage opportunities
for a significant risk profile improvement in 2018
Despite the expected rating migrations for individual
entities in 2018 the current industry modal rating
classes are unlikely to change
On the other hand stable and positive outlooks will
prevail in the manufacturing industry wholesale and
retail trade and accommodation and food service This
is due to the increase in the number of companies
active in these sectors which will maintain andor
improve their business and financial performances
Indeed as shown in Table 11 in 2018 the rating outlook
remains differentiated by industry whilst in terms of
the expected general probability of default we foresee
a modest improvement (349) compared to the one
recorded in 2017 (366)
Table 10 1-year transition matrix
Source Cerved database and Cerved Rating Agency elaboration
2017
A11
A31
B11
C11
C12
B21
C21
B22
B12
A12
A13
A21A22
F 2018A11 A12 A13 A31 B11 C11 C12B21 C21B22B12A21 A22
000 530
066
054 451034 435
027 753055 901
1033121247 1624
260 1038088
000
000000037
028
295
290
1063
179
455050647
043425
026490020208
000208
000152
000000
00000010000
9821
9318
92679015
87708583
81497646
8665
9617
9710
8605
419024
41
The information and data supporting Cerved Rating Agency rating opinions related research and credit opinions originate from sources Cerved Rating Agency considers to be accurate however Cerved Rating Agency cannot independently verify the reliability and accuracy of the information and data in every instance This publication may not be reproduced retransmitted or distributed in any form without the prior written consent of Cerved Rating Agency Cerved Rating Agency assumes no liability for correctness completeness and topicality of the information contained in this publication The analyses underlying this study do not provide advice of any sort
26
n
6670
486
59
Exhibit 49 Ratings outlooks by size
Large
Medium Positive Stable Negative
Small
21
13
Large
Medium
Small
Source Cerved database and Cerved Rating Agency elaboratio
Table 11 Ratings and probability of default 2018 outlook by industry
Source Cerved database and Cerved Rating Agency elaboration
NACE Micro industryDowngrade
B-Mining and quarryingAutomotive
900814
848
812
880812
847
813 172
170
174
144
8264 36
08
104 433 436
392 373
22724815
362 360
876
876
914
848
849
804
887
882
916
901835870899 64
866760
43
68
5659
58
47
61
49
74
78 75
14
50
37
36
5393
32
50
41
45
3899
77
91
316
372
355
364
308
491
326
318 296
331
312
381
367
359
322
495
452
433
403429
389
364369
363
313
452
323
594
38
315358
603
307
345 350
67 5318
469289 274
470
147
116
138
851
821AutomotiveRetail
Wholesale
Total
Chemistryamppharmaceutics
ClothingEquipment
Food Beverage and Tabacco
Heavy Manifacturing
Other Manifacturing
Textile industry
Total
Tecnology Media ampTelecomunication
Paper Packaging ampForest products
C-Manifacturing
D-Electricity gas steam and air conditioningsupply
F-Construcion
H-Transportig and storageI-Accommodation and food service activitiesJ-Information and communication
G-Wholesale and reatail traderepair of motor vehicles and motor-cycles
E-Water supply sewerage waste
Average ForecastPD 2018
Expectedtrend
Average PD 2018
Ratings outlooks
Stabl pgrade
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Cerved Rating Agency SpAVia dellrsquoUnione Europea n 6A-6B20097- San Donato Milanese (MI)
Tel +39 02 77541 - Fax +39 02 76020458
ratingagencycervedcom
Rating Agency
10
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
European economy Outlook 2018
11
Euro area gdp grows unemployment falls
GDP growth in the euro area rose around 21 in
2017 and is predicted to continue at a broadly similar
pace in 2018 Furthermore the unemployment
rate will continue to follow a declining trend and is
forecast to fall to 87 in 2018 (from 92 in 2017)
Industrial production improvement
Investments will accelerate and the international
environment will contribute positively to an increase
of exports (in line with the global growth) which will be
one of the principal driver of an industrial production
improvement in 2018
Further credit activity expansion
Across the euro zone countries companies are
benefiting both from eased lending conditions
and increase in the number of alternative lenders
The total amount of loans to households and non-
financial corporations grew by approximately 14
in 2017 whilst in 2018 it is predicted to increase more
slowly especially in the non-financial corporate
sector
Inflation rate to be stable
Consumer price inflation accelerated at the
beginning of 2017 mainly due to a rise in energy
prices The harmonized index of consumer prices
(HICP) is estimated at 15 in 2017 In 2018
the impact of energy inflation is expected to
decline resulting in a lower inflation rate outlook
(approximately 14)
Germany
France
ItalyEuro Union
Spain
UK
OthersSource IMF ECB OECD
20112010 20132012 2014 20162015 F20182017
20
0
60
40
80
100
0
-1
2
1
3
4
Exhibit 5 Contribution to European growth European Union
EPU Index euro areaIndustrial production euro area (Y-O-Y change)
Source IMF ECB OECD
2011 2015 2017
-2
-2
-3
-1
-1
1
1
0
2
2
3
100
0
300
200
250
400
450
500
Exhibit 7 Industrial production and policy uncertainty index euro area
2010
350
150
50
20182013 2014 20162012
Euro Area
Source ECB
20112010 20132012 2014 20162015 2017
500
0
1500
2500
2000
3000
1000
10000
9900
9800
9700
9600
9500
9400
9300
9200
Germany Spain France Italy
20112010 20132012 2014 20162015 20182017
BCI euro area
CCI euro area
Source IMF ECB OECD
96
95
98
97
99
101
102
100
103
0
-1
2
1
4
3
5
Exhibit 6
CERVED RATING AGENCY SpA | European economy Outlook 2018
12
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Highlights on italian economy
13
Gdp growth is under way to consolidate in 2018
From 2000 to 2017 the Italian economy was more
vulnerable compared to other highly developed
countries in particular those of the euro area
The Italian real GDP at the end of 2017 was roughly
at the same level recorded in 2000 whilst the euro
area countries and specifically Germany and France
experienced a considerable growth in the same period
(188 205 and 198 respectively)
The Italian GDP has started to increase moderately only
since 2014 mainly due to an improvement in domestic
demand but its growth still remains below the growth
rates of the majority of euro zone countries The poor
performance of the labor and total productivity factor
accounts for most of the difference
An ageing population and a weak labor market
participation have also contributed negatively to
potential growth Structural reforms in particular the
Jobs Act and tax incentives on new labor contracts
contributed to the increase in employment making the
Italian labor market more flexible and efficient
In 2018 we expect the economic growth to be slightly
below the level reached in 2017 The trend will be
sustained by the world economy positive cycle
including higher levels of international trade volume
Italian companies will benefit from favorable credit
lending conditions due to an expanding credit activity
of the banking system and low interest rates
Whilst the Italian government adopted a set of dynamic
and diverse policies for 2018 we believe that some of
those previously introduced have already contributed
to the GDP growth in 2016 and 2017 thus reducing the
combined effect in 2018
Source World Bank
2000 2002 2004 2006 2008 2010 2012 2014 2016
1500
1000
500
0
2500
3500
3000
4000
2000
13000
9500
10000
11000
12000
12500
10500
11500
Exhibit 10 GDP in Europe ($ billion)
Germany Italy Euro areas (11countries)France
Total multifactor productivityEmployment growth
Source OECD
-2
-4
-6
-8
2
0
4
6
Exhibit 9 Italian GDP employment and total multifactor productivity (Y-o-Y change)
2000 2002 2014 20162004 2006
GDP growth
20122008 2010
CERVED RATING AGENCY SpA | Highlights on italian economy
14
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The number of active companies has increased buthellip
The number of active companies in Italy registered at
the Chamber of Commerce as of December 31st 2016
amounted to 5145995 305629 more than in 2000
(63)
The increase in registered active companies is the result
of the positive trend from 2000 to 2008 (98) partially
cancelled by the decrease from 2009 to 2016 In 2017 a
slight improvement is expected to be recorded however
the number of active companies remains below its peak
value (5316104 entities) reached at the end of 2008
Exhibit 11 shows both the trend of active Italian companies
in the period 2000-2016 and their breakdown by legal
form We observe that the increased number of Joint Stock
Companies and particularly Limited Liability companies
(1206) was able to compensate the decrease in Unlimited
Partnerships (-62) and Sole Proprietorships (-79)
Companies are abandoning traditional sectors
Exhibit 12 shows the breakdown of the Italian active
companies at the end of 2000 and 2016 by industry
It can be observed that in many traditional sectors
the number of active companies decreased eg in
agriculture (-294) and manufacturing (-226) whilst
the number of companies increased in construction
(273) and wholesale and retail trade (39)
A very significant rise in the new registered companies
(456) occurred in other industries in particular
in the service industry offering information and
communication IT and professional scientific and
technical services
Joint Stock and Limited Liability Unlimited Partnership Sole proprietorshipO ther forms
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 2012 2013 2014 2015 20160
6000000
5000000
4000000
3000000
2000000
1000000
Exhibit 11 Italian active companies 2000-2016
Total
Source Movimprese and Cerved Rating Agency elaboration
Exhibit 12
Breakdown of the Italian active companies by industry 2000-2016
2000
635286 13
1059005 22
639778 13
589707 12
183 856 4 226964 5 150772 3
1354998 28
965452 19
747738 14
495247 10
750863 15
150888 3
379899 7 247187 5
1408721 27
2016
C Manufacturing
F Construction
H Transporting and storage
I Accommodation and food service activities
L Real estate ativities
G Wholesale and retail traderepair of motor vehicles and motorcycles
X Other
15
Number of bankruptcy and other legal proceedings to decrease further
From 2000 to 2016 the number of bankruptcies and
other legal proceedings protests and prejudicial
acts in Italy mirrored the general trend of the
Italian economy
After reaching its minimum level in 2007 (5969)
the number of bankruptcy procedures in the
period 2009-2014 increased dramatically reaching
its peak value of 15608 in 2014
With the improvement in the economic and financial
environment starting from 2015 the number of
bankruptcy procedures decreased sharply in all
macro sectors returning approximately to the
levels recorded from 2000 to 2006 A positive
trend was recorded also in 2017 bankruptcy
procedure initiated for 11937 companies -113
when compared to the same period in 2016 In
absolute terms the highest number of bankruptcy
procedures was recorded in the service sectors
followed by the construction and manufacturing
Worth mentioning is the design of a new Italian
bankruptcy law that should be approved by
October 2018 The regulatory framework aims at
more efficient resolutions of cases of company
crisis supporting continuity of its operating
activities and safeguarding the interest of creditors
by introducing innovative solutions such as pre-
crisis warning mechanisms
Other legal proceedings after reaching its
maximum level in 2013 (3593) in 2016 came down
to 1993 and the trend continues in 2017 evidencing
1866 procedures -64 when compared to the
same period in 2016
In the last five years new protests and prejudicial
acts have also shown a decreasing trend with
ndash527 and ndash70 of acts respectively in 2017
compared to the numbers recorded in 2013
-6
Exhibit 13 Bankruptcy
BankruptcySource Cerved databaase
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
10729 108311163612287
10338
59697307
9189
1108812022
12437
14031
1560814682
13459
11937
Other legal procedingsSource Cerved database
1500
1000
500
02000
940 994 1125 1211
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
2500
3500
3000
4000
2000
1110
16691540
18702094 2057
2342 2475
3593
3132
2720
1993 1866
Exhibit 14 Other legal procedings
1211
100 45000
4000090
80
70
60
50
40
30
20
10
02015
35000
30000
25000
20000
15000
10000
5000
02013 2014
Protets
703
297
41438
Total
Source Cerved database
Prejudicial acts
2016 2017
665
335
34527
570
43032660
527
473
546
454
2523828929
Exhibit 15 Protests and prejudical acts
CERVED RATING AGENCY SpA | Highlights on italian economy
16
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Core inflation rate to rise
Italian headline inflation will experience a modest
decline in 2018 compared to the previous year
(12 and 14 respectively) Core inflation
however is predicted to increase to 12 in 2018
(up from 10 in 2017)
Exports and import are accelerating
Exports and imports will both accelerate in 2018 (41
and 44 respectively) mirroring the positive trend
and expectations in global trade and the rising of the
external demand Machinery and equipment industry
will still remain in ldquopole positionrdquo due to companies
generous investment and tax incentives In general
in 2018 Italian exports will increase more in the Extra
European Union countries
Investment continues to gain strength
Investment has gained strength and will continue to
do so at a relatively fast pace supported by effects of
the tax incentives (Stability Low 2017) low interest rate
and improvements in business confidence Indeed
investments are expected to increase 30 in 2018
(up from 24 in 2017) Construction investments are
forecast to accelerate slightly also thanks to more
resources earmarked for public investment
Harmonised core infation
Source OECD and IMF
2003 2006 20092000 2012 2015 F2018
2
1
-1
0
4
3
5
6
Exhibit 16
Imports of goods and services (Y-o-Y change)
Exports of goods and services (Y-o-Y changes)
Total dometic demand (Y-o-Y change)
Source OECD and IMF
20062000 2015 F2018-5
-15
-20
5
0
-10
10
15
Exhibit 17 Exports imports and demand Italy
20122003 2009
Wholesale and retail trade (Y-o-Y change)
Total investments ( of GDP)
Heavy industry (Y-o-Y change)
Other services (Y-o-Y change)
Source IMF and ISTAT
Construction (Y-o-Y change)
20062000
-20
-30
10
0
-10
20
30
20
25
15
10
0
5
F2018
Exhibit 18 Investments by industry Italy
2003 2009 2012 2015
17
No room for significant public debt reduction
At the end of 2016 the Italian government debt-to-GDP
ratio was significantly above its level at the beginning of
the century In particular as of December 31st 2016 the
ratio was 1326 (262 with respect to 100 recorded
at the end of 2000)
In the same period the ratio for the euro area increased
from 681 to 913 (341) in Germany from 589 to
683 (159) and in France from 586 to 960 (638)
At the end of 2017 the Italian government debt increased
further to more than euro2300 billion 1350 of GDP The
debt servicing in terms of interests accounts roughly
50 of Italian GDP
In our view the high level of government debt
represents a key factor limiting Italian economic growth
and contributes eo ipso to increasing country risk
with a possible negative impact on the stability of the
international financial system
A possible increase in interest rates would raise the
cost of debt service potentially triggering a crisis due to
larger governmental deficits a slowdown in economic
activity and growing debt refinancing difficulties due to
higher risk perceived by investors
Hence it seems that a significant reduction in
government debt should be the main goal of the Italian
economic and financial policy in our opinion however
the achievement of such a result is not realistic neither
in the short nor in the medium term due to the following
factors
middot economic growth in the coming years is expected
to be moderate not sufficient to be the main source of
the government debt reduction
middot macroeconomic policy is expected to prioritize
investments employment social security and welfare
rather than government debt reduction
middot even if the inflation rate hits the target value (20) the
impact on the government debt in the short term is not
expected to be considerable
middot finally in Italy election will take place in spring 2018
with a new government taking over the economic
program that has already been approved and become
fully executive
Euro area
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 2012 2013 2014 2015 20160
20
40
60
80
100
120
140
Exhibit 19 Public debt as GDP
France
Source AMECO and Cerved Rating Agency elaboration
CERVED RATING AGENCY SpA | Highlights on italian economy
18
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Table 1
Amount ( 407 312
-327
327754
216074 190881
163248 345604188167
869
1543
2213
1793
CAGR (base year 2000)
CAGR (base year 2008)
NPL ratio ()
Ndeg debtors
Averae debt debtor
Valueindicator 2000 2008 2016
Source Bank of Italy and Cerved rating Agency elaboration
Credit activity to be expanded interest rates to remain at very low levels
As of December 31st 2016 the volume of bank loans
granted to Italian non-financial corporations amounted to
euro8604 billion
The period 2000-2016 was characterized by two different
trends from 2000 to 2011 the annual outstanding loans
value increased by 841 (euro454 billion reaching in 2011 its
highest level ever of euro993 billion thanks to 57 CAGR far
above the Italian GDP growth) whilst in the period from
2012 to 2016 loans decreased by 134 (euro130 billion)
reflecting a negative -28 CAGR The loan reduction hit
sharply construction and manufacturing (accounting
for about 400 of all loans) which experienced -227
and -135 decrease in loan volumes whilst agriculture
forestry and fishing and wholesale and retail trade
(including repairs of motor vehicles and motorcycles)
had more limited loan contraction (-08 and -53
respectively)
In the observed period due to the negative impact of the
global financial crisis 200708 and to structural changes in
the world economic and financial environment a radical
decrease in interest rates was recorded In 2017 the
interest rates charged to Italian non-financial corporates
were on average less than half compared to those charged
in 2000 In the medium term low interest rates will remain
a positive factor fostering investments and consumption
Non-performing loans to be further reduced due to innovative measures
The credit crunch had a huge and dramatic impact on
the Italian economy hitting especially small businesses
which are not able to survive in a radically changed market
conditions The evidence of such outcome can be seen not
only through the decreased number of active companies
but also via the enormously increased volume of the
non-performing loans (NPLs) In particular these loans
amounted to euro324 billion at the end of 2016 of which euro154
billion were granted to the non-financial corporations as
shown in table 1
Following the principles outlined in the ECB guidelines
published in March in 2017 Italian Banks made significant
progress in reducing the amount of the NPLs ndash estimated
to be over euro50 billion debt reduction Any further actions
aimed to improve the banking balance sheets should not
increase the financial hardship of still operating companies
North - East SouthNorth - West Center Islands
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 2012 2013 2014 2015 20160
1200000
1000000
800000
600000
400000
200000
NPLs ratio
Source Bank of Italy and Cerved Rating Agency elaboration
20
1816
14
1210
8
6
42
0
446393
euro billion)
19
Modest role of italian equity capital markets
Despite the number of listed companies increasing
from 297 to 421 in the period 2000-2017 the role
of the stock markets remains modest in Italy
As of December 31st 2017 the market capitalization
was euro640 billion (375 of the estimated Italian GDP
in 2017) representing only 782 of the overall
market capitalization recorded in 2000 (equal
to euro818 billion 687 of GDP) mainly due to
an unfavorable economic cycle in the observed
period
This situation shows the structural weaknesses of
the Italian economic and financial system especially
when compared to other highly developed
European economies The low propensity to
raise equity capital through organized markets
is linked to an unfavorable macroeconomic and
fiscal framework as well as to the predominance
of SMEs mostly unfit for listing and presenting
cultural obstacles (ie company owners and managers are often reluctant to accept wider company control and
transparency)
Hence self-financing and bank borrowing remain the main sources of finance for Italian companies which are
generally speaking undercapitalized with a negative impact on their investment capabilities Very frequently the
lack of medium-long term financing means forces companies to focus their attention on running current activities
postponing or abandoning strategic projects fundamental for company growth
A wide range of innovative initiatives have been undertaken with the aim of fostering market based company
funding in particular
middot AIM (Alternative Investment Market) - a specialized market segment dedicated to SMEs growth (95 companies and
market capitalization around euro56 billion as of December 2017)
middot ELITE - a programme designed to help SMEs prepare and structure for the next stage of growth their through
access to long-term financing opportunities
middot PIR - Piani individuali di risparmio (Individual Savings Plan) - an innovative way to fund Italian SMEs by offering retail
investors resident in Italy tax incentives (full exemption of 260 income tax) if the savings stay invested for at least
five years A minimum of 700 of such credit assets must be invested in financial instruments issued by Italian or
foreign (EU and EEA) companies permanently established in Italy
FTSE (MIB)Enterprises
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 20132012 20152014 201720160
100
200
300
400
500
600
700
800
900
100029681 29525
14623
1765216121
12259
13512
16048
15988
19012
21428
21853
2185322232
16954
297 294 295 279 282278 311 336 332 332 328 323 326344 342 356 387 421
19483
22886
26056
31005
Exhibit 21 Italian listed enterprised and FTSE (MIB) index trend
Source Borsa Italiana
300000
250000
200000
150000
100000
5000
0
Capitalization of GDP
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 20132012 20152014 201720160
100
200
300
400
500
600
700
800
900
1000
Exhibit 22 Italian market capitalization of listed companies ( of GDP)
Source Borsa Italiana
80
70
60
50
40
30
20
10
0
8184
5923
354 365418 473
524475
239301 275
210233
287 295348
318375
4580 4875
5809
6766
77857336
37474571
4251
3324
44664678
56765249
6400
3655
474
68
CERVED RATING AGENCY SpA | Highlights on italian economy
20
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Italian debt capital market is growing but still remains behind needs
At the end of 2016 the outstanding amount of debt
securities issued by Italian financial and non-financial
corporations was euro8615 billion 510 of the countryrsquos
GDP The table below shows the breakdown by issuer
type of Italian German French British and United States
outstanding amounts of debt securities as of December
2016 issued by financial and non-financial corporations
with the respective debt-to-GDP ratio
Despite the outstanding debt at the end of 2016 being
almost double compared to 2000 it represents only 23
of its peak value reached in 2012 (euro1290 billion Exhibit
23) The main reason for such a significant debt reduction
is the huge bond reimbursement realized by banking
institutions from 2013 to 2016 and the related negative
net flow of debt securities (respectively -80 -153 -106
and -67 billion of euro as shown in Exhibit 24)
The decrease in debt securities funding of Italian banks
has been compensated by a wider use of deposits and
resources available under the Eurosystem refinancing
operations framework
The outstanding amount of debt securities issued by
non-financial corporations at the end of 2016 also
doubled its value with respect to the amount recorded
at the end of 2000 The main characteristic of this cluster
is the high concentration of issuancesdebt to a small
number of issuers
Due to both more favourable general economic
conditions and active ECB monetary policy bond yields
have decreased significantly providing room for a
convenient fund raising
Since the introduction of a new regulatory framework
(lsquoDecreto Svilupporsquo) in 2012 up to October 2017 Italian
market saw 300 small-size listed bond issues (ie so
called minibonds) amounting approximately to euro143
billion Issued mainly by SMEs they offer interesting
yields to institutional investors
) Source Business support SpA ndash Minibonditalyit
BanksTotal
Source Bank of Italy and Cerved Rating Agency elaboration
2006 20082000
-200000
200000
250000
-150000
-100000
150000
100000
-50000
50000
02012 2014 20162002 2004 2010
Banks debt securities outstanding
Banks Debt to GDP ratio
Source Bank of Italy and Cerved Rating Agency elaboration
0
10
20
30
40
50
60
70 1400000
1200000
1000000
800000
600000
400000
200000
0201620142012201020082006200420022000
Table 2 Outstanding securities debt (euro Million)Debt-to-GDP ratio()
Financial corporates
Total
Debtsecurities
outstanding
Italy German rance United Kingdom United States
739
123
862
440 340 470
21
680380
40
1279 1331 4 50
880
30
14271
14820
549180
10202767
590
19211436
15770
510
Debtsecurities
outstanding
Debtsecurities
outstanding
Debtsecurities
outstanding
Debtsecurities
outstanding
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Source Bank of Italy
0
0
21
CERVED RATING AGENCY SpA | Highlights on italian economy
22
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Italian non-financial companies economic Outlook 2018
23
Data and method
This research focuses on Italian non-financial companies
with an annual turnover exceeding euro5 million With the
aim of using only reliable data joint stock and limited
liability companies have been considered only these
entities according to Italian law file complete annual
financial statements in the Chamber of Commerce
together with anagraphical company data other
legal forms such as unlimited partnerships and sole
proprietorships are not included in this sample due to
the lack of publicly available standardized financial data
We believe that this cutoff is reasonable and allows us to
perform a methodologically correct analysis In 2016 the
above mentioned companies despite representing only
42 of all registered and active joint stock and limited
liability companies accounted for 769 of their total
turnover
Moreover cluster specialization has been obtained by
NACE activity classification from A to J (thus not including
in the sample financial and insurance companies and
some service industries) The statistics regarding specific
industries provide important key data and enable us to
examine historical and prospective trends and cross-
sector comparisons
The Cerved database which contains legal anagraphical
financial and market information on all Italian registered
legal entities (approximately 6 million comprising 5
million active ones) was the most important database
used for this research Long time series and broad
homogenized and standardized data covering different
economic cycles were the building blocks to perform
the regression and predictive analysis
Historical and forecast macroeconomic data and
analysis performed by the International Monetary Fund
OECD the World Bank European Central Bank Bank
of Italy and ISTAT completed the dataset used for the
analysis
Several analyses were performed in order to examine
the structural differences within the sample in terms of
company legal form and geographical area (Exhibit 25)
company age (Exhibit 26) and company size and industry
As a result we verified a considerable heterogeneity of
companies in particular with regard to the company size
across various industries
The relevant observation period comprises the years
between 2000 and 2016 Table 3 describes some
characteristics of the sample
Exhibit 25 Sample break-down by legal form and geographic area (2016)
Joint stock Company
Limited liability Company
Area 1 (Northwest)
Area 3 (Center)
Area 2 (Northeast)
Area 4 (South)
39
20
27
14
33
67
33
Table 3 Sample characteristics 2000-2016
TotalTurnover
gt euro5million
Turnover gt euro5 million(industry
from A to J)
TotalTurnover
gt euro5million
ofTotal
Turnover gt
euro5 million(industry
from A to J)
Source Cerved database
Entreprises Turnover billion
2000 659867700717738558772442812025847334883122915172937018949708965744969581
953505945825922513883224
4215144587462234694749640518205596459226595385246754808563745362752074519385289450123
3686139038411864118843547454704921752274526974633848778504734806246843468384771845288
16151740177018472002212923302477256822562421257025202446243224392295
12661362139214561588169818752000208317861944208720541992198419871905
11141205124013041430152316891801189716191764191218831839183518371765
689693700
716
706714
725
718729744748752754753769
727739
200120022003200420052006
200820092010201120122013201420152016
2007
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
24
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Furthermore in order to guarantee more detailed and
accurate analyses and projections we decided to create
a static pool to show consistently long time horizon
economic trends (17 years) by sealing off all the active
companies over the 2000-2016 horizon
The outcome obtained by considering the behaviour of
specific variables related to the companies included in
the static pool was extended as a performance indicator
for the whole sample (turnover over euro5 million and
industry from A to J)
According to the European Communityrsquos definition of
SMEs using annual turnover and employee headcount
as quantitative criteria the initial sample of companies
and the static pool can be classified by size classes on
the basis of the financial statements for the year 2016
as shown in Table 4
For the sake of this analysis we defined specific size
classes for each industry thus deviating from the
European Commissionrsquos recommendation which
presents undifferentiated upper and lower bounds of
quantitative criteria for SMEs in all industries To define
the thresholds of such classes we used both a statistical
approach (a specific cluster procedure by minimizing
the within-cluster turnover standard deviation) and a
judgmental approach by relying on the experience and
opinion of our industry expert analysts Table 5 shows
the results of such analysis referring to the sample in
2016 (45288 entities) and the NACE sections from A
to J Moreover the NACE section C and G were further
disaggregated into sub-industry classes as shown in
Exhibit 27 in order to consider the specific business
differences within these NACE sections thus ensuring
a good fit and a satisfactory accuracy of the estimation
Exhibit 26 Sample break-down by company age classes
0-2 Years 2-5 Years 5-10 Years 10-20 Years gt20 YearsSource Cerved database and Cerved Rating Agency elaboration
0 20 40 60 80 100
ABCDEFGHIJ
A = AgricolutreB=Mining and quarryingC=ManufacturingD=Electricity and gasE=Water supplyF=ConstructionG=Wholesale and retail tradeH=Transporting and storageI=Accomodation and food serviceJ=ICT
Small
Annul Turnover
Empolyees
Static Pool
Enterprises(Turnover gt euro5 million)
Enterprises(Turnover gt euro5 millionindustry from A t J)
Medium Large
lt 50 lt 250lt 36774 11113
1005333223
8741
2236
2012
154818645
gt euro50 million
gt 250
lt euro50 million
Source Cerved database
NACE Micro industry
B-Mining and quarryingAutomotive
Automotive
Retail
Wholesale
T gt 480
T gt 80
T gt 260
T gt 265T gt 270
T gt 230
T gt 120
T gt 80
T gt 43
T gt 65
T gt 106T gt 106
T gt 360T gt 155T gt 150T gt 100
T gt 120
T gt 225T gt 1400T gt 27500
T gt 1500
ChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther Manifacturing
ICTTextile
Paper Packaging ampForest products
C-Manifacturing
F-Construcion
H-Transportig and storageI-Accommodation and food service activities
J-Information and communication
D-Electricity gas steam and aircoditioning supply
G-Wholesale and reatail traderepair of motor vehicles and motorcycles
E-Water supply sewerage waste management and emediation activities
Large (Turnover
in euro million)
Medium(Turnover
in euro million)
Small(Turnover
in euro million)
Source Cerved database and Cerved Rating Agency elaboration
60 lt T lt 480 5 lt T lt 60
5 lt T lt 20
5 lt T lt 36
5 lt T lt 35
5 lt T lt 44
5 lt T lt 40
5 lt T lt 20
5 lt T lt 26
5 lt T lt 250
5 lt T lt 185 lt T lt 305 lt T lt 265 lt T lt 205 lt T lt 37
5 lt T lt 335 lt T lt 40
5 lt T lt 255 lt T lt 585 lt T lt 1155 lt T lt 1005 lt T lt 27
20 lt T lt 80
36 lt T lt 26035 lt T lt 26544 lt T lt 270
40 lt T lt 230
20 lt T lt 120
26 lt T lt 80
18 lt T lt 43
250 lt T lt 1500
20 lt T lt 6537 lt T lt 29540 lt T lt 15533 lt T lt 15025 lt T lt 100
27 lt T lt 120
58 lt T lt 225
100 lt T lt 27500 115 lt T lt
30 lt T lt 10626 lt T lt 106
25
Exhibit 28 shows the breakdown of macro industries
analysed including disaggregation of the NACE section C
(manufacturing) and G (wholesale and retail trade repair
of motor vehicles and motorcycles)
In order to carry out the analysis and projections this study
is focused on we used simple multiple linear regression
model for each industry and company size classes
considering macroeconomic and individual companiesrsquo
economic and financial data
The analysis enables us to develop an econometric
model used to estimate likely credit quality changes (in
terms of rating class and probability of default) for single
industries and company size classes
Automotive
Retail
Wholesale
21
1366
1
42
1
26
35
232
6
A B C D
F G H I
46
7
21
1318
9
15
34
Automotive
Chemistry amp pharmaceutics
Clothing
Equipment
Food Beverage and Tabacco
Heavy Manifacturing
Other Manifacture
Paper Packaging amp Forest Products
ICT
Textile industry
Large SmallMedium
Source Cerved database and Cerved Rating Agency elaboration
0
Wholesale
Retail
Automotive
20 40 60 80 100
Automotive
Chemistry amp pharmaeutics
Clothing
Equipment
Food beverage and Tabacco
Heavy Manifacturing
Other Manifacturing
Paper Packaging amp Forest Products
ICT
Textile
0 20 40 60 80 100
ABCDEFGHIJ
0 10 30 40 60 70 80 90 100
Exhibit 28 Sample break-down by industry (2016)
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
26
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Performance indicators to improve further
The annual financial statements available through public
registers provide a clear economic and financial picture
of the Italian joint-stock and limited liability non-financial
companies The individual historical data available from
2000 to 2016 enriched with 2017 preliminary results and
with the expected 2018 macroeconomic scenario enabled
us to build up the 2017 and 2018 projections regarding
the following four performance indicators related to the
analyzed sample 1) growth rate - revenues YoY change
2) EBITDA margin 3) net financial debtEBITDA and 4) net
financial debtEquity Afterwards the median values of the
resulting data were used to obtain the summary output
which we consider as a representative proxy for the overall
market
From 2000 to 2016 the observed companies experienced
a very irregular trend both in terms of growth rate and
EBITDA margin In the aftermath of the global financial crisis
the lowest growth rate value (-120) was recorded in 2009
manufacturing transporting - storage and wholesale and
retail trade were the industries showing the biggest fall of
business volume (-155 -121 and -104 respectively)
whilst water supply accommodation and food service and
electricity and gas showed the highest level of resilience to
the adverse economic and financial environment (-01
-23 and ndash26 respectively) Exhibit 29 shows that in
terms of median value there are no significant differences
in the growth rate taking into consideration company size
classes as we previously defined them Only from 2010 the
growth rates turned positive but still remaining below the
levels recorded in 2000
The analysis of the EBITDA margin changes in the same
period also does not highlight significant differences
between large companies and SMEs as shown in Exhibit
30 The lowest median EBITDA margin value (52) was
recorded in 2012 regarding in particular accommodation
and food service transporting and storage and agriculture
sectors (28 40 52 respectively) while electricity
and gas ICT and water supply were relatively immune to
the unfavorable economic and financial circumstances
(showing 113 109 and 105 EBITDA margin
respectively) At the end of 2016 the median EBITDA margin
(60) still remains below the levels recorded in 2000 (72)
Positive trends emerging from the last publicly available
financial statements (2016) the 2017 preliminary results
and the optimistic macroeconomic forecasts for 2018
confirm improvement of the Italian economy Looking
ahead we expect the Italian non-financial companies to
continue to experience gradual recovery in 2018 They are
going to take advantage of the favorable global economic
cycle low interest rates and supportive regulations that
inter alia foster the use of alternative non-bank financial
sources for company funding The financial resources raised
through Individual Savings Plans (PIR ndash Piani individuali di
risparmio) introduced by the 2017 Budget Law are driven
in primis by a favorable tax regime for savers and might
become an important additional source for SMEs funding
injecting new liquidity The government objective fixed euro68
billion as a target value and in 2017 nearly euro10 billion had
already been raised
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2004 2006 2014 20162000
5
20
10
0
15
-15
-10
-5
Exhibit 29 Growth rate (revenue YoY change) by size classes (median)
medium small
2008 2010 2012
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2004 2006 2008 2010 2012 2014 20162000
7
10
9
8
6
5
4
3
7
10
9
8
6
5
4
EBITDA margin by size classes (median)
medium small
27
So far one of the main obstacles PIR are facing is the limited
number of available assets which may lead to a possible
concentration of this financial resources in a small share of
the market comprising mainly relatively large companies
as shown by the early data in 2017
Another obstacle to rapid adoption of the newly available
financial resources is the lack of a standardized and broadly
accepted methodology for the risk assessment of potential
bond issuers
Generally speaking in 2018 we expect SMEs to contribute
more significantly to growth employment and innovation
whilst on average the respective EBITDA margin will remain
broadly stable (as shown in Exhibit 31) However 2018 will
still be a challenging year for SMEs and innovative startup
companies as they will have to face tougher barriers in
accessing bank credit andor approaching capital markets
compared to large companies We also expect some new
innovative solutions aimed at meeting SMEs financial needs
to become effective the SMEs current financial structure
together with new business opportunities prove their
ability in terms of rational use of the additional financial
resources
The new investments will allow most industries to thrive
also assisted by the Italian Governmentrsquos adoption of the
National Industry 40 Plan
The companies which will take up this opportunity may
improve their cash-flows even in the short-medium term
Finally companies with strong international market
positioning and large product diversification will have
stronger sales and margins growth
The key ratio values recorded from 2000 to 2016 related to
the analyzed entities show the improved financial health of
the companies proving good capability to strengthen their
equity base as shown in Table 6
Growth rate (2016)Medium
Total
Small Large
Growth rate (2018)Growth rate (2017)
Source Cerved database and Cerved Rating Agency elaboration
50
40
Exhibit 31 Growth rate and EBITDA margin forecast by size classes
EBITDA margin (2016)EBITDA margin (2018)
EBITDA margin (2017)
40
30
0
10
20
Medium
Total
Small Large
7570
65
0
6 5560
5550
4540
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
28
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The recorded financial ratios in the 2000-2016 horizon
indicate that on average
middot liquidity maintained a satisfactory level in the whole
observed period due to the positive economic cycle in
2017 and 2018 we expect a slight improvement in the ratio
middot the EBITDAinterest coverage ratio almost doubled its
value in 2016 compared to what was recorded in 2000
primarily due to a general reduction in the interest rates
particularly in the last three years we believe that in 2017
and 2018 the average ratio value will remain roughly at the
same level recorded in 2016
middot in 2016 ROE shows further improvement but is still
slightly lower compared to the value recorded at the
beginning of the observed period mainly due to the equity
base strengthening trend
middot Equity Ratio rose from 250 to 350 due to a significant
increase of equity capital in 2018 we expect further
strengthening of the ratio
middot Financial LiabilitiesTotal Assets ratio remained mostly
unchanged ndash financial debts representing roughly 30 of
the total assets
A positive trend regarding the net financial debt was also
observed in fact in 2016 70 of the sample improved their
NFDEBITDA and 73 the NFDEquity
Positive performances were found especially in the SMEs
segment as shown in Exhibit 32 in particular referring to
NFDEquity small and medium-sized companies recorded
a positive trend standing respectively at 092 and 089 in
2016 compared to 132 and 136 in 2000
Hence the financial risk profile appears to be well balanced
leaving no room for specific concerns regarding the
prospects of the Italian non-financial companies in 2018
In 2016 the median values for the total sample referring to
NFDEquity and NFDEBITDA remained respectively at 089
and 389 levels respectively
Looking ahead we expect these indicators to remain at
healthy levels in 2017 and 2018 with a slight improvement
in NFDEBITDA and a broadly stable level of the NFDEquity
ratio as shown in Exhibit 33
NFDEBITFA (2016) NFDEBITFA (2017)NFDEBITFA (2018)
40
Exhibit 33 NFDEquity and NFDEBITDA forecast by size classes
Source Cerved database and Cerved Rating Agency elaboration
404
20
25
45
35
30
NFDequity (2016) NFDequity (2017)NFDequity (2018)
05
06
09
10
08
07
Exhibit 32 NFDEquity and NFDEBITDA by size classes (median)
largemediumsmall
2016
2015
2014
000 5 10 15
Average2008-2013
Average2000-2007
total largemediumsmall total
Source Cerved database and Cerved Rating Agency elaboration
2016
2015
2014
203 0 405 0
Average2008-2013
Average2000-2007
29
Growth and profitability improvement spanned over all sectors
Exhibit 34 shows the relative positioning of the 10
macro-industries in the short-medium term considering
the median values related to revenue growth rate and
EBITDA margin
The historical median values are calculated on the basis
of financial data obtained from the annual financial
reports 2014-2016 filed in the Chamber of Commerce
public registers the projected median values for 2017
and 2018 are the result of the analysis of this study
As expected there are significant differences in
positioning between different industries in terms of
both historical and projected values
In 2018 we expect manufacturing and accommodation and
food services to maintain top positions already reached in
2016 and 2017
For the electricity gas mining and quarrying industry
2018 may be the turning point showing the first positive
signals after experiencing some difficulties over the last
few years
None of the other industries show significant changes in
2018 compared to their 2016 positioning
Source Cerved database and Cerved Rating Agency elaboration
A 50
57599586886358
3849
3620083721
-110320
-1112
210322
-1814021122
1413
030124
-5010284025
0555
20-4614
-4607212105
0430
210328-2310203218
0832
2310300512233720
1637
BCDEFGHIJ
A 625296
1441401016934
15352
504969
103121916227
10639
4764676185562639
68112
4873687090592845
75120
456772928856
45
7898
4667759090573147
7698
4668769394583147
77102
EBITDAmarigin
BCDEFGHIJ
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018Growthrate
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
Exhibit 34 Growth rate and EBITDA margin by industry
-70 -50 -30 -10 10 30
2016E2017F2018
50 70 90
Median=68
Median=2100
20
40
60
80
100
120
A=Agricolture B=Mining and quarrying C=Manifacturing D=Electricity and gas E=Water supply F=Construction G=Wholesale and retail trade H=Transporting and storage I=Accomodation and food service J=ICT
D
B
E
FHA G
C
I
J
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
30
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Further strenthening in companiesrsquo financial structure
Exhibit 35 shows the relative positioning of the 10 macro
industries in the short-medium term considering the
median values related to NFDEBITDA and NFDEquity
ratios
The historical median values are calculated on the basis
of financial data obtained from the annual financial
reports 2014-2016 filed in the Chamber of Commerce
public registers the projected median values for 2017
and 2018 are the result of the analysis of this study
There are even more significant differences in
positioning between industries regarding NFDEBITDA
and NFDEquity ratios when compared to growth rate
and EBITDA margin differences
Generally in the observed period there is no evidence of
significant changes among industries considering their
relative positioning related to NFDEBITDA and NFD
Equity ratios
In 2018 we expect accommodation and food services
and information and communication services to
maintain top positions already reached in 2016 and
presumably confirmed in 2017
Exhibit 35 NFDEquity and NFDEBITDA by industry
2016E2017F2018
Median=37
Median=08500
030 5 070 9 111 3
20
30
40
50
60
70
10
A=Agricolture B=Mining and quarrying C=Manifacturing D=Electricity and gas E=Water supply F=Construction G=Wholesale and retail trade H=Transporting and storage I=Accomodation and food service J=ICT
EH
C
BF
G
A
D
J
I
A 150101113081112149151120
079131
123075088101097125123103
072079
114067083052090108119102
067076
113060080045089096114092
074069
125076080045089106109086
050060
127072080044091
108084
051056
128067079043093106107081
051051
BCDEFGHIJ
NFDEquity
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
A 597219280305251301338250
153260
676394388342298453499349
254337
707482387293277498532337
277334
696392373254305484494308
231315
747401358330285544483294
183312
722390340341280511470290
178293
710380310329272492452281
177289
NFDEBITDA
BCDEFGHIJ
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
Source Cerved database and Cerved Rating Agency elaboration
106
31
Exhibit 36 Equity ratio by industry
Average 2000-2007 2014 2015Average 2008-2013 2016
Source Cerved database and Cerved Rating Agency elaboration
05
10
20
30
15
25
3540
5045
AB C DE FG HI J
Exhibit 37 EBITDA interest coverage by industry
Average 2000-2007 2014 2015Average 2008-2013 2016
Source Cerved database and Cerved Rating Agency elaboration
0
5
10
20
15
AB C DE FG HI J
A 1113140911151211
1408
1013131012131209
1208
1114151012131311
1309
1214151012151312
1309
1215161113161412
1409
BCDEFGHIJ
Liquidity ratio Median2000-07
Median2008-13 2014 2015 2016
A 0377677447858463
8960
0332
8145524536
4832
0342486042273848
3246
0537606853395765
4069
0743676559416378
5882
BCDEFGHIJ
ROE Median2000-07
Median2008-13 2014 2015 2016
Table 7 Liquidity ratio by industry Table 8 ROE by industry
Source Cerved database and Cerved Rating Agency elaboration
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
32
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Agriculture
Considering the recent price decline for agricultural
products putting EBITDA margin under pressure for
most of the industry participants we anticipate a slow
revenue growth in 2018 We also foresee more stable
margins in 2018 and investments to continue at a faster
pace in the near future mainly aimed at transforming the
agricultural activities into a high-tech industry Climate
and cultural changes are the main exogenous risks that
may negatively influence the sector
Mining and quarrying
Over the last few years the mining industry has been
challenged by record low metal prices and this has
resulted in a weak growth of supply and a cut in
investments especially in the new mines opening We
foresee a modest revenue growth in 2018 supported
by more stable prices rather than by government
infrastructural investments Margin pressure will remain
mostly unchanged in 2018 We do not expect a significant
increase in capital expenditure for most companies
while only a minority of industry participants will invest
in new capacities searching for new growth opportunities
by introducing new higher margin outputs Overall we
anticipate relatively stable key financial indicators
Manufacturing
We believe that in 2018 Italian manufacturing
representing 2nd European and 7th world player in 2016
will remain the beating heart of the national economy
In our view the expansion of internal demand the
improvement of business and customer confidence and
the wider export opportunities are the key drivers for
revenue growth (up to nearly 30) Despite the natural
selection the occurred during the economic recession
domestic competition and especially the competition
from lower income countries will remain challenging in
2018 creating further profitability pressure especially in
some highly fragmented segments
As a conditio sine qua non for market survival many
companies will be involved in a ldquowinning the innovation
gamerdquo process translated into a considerable capex
expenditure directed at process optimization which
inevitably must be accompanied by innovative marketing
and commercial strategies The companies especially
smaller ones which are not ready lsquoto play the gamersquo
remaining risk averse are likely to fall behind
Key financial indicators referring to the industry in terms
of net financial debt to equity and net financial debt to
EBITDA are likely to remain overall stable in 2018
In our view the best performing manufacturing industries
in 2018 will be the following
Automotive
extensive vehicles replacement process in 2018
high competition pressure China maintaining a key role
high level of innovation in mobility and connectivity
new strategic partnerships and MampAconservative stand towards EBITDA margin improvement
Chemistry amp Pharmaceutics
solid macroeconomic fundamentals will support
the revenue growth driven mainly by large companies
on average a stable EBITDA margin of about 10
is expected global presence is a must to achieve higher
level of profitability
RampD remain key factors for further market expansion
moderate level of MampA operations in 2018 slowing
down when compared to those carried out in the
previous year
Machinery amp Equipment
revenue growth in 2018 up to nearly 25 reflecting
the fact that all manufactures remain focused on RampD
and NPI (new product introduction)
cost management strategies are going to persist
but generally speaking with no significant impact on
EBITDA margin in 2018
heavy equipment manufactures still under pressure in
2018 to provide engineering capability and capacity
33
Energy and gas
Italian companies operating in the energy industry are
facing a complex market environment with many open
questions about risks related to regulations a drop
in consumption high competition levels and EBITDA
erosion
Generally we expect a more stable landscape in 2018 in
terms of commodity prices and consumption However
risk regarding prices and volumes will remain strong
resulting in a higher volatility of revenues In our view
the current margin pressure is unlikely to ease over the
next two years The final overcoming of the sondashcalled
ldquoMaggior Tutela Regimerdquo may lead to almost zero margin
for the retail operators We expect industry participants
to continue to focus their attention on cost efficiency and
on protecting profitability by embracing new business
models and examining the role that digital technology
can play in improvement of EBITDA margins We believe
that the above described strategies will be a central
topic for the operators intending to attract capital We
also believe that energy producers could see a slight
debt increase in 2018 aimed at improving productivity
and synergies Finally in 2018 we envisage a significant
number of MampA operations in the sector led by synergy
effects such operations might produce
Water supply waste management and sewerage
In recent years the water supply waste management
and Italian sewerage industry has recorded a slower
growth compared to the pre-crisis period However
due to the last two yearsrsquo important investments in the
water infrastructure waste sorting and recycling Italy
ranks as one of the top European countries in terms
of growth rate of recycling and packaging recovery
We believe that the expected general increase in
industrial output will produce a slight growth in water
consumption and waste treatment The demand for
sustainable solutions will continue to persist requiring
new investment in technologies based on a customer-
centric and sustainable approach aimed at improving
efficiencies and facilitating reuse Expectations also
reflect our view in terms of wider government interest
and spending in this industry We expect profitability
to remain broadly in line with the results obtained in
2016
Construction
After a weak increase in revenues recorded by the
construction industry operators in 2016 and the
modest result anticipated in 2017 both reflecting
a deteriorating demand and decreased volumes of
bank loans (mainly those for small and medium-
sized companies) we expect 2018 to be the turning
point for this industry We foresee that the volume of
residential and private non-residential constructions
will remain at relatively low levels in 2018 and that
the positive trend in housing renovation and public
works investments will continue taking advantage of
the allocated funds established by the Budget Law for
2017 Small and medium-sized businesses focused on
residential construction may face a slight profitability
erosion while we believe some growth in EBITDA
margin may be recorded by large Italian companies
operating internationally Due to the high perceived
risk historically there has been a strong financial
market mistrust of the construction companies which
we believe is likely to ease over the coming years
Wholesale and retail trade
During the crisis period wholesale and retail trade
industry faced a sudden interruption of the gradual
growth that had taken place up to that moment mainly
due to a loss in real purchase power and in consumer
confidence also translated into profitability erosion
In 2016 the data showed how the industry is moving
toward a recovery period Looking forward in 2018 we
expect to record a steady revenue growth supported
by an increase in global trade and improved consumer
confidence Despite the foreseen growth operators
will continue to face consistent pressure mainly in the
retail segment due to the high proliferation of new retail
purchase channels and market fragmentation
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
34
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Transportation and Storage
After a troubled 2016 characterized by an overcapacity
and a decrease in commodity demand hitting shipping
revenues in particular we foresee a moderate overall
recovery in 2018 driven mainly by an increase in
international shipments and air traffic The growing
number of innovative startups will continue to persist
increasing the competitive pressure in the industry We
anticipate a constant growth of e-commerce enabling a
quick reaction of on-line retailer and logistics providers
We believe that operators will continue to invest in
new high-tech solutions experimenting new models of
mobility and smart logistics
Despite very strong competition we expect the median
operating margins to remain steady However global
political uncertainties and related risks are strong with
possible quick and sharp negative impact on business
volumes and margins of the companies operating in
these industries
Accommodation and food services activities
In the last two years operators in the accommodation
and food service activities industry mainly medium
and small sized enterprises have seen steady revenue
growth and satisfactory profitability ratios Many
operators were focused on reviewing their business
models and offering additional services to their
customers a necessary strategy to maintain or expand
market positioning strengthen margins and improve
customer experience We expect the revenue growth
to continue in 2018 with a minimal median margin
improvement We believe accommodation and food
service activities will attract new capital investments
in 2018 to help the ongoing transformation process
and improve the accommodation infrastructure and
services
Information and communication technologies
The Italian information and communication technology
industry took longer to recover from the economic
crisis recording overall a negative median growth
rate until 2014 Software services and innovation
technology were the major contributors to revenue
growth (as a percentage) in 2016
Over the forecast period we foresee a modest revenue
growth for the ICT operators as a whole while the
technology industry will continue to achieve rapid
growth focusing on maintaining the competitive pace
of innovation In our view a key challenge for the ICT
operator may be the availability of matching skills
The outlook is relatively stable in terms of profitability
and key financial indicators
The following two pages show the details of the
previously discussed key performance indicators
35
Exhibit 38 Growth rate and EBITDA margin manifacturing sectors
-70- 50 -30 -10 103 0
2016E2017F2018
50 70 90
Median=76
Median=3000
20
40
60
80
100
120
1=Automotive 2=Chemistryamppharmaceutics 3=Clothing 4=Equipment 5=Food beverage and Tabacco 6=Heavy Manifacturing 8=Paper and Packaging 9=Tecnology and Telecomunication 10=Textile industry
6
10 5
3
8
91
74
2
50AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
57599586886358
3849
3620083721
-110320
-1112
210322
-1814021122
1413
030124
-5010284025
0555
20-4614
-4607212105
0430
210328-2310203218
0832
2310300512233720
1637
Growth rate Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
EBITDA margin Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
Source Cerved database and Cerved Rating Agency elaboration
625296
1441401016934
15352
504969
103121
916227
10639
4764676185562639
68112
487368
7090592845
75120
456772
9288562845
7898
4667759090573147
7698
4668769394583147
77102
1=Automotive 2=Chemistryamppharmaceutics 3=Clothing 4=Equipment 5=Food beverage and Tabacco 6=Heavy Manifacturing 8=Paper and Packaging 9=Tecnology and Telecomunication 10=Textile industry
2016E2017F2018
Median=30
700
600
500
400
300
200
100
000000 020 040 060 080 100 120
Median=08
Exhibit 39 NFDEquity and NFDEBITDA for manifacturing sectors
2
4 8
101
9
9
3
57
Source Cerved database and Cerved Rating Agency elaboration
096AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
104146095152117112109
098087
087080116068118083088086
084078
075074104069107082080079
084083
072064100065105084122081
079081
082066104065105080091079
077082
081067103065105079087079
077081
076067101064104077083078
076080
NFDEQUITY Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
227AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
258334222397249255259
315202
338313443305495363403412
480337
315306436328479373380397
482316
264269490303467366403383
515317
269243507090106127090106
106106
413343478088105127088105
105105
399333465086104127086104
104104
NFDEBITDA Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
36
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Exhibit 40 Growth rate and EBITDA margin for wholesale and retail trade sectors
20 40 60 80 100 120 140 160
2016E2017F2018
Median=31
Median=33
0000
20
10
30
60
50
70
1=Automotive 2=Retail 3=Wholesale
40
3
12
2016E2017F2018
Median=45
700
600
500
400
300
200
100
000050 070 090 110 130 150 170 190
Median=11
Exhibit 41 NFDEquity and NFDEBITDA for wholesale and retail trade sectors
1=Automotive 2=Retail 3=Wholesale
21
3
37
Ratings will remain broadly stable
The following section presents a risk profile analysis
based on Cerved Rating Agencyrsquos outstanding and
monitored public and private ratings issued from
2013 to 2017 on Italian non-financial companies
and operating in the industries discussed in this
study (data as of 31 December)
Exhibit 42 and Table 9 show an overview of 1-year
effective default rates over the 2000-2017 horizon
related to the sample bankruptcy and other legal
proceedings and debt restructurings as default
events
The default rate trend shows a general
improvement from 2014 onwards both by
company size classes and by industry however
considering the entire sample the overall default
rate still remains higher when compared to its pre-
crisis level especially regarding smaller companies
operating in the construction sector
Exhibit 43 shows the effective default rates over
2013-2017 horizon based on Cerved Rating
Agencyrsquos definition which considers as default
events
middot bankruptcy and other legal proceedings
middot debt restructuring
middot missed or delayed disbursement of a contractually
required interest or principal payment ie missed
payment on bonds material protests (on cheques
or trade bills) or prejudicial acts (judicial mortgages
distraint of property)
The effective default rates over the 2013-2017
horizon show decreasing trend and satisfy the
monotonicity constraint regarding all Cerved
Rating Agencyrsquos rating classes (Exhibit 44)
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2003 2004 2005 2006 2007 2014 2015 2016 20172000 2001
5678
12
3
4
0
Exhibit 42 Avarage 1-year default rate by size over 2000-2017 horizon
medium small
2008 2009 2010 2011 2012 2013
Mining and quarring
Manifacturing
Electricity gas steam and air conditioning supplyWater supply sewerage
Construction
Wholesale and retail trade repair of motorTransporting and storage
Accomodation and food service activities
Information and communication
24221809
5212
282915
2529
38533424
13027
454830
4838
36542537
15929
424421
4323
23461921
13226
293226
3022
Source Cerved database and Cerved Rating Agency elaboration
Table 9 Default rate by industry over 2000-2017 horizon
Total
NACE Average2008-2015
Average2000-2017 2016 2017
2016
Source Cerved database and Cerved Rating Agency elaboration
C21C12C11B22B21B12B11A11 A12 A13 A21 A22 A31
60
50
40
30
20
10
0
Exhibit 43 1-year default rate over 2013-2017 horizon
20172013 2014 2015
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
38
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The analysis of historical rating distributions in the
same period shows clear differences in terms of modal
rating class by company size As shown in Exhibit 43
the modal rating class for the large companies is A31
B11 for the medium and B12 for small companies
(considering company size classes as they have been
defined ad hoc by Cerved Rating Agency for the
purposes of this study)
Overall the corporate rating distribution in the
Source Cerved database and Cerved Rating Agency elaboration
C21C12C11B22B21B12B11A11 A12 A13 A21 A22 A31
30
25
20
15
5
10
0
Exhibit 44 Rating distribution frequency by size classes
large
30
25
20
15
5
0
10
medium smallRating 2013 total Rating 2017 total Rating 2017 forecast
observed period is skewed towards the investment-
grade rating categories (ie Cerved Rating Agency
rating classes from A11 to B12) representing 700 of
the whole sample 250 is concentrated in the safety
(A rating classes) and 450 in the solvency (B11-B12)
classes
We anticipate the rating distribution to remain
broadly unchanged in 2018 with the rating migration
concentrated mainly in the B category
39
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100543
2414
4407
4407
2636
4554 4558
2403 2311
535 527
90
10
0
Exhibit 45 Rating distribution frequency by area of risk - Total companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency]I nvestment GradeA11-A31 [Safety]
2509 2604
704 4407706 4407716
324
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
985
5658
4407
3033 2992 2898
925 907
300 318
90
10
0
Exhibit 46 Rating distribution frequency by area of risk - Large companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
5783 5878
869 4407878 4407878
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
4407
4407
3626
4080
17591695
439 449
90
10
0
Exhibit 47 Rating distribution frequency by area of risk - Medium companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
3571 3776
7044407780 4407786
456
1805
774
4113 4232
603
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
2824
1900
4407
4673 4850 4761
2833 2754
600 633
90
10
0
Exhibit 48 Rating distribution frequency by area of risk - Small companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
1716 1852
657 4407657 4407661
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
40
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Slight improvement in general creditworthiness
In our opinion in 2018 the creditworthiness of the
observed Italian non-financial companies will remain
stable for almost 86 of entities Migration of ratings is
expected to be moderate resulting in approximately 14
of rating upgrades (9) and downgrades (5) at the end
of 2018 compared to the outstanding ratings at the end
of 2017 The vast majority of the rating changes (921)
will be limited to one-class migration as shown in the
1-year projected transition matrix (Table 10) We believe
that more than one third of the expected downgrades
will be concentrated in the energy gas mining and
construction sectors Over the last years the average
credit profile of companies active in these industries has
been relatively weak and due to the forecast market and
regulatory conditions we do not envisage opportunities
for a significant risk profile improvement in 2018
Despite the expected rating migrations for individual
entities in 2018 the current industry modal rating
classes are unlikely to change
On the other hand stable and positive outlooks will
prevail in the manufacturing industry wholesale and
retail trade and accommodation and food service This
is due to the increase in the number of companies
active in these sectors which will maintain andor
improve their business and financial performances
Indeed as shown in Table 11 in 2018 the rating outlook
remains differentiated by industry whilst in terms of
the expected general probability of default we foresee
a modest improvement (349) compared to the one
recorded in 2017 (366)
Table 10 1-year transition matrix
Source Cerved database and Cerved Rating Agency elaboration
2017
A11
A31
B11
C11
C12
B21
C21
B22
B12
A12
A13
A21A22
F 2018A11 A12 A13 A31 B11 C11 C12B21 C21B22B12A21 A22
000 530
066
054 451034 435
027 753055 901
1033121247 1624
260 1038088
000
000000037
028
295
290
1063
179
455050647
043425
026490020208
000208
000152
000000
00000010000
9821
9318
92679015
87708583
81497646
8665
9617
9710
8605
419024
41
The information and data supporting Cerved Rating Agency rating opinions related research and credit opinions originate from sources Cerved Rating Agency considers to be accurate however Cerved Rating Agency cannot independently verify the reliability and accuracy of the information and data in every instance This publication may not be reproduced retransmitted or distributed in any form without the prior written consent of Cerved Rating Agency Cerved Rating Agency assumes no liability for correctness completeness and topicality of the information contained in this publication The analyses underlying this study do not provide advice of any sort
26
n
6670
486
59
Exhibit 49 Ratings outlooks by size
Large
Medium Positive Stable Negative
Small
21
13
Large
Medium
Small
Source Cerved database and Cerved Rating Agency elaboratio
Table 11 Ratings and probability of default 2018 outlook by industry
Source Cerved database and Cerved Rating Agency elaboration
NACE Micro industryDowngrade
B-Mining and quarryingAutomotive
900814
848
812
880812
847
813 172
170
174
144
8264 36
08
104 433 436
392 373
22724815
362 360
876
876
914
848
849
804
887
882
916
901835870899 64
866760
43
68
5659
58
47
61
49
74
78 75
14
50
37
36
5393
32
50
41
45
3899
77
91
316
372
355
364
308
491
326
318 296
331
312
381
367
359
322
495
452
433
403429
389
364369
363
313
452
323
594
38
315358
603
307
345 350
67 5318
469289 274
470
147
116
138
851
821AutomotiveRetail
Wholesale
Total
Chemistryamppharmaceutics
ClothingEquipment
Food Beverage and Tabacco
Heavy Manifacturing
Other Manifacturing
Textile industry
Total
Tecnology Media ampTelecomunication
Paper Packaging ampForest products
C-Manifacturing
D-Electricity gas steam and air conditioningsupply
F-Construcion
H-Transportig and storageI-Accommodation and food service activitiesJ-Information and communication
G-Wholesale and reatail traderepair of motor vehicles and motor-cycles
E-Water supply sewerage waste
Average ForecastPD 2018
Expectedtrend
Average PD 2018
Ratings outlooks
Stabl pgrade
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Cerved Rating Agency SpAVia dellrsquoUnione Europea n 6A-6B20097- San Donato Milanese (MI)
Tel +39 02 77541 - Fax +39 02 76020458
ratingagencycervedcom
Rating Agency
11
Euro area gdp grows unemployment falls
GDP growth in the euro area rose around 21 in
2017 and is predicted to continue at a broadly similar
pace in 2018 Furthermore the unemployment
rate will continue to follow a declining trend and is
forecast to fall to 87 in 2018 (from 92 in 2017)
Industrial production improvement
Investments will accelerate and the international
environment will contribute positively to an increase
of exports (in line with the global growth) which will be
one of the principal driver of an industrial production
improvement in 2018
Further credit activity expansion
Across the euro zone countries companies are
benefiting both from eased lending conditions
and increase in the number of alternative lenders
The total amount of loans to households and non-
financial corporations grew by approximately 14
in 2017 whilst in 2018 it is predicted to increase more
slowly especially in the non-financial corporate
sector
Inflation rate to be stable
Consumer price inflation accelerated at the
beginning of 2017 mainly due to a rise in energy
prices The harmonized index of consumer prices
(HICP) is estimated at 15 in 2017 In 2018
the impact of energy inflation is expected to
decline resulting in a lower inflation rate outlook
(approximately 14)
Germany
France
ItalyEuro Union
Spain
UK
OthersSource IMF ECB OECD
20112010 20132012 2014 20162015 F20182017
20
0
60
40
80
100
0
-1
2
1
3
4
Exhibit 5 Contribution to European growth European Union
EPU Index euro areaIndustrial production euro area (Y-O-Y change)
Source IMF ECB OECD
2011 2015 2017
-2
-2
-3
-1
-1
1
1
0
2
2
3
100
0
300
200
250
400
450
500
Exhibit 7 Industrial production and policy uncertainty index euro area
2010
350
150
50
20182013 2014 20162012
Euro Area
Source ECB
20112010 20132012 2014 20162015 2017
500
0
1500
2500
2000
3000
1000
10000
9900
9800
9700
9600
9500
9400
9300
9200
Germany Spain France Italy
20112010 20132012 2014 20162015 20182017
BCI euro area
CCI euro area
Source IMF ECB OECD
96
95
98
97
99
101
102
100
103
0
-1
2
1
4
3
5
Exhibit 6
CERVED RATING AGENCY SpA | European economy Outlook 2018
12
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Highlights on italian economy
13
Gdp growth is under way to consolidate in 2018
From 2000 to 2017 the Italian economy was more
vulnerable compared to other highly developed
countries in particular those of the euro area
The Italian real GDP at the end of 2017 was roughly
at the same level recorded in 2000 whilst the euro
area countries and specifically Germany and France
experienced a considerable growth in the same period
(188 205 and 198 respectively)
The Italian GDP has started to increase moderately only
since 2014 mainly due to an improvement in domestic
demand but its growth still remains below the growth
rates of the majority of euro zone countries The poor
performance of the labor and total productivity factor
accounts for most of the difference
An ageing population and a weak labor market
participation have also contributed negatively to
potential growth Structural reforms in particular the
Jobs Act and tax incentives on new labor contracts
contributed to the increase in employment making the
Italian labor market more flexible and efficient
In 2018 we expect the economic growth to be slightly
below the level reached in 2017 The trend will be
sustained by the world economy positive cycle
including higher levels of international trade volume
Italian companies will benefit from favorable credit
lending conditions due to an expanding credit activity
of the banking system and low interest rates
Whilst the Italian government adopted a set of dynamic
and diverse policies for 2018 we believe that some of
those previously introduced have already contributed
to the GDP growth in 2016 and 2017 thus reducing the
combined effect in 2018
Source World Bank
2000 2002 2004 2006 2008 2010 2012 2014 2016
1500
1000
500
0
2500
3500
3000
4000
2000
13000
9500
10000
11000
12000
12500
10500
11500
Exhibit 10 GDP in Europe ($ billion)
Germany Italy Euro areas (11countries)France
Total multifactor productivityEmployment growth
Source OECD
-2
-4
-6
-8
2
0
4
6
Exhibit 9 Italian GDP employment and total multifactor productivity (Y-o-Y change)
2000 2002 2014 20162004 2006
GDP growth
20122008 2010
CERVED RATING AGENCY SpA | Highlights on italian economy
14
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The number of active companies has increased buthellip
The number of active companies in Italy registered at
the Chamber of Commerce as of December 31st 2016
amounted to 5145995 305629 more than in 2000
(63)
The increase in registered active companies is the result
of the positive trend from 2000 to 2008 (98) partially
cancelled by the decrease from 2009 to 2016 In 2017 a
slight improvement is expected to be recorded however
the number of active companies remains below its peak
value (5316104 entities) reached at the end of 2008
Exhibit 11 shows both the trend of active Italian companies
in the period 2000-2016 and their breakdown by legal
form We observe that the increased number of Joint Stock
Companies and particularly Limited Liability companies
(1206) was able to compensate the decrease in Unlimited
Partnerships (-62) and Sole Proprietorships (-79)
Companies are abandoning traditional sectors
Exhibit 12 shows the breakdown of the Italian active
companies at the end of 2000 and 2016 by industry
It can be observed that in many traditional sectors
the number of active companies decreased eg in
agriculture (-294) and manufacturing (-226) whilst
the number of companies increased in construction
(273) and wholesale and retail trade (39)
A very significant rise in the new registered companies
(456) occurred in other industries in particular
in the service industry offering information and
communication IT and professional scientific and
technical services
Joint Stock and Limited Liability Unlimited Partnership Sole proprietorshipO ther forms
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 2012 2013 2014 2015 20160
6000000
5000000
4000000
3000000
2000000
1000000
Exhibit 11 Italian active companies 2000-2016
Total
Source Movimprese and Cerved Rating Agency elaboration
Exhibit 12
Breakdown of the Italian active companies by industry 2000-2016
2000
635286 13
1059005 22
639778 13
589707 12
183 856 4 226964 5 150772 3
1354998 28
965452 19
747738 14
495247 10
750863 15
150888 3
379899 7 247187 5
1408721 27
2016
C Manufacturing
F Construction
H Transporting and storage
I Accommodation and food service activities
L Real estate ativities
G Wholesale and retail traderepair of motor vehicles and motorcycles
X Other
15
Number of bankruptcy and other legal proceedings to decrease further
From 2000 to 2016 the number of bankruptcies and
other legal proceedings protests and prejudicial
acts in Italy mirrored the general trend of the
Italian economy
After reaching its minimum level in 2007 (5969)
the number of bankruptcy procedures in the
period 2009-2014 increased dramatically reaching
its peak value of 15608 in 2014
With the improvement in the economic and financial
environment starting from 2015 the number of
bankruptcy procedures decreased sharply in all
macro sectors returning approximately to the
levels recorded from 2000 to 2006 A positive
trend was recorded also in 2017 bankruptcy
procedure initiated for 11937 companies -113
when compared to the same period in 2016 In
absolute terms the highest number of bankruptcy
procedures was recorded in the service sectors
followed by the construction and manufacturing
Worth mentioning is the design of a new Italian
bankruptcy law that should be approved by
October 2018 The regulatory framework aims at
more efficient resolutions of cases of company
crisis supporting continuity of its operating
activities and safeguarding the interest of creditors
by introducing innovative solutions such as pre-
crisis warning mechanisms
Other legal proceedings after reaching its
maximum level in 2013 (3593) in 2016 came down
to 1993 and the trend continues in 2017 evidencing
1866 procedures -64 when compared to the
same period in 2016
In the last five years new protests and prejudicial
acts have also shown a decreasing trend with
ndash527 and ndash70 of acts respectively in 2017
compared to the numbers recorded in 2013
-6
Exhibit 13 Bankruptcy
BankruptcySource Cerved databaase
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
10729 108311163612287
10338
59697307
9189
1108812022
12437
14031
1560814682
13459
11937
Other legal procedingsSource Cerved database
1500
1000
500
02000
940 994 1125 1211
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
2500
3500
3000
4000
2000
1110
16691540
18702094 2057
2342 2475
3593
3132
2720
1993 1866
Exhibit 14 Other legal procedings
1211
100 45000
4000090
80
70
60
50
40
30
20
10
02015
35000
30000
25000
20000
15000
10000
5000
02013 2014
Protets
703
297
41438
Total
Source Cerved database
Prejudicial acts
2016 2017
665
335
34527
570
43032660
527
473
546
454
2523828929
Exhibit 15 Protests and prejudical acts
CERVED RATING AGENCY SpA | Highlights on italian economy
16
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Core inflation rate to rise
Italian headline inflation will experience a modest
decline in 2018 compared to the previous year
(12 and 14 respectively) Core inflation
however is predicted to increase to 12 in 2018
(up from 10 in 2017)
Exports and import are accelerating
Exports and imports will both accelerate in 2018 (41
and 44 respectively) mirroring the positive trend
and expectations in global trade and the rising of the
external demand Machinery and equipment industry
will still remain in ldquopole positionrdquo due to companies
generous investment and tax incentives In general
in 2018 Italian exports will increase more in the Extra
European Union countries
Investment continues to gain strength
Investment has gained strength and will continue to
do so at a relatively fast pace supported by effects of
the tax incentives (Stability Low 2017) low interest rate
and improvements in business confidence Indeed
investments are expected to increase 30 in 2018
(up from 24 in 2017) Construction investments are
forecast to accelerate slightly also thanks to more
resources earmarked for public investment
Harmonised core infation
Source OECD and IMF
2003 2006 20092000 2012 2015 F2018
2
1
-1
0
4
3
5
6
Exhibit 16
Imports of goods and services (Y-o-Y change)
Exports of goods and services (Y-o-Y changes)
Total dometic demand (Y-o-Y change)
Source OECD and IMF
20062000 2015 F2018-5
-15
-20
5
0
-10
10
15
Exhibit 17 Exports imports and demand Italy
20122003 2009
Wholesale and retail trade (Y-o-Y change)
Total investments ( of GDP)
Heavy industry (Y-o-Y change)
Other services (Y-o-Y change)
Source IMF and ISTAT
Construction (Y-o-Y change)
20062000
-20
-30
10
0
-10
20
30
20
25
15
10
0
5
F2018
Exhibit 18 Investments by industry Italy
2003 2009 2012 2015
17
No room for significant public debt reduction
At the end of 2016 the Italian government debt-to-GDP
ratio was significantly above its level at the beginning of
the century In particular as of December 31st 2016 the
ratio was 1326 (262 with respect to 100 recorded
at the end of 2000)
In the same period the ratio for the euro area increased
from 681 to 913 (341) in Germany from 589 to
683 (159) and in France from 586 to 960 (638)
At the end of 2017 the Italian government debt increased
further to more than euro2300 billion 1350 of GDP The
debt servicing in terms of interests accounts roughly
50 of Italian GDP
In our view the high level of government debt
represents a key factor limiting Italian economic growth
and contributes eo ipso to increasing country risk
with a possible negative impact on the stability of the
international financial system
A possible increase in interest rates would raise the
cost of debt service potentially triggering a crisis due to
larger governmental deficits a slowdown in economic
activity and growing debt refinancing difficulties due to
higher risk perceived by investors
Hence it seems that a significant reduction in
government debt should be the main goal of the Italian
economic and financial policy in our opinion however
the achievement of such a result is not realistic neither
in the short nor in the medium term due to the following
factors
middot economic growth in the coming years is expected
to be moderate not sufficient to be the main source of
the government debt reduction
middot macroeconomic policy is expected to prioritize
investments employment social security and welfare
rather than government debt reduction
middot even if the inflation rate hits the target value (20) the
impact on the government debt in the short term is not
expected to be considerable
middot finally in Italy election will take place in spring 2018
with a new government taking over the economic
program that has already been approved and become
fully executive
Euro area
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 2012 2013 2014 2015 20160
20
40
60
80
100
120
140
Exhibit 19 Public debt as GDP
France
Source AMECO and Cerved Rating Agency elaboration
CERVED RATING AGENCY SpA | Highlights on italian economy
18
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Table 1
Amount ( 407 312
-327
327754
216074 190881
163248 345604188167
869
1543
2213
1793
CAGR (base year 2000)
CAGR (base year 2008)
NPL ratio ()
Ndeg debtors
Averae debt debtor
Valueindicator 2000 2008 2016
Source Bank of Italy and Cerved rating Agency elaboration
Credit activity to be expanded interest rates to remain at very low levels
As of December 31st 2016 the volume of bank loans
granted to Italian non-financial corporations amounted to
euro8604 billion
The period 2000-2016 was characterized by two different
trends from 2000 to 2011 the annual outstanding loans
value increased by 841 (euro454 billion reaching in 2011 its
highest level ever of euro993 billion thanks to 57 CAGR far
above the Italian GDP growth) whilst in the period from
2012 to 2016 loans decreased by 134 (euro130 billion)
reflecting a negative -28 CAGR The loan reduction hit
sharply construction and manufacturing (accounting
for about 400 of all loans) which experienced -227
and -135 decrease in loan volumes whilst agriculture
forestry and fishing and wholesale and retail trade
(including repairs of motor vehicles and motorcycles)
had more limited loan contraction (-08 and -53
respectively)
In the observed period due to the negative impact of the
global financial crisis 200708 and to structural changes in
the world economic and financial environment a radical
decrease in interest rates was recorded In 2017 the
interest rates charged to Italian non-financial corporates
were on average less than half compared to those charged
in 2000 In the medium term low interest rates will remain
a positive factor fostering investments and consumption
Non-performing loans to be further reduced due to innovative measures
The credit crunch had a huge and dramatic impact on
the Italian economy hitting especially small businesses
which are not able to survive in a radically changed market
conditions The evidence of such outcome can be seen not
only through the decreased number of active companies
but also via the enormously increased volume of the
non-performing loans (NPLs) In particular these loans
amounted to euro324 billion at the end of 2016 of which euro154
billion were granted to the non-financial corporations as
shown in table 1
Following the principles outlined in the ECB guidelines
published in March in 2017 Italian Banks made significant
progress in reducing the amount of the NPLs ndash estimated
to be over euro50 billion debt reduction Any further actions
aimed to improve the banking balance sheets should not
increase the financial hardship of still operating companies
North - East SouthNorth - West Center Islands
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 2012 2013 2014 2015 20160
1200000
1000000
800000
600000
400000
200000
NPLs ratio
Source Bank of Italy and Cerved Rating Agency elaboration
20
1816
14
1210
8
6
42
0
446393
euro billion)
19
Modest role of italian equity capital markets
Despite the number of listed companies increasing
from 297 to 421 in the period 2000-2017 the role
of the stock markets remains modest in Italy
As of December 31st 2017 the market capitalization
was euro640 billion (375 of the estimated Italian GDP
in 2017) representing only 782 of the overall
market capitalization recorded in 2000 (equal
to euro818 billion 687 of GDP) mainly due to
an unfavorable economic cycle in the observed
period
This situation shows the structural weaknesses of
the Italian economic and financial system especially
when compared to other highly developed
European economies The low propensity to
raise equity capital through organized markets
is linked to an unfavorable macroeconomic and
fiscal framework as well as to the predominance
of SMEs mostly unfit for listing and presenting
cultural obstacles (ie company owners and managers are often reluctant to accept wider company control and
transparency)
Hence self-financing and bank borrowing remain the main sources of finance for Italian companies which are
generally speaking undercapitalized with a negative impact on their investment capabilities Very frequently the
lack of medium-long term financing means forces companies to focus their attention on running current activities
postponing or abandoning strategic projects fundamental for company growth
A wide range of innovative initiatives have been undertaken with the aim of fostering market based company
funding in particular
middot AIM (Alternative Investment Market) - a specialized market segment dedicated to SMEs growth (95 companies and
market capitalization around euro56 billion as of December 2017)
middot ELITE - a programme designed to help SMEs prepare and structure for the next stage of growth their through
access to long-term financing opportunities
middot PIR - Piani individuali di risparmio (Individual Savings Plan) - an innovative way to fund Italian SMEs by offering retail
investors resident in Italy tax incentives (full exemption of 260 income tax) if the savings stay invested for at least
five years A minimum of 700 of such credit assets must be invested in financial instruments issued by Italian or
foreign (EU and EEA) companies permanently established in Italy
FTSE (MIB)Enterprises
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 20132012 20152014 201720160
100
200
300
400
500
600
700
800
900
100029681 29525
14623
1765216121
12259
13512
16048
15988
19012
21428
21853
2185322232
16954
297 294 295 279 282278 311 336 332 332 328 323 326344 342 356 387 421
19483
22886
26056
31005
Exhibit 21 Italian listed enterprised and FTSE (MIB) index trend
Source Borsa Italiana
300000
250000
200000
150000
100000
5000
0
Capitalization of GDP
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 20132012 20152014 201720160
100
200
300
400
500
600
700
800
900
1000
Exhibit 22 Italian market capitalization of listed companies ( of GDP)
Source Borsa Italiana
80
70
60
50
40
30
20
10
0
8184
5923
354 365418 473
524475
239301 275
210233
287 295348
318375
4580 4875
5809
6766
77857336
37474571
4251
3324
44664678
56765249
6400
3655
474
68
CERVED RATING AGENCY SpA | Highlights on italian economy
20
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Italian debt capital market is growing but still remains behind needs
At the end of 2016 the outstanding amount of debt
securities issued by Italian financial and non-financial
corporations was euro8615 billion 510 of the countryrsquos
GDP The table below shows the breakdown by issuer
type of Italian German French British and United States
outstanding amounts of debt securities as of December
2016 issued by financial and non-financial corporations
with the respective debt-to-GDP ratio
Despite the outstanding debt at the end of 2016 being
almost double compared to 2000 it represents only 23
of its peak value reached in 2012 (euro1290 billion Exhibit
23) The main reason for such a significant debt reduction
is the huge bond reimbursement realized by banking
institutions from 2013 to 2016 and the related negative
net flow of debt securities (respectively -80 -153 -106
and -67 billion of euro as shown in Exhibit 24)
The decrease in debt securities funding of Italian banks
has been compensated by a wider use of deposits and
resources available under the Eurosystem refinancing
operations framework
The outstanding amount of debt securities issued by
non-financial corporations at the end of 2016 also
doubled its value with respect to the amount recorded
at the end of 2000 The main characteristic of this cluster
is the high concentration of issuancesdebt to a small
number of issuers
Due to both more favourable general economic
conditions and active ECB monetary policy bond yields
have decreased significantly providing room for a
convenient fund raising
Since the introduction of a new regulatory framework
(lsquoDecreto Svilupporsquo) in 2012 up to October 2017 Italian
market saw 300 small-size listed bond issues (ie so
called minibonds) amounting approximately to euro143
billion Issued mainly by SMEs they offer interesting
yields to institutional investors
) Source Business support SpA ndash Minibonditalyit
BanksTotal
Source Bank of Italy and Cerved Rating Agency elaboration
2006 20082000
-200000
200000
250000
-150000
-100000
150000
100000
-50000
50000
02012 2014 20162002 2004 2010
Banks debt securities outstanding
Banks Debt to GDP ratio
Source Bank of Italy and Cerved Rating Agency elaboration
0
10
20
30
40
50
60
70 1400000
1200000
1000000
800000
600000
400000
200000
0201620142012201020082006200420022000
Table 2 Outstanding securities debt (euro Million)Debt-to-GDP ratio()
Financial corporates
Total
Debtsecurities
outstanding
Italy German rance United Kingdom United States
739
123
862
440 340 470
21
680380
40
1279 1331 4 50
880
30
14271
14820
549180
10202767
590
19211436
15770
510
Debtsecurities
outstanding
Debtsecurities
outstanding
Debtsecurities
outstanding
Debtsecurities
outstanding
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Source Bank of Italy
0
0
21
CERVED RATING AGENCY SpA | Highlights on italian economy
22
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Italian non-financial companies economic Outlook 2018
23
Data and method
This research focuses on Italian non-financial companies
with an annual turnover exceeding euro5 million With the
aim of using only reliable data joint stock and limited
liability companies have been considered only these
entities according to Italian law file complete annual
financial statements in the Chamber of Commerce
together with anagraphical company data other
legal forms such as unlimited partnerships and sole
proprietorships are not included in this sample due to
the lack of publicly available standardized financial data
We believe that this cutoff is reasonable and allows us to
perform a methodologically correct analysis In 2016 the
above mentioned companies despite representing only
42 of all registered and active joint stock and limited
liability companies accounted for 769 of their total
turnover
Moreover cluster specialization has been obtained by
NACE activity classification from A to J (thus not including
in the sample financial and insurance companies and
some service industries) The statistics regarding specific
industries provide important key data and enable us to
examine historical and prospective trends and cross-
sector comparisons
The Cerved database which contains legal anagraphical
financial and market information on all Italian registered
legal entities (approximately 6 million comprising 5
million active ones) was the most important database
used for this research Long time series and broad
homogenized and standardized data covering different
economic cycles were the building blocks to perform
the regression and predictive analysis
Historical and forecast macroeconomic data and
analysis performed by the International Monetary Fund
OECD the World Bank European Central Bank Bank
of Italy and ISTAT completed the dataset used for the
analysis
Several analyses were performed in order to examine
the structural differences within the sample in terms of
company legal form and geographical area (Exhibit 25)
company age (Exhibit 26) and company size and industry
As a result we verified a considerable heterogeneity of
companies in particular with regard to the company size
across various industries
The relevant observation period comprises the years
between 2000 and 2016 Table 3 describes some
characteristics of the sample
Exhibit 25 Sample break-down by legal form and geographic area (2016)
Joint stock Company
Limited liability Company
Area 1 (Northwest)
Area 3 (Center)
Area 2 (Northeast)
Area 4 (South)
39
20
27
14
33
67
33
Table 3 Sample characteristics 2000-2016
TotalTurnover
gt euro5million
Turnover gt euro5 million(industry
from A to J)
TotalTurnover
gt euro5million
ofTotal
Turnover gt
euro5 million(industry
from A to J)
Source Cerved database
Entreprises Turnover billion
2000 659867700717738558772442812025847334883122915172937018949708965744969581
953505945825922513883224
4215144587462234694749640518205596459226595385246754808563745362752074519385289450123
3686139038411864118843547454704921752274526974633848778504734806246843468384771845288
16151740177018472002212923302477256822562421257025202446243224392295
12661362139214561588169818752000208317861944208720541992198419871905
11141205124013041430152316891801189716191764191218831839183518371765
689693700
716
706714
725
718729744748752754753769
727739
200120022003200420052006
200820092010201120122013201420152016
2007
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
24
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Furthermore in order to guarantee more detailed and
accurate analyses and projections we decided to create
a static pool to show consistently long time horizon
economic trends (17 years) by sealing off all the active
companies over the 2000-2016 horizon
The outcome obtained by considering the behaviour of
specific variables related to the companies included in
the static pool was extended as a performance indicator
for the whole sample (turnover over euro5 million and
industry from A to J)
According to the European Communityrsquos definition of
SMEs using annual turnover and employee headcount
as quantitative criteria the initial sample of companies
and the static pool can be classified by size classes on
the basis of the financial statements for the year 2016
as shown in Table 4
For the sake of this analysis we defined specific size
classes for each industry thus deviating from the
European Commissionrsquos recommendation which
presents undifferentiated upper and lower bounds of
quantitative criteria for SMEs in all industries To define
the thresholds of such classes we used both a statistical
approach (a specific cluster procedure by minimizing
the within-cluster turnover standard deviation) and a
judgmental approach by relying on the experience and
opinion of our industry expert analysts Table 5 shows
the results of such analysis referring to the sample in
2016 (45288 entities) and the NACE sections from A
to J Moreover the NACE section C and G were further
disaggregated into sub-industry classes as shown in
Exhibit 27 in order to consider the specific business
differences within these NACE sections thus ensuring
a good fit and a satisfactory accuracy of the estimation
Exhibit 26 Sample break-down by company age classes
0-2 Years 2-5 Years 5-10 Years 10-20 Years gt20 YearsSource Cerved database and Cerved Rating Agency elaboration
0 20 40 60 80 100
ABCDEFGHIJ
A = AgricolutreB=Mining and quarryingC=ManufacturingD=Electricity and gasE=Water supplyF=ConstructionG=Wholesale and retail tradeH=Transporting and storageI=Accomodation and food serviceJ=ICT
Small
Annul Turnover
Empolyees
Static Pool
Enterprises(Turnover gt euro5 million)
Enterprises(Turnover gt euro5 millionindustry from A t J)
Medium Large
lt 50 lt 250lt 36774 11113
1005333223
8741
2236
2012
154818645
gt euro50 million
gt 250
lt euro50 million
Source Cerved database
NACE Micro industry
B-Mining and quarryingAutomotive
Automotive
Retail
Wholesale
T gt 480
T gt 80
T gt 260
T gt 265T gt 270
T gt 230
T gt 120
T gt 80
T gt 43
T gt 65
T gt 106T gt 106
T gt 360T gt 155T gt 150T gt 100
T gt 120
T gt 225T gt 1400T gt 27500
T gt 1500
ChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther Manifacturing
ICTTextile
Paper Packaging ampForest products
C-Manifacturing
F-Construcion
H-Transportig and storageI-Accommodation and food service activities
J-Information and communication
D-Electricity gas steam and aircoditioning supply
G-Wholesale and reatail traderepair of motor vehicles and motorcycles
E-Water supply sewerage waste management and emediation activities
Large (Turnover
in euro million)
Medium(Turnover
in euro million)
Small(Turnover
in euro million)
Source Cerved database and Cerved Rating Agency elaboration
60 lt T lt 480 5 lt T lt 60
5 lt T lt 20
5 lt T lt 36
5 lt T lt 35
5 lt T lt 44
5 lt T lt 40
5 lt T lt 20
5 lt T lt 26
5 lt T lt 250
5 lt T lt 185 lt T lt 305 lt T lt 265 lt T lt 205 lt T lt 37
5 lt T lt 335 lt T lt 40
5 lt T lt 255 lt T lt 585 lt T lt 1155 lt T lt 1005 lt T lt 27
20 lt T lt 80
36 lt T lt 26035 lt T lt 26544 lt T lt 270
40 lt T lt 230
20 lt T lt 120
26 lt T lt 80
18 lt T lt 43
250 lt T lt 1500
20 lt T lt 6537 lt T lt 29540 lt T lt 15533 lt T lt 15025 lt T lt 100
27 lt T lt 120
58 lt T lt 225
100 lt T lt 27500 115 lt T lt
30 lt T lt 10626 lt T lt 106
25
Exhibit 28 shows the breakdown of macro industries
analysed including disaggregation of the NACE section C
(manufacturing) and G (wholesale and retail trade repair
of motor vehicles and motorcycles)
In order to carry out the analysis and projections this study
is focused on we used simple multiple linear regression
model for each industry and company size classes
considering macroeconomic and individual companiesrsquo
economic and financial data
The analysis enables us to develop an econometric
model used to estimate likely credit quality changes (in
terms of rating class and probability of default) for single
industries and company size classes
Automotive
Retail
Wholesale
21
1366
1
42
1
26
35
232
6
A B C D
F G H I
46
7
21
1318
9
15
34
Automotive
Chemistry amp pharmaceutics
Clothing
Equipment
Food Beverage and Tabacco
Heavy Manifacturing
Other Manifacture
Paper Packaging amp Forest Products
ICT
Textile industry
Large SmallMedium
Source Cerved database and Cerved Rating Agency elaboration
0
Wholesale
Retail
Automotive
20 40 60 80 100
Automotive
Chemistry amp pharmaeutics
Clothing
Equipment
Food beverage and Tabacco
Heavy Manifacturing
Other Manifacturing
Paper Packaging amp Forest Products
ICT
Textile
0 20 40 60 80 100
ABCDEFGHIJ
0 10 30 40 60 70 80 90 100
Exhibit 28 Sample break-down by industry (2016)
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
26
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Performance indicators to improve further
The annual financial statements available through public
registers provide a clear economic and financial picture
of the Italian joint-stock and limited liability non-financial
companies The individual historical data available from
2000 to 2016 enriched with 2017 preliminary results and
with the expected 2018 macroeconomic scenario enabled
us to build up the 2017 and 2018 projections regarding
the following four performance indicators related to the
analyzed sample 1) growth rate - revenues YoY change
2) EBITDA margin 3) net financial debtEBITDA and 4) net
financial debtEquity Afterwards the median values of the
resulting data were used to obtain the summary output
which we consider as a representative proxy for the overall
market
From 2000 to 2016 the observed companies experienced
a very irregular trend both in terms of growth rate and
EBITDA margin In the aftermath of the global financial crisis
the lowest growth rate value (-120) was recorded in 2009
manufacturing transporting - storage and wholesale and
retail trade were the industries showing the biggest fall of
business volume (-155 -121 and -104 respectively)
whilst water supply accommodation and food service and
electricity and gas showed the highest level of resilience to
the adverse economic and financial environment (-01
-23 and ndash26 respectively) Exhibit 29 shows that in
terms of median value there are no significant differences
in the growth rate taking into consideration company size
classes as we previously defined them Only from 2010 the
growth rates turned positive but still remaining below the
levels recorded in 2000
The analysis of the EBITDA margin changes in the same
period also does not highlight significant differences
between large companies and SMEs as shown in Exhibit
30 The lowest median EBITDA margin value (52) was
recorded in 2012 regarding in particular accommodation
and food service transporting and storage and agriculture
sectors (28 40 52 respectively) while electricity
and gas ICT and water supply were relatively immune to
the unfavorable economic and financial circumstances
(showing 113 109 and 105 EBITDA margin
respectively) At the end of 2016 the median EBITDA margin
(60) still remains below the levels recorded in 2000 (72)
Positive trends emerging from the last publicly available
financial statements (2016) the 2017 preliminary results
and the optimistic macroeconomic forecasts for 2018
confirm improvement of the Italian economy Looking
ahead we expect the Italian non-financial companies to
continue to experience gradual recovery in 2018 They are
going to take advantage of the favorable global economic
cycle low interest rates and supportive regulations that
inter alia foster the use of alternative non-bank financial
sources for company funding The financial resources raised
through Individual Savings Plans (PIR ndash Piani individuali di
risparmio) introduced by the 2017 Budget Law are driven
in primis by a favorable tax regime for savers and might
become an important additional source for SMEs funding
injecting new liquidity The government objective fixed euro68
billion as a target value and in 2017 nearly euro10 billion had
already been raised
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2004 2006 2014 20162000
5
20
10
0
15
-15
-10
-5
Exhibit 29 Growth rate (revenue YoY change) by size classes (median)
medium small
2008 2010 2012
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2004 2006 2008 2010 2012 2014 20162000
7
10
9
8
6
5
4
3
7
10
9
8
6
5
4
EBITDA margin by size classes (median)
medium small
27
So far one of the main obstacles PIR are facing is the limited
number of available assets which may lead to a possible
concentration of this financial resources in a small share of
the market comprising mainly relatively large companies
as shown by the early data in 2017
Another obstacle to rapid adoption of the newly available
financial resources is the lack of a standardized and broadly
accepted methodology for the risk assessment of potential
bond issuers
Generally speaking in 2018 we expect SMEs to contribute
more significantly to growth employment and innovation
whilst on average the respective EBITDA margin will remain
broadly stable (as shown in Exhibit 31) However 2018 will
still be a challenging year for SMEs and innovative startup
companies as they will have to face tougher barriers in
accessing bank credit andor approaching capital markets
compared to large companies We also expect some new
innovative solutions aimed at meeting SMEs financial needs
to become effective the SMEs current financial structure
together with new business opportunities prove their
ability in terms of rational use of the additional financial
resources
The new investments will allow most industries to thrive
also assisted by the Italian Governmentrsquos adoption of the
National Industry 40 Plan
The companies which will take up this opportunity may
improve their cash-flows even in the short-medium term
Finally companies with strong international market
positioning and large product diversification will have
stronger sales and margins growth
The key ratio values recorded from 2000 to 2016 related to
the analyzed entities show the improved financial health of
the companies proving good capability to strengthen their
equity base as shown in Table 6
Growth rate (2016)Medium
Total
Small Large
Growth rate (2018)Growth rate (2017)
Source Cerved database and Cerved Rating Agency elaboration
50
40
Exhibit 31 Growth rate and EBITDA margin forecast by size classes
EBITDA margin (2016)EBITDA margin (2018)
EBITDA margin (2017)
40
30
0
10
20
Medium
Total
Small Large
7570
65
0
6 5560
5550
4540
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
28
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The recorded financial ratios in the 2000-2016 horizon
indicate that on average
middot liquidity maintained a satisfactory level in the whole
observed period due to the positive economic cycle in
2017 and 2018 we expect a slight improvement in the ratio
middot the EBITDAinterest coverage ratio almost doubled its
value in 2016 compared to what was recorded in 2000
primarily due to a general reduction in the interest rates
particularly in the last three years we believe that in 2017
and 2018 the average ratio value will remain roughly at the
same level recorded in 2016
middot in 2016 ROE shows further improvement but is still
slightly lower compared to the value recorded at the
beginning of the observed period mainly due to the equity
base strengthening trend
middot Equity Ratio rose from 250 to 350 due to a significant
increase of equity capital in 2018 we expect further
strengthening of the ratio
middot Financial LiabilitiesTotal Assets ratio remained mostly
unchanged ndash financial debts representing roughly 30 of
the total assets
A positive trend regarding the net financial debt was also
observed in fact in 2016 70 of the sample improved their
NFDEBITDA and 73 the NFDEquity
Positive performances were found especially in the SMEs
segment as shown in Exhibit 32 in particular referring to
NFDEquity small and medium-sized companies recorded
a positive trend standing respectively at 092 and 089 in
2016 compared to 132 and 136 in 2000
Hence the financial risk profile appears to be well balanced
leaving no room for specific concerns regarding the
prospects of the Italian non-financial companies in 2018
In 2016 the median values for the total sample referring to
NFDEquity and NFDEBITDA remained respectively at 089
and 389 levels respectively
Looking ahead we expect these indicators to remain at
healthy levels in 2017 and 2018 with a slight improvement
in NFDEBITDA and a broadly stable level of the NFDEquity
ratio as shown in Exhibit 33
NFDEBITFA (2016) NFDEBITFA (2017)NFDEBITFA (2018)
40
Exhibit 33 NFDEquity and NFDEBITDA forecast by size classes
Source Cerved database and Cerved Rating Agency elaboration
404
20
25
45
35
30
NFDequity (2016) NFDequity (2017)NFDequity (2018)
05
06
09
10
08
07
Exhibit 32 NFDEquity and NFDEBITDA by size classes (median)
largemediumsmall
2016
2015
2014
000 5 10 15
Average2008-2013
Average2000-2007
total largemediumsmall total
Source Cerved database and Cerved Rating Agency elaboration
2016
2015
2014
203 0 405 0
Average2008-2013
Average2000-2007
29
Growth and profitability improvement spanned over all sectors
Exhibit 34 shows the relative positioning of the 10
macro-industries in the short-medium term considering
the median values related to revenue growth rate and
EBITDA margin
The historical median values are calculated on the basis
of financial data obtained from the annual financial
reports 2014-2016 filed in the Chamber of Commerce
public registers the projected median values for 2017
and 2018 are the result of the analysis of this study
As expected there are significant differences in
positioning between different industries in terms of
both historical and projected values
In 2018 we expect manufacturing and accommodation and
food services to maintain top positions already reached in
2016 and 2017
For the electricity gas mining and quarrying industry
2018 may be the turning point showing the first positive
signals after experiencing some difficulties over the last
few years
None of the other industries show significant changes in
2018 compared to their 2016 positioning
Source Cerved database and Cerved Rating Agency elaboration
A 50
57599586886358
3849
3620083721
-110320
-1112
210322
-1814021122
1413
030124
-5010284025
0555
20-4614
-4607212105
0430
210328-2310203218
0832
2310300512233720
1637
BCDEFGHIJ
A 625296
1441401016934
15352
504969
103121916227
10639
4764676185562639
68112
4873687090592845
75120
456772928856
45
7898
4667759090573147
7698
4668769394583147
77102
EBITDAmarigin
BCDEFGHIJ
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018Growthrate
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
Exhibit 34 Growth rate and EBITDA margin by industry
-70 -50 -30 -10 10 30
2016E2017F2018
50 70 90
Median=68
Median=2100
20
40
60
80
100
120
A=Agricolture B=Mining and quarrying C=Manifacturing D=Electricity and gas E=Water supply F=Construction G=Wholesale and retail trade H=Transporting and storage I=Accomodation and food service J=ICT
D
B
E
FHA G
C
I
J
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
30
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Further strenthening in companiesrsquo financial structure
Exhibit 35 shows the relative positioning of the 10 macro
industries in the short-medium term considering the
median values related to NFDEBITDA and NFDEquity
ratios
The historical median values are calculated on the basis
of financial data obtained from the annual financial
reports 2014-2016 filed in the Chamber of Commerce
public registers the projected median values for 2017
and 2018 are the result of the analysis of this study
There are even more significant differences in
positioning between industries regarding NFDEBITDA
and NFDEquity ratios when compared to growth rate
and EBITDA margin differences
Generally in the observed period there is no evidence of
significant changes among industries considering their
relative positioning related to NFDEBITDA and NFD
Equity ratios
In 2018 we expect accommodation and food services
and information and communication services to
maintain top positions already reached in 2016 and
presumably confirmed in 2017
Exhibit 35 NFDEquity and NFDEBITDA by industry
2016E2017F2018
Median=37
Median=08500
030 5 070 9 111 3
20
30
40
50
60
70
10
A=Agricolture B=Mining and quarrying C=Manifacturing D=Electricity and gas E=Water supply F=Construction G=Wholesale and retail trade H=Transporting and storage I=Accomodation and food service J=ICT
EH
C
BF
G
A
D
J
I
A 150101113081112149151120
079131
123075088101097125123103
072079
114067083052090108119102
067076
113060080045089096114092
074069
125076080045089106109086
050060
127072080044091
108084
051056
128067079043093106107081
051051
BCDEFGHIJ
NFDEquity
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
A 597219280305251301338250
153260
676394388342298453499349
254337
707482387293277498532337
277334
696392373254305484494308
231315
747401358330285544483294
183312
722390340341280511470290
178293
710380310329272492452281
177289
NFDEBITDA
BCDEFGHIJ
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
Source Cerved database and Cerved Rating Agency elaboration
106
31
Exhibit 36 Equity ratio by industry
Average 2000-2007 2014 2015Average 2008-2013 2016
Source Cerved database and Cerved Rating Agency elaboration
05
10
20
30
15
25
3540
5045
AB C DE FG HI J
Exhibit 37 EBITDA interest coverage by industry
Average 2000-2007 2014 2015Average 2008-2013 2016
Source Cerved database and Cerved Rating Agency elaboration
0
5
10
20
15
AB C DE FG HI J
A 1113140911151211
1408
1013131012131209
1208
1114151012131311
1309
1214151012151312
1309
1215161113161412
1409
BCDEFGHIJ
Liquidity ratio Median2000-07
Median2008-13 2014 2015 2016
A 0377677447858463
8960
0332
8145524536
4832
0342486042273848
3246
0537606853395765
4069
0743676559416378
5882
BCDEFGHIJ
ROE Median2000-07
Median2008-13 2014 2015 2016
Table 7 Liquidity ratio by industry Table 8 ROE by industry
Source Cerved database and Cerved Rating Agency elaboration
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
32
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Agriculture
Considering the recent price decline for agricultural
products putting EBITDA margin under pressure for
most of the industry participants we anticipate a slow
revenue growth in 2018 We also foresee more stable
margins in 2018 and investments to continue at a faster
pace in the near future mainly aimed at transforming the
agricultural activities into a high-tech industry Climate
and cultural changes are the main exogenous risks that
may negatively influence the sector
Mining and quarrying
Over the last few years the mining industry has been
challenged by record low metal prices and this has
resulted in a weak growth of supply and a cut in
investments especially in the new mines opening We
foresee a modest revenue growth in 2018 supported
by more stable prices rather than by government
infrastructural investments Margin pressure will remain
mostly unchanged in 2018 We do not expect a significant
increase in capital expenditure for most companies
while only a minority of industry participants will invest
in new capacities searching for new growth opportunities
by introducing new higher margin outputs Overall we
anticipate relatively stable key financial indicators
Manufacturing
We believe that in 2018 Italian manufacturing
representing 2nd European and 7th world player in 2016
will remain the beating heart of the national economy
In our view the expansion of internal demand the
improvement of business and customer confidence and
the wider export opportunities are the key drivers for
revenue growth (up to nearly 30) Despite the natural
selection the occurred during the economic recession
domestic competition and especially the competition
from lower income countries will remain challenging in
2018 creating further profitability pressure especially in
some highly fragmented segments
As a conditio sine qua non for market survival many
companies will be involved in a ldquowinning the innovation
gamerdquo process translated into a considerable capex
expenditure directed at process optimization which
inevitably must be accompanied by innovative marketing
and commercial strategies The companies especially
smaller ones which are not ready lsquoto play the gamersquo
remaining risk averse are likely to fall behind
Key financial indicators referring to the industry in terms
of net financial debt to equity and net financial debt to
EBITDA are likely to remain overall stable in 2018
In our view the best performing manufacturing industries
in 2018 will be the following
Automotive
extensive vehicles replacement process in 2018
high competition pressure China maintaining a key role
high level of innovation in mobility and connectivity
new strategic partnerships and MampAconservative stand towards EBITDA margin improvement
Chemistry amp Pharmaceutics
solid macroeconomic fundamentals will support
the revenue growth driven mainly by large companies
on average a stable EBITDA margin of about 10
is expected global presence is a must to achieve higher
level of profitability
RampD remain key factors for further market expansion
moderate level of MampA operations in 2018 slowing
down when compared to those carried out in the
previous year
Machinery amp Equipment
revenue growth in 2018 up to nearly 25 reflecting
the fact that all manufactures remain focused on RampD
and NPI (new product introduction)
cost management strategies are going to persist
but generally speaking with no significant impact on
EBITDA margin in 2018
heavy equipment manufactures still under pressure in
2018 to provide engineering capability and capacity
33
Energy and gas
Italian companies operating in the energy industry are
facing a complex market environment with many open
questions about risks related to regulations a drop
in consumption high competition levels and EBITDA
erosion
Generally we expect a more stable landscape in 2018 in
terms of commodity prices and consumption However
risk regarding prices and volumes will remain strong
resulting in a higher volatility of revenues In our view
the current margin pressure is unlikely to ease over the
next two years The final overcoming of the sondashcalled
ldquoMaggior Tutela Regimerdquo may lead to almost zero margin
for the retail operators We expect industry participants
to continue to focus their attention on cost efficiency and
on protecting profitability by embracing new business
models and examining the role that digital technology
can play in improvement of EBITDA margins We believe
that the above described strategies will be a central
topic for the operators intending to attract capital We
also believe that energy producers could see a slight
debt increase in 2018 aimed at improving productivity
and synergies Finally in 2018 we envisage a significant
number of MampA operations in the sector led by synergy
effects such operations might produce
Water supply waste management and sewerage
In recent years the water supply waste management
and Italian sewerage industry has recorded a slower
growth compared to the pre-crisis period However
due to the last two yearsrsquo important investments in the
water infrastructure waste sorting and recycling Italy
ranks as one of the top European countries in terms
of growth rate of recycling and packaging recovery
We believe that the expected general increase in
industrial output will produce a slight growth in water
consumption and waste treatment The demand for
sustainable solutions will continue to persist requiring
new investment in technologies based on a customer-
centric and sustainable approach aimed at improving
efficiencies and facilitating reuse Expectations also
reflect our view in terms of wider government interest
and spending in this industry We expect profitability
to remain broadly in line with the results obtained in
2016
Construction
After a weak increase in revenues recorded by the
construction industry operators in 2016 and the
modest result anticipated in 2017 both reflecting
a deteriorating demand and decreased volumes of
bank loans (mainly those for small and medium-
sized companies) we expect 2018 to be the turning
point for this industry We foresee that the volume of
residential and private non-residential constructions
will remain at relatively low levels in 2018 and that
the positive trend in housing renovation and public
works investments will continue taking advantage of
the allocated funds established by the Budget Law for
2017 Small and medium-sized businesses focused on
residential construction may face a slight profitability
erosion while we believe some growth in EBITDA
margin may be recorded by large Italian companies
operating internationally Due to the high perceived
risk historically there has been a strong financial
market mistrust of the construction companies which
we believe is likely to ease over the coming years
Wholesale and retail trade
During the crisis period wholesale and retail trade
industry faced a sudden interruption of the gradual
growth that had taken place up to that moment mainly
due to a loss in real purchase power and in consumer
confidence also translated into profitability erosion
In 2016 the data showed how the industry is moving
toward a recovery period Looking forward in 2018 we
expect to record a steady revenue growth supported
by an increase in global trade and improved consumer
confidence Despite the foreseen growth operators
will continue to face consistent pressure mainly in the
retail segment due to the high proliferation of new retail
purchase channels and market fragmentation
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
34
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Transportation and Storage
After a troubled 2016 characterized by an overcapacity
and a decrease in commodity demand hitting shipping
revenues in particular we foresee a moderate overall
recovery in 2018 driven mainly by an increase in
international shipments and air traffic The growing
number of innovative startups will continue to persist
increasing the competitive pressure in the industry We
anticipate a constant growth of e-commerce enabling a
quick reaction of on-line retailer and logistics providers
We believe that operators will continue to invest in
new high-tech solutions experimenting new models of
mobility and smart logistics
Despite very strong competition we expect the median
operating margins to remain steady However global
political uncertainties and related risks are strong with
possible quick and sharp negative impact on business
volumes and margins of the companies operating in
these industries
Accommodation and food services activities
In the last two years operators in the accommodation
and food service activities industry mainly medium
and small sized enterprises have seen steady revenue
growth and satisfactory profitability ratios Many
operators were focused on reviewing their business
models and offering additional services to their
customers a necessary strategy to maintain or expand
market positioning strengthen margins and improve
customer experience We expect the revenue growth
to continue in 2018 with a minimal median margin
improvement We believe accommodation and food
service activities will attract new capital investments
in 2018 to help the ongoing transformation process
and improve the accommodation infrastructure and
services
Information and communication technologies
The Italian information and communication technology
industry took longer to recover from the economic
crisis recording overall a negative median growth
rate until 2014 Software services and innovation
technology were the major contributors to revenue
growth (as a percentage) in 2016
Over the forecast period we foresee a modest revenue
growth for the ICT operators as a whole while the
technology industry will continue to achieve rapid
growth focusing on maintaining the competitive pace
of innovation In our view a key challenge for the ICT
operator may be the availability of matching skills
The outlook is relatively stable in terms of profitability
and key financial indicators
The following two pages show the details of the
previously discussed key performance indicators
35
Exhibit 38 Growth rate and EBITDA margin manifacturing sectors
-70- 50 -30 -10 103 0
2016E2017F2018
50 70 90
Median=76
Median=3000
20
40
60
80
100
120
1=Automotive 2=Chemistryamppharmaceutics 3=Clothing 4=Equipment 5=Food beverage and Tabacco 6=Heavy Manifacturing 8=Paper and Packaging 9=Tecnology and Telecomunication 10=Textile industry
6
10 5
3
8
91
74
2
50AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
57599586886358
3849
3620083721
-110320
-1112
210322
-1814021122
1413
030124
-5010284025
0555
20-4614
-4607212105
0430
210328-2310203218
0832
2310300512233720
1637
Growth rate Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
EBITDA margin Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
Source Cerved database and Cerved Rating Agency elaboration
625296
1441401016934
15352
504969
103121
916227
10639
4764676185562639
68112
487368
7090592845
75120
456772
9288562845
7898
4667759090573147
7698
4668769394583147
77102
1=Automotive 2=Chemistryamppharmaceutics 3=Clothing 4=Equipment 5=Food beverage and Tabacco 6=Heavy Manifacturing 8=Paper and Packaging 9=Tecnology and Telecomunication 10=Textile industry
2016E2017F2018
Median=30
700
600
500
400
300
200
100
000000 020 040 060 080 100 120
Median=08
Exhibit 39 NFDEquity and NFDEBITDA for manifacturing sectors
2
4 8
101
9
9
3
57
Source Cerved database and Cerved Rating Agency elaboration
096AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
104146095152117112109
098087
087080116068118083088086
084078
075074104069107082080079
084083
072064100065105084122081
079081
082066104065105080091079
077082
081067103065105079087079
077081
076067101064104077083078
076080
NFDEQUITY Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
227AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
258334222397249255259
315202
338313443305495363403412
480337
315306436328479373380397
482316
264269490303467366403383
515317
269243507090106127090106
106106
413343478088105127088105
105105
399333465086104127086104
104104
NFDEBITDA Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
36
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Exhibit 40 Growth rate and EBITDA margin for wholesale and retail trade sectors
20 40 60 80 100 120 140 160
2016E2017F2018
Median=31
Median=33
0000
20
10
30
60
50
70
1=Automotive 2=Retail 3=Wholesale
40
3
12
2016E2017F2018
Median=45
700
600
500
400
300
200
100
000050 070 090 110 130 150 170 190
Median=11
Exhibit 41 NFDEquity and NFDEBITDA for wholesale and retail trade sectors
1=Automotive 2=Retail 3=Wholesale
21
3
37
Ratings will remain broadly stable
The following section presents a risk profile analysis
based on Cerved Rating Agencyrsquos outstanding and
monitored public and private ratings issued from
2013 to 2017 on Italian non-financial companies
and operating in the industries discussed in this
study (data as of 31 December)
Exhibit 42 and Table 9 show an overview of 1-year
effective default rates over the 2000-2017 horizon
related to the sample bankruptcy and other legal
proceedings and debt restructurings as default
events
The default rate trend shows a general
improvement from 2014 onwards both by
company size classes and by industry however
considering the entire sample the overall default
rate still remains higher when compared to its pre-
crisis level especially regarding smaller companies
operating in the construction sector
Exhibit 43 shows the effective default rates over
2013-2017 horizon based on Cerved Rating
Agencyrsquos definition which considers as default
events
middot bankruptcy and other legal proceedings
middot debt restructuring
middot missed or delayed disbursement of a contractually
required interest or principal payment ie missed
payment on bonds material protests (on cheques
or trade bills) or prejudicial acts (judicial mortgages
distraint of property)
The effective default rates over the 2013-2017
horizon show decreasing trend and satisfy the
monotonicity constraint regarding all Cerved
Rating Agencyrsquos rating classes (Exhibit 44)
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2003 2004 2005 2006 2007 2014 2015 2016 20172000 2001
5678
12
3
4
0
Exhibit 42 Avarage 1-year default rate by size over 2000-2017 horizon
medium small
2008 2009 2010 2011 2012 2013
Mining and quarring
Manifacturing
Electricity gas steam and air conditioning supplyWater supply sewerage
Construction
Wholesale and retail trade repair of motorTransporting and storage
Accomodation and food service activities
Information and communication
24221809
5212
282915
2529
38533424
13027
454830
4838
36542537
15929
424421
4323
23461921
13226
293226
3022
Source Cerved database and Cerved Rating Agency elaboration
Table 9 Default rate by industry over 2000-2017 horizon
Total
NACE Average2008-2015
Average2000-2017 2016 2017
2016
Source Cerved database and Cerved Rating Agency elaboration
C21C12C11B22B21B12B11A11 A12 A13 A21 A22 A31
60
50
40
30
20
10
0
Exhibit 43 1-year default rate over 2013-2017 horizon
20172013 2014 2015
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
38
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The analysis of historical rating distributions in the
same period shows clear differences in terms of modal
rating class by company size As shown in Exhibit 43
the modal rating class for the large companies is A31
B11 for the medium and B12 for small companies
(considering company size classes as they have been
defined ad hoc by Cerved Rating Agency for the
purposes of this study)
Overall the corporate rating distribution in the
Source Cerved database and Cerved Rating Agency elaboration
C21C12C11B22B21B12B11A11 A12 A13 A21 A22 A31
30
25
20
15
5
10
0
Exhibit 44 Rating distribution frequency by size classes
large
30
25
20
15
5
0
10
medium smallRating 2013 total Rating 2017 total Rating 2017 forecast
observed period is skewed towards the investment-
grade rating categories (ie Cerved Rating Agency
rating classes from A11 to B12) representing 700 of
the whole sample 250 is concentrated in the safety
(A rating classes) and 450 in the solvency (B11-B12)
classes
We anticipate the rating distribution to remain
broadly unchanged in 2018 with the rating migration
concentrated mainly in the B category
39
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100543
2414
4407
4407
2636
4554 4558
2403 2311
535 527
90
10
0
Exhibit 45 Rating distribution frequency by area of risk - Total companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency]I nvestment GradeA11-A31 [Safety]
2509 2604
704 4407706 4407716
324
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
985
5658
4407
3033 2992 2898
925 907
300 318
90
10
0
Exhibit 46 Rating distribution frequency by area of risk - Large companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
5783 5878
869 4407878 4407878
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
4407
4407
3626
4080
17591695
439 449
90
10
0
Exhibit 47 Rating distribution frequency by area of risk - Medium companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
3571 3776
7044407780 4407786
456
1805
774
4113 4232
603
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
2824
1900
4407
4673 4850 4761
2833 2754
600 633
90
10
0
Exhibit 48 Rating distribution frequency by area of risk - Small companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
1716 1852
657 4407657 4407661
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
40
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Slight improvement in general creditworthiness
In our opinion in 2018 the creditworthiness of the
observed Italian non-financial companies will remain
stable for almost 86 of entities Migration of ratings is
expected to be moderate resulting in approximately 14
of rating upgrades (9) and downgrades (5) at the end
of 2018 compared to the outstanding ratings at the end
of 2017 The vast majority of the rating changes (921)
will be limited to one-class migration as shown in the
1-year projected transition matrix (Table 10) We believe
that more than one third of the expected downgrades
will be concentrated in the energy gas mining and
construction sectors Over the last years the average
credit profile of companies active in these industries has
been relatively weak and due to the forecast market and
regulatory conditions we do not envisage opportunities
for a significant risk profile improvement in 2018
Despite the expected rating migrations for individual
entities in 2018 the current industry modal rating
classes are unlikely to change
On the other hand stable and positive outlooks will
prevail in the manufacturing industry wholesale and
retail trade and accommodation and food service This
is due to the increase in the number of companies
active in these sectors which will maintain andor
improve their business and financial performances
Indeed as shown in Table 11 in 2018 the rating outlook
remains differentiated by industry whilst in terms of
the expected general probability of default we foresee
a modest improvement (349) compared to the one
recorded in 2017 (366)
Table 10 1-year transition matrix
Source Cerved database and Cerved Rating Agency elaboration
2017
A11
A31
B11
C11
C12
B21
C21
B22
B12
A12
A13
A21A22
F 2018A11 A12 A13 A31 B11 C11 C12B21 C21B22B12A21 A22
000 530
066
054 451034 435
027 753055 901
1033121247 1624
260 1038088
000
000000037
028
295
290
1063
179
455050647
043425
026490020208
000208
000152
000000
00000010000
9821
9318
92679015
87708583
81497646
8665
9617
9710
8605
419024
41
The information and data supporting Cerved Rating Agency rating opinions related research and credit opinions originate from sources Cerved Rating Agency considers to be accurate however Cerved Rating Agency cannot independently verify the reliability and accuracy of the information and data in every instance This publication may not be reproduced retransmitted or distributed in any form without the prior written consent of Cerved Rating Agency Cerved Rating Agency assumes no liability for correctness completeness and topicality of the information contained in this publication The analyses underlying this study do not provide advice of any sort
26
n
6670
486
59
Exhibit 49 Ratings outlooks by size
Large
Medium Positive Stable Negative
Small
21
13
Large
Medium
Small
Source Cerved database and Cerved Rating Agency elaboratio
Table 11 Ratings and probability of default 2018 outlook by industry
Source Cerved database and Cerved Rating Agency elaboration
NACE Micro industryDowngrade
B-Mining and quarryingAutomotive
900814
848
812
880812
847
813 172
170
174
144
8264 36
08
104 433 436
392 373
22724815
362 360
876
876
914
848
849
804
887
882
916
901835870899 64
866760
43
68
5659
58
47
61
49
74
78 75
14
50
37
36
5393
32
50
41
45
3899
77
91
316
372
355
364
308
491
326
318 296
331
312
381
367
359
322
495
452
433
403429
389
364369
363
313
452
323
594
38
315358
603
307
345 350
67 5318
469289 274
470
147
116
138
851
821AutomotiveRetail
Wholesale
Total
Chemistryamppharmaceutics
ClothingEquipment
Food Beverage and Tabacco
Heavy Manifacturing
Other Manifacturing
Textile industry
Total
Tecnology Media ampTelecomunication
Paper Packaging ampForest products
C-Manifacturing
D-Electricity gas steam and air conditioningsupply
F-Construcion
H-Transportig and storageI-Accommodation and food service activitiesJ-Information and communication
G-Wholesale and reatail traderepair of motor vehicles and motor-cycles
E-Water supply sewerage waste
Average ForecastPD 2018
Expectedtrend
Average PD 2018
Ratings outlooks
Stabl pgrade
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Cerved Rating Agency SpAVia dellrsquoUnione Europea n 6A-6B20097- San Donato Milanese (MI)
Tel +39 02 77541 - Fax +39 02 76020458
ratingagencycervedcom
Rating Agency
12
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Highlights on italian economy
13
Gdp growth is under way to consolidate in 2018
From 2000 to 2017 the Italian economy was more
vulnerable compared to other highly developed
countries in particular those of the euro area
The Italian real GDP at the end of 2017 was roughly
at the same level recorded in 2000 whilst the euro
area countries and specifically Germany and France
experienced a considerable growth in the same period
(188 205 and 198 respectively)
The Italian GDP has started to increase moderately only
since 2014 mainly due to an improvement in domestic
demand but its growth still remains below the growth
rates of the majority of euro zone countries The poor
performance of the labor and total productivity factor
accounts for most of the difference
An ageing population and a weak labor market
participation have also contributed negatively to
potential growth Structural reforms in particular the
Jobs Act and tax incentives on new labor contracts
contributed to the increase in employment making the
Italian labor market more flexible and efficient
In 2018 we expect the economic growth to be slightly
below the level reached in 2017 The trend will be
sustained by the world economy positive cycle
including higher levels of international trade volume
Italian companies will benefit from favorable credit
lending conditions due to an expanding credit activity
of the banking system and low interest rates
Whilst the Italian government adopted a set of dynamic
and diverse policies for 2018 we believe that some of
those previously introduced have already contributed
to the GDP growth in 2016 and 2017 thus reducing the
combined effect in 2018
Source World Bank
2000 2002 2004 2006 2008 2010 2012 2014 2016
1500
1000
500
0
2500
3500
3000
4000
2000
13000
9500
10000
11000
12000
12500
10500
11500
Exhibit 10 GDP in Europe ($ billion)
Germany Italy Euro areas (11countries)France
Total multifactor productivityEmployment growth
Source OECD
-2
-4
-6
-8
2
0
4
6
Exhibit 9 Italian GDP employment and total multifactor productivity (Y-o-Y change)
2000 2002 2014 20162004 2006
GDP growth
20122008 2010
CERVED RATING AGENCY SpA | Highlights on italian economy
14
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The number of active companies has increased buthellip
The number of active companies in Italy registered at
the Chamber of Commerce as of December 31st 2016
amounted to 5145995 305629 more than in 2000
(63)
The increase in registered active companies is the result
of the positive trend from 2000 to 2008 (98) partially
cancelled by the decrease from 2009 to 2016 In 2017 a
slight improvement is expected to be recorded however
the number of active companies remains below its peak
value (5316104 entities) reached at the end of 2008
Exhibit 11 shows both the trend of active Italian companies
in the period 2000-2016 and their breakdown by legal
form We observe that the increased number of Joint Stock
Companies and particularly Limited Liability companies
(1206) was able to compensate the decrease in Unlimited
Partnerships (-62) and Sole Proprietorships (-79)
Companies are abandoning traditional sectors
Exhibit 12 shows the breakdown of the Italian active
companies at the end of 2000 and 2016 by industry
It can be observed that in many traditional sectors
the number of active companies decreased eg in
agriculture (-294) and manufacturing (-226) whilst
the number of companies increased in construction
(273) and wholesale and retail trade (39)
A very significant rise in the new registered companies
(456) occurred in other industries in particular
in the service industry offering information and
communication IT and professional scientific and
technical services
Joint Stock and Limited Liability Unlimited Partnership Sole proprietorshipO ther forms
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 2012 2013 2014 2015 20160
6000000
5000000
4000000
3000000
2000000
1000000
Exhibit 11 Italian active companies 2000-2016
Total
Source Movimprese and Cerved Rating Agency elaboration
Exhibit 12
Breakdown of the Italian active companies by industry 2000-2016
2000
635286 13
1059005 22
639778 13
589707 12
183 856 4 226964 5 150772 3
1354998 28
965452 19
747738 14
495247 10
750863 15
150888 3
379899 7 247187 5
1408721 27
2016
C Manufacturing
F Construction
H Transporting and storage
I Accommodation and food service activities
L Real estate ativities
G Wholesale and retail traderepair of motor vehicles and motorcycles
X Other
15
Number of bankruptcy and other legal proceedings to decrease further
From 2000 to 2016 the number of bankruptcies and
other legal proceedings protests and prejudicial
acts in Italy mirrored the general trend of the
Italian economy
After reaching its minimum level in 2007 (5969)
the number of bankruptcy procedures in the
period 2009-2014 increased dramatically reaching
its peak value of 15608 in 2014
With the improvement in the economic and financial
environment starting from 2015 the number of
bankruptcy procedures decreased sharply in all
macro sectors returning approximately to the
levels recorded from 2000 to 2006 A positive
trend was recorded also in 2017 bankruptcy
procedure initiated for 11937 companies -113
when compared to the same period in 2016 In
absolute terms the highest number of bankruptcy
procedures was recorded in the service sectors
followed by the construction and manufacturing
Worth mentioning is the design of a new Italian
bankruptcy law that should be approved by
October 2018 The regulatory framework aims at
more efficient resolutions of cases of company
crisis supporting continuity of its operating
activities and safeguarding the interest of creditors
by introducing innovative solutions such as pre-
crisis warning mechanisms
Other legal proceedings after reaching its
maximum level in 2013 (3593) in 2016 came down
to 1993 and the trend continues in 2017 evidencing
1866 procedures -64 when compared to the
same period in 2016
In the last five years new protests and prejudicial
acts have also shown a decreasing trend with
ndash527 and ndash70 of acts respectively in 2017
compared to the numbers recorded in 2013
-6
Exhibit 13 Bankruptcy
BankruptcySource Cerved databaase
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
10729 108311163612287
10338
59697307
9189
1108812022
12437
14031
1560814682
13459
11937
Other legal procedingsSource Cerved database
1500
1000
500
02000
940 994 1125 1211
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
2500
3500
3000
4000
2000
1110
16691540
18702094 2057
2342 2475
3593
3132
2720
1993 1866
Exhibit 14 Other legal procedings
1211
100 45000
4000090
80
70
60
50
40
30
20
10
02015
35000
30000
25000
20000
15000
10000
5000
02013 2014
Protets
703
297
41438
Total
Source Cerved database
Prejudicial acts
2016 2017
665
335
34527
570
43032660
527
473
546
454
2523828929
Exhibit 15 Protests and prejudical acts
CERVED RATING AGENCY SpA | Highlights on italian economy
16
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Core inflation rate to rise
Italian headline inflation will experience a modest
decline in 2018 compared to the previous year
(12 and 14 respectively) Core inflation
however is predicted to increase to 12 in 2018
(up from 10 in 2017)
Exports and import are accelerating
Exports and imports will both accelerate in 2018 (41
and 44 respectively) mirroring the positive trend
and expectations in global trade and the rising of the
external demand Machinery and equipment industry
will still remain in ldquopole positionrdquo due to companies
generous investment and tax incentives In general
in 2018 Italian exports will increase more in the Extra
European Union countries
Investment continues to gain strength
Investment has gained strength and will continue to
do so at a relatively fast pace supported by effects of
the tax incentives (Stability Low 2017) low interest rate
and improvements in business confidence Indeed
investments are expected to increase 30 in 2018
(up from 24 in 2017) Construction investments are
forecast to accelerate slightly also thanks to more
resources earmarked for public investment
Harmonised core infation
Source OECD and IMF
2003 2006 20092000 2012 2015 F2018
2
1
-1
0
4
3
5
6
Exhibit 16
Imports of goods and services (Y-o-Y change)
Exports of goods and services (Y-o-Y changes)
Total dometic demand (Y-o-Y change)
Source OECD and IMF
20062000 2015 F2018-5
-15
-20
5
0
-10
10
15
Exhibit 17 Exports imports and demand Italy
20122003 2009
Wholesale and retail trade (Y-o-Y change)
Total investments ( of GDP)
Heavy industry (Y-o-Y change)
Other services (Y-o-Y change)
Source IMF and ISTAT
Construction (Y-o-Y change)
20062000
-20
-30
10
0
-10
20
30
20
25
15
10
0
5
F2018
Exhibit 18 Investments by industry Italy
2003 2009 2012 2015
17
No room for significant public debt reduction
At the end of 2016 the Italian government debt-to-GDP
ratio was significantly above its level at the beginning of
the century In particular as of December 31st 2016 the
ratio was 1326 (262 with respect to 100 recorded
at the end of 2000)
In the same period the ratio for the euro area increased
from 681 to 913 (341) in Germany from 589 to
683 (159) and in France from 586 to 960 (638)
At the end of 2017 the Italian government debt increased
further to more than euro2300 billion 1350 of GDP The
debt servicing in terms of interests accounts roughly
50 of Italian GDP
In our view the high level of government debt
represents a key factor limiting Italian economic growth
and contributes eo ipso to increasing country risk
with a possible negative impact on the stability of the
international financial system
A possible increase in interest rates would raise the
cost of debt service potentially triggering a crisis due to
larger governmental deficits a slowdown in economic
activity and growing debt refinancing difficulties due to
higher risk perceived by investors
Hence it seems that a significant reduction in
government debt should be the main goal of the Italian
economic and financial policy in our opinion however
the achievement of such a result is not realistic neither
in the short nor in the medium term due to the following
factors
middot economic growth in the coming years is expected
to be moderate not sufficient to be the main source of
the government debt reduction
middot macroeconomic policy is expected to prioritize
investments employment social security and welfare
rather than government debt reduction
middot even if the inflation rate hits the target value (20) the
impact on the government debt in the short term is not
expected to be considerable
middot finally in Italy election will take place in spring 2018
with a new government taking over the economic
program that has already been approved and become
fully executive
Euro area
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 2012 2013 2014 2015 20160
20
40
60
80
100
120
140
Exhibit 19 Public debt as GDP
France
Source AMECO and Cerved Rating Agency elaboration
CERVED RATING AGENCY SpA | Highlights on italian economy
18
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Table 1
Amount ( 407 312
-327
327754
216074 190881
163248 345604188167
869
1543
2213
1793
CAGR (base year 2000)
CAGR (base year 2008)
NPL ratio ()
Ndeg debtors
Averae debt debtor
Valueindicator 2000 2008 2016
Source Bank of Italy and Cerved rating Agency elaboration
Credit activity to be expanded interest rates to remain at very low levels
As of December 31st 2016 the volume of bank loans
granted to Italian non-financial corporations amounted to
euro8604 billion
The period 2000-2016 was characterized by two different
trends from 2000 to 2011 the annual outstanding loans
value increased by 841 (euro454 billion reaching in 2011 its
highest level ever of euro993 billion thanks to 57 CAGR far
above the Italian GDP growth) whilst in the period from
2012 to 2016 loans decreased by 134 (euro130 billion)
reflecting a negative -28 CAGR The loan reduction hit
sharply construction and manufacturing (accounting
for about 400 of all loans) which experienced -227
and -135 decrease in loan volumes whilst agriculture
forestry and fishing and wholesale and retail trade
(including repairs of motor vehicles and motorcycles)
had more limited loan contraction (-08 and -53
respectively)
In the observed period due to the negative impact of the
global financial crisis 200708 and to structural changes in
the world economic and financial environment a radical
decrease in interest rates was recorded In 2017 the
interest rates charged to Italian non-financial corporates
were on average less than half compared to those charged
in 2000 In the medium term low interest rates will remain
a positive factor fostering investments and consumption
Non-performing loans to be further reduced due to innovative measures
The credit crunch had a huge and dramatic impact on
the Italian economy hitting especially small businesses
which are not able to survive in a radically changed market
conditions The evidence of such outcome can be seen not
only through the decreased number of active companies
but also via the enormously increased volume of the
non-performing loans (NPLs) In particular these loans
amounted to euro324 billion at the end of 2016 of which euro154
billion were granted to the non-financial corporations as
shown in table 1
Following the principles outlined in the ECB guidelines
published in March in 2017 Italian Banks made significant
progress in reducing the amount of the NPLs ndash estimated
to be over euro50 billion debt reduction Any further actions
aimed to improve the banking balance sheets should not
increase the financial hardship of still operating companies
North - East SouthNorth - West Center Islands
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 2012 2013 2014 2015 20160
1200000
1000000
800000
600000
400000
200000
NPLs ratio
Source Bank of Italy and Cerved Rating Agency elaboration
20
1816
14
1210
8
6
42
0
446393
euro billion)
19
Modest role of italian equity capital markets
Despite the number of listed companies increasing
from 297 to 421 in the period 2000-2017 the role
of the stock markets remains modest in Italy
As of December 31st 2017 the market capitalization
was euro640 billion (375 of the estimated Italian GDP
in 2017) representing only 782 of the overall
market capitalization recorded in 2000 (equal
to euro818 billion 687 of GDP) mainly due to
an unfavorable economic cycle in the observed
period
This situation shows the structural weaknesses of
the Italian economic and financial system especially
when compared to other highly developed
European economies The low propensity to
raise equity capital through organized markets
is linked to an unfavorable macroeconomic and
fiscal framework as well as to the predominance
of SMEs mostly unfit for listing and presenting
cultural obstacles (ie company owners and managers are often reluctant to accept wider company control and
transparency)
Hence self-financing and bank borrowing remain the main sources of finance for Italian companies which are
generally speaking undercapitalized with a negative impact on their investment capabilities Very frequently the
lack of medium-long term financing means forces companies to focus their attention on running current activities
postponing or abandoning strategic projects fundamental for company growth
A wide range of innovative initiatives have been undertaken with the aim of fostering market based company
funding in particular
middot AIM (Alternative Investment Market) - a specialized market segment dedicated to SMEs growth (95 companies and
market capitalization around euro56 billion as of December 2017)
middot ELITE - a programme designed to help SMEs prepare and structure for the next stage of growth their through
access to long-term financing opportunities
middot PIR - Piani individuali di risparmio (Individual Savings Plan) - an innovative way to fund Italian SMEs by offering retail
investors resident in Italy tax incentives (full exemption of 260 income tax) if the savings stay invested for at least
five years A minimum of 700 of such credit assets must be invested in financial instruments issued by Italian or
foreign (EU and EEA) companies permanently established in Italy
FTSE (MIB)Enterprises
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 20132012 20152014 201720160
100
200
300
400
500
600
700
800
900
100029681 29525
14623
1765216121
12259
13512
16048
15988
19012
21428
21853
2185322232
16954
297 294 295 279 282278 311 336 332 332 328 323 326344 342 356 387 421
19483
22886
26056
31005
Exhibit 21 Italian listed enterprised and FTSE (MIB) index trend
Source Borsa Italiana
300000
250000
200000
150000
100000
5000
0
Capitalization of GDP
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 20132012 20152014 201720160
100
200
300
400
500
600
700
800
900
1000
Exhibit 22 Italian market capitalization of listed companies ( of GDP)
Source Borsa Italiana
80
70
60
50
40
30
20
10
0
8184
5923
354 365418 473
524475
239301 275
210233
287 295348
318375
4580 4875
5809
6766
77857336
37474571
4251
3324
44664678
56765249
6400
3655
474
68
CERVED RATING AGENCY SpA | Highlights on italian economy
20
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Italian debt capital market is growing but still remains behind needs
At the end of 2016 the outstanding amount of debt
securities issued by Italian financial and non-financial
corporations was euro8615 billion 510 of the countryrsquos
GDP The table below shows the breakdown by issuer
type of Italian German French British and United States
outstanding amounts of debt securities as of December
2016 issued by financial and non-financial corporations
with the respective debt-to-GDP ratio
Despite the outstanding debt at the end of 2016 being
almost double compared to 2000 it represents only 23
of its peak value reached in 2012 (euro1290 billion Exhibit
23) The main reason for such a significant debt reduction
is the huge bond reimbursement realized by banking
institutions from 2013 to 2016 and the related negative
net flow of debt securities (respectively -80 -153 -106
and -67 billion of euro as shown in Exhibit 24)
The decrease in debt securities funding of Italian banks
has been compensated by a wider use of deposits and
resources available under the Eurosystem refinancing
operations framework
The outstanding amount of debt securities issued by
non-financial corporations at the end of 2016 also
doubled its value with respect to the amount recorded
at the end of 2000 The main characteristic of this cluster
is the high concentration of issuancesdebt to a small
number of issuers
Due to both more favourable general economic
conditions and active ECB monetary policy bond yields
have decreased significantly providing room for a
convenient fund raising
Since the introduction of a new regulatory framework
(lsquoDecreto Svilupporsquo) in 2012 up to October 2017 Italian
market saw 300 small-size listed bond issues (ie so
called minibonds) amounting approximately to euro143
billion Issued mainly by SMEs they offer interesting
yields to institutional investors
) Source Business support SpA ndash Minibonditalyit
BanksTotal
Source Bank of Italy and Cerved Rating Agency elaboration
2006 20082000
-200000
200000
250000
-150000
-100000
150000
100000
-50000
50000
02012 2014 20162002 2004 2010
Banks debt securities outstanding
Banks Debt to GDP ratio
Source Bank of Italy and Cerved Rating Agency elaboration
0
10
20
30
40
50
60
70 1400000
1200000
1000000
800000
600000
400000
200000
0201620142012201020082006200420022000
Table 2 Outstanding securities debt (euro Million)Debt-to-GDP ratio()
Financial corporates
Total
Debtsecurities
outstanding
Italy German rance United Kingdom United States
739
123
862
440 340 470
21
680380
40
1279 1331 4 50
880
30
14271
14820
549180
10202767
590
19211436
15770
510
Debtsecurities
outstanding
Debtsecurities
outstanding
Debtsecurities
outstanding
Debtsecurities
outstanding
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Source Bank of Italy
0
0
21
CERVED RATING AGENCY SpA | Highlights on italian economy
22
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Italian non-financial companies economic Outlook 2018
23
Data and method
This research focuses on Italian non-financial companies
with an annual turnover exceeding euro5 million With the
aim of using only reliable data joint stock and limited
liability companies have been considered only these
entities according to Italian law file complete annual
financial statements in the Chamber of Commerce
together with anagraphical company data other
legal forms such as unlimited partnerships and sole
proprietorships are not included in this sample due to
the lack of publicly available standardized financial data
We believe that this cutoff is reasonable and allows us to
perform a methodologically correct analysis In 2016 the
above mentioned companies despite representing only
42 of all registered and active joint stock and limited
liability companies accounted for 769 of their total
turnover
Moreover cluster specialization has been obtained by
NACE activity classification from A to J (thus not including
in the sample financial and insurance companies and
some service industries) The statistics regarding specific
industries provide important key data and enable us to
examine historical and prospective trends and cross-
sector comparisons
The Cerved database which contains legal anagraphical
financial and market information on all Italian registered
legal entities (approximately 6 million comprising 5
million active ones) was the most important database
used for this research Long time series and broad
homogenized and standardized data covering different
economic cycles were the building blocks to perform
the regression and predictive analysis
Historical and forecast macroeconomic data and
analysis performed by the International Monetary Fund
OECD the World Bank European Central Bank Bank
of Italy and ISTAT completed the dataset used for the
analysis
Several analyses were performed in order to examine
the structural differences within the sample in terms of
company legal form and geographical area (Exhibit 25)
company age (Exhibit 26) and company size and industry
As a result we verified a considerable heterogeneity of
companies in particular with regard to the company size
across various industries
The relevant observation period comprises the years
between 2000 and 2016 Table 3 describes some
characteristics of the sample
Exhibit 25 Sample break-down by legal form and geographic area (2016)
Joint stock Company
Limited liability Company
Area 1 (Northwest)
Area 3 (Center)
Area 2 (Northeast)
Area 4 (South)
39
20
27
14
33
67
33
Table 3 Sample characteristics 2000-2016
TotalTurnover
gt euro5million
Turnover gt euro5 million(industry
from A to J)
TotalTurnover
gt euro5million
ofTotal
Turnover gt
euro5 million(industry
from A to J)
Source Cerved database
Entreprises Turnover billion
2000 659867700717738558772442812025847334883122915172937018949708965744969581
953505945825922513883224
4215144587462234694749640518205596459226595385246754808563745362752074519385289450123
3686139038411864118843547454704921752274526974633848778504734806246843468384771845288
16151740177018472002212923302477256822562421257025202446243224392295
12661362139214561588169818752000208317861944208720541992198419871905
11141205124013041430152316891801189716191764191218831839183518371765
689693700
716
706714
725
718729744748752754753769
727739
200120022003200420052006
200820092010201120122013201420152016
2007
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
24
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Furthermore in order to guarantee more detailed and
accurate analyses and projections we decided to create
a static pool to show consistently long time horizon
economic trends (17 years) by sealing off all the active
companies over the 2000-2016 horizon
The outcome obtained by considering the behaviour of
specific variables related to the companies included in
the static pool was extended as a performance indicator
for the whole sample (turnover over euro5 million and
industry from A to J)
According to the European Communityrsquos definition of
SMEs using annual turnover and employee headcount
as quantitative criteria the initial sample of companies
and the static pool can be classified by size classes on
the basis of the financial statements for the year 2016
as shown in Table 4
For the sake of this analysis we defined specific size
classes for each industry thus deviating from the
European Commissionrsquos recommendation which
presents undifferentiated upper and lower bounds of
quantitative criteria for SMEs in all industries To define
the thresholds of such classes we used both a statistical
approach (a specific cluster procedure by minimizing
the within-cluster turnover standard deviation) and a
judgmental approach by relying on the experience and
opinion of our industry expert analysts Table 5 shows
the results of such analysis referring to the sample in
2016 (45288 entities) and the NACE sections from A
to J Moreover the NACE section C and G were further
disaggregated into sub-industry classes as shown in
Exhibit 27 in order to consider the specific business
differences within these NACE sections thus ensuring
a good fit and a satisfactory accuracy of the estimation
Exhibit 26 Sample break-down by company age classes
0-2 Years 2-5 Years 5-10 Years 10-20 Years gt20 YearsSource Cerved database and Cerved Rating Agency elaboration
0 20 40 60 80 100
ABCDEFGHIJ
A = AgricolutreB=Mining and quarryingC=ManufacturingD=Electricity and gasE=Water supplyF=ConstructionG=Wholesale and retail tradeH=Transporting and storageI=Accomodation and food serviceJ=ICT
Small
Annul Turnover
Empolyees
Static Pool
Enterprises(Turnover gt euro5 million)
Enterprises(Turnover gt euro5 millionindustry from A t J)
Medium Large
lt 50 lt 250lt 36774 11113
1005333223
8741
2236
2012
154818645
gt euro50 million
gt 250
lt euro50 million
Source Cerved database
NACE Micro industry
B-Mining and quarryingAutomotive
Automotive
Retail
Wholesale
T gt 480
T gt 80
T gt 260
T gt 265T gt 270
T gt 230
T gt 120
T gt 80
T gt 43
T gt 65
T gt 106T gt 106
T gt 360T gt 155T gt 150T gt 100
T gt 120
T gt 225T gt 1400T gt 27500
T gt 1500
ChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther Manifacturing
ICTTextile
Paper Packaging ampForest products
C-Manifacturing
F-Construcion
H-Transportig and storageI-Accommodation and food service activities
J-Information and communication
D-Electricity gas steam and aircoditioning supply
G-Wholesale and reatail traderepair of motor vehicles and motorcycles
E-Water supply sewerage waste management and emediation activities
Large (Turnover
in euro million)
Medium(Turnover
in euro million)
Small(Turnover
in euro million)
Source Cerved database and Cerved Rating Agency elaboration
60 lt T lt 480 5 lt T lt 60
5 lt T lt 20
5 lt T lt 36
5 lt T lt 35
5 lt T lt 44
5 lt T lt 40
5 lt T lt 20
5 lt T lt 26
5 lt T lt 250
5 lt T lt 185 lt T lt 305 lt T lt 265 lt T lt 205 lt T lt 37
5 lt T lt 335 lt T lt 40
5 lt T lt 255 lt T lt 585 lt T lt 1155 lt T lt 1005 lt T lt 27
20 lt T lt 80
36 lt T lt 26035 lt T lt 26544 lt T lt 270
40 lt T lt 230
20 lt T lt 120
26 lt T lt 80
18 lt T lt 43
250 lt T lt 1500
20 lt T lt 6537 lt T lt 29540 lt T lt 15533 lt T lt 15025 lt T lt 100
27 lt T lt 120
58 lt T lt 225
100 lt T lt 27500 115 lt T lt
30 lt T lt 10626 lt T lt 106
25
Exhibit 28 shows the breakdown of macro industries
analysed including disaggregation of the NACE section C
(manufacturing) and G (wholesale and retail trade repair
of motor vehicles and motorcycles)
In order to carry out the analysis and projections this study
is focused on we used simple multiple linear regression
model for each industry and company size classes
considering macroeconomic and individual companiesrsquo
economic and financial data
The analysis enables us to develop an econometric
model used to estimate likely credit quality changes (in
terms of rating class and probability of default) for single
industries and company size classes
Automotive
Retail
Wholesale
21
1366
1
42
1
26
35
232
6
A B C D
F G H I
46
7
21
1318
9
15
34
Automotive
Chemistry amp pharmaceutics
Clothing
Equipment
Food Beverage and Tabacco
Heavy Manifacturing
Other Manifacture
Paper Packaging amp Forest Products
ICT
Textile industry
Large SmallMedium
Source Cerved database and Cerved Rating Agency elaboration
0
Wholesale
Retail
Automotive
20 40 60 80 100
Automotive
Chemistry amp pharmaeutics
Clothing
Equipment
Food beverage and Tabacco
Heavy Manifacturing
Other Manifacturing
Paper Packaging amp Forest Products
ICT
Textile
0 20 40 60 80 100
ABCDEFGHIJ
0 10 30 40 60 70 80 90 100
Exhibit 28 Sample break-down by industry (2016)
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
26
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Performance indicators to improve further
The annual financial statements available through public
registers provide a clear economic and financial picture
of the Italian joint-stock and limited liability non-financial
companies The individual historical data available from
2000 to 2016 enriched with 2017 preliminary results and
with the expected 2018 macroeconomic scenario enabled
us to build up the 2017 and 2018 projections regarding
the following four performance indicators related to the
analyzed sample 1) growth rate - revenues YoY change
2) EBITDA margin 3) net financial debtEBITDA and 4) net
financial debtEquity Afterwards the median values of the
resulting data were used to obtain the summary output
which we consider as a representative proxy for the overall
market
From 2000 to 2016 the observed companies experienced
a very irregular trend both in terms of growth rate and
EBITDA margin In the aftermath of the global financial crisis
the lowest growth rate value (-120) was recorded in 2009
manufacturing transporting - storage and wholesale and
retail trade were the industries showing the biggest fall of
business volume (-155 -121 and -104 respectively)
whilst water supply accommodation and food service and
electricity and gas showed the highest level of resilience to
the adverse economic and financial environment (-01
-23 and ndash26 respectively) Exhibit 29 shows that in
terms of median value there are no significant differences
in the growth rate taking into consideration company size
classes as we previously defined them Only from 2010 the
growth rates turned positive but still remaining below the
levels recorded in 2000
The analysis of the EBITDA margin changes in the same
period also does not highlight significant differences
between large companies and SMEs as shown in Exhibit
30 The lowest median EBITDA margin value (52) was
recorded in 2012 regarding in particular accommodation
and food service transporting and storage and agriculture
sectors (28 40 52 respectively) while electricity
and gas ICT and water supply were relatively immune to
the unfavorable economic and financial circumstances
(showing 113 109 and 105 EBITDA margin
respectively) At the end of 2016 the median EBITDA margin
(60) still remains below the levels recorded in 2000 (72)
Positive trends emerging from the last publicly available
financial statements (2016) the 2017 preliminary results
and the optimistic macroeconomic forecasts for 2018
confirm improvement of the Italian economy Looking
ahead we expect the Italian non-financial companies to
continue to experience gradual recovery in 2018 They are
going to take advantage of the favorable global economic
cycle low interest rates and supportive regulations that
inter alia foster the use of alternative non-bank financial
sources for company funding The financial resources raised
through Individual Savings Plans (PIR ndash Piani individuali di
risparmio) introduced by the 2017 Budget Law are driven
in primis by a favorable tax regime for savers and might
become an important additional source for SMEs funding
injecting new liquidity The government objective fixed euro68
billion as a target value and in 2017 nearly euro10 billion had
already been raised
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2004 2006 2014 20162000
5
20
10
0
15
-15
-10
-5
Exhibit 29 Growth rate (revenue YoY change) by size classes (median)
medium small
2008 2010 2012
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2004 2006 2008 2010 2012 2014 20162000
7
10
9
8
6
5
4
3
7
10
9
8
6
5
4
EBITDA margin by size classes (median)
medium small
27
So far one of the main obstacles PIR are facing is the limited
number of available assets which may lead to a possible
concentration of this financial resources in a small share of
the market comprising mainly relatively large companies
as shown by the early data in 2017
Another obstacle to rapid adoption of the newly available
financial resources is the lack of a standardized and broadly
accepted methodology for the risk assessment of potential
bond issuers
Generally speaking in 2018 we expect SMEs to contribute
more significantly to growth employment and innovation
whilst on average the respective EBITDA margin will remain
broadly stable (as shown in Exhibit 31) However 2018 will
still be a challenging year for SMEs and innovative startup
companies as they will have to face tougher barriers in
accessing bank credit andor approaching capital markets
compared to large companies We also expect some new
innovative solutions aimed at meeting SMEs financial needs
to become effective the SMEs current financial structure
together with new business opportunities prove their
ability in terms of rational use of the additional financial
resources
The new investments will allow most industries to thrive
also assisted by the Italian Governmentrsquos adoption of the
National Industry 40 Plan
The companies which will take up this opportunity may
improve their cash-flows even in the short-medium term
Finally companies with strong international market
positioning and large product diversification will have
stronger sales and margins growth
The key ratio values recorded from 2000 to 2016 related to
the analyzed entities show the improved financial health of
the companies proving good capability to strengthen their
equity base as shown in Table 6
Growth rate (2016)Medium
Total
Small Large
Growth rate (2018)Growth rate (2017)
Source Cerved database and Cerved Rating Agency elaboration
50
40
Exhibit 31 Growth rate and EBITDA margin forecast by size classes
EBITDA margin (2016)EBITDA margin (2018)
EBITDA margin (2017)
40
30
0
10
20
Medium
Total
Small Large
7570
65
0
6 5560
5550
4540
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
28
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The recorded financial ratios in the 2000-2016 horizon
indicate that on average
middot liquidity maintained a satisfactory level in the whole
observed period due to the positive economic cycle in
2017 and 2018 we expect a slight improvement in the ratio
middot the EBITDAinterest coverage ratio almost doubled its
value in 2016 compared to what was recorded in 2000
primarily due to a general reduction in the interest rates
particularly in the last three years we believe that in 2017
and 2018 the average ratio value will remain roughly at the
same level recorded in 2016
middot in 2016 ROE shows further improvement but is still
slightly lower compared to the value recorded at the
beginning of the observed period mainly due to the equity
base strengthening trend
middot Equity Ratio rose from 250 to 350 due to a significant
increase of equity capital in 2018 we expect further
strengthening of the ratio
middot Financial LiabilitiesTotal Assets ratio remained mostly
unchanged ndash financial debts representing roughly 30 of
the total assets
A positive trend regarding the net financial debt was also
observed in fact in 2016 70 of the sample improved their
NFDEBITDA and 73 the NFDEquity
Positive performances were found especially in the SMEs
segment as shown in Exhibit 32 in particular referring to
NFDEquity small and medium-sized companies recorded
a positive trend standing respectively at 092 and 089 in
2016 compared to 132 and 136 in 2000
Hence the financial risk profile appears to be well balanced
leaving no room for specific concerns regarding the
prospects of the Italian non-financial companies in 2018
In 2016 the median values for the total sample referring to
NFDEquity and NFDEBITDA remained respectively at 089
and 389 levels respectively
Looking ahead we expect these indicators to remain at
healthy levels in 2017 and 2018 with a slight improvement
in NFDEBITDA and a broadly stable level of the NFDEquity
ratio as shown in Exhibit 33
NFDEBITFA (2016) NFDEBITFA (2017)NFDEBITFA (2018)
40
Exhibit 33 NFDEquity and NFDEBITDA forecast by size classes
Source Cerved database and Cerved Rating Agency elaboration
404
20
25
45
35
30
NFDequity (2016) NFDequity (2017)NFDequity (2018)
05
06
09
10
08
07
Exhibit 32 NFDEquity and NFDEBITDA by size classes (median)
largemediumsmall
2016
2015
2014
000 5 10 15
Average2008-2013
Average2000-2007
total largemediumsmall total
Source Cerved database and Cerved Rating Agency elaboration
2016
2015
2014
203 0 405 0
Average2008-2013
Average2000-2007
29
Growth and profitability improvement spanned over all sectors
Exhibit 34 shows the relative positioning of the 10
macro-industries in the short-medium term considering
the median values related to revenue growth rate and
EBITDA margin
The historical median values are calculated on the basis
of financial data obtained from the annual financial
reports 2014-2016 filed in the Chamber of Commerce
public registers the projected median values for 2017
and 2018 are the result of the analysis of this study
As expected there are significant differences in
positioning between different industries in terms of
both historical and projected values
In 2018 we expect manufacturing and accommodation and
food services to maintain top positions already reached in
2016 and 2017
For the electricity gas mining and quarrying industry
2018 may be the turning point showing the first positive
signals after experiencing some difficulties over the last
few years
None of the other industries show significant changes in
2018 compared to their 2016 positioning
Source Cerved database and Cerved Rating Agency elaboration
A 50
57599586886358
3849
3620083721
-110320
-1112
210322
-1814021122
1413
030124
-5010284025
0555
20-4614
-4607212105
0430
210328-2310203218
0832
2310300512233720
1637
BCDEFGHIJ
A 625296
1441401016934
15352
504969
103121916227
10639
4764676185562639
68112
4873687090592845
75120
456772928856
45
7898
4667759090573147
7698
4668769394583147
77102
EBITDAmarigin
BCDEFGHIJ
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018Growthrate
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
Exhibit 34 Growth rate and EBITDA margin by industry
-70 -50 -30 -10 10 30
2016E2017F2018
50 70 90
Median=68
Median=2100
20
40
60
80
100
120
A=Agricolture B=Mining and quarrying C=Manifacturing D=Electricity and gas E=Water supply F=Construction G=Wholesale and retail trade H=Transporting and storage I=Accomodation and food service J=ICT
D
B
E
FHA G
C
I
J
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
30
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Further strenthening in companiesrsquo financial structure
Exhibit 35 shows the relative positioning of the 10 macro
industries in the short-medium term considering the
median values related to NFDEBITDA and NFDEquity
ratios
The historical median values are calculated on the basis
of financial data obtained from the annual financial
reports 2014-2016 filed in the Chamber of Commerce
public registers the projected median values for 2017
and 2018 are the result of the analysis of this study
There are even more significant differences in
positioning between industries regarding NFDEBITDA
and NFDEquity ratios when compared to growth rate
and EBITDA margin differences
Generally in the observed period there is no evidence of
significant changes among industries considering their
relative positioning related to NFDEBITDA and NFD
Equity ratios
In 2018 we expect accommodation and food services
and information and communication services to
maintain top positions already reached in 2016 and
presumably confirmed in 2017
Exhibit 35 NFDEquity and NFDEBITDA by industry
2016E2017F2018
Median=37
Median=08500
030 5 070 9 111 3
20
30
40
50
60
70
10
A=Agricolture B=Mining and quarrying C=Manifacturing D=Electricity and gas E=Water supply F=Construction G=Wholesale and retail trade H=Transporting and storage I=Accomodation and food service J=ICT
EH
C
BF
G
A
D
J
I
A 150101113081112149151120
079131
123075088101097125123103
072079
114067083052090108119102
067076
113060080045089096114092
074069
125076080045089106109086
050060
127072080044091
108084
051056
128067079043093106107081
051051
BCDEFGHIJ
NFDEquity
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
A 597219280305251301338250
153260
676394388342298453499349
254337
707482387293277498532337
277334
696392373254305484494308
231315
747401358330285544483294
183312
722390340341280511470290
178293
710380310329272492452281
177289
NFDEBITDA
BCDEFGHIJ
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
Source Cerved database and Cerved Rating Agency elaboration
106
31
Exhibit 36 Equity ratio by industry
Average 2000-2007 2014 2015Average 2008-2013 2016
Source Cerved database and Cerved Rating Agency elaboration
05
10
20
30
15
25
3540
5045
AB C DE FG HI J
Exhibit 37 EBITDA interest coverage by industry
Average 2000-2007 2014 2015Average 2008-2013 2016
Source Cerved database and Cerved Rating Agency elaboration
0
5
10
20
15
AB C DE FG HI J
A 1113140911151211
1408
1013131012131209
1208
1114151012131311
1309
1214151012151312
1309
1215161113161412
1409
BCDEFGHIJ
Liquidity ratio Median2000-07
Median2008-13 2014 2015 2016
A 0377677447858463
8960
0332
8145524536
4832
0342486042273848
3246
0537606853395765
4069
0743676559416378
5882
BCDEFGHIJ
ROE Median2000-07
Median2008-13 2014 2015 2016
Table 7 Liquidity ratio by industry Table 8 ROE by industry
Source Cerved database and Cerved Rating Agency elaboration
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
32
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Agriculture
Considering the recent price decline for agricultural
products putting EBITDA margin under pressure for
most of the industry participants we anticipate a slow
revenue growth in 2018 We also foresee more stable
margins in 2018 and investments to continue at a faster
pace in the near future mainly aimed at transforming the
agricultural activities into a high-tech industry Climate
and cultural changes are the main exogenous risks that
may negatively influence the sector
Mining and quarrying
Over the last few years the mining industry has been
challenged by record low metal prices and this has
resulted in a weak growth of supply and a cut in
investments especially in the new mines opening We
foresee a modest revenue growth in 2018 supported
by more stable prices rather than by government
infrastructural investments Margin pressure will remain
mostly unchanged in 2018 We do not expect a significant
increase in capital expenditure for most companies
while only a minority of industry participants will invest
in new capacities searching for new growth opportunities
by introducing new higher margin outputs Overall we
anticipate relatively stable key financial indicators
Manufacturing
We believe that in 2018 Italian manufacturing
representing 2nd European and 7th world player in 2016
will remain the beating heart of the national economy
In our view the expansion of internal demand the
improvement of business and customer confidence and
the wider export opportunities are the key drivers for
revenue growth (up to nearly 30) Despite the natural
selection the occurred during the economic recession
domestic competition and especially the competition
from lower income countries will remain challenging in
2018 creating further profitability pressure especially in
some highly fragmented segments
As a conditio sine qua non for market survival many
companies will be involved in a ldquowinning the innovation
gamerdquo process translated into a considerable capex
expenditure directed at process optimization which
inevitably must be accompanied by innovative marketing
and commercial strategies The companies especially
smaller ones which are not ready lsquoto play the gamersquo
remaining risk averse are likely to fall behind
Key financial indicators referring to the industry in terms
of net financial debt to equity and net financial debt to
EBITDA are likely to remain overall stable in 2018
In our view the best performing manufacturing industries
in 2018 will be the following
Automotive
extensive vehicles replacement process in 2018
high competition pressure China maintaining a key role
high level of innovation in mobility and connectivity
new strategic partnerships and MampAconservative stand towards EBITDA margin improvement
Chemistry amp Pharmaceutics
solid macroeconomic fundamentals will support
the revenue growth driven mainly by large companies
on average a stable EBITDA margin of about 10
is expected global presence is a must to achieve higher
level of profitability
RampD remain key factors for further market expansion
moderate level of MampA operations in 2018 slowing
down when compared to those carried out in the
previous year
Machinery amp Equipment
revenue growth in 2018 up to nearly 25 reflecting
the fact that all manufactures remain focused on RampD
and NPI (new product introduction)
cost management strategies are going to persist
but generally speaking with no significant impact on
EBITDA margin in 2018
heavy equipment manufactures still under pressure in
2018 to provide engineering capability and capacity
33
Energy and gas
Italian companies operating in the energy industry are
facing a complex market environment with many open
questions about risks related to regulations a drop
in consumption high competition levels and EBITDA
erosion
Generally we expect a more stable landscape in 2018 in
terms of commodity prices and consumption However
risk regarding prices and volumes will remain strong
resulting in a higher volatility of revenues In our view
the current margin pressure is unlikely to ease over the
next two years The final overcoming of the sondashcalled
ldquoMaggior Tutela Regimerdquo may lead to almost zero margin
for the retail operators We expect industry participants
to continue to focus their attention on cost efficiency and
on protecting profitability by embracing new business
models and examining the role that digital technology
can play in improvement of EBITDA margins We believe
that the above described strategies will be a central
topic for the operators intending to attract capital We
also believe that energy producers could see a slight
debt increase in 2018 aimed at improving productivity
and synergies Finally in 2018 we envisage a significant
number of MampA operations in the sector led by synergy
effects such operations might produce
Water supply waste management and sewerage
In recent years the water supply waste management
and Italian sewerage industry has recorded a slower
growth compared to the pre-crisis period However
due to the last two yearsrsquo important investments in the
water infrastructure waste sorting and recycling Italy
ranks as one of the top European countries in terms
of growth rate of recycling and packaging recovery
We believe that the expected general increase in
industrial output will produce a slight growth in water
consumption and waste treatment The demand for
sustainable solutions will continue to persist requiring
new investment in technologies based on a customer-
centric and sustainable approach aimed at improving
efficiencies and facilitating reuse Expectations also
reflect our view in terms of wider government interest
and spending in this industry We expect profitability
to remain broadly in line with the results obtained in
2016
Construction
After a weak increase in revenues recorded by the
construction industry operators in 2016 and the
modest result anticipated in 2017 both reflecting
a deteriorating demand and decreased volumes of
bank loans (mainly those for small and medium-
sized companies) we expect 2018 to be the turning
point for this industry We foresee that the volume of
residential and private non-residential constructions
will remain at relatively low levels in 2018 and that
the positive trend in housing renovation and public
works investments will continue taking advantage of
the allocated funds established by the Budget Law for
2017 Small and medium-sized businesses focused on
residential construction may face a slight profitability
erosion while we believe some growth in EBITDA
margin may be recorded by large Italian companies
operating internationally Due to the high perceived
risk historically there has been a strong financial
market mistrust of the construction companies which
we believe is likely to ease over the coming years
Wholesale and retail trade
During the crisis period wholesale and retail trade
industry faced a sudden interruption of the gradual
growth that had taken place up to that moment mainly
due to a loss in real purchase power and in consumer
confidence also translated into profitability erosion
In 2016 the data showed how the industry is moving
toward a recovery period Looking forward in 2018 we
expect to record a steady revenue growth supported
by an increase in global trade and improved consumer
confidence Despite the foreseen growth operators
will continue to face consistent pressure mainly in the
retail segment due to the high proliferation of new retail
purchase channels and market fragmentation
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
34
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Transportation and Storage
After a troubled 2016 characterized by an overcapacity
and a decrease in commodity demand hitting shipping
revenues in particular we foresee a moderate overall
recovery in 2018 driven mainly by an increase in
international shipments and air traffic The growing
number of innovative startups will continue to persist
increasing the competitive pressure in the industry We
anticipate a constant growth of e-commerce enabling a
quick reaction of on-line retailer and logistics providers
We believe that operators will continue to invest in
new high-tech solutions experimenting new models of
mobility and smart logistics
Despite very strong competition we expect the median
operating margins to remain steady However global
political uncertainties and related risks are strong with
possible quick and sharp negative impact on business
volumes and margins of the companies operating in
these industries
Accommodation and food services activities
In the last two years operators in the accommodation
and food service activities industry mainly medium
and small sized enterprises have seen steady revenue
growth and satisfactory profitability ratios Many
operators were focused on reviewing their business
models and offering additional services to their
customers a necessary strategy to maintain or expand
market positioning strengthen margins and improve
customer experience We expect the revenue growth
to continue in 2018 with a minimal median margin
improvement We believe accommodation and food
service activities will attract new capital investments
in 2018 to help the ongoing transformation process
and improve the accommodation infrastructure and
services
Information and communication technologies
The Italian information and communication technology
industry took longer to recover from the economic
crisis recording overall a negative median growth
rate until 2014 Software services and innovation
technology were the major contributors to revenue
growth (as a percentage) in 2016
Over the forecast period we foresee a modest revenue
growth for the ICT operators as a whole while the
technology industry will continue to achieve rapid
growth focusing on maintaining the competitive pace
of innovation In our view a key challenge for the ICT
operator may be the availability of matching skills
The outlook is relatively stable in terms of profitability
and key financial indicators
The following two pages show the details of the
previously discussed key performance indicators
35
Exhibit 38 Growth rate and EBITDA margin manifacturing sectors
-70- 50 -30 -10 103 0
2016E2017F2018
50 70 90
Median=76
Median=3000
20
40
60
80
100
120
1=Automotive 2=Chemistryamppharmaceutics 3=Clothing 4=Equipment 5=Food beverage and Tabacco 6=Heavy Manifacturing 8=Paper and Packaging 9=Tecnology and Telecomunication 10=Textile industry
6
10 5
3
8
91
74
2
50AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
57599586886358
3849
3620083721
-110320
-1112
210322
-1814021122
1413
030124
-5010284025
0555
20-4614
-4607212105
0430
210328-2310203218
0832
2310300512233720
1637
Growth rate Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
EBITDA margin Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
Source Cerved database and Cerved Rating Agency elaboration
625296
1441401016934
15352
504969
103121
916227
10639
4764676185562639
68112
487368
7090592845
75120
456772
9288562845
7898
4667759090573147
7698
4668769394583147
77102
1=Automotive 2=Chemistryamppharmaceutics 3=Clothing 4=Equipment 5=Food beverage and Tabacco 6=Heavy Manifacturing 8=Paper and Packaging 9=Tecnology and Telecomunication 10=Textile industry
2016E2017F2018
Median=30
700
600
500
400
300
200
100
000000 020 040 060 080 100 120
Median=08
Exhibit 39 NFDEquity and NFDEBITDA for manifacturing sectors
2
4 8
101
9
9
3
57
Source Cerved database and Cerved Rating Agency elaboration
096AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
104146095152117112109
098087
087080116068118083088086
084078
075074104069107082080079
084083
072064100065105084122081
079081
082066104065105080091079
077082
081067103065105079087079
077081
076067101064104077083078
076080
NFDEQUITY Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
227AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
258334222397249255259
315202
338313443305495363403412
480337
315306436328479373380397
482316
264269490303467366403383
515317
269243507090106127090106
106106
413343478088105127088105
105105
399333465086104127086104
104104
NFDEBITDA Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
36
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Exhibit 40 Growth rate and EBITDA margin for wholesale and retail trade sectors
20 40 60 80 100 120 140 160
2016E2017F2018
Median=31
Median=33
0000
20
10
30
60
50
70
1=Automotive 2=Retail 3=Wholesale
40
3
12
2016E2017F2018
Median=45
700
600
500
400
300
200
100
000050 070 090 110 130 150 170 190
Median=11
Exhibit 41 NFDEquity and NFDEBITDA for wholesale and retail trade sectors
1=Automotive 2=Retail 3=Wholesale
21
3
37
Ratings will remain broadly stable
The following section presents a risk profile analysis
based on Cerved Rating Agencyrsquos outstanding and
monitored public and private ratings issued from
2013 to 2017 on Italian non-financial companies
and operating in the industries discussed in this
study (data as of 31 December)
Exhibit 42 and Table 9 show an overview of 1-year
effective default rates over the 2000-2017 horizon
related to the sample bankruptcy and other legal
proceedings and debt restructurings as default
events
The default rate trend shows a general
improvement from 2014 onwards both by
company size classes and by industry however
considering the entire sample the overall default
rate still remains higher when compared to its pre-
crisis level especially regarding smaller companies
operating in the construction sector
Exhibit 43 shows the effective default rates over
2013-2017 horizon based on Cerved Rating
Agencyrsquos definition which considers as default
events
middot bankruptcy and other legal proceedings
middot debt restructuring
middot missed or delayed disbursement of a contractually
required interest or principal payment ie missed
payment on bonds material protests (on cheques
or trade bills) or prejudicial acts (judicial mortgages
distraint of property)
The effective default rates over the 2013-2017
horizon show decreasing trend and satisfy the
monotonicity constraint regarding all Cerved
Rating Agencyrsquos rating classes (Exhibit 44)
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2003 2004 2005 2006 2007 2014 2015 2016 20172000 2001
5678
12
3
4
0
Exhibit 42 Avarage 1-year default rate by size over 2000-2017 horizon
medium small
2008 2009 2010 2011 2012 2013
Mining and quarring
Manifacturing
Electricity gas steam and air conditioning supplyWater supply sewerage
Construction
Wholesale and retail trade repair of motorTransporting and storage
Accomodation and food service activities
Information and communication
24221809
5212
282915
2529
38533424
13027
454830
4838
36542537
15929
424421
4323
23461921
13226
293226
3022
Source Cerved database and Cerved Rating Agency elaboration
Table 9 Default rate by industry over 2000-2017 horizon
Total
NACE Average2008-2015
Average2000-2017 2016 2017
2016
Source Cerved database and Cerved Rating Agency elaboration
C21C12C11B22B21B12B11A11 A12 A13 A21 A22 A31
60
50
40
30
20
10
0
Exhibit 43 1-year default rate over 2013-2017 horizon
20172013 2014 2015
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
38
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The analysis of historical rating distributions in the
same period shows clear differences in terms of modal
rating class by company size As shown in Exhibit 43
the modal rating class for the large companies is A31
B11 for the medium and B12 for small companies
(considering company size classes as they have been
defined ad hoc by Cerved Rating Agency for the
purposes of this study)
Overall the corporate rating distribution in the
Source Cerved database and Cerved Rating Agency elaboration
C21C12C11B22B21B12B11A11 A12 A13 A21 A22 A31
30
25
20
15
5
10
0
Exhibit 44 Rating distribution frequency by size classes
large
30
25
20
15
5
0
10
medium smallRating 2013 total Rating 2017 total Rating 2017 forecast
observed period is skewed towards the investment-
grade rating categories (ie Cerved Rating Agency
rating classes from A11 to B12) representing 700 of
the whole sample 250 is concentrated in the safety
(A rating classes) and 450 in the solvency (B11-B12)
classes
We anticipate the rating distribution to remain
broadly unchanged in 2018 with the rating migration
concentrated mainly in the B category
39
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100543
2414
4407
4407
2636
4554 4558
2403 2311
535 527
90
10
0
Exhibit 45 Rating distribution frequency by area of risk - Total companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency]I nvestment GradeA11-A31 [Safety]
2509 2604
704 4407706 4407716
324
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
985
5658
4407
3033 2992 2898
925 907
300 318
90
10
0
Exhibit 46 Rating distribution frequency by area of risk - Large companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
5783 5878
869 4407878 4407878
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
4407
4407
3626
4080
17591695
439 449
90
10
0
Exhibit 47 Rating distribution frequency by area of risk - Medium companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
3571 3776
7044407780 4407786
456
1805
774
4113 4232
603
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
2824
1900
4407
4673 4850 4761
2833 2754
600 633
90
10
0
Exhibit 48 Rating distribution frequency by area of risk - Small companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
1716 1852
657 4407657 4407661
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
40
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Slight improvement in general creditworthiness
In our opinion in 2018 the creditworthiness of the
observed Italian non-financial companies will remain
stable for almost 86 of entities Migration of ratings is
expected to be moderate resulting in approximately 14
of rating upgrades (9) and downgrades (5) at the end
of 2018 compared to the outstanding ratings at the end
of 2017 The vast majority of the rating changes (921)
will be limited to one-class migration as shown in the
1-year projected transition matrix (Table 10) We believe
that more than one third of the expected downgrades
will be concentrated in the energy gas mining and
construction sectors Over the last years the average
credit profile of companies active in these industries has
been relatively weak and due to the forecast market and
regulatory conditions we do not envisage opportunities
for a significant risk profile improvement in 2018
Despite the expected rating migrations for individual
entities in 2018 the current industry modal rating
classes are unlikely to change
On the other hand stable and positive outlooks will
prevail in the manufacturing industry wholesale and
retail trade and accommodation and food service This
is due to the increase in the number of companies
active in these sectors which will maintain andor
improve their business and financial performances
Indeed as shown in Table 11 in 2018 the rating outlook
remains differentiated by industry whilst in terms of
the expected general probability of default we foresee
a modest improvement (349) compared to the one
recorded in 2017 (366)
Table 10 1-year transition matrix
Source Cerved database and Cerved Rating Agency elaboration
2017
A11
A31
B11
C11
C12
B21
C21
B22
B12
A12
A13
A21A22
F 2018A11 A12 A13 A31 B11 C11 C12B21 C21B22B12A21 A22
000 530
066
054 451034 435
027 753055 901
1033121247 1624
260 1038088
000
000000037
028
295
290
1063
179
455050647
043425
026490020208
000208
000152
000000
00000010000
9821
9318
92679015
87708583
81497646
8665
9617
9710
8605
419024
41
The information and data supporting Cerved Rating Agency rating opinions related research and credit opinions originate from sources Cerved Rating Agency considers to be accurate however Cerved Rating Agency cannot independently verify the reliability and accuracy of the information and data in every instance This publication may not be reproduced retransmitted or distributed in any form without the prior written consent of Cerved Rating Agency Cerved Rating Agency assumes no liability for correctness completeness and topicality of the information contained in this publication The analyses underlying this study do not provide advice of any sort
26
n
6670
486
59
Exhibit 49 Ratings outlooks by size
Large
Medium Positive Stable Negative
Small
21
13
Large
Medium
Small
Source Cerved database and Cerved Rating Agency elaboratio
Table 11 Ratings and probability of default 2018 outlook by industry
Source Cerved database and Cerved Rating Agency elaboration
NACE Micro industryDowngrade
B-Mining and quarryingAutomotive
900814
848
812
880812
847
813 172
170
174
144
8264 36
08
104 433 436
392 373
22724815
362 360
876
876
914
848
849
804
887
882
916
901835870899 64
866760
43
68
5659
58
47
61
49
74
78 75
14
50
37
36
5393
32
50
41
45
3899
77
91
316
372
355
364
308
491
326
318 296
331
312
381
367
359
322
495
452
433
403429
389
364369
363
313
452
323
594
38
315358
603
307
345 350
67 5318
469289 274
470
147
116
138
851
821AutomotiveRetail
Wholesale
Total
Chemistryamppharmaceutics
ClothingEquipment
Food Beverage and Tabacco
Heavy Manifacturing
Other Manifacturing
Textile industry
Total
Tecnology Media ampTelecomunication
Paper Packaging ampForest products
C-Manifacturing
D-Electricity gas steam and air conditioningsupply
F-Construcion
H-Transportig and storageI-Accommodation and food service activitiesJ-Information and communication
G-Wholesale and reatail traderepair of motor vehicles and motor-cycles
E-Water supply sewerage waste
Average ForecastPD 2018
Expectedtrend
Average PD 2018
Ratings outlooks
Stabl pgrade
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Cerved Rating Agency SpAVia dellrsquoUnione Europea n 6A-6B20097- San Donato Milanese (MI)
Tel +39 02 77541 - Fax +39 02 76020458
ratingagencycervedcom
Rating Agency
13
Gdp growth is under way to consolidate in 2018
From 2000 to 2017 the Italian economy was more
vulnerable compared to other highly developed
countries in particular those of the euro area
The Italian real GDP at the end of 2017 was roughly
at the same level recorded in 2000 whilst the euro
area countries and specifically Germany and France
experienced a considerable growth in the same period
(188 205 and 198 respectively)
The Italian GDP has started to increase moderately only
since 2014 mainly due to an improvement in domestic
demand but its growth still remains below the growth
rates of the majority of euro zone countries The poor
performance of the labor and total productivity factor
accounts for most of the difference
An ageing population and a weak labor market
participation have also contributed negatively to
potential growth Structural reforms in particular the
Jobs Act and tax incentives on new labor contracts
contributed to the increase in employment making the
Italian labor market more flexible and efficient
In 2018 we expect the economic growth to be slightly
below the level reached in 2017 The trend will be
sustained by the world economy positive cycle
including higher levels of international trade volume
Italian companies will benefit from favorable credit
lending conditions due to an expanding credit activity
of the banking system and low interest rates
Whilst the Italian government adopted a set of dynamic
and diverse policies for 2018 we believe that some of
those previously introduced have already contributed
to the GDP growth in 2016 and 2017 thus reducing the
combined effect in 2018
Source World Bank
2000 2002 2004 2006 2008 2010 2012 2014 2016
1500
1000
500
0
2500
3500
3000
4000
2000
13000
9500
10000
11000
12000
12500
10500
11500
Exhibit 10 GDP in Europe ($ billion)
Germany Italy Euro areas (11countries)France
Total multifactor productivityEmployment growth
Source OECD
-2
-4
-6
-8
2
0
4
6
Exhibit 9 Italian GDP employment and total multifactor productivity (Y-o-Y change)
2000 2002 2014 20162004 2006
GDP growth
20122008 2010
CERVED RATING AGENCY SpA | Highlights on italian economy
14
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The number of active companies has increased buthellip
The number of active companies in Italy registered at
the Chamber of Commerce as of December 31st 2016
amounted to 5145995 305629 more than in 2000
(63)
The increase in registered active companies is the result
of the positive trend from 2000 to 2008 (98) partially
cancelled by the decrease from 2009 to 2016 In 2017 a
slight improvement is expected to be recorded however
the number of active companies remains below its peak
value (5316104 entities) reached at the end of 2008
Exhibit 11 shows both the trend of active Italian companies
in the period 2000-2016 and their breakdown by legal
form We observe that the increased number of Joint Stock
Companies and particularly Limited Liability companies
(1206) was able to compensate the decrease in Unlimited
Partnerships (-62) and Sole Proprietorships (-79)
Companies are abandoning traditional sectors
Exhibit 12 shows the breakdown of the Italian active
companies at the end of 2000 and 2016 by industry
It can be observed that in many traditional sectors
the number of active companies decreased eg in
agriculture (-294) and manufacturing (-226) whilst
the number of companies increased in construction
(273) and wholesale and retail trade (39)
A very significant rise in the new registered companies
(456) occurred in other industries in particular
in the service industry offering information and
communication IT and professional scientific and
technical services
Joint Stock and Limited Liability Unlimited Partnership Sole proprietorshipO ther forms
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 2012 2013 2014 2015 20160
6000000
5000000
4000000
3000000
2000000
1000000
Exhibit 11 Italian active companies 2000-2016
Total
Source Movimprese and Cerved Rating Agency elaboration
Exhibit 12
Breakdown of the Italian active companies by industry 2000-2016
2000
635286 13
1059005 22
639778 13
589707 12
183 856 4 226964 5 150772 3
1354998 28
965452 19
747738 14
495247 10
750863 15
150888 3
379899 7 247187 5
1408721 27
2016
C Manufacturing
F Construction
H Transporting and storage
I Accommodation and food service activities
L Real estate ativities
G Wholesale and retail traderepair of motor vehicles and motorcycles
X Other
15
Number of bankruptcy and other legal proceedings to decrease further
From 2000 to 2016 the number of bankruptcies and
other legal proceedings protests and prejudicial
acts in Italy mirrored the general trend of the
Italian economy
After reaching its minimum level in 2007 (5969)
the number of bankruptcy procedures in the
period 2009-2014 increased dramatically reaching
its peak value of 15608 in 2014
With the improvement in the economic and financial
environment starting from 2015 the number of
bankruptcy procedures decreased sharply in all
macro sectors returning approximately to the
levels recorded from 2000 to 2006 A positive
trend was recorded also in 2017 bankruptcy
procedure initiated for 11937 companies -113
when compared to the same period in 2016 In
absolute terms the highest number of bankruptcy
procedures was recorded in the service sectors
followed by the construction and manufacturing
Worth mentioning is the design of a new Italian
bankruptcy law that should be approved by
October 2018 The regulatory framework aims at
more efficient resolutions of cases of company
crisis supporting continuity of its operating
activities and safeguarding the interest of creditors
by introducing innovative solutions such as pre-
crisis warning mechanisms
Other legal proceedings after reaching its
maximum level in 2013 (3593) in 2016 came down
to 1993 and the trend continues in 2017 evidencing
1866 procedures -64 when compared to the
same period in 2016
In the last five years new protests and prejudicial
acts have also shown a decreasing trend with
ndash527 and ndash70 of acts respectively in 2017
compared to the numbers recorded in 2013
-6
Exhibit 13 Bankruptcy
BankruptcySource Cerved databaase
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
10729 108311163612287
10338
59697307
9189
1108812022
12437
14031
1560814682
13459
11937
Other legal procedingsSource Cerved database
1500
1000
500
02000
940 994 1125 1211
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
2500
3500
3000
4000
2000
1110
16691540
18702094 2057
2342 2475
3593
3132
2720
1993 1866
Exhibit 14 Other legal procedings
1211
100 45000
4000090
80
70
60
50
40
30
20
10
02015
35000
30000
25000
20000
15000
10000
5000
02013 2014
Protets
703
297
41438
Total
Source Cerved database
Prejudicial acts
2016 2017
665
335
34527
570
43032660
527
473
546
454
2523828929
Exhibit 15 Protests and prejudical acts
CERVED RATING AGENCY SpA | Highlights on italian economy
16
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Core inflation rate to rise
Italian headline inflation will experience a modest
decline in 2018 compared to the previous year
(12 and 14 respectively) Core inflation
however is predicted to increase to 12 in 2018
(up from 10 in 2017)
Exports and import are accelerating
Exports and imports will both accelerate in 2018 (41
and 44 respectively) mirroring the positive trend
and expectations in global trade and the rising of the
external demand Machinery and equipment industry
will still remain in ldquopole positionrdquo due to companies
generous investment and tax incentives In general
in 2018 Italian exports will increase more in the Extra
European Union countries
Investment continues to gain strength
Investment has gained strength and will continue to
do so at a relatively fast pace supported by effects of
the tax incentives (Stability Low 2017) low interest rate
and improvements in business confidence Indeed
investments are expected to increase 30 in 2018
(up from 24 in 2017) Construction investments are
forecast to accelerate slightly also thanks to more
resources earmarked for public investment
Harmonised core infation
Source OECD and IMF
2003 2006 20092000 2012 2015 F2018
2
1
-1
0
4
3
5
6
Exhibit 16
Imports of goods and services (Y-o-Y change)
Exports of goods and services (Y-o-Y changes)
Total dometic demand (Y-o-Y change)
Source OECD and IMF
20062000 2015 F2018-5
-15
-20
5
0
-10
10
15
Exhibit 17 Exports imports and demand Italy
20122003 2009
Wholesale and retail trade (Y-o-Y change)
Total investments ( of GDP)
Heavy industry (Y-o-Y change)
Other services (Y-o-Y change)
Source IMF and ISTAT
Construction (Y-o-Y change)
20062000
-20
-30
10
0
-10
20
30
20
25
15
10
0
5
F2018
Exhibit 18 Investments by industry Italy
2003 2009 2012 2015
17
No room for significant public debt reduction
At the end of 2016 the Italian government debt-to-GDP
ratio was significantly above its level at the beginning of
the century In particular as of December 31st 2016 the
ratio was 1326 (262 with respect to 100 recorded
at the end of 2000)
In the same period the ratio for the euro area increased
from 681 to 913 (341) in Germany from 589 to
683 (159) and in France from 586 to 960 (638)
At the end of 2017 the Italian government debt increased
further to more than euro2300 billion 1350 of GDP The
debt servicing in terms of interests accounts roughly
50 of Italian GDP
In our view the high level of government debt
represents a key factor limiting Italian economic growth
and contributes eo ipso to increasing country risk
with a possible negative impact on the stability of the
international financial system
A possible increase in interest rates would raise the
cost of debt service potentially triggering a crisis due to
larger governmental deficits a slowdown in economic
activity and growing debt refinancing difficulties due to
higher risk perceived by investors
Hence it seems that a significant reduction in
government debt should be the main goal of the Italian
economic and financial policy in our opinion however
the achievement of such a result is not realistic neither
in the short nor in the medium term due to the following
factors
middot economic growth in the coming years is expected
to be moderate not sufficient to be the main source of
the government debt reduction
middot macroeconomic policy is expected to prioritize
investments employment social security and welfare
rather than government debt reduction
middot even if the inflation rate hits the target value (20) the
impact on the government debt in the short term is not
expected to be considerable
middot finally in Italy election will take place in spring 2018
with a new government taking over the economic
program that has already been approved and become
fully executive
Euro area
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 2012 2013 2014 2015 20160
20
40
60
80
100
120
140
Exhibit 19 Public debt as GDP
France
Source AMECO and Cerved Rating Agency elaboration
CERVED RATING AGENCY SpA | Highlights on italian economy
18
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Table 1
Amount ( 407 312
-327
327754
216074 190881
163248 345604188167
869
1543
2213
1793
CAGR (base year 2000)
CAGR (base year 2008)
NPL ratio ()
Ndeg debtors
Averae debt debtor
Valueindicator 2000 2008 2016
Source Bank of Italy and Cerved rating Agency elaboration
Credit activity to be expanded interest rates to remain at very low levels
As of December 31st 2016 the volume of bank loans
granted to Italian non-financial corporations amounted to
euro8604 billion
The period 2000-2016 was characterized by two different
trends from 2000 to 2011 the annual outstanding loans
value increased by 841 (euro454 billion reaching in 2011 its
highest level ever of euro993 billion thanks to 57 CAGR far
above the Italian GDP growth) whilst in the period from
2012 to 2016 loans decreased by 134 (euro130 billion)
reflecting a negative -28 CAGR The loan reduction hit
sharply construction and manufacturing (accounting
for about 400 of all loans) which experienced -227
and -135 decrease in loan volumes whilst agriculture
forestry and fishing and wholesale and retail trade
(including repairs of motor vehicles and motorcycles)
had more limited loan contraction (-08 and -53
respectively)
In the observed period due to the negative impact of the
global financial crisis 200708 and to structural changes in
the world economic and financial environment a radical
decrease in interest rates was recorded In 2017 the
interest rates charged to Italian non-financial corporates
were on average less than half compared to those charged
in 2000 In the medium term low interest rates will remain
a positive factor fostering investments and consumption
Non-performing loans to be further reduced due to innovative measures
The credit crunch had a huge and dramatic impact on
the Italian economy hitting especially small businesses
which are not able to survive in a radically changed market
conditions The evidence of such outcome can be seen not
only through the decreased number of active companies
but also via the enormously increased volume of the
non-performing loans (NPLs) In particular these loans
amounted to euro324 billion at the end of 2016 of which euro154
billion were granted to the non-financial corporations as
shown in table 1
Following the principles outlined in the ECB guidelines
published in March in 2017 Italian Banks made significant
progress in reducing the amount of the NPLs ndash estimated
to be over euro50 billion debt reduction Any further actions
aimed to improve the banking balance sheets should not
increase the financial hardship of still operating companies
North - East SouthNorth - West Center Islands
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 2012 2013 2014 2015 20160
1200000
1000000
800000
600000
400000
200000
NPLs ratio
Source Bank of Italy and Cerved Rating Agency elaboration
20
1816
14
1210
8
6
42
0
446393
euro billion)
19
Modest role of italian equity capital markets
Despite the number of listed companies increasing
from 297 to 421 in the period 2000-2017 the role
of the stock markets remains modest in Italy
As of December 31st 2017 the market capitalization
was euro640 billion (375 of the estimated Italian GDP
in 2017) representing only 782 of the overall
market capitalization recorded in 2000 (equal
to euro818 billion 687 of GDP) mainly due to
an unfavorable economic cycle in the observed
period
This situation shows the structural weaknesses of
the Italian economic and financial system especially
when compared to other highly developed
European economies The low propensity to
raise equity capital through organized markets
is linked to an unfavorable macroeconomic and
fiscal framework as well as to the predominance
of SMEs mostly unfit for listing and presenting
cultural obstacles (ie company owners and managers are often reluctant to accept wider company control and
transparency)
Hence self-financing and bank borrowing remain the main sources of finance for Italian companies which are
generally speaking undercapitalized with a negative impact on their investment capabilities Very frequently the
lack of medium-long term financing means forces companies to focus their attention on running current activities
postponing or abandoning strategic projects fundamental for company growth
A wide range of innovative initiatives have been undertaken with the aim of fostering market based company
funding in particular
middot AIM (Alternative Investment Market) - a specialized market segment dedicated to SMEs growth (95 companies and
market capitalization around euro56 billion as of December 2017)
middot ELITE - a programme designed to help SMEs prepare and structure for the next stage of growth their through
access to long-term financing opportunities
middot PIR - Piani individuali di risparmio (Individual Savings Plan) - an innovative way to fund Italian SMEs by offering retail
investors resident in Italy tax incentives (full exemption of 260 income tax) if the savings stay invested for at least
five years A minimum of 700 of such credit assets must be invested in financial instruments issued by Italian or
foreign (EU and EEA) companies permanently established in Italy
FTSE (MIB)Enterprises
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 20132012 20152014 201720160
100
200
300
400
500
600
700
800
900
100029681 29525
14623
1765216121
12259
13512
16048
15988
19012
21428
21853
2185322232
16954
297 294 295 279 282278 311 336 332 332 328 323 326344 342 356 387 421
19483
22886
26056
31005
Exhibit 21 Italian listed enterprised and FTSE (MIB) index trend
Source Borsa Italiana
300000
250000
200000
150000
100000
5000
0
Capitalization of GDP
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 20132012 20152014 201720160
100
200
300
400
500
600
700
800
900
1000
Exhibit 22 Italian market capitalization of listed companies ( of GDP)
Source Borsa Italiana
80
70
60
50
40
30
20
10
0
8184
5923
354 365418 473
524475
239301 275
210233
287 295348
318375
4580 4875
5809
6766
77857336
37474571
4251
3324
44664678
56765249
6400
3655
474
68
CERVED RATING AGENCY SpA | Highlights on italian economy
20
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Italian debt capital market is growing but still remains behind needs
At the end of 2016 the outstanding amount of debt
securities issued by Italian financial and non-financial
corporations was euro8615 billion 510 of the countryrsquos
GDP The table below shows the breakdown by issuer
type of Italian German French British and United States
outstanding amounts of debt securities as of December
2016 issued by financial and non-financial corporations
with the respective debt-to-GDP ratio
Despite the outstanding debt at the end of 2016 being
almost double compared to 2000 it represents only 23
of its peak value reached in 2012 (euro1290 billion Exhibit
23) The main reason for such a significant debt reduction
is the huge bond reimbursement realized by banking
institutions from 2013 to 2016 and the related negative
net flow of debt securities (respectively -80 -153 -106
and -67 billion of euro as shown in Exhibit 24)
The decrease in debt securities funding of Italian banks
has been compensated by a wider use of deposits and
resources available under the Eurosystem refinancing
operations framework
The outstanding amount of debt securities issued by
non-financial corporations at the end of 2016 also
doubled its value with respect to the amount recorded
at the end of 2000 The main characteristic of this cluster
is the high concentration of issuancesdebt to a small
number of issuers
Due to both more favourable general economic
conditions and active ECB monetary policy bond yields
have decreased significantly providing room for a
convenient fund raising
Since the introduction of a new regulatory framework
(lsquoDecreto Svilupporsquo) in 2012 up to October 2017 Italian
market saw 300 small-size listed bond issues (ie so
called minibonds) amounting approximately to euro143
billion Issued mainly by SMEs they offer interesting
yields to institutional investors
) Source Business support SpA ndash Minibonditalyit
BanksTotal
Source Bank of Italy and Cerved Rating Agency elaboration
2006 20082000
-200000
200000
250000
-150000
-100000
150000
100000
-50000
50000
02012 2014 20162002 2004 2010
Banks debt securities outstanding
Banks Debt to GDP ratio
Source Bank of Italy and Cerved Rating Agency elaboration
0
10
20
30
40
50
60
70 1400000
1200000
1000000
800000
600000
400000
200000
0201620142012201020082006200420022000
Table 2 Outstanding securities debt (euro Million)Debt-to-GDP ratio()
Financial corporates
Total
Debtsecurities
outstanding
Italy German rance United Kingdom United States
739
123
862
440 340 470
21
680380
40
1279 1331 4 50
880
30
14271
14820
549180
10202767
590
19211436
15770
510
Debtsecurities
outstanding
Debtsecurities
outstanding
Debtsecurities
outstanding
Debtsecurities
outstanding
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Source Bank of Italy
0
0
21
CERVED RATING AGENCY SpA | Highlights on italian economy
22
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Italian non-financial companies economic Outlook 2018
23
Data and method
This research focuses on Italian non-financial companies
with an annual turnover exceeding euro5 million With the
aim of using only reliable data joint stock and limited
liability companies have been considered only these
entities according to Italian law file complete annual
financial statements in the Chamber of Commerce
together with anagraphical company data other
legal forms such as unlimited partnerships and sole
proprietorships are not included in this sample due to
the lack of publicly available standardized financial data
We believe that this cutoff is reasonable and allows us to
perform a methodologically correct analysis In 2016 the
above mentioned companies despite representing only
42 of all registered and active joint stock and limited
liability companies accounted for 769 of their total
turnover
Moreover cluster specialization has been obtained by
NACE activity classification from A to J (thus not including
in the sample financial and insurance companies and
some service industries) The statistics regarding specific
industries provide important key data and enable us to
examine historical and prospective trends and cross-
sector comparisons
The Cerved database which contains legal anagraphical
financial and market information on all Italian registered
legal entities (approximately 6 million comprising 5
million active ones) was the most important database
used for this research Long time series and broad
homogenized and standardized data covering different
economic cycles were the building blocks to perform
the regression and predictive analysis
Historical and forecast macroeconomic data and
analysis performed by the International Monetary Fund
OECD the World Bank European Central Bank Bank
of Italy and ISTAT completed the dataset used for the
analysis
Several analyses were performed in order to examine
the structural differences within the sample in terms of
company legal form and geographical area (Exhibit 25)
company age (Exhibit 26) and company size and industry
As a result we verified a considerable heterogeneity of
companies in particular with regard to the company size
across various industries
The relevant observation period comprises the years
between 2000 and 2016 Table 3 describes some
characteristics of the sample
Exhibit 25 Sample break-down by legal form and geographic area (2016)
Joint stock Company
Limited liability Company
Area 1 (Northwest)
Area 3 (Center)
Area 2 (Northeast)
Area 4 (South)
39
20
27
14
33
67
33
Table 3 Sample characteristics 2000-2016
TotalTurnover
gt euro5million
Turnover gt euro5 million(industry
from A to J)
TotalTurnover
gt euro5million
ofTotal
Turnover gt
euro5 million(industry
from A to J)
Source Cerved database
Entreprises Turnover billion
2000 659867700717738558772442812025847334883122915172937018949708965744969581
953505945825922513883224
4215144587462234694749640518205596459226595385246754808563745362752074519385289450123
3686139038411864118843547454704921752274526974633848778504734806246843468384771845288
16151740177018472002212923302477256822562421257025202446243224392295
12661362139214561588169818752000208317861944208720541992198419871905
11141205124013041430152316891801189716191764191218831839183518371765
689693700
716
706714
725
718729744748752754753769
727739
200120022003200420052006
200820092010201120122013201420152016
2007
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
24
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Furthermore in order to guarantee more detailed and
accurate analyses and projections we decided to create
a static pool to show consistently long time horizon
economic trends (17 years) by sealing off all the active
companies over the 2000-2016 horizon
The outcome obtained by considering the behaviour of
specific variables related to the companies included in
the static pool was extended as a performance indicator
for the whole sample (turnover over euro5 million and
industry from A to J)
According to the European Communityrsquos definition of
SMEs using annual turnover and employee headcount
as quantitative criteria the initial sample of companies
and the static pool can be classified by size classes on
the basis of the financial statements for the year 2016
as shown in Table 4
For the sake of this analysis we defined specific size
classes for each industry thus deviating from the
European Commissionrsquos recommendation which
presents undifferentiated upper and lower bounds of
quantitative criteria for SMEs in all industries To define
the thresholds of such classes we used both a statistical
approach (a specific cluster procedure by minimizing
the within-cluster turnover standard deviation) and a
judgmental approach by relying on the experience and
opinion of our industry expert analysts Table 5 shows
the results of such analysis referring to the sample in
2016 (45288 entities) and the NACE sections from A
to J Moreover the NACE section C and G were further
disaggregated into sub-industry classes as shown in
Exhibit 27 in order to consider the specific business
differences within these NACE sections thus ensuring
a good fit and a satisfactory accuracy of the estimation
Exhibit 26 Sample break-down by company age classes
0-2 Years 2-5 Years 5-10 Years 10-20 Years gt20 YearsSource Cerved database and Cerved Rating Agency elaboration
0 20 40 60 80 100
ABCDEFGHIJ
A = AgricolutreB=Mining and quarryingC=ManufacturingD=Electricity and gasE=Water supplyF=ConstructionG=Wholesale and retail tradeH=Transporting and storageI=Accomodation and food serviceJ=ICT
Small
Annul Turnover
Empolyees
Static Pool
Enterprises(Turnover gt euro5 million)
Enterprises(Turnover gt euro5 millionindustry from A t J)
Medium Large
lt 50 lt 250lt 36774 11113
1005333223
8741
2236
2012
154818645
gt euro50 million
gt 250
lt euro50 million
Source Cerved database
NACE Micro industry
B-Mining and quarryingAutomotive
Automotive
Retail
Wholesale
T gt 480
T gt 80
T gt 260
T gt 265T gt 270
T gt 230
T gt 120
T gt 80
T gt 43
T gt 65
T gt 106T gt 106
T gt 360T gt 155T gt 150T gt 100
T gt 120
T gt 225T gt 1400T gt 27500
T gt 1500
ChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther Manifacturing
ICTTextile
Paper Packaging ampForest products
C-Manifacturing
F-Construcion
H-Transportig and storageI-Accommodation and food service activities
J-Information and communication
D-Electricity gas steam and aircoditioning supply
G-Wholesale and reatail traderepair of motor vehicles and motorcycles
E-Water supply sewerage waste management and emediation activities
Large (Turnover
in euro million)
Medium(Turnover
in euro million)
Small(Turnover
in euro million)
Source Cerved database and Cerved Rating Agency elaboration
60 lt T lt 480 5 lt T lt 60
5 lt T lt 20
5 lt T lt 36
5 lt T lt 35
5 lt T lt 44
5 lt T lt 40
5 lt T lt 20
5 lt T lt 26
5 lt T lt 250
5 lt T lt 185 lt T lt 305 lt T lt 265 lt T lt 205 lt T lt 37
5 lt T lt 335 lt T lt 40
5 lt T lt 255 lt T lt 585 lt T lt 1155 lt T lt 1005 lt T lt 27
20 lt T lt 80
36 lt T lt 26035 lt T lt 26544 lt T lt 270
40 lt T lt 230
20 lt T lt 120
26 lt T lt 80
18 lt T lt 43
250 lt T lt 1500
20 lt T lt 6537 lt T lt 29540 lt T lt 15533 lt T lt 15025 lt T lt 100
27 lt T lt 120
58 lt T lt 225
100 lt T lt 27500 115 lt T lt
30 lt T lt 10626 lt T lt 106
25
Exhibit 28 shows the breakdown of macro industries
analysed including disaggregation of the NACE section C
(manufacturing) and G (wholesale and retail trade repair
of motor vehicles and motorcycles)
In order to carry out the analysis and projections this study
is focused on we used simple multiple linear regression
model for each industry and company size classes
considering macroeconomic and individual companiesrsquo
economic and financial data
The analysis enables us to develop an econometric
model used to estimate likely credit quality changes (in
terms of rating class and probability of default) for single
industries and company size classes
Automotive
Retail
Wholesale
21
1366
1
42
1
26
35
232
6
A B C D
F G H I
46
7
21
1318
9
15
34
Automotive
Chemistry amp pharmaceutics
Clothing
Equipment
Food Beverage and Tabacco
Heavy Manifacturing
Other Manifacture
Paper Packaging amp Forest Products
ICT
Textile industry
Large SmallMedium
Source Cerved database and Cerved Rating Agency elaboration
0
Wholesale
Retail
Automotive
20 40 60 80 100
Automotive
Chemistry amp pharmaeutics
Clothing
Equipment
Food beverage and Tabacco
Heavy Manifacturing
Other Manifacturing
Paper Packaging amp Forest Products
ICT
Textile
0 20 40 60 80 100
ABCDEFGHIJ
0 10 30 40 60 70 80 90 100
Exhibit 28 Sample break-down by industry (2016)
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
26
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Performance indicators to improve further
The annual financial statements available through public
registers provide a clear economic and financial picture
of the Italian joint-stock and limited liability non-financial
companies The individual historical data available from
2000 to 2016 enriched with 2017 preliminary results and
with the expected 2018 macroeconomic scenario enabled
us to build up the 2017 and 2018 projections regarding
the following four performance indicators related to the
analyzed sample 1) growth rate - revenues YoY change
2) EBITDA margin 3) net financial debtEBITDA and 4) net
financial debtEquity Afterwards the median values of the
resulting data were used to obtain the summary output
which we consider as a representative proxy for the overall
market
From 2000 to 2016 the observed companies experienced
a very irregular trend both in terms of growth rate and
EBITDA margin In the aftermath of the global financial crisis
the lowest growth rate value (-120) was recorded in 2009
manufacturing transporting - storage and wholesale and
retail trade were the industries showing the biggest fall of
business volume (-155 -121 and -104 respectively)
whilst water supply accommodation and food service and
electricity and gas showed the highest level of resilience to
the adverse economic and financial environment (-01
-23 and ndash26 respectively) Exhibit 29 shows that in
terms of median value there are no significant differences
in the growth rate taking into consideration company size
classes as we previously defined them Only from 2010 the
growth rates turned positive but still remaining below the
levels recorded in 2000
The analysis of the EBITDA margin changes in the same
period also does not highlight significant differences
between large companies and SMEs as shown in Exhibit
30 The lowest median EBITDA margin value (52) was
recorded in 2012 regarding in particular accommodation
and food service transporting and storage and agriculture
sectors (28 40 52 respectively) while electricity
and gas ICT and water supply were relatively immune to
the unfavorable economic and financial circumstances
(showing 113 109 and 105 EBITDA margin
respectively) At the end of 2016 the median EBITDA margin
(60) still remains below the levels recorded in 2000 (72)
Positive trends emerging from the last publicly available
financial statements (2016) the 2017 preliminary results
and the optimistic macroeconomic forecasts for 2018
confirm improvement of the Italian economy Looking
ahead we expect the Italian non-financial companies to
continue to experience gradual recovery in 2018 They are
going to take advantage of the favorable global economic
cycle low interest rates and supportive regulations that
inter alia foster the use of alternative non-bank financial
sources for company funding The financial resources raised
through Individual Savings Plans (PIR ndash Piani individuali di
risparmio) introduced by the 2017 Budget Law are driven
in primis by a favorable tax regime for savers and might
become an important additional source for SMEs funding
injecting new liquidity The government objective fixed euro68
billion as a target value and in 2017 nearly euro10 billion had
already been raised
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2004 2006 2014 20162000
5
20
10
0
15
-15
-10
-5
Exhibit 29 Growth rate (revenue YoY change) by size classes (median)
medium small
2008 2010 2012
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2004 2006 2008 2010 2012 2014 20162000
7
10
9
8
6
5
4
3
7
10
9
8
6
5
4
EBITDA margin by size classes (median)
medium small
27
So far one of the main obstacles PIR are facing is the limited
number of available assets which may lead to a possible
concentration of this financial resources in a small share of
the market comprising mainly relatively large companies
as shown by the early data in 2017
Another obstacle to rapid adoption of the newly available
financial resources is the lack of a standardized and broadly
accepted methodology for the risk assessment of potential
bond issuers
Generally speaking in 2018 we expect SMEs to contribute
more significantly to growth employment and innovation
whilst on average the respective EBITDA margin will remain
broadly stable (as shown in Exhibit 31) However 2018 will
still be a challenging year for SMEs and innovative startup
companies as they will have to face tougher barriers in
accessing bank credit andor approaching capital markets
compared to large companies We also expect some new
innovative solutions aimed at meeting SMEs financial needs
to become effective the SMEs current financial structure
together with new business opportunities prove their
ability in terms of rational use of the additional financial
resources
The new investments will allow most industries to thrive
also assisted by the Italian Governmentrsquos adoption of the
National Industry 40 Plan
The companies which will take up this opportunity may
improve their cash-flows even in the short-medium term
Finally companies with strong international market
positioning and large product diversification will have
stronger sales and margins growth
The key ratio values recorded from 2000 to 2016 related to
the analyzed entities show the improved financial health of
the companies proving good capability to strengthen their
equity base as shown in Table 6
Growth rate (2016)Medium
Total
Small Large
Growth rate (2018)Growth rate (2017)
Source Cerved database and Cerved Rating Agency elaboration
50
40
Exhibit 31 Growth rate and EBITDA margin forecast by size classes
EBITDA margin (2016)EBITDA margin (2018)
EBITDA margin (2017)
40
30
0
10
20
Medium
Total
Small Large
7570
65
0
6 5560
5550
4540
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
28
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The recorded financial ratios in the 2000-2016 horizon
indicate that on average
middot liquidity maintained a satisfactory level in the whole
observed period due to the positive economic cycle in
2017 and 2018 we expect a slight improvement in the ratio
middot the EBITDAinterest coverage ratio almost doubled its
value in 2016 compared to what was recorded in 2000
primarily due to a general reduction in the interest rates
particularly in the last three years we believe that in 2017
and 2018 the average ratio value will remain roughly at the
same level recorded in 2016
middot in 2016 ROE shows further improvement but is still
slightly lower compared to the value recorded at the
beginning of the observed period mainly due to the equity
base strengthening trend
middot Equity Ratio rose from 250 to 350 due to a significant
increase of equity capital in 2018 we expect further
strengthening of the ratio
middot Financial LiabilitiesTotal Assets ratio remained mostly
unchanged ndash financial debts representing roughly 30 of
the total assets
A positive trend regarding the net financial debt was also
observed in fact in 2016 70 of the sample improved their
NFDEBITDA and 73 the NFDEquity
Positive performances were found especially in the SMEs
segment as shown in Exhibit 32 in particular referring to
NFDEquity small and medium-sized companies recorded
a positive trend standing respectively at 092 and 089 in
2016 compared to 132 and 136 in 2000
Hence the financial risk profile appears to be well balanced
leaving no room for specific concerns regarding the
prospects of the Italian non-financial companies in 2018
In 2016 the median values for the total sample referring to
NFDEquity and NFDEBITDA remained respectively at 089
and 389 levels respectively
Looking ahead we expect these indicators to remain at
healthy levels in 2017 and 2018 with a slight improvement
in NFDEBITDA and a broadly stable level of the NFDEquity
ratio as shown in Exhibit 33
NFDEBITFA (2016) NFDEBITFA (2017)NFDEBITFA (2018)
40
Exhibit 33 NFDEquity and NFDEBITDA forecast by size classes
Source Cerved database and Cerved Rating Agency elaboration
404
20
25
45
35
30
NFDequity (2016) NFDequity (2017)NFDequity (2018)
05
06
09
10
08
07
Exhibit 32 NFDEquity and NFDEBITDA by size classes (median)
largemediumsmall
2016
2015
2014
000 5 10 15
Average2008-2013
Average2000-2007
total largemediumsmall total
Source Cerved database and Cerved Rating Agency elaboration
2016
2015
2014
203 0 405 0
Average2008-2013
Average2000-2007
29
Growth and profitability improvement spanned over all sectors
Exhibit 34 shows the relative positioning of the 10
macro-industries in the short-medium term considering
the median values related to revenue growth rate and
EBITDA margin
The historical median values are calculated on the basis
of financial data obtained from the annual financial
reports 2014-2016 filed in the Chamber of Commerce
public registers the projected median values for 2017
and 2018 are the result of the analysis of this study
As expected there are significant differences in
positioning between different industries in terms of
both historical and projected values
In 2018 we expect manufacturing and accommodation and
food services to maintain top positions already reached in
2016 and 2017
For the electricity gas mining and quarrying industry
2018 may be the turning point showing the first positive
signals after experiencing some difficulties over the last
few years
None of the other industries show significant changes in
2018 compared to their 2016 positioning
Source Cerved database and Cerved Rating Agency elaboration
A 50
57599586886358
3849
3620083721
-110320
-1112
210322
-1814021122
1413
030124
-5010284025
0555
20-4614
-4607212105
0430
210328-2310203218
0832
2310300512233720
1637
BCDEFGHIJ
A 625296
1441401016934
15352
504969
103121916227
10639
4764676185562639
68112
4873687090592845
75120
456772928856
45
7898
4667759090573147
7698
4668769394583147
77102
EBITDAmarigin
BCDEFGHIJ
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018Growthrate
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
Exhibit 34 Growth rate and EBITDA margin by industry
-70 -50 -30 -10 10 30
2016E2017F2018
50 70 90
Median=68
Median=2100
20
40
60
80
100
120
A=Agricolture B=Mining and quarrying C=Manifacturing D=Electricity and gas E=Water supply F=Construction G=Wholesale and retail trade H=Transporting and storage I=Accomodation and food service J=ICT
D
B
E
FHA G
C
I
J
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
30
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Further strenthening in companiesrsquo financial structure
Exhibit 35 shows the relative positioning of the 10 macro
industries in the short-medium term considering the
median values related to NFDEBITDA and NFDEquity
ratios
The historical median values are calculated on the basis
of financial data obtained from the annual financial
reports 2014-2016 filed in the Chamber of Commerce
public registers the projected median values for 2017
and 2018 are the result of the analysis of this study
There are even more significant differences in
positioning between industries regarding NFDEBITDA
and NFDEquity ratios when compared to growth rate
and EBITDA margin differences
Generally in the observed period there is no evidence of
significant changes among industries considering their
relative positioning related to NFDEBITDA and NFD
Equity ratios
In 2018 we expect accommodation and food services
and information and communication services to
maintain top positions already reached in 2016 and
presumably confirmed in 2017
Exhibit 35 NFDEquity and NFDEBITDA by industry
2016E2017F2018
Median=37
Median=08500
030 5 070 9 111 3
20
30
40
50
60
70
10
A=Agricolture B=Mining and quarrying C=Manifacturing D=Electricity and gas E=Water supply F=Construction G=Wholesale and retail trade H=Transporting and storage I=Accomodation and food service J=ICT
EH
C
BF
G
A
D
J
I
A 150101113081112149151120
079131
123075088101097125123103
072079
114067083052090108119102
067076
113060080045089096114092
074069
125076080045089106109086
050060
127072080044091
108084
051056
128067079043093106107081
051051
BCDEFGHIJ
NFDEquity
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
A 597219280305251301338250
153260
676394388342298453499349
254337
707482387293277498532337
277334
696392373254305484494308
231315
747401358330285544483294
183312
722390340341280511470290
178293
710380310329272492452281
177289
NFDEBITDA
BCDEFGHIJ
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
Source Cerved database and Cerved Rating Agency elaboration
106
31
Exhibit 36 Equity ratio by industry
Average 2000-2007 2014 2015Average 2008-2013 2016
Source Cerved database and Cerved Rating Agency elaboration
05
10
20
30
15
25
3540
5045
AB C DE FG HI J
Exhibit 37 EBITDA interest coverage by industry
Average 2000-2007 2014 2015Average 2008-2013 2016
Source Cerved database and Cerved Rating Agency elaboration
0
5
10
20
15
AB C DE FG HI J
A 1113140911151211
1408
1013131012131209
1208
1114151012131311
1309
1214151012151312
1309
1215161113161412
1409
BCDEFGHIJ
Liquidity ratio Median2000-07
Median2008-13 2014 2015 2016
A 0377677447858463
8960
0332
8145524536
4832
0342486042273848
3246
0537606853395765
4069
0743676559416378
5882
BCDEFGHIJ
ROE Median2000-07
Median2008-13 2014 2015 2016
Table 7 Liquidity ratio by industry Table 8 ROE by industry
Source Cerved database and Cerved Rating Agency elaboration
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
32
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Agriculture
Considering the recent price decline for agricultural
products putting EBITDA margin under pressure for
most of the industry participants we anticipate a slow
revenue growth in 2018 We also foresee more stable
margins in 2018 and investments to continue at a faster
pace in the near future mainly aimed at transforming the
agricultural activities into a high-tech industry Climate
and cultural changes are the main exogenous risks that
may negatively influence the sector
Mining and quarrying
Over the last few years the mining industry has been
challenged by record low metal prices and this has
resulted in a weak growth of supply and a cut in
investments especially in the new mines opening We
foresee a modest revenue growth in 2018 supported
by more stable prices rather than by government
infrastructural investments Margin pressure will remain
mostly unchanged in 2018 We do not expect a significant
increase in capital expenditure for most companies
while only a minority of industry participants will invest
in new capacities searching for new growth opportunities
by introducing new higher margin outputs Overall we
anticipate relatively stable key financial indicators
Manufacturing
We believe that in 2018 Italian manufacturing
representing 2nd European and 7th world player in 2016
will remain the beating heart of the national economy
In our view the expansion of internal demand the
improvement of business and customer confidence and
the wider export opportunities are the key drivers for
revenue growth (up to nearly 30) Despite the natural
selection the occurred during the economic recession
domestic competition and especially the competition
from lower income countries will remain challenging in
2018 creating further profitability pressure especially in
some highly fragmented segments
As a conditio sine qua non for market survival many
companies will be involved in a ldquowinning the innovation
gamerdquo process translated into a considerable capex
expenditure directed at process optimization which
inevitably must be accompanied by innovative marketing
and commercial strategies The companies especially
smaller ones which are not ready lsquoto play the gamersquo
remaining risk averse are likely to fall behind
Key financial indicators referring to the industry in terms
of net financial debt to equity and net financial debt to
EBITDA are likely to remain overall stable in 2018
In our view the best performing manufacturing industries
in 2018 will be the following
Automotive
extensive vehicles replacement process in 2018
high competition pressure China maintaining a key role
high level of innovation in mobility and connectivity
new strategic partnerships and MampAconservative stand towards EBITDA margin improvement
Chemistry amp Pharmaceutics
solid macroeconomic fundamentals will support
the revenue growth driven mainly by large companies
on average a stable EBITDA margin of about 10
is expected global presence is a must to achieve higher
level of profitability
RampD remain key factors for further market expansion
moderate level of MampA operations in 2018 slowing
down when compared to those carried out in the
previous year
Machinery amp Equipment
revenue growth in 2018 up to nearly 25 reflecting
the fact that all manufactures remain focused on RampD
and NPI (new product introduction)
cost management strategies are going to persist
but generally speaking with no significant impact on
EBITDA margin in 2018
heavy equipment manufactures still under pressure in
2018 to provide engineering capability and capacity
33
Energy and gas
Italian companies operating in the energy industry are
facing a complex market environment with many open
questions about risks related to regulations a drop
in consumption high competition levels and EBITDA
erosion
Generally we expect a more stable landscape in 2018 in
terms of commodity prices and consumption However
risk regarding prices and volumes will remain strong
resulting in a higher volatility of revenues In our view
the current margin pressure is unlikely to ease over the
next two years The final overcoming of the sondashcalled
ldquoMaggior Tutela Regimerdquo may lead to almost zero margin
for the retail operators We expect industry participants
to continue to focus their attention on cost efficiency and
on protecting profitability by embracing new business
models and examining the role that digital technology
can play in improvement of EBITDA margins We believe
that the above described strategies will be a central
topic for the operators intending to attract capital We
also believe that energy producers could see a slight
debt increase in 2018 aimed at improving productivity
and synergies Finally in 2018 we envisage a significant
number of MampA operations in the sector led by synergy
effects such operations might produce
Water supply waste management and sewerage
In recent years the water supply waste management
and Italian sewerage industry has recorded a slower
growth compared to the pre-crisis period However
due to the last two yearsrsquo important investments in the
water infrastructure waste sorting and recycling Italy
ranks as one of the top European countries in terms
of growth rate of recycling and packaging recovery
We believe that the expected general increase in
industrial output will produce a slight growth in water
consumption and waste treatment The demand for
sustainable solutions will continue to persist requiring
new investment in technologies based on a customer-
centric and sustainable approach aimed at improving
efficiencies and facilitating reuse Expectations also
reflect our view in terms of wider government interest
and spending in this industry We expect profitability
to remain broadly in line with the results obtained in
2016
Construction
After a weak increase in revenues recorded by the
construction industry operators in 2016 and the
modest result anticipated in 2017 both reflecting
a deteriorating demand and decreased volumes of
bank loans (mainly those for small and medium-
sized companies) we expect 2018 to be the turning
point for this industry We foresee that the volume of
residential and private non-residential constructions
will remain at relatively low levels in 2018 and that
the positive trend in housing renovation and public
works investments will continue taking advantage of
the allocated funds established by the Budget Law for
2017 Small and medium-sized businesses focused on
residential construction may face a slight profitability
erosion while we believe some growth in EBITDA
margin may be recorded by large Italian companies
operating internationally Due to the high perceived
risk historically there has been a strong financial
market mistrust of the construction companies which
we believe is likely to ease over the coming years
Wholesale and retail trade
During the crisis period wholesale and retail trade
industry faced a sudden interruption of the gradual
growth that had taken place up to that moment mainly
due to a loss in real purchase power and in consumer
confidence also translated into profitability erosion
In 2016 the data showed how the industry is moving
toward a recovery period Looking forward in 2018 we
expect to record a steady revenue growth supported
by an increase in global trade and improved consumer
confidence Despite the foreseen growth operators
will continue to face consistent pressure mainly in the
retail segment due to the high proliferation of new retail
purchase channels and market fragmentation
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
34
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Transportation and Storage
After a troubled 2016 characterized by an overcapacity
and a decrease in commodity demand hitting shipping
revenues in particular we foresee a moderate overall
recovery in 2018 driven mainly by an increase in
international shipments and air traffic The growing
number of innovative startups will continue to persist
increasing the competitive pressure in the industry We
anticipate a constant growth of e-commerce enabling a
quick reaction of on-line retailer and logistics providers
We believe that operators will continue to invest in
new high-tech solutions experimenting new models of
mobility and smart logistics
Despite very strong competition we expect the median
operating margins to remain steady However global
political uncertainties and related risks are strong with
possible quick and sharp negative impact on business
volumes and margins of the companies operating in
these industries
Accommodation and food services activities
In the last two years operators in the accommodation
and food service activities industry mainly medium
and small sized enterprises have seen steady revenue
growth and satisfactory profitability ratios Many
operators were focused on reviewing their business
models and offering additional services to their
customers a necessary strategy to maintain or expand
market positioning strengthen margins and improve
customer experience We expect the revenue growth
to continue in 2018 with a minimal median margin
improvement We believe accommodation and food
service activities will attract new capital investments
in 2018 to help the ongoing transformation process
and improve the accommodation infrastructure and
services
Information and communication technologies
The Italian information and communication technology
industry took longer to recover from the economic
crisis recording overall a negative median growth
rate until 2014 Software services and innovation
technology were the major contributors to revenue
growth (as a percentage) in 2016
Over the forecast period we foresee a modest revenue
growth for the ICT operators as a whole while the
technology industry will continue to achieve rapid
growth focusing on maintaining the competitive pace
of innovation In our view a key challenge for the ICT
operator may be the availability of matching skills
The outlook is relatively stable in terms of profitability
and key financial indicators
The following two pages show the details of the
previously discussed key performance indicators
35
Exhibit 38 Growth rate and EBITDA margin manifacturing sectors
-70- 50 -30 -10 103 0
2016E2017F2018
50 70 90
Median=76
Median=3000
20
40
60
80
100
120
1=Automotive 2=Chemistryamppharmaceutics 3=Clothing 4=Equipment 5=Food beverage and Tabacco 6=Heavy Manifacturing 8=Paper and Packaging 9=Tecnology and Telecomunication 10=Textile industry
6
10 5
3
8
91
74
2
50AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
57599586886358
3849
3620083721
-110320
-1112
210322
-1814021122
1413
030124
-5010284025
0555
20-4614
-4607212105
0430
210328-2310203218
0832
2310300512233720
1637
Growth rate Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
EBITDA margin Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
Source Cerved database and Cerved Rating Agency elaboration
625296
1441401016934
15352
504969
103121
916227
10639
4764676185562639
68112
487368
7090592845
75120
456772
9288562845
7898
4667759090573147
7698
4668769394583147
77102
1=Automotive 2=Chemistryamppharmaceutics 3=Clothing 4=Equipment 5=Food beverage and Tabacco 6=Heavy Manifacturing 8=Paper and Packaging 9=Tecnology and Telecomunication 10=Textile industry
2016E2017F2018
Median=30
700
600
500
400
300
200
100
000000 020 040 060 080 100 120
Median=08
Exhibit 39 NFDEquity and NFDEBITDA for manifacturing sectors
2
4 8
101
9
9
3
57
Source Cerved database and Cerved Rating Agency elaboration
096AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
104146095152117112109
098087
087080116068118083088086
084078
075074104069107082080079
084083
072064100065105084122081
079081
082066104065105080091079
077082
081067103065105079087079
077081
076067101064104077083078
076080
NFDEQUITY Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
227AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
258334222397249255259
315202
338313443305495363403412
480337
315306436328479373380397
482316
264269490303467366403383
515317
269243507090106127090106
106106
413343478088105127088105
105105
399333465086104127086104
104104
NFDEBITDA Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
36
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Exhibit 40 Growth rate and EBITDA margin for wholesale and retail trade sectors
20 40 60 80 100 120 140 160
2016E2017F2018
Median=31
Median=33
0000
20
10
30
60
50
70
1=Automotive 2=Retail 3=Wholesale
40
3
12
2016E2017F2018
Median=45
700
600
500
400
300
200
100
000050 070 090 110 130 150 170 190
Median=11
Exhibit 41 NFDEquity and NFDEBITDA for wholesale and retail trade sectors
1=Automotive 2=Retail 3=Wholesale
21
3
37
Ratings will remain broadly stable
The following section presents a risk profile analysis
based on Cerved Rating Agencyrsquos outstanding and
monitored public and private ratings issued from
2013 to 2017 on Italian non-financial companies
and operating in the industries discussed in this
study (data as of 31 December)
Exhibit 42 and Table 9 show an overview of 1-year
effective default rates over the 2000-2017 horizon
related to the sample bankruptcy and other legal
proceedings and debt restructurings as default
events
The default rate trend shows a general
improvement from 2014 onwards both by
company size classes and by industry however
considering the entire sample the overall default
rate still remains higher when compared to its pre-
crisis level especially regarding smaller companies
operating in the construction sector
Exhibit 43 shows the effective default rates over
2013-2017 horizon based on Cerved Rating
Agencyrsquos definition which considers as default
events
middot bankruptcy and other legal proceedings
middot debt restructuring
middot missed or delayed disbursement of a contractually
required interest or principal payment ie missed
payment on bonds material protests (on cheques
or trade bills) or prejudicial acts (judicial mortgages
distraint of property)
The effective default rates over the 2013-2017
horizon show decreasing trend and satisfy the
monotonicity constraint regarding all Cerved
Rating Agencyrsquos rating classes (Exhibit 44)
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2003 2004 2005 2006 2007 2014 2015 2016 20172000 2001
5678
12
3
4
0
Exhibit 42 Avarage 1-year default rate by size over 2000-2017 horizon
medium small
2008 2009 2010 2011 2012 2013
Mining and quarring
Manifacturing
Electricity gas steam and air conditioning supplyWater supply sewerage
Construction
Wholesale and retail trade repair of motorTransporting and storage
Accomodation and food service activities
Information and communication
24221809
5212
282915
2529
38533424
13027
454830
4838
36542537
15929
424421
4323
23461921
13226
293226
3022
Source Cerved database and Cerved Rating Agency elaboration
Table 9 Default rate by industry over 2000-2017 horizon
Total
NACE Average2008-2015
Average2000-2017 2016 2017
2016
Source Cerved database and Cerved Rating Agency elaboration
C21C12C11B22B21B12B11A11 A12 A13 A21 A22 A31
60
50
40
30
20
10
0
Exhibit 43 1-year default rate over 2013-2017 horizon
20172013 2014 2015
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
38
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The analysis of historical rating distributions in the
same period shows clear differences in terms of modal
rating class by company size As shown in Exhibit 43
the modal rating class for the large companies is A31
B11 for the medium and B12 for small companies
(considering company size classes as they have been
defined ad hoc by Cerved Rating Agency for the
purposes of this study)
Overall the corporate rating distribution in the
Source Cerved database and Cerved Rating Agency elaboration
C21C12C11B22B21B12B11A11 A12 A13 A21 A22 A31
30
25
20
15
5
10
0
Exhibit 44 Rating distribution frequency by size classes
large
30
25
20
15
5
0
10
medium smallRating 2013 total Rating 2017 total Rating 2017 forecast
observed period is skewed towards the investment-
grade rating categories (ie Cerved Rating Agency
rating classes from A11 to B12) representing 700 of
the whole sample 250 is concentrated in the safety
(A rating classes) and 450 in the solvency (B11-B12)
classes
We anticipate the rating distribution to remain
broadly unchanged in 2018 with the rating migration
concentrated mainly in the B category
39
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100543
2414
4407
4407
2636
4554 4558
2403 2311
535 527
90
10
0
Exhibit 45 Rating distribution frequency by area of risk - Total companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency]I nvestment GradeA11-A31 [Safety]
2509 2604
704 4407706 4407716
324
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
985
5658
4407
3033 2992 2898
925 907
300 318
90
10
0
Exhibit 46 Rating distribution frequency by area of risk - Large companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
5783 5878
869 4407878 4407878
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
4407
4407
3626
4080
17591695
439 449
90
10
0
Exhibit 47 Rating distribution frequency by area of risk - Medium companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
3571 3776
7044407780 4407786
456
1805
774
4113 4232
603
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
2824
1900
4407
4673 4850 4761
2833 2754
600 633
90
10
0
Exhibit 48 Rating distribution frequency by area of risk - Small companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
1716 1852
657 4407657 4407661
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
40
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Slight improvement in general creditworthiness
In our opinion in 2018 the creditworthiness of the
observed Italian non-financial companies will remain
stable for almost 86 of entities Migration of ratings is
expected to be moderate resulting in approximately 14
of rating upgrades (9) and downgrades (5) at the end
of 2018 compared to the outstanding ratings at the end
of 2017 The vast majority of the rating changes (921)
will be limited to one-class migration as shown in the
1-year projected transition matrix (Table 10) We believe
that more than one third of the expected downgrades
will be concentrated in the energy gas mining and
construction sectors Over the last years the average
credit profile of companies active in these industries has
been relatively weak and due to the forecast market and
regulatory conditions we do not envisage opportunities
for a significant risk profile improvement in 2018
Despite the expected rating migrations for individual
entities in 2018 the current industry modal rating
classes are unlikely to change
On the other hand stable and positive outlooks will
prevail in the manufacturing industry wholesale and
retail trade and accommodation and food service This
is due to the increase in the number of companies
active in these sectors which will maintain andor
improve their business and financial performances
Indeed as shown in Table 11 in 2018 the rating outlook
remains differentiated by industry whilst in terms of
the expected general probability of default we foresee
a modest improvement (349) compared to the one
recorded in 2017 (366)
Table 10 1-year transition matrix
Source Cerved database and Cerved Rating Agency elaboration
2017
A11
A31
B11
C11
C12
B21
C21
B22
B12
A12
A13
A21A22
F 2018A11 A12 A13 A31 B11 C11 C12B21 C21B22B12A21 A22
000 530
066
054 451034 435
027 753055 901
1033121247 1624
260 1038088
000
000000037
028
295
290
1063
179
455050647
043425
026490020208
000208
000152
000000
00000010000
9821
9318
92679015
87708583
81497646
8665
9617
9710
8605
419024
41
The information and data supporting Cerved Rating Agency rating opinions related research and credit opinions originate from sources Cerved Rating Agency considers to be accurate however Cerved Rating Agency cannot independently verify the reliability and accuracy of the information and data in every instance This publication may not be reproduced retransmitted or distributed in any form without the prior written consent of Cerved Rating Agency Cerved Rating Agency assumes no liability for correctness completeness and topicality of the information contained in this publication The analyses underlying this study do not provide advice of any sort
26
n
6670
486
59
Exhibit 49 Ratings outlooks by size
Large
Medium Positive Stable Negative
Small
21
13
Large
Medium
Small
Source Cerved database and Cerved Rating Agency elaboratio
Table 11 Ratings and probability of default 2018 outlook by industry
Source Cerved database and Cerved Rating Agency elaboration
NACE Micro industryDowngrade
B-Mining and quarryingAutomotive
900814
848
812
880812
847
813 172
170
174
144
8264 36
08
104 433 436
392 373
22724815
362 360
876
876
914
848
849
804
887
882
916
901835870899 64
866760
43
68
5659
58
47
61
49
74
78 75
14
50
37
36
5393
32
50
41
45
3899
77
91
316
372
355
364
308
491
326
318 296
331
312
381
367
359
322
495
452
433
403429
389
364369
363
313
452
323
594
38
315358
603
307
345 350
67 5318
469289 274
470
147
116
138
851
821AutomotiveRetail
Wholesale
Total
Chemistryamppharmaceutics
ClothingEquipment
Food Beverage and Tabacco
Heavy Manifacturing
Other Manifacturing
Textile industry
Total
Tecnology Media ampTelecomunication
Paper Packaging ampForest products
C-Manifacturing
D-Electricity gas steam and air conditioningsupply
F-Construcion
H-Transportig and storageI-Accommodation and food service activitiesJ-Information and communication
G-Wholesale and reatail traderepair of motor vehicles and motor-cycles
E-Water supply sewerage waste
Average ForecastPD 2018
Expectedtrend
Average PD 2018
Ratings outlooks
Stabl pgrade
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Cerved Rating Agency SpAVia dellrsquoUnione Europea n 6A-6B20097- San Donato Milanese (MI)
Tel +39 02 77541 - Fax +39 02 76020458
ratingagencycervedcom
Rating Agency
14
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The number of active companies has increased buthellip
The number of active companies in Italy registered at
the Chamber of Commerce as of December 31st 2016
amounted to 5145995 305629 more than in 2000
(63)
The increase in registered active companies is the result
of the positive trend from 2000 to 2008 (98) partially
cancelled by the decrease from 2009 to 2016 In 2017 a
slight improvement is expected to be recorded however
the number of active companies remains below its peak
value (5316104 entities) reached at the end of 2008
Exhibit 11 shows both the trend of active Italian companies
in the period 2000-2016 and their breakdown by legal
form We observe that the increased number of Joint Stock
Companies and particularly Limited Liability companies
(1206) was able to compensate the decrease in Unlimited
Partnerships (-62) and Sole Proprietorships (-79)
Companies are abandoning traditional sectors
Exhibit 12 shows the breakdown of the Italian active
companies at the end of 2000 and 2016 by industry
It can be observed that in many traditional sectors
the number of active companies decreased eg in
agriculture (-294) and manufacturing (-226) whilst
the number of companies increased in construction
(273) and wholesale and retail trade (39)
A very significant rise in the new registered companies
(456) occurred in other industries in particular
in the service industry offering information and
communication IT and professional scientific and
technical services
Joint Stock and Limited Liability Unlimited Partnership Sole proprietorshipO ther forms
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 2012 2013 2014 2015 20160
6000000
5000000
4000000
3000000
2000000
1000000
Exhibit 11 Italian active companies 2000-2016
Total
Source Movimprese and Cerved Rating Agency elaboration
Exhibit 12
Breakdown of the Italian active companies by industry 2000-2016
2000
635286 13
1059005 22
639778 13
589707 12
183 856 4 226964 5 150772 3
1354998 28
965452 19
747738 14
495247 10
750863 15
150888 3
379899 7 247187 5
1408721 27
2016
C Manufacturing
F Construction
H Transporting and storage
I Accommodation and food service activities
L Real estate ativities
G Wholesale and retail traderepair of motor vehicles and motorcycles
X Other
15
Number of bankruptcy and other legal proceedings to decrease further
From 2000 to 2016 the number of bankruptcies and
other legal proceedings protests and prejudicial
acts in Italy mirrored the general trend of the
Italian economy
After reaching its minimum level in 2007 (5969)
the number of bankruptcy procedures in the
period 2009-2014 increased dramatically reaching
its peak value of 15608 in 2014
With the improvement in the economic and financial
environment starting from 2015 the number of
bankruptcy procedures decreased sharply in all
macro sectors returning approximately to the
levels recorded from 2000 to 2006 A positive
trend was recorded also in 2017 bankruptcy
procedure initiated for 11937 companies -113
when compared to the same period in 2016 In
absolute terms the highest number of bankruptcy
procedures was recorded in the service sectors
followed by the construction and manufacturing
Worth mentioning is the design of a new Italian
bankruptcy law that should be approved by
October 2018 The regulatory framework aims at
more efficient resolutions of cases of company
crisis supporting continuity of its operating
activities and safeguarding the interest of creditors
by introducing innovative solutions such as pre-
crisis warning mechanisms
Other legal proceedings after reaching its
maximum level in 2013 (3593) in 2016 came down
to 1993 and the trend continues in 2017 evidencing
1866 procedures -64 when compared to the
same period in 2016
In the last five years new protests and prejudicial
acts have also shown a decreasing trend with
ndash527 and ndash70 of acts respectively in 2017
compared to the numbers recorded in 2013
-6
Exhibit 13 Bankruptcy
BankruptcySource Cerved databaase
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
10729 108311163612287
10338
59697307
9189
1108812022
12437
14031
1560814682
13459
11937
Other legal procedingsSource Cerved database
1500
1000
500
02000
940 994 1125 1211
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
2500
3500
3000
4000
2000
1110
16691540
18702094 2057
2342 2475
3593
3132
2720
1993 1866
Exhibit 14 Other legal procedings
1211
100 45000
4000090
80
70
60
50
40
30
20
10
02015
35000
30000
25000
20000
15000
10000
5000
02013 2014
Protets
703
297
41438
Total
Source Cerved database
Prejudicial acts
2016 2017
665
335
34527
570
43032660
527
473
546
454
2523828929
Exhibit 15 Protests and prejudical acts
CERVED RATING AGENCY SpA | Highlights on italian economy
16
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Core inflation rate to rise
Italian headline inflation will experience a modest
decline in 2018 compared to the previous year
(12 and 14 respectively) Core inflation
however is predicted to increase to 12 in 2018
(up from 10 in 2017)
Exports and import are accelerating
Exports and imports will both accelerate in 2018 (41
and 44 respectively) mirroring the positive trend
and expectations in global trade and the rising of the
external demand Machinery and equipment industry
will still remain in ldquopole positionrdquo due to companies
generous investment and tax incentives In general
in 2018 Italian exports will increase more in the Extra
European Union countries
Investment continues to gain strength
Investment has gained strength and will continue to
do so at a relatively fast pace supported by effects of
the tax incentives (Stability Low 2017) low interest rate
and improvements in business confidence Indeed
investments are expected to increase 30 in 2018
(up from 24 in 2017) Construction investments are
forecast to accelerate slightly also thanks to more
resources earmarked for public investment
Harmonised core infation
Source OECD and IMF
2003 2006 20092000 2012 2015 F2018
2
1
-1
0
4
3
5
6
Exhibit 16
Imports of goods and services (Y-o-Y change)
Exports of goods and services (Y-o-Y changes)
Total dometic demand (Y-o-Y change)
Source OECD and IMF
20062000 2015 F2018-5
-15
-20
5
0
-10
10
15
Exhibit 17 Exports imports and demand Italy
20122003 2009
Wholesale and retail trade (Y-o-Y change)
Total investments ( of GDP)
Heavy industry (Y-o-Y change)
Other services (Y-o-Y change)
Source IMF and ISTAT
Construction (Y-o-Y change)
20062000
-20
-30
10
0
-10
20
30
20
25
15
10
0
5
F2018
Exhibit 18 Investments by industry Italy
2003 2009 2012 2015
17
No room for significant public debt reduction
At the end of 2016 the Italian government debt-to-GDP
ratio was significantly above its level at the beginning of
the century In particular as of December 31st 2016 the
ratio was 1326 (262 with respect to 100 recorded
at the end of 2000)
In the same period the ratio for the euro area increased
from 681 to 913 (341) in Germany from 589 to
683 (159) and in France from 586 to 960 (638)
At the end of 2017 the Italian government debt increased
further to more than euro2300 billion 1350 of GDP The
debt servicing in terms of interests accounts roughly
50 of Italian GDP
In our view the high level of government debt
represents a key factor limiting Italian economic growth
and contributes eo ipso to increasing country risk
with a possible negative impact on the stability of the
international financial system
A possible increase in interest rates would raise the
cost of debt service potentially triggering a crisis due to
larger governmental deficits a slowdown in economic
activity and growing debt refinancing difficulties due to
higher risk perceived by investors
Hence it seems that a significant reduction in
government debt should be the main goal of the Italian
economic and financial policy in our opinion however
the achievement of such a result is not realistic neither
in the short nor in the medium term due to the following
factors
middot economic growth in the coming years is expected
to be moderate not sufficient to be the main source of
the government debt reduction
middot macroeconomic policy is expected to prioritize
investments employment social security and welfare
rather than government debt reduction
middot even if the inflation rate hits the target value (20) the
impact on the government debt in the short term is not
expected to be considerable
middot finally in Italy election will take place in spring 2018
with a new government taking over the economic
program that has already been approved and become
fully executive
Euro area
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 2012 2013 2014 2015 20160
20
40
60
80
100
120
140
Exhibit 19 Public debt as GDP
France
Source AMECO and Cerved Rating Agency elaboration
CERVED RATING AGENCY SpA | Highlights on italian economy
18
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Table 1
Amount ( 407 312
-327
327754
216074 190881
163248 345604188167
869
1543
2213
1793
CAGR (base year 2000)
CAGR (base year 2008)
NPL ratio ()
Ndeg debtors
Averae debt debtor
Valueindicator 2000 2008 2016
Source Bank of Italy and Cerved rating Agency elaboration
Credit activity to be expanded interest rates to remain at very low levels
As of December 31st 2016 the volume of bank loans
granted to Italian non-financial corporations amounted to
euro8604 billion
The period 2000-2016 was characterized by two different
trends from 2000 to 2011 the annual outstanding loans
value increased by 841 (euro454 billion reaching in 2011 its
highest level ever of euro993 billion thanks to 57 CAGR far
above the Italian GDP growth) whilst in the period from
2012 to 2016 loans decreased by 134 (euro130 billion)
reflecting a negative -28 CAGR The loan reduction hit
sharply construction and manufacturing (accounting
for about 400 of all loans) which experienced -227
and -135 decrease in loan volumes whilst agriculture
forestry and fishing and wholesale and retail trade
(including repairs of motor vehicles and motorcycles)
had more limited loan contraction (-08 and -53
respectively)
In the observed period due to the negative impact of the
global financial crisis 200708 and to structural changes in
the world economic and financial environment a radical
decrease in interest rates was recorded In 2017 the
interest rates charged to Italian non-financial corporates
were on average less than half compared to those charged
in 2000 In the medium term low interest rates will remain
a positive factor fostering investments and consumption
Non-performing loans to be further reduced due to innovative measures
The credit crunch had a huge and dramatic impact on
the Italian economy hitting especially small businesses
which are not able to survive in a radically changed market
conditions The evidence of such outcome can be seen not
only through the decreased number of active companies
but also via the enormously increased volume of the
non-performing loans (NPLs) In particular these loans
amounted to euro324 billion at the end of 2016 of which euro154
billion were granted to the non-financial corporations as
shown in table 1
Following the principles outlined in the ECB guidelines
published in March in 2017 Italian Banks made significant
progress in reducing the amount of the NPLs ndash estimated
to be over euro50 billion debt reduction Any further actions
aimed to improve the banking balance sheets should not
increase the financial hardship of still operating companies
North - East SouthNorth - West Center Islands
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 2012 2013 2014 2015 20160
1200000
1000000
800000
600000
400000
200000
NPLs ratio
Source Bank of Italy and Cerved Rating Agency elaboration
20
1816
14
1210
8
6
42
0
446393
euro billion)
19
Modest role of italian equity capital markets
Despite the number of listed companies increasing
from 297 to 421 in the period 2000-2017 the role
of the stock markets remains modest in Italy
As of December 31st 2017 the market capitalization
was euro640 billion (375 of the estimated Italian GDP
in 2017) representing only 782 of the overall
market capitalization recorded in 2000 (equal
to euro818 billion 687 of GDP) mainly due to
an unfavorable economic cycle in the observed
period
This situation shows the structural weaknesses of
the Italian economic and financial system especially
when compared to other highly developed
European economies The low propensity to
raise equity capital through organized markets
is linked to an unfavorable macroeconomic and
fiscal framework as well as to the predominance
of SMEs mostly unfit for listing and presenting
cultural obstacles (ie company owners and managers are often reluctant to accept wider company control and
transparency)
Hence self-financing and bank borrowing remain the main sources of finance for Italian companies which are
generally speaking undercapitalized with a negative impact on their investment capabilities Very frequently the
lack of medium-long term financing means forces companies to focus their attention on running current activities
postponing or abandoning strategic projects fundamental for company growth
A wide range of innovative initiatives have been undertaken with the aim of fostering market based company
funding in particular
middot AIM (Alternative Investment Market) - a specialized market segment dedicated to SMEs growth (95 companies and
market capitalization around euro56 billion as of December 2017)
middot ELITE - a programme designed to help SMEs prepare and structure for the next stage of growth their through
access to long-term financing opportunities
middot PIR - Piani individuali di risparmio (Individual Savings Plan) - an innovative way to fund Italian SMEs by offering retail
investors resident in Italy tax incentives (full exemption of 260 income tax) if the savings stay invested for at least
five years A minimum of 700 of such credit assets must be invested in financial instruments issued by Italian or
foreign (EU and EEA) companies permanently established in Italy
FTSE (MIB)Enterprises
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 20132012 20152014 201720160
100
200
300
400
500
600
700
800
900
100029681 29525
14623
1765216121
12259
13512
16048
15988
19012
21428
21853
2185322232
16954
297 294 295 279 282278 311 336 332 332 328 323 326344 342 356 387 421
19483
22886
26056
31005
Exhibit 21 Italian listed enterprised and FTSE (MIB) index trend
Source Borsa Italiana
300000
250000
200000
150000
100000
5000
0
Capitalization of GDP
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 20132012 20152014 201720160
100
200
300
400
500
600
700
800
900
1000
Exhibit 22 Italian market capitalization of listed companies ( of GDP)
Source Borsa Italiana
80
70
60
50
40
30
20
10
0
8184
5923
354 365418 473
524475
239301 275
210233
287 295348
318375
4580 4875
5809
6766
77857336
37474571
4251
3324
44664678
56765249
6400
3655
474
68
CERVED RATING AGENCY SpA | Highlights on italian economy
20
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Italian debt capital market is growing but still remains behind needs
At the end of 2016 the outstanding amount of debt
securities issued by Italian financial and non-financial
corporations was euro8615 billion 510 of the countryrsquos
GDP The table below shows the breakdown by issuer
type of Italian German French British and United States
outstanding amounts of debt securities as of December
2016 issued by financial and non-financial corporations
with the respective debt-to-GDP ratio
Despite the outstanding debt at the end of 2016 being
almost double compared to 2000 it represents only 23
of its peak value reached in 2012 (euro1290 billion Exhibit
23) The main reason for such a significant debt reduction
is the huge bond reimbursement realized by banking
institutions from 2013 to 2016 and the related negative
net flow of debt securities (respectively -80 -153 -106
and -67 billion of euro as shown in Exhibit 24)
The decrease in debt securities funding of Italian banks
has been compensated by a wider use of deposits and
resources available under the Eurosystem refinancing
operations framework
The outstanding amount of debt securities issued by
non-financial corporations at the end of 2016 also
doubled its value with respect to the amount recorded
at the end of 2000 The main characteristic of this cluster
is the high concentration of issuancesdebt to a small
number of issuers
Due to both more favourable general economic
conditions and active ECB monetary policy bond yields
have decreased significantly providing room for a
convenient fund raising
Since the introduction of a new regulatory framework
(lsquoDecreto Svilupporsquo) in 2012 up to October 2017 Italian
market saw 300 small-size listed bond issues (ie so
called minibonds) amounting approximately to euro143
billion Issued mainly by SMEs they offer interesting
yields to institutional investors
) Source Business support SpA ndash Minibonditalyit
BanksTotal
Source Bank of Italy and Cerved Rating Agency elaboration
2006 20082000
-200000
200000
250000
-150000
-100000
150000
100000
-50000
50000
02012 2014 20162002 2004 2010
Banks debt securities outstanding
Banks Debt to GDP ratio
Source Bank of Italy and Cerved Rating Agency elaboration
0
10
20
30
40
50
60
70 1400000
1200000
1000000
800000
600000
400000
200000
0201620142012201020082006200420022000
Table 2 Outstanding securities debt (euro Million)Debt-to-GDP ratio()
Financial corporates
Total
Debtsecurities
outstanding
Italy German rance United Kingdom United States
739
123
862
440 340 470
21
680380
40
1279 1331 4 50
880
30
14271
14820
549180
10202767
590
19211436
15770
510
Debtsecurities
outstanding
Debtsecurities
outstanding
Debtsecurities
outstanding
Debtsecurities
outstanding
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Source Bank of Italy
0
0
21
CERVED RATING AGENCY SpA | Highlights on italian economy
22
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Italian non-financial companies economic Outlook 2018
23
Data and method
This research focuses on Italian non-financial companies
with an annual turnover exceeding euro5 million With the
aim of using only reliable data joint stock and limited
liability companies have been considered only these
entities according to Italian law file complete annual
financial statements in the Chamber of Commerce
together with anagraphical company data other
legal forms such as unlimited partnerships and sole
proprietorships are not included in this sample due to
the lack of publicly available standardized financial data
We believe that this cutoff is reasonable and allows us to
perform a methodologically correct analysis In 2016 the
above mentioned companies despite representing only
42 of all registered and active joint stock and limited
liability companies accounted for 769 of their total
turnover
Moreover cluster specialization has been obtained by
NACE activity classification from A to J (thus not including
in the sample financial and insurance companies and
some service industries) The statistics regarding specific
industries provide important key data and enable us to
examine historical and prospective trends and cross-
sector comparisons
The Cerved database which contains legal anagraphical
financial and market information on all Italian registered
legal entities (approximately 6 million comprising 5
million active ones) was the most important database
used for this research Long time series and broad
homogenized and standardized data covering different
economic cycles were the building blocks to perform
the regression and predictive analysis
Historical and forecast macroeconomic data and
analysis performed by the International Monetary Fund
OECD the World Bank European Central Bank Bank
of Italy and ISTAT completed the dataset used for the
analysis
Several analyses were performed in order to examine
the structural differences within the sample in terms of
company legal form and geographical area (Exhibit 25)
company age (Exhibit 26) and company size and industry
As a result we verified a considerable heterogeneity of
companies in particular with regard to the company size
across various industries
The relevant observation period comprises the years
between 2000 and 2016 Table 3 describes some
characteristics of the sample
Exhibit 25 Sample break-down by legal form and geographic area (2016)
Joint stock Company
Limited liability Company
Area 1 (Northwest)
Area 3 (Center)
Area 2 (Northeast)
Area 4 (South)
39
20
27
14
33
67
33
Table 3 Sample characteristics 2000-2016
TotalTurnover
gt euro5million
Turnover gt euro5 million(industry
from A to J)
TotalTurnover
gt euro5million
ofTotal
Turnover gt
euro5 million(industry
from A to J)
Source Cerved database
Entreprises Turnover billion
2000 659867700717738558772442812025847334883122915172937018949708965744969581
953505945825922513883224
4215144587462234694749640518205596459226595385246754808563745362752074519385289450123
3686139038411864118843547454704921752274526974633848778504734806246843468384771845288
16151740177018472002212923302477256822562421257025202446243224392295
12661362139214561588169818752000208317861944208720541992198419871905
11141205124013041430152316891801189716191764191218831839183518371765
689693700
716
706714
725
718729744748752754753769
727739
200120022003200420052006
200820092010201120122013201420152016
2007
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
24
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Furthermore in order to guarantee more detailed and
accurate analyses and projections we decided to create
a static pool to show consistently long time horizon
economic trends (17 years) by sealing off all the active
companies over the 2000-2016 horizon
The outcome obtained by considering the behaviour of
specific variables related to the companies included in
the static pool was extended as a performance indicator
for the whole sample (turnover over euro5 million and
industry from A to J)
According to the European Communityrsquos definition of
SMEs using annual turnover and employee headcount
as quantitative criteria the initial sample of companies
and the static pool can be classified by size classes on
the basis of the financial statements for the year 2016
as shown in Table 4
For the sake of this analysis we defined specific size
classes for each industry thus deviating from the
European Commissionrsquos recommendation which
presents undifferentiated upper and lower bounds of
quantitative criteria for SMEs in all industries To define
the thresholds of such classes we used both a statistical
approach (a specific cluster procedure by minimizing
the within-cluster turnover standard deviation) and a
judgmental approach by relying on the experience and
opinion of our industry expert analysts Table 5 shows
the results of such analysis referring to the sample in
2016 (45288 entities) and the NACE sections from A
to J Moreover the NACE section C and G were further
disaggregated into sub-industry classes as shown in
Exhibit 27 in order to consider the specific business
differences within these NACE sections thus ensuring
a good fit and a satisfactory accuracy of the estimation
Exhibit 26 Sample break-down by company age classes
0-2 Years 2-5 Years 5-10 Years 10-20 Years gt20 YearsSource Cerved database and Cerved Rating Agency elaboration
0 20 40 60 80 100
ABCDEFGHIJ
A = AgricolutreB=Mining and quarryingC=ManufacturingD=Electricity and gasE=Water supplyF=ConstructionG=Wholesale and retail tradeH=Transporting and storageI=Accomodation and food serviceJ=ICT
Small
Annul Turnover
Empolyees
Static Pool
Enterprises(Turnover gt euro5 million)
Enterprises(Turnover gt euro5 millionindustry from A t J)
Medium Large
lt 50 lt 250lt 36774 11113
1005333223
8741
2236
2012
154818645
gt euro50 million
gt 250
lt euro50 million
Source Cerved database
NACE Micro industry
B-Mining and quarryingAutomotive
Automotive
Retail
Wholesale
T gt 480
T gt 80
T gt 260
T gt 265T gt 270
T gt 230
T gt 120
T gt 80
T gt 43
T gt 65
T gt 106T gt 106
T gt 360T gt 155T gt 150T gt 100
T gt 120
T gt 225T gt 1400T gt 27500
T gt 1500
ChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther Manifacturing
ICTTextile
Paper Packaging ampForest products
C-Manifacturing
F-Construcion
H-Transportig and storageI-Accommodation and food service activities
J-Information and communication
D-Electricity gas steam and aircoditioning supply
G-Wholesale and reatail traderepair of motor vehicles and motorcycles
E-Water supply sewerage waste management and emediation activities
Large (Turnover
in euro million)
Medium(Turnover
in euro million)
Small(Turnover
in euro million)
Source Cerved database and Cerved Rating Agency elaboration
60 lt T lt 480 5 lt T lt 60
5 lt T lt 20
5 lt T lt 36
5 lt T lt 35
5 lt T lt 44
5 lt T lt 40
5 lt T lt 20
5 lt T lt 26
5 lt T lt 250
5 lt T lt 185 lt T lt 305 lt T lt 265 lt T lt 205 lt T lt 37
5 lt T lt 335 lt T lt 40
5 lt T lt 255 lt T lt 585 lt T lt 1155 lt T lt 1005 lt T lt 27
20 lt T lt 80
36 lt T lt 26035 lt T lt 26544 lt T lt 270
40 lt T lt 230
20 lt T lt 120
26 lt T lt 80
18 lt T lt 43
250 lt T lt 1500
20 lt T lt 6537 lt T lt 29540 lt T lt 15533 lt T lt 15025 lt T lt 100
27 lt T lt 120
58 lt T lt 225
100 lt T lt 27500 115 lt T lt
30 lt T lt 10626 lt T lt 106
25
Exhibit 28 shows the breakdown of macro industries
analysed including disaggregation of the NACE section C
(manufacturing) and G (wholesale and retail trade repair
of motor vehicles and motorcycles)
In order to carry out the analysis and projections this study
is focused on we used simple multiple linear regression
model for each industry and company size classes
considering macroeconomic and individual companiesrsquo
economic and financial data
The analysis enables us to develop an econometric
model used to estimate likely credit quality changes (in
terms of rating class and probability of default) for single
industries and company size classes
Automotive
Retail
Wholesale
21
1366
1
42
1
26
35
232
6
A B C D
F G H I
46
7
21
1318
9
15
34
Automotive
Chemistry amp pharmaceutics
Clothing
Equipment
Food Beverage and Tabacco
Heavy Manifacturing
Other Manifacture
Paper Packaging amp Forest Products
ICT
Textile industry
Large SmallMedium
Source Cerved database and Cerved Rating Agency elaboration
0
Wholesale
Retail
Automotive
20 40 60 80 100
Automotive
Chemistry amp pharmaeutics
Clothing
Equipment
Food beverage and Tabacco
Heavy Manifacturing
Other Manifacturing
Paper Packaging amp Forest Products
ICT
Textile
0 20 40 60 80 100
ABCDEFGHIJ
0 10 30 40 60 70 80 90 100
Exhibit 28 Sample break-down by industry (2016)
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
26
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Performance indicators to improve further
The annual financial statements available through public
registers provide a clear economic and financial picture
of the Italian joint-stock and limited liability non-financial
companies The individual historical data available from
2000 to 2016 enriched with 2017 preliminary results and
with the expected 2018 macroeconomic scenario enabled
us to build up the 2017 and 2018 projections regarding
the following four performance indicators related to the
analyzed sample 1) growth rate - revenues YoY change
2) EBITDA margin 3) net financial debtEBITDA and 4) net
financial debtEquity Afterwards the median values of the
resulting data were used to obtain the summary output
which we consider as a representative proxy for the overall
market
From 2000 to 2016 the observed companies experienced
a very irregular trend both in terms of growth rate and
EBITDA margin In the aftermath of the global financial crisis
the lowest growth rate value (-120) was recorded in 2009
manufacturing transporting - storage and wholesale and
retail trade were the industries showing the biggest fall of
business volume (-155 -121 and -104 respectively)
whilst water supply accommodation and food service and
electricity and gas showed the highest level of resilience to
the adverse economic and financial environment (-01
-23 and ndash26 respectively) Exhibit 29 shows that in
terms of median value there are no significant differences
in the growth rate taking into consideration company size
classes as we previously defined them Only from 2010 the
growth rates turned positive but still remaining below the
levels recorded in 2000
The analysis of the EBITDA margin changes in the same
period also does not highlight significant differences
between large companies and SMEs as shown in Exhibit
30 The lowest median EBITDA margin value (52) was
recorded in 2012 regarding in particular accommodation
and food service transporting and storage and agriculture
sectors (28 40 52 respectively) while electricity
and gas ICT and water supply were relatively immune to
the unfavorable economic and financial circumstances
(showing 113 109 and 105 EBITDA margin
respectively) At the end of 2016 the median EBITDA margin
(60) still remains below the levels recorded in 2000 (72)
Positive trends emerging from the last publicly available
financial statements (2016) the 2017 preliminary results
and the optimistic macroeconomic forecasts for 2018
confirm improvement of the Italian economy Looking
ahead we expect the Italian non-financial companies to
continue to experience gradual recovery in 2018 They are
going to take advantage of the favorable global economic
cycle low interest rates and supportive regulations that
inter alia foster the use of alternative non-bank financial
sources for company funding The financial resources raised
through Individual Savings Plans (PIR ndash Piani individuali di
risparmio) introduced by the 2017 Budget Law are driven
in primis by a favorable tax regime for savers and might
become an important additional source for SMEs funding
injecting new liquidity The government objective fixed euro68
billion as a target value and in 2017 nearly euro10 billion had
already been raised
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2004 2006 2014 20162000
5
20
10
0
15
-15
-10
-5
Exhibit 29 Growth rate (revenue YoY change) by size classes (median)
medium small
2008 2010 2012
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2004 2006 2008 2010 2012 2014 20162000
7
10
9
8
6
5
4
3
7
10
9
8
6
5
4
EBITDA margin by size classes (median)
medium small
27
So far one of the main obstacles PIR are facing is the limited
number of available assets which may lead to a possible
concentration of this financial resources in a small share of
the market comprising mainly relatively large companies
as shown by the early data in 2017
Another obstacle to rapid adoption of the newly available
financial resources is the lack of a standardized and broadly
accepted methodology for the risk assessment of potential
bond issuers
Generally speaking in 2018 we expect SMEs to contribute
more significantly to growth employment and innovation
whilst on average the respective EBITDA margin will remain
broadly stable (as shown in Exhibit 31) However 2018 will
still be a challenging year for SMEs and innovative startup
companies as they will have to face tougher barriers in
accessing bank credit andor approaching capital markets
compared to large companies We also expect some new
innovative solutions aimed at meeting SMEs financial needs
to become effective the SMEs current financial structure
together with new business opportunities prove their
ability in terms of rational use of the additional financial
resources
The new investments will allow most industries to thrive
also assisted by the Italian Governmentrsquos adoption of the
National Industry 40 Plan
The companies which will take up this opportunity may
improve their cash-flows even in the short-medium term
Finally companies with strong international market
positioning and large product diversification will have
stronger sales and margins growth
The key ratio values recorded from 2000 to 2016 related to
the analyzed entities show the improved financial health of
the companies proving good capability to strengthen their
equity base as shown in Table 6
Growth rate (2016)Medium
Total
Small Large
Growth rate (2018)Growth rate (2017)
Source Cerved database and Cerved Rating Agency elaboration
50
40
Exhibit 31 Growth rate and EBITDA margin forecast by size classes
EBITDA margin (2016)EBITDA margin (2018)
EBITDA margin (2017)
40
30
0
10
20
Medium
Total
Small Large
7570
65
0
6 5560
5550
4540
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
28
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The recorded financial ratios in the 2000-2016 horizon
indicate that on average
middot liquidity maintained a satisfactory level in the whole
observed period due to the positive economic cycle in
2017 and 2018 we expect a slight improvement in the ratio
middot the EBITDAinterest coverage ratio almost doubled its
value in 2016 compared to what was recorded in 2000
primarily due to a general reduction in the interest rates
particularly in the last three years we believe that in 2017
and 2018 the average ratio value will remain roughly at the
same level recorded in 2016
middot in 2016 ROE shows further improvement but is still
slightly lower compared to the value recorded at the
beginning of the observed period mainly due to the equity
base strengthening trend
middot Equity Ratio rose from 250 to 350 due to a significant
increase of equity capital in 2018 we expect further
strengthening of the ratio
middot Financial LiabilitiesTotal Assets ratio remained mostly
unchanged ndash financial debts representing roughly 30 of
the total assets
A positive trend regarding the net financial debt was also
observed in fact in 2016 70 of the sample improved their
NFDEBITDA and 73 the NFDEquity
Positive performances were found especially in the SMEs
segment as shown in Exhibit 32 in particular referring to
NFDEquity small and medium-sized companies recorded
a positive trend standing respectively at 092 and 089 in
2016 compared to 132 and 136 in 2000
Hence the financial risk profile appears to be well balanced
leaving no room for specific concerns regarding the
prospects of the Italian non-financial companies in 2018
In 2016 the median values for the total sample referring to
NFDEquity and NFDEBITDA remained respectively at 089
and 389 levels respectively
Looking ahead we expect these indicators to remain at
healthy levels in 2017 and 2018 with a slight improvement
in NFDEBITDA and a broadly stable level of the NFDEquity
ratio as shown in Exhibit 33
NFDEBITFA (2016) NFDEBITFA (2017)NFDEBITFA (2018)
40
Exhibit 33 NFDEquity and NFDEBITDA forecast by size classes
Source Cerved database and Cerved Rating Agency elaboration
404
20
25
45
35
30
NFDequity (2016) NFDequity (2017)NFDequity (2018)
05
06
09
10
08
07
Exhibit 32 NFDEquity and NFDEBITDA by size classes (median)
largemediumsmall
2016
2015
2014
000 5 10 15
Average2008-2013
Average2000-2007
total largemediumsmall total
Source Cerved database and Cerved Rating Agency elaboration
2016
2015
2014
203 0 405 0
Average2008-2013
Average2000-2007
29
Growth and profitability improvement spanned over all sectors
Exhibit 34 shows the relative positioning of the 10
macro-industries in the short-medium term considering
the median values related to revenue growth rate and
EBITDA margin
The historical median values are calculated on the basis
of financial data obtained from the annual financial
reports 2014-2016 filed in the Chamber of Commerce
public registers the projected median values for 2017
and 2018 are the result of the analysis of this study
As expected there are significant differences in
positioning between different industries in terms of
both historical and projected values
In 2018 we expect manufacturing and accommodation and
food services to maintain top positions already reached in
2016 and 2017
For the electricity gas mining and quarrying industry
2018 may be the turning point showing the first positive
signals after experiencing some difficulties over the last
few years
None of the other industries show significant changes in
2018 compared to their 2016 positioning
Source Cerved database and Cerved Rating Agency elaboration
A 50
57599586886358
3849
3620083721
-110320
-1112
210322
-1814021122
1413
030124
-5010284025
0555
20-4614
-4607212105
0430
210328-2310203218
0832
2310300512233720
1637
BCDEFGHIJ
A 625296
1441401016934
15352
504969
103121916227
10639
4764676185562639
68112
4873687090592845
75120
456772928856
45
7898
4667759090573147
7698
4668769394583147
77102
EBITDAmarigin
BCDEFGHIJ
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018Growthrate
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
Exhibit 34 Growth rate and EBITDA margin by industry
-70 -50 -30 -10 10 30
2016E2017F2018
50 70 90
Median=68
Median=2100
20
40
60
80
100
120
A=Agricolture B=Mining and quarrying C=Manifacturing D=Electricity and gas E=Water supply F=Construction G=Wholesale and retail trade H=Transporting and storage I=Accomodation and food service J=ICT
D
B
E
FHA G
C
I
J
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
30
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Further strenthening in companiesrsquo financial structure
Exhibit 35 shows the relative positioning of the 10 macro
industries in the short-medium term considering the
median values related to NFDEBITDA and NFDEquity
ratios
The historical median values are calculated on the basis
of financial data obtained from the annual financial
reports 2014-2016 filed in the Chamber of Commerce
public registers the projected median values for 2017
and 2018 are the result of the analysis of this study
There are even more significant differences in
positioning between industries regarding NFDEBITDA
and NFDEquity ratios when compared to growth rate
and EBITDA margin differences
Generally in the observed period there is no evidence of
significant changes among industries considering their
relative positioning related to NFDEBITDA and NFD
Equity ratios
In 2018 we expect accommodation and food services
and information and communication services to
maintain top positions already reached in 2016 and
presumably confirmed in 2017
Exhibit 35 NFDEquity and NFDEBITDA by industry
2016E2017F2018
Median=37
Median=08500
030 5 070 9 111 3
20
30
40
50
60
70
10
A=Agricolture B=Mining and quarrying C=Manifacturing D=Electricity and gas E=Water supply F=Construction G=Wholesale and retail trade H=Transporting and storage I=Accomodation and food service J=ICT
EH
C
BF
G
A
D
J
I
A 150101113081112149151120
079131
123075088101097125123103
072079
114067083052090108119102
067076
113060080045089096114092
074069
125076080045089106109086
050060
127072080044091
108084
051056
128067079043093106107081
051051
BCDEFGHIJ
NFDEquity
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
A 597219280305251301338250
153260
676394388342298453499349
254337
707482387293277498532337
277334
696392373254305484494308
231315
747401358330285544483294
183312
722390340341280511470290
178293
710380310329272492452281
177289
NFDEBITDA
BCDEFGHIJ
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
Source Cerved database and Cerved Rating Agency elaboration
106
31
Exhibit 36 Equity ratio by industry
Average 2000-2007 2014 2015Average 2008-2013 2016
Source Cerved database and Cerved Rating Agency elaboration
05
10
20
30
15
25
3540
5045
AB C DE FG HI J
Exhibit 37 EBITDA interest coverage by industry
Average 2000-2007 2014 2015Average 2008-2013 2016
Source Cerved database and Cerved Rating Agency elaboration
0
5
10
20
15
AB C DE FG HI J
A 1113140911151211
1408
1013131012131209
1208
1114151012131311
1309
1214151012151312
1309
1215161113161412
1409
BCDEFGHIJ
Liquidity ratio Median2000-07
Median2008-13 2014 2015 2016
A 0377677447858463
8960
0332
8145524536
4832
0342486042273848
3246
0537606853395765
4069
0743676559416378
5882
BCDEFGHIJ
ROE Median2000-07
Median2008-13 2014 2015 2016
Table 7 Liquidity ratio by industry Table 8 ROE by industry
Source Cerved database and Cerved Rating Agency elaboration
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
32
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Agriculture
Considering the recent price decline for agricultural
products putting EBITDA margin under pressure for
most of the industry participants we anticipate a slow
revenue growth in 2018 We also foresee more stable
margins in 2018 and investments to continue at a faster
pace in the near future mainly aimed at transforming the
agricultural activities into a high-tech industry Climate
and cultural changes are the main exogenous risks that
may negatively influence the sector
Mining and quarrying
Over the last few years the mining industry has been
challenged by record low metal prices and this has
resulted in a weak growth of supply and a cut in
investments especially in the new mines opening We
foresee a modest revenue growth in 2018 supported
by more stable prices rather than by government
infrastructural investments Margin pressure will remain
mostly unchanged in 2018 We do not expect a significant
increase in capital expenditure for most companies
while only a minority of industry participants will invest
in new capacities searching for new growth opportunities
by introducing new higher margin outputs Overall we
anticipate relatively stable key financial indicators
Manufacturing
We believe that in 2018 Italian manufacturing
representing 2nd European and 7th world player in 2016
will remain the beating heart of the national economy
In our view the expansion of internal demand the
improvement of business and customer confidence and
the wider export opportunities are the key drivers for
revenue growth (up to nearly 30) Despite the natural
selection the occurred during the economic recession
domestic competition and especially the competition
from lower income countries will remain challenging in
2018 creating further profitability pressure especially in
some highly fragmented segments
As a conditio sine qua non for market survival many
companies will be involved in a ldquowinning the innovation
gamerdquo process translated into a considerable capex
expenditure directed at process optimization which
inevitably must be accompanied by innovative marketing
and commercial strategies The companies especially
smaller ones which are not ready lsquoto play the gamersquo
remaining risk averse are likely to fall behind
Key financial indicators referring to the industry in terms
of net financial debt to equity and net financial debt to
EBITDA are likely to remain overall stable in 2018
In our view the best performing manufacturing industries
in 2018 will be the following
Automotive
extensive vehicles replacement process in 2018
high competition pressure China maintaining a key role
high level of innovation in mobility and connectivity
new strategic partnerships and MampAconservative stand towards EBITDA margin improvement
Chemistry amp Pharmaceutics
solid macroeconomic fundamentals will support
the revenue growth driven mainly by large companies
on average a stable EBITDA margin of about 10
is expected global presence is a must to achieve higher
level of profitability
RampD remain key factors for further market expansion
moderate level of MampA operations in 2018 slowing
down when compared to those carried out in the
previous year
Machinery amp Equipment
revenue growth in 2018 up to nearly 25 reflecting
the fact that all manufactures remain focused on RampD
and NPI (new product introduction)
cost management strategies are going to persist
but generally speaking with no significant impact on
EBITDA margin in 2018
heavy equipment manufactures still under pressure in
2018 to provide engineering capability and capacity
33
Energy and gas
Italian companies operating in the energy industry are
facing a complex market environment with many open
questions about risks related to regulations a drop
in consumption high competition levels and EBITDA
erosion
Generally we expect a more stable landscape in 2018 in
terms of commodity prices and consumption However
risk regarding prices and volumes will remain strong
resulting in a higher volatility of revenues In our view
the current margin pressure is unlikely to ease over the
next two years The final overcoming of the sondashcalled
ldquoMaggior Tutela Regimerdquo may lead to almost zero margin
for the retail operators We expect industry participants
to continue to focus their attention on cost efficiency and
on protecting profitability by embracing new business
models and examining the role that digital technology
can play in improvement of EBITDA margins We believe
that the above described strategies will be a central
topic for the operators intending to attract capital We
also believe that energy producers could see a slight
debt increase in 2018 aimed at improving productivity
and synergies Finally in 2018 we envisage a significant
number of MampA operations in the sector led by synergy
effects such operations might produce
Water supply waste management and sewerage
In recent years the water supply waste management
and Italian sewerage industry has recorded a slower
growth compared to the pre-crisis period However
due to the last two yearsrsquo important investments in the
water infrastructure waste sorting and recycling Italy
ranks as one of the top European countries in terms
of growth rate of recycling and packaging recovery
We believe that the expected general increase in
industrial output will produce a slight growth in water
consumption and waste treatment The demand for
sustainable solutions will continue to persist requiring
new investment in technologies based on a customer-
centric and sustainable approach aimed at improving
efficiencies and facilitating reuse Expectations also
reflect our view in terms of wider government interest
and spending in this industry We expect profitability
to remain broadly in line with the results obtained in
2016
Construction
After a weak increase in revenues recorded by the
construction industry operators in 2016 and the
modest result anticipated in 2017 both reflecting
a deteriorating demand and decreased volumes of
bank loans (mainly those for small and medium-
sized companies) we expect 2018 to be the turning
point for this industry We foresee that the volume of
residential and private non-residential constructions
will remain at relatively low levels in 2018 and that
the positive trend in housing renovation and public
works investments will continue taking advantage of
the allocated funds established by the Budget Law for
2017 Small and medium-sized businesses focused on
residential construction may face a slight profitability
erosion while we believe some growth in EBITDA
margin may be recorded by large Italian companies
operating internationally Due to the high perceived
risk historically there has been a strong financial
market mistrust of the construction companies which
we believe is likely to ease over the coming years
Wholesale and retail trade
During the crisis period wholesale and retail trade
industry faced a sudden interruption of the gradual
growth that had taken place up to that moment mainly
due to a loss in real purchase power and in consumer
confidence also translated into profitability erosion
In 2016 the data showed how the industry is moving
toward a recovery period Looking forward in 2018 we
expect to record a steady revenue growth supported
by an increase in global trade and improved consumer
confidence Despite the foreseen growth operators
will continue to face consistent pressure mainly in the
retail segment due to the high proliferation of new retail
purchase channels and market fragmentation
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
34
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Transportation and Storage
After a troubled 2016 characterized by an overcapacity
and a decrease in commodity demand hitting shipping
revenues in particular we foresee a moderate overall
recovery in 2018 driven mainly by an increase in
international shipments and air traffic The growing
number of innovative startups will continue to persist
increasing the competitive pressure in the industry We
anticipate a constant growth of e-commerce enabling a
quick reaction of on-line retailer and logistics providers
We believe that operators will continue to invest in
new high-tech solutions experimenting new models of
mobility and smart logistics
Despite very strong competition we expect the median
operating margins to remain steady However global
political uncertainties and related risks are strong with
possible quick and sharp negative impact on business
volumes and margins of the companies operating in
these industries
Accommodation and food services activities
In the last two years operators in the accommodation
and food service activities industry mainly medium
and small sized enterprises have seen steady revenue
growth and satisfactory profitability ratios Many
operators were focused on reviewing their business
models and offering additional services to their
customers a necessary strategy to maintain or expand
market positioning strengthen margins and improve
customer experience We expect the revenue growth
to continue in 2018 with a minimal median margin
improvement We believe accommodation and food
service activities will attract new capital investments
in 2018 to help the ongoing transformation process
and improve the accommodation infrastructure and
services
Information and communication technologies
The Italian information and communication technology
industry took longer to recover from the economic
crisis recording overall a negative median growth
rate until 2014 Software services and innovation
technology were the major contributors to revenue
growth (as a percentage) in 2016
Over the forecast period we foresee a modest revenue
growth for the ICT operators as a whole while the
technology industry will continue to achieve rapid
growth focusing on maintaining the competitive pace
of innovation In our view a key challenge for the ICT
operator may be the availability of matching skills
The outlook is relatively stable in terms of profitability
and key financial indicators
The following two pages show the details of the
previously discussed key performance indicators
35
Exhibit 38 Growth rate and EBITDA margin manifacturing sectors
-70- 50 -30 -10 103 0
2016E2017F2018
50 70 90
Median=76
Median=3000
20
40
60
80
100
120
1=Automotive 2=Chemistryamppharmaceutics 3=Clothing 4=Equipment 5=Food beverage and Tabacco 6=Heavy Manifacturing 8=Paper and Packaging 9=Tecnology and Telecomunication 10=Textile industry
6
10 5
3
8
91
74
2
50AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
57599586886358
3849
3620083721
-110320
-1112
210322
-1814021122
1413
030124
-5010284025
0555
20-4614
-4607212105
0430
210328-2310203218
0832
2310300512233720
1637
Growth rate Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
EBITDA margin Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
Source Cerved database and Cerved Rating Agency elaboration
625296
1441401016934
15352
504969
103121
916227
10639
4764676185562639
68112
487368
7090592845
75120
456772
9288562845
7898
4667759090573147
7698
4668769394583147
77102
1=Automotive 2=Chemistryamppharmaceutics 3=Clothing 4=Equipment 5=Food beverage and Tabacco 6=Heavy Manifacturing 8=Paper and Packaging 9=Tecnology and Telecomunication 10=Textile industry
2016E2017F2018
Median=30
700
600
500
400
300
200
100
000000 020 040 060 080 100 120
Median=08
Exhibit 39 NFDEquity and NFDEBITDA for manifacturing sectors
2
4 8
101
9
9
3
57
Source Cerved database and Cerved Rating Agency elaboration
096AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
104146095152117112109
098087
087080116068118083088086
084078
075074104069107082080079
084083
072064100065105084122081
079081
082066104065105080091079
077082
081067103065105079087079
077081
076067101064104077083078
076080
NFDEQUITY Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
227AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
258334222397249255259
315202
338313443305495363403412
480337
315306436328479373380397
482316
264269490303467366403383
515317
269243507090106127090106
106106
413343478088105127088105
105105
399333465086104127086104
104104
NFDEBITDA Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
36
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Exhibit 40 Growth rate and EBITDA margin for wholesale and retail trade sectors
20 40 60 80 100 120 140 160
2016E2017F2018
Median=31
Median=33
0000
20
10
30
60
50
70
1=Automotive 2=Retail 3=Wholesale
40
3
12
2016E2017F2018
Median=45
700
600
500
400
300
200
100
000050 070 090 110 130 150 170 190
Median=11
Exhibit 41 NFDEquity and NFDEBITDA for wholesale and retail trade sectors
1=Automotive 2=Retail 3=Wholesale
21
3
37
Ratings will remain broadly stable
The following section presents a risk profile analysis
based on Cerved Rating Agencyrsquos outstanding and
monitored public and private ratings issued from
2013 to 2017 on Italian non-financial companies
and operating in the industries discussed in this
study (data as of 31 December)
Exhibit 42 and Table 9 show an overview of 1-year
effective default rates over the 2000-2017 horizon
related to the sample bankruptcy and other legal
proceedings and debt restructurings as default
events
The default rate trend shows a general
improvement from 2014 onwards both by
company size classes and by industry however
considering the entire sample the overall default
rate still remains higher when compared to its pre-
crisis level especially regarding smaller companies
operating in the construction sector
Exhibit 43 shows the effective default rates over
2013-2017 horizon based on Cerved Rating
Agencyrsquos definition which considers as default
events
middot bankruptcy and other legal proceedings
middot debt restructuring
middot missed or delayed disbursement of a contractually
required interest or principal payment ie missed
payment on bonds material protests (on cheques
or trade bills) or prejudicial acts (judicial mortgages
distraint of property)
The effective default rates over the 2013-2017
horizon show decreasing trend and satisfy the
monotonicity constraint regarding all Cerved
Rating Agencyrsquos rating classes (Exhibit 44)
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2003 2004 2005 2006 2007 2014 2015 2016 20172000 2001
5678
12
3
4
0
Exhibit 42 Avarage 1-year default rate by size over 2000-2017 horizon
medium small
2008 2009 2010 2011 2012 2013
Mining and quarring
Manifacturing
Electricity gas steam and air conditioning supplyWater supply sewerage
Construction
Wholesale and retail trade repair of motorTransporting and storage
Accomodation and food service activities
Information and communication
24221809
5212
282915
2529
38533424
13027
454830
4838
36542537
15929
424421
4323
23461921
13226
293226
3022
Source Cerved database and Cerved Rating Agency elaboration
Table 9 Default rate by industry over 2000-2017 horizon
Total
NACE Average2008-2015
Average2000-2017 2016 2017
2016
Source Cerved database and Cerved Rating Agency elaboration
C21C12C11B22B21B12B11A11 A12 A13 A21 A22 A31
60
50
40
30
20
10
0
Exhibit 43 1-year default rate over 2013-2017 horizon
20172013 2014 2015
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
38
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The analysis of historical rating distributions in the
same period shows clear differences in terms of modal
rating class by company size As shown in Exhibit 43
the modal rating class for the large companies is A31
B11 for the medium and B12 for small companies
(considering company size classes as they have been
defined ad hoc by Cerved Rating Agency for the
purposes of this study)
Overall the corporate rating distribution in the
Source Cerved database and Cerved Rating Agency elaboration
C21C12C11B22B21B12B11A11 A12 A13 A21 A22 A31
30
25
20
15
5
10
0
Exhibit 44 Rating distribution frequency by size classes
large
30
25
20
15
5
0
10
medium smallRating 2013 total Rating 2017 total Rating 2017 forecast
observed period is skewed towards the investment-
grade rating categories (ie Cerved Rating Agency
rating classes from A11 to B12) representing 700 of
the whole sample 250 is concentrated in the safety
(A rating classes) and 450 in the solvency (B11-B12)
classes
We anticipate the rating distribution to remain
broadly unchanged in 2018 with the rating migration
concentrated mainly in the B category
39
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100543
2414
4407
4407
2636
4554 4558
2403 2311
535 527
90
10
0
Exhibit 45 Rating distribution frequency by area of risk - Total companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency]I nvestment GradeA11-A31 [Safety]
2509 2604
704 4407706 4407716
324
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
985
5658
4407
3033 2992 2898
925 907
300 318
90
10
0
Exhibit 46 Rating distribution frequency by area of risk - Large companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
5783 5878
869 4407878 4407878
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
4407
4407
3626
4080
17591695
439 449
90
10
0
Exhibit 47 Rating distribution frequency by area of risk - Medium companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
3571 3776
7044407780 4407786
456
1805
774
4113 4232
603
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
2824
1900
4407
4673 4850 4761
2833 2754
600 633
90
10
0
Exhibit 48 Rating distribution frequency by area of risk - Small companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
1716 1852
657 4407657 4407661
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
40
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Slight improvement in general creditworthiness
In our opinion in 2018 the creditworthiness of the
observed Italian non-financial companies will remain
stable for almost 86 of entities Migration of ratings is
expected to be moderate resulting in approximately 14
of rating upgrades (9) and downgrades (5) at the end
of 2018 compared to the outstanding ratings at the end
of 2017 The vast majority of the rating changes (921)
will be limited to one-class migration as shown in the
1-year projected transition matrix (Table 10) We believe
that more than one third of the expected downgrades
will be concentrated in the energy gas mining and
construction sectors Over the last years the average
credit profile of companies active in these industries has
been relatively weak and due to the forecast market and
regulatory conditions we do not envisage opportunities
for a significant risk profile improvement in 2018
Despite the expected rating migrations for individual
entities in 2018 the current industry modal rating
classes are unlikely to change
On the other hand stable and positive outlooks will
prevail in the manufacturing industry wholesale and
retail trade and accommodation and food service This
is due to the increase in the number of companies
active in these sectors which will maintain andor
improve their business and financial performances
Indeed as shown in Table 11 in 2018 the rating outlook
remains differentiated by industry whilst in terms of
the expected general probability of default we foresee
a modest improvement (349) compared to the one
recorded in 2017 (366)
Table 10 1-year transition matrix
Source Cerved database and Cerved Rating Agency elaboration
2017
A11
A31
B11
C11
C12
B21
C21
B22
B12
A12
A13
A21A22
F 2018A11 A12 A13 A31 B11 C11 C12B21 C21B22B12A21 A22
000 530
066
054 451034 435
027 753055 901
1033121247 1624
260 1038088
000
000000037
028
295
290
1063
179
455050647
043425
026490020208
000208
000152
000000
00000010000
9821
9318
92679015
87708583
81497646
8665
9617
9710
8605
419024
41
The information and data supporting Cerved Rating Agency rating opinions related research and credit opinions originate from sources Cerved Rating Agency considers to be accurate however Cerved Rating Agency cannot independently verify the reliability and accuracy of the information and data in every instance This publication may not be reproduced retransmitted or distributed in any form without the prior written consent of Cerved Rating Agency Cerved Rating Agency assumes no liability for correctness completeness and topicality of the information contained in this publication The analyses underlying this study do not provide advice of any sort
26
n
6670
486
59
Exhibit 49 Ratings outlooks by size
Large
Medium Positive Stable Negative
Small
21
13
Large
Medium
Small
Source Cerved database and Cerved Rating Agency elaboratio
Table 11 Ratings and probability of default 2018 outlook by industry
Source Cerved database and Cerved Rating Agency elaboration
NACE Micro industryDowngrade
B-Mining and quarryingAutomotive
900814
848
812
880812
847
813 172
170
174
144
8264 36
08
104 433 436
392 373
22724815
362 360
876
876
914
848
849
804
887
882
916
901835870899 64
866760
43
68
5659
58
47
61
49
74
78 75
14
50
37
36
5393
32
50
41
45
3899
77
91
316
372
355
364
308
491
326
318 296
331
312
381
367
359
322
495
452
433
403429
389
364369
363
313
452
323
594
38
315358
603
307
345 350
67 5318
469289 274
470
147
116
138
851
821AutomotiveRetail
Wholesale
Total
Chemistryamppharmaceutics
ClothingEquipment
Food Beverage and Tabacco
Heavy Manifacturing
Other Manifacturing
Textile industry
Total
Tecnology Media ampTelecomunication
Paper Packaging ampForest products
C-Manifacturing
D-Electricity gas steam and air conditioningsupply
F-Construcion
H-Transportig and storageI-Accommodation and food service activitiesJ-Information and communication
G-Wholesale and reatail traderepair of motor vehicles and motor-cycles
E-Water supply sewerage waste
Average ForecastPD 2018
Expectedtrend
Average PD 2018
Ratings outlooks
Stabl pgrade
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Cerved Rating Agency SpAVia dellrsquoUnione Europea n 6A-6B20097- San Donato Milanese (MI)
Tel +39 02 77541 - Fax +39 02 76020458
ratingagencycervedcom
Rating Agency
15
Number of bankruptcy and other legal proceedings to decrease further
From 2000 to 2016 the number of bankruptcies and
other legal proceedings protests and prejudicial
acts in Italy mirrored the general trend of the
Italian economy
After reaching its minimum level in 2007 (5969)
the number of bankruptcy procedures in the
period 2009-2014 increased dramatically reaching
its peak value of 15608 in 2014
With the improvement in the economic and financial
environment starting from 2015 the number of
bankruptcy procedures decreased sharply in all
macro sectors returning approximately to the
levels recorded from 2000 to 2006 A positive
trend was recorded also in 2017 bankruptcy
procedure initiated for 11937 companies -113
when compared to the same period in 2016 In
absolute terms the highest number of bankruptcy
procedures was recorded in the service sectors
followed by the construction and manufacturing
Worth mentioning is the design of a new Italian
bankruptcy law that should be approved by
October 2018 The regulatory framework aims at
more efficient resolutions of cases of company
crisis supporting continuity of its operating
activities and safeguarding the interest of creditors
by introducing innovative solutions such as pre-
crisis warning mechanisms
Other legal proceedings after reaching its
maximum level in 2013 (3593) in 2016 came down
to 1993 and the trend continues in 2017 evidencing
1866 procedures -64 when compared to the
same period in 2016
In the last five years new protests and prejudicial
acts have also shown a decreasing trend with
ndash527 and ndash70 of acts respectively in 2017
compared to the numbers recorded in 2013
-6
Exhibit 13 Bankruptcy
BankruptcySource Cerved databaase
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
10729 108311163612287
10338
59697307
9189
1108812022
12437
14031
1560814682
13459
11937
Other legal procedingsSource Cerved database
1500
1000
500
02000
940 994 1125 1211
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
2500
3500
3000
4000
2000
1110
16691540
18702094 2057
2342 2475
3593
3132
2720
1993 1866
Exhibit 14 Other legal procedings
1211
100 45000
4000090
80
70
60
50
40
30
20
10
02015
35000
30000
25000
20000
15000
10000
5000
02013 2014
Protets
703
297
41438
Total
Source Cerved database
Prejudicial acts
2016 2017
665
335
34527
570
43032660
527
473
546
454
2523828929
Exhibit 15 Protests and prejudical acts
CERVED RATING AGENCY SpA | Highlights on italian economy
16
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Core inflation rate to rise
Italian headline inflation will experience a modest
decline in 2018 compared to the previous year
(12 and 14 respectively) Core inflation
however is predicted to increase to 12 in 2018
(up from 10 in 2017)
Exports and import are accelerating
Exports and imports will both accelerate in 2018 (41
and 44 respectively) mirroring the positive trend
and expectations in global trade and the rising of the
external demand Machinery and equipment industry
will still remain in ldquopole positionrdquo due to companies
generous investment and tax incentives In general
in 2018 Italian exports will increase more in the Extra
European Union countries
Investment continues to gain strength
Investment has gained strength and will continue to
do so at a relatively fast pace supported by effects of
the tax incentives (Stability Low 2017) low interest rate
and improvements in business confidence Indeed
investments are expected to increase 30 in 2018
(up from 24 in 2017) Construction investments are
forecast to accelerate slightly also thanks to more
resources earmarked for public investment
Harmonised core infation
Source OECD and IMF
2003 2006 20092000 2012 2015 F2018
2
1
-1
0
4
3
5
6
Exhibit 16
Imports of goods and services (Y-o-Y change)
Exports of goods and services (Y-o-Y changes)
Total dometic demand (Y-o-Y change)
Source OECD and IMF
20062000 2015 F2018-5
-15
-20
5
0
-10
10
15
Exhibit 17 Exports imports and demand Italy
20122003 2009
Wholesale and retail trade (Y-o-Y change)
Total investments ( of GDP)
Heavy industry (Y-o-Y change)
Other services (Y-o-Y change)
Source IMF and ISTAT
Construction (Y-o-Y change)
20062000
-20
-30
10
0
-10
20
30
20
25
15
10
0
5
F2018
Exhibit 18 Investments by industry Italy
2003 2009 2012 2015
17
No room for significant public debt reduction
At the end of 2016 the Italian government debt-to-GDP
ratio was significantly above its level at the beginning of
the century In particular as of December 31st 2016 the
ratio was 1326 (262 with respect to 100 recorded
at the end of 2000)
In the same period the ratio for the euro area increased
from 681 to 913 (341) in Germany from 589 to
683 (159) and in France from 586 to 960 (638)
At the end of 2017 the Italian government debt increased
further to more than euro2300 billion 1350 of GDP The
debt servicing in terms of interests accounts roughly
50 of Italian GDP
In our view the high level of government debt
represents a key factor limiting Italian economic growth
and contributes eo ipso to increasing country risk
with a possible negative impact on the stability of the
international financial system
A possible increase in interest rates would raise the
cost of debt service potentially triggering a crisis due to
larger governmental deficits a slowdown in economic
activity and growing debt refinancing difficulties due to
higher risk perceived by investors
Hence it seems that a significant reduction in
government debt should be the main goal of the Italian
economic and financial policy in our opinion however
the achievement of such a result is not realistic neither
in the short nor in the medium term due to the following
factors
middot economic growth in the coming years is expected
to be moderate not sufficient to be the main source of
the government debt reduction
middot macroeconomic policy is expected to prioritize
investments employment social security and welfare
rather than government debt reduction
middot even if the inflation rate hits the target value (20) the
impact on the government debt in the short term is not
expected to be considerable
middot finally in Italy election will take place in spring 2018
with a new government taking over the economic
program that has already been approved and become
fully executive
Euro area
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 2012 2013 2014 2015 20160
20
40
60
80
100
120
140
Exhibit 19 Public debt as GDP
France
Source AMECO and Cerved Rating Agency elaboration
CERVED RATING AGENCY SpA | Highlights on italian economy
18
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Table 1
Amount ( 407 312
-327
327754
216074 190881
163248 345604188167
869
1543
2213
1793
CAGR (base year 2000)
CAGR (base year 2008)
NPL ratio ()
Ndeg debtors
Averae debt debtor
Valueindicator 2000 2008 2016
Source Bank of Italy and Cerved rating Agency elaboration
Credit activity to be expanded interest rates to remain at very low levels
As of December 31st 2016 the volume of bank loans
granted to Italian non-financial corporations amounted to
euro8604 billion
The period 2000-2016 was characterized by two different
trends from 2000 to 2011 the annual outstanding loans
value increased by 841 (euro454 billion reaching in 2011 its
highest level ever of euro993 billion thanks to 57 CAGR far
above the Italian GDP growth) whilst in the period from
2012 to 2016 loans decreased by 134 (euro130 billion)
reflecting a negative -28 CAGR The loan reduction hit
sharply construction and manufacturing (accounting
for about 400 of all loans) which experienced -227
and -135 decrease in loan volumes whilst agriculture
forestry and fishing and wholesale and retail trade
(including repairs of motor vehicles and motorcycles)
had more limited loan contraction (-08 and -53
respectively)
In the observed period due to the negative impact of the
global financial crisis 200708 and to structural changes in
the world economic and financial environment a radical
decrease in interest rates was recorded In 2017 the
interest rates charged to Italian non-financial corporates
were on average less than half compared to those charged
in 2000 In the medium term low interest rates will remain
a positive factor fostering investments and consumption
Non-performing loans to be further reduced due to innovative measures
The credit crunch had a huge and dramatic impact on
the Italian economy hitting especially small businesses
which are not able to survive in a radically changed market
conditions The evidence of such outcome can be seen not
only through the decreased number of active companies
but also via the enormously increased volume of the
non-performing loans (NPLs) In particular these loans
amounted to euro324 billion at the end of 2016 of which euro154
billion were granted to the non-financial corporations as
shown in table 1
Following the principles outlined in the ECB guidelines
published in March in 2017 Italian Banks made significant
progress in reducing the amount of the NPLs ndash estimated
to be over euro50 billion debt reduction Any further actions
aimed to improve the banking balance sheets should not
increase the financial hardship of still operating companies
North - East SouthNorth - West Center Islands
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 2012 2013 2014 2015 20160
1200000
1000000
800000
600000
400000
200000
NPLs ratio
Source Bank of Italy and Cerved Rating Agency elaboration
20
1816
14
1210
8
6
42
0
446393
euro billion)
19
Modest role of italian equity capital markets
Despite the number of listed companies increasing
from 297 to 421 in the period 2000-2017 the role
of the stock markets remains modest in Italy
As of December 31st 2017 the market capitalization
was euro640 billion (375 of the estimated Italian GDP
in 2017) representing only 782 of the overall
market capitalization recorded in 2000 (equal
to euro818 billion 687 of GDP) mainly due to
an unfavorable economic cycle in the observed
period
This situation shows the structural weaknesses of
the Italian economic and financial system especially
when compared to other highly developed
European economies The low propensity to
raise equity capital through organized markets
is linked to an unfavorable macroeconomic and
fiscal framework as well as to the predominance
of SMEs mostly unfit for listing and presenting
cultural obstacles (ie company owners and managers are often reluctant to accept wider company control and
transparency)
Hence self-financing and bank borrowing remain the main sources of finance for Italian companies which are
generally speaking undercapitalized with a negative impact on their investment capabilities Very frequently the
lack of medium-long term financing means forces companies to focus their attention on running current activities
postponing or abandoning strategic projects fundamental for company growth
A wide range of innovative initiatives have been undertaken with the aim of fostering market based company
funding in particular
middot AIM (Alternative Investment Market) - a specialized market segment dedicated to SMEs growth (95 companies and
market capitalization around euro56 billion as of December 2017)
middot ELITE - a programme designed to help SMEs prepare and structure for the next stage of growth their through
access to long-term financing opportunities
middot PIR - Piani individuali di risparmio (Individual Savings Plan) - an innovative way to fund Italian SMEs by offering retail
investors resident in Italy tax incentives (full exemption of 260 income tax) if the savings stay invested for at least
five years A minimum of 700 of such credit assets must be invested in financial instruments issued by Italian or
foreign (EU and EEA) companies permanently established in Italy
FTSE (MIB)Enterprises
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 20132012 20152014 201720160
100
200
300
400
500
600
700
800
900
100029681 29525
14623
1765216121
12259
13512
16048
15988
19012
21428
21853
2185322232
16954
297 294 295 279 282278 311 336 332 332 328 323 326344 342 356 387 421
19483
22886
26056
31005
Exhibit 21 Italian listed enterprised and FTSE (MIB) index trend
Source Borsa Italiana
300000
250000
200000
150000
100000
5000
0
Capitalization of GDP
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 20132012 20152014 201720160
100
200
300
400
500
600
700
800
900
1000
Exhibit 22 Italian market capitalization of listed companies ( of GDP)
Source Borsa Italiana
80
70
60
50
40
30
20
10
0
8184
5923
354 365418 473
524475
239301 275
210233
287 295348
318375
4580 4875
5809
6766
77857336
37474571
4251
3324
44664678
56765249
6400
3655
474
68
CERVED RATING AGENCY SpA | Highlights on italian economy
20
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Italian debt capital market is growing but still remains behind needs
At the end of 2016 the outstanding amount of debt
securities issued by Italian financial and non-financial
corporations was euro8615 billion 510 of the countryrsquos
GDP The table below shows the breakdown by issuer
type of Italian German French British and United States
outstanding amounts of debt securities as of December
2016 issued by financial and non-financial corporations
with the respective debt-to-GDP ratio
Despite the outstanding debt at the end of 2016 being
almost double compared to 2000 it represents only 23
of its peak value reached in 2012 (euro1290 billion Exhibit
23) The main reason for such a significant debt reduction
is the huge bond reimbursement realized by banking
institutions from 2013 to 2016 and the related negative
net flow of debt securities (respectively -80 -153 -106
and -67 billion of euro as shown in Exhibit 24)
The decrease in debt securities funding of Italian banks
has been compensated by a wider use of deposits and
resources available under the Eurosystem refinancing
operations framework
The outstanding amount of debt securities issued by
non-financial corporations at the end of 2016 also
doubled its value with respect to the amount recorded
at the end of 2000 The main characteristic of this cluster
is the high concentration of issuancesdebt to a small
number of issuers
Due to both more favourable general economic
conditions and active ECB monetary policy bond yields
have decreased significantly providing room for a
convenient fund raising
Since the introduction of a new regulatory framework
(lsquoDecreto Svilupporsquo) in 2012 up to October 2017 Italian
market saw 300 small-size listed bond issues (ie so
called minibonds) amounting approximately to euro143
billion Issued mainly by SMEs they offer interesting
yields to institutional investors
) Source Business support SpA ndash Minibonditalyit
BanksTotal
Source Bank of Italy and Cerved Rating Agency elaboration
2006 20082000
-200000
200000
250000
-150000
-100000
150000
100000
-50000
50000
02012 2014 20162002 2004 2010
Banks debt securities outstanding
Banks Debt to GDP ratio
Source Bank of Italy and Cerved Rating Agency elaboration
0
10
20
30
40
50
60
70 1400000
1200000
1000000
800000
600000
400000
200000
0201620142012201020082006200420022000
Table 2 Outstanding securities debt (euro Million)Debt-to-GDP ratio()
Financial corporates
Total
Debtsecurities
outstanding
Italy German rance United Kingdom United States
739
123
862
440 340 470
21
680380
40
1279 1331 4 50
880
30
14271
14820
549180
10202767
590
19211436
15770
510
Debtsecurities
outstanding
Debtsecurities
outstanding
Debtsecurities
outstanding
Debtsecurities
outstanding
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Source Bank of Italy
0
0
21
CERVED RATING AGENCY SpA | Highlights on italian economy
22
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Italian non-financial companies economic Outlook 2018
23
Data and method
This research focuses on Italian non-financial companies
with an annual turnover exceeding euro5 million With the
aim of using only reliable data joint stock and limited
liability companies have been considered only these
entities according to Italian law file complete annual
financial statements in the Chamber of Commerce
together with anagraphical company data other
legal forms such as unlimited partnerships and sole
proprietorships are not included in this sample due to
the lack of publicly available standardized financial data
We believe that this cutoff is reasonable and allows us to
perform a methodologically correct analysis In 2016 the
above mentioned companies despite representing only
42 of all registered and active joint stock and limited
liability companies accounted for 769 of their total
turnover
Moreover cluster specialization has been obtained by
NACE activity classification from A to J (thus not including
in the sample financial and insurance companies and
some service industries) The statistics regarding specific
industries provide important key data and enable us to
examine historical and prospective trends and cross-
sector comparisons
The Cerved database which contains legal anagraphical
financial and market information on all Italian registered
legal entities (approximately 6 million comprising 5
million active ones) was the most important database
used for this research Long time series and broad
homogenized and standardized data covering different
economic cycles were the building blocks to perform
the regression and predictive analysis
Historical and forecast macroeconomic data and
analysis performed by the International Monetary Fund
OECD the World Bank European Central Bank Bank
of Italy and ISTAT completed the dataset used for the
analysis
Several analyses were performed in order to examine
the structural differences within the sample in terms of
company legal form and geographical area (Exhibit 25)
company age (Exhibit 26) and company size and industry
As a result we verified a considerable heterogeneity of
companies in particular with regard to the company size
across various industries
The relevant observation period comprises the years
between 2000 and 2016 Table 3 describes some
characteristics of the sample
Exhibit 25 Sample break-down by legal form and geographic area (2016)
Joint stock Company
Limited liability Company
Area 1 (Northwest)
Area 3 (Center)
Area 2 (Northeast)
Area 4 (South)
39
20
27
14
33
67
33
Table 3 Sample characteristics 2000-2016
TotalTurnover
gt euro5million
Turnover gt euro5 million(industry
from A to J)
TotalTurnover
gt euro5million
ofTotal
Turnover gt
euro5 million(industry
from A to J)
Source Cerved database
Entreprises Turnover billion
2000 659867700717738558772442812025847334883122915172937018949708965744969581
953505945825922513883224
4215144587462234694749640518205596459226595385246754808563745362752074519385289450123
3686139038411864118843547454704921752274526974633848778504734806246843468384771845288
16151740177018472002212923302477256822562421257025202446243224392295
12661362139214561588169818752000208317861944208720541992198419871905
11141205124013041430152316891801189716191764191218831839183518371765
689693700
716
706714
725
718729744748752754753769
727739
200120022003200420052006
200820092010201120122013201420152016
2007
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
24
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Furthermore in order to guarantee more detailed and
accurate analyses and projections we decided to create
a static pool to show consistently long time horizon
economic trends (17 years) by sealing off all the active
companies over the 2000-2016 horizon
The outcome obtained by considering the behaviour of
specific variables related to the companies included in
the static pool was extended as a performance indicator
for the whole sample (turnover over euro5 million and
industry from A to J)
According to the European Communityrsquos definition of
SMEs using annual turnover and employee headcount
as quantitative criteria the initial sample of companies
and the static pool can be classified by size classes on
the basis of the financial statements for the year 2016
as shown in Table 4
For the sake of this analysis we defined specific size
classes for each industry thus deviating from the
European Commissionrsquos recommendation which
presents undifferentiated upper and lower bounds of
quantitative criteria for SMEs in all industries To define
the thresholds of such classes we used both a statistical
approach (a specific cluster procedure by minimizing
the within-cluster turnover standard deviation) and a
judgmental approach by relying on the experience and
opinion of our industry expert analysts Table 5 shows
the results of such analysis referring to the sample in
2016 (45288 entities) and the NACE sections from A
to J Moreover the NACE section C and G were further
disaggregated into sub-industry classes as shown in
Exhibit 27 in order to consider the specific business
differences within these NACE sections thus ensuring
a good fit and a satisfactory accuracy of the estimation
Exhibit 26 Sample break-down by company age classes
0-2 Years 2-5 Years 5-10 Years 10-20 Years gt20 YearsSource Cerved database and Cerved Rating Agency elaboration
0 20 40 60 80 100
ABCDEFGHIJ
A = AgricolutreB=Mining and quarryingC=ManufacturingD=Electricity and gasE=Water supplyF=ConstructionG=Wholesale and retail tradeH=Transporting and storageI=Accomodation and food serviceJ=ICT
Small
Annul Turnover
Empolyees
Static Pool
Enterprises(Turnover gt euro5 million)
Enterprises(Turnover gt euro5 millionindustry from A t J)
Medium Large
lt 50 lt 250lt 36774 11113
1005333223
8741
2236
2012
154818645
gt euro50 million
gt 250
lt euro50 million
Source Cerved database
NACE Micro industry
B-Mining and quarryingAutomotive
Automotive
Retail
Wholesale
T gt 480
T gt 80
T gt 260
T gt 265T gt 270
T gt 230
T gt 120
T gt 80
T gt 43
T gt 65
T gt 106T gt 106
T gt 360T gt 155T gt 150T gt 100
T gt 120
T gt 225T gt 1400T gt 27500
T gt 1500
ChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther Manifacturing
ICTTextile
Paper Packaging ampForest products
C-Manifacturing
F-Construcion
H-Transportig and storageI-Accommodation and food service activities
J-Information and communication
D-Electricity gas steam and aircoditioning supply
G-Wholesale and reatail traderepair of motor vehicles and motorcycles
E-Water supply sewerage waste management and emediation activities
Large (Turnover
in euro million)
Medium(Turnover
in euro million)
Small(Turnover
in euro million)
Source Cerved database and Cerved Rating Agency elaboration
60 lt T lt 480 5 lt T lt 60
5 lt T lt 20
5 lt T lt 36
5 lt T lt 35
5 lt T lt 44
5 lt T lt 40
5 lt T lt 20
5 lt T lt 26
5 lt T lt 250
5 lt T lt 185 lt T lt 305 lt T lt 265 lt T lt 205 lt T lt 37
5 lt T lt 335 lt T lt 40
5 lt T lt 255 lt T lt 585 lt T lt 1155 lt T lt 1005 lt T lt 27
20 lt T lt 80
36 lt T lt 26035 lt T lt 26544 lt T lt 270
40 lt T lt 230
20 lt T lt 120
26 lt T lt 80
18 lt T lt 43
250 lt T lt 1500
20 lt T lt 6537 lt T lt 29540 lt T lt 15533 lt T lt 15025 lt T lt 100
27 lt T lt 120
58 lt T lt 225
100 lt T lt 27500 115 lt T lt
30 lt T lt 10626 lt T lt 106
25
Exhibit 28 shows the breakdown of macro industries
analysed including disaggregation of the NACE section C
(manufacturing) and G (wholesale and retail trade repair
of motor vehicles and motorcycles)
In order to carry out the analysis and projections this study
is focused on we used simple multiple linear regression
model for each industry and company size classes
considering macroeconomic and individual companiesrsquo
economic and financial data
The analysis enables us to develop an econometric
model used to estimate likely credit quality changes (in
terms of rating class and probability of default) for single
industries and company size classes
Automotive
Retail
Wholesale
21
1366
1
42
1
26
35
232
6
A B C D
F G H I
46
7
21
1318
9
15
34
Automotive
Chemistry amp pharmaceutics
Clothing
Equipment
Food Beverage and Tabacco
Heavy Manifacturing
Other Manifacture
Paper Packaging amp Forest Products
ICT
Textile industry
Large SmallMedium
Source Cerved database and Cerved Rating Agency elaboration
0
Wholesale
Retail
Automotive
20 40 60 80 100
Automotive
Chemistry amp pharmaeutics
Clothing
Equipment
Food beverage and Tabacco
Heavy Manifacturing
Other Manifacturing
Paper Packaging amp Forest Products
ICT
Textile
0 20 40 60 80 100
ABCDEFGHIJ
0 10 30 40 60 70 80 90 100
Exhibit 28 Sample break-down by industry (2016)
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
26
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Performance indicators to improve further
The annual financial statements available through public
registers provide a clear economic and financial picture
of the Italian joint-stock and limited liability non-financial
companies The individual historical data available from
2000 to 2016 enriched with 2017 preliminary results and
with the expected 2018 macroeconomic scenario enabled
us to build up the 2017 and 2018 projections regarding
the following four performance indicators related to the
analyzed sample 1) growth rate - revenues YoY change
2) EBITDA margin 3) net financial debtEBITDA and 4) net
financial debtEquity Afterwards the median values of the
resulting data were used to obtain the summary output
which we consider as a representative proxy for the overall
market
From 2000 to 2016 the observed companies experienced
a very irregular trend both in terms of growth rate and
EBITDA margin In the aftermath of the global financial crisis
the lowest growth rate value (-120) was recorded in 2009
manufacturing transporting - storage and wholesale and
retail trade were the industries showing the biggest fall of
business volume (-155 -121 and -104 respectively)
whilst water supply accommodation and food service and
electricity and gas showed the highest level of resilience to
the adverse economic and financial environment (-01
-23 and ndash26 respectively) Exhibit 29 shows that in
terms of median value there are no significant differences
in the growth rate taking into consideration company size
classes as we previously defined them Only from 2010 the
growth rates turned positive but still remaining below the
levels recorded in 2000
The analysis of the EBITDA margin changes in the same
period also does not highlight significant differences
between large companies and SMEs as shown in Exhibit
30 The lowest median EBITDA margin value (52) was
recorded in 2012 regarding in particular accommodation
and food service transporting and storage and agriculture
sectors (28 40 52 respectively) while electricity
and gas ICT and water supply were relatively immune to
the unfavorable economic and financial circumstances
(showing 113 109 and 105 EBITDA margin
respectively) At the end of 2016 the median EBITDA margin
(60) still remains below the levels recorded in 2000 (72)
Positive trends emerging from the last publicly available
financial statements (2016) the 2017 preliminary results
and the optimistic macroeconomic forecasts for 2018
confirm improvement of the Italian economy Looking
ahead we expect the Italian non-financial companies to
continue to experience gradual recovery in 2018 They are
going to take advantage of the favorable global economic
cycle low interest rates and supportive regulations that
inter alia foster the use of alternative non-bank financial
sources for company funding The financial resources raised
through Individual Savings Plans (PIR ndash Piani individuali di
risparmio) introduced by the 2017 Budget Law are driven
in primis by a favorable tax regime for savers and might
become an important additional source for SMEs funding
injecting new liquidity The government objective fixed euro68
billion as a target value and in 2017 nearly euro10 billion had
already been raised
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2004 2006 2014 20162000
5
20
10
0
15
-15
-10
-5
Exhibit 29 Growth rate (revenue YoY change) by size classes (median)
medium small
2008 2010 2012
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2004 2006 2008 2010 2012 2014 20162000
7
10
9
8
6
5
4
3
7
10
9
8
6
5
4
EBITDA margin by size classes (median)
medium small
27
So far one of the main obstacles PIR are facing is the limited
number of available assets which may lead to a possible
concentration of this financial resources in a small share of
the market comprising mainly relatively large companies
as shown by the early data in 2017
Another obstacle to rapid adoption of the newly available
financial resources is the lack of a standardized and broadly
accepted methodology for the risk assessment of potential
bond issuers
Generally speaking in 2018 we expect SMEs to contribute
more significantly to growth employment and innovation
whilst on average the respective EBITDA margin will remain
broadly stable (as shown in Exhibit 31) However 2018 will
still be a challenging year for SMEs and innovative startup
companies as they will have to face tougher barriers in
accessing bank credit andor approaching capital markets
compared to large companies We also expect some new
innovative solutions aimed at meeting SMEs financial needs
to become effective the SMEs current financial structure
together with new business opportunities prove their
ability in terms of rational use of the additional financial
resources
The new investments will allow most industries to thrive
also assisted by the Italian Governmentrsquos adoption of the
National Industry 40 Plan
The companies which will take up this opportunity may
improve their cash-flows even in the short-medium term
Finally companies with strong international market
positioning and large product diversification will have
stronger sales and margins growth
The key ratio values recorded from 2000 to 2016 related to
the analyzed entities show the improved financial health of
the companies proving good capability to strengthen their
equity base as shown in Table 6
Growth rate (2016)Medium
Total
Small Large
Growth rate (2018)Growth rate (2017)
Source Cerved database and Cerved Rating Agency elaboration
50
40
Exhibit 31 Growth rate and EBITDA margin forecast by size classes
EBITDA margin (2016)EBITDA margin (2018)
EBITDA margin (2017)
40
30
0
10
20
Medium
Total
Small Large
7570
65
0
6 5560
5550
4540
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
28
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The recorded financial ratios in the 2000-2016 horizon
indicate that on average
middot liquidity maintained a satisfactory level in the whole
observed period due to the positive economic cycle in
2017 and 2018 we expect a slight improvement in the ratio
middot the EBITDAinterest coverage ratio almost doubled its
value in 2016 compared to what was recorded in 2000
primarily due to a general reduction in the interest rates
particularly in the last three years we believe that in 2017
and 2018 the average ratio value will remain roughly at the
same level recorded in 2016
middot in 2016 ROE shows further improvement but is still
slightly lower compared to the value recorded at the
beginning of the observed period mainly due to the equity
base strengthening trend
middot Equity Ratio rose from 250 to 350 due to a significant
increase of equity capital in 2018 we expect further
strengthening of the ratio
middot Financial LiabilitiesTotal Assets ratio remained mostly
unchanged ndash financial debts representing roughly 30 of
the total assets
A positive trend regarding the net financial debt was also
observed in fact in 2016 70 of the sample improved their
NFDEBITDA and 73 the NFDEquity
Positive performances were found especially in the SMEs
segment as shown in Exhibit 32 in particular referring to
NFDEquity small and medium-sized companies recorded
a positive trend standing respectively at 092 and 089 in
2016 compared to 132 and 136 in 2000
Hence the financial risk profile appears to be well balanced
leaving no room for specific concerns regarding the
prospects of the Italian non-financial companies in 2018
In 2016 the median values for the total sample referring to
NFDEquity and NFDEBITDA remained respectively at 089
and 389 levels respectively
Looking ahead we expect these indicators to remain at
healthy levels in 2017 and 2018 with a slight improvement
in NFDEBITDA and a broadly stable level of the NFDEquity
ratio as shown in Exhibit 33
NFDEBITFA (2016) NFDEBITFA (2017)NFDEBITFA (2018)
40
Exhibit 33 NFDEquity and NFDEBITDA forecast by size classes
Source Cerved database and Cerved Rating Agency elaboration
404
20
25
45
35
30
NFDequity (2016) NFDequity (2017)NFDequity (2018)
05
06
09
10
08
07
Exhibit 32 NFDEquity and NFDEBITDA by size classes (median)
largemediumsmall
2016
2015
2014
000 5 10 15
Average2008-2013
Average2000-2007
total largemediumsmall total
Source Cerved database and Cerved Rating Agency elaboration
2016
2015
2014
203 0 405 0
Average2008-2013
Average2000-2007
29
Growth and profitability improvement spanned over all sectors
Exhibit 34 shows the relative positioning of the 10
macro-industries in the short-medium term considering
the median values related to revenue growth rate and
EBITDA margin
The historical median values are calculated on the basis
of financial data obtained from the annual financial
reports 2014-2016 filed in the Chamber of Commerce
public registers the projected median values for 2017
and 2018 are the result of the analysis of this study
As expected there are significant differences in
positioning between different industries in terms of
both historical and projected values
In 2018 we expect manufacturing and accommodation and
food services to maintain top positions already reached in
2016 and 2017
For the electricity gas mining and quarrying industry
2018 may be the turning point showing the first positive
signals after experiencing some difficulties over the last
few years
None of the other industries show significant changes in
2018 compared to their 2016 positioning
Source Cerved database and Cerved Rating Agency elaboration
A 50
57599586886358
3849
3620083721
-110320
-1112
210322
-1814021122
1413
030124
-5010284025
0555
20-4614
-4607212105
0430
210328-2310203218
0832
2310300512233720
1637
BCDEFGHIJ
A 625296
1441401016934
15352
504969
103121916227
10639
4764676185562639
68112
4873687090592845
75120
456772928856
45
7898
4667759090573147
7698
4668769394583147
77102
EBITDAmarigin
BCDEFGHIJ
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018Growthrate
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
Exhibit 34 Growth rate and EBITDA margin by industry
-70 -50 -30 -10 10 30
2016E2017F2018
50 70 90
Median=68
Median=2100
20
40
60
80
100
120
A=Agricolture B=Mining and quarrying C=Manifacturing D=Electricity and gas E=Water supply F=Construction G=Wholesale and retail trade H=Transporting and storage I=Accomodation and food service J=ICT
D
B
E
FHA G
C
I
J
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
30
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Further strenthening in companiesrsquo financial structure
Exhibit 35 shows the relative positioning of the 10 macro
industries in the short-medium term considering the
median values related to NFDEBITDA and NFDEquity
ratios
The historical median values are calculated on the basis
of financial data obtained from the annual financial
reports 2014-2016 filed in the Chamber of Commerce
public registers the projected median values for 2017
and 2018 are the result of the analysis of this study
There are even more significant differences in
positioning between industries regarding NFDEBITDA
and NFDEquity ratios when compared to growth rate
and EBITDA margin differences
Generally in the observed period there is no evidence of
significant changes among industries considering their
relative positioning related to NFDEBITDA and NFD
Equity ratios
In 2018 we expect accommodation and food services
and information and communication services to
maintain top positions already reached in 2016 and
presumably confirmed in 2017
Exhibit 35 NFDEquity and NFDEBITDA by industry
2016E2017F2018
Median=37
Median=08500
030 5 070 9 111 3
20
30
40
50
60
70
10
A=Agricolture B=Mining and quarrying C=Manifacturing D=Electricity and gas E=Water supply F=Construction G=Wholesale and retail trade H=Transporting and storage I=Accomodation and food service J=ICT
EH
C
BF
G
A
D
J
I
A 150101113081112149151120
079131
123075088101097125123103
072079
114067083052090108119102
067076
113060080045089096114092
074069
125076080045089106109086
050060
127072080044091
108084
051056
128067079043093106107081
051051
BCDEFGHIJ
NFDEquity
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
A 597219280305251301338250
153260
676394388342298453499349
254337
707482387293277498532337
277334
696392373254305484494308
231315
747401358330285544483294
183312
722390340341280511470290
178293
710380310329272492452281
177289
NFDEBITDA
BCDEFGHIJ
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
Source Cerved database and Cerved Rating Agency elaboration
106
31
Exhibit 36 Equity ratio by industry
Average 2000-2007 2014 2015Average 2008-2013 2016
Source Cerved database and Cerved Rating Agency elaboration
05
10
20
30
15
25
3540
5045
AB C DE FG HI J
Exhibit 37 EBITDA interest coverage by industry
Average 2000-2007 2014 2015Average 2008-2013 2016
Source Cerved database and Cerved Rating Agency elaboration
0
5
10
20
15
AB C DE FG HI J
A 1113140911151211
1408
1013131012131209
1208
1114151012131311
1309
1214151012151312
1309
1215161113161412
1409
BCDEFGHIJ
Liquidity ratio Median2000-07
Median2008-13 2014 2015 2016
A 0377677447858463
8960
0332
8145524536
4832
0342486042273848
3246
0537606853395765
4069
0743676559416378
5882
BCDEFGHIJ
ROE Median2000-07
Median2008-13 2014 2015 2016
Table 7 Liquidity ratio by industry Table 8 ROE by industry
Source Cerved database and Cerved Rating Agency elaboration
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
32
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Agriculture
Considering the recent price decline for agricultural
products putting EBITDA margin under pressure for
most of the industry participants we anticipate a slow
revenue growth in 2018 We also foresee more stable
margins in 2018 and investments to continue at a faster
pace in the near future mainly aimed at transforming the
agricultural activities into a high-tech industry Climate
and cultural changes are the main exogenous risks that
may negatively influence the sector
Mining and quarrying
Over the last few years the mining industry has been
challenged by record low metal prices and this has
resulted in a weak growth of supply and a cut in
investments especially in the new mines opening We
foresee a modest revenue growth in 2018 supported
by more stable prices rather than by government
infrastructural investments Margin pressure will remain
mostly unchanged in 2018 We do not expect a significant
increase in capital expenditure for most companies
while only a minority of industry participants will invest
in new capacities searching for new growth opportunities
by introducing new higher margin outputs Overall we
anticipate relatively stable key financial indicators
Manufacturing
We believe that in 2018 Italian manufacturing
representing 2nd European and 7th world player in 2016
will remain the beating heart of the national economy
In our view the expansion of internal demand the
improvement of business and customer confidence and
the wider export opportunities are the key drivers for
revenue growth (up to nearly 30) Despite the natural
selection the occurred during the economic recession
domestic competition and especially the competition
from lower income countries will remain challenging in
2018 creating further profitability pressure especially in
some highly fragmented segments
As a conditio sine qua non for market survival many
companies will be involved in a ldquowinning the innovation
gamerdquo process translated into a considerable capex
expenditure directed at process optimization which
inevitably must be accompanied by innovative marketing
and commercial strategies The companies especially
smaller ones which are not ready lsquoto play the gamersquo
remaining risk averse are likely to fall behind
Key financial indicators referring to the industry in terms
of net financial debt to equity and net financial debt to
EBITDA are likely to remain overall stable in 2018
In our view the best performing manufacturing industries
in 2018 will be the following
Automotive
extensive vehicles replacement process in 2018
high competition pressure China maintaining a key role
high level of innovation in mobility and connectivity
new strategic partnerships and MampAconservative stand towards EBITDA margin improvement
Chemistry amp Pharmaceutics
solid macroeconomic fundamentals will support
the revenue growth driven mainly by large companies
on average a stable EBITDA margin of about 10
is expected global presence is a must to achieve higher
level of profitability
RampD remain key factors for further market expansion
moderate level of MampA operations in 2018 slowing
down when compared to those carried out in the
previous year
Machinery amp Equipment
revenue growth in 2018 up to nearly 25 reflecting
the fact that all manufactures remain focused on RampD
and NPI (new product introduction)
cost management strategies are going to persist
but generally speaking with no significant impact on
EBITDA margin in 2018
heavy equipment manufactures still under pressure in
2018 to provide engineering capability and capacity
33
Energy and gas
Italian companies operating in the energy industry are
facing a complex market environment with many open
questions about risks related to regulations a drop
in consumption high competition levels and EBITDA
erosion
Generally we expect a more stable landscape in 2018 in
terms of commodity prices and consumption However
risk regarding prices and volumes will remain strong
resulting in a higher volatility of revenues In our view
the current margin pressure is unlikely to ease over the
next two years The final overcoming of the sondashcalled
ldquoMaggior Tutela Regimerdquo may lead to almost zero margin
for the retail operators We expect industry participants
to continue to focus their attention on cost efficiency and
on protecting profitability by embracing new business
models and examining the role that digital technology
can play in improvement of EBITDA margins We believe
that the above described strategies will be a central
topic for the operators intending to attract capital We
also believe that energy producers could see a slight
debt increase in 2018 aimed at improving productivity
and synergies Finally in 2018 we envisage a significant
number of MampA operations in the sector led by synergy
effects such operations might produce
Water supply waste management and sewerage
In recent years the water supply waste management
and Italian sewerage industry has recorded a slower
growth compared to the pre-crisis period However
due to the last two yearsrsquo important investments in the
water infrastructure waste sorting and recycling Italy
ranks as one of the top European countries in terms
of growth rate of recycling and packaging recovery
We believe that the expected general increase in
industrial output will produce a slight growth in water
consumption and waste treatment The demand for
sustainable solutions will continue to persist requiring
new investment in technologies based on a customer-
centric and sustainable approach aimed at improving
efficiencies and facilitating reuse Expectations also
reflect our view in terms of wider government interest
and spending in this industry We expect profitability
to remain broadly in line with the results obtained in
2016
Construction
After a weak increase in revenues recorded by the
construction industry operators in 2016 and the
modest result anticipated in 2017 both reflecting
a deteriorating demand and decreased volumes of
bank loans (mainly those for small and medium-
sized companies) we expect 2018 to be the turning
point for this industry We foresee that the volume of
residential and private non-residential constructions
will remain at relatively low levels in 2018 and that
the positive trend in housing renovation and public
works investments will continue taking advantage of
the allocated funds established by the Budget Law for
2017 Small and medium-sized businesses focused on
residential construction may face a slight profitability
erosion while we believe some growth in EBITDA
margin may be recorded by large Italian companies
operating internationally Due to the high perceived
risk historically there has been a strong financial
market mistrust of the construction companies which
we believe is likely to ease over the coming years
Wholesale and retail trade
During the crisis period wholesale and retail trade
industry faced a sudden interruption of the gradual
growth that had taken place up to that moment mainly
due to a loss in real purchase power and in consumer
confidence also translated into profitability erosion
In 2016 the data showed how the industry is moving
toward a recovery period Looking forward in 2018 we
expect to record a steady revenue growth supported
by an increase in global trade and improved consumer
confidence Despite the foreseen growth operators
will continue to face consistent pressure mainly in the
retail segment due to the high proliferation of new retail
purchase channels and market fragmentation
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
34
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Transportation and Storage
After a troubled 2016 characterized by an overcapacity
and a decrease in commodity demand hitting shipping
revenues in particular we foresee a moderate overall
recovery in 2018 driven mainly by an increase in
international shipments and air traffic The growing
number of innovative startups will continue to persist
increasing the competitive pressure in the industry We
anticipate a constant growth of e-commerce enabling a
quick reaction of on-line retailer and logistics providers
We believe that operators will continue to invest in
new high-tech solutions experimenting new models of
mobility and smart logistics
Despite very strong competition we expect the median
operating margins to remain steady However global
political uncertainties and related risks are strong with
possible quick and sharp negative impact on business
volumes and margins of the companies operating in
these industries
Accommodation and food services activities
In the last two years operators in the accommodation
and food service activities industry mainly medium
and small sized enterprises have seen steady revenue
growth and satisfactory profitability ratios Many
operators were focused on reviewing their business
models and offering additional services to their
customers a necessary strategy to maintain or expand
market positioning strengthen margins and improve
customer experience We expect the revenue growth
to continue in 2018 with a minimal median margin
improvement We believe accommodation and food
service activities will attract new capital investments
in 2018 to help the ongoing transformation process
and improve the accommodation infrastructure and
services
Information and communication technologies
The Italian information and communication technology
industry took longer to recover from the economic
crisis recording overall a negative median growth
rate until 2014 Software services and innovation
technology were the major contributors to revenue
growth (as a percentage) in 2016
Over the forecast period we foresee a modest revenue
growth for the ICT operators as a whole while the
technology industry will continue to achieve rapid
growth focusing on maintaining the competitive pace
of innovation In our view a key challenge for the ICT
operator may be the availability of matching skills
The outlook is relatively stable in terms of profitability
and key financial indicators
The following two pages show the details of the
previously discussed key performance indicators
35
Exhibit 38 Growth rate and EBITDA margin manifacturing sectors
-70- 50 -30 -10 103 0
2016E2017F2018
50 70 90
Median=76
Median=3000
20
40
60
80
100
120
1=Automotive 2=Chemistryamppharmaceutics 3=Clothing 4=Equipment 5=Food beverage and Tabacco 6=Heavy Manifacturing 8=Paper and Packaging 9=Tecnology and Telecomunication 10=Textile industry
6
10 5
3
8
91
74
2
50AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
57599586886358
3849
3620083721
-110320
-1112
210322
-1814021122
1413
030124
-5010284025
0555
20-4614
-4607212105
0430
210328-2310203218
0832
2310300512233720
1637
Growth rate Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
EBITDA margin Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
Source Cerved database and Cerved Rating Agency elaboration
625296
1441401016934
15352
504969
103121
916227
10639
4764676185562639
68112
487368
7090592845
75120
456772
9288562845
7898
4667759090573147
7698
4668769394583147
77102
1=Automotive 2=Chemistryamppharmaceutics 3=Clothing 4=Equipment 5=Food beverage and Tabacco 6=Heavy Manifacturing 8=Paper and Packaging 9=Tecnology and Telecomunication 10=Textile industry
2016E2017F2018
Median=30
700
600
500
400
300
200
100
000000 020 040 060 080 100 120
Median=08
Exhibit 39 NFDEquity and NFDEBITDA for manifacturing sectors
2
4 8
101
9
9
3
57
Source Cerved database and Cerved Rating Agency elaboration
096AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
104146095152117112109
098087
087080116068118083088086
084078
075074104069107082080079
084083
072064100065105084122081
079081
082066104065105080091079
077082
081067103065105079087079
077081
076067101064104077083078
076080
NFDEQUITY Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
227AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
258334222397249255259
315202
338313443305495363403412
480337
315306436328479373380397
482316
264269490303467366403383
515317
269243507090106127090106
106106
413343478088105127088105
105105
399333465086104127086104
104104
NFDEBITDA Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
36
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Exhibit 40 Growth rate and EBITDA margin for wholesale and retail trade sectors
20 40 60 80 100 120 140 160
2016E2017F2018
Median=31
Median=33
0000
20
10
30
60
50
70
1=Automotive 2=Retail 3=Wholesale
40
3
12
2016E2017F2018
Median=45
700
600
500
400
300
200
100
000050 070 090 110 130 150 170 190
Median=11
Exhibit 41 NFDEquity and NFDEBITDA for wholesale and retail trade sectors
1=Automotive 2=Retail 3=Wholesale
21
3
37
Ratings will remain broadly stable
The following section presents a risk profile analysis
based on Cerved Rating Agencyrsquos outstanding and
monitored public and private ratings issued from
2013 to 2017 on Italian non-financial companies
and operating in the industries discussed in this
study (data as of 31 December)
Exhibit 42 and Table 9 show an overview of 1-year
effective default rates over the 2000-2017 horizon
related to the sample bankruptcy and other legal
proceedings and debt restructurings as default
events
The default rate trend shows a general
improvement from 2014 onwards both by
company size classes and by industry however
considering the entire sample the overall default
rate still remains higher when compared to its pre-
crisis level especially regarding smaller companies
operating in the construction sector
Exhibit 43 shows the effective default rates over
2013-2017 horizon based on Cerved Rating
Agencyrsquos definition which considers as default
events
middot bankruptcy and other legal proceedings
middot debt restructuring
middot missed or delayed disbursement of a contractually
required interest or principal payment ie missed
payment on bonds material protests (on cheques
or trade bills) or prejudicial acts (judicial mortgages
distraint of property)
The effective default rates over the 2013-2017
horizon show decreasing trend and satisfy the
monotonicity constraint regarding all Cerved
Rating Agencyrsquos rating classes (Exhibit 44)
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2003 2004 2005 2006 2007 2014 2015 2016 20172000 2001
5678
12
3
4
0
Exhibit 42 Avarage 1-year default rate by size over 2000-2017 horizon
medium small
2008 2009 2010 2011 2012 2013
Mining and quarring
Manifacturing
Electricity gas steam and air conditioning supplyWater supply sewerage
Construction
Wholesale and retail trade repair of motorTransporting and storage
Accomodation and food service activities
Information and communication
24221809
5212
282915
2529
38533424
13027
454830
4838
36542537
15929
424421
4323
23461921
13226
293226
3022
Source Cerved database and Cerved Rating Agency elaboration
Table 9 Default rate by industry over 2000-2017 horizon
Total
NACE Average2008-2015
Average2000-2017 2016 2017
2016
Source Cerved database and Cerved Rating Agency elaboration
C21C12C11B22B21B12B11A11 A12 A13 A21 A22 A31
60
50
40
30
20
10
0
Exhibit 43 1-year default rate over 2013-2017 horizon
20172013 2014 2015
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
38
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The analysis of historical rating distributions in the
same period shows clear differences in terms of modal
rating class by company size As shown in Exhibit 43
the modal rating class for the large companies is A31
B11 for the medium and B12 for small companies
(considering company size classes as they have been
defined ad hoc by Cerved Rating Agency for the
purposes of this study)
Overall the corporate rating distribution in the
Source Cerved database and Cerved Rating Agency elaboration
C21C12C11B22B21B12B11A11 A12 A13 A21 A22 A31
30
25
20
15
5
10
0
Exhibit 44 Rating distribution frequency by size classes
large
30
25
20
15
5
0
10
medium smallRating 2013 total Rating 2017 total Rating 2017 forecast
observed period is skewed towards the investment-
grade rating categories (ie Cerved Rating Agency
rating classes from A11 to B12) representing 700 of
the whole sample 250 is concentrated in the safety
(A rating classes) and 450 in the solvency (B11-B12)
classes
We anticipate the rating distribution to remain
broadly unchanged in 2018 with the rating migration
concentrated mainly in the B category
39
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100543
2414
4407
4407
2636
4554 4558
2403 2311
535 527
90
10
0
Exhibit 45 Rating distribution frequency by area of risk - Total companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency]I nvestment GradeA11-A31 [Safety]
2509 2604
704 4407706 4407716
324
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
985
5658
4407
3033 2992 2898
925 907
300 318
90
10
0
Exhibit 46 Rating distribution frequency by area of risk - Large companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
5783 5878
869 4407878 4407878
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
4407
4407
3626
4080
17591695
439 449
90
10
0
Exhibit 47 Rating distribution frequency by area of risk - Medium companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
3571 3776
7044407780 4407786
456
1805
774
4113 4232
603
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
2824
1900
4407
4673 4850 4761
2833 2754
600 633
90
10
0
Exhibit 48 Rating distribution frequency by area of risk - Small companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
1716 1852
657 4407657 4407661
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
40
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Slight improvement in general creditworthiness
In our opinion in 2018 the creditworthiness of the
observed Italian non-financial companies will remain
stable for almost 86 of entities Migration of ratings is
expected to be moderate resulting in approximately 14
of rating upgrades (9) and downgrades (5) at the end
of 2018 compared to the outstanding ratings at the end
of 2017 The vast majority of the rating changes (921)
will be limited to one-class migration as shown in the
1-year projected transition matrix (Table 10) We believe
that more than one third of the expected downgrades
will be concentrated in the energy gas mining and
construction sectors Over the last years the average
credit profile of companies active in these industries has
been relatively weak and due to the forecast market and
regulatory conditions we do not envisage opportunities
for a significant risk profile improvement in 2018
Despite the expected rating migrations for individual
entities in 2018 the current industry modal rating
classes are unlikely to change
On the other hand stable and positive outlooks will
prevail in the manufacturing industry wholesale and
retail trade and accommodation and food service This
is due to the increase in the number of companies
active in these sectors which will maintain andor
improve their business and financial performances
Indeed as shown in Table 11 in 2018 the rating outlook
remains differentiated by industry whilst in terms of
the expected general probability of default we foresee
a modest improvement (349) compared to the one
recorded in 2017 (366)
Table 10 1-year transition matrix
Source Cerved database and Cerved Rating Agency elaboration
2017
A11
A31
B11
C11
C12
B21
C21
B22
B12
A12
A13
A21A22
F 2018A11 A12 A13 A31 B11 C11 C12B21 C21B22B12A21 A22
000 530
066
054 451034 435
027 753055 901
1033121247 1624
260 1038088
000
000000037
028
295
290
1063
179
455050647
043425
026490020208
000208
000152
000000
00000010000
9821
9318
92679015
87708583
81497646
8665
9617
9710
8605
419024
41
The information and data supporting Cerved Rating Agency rating opinions related research and credit opinions originate from sources Cerved Rating Agency considers to be accurate however Cerved Rating Agency cannot independently verify the reliability and accuracy of the information and data in every instance This publication may not be reproduced retransmitted or distributed in any form without the prior written consent of Cerved Rating Agency Cerved Rating Agency assumes no liability for correctness completeness and topicality of the information contained in this publication The analyses underlying this study do not provide advice of any sort
26
n
6670
486
59
Exhibit 49 Ratings outlooks by size
Large
Medium Positive Stable Negative
Small
21
13
Large
Medium
Small
Source Cerved database and Cerved Rating Agency elaboratio
Table 11 Ratings and probability of default 2018 outlook by industry
Source Cerved database and Cerved Rating Agency elaboration
NACE Micro industryDowngrade
B-Mining and quarryingAutomotive
900814
848
812
880812
847
813 172
170
174
144
8264 36
08
104 433 436
392 373
22724815
362 360
876
876
914
848
849
804
887
882
916
901835870899 64
866760
43
68
5659
58
47
61
49
74
78 75
14
50
37
36
5393
32
50
41
45
3899
77
91
316
372
355
364
308
491
326
318 296
331
312
381
367
359
322
495
452
433
403429
389
364369
363
313
452
323
594
38
315358
603
307
345 350
67 5318
469289 274
470
147
116
138
851
821AutomotiveRetail
Wholesale
Total
Chemistryamppharmaceutics
ClothingEquipment
Food Beverage and Tabacco
Heavy Manifacturing
Other Manifacturing
Textile industry
Total
Tecnology Media ampTelecomunication
Paper Packaging ampForest products
C-Manifacturing
D-Electricity gas steam and air conditioningsupply
F-Construcion
H-Transportig and storageI-Accommodation and food service activitiesJ-Information and communication
G-Wholesale and reatail traderepair of motor vehicles and motor-cycles
E-Water supply sewerage waste
Average ForecastPD 2018
Expectedtrend
Average PD 2018
Ratings outlooks
Stabl pgrade
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Cerved Rating Agency SpAVia dellrsquoUnione Europea n 6A-6B20097- San Donato Milanese (MI)
Tel +39 02 77541 - Fax +39 02 76020458
ratingagencycervedcom
Rating Agency
16
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Core inflation rate to rise
Italian headline inflation will experience a modest
decline in 2018 compared to the previous year
(12 and 14 respectively) Core inflation
however is predicted to increase to 12 in 2018
(up from 10 in 2017)
Exports and import are accelerating
Exports and imports will both accelerate in 2018 (41
and 44 respectively) mirroring the positive trend
and expectations in global trade and the rising of the
external demand Machinery and equipment industry
will still remain in ldquopole positionrdquo due to companies
generous investment and tax incentives In general
in 2018 Italian exports will increase more in the Extra
European Union countries
Investment continues to gain strength
Investment has gained strength and will continue to
do so at a relatively fast pace supported by effects of
the tax incentives (Stability Low 2017) low interest rate
and improvements in business confidence Indeed
investments are expected to increase 30 in 2018
(up from 24 in 2017) Construction investments are
forecast to accelerate slightly also thanks to more
resources earmarked for public investment
Harmonised core infation
Source OECD and IMF
2003 2006 20092000 2012 2015 F2018
2
1
-1
0
4
3
5
6
Exhibit 16
Imports of goods and services (Y-o-Y change)
Exports of goods and services (Y-o-Y changes)
Total dometic demand (Y-o-Y change)
Source OECD and IMF
20062000 2015 F2018-5
-15
-20
5
0
-10
10
15
Exhibit 17 Exports imports and demand Italy
20122003 2009
Wholesale and retail trade (Y-o-Y change)
Total investments ( of GDP)
Heavy industry (Y-o-Y change)
Other services (Y-o-Y change)
Source IMF and ISTAT
Construction (Y-o-Y change)
20062000
-20
-30
10
0
-10
20
30
20
25
15
10
0
5
F2018
Exhibit 18 Investments by industry Italy
2003 2009 2012 2015
17
No room for significant public debt reduction
At the end of 2016 the Italian government debt-to-GDP
ratio was significantly above its level at the beginning of
the century In particular as of December 31st 2016 the
ratio was 1326 (262 with respect to 100 recorded
at the end of 2000)
In the same period the ratio for the euro area increased
from 681 to 913 (341) in Germany from 589 to
683 (159) and in France from 586 to 960 (638)
At the end of 2017 the Italian government debt increased
further to more than euro2300 billion 1350 of GDP The
debt servicing in terms of interests accounts roughly
50 of Italian GDP
In our view the high level of government debt
represents a key factor limiting Italian economic growth
and contributes eo ipso to increasing country risk
with a possible negative impact on the stability of the
international financial system
A possible increase in interest rates would raise the
cost of debt service potentially triggering a crisis due to
larger governmental deficits a slowdown in economic
activity and growing debt refinancing difficulties due to
higher risk perceived by investors
Hence it seems that a significant reduction in
government debt should be the main goal of the Italian
economic and financial policy in our opinion however
the achievement of such a result is not realistic neither
in the short nor in the medium term due to the following
factors
middot economic growth in the coming years is expected
to be moderate not sufficient to be the main source of
the government debt reduction
middot macroeconomic policy is expected to prioritize
investments employment social security and welfare
rather than government debt reduction
middot even if the inflation rate hits the target value (20) the
impact on the government debt in the short term is not
expected to be considerable
middot finally in Italy election will take place in spring 2018
with a new government taking over the economic
program that has already been approved and become
fully executive
Euro area
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 2012 2013 2014 2015 20160
20
40
60
80
100
120
140
Exhibit 19 Public debt as GDP
France
Source AMECO and Cerved Rating Agency elaboration
CERVED RATING AGENCY SpA | Highlights on italian economy
18
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Table 1
Amount ( 407 312
-327
327754
216074 190881
163248 345604188167
869
1543
2213
1793
CAGR (base year 2000)
CAGR (base year 2008)
NPL ratio ()
Ndeg debtors
Averae debt debtor
Valueindicator 2000 2008 2016
Source Bank of Italy and Cerved rating Agency elaboration
Credit activity to be expanded interest rates to remain at very low levels
As of December 31st 2016 the volume of bank loans
granted to Italian non-financial corporations amounted to
euro8604 billion
The period 2000-2016 was characterized by two different
trends from 2000 to 2011 the annual outstanding loans
value increased by 841 (euro454 billion reaching in 2011 its
highest level ever of euro993 billion thanks to 57 CAGR far
above the Italian GDP growth) whilst in the period from
2012 to 2016 loans decreased by 134 (euro130 billion)
reflecting a negative -28 CAGR The loan reduction hit
sharply construction and manufacturing (accounting
for about 400 of all loans) which experienced -227
and -135 decrease in loan volumes whilst agriculture
forestry and fishing and wholesale and retail trade
(including repairs of motor vehicles and motorcycles)
had more limited loan contraction (-08 and -53
respectively)
In the observed period due to the negative impact of the
global financial crisis 200708 and to structural changes in
the world economic and financial environment a radical
decrease in interest rates was recorded In 2017 the
interest rates charged to Italian non-financial corporates
were on average less than half compared to those charged
in 2000 In the medium term low interest rates will remain
a positive factor fostering investments and consumption
Non-performing loans to be further reduced due to innovative measures
The credit crunch had a huge and dramatic impact on
the Italian economy hitting especially small businesses
which are not able to survive in a radically changed market
conditions The evidence of such outcome can be seen not
only through the decreased number of active companies
but also via the enormously increased volume of the
non-performing loans (NPLs) In particular these loans
amounted to euro324 billion at the end of 2016 of which euro154
billion were granted to the non-financial corporations as
shown in table 1
Following the principles outlined in the ECB guidelines
published in March in 2017 Italian Banks made significant
progress in reducing the amount of the NPLs ndash estimated
to be over euro50 billion debt reduction Any further actions
aimed to improve the banking balance sheets should not
increase the financial hardship of still operating companies
North - East SouthNorth - West Center Islands
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 2012 2013 2014 2015 20160
1200000
1000000
800000
600000
400000
200000
NPLs ratio
Source Bank of Italy and Cerved Rating Agency elaboration
20
1816
14
1210
8
6
42
0
446393
euro billion)
19
Modest role of italian equity capital markets
Despite the number of listed companies increasing
from 297 to 421 in the period 2000-2017 the role
of the stock markets remains modest in Italy
As of December 31st 2017 the market capitalization
was euro640 billion (375 of the estimated Italian GDP
in 2017) representing only 782 of the overall
market capitalization recorded in 2000 (equal
to euro818 billion 687 of GDP) mainly due to
an unfavorable economic cycle in the observed
period
This situation shows the structural weaknesses of
the Italian economic and financial system especially
when compared to other highly developed
European economies The low propensity to
raise equity capital through organized markets
is linked to an unfavorable macroeconomic and
fiscal framework as well as to the predominance
of SMEs mostly unfit for listing and presenting
cultural obstacles (ie company owners and managers are often reluctant to accept wider company control and
transparency)
Hence self-financing and bank borrowing remain the main sources of finance for Italian companies which are
generally speaking undercapitalized with a negative impact on their investment capabilities Very frequently the
lack of medium-long term financing means forces companies to focus their attention on running current activities
postponing or abandoning strategic projects fundamental for company growth
A wide range of innovative initiatives have been undertaken with the aim of fostering market based company
funding in particular
middot AIM (Alternative Investment Market) - a specialized market segment dedicated to SMEs growth (95 companies and
market capitalization around euro56 billion as of December 2017)
middot ELITE - a programme designed to help SMEs prepare and structure for the next stage of growth their through
access to long-term financing opportunities
middot PIR - Piani individuali di risparmio (Individual Savings Plan) - an innovative way to fund Italian SMEs by offering retail
investors resident in Italy tax incentives (full exemption of 260 income tax) if the savings stay invested for at least
five years A minimum of 700 of such credit assets must be invested in financial instruments issued by Italian or
foreign (EU and EEA) companies permanently established in Italy
FTSE (MIB)Enterprises
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 20132012 20152014 201720160
100
200
300
400
500
600
700
800
900
100029681 29525
14623
1765216121
12259
13512
16048
15988
19012
21428
21853
2185322232
16954
297 294 295 279 282278 311 336 332 332 328 323 326344 342 356 387 421
19483
22886
26056
31005
Exhibit 21 Italian listed enterprised and FTSE (MIB) index trend
Source Borsa Italiana
300000
250000
200000
150000
100000
5000
0
Capitalization of GDP
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 20132012 20152014 201720160
100
200
300
400
500
600
700
800
900
1000
Exhibit 22 Italian market capitalization of listed companies ( of GDP)
Source Borsa Italiana
80
70
60
50
40
30
20
10
0
8184
5923
354 365418 473
524475
239301 275
210233
287 295348
318375
4580 4875
5809
6766
77857336
37474571
4251
3324
44664678
56765249
6400
3655
474
68
CERVED RATING AGENCY SpA | Highlights on italian economy
20
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Italian debt capital market is growing but still remains behind needs
At the end of 2016 the outstanding amount of debt
securities issued by Italian financial and non-financial
corporations was euro8615 billion 510 of the countryrsquos
GDP The table below shows the breakdown by issuer
type of Italian German French British and United States
outstanding amounts of debt securities as of December
2016 issued by financial and non-financial corporations
with the respective debt-to-GDP ratio
Despite the outstanding debt at the end of 2016 being
almost double compared to 2000 it represents only 23
of its peak value reached in 2012 (euro1290 billion Exhibit
23) The main reason for such a significant debt reduction
is the huge bond reimbursement realized by banking
institutions from 2013 to 2016 and the related negative
net flow of debt securities (respectively -80 -153 -106
and -67 billion of euro as shown in Exhibit 24)
The decrease in debt securities funding of Italian banks
has been compensated by a wider use of deposits and
resources available under the Eurosystem refinancing
operations framework
The outstanding amount of debt securities issued by
non-financial corporations at the end of 2016 also
doubled its value with respect to the amount recorded
at the end of 2000 The main characteristic of this cluster
is the high concentration of issuancesdebt to a small
number of issuers
Due to both more favourable general economic
conditions and active ECB monetary policy bond yields
have decreased significantly providing room for a
convenient fund raising
Since the introduction of a new regulatory framework
(lsquoDecreto Svilupporsquo) in 2012 up to October 2017 Italian
market saw 300 small-size listed bond issues (ie so
called minibonds) amounting approximately to euro143
billion Issued mainly by SMEs they offer interesting
yields to institutional investors
) Source Business support SpA ndash Minibonditalyit
BanksTotal
Source Bank of Italy and Cerved Rating Agency elaboration
2006 20082000
-200000
200000
250000
-150000
-100000
150000
100000
-50000
50000
02012 2014 20162002 2004 2010
Banks debt securities outstanding
Banks Debt to GDP ratio
Source Bank of Italy and Cerved Rating Agency elaboration
0
10
20
30
40
50
60
70 1400000
1200000
1000000
800000
600000
400000
200000
0201620142012201020082006200420022000
Table 2 Outstanding securities debt (euro Million)Debt-to-GDP ratio()
Financial corporates
Total
Debtsecurities
outstanding
Italy German rance United Kingdom United States
739
123
862
440 340 470
21
680380
40
1279 1331 4 50
880
30
14271
14820
549180
10202767
590
19211436
15770
510
Debtsecurities
outstanding
Debtsecurities
outstanding
Debtsecurities
outstanding
Debtsecurities
outstanding
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Source Bank of Italy
0
0
21
CERVED RATING AGENCY SpA | Highlights on italian economy
22
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Italian non-financial companies economic Outlook 2018
23
Data and method
This research focuses on Italian non-financial companies
with an annual turnover exceeding euro5 million With the
aim of using only reliable data joint stock and limited
liability companies have been considered only these
entities according to Italian law file complete annual
financial statements in the Chamber of Commerce
together with anagraphical company data other
legal forms such as unlimited partnerships and sole
proprietorships are not included in this sample due to
the lack of publicly available standardized financial data
We believe that this cutoff is reasonable and allows us to
perform a methodologically correct analysis In 2016 the
above mentioned companies despite representing only
42 of all registered and active joint stock and limited
liability companies accounted for 769 of their total
turnover
Moreover cluster specialization has been obtained by
NACE activity classification from A to J (thus not including
in the sample financial and insurance companies and
some service industries) The statistics regarding specific
industries provide important key data and enable us to
examine historical and prospective trends and cross-
sector comparisons
The Cerved database which contains legal anagraphical
financial and market information on all Italian registered
legal entities (approximately 6 million comprising 5
million active ones) was the most important database
used for this research Long time series and broad
homogenized and standardized data covering different
economic cycles were the building blocks to perform
the regression and predictive analysis
Historical and forecast macroeconomic data and
analysis performed by the International Monetary Fund
OECD the World Bank European Central Bank Bank
of Italy and ISTAT completed the dataset used for the
analysis
Several analyses were performed in order to examine
the structural differences within the sample in terms of
company legal form and geographical area (Exhibit 25)
company age (Exhibit 26) and company size and industry
As a result we verified a considerable heterogeneity of
companies in particular with regard to the company size
across various industries
The relevant observation period comprises the years
between 2000 and 2016 Table 3 describes some
characteristics of the sample
Exhibit 25 Sample break-down by legal form and geographic area (2016)
Joint stock Company
Limited liability Company
Area 1 (Northwest)
Area 3 (Center)
Area 2 (Northeast)
Area 4 (South)
39
20
27
14
33
67
33
Table 3 Sample characteristics 2000-2016
TotalTurnover
gt euro5million
Turnover gt euro5 million(industry
from A to J)
TotalTurnover
gt euro5million
ofTotal
Turnover gt
euro5 million(industry
from A to J)
Source Cerved database
Entreprises Turnover billion
2000 659867700717738558772442812025847334883122915172937018949708965744969581
953505945825922513883224
4215144587462234694749640518205596459226595385246754808563745362752074519385289450123
3686139038411864118843547454704921752274526974633848778504734806246843468384771845288
16151740177018472002212923302477256822562421257025202446243224392295
12661362139214561588169818752000208317861944208720541992198419871905
11141205124013041430152316891801189716191764191218831839183518371765
689693700
716
706714
725
718729744748752754753769
727739
200120022003200420052006
200820092010201120122013201420152016
2007
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
24
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Furthermore in order to guarantee more detailed and
accurate analyses and projections we decided to create
a static pool to show consistently long time horizon
economic trends (17 years) by sealing off all the active
companies over the 2000-2016 horizon
The outcome obtained by considering the behaviour of
specific variables related to the companies included in
the static pool was extended as a performance indicator
for the whole sample (turnover over euro5 million and
industry from A to J)
According to the European Communityrsquos definition of
SMEs using annual turnover and employee headcount
as quantitative criteria the initial sample of companies
and the static pool can be classified by size classes on
the basis of the financial statements for the year 2016
as shown in Table 4
For the sake of this analysis we defined specific size
classes for each industry thus deviating from the
European Commissionrsquos recommendation which
presents undifferentiated upper and lower bounds of
quantitative criteria for SMEs in all industries To define
the thresholds of such classes we used both a statistical
approach (a specific cluster procedure by minimizing
the within-cluster turnover standard deviation) and a
judgmental approach by relying on the experience and
opinion of our industry expert analysts Table 5 shows
the results of such analysis referring to the sample in
2016 (45288 entities) and the NACE sections from A
to J Moreover the NACE section C and G were further
disaggregated into sub-industry classes as shown in
Exhibit 27 in order to consider the specific business
differences within these NACE sections thus ensuring
a good fit and a satisfactory accuracy of the estimation
Exhibit 26 Sample break-down by company age classes
0-2 Years 2-5 Years 5-10 Years 10-20 Years gt20 YearsSource Cerved database and Cerved Rating Agency elaboration
0 20 40 60 80 100
ABCDEFGHIJ
A = AgricolutreB=Mining and quarryingC=ManufacturingD=Electricity and gasE=Water supplyF=ConstructionG=Wholesale and retail tradeH=Transporting and storageI=Accomodation and food serviceJ=ICT
Small
Annul Turnover
Empolyees
Static Pool
Enterprises(Turnover gt euro5 million)
Enterprises(Turnover gt euro5 millionindustry from A t J)
Medium Large
lt 50 lt 250lt 36774 11113
1005333223
8741
2236
2012
154818645
gt euro50 million
gt 250
lt euro50 million
Source Cerved database
NACE Micro industry
B-Mining and quarryingAutomotive
Automotive
Retail
Wholesale
T gt 480
T gt 80
T gt 260
T gt 265T gt 270
T gt 230
T gt 120
T gt 80
T gt 43
T gt 65
T gt 106T gt 106
T gt 360T gt 155T gt 150T gt 100
T gt 120
T gt 225T gt 1400T gt 27500
T gt 1500
ChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther Manifacturing
ICTTextile
Paper Packaging ampForest products
C-Manifacturing
F-Construcion
H-Transportig and storageI-Accommodation and food service activities
J-Information and communication
D-Electricity gas steam and aircoditioning supply
G-Wholesale and reatail traderepair of motor vehicles and motorcycles
E-Water supply sewerage waste management and emediation activities
Large (Turnover
in euro million)
Medium(Turnover
in euro million)
Small(Turnover
in euro million)
Source Cerved database and Cerved Rating Agency elaboration
60 lt T lt 480 5 lt T lt 60
5 lt T lt 20
5 lt T lt 36
5 lt T lt 35
5 lt T lt 44
5 lt T lt 40
5 lt T lt 20
5 lt T lt 26
5 lt T lt 250
5 lt T lt 185 lt T lt 305 lt T lt 265 lt T lt 205 lt T lt 37
5 lt T lt 335 lt T lt 40
5 lt T lt 255 lt T lt 585 lt T lt 1155 lt T lt 1005 lt T lt 27
20 lt T lt 80
36 lt T lt 26035 lt T lt 26544 lt T lt 270
40 lt T lt 230
20 lt T lt 120
26 lt T lt 80
18 lt T lt 43
250 lt T lt 1500
20 lt T lt 6537 lt T lt 29540 lt T lt 15533 lt T lt 15025 lt T lt 100
27 lt T lt 120
58 lt T lt 225
100 lt T lt 27500 115 lt T lt
30 lt T lt 10626 lt T lt 106
25
Exhibit 28 shows the breakdown of macro industries
analysed including disaggregation of the NACE section C
(manufacturing) and G (wholesale and retail trade repair
of motor vehicles and motorcycles)
In order to carry out the analysis and projections this study
is focused on we used simple multiple linear regression
model for each industry and company size classes
considering macroeconomic and individual companiesrsquo
economic and financial data
The analysis enables us to develop an econometric
model used to estimate likely credit quality changes (in
terms of rating class and probability of default) for single
industries and company size classes
Automotive
Retail
Wholesale
21
1366
1
42
1
26
35
232
6
A B C D
F G H I
46
7
21
1318
9
15
34
Automotive
Chemistry amp pharmaceutics
Clothing
Equipment
Food Beverage and Tabacco
Heavy Manifacturing
Other Manifacture
Paper Packaging amp Forest Products
ICT
Textile industry
Large SmallMedium
Source Cerved database and Cerved Rating Agency elaboration
0
Wholesale
Retail
Automotive
20 40 60 80 100
Automotive
Chemistry amp pharmaeutics
Clothing
Equipment
Food beverage and Tabacco
Heavy Manifacturing
Other Manifacturing
Paper Packaging amp Forest Products
ICT
Textile
0 20 40 60 80 100
ABCDEFGHIJ
0 10 30 40 60 70 80 90 100
Exhibit 28 Sample break-down by industry (2016)
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
26
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Performance indicators to improve further
The annual financial statements available through public
registers provide a clear economic and financial picture
of the Italian joint-stock and limited liability non-financial
companies The individual historical data available from
2000 to 2016 enriched with 2017 preliminary results and
with the expected 2018 macroeconomic scenario enabled
us to build up the 2017 and 2018 projections regarding
the following four performance indicators related to the
analyzed sample 1) growth rate - revenues YoY change
2) EBITDA margin 3) net financial debtEBITDA and 4) net
financial debtEquity Afterwards the median values of the
resulting data were used to obtain the summary output
which we consider as a representative proxy for the overall
market
From 2000 to 2016 the observed companies experienced
a very irregular trend both in terms of growth rate and
EBITDA margin In the aftermath of the global financial crisis
the lowest growth rate value (-120) was recorded in 2009
manufacturing transporting - storage and wholesale and
retail trade were the industries showing the biggest fall of
business volume (-155 -121 and -104 respectively)
whilst water supply accommodation and food service and
electricity and gas showed the highest level of resilience to
the adverse economic and financial environment (-01
-23 and ndash26 respectively) Exhibit 29 shows that in
terms of median value there are no significant differences
in the growth rate taking into consideration company size
classes as we previously defined them Only from 2010 the
growth rates turned positive but still remaining below the
levels recorded in 2000
The analysis of the EBITDA margin changes in the same
period also does not highlight significant differences
between large companies and SMEs as shown in Exhibit
30 The lowest median EBITDA margin value (52) was
recorded in 2012 regarding in particular accommodation
and food service transporting and storage and agriculture
sectors (28 40 52 respectively) while electricity
and gas ICT and water supply were relatively immune to
the unfavorable economic and financial circumstances
(showing 113 109 and 105 EBITDA margin
respectively) At the end of 2016 the median EBITDA margin
(60) still remains below the levels recorded in 2000 (72)
Positive trends emerging from the last publicly available
financial statements (2016) the 2017 preliminary results
and the optimistic macroeconomic forecasts for 2018
confirm improvement of the Italian economy Looking
ahead we expect the Italian non-financial companies to
continue to experience gradual recovery in 2018 They are
going to take advantage of the favorable global economic
cycle low interest rates and supportive regulations that
inter alia foster the use of alternative non-bank financial
sources for company funding The financial resources raised
through Individual Savings Plans (PIR ndash Piani individuali di
risparmio) introduced by the 2017 Budget Law are driven
in primis by a favorable tax regime for savers and might
become an important additional source for SMEs funding
injecting new liquidity The government objective fixed euro68
billion as a target value and in 2017 nearly euro10 billion had
already been raised
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2004 2006 2014 20162000
5
20
10
0
15
-15
-10
-5
Exhibit 29 Growth rate (revenue YoY change) by size classes (median)
medium small
2008 2010 2012
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2004 2006 2008 2010 2012 2014 20162000
7
10
9
8
6
5
4
3
7
10
9
8
6
5
4
EBITDA margin by size classes (median)
medium small
27
So far one of the main obstacles PIR are facing is the limited
number of available assets which may lead to a possible
concentration of this financial resources in a small share of
the market comprising mainly relatively large companies
as shown by the early data in 2017
Another obstacle to rapid adoption of the newly available
financial resources is the lack of a standardized and broadly
accepted methodology for the risk assessment of potential
bond issuers
Generally speaking in 2018 we expect SMEs to contribute
more significantly to growth employment and innovation
whilst on average the respective EBITDA margin will remain
broadly stable (as shown in Exhibit 31) However 2018 will
still be a challenging year for SMEs and innovative startup
companies as they will have to face tougher barriers in
accessing bank credit andor approaching capital markets
compared to large companies We also expect some new
innovative solutions aimed at meeting SMEs financial needs
to become effective the SMEs current financial structure
together with new business opportunities prove their
ability in terms of rational use of the additional financial
resources
The new investments will allow most industries to thrive
also assisted by the Italian Governmentrsquos adoption of the
National Industry 40 Plan
The companies which will take up this opportunity may
improve their cash-flows even in the short-medium term
Finally companies with strong international market
positioning and large product diversification will have
stronger sales and margins growth
The key ratio values recorded from 2000 to 2016 related to
the analyzed entities show the improved financial health of
the companies proving good capability to strengthen their
equity base as shown in Table 6
Growth rate (2016)Medium
Total
Small Large
Growth rate (2018)Growth rate (2017)
Source Cerved database and Cerved Rating Agency elaboration
50
40
Exhibit 31 Growth rate and EBITDA margin forecast by size classes
EBITDA margin (2016)EBITDA margin (2018)
EBITDA margin (2017)
40
30
0
10
20
Medium
Total
Small Large
7570
65
0
6 5560
5550
4540
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
28
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The recorded financial ratios in the 2000-2016 horizon
indicate that on average
middot liquidity maintained a satisfactory level in the whole
observed period due to the positive economic cycle in
2017 and 2018 we expect a slight improvement in the ratio
middot the EBITDAinterest coverage ratio almost doubled its
value in 2016 compared to what was recorded in 2000
primarily due to a general reduction in the interest rates
particularly in the last three years we believe that in 2017
and 2018 the average ratio value will remain roughly at the
same level recorded in 2016
middot in 2016 ROE shows further improvement but is still
slightly lower compared to the value recorded at the
beginning of the observed period mainly due to the equity
base strengthening trend
middot Equity Ratio rose from 250 to 350 due to a significant
increase of equity capital in 2018 we expect further
strengthening of the ratio
middot Financial LiabilitiesTotal Assets ratio remained mostly
unchanged ndash financial debts representing roughly 30 of
the total assets
A positive trend regarding the net financial debt was also
observed in fact in 2016 70 of the sample improved their
NFDEBITDA and 73 the NFDEquity
Positive performances were found especially in the SMEs
segment as shown in Exhibit 32 in particular referring to
NFDEquity small and medium-sized companies recorded
a positive trend standing respectively at 092 and 089 in
2016 compared to 132 and 136 in 2000
Hence the financial risk profile appears to be well balanced
leaving no room for specific concerns regarding the
prospects of the Italian non-financial companies in 2018
In 2016 the median values for the total sample referring to
NFDEquity and NFDEBITDA remained respectively at 089
and 389 levels respectively
Looking ahead we expect these indicators to remain at
healthy levels in 2017 and 2018 with a slight improvement
in NFDEBITDA and a broadly stable level of the NFDEquity
ratio as shown in Exhibit 33
NFDEBITFA (2016) NFDEBITFA (2017)NFDEBITFA (2018)
40
Exhibit 33 NFDEquity and NFDEBITDA forecast by size classes
Source Cerved database and Cerved Rating Agency elaboration
404
20
25
45
35
30
NFDequity (2016) NFDequity (2017)NFDequity (2018)
05
06
09
10
08
07
Exhibit 32 NFDEquity and NFDEBITDA by size classes (median)
largemediumsmall
2016
2015
2014
000 5 10 15
Average2008-2013
Average2000-2007
total largemediumsmall total
Source Cerved database and Cerved Rating Agency elaboration
2016
2015
2014
203 0 405 0
Average2008-2013
Average2000-2007
29
Growth and profitability improvement spanned over all sectors
Exhibit 34 shows the relative positioning of the 10
macro-industries in the short-medium term considering
the median values related to revenue growth rate and
EBITDA margin
The historical median values are calculated on the basis
of financial data obtained from the annual financial
reports 2014-2016 filed in the Chamber of Commerce
public registers the projected median values for 2017
and 2018 are the result of the analysis of this study
As expected there are significant differences in
positioning between different industries in terms of
both historical and projected values
In 2018 we expect manufacturing and accommodation and
food services to maintain top positions already reached in
2016 and 2017
For the electricity gas mining and quarrying industry
2018 may be the turning point showing the first positive
signals after experiencing some difficulties over the last
few years
None of the other industries show significant changes in
2018 compared to their 2016 positioning
Source Cerved database and Cerved Rating Agency elaboration
A 50
57599586886358
3849
3620083721
-110320
-1112
210322
-1814021122
1413
030124
-5010284025
0555
20-4614
-4607212105
0430
210328-2310203218
0832
2310300512233720
1637
BCDEFGHIJ
A 625296
1441401016934
15352
504969
103121916227
10639
4764676185562639
68112
4873687090592845
75120
456772928856
45
7898
4667759090573147
7698
4668769394583147
77102
EBITDAmarigin
BCDEFGHIJ
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018Growthrate
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
Exhibit 34 Growth rate and EBITDA margin by industry
-70 -50 -30 -10 10 30
2016E2017F2018
50 70 90
Median=68
Median=2100
20
40
60
80
100
120
A=Agricolture B=Mining and quarrying C=Manifacturing D=Electricity and gas E=Water supply F=Construction G=Wholesale and retail trade H=Transporting and storage I=Accomodation and food service J=ICT
D
B
E
FHA G
C
I
J
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
30
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Further strenthening in companiesrsquo financial structure
Exhibit 35 shows the relative positioning of the 10 macro
industries in the short-medium term considering the
median values related to NFDEBITDA and NFDEquity
ratios
The historical median values are calculated on the basis
of financial data obtained from the annual financial
reports 2014-2016 filed in the Chamber of Commerce
public registers the projected median values for 2017
and 2018 are the result of the analysis of this study
There are even more significant differences in
positioning between industries regarding NFDEBITDA
and NFDEquity ratios when compared to growth rate
and EBITDA margin differences
Generally in the observed period there is no evidence of
significant changes among industries considering their
relative positioning related to NFDEBITDA and NFD
Equity ratios
In 2018 we expect accommodation and food services
and information and communication services to
maintain top positions already reached in 2016 and
presumably confirmed in 2017
Exhibit 35 NFDEquity and NFDEBITDA by industry
2016E2017F2018
Median=37
Median=08500
030 5 070 9 111 3
20
30
40
50
60
70
10
A=Agricolture B=Mining and quarrying C=Manifacturing D=Electricity and gas E=Water supply F=Construction G=Wholesale and retail trade H=Transporting and storage I=Accomodation and food service J=ICT
EH
C
BF
G
A
D
J
I
A 150101113081112149151120
079131
123075088101097125123103
072079
114067083052090108119102
067076
113060080045089096114092
074069
125076080045089106109086
050060
127072080044091
108084
051056
128067079043093106107081
051051
BCDEFGHIJ
NFDEquity
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
A 597219280305251301338250
153260
676394388342298453499349
254337
707482387293277498532337
277334
696392373254305484494308
231315
747401358330285544483294
183312
722390340341280511470290
178293
710380310329272492452281
177289
NFDEBITDA
BCDEFGHIJ
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
Source Cerved database and Cerved Rating Agency elaboration
106
31
Exhibit 36 Equity ratio by industry
Average 2000-2007 2014 2015Average 2008-2013 2016
Source Cerved database and Cerved Rating Agency elaboration
05
10
20
30
15
25
3540
5045
AB C DE FG HI J
Exhibit 37 EBITDA interest coverage by industry
Average 2000-2007 2014 2015Average 2008-2013 2016
Source Cerved database and Cerved Rating Agency elaboration
0
5
10
20
15
AB C DE FG HI J
A 1113140911151211
1408
1013131012131209
1208
1114151012131311
1309
1214151012151312
1309
1215161113161412
1409
BCDEFGHIJ
Liquidity ratio Median2000-07
Median2008-13 2014 2015 2016
A 0377677447858463
8960
0332
8145524536
4832
0342486042273848
3246
0537606853395765
4069
0743676559416378
5882
BCDEFGHIJ
ROE Median2000-07
Median2008-13 2014 2015 2016
Table 7 Liquidity ratio by industry Table 8 ROE by industry
Source Cerved database and Cerved Rating Agency elaboration
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
32
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Agriculture
Considering the recent price decline for agricultural
products putting EBITDA margin under pressure for
most of the industry participants we anticipate a slow
revenue growth in 2018 We also foresee more stable
margins in 2018 and investments to continue at a faster
pace in the near future mainly aimed at transforming the
agricultural activities into a high-tech industry Climate
and cultural changes are the main exogenous risks that
may negatively influence the sector
Mining and quarrying
Over the last few years the mining industry has been
challenged by record low metal prices and this has
resulted in a weak growth of supply and a cut in
investments especially in the new mines opening We
foresee a modest revenue growth in 2018 supported
by more stable prices rather than by government
infrastructural investments Margin pressure will remain
mostly unchanged in 2018 We do not expect a significant
increase in capital expenditure for most companies
while only a minority of industry participants will invest
in new capacities searching for new growth opportunities
by introducing new higher margin outputs Overall we
anticipate relatively stable key financial indicators
Manufacturing
We believe that in 2018 Italian manufacturing
representing 2nd European and 7th world player in 2016
will remain the beating heart of the national economy
In our view the expansion of internal demand the
improvement of business and customer confidence and
the wider export opportunities are the key drivers for
revenue growth (up to nearly 30) Despite the natural
selection the occurred during the economic recession
domestic competition and especially the competition
from lower income countries will remain challenging in
2018 creating further profitability pressure especially in
some highly fragmented segments
As a conditio sine qua non for market survival many
companies will be involved in a ldquowinning the innovation
gamerdquo process translated into a considerable capex
expenditure directed at process optimization which
inevitably must be accompanied by innovative marketing
and commercial strategies The companies especially
smaller ones which are not ready lsquoto play the gamersquo
remaining risk averse are likely to fall behind
Key financial indicators referring to the industry in terms
of net financial debt to equity and net financial debt to
EBITDA are likely to remain overall stable in 2018
In our view the best performing manufacturing industries
in 2018 will be the following
Automotive
extensive vehicles replacement process in 2018
high competition pressure China maintaining a key role
high level of innovation in mobility and connectivity
new strategic partnerships and MampAconservative stand towards EBITDA margin improvement
Chemistry amp Pharmaceutics
solid macroeconomic fundamentals will support
the revenue growth driven mainly by large companies
on average a stable EBITDA margin of about 10
is expected global presence is a must to achieve higher
level of profitability
RampD remain key factors for further market expansion
moderate level of MampA operations in 2018 slowing
down when compared to those carried out in the
previous year
Machinery amp Equipment
revenue growth in 2018 up to nearly 25 reflecting
the fact that all manufactures remain focused on RampD
and NPI (new product introduction)
cost management strategies are going to persist
but generally speaking with no significant impact on
EBITDA margin in 2018
heavy equipment manufactures still under pressure in
2018 to provide engineering capability and capacity
33
Energy and gas
Italian companies operating in the energy industry are
facing a complex market environment with many open
questions about risks related to regulations a drop
in consumption high competition levels and EBITDA
erosion
Generally we expect a more stable landscape in 2018 in
terms of commodity prices and consumption However
risk regarding prices and volumes will remain strong
resulting in a higher volatility of revenues In our view
the current margin pressure is unlikely to ease over the
next two years The final overcoming of the sondashcalled
ldquoMaggior Tutela Regimerdquo may lead to almost zero margin
for the retail operators We expect industry participants
to continue to focus their attention on cost efficiency and
on protecting profitability by embracing new business
models and examining the role that digital technology
can play in improvement of EBITDA margins We believe
that the above described strategies will be a central
topic for the operators intending to attract capital We
also believe that energy producers could see a slight
debt increase in 2018 aimed at improving productivity
and synergies Finally in 2018 we envisage a significant
number of MampA operations in the sector led by synergy
effects such operations might produce
Water supply waste management and sewerage
In recent years the water supply waste management
and Italian sewerage industry has recorded a slower
growth compared to the pre-crisis period However
due to the last two yearsrsquo important investments in the
water infrastructure waste sorting and recycling Italy
ranks as one of the top European countries in terms
of growth rate of recycling and packaging recovery
We believe that the expected general increase in
industrial output will produce a slight growth in water
consumption and waste treatment The demand for
sustainable solutions will continue to persist requiring
new investment in technologies based on a customer-
centric and sustainable approach aimed at improving
efficiencies and facilitating reuse Expectations also
reflect our view in terms of wider government interest
and spending in this industry We expect profitability
to remain broadly in line with the results obtained in
2016
Construction
After a weak increase in revenues recorded by the
construction industry operators in 2016 and the
modest result anticipated in 2017 both reflecting
a deteriorating demand and decreased volumes of
bank loans (mainly those for small and medium-
sized companies) we expect 2018 to be the turning
point for this industry We foresee that the volume of
residential and private non-residential constructions
will remain at relatively low levels in 2018 and that
the positive trend in housing renovation and public
works investments will continue taking advantage of
the allocated funds established by the Budget Law for
2017 Small and medium-sized businesses focused on
residential construction may face a slight profitability
erosion while we believe some growth in EBITDA
margin may be recorded by large Italian companies
operating internationally Due to the high perceived
risk historically there has been a strong financial
market mistrust of the construction companies which
we believe is likely to ease over the coming years
Wholesale and retail trade
During the crisis period wholesale and retail trade
industry faced a sudden interruption of the gradual
growth that had taken place up to that moment mainly
due to a loss in real purchase power and in consumer
confidence also translated into profitability erosion
In 2016 the data showed how the industry is moving
toward a recovery period Looking forward in 2018 we
expect to record a steady revenue growth supported
by an increase in global trade and improved consumer
confidence Despite the foreseen growth operators
will continue to face consistent pressure mainly in the
retail segment due to the high proliferation of new retail
purchase channels and market fragmentation
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
34
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Transportation and Storage
After a troubled 2016 characterized by an overcapacity
and a decrease in commodity demand hitting shipping
revenues in particular we foresee a moderate overall
recovery in 2018 driven mainly by an increase in
international shipments and air traffic The growing
number of innovative startups will continue to persist
increasing the competitive pressure in the industry We
anticipate a constant growth of e-commerce enabling a
quick reaction of on-line retailer and logistics providers
We believe that operators will continue to invest in
new high-tech solutions experimenting new models of
mobility and smart logistics
Despite very strong competition we expect the median
operating margins to remain steady However global
political uncertainties and related risks are strong with
possible quick and sharp negative impact on business
volumes and margins of the companies operating in
these industries
Accommodation and food services activities
In the last two years operators in the accommodation
and food service activities industry mainly medium
and small sized enterprises have seen steady revenue
growth and satisfactory profitability ratios Many
operators were focused on reviewing their business
models and offering additional services to their
customers a necessary strategy to maintain or expand
market positioning strengthen margins and improve
customer experience We expect the revenue growth
to continue in 2018 with a minimal median margin
improvement We believe accommodation and food
service activities will attract new capital investments
in 2018 to help the ongoing transformation process
and improve the accommodation infrastructure and
services
Information and communication technologies
The Italian information and communication technology
industry took longer to recover from the economic
crisis recording overall a negative median growth
rate until 2014 Software services and innovation
technology were the major contributors to revenue
growth (as a percentage) in 2016
Over the forecast period we foresee a modest revenue
growth for the ICT operators as a whole while the
technology industry will continue to achieve rapid
growth focusing on maintaining the competitive pace
of innovation In our view a key challenge for the ICT
operator may be the availability of matching skills
The outlook is relatively stable in terms of profitability
and key financial indicators
The following two pages show the details of the
previously discussed key performance indicators
35
Exhibit 38 Growth rate and EBITDA margin manifacturing sectors
-70- 50 -30 -10 103 0
2016E2017F2018
50 70 90
Median=76
Median=3000
20
40
60
80
100
120
1=Automotive 2=Chemistryamppharmaceutics 3=Clothing 4=Equipment 5=Food beverage and Tabacco 6=Heavy Manifacturing 8=Paper and Packaging 9=Tecnology and Telecomunication 10=Textile industry
6
10 5
3
8
91
74
2
50AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
57599586886358
3849
3620083721
-110320
-1112
210322
-1814021122
1413
030124
-5010284025
0555
20-4614
-4607212105
0430
210328-2310203218
0832
2310300512233720
1637
Growth rate Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
EBITDA margin Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
Source Cerved database and Cerved Rating Agency elaboration
625296
1441401016934
15352
504969
103121
916227
10639
4764676185562639
68112
487368
7090592845
75120
456772
9288562845
7898
4667759090573147
7698
4668769394583147
77102
1=Automotive 2=Chemistryamppharmaceutics 3=Clothing 4=Equipment 5=Food beverage and Tabacco 6=Heavy Manifacturing 8=Paper and Packaging 9=Tecnology and Telecomunication 10=Textile industry
2016E2017F2018
Median=30
700
600
500
400
300
200
100
000000 020 040 060 080 100 120
Median=08
Exhibit 39 NFDEquity and NFDEBITDA for manifacturing sectors
2
4 8
101
9
9
3
57
Source Cerved database and Cerved Rating Agency elaboration
096AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
104146095152117112109
098087
087080116068118083088086
084078
075074104069107082080079
084083
072064100065105084122081
079081
082066104065105080091079
077082
081067103065105079087079
077081
076067101064104077083078
076080
NFDEQUITY Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
227AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
258334222397249255259
315202
338313443305495363403412
480337
315306436328479373380397
482316
264269490303467366403383
515317
269243507090106127090106
106106
413343478088105127088105
105105
399333465086104127086104
104104
NFDEBITDA Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
36
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Exhibit 40 Growth rate and EBITDA margin for wholesale and retail trade sectors
20 40 60 80 100 120 140 160
2016E2017F2018
Median=31
Median=33
0000
20
10
30
60
50
70
1=Automotive 2=Retail 3=Wholesale
40
3
12
2016E2017F2018
Median=45
700
600
500
400
300
200
100
000050 070 090 110 130 150 170 190
Median=11
Exhibit 41 NFDEquity and NFDEBITDA for wholesale and retail trade sectors
1=Automotive 2=Retail 3=Wholesale
21
3
37
Ratings will remain broadly stable
The following section presents a risk profile analysis
based on Cerved Rating Agencyrsquos outstanding and
monitored public and private ratings issued from
2013 to 2017 on Italian non-financial companies
and operating in the industries discussed in this
study (data as of 31 December)
Exhibit 42 and Table 9 show an overview of 1-year
effective default rates over the 2000-2017 horizon
related to the sample bankruptcy and other legal
proceedings and debt restructurings as default
events
The default rate trend shows a general
improvement from 2014 onwards both by
company size classes and by industry however
considering the entire sample the overall default
rate still remains higher when compared to its pre-
crisis level especially regarding smaller companies
operating in the construction sector
Exhibit 43 shows the effective default rates over
2013-2017 horizon based on Cerved Rating
Agencyrsquos definition which considers as default
events
middot bankruptcy and other legal proceedings
middot debt restructuring
middot missed or delayed disbursement of a contractually
required interest or principal payment ie missed
payment on bonds material protests (on cheques
or trade bills) or prejudicial acts (judicial mortgages
distraint of property)
The effective default rates over the 2013-2017
horizon show decreasing trend and satisfy the
monotonicity constraint regarding all Cerved
Rating Agencyrsquos rating classes (Exhibit 44)
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2003 2004 2005 2006 2007 2014 2015 2016 20172000 2001
5678
12
3
4
0
Exhibit 42 Avarage 1-year default rate by size over 2000-2017 horizon
medium small
2008 2009 2010 2011 2012 2013
Mining and quarring
Manifacturing
Electricity gas steam and air conditioning supplyWater supply sewerage
Construction
Wholesale and retail trade repair of motorTransporting and storage
Accomodation and food service activities
Information and communication
24221809
5212
282915
2529
38533424
13027
454830
4838
36542537
15929
424421
4323
23461921
13226
293226
3022
Source Cerved database and Cerved Rating Agency elaboration
Table 9 Default rate by industry over 2000-2017 horizon
Total
NACE Average2008-2015
Average2000-2017 2016 2017
2016
Source Cerved database and Cerved Rating Agency elaboration
C21C12C11B22B21B12B11A11 A12 A13 A21 A22 A31
60
50
40
30
20
10
0
Exhibit 43 1-year default rate over 2013-2017 horizon
20172013 2014 2015
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
38
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The analysis of historical rating distributions in the
same period shows clear differences in terms of modal
rating class by company size As shown in Exhibit 43
the modal rating class for the large companies is A31
B11 for the medium and B12 for small companies
(considering company size classes as they have been
defined ad hoc by Cerved Rating Agency for the
purposes of this study)
Overall the corporate rating distribution in the
Source Cerved database and Cerved Rating Agency elaboration
C21C12C11B22B21B12B11A11 A12 A13 A21 A22 A31
30
25
20
15
5
10
0
Exhibit 44 Rating distribution frequency by size classes
large
30
25
20
15
5
0
10
medium smallRating 2013 total Rating 2017 total Rating 2017 forecast
observed period is skewed towards the investment-
grade rating categories (ie Cerved Rating Agency
rating classes from A11 to B12) representing 700 of
the whole sample 250 is concentrated in the safety
(A rating classes) and 450 in the solvency (B11-B12)
classes
We anticipate the rating distribution to remain
broadly unchanged in 2018 with the rating migration
concentrated mainly in the B category
39
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100543
2414
4407
4407
2636
4554 4558
2403 2311
535 527
90
10
0
Exhibit 45 Rating distribution frequency by area of risk - Total companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency]I nvestment GradeA11-A31 [Safety]
2509 2604
704 4407706 4407716
324
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
985
5658
4407
3033 2992 2898
925 907
300 318
90
10
0
Exhibit 46 Rating distribution frequency by area of risk - Large companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
5783 5878
869 4407878 4407878
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
4407
4407
3626
4080
17591695
439 449
90
10
0
Exhibit 47 Rating distribution frequency by area of risk - Medium companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
3571 3776
7044407780 4407786
456
1805
774
4113 4232
603
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
2824
1900
4407
4673 4850 4761
2833 2754
600 633
90
10
0
Exhibit 48 Rating distribution frequency by area of risk - Small companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
1716 1852
657 4407657 4407661
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
40
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Slight improvement in general creditworthiness
In our opinion in 2018 the creditworthiness of the
observed Italian non-financial companies will remain
stable for almost 86 of entities Migration of ratings is
expected to be moderate resulting in approximately 14
of rating upgrades (9) and downgrades (5) at the end
of 2018 compared to the outstanding ratings at the end
of 2017 The vast majority of the rating changes (921)
will be limited to one-class migration as shown in the
1-year projected transition matrix (Table 10) We believe
that more than one third of the expected downgrades
will be concentrated in the energy gas mining and
construction sectors Over the last years the average
credit profile of companies active in these industries has
been relatively weak and due to the forecast market and
regulatory conditions we do not envisage opportunities
for a significant risk profile improvement in 2018
Despite the expected rating migrations for individual
entities in 2018 the current industry modal rating
classes are unlikely to change
On the other hand stable and positive outlooks will
prevail in the manufacturing industry wholesale and
retail trade and accommodation and food service This
is due to the increase in the number of companies
active in these sectors which will maintain andor
improve their business and financial performances
Indeed as shown in Table 11 in 2018 the rating outlook
remains differentiated by industry whilst in terms of
the expected general probability of default we foresee
a modest improvement (349) compared to the one
recorded in 2017 (366)
Table 10 1-year transition matrix
Source Cerved database and Cerved Rating Agency elaboration
2017
A11
A31
B11
C11
C12
B21
C21
B22
B12
A12
A13
A21A22
F 2018A11 A12 A13 A31 B11 C11 C12B21 C21B22B12A21 A22
000 530
066
054 451034 435
027 753055 901
1033121247 1624
260 1038088
000
000000037
028
295
290
1063
179
455050647
043425
026490020208
000208
000152
000000
00000010000
9821
9318
92679015
87708583
81497646
8665
9617
9710
8605
419024
41
The information and data supporting Cerved Rating Agency rating opinions related research and credit opinions originate from sources Cerved Rating Agency considers to be accurate however Cerved Rating Agency cannot independently verify the reliability and accuracy of the information and data in every instance This publication may not be reproduced retransmitted or distributed in any form without the prior written consent of Cerved Rating Agency Cerved Rating Agency assumes no liability for correctness completeness and topicality of the information contained in this publication The analyses underlying this study do not provide advice of any sort
26
n
6670
486
59
Exhibit 49 Ratings outlooks by size
Large
Medium Positive Stable Negative
Small
21
13
Large
Medium
Small
Source Cerved database and Cerved Rating Agency elaboratio
Table 11 Ratings and probability of default 2018 outlook by industry
Source Cerved database and Cerved Rating Agency elaboration
NACE Micro industryDowngrade
B-Mining and quarryingAutomotive
900814
848
812
880812
847
813 172
170
174
144
8264 36
08
104 433 436
392 373
22724815
362 360
876
876
914
848
849
804
887
882
916
901835870899 64
866760
43
68
5659
58
47
61
49
74
78 75
14
50
37
36
5393
32
50
41
45
3899
77
91
316
372
355
364
308
491
326
318 296
331
312
381
367
359
322
495
452
433
403429
389
364369
363
313
452
323
594
38
315358
603
307
345 350
67 5318
469289 274
470
147
116
138
851
821AutomotiveRetail
Wholesale
Total
Chemistryamppharmaceutics
ClothingEquipment
Food Beverage and Tabacco
Heavy Manifacturing
Other Manifacturing
Textile industry
Total
Tecnology Media ampTelecomunication
Paper Packaging ampForest products
C-Manifacturing
D-Electricity gas steam and air conditioningsupply
F-Construcion
H-Transportig and storageI-Accommodation and food service activitiesJ-Information and communication
G-Wholesale and reatail traderepair of motor vehicles and motor-cycles
E-Water supply sewerage waste
Average ForecastPD 2018
Expectedtrend
Average PD 2018
Ratings outlooks
Stabl pgrade
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Cerved Rating Agency SpAVia dellrsquoUnione Europea n 6A-6B20097- San Donato Milanese (MI)
Tel +39 02 77541 - Fax +39 02 76020458
ratingagencycervedcom
Rating Agency
17
No room for significant public debt reduction
At the end of 2016 the Italian government debt-to-GDP
ratio was significantly above its level at the beginning of
the century In particular as of December 31st 2016 the
ratio was 1326 (262 with respect to 100 recorded
at the end of 2000)
In the same period the ratio for the euro area increased
from 681 to 913 (341) in Germany from 589 to
683 (159) and in France from 586 to 960 (638)
At the end of 2017 the Italian government debt increased
further to more than euro2300 billion 1350 of GDP The
debt servicing in terms of interests accounts roughly
50 of Italian GDP
In our view the high level of government debt
represents a key factor limiting Italian economic growth
and contributes eo ipso to increasing country risk
with a possible negative impact on the stability of the
international financial system
A possible increase in interest rates would raise the
cost of debt service potentially triggering a crisis due to
larger governmental deficits a slowdown in economic
activity and growing debt refinancing difficulties due to
higher risk perceived by investors
Hence it seems that a significant reduction in
government debt should be the main goal of the Italian
economic and financial policy in our opinion however
the achievement of such a result is not realistic neither
in the short nor in the medium term due to the following
factors
middot economic growth in the coming years is expected
to be moderate not sufficient to be the main source of
the government debt reduction
middot macroeconomic policy is expected to prioritize
investments employment social security and welfare
rather than government debt reduction
middot even if the inflation rate hits the target value (20) the
impact on the government debt in the short term is not
expected to be considerable
middot finally in Italy election will take place in spring 2018
with a new government taking over the economic
program that has already been approved and become
fully executive
Euro area
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 2012 2013 2014 2015 20160
20
40
60
80
100
120
140
Exhibit 19 Public debt as GDP
France
Source AMECO and Cerved Rating Agency elaboration
CERVED RATING AGENCY SpA | Highlights on italian economy
18
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Table 1
Amount ( 407 312
-327
327754
216074 190881
163248 345604188167
869
1543
2213
1793
CAGR (base year 2000)
CAGR (base year 2008)
NPL ratio ()
Ndeg debtors
Averae debt debtor
Valueindicator 2000 2008 2016
Source Bank of Italy and Cerved rating Agency elaboration
Credit activity to be expanded interest rates to remain at very low levels
As of December 31st 2016 the volume of bank loans
granted to Italian non-financial corporations amounted to
euro8604 billion
The period 2000-2016 was characterized by two different
trends from 2000 to 2011 the annual outstanding loans
value increased by 841 (euro454 billion reaching in 2011 its
highest level ever of euro993 billion thanks to 57 CAGR far
above the Italian GDP growth) whilst in the period from
2012 to 2016 loans decreased by 134 (euro130 billion)
reflecting a negative -28 CAGR The loan reduction hit
sharply construction and manufacturing (accounting
for about 400 of all loans) which experienced -227
and -135 decrease in loan volumes whilst agriculture
forestry and fishing and wholesale and retail trade
(including repairs of motor vehicles and motorcycles)
had more limited loan contraction (-08 and -53
respectively)
In the observed period due to the negative impact of the
global financial crisis 200708 and to structural changes in
the world economic and financial environment a radical
decrease in interest rates was recorded In 2017 the
interest rates charged to Italian non-financial corporates
were on average less than half compared to those charged
in 2000 In the medium term low interest rates will remain
a positive factor fostering investments and consumption
Non-performing loans to be further reduced due to innovative measures
The credit crunch had a huge and dramatic impact on
the Italian economy hitting especially small businesses
which are not able to survive in a radically changed market
conditions The evidence of such outcome can be seen not
only through the decreased number of active companies
but also via the enormously increased volume of the
non-performing loans (NPLs) In particular these loans
amounted to euro324 billion at the end of 2016 of which euro154
billion were granted to the non-financial corporations as
shown in table 1
Following the principles outlined in the ECB guidelines
published in March in 2017 Italian Banks made significant
progress in reducing the amount of the NPLs ndash estimated
to be over euro50 billion debt reduction Any further actions
aimed to improve the banking balance sheets should not
increase the financial hardship of still operating companies
North - East SouthNorth - West Center Islands
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 2012 2013 2014 2015 20160
1200000
1000000
800000
600000
400000
200000
NPLs ratio
Source Bank of Italy and Cerved Rating Agency elaboration
20
1816
14
1210
8
6
42
0
446393
euro billion)
19
Modest role of italian equity capital markets
Despite the number of listed companies increasing
from 297 to 421 in the period 2000-2017 the role
of the stock markets remains modest in Italy
As of December 31st 2017 the market capitalization
was euro640 billion (375 of the estimated Italian GDP
in 2017) representing only 782 of the overall
market capitalization recorded in 2000 (equal
to euro818 billion 687 of GDP) mainly due to
an unfavorable economic cycle in the observed
period
This situation shows the structural weaknesses of
the Italian economic and financial system especially
when compared to other highly developed
European economies The low propensity to
raise equity capital through organized markets
is linked to an unfavorable macroeconomic and
fiscal framework as well as to the predominance
of SMEs mostly unfit for listing and presenting
cultural obstacles (ie company owners and managers are often reluctant to accept wider company control and
transparency)
Hence self-financing and bank borrowing remain the main sources of finance for Italian companies which are
generally speaking undercapitalized with a negative impact on their investment capabilities Very frequently the
lack of medium-long term financing means forces companies to focus their attention on running current activities
postponing or abandoning strategic projects fundamental for company growth
A wide range of innovative initiatives have been undertaken with the aim of fostering market based company
funding in particular
middot AIM (Alternative Investment Market) - a specialized market segment dedicated to SMEs growth (95 companies and
market capitalization around euro56 billion as of December 2017)
middot ELITE - a programme designed to help SMEs prepare and structure for the next stage of growth their through
access to long-term financing opportunities
middot PIR - Piani individuali di risparmio (Individual Savings Plan) - an innovative way to fund Italian SMEs by offering retail
investors resident in Italy tax incentives (full exemption of 260 income tax) if the savings stay invested for at least
five years A minimum of 700 of such credit assets must be invested in financial instruments issued by Italian or
foreign (EU and EEA) companies permanently established in Italy
FTSE (MIB)Enterprises
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 20132012 20152014 201720160
100
200
300
400
500
600
700
800
900
100029681 29525
14623
1765216121
12259
13512
16048
15988
19012
21428
21853
2185322232
16954
297 294 295 279 282278 311 336 332 332 328 323 326344 342 356 387 421
19483
22886
26056
31005
Exhibit 21 Italian listed enterprised and FTSE (MIB) index trend
Source Borsa Italiana
300000
250000
200000
150000
100000
5000
0
Capitalization of GDP
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 20132012 20152014 201720160
100
200
300
400
500
600
700
800
900
1000
Exhibit 22 Italian market capitalization of listed companies ( of GDP)
Source Borsa Italiana
80
70
60
50
40
30
20
10
0
8184
5923
354 365418 473
524475
239301 275
210233
287 295348
318375
4580 4875
5809
6766
77857336
37474571
4251
3324
44664678
56765249
6400
3655
474
68
CERVED RATING AGENCY SpA | Highlights on italian economy
20
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Italian debt capital market is growing but still remains behind needs
At the end of 2016 the outstanding amount of debt
securities issued by Italian financial and non-financial
corporations was euro8615 billion 510 of the countryrsquos
GDP The table below shows the breakdown by issuer
type of Italian German French British and United States
outstanding amounts of debt securities as of December
2016 issued by financial and non-financial corporations
with the respective debt-to-GDP ratio
Despite the outstanding debt at the end of 2016 being
almost double compared to 2000 it represents only 23
of its peak value reached in 2012 (euro1290 billion Exhibit
23) The main reason for such a significant debt reduction
is the huge bond reimbursement realized by banking
institutions from 2013 to 2016 and the related negative
net flow of debt securities (respectively -80 -153 -106
and -67 billion of euro as shown in Exhibit 24)
The decrease in debt securities funding of Italian banks
has been compensated by a wider use of deposits and
resources available under the Eurosystem refinancing
operations framework
The outstanding amount of debt securities issued by
non-financial corporations at the end of 2016 also
doubled its value with respect to the amount recorded
at the end of 2000 The main characteristic of this cluster
is the high concentration of issuancesdebt to a small
number of issuers
Due to both more favourable general economic
conditions and active ECB monetary policy bond yields
have decreased significantly providing room for a
convenient fund raising
Since the introduction of a new regulatory framework
(lsquoDecreto Svilupporsquo) in 2012 up to October 2017 Italian
market saw 300 small-size listed bond issues (ie so
called minibonds) amounting approximately to euro143
billion Issued mainly by SMEs they offer interesting
yields to institutional investors
) Source Business support SpA ndash Minibonditalyit
BanksTotal
Source Bank of Italy and Cerved Rating Agency elaboration
2006 20082000
-200000
200000
250000
-150000
-100000
150000
100000
-50000
50000
02012 2014 20162002 2004 2010
Banks debt securities outstanding
Banks Debt to GDP ratio
Source Bank of Italy and Cerved Rating Agency elaboration
0
10
20
30
40
50
60
70 1400000
1200000
1000000
800000
600000
400000
200000
0201620142012201020082006200420022000
Table 2 Outstanding securities debt (euro Million)Debt-to-GDP ratio()
Financial corporates
Total
Debtsecurities
outstanding
Italy German rance United Kingdom United States
739
123
862
440 340 470
21
680380
40
1279 1331 4 50
880
30
14271
14820
549180
10202767
590
19211436
15770
510
Debtsecurities
outstanding
Debtsecurities
outstanding
Debtsecurities
outstanding
Debtsecurities
outstanding
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Source Bank of Italy
0
0
21
CERVED RATING AGENCY SpA | Highlights on italian economy
22
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Italian non-financial companies economic Outlook 2018
23
Data and method
This research focuses on Italian non-financial companies
with an annual turnover exceeding euro5 million With the
aim of using only reliable data joint stock and limited
liability companies have been considered only these
entities according to Italian law file complete annual
financial statements in the Chamber of Commerce
together with anagraphical company data other
legal forms such as unlimited partnerships and sole
proprietorships are not included in this sample due to
the lack of publicly available standardized financial data
We believe that this cutoff is reasonable and allows us to
perform a methodologically correct analysis In 2016 the
above mentioned companies despite representing only
42 of all registered and active joint stock and limited
liability companies accounted for 769 of their total
turnover
Moreover cluster specialization has been obtained by
NACE activity classification from A to J (thus not including
in the sample financial and insurance companies and
some service industries) The statistics regarding specific
industries provide important key data and enable us to
examine historical and prospective trends and cross-
sector comparisons
The Cerved database which contains legal anagraphical
financial and market information on all Italian registered
legal entities (approximately 6 million comprising 5
million active ones) was the most important database
used for this research Long time series and broad
homogenized and standardized data covering different
economic cycles were the building blocks to perform
the regression and predictive analysis
Historical and forecast macroeconomic data and
analysis performed by the International Monetary Fund
OECD the World Bank European Central Bank Bank
of Italy and ISTAT completed the dataset used for the
analysis
Several analyses were performed in order to examine
the structural differences within the sample in terms of
company legal form and geographical area (Exhibit 25)
company age (Exhibit 26) and company size and industry
As a result we verified a considerable heterogeneity of
companies in particular with regard to the company size
across various industries
The relevant observation period comprises the years
between 2000 and 2016 Table 3 describes some
characteristics of the sample
Exhibit 25 Sample break-down by legal form and geographic area (2016)
Joint stock Company
Limited liability Company
Area 1 (Northwest)
Area 3 (Center)
Area 2 (Northeast)
Area 4 (South)
39
20
27
14
33
67
33
Table 3 Sample characteristics 2000-2016
TotalTurnover
gt euro5million
Turnover gt euro5 million(industry
from A to J)
TotalTurnover
gt euro5million
ofTotal
Turnover gt
euro5 million(industry
from A to J)
Source Cerved database
Entreprises Turnover billion
2000 659867700717738558772442812025847334883122915172937018949708965744969581
953505945825922513883224
4215144587462234694749640518205596459226595385246754808563745362752074519385289450123
3686139038411864118843547454704921752274526974633848778504734806246843468384771845288
16151740177018472002212923302477256822562421257025202446243224392295
12661362139214561588169818752000208317861944208720541992198419871905
11141205124013041430152316891801189716191764191218831839183518371765
689693700
716
706714
725
718729744748752754753769
727739
200120022003200420052006
200820092010201120122013201420152016
2007
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
24
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Furthermore in order to guarantee more detailed and
accurate analyses and projections we decided to create
a static pool to show consistently long time horizon
economic trends (17 years) by sealing off all the active
companies over the 2000-2016 horizon
The outcome obtained by considering the behaviour of
specific variables related to the companies included in
the static pool was extended as a performance indicator
for the whole sample (turnover over euro5 million and
industry from A to J)
According to the European Communityrsquos definition of
SMEs using annual turnover and employee headcount
as quantitative criteria the initial sample of companies
and the static pool can be classified by size classes on
the basis of the financial statements for the year 2016
as shown in Table 4
For the sake of this analysis we defined specific size
classes for each industry thus deviating from the
European Commissionrsquos recommendation which
presents undifferentiated upper and lower bounds of
quantitative criteria for SMEs in all industries To define
the thresholds of such classes we used both a statistical
approach (a specific cluster procedure by minimizing
the within-cluster turnover standard deviation) and a
judgmental approach by relying on the experience and
opinion of our industry expert analysts Table 5 shows
the results of such analysis referring to the sample in
2016 (45288 entities) and the NACE sections from A
to J Moreover the NACE section C and G were further
disaggregated into sub-industry classes as shown in
Exhibit 27 in order to consider the specific business
differences within these NACE sections thus ensuring
a good fit and a satisfactory accuracy of the estimation
Exhibit 26 Sample break-down by company age classes
0-2 Years 2-5 Years 5-10 Years 10-20 Years gt20 YearsSource Cerved database and Cerved Rating Agency elaboration
0 20 40 60 80 100
ABCDEFGHIJ
A = AgricolutreB=Mining and quarryingC=ManufacturingD=Electricity and gasE=Water supplyF=ConstructionG=Wholesale and retail tradeH=Transporting and storageI=Accomodation and food serviceJ=ICT
Small
Annul Turnover
Empolyees
Static Pool
Enterprises(Turnover gt euro5 million)
Enterprises(Turnover gt euro5 millionindustry from A t J)
Medium Large
lt 50 lt 250lt 36774 11113
1005333223
8741
2236
2012
154818645
gt euro50 million
gt 250
lt euro50 million
Source Cerved database
NACE Micro industry
B-Mining and quarryingAutomotive
Automotive
Retail
Wholesale
T gt 480
T gt 80
T gt 260
T gt 265T gt 270
T gt 230
T gt 120
T gt 80
T gt 43
T gt 65
T gt 106T gt 106
T gt 360T gt 155T gt 150T gt 100
T gt 120
T gt 225T gt 1400T gt 27500
T gt 1500
ChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther Manifacturing
ICTTextile
Paper Packaging ampForest products
C-Manifacturing
F-Construcion
H-Transportig and storageI-Accommodation and food service activities
J-Information and communication
D-Electricity gas steam and aircoditioning supply
G-Wholesale and reatail traderepair of motor vehicles and motorcycles
E-Water supply sewerage waste management and emediation activities
Large (Turnover
in euro million)
Medium(Turnover
in euro million)
Small(Turnover
in euro million)
Source Cerved database and Cerved Rating Agency elaboration
60 lt T lt 480 5 lt T lt 60
5 lt T lt 20
5 lt T lt 36
5 lt T lt 35
5 lt T lt 44
5 lt T lt 40
5 lt T lt 20
5 lt T lt 26
5 lt T lt 250
5 lt T lt 185 lt T lt 305 lt T lt 265 lt T lt 205 lt T lt 37
5 lt T lt 335 lt T lt 40
5 lt T lt 255 lt T lt 585 lt T lt 1155 lt T lt 1005 lt T lt 27
20 lt T lt 80
36 lt T lt 26035 lt T lt 26544 lt T lt 270
40 lt T lt 230
20 lt T lt 120
26 lt T lt 80
18 lt T lt 43
250 lt T lt 1500
20 lt T lt 6537 lt T lt 29540 lt T lt 15533 lt T lt 15025 lt T lt 100
27 lt T lt 120
58 lt T lt 225
100 lt T lt 27500 115 lt T lt
30 lt T lt 10626 lt T lt 106
25
Exhibit 28 shows the breakdown of macro industries
analysed including disaggregation of the NACE section C
(manufacturing) and G (wholesale and retail trade repair
of motor vehicles and motorcycles)
In order to carry out the analysis and projections this study
is focused on we used simple multiple linear regression
model for each industry and company size classes
considering macroeconomic and individual companiesrsquo
economic and financial data
The analysis enables us to develop an econometric
model used to estimate likely credit quality changes (in
terms of rating class and probability of default) for single
industries and company size classes
Automotive
Retail
Wholesale
21
1366
1
42
1
26
35
232
6
A B C D
F G H I
46
7
21
1318
9
15
34
Automotive
Chemistry amp pharmaceutics
Clothing
Equipment
Food Beverage and Tabacco
Heavy Manifacturing
Other Manifacture
Paper Packaging amp Forest Products
ICT
Textile industry
Large SmallMedium
Source Cerved database and Cerved Rating Agency elaboration
0
Wholesale
Retail
Automotive
20 40 60 80 100
Automotive
Chemistry amp pharmaeutics
Clothing
Equipment
Food beverage and Tabacco
Heavy Manifacturing
Other Manifacturing
Paper Packaging amp Forest Products
ICT
Textile
0 20 40 60 80 100
ABCDEFGHIJ
0 10 30 40 60 70 80 90 100
Exhibit 28 Sample break-down by industry (2016)
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
26
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Performance indicators to improve further
The annual financial statements available through public
registers provide a clear economic and financial picture
of the Italian joint-stock and limited liability non-financial
companies The individual historical data available from
2000 to 2016 enriched with 2017 preliminary results and
with the expected 2018 macroeconomic scenario enabled
us to build up the 2017 and 2018 projections regarding
the following four performance indicators related to the
analyzed sample 1) growth rate - revenues YoY change
2) EBITDA margin 3) net financial debtEBITDA and 4) net
financial debtEquity Afterwards the median values of the
resulting data were used to obtain the summary output
which we consider as a representative proxy for the overall
market
From 2000 to 2016 the observed companies experienced
a very irregular trend both in terms of growth rate and
EBITDA margin In the aftermath of the global financial crisis
the lowest growth rate value (-120) was recorded in 2009
manufacturing transporting - storage and wholesale and
retail trade were the industries showing the biggest fall of
business volume (-155 -121 and -104 respectively)
whilst water supply accommodation and food service and
electricity and gas showed the highest level of resilience to
the adverse economic and financial environment (-01
-23 and ndash26 respectively) Exhibit 29 shows that in
terms of median value there are no significant differences
in the growth rate taking into consideration company size
classes as we previously defined them Only from 2010 the
growth rates turned positive but still remaining below the
levels recorded in 2000
The analysis of the EBITDA margin changes in the same
period also does not highlight significant differences
between large companies and SMEs as shown in Exhibit
30 The lowest median EBITDA margin value (52) was
recorded in 2012 regarding in particular accommodation
and food service transporting and storage and agriculture
sectors (28 40 52 respectively) while electricity
and gas ICT and water supply were relatively immune to
the unfavorable economic and financial circumstances
(showing 113 109 and 105 EBITDA margin
respectively) At the end of 2016 the median EBITDA margin
(60) still remains below the levels recorded in 2000 (72)
Positive trends emerging from the last publicly available
financial statements (2016) the 2017 preliminary results
and the optimistic macroeconomic forecasts for 2018
confirm improvement of the Italian economy Looking
ahead we expect the Italian non-financial companies to
continue to experience gradual recovery in 2018 They are
going to take advantage of the favorable global economic
cycle low interest rates and supportive regulations that
inter alia foster the use of alternative non-bank financial
sources for company funding The financial resources raised
through Individual Savings Plans (PIR ndash Piani individuali di
risparmio) introduced by the 2017 Budget Law are driven
in primis by a favorable tax regime for savers and might
become an important additional source for SMEs funding
injecting new liquidity The government objective fixed euro68
billion as a target value and in 2017 nearly euro10 billion had
already been raised
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2004 2006 2014 20162000
5
20
10
0
15
-15
-10
-5
Exhibit 29 Growth rate (revenue YoY change) by size classes (median)
medium small
2008 2010 2012
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2004 2006 2008 2010 2012 2014 20162000
7
10
9
8
6
5
4
3
7
10
9
8
6
5
4
EBITDA margin by size classes (median)
medium small
27
So far one of the main obstacles PIR are facing is the limited
number of available assets which may lead to a possible
concentration of this financial resources in a small share of
the market comprising mainly relatively large companies
as shown by the early data in 2017
Another obstacle to rapid adoption of the newly available
financial resources is the lack of a standardized and broadly
accepted methodology for the risk assessment of potential
bond issuers
Generally speaking in 2018 we expect SMEs to contribute
more significantly to growth employment and innovation
whilst on average the respective EBITDA margin will remain
broadly stable (as shown in Exhibit 31) However 2018 will
still be a challenging year for SMEs and innovative startup
companies as they will have to face tougher barriers in
accessing bank credit andor approaching capital markets
compared to large companies We also expect some new
innovative solutions aimed at meeting SMEs financial needs
to become effective the SMEs current financial structure
together with new business opportunities prove their
ability in terms of rational use of the additional financial
resources
The new investments will allow most industries to thrive
also assisted by the Italian Governmentrsquos adoption of the
National Industry 40 Plan
The companies which will take up this opportunity may
improve their cash-flows even in the short-medium term
Finally companies with strong international market
positioning and large product diversification will have
stronger sales and margins growth
The key ratio values recorded from 2000 to 2016 related to
the analyzed entities show the improved financial health of
the companies proving good capability to strengthen their
equity base as shown in Table 6
Growth rate (2016)Medium
Total
Small Large
Growth rate (2018)Growth rate (2017)
Source Cerved database and Cerved Rating Agency elaboration
50
40
Exhibit 31 Growth rate and EBITDA margin forecast by size classes
EBITDA margin (2016)EBITDA margin (2018)
EBITDA margin (2017)
40
30
0
10
20
Medium
Total
Small Large
7570
65
0
6 5560
5550
4540
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
28
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The recorded financial ratios in the 2000-2016 horizon
indicate that on average
middot liquidity maintained a satisfactory level in the whole
observed period due to the positive economic cycle in
2017 and 2018 we expect a slight improvement in the ratio
middot the EBITDAinterest coverage ratio almost doubled its
value in 2016 compared to what was recorded in 2000
primarily due to a general reduction in the interest rates
particularly in the last three years we believe that in 2017
and 2018 the average ratio value will remain roughly at the
same level recorded in 2016
middot in 2016 ROE shows further improvement but is still
slightly lower compared to the value recorded at the
beginning of the observed period mainly due to the equity
base strengthening trend
middot Equity Ratio rose from 250 to 350 due to a significant
increase of equity capital in 2018 we expect further
strengthening of the ratio
middot Financial LiabilitiesTotal Assets ratio remained mostly
unchanged ndash financial debts representing roughly 30 of
the total assets
A positive trend regarding the net financial debt was also
observed in fact in 2016 70 of the sample improved their
NFDEBITDA and 73 the NFDEquity
Positive performances were found especially in the SMEs
segment as shown in Exhibit 32 in particular referring to
NFDEquity small and medium-sized companies recorded
a positive trend standing respectively at 092 and 089 in
2016 compared to 132 and 136 in 2000
Hence the financial risk profile appears to be well balanced
leaving no room for specific concerns regarding the
prospects of the Italian non-financial companies in 2018
In 2016 the median values for the total sample referring to
NFDEquity and NFDEBITDA remained respectively at 089
and 389 levels respectively
Looking ahead we expect these indicators to remain at
healthy levels in 2017 and 2018 with a slight improvement
in NFDEBITDA and a broadly stable level of the NFDEquity
ratio as shown in Exhibit 33
NFDEBITFA (2016) NFDEBITFA (2017)NFDEBITFA (2018)
40
Exhibit 33 NFDEquity and NFDEBITDA forecast by size classes
Source Cerved database and Cerved Rating Agency elaboration
404
20
25
45
35
30
NFDequity (2016) NFDequity (2017)NFDequity (2018)
05
06
09
10
08
07
Exhibit 32 NFDEquity and NFDEBITDA by size classes (median)
largemediumsmall
2016
2015
2014
000 5 10 15
Average2008-2013
Average2000-2007
total largemediumsmall total
Source Cerved database and Cerved Rating Agency elaboration
2016
2015
2014
203 0 405 0
Average2008-2013
Average2000-2007
29
Growth and profitability improvement spanned over all sectors
Exhibit 34 shows the relative positioning of the 10
macro-industries in the short-medium term considering
the median values related to revenue growth rate and
EBITDA margin
The historical median values are calculated on the basis
of financial data obtained from the annual financial
reports 2014-2016 filed in the Chamber of Commerce
public registers the projected median values for 2017
and 2018 are the result of the analysis of this study
As expected there are significant differences in
positioning between different industries in terms of
both historical and projected values
In 2018 we expect manufacturing and accommodation and
food services to maintain top positions already reached in
2016 and 2017
For the electricity gas mining and quarrying industry
2018 may be the turning point showing the first positive
signals after experiencing some difficulties over the last
few years
None of the other industries show significant changes in
2018 compared to their 2016 positioning
Source Cerved database and Cerved Rating Agency elaboration
A 50
57599586886358
3849
3620083721
-110320
-1112
210322
-1814021122
1413
030124
-5010284025
0555
20-4614
-4607212105
0430
210328-2310203218
0832
2310300512233720
1637
BCDEFGHIJ
A 625296
1441401016934
15352
504969
103121916227
10639
4764676185562639
68112
4873687090592845
75120
456772928856
45
7898
4667759090573147
7698
4668769394583147
77102
EBITDAmarigin
BCDEFGHIJ
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018Growthrate
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
Exhibit 34 Growth rate and EBITDA margin by industry
-70 -50 -30 -10 10 30
2016E2017F2018
50 70 90
Median=68
Median=2100
20
40
60
80
100
120
A=Agricolture B=Mining and quarrying C=Manifacturing D=Electricity and gas E=Water supply F=Construction G=Wholesale and retail trade H=Transporting and storage I=Accomodation and food service J=ICT
D
B
E
FHA G
C
I
J
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
30
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Further strenthening in companiesrsquo financial structure
Exhibit 35 shows the relative positioning of the 10 macro
industries in the short-medium term considering the
median values related to NFDEBITDA and NFDEquity
ratios
The historical median values are calculated on the basis
of financial data obtained from the annual financial
reports 2014-2016 filed in the Chamber of Commerce
public registers the projected median values for 2017
and 2018 are the result of the analysis of this study
There are even more significant differences in
positioning between industries regarding NFDEBITDA
and NFDEquity ratios when compared to growth rate
and EBITDA margin differences
Generally in the observed period there is no evidence of
significant changes among industries considering their
relative positioning related to NFDEBITDA and NFD
Equity ratios
In 2018 we expect accommodation and food services
and information and communication services to
maintain top positions already reached in 2016 and
presumably confirmed in 2017
Exhibit 35 NFDEquity and NFDEBITDA by industry
2016E2017F2018
Median=37
Median=08500
030 5 070 9 111 3
20
30
40
50
60
70
10
A=Agricolture B=Mining and quarrying C=Manifacturing D=Electricity and gas E=Water supply F=Construction G=Wholesale and retail trade H=Transporting and storage I=Accomodation and food service J=ICT
EH
C
BF
G
A
D
J
I
A 150101113081112149151120
079131
123075088101097125123103
072079
114067083052090108119102
067076
113060080045089096114092
074069
125076080045089106109086
050060
127072080044091
108084
051056
128067079043093106107081
051051
BCDEFGHIJ
NFDEquity
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
A 597219280305251301338250
153260
676394388342298453499349
254337
707482387293277498532337
277334
696392373254305484494308
231315
747401358330285544483294
183312
722390340341280511470290
178293
710380310329272492452281
177289
NFDEBITDA
BCDEFGHIJ
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
Source Cerved database and Cerved Rating Agency elaboration
106
31
Exhibit 36 Equity ratio by industry
Average 2000-2007 2014 2015Average 2008-2013 2016
Source Cerved database and Cerved Rating Agency elaboration
05
10
20
30
15
25
3540
5045
AB C DE FG HI J
Exhibit 37 EBITDA interest coverage by industry
Average 2000-2007 2014 2015Average 2008-2013 2016
Source Cerved database and Cerved Rating Agency elaboration
0
5
10
20
15
AB C DE FG HI J
A 1113140911151211
1408
1013131012131209
1208
1114151012131311
1309
1214151012151312
1309
1215161113161412
1409
BCDEFGHIJ
Liquidity ratio Median2000-07
Median2008-13 2014 2015 2016
A 0377677447858463
8960
0332
8145524536
4832
0342486042273848
3246
0537606853395765
4069
0743676559416378
5882
BCDEFGHIJ
ROE Median2000-07
Median2008-13 2014 2015 2016
Table 7 Liquidity ratio by industry Table 8 ROE by industry
Source Cerved database and Cerved Rating Agency elaboration
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
32
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Agriculture
Considering the recent price decline for agricultural
products putting EBITDA margin under pressure for
most of the industry participants we anticipate a slow
revenue growth in 2018 We also foresee more stable
margins in 2018 and investments to continue at a faster
pace in the near future mainly aimed at transforming the
agricultural activities into a high-tech industry Climate
and cultural changes are the main exogenous risks that
may negatively influence the sector
Mining and quarrying
Over the last few years the mining industry has been
challenged by record low metal prices and this has
resulted in a weak growth of supply and a cut in
investments especially in the new mines opening We
foresee a modest revenue growth in 2018 supported
by more stable prices rather than by government
infrastructural investments Margin pressure will remain
mostly unchanged in 2018 We do not expect a significant
increase in capital expenditure for most companies
while only a minority of industry participants will invest
in new capacities searching for new growth opportunities
by introducing new higher margin outputs Overall we
anticipate relatively stable key financial indicators
Manufacturing
We believe that in 2018 Italian manufacturing
representing 2nd European and 7th world player in 2016
will remain the beating heart of the national economy
In our view the expansion of internal demand the
improvement of business and customer confidence and
the wider export opportunities are the key drivers for
revenue growth (up to nearly 30) Despite the natural
selection the occurred during the economic recession
domestic competition and especially the competition
from lower income countries will remain challenging in
2018 creating further profitability pressure especially in
some highly fragmented segments
As a conditio sine qua non for market survival many
companies will be involved in a ldquowinning the innovation
gamerdquo process translated into a considerable capex
expenditure directed at process optimization which
inevitably must be accompanied by innovative marketing
and commercial strategies The companies especially
smaller ones which are not ready lsquoto play the gamersquo
remaining risk averse are likely to fall behind
Key financial indicators referring to the industry in terms
of net financial debt to equity and net financial debt to
EBITDA are likely to remain overall stable in 2018
In our view the best performing manufacturing industries
in 2018 will be the following
Automotive
extensive vehicles replacement process in 2018
high competition pressure China maintaining a key role
high level of innovation in mobility and connectivity
new strategic partnerships and MampAconservative stand towards EBITDA margin improvement
Chemistry amp Pharmaceutics
solid macroeconomic fundamentals will support
the revenue growth driven mainly by large companies
on average a stable EBITDA margin of about 10
is expected global presence is a must to achieve higher
level of profitability
RampD remain key factors for further market expansion
moderate level of MampA operations in 2018 slowing
down when compared to those carried out in the
previous year
Machinery amp Equipment
revenue growth in 2018 up to nearly 25 reflecting
the fact that all manufactures remain focused on RampD
and NPI (new product introduction)
cost management strategies are going to persist
but generally speaking with no significant impact on
EBITDA margin in 2018
heavy equipment manufactures still under pressure in
2018 to provide engineering capability and capacity
33
Energy and gas
Italian companies operating in the energy industry are
facing a complex market environment with many open
questions about risks related to regulations a drop
in consumption high competition levels and EBITDA
erosion
Generally we expect a more stable landscape in 2018 in
terms of commodity prices and consumption However
risk regarding prices and volumes will remain strong
resulting in a higher volatility of revenues In our view
the current margin pressure is unlikely to ease over the
next two years The final overcoming of the sondashcalled
ldquoMaggior Tutela Regimerdquo may lead to almost zero margin
for the retail operators We expect industry participants
to continue to focus their attention on cost efficiency and
on protecting profitability by embracing new business
models and examining the role that digital technology
can play in improvement of EBITDA margins We believe
that the above described strategies will be a central
topic for the operators intending to attract capital We
also believe that energy producers could see a slight
debt increase in 2018 aimed at improving productivity
and synergies Finally in 2018 we envisage a significant
number of MampA operations in the sector led by synergy
effects such operations might produce
Water supply waste management and sewerage
In recent years the water supply waste management
and Italian sewerage industry has recorded a slower
growth compared to the pre-crisis period However
due to the last two yearsrsquo important investments in the
water infrastructure waste sorting and recycling Italy
ranks as one of the top European countries in terms
of growth rate of recycling and packaging recovery
We believe that the expected general increase in
industrial output will produce a slight growth in water
consumption and waste treatment The demand for
sustainable solutions will continue to persist requiring
new investment in technologies based on a customer-
centric and sustainable approach aimed at improving
efficiencies and facilitating reuse Expectations also
reflect our view in terms of wider government interest
and spending in this industry We expect profitability
to remain broadly in line with the results obtained in
2016
Construction
After a weak increase in revenues recorded by the
construction industry operators in 2016 and the
modest result anticipated in 2017 both reflecting
a deteriorating demand and decreased volumes of
bank loans (mainly those for small and medium-
sized companies) we expect 2018 to be the turning
point for this industry We foresee that the volume of
residential and private non-residential constructions
will remain at relatively low levels in 2018 and that
the positive trend in housing renovation and public
works investments will continue taking advantage of
the allocated funds established by the Budget Law for
2017 Small and medium-sized businesses focused on
residential construction may face a slight profitability
erosion while we believe some growth in EBITDA
margin may be recorded by large Italian companies
operating internationally Due to the high perceived
risk historically there has been a strong financial
market mistrust of the construction companies which
we believe is likely to ease over the coming years
Wholesale and retail trade
During the crisis period wholesale and retail trade
industry faced a sudden interruption of the gradual
growth that had taken place up to that moment mainly
due to a loss in real purchase power and in consumer
confidence also translated into profitability erosion
In 2016 the data showed how the industry is moving
toward a recovery period Looking forward in 2018 we
expect to record a steady revenue growth supported
by an increase in global trade and improved consumer
confidence Despite the foreseen growth operators
will continue to face consistent pressure mainly in the
retail segment due to the high proliferation of new retail
purchase channels and market fragmentation
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
34
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Transportation and Storage
After a troubled 2016 characterized by an overcapacity
and a decrease in commodity demand hitting shipping
revenues in particular we foresee a moderate overall
recovery in 2018 driven mainly by an increase in
international shipments and air traffic The growing
number of innovative startups will continue to persist
increasing the competitive pressure in the industry We
anticipate a constant growth of e-commerce enabling a
quick reaction of on-line retailer and logistics providers
We believe that operators will continue to invest in
new high-tech solutions experimenting new models of
mobility and smart logistics
Despite very strong competition we expect the median
operating margins to remain steady However global
political uncertainties and related risks are strong with
possible quick and sharp negative impact on business
volumes and margins of the companies operating in
these industries
Accommodation and food services activities
In the last two years operators in the accommodation
and food service activities industry mainly medium
and small sized enterprises have seen steady revenue
growth and satisfactory profitability ratios Many
operators were focused on reviewing their business
models and offering additional services to their
customers a necessary strategy to maintain or expand
market positioning strengthen margins and improve
customer experience We expect the revenue growth
to continue in 2018 with a minimal median margin
improvement We believe accommodation and food
service activities will attract new capital investments
in 2018 to help the ongoing transformation process
and improve the accommodation infrastructure and
services
Information and communication technologies
The Italian information and communication technology
industry took longer to recover from the economic
crisis recording overall a negative median growth
rate until 2014 Software services and innovation
technology were the major contributors to revenue
growth (as a percentage) in 2016
Over the forecast period we foresee a modest revenue
growth for the ICT operators as a whole while the
technology industry will continue to achieve rapid
growth focusing on maintaining the competitive pace
of innovation In our view a key challenge for the ICT
operator may be the availability of matching skills
The outlook is relatively stable in terms of profitability
and key financial indicators
The following two pages show the details of the
previously discussed key performance indicators
35
Exhibit 38 Growth rate and EBITDA margin manifacturing sectors
-70- 50 -30 -10 103 0
2016E2017F2018
50 70 90
Median=76
Median=3000
20
40
60
80
100
120
1=Automotive 2=Chemistryamppharmaceutics 3=Clothing 4=Equipment 5=Food beverage and Tabacco 6=Heavy Manifacturing 8=Paper and Packaging 9=Tecnology and Telecomunication 10=Textile industry
6
10 5
3
8
91
74
2
50AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
57599586886358
3849
3620083721
-110320
-1112
210322
-1814021122
1413
030124
-5010284025
0555
20-4614
-4607212105
0430
210328-2310203218
0832
2310300512233720
1637
Growth rate Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
EBITDA margin Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
Source Cerved database and Cerved Rating Agency elaboration
625296
1441401016934
15352
504969
103121
916227
10639
4764676185562639
68112
487368
7090592845
75120
456772
9288562845
7898
4667759090573147
7698
4668769394583147
77102
1=Automotive 2=Chemistryamppharmaceutics 3=Clothing 4=Equipment 5=Food beverage and Tabacco 6=Heavy Manifacturing 8=Paper and Packaging 9=Tecnology and Telecomunication 10=Textile industry
2016E2017F2018
Median=30
700
600
500
400
300
200
100
000000 020 040 060 080 100 120
Median=08
Exhibit 39 NFDEquity and NFDEBITDA for manifacturing sectors
2
4 8
101
9
9
3
57
Source Cerved database and Cerved Rating Agency elaboration
096AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
104146095152117112109
098087
087080116068118083088086
084078
075074104069107082080079
084083
072064100065105084122081
079081
082066104065105080091079
077082
081067103065105079087079
077081
076067101064104077083078
076080
NFDEQUITY Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
227AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
258334222397249255259
315202
338313443305495363403412
480337
315306436328479373380397
482316
264269490303467366403383
515317
269243507090106127090106
106106
413343478088105127088105
105105
399333465086104127086104
104104
NFDEBITDA Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
36
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Exhibit 40 Growth rate and EBITDA margin for wholesale and retail trade sectors
20 40 60 80 100 120 140 160
2016E2017F2018
Median=31
Median=33
0000
20
10
30
60
50
70
1=Automotive 2=Retail 3=Wholesale
40
3
12
2016E2017F2018
Median=45
700
600
500
400
300
200
100
000050 070 090 110 130 150 170 190
Median=11
Exhibit 41 NFDEquity and NFDEBITDA for wholesale and retail trade sectors
1=Automotive 2=Retail 3=Wholesale
21
3
37
Ratings will remain broadly stable
The following section presents a risk profile analysis
based on Cerved Rating Agencyrsquos outstanding and
monitored public and private ratings issued from
2013 to 2017 on Italian non-financial companies
and operating in the industries discussed in this
study (data as of 31 December)
Exhibit 42 and Table 9 show an overview of 1-year
effective default rates over the 2000-2017 horizon
related to the sample bankruptcy and other legal
proceedings and debt restructurings as default
events
The default rate trend shows a general
improvement from 2014 onwards both by
company size classes and by industry however
considering the entire sample the overall default
rate still remains higher when compared to its pre-
crisis level especially regarding smaller companies
operating in the construction sector
Exhibit 43 shows the effective default rates over
2013-2017 horizon based on Cerved Rating
Agencyrsquos definition which considers as default
events
middot bankruptcy and other legal proceedings
middot debt restructuring
middot missed or delayed disbursement of a contractually
required interest or principal payment ie missed
payment on bonds material protests (on cheques
or trade bills) or prejudicial acts (judicial mortgages
distraint of property)
The effective default rates over the 2013-2017
horizon show decreasing trend and satisfy the
monotonicity constraint regarding all Cerved
Rating Agencyrsquos rating classes (Exhibit 44)
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2003 2004 2005 2006 2007 2014 2015 2016 20172000 2001
5678
12
3
4
0
Exhibit 42 Avarage 1-year default rate by size over 2000-2017 horizon
medium small
2008 2009 2010 2011 2012 2013
Mining and quarring
Manifacturing
Electricity gas steam and air conditioning supplyWater supply sewerage
Construction
Wholesale and retail trade repair of motorTransporting and storage
Accomodation and food service activities
Information and communication
24221809
5212
282915
2529
38533424
13027
454830
4838
36542537
15929
424421
4323
23461921
13226
293226
3022
Source Cerved database and Cerved Rating Agency elaboration
Table 9 Default rate by industry over 2000-2017 horizon
Total
NACE Average2008-2015
Average2000-2017 2016 2017
2016
Source Cerved database and Cerved Rating Agency elaboration
C21C12C11B22B21B12B11A11 A12 A13 A21 A22 A31
60
50
40
30
20
10
0
Exhibit 43 1-year default rate over 2013-2017 horizon
20172013 2014 2015
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
38
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The analysis of historical rating distributions in the
same period shows clear differences in terms of modal
rating class by company size As shown in Exhibit 43
the modal rating class for the large companies is A31
B11 for the medium and B12 for small companies
(considering company size classes as they have been
defined ad hoc by Cerved Rating Agency for the
purposes of this study)
Overall the corporate rating distribution in the
Source Cerved database and Cerved Rating Agency elaboration
C21C12C11B22B21B12B11A11 A12 A13 A21 A22 A31
30
25
20
15
5
10
0
Exhibit 44 Rating distribution frequency by size classes
large
30
25
20
15
5
0
10
medium smallRating 2013 total Rating 2017 total Rating 2017 forecast
observed period is skewed towards the investment-
grade rating categories (ie Cerved Rating Agency
rating classes from A11 to B12) representing 700 of
the whole sample 250 is concentrated in the safety
(A rating classes) and 450 in the solvency (B11-B12)
classes
We anticipate the rating distribution to remain
broadly unchanged in 2018 with the rating migration
concentrated mainly in the B category
39
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100543
2414
4407
4407
2636
4554 4558
2403 2311
535 527
90
10
0
Exhibit 45 Rating distribution frequency by area of risk - Total companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency]I nvestment GradeA11-A31 [Safety]
2509 2604
704 4407706 4407716
324
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
985
5658
4407
3033 2992 2898
925 907
300 318
90
10
0
Exhibit 46 Rating distribution frequency by area of risk - Large companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
5783 5878
869 4407878 4407878
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
4407
4407
3626
4080
17591695
439 449
90
10
0
Exhibit 47 Rating distribution frequency by area of risk - Medium companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
3571 3776
7044407780 4407786
456
1805
774
4113 4232
603
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
2824
1900
4407
4673 4850 4761
2833 2754
600 633
90
10
0
Exhibit 48 Rating distribution frequency by area of risk - Small companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
1716 1852
657 4407657 4407661
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
40
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Slight improvement in general creditworthiness
In our opinion in 2018 the creditworthiness of the
observed Italian non-financial companies will remain
stable for almost 86 of entities Migration of ratings is
expected to be moderate resulting in approximately 14
of rating upgrades (9) and downgrades (5) at the end
of 2018 compared to the outstanding ratings at the end
of 2017 The vast majority of the rating changes (921)
will be limited to one-class migration as shown in the
1-year projected transition matrix (Table 10) We believe
that more than one third of the expected downgrades
will be concentrated in the energy gas mining and
construction sectors Over the last years the average
credit profile of companies active in these industries has
been relatively weak and due to the forecast market and
regulatory conditions we do not envisage opportunities
for a significant risk profile improvement in 2018
Despite the expected rating migrations for individual
entities in 2018 the current industry modal rating
classes are unlikely to change
On the other hand stable and positive outlooks will
prevail in the manufacturing industry wholesale and
retail trade and accommodation and food service This
is due to the increase in the number of companies
active in these sectors which will maintain andor
improve their business and financial performances
Indeed as shown in Table 11 in 2018 the rating outlook
remains differentiated by industry whilst in terms of
the expected general probability of default we foresee
a modest improvement (349) compared to the one
recorded in 2017 (366)
Table 10 1-year transition matrix
Source Cerved database and Cerved Rating Agency elaboration
2017
A11
A31
B11
C11
C12
B21
C21
B22
B12
A12
A13
A21A22
F 2018A11 A12 A13 A31 B11 C11 C12B21 C21B22B12A21 A22
000 530
066
054 451034 435
027 753055 901
1033121247 1624
260 1038088
000
000000037
028
295
290
1063
179
455050647
043425
026490020208
000208
000152
000000
00000010000
9821
9318
92679015
87708583
81497646
8665
9617
9710
8605
419024
41
The information and data supporting Cerved Rating Agency rating opinions related research and credit opinions originate from sources Cerved Rating Agency considers to be accurate however Cerved Rating Agency cannot independently verify the reliability and accuracy of the information and data in every instance This publication may not be reproduced retransmitted or distributed in any form without the prior written consent of Cerved Rating Agency Cerved Rating Agency assumes no liability for correctness completeness and topicality of the information contained in this publication The analyses underlying this study do not provide advice of any sort
26
n
6670
486
59
Exhibit 49 Ratings outlooks by size
Large
Medium Positive Stable Negative
Small
21
13
Large
Medium
Small
Source Cerved database and Cerved Rating Agency elaboratio
Table 11 Ratings and probability of default 2018 outlook by industry
Source Cerved database and Cerved Rating Agency elaboration
NACE Micro industryDowngrade
B-Mining and quarryingAutomotive
900814
848
812
880812
847
813 172
170
174
144
8264 36
08
104 433 436
392 373
22724815
362 360
876
876
914
848
849
804
887
882
916
901835870899 64
866760
43
68
5659
58
47
61
49
74
78 75
14
50
37
36
5393
32
50
41
45
3899
77
91
316
372
355
364
308
491
326
318 296
331
312
381
367
359
322
495
452
433
403429
389
364369
363
313
452
323
594
38
315358
603
307
345 350
67 5318
469289 274
470
147
116
138
851
821AutomotiveRetail
Wholesale
Total
Chemistryamppharmaceutics
ClothingEquipment
Food Beverage and Tabacco
Heavy Manifacturing
Other Manifacturing
Textile industry
Total
Tecnology Media ampTelecomunication
Paper Packaging ampForest products
C-Manifacturing
D-Electricity gas steam and air conditioningsupply
F-Construcion
H-Transportig and storageI-Accommodation and food service activitiesJ-Information and communication
G-Wholesale and reatail traderepair of motor vehicles and motor-cycles
E-Water supply sewerage waste
Average ForecastPD 2018
Expectedtrend
Average PD 2018
Ratings outlooks
Stabl pgrade
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Cerved Rating Agency SpAVia dellrsquoUnione Europea n 6A-6B20097- San Donato Milanese (MI)
Tel +39 02 77541 - Fax +39 02 76020458
ratingagencycervedcom
Rating Agency
18
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Table 1
Amount ( 407 312
-327
327754
216074 190881
163248 345604188167
869
1543
2213
1793
CAGR (base year 2000)
CAGR (base year 2008)
NPL ratio ()
Ndeg debtors
Averae debt debtor
Valueindicator 2000 2008 2016
Source Bank of Italy and Cerved rating Agency elaboration
Credit activity to be expanded interest rates to remain at very low levels
As of December 31st 2016 the volume of bank loans
granted to Italian non-financial corporations amounted to
euro8604 billion
The period 2000-2016 was characterized by two different
trends from 2000 to 2011 the annual outstanding loans
value increased by 841 (euro454 billion reaching in 2011 its
highest level ever of euro993 billion thanks to 57 CAGR far
above the Italian GDP growth) whilst in the period from
2012 to 2016 loans decreased by 134 (euro130 billion)
reflecting a negative -28 CAGR The loan reduction hit
sharply construction and manufacturing (accounting
for about 400 of all loans) which experienced -227
and -135 decrease in loan volumes whilst agriculture
forestry and fishing and wholesale and retail trade
(including repairs of motor vehicles and motorcycles)
had more limited loan contraction (-08 and -53
respectively)
In the observed period due to the negative impact of the
global financial crisis 200708 and to structural changes in
the world economic and financial environment a radical
decrease in interest rates was recorded In 2017 the
interest rates charged to Italian non-financial corporates
were on average less than half compared to those charged
in 2000 In the medium term low interest rates will remain
a positive factor fostering investments and consumption
Non-performing loans to be further reduced due to innovative measures
The credit crunch had a huge and dramatic impact on
the Italian economy hitting especially small businesses
which are not able to survive in a radically changed market
conditions The evidence of such outcome can be seen not
only through the decreased number of active companies
but also via the enormously increased volume of the
non-performing loans (NPLs) In particular these loans
amounted to euro324 billion at the end of 2016 of which euro154
billion were granted to the non-financial corporations as
shown in table 1
Following the principles outlined in the ECB guidelines
published in March in 2017 Italian Banks made significant
progress in reducing the amount of the NPLs ndash estimated
to be over euro50 billion debt reduction Any further actions
aimed to improve the banking balance sheets should not
increase the financial hardship of still operating companies
North - East SouthNorth - West Center Islands
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 2012 2013 2014 2015 20160
1200000
1000000
800000
600000
400000
200000
NPLs ratio
Source Bank of Italy and Cerved Rating Agency elaboration
20
1816
14
1210
8
6
42
0
446393
euro billion)
19
Modest role of italian equity capital markets
Despite the number of listed companies increasing
from 297 to 421 in the period 2000-2017 the role
of the stock markets remains modest in Italy
As of December 31st 2017 the market capitalization
was euro640 billion (375 of the estimated Italian GDP
in 2017) representing only 782 of the overall
market capitalization recorded in 2000 (equal
to euro818 billion 687 of GDP) mainly due to
an unfavorable economic cycle in the observed
period
This situation shows the structural weaknesses of
the Italian economic and financial system especially
when compared to other highly developed
European economies The low propensity to
raise equity capital through organized markets
is linked to an unfavorable macroeconomic and
fiscal framework as well as to the predominance
of SMEs mostly unfit for listing and presenting
cultural obstacles (ie company owners and managers are often reluctant to accept wider company control and
transparency)
Hence self-financing and bank borrowing remain the main sources of finance for Italian companies which are
generally speaking undercapitalized with a negative impact on their investment capabilities Very frequently the
lack of medium-long term financing means forces companies to focus their attention on running current activities
postponing or abandoning strategic projects fundamental for company growth
A wide range of innovative initiatives have been undertaken with the aim of fostering market based company
funding in particular
middot AIM (Alternative Investment Market) - a specialized market segment dedicated to SMEs growth (95 companies and
market capitalization around euro56 billion as of December 2017)
middot ELITE - a programme designed to help SMEs prepare and structure for the next stage of growth their through
access to long-term financing opportunities
middot PIR - Piani individuali di risparmio (Individual Savings Plan) - an innovative way to fund Italian SMEs by offering retail
investors resident in Italy tax incentives (full exemption of 260 income tax) if the savings stay invested for at least
five years A minimum of 700 of such credit assets must be invested in financial instruments issued by Italian or
foreign (EU and EEA) companies permanently established in Italy
FTSE (MIB)Enterprises
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 20132012 20152014 201720160
100
200
300
400
500
600
700
800
900
100029681 29525
14623
1765216121
12259
13512
16048
15988
19012
21428
21853
2185322232
16954
297 294 295 279 282278 311 336 332 332 328 323 326344 342 356 387 421
19483
22886
26056
31005
Exhibit 21 Italian listed enterprised and FTSE (MIB) index trend
Source Borsa Italiana
300000
250000
200000
150000
100000
5000
0
Capitalization of GDP
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 20132012 20152014 201720160
100
200
300
400
500
600
700
800
900
1000
Exhibit 22 Italian market capitalization of listed companies ( of GDP)
Source Borsa Italiana
80
70
60
50
40
30
20
10
0
8184
5923
354 365418 473
524475
239301 275
210233
287 295348
318375
4580 4875
5809
6766
77857336
37474571
4251
3324
44664678
56765249
6400
3655
474
68
CERVED RATING AGENCY SpA | Highlights on italian economy
20
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Italian debt capital market is growing but still remains behind needs
At the end of 2016 the outstanding amount of debt
securities issued by Italian financial and non-financial
corporations was euro8615 billion 510 of the countryrsquos
GDP The table below shows the breakdown by issuer
type of Italian German French British and United States
outstanding amounts of debt securities as of December
2016 issued by financial and non-financial corporations
with the respective debt-to-GDP ratio
Despite the outstanding debt at the end of 2016 being
almost double compared to 2000 it represents only 23
of its peak value reached in 2012 (euro1290 billion Exhibit
23) The main reason for such a significant debt reduction
is the huge bond reimbursement realized by banking
institutions from 2013 to 2016 and the related negative
net flow of debt securities (respectively -80 -153 -106
and -67 billion of euro as shown in Exhibit 24)
The decrease in debt securities funding of Italian banks
has been compensated by a wider use of deposits and
resources available under the Eurosystem refinancing
operations framework
The outstanding amount of debt securities issued by
non-financial corporations at the end of 2016 also
doubled its value with respect to the amount recorded
at the end of 2000 The main characteristic of this cluster
is the high concentration of issuancesdebt to a small
number of issuers
Due to both more favourable general economic
conditions and active ECB monetary policy bond yields
have decreased significantly providing room for a
convenient fund raising
Since the introduction of a new regulatory framework
(lsquoDecreto Svilupporsquo) in 2012 up to October 2017 Italian
market saw 300 small-size listed bond issues (ie so
called minibonds) amounting approximately to euro143
billion Issued mainly by SMEs they offer interesting
yields to institutional investors
) Source Business support SpA ndash Minibonditalyit
BanksTotal
Source Bank of Italy and Cerved Rating Agency elaboration
2006 20082000
-200000
200000
250000
-150000
-100000
150000
100000
-50000
50000
02012 2014 20162002 2004 2010
Banks debt securities outstanding
Banks Debt to GDP ratio
Source Bank of Italy and Cerved Rating Agency elaboration
0
10
20
30
40
50
60
70 1400000
1200000
1000000
800000
600000
400000
200000
0201620142012201020082006200420022000
Table 2 Outstanding securities debt (euro Million)Debt-to-GDP ratio()
Financial corporates
Total
Debtsecurities
outstanding
Italy German rance United Kingdom United States
739
123
862
440 340 470
21
680380
40
1279 1331 4 50
880
30
14271
14820
549180
10202767
590
19211436
15770
510
Debtsecurities
outstanding
Debtsecurities
outstanding
Debtsecurities
outstanding
Debtsecurities
outstanding
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Source Bank of Italy
0
0
21
CERVED RATING AGENCY SpA | Highlights on italian economy
22
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Italian non-financial companies economic Outlook 2018
23
Data and method
This research focuses on Italian non-financial companies
with an annual turnover exceeding euro5 million With the
aim of using only reliable data joint stock and limited
liability companies have been considered only these
entities according to Italian law file complete annual
financial statements in the Chamber of Commerce
together with anagraphical company data other
legal forms such as unlimited partnerships and sole
proprietorships are not included in this sample due to
the lack of publicly available standardized financial data
We believe that this cutoff is reasonable and allows us to
perform a methodologically correct analysis In 2016 the
above mentioned companies despite representing only
42 of all registered and active joint stock and limited
liability companies accounted for 769 of their total
turnover
Moreover cluster specialization has been obtained by
NACE activity classification from A to J (thus not including
in the sample financial and insurance companies and
some service industries) The statistics regarding specific
industries provide important key data and enable us to
examine historical and prospective trends and cross-
sector comparisons
The Cerved database which contains legal anagraphical
financial and market information on all Italian registered
legal entities (approximately 6 million comprising 5
million active ones) was the most important database
used for this research Long time series and broad
homogenized and standardized data covering different
economic cycles were the building blocks to perform
the regression and predictive analysis
Historical and forecast macroeconomic data and
analysis performed by the International Monetary Fund
OECD the World Bank European Central Bank Bank
of Italy and ISTAT completed the dataset used for the
analysis
Several analyses were performed in order to examine
the structural differences within the sample in terms of
company legal form and geographical area (Exhibit 25)
company age (Exhibit 26) and company size and industry
As a result we verified a considerable heterogeneity of
companies in particular with regard to the company size
across various industries
The relevant observation period comprises the years
between 2000 and 2016 Table 3 describes some
characteristics of the sample
Exhibit 25 Sample break-down by legal form and geographic area (2016)
Joint stock Company
Limited liability Company
Area 1 (Northwest)
Area 3 (Center)
Area 2 (Northeast)
Area 4 (South)
39
20
27
14
33
67
33
Table 3 Sample characteristics 2000-2016
TotalTurnover
gt euro5million
Turnover gt euro5 million(industry
from A to J)
TotalTurnover
gt euro5million
ofTotal
Turnover gt
euro5 million(industry
from A to J)
Source Cerved database
Entreprises Turnover billion
2000 659867700717738558772442812025847334883122915172937018949708965744969581
953505945825922513883224
4215144587462234694749640518205596459226595385246754808563745362752074519385289450123
3686139038411864118843547454704921752274526974633848778504734806246843468384771845288
16151740177018472002212923302477256822562421257025202446243224392295
12661362139214561588169818752000208317861944208720541992198419871905
11141205124013041430152316891801189716191764191218831839183518371765
689693700
716
706714
725
718729744748752754753769
727739
200120022003200420052006
200820092010201120122013201420152016
2007
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
24
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Furthermore in order to guarantee more detailed and
accurate analyses and projections we decided to create
a static pool to show consistently long time horizon
economic trends (17 years) by sealing off all the active
companies over the 2000-2016 horizon
The outcome obtained by considering the behaviour of
specific variables related to the companies included in
the static pool was extended as a performance indicator
for the whole sample (turnover over euro5 million and
industry from A to J)
According to the European Communityrsquos definition of
SMEs using annual turnover and employee headcount
as quantitative criteria the initial sample of companies
and the static pool can be classified by size classes on
the basis of the financial statements for the year 2016
as shown in Table 4
For the sake of this analysis we defined specific size
classes for each industry thus deviating from the
European Commissionrsquos recommendation which
presents undifferentiated upper and lower bounds of
quantitative criteria for SMEs in all industries To define
the thresholds of such classes we used both a statistical
approach (a specific cluster procedure by minimizing
the within-cluster turnover standard deviation) and a
judgmental approach by relying on the experience and
opinion of our industry expert analysts Table 5 shows
the results of such analysis referring to the sample in
2016 (45288 entities) and the NACE sections from A
to J Moreover the NACE section C and G were further
disaggregated into sub-industry classes as shown in
Exhibit 27 in order to consider the specific business
differences within these NACE sections thus ensuring
a good fit and a satisfactory accuracy of the estimation
Exhibit 26 Sample break-down by company age classes
0-2 Years 2-5 Years 5-10 Years 10-20 Years gt20 YearsSource Cerved database and Cerved Rating Agency elaboration
0 20 40 60 80 100
ABCDEFGHIJ
A = AgricolutreB=Mining and quarryingC=ManufacturingD=Electricity and gasE=Water supplyF=ConstructionG=Wholesale and retail tradeH=Transporting and storageI=Accomodation and food serviceJ=ICT
Small
Annul Turnover
Empolyees
Static Pool
Enterprises(Turnover gt euro5 million)
Enterprises(Turnover gt euro5 millionindustry from A t J)
Medium Large
lt 50 lt 250lt 36774 11113
1005333223
8741
2236
2012
154818645
gt euro50 million
gt 250
lt euro50 million
Source Cerved database
NACE Micro industry
B-Mining and quarryingAutomotive
Automotive
Retail
Wholesale
T gt 480
T gt 80
T gt 260
T gt 265T gt 270
T gt 230
T gt 120
T gt 80
T gt 43
T gt 65
T gt 106T gt 106
T gt 360T gt 155T gt 150T gt 100
T gt 120
T gt 225T gt 1400T gt 27500
T gt 1500
ChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther Manifacturing
ICTTextile
Paper Packaging ampForest products
C-Manifacturing
F-Construcion
H-Transportig and storageI-Accommodation and food service activities
J-Information and communication
D-Electricity gas steam and aircoditioning supply
G-Wholesale and reatail traderepair of motor vehicles and motorcycles
E-Water supply sewerage waste management and emediation activities
Large (Turnover
in euro million)
Medium(Turnover
in euro million)
Small(Turnover
in euro million)
Source Cerved database and Cerved Rating Agency elaboration
60 lt T lt 480 5 lt T lt 60
5 lt T lt 20
5 lt T lt 36
5 lt T lt 35
5 lt T lt 44
5 lt T lt 40
5 lt T lt 20
5 lt T lt 26
5 lt T lt 250
5 lt T lt 185 lt T lt 305 lt T lt 265 lt T lt 205 lt T lt 37
5 lt T lt 335 lt T lt 40
5 lt T lt 255 lt T lt 585 lt T lt 1155 lt T lt 1005 lt T lt 27
20 lt T lt 80
36 lt T lt 26035 lt T lt 26544 lt T lt 270
40 lt T lt 230
20 lt T lt 120
26 lt T lt 80
18 lt T lt 43
250 lt T lt 1500
20 lt T lt 6537 lt T lt 29540 lt T lt 15533 lt T lt 15025 lt T lt 100
27 lt T lt 120
58 lt T lt 225
100 lt T lt 27500 115 lt T lt
30 lt T lt 10626 lt T lt 106
25
Exhibit 28 shows the breakdown of macro industries
analysed including disaggregation of the NACE section C
(manufacturing) and G (wholesale and retail trade repair
of motor vehicles and motorcycles)
In order to carry out the analysis and projections this study
is focused on we used simple multiple linear regression
model for each industry and company size classes
considering macroeconomic and individual companiesrsquo
economic and financial data
The analysis enables us to develop an econometric
model used to estimate likely credit quality changes (in
terms of rating class and probability of default) for single
industries and company size classes
Automotive
Retail
Wholesale
21
1366
1
42
1
26
35
232
6
A B C D
F G H I
46
7
21
1318
9
15
34
Automotive
Chemistry amp pharmaceutics
Clothing
Equipment
Food Beverage and Tabacco
Heavy Manifacturing
Other Manifacture
Paper Packaging amp Forest Products
ICT
Textile industry
Large SmallMedium
Source Cerved database and Cerved Rating Agency elaboration
0
Wholesale
Retail
Automotive
20 40 60 80 100
Automotive
Chemistry amp pharmaeutics
Clothing
Equipment
Food beverage and Tabacco
Heavy Manifacturing
Other Manifacturing
Paper Packaging amp Forest Products
ICT
Textile
0 20 40 60 80 100
ABCDEFGHIJ
0 10 30 40 60 70 80 90 100
Exhibit 28 Sample break-down by industry (2016)
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
26
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Performance indicators to improve further
The annual financial statements available through public
registers provide a clear economic and financial picture
of the Italian joint-stock and limited liability non-financial
companies The individual historical data available from
2000 to 2016 enriched with 2017 preliminary results and
with the expected 2018 macroeconomic scenario enabled
us to build up the 2017 and 2018 projections regarding
the following four performance indicators related to the
analyzed sample 1) growth rate - revenues YoY change
2) EBITDA margin 3) net financial debtEBITDA and 4) net
financial debtEquity Afterwards the median values of the
resulting data were used to obtain the summary output
which we consider as a representative proxy for the overall
market
From 2000 to 2016 the observed companies experienced
a very irregular trend both in terms of growth rate and
EBITDA margin In the aftermath of the global financial crisis
the lowest growth rate value (-120) was recorded in 2009
manufacturing transporting - storage and wholesale and
retail trade were the industries showing the biggest fall of
business volume (-155 -121 and -104 respectively)
whilst water supply accommodation and food service and
electricity and gas showed the highest level of resilience to
the adverse economic and financial environment (-01
-23 and ndash26 respectively) Exhibit 29 shows that in
terms of median value there are no significant differences
in the growth rate taking into consideration company size
classes as we previously defined them Only from 2010 the
growth rates turned positive but still remaining below the
levels recorded in 2000
The analysis of the EBITDA margin changes in the same
period also does not highlight significant differences
between large companies and SMEs as shown in Exhibit
30 The lowest median EBITDA margin value (52) was
recorded in 2012 regarding in particular accommodation
and food service transporting and storage and agriculture
sectors (28 40 52 respectively) while electricity
and gas ICT and water supply were relatively immune to
the unfavorable economic and financial circumstances
(showing 113 109 and 105 EBITDA margin
respectively) At the end of 2016 the median EBITDA margin
(60) still remains below the levels recorded in 2000 (72)
Positive trends emerging from the last publicly available
financial statements (2016) the 2017 preliminary results
and the optimistic macroeconomic forecasts for 2018
confirm improvement of the Italian economy Looking
ahead we expect the Italian non-financial companies to
continue to experience gradual recovery in 2018 They are
going to take advantage of the favorable global economic
cycle low interest rates and supportive regulations that
inter alia foster the use of alternative non-bank financial
sources for company funding The financial resources raised
through Individual Savings Plans (PIR ndash Piani individuali di
risparmio) introduced by the 2017 Budget Law are driven
in primis by a favorable tax regime for savers and might
become an important additional source for SMEs funding
injecting new liquidity The government objective fixed euro68
billion as a target value and in 2017 nearly euro10 billion had
already been raised
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2004 2006 2014 20162000
5
20
10
0
15
-15
-10
-5
Exhibit 29 Growth rate (revenue YoY change) by size classes (median)
medium small
2008 2010 2012
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2004 2006 2008 2010 2012 2014 20162000
7
10
9
8
6
5
4
3
7
10
9
8
6
5
4
EBITDA margin by size classes (median)
medium small
27
So far one of the main obstacles PIR are facing is the limited
number of available assets which may lead to a possible
concentration of this financial resources in a small share of
the market comprising mainly relatively large companies
as shown by the early data in 2017
Another obstacle to rapid adoption of the newly available
financial resources is the lack of a standardized and broadly
accepted methodology for the risk assessment of potential
bond issuers
Generally speaking in 2018 we expect SMEs to contribute
more significantly to growth employment and innovation
whilst on average the respective EBITDA margin will remain
broadly stable (as shown in Exhibit 31) However 2018 will
still be a challenging year for SMEs and innovative startup
companies as they will have to face tougher barriers in
accessing bank credit andor approaching capital markets
compared to large companies We also expect some new
innovative solutions aimed at meeting SMEs financial needs
to become effective the SMEs current financial structure
together with new business opportunities prove their
ability in terms of rational use of the additional financial
resources
The new investments will allow most industries to thrive
also assisted by the Italian Governmentrsquos adoption of the
National Industry 40 Plan
The companies which will take up this opportunity may
improve their cash-flows even in the short-medium term
Finally companies with strong international market
positioning and large product diversification will have
stronger sales and margins growth
The key ratio values recorded from 2000 to 2016 related to
the analyzed entities show the improved financial health of
the companies proving good capability to strengthen their
equity base as shown in Table 6
Growth rate (2016)Medium
Total
Small Large
Growth rate (2018)Growth rate (2017)
Source Cerved database and Cerved Rating Agency elaboration
50
40
Exhibit 31 Growth rate and EBITDA margin forecast by size classes
EBITDA margin (2016)EBITDA margin (2018)
EBITDA margin (2017)
40
30
0
10
20
Medium
Total
Small Large
7570
65
0
6 5560
5550
4540
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
28
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The recorded financial ratios in the 2000-2016 horizon
indicate that on average
middot liquidity maintained a satisfactory level in the whole
observed period due to the positive economic cycle in
2017 and 2018 we expect a slight improvement in the ratio
middot the EBITDAinterest coverage ratio almost doubled its
value in 2016 compared to what was recorded in 2000
primarily due to a general reduction in the interest rates
particularly in the last three years we believe that in 2017
and 2018 the average ratio value will remain roughly at the
same level recorded in 2016
middot in 2016 ROE shows further improvement but is still
slightly lower compared to the value recorded at the
beginning of the observed period mainly due to the equity
base strengthening trend
middot Equity Ratio rose from 250 to 350 due to a significant
increase of equity capital in 2018 we expect further
strengthening of the ratio
middot Financial LiabilitiesTotal Assets ratio remained mostly
unchanged ndash financial debts representing roughly 30 of
the total assets
A positive trend regarding the net financial debt was also
observed in fact in 2016 70 of the sample improved their
NFDEBITDA and 73 the NFDEquity
Positive performances were found especially in the SMEs
segment as shown in Exhibit 32 in particular referring to
NFDEquity small and medium-sized companies recorded
a positive trend standing respectively at 092 and 089 in
2016 compared to 132 and 136 in 2000
Hence the financial risk profile appears to be well balanced
leaving no room for specific concerns regarding the
prospects of the Italian non-financial companies in 2018
In 2016 the median values for the total sample referring to
NFDEquity and NFDEBITDA remained respectively at 089
and 389 levels respectively
Looking ahead we expect these indicators to remain at
healthy levels in 2017 and 2018 with a slight improvement
in NFDEBITDA and a broadly stable level of the NFDEquity
ratio as shown in Exhibit 33
NFDEBITFA (2016) NFDEBITFA (2017)NFDEBITFA (2018)
40
Exhibit 33 NFDEquity and NFDEBITDA forecast by size classes
Source Cerved database and Cerved Rating Agency elaboration
404
20
25
45
35
30
NFDequity (2016) NFDequity (2017)NFDequity (2018)
05
06
09
10
08
07
Exhibit 32 NFDEquity and NFDEBITDA by size classes (median)
largemediumsmall
2016
2015
2014
000 5 10 15
Average2008-2013
Average2000-2007
total largemediumsmall total
Source Cerved database and Cerved Rating Agency elaboration
2016
2015
2014
203 0 405 0
Average2008-2013
Average2000-2007
29
Growth and profitability improvement spanned over all sectors
Exhibit 34 shows the relative positioning of the 10
macro-industries in the short-medium term considering
the median values related to revenue growth rate and
EBITDA margin
The historical median values are calculated on the basis
of financial data obtained from the annual financial
reports 2014-2016 filed in the Chamber of Commerce
public registers the projected median values for 2017
and 2018 are the result of the analysis of this study
As expected there are significant differences in
positioning between different industries in terms of
both historical and projected values
In 2018 we expect manufacturing and accommodation and
food services to maintain top positions already reached in
2016 and 2017
For the electricity gas mining and quarrying industry
2018 may be the turning point showing the first positive
signals after experiencing some difficulties over the last
few years
None of the other industries show significant changes in
2018 compared to their 2016 positioning
Source Cerved database and Cerved Rating Agency elaboration
A 50
57599586886358
3849
3620083721
-110320
-1112
210322
-1814021122
1413
030124
-5010284025
0555
20-4614
-4607212105
0430
210328-2310203218
0832
2310300512233720
1637
BCDEFGHIJ
A 625296
1441401016934
15352
504969
103121916227
10639
4764676185562639
68112
4873687090592845
75120
456772928856
45
7898
4667759090573147
7698
4668769394583147
77102
EBITDAmarigin
BCDEFGHIJ
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018Growthrate
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
Exhibit 34 Growth rate and EBITDA margin by industry
-70 -50 -30 -10 10 30
2016E2017F2018
50 70 90
Median=68
Median=2100
20
40
60
80
100
120
A=Agricolture B=Mining and quarrying C=Manifacturing D=Electricity and gas E=Water supply F=Construction G=Wholesale and retail trade H=Transporting and storage I=Accomodation and food service J=ICT
D
B
E
FHA G
C
I
J
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
30
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Further strenthening in companiesrsquo financial structure
Exhibit 35 shows the relative positioning of the 10 macro
industries in the short-medium term considering the
median values related to NFDEBITDA and NFDEquity
ratios
The historical median values are calculated on the basis
of financial data obtained from the annual financial
reports 2014-2016 filed in the Chamber of Commerce
public registers the projected median values for 2017
and 2018 are the result of the analysis of this study
There are even more significant differences in
positioning between industries regarding NFDEBITDA
and NFDEquity ratios when compared to growth rate
and EBITDA margin differences
Generally in the observed period there is no evidence of
significant changes among industries considering their
relative positioning related to NFDEBITDA and NFD
Equity ratios
In 2018 we expect accommodation and food services
and information and communication services to
maintain top positions already reached in 2016 and
presumably confirmed in 2017
Exhibit 35 NFDEquity and NFDEBITDA by industry
2016E2017F2018
Median=37
Median=08500
030 5 070 9 111 3
20
30
40
50
60
70
10
A=Agricolture B=Mining and quarrying C=Manifacturing D=Electricity and gas E=Water supply F=Construction G=Wholesale and retail trade H=Transporting and storage I=Accomodation and food service J=ICT
EH
C
BF
G
A
D
J
I
A 150101113081112149151120
079131
123075088101097125123103
072079
114067083052090108119102
067076
113060080045089096114092
074069
125076080045089106109086
050060
127072080044091
108084
051056
128067079043093106107081
051051
BCDEFGHIJ
NFDEquity
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
A 597219280305251301338250
153260
676394388342298453499349
254337
707482387293277498532337
277334
696392373254305484494308
231315
747401358330285544483294
183312
722390340341280511470290
178293
710380310329272492452281
177289
NFDEBITDA
BCDEFGHIJ
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
Source Cerved database and Cerved Rating Agency elaboration
106
31
Exhibit 36 Equity ratio by industry
Average 2000-2007 2014 2015Average 2008-2013 2016
Source Cerved database and Cerved Rating Agency elaboration
05
10
20
30
15
25
3540
5045
AB C DE FG HI J
Exhibit 37 EBITDA interest coverage by industry
Average 2000-2007 2014 2015Average 2008-2013 2016
Source Cerved database and Cerved Rating Agency elaboration
0
5
10
20
15
AB C DE FG HI J
A 1113140911151211
1408
1013131012131209
1208
1114151012131311
1309
1214151012151312
1309
1215161113161412
1409
BCDEFGHIJ
Liquidity ratio Median2000-07
Median2008-13 2014 2015 2016
A 0377677447858463
8960
0332
8145524536
4832
0342486042273848
3246
0537606853395765
4069
0743676559416378
5882
BCDEFGHIJ
ROE Median2000-07
Median2008-13 2014 2015 2016
Table 7 Liquidity ratio by industry Table 8 ROE by industry
Source Cerved database and Cerved Rating Agency elaboration
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
32
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Agriculture
Considering the recent price decline for agricultural
products putting EBITDA margin under pressure for
most of the industry participants we anticipate a slow
revenue growth in 2018 We also foresee more stable
margins in 2018 and investments to continue at a faster
pace in the near future mainly aimed at transforming the
agricultural activities into a high-tech industry Climate
and cultural changes are the main exogenous risks that
may negatively influence the sector
Mining and quarrying
Over the last few years the mining industry has been
challenged by record low metal prices and this has
resulted in a weak growth of supply and a cut in
investments especially in the new mines opening We
foresee a modest revenue growth in 2018 supported
by more stable prices rather than by government
infrastructural investments Margin pressure will remain
mostly unchanged in 2018 We do not expect a significant
increase in capital expenditure for most companies
while only a minority of industry participants will invest
in new capacities searching for new growth opportunities
by introducing new higher margin outputs Overall we
anticipate relatively stable key financial indicators
Manufacturing
We believe that in 2018 Italian manufacturing
representing 2nd European and 7th world player in 2016
will remain the beating heart of the national economy
In our view the expansion of internal demand the
improvement of business and customer confidence and
the wider export opportunities are the key drivers for
revenue growth (up to nearly 30) Despite the natural
selection the occurred during the economic recession
domestic competition and especially the competition
from lower income countries will remain challenging in
2018 creating further profitability pressure especially in
some highly fragmented segments
As a conditio sine qua non for market survival many
companies will be involved in a ldquowinning the innovation
gamerdquo process translated into a considerable capex
expenditure directed at process optimization which
inevitably must be accompanied by innovative marketing
and commercial strategies The companies especially
smaller ones which are not ready lsquoto play the gamersquo
remaining risk averse are likely to fall behind
Key financial indicators referring to the industry in terms
of net financial debt to equity and net financial debt to
EBITDA are likely to remain overall stable in 2018
In our view the best performing manufacturing industries
in 2018 will be the following
Automotive
extensive vehicles replacement process in 2018
high competition pressure China maintaining a key role
high level of innovation in mobility and connectivity
new strategic partnerships and MampAconservative stand towards EBITDA margin improvement
Chemistry amp Pharmaceutics
solid macroeconomic fundamentals will support
the revenue growth driven mainly by large companies
on average a stable EBITDA margin of about 10
is expected global presence is a must to achieve higher
level of profitability
RampD remain key factors for further market expansion
moderate level of MampA operations in 2018 slowing
down when compared to those carried out in the
previous year
Machinery amp Equipment
revenue growth in 2018 up to nearly 25 reflecting
the fact that all manufactures remain focused on RampD
and NPI (new product introduction)
cost management strategies are going to persist
but generally speaking with no significant impact on
EBITDA margin in 2018
heavy equipment manufactures still under pressure in
2018 to provide engineering capability and capacity
33
Energy and gas
Italian companies operating in the energy industry are
facing a complex market environment with many open
questions about risks related to regulations a drop
in consumption high competition levels and EBITDA
erosion
Generally we expect a more stable landscape in 2018 in
terms of commodity prices and consumption However
risk regarding prices and volumes will remain strong
resulting in a higher volatility of revenues In our view
the current margin pressure is unlikely to ease over the
next two years The final overcoming of the sondashcalled
ldquoMaggior Tutela Regimerdquo may lead to almost zero margin
for the retail operators We expect industry participants
to continue to focus their attention on cost efficiency and
on protecting profitability by embracing new business
models and examining the role that digital technology
can play in improvement of EBITDA margins We believe
that the above described strategies will be a central
topic for the operators intending to attract capital We
also believe that energy producers could see a slight
debt increase in 2018 aimed at improving productivity
and synergies Finally in 2018 we envisage a significant
number of MampA operations in the sector led by synergy
effects such operations might produce
Water supply waste management and sewerage
In recent years the water supply waste management
and Italian sewerage industry has recorded a slower
growth compared to the pre-crisis period However
due to the last two yearsrsquo important investments in the
water infrastructure waste sorting and recycling Italy
ranks as one of the top European countries in terms
of growth rate of recycling and packaging recovery
We believe that the expected general increase in
industrial output will produce a slight growth in water
consumption and waste treatment The demand for
sustainable solutions will continue to persist requiring
new investment in technologies based on a customer-
centric and sustainable approach aimed at improving
efficiencies and facilitating reuse Expectations also
reflect our view in terms of wider government interest
and spending in this industry We expect profitability
to remain broadly in line with the results obtained in
2016
Construction
After a weak increase in revenues recorded by the
construction industry operators in 2016 and the
modest result anticipated in 2017 both reflecting
a deteriorating demand and decreased volumes of
bank loans (mainly those for small and medium-
sized companies) we expect 2018 to be the turning
point for this industry We foresee that the volume of
residential and private non-residential constructions
will remain at relatively low levels in 2018 and that
the positive trend in housing renovation and public
works investments will continue taking advantage of
the allocated funds established by the Budget Law for
2017 Small and medium-sized businesses focused on
residential construction may face a slight profitability
erosion while we believe some growth in EBITDA
margin may be recorded by large Italian companies
operating internationally Due to the high perceived
risk historically there has been a strong financial
market mistrust of the construction companies which
we believe is likely to ease over the coming years
Wholesale and retail trade
During the crisis period wholesale and retail trade
industry faced a sudden interruption of the gradual
growth that had taken place up to that moment mainly
due to a loss in real purchase power and in consumer
confidence also translated into profitability erosion
In 2016 the data showed how the industry is moving
toward a recovery period Looking forward in 2018 we
expect to record a steady revenue growth supported
by an increase in global trade and improved consumer
confidence Despite the foreseen growth operators
will continue to face consistent pressure mainly in the
retail segment due to the high proliferation of new retail
purchase channels and market fragmentation
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
34
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Transportation and Storage
After a troubled 2016 characterized by an overcapacity
and a decrease in commodity demand hitting shipping
revenues in particular we foresee a moderate overall
recovery in 2018 driven mainly by an increase in
international shipments and air traffic The growing
number of innovative startups will continue to persist
increasing the competitive pressure in the industry We
anticipate a constant growth of e-commerce enabling a
quick reaction of on-line retailer and logistics providers
We believe that operators will continue to invest in
new high-tech solutions experimenting new models of
mobility and smart logistics
Despite very strong competition we expect the median
operating margins to remain steady However global
political uncertainties and related risks are strong with
possible quick and sharp negative impact on business
volumes and margins of the companies operating in
these industries
Accommodation and food services activities
In the last two years operators in the accommodation
and food service activities industry mainly medium
and small sized enterprises have seen steady revenue
growth and satisfactory profitability ratios Many
operators were focused on reviewing their business
models and offering additional services to their
customers a necessary strategy to maintain or expand
market positioning strengthen margins and improve
customer experience We expect the revenue growth
to continue in 2018 with a minimal median margin
improvement We believe accommodation and food
service activities will attract new capital investments
in 2018 to help the ongoing transformation process
and improve the accommodation infrastructure and
services
Information and communication technologies
The Italian information and communication technology
industry took longer to recover from the economic
crisis recording overall a negative median growth
rate until 2014 Software services and innovation
technology were the major contributors to revenue
growth (as a percentage) in 2016
Over the forecast period we foresee a modest revenue
growth for the ICT operators as a whole while the
technology industry will continue to achieve rapid
growth focusing on maintaining the competitive pace
of innovation In our view a key challenge for the ICT
operator may be the availability of matching skills
The outlook is relatively stable in terms of profitability
and key financial indicators
The following two pages show the details of the
previously discussed key performance indicators
35
Exhibit 38 Growth rate and EBITDA margin manifacturing sectors
-70- 50 -30 -10 103 0
2016E2017F2018
50 70 90
Median=76
Median=3000
20
40
60
80
100
120
1=Automotive 2=Chemistryamppharmaceutics 3=Clothing 4=Equipment 5=Food beverage and Tabacco 6=Heavy Manifacturing 8=Paper and Packaging 9=Tecnology and Telecomunication 10=Textile industry
6
10 5
3
8
91
74
2
50AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
57599586886358
3849
3620083721
-110320
-1112
210322
-1814021122
1413
030124
-5010284025
0555
20-4614
-4607212105
0430
210328-2310203218
0832
2310300512233720
1637
Growth rate Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
EBITDA margin Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
Source Cerved database and Cerved Rating Agency elaboration
625296
1441401016934
15352
504969
103121
916227
10639
4764676185562639
68112
487368
7090592845
75120
456772
9288562845
7898
4667759090573147
7698
4668769394583147
77102
1=Automotive 2=Chemistryamppharmaceutics 3=Clothing 4=Equipment 5=Food beverage and Tabacco 6=Heavy Manifacturing 8=Paper and Packaging 9=Tecnology and Telecomunication 10=Textile industry
2016E2017F2018
Median=30
700
600
500
400
300
200
100
000000 020 040 060 080 100 120
Median=08
Exhibit 39 NFDEquity and NFDEBITDA for manifacturing sectors
2
4 8
101
9
9
3
57
Source Cerved database and Cerved Rating Agency elaboration
096AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
104146095152117112109
098087
087080116068118083088086
084078
075074104069107082080079
084083
072064100065105084122081
079081
082066104065105080091079
077082
081067103065105079087079
077081
076067101064104077083078
076080
NFDEQUITY Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
227AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
258334222397249255259
315202
338313443305495363403412
480337
315306436328479373380397
482316
264269490303467366403383
515317
269243507090106127090106
106106
413343478088105127088105
105105
399333465086104127086104
104104
NFDEBITDA Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
36
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Exhibit 40 Growth rate and EBITDA margin for wholesale and retail trade sectors
20 40 60 80 100 120 140 160
2016E2017F2018
Median=31
Median=33
0000
20
10
30
60
50
70
1=Automotive 2=Retail 3=Wholesale
40
3
12
2016E2017F2018
Median=45
700
600
500
400
300
200
100
000050 070 090 110 130 150 170 190
Median=11
Exhibit 41 NFDEquity and NFDEBITDA for wholesale and retail trade sectors
1=Automotive 2=Retail 3=Wholesale
21
3
37
Ratings will remain broadly stable
The following section presents a risk profile analysis
based on Cerved Rating Agencyrsquos outstanding and
monitored public and private ratings issued from
2013 to 2017 on Italian non-financial companies
and operating in the industries discussed in this
study (data as of 31 December)
Exhibit 42 and Table 9 show an overview of 1-year
effective default rates over the 2000-2017 horizon
related to the sample bankruptcy and other legal
proceedings and debt restructurings as default
events
The default rate trend shows a general
improvement from 2014 onwards both by
company size classes and by industry however
considering the entire sample the overall default
rate still remains higher when compared to its pre-
crisis level especially regarding smaller companies
operating in the construction sector
Exhibit 43 shows the effective default rates over
2013-2017 horizon based on Cerved Rating
Agencyrsquos definition which considers as default
events
middot bankruptcy and other legal proceedings
middot debt restructuring
middot missed or delayed disbursement of a contractually
required interest or principal payment ie missed
payment on bonds material protests (on cheques
or trade bills) or prejudicial acts (judicial mortgages
distraint of property)
The effective default rates over the 2013-2017
horizon show decreasing trend and satisfy the
monotonicity constraint regarding all Cerved
Rating Agencyrsquos rating classes (Exhibit 44)
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2003 2004 2005 2006 2007 2014 2015 2016 20172000 2001
5678
12
3
4
0
Exhibit 42 Avarage 1-year default rate by size over 2000-2017 horizon
medium small
2008 2009 2010 2011 2012 2013
Mining and quarring
Manifacturing
Electricity gas steam and air conditioning supplyWater supply sewerage
Construction
Wholesale and retail trade repair of motorTransporting and storage
Accomodation and food service activities
Information and communication
24221809
5212
282915
2529
38533424
13027
454830
4838
36542537
15929
424421
4323
23461921
13226
293226
3022
Source Cerved database and Cerved Rating Agency elaboration
Table 9 Default rate by industry over 2000-2017 horizon
Total
NACE Average2008-2015
Average2000-2017 2016 2017
2016
Source Cerved database and Cerved Rating Agency elaboration
C21C12C11B22B21B12B11A11 A12 A13 A21 A22 A31
60
50
40
30
20
10
0
Exhibit 43 1-year default rate over 2013-2017 horizon
20172013 2014 2015
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
38
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The analysis of historical rating distributions in the
same period shows clear differences in terms of modal
rating class by company size As shown in Exhibit 43
the modal rating class for the large companies is A31
B11 for the medium and B12 for small companies
(considering company size classes as they have been
defined ad hoc by Cerved Rating Agency for the
purposes of this study)
Overall the corporate rating distribution in the
Source Cerved database and Cerved Rating Agency elaboration
C21C12C11B22B21B12B11A11 A12 A13 A21 A22 A31
30
25
20
15
5
10
0
Exhibit 44 Rating distribution frequency by size classes
large
30
25
20
15
5
0
10
medium smallRating 2013 total Rating 2017 total Rating 2017 forecast
observed period is skewed towards the investment-
grade rating categories (ie Cerved Rating Agency
rating classes from A11 to B12) representing 700 of
the whole sample 250 is concentrated in the safety
(A rating classes) and 450 in the solvency (B11-B12)
classes
We anticipate the rating distribution to remain
broadly unchanged in 2018 with the rating migration
concentrated mainly in the B category
39
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100543
2414
4407
4407
2636
4554 4558
2403 2311
535 527
90
10
0
Exhibit 45 Rating distribution frequency by area of risk - Total companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency]I nvestment GradeA11-A31 [Safety]
2509 2604
704 4407706 4407716
324
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
985
5658
4407
3033 2992 2898
925 907
300 318
90
10
0
Exhibit 46 Rating distribution frequency by area of risk - Large companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
5783 5878
869 4407878 4407878
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
4407
4407
3626
4080
17591695
439 449
90
10
0
Exhibit 47 Rating distribution frequency by area of risk - Medium companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
3571 3776
7044407780 4407786
456
1805
774
4113 4232
603
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
2824
1900
4407
4673 4850 4761
2833 2754
600 633
90
10
0
Exhibit 48 Rating distribution frequency by area of risk - Small companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
1716 1852
657 4407657 4407661
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
40
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Slight improvement in general creditworthiness
In our opinion in 2018 the creditworthiness of the
observed Italian non-financial companies will remain
stable for almost 86 of entities Migration of ratings is
expected to be moderate resulting in approximately 14
of rating upgrades (9) and downgrades (5) at the end
of 2018 compared to the outstanding ratings at the end
of 2017 The vast majority of the rating changes (921)
will be limited to one-class migration as shown in the
1-year projected transition matrix (Table 10) We believe
that more than one third of the expected downgrades
will be concentrated in the energy gas mining and
construction sectors Over the last years the average
credit profile of companies active in these industries has
been relatively weak and due to the forecast market and
regulatory conditions we do not envisage opportunities
for a significant risk profile improvement in 2018
Despite the expected rating migrations for individual
entities in 2018 the current industry modal rating
classes are unlikely to change
On the other hand stable and positive outlooks will
prevail in the manufacturing industry wholesale and
retail trade and accommodation and food service This
is due to the increase in the number of companies
active in these sectors which will maintain andor
improve their business and financial performances
Indeed as shown in Table 11 in 2018 the rating outlook
remains differentiated by industry whilst in terms of
the expected general probability of default we foresee
a modest improvement (349) compared to the one
recorded in 2017 (366)
Table 10 1-year transition matrix
Source Cerved database and Cerved Rating Agency elaboration
2017
A11
A31
B11
C11
C12
B21
C21
B22
B12
A12
A13
A21A22
F 2018A11 A12 A13 A31 B11 C11 C12B21 C21B22B12A21 A22
000 530
066
054 451034 435
027 753055 901
1033121247 1624
260 1038088
000
000000037
028
295
290
1063
179
455050647
043425
026490020208
000208
000152
000000
00000010000
9821
9318
92679015
87708583
81497646
8665
9617
9710
8605
419024
41
The information and data supporting Cerved Rating Agency rating opinions related research and credit opinions originate from sources Cerved Rating Agency considers to be accurate however Cerved Rating Agency cannot independently verify the reliability and accuracy of the information and data in every instance This publication may not be reproduced retransmitted or distributed in any form without the prior written consent of Cerved Rating Agency Cerved Rating Agency assumes no liability for correctness completeness and topicality of the information contained in this publication The analyses underlying this study do not provide advice of any sort
26
n
6670
486
59
Exhibit 49 Ratings outlooks by size
Large
Medium Positive Stable Negative
Small
21
13
Large
Medium
Small
Source Cerved database and Cerved Rating Agency elaboratio
Table 11 Ratings and probability of default 2018 outlook by industry
Source Cerved database and Cerved Rating Agency elaboration
NACE Micro industryDowngrade
B-Mining and quarryingAutomotive
900814
848
812
880812
847
813 172
170
174
144
8264 36
08
104 433 436
392 373
22724815
362 360
876
876
914
848
849
804
887
882
916
901835870899 64
866760
43
68
5659
58
47
61
49
74
78 75
14
50
37
36
5393
32
50
41
45
3899
77
91
316
372
355
364
308
491
326
318 296
331
312
381
367
359
322
495
452
433
403429
389
364369
363
313
452
323
594
38
315358
603
307
345 350
67 5318
469289 274
470
147
116
138
851
821AutomotiveRetail
Wholesale
Total
Chemistryamppharmaceutics
ClothingEquipment
Food Beverage and Tabacco
Heavy Manifacturing
Other Manifacturing
Textile industry
Total
Tecnology Media ampTelecomunication
Paper Packaging ampForest products
C-Manifacturing
D-Electricity gas steam and air conditioningsupply
F-Construcion
H-Transportig and storageI-Accommodation and food service activitiesJ-Information and communication
G-Wholesale and reatail traderepair of motor vehicles and motor-cycles
E-Water supply sewerage waste
Average ForecastPD 2018
Expectedtrend
Average PD 2018
Ratings outlooks
Stabl pgrade
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Cerved Rating Agency SpAVia dellrsquoUnione Europea n 6A-6B20097- San Donato Milanese (MI)
Tel +39 02 77541 - Fax +39 02 76020458
ratingagencycervedcom
Rating Agency
19
Modest role of italian equity capital markets
Despite the number of listed companies increasing
from 297 to 421 in the period 2000-2017 the role
of the stock markets remains modest in Italy
As of December 31st 2017 the market capitalization
was euro640 billion (375 of the estimated Italian GDP
in 2017) representing only 782 of the overall
market capitalization recorded in 2000 (equal
to euro818 billion 687 of GDP) mainly due to
an unfavorable economic cycle in the observed
period
This situation shows the structural weaknesses of
the Italian economic and financial system especially
when compared to other highly developed
European economies The low propensity to
raise equity capital through organized markets
is linked to an unfavorable macroeconomic and
fiscal framework as well as to the predominance
of SMEs mostly unfit for listing and presenting
cultural obstacles (ie company owners and managers are often reluctant to accept wider company control and
transparency)
Hence self-financing and bank borrowing remain the main sources of finance for Italian companies which are
generally speaking undercapitalized with a negative impact on their investment capabilities Very frequently the
lack of medium-long term financing means forces companies to focus their attention on running current activities
postponing or abandoning strategic projects fundamental for company growth
A wide range of innovative initiatives have been undertaken with the aim of fostering market based company
funding in particular
middot AIM (Alternative Investment Market) - a specialized market segment dedicated to SMEs growth (95 companies and
market capitalization around euro56 billion as of December 2017)
middot ELITE - a programme designed to help SMEs prepare and structure for the next stage of growth their through
access to long-term financing opportunities
middot PIR - Piani individuali di risparmio (Individual Savings Plan) - an innovative way to fund Italian SMEs by offering retail
investors resident in Italy tax incentives (full exemption of 260 income tax) if the savings stay invested for at least
five years A minimum of 700 of such credit assets must be invested in financial instruments issued by Italian or
foreign (EU and EEA) companies permanently established in Italy
FTSE (MIB)Enterprises
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 20132012 20152014 201720160
100
200
300
400
500
600
700
800
900
100029681 29525
14623
1765216121
12259
13512
16048
15988
19012
21428
21853
2185322232
16954
297 294 295 279 282278 311 336 332 332 328 323 326344 342 356 387 421
19483
22886
26056
31005
Exhibit 21 Italian listed enterprised and FTSE (MIB) index trend
Source Borsa Italiana
300000
250000
200000
150000
100000
5000
0
Capitalization of GDP
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 20132012 20152014 201720160
100
200
300
400
500
600
700
800
900
1000
Exhibit 22 Italian market capitalization of listed companies ( of GDP)
Source Borsa Italiana
80
70
60
50
40
30
20
10
0
8184
5923
354 365418 473
524475
239301 275
210233
287 295348
318375
4580 4875
5809
6766
77857336
37474571
4251
3324
44664678
56765249
6400
3655
474
68
CERVED RATING AGENCY SpA | Highlights on italian economy
20
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Italian debt capital market is growing but still remains behind needs
At the end of 2016 the outstanding amount of debt
securities issued by Italian financial and non-financial
corporations was euro8615 billion 510 of the countryrsquos
GDP The table below shows the breakdown by issuer
type of Italian German French British and United States
outstanding amounts of debt securities as of December
2016 issued by financial and non-financial corporations
with the respective debt-to-GDP ratio
Despite the outstanding debt at the end of 2016 being
almost double compared to 2000 it represents only 23
of its peak value reached in 2012 (euro1290 billion Exhibit
23) The main reason for such a significant debt reduction
is the huge bond reimbursement realized by banking
institutions from 2013 to 2016 and the related negative
net flow of debt securities (respectively -80 -153 -106
and -67 billion of euro as shown in Exhibit 24)
The decrease in debt securities funding of Italian banks
has been compensated by a wider use of deposits and
resources available under the Eurosystem refinancing
operations framework
The outstanding amount of debt securities issued by
non-financial corporations at the end of 2016 also
doubled its value with respect to the amount recorded
at the end of 2000 The main characteristic of this cluster
is the high concentration of issuancesdebt to a small
number of issuers
Due to both more favourable general economic
conditions and active ECB monetary policy bond yields
have decreased significantly providing room for a
convenient fund raising
Since the introduction of a new regulatory framework
(lsquoDecreto Svilupporsquo) in 2012 up to October 2017 Italian
market saw 300 small-size listed bond issues (ie so
called minibonds) amounting approximately to euro143
billion Issued mainly by SMEs they offer interesting
yields to institutional investors
) Source Business support SpA ndash Minibonditalyit
BanksTotal
Source Bank of Italy and Cerved Rating Agency elaboration
2006 20082000
-200000
200000
250000
-150000
-100000
150000
100000
-50000
50000
02012 2014 20162002 2004 2010
Banks debt securities outstanding
Banks Debt to GDP ratio
Source Bank of Italy and Cerved Rating Agency elaboration
0
10
20
30
40
50
60
70 1400000
1200000
1000000
800000
600000
400000
200000
0201620142012201020082006200420022000
Table 2 Outstanding securities debt (euro Million)Debt-to-GDP ratio()
Financial corporates
Total
Debtsecurities
outstanding
Italy German rance United Kingdom United States
739
123
862
440 340 470
21
680380
40
1279 1331 4 50
880
30
14271
14820
549180
10202767
590
19211436
15770
510
Debtsecurities
outstanding
Debtsecurities
outstanding
Debtsecurities
outstanding
Debtsecurities
outstanding
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Source Bank of Italy
0
0
21
CERVED RATING AGENCY SpA | Highlights on italian economy
22
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Italian non-financial companies economic Outlook 2018
23
Data and method
This research focuses on Italian non-financial companies
with an annual turnover exceeding euro5 million With the
aim of using only reliable data joint stock and limited
liability companies have been considered only these
entities according to Italian law file complete annual
financial statements in the Chamber of Commerce
together with anagraphical company data other
legal forms such as unlimited partnerships and sole
proprietorships are not included in this sample due to
the lack of publicly available standardized financial data
We believe that this cutoff is reasonable and allows us to
perform a methodologically correct analysis In 2016 the
above mentioned companies despite representing only
42 of all registered and active joint stock and limited
liability companies accounted for 769 of their total
turnover
Moreover cluster specialization has been obtained by
NACE activity classification from A to J (thus not including
in the sample financial and insurance companies and
some service industries) The statistics regarding specific
industries provide important key data and enable us to
examine historical and prospective trends and cross-
sector comparisons
The Cerved database which contains legal anagraphical
financial and market information on all Italian registered
legal entities (approximately 6 million comprising 5
million active ones) was the most important database
used for this research Long time series and broad
homogenized and standardized data covering different
economic cycles were the building blocks to perform
the regression and predictive analysis
Historical and forecast macroeconomic data and
analysis performed by the International Monetary Fund
OECD the World Bank European Central Bank Bank
of Italy and ISTAT completed the dataset used for the
analysis
Several analyses were performed in order to examine
the structural differences within the sample in terms of
company legal form and geographical area (Exhibit 25)
company age (Exhibit 26) and company size and industry
As a result we verified a considerable heterogeneity of
companies in particular with regard to the company size
across various industries
The relevant observation period comprises the years
between 2000 and 2016 Table 3 describes some
characteristics of the sample
Exhibit 25 Sample break-down by legal form and geographic area (2016)
Joint stock Company
Limited liability Company
Area 1 (Northwest)
Area 3 (Center)
Area 2 (Northeast)
Area 4 (South)
39
20
27
14
33
67
33
Table 3 Sample characteristics 2000-2016
TotalTurnover
gt euro5million
Turnover gt euro5 million(industry
from A to J)
TotalTurnover
gt euro5million
ofTotal
Turnover gt
euro5 million(industry
from A to J)
Source Cerved database
Entreprises Turnover billion
2000 659867700717738558772442812025847334883122915172937018949708965744969581
953505945825922513883224
4215144587462234694749640518205596459226595385246754808563745362752074519385289450123
3686139038411864118843547454704921752274526974633848778504734806246843468384771845288
16151740177018472002212923302477256822562421257025202446243224392295
12661362139214561588169818752000208317861944208720541992198419871905
11141205124013041430152316891801189716191764191218831839183518371765
689693700
716
706714
725
718729744748752754753769
727739
200120022003200420052006
200820092010201120122013201420152016
2007
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
24
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Furthermore in order to guarantee more detailed and
accurate analyses and projections we decided to create
a static pool to show consistently long time horizon
economic trends (17 years) by sealing off all the active
companies over the 2000-2016 horizon
The outcome obtained by considering the behaviour of
specific variables related to the companies included in
the static pool was extended as a performance indicator
for the whole sample (turnover over euro5 million and
industry from A to J)
According to the European Communityrsquos definition of
SMEs using annual turnover and employee headcount
as quantitative criteria the initial sample of companies
and the static pool can be classified by size classes on
the basis of the financial statements for the year 2016
as shown in Table 4
For the sake of this analysis we defined specific size
classes for each industry thus deviating from the
European Commissionrsquos recommendation which
presents undifferentiated upper and lower bounds of
quantitative criteria for SMEs in all industries To define
the thresholds of such classes we used both a statistical
approach (a specific cluster procedure by minimizing
the within-cluster turnover standard deviation) and a
judgmental approach by relying on the experience and
opinion of our industry expert analysts Table 5 shows
the results of such analysis referring to the sample in
2016 (45288 entities) and the NACE sections from A
to J Moreover the NACE section C and G were further
disaggregated into sub-industry classes as shown in
Exhibit 27 in order to consider the specific business
differences within these NACE sections thus ensuring
a good fit and a satisfactory accuracy of the estimation
Exhibit 26 Sample break-down by company age classes
0-2 Years 2-5 Years 5-10 Years 10-20 Years gt20 YearsSource Cerved database and Cerved Rating Agency elaboration
0 20 40 60 80 100
ABCDEFGHIJ
A = AgricolutreB=Mining and quarryingC=ManufacturingD=Electricity and gasE=Water supplyF=ConstructionG=Wholesale and retail tradeH=Transporting and storageI=Accomodation and food serviceJ=ICT
Small
Annul Turnover
Empolyees
Static Pool
Enterprises(Turnover gt euro5 million)
Enterprises(Turnover gt euro5 millionindustry from A t J)
Medium Large
lt 50 lt 250lt 36774 11113
1005333223
8741
2236
2012
154818645
gt euro50 million
gt 250
lt euro50 million
Source Cerved database
NACE Micro industry
B-Mining and quarryingAutomotive
Automotive
Retail
Wholesale
T gt 480
T gt 80
T gt 260
T gt 265T gt 270
T gt 230
T gt 120
T gt 80
T gt 43
T gt 65
T gt 106T gt 106
T gt 360T gt 155T gt 150T gt 100
T gt 120
T gt 225T gt 1400T gt 27500
T gt 1500
ChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther Manifacturing
ICTTextile
Paper Packaging ampForest products
C-Manifacturing
F-Construcion
H-Transportig and storageI-Accommodation and food service activities
J-Information and communication
D-Electricity gas steam and aircoditioning supply
G-Wholesale and reatail traderepair of motor vehicles and motorcycles
E-Water supply sewerage waste management and emediation activities
Large (Turnover
in euro million)
Medium(Turnover
in euro million)
Small(Turnover
in euro million)
Source Cerved database and Cerved Rating Agency elaboration
60 lt T lt 480 5 lt T lt 60
5 lt T lt 20
5 lt T lt 36
5 lt T lt 35
5 lt T lt 44
5 lt T lt 40
5 lt T lt 20
5 lt T lt 26
5 lt T lt 250
5 lt T lt 185 lt T lt 305 lt T lt 265 lt T lt 205 lt T lt 37
5 lt T lt 335 lt T lt 40
5 lt T lt 255 lt T lt 585 lt T lt 1155 lt T lt 1005 lt T lt 27
20 lt T lt 80
36 lt T lt 26035 lt T lt 26544 lt T lt 270
40 lt T lt 230
20 lt T lt 120
26 lt T lt 80
18 lt T lt 43
250 lt T lt 1500
20 lt T lt 6537 lt T lt 29540 lt T lt 15533 lt T lt 15025 lt T lt 100
27 lt T lt 120
58 lt T lt 225
100 lt T lt 27500 115 lt T lt
30 lt T lt 10626 lt T lt 106
25
Exhibit 28 shows the breakdown of macro industries
analysed including disaggregation of the NACE section C
(manufacturing) and G (wholesale and retail trade repair
of motor vehicles and motorcycles)
In order to carry out the analysis and projections this study
is focused on we used simple multiple linear regression
model for each industry and company size classes
considering macroeconomic and individual companiesrsquo
economic and financial data
The analysis enables us to develop an econometric
model used to estimate likely credit quality changes (in
terms of rating class and probability of default) for single
industries and company size classes
Automotive
Retail
Wholesale
21
1366
1
42
1
26
35
232
6
A B C D
F G H I
46
7
21
1318
9
15
34
Automotive
Chemistry amp pharmaceutics
Clothing
Equipment
Food Beverage and Tabacco
Heavy Manifacturing
Other Manifacture
Paper Packaging amp Forest Products
ICT
Textile industry
Large SmallMedium
Source Cerved database and Cerved Rating Agency elaboration
0
Wholesale
Retail
Automotive
20 40 60 80 100
Automotive
Chemistry amp pharmaeutics
Clothing
Equipment
Food beverage and Tabacco
Heavy Manifacturing
Other Manifacturing
Paper Packaging amp Forest Products
ICT
Textile
0 20 40 60 80 100
ABCDEFGHIJ
0 10 30 40 60 70 80 90 100
Exhibit 28 Sample break-down by industry (2016)
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
26
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Performance indicators to improve further
The annual financial statements available through public
registers provide a clear economic and financial picture
of the Italian joint-stock and limited liability non-financial
companies The individual historical data available from
2000 to 2016 enriched with 2017 preliminary results and
with the expected 2018 macroeconomic scenario enabled
us to build up the 2017 and 2018 projections regarding
the following four performance indicators related to the
analyzed sample 1) growth rate - revenues YoY change
2) EBITDA margin 3) net financial debtEBITDA and 4) net
financial debtEquity Afterwards the median values of the
resulting data were used to obtain the summary output
which we consider as a representative proxy for the overall
market
From 2000 to 2016 the observed companies experienced
a very irregular trend both in terms of growth rate and
EBITDA margin In the aftermath of the global financial crisis
the lowest growth rate value (-120) was recorded in 2009
manufacturing transporting - storage and wholesale and
retail trade were the industries showing the biggest fall of
business volume (-155 -121 and -104 respectively)
whilst water supply accommodation and food service and
electricity and gas showed the highest level of resilience to
the adverse economic and financial environment (-01
-23 and ndash26 respectively) Exhibit 29 shows that in
terms of median value there are no significant differences
in the growth rate taking into consideration company size
classes as we previously defined them Only from 2010 the
growth rates turned positive but still remaining below the
levels recorded in 2000
The analysis of the EBITDA margin changes in the same
period also does not highlight significant differences
between large companies and SMEs as shown in Exhibit
30 The lowest median EBITDA margin value (52) was
recorded in 2012 regarding in particular accommodation
and food service transporting and storage and agriculture
sectors (28 40 52 respectively) while electricity
and gas ICT and water supply were relatively immune to
the unfavorable economic and financial circumstances
(showing 113 109 and 105 EBITDA margin
respectively) At the end of 2016 the median EBITDA margin
(60) still remains below the levels recorded in 2000 (72)
Positive trends emerging from the last publicly available
financial statements (2016) the 2017 preliminary results
and the optimistic macroeconomic forecasts for 2018
confirm improvement of the Italian economy Looking
ahead we expect the Italian non-financial companies to
continue to experience gradual recovery in 2018 They are
going to take advantage of the favorable global economic
cycle low interest rates and supportive regulations that
inter alia foster the use of alternative non-bank financial
sources for company funding The financial resources raised
through Individual Savings Plans (PIR ndash Piani individuali di
risparmio) introduced by the 2017 Budget Law are driven
in primis by a favorable tax regime for savers and might
become an important additional source for SMEs funding
injecting new liquidity The government objective fixed euro68
billion as a target value and in 2017 nearly euro10 billion had
already been raised
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2004 2006 2014 20162000
5
20
10
0
15
-15
-10
-5
Exhibit 29 Growth rate (revenue YoY change) by size classes (median)
medium small
2008 2010 2012
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2004 2006 2008 2010 2012 2014 20162000
7
10
9
8
6
5
4
3
7
10
9
8
6
5
4
EBITDA margin by size classes (median)
medium small
27
So far one of the main obstacles PIR are facing is the limited
number of available assets which may lead to a possible
concentration of this financial resources in a small share of
the market comprising mainly relatively large companies
as shown by the early data in 2017
Another obstacle to rapid adoption of the newly available
financial resources is the lack of a standardized and broadly
accepted methodology for the risk assessment of potential
bond issuers
Generally speaking in 2018 we expect SMEs to contribute
more significantly to growth employment and innovation
whilst on average the respective EBITDA margin will remain
broadly stable (as shown in Exhibit 31) However 2018 will
still be a challenging year for SMEs and innovative startup
companies as they will have to face tougher barriers in
accessing bank credit andor approaching capital markets
compared to large companies We also expect some new
innovative solutions aimed at meeting SMEs financial needs
to become effective the SMEs current financial structure
together with new business opportunities prove their
ability in terms of rational use of the additional financial
resources
The new investments will allow most industries to thrive
also assisted by the Italian Governmentrsquos adoption of the
National Industry 40 Plan
The companies which will take up this opportunity may
improve their cash-flows even in the short-medium term
Finally companies with strong international market
positioning and large product diversification will have
stronger sales and margins growth
The key ratio values recorded from 2000 to 2016 related to
the analyzed entities show the improved financial health of
the companies proving good capability to strengthen their
equity base as shown in Table 6
Growth rate (2016)Medium
Total
Small Large
Growth rate (2018)Growth rate (2017)
Source Cerved database and Cerved Rating Agency elaboration
50
40
Exhibit 31 Growth rate and EBITDA margin forecast by size classes
EBITDA margin (2016)EBITDA margin (2018)
EBITDA margin (2017)
40
30
0
10
20
Medium
Total
Small Large
7570
65
0
6 5560
5550
4540
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
28
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The recorded financial ratios in the 2000-2016 horizon
indicate that on average
middot liquidity maintained a satisfactory level in the whole
observed period due to the positive economic cycle in
2017 and 2018 we expect a slight improvement in the ratio
middot the EBITDAinterest coverage ratio almost doubled its
value in 2016 compared to what was recorded in 2000
primarily due to a general reduction in the interest rates
particularly in the last three years we believe that in 2017
and 2018 the average ratio value will remain roughly at the
same level recorded in 2016
middot in 2016 ROE shows further improvement but is still
slightly lower compared to the value recorded at the
beginning of the observed period mainly due to the equity
base strengthening trend
middot Equity Ratio rose from 250 to 350 due to a significant
increase of equity capital in 2018 we expect further
strengthening of the ratio
middot Financial LiabilitiesTotal Assets ratio remained mostly
unchanged ndash financial debts representing roughly 30 of
the total assets
A positive trend regarding the net financial debt was also
observed in fact in 2016 70 of the sample improved their
NFDEBITDA and 73 the NFDEquity
Positive performances were found especially in the SMEs
segment as shown in Exhibit 32 in particular referring to
NFDEquity small and medium-sized companies recorded
a positive trend standing respectively at 092 and 089 in
2016 compared to 132 and 136 in 2000
Hence the financial risk profile appears to be well balanced
leaving no room for specific concerns regarding the
prospects of the Italian non-financial companies in 2018
In 2016 the median values for the total sample referring to
NFDEquity and NFDEBITDA remained respectively at 089
and 389 levels respectively
Looking ahead we expect these indicators to remain at
healthy levels in 2017 and 2018 with a slight improvement
in NFDEBITDA and a broadly stable level of the NFDEquity
ratio as shown in Exhibit 33
NFDEBITFA (2016) NFDEBITFA (2017)NFDEBITFA (2018)
40
Exhibit 33 NFDEquity and NFDEBITDA forecast by size classes
Source Cerved database and Cerved Rating Agency elaboration
404
20
25
45
35
30
NFDequity (2016) NFDequity (2017)NFDequity (2018)
05
06
09
10
08
07
Exhibit 32 NFDEquity and NFDEBITDA by size classes (median)
largemediumsmall
2016
2015
2014
000 5 10 15
Average2008-2013
Average2000-2007
total largemediumsmall total
Source Cerved database and Cerved Rating Agency elaboration
2016
2015
2014
203 0 405 0
Average2008-2013
Average2000-2007
29
Growth and profitability improvement spanned over all sectors
Exhibit 34 shows the relative positioning of the 10
macro-industries in the short-medium term considering
the median values related to revenue growth rate and
EBITDA margin
The historical median values are calculated on the basis
of financial data obtained from the annual financial
reports 2014-2016 filed in the Chamber of Commerce
public registers the projected median values for 2017
and 2018 are the result of the analysis of this study
As expected there are significant differences in
positioning between different industries in terms of
both historical and projected values
In 2018 we expect manufacturing and accommodation and
food services to maintain top positions already reached in
2016 and 2017
For the electricity gas mining and quarrying industry
2018 may be the turning point showing the first positive
signals after experiencing some difficulties over the last
few years
None of the other industries show significant changes in
2018 compared to their 2016 positioning
Source Cerved database and Cerved Rating Agency elaboration
A 50
57599586886358
3849
3620083721
-110320
-1112
210322
-1814021122
1413
030124
-5010284025
0555
20-4614
-4607212105
0430
210328-2310203218
0832
2310300512233720
1637
BCDEFGHIJ
A 625296
1441401016934
15352
504969
103121916227
10639
4764676185562639
68112
4873687090592845
75120
456772928856
45
7898
4667759090573147
7698
4668769394583147
77102
EBITDAmarigin
BCDEFGHIJ
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018Growthrate
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
Exhibit 34 Growth rate and EBITDA margin by industry
-70 -50 -30 -10 10 30
2016E2017F2018
50 70 90
Median=68
Median=2100
20
40
60
80
100
120
A=Agricolture B=Mining and quarrying C=Manifacturing D=Electricity and gas E=Water supply F=Construction G=Wholesale and retail trade H=Transporting and storage I=Accomodation and food service J=ICT
D
B
E
FHA G
C
I
J
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
30
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Further strenthening in companiesrsquo financial structure
Exhibit 35 shows the relative positioning of the 10 macro
industries in the short-medium term considering the
median values related to NFDEBITDA and NFDEquity
ratios
The historical median values are calculated on the basis
of financial data obtained from the annual financial
reports 2014-2016 filed in the Chamber of Commerce
public registers the projected median values for 2017
and 2018 are the result of the analysis of this study
There are even more significant differences in
positioning between industries regarding NFDEBITDA
and NFDEquity ratios when compared to growth rate
and EBITDA margin differences
Generally in the observed period there is no evidence of
significant changes among industries considering their
relative positioning related to NFDEBITDA and NFD
Equity ratios
In 2018 we expect accommodation and food services
and information and communication services to
maintain top positions already reached in 2016 and
presumably confirmed in 2017
Exhibit 35 NFDEquity and NFDEBITDA by industry
2016E2017F2018
Median=37
Median=08500
030 5 070 9 111 3
20
30
40
50
60
70
10
A=Agricolture B=Mining and quarrying C=Manifacturing D=Electricity and gas E=Water supply F=Construction G=Wholesale and retail trade H=Transporting and storage I=Accomodation and food service J=ICT
EH
C
BF
G
A
D
J
I
A 150101113081112149151120
079131
123075088101097125123103
072079
114067083052090108119102
067076
113060080045089096114092
074069
125076080045089106109086
050060
127072080044091
108084
051056
128067079043093106107081
051051
BCDEFGHIJ
NFDEquity
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
A 597219280305251301338250
153260
676394388342298453499349
254337
707482387293277498532337
277334
696392373254305484494308
231315
747401358330285544483294
183312
722390340341280511470290
178293
710380310329272492452281
177289
NFDEBITDA
BCDEFGHIJ
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
Source Cerved database and Cerved Rating Agency elaboration
106
31
Exhibit 36 Equity ratio by industry
Average 2000-2007 2014 2015Average 2008-2013 2016
Source Cerved database and Cerved Rating Agency elaboration
05
10
20
30
15
25
3540
5045
AB C DE FG HI J
Exhibit 37 EBITDA interest coverage by industry
Average 2000-2007 2014 2015Average 2008-2013 2016
Source Cerved database and Cerved Rating Agency elaboration
0
5
10
20
15
AB C DE FG HI J
A 1113140911151211
1408
1013131012131209
1208
1114151012131311
1309
1214151012151312
1309
1215161113161412
1409
BCDEFGHIJ
Liquidity ratio Median2000-07
Median2008-13 2014 2015 2016
A 0377677447858463
8960
0332
8145524536
4832
0342486042273848
3246
0537606853395765
4069
0743676559416378
5882
BCDEFGHIJ
ROE Median2000-07
Median2008-13 2014 2015 2016
Table 7 Liquidity ratio by industry Table 8 ROE by industry
Source Cerved database and Cerved Rating Agency elaboration
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
32
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Agriculture
Considering the recent price decline for agricultural
products putting EBITDA margin under pressure for
most of the industry participants we anticipate a slow
revenue growth in 2018 We also foresee more stable
margins in 2018 and investments to continue at a faster
pace in the near future mainly aimed at transforming the
agricultural activities into a high-tech industry Climate
and cultural changes are the main exogenous risks that
may negatively influence the sector
Mining and quarrying
Over the last few years the mining industry has been
challenged by record low metal prices and this has
resulted in a weak growth of supply and a cut in
investments especially in the new mines opening We
foresee a modest revenue growth in 2018 supported
by more stable prices rather than by government
infrastructural investments Margin pressure will remain
mostly unchanged in 2018 We do not expect a significant
increase in capital expenditure for most companies
while only a minority of industry participants will invest
in new capacities searching for new growth opportunities
by introducing new higher margin outputs Overall we
anticipate relatively stable key financial indicators
Manufacturing
We believe that in 2018 Italian manufacturing
representing 2nd European and 7th world player in 2016
will remain the beating heart of the national economy
In our view the expansion of internal demand the
improvement of business and customer confidence and
the wider export opportunities are the key drivers for
revenue growth (up to nearly 30) Despite the natural
selection the occurred during the economic recession
domestic competition and especially the competition
from lower income countries will remain challenging in
2018 creating further profitability pressure especially in
some highly fragmented segments
As a conditio sine qua non for market survival many
companies will be involved in a ldquowinning the innovation
gamerdquo process translated into a considerable capex
expenditure directed at process optimization which
inevitably must be accompanied by innovative marketing
and commercial strategies The companies especially
smaller ones which are not ready lsquoto play the gamersquo
remaining risk averse are likely to fall behind
Key financial indicators referring to the industry in terms
of net financial debt to equity and net financial debt to
EBITDA are likely to remain overall stable in 2018
In our view the best performing manufacturing industries
in 2018 will be the following
Automotive
extensive vehicles replacement process in 2018
high competition pressure China maintaining a key role
high level of innovation in mobility and connectivity
new strategic partnerships and MampAconservative stand towards EBITDA margin improvement
Chemistry amp Pharmaceutics
solid macroeconomic fundamentals will support
the revenue growth driven mainly by large companies
on average a stable EBITDA margin of about 10
is expected global presence is a must to achieve higher
level of profitability
RampD remain key factors for further market expansion
moderate level of MampA operations in 2018 slowing
down when compared to those carried out in the
previous year
Machinery amp Equipment
revenue growth in 2018 up to nearly 25 reflecting
the fact that all manufactures remain focused on RampD
and NPI (new product introduction)
cost management strategies are going to persist
but generally speaking with no significant impact on
EBITDA margin in 2018
heavy equipment manufactures still under pressure in
2018 to provide engineering capability and capacity
33
Energy and gas
Italian companies operating in the energy industry are
facing a complex market environment with many open
questions about risks related to regulations a drop
in consumption high competition levels and EBITDA
erosion
Generally we expect a more stable landscape in 2018 in
terms of commodity prices and consumption However
risk regarding prices and volumes will remain strong
resulting in a higher volatility of revenues In our view
the current margin pressure is unlikely to ease over the
next two years The final overcoming of the sondashcalled
ldquoMaggior Tutela Regimerdquo may lead to almost zero margin
for the retail operators We expect industry participants
to continue to focus their attention on cost efficiency and
on protecting profitability by embracing new business
models and examining the role that digital technology
can play in improvement of EBITDA margins We believe
that the above described strategies will be a central
topic for the operators intending to attract capital We
also believe that energy producers could see a slight
debt increase in 2018 aimed at improving productivity
and synergies Finally in 2018 we envisage a significant
number of MampA operations in the sector led by synergy
effects such operations might produce
Water supply waste management and sewerage
In recent years the water supply waste management
and Italian sewerage industry has recorded a slower
growth compared to the pre-crisis period However
due to the last two yearsrsquo important investments in the
water infrastructure waste sorting and recycling Italy
ranks as one of the top European countries in terms
of growth rate of recycling and packaging recovery
We believe that the expected general increase in
industrial output will produce a slight growth in water
consumption and waste treatment The demand for
sustainable solutions will continue to persist requiring
new investment in technologies based on a customer-
centric and sustainable approach aimed at improving
efficiencies and facilitating reuse Expectations also
reflect our view in terms of wider government interest
and spending in this industry We expect profitability
to remain broadly in line with the results obtained in
2016
Construction
After a weak increase in revenues recorded by the
construction industry operators in 2016 and the
modest result anticipated in 2017 both reflecting
a deteriorating demand and decreased volumes of
bank loans (mainly those for small and medium-
sized companies) we expect 2018 to be the turning
point for this industry We foresee that the volume of
residential and private non-residential constructions
will remain at relatively low levels in 2018 and that
the positive trend in housing renovation and public
works investments will continue taking advantage of
the allocated funds established by the Budget Law for
2017 Small and medium-sized businesses focused on
residential construction may face a slight profitability
erosion while we believe some growth in EBITDA
margin may be recorded by large Italian companies
operating internationally Due to the high perceived
risk historically there has been a strong financial
market mistrust of the construction companies which
we believe is likely to ease over the coming years
Wholesale and retail trade
During the crisis period wholesale and retail trade
industry faced a sudden interruption of the gradual
growth that had taken place up to that moment mainly
due to a loss in real purchase power and in consumer
confidence also translated into profitability erosion
In 2016 the data showed how the industry is moving
toward a recovery period Looking forward in 2018 we
expect to record a steady revenue growth supported
by an increase in global trade and improved consumer
confidence Despite the foreseen growth operators
will continue to face consistent pressure mainly in the
retail segment due to the high proliferation of new retail
purchase channels and market fragmentation
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
34
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Transportation and Storage
After a troubled 2016 characterized by an overcapacity
and a decrease in commodity demand hitting shipping
revenues in particular we foresee a moderate overall
recovery in 2018 driven mainly by an increase in
international shipments and air traffic The growing
number of innovative startups will continue to persist
increasing the competitive pressure in the industry We
anticipate a constant growth of e-commerce enabling a
quick reaction of on-line retailer and logistics providers
We believe that operators will continue to invest in
new high-tech solutions experimenting new models of
mobility and smart logistics
Despite very strong competition we expect the median
operating margins to remain steady However global
political uncertainties and related risks are strong with
possible quick and sharp negative impact on business
volumes and margins of the companies operating in
these industries
Accommodation and food services activities
In the last two years operators in the accommodation
and food service activities industry mainly medium
and small sized enterprises have seen steady revenue
growth and satisfactory profitability ratios Many
operators were focused on reviewing their business
models and offering additional services to their
customers a necessary strategy to maintain or expand
market positioning strengthen margins and improve
customer experience We expect the revenue growth
to continue in 2018 with a minimal median margin
improvement We believe accommodation and food
service activities will attract new capital investments
in 2018 to help the ongoing transformation process
and improve the accommodation infrastructure and
services
Information and communication technologies
The Italian information and communication technology
industry took longer to recover from the economic
crisis recording overall a negative median growth
rate until 2014 Software services and innovation
technology were the major contributors to revenue
growth (as a percentage) in 2016
Over the forecast period we foresee a modest revenue
growth for the ICT operators as a whole while the
technology industry will continue to achieve rapid
growth focusing on maintaining the competitive pace
of innovation In our view a key challenge for the ICT
operator may be the availability of matching skills
The outlook is relatively stable in terms of profitability
and key financial indicators
The following two pages show the details of the
previously discussed key performance indicators
35
Exhibit 38 Growth rate and EBITDA margin manifacturing sectors
-70- 50 -30 -10 103 0
2016E2017F2018
50 70 90
Median=76
Median=3000
20
40
60
80
100
120
1=Automotive 2=Chemistryamppharmaceutics 3=Clothing 4=Equipment 5=Food beverage and Tabacco 6=Heavy Manifacturing 8=Paper and Packaging 9=Tecnology and Telecomunication 10=Textile industry
6
10 5
3
8
91
74
2
50AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
57599586886358
3849
3620083721
-110320
-1112
210322
-1814021122
1413
030124
-5010284025
0555
20-4614
-4607212105
0430
210328-2310203218
0832
2310300512233720
1637
Growth rate Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
EBITDA margin Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
Source Cerved database and Cerved Rating Agency elaboration
625296
1441401016934
15352
504969
103121
916227
10639
4764676185562639
68112
487368
7090592845
75120
456772
9288562845
7898
4667759090573147
7698
4668769394583147
77102
1=Automotive 2=Chemistryamppharmaceutics 3=Clothing 4=Equipment 5=Food beverage and Tabacco 6=Heavy Manifacturing 8=Paper and Packaging 9=Tecnology and Telecomunication 10=Textile industry
2016E2017F2018
Median=30
700
600
500
400
300
200
100
000000 020 040 060 080 100 120
Median=08
Exhibit 39 NFDEquity and NFDEBITDA for manifacturing sectors
2
4 8
101
9
9
3
57
Source Cerved database and Cerved Rating Agency elaboration
096AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
104146095152117112109
098087
087080116068118083088086
084078
075074104069107082080079
084083
072064100065105084122081
079081
082066104065105080091079
077082
081067103065105079087079
077081
076067101064104077083078
076080
NFDEQUITY Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
227AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
258334222397249255259
315202
338313443305495363403412
480337
315306436328479373380397
482316
264269490303467366403383
515317
269243507090106127090106
106106
413343478088105127088105
105105
399333465086104127086104
104104
NFDEBITDA Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
36
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Exhibit 40 Growth rate and EBITDA margin for wholesale and retail trade sectors
20 40 60 80 100 120 140 160
2016E2017F2018
Median=31
Median=33
0000
20
10
30
60
50
70
1=Automotive 2=Retail 3=Wholesale
40
3
12
2016E2017F2018
Median=45
700
600
500
400
300
200
100
000050 070 090 110 130 150 170 190
Median=11
Exhibit 41 NFDEquity and NFDEBITDA for wholesale and retail trade sectors
1=Automotive 2=Retail 3=Wholesale
21
3
37
Ratings will remain broadly stable
The following section presents a risk profile analysis
based on Cerved Rating Agencyrsquos outstanding and
monitored public and private ratings issued from
2013 to 2017 on Italian non-financial companies
and operating in the industries discussed in this
study (data as of 31 December)
Exhibit 42 and Table 9 show an overview of 1-year
effective default rates over the 2000-2017 horizon
related to the sample bankruptcy and other legal
proceedings and debt restructurings as default
events
The default rate trend shows a general
improvement from 2014 onwards both by
company size classes and by industry however
considering the entire sample the overall default
rate still remains higher when compared to its pre-
crisis level especially regarding smaller companies
operating in the construction sector
Exhibit 43 shows the effective default rates over
2013-2017 horizon based on Cerved Rating
Agencyrsquos definition which considers as default
events
middot bankruptcy and other legal proceedings
middot debt restructuring
middot missed or delayed disbursement of a contractually
required interest or principal payment ie missed
payment on bonds material protests (on cheques
or trade bills) or prejudicial acts (judicial mortgages
distraint of property)
The effective default rates over the 2013-2017
horizon show decreasing trend and satisfy the
monotonicity constraint regarding all Cerved
Rating Agencyrsquos rating classes (Exhibit 44)
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2003 2004 2005 2006 2007 2014 2015 2016 20172000 2001
5678
12
3
4
0
Exhibit 42 Avarage 1-year default rate by size over 2000-2017 horizon
medium small
2008 2009 2010 2011 2012 2013
Mining and quarring
Manifacturing
Electricity gas steam and air conditioning supplyWater supply sewerage
Construction
Wholesale and retail trade repair of motorTransporting and storage
Accomodation and food service activities
Information and communication
24221809
5212
282915
2529
38533424
13027
454830
4838
36542537
15929
424421
4323
23461921
13226
293226
3022
Source Cerved database and Cerved Rating Agency elaboration
Table 9 Default rate by industry over 2000-2017 horizon
Total
NACE Average2008-2015
Average2000-2017 2016 2017
2016
Source Cerved database and Cerved Rating Agency elaboration
C21C12C11B22B21B12B11A11 A12 A13 A21 A22 A31
60
50
40
30
20
10
0
Exhibit 43 1-year default rate over 2013-2017 horizon
20172013 2014 2015
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
38
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The analysis of historical rating distributions in the
same period shows clear differences in terms of modal
rating class by company size As shown in Exhibit 43
the modal rating class for the large companies is A31
B11 for the medium and B12 for small companies
(considering company size classes as they have been
defined ad hoc by Cerved Rating Agency for the
purposes of this study)
Overall the corporate rating distribution in the
Source Cerved database and Cerved Rating Agency elaboration
C21C12C11B22B21B12B11A11 A12 A13 A21 A22 A31
30
25
20
15
5
10
0
Exhibit 44 Rating distribution frequency by size classes
large
30
25
20
15
5
0
10
medium smallRating 2013 total Rating 2017 total Rating 2017 forecast
observed period is skewed towards the investment-
grade rating categories (ie Cerved Rating Agency
rating classes from A11 to B12) representing 700 of
the whole sample 250 is concentrated in the safety
(A rating classes) and 450 in the solvency (B11-B12)
classes
We anticipate the rating distribution to remain
broadly unchanged in 2018 with the rating migration
concentrated mainly in the B category
39
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100543
2414
4407
4407
2636
4554 4558
2403 2311
535 527
90
10
0
Exhibit 45 Rating distribution frequency by area of risk - Total companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency]I nvestment GradeA11-A31 [Safety]
2509 2604
704 4407706 4407716
324
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
985
5658
4407
3033 2992 2898
925 907
300 318
90
10
0
Exhibit 46 Rating distribution frequency by area of risk - Large companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
5783 5878
869 4407878 4407878
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
4407
4407
3626
4080
17591695
439 449
90
10
0
Exhibit 47 Rating distribution frequency by area of risk - Medium companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
3571 3776
7044407780 4407786
456
1805
774
4113 4232
603
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
2824
1900
4407
4673 4850 4761
2833 2754
600 633
90
10
0
Exhibit 48 Rating distribution frequency by area of risk - Small companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
1716 1852
657 4407657 4407661
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
40
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Slight improvement in general creditworthiness
In our opinion in 2018 the creditworthiness of the
observed Italian non-financial companies will remain
stable for almost 86 of entities Migration of ratings is
expected to be moderate resulting in approximately 14
of rating upgrades (9) and downgrades (5) at the end
of 2018 compared to the outstanding ratings at the end
of 2017 The vast majority of the rating changes (921)
will be limited to one-class migration as shown in the
1-year projected transition matrix (Table 10) We believe
that more than one third of the expected downgrades
will be concentrated in the energy gas mining and
construction sectors Over the last years the average
credit profile of companies active in these industries has
been relatively weak and due to the forecast market and
regulatory conditions we do not envisage opportunities
for a significant risk profile improvement in 2018
Despite the expected rating migrations for individual
entities in 2018 the current industry modal rating
classes are unlikely to change
On the other hand stable and positive outlooks will
prevail in the manufacturing industry wholesale and
retail trade and accommodation and food service This
is due to the increase in the number of companies
active in these sectors which will maintain andor
improve their business and financial performances
Indeed as shown in Table 11 in 2018 the rating outlook
remains differentiated by industry whilst in terms of
the expected general probability of default we foresee
a modest improvement (349) compared to the one
recorded in 2017 (366)
Table 10 1-year transition matrix
Source Cerved database and Cerved Rating Agency elaboration
2017
A11
A31
B11
C11
C12
B21
C21
B22
B12
A12
A13
A21A22
F 2018A11 A12 A13 A31 B11 C11 C12B21 C21B22B12A21 A22
000 530
066
054 451034 435
027 753055 901
1033121247 1624
260 1038088
000
000000037
028
295
290
1063
179
455050647
043425
026490020208
000208
000152
000000
00000010000
9821
9318
92679015
87708583
81497646
8665
9617
9710
8605
419024
41
The information and data supporting Cerved Rating Agency rating opinions related research and credit opinions originate from sources Cerved Rating Agency considers to be accurate however Cerved Rating Agency cannot independently verify the reliability and accuracy of the information and data in every instance This publication may not be reproduced retransmitted or distributed in any form without the prior written consent of Cerved Rating Agency Cerved Rating Agency assumes no liability for correctness completeness and topicality of the information contained in this publication The analyses underlying this study do not provide advice of any sort
26
n
6670
486
59
Exhibit 49 Ratings outlooks by size
Large
Medium Positive Stable Negative
Small
21
13
Large
Medium
Small
Source Cerved database and Cerved Rating Agency elaboratio
Table 11 Ratings and probability of default 2018 outlook by industry
Source Cerved database and Cerved Rating Agency elaboration
NACE Micro industryDowngrade
B-Mining and quarryingAutomotive
900814
848
812
880812
847
813 172
170
174
144
8264 36
08
104 433 436
392 373
22724815
362 360
876
876
914
848
849
804
887
882
916
901835870899 64
866760
43
68
5659
58
47
61
49
74
78 75
14
50
37
36
5393
32
50
41
45
3899
77
91
316
372
355
364
308
491
326
318 296
331
312
381
367
359
322
495
452
433
403429
389
364369
363
313
452
323
594
38
315358
603
307
345 350
67 5318
469289 274
470
147
116
138
851
821AutomotiveRetail
Wholesale
Total
Chemistryamppharmaceutics
ClothingEquipment
Food Beverage and Tabacco
Heavy Manifacturing
Other Manifacturing
Textile industry
Total
Tecnology Media ampTelecomunication
Paper Packaging ampForest products
C-Manifacturing
D-Electricity gas steam and air conditioningsupply
F-Construcion
H-Transportig and storageI-Accommodation and food service activitiesJ-Information and communication
G-Wholesale and reatail traderepair of motor vehicles and motor-cycles
E-Water supply sewerage waste
Average ForecastPD 2018
Expectedtrend
Average PD 2018
Ratings outlooks
Stabl pgrade
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Cerved Rating Agency SpAVia dellrsquoUnione Europea n 6A-6B20097- San Donato Milanese (MI)
Tel +39 02 77541 - Fax +39 02 76020458
ratingagencycervedcom
Rating Agency
20
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Italian debt capital market is growing but still remains behind needs
At the end of 2016 the outstanding amount of debt
securities issued by Italian financial and non-financial
corporations was euro8615 billion 510 of the countryrsquos
GDP The table below shows the breakdown by issuer
type of Italian German French British and United States
outstanding amounts of debt securities as of December
2016 issued by financial and non-financial corporations
with the respective debt-to-GDP ratio
Despite the outstanding debt at the end of 2016 being
almost double compared to 2000 it represents only 23
of its peak value reached in 2012 (euro1290 billion Exhibit
23) The main reason for such a significant debt reduction
is the huge bond reimbursement realized by banking
institutions from 2013 to 2016 and the related negative
net flow of debt securities (respectively -80 -153 -106
and -67 billion of euro as shown in Exhibit 24)
The decrease in debt securities funding of Italian banks
has been compensated by a wider use of deposits and
resources available under the Eurosystem refinancing
operations framework
The outstanding amount of debt securities issued by
non-financial corporations at the end of 2016 also
doubled its value with respect to the amount recorded
at the end of 2000 The main characteristic of this cluster
is the high concentration of issuancesdebt to a small
number of issuers
Due to both more favourable general economic
conditions and active ECB monetary policy bond yields
have decreased significantly providing room for a
convenient fund raising
Since the introduction of a new regulatory framework
(lsquoDecreto Svilupporsquo) in 2012 up to October 2017 Italian
market saw 300 small-size listed bond issues (ie so
called minibonds) amounting approximately to euro143
billion Issued mainly by SMEs they offer interesting
yields to institutional investors
) Source Business support SpA ndash Minibonditalyit
BanksTotal
Source Bank of Italy and Cerved Rating Agency elaboration
2006 20082000
-200000
200000
250000
-150000
-100000
150000
100000
-50000
50000
02012 2014 20162002 2004 2010
Banks debt securities outstanding
Banks Debt to GDP ratio
Source Bank of Italy and Cerved Rating Agency elaboration
0
10
20
30
40
50
60
70 1400000
1200000
1000000
800000
600000
400000
200000
0201620142012201020082006200420022000
Table 2 Outstanding securities debt (euro Million)Debt-to-GDP ratio()
Financial corporates
Total
Debtsecurities
outstanding
Italy German rance United Kingdom United States
739
123
862
440 340 470
21
680380
40
1279 1331 4 50
880
30
14271
14820
549180
10202767
590
19211436
15770
510
Debtsecurities
outstanding
Debtsecurities
outstanding
Debtsecurities
outstanding
Debtsecurities
outstanding
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Debt toGDP ()
Source Bank of Italy
0
0
21
CERVED RATING AGENCY SpA | Highlights on italian economy
22
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Italian non-financial companies economic Outlook 2018
23
Data and method
This research focuses on Italian non-financial companies
with an annual turnover exceeding euro5 million With the
aim of using only reliable data joint stock and limited
liability companies have been considered only these
entities according to Italian law file complete annual
financial statements in the Chamber of Commerce
together with anagraphical company data other
legal forms such as unlimited partnerships and sole
proprietorships are not included in this sample due to
the lack of publicly available standardized financial data
We believe that this cutoff is reasonable and allows us to
perform a methodologically correct analysis In 2016 the
above mentioned companies despite representing only
42 of all registered and active joint stock and limited
liability companies accounted for 769 of their total
turnover
Moreover cluster specialization has been obtained by
NACE activity classification from A to J (thus not including
in the sample financial and insurance companies and
some service industries) The statistics regarding specific
industries provide important key data and enable us to
examine historical and prospective trends and cross-
sector comparisons
The Cerved database which contains legal anagraphical
financial and market information on all Italian registered
legal entities (approximately 6 million comprising 5
million active ones) was the most important database
used for this research Long time series and broad
homogenized and standardized data covering different
economic cycles were the building blocks to perform
the regression and predictive analysis
Historical and forecast macroeconomic data and
analysis performed by the International Monetary Fund
OECD the World Bank European Central Bank Bank
of Italy and ISTAT completed the dataset used for the
analysis
Several analyses were performed in order to examine
the structural differences within the sample in terms of
company legal form and geographical area (Exhibit 25)
company age (Exhibit 26) and company size and industry
As a result we verified a considerable heterogeneity of
companies in particular with regard to the company size
across various industries
The relevant observation period comprises the years
between 2000 and 2016 Table 3 describes some
characteristics of the sample
Exhibit 25 Sample break-down by legal form and geographic area (2016)
Joint stock Company
Limited liability Company
Area 1 (Northwest)
Area 3 (Center)
Area 2 (Northeast)
Area 4 (South)
39
20
27
14
33
67
33
Table 3 Sample characteristics 2000-2016
TotalTurnover
gt euro5million
Turnover gt euro5 million(industry
from A to J)
TotalTurnover
gt euro5million
ofTotal
Turnover gt
euro5 million(industry
from A to J)
Source Cerved database
Entreprises Turnover billion
2000 659867700717738558772442812025847334883122915172937018949708965744969581
953505945825922513883224
4215144587462234694749640518205596459226595385246754808563745362752074519385289450123
3686139038411864118843547454704921752274526974633848778504734806246843468384771845288
16151740177018472002212923302477256822562421257025202446243224392295
12661362139214561588169818752000208317861944208720541992198419871905
11141205124013041430152316891801189716191764191218831839183518371765
689693700
716
706714
725
718729744748752754753769
727739
200120022003200420052006
200820092010201120122013201420152016
2007
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
24
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Furthermore in order to guarantee more detailed and
accurate analyses and projections we decided to create
a static pool to show consistently long time horizon
economic trends (17 years) by sealing off all the active
companies over the 2000-2016 horizon
The outcome obtained by considering the behaviour of
specific variables related to the companies included in
the static pool was extended as a performance indicator
for the whole sample (turnover over euro5 million and
industry from A to J)
According to the European Communityrsquos definition of
SMEs using annual turnover and employee headcount
as quantitative criteria the initial sample of companies
and the static pool can be classified by size classes on
the basis of the financial statements for the year 2016
as shown in Table 4
For the sake of this analysis we defined specific size
classes for each industry thus deviating from the
European Commissionrsquos recommendation which
presents undifferentiated upper and lower bounds of
quantitative criteria for SMEs in all industries To define
the thresholds of such classes we used both a statistical
approach (a specific cluster procedure by minimizing
the within-cluster turnover standard deviation) and a
judgmental approach by relying on the experience and
opinion of our industry expert analysts Table 5 shows
the results of such analysis referring to the sample in
2016 (45288 entities) and the NACE sections from A
to J Moreover the NACE section C and G were further
disaggregated into sub-industry classes as shown in
Exhibit 27 in order to consider the specific business
differences within these NACE sections thus ensuring
a good fit and a satisfactory accuracy of the estimation
Exhibit 26 Sample break-down by company age classes
0-2 Years 2-5 Years 5-10 Years 10-20 Years gt20 YearsSource Cerved database and Cerved Rating Agency elaboration
0 20 40 60 80 100
ABCDEFGHIJ
A = AgricolutreB=Mining and quarryingC=ManufacturingD=Electricity and gasE=Water supplyF=ConstructionG=Wholesale and retail tradeH=Transporting and storageI=Accomodation and food serviceJ=ICT
Small
Annul Turnover
Empolyees
Static Pool
Enterprises(Turnover gt euro5 million)
Enterprises(Turnover gt euro5 millionindustry from A t J)
Medium Large
lt 50 lt 250lt 36774 11113
1005333223
8741
2236
2012
154818645
gt euro50 million
gt 250
lt euro50 million
Source Cerved database
NACE Micro industry
B-Mining and quarryingAutomotive
Automotive
Retail
Wholesale
T gt 480
T gt 80
T gt 260
T gt 265T gt 270
T gt 230
T gt 120
T gt 80
T gt 43
T gt 65
T gt 106T gt 106
T gt 360T gt 155T gt 150T gt 100
T gt 120
T gt 225T gt 1400T gt 27500
T gt 1500
ChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther Manifacturing
ICTTextile
Paper Packaging ampForest products
C-Manifacturing
F-Construcion
H-Transportig and storageI-Accommodation and food service activities
J-Information and communication
D-Electricity gas steam and aircoditioning supply
G-Wholesale and reatail traderepair of motor vehicles and motorcycles
E-Water supply sewerage waste management and emediation activities
Large (Turnover
in euro million)
Medium(Turnover
in euro million)
Small(Turnover
in euro million)
Source Cerved database and Cerved Rating Agency elaboration
60 lt T lt 480 5 lt T lt 60
5 lt T lt 20
5 lt T lt 36
5 lt T lt 35
5 lt T lt 44
5 lt T lt 40
5 lt T lt 20
5 lt T lt 26
5 lt T lt 250
5 lt T lt 185 lt T lt 305 lt T lt 265 lt T lt 205 lt T lt 37
5 lt T lt 335 lt T lt 40
5 lt T lt 255 lt T lt 585 lt T lt 1155 lt T lt 1005 lt T lt 27
20 lt T lt 80
36 lt T lt 26035 lt T lt 26544 lt T lt 270
40 lt T lt 230
20 lt T lt 120
26 lt T lt 80
18 lt T lt 43
250 lt T lt 1500
20 lt T lt 6537 lt T lt 29540 lt T lt 15533 lt T lt 15025 lt T lt 100
27 lt T lt 120
58 lt T lt 225
100 lt T lt 27500 115 lt T lt
30 lt T lt 10626 lt T lt 106
25
Exhibit 28 shows the breakdown of macro industries
analysed including disaggregation of the NACE section C
(manufacturing) and G (wholesale and retail trade repair
of motor vehicles and motorcycles)
In order to carry out the analysis and projections this study
is focused on we used simple multiple linear regression
model for each industry and company size classes
considering macroeconomic and individual companiesrsquo
economic and financial data
The analysis enables us to develop an econometric
model used to estimate likely credit quality changes (in
terms of rating class and probability of default) for single
industries and company size classes
Automotive
Retail
Wholesale
21
1366
1
42
1
26
35
232
6
A B C D
F G H I
46
7
21
1318
9
15
34
Automotive
Chemistry amp pharmaceutics
Clothing
Equipment
Food Beverage and Tabacco
Heavy Manifacturing
Other Manifacture
Paper Packaging amp Forest Products
ICT
Textile industry
Large SmallMedium
Source Cerved database and Cerved Rating Agency elaboration
0
Wholesale
Retail
Automotive
20 40 60 80 100
Automotive
Chemistry amp pharmaeutics
Clothing
Equipment
Food beverage and Tabacco
Heavy Manifacturing
Other Manifacturing
Paper Packaging amp Forest Products
ICT
Textile
0 20 40 60 80 100
ABCDEFGHIJ
0 10 30 40 60 70 80 90 100
Exhibit 28 Sample break-down by industry (2016)
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
26
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Performance indicators to improve further
The annual financial statements available through public
registers provide a clear economic and financial picture
of the Italian joint-stock and limited liability non-financial
companies The individual historical data available from
2000 to 2016 enriched with 2017 preliminary results and
with the expected 2018 macroeconomic scenario enabled
us to build up the 2017 and 2018 projections regarding
the following four performance indicators related to the
analyzed sample 1) growth rate - revenues YoY change
2) EBITDA margin 3) net financial debtEBITDA and 4) net
financial debtEquity Afterwards the median values of the
resulting data were used to obtain the summary output
which we consider as a representative proxy for the overall
market
From 2000 to 2016 the observed companies experienced
a very irregular trend both in terms of growth rate and
EBITDA margin In the aftermath of the global financial crisis
the lowest growth rate value (-120) was recorded in 2009
manufacturing transporting - storage and wholesale and
retail trade were the industries showing the biggest fall of
business volume (-155 -121 and -104 respectively)
whilst water supply accommodation and food service and
electricity and gas showed the highest level of resilience to
the adverse economic and financial environment (-01
-23 and ndash26 respectively) Exhibit 29 shows that in
terms of median value there are no significant differences
in the growth rate taking into consideration company size
classes as we previously defined them Only from 2010 the
growth rates turned positive but still remaining below the
levels recorded in 2000
The analysis of the EBITDA margin changes in the same
period also does not highlight significant differences
between large companies and SMEs as shown in Exhibit
30 The lowest median EBITDA margin value (52) was
recorded in 2012 regarding in particular accommodation
and food service transporting and storage and agriculture
sectors (28 40 52 respectively) while electricity
and gas ICT and water supply were relatively immune to
the unfavorable economic and financial circumstances
(showing 113 109 and 105 EBITDA margin
respectively) At the end of 2016 the median EBITDA margin
(60) still remains below the levels recorded in 2000 (72)
Positive trends emerging from the last publicly available
financial statements (2016) the 2017 preliminary results
and the optimistic macroeconomic forecasts for 2018
confirm improvement of the Italian economy Looking
ahead we expect the Italian non-financial companies to
continue to experience gradual recovery in 2018 They are
going to take advantage of the favorable global economic
cycle low interest rates and supportive regulations that
inter alia foster the use of alternative non-bank financial
sources for company funding The financial resources raised
through Individual Savings Plans (PIR ndash Piani individuali di
risparmio) introduced by the 2017 Budget Law are driven
in primis by a favorable tax regime for savers and might
become an important additional source for SMEs funding
injecting new liquidity The government objective fixed euro68
billion as a target value and in 2017 nearly euro10 billion had
already been raised
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2004 2006 2014 20162000
5
20
10
0
15
-15
-10
-5
Exhibit 29 Growth rate (revenue YoY change) by size classes (median)
medium small
2008 2010 2012
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2004 2006 2008 2010 2012 2014 20162000
7
10
9
8
6
5
4
3
7
10
9
8
6
5
4
EBITDA margin by size classes (median)
medium small
27
So far one of the main obstacles PIR are facing is the limited
number of available assets which may lead to a possible
concentration of this financial resources in a small share of
the market comprising mainly relatively large companies
as shown by the early data in 2017
Another obstacle to rapid adoption of the newly available
financial resources is the lack of a standardized and broadly
accepted methodology for the risk assessment of potential
bond issuers
Generally speaking in 2018 we expect SMEs to contribute
more significantly to growth employment and innovation
whilst on average the respective EBITDA margin will remain
broadly stable (as shown in Exhibit 31) However 2018 will
still be a challenging year for SMEs and innovative startup
companies as they will have to face tougher barriers in
accessing bank credit andor approaching capital markets
compared to large companies We also expect some new
innovative solutions aimed at meeting SMEs financial needs
to become effective the SMEs current financial structure
together with new business opportunities prove their
ability in terms of rational use of the additional financial
resources
The new investments will allow most industries to thrive
also assisted by the Italian Governmentrsquos adoption of the
National Industry 40 Plan
The companies which will take up this opportunity may
improve their cash-flows even in the short-medium term
Finally companies with strong international market
positioning and large product diversification will have
stronger sales and margins growth
The key ratio values recorded from 2000 to 2016 related to
the analyzed entities show the improved financial health of
the companies proving good capability to strengthen their
equity base as shown in Table 6
Growth rate (2016)Medium
Total
Small Large
Growth rate (2018)Growth rate (2017)
Source Cerved database and Cerved Rating Agency elaboration
50
40
Exhibit 31 Growth rate and EBITDA margin forecast by size classes
EBITDA margin (2016)EBITDA margin (2018)
EBITDA margin (2017)
40
30
0
10
20
Medium
Total
Small Large
7570
65
0
6 5560
5550
4540
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
28
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The recorded financial ratios in the 2000-2016 horizon
indicate that on average
middot liquidity maintained a satisfactory level in the whole
observed period due to the positive economic cycle in
2017 and 2018 we expect a slight improvement in the ratio
middot the EBITDAinterest coverage ratio almost doubled its
value in 2016 compared to what was recorded in 2000
primarily due to a general reduction in the interest rates
particularly in the last three years we believe that in 2017
and 2018 the average ratio value will remain roughly at the
same level recorded in 2016
middot in 2016 ROE shows further improvement but is still
slightly lower compared to the value recorded at the
beginning of the observed period mainly due to the equity
base strengthening trend
middot Equity Ratio rose from 250 to 350 due to a significant
increase of equity capital in 2018 we expect further
strengthening of the ratio
middot Financial LiabilitiesTotal Assets ratio remained mostly
unchanged ndash financial debts representing roughly 30 of
the total assets
A positive trend regarding the net financial debt was also
observed in fact in 2016 70 of the sample improved their
NFDEBITDA and 73 the NFDEquity
Positive performances were found especially in the SMEs
segment as shown in Exhibit 32 in particular referring to
NFDEquity small and medium-sized companies recorded
a positive trend standing respectively at 092 and 089 in
2016 compared to 132 and 136 in 2000
Hence the financial risk profile appears to be well balanced
leaving no room for specific concerns regarding the
prospects of the Italian non-financial companies in 2018
In 2016 the median values for the total sample referring to
NFDEquity and NFDEBITDA remained respectively at 089
and 389 levels respectively
Looking ahead we expect these indicators to remain at
healthy levels in 2017 and 2018 with a slight improvement
in NFDEBITDA and a broadly stable level of the NFDEquity
ratio as shown in Exhibit 33
NFDEBITFA (2016) NFDEBITFA (2017)NFDEBITFA (2018)
40
Exhibit 33 NFDEquity and NFDEBITDA forecast by size classes
Source Cerved database and Cerved Rating Agency elaboration
404
20
25
45
35
30
NFDequity (2016) NFDequity (2017)NFDequity (2018)
05
06
09
10
08
07
Exhibit 32 NFDEquity and NFDEBITDA by size classes (median)
largemediumsmall
2016
2015
2014
000 5 10 15
Average2008-2013
Average2000-2007
total largemediumsmall total
Source Cerved database and Cerved Rating Agency elaboration
2016
2015
2014
203 0 405 0
Average2008-2013
Average2000-2007
29
Growth and profitability improvement spanned over all sectors
Exhibit 34 shows the relative positioning of the 10
macro-industries in the short-medium term considering
the median values related to revenue growth rate and
EBITDA margin
The historical median values are calculated on the basis
of financial data obtained from the annual financial
reports 2014-2016 filed in the Chamber of Commerce
public registers the projected median values for 2017
and 2018 are the result of the analysis of this study
As expected there are significant differences in
positioning between different industries in terms of
both historical and projected values
In 2018 we expect manufacturing and accommodation and
food services to maintain top positions already reached in
2016 and 2017
For the electricity gas mining and quarrying industry
2018 may be the turning point showing the first positive
signals after experiencing some difficulties over the last
few years
None of the other industries show significant changes in
2018 compared to their 2016 positioning
Source Cerved database and Cerved Rating Agency elaboration
A 50
57599586886358
3849
3620083721
-110320
-1112
210322
-1814021122
1413
030124
-5010284025
0555
20-4614
-4607212105
0430
210328-2310203218
0832
2310300512233720
1637
BCDEFGHIJ
A 625296
1441401016934
15352
504969
103121916227
10639
4764676185562639
68112
4873687090592845
75120
456772928856
45
7898
4667759090573147
7698
4668769394583147
77102
EBITDAmarigin
BCDEFGHIJ
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018Growthrate
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
Exhibit 34 Growth rate and EBITDA margin by industry
-70 -50 -30 -10 10 30
2016E2017F2018
50 70 90
Median=68
Median=2100
20
40
60
80
100
120
A=Agricolture B=Mining and quarrying C=Manifacturing D=Electricity and gas E=Water supply F=Construction G=Wholesale and retail trade H=Transporting and storage I=Accomodation and food service J=ICT
D
B
E
FHA G
C
I
J
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
30
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Further strenthening in companiesrsquo financial structure
Exhibit 35 shows the relative positioning of the 10 macro
industries in the short-medium term considering the
median values related to NFDEBITDA and NFDEquity
ratios
The historical median values are calculated on the basis
of financial data obtained from the annual financial
reports 2014-2016 filed in the Chamber of Commerce
public registers the projected median values for 2017
and 2018 are the result of the analysis of this study
There are even more significant differences in
positioning between industries regarding NFDEBITDA
and NFDEquity ratios when compared to growth rate
and EBITDA margin differences
Generally in the observed period there is no evidence of
significant changes among industries considering their
relative positioning related to NFDEBITDA and NFD
Equity ratios
In 2018 we expect accommodation and food services
and information and communication services to
maintain top positions already reached in 2016 and
presumably confirmed in 2017
Exhibit 35 NFDEquity and NFDEBITDA by industry
2016E2017F2018
Median=37
Median=08500
030 5 070 9 111 3
20
30
40
50
60
70
10
A=Agricolture B=Mining and quarrying C=Manifacturing D=Electricity and gas E=Water supply F=Construction G=Wholesale and retail trade H=Transporting and storage I=Accomodation and food service J=ICT
EH
C
BF
G
A
D
J
I
A 150101113081112149151120
079131
123075088101097125123103
072079
114067083052090108119102
067076
113060080045089096114092
074069
125076080045089106109086
050060
127072080044091
108084
051056
128067079043093106107081
051051
BCDEFGHIJ
NFDEquity
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
A 597219280305251301338250
153260
676394388342298453499349
254337
707482387293277498532337
277334
696392373254305484494308
231315
747401358330285544483294
183312
722390340341280511470290
178293
710380310329272492452281
177289
NFDEBITDA
BCDEFGHIJ
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
Source Cerved database and Cerved Rating Agency elaboration
106
31
Exhibit 36 Equity ratio by industry
Average 2000-2007 2014 2015Average 2008-2013 2016
Source Cerved database and Cerved Rating Agency elaboration
05
10
20
30
15
25
3540
5045
AB C DE FG HI J
Exhibit 37 EBITDA interest coverage by industry
Average 2000-2007 2014 2015Average 2008-2013 2016
Source Cerved database and Cerved Rating Agency elaboration
0
5
10
20
15
AB C DE FG HI J
A 1113140911151211
1408
1013131012131209
1208
1114151012131311
1309
1214151012151312
1309
1215161113161412
1409
BCDEFGHIJ
Liquidity ratio Median2000-07
Median2008-13 2014 2015 2016
A 0377677447858463
8960
0332
8145524536
4832
0342486042273848
3246
0537606853395765
4069
0743676559416378
5882
BCDEFGHIJ
ROE Median2000-07
Median2008-13 2014 2015 2016
Table 7 Liquidity ratio by industry Table 8 ROE by industry
Source Cerved database and Cerved Rating Agency elaboration
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
32
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Agriculture
Considering the recent price decline for agricultural
products putting EBITDA margin under pressure for
most of the industry participants we anticipate a slow
revenue growth in 2018 We also foresee more stable
margins in 2018 and investments to continue at a faster
pace in the near future mainly aimed at transforming the
agricultural activities into a high-tech industry Climate
and cultural changes are the main exogenous risks that
may negatively influence the sector
Mining and quarrying
Over the last few years the mining industry has been
challenged by record low metal prices and this has
resulted in a weak growth of supply and a cut in
investments especially in the new mines opening We
foresee a modest revenue growth in 2018 supported
by more stable prices rather than by government
infrastructural investments Margin pressure will remain
mostly unchanged in 2018 We do not expect a significant
increase in capital expenditure for most companies
while only a minority of industry participants will invest
in new capacities searching for new growth opportunities
by introducing new higher margin outputs Overall we
anticipate relatively stable key financial indicators
Manufacturing
We believe that in 2018 Italian manufacturing
representing 2nd European and 7th world player in 2016
will remain the beating heart of the national economy
In our view the expansion of internal demand the
improvement of business and customer confidence and
the wider export opportunities are the key drivers for
revenue growth (up to nearly 30) Despite the natural
selection the occurred during the economic recession
domestic competition and especially the competition
from lower income countries will remain challenging in
2018 creating further profitability pressure especially in
some highly fragmented segments
As a conditio sine qua non for market survival many
companies will be involved in a ldquowinning the innovation
gamerdquo process translated into a considerable capex
expenditure directed at process optimization which
inevitably must be accompanied by innovative marketing
and commercial strategies The companies especially
smaller ones which are not ready lsquoto play the gamersquo
remaining risk averse are likely to fall behind
Key financial indicators referring to the industry in terms
of net financial debt to equity and net financial debt to
EBITDA are likely to remain overall stable in 2018
In our view the best performing manufacturing industries
in 2018 will be the following
Automotive
extensive vehicles replacement process in 2018
high competition pressure China maintaining a key role
high level of innovation in mobility and connectivity
new strategic partnerships and MampAconservative stand towards EBITDA margin improvement
Chemistry amp Pharmaceutics
solid macroeconomic fundamentals will support
the revenue growth driven mainly by large companies
on average a stable EBITDA margin of about 10
is expected global presence is a must to achieve higher
level of profitability
RampD remain key factors for further market expansion
moderate level of MampA operations in 2018 slowing
down when compared to those carried out in the
previous year
Machinery amp Equipment
revenue growth in 2018 up to nearly 25 reflecting
the fact that all manufactures remain focused on RampD
and NPI (new product introduction)
cost management strategies are going to persist
but generally speaking with no significant impact on
EBITDA margin in 2018
heavy equipment manufactures still under pressure in
2018 to provide engineering capability and capacity
33
Energy and gas
Italian companies operating in the energy industry are
facing a complex market environment with many open
questions about risks related to regulations a drop
in consumption high competition levels and EBITDA
erosion
Generally we expect a more stable landscape in 2018 in
terms of commodity prices and consumption However
risk regarding prices and volumes will remain strong
resulting in a higher volatility of revenues In our view
the current margin pressure is unlikely to ease over the
next two years The final overcoming of the sondashcalled
ldquoMaggior Tutela Regimerdquo may lead to almost zero margin
for the retail operators We expect industry participants
to continue to focus their attention on cost efficiency and
on protecting profitability by embracing new business
models and examining the role that digital technology
can play in improvement of EBITDA margins We believe
that the above described strategies will be a central
topic for the operators intending to attract capital We
also believe that energy producers could see a slight
debt increase in 2018 aimed at improving productivity
and synergies Finally in 2018 we envisage a significant
number of MampA operations in the sector led by synergy
effects such operations might produce
Water supply waste management and sewerage
In recent years the water supply waste management
and Italian sewerage industry has recorded a slower
growth compared to the pre-crisis period However
due to the last two yearsrsquo important investments in the
water infrastructure waste sorting and recycling Italy
ranks as one of the top European countries in terms
of growth rate of recycling and packaging recovery
We believe that the expected general increase in
industrial output will produce a slight growth in water
consumption and waste treatment The demand for
sustainable solutions will continue to persist requiring
new investment in technologies based on a customer-
centric and sustainable approach aimed at improving
efficiencies and facilitating reuse Expectations also
reflect our view in terms of wider government interest
and spending in this industry We expect profitability
to remain broadly in line with the results obtained in
2016
Construction
After a weak increase in revenues recorded by the
construction industry operators in 2016 and the
modest result anticipated in 2017 both reflecting
a deteriorating demand and decreased volumes of
bank loans (mainly those for small and medium-
sized companies) we expect 2018 to be the turning
point for this industry We foresee that the volume of
residential and private non-residential constructions
will remain at relatively low levels in 2018 and that
the positive trend in housing renovation and public
works investments will continue taking advantage of
the allocated funds established by the Budget Law for
2017 Small and medium-sized businesses focused on
residential construction may face a slight profitability
erosion while we believe some growth in EBITDA
margin may be recorded by large Italian companies
operating internationally Due to the high perceived
risk historically there has been a strong financial
market mistrust of the construction companies which
we believe is likely to ease over the coming years
Wholesale and retail trade
During the crisis period wholesale and retail trade
industry faced a sudden interruption of the gradual
growth that had taken place up to that moment mainly
due to a loss in real purchase power and in consumer
confidence also translated into profitability erosion
In 2016 the data showed how the industry is moving
toward a recovery period Looking forward in 2018 we
expect to record a steady revenue growth supported
by an increase in global trade and improved consumer
confidence Despite the foreseen growth operators
will continue to face consistent pressure mainly in the
retail segment due to the high proliferation of new retail
purchase channels and market fragmentation
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
34
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Transportation and Storage
After a troubled 2016 characterized by an overcapacity
and a decrease in commodity demand hitting shipping
revenues in particular we foresee a moderate overall
recovery in 2018 driven mainly by an increase in
international shipments and air traffic The growing
number of innovative startups will continue to persist
increasing the competitive pressure in the industry We
anticipate a constant growth of e-commerce enabling a
quick reaction of on-line retailer and logistics providers
We believe that operators will continue to invest in
new high-tech solutions experimenting new models of
mobility and smart logistics
Despite very strong competition we expect the median
operating margins to remain steady However global
political uncertainties and related risks are strong with
possible quick and sharp negative impact on business
volumes and margins of the companies operating in
these industries
Accommodation and food services activities
In the last two years operators in the accommodation
and food service activities industry mainly medium
and small sized enterprises have seen steady revenue
growth and satisfactory profitability ratios Many
operators were focused on reviewing their business
models and offering additional services to their
customers a necessary strategy to maintain or expand
market positioning strengthen margins and improve
customer experience We expect the revenue growth
to continue in 2018 with a minimal median margin
improvement We believe accommodation and food
service activities will attract new capital investments
in 2018 to help the ongoing transformation process
and improve the accommodation infrastructure and
services
Information and communication technologies
The Italian information and communication technology
industry took longer to recover from the economic
crisis recording overall a negative median growth
rate until 2014 Software services and innovation
technology were the major contributors to revenue
growth (as a percentage) in 2016
Over the forecast period we foresee a modest revenue
growth for the ICT operators as a whole while the
technology industry will continue to achieve rapid
growth focusing on maintaining the competitive pace
of innovation In our view a key challenge for the ICT
operator may be the availability of matching skills
The outlook is relatively stable in terms of profitability
and key financial indicators
The following two pages show the details of the
previously discussed key performance indicators
35
Exhibit 38 Growth rate and EBITDA margin manifacturing sectors
-70- 50 -30 -10 103 0
2016E2017F2018
50 70 90
Median=76
Median=3000
20
40
60
80
100
120
1=Automotive 2=Chemistryamppharmaceutics 3=Clothing 4=Equipment 5=Food beverage and Tabacco 6=Heavy Manifacturing 8=Paper and Packaging 9=Tecnology and Telecomunication 10=Textile industry
6
10 5
3
8
91
74
2
50AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
57599586886358
3849
3620083721
-110320
-1112
210322
-1814021122
1413
030124
-5010284025
0555
20-4614
-4607212105
0430
210328-2310203218
0832
2310300512233720
1637
Growth rate Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
EBITDA margin Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
Source Cerved database and Cerved Rating Agency elaboration
625296
1441401016934
15352
504969
103121
916227
10639
4764676185562639
68112
487368
7090592845
75120
456772
9288562845
7898
4667759090573147
7698
4668769394583147
77102
1=Automotive 2=Chemistryamppharmaceutics 3=Clothing 4=Equipment 5=Food beverage and Tabacco 6=Heavy Manifacturing 8=Paper and Packaging 9=Tecnology and Telecomunication 10=Textile industry
2016E2017F2018
Median=30
700
600
500
400
300
200
100
000000 020 040 060 080 100 120
Median=08
Exhibit 39 NFDEquity and NFDEBITDA for manifacturing sectors
2
4 8
101
9
9
3
57
Source Cerved database and Cerved Rating Agency elaboration
096AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
104146095152117112109
098087
087080116068118083088086
084078
075074104069107082080079
084083
072064100065105084122081
079081
082066104065105080091079
077082
081067103065105079087079
077081
076067101064104077083078
076080
NFDEQUITY Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
227AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
258334222397249255259
315202
338313443305495363403412
480337
315306436328479373380397
482316
264269490303467366403383
515317
269243507090106127090106
106106
413343478088105127088105
105105
399333465086104127086104
104104
NFDEBITDA Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
36
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Exhibit 40 Growth rate and EBITDA margin for wholesale and retail trade sectors
20 40 60 80 100 120 140 160
2016E2017F2018
Median=31
Median=33
0000
20
10
30
60
50
70
1=Automotive 2=Retail 3=Wholesale
40
3
12
2016E2017F2018
Median=45
700
600
500
400
300
200
100
000050 070 090 110 130 150 170 190
Median=11
Exhibit 41 NFDEquity and NFDEBITDA for wholesale and retail trade sectors
1=Automotive 2=Retail 3=Wholesale
21
3
37
Ratings will remain broadly stable
The following section presents a risk profile analysis
based on Cerved Rating Agencyrsquos outstanding and
monitored public and private ratings issued from
2013 to 2017 on Italian non-financial companies
and operating in the industries discussed in this
study (data as of 31 December)
Exhibit 42 and Table 9 show an overview of 1-year
effective default rates over the 2000-2017 horizon
related to the sample bankruptcy and other legal
proceedings and debt restructurings as default
events
The default rate trend shows a general
improvement from 2014 onwards both by
company size classes and by industry however
considering the entire sample the overall default
rate still remains higher when compared to its pre-
crisis level especially regarding smaller companies
operating in the construction sector
Exhibit 43 shows the effective default rates over
2013-2017 horizon based on Cerved Rating
Agencyrsquos definition which considers as default
events
middot bankruptcy and other legal proceedings
middot debt restructuring
middot missed or delayed disbursement of a contractually
required interest or principal payment ie missed
payment on bonds material protests (on cheques
or trade bills) or prejudicial acts (judicial mortgages
distraint of property)
The effective default rates over the 2013-2017
horizon show decreasing trend and satisfy the
monotonicity constraint regarding all Cerved
Rating Agencyrsquos rating classes (Exhibit 44)
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2003 2004 2005 2006 2007 2014 2015 2016 20172000 2001
5678
12
3
4
0
Exhibit 42 Avarage 1-year default rate by size over 2000-2017 horizon
medium small
2008 2009 2010 2011 2012 2013
Mining and quarring
Manifacturing
Electricity gas steam and air conditioning supplyWater supply sewerage
Construction
Wholesale and retail trade repair of motorTransporting and storage
Accomodation and food service activities
Information and communication
24221809
5212
282915
2529
38533424
13027
454830
4838
36542537
15929
424421
4323
23461921
13226
293226
3022
Source Cerved database and Cerved Rating Agency elaboration
Table 9 Default rate by industry over 2000-2017 horizon
Total
NACE Average2008-2015
Average2000-2017 2016 2017
2016
Source Cerved database and Cerved Rating Agency elaboration
C21C12C11B22B21B12B11A11 A12 A13 A21 A22 A31
60
50
40
30
20
10
0
Exhibit 43 1-year default rate over 2013-2017 horizon
20172013 2014 2015
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
38
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The analysis of historical rating distributions in the
same period shows clear differences in terms of modal
rating class by company size As shown in Exhibit 43
the modal rating class for the large companies is A31
B11 for the medium and B12 for small companies
(considering company size classes as they have been
defined ad hoc by Cerved Rating Agency for the
purposes of this study)
Overall the corporate rating distribution in the
Source Cerved database and Cerved Rating Agency elaboration
C21C12C11B22B21B12B11A11 A12 A13 A21 A22 A31
30
25
20
15
5
10
0
Exhibit 44 Rating distribution frequency by size classes
large
30
25
20
15
5
0
10
medium smallRating 2013 total Rating 2017 total Rating 2017 forecast
observed period is skewed towards the investment-
grade rating categories (ie Cerved Rating Agency
rating classes from A11 to B12) representing 700 of
the whole sample 250 is concentrated in the safety
(A rating classes) and 450 in the solvency (B11-B12)
classes
We anticipate the rating distribution to remain
broadly unchanged in 2018 with the rating migration
concentrated mainly in the B category
39
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100543
2414
4407
4407
2636
4554 4558
2403 2311
535 527
90
10
0
Exhibit 45 Rating distribution frequency by area of risk - Total companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency]I nvestment GradeA11-A31 [Safety]
2509 2604
704 4407706 4407716
324
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
985
5658
4407
3033 2992 2898
925 907
300 318
90
10
0
Exhibit 46 Rating distribution frequency by area of risk - Large companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
5783 5878
869 4407878 4407878
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
4407
4407
3626
4080
17591695
439 449
90
10
0
Exhibit 47 Rating distribution frequency by area of risk - Medium companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
3571 3776
7044407780 4407786
456
1805
774
4113 4232
603
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
2824
1900
4407
4673 4850 4761
2833 2754
600 633
90
10
0
Exhibit 48 Rating distribution frequency by area of risk - Small companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
1716 1852
657 4407657 4407661
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
40
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Slight improvement in general creditworthiness
In our opinion in 2018 the creditworthiness of the
observed Italian non-financial companies will remain
stable for almost 86 of entities Migration of ratings is
expected to be moderate resulting in approximately 14
of rating upgrades (9) and downgrades (5) at the end
of 2018 compared to the outstanding ratings at the end
of 2017 The vast majority of the rating changes (921)
will be limited to one-class migration as shown in the
1-year projected transition matrix (Table 10) We believe
that more than one third of the expected downgrades
will be concentrated in the energy gas mining and
construction sectors Over the last years the average
credit profile of companies active in these industries has
been relatively weak and due to the forecast market and
regulatory conditions we do not envisage opportunities
for a significant risk profile improvement in 2018
Despite the expected rating migrations for individual
entities in 2018 the current industry modal rating
classes are unlikely to change
On the other hand stable and positive outlooks will
prevail in the manufacturing industry wholesale and
retail trade and accommodation and food service This
is due to the increase in the number of companies
active in these sectors which will maintain andor
improve their business and financial performances
Indeed as shown in Table 11 in 2018 the rating outlook
remains differentiated by industry whilst in terms of
the expected general probability of default we foresee
a modest improvement (349) compared to the one
recorded in 2017 (366)
Table 10 1-year transition matrix
Source Cerved database and Cerved Rating Agency elaboration
2017
A11
A31
B11
C11
C12
B21
C21
B22
B12
A12
A13
A21A22
F 2018A11 A12 A13 A31 B11 C11 C12B21 C21B22B12A21 A22
000 530
066
054 451034 435
027 753055 901
1033121247 1624
260 1038088
000
000000037
028
295
290
1063
179
455050647
043425
026490020208
000208
000152
000000
00000010000
9821
9318
92679015
87708583
81497646
8665
9617
9710
8605
419024
41
The information and data supporting Cerved Rating Agency rating opinions related research and credit opinions originate from sources Cerved Rating Agency considers to be accurate however Cerved Rating Agency cannot independently verify the reliability and accuracy of the information and data in every instance This publication may not be reproduced retransmitted or distributed in any form without the prior written consent of Cerved Rating Agency Cerved Rating Agency assumes no liability for correctness completeness and topicality of the information contained in this publication The analyses underlying this study do not provide advice of any sort
26
n
6670
486
59
Exhibit 49 Ratings outlooks by size
Large
Medium Positive Stable Negative
Small
21
13
Large
Medium
Small
Source Cerved database and Cerved Rating Agency elaboratio
Table 11 Ratings and probability of default 2018 outlook by industry
Source Cerved database and Cerved Rating Agency elaboration
NACE Micro industryDowngrade
B-Mining and quarryingAutomotive
900814
848
812
880812
847
813 172
170
174
144
8264 36
08
104 433 436
392 373
22724815
362 360
876
876
914
848
849
804
887
882
916
901835870899 64
866760
43
68
5659
58
47
61
49
74
78 75
14
50
37
36
5393
32
50
41
45
3899
77
91
316
372
355
364
308
491
326
318 296
331
312
381
367
359
322
495
452
433
403429
389
364369
363
313
452
323
594
38
315358
603
307
345 350
67 5318
469289 274
470
147
116
138
851
821AutomotiveRetail
Wholesale
Total
Chemistryamppharmaceutics
ClothingEquipment
Food Beverage and Tabacco
Heavy Manifacturing
Other Manifacturing
Textile industry
Total
Tecnology Media ampTelecomunication
Paper Packaging ampForest products
C-Manifacturing
D-Electricity gas steam and air conditioningsupply
F-Construcion
H-Transportig and storageI-Accommodation and food service activitiesJ-Information and communication
G-Wholesale and reatail traderepair of motor vehicles and motor-cycles
E-Water supply sewerage waste
Average ForecastPD 2018
Expectedtrend
Average PD 2018
Ratings outlooks
Stabl pgrade
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Cerved Rating Agency SpAVia dellrsquoUnione Europea n 6A-6B20097- San Donato Milanese (MI)
Tel +39 02 77541 - Fax +39 02 76020458
ratingagencycervedcom
Rating Agency
21
CERVED RATING AGENCY SpA | Highlights on italian economy
22
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Italian non-financial companies economic Outlook 2018
23
Data and method
This research focuses on Italian non-financial companies
with an annual turnover exceeding euro5 million With the
aim of using only reliable data joint stock and limited
liability companies have been considered only these
entities according to Italian law file complete annual
financial statements in the Chamber of Commerce
together with anagraphical company data other
legal forms such as unlimited partnerships and sole
proprietorships are not included in this sample due to
the lack of publicly available standardized financial data
We believe that this cutoff is reasonable and allows us to
perform a methodologically correct analysis In 2016 the
above mentioned companies despite representing only
42 of all registered and active joint stock and limited
liability companies accounted for 769 of their total
turnover
Moreover cluster specialization has been obtained by
NACE activity classification from A to J (thus not including
in the sample financial and insurance companies and
some service industries) The statistics regarding specific
industries provide important key data and enable us to
examine historical and prospective trends and cross-
sector comparisons
The Cerved database which contains legal anagraphical
financial and market information on all Italian registered
legal entities (approximately 6 million comprising 5
million active ones) was the most important database
used for this research Long time series and broad
homogenized and standardized data covering different
economic cycles were the building blocks to perform
the regression and predictive analysis
Historical and forecast macroeconomic data and
analysis performed by the International Monetary Fund
OECD the World Bank European Central Bank Bank
of Italy and ISTAT completed the dataset used for the
analysis
Several analyses were performed in order to examine
the structural differences within the sample in terms of
company legal form and geographical area (Exhibit 25)
company age (Exhibit 26) and company size and industry
As a result we verified a considerable heterogeneity of
companies in particular with regard to the company size
across various industries
The relevant observation period comprises the years
between 2000 and 2016 Table 3 describes some
characteristics of the sample
Exhibit 25 Sample break-down by legal form and geographic area (2016)
Joint stock Company
Limited liability Company
Area 1 (Northwest)
Area 3 (Center)
Area 2 (Northeast)
Area 4 (South)
39
20
27
14
33
67
33
Table 3 Sample characteristics 2000-2016
TotalTurnover
gt euro5million
Turnover gt euro5 million(industry
from A to J)
TotalTurnover
gt euro5million
ofTotal
Turnover gt
euro5 million(industry
from A to J)
Source Cerved database
Entreprises Turnover billion
2000 659867700717738558772442812025847334883122915172937018949708965744969581
953505945825922513883224
4215144587462234694749640518205596459226595385246754808563745362752074519385289450123
3686139038411864118843547454704921752274526974633848778504734806246843468384771845288
16151740177018472002212923302477256822562421257025202446243224392295
12661362139214561588169818752000208317861944208720541992198419871905
11141205124013041430152316891801189716191764191218831839183518371765
689693700
716
706714
725
718729744748752754753769
727739
200120022003200420052006
200820092010201120122013201420152016
2007
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
24
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Furthermore in order to guarantee more detailed and
accurate analyses and projections we decided to create
a static pool to show consistently long time horizon
economic trends (17 years) by sealing off all the active
companies over the 2000-2016 horizon
The outcome obtained by considering the behaviour of
specific variables related to the companies included in
the static pool was extended as a performance indicator
for the whole sample (turnover over euro5 million and
industry from A to J)
According to the European Communityrsquos definition of
SMEs using annual turnover and employee headcount
as quantitative criteria the initial sample of companies
and the static pool can be classified by size classes on
the basis of the financial statements for the year 2016
as shown in Table 4
For the sake of this analysis we defined specific size
classes for each industry thus deviating from the
European Commissionrsquos recommendation which
presents undifferentiated upper and lower bounds of
quantitative criteria for SMEs in all industries To define
the thresholds of such classes we used both a statistical
approach (a specific cluster procedure by minimizing
the within-cluster turnover standard deviation) and a
judgmental approach by relying on the experience and
opinion of our industry expert analysts Table 5 shows
the results of such analysis referring to the sample in
2016 (45288 entities) and the NACE sections from A
to J Moreover the NACE section C and G were further
disaggregated into sub-industry classes as shown in
Exhibit 27 in order to consider the specific business
differences within these NACE sections thus ensuring
a good fit and a satisfactory accuracy of the estimation
Exhibit 26 Sample break-down by company age classes
0-2 Years 2-5 Years 5-10 Years 10-20 Years gt20 YearsSource Cerved database and Cerved Rating Agency elaboration
0 20 40 60 80 100
ABCDEFGHIJ
A = AgricolutreB=Mining and quarryingC=ManufacturingD=Electricity and gasE=Water supplyF=ConstructionG=Wholesale and retail tradeH=Transporting and storageI=Accomodation and food serviceJ=ICT
Small
Annul Turnover
Empolyees
Static Pool
Enterprises(Turnover gt euro5 million)
Enterprises(Turnover gt euro5 millionindustry from A t J)
Medium Large
lt 50 lt 250lt 36774 11113
1005333223
8741
2236
2012
154818645
gt euro50 million
gt 250
lt euro50 million
Source Cerved database
NACE Micro industry
B-Mining and quarryingAutomotive
Automotive
Retail
Wholesale
T gt 480
T gt 80
T gt 260
T gt 265T gt 270
T gt 230
T gt 120
T gt 80
T gt 43
T gt 65
T gt 106T gt 106
T gt 360T gt 155T gt 150T gt 100
T gt 120
T gt 225T gt 1400T gt 27500
T gt 1500
ChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther Manifacturing
ICTTextile
Paper Packaging ampForest products
C-Manifacturing
F-Construcion
H-Transportig and storageI-Accommodation and food service activities
J-Information and communication
D-Electricity gas steam and aircoditioning supply
G-Wholesale and reatail traderepair of motor vehicles and motorcycles
E-Water supply sewerage waste management and emediation activities
Large (Turnover
in euro million)
Medium(Turnover
in euro million)
Small(Turnover
in euro million)
Source Cerved database and Cerved Rating Agency elaboration
60 lt T lt 480 5 lt T lt 60
5 lt T lt 20
5 lt T lt 36
5 lt T lt 35
5 lt T lt 44
5 lt T lt 40
5 lt T lt 20
5 lt T lt 26
5 lt T lt 250
5 lt T lt 185 lt T lt 305 lt T lt 265 lt T lt 205 lt T lt 37
5 lt T lt 335 lt T lt 40
5 lt T lt 255 lt T lt 585 lt T lt 1155 lt T lt 1005 lt T lt 27
20 lt T lt 80
36 lt T lt 26035 lt T lt 26544 lt T lt 270
40 lt T lt 230
20 lt T lt 120
26 lt T lt 80
18 lt T lt 43
250 lt T lt 1500
20 lt T lt 6537 lt T lt 29540 lt T lt 15533 lt T lt 15025 lt T lt 100
27 lt T lt 120
58 lt T lt 225
100 lt T lt 27500 115 lt T lt
30 lt T lt 10626 lt T lt 106
25
Exhibit 28 shows the breakdown of macro industries
analysed including disaggregation of the NACE section C
(manufacturing) and G (wholesale and retail trade repair
of motor vehicles and motorcycles)
In order to carry out the analysis and projections this study
is focused on we used simple multiple linear regression
model for each industry and company size classes
considering macroeconomic and individual companiesrsquo
economic and financial data
The analysis enables us to develop an econometric
model used to estimate likely credit quality changes (in
terms of rating class and probability of default) for single
industries and company size classes
Automotive
Retail
Wholesale
21
1366
1
42
1
26
35
232
6
A B C D
F G H I
46
7
21
1318
9
15
34
Automotive
Chemistry amp pharmaceutics
Clothing
Equipment
Food Beverage and Tabacco
Heavy Manifacturing
Other Manifacture
Paper Packaging amp Forest Products
ICT
Textile industry
Large SmallMedium
Source Cerved database and Cerved Rating Agency elaboration
0
Wholesale
Retail
Automotive
20 40 60 80 100
Automotive
Chemistry amp pharmaeutics
Clothing
Equipment
Food beverage and Tabacco
Heavy Manifacturing
Other Manifacturing
Paper Packaging amp Forest Products
ICT
Textile
0 20 40 60 80 100
ABCDEFGHIJ
0 10 30 40 60 70 80 90 100
Exhibit 28 Sample break-down by industry (2016)
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
26
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Performance indicators to improve further
The annual financial statements available through public
registers provide a clear economic and financial picture
of the Italian joint-stock and limited liability non-financial
companies The individual historical data available from
2000 to 2016 enriched with 2017 preliminary results and
with the expected 2018 macroeconomic scenario enabled
us to build up the 2017 and 2018 projections regarding
the following four performance indicators related to the
analyzed sample 1) growth rate - revenues YoY change
2) EBITDA margin 3) net financial debtEBITDA and 4) net
financial debtEquity Afterwards the median values of the
resulting data were used to obtain the summary output
which we consider as a representative proxy for the overall
market
From 2000 to 2016 the observed companies experienced
a very irregular trend both in terms of growth rate and
EBITDA margin In the aftermath of the global financial crisis
the lowest growth rate value (-120) was recorded in 2009
manufacturing transporting - storage and wholesale and
retail trade were the industries showing the biggest fall of
business volume (-155 -121 and -104 respectively)
whilst water supply accommodation and food service and
electricity and gas showed the highest level of resilience to
the adverse economic and financial environment (-01
-23 and ndash26 respectively) Exhibit 29 shows that in
terms of median value there are no significant differences
in the growth rate taking into consideration company size
classes as we previously defined them Only from 2010 the
growth rates turned positive but still remaining below the
levels recorded in 2000
The analysis of the EBITDA margin changes in the same
period also does not highlight significant differences
between large companies and SMEs as shown in Exhibit
30 The lowest median EBITDA margin value (52) was
recorded in 2012 regarding in particular accommodation
and food service transporting and storage and agriculture
sectors (28 40 52 respectively) while electricity
and gas ICT and water supply were relatively immune to
the unfavorable economic and financial circumstances
(showing 113 109 and 105 EBITDA margin
respectively) At the end of 2016 the median EBITDA margin
(60) still remains below the levels recorded in 2000 (72)
Positive trends emerging from the last publicly available
financial statements (2016) the 2017 preliminary results
and the optimistic macroeconomic forecasts for 2018
confirm improvement of the Italian economy Looking
ahead we expect the Italian non-financial companies to
continue to experience gradual recovery in 2018 They are
going to take advantage of the favorable global economic
cycle low interest rates and supportive regulations that
inter alia foster the use of alternative non-bank financial
sources for company funding The financial resources raised
through Individual Savings Plans (PIR ndash Piani individuali di
risparmio) introduced by the 2017 Budget Law are driven
in primis by a favorable tax regime for savers and might
become an important additional source for SMEs funding
injecting new liquidity The government objective fixed euro68
billion as a target value and in 2017 nearly euro10 billion had
already been raised
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2004 2006 2014 20162000
5
20
10
0
15
-15
-10
-5
Exhibit 29 Growth rate (revenue YoY change) by size classes (median)
medium small
2008 2010 2012
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2004 2006 2008 2010 2012 2014 20162000
7
10
9
8
6
5
4
3
7
10
9
8
6
5
4
EBITDA margin by size classes (median)
medium small
27
So far one of the main obstacles PIR are facing is the limited
number of available assets which may lead to a possible
concentration of this financial resources in a small share of
the market comprising mainly relatively large companies
as shown by the early data in 2017
Another obstacle to rapid adoption of the newly available
financial resources is the lack of a standardized and broadly
accepted methodology for the risk assessment of potential
bond issuers
Generally speaking in 2018 we expect SMEs to contribute
more significantly to growth employment and innovation
whilst on average the respective EBITDA margin will remain
broadly stable (as shown in Exhibit 31) However 2018 will
still be a challenging year for SMEs and innovative startup
companies as they will have to face tougher barriers in
accessing bank credit andor approaching capital markets
compared to large companies We also expect some new
innovative solutions aimed at meeting SMEs financial needs
to become effective the SMEs current financial structure
together with new business opportunities prove their
ability in terms of rational use of the additional financial
resources
The new investments will allow most industries to thrive
also assisted by the Italian Governmentrsquos adoption of the
National Industry 40 Plan
The companies which will take up this opportunity may
improve their cash-flows even in the short-medium term
Finally companies with strong international market
positioning and large product diversification will have
stronger sales and margins growth
The key ratio values recorded from 2000 to 2016 related to
the analyzed entities show the improved financial health of
the companies proving good capability to strengthen their
equity base as shown in Table 6
Growth rate (2016)Medium
Total
Small Large
Growth rate (2018)Growth rate (2017)
Source Cerved database and Cerved Rating Agency elaboration
50
40
Exhibit 31 Growth rate and EBITDA margin forecast by size classes
EBITDA margin (2016)EBITDA margin (2018)
EBITDA margin (2017)
40
30
0
10
20
Medium
Total
Small Large
7570
65
0
6 5560
5550
4540
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
28
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The recorded financial ratios in the 2000-2016 horizon
indicate that on average
middot liquidity maintained a satisfactory level in the whole
observed period due to the positive economic cycle in
2017 and 2018 we expect a slight improvement in the ratio
middot the EBITDAinterest coverage ratio almost doubled its
value in 2016 compared to what was recorded in 2000
primarily due to a general reduction in the interest rates
particularly in the last three years we believe that in 2017
and 2018 the average ratio value will remain roughly at the
same level recorded in 2016
middot in 2016 ROE shows further improvement but is still
slightly lower compared to the value recorded at the
beginning of the observed period mainly due to the equity
base strengthening trend
middot Equity Ratio rose from 250 to 350 due to a significant
increase of equity capital in 2018 we expect further
strengthening of the ratio
middot Financial LiabilitiesTotal Assets ratio remained mostly
unchanged ndash financial debts representing roughly 30 of
the total assets
A positive trend regarding the net financial debt was also
observed in fact in 2016 70 of the sample improved their
NFDEBITDA and 73 the NFDEquity
Positive performances were found especially in the SMEs
segment as shown in Exhibit 32 in particular referring to
NFDEquity small and medium-sized companies recorded
a positive trend standing respectively at 092 and 089 in
2016 compared to 132 and 136 in 2000
Hence the financial risk profile appears to be well balanced
leaving no room for specific concerns regarding the
prospects of the Italian non-financial companies in 2018
In 2016 the median values for the total sample referring to
NFDEquity and NFDEBITDA remained respectively at 089
and 389 levels respectively
Looking ahead we expect these indicators to remain at
healthy levels in 2017 and 2018 with a slight improvement
in NFDEBITDA and a broadly stable level of the NFDEquity
ratio as shown in Exhibit 33
NFDEBITFA (2016) NFDEBITFA (2017)NFDEBITFA (2018)
40
Exhibit 33 NFDEquity and NFDEBITDA forecast by size classes
Source Cerved database and Cerved Rating Agency elaboration
404
20
25
45
35
30
NFDequity (2016) NFDequity (2017)NFDequity (2018)
05
06
09
10
08
07
Exhibit 32 NFDEquity and NFDEBITDA by size classes (median)
largemediumsmall
2016
2015
2014
000 5 10 15
Average2008-2013
Average2000-2007
total largemediumsmall total
Source Cerved database and Cerved Rating Agency elaboration
2016
2015
2014
203 0 405 0
Average2008-2013
Average2000-2007
29
Growth and profitability improvement spanned over all sectors
Exhibit 34 shows the relative positioning of the 10
macro-industries in the short-medium term considering
the median values related to revenue growth rate and
EBITDA margin
The historical median values are calculated on the basis
of financial data obtained from the annual financial
reports 2014-2016 filed in the Chamber of Commerce
public registers the projected median values for 2017
and 2018 are the result of the analysis of this study
As expected there are significant differences in
positioning between different industries in terms of
both historical and projected values
In 2018 we expect manufacturing and accommodation and
food services to maintain top positions already reached in
2016 and 2017
For the electricity gas mining and quarrying industry
2018 may be the turning point showing the first positive
signals after experiencing some difficulties over the last
few years
None of the other industries show significant changes in
2018 compared to their 2016 positioning
Source Cerved database and Cerved Rating Agency elaboration
A 50
57599586886358
3849
3620083721
-110320
-1112
210322
-1814021122
1413
030124
-5010284025
0555
20-4614
-4607212105
0430
210328-2310203218
0832
2310300512233720
1637
BCDEFGHIJ
A 625296
1441401016934
15352
504969
103121916227
10639
4764676185562639
68112
4873687090592845
75120
456772928856
45
7898
4667759090573147
7698
4668769394583147
77102
EBITDAmarigin
BCDEFGHIJ
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018Growthrate
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
Exhibit 34 Growth rate and EBITDA margin by industry
-70 -50 -30 -10 10 30
2016E2017F2018
50 70 90
Median=68
Median=2100
20
40
60
80
100
120
A=Agricolture B=Mining and quarrying C=Manifacturing D=Electricity and gas E=Water supply F=Construction G=Wholesale and retail trade H=Transporting and storage I=Accomodation and food service J=ICT
D
B
E
FHA G
C
I
J
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
30
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Further strenthening in companiesrsquo financial structure
Exhibit 35 shows the relative positioning of the 10 macro
industries in the short-medium term considering the
median values related to NFDEBITDA and NFDEquity
ratios
The historical median values are calculated on the basis
of financial data obtained from the annual financial
reports 2014-2016 filed in the Chamber of Commerce
public registers the projected median values for 2017
and 2018 are the result of the analysis of this study
There are even more significant differences in
positioning between industries regarding NFDEBITDA
and NFDEquity ratios when compared to growth rate
and EBITDA margin differences
Generally in the observed period there is no evidence of
significant changes among industries considering their
relative positioning related to NFDEBITDA and NFD
Equity ratios
In 2018 we expect accommodation and food services
and information and communication services to
maintain top positions already reached in 2016 and
presumably confirmed in 2017
Exhibit 35 NFDEquity and NFDEBITDA by industry
2016E2017F2018
Median=37
Median=08500
030 5 070 9 111 3
20
30
40
50
60
70
10
A=Agricolture B=Mining and quarrying C=Manifacturing D=Electricity and gas E=Water supply F=Construction G=Wholesale and retail trade H=Transporting and storage I=Accomodation and food service J=ICT
EH
C
BF
G
A
D
J
I
A 150101113081112149151120
079131
123075088101097125123103
072079
114067083052090108119102
067076
113060080045089096114092
074069
125076080045089106109086
050060
127072080044091
108084
051056
128067079043093106107081
051051
BCDEFGHIJ
NFDEquity
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
A 597219280305251301338250
153260
676394388342298453499349
254337
707482387293277498532337
277334
696392373254305484494308
231315
747401358330285544483294
183312
722390340341280511470290
178293
710380310329272492452281
177289
NFDEBITDA
BCDEFGHIJ
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
Source Cerved database and Cerved Rating Agency elaboration
106
31
Exhibit 36 Equity ratio by industry
Average 2000-2007 2014 2015Average 2008-2013 2016
Source Cerved database and Cerved Rating Agency elaboration
05
10
20
30
15
25
3540
5045
AB C DE FG HI J
Exhibit 37 EBITDA interest coverage by industry
Average 2000-2007 2014 2015Average 2008-2013 2016
Source Cerved database and Cerved Rating Agency elaboration
0
5
10
20
15
AB C DE FG HI J
A 1113140911151211
1408
1013131012131209
1208
1114151012131311
1309
1214151012151312
1309
1215161113161412
1409
BCDEFGHIJ
Liquidity ratio Median2000-07
Median2008-13 2014 2015 2016
A 0377677447858463
8960
0332
8145524536
4832
0342486042273848
3246
0537606853395765
4069
0743676559416378
5882
BCDEFGHIJ
ROE Median2000-07
Median2008-13 2014 2015 2016
Table 7 Liquidity ratio by industry Table 8 ROE by industry
Source Cerved database and Cerved Rating Agency elaboration
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
32
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Agriculture
Considering the recent price decline for agricultural
products putting EBITDA margin under pressure for
most of the industry participants we anticipate a slow
revenue growth in 2018 We also foresee more stable
margins in 2018 and investments to continue at a faster
pace in the near future mainly aimed at transforming the
agricultural activities into a high-tech industry Climate
and cultural changes are the main exogenous risks that
may negatively influence the sector
Mining and quarrying
Over the last few years the mining industry has been
challenged by record low metal prices and this has
resulted in a weak growth of supply and a cut in
investments especially in the new mines opening We
foresee a modest revenue growth in 2018 supported
by more stable prices rather than by government
infrastructural investments Margin pressure will remain
mostly unchanged in 2018 We do not expect a significant
increase in capital expenditure for most companies
while only a minority of industry participants will invest
in new capacities searching for new growth opportunities
by introducing new higher margin outputs Overall we
anticipate relatively stable key financial indicators
Manufacturing
We believe that in 2018 Italian manufacturing
representing 2nd European and 7th world player in 2016
will remain the beating heart of the national economy
In our view the expansion of internal demand the
improvement of business and customer confidence and
the wider export opportunities are the key drivers for
revenue growth (up to nearly 30) Despite the natural
selection the occurred during the economic recession
domestic competition and especially the competition
from lower income countries will remain challenging in
2018 creating further profitability pressure especially in
some highly fragmented segments
As a conditio sine qua non for market survival many
companies will be involved in a ldquowinning the innovation
gamerdquo process translated into a considerable capex
expenditure directed at process optimization which
inevitably must be accompanied by innovative marketing
and commercial strategies The companies especially
smaller ones which are not ready lsquoto play the gamersquo
remaining risk averse are likely to fall behind
Key financial indicators referring to the industry in terms
of net financial debt to equity and net financial debt to
EBITDA are likely to remain overall stable in 2018
In our view the best performing manufacturing industries
in 2018 will be the following
Automotive
extensive vehicles replacement process in 2018
high competition pressure China maintaining a key role
high level of innovation in mobility and connectivity
new strategic partnerships and MampAconservative stand towards EBITDA margin improvement
Chemistry amp Pharmaceutics
solid macroeconomic fundamentals will support
the revenue growth driven mainly by large companies
on average a stable EBITDA margin of about 10
is expected global presence is a must to achieve higher
level of profitability
RampD remain key factors for further market expansion
moderate level of MampA operations in 2018 slowing
down when compared to those carried out in the
previous year
Machinery amp Equipment
revenue growth in 2018 up to nearly 25 reflecting
the fact that all manufactures remain focused on RampD
and NPI (new product introduction)
cost management strategies are going to persist
but generally speaking with no significant impact on
EBITDA margin in 2018
heavy equipment manufactures still under pressure in
2018 to provide engineering capability and capacity
33
Energy and gas
Italian companies operating in the energy industry are
facing a complex market environment with many open
questions about risks related to regulations a drop
in consumption high competition levels and EBITDA
erosion
Generally we expect a more stable landscape in 2018 in
terms of commodity prices and consumption However
risk regarding prices and volumes will remain strong
resulting in a higher volatility of revenues In our view
the current margin pressure is unlikely to ease over the
next two years The final overcoming of the sondashcalled
ldquoMaggior Tutela Regimerdquo may lead to almost zero margin
for the retail operators We expect industry participants
to continue to focus their attention on cost efficiency and
on protecting profitability by embracing new business
models and examining the role that digital technology
can play in improvement of EBITDA margins We believe
that the above described strategies will be a central
topic for the operators intending to attract capital We
also believe that energy producers could see a slight
debt increase in 2018 aimed at improving productivity
and synergies Finally in 2018 we envisage a significant
number of MampA operations in the sector led by synergy
effects such operations might produce
Water supply waste management and sewerage
In recent years the water supply waste management
and Italian sewerage industry has recorded a slower
growth compared to the pre-crisis period However
due to the last two yearsrsquo important investments in the
water infrastructure waste sorting and recycling Italy
ranks as one of the top European countries in terms
of growth rate of recycling and packaging recovery
We believe that the expected general increase in
industrial output will produce a slight growth in water
consumption and waste treatment The demand for
sustainable solutions will continue to persist requiring
new investment in technologies based on a customer-
centric and sustainable approach aimed at improving
efficiencies and facilitating reuse Expectations also
reflect our view in terms of wider government interest
and spending in this industry We expect profitability
to remain broadly in line with the results obtained in
2016
Construction
After a weak increase in revenues recorded by the
construction industry operators in 2016 and the
modest result anticipated in 2017 both reflecting
a deteriorating demand and decreased volumes of
bank loans (mainly those for small and medium-
sized companies) we expect 2018 to be the turning
point for this industry We foresee that the volume of
residential and private non-residential constructions
will remain at relatively low levels in 2018 and that
the positive trend in housing renovation and public
works investments will continue taking advantage of
the allocated funds established by the Budget Law for
2017 Small and medium-sized businesses focused on
residential construction may face a slight profitability
erosion while we believe some growth in EBITDA
margin may be recorded by large Italian companies
operating internationally Due to the high perceived
risk historically there has been a strong financial
market mistrust of the construction companies which
we believe is likely to ease over the coming years
Wholesale and retail trade
During the crisis period wholesale and retail trade
industry faced a sudden interruption of the gradual
growth that had taken place up to that moment mainly
due to a loss in real purchase power and in consumer
confidence also translated into profitability erosion
In 2016 the data showed how the industry is moving
toward a recovery period Looking forward in 2018 we
expect to record a steady revenue growth supported
by an increase in global trade and improved consumer
confidence Despite the foreseen growth operators
will continue to face consistent pressure mainly in the
retail segment due to the high proliferation of new retail
purchase channels and market fragmentation
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
34
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Transportation and Storage
After a troubled 2016 characterized by an overcapacity
and a decrease in commodity demand hitting shipping
revenues in particular we foresee a moderate overall
recovery in 2018 driven mainly by an increase in
international shipments and air traffic The growing
number of innovative startups will continue to persist
increasing the competitive pressure in the industry We
anticipate a constant growth of e-commerce enabling a
quick reaction of on-line retailer and logistics providers
We believe that operators will continue to invest in
new high-tech solutions experimenting new models of
mobility and smart logistics
Despite very strong competition we expect the median
operating margins to remain steady However global
political uncertainties and related risks are strong with
possible quick and sharp negative impact on business
volumes and margins of the companies operating in
these industries
Accommodation and food services activities
In the last two years operators in the accommodation
and food service activities industry mainly medium
and small sized enterprises have seen steady revenue
growth and satisfactory profitability ratios Many
operators were focused on reviewing their business
models and offering additional services to their
customers a necessary strategy to maintain or expand
market positioning strengthen margins and improve
customer experience We expect the revenue growth
to continue in 2018 with a minimal median margin
improvement We believe accommodation and food
service activities will attract new capital investments
in 2018 to help the ongoing transformation process
and improve the accommodation infrastructure and
services
Information and communication technologies
The Italian information and communication technology
industry took longer to recover from the economic
crisis recording overall a negative median growth
rate until 2014 Software services and innovation
technology were the major contributors to revenue
growth (as a percentage) in 2016
Over the forecast period we foresee a modest revenue
growth for the ICT operators as a whole while the
technology industry will continue to achieve rapid
growth focusing on maintaining the competitive pace
of innovation In our view a key challenge for the ICT
operator may be the availability of matching skills
The outlook is relatively stable in terms of profitability
and key financial indicators
The following two pages show the details of the
previously discussed key performance indicators
35
Exhibit 38 Growth rate and EBITDA margin manifacturing sectors
-70- 50 -30 -10 103 0
2016E2017F2018
50 70 90
Median=76
Median=3000
20
40
60
80
100
120
1=Automotive 2=Chemistryamppharmaceutics 3=Clothing 4=Equipment 5=Food beverage and Tabacco 6=Heavy Manifacturing 8=Paper and Packaging 9=Tecnology and Telecomunication 10=Textile industry
6
10 5
3
8
91
74
2
50AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
57599586886358
3849
3620083721
-110320
-1112
210322
-1814021122
1413
030124
-5010284025
0555
20-4614
-4607212105
0430
210328-2310203218
0832
2310300512233720
1637
Growth rate Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
EBITDA margin Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
Source Cerved database and Cerved Rating Agency elaboration
625296
1441401016934
15352
504969
103121
916227
10639
4764676185562639
68112
487368
7090592845
75120
456772
9288562845
7898
4667759090573147
7698
4668769394583147
77102
1=Automotive 2=Chemistryamppharmaceutics 3=Clothing 4=Equipment 5=Food beverage and Tabacco 6=Heavy Manifacturing 8=Paper and Packaging 9=Tecnology and Telecomunication 10=Textile industry
2016E2017F2018
Median=30
700
600
500
400
300
200
100
000000 020 040 060 080 100 120
Median=08
Exhibit 39 NFDEquity and NFDEBITDA for manifacturing sectors
2
4 8
101
9
9
3
57
Source Cerved database and Cerved Rating Agency elaboration
096AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
104146095152117112109
098087
087080116068118083088086
084078
075074104069107082080079
084083
072064100065105084122081
079081
082066104065105080091079
077082
081067103065105079087079
077081
076067101064104077083078
076080
NFDEQUITY Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
227AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
258334222397249255259
315202
338313443305495363403412
480337
315306436328479373380397
482316
264269490303467366403383
515317
269243507090106127090106
106106
413343478088105127088105
105105
399333465086104127086104
104104
NFDEBITDA Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
36
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Exhibit 40 Growth rate and EBITDA margin for wholesale and retail trade sectors
20 40 60 80 100 120 140 160
2016E2017F2018
Median=31
Median=33
0000
20
10
30
60
50
70
1=Automotive 2=Retail 3=Wholesale
40
3
12
2016E2017F2018
Median=45
700
600
500
400
300
200
100
000050 070 090 110 130 150 170 190
Median=11
Exhibit 41 NFDEquity and NFDEBITDA for wholesale and retail trade sectors
1=Automotive 2=Retail 3=Wholesale
21
3
37
Ratings will remain broadly stable
The following section presents a risk profile analysis
based on Cerved Rating Agencyrsquos outstanding and
monitored public and private ratings issued from
2013 to 2017 on Italian non-financial companies
and operating in the industries discussed in this
study (data as of 31 December)
Exhibit 42 and Table 9 show an overview of 1-year
effective default rates over the 2000-2017 horizon
related to the sample bankruptcy and other legal
proceedings and debt restructurings as default
events
The default rate trend shows a general
improvement from 2014 onwards both by
company size classes and by industry however
considering the entire sample the overall default
rate still remains higher when compared to its pre-
crisis level especially regarding smaller companies
operating in the construction sector
Exhibit 43 shows the effective default rates over
2013-2017 horizon based on Cerved Rating
Agencyrsquos definition which considers as default
events
middot bankruptcy and other legal proceedings
middot debt restructuring
middot missed or delayed disbursement of a contractually
required interest or principal payment ie missed
payment on bonds material protests (on cheques
or trade bills) or prejudicial acts (judicial mortgages
distraint of property)
The effective default rates over the 2013-2017
horizon show decreasing trend and satisfy the
monotonicity constraint regarding all Cerved
Rating Agencyrsquos rating classes (Exhibit 44)
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2003 2004 2005 2006 2007 2014 2015 2016 20172000 2001
5678
12
3
4
0
Exhibit 42 Avarage 1-year default rate by size over 2000-2017 horizon
medium small
2008 2009 2010 2011 2012 2013
Mining and quarring
Manifacturing
Electricity gas steam and air conditioning supplyWater supply sewerage
Construction
Wholesale and retail trade repair of motorTransporting and storage
Accomodation and food service activities
Information and communication
24221809
5212
282915
2529
38533424
13027
454830
4838
36542537
15929
424421
4323
23461921
13226
293226
3022
Source Cerved database and Cerved Rating Agency elaboration
Table 9 Default rate by industry over 2000-2017 horizon
Total
NACE Average2008-2015
Average2000-2017 2016 2017
2016
Source Cerved database and Cerved Rating Agency elaboration
C21C12C11B22B21B12B11A11 A12 A13 A21 A22 A31
60
50
40
30
20
10
0
Exhibit 43 1-year default rate over 2013-2017 horizon
20172013 2014 2015
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
38
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The analysis of historical rating distributions in the
same period shows clear differences in terms of modal
rating class by company size As shown in Exhibit 43
the modal rating class for the large companies is A31
B11 for the medium and B12 for small companies
(considering company size classes as they have been
defined ad hoc by Cerved Rating Agency for the
purposes of this study)
Overall the corporate rating distribution in the
Source Cerved database and Cerved Rating Agency elaboration
C21C12C11B22B21B12B11A11 A12 A13 A21 A22 A31
30
25
20
15
5
10
0
Exhibit 44 Rating distribution frequency by size classes
large
30
25
20
15
5
0
10
medium smallRating 2013 total Rating 2017 total Rating 2017 forecast
observed period is skewed towards the investment-
grade rating categories (ie Cerved Rating Agency
rating classes from A11 to B12) representing 700 of
the whole sample 250 is concentrated in the safety
(A rating classes) and 450 in the solvency (B11-B12)
classes
We anticipate the rating distribution to remain
broadly unchanged in 2018 with the rating migration
concentrated mainly in the B category
39
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100543
2414
4407
4407
2636
4554 4558
2403 2311
535 527
90
10
0
Exhibit 45 Rating distribution frequency by area of risk - Total companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency]I nvestment GradeA11-A31 [Safety]
2509 2604
704 4407706 4407716
324
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
985
5658
4407
3033 2992 2898
925 907
300 318
90
10
0
Exhibit 46 Rating distribution frequency by area of risk - Large companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
5783 5878
869 4407878 4407878
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
4407
4407
3626
4080
17591695
439 449
90
10
0
Exhibit 47 Rating distribution frequency by area of risk - Medium companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
3571 3776
7044407780 4407786
456
1805
774
4113 4232
603
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
2824
1900
4407
4673 4850 4761
2833 2754
600 633
90
10
0
Exhibit 48 Rating distribution frequency by area of risk - Small companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
1716 1852
657 4407657 4407661
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
40
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Slight improvement in general creditworthiness
In our opinion in 2018 the creditworthiness of the
observed Italian non-financial companies will remain
stable for almost 86 of entities Migration of ratings is
expected to be moderate resulting in approximately 14
of rating upgrades (9) and downgrades (5) at the end
of 2018 compared to the outstanding ratings at the end
of 2017 The vast majority of the rating changes (921)
will be limited to one-class migration as shown in the
1-year projected transition matrix (Table 10) We believe
that more than one third of the expected downgrades
will be concentrated in the energy gas mining and
construction sectors Over the last years the average
credit profile of companies active in these industries has
been relatively weak and due to the forecast market and
regulatory conditions we do not envisage opportunities
for a significant risk profile improvement in 2018
Despite the expected rating migrations for individual
entities in 2018 the current industry modal rating
classes are unlikely to change
On the other hand stable and positive outlooks will
prevail in the manufacturing industry wholesale and
retail trade and accommodation and food service This
is due to the increase in the number of companies
active in these sectors which will maintain andor
improve their business and financial performances
Indeed as shown in Table 11 in 2018 the rating outlook
remains differentiated by industry whilst in terms of
the expected general probability of default we foresee
a modest improvement (349) compared to the one
recorded in 2017 (366)
Table 10 1-year transition matrix
Source Cerved database and Cerved Rating Agency elaboration
2017
A11
A31
B11
C11
C12
B21
C21
B22
B12
A12
A13
A21A22
F 2018A11 A12 A13 A31 B11 C11 C12B21 C21B22B12A21 A22
000 530
066
054 451034 435
027 753055 901
1033121247 1624
260 1038088
000
000000037
028
295
290
1063
179
455050647
043425
026490020208
000208
000152
000000
00000010000
9821
9318
92679015
87708583
81497646
8665
9617
9710
8605
419024
41
The information and data supporting Cerved Rating Agency rating opinions related research and credit opinions originate from sources Cerved Rating Agency considers to be accurate however Cerved Rating Agency cannot independently verify the reliability and accuracy of the information and data in every instance This publication may not be reproduced retransmitted or distributed in any form without the prior written consent of Cerved Rating Agency Cerved Rating Agency assumes no liability for correctness completeness and topicality of the information contained in this publication The analyses underlying this study do not provide advice of any sort
26
n
6670
486
59
Exhibit 49 Ratings outlooks by size
Large
Medium Positive Stable Negative
Small
21
13
Large
Medium
Small
Source Cerved database and Cerved Rating Agency elaboratio
Table 11 Ratings and probability of default 2018 outlook by industry
Source Cerved database and Cerved Rating Agency elaboration
NACE Micro industryDowngrade
B-Mining and quarryingAutomotive
900814
848
812
880812
847
813 172
170
174
144
8264 36
08
104 433 436
392 373
22724815
362 360
876
876
914
848
849
804
887
882
916
901835870899 64
866760
43
68
5659
58
47
61
49
74
78 75
14
50
37
36
5393
32
50
41
45
3899
77
91
316
372
355
364
308
491
326
318 296
331
312
381
367
359
322
495
452
433
403429
389
364369
363
313
452
323
594
38
315358
603
307
345 350
67 5318
469289 274
470
147
116
138
851
821AutomotiveRetail
Wholesale
Total
Chemistryamppharmaceutics
ClothingEquipment
Food Beverage and Tabacco
Heavy Manifacturing
Other Manifacturing
Textile industry
Total
Tecnology Media ampTelecomunication
Paper Packaging ampForest products
C-Manifacturing
D-Electricity gas steam and air conditioningsupply
F-Construcion
H-Transportig and storageI-Accommodation and food service activitiesJ-Information and communication
G-Wholesale and reatail traderepair of motor vehicles and motor-cycles
E-Water supply sewerage waste
Average ForecastPD 2018
Expectedtrend
Average PD 2018
Ratings outlooks
Stabl pgrade
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Cerved Rating Agency SpAVia dellrsquoUnione Europea n 6A-6B20097- San Donato Milanese (MI)
Tel +39 02 77541 - Fax +39 02 76020458
ratingagencycervedcom
Rating Agency
22
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Italian non-financial companies economic Outlook 2018
23
Data and method
This research focuses on Italian non-financial companies
with an annual turnover exceeding euro5 million With the
aim of using only reliable data joint stock and limited
liability companies have been considered only these
entities according to Italian law file complete annual
financial statements in the Chamber of Commerce
together with anagraphical company data other
legal forms such as unlimited partnerships and sole
proprietorships are not included in this sample due to
the lack of publicly available standardized financial data
We believe that this cutoff is reasonable and allows us to
perform a methodologically correct analysis In 2016 the
above mentioned companies despite representing only
42 of all registered and active joint stock and limited
liability companies accounted for 769 of their total
turnover
Moreover cluster specialization has been obtained by
NACE activity classification from A to J (thus not including
in the sample financial and insurance companies and
some service industries) The statistics regarding specific
industries provide important key data and enable us to
examine historical and prospective trends and cross-
sector comparisons
The Cerved database which contains legal anagraphical
financial and market information on all Italian registered
legal entities (approximately 6 million comprising 5
million active ones) was the most important database
used for this research Long time series and broad
homogenized and standardized data covering different
economic cycles were the building blocks to perform
the regression and predictive analysis
Historical and forecast macroeconomic data and
analysis performed by the International Monetary Fund
OECD the World Bank European Central Bank Bank
of Italy and ISTAT completed the dataset used for the
analysis
Several analyses were performed in order to examine
the structural differences within the sample in terms of
company legal form and geographical area (Exhibit 25)
company age (Exhibit 26) and company size and industry
As a result we verified a considerable heterogeneity of
companies in particular with regard to the company size
across various industries
The relevant observation period comprises the years
between 2000 and 2016 Table 3 describes some
characteristics of the sample
Exhibit 25 Sample break-down by legal form and geographic area (2016)
Joint stock Company
Limited liability Company
Area 1 (Northwest)
Area 3 (Center)
Area 2 (Northeast)
Area 4 (South)
39
20
27
14
33
67
33
Table 3 Sample characteristics 2000-2016
TotalTurnover
gt euro5million
Turnover gt euro5 million(industry
from A to J)
TotalTurnover
gt euro5million
ofTotal
Turnover gt
euro5 million(industry
from A to J)
Source Cerved database
Entreprises Turnover billion
2000 659867700717738558772442812025847334883122915172937018949708965744969581
953505945825922513883224
4215144587462234694749640518205596459226595385246754808563745362752074519385289450123
3686139038411864118843547454704921752274526974633848778504734806246843468384771845288
16151740177018472002212923302477256822562421257025202446243224392295
12661362139214561588169818752000208317861944208720541992198419871905
11141205124013041430152316891801189716191764191218831839183518371765
689693700
716
706714
725
718729744748752754753769
727739
200120022003200420052006
200820092010201120122013201420152016
2007
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
24
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Furthermore in order to guarantee more detailed and
accurate analyses and projections we decided to create
a static pool to show consistently long time horizon
economic trends (17 years) by sealing off all the active
companies over the 2000-2016 horizon
The outcome obtained by considering the behaviour of
specific variables related to the companies included in
the static pool was extended as a performance indicator
for the whole sample (turnover over euro5 million and
industry from A to J)
According to the European Communityrsquos definition of
SMEs using annual turnover and employee headcount
as quantitative criteria the initial sample of companies
and the static pool can be classified by size classes on
the basis of the financial statements for the year 2016
as shown in Table 4
For the sake of this analysis we defined specific size
classes for each industry thus deviating from the
European Commissionrsquos recommendation which
presents undifferentiated upper and lower bounds of
quantitative criteria for SMEs in all industries To define
the thresholds of such classes we used both a statistical
approach (a specific cluster procedure by minimizing
the within-cluster turnover standard deviation) and a
judgmental approach by relying on the experience and
opinion of our industry expert analysts Table 5 shows
the results of such analysis referring to the sample in
2016 (45288 entities) and the NACE sections from A
to J Moreover the NACE section C and G were further
disaggregated into sub-industry classes as shown in
Exhibit 27 in order to consider the specific business
differences within these NACE sections thus ensuring
a good fit and a satisfactory accuracy of the estimation
Exhibit 26 Sample break-down by company age classes
0-2 Years 2-5 Years 5-10 Years 10-20 Years gt20 YearsSource Cerved database and Cerved Rating Agency elaboration
0 20 40 60 80 100
ABCDEFGHIJ
A = AgricolutreB=Mining and quarryingC=ManufacturingD=Electricity and gasE=Water supplyF=ConstructionG=Wholesale and retail tradeH=Transporting and storageI=Accomodation and food serviceJ=ICT
Small
Annul Turnover
Empolyees
Static Pool
Enterprises(Turnover gt euro5 million)
Enterprises(Turnover gt euro5 millionindustry from A t J)
Medium Large
lt 50 lt 250lt 36774 11113
1005333223
8741
2236
2012
154818645
gt euro50 million
gt 250
lt euro50 million
Source Cerved database
NACE Micro industry
B-Mining and quarryingAutomotive
Automotive
Retail
Wholesale
T gt 480
T gt 80
T gt 260
T gt 265T gt 270
T gt 230
T gt 120
T gt 80
T gt 43
T gt 65
T gt 106T gt 106
T gt 360T gt 155T gt 150T gt 100
T gt 120
T gt 225T gt 1400T gt 27500
T gt 1500
ChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther Manifacturing
ICTTextile
Paper Packaging ampForest products
C-Manifacturing
F-Construcion
H-Transportig and storageI-Accommodation and food service activities
J-Information and communication
D-Electricity gas steam and aircoditioning supply
G-Wholesale and reatail traderepair of motor vehicles and motorcycles
E-Water supply sewerage waste management and emediation activities
Large (Turnover
in euro million)
Medium(Turnover
in euro million)
Small(Turnover
in euro million)
Source Cerved database and Cerved Rating Agency elaboration
60 lt T lt 480 5 lt T lt 60
5 lt T lt 20
5 lt T lt 36
5 lt T lt 35
5 lt T lt 44
5 lt T lt 40
5 lt T lt 20
5 lt T lt 26
5 lt T lt 250
5 lt T lt 185 lt T lt 305 lt T lt 265 lt T lt 205 lt T lt 37
5 lt T lt 335 lt T lt 40
5 lt T lt 255 lt T lt 585 lt T lt 1155 lt T lt 1005 lt T lt 27
20 lt T lt 80
36 lt T lt 26035 lt T lt 26544 lt T lt 270
40 lt T lt 230
20 lt T lt 120
26 lt T lt 80
18 lt T lt 43
250 lt T lt 1500
20 lt T lt 6537 lt T lt 29540 lt T lt 15533 lt T lt 15025 lt T lt 100
27 lt T lt 120
58 lt T lt 225
100 lt T lt 27500 115 lt T lt
30 lt T lt 10626 lt T lt 106
25
Exhibit 28 shows the breakdown of macro industries
analysed including disaggregation of the NACE section C
(manufacturing) and G (wholesale and retail trade repair
of motor vehicles and motorcycles)
In order to carry out the analysis and projections this study
is focused on we used simple multiple linear regression
model for each industry and company size classes
considering macroeconomic and individual companiesrsquo
economic and financial data
The analysis enables us to develop an econometric
model used to estimate likely credit quality changes (in
terms of rating class and probability of default) for single
industries and company size classes
Automotive
Retail
Wholesale
21
1366
1
42
1
26
35
232
6
A B C D
F G H I
46
7
21
1318
9
15
34
Automotive
Chemistry amp pharmaceutics
Clothing
Equipment
Food Beverage and Tabacco
Heavy Manifacturing
Other Manifacture
Paper Packaging amp Forest Products
ICT
Textile industry
Large SmallMedium
Source Cerved database and Cerved Rating Agency elaboration
0
Wholesale
Retail
Automotive
20 40 60 80 100
Automotive
Chemistry amp pharmaeutics
Clothing
Equipment
Food beverage and Tabacco
Heavy Manifacturing
Other Manifacturing
Paper Packaging amp Forest Products
ICT
Textile
0 20 40 60 80 100
ABCDEFGHIJ
0 10 30 40 60 70 80 90 100
Exhibit 28 Sample break-down by industry (2016)
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
26
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Performance indicators to improve further
The annual financial statements available through public
registers provide a clear economic and financial picture
of the Italian joint-stock and limited liability non-financial
companies The individual historical data available from
2000 to 2016 enriched with 2017 preliminary results and
with the expected 2018 macroeconomic scenario enabled
us to build up the 2017 and 2018 projections regarding
the following four performance indicators related to the
analyzed sample 1) growth rate - revenues YoY change
2) EBITDA margin 3) net financial debtEBITDA and 4) net
financial debtEquity Afterwards the median values of the
resulting data were used to obtain the summary output
which we consider as a representative proxy for the overall
market
From 2000 to 2016 the observed companies experienced
a very irregular trend both in terms of growth rate and
EBITDA margin In the aftermath of the global financial crisis
the lowest growth rate value (-120) was recorded in 2009
manufacturing transporting - storage and wholesale and
retail trade were the industries showing the biggest fall of
business volume (-155 -121 and -104 respectively)
whilst water supply accommodation and food service and
electricity and gas showed the highest level of resilience to
the adverse economic and financial environment (-01
-23 and ndash26 respectively) Exhibit 29 shows that in
terms of median value there are no significant differences
in the growth rate taking into consideration company size
classes as we previously defined them Only from 2010 the
growth rates turned positive but still remaining below the
levels recorded in 2000
The analysis of the EBITDA margin changes in the same
period also does not highlight significant differences
between large companies and SMEs as shown in Exhibit
30 The lowest median EBITDA margin value (52) was
recorded in 2012 regarding in particular accommodation
and food service transporting and storage and agriculture
sectors (28 40 52 respectively) while electricity
and gas ICT and water supply were relatively immune to
the unfavorable economic and financial circumstances
(showing 113 109 and 105 EBITDA margin
respectively) At the end of 2016 the median EBITDA margin
(60) still remains below the levels recorded in 2000 (72)
Positive trends emerging from the last publicly available
financial statements (2016) the 2017 preliminary results
and the optimistic macroeconomic forecasts for 2018
confirm improvement of the Italian economy Looking
ahead we expect the Italian non-financial companies to
continue to experience gradual recovery in 2018 They are
going to take advantage of the favorable global economic
cycle low interest rates and supportive regulations that
inter alia foster the use of alternative non-bank financial
sources for company funding The financial resources raised
through Individual Savings Plans (PIR ndash Piani individuali di
risparmio) introduced by the 2017 Budget Law are driven
in primis by a favorable tax regime for savers and might
become an important additional source for SMEs funding
injecting new liquidity The government objective fixed euro68
billion as a target value and in 2017 nearly euro10 billion had
already been raised
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2004 2006 2014 20162000
5
20
10
0
15
-15
-10
-5
Exhibit 29 Growth rate (revenue YoY change) by size classes (median)
medium small
2008 2010 2012
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2004 2006 2008 2010 2012 2014 20162000
7
10
9
8
6
5
4
3
7
10
9
8
6
5
4
EBITDA margin by size classes (median)
medium small
27
So far one of the main obstacles PIR are facing is the limited
number of available assets which may lead to a possible
concentration of this financial resources in a small share of
the market comprising mainly relatively large companies
as shown by the early data in 2017
Another obstacle to rapid adoption of the newly available
financial resources is the lack of a standardized and broadly
accepted methodology for the risk assessment of potential
bond issuers
Generally speaking in 2018 we expect SMEs to contribute
more significantly to growth employment and innovation
whilst on average the respective EBITDA margin will remain
broadly stable (as shown in Exhibit 31) However 2018 will
still be a challenging year for SMEs and innovative startup
companies as they will have to face tougher barriers in
accessing bank credit andor approaching capital markets
compared to large companies We also expect some new
innovative solutions aimed at meeting SMEs financial needs
to become effective the SMEs current financial structure
together with new business opportunities prove their
ability in terms of rational use of the additional financial
resources
The new investments will allow most industries to thrive
also assisted by the Italian Governmentrsquos adoption of the
National Industry 40 Plan
The companies which will take up this opportunity may
improve their cash-flows even in the short-medium term
Finally companies with strong international market
positioning and large product diversification will have
stronger sales and margins growth
The key ratio values recorded from 2000 to 2016 related to
the analyzed entities show the improved financial health of
the companies proving good capability to strengthen their
equity base as shown in Table 6
Growth rate (2016)Medium
Total
Small Large
Growth rate (2018)Growth rate (2017)
Source Cerved database and Cerved Rating Agency elaboration
50
40
Exhibit 31 Growth rate and EBITDA margin forecast by size classes
EBITDA margin (2016)EBITDA margin (2018)
EBITDA margin (2017)
40
30
0
10
20
Medium
Total
Small Large
7570
65
0
6 5560
5550
4540
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
28
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The recorded financial ratios in the 2000-2016 horizon
indicate that on average
middot liquidity maintained a satisfactory level in the whole
observed period due to the positive economic cycle in
2017 and 2018 we expect a slight improvement in the ratio
middot the EBITDAinterest coverage ratio almost doubled its
value in 2016 compared to what was recorded in 2000
primarily due to a general reduction in the interest rates
particularly in the last three years we believe that in 2017
and 2018 the average ratio value will remain roughly at the
same level recorded in 2016
middot in 2016 ROE shows further improvement but is still
slightly lower compared to the value recorded at the
beginning of the observed period mainly due to the equity
base strengthening trend
middot Equity Ratio rose from 250 to 350 due to a significant
increase of equity capital in 2018 we expect further
strengthening of the ratio
middot Financial LiabilitiesTotal Assets ratio remained mostly
unchanged ndash financial debts representing roughly 30 of
the total assets
A positive trend regarding the net financial debt was also
observed in fact in 2016 70 of the sample improved their
NFDEBITDA and 73 the NFDEquity
Positive performances were found especially in the SMEs
segment as shown in Exhibit 32 in particular referring to
NFDEquity small and medium-sized companies recorded
a positive trend standing respectively at 092 and 089 in
2016 compared to 132 and 136 in 2000
Hence the financial risk profile appears to be well balanced
leaving no room for specific concerns regarding the
prospects of the Italian non-financial companies in 2018
In 2016 the median values for the total sample referring to
NFDEquity and NFDEBITDA remained respectively at 089
and 389 levels respectively
Looking ahead we expect these indicators to remain at
healthy levels in 2017 and 2018 with a slight improvement
in NFDEBITDA and a broadly stable level of the NFDEquity
ratio as shown in Exhibit 33
NFDEBITFA (2016) NFDEBITFA (2017)NFDEBITFA (2018)
40
Exhibit 33 NFDEquity and NFDEBITDA forecast by size classes
Source Cerved database and Cerved Rating Agency elaboration
404
20
25
45
35
30
NFDequity (2016) NFDequity (2017)NFDequity (2018)
05
06
09
10
08
07
Exhibit 32 NFDEquity and NFDEBITDA by size classes (median)
largemediumsmall
2016
2015
2014
000 5 10 15
Average2008-2013
Average2000-2007
total largemediumsmall total
Source Cerved database and Cerved Rating Agency elaboration
2016
2015
2014
203 0 405 0
Average2008-2013
Average2000-2007
29
Growth and profitability improvement spanned over all sectors
Exhibit 34 shows the relative positioning of the 10
macro-industries in the short-medium term considering
the median values related to revenue growth rate and
EBITDA margin
The historical median values are calculated on the basis
of financial data obtained from the annual financial
reports 2014-2016 filed in the Chamber of Commerce
public registers the projected median values for 2017
and 2018 are the result of the analysis of this study
As expected there are significant differences in
positioning between different industries in terms of
both historical and projected values
In 2018 we expect manufacturing and accommodation and
food services to maintain top positions already reached in
2016 and 2017
For the electricity gas mining and quarrying industry
2018 may be the turning point showing the first positive
signals after experiencing some difficulties over the last
few years
None of the other industries show significant changes in
2018 compared to their 2016 positioning
Source Cerved database and Cerved Rating Agency elaboration
A 50
57599586886358
3849
3620083721
-110320
-1112
210322
-1814021122
1413
030124
-5010284025
0555
20-4614
-4607212105
0430
210328-2310203218
0832
2310300512233720
1637
BCDEFGHIJ
A 625296
1441401016934
15352
504969
103121916227
10639
4764676185562639
68112
4873687090592845
75120
456772928856
45
7898
4667759090573147
7698
4668769394583147
77102
EBITDAmarigin
BCDEFGHIJ
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018Growthrate
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
Exhibit 34 Growth rate and EBITDA margin by industry
-70 -50 -30 -10 10 30
2016E2017F2018
50 70 90
Median=68
Median=2100
20
40
60
80
100
120
A=Agricolture B=Mining and quarrying C=Manifacturing D=Electricity and gas E=Water supply F=Construction G=Wholesale and retail trade H=Transporting and storage I=Accomodation and food service J=ICT
D
B
E
FHA G
C
I
J
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
30
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Further strenthening in companiesrsquo financial structure
Exhibit 35 shows the relative positioning of the 10 macro
industries in the short-medium term considering the
median values related to NFDEBITDA and NFDEquity
ratios
The historical median values are calculated on the basis
of financial data obtained from the annual financial
reports 2014-2016 filed in the Chamber of Commerce
public registers the projected median values for 2017
and 2018 are the result of the analysis of this study
There are even more significant differences in
positioning between industries regarding NFDEBITDA
and NFDEquity ratios when compared to growth rate
and EBITDA margin differences
Generally in the observed period there is no evidence of
significant changes among industries considering their
relative positioning related to NFDEBITDA and NFD
Equity ratios
In 2018 we expect accommodation and food services
and information and communication services to
maintain top positions already reached in 2016 and
presumably confirmed in 2017
Exhibit 35 NFDEquity and NFDEBITDA by industry
2016E2017F2018
Median=37
Median=08500
030 5 070 9 111 3
20
30
40
50
60
70
10
A=Agricolture B=Mining and quarrying C=Manifacturing D=Electricity and gas E=Water supply F=Construction G=Wholesale and retail trade H=Transporting and storage I=Accomodation and food service J=ICT
EH
C
BF
G
A
D
J
I
A 150101113081112149151120
079131
123075088101097125123103
072079
114067083052090108119102
067076
113060080045089096114092
074069
125076080045089106109086
050060
127072080044091
108084
051056
128067079043093106107081
051051
BCDEFGHIJ
NFDEquity
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
A 597219280305251301338250
153260
676394388342298453499349
254337
707482387293277498532337
277334
696392373254305484494308
231315
747401358330285544483294
183312
722390340341280511470290
178293
710380310329272492452281
177289
NFDEBITDA
BCDEFGHIJ
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
Source Cerved database and Cerved Rating Agency elaboration
106
31
Exhibit 36 Equity ratio by industry
Average 2000-2007 2014 2015Average 2008-2013 2016
Source Cerved database and Cerved Rating Agency elaboration
05
10
20
30
15
25
3540
5045
AB C DE FG HI J
Exhibit 37 EBITDA interest coverage by industry
Average 2000-2007 2014 2015Average 2008-2013 2016
Source Cerved database and Cerved Rating Agency elaboration
0
5
10
20
15
AB C DE FG HI J
A 1113140911151211
1408
1013131012131209
1208
1114151012131311
1309
1214151012151312
1309
1215161113161412
1409
BCDEFGHIJ
Liquidity ratio Median2000-07
Median2008-13 2014 2015 2016
A 0377677447858463
8960
0332
8145524536
4832
0342486042273848
3246
0537606853395765
4069
0743676559416378
5882
BCDEFGHIJ
ROE Median2000-07
Median2008-13 2014 2015 2016
Table 7 Liquidity ratio by industry Table 8 ROE by industry
Source Cerved database and Cerved Rating Agency elaboration
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
32
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Agriculture
Considering the recent price decline for agricultural
products putting EBITDA margin under pressure for
most of the industry participants we anticipate a slow
revenue growth in 2018 We also foresee more stable
margins in 2018 and investments to continue at a faster
pace in the near future mainly aimed at transforming the
agricultural activities into a high-tech industry Climate
and cultural changes are the main exogenous risks that
may negatively influence the sector
Mining and quarrying
Over the last few years the mining industry has been
challenged by record low metal prices and this has
resulted in a weak growth of supply and a cut in
investments especially in the new mines opening We
foresee a modest revenue growth in 2018 supported
by more stable prices rather than by government
infrastructural investments Margin pressure will remain
mostly unchanged in 2018 We do not expect a significant
increase in capital expenditure for most companies
while only a minority of industry participants will invest
in new capacities searching for new growth opportunities
by introducing new higher margin outputs Overall we
anticipate relatively stable key financial indicators
Manufacturing
We believe that in 2018 Italian manufacturing
representing 2nd European and 7th world player in 2016
will remain the beating heart of the national economy
In our view the expansion of internal demand the
improvement of business and customer confidence and
the wider export opportunities are the key drivers for
revenue growth (up to nearly 30) Despite the natural
selection the occurred during the economic recession
domestic competition and especially the competition
from lower income countries will remain challenging in
2018 creating further profitability pressure especially in
some highly fragmented segments
As a conditio sine qua non for market survival many
companies will be involved in a ldquowinning the innovation
gamerdquo process translated into a considerable capex
expenditure directed at process optimization which
inevitably must be accompanied by innovative marketing
and commercial strategies The companies especially
smaller ones which are not ready lsquoto play the gamersquo
remaining risk averse are likely to fall behind
Key financial indicators referring to the industry in terms
of net financial debt to equity and net financial debt to
EBITDA are likely to remain overall stable in 2018
In our view the best performing manufacturing industries
in 2018 will be the following
Automotive
extensive vehicles replacement process in 2018
high competition pressure China maintaining a key role
high level of innovation in mobility and connectivity
new strategic partnerships and MampAconservative stand towards EBITDA margin improvement
Chemistry amp Pharmaceutics
solid macroeconomic fundamentals will support
the revenue growth driven mainly by large companies
on average a stable EBITDA margin of about 10
is expected global presence is a must to achieve higher
level of profitability
RampD remain key factors for further market expansion
moderate level of MampA operations in 2018 slowing
down when compared to those carried out in the
previous year
Machinery amp Equipment
revenue growth in 2018 up to nearly 25 reflecting
the fact that all manufactures remain focused on RampD
and NPI (new product introduction)
cost management strategies are going to persist
but generally speaking with no significant impact on
EBITDA margin in 2018
heavy equipment manufactures still under pressure in
2018 to provide engineering capability and capacity
33
Energy and gas
Italian companies operating in the energy industry are
facing a complex market environment with many open
questions about risks related to regulations a drop
in consumption high competition levels and EBITDA
erosion
Generally we expect a more stable landscape in 2018 in
terms of commodity prices and consumption However
risk regarding prices and volumes will remain strong
resulting in a higher volatility of revenues In our view
the current margin pressure is unlikely to ease over the
next two years The final overcoming of the sondashcalled
ldquoMaggior Tutela Regimerdquo may lead to almost zero margin
for the retail operators We expect industry participants
to continue to focus their attention on cost efficiency and
on protecting profitability by embracing new business
models and examining the role that digital technology
can play in improvement of EBITDA margins We believe
that the above described strategies will be a central
topic for the operators intending to attract capital We
also believe that energy producers could see a slight
debt increase in 2018 aimed at improving productivity
and synergies Finally in 2018 we envisage a significant
number of MampA operations in the sector led by synergy
effects such operations might produce
Water supply waste management and sewerage
In recent years the water supply waste management
and Italian sewerage industry has recorded a slower
growth compared to the pre-crisis period However
due to the last two yearsrsquo important investments in the
water infrastructure waste sorting and recycling Italy
ranks as one of the top European countries in terms
of growth rate of recycling and packaging recovery
We believe that the expected general increase in
industrial output will produce a slight growth in water
consumption and waste treatment The demand for
sustainable solutions will continue to persist requiring
new investment in technologies based on a customer-
centric and sustainable approach aimed at improving
efficiencies and facilitating reuse Expectations also
reflect our view in terms of wider government interest
and spending in this industry We expect profitability
to remain broadly in line with the results obtained in
2016
Construction
After a weak increase in revenues recorded by the
construction industry operators in 2016 and the
modest result anticipated in 2017 both reflecting
a deteriorating demand and decreased volumes of
bank loans (mainly those for small and medium-
sized companies) we expect 2018 to be the turning
point for this industry We foresee that the volume of
residential and private non-residential constructions
will remain at relatively low levels in 2018 and that
the positive trend in housing renovation and public
works investments will continue taking advantage of
the allocated funds established by the Budget Law for
2017 Small and medium-sized businesses focused on
residential construction may face a slight profitability
erosion while we believe some growth in EBITDA
margin may be recorded by large Italian companies
operating internationally Due to the high perceived
risk historically there has been a strong financial
market mistrust of the construction companies which
we believe is likely to ease over the coming years
Wholesale and retail trade
During the crisis period wholesale and retail trade
industry faced a sudden interruption of the gradual
growth that had taken place up to that moment mainly
due to a loss in real purchase power and in consumer
confidence also translated into profitability erosion
In 2016 the data showed how the industry is moving
toward a recovery period Looking forward in 2018 we
expect to record a steady revenue growth supported
by an increase in global trade and improved consumer
confidence Despite the foreseen growth operators
will continue to face consistent pressure mainly in the
retail segment due to the high proliferation of new retail
purchase channels and market fragmentation
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
34
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Transportation and Storage
After a troubled 2016 characterized by an overcapacity
and a decrease in commodity demand hitting shipping
revenues in particular we foresee a moderate overall
recovery in 2018 driven mainly by an increase in
international shipments and air traffic The growing
number of innovative startups will continue to persist
increasing the competitive pressure in the industry We
anticipate a constant growth of e-commerce enabling a
quick reaction of on-line retailer and logistics providers
We believe that operators will continue to invest in
new high-tech solutions experimenting new models of
mobility and smart logistics
Despite very strong competition we expect the median
operating margins to remain steady However global
political uncertainties and related risks are strong with
possible quick and sharp negative impact on business
volumes and margins of the companies operating in
these industries
Accommodation and food services activities
In the last two years operators in the accommodation
and food service activities industry mainly medium
and small sized enterprises have seen steady revenue
growth and satisfactory profitability ratios Many
operators were focused on reviewing their business
models and offering additional services to their
customers a necessary strategy to maintain or expand
market positioning strengthen margins and improve
customer experience We expect the revenue growth
to continue in 2018 with a minimal median margin
improvement We believe accommodation and food
service activities will attract new capital investments
in 2018 to help the ongoing transformation process
and improve the accommodation infrastructure and
services
Information and communication technologies
The Italian information and communication technology
industry took longer to recover from the economic
crisis recording overall a negative median growth
rate until 2014 Software services and innovation
technology were the major contributors to revenue
growth (as a percentage) in 2016
Over the forecast period we foresee a modest revenue
growth for the ICT operators as a whole while the
technology industry will continue to achieve rapid
growth focusing on maintaining the competitive pace
of innovation In our view a key challenge for the ICT
operator may be the availability of matching skills
The outlook is relatively stable in terms of profitability
and key financial indicators
The following two pages show the details of the
previously discussed key performance indicators
35
Exhibit 38 Growth rate and EBITDA margin manifacturing sectors
-70- 50 -30 -10 103 0
2016E2017F2018
50 70 90
Median=76
Median=3000
20
40
60
80
100
120
1=Automotive 2=Chemistryamppharmaceutics 3=Clothing 4=Equipment 5=Food beverage and Tabacco 6=Heavy Manifacturing 8=Paper and Packaging 9=Tecnology and Telecomunication 10=Textile industry
6
10 5
3
8
91
74
2
50AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
57599586886358
3849
3620083721
-110320
-1112
210322
-1814021122
1413
030124
-5010284025
0555
20-4614
-4607212105
0430
210328-2310203218
0832
2310300512233720
1637
Growth rate Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
EBITDA margin Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
Source Cerved database and Cerved Rating Agency elaboration
625296
1441401016934
15352
504969
103121
916227
10639
4764676185562639
68112
487368
7090592845
75120
456772
9288562845
7898
4667759090573147
7698
4668769394583147
77102
1=Automotive 2=Chemistryamppharmaceutics 3=Clothing 4=Equipment 5=Food beverage and Tabacco 6=Heavy Manifacturing 8=Paper and Packaging 9=Tecnology and Telecomunication 10=Textile industry
2016E2017F2018
Median=30
700
600
500
400
300
200
100
000000 020 040 060 080 100 120
Median=08
Exhibit 39 NFDEquity and NFDEBITDA for manifacturing sectors
2
4 8
101
9
9
3
57
Source Cerved database and Cerved Rating Agency elaboration
096AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
104146095152117112109
098087
087080116068118083088086
084078
075074104069107082080079
084083
072064100065105084122081
079081
082066104065105080091079
077082
081067103065105079087079
077081
076067101064104077083078
076080
NFDEQUITY Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
227AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
258334222397249255259
315202
338313443305495363403412
480337
315306436328479373380397
482316
264269490303467366403383
515317
269243507090106127090106
106106
413343478088105127088105
105105
399333465086104127086104
104104
NFDEBITDA Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
36
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Exhibit 40 Growth rate and EBITDA margin for wholesale and retail trade sectors
20 40 60 80 100 120 140 160
2016E2017F2018
Median=31
Median=33
0000
20
10
30
60
50
70
1=Automotive 2=Retail 3=Wholesale
40
3
12
2016E2017F2018
Median=45
700
600
500
400
300
200
100
000050 070 090 110 130 150 170 190
Median=11
Exhibit 41 NFDEquity and NFDEBITDA for wholesale and retail trade sectors
1=Automotive 2=Retail 3=Wholesale
21
3
37
Ratings will remain broadly stable
The following section presents a risk profile analysis
based on Cerved Rating Agencyrsquos outstanding and
monitored public and private ratings issued from
2013 to 2017 on Italian non-financial companies
and operating in the industries discussed in this
study (data as of 31 December)
Exhibit 42 and Table 9 show an overview of 1-year
effective default rates over the 2000-2017 horizon
related to the sample bankruptcy and other legal
proceedings and debt restructurings as default
events
The default rate trend shows a general
improvement from 2014 onwards both by
company size classes and by industry however
considering the entire sample the overall default
rate still remains higher when compared to its pre-
crisis level especially regarding smaller companies
operating in the construction sector
Exhibit 43 shows the effective default rates over
2013-2017 horizon based on Cerved Rating
Agencyrsquos definition which considers as default
events
middot bankruptcy and other legal proceedings
middot debt restructuring
middot missed or delayed disbursement of a contractually
required interest or principal payment ie missed
payment on bonds material protests (on cheques
or trade bills) or prejudicial acts (judicial mortgages
distraint of property)
The effective default rates over the 2013-2017
horizon show decreasing trend and satisfy the
monotonicity constraint regarding all Cerved
Rating Agencyrsquos rating classes (Exhibit 44)
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2003 2004 2005 2006 2007 2014 2015 2016 20172000 2001
5678
12
3
4
0
Exhibit 42 Avarage 1-year default rate by size over 2000-2017 horizon
medium small
2008 2009 2010 2011 2012 2013
Mining and quarring
Manifacturing
Electricity gas steam and air conditioning supplyWater supply sewerage
Construction
Wholesale and retail trade repair of motorTransporting and storage
Accomodation and food service activities
Information and communication
24221809
5212
282915
2529
38533424
13027
454830
4838
36542537
15929
424421
4323
23461921
13226
293226
3022
Source Cerved database and Cerved Rating Agency elaboration
Table 9 Default rate by industry over 2000-2017 horizon
Total
NACE Average2008-2015
Average2000-2017 2016 2017
2016
Source Cerved database and Cerved Rating Agency elaboration
C21C12C11B22B21B12B11A11 A12 A13 A21 A22 A31
60
50
40
30
20
10
0
Exhibit 43 1-year default rate over 2013-2017 horizon
20172013 2014 2015
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
38
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The analysis of historical rating distributions in the
same period shows clear differences in terms of modal
rating class by company size As shown in Exhibit 43
the modal rating class for the large companies is A31
B11 for the medium and B12 for small companies
(considering company size classes as they have been
defined ad hoc by Cerved Rating Agency for the
purposes of this study)
Overall the corporate rating distribution in the
Source Cerved database and Cerved Rating Agency elaboration
C21C12C11B22B21B12B11A11 A12 A13 A21 A22 A31
30
25
20
15
5
10
0
Exhibit 44 Rating distribution frequency by size classes
large
30
25
20
15
5
0
10
medium smallRating 2013 total Rating 2017 total Rating 2017 forecast
observed period is skewed towards the investment-
grade rating categories (ie Cerved Rating Agency
rating classes from A11 to B12) representing 700 of
the whole sample 250 is concentrated in the safety
(A rating classes) and 450 in the solvency (B11-B12)
classes
We anticipate the rating distribution to remain
broadly unchanged in 2018 with the rating migration
concentrated mainly in the B category
39
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100543
2414
4407
4407
2636
4554 4558
2403 2311
535 527
90
10
0
Exhibit 45 Rating distribution frequency by area of risk - Total companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency]I nvestment GradeA11-A31 [Safety]
2509 2604
704 4407706 4407716
324
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
985
5658
4407
3033 2992 2898
925 907
300 318
90
10
0
Exhibit 46 Rating distribution frequency by area of risk - Large companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
5783 5878
869 4407878 4407878
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
4407
4407
3626
4080
17591695
439 449
90
10
0
Exhibit 47 Rating distribution frequency by area of risk - Medium companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
3571 3776
7044407780 4407786
456
1805
774
4113 4232
603
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
2824
1900
4407
4673 4850 4761
2833 2754
600 633
90
10
0
Exhibit 48 Rating distribution frequency by area of risk - Small companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
1716 1852
657 4407657 4407661
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
40
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Slight improvement in general creditworthiness
In our opinion in 2018 the creditworthiness of the
observed Italian non-financial companies will remain
stable for almost 86 of entities Migration of ratings is
expected to be moderate resulting in approximately 14
of rating upgrades (9) and downgrades (5) at the end
of 2018 compared to the outstanding ratings at the end
of 2017 The vast majority of the rating changes (921)
will be limited to one-class migration as shown in the
1-year projected transition matrix (Table 10) We believe
that more than one third of the expected downgrades
will be concentrated in the energy gas mining and
construction sectors Over the last years the average
credit profile of companies active in these industries has
been relatively weak and due to the forecast market and
regulatory conditions we do not envisage opportunities
for a significant risk profile improvement in 2018
Despite the expected rating migrations for individual
entities in 2018 the current industry modal rating
classes are unlikely to change
On the other hand stable and positive outlooks will
prevail in the manufacturing industry wholesale and
retail trade and accommodation and food service This
is due to the increase in the number of companies
active in these sectors which will maintain andor
improve their business and financial performances
Indeed as shown in Table 11 in 2018 the rating outlook
remains differentiated by industry whilst in terms of
the expected general probability of default we foresee
a modest improvement (349) compared to the one
recorded in 2017 (366)
Table 10 1-year transition matrix
Source Cerved database and Cerved Rating Agency elaboration
2017
A11
A31
B11
C11
C12
B21
C21
B22
B12
A12
A13
A21A22
F 2018A11 A12 A13 A31 B11 C11 C12B21 C21B22B12A21 A22
000 530
066
054 451034 435
027 753055 901
1033121247 1624
260 1038088
000
000000037
028
295
290
1063
179
455050647
043425
026490020208
000208
000152
000000
00000010000
9821
9318
92679015
87708583
81497646
8665
9617
9710
8605
419024
41
The information and data supporting Cerved Rating Agency rating opinions related research and credit opinions originate from sources Cerved Rating Agency considers to be accurate however Cerved Rating Agency cannot independently verify the reliability and accuracy of the information and data in every instance This publication may not be reproduced retransmitted or distributed in any form without the prior written consent of Cerved Rating Agency Cerved Rating Agency assumes no liability for correctness completeness and topicality of the information contained in this publication The analyses underlying this study do not provide advice of any sort
26
n
6670
486
59
Exhibit 49 Ratings outlooks by size
Large
Medium Positive Stable Negative
Small
21
13
Large
Medium
Small
Source Cerved database and Cerved Rating Agency elaboratio
Table 11 Ratings and probability of default 2018 outlook by industry
Source Cerved database and Cerved Rating Agency elaboration
NACE Micro industryDowngrade
B-Mining and quarryingAutomotive
900814
848
812
880812
847
813 172
170
174
144
8264 36
08
104 433 436
392 373
22724815
362 360
876
876
914
848
849
804
887
882
916
901835870899 64
866760
43
68
5659
58
47
61
49
74
78 75
14
50
37
36
5393
32
50
41
45
3899
77
91
316
372
355
364
308
491
326
318 296
331
312
381
367
359
322
495
452
433
403429
389
364369
363
313
452
323
594
38
315358
603
307
345 350
67 5318
469289 274
470
147
116
138
851
821AutomotiveRetail
Wholesale
Total
Chemistryamppharmaceutics
ClothingEquipment
Food Beverage and Tabacco
Heavy Manifacturing
Other Manifacturing
Textile industry
Total
Tecnology Media ampTelecomunication
Paper Packaging ampForest products
C-Manifacturing
D-Electricity gas steam and air conditioningsupply
F-Construcion
H-Transportig and storageI-Accommodation and food service activitiesJ-Information and communication
G-Wholesale and reatail traderepair of motor vehicles and motor-cycles
E-Water supply sewerage waste
Average ForecastPD 2018
Expectedtrend
Average PD 2018
Ratings outlooks
Stabl pgrade
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Cerved Rating Agency SpAVia dellrsquoUnione Europea n 6A-6B20097- San Donato Milanese (MI)
Tel +39 02 77541 - Fax +39 02 76020458
ratingagencycervedcom
Rating Agency
23
Data and method
This research focuses on Italian non-financial companies
with an annual turnover exceeding euro5 million With the
aim of using only reliable data joint stock and limited
liability companies have been considered only these
entities according to Italian law file complete annual
financial statements in the Chamber of Commerce
together with anagraphical company data other
legal forms such as unlimited partnerships and sole
proprietorships are not included in this sample due to
the lack of publicly available standardized financial data
We believe that this cutoff is reasonable and allows us to
perform a methodologically correct analysis In 2016 the
above mentioned companies despite representing only
42 of all registered and active joint stock and limited
liability companies accounted for 769 of their total
turnover
Moreover cluster specialization has been obtained by
NACE activity classification from A to J (thus not including
in the sample financial and insurance companies and
some service industries) The statistics regarding specific
industries provide important key data and enable us to
examine historical and prospective trends and cross-
sector comparisons
The Cerved database which contains legal anagraphical
financial and market information on all Italian registered
legal entities (approximately 6 million comprising 5
million active ones) was the most important database
used for this research Long time series and broad
homogenized and standardized data covering different
economic cycles were the building blocks to perform
the regression and predictive analysis
Historical and forecast macroeconomic data and
analysis performed by the International Monetary Fund
OECD the World Bank European Central Bank Bank
of Italy and ISTAT completed the dataset used for the
analysis
Several analyses were performed in order to examine
the structural differences within the sample in terms of
company legal form and geographical area (Exhibit 25)
company age (Exhibit 26) and company size and industry
As a result we verified a considerable heterogeneity of
companies in particular with regard to the company size
across various industries
The relevant observation period comprises the years
between 2000 and 2016 Table 3 describes some
characteristics of the sample
Exhibit 25 Sample break-down by legal form and geographic area (2016)
Joint stock Company
Limited liability Company
Area 1 (Northwest)
Area 3 (Center)
Area 2 (Northeast)
Area 4 (South)
39
20
27
14
33
67
33
Table 3 Sample characteristics 2000-2016
TotalTurnover
gt euro5million
Turnover gt euro5 million(industry
from A to J)
TotalTurnover
gt euro5million
ofTotal
Turnover gt
euro5 million(industry
from A to J)
Source Cerved database
Entreprises Turnover billion
2000 659867700717738558772442812025847334883122915172937018949708965744969581
953505945825922513883224
4215144587462234694749640518205596459226595385246754808563745362752074519385289450123
3686139038411864118843547454704921752274526974633848778504734806246843468384771845288
16151740177018472002212923302477256822562421257025202446243224392295
12661362139214561588169818752000208317861944208720541992198419871905
11141205124013041430152316891801189716191764191218831839183518371765
689693700
716
706714
725
718729744748752754753769
727739
200120022003200420052006
200820092010201120122013201420152016
2007
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
24
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Furthermore in order to guarantee more detailed and
accurate analyses and projections we decided to create
a static pool to show consistently long time horizon
economic trends (17 years) by sealing off all the active
companies over the 2000-2016 horizon
The outcome obtained by considering the behaviour of
specific variables related to the companies included in
the static pool was extended as a performance indicator
for the whole sample (turnover over euro5 million and
industry from A to J)
According to the European Communityrsquos definition of
SMEs using annual turnover and employee headcount
as quantitative criteria the initial sample of companies
and the static pool can be classified by size classes on
the basis of the financial statements for the year 2016
as shown in Table 4
For the sake of this analysis we defined specific size
classes for each industry thus deviating from the
European Commissionrsquos recommendation which
presents undifferentiated upper and lower bounds of
quantitative criteria for SMEs in all industries To define
the thresholds of such classes we used both a statistical
approach (a specific cluster procedure by minimizing
the within-cluster turnover standard deviation) and a
judgmental approach by relying on the experience and
opinion of our industry expert analysts Table 5 shows
the results of such analysis referring to the sample in
2016 (45288 entities) and the NACE sections from A
to J Moreover the NACE section C and G were further
disaggregated into sub-industry classes as shown in
Exhibit 27 in order to consider the specific business
differences within these NACE sections thus ensuring
a good fit and a satisfactory accuracy of the estimation
Exhibit 26 Sample break-down by company age classes
0-2 Years 2-5 Years 5-10 Years 10-20 Years gt20 YearsSource Cerved database and Cerved Rating Agency elaboration
0 20 40 60 80 100
ABCDEFGHIJ
A = AgricolutreB=Mining and quarryingC=ManufacturingD=Electricity and gasE=Water supplyF=ConstructionG=Wholesale and retail tradeH=Transporting and storageI=Accomodation and food serviceJ=ICT
Small
Annul Turnover
Empolyees
Static Pool
Enterprises(Turnover gt euro5 million)
Enterprises(Turnover gt euro5 millionindustry from A t J)
Medium Large
lt 50 lt 250lt 36774 11113
1005333223
8741
2236
2012
154818645
gt euro50 million
gt 250
lt euro50 million
Source Cerved database
NACE Micro industry
B-Mining and quarryingAutomotive
Automotive
Retail
Wholesale
T gt 480
T gt 80
T gt 260
T gt 265T gt 270
T gt 230
T gt 120
T gt 80
T gt 43
T gt 65
T gt 106T gt 106
T gt 360T gt 155T gt 150T gt 100
T gt 120
T gt 225T gt 1400T gt 27500
T gt 1500
ChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther Manifacturing
ICTTextile
Paper Packaging ampForest products
C-Manifacturing
F-Construcion
H-Transportig and storageI-Accommodation and food service activities
J-Information and communication
D-Electricity gas steam and aircoditioning supply
G-Wholesale and reatail traderepair of motor vehicles and motorcycles
E-Water supply sewerage waste management and emediation activities
Large (Turnover
in euro million)
Medium(Turnover
in euro million)
Small(Turnover
in euro million)
Source Cerved database and Cerved Rating Agency elaboration
60 lt T lt 480 5 lt T lt 60
5 lt T lt 20
5 lt T lt 36
5 lt T lt 35
5 lt T lt 44
5 lt T lt 40
5 lt T lt 20
5 lt T lt 26
5 lt T lt 250
5 lt T lt 185 lt T lt 305 lt T lt 265 lt T lt 205 lt T lt 37
5 lt T lt 335 lt T lt 40
5 lt T lt 255 lt T lt 585 lt T lt 1155 lt T lt 1005 lt T lt 27
20 lt T lt 80
36 lt T lt 26035 lt T lt 26544 lt T lt 270
40 lt T lt 230
20 lt T lt 120
26 lt T lt 80
18 lt T lt 43
250 lt T lt 1500
20 lt T lt 6537 lt T lt 29540 lt T lt 15533 lt T lt 15025 lt T lt 100
27 lt T lt 120
58 lt T lt 225
100 lt T lt 27500 115 lt T lt
30 lt T lt 10626 lt T lt 106
25
Exhibit 28 shows the breakdown of macro industries
analysed including disaggregation of the NACE section C
(manufacturing) and G (wholesale and retail trade repair
of motor vehicles and motorcycles)
In order to carry out the analysis and projections this study
is focused on we used simple multiple linear regression
model for each industry and company size classes
considering macroeconomic and individual companiesrsquo
economic and financial data
The analysis enables us to develop an econometric
model used to estimate likely credit quality changes (in
terms of rating class and probability of default) for single
industries and company size classes
Automotive
Retail
Wholesale
21
1366
1
42
1
26
35
232
6
A B C D
F G H I
46
7
21
1318
9
15
34
Automotive
Chemistry amp pharmaceutics
Clothing
Equipment
Food Beverage and Tabacco
Heavy Manifacturing
Other Manifacture
Paper Packaging amp Forest Products
ICT
Textile industry
Large SmallMedium
Source Cerved database and Cerved Rating Agency elaboration
0
Wholesale
Retail
Automotive
20 40 60 80 100
Automotive
Chemistry amp pharmaeutics
Clothing
Equipment
Food beverage and Tabacco
Heavy Manifacturing
Other Manifacturing
Paper Packaging amp Forest Products
ICT
Textile
0 20 40 60 80 100
ABCDEFGHIJ
0 10 30 40 60 70 80 90 100
Exhibit 28 Sample break-down by industry (2016)
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
26
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Performance indicators to improve further
The annual financial statements available through public
registers provide a clear economic and financial picture
of the Italian joint-stock and limited liability non-financial
companies The individual historical data available from
2000 to 2016 enriched with 2017 preliminary results and
with the expected 2018 macroeconomic scenario enabled
us to build up the 2017 and 2018 projections regarding
the following four performance indicators related to the
analyzed sample 1) growth rate - revenues YoY change
2) EBITDA margin 3) net financial debtEBITDA and 4) net
financial debtEquity Afterwards the median values of the
resulting data were used to obtain the summary output
which we consider as a representative proxy for the overall
market
From 2000 to 2016 the observed companies experienced
a very irregular trend both in terms of growth rate and
EBITDA margin In the aftermath of the global financial crisis
the lowest growth rate value (-120) was recorded in 2009
manufacturing transporting - storage and wholesale and
retail trade were the industries showing the biggest fall of
business volume (-155 -121 and -104 respectively)
whilst water supply accommodation and food service and
electricity and gas showed the highest level of resilience to
the adverse economic and financial environment (-01
-23 and ndash26 respectively) Exhibit 29 shows that in
terms of median value there are no significant differences
in the growth rate taking into consideration company size
classes as we previously defined them Only from 2010 the
growth rates turned positive but still remaining below the
levels recorded in 2000
The analysis of the EBITDA margin changes in the same
period also does not highlight significant differences
between large companies and SMEs as shown in Exhibit
30 The lowest median EBITDA margin value (52) was
recorded in 2012 regarding in particular accommodation
and food service transporting and storage and agriculture
sectors (28 40 52 respectively) while electricity
and gas ICT and water supply were relatively immune to
the unfavorable economic and financial circumstances
(showing 113 109 and 105 EBITDA margin
respectively) At the end of 2016 the median EBITDA margin
(60) still remains below the levels recorded in 2000 (72)
Positive trends emerging from the last publicly available
financial statements (2016) the 2017 preliminary results
and the optimistic macroeconomic forecasts for 2018
confirm improvement of the Italian economy Looking
ahead we expect the Italian non-financial companies to
continue to experience gradual recovery in 2018 They are
going to take advantage of the favorable global economic
cycle low interest rates and supportive regulations that
inter alia foster the use of alternative non-bank financial
sources for company funding The financial resources raised
through Individual Savings Plans (PIR ndash Piani individuali di
risparmio) introduced by the 2017 Budget Law are driven
in primis by a favorable tax regime for savers and might
become an important additional source for SMEs funding
injecting new liquidity The government objective fixed euro68
billion as a target value and in 2017 nearly euro10 billion had
already been raised
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2004 2006 2014 20162000
5
20
10
0
15
-15
-10
-5
Exhibit 29 Growth rate (revenue YoY change) by size classes (median)
medium small
2008 2010 2012
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2004 2006 2008 2010 2012 2014 20162000
7
10
9
8
6
5
4
3
7
10
9
8
6
5
4
EBITDA margin by size classes (median)
medium small
27
So far one of the main obstacles PIR are facing is the limited
number of available assets which may lead to a possible
concentration of this financial resources in a small share of
the market comprising mainly relatively large companies
as shown by the early data in 2017
Another obstacle to rapid adoption of the newly available
financial resources is the lack of a standardized and broadly
accepted methodology for the risk assessment of potential
bond issuers
Generally speaking in 2018 we expect SMEs to contribute
more significantly to growth employment and innovation
whilst on average the respective EBITDA margin will remain
broadly stable (as shown in Exhibit 31) However 2018 will
still be a challenging year for SMEs and innovative startup
companies as they will have to face tougher barriers in
accessing bank credit andor approaching capital markets
compared to large companies We also expect some new
innovative solutions aimed at meeting SMEs financial needs
to become effective the SMEs current financial structure
together with new business opportunities prove their
ability in terms of rational use of the additional financial
resources
The new investments will allow most industries to thrive
also assisted by the Italian Governmentrsquos adoption of the
National Industry 40 Plan
The companies which will take up this opportunity may
improve their cash-flows even in the short-medium term
Finally companies with strong international market
positioning and large product diversification will have
stronger sales and margins growth
The key ratio values recorded from 2000 to 2016 related to
the analyzed entities show the improved financial health of
the companies proving good capability to strengthen their
equity base as shown in Table 6
Growth rate (2016)Medium
Total
Small Large
Growth rate (2018)Growth rate (2017)
Source Cerved database and Cerved Rating Agency elaboration
50
40
Exhibit 31 Growth rate and EBITDA margin forecast by size classes
EBITDA margin (2016)EBITDA margin (2018)
EBITDA margin (2017)
40
30
0
10
20
Medium
Total
Small Large
7570
65
0
6 5560
5550
4540
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
28
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The recorded financial ratios in the 2000-2016 horizon
indicate that on average
middot liquidity maintained a satisfactory level in the whole
observed period due to the positive economic cycle in
2017 and 2018 we expect a slight improvement in the ratio
middot the EBITDAinterest coverage ratio almost doubled its
value in 2016 compared to what was recorded in 2000
primarily due to a general reduction in the interest rates
particularly in the last three years we believe that in 2017
and 2018 the average ratio value will remain roughly at the
same level recorded in 2016
middot in 2016 ROE shows further improvement but is still
slightly lower compared to the value recorded at the
beginning of the observed period mainly due to the equity
base strengthening trend
middot Equity Ratio rose from 250 to 350 due to a significant
increase of equity capital in 2018 we expect further
strengthening of the ratio
middot Financial LiabilitiesTotal Assets ratio remained mostly
unchanged ndash financial debts representing roughly 30 of
the total assets
A positive trend regarding the net financial debt was also
observed in fact in 2016 70 of the sample improved their
NFDEBITDA and 73 the NFDEquity
Positive performances were found especially in the SMEs
segment as shown in Exhibit 32 in particular referring to
NFDEquity small and medium-sized companies recorded
a positive trend standing respectively at 092 and 089 in
2016 compared to 132 and 136 in 2000
Hence the financial risk profile appears to be well balanced
leaving no room for specific concerns regarding the
prospects of the Italian non-financial companies in 2018
In 2016 the median values for the total sample referring to
NFDEquity and NFDEBITDA remained respectively at 089
and 389 levels respectively
Looking ahead we expect these indicators to remain at
healthy levels in 2017 and 2018 with a slight improvement
in NFDEBITDA and a broadly stable level of the NFDEquity
ratio as shown in Exhibit 33
NFDEBITFA (2016) NFDEBITFA (2017)NFDEBITFA (2018)
40
Exhibit 33 NFDEquity and NFDEBITDA forecast by size classes
Source Cerved database and Cerved Rating Agency elaboration
404
20
25
45
35
30
NFDequity (2016) NFDequity (2017)NFDequity (2018)
05
06
09
10
08
07
Exhibit 32 NFDEquity and NFDEBITDA by size classes (median)
largemediumsmall
2016
2015
2014
000 5 10 15
Average2008-2013
Average2000-2007
total largemediumsmall total
Source Cerved database and Cerved Rating Agency elaboration
2016
2015
2014
203 0 405 0
Average2008-2013
Average2000-2007
29
Growth and profitability improvement spanned over all sectors
Exhibit 34 shows the relative positioning of the 10
macro-industries in the short-medium term considering
the median values related to revenue growth rate and
EBITDA margin
The historical median values are calculated on the basis
of financial data obtained from the annual financial
reports 2014-2016 filed in the Chamber of Commerce
public registers the projected median values for 2017
and 2018 are the result of the analysis of this study
As expected there are significant differences in
positioning between different industries in terms of
both historical and projected values
In 2018 we expect manufacturing and accommodation and
food services to maintain top positions already reached in
2016 and 2017
For the electricity gas mining and quarrying industry
2018 may be the turning point showing the first positive
signals after experiencing some difficulties over the last
few years
None of the other industries show significant changes in
2018 compared to their 2016 positioning
Source Cerved database and Cerved Rating Agency elaboration
A 50
57599586886358
3849
3620083721
-110320
-1112
210322
-1814021122
1413
030124
-5010284025
0555
20-4614
-4607212105
0430
210328-2310203218
0832
2310300512233720
1637
BCDEFGHIJ
A 625296
1441401016934
15352
504969
103121916227
10639
4764676185562639
68112
4873687090592845
75120
456772928856
45
7898
4667759090573147
7698
4668769394583147
77102
EBITDAmarigin
BCDEFGHIJ
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018Growthrate
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
Exhibit 34 Growth rate and EBITDA margin by industry
-70 -50 -30 -10 10 30
2016E2017F2018
50 70 90
Median=68
Median=2100
20
40
60
80
100
120
A=Agricolture B=Mining and quarrying C=Manifacturing D=Electricity and gas E=Water supply F=Construction G=Wholesale and retail trade H=Transporting and storage I=Accomodation and food service J=ICT
D
B
E
FHA G
C
I
J
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
30
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Further strenthening in companiesrsquo financial structure
Exhibit 35 shows the relative positioning of the 10 macro
industries in the short-medium term considering the
median values related to NFDEBITDA and NFDEquity
ratios
The historical median values are calculated on the basis
of financial data obtained from the annual financial
reports 2014-2016 filed in the Chamber of Commerce
public registers the projected median values for 2017
and 2018 are the result of the analysis of this study
There are even more significant differences in
positioning between industries regarding NFDEBITDA
and NFDEquity ratios when compared to growth rate
and EBITDA margin differences
Generally in the observed period there is no evidence of
significant changes among industries considering their
relative positioning related to NFDEBITDA and NFD
Equity ratios
In 2018 we expect accommodation and food services
and information and communication services to
maintain top positions already reached in 2016 and
presumably confirmed in 2017
Exhibit 35 NFDEquity and NFDEBITDA by industry
2016E2017F2018
Median=37
Median=08500
030 5 070 9 111 3
20
30
40
50
60
70
10
A=Agricolture B=Mining and quarrying C=Manifacturing D=Electricity and gas E=Water supply F=Construction G=Wholesale and retail trade H=Transporting and storage I=Accomodation and food service J=ICT
EH
C
BF
G
A
D
J
I
A 150101113081112149151120
079131
123075088101097125123103
072079
114067083052090108119102
067076
113060080045089096114092
074069
125076080045089106109086
050060
127072080044091
108084
051056
128067079043093106107081
051051
BCDEFGHIJ
NFDEquity
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
A 597219280305251301338250
153260
676394388342298453499349
254337
707482387293277498532337
277334
696392373254305484494308
231315
747401358330285544483294
183312
722390340341280511470290
178293
710380310329272492452281
177289
NFDEBITDA
BCDEFGHIJ
Median2000-07
Median2008-13
2014 2015 2016 E 2017 F 2018
Source Cerved database and Cerved Rating Agency elaboration
106
31
Exhibit 36 Equity ratio by industry
Average 2000-2007 2014 2015Average 2008-2013 2016
Source Cerved database and Cerved Rating Agency elaboration
05
10
20
30
15
25
3540
5045
AB C DE FG HI J
Exhibit 37 EBITDA interest coverage by industry
Average 2000-2007 2014 2015Average 2008-2013 2016
Source Cerved database and Cerved Rating Agency elaboration
0
5
10
20
15
AB C DE FG HI J
A 1113140911151211
1408
1013131012131209
1208
1114151012131311
1309
1214151012151312
1309
1215161113161412
1409
BCDEFGHIJ
Liquidity ratio Median2000-07
Median2008-13 2014 2015 2016
A 0377677447858463
8960
0332
8145524536
4832
0342486042273848
3246
0537606853395765
4069
0743676559416378
5882
BCDEFGHIJ
ROE Median2000-07
Median2008-13 2014 2015 2016
Table 7 Liquidity ratio by industry Table 8 ROE by industry
Source Cerved database and Cerved Rating Agency elaboration
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
32
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Agriculture
Considering the recent price decline for agricultural
products putting EBITDA margin under pressure for
most of the industry participants we anticipate a slow
revenue growth in 2018 We also foresee more stable
margins in 2018 and investments to continue at a faster
pace in the near future mainly aimed at transforming the
agricultural activities into a high-tech industry Climate
and cultural changes are the main exogenous risks that
may negatively influence the sector
Mining and quarrying
Over the last few years the mining industry has been
challenged by record low metal prices and this has
resulted in a weak growth of supply and a cut in
investments especially in the new mines opening We
foresee a modest revenue growth in 2018 supported
by more stable prices rather than by government
infrastructural investments Margin pressure will remain
mostly unchanged in 2018 We do not expect a significant
increase in capital expenditure for most companies
while only a minority of industry participants will invest
in new capacities searching for new growth opportunities
by introducing new higher margin outputs Overall we
anticipate relatively stable key financial indicators
Manufacturing
We believe that in 2018 Italian manufacturing
representing 2nd European and 7th world player in 2016
will remain the beating heart of the national economy
In our view the expansion of internal demand the
improvement of business and customer confidence and
the wider export opportunities are the key drivers for
revenue growth (up to nearly 30) Despite the natural
selection the occurred during the economic recession
domestic competition and especially the competition
from lower income countries will remain challenging in
2018 creating further profitability pressure especially in
some highly fragmented segments
As a conditio sine qua non for market survival many
companies will be involved in a ldquowinning the innovation
gamerdquo process translated into a considerable capex
expenditure directed at process optimization which
inevitably must be accompanied by innovative marketing
and commercial strategies The companies especially
smaller ones which are not ready lsquoto play the gamersquo
remaining risk averse are likely to fall behind
Key financial indicators referring to the industry in terms
of net financial debt to equity and net financial debt to
EBITDA are likely to remain overall stable in 2018
In our view the best performing manufacturing industries
in 2018 will be the following
Automotive
extensive vehicles replacement process in 2018
high competition pressure China maintaining a key role
high level of innovation in mobility and connectivity
new strategic partnerships and MampAconservative stand towards EBITDA margin improvement
Chemistry amp Pharmaceutics
solid macroeconomic fundamentals will support
the revenue growth driven mainly by large companies
on average a stable EBITDA margin of about 10
is expected global presence is a must to achieve higher
level of profitability
RampD remain key factors for further market expansion
moderate level of MampA operations in 2018 slowing
down when compared to those carried out in the
previous year
Machinery amp Equipment
revenue growth in 2018 up to nearly 25 reflecting
the fact that all manufactures remain focused on RampD
and NPI (new product introduction)
cost management strategies are going to persist
but generally speaking with no significant impact on
EBITDA margin in 2018
heavy equipment manufactures still under pressure in
2018 to provide engineering capability and capacity
33
Energy and gas
Italian companies operating in the energy industry are
facing a complex market environment with many open
questions about risks related to regulations a drop
in consumption high competition levels and EBITDA
erosion
Generally we expect a more stable landscape in 2018 in
terms of commodity prices and consumption However
risk regarding prices and volumes will remain strong
resulting in a higher volatility of revenues In our view
the current margin pressure is unlikely to ease over the
next two years The final overcoming of the sondashcalled
ldquoMaggior Tutela Regimerdquo may lead to almost zero margin
for the retail operators We expect industry participants
to continue to focus their attention on cost efficiency and
on protecting profitability by embracing new business
models and examining the role that digital technology
can play in improvement of EBITDA margins We believe
that the above described strategies will be a central
topic for the operators intending to attract capital We
also believe that energy producers could see a slight
debt increase in 2018 aimed at improving productivity
and synergies Finally in 2018 we envisage a significant
number of MampA operations in the sector led by synergy
effects such operations might produce
Water supply waste management and sewerage
In recent years the water supply waste management
and Italian sewerage industry has recorded a slower
growth compared to the pre-crisis period However
due to the last two yearsrsquo important investments in the
water infrastructure waste sorting and recycling Italy
ranks as one of the top European countries in terms
of growth rate of recycling and packaging recovery
We believe that the expected general increase in
industrial output will produce a slight growth in water
consumption and waste treatment The demand for
sustainable solutions will continue to persist requiring
new investment in technologies based on a customer-
centric and sustainable approach aimed at improving
efficiencies and facilitating reuse Expectations also
reflect our view in terms of wider government interest
and spending in this industry We expect profitability
to remain broadly in line with the results obtained in
2016
Construction
After a weak increase in revenues recorded by the
construction industry operators in 2016 and the
modest result anticipated in 2017 both reflecting
a deteriorating demand and decreased volumes of
bank loans (mainly those for small and medium-
sized companies) we expect 2018 to be the turning
point for this industry We foresee that the volume of
residential and private non-residential constructions
will remain at relatively low levels in 2018 and that
the positive trend in housing renovation and public
works investments will continue taking advantage of
the allocated funds established by the Budget Law for
2017 Small and medium-sized businesses focused on
residential construction may face a slight profitability
erosion while we believe some growth in EBITDA
margin may be recorded by large Italian companies
operating internationally Due to the high perceived
risk historically there has been a strong financial
market mistrust of the construction companies which
we believe is likely to ease over the coming years
Wholesale and retail trade
During the crisis period wholesale and retail trade
industry faced a sudden interruption of the gradual
growth that had taken place up to that moment mainly
due to a loss in real purchase power and in consumer
confidence also translated into profitability erosion
In 2016 the data showed how the industry is moving
toward a recovery period Looking forward in 2018 we
expect to record a steady revenue growth supported
by an increase in global trade and improved consumer
confidence Despite the foreseen growth operators
will continue to face consistent pressure mainly in the
retail segment due to the high proliferation of new retail
purchase channels and market fragmentation
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
34
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Transportation and Storage
After a troubled 2016 characterized by an overcapacity
and a decrease in commodity demand hitting shipping
revenues in particular we foresee a moderate overall
recovery in 2018 driven mainly by an increase in
international shipments and air traffic The growing
number of innovative startups will continue to persist
increasing the competitive pressure in the industry We
anticipate a constant growth of e-commerce enabling a
quick reaction of on-line retailer and logistics providers
We believe that operators will continue to invest in
new high-tech solutions experimenting new models of
mobility and smart logistics
Despite very strong competition we expect the median
operating margins to remain steady However global
political uncertainties and related risks are strong with
possible quick and sharp negative impact on business
volumes and margins of the companies operating in
these industries
Accommodation and food services activities
In the last two years operators in the accommodation
and food service activities industry mainly medium
and small sized enterprises have seen steady revenue
growth and satisfactory profitability ratios Many
operators were focused on reviewing their business
models and offering additional services to their
customers a necessary strategy to maintain or expand
market positioning strengthen margins and improve
customer experience We expect the revenue growth
to continue in 2018 with a minimal median margin
improvement We believe accommodation and food
service activities will attract new capital investments
in 2018 to help the ongoing transformation process
and improve the accommodation infrastructure and
services
Information and communication technologies
The Italian information and communication technology
industry took longer to recover from the economic
crisis recording overall a negative median growth
rate until 2014 Software services and innovation
technology were the major contributors to revenue
growth (as a percentage) in 2016
Over the forecast period we foresee a modest revenue
growth for the ICT operators as a whole while the
technology industry will continue to achieve rapid
growth focusing on maintaining the competitive pace
of innovation In our view a key challenge for the ICT
operator may be the availability of matching skills
The outlook is relatively stable in terms of profitability
and key financial indicators
The following two pages show the details of the
previously discussed key performance indicators
35
Exhibit 38 Growth rate and EBITDA margin manifacturing sectors
-70- 50 -30 -10 103 0
2016E2017F2018
50 70 90
Median=76
Median=3000
20
40
60
80
100
120
1=Automotive 2=Chemistryamppharmaceutics 3=Clothing 4=Equipment 5=Food beverage and Tabacco 6=Heavy Manifacturing 8=Paper and Packaging 9=Tecnology and Telecomunication 10=Textile industry
6
10 5
3
8
91
74
2
50AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
57599586886358
3849
3620083721
-110320
-1112
210322
-1814021122
1413
030124
-5010284025
0555
20-4614
-4607212105
0430
210328-2310203218
0832
2310300512233720
1637
Growth rate Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
EBITDA margin Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
Source Cerved database and Cerved Rating Agency elaboration
625296
1441401016934
15352
504969
103121
916227
10639
4764676185562639
68112
487368
7090592845
75120
456772
9288562845
7898
4667759090573147
7698
4668769394583147
77102
1=Automotive 2=Chemistryamppharmaceutics 3=Clothing 4=Equipment 5=Food beverage and Tabacco 6=Heavy Manifacturing 8=Paper and Packaging 9=Tecnology and Telecomunication 10=Textile industry
2016E2017F2018
Median=30
700
600
500
400
300
200
100
000000 020 040 060 080 100 120
Median=08
Exhibit 39 NFDEquity and NFDEBITDA for manifacturing sectors
2
4 8
101
9
9
3
57
Source Cerved database and Cerved Rating Agency elaboration
096AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
104146095152117112109
098087
087080116068118083088086
084078
075074104069107082080079
084083
072064100065105084122081
079081
082066104065105080091079
077082
081067103065105079087079
077081
076067101064104077083078
076080
NFDEQUITY Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
227AutomotiveChemistryamppharmaceuticsClothingEquipmentFood Beverage and TabaccoHeavy ManifacturingOther ManifacturingPaper PackagingTecnology and TelecomunicationTextile industry
258334222397249255259
315202
338313443305495363403412
480337
315306436328479373380397
482316
264269490303467366403383
515317
269243507090106127090106
106106
413343478088105127088105
105105
399333465086104127086104
104104
NFDEBITDA Median2000-07
Median2008-13 2014 2015 2016 E 2017 F 2018
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
36
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Exhibit 40 Growth rate and EBITDA margin for wholesale and retail trade sectors
20 40 60 80 100 120 140 160
2016E2017F2018
Median=31
Median=33
0000
20
10
30
60
50
70
1=Automotive 2=Retail 3=Wholesale
40
3
12
2016E2017F2018
Median=45
700
600
500
400
300
200
100
000050 070 090 110 130 150 170 190
Median=11
Exhibit 41 NFDEquity and NFDEBITDA for wholesale and retail trade sectors
1=Automotive 2=Retail 3=Wholesale
21
3
37
Ratings will remain broadly stable
The following section presents a risk profile analysis
based on Cerved Rating Agencyrsquos outstanding and
monitored public and private ratings issued from
2013 to 2017 on Italian non-financial companies
and operating in the industries discussed in this
study (data as of 31 December)
Exhibit 42 and Table 9 show an overview of 1-year
effective default rates over the 2000-2017 horizon
related to the sample bankruptcy and other legal
proceedings and debt restructurings as default
events
The default rate trend shows a general
improvement from 2014 onwards both by
company size classes and by industry however
considering the entire sample the overall default
rate still remains higher when compared to its pre-
crisis level especially regarding smaller companies
operating in the construction sector
Exhibit 43 shows the effective default rates over
2013-2017 horizon based on Cerved Rating
Agencyrsquos definition which considers as default
events
middot bankruptcy and other legal proceedings
middot debt restructuring
middot missed or delayed disbursement of a contractually
required interest or principal payment ie missed
payment on bonds material protests (on cheques
or trade bills) or prejudicial acts (judicial mortgages
distraint of property)
The effective default rates over the 2013-2017
horizon show decreasing trend and satisfy the
monotonicity constraint regarding all Cerved
Rating Agencyrsquos rating classes (Exhibit 44)
totall arge
Source Cerved database and Cerved Rating Agency elaboration
2002 2003 2004 2005 2006 2007 2014 2015 2016 20172000 2001
5678
12
3
4
0
Exhibit 42 Avarage 1-year default rate by size over 2000-2017 horizon
medium small
2008 2009 2010 2011 2012 2013
Mining and quarring
Manifacturing
Electricity gas steam and air conditioning supplyWater supply sewerage
Construction
Wholesale and retail trade repair of motorTransporting and storage
Accomodation and food service activities
Information and communication
24221809
5212
282915
2529
38533424
13027
454830
4838
36542537
15929
424421
4323
23461921
13226
293226
3022
Source Cerved database and Cerved Rating Agency elaboration
Table 9 Default rate by industry over 2000-2017 horizon
Total
NACE Average2008-2015
Average2000-2017 2016 2017
2016
Source Cerved database and Cerved Rating Agency elaboration
C21C12C11B22B21B12B11A11 A12 A13 A21 A22 A31
60
50
40
30
20
10
0
Exhibit 43 1-year default rate over 2013-2017 horizon
20172013 2014 2015
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
38
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
The analysis of historical rating distributions in the
same period shows clear differences in terms of modal
rating class by company size As shown in Exhibit 43
the modal rating class for the large companies is A31
B11 for the medium and B12 for small companies
(considering company size classes as they have been
defined ad hoc by Cerved Rating Agency for the
purposes of this study)
Overall the corporate rating distribution in the
Source Cerved database and Cerved Rating Agency elaboration
C21C12C11B22B21B12B11A11 A12 A13 A21 A22 A31
30
25
20
15
5
10
0
Exhibit 44 Rating distribution frequency by size classes
large
30
25
20
15
5
0
10
medium smallRating 2013 total Rating 2017 total Rating 2017 forecast
observed period is skewed towards the investment-
grade rating categories (ie Cerved Rating Agency
rating classes from A11 to B12) representing 700 of
the whole sample 250 is concentrated in the safety
(A rating classes) and 450 in the solvency (B11-B12)
classes
We anticipate the rating distribution to remain
broadly unchanged in 2018 with the rating migration
concentrated mainly in the B category
39
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100543
2414
4407
4407
2636
4554 4558
2403 2311
535 527
90
10
0
Exhibit 45 Rating distribution frequency by area of risk - Total companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency]I nvestment GradeA11-A31 [Safety]
2509 2604
704 4407706 4407716
324
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
985
5658
4407
3033 2992 2898
925 907
300 318
90
10
0
Exhibit 46 Rating distribution frequency by area of risk - Large companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
5783 5878
869 4407878 4407878
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
4407
4407
3626
4080
17591695
439 449
90
10
0
Exhibit 47 Rating distribution frequency by area of risk - Medium companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
3571 3776
7044407780 4407786
456
1805
774
4113 4232
603
Source Cerved database and Cerved Rating Agency elaboration
F20182017Average 2013-2016
60
20
30
40
50
80
70
100
2824
1900
4407
4673 4850 4761
2833 2754
600 633
90
10
0
Exhibit 48 Rating distribution frequency by area of risk - Small companies
C11-C21 [Risk]B21-B22 [Vulnerability]
B11-B12 [Solvency] Investment GradeA11-A31 [Safety]
1716 1852
657 4407657 4407661
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
40
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Slight improvement in general creditworthiness
In our opinion in 2018 the creditworthiness of the
observed Italian non-financial companies will remain
stable for almost 86 of entities Migration of ratings is
expected to be moderate resulting in approximately 14
of rating upgrades (9) and downgrades (5) at the end
of 2018 compared to the outstanding ratings at the end
of 2017 The vast majority of the rating changes (921)
will be limited to one-class migration as shown in the
1-year projected transition matrix (Table 10) We believe
that more than one third of the expected downgrades
will be concentrated in the energy gas mining and
construction sectors Over the last years the average
credit profile of companies active in these industries has
been relatively weak and due to the forecast market and
regulatory conditions we do not envisage opportunities
for a significant risk profile improvement in 2018
Despite the expected rating migrations for individual
entities in 2018 the current industry modal rating
classes are unlikely to change
On the other hand stable and positive outlooks will
prevail in the manufacturing industry wholesale and
retail trade and accommodation and food service This
is due to the increase in the number of companies
active in these sectors which will maintain andor
improve their business and financial performances
Indeed as shown in Table 11 in 2018 the rating outlook
remains differentiated by industry whilst in terms of
the expected general probability of default we foresee
a modest improvement (349) compared to the one
recorded in 2017 (366)
Table 10 1-year transition matrix
Source Cerved database and Cerved Rating Agency elaboration
2017
A11
A31
B11
C11
C12
B21
C21
B22
B12
A12
A13
A21A22
F 2018A11 A12 A13 A31 B11 C11 C12B21 C21B22B12A21 A22
000 530
066
054 451034 435
027 753055 901
1033121247 1624
260 1038088
000
000000037
028
295
290
1063
179
455050647
043425
026490020208
000208
000152
000000
00000010000
9821
9318
92679015
87708583
81497646
8665
9617
9710
8605
419024
41
The information and data supporting Cerved Rating Agency rating opinions related research and credit opinions originate from sources Cerved Rating Agency considers to be accurate however Cerved Rating Agency cannot independently verify the reliability and accuracy of the information and data in every instance This publication may not be reproduced retransmitted or distributed in any form without the prior written consent of Cerved Rating Agency Cerved Rating Agency assumes no liability for correctness completeness and topicality of the information contained in this publication The analyses underlying this study do not provide advice of any sort
26
n
6670
486
59
Exhibit 49 Ratings outlooks by size
Large
Medium Positive Stable Negative
Small
21
13
Large
Medium
Small
Source Cerved database and Cerved Rating Agency elaboratio
Table 11 Ratings and probability of default 2018 outlook by industry
Source Cerved database and Cerved Rating Agency elaboration
NACE Micro industryDowngrade
B-Mining and quarryingAutomotive
900814
848
812
880812
847
813 172
170
174
144
8264 36
08
104 433 436
392 373
22724815
362 360
876
876
914
848
849
804
887
882
916
901835870899 64
866760
43
68
5659
58
47
61
49
74
78 75
14
50
37
36
5393
32
50
41
45
3899
77
91
316
372
355
364
308
491
326
318 296
331
312
381
367
359
322
495
452
433
403429
389
364369
363
313
452
323
594
38
315358
603
307
345 350
67 5318
469289 274
470
147
116
138
851
821AutomotiveRetail
Wholesale
Total
Chemistryamppharmaceutics
ClothingEquipment
Food Beverage and Tabacco
Heavy Manifacturing
Other Manifacturing
Textile industry
Total
Tecnology Media ampTelecomunication
Paper Packaging ampForest products
C-Manifacturing
D-Electricity gas steam and air conditioningsupply
F-Construcion
H-Transportig and storageI-Accommodation and food service activitiesJ-Information and communication
G-Wholesale and reatail traderepair of motor vehicles and motor-cycles
E-Water supply sewerage waste
Average ForecastPD 2018
Expectedtrend
Average PD 2018
Ratings outlooks
Stabl pgrade
CERVED RATING AGENCY SpA | Italian non-financial companies economic Outlook 2018
Growth still on track but more uncertainties on the horizonitalian non-financial companies economic outlook 2018
Cerved Rating Agency SpAVia dellrsquoUnione Europea n 6A-6B20097- San Donato Milanese (MI)
Tel +39 02 77541 - Fax +39 02 76020458
ratingagencycervedcom
Rating Agency