March 2014 Number 14. Monitor of Company Payments and Non-Payment Protests

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1 March 2014 Number 14 Monitor of Company Payments and NonPayment Protests

2 Protests, missed payments and arrears all going down Signals of improvement become clearer in the 4th quarter, as both nonpayment protest numbers and payment delays decrease Summary In the last three months of, the positive turn in payment patterns seen in the third quarter was backed up with significant improvements in terms of both nonpayment protests and average tardiness in invoice payments among Italian businesses. With the most fragile companies having left the market as documented in Cerved s Monitor of Business Closures the companies that persevered through the economic crisis were able to improve their financial situations towards the end of last year, showing signs of renewed confidence. The data show that in the fourth quarter, there was a notable drop (of 9.4% yearonyear) in the number of companies against which a protest was lodged for failure to pay an invoice; this reinforces the downward trend that began in the third quarter (2.1%). As a result of these improvements in the second half of the year, the total number of companies protested against at least once over the course of the year decreased from about 43,000 in to about 4 in (1.8%). Figures improved across all macrosectors of the economy, although protest levels remain at very high levels in both the construction and tertiary sectors. From a geographical point of view, the number of companies protested went down in all areas of the country except the NorthEast, where there was a 2.1% increase. 25,000 Protests against companies 50,000 18,000 Companies protested by geographical area 1.2% % 20,000 40, % 15,000 quarter year (right column) 30,000 8, % 1q 2q 3q 1q 2q 3q 1q 2q 3q 1q 2q 3q 1q 2q 3q 1q 2q 3q 1q 2q 3q ,000 NorthEast NorthWest Centre South & Islands Cerved Group Spa All rights reserved Reproduction prohibited

3 Payment timeframes of Italian companies q 2q 3q 1q 2q 3q Payment punctuality in the fourth quarter distribution by average number of days overdue 10.9% 8.7% 9.0% 7.7% 9.3% 7.7% 45.0% 46.0% 52.7% 55.9% 44.1% 45.3% 38.2% 36.4% 79.1% 82.4% 11.6% 10.0% microbusinesses SMEs large companies days late agreed timeframe >60 days overdue <60 days overdue on time Statistics handled in Payline, Cerved Group s database that tracks the payment patterns of 2.5 million Italian businesses, point to a general improvement in payment patterns in the fourth quarter of. Compared to the previous year, there was a reduction in the amount of invoices left unpaid among those with deadlines in the last three months of the year. For the first time in a long time, there was also an increase in the percentage of trade transactions where the supplier delivers the merchandise without demanding immediate payment. This recovery in acceptance of deferred payment terms is a sign of a revival in confidence in the customersupplier relationship. All the statistics concerning invoices paid during the last three months of the year provide evidence that the most acute phase of the crisis is over. From to, the average payment timeframe (days payables outstanding) fell from 83.8 days to 79.3, with a reduction from 23.2 to 20.4 in the average number of days after the agreed deadline that invoices were actually paid. There was also an increase in the number of companies that pay on time. Furthermore, the percentage of companies paying severely late (situations that often foretell nonpayments and defaults) fell from 10.8% to 8.6%. According to the data, these improvements were common to all company size categories and in almost all sectors of the economy, with only a few exceptions such as the automotive industry, where the portion of companies paying severely late continued to rise in 4Q. The statistics continue to highlight that despite recent improvements, Italy is still split in two, as companies in the north tend to be much better at honouring payment terms than their counterparts in central and, even more so, southern Italy Cerved Group Spa All rights reserved Reproduction prohibited

4 Monitor of company payments and nonpayment protests, no. 14 Protests for nonpayment From October to December, protests for failure to pay an invoice were filed against about 59,000 businesses, a 13.7% decrease from the same period of. For the second consecutive quarter, not only was there a decline among sole proprietorships (15.8%), where protest numbers have been falling since the end of, but there was also a 9.4% drop in the number of businesses of other legal formats, after a 2.1% decrease in the third quarter. Overall, about 13 1 companies had at least one nonpayment protest filed against them in, 6.3% less than in. This decrease is chiefly due to dynamics observed among sole proprietorships: at least one protest was lodged against about 90,000 sole proprietors, 8.3% less than in. The decline among other types of businesses was a more moderate 1.8%, from 43,000 in to 4 in. Looking at businesses other than sole proprietorships, the number protested against decreased in all sectors of the economy. In the building sector, about 9,500 companies were hit with a protest for an unpaid bill, or 2.1% less than in. Despite this decrease, construction is by far the sector in which this phenomenon is most common, nearly double the rate in other macrosectors: at least one nonpayment protest was filed against 3% of all building companies, compared to 1.6% of industrial 5 49,000 47,000 45,000 43, ,000 37,000 25,000 20,000 15,000 25,000 20,000 15,000 5,000 Sole proprietors protested Sole proprietorships against which at least one nonpayment protest was filed, 2007 quarter year (right column) 1q 2q 3q 1q 2q 3q 1q 2q 3q 1q 2q 3q 1q 2q 3q 1q 2q 3q 1q 2q 3q Protests against companies quarter year (right column) 1q 2q 3q 1q 2q 3q 1q 2q 3q 1q 2q 3q 1q 2q 3q 1q 2q 3q 1q 2q 3q Companies protested by macrosector other sectors construction industrial service Incidence of protests by macrosector Businesses (excl. sole propriertors) with at least one protest, as % of active businesses in each sector 1.6% 1.6% 3.0% 3.0% 103, ,000 97,000 95,000 93, , % 1.5% 50,000 40,000 30,000 20, % 2.0% 1 Due to a statistical methodology revision, the historical annual series of the number of businesses protested against is different from what was published in previous monitors. industrial construction service other sectors Cerved Group Spa All rights reserved Reproduction prohibited

5 companies and 1.5% of service sector companies. The reduction in nonpayment protests extended to the manufacturing sector in as well; among sole proprietors, there was a 1.9% yearonyear decrease to 4,500 businesses protested. However, not every individual sector showed an improvement: there were strong decreases in intermediate goods manufacturing (18.5%), motor vehicles (6.8%) and fashion & apparel (5.6%), but increases in other consumer goods manufacturing (+28.1%), machinery (+10.4%), the chemical industry (+6.7%) and household goods (+3.2%). The tertiary sector, which registered a 1.7% yearonyear decrease in the number of companies protested against, is still near the historical high at almost 23,000 companies protested, above the level seen during the 2009 recession. Here, though, improvements were seen in almost every individual sector, with a doubledigit decline among financial service businesses (10.5%) and more moderate declines in logistics & transport (7%), real estate (6.1%) and nonfinancial services (1.4%); the number of companies protested remained stable in media & entertainment, and increased slightly (by 0.1%) in the retail/distribution sector. From a geographical perspective, nonpayment protest numbers went down throughout the Boot, with the exception of the NorthEast. The overall improvement was driven by a 3.8% decrease in central Italy, although this was not enough to nullify the sharp 12.6% increase recorded in. The number of companies hit by a nonpayment protest fell in the regions of Lazio (5.9%) and Tuscany (4.9%), but continued to rise in Marche (+4.8%) and Umbria (+4.1%). 1, ,000 8,000 7,000 5,000 3,000 18, ,000 Industry: companies protested by sector consumer staples fashion household & apparel goods retail/ distribution nonfinancial services motor machinery vehicles logistics & transport metals intermediate goods real estate high tech Services: companies protested by sector media & entertainment other chem cons. goods & pharma Companies protested by geographical area financial services & insurance NorthEast NorthWest Centre South & Islands Cerved Group Spa All rights reserved Reproduction prohibited

6 The NorthWest regions also showed improvements from (2.4%), with significant decreases in Liguria (4.7%), Lombardy (2.9%) and Valle d Aosta (7%) but a slight increase in the phenomenon in Piedmont (+0.6%). The situation remains critical in southern Italy despite a 1.2% yearonyear decrease to under 17,000 companies protested, as the percentage of companies hit by at least one nonpayment protest is still well above the national average (2.7% in the south vs. 1.8% in Italy overall). Reductions were observed in almost every southern region, though, most notably in Molise (11.9%), followed by Sicily, Basilicata and Calabria (all 4.1%), while the exceptions were Apulia and Abruzzo, regions where the number of companies protested against continued to rise, at respective rates of 3% and 1.2%. Against the national trend, in the NorthEast there was a slight decrease in protest numbers only in the fourth quarter of, insufficient to offset the negative trend in the first nine months of the year, such that for on the whole, there was a 2.1% yearonyear increase in the number of companies hit by a nonpayment protest to nearly 5,000. By individual region in this area of the country, protest numbers went up in Veneto (+6.8%), Trentino Alto Adige (+1.4%) and Friuli (+1.1%), while in Emilia Romagna they went down in line with the national trend (1.8%). 8,000 7,000 5,000 3,000 8,000 7,000 5,000 3,000 7,000 5,000 3,000 2,500 1,500 Central Italy: companies protested by region Lazio Marche Tuscany Umbria NorthWest: companies protested by region Liguria Lombardy Piedmont Valle d'aosta South & Islands: companies protested by region Abruzzo Basilicata Calabria Campania Molise Apulia Sardinia Sicily NorthEast: companies protested by region 500 Emilia Romagna Friuli Trentino AA Veneto Cerved Group Spa All rights reserved Reproduction prohibited

7 Payment patterns According to data in Payline, the Cerved Group database that tracks the payment patterns of over 2 million Italian businesses, 35.7% of the value of all invoices with deadlines in the fourth quarter of were not paid; this marks a decrease from, when 36.3% of invoices were left unpaid. For the first time in a long time, there was also an increase in the percentage of trade transactions where the supplier delivers the merchandise without demanding immediate payment (i.e., in deferred payment transactions). This recovery in acceptance of deferred payment terms is a sign of a revival in confidence. In fact, the percentage of unpaid invoices involving deferred payment dropped from 35.4% to 32.5%. Viceversa, the amount unpaid increased in cases where the supplier was expecting immediate payment upon delivery, from 38.1% to 42.9%. This reduction in unpaid invoice amounts was accompanied by a clear improvement in payment performances in the invoices that were paid between October and December. Italian businesses paid these invoices 79.3 days after they were issued, on average, which is 4.5 days less than in the fourth quarter of, when the average payment timeframe reached an alltime high of 83.8 days. This decrease is attributable to both more rigid agreed payment terms (from 60.6 days on average the previous year to 58.9) and a reduction in the average delay (from 23.2 days to 20.4). This reduction in the average payment timeframe was accompanied by an increase in the percentage of companies that paid their invoices by the agreed deadline, from 43.9% % Unpaid invoice amounts amount in arrears, as a % of the value of invoices due in the quarter 33.3% 32.9% 36.3% 31.9% 33.7% 31.7% 1q 2q 3q 1q 2q 3q 58.4% Unpaid invoice amounts, by type of payment agreement amounts of invoices in arrears, as % of total due in the quarter 46.7% 43.6% 26.2% 26.4% 27.3% 38.1% 35.4% 32.3% 31.0% 39.6% 31.2% 36.4% 29.7% 1q 2q 3q 1q 2q 3q Payment timeframes of Italian companies % immediate payment deferred payment Payment punctuality among Italian companies distribution by average number of days overdue 42.9% 32.5% q 2q 3q 1q 2q 3q days late agreed timeframe % 9.1% 9.3% 10.8% 9.2% 7.9% 7.5% 8.6% 42.6% 44.5% 45.7% 45.3% 45.6% 44.4% 46.3% 46.4% 48.2% 46.4% 45.0% 43.9% 45.2% 47.6% 46.2% 45.0% 1q 2q 3q 1q 2q 3q >60 days overdue <60 days overdue on time Cerved Group Spa All rights reserved Reproduction prohibited

8 to 45%. Additionally, there was a substantial decrease in the percentage of businesses that paid severely late: those that paid invoices more than 60 days past the agreed deadline fell from 10.8% to 8.6%. This is an important statistic, as these are cases that frequently lead to missed payments and defaults. Positive signals emerged for every company size category, with a decisive decrease of 6.5 days in the average payment timeframe among microbusinesses (those with under 2 million in annual revenue), as well as a significant decrease of 3.3 days among SMEs (defined here as businesses with between 2mn and 50mn in annual revenue) and a decrease of 4 days on average among larger companies. In each category, there were decreases in both agreed timeframes and in average delays (for the latter, 3.4 days among microbusinesses, 1.9 days among SMEs and 3.5 days among large companies). The reduction in the percentage of severely latepaying businesses was also common to all size categories. Among microbusinesses, there was also an increase in the percentage of punctual companies, whereas among SMEs and large companies, respective reductions of 1.8 and 1.6 percentage points were observed in the percentage of companies paying their invoices on time. Average payment timescales and the presence of severely latepaying companies also went down across all macrosectors. In construction, although this remains the sector where companies are slowest to make their payments, there was a reduction of 3.1 days in the average payment timeframe from 97.6 to 94.5 days, largely due to a reduction in the agreed timeframe (2.8 days) and marginally aided by a 0.3 day average decrease in tardiness. Despite showing a long Payment timeframes: breakdown by company size Payment punctuality in the fourth quarter distribution by average number of days overdue 10.9% 8.7% 9.0% 7.7% 9.3% 7.7% 45.0% 46.0% 52.7% 55.9% 44.1% 45.3% 38.2% 36.4% 79.1% 82.4% 11.6% 10.0% microbusinesses SMEs large companies >60 days overdue <60 days overdue on time 9.4% 7.8% 10.1% 6.8% 11.2% 9.2% 37.2% 39.1% 34.9% Payment punctuality: breakdown by macrosector distribution by average number of days overdue 33.2% 53.4% 53.1% 55.0% 60.0% microbusinesses SMEs large companies days late 83.0 agreed timeframe 49.4% 51.0% 39.4% 39.7% Company payment timeframes, by macrosector industrial construction service >60 days overdue <60 days overdue on time industrial construction service days late agreed timeframe Cerved Group Spa All rights reserved Reproduction prohibited

9 average timeframe, the building sector is also the macrosector with the highest percentage of punctual businesses (which increased from 55% to 60%). This sector also witnessed a significant drop in the percentage of companies that pay their invoices severely late: this is greatly influenced by dynamics observed among microbusinesses in the building sector and by the fact that many of the most financially fragile companies have gone out of business in recent months. Industrial companies also showed better payment habits in the last quarter of than they did in the same period a year before. The average payment timeframe fell by 2.4 days, thanks above all to a decrease in tardiness, from 17.2 days to The percentage of companies that paid on time dropped slightly, from 53.4% to 53.1%, but the percentage that paid severely late also decreased, from 9.4% to 7.8%. This reduction in the percentage of companies that, on average, paid their invoices more than 60 days after the deadline held true in all individual manufacturing sectors with the exception of the automotive sector and the intermediate goods sector; for the latter, there was also an increase in average tardiness. In the tertiary sector, the average payment time frame fell by 5.8 days, from 81.9 to 76.1, with reductions in both the agreed terms (2.2 days) and average tardiness (3.7 days). There was also a slight yearonyear increase in the percentage of companies that paid on time, and a reduction in the incidence of severely latepaying companies, from 11.2% to 9.2%, with decreases observed in every segment of the tertiary sector. 14% 12% 10% 8% 6% 4% 2% 0% 16% 14% 12% 10% 8% 6% 4% 2% 0% high tech Average payment tardiness in the industrial sector motor vehicles 11.6% motor vehicles consumer staples 9.3% consumer staples intermediate machinery household goods goods 8.7% fashion & apparel metals Severely latepaying businesses in the industrial sector Businesses paying invoices over 60 days past due on average, as % of total 13.1% agriculture 8.0% intermediate fashion goods & apparel 10.1% 10.0% logistics & transport nonfinancial services 7.3% household goods metals 6.8% 6.6% 6.5% chem & pharma other cons. goods 9.0% retail/ distribution 8.0% 7.7% 11.1 chem other cons. & pharma goods 5.6% machinery Severely latepaying companies in nonindustrial sectors companies paying over 60 days past due on average, as % of total % real estate media & ent. financial services % high tech 5.6% energy & utilities Payment timeframes: breakdown by geographical area NorthEast NorthWest Centre South & days late agreed timeframe Islands Cerved Group Spa All rights reserved Reproduction prohibited

10 6.8% 5.7% 8.2% 6.4% 11.0% 8.8% 15.9% 12.8% 40.9% 41.6% 42.7% 44.0% 52.3% 52.7% 49.1% 49.6% Payment timeframes in the 4 th quarter: geographical breakdown distribution by average number of days overdue 47.8% 49.0% 49.2% 50.1% 41.2% 42.1% 34.9% 37.1% NorthEast NorthWest Centre South & Islands >60 days overdue <60 days overdue on time Payment pattern improvements were also widespread throughout Italy, as both average payment timeframes and the percentage of companies paying more than two months past due decreased in every broad geographical area of the country. Businesses located in the NorthEast remained the fastest, most punctual payers. The average payment timeframe in this area fell by 2.7 days yearonyear to 73.6 days, thanks mainly to a 1.6 day decrease in average tardiness. More than half of businesses in this part of the country pay their invoices on time on average (+0.4% vs. ), while only 5.7% pay more than 60 days past due, the lowest in the country and 1.1 percentage points less than in the last quarter of. There was also a clear improvement in the NorthWest, where businesses paid invoices 5.9 days sooner on average than they did in the fourth quarter of (in 78.4 days). There was also a slight increase (0.5 percentage points) in the incidence of companies paying on time, combined with a drop in the percentage that paid over two months late (from 8.2% to 6.4%). In central Italy, the actual payment timeframe fell to 83 days, thanks above all to a 2 day drop in average tardiness. The percentage of companies paying severely late also decreased, from 11% to 8.8%, while the Trentino a.a. Veneto Lombardy Emilia Romagna Valle d'aosta Marche Friuli Piedmont Tuscany Liguria Basilicata Abruzzo Sardinia Umbria Molise Lazio Apulia Campania Calabria Sicily Severely latepaying companies, breakdown by region companies paying over 60 days past due on average in, as % of total 3.8% 5.6% 5.8% 5.9% 6.0% 6.0% 6.2% 7.2% 7.7% 7.9% 8.1% 8.6% 9.5% 9.5% 9.6% 10.4% 11.3% 12.3% 15.4% q4 q4 17.3% 0% 5% 10% 15% 20% 25% percentage of punctual businesses increased by 0.9% yearonyear to 42.1%. Southern Italy remained the area of the country where businesses are slowest to pay their invoices, taking 86 days on average in the fourth quarter of. This area also has the lowest percentage of companies that pay on time (37.1%) and the highest rate of companies that pay seriously late (12.8%), although these patterns have improved considerably since the fourth quarter of. Days payables outstanding fell by 5.1 days yearonyear, with equal decreases in the agreed timeframe and in the average tardiness. The incidence of punctual companies went up by 2.2 percentage points and the portion of severely latepaying companies fell by 3.1 percentage points. By single region, despite a clear improvement from the year before, Sicily still has the highest portion of companies paying their invoices more than two months past the agreed deadline (17.3%), followed by Calabria (15.4%), Campania (12.3%), Apulia (11.3%) and Lazio (10.4%) Cerved Group Spa All rights reserved Reproduction prohibited