WARSAW, 2 January 2014
Coface Report on Company Insolvencies in Poland in 2013
Dynamics of growth in bankruptcy slowed down in the second half of the year. The biggest problems in industrial production.
The presented statistics have been prepared by the credit insurer Coface since 1997 based on the dates of issue of court bankruptcy decisions, i.e. the actual dates of bankruptcy. The results for 2013 are not final, and growth by a dozen or so cases must be expected. However, historical data is from the end of December which ensures reliability of statistical comparisons. NOTE: The smaller number of court decisions issued in December could be affected by a long holiday period this year.
· In 2013, the Polish courts declared bankruptcy of 883 entities, which is only by 1% more than in 2012. The increase in bankruptcies definitely decreased in the second half of this year. It should be recalled that last year ended with 21.3% growth, and after three quarters of 2013, the growth still remained at c.a. 10%.
· The result of the past 12 months is the highest since 2005 and as much as 115% higher than in 2008, which was the last year of decline in the number of bankruptcies. Also, there were 22% fewer bankruptcies in 2009, which was the peak of the crisis, than currently.
· Throughout 2013, we have observed the highest increase in bankruptcies in the production sector. During that time, the courts declared bankruptcy of 277 enterprises, which is an increase by 15% as compared to the preceding year. In 2013, bankruptcies of companies from this sector accounted for 31% of all bankruptcies, whereas in 2012 this share was higher than 27%.
· Worse situation of the manufacturers may be largely attributed to the problems of the construction sector which were felt by suppliers and companies related to the construction.
The number of bankruptcies in the manufacturing industry (260) is considerably higher than in the construction (2013), or trade (214).
· After a very hard 2012 for the construction, the number of bankruptcies did not increase in 2013 in this sector. However, the high base effect from 2012, when the construction industry posted the highest number of bankruptcies since 2004 (218) and an increase of as much as 53%, must be taken into account.
· Last year, bankruptcy proceedings with possibility to enter into arrangement accounted for 18.7%, which was similar to the 2012 level. In 2011 it was 14%.
· The main cause for insolvency in 2013 was the decrease in revenues which affected the profitability of operations, and in consequence resulted in a more restrictive policy of financial institutions and more problems in the access to operations funding for many companies.
· In 2014, we can expect somewhat calmer reactions from the banks and stabilisation of access to bank credits. The internal demand, which is again on the increase, will positively affect the growth potential of many companies, and this, in turn, will decrease the threat of insolvency and, therefore, bankruptcy.
Comment by Grzegorz Sielewicz, Coface Chief Economist in Poland
2013 was not favourable for most of Polish enterprises. Their financial results have been weakened by a major decline in private consumption, which reached its peak in Q1 of 2013. Many companies were forced to cut their planned investments, and some even to reduce their employment.
The published macroeconomic indicators confirm that the Polish economy is already past the worst period and since the second half of 2013 is back on the way of growth which can be defined as revival, however, unfortunately gradual and not very impressive so far.
Data interpretation suggests that the current situation is only the fuel for the engine of economic growth which will reach its proper potential during 2014. Thus, it is definitely too early to become overly optimistic, but it is the time to start noticing positive prospects and the growing potential of the Polish economy.
Macroeconomic situation is reflected in the condition of the sector of enterprises. Although the first half of 2013 was characterised by a large number of bankruptcies of Polish companies, the dynamics slowed down at the end of the year. Nevertheless, 883 enterprises, which were declared bankrupt throughout the year, is the highest number in the past 9 years. The highest immunity to the slump was shown by large companies, with turnover exceeding PLN 50 million, as they exhibited larger financial flexibility in cases of liquidity problems. Therefore, small and medium enterprises accounted for as much as 88% of the total number of companies going bankrupt.
In view of the recovery of the private consumption growth and with record-low interest rates, in 2014, Polish companies will be more confident and many of them will again invest in tangible fixed assets. If there are no negative exogenous factors, particularly the ones coming from main business partners, the Polish economy will be successively posting a higher growth, still supported by net export and gradually joining domestic demand.
Nevertheless, liquidity problems experienced by enterprises do not come to an end with the beginning of 2014. In spite of the improvement of the financial situation, many companies will still face payment backlogs. In a majority of companies, discharging liabilities depends on the inflow of receivables for the goods and services they provide. Therefore, even in the cases of companies with perfect payment histories, disruption of the expected financial flows may lead to delays in making their due payments, and even to the need of declaring bankruptcy, in particular in the case of smaller entities without any financial support from the parent company – Grzegorz Sielewicz added.
Bankruptcies by sectors
sector / number ofbankruptcies
2008 / …. / number of
bankruptcies
2012 / number of
bankruptcies
2013 / change
PRODUCTION, including: / 180 / 241 / 277 / +15%
Manufacturing, including e.g.: / 168 / 227 / 260 / +15%
Manufacture of metals and metal finished goods / 18 / 39 / 52 / +33%
Manufacture of food products and beverages / 32 / 37 / 37 / no change
Manufacture of machinery, equipment and electric
equipment / 9 / 22 / 25 / comparable
Manufacture of wood products, excluding furniture / 11 / 11 / 25 / +127%
Manufacture of furniture / 12 / 17 / 19 / comparable
Manufacture of other non-metallic mineral products
(including construction materials) / 8 / 14 / 18 / increase
Manufacture of wearing apparel and textiles / 24 / 23 / 17 / decrease
Manufacture of rubber and plastic products / 13 / 11 / 14 / increase
Manufacture of paper and paper products / 8 / 6 / 11 / +83%
Printing and reproduction / 9 / 14 / 9 / decrease
Other manufacturing / 24 / 33 / 33 / no change
TRADE, including e.g.: / 92 / 208 / 214 / +3%
Wholesale trade / 124 / 126 / comparable
Retail trade / 67 / 61 / comparable
TRANSPORT / 15 / 31 / 28 / comparable
CONSTRUCTION / 59 / 218 / 213 / comparable
OTHER industries, including e.g.: / 65 / 179 / 151 / -15%
Real property market services / 6 / 37 / 16 / -64%
total / 411 / 877 / 883 / +1%
Comment by Marcin Siwa, Risk Assessment Director at Coface.
2013 was another hard year for the Polish economy. After a major increase in the number of bankruptcies in 2012, the last 12 months brought a similar figure. Many companies suffered from a decrease in demand for their products and services, high fixed costs prevented them from maintaining satisfactory profitability, and a restrictive approach of financial institutions did not make their debt restructuring any easier. Decline in the number of bankruptcies, especially in Q4, is naturally a positive sign which reflects a rebound of the Polish GDP in this period.
Manufacturing
Results of the slowdown have been the most severe for the manufacturing sector. Smaller demand from individual consumers, smaller orders from the construction sector and decreased willingness to invest in new technologies and machinery took their toll on the condition of the manufacturing companies. This is why the highest indicator of growth in bankruptcy dynamics relates to this part of the Polish economy. Difficulties in costs restructuring and smaller orders resulted in reductions of employment and production. This, however, was often not enough, and the companies had to be declared bankrupt.
Steel industry
Metals processing sector – which in 2013 posted an increase in bankruptcies – suffered from small orders from the construction sector. Small number of new investments has again taken its toll. Small demand for steel structures and reinforcements caused that many recently purchased machines and production lines had to remain idle, and the use of production capacities was often very little. As a result of all of this, many production plants had serious profitability problems. Steel trading companies still face longer and longer tax inspections which result from the practice of claiming illegal VAT refunds by dishonest entities. Moreover, revenues in the first half of 2013 were very poor for the industry. The last 6 months indicate a slight revival and an increase in demand which gives hope that the next year will be better for the sector.
Trade
The most significant bankruptcy this year took place in this sector – this is, of course, Mix Electronics chain of stores and wholesale facilities.
The sector is being consolidated. This was facilitated by the economic slowdown and polarization of companies – big companies grow in strength, smaller ones become weaker and are thrown out of the business (they become bankrupt, are liquidated or acquired). In 2014, this process will be deepening. Last year showed that trade companies managed to deal with smaller demand and there was no significant increase in the number of bankruptcies. Liquidity of many companies, however, was disrupted. Competition is very strong, and this affects profitability of many entities. This, in turn, is a potential threat to long-term operations, especially of smaller companies.
Construction
It was a hard year for the construction sector. The collapse, which we have been facing since 2012, entered 2013, and many companies, which failed to obtain enough orders and funding for their performance, had to wind up. A lot of construction companies still face liquidity problems, completion of many construction contract is put off, and this adversely affect the liquidity of this sector. Another problem is the number of new investments, which remains on a small level, and which holds down the development of enterprises, strengthens competitiveness and pressure on margins. 2014 may bring some revival to the sector, but so far, last year, construction companies accounted for one in four bankruptcies in the Polish economy.
Bankruptcies in construction
* data relates to bankruptcies of executive construction companies (it does not cover manufacturers and distributors of construction materials) and covers the following codes of the Polish Classification of Activities (PKD):
41 - construction of buildings
42 - civil engineering
43 - specialised construction activities
** PKD code 68 - real property market services
Grzegorz Sielewicz, Coface Chief Economist in Poland, added that – In the case of residential construction, the increase in sales and prices in the second half of last year was facilitated by the announcements that the S Recommendation of the Polish Financial Supervision Authority, which prevents funding real property with mortgage loans in 100%, will be implemented by January 2014. Although the increased activity was only seasonal, the "Mieszkanie dla Młodych" (Flat for the Young) Program, which is in force up to this year, will support the primary market, but to a reduced extent. Restrictive conditions of this program, and especially its restriction to the first real property purchased, excludes those clients who are interested in purchasing flats that are larger than their current ones. Contrary to the appearances, this group is quite big – people from the baby boom who entered the labour market and gained enough credit rating were one of the main elements during the construction boom. Their – currently changed – premises needs, often resulting from changes in family sizes and supported by higher credit ratings, would provide additional support for the demand on the construction market, if the program were extended appropriately.
Bankruptcies by regions
As always, Mazowieckie voivodeship is first, which reflects the highest number of registered entities. This year, however, we can see some improvement, as the courts in Mazowsze issued 12% fewer decisions. The second place went again to Dolnośląskie voivodeship, with 25% increase, and the fourth (from sixth) to Małopolskie, which posted the highest increase in bankruptcies – by 71%.
Large improvement can be seen in Wielkopolska; however, this result was affected by a high base from 2012 which resulted from bankruptcies of construction companies related to PBG Group.
Bankruptcies by legal form of enterprises
legal form / number of bankruptcies2011 / number of bankruptcies
2012 / number of bankruptcies
2013 / change
2013/2012
/ share in
2013
Spółka z o.o. (limited liability company) / 475 / 502 / 524 / +4% / 59.3%
Entrepreneur / 133 / 210 / 204 / -3% / 23.1%
Spółka akcyjna (joint stock company) / 52 / 81 / 76 / decrease / 8.6%
Spółka jawna (registered partnership) / 29 / 45 / 37 / decrease / 4.2%
Spółka komandytowa (limited partnership) / 12 / 16 / 20 / increase / 2.3%
Cooperative / 18 / 20 / 15 / decrease / 1.7%
Other forms / 4 / 3 / 7 / increase / 0.8%
total / 723 / 877 / 883 / +1% / 100%
While analysing bankruptcies in terms of legal forms, we can notice slight changes in the structure of bankruptcies. Three forms are still in the lead: limited liability companies, entrepreneurs and joint stock companies. As all the historic statistics show, the highest number of bankruptcies was registered in terms of limited liability companies which account for 59% (as compared to 57.3% in 2012 and 65.7% in 2011).