6% of listed German companies are in zombie status – dark figure higher

6% of German companies listed on the stock exchange are a so-called "zombie" – i.e. a company that has not been able to pay its interest from its operating result for three consecutive years. This is the result of our recent study of more than 2,900 companies listed on European stock exchanges (excluding banks and insurance companies).
  • New Insight
  • Sales and margins in the automotive supply industry are below 2019 levels
  • Net debt in mechanical engineering is up 31 per cent since 2019, the zombie ratio doubled since 2019 (seven per cent)
  • Cost-cutting programmes alone will not be enough to turn zombies into vital companies again
  • Debt reduction necessary in many cases

Nine percent of 'zombified' companies were found in Spain. In Belgium and Norway it is eight per cent, in Italy seven per cent. Denmark and Poland (both 3 per cent), Finland (4 per cent) and Switzerland (5 per cent) have the lowest zombie quota of listed companies.

"Germany is in the lower half in terms of the number of zombie companies on the stock exchange compared to other European countries," says Tim Müller, restructuring expert at FTI-Andersch, the consulting unit of FTI Consulting in Germany specialising in restructuring, business transformation and transactions, and head of the survey. "Public companies have to report financial problems very early due to strict reporting requirements – immediate reactions of the stock exchange lead to early interventions. Private companies, which are often owned by a single family, do not have this pronounced transparency. Based on our observations, we estimate the ratio of zombie companies in the German Mittelstand to be higher. Due to the high share of SMEs in the gross domestic product, the situation for Germany is therefore more serious than the figures in this analysis suggest."

Core sectors automotive and mechanical engineering allow conclusions to be drawn on how affected the German economy is

The European automotive industry has a particularly high rate of zombie companies: Based on the analysis by FTI-Andersch, 14 per cent are currently among the companies there that have not been able to pay their interest from their operating profit for three years. "These are not the sometimes highly profitable large-series OEMs, but smaller niche suppliers," says Tim Müller. In mechanical engineering, seven percent of the companies classify themselves as zombies. The rate is slightly higher in the fashion industry at around ten percent.

Financial debt minus existing cash has also increased in two of these three industries when comparing 2019 and 2022 (to summer). In mechanical engineering from 112.8 billion euros to 148.3 billion euros (plus 31 per cent), in the fashion industry from 52 to 75 billion euros (2020 to 2022). That is a plus of 43 percent. A ray of hope in the automotive industry: here the so-called 'net debts' have fallen from 487 billion euros to 425 billion euros.

"The fact that net debt in the automotive industry has decreased while at the same time the zombie ratio is high indicates an imbalance among market participants," says Tim Müller. "This also means that those who are among the losers are hit particularly hard. The fact that debts in the mechanical engineering sector have risen significantly is a bad sign for the German economy – because it traditionally has the economically strongest mechanical engineering companies in Europe. If one also uses these figures as a guide for medium-sized and family-owned companies, the picture becomes even gloomier. In addition, many German mechanical engineering companies in particular have built up an investment backlog in recent years, which they are not able to work off in a tight financial situation – but which may now increase further."

Productive assets and essentially functioning business models must be preserved – no chance without entrepreneurial creativity

Tim Müller says: "A looming recession, the increased interest rates and the increasingly restrictive granting of loans will take further air out of many companies in the medium term. However, the truth is also that many of the market participants would very likely have disappeared from the market in their current organisational form without the state subsidies and a legal suspension of insolvency application deadlines in recent years. This painful process is also part of competitive economies. When market participants merge into other companies or disappear from the market, this also creates new opportunities for their competitors. It is to be hoped that regulatory interventions in the coming months will not further distort the real competitive strength of individual companies and sectors. That ultimately has a detrimental effect on any economy."

Tim Müller believes that nine out of ten zombie companies do not have to disappear from the market if a viable financing structure can be developed and operational competitiveness improved. "It is important to check where there is still a substantially intact business and how this can be continued," says the FTI-Andersch consultant. "It is important to preserve the productive assets of as many companies as possible - whether they are carried on in the previous company or are absorbed into new ownership. It is not only cleanly prepared reorganisation reports, planning sensitivity and good liquidity management that help. Entrepreneurial imagination, new vision and unconventional approaches are needed to show new perspectives for business models and employees. This will shape the experiential reality of many businesses in the new year."

About the study:

The consultancy FTI-Andersch analysed 2,900 companies traded on European stock exchanges for the 'Corporate Debt Study, 02.2023'. Financial service providers such as banks and insurance companies were not part of the companies analysed.

The information taken into account for the respective calculation was derived from the Capital IQ database (S&P Global).

In order to ensure the comparability of the data over time, only companies that published financial information over the entire period under review were analysed.

The following OECD definition was used to determine zombie companies: 1) the company has been in existence for more than ten years and 2) has not been able to bear the interest burden from earnings for three consecutive years. On the data basis applied in this study, this means: Turnover has been greater than 0 for ten years and the interest coverage ratio (EBITDA/interest expense) has been less than 1 for three consecutive years.

The German version of the study is available for download under the "Insights" section.

About FTI-Andersch:

FTI-Andersch is a management consultancy that supports its clients in the development and implementation of viable future/performance and restructuring concepts. FTI-Andersch actively accompanies companies that have to deal with operational or financial challenges and change processes - or want to align their business model, organisation and processes for the future at an early stage.

Our clients include, in particular, medium-sized companies and corporate groups that operate internationally. FTI-Andersch is part of the international FTI Consulting Group (NYSE: FCN) with more than 7,500 employees.

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