Macron reforms see French private companies lead Europe – report

Private firms are growing their share of Europe’s economy and increasing leverage levels to help them expand.

European private companies have demonstrated strong economic fundamentals in 2017, with French firms leading the pack, according to a report by Intermediate Capital Group (ICG).

The report found revenue growth among private companies has continually outpaced GDP growth and was up 4.9 percent in Q4 2017. EBITDA growth has been even stronger, up 6.7 percent in the same period. ICG said outperformance of European GDP was an indicator that private companies are now making up a larger share of the economy.

France has been the strongest performing country for EBITDA according to ICG’s study, after the UK saw a sharp decline in profit growth in 2016 following the vote to leave the European Union and the consequent margin squeeze caused by the fall in the pound.

While conditions in the UK have improved recently as sterling recovered, so too has the French economy in response to reforms by President Macron, who has pledged to improve French productivity and unemployment.

Nick Brooks, head of economic and investment research at ICG, said: “France is outpacing the rest of Europe, as Macron’s reforms have boosted sentiment and private companies leverage-up for continued expansion in 2018.”

He added that while the UK has suffered due to weakened business confidence in the wake of the Brexit vote, it has seen some recovery, though emphasised that progress in the Brexit negotiations will be vital to sustaining this recovery.

Private company EBITDA growth in Q4 2017 was 10 percent in France, 8% in the Nordic and Benelux countries, 7 percent in Germany and 3 percent in the UK.

The amount of leverage used by private companies has also increased, indicating strong demand for debt to finance further growth. In Q4 2017, leverage across Western Europe as a whole reached 4.9x, up from 4.5x in the final quarter of 2016. However, ICG points out that this is still well below the pre-global financial crisis peak of 5.8x, indicating there is still room for further growth.

While leverage in the UK declined in the wake of the Brexit vote it resumed an upward trend in 2017 and is now close to pre-crisis levels. Leverage in Germany is now above pre-crisis levels. In France, leverage has climbed to approximately 4.8x EBITDA and interest coverage reached a post-crisis high.