Experts see some companies slump even as economy recovers

Eyal Yanai, co-director of BDI Israel: Despite the initial deterioration, after two or three months there will be an improvement.

By SHARON WROBEL
September 9, 2009 06:48
3 minute read.
Experts see some companies slump even as economy recovers

jerusalem unemployment line 88 248. (photo credit: Ariel Jerozolimski [file])

 
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Companies are expected to show signs of a recovery in the coming months as the economic crisis has come to a halt - despite a deterioration in the average weighted business risk level in August, according to Business Data Israel's monthly risk index. "Despite the deterioration in the business risk index, the economy and the market are stabilizing and signs of a recovery will show in the coming months," said Eyal Yanai, co-director of BDI Israel. "Previous crises have shown that as the economy emerges from a crisis there is an increase in the number of companies on the verge of collapse and after two or three months there is an improvement." Yanai added that the companies which don't survive crises are generally those highly dependent on credit and financing sources. BDI economists noted that BDI data and analysis of previous crises, showed that the situation of many companies, especially retailers and manufacturers of consumer products, deteriorates at the point of emergence from a crisis as these companies are unable to adapt and often collapse. On the other hand, other companies including chemical and food manufacturers, are beginning to exploit the effect of the end of the crisis and are seeing signs of a recovery. The average weighted risk level in the economy worsened in August and rose to 6.35 from 6.19 during the month of July, on a scale with 10 signifying a company with the greatest risk of financial collapse. BDI economists added that the risk level of businesses in the economy was still high, in particular when compared with the risk level during August last year, when it stood at 5.94. Out of the total number of companies analyzed by BDI economists, 24.8% were rated as highly risky and dangerous with an average weighted risk level of 9 and 10 in August, compared with 21.9% during the previous month. BDI economists noted that these businesses were suffering from great liquidity problems, reports of bouncing cheques, and big losses in revenues and profits. The great level of difficulties faced by these companies and businesses is threatening the continuation of their business activity for the coming year or two, the economists added. At the top of the list of the riskiest sectors with a business risk rating of 7.33 was the restaurant and café sector. The second riskiest sector was the tourism and hotel sector with a business risk rating of 7.10 improving from 7.31 in the previous month. BDI economists added though that the improvement was mainly due to increased activity during the summer holidays and that the risk level was still high and dangerous. In third place was the construction sector with a business risk rating of 7. The strongest and most secure sector in August was the chemicals sector, as in the previous month, with an average business risk level of 5. The paper and carton sector was rated with an average business risk level of 5.61 closely followed by the metals sector with an average business risk level of 5.71 after improving from 6.31 in July. The payment reliability report compiled by BDI Israel showed that the average number of total "late payment" or credit days remained stable in August, at 12 days for a third month in a row. The average credit period agreed to by businesses and suppliers improved moderately by one day and stood at 91 days compared with 92 days in July. The sector with the most lax payment norms in August was found in the newspaper and printing houses sector where payment was made on average 24 days beyond agreed deadlines, BDI said. In the ceramics and sanitary tools sector, payment on average lagged 22 days behind the agreed deadline. Payments in the food, catering and beverage sector on average were late by 21 days during the last month. Broken down by sector, the most reliable deals were made in the telecommunications and Internet sector where on average payment was late by three days beyond agreed deadlines followed by the haulage, storage and logistics sector, where average payment was late by seven days beyond agreed deadlines, and the software and hi-tech sector, where payment was 8 days late.

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