France Sector report

February 2021

Sectors @ a glance

Industry performance outlook

Agriculture

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Automotive/ Transport

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Chemicals/Pharma

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Construction/ Const. Materials

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Consumer Durables

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Electronics/ICT

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Financial Services

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Food

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Machines/ Engineering

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Metals

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Paper

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Services

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Steel

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Textiles

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Agriculture

The arrows in this overview represent the direction of change in the Atradius outlook for the industry since the previous update. No arrow will appear if there has been no change in our overall outlook.

Up from Poor to Fair The industry remains impacted by price volatility of several key products, a bad wheat harvest and beet production impacted by disease. However, the sector can be considered resilient with its essential consumption status.

Automotive/Transport

Remains Bleak Automotive production decreased by 47% year-on-year in the period of January-November 2020, while car sales decreased 27%, which has led to severe liquidity strains and cash shortfalls. Margins were already under pressure before the coronavirus outbreak due to disappointing sales in 2019. Despite comprehensive stimulus measures (e.g. direct spending and tax break measures), many Tier I and Tier II subcontractors, and even some medium-sized businesses, are facing increased credit risk. In 2021 production is forecast to rebound by only 10%-15%. Payment delays and insolvencies have not increased thus far, but it is expected that both will rise substantially as of Q2 of 2021, after the expiry of government support measures. In the transport industry, the performance of the aeronautic segment has sharply deteriorated. Credit risk peaked for airlines and business along the supply chain. Since aircraft manufacturers have announced a 20% lower production trend, subcontractors suffer from a 25%-40% drop in activity, with no real recovery expected before 2024-2025. Despite government support, insolvencies have increased since May 2020, and both payment delays and insolvencies are expected to accelerate in 2021. As the segment needs to consolidate, many players will disappear in the short- and mid-term.

Chemicals/ Pharmaceuticals

Remains Fair The chemicals sector has proved to be resilient during the pandemic. Although there were some disruptions in the supply chain, the whole industry was back on track in June 2020. However, caution is advised when dealing with the plastics subsector, where many businesses are subcontractors dependent on automotive and aeronautics. Pharmaceutical businesses benefit from rising health expenses, with value added forecast to increase by 5% in 2021.

Construction/Construction Materials

Remains Bleak The industry was already performing poorly before the coronavirus outbreak, with increased cash difficulties for businesses due to difficulties funding their working capital requirements. Operating margins are very tight, with increased credit risk mainly to smaller players. Construction value added is estimated to have shrunk 12.5% in 2020. Due to the economic slump and lockdowns, businesses are affected by a significant decrease in activity, postponement of projects and reduced order volumes, which has reduced the level of incoming cash flow and hurt profitability. After decreasing in Q1-Q3 of 2020, construction insolvencies started to increase again in Q4 of 2020. After the expiry of government support measures, a substantial rise of business failures is expected in 2021.

Consumer Durables

Up from Bleak to Poor Retail value added is estimated to have contracted 10.5% in 2020, as private consumption of non-food consumer goods deteriorated due to the coronavirus impact, with many businesses temporarily closing due to lockdowns. However, sales rebounded strongly in June 2020 after the first lockdown, and sales performance in Q4 of 2020 appears to be quite encouraging, driven by a strong increase of the e-commerce segment. Payment delays and insolvencies have not increased yet. While retail value added is forecast to rebound by more than 8% in 2021, worries remain about the mid-term deterioration of French consumers´ purchasing power.

Electronics/ICT

Up from Bleak to Poor Sales have deteriorated due to the closure of businesses related to the lockdowns. Some retail businesses face a reduced level of incoming cash flow. However, spending from businesses and employees on digital goods and services has increased due to the sharp rise of remote working. While ICT value added is estimated to have decreased by 4% in 2020, the decrease is less than in other sectors, and the rebound will happen faster (forecast to increase 3.5% in 2021).

Financial Services

Up from Poor to Fair Rising financial troubles for businesses and consumers alike leading to increased non-performing loans remain a major downside risk for the industry. However, the financial sector is supported by a significant amount of cash injected by the government (state guaranteed loans) to support businesses. Both French banks and insurance companies remain financially resilient.

Food

Up from Poor to Fair While a number of businesses still suffers from the closure of several distribution channels (e.g. restaurants and catering) and faces higher credit risk, most segments remain resilient. Food value added is forecast to increase by more than 3% in 2021 after a 2.5% contraction in 2020.

Machines/Engineering

Remains Bleak In H1 of 2020, domestic and international demand from key buyer sectors like automotive and aeronautics particularly deteriorated. While orders have started to rebound since May 2020, production has remained far below 2019 levels. In the domestic market, activity decreased by more than 13% last year, with two-digit revenue declines. Only the agriculture machines segment was less negatively affected than others. The outlook for a rebound of sector performance in 2021 remains subdued.

Metals

Remains Bleak In H1 of 2020, metal producers and traders suffered due to deteriorating demand from key buyer sectors (automotive, aeronautics, construction and machines) and/or supply chain disruptions. After a 25% drop in April and May, activity in the metals industry was back to pre-crisis level by August. Trends in order books are positive, although the level remains below average. The industry benefits from activity in public works and a good price level. Metals value added is forecast to rebound 12% in 2021 after an estimated 19% contraction in 2020. However, businesses could face serious strains in cash flow once government support measures expire this year. Due to this, both payment delays and insolvencies are expected to increase in H1 of 2021.

Paper

Remains Bleak Paper producers are impacted by less demand due to lockdown measures and the ongoing digitalization (graph paper is the main segment affected). After an estimated 3.5% contraction in 2020, value added is forecast to rebound 2.5% in 2021. Despite the general issues, some niche segments linked to packaging and hygiene-related sectors are rather resilient.

Services

Remains Bleak Due to the comprehensive lockdown measures and the ongoing pandemic, many segments suffer heavily, especially hotels and catering, restaurants, bars, entertainment and cultural events, travel agencies and tour operators. Especially tourism, which directly contributes more than 7% to French GDP has been severely hit so far. Hotels and catering value added is estimated to have contracted a whopping 24.5% in 2020. The government has implemented several stimulus measures to support the sector. However, many businesses have not reopened yet and may never even do so. The outlook for the next six months remains subdued, and any recovery is expected to be slow. After an estimated 10.5% contraction in 2020, service value added is forecast to rebound by just 4.5% in 2021.

Steel

Remains Bleak Steel producers and traders have suffered due to deteriorating demand from key buyer sectors (automotive, aeronautics, construction and machines) and/or supply chain disruptions. Steel production in France dropped by 23% over the past 11 months, and overcapacity, already a structural issue for this sector before the pandemic, is currently higher than ever. The number of players active in the industry has decreased over the past couple of years, with mainly larger ones remaining. For them, the risk of business failures is not currently overly high. However, rising payment delays could have a negative effect along the value chain. Steel value added is forecast to rebound by 10% in 2021 after an estimated 20% contraction in 2020.

Textiles

Remains Bleak Producers, wholesalers and retailers already suffered before the coronavirus outbreak from fierce competition and thin margins. Furthermore, they have been affected by deteriorating sales due to the lockdowns and declining private consumption. After shrinking in 2018 and 2019, textiles value added is estimated to have contracted again in 2020, by 20%, with just a 1% rebound forecast in 2021. Brick-and-mortar retailers in particular struggle with low cash flow while facing high fixed costs. Insolvencies and business closures increased in 2020, and more business failures are expected in 2021.

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