Independent report says financial results of 88 public companies “degraded very significantly”

Thirty-three of Portugal’s state-owned enterprises were in “technical bankruptcy” at the end of 2020, reflecting the “very negative impact” of the Covid-19 pandemic on business, particularly in areas of health and transport and storage.

These are the conclusions of a report issued by the Public Finance Council (CFP), the country’s leading independent watchdog in the field according to Lusa.

Entitled ‘State Business Sector 2019-2020’, the report, published today, notes that financial results of the country’s 88 non-financial public companies “degraded very significantly during the two years of 2019-2020, reflecting the negative effects of Covid-19”. Their financial situation and assets were also “seriously affected”.

As a whole, this group of companies recorded combined losses of €2.5 billion for 2020, or €1.7 billion more than for 2019. 

Just 27 of the companies (or groups of companies) achieved a positive net result in 2020, with the other 61 recording a loss.

Health, transport and storage sectors accounted for 99% of these losses, with aggregate values of €775.7 million in health (€25.6 million larger than the 2019 losses) and of €1.7 billion in transport and storage (against a combined loss of €1.5 billion in 2019). 

National airline TAP accounted for over half the combined loss, at €1.4 billion.

EBITDA (earnings before tax, interest, depreciation and amortisation) shrank to €12 million in 2020, from €1.5 billion in 2019, while operating profit went €1.6 billion into the red, against a €131 million profit in 2019.

In 2020, non-financial public enterprises had a total of 144,714 employees, turnover of €9.3 billion euros and a gross value added of €4.7 billion, respectively up 4.5%, down 23.5% and down 38.5% from 2019.

At the balance sheet level, although the assets of this group of companies increased by €621.5 million from 2019, to €59.4 billion, their liabilities increased by still more: by €1.2 billion, to €56.2 billion, which “strongly degraded the equity of these companies” in the report’s words, to €3.15 billion, down 15% from 2019.

“This deterioration in equity reflects the negative results of the 2020 financial year, which absorbed a large part of the capital inflows made by the State that year (+1,500 million euros),” reads the report, which adds that, “as a result, 33 public companies had negative equity at the end of 2020 (thus being in a situation of technical bankruptcy).”

Of these 33 companies, five account for almost 90% of the overall negative value of the sector: Parvalorem (negative equity of €3,997 billion), Metro do Porto (negative €3.456 billion), TAP (negative €2.128 billion), train operator CP (negative €1.872 billion ) and PARUPS (negative €913.2 billion).

According to the CFP, the financial structure and profitability ratios of non-financial public enterprises “also had a strong deterioration in 2020, reflecting the worsening inability of these to meet their commitments to the State and to creditors.”

Overall liquidity was 56.7% at the end of 2020 (or 9.1 percentage points less than a year earlier), financial autonomy fell to 5.3% (down 1.0 point) and solvency fell to 5.6% (down 1.1 points). The leverage ratio was 94.7% (up 1.0 point) and the debt servicing capacity was at 109.9% (down 0.9 of a point).

“The analysis of these results confirms the low capacity that equity has to meet the medium and long-term responsibilities of these companies and reinforces the financial dependence of the sector on borrowed capital, resulting in high financial leverage,” the CFP report states.

In 2020, the return on sales of non-financial public enterprises was 0.1% (down 12.1 percentage points on the year) and the return on assets in 2020 was -2.7% (a reduction of 2.9 points).

These indicators show, “in practical terms, a deterioration in economic efficiency, which translates into greater direct budgetary pressure,” the CFP states, adding that “companies in the sector were less efficient in managing their assets, with negative effects on business profitability and the ability to generate profits from these assets.

“In overall terms, excluding companies with negative equity, it can be seen that the return on equity ratio was -1.2% in 2020,” a result that “demonstrates a poor financial performance of the … companies, translated into an inability to provide a return to the State [as] shareholder.”

The report notes, however, that “the results are differentiated by sector of activity”, with “the real estate and asset management sector showing the best profitability ratios” and “conversely, the health and transport and storage sectors showing the worst results.”

Source: Lusa