Banque de France Bulletin no. 237: Article 3 In 2020, the support measures cushioned the impact of the drop in activity for SMEs

By Graignon Maïté, Mérébier Abel

Thematic: Companies

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In 2020, small and medium-sized enterprises (SMEs) posted a 3.7% decline in turnover. Their value added fell more sharply (by 4.2%) due to the slowdown in output, contrasting with 2009 when the 5.4% drop in SME turnover led only to a 3.7% fall in value added. Thanks to an adjustment in their spending and the unprecedented scale of the support measures, SMEs’ profit margin rate contracted by just 0.3 percentage point.

The public health restrictions affected SMEs to differing extents, even within the same sector. Equipment goods retailers even saw their turnover rise in 2020. SMEs’ economic and financial profitability declined markedly, and their financial structure deteriorated due to a rise in gross debt. The provision of stateguaranteed loans helped to make up for the loss of operating cash flow, and allowed firms to build up some precautionary savings.

This article analyses the economic and financial position of small and medium sized enterprises (SMEs) in 2020, using data from the Banque de France’s FIBEN database of company accounts. The study was carried out using a sample of 185,956 SME balance sheets.

1 SME activity contracted in 2020, but to a lesser extent than in 2009

Turnover and value added fell in the majority of sectors

The Covid 19 epidemic that broke out in 2019 only had a direct impact on the French economy in 2020. SME turnover fell by 3.7% and value added by 4.2% in 2020, after growing respectively by 5.1% and 4.7% in 2019 (see Chart 1).

The slowdown in 2020 was nonetheless more moderate than in 2009 when, following the 2008 subprime crisis, SME turnover contracted by 5.4% and value added by 3.7% (see Box 1). This greater resilience in the face of a major shock can be explained by the unprecedented levels of government support, and by the fact that SMEs went into this crisis with a solid financial structure.

The decline in turnover was particularly marked in consultancy and business service activities, as well as in manufacturing (respective falls of 7.3% and 5.9%) [see Table 1]. The construction sector saw a 4.9% fall in turnover in 2020, compared with a rise of 8.3% in 2019, while its value added fell by 5.1% in 2020, after growth of 7.3% in 2019.

Wholesale and retail trade fared much better, with turnover declining by just 1.0% and value added growing by 0.9%. This was because the contraction in certain segments (repair of motor vehicles and motorcycles, for example) was offset by rises in other activities, such as retail sales in certain specialised stores (see Chart 2 below).

The share of exports fell slightly

The timing of the different waves of the pandemic across the world raises questions as to French SMEs’ export performances. The share of turnover derived from exports fell from 9.6% in 2019 to 9.2% in 2020 for all SMEs combined, from 7.5% to 7.2% for multi entity SMEs, and from 7.2% to 6.7% for single entity SMEs.

SMEs that are subsidiaries of foreign companies are inherently more internationally exposed, and generate over a quarter of their turnover from exports. Their export rate remained almost stable in 2020 at 25.9%, compared with 26.1% in 2019.

Working capital requirements fell sharply

A firm’s working capital requirement (WCR) is the amount…