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  • Italian Corporates: Competition And Investments Lag

    Renato PanichiSenior Director Corporate Ratings

    Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Global. Copyright 2016 by S&P Global. All rights reserved.

    October 21, 2016Taormina

  • 2

    Italian companies operating and financial conditions stabilized, but at pretty weak levels

    Corporate investmentas: a gap to still be filled to sustain Italy GDP growth

    Italian companies key competitive disadvantages are well known

    Agenda

  • Business confidence recovered, but production lacks growth

    Private & Confidential 3

    Italy Business Confidence in Manufacturing (2010=100)

    Italy Industrial Production Index (2010=100)

    Source: ISTAT

    Italy Business Confidence: Construction, Services ,Trade (2010=100)

    Italy Industry Turnover (2010=100)

    70

    80

    90

    100

    110

    Jan09

    Jul0

    9

    Jan10

    Jul1

    0

    Jan11

    Jul1

    1

    Jan12

    Jul1

    2

    Jan13

    Jul1

    3

    Jan14

    Jul1

    4

    Jan15

    Jul1

    5

    Jan16

    Jul1

    6

    IESIcompositebusinessconfidenceclimateindex

    Manifacturing

    60

    70

    80

    90

    100

    110

    120

    130

    Jan09

    Jul0

    9

    Jan10

    Jul1

    0

    Jan11

    Jul1

    1

    Jan12

    Jul1

    2

    Jan13

    Jul1

    3

    Jan14

    Jul1

    4

    Jan15

    Jul1

    5

    Jan16

    Jul1

    6

    Costruction Services Trade

    90

    92

    94

    96

    98

    100

    102

    104

    Jan09

    Jul0

    9

    Jan10

    Jul1

    0

    Jan11

    Jul1

    1

    Jan12

    Jul1

    2

    Jan13

    Jul1

    3

    Jan14

    Jul1

    4

    Jan15

    Jul1

    5

    Jan16

    Jul1

    6

    Industrialproduction(excludingcostruction)

    80859095

    100105110115120125

    Jan09

    Jul0

    9

    Jan10

    Jul1

    0

    Jan11

    Jul1

    1

    Jan12

    Jul1

    2

    Jan13

    Jul1

    3

    Jan14

    Jul1

    4

    Jan15

    Jul1

    5

    Jan16

    Jul1

    6

    Total Domesticmarket Nondomesticmarket

  • Margins and financial leverage stabilized, but at weak levels

    Private & Confidential 4

    Return on Capital Italian Companies by Size Debt to EBITDA Italian Companies by Size

    Return on Capital Italy versus Europe

    Source: S&P Capital IQ and S&P Global calculations

    Debt to EBITDA Italy versus Europe

  • The gap between best and worst companies further widened

    Private & Confidential 5

    EBIT Margin Distance Between Best And Worst Deciles 2006 2015

    Source: S&P Capital IQ and S&P Global calculations

    15%

    20%

    25%

    30%

    10%

    5%

    0%

    5%

    10%

    15%

    20%

    2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

    BestEbitMargin(Top10%Companies) WorstEbitMargin(Top10%Companies)

    Distancebetweenbestandworst(rightscale)

  • Italian companies financial leverage is higher than peers

    Private & Confidential 6

    Debt/EBITDA And Growth In Leverage for 2010-2015 By Country

    Australia

    Brazil

    Canada

    China

    France

    Germany

    Greece

    HongKong

    India

    Indonesia

    Italy

    Japan

    Korea

    Malaysia Mexico

    Netherlands

    Portugal

    Russia

    SingaporeSpain

    Switzerland

    ThailandUK

    US

    2

    2.5

    3

    3.5

    4

    4.5

    5

    5.5

    6

    6.5

    10% 10% 30% 50% 70% 90% 110%

    Debt/EBITD

    Alevel201

    5

    Growthinleverage20102015

    Source: S&P Global Market Intelligence and S&P Global calculations

    Size of bubble is proportionate to the size of non financial corporate debt for each country using Bank for International Settlements data at September 2015.

  • Private & Confidential 7

    Italian Non Financial Corporations Funding Sources

    Non Financial Corporations Funding Costs Italy Vs Europe

    Source: ECB and S&P Global calculation

    Italian Corporate Bond Issuance 2006-2016

    Italian Debut Bond Issuance 2010-2016 YTD

    Deleverage is over, but credit growth remained nil in 2016

    80

    60

    40

    20

    0

    20

    40

    60

    80

    2008 2009 2010 2011 2012 2013 2014 2015 1Q16

    Bln

    Netdomesticloans NetBonds

    0

    1

    2

    3

    4

    5

    6

    7

    Apr08

    Sep08

    Feb09

    Jul0

    9De

    c09

    May10

    Oct10

    Mar11

    Aug11

    Jan12

    Jun12

    Nov

    12

    Apr13

    Sep13

    Feb14

    Jul1

    4De

    c14

    May15

    Oct15

    Mar16

    (%)

    Italy Spain Germany

    0246810121416

    0.0

    1.0

    2.0

    3.0

    4.0

    5.0

    6.0

    2010 2011 2012 2013 2014 2015 YTD19/7/15

    YTD19/7/16

    (#)Bln

    Volume DealCount

    Source: ECB and S&P Global calculation

    Source: S&P Global Market Intelligence

    Source: Dealogic

    0

    5

    10

    15

    20

    25

    30

    35

    40

    2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 1H16

    Bln

    HighYield InvestmentGrade

  • Investments: contribution to GDP growth is still limited

    Private & Confidential 8

    GDP Quarterly Percentage Change And Contributions, Volumes (2010=100), Seasonally Adjusted Data

    Source: ISTAT

    2.5

    2.0

    1.5

    1.0

    0.5

    0.0

    0.5

    1.0

    1.51Q

    11

    2Q11

    3Q11

    4Q11

    1Q12

    2Q12

    3Q12

    4Q12

    1Q13

    2Q13

    3Q13

    4Q13

    1Q14

    2Q14

    3Q14

    4Q14

    1Q15

    2Q15

    3Q15

    4Q15

    1Q16

    2Q16

    HouseholdsandNPISHconsumption Governmentconsumption

    Grossfixedcapitalformation Changesininventories

    Externalbalanceofgoodsandservices GDP(percentagechangeonpreviousperiod)

  • Private & Confidential 9

    Gross Capital Formation as % of GDP Italy Vs Europe, %

    Italian Corporate: Credit Demand Drivers

    Source: Bank Lending Survey, Bank of Italy

    Italian Productive Capital Stock Index (2007=100)

    Italian Industry Sector: Capacity Utilization, %

    Source: EUROSTAT

    Source: ISTAT and S&P Global Market Intelligence

    Source: OECD

    Investments: a gap to be filled to sustain Italy GDP growth

    100%

    75%

    50%

    25%

    0%

    25%

    50%

    75%

    100%

    Jan03

    Sep03

    May04

    Jan05

    Sep05

    May06

    Jan07

    Sep07

    May08

    Jan09

    Sep09

    May10

    Jan11

    Sep11

    May12

    Jan13

    Sep13

    May14

    Jan15

    Sep15

    May16

    FixedInvestment InventoriesandWorkingCapital

    15.0

    20.0

    25.0

    30.0

    35.0

    1995

    1996

    1997

    1998

    1999

    2000

    2001

    2002

    2003

    2004

    2005

    2006

    2007

    2008

    2009

    2010

    2011

    2012

    2013

    2014

    2015

    (%)

    Italy Spain FranceGermany EuroArea

    62646668707274767880

    2Q07

    4Q07

    2Q08

    4Q08

    2Q09

    4Q09

    2Q10

    4Q10

    2Q11

    4Q11

    2Q12

    4Q12

    2Q13

    4Q13

    2Q14

    4Q14

    2Q15

    4Q15

    2Q16

    (%)

    85.0

    90.0

    95.0

    100.0

    105.0

    110.0

    2002

    2003

    2004

    2005

    2006

    2007

    2008

    2009

    2010

    2011

    2012

    2013

    2014

    2015

    2016

    (f)

    2017

    (f)

  • Italian companies: key competitive disadvatages

    Private & Confidential 10

    Added Value By Employees Number And Export Exposure ( bln)

    Source: ISTAT

    Multifactor Productivity (Log change, %)Market Capitalization Of Listed Domestic Companies on GDP (%)

    Adde

    dvalue(

    bln)

    2520151050no

    export 05525

    25505075

    75+Exportexposure(%)

    Employeesnumber1

    29

    1019

    2049

    50249250+

    510 1015 1520 202505

    Limited Size Low Productivity Low Listed Capital

    Source: ISTAT, IMF, WEO Source: The World Bank, London Stock Exchange, Borsa Italiana

    0

    40

    80

    120

    160(%)

    2009 2012 2015

  • A close look at drivers of Italy poor labor factor productivity

    Private & Confidential 11

    Labor Factor Productivity (2007=100) Italy Labor Factor Productivity and its components (1996=100)

    Multifactor productivity for selected countries (average growth, %)

    Source: OECD and S&P Global calculations Source: OECD and ISTAT

    Source: OECD

    Italy Potential Growth, %

    Source: IMF Country Report No.15/166

    1.0

    0.5

    0.0

    0.5

    1.0

    1.5

    2.0

    19932000 20012007 20082014 20152020

    DeltaCapital DeltaTrendEmploymentDeltaTrendTFP PotentialGrowth

    1.0

    0.5

    0.0

    0.5

    1.0

    1.5

    2.0

    France Germany Italy Spain

    19971999 20002002 2003200520062008 20092011 20122014

    70

    90

    110

    130

    150

    1996

    1997

    1998

    1999

    2000

    2001

    2002

    2003

    2004

    2005

    2006

    2007

    2008

    2009

    2010

    2011

    2012

    2013

    2014

    2015

    LaborProductivity MultifactorProductivity CapitalDeepening

    80

    85

    90

    95

    100

    105