First analysis of the annual accounts for 2018 shows 1.3% rise in operating profits, while value added was up 3.4%

Value added and operating profits of non-financial corporations were up by respectively 3.4% and 1.3% in Belgium last year. These are two main findings to emerge from an initial analysis of the annual accounts for 2018 filed with the National Bank of Belgium. Thanks to the sharp increase in the financial results of large companies, profits for the financial year almost doubled, leading to strong growth in firms’ financial profitability.

The National Bank of Belgium’s Central Balance Sheet Office is releasing its initial analysis of the annual accounts for 2018 filed by non-financial corporations earlier this year. The results – which are still provisional – are based on trends observed for 291 000 companies.

For the first time, the NBB highlights the specific features of micro-companies. These are small firms with low turnover volumes and few staff which have no relationship with any subsidiary or parent company. Since 2016, small firms meeting these criteria can file their annual accounts using a special "micro" format. Other small companies use an abridged format, while large firms must opt for the much more detailed full format.

Small firms – and notably micro-companies that account for 61% of the survey population – make up a very large part of the Belgian economic fabric, even though the big firms continue to bring all their weight to bear in terms of value added (71% of the total) or employment (75% of the total).

In 2018, value added generated by non-financial corporations increased by 3.4% on average. Most noteworthy was that growth turned out to be twice as high in small companies (nearly 6%) than in large ones (2.7%). Operating profit grew more slowly than value added (+1.3%). That can be explained by the sharp rise in operating costs (+4%), and especially staff costs (+3.9%), on the back of rising employment.

While small firms’ results are almost exclusively made up of operating profits, the larger companies’ results also depend on income derived from their financial asset management. This was particularly true in 2018: some large firms recorded exceptionally high financial returns, which resulted in profits for the year almost doubling.

Following the corporation tax reform, half of all companies analysed were taxed at a rate below 27.9% in 2018, which was 3 percentage points less than in 2017. This tax reduction helped to strengthen corporate profitability.

The NBB also points up a series of structural differences between firms depending on their size. Specialisation in terms of business activity, for example, is by no means the same: small firms are largely geared towards services, while big companies have a stronger foothold in the industrial sector.

Disparities can also be observed for property: 38% of large firms’ assets are made up of financial assets (notably shares in affiliated companies) while small firms focus more on physical assets (46% for micro formats and 35% for those filing abridged-format accounts) and liquid assets. Moreover, as investment by small firms mainly takes the form of acquisition of land and buildings, i.e. it is long-term, they tend to renew their physical assets more slowly than large firms.

The debt structure is different as well: small firms have proportionally less commercial debt (given their weaker bargaining power) but benefit more widely from loans of a non-financial nature, like advances granted by an associate, for example. In addition, there are proportionally more heavily indebted firms to be found amongst the smallest ones, a situation that could jeopardise business continuity when the firm’s own funds are low, or even negative. However, the lion’s share of the total volume of non-financial corporations’ debt remains in the hands of (a small group of) large firms.