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Construction of the gigantic stadium of Soweto

TRADE LINEIssue 18 Nov-December 2011

Coface's magazine for its clients and partners

Special report: Italy

Credit insurance

2 I TRADE LINE I n°18

ContentsSpecial Report on Italy:

Italy in the eye of the hurricane

Economy

Jean-Louis Daudier, Analyst, Country Risk and Economic Research, Coface

The euro zone’s third-largest economy is well diversified. The increase in added-valuecontributed by industry and a niche strategy have enabled the country to limit its tradedeficit. Household indebtedness is relatively low. Caught in the whirlwind of the eurozone crisis, however, Italy’s limited growth potential due to structural weakness andthe massive debt burden have brought financial market pressures to bear. Followingthe resignation of Silvio Berlusconi, it will be up to the government of experts formedby economist Mario Monti to reassure the markets. No easy task._________________4

Viewpoint

The challenge for exports lies with the micro-enterprises

Riccardo Carradori, Chief Executive Officer Coface Italia

A challenge: an economic recovery and exports depend on numerous micro-companies. ______________________________________________________________8

Finance

The banking system: few international leaders

Roberto Rossi, Natixis Milan Branch

Despite their very old tradition, to this day Italian financial institutions remain closelyconnected to their region and the country’s manufacturing base. _________________9

Services and industry

Italian industry reinvents itself

The manufacturing sector is the economy’s growth engine. It is counting on innovationand flexibility to regain its competitiveness, as noted in research reports published byConfindustria and Mediobanca. ____________________________________________10

Interview

- Sergio Napoli, Head of Coface Italy Risk Underwriting Department Sector report: « luxury goods » lead the way, construction on hold. _____________12

- Fabrice Rocchi, Coface Underwriter

Exporting to Italy: preconceptions and pitfalls to avoidCompanies looking to export to Italy need to recognise specificities that mightotherwise be underestimated given the country’s proximity to France.___________14

Eyewitness report

NeroGiardini, a textbook case of “Made in Italy”

Enrico Bracalente, President of NeroGiardini

Neogiardini, a textbook case: This small company, founded in 1975 in the Marchesregion, illustrates the ability of Italian SMEs to use innovation, IT and adaptability togrow. No need to move. __________________________________________________15

Analysis

Italy? No… “The Italies”

Olivier de Rocca-Serra, CCEF CEO of Bel-Italia, Subsidiary of Bel cheese-makersand Nicolas Diers, CCEF Senior Adviser, SIA Conseil.

Italy is a complex and heterogeneous country, with extensive differences at theregional and even local levels. Its regulations are cumbersome and the entry costs forthis large market are high. But a network of productive SMEs, a modern distributionsystem and high-quality consumers open up numerous rich possibilities. _________17

Law

A welcome change in the bankruptcy law

Jean-François Rondest, Group Information and Claims Department, Coface

The overhaul of the bankruptcy law has been carried out in several stages, making itpossible to support company turnarounds and to streamline and shorten the judicialprocedure.______________________________________________________________19

Credit insurance

Coface offers you a new guarantee: Globalliance Projects Cover.________________24

If you would like more information, drop us a line at [email protected]

Information review published by Coface - 12, cours Michelet - 92800 Puteaux /// Jean-Marc Pillu, Publication Director /// Marie-Laure Meunier, Managing Editor /// PatriceGodeau, Chief Editor /// Françoise Crouïgneau, Editorial Advisor /// ISSN: 1966-6780

TRADE LINE I n°18 I 3

Italy’s economy – the third-largest in the euro zone – is well diversified. Yetthe country is currently at the centre of the debt crisis plaguing the singlecurrency zone. Of course, many of the economy’s fundamentals appearsound. The budget deficit did not deteriorate significantly during the crisis, thegrowth in industrial added-value and a niche strategy help to limit the tradedeficit, and household indebtedness is relatively low. But the deterioration inthe country’s economic growth potential due to structural weaknesses and thecrushing weight of the public-sector debt in a very uncertain internationalenvironment are all cause for concern. Given the vast size of this debt and thefact that it is widely held by the European banking sectors, a default by theItalian government would have incalculable consequences on the euro zone’sfuture. However, the recent formation of a government of experts led by MarioMonti, an economist and former European Commissioner, provides somereassurance of rigour which is a step in the right direction.

Italy in the eyeof the hurricane

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Disappointing economic performances for more than a decade

Strengths

In 2009, following relatively mediocregrowth for the decade leading up tothe crisis, Italy experienced its worstrecession since the end of World WarII. Since then, the vigour of theeconomic recovery has remaineduncertain. The rebound, driven primarilyby exports, began to loose steam inthe second half of 2010, a trend thatcarried over to early 2011. Althoughgrowth picked up slightly in the secondquarter, thanks to an increase inindustrial output, the economy isexpected to stagnate, or even contract

slightly in the second half of this yearand in all likelihood, again in 2012.Specifically, GDP growth is projected tobe only 0.6% in 2011 before falling intonegative territory in 2012.Foreign demand is expected to weakenas a result of austerity policiesimplemented in the euro zone, andItalian exports will slacken. Householdincome will be affected by inflation andlabour market weakness. Financialmarket tensions will push companyfinancing costs higher. The budgetaryausterity measures adopted in 2011,

Jean-Louis Daudier, Analyst, Country Risk and Economic Research, Coface

• Low household debt and robustsavings capacity

• More than half of the public-sector debt held by local marketparticipants

• Banking system has lowexposure to countries in trouble

• Considerable tourism potential

• Still substantial weight of industryin the economy

• Highly profitable niches with lowprice sensitivity: luxury apparel,household equipment, agri-business, machinery, steel

Weaknesses

• Recurring weak growth

• Low productivity

• Shortcomings in research andhigher education

• Labour market rigidity; lowemployment of the youth andwomen

• Insufficient competition

• Inefficient public administration;large number of civil servants,

• High public-sector debt; taxevasion

• Anaemic demographics

• Lagging growth in southernregions

One of the strongest recessionsin the euro zone and oneof the most fragile recoveries„

“


energy market, greater use oftenders at the local authoritieslevel, and measures toimprove secondary andhigher education. However,the continuation of structuralreforms to stimulateproductivity growth and thesupply of labour is running upagainst the lack of consensusand political stalemates.

The markets are currently measuringthe scale of Italy’s public-sector debt,which has been largely inherited fromthe high deficits recorded in the early1990s. At end-2010, this debt totalled119% of GDP, the highest level in theeuro zone behind Greece.Nevertheless, after falling beginning in1997 thanks to the implementation of aconservative budgetary policy, theweight of the debt rose only slightly at


built around increased social securitycharges, will weigh on domesticdemand. Private investment is alreadyconstrained by excess capacity andcompany financial situations that havenot returned to normal yet.Precautionary household savings,which are already substantial, areexpected to increase given theuncertainties on how disposableincome trends are going to evolve.Confidence surveys reflect thesechanges: in September, for example,the business climate index fell to itslowest level in 20 months.Although Italy’s de-industrialisation is notas severe as that of other countries (itsindustrial sector still accounts for 25% ofGDP, compared with 19% for France),the economic performances prior to thecrisis were disappointing. Italy regularlyposted growth rates among the lowestin the euro zone. Many reasons accountfor this sluggishness.The economic model, which for yearsconstituted the country’s strength, isstruggling to meet the challenges ofglobalisation. The small size of Italiancompanies makes it hard for them topenetrate foreign markets. Thesynergies amongst companies, whichconstituted the backbone of mono-

activity industrial districts, are nowtenuous, primarily as a result ofoffshoring. Moreover, regulatoryrestrictions on businesses and servicesstymies competition, the tax burden isrelatively high, public-sector services areof sub-standard quality and regionalincome disparities remain considerable. Yet some progress has been achieved,including changes to the bankruptcylaw (see page 19), liberalisation of the

Massive public-sector debt and low growth potential complicate a recovery from the crisis„

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Massive public debt (% of GDP)

the time of the crisis. This is becausethe authorities have preferred toreallocate government spendinginstead of adopting stimulus measuresthat would further widen the deficits.The government therefore largelyadhered to its budgetary objective in2010 and trimmed the public deficit to4.6% of GDP, compared with anaverage of 6% for the euro zone. These efforts nevertheless had to be

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strengthened under pressure from themarkets and the European CentralBank. Thus several cost-saving planswere adopted successively this year inorder to balance the budget by 2013. Inaddition to a freeze on governmentsalaries, they call for an increase in VAT,a tax on high incomes, increasedtaxation of financial income, tobaccoproducts and gaming sales, pensioncutbacks and raising the retirement agefor women. Finally, the measures includereduced funding to the regions andmunicipalities, healthcare spending cutsand cutbacks in government services. Despite these measures and the start ofa decline in the deficit, the three ratingagencies lowered Italy’s sovereign debtrating (S&P’s in September, thenMoody’s and Fitch in early October). Inaddition to the vast size of the debt andthe State’s financing needs, thecountry’s sluggish long-term economicgrowth potential and doubts over itsability to enact reforms are likely toimpede the de-leveraging process.These factors are all legitimateconcerns.The political environment has stabilisedwith the resignation of Silvio Berlusconiand appointment of Mario Monti asPrime Minister This environment hadbeen increasingly unstable, with no clearpaths toward significant progress on a

reform plan, and it threatened to triggerearly legislative elections that wereotherwise scheduled for April 2013. Therecent period was marked by thepolitical upsets of Silvio Berlusconi andhis coalition government in May, as wellas the legal troubles of the PrimeMinister and others in the summer of2011, and, most recently, thegovernment slipping to minority status.The country is nevertheless at the centreof the euro zone debt crisis. Since earlyAugust 2011, it has depended onEuropean Central Bank purchases ofItalian debt in an effort to rein in risinginterest rates on its debt. After a periodof easing, the yield on the ten-yeargovernment bond again climbed to5.8%, a level approaching the early-August high of 6.2%, before surging upagain in November to cross the 7%

Coface downgrades its credit risk assessment

Coface assesses the average risk of companies defaulting in connection withtheir commercial operations over the short term -generally a credit period ofup to six months. Italy’s assessment has been downgraded to A3, with anegative watch. Companies’ overall financial situation remains fragile, markedby low capitalisations and high debt, much of it short-term and most of it atvariable rates. The country’s payment incidents indices are traditionally higherthan the global average and have been trending upwards in recent months.After increasing by 25.5% in 2009 and 19.8% in 2010, bankruptcies increasedby another 10% in the first half of 2011.

Italian public-sector debt held by Italian and foreign creditors


threshold. In early September, the yieldon Italian government bonds evenexceeded that of bonds in Spain, theeuro zone’s other peripheral countrycaught in the market’s crosshairs alongwith Greece, Portugal and Ireland. Even though the bulk of Italian debt islong-term and variable-rate bondsaccount for only a relatively smallamount, the heavy burden of interestexpense (4.5% of GDP in 2010) makesthe debt trend vulnerable to financingconditions. If rates remain above 5%over the long term and economicgrowth continues to slow, the efforts totrim the budget deficit and stabilise thedebt ratio will be threatened. In anyevent, the stimulus to the economywould be reduced by the amount of theexcess resources used to pay intereston the debt.

reasonable level (less than 3.5% ofGDP in 2010). The budget deficit hasalso remained in check. The primarybudget deficit, ie excluding interest onthe debt, is nearly balanced. Thismeans that in order to improve thepublic finances and stabilise the debt,the budgetary measures needed are


Jean-Louis Daudier

A banking sector weakened by the recession and its exposure to sovereign debt risk„

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Italian banks have substantialdownside resistance capabilitiesthanks to their traditional businessmodel, based on deposits and aconservative regulatory frameworkestablished by the Italian Central Bank.Since February 2010, credit hasrebounded and, for the most part, heldits ground in recent months, incontrast to the situation in othercountries. However somevulnerabilities have appeared.. Italianbanks hold very little Spanish, Greek

or Irish sovereign debt but are heavilyexposed to their own country’ssovereign debt (€150 billion), whichaccounts for their plummeting shareprices. Moreover, in the light of therecession, the quality of their portfolioshas deteriorated and bad receivableshave nearly doubled in the past twoyears, although the deterioration is notas acute as it was during the 1992/93recession. The two banking leaders, UniCredit andIntesa Sanpaolo, account for more

Strengths to consider„“

than half of all non-performingloans held by the main Italianbanks. These loans represent,respectively, 6.8% and 6% of the twobanks’outstandings. The currenteconomic slowdown does not favour anend to the deterioration in the loanportfolios, and it will be difficult for thefinancial institutions to improve theirprofitability. Solvency ratios for Italy’sbanks are slightly below those of banksin the other euro zone countries, makingadditional recapitalisations necessary.

However, in view of thesevulnerabilities, the country enjoys somestrength. Italian industry has raised itsadded-value contribution, as evidencedby the capital goods trade surplus. Thisfavourable performance limits thedeterioration of the current accountdeficit, which has remained at a

less significant than in the other eurozone countries. Also, the country’s debtis 57%-owned by Italian residents,which limits speculation. And whileItalian companies have relatively highdebt levels, household debt remainslow (less than 60% of GDP) whencompared with that of other euro zonecountries. Despite a marked increase in housingloans in recent years, the country hasnot experienced a speculative propertybubble. Finally, the level of privatesavings remains relatively high (18% ofGDP). Therefore the country hasconsiderable manoeuvring room tofinance its growth.

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Sectoral distribution of Italian Trade (Imports/Exports)

becoming aware of that. Awareness ofthe importance of credit insurance is alsogrowing thanks to the work carried outby Coface.In Italy, Coface operates nationwide,offering services through a network ofover 60 general agents and professionalsspecialized in integrated creditmanagement and with in-depthknowledge of local economies andsectors. Through its deep rooting in thegroup, Coface in Italy is able tocoordinate all the services and facilities ofinternational scope to the needs of Italianmarket, where it has been present since1987. Coface Italia has become theleader on the surety market and thesecond actor on the credit insurance,market.Recently Coface Italia has strengthenedits commitment on behalf of enterprises,first and foremost in the framework of theprotection of trade receivables, but also

Italy is characterized by over five millioncompanies (divided up amongagriculture, industry, trade and services).95% of them are micro-enterprises. Mostof these companies have taken boldsteps to take on markets which are moreand more globalised, expanding theirproduct ranges and increasing theirflexibility to launch themselves on theinternational markets.Internationalization is precisely one of thekeys which will allow Italy to take up theupcoming challenges of the future. Muchhas been done in this direction, but thereis still a long way to go. Proper risk management is ever moreimportant for companies as thecomplexity of business deals and riskvolatility are on the rise. Riskmanagement makes it possible forcompanies to cover their risks. It helps tosupport development andinternationalization. Italian companies are

by offering its support in the area ofbusiness strategy, by identifying onwhich markets to invest in and byaccessing to bank credit, madeincreasingly costly and insufficient by theturbulence of the financial markets,which has pushed banks to payparticular attention to financing methods.Coface is investing in dialogue withcompanies and undertaking a path ofcollaboration with the major Italianmanufacturers’ association, the home ofenterprises, thanks to which importantpartnerships have been created, aboveall the national accord with Confindustriafor credit insurance and its application tolocal realities.In the future, Coface intends to carry onits mission with Italian companies byhelping them to prevent risks in acomplex and volatile economicenvironment in Italy as in the rest of theworld

The challenge for exports lieswith the micro-enterprises

Riccardo Carradori, Chief Executive Officer Coface Italia

Riccardo CarradoriS

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companies in Italy can be counted onone hand. The families have struggled toaccumulate savings year after year andthese savings have prompted a fewlarge foreign banks to cross the Alps,study the market and establish a firmfoothold. In recent years, BNP Paribasand Crédit Agricole have acquired solidpositions, with nearly 2,000 countersthroughout the peninsula, although theycontinue to operate under the old,traditional Italian names such as BNL,Cassa di Risparmio di Parma andFriuladria. Other foreign entrants havechosen to fly their own flags, includingDeutsche Bank and Barclays - making itcommonplace today to see the blueeagle logo side by side with morefamiliar names. Lastly, ING’s orange logohas become ubiquitous. A virtual bank?Indeed, but one that has managed toovercome scepticism and win lots ofcustomers, notably among the youth:the Internet-savvy generation who haslittle money and for whom cost-consciousness is a priority. Italy is changing along with the rest ofEurope. Change may not always becoming as fast as in other countries, butthe banking system is supporting it. Andif the Italian banking sector is not yetfully able to anticipate this change, thesame can be said of that in othercountries. The crucial thing is that trust-based banking relationships remainfirmly established in Italy, and thatpeople here feel that their banks riseabove the vagaries of the market and,under the watchful eye of the centralbank, continue to be conservativelymanaged.

Two leading domestic banking giantsstand out above all the others:IntesaSanPaolo and Unicredit-HVB.They are followed by large banks thatwere formed through the merger ofnational and regional institutions andwhich were able – not without somedifficulty – to create a new culture anda new kind of banker. These bankshave also been able to expand outsideof the country and become Europeanbanks not global though. Below themare five or six large banks which areonly known in Italy but largelyanonymous to those outside thecountry: Monte dei Paschi di Siena,Banco Popolare, UBI, Carige, etc.These are financial institutions with along history and still closely linked totheir region and the country’smanufacturing base. Italy has large industries but ischaracterised mostly by its small- andmedium-sized businesses groupedregionally: machinery in Lombardy andPiedmont, ceramics in Emilia, textilesand furniture in Veneto, kitchens in theMarches, sofas in Apulia. In thesecircumstances, the banking professionconsists in knowing one’s clients,understanding their needs, knowinghow to help them and, in some cases,knowing how to make them wait.Because companies do not all pay andmake deposits at the same pace, theydo not all succeed without assistanceto overcome low points in the

economic cycle, and they do not allsucceed in penetrating new marketswithout the support and understandingof a serious financial institution. The business landscape also includestradespeople, shopkeepers andemigrants from Eastern Europe andAfrica who resourcefully launch smallbusiness activities. They turn tomedium-sized and small retail banks,savings banks and mutual banks thatdo not want to go beyond the bordersof their own region, and finally, the smallcooperative banks (nearly 800) thatmanage to have their own sales nichewith a single bank counter or hardlymore. Lastly, there are the savers. As a rule,Italians prefer not to live on credit. Tobuild a house, they first set asidesavings, with parents and family helpingout. Only then do banks enter thepicture to make up the difference, butthey never contribute more than 70% ofthe value of the house to be purchasedor built. In Italy, savings are channelledthrough the banking system. There arestill many deposits and many low-riskbonds, which are jealously guarded byeach saver’s trusted bank, along with abit of asset management and somestocks and shares, but still well belowthe international average. This lack ofenthusiasm for shares is due mostly totheir price volatility, but also to thepaucity of listed companies. And the number of true public

Financial institutions with a long history and stillclosely linked to their regions and the country’smanufacturing base.

The banking system: fewinternational leaders

Roberto Rossi, Natixis Milan Branch

Roberto Rossi

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Companies’ newstrategiesMany companies have fully graspedthe momentous changes in progressand have adapted their strategies:decisions to focus on growth and toconcentrate on knowledge, to expandtheir product ranges and outlets, toproject themselves onto theinternational markets, to integrate theupstream and downstream activity torecover skills and value shares and tobe more flexible and ready to respondquickly to customers’ changing needs,have all proved successful. Withinsectors, closer collaboration withmajor suppliers is being seen.

The commercial function andinvestment in brands have becomeincreasingly important. Cost cuttingand efficiency increases have becomesecondary: they remain a preconditionfor competing, but they are notenough to stand up against thecompetition and to create thosedistinctive elements that areindispensable for staying on themarket long-term.

The most prestigious road ofincreased productivity passes throughthe ability to capture a demand thatrequires more advanced products andconstant renewal of the solutionsoffered. It passes through theaccumulation of human capital andinvestment in the people who work inthe company.

These strategies are shared by thecompanies that have demonstrated inthe past decade that they are moredynamic and proactive to change,independently of their size, sector orthe territory they belong to.Features of these behaviours alsoemerge in the business models of thesmall enterprises that have the bestperformances, according to the

Despite its current difficulties, Italyremains a country with a markedindustrial vocation, as underscored bya recent research by the Centro Studiof Confindustria. Despite havingdropped from fifth to seventh placeworld-wide it remains second inEurope only to Germany.Unfortunately, however, in the lastquarter a troubling downturn in theactivity was recorded (-17.0%), that is,double or triple that of its biggestcompetitors Only Spain did worse.

The main driverof the economyIndustry continues to be the maindriver of the economy. It is the origin ofthe productivity gains of the wholesystem. It is there that quality, better-remunerated jobs are created, and it isthere that most of the research isconducted. Industry is the source of78% of the revenues obtained fromthe exports that serve to finance theimports of goods and services.Simulations by Confindustria’s CentroStudi illustrate that more than a third ofGDP and 8,2 million workers are linkeddirectly or indirectly to themanufacturing sector and that, withoutits decisive contribution to foreigntrade, the Italian economic systemwould implode. Comparison withEurope confirms that where industry(net of the building sector) does best,income grows more rapidly.

Northern Italy is specialised inmechanical, especially, and competeswith the Central and NorthernEuropean areas, while in Italy’s Souththe weight of the clothing sector isgreater and this exposes it to

competition from Southern andEastern Europe. Italy is the world’seighth-ranked exporter of goods,fourth in Europe. Even during the crisisit has continued to reorient itsoverseas sales towards Eastern andCentral Asia, Northern and CentralAfrica and non-EU Europe. The weightof the emerging markets on its GDPincreased between 2000 and 2010from 4.1% to 6.5%, an increase andlevel, however, that are much lowerthan those of South Korea andGermany. This reduces the drivingforce that comes from the fastest-developing economies.

Italian specialisation has continued toturn towards the manufacture ofgoods not directly attributable to thefashion-clothing-furnishings area,which remains significant in productionand a driver for the country’sinternational image but which hasseen its share of exports decline fromthe 21.5% at the start of the 1990s tothe 14% of 2010. In terms of exportsales, sales abroad machinery prevails(nearly 20%), while in the past threeyears the incidence of chemicalproducts has increased (to 7%), andeven more that of pharmaceuticals (to4.3%).

Last year productivity registeredsignificant improvement (+6.8%),which however follows the 8.2%contraction in the previous two years.The number of workers employed alsocontracted, interrupting a decade atsteady levels.

The profitability of investments in Italyis low, however, and comes from adecade-long descending trend. In2010 EBITDA, in relation to added-value, recouped the drop in 2009 onlyin small part and remained well belowthe values of 2008, closing at 24.6%(it was 33.2% in 2000).

The manufacturing sector, the driver of Italy’s economy, is banking on innovationand flexibility to regain competitiveness. Studies carried out by Cofindustria andMedioblanca confirm this.

Italian industry reinvents itself


For the R&S Mediobancaanalysts, it is a question of“levels finally stabilised bothwith respect to the loans tocustomers and to the netcapital,” but the boom hasbeen remarkable: from morethan 44 billion euros of 2008to the 76,7 billion at the endof 2009, to the 85,5 billion atthe end of 2010. Last March the leastfavourable situation was that of BancoPopolare, whose NPLs were equal to9.7% of the loans to customers and to75% of the net capital.In the first quarter the overall earningsshow slight growth (+1.3%) over thefirst quarter of 2010, with a smallincrease in the interest margin (+2.1%)and a strong improvement of thenegotiation result (+45.3%), i.e. of thetrading. However, “with the currentsituation of the markets it is verydoubtful that this year the banks willclose the trading activities with positiveresults,” the R&S Mediobanca analystscomment, “and if these initialtendencies are confirmed in thecourse of the year, the aggregate ofthe banks would still close 2011 withearnings around 10% lower than the2007 level,” i.e. the period precedingthe crisis.

analysis conducted for Confindustria’sCentro Studi on the basis ofinformation that regards companiesthat invoice less than 7,5 million euros.Also in those cases the competitivefactors that count are themanagement of brands and foreignmarkets and commercial strength.Companies that adopt simplifiedbusiness models, with lowtechnological and organisational skills,are fragile and struggle to survive.

The transformation of the Italianmanufacturing fabric also takes placethrough a harsh and acceleratedselection. Raw materials have becomea vital issue. Product and processinnovation, with the introduction ofnew materials, the dematerialization ofproduction, with the raising of added-value due to the greater content inservice, and coverage of the riskbrought by the excessive volatility ofquotations, are the viable ways tocounter this threat.

A weakenedfinancial system Other difficulties could arrive for Italiancompanies on the credit front. Thefinancial crisis, the increase of thespreads on Italian government bondsand the perception of a greatercountry risk have in fact considerablyincreased the financing costs of thebanks and, as a result, they are slowlyshifting the increases onto thecompanies.

According to a research by Ricerche &Studi of Mediobanca on the 50 largestlisted Italian groups, the marketcapitalisation of the six leading Italianbanks (Intesa Sanpaolo, Unicredit,Monte dei Paschi di Siena, UBI Banca,Mediobanca and Banco Popolare) iscurrently not even a third of what itwas before the crisis: 66 billion euroscompared to the 218 billion of late2006. Several troubling signals emergefrom the research, starting with thefact that in the first quarter of the yearthe net non-performing loans of thefive “bigs” of the sector amounted to87,2 billion euros: double the 44,8billion in 2008.

Coface Italia

Employment in the industrial sector (excluding construction) Labour productivity in the industrial sectorS

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“Sector report: « luxury goods »lead the way, construction on hold”


Sergio Napoli, Head of Coface Italy Risk Underwriting Department

Sergio Napoli reports on the health of the leading “Made in Italy” sectors.

TradeLine (TL): Let’s start thissector review with one of thecornerstones of the Italianeconomy, the machineryindustry, which includes theautomotive and metallurgysectors.

Sergio Napoli (SN): Overall, themachinery industry is one of the “Madein Italy” sectors recording the strongestgrowth abroad, notably in the BRICcountries (Brazil, Russia, India andChina). In the ceramics industry, whichhas been fundamentally restructured inrecent years, we are also seeingrenewed domestic demand, whereasshipbuilding and forklifts have notperformed well. After a difficult year in2009, the metallurgy industry’s situationimproved in 2010 thanks to exports,although some stagnation was evidentin the latter six months of the year.Here again, shipbuilding companieswere hardest hit, whereas companiesthat manufacture steel for the gassector (gas pipelines and conduits)performed better. The claims rateremains high, but in line withexpectations.

The success of Italian companies,which excel in every way, will dependon a recovery in domestic marketgrowth. As regards the automotivesector, the domestic market hascontracted significantly as a result offalling consumption. The country’sleading automotive company Fiat, ofcourse has lost market share in Italy

but increased exports, notably to Northand South America.

TL: What about agri-business,another traditionally solidsector, inextricably linked tomass market retail?

SN: The impact of the crisis has notbeen less significant, in particular onexports. In the domestic market, theItalians’ low propensity to consume hasweighed on growth. Wine, fruits andvegetables have recorded favourableresults, while the production sectorsrelated to beef and lamb have turned inbelow-average performances despitestrong gains.

As regards mass retail, Italy’spositioning is consistent with that ofother European countries, except in thesouthern part of the country, wheremarket penetration remains limited. Thehealth of the agribusiness sectordepends on this sector, since the largeretail chains can negotiate lengthypayment terms, which can be difficultfor small operators, who are oftenthemselves intermediaries.

TL: The growth trend in theconstruction and to someextent the wood/furniture sectorappears less reassuring. What isyour view of that situation?

SN: The construction industry isstruggling the most, with plummetingrevenues during the past two years anda growing number of bankruptcies this

year. We are seeing increasingconsolidation amongst smallcompanies, consisting mainly incooperatives. The large operators arealso negatively affected by the situationin the foreign markets, notably in NorthAfrica and the Middle East.

In the wood/furniture sector, adistinction is necessary. After falling offdrastically, sales of furniture and sofashave rebounded thanks to exports -there being no signs of renewed growthin domestic demand. Meanwhile, thekitchen cabinet segment continues toexperience major difficulties.

TL: Is the luxury goods sectorstill the star of “Made in Italy”?

SN: Exports of high fashion and luxurygoods continue to perform well, but thisis one of the rare sectors in Italy thatcan act as a whole and present aunified image in the market. Companiesin the other sectors should learn fromthis winning strategy instead ofcounting on initiatives by individualplayers.

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Coface Italy

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Sectors on the rise

Agribusiness

Sales volumes and revenues have increased slightly. Exports have performed well regarding both basicagricultural commodities and processed products. Given the anaemic household consumption, thefavourable outlook offered by foreign markets will represent the main source of growth.

Fashion

Textiles, leather goods and shoes are gradually gaining strength, thanks in large part to exports.Apparel has also recorded robust volume gains, but these have not been reflected in higher revenuesbecause of the downward pressure on prices. High-end fashion companies present in internationalmarkets have benefited the most from the growth.

Machinery

This sector is showing promising signs of improvement, both in the domestic market as well as forexports. Of all the manufacturing sectors, it is the one most likely to experience a recovery in the short-and medium-term, and even offers a promising outlook if it can fully exploit the possibilities available inthe emerging markets.

Sectors in decline

Automotive

Restrictions on imports and the advantages linked to the government incentive mechanism topurchase automobiles, combined with the decline in household spending on consumer durables,have resulted in declining revenues in the domestic market and the appearance of difficulties for thebrands of Italy’s leading car manufacturer.

ConstructionThe companies in this sector, which continue to have a hard time obtaining credit, have againrecorded declining performance. The sharp drop in new home construction has been only partiallyoffset by the renovation and modernisation activities. Non-residential and industrial construction hasalso continued to decline.

Mass market retail

Savings and protecting purchasing power are the predominant factors affecting consumer behaviour,along with the uncertain labour market outlook. The large retail chains still find themselves in a highlycompetitive environment, which offers limited potential for growing sales.


Fabrice Rocchi, Coface Underwriter

Companies looking to export to Italy need to recognise specificities that mightotherwise be underestimated given the country’s proximity to France.

TradeLine (TL): What advice wouldyou give a company looking toexport to Italy?

Fabrice Rocci (FR): You need tounderstand this country in order to dobusiness there. Even though it is very closeto France both geographically andculturally speaking, there are majordifferences. In my opinion, to think that youcan export to Italy without knowing thefundamentals or having a solid base or thecapacity to get a sense of the marketwould be a huge mistake. If you think youcan structure and develop this market fromFrance – after all, with the Internet, atelephone and low-cost flights, anyone canmanage the business from the main officein France, right? – you may well run intoserious trouble. It is a difficult market, withcertain specificities that need to beunderstood. But it offers advantages tothose who take the time to get properlyacquainted with them. I believe that it isessential to have a dedicated staff (ortrustworthy representatives) in the countryfor any commercial transaction, along withflawless management discipline (closeattention needs to be paid to overseeingdelivery conditions for merchandise,checking compliance with paymentdeadlines, etc.).

TL: which industrial sectors are thesafest and which are the riskiest?

FR: Given Italy’s currently challengingfinancial situation, the simple answer wouldbe to say that all industrial sectors are risky.This country, which is in the midst of amajor crisis, faces numerous problems.

The fact that it needs to import all of itsenergy needs (out of the planet’s 14 richestcountries, Italy is the only one not havingany nuclear resources related to nuclearenergy), makes it extremely vulnerable anddependent from a financial standpoint.Moreover, the structural weakness of theItalian political system undoubtedlycomplicates any plan to stimulate theeconomy. In this environment, it is only theindividual capabilities of certain Italiancompanies, linked to the family-basedcapitalism that has always been Italy’sstrength, which are able to protect a limitednumber of organizations which, despite thecrisis, are now getting a second wind. One of the most striking examples in thatregard is the textile industry, which wasexcessively hard-hit by competition fromChina. The past decade has been acatastrophe for this sector. Realising thatthis challenge from the Asian market couldnot be overcome, the Italian textile sectorturned to products with very high technicaladded-value. It is clearly a niche market,but one that allows the sector to retain atrue and tangible presence on the market.Conversely, some sectors that have longbeen amongst the strongest performers inItaly such as steel, corrugated board andchemicals are now clearly feeling theimpact of rampant globalisation, whichpoints out all the weaknesses of the Italiansystem in terms of competitiveness andtherefore limits any possibilities ofstimulating the activity.

TL: What types of risks do youassume and what guarantees doyou require for Italy?

FR: Coface is able to assume all types ofcommercial risks in Italy, without specific

guarantees, with the exception of specialcases naturally. Our in-depth knowledgeof this market over many years enables usto take on a broad range of transactions,which is clearly a major commercial assetrelative to our competitors. In any event, itremains difficult for our clients to getguarantees from our Italian buyers. Theguarantees are costly and often based onformal aspects that are difficult to verifyfrom a legal standpoint. For example, theuse of the bank guarantee, which is verycostly for the buyer, is still relatively rare. Therefore, we generally prefer to rely onour own experience to decide whether tocover certain types of transactions.Moreover, this specific experience hasshown us that with the exception ofdocumentary credit, all other availableforms of guarantees do not offer absolutepayment certainty. These types ofguarantee are often marred by technicalflaws related to tax regulations, applicablelegislation at the time, the properratification of documents, etc., which maygo undetected even to the closestscrutiny. The need to obtain guaranteesremains a more comforting factor in theevent of tricky payment collectionsituations.

TL: Do you underwrite Italian risksdifferently from in other countries?

FR: Yes, of course. To assess the riskposed by an Italian buyer, one needs toconduct an in-depth financial analysis and– even more importantly – have a detailedunderstanding of the country, itseconomic history (some industrial districtsneed to be understood and masteredseparately to avoid any missteps) andabove all its practices.

“Exporting to Italy:preconceptions and pitfalls to avoid”

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Coface Italia (CI): But what isthe secret of Nerogiardini’ssuccess?

Enrico Bracalente (EB): We’veinvested a lot in technology andcommunication, trying to provide afirst-rate retail service. Through dailyscheduling we keep sales constantly

Enrico Bracalente, President of NeroGiardini

NeroGiardini, a textbook case of “Made in Italy”

monitored and we are able tointervene if necessary, perfecting thesystem.Orders, restocking and reservations forthe next season are handled inaccordance with consolidated know-how in order to support retailers with atrue consulting service. The aim is toreduce unsold goods to the minimum

by means of a forecasting systemwhich is improved from one season toanother.

CI: What is the company’sdistribution policy?

EB: The biggest outlet market of theMarches-based company is Italy,

Founded in 1975 by Enrico Bracalente, NeroGiardini is a small enterpriselocated in the Marches region which manufactures shoes on behalf of otherscompanies. After having some mixed results and setbacks on the Americanmarket, the enterprise decides to change its strategy and to launch its ownbrand. Between 2005 and 2010 its sales have multiplied by four and havereached 213 million euros even though the enterprise keeps its production inItaly, refusing the “optical illusion” of low costs countries, according to EnricoBracalente, manager of the enterprise. Between “a return on investment of 0.3% on quality products in Italy and 10% on low quality products in China, what isthe advantage of relocating?” he says. A textbook case to be studied duringtimes of crisis. It has become a well-known brand, with sales revenues steadily climbing even inthe midst of the crisis. All this happened thanks to the flair of Enrico Bracalente,an entrepreneur who always had the courage to make bold choices, frominvestments in communication to credit insurance, from refusal to relocateproduction to the creation of an innovative IT platform in order to handle ordersand shipments.Coface Italia met with its president, Enrico Bracalente.


where NeroGiardini occupies a leadingposition in the mid-market range.Regarding the distribution strategy, thecompany has introduced a modernsystem based on the presencethroughout the territory of showroomsto support the sales network and toattract the clientele.The brand’s distribution is based on amixed formula which includes ownstores, franchise stores and multi-brand stores. Since 2003, thecompany has opened 12 company-owned single-brand sales outlets. Thefirst NeroGiardini Junior flagship store(offering articles for children and teens)has also opened in Corso Venezia inMilan in March 2010.In 2007 the franchising project islaunched, with the opening so far of30 NeroGiardini sales outlets. They areplanning to reach 500 by 2015.Moreover, for this project, an ITplatform has been developed whichallows each store owner to interactwith the company warehouse in realtime. Also tested in the company-owned single-brand stores, the

software is programmed to keep tabson the flow of sales in real time.There are 2,500 multi-brand stores inItaly. Over the last few years, 500 ofthem have created a dedicated single-brand corner inside their spaces. Andsoon another 100 multi-brand storeswill be added.

CI: What about its exportpolicy?

EB: Today, foreign markets onlyrepresent 10% of NeroGiardini’s salesrevenue, therefore the growth potentialis enormous. The group plans toconsolidate the expansion startingwith Europe (Belgium, Netherlands,Spain, France and Germany, but alsoEngland, Greece and Austria), with thegoal of getting 35 to 45% of its salesrevenue abroad by 2015. To reach thenew markets a series of single-brandstores will be developed, both directlyoperated and others in franchising.Among the emerging countries, Turkeyand China are of lively interest.

CI: What role doescredit insurance play?

EB: Since 1992, with whatwas then La Viscontea(Coface Italia), we considercredit insurance an essentialitem. Coface has been a bighelp because it has alwaysprovided us with valuableinformation, sparing us useless risks.Twenty years ago in our industrial areafew companies had a credit insurancecover. They greatly underestimatedrisk cover and they saw it as a cost,not as an investment. They werewrong! As they later often learned attheir own expense. As for banks,knowing that the trade receivables areinsured is an important guarantee.

NeroGiardini in numbers

Initially, it started as a small enterprise founded in 1975 in the Marches regionand which specialized in the shoes manufacture. Today, it has become awell-known brand on the market. And all this happened by investing inquality, communication and a production highly concentrated in Italy.

Interview by

Coface Italia

• 1975: year of founding

• 213 million euros: the 2010 salesrevenues of BAG SpA (+6.5% over2009)

• 4 company-owned productionfacilities

• 21 shoe factories of suppliers

• 2,000 direct and indirectemployees

• 3.5 million pairs of shoesproduced per year

• 120,000 belts produced per year

• 50,000 women’s handbagsproduced per year

• 13 company-owned single-brandsales outlets

• 30 single-brand franchise outlets

• 2,500 multi-brand sales outlets

• 10%: the share of sales revenueearned abroad

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Economic players that can beconservative

Typically, commercial positions have beenestablished over many years and aretherefore difficult to budge. Economicplayers can be economically fragile,cautious and resistant to change, whilecommercial companies often havesuppliers and standards at a local levelrather than an international one. Finally, the weight of politics in thebusiness world needs to be taken intoaccount. All in all, these constraints makethe country relatively difficult to penetratewhile giving a particularly strongadvantage to established marketpositions.

... but major assetsA highly productive SME network

Italy has a large number of dynamicSMEs doing business in all sectors andserving both the domestic and exportmarkets. However, these SMEs, whichare typically family-owned, need to bemodernised and offer new services atlocal and international level. Theytherefore represent a vast source of B2Bopportunities. Italian regions and citiesorganise numerous trade shows, whichare always an effective means to meetpeople and share information andcommercial opportunities. The 2015

We are all familiar with Italy’s wealth, itshistory, artistic heritage and strongtraditions, even if national unity wasachieved only relatively recently (Italy iscelebrating its 150th anniversary thisyear). But Italy is also a large country interms of its size and population (even ifthe latter is ageing), as well as the culturalheritage of its people, who only havemodest debt on the private level. Thecountry is also famous for its industry,which ranks second in Europe behindonly Germany and ahead of France! Theindustrial know-how and large number ofcentres of excellence contribute to thewealth of a country known for its“customised” artisanal and even massproduction. This “customised” productionis on the high end and has substantialadded-value. At the same time, it is truethat Italy is currently experiencing adifficult phase. Its economy has been inquasi-stagnation for about a decade andcould soon slide back into a recession.

Someimpediments...A complex country

Italy is often “hard to read” for Frenchpeople used to a centralised country. Itmakes more sense to speak of “theItalies” as opposed to “Italy”. Thisheterogeneous country (rift between theNorth and South) is also very fragmented

by region and even by local area. It is noteasy to put together reliable,comprehensive, structured and relevantinformation that enables you to reach asingle conclusion or business model thatcan be rolled out everywhere identically.

Excessive regulations

The vast number of standards andregulations imposed at variousadministrative levels (State, regions,provinces, municipalities) and established“in parallel” to European regulations oftenconstitute impediments to action. In anincreasingly federal country, theadministrative capital Rome is verydifferent from Milan, the commercial andfinancial capital. Companies are alsodispersed across the northern and centralregions.

High market entry costs

Specifically, the high market entry costsrelated to distribution and marketcoverage, communications, transport,energy, client risk, and administrative andadvisory fees are an unfortunate factor.An unfair competitive landscape whichresults from the special status of someregions (Alto Adige, Val d’Aosta, etc.) orcertain organisations (retail or producerco-operatives, etc.) is also to beregretted. Finally governmentbureaucracy is still relatively fastidious andslow, and the quality of the country’sinfrastructure and public services variessignificantly.

Italy is a large country, a big market. Although it may often appear challengingand complex, it still offers numerous opportunities. But you have to be patientand find the right way in. That is not always easy if you don’t follow certain rulesor adopt certain practices. Olivier de Rocca-Serra and Nicolas Diers, two Frenchforeign trade advisers, share their experience with us.

Italy? No... « The Italies »

Olivier de Rocca-Serra, CCEFCEO of Bel-Italia,Subsidiary of Bel cheese-makers

Nicolas Diers, CCEF

Senior Adviser, SIA Conseil

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very creative and responsivemanufacturers (importance of theproduction engineer very close to thesales staff and the customer’s needs).Think of this as a complementary fit.

Avoid appearing arrogant

Our self-assurance at the start is oftenperceived negatively. It gives an image(generally false) of mistrust and/orarrogance, which gets in the way ofcollaboration and agreements. We shouldbe rigorous when it comes toformalisation and operational monitoring,two areas where we can be“overconfident” or even cursory - apotential source of failure ordisappointment. The framework of theagreement must be specific and includethe major points on payments, expenses,treasury, regular reporting, etc., and themonitoring must be equally rigorous.Deals need discussing and the Italiansexpect this; the point of business is tomake money, and the weak are, bydefinition, wrong. No one will have anyqualms about testing you. Given their stilllargely paternalistic culture, Italiancompanies rarely give the same amountof manoeuvring room to their managersas French ones do. In all cases, trust isearned over time and through teamwork.

Keep a close eye on yourcustomers and suppliers

In this period of economic crisis, let’sremember that Italian companies aregenerally small and family-owned, andsometimes financially vulnerable (littlecapital and not negligible debt). Italianbanks have generally done a good job ofsupporting their corporate clients over thepast two to three years, which cost themand will continue to cost them money. It istherefore necessary to monitor thefinancial health of your clients andsuppliers. Ask them questions. Makesystematic use of the informationagencies. This relative fragility of Italiancompanies can also be a source ofunexpected opportunities (acquisitions,associations, partnerships, etc.) withcompanies that offer real know-how orvaluable market share but little in the wayof equity capital. In some cases, Italianentrepreneurs may be tired after manydifficult years. They may view apartnership or association as a means toachieve greater serenity and efficiency inorder to penetrate emerging markets,ensure the long-term viability of theircompanies and secure the future of theiremployees. In that context, Frenchpartners are well regarded!

Milan Expo, for example, will be a majoreconomic event that will createnumerous local, national andinternational business opportunities.

A complex distribution system

The Italian distribution system is“concentrated” at the procurement end,where suppliers deal with centralisedbuying bodies: five procurement centressingle-handedly accounted for 60% ofmass market retail sales in 2010.Meanwhile, the system is “diffuse” at theend-consumer sales end (40 storechains accounted for 60% of sales toend-consumers in 2010).

Numerous opportunities

Italy remains a rich country, and althoughthe State is heavily indebted, Italiansthemselves are not at the individual level.Their “savings” (net assets) have certainlybeen eroded during these recent yearsof crisis, and living standards havedeclined for many families (notably as aresult of unemployment). But on averagethe situation remains relativelysatisfactory, with a “reserve” ofpurchasing power and the best net-worth-to-income ratio in Europe.

High-quality consumers

Italian consumers remain attached tobrands. As “well-informed consumers”,they are still prepared to pay for quality,although they still love to shop regularlyfor bargains in order to get a good deal.

Lessons ofexperience whenapproaching themarketBeware of conventional wisdom

Although it is a Latin country like France,Italy is very different, especially regardinghow its business world works. Thecountry is decentralised and relativelyheterogeneous, a place where personalcontacts and relations and the manynetworks play a decisive role. You haveto find the right contact/decision-maker,pay attention to the “passaparola” – i.e.the reputation of a person, product orservice – and not neglect the importanceof Italian or French professionalassociations in the country: businessclubs, business start-up clubs (CCE),

Ubifrance, Chambers of Commerce,etc.). This requires individual effort by allmanagers to forge those all-importantpersonal relationships, to a greater extentthan is the case in France.

Understanding the Italian mosaic

In this context; getting out and about andvisiting regions as different as Lombardy,Apulia and Alto Adige can be a very goodway to understand the “Italian mosaic”.

Get good advisers

Know how to find good lawyers andaccountants who can handle the variouslegislative and administrative complexitiesand any other surprises for you.

Commercial relations - put it inwriting

The commercial tradition is essentiallyoral. Italians often avoid written contractsin order to maintain maximum flexibility.Formal documents in writing shouldnevertheless be obtained fairly early in thesales process to avoidmisunderstandings and wasting time. Anagreement only really exists when it hasbeen put into writing, and throughout thenegotiations the Italian contracting partywill always look for a plan B that can besubstituted up until the final signature. Italians live and breathe in complexity andare particularly clever at finding creativesolutions to what might otherwise appearto be intractable problems. Theirpragmatism is real, as is their decision-making capability, even if these decisionscontradict earlier choices. They look forthe best solution today, even if it meanschanging their mind tomorrow, whichthey do without a second thought. This isa key point of difference.

Take your time

Be patient and be prepared to take yourtime, because the complexity of theadministrative and legal systems meansthat business deals can take more time tobe concluded. In all cases, however, theresult will be more stable and long-lasting.

It would be a mistake to forgo thecreativity and experience ofItalian entrepreneurs to solveproblems!

In France, we often have a better ability toforecast and plan the future and thereforeget organised. We undoubtedly havemore experience with finance and end-to-end supply chain logistics. But Italians areoften themselves outstandingentrepreneurs, excellent sales people and


TRADE LINE I n°18 I 19TRADE LINE I n°18 I 19

A change in the Italian bankruptcy procedures had become necessary because itwas widely believed that the former legal framework was much too rigid to helpdistressed companies to reorganise in a meaningful way, and that as a resultmany companies could not avoid liquidation. The complete overhaul of the Italian bankruptcy Act (the “legge fallimentare”, firstpromulgated by Regio Decreto no. 267 of 16 March 1942) was carried out inseveral stages.

First stage The law-decree no. 35 of 14 March2005, entered into force on 17 March2005 and converted into law no. 80 of14 May 2005, applicable the followingday.The two new provisions of the law-decree of March 2005 involve theenforcement of revocatory orders (claw-back actions) and the compositionarrangement.

Second stageThe legislative decree no. 5 of 9 January2006, which entered into force on 16July 2006, transforms the entire “leggefallimentare” and is complemented byamending legislative decree no. 169 of12 September 2007, applicable as from1st January 2008 and by decree-lawno. 78 of 31 May 2010 (article 48)effective 30 July 2010.These laws are designed to helpcompanies to reorganise as well tostreamline the legal proceedings..

The mainamendments to the “leggefallimentare”The conditions for declaration of

bankruptcy (articles 1 and 5)

The following are subject to thebankruptcy and compositionarrangement: companies andentrepreneurs that, in the last threeyears prior to the bankruptcy petition,have reached an annual total assets ofmore than € 300,000, an annual grossrevenue of more than € 200,000 andrecorded payment defaults, includingdebts not yet matured, of more than€ 500,000. The lawmakers’ objective is to excludesmall entities that may be subject tobankruptcy law by tightening theconditions for admission to theprocedure.

The state of insolvency (statod'insolvenza) triggers the bankruptcyprocedure.The company manager who is regularlyunable to meet his own obligations (of atleast more than € 30,000) is consideredin insolvency state and in that case, thebankruptcy may be declared at therequest of the debtor, one or morecreditors or the Public prosecutor.

Shortening of proceduraldeadlines

Shorter and stricter deadlines have beenimplemented in order to speed up theprocedure. For example, these deadlines apply tothe setting of the date for the hearing toreview the liabilities estate (either 120days following the date of thebankruptcy ruling or 180 days incomplex cases), the filing by creditors oftheir proof of claims with the court clerkoffice (30 days prior to the hearing set toreview the liabilities estate), thepresentation of a liquidation plan by thereceiver (within 60 days of the drafting ofthe inventory of assets).

Jean-François Rondest, Group Information and Claims Department, Coface

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A welcome change in the bankruptcy law


previously revocable for up to one year,and on the other hand, it consists oflisting a series of transactions that areexempted, ex lege, from revocatoryorders Are subject to revocatory orders,contracts for valuable considerationentered into during the year prior to thebankruptcy, such as contracts for whichthe services executed or commitmentsassumed by the bankrupt party exceedthe amounts given or promised by one-quarter, payments of pecuniary duedebts through unusual means ofpayment, pledges, antichresis (securityon a real property whereby themortgagee takes possession) andconventional mortgages established forpre-existing unexpired debts, or, during aperiod of up to six months prior to thebankruptcy, these same securitiesestablished for overdue debts If the receiver provides proof that theother party was aware of debtor’sinsolvency, within six months prior to thebankruptcy, revocable items includepayments of current due debts,transactions for valuable consideration,or transactions granting a lien for debtssimultaneously created.With the exception of customary gifts,free of charge transactions can berevoked for up to two years. In practice, even over a reduced period,the revocatory orders remain a powerfultool in the hands of the receiver and it isoften difficult for the creditor to prove thathe was unaware of his customer’sinsolvency, especially when the courtintents on upholding the bankruptcyprocedure’s interests.The new provisions of the decree-law ofMarch 2005 make a distinction for sometransactions exempted from revocatoryorders.That ensures some security fortransactions processed during thecompany’s suspect period.For example, these exemptions coverpayments on standard terms for goodsand services performed within theordinary course of business (nei terminid’uso), payments made on a current

bank account provided that suchpayments have not caused a significantand lasting reduction in the solvency ofthe bankrupt party with regard to hisbank, payment for services performed byemployees and other workers, even if notsubordinates of the bankrupt party, etc.

The composition arrangement(concordato preventivo) - article 160

The conditions to obtain a compositionarrangement have been substantiallymodified, and are now less restrictive forcompany managers facing severefinancial difficulty. The goal is to enable the company toreorganise itself and preserveemployment A new process has also been introduced,subject to negotiations between theparties of a “debt restructuringarrangement (article 182-bis). Since March 2005, the petitioner must bein a state of crisis (in stato di crisi), a lessdemanding condition than under theformer law, which stipulated that thepetitioner needed to be in a state ofinsolvency.If the decree-law does not provide aprecise definition, a state of crisis can bedefined as a debtor’s recurring inability tomeet his commitments.The entrepreneur files a petition with thecourt – in the jurisdiction where thecompany’s registered office is located – inwhich he submits to creditors acomposition arrangement that consists ina range of proposals which, with the aimof making it easier to obtain their consent,has been made much more extensive.

These proposals include:

• debt restructuring and clearance ofreceivables by any possible means:assignments of assets, delegation orother special transactions, including thetransfer of shares, participatinginterests, bonds (which may beconvertible into shares) or other financialinstruments and payment orders tocreditors and companies in which theyhave ownership interests.

Rehabilitation of the debtor (esdebitazione) - article 142

At the conclusion of the procedure, thebankrupt party, an individual, may bedischarged of his debts to the creditorsrequesting the bankruptcy and who werenot fully satisfied.The rehabilitation option is allowed oncethe debtor is considered to have acted ingood faith and co-operated with thebankruptcy administration.The following commitments arenevertheless excluded from rehabilitation: family financial and food supportcommitments, as well as commitmentsarising from relations outside of thecompany’s business and compensationsfor damages following extra-contractualillegal activities.

The creditors committee(comitato dei creditori) - articles 40and 41

Appointed by the delegate judge, thecreditors committee, which is composedof three to five members, got its role andscope considerably expanded. Not onlythe committee controls the activity of thereceiver (curatore), but he may alsoauthorise certain transactions, may auditaccounting statements and bankruptcydocuments at any time and expressopinions in cases stipulated by the law orat the request of the delegate judge.

Revocatory orders (claw-backactions) (azioni revocatorie) - article 67

Existing revocatory orders enabled thereceiver – up until three years after thebankruptcy judgment – to reclaim certainassets by voiding the contracts enteredinto by the debtor during the suspectperiod, unless the creditor could provethat he was unaware of the state ofinsolvency of his customer during thissame period. Insofar as the deadline for the suspectperiod could be up to two years from thebankruptcy date, suppliers were ofteninclined to refuse to make deliveries or tomake only limited ones – just when thecompany was most in need of newgoods – because they might be claimedthe refund of payments received duringthis period, in the event of a futureliquidation of their buyer To mitigate this concern, on one handthe amendment consists of reducing thesuspect period to one year for contractspreviously revocable for up to two yearsand to six months for contracts


activities. The debtor remains in chargeof the administration of the companycarries out his commercial activity undercourt supervision.The judicial commissioner prepares theinventory of assets, drafts a report on thepresent difficulties and provides hisopinion on the composition arrangementproposals.The composition arrangement must beapproved by a vote of creditors whichrepresents the majority of qualified votingclaims.If various classes of creditors have beencreated, the composition arrangement isapproved if it receives a favourable votefrom the majority of the classes ofcreditors.Secured creditors are not authorised tovote, except to waive their pre-emptiverights.If a creditor belonging to a dissidentclass disputes the contents of thecomposition arrangement the court mayapprove the arrangement if it considersthat this creditor may be satisfied by thearrangement in a manner that is at leastequivalent to that under an alternativesolution or a bankruptcy (U.S “cramdown” approach).The composition arrangement’s approvalmust occur within six months of thepetition for the compositionarrangement.

Debt restructuringarrangements (accordi di ristrutturazione dei debiti (article 182-bis)

An entrepreneur in a crisisstate, with the petition and thesupporting documents, mayapply the court for approval ofthe debt restructuringarrangement, freelynegotiated with creditorsrepresenting at least 60 % ofthe claims ; and also is joineda report drafted by anappraiser on the feasibility ofexecution of such arrangement. A special clause is required regardingthe capacity to ensure regularpayments to creditors not taking part inthe vote.The arrangement is published in thecompanies register (registro delleimprese) and within 60 days of thispublication, no freezing orders orenforcement procedure may becommenced or continued.However, creditors and all interestedthird parties may oppose thisarrangement within 30 days of itspublication. The court, after reviewingthe challenges, decides whether toapprove the arrangement in closedsession. Through a simple review by the court,this new solution, along with thecomposition arrangement, providescompanies with another option forminimising their liabilities andreorganising through an out-of-courtnegotiation with creditors, backed byan appraiser’s report. This solution hasbegun to gain in popularity.

In conclusion, according to the dataavailable in 2008, i.e. after theintroduction of the legislative reform,showing a total of 7,238 bankruptcies,the number of compositionarrangements (concordato preventivo)had nearly tripled to approximately 300petitions, which is an encouragingnumber even though it remains modestrelative to the total number ofbankruptcies recorded. Given the current crisis, the estimatednumber of bankruptcies in 2010 is11,000, with more than 1,000composition arrangements (*).

• the assignment of the company’sactivity to a third-party manager(assuntore).This “assuntore” is tasked withcontinuing the company’s commercialactivity, avoiding liquidation – incontrast to prior practice – and payingout dividends in accordance with theterms specified in the arrangement.

• the subdivision of creditors into uniformlike classes according to the nature oftheir rights and the different treatmentof creditors belonging to differentclasses, as an exception to the “parconditio creditorum” rule of equaltreatment.

This provision enables the debtor tobetter organise his activity based on thepriority ranking of his suppliers. The court reviews the financialstatements presented in support of thepetition and the appraiser’s reportcertifying the compliance of the financialdata, and can then declare thecomposition arrangement procedureopen. The court then appoints a judge (giudice)and a judicial commissioner(commissario giudiziale) with the task ofcontrolling the debtor’s management

(*) Source Cerved

Jean-François Rondest

Beware of scams

Coface has noted an ongoing trend of scam transactions connected toexports to Italy.

Although these scams affect primarily the agribusiness sector (and inparticular wines and spirits in the period leading up to the year-endholidays), it should be noted that they apply to all sectors: barrel-making,clothing industry, IT equipment, etc.

The scenario is usually the same. A shady intermediary pretends to be asales representative of a company typically registered with the Cofacedepartments ; then further he tricks the exporters by having them delivergoods to a local logistics platform and making off with the supplies.

The liability of the Italian buyer whose identity was stolen is totally waived,since he did not order the merchandise and his involvement in thetransaction cannot be proven.

Coface is therefore warning its clients on a general basis to carefully checkthe identity of persons claiming to be acting in the name and on behalf ofend-user clients, and to ensure that the buyer’s business sector matcheshis area of activity. Before entering into a relationship, it is advisable tocheck the legitimacy of the transaction, for example by contacting thecompany on which behalf the intermediary purports to be acting.

Claims Department, Coface

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Partnerships andLimited LiabilityCompany In Italy, company law distinguishesbetween two fundamental groups ofbusiness organisations.

• Partnerships which are characterisedby unlimited joint liability of thepartners for the obligations assumedby the partnership, so that eachpartner responds for these obligationswith all his present and future assets;coincidence between the status ofpartner and the power ofadministration, so that each partner,as such, is also an administrator of thepartnership; non-transferability, by anact inter vivos or by reason of death,of the status of partner, except withthe consent of the other partners.

• And Limited Liability Companies,which are instead characterised bylegal personality, autonomous withrespect to, that of its members;enjoyment of the benefit of limitedliability by the members: each memberresponds for the company’sobligations limited to the money orassets that he contributed to it;dissociation between the status ofmember and the power ofadministration, so that the member assuch is not an administrator of thecompany and the administrator of thecompany is not necessarily one of themembers; free transferability of thestatus of member, either by act intervivos or by reason of death.

In Italy the most widespread types ofcompanies are the società per azioni(public limited company) and the societàa responsabilità limitata (Limited LiabilityCompany). Both are created through amemorandum of association, unilateral ifthere is only one member or multilateralif there are several members. An integralpart of the memorandum of associationis the company’s by-laws, that is, thecomplex of rules that will govern its

Foreign investors who want to start upnew companies in Italy can do so if acondition of reciprocity exists, that is,when an analogous right is accorded toItalian investors who operate in theforeign investor’s home country.The “verification of reciprocity” is notnecessary if the foreign investor is anational of one of the member states ofthe European Union or of the EuropeanEconomic Area (Iceland, Liechtensteinand Norway), of a state with which Italyhas entered into a specific internationalagreement, or if he has the status of astateless person or refugee.

By “start-up of an entrepreneurialactivity” by a foreigner in Italy is meant:start-up of a sole proprietorship,founding of an Italian company, openingof a branch office, filiale orrepresentative office of the foreigncompany.

Registration in theregister ofcompanies or inthe economic andadministrativeindexIt is obligatory to register in the Registerof Companies (Registro delle Imprese)for companies which set up in Italy byforeign natural or legal persons orbranch offices of foreign companies.

The following must instead be registeredin the Economic and AdministrativeIndex (REA) by the sole proprietorshipsstarted up by a foreign investor,subsidiaries of foreign companies, orrepresentative offices of foreigncompanies.

These registries are housed at theChamber of Commerce, Industry, Craftsand Agriculture of the place where thecompany, branch office, soleproprietorship, filiale or representativeoffice are located.

A single formFor over a year now it has been possibleto start up a company through a singleform, called the “Comunicazione Unica,”to be made electronically to the Registerof Companies or the REA.

This single form must report all theparticulars of the company to be startedup and all the relevant information fortax, social security and insurancepurposes. This information will then besent automatically to Agenzia delleEntrate/ Centre des împots (for therequest for a fiscal code and VATnumber), Istituto Nazionale contro gliInfortuni sul Lavoro (for the question oninsurance), and Istituto Nazionale dellaPrevidenza Sociale (for the registrationof employees or self-employedworkers).

The investor can submit the Single formdirectly, on condition that he is inpossession of a “digital signature”device (such as the Carta Nazionale deiServizi or the Carta Regionale deiServizi), of the credentials of the serviceof TELECOMEPAY (the information toobtain it are on the websitehttp://starweb.infocamere.it/starweb/index.jsp), the software to send thedossiers, downloadable fromhttp://www.registroimprese.it, and acertified email address (issued by one ofthe operators of the list, which can beconsulted athttp://www.digitpa.gov.it/pec_elenco_gestori).

The single form is subjected to a seriesof verifications. If the outcome ispositive, registration is immediate andthe system issues a receipt thatrepresents the title to start up theactivity.

A single form to start a companySince 2010, bureaucratic procedures have been made easier for the creationof commercial companies for foreign investors in Italy.


• Shareholders’ meeting (assembleadei soci): this is the sovereign body ofa società per azioni. It is where thewill of the members takes shape,which is then implemented by theadministrative body. Theshareholders’ meeting decides withthe collegial method; the decisionslegitimately taken by the meeting arebinding on all the shareholders,including those who did not attendthe meeting or who voted against theadopted resolution, even if, in somespecific cases, they are allowed towithdraw from the company, in themanner provided by law.

• Administrative body: manages thecompany. In carrying out this activityit is not bound by the shareholders’meeting, except for those acts ofcompany administration for whichthe law expressly reservescompetency to the shareholders.The composition and functions ofthe administrative body depend onthe corporate governance modeladopted; in the most widespreadcase, the “ordinary” model, theadministrative body is comprised ofa sole director or of a board of

directors (which can elect amanaging director or an executivecommittee from among itsmembers).

• Oversight body: performs theaccounting control and monitors themanagement of the company, but theaccounting control only can also beentrusted to a body outside thecompany. In the most widespreadmodel, the “ordinary” one,management oversight is entrusted toa collegio sindacale (board ofstatutory auditors), made up of threeor five standing members (standingstatutory auditors) and two alternatemembers (alternate statutoryauditors), while the accountingcontrol, in the case that it is notentrusted to the board of statutoryauditors, is performed by a certifiedpublic accountant or an auditing firm.

• Meeting of members: in a societàa responsabilità limitata themembers can take the decisionsreserved to them by law or by thememorandum of association with thetraditional collegial method of themeeting of members. However, the

memorandum of association mayprovide that such decisions, unlessthey regard certain matters, be takenwith a more agile legal method,either consultation or writtenconsent.

• Managing body: unless providedotherwise by the by-laws,administration of the company isentrusted to one or more membersappointed by decision of themembership. A società aresponsabilità limitata may thereforebe run by a sole director or by aplurality of directors, in which casethe company may be under a boardof directors, individual managementor joint management.

• Oversight body: in a società aresponsabilità limitata the supervisionof management and the accountingcontrol are entrusted to the board ofstatutory auditors, which operateswith the same procedures andformalities foreseen for the societàper azioni. However, appointing thisbody is not mandatory except in thecase of the occurrence of certaincircumstances.

of founding members, thosewho must pay up thesubscribed portion by meansof a money contribution arenot bound to pay the entireamount of that portion but canlimit themselves to paying only25% of it and pledging tomake payment of theremaining 75% at a later date,that is, when it is requested bythe company’s administrativebody. If instead thesubscription takes place bymeans of contribution in kindor of credits, it is mandatory topay the portion of subscribedcapital in its entirety. In the case of asingle member, he is obliged to pay upall the capital, whatever the type ofcontribution. Any premium on theshares must be paid in full in any case.

operation. If these rules need to bechanged over the years as desired bythe members, only the by-laws will haveto be modified, while the memorandumof association will remain unchanged.

Società per azioni(S.p.A) This is the main type of company. Theshare capital may not be less than120,000 euros and is represented byshares (azioni). The amount of thecapital is determined at the time theS.p.A. is set up; in the event that thereare several founding members, each ofthem will subscribe a portion (whichmay also be variable) of the sharecapital.

Società aresponsabilità(S.r.L)As a company model the S.r.l. is muchmore flexible than the S.p.A. It is in factcharacterised by the ample freedomthat the law confers on the foundingmember or members in establishing thecompany’s characteristics, functioningand organisation, adapting them to theirconcrete needs.

The company capital may not be lessthan 10,000 euros and is divided intostakes (quote). The amount isdetermined at the time the S.r.l. is set upand must be entirely subscribed by thesingle member or by the plurality ofmembers who intend to set up thecompany. Also for the società aresponsabilità limitata (like for thesocietà per azioni), if there is a plurality

Coface Italia

Extracts from « Doing business in Italy », Invitalia National Agengy

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