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COVID-19 impact on Dutch listed firms

A closer look at the leverage ratio: limited impact on the outside, but large differences below the surface.


Although the corona crisis is far from over, we can see a first glimpse of the impact for the Dutch listed companies on the basis of the half-year results. Looking at the overall picture, the leverage ratio - net debt to EBITDA - stayed basically flat. However, the underlying EBITDA performances differ greatly between firms and industries. This has strong implications for financing and financial covenant setting.

Leverage ratio doesn’t change in the first half of 2020

The graph below shows that leverage, the ratio of net debt to EBITDA (12 months rolling basis), stays pretty much unchanged if measured on an aggregate basis.

In the first half of 2020 total interest bearing debt increased by 12% (plus EUR 12bn). However, net debt increased by only 7.5% (plus EUR 6bn) as most of the raised funds has been retained as cash on the balance sheet for precautionary motives surrounding COVID-19. Dutch blue chips like Philips DSM, Ahold Delhaize, Heineken and AkzoNobel used their (easy) access to capital markets to raise EUR 9bn, of which EUR 6bn remained on their balance sheet as cash.

12 months rolling EBITDA also recorded a slight increase as Q1 results were still good and the true impact of COVID-19 became more visible in the Q2 performance. Overall, EBITDA and net debt moved in a similar fashion during the first half of 2020.

Underlying EBITDA performances differ greatly between firms and industries

In order to have a better view on the COVID-19 impact we take a closer look at the 2020 consensus EBITDA estimates from analysts according to Bloomberg. On an aggregate basis (i.e. all firms in our sample summed together), the 2020 estimated EBITDA is just fractionally lower than the 2019 FY EBITDA.

However, the underlying EBITDA performances differ greatly between firms and industries. Semiconductors like ASMI and BESI and platforms/online services like Takeaway still recorded strong results. In contrast, other sectors like food services, non-food retail, and automotive were hit hard by COVID-19 lockdowns and resulting hick-ups in supply chains. Sligro, GrandVision and Kendrion, for example, are among the hardest hit with a decline in EBITDA of more than 10%.

Implications for financing and financial covenant setting

Similar to the Great Financial Crisis (GFC) in 2008-2009, firms with strongly deteriorating EBITDA results struggle to comply with the financial covenants as defined in their loan documentation. In this corona crisis we see a similar trend emerging, in particular in the sectors that are greatly exposed to COVID-19.

For example, Sligro has made other arrangements with the banks. Sligro reports: "In the discussions with our principal bank and the USPP financiers, at 30 June scope for a temporary extension of up to 4.0 was created.".

Kendrion also made some rearrangement with their banks: “Kendrion has reached an agreement on key terms with its banking syndicate to increase the leverage covenant for the quarters up to and including the third quarter of 2021. The agreement in principle allows for a total net debt (including IFRS 16) to EBITDA ratio of maximum 5.8 as per the end of Q1 2021 gradually decreasing to 3.25 from 31 December 2021 onwards.

Many non-food retailers shut down their stores during the COVID-19 lockdown. Optical retailer GrandVision was no exception and took corresponding measures: “As announced on 22 June 2020, GrandVision obtained an Additional Liquidity Facility of €400 million, which will be available in the event that the RCF is fully drawn. The term is one year with an additional year available at GrandVision's discretion. In addition, and as a result of the active dialogue with its relationship banks, GrandVision has reached an agreement to amend the RCF, obtaining relief from the financial covenant tests in 2020.

Please note that these quotes are from exchange-listed firms for illustrative purposes, as these statements are publicly disclosed. However, COVID-19 doesn’t discriminate on company size and all firms from small to large, from privately held to publicly held, are faced with the impact of corona on their results and financing ratios. Therefore every company should closely monitor their financial covenants. Not only for 2020, but also for 2021 as they are currently preparing their budgets and even beyond 2021. For this, internal stress testing on these (revised) budgets and forecasts is vitally important.

“Navigating through the crisis: internal stress testing and timely communication to your board and financiers”.

Concluding remarks

Firms with strongly deteriorating EBITDA, due to COVID-19, struggle to comply with the financial covenants as defined in their loan documentation. It is important to identify this in a timely manner. For this, an internal stress test provides an important tool. The results and implications for the financing should be on top of the agenda of the Management Board and the Supervisory Board. Especially now that we are in the second wave. We are not out of the woods yet, close vigilance is required.

For more questions about funding, waivers, financial modelling and stress testing please contact us.

Note: Our sample contains 34 Dutch Corporates listed on the Euronext Amsterdam Stock Exchange that comply with the following criteria: Dutch legal entities, no financial institutions and real estate investment trusts, minimum sales and total assets of EUR 250m.

Source: Bloomberg

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