The 6th Eurofactor/Les Echos survey, conducted by CSA among 3,000 companies with six to 500 employees in seven European countries (Germany, Belgium, France, Spain, Italy, Portugal and Great Britain), suggests that business owners anticipate strong growth in Europe in 2008. However, in light of the many factors of uncertainty observed since the end of 2007, this growth will no doubt be somewhat slower than it was last year.

• A large majority of employers surveyed say they are fairly confident of their economic environment. In addition, their growing proportion in all countries except Spain is a result of an overall positive environment in 2007.
• For 2008, business owners appear to be optimistic, while remaining relatively cautious. The Eurofactor growth indicator improved in five of the seven countries studied. The only notable decline is in Spain, where companies expect their economic and financial situation to worsen in 2008.
• By and large, the caution expressed by business owners stems from the growing number of risks affecting the overall environment since the second half of 2007 (financial crisis, oil prices, strong euro, etc.). Increases in raw material and energy prices are also cited as the chief causes for concern.
• European companies remain very susceptible to competition from emerging countries, with China and Eastern European countries posing the greatest threat. To stand up to this competition, European companies are looking to increase their productivity gains, among other things.
• Despite the financial crisis, business owners do not seem concerned about problems in terms of accessing credit over the coming months.
• Investment, the main contributor to the recovery in the euro zone since the middle of 2005, is likely to remain strong. In fact, most business owners plan to increase their investment spending or, at the very least, maintain it at already high levels. It appears, in particular, that while French companies lag behind their counterparts, German companies are the most apt to increase their investments.
  

1. FINANCIAL STRENGTH AND ECONOMIC ENVIRONMENT OF SME-SMI

1.1 European SME-SMI remain optimistic On the whole, European business owners remain optimistic regarding the growth prospects of their activity in 2008. Although most companies expect their revenues to remain steady, a growing proportion of them anticipate an increase in revenues.
The disparities that were apparent in previous years have diminished, with most companies benefiting from the strong improvement in the European economy over the past two years:

• As a result, French SME-SMI are much more optimistic than last year, despite the relatively average performance of the French economy.
• The number of German and Portuguese business owners that anticipate an increase in revenues in 2008 has risen sharply.
• Belgian and British SME-SMI are the most optimistic in terms of growth in the economic environment over the next 12 months.
• Spanish companies, on the other hand, are the least optimistic, probably because of the economic slowdown that is expected to begin next year. Their 12-month forecasts have worsened considerably.
  
  1.2 Higher profit margins
  European companies are also optimistic about growth in their profitability. Overall, the proportion of companies that expect an improvement in their profit margin in 2008 rose sharply compared to last year. Economic improvement in 2007 resulted in greater business opportunities. In addition, the new efforts made since the beginning of 2006 (debt reduction, restructuring) will help companies become more financially sound, as evidenced by the survey results. Finally, even though interest rates rose in 2007, they remained relatively low, which enabled companies to continue to take advantage of favourable financing terms.
  Although companies show a better profit outlook in most of the countries in question, some companies are more cautious and even slightly pessimistic.
• For example, French companies do not expect a marked improvement in their profit margin.
• There is also a clear and dramatic decline in positive opinions in Spain.
  
  1.3 Financing terms remain favourable
  Although persistent tensions on money markets should prompt banks to be more vigilant and selective, the survey results suggest that companies are not concerned about major problems in terms of access to credit in the months ahead. More than three-fourths of the companies feel that access to credit is "relatively easy" or "neither easy nor difficult". Moreover, the percentage of companies that believe that access to credit is relatively difficult fell sharply compared to last year. This is no doubt tied to the fact that companies believe that the turbulence on the money markets is temporary and should not cause loan terms to tighten significantly.
  In addition, in most European countries the percentage of SME-SMI that plan to apply for credit in 2008 rose slightly. Overall, however, these companies represent about 30%, except in Spain.
  
  1.4 Companies less inclined to hire new staff
  Although the overall results are fairly uniform, there are several differences worth mentioning :
• In France, the percentage of companies that plan to increase their workforce remains the same as last year (23%). This is mainly due to the labour market bottleneck in France, which is prompting companies to be more conservative in terms of recruitment. Efforts to improve productivity are encouraging them to stabilise their workforce in order to offset the rapid rise in payroll costs.
• In Germany, employment should continue to grow, although perhaps at a slower rate than in past years. Indeed, more companies say that they are ready to hire new employees. However, more than 70% of companies expect their workforces to level off from now on.
• In Italy and Portugal, employment should hold steady, with more than 80% of companies indicating that they wish to maintain their employee levels.
• The number of employees at Belgian and British companies should continue to grow at a steady rate.
  
  1.5 Corporate investment will remain strong
  The upturn in the investment cycle has been the main contributor to the current recovery in the euro zone since late 2005. The Eurofactor survey indicates that this trend has every reason to continue in 2008, although at a less steady rate. In point of fact, most companies expect their investment spending to stabilise in 2008. However, this stabilisation should occur while spending is already at high levels given that productive investment was particularly heavy in 2007 (+4.8% on average). Moreover, despite some pressures on production facilities in most of the countries, the expansion of production capacity for existing goods will not give cause to increase investment spending. However, companies should allocate most of their expenditures to updating existing equipment.
  Certain disparities exist among the various European SME-SMI:
• The percentage of German companies that are planning investments has increased (41%, +11 points), which is a fairly good indicator of growth in the rest of the euro zone.
• As for France, the percentage of companies that plan to increase their investments fell slightly compared to last year (26% vs. 29%).
• In the other countries, only Spanish companies forecast less growth in their investment spending (32% vs. 41%).
• Finally, we should note that approximately one-third of French, Italian, Spanish and Portuguese companies are not planning any investments in 2008.
  
  1.6 The risks to which the overall environment is exposed have increased
  The relative caution expressed by business owners in the study stems from the growing number of risks affecting the overall environment since the second half of 2007: the financial crisis and its impact on credit terms, the surge in oil and agricultural raw material prices, the strong euro, and so on.
  Increases in raw material and energy prices are also cited by business owners as the main causes for concern. The surge in oil and raw material prices will increase companies' overall costs. On the other hand, exchange rate fluctuations do not pose a major threat to the competitiveness of SME-SMI exports. This is because most of their trade of euro zone companies occurs inside the Economic and Monetary Union or with other European countries whose currencies are more or less tied to the euro.
  Lastly, European companies, and particularly those in Italy and Portugal, remain very susceptible to competition from emerging countries, with China and Eastern European countries posing the greatest threat.
  

2. RECEIVABLES MANAGEMENT

2.1 Differences in payment periods for receivables persist
Generally speaking, a SME-SMI in Europe is paid within an average of nine weeks.

• In Germany and Great Britain, payment periods continue to be shorter (six weeks, a slight improvement over last year).
• In France and Belgium, companies' average payment periods are 66 and 60 days, respectively, which are stable compared to last year.
• In Spain, average periods have been reduced from 81 to 73 days.
• In Portugal and Italy, these periods are mostly stable at 99 and 94 days.
  Germany, therefore, remains the European country with the shortest payment periods despite a large volume of exports to high-risk countries.
  Finally, it should be noted that the public sector's payment periods are similar to those of the private sector in Great Britain, Germany, Belgium and France where significant efforts have been made along these lines. However, they are still longer by 20 days in Spain, Italy and Portugal.
  
  2.2 Non-payment affects many SME-SMI
  While late payment adversely affects companies in terms of available cash flow, the rate of unpaid receivables directly impacts their competitiveness.
  The risk of non-payment is fairly high in most European countries: three-fourths of European companies are directly exposed, particularly in Italy (81% of SME had at least one non-payment in 2007), Portugal and Germany.
  On average, non-payment represents nearly 1% of the revenues of European companies. In France, which has the smallest percentage of companies with unpaid receivables (62%), the average rate of unpaid receivables in relation to revenues is the lowest of all European countries (0.7%).
  Whereas nearly nine out of 10 German, Belgian and British SME-SMI launch a collection procedure after the receivable due date, only seven out of 10 Spanish SME-SMI take this step. Generally speaking, the collection process, when one exists, occurs well after the theoretical due date of the receivable. This is due to inter-company trade relations, the production cycle of the sector in question and the balance of power between the purchaser and the seller. It is, however, a factor that increases the risk of non-payment.
  The billing of default interest also varies from one country to another :
• In Germany and Belgium, 52% and 34% of companies, respectively, bill default interest after the due date.
• This interest is billed much less frequently in Portugal, Great Britain and Italy (26%, 22% and 21% of companies, respectively).
• Default interest is billed the least in France and Spain (12% and 14% of companies, respectively).
  However, once billed, most default interest is collected.
  
  2.3 European companies use outside services
  Two-thirds of the European companies surveyed use outside providers to manage their receivables. A fairly wide range of services are used based on national practices.
  Generally speaking, the main services used are law firms, followed by accountants or approved management centres and then credit insurance companies.
  Of the companies that do not currently use these services, 20 to 30%, depending on the country - with the exception of Italy (10%) - plan to use them in the coming months or years