According to Fitch Ratings, EMEA corporates have weathered the worst of the eurozone downturn and should benefit from halting improvements in revenue, margins and cash generation in 2014. However, the recovery remains fragile and slowing growth in emerging markets may limit the benefits of an improving eurozone for some companies.
The ratings agency expects revenue (excluding the impact of M&A and disposals) to either remain flat or improve modestly across all corporate sectors in 2014 after the eurozone economy appeared to turn a corner earlier this year. The trend in operating margins will be less clear-cut, but still broadly positive. Free cash flow should also improve as companies feel the benefit of the cost-cutting initiatives they implemented over the last few years and as they continue to keep a tight rein on dividends and capex.
While expecting the eurozone recovery to continue, Fitch says that it remains fraught with risks and limited rating headroom could quickly be eroded if economic conditions across the region worsened. This is particularly the case now that corporates are less able to rely on emerging market growth to balance any European weakness. The impact of slowing growth in the emerging markets will be felt most clearly in the commodities, telecoms and automotive sectors, according to the agency.
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