" The Covid Resilience Index Is a Response to the Crisis "

To cope with the many impacts of the crisis, companies need more than ever a tool to help them secure their business relationships. To meet these challenges, Ellisphere’s teams have worked on a new index for companies, to accurately measure the effects of the crisis on economic actors: the Covid Resilience Index.

How was the Ellisphere Resilience Index born?

Alain Luminel: The context in which we currently live does not look like any other, and questions us in several ways. Personally, my fears have focused mainly on the economic impact of this crisis. While benevolence has been the master word of the first weeks of activity, thanks in particular to the arrangements put in place by the state, our experience and the anteriority of our analyses lead us to imagine a rather dark future for the economy.

Max Jammot: Our reflection has taken into account different historical factors, including the 2008 economic crisis; knowing that the current crisis is health-related with many other implications.
We found that the numerous analyses of the impact of the crisis, which are going on, deal above all, with trends within the main sectors of activity, without actually going into detail. It therefore seemed interesting and different to treat all the sectors, thus incorporating the sub-sectors, the NAF activities in order to analyse more finely the direct effects on all the actors.

Martine Bénier: On the basis of this observation, we wanted to think about indicators capable of anticipating the effects of this crisis on economic actors. Many questions then arose. Our intention was to ask a fair and precise analysis of the data at our disposal, and not to place ourselves in a speculative approach.

A.L.: This crisis is likely to last. After 2009, the first year of accounting recession since 1945, we witnessed a continuous upsurge in collective proceedings until 2015. France took five years to recover.

While Ellisphere’s probability of failure score is a good benchmark for a company’s economic health, this type of event remains unpredictable for algorithms, so we have created a credit risk indicator that complements our probability of default score.

M.B.: To date it is impossible to accurately predict the impacts of this economic crisis, of which we feel only the first fruits. Today, the economy is under infusion, in fact, the forecast of the 2020 failures, announced in the order of + 25% to 30% are to be trusted. That is why it seemed interesting to us to work on economic data measures in “real time”, to the closest to the reality that companies are currently experiencing.

How was the index built?

M.B.: Our resilience index allows us to determine how a company will be able to have a “normal” activity and measure associated credit risk.

With this one, we want to provide our customers with a specific and adapted response in this context more than unedited, and to accompany them at best in the challenges that await them tomorrow.

We considered two major indicators: the first, financial, ranks the company according to its ability to absorb the liquidity risk. The second, sectoral, was built through our regulatory and economic monitoring work.

Currently, these two types of watch are frequently juxtaposed. For example: announcements of loans to large companies, operating in highly impacted sectors of activity, are the subject of a decree published in the Official Journal.

Ellisphere has the chance to have dedicated teams dedicated to this day, which have redoubled their efforts to collect, structure and make reliable the collection of this data, in a context of massive publications of information. Our sector indicator, built on this structured and granular analysis, categorizes the sensitivity of the activity of the NAF subclass (APE code) to which the company is attached.

A.L.: To determine our financial indicator, we started from a simple premise by asking ourselves a question: how did companies get back into the crisis? With strength, with elements of fragility, or in great difficulties. To answer this question, we started a job and defined two types of population of enterprises. We excluded companies whose turnover exceeded 250 million euros, because from experience they will be less affected by the crisis, and companies subject to collective proceedings.

The first large population we have focused on is that of companies with recent balance sheets.

We focused on 2 ratios based on the principle of both legs.

To be financially healthy, a company must be based on two solid legs. The first leg is linked to its operation and cash level, translated through the gross operating margin. We have “capped” the acceptable threshold of the EBE/CA ratio according to the capital intensity of the company.

The second leg, the company’s recourse in case of insufficient margin, is the one linked to the liquidity of its balance sheet. We have created a specific liquidity ratio, the Liquidity Reduced from Exploitation (LRE) ratio, which is finer than the existing liquidity ratios, because it truly reflects the real assets and liabilities both available and payable at pure operating level.

The second population is that of companies on which we lack visibility either because we do not have a balance sheet or because the balance sheet is too old. Here, the sectoral evolution that we follow as closely as possible is of great importance.

M.J.: In parallel with the creation of the resilience index, the Ellisphere economic centre has worked on sectoral indicators in order to analyse at best the impact of the VOCID-19 crisis on the sectors of activity.

Indeed, a sector of activity affected by the current crisis is likely to be accredited with a “sensitive” 2 or “critical 3” index. However, a sub-sector, a NAF activity, will be able to perform very well or even outperform despite the difficult context. The components are really multiple.

It is by respecting this approach that we have managed to put in place extremely precise indicators and analysed in real time. Our methodology was developed on the basis of the INSEE nomenclature, with the exclusion of some activities “not applicable” in order to create our reference list Ellisphere, with different indices of sensitivity to the current health crisis.

A.L.: With these financial and sectoral indicators, we were then able to set up a trans-codification matrix to calculate a company’s resilience index. It allows us to have reliable and up-to-date data on the current situation of economic actors.

How have the government’s aid schemes been taken into account in the calculation of the resilience index?

M.B.: The aid schemes put in place by the government are very broad and affect all sectors of activity and all enterprise sizes. At this stage, it is more than EUR 110 billion that have been distributed through the solidarity fund, tax credits, partial unemployment, exemptions or carryovers, in addition to the massive allocation of EUR 300 billion from the EMPs (State-guaranteed loans)… These data have been taken into account in the calculation of the resilience index.

How will this clue last in time?

M.J.: That is precisely the whole stake of this index and of the work we have done with our teams. Indeed, the main objective is to analyse the impact of the crisis on companies in a very fine way, but also on the duration. We do not really have visibility over the next few months, but we can nevertheless try to estimate the impacts and project ourselves. Some sectors are still at a standstill, others are in partial recovery… We also have to take into account in our analysis the different state aid to sectors in great difficulty… Let us also keep in mind that reconfining is still one of the possible scenarios.

A.L.: There is an absolute necessity: to stick to the reality with this index. Companies expect us to be acute in the information we are going to pass on to them. This is the challenge that has arisen for us and that will continue to arise in the coming months. This prompts us to continue to reflect further on the economic challenges ahead.