Default risk (or insolvency) is the uncertainty surrounding a company’s ability to service its debt as and when it falls due. Prior to default, there is no way to discriminate unambiguously between companies that will default and those that will not. At best, we can only make probabilistic assessments of the likelihood of default. By applying a turnaround practitioner’s lens, KPMG provide key insights to inform clients of sector default risk.
The second edition of KPMG’s biannual report continues to gauge if an industry has moved either closer or further away from the default line. Our investigation brings together analysis from information available for the majority of Australia’s ASX listed companies and adopts the Distance-to-Default (D2D) measure used by the Reserve Bank of Australia, in order to provide meaningful insights into the trends in corporate health and suggestions on remedial action for distressed sectors.
Any business heavily exposed to a particular sector will have a vested interest in tracking the potential for corporate default with stakeholders important to their business. Understanding these trends can help organisations make informed decisions, and reduce their risk when dealing with companies in a sector experiencing declining or weak corporate health. Trends in declining corporate health for certain sectors can trigger episodes of systemic instability and have adverse impacts on lenders, counterparties and investors.
In this edition, we take a deep dive look at the much speculated upon Retail and Consumer Markets sector identifying five key trends, and areas of focus for retailers, for 2018.