As investors wait for Inditex to deliver its earnings results in mid-June (probably the 13th), companies on the Ibex 35 have finished the first quarter worst than expected. Sales of all companies listed on the index have reached only 125.984 billion euros, which is 3.42% less than the same period last year.
In addition to slowing business in Spain owed to flagging domestic consumption, sales across Europe have also fallen off a record 10.2% year-to-year, which is the worst annual drop off since 2010. Even the Latin American market, which accounts for 61% of Ibex 35 profits, has been able to combat weak sales across Europe.
Declining sales and profits of Spanish companies, plus financing difficulties they are experiencing, could slow down Ibex 35 companies as they try to clean up their balance sheets. This is a close assessment of a group of companies that chose, years ago and with good reason, to put their eggs in various baskets because those that chose to pursue the Spanish market alone are not celebrating right now. Facing an increasingly difficult business environment, we are watching the government make it even harder to improve the situation by eliminating tax deductions for foreign investments.
A new increase to the Impuesto de Sociedades, a tax on Spanish corporations, which was conceived as a temporary measure for 2012 and 2013 but will be extended for another year in order to help the state meet its revenue needs. The government should change its tax policy rapidly and ease pressures on companies, which are the main driver of the economy.
