Bot­tom­lines un­der more pres­sure as com­pe­ti­tion in­ten­si­fies

Top 100 See - - Top 100 Companies -

The slow re­cov­ery in the Euro­pean Union, South­east Europe’s (SEE) main trad­ing part­ner, the slug­gish prospects fac­ing nearly all economies in the re­gion and shrunken do­mes­tic de­mand all left their mark on cor­po­rate bot­tom­lines in 2013. At the same time, long over­due struc­tural re­forms, fis­cal and reg­u­la­tory volatil­ity and poor in­fra­struc­ture con­tin­ued to be a drag on lo­cal busi­nesses. Against this back­drop, the per­for­mance of the com­pa­nies in the SEE TOP 100 rank­ing was ex­pect­edly lack­lus­ter - their com­bined rev­enues in 2013 were flat­tish, with nearly half of the en­trants see­ing a de­cline in their rev­enues. With the Euro­pean Union economies still strug­gling to re­bound from the cri­sis, their SEE coun­ter­parts fared bet­ter in 2013 than they did a year ear­lier but eco­nomic growth in most coun­tries in the re­gion un­der­whelmed. Ro­ma­nia was among the few ex­cep­tions, as its econ­omy ex­panded by a bet­ter-thanex­pected 3.5%. The other top per­form­ers Moldova, Kosovo, Mace­do­nia and Mon­tene­gro - are all economies with a lesser de­gree of in­te­gra­tion with the EU and, con­se­quently, have been weathering well the re­cent re­ces­sion in the bloc.

Across the re­gion, for­eign di­rect in­vest­ment and ex­ter­nal de­mand re­mained low as did house­hold con­sump­tion. Long over­due struc­tural re­forms, fis­cal and reg­u­la­tory volatil­ity and poor in­fra­struc­ture fur­ther com­pounded the busi­ness en­vi­ron­ment.

With the ex­cep­tion of Slove­nia, where a bank­ing cri­sis nearly trig­gered an in­ter­na­tional bailout, the bank­ing sys­tem in the re­gion was sta­ble in 2013 but high non-per­form­ing loan (NPL) lev­els un­der­mined the abil­ity to lend more to the pri­vate sec­tor to stim­u­late growth.

Per­sis­tently high un­em­ploy­ment rates, a large pool of un­skilled labour and un­tapped po­ten­tial for in­no­va­tions con­tin­ued to curb the com­pet­i­tive­ness of lo­cal busi­nesses.

Tightly packed

The com­bined rev­enues of the Top 100 non­fi­nan­cial com­pa­nies in SEE for 2013 were largely un­changed at 103.98 bil­lion euro ver­sus 103.6 bil­lion euro re­ported by the en­trants in the 2012 rank­ing. Their net profit, how­ever, to­talled 2.63 bil­lion euro, com­pared to 2.85 bil­lion euro posted by com­pa­nies in­cluded in the 2012 SEE TOP 100 rank­ing.

At the same time, the thresh­old for en­try into the SEE TOP 100 rank­ing rose to 458 mil­lion euro from 440 mil­lion euro a year ear­lier, whereas the dif­fer­ence be­tween the first and the last com­pany in the rank­ing came down to 3.8 bil­lion euro from 4.29 bil­lion euro in 2012. As an­other in­di­ca­tor of how tightly packed the en­trants in the lat­est edi­tion of the rank­ing are, the dif­fer­ence be­tween the first and the sec­ond-placed com­pany dwin­dled to 115 mil­lion euro from 526 mil­lion euro in 2012.

The num­ber of com­pa­nies in the rank­ing which saw their rev­enues go down has been ris­ing steadily over the past few years – to 42 in 2013 from 33 a year ear­lier and 21 in 2011. Fur­ther­more, whereas in 2012 these com­pa­nies were pre­dom­i­nantly clus­tered to­wards the bot­tom of the chart - in­di­cat­ing that the big­ger your busi­ness, the more re­silient it is prov­ing amid the chal­leng­ing eco­nomic en­vi­ron­ment, a year later they are scat­tered through­out the rank­ing, with no less than six Top 10 en­trants fall­ing into this cat­e­gory.

Oil and gas firms un­chal­lenged, au­tomak­ers rev up

There were no sur­prises at the top of the rank­ing with OMV Petrom hold­ing on to its no.1 spot for the sev­enth year in a row. How­ever, the Ro­ma­nian oil and gas heavy­weight posted a drop in rev­enues by nearly 3.0% to 4.27 bil­lion euro in 2013. At the same time, its net profit rose to 1.08 bil­lion euro - the high­est among the top 100 com­pa­nies in SEE, from a re­vised 869.5 mil­lion euro a year ear­lier. With a 25.27% re­turn on rev­enue, OMV Petrom was also the most prof­itable com­pany in the rank­ing. The Ro­ma­nian com­pany has said it man­aged to off­set the im­pact of de­pressed gas, power and fuel de­mand and an in­creased fis­cal bur­den by large-scale in­vest­ments over the past nine years. As the main chal­lenges to its busi­ness, OMV Petrom has pointed to struc­tural changes on the global gas and en­ergy mar­kets, the volatil­ity of the fis­cal and reg­u­la­tory en­vi­ron­ment in Ro­ma­nia, and shrunken de­mand. These, to a large ex­tent, hold true for all the rep­re­sen­ta­tives of the sec­tor.

In the no.2 po­si­tion, Ro­ma­nian car­maker Da­cia is the only non-oil or gas com­pany among the top seven. Its rev­enues in­creased 44% to 4.2 bil­lion euro in 2013 while its net profit rose to 75 mil­lion euro from 63 mil­lion euro. Da­cia's turnover was pos­i­tively in­flu­enced by the ab­sorp­tion of its 100%-owned unit Re­nault In­dus­trie Roumanie as of Jan­uary 1, 2013. In 2012 and 2013, Da­cia re­newed and ex­panded its en­tire range, plan­ning to con­tinue to in­vest heav­ily.

Oil and gas com­pa­nies oc­cupy the next five places in the rank­ing. It should be noted, though, that three of the top-placed oil and gas com­pa­nies - Lukoil Neftochim, INA and Rom­petrol Ra­finare - are at the very low end of the ta­ble in terms of earn­ings. As many as eight of the ten biggest loss-mak­ers in the rank­ing are oil and gas com­pa­nies, with Ser­bian sta­te­owned gas mo­nop­oly JP Sr­bi­ja­gas book­ing the hefti­est loss. Even though oil and gas com­pa­nies con­tinue to dom­i­nate the rank­ings and gen­er­ate the bulk of the to­tal rev­enue, their to­tal rev­enue dropped by 5.45% to 41.8 bil­lion euro in 2013, whereas their to­tal profit fell to 659 mil­lion euro from 1.09 bil­lion euro. How­ever, the three com­pa­nies to post the biggest earn­ings in 2013 all hail from the oil and gas sec­tor - OMV Petrom, Naftna In­dus­trija Sr­bije, Romgaz . A to­tal of 29 oil gas com­pa­nies made it into the 2013 edi­tion of the SEE TOP 100 rank­ing ver­sus 28 a year ear­lier.

The com­pany to book the sharpest rise in rev­enue was Ro­ma­nian state-owned road con­struc­tion and main­te­nance com­pany,

CNANDR. How­ever, trans­fers from the state bud­get ac­counted for a large por­tion of its to­tal rev­enues. It was fol­lowed by FIAT Au­to­mo­bili Sr­bija with a three­fold in­crease in rev­enue to 1.6 bil­lion euro, climb­ing up 71 spots - the high­est jump in the rank­ing. The car maker made its de­but in the rank­ing only a year ear­lier.

Con­struc­tion and the au­to­mo­bile man­u­fac­tur­ing were also the in­dus­tries to see the sharpest in­crease in the com­bined rev­enue of their rep­re­sen­ta­tives in the rank­ing - by 320% and 48%, re­spec­tively. And while the con­struc­tion in­dus­try had just one rep­re­sen­ta­tive, which would make any con­clu­sions about the over­all state of this sec­tor mostly ir­rel­e­vant, the au­to­mo­tive in­dus­try has been steadily ex­pand­ing its pres­ence in the chart over the past few years. It should also be noted here that the SEE TOP 100 rank­ing in­cludes two com­pa­nies of the rub­ber in­dus­try - Ro­ma­nia's Con­ti­nen­tal Au­to­mo­tive Prod­ucts and Miche­lin Ro­ma­nia, whose core busi­ness is car tire man­u­fac­tur­ing.

The SEE TOP 100 com­pa­nies rank­ing wel­comed 13 new en­trants in its 2013 edi­tion ver­sus 16 a year ear­lier. They in­cluded four oil and gas firms, three au­to­mo­tive com­pa­nies, three whole­sale and re­tail traders, two elec­tric­ity com­pa­nies, and one fur­ni­ture and dec­o­ra­tion com­pany.

The new en­trants in­cluded one Bos­nian and one Al­ba­nian com­pany - Hold­ina d.o.o. Sar­jevo and Bankers Petroleum Al­ba­nia.

Ro­ma­nia, with a pop­u­la­tion of around 20 mil­lion, ex­panded its dom­i­na­tion of the rank­ing, plac­ing 53 com­pa­nies on the 2013 list ver­sus 51 a year ear­lier. For the first time since SeeNews started com­pil­ing the rank­ing, an Al­ba­nian com­pany, Bankers Petroleum, has made it into the rank­ing. Just like in the pre­vi­ous years, none of the biggest com­pa­nies in Mon­tene­gro or Moldova made the cut.

The big I's

Growth in SEE in 2014 and 2015 is ex­pected to be mod­er­ate, mostly on the back of im­prov­ing ex­ter­nal de­mand. How­ever, do­mes­tic de­mand is ex­pected to re­main weak, fur­ther con­strained by slow progress in sort­ing out NPL lev­els and per­sis­tent un­em­ploy­ment. A more pro­longed de­lay in the full re­cov­ery in the euro area and re­newed volatil­ity on the fi­nan­cial mar­kets are some of the ma­jor risks fac­ing the re­gion. A fur­ther es­ca­la­tion of the Rus­sia-Ukraine cri­sis could have a sig­nif­i­cant neg­a­tive im­pact on the re­gion, af­fect­ing vir­tu­ally all sec­tors of the econ­omy. In­ter­nally, the need to over­haul cer­tain sec­tors of the econ­omy - such as en­ergy, weighs heav­ily on some of the coun­tries' growth out­look. The busi­ness en­vi­ron­ment in the re­gion is ex­pected to re­main largely un­favourable as po­lit­i­cal and reg­u­la­tory un­cer­tain­ties are ex­pected to per­sist.

For SEE busi­nesses, con­sid­er­ing their rather lim­ited ca­pac­ity to in­flu­ence the above-men­tioned fac­tors, this means they would need to in­vest heav­ily in their skills base and in­no­va­tion po­ten­tial to raise com­pet­i­tive­ness.

If the per­for­mance of the com­pa­nies in the SEE TOP 100 is any­thing to go by, the biggest cor­po­ra­tions in the re­gion seem un­likely to see a sharp rise in rev­enues in the near fu­ture, even less so - easy prof­its. Rather, they should be brac­ing up for tighter com­pe­ti­tion amid con­tin­u­ing market pres­sure and an un­cer­tain de­mand en­vi­ron­ment. With high­tech com­pa­nies al­most en­tirely miss­ing from the rank­ing, it is sec­tors such as au­to­mo­tive man­u­fac­tur­ing and phar­ma­ceu­ti­cals - which are more apt to adopt in­no­va­tions – that seem poised for stronger growth de­spite the seem­ingly undis­puted hege­mony of oil and gas com­pa­nies.

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