2015: SEE cor­po­rate sec­tor makes shy steps to growth, re­tail­ers lead the way

Top 100 See - - Top 100 Companies - By Siana Mishkova

Af­ter sev­eral tough years, eco­nomic ac­tiv­ity in South­east Europe (SEE) picked up in 2015 and con­tin­ued to strengthen in 2016, sup­port­ing an im­prov­ing per­for­mance of the re­gion’s cor­po­rate sec­tor. The 100 big­gest com­pa­nies saw their com­bined rev­enues* in­crease some 2% in 2015 as com­pared to the rev­enues of the en­trants in last year’s rank­ing, slightly be­low the re­gion's 2.5% av­er­age eco­nomic growth, while their aggregate earn­ings* rose at a slower rate of 1.3%, sug­gest­ing that cor­po­rate ma-jors still have room to ad­just to the com­plex geopo­lit­i­cal sit­u­a­tion, er­ratic in­vestor be­hav­iour, vo­latile cap­i­tal flows and un­set­tled fi­nan­cial and com­mod­ity mar­kets.

No­tably, the whole­sale and re­tail sec­tor stood out with all but one of its 20 Top 100 en­trants record­ing rev­enue growth amid ris­ing con­sump­tion that has been a key driver for the re­gion’s econ­omy. The seg­ment achieved a more than dou­ble in­crease in earn­ings on the back of a 14% rise in rev­enue.

Re­gion­ally, se­nior ex­ec­u­tives con­tinue to face hur­dles like wide­spread cor­rup­tion and red tape, rel­a­tively weak in­sti­tu­tions, cum­ber­some reg­u­la­tions, un­der­de­vel­oped in­fra­struc­ture, re­strained ac­cess to funding in the illiq-uid lo­cal fi­nan­cial mar­kets and bad loan-bur­dened banking sec­tor, as well as po­lit­i­cal in­sta­bil­ity and elec­tion-re­lated macroe­co­nomic weak­nesses in some coutries. Geopo­lit­i­cal ten­sions also weigh on in­vestor sen­ti­ment, given the re­gion’s ge­o­graph­i­cal prox­im­ity to Turkey and the war-torn Mid­dle East, and its his­tor­i­cally strong ties with Rus­sia. How­ever, SEE re­mains at­trac­tive for investments thanks to rel­a­tively cheap and well-educat-ed labour force, low taxes and spe­cial in­cen­tives for big in­vestors, on­go­ing EU in­te­gra­tion, which pre­sup­poses fur­ther trade lib­er­al­i­sa­tion, stronger rule of law, and con­tin­u­ing in­flow of EU funds, as well as its strate­gic geo­graphic po­si­tion as a link be­tween Europe and Asia. Last but not least, SEE of­fers ro­bust growth po­ten­tial with GDP per capita stand­ing at just 43% of the EU av­er­age and fore­casts for strength­en­ing eco­nomic ex­pan-sion in the com­ing years.

The gen­eral en­vi­ron­ment for SEE busi­nesses has been im­prov­ing since 2015. This trend is ex­pected to con­tinue with the av­er­age GDP growth in the re­gion seen ris­ing from 2.5% in 2015 to 2.8% in 2016 and grad­u­ally ac­cel­er­at­ing to 3.4% by 2021, ac­cord­ing to the IMF's April World Eco­nomic Out­look. Hence, the re­gion's growth is bound to out­pace that of Western Europe, with the rates of GDP ex­pan­sion in the EU and the Euro­zone seen largely stable at around 1.8% and 1.5%, re­spec­tively, over the same pe­riod, bol­ster­ing up its eco­nomic con­ver­gence. Still, SEE has a lot to catch up. Its av­er­age GDP per capita, based on pur­chas­ing power par­ity (PPP), was equal to just 43% of the EU av­er­age in 2015, and is seen ris­ing grad­u­ally to only 47% by 2021, a fact that sug­gests un­tapped growth po­ten­tial for many in­dus­tries. By coun­try, Euro­zone mem­ber Slove­nia stands well ahead of its re­gional peers with GDP per capita equal to 82% of the EU av­er­age, fol­lowed by EU mem­bers Croa­tia, Ro­ma­nia, and Bulgaria with 57%, 55% and 51%, re­spec­tively. At the bot­tom of the ta­ble, the for­mer Soviet repub­lic of Moldova ac­counted for only 13% of the av­er­age EU GDP per capita, well be­low its near­est ranked Bos­nia with 28% and Albania with 30%. Data for Kosovo was not avail­able.

To gain a bet­ter un­der­stand­ing of the Top 100 SEE com­pa­nies rank­ing, we should note that high­est pop­u­lated Ro­ma­nia has also the big­gest econ­omy, with GDP equal to 43% of the re­gion's to­tal of $408.5 bil­lion in 2015, ac­cord­ing to IMF data. Next came Bulgaria and Croa­tia, each ac­count­ing for 12% of the to­tal, fol­lowed by Slove­nia with 10.5% share, Ser­bia with 8.9%, Bos­nia and Herze­gov­ina with 3.9%, Albania with 2.8%, Mace­do­nia with 2.4%, Kosovo and Moldova with 1.6% each, and Mon­tene­gro with 1%.

Ro­ma­nia holds firm grip on rev­enue, earn­ings rank­ings, Da­cia stays on top

Hence, it is not sur­pris­ing that the re­gion's five big­gest economies oc­cu­pied al­most all seats of the Top 100 SEE 2016 com­pa­nies rank­ing, let­ting in only one Mace­do­nian and one Bos­nian firm, Ro­ma­nia en­joyed a clear dom­i­nance with 56 en­trants (53 in 2015) with a com­bined rev­enue of 55.2 bil­lion euro, more than half of the 102.5 bil­lion euro made by all com­pa­nies in the list*. Com­pared to the rel­a­tive econ­omy size, the data sug­gests that Ro­ma­nia's cor­po­rate sec­tor is bet­ter de­vel-oped than the av­er­age

ver­gence is also ev­i­denced by com­pany earn­ings – Ro­ma­nia's Top 100 en­trants recorded a profit of 1.3 bil­lion euro, 54% of the rank­ing's to­tal of 2.4 bil­lion euro. More­over, Ro­ma­nian com­pa­nies oc­cu­pied half of the top 10 spots in this years' rank­ing, in­clud­ing the top 3, with French-owned car maker Da­cia keep­ing the gold medal for the se­cond year, fol­lowed by two sub­sidiaries of Aus­tria's OMV.

In analysing the trends in cor­po­rate per­for­mance, we take out Oltchim, which topped the prof­itabil­ity and rev­enue growth rank­ings thanks to a con­tro­ver­sial half a bil­lion euro state debt write-off, which is be­ing an­a­lysed by the Euro­pean Commission for pos­si­ble il­le­gal state aid. The move, aimed at mak­ing the plant at­trac­tive to pri­vate in­vestors, turned the com­pany's debts into rev­enues, help­ing it record 507 mil­lion euro profit for 2015, a 73% re­turn on rev­enue, and a nearly five­fold jump in rev­enue to 697 mil­lion euro.

So, the big­gest profit, of 264 mil­lion euro, was re­ported by Ro­ma­nia's largest gas pro­ducer Romgaz, while se­cond came Croa­tia's sta­te­owned power util­ity HEP with 213 mil­lion euro, fol­lowed by Ro­ma­nia's hy­dropower pro­ducer Hidro­elec­trica, which is ex­it­ing in­sol­vency af­ter four years, with 199 mil­lion euro.

Slove­nia and Bulgaria had 11 en­trants each in the 2016 Top 100 SEE list. Although Bulgaria is big­ger than Slove­nia both in terms of GDP and pop­u­la­tion, Slove­nia's rep­re­sen­ta­tives achieved a big­ger rev­enue of 13.4 bil­lion euro in 2015, com­pared to Bul­gar­ian com­pa­nies' 12.2 bil­lion euro, show­cas­ing the more ad­vanced devel­op­ment of Slove­nia's cor­po­rate sec­tor. How­ever, Bul­gar­ian firms made a profit of 70 mil­lion euro, as com­pared to Slove­nian com­pa­nies' com­bined earn­ings of 51 mil­lion euro.

Close be­hind, Ser­bia and Croa­tia had 10 en­trants in the rank­ing each, with 10.1 bil­lion euro and 9.9 bil­lion euro of rev­enues, re­spec­tively. These coun­tries fared much bet­ter in terms of money mak­ing, with com­bined cor­po­rate earn­ings of 427 mil­lion euro and 385 mil­lion euro, re­spec­tively.

In ad­di­tion to the five Ro­ma­nian rep­re­sen­ta­tives in the top 10 list, one Slove­nian, two Croa­t­ian, and two Bul­gar­ian com­pa­nies also came in. Ljubl­jana-listed en­ergy group Petrol, which runs 464 fuel sta­tions in the re­gion, re­tained its fourth po­si­tion in the rank­ing de­spite a 6.4% drop in rev­enue, while fifthranked Lukoil Neftochim Bur­gas, a Bul­gar­ian re­fin­ery owned by Rus­sia's Lukoil, lost two places due to a 22% plunge in rev­enue. With a slightly smaller rev­enue drop, oil and gas group INA, jointly con­trolled by the Croa­t­ian govern­ment and Hun­gary's MOL, lost one po­si­tion to no. 6, while the Bul­gar­ian unit of Ham­burg-based in­ter­na­tional cop­per group Au­ru­bis climbed one spot higher to no. 7 with a mod­est 2% rise in rev­enue. At no. 9 and 10 came two re­tail­ers – Kau­fland Ro­ma­nia, part of Ger­many's Sch­warz Gruppe, and Croa­tia's Konzum, part of the coun­try's big­gest pri­vately-owned group Agrokor - both gain­ing two po­si­tions from last year, with 15% and 11% jumps in rev­enue, re­spec­tively, un­der­lin­ing the ris­ing con­sump­tion trend, which has been one of the main driv­ers of the re­gion's ac­cel­er­at­ing eco­nomic growth. Thus com­piled, the top 10 com­pa­nies list clearly shows the dom­i­nance of for­eign own­er­ship, with all but two of the en­trants con­trolled by big for­eign ma­jors.

Up­beat sen­ti­ment re­turns as rev­enue, prof­its re­sume growth

Look­ing at the devel­op­ment of the cor­po­rate sec­tor in SEE, as char­ac­terised by the re­gion's 100 big­gest com­pa­nies, we can say that op­ti­mism is re­turn­ing in line with eco­nomic re­cov­ery. Although the top 100 com­pa­nies' cu­mu­la­tive rev­enue could not reach its 2013 level of 104 bil­lion euro, it re­turned to growth, ris­ing to 102.5 bil­lion euro in 2015 from 100.6 bil­lion euro in 2014. The progress is more re­mark­able on the prof­itabil­ity side – the com­bined net profit of the re­gion’s big­gest com­pa­nies in­creased 1.3% last year to 2.37 bil­lion euro fol­low­ing an 11% drop in the earn­ings of the 2015 rank­ing en­trants.

Ser­bia had the strong­est con­tri­bu­tion to the rise in to­tal rev­enues, closely fol­lowed by Ro­ma­nia. The rev­enues of Ser­bia's 10 rep­re­sen­ta­tives in the 2016 rank­ing hit 10.1 bil­lion euro, well above the 6.3 bil­lion euro recorded by the six en­trants in last year's rank­ing. Ro­ma­nia, with two rep­re­sen­ta­tives more this year, saw a 2.7 bil­lion euro rise in to­tal rev­enues.

On the neg­a­tive side, Croa­tia recorded the big­gest de­cline, by 1.4 bil­lion euro, as it lost one en­trant, while Slove­nia, with two rep­re­sen­ta­tives less, posted a 552 mil­lion euro fall, and Bulgaria, with the same num­ber of en­trants, recorded a 903 mil­lion euro drop.

At the same time, Bul­gar­ian com­pa­nies had the most mean­ing­ful con­tri­bu­tion to earn­ings growth, as they swung to a com­bined profit of 70 mil­lion euro from a loss of 401 mil­lion euro a year ago. Next, Ser­bian en­trants gained 333 mil­lion euro more to a cu­mu­la­tive profit of 427 mil­lion euro. On the op­po­site end of the ta­ble, Ro­ma­nia recorded a 378 mil­lion euro drop in aggregate earn­ings to 1.3 bil­lion euro, and Croa­tia and Slove­nia saw de­clines of 325 mil­lion and 256 mil­lion euro to 385 mil­lion euro and 51 mil­lion euro, re­spec­tively.

In­di­vid­u­ally, Ro­ma­nia's oil and gas ma­jor OMV Petrom, which posted its first neg­a­tive re­sult in 12 years, badly hit by the global oil price slump, was the top un­der­per­former, with a bot­tom line by 550 mil­lion euro worse than in 2014, while its Ser­bian state-owned peer Sr­bi­ja­gas turned into profit with an im­prove­ment by nearly 400 mil­lion euro. Ro­ma­nia's state-owned rail­way in­fra­struc­ture op­er­a­tor CFR was the big­gest rev­enue gainer with a 522 mil­lion euro rise, while Kazakh-owned re­fin­ery Rom­petrol was the most prom­i­nent rev­enue loser with an 833 mil­lion euro drop.

The num­ber of new­com­ers to the 2016 Top 100 com­pa­nies rank­ing was 17, up from 15 last year, whereas the en­try thresh­old rose to 440 mil­lion euro from 420 mil­lion euro.

Oil and gas firms cede ground, re­tail­ers pocket good prof­its

The oil and gas sec­tor re­tained its dom­i­nant po­si­tion in the SEE Top 100 2016 rank­ing, ac­count­ing for one third of the big­gest com­pa­nies' to­tal rev­enue de­spite a 12% drop, amid tough global con­di­tions last year. Whole­salers and re­tail­ers came in se­cond with an 18% share, but shined with a 14.4% growth in rev­enue, more than dou­ble from 7% a year ago.

While oil and gas com­pa­nies in this year's list de­creased by three to 24, that of re­tail­ers and whole­salers in­creased by the same num­ber to 20, un­der­scor­ing the grow­ing sig­nif­i­cance of the sec­tor for the lo­cal economies that have been fuelled by ro­bust do­mes­tic con­sump­tion.

The prof­itabil­ity of the re­tail and whole­sale seg­ment also im­proved sig­nif­i­cantly, with av­er­age re­turn on rev­enue jump­ing to 3% from 1.7% for 2014, as to­tal earn­ings more than dou­bled to 561 mil­lion euro. The only com­pany that saw a de­cline in rev­enues - of 4% - was Slove­nian re­tailer Mer­ca­tor, which has ex­plained that its re­sults were not en­tirely com­pa­ra­ble to the pre­ced­ing year due to struc­tural changes such as the trans­fer of some of its for­eign re­tail units to sis­ter com­pa­nies.

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