- Pentax Medical Bulgaria, which sells and services medical imaging equipment, leads the ranking
The year 2017 was the best for the Bulgarian economy since the global crisis. Gross Domestic Product (GDP) grew close to record 100 billion levs (this year it will be certainly higher), unemployment kept shrinking, the workforce swelled, consumer spending rose, and exports increased. The upward tendency of the past three years has given the majority of businesses an opportunity to improve results. This economic ascent is revealed by the performance of small and mid-sized enterprises (SMEs), which are the driving force behind every EU economy. In Bulgaria, they constitute 99% of all companies, create 65% of all added value, and provide nearly 75% of all jobs.
Capital's Gepard yearly ranking of the most dynamic SMEs clearly shows their improvement - their 2017 revenue rose by almost 31% in just one year, and by nearly 66% compared to 2015. The ranking includes growing small and mid-sized companies. Gepard investigates the dynamics of their development during the past year, with revenue growth as the main indicator.
The highest profits in 4 years
Since 2014, when the Bulgarian economy started to recover, this year's edition of the ranking is the largest in terms of the number of companies included. If the period between 2014 and 2016 saw between 1400 and 1560 companies on the list, in 2017 the number of the growing SMEs increased to 1780. Their total revenue stood at an impressive 21.283 billion levs, or 21.6% of 2017 GDP, which reached 98.63 billion levs.
The net profits and assets of the companies that made it into the ranking are also the highest since 2014. The combined net profit amounts to 1.506 billion levs, and their assets total 13.328 billion levs. Enterprises from eight sectors form the Top 10 group (there were seven in last year's edition of the ranking), and there isn't a clearly defined favourite. Hospitality and construction each have two companies in it.
The data from the Gepard ranking shows that in 2017 the companies achieved average profitability of 45.04%. The result not only surpasses the previous year's rate of 36.9%, but it is also the highest since the beginning of this decade. In 2011, the average profitability of the Top 50 companies was 43%, and that strong performance came during a period of stagnant economic growth and relatively limited SME access to bank credits. The Top 10's profitability is even more impressive - 66.8%, compared to 63.6% last year.
The profitability ranking in this year's edition is dominated by modest-sized companies, a factor that helps them be more flexible and adaptive to the changing environment. The profitability Top 50 contains only two companies with revenues of over 50 million levs - Tsvetelina Borislavova's Port Bulgaria West in Burgas, and DHollandia Bulgaria, which is based in Grigorevo, near Sofia.
Port Bulgaria West made 36.2 million levs profit, compared to the 14 million losses reported the previous year - a 41.56% norm.
Dhollandia Bulgaria manufactures hydraulic boards and lifts for the transport industry. The company is part of Belgian group Dhollandia. In the past few years, its business in Bulgaria has been growing by double digits. In 2017, it increased its revenue by 12.9% or 74.5 million levs. Its profitability grew 83.4% last year and reached 25.6 million levs - a net of 34.33%.
All other companies in the Top 50 group of this year's edition of Gepard are smaller. Three companies with a revenue of over 30 million levs each are included -Zlatograd- registered mining enterprise Rhodope Eco Projects owned by Nikolay Valkanov and part of Ministry Holding, the owner of the largest new logistics spaces in Sofia Transcapital, and Sofia-based ASIC Depot specializing in the design and verification of integrated circuits. The remaining companies have revenue below that threshold. There're 14 enterprises with revenue above 10 million levs, but the bulk of the companies in the ranking have 2017 revenues below 10 million levs.
The geographical distribution of the Top 10 is typical for the country's economic development in the past 20 years - four of them are based in Sofia, two come from each of the other important centres - Plovdiv and Burgas, and one each from Dobrich and Pazardzhik. Nine of the companies are based in southern Bulgaria and just one in the northern part, which replicates the previous year's results. Essentially, this picture isn't surprising - Sofia was extremely unlikely to forfeit its position as the leading business centre. Plovdiv cements its second position, while Varna retains a third place.
In fact, business is concentrated along the southern economic axis Sofia - Plovdiv - Stara Zagora - Burgas, where the infrastructure is better developed. The government's promises to restart the Hemus highway project might help development in the north but at least 10 years will be necessary to complete it. During this period, Varna will not face competition from that part of the country.
Retail remains the preferred activity of small businesses on the list - 700 companies, or 39.3%, come from this sector. Transportation follows with 135 representatives, construction with 114, and food and beverage with 105.
The fabulous four
In practice, the most developed regions of the country have been leaders for decades. Sofia, Plovdiv, Varna and Burgas are way ahead of the competition. Worryingly, the concentration has grown too large in recent years, and the contrast to the rest of the country is all too tangible. The 2017 Gepard ranking confirms this tendency. Of the companies on the list, 700 (about 39%) are based in Sofia, with the percentage holding steady from previous years. Plovdiv reaffirms its position as the country's modern industry centre and is represented by 180 companies. This is how the two regions end up costing more than half of the most successful SMEs in Bulgaria, a trend that can't be considered normal for an EU country. Once Varna, Burgas and Stara Zagora are added to the two leaders, it emerges that the six regions are hosting more than 66% of the SMEs in the ranking.
The usual suspects sit at the bottom - Vidin with 11 (apparently, the second Danube bridge is yet to deliver the expected results, even though foreign companies based their businesses in Vidin because of it), Montana and Razgrad with 13 each, Kyustendil and Smolyan with 15 apiece, Dobrich and Targovishte with 13. The ranking is impartial in one more respect - the northwestern region is the least developed, with 45 representatives, or 2.5% of the total.
And the winner is
The Gepard leader this year is Pentax Medical Bulgaria. Its owner is Pentax Medical, the Japanese medical imaging technology company. In 2012, it built the first centre in Bulgaria for servicing endoscopes (an instrument used for internal body examinations and surgery). Located in Plovdiv, the centre is directly subordinated to Pentax Europe, Middle East and Africa. All the endoscopes purchased in these regions now get repaired at the facility. In the period from 2015 to 2017, the company has increased its revenue from 3.0 to 28.4 million levs. Last year alone, income rose by over 600%, and the profit was 6.8 million levs.
Central Park Hotel Sofia comes in second. Until mid-2017, it was the property of one of the largest hotel investors in Sofia, construction company NIKMI. In August, it was acquired by a company associated with investment company Roslin Capital Partners. The Commercial Register's records show that the purchase cost 17.7 million levs. Roslin Capital is managed by Ivo Evgeniev and Spas Shopov. They've also invested in the winery Bessa Valley, the energy sector, technology, and real estate. The revenue of Central Park Hotel rose almost six-fold to 19.8 million levs last year.
In third place is Port Bulgaria West - the sea harbour with the second-largest revenue after BMF Port Burgas. The company is owned by Tsvetelina Borislavova through her Clever Synergies Investment Fund (CSIF). In 2013, she purchased the port located at the northeastern side of the Burgas Bay from Ocean Fishing, together with the adjacent refrigeration base and fish processing plant. In 2014, the fund acquired another port, this time from Black Sea Fishing Burgas, which is in close proximity to Port West, in order to develop a ferry line. In August of the same year, the first ferry - Druzhba - made its first trip to the Georgian port of Poti (it now stops in Batumi as well).
The ship can transport over 200 containers, 110 trucks, 90 cars, and about 400 passengers. As a result, in the past year, Tsvetelina Borislavova's port quadrupled its revenue to about 87 m. levs, and reported a profit of 36.2 million levs. The company's annual report specifies that the main reason for the big jump was the sale of the Druzhba ship to the company's subsidiary PB Shipping. Nevertheless, the port also reported an increase in the processed cargo volume to 555,000 tons, with the largest growth rate (40%) recorded in the number of containers.
A new sector leader
Sector analysis of the 20 fastest growing companies in the Gepard ranking reveals that transport, fuel production and retail, and metalworking, were the three sectors with the largest revenue last year. Aside from the fact that the Top 3 group is completely different relative to 2016, when it comprised cars and car parts, machine building, and retail, this is the first time in four years that transport tops the chart and is part of the first three.
The revenue of the 20 most dynamic transportation companies amounted to almost 320 million levs in 2017, up by a staggering 138%. The fuel business continued to bring a hefty revenue - a little over 295 million levs, for a yearly growth of 61%. Metalworking's third position is a pleasant surprise, as the leading companies in the sector generated 293 million levs in revenue, or 54% more than in 2016. If this result is added to the revenue of the best machine manufacturing SMEs, it transpires that the top companies from the heavy industry sector earned nearly half a billion levs. This augurs well for the economy because their products have a considerably higher added value.
Transportation was the most lucrative sector and the Top 20 companies earned over 51 million levs. To a large extent, the sector's success in 2017 was driven by economic growth and increased exports.
The ICT sector proved once again that products with the highest added value bring the largest profits. The Top 20 had 150 million levs of revenue, and their profit totalled nearly 32.5 million levs. Construction completes the trio of the most profitable sectors. The Top 20 construction companies made profits of 30.6 million levs.
Fuel production and retail sit at the opposite end of this chart, with the best companies in the sector seemingly choosing to work without generating a profit. Even though they come in second in terms of revenue among the Top 20, their combined profit was extremely modest - barely 4.0 million levs.
It comes as no surprise that technology companies have the most thriving business. Their yearly profit margin stands at a robust 22%. The revenue and profit ratio is also substantial among the top machine-building companies - 16.5%. The transportation sector's performance under this indicator was solid as well with a 16% margin.
The sectors that achieved the largest rate of revenue increase are the same as in the previous year's ranking - construction with 215%, retail with 190%, and transportation with 128%. They are immediately followed by machine building and tourism. The ranking on this index also shows the origin of the continued economic recovery of last year.
The same old problems
It's commendable that smaller businesses succeed in improving their performance amidst constant challenges. The cumbersome and lethargic public administration, the lack of state support and the shortage of qualified labour are the main obstacles facing the SMEs in Bulgaria, according to mid-2016 research conducted by the government agency for SME promotion (there isn't a more recent survey). It is no consolation that the same problems generally beset their peers in other EU countries.
A European Commission poll conducted among SMEs has revealed that businesses recommend a decrease and simplification of administrative procedures, a better tax environment, as well as teaching entrepreneurship at school. They also emphasized that credit financing needs to be much more accessible, and there should be support for the implementation of innovations.
The lack of innovations is an old problem for the Bulgarian economy. For the past seven years, Bulgaria has been the only EU country that has registered no progress in terms of innovative potential, according to the Innovations BG 2017 report compiled by the Applied Research and Communications Fund, a Sofia-based non-profit organization dedicated to evaluating the current state of and the potential for innovations in the Bulgarian economy. Even though Bulgaria's performance may not seem as dire as the country with the biggest drop in the EU (Romania, -31%), and the downturn in 11 other countries, the lack of progress is concerning. This tendency is an indictment of the government's lack of priorities in science, technology, or innovation. In the future, the success of a company will depend much more on its technological expertise.
The importance of small companies
According to data from the National Statistical Institute for the past year, 99.8% of the companies doing business in Bulgaria are small or mid-sized. They employ 74% of the workforce in the non-financial sector. It is assets that show the power of big companies - there are 746, yet they possess 40% of all assets, which are worth 124.15 billion levs. An analysis by the European Commission revealed that SMEs in the EU, as well as in Bulgaria, has largely recovered from the crisis. In the past five years, they have created 85% of the new jobs in the Union, and they employ two-thirds of the workforce. The European Commission reported that the added value in the non-financial sector has grown by 12% in the period from 2008 to 2015. Information technology companies stand at the centre of this increase - they reported a 56% jump in the same indicator and a 38% rise in the number of employees.
Will growth continue?
For a small economy like Bulgaria, it's important that global growth continues. Several investment banks and analysts have warned that the global economy has reached a peak and its growth will start to slow down over the next year or two. Some even forecast a new global crisis in 2020. This year Bulgaria's economy has slowed its growth - it stood at 3.4% year-on-year in the second trimester, the lowest figure since 2014, and the finance ministry has lowered its forecast for the full year 2018 to a 3.6% annual increase.
Consumer spending remains the main growth driver, followed by investment, while the net contribution of exports is once again negative. The slowdown goes in unison with the European economy, which has decelerated its growth as well. Bulgaria's GDP growth rate remains above the European average but it is lower compared to countries in the surrounding region.
In order to be included in the ranking, a company must:
- not be finance, health, holding, or gambling entity
*The ranking evaluates revenue data without including income from financing and increased reserves
Sources of information are Capital newspaper, the Commercial Register, National Statistical Institute, and the National Social Security Institute.