Rising personal incomes and healthy economic growth brought double-digit increases in both profit and revenues to the biggest companies in Southeast Europe (SEE) in 2018 but Bulgarian companies had less reason for cheer than their regional peers.
Their sales growth, though decent, lagged behind that of the top 100 companies in the region, while their combined profit shrank sharply, the latest edition of the SEE TOP 100 annual ranking showed.
The ranking prepared by business intelligence provider SeeNews comprises the biggest non-financial companies by total sales in Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Moldova, Montenegro, North Macedonia, Romania, Serbia and Slovenia.
The ten Bulgarian entrants in the latest edition of the ranking posted a combined turnover of 13.089 billion euro, up by 6.1% as compared to the total turnover of the ten Bulgarian companies that made it into the ranking a year earlier.
In terms of profit, however, the situation is grimmer: the combined profit of the ten Bulgarian entrants for 2018 stood at just 55.83 million euro, down from 421.7 million euro in 2017.
The list of Bulgarian entrants in this year's edition of SEE TOP 100 has remained unchanged with one exception - nuclear power plant Kozloduy has replaced a local unit of Czech power utility group CEZ, which is in the process of selling its assets in Bulgaria.
This lacklustre performance reflects losses posted by energy companies Lukoil Neftochim Burgas, NEK and Bulgargaz and weaker results reported by metal company Aurubis Bulgaria.
Oil refinery Lukoil Neftochim Burgas, part of Russia's Lukoil, turned to a net loss of 130 million euro in 2018 from an impressive net profit of 155.4 million euro in the previous year, following a rise in expenses. That made the company the second biggest loser in the region after Romania's state-controlled energy company Complexul Energetic Oltenia. Lukoil Neftochim Burgas, however, remained the biggest Bulgarian company in the region for yet another year, booking 3.008 billion euro in revenues, up by 1.55% in 2017.
At number 8 in SEE TOP 100, the Bulgarian unit of Hamburg-based copper producer Aurubis is the biggest metals company in the region. In 2018, Aurubis Bulgaria's revenues dropped slightly, while its profit nearly halved following a technical shutdown of the smelter in Pirdop.
No other Bulgarian company has found a place among the region's top ten, which account for 27% of the combined revenue of SEE TOP 100 in 2018.
However, state-run power utility NEK and public gas supplier Bulgargaz are among the top ten losers in the region, after posting a net loss of 37.7 million euro and 16.4 million euro, respectively, in 2018.
PROFITS OF SEE TOP 100 EXPAND QUICKER THAN REVENUES, DACIA LEADS THE PACK
At the same time, the top hundred companies in SEE continued to streamline operations and boost efficiency, with profit growth outpacing the rise in revenues for the second year in a row. The revenue of the SEE TOP 100 companies expanded by 11% to a record-high 126.3 billion euro, whereas their profit amounted to 5.7 billion euro, up by 17%. Both profits and revenues, however, grew at a slower pace compared to a year earlier when they recorded increases of 13% and 22%, respectively.
Automobile Dacia, a unit of France's Renault, is the biggest company in SEE for the fifth year running as its revenue rose by 6.54% to 5.35 billion euro in 2018.
Furthermore, the company booked an outstanding profit growth of 39%, to 161.3 million euro, though in terms of profit it ranked 11th among the SEE TOP 100 entrants. Dacia's good financial indicators come on the back of a 7.0% increase in sales volume to 700,798 vehicles.
Integrating all the activities specific for a car manufacturer, investing heavily in capacity and luring buyers with what it describes as 'the smart buy' model - much like budget brands Lidl, Wizzair and H&M - has proven to be a winning strategy for Automobile Dacia over the past years. At the same time, being part of a global manufacturing group gives the company access to foreign markets and allows for economies of scale.
Commenting on the key priorities for Romania's automotive sector going forward, Christophe Dridi, Managing Director of Automobile Dacia and Groupe Renault Romania, points to infrastructure, the fight against the invasion of used cars, support for a vibrant network of suppliers and education in both traditional and innovative technologies.
Looking at the automotive sector across the region, it comes as little surprise that it recorded yet another good year in 2018, with total revenues rising 13% to 18.4 billion euro.
Over the past decade, the sector has been a regional frontrunner in terms of contribution to GDP, production capacity increase, volume of investments and job creation. To give just a few examples: in Romania, it contributes 14% to national output and 26% to national exports, while in Serbia automotive companies have generated 10% of the inflow of foreign direct investment since 2001. In Romania, the investment made by Groupe Renault Romania since 2000 amounts to 3 billion euro, while the local unit of U.S-based Ford Motor Company has announced it will invest 200 million euro in its plant in Craiova in 2019 alone.
The manufacturers of cars and car parts are the fourth biggest industry in the region, based on the sales of the SEE TOP 100 companies.
However, the industry is conspicuously absent from the list of sectors in which Bulgarian entrants in the ranking operate. This exception aside, the list of Bulgarian companies replicates the industry profile of the SEE TOP 100 ranking, which is dominated by oil and gas companies.
OIL, GAS COMPANIES INVESTING IN NEW BUSINESS LINES, RENEWABLES AS PROFITS DROP
Oil and gas companies made up a quarter of all entrants in the ranking and generated 34% of the total revenue of the SEE TOP 100 members in 2018. Their combined revenues rose to 43.038 billion euro from 36.481 billion euro of the entrants in the prior-year ranking. Their total profit, however, dropped to 1.863 billion euro from 2.184 billion euro, prompting them to invest heavily in alternative energy sources and new business lines.
Slovenia's Petrol ranked second in SEE TOP 100 after posting a 15% increase in revenue to 4.4 billion euro. The company expects to generate the highest EBITDA in the next three years from new business lines: comprehensive energy supply, the generation of electricity from renewable sources, ESCO projects and mobility.
Another oil and gas company, Romania's OMV Petrom, is third with 4.1 billion euro in revenue, up 21%. The company is actively seeking options to develop Black Sea deposits. "The Black Sea opportunities create a much-needed resource for Romania to secure its energy supply and increase revenues, the more so because Romania's national gas production is declining, imports and gas prices are higher, while interconnectivity with European markets remains limited," OMV Petrom CEO Christina Verchere says.
OMV Petrom is also number 1 in terms of profit - up by an impressive 62% to 831.8 million euro, as the company bucked the general trend for lower profits in the sector.
In late 2018 Romanian oil and gas companies were hit by an unexpected emergency decree enforcing additional taxes for the sector, which the government later modified. Apart from increasing the fiscal burden on the companies, the new legislation introduced a fixed natural gas price, forcing market players, including OMV Petrom, to reconsider their investment programme.
AGRICULTURE - THE REGION'S DARK HORSE
Retail and wholesale is the second biggest sector in the region enjoying the tailwinds of consumption-led economic growth. Recovering from the collapse of Croatian concern Agrokor which sent shockwaves across the Western Balkans in 2017, the sector showed a spectacular turnaround in 2018, swinging to a profit of 752 million euro from a combined loss of 75 million euro a year earlier. Combined revenues also increased - to 24.5 billion euro from 22.2 billion euro.
More interestingly, agriculture emerged as the sector with the second-biggest increase of revenue in 2018, by 29%. Considering its potential, as also evidenced by the high M&A activity it attracts especially in Romania, the sector is still underrepresented in SEE TOP 100.