Good revenue growth, moderate profits

The cool software sector is hot on profits

Good revenue growth, moderate profits

The TOP100 companies grew revenue by 9% in 2018

The cool software sector is hot on profits

© Tsvetelina Belutova

- The slowdown of the European economy put a slight brake on Bulgarian business

- Profits were weaker for more than half of the companies in the Capital TOP100 ranking

- IT companies had the highest revenue growth in 2018

It was yet another strong year for large companies in Bulgaria, 2018.

The combined revenue of the companies in the Capital TOP100 ranking increased by 9%, coming just short of record-high 70 billion levs. This is a slightly lower achievement when compared to 2017 when income jumped by 14%. Last year's slower pace has a simple explanation - the minor lag of the economy in Europe which is Bulgaria's main trading partner.

The profit of TOP100 dropped due to growing payroll expenses and record-low results of several companies such as state-owned thermal power plant Maritsa East 2 and the TOP100 leader, the Lukoil Neftohim Burgas refinery.

Revenues up

The tax returns of the nearly 350 000 companies doing business in Bulgaria reveal that they earned 360 billion levs last year, a 7% increase over 2017. Data by the National Revenue Agency shows the TOP100 companies generated 19% of all revenues, while the TOP300 clocked 27% of total turnover. Their combined revenue came in at 98.7 billion levs in 2018, nearly 8 billion levs more than in 2017.

There are 20 companies on the TOP100 list whose revenue fell in comparison with 2017 but the drops are slender, mostly in the single digits and related to accounting practices.

The revenues of the remaining 200 companies in the TOP300 group grew to a lesser extent, by almost 7%. This is very close to the Bulgarian economy's nominal GDP growth of 6.8% to 108 billion levs in 2018. Considering that inflation has come back (the average for 2018 was 2.8%), real growth amounted to 3.1%.

Profits fall further

No less than 16 companies among the top hundred operated at a loss last year, the number among the following 100 being 10. The aggregate loss for all TOP100 companies topped 1 billion levs. Traditionally, state-owned energy and railway companies are the most numerous in the group of loss-makers. The record-holder comes from their ranks as well - Maritsa East 2 TPP declared a 332 million levs loss. After two profitable years, the Burgas-based refinery owned by Russia's Lukoil recorded a massive loss which the company explained by the downtime due to repairs in the first half of 2018. Because of accounting procedures reflecting past deals, the telecom A1 reported a loss for the second year in a row.

Aside from the 16 in the red, a further 39 companies showed lower profits when compared to the previous year. As a result, the bigger share of the companies in the Capital TOP100 2018 had a less profitable year.

From position 101 downwards to 300, losses become fewer and smaller - only 33 companies operated on a loss. The largest loss in the group, of 27 million levs, belongs to Kostal Bulgaria Automotive, which added a production plant in Pazardzhik last year and the investment is yet to show returns. The mid-sized companies had combined loss came up to 188 million levs.

Last year, however, was not so successful when it comes to profits. In 2017, the profit of the TOP100 reached the record 3.4 billion levs, while the companies in the 2018 TOP100 clocked just 2.1 billion levs in profits. Measuring the performance of the companies in this year's TOP100 against their achievement in 2017 - 2.8 billion levs shows a 25% drop of the profits in 2018. Yet, this is a far cry from the darkest times of the beginning of the crisis in 2008 and 2009, when 22 and 20 companies respectively recorded losses and the bottom line of the TOP100 group carried a minus sign.

In terms of net profit, there is an unexpected leader in this year's ranking - the state-owned Bulgarian Energy Holding (BEH). Its profit of 364 million levs is the result of a dividend derived from retained profits of Kozloduy nuclear power plant and the Electricity System Operator and is not representative of the financial state of the companies in the holding. Among them are the negative record holder for 2018, Maritsa East 2 TPP, as well as the National Electricity Company (NEC) and public gas supplier Bulgargaz which also reported losses.

Last year's profit champion Aurubis Bulgaria ranks second this year with 202 million levs profit in 2018, or about half of the 2017 figure.

Not all indicators inspire pessimism. For instance, the TOP50 companies by profitability out of the 500 biggest show record-high margins of 25% on average for every lev of sales in 2018. This means that there are companies for which 2018 was a record-breaking year. Good performance was once again typical of gambling and arms companies, but there were also significant improvements in the transport, logistics, machine manufacture, energy and mineral extraction sectors.

Slim rise in hirings

Not only sales rose at a slower pace in 2018, hirings colled off as well. Data from the TOP100 employers shows that the number of employees in that group has grown by a meager 0.44%. There is a visible increase only in manufacturing and IT companies, as well as in supermarket chains opening new stores. This feeble growth is due to reasons that go beyond the low desire for new hires. Namely, this is the impossibility to hire, since employment is at its highest levels and is even surpassing the pre-crisis boom.

The TOP300 companies employed 280 000 people, or 10% of all employed individuals last year. The TOP100 group employed nearly 148 000, up by barely 1% over 2017.

The TOP10

Each of the first 10 largest companies reported an income of over 1 billion levs. The group's total amounted to 24.5 billion, or close to 7% of the income declared by all companies doing business in Bulgaria in 2018.

The unquestionable leader is Lukoil Neftohim Burgas and copper producer Aurubis Bulgaria is the runner-up. The distance between them expanded slightly because of a halt in production at the latter's smelter in Pirdop. There was a pause in the oil refinery's operation as well due to renovation works but this compensated for by a 10% rise in fuel prices.

The companies that ranked third and fourth last year now swap places, with fuel retailer Lukoil Bulgaria going up as a result of higher fuel prices. NEC also gained some ground on the back of increased stock market trades and higher electricity prices. -- increased stock market trades?

Fuel distributor Saksa climbs three spots. Its revenue grew by more than 600 million Levs in 2018, largely as a result of the decision of Lukoil Bulgaria to shorten the list of fuel wholesalers it works with.

Due to a change in revenue accounting methods, power supplier CEZ Electro Bulgaria drops from the top 10. The use of international accounting standards has also shrunk the revenues of electricity distributors, as well as Kaufland Bulgaria retailer.

The new TOP10 member is Kozloduy NPP. The plant has had a series of strong years in which revenues have grown alongside profits, as some of its electricity now gets sold outside of the regulated market where prices are capped.

An eleventh company has joined the billionaires' club. This is copper products manufacturer Sofia Med, part of Greece's Viohalco Group, which also owns steel producer Stomana Industry, another TOP100 member, as well as 124th, ranked aluminium products maker Etem Bulgaria. The three companies have a revenue of 2.1 billion levs combined and they form one of the largest industrial conglomerates in the country. Sofia Med has been developing vigorously in the past few years and Etem Bulgaria s planning, together with a Spanish partner, to enter the auto parts sector later this year.

The champion

IT, the youngest sector of the economy in Capital TOP100, is this year's champion. The average revenue growth of the 20 companies present in the ranking is 32%. The trend in 2018 was reinforced by a financial operation performed by Progress (known as Telerik until recently). But even without it the sector marks the highest growth and potential for development. Its profits were good too - an average of 15% on every lev of revenue.

The situation in the second-largest sector by growth - construction with 28% increase - is a little different. Events there are cyclical: demand surges when EU-financed infrastructure projects approach a deadline, then serious downturns follow in the absence of government contracts and decreased demand. Now we see a demand-driven boom that will continue for at least another two years.

Sectors like trade, transportation, pharma and food reported moderate growth of their 2018 revenue in the context of the favourable economic environment and increased consumption. The increased revenues in the fuel and energy sector reflect the higher prices of crude oil and electricity. Metals had a relatively good year, but the second half saw a price drop and the effect of American tariffs and the shift of manufacturers to European markets might interfere with the health of Bulgarian factories.

Sorted by type and location

True to tradition, 51 of the companies in this year's edition of Capital TOP100 are based in Sofia - supermarket chains, fuel and technology businesses as well as state-owned energy and railway companies. Eight are based in Plovdiv, mainly manufacturers like KCM, Liebherr, Hanon Systems (formerly Magna Powertrain Plovdiv). There are eight representatives of Varna, mostly Energo Pro's three companies and those based in Devnya industrial zone. There are regions like Lovech, Silistra and Vidin, without a single representative in TOP100. There is a measure of good news - a decade ago 58 of the companies in the ranking were based in Sofia.

In the new Capital TOP100, there are no less than 40 manufacturing companies, the majority of which produce machines and parts for them. Traditionally, they are followed by representatives of the energy sector - there are 19 electricity companies and 11 fuel companies. Metallurgical plants, supermarket chains and pharma companies come next on the list.

New owners

The largest company with a new owner in this year's edition of Capital TOP100 is Telenor Bulgaria. The telecom was sold by its Scandinavian owner to the wealthiest man in Eastern Europe, Petr Kellner. He was also chosen as a buyer of Nova TV in 2018 but the Bulgarian competition authority did not approve the deal. Earlier this year Nova TV was purchased by Bulgarian businessmen Kiril Domuschiev and Georgi Domuschiev with the government´s blessing. Uncertainty still shrouds the future of the assets of the Czech energy group in Bulgaria. A deal for their sale to small local energy broker Inercom failed to win the approval of the competition authority and CEZ is now in talks to sell the assets to Eurohold Bulgaria.

Deals in the industrial sector were nearly lacking altogether. Canada's Magna International sold its Bulgaria-based automotive parts producer Magna Powertrain Plovdiv to South Korea's Hanon Systems last year. The deal was finalised in April 2019.

This year may see a new owner of fuel retailer Petrol, while the Bulgarian Telecommunications Company is again looking for a new investor to take over. Restructuring at Bulsatcom could also mean a change in ownership.

Following last year's deals in the IT sector (MM Solutions and Imperia Online), this year may see new shareholders at Bulpros and Scale Focus where consultants have been hired to gauge interest.

The future: More of the same

So far this year, 40 companies have published their forecasts for 2019. Traditionally, the vast majority plans to grow. The expected average revenue growth is 9% or about the same as the growth in the capital this year. A total of 33 of them predict profit growth of 10% in 2019. The employment plan is more conservative, envisaging an increase of slightly over 4% in new hirings.

The expectations about the economy as a whole are similar to last year's and even a modest increase is possible. Midyear, the numbers are good - growth in exports, employment, loans. Nonetheless, many analysts are cautious, because it's an election year and the results of the stress tests of the banking sector by the ECB, due to be published in July, might generate instability. At the same time, good news could arrive from several directions, for instance, Bulgaria progressing to the next stage on its path to the Eurozone. The most important corporate event with the potential to provide strong impetus can be a decision of Volkswagen to pick Bulgaria as the location for its planned new mega-factory in Europe.


51 of the companies in the TOP100 are foreign-owned, a now-traditional distribution.

51 of the companies in the TOP100 are based in Sofia. The capital is followed by Plovdiv and Varna with 8 representatives each.

The TOP100 ranking comprises11 state-owned and one municipal company, most of them from the sectors of energy and transport, as well as an arms dealer. VMZ dropped out of the group due to its decreased revenue.

64 billion levs is the value of the assets of the TOP50 companies. Their growth in 2018 has slowed compared to the previous year's.

The debt of the TOP300 companies in Bulgaria rose by 4%, or by 1.8 billion levs, to reach almost 47.5 billion levs, while the debt-to-assets ratio remained stable below 50%.

Still, only 7 in the TOP100 are publicly traded companies. Biovet and Sviloza delisted from the stock exchange in Sofia, while the Gradus group started trading there in 2018.

Methodology and criteria

The data for the Capital Top 100 ranking is collected from the information reported by the companies, public sources of information, regulators, databases. Some of the data come from the Commercial Register. Financial information about public companies originates from the Bulgarian Stock Exchange, the Financial Supervision Commission and other platforms.

The ranking includes non-financial corporations registered in Bulgaria and does not include banks, insurers, leasing companies, investment brokers and SPVs. Nor does it include educational institutions and hospitals.

The main criterion for being included in this year's edition of the Capital Top 100 ranking is the company's total revenue for 2018. The charts include a second indicator of the company's activities throughout the year - the net financial result (after taxes). The ranking of the most profitable companies is based on this information.

Some of the company reports have not been audited due to the delayed verification deadline. For the same reason, the principal rankings in the Capital Top 100 are based on non-consolidated data. For the first time, this year's ranking includes several groups with consolidated data.

The data thus collected makes the ranking representative of more than 95% of large Bulgarian companies with a revenue of over 80 million levs per year.

Photographer: Capital
Photographer: Kapital
Photographer: Kapital

- The slowdown of the European economy put a slight brake on Bulgarian business

- Profits were weaker for more than half of the companies in the Capital TOP100 ranking

- IT companies had the highest revenue growth in 2018

It was yet another strong year for large companies in Bulgaria, 2018.

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