By Nevena Krasteva
Steady, consumption-led economic growth and increasing wages brought record-high sales to the top companies in Southeast Europe (SEE) in 2018, giving them room to continue to expand their operations. An abundant flow of foreign direct investment (FDI) complemented by EU funds, easily available bank funding at low rates, and a solid performance of the economies of Western Europe, the region’s main trading partner, further contributed to growth. Chinese investments continued to pour into the region, as Serbia absorbed the bulk. The volume of M&A deals in the region surged to an all-time high and consolidation continued at a brisk pace. The governments in Belgrade, Zagreb and Ljubljana completed successfully several large privatisations and prepared the ground for a couple more. Despite ongoing political volatility and regulatory setbacks, with some particularly bad examples from Romania, the overall investment climate in SEE continued to improve. The biggest companies in the region invested heavily in capacity, green technologies and innovation, and continued to seek ways for economies of scale. The negative effect of the collapse of Croatia’s largest conglomerate Agrokor faded and the retail/wholesale sector – traditionally a top performer – returned among the top three in terms of profit. As global oil prices recovered, the oil and gas sector reaffirmed its foothold in the ranking, with its representatives accounting for 34% of the total revenue of SEE TOP 100. Their combined profit however shrank, forcing them to eagerly look to develop alternative business lines. Car makers too maintained their good performance, making the best of the economic upturn and rising consumption. Even though still only a few, agriculture companies in the ranking did remarkably well.
Automobile Dacia, a unit of France’s Renault, is the biggest company in SEE for a 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. The Dacia brand posted 10% higher sales in Europe and held a market share of 2.9%, largely thanks to the performance of the New Duster launched at the beginning of the year and Sandero. In December, the company received 115.8 million lei in state aid to increase production in order to meet higher demand.
Six representatives of the oil and gas sector, two electricity companies and a metals producer keep Dacia company in the top 10.
The ten biggest companies account for 27% of the combined revenue of SEE TOP 100. There are no new entrants among them. Sales, profits grow in double digits As the companies in SEE continue to streamline operations and boost efficiency, aiming to close the gap with their West European peers, their financial reports showed double-digit growth in both profit and revenues, with profit growth outpacing the rise in revenues for a 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 than a year earlier when they recorded increases of 13% and 22%, respectively.
In second position, Slovenia’s Petrol posted a 15% increase in revenue to 4.4 billion euro. In 2018, Petrol Group had an EBITDA of 171.5 million euro, with sales of refined petroleum products contributing only 60%. The company plans to invest 520 million euro in the 2018-2022 period with highest growth expected in new business lines such as generation of electricity from renewable sources and mobility. Lowest growth, on the other hand, is expected in the oldest core business line – the sale of refined petroleum products. “Globally and locally, we are facing social and technological changes that can be captured concisely by the notion of “digital globalisation”. The energy sector is moving towards energy efficiency, novel use of existing energy products and development of new ones. In addition, a considerable shift can be observed in the behaviour of end customers, who are becoming increasingly engaged,” Igor Stebernak, member of Petrol’s management board, comments. (see p.10)
Another oil and gas company, Romania’s OMV Petrom, ranked third with 4.1 billion euro in revenue, up 21%. Its revenue increase was driven by higher commodity prices and electricity sales volumes, partially offset by lower volumes of gas and petroleum products sold. Over the last few years, the company has been stepping up investments and plans to drill around 100 new wells in 2019, as compared to just 40 in 2016. “The Black Sea opportunities create a much-needed resource for Romania to secure its energy supply and to increase revenues, the more so that Romania’s national gas production is declining, imports and gas prices are higher, while interconnectivity with European markets remains limited,” CEO Christina Verchere says. (see p.12)
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 toward profit decline in the sector. Oil and gas companies, however, made up a quarter of all entrants in the ranking and generated 34% of the total revenue of the SEE TOP 100 members.
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.
In terms of profit, OMV Petrom is followed by two Serbian entrants – copper
mining and smelting company Serbia Zijin Bor Copper (former RTB Bor) and Aerodrom Nikola Tesla which saw their bottom lines benefit from capital injections by foreign companies.
The financial performance of majority state-owned Aerodrom Nikola Tesla was boosted by 59.3 billion dinars paid by the concessionaire of Belgrade Nikola Tesla Airport. In 2018, France’s Vinci Airports signed a 25-year concession contract covering the Belgrade airport’s financing, operation, maintenance, expansion and upgrade. Under the terms of the deal, Vinci Airports committed to pay 417 million euro to the Serbian government and 84 million euro to the small shareholders of Aerodrom Nikola Tesla for the concession plus an annual concession fee of between 4.4 million euro and 15.1 million euro.
In December, China’s Zijin Mining Group injected $350 million in the capital of RTB Bor, acquiring a majority stake, and renamed it to Serbia Zijin Bor Copper. The Chinese group intends to invest $1.26 billion to improve the production operations of RTB Bor, open new mines and increase efficiency. In 2019, Zijin plans to invest up to $200 million in the overhaul of RTB Bor. The company is expected to increase ore production by 10% and of copper concentrate by 30% in 2019, thus making Serbia Europe’s third largest copper producer. The share of mining industry in Serbia’s GDP will grow to 5% from 1%, according to Serbia’s energy minister Aleksandar Antic.
The deal for RTB Bor adds to a long list of Chinese investments in SEE, in Serbian infrastructure in particular, made over the past years as part of the Chinese government’s Belt and Road Initiative. The massive investment flow has raised concerns about unsustainable debt burdens for some countries and Beijing’s growing political influence.
In another landmark acquisition, a unit of China’s Hisense Group became owner of Slovenian household goods manufacturer Gorenje, which ranks 59th in SEE TOP 100.
The 46th place in the ranking is occupied by HBIS Group Serbia Iron & Steel, a unit of China’s HBIS. HBIS took over the management and ownership of Zelezara Smederevo in July 2016, three months after the government agreed to sell the steel mill to the Chinese group for 46 million euro. HBIS Group Serbia Iron & Steel plans to invest $300 million in its steel mill Zelezara Smederevo in Serbia by the end of 2021.
Back to the TOP 10 group, at number 8 Aurubis Bulgaria is the biggest metals producer in the region, even though the company’s revenue dropped slightly in 2018, while its profit nearly halved.
“The net results are influenced by the market conditions for our throughput materials, the metal prices, the so called treatment and refining charges. The  volumes are planned to be lower compared to last year also due to the maintenance shutdown in May-June that will have its one-off effect on the figures. Unlike the temporary ups and downs, the energy prices may impact expenditures over a long period of time. That is why we are working hard on efficiency through modernisation,” CEO Tim Kurth explains. (see p.44)
Two electricity companies – Slovenia’s GEN-I and Serbia’s JP Elektroprivreda Srbije – round off the top ten. Retailers make comeback, agricompanies gain momentum
Recovering from the collapse of Agrokor which sent shockwaves across the Western Balkans in 2017, the region’s wholesale and retail sector showed a spectacular turnaround in 2018 and swung 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 – on the back of rising consumption across the region. The sector has the second biggest number of representatives in the ranking, 23, including Agrokor’s Croatian unit Konzum, its Slovenian subsidiary Poslovni sistem Mercator and Serbian unit Mercator-S.
It comes as little surprise that the automotive sector recorded yet another good year, 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 two examples: in Romania, it contributes 14% to the national output and 26% to the national exports, while in Serbia automotive companies have generated 10% of the inflow of foreign direct investment since 2001, the country’s trade minister Rasim Ljajic has said.
More interestingly, agriculture emerged as the sector with the second biggest increase of revenue, by 29%. Considering its potential, the sector is still underrepresented in SEE TOP 100, as only three companies – all Romanian – made it into the ranking.
Yet, entering SEE TOP 100 has become increasingly difficult. Six new entrants found a place among the region’s biggest companies this year versus 12 last year. The newcomers operate in the oil and gas, electricity, transportation, and rubber and rubber products sectors. The threshold for entry among the top 100 rose sharply to 569 million euro from 515.5 million euro a year earlier. Romania has 54 companies in the ranking, while Albania and Moldova still have no representatives.