2019: SEE TOP 100 sales growth slows to single digits

By Nevena Krasteva

Companies in Southeast Europe saw their sales rise only marginally in 2019, as weak growth in the European Union, low oil prices and the U.S.- China trade war impacted their bottom lines. These negative factors, however, were offset by consumption-driven economic growth of an average 3.5% and rising personal incomes as the region moved forth towards convergence with the EU. Furthermore, the banking sector remained very liquid and the ratio of non-performing loans (NPLs) continued to fall. Infrastructure across the region continued to improve, strongly supported by EU funds and international lenders. China remained a major investor in the region with a focus on infrastructure in Serbia and Montenegro, raising concerns about Beijing’s growing political influence, unsustainable debt burdens of Western Balkans states, overreliance on Chinese suppliers instead of local subcontractors, and little regard for environmental issues.
In a step towards closer regional cooperation, at the end of 2019 the leaders of North Macedonia, Albania and Serbia agreed to set up a free trade area in the Western Balkans. At the same time, however, relations between Belgrade and Pristina remained strained over Kosovo’s decision to increase to 100% the import tariffs on all goods produced in Serbia and Bosnia.

Against this mixed backdrop, the revenue of the SEE TOP 100 companies hit a new record high of 129.3 billion euro. However, their total turnover was just 2.3% higher than the revenue posted by the entrants in the ranking a year earlier, as compared to increases by 11% and 13% in 2018 and 2017, respectively.

Looking at the profits of the region’s heavyweights, the situation looks even grimmer. They dropped to a total of 4.7 billion euro, from 5.7 billion euro booked by the entrants in the ranking a year earlier. In comparison, the previous two years saw increases of 17% and 22%, respectively.

These lacklustre financial results are largely due to weak economic growth in the European Union, the region’s main trading partner, and low oil prices on global markets. The impact of these two factors on the overall results of the entrants in the ranking is magnified by the fact that oil and gas companies make up a quarter of all top one hundred companies in the region and generate a third of the group’s total revenue. At the same time, the big companies in the region are mostly export-oriented, often foreign-owned, and thus highly sensitive to the health of the European markets.

Car makers switch to lower gear

Shrunken consumption in the EU was especially evident in the results of automotive manufacturers in SEE, whose total profits slumped by 20%.

Automobile Dacia, a unit of France’s Renault, retained its lead in the ranking for a sixth year running even though its revenue edged down to 5.21 billion euro from 5.3 billion euro in 2018, despite an increase in production. Dacia manufactured almost 350,000 automobiles in 2019, which is 4.2% more than a year earlier, and sold 736,570 cars worldwide, up by an annual 5.1%. Dacia’s profit, however, declined to 139 million euro from 161 million euro.

Like other top performing companies in the region, Dacia benefits from a very well-developed network of local suppliers located in close proximity to its production facilities and synergies with its big international parent. Despite the challenges it faces, Dacia continues to roll out new models and in September 2020 unveiled its first electric car as well as three new models of the Logan, Sandero and Stepway brands.

An integrated business model and a focus on cleaner energy solutions are some of the features that Dacia shares with other leaders in the ranking.

“Our integrated business model proves once again its benefits, especially in an expected lower oil price environment. We will continue to pursue our strategy execution, with the aim to supply energy in a sustainable and cleaner manner, with natural gas playing a significant role in the energy transition,” says Christina Verchere, CEO of second-ranked OMV Petrom.

OMV Petrom’s turnover increased by 14% to 4.65 billion euro driven by higher sales volumes of natural gas and petroleum products and higher prices for electricity, partially offset by lower selling prices of petroleum products. Even though the company’s net profit fell to 746 million euro from 832 million euro, it retained its first place by this indicator. The total hydrocarbon production of Romania’s top oil and gas group shrank 5% to 55.35 million barrels of oil equivalent (boe) in 2019, due to lower domestic output. In December 2019, OMV Petrom signed a contract to acquire a stake in Han Asparuh exploration licence in Bulgaria.

Despite a slight increase in turnover to 3.65 billion euro from 3.64 billion euro, Slovenia’s Petrol slides to fourth place, from second a year earlier. In response to the energy sector’s push towards increased energy efficiency and novel use of existing energy products, the company is prioritising new business lines, including power generation from renewable sources.

Retailers make strong return

For the first time since SeeNews started compiling its ranking of the biggest companies in Southeast Europe, the number of wholesalers and retailers equals that of oil and gas companies, 2 5. Furthermore, the wholesalers and retailers in the ranking recorded a 13% growth in revenue, to a total of 27.5 billion euro. The sector’s strong performance reflects its recovery from the 2017 collapse of Croatia’s Agrokor concern and the region’s steady consumption-driven economic growth as wages continue to increase. Not surprisingly, the biggest wholesalers and retailers are based in Romania – the top economic performer and largest market in Southeast Europe.

Pharma companies in the spotlight

The dark horse in this year’s edition of the SEE TOP 100 ranking is the pharmaceuticals sector.

The three pharmaceutical companies in the ranking surprisingly posted a 15% return on revenue combined, the highest among the sectors.

Croatia’s Pliva Hrvatska, part of Teva Group, led the pack in this department with a revenue of 639 million euro and net profit of over 132 million euro, giving it a return on revenue of 21%. As much as 90% of the company’s total revenue comes from exports, mostly to the U.S. The rise in revenue reflects higher sales and the one-time effect of the commercialisation of part of the company’s development projects, the head of Pliva, Mihael Furjan, has told local media.

Slovenian giants Krka and Lek generated revenues of over 1 billion euro each. Krka boasted a net profit of nearly 250 million euro, or a return on revenue of 17%. Lek followed with a net profit of some 116 million euro and a more modest return on revenue of 10%.

Both companies’ performance comes on the back of heavy investments.

The Krka group allocated 112.6 million euro to investments last year, of which 90.5 million euro to the controlling company. For 2020, Krka Group has planned investments of 134 million euro, primarily to be allocated to expanding and modernising production facilities and infrastructure. Dispersed international operations and the vertically integrated business model ensure Krka Group’s stable performance despite diverse macroeconomic situations in the markets. Product sales in Southeast Europe totalled 191.3 million euro, a 9% year-on-year increase. Most regional markets contributed to growth, but Bulgaria stood out in absolute and relative terms.

At the end of 2019, Lek, part of Novartis, set up three new packaging lines for blister packs and thus became the largest Novartis production site with a total of 26 lines for packaging solids. The total investment into the site exceeded 10 million euro in 2019. Since 2003, Novartis has invested more than 2.5 billion euro in Slovenia.

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