Economic slowdown drives flat-lining revenues across CE
Deloitte CE Top 500 report
A deteriorating economic situation across Central Europe combined in 2013 with an increasingly uncertain geopolitical situation to drive revenue stagnation for many of the region’s largest companies.
A deteriorating economic situation across Central Europe combined in 2013 with an increasingly uncertain geopolitical situation to drive revenue stagnation for many of the region’s largest companies. And company results from the first quarter of 2014 indicate that for a high proportion of these, stagnation has this year transformed into actual decline. This is the headline finding of the eighth annual Deloitte CE Top 500 report, which charts a steadily worsening economic and business situation across Central Europe to leave little room for optimism relating to the financial outlook of its largest companies over the next few months.
For the eighth time Deloitte conducted an analysis of the largest companies in 18 countries of Central Europe and Ukraine (500 companies, 50 banks and 50 insurance companies). The combined revenues of all the companies in the Top 500 Ranking amounted to 712 billion euros, which represents a decrease of 0.4 percent. (3 billion euros) compared to the result of 2012.Flat average revenue increase of 0% was noted across the region, down from a far healthier 3.3% a year earlier. This edition of the Ranking is the third in a row in which the number of companies report declining revenues grew. The decrease in revenues was recorded by almost half of the 500 companies analyzed by Deloitte (45.4 per cent in comparison with 40.4 per cent in 2012). The only dominating sector in terms of relatively high growth in revenues is manufacturing industry, which recorded an average growth of 2.9 percent. According to Deloitte, unstable situation in Ukraine and recent economic sanctions can further contribute to the deterioration of economic conditions in the region, resulting in a further slowdown in the development of the largest Central European companies.
"Although the first signs of economic recovery in 2013 was not easy for Central European countries. Only two of the five largest economies, Hungary and Romania, grew at a faster pace than in 2012. The situation of the other three countries, Polish, Czech and Ukraine has not changed drastically in comparison to 2012. The Czech economy continued to decline in GDP -0.9 percent. relative decline of -1 percent. in 2012, while in Ukraine stagnation ".
According to Deloitte CE CEO Alastair Teare, “These factors, which are supported by a more negative outlook in our own recent CFO survey, a fall in the crucial Purchasing Managers’ Index from a relatively optimistic value in 2013 and worsening sentiments in Germany, do not bode well for the region’s immediate economic future”
The largest increase in revenue in 2013 was recorded by manufacturing industry, nearly 3 per cent. It resulted mainly from the good condition of the automotive industry. Over the last year, several global companies from this sector started further investing in Central Europe (including Romania, Slovakia, Poland and Hungary). In turn, the consumer goods sector grew by only 1.1 percent. Last year, it was up 4.8 percent. Industry TMT (technology, media and communication) from several years affects the decline in average income (in 2013 -4.9 percent.).
Sector, which for the second year in a row saw the biggest drop (-15.7 per cent.) is the real estate and construction industry. "The first quarter of this year shows that the situation in all sectors continues to deteriorate, and the average change in income of companies was negative and amounted to -3.1 percent. compared to -0.5 percent. in the first quarter of 2013. You can talk so clear and the negative trend in the region ".
The results of the study of the largest companies in Central Europe have lower average revenue increase than last year in all countries of the region. The largest economies grew at a slower pace than in 2012, due to, i.e. low private consumption. Supporting economic growth in 2013 was, in turn, exports resulting from the recovery in the euro area. The best in this regard was Lithuania, where 13 companies reported an average revenue growth of 6 percent and Romania (4.7 percent.). The increase in Romanian companies, however, partly due to the appreciation of the Romanian lei - increases in local currency amounted to 3.9 percent. Ukrainian companies distinguished themselves by a significant slowdown in growth compared to 16.2 per cent average growth in 2012.
Deloitte also analyzes the banking and insurance industries. In 2013, total assets of the 50 largest banks increased by 2.8 per cent, against an increase of 6.6 percent in 2012. 29 financial institutions reported an increase in assets (previous year: 37). The median growth for all 50 banks from the list amounted to 1.3 percent and was lower than last year's increase of 4.9 percentage points. Just like last year, the largest representation among banks has Poland, whose participation in the list is 30 percent, followed by Czech Republic and Hungary, with 14 percent.
In 2013, average decrease in gross written premiums for insurers amounted to 0.8 percent. This means a further decline compared to 2012 and a reverse trend from 2011, when the growth rate was 1.5 percent. The sum of gross written premiums declined for the companies included in the ranking by -3 per cent, reflecting the stagnation in the sector.
There has been little change in the top places in the ranking, with Poland’s PKN Orlen, Hungary’s MOL and the Czech Republic’s Škoda Auto continuing to occupy the first three spots. Where in 2012, Ukraine’s DTEK jumped from 32nd to seventh place, this time it continued its rise to fifth. And Jeronimo Martins Polska, implemented an effective expansion strategy to move up four place to eighth.
The biggest movers are to be found further down the Ranking, however. Ford Romania jumped an extraordinary 258 places (to 170th) thanks to a nearly twofold increase in revenues to EUR 1,097 million. Mercedes-Benz Manufacturing Hungary, meanwhile, rose 156 positions to 74th following a 127% rise in revenues.
"The question is not only if the largest companies in our region are able to survive the current crisis, but whether they have the capabilities and the potential to continue to grow and grow. The asset that we produce cheaply and just as well as others seems no longer sufficient. The current results show that the achieved revenue growth is not enough to think about conquering the world, and even Europe ".
According to Deloitte CE CEO Alastair Teare “While the report findings certainly give us cause for thought, it is not all bad news. It is also becoming clear that Central European countries are in the process of changing themselves. They are turning away from a focus on low-cost labour to become knowledge-based economies driving the innovation that ultimately makes companies, economies, regions and continents more competitive and profitable. So possibly the longer-term outlook for our companies is more positive than the place where we currently find ourselves. And similarly to countries, many companies are looking for solutions to escape these tougher times. They are focusing on product and service innovation to attract the investment they need and develop alternatives to their traditional goods and services. Such positive practices appear set in the longer term to have a wide impact on many facets of their competitiveness and market position.”