Operations of 300 biggest enterprises in Serbia in 2008 followed operations of the entire economy to a great extent. They are characterized by a relatively high growth of revenues (higher than 20 percent), a moderate employment growth (3.2 percent), as well as an increase in indebtedness – the net debt increased by almost 30 percent, and a decrease in profitability – EBITDA margin decreased from 9.4 to 8.8 percent

The year of 2008 should have been a key one for many things: the positive growth recorded in previous years should have been accelerated and sustainable when it comes to quality, and based on exports and investments; pursuant to the law, privatization of socially-owned enterprises should have been completed.

The Government announced that a reform of the entire public sector, especially restructuring of public enterprises, should finally start. And finally, but not less important, the inflow of direct foreign investments should have been increased through Fiat’s investment in Serbia’s automobile industry, while the announced investments in the energy sector should have secured long-term energy stability.

Having in mind such highly set demands, it is not surprising that we had to wait to finally catch that “fast train” of economic development, which we mentioned in our last year’s Top 300 publication trying to symbolically present the current situation.

Today, when we analyze last year’s economic trends twelve months later, we have to agree about one thing – the year of 2008 was important (and we shall see whether it was a key one), but instead of positive trends, in the economy of Serbia and the entire world economy negative trends prevailed.

The global economic crisis, which some people consider the biggest one the world has ever seen, has influenced the trend of (moderately) positive economic activities from the previous several years to slow down at the end of last year, and then turn into a fall of economic activities during 2009, with uncertain impact on further trends.

However, on the whole, last year could be estimated as successful for many reasons. The trend of a relatively fast gross domestic product (GDP) growth continued in 2008, with real growth of 5.4 percent (which would have been even higher if the growth slowdown to 2.8 percent hadn’t occurred in the last quarter).

Serbia was one of the leaders in the region. On the other hand, the inflation returned to one-digit level – 8.6 percent (consumer prices), and the unemployment decreased (according to official data of the Republic Statistics Bureau, real unemployment decreased from 18.1 percent in 2007 to 14 percent a year later).

Direct foreign investments fell to about 2.3 billion Euros in comparison to 2.8 billion Euros recorded a year before. However, the announcements of Fiat’s arrival in the automobile industry, as well as privatization and announced investments in the energy sector raised hopes that the level of direct foreign investments would increase in the upcoming years.

On the other hand, in spite of expectations, 2008 didn’t bring a solution for chronic macroeconomic problems of Serbia – the balance of payments current account deficit, inflation and unemployment rate remained among the highest in Europe, despite positive steps regarding the latter two, while capital inflow was especially directed to consumption and less to investments, especially in the so called sector of exchangeable goods and services.

All of these, as well as a rapid growth of indebtedness in the previous year, were reasons for which Serbia didn’t meet the crisis in a good economic and financial shape. Furthermore, a direct result of some of the chronic problems (high foreign trade deficit, for instance) was that effects of the crisis fathered upon Serbia to a greater extent (sudden interruption of capital inflow, the domestic currency depreciation, etc.)

Serbia’s economy in 2008

In May 2009, Solvency Center of the National Bank of Serbia announced operating results of economic entities in Serbia in 2008. Similar to the general macroeconomic picture, last year’s operations of the economy were characterized by a mixture of positive and negative trends.

Some of the basic characteristics of last year’s operations of all economic entities were the following: an increase in the number of economic entities and number of their employees (with a slowdown compared to the previous year), as well as a growth of operating revenues and operating gain, but with negative net results and a considerable increase in indebtedness compared to the year before.

The latter influenced many enterprises in Serbia to face illiquidity problems in 2009. In 2008 Serbia had 89,834 active economic entities, which is an increase of 2.6 percent in comparison with the previous year, as well as a slowdown of the trend recorded in 2007 (a growth of 7.7 percent compared to 2006).

On the other hand, the number of employees in Serbia reached 1,118,771, with a growth of 0.5 percent in comparison to the previous year and interruption of the negative trend recorded the same year (in 2007 there was a decrease in the number of employees of 0.3 percent compared to 2006).

In 2008, the positive trend of operations, recorded the year before, was interrupted. Economic entities operated with a negative net result of 142 million Euros, compared to the net profit of 744 million Euros recorded the year before. However, the negative net profit was a result of high financing costs and currency differentials (financial expenditures recorded a growth of more than 130 percent), while operating gain increased by almost 20 percent.

Last year economic entities in Serbia recorded operating revenue amounting to about 78 billion Euros (17 percent more year-on-year). The last year was also marked by an increase in indebtedness – combined financial obligations exceeded 23 billion Euros, 18.7 percent more than the year before (calculated in dinars, the growth of financial obligations is higher than 30 percent – the difference is the result of the dinar depreciation at the end of the year).

Even more unfavorable is the fact that the indebtedness growth was especially led by an increase in short-term indebtedness (37.4 percent, in comparison with 4.6 percent growth of long-term loans). Besides, another characteristic of Serbia’s last year’s economic activities was a negative net working capital and high amount of missing capital.

The biggest in Serbia – general review

Operations of 300 biggest enterprises in Serbia in 2008 followed operations of the entire economy to a great extent. They are characterized by a relatively high growth of revenues (higher than 20 percent), an average employment growth (3.2 percent), as well as an increase in indebtedness – the net debt increased by almost 30 percent, and a decrease in profitability – EBITDA margin decreased from 9.4 to 8.8 percent.

Besides quantitative, some qualitative changes in the structure of Top 300 biggest companies were also evident last year. Growth of the biggest Serbian enterprises, so called conglomerates, continued. However, the growth was achieved both through further acquisitions and organic growth, and through organizational and financial restructuring of existing operations. Also evident is an increasing number (as well as growth) of formerly small family companies which moved to the category of medium-sized enterprises with healthy foundations for further growth.

Besides, some of considerable direct foreign investments realized in past years started giving results (e.g. Telenor, VIP Mobile, Idea, Merkator, etc.), especially some in “strategic” fields which, having in mind their export orientation, represent the spine of the economic system (Gorenje Valjevo, Gosa FV, ATB Sever, Lohr, etc.). Unfortunately, effects of the crisis influenced interruption of the positive trend in these enterprises in 2009.

When it comes to operations of Serbia’s economy, special attention must also be paid to enterprises which are in major state (public) and social ownership. Even a glance at these enterprises shows that they still represent a painful spot and one of significant development obstacles for Serbian economy.

The group of these enterprises ended the year 2008 with a loss amounting to almost 900 million Euros. The loss would have been even higher without rare positive examples such as Telekom Serbia, or those having a monopolistic position in the market (EMS, State Lottery of Serbia, Flight Control Agency, Forests of Serbia, Nikola Tesla Airport, etc.).

Forty of these enterprises are on the list of 300 biggest companies in Serbia, some of which have extremely bad financial indicators – HIP Petrohemija, Railways of Serbia, Jat Airways, Zastava Vehicles Group, RTB Bor Group, Metanolsko-Sircetni Komplekk, PEU Resavica and HIP Azotara, which to a great extent makes the positive indicators of other companies on the list relative.

Top 10
Some changes occurred on the list of Top 10 biggest enterprises in Serbia in 2008. For the first time Delta Holding (although with revenues representing cumulative revenues of Delta M and Delta Sport) is ahead of EPS on the list and is now the second biggest enterprise in Serbia.

It is also evident that “Club 10” in 2008 is richer by two new members – PE Roads of Serbia and East Point Holdings (EPH), which is this year on the list for the first time. While a growth in revenues of PE Roads of Serbia is a result of an increase in excises on oil derivatives, which are assigned to this enterprise, and active state policy in the field of investments in infrastructure, the growth of EPH is a result of many years’ development of the enterprise (through acquisitions to a great extent), which has now become regionally recognizable through operations in a number of sectors – trade, agriculture, metal industry, transport and logistics, real estate, etc.

On the list of Top 10 biggest companies it can be noticed that Telekom Serbia exceeded 100 billion dinars of operating revenue!

On the whole, 10 biggest enterprises in Serbia maintained a high share in combined revenues of 300 biggest companies in Serbia of 35.2 percent. In other words, the 10 biggest companies account for more than a third of total revenues of the 300 biggest in Serbia.

Sectors

Nineteen sectors and conglomerate groups were analyzed this year. When compared with the previous year, we added tobacco sector due to the significance of tobacco industry for Serbia’s economy (presence of multinational companies, the first productive privatization, significance from the aspect of public revenues collection – excises on cigarettes, etc.).

When it comes to number of enterprises included in sector lists, the biggest improvement was recorded by other machines and apparatus sector (the number of enterprises on the list increased from 10 in 2007 to 16 in 2008) and metal industry sector (a growth from 13 to 18 enterprises). This is certainly a big qualitative step forward, especially because these sectors achieve major realization of their products through export, thus contributing to a decrease in external misbalance and, consequently, to solving one of the biggest macroeconomic problems in Serbia. Unfortunately, the financial crisis will most likely hit those enterprises this year, interrupting their ascending trend.

As for recorded revenue per sectors there were no changes in comparison with the previous year – leaders are still the energy sector, wholesale trade, the food and beverages sector, and retail trade. When it comes to these sectors, there were no big changes last year regarding the enterprises on the list – those are mostly the same enterprises from the 2007 list, but there were some qualitative changes, especially in the sectors of energy and retail trade.

The key event that occurred in the energy sector last year was privatization of NIS and announcement of significant investments in gas industry. Realization of these investments will result in financial strengthening of those companies, but a more important benefit is creation of healthy foundations for development of entire economy (energy market without monopoly and regular supplying with energy substances are certainly steps in that direction). When it comes to the energy sector as a whole, differentiation of enterprises into producers and traders, which prevail in number, is still evident.

As for the retail trade, there is an obvious increase in competition, with a growth in revenues and low EBITDA margin. This especially refers to Delta Maxi Group, Merkator and Idea. Namely, all the three companies continued expansion in Serbian market last year (Delta Maxi strongly abroad as well), partly through opening new trade centers and partly through acquisition of other companies. Due to the strong investment activity, the level of indebtedness of these companies increased considerably, which puts the entire sector among most indebted ones in Serbia.

As for the amount of EBITDA margin, the sectors of telecommunications and construction materials are dominant, and those are the only two sectors with an average EBITDA margin higher than 30 percent (35.9 percent and 32.3 percent, respectively). Telecommunications traditionally carry high profitability as well, which increased last year in spite of sharper competition in the mobile operators market. And while the first two, Telekom Serbia and Telenor, increased the EBITDA margin (Telekom due to expansion to foreign markets, and Telenor through rationalization of operations and increasing the share in the domestic market), the third operator, VIP Mobile, gradually decreases the negative EBITDA margin (which is a result of entering a new market), with expectations to turn it into positive margin probably even this year.

When it comes to the Internet and cable network development, SBB is still the inviolable leader, but due to development of this market and high profitability the competition is expected to become stronger in the upcoming period. The above mentioned observation can also be applied to the construction materials sector. With expected reviving of construction activities after coming out of the recession, it is possible to expect new players in this market. The expected growth and high profitability will certainly be key arguments for this thesis.

As for EBITDA margin per sectors, we cannot neglect two sectors in which this indicator is negative. Those are the sectors of transport and chemistry. Common for both sectors is considerable presence of companies with dominant state (social) ownership, such as Railways of Serbia, Jat Airways, HIP-Petrohemija, MSK Kikinda, HIP-Azotara, etc. It is obvious than in these sectors the “visible” hand of the state is more dominant than in other sectors, which directly influences efficiency of enterprises (e.g. the transport sector holds the second position for the number of employees, and the ninth position for operating revenues).

Solving the accumulated problems in these enterprises, their restructuring, privatization or maybe even bankruptcy, will filter the Top 300 list to a considerable extent, thus improving the aggregate indicators of the biggest enterprises in Serbia.

Conclusion

In 2008 we didn’t catch the French “fast train”, but we have to admit that our train accelerated a bit. For the time being, we won’t see stronger acceleration this year either. Furthermore, even now it is certain that the global economic crisis will reduce the intensity of trends present in the past years to some extent.

Therefore, having in mind everything mentioned above, this is maybe the right opportunity to change the strategy – to replace “waiting” with more active approach, to move on to “working”, including all participants in economic activities – the state, owners and managers of enterprises, and employees. Very soon, after the financial crisis, another key word besides restructuring will also be competitiveness.

Competitiveness means being better than others, as well as constant improvement of ourselves – being better than today and worse than tomorrow. For the state it means creation of an internationally competitive ambient for launching new investments; for owners and managers this means constant improvement of operations, while for employees this is development and education.

Coming out of the crisis and reestablishment of the market, creation of new jobs and continuation of competition among countries for attracting investors are certainly opportunities that mustn’t be missed.

As for recorded revenue per sectors there were no changes in comparison with the previous year – leaders are still the energy sector, wholesale trade, the food and beverages sector, and retail trade
The ten biggest enterprises in Serbia account for more than a third of combined revenues of 300 biggest companies