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TOP 300: Deadweight

11. October 2010. | 14:39

Source: Emg.rs

Author: Altis Capital, Aleksandar Ilic

Operations of the top 300 companies in Serbia differed last year in relation to the business economy as a whole. Statements about qualitative changes in the structure of the Top 300 largest companies in the last year are now partly relative. Growth of the new exports sector slowed due to the global financial crisis, although hopefully this is only temporary.

The global economic crisis, which began to leak into Serbia at the end of 2008, greatly affected economic development last year.

The economic growth model that was in force in Serbia during the period prior to the crisis, which mostly relied on capital inflow from abroad, consumer boom and the growth of the alleged non-exchangeable goods and services sector, has, during the crisis, demonstrated its weaknesses.

The disruption of capital inflow seriously hit Serbia’s economy in two basic ways: strong Dinar depreciation and insolvency of a large number of companies.

Since the beginning of the crisis, the domestic currency has depreciated by nearly a third, which has created the necessity to spend a considerable part of the foreign currency reserves in order to “reduce excessive daily exchange rate fluctuations” – amounting to approximately 2.5 billion Euros – Serbia was hit by one of the biggest currency crisis in Europe.

The consequences on the real sector of the economy were very strong. Given the strong upward trend in the economy just before the crisis to indebt, and a high indexation level of loans taken in foreign currencies with high interest rates, the large depreciation significantly hindered the repayment of loans, causing a large number of companies to declare losses and creating an insolvency chain in the economy (more than 60,000 enterprises had blocked banking accounts).

It is true that a decline in economic activity, i.e. gross domestic product (GDP) in Serbia in 2009 amounted to “only” three percent, which is among the lowest in the region. However, this decline, observed at the sector level, was uneven.

While some sectors remained, more or less, resistant to the crisis, such as the financial mediation (real growth of 5.1 percent), transport, storing and connections, i.e. the telecommunications sector as its most resistant part, other sectors, such as the manufacturing industry, construction and trade, had a large decrease in activities.

In other words, the applied model of economic development really “broke” in the crisis – the exchangeable goods and services sector, which should be a basis for economic growth and development, with an already low share in the GDP structure, was hit the hardest. Therefore, the multiple effects of this sector’s infringement overflowed into other industries, as well as to the living standard.

Most of other macroeconomic indicators were also poor. The unemployment rate increased again, resulting in new social tensions. Investments, both domestic and foreign, were reduced, thus decreasing the potential future growth rate.

On the other hand, as a result of the disrupted capital inflow, was a drastic adjustment (decrease) of the balance of payments current account deficit, which in 2009 amounted to “only” about seven percent (compared to almost 18 percent in 2008).

However, the decrease in the balance of payments current account deficit, with a decline in the inflation rate (6.6 percent compared to 8.6 percent a year before) creates a good basis for development after the crisis.

Serbia’s economy in 2009

The Business Registers Agency has recently published the results of economic entities in the Republic of Serbia in 2009. Corresponding to the general macroeconomic picture, management of the economy last year was characterized with generally negative tendencies. The main characteristics of companies doing business last year were: a decreasing volume of economic activities, dealing with a loss that doubled over the previous year, general insolvency and a reduction in the total number of employees.

The 112,160 companies operating in Serbia last year, employed 1,058,539 workers – 65,497 fewer people than in the previous year. More than a quarter of companies in Serbia have no employees, and more than half employ one to five workers, which are certainly not encouraging indicators.

Operating revenues of enterprises in Serbia in 2009 amounted to 5,792 billion Dinars (approximately 62 billion Euros), which is about seven percent less than a year earlier, expressed in the domestic currency.

At the same time, the economy reached a nearly 45 billion Dinar loss, more than double than in the previous year. It is interesting to note that the total increased loss is primarily the result of reduced financial revenues, that is, particularly an increase in financial expenditures (interest rate costs and negative exchange differentials). An operating gain, as a difference between operating revenues and operating expenditures, decreased by “only” seven billion Dinars (186 billion Dinars compared to 193 billion the year before).

Therefore, the following conclusion can be made – the debt level, terms of financing and fluctuations of the exchange rate influenced (and still influence Serbia’s economy immensely.

Indebtedness also increased during the previous year, and another characteristic of Serbia’s economic activities was a negative working capital (144 billion Dinars) and high amount of missing capital.

The 300 biggest

Operations of the top 300 companies in Serbia differed last year in relation to the business economy as a whole. Their characteristics are the following:

  • - revenue growth of 2.5 percent, expressed in the domestic currency, which is a consequence of a high revenue growth in individual companies, some of which have revenue from last year that did not show through companies that are now on the list;
  • - an increase in profitability; the EBITDA margin increased from 9.6 to 10.5 percent, which was mainly a result of improved performance of some leading companies, such as the Power Industry of Serbia;
  • - minimum growth of the employment rate (0.8 percent);
  • - an increase in Dinar debt by 10.5 percent, but with the same relative indebtedness level of 3.4xEBITDA and a decrease in investing (measured by our methodology).

Statements about qualitative changes in the structure of the Top 300 largest companies in the last year are now partly relative. Growth of the new exports sector slowed due to the global financial crisis, although hopefully this is only temporary.

The conglomerate sector, which in the past stood out with its qualitative and quantitative achievements, now became explicitly heterogenic: some companies continued positive operation, even better than prior to the crisis, while others were seriously impacted by the crisis, which even puts their survival into question.

The good news is that most big investments (e.g. Telenor, VIP Mobile, Mercator-S) justified the assets invested, while from others (such as Gasprom’s investment in the Petroleum Industry of Serbia) it is still anticipated.

Also, it is good news is that some investments from the export sector (Ball Packaging, Gorenje) are functioning well even during the crisis, and we should also be proud of the growth of some companies with majority domestic capital, which have found their path from a small family business to medium and large companies such as Almex, Mirotin, Drenik ND, Gebi, and in particular Concern Farmakom MB. Public enterprises and those with majority State ownership still represent a stumbling block for Serbia’s economy, despite the occasional positive example.

Top 10

Significant changes occurred on the list of the Top 10 largest companies in Serbia. First, NIS is not longer an undisputable leader. Due to a decrease in the price of oil on the global market, effects of the exchange rate and internal problems, this company is no longer Serbia’s biggest, but rather has left this position to another energy giant – Power Industry of Serbia (EPS). NIS is not the runner-up either, as second place is held by the biggest domestic conglomerate Delta M, part of Delta Holding.

This year “Club 10” has been enriched by another domestic conglomerate, Victoria Group and Mercator-S, which removed Lukoil Beopetrol and Roads of Serbia from the list. This shortened list traditionally includes Telekom Srbija, two companies from the field of gas distribution and trade – Srbijagas and Yugorosgaz (with significantly decreased revenues) – and Serbia’s biggest exporter U.S. Steel Serbia (which also suffered due to the global financial crisis).

As a result of decreased revenues of the leading companies, the concentration of the Top 10 largest also decreased from 35 percent in 2008 to below 30 percent in 2009. However, these companies’ share of revenues remained high among Serbia’s top 300.


Nineteen sectors and conglomerate groups were analyzed this year. Compared to last year, the leader in sector profitability changed, expressed through indicators of business profitability – EBITDA margin and return on capital.

It is paradoxical that a sector which was one of the most impacted by the crisis – construction materials production – recorded the highest profitability – the average EBITDA margin was 37.8 percent, while an the average return on capital in 2009 amounted to 33 percent.

It is obvious that companies from this sector were well-prepared for the challenges presented by the crisis, and continuous improved performance remains one of the most important characteristics of this sector, whose main representatives are three cement factories with foreign capital.

The applied chemistry sector also stands out, besides the traditional telecommunications sector, for its profitability. Of five companies included on the list this year, Sintelon and Tigar Tyres recorded excellent profitability, and the improvement of two producers of detergents and other sanitary products – Henkel Merima and Beohemija – is also encouraging.

On the other hand, observing profitability, the crisis mostly affected the machines and equipment sector, metal industry and chemical industry. All three sectors have a negative average EBITDA margin, as well as a negative return on capital of more than 25 percent (the latter two even more than 50 percent).

These three sectors replaced the former “loser” – the transportation sector – which, although still has a negative return on capital, is gradually stabilizing (it recorded a positive EBITDA margin of 2.5 percent, after a negative result last year).

In terms of posted revenue, there were no changes among sectors compared to the previous year – the leading sectors are energy, wholesale trade, food and beverages, and retail trade.

Regarding these sectors, last year there were no big changes, and the list mostly includes the same companies as the year before. However, there are some changes, especially in the energy sector – NIS is no longer the leader, and it is interesting that the list includes more companies which deal with electricity trade and gas distribution and trade.

The energy sector is obviously preparing for the announced investment wave in the electricity sub-sector (expected investments in renewable sources of energy) and the gas sub-sector (construction of the South Stream pipeline and the continuation of developing gas lines through Serbia).

The wholesale trade sector did not experience significant changes, but it is evident that the market of wholesale trade in medications is growing, with expected growth in competition. On the other hand, the food and beverages sector remained slightly less affected by the crisis – it posted a nominal revenue growth, the average EBITDA margin increased, as well as the number of companies on the list, but a net gain and return on capital decreased. Some sub-sectors, such as the meat industry, suffered stronger blows in the previous year.

Competition in the retail sector is still strengthening, with a nominal increase in revenues of all the three leading retail traders – Delta Maxi Group, Mercator-S and Idea. However, this sector is one of the most indebted, and further fluctuations on this market, and even acquisitions, can be expected in the upcoming period.

In the conclusion of the introduction of the last Top 300 edition of the largest companies in Serbia, we underlined that strengthening competitiveness in Serbia’s economy was a necessary precondition that would enable it, after the recovery of the global economy, to use new rules of operation, international movements of goods, services and capital, establishment of new markets, i.e. the changed constellation of power in general.

This is already visible, since companies all over the world want to reduce their operating costs and are thus looking for new destinations for investments, which is certainly a chance for Serbia. Also, we said it was necessary to do as much as possible in the field of competitiveness during the crisis, so that the existing situation could be used to the greatest possible extent for the recovery period, which is gradually being realized. Unfortunately, not much has been done, but at least two things are encouraging.

Depreciation of the domestic currency, despite the fact that it resulted in many negative things, helped Serbia’s products to become more competitive, in terms of their prices, on the international market, which created a good basis for growth of the existing exports sector, as well as for a potential new one that would be established with the inflow of new investments.

Furthermore, Serbia’s taxation policy, except for an increase in taxes for the use of mobile phones, hasn’t changed as has been the case in many countries in the region, which makes Serbia even more attractive for investments of both domestic and foreign character.

The announcement that a tax reform might be enacted in the direction of decreasing direct and increasing indirect taxes can make additional contributions. Of course, to make it happen, fiscal discipline must continue improving through preserving the low level of fiscal deficit and public debt.

However, there are many things to be done yet. Preserving fiscal stability, especially in the election year, is certainly not an easy task.

The wave of excessive infrastructure projects, although pompously announced, hasn’t been realized to a critical extent yet. However, it seems that the main question is still without an answer – in conditions lacking capital, how to improve as many sources of financing for Serbia’s economy as possible, under terms that are significantly better than those before the crisis, when Serbia’s economy was the regional record-breaker for the price of capital, i.e. terms of financing.

These tasks are serious, often opposed, but their realization is inevitable if we want to achieve economic growth and a better living standard.

Thus, years of challenge are yet to come.


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