Business fighting the crisis

This is the sixth time that we have analysed the revenues of the largest companies in Central Europe (CE), in an attempt to understand how large enterprises respond to market changes. In the light of the deteriorating macroeconomic outlook for the EU, we are able to assess if leading firms from the region have already been negatively impacted by the economic slowdown.

Last year saw a continuation of 2010's economic growth across the region. This was especially strong in Poland (4.3%), Slovakia (3.3%) and the Baltic States. However, along with the weakening of the key European drivers of growth, most particularly the German and French economies, we can already detect early signs of economic slowdown in company results from the first quarter of 2012. By the end of this period, Poland's GDP growth had fallen to 3.8%, while the GDPs of the Czech Republic and Hungary fared even worse, decreasing by -1% and -1.5%, respectively.

Last year saw continued growth among the biggest companies from all the region's countries and industries (except TMT), while average net profitability declined

Gloomy macroeconomic figures

Similar conclusions can be drawn from Deloitte's most recent CFO Survey Report, which presents the opinions of financial directors on the factors with most impact on their businesses. According to the 2012 survey, the majority of respondents anticipate very slow economic growth of only between 0% and 1.5%. The exception is Poland, where GDP growth of between 1.5% and 3% is expected.

As in 2010, growing exports were the key driver of economic growth in Central Europe in 2011. In the Czech Republic, Hungary, Slovakia and Poland exports grew respectively by 11%, 8.4%, 10.8% and 7.6%. Germany continues to be the key trading partner of these economies, and all countries across the region have benefited from the growth of German industrial production.

The results of the Top 500 are not fully supported by macroeconomic figures, which remain gloomy. On the one hand, the Top 500 presents historical data; on the other, a number of listed firms have performed particularly well in the current unstable environment. Our analysis of the leading 500 businesses in Central Europe indicates the following:

Average revenues grew in all surveyed countries and industries in the region (except Technology, Media & Telecommmunications – TMT) in 2011;

Average revenues continued to grow in the first quarter of 2012, albeit at only half the rate of 2011;

Growth in the construction industry was driven by Polish businesses, which benefited from building contracts carried out before Euro 2012;

Despite higher revenues, companies recorded reduced net profits (on average by -3.5%);

The results of Central European companies continue to depend strongly on the prices of key raw materials;

2011 saw an improvement in the performance of Ukrainian companies, mainly resulting from a better economic situation in the FMCG and manufacturing sectors;

There was also a moderate performance improvement in the financial services sector – both among banks and insurers.

Revenue growth

The average revenue growth reported by the Top 500 businesses in 2011, denominated in euros, was lower than in 2010, amounting to 9.8% versus 11% in 2010 (the growth, denominated in local currencies in 2011, amounted to 11.8% versus 7% in 2010). In the first quarter of 2012, we could see a further increase in revenues of the biggest companies in the region when compared to the first three months of 2011 (around 4% in euros and 6.6% in local currencies). This deterioration in revenue growth, however, may indicate that an economic slowdown is on its way.

In 2011, 383 businesses reported growth in their revenues, compared to 394 the preceding year.

In 2011 the combined revenue of the Top 500 companies in the region totalled around EUR 707 billion, i.e. almost 13% more than in 2010 and almost 11% more than in 2008, the final year before the economic crisis.

In 2011, the median revenue reported by CE companies was 8% higher than in 2010 and 9% higher than in 2008 (the year before the crisis). Likewise, the revenue of 2011's 500th and final company in the ranking (EUR 479 million) is 18% higher than in 2010 and 4% higher than in 2008 (EUR 462 million).

Construction businesses recorded the highest increase in revenue as an industry (average revenue went up 21%). The group of 11 sector representatives comprise seven Polish and four Czech companies. The industry owes this growth mainly to the Polish firms, which reported record revenues from numerous projects related to Euro 2012.

Another sector with strong growth in average revenues is manufacturing, which has expanded to be represented by 129 companies in the ranking (over 25% of the list). The increase by 9 companies follows very good company results across the sector, which drove a median growth of 17% (in euro). This was mainly a result of the good condition of the processing industry (including chemical and metal companies), which was able to take advantage of a positive overall economic situation. Average revenue growth across the whole processing sub-sector was 22%. The whole manufacturing sector saw the second year of revenue growth after a 25% sales decrease in 2009, which was when the economic crisis had its greatest impact.

Good results in the manufacturing sector were the trigger for the rapid growth of the sector's share of the Top 500. Simultaneously, the share of companies from the technology, media and telecommunications sector decreased as a result of falling revenues reported during the past year. The number of pharmaceutical businesses on the list fell as well, and their growth rate was lower than in other industries (excluding public sector). The technology and pharmaceutical industries are usually the most innovative sectors, and their decreasing share of the Top 500 does not suggest that they are set to drive development in the region.

Every year sees a higher number of Ukrainian businesses, whose results depend heavily on fluctuations in the prices of raw materials. The share of Polish, Hungarian and Czech enterprises dropped compared to 2010, but these countries still dominate the list in terms of the number of representative businesses.

Biggest players

The significant impact of fluctuations in the prices of raw materials on the revenues of the region's biggest companies is also confirmed by an analysis of the revenues achieved by companies in the energy and resources industry. These went up on average by 12% in euros and by 13% in local currencies. The key driver in this respect was the price of oil, which also delivered dynamic revenue growth for fuel producers. PKN and MOL, the biggest players in the region, recorded revenue increases of 24% and 23% respectively, throughout the whole of 2011. PKN has been the biggest oil company in the region for many years. In 2011, due to similar growth rates and a larger scale of operations, the gap between PKN and MOL widened to approximately EUR 7 billion.

In 2011, the second biggest Polish fuel producer, the Lotos Group, rose four positions up the ranking from eleventh to seventh, thanks to increased production capacity from new facilities built under the 10+ investment programme and higher prices of refined oil. Lithuanian oil and gas company Orlen Lietuva rose by four places to eleventh in the ranking.

Similarly to the previous year, the technology, media and telecommunications (TMT) industry remained relatively unaffected by the overall economic revival. In 2011, the median revenue change for technology companies was negative at -2% in local currencies and -3% in euros. Only 10 out of 34 TMT companies included in the ranking recorded an increase in their revenues. Within TMT industry Nokia, which is losing the market share to its main competitors: Samsung and Apple, reported the greatest deterioration in its performance.But despite the slump in the TMT sector's total revenues, companies such as Asseco Poland and P4 (mobile operator of the Play brand) reported healthy revenue growth of several dozen percentage points.

Stable banking

In 2011, PKO BP maintained its leading position, both in terms of its balance sheet total and its advantage over Czech CSOB, which was the second largest bank in the ranking, reached ca. EUR 7 billion, which translates to 19%. In 2011, PKO BP recorded just a 1% increase in its total assets value (expressed in euros) alongside a spectacular 15% growth in its net profit. The weakening of the Hungarian forint against the euro led to a 7% decrease in the total assets value of the Hungarian OTP Bank, causing it to slide from second to fifth place in the ranking.

In 2011, 27 out of 50 financial institutions we looked at recorded an increase in their assets value. The median increase for the whole group of 50 banks amounted to 1%.

PKO BP also earned the highest net profit (EUR 924 million) of all the banks in Central Europe. 35 of the region's 50 biggest banks recorded an increase in profits in 2011.

Poland continued to have the most banks among the top 50 (14). Czech and Hungarian banks came second and third, with eight and six representatives respectively.

Slow growth in insurance

In 2011, the insurance sector saw an average increase in gross written premium of approximately 1.5% in euros. This was less than the average growth reported by the top 50 insurance companies in 2010 (around 6%).

PZU remains the leading insurer, with an increase in its gross written premium of almost 2% (in euros) and 5% (in PLN). Ceska Pojistovna came second, as it did last year, but recorded a 7% decline in its gross written premium in euros and a drop of nearly 10% in its local currency. The Czech insurer, Kooperativa Pojistovna, maintained the third position it gained in 2010.

23 of the top 50 insurance companies incurred a loss in 2011.

The ranking of the top insurers is still dominated by companies from Poland (17) and the Czech Republic (11).