SECTOR ESSENTIALS · 2021. 1. 17. · By Iancu Guda (Coface Romania Macroeconomic Analyst) SECTOR ESSENTIALS 2015 Introduction - As a provider of integrated constantly advocates the

A Coface publication

By Iancu Guda (Coface Romania Macroeconomic Analyst)

SECTOR ESSENTIALS

March 2015

Introduction - As a provider of integrated services of credit risk management, Coface constantly advocates the important role of the proactive knowledge of the business partners' financial conditions in the management of the commercial transaction related risks.

Methodology - This study analyses the risk of companies active in the selected sector. The probability for the target companies to go into payment default over the next 12 months has been calculated on the basis of Coface proprietary methodology. The risk analysis at sector level has taken into account all the companies meeting the following criteria concurrently: They are based in the Central and Eastern

Europe region, and have declared as their principle line of business the division NACE 00;

The companies have been individually analyzed by Coface CEE Business Information divisions during 2014;

Financials for both 2012 and 2013 financial years were available upon the preparation of this study;

All companies with no commercial activity during 2013 have been excluded.

All financial indicators have been calculated based on the financial statements submitted by the reviewed companies to the local authorities authorized for the processing and publication of such information (in most cases the Ministry of Finance, Trade Register or Chamber of Commerce). To allow the proper consolidation of financial results at regional level, as well as a pertinent comparative analysis, all financial positions have been denominated in the same currency (EUR).

1 Summary

2 Status of the companies in the sector -

consolidated analysis at Central and

Eastern Europe level

8 Financial situation of the companies

in the sector - CEE country

comparison analysis

1 SECTOR ESSENTIALS

Following the series of sectoral studies on the

most important scopes of business within the

economy of Central Eastern Europe region,

Coface has analyzed the evolution pattern of

companies in the field, by assessing the

financial statements of companies operating in

this sector.

SUMMARY

STRENGTHS WEAKNESSES

Macroeconomic outlook at regional level

High share of exports in the GDP. High share of the trade within the EU area, which has registered a slow comeback.

The impact of the crisis in Ukraine and Russia appears to be insignificant, given the low level of commercial transactions for the EU area in general.

The embargo implemented in certain sectors / products in trade relations with Russia amplifies the risks for the eastern countries of the EU.

The main factor supporting the GDP growth in most CEE countries in 2015 will be the migration of exports towards the domestic consumption, which is in an upward trend.

Still high unemployment among young active population.

The prospects for resuming investments through the EU cohesion funds.

Consolidated regional financial situation of the companies operating in this sector

The sector related debt to equity ratio remained at a low level throughout 2013 as well (39% of total assets value).

The average receivables collection period which is slightly increasing as compared to the previous year (DSO value of 89 days in 2013).

The consolidated liquidity at regional level is good, all indicators registering values above the thresholds recommended by the rules of financial analysis.

Unfavorable commercial development, 51% of companies reporting 2013 a decrease in revenues as compared to the previous year.

Moderate exposure to negative shocks that may arise due to non-collection of receivables or lower revenues.

All indicators of profitability at a consolidated level, regionally, worsened in 2013 compared to 2012.

Financial statement of companies acting in this sector - country comparative analysis

Bulgaria The highest rate of investment in fixed assets in the region (CAPEX 19% ).

The slowest rate of payment of liabilities to suppliers (DPO over 6 months). The longest period of inventory turnover and the second longest period of receivables collection in the region (DSO 116 days). Net loss of 2.4% of turnover at consolidated level.

Czech

The best immediate liquidity ratio (1.33) and second best current rate (1.82) after Poland. All profitability indicators are above the regional consolidated averages.

Negative commercial development, together with Slovakia it has the highest share of companies with decreasing revenues (60%). The only country in the region where more than half of the companies analyzed have experienced the decrease in net result. The third largest period of receivables collection (DSO 114 days).

Croatia The second most extensive financial autonomy period (DIR 152 days).

The second slowest rate of payment of obligations to suppliers after Bulgaria (DPO over 5 months). Net loss at consolidated level. The rate of investment in fixed assets below the regional average and the depreciation rate (CAPEX 5%).

Hungary The lowest level of debt to equity ratio in the region (28%). Third best level of current and immediate liquidity after Poland and the Czech Republic.

The longest period of receivables collection in the region (DSO 117 days). All profitability indicators are below the regional consolidated averages. The rate of investment in fixed assets below the regional average and the depreciation rate (CAPEX 5%).

Lithuania

Positive commercial development (67% of the companies have managed to increase their turnover in 2013). High numerical share of profitable companies (80% of the total). The second lowest receivables collection period after Latvia (50 days DSO).

The second lowest immediate liquidity ratio after Slovenia and the second shortest period of financial autonomy (DIR 81 days) after Latvia. The rate of investment in fixed assets below the regional average (CAPEX 4%).

Latvia

Positive commercial development, 80% of companies have managed to increase their turnover in 2013 and 73% of them have improved their net income. The shortest period of collection of receivables (DSO 44 days) and the shortest period for paying current liabilities (DPO 67 days). The second best net profitability (6.1%) and the second best return on equity, both after Poland.

The highest level of debt to equity ratio in the region (65% of total assets) and the lowest duration of financial autonomy (DIR 61 days, well below the 90 days threshold indicated in the rules of financial analysis). The second lowest rate of investment in fixed assets in the region (only 1% CAPEX).

Poland

The best overall profitability in the region (6.6% net rate), over 80% of companies reporting operating profit.

The best current liquidity (1.88) and the only country where all liquidity ratios exceeded regional averages. The second shortest period for paying current liabilities (DPO 90 days) and the second lowest level of debt to equity ratio (34% of total assets).

55% of companies reported in 2013 the revenues decrease as compared to the previous year.

Romania Rate of investment in fixed assets above the regional average (11% CAPEX).

The lowest overall liquidity, together with Slovenia (cash rate at half the minimum recommended threshold and regional average). One of the largest periods of collection of receivables and payment of current liabilities.

Slovenia Receivable collection period below the regional average (DSO 79 days).

The largest net loss at consolidated level (3.6% of turnover), the weakest liquidity together with Romania, the only country with trends of investment in fixed assets (CAPEX negative rate), DPO over 4 months.

Slovakia The second highest rate of investment in fixed assets in the region (CAPEX 15% ).

A negative commercial evolution, together with the Czech Republic, it has the highest share of companies with decreasing revenues (60%). Profitability significantly below the regional average, 51% of companies reported an operating loss in 2013.

2 SECTOR ESSENTIALS

STATUS OF COMPANIES IN THE SECTOR - CONSOLIDATED ANALYSIS AT CENTRAL AND EASTERN EUROPE LEVEL

Table 1: Distribution of companies by turnover

Turnover range (K EUR)

Number of the companies

0-100 K EUR 87

100K-500K EUR 239

500K-1000 K EUR 221

1-5 MEUR 668

5-10 MEUR 243

10-50 EUR 330

50-100 MEUR 67

Over 100 MEUR 32

Total 1,887

Source: Coface database

In accordance with the general methodology at

the entire portfolio, Coface analyzed during 2014

a total of 1.887 companies operating in this sector

and for which there are available financial

statements for both years 2012 and 2013.

The following aspects are to be noted from the

analysis of the profit and loss account structure at

the CEE consolidated level for companies in this

sector, as well as the impact hereof on the

balances registered in the consolidated balance

sheets:

The evolution of turnover in the sector can be

considered balanced, given that 51% of

companies reported a decrease in revenues

during 2013 as compared to the previous year.

The distribution of companies based on

turnover dynamics level for 2013 is disclosed

Chart 2;

The dynamics of net result against turnover

(shown in Chart 3) experienced a

contradictory evolution over the analyzed

period. Thus, in terms of numerical

distribution, 45% of the companies reported a

declining net result, while about 22% reported

a doubled financial performance in 2013 as

compared to the previous year. Nevertheless,

the consolidated level of profitability of the

sector analysed deteriorated in 2013, which

indicates a decline in financial

performance notably among large and

medium-sized companies;

The operating net income registered within the

sector is of 5%, given that 3 out of 10

companies registered operating losses;

The operating net result is higher than the net

result, which confirms that the debt service in

respect of borrowed capitals generates a

moderate financial burden, on the back of a

reduced debt to equity ratio;

According to the data shown in table 1 and table

2, 71% of the analyzed companies registered in

2013 a turnover of more than 1 MEUR, while 86%

of the analyzed companies were established after

1990 and 1,626 companies have a period of

activity of more than 25 years.

Table 2: Distribution of companies by set-up year (year of establishment)

Incorporation year Number of the

companies

Before 1950 37

1950 - 1990 224

1991-1995 591

1996 - 2000 386

2001-2005 328

2006-2010 252

After 2010 69

Grand Total 1,887


3 SECTOR ESSENTIALS

All indicators of profitability at a consolidated

level worsened in 2013 compared to 2012, as

follows:

o The consolidated Net Result

decreased to the level of 3.4%, as

compared to 3.9% registered in the

previous year;

o The operating margin (EBIT%) for

2013 was of 5%, also decreasing as

compared to the previous year;

o Consolidated Return on assets slightly

declined in 2013, to the value of 2.7%

of turnover;

o The consolidated return on equity

registered the most significant

decrease, reaching 4.8%.

Chart 3: Dynamics of Net Result during 2013 - 2012 on CEE level


9% 15% 10% 11% 12% 9% 12% 22%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Decrease above -100%

Decrease between -100% and -50%


Decrease between -25% and 0

Increase between 0 and 25%

Increase between 25% and 50%


Increase above 100%

Chart 2: Turnover Dynamics in the period 2013 - 2012 at the CEE level


4% 9% 38% 33% 8% 4%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Decrease above -50%







Increase Above 200%

4 SECTOR ESSENTIALS

Din perspectiva atragerii de resurse de finantare

si alocarii de resurse pentru investitii pe termen

lung:

Pe parcursul anului 2013, companiile din

sectorul analizat au alocat investitii pentru

reinnoirea sau extinderea activelor corporale

detinute in cuantum de 6%;

Ritmul investitiilor in active fixe a depasit

marginal amortizarea activelor corporale, in

conditiile in care aceasta din urma a

inregistrat un nivel consolidat de 5%.

Contextul de conservare al investitiilor se

datoreaza in mod special nivelului redus al

profitabilitatii companiilor din acest sector

precum si trendului de stagnare al consumului

privat inregistrat in majoritatea statelor central

– est europene pe durata anului 2013.

anului 2013 a fost de 56%, nivel similar cu cel

inregistrat in anul anterior, in conditiile in care

ponderea datoriilor pe termen scurt in total

datorii s-a stabilizat la nivelul de 83%.

Una din 4 companii inregistreaza un grad de

indatorare de peste 80%, si pentru 52% dintre

companii toate datoriile sunt contractate pe

mica

Chart 4: Distribution of companies by Net Result/ 2013


8%

5%

14%

59%

11% Loss Above >-20%

Loss between -10% and -20%

Loss between 0 and -10%

Profit between 0 and 10%

Profit between 10% and 20%

Profit Above > 20%

Chart 5: Distribution of companies by EBIT %/ 2013


8%

15%

54%

14%

4% Loss Above >-20%


Loss between 0 and -10%

Profit between 0 and 10%

Profit between 10% and 20%

Profit Above > 20%

Chart 6: Distribution of companies according to the Debt to Equity Ratio


34%

32%

16%

11%

7% Below 30%

30% - 60%

60% - 80%

80% - 100%

Above 100%

Chart 8: Distribution of companies by CAPEX % rate


23%

50%

11%

7% 4% Below -50%

Between -50% and -25%

Between -25% and 0

Between 0 and 25%

Between 25% and 50%

Between 50% and 100%

Between 100% and 200%

Above 200%

Only 18% of the companies registered an

indebtedness of more than 80%, but for 38% of

the analysed companies; all the liabilities are

contracted in the short term and most of them are

small companies.

Chart 7: Distribution of companies according to the funding expectations


7%

11%

16%

28%

38%

Below 25%

25% - 50%

50% - 75%

75% - 99%

Exact 100%

With reference to the attraction of financing

resources and allocation of funds for long term

investments:

In 2013, the companies in the analyzed sector

allocated low investments for the renewal or

increase of their tangible assets amounting to

only 6% of their value;

The pace of investments in fixed assets was

marginally exceeded by amortization of

tangible assets, under the circumstances that

the latter registered a consolidated level of 7%.

Thus, we can say that companies operating in

the analyzed industry were not oriented

towards investments in 2013;

The debt to equity ratio registered at sector

level at the end of 2013 was 39%, similar to

that registered in the previous year, given that

the share of short-term debts within total debts

increased up to 61% compared to 59%

reached in 2012;

5 SECTOR ESSENTIALS

The analysis of the aggregated liquidity indicators

at the CEE region level for companies operating

in this field provides the following information on

the situation at sector level:

All the liquidity ratios for 2013 show almost

similar values as compared to the previous

year and higher than the minimum cautionary

thresholds recommended by the financial

analysis rules;

The current liquidity registered within the

sector at the end of 2013 was of 1.63, which

theoretically implies the existence of working

capital available for short-term self-funding;

Immediate rate (1.10) and cash rate (0.25)

are above the recommended minimum

thresholds of 0.8 and 0.2 respectively;

The distribution of companies depending on

the current liquidity ranges indicates that only

a quarter of the companies active in this

sector have registered a negative working

capital (corresponding to a sub-unitary current

liquidity). Therefore, on the basis of a

satisfactory profitability and solvency

background, the companies in the sector

under analysis registered shorter periods for

the payment to suppliers than the period of

the domestic operating cycle. This is also

confirmed by the duration of the operating

cycle at sectoral level of 148 days, while

suppliers are paid on average within 111

days;

At the same time, 38% of the companies

register an immediate liquidity level below 0.8

(the minimum threshold recommended by the

cautionary financial analysis rules).

To better understand the financial autonomy of

the companies in the sector under analysis, we

shall use the following two indicators:

Defensive Interval Ratio (D.I.R.) = (Current

Assets - Inventory)/ DCE, where DCE = Daily

Cash Expenditure = (Exp. Operating + Exp.

Financial - Amortization)/ 360.

This indicator is a benchmark for the autonomy

period of the sector under analysis. Thus, the

indicator is expressed as a number of days and it

calculates the period of time during which the

company can cover the monetary operating and

financial expenses, by taking into account only

the current treasury and the collection of all

receivables registered in the balance (therefore

with no new sales). The financial analysis rules

recommend that this indicator should be higher

than 90 days, since it indicates a better short-

term financial autonomy, and the company is less

affected by negative shocks caused by a short-

term turnover decline. Much higher values give

raise to doubts regarding: (i) the company's

dependence on the collection of receivables from

some major customers; (ii) the quality of account

receivables, namely the extent to which they are

doubtful or non-performing without being properly

provisioned.

Companies of area under analysis register

129 days of autonomy, therefore above the 90

days threshold specified by the rules of financial

analysis, thus acknowledging financial autonomy

for companies within the area under analysis.

Cash Coverage Ratio (C.C.R.) = DCC / DCE,

where DCC = Daily Cash Collection = [CA -

Δ(Receivables) + Δ(V. Advance)] / 360.

This indicator expresses the extent to which the

average of the daily collected revenues covers

the average of the daily payable expenditure.

Thus, this ratio cancels the period of time during

which revenues substantiate in proceeds and

expenditures in payments and it is a forward-

looking estimator for the collection and payment

flow. The lower the below par values, the more

exposed the area to liquidity pressure hazard, to

the extent that expenditure substantiates in

payments faster than revenues in proceeds (i.e.

suppliers' pressure on the company / area under

analysis is higher than customers' pressure).

Where sub-unitary values are registered, the

company or the analyzed sector shows an

increased need to finance the working capital.

Defensive Interval Ratio (D.I.R.) = (Current

assets - Inventories)/ DCE, where DCE = Daily

Cash Expenditure = (Exp. Operating + Exp.

Financial - Depreciation) / 360 = 129 days for the

sector under analysis

Cash Coverage Ratio (C.C.R.) = DCC / DCE,

where DCC = Daily Cash Collection = [CA -

Δ(Receivables) + Δ(V. Advance)] / 360 = 106%

for the sector under analysis

6 SECTOR ESSENTIALS

It is important to note that C.C.R. ratio expresses

the power ratio between collected revenues and

through-the-year due expenditure, thus it

operates like performance index measuring

through-the-year collections and payments.

Therefore, this ratio does not express the

company's balance sheet liquidity on balance

status, and the above par values may only be

construed as positive aspect in correlation with a

positive working capital (if current liquidity index

registers above par values) and high quality

revenues.

The coverage of payments by collections in

2013 throughout the analyzed sector is 106%.

Specifically, for each 100 EUR of financial and

operating expenditures registered during 2013

and which have reached maturity in the same

year, revenues are generated and collected

amounting to 106 EUR.

The data presented in Chart 10 shows that 4 in

10 companies operating in this industry cannot

cover their expenses that have reached maturity

in 2013 through the revenues collected in the

same financial year.

Given the value of all liquidity ratios presented,

we can consider that the companies in this sector

registered an optimum balance between the

maturities of the current assets components and

those of the short-term liabilities, the exposure to

non-collection of receivables or the decrease in

revenues being moderate.

This is also confirmed by the figures presented in

the following table, which illustrate the impact of

applying shocks of 5%, 10%, 15% and 20% on

receivables (increase, therefore, receivables that

are not collected) and, respectively, on the

turnover (declining income).

The numerical distribution of companies by the

thresholds of the analysed activity ratios is

disclosed in Charts 11 to 14, and the most

important, worth reporting issues are, as follows:

The average operational cycle was of 148

days in 2013, a level close to the one in the

previous year, given that the average duration

of receivables collection has slightly

increased to 84 days, while the inventory

turnover period remained constant (59 days );

Only 12% of the companies registered a DSO

higher than 180 days and the quality of the

receivables registered by them is clearly

uncertain;

The period of rotation of short-term liabilities

experienced a similar increase to the period

of collection of receivables, the obligations to

suppliers being paid within an average period

of 111 days as compared to 106 days in

2012;

Against a background of this evolution, the

cash conversion cycle virtually remained

unchanged, the level registered in 2013 being

37 days. This indicates that most companies

in the sector pay their suppliers faster than

the operating cycle period (period of

receivables collection and sale of stocks), the

short-term ratios turnover being supported by

a low indebtedness and a good liquidity

situation at sectoral level.

Tabel 3: Stress Test Scenario: Forward-Looking Results

Scenario Details Receivables Turnover C.C.R. Sector

Increasing (default) receivables

5% 0% 104%

10% 0% 103%

15% 0% 102%

20% 0% 100%

Declining Turnover

0% -5% 100%

0% -10% 95%

0% -15% 90%

0% -20% 84%

Increasing Receivables + Declining Turnover

5% -5% 99%

10% -10% 92%

15% -15% 86%

20% -20% 79%

Source: data processed by Coface

7 SECTOR ESSENTIALS

Chart 9: Distribution of companies by Current Rate levels


7%

18%

21%

14%

22%

18% Below 0.5

0.5 - 1

1 - 1.5

1.5 - 2

2 - 4

Above 4

Chart 10: Distribution of companies by C.C.R. levels


8%

28%

48%

13% Below 0.4

0.4 - 0.8

0.8 - 1

1 - 1.2

1.2 - 2

Above 2

Chart 12: Distribution of companies by DIH levels


33%

25%

14%

16%

7% Below 30

30-60

60-90

90-180

180-360

360-540

540-720

720-1080

Above 1080

Chart 13: Distribution of companies by DPO levels


10%

20%

18% 26%

14%

5% Below 30

30-60

60-90

90-180

180-360

360-540

540-720

720-1080

Above 1080

Chart 14: Distribution of companies by CCC levels


5%

11%

17% 16%

11%

15%

6% Below -360

-360 and -180

-180 and -90

-90 and -60

-60 and -30

-30 and 0

0 and 30

30 and 60

60 and 90

90 and 180

180 and 360

Above 360

Chart 11: Distribution of companies by DSO levels


15%

26%

21%

27%

7%

Below 30

30-60

60-90

90-180

180-360

360-540

540-720

720-1080

Above 1080

8 SECTOR ESSENTIALS

In this section we will analyze the financial

indicators presented in the previous chapter,

however this time based on a comparative

analysis between the countries in the Central and

Eastern Europe region.

The following two charts illustrate the dynamics of

turnover and net result in the period 2012 - 2013

for the companies in the analyzed area and for

each country in the CEE region.

By analyzing the data disclosed in these charts

we can see a relatively different dynamics

between the countries in the region in terms of

turnover and profitability development, the

dispersion regarding the development of the two

indicators being of up to 30%-40%. Although 55%

of companies have evolved towards improving

the net result, these increases were rather

modest and were registered mainly among small

companies, therefore the consolidated profitability

of the sector has decreased as compared to the

previous year.

Latvia is the best placed both in terms of

numerical share of companies that have

managed to increase revenue in 2013 (80% of

the total) and in terms of the evolution of

profitability (73% of companies have reported

improved net income) .

At the other end are the Czech republic and

Slovakia, with the lowest shares of companies

that have increased their sales in 2013, the

Czech Republic being the only country where

more than half of the analyzed companies in the

sector experienced a decrease in the net result.

FINANCIAL SITUATION OF THE COMPANIES IN THE SECTOR CEE COUNTRY COMPARISON ANALYSIS

Chart 15: Turnover dynamics 2013-2012 for each country from CEE region


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

BG CZ HR HU LT LV PL RO SI SK

Increase above 200%







Decrease below -50%

Chart 16: Net result dynamics 2013-2012 for each country from CEE region


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Increase above 100%







Decrease Below -100%

9 SECTOR ESSENTIALS

Table 4 shows the profitability indicators

calculated in respect of each country in the CEE

region, and captures the regional spread thereof.

Thus, as compared to the average net result for

2013, namely 3.4%, significantly lower values

were registered in Slovenia (-3.6%), Bulgaria (-

2.4%) and Croatia (-1.1%). Only 3 out of 10

countries reported consolidated values of the net

profitability above the sectoral average, the best

placed in this regard is Poland (with a net rate of

6.6%) and Latvia (6.1%) where the very good

return on equity should also be noted, which

registered a double value as compared to the

regional average.

.

The consolidated losses in the sector in Slovenia,

Bulgaria and Croatia were registered given that

only 3 out of 10 companies reported losses in

2013, but the size of these losses was significant

and it influenced the sectoral result.

In terms of numerical distribution depending on

the operating result (EBIT), the positive situation

in Poland is confirmed (where over 80% of the

companies operating in this sector reported

operating profit), while, at the other end we find

Slovakia, where no less than half of the analyzed

companies in the sector reported losses in 2013.

Table 4: Profitability indicators - country basis from CEE region

Country Net

Margin EBIT

Margin ROA ROE

PL Poland 6.6% 8.1% 6.0% 9.9%

LV Latvia 6.1% n/a 3.4% 9.8%

CZ Czech 5.4% 6.7% 4.5% 8.1%

LT Lithuania 3.5% 4.6% 3.4% 6.2%

HU Hungary 1.5% 1.2% 1.1% 1.6%

SK Slovakia 0.4% 3.4% 0.4% 0.9%

RO Romania 0.0% 3.9% 0.0% 0.0%

HR Croatia -1.1% 2.3% -0.6% -1.2%

BG Bulgaria -2.4% 0.3% -1.2% -2.4%

SI Slovenia -3.6.% 0.5% -2.9% -5.9%

CEE Average 3.4% 5.0% 2.7% 4.8%


Chart 17: Net Result - countries in the CEE region


-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

PL LV CZ LT HU SK RO HR BG SI

Net Margin Country Level

Net Margin CEE Average

Chart 18: Distribution of companies by Net Result % levels


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Profit Above >20%

Profit between10% and 20%

Profit between0 and 10%

Loss between0 and -10%

Loss between-10% and -20%Loss Above >-20%

Chart 19: Distribution of companies by EBIT%


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Profit Above >20%

Profit between10% and 20%

Profit between0 and 10%

Loss between0 and -10%


Loss Above >-20%

10 SECTOR ESSENTIALS

The following table illustrates the solvency and

investment ratios calculated for each country in

the CEE region, and it indicates the regional

dispersion.

As compared to the average debt to equity ratio

registered at regional level in 2013 (39%),

companies in Latvia ended the year 2013 with the

highest debt to equity ratio (65%) and the

companies in Hungary had the lowest level of

debts (28%), which is the only country with a debt

to equity ratio below one third of total assets.

With regard to the policy of investment in fixed

assets, it should be noted that only in Slovenia

there were trends of disinvestment in 2013

(CAPEX rate -2%).

The situation in Slovenia took place given that the

country has registered the highest numerical

share of companies that made investments in

fixed assets in the region, but the cumulative

value of these investments has been modest.

Thus, it can be inferred that most investments

were made by small-sized firms, while medium-

sized and large companies have rather applied

policies of disinvestment of fixed assets.

Only 4 countries have registered investment rates

above the sectoral average of 6% at CEE level,

the best placed in this regard being the

companies in Bulgaria and Slovakia (19% and

15% respectively of the value of fixed assets). In

all other countries the level of investments was

modest, the reported values being below the rate

of depreciation registered in each country.

Table 5: Solvability and investment indicators - country basis from CEE region

Country Debt Rate

Short Term Debt

CAPEX Ratio

Depreciation Rate

LV Latvia 65% 16% 1% n/a

BG Bulgaria 50% 52% 19% 5%

SK Slovakia 49% 51% 15% 10%

SI Slovenia 47% 62% -3% 13%

LT Lithuania 45% 56% 4% n/a

HR Croatia 44% 55% 5% 8%

RO Romania 44% 55% 11% 7%

CZ Czech 34% 73% 3% 9%

PL Poland 34% 66% 11% 7%

HU Hungary 28% 83% 5% 8%

CEE Average 39% 61% 6% 7%


Chart 20: Debt level - country basis from CEE region


0%

10%

20%

30%

40%

50%

60%

70%

LV BG SK SI LT HR RO CZ PL HU

Debt Rate Country Level Debt Rate CEE Average

Chart 21: Distribution of companies according to the Debt to Equity Ratio


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Above 100%

80% - 100%

60% - 80%

30% - 60%

Below 30%

Chart 22: Distribution of companies by CAPEX%


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Above 200%

Between 100%and 200%

Between 50%and 100%

Between 25%and 50%

Between 0 and25%

Between -25%and 0

Between -50%and -25%

Below -50%


Table 6 illustrates the liquidity ratios calculated for

each country in the CEE region, and it registers

the regional dispersion.

The best current liquidity ratio was registered by

the companies in Poland and in the Czech

Republic (current ratios over 1.80), Poland

actually being also the only country where all

liquidity ratios exceeded regional averages.

Companies in Slovenia and Romania show the

lowest values of the liquidity indicators (current

ratio values of 1.25 and 1.28 respectively).

For these two countries, note should be taken of

the precarious situation in terms of cash flows,

with a short-term liabilities coverage by net

treasury at half the minimum threshold

recommended by financial analysis rules and the

average of all companies in the region. The

distribution per countries and numerical weight of

the companies based on the current rate confirms

the positive status of the liquidity in Poland and

the Czech Republic, where less than 20% of local

companies in this area reported in 2013 a

negative working capital (corresponding to a sub-

unitary current liquidity).

Chart 25: Distribution of companies by CCR levels


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Above 2

1.2 - 2

1 - 1.2

0.8 - 1

0.4 - 0.8

Below 0.4

Table 6: Liquidity ratios - CEE region

Country Current

Rate Quick Rate

Cash Rate

DIR CCR

PL Poland 1.88 1.26 0.29 123 108%

CZ Czech 1.82 1.33 0.19 145 102%

HU Hungary 1.73 1.22 0.23 146 101%

LV Latvia 1.67 0.89 0.24 61 102%

HR Croatia 1.42 0.91 n/a 152 109%

LT Lithuania 1.40 0.84 0.30 81 103%

SK Slovakia 1.39 0.91 0.24 103 102%

BG Bulgaria 1.34 0.90 0.13 187 108%

RO Romania 1.28 0.86 0.10 129 102%

SI Slovenia 1.25 0.79 0.08 108 109%

CEE Average 1.63 1.10 0.25 129 106%


Chart 23: Current rate - country basis from CEE region


0.5

0.7

0.9

1.1

1.3

1.5

1.7

1.9

2.1

PL CZ HU LV HR LT SK BG RO SI

Current Rate Country LevelCurrent Rate CEE Average

Chart 24: Distribution of companies by current rate levels


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Above 4

2 - 4

1.5 - 2

1 - 1.5

0.5 - 1

Below 0.5


The following table illustrates rotation indicators

calculated for each country in the CEE region,

and in their case, regional dispersion is

significant. Thus, companies in Hungary, Bulgaria

and the Czech Republic (DSO over 110 days)

collect their receivables almost one month later

compared to the regional average of 89 days and

over two times slower than those of Latvia and

Lithuania, which have registered the shortest

periods of collection of receivables throughout the

year 2013 (and they are the only countries in the

region where, in the sector under analysis,

receivables are collected on average in less than

60 days). Bulgaria has registered the slowest

rotation period of stocks (86 days, almost a

month over the regional average).

The cash conversion cycle has positive values in

all the countries in the region, which shows that a

large number of companies pay their suppliers

faster than the cumulative period for the collection

of receivables and the sale of stocks. Companies

in Latvia and Lithuania (the countries with the

shortest periods for the collection of receivables)

along with those in Poland (the country with the

best liquidity) fail to promptly pay their current

debts, and they are in fact the only ones

registering an average short-term debt rotation

period not exceeding three months. From this

point of view, companies in Bulgaria pay their

current liabilities the slowest, in an average

period of more than 6 months.

Table 7: Short term rotation ratios - CEE region

Country DSO DIH DPO Operating

Cycle CCC

HU Hungary 117 60 117 177 60

BG Bulgaria 116 86 193 202 9

CZ Czech 114 52 106 166 60

RO Romania 106 60 143 166 23

HR Croatia 97 79 157 175 18

SI Slovenia 79 60 130 140 10

PL Poland 71 55 90 126 36

SK Slovakia 70 52 108 122 13

LT Lithuania 50 53 94 103 9

LV Latvia 44 52 67 96 29

CEE Average 89 59 111 148 37


Chart 26: DSO -country in the CEE region


0

20

40

60

80

100

120

140

HU BG CZ RO HR SI PL SK LT LV

DSO Country Level DSO CEE Average

Chart 27: Distribution of companies by DSO levels


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Above 1080

720-1080

540-720

360-540

180-360

90-180

60-90

30-60

Below 30

Chart 28: Distribution of companies by CCC levels


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Above 360

180 and 360

90 and 180

60 and 90

30 and 60

0 and 30

-30 and 0

-60 and -30

-90 and -60

-180 and -90


It is very important to assess the companies'

capacity of managing negative external shocks

that may place stress on short term liquidity.

Thus, similarly to the technique applied in the

previous chapter, we analyzed the degree of

sensitivity of the companies in the sector under

analysis towards the decrease in sales or the

increase (non-collection) in receivables and the

impact of these invoices on the coverage of

expenditures that have reached maturity by

means of collected revenues. Three scenarios

have been taken into account:

In the first scenario, shocks for increase in

receivables by 5%, 10%, 20%, 25% and 30%

respectively were applied, while the revenues

were assumed constant;

In the second scenario, shocks of revenue

decline by 5%, 10%, 20%, 25% and 30%

have been applied, while receivables were

assumed constant (constant DSO);

In scenario 3, simultaneous shocks of the

same amplitude have been applied to the

revenues (decline) and to the receivables

(increase).

Table 8 captures results of stress scenarios

applied to each particular country and the

deviation in percentage points between the real

value of the CCR indicator and the value obtained

after applying the shock with the highest

amplitude, namely 30%. Given the relatively

extended duration of receivables collection at the

regional level for companies operating in this

sector (89 days), stress test scenarios have

confirmed a rather high sensitivity to negative

shocks generated by the growth (non-collection)

of receivables.

It is relevant to note that companies from

Bulgaria, Hungary and the Czech Republic,

which have registered the most extensive

periods of receivables collection at regional

level in the analyzed sector, have responded

with the highest degree of sensitivity to the

application of non-collecting receivables

shocks, given that the companies have a high

exposure to business partners by more extended

collection deadlines.

Thus, companies in these three countries, active

in the analyzed sector registered a sensitivity two

times higher than those in Latvia and Lithuania,

the countries with the lowest average receivables

collection periods.

Chart 29: Stress Test Scenario - defaulted receivables


70%

75%

80%

85%

90%

95%

100%

105%

110%

115%

120%

1 2 3 4 5 6 7

Bulgaria

Czech

Croatia

Hungary

Lithuania

Latvia

Poland

Romania

Slovenia

Slovakia

Chart 30: Stress Test Scenario – declining revenue


50%

60%

70%

80%

90%

100%

110%

1 2 3 4 5 6

Bulgaria

Czech

Croatia

Hungary

Lithuania

Latvia

Poland

Romania

Slovenia

Slovakia

Table 8: Stress test scenarios- CEE region

Country Scenario 1 Scenario 2 Scenario 3

Bulgaria -10.5% -32.8% -43.3%

Hungary -9.9% -31.1% -41.0%

Czech -9.8% -31.4% -41.2%

Romania -9.2% -31.8% -41.0%

Croatia -8.5% -32.2% -40.7%

Slovenia -7.0% -32.2% -39.2%

Poland -6.4% -33.0% -39.4%

Slovakia -6.1% -31.6% -37.7%

Lithuania -4.3% -31.0% -35.3%

Latvia -3.7% -30.8% -34.5%

CEE -7.4% -30.3% -37.7%


Documents

SECTOR ESSENTIALS · 2021. 1. 17. · By Iancu Guda (Coface Romania Macroeconomic Analyst) SECTOR ESSENTIALS 2015 Introduction - As a provider of integrated constantly advocates the