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Sector Close Up: Conglomerates

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The number of conglomerates in Serbia in 2009 – companies which generate a high level of revenues through various fields of activities was 16, which represents a decline compared to the 20 companies present on the list the year before. Regardless of the fact that some of the companies “fell off” of the list, the combined level of revenues, in domestic currency, increased nominally by five percent, which with the inflation of 6.6 percent represents a minimum real aggravation. The high growth trend from previous years was thus halted, however certain stability was preserved in most companies. The impact of global difficulties on companies from this sector were diverse: while it can be said some companies profited from the crisis, as their operating revenues increased considerably, by 50 percent or more, for others the crisis presented a serious problem, or even “a death sentence.”

One of the main reasons for the deterioration of operations of these companies, besides a decline in demand for products, was the unacceptably high level of debt before and during the financial crisis, measured by the indicator net debt/EBITDA. The average for this group of companies amounts to 7.8xEBITDA, which is much higher than the generally accepted maximum of five (reduced to four during

the crisis), regardless of the increasing profitability of most enterprises from the group (total net profit increased from about €116 to 126 million. Bearing in mind that several of them were not able to reorganize existing debts, generate higher savings (although employment was reduced by more than 1,500 people in 2009), or to fulfill obligations on a regular basis, many conglomerate owners were forced to start selling subsidiaries or other property.

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Observed at an individual level, starting 2009 Delta Holding was the biggest enterprise in Serbia, with combined revenues of more than €1.7 billion. The high level of operating revenues was recorded with considerable improvement of profitability – the EBITDA margin reached 6.9 percent, with a net profit that increased by almost five times. However, a high debt level – almost a billion Euros – characterized a huge burden for this company, and it has become a certainty that the owner will have to sell some assets, with the first half of expected sales to be from the 50 % retail share. This actually happened as Delta Holding sold its retail chain Delta Maxi to Belgium based Delhaize Group in late March 2011. Additionally, the overall strategy of the group is expected to change, in compliance with new circumstances, especially through giving more significance to individual segments such as agriculture and the food industry. Victoria Group, which includes Sojaprotein, Victoriaoil, Fertil, Victoria Biodiesel and the Veterinarian Institute of Subotica, and is mostly present in the fields of agriculture, chemical industry and financial services, took the second position from East Point Holdings in the conglomerate group, with revenues nearing the limit of €500 million. In spite of the crisis, this continued expanding, but profitability, both in a relative and absolute sense, decreased considerably, as well as investment activities. The debt level is lower than the sector average (5.5xEBITDA), but is higher than the generally accepted maximum value, which can influence further decline in investment activities. All of which could affect business performance in the upcoming period.

The third largest conglomerate with domestic ownership is East Point Holdings (EPH), headquartered in Cyprus. EPH is a highly diversified conglomerate present in sectors such as trade, metal industry, agriculture, logistics, transport, and others, with considerable activities in the region. However, in 2009 the company recorded a decrease in its business activities calculated in Euros, and a high indebtedness

level influenced a decline in the share of domestic owners in the enterprise’s capital and renounce previously publicized investments (such as, purchase of Yugoslav River Shipping).

The next company in the list is Invej, with diversified operations which include Vital, Rubin, Albus, the Bakery Industry of Pancevo as well as the company Milan Blagojevic. Invej also owns a stake in the Sunce cooking oil factory from Sombor. This company was impacted by the crisis considerably, and its revenues calculated in Euros declined by nearly one third, however it managed to maintain profitability in operations, although with a decrease in the number of employees and a high amount of financial obligations.

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MPC Holding increased its revenues significantly, but they were followed by relatively low profitability, which is logical to a certain extent since this company’s revenues are mostly through trade. The enterprise Concern Farmakom MB achieved the best indicators in the conglomerate group. With continued revenue growth, the enterprise increased profitability to a great extent, reaching a record EBITDA margin and yield on capital. This was achieved through debt control, which is significantly below the group’s average. Of other companies on the list, only Interkomerc recorded growth of revenues calculated in Euros. This company, which mostly deals with trade, has recently expressed production ambitions as well, and it is thus included in this group of enterprises. Pursuant to its prevailing trade tendency, the enterprise records a low EBITDA margin, but its yield on capital is satisfactory. However, a high debt level can be a significant limitation for further development.

However, the companies Verano Motors and Irva experienced a significant decrease in revenues, and are also hampered by high debts. Despite obvious difficulties which this group of conglomerates faced during the crisis, it is expected to remain in the focus in the upcoming period. The companies which operated positively throughout the crisis will certainly tend to continue their investment activities, as they wish to come out of the crisis even stronger. On the other hand, a significant number of enterprises are expected to sell some of their assets in order to maintain stability in the upcoming period.


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