On Wednesday, the Agency for Economic Registers (APR) published the Financial Statements Bulletin for 2022. This bulletin shows the blood flow of the entire economy, as well as aggregated data by its individual segments, i.e. branches. This is a great opportunity to see how public companies performed last year. Spoiler alert – very bad.
For the previous year 2022, 527 companies, which employed almost 110,000 workers, or 8.5% of all employed workers in companies, submitted their financial reports to the APR.
These companies do not include state-owned companies that are joint stock companies, such as Telekom, Poštanska štedionica or Dunav osiguranje, but only those with the status of public companies such as Srbijavode, Srbijagas, EPS, EMS or Železnice Srbije. With the adoption of the new law (the proposal of which was already adopted and then withdrawn from the procedure), all public companies will be transformed into joint-stock companies, so this distinction between different types of state-owned companies will be lost in the foreseeable future.
Ten times the losses
The bad performance of public companies continues, and the situation is worse compared to the previous year 2021. While then the negative net result (loss) of public companies amounted to 7.4 billion dinars, it is now 74.8 billion (640 million euros).
But that’s not because the economy was in recession, so public companies also recorded bad results: the rest of the economy performed excellently, with a positive net result (profit) of 684 billion dinars in 2021 and 864.2 billion in 2022. This means that the bad results of these companies are primarily due to their internal factors: business strategies, quality of management, interference of politics in the economy, etc.
Aggregated data do not tell us everything, because we do not know how many companies ended the year in the red and how many in the red, and how much their financial results were. Bearing in mind the problems present in the electric power system, which really took effect at the end of 2021, but it took time to improve the situation, this much deterioration in the business of public companies is most likely the result of a bad situation in EPS. This is also shown by the financial reports of this company, which say that during 2022, EPS recorded a net loss of 73.7 billion dinars.
When we separate the operations of EPS from this set of data provided by APR, public companies ended last year with a loss of 1 billion dinars, while in 2021 they ended with a profit of 6.4 billion dinars.
So, outside the EPS, the situation is not so catastrophic, but it is still very far from good. For example, if public companies operated with the same efficiency (measured by return on assets) as the average economy, they should have ended last year with a high positive figure of 117.6 billion dinars or about EUR 1 billion instead of with a loss.
Deterioration of business indicators
Public companies (including poor EPS) experienced major deteriorations in their business indicators during the past year: their debts increased significantly, especially short-term ones, which means lower liquidity. The liabilities of public companies increased by as much as 295 billion dinars. Short-term liabilities grew the most – from 526.4 to 778.5 billion dinars.
But this large increase in liabilities is not only a consequence of EPS’s large borrowing to cover the losses caused by the interventional import of electricity during the winter at a high price from Europe. According to data from EPS’s financial reports, EPS increased its liabilities by about 104 billion dinars in this period. This further means that other public companies therefore borrowed for the remaining 190 billion dinars.
In most cases, public enterprises are in monopoly status. Wouldn’t it be wrong for them to have high profits, since this could only happen with high monopoly prices paid by all citizens as users of their services? This argument is only partially correct – public companies are generally in a complete monopoly position (garbage collection, water supply and sewerage, electricity distribution, etc.), but this is not the case with some large public companies.
This is most visible in the case of EPS, but Železnice Srbije received competition in the form of private operators for freight rail traffic, while only a part of postal shipments is reserved for the public operator Posta Serbia. At the same time, due to their size, it is precisely these few large public companies that determine the business results of the entire sector of public companies.
These companies should invest in the maintenance and improvement of the existing infrastructure: new conditional landfills, replacement of the existing outdated and expansion of the new network for water supply and sewerage, new plants for the production of electricity that will pollute less, and the like.
Instead, we have been witnessing for years that the investments of public companies are very low, even lower than depreciation costs, which means a constant decline in the quality of communal infrastructure.
That’s why public companies must be able to generate business income and profit – new investments that we lack should be financed from them. This kind of situation, in which public companies generate losses almost constantly from year to year without being able to invest enough to improve the infrastructure they manage, is a recipe for failure.
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