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  • Romanian dairy and cheese manufacturing sector – negative revenue evolution

    Romanian dairy and cheese manufacturing sector – negative revenue evolution

    A new study by Coface Romania on the sector of `Dairy products and cheese manufacturing” indicates a negative evolution of revenues in 2018, which decreased with approximately 18% compared to 2017, with a slightly increased profitability.

    The study aggregated the data of 448 companies that submitted their financial situation for 2018 and generated a consolidated turnover of RON 3.8 billion.

    The weight of the cumulative market share held by the most important 10 players is 58%, which indicates a high degree of concentration.

    The companies operating in this sector registered a current liquidity of 0.97 during 2018, the working capital being exposed to negative shocks and volatility (lower revenues or non-collection of receivables).

    The average duration of debt collection in the analyzed sector decreased from 68 days, the level registered in 2014, to 51 days in 2018, while the national average over the same period decreased from 104 days to 90 days.

    The consolidated net result at sectorial level for 2018 was 4.3%, higher compared to the level of 2017 (3.3%). However, 44% of the companies had a net loss at the end of 2018, 26% of the companies registered losses of more than -20% and 5% of the companies generated more than 20% profit. The 55% level of indebtedness in the sector is decreasing compared to the previous years (62% in 2017, 63% in 2016, 67% in 2015 and 69% in 2014). It is worth mentioning that 39% of companies have a negative capitalization degree (equivalent to a debt level of over 100%), and for 17% of the companies the debt level exceeds 80%.

    “During 2018, the companies in the analyzed sector have allocated significant investments for the expansion of fixed assets. The ratio between capital expenditures (CAPEX) and depreciation ratio was 120% in 2018, which means that investments in fixed assets covered the depreciated fixed assets. Almost half of the companies (46%) made investments in 2018, with a supraunitary Capex/ Amortization report”, stated Nicoleta Marin, Senior Financial Analyst, Coface Romania.

    Regarding the payment behavior, respectively, the debts to the State Budget, according to the data published by ANAF, once with the decrease of the number of companies that have registered the debts, the value of the debts has not decreased, reaching the maximum of the period in 2018.

    According to Eurostat, in the European Union the first three countries for milk production and processing are Germany, France and the United Kingdom. Poland ranks 5th in terms of quantity produced and 6th in processing (10 times larger than Romania, although it only produces 3 times more milk).

  • General slowdown in the global economy despite central banks’ actions

    General slowdown in the global economy despite central banks’ actions

    With business morale being affected by a summer marked by a multiplication of areas of political uncertainty around the world, it seems likely that 2020 will be a year of economic decline.

    The Argentine currency crisis, major demonstrations in Hong Kong and Russia, Brexit, the attack on oil installations in Saudi Arabia – these are just some of the many events that marked the third quarter of 2019.

    Increasing political uncertainty, combined with the decline in the volume of world trade, the high volatility of oil prices, and the decline in automobile sales in Europe and China, has continued to affect corporate morale.

    Will manufacturing companies’ pessimism of spread to the rest of the economy?

    Today, in addition to European and Asian companies, American companies are also openly concerned about President Trump’s protectionist rhetoric. Although the Sino-American trade war seems to be moving towards a trade agreement between the two major global powers, the US President’s actions in the context of a campaign for re-election and an impeachment procedure remain difficult to predict.

    In addition, there are ongoing structural changes in the automotive sector, including emission standards in Europe and changes in consumer behavior in China. In this context, European economies are currently evolving at two speeds: some are particularly dependent on global industry and trade (Germany) and/or penalized by internal political uncertainties (Italy, United Kingdom), whereas the French, Spanish and Dutch economies seem more resilient.

    Central banks swing into action

    Central banks in the United States, the eurozone, and many emerging countries have taken stock of the situation. Indeed, as a result of the sharp slowdown in growth, many central banks have announced monetary easing measures.

    The effects of monetary policies that set negative nominal interest rates are uncertain. Negative policy rates can stimulate the economy with a boost to households and businesses, but they can also erode bank profitability. However, in theory, the positive effect on activity prevails. The expected impact of recent monetary easing measures, particularly in the eurozone, should therefore be real, even if these ultra-expansionist monetary policies have not allowed inflation to approach the target set recently by the countries that have taken this approach.

    Overall, due to this widespread political instability, Coface anticipates that 2020 will be marked by an economic slowdown, while continuing to detect many positive signals indicating that a wake-up call is happening, and that governments and central banks are mobilized to face it.

    In this context, two changes in country evaluations have taken place this quarter: Hong Kong (downgraded from A2 to A3) and Mauritania (upgraded from D to C). On a sector basis, after the series of downgrades in the automotive sector in June, there were fewer changes this quarter – but risks have still increased (13 downgrades but no upgrade), notably in the automotive sector (downgraded in three new countries) and in sectors depending on it (e.g. chemicals in Germany). Corporate credit risks are also on the rise in the paper sector in North America. Finally, there are new victims of the rise of trade protectionism (ICT sector in Korea)

  • Negative evolution for Romanian meat processing and preservation sector

    Negative evolution for Romanian meat processing and preservation sector

    A new study by Coface Romania on the Meat Processing and Preservation Sector indicates a negative evolution of revenues for 2018, with a decrease of approx. 19% compared to the previous year.

    Thus, the African swine fever (ASF) lead to cuts of over RON 1 billion in the turnover of these companies, the consolidated revenues at sectoral level decreasing from RON 6.13 billion (2017) to only RON 4.96 billion (2018), the minimum in the last 5 years. According to NSVFSA (National Sanitary Veterinary and Food Safety Authority), almost 1.000 outbreaks of African swine fever are registered in Romania, just two months before Christmas.

    The Coface study aggregated the data of 507 companies that submitted their financial statements for the year 2018 and generated a consolidated turnover of RON 4.96 billion.

    Companies in this sector recorded a current liquidity of 0.96 throughout 2018, while the working capital, at a slightly negative level, was relatively exposed to negative shocks and volatility (lower revenues or non-collection of receivables). The average duration of debt collection increased to 64 days in 2018, compared to 55 days in 2017, indicating a significant call for commercial credit received from suppliers. As a result, due to the growing financial difficulties, companies in this sector pay their suppliers almost 3 weeks later, increasing their dependency on business partners.

    In 2018, the net result consolidated at the sectoral level was 3.5%, higher compared to 2017 (1.2%). However, 35% of the companies recorded a net loss at the end of 2018, with 17% of the companies having a loss of more than -20%, and 7% of the companies generating more than 20% profit.

    The marginal increase in profit is due almost exclusively to the price increase in the context of excess demand over the available supply, the latter being affected domestically by the PPA virus. Thus, according to the latest figures published by the NIS (National Institute of Statistics), the average price of pork has increased by 5.4% in the first 9 months of this year, after an increase of 2.5% in 2018 and 5.5 % in 2017 (a consolidated average price increase of almost 14% over the last 3 years).

    During the last year, the companies in the analyzed sector allocated significant investments for the expansion of fixed assets. The ratio between capital expenditures (CAPEX) and depreciation ratio was 155% in 2018, which means that investments in fixed assets covered the depreciated fixed assets. Almost half of the companies (44%) made investments in 2018, with a supraunitary Capex/Amortization report.

    A polarized sector that is highly affected at the top

    Of the 372 companies active* in this sector, only 134 companies registered revenues of over EUR 1 million in 2018, concentrating almost 99% of the sector. The analysis of the evolution of companies with a turnover of over EUR 1 million reveals that in 2017 the frequency of payment incidents, both major and minor, was very low. However, about a year after the first case of African Swine fever virus, the payment incidents of the big companies in this sector exploded, reaching the maximum of the last five years in the 3rd quarter of 2018.

    „The Coface study reveals the difficult situation of the meat processing companies operating in Romania: the consolidated revenues have plummeted to the minimum of the last decade, half of the companies are over-indebted, the refused debit payment instruments exploded in 2018, as suppliers are paid with delays, and the outstanding tax liabilities registered in the first semester of 2019 are at the maximum of the last decade. The African swine fever virus (PPA) cut almost 20% of the revenues of companies in this sector, with losses estimated at almost RON 1 billion. Although the authorities declare that the number of active outbreaks has been decreasing lately, there are two months until the winter holidays and 1,000 active outbreaks. The vulnerable financial situation of companies active in this sector, as illustrated by the study, creates the conditions for more imports of meat products for the end of this year and the next one”, stated Iancu Guda, Services Director Coface Romania.

    According to an offcial statement of National Sanitary Veterinary and Food Safety Authority, “Since the first report of the presence of the PPA virus in Romania, as of July 31, 2017 and until now, 524,590 pigs affected by the disease have been eliminated and there are 2,208 cases in boars”.

    In this context, the outstanding tax liabilities reported by the companies active in this sector have exploded, constantly exceeding the threshold of RON 500 million in the period 2017-2018, 3 times over the previous average of the last decade.