Eastern Europe managerial mobility is still slower than in the West

According to Darko Ostoja, the President of SN Holding Management Board, despite real estate projects being the company’s core business activity, none is expected to be completed this year. The 2008 success is questionable for another last year ranking newcomer. Petrokemija from Kutina is ranked among best 500. Its leap, after many years, is due to stable and sufficient gas quantities although it is difficult to estimate a direction it’s going to take this year. On the other hand, productivity of five post-division high ranking HŽ (Croatian Railways) companies was influenced by a decreased number of employees, a trend continued in 2008.

Another newcomer is Dioki, which successfully ended last year due to increased production and consequently sales as well as good price margins. Within the Group and after the consolidation of companies, the loss amounted to over HRK 16 million. However, such results represent a significant decrease compared to HRK 46 million last year. Despite its operations mostly being dependent on market trends, especially exchange rate and impossibility of reliably projecting prices and price margins, the 100 million euro worth investment cycle is developing according to plans. Therefore, we can expect that Dioki’s presence among the best ranked is not a one-time occurrence.

Benetton Istria can thank its ranking position to increased production volume and relocation of a part of its production programme from Benetton Croatia to Labin, which resulted in the third biggest ranking fall of Benetton Croatia by 261 places.

Numerous media are present among ranking newcomers. Europapress Holding, Slobodna Dalmacija, Večernji list, Vjesnik, Adria Media and RTL all got ranked in 500. Operativna kompanija was not ranked in 2007.

Following the arrival of its new owner i.e. the Hungarian oil company MOL, Tifon also left the ranking list. Vupik, the last non-privatized agricultural company, ranked 156th a year before, disappeared from the list awaiting for its privatization. Vupik is accumulating loss due to unfavourable external circumstances and investment shortage which might stimulate its potential. After three unsuccessful privatization rounds, it expects the Croatian Privatization Fund to announce a public tender on special terms i.e. acquisition of Vupik for one kuna. Ivica Todorić additionally submitted his HRK 70,56 million offer, as requested in the third round of privatization.

Lantea Group recorded HRK 7,9 million loss despite HRK 5,48 million profit in 2006. Its ranking among best 500 could not have been saved even by the sale of its rights to Giorgio Armani and Naf Naf. The Management Board explains bad results in light of increased fixed costs, employees costs and retail network restructuring caused by a partial acquisition of Tekstilpromet’s sales network. Revenue growth was not sufficient to cover such high costs of this very demanding process.

Unlike Lantea, Koestlin turned its loss into profit and climbed up from 300th to 100th place. Productivity grew by 215%, revenue by 110%. Such a growth is mostly due to financial revenues from the sale of 20% shares in IPK Kandit. Financial revenues recorded a growth from HRK 7,26 million in 2006 to HRK 175,93 million in 2007. Highest income percentage was recorded by selling shares while domestic and foreign market sale decreased its volume.

Philip Morris Zagreb can flaunt excellent results for the last five years including the last one. It recorded the highest rise in 2007, a 350% productivity growth and a 368% profit increase. In the last five years Philip Morris also recorded a 276% higher value added, the biggest average change in ranked revenues as well as the second highest rise of the employed.

Last four years have definitely been a watershed in its regional operational development. Philip Morris founded its own companies in Croatian, Bosnian and Albanian markets. Its organizational development and business expansion ranked the company among three leading regional tobacco organizations.

OMV Hrvatska is another company that climbed the ranking best list by 323 places. The company explains such good business results by the increased number of gas stations (5 new ones) and more customers. This year two more stations were opened and several are planned. On the other hand, Tvornica duhana Rovinj explains its recorded productivity, revenue and profit growth by over 320% by one-time incomes which are not connected with regular business activities. Raiffeisen Invest and PBZ Invest, companies for investment fund management, made good use of all financial market benefits in 2007. PBZ Invest sees last year as the most successful in its nine-year-long existence. Apart from market circumstances, their operations were aided by developed technology (branch offices, internet, ATM machines) which provided wide distribution and good investments in Croatia, Russia, Serbia and Brazil.

Luck did no favour Idila from Vinkovci which almost dropped out from the best ranked by recording the biggest drop of all by almost 300 places, C.I.O.S., which recorded not only a 70% decrease in the number of its employees but the same percentage of the profit loss, IPK Kandit and Pliva. IPK Kandit dropped by 200 places with a decrease in productivity of 60%, revenue of 25.4% and profit of 99.4%. Operations and consequent results of Kandit group last year were mostly influenced by extreme climate conditions which resulted in a lower yield and beet sugar content since about 80% revenues of Kandit Group (IPK Kandit and Kandit Premijer) comes from sugar business. Bad results were also caused by cost of facility reconstruction and increased production costs.

Drop of Pliva from 97th to 236th place was mostly caused by lower revenue from sales recorded by Kemija, which focused on internal operational needs. 45.5% lower revenues are explained by losing income from direct sales to the US customers after transferring this operational part onto Barr. 57% lower profit was adversely influenced by higher tax costs and ceased activity losses.

The analysis of 500 companies’ business results in the period between 2002 and 2006 points out positive productivity trends of all ship operators (Atlantska, Tankerska and Lošinjska plovidba). King ICT ranks high in the list of ups, productivity criteria, value added and employee turnover.

In the last five years Zagrebačke otpadne vode (Zagreb Waste Water Treatment Company) has significantly increased its value added, productivity and revenues. Ante Pavić, general manager of the company says good results come as a consequence of several reasons. The city of Zagreb has, for the main part, resolved all property issues, which enabled this company further construction and work.

A large project of the construction of the water treatment plant has been completed. Settlement of residential payment obligations has been improved. Citizens owe much less in terms of utility fees, Pavić says.

One can’t neglect debt settlement by the city of Zagreb and a high quality of processed water, which led to invoicing the agreed amount enabling the company to meet its planned turnover.

Slower growth of best 500 in 2007 was definitely influenced by the last quarter which cooled companies’ business results down announcing a difficult 2008. However, despite the rise of inflation as well as raw material and energy fuel prices, numerous players will definitely emerge, swimming well through stormy waters in a new business year. Current position makes it hard to envisage winners and losers, but the 2008 best ranking will show who managed well and turned a crisis into success.

In 500 Central European greatest companies this year there are 45 metallurgical and 46 retail ones. Despite lower consumer standard and increased costs, automobile industry is still second regional, represented by 51 ranking companies. Automobile and spare part production introduces new technology into production processes. Interestingly, other companies are doing the same while preparing the company for sale. According to the production sector analysis by Bronislav Panek, a partner in Business Consultancy Department of Deloitte Czech Republic, local owners of numerous Central European production companies are currently ready to sell their businesses. Once having decided, they often introduce measures focused on short-term (two to three years) increase of company’s value in order to make the business and its market value more investor appealing. One method for increasing the value is to introduce modern technology for increasing the mid-term company market value. ‘Following the successful acquisition, new owners often purchase cutting edge machinery and additionally increase company level of technology thus introducing advanced technology into small and large companies, all due to investors,’ says Bronislav Panek.

Technological modernization is an example of a good investment; many companies opted for such investments during last year business cycle. High economic growth as well as the rise of raw material and energy costs in 2007 influenced revenue and profit growth. However, figures for 2008 will tell whether additional income was well invested. Changes in 500 greatest companies, especially the top ones, show that the year 2007 was very exciting, bursting with opportunities and dangers, but positive. Next year will show how large Central European company management structures coped with economic growth slowdown, high inflation and cost rise brought on by 2008.