Analytics - 2014


/Andrey Golubchikov, AS IBS Prudentia аssociate director/

TOP 101 of 2014 may be considered as bringing new blows due to several reasons. Firstly, according to the comparatively inert years 2012 and 2013 the total value of 101 participants has shown a considerable breakaway – approximately 16% as compared to the top of 2013.

Against this background the input threshold growth does not surprise – although it is not so rapid as it was a year ago (by increasing by approximately 14% – from 33 to 38 millions euros). Secondly, since the beginning of the top several supplements have been introduced in the habitual methodology development of this rating – one of the main innovations is the use of the historical financial results for the last three concluded years (earlier the assessment was made by using the data of one last financial year). These changes may make considerable single effect on separate top participants this year, but the destination of these improvements is to equalize fluctuations of assessments within reason which have appeared due to changes in the results of particular historical financial years and it will already be achieved during the next one or two years.

Positive dynamics has been presented by both; top flagmans, companies outside TOP 10 or even TOP 50. The TOP 10 has recovered its value a little (in the amount of 42% from the mass of total value of TOP 101 of 2014), however, the trend of the last four or five years still remains that the role of the comparatively small enterprises (especially representatives of the second fifty) have stable increase in the rating. The leading positions still taken by SJSC Latvenergo were hardly doubted by anyone. However, it is significant that the leader’s breakaway from the nearest followers gradually but steadily decreases – a year ago the average value of the nearest four competitors lagged behind the leader by 52%, while this year the difference has decreased to 45%.

A characteristic feature of TOP 101 is a stable level of rotation every year: TOP 10 – one new participant, TOP 20 – three new participants and 24 new participants in the whole top. This year two flagmans of timber industry have joined TOP 20 – LLC Kronospan Riga and JSC Latvijas Finieris –, as well as Latvian affiliate JSC DNB of Norwegian financial concern DNB. The leading pleiad of TOP 101 is often associated with considerable turning to the public sector. However, the proportion of Latvian state controlled enterprises in terms of  TOP 20 value has not changed since 2013 (a little above one third).

The highest places which the new participants have managed to obtain this year in TOP 101, are 21. (JSC Agrolats Holding) and 23. (LLC Tele2 Holdings). Both companies may be considered as new participants only from a technical point of view – both of them were earlier represented in TOP 101 (for example, through particular subsidiaries), however, this year, complete consolidated reports are available for them. Although some other companies of this category have a similar situation and a considerable proportion of the new participants have already been in TOP 101, new faces have appeared in the rating in the direct sense of the word (at least within the last five years) – for example, LLC LNK, LLC Baltic Agro, LLC Storent, LLC Nordtorf and LLC Pindstrup Latvia.

This year there are also enough companies with increase of assessment – in total 52 with the average increase of 28%.

The proportion of the five largest sectors in the top – financial services, public utility services, transport and logistics, production of industrial goods/materials and trading of consumer products has not practically changed, i. e., approximately 64% of the total value of TOP 101. As regards representation of separate economic sectors in TOP 101, it is worth to emphasize the trend which has appeared in the previous years already, – namely, processing technology companies have been emphasized on the whole background. They are considerably more represented this year – 26 companies as compared to 21 in the last year, with the increase of the total assessment from 1.9 to 2.7 billion euro. These are mainly representatives of timber industry and the most part of them have ended 2013 with considerable improvements at the level of net turnover and EBITDA margin.

The largest increase of assessments TOP 101 is achieved in three sectors:

  • processing industry (production of industrial goods and materials): plus 533 million euro, and more than a half is the merit of the four new participants;
  • extraction of natural resources: plus 433 million euro, the largest part – due to the considerable increase of assessment of the main representative SJSC Latvijas Valsts meži;
  • financial services: plus 315 million euro which may be explained in full amount with increase of assessment of the remaining representatives of this sector (both; as a result of the balance sheet value of the equity capital,  and positive dynamics of the exchange multipliers).

One of the most important factors which has facilitated dynamics of assessments this year is improvement of financial results of the companies. For example, out of all TOP 101 companies of this year (except banks, credit institutions, insurance companies which enter the rating by using the balance sheet value of the equity capital – in total 88) 80% within the period from 2011 to 2013 have presented a trend of increase in the dynamics of the net turnover, while 70% – in the EBITDA margin, furthermore, the largest part of the companies have presented it within the two last years. It should be noted that irrespective of these positive changes, dynamics of the financial results of the aforementioned companies is stopping – the average increase of EBITDA (the most important financial indicator in the TOP 101 assessment) within the period from 2011 to 2013 constituted 22%, while in 2013 – only 11%.

However, taking into account that TOP 101 assessments are affected by not only activity results of the companies, but also external factors presented in the public market conjuncture, the last factor has had important role in particular industries. Forestry and woodworking industry may again mentioned as one of the most expressive examples in this regard. Namely, capitalization of the woodworking companies listed in the European exchanges has increased by more than 60% within the last year on average, irrespective of the poor dynamics of financial indicators (the rise of the net turnover by 5–10%, increase of EBITDA – close to zero). As a result, the assessment multipliers for this public market segment have increased by 40–50%.

This year, the total assessment dynamics of TOP 101 considerably overtakes the rate of Latvian economic development – a comparatively optimistic picture, taking into account the events of this year in the geopolitical arena, the negative previous and expected impact on Latvian economics. If the public market conditions next year are not as favourable towards the assessment levels as this year, adjustment may be inevitable.