Economic Performance of Veszprém County and the top 300 enterprises in 2015

Introduction

Our analysis is based on cumulative data included in the Flash Report of 2015 on companies having their registered office in Veszprém County, maintaining double entry bookkeeping and using the calendar year as their fiscal year.

Enterprises reporting net sales revenues of at least HUF 508 million in 2015 could get into this TOP 300 group, with this threshold limit showing no significant change from the previous year’s HUF 515 million. There were 45 new enterprises among the TOP 300 firms and 10 new ones among the TOP 100 companies in 2015. Net sales revenues of at least HUF 1,772 had to be generated to get into this latter group.

The number of corporations using a fiscal year other than the calendar year is low (22), however, they show significant economic performance. The economic processes of this group are reviewed in a separate chapter, on the basis of aggregated tax return data reported in 2014. Here, we have to note that six of these companies belong to the TOP 100 group on the basis of their net sales revenues, while another five into the TOP 300 group.

I. Main Economic Figures of 2015

Corporate tax return data indicate a positive change in the activities and results of companies operating in Veszprém County. Most economic indicators (Table 1) show growth and a balanced business management. Net sales revenues, similarly to the previous year, continued to increase, with domestic sales being dominant and showing a moderate expansion in 2015 compared to export sales. The number of employees rose and the heavy growth in wage costs resulted in a positive change in average wages.

It is striking that the level of operating profits exceeded pre-tax profits, especially because operating profits exerted a significantly smaller impact on pre-tax profits on a national scale. The difference in growth intensity is significant (with the national level being higher), however, it must be noted that, according to our last year’s analysis, the increase in these two categories in Veszprém County was more than twice as high as that in the national economy The economic performance of the TOP 300 enterprises was more favourable in 2015 than in the previous year. The only exception to this was the slight decline in profitability. Due to their economic importance, the 300 largest companies play a significant transformational role in the economy of Veszprém County. The growth of their revenues was above the county level, as a result, their share in net sales revenues rose to 77.3% and they were accountable for 97% of export sales in the county. Regarding asset accumulation, the TOP 300 enterprises outperformed both the county and the entire country. There were positive changes in employment in this group as well, with the 2015 average wages being significantly higher than the county and national average.

II. Number of Tax Returns

In 2015, 10,731 corporate tax returns were submitted in Veszprém County by companies maintaining double entry bookkeeping and using the calendar year as their fiscal year, showing a slight, 2.3% drop. Most of the business associations were engaged in trade and vehicle repair, while manufacturing industry had a one-tenth share (Figure 1). Regarding other activities, two sectors can be mentioned: more than 12% of the firms were involved in professional, scientific and engineering activities and 7% of them were accommodation providers or catering establishments. Within the TOP 300 group, companies engaged in the manufacturing industry (with their nearly one-third share) and trade and vehicle repair make up more than 60% of all enterprises. Within this group, agriculture and transportation and warehousing activities play a more important role than on a county level.

On a county level, the majority of enterprises (nearly 86%) were composed of micro enterprises, while small and other enterprises had a 6-7% share and medium-sized enterprises a 1% share.

Based on the number of employees, more than ninety percent of the enterprises of Veszprém County had less than 10 employees, with self-employers or entities with one employee having a 60% share and those with 2-9 employees having a nearly one-third share. The proportion of firms employing 10-49 people amounted to 7 percent, while those with 50-249 employees to one percent (Figure 2). The TOP 300 firms, due to their economic significance, were characterised by different ratios: the smallest category included the smallest number of firms, while those with 10-49 or 50-249 employees played a more important role.

III. Key Economic Indicators

1. Income

The net sales revenue of enterprises operating in Veszprém County increased by 3.8% to HUF 1,545.5 billion, making up nearly 1.8% of all the incomes on a national level and 20% of those on a county level, compared to the previous year. The growth rate of our region cannot be compared to the national growth rate of 7.6%, since nation-wide figures include one-time transactions of huge amounts.

The TOP 300 enterprises – exceeding the county’s progress rate by nearly 200 percent – earned net sales revenues of HUF 1,195.2 billion in 2015, which represents a 7.5% growth (Figure 3), as a result, the share of these firms rose to 77.3% within the county. The concentration of the economic power of the members of the TOP 300 group is evidenced by the fact that the first hundred taxpayers are accountable for 85% of the total sales revenues generated by the group.

Regarding the county’s income by the various sectors of economy, companies in the manufacturing industry had a 50% share, making up almost two-thirds of the total income of the TOP 300. Similarly to the previous years, firms engaged in trade and vehicle repair were ranked second (22%) in terms of net sales revenues, while the rest of the various sectors of the national economy were responsible only for less than 4%. In these two dominant sectors of the national economy, the TOP 300 companies could increase their sales revenues by around 7 percent, while, on a county level, growth of a moderate 4-5 percent could be seen.

The net sales revenue per company in Veszprém County amounted to HUF 144 million in 2015, which means a 6.2% rise. This figure was HUF 3,984 million among the TOP 300 firms and HUF 10,182 million among the TOP 100 corporations.

The breakdown of net sales revenues according to the direction of sales showed the dominance of domestic sales on a county and national level, while within the TOP 300 group, especially among the first 100 enterprises, foreign sales prevailed in 2015. In Veszprém County, foreign sales had a nearly 44 percent share (while this figure was 8% on a national level), which would be ten percentage points lower after being corrected by the aforementioned one-off item (Figure 4). There is a significant difference in the sales structure of the TOP 300 companies: the majority (more than 55 percent) of the total sales revenue was generated by foreign sales. These firms played a decisive role also in shaping the processes on a county level, since 97 percent of the export of the county and 62% of domestic sales were attributable to them. The first 100 enterprises had an even greater share in export (more than 60%). More than 90 percent of the total export in Veszprém County and of the TOP 300 companies, showing a 4 percent increase, was imputable to undertakings engaged in the manufacturing industry (Figure 5). Firms involved in trading and vehicle repair activities, by increasing their sales by 3.3% and 5%, respectively, were accountable for the highest share in domestic sales both in the county and among the TOP 300 companies. The 18% growth of the sales revenues of firms dealing with transportation and warehousing activities was outstanding. This figure was even higher with the TOP 300 firms: 40.6%.

2. Costs and expenses

Organisations in Veszprém County reported costs and expenses amounting to HUF 1,551.6 billion in 2015, exceeding the previous year’s level by 3.4% (this figure was slightly higher – 3.9% - on a national level). The companies in Veszprém County were accountable for 1.9% of all expenditures in Hungary and 21% of all expenditures in the Central Transdanubian region. The growth rate of expenditures within the TOP 300 group was somewhat more dynamic: 7.6%, with enterprises of this group being responsible for more than three-fourths of all the expenditures of Veszprém County.

The increase in costs corresponded to the growth of the total income (including other revenues and the capitalized value of own performance, besides net sales revenues) in the case of companies in Veszprém County, as a result, the 94.4% cost level was unchanged compared to the previous year’s value (Figure 6). The cost/income ratio of the TOP 300 group slightly increased to 94.6%.

Nearly 80% of the costs and expenses reported by the enterprises operating in Veszprém County were made up of material-related expenses and 14% of them of personnel-related expenses (Figure 7). With the TOP 300 firms, since they play a decisive role in shaping the processes on a county level due to their significance, the breakdown of expenditures closely followed the county average, with material-related expenses being the most dominant elements (Figure 8).

Personnel-related expenses amounted to HUF 211.9 billion in Veszprém County, representing an 8.2% growth which was ahead of the national progress rate. The TOP 300 companies spent 13% more on these expenses in 2015 and nearly seventy percent of the county total was attributable to these firms (Figure 9).

3. Number of employees and their level of income

In Veszprém County, 62,171 people were in employment in 2015. Similarly to the county trends, business associations increased the number of employees by one percent on a national level. The TOP 300 firms had 33,486 employees, 7.4% more than in the previous year, which represents 54% of the average number of employees in the county.

In 2015, the average number of employees per company was 5.8 in Veszprém County, 6.4 in Central Transdanubia and 5.6 in Hungary (Figure 10). The average number of employees of the top 300 enterprises with the highest sales revenues, which are the major employers in the county, was 111.6. In Veszprém County, the average annual wage per employee, exceeding the national level and two other counties in Central Transdanubia, rose by 6.2% to HUF 2,384,000 (Figure 11). The average annual wage of the employees of the TOP 300 firms rose by HUF 131,000 on average to HUF 3,022,000, while this figure among the first 100 companies was HUF 3,312,000 in 2015.

Like on a national scale, average wages were the highest in the energy sector which includes only 20 enterprises in Veszprém County (HUF 3,632,000). With more than HUF 3 million, the manufacturing industry was ranked second. The highest growth rate (10%) could be seen in the manufacturing industry and in the field of transportation and warehousing.

IV. Financial Results of Business Associations

1. Various elements of pre-tax profits

In Veszprém County, operating profits rose by nearly 3 percent to HUF 91,3 billion as a result of stagnating profits and losses decreasing by 12% (Table 2). Regarding the significant difference between the national and county growth rates of operating profits in 2015, it should be noted that there had been an eighty percent expansion in Veszprém County in the previous year, while stagnation had been witnessed on a national scale. With this in mind, the county level growth rate shows an especially positive trend.

The operating profits of the TOP 300 firms were unchanged compared to 2015 (in the previous year, there had been a 2.2 percent expansion), while stagnating profits were coupled with losses increasing by 150 percent. The value of this latter, which is considered to be fairly low, was below HUF 3 billion. With respect to the various sectors of economy, the majority of operating profits were generated by companies engaged in the manufacturing industry, however, there are significant differences between the figures of Veszprém County and those of the TOP 300 firms (Figure 12).

Considering growth rates, the construction industry can be highlighted, where operating profits rose by 40% on a county level and by 250% within the TOP 300 group. With respect to the operating profit of the TOP 300 firms, nearly 94% of the county’s total operating income was attributable to the manufacturing industry. This group had a seventy percent share in the county’s agriculture and a 56% share in trade and vehicle repair.

Regarding another two elements of the pre-tax profit of the business associations of Veszprém County and the TOP 300 group in 2015, we can see that financial transactions, just like in the previous year, showed a deficit with less negative tendencies, while extraordinary profit levels almost halved. In Veszprém County, pre-tax profits rose by 2.8% to HUF 84.8 billion in 2015 (Figure 13) as a result of a slight drop in profits and a nearly 25% decrease in losses. The stagnating pre-tax profits of the TOP 300 group (HUF 60.8 billion) was a result of a moderate rise in profits and a 56% increase in losses reported.

The number of business entities reporting profits was unchanged in Veszprém County, however, it is a positive trend that less companies closed the year with losses or a zero balance (Table 3). Within the TOP 300 group, the previous year’s results were maintained in all three income positions, however, they were somewhat more favourable than the national average (Figure 14). The majority of the TOP 300 enterprises in a circular debt situation (more than 90 percent) were profitable and 7.3% of them made losses. In this group, only one firm closed the year with a zero balance in 2015.

With respect to the business processes of profitable companies in 2015, we can see that the average profit per company in Veszprém County was HUF 14.9 million. This figure was HUF 68.6 million on a national scale and HUF 229.6 million within the TOP 300 group. The average loss per company was HUF 4.6 million in Veszprém County, HUF 13.1 million on a national level and HUF 127.3 million in the case of the TOP 300 firms.

With respect to the various sectors of the national economy, the greatest pre-tax profit growth was posted in Veszprém County in the construction industry (40% increase) but the 20% expansion of the energy sector can also be considered as significant. In the manufacturing industry, which is the most important sector of the economy and which is accountable for 54.2% of the total pre-tax profits of the county, showed a 1.6% growth. Within the TOP 300 group, the construction industry with its growth rate of 360% and the professional, scientific and engineering activities with their growth rate of nearly 200% are worth mentioning.

2. Tax base, tax allowance and tax liabilities

The positive tax base posted by enterprises in Veszprém County was HUF 78.3 billion, which represents a share of 1.1% on a national level and a share of 18.5% in the Central Transdanubian region. Unlike in the county, the tax base rose by 85% on a national scale (Table 4).

The tax base of the 300 companies with the largest net sales revenues decreased by 6.7% to HUF 48.7 billion, making up 62.2% of the total tax base in Veszprém County.

In Veszprém County, the amount of tax calculated on the positive tax base was decreased by HUF 1.6 billion from HUF 9.4 billion by tax allowances (Figure 15). Such allowances were almost halved and the majority of them were made up of spectacle team sport support allowances.

Nearly nine-tenths of all tax reductions on a county level were imputable to the 300 largest companies, with tax deduction volumes being halved. The majority of them – just like in the case of the county – were attributable to the support of spectacle team sports.

Following the accounting of tax allowances, tax liabilities of HUF 7.8 billion were posted by the companies of Veszprém County, nearly two-thirds of which were incurred by the TOP 300 firms.

The ratio of corporate tax to the positive tax base, i.e. the average tax burden, increased both in Veszprém County and within the TOP 300 group, however, there were differences in the figures (Figure 16).

With respect to the various sectors of the national economy, the tax burden was the highest in mining (14.40%) and the lowest in the field of accommodation services and catering (7.84%).

V. Balance Sheet Data

1. Assets

Following an 8.4% increase in asset accumulation, the enterprises of Veszprém County reported assets worth of HUF 1,466 billion at the end of 2015 (Table 5). Nearly seventy percent of the assets were posted on a county level by the TOP 300 firms, which represents a 19% growth.

In Veszprém County, fixed assets being in use by enterprises for over a year and more liquid operating assets showed a similar growth rate and had a roughly 50% share within all assets.

The majority of fixed assets (nearly 90%) were made up of tangible fixed assets showing a 12% growth. 46.5% of all operating assets in the county were made up of receivables, 24.6% of them by financial assets and 23.4% by stocks.

Within the TOP 300 group, fixed assets and liquid assets had a 45.4% and a 53.2% share, respectively. The 300 largest companies were responsible for more than 60% of fixed assets and intangible assets within assets that are in use by enterprises for over a year, while fixed financial assets had a 40% share. Operating assets played a more significant role among the TOP 300 firms and, due to their 70% share in the county, they were more dominant in shaping the processes in the county.

2. Total equity and liabilities

The two major elements of total equity and liabilities in the balance sheets of the companies having their registered office in Veszprém County (i.e. owners’ equity and liabilities) had a 94 percent share in this balance sheet item. The TOP 300 undertakings posted similar figures.

Liabilities rose by ten percent in Veszprém County and by nearly thirty percent in the case of the largest companies. Regarding owners’ equity, the difference in the progress rate was not so significant: it grew by 7% in Veszprém County and 9.4% within the TOP 300 group (Table 6).

In Veszprém County, the moderate improvement of the equity ratio (share of owners’ equity within total equities and liabilities) resulted in a decline to 41.8% from 42.3%.

If we take a closer look at the various elements of owners’ equity, we can see that in Veszprém County and at the largest companies the majority (nearly 70 percent) of this item was made up of reserves. The HUF 433.1 billion posted in the county exhibited a 12.5% rise and the TOP 300 companies experienced the same expansion rate. Registered capital, having a 22% share, decreased by 6.4% in the county and rose by nearly 4% within the TOP 300 group. Retained earnings were characterised by exactly the opposite trend: there was a 3.3% growth in the county and a 6.8% decline with the 300 largest companies.

In the case of enterprises in Veszprém County, domestic private individuals had a dominant share of 44% within registered capital, followed by domestic companies (more than 25%) and foreign investors (17%). Besides them, state ownership (4%) and local governmental ownership (7.3%) are worth mentioning (Figure 17).

Within the TOP 300 group, domestic private individuals are predominant (38.5%), followed by foreign investors and domestic companies. In this group, the same order can be seen within the first 100 companies, with domestic private individuals and foreign investors playing an even more significant role. In Veszprém County and also in the case of the TOP 300 firms, the majority of liabilities (nearly 70%) posted by the companies were short-term liabilities. On a county level, short and long-term liabilities increased by 12.6% and 4.4%, respectively. The TOP 300 firms experienced a moderate growth rate in the case of long-term liabilities and there was a 6% decline in this figure on a national level.

VI. Investments

Following a dynamic growth of 18%, enterprises in Veszprém County implemented investments in a value of more than HUF 100 billion in 2015. This progress rate was higher than the expansion witnessed on a national level or in Central Transdanubia. The average investment value per company in the county was HUF 26.1 million. Almost 58% of all investments realised in the county were associated with the TOP 300 firms (Figure 18).

Out of the top 300 companies with the highest sales revenues, 240 implemented investments in an average value of HUF 241.3 million, while out of the first 100 enterprises, 84 completed investment projects with an average value of HUF 574.8 million.

VII. Key Economic Indicators of Companies Using a Fiscal Year Other than the Calendar Year

The number of such companies is low, however, due to their significant economic performance, our county review will be complete through the description of the major characteristics of the business processes of these firms. With respect to the fact that the 2015 corporate tax return of these enterprises was due after the publication of the Flash Report serving as a basis for this analysis, we will review their business processes on the basis of the tax returns for 2013-2014.

In Veszprém County, the tax returns of 22 undertakings using a fiscal year other than the calendar year were submitted, with the majority of them (14 firms) engaged in the manufacturing industry.

It is clear from Table 7 containing key economic indicators that these enterprises are characterised by the following: more dominant export-orientation as opposed to firms using the calendar year as their fiscal year (56.9%), foreign ownership over the entire registered capital, outstanding asset accumulation, expansion in the number of employees, coupled with average salaries significantly exceeding those provided by companies using the calendar year as their fiscal year and a 40% drop in profitability.

More than 97% of the total operating income of these companies in 2014 was made up of net sales revenues (Table 7), exhibiting a 13% growth, as a result, the sales revenue per enterprise rose to HUF 5.7 billion from HUF 5.5 billion. If we take a look at the latest aggregated data available in the Flash Reports of the two groups of companies (those using the calendar year as their fiscal year and those using a fiscal year other than the calendar year), we can see that the sales revenues of HUF 125 billion earned by the 22 firms using a fiscal year other than the calendar year represented 7.5% of all the net sales revenues in the county.

87% of all operating costs and expenses were attributable to material-related expenses. The 18.1% growth of costs exceeded the expansion of operating income (+16.1%), as a result, operating profits fell by 45.7%.

The significant drop of pre-tax profits in 2014 (-40.7%) was mostly imputable to the change in operating profits (showing a positive balance) and in a small part to the decreasing deficit of financial transactions and the 45.5% rise in extraordinary profits amounting to a mere HUF 17 billion.

Companies using a fiscal year other than the calendar year reported a tax base of HUF 1.6 billion and calculated tax in an amount of HUF 193.4 billion, which amount was decreased by HUF 22.2 million in the form of allowances. All in all, these enterprises had tax liabilities in an amount of HUF 171.2 million in 2014.

The 3.6% expansion in the average number of employees and the 9.2% growth of wage costs increased the annual average wage level by HUF 150,000. The average wage these companies paid to their employees – which amounted to HUF 2,931,000 on an annual basis – exceeded that provided by firms using the calendar year as their fiscal year by HUF 547,000.

The 2014 balance sheet total of firms using a fiscal year other than the calendar year showed a nearly 20% growth, mainly due to the expansion in assets used by the enterprises for less than a year. Since the progress rate of operating assets exceeded that of fixed assets, operating assets continued to have a higher share in 2014. The two major elements of the balance sheet item ‘total equity and liabilities’ were owners’ equity and liabilities, where the latter had a 68% share. More than two-thirds of liabilities were made up of short-term debts. 78.3% of owners’ equity was made up of reserves, while 15.2% of it of registered capital entirely associated with foreign owners.

In 2014, more than two-thirds of these enterprises (17) implemented investment projects with an average capitalised value of HUF 216 million (Figure 19).