This is how Polish companies coped. The end of the year is under pressure from costs and declining profits

There is also good information. Despite the deterioration of the financial situation, the average margin remained relatively high. Investment spending by major companies slowed to 7.9%. y/y in real terms. But what does the detailed data look like?

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According to a Santander Polska report, in the fourth quarter of 2023 Companies employing 50 or more people recorded a 1.3% decline in revenue. every year. This is the second consecutive quarter witnessing negative dynamicsAfter decreasing by 1.1%. y/r in Q3

The sector that led to a decrease in total revenues was the industrial processing sector. In contrast, the production and supply of electricity, gas and heat, as well as most service sectors, especially vehicle trade, repair and retail trade, had a positive impact on the dynamics.

In the period analyzed, there was also a decrease in costs of 0.2%. On an annual basis, after a decrease of 0.5%. y/y previous quarter. Material costs decreased by 15.0%. r/r (compared to -12.6% y/y in Q3), and the increase in staff costs slowed to 7.8%. YoY 13.6 percent y/y in Q3

Other cost categories increased their contribution to the overall cost dynamics, in particular depreciation and taxes, which increased by 34.2 percent each. r/r. Santander Bank Polska analysts point out that many categories have recently seen increasing growth rather than cooling off or returning to the pre-pandemic trend.

The total financial results of large companies in the fourth quarter amounted to PLN 60 billion, which means a decrease of 19.3%. r/r. However, as experts emphasize, this result significantly exceeded the results obtained in the corresponding quarter in the years before the pandemic: PLN 31 billion in 2019, PLN 24 billion in 2018, and PLN 36 billion in 2017.

Despite the deterioration in financial results… The average margin at large companies has remained relatively high. In the fourth quarter of 2023, it reached 4.3%, a difference of one percentage point. Lower than a year ago, but still above the long-term average For the fourth quarter, it is equivalent to 3.5 percent

Santander Bank Polska analysts are interested in: Diversify the situation in sectors. In consumer-oriented and domestic market industries (including apparel and food products), profit margins tend to increase or remain stable. In contrast, in business-to-business (B2B) trade and strong export sectors (including automobiles and electrical appliances), downward trends have prevailed recently.

According to the report's authorsrelatively high margins are unusual given the moment the economy is recovering from the economic crisis. They believe that further decline in margins in 2024 may be limited, taking into account the expected recovery in domestic demand, recovery in demand from Europe for Polish goods and services and increasing inflation. Santander Bank Polska experts expect persistently high margins to be a factor in maintaining core inflation in Poland.

Spending in the fourth quarter of 2023 Investment rates for major companies slowed to 7.9%. y/y in real terms is 15.7%. y/r in Q3 The increase in spending on buildings fell to 2.0%. r/r 4.0 percent y/r, for machines up to 11.3%. Y/Y is 18.9 percent Y/Y, and for transportation it is 13.5%. r/r 21.1 percent r/r. These results contrast with data for the entire economy, where investments accelerated to 8.7%. r/r 7.2 percent r/r. According to Santander Bank Polska analysts, this proves that the driving force of investments at the end of 2023 was the public finance sector.

The largest negative contributor to the annual investment slowdown was transportation, processing, trade and energy. Seasonally adjusted nominal data indicate that in the fourth quarter, major corporate investments fell on a quarterly basis for the first time since 2021, and significant declines were recorded in trade, transportation and mining. The report says that expenditures in the energy sector are declining slightly compared to the second quarter of 2023 after a strong recovery in early 2022, while expenditures in the manufacturing sector are still growing, albeit at a slow pace.

Business climate surveys indicate limited corporate investment optimism at the beginning of 2024. According to the ESI survey, the sentiment of industrial and service enterprises was weaker than in the corresponding periods of 2022 and 2023, especially in the intermediate goods and investment goods sectors.

In contrast, NBP's rapid monitoring shows that investment optimism is growing slowly, but remains low. Companies announce that they will unfreeze investments suspended due to the energy crisis, but they are losing interest in new projects. One of the factors behind the deterioration of the ratings was the interruption in the flow of EU funding due to the end of the 2014-2020 budget perspective.

Bank Santander Polska analysts expect a slowdown in investment growth in the non-financial sector (in terms of the entire sector, not just large entities) to 4.0 percent. in 2024 from 6.0 percent in 2023

In their view, low inflation would be a disincentive to investments in cost-cutting, although high growth in wages and labor costs may work in the opposite direction. The relatively low level of exploitation of capabilities means, in turn, a limited desire to expand them.

Also, reducing the company's profits may have a negative impact on investment activity. On the other hand, the release of EU funds should support investment plans in the second half of 2024 and in 2025, especially in state-owned enterprises.