APPENDIX I. ANALYSIS OF THE CURRENT STATE OF AFFAIRS 1. STATE AND DEVELOPMENT OF THE SECTOR IN BULGARIA

Transcription

1 APPENDICES

2 APPENDIX I. ANALYSIS OF THE CURRENT STATE OF AFFAIRS 1. STATE AND DEVELOPMENT OF THE SECTOR IN BULGARIA The analysis of the state and development of sector Manufacture of Food Products is organized in a way to give answers to the following questions: 1. What is the place of SMEs in sector Manufacture of Food Products in industry and in manufacturing in Bulgaria? 2. What is the general condition of SMEs in the sector and what trends occur in in terms of turnover, employment, value added, etc.? 3. What is the dynamics of development of the sector compared to other analyzed sectors 1, industry total and manufacturing? 4. What is the place of the sub-sectors in sector Manufacture of Food Products? 5. What is the financial state of SMEs in the sector? Sector Food production covers section Manufacture of food products according to NACE.BG 2008, which includes the following groups, classes and products: Groups Classes Products Processing and preserving of meat and production of meat products Processing and - operation of slaughterhouses engaged in killing, dressing or preserving of meat packing meat: beef, pork, lamb, rabbit, mutton, camel, etc. - production of fresh, chilled or frozen meat, in carcasses Processing and preserving of fish, crustaceans and molluscs Processing and Processing and preserving of poultry meat Production of meat and poultry meat products Processing and preserving of fish, crustaceans and molluscs - production of fresh, chilled or frozen meat, in cuts - operation of slaughterhouses engaged in killing, dressing or packing poultry - production of fresh, chilled or frozen meat in individual portions - rendering of edible poultry fats - production of dried, salted or smoked meat - production of meat products: sausages, salami, puddings, "andouillettes", saveloys, bolognas, pâtés, rillettes, boiled ham - preparation and preservation of fish, crustaceans and molluscs: freezing, deep-freezing, drying, cooking, smoking, salting, immersing in brine, canning etc. - production of fish, crustacean and mollusc products: fish fillets, roes, caviar, caviar substitutes etc. - production of fishmeal for human consumption or animal feed - production of meals and solubles from fish and other aquatic animals unfit for human consumption 1 In the framework of Project No. BG161РО Promoting the internationalization of the Bulgarian enterprises, export strategies are developed for other 17 sectors in Manufacturing considered to have export potential. The state, development and export orientation of sector Manufacture of Food Products is compared to data for the rest of the sectors, so as to outline their positions and export potential. 2

3 Groups Classes Products preserving of fruit and vegetables Processing and - processing and preserving of potatoes: preserving of potatoes manufacture of prepared frozen potatoes manufacture of dehydrated mashed potatoes manufacture of potato snacks manufacture of potato crisps manufacture of potato flour and meal Manufacture of fruit - manufacture of fruit or vegetable juices Manufacture of vegetable and animal oils and fats Manufacture of dairy products Manufacture of grain mill products, starches and starch products and vegetable juice Other processing and preserving of fruit and vegetables Manufacture and fats of oils Manufacture of margarine and similar edible fats Operation of dairies and cheese making Manufacture of ice cream Manufacture of grain mill products - manufacture of food consisting chiefly of fruit or vegetables, except ready-made dishes in frozen or canned form - preserving of fruit, nuts or vegetables: freezing, drying, immersing in oil or in vinegar, canning etc. - manufacture of fruit or vegetable food products - manufacture of jams, marmalades and table jellies - roasting of nuts - manufacture of nut foods and pastes - manufacture of crude vegetable oils: olive oil, soya-bean oil, palm oil, sunflower-seed oil, cotton-seed oil, rape, colza or mustard oil, linseed oil etc. - manufacture of non-defatted flour or meal of oilseeds, oil nuts or oil kernels - manufacture of refined vegetable oils: olive oil, soya-bean oil etc. - processing of vegetable oils: blowing, boiling, dehydration, hydrogenation etc. - margarine and similar edible fats - Mixtures of vegetable and animal fat spreads - Mixtures of vegetable and animal fat spreads for cooking - manufacture of fresh liquid milk, pasteurised, sterilised, homogenised and/or ultra heat treated - manufacture of milk-based drinks - manufacture of cream from fresh liquid milk, pasteurised, sterilised, homogenised - manufacture of dried or concentrated milk whether or not sweetened - manufacture of milk or cream in solid form - manufacture of butter - manufacture of yoghurt - manufacture of cheese and curd - manufacture of whey - manufacture of casein or lactose - manufacture of ice cream and other edible ice such as sorbet - grain milling: production of flour, groats, meal or pellets of wheat, rye, oats, maize (corn) or other cereal grains - rice milling: production of husked, milled, polished, glazed, parboiled or converted rice; production of rice flour - vegetable milling: production of flour or meal of dried leguminous vegetables, of roots or tubers, or of edible nuts - manufacture of cereal breakfast foods 3

4 Groups Classes Products - manufacture of flour mixes and prepared blended flour and dough for bread, cakes, biscuits or pancakes Manufacture of bakery and farinaceous products Manufacture of starches and starch products - manufacture of starches from rice, potatoes, maize etc. - wet corn milling - manufacture of glucose, glucose syrup, maltose, inulin etc. - manufacture of gluten - manufacture of tapioca and tapioca substitutes prepared from starch - manufacture of corn oil Manufacture of other food products Manufacture of bread; manufacture of fresh pastry goods and cakes Manufacture of rusks and biscuits; manufacture of preserved pastry goods and cakes Manufacture of macaroni, noodles, couscous and similar farinaceous products Sugars and sugar confectionery Cocoa and cocoa preparations Processing of tea and coffee Production of spices and seasonings Manufacture prepared meals of Production of children's dietary and other homogenized - manufacture of bakery products: bread and rolls pastry, cakes, pies, tarts, pancakes, waffles, rolls etc - Rusks, biscuits and "dry" bakery products - Durable pastry - Dry snacks, salty or sweet - Macaroni, noodles and similar farinaceous products - Couscous - Canned or frozen pasta - Cane or beet sugar and chemically pure sucrose, in solid form - Sugars, nes, incl chem pure lactose etc; artif honey; caramel - Molasses resulting from the extraction or refining of sugar - Sugar confectionery (incl white choc), not containing cocoa - Cocoa beans, whole or broken, raw or roasted - Cocoa paste, whether or not defatted - Cocoa butter, fat and oil - Cocoa powder, without added sugar - Chocolate and other food preparations containing cocoa - Caffeine and roasted coffee - Coffee products: ground coffee, soluble coffee extracts and concentrates of coffee - Coffee substitutes - Mixed tea and maté - Extracts of tea or maté and preparations with a basis of these extracts - Spices, seasonings and sauces: mayonnaise, mustard flour - Mustard and other prepared sauces and preparations therefor, mixed condiments - Vinegar - Salads containing vegetables and other ingredients in dairy or mayonnaise sauces, salad and milk as tarama (beaten eggs) Prepared meat dishes - Prepared fish dishes, incl. Fish and chips - Prepared vegetable dishes - Frozen or otherwise preserved pizza Not including preparation of meals prepared for immediate consumption, such as restaurants. - Foods for infants - Baby food homogenized milk, meat and other basic - Baby food 4

5 Groups Classes Products food - Foods intended for energy restricted diets for weight reduction - Dietary foods for special medical purposes - Foods with reduced sodium, incl. dietary salt-free or reducedsodium - Gluten-free foods - Foods intended for use in intense muscular effort, especially for sportsmen - Foods for diabetics Manufacture of other food products nes Animal feed preparations, nes Manufacture of prepared food (feed) for livestock Manufacture of prepared pet foods - Soups and broths - Artificial honey and caramel - Perishable prepared foods (sandwiches, fresh pizzas unfired) - Food additives and other food products nes - Prepared foods for farm animals, incl. concentrates and premixes - Blended foods for farm animals - Prepared pet foods, incl. dogs, cats, birds, fish and other In the table below, data are presented on the main parameters characterizing small and medium-sized enterprises in the 18 analyzed sectors. Table 1: Main data characterizing SMEs in sector Manufacture of Food Products 5

6 Econom ic activity (CODE Groups non-financial companies Companies (num) Turnover 1 (thousand BGN) Added value 1,2 (thousand BGN.) Employed (num) Export (thousand BGN) Companies (num) Turnover 1 (thousand BGN) Added value 1,2 (thousand BGN.) Employed (num) CHANGE (in %) Export (thousand Added BGN) Companies Turnover 1 value 1,2 Employed Export Labour productivit y (BGN/empl oyed) Labour productivit y (BGN/emp loyed) /////2009 Bulgaria, incl. Financial Total companies Total Total Total Manufacturing industry SMEs Total SMEs Manufacturing industry SMEs-18 SECTORS Manufacture of food products Manufacture of beverages Manufacture of textile and textile products, except apparel Manufacture of wearing apparel Manufacture of leather and related products Manufacture of wood and of products of wood and cork, except furniture; manufacture of articles of straw and plaiting materials Manufacture of paper, paperboard and paper products Publishing, printing and reproduction Manufacture of chemical products Manufacture of basic 56 pharmaceutical products and 21 pharmaceutical preparations Manufacture of rubber and plastic products Manufacture of other non-metallic mineral products Manufacture of fabricated metal products, except machinery and equipment Manufacture of computer, electronic and optical products Manufacture of electrical equipment Manufacture of machinery and equipment with general and 28 special purpose Manufacture of other transport equipment, other than cars Manufacture of furniture

7 Economic activity (CODE) Groups non-financial companies Companies (num) Turnover 1 (thousand BGN) Added value 1,2 (thousand BGN.) Employed (num) Export (thousand BGN) Companies (num) Turnover 1 (thousand BGN) Added value 1,2 (thousand BGN.) Employed (num) Export (thousand BGN) Bulgaria, incl. Financial Total companies Total Total Total Manufacturing industry SMEs Total SMEs Manufacturing industry STRUCTURE Share of the SMEs in 18 sectors in SMEs in the industry 10 Manufacture of food products Manufacture of beverages Manufacture of textile and textile products, except apparel Manufacture of wearing apparel Manufacture of leather and related products Manufacture of wood and of products of wood and cork, except furniture; manufacture of articles of straw and plaiting materials Manufacture of paper, paperboard and paper products Publishing, printing and reproduction Manufacture of chemical products Manufacture of basic pharmaceutical products and pharmaceutical preparations

8 Economic activity (CODE) Groups non-financial companies Companies (num) Turnover 1 (thousand BGN) Added value 1,2 (thousand BGN.) Employed (num) Export (thousand BGN) Companies (num) Turnover 1 (thousand BGN) Added value 1,2 (thousand BGN.) Employed (num) Export (thousand BGN) Manufacture of rubber and plastic products Manufacture of other nonmetallic mineral products Manufacture of fabricated metal products, except machinery and equipment Manufacture of computer, electronic and optical products Manufacture of electrical equipment Manufacture of machinery and equipment with general and special purpose Manufacture of other transport equipment, other than cars Manufacture of furniture STRUCTURE Share of the SMEs in 18 sectors in the SMEs in the manufacturing industry 10 Manufacture of food products Manufacture of beverages Manufacture of textile and textile products, except apparel Manufacture of wearing apparel Manufacture of leather and related products

9 Economic activity (CODE) Groups non-financial companies Companies (num) Turnover 1 (thousand BGN) Added value 1,2 (thousand BGN.) Employed (num) Export (thousand BGN) Companies (num) Turnover 1 (thousand BGN) Added value 1,2 (thousand BGN.) Employed (num) Export (thousand BGN) Manufacture of wood and of products of wood and cork, except furniture; manufacture of articles of straw and plaiting materials Manufacture of paper, paperboard and paper products Publishing, printing and reproduction Manufacture of chemical products Manufacture of basic pharmaceutical products and pharmaceutical preparations Manufacture of rubber and plastic products Manufacture of other nonmetallic mineral products Manufacture of fabricated metal products, except machinery and equipment Manufacture of computer, 26 electronic and optical products Manufacture of electrical 27 equipment Manufacture of machinery and equipment with general and special purpose Manufacture of other transport equipment, other than cars Manufacture of furniture

10 Economic activity (CODE) Groups non-financial companies Companies (num) Turnover 1 (thousand BGN) Added value 1,2 (thousand BGN.) Employed (num) Export (thousand BGN) Companies (num) Turnover 1 (thousand BGN) Added value 1,2 (thousand BGN.) Employed (num) Export (thousand BGN) STRUCTURE by sub sectors Manufacture of food products Processing and preserving of meat and production of meat products Processing and preserving of fish, crustaceans and molluscs Processing and preserving of fruit and vegetables Manufacture of vegetable and animal oils and fats Manufacture of dairy products Manufacture of grain mill products, starches and starch products Manufacture of bakery and farinaceous products Manufacture of other food products Animal feed preparations, nes Note 1. Data are calculated according to the methodology of the Structural business statistics 2. At factor prices 10

11 Based on data in the table, the following more important conclusions can be made: Position of SMEs in the sector compared to SMEs in Manufacturing: Number of SMEs In terms of number of small and medium-sized enterprises in 2009, sector Manufacture of Food Products ranked second in Manufacturing after the sector of "Manufacture of wearing apparel. In 2010, the two sectors changed their positions and food production took the lead. The reason is the weaker decrease in the number of firms in the food sector compared to the decrease in the apparel sector. This trend is common for both SMEs in general and for 16 of the examined 18 sectors, except for sectors "Manufacture of chemical products" and "Manufacture of beverages. Employment in SMEs Among the analyzed sectors, SMEs producing food products provide about 18% of employment in SMEs in Manufacturing and rank second after the sector Manufacture of apparel. In all analyzed sectors (except for production of pharmaceutical products and printing and reproduction of recorded media) and in Manufacturing in general, a decrease in the number of employed is observed. In food production, however, this decrease is at lower rate compared to the drop in employment in 2010 in comparison with 2009 recorded in Manufacturing and in the greater part of the examined sectors. This implies that the need to release staff as a result of the global crisis is less pronounced. Turnover and value added in SMEs SMEs in sector "Manufacture of food products" are the undisputed leader among SMEs in Manufacturing in terms of turnover and value added they generate about one-third of turnover and one-fifth of value added of SMEs in Manufacturing. These results indicate the key importance of this sector in the national economy, moreover that the values of both indicators increased in 2010 compared to The average growth rate of turnover in SMEs in Manufacturing in 2010 compared to 2009 is 1,78%. Out of the 18 analyzed sectors, an increase in turnover is recorded in 13 sectors, varying from 0,35% in apparel production to 40,78% in the production of computer and communication technologies, electronic and optic products. The increase in food production is 7,26%. Half of the sectors reported an increase in value added in 2010 compared to 2009 from 2% in the production of wood and cork, except furniture, to 45% in the production of computer and communication machinery, electronic and optic products, against a decrease of nearly 1% in value added generated by SMEs in Manufacturing total. The increase in food production is 8,5%. Therefore, SMEs in sector Manufacture of Food Products belong to the group of developing sectors in which the global crisis has not caused too severe effects on the export capacity of the sector. Labor productivity Labor productivity (measured as value added produced per 1 employee) of SMEs in sector Manufacture of Food Products is higher than the average in Manufacturing, but twice lower than the level in the leading sector in 2009 and 2010 production of pharmaceutical products. An upward trend in labor productivity is observed in both analyzed years in almost all of the sectors, including food production. The contribution of SMEs in sector Manufacture of food products to employment, turnover and value added of SMEs in Manufacturing gives solid grounds to determine it

12 as a sector with good prospects, dynamic development and considerable export potential. Inner-sector characteristics: The trend of decrease in the number of SMEs in the sector, which was registered in 2010 compared to 2009, applies also to all sub-sectors except Manufacture of grain mill products, starches and starch products and Manufacture of bakery and farinaceous products which account for over 54% of SMEs in the sector. The highest employment in the sector is provided by Manufacture of bakery and farinaceous products (more than 1/3), followed by Processing and preserving of meat and production of meat products, except ready dishes. Out of nine sub-sectors, three retain the employment level (Processing and preserving of fish, crustaceans and mollusks, except ready dishes; Processing and preserving of fruit and vegetables, except ready dishes; Manufacture of dairy products) and the remaining six (Processing and preserving of meat; Production of meat products, except ready dishes; Manufacture of vegetable and animal oils and fats; Manufacture of grain mill products, starches and starch products; Manufacture of bakery and farinaceous products; Animal feed preparations) register a decrease, which is most considerable in Other food products (by 9%). In both analyzed years, the sub-sectors of Processing and preserving of meat and production of meat products and Manufacture of bakery and farinaceous products have the greatest contribution to the sector s turnover and they generate the biggest value added as well. Dynamics of turnover and value added differs by sub-sectors, both indicators showing most substantial growth in Manufacture of vegetable and animal oils and fats. Turnover declines most in Processing and preserving of meat and production of meat products, while the sub-sector of Manufacture of other food products records the strongest decrease in value added. Labor productivity in all sub-sectors is higher than the sector average (over 2-3 times in Manufacture of vegetable and animal oils and fats and Manufacture of grain mill products, starches and starch products ), except for Manufacture of bakery and farinaceous products and Processing and preserving of fish, crustaceans and molluscs. Labor productivity in 2010 increased compared to 2009 in almost all subsectors (excluding only Processing and preserving of fish, crustaceans and molluscs and Manufacture of other food products ), as the greatest increase of 238% is recorded in Manufacture of vegetable and animal oils and fats. At the time the export strategy was developed, there was no other official statistical information provided on years before 2009, as well as on indicators different from the mentioned above, characterizing SMEs and the analyzed sectors. Therefore, the analysis of existing trends over the years is based on data from other sources and analyses, according to which micro, small and medium-sized enterprises represent about 87% of all companies operating in sector "Manufacture of food products". Manufacturing of food products in Bulgaria is performed by nearly 5,500 companies and their regional distribution is presented in the table below. 12

13 Table 2: Regional distribution of enterprises in sector Manufacture of Food Products Employed in the sector (number) 13 % of employed in the region % of employed in the sector % of enterprises in the sector North-Western region ,5 8,9 11,0 North Central region ,4 14,1 13,5 North-Eastern region ,3 12,7 12,5 South-Eastern region ,4 14,1 15,9 South Central region ,8 20,7 22,1 South-Western region ,3 29,5 24,9 Source: Amadeus data basis, MEET, The regional distribution of enterprises and employed in sector Manufacture of Food Products is quite uneven. The highest concentration of enterprises and employees is observed in the South-Western region, followed by the South Central region, and the lowest concentration in the North-Western region. At the same time, interregional differences in terms of percentage of employed in the sector are relatively low, from 2,3 to 4,4%. Important characteristics of sector Manufacture of Food Products is the industrial production index dynamics and its comparison with industry and manufacturing in particular, to which it belongs. Table 3: Industrial production indices, (December of the year, 2005=100) Industry - total 87,0 86,2 87,7 98,6 110,3 119,5 123,1 132,3 117,6 101,8 107,1 Manufacturing 75,1 71,7 79,3 92,8 106,5 118, ,6 114,4 96,0 103,3 Manufacture of food products 81,5 70,1 76,5 93,7 100,5 115,5 125,9 131,5 137,1 126,2 126,9 Source: NSI Until 2007, the industrial production index shows similar growth dynamics in industry total, manufacturing and manufacture of food products. This upward trend was broken in both industry total and manufacturing in 2008, while food production continued to increase in volume. Then, in the last two years of the studied period, it also recorded a downward trend. Therefore, the global financial and economic crisis has a weaker and to some extent a delayed effect on the production dynamics of sector Manufacture of Food Products. The dynamics of industrial turnover index on the domestic market in is presented in Table 4. Table 4: Industrial turnover indices on domestic market, (December of the year, 2005=100) Domestic market Industry - total 83,6 87,7 104,7 94,8 114,9 126,7 142,7 168,9 178,1 150,0 161,4 Manufacturing 75,7 75,6 82,5 88, ,4 144,0 155,7 157,4 135,6 136,9 Manufacture of food products 77,9 70,7 79,5 106,5 104,6 118,8 156,1 179,0 189,1 190,5 220,2 Source: NSI

14 Indices of food production turnover on domestic market show a stable upward trend of revenues from sales of enterprises in the sector over the entire analyzed period. The same trend is valid for industry total and manufacturing until 2008, followed by a decline in 2009 and preserving of that level in Therefore, the global financial and economic crisis has affected the dynamics of industry total and manufacturing, but this general trend does not apply to food production. The conducted survey includes 20 SMEs and their distribution in terms of employed persons and annual turnover is presented in the table below: Employed persons Number % Less than 10 persons 1 5,0 From 11 to 50 persons 11 55,0 From 51 to 250 persons 8 40,0 Total ,0 Annual turnover Less than BGN ,0 From BGN to BGN ,0 From BGN to BGN ,0 Total ,0 In the prevailing part of enterprises (55%), the number of employed is from 10 to 50 persons and the annual turnover is less than BGN The analysis of data on turnover of surveyed SMEs corresponds with findings made above. In , the number of companies with a growth in turnover decreased compared to precrisis 2007; and the number of those with a drop in turnover increased. Anyway, companies with increased turnover prevail, except in 2010, when the two groups of enterprises are almost equal in number. Regarding the average percentage change in turnover over the analyzed period, it can be pointed out that it generally remains on the level of 2007, with slight deviations in 2010 and 2011 respectively -5% and +5%. Year Number of enterprises with decreased turnover Table 5: Changes in turnover of enterprises, (2007 = 100 %) Number of Number of No SMEs with Average enterprises enterprises replies increased change in with with turnover to turnover retained increased SMEs with (median) % turnover turnover decreased turnover ratio , , , ,

15 The analysis of data on the percentage change in turnover of surveyed enterprises allows pointing out that: Eleven of the companies show a stable upward trend in turnover, which exceeds the base level of Four of the companies show an opposite trend, i.e. they permanently decrease their turnover compared to One of the companies increases its turnover compared to 2007 and retains it constant in , while another of them records a five-time growth in 2009, followed by a decline in the next two years. Five of the companies show no definite trend, i.e. their turnover varies all over the examined period. Annual changes in turnover of surveyed enterprises, both of those with decreased turnover and those with increased turnover, compared to base level in 2007, are presented on Figure 1. Figure 1. Average annual changes in turnover of surveyed enterprises (in %) Comparing companies with increased turnover and companies with decreased turnover, it is seen that average values are higher in companies which increase their turnover compared to Goods and services produced by the surveyed enterprises relate entirely to sector Manufacture of Food Products, yet analysis of the product range shows that the survey covered various companies from the sector, therefore, information collected may be to a large extent referred to the sector as a whole. In addition to information from the survey, data have been collected from the Commercial Register at the Registry Agency, Ministry of Justice, and analysis is made of the financial state of SMEs participating in this survey. This approach is applied as there are no data available on the financial situation of the sector as a whole. 15

16 The analysis of financial state of companies in sector Manufacture of Food Products is conducted on the basis of the following groups of financial and operational indicators: Profitability indicators Efficiency indicators Financial stability/independence indicators Liquidity indicators The analysis is prepared on the basis of data from the financial statements of 15 2 exportoriented SMEs and the input data are presented in the table below: Table 6: Input data for the analysis of financial state of 15 enterprises in sector Manufacture of Food Products (BGN thousand) ASSETS Fixed assets Current assets total, incl.: Inventory Accounts Receivable Cash LIABILITIES Shareholders Equity Long-term liabilities Short-term liabilities Accounts payable Payables to suppliers and clients TOTAL REVENUE Net revenue from sales TOTAL EXPENDITURE Profit before tax The major part of assets, nearly 70%, is concentrated in two of the 15 analyzed enterprises, and they account for about 60 to 70% of turnover. To avoid distortion of results, the financial position of both groups of enterprises is analyzed separately. In the text below, these 2 enterprises are defined as 2 enterprises group 1 and the rest as 13 enterprises group 2. Table 7: Input data for the analysis of financial state of 13 enterprises in sector Manufacture of Food Products (BGN thousand) ASSETS Fixed assets Current assets total, incl.: Inventory Accounts Receivable Cash LIABILITIES As of the date of this analysis, the financial statements of 15 out of the 20 surveyed enterprises were published on the Commercial Register. 16

17 Shareholders Equity Long-term liabilities Short-term liabilities Accounts payable Payables to suppliers and clients TOTAL REVENUE Net revenue from sales TOTAL EXPENDITURE Profit before tax Table 8: Input data for the analysis of financial state of 2 enterprises in sector Manufacture of Food Products (BGN thousand) ASSETS Fixed assets Current assets total, incl.: Inventory Accounts Receivable Cash LIABILITIES Shareholders Equity Long-term liabilities Short-term liabilities Accounts payable Payables to suppliers and clients TOTAL REVENUE Net revenue from sales TOTAL EXPENSES Profit before tax The analysis of data presented points out to the following: An increase in assets is observed in the analyzed 2 enterprises, this resulting from an increase in both fixed and current assets. In the 13 enterprises, the increase in total assets is weak due to the simultaneous increase in fixed assets value and a decrease in current assets. As a result of investments in 2008 and 2009, the annual growth rate of fixed assets compared to 2007 is 137% and 158% respectively. Investments in 2010 cannot compensate the decrease in fixed assets balance value resulting from depreciation. The most uneven rate of change regarding current assets of 2 enterprises is observed with cash, i.e. a growth of 2000% in 2008 compared to 2007, followed by a strong subsequent decline. Current assets show a substantial growth in 2008 and 2009 compared to 2007, but their value dropped considerably (sharply in the 13 enterprises and more slightly in the 2 enterprises) in 2010 in comparison with 2009, as a result of decreased inventory, receivables and cash. The greatest increase in both groups of enterprises is recorded in terms of equity. 17

18 Resulting from increased demand in 2008 and 2009, company revenues grew substantially from BGN 26 mln. in 2007 to BGN 39 mln. in 2008 and BGN 43 mln. in 2009, but they declined considerably in 2010, down to only BGN 32 million. Small enterprises record a double increase in profit before tax in 2009 compared to 2008 and 2007, yet in 2010 it dropped again down to the level in Long-term liabilities in 2008 and 2009 increased in comparison with 2007 as a result of long-term credits obtained by the companies, but they decreased in 2010 due to restrictive banking policy. Regarding profit before tax, an upward though sinus-wave trend is observed, the enterprises in the second group being in a much better position. 1. Profitability indicators Profitability indicators are also considered as indicators of profit or return. They show the efficiency of use of resources or revenues of the companies. Profitability indicators are positive values, when the financial result is a profit, and negative values when the financial result is a loss. The following ratios are used in analyzing enterprises profitability: Return on sales ratio The Return-on-sales (ROS) ratio indicates the amount of financial result (profit) made by the company per unit of income, or, in other words, how much profit/loss in BGN is generated by BGN of net revenue. The ratio is calculated by the following formula: ROS values for the examined enterprises are presented in the table below: Table 9. Return on sales ratio enterprises 2-nd group 0,046 0,033 0,054 0,041 2 enterprises 1-st group 0,001-0,001 0,021 0,015 Total 0,001-0,017 0,035 0,023 In the examined period, ROS ratio shows better values in enterprises from the 2-nd group, though it does not follow an even trend in both of the groups. The strongest decline is observed in 2008 when the 2 enterprises could not profit from their sales revenue. Return on equity ratio The Return-on-equity (ROE) ratio indicates the amount of profit/loss per BGN of shareholder s equity, respectively the share of current profit/loss in shareholder s equity. This ratio is widely used in analysis on potential investment. The ratio is calculated by the following formula: 18

19 ROE values for the examined enterprises are presented in the table below: Table 10. Return on equity ratio enterprises 2-nd group 0,230 0,211 0,261 0,193 2 enterprises 1-st group 0,002-0,001 0,022 0,019 Total 0,003-0,033 0,057 0,040 The use of own equity by the examined SMEs has positive financial results, yet enterprises in the 2-nd group show more favourable values of ROE ratio. These results are to a great extent influenced by the high increase in the value of own equity. Return on assets ratio The Return-on-assets (ROA) ratio shows the financial result earned by using all of company s assets. The ratio is calculated by the following formula: ROA values for the examined enterprises are presented in the table below: Table 11. Return on assets ratio enterprises 2-nd group 0,044 0,037 0,060 0,043 2 enterprises 1-st group 0,001 0,000 0,013 0,012 Total 0,001-0,014 0,026 0,021 ROA ratio shows better values in the 13 enterprises. They have a relatively constant amount of assets and the ratio is influenced mainly by the amount of profit. In the remaining 2 enterprises, ROA improves along with profit generated in 2009 and Efficiency indicators Efficiency indicators are quantitative characteristics of the company s income-to-cost ratio. They show the economic effects generated by enterprises per unit of costs or per unit of income. Cost efficiency ratio and income efficiency ratio are the classic efficiency indicators. They are reciprocal and the difference between them is in the magnitude of ratios and their direction of change. For this reason, only the income efficiency ratio (IER) is used in the present analysis. It shows how much cost is spent to produce a BGN of income and is calculated by the following formula: IER values for the examined enterprises are presented in the table below: Table 12. Income efficiency ratio enterprises 2-nd group 0,96 0,97 0,95 0,96 2 enterprises 1-st group 1,00 1,00 0,98 0,99 Total 0,98 0,99 0,97 0,98 19

20 In case of positive financial results, the income efficiency ratio is less than 1. Ratio values are similar in both groups of enterprises and the changes show no clear trend. The ratio retains its values over the four examined years. 3. Financial stability/independence indicators Financial independence indicators provide quantitative characteristics of the company s financial independence of creditors. They show the ratio between shareholder s equity and total amount of all financing sources of the company. Financial independence ratio The financial independence ratio (FIR) provides a quantitative characteristics of the degree to which enterprises are financially independent of creditors. If the ratio is less than 1, then liabilities exceed shareholder s equity, and vice versa. It is calculated by the following formula: FIR values for the examined enterprises are presented in the table below: Table 13. Financial independence ratio enterprises 2-nd group 0,24 0,21 0,30 0,29 2 enterprises 1-st group 0,51 1,07 1,31 1,84 Total 0,41 0,73 0,86 1,12 In the group of 13 SMEs, FIR maintains low and relatively constant values of dependence on creditors, unlike the two enterprises which show permanent excess of shareholder s equity over liabilities, which implies these enterprises are financially independent of borrowed funds. Debt ratio This ratio shows how much the enterprise relies on its creditors to settle its obligations. Usually, it is less than 1 and shows the amount of liabilities reported per a BGN of shareholder s equity. The higher the ratio, the greater the enterprise s dependence on external sources. The ratio is calculated by the following formula: Debt ratio values for the examined enterprises are presented in the table below: Table 14. Debt ratio enterprises 2-nd group 4,22 4,67 3,34 3,43 2 enterprises 1-st group 1,96 0,94 0,76 0,54 Total 2,46 1,37 1,16 0,89 20

21 Debt ratio values of the 13 SMEs in sector Manufacture of Food Products indicate their great dependence on external sources of funds. Unlike them, however, 2 enterprises show a stable upward trend of financial independence over the examined period. 4. Liquidity indicators Liquidity indicators show the ability of the company to cover its current liabilities. The liquidity of the 15 enterprises is studied by the following ratios: Current ratio The current ratio shows the degree of coverage of current liabilities by available assets and is calculated by the following formula: Quick ratio The quick ratio is calculated by the following formula: Immediate ratio Intermediate ratio is calculated by the following formula: Cash ratio Cash ratio is calculated by the following formula: Liquidity ratios values for the examined SMEs are presented in the table below: Table 15. Liquidity ratios Current ratio 13 enterprises 2-nd group 1,38 1,32 1,39 1,36 2 enterprises 1-st group 1,23 1,76 1,36 2,05 Total 1,28 1,62 1,37 1,78 Quick ratio 13 enterprises 2-nd group 0,79 0,64 0,75 0,87 2 enterprises 1-st group 0,71 1,42 0,90 1,28 Total 0,74 1,17 0,85 1,13 Immediate ratio 13 enterprises 2-nd group 0,78 0,64 0,98 0,87 2 enterprises 1-st group 0,71 1,42 0,89 1,28 Total 0,73 1,17 0,92 1,14 Cash ratio 21

22 enterprises 2-nd group 0,18 0,11 0,33 0,13 2 enterprises 1-st group 0,07 1,09 0,38 0,09 Total 0,11 0,78 0,36 0,11 Generally, the higher the liquidity ratios, the bigger the ability of the company to meet its current liabilities. Liquidity ratios lower than 1 indicate that the company is unable to pay off its short-term liabilities when they fall due. In this situation, the company is likely to use alternative sources of financing (e.g., credits). The current ratio of analyzed enterprises is greater than 1, its value being relatively constant in the 13 enterprises and showing an upward trend in the other group of companies. The way other ratios are calculated implies their lower values. Quick and immediate ratios are similar in both groups of enterprises due to the extremely weak effect of current investments. The analysis of cash ratio, which characterizes the company s solvency given that current liabilities maturity is close to the balance sheet date, shows the limited capacities of examined enterprises. Finally, the following general findings and conclusions can be made about the situation of sector Manufacture of Food Products and about SMEs in the sector: Sector Manufacture of Food Products, general Dynamics of production and turnover of enterprises in the sector, measured by the production and turnover indices, shows positive trends in the period , which, however, are due also to the activity of large enterprises in the sector. Increase in exports is a permanent trend in the period According to preliminary NSI data for 2011, this trend is interrupted and reported export is, though little, below the level in bln. BGN compared to bln. BGN, or a decrease of nearly 4%. These results indicate a weak and to some extent delayed influence of the global financial and economic crisis on the sector. Regional distribution of companies and employees in sector Manufacture of Food Products is uneven. The biggest concentration of companies and employees is in the South-Western region, followed by South Central region, and the lowest level is observed in the North-Western region. This location is closely connected with the markets of manufactured products. SMEs in sector Manufacture of Food Products Sector Manufacture of Food Products is a leader in terms of number of SMEs. The percentage of decrease in the number of SMEs is among the lowest compared to all analyzed sectors, which implies weaker effects of the crisis on the sector. The sector provides 18,5% of employment in SMEs and given the relatively small decrease (4,5%) in the number of employed in 2010 compared to 2009, it can be concluded that the development of the sector is of significant national importance for the stabilization of labor market and in particular, for the decrease in unemployment in the country. In inner-sector aspect, the sub-sectors of Manufacture of bakery and farinaceous products and Processing and preserving of meat and production of meat products, excluding ready dishes generate the highest employment, value added and turnover. 22

23 Due to their nature, these sub-sectors are considerable in volume and have their own market characteristics. The conducted survey and analysis of the financial state of SMEs with export potential show that these enterprises have relatively good development and are in generally good financial condition. This allows stating that export orientation, on one hand, follows from good company development, and, on the other, it is an opportunity to weaken the negative effects from decreased domestic demand. Due to the high-turnover character of activities in food production, the availability of own resources creates better financial comfort for medium enterprises. In 2010, SMEs in the sector provided about 29,14% of turnover and 20,27% of value added generated by SMEs in manufacturing, as both indicators are higher compared to This means that sector Manufacture of Food Products is less influenced by the crisis in comparison with other sectors. Higher percentage of turnover compared to value added confirms the thesis that food production does not contain high innovation component. The above statement is further confirmed by the fact that labor productivity of SMEs in the sector is similar to labor productivity in manufacturing, yet it is far lower than that in the most productive sector, production of pharmaceutical products, where components like research and innovation are most developed. Estimations about the good level of the working force, relatively lower priority of measures for improving the qualification of personnel and opinions of experts in food production shared during the discussions in the focus group, allow making the conclusion that the sector disposes of high qualified working force, possessing the knowledge and skills to apply traditional good practices in production. Preserved nature and therefore good quality of raw materials are emphasized by experts as national advantages, though, at the same time, stressing on the recently established trend of Bulgarian agricultural products being supplanted by imports from neighboring countries. 2. EXPORT ORIENTATION OF SMEs IN THE SECTOR The analysis of export orientation of sector Manufacture of Food Products in Bulgaria is organized in a way to answer the following questions: 1. What is the dynamics of exports of goods by sectors in the period ? 2. What is the position of SME exports in the total export of the sector? 3. What is the position of the analyzed sector in comparison with all 18 sectors for which export strategies are developed? 4. What is the dynamics of exports of SMEs in the sector in the period ? 5. How the exports of different NACE.BG 2008 classes rank within total exports of the sector? Due to the lack of longer time series of comparative data on total exports by sectors from the NSI, the dynamics of total exports of goods by sectors is analyzed on the basis of information 23