There is also good information. Despite the deterioration of the financial situation, the average margin remained relatively high. Investment spending by large companies slowed down to 7.9%. y/y in real terms. But what do the detailed data look like?
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Financial results of large companies are weaker
According to the report by Santander Bank Polska, in the fourth quarter of 2023 enterprises employing 50 or more people recorded a 1.3% decline in revenues. Every year. This is the second quarter in a row with negative dynamics, after a decline of 1.1%. y/y in Q3
The sector that dragged total revenues down the most was industrial processing. In turn, the production and supply of electricity, gas and heat, as well as most of the service sectors, especially vehicle trade and repairs and retail trade, had a positive impact on the dynamics.
In the analyzed period, there was also a decrease in costs by 0.2%. y/y, after a decrease of 0.5%. y/y the quarter before. Material costs decreased by 15.0%. y/y (compared to -12.6% y/y in Q3), and the increase in employee costs slowed down to 7.8%. y/y 13.6 percent y/y in Q3
Other cost categories increased their contribution to the dynamics of total costs, primarily depreciation and taxes, which increased by 34.2 percent each. y/y. Santander Bank Polska analysts point out that many categories have recently seen increasing growth rather than calming down or returning to the pre-pandemic trend.
The gross financial result of large companies in the fourth quarter amounted to PLN 60 billion, which means a decrease by 19.3%. y/y. However, as experts emphasize, this result significantly exceeded the results obtained in the corresponding quarter in the years preceding the pandemic: PLN 31 billion in 2019, PLN 24 billion in 2018 and PLN 36 billion in 2017.
Margins are still relatively high
Despite the deterioration of financial results, the average margin in large companies remained relatively high. In the fourth quarter of 2023, it amounted to 4.3%, by 1 percentage point. less than a year earlier, but still above the long-term average for the fourth quarters equal to 3.5 percent
Santander Bank Polska analysts pay attention to: diversification of the situation in sectors. In industries oriented towards the consumer and the domestic market (including clothing, food products), margins tend to increase or remain stable. In turn, in the B2B and strongly export sectors (including automotive, electrical appliances), downward trends have recently prevailed.
According to the authors of the reportrelatively high margins are unusual considering the moment when the economy is recovering from the economic crisis. In their opinion, a further decline in margins in 2024 may be limited, taking into account the expected recovery in domestic demand, a rebound in demand from Europe for Polish goods and services and increased inflation. Santander Bank Polska experts expect that persistently high margins will be a factor maintaining core inflation in Poland.
Investments by large companies have slowed down
In the fourth quarter of 2023, expenditure investment rates of large companies slowed down to 7.9%. y/y in real terms from 15.7%. y/y in Q3 The increase in expenditure on buildings decreased to 2.0%. y/y 4.0 percent y/y, for machines up to 11.3%. y/y 18.9 percent y/y, and for means of transport up to 13.5%. y/y 21.1 percent y/y. These results contrast with the data for the entire economy, where investments accelerated to 8.7%. y/y 7.2 percent y/y. According to Santander Bank Polska analysts, this proves that the driving force for investments at the end of 2023 was the public finance sector.
The greatest negative contribution to the annual investment slowdown was made by transport, processing, trade and energy. Seasonally adjusted nominal data suggest that in Q4, investments by large companies decreased on a q/q basis for the first time since 2021, and significant declines were recorded in trade, transport and mining. Outlays in the energy sector are falling slightly from Q2 2023 after a strong rebound at the turn of 2022, while outlays in manufacturing are still growing, although at a sluggish pace, the report says.
What about investments? Lots of pessimism
Business climate surveys indicate limited investment optimism of companies 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 turn, the NBP Quick Monitoring shows that investment optimism is slowly growing, but remains low. Companies declare 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.
What are the prospects for corporate investment in 2024?
Santander Bank Polska analysts expect a slowdown in investment growth in the non-financial sector (in terms of the entire sector, not only large entities) to 4.0 percent. in 2024 from 6.0 percent in 2023
In their opinion, disinflation will be a factor discouraging investments in cost reduction, although high growth in wages and labor costs may work in the opposite direction. A relatively low level of capacity utilization will, in turn, mean a limited willingness to expand it.
Reducing company profits may also have a negative impact on investment activity. On the other hand, the unblocking of EU funds should support investment plans in the second half of 2024 and in 2025, especially in state-owned enterprises.
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