ANALYSIS - Global Financial Crisis, Higher Prices of Raw Materials Hit Slovenian Companies This Year

The country's gross domestic product (GDP) growth rate remains healthy, buoyed by infrastructure building projects.

Slovenian banks suffered most from the global credit crunch as it resulted in their loans becoming more expensive and less affordable and their own borrowing costs increasing, analysts said.

“(First-half) financial results are quite different – some are better, others are worse,” Andraz Vrh, asset manager at local brokerage house Ilirika, told SeeNews. “Having in mind 'the crisis' on international markets, we can say that the performance of the biggest companies is good. We cannot say that it is bad.”

Vrh said that most of the big companies have raised their profits, although the pace of increase has slowed this year. He expects Slovenian companies to generally announce slightly better results than in 2007.

Higher prices of raw materials and tougher conditions in the financial sector are the main factors that will impact Slovenian businesses performance in 2008, Vrh said.

Darko Kovacic, an analyst at Maribor, northeast Slovenia-based Raiffeisen Banka, agreed: “Two main factors - the steep rise of oil prices and higher financial costs - resulted in lower-than-expected profitability (in the first half of 2008).”

However, he added that some companies will improve their performance this year, pointing to fuel trader Petrol and household appliance manufacturer Gorenje.

Petrol reported a 33% rise in its group net profit for the first half of 2008 to 30.8 million euro ($44 million) as sales also increased. First-half group net sales rose by 51% to 1.4 billion euro.

Gorenje posted a 25.3% annual rise in its group net profit to a preliminary 8.151 million euro in the first half of 2008. Group sales through June fell by 0.2% to 619.165 million euro, but the figure is not fully comparable with the 2007 sales result.

Kovacic said the profitability of the country’s largest retailerMercator might be better but its performance is influenced by high financial costs, a result of increased interest rates.

Mercator had a group net profit of 22.3 million euro in the first half of 2008, up from 21.3 million euro in the year-ago period. First-half group sales rose to 1.282 billion euro from 1.121 billion euro in the first half of 2007.

“The (first-half) results are in line with expectations, some companies are even better, having in mind the hard macroeconomic situation,” Tomislav Apollonio from local Abanka Vipa told SeeNews.

Slovenian banks’ first-half results were hit by the crisis in the financial sector. Apollonio said the liquidity in the banking sector is very troublesome and this caused these worst half-year results.

Slovenia’s largest bank by assets, Nova Ljubljanska Banka (NLB), reported a group net profit of 65.636 million euro in the first half of 2008, down from 95.579 million euro a year earlier. The country’s second largest bank by assets, Nova Kreditna Banka Maribor (NKBM), posted a 25% annual fall in its first-half group net profit to 29.16 million euro.

Slovenian companies’ performance is not expected to have a significant impact on the country’s gross domestic product (GDP) this year. “The gross domestic product is still strongly bound to the construction of infrastructure in Slovenia,” Apollonio said.

Slovenia's GDP grew by a real 5.5% year-on-year in the second quarter of 2008, slightly quicker than the 5.4% annual growth reported in the previous quarter, according to figures reported by the country’s Statistics Office. Gross fixed capital formation increased in real terms by an annual 9.0% in the second quarter of 2008.
Investments in buildings and structures increased by 10.1%.

In April the Slovenian government's Institute of Macroeconomic Analysis and Development (UMAR) projected a real 4.4% growth for 2008. The country's economy grew by a revised real 6.8% in 2007.

The Adriatic country, a member of the European Union since 2004, entered the eurozone last year.

($ = 0.705 euro)