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BENCHMARKING REPORT 2011

BiH Wood & Metal Processing Sectors

April 2011 This document was produced for review by the United States Agency for International Development and the Swedish International Development Cooperation Agency. It was prepared by: Cardno Emerging Markets USA, Ltd., implementer of

FIRMA Project USAID-Sida Bosnia & Herzegovina

DISCLAIMER: The views expressed in this publication do not necessarily reflect the views of the United States Agency for International Development, the Swedish International Development Cooperation Agency, or their respective governments. FIRMA Supports the FIRMA Consortium, its Local implementing Partner Network

ba i . FIRMA develops action plans for assistance to the FIRMA focus sectors. and manages activities with local organizations and businesses that address key obstacles to competitiveness. an implementation partnership between the FIRMA project and a network of local economic development agencies that support private sector development across the entire country. associations. FIRMA has principal offices in Sarajevo and Banja Luka. and municipal government agencies.firmaproject. $20 million activity co-financed by the United States Agency for International Development (USAID) and the Swedish International Development Cooperation Agency (Sida). exports. The project’s goals are substantial increases in sales. and tourism.Wood Metal Sectors . entity. fabricated metal products. www. FIRMA supports the “FIRMA Consortium”. FIRMA collaborates closely with BiH government state. These three sectors represent over one-quarter of BiH manufacturing GDP. and finance of its three focus sectors: wood processing.FIRMA F2 USAID-Sida FIRMA Project Overview The Bosnia & Herzegovina Fostering Interventions for Rapid Market Advancement (FIRMA) project is a 5-year. cantonal. and nearly 40% of the country’s export earnings. and other donors supporting economic developmment.Benchmarking Report 2011 . With and through the Consortium. employment.

............................................................................9 5.................................... 10 5.....................................................................................1..3 WOOD PROCESSING SECTOR .............................2 Table 8: BiH Trade with Key Partners .............6 Financial Benchmarks for the BiH Wood Processing Sector ....3 Table 3: Business Size Ranges .........................1 GENERAL MARKET OUTLOOK ................................................................................................FIRMA F2 Contents 1..............................................1 FINANCIAL INDICATORS BENCHMARKING OVERVIEW ......................................................................................................................... 11 Tables and Figures Table 1: Economic Shares of Light Manufacturing Subsectors ...........................................................................................................2 4........................................................................... 4........................................................2 Table 2: Summary Data – All Surveyed Companies .............................................1................................ 5................................................5 Automotive Subsector ................7 5.........................1.......................8 Metal Products & Capacities in BiH .............................................2 Financial Benchmarks for the BiH Metal Products Sector ........................................3 INTRODUCTION .....................9 5.....5 Wood Products Market Outlook ..................................................Wood Metal Sectors .9 5..................3 Table 6: Summary of Overall Benchmarks for Profitable Light Manufacturing Companies in BiH.......................................................................................1 FABRICATED METAL PRODUCTS SECTOR .....6 Construction-related Subsectors: Aluminum Joinery & Construction Elements ...............1...................................................................................................................................................................4 Primary producers .........7 Table 10: Summary of Overall Benchmarks for Profitable Wood Processing Companies in BiH ............1 Table 7: BiH Trade Growth and Trade Balance ................................................................. 10 5.........8 Table 11: FIRMA Baseline Survey Data ................................2 Figure 2: Growth of Value-Added Wood Products Exports ...................................................................................................................................... 10 5....... 3...1...................................................................................1 Automotive value chain....1................................ 2.......................2010 ................4 Table 9: Summary Survey Ratios –Profitable Wood Sector Companies ................................................................3 Construction Elements Value Chain .. 11 Table 13: Summary of Overall Benchmarks for Profitable Fabricated Metal Products Companies in BiH 12 Figure 1: BiH Goods Exports .......... 4.............2 Aluminum Joinery Value Chain.9 Table 12: Summary Survey Ratios –Profitable Metal Sector Companies .....................................................5 Figure 3: Furniture Exports and Imports ...............................................................................................................................................................................Benchmarking Report 2011 .................5 Wood Products & Capacities in BiH .......................................2008 .........1 4................................................ 11 5....................................................6 ii ...............................................

4% 15. so as to reduce uncertainty and risk in lending to firms in them. as shown in the following chart and table.9% 33.8% 40. Table 1: Economic Shares of Light Manufacturing Subsectors Product Sector Apparel Footwear Wood Processing Plastic & Rubber Products Fabricated Metal Products* Machinery Light Manufacturing Total Share of Light Manufacturing GDP 7. and financial benchmarking data for a representative sample of surveyed firms. This should continue in 2011. which grew very strongly over the expansion years prior to the global crisis. and almost one-fifth of total BiH exports of goods. FIRMA seeks to increase access to business finance for enterprises in its focus sectors.Benchmarking Report 2011 .7% 26.1% 11.0% Share of Exports of Goods 4.0% 3. even though low consumer confidence and reduced household incomes and wealth are holding back consumption in many advanced economies. we discuss product range and market outlook.Wood Metal Sectors . these two sectors together account for some 60% of the total value added of light manufacturing industries in BiH. focused on present financial status and near-term business outlook.7% Export Growth 2005-08 111% 208% 40% 124% 128% 46% 81% Source (this and following table): BiH Agency for Statistics. INTRODUCTION This research memorandum is prepared primarily for the use of financial institutions in Bosnia & Herzegovina. BiH exports recovered very strongly in 2010. National Accounts 2008 * Includes vehicles & transport equipment – about 15% of the total This is a current report. GENERAL MARKET OUTLOOK The global economy gradually gathered strength through 2010. We begin with a review of our financial benchmarking methodology and overall indicators.8% 42. FIRMA intends that this report will be updated and distributed annually to financial institutions and other interested parties.9% 5. then.0% 11. This information is intended to help financial institutions will better understand these sectors and their financial status.0% 11. The report focuses on two major sectors of the BiH economy – wood processing and fabricated metal products. for each of the two sectors sector.5% 7. As seen in the table below.6% 16. 2.7% 7.0% 6.5% 100.FIRMA F2 1. A rebound in inventory and fixed investment accounted for a strong rise in manufacturing and global trade.8% 2.4% 2.6% 7. 1 .0% Share of Total Manufactured Goods Sales 1.

847 5.545 Share of GDP -41% -40% -42% -31% -35% -37% -27% -25% Looking at the breakdown of exports by major markets in 2010: Table 3: BiH Trade with Key Partners . by far the lowest it has been since the war.00 4.2010 Growth of: Exports to: Imports from: Net Exports to: Croatia 13% 8% +5% Serbia 20% 10% +10% Germany 37% 8% +29% Slovenia 33% 8% +25% Italy 23% 0% +23% BiH is fortunate to have good export markets in Germany.3% 16.2% 18.8% 15.377 -7.00 1.080 6.235 13. Exports rose almost three times faster than imports.4% 27.964 -7.00 3.933 12. Table 2: BiH Trade Growth and Trade Balance Year 2003 2004 2005 2006 2007 2008 2009 2010 Exports KM MM 2.2% 1.FIRMA F2 Figure 1: BiH Goods Exports 8.994 3.032 13.293 Growth 22.Wood Metal Sectors .5% 10. so that the BiH trade deficit declined.00 6.625 15.254 -5.962 -6.08 11.00 KM Billion 5.826 5. and indeed was KM 3 billion (one-third) smaller than in 2008.3% 13. and Italy.Benchmarking Report 2011 .7% 29.00 7.371 11.00 2.5% 29.8% 37.275 9. 2 .993 -5.757 -4. so that at KM 7. BiH exports more than offset their drop in 2009.4% 21. but is also doing quite well in trade with its regional neighbors.313 2.4% Imports KM MM 8.634 7. from 40% in the middle of the 00s decade to 25%.144 -4. As a share of GDP of fell sharply.3 billion they exceeded their peak at the end of the late 2000s expansion. Slovenia.00 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Rising almost 30% in 2010.8% Balance KM MM -5.271 6.6% -17. This large improvement in the net export position is translating into stronger growth in BiH domestic markets in 2011.329 Growth 20.9% -24.00 0.3% 12.

as will be presented below. and key financial indicators. Of the 55 companies. and 14% of the combined sales of the wood and light metal sectors. 34 were consistently profitable through the survey period. 3. Their employment exceeded 3. growth prospects for BiH light manufacturing sectors are positive for the foreseeable future.200 53 82.314. The average company among those surveyed had annual sales in the range of KM 4 million over the period as a whole.647.86 58 5. Sales for these 55 companies reached a total of KM 267 million prior to the recession that began in 2009 – about 6% of total light manufacturing sales in BiH in that year. However. we separated out the profitable from the unprofitable companies in our sample.3 2. then fell off.080 55 Dec-08 267. Table 4: Summary Data – All Surveyed Companies Total Sales KM MM Total Employment Average Sales KM Average Employment Sales / Employee # Companies Reporting Dec-06 170. plus the recession year 2009. sales per employee rose strongly through 2008. The following table presents summary data for all surveyed companies.FIRMA F2 Overall. we collected financial data from a representative sample of 55 companies in the BiH wood and metal sectors – 30 in the wood sector and 25 in the metal sector.6 The purpose of this report is to help financial institutions better understand the business prospects of the FIRMA target sectors.2 3. and to provide them a guide as to what a typical successful company in these sectors looks like.3 2. and approximately 50 employees.Wood Metal Sectors .Benchmarking Report 2011 .5 2. Therefore. We focused the survey on the growth period from 2006-2008. Both sales and employment growth were very strong over the late 00’s before the recession. 3 .890 4.2008 Minimum Sales KM MM Employment Assets KM MM 0.840 3.450 51 Dec-07 237. at least up to 2009 when the recession hit. We adjusted and consolidated this data. and analyzed the companies in various subgroups. averages.100 people. in both export and domestic markets. the following overall points relevant for financial benchmarking stand out in comparing the profitable and unprofitable companies in our sample:  Profitable and unprofitable companies have roughly the same average sales size – around KM 4 million per year. With changes in employment as is typical lagging changes in sales.237 5 0.180 4.096 Average 4. The remaining 21 companies showed losses in one or more of the prerecession years.110 53 There was a very broad range of business size covered by the survey: Table 5: Business Size Ranges .857.700 58 84. in order to be able to see financial indicators during a period of normal business.070 55 Dec-09 193. then. While there were differences between the two sectors in some key ratios. FINANCIAL INDICATORS BENCHMARKING OVERVIEW For this report.8 301 61.343.800 43 77.100 54 68.200 3.58 Maximum 76. unprofitable companies have 75-100% more employees on average. We calculated totals.

Benchmarking Report 2011 .     There are other balance sheet indicators typically viewed by financial institutions that are not presented in the above summary tables. Gross margin in profitable companies averages around 20%. Some of them. However. such as quick ratio and rates of return on assets and equity. versus zero or negative in unprofitable companies. However. do not show significant differences between profitable and unprofitable companies. and in using them as benchmarks. largely repeat information in the above tables. including debt ratios. as shown in the sector tables below. this is seriously misleading – closer examination shows that profitable companies do a much better job of managing their working capital: o Profitable companies’ receivables days average around 60. versus around 10% in unprofitable companies. 4 . o Inventory days of profitable companies are 85-90. and those of unprofitable companies trended lower. indicating underleveraging.. therefore. Table 6: Summary of Overall Benchmarks for Profitable Light Manufacturing Companies in BiH Indicator Annual Sales per Employee Gross Margin Profit Margin Receivables Days Inventory Days Payables Days Benchmark KM 100. versus 70 or more for unprofitable companies. Average cash balances of profitable companies are roughly similar on average.000 – less than half the average for profitable companies. annual sales per employee in unprofitable companies averages around KM 50. Profitable and unprofitable companies seem to have about the same current ratio (current assets divided by current liabilities) – around 1. over the four-year period covered by the survey. versus over 130 in unprofitable companies. After-tax profit margin in profitable companies averages at 5% or more. and in any case are quite low.e. versus 90-100 for unprofitable companies.2 on average. The main reason. It appears that an overall benchmark for success in light manufacturing in BiH should be least KM 100. This shows that care must be used in interpreting typical balance sheet ratios.000 20% 5% 60 90 75 Again. that unprofitable companies show positive current ratios is that they are carrying excessive receivable and inventory levels – i. these are overall averages for the two sectors.Wood Metal Sectors .FIRMA F2  Consequently. and there are differences between them. and if anything the current ratio of unprofitable companies looks somewhat higher.000 in sales per employee. o Profitable companies’ payables days average around 75. Others. they are poorly managing their working capital. the average cash balances of profitable companies trended higher.

pine and fir as well as more specialised woods such as walnut. at the IMM Fair 2011 in Cologne. and other leading centers of furniture design.100 are in forestry. over one-tenth of total manufactured goods sales.FIRMA F2 4.Wood Metal Sectors . With respect to design. are exported as partly fabricated and finished products. the largest annual furniture show in Europe. 6. about 2 percent of total employment. Out of the thousands of furniture products presented at the show.000 in sawmills. for example. and over 7% of BiH exports of goods. 50% of the country is covered in forests that can serve both the furniture and the construction industries. its timber is best known.0 400.0 300. Smaller companies which employ up to 50 people are most commonly involved in production of 5 .600 people. Germany. arising from its endowment of rich forests. while still existing.500 in value-added furniture production.1 Wood Products & Capacities in BiH The wood sector in B&H currently employs some 16. adapting market design trends. Of all the natural resources of Bosnia and Herzegovina. These forests have the potential to provide nearly 7 million m³ of roundwood per year on a sustainable basis.0 250. representing over one-fourth of the country’s total light manufacturing value added. is shrinking. Indeed. BiH was the only country outside Western Europe that had furniture products selected for the prestigious “Avenue of Innovation” design contest. taking their place alongside pieces from Italy.0 0. WOOD PROCESSING SECTOR Processed wood products are one of the most important manufacturing sectors in BiH.0 150. Germany. BiH’s competitive advantage in wood processing is based on its deep traditions in this industry.0 2007 2008 Import 2009 2007 2008 Export 2009 BAM Milion Sawmill products Furniture 4. and the value-added share of wood sector exports is rising strongly. out of which 5. furniture was the only major product area of BiH exports that managed to continue to rise in 2009 when the recession hit. Denmark. apple and cherry. ash. BiH had four selected for special recognition.Benchmarking Report 2011 . Over the past ten years a number of successful private firms have been established in the furniture industry.0 50.0 450. The gap between the performance and potential of the BiH wood processing sector.0 100. The BiH combination of handcraft tradition and modern technology is being competitively marketed. and its capacity to combine hand crafting with modern production technologies. and 4.0 200. investing in new equipment. Figure 2: Growth of Value-Added Wood Products Exports 500. and increasing product quality. Beech. Over 60% of BiH wood sector production is exported. its advanced design capacities.0 350. oak.

Benchmarking Report 2011 . With advancing globalization and opening of national markets.0 2007 2008 Furniture 2009 Import in million KM Export in million KM 6 . including Croatia.0 450.0 50.Wood Metal Sectors . Figure 3: Furniture Exports and Imports 500.0 300.500 35 25 There is also production of other special types of wooden products.0 150. or approximately € 75 billion. and sawmill products.0 0.2 Wood Products Market Outlook Real growth in furniture demand among all 70 countries covered in the World Furniture Outlook 2011 report is forecast at 3. The largest export market for Bosnian furniture is Germany with 377 million KM exported in 2010.0 200. or sawmill products. with good potential for further expansion.FIRMA F2 construction joinery. Furniture is also one of the country’s most significant export products. such as prefabricated wood houses. A breakdown of the principal wood product types manufactured in BiH is as follows: Value Chain Lumber Furniture Product Type Sawmills Plywood / Composite Cabinetry Solid Wood Furniture Upholstered Furniture Furniture Parts Construction & Joinery Products Doors and Windows Joinery Elements Parquet Total Companies 1.0 100. Italy.830 180 90 # Companies 1. cross-border trade in furniture is rising at a steady pace.0 350. but BiH also increased furniture exports to all of its most important export partners. at some KM 600 million in 2010. 4. solid wood furniture.3% for 2011. Slovenia and Serbia. Larger companies produce furniture elements. a substantial 27% increase over 2009. Furniture production is one of the most important and most developed industry sectors in BiH.0 250.0 400. cabinetry.

170 4.9 1.1 0.260 53 73 95 0.4 Dec-08 134.4 0. Non-tariff trade barriers are present. • 4.114.590 4.080 43 60 94 0.800 2.4% 99.9% 4.4 Dec-09 98.2% 256.711.450 3.Benchmarking Report 2011 .5% 48 21.5% (26.2 780 5.2 0.1% 299.0% 105.700 39 Dec-07 120.600 17.8 0.520 73 94 100 0.5 102.050 6.4 930 5. allowing firms to move up the value chain and compete more on the basis of product quality BiH has reasonably low labor costs.000 11. making handcrafting and hand-finishing of its furniture exports feasible.200 5.3 1.900 20.400 17.8% 126.FIRMA F2 BiH furniture producers are currently exempt from any tariffs on furniture and most other wood products in the EU.6 5.8% 2. Of these 30 companies. mostly in form of various quality and safety standards required by the EU legislation.1% 106.4% 63.0 0.1 950 6.200 44 66 92 0. Most of these were furniture producers.4% 102.9% 128. Outsourcing for furniture parts from West European producers has been increasing for the past several years.149.2) 1.080.Wood Metal Sectors .5% (0.7% 49 -6.707. allowing for repetitive smaller orders within the same sales season.5% 288. Table 7: Summary Survey Ratios –Profitable Wood Sector Companies Dec-06 Total Sales KM MM Total Employment Average Sales KM Avg Sales Growth Average Employment Avg Employment Growth Sales / Employee Gross Margin Cash Flow (EBITDA) Cash Flow / Sales Cash Flow / Interest Profit Margin Cash PPE Receivables Days Payables Days Inventory Days Debt to Sales Debt to Equity Current Ratio Quick Ratio 130.2 1.6 3.6 5.4 7 .3 0.004. 30 companies from the wood processing sector provided detailed financial data.469.3 0.260 3.910) -0.8% 52 9.3 Financial Benchmarks for the BiH Wood Processing Sector In our benchmarking survey. enabling affordable price points for higher-quality markets BiH's close proximity to the EU market gives it a substantial advantage over Chinese and other Asian competitors in terms of shipping costs and quicker order-to-delivery turnaround times. there are some specific market trends that provide oportunities: • • • BiH design and technology capacities have advanced significantly in recent years.300 18. so we summarize data on the profitable companies only in the following table.330 2.9 0.8% 1. We are interested in providing information to financial institutions to help them identify companies likely to be profitable and thus to be good credit risks.1 1.300 -26.7 1.109. Although the EU furniture market is difficult and demanding. 20 were consistently profitable over the survey period.500 16.

7% 20 Dec-09 1. Average cash balances are in the range of KM 100. heavy and light metal industries were a development focus. is on the value-added subsector – fabricated metal products. automotive parts. These totals include both base metal products and fabricated metal products. The focus of the FIRMA project.000.3.0% 15. Gross margin in profitable wood processing companies when overall economic growth is strong is at or close to 20%.4% 18 The following points relevant for financial benchmarking for wood processors stand out:      Profitable wood processors on average have sales per employee in excess of KM 125. and inventory days 90-95.FIRMA F2 Table 7: Summary Survey Ratios –Profitable Wood Sector Companies Dec-06 Return on Assets Return on Equity # Companies Reporting 7.000 19% 5% 45 92 65 5. and their exports more than tripled over the four years prior to the global recession that began in 2009.9% 15. broken down by three principal value chains (product lines) in fabricated metal products: aluminum joinery.Benchmarking Report 2011 . the metal sector accounts for about one-fourth of BiH manufacturing and over one-third of total BiH goods exports. bauxite ore.000 per year. BiH has inherited deep human capital.0. However it would not be correct to say that this is a benchmark for evaluating creditworthiness. The following table reports data from a baseline survey done by FIRMA in early 2010. FABRICATED METAL PRODUCTS SECTOR The BiH metal processing sector grew out of the country’s natural endowment of a variety of mineral resources.0% 20 Dec-08 3. Receivables days are in the 40-50 range. and after-tax profit margin in is around 5%. These represent some 10% of BiH goods exports. Consequently.0.9% 20 Dec-07 5. and of the present benchmarking report. and natural resources for this sector.8% 10. payables days 60-70.Wood Metal Sectors . including iron ore. and coal. because these levels are in fact extremely low and if anything indicate suboptimal leveraging and/or systemic obstacles to accessing business finance. Table 8: Summary of Overall Benchmarks for Profitable Wood Processing Companies in BiH Indicator Annual Sales per Employee Gross Margin Profit Margin Receivables Days Inventory Days Payables Days Benchmark KM 120. The current ratio of profitable wood processors is above 1. 8 . The debt-to-sales ratio of these wood processors is not greater than 0. Overall. and metal construction elements. and debt to equity not greater than 1.0% 2. technological. under Austrian and Yugoslavian governance. Throughout the twentieth century.

and cable. Most are die casters.4% 11.3 64. 5.1% 2009 724.7 143.4% 44. and metal stampers.8% 95.8% 0.7 59% 50% 77% 40% 9085 1105 3285 4695 2008 973.4 339.0 139. These are supplied to construction companies and wholesalers.8% -0.4% 7. and for aluminum joinery and construction elements.6 240.9% 44.2 57% 43% 91% 38% 12440 1187 6218 5035 64. and BiH manufacturers have become reliant on its supply chains and their capability to deliver high quality goods on time.2 314.5 379.7 128.3% 30. the peak was in 2007 and the impact of the recession began to be felt in 2008. who finalize the product into a functional part. windows.1 470.8 242.8% 27.1 457. the FIRMA-surveyed companies in these three value chains represented one-fourth of the aggregate sales of BiH light manufacturing in that year.4 55. The domestic market is at least as 9 .4 57% 40% 92% 36% 10951 1120 5982 3849 -9. In the automotive sector. evidencing strong domestic markets.2% 80.0% At nearly KM 1 billion in sales in 2008.4 386.2 Aluminum Joinery Value Chain The aluminum joinery value chain in BiH consists of over 400 small producers.0% Growth 2009/06 51.4 284. Indeed.2 87.6 421. 2010 2006 642. injection molders.8% -5.2% 15. The automotive sector is driven by global demands.4 163.1 Automotive value chain Bosnia & Herzegovina has a long tradition of manufacturing components for the automotive industry. for these two subsectors.4% 1.9 534.0 328.7 128.7 63% 48% 93% 43% 12144 1183 6362 4599 2010 expected 792.7 308. All three of the VCs experienced rapid growth in exports and employment prior to the crisis. at competitive prices. All three VCs saw sharp reductions in sales and exports in 2009 as the global recession hit.1 361.9% -6.1. Most BiH companies are specialist component manufacturers exporting automotive components to automotive product integrators.6% 87.9 263.4% -1.3% Growth 2010/09 9.FIRMA F2 Table 9: FIRMA Baseline Survey Data Indicator / MP VCs SALES Aluminum Joinery Automotive Parts Construction Elements EXPORTS Aluminum Joinery Automotive Parts Construction Elements Exports/Sales Aluminum Joinery Automotive Parts Construction Elements EMPLOYMENT Aluminum Joinery Automotive Parts Construction Elements Source: FIRMA Baseline Survey.0% -16. domestic sales account for the majority of their income. The main products manufactured are light construction products including doors. fences.6% 116.5 181.4 69. in fact.9 453.Benchmarking Report 2011 . forging shops.0 42.9 559. BiH automotive producers have been introducing appropriate quality standards and installing flexible product design capacities which enable this sector to compete on the EU market.9 325.1 Metal Products & Capacities in BiH 5.7 262.3 281.1.6 100.9% 62. Companies anticipated a recovery in sales of close to 10% in 2010.5 115.Wood Metal Sectors . overall sales growth was even faster.3 51. including tool design and galvanization. 5. A number of BiH companies also provide metal fabrication input technologies and value-added services.0 138.3% -6.6 60% 49% 77% 42% 7568 821 2875 3872 2007 911. balconies.

At the same time numerous small metal processing companies have mushroomed around the Željezara Zenica industrial area. where they assemble their products.FIRMA F2 important for this value chain as are European and regional markets. mainly to construction companies and wholesalers. German car makers experienced a 20% increase in shipments for 2010. The main export market is Germany. both for quality and reliability. Many of the smaller companies do not have large production premises and they do the majority of their work at the construction site. elevators. but BiH parts also enter a number of other major brands. and the majority was exported. Those that are export-oriented have recovered more rapidly. Volkswagen (or its tier 1 suppliers) is the largest buyer. Overall.5 Automotive Subsector Most of BiH the automotive parts industry is directly or indirectly exporting to EU automotive system integrators and automakers. These also reprocess waste material from joinery manufacturers. since BiH export markets in the automotive and construction sectors in some major countries. started to bounce back by early 2010. are experiencing solid recovery from the drop of demand. This value chain is highly reliant on construction projects. which are sold through auto parts wholesalers and retailers in domestic and foreign markets. and expects to produce a record volume of aluminum in 2011.1. 5. Their business prospects therefore are directly dependent upon west European macroeconomic performance. 5. 5. There is a wide range of products produced by the SMEs in this value chain for construction.1. mostly offsetting a very sharp fall in 2009. the key supplier at the base of the value chain. For 2011. Aluminij returned to full capacity by late 2010. Consequently.. the decline in exports of this sector that began in the second half of 2008 was more severe than for any other light manufacturing sector. Aluminij Mostar. most companies are now on a recovery track. produces good quality primary aluminum at a good price. Italy. from steel construction profiles and roofs to equipment such as furnaces. Mittal’s production in 2010 was close to pre-crisis levels. Half of these products are sold in the BiH market. The German auto industry made a tremendous recovery in 2010 which had an immediate effect on the BiH automotive parts producers. but does not have the capacities to fully supply the domestic market. and Sweden. There are successful aluminum profiles producers operating in the vicinity of Aluminij. including Presal and Fe-Al. However.4 Primary producers The main primary producers in BiH. with exports up 40% from 2009. Austria. Metal Products Market Outlook BiH metal sector BiH business correlates strongly to regional and global market developments. BiH industrial production of transport-related equipment rose some 30% in 2010. which were hit very hard by the crisis. expect growth of at least 10% in all three major geographic markets – Asia. with the 10 .Wood Metal Sectors .S. Because of this. and has passed. followed by France. and pumps. Aluminij Mostar and Arcelor Mittal Zenica. global industry analysts of the automotive industry. The competitiveness of the BiH automotive industry has been tested by some of the most demanding customers in the EU. because it is closely tied to the construction and automotive sectors. thanks to high demand in Asia and the United States. the U. and Europe. For BiH suppliers. and the German Automotive Industry Association. especially Germany.Benchmarking Report 2011 .1. BiH automotive sector companies also have good business in aftermarket car parts. This product sector has seen a strong increase in production over the last decade.3 Construction Elements Value Chain Domestically-produced steel supplied by Arcelor Mittal (Željezara Zenica) supports production in construction elements and tools.

because we are interested in providing information to financial institutions to help them identify companies likely to be profitable and thus to be good credit risks.700 17.3% 123.2 7.280.5% 238.900 Dec-07 31.2% 193.530 529.4% 84. we summarize data on the profitable companies only in the following table.400 28.2 Financial Benchmarks for the BiH Metal Products Sector In our benchmarking survey.7% 26 33. 5. all supplied to construction companies and wholesalers.1 Dec-08 34. in Croatia and Serbia. half sold on the BiH market and the rest in exported mainly to the region and to a lesser extent the EU.930 124 122 75 0.6% 35 37.280 629.7% 175. elevators and pumps.5 16.7% 15.562.400 26. in September 2010 the Serbian government passed a stimulus package for the construction industry worth nearly €300 million which is positive for the regional market. the sector’s overall prospects for the medium term are quite positive. Of these. 14 were consistently profitable over the survey period. However new orders for construction works in Western European markets started to recover strongly in 2010.9 550 2.255. with weakness continuing through much of 2010.680 391.1 11 .9% 36.1 19 17.410 16.2 230 1.4% 61.160 148 178 94 0.830 9.700 83. the industry is recovering and the medium-term market outlook for BiH aluminum joinery and construction elements producers is reasonably positive.FIRMA F2 expected growth in global demand. 5. Again. windows.7 9.6% 28.930 7.9% 139.3 490 2.400 21. Table 10: Summary Survey Ratios –Profitable Metal Sector Companies Dec-06 Total Sales KM MM Total Employment Average Sales KM Avg Sales Growth Average Employment Avg Employment Growth Sales / Employee Gross Margin Cash Flow (EBITDA) Cash Flow / Sales Cash Flow / Interest Profit Margin Cash PPE Receivables Days Payables Days Inventory Days Debt to Sales 74. Also.2% 69.Wood Metal Sectors . the majority in domestic markets. Similarly the main construction elements produced in BiH are steel construction profiles.6 Construction-related Subsectors: Aluminum Joinery & Construction Elements The BiH construction-related metal products subsectors are closely tied to the domestic and global construction industry. As a result they too experienced a collapse in demand in 2009.6% 985.Benchmarking Report 2011 . furnaces.300 8.9% 39 10.1. Regionally.370 116 92 45 0. The main aluminum joinery products manufactured in BiH are light construction units including doors.1% 212. balconies and fences. 25 companies from the fabricated metal products sector provided detailed financial data. Domestic construction spending in BiH has fallen some 30% from its peak in 2008. Generally speaking.6% 87.6 360 2.3 7.7% 58.1 Dec-09 31. construction activity has also been slow since 2009.470 348. followed by a rebound in 2010 – though in both directions somewhat less pronounced than for the auto sector. and this benefitted the BiH industry.800 -6.150 139 131 64 0.449. roofs.600 7.

2 12.1 8. and after-tax profit margin above 8%. This reflects extended average receivables days of 120 or more that appear to be typical for the sector.0 16. Table 11: Summary of Overall Benchmarks for Profitable Fabricated Metal Products Companies in BiH Indicator Annual Sales per Employee Gross Margin Profit Margin Receivables Days Inventory Days Payables Days Benchmark KM 75. The current ratio of profitable metal processors is above 1.0 6.2% 14 Dec-09 0.9% 17. Gross margin over time in profitable metal companies should average significantly above 20%.2% 11 Dec-07 0.6% 13. averaging around 70 over the review period. again evidencing significant underleveraging and viable opportunity to take on additional finance for working capital and expansion. Inventory days are well-managed.000 per year.2% 14 The following points relevant for financial benchmarking for metal products fabricators stand out:     Profitable metal products companies on average have sales per employee in the range of KM 75.Benchmarking Report 2011 .2 1. with corresponding extended payables days.6 1.4 1. Debt-to-sales and debt-to-equity ratios for metal processors are even lower than those of wood processors.1 1. Profitable companies built up fairly sizeable cash balances over this period.5 1.2 1.3 1. 12 .000 22% 8% 125 70 120  -----------------------This concludes our Financial Benchmarking Report for the BiH wood and metal sectors for 2011.2 1.FIRMA F2 Table 10: Summary Survey Ratios –Profitable Metal Sector Companies Dec-06 Debt to Equity Current Ratio Quick Ratio Return on Assets Return on Equity # Companies Reporting 0.2% 33.Wood Metal Sectors .5.8% 14 Dec-08 0.8% 22.