This Letter IEDI updates the Institute's monitoring of the economic and financial performance of large publicly traded non-financial companies operating in the country, with an emphasis on the industrial sector. In this edition, we deal with the post-pandemic period, highlighting the year 2023.

In all, we analyzed data for 285 companies and divided the industry into two groups: one with all 137 industrial firms in the sample and the other without the four large companies that greatly influence industrial performance — Petrobras, Vale, Suzano and Braskem. In addition to the industry, there is also data for retail and service firms. 

The indicators studied include gross, operating and net profit margins, path and composition of liabilities and level of debt. Below we present a summary of the results.

In 2023, the decline in operating profit margins started in 2022 continued. For the whole sample, it went from 19.5% in 2022 to 15.8% in 2023. The drop was even more intense in the industry: from 22.9% to 17.2%. In both cases, margins remained above pre-pandemic levels, but this was due to the four large industrial companies mentioned above.

Taking the industry except Petrobras, Vale, Suzano and Braskem, operating margin fell from 10.4% in 2022 to 8.4% in 2023, below the 2019 figure (9.9%). The only increase was in services including energy, from 20.2% in 2022 to 21.1% in 2023.

In this process, it is worth noting the fall in commodity prices in international markets from mid-2022 and the normalization of global production chains after the disturbances, reducing operating margins, especially in sectors of the intermediate goods industry, such as metallurgy, steel, non-metallic minerals, oil and gas, pulp and paper, etc.

Net profitability, on the other hand, was additionally affected by the situation of high interest rates in the period in question. It is worth remembering that the base interest rate (Selic) remained at its recent highest level (13.75% p.a.) between Aug'22 and Aug'23, declining only in the last quarter of the year. This implied an increase in companies' financial expenses.

The EBITDA indicator on financial expenses, for example, worsened from 2.6 in 2022 to 1.9 in 2023 for the full sample. In the case of the industry, it went from 4.1 to 2.7 and when the four large companies are excluded, from 1.6 to 1.1. In other words, in the latter case, operating profit (according to EBTIDA) was practically equal to industrial companies' financial expenses, exceeding it by only 0.1.

As a result of lower operating profitability and greater pressure from financial costs, the net profit margin also shrank in 2023 for the total sample of non-financial companies, but notably in the industrial and retail sectors, whose markets are more dynamic in contexts of more credit and lower interest rates.

Between 2022 and 2023, the net profit margin decreased from 12.1% to 8.4% for the companies as a whole, remaining at a higher level than in the pre-pandemic period (6.2% in 2019). In the industry, it went from 15.9% to 10.6%, but if we exclude Petrobras, Vale, Braskem and Suzano, it decreased from 5.7% to 4.3%, below the 2019 mark (5.2%).

The only exception in the industry was the capital goods macro-sector, where net margin increased from 9% to 11.6% from 2022 to 2023, well above the pre-pandemic figure (6.1% in 2019). The branch of machinery and equipment stood out, going from 10.5% to 15.8% (7.2% in 2019). All other industrial macro-sectors had lower margins.

As the capital goods industry was among the ones with the largest output losses in volume in 2023 (-11.7% compared to +0.1% for the industry as a whole), it seems that the sector was successful in its strategies to protect profit margins.

In retail trade, the situation was even more serious, as the net profit margin reached only 0.5% in 2023, from a level of 1.8% in 2022. The crisis in Americanas, which caused a significant contraction in liquidity and made corporate credit more expensive, may have affected the retail trade sector, to which the company belongs, more intensely.

It is worth noting that there was an improvement in net profitability throughout 2023. In Letter IEDI n. 1223, which analyzed the balance sheet of companies up to Q1'23, we saw indications of even weaker net margins than the figures for the year as a whole —both for the industry without the four large companies mentioned (2.1%) and for retail trade (-0.5%). 

In turn, the service sector, which is less capital-intensive and whose markets depend less on financing to become dynamic, was the one most capable of preserving its net profitability. Excluding the energy companies, it went from a margin of 6.3% in 2022 to 6.0% in 2023. Considering also the energy segment, its margin rose from 7.8% to 8.6%. In both cases, however, it fell short of the 2019 level.

These figures for business profitability are consistent with the performance of the sectors last year. It is worth remembering that, in 2023, services GDP grew 2.4%, while retail GDP varied only 0.6%. The industry grew less, 1.6%, but in the case of manufacturing the result was negative: -1.3%.

The pressure of financial costs was not even more intense because companies, especially industrial ones, sought to reduce their debts, although the general economic context did not allow for a substantial fall. 

For the total sample, the ratio between net debt and equity declined from 74.4% in 2022 to 73.9% in 2023, below the 2019 level (80.6%), due to improvement in the industrial sector.

For all industrial companies, this debt indicator decreased from 68.4% to 66.6% in the period in question. If we disregard Petrobras, Vale, Braskem and Suzano, the decline was from 75.4% to 71.7%, but the figure remained above the 2019 level (70.4%). 

Regarding the path of indebtedness in the industry between 2022 and 2023, some branches stood out positively, such as auto parts, transport material, aeronautics and electronics, as well as machinery and equipment and paper and cellulose. Others saw a worsening, such as chemistry, non-metallic minerals and metallurgy. 

In 2023, 48% of the industrial branches had a net debt-to-equity ratio lower than the pre-pandemic level (2019). Cosmetics and personal hygiene, machinery and equipment, oil and gas, textiles, and paper and cellulose stood out.

In addition, in the industry there was also a lengthening of the terms of this liability. The share of short-term loans in total bank loans fell from 16.9% to 15.3%, the lowest for the 2019–2023 period, taking the sector without the four large companies mentioned above.

In other sectors, either debt rose between 2022 and 2023, especially in retail companies, or there was an increase in the share of short-term loans, as in the energy branch and in retail trade as well.

This movement would have been stronger and more widespread if credit conditions had not been adverse, as discussed in Letter IEDI n. 1256, due to the increase in interest rates and creditors' risk aversion arising from the crisis in the United States.

Versão em português deste texto.