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INDUSTRY DATA SOURCES AND INDUSTRY ANALYSES

INDUSTRY DATA SOURCES AND INDUSTRY ANALYSES
Ing. Katarína Šebejová

Continued from issue 8/2005

Processing and utilising industry analyses

The bases for industry analyses are various, whether acquired from public sources, non-public sources or by means of questionnaire. A company which has underlying data at its disposal may either perform its own analyses or provide the data to another company for processing.
Among the main processors of industry data analyses are:
large investment companies and commercial banks,
specialist state institutions,
private analyst firms,
multinational institutions (the OECD, European Com- mission, World Bank),
ratings agencies,
news agencies and press publishers.
The most frequent users of industry analyses are:
enterprises (particularly for corporate strategy),
investment companies (decision-making on the capital market, fundamental and technical analysis, internal share value),
government (overview of the economy by industry, fa- vourable business environment, creating legislation, supporting the development of certain industries from the view of their long-term requirements),
professional and special-interest associations (market protection),
banks (loan transaction risk, profit potential and custo- mer potential of industries),
Industry analyses are most frequently used for:
risk management and for assessing the creditworthi- ness of borrowers from banks or from other creditor in- stitutions within the framework of a comparative indust- ry analysis,
assessing the successfulness of enterprise activities within the framework of an industry analysis for potenti- al investors, creditors and state institutions,
comparing the performance results of particular corpo- rate entities with those of entities engaged in the same or similar field of activity.
To perform  an industry  analysis  means  to evaluate a large volume of analytical material in the form of tables and text. In commercial banks, the prevailing trend at the moment is not to have in-house analyst teams, but rather to buy industry analyses from external sources. These analy-

ses may be carried out in a standard way (for several users) or they may be customer specific (for only one user).

Industry analysis processors in the Slovak Republic

Industry characteristics and indicators have for more than ten years been reckoned using the database of Da- taCentrum, an organisation established specifically for this purpose by the Ministry of Finance of the Slovak Re- public. The data categorised for processing is drawn from the financial statements annexed to tax declarations, pro- viding access to information on more than 40,000 corpo- rate entities every year.
The company Infin, spol. s r.o., employs this database in its products, including the publication "Median Values of Financial Indicators for Economic Activities in the Slo- vak Republic". Part of the publication is accessible free of charge on the web site www.infinet.sk. The publication1 contains values of selected ratios (20) that characterise the status quo and development of the financial situation
in terms of liquidity, profitability, indebtedness, and ac- tivity – according to particular industries as well as accor- ding to selected legal forms and the territorial-administra- tive division of the Slovak Republic. Within the classification of entities by the industry principle, indica- tor values are published in separated groups (double digit and triple digit) under the OKEČ (Industry Classification of Economic Activities), as well as cumulatively for the Slovak Republic, manufacturing sector, retail, wholesale, and services. The size structure within a given industry is worked out by setting interval ranges of assets and tur- nover for three groups within each size criteria. The ratio values of the financial analysis are determined by quarti- les, enabling the position of the evaluated entity to be fixed and thus its risk level to be determined. The metho- dology for setting these indicators corresponds to the so- called standard indicators in developed economies. The results of financial analyses of particular industries for the previous four years create a time series, which enables a prediction to be made for the development of given in- dicators. Individual processing of financial analyses is

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1 Information source: www.infin.sk; the text is modified and ab- ridged.

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possible on the basis of selected criteria (processing methods, selection of indicators, indicator calculation al- gorithm, and so on).
The same database is used by the Slovak Ratings Agency, a.s., in its Benchmark application (www.ben- chmark.sk) and in industry analyses that include an eva- luation of the financial situation in an industry and a pre- diction for its future development.
The Benchmark application2 comprehensively maps industries and main macroeconomic indicators in order to provide an overview of the performance level of Slovak corporate entities. The whole database of corporate enti- ties is statistically processed according to several criteria. The main criterion by which the database divides enterp- rises is field of business, with the subject matter of the ac- tivity designated by its OKEČ number.
The Benchmark standard shows results for aggregated groups in a broader breakdown (manufacturing, whole- sale, retail, services), for aggregated groups in a narro- wer breakdown by industry (10 groups), and for the two- digit OKEČ. In terms of information provision, the application is divided into 3 basic modules:
macroeconomic environment – the module comprises 8 parts, each representing an indicator that may be dis- played in a time series based on various criteria, in the form of a table or graph,
commentaries,
sectoral and industry environment.
The sectoral and industry environment module is divi- ded into three levels:
strategic – provides basic count information according to various criteria: industry, legal form, region, turnover and assets, (profit- and loss-making entities, revenue volume, profits and losses for a given year or for selec- ted annual intervals);
situational – provides detailed information on a selected industry: financial performance of entities within the in- dustry according to 11 predetermined indicators in the area of profit/loss creation, liquidity, indebtedness, and profitability; the median and average of the financial in- dicators for an industry may, in terms of the descriptive characteristics (quantiles), be compared with the values for the aggregated group both in a table and graphically,
analytical – enables the interactive comparison of    a specific entity with a selected industry and/or an ag- gregated group, with the possibility of more narrowly de- fining other selection criteria (legal form, region, amount of turnover, amount of assets, and so on). This part has three divisions (indicators – 46 options in three basic groups; comparison of an industry within the aggrega- ted group; comparison of an entity, industry and aggre-
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2 Information source: www.benchmark.sk; the text is modified and abridged.

gated group), including the possibility to read data from a file according to the kind of financial statements; the result of the comparison is a table showing the indicator values for the entity, quantiles for the industry and ag- gregated group, or a graph.
A national licence for Benchmark Index (BI) – a ben- chmarking methodology developed by the UK's Depart- ment of Trade and Industry (originally as an aid to small and medium enterprises) – has been obtained by Slova- kia's EKONOM-SERVIS, a non-profit organisation opera- ting under the Ministry of Economy of the SR. The use of this methodology in Slovakia began in 2002 within the PHARE pilot project in the electrotechnical industry. It is a suitable instrument when introducing quality systems and gaining certification for the purpose of improving compe- titiveness of corporate entities; the European Commission has accepted it and proposed its wider usage within the EU. This method was used in recent projects in which the industries of 9 EU countries were compared. The BI cur- rently includes around 180,000 pieces of financial data and 10,000 pieces of Business Excellence data on enterprises in different countries, and new data is continuously being added. Enterprises now have an excellent opportunity to compare themselves with competitors from other EU countries, a practice which is very important today. From the BI outputs, they acquire an overview of themselves – how they stand in relation to competitors – and also see values achieved by their competitors (quartiles, median) in the form of tables and graphs. An enterprise/interested party seeking a comparison will provide data from which it is possible to calculate characteristics in various areas: fi- nancial management, productivity, growth, staff, custo- mers. The data is matched with specific data from compe- titors, selected by the enterprise according to basic criteria: revenues, number of employees, OKEČ – area of busi- ness, geographic data, region. The output forms the basis for an action plan. Interested parties may use "modules" oriented on specific areas of business: marketing, custo- mer services, production, and so on. The data is subject to multiple protection with the customer having to sign an agreement which includes a confidentiality addendum. Since the project is subsidised from several sources, its price is relatively low. The database may only be accessed through EKONOM-SERVIS, the licence holder.
Symsite Research, spol. s r.o., provides sectoral analy- ses of the market (financial sector -individual areas, phar- maceutical sector, real estate, energy). The price of the product includes a single update. An analysis typically de- picts the macroeconomic environment, current develop- ment in Slovakia, market share, development in the Czech Republic and in Europe, as well as the expected situation. In analyses of financial market products, it is customary to evaluate the products using a points system based on va- rious criteria and to compile a ranking of providers.

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Trend Holding, spol. s r.o., provides industry and secto- ral analyses which include a brief analysis of the macro- economy, an assessment of the financial situation in the industry, selected financial data, and an assessment of the financial situation of significant enterprises within the industry. Beneficially, there is an analysis of the Slovak market in the context of world producers operating in the given industry (for example, in an analysis of the engine- ering industry). Until 2004, the Trend analyst team produ- ced analyses of industries central to the Slovak economy and analyses of the financial market.
In 2005, the company launched "industrial packages" - brief profiles of industries with updated aggregated data and a database of individual and consolidated results of the most significant enterprises operating in the respecti- ve sector. The industry3 profile includes:
brief text part (on current development),
graphic part (selected aggregated data, 1998 to 2003),
database part (2001 to 2003).
The most comprehensive analysis of agricultural sector development is given in the "Green Report" published by the Ministry of the Agriculture of the SR, accessible onli- ne at www.mpsr.sk. It includes an analysis of the deve- lopment in the macro-environment, and it analyses Slo- vakia's agricultural and food industries in the international context, the market in production inputs and production factors, agricultural production, the agro-food market, the relationship between agriculture and the environment, economic results by legal form, and information on scien- ce and research. Another part of the report is devoted to agricultural policy. The Green Report for a given year pro- vides data on the previous year.
The basic characteristics of industries (and other ag- gregations) are shown by the Statistical Office of the Slo- vak Republic on the internet (www.statistics.sk) and in special print publications. Infostat, the Institute for Infor- mation and Statistics (www.infostat.sk), provides online publications by means of the electronic information servi- ce ELIS. In the web site editorial software there is a for- mat in which data may be acquired from selected publi- cations and information on when the publications are updated. The basis for information on industries, typically according to the OKEČ, is contained in the "collected publications" (including, for example, the Economic Moni- tor of the Economy of the Slovak Republic, the National Accounts of the Slovak Republic for the respective year, Employment, Wage Structure, Total Labour Costs, In- dustry Yearbook, Construction Yearbook4, Energy Sector, and so on).

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3 Engineering, network industries, chemicals, food and tobacco, metallurgy, wood processing, electrotechnology, light industry, construction materials, mining.

The significance of industry analyses

In connection with the role of industry studies, note should be taken of certain facts which help ensure that the conclusions of the analyses are used correctly:
an investor selecting an investment object cannot pro- ceed simply on a route from an industry to an enterpri- se, or from an enterprise to an industry, since the pro- cess hinges on a whole series of other factors that may affect the flow of free capital;
product diversification, acquisitions and mergers lead to the emergence of complex corporate units and an in- dustry classification that is ever more complicated; at the same time, however, the core companies retain a primary importance within industries and are suffici- ently comparable from the investment point of view;
industry data has a framework  role which serves as    a basis for comparing enterprises with their milieu; the data does not represent specific characteristics which are to be fulfilled by all firms engaged in the same type of activity;
an attractive industry outlook is not a prerequisite for buy- ing the ordinary shares of a particular enterprise within that industry; the development of certain enterprises may con- trast with that of their industry and therefore the overall pro- spect of an industry should not be overemphasised5.
For an enterprise, the industry environment means above all the competition, while for an analyst (investor) it is important to assess the strength of the competition and the significance of firms within the industry. An analyst may be interested in market share, in aggregating en- terprises by an evaluation based on several financial- economic criteria, or in making comparison with the fi- nancial structure and ratio values of the typical enterprise within an industry. These are the practical questions of an industry analysis. But whether or not the future expecta- tions of an investor are fulfilled depends not only on the strategic prospects of the enterprise, but also on life cycle and character of the industry within which the enterprise is developing its activity. It is clear that, at the industry level, there is a certain future risk which applies to all en- terprises irrespective of their individual risks.

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4 The yearbook is compiled in cooperation with the Ministry of Construction and Regional Development of the Slovak Republic and the Association of Construction Entrepreneurs of Slovakia (ZSPS). It contains an analysis of the macro-environment, the development of the construction industry in the SR (its standing within the national economy), the development of construction output volume and its structure, economic results of constructi- on enterprises employing more than 20 people, construction output development in regions, and information on apartment construction. It analyses the construction materials industry and the issue of imports and exports in the construction industry. The yearbook for a given year provides data for the preceding year.
5 Not all enterprises within an especially promising industry will necessarily share in the success of the others, just as not all the enterprises within an unpromising industry will necessary suffer (Coottle, Murray, and Block: Analysis of Securities).

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