Custom Made Software Sector – double-digit growth of revenues in 2018 compared to previous year

Strenghts:

• More than three quarters of the companies in the sector registered a net profit at the end of 2018
• About 70% of the companies in the sector made investments in 2018
• The debt level at the sector level of 47.9% is decreasing compared to 2017

Vulnerabilities:

• 80% of companies have 100% short term debt
• More than one third of companies (39%) registered a decrease in revenues, respectively 34% had a decrease in net result
• In 2018, dividends of approximately 900 million RON were paid, representing 55% of the consolidated profit at the level of 2018 ~ RON 1.65 billion.

A new study conducted by Coface Romania on the sector of “Custom Made Software” (client oriented software – NACE 6201) indicates a positive evolution of revenues in 2018, which increased with approximately 18% compared to 2017, with a slightly increased profitability. The study aggregated the data of 8.608 companies that submitted their financial situation for 2018 (as of September 2019) and generated a consolidated turnover of RON 14.89 billion. The weight of the cumulative market share held by the most important 10 players is 27%, which indicates a low degree of concentration.

The companies operating in this sector registered a current liquidity of 1.71 during 2018, the working capital being exposed to negative shocks, in a context of volatility (lower revenues or non-collection of receivables). The average duration of debt collection in the analyzed sector slightly decreased from 99 days, the level registered in 2017, to 96 days in 2018, remaining above the national level.

The consolidated net result at sectorial level for 2018 was 9.7%, slightly higher compared to the level of 2017 (9.6%). However, 22% of the companies had a net loss at the end of 2018, 14% of the companies registered losses of more than -20% and 43% of the companies generated more than 20% profit. The 47.9% level of indebtedness in the sector is decreasing compared to the previous years (49.3% in 2017, 52% in 2016). It is worth mentioning that 16% of companies have a negative capitalization degree (equivalent to a debt level of over 100%), and for 6% of the companies the debt level exceeds 80%, companies in this sector being less indebted compared to other sectors.

“The process of improving the average duration of debt collection should be continued at sectorial level, the operating cycle being quite long for the type of activity performed (services). In contrast, the sector is a dynamic one, with investments made in each of the 5 years included in the analysis (between 30% and 50% of the value of tangible assets), which probably contributed to the increase of revenues, respectively to maintaining a high net profitability (9.7% – above the national level of 5%), in the context of some challenges related to the increase of the costs with the salaries”, stated Nicoleta Marin, Senior Financial Analyst, Coface Romania.

“Unlike other sectors in Romania, the IT software industry is distinguished by a much higher share of total salary expenses (56%, almost 4 times the national average) and a very high added value (the operating profit from the industry accounts for 10% of the income, double the national average although the salaries paid are twice higher). Therefore, I believe that the current tax incentives should not be eliminated. A possible taxation of 10% on the employees’ income would generate public revenues in the state far below the losses caused by the possible exit of the IT companies from Romania, possible and probable exists (because freelancer contracts are also a possibility)”, added Iancu Guda, Services Director, Coface Romania.

According to Eurostat, the share of the IT&C sector in GDP, in Romania, was 3.53% reported to the data from 2017. Also, according to INSEE data, employees working in the field of information and communications are currently paid on average with a monthly net salary of RON 6,764, double from the average of the net salary at the level of the whole economy, of 3,044 RON.