3.1. The Sample of Companies Operating in the Pig Slaughtering Sector
In order to verify the economic sustainability trends in the pig slaughtering sector destined for the production of PDO hams, the first eight companies were selected in terms of turnover volume, analyzing the main economic and financial data and AASs for the 2008–2017 horizon, based on our processing starting from the contents of the Aida (Computerized analysis of Italian companies) database by Bureau van Dijk (
Table 3).
As a selection criterion, the sample included companies that operate exclusively in the slaughtering sector and with a turnover exceeding 100 million euros and for which a 10-year series of data was available; the eight companies in the sample were then considered, satisfying the sample selection criteria. These are large companies which, due to the volume of activity and the number of employees, represent some of the largest companies in the pork food chain. Of the eight companies under consideration, three are cooperative companies (of which two are agricultural cooperative companies), three are joint stock companies, and two are limited liability companies; four companies are located in Emilia Romagna (in the provinces of Bologna, Modena, and Parma), and four companies are located in Lombardy (in the provinces of Cremona and Mantova). For all companies, the administrative period runs from 1 January to 31 December of each year. In addition, during the delicate phase of interpretation of the results, it is necessary to consider that the aggregates are also constructed with amounts referring to cooperative companies, for which some aspects of business management have specific peculiarities; it is sufficient to remember that the analysis of profitability is typical of for profit companies and not of companies that pursue a mutualistic purpose. Finally, it should be remembered that the horizon analyzed presents the initial phase of the greatest economic crisis of the last decades as the starting point. Italy, although affected by the financial crisis to a limited extent, suffered a severe recession (−5.2%) both due to the drop in foreign demand and the unresolved structural problems (it was the industrialized country with the worst performance in the three-year period 2008–2010).
The first result of the analysis, which emerged from the financial statements of the companies in the sample, is the increase in investments. The total capital invested in the business activity by the eight selected companies stood, for the 2017 financial year, at 705 million euros, presenting an increasing trend during the 2008–2017 decade, with a significant positive change compared to the capital invested in the 2008 financial year; in fact, the total invested capital went from 462 million euros for the 2008 financial year to 705 million euros, with a difference on a ten-year basis of 52.74% and a compound annual growth rate (CAGR) of 4.82%. Compared with total capital invested by the eight companies for the 2017 financial year amounting to 705 million euro, the shareholders’ equity stood at 267 million euro, from which company capitalization (quotient between equity and invested capital) was equal to 37.93%, a significant value, although slightly down compared to the figure for 2008, which stood at 38.97%. Since this is an indicator particularly connected to the risk of default, it should be noted that for 2017, the company capitalization for the individual companies included in the selected sample varied from a minimum of 4.76% at a maximum of 82.25%; in both cases, these are companies set up as a cooperative company; it should also be noted that the two companies mentioned above were also the two extremes of capitalization in 2008: from a minimum of 2.13% to a maximum of 73.66%. The aggregate sales revenues of the eight companies belonging to the selected sample showed an overall increasing trend in the decade 2008–2017, with a consistent positive change; in fact, the turnover went from 1.07 billion euros for the financial year 2008 to 1.99 billion euros, with an increase on a ten-year basis of 85.76% and a CAGR of 7.12%; in view of the above, the main profit and loss margins showed an overall contrasting trend in the three-year period analyzed with regard to absolute values and an overall contrasting trend also with regard to relative values (i.e., their weight on turnover); in any case, the aggregate amounts of both the gross operating margin, and the operating result, and finally the net result at the end of the horizon under examination (2017 financial year) was greater than those relating to the beginning of the horizon analyzed (2008 financial year). During the entire period examined, the aggregate gross operating margin and the aggregate operating result always showed amounts greater than zero, while the aggregate net result presented only one case of a negative amount: aggregate final net loss of 9.5 million euros for 2012 (in that year, a cooperative and two limited liability companies closed, at a loss, one of which was over 16 million euros). We note a contrasted trend in the cost of labor per employee, which went from 44,876 euros referring to the 2008 aggregate (minimum value of the decade), to 63,939 euros referring to the 2015 aggregate (maximum value of the decade), to reach 50,312 euros in the 2017 aggregate; in the face of this trend, there was a more than proportional growth in the value of the characteristic production generated on average by each employee, which went from 911,448 euros referring to the 2008 aggregate to 1,471,941 euros referring to the 2017 aggregate, after reaching 1,581,796 euros in the 2014 aggregate (maximum value of the decade).
The net financial position, relating to aggregate BSS, showed a contrasting trend over the horizon analyzed, also characterized by always negative values, which means that financial payables were always greater than cash and securities in the portfolio; in detail, the net financial position went from −132 million euros for the 2008 aggregate year to –162 million euros for the 2011 aggregate year (worst value of the decade), subsequently improving to −78 million euros in the 2013 aggregate year (best value of the decade), to stand at −116 million euros relating to the 2017 aggregate year being considered, which improved the overall composition of the net financial position in the decade analyzed, given that the net financial position referring to the 2008 aggregate financial year consisted of 58% of short-term financial position and the remaining 42% of medium-financial position long-term, while the net financial position referring to the 2017 aggregate financial year consisted of 38% of the short-term financial position and the remaining 62% of the medium long-term financial position.
The VPA-Score can be applied to the data of the aggregated AASs, which is an AAS scoring model that provides a quantitative assessment concerning the performances recorded in certain management areas, with a greater weight associated with the quotient between the net financial position and the operating gross margin. The VPA-Score highlights a situation of substantial overall balance, positioning itself on an overall assessment equal to “BBB” (which corresponds to an “acceptable” risk) in 2008, touching the minimum overall assessment equal to “BB” (which corresponds to an “acceptable with attention” risk) in 2011, to finally reach the maximum overall rating of “BBB+” (which corresponds to an “acceptable” risk) in the last three years of the horizon analyzed. It should be remembered that the VPA-Score does not constitute a rating assignment, nor an AAS certification, nor an investment solicitation. Considering the VPA-Score as an acceptable proxy of corporate risk, using the data relating to the VPA-Score and those relating to the ROE, which measures the profitability of the capital employed by the shareholders, without prejudice to when indicated above regarding the profitability in companies that pursue mutual and non-profit purposes, it is possible to build a risk–return matrix, positioning the profitability of the capital employed by the shareholders on the horizontal axis (the higher it is, the better it is, allowing the members high returns on their invested capital in the company) and on the vertical axis the VPA-Score (the higher it is, the better it is, given that the business risk is low and consequently the reliability standing is high).The matrix (
Figure 1) in question is presented on the basis of the AASs referring to the last financial year of the horizon in question (2017).
The purpose of the matrix is to highlight the different positioning of the companies examined, considering at the same time their performance relating to both business risk and the return in favor of ownership; the matrix is structured in such a way as to accommodate in the top right corner the companies that stand out for a high level of VPA-Score (and consequently, a low corporate risk) and a high return in favor of the property, while in the top at the bottom left are the companies that are characterized by a low VPA-Score level (and consequently a high corporate risk) and a low return on the capital invested by the property; different colors are also used for the individual points indicated in the matrix in relation to the changes recorded in the parameters compared to 2016.
Based on the analyzes carried out, there was a positive trend in the economic, equity, and financial situation of the aggregate of the eight companies during the decade under investigation; in fact, they improved the liquidity, profitability, and average duration of company operating processes; in addition, the cumulative cash flow for the period 2008–2017 was positive, and the scoring was also improving; the only data in contrast to the trend were those of company capitalization, which were slightly down in the decade but which were still positioned at considerable values, and of the returns on investment, which decreased in 2017 compared to the figure of 2008, but also in this case we can talk about a slight decrease, considering that the value of 2017 (2.75%) was slightly lower than that of 2008 (3.19%).
3.2. Analysis of the Management of the Companies in the Sample by Applying Financial Ratios and Margins (FRM) Analysis
The typical business management characteristics of the companies in the sample were analyzed through the AAS data. The data series analyzed includes 80 observations from eight companies over a 10-year series.
Table 4 shows the data relating to the balance sheet statement. It emerges that the average invested capital was around 71 million euros per company, with a median value of around 59 million. It is interesting to note that 74.91% of investments were concentrated in working capital investments, and 47.97% of investments were accounts receivable. Therefore, a considerable exposure of these companies to customers emerged, whose financial exposure represented about half of the invested assets. On the other hand, fixed asset investments represented only about 21% of investments. The structure of the sources of financing shows that the sources structurally serving the invested assets were prevalent. In fact, equity capital represented approximately 38% of the sources of financing and medium and long-term debts, over 12 months, a further 11% of the sources of financing. Therefore, the investments in the fixed assets were covered with long term sources of capital. These data were confirmed by the mean and median values, even if there was a high standard deviation, of around 32 million euros, as regards the working capital investment. Short-term debt therefore represented approximately 51% of funding sources and was divided into 21.17% of trade payables and 23.63% of financial payables, in addition to 6.27% of other short-term payables. Short-term payables were, in any case, lower than the working capital investment, which was therefore also financed with medium- and long-term sources of capital.
If the data of the equity structure did not highlight risk elements in the average of the observations made, there were criticalities in the income data shown in
Table 5, which derived from the analysis of the income statement of the dataset of observations. The data of the 80 observations carried out showed a considerable average size of companies, with an average sales value of approximately 173 million euros per year. It immediately emerged that the greatest incidence among costs was given by raw materials, which accounted for 85.25% of turnover. It therefore immediately appears that it is necessary for companies in this sector to implement forms of integration of the supply chain that allow a stabilization of the purchase costs of pigs in order to be able to cope with fluctuations on the supply markets. Services also had a significant impact, with a percentage of 9.10% of the total value of sales. Among these, the analysis of the data of the income statements showed the importance of the costs for the utilities of the plants and disposal and for work on behalf of third parties; however, these data were not indicated for most of the annual account statements analyzed, and therefore it was not possible to draw definitive conclusions. However, a low profitability of the sector on average was certainly evident. In fact, the EBITDA margin, which approximates the liquidity generated by management, was equal to 1.77% of sales, with a very low value, both for the average and for the median data. The operating profitability, given by EBIT, was also low, equal to 0.96% of sales. These data, also considering the high invested capital, were reflected in low profitability financial ratios that highlight management difficulties. The cost of debt was 0.25% of sales; therefore, with a modest impact in reducing average profitability in the sample, despite this, the profit after taxes was only equal to 0.43% of sales. The analysis shows that the companies observed in the sample, even if large and operating in a concentrated sector, were not able to generate profit margins to adequately remunerate the investments made. As regards the number of observations, EBITDA was positive in 72 observations out of 80, EBIT in 69 observations out of 80, and profit after taxes in 65 observations out of 80.
The analysis by ratios and margins allows one to deepen some aspects of the AAS, as shown in
Table 6. ROE data confirmed the low profitability highlighted by the analysis of the income statement; in fact, the average ROE was 1.50% (median value 2.15%). The return on equity capital therefore appeared decidedly modest, in many cases lower than both the risk-free rate represented by Italian government bonds (with yields in the decade aligned between 2 and 5 percentage points) and in the same way lower than the market risk premiums for Italy (aligned between 5 and 7 percentage points in the decade covered by the historical series, between 2008 and 2017); in addition, the analysis of the ROA showed modest data, with an average profitability of 1.05% and a median of 1.80%. There was great variability of the ROA result in the sample, as evidenced by the standard deviation of the sample, which was equal to 3.95%, and in 69 out of 80 observations the ROA was greater than zero. The average cost of debt (ROD) was 1.36%, with a median of 1.01%. ROD variability was low, with a sample standard deviation of 0.26%. Many companies in the sector, therefore, expressed a positive profitability, albeit on very modest values, using very little financial debt, which, given the low profitability generated by management, would entirely erode profit margins; in fact, only in 33 out of 80 cases was the ROA greater than 2% and only in 2 out of 80 cases was it greater than 5%. Finally, in 65 out of 80 observations, the ROA was greater than the ROD, allowing financing capital to be acquired from the banking system at a lower cost than the operating profitability of the invested capital and, therefore, having convenience in financial leverage.
The level of corporate debt was not high; in fact, even if the average DER was 13.97, the median DER was 2.81; however, in order to understand the index, it should be considered that the median capital structure in the companies in the sample was structured for 24.7 million in financial debt and 19.5 million euros in operating debt per company, while the median equity capital was 27.0 million euros. These data highlight how the level of debt was modest, if only the financial debt in relation to the risk capital was considered, and then the scarce use of financial debt by the companies in the sector was therefore confirmed. The CR expired as investments in short-term assets were greater than in short-term liabilities; in fact, the average value of CR was 3.67, while the median value was 1.35; it is interesting to note that in 79 observations out of 80, the CR was greater than zero.
The cycle data of the duration of the working capital cycle were also relevant for the purpose of defining forms of intervention, private and public, in the sector; in fact, the average duration of the accounts receivable of the companies in the sector was 68 days (72 days the median data), against an average duration of the extension from suppliers (accounts payable) of 30 days (28 the median data) and a transit to the warehouse in 21 days (19 the median data). It therefore emerges that the NWC_DAYS (cash conversion cycle given by AR_DAYS + INV_DAYS-AP_DAYS) was 60 days on average (63 days the median figure). In 74 observations out of 80, NWC had a positive day value, and this expresses that the firms in the sector largely needed financing to cope with short-term investments.