Regional-Owned Enterprises 2022-2023

By adopting the concept of dominant influence as a criterion for defining the Regional-Owned Enterprises (ROE) perimeter of analysis, similar to that used in the State-Owned Enterprises (SOE), the universe of ROE entities includes 19 enterprises in the Autonomous Region of the Azores (RAA) and 21 in the Autonomous Region of Madeira (RAM). In most cases, these companies are 100% directly owned by the Autonomous Regions. Of these companies, 8 in RAA and 10 in RAM are part of the regional government sector, i.e. they are reclassified public entities (EPR). The ROE, all of which are non-financial companies, operate in very diverse sectors of activity, covering 15 sections of the Classification of Economic Activities (compared to 14 in the SOE).

Compared to the SOE, the ROE includes far fewer companies, and lower turnover, gross value added (GVA) and jobs. However, the weight of the ROE in the regional economies is greater than that of the SOE in the national economy as a whole. In 2023, the GVA of the Azores-Owned Enterprises (SERAA) and the Madeira-Owned Enterprises (SERAM) together accounted for 7.8% of the GDP of Azores and 6.7% of the GDP of Madeira, while in the SOE the proportion was 4.6% of the national GDP.

The governance models of the SERAA and SERAM are in line with those of the SOE, adopting common principles as the separation of functions, the definition of objectives and guidelines set by the public shareholder, management autonomy and transparency. In Madeira, there is a Technical Unit specialised in the follow-up and monitoring of these companies, which helps to ensure compliance with the provisions of the respective legal regime. In Azores, there is evidence that some of the principles of the ROE legal regime have yet to be materialised. In both ROE governance models, a better assessment of compliance with the principles adopted, requires publishing more systematised information on management instruments. Nevertheless, the fact that economic and financial information is available in the regions' accounts and publicly made available online is a positive point, even if its consistency and scope could be improved.

ROE's Economic and Financial Statements

For the ROE as a whole, a negative net result was reported in 2023 for the respective public business sectors, revealing a deterioration in some indicators. This situation reflects the pressure on companies' structural costs, as well as the reduction in non-market income, and/or the increase in other expenses not directly related to operational activity. These results were achieved in a favourable macroeconomic context. In fact, in the 2022/2023 biennium the nominal growth of the Azorean and Madeira economies’ was slightly above the national average. The dynamism of economic activity generally translated into an increase in turnover, but also in the enterprises relevant operating costs.

The economic and social activity dynamics show different results, both between the Autonomous Regions and between different sectors of activity in each region, due to the nature of the activities and their factors of production. These differences contextualise sometimes divergent trajectories, both between the two island territories and between the areas of activity of the various SER companies. Moreover, the individual situation of the companies is not unrelated to the financial endeavours of each region.

At SERAA, the upturn in economic activity in 2023 reflected in an increased turnover and improved operating performance, which translated into higher EBITDA, EBIT and GVA for the companies as a whole. This favourable evolution was underpinned by a growth in turnover higher than that of operating costs. However, it had no significant effect on the companies' aggregate net profit, which remained negative, since some companies, particularly in the SATA Group, no longer benefited from other revenue, particularly of a non-recurring nature. Within the group of SERAA entities under analysis, as with SERAM, healthcare stands out due to its weight as an employer and the costs it incurs without, however, achieving a notable turnover, since most of its revenue comes from operating subsidies. In 2023, the three regional company hospitals deteriorated their losses, further accentuating the negative level of their equity.

In Azores, the transport and storage sector also stands out, given its turnover, operating costs and assets. With the gradual recovery of economic activity, the sector has generally improved its indicators, particularly those that reflect only the operating activity of the companies, although it continues to show negative net results, determined both by financial results and by amortisation, depreciation and other situations. The sector continues to show negative equity, largely affected by the companies in the SATA group. This situation reinforces the need to continue restructuring SATA in order to guarantee its sustainability, operational continuity and minimise the Region's financial burden.

In 2023, the SERAM companies as a whole recorded a deterioration in most indicators, particularly in EBITDA, EBIT and net income, despite the turnover increase this year above the relevant operating expenses. As in 2022, only three SERAM companies distributed dividends. Within SERAM, the electricity sector stands out for its importance in terms of turnover, assets and GVA. Also noteworthy is the health sector and its single company, SESARAM, due to its weight in the number of SERAM employees, and the operating costs, especially staff costs, which burden its cost structure, as well as the negative equity it has, penalising the company's solvency and financial autonomy ratios.

Financial relationship between AR and ROE

In 2023, the financial effort on SERAA and SERAM represented 6.0% and 6.5% of the regional GDP of the Azores and Madeira, respectively (339 million € and 434 million €). The dividends received remain residual compared to the expenditure for the ROE as a whole. This is mainly concentrated on current transfers to companies and, in Madeira's case, on strengthening the capital of companies, particularly SESARAM. Contingent liabilities associated with the ROE are concentrated in the liabilities of companies, particularly those outside the budgetary perimeter (EPNR), with greater relevance in the RAA, especially with regard to non-financial debt.

Date of last update: 04/12/2024