Today we bring you an overview of the main takeaways from the ZSE Investment Webcast which took place yesterday.

AD Plastik – At the beginning of the presentation, AD Plastik first glanced through H1 results, where we can, finally, see a recovery. Recovery can be noted in the automobile sector as a whole, mainly on the back of supply chain normalization and recovery. Further, AD Plastik finally sees orders from customers in the EU increasing. Consequently, EBITDA margins improved against the comparable period last year. Improved operating profitability spilled to an improved bottom line. However, the Group was under the negative impact of FX losses mainly tied to FX losses from the Russian ruble (especially compared to H1 2022 where strong FX gains on the ruble were noted). Besides the parent company, the Group commented on EAPS, where better results are seen, also on the back of improved operating profitability. Growth in the top line was noted due to an increase in Dacia sales, while a high level of capacity utilization was maintained. This year, the Group expects a high CAPEX for EAPS due to the starting of new projects. However, taking both higher CAPEX and dividends paid this year, EAPS has a strong financial position. Looking at the balance sheet, one can notice an increase in net debt. The increase in net debt also came from financing new projects, while AD Plastik said we can expect an even further increase in net debt level until the end of the year. Finally, looking at the 3-year average (including FY 2023), the Group expects its annual average top-line growth to exceed 10%, EBITDA margin of 10%+ for the mentioned period, and average annual investments of EUR 10m. Regarding the Russian market, the Group is operating “as is”. In other words, the Group is focused on the EU market, as production in Russia is self-sustainable from the group itself.  Finally, AD Plastik emphasized that even though this year is good, it might not be considered a year of real recovery. The group thinks the next year will represent the real recovery!

Arena Hospitality Group – Arena commented on its H1 2023 results, and they were positive in terms of revenue growth, with record levels, in fact, exceeding both last year and 2019. The growth was supported by a strong increase in ADR, which itself was affected by the post-COVID-19 recovery, as well as continued inflationary pressures. Also, the majority of the investments the Group has made in the last 5 to 6 years have positioned Arena in the higher-end of accommodation, where it has been able to perform well with these assets. On the other hand, costs have increased significantly, with Arena mentioning that payroll costs, which account for 20-25% of revenue, utilities which account for 4 to 5%, and food costs which account for 5%, have all increased significantly. Payroll growth has been affected across all regions, due to inflationary pressures, and in the last 4 years, depending on the market, minimum wage growth amounted to 5% to 40%, the lesser growth being in more developed markets of Austria and Germany, whilst the larger growth in the other markets, particularly Croatia and Hungary. Utilities growth has been affected due to the growing electricity costs, and the Company was somewhat hedged for this last year with a fixed contract, which ran out in the middle of the year, after which they were affected by higher costs. The prices of electricity have stabilized somewhat in the last couple of months, but they’re still above the prices that were historically present. The Company is using quarterly hedging, and SPOT prices to achieve the best balance of prices. Finally, food costs have been under the effect of inflation, with certain items growing by as much as 40% YoY. Because of this, despite the growth in ADR across both leisure and city portfolios, these costs were hard to recoup. As such, profitability either decreased or remained flat depending on the market. Also, government support that was present last year and in 2021 for COVID-19 was not present this year, which was especially felt in Germany and Austria, further reducing profitability. In terms of occupancy rates, they have been recovering and improving, but the trend is still below what it was before the pandemic, especially in the city portfolio. For Croatia, the overall improvements in revenue have been supported by the fact that Istria is within driving range of main emissive markets for Croatia, albeit there was a reduction of arrivals and nights from markets such as Germany. Pertaining to other markets as well, air travel is still 10-15% below 2019’s level, so there is an opportunity for recovery and growth here, especially for the business-orientated city portfolios across the Group’s markets. In terms of the financial position, the Company’s debt structure is mostly fixed (94% of the total), while the remaining amount is hedged below 3% interest. Avg. cost of debt stood at 2.2%, and the avg. term of debt stood at 6.1 years. As such the outlook for debt refinancing is stable. In terms of investments, total investments amounted to EUR 93m for 2023, with investments into Brioni finished. the Zagreb art’otel is also finished, with a planned opening in a month, month, and a half. Riviera conversion, which was initially targeted with a EUR 15m investment, has due to the old structure of the building and higher than expected costs had its refurbishment postponed. The current inflationary environment and especially construction costs also played a role in this. The previous Belgrade 88 rooms (now Radisson Red) are planned for opening in Q1 2024. Finally, in terms of the new regulation on tourist land under concession, whilst the law is currently yet to be passed and is being discussed, the way in which it is presented currently would not have a material impact on the Company.

Atlantic Grupa – Out of the most important highlights in the last period, one of the major events is the bid to acquire Strauss Adriatic in the Serbian market. SPA has been signed and they are waiting for the approval of the regulatory agency. When asked about the pricing of the transaction, they explained that it is around EUR 40m for equity but that it depends on the level of working capital in the company which will be determined on closing. They were repeatedly asked by investors why were they overpaying for the company, as the expected EBITDA is around EUR 1m. The management replied that they have a very modern factory that has a value of at least EUR 40m and they will not need any capex. Also, they see great potential in synergies on the cost side, so they would be able to bring profitability to much higher levels. Another important highlight for the period is that they have signed a new principal agreement in Slovenia, which will bring more revenue in the future. In July the company paid a dividend of EUR 1 EPS, where app. EUR 30m were returned to shareholders. The stars of their portfolio in the previous period were Snacks and Beverages with H1 growth of 32.2% and 20% YoY, respectively. In the Beverages unit, new products Vitamin Waters have not had a strong impact in H1 yet but it is expected that in Q3 this impact will be evidenced. Donat sales grew 18% YoY, while quantity-wise Donat has reached its limits and they cannot produce more. In H1 total sales of Donat reached EUR 18.8m. Even though they cannot disclose details of the ongoing quarter, they said that the tourist season was very good for some brands, and they expect similar double-digit growth rates in Q3 as well. According to our estimates, 9M results should show double-digit top-line growth.
Without one-off for the sale of property, they saw a decline of 5% in EBITDA level, which was quite expected concerning growth in expenses. They do not have a high level of indebtedness, but their interest expenses are growing due to higher interest rates. Production material costs grew 22% YoY, and they are mostly coffee-related costs. Despite measures introduced by the Government, energy costs are also growing. In H1 they were up 46% YoY. Staff costs are up 12.8% YoY, which are growing due to management bonuses but also due to higher employee costs on average. Net debt is growing slightly due to continued investment in working capital. As revenues are growing by 16% YoY, they have higher sales, so they need a longer time to collect it. Concerning inventory, in Snacks they were increasing quantities to avoid the out-of-stock situation that they had last year. This year the inventories are much better, and they have enough goods in stock.

Hrvatski Telekom – HT firstly commented on the general economic situation, and Q1 2023 has brought a continued slowdown in the economy, with strong inflationary pressures. Q2 did see some improvements with inflation decreasing, but still above the usual levels. They are continuing to expand the fiber network in the urban as well as the rural areas. Development of the 5G network is also underway, supported by the Spectrum allocation. In terms of financial performance, revenue grew by 6.2% YoY, on the back of strong mobile and fixed business. This helped mitigate the inflationary pressures on OPEX, leading to the adjusted EBITDA AL increasing by 1.8% YoY. Net profit was also supported by this growth, increasing by 33.3% YoY, but also due to the depreciation movements. Total investments incl. Spectrum amounted to EUR 233m, an increase of 126.4% YoY. Breaking this all down further, revenue growth was recorded in both Croatia and Montenegro. Mobile service revenue was supported by strong postpaid growth, as well as capitalization on pre-to-postpaid migration. Mobile non-service was supported by market dynamics, with increased handset sales. Fixed service revenue remains stable, while Fixed non-service was supported by increased transit traffic. System Solutions development was driven by different phasing of projects, with the margin improving. Overall, the Company recorded solid results in H1, meaning that they will be able to deliver the goals in the 2023 outlook. As a reminder, they expected low single-digit revenue growth YoY, low single-digit adj. EBITDA AL increase, a mid-single-digit decrease in CAPEX AL, and are actively looking for potential M&As in the region. In terms of other news developments, HT commented on its decision to bring back ENTS from Ericsson NT, HAKOM’s decision on deregulation, as well as its SBB through book building decision. HT had a solid working relationship with Ericsson NT over the years but has decided to bring back ENTS as part of its transformation of the operating model. It brings several strategic benefits for the company, in multiple areas. HAKOM’s decision on deregulation of fiber was also welcomed, and going forward it will allow HT to be more competitive, both in terms of market share and prices, which will in the longer run lead to better customer service, profitability, and more capital investments. Finally, HT announced the share buyback through book building due to the fact that even though they had an ongoing share buyback for the last couple of years (in several phases), they recognized that liquidity is simply too low in most cases to fully fulfill the conditions of the program. As such, they decided to do it through book building, which would also offer larger stakeholders a unique opportunity.

Končar Elektroindustrija – Looking at the Group’s order intake, Tanzania is becoming an important market. Order backlog grew by EUR 365m compared to the end of the end of 2022, currently standing at EUR 1.34bn. The growth mainly came from foreign markets. It is important to note that Končar’s backlog was never on these levels before. Looking at the cost side of the P&L, costs are starting to stabilize. They are in a downward trend, but not fully stabilized yet. Nevertheless, the situation is much more stable compared to the second half of 2022. This resulted in a better cash flow picture. Also, the company emphasized internal efforts in working capital management. Regarding the selling prices, Končar raised their selling prices this year to match rising costs. This means that the future decrease in costs side might result in lower future growth of sales compared to the estimates. This was done to mitigate any future risk tied to energy input prices. Looking at the most important new contracts, Končar emphasized a deal with ZET, which is owned by the City of Zagreb, worth EUR 37.8m. The project stands at 20 new trams. This kind of project was last done in 2010, more than 10 years ago, making it a really important project. Also, Osijek will be receiving Končar’s trams and will become the second city in Croatia to have the company’s trams. On a group level, Končar increased the headcount number by 205 people compared to the end of 2022. In terms of future outlook, there are no new updates. To remind you, Končar planned sales revenues of EUR 750m+ with investments of over EUR 60m for the year.

Podravka – The presentation on the overview of H1 2023 results was done by David Šumić, Director of corporate reporting and IR. Most of the time, however, was spent on answering questions from investors by Davor Doko, CFO of Podravka.
One of the main takeaways from H1 2023 results was that sales increased in almost all business units. On the Group level, sales were up 8% YoY, while Food was up 4.4% and Pharma 21.6%. In the food segment, it is important to note three main things. A Significant negative impact on the operating profit (EBIT) came from 1) an increase in the costs of raw materials, packaging, and energy of EUR 9.3m, 2) investing in the improvement of the material status of employees in the amount of EUR 3.2m and 3) the investment cycle, which resulted in an increase in depreciation costs of EUR 0.9m. Net profit at the normalized level is lower by EUR 5m. In the Pharma segment, the result is higher than in the same period last year on gross profit, EBIT, and net profit level. The increase in net profit is a result of incentives received for building a new tomato factory and employing more than 15 new employees according to the Investment Promotion Act. The tax incentive that Podravka has received in total is EUR 34m, while EUR 19.7m was booked in H1. They don’t expect to use any more of this tax incentive in P&L in 2023, according to our understanding. Podravka achieved an improvement in debt indicators. Financial debt is down to EUR 70.6m, while net debt is down to EUR 20m. Due to sales of non-operating assets net cash position improved to EUR 29m, while net cash from operating activities is down to EUR 45m. Negative influence came from an increase in inventories, which was a strategic move to increase volume in inventories to ensure that a sufficient amount of raw materials at favorable purchase prices is available in order to mitigate market turbulences on the final product prices. Capex guidance remains the same, and for 2023 it is expected at EUR 106m, for 2024 at the level of EUR 80m, and for 2025 at the level of 45m. The pasta factory will become operational this year or at the beginning of next year. The logistics and distribution center will be finished by Q3 2024, and the tomato factory in Q2 2024. For the following years, there is no specific investment plan while capex will be done mostly for digitalization and maintenance.
The company was asked about the value of non-core assets available for sale. CFO replied that they have a lot of unutilized real estate in Croatia and Slovenia. For example, the old tomato factory in Umag with an area of 25k sqm which they are in the process of selling. Another example of non-core assets available for sale is the 58k sqm of land in Rijeka near the clinical center and town center, which will first be developed by them in partnership with the city of Rijeka, and then zoning and planning will be made. After that, it will be sold in app. one year and a half. They also have a couple of smaller land plots in Croatia and Slovenia. Furthermore, they have closed a couple of production sites that are available for sale, one of them is Bežigrad Ljubljana which is spread over 5k sqm. So, one-offs are going to have a positive financial effect in the next couple of years. Meanwhile, fish segment sales are falling because this segment has a majority of its sales in the Adria region, i.e. the former Jugoslav countries, which are quite sensitive to price increases. They are facing huge costs on the sourcing side and fish cans are regarded as a utility product on which they cannot charge higher prices at least in the same amount as the growth of costs. Price elasticity is not good and final customers are reacting to higher prices with lower purchases of quantities. As such, the market volumes are falling.
Podravka was also asked about the situation with Kaufland. They said that they have ended cooperation with Kaufland on all markets as they have not found common ground on price increases on their products. They said that negotiation with every retail chain is hard. In Kaufland’s case, they were simultaneously negotiating for all markets at the same time, so they were not able to agree. Their cooperation in the previous years was not satisfactory and they did not find common ground on profitability issues on which they could continue their negotiations, so they ended the negotiations. However, Kaufland’s negotiation stance is nearing Podravka’s, so in the future, they might negotiate and start working together again.

Span – Looking at Span’s top-line development, the highest growth was recorded by the Software Asset Management and Licensing segment, mainly as a result of the acquisition of GT Tarkvara. However, revenue in IT services with high-added value segments also recorded a positive development. After glancing through H1 results, Span touched upon a new NIS2 regulative. To open the topic, the company noted that in Croatia only a handful of companies actually do cyber security projects. Span is definitely the biggest and largest in terms of capacity and knowledge. In Slovenia, the market is more mature as well as in Estonia and the EU aswell. Besides the aforementioned industry trends, the company emphasized its ties with Microsoft and the fact this is seen as a strength for the company. The company emphasized its strong investment during 2022 regarding the employment of 200+ people. This investment will be reported in the P&L as the key resource for Span is employees.

Valamar Riviera – From Valamar results for H1 2023 main takeaway is that northern destinations have evidenced higher demand than southern and that the upgraded premium hotels and campsites segment has achieved the best results. The company has pointed out that they have paid a dividend of EUR 0.2 per share, and that it was paid out in May. The total amount of cash returned to shareholders has amounted to EUR 24.4m, while DY has amounted to 4.5%. In terms of board revenues, Valamar expects revenues in August to be like the ones in July. As was already announced in the results report, from major costs electricity stands out, while the new contract that has been signed has lower prices than the last contract. Positive effects are mostly expected in Q3 2023. It was reiterated that the Pinea project was restarted and that it is the largest single investment in Croatian tourism. The investment is located in the Pical zone in Poreč. It was initially started in 2019 and it was paused in 2020. The new timeframe for the Pical site is to start building next year. Construction of 5* Pinea Resort, which will be open all year round and will have approximately 500 accommodation units is envisaged. The total investment amounts to EUR 130m, and Valamar will target to finance it with loans. The first season is planned for 2026. Another important takeaway from the presentation is that the company will probably hike salaries in 2024.