As the Croatian blue chip companies published their Q2 2023 results, we bring you a brief analysis of their EBITDA and profit margins for the first half of 2023.
Before we start, we would like to note that comparing these margins across different industries is not necessarily the best way to give a comparable overview. The reason why is that the EBITDA and profit margins vary significantly across sectors, and as such, the best way to compare any of these companies through these margins would be to compare it to the companies in the same industry in the form of a peer group or a median value for the select industry. Despite this, it is still worth looking at these margins, especially as turbulent a year 2022 was, companies across industries have experienced significant cost & top-line growth, varying degrees and as such all recorded developments in their margins.
Besides that, we note that looking at only H1 margins might lead to misleading conclusions as some of the observed companies derive most of their earnings in the upcoming quarters.
H1 2023 vs. H1 2022 EBITDA margins of Croatian blue chips (%)
Source: Companies’ data, InterCapital Research
Overall, H1 2023 was influenced by the partial easing in inflation in an ongoing macroeconomic uncertainty. In this environment of high costs, companies across the board have increased their prices to compensate, but the growth in OPEX remains the biggest pressure for the majority of companies’ op. profitability and net profit margins decreased.
As can be seen in the graph above, the highest margin recorded was by HT, with EBITDA margin of 41.4%, followed by Atlantska Plovidba at 38.7%. HT remained resilient to inflationary pressures, despite seen cost pressures. The resilience occurred even though the price indexation did not come into effect yet. Podravka is to follow with a margin of 14% and Ericsson NT at 12.9%. On the flip side, there are a few blue chips that achieved EBITDA margin of 10% or below. Kraš noted a 10.2% EBITDA margin during the first half of the year, closely followed by Atlantic Grupa and Končar with margins at 9.7% and 9%, respectively. However, if we compare the margins to H1 2022, we can see that the majority of companies recorded at least a slight decline in their margins. The largest decline was recorded by Atlantska Plovidba, whose EBITDA margin decreased by 23 p.p, which is a continuation of a trend that already occurred during Q1. Also, we note that it makes more sense for companies like Končar to look at normalized margins due to significant non-recurring effects during the previous year. During Q2, Končar noted an improvement in normalized margins due to strong top-line growth & stabilization on the cost side, which was not the case during the previous quarter. Finally, regarding Končar, the strong Backlog growth compared to FY 2022 should be a thing to emphasize. AD Plastik is still materially under the impact of the geopolitical situation regarding Russia and Ukraine. Further, AD Plastik’s margins were also affected due to the semiconductor shortages in the automotive industry, which is finally looking like it’s coming to an end. Combined with the disruption of the company’s operations in Russia, the pressure could continue in the upcoming period.
We also note that we have not included Croatian tourists in the overview, as they reported a negative EBITDA and a net loss. Q2 tends to be a loss-generating quarter for Croatian tourists, so the performance should not be considered as indicative of the FY results, as they make most of their profit during Q3.
H1 2023. Vs. H1 2022 profit margins of Crotian blue chips (%)
Source: Companies’ data, InterCapital Research
Moving on to the net profit margins, Podravka recorded the highest profit margin at 13.1%, which represents a strong increase of 4.8 p.p. YoY which is due to tax incentives booked for investment in logistics, distribution and production. Next up, we have HT with a profit margin of 11.2%, noting a solid increase of 2.3 p.p. YoY. Ericsson NT is to follow with a profit margin of 8.8%, an increase of 2.4 p.p.
Overall, during Q2 the companies were under partial easing of margin pressure & cost increases, a slightly improved situation compared to Q1. However, inflation keeps eating away at the disposable income of customers as well, which might result in reduced companies’ ability to pass costs further down the line in the future, if the pressures do not loose up.
