Indebtedness of CROBEX10 Constituents – 2023

Today, we are bringing you a quick analysis of the indebtedness and the capital structure of Croatian blue chip companies that make up the CROBEX10 index, using the recently published FY 2023 results.

With the publishing of all the FY 2023 results for the Croatian companies behind us, we decided to look at how these results changed the indebtedness and capital structure of some of the largest Croatian blue chips. In order to do this, we looked at the net debt to EBITDA ratio, as well as the percentage of debt the companies use to finance their operations and investments. Furthermore, we looked at how much additional debt the observed companies could take to reach 3x EBITDA. The 3xEBITDA mark is usually considered an “upper” limit of how much debt the companies could take, without putting their operations at risk with the repayment of said debt. This upper limit is usually considered when a company makes new investments, especially in the case of M&As.

Of all the Croatian blue chips, Adris, Span, Končar, Ericsson NT, and Hrvatski Telekom operate with a negative net debt. This means that their current cash positions (which include short-term financial assets combined with cash and cash equivalents) are more than enough to cover their entire financial debt. Consequently, their net debt to EBITDA ratio would also be negative. Because of this, these companies were excluded from the net debt to EBITDA comparison. Finally, the results are based on FY results, as it by default the full-year data is shown. This is important as the balance sheet reflects the numbers on a certain date, while components of the P&L reflect only financial data for a select period (again, full-year data).

Net debt to EBITDA of Croatian blue chip companies

Source: Companies’ data, InterCapital Research

Out of the remaining companies, the largest indebtedness goes to Arena Hospitality Group with 6.6x. Arena Hospitality Group is followed by Atlantska Plovidba with 4.6x, Valamar Riviera with 2x, Atlantic Grupa at 1.6x and Podravka with the lowest KPI of 0.1x. The remaining companies have net debt to EBITDA of less than 0x (a negative one). Regarding Arena Hospitality Group, the Company continues its investment cycle. 2023 results, however, are mixed, as the Company did record higher ADRs in Croatia and CEE, while it recorded lower occupancy rates in Croatia, its biggest individual market. Margins also suffered, especially in Croatia. Despite this, full-year normalized operating profitability improved. The opening of art’otel in Zagreb and Radisson RED Belgrade should provide some support. Valamar Riviera is also in a similar boat in terms of investments requiring higher levels of debt. The remaining companies retain pretty low levels of indebtedness, which considering that the current macroeconomic situation makes taking new debt significantly more expensive, makes sense. We note that looking at previous quarterly results, Končar was included in the calculation. However, during 2023 Končar put a lot of effort into the liquidity domain, which resulted in strong operating cash flow due to an active management of working capital and consequently, a negative net debt overall. Thus, we excluded Končar from this calculation in the last two quarterly results. Further, AD Plastik is excluded from this analysis as the company was recently excluded from CROBEX10 composition, which was our benchmark. However, AD Plastik was substituted with Span, which currently has a negative net debt.

Potential additional debt (EUR) to reach 3x EBITDA

Source: Companies’ data, InterCapital Research

Taking a look at how much new debt these companies could take to reach 3x EBITDA, Arena Hospitality and Atlantska Plovidba were excluded as they already are over this number. Of the remaining companies, HT could by far take the most, at EUR 1.6bn, followed by Adris with EUR 666.4m, Končar with EUR 422.6m, Podravka with EUR 266.2m, Ericsson NT with EUR 153m, Atlantic Grupa at EUR 120m, Valamar Riviera with EUR 175m, and finally, Span at EUR 32.7m. This would mean that in this case these companies see any potential for further expansion or even a need to finance their operations, they could take on significant amounts of debt. Of course, as mentioned, new debt is more expensive now than it was a year ago, and it will most probably stay at these elevated levels for a few upcoming quarters.

Finally, we looked at the capital structure of these companies. All of the observed companies have the majority of their funding from equity (>50%). If we were to rank them from highest to lowest, HT has 100% of their operations financed from equity (as the company has no debt). Span is to follow with 93.5% of equity funding. Podravka has 90.9%, Končar has 89.8%. On the other hand, currently, only Arena Hospitality Group has less than 50% of its finances from equity. Valamar Riviera finances 60.3% via its own funds, equity. Considering they both operate in the tourism industry, this is to be expected.

The capital structure of CROBEX10 constituents

Source: Companies’ data, InterCapital Research

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