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 latest available H1 2024 results.
With the publishing of all the H1 2024 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. Also, we looked at how much additional debt the observed companies could take to reach 3x EBITDA. The 3x EBITDA level is usually considered the “upper” limit on how much debt could the companies take, without putting the operations at risk. Of course, this ratio might differ for different industries. This is usually considered when companies are making new investments, which is especially true in the case of M&As, for which higher debt levels are usually needed.
Looking at the Croatian blue chips, out of them several companies operate with a negative net debt. These include Adris, Span, Ericsson NT, Končar and Hrvatski Telekom. Negative net debt implies that a given company’s cash positions, which also include short-term financial assets combined with cash and cash equivalents, are enough to cover more than the entire financial debt. As such, their net debt to EBITDA is also negative, leading to the exclusion of these companies from this comparison. Lastly, it should be noted that all the numbers from the P&L (EBITDA in this case) are on the TTM basis ending with the latest H1 2024 results.
Net debt to EBITDA of select Croatian blue chips (TTM H1 2024, points)
Source: Companies’ data, InterCapital Research
Out of the remaining companies, Arena Hospitality Group observed the largest net debt to EBITDA at 6.3x. This increase is due to significant investments made in the Group’s portfolio over the past few years, which are still in the process of yielding returns, as is typical in an industry with a long-term focus. At the same time, cost pressures from rising food, energy, and wage expenses due to inflation have increased costs, putting pressure on EBITDA. However, the Group’s profitability improved compared to Q1 2024, which helped reduce the net debt to EBITDA multiple. Next up is Valamar Riviera, the largest hospitality company in Croatia, at 2.5x, which has been continually investing in its portfolio, aiming to expand but also add more higher-end offerings, leading to higher debt levels. Also, profitability was negatively affected by the opening costs of hotels and employing people so part of Q3 expenses were already evidenced in Q2.
After them, we have Atlantic Group, at 2.1x, which increased due to recent purchases including the Eurocenter building where the Group’s headquarters are located, as well as the finalization of the Strauss Adriatic acquisition. Despite these investments, profitability also saw an increase during H1, coming from an increase in sales supported by savings on energy and slower growth in operating expenses. On the other hand, Atlantska Plovidba’s net debt to EBITDA, at 1.5x, decreased due to the debt amortization for recent investments in new ship construction, and profitability improvements. Finally, we have Podravka at 0.1x, a Company that has deleveraged significantly in the last couple of years, while also continuing to invest and thus improving its profitability. This leaves ample room for acquisitions, of which the prime one for sure is Agrokor’s (Fortenova’s) agricultural business.
Potential additional debt (EURm) to reach 3x EBITDA
Source: Companies’ data, InterCapital Research
In terms of the potential additional debt that these companies could take to reach 3x EBITDA, Arena was excluded here as they already exceeded this number. For the remaining companies, HT takes the lead by far, with a possible EUR 1.6bn of additional debt until 3x EBITDA, and Adris follows at EUR 740m. Next up, there is Končar at EUR 574m, Podravka at EUR 316m, Ericsson NT at 141m, Atlantic Grupa and Valamar Riviera, at EUR 92m and EUR 50m, respectively, as well as Span and Atlantska Plovidba, at EUR 36m and EUR 33m, respectively.
Capital structure of CROBEX10 constiutents (H1 2024, % of the total funding)
Source: Companies’ data, InterCapital Research
Lastly, looking at the current capital structure of the CROBEX10 constituents, only Arena has >50% of its financing from debt. Of the remaining companies, HT’s operations are 100% financed with equity, followed by Podravka at 90.8%, Končar at 89.5%, Span at 88.4%, Adris at 86.4%, and Ericsson NT at 79.5%. On the other hand, Arena’s financing from equity amounts to 47.4%, followed by Valamar at 56.5%, Atlantic Group at 63.7%, and Atlantska Plovidba at 66.9%.
