As the Croatian blue chip companies are about to soon published their Q2 2023 results, we bring you brief analysis of their EBITDA and profit margins for the first quarter 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 growth, varying degrees and as such all recorded developments in their margins.
Besides that, we note that looking at only Q1 margins might lead to misleading conclusions as some of the observed companies derive most of their earnings in the upcoming quarters.
Q1 2023 vs. Q1 2022 EBITDA margins of Croatian blue chips (%)
Source: Companies’ data, InterCapital Research
Overall, Q1 2023 was influenced by the persistence of high inflation and ongoing macroeconomic uncertainty. In this environment of high costs, companies across the board have increased their prices to compensate, but the growth in OPEX was a lot stronger than the price increase so the majority of companies’ operating profit and net profit margins decreased.
As can be seen in the graph above, the highest margin recorded was by Atlantska Plovidba, at 41.5%, followed by HT at 40.5%. HT remained resilient to inflationary pressures. HT is followed by Ericsson NT at 15.9% and Podravka at 15.5%. On the flip side, there are a few blue chips that achieved EBITDA margin <10%. Atlantic Grupa noted a 9.7% EBITDA margin during the first quarter, closely followed by Končar and Ad Plastik with both achieving a 9.1% margin. However, if we compare the margins to Q1 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 22.2 p.p. Also, we note that it makes more sense for companies like Končar to look at normalized margins due to significant non-recurring effects. Končar reported a slightly lower normalized EBITDA margin due to higher material costs but also noted an exceptional backlog growth compared to the end of 2022. AD Plastik was 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, combined with the disruption of the company’s operations in Russia.
We also note that we have not included Croatian tourists in the overview, as they reported a negative EBITDA and a net loss. Q1 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.
Q1 2023. Vs. Q1 2022 profit margins of Crotian blue chips (%)
Source: Companies’ data, InterCapital Research
Moving on to the net profit margins, HT recorded the highest profit margin at 11.6%, which is an increase of 1.1 p.p. YoY. Next up, we have Ericsson NT with a profit margin of 11.3%, noting a slight decrease of 0.1 p.p. YoY. Podravka is to follow with a profit margin of 9.1%, an increase of 1.3 p.p.
Overall, during Q1 the companies were under a lot of pressure and additional cost increases could threaten the companies even further. Especially as inflation is eating away at the disposable income of customers as well, reducing the companies’ ability to pass costs further down the line.
