Today, we decided to bring you an analysis of the current ratio of the Croatian Blue chips, based on the Q1 2022 results.
First of all, what is a current ratio? The current ratio is what’s called a „liquidity ratio“, meaning in essence, it indicates how well a company is able to pay its short-term obligations, meaning within one year. It is calculated by looking at the balance sheet of a company and dividing its current assets by short-term liabilities. This means in turn, it can show us how a company can use its current assets to satisfy any current debts it might have.
It is important to put this ratio into context, however. Even though a high ratio (more than 1) does indicate that a company has more current assets than short-term liabilities, taking the industry and the peer group of a company into account matters as well. Different industries and peer groups have different current ratios, so if a company has a lower current ratio than the industrial average it operates in, there might be a higher risk of trouble down the road. At the same time, a company that has a current ratio that is a lot higher compared to its industrial average might also mean that the company’s management is not using its assets in the most efficient way.
Because of this need for industry-specific comparison, comparing the current ratio across industries does not make much sense. With that out of the way, let’s take a look at the current ratio of the Croatian Blue chips, based on the Q1 2022 results.
Current ratio of the CROBEX10 Constituents (Q1 2022 vs. Q1 2021)
Out of all the observed companies, Hrvatski Telekom has the highest current ratio, at 3.53x. Compared to the same period last year, this represents an increase of 21.9%, which can mainly be attributed to the fact that HT has managed to reduce its short-term liabilities, from HRK 1.79bn to HRK 1.48bn, while maintaining similar levels of current assets. Next up, we have Ericsson NT, with a current ratio of 2.76x, representing an 18.3% increase YoY. The main contributor to this growth is the increase in current assets, which grew by 42.7% and amounted to HRK 1bn, outpacing the growth in the liabilities which increased by 20.7%.
Next up, we come to Podravka, and considering we also have Atlantic Grupa which operates in the same industry, we can compare both of these companies. Podravka has a current ratio of 2.49x, while Atlantic Grupa has 1.56x. As compared to Q1 2021, this represents an increase of 10% and 12.4%, respectively. This would mean that Podravka does have more current assets compared to its short-term liabilities, and would mean that in case they needed to, they could cover them more quickly. However, it should be noted that for both of these companies, current assets only expanded slightly (+2.30% and +2.34%, respectively), while the majority of the improvement came from the reduction in short-term liabilities, of -7% and -9%, respectively. Considering both of these companies are actively looking for new ways of expanding through mergers and acquisitions, the focus on reducing any form of debt is expected.
Following them, we have Končar, which has a current ratio of 2.36x, representing a decrease of -8.9% YoY. Next up, we can take a look at Valamar Riviera, Adris, and Arena Hospitality Group, which all (at least partly in the case of Adris) operate in the tourism industry, so comparing their ratios makes sense. Valamar has a current ratio of 1.54x, Adris 1.19x, and Arena has 1.07x. This represents a change of +72.1%, +1.6%, and -44.3%, respectively. The sharp increase experienced by Valamar can be attributed to the increase in current assets (+92.5% YoY), or more specifically, an increase in cash and cash equivalents (+88% YoY). Considering that the Company operates in the tourism industry which was already severely affected by the COVID-19 pandemic, this makes sense, as the Company is increasing its cash position to mitigate any future risks. At the same time, its subsidiary Imperial Riviera had a capital increase, where co-owner with Valamar PBZ-CO pension fund increased share capital by payment of cash, while Valamar increased it by transferring land pertaining to Dubrovnik hotels that Valamar sold to Imperial. As Valamar is consolidating Imperial, Valamar’s consolidated results liquidity position also improved. On the other hand, the decrease experienced by Arena can be attributed to an increase in liabilities, (+39.3% YoY), while at the same time, the current assets decreased, mainly due to the lower cash position (-32% YoY). Arena is investing a lot and 50% of all its investments are funded by debts so its debt position also increased. This is a very good move in the period of low-interest rates, where Arena is fixing its rates at lows.
The Company which experienced the most significant change in its current ratio is Atlantska Plovidba, which increased it by more than 4x YoY to 2.44x. This increase was driven by the strong business results of the Company, and as it operates in the asset-heavy industry (shipping), which has experienced a lot of demand in 2021 and the 1st quarter of 2022, this has allowed the Company to build a significant cash position, increasing it from HRK 39.5m to HRK 197.8m. This led to an increase in the current assets of 197% YoY, while the Company also managed to decrease its short-term liabilities by -27.1% YoY.
In Q1 2022, revenue from internet access services amounted to HRK 1.3bn, an increase of 5.9% YoY.
HAKOM has recently published its ICT market data for Q1 2022 in Croatia. According to the report, total revenue from fixed public communication networks amounted to HRK 257m, a decrease of -4.6% YoY. Of that, revenue from retail amounted to HRK 231.2m, decreasing by -2.2% YoY, while wholesale revenue amounted to HRK 25.8m, a decrease of app. -22% YoY. Meanwhile, the total number of subscribers amounted to 1.2m, a decrease of -1.5%. Of that, HT currently holds the largest market share of 45.3%, remaining at the same level YoY, while other participants on the market hold the remaining 44.7%.
Total revenue from telephone services in mobile public communications in Q1 2022 declined to HRK 877.5m, a decrease of -1.3% YoY. Such a decrease came both on the back of decreases in retail revenue, which decreased by -1.2% and amounted to HRK 727.3m, and the wholesale revenue, which decreased by -1.7% and amounted to 150.2m. In the retail segment, revenue from residential users, which constitutes 75% of the retail revenue, remained flat and amounted to HRK 542.9m, while at the same time, revenue from business users decreased by -4.8% and amounted to HRK 184.5m. Meanwhile, the total number of mobile active subscribers amounted to 4,403,111, a slight increase of 0.97% YoY.
Looking at the market share by subscribers, we can see that the situation remains mostly unchanged for the last couple of quarters, with HT maintaining the highest market share at 45.3% (a decrease of 0.2 p.p. QoQ but a decrease of -0.5 p.p. YoY), followed by A1, which currently holds 35.2% market share, a decrease of 0.2 p.p. QoQ and an increase of 0.4 p.p. YoY). Lastly, we have Telemach, which holds 19.5% of the current mobile market share, an increase of 0.3 p.p. QoQ, and 0.1 p.p. YoY.
Mobile Subscribers Market Share, Q4 2019 – Q1 2022 (%)
Total revenue from internet access services amounted to HRK 1.3bn, an increase of 5.9% YoY. The increase came solely on the back of mobile internet revenue increase, which increased by 12.8% and amounted to HRK 841.4m. Fixed internet revenue decreased slightly by 2.9%. The total number of internet subscriptions also increased, growing by 2.7% and amounting to 5,778,937.
Total revenue from television services increased by 3.2% to HRK 215m, with the total number of pay-TV subscribers amounting to 875.3k, an increase of a slight 0.3%. IPTV users were up 1.2% and amounted to 450.8k, while at the same time, satellite TV users decreased by -4.8% and amounted to 137.7k.
So, with all this data in mind, how did the two largest telecom companies in Croatia, Hrvatski Telekom and A1 perform during Q1 2022?
Hrvatski Telekom
The trends seen in the whole market are also quite reflective of the largest telecom company in Croatia. During the first quarter of 2022, HT recorded revenues of HRK 1.7bn, a decrease of 4.8 YoY. Nevertheless, HT increased its EBITDA and profitability margins, while maintaining its strategy course with a focus on consumer experience improvement. HT also remained a leading investor in digital infrastructure. Organic revenues, when adjusted for Optima contribution), decreased slightly by 0.7%, as still the growth in the basic telecommunication business did not fully compensate for a decrease in the System solution segment. HT Group revenues from mobile services increased by 4.6%, but growth was offset by lower prepaid revenue. Fixed services revenues remained mostly flat, increasing by a slight 0.6%.
Organic adjusted EBITDA after leases grew 5.1% YoY, representing a positive trend in the business model. Growth in EBITDA came on the back of lower consolidated cost, adjusted for Optima. OPEX decreased by HRK 60m, or 5.5% YoY. This decrease happened due to a lower material cost, which decreased by HRK 42m (7.7% YoY decrease). Also, employee costs decreased by HRK 10m (3.2% YoY). Organic bottom line was boosted by good results and a lower amortization cost, increasing by more than 3x YoY. Results came on the back of positive customer experience and leading 5G market spot.
A1
Meanwhile, the 2nd largest telecom company in the Croatian market, A1, recorded revenue of HRK 1.16bn, an increase of 2.7% YoY. Services revenue grew by 3.4% and amounted to HRK 988m. Service revenues and EBITDA reported growth in all markets. The total mobile subscriber base was increased by as much as 4.5%, while internet home subscribers also grew by 4.5%. In Q1, EUR 750m bond was repaid from cash and new bank loans. Considering A1 Hrvatska is part of A1 Telekom Austria, the net profit is consolidated on the Company’s entire level, and thus cannot be taken as a separate for the Croatian market only.