IC Market Espresso 12 May 2021

Indebtedness of Croatian Companies – Q1 2021 Update
For today, we decided to bring you an updated overview of the indebtedness and capital structure of Croatian companies using Q1 2021 results. 

As all Croatian blue chips published their Q1 2021 results, we decided to observe how indebted the companies are by comparing net debt to TTM EBITDA and % of debt financing.

Note that Adris Grupa and ZABA were excluded from the overview as Adris operates as a holding, while ZABA is a bank.

Net Debt/ EBITDA*

*trailing 12m EBITDA

Among observed companies Končar, HT and Ericsson Nikola Tesla operate at a negative net debt, meaning their cash position (short term financial assets + cash and cash equivalents) exceed their financial debt. Besides that, Arena Hospitality Group reported a negative TTM EBITDA (HRK -57.6m), so it is not included in the list above. At the same time, Arena’s net debt stands at HRK 1.03bn.

Unsurprisingly, two tourist companies lead the list with the highest indebtedness (of the observed companies), mostly due to a sharp decrease of EBITDA since the outbreak of the pandemic. Valamar Riviera operates currently with a net debt/EBITDA of 16.8x. As a reminder, in Q1, despite a challenging quarter, Valamar’s adjusted EBITDA stood at HRK -34.2m, showing a significant improvement from HRK -104.7m in Q1 2020. Such an improved result could be attributed mainly to Valamar’s solid cost management and adjustment of business to pandemic environment.

Maistra comes next, with a net debt/EBITDA of 11.8x, while the company reported a TTM EBITDA of HRK 117m. The company reported negative EBITDA of HRK -18m in Q1 2021, which is a standard for Croatian tourist companies as majority of activity is realized during high season.  We note that such results of Croatian tourists are not indicative of the 2021 relative indebtedness of Croatian tourists, given that pickup of tourist activity is expected in Q3.

On the flip side, three food companies have the lowest indebtedness of the observed companies. To be specific, Atlantic Group operates with a net debt/EBITDA of 0.88x followed by Podravka with 1x and Kraš with 1.14x.

Turning our attention to the capital structure, of the observed companies, 9 of 11 are mostly equity funded. Of those, HT leads the list with 97.5% equity, followed with Končar 92.2%. On the flip side, Optima Telekom is almost entirely debt funded with 95%.

Capital Structure of Croatian Companies 

Končar Receives HRK 5.8 DPS Counterproposal
Končar’s third largest shareholder, Erste Plavi Mandatory Pension Fund submitted the counterproposal regarding the desicion on the payment of dividend for 2020.

To be specifc, the shareholder proposes a dividend payment in the amout of HRK 5.8 per share, which translates into a dividend yield of 0.8%.

Proposed ex-date is 15 June 2021.

Erste Plavi noted that they believe that the currnet proposal of no dividend payment does not provide value maximisation for the existing shareholders, especially where the structure of the Company’s balance sheet is taken into account.

The shareholder further states that given the size and structure of the Company’s liabilities, in which capital and reserves account for more than 97%, the Company’s level of indebtedness is low. Therefore, future-period capital expenditures may be financed by cash flows generated in such periods or by taking out new loans, especially given the fact that interests on debt securities are at an all-time low, which would also result in reducing the average cost of capital for the Company. Considering the Q1 2021 financial reports, if payment of dividend were to take place, the share of the Company’s own capital and reserves in the Company’s liabilities would still be over 97%, which the shareholder believes to be acceptable.

In accordance with the above, Erste Plavi believes that dividend payment is more justified than allocation of the entire distributable profit to retained earnings, as proposed by the Company’s Management Board.