Today, we are bringing you a quick analysis of the indebtedness and the capital structure of Croatian blue chip companies which make up the CROBEX10 index, using the newest FY 2022 results.
With the publishing of all the FY 2022 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 the 3x EBITDA. The 3x EBITDA 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, AD Plastik, Adris, 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 EBITDA data is based on the trailing twelve months (TTM) results (FY results in this case), as this is the only way to show full-year data. This is done because components of the balance sheet (like in this case, debt) always reflect their numbers on a certain date, while components of the P&L reflect only financial data for a select period (as mentioned, FY 2022).
Net debt to EBITDA of Croatian blue chip companies
Source: Companies’ data, InterCapital Research
Out of the remaining 6 companies, the largest indebtedness goes to Arena Hospitality Group with 4.9x. Arena Hospitality Group is followed by Valamar with 2.5x, Atlantska Plovidba with 1.6x and Atlantic Grupa with 1.1x. The remaining companies have net debt to EBITDA of less than 1. Regarding Arena Hospitality Group, the reason for a high indebtedness is twofold; on the one hand, the Company invested and continues to invest a significant amount of money into its portfolio, which increases debt levels. On the other hand, profitability from these investments (e.g. Hotel Brioni) has yet to fully manifest itself, as the newly added assets have only operated for several months. 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. Končar is the only “new” addition to this, as they increased investments during the second half of 2022 and as such, took more debt (as compared to 2021, when their net debt was negative). We note Končar, besides the consolidation of Dalekovod, also took part in a few small-scale M&A projects during the year.
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 AD Plastik were excluded as they already are over this number. Of the remaining companies, HT could by far take the most, at EUR 1.64bn, followed by Adris with EUR 681.3m, Podravka with EUR 265.3m, Končar with EUR 175.4m, Atlantic Grupa with EUR 145.8m, Ericsson NT with EUR 137m, Atlantska Plovidba with EUR 55.8m and finally, Valamar with EUR 51.5m. This would mean that in 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 (at least).
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). Ericsson NT has 87.8%, Podravka has 86.3%, Adris has 84.9% and Končar has 81.6%. On the other hand, the only 2 companies that have less than 60% of their finances from equity are Valamar Riviera and Arena Hospitality Group, at 56.1% and 47.7%, respectively. Considering they both operate in the tourism industry, this is to be expected.
Capital structure of CROBEX10 constituents
Source: Companies’ data, InterCapital Research
In 2022, Transgaz recorded an operating revenue growth of 15.7% YoY, an EBITDA increase of 21.7%, and a net profit of RON 348.9m, an increase of 55.5% YoY.
Starting off with the operating revenue, in total it amounted to RON 1.58bn, an increase of 15.7% YoY, or RON 210.7m. The revenue growth was influenced by several factors. Firstly, the increase of revenue from capacity booking of RON 238.9m, driven by higher revenue from the auction premium of RON 165.2m, following the capacity booking auctions performed according to the CAM-NC by interconnection points. Capacity surplus revenue also increased, by RON 6.2m. Finally, the average capacity booking tariff, determined by the structure of the booked products, increased by RON 0.365/MWh, leading to an increase in revenue of RON 130.2m. On the other hand, the booked capacities were lower by 27.584.341 MWh, which led to a decrease in revenue of RON 62.7m. Furthermore, commodity revenue was down by RON 51.3m, due to lower gas transmitted capacities (-7% YoY), as well as the lower commodity transmission tariff of RON 0.25/MWh.
Overall, the revenue from the balancing activity was higher by RON 563.3m, based on the higher trading price of RON 319.64/MWh, (impact of RON +604.5m), while at the same time, the quantity sold was lower by 194.163 MWh, with a negative influence of RON 41.2m. Revenue from the construction activity was down by RON 407.2m, which is in line with IFRIC 12, according to which revenue and cost related to the construction activity or the improvement of the transmission network, in exchange for which the intangible asset is registered, must be acknowledged in line with IAS 11, Construction Contracts. Finally, the financial revenue increased by RON 331.3m, mainly due to the updating of the debt for the regulated value of the remaining unamortized regulated asset base at the end of the Concession Agreement with the inflation rate in 2021. In 2021, inflation of 5.05% (RON 87.9m) was recorded, while in 2022, inflation amounted to 13.8% (RON 286.9m).
Moving on to operating expenses, in total they increased by 18.8% YoY and amounted to RON 1.05bn. The largest absolute driver of this growth came from higher depreciation costs, which increased by 21% YoY, or RON 75.5m, due to the completion and commissioning of major investment projects. Following it, we have the higher costs of NTS gas consumption, materials and consumables used, which increased by RON 67.5m, or 59.8%, as well as higher employee costs, which increased by RON 27.4m, or 5.9% YoY, mainly driven by the higher inflation rate. They also note that the transmission system gas consumption was RON 76.4m higher, due to the higher average purchase price (RON +100.17/MWh as compared to 2021), with a negative influence of RON 75.5m. On the other hand, the quantity of natural gas for the NTS gas consumption was up by 9.2 MWh YoY, leading to a reduction in the cost of RON 936k.
All taken together, this led to an EBITDA of RON 584.6m, representing an increase of 21.7% YoY, or RON 104.1m. This was due to the faster revenue than OPEX growth described above, and it also led to an EBITDA margin of 37%, representing an increase of 1.82 p.p. YoY.
The net financial result amounted to RON 273.2m, an increase of 149% YoY, mainly driven by the higher financial revenue described above, but the Company also notes that the financial expense is higher by RON 158.3m (+4.2x YoY), mainly due to the cost of financial fixed assets (RON 108.7m), the higher interest expense (RON 38.4m), and finally, an FX loss of RON 8.9m.
Based on all of this, the net profit to majority of Transgaz amounted to RON 348.9m, an increase of 55.5% YoY. This would imply a net profit margin of 22.09%, an increase of 5.65 p.p. YoY.
Transgaz key financials (Preliminary 2022 vs. 2021, RONm)
Source: Transgaz, InterCapital Research