IC Market Espresso 16 Mar 2022

DuPont Serial Analysis of Croatian Companies – FY 2021 [Continuation]

Today, we present you with further DuPont decomposition of selected Croatian Blue Chips by looking into asset turnover and comparing it with their peers.

Since the beginning of the week, we looked at two components of 5-step DuPont decomposition of ROE: operating margin and financial leverage. You can read about it here. Today, we present you with further DuPont decomposition of selected Croatian Blue Chips. Today we will look at asset turnover.

Asset turnover compares a company’s assets to its sales. This ratio helps us to determine how efficiently a company uses its assets to generate revenue. This ratio is crucial as every company has to utilize its assets. The higher the ratio is, the more efficient company uses its assets to generate revenues. This means the company uses its equity and debt to produce higher revenues, compared to the company having a lower asset turnover ratio.

Asset turnover – Croatian Blue Chips [FY 2021]

As can be seen from the graph above, just as economic theory would indicate, asset turnover of Croatian blue chips closely follow their industry mean. Asset turnover is closely tied to the nature of a company’s assets. It should not come as a surprise that Atlantic Group and Podravka have the highest asset turnover, due to the nature of their sales and business. Also, conversely looking, on the other end, we have Valamar Riviera whose fixed assets amount to 82% of the company’s total assets. Asset-heavy hospitality companies hold a high amount of fixed assets so this also should not come as a surprise that Valamar’s assets amount to EUR 913.6m. Nevertheless, Valamar’s higher assets turnover from its peers indicates Valamar operates its assets more efficiently than its peers.

Končar reports interesting decomposed numbers, which DuPont decomposition lets us see clearly. In the graph above, we can clearly see that Končar has an assets turnover higher than its peers, indicating a more efficient use of assets. Yet again, we looked at the return on equity of Končar and it was by 7 p.p. lower than its peers. The answer lies in another mentioned DuPont variable – financial leverage, which was elaborated yesterday – you can read it here. How can Končar have a lower ROE than its peers if the company uses its assets more efficiently? The combination of lower operating margin and lower financial leverage, which does not let the company amplify its results as much as its competitors do.

Petrol Complies with the Regulation of Petroleum Product Prices

Petrol has announced that it will comply with the decree for the regulation of petroleum product prices, will also endeavor to ensure a stable supply of fuel as set in its business plan.

On 14 March 2022, the Government of the Republic of Slovenia adopted a decree on setting prices for certain petroleum products, in which, they set maximum retail prices of petroleum products for the period of 30 days. Following this, Petrol has announced its compliance with this regulation and has adjusted the prices of motor fuels in its retail network. The Company also said that it will continue to make every effort to ensure a stable supply of fuel for its consumers.

The above-mentioned govt. measure has increased the relative competitiveness of fuel prices in Slovenia compared to the neighboring countries (except Hungary) where prices of fuel are higher by app. EUR 0.30-0.69 per litre. Due to this, Petrol has already recorded an increase in demand for fuel by not only Slovenian but also by foreign customers. The Company will also endeavor to ensure an uninterrupted supply of motor fuels, which was already set in its business plan for 2022.

The Company also said that they have long-term purchase contracts for petroleum products ensured in a volume that reflects the current dynamic of mobility increasing to pre-COVID-19 levels. It is also noted that the situation in Ukraine has caused some delays in the supply chains, but all supplies of petroleum products the Company has planned for March have been confirmed.

Looking at the risk management, the Company noted that they do not depend on Russia in terms of a stable supply of fuel in the future, as it has a negligible share in the Company’s supply of oil. In 2021 and the first two months of 2022, Russia as a source of supply has accounted for less than 7% of Petrol’s middle distillates (diesel and extra light heating oil), and as for petrol, they do not import it from Russia.

The Company is actively monitoring the events in the business environment and has said it is ready to take the necessary measures to protect the interests of the Company in the future.