During 9M 2023, Hidroelectrica recorded revenue growth of 32% YoY, an EBITDA increase of 35%, and a net income of RON 5.18bn, a 42% increase YoY. Meanwhile, during Q3 2023, the Company recorded a revenue increase of 12% YoY, an EBITDA growth of 27%, and a net income of RON 1.24bn, a 30% increase YoY.
Starting off with the revenue, it amounted to RON 9.55bn during 9M 2023, a 32% increase YoY, and RON 2.58bn during Q3 2023, a 12% increase YoY. The Company recorded 38% higher electricity production YoY during 9M, and it amounted to 14.2k GWh. Furthermore, they bought 1.3k GWh of electricity as well, which meant that they were able to record total sales of 15.4k GWh. During Q3, a similar trend is recorded, with 19% higher electricity production, and 26% higher electricity sales. All of these factors combined led to the aforementioned increases in revenue during the 9M and Q3 periods.
The higher electricity production was positively influenced by high hydraulics compared to last year, which was a period characterized by a severe drought. By the end of the year, Hidroelectica estimates a total electricity production at 17.3 TWh (previously: 16.3 TWh).
Hidroelectrica revenue composition breakdown (9M 2023 vs. 9M 2022, RONm)
Source: Hidroelectrica, InterCapital Research
In terms of OPEX, in total, they amounted to RON 3.6bn during 9M 2023, a 21% increase YoY, and RON 1.16bn during Q3 2032, a 5% decline. Breaking this down further, the largest increase came from the transport and distribution of electricity, which grew by 152% YoY, or RON 500m to RON 829m during 9M 2023, and by 150% to RON 195m during Q3. This came as a result of the increase in the quantities of electricity delivered, as well as regulated tariffs. The next largest increase came from the turbinated water category, which grew by 49%, or RON 166m YoY to RON 506m during 9M, and by 32% YoY to RON 128m during Q3. This also is tied to the higher amount of processed water used to produce electricity, as well as the increase in the tariff set by ANAR to RON 1.4 per thousand cubic meters (9M 2022: RON 1.23 per thousand cubic meters). Other op. expenses also grew, by 107% YoY to RON 259m during 9M, and by 127% to RON 102m during Q3. There are several reasons for this, including the increase in expenses with services purchased by the Company as Balance Responsible Party, as well as the movements in provisions during 9M 2023, and the increase in expenses for services due to inflation. Employee benefit expenses and green certificates expenses also grew, by 20% YoY to RON 515m, and by 59% to RON 210m during 9M 2023, respectively. Employee benefits grew due to salary increases and an increase in the number of employees, while new green certificates had to be purchased to cover the consumption of final customers. On the other hand, tax for electricity producers decreased by 57% YoY to RON 221m during 9M, while it was absent during Q3 2023 (Q3 2022: RON 119m).
Hidroelectrica operating expenses composition breakdown (9M 2023 vs. 9M 2023, RONm)
Source: Hidroelectrica, InterCapital Research
As a result of these developments, the Company’s EBITDA grew by 35% YoY to RON 6.58bn during 9M, and by 27% YoY to RON 1.6bn during Q3 2023. This would also mean that the EBITDA margin improved, by 1.43 p.p. to 68.9% during 9M, and by 7.39 p.p. to 63.2% during Q3. In terms of the net financial result, it amounted to RON 202.7m during 9M, a 48% increase YoY, and RON 44.4m during Q3, a 33% decline YoY. The 9M increase came due to a higher financial income increase (+48% YoY, or RON 77.8m) than the financial cost growth (+50% YoY, or RON 12m). On the other hand, in Q3, financial income decreased by 24% YoY, while financial costs increased by 42%. Due to these developments, Hidroelectrica recorded a net income of RON 5.18bn during 9M 2023, a 42% increase YoY, and RON 1.24bn during Q3 2023, a 30% increase YoY. This would also mean that the net income margin amounted to 54.3% during 9M, a 3.81 p.p. increase, and 48% during Q3, a 6.78 p.p. improvement YoY.
Hidroelectrica key financials (9M 2023 vs. 9M 2022, RONm)
Source: Hidroelectrica, InterCapital Research
In terms of investments, during 9M 2023 Hidroelectrica invested RON 129m, a 2% increase YoY. Of this, Development Project CAPEX decreased by 29% YoY to RON 44m. This decrease is expected, as Hidroelectrica has various projects in different stages of development, and as such its CAPEX is under the influence seasonality effects. Maintenance CAPEX on the other hand, increased, by 63% YoY to RON 37m. This came as a result of a 51% more services/maintenance works with capitalization, but also due to a 8% increase in the value of services performed with Hidroserv in 2023 YoY.
Yesterday, the European Commission published its Autumn 2023 European Economic Forecast. In this brief overview, we’re bringing you the main highlights, with a special focus on Croatia.
The European Commission (EC) notes that the European economy has lost momentum, due to the high cost of living, weak external demand, and monetary tightening. As a result, they have revised the EU GDP growth downward as compared to the summer projections. On the other hand, after a challenging year, economic activity is expected to modestly recover going forward, as consumption picks up on the back of a still robust labour market, sustained wage growth, and continued easing of inflation. Despite a tighter monetary policy, investment is projected to continue growing, supported by overall solid corporate balance sheets and the Recovery and Resilience Facility (RRF).
Inflation is estimated to have dropped to a two-year low in the euro area in October and is set to continue declining over the forecast horizon. While the slowdown in inflationary pressures has been mainly driven by a decline in energy prices, due to the sheer duration that inflation remained elevated, it has now increasingly spilled over to other consumption categories, beyond energy. The EC expects that inflation is set to continue declining, as monetary tightening keeps working its way through the economy, though at a more moderate pace.
Amid heightened geopolitical uncertainty, the future evolution of energy prices remains a concern. The energy price shock has dented cost competitiveness in the EU, in particular for the more energy-intensive Member States and industries. As the energy prices decreased in 2032, the large inflation differentials across the Member States have only partly subsided. Combined with price differentials, this could lead to competitiveness gaps in some Member States. Furthermore, with the energy prices and thus input costs continuing to be higher than those of trading partners, closing the gap in productivity growth compared to peers remains crucial to preserve global competitiveness.
Autumn 2023 Forecast (real GDP growth rate, inflation, %, 2023 – 2025)
Source: European Commission, InterCapital Research
As we can see in the forecast, Croatia is 2nd to only Malta in terms of growth in the 2023 – 2025 period Also, as the EC noted, Croatia’s GDP is expected to grow at a sustained pace, supported by increasing private consumption amid rising real wages, and by investment boosted by EU funds. The labour market is expected to tighten further, with employment recording solid growth and the unemployment rate reaching record-low levels. The expected moderation of headline inflation is driven by lower energy and unprocessed food prices, while services inflation is projected to remain more persistent. The general government balance is set to be negatively impacted by large increases in public sector wages and social benefits, putting pressure on expenditure.
As a result of these developments, real GDP growth is expected to remain solid in 2023 at 2.6% YoY, as Croatia takes advantage of its accession to the euro and Schengen areas. This is also due to the high carry-over from 2022 and despite a weaker momentum in the external environment. Consumer demand is set to remain high amid employment and real wage growth. Furthermore, both government consumption and investment are projected to contribute positively to growth, with investment supported by increased absorption of EU funds. On the other hand, a deceleration in inventory’ build-up is expected to firmly weigh on domestic demand. Net exports are projected to positively contribute to GDP growth as a decrease in goods imports more than offsets lower goods exports, amid overall strong tourism demand.
In 2024, real GDP is estimated to grow by 2.5%, mainly driven by domestic demand as headline inflation falls towards 2%. The contribution from net exports is set to decrease substantially but remain positive, supported by increasing demand in the main trading partners’ economies. Growth in 2025 is forecast to reach 2.8% YoY and remain broad-based, also supported by the increased absorption of RRF grants and loans. The main risk to the economic outlook is a slower-than-expected decline in inflation, which has been more persistent in Croatia than in most EU countries. Should wage increases intensify, after having already resulted in comparatively higher unit labour costs growth, they could lead to possible wage-inflation spirals. This risk may be exacerbated if cost pressures are not absorbed by firm profits, which grew in 2022 and early 2023. Under such a scenario, the trade balance could deteriorate amid strong domestic demand growth, while exports and cost competitiveness could be endangered.
The entire report, including detailed forecasts for other EU countries, is available here.