Today, we bring you an overview of the indebtedness and the capital structure of Croatian blue chips which constitute the CROBEX10 index, using the updated Q1 2022 results.

As all the Q1 2022 financial results of the CROBEX10 constituents have been published, we decided to bring you an update on the level of indebtedness of these companies. We did this by comparing the net debt to EBTIDA as well as looking at the percentage of debt financing that these companies use. Finally, we took a look at how much additional debt these companies could take to reach 3x EBTIDA, an „upper“ limit of how much debt the companies could take without risking having issues paying back those debts. This is normally used to make new investments and especially acquisitions.

Among the CROBEX10 constituents, Adris, Ericsson NT, Hrvatski Telekom, and Končar operate with negative net debt, meaning that their cash positions (i.e. short-term financial assets + cash and cash equivalents) exceed their financial debt. As such, their net debt to EBITDA ratio would also be negative, and as such, we excluded them from the net debt to EBITDA overview. It should also be noted that the EBITDA is based on the trailing twelve months’ results, as taking only Q1 EBITDA data would show a wrong picture.

Net Debt/EBITDA

Out of the remaining 6 companies, the largest indebtedness is held by Arena Hospitality Group and Valamar Riviera, with 9.98x and 3.58x, respectively. Considering that both of these companies are tourist companies, and as such, they operate in an asset-heavy industry, where debt is always used to finance at least a part of investments and improvements in their portfolio (hotels, camps, apartments, etc.), the higher level of indebtedness is not surprising. Next up, we have AD Plastik, with a net debt/EBITDA of 3.23x, which considering the impact that the semiconductor shortage in the last year, supply chain disruptions, as well as the current Russian invasion of Ukraine had on the business operations of the Company, meant that its EBITDA decreased significantly in Q1 2022 (-53% YoY), meaning that just by that decrease the net debt to EBITDA ratio increased.

Finally, we have Atlantska Plovidba, Atlantic Grupa, and Podravka, with net debt to EBITDA ratios of 0.91x, 0.60x, and 0.38x, respectively. Atlantska Plovidba also recorded solid Q1 2022 results which contributed to the increase in EBITDA, lowering this ratio. Meanwhile, Atlantic Grupa and Podravka have both been decreasing their net debt to EBITDA ratios for the last couple of years, in order to be ready for any potential acquisitions, something that both companies have as goal.

We also took a look at how much more debt these companies could take to reach 3x EBITDA. We would like to note that the companies that are already over this number (AD Plastik, Arena Hospitality Group, and Valamar Riviera) have been excluded from this comparison.

Potential additional debt (HRK) to reach 3x EBITDA

In this comparison, HT leads the way with over HRK 12.8bn of additional debt they could take to reach 3x EBITDA. Considering they have a negative net debt of HRK -3.21bn (or rather, their short-term financial assets + cash and cash equivalents), they have a lot of room to take on more debt. Next up we have Adris, with HRK 3.95bn, which also has a negative debt of HRK -752.5m, Atlantic Grupa with HRK 1.77bn, Podravka with 1.54bn, Končar with 1.51bn, Atlantska Plovidba with 1.29bn, and Ericsson NT, with 1.18bn. This means that in case they need to, these companies could take a large amount of debt to finance their operations, make new investments, or make new acquisitions.

Finally, we took a look at the capital structure of these companies. All of them except Arena Hospitality Group have a majority of their funding (>50%) from equity sources. Ranking them highest to lowest, Hrvatski Telekom is 100% equity funded (maintaining no debt), followed by Podravka with 89.7%, Končar with 86.5%, Ericsson NT with 85.9%, Adris with 84.9%. On the flip side, Arena Hospitality Group has 49.1% of its funding from equity, followed by Valamar Riviera with 50.6%. Taking into account the aforementioned reasons for this amount of debt funding, this is in line with other companies in this industry.

The capital structure of CROBEX10 companies

In April, passenger car registration in the EU decreased by 20.6% YoY, totalling 684,506 units as expected. Outlook is threatened by the lack of electric cabling component. Meanwhile, in January – April 2022 EU demand for new cars decreased 14.4% YoY. In Croatia in the mentioned period passenger car registration reported a slightly higher decrease of 5% YoY, while in April only a slight 2.7% YoY increase was noted to partially offset the situation. Furthermore, the outlook doesn’t look too optimistic – Russia’s invasion of Ukraine disturbed the production of harnesses in Ukraine, used for holding together electric cabling inside of a car.

In April 2022, passenger car registration in the EU decreased by 20.6% YoY, totaling 684,506 units. The biggest decrease reported in the EU by far was in Germany, Italy and France, where the reported decrease amounted to 49k units, 48k units and 32k units, respectively, representing 21.5%, 33% and 22.6% YoY decrease. Furthermore, no major regions reported an increase in new passenger car registrations.

When observing January – April 2022, the situation is quite similar – EU demand for new cars decreased by 14.4% YoY, reaching 2.9m units registered in total. When observing the whole period, Germany, as the major market, reported a decrease of 9% YoY with total car registration amounting to 474k units. This decrease was further amplified by a decrease in another two major markets, Italy and France. Italy reported a decrease of 26.5% YoY and France reported a decrease of 18.6%, which is a decrease of 157k and 108k units of cars registered, respectively. Spain, which is also considered a major market, also reported a decrease of 11.8% YoY in the mentioned period.

Looking at the region, when observing the whole period since the beginning of the year, Croatia reported a decrease of 5% YoY, amounting to 13.9k units registered. Looking at data only for April, Croatia reported a slight increase of 2.7% YoY, amounting to 4.3k units registered. Slovenia reported a similar situation – when observing the whole period, Slovenia reported a decrease of 19% YoY, amounting to 16.7k units of the car registered.

Also, the outlook is still threatened by the lack of harnesses, which is used to hold together electric cabling inside of a car, and produced mostly in Ukraine – which due to obvious reasons, does not look optimistic. Some suppliers in Ukraine have begun restarting operations, according to car manufacturers. Almost all plants used in production currently working are unable to produce at the full rate of capacity.

In Q1 2022, Transgaz recorded a slight revenue increase of 0.2% YoY, EBITDA growth of 34.3%, and a net profit of RON 257.4m, an increase of 67.3% YoY.

In Q1 2022, Transgaz recorded operating revenue before the balancing of construction activity of RON 457.1m, an increase of 0.16% YoY. The revenue was influenced by several factors: an increase in revenue from booking capacity (RON 11.4m), as well as the increase in international gas transmission revenue (RON 913k), and other operating revenue (RON 10.5m), offset by commodity revenue decrease of RON 21.5m.

Revenue from the balancing activity was higher by RON 242.7m (+327% YoY), due to a higher trading price of RON 381.55/MWh, which had a positive impact of RON 256.6m, but that was offset by a lower quantity of 101,911 MWh which had a negative influence of RON 9.91m. Moving on, revenue from construction activity was lower by -83% YoY and amounted to RON 26.4m.

OPEX was lower by 22% YoY influenced by the following factors: firstly, savings of RON 105m, from other operating costs, mainly due to the decrease in the impairment of current assets, following the collection of outstanding receivables from Electrocentrale București. Secondly, there has been a surplus of RON 43.3m in the transmission system gas consumption, provisions for risks and charges, employee costs, and cost of depreciation, which somewhat offset the OPEX growth.

With the reduction of OPEX and roughly similar revenue levels, the Company’s EBITDA amounted to RON 346.6m, an increase of 34.3% YoY. Financial revenue amounted to RON 154m, an increase of more than 6x YoY, due to the recording of an update of regulated assets value with the inflation rate for Q1 2022, as well as revenue from shareholdings following the reduction of Eurotransgaz’s share capital by EUR 13.2m, which was received during Q1 2022. Financial costs amounted to RON 73.9m, an increase of more than 10x YoY, mainly because of the cost of financial fixed assets being transferred.

Finally, because of these developments, net profit amounted to RON 258.4m, an increase of 67.3% YoY.

Transgaz key financials (Q1 2021 vs. Q1 2022, RONm)

Balance Sheet

Looking over to the balance sheet, total assets amounted to RON 7.62bn, a decrease of -1% YoY. This was driven by the decrease in fixed assets, which amounted to RON 6.51bn (-1% YoY). On the other hand, total liabilities decreased by 10% YoY and amounted to RON 3.47bn, as a result of a decrease in total long-term loans (-10% YoY, amounting to RON 2.62bn). There has also been a decrease in current liabilities, which decreased by -9% YoY and amounted to RON 843.3m.