During Q1 2023, Span recorded an increase in sales revenue of 4.4% YoY, slight EBITDA growth of 0.9%, and a decrease in net profit of 17.4%.
The total consolidated revenue of Span increased by 4.5% (or EUR 1.1m) YoY in the first quarter and amounted to EUR EUR 25.8m. Out of total revenues, the segment of IT services with high added value increased by EUR 0.7m, whereas revenues in the segment of software asset management and licensing recorded a growth of EUR 0.4m. The growth in revenues is driven by three out of four main Span segments: Software asset management and licensing, Service Center management & Technical support and Software Solutions Development. The all mentioned segments contributed to top-line growth. However, growth was slightly offset by lower revenues from Infrastructure Services, Cloud & Cyber Security segment. However, we note that the Span subsidiary in Ukraine, TOV, noted a further decrease in the top line, further slightly offsetting mentioned growth. Regarding the Ukraine market, Span was mainly impacted on top line as Microsoft has enabled end users in Ukraine to use its products and services without compensation, which will result in the evaporation of revenues for Span from the Ukraine market in 2023. However, we emphasize that this situation remains unchanged from 2022, as this impact was already present during the previous year.
Breaking the revenue down into segments, the largest absolute increase was recorded by Service Center Management and Technical Support, which increased by EUR 1.2m, or 33% YoY in Q1. Following them, we have Software and Business Solution Development, which increased by EUR 0.9m, or 56% and Software and Infrastructure Services, which increased by EUR 0.4m, or 2% YoY. Cloud & Cyber Security was the only segment that noted a decrease in revenues by EUR 1.3m (-26%).
Meanwhile, OPEX grew by EUR 1.2m (or 5.8% YoY) and amounted to EUR 23.5m. OPEX growth was mainly driven by a growth in Staff costs, which grew 35% (EUR 1.9m), which was offset by a decrease in mostly all other costs, overall resulting in a higher OPEX. However, we note that this growth in Staff costs (and OPEX consequently) should not come as a surprise as Span employed 200 new employees during 2022. Consequently, this growth in Staff costs was as expected. Further, we emphasize that the growth in staff expenses follows an increase in revenues in the segment of IT services with high-added value. Higher growth in staff expenses is somewhat of CAPEX for an IT company like Span, which is something that should be considered when looking at staff expenses – it should not be “just” be considered as a pressure on margin, rather than an investment. Also, most of the newly employed were hired in the mentioned high-added value segments. Besides mentioned Staff costs growth, Material costs noted a 6.2% decrease or EUR 1m. Those are the main lines affecting total OPEX growth of 5.8%.
EBITDA increased slightly by 0.9%, compared to Q1 2022, mainly as a result of higher revenue from IT services with high added value, which is something that the Company wants to focus on. Further, below the operating level, no major changes occurred compared on a yearly basis. Overall, the Group noted a decrease in EBT by 8.3% YoY, amounting to EUR 2.1 (vs. EUR 2.3 in Q1 2022). Finally, Span reported a higher tax expense as the previous year was impacted under tax levies (ZOPI). However, we note that Span still has tax levies until FY 2025, but the tax expense for reporting purposes does differ from the real effective one.
Span key financials (Q1 2022 vs. Q1 2023, EUR m)
Source: Span, InterCapital Research
At the share price before the announcement, this would amount to a DY of 2.1%. The ex-date is set for 19 June 2023.
Last Friday, Supervisory and Management Boards of Span proposed the distribution of 2022 profit. Out of the net profit of EUR 6.7m achieved in 2022, the Company will pay out app. EUR 2.6m in the form of dividends. This would amount to a dividend of EUR 1.33 per share, and at the price before the announcement, a dividend yield of 2.1%.
The ex-date is set for 19 June 2023, while the payment date is set for 3 July 2023. As a reminder, during 2022, Span published its dividend payment policy. In it, they announced that they plan to pay out between 20% to 50% of their consolidated profit in the form of dividends. This payment would be subject to several conditions, including development plans, capital market situation, net profit growth, revenue levels, etc.
In Q1 2023, ZABA recorded a net interest income increase of 58.9% YoY, a net fee and commission income growth of 11.1%, op. income increase of 27.8%, and a net income to majority of EUR 119.2m, an increase of 42.9% YoY.
The net interest income amounted to EUR 145.8m in Q1 2023, representing an increase of 58.7% YoY. No details are provided by ZABA as to why this increase happened, however for the most part this income comes from either volume of loans issued or the interest rates at which the loans are issued, the growth is a combination of these two factors. This is in line with the trend that we have seen in Croatia in the last year, with higher interest rates, but also continued loan growth. As the largest bank in Croatia, ZABA is expected to take the lead on this, being among the first to be able to increase the interest on loans, which is visible from this result. Later on, as we’ll see in the balance sheet, the reduction in the overall loan amount to customers means that this increase came primarily as a result of higher interest rates. Net fee and commission income also grew, increasing by 11.1% YoY to EUR 52.7m. Net trading and other income and expenses amounted to EUR 13m, a decrease of 50% YoY, mainly because of the lower trading result.
Overall, this would mean that the Group’s operating income amounted to EUR 211.8m, an increase of 27.8% YoY. Operating expenses amounted to EUR 80m, an increase of 9.6% YoY. Of this, administrative expenses increased by 9.2% and amounted to EUR 66.4m, provisions were also increased, almost doubling to EUR 4.6m. Meanwhile, they also recorded a recovery of financial assets that are measured at fair value through the P&L, as they increased more than 2x to EUR 20.7m.
All of this combined resulted in profit before impairment and other provisions of EUR 126m, an increase of 42.32% YoY. In terms of impairments and provisions, they amounted to EUR 16m, an increase of 100% YoY. Finally, the net income of the Group amounted to EUR 119.2m, an increase of 42.9% YoY.
ZABA key financials (Q1 2023 vs. Q1 2022, EURm)
Source: ZABA, InterCapital Research
Moving on to the balance sheet, we can see that the total assets of the Group amounted to EUR 22.9bn, representing a decrease of 3.1% YTD, or a reduction of EUR 728.9m. In the assets themselves, the largest decrease was recorded by deposits from credit institutions, which declined by 6.3% and amounted to EUR 6.7bn. In the category “financial assets at amortized costs”, we can see that loans also recorded a noteworthy decrease, decreasing by 2.4% (or EUR 317.9m) to EUR 13.2bn, while at the same time, bond holdings in this category increased by 10.3% (or EUR 122.9m), to EUR 1.32bn.
Taking a look at the liabilities side, total liabilities also decreased, declining by 4.1% (or EUR 850.6m), and amounted to EUR 20.1bn. Of this, by far the largest driver was the decline in deposits, which decreased by 4.1%, or EUR 833.9m, and amounted to EUR 19.4bn. Meanwhile, the total equity increased by 4.5% (or EUR 121.5m), mainly as a result of the higher retained earnings, which increased by 22% (or EUR 248.3m), and amounted to EUR 1.37bn. This increase was partially offset by lower net income attributable to the parent company, which decreased by 52% (or EUR 128.7m), to EUR 119.2m.