In 9M 2023, Ericsson NT recorded a revenue increase of 1% YoY, an EBITDA growth of 57.1%, and a net profit of EUR 20.5m, a 94.6% YoY increase.
In total, the Company’s sales revenue amounted to EUR 206m, representing an increase of 0.4% YoY. The Company noted that this development is positive in light of the current macroeconomic situation, as it shows the stable operations of the Company. They also noted that the delivery of services to Ericsson has continuously grown, and has offset lower sales revenue in the domestic and export market which was caused by reduced operators’ capital investments.
Breaking the sales down further, the domestic market accounted for 39.1% of the total revenue, or EUR 82.5m. In this segment, Ericsson NT noted that after a period of increased investments in network infrastructure, conditioned by the growth in demand for telecommunication services and the allocation of 5G spectrum, the operators are focusing on 5G network monetization and are slowing down capital investments. Ericsson NT as a leading regional telecommunication provider has continued to support HT and A1 Hrvatska in the further modernization of telecom networks with an emphasis on the implementation of 5G. Finally, with the next quarter starts the implementation of the existing contractual obligations with Hrvatski Telekom in the field of managed services and providing support in the transfer of the technological unit for the construction and maintenance of the HT’s network.
Next up, looking at the most prominent segment, i.e. services to Ericsson, which accounted for 50.8% of the total revenue (or EUR 107.2m). In this segment, the company noted at the regular half-year R&D Management Business Review meeting, a high-quality level of R&D Center was confirmed once again in all categories and all business segments. Ericsson also positioned itself in new & strategically important areas such as Cloud RAN, which provides an opportunity to further work on the latest technologies in the telco industry.
The last revenue segment, is export markets, which accounts for 10.1% of the total revenue (or EUR 21.3m). Ericsson emphasized that they continued strong cooperation with the operators HT Mostar, Crnogorski Telekom, Telekom Kosova and IPKO focusing on timely delivery of the contracted activities. Here, the company emphasized the finalization of the first phase of the modernization of the radio and transmission part of Telekom Kosova’s network, as well as the first phase of 5G base stations implementation in the network of operator IPKO, which enables IPKO to provide its users with the first 5G signal in all major cities in Kosovo!
Ericsson NT sales revenue breakdown (9M 2017 – 9M 2023, EURm*)
*Converted using CNB’s EUR/HRK average exchange rate for the quarters in question
Gross profit amounted to EUR 28.8m, an increase of 56.3% YoY as a result of the business mix and operational and cost efficiency (lower Cost of sales), but also due to the fact that the previous year was affected by one-off costs item of contract termination, as a result of geopolitical sanctions. This would also imply a gross profit margin of 14%, an increase of 5.4 p.p. YoY. However, if we were to compare the results with 9M of 2021, where no one-offs were reported (“normal year”), Ericsson still noted a growth in gross margin from 11.5% to the aforementioned 14% – actually representing an improvement in the Group’s profitability, as a result of better product mix.
Moving on to EBITDA, it amounted to EUR 29.2m, also representing a solid increase of 57.1%. This would also mean that the EBITDA margin amounted to 14.2%, an increase of 5.1 p.p. YoY. Meanwhile, the operating profit amounted to EUR 24.7m, an increase of 81.7% YoY, implying an EBIT margin of 12%, an increase of 5.4 p.p. YoY. The net financial result was non-material but positive at EUR 292k, which means that the EBT amounted to EUR 25m. Finally, the net profit of the company amounted to EUR 20.5m, a 94.6% YoY increase.
Ericsson NT key financials (9M 2017 – 9M 2023, EURm*)
Source: Ericsson NT, InterCapital Research
*Converted using CNB’s EUR/HRK average exchange rate for the quarters in question
Ericsson NT also noted that the improvement in net profit levels meant that return on sales (ROS), too, improved and amounted to 9.1% (9M 2022: 5.1%).
Taking a quick look at the balance sheet, the total assets amounted to EUR 182.8m, increasing by 9.7% YoY compared to YE 2022, as a result of the higher inventories & Right of use assets, partially offset by lower level of cash and customer receivables. Cash and cash equivalents, which include short-term financial assets, amounted to EUR 55.3m at the end of 9M 2023, representing 30.2% of the total assets. They have recorded a decrease during the first nine months of the year, which Ericsson notes is in line with regular activities.
In 9M 2023, ZABA recorded net interest income growth of 74% YoY, net fee and commission income increase of 1%, net banking income growth of 70%, and net income of EUR 404m, an increase of 67% YoY.
Yesterday, Zagrebačka banka (ZABA) published its 9M 2023 results. According to the report, the current interest rate environment has benefited the largest bank in Croatia significantly. Starting off with the net interest income, it amounted to EUR 503m, representing an increase of 74% YoY. Inside this category, interest income grew by 79% to EUR 584m, while interest expense increased by 119% to EUR 81m. This of course is related to two factors: interest income to mostly loans and loan interest rates, and interest expense to mostly deposits and deposit interest rates. On a YTD basis, loan growth amounted to 5.2%, while deposit growth amounted to 5.6%. On a YoY basis, loans actually decreased by 1%, while deposits increased by 10%. This is in line with the data that can be seen in the Croatian banking sector, and more broadly, Europe. One thing has to be noted here. The fact that the loan amount decreased by 1% doesn’t have to have that large of an effect on interest income, and that is something that can be seen here. This is due to several reasons: firstly, the new loan production has higher interest rates. Secondly, most of the older variable interest rate loans also experienced a decrease in interest rates. Lastly, even older fixed-interest rate loans get transferred to variable interest rates after a certain period of time. As such, even with a similar loan amount ZABA has been able to increase its interest income.
Because of this, it could be said that the interest rate increase is by far the primary driver of higher profitability. On the other hand, interest expense, which recorded a significant relative growth was still a lot lower than interest income in absolute terms. This could be a sign that the spread between the interest rates on loans and on deposits is widening, and if we were to look at the news, then this is surely the case. Moving on, the net fee and commission income has remained roughly the same, increasing by 1% YoY to EUR 162m. On the other hand, net trading and other income and expenses amounted to EUR 45m, decreasing by 36% YoY due to lower trading result. Combined, this led to a net banking income of EUR 484m, representing an increase of 70% YoY.
In terms of operating expenses, they grew by 7% YoY to EUR 244m. The largest category of op. expenses, administrative expenses increased by 4% YoY, to EUR 199m. However, if we were to look at Q3 numbers only, then the administrative expenses remained roughly the same at EUR 65m, implying that there weren’t massive changes in Q3 but the leftover effect from 6M 2023. As employee expenses are the largest part of admin expenses, this would mean that no increase in this category was recorded on a Q3 YoY basis. Depreciation increased by 19% to EUR 45m. On the other hand, ZABA recorded a reduction in provisions to EUR 12.7m (-33% YoY), as well as a reversal of impairment of financial assets not measured at FV through P&L, which increased by 50% to EUR -37m. It should be noted that when this category is negative it has a positive effect on the P&L. Also, a 33% reduction in provisions also implies that the loans currently issued are quite healthy, as this means that ZABA had to reserve less cash for potential NPLs.
All of this taken together led to a net income of EUR 404m, which is an increase of 67% YoY.
ZABA key financials (9M 2023 vs. 9M 2022, EURm)
Source: ZABA, InterCapital Research
Taking a quick look at the balance sheet, ZABA’s total assets amounted to EUR 24.7bn, increasing by 9.7%, or EUR 2.2bn YoY. The largest contributor to this increase came from the increase in cash balances at central banks, which grew by 55%, or EUR 2.15bn to EUR 6.08bn. Here we can see one of the main reasons for the lower deposit interest rates currently being offered. ZABA as the largest bank in Croatia is usually the one that drives the decisions of other banks to increase/decrease interest rates on loans and deposits. However, the current interest rates offered on deposits at the ECB range from 4.0% to 4.75% depending on the type of deposit. Given that the deposit amount still continues to increase in ZABA’s case, there isn’t that much of an incentive to offer higher deposit rates and the excess liquidity is being transferred to ECB, where it currently achieves solid returns. Debt securities also recorded an increase, growing by 45%, or EUR 474m to EUR 1.54bn.
On the other hand, liabilities increased by 12% YoY, to EUR 22.2bn. This was primarily driven by the deposit growth, which grew by 10%, or EUR 1.93bn YoY to EUR 20.9bn. Finally, the total equity amounted to EUR 2.55bn, decreasing by 4% YoY, mainly driven by the decrease in retained earnings (-26%, or EUR -291.3m YoY), as a result of the dividend payment in 2023 which was also partially paid from the retained earnings.
ZABA share price performance vs. select regional banks (2020 – 2023 YTD, %)
Source: Bloomberg, InterCapital Research
On a YTD basis, ZABA was the 2nd best-performing bank, right after HPB with a 48% return. The same situation is present when compared to 2020 when ZABA’s 54% return is 2nd only to HPB’s 132%. Still, both of these banks far outperformed the remaining banks in this group.
Here you can find the dates for the upcoming events of the regional companies.
| wdt_ID | Date | Ticker | Announcement | Country |
|---|---|---|---|---|
| 13 | 31.10.2023 | SNP | OMV Petrom Q3 2023 Results, Conference Call | Romania |
| 14 | 31.10.2023 | RIVP | Valamar Riviera Q3 2023 Results | Croatia |
| 15 | 31.10.2023 | HT | Hrvatski Telekom Q3 2023 Results, Conference Call for analysts and investors | Croatia |
| 16 | 31.10.2023 | KOEI | Končar Q3 2023 Results | Croatia |
| 17 | 31.10.2023 | SPAN | Span Q3 2023 Results | Croatia |
Due to the nature of these events, they are subject to change (might be postponed or canceled).