Today, we are bringing you a quick analysis of the indebtedness and the capital structure of Croatian blue chip companies that make up the CROBEX10 index, using the H1 2023 results published this summer.
With the publishing of all the H1 2023 results for the Croatian companies behind us, we decided to look at how these results changed the indebtedness and capital structure of some of the largest Croatian blue chips. In order to do this, we looked at the net debt to EBITDA ratio, as well as the percentage of debt the companies use to finance their operations and investments. Furthermore, we looked at how much additional debt the observed companies could take to reach 3x EBITDA. The 3x EBITDA mark is usually considered an “upper” limit of how much debt the companies could take, without putting their operations at risk with the repayment of said debt. This upper limit is usually considered when a company makes new investments, especially in the case of M&As.
Of all the Croatian blue chips, Adris, Span, Končar, Ericsson NT, and Hrvatski Telekom operate with a negative net debt. This means that their current cash positions (which include short-term financial assets combined with cash and cash equivalents) are more than enough to cover their entire financial debt. Consequently, their net debt to EBITDA ratio would also be negative. Because of this, these companies were excluded from the net debt to EBITDA comparison. Finally, the EBITDA data is based on the trailing twelve-month (TTM) results, which include the latest quarter, as this is the only way to show full-year data. This is done because components of the balance sheet (like in this case, debt) always reflect their numbers on a certain date, while components of the P&L reflect only financial data for a select period (as mentioned, H1 2023).
Net debt to EBITDA of Croatian blue chip companies
Source: Companies’ data, InterCapital Research
Out of the remaining companies, the largest indebtedness goes to Arena Hospitality Group with 6.3x. Arena Hospitality Group is followed by Atlantska Plovidba with 2.9x, Valamar Riviera with 2.7x, and Podravka with the lowest KPI of 0.1x. The remaining companies have net debt to EBITDA of less than 1. Regarding Arena Hospitality Group, the Company continues its investment cycle. At the same time, we are still yet to witness how the Q3 results will affect Arena’s profitability. Valamar Riviera is also in a similar boat in terms of investments requiring higher levels of debt. The remaining companies retain pretty low levels of indebtedness, which considering that the current macroeconomic situation makes taking new debt significantly more expensive, makes sense. We note that looking at previous quarterly results, Končar was included in the calculation. However, during H1 2023 Končar put a lot of effort into the liquidity domain, which resulted in strong operating cash flow due to an active management of working capital and consequently, a negative net debt overall. Thus, we excluded Končar from this calculation with the latest quarterly results. Further, AD Plastik is excluded from this analysis as the company was recently excluded from CROBEX10 composition, which was our benchmark. However, AD Plastik was substituted with Span which currently has a negative net debt.
Potential additional debt (EUR) to reach 3x EBITDA
Source: Companies’ data, InterCapital Research
Taking a look at how much new debt these companies could take to reach 3x EBITDA, Arena Hospitality was excluded as they already are over this number. Of the remaining companies, HT could by far take the most, at EUR 1.5bn, followed by Adris with EUR 544.8m, Podravka with EUR 269.1m, Končar with EUR 221.4m, Ericsson NT with EUR 142.8m, Atlantic Grupa with EUR 119.8m, Span at EUR 43.9m, Valamar Riviera with EUR 32.4m and finally, Atlantska Plovidba with EUR 2.3m. This would mean that in case these companies see any potential for further expansion or even a need to finance their operations, they could take on significant amounts of debt. Of course, as mentioned, new debt is more expensive now than it was a year ago, and it will most probably stay at these elevated levels for a few upcoming quarters.
Finally, we looked at the capital structure of these companies. Just recently we provided you with a capital structure of Croatian blue chips. However, we decided to cover the same topic in the indebtedness domain. All of the observed companies have the majority of their funding from equity (>50%). If we were to rank them from highest to lowest, HT has 100% of their operations financed from equity (as the company has no debt). Span is to follow with 97.5% of equity funding. Ericsson NT has 90%, Podravka has 88.7%, Končar has 87.4% and Adris has 86.1%. On the other hand, the only two companies that have less than 60% of their finances from equity are Valamar Riviera and Arena Hospitality Group, at 55.5% and 46.4%, respectively. Considering they both operate in the tourism industry, this is to be expected.
The capital structure of CROBEX10 constituents
Source: Companies’ data, InterCapital Research
At the end of July 2023, the total amount of loans issued by all the Slovenian financial institutions increased by 0.6% YoY, and 0.2% MoM. At the same time, the average housing loan interest rate grew amounted to 4.03%, an increase of 0.4 p.p. YTD, and 0.01 p.p. MoM. Finally, the average consumer loan interest rates amounted to 6.8%, an increase of 0.11 p.p. YTD, and 0.12 p.p. MoM.
Recently, the Slovenian Central Bank, BSI, released the latest report on the changes and developments recorded by the Slovenian financial institutions. In this article, we’ll review the active, i.e. loan side of the Slovenian financial institutions, with the latest data referring to July 2023. According to the report, the total amount of loans issued by all Slovenian banks amounted to EUR 27.1bn, representing an increase of 0.6% YoY, and 0.2% MoM. Of this, corporate loans amounted to EUR 10.5bn, with a rise of 1.2% YoY, and remaining roughly the same MoM. Meanwhile, housing loans amounted to EUR 8.1bn, growing by 2.3%, but remaining unchanged MoM. Finally, consumer loans amounted to EUR 2.62bn, representing an increase of 6% YoY, and 1.8% MoM.
Housing and corporate loan growth rate (2017 – July 2023, YoY, %)
Source: BSI, InterCapital Research
Here we can see that there has been a considerable slowdown in the new loan production across the board, with 2022 recording double-digit growth YoY, but the situation continued to deteriorate across 2022, reaching the low single-digit that is present now. This would mean that the current macroeconomic environment is indeed weighing heavily on Slovenian consumers, who are being more cautious about taking new loans.
Besides looking at the new loan production, it is also prudent to look at the interest rates on these loans. For this, we looked at the newly issued fixed-interest rate loans. For housing, the avg. fixed interest rate amounted to 4.03% in July 2023, representing an increase of 0.4 p.p. YTD, and 0.01 p.p. MoM. Consumer loans recorded an interest rate of 6.79%, representing an increase of 0.11 p.p. YTD, and 0.12 p.p. MoM. Finally, corporate loans are broken down into 2 categories, ones that are smaller than EUR 1m (small corporate loans), and ones that are larger than EUR 1m (large corporate loans). For the smaller category, the average interest rate amounted to 6.17%, representing an increase of 1.48 p.p. YTD, and 0.18 p.p. MoM. For the larger loans, the average interest rate amounted to 3.76%, representing an increase of 0.25 p.p. YTD, but a decrease of 1.51 p.p. MoM.
Average fixed interest rate by categories (2017* – July 2023)**
Source: BSI, InterCapital Research
*For years until 2023, data refers to the yearly average
**In January 2023, no data is available for large corporate loans, and as such it is presented as 0
For the sake of comparison, we also looked at how Slovenia compares to Croatia, as well as the European Monetary Union, EMU.
Comparison of average fixed interest rate by categories in Slovenia vs. Croatia and EMU (July 2023, %)
Source: BSI, HNB, InterCapital Research
Currently, Slovenian housing loan interest rates are higher by 0.78 p.p. than the ones in Croatia, and 0.42 p.p. than the ones in the EMU. Consumer loans meanwhile, have a 1.11 p.p. higher interest rate than in Croatia, and a 0.93 p.p. lower interest rate than in the EMU. Small corporate loans have a 1.36 p.p. higher interest rate than in Croatia, and a 1.25 p.p. higher interest rate than in the EMU. Finally, large corporate loans have a 1.05 p.p. lower interest rate than Croatian loans and a 0.58 p.p. lower interest rate than the average EMU loans. From this data, it could be summarized that it is more expensive (relatively) to take a housing loan in Slovenia, it is less expensive to take consumer loans compared to EMU, but more expensive than in Croatia. Finally, small corporate loans are significantly more expensive than in either Croatia or EMU, while larger corporate loans are less expensive.
Yesterday, Čakovečki mlinovi published the notification regarding the obligation to publish a takeover bid.
On 25 September 2023, Mlin i Pekare, Plodinec, and two Croatian pension funds: Allianz ZB and PBZ CO signed a shareholder agreement with the mentioned parties acting in concert. The agreement was signed with the goal of establishing their joint action with the aim of acquiring and achieving joint control over the company Čakovečki Mlinovi.
On the agreement signing day, Mlin i Pekare held a 24.8% stake in the target company, while two Croatian pension funds: Allianz ZB & PBZ CO held 22.9% and 16.8% stake in Čakovečki mlinovi, respectively. Taking this agreement into account, the parties together hold a 64.5% stake in Čakovečki mlinovi, triggering an obligatory takeover offer. We note that the takeover bid is subject to prior approval of the Croatian Competition Agency (AZTN).