For today, we decided to bring you an updated overview of the indebtedness and capital structure of Croatian companies using 9M 2020 results. 

For today, we decided to present you with a comparison of Croatian companies. To be specific, we observed how indebted Croatian companies are by comparing net debt to EBITDA (trailing 12 months) and % of debt financing. We also added how much additional debt these companies could take in order to reach 3x EBITDA. 

Note that Adris Grupa and ZABA were excluded from the overview as Adris operates as a holding, while ZABA is a bank.

Net Debt/ EBITDA (trailing 12m)

Among observed companies Končar, HT and Ericsson Nikola Tesla operate at a negative net debt, meaning their cash position (short term financial assets + cash and cash equivalents) exceed their financial debt. Besides that, Arena Hospitality Group operates with a negative trailing 12m EBITDA (HRK -1m), so it is not included in the list above. At the same time, Arena’s net debt stands at HRK 852m.

Unsurprisingly, two tourist companies lead the list with the highest indebtedness (of the observed companies). Valamar Riviera operates currently with a net debt/EBITDA of as much as 39.94. In Q3, operating revenue of the company was down 61.1% YoY as a result of significantly lower tourist activity during this summer season. Due to pandemic and international lock-down Valamar’s properties were closed from March to the end of May, resulted in 9M 2020 operating revenue decrease of 67.9%. As a consequence, the company’s EBITDA in the first 9M of 2020, amounted to HRK 175m, representing a decrease of 80%. EBITDA margin has amounted to 27%, which is 16 p.p. decrease YoY.

Maistra comes next, with a net debt/EBITDA of 13.89, as the company’s EBITDA decreased by 67.1% in 9M of 2020. Its EBITDA margin in 9M decreased for 9 p.p. and stood at 37.7%, while its 9M EBITDA was HRK 182m and TTM EBITDA HRK 89m.

On the flip side, 3 food companies have the lowest indebtedness of the observed companies. To be specific, Kraš operates with a net debt/EBITDA of 0.83 followed by Atlantic Groupa with 0.92 and Podravka with 1.33. As a reminder, Atlantic Grupa recently stated that the company is considering the issuance of new bonds and decided on early redemption of bonds maturing in 2021. To read more about it click here.

We also observed how much additional debt companies could take to reach 3x EBITDA which is in the region considered as a breaking point and red flag in terms of indebtedness.

This analysis provides information on the companies’ potentials for takeovers, but also the potential for an internal growth through additional borrowing. It’s important to point out that companies with net debt above 3x EBITDA are not necessarily too indebted as not all them are equal and their industries differ (and the other way around – certain industries are not prone to hold any leverage).

Note that for this we excluded tourist companies as the Q3 results could arguably be considered as a one-off due to pandemic while normalisation to pre-pandemic operational efficiency is expected from 2022 onwards.

Potential Additional Debt (HRK m) to Reach 3x EBITDA 

Turning our attention to the capital structure, of the observed companies, 10 of 13 are mostly equity funded. Of those, HT leads the list with 98% equity, followed with Končar 91%. On the flip side, Optima Telekom and Đuro Đaković are almost entirely debt funded with a capital structure of 95% and 85%, respectively.

Capital Structure of Croatian Companies 

In 9M of 2020, Dalekovod recorded an increase in sales of 11.7%, increase in EBITDA of 194% and a net loss to majority of HRK -19.7m.

In the first 9M of 2020, Dalekovod’s sales amounted to HRK 929.86m, representing an increase of 11.7% YoY.  The Company notes that the Energy sector (construction of transmission lines and substations), which is the company’s largest segment, recorded a 29% increase in revenues, with total revenues amounting to HRK 698m. Most of the revenues were generated on the foreign market (91%). The high and low voltage department is currently carrying out works on 26 large projects (6 in Norway, 10 in Sweden, 5 in the region and 5 in Croatia) and 17 smaller ones, and the substation department on 6 large and 4 smaller ones.

During the 9M of 2020, 10 new large projects were contracted in the high and low voltage department, which include part of smaller projects amounting to approximately HRK 600m, and 5 projects in the substation department amounting to HRK 26m, and a total value of the Energy sector in the amount of HRK 863m.

Operating expenses, amounted to HRK 902.56m, representing an increase of 5.9% YoY. Such an increase mostly came on the back of higher material costs which are up by 4.6% or HRK 23.74m. As a result of the above-mentioned EBITDA almost tripled, reaching HRK 63.13m. Meanwhile EBITDA margin showed solid improvement of 4.1 p.p. to 6.6%. Operating profit in the same period amounted to HRK 41.6m, compared to an operating loss of HRK 1.52m in 9M of 2019.

Going further down the P&L, the company recorded a net financial result of HRK -9.74m compared to HRK 33.2m in 9M of 2019. Such a result mostly came on the back of FX losses while in Q1 of 2019 the company’s net financial result includes the sale of Dalekovod Professio.

In the first 9M of 2020, Dalekovod recorded a net profit of HRK 31.59m (+0.4% YoY). However, the Company observed a net loss to majority of HRK -19.7m. Such a result can be attributed to the loss from discontinued operations (related to the sale of the galvanizing segment) in the amount of HRK -51.3m.