As all Croatian blue chips published their 2020 results, we decided to look at what effect did the pandemic have on the profitability margins of each observed company.

It is important to note that comparing the margins across the selected companies is not necessarily the best way to do the comparison as many companies operate in different industries. Since both EBITDA and profit margin reflect to a great extent the industry in which the company operates in, we advise to compare it to the peer average or median. Nevertheless, it is still worth seeing which Croatian companies are more profitable and therefore have more “room” to potentially reduce the prices of their goods or services if needed, while remaining a higher level of profitability.

2020 results include the aftermath of Croatia’s tourist season which both directly and indirectly influences many Croatian blue chips.

EBITDA margins (%)

In 2020, two telecoms lead the list with the highest EBITDA margins. Those are HT and Optima Telekom with EBITDA of 41.3% and 34.2%. For HT this notes a slight increase in the margin of 0.4 p.p., as this is one of the sectors who was among the least impacted by the pandemic on profitability level. Next, comes Atlantska Plovidba with EBITDA margin of 33.8%, a slight decrease of 2.8 p.p. YoY. Meanwhile, the company’s EBITDA was halved in 2020 to HRK 74m.

Two tourism companies follow – Maistra and Valamar Riviera with EBITDA margin of 19.8% and 15.3%. Both of theirs EBITDA margins harshly decreased in 2020 by 15 p.p. and 20 p.p. due to the halt in travel caused by Covid-19.

Change in EBITDA & Profit margin (2020 vs 2019) (p.p.)

In terms of profit margins, 4 companies reported a net loss (RIVP, ARNT, MAIS, ATPL). Meanwhile HT reported the highest profit margin of 7.6% (decrease of 1.8 p.p. YoY). When looking at the YoY p.p. changes of profit margins in 2020, we can note that aside from the 4 mentioned companies, we have not seen significant changes in profitability despite the pandemic.

Profit margins (%)

For today we decided to present you with the updated analysis (FY 2020) of the interest coverage ratio of Croatian companies. 

Interest coverage ratio is used as a measure which gives us an insight on the company’s ability to meet its interest payments. The ratio is calculated by dividing the company’s operating profit by the interest expenses. Therefore, a higher ratio indicates that the company is less burdened by debt and the other way around. A ratio lower than 1 indicates that the company’s operating profit is not sufficient to cover for the interest payments. We used 2020 figures for calculating the interest coverage ratio of Croatian companies.

Interest Coverage Ratio (FY 2020)

As illustrated on the graph, Ericsson NT operates with the highest interest coverage ratio of 56.9. It does not come with a surprise considering that Ericsson NT operates with low debt. To be specific, the company operates with negative net debt while its capital structure is 77.6% equity funded.

Three food companies that follow are: Podravka, Kraš and Atlantic Grupa. Podravka has an interest coverage ratio of 22.5, followed by Kraš with 19.1 and Atlantic Group with 17.2. All of these companies are also operating with very low debt.

On the flip side, three tourist companies were excluded from the calculation as they reported an operating loss. The only company to have it’s interest coverage ratio below 1 is Atlantska Plovidba. To be specific, the company operates with an interest coverage ratio of as low as 0.05 showing quite a high debt burden compared to its operating profit. We note that the company’s operating profit was significantly affected by the Covid-19 pandemic.