Today, we bring you an overview of the indebtedness and the capital structure of Croatian blue chips which constitute the CROBEX10 index, using the updated H1 2022 results.

As all the H1 2022 financial results of the CROBEX10 constituents have been published, we decided to bring you an update on the level of indebtedness of these companies. We did this by comparing the net debt to EBTIDA as well as looking at the percentage of debt financing that these companies use. Finally, we took a look at how much additional debt these companies could take to reach 3x EBTIDA, an „upper“ limit of how much debt the companies could take without risking having issues paying back those debts. This is normally used to make new investments and especially acquisitions.

Among the CROBEX10 constituents, Adris, Ericsson NT, Hrvatski Telekom, and Končar operate with negative net debt, meaning that their cash positions (i.e. short-term financial assets + cash and cash equivalents) exceed their financial debt. As such, their net debt to EBITDA ratio would also be negative, and as such, we excluded them from the net debt to EBITDA overview. It should also be noted that the EBITDA is based on the trailing twelve months’ results, as taking only H1 EBITDA data would show a wrong picture.

Net Debt/EBITDA

Out of the remaining 6 companies, the largest indebtedness is held by Arena Hospitality Group with 7.43x, AD Plastik with 7.16x and Valamar Riviera with 2.85x. Considering that two of these companies are tourist companies, and as such, they operate in an asset-heavy industry, where debt is always used to finance at least a part of investments and improvements in their portfolio (hotels, camps, apartments, etc.), the higher level of indebtedness is not surprising. Besides mentioned companies from the tourism sector, there is AD Plastik, with a net debt/EBITDA of 7.16x, which considering the impact that the semiconductor shortage in the last year, supply chain disruptions, as well as the current Russian invasion of Ukraine had on the business operations of the Company, meant that its EBITDA decreased significantly in H1 2022 (even reporting negative numbers), meaning that just by that decrease the net debt to EBITDA ratio increased.

Finally, we have Atlantska Plovidba, Atlantic Grupa, and Podravka, with net debt to EBITDA ratios of 0.65x, 0.64x, and 0.28x, respectively. Atlantska Plovidba recorded strong H1 2022 results which contributed to the increase in EBITDA, lowering this ratio. Meanwhile, Atlantic Grupa and Podravka have both been decreasing their net debt to EBITDA ratios for the last couple of years, in order to be ready for any potential acquisitions, something that both companies have as goal.

We also took a look at how much more debt these companies could take to reach 3x EBITDA. We would like to note that the companies that are already over this number (AD Plastik and Arena Hospitality Group) have been excluded from this comparison.

Potential additional debt (HRK) to reach 3x EBITDA

In this comparison, HT leads the way with over HRK 12.3bn of additional debt they could take to reach 3x EBITDA. Considering they have a negative net debt of HRK -2.77bn (or rather, their short-term financial assets + cash and cash equivalents), they have a lot of room to take on more debt. Next up we have Adris, with HRK 4.48bn, which also has a negative debt of HRK -969m, Podravka with HRK 1.66bn, Končar with 1.61bn, Atlantic with 1.58bn, Atlantska Plovidba with 1.52bn, and Ericsson NT, with 1.04bn. This means that in case they need to, these companies could take a large amount of debt to finance their operations, make new investments, or make new acquisitions.

Finally, we took a look at the capital structure of these companies. All of them except Arena Hospitality Group have a majority of their funding (over 50%) from equity sources. Ranking them highest to lowest, Hrvatski Telekom is 100% equity funded (maintaining no debt), followed by Podravka with 90.7%, Končar with 84.5%, and Ericsson NT with 84.1%. On the flip side, Arena Hospitality Group has 49.7% of its funding from equity, followed by Valamar Riviera with 51.9%. Taking into account the aforementioned reasons for this amount of debt funding, this is in line with other companies in this industry.

The capital structure of CROBEX10 companies

In August 2022, SBITOP declined by 1.3%, ending the month at 1,129.73 points.

The total equity turnover on the Ljubljana Stock Exchange amounted to EUR 21.6m, which represents a decrease of 18.6% MoM, but a decrease of 9.2% YoY. This would also mean that during the month, the average daily turnover amounted to EUR 0.94m.

We note that no block turnover was recorded during August 2022.

Looking at the top 5 most traded stocks, they had a turnover of EUR 17.75m, which would account for 82.4% of the total turnover which is not surprising for the Slovenian market. Breaking this down further, Slovenia’s heavyweight Krka had the highest turnover, at EUR 7.73m (or 35.9%), followed by NLB with 2.86m (or 13.3%), Petrol with 2.77m (or 12.9%), Cinkarna Celje with 2.43m (or 11.3%), and Zavarovalnica Triglav with 1.95m (or 9.1%).

When it comes to prices, Slovenia’s main index SBITOP decreased by 1.3% during the month and ended at 1,129.73 points. At the same time, SBITOP TR increased by 0.1% and ended the month at 1,410.63 points.

Looking deeper at the SBITOP constituents’ performance during the month, four out of ten companies have recorded gains, while the other six declined. NLB is leading the gainers with 8.8% in August, followed by Luka Koper with 2.5%, Krka with 2.1% and Unior with 2%. The biggest decline in August 2022 was reported by Petrol by 9.6%, followed by Sava Re with 7.3%, Telekom Slovenija with 3.5%, Cinkarna Celje and Salus both declined 2.1%, and Triglab with mild loss of 0.8%.

Performance of SBITOP constituents (August 2022, MoM, %)

When it comes to YoY performance, SBITOP has reported a moderate decline of 5.4%. Looking deeper at the Slovenian SBITOP index, 6 companies declined, while only 4 reported increase in share price. The biggest gain was recorded by Cinkarna Celje, with a gain of 12.1%, followed by Triglav with 7.8%, Petrol with 3.3%, and Salus with a slight increase of 1.34%. The biggest losses were recorded by Sava Re with a 20.5% decline, followed by Unior with -17.6%, Krka with -11.6%, NLB with -10.9%, Luka Koper with 6.2% and lastly, Telekom Slovenije with -4.7% YoY decline.

Performance of SBITOP constituents (August 2022, YoY, %)

In H1 2022, Nuclearelectrica recorded operating revenue growth of 127% YoY, EBITDA growth of 133% YoY, and a net profit of RON 1.2bn, an increase of 217% YoY.

In H1 2022, Nuclearelectica recorded an op. revenue increase of 127% YoY, which amounted to RON 3.14bn. This was driven by an increase of 143% YoY in the weighted average price of electricity sold, including the transmission to power grid tariff (transmission tariff ‘Tg’).

At the same time, the total quantity of electricity sold was 5.1% lower. The quantity of electricity sold on the competitive market of bilateral contracts decreased by 4.6%, given that the avg. sale price on this market was 133% higher YoY. The quantity of electricity sold on the spot market in H1 2022 was 7.7% higher, given that the avg. sale price on this market was 179.0% YoY higher(without Tg).

Moving on, operating expenses increased by 30% YoY, and amounted to RON 1.7bn. The main driver of this increase is by far the windfall tax expense for electricity producers, which amounted to RON 585.8m.

Even with this increase, the Company’s EBITDA amounted to RON 1.7bn, an increase of 133% YoY. The net financial result amounted to RON 50.3m, an increase of 5.4x, mainly due to a higher net financial revenue and lower financial expenses through the exposure to EUR and CAD.

Due to the overall higher earnings, income tax expense amounted to RON 234.8m, an increase of 197% YoY. As a result, and because of the above-mentioned factors, the Company’s net profit amounted to RON 1.2bn, an increase of 217% YoY.

Meanwhile, looking at the Company’s balance sheet, total assets increased by 6% since the beginning of the year and amounted to RON 10.2bn. The increase was mainly driven by an increase in current assets to RON 4.1bn (+16.8% YTD), which itself was driven by an increase in trade receivables (+7.7% YTD) as well as the cash and cash equivalents (+33.5% YTD).

On the other hand, total liabilities decreased (-4.1% YTD) and amounted to RON 1.2bn. The decrease was driven by a decrease in current liabilities (-2.3% YTD) to RON 646.7m, which itself was a result of a decrease in the current portion of long-term loans (-46.4% YTD) and deferred revenue (-14% YTD). Long-term liabilities also decreased by 6.1% YTD. Finally, the total investment in 2022 is planned for RON 703m, an increase of 62% YoY, of which, 52% was completed by the end of H1 2022.

Nuclearelectrica key financials (H1 2021 vs. H1 2022, RONm)

The influence of the Russia-Ukraine conflict

The Company also touched on the impact of the Russia-Ukraine conflict on its business operations. The Company does not have activities that depend on the areas under conflict or affected by sanctions (Russia, Ukraine, Belarus). Because of this, their sales in the foreseeable future should not be significantly affected.