As the Croatian blue chip companies published their Q2 2023 results, we bring you a brief analysis of their EBITDA and profit margins for the first half of 2023.
Before we start, we would like to note that comparing these margins across different industries is not necessarily the best way to give a comparable overview. The reason why is that the EBITDA and profit margins vary significantly across sectors, and as such, the best way to compare any of these companies through these margins would be to compare it to the companies in the same industry in the form of a peer group or a median value for the select industry. Despite this, it is still worth looking at these margins, especially as turbulent a year 2022 was, companies across industries have experienced significant cost & top-line growth, varying degrees and as such all recorded developments in their margins.
Besides that, we note that looking at only H1 margins might lead to misleading conclusions as some of the observed companies derive most of their earnings in the upcoming quarters.
H1 2023 vs. H1 2022 EBITDA margins of Croatian blue chips (%)
Source: Companies’ data, InterCapital Research
Overall, H1 2023 was influenced by the partial easing in inflation in an ongoing macroeconomic uncertainty. In this environment of high costs, companies across the board have increased their prices to compensate, but the growth in OPEX remains the biggest pressure for the majority of companies’ op. profitability and net profit margins decreased.
As can be seen in the graph above, the highest margin recorded was by HT, with EBITDA margin of 41.4%, followed by Atlantska Plovidba at 38.7%. HT remained resilient to inflationary pressures, despite seen cost pressures. The resilience occurred even though the price indexation did not come into effect yet. Podravka is to follow with a margin of 14% and Ericsson NT at 12.9%. On the flip side, there are a few blue chips that achieved EBITDA margin of 10% or below. Kraš noted a 10.2% EBITDA margin during the first half of the year, closely followed by Atlantic Grupa and Končar with margins at 9.7% and 9%, respectively. However, if we compare the margins to H1 2022, we can see that the majority of companies recorded at least a slight decline in their margins. The largest decline was recorded by Atlantska Plovidba, whose EBITDA margin decreased by 23 p.p, which is a continuation of a trend that already occurred during Q1. Also, we note that it makes more sense for companies like Končar to look at normalized margins due to significant non-recurring effects during the previous year. During Q2, Končar noted an improvement in normalized margins due to strong top-line growth & stabilization on the cost side, which was not the case during the previous quarter. Finally, regarding Končar, the strong Backlog growth compared to FY 2022 should be a thing to emphasize. AD Plastik is still materially under the impact of the geopolitical situation regarding Russia and Ukraine. Further, AD Plastik’s margins were also affected due to the semiconductor shortages in the automotive industry, which is finally looking like it’s coming to an end. Combined with the disruption of the company’s operations in Russia, the pressure could continue in the upcoming period.
We also note that we have not included Croatian tourists in the overview, as they reported a negative EBITDA and a net loss. Q2 tends to be a loss-generating quarter for Croatian tourists, so the performance should not be considered as indicative of the FY results, as they make most of their profit during Q3.
H1 2023. Vs. H1 2022 profit margins of Crotian blue chips (%)
Source: Companies’ data, InterCapital Research
Moving on to the net profit margins, Podravka recorded the highest profit margin at 13.1%, which represents a strong increase of 4.8 p.p. YoY which is due to tax incentives booked for investment in logistics, distribution and production. Next up, we have HT with a profit margin of 11.2%, noting a solid increase of 2.3 p.p. YoY. Ericsson NT is to follow with a profit margin of 8.8%, an increase of 2.4 p.p.
Overall, during Q2 the companies were under partial easing of margin pressure & cost increases, a slightly improved situation compared to Q1. However, inflation keeps eating away at the disposable income of customers as well, which might result in reduced companies’ ability to pass costs further down the line in the future, if the pressures do not loose up.
By the end of July 2023, the total amount of loans issued by all Croatian financial institutions increased by 5.9% YoY, and 0.3% MoM. At the same time, the average housing loan interest rate increased by 0.18 p.p. MoM, 0.76 p.p. YoY, and amounted to 3.25%. Consumer loan interest rates also grew, by 0.05 p.p. MoM, 1.25 p.p. YoY, and amounted to 5.68%.
The latest update on the developments and changes recorded by the Croatian financial institutions, including the data for the loan and interest rate development has been released by the Croatian National Bank, ending in July 2023. According to the new data, the total loan amount issued by all the Croatian financial institutions amounted to EUR 42.2bn, representing an increase of 0.3% MoM (or EUR 127.9m), and 5.9%, or EUR 2.34bn YoY.
Breaking these changes down even closer, both households and corporate loans continued growing. In terms of the households, the total household loans amounted to EUR 20.9bn, representing an increase of 1.06% MoM (or EUR 219.7m), and 6.11% (or EUR 1.2bn) YoY. At the same time, corporate loans amounted to EUR 14.5bn, an increase of 0.65% (or EUR 93.3m) MoM, and 10.7% (or EUR 1.4bn) YoY.
Corporate and household loans growth rate (January 2015 – July 2023, %)
Source: HNB, InterCapital Research
Looking at the corporate loans more closely, we can see that on a MoM basis, investment loans recorded the largest absolute increase, at EUR 86m, or 1.53%, and amounted to EUR 5.71bn. Following them, we have working capital loans, which grew by EUR 33.6m, or 0.75%, and amounted to EUR 4.5bn. On the other hand, other loans recorded a decrease of EUR 91.1m, or 2.13%, and amounted to EUR 4.19bn. Meanwhile, on a YoY basis, the largest increase was recorded by other loans, which increased by EUR 1.03bn, or 32.6%, followed by investment loans with an increase of EUR 336.9m, or 6.3%, while working capital loans recorded a slight decrease of EUR 10.2m, or 0.23%.
Turning our attention to households, housing loans recorded an increase of EUR 156.3m, or 1.5% MoM, and EUR 888.2m, or 9.3% YoY. The next largest category, consumer loans, recorded an increase of EUR 64.4m, or 0.85% MoM, and EUR 419.9m, or 5.8% YoY.
Composition of Croatian loans to households (October 2011 – July 2023, EURm)
Source: HNB, InterCapital Research
Growth can be seen in the average interest rates on loans as well. In fact, the average housing loan interest rate increased by 0.18 p.p. MoM, 0.76 p.p. YoY, and amounted to 3.25%. The average consumer loan interest rate increased by 0.05 p.p. MoM, and 1.247 p.p. YoY, and amounted to 5.68%, while the average corporate interest rate decreased by 0.13 p.p. MoM, but increased by almost 3.02 p.p. YoY, and amounted to 4.78%.
Average new housing and corporate loan interest rates (December 2011 – July 2023, %)
Source: HNB, InterCapital Research