Earnings Report /
Croatia

Atlantic Grupa: Pressure on Margins in Q2 in Line with Estimates

  • Own Brands recorded sales of HRK 1,915m (+10.7% YoY), following the growth of almost all categories

  • EBITDA amounted to HRK 334.8m, representing a 13.5% YoY decrease which is in line with our estimates

  • Finally, net profit amounted to HRK 167m, representing a 23% YoY decrease

Tea Pevec
Tea Pevec

Head of Research

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InterCapital
28 July 2022
Published byInterCapital

In Q2 2022 Atlantic Grupa sales growth amounted to 10.6%, similar to Q1 growth of 11.3% YoY, as a result of both volume and prices growth so H1 sales were up 11% YoY. The sales were up as consumer spending increased because of the lifting of restrictions, while part of the increase in revenue is the result of higher selling prices due to significant increases in the prices of key raw materials, packaging materials, energy, and services. Organic revenue growth was recorded by all businesses and almost all distribution units due to the excellent results of most own and principal brands. The best results are recorded by the SBU Beverages (23.1%) and SBU Coffee (+15.3%), SBU Savoury Spreads (+10.6%), and the SBU Pharmacy business (+15.1%). Own Brands recorded sales of HRK 1,915m (+10.7% YoY), following the growth of almost all categories. Principal Brands amounted to a share of 27% and recorded a 10% YoY growth with sales of HRK 793m. Meanwhile, the Pharmacy business was down in Q2 as a result of the divestment of Bebi business in Russia and strong Q2 2021 that was at the time fuelled by increased demand for Covid-19 products. This is in line with our estimates while organic sales of pharmacy products continue due to the increase in sales of the existing Farmacia locations and the acquisition of new health care institutions.

EBITDA amounted to HRK 334.8m, representing a 13.5% YoY decrease which is in line with our estimates for a decrease in profitability due to a faster increase in operating expenses (+14.4% YoY). The highest negative impact on costs came from costs of goods sold (+10.2% YoY), production materials (+33% YoY), energy (+62% YoY), and other operating expenses (+21% YoY). EBITDA margin was down 317 bp, which is in line with our expectations for the whole of 2022. Costs of services were up 7%, due to higher sales and significantly higher transport and logistics costs, as a consequence of higher fuel prices and salaries compared to the same period of the previous year. Employee expenses were up 6.6% despite 108 fewer employees YoY, due to the increase in basic salaries and higher variable payments as a result of higher sales. Marketing and selling expenses were flat (1% YoY). Other operating expenses were up primarily because of higher travel-related costs, fuel costs, and entertainment costs. As pandemic restrictions eased the old way of doing business resumed so people returned to offices and business trips picked up. Finally, net profit amounted to HRK 167m, representing a 23% YoY decrease. It is in line with our estimates for a decrease in profitability.

From 15 July Atlantic Group share split was evidenced on Zagreb Stock Exchange. This is a recommendable move that will help increase share’s liquidity and attract new investors. Management of Atlantic expects that problems in supply chains and prices of energy, raw materials, and packaging materials are to stabilize in the foreseeable future. They also expect that profit margins will start to slightly recover from 2023 and subsequently return to the previous levels, which is in line with our business model. 1H top-line results are slightly above our estimates, while EBITDA is at 57% of our estimate for 2022. The result is broadly in line with our 2022 estimate, so we keep our current recommendation of HOLD.