Earnings Report /
Croatia

Atlantic Grupa: Stockpiling drives up sales

  • In Q1 20 Atlantic Grupa recorded a 6.6% yoy increase in sales, which amounted to HRK1.3bn

  • EBITDA amounted to HRK181.4mn, which represents 12.1% yoy increase

  • Net profit amounted to HRK89.3mn, representing a 10.7% YoY increase

InterCapital
29 April 2020
Published byInterCapital

In Q1 2020 Atlantic Grupa recorded a 6.6% YoY increase in sales which amounted to HRK 1.3bn. The greatest contribution to revenue growth was made by the increase in sales of Savoury Spreads, Coffee, Donat Mg and the pharmacy chain Farmacia, which is partly a consequence of stockpiling in households due to the Covid-19 pandemic. If we exclude the effect of the divested business revenues, sales of the Strategic Business Unit Sports and Functional Food, sales of Dietpharm and Multivita brands and the distribution of bottled water for dispensers, the organic revenue growth would be 12.2%. Own brands recorded sales of HRK804.4mn (+9.3% YoY) with the greatest contribution to the growth made by: Argeta, Barcaff, Grand kafa, Smoki and Donat Mg. Principal brands recorded a mild decrease of 2.5% with sales of HRK349.2mn. If we exclude the effect of absence of sales in the sports and functional food range where the distribution was discontinued, principal brands grow by 5.7%. The growth is mainly based on the increase in sales of principals Ferrero, Unilever, Hipp and Mars, and new principals including Saponia and Kandit in Slovenia and Serbia, and Ficosota and Beiersdorf in Macedonia. Meanwhile Farmacia’s sales soared 18.9% YoY to HRK127mn due to the higher demand for drugs, food supplements, disinfectants and protective equipment as a consequence of the Covid-19 pandemic. As at 31 March,Farmacia consists of 90 pharmacies and specialised stores.

EBITDA amounted to HRK181.4mn which represents 12.1% YoY increase. The increase in EBITDA was a result of higher sales, coupled with lower marketing investments. Note that the decrease in marketing was associated with the divestment of less profitable operations. EBITDA margin also improved as sales grew more than costs. However, one should highlight that higher staff costs are partly a consequence of incentive compensations in the amount of 15% of the salary for all employees that are unable to work from home during the pandemic because of the nature of their jobs. Furthermore an increase in the minimum wages in Serbia annulled the effect of the decrease in staff costs arising from the divested business.

Below the operating line, Atlantic recorded a deteriorating net financial loss, which almost doubled when compared to last year and amounted to HRK-15.3mn. Note that the higher financial loss primarily occurred due to depreciation of the Croatian kuna against the Euro. Finally, net profit amounted to HRK89.3mn, representing a 10.7% YoY increase. 

On the balance sheet, Atlantic Grupa continued to deleverage their operations with net debt down by 4.5% since the begging of the year and now amounts to HRK 881.5. When compared to the Group’s EBITDA, this translates to a net debt/EBITDA of 1.2x (down from 1.3x at the beginning of the year).

On the outlook, management stated that it is hard to estimate the impact of Covid-19 on the company’s future results, as it is still uncertain when the protective measures introduced will be removed. However, they did state that Atlantic’s balance sheet includes nearly HRK1.6bn of intangible assets whose value depends to some extent on future results as well as on the average weighted cost of capital so that any long-term changes to sales or risk premiums for Atlantic’s key markets could result in the impairment of these assets. 

Atlantic Grupa’s strong Q1 2020 results are encouraging, however, until we update our model, we keep the price Under Review.