Revenue in 9M amounted to HRK 3.7bn supported by increase in prices of majority of its products coupled with growth in quantity of products in BU Basic food, Bakery and Soups. Food traded goods sales was up 30% YoY because of strong tourist season in Croatia. All this coupled with rebound of Pharma segment (+5% YoY) drove the 9M 2022 sales up 9.7% YoY.The increase was driven by the Food segment revenue growth (+11.1%), because of strong growth of markets Croatia & Slovenia (14.4%YoY), South-East Europe (+12%) and Central Europe (+15.6%). The increase in the Food segment was driven by increases in sales across all BUs, with the highest absolute growth recorded by BU Basic Food (HRK 120m or +23%), and BU Bakery (HRK 54m or +13%) and Soups (HRK 34m or +16%). Meanwhile, BU Culinary recorded only a slight 0.8% increase, meaning that its main seasoning products volumes declined. In Q3 sales surged by 11.5% supported by hike in Pharma sales (+16%) and profitability with slow-down in Food sales (Q3 10% vs. Q2 12%). Pharma segment sales in 9M were up 5% YoY (vs. 1H -0.3% YoY) as growth was recorded in the markets of Bosnia and Herzegovina and Russia. The growth could be in our opinion supported by the increase of prices on Russian market. At the same time, OTC drugs category increased by 4.1%, while other sales category of the Pharma segment increased by 5.1%, due to the increase in sales in Croatia and B&H.
In 9M 2022, EBITDA amounted to HRK 520m, +5.7% YoY, and is above our estimate as it stands at 92% of our 2022E. Breaking this down further, COGS increased by +12%, as a result of the negative effect of trends in prices of raw materials, packaging, and energy where the cost of raw materials, packaging and energy, in Food segment primarily related to cereals and mill products, meat and meat products, vegetables, and fats and oils. As a result, gross margin was down 131 bps. General and admin. costs increased by +6.7% and selling and distribution costs increased by +8.6%, while marketing expenses were flat. TTM EBITDA margin is at 12.3% and deteriorated due to strong growth in expenses and inflationary environment but slower than our initial estimate of 11.5% on annual level. The net financial result amounted to HRK -4.1m, mainly due to unfavourable movements in FX differences on borrowings and lower interest expenses. Finally, net profit after MI amounted to HRK 269m, a 3.8% increase YoY.
Non-operating assets on Žito were sold above book value which will further support net result in Q4. The overall result is above our estimates due to lower decrease in operating profitability. Our target price of HRK 718.00, stand at 17% above market, as our company report was done in February when company’s share was priced much higher due to lower interest rate environment. We find the result supportive for the share price and we keep our current recommendation.