Earnings Report /
Croatia

Atlantic Grupa: Strong top-line growth softens margin pressure

  • In Q1 2022 Atlantic Grupa sales growth accelerated to 11.3% YoY, as a result of both volume and prices growth

  • EBITDA amounted to HRK 180m, representing a 7% YoY increase as a result of positive impact from revenue growth (+11.5%)

  • 1Q top-line results are above our estimates, while we expect EBITDA margin to decrease higher in the rest of the year

Tea Pevec
Tea Pevec

Head of Research

InterCapital
2 May 2022
Published by

In Q1 2022 Atlantic Grupa sales growth accelerated to 11.3% YoY, as a result of both volume and price growth. According to the company, amount of orders increased before the announced prices increase. Already in Q1 company increased sales prices due to a significant increase in key raw materials, packaging materials, energy, and services. 1Q 2022 sales amounted to HRK 1.4bn (+11.3%) which is substantial growth compared to 4Q 2021 when growth of 6.6% YoY was evidenced. 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 Coffee (+15.1%) and SBU Beverages (22.7%), and the SBU Savoury Spreads (+8.6%). Own Brands recorded sales of HRK 873m (+10.3% YoY), following the growth of almost all categories. Principal Brands amounted to a share of 27% and recorded a 10.4% YoY growth with sales of HRK 375m. Meanwhile, the pharmacy chain Farmacia recorded strong sales growth of 20.6% YoY growth due to the increase in sales of the existing Farmacia locations, acquisition of new health care institutions and increased demand for Covid-19 products.

EBITDA amounted to HRK 179.8m, representing a 7% YoY increase while normalised EBITDA was up 5.3% as a result of the positive impact from revenue growth (+11.5%) which was higher than the negative impact of higher costs (+6% YoY) of raw materials and packaging materials, energy, service, and G&A expenses. EBITDA margin was down 51 bp, while in the next quarters' Management expects an even more significant negative impact of the mentioned price increases, which is in line with our expectations. COGS (+11.8% YoY) grew faster than principal products’ sales, change in inventory improved results for HRK 23m while Material and energy expenses surged by 32% YoY. Lower growth of expenses was evidenced in Employee expenses (+3.2%) and Marketing and selling expenses(+4.8% YoY). Financial results report revealed that investments in a factory for Argeta production in Varaždin are postponed for at least one year given the current situation in Ukraine and economic disruption. So in 2022 investments ranging from HRK 280m to HRK 330m are expected by the Management. Slightly higher 2022 depreciation growth (+4.7% YoY) is expected by us, which is somewhat higher than Q1 depreciation growth of +1.7% YoY. The net financial result was slightly down to HRK -6m due to lower interest expenses and negative impact of FX differences due to slight depreciation of HRK to EUR. Finally, net profit amounted to HRK 90.5m, representing a 9% YoY increase. It is a strong improvement compared to the previous quarter when net income was negative.

With the continuation of the increase in prices of raw material and packaging, logistics, services and energy, the decrease in normalized EBITDA margin is expected by the management at the level of 320 to 400 bp. 1Q top-line results are above our estimates, while we expect EBITDA margin to decrease higher in the remaining quarters of the year. Management outlook looks achievable in the current environment. These developments will be included in our new company update that will be published soon.