bne IntelliNews – Warfare and hovering costs take toll on Southeast Europe’s listed corporations

The conflict in Ukraine, rising costs and provide chain disruptions are taking their toll on listed corporations from Croatia, North Macedonia and Slovenia, firm executives and inventory market officers from the three nations instructed a two-day investor convention on the finish of Could. 

Firms from sectors together with meals, prescription drugs, automotive elements manufacturing, tourism and IT are affected by the disaster, as outlined on the CEE Funding Alternatives convention organised by the Zagreb and Ljubljana inventory exchanges on Could 26 and 27. Whereas just some have direct publicity to the combatants — resembling Croatian IT firm Span’s Ukrainian subsidiary or auto elements producer AD Plastik’s enterprise in Russia — all are impacted by the hikes in meals and vitality costs. 

The Zagreb Inventory Alternate’s (ZSE’s) foremost index Crobex is now buying and selling round pre-COVID ranges, and is “performing properly” in comparison with Western Europe and the US, in response to Danijel Delač, board member of InterCapital Securities. Nevertheless, because the impression of the conflict makes itself felt, Delač warned on the convention that “revenue margins [of listed companies will] be affected by commodity value explosion and it stays to be seen what the impact will likely be on dividend payouts”.

Delač listed the headwinds going through corporations. “Power costs exploded, all types of inputs are exploding, it is laborious to undertaking developments in subsequent years, in the intervening time that can be a problem,” he stated.  

Filip Petrushevski, CEO of Investbroker AD, the co-founder of the Macedonian Inventory Alternate, has seen an analogous restoration on the trade in North Macedonia, which began final yr when it achieved the largest turnover in additional than 10 years. The trade’s foremost index, the MSE-MBI10, was up by 30% in 2021. 

Nevertheless, Petrushevski stated that whereas the restoration started final yr, there was not a full restoration when the conflict began. He additionally famous that the impression of worldwide occasions tends to hit the Macedonian Inventory Alternate later than the Slovenian and Croatian exchanges, which means extra ache almost certainly lies forward. 

“2021 was the yr of restoration, when GDP progress in Q2 highest in current historical past but in addition coming after highest decline in Q2 2020. With the approaching of vaccines issues said reopening and GDP progress ended the yr at 4.1%, however reopening had its personal points — the deterioration of provide chains and upward stress on vitality costs made the method of getting again to regular more difficult,” Petrushevski instructed the convention. 

“Whereas there have been beneficial expectations about 2022, escalated geopolitical tensions, disruptions of provide chains and progress of costs of major commodities on the intentional market make the evaluation for the financial system just about unfavourable.” He warned that the scenario might nonetheless worsen if there’s a additional escalation of the conflict, extra sanctions, additional tightening of financial coverage in developed nations, in addition to citing dangers associated to the pandemic, such because the emergence of recent variants of coronavirus.

Span’s Ukrainian enterprise 

One of many corporations from the area that has been instantly affected by the conflict in Ukraine is Croatian IT firm Span. Span held a profitable IPO in 2021, utilizing a few of the proceeds to fund its worldwide enlargement. Immediately it has greater than 1,200 shoppers on six continents, together with main worldwide corporations Starbucks, McDonald’s and Tate and Lyle. Whereas comparatively small, its Ukrainian subsidiary had been rising strongly.

“Our actions within the war-ravaged areas haven’t stopped so we’re nonetheless offering assist to our customers in Ukraine,” its presentation stated. 

“About 60% of companies are nonetheless working, particularly in western Ukraine,” stated Petra Keča Vidović, Span’s investor relations supervisor. Span moved the feminine members of its Ukrainian crew to Zagreb after conflict broke out, however just a few of the lads left Ukraine. Amongst Span’s largest prospects in Ukraine are metals firm Azovstal, whose metal plant was virtually fully destroyed in a months-long seige, and Metinvest. 

Keča Vidović says Span was rising in Ukraine till the tip of February. “We’ll keep there to assist them as a lot as attainable and be one of many important companions within the reconstruction of Ukraine on the software program facet if attainable,” she added.  

Auto-making halted in Russia 

Experiencing the conflict on the opposite facet is AD Plastik, a Croatian provider to the automotive trade that pre-war generated simply over 1 / 4 of its revenues (27%) in Russia. 

“In Q1 22, sadly we’re impacted like most corporations by the Russia-Ukrainian disaster. On high of that also we face this situation of lack of semiconductors,” stated Josip Boban, president of the board of AD Plastik. 

Commenting on the challenges the corporate is going through this yr, Boban listed the conflict, shortages of semiconductors and growing costs of supplies and vitality. The corporate’s responses embody engaged on value adjustment and effectivity enchancment, because it focusses on monetary stability and profitability. 

The way forward for its enterprise in Russia is very unsure. Automakers have halted manufacturing because of worldwide sanctions and falling demand. French automobile maker Renault agreed in April to switch its 68% stake in Russia’s largest carmaker AvtoVaz to the state for a symbolic value one ruble and a five-year choice to get the asset again. One other of AD Plastik’s prospects, Volkswagen, has additionally halted manufacturing however not but introduced what its plans are. 

Blended image for pharma

A number of corporations from the area are suppliers of prescription drugs to Russia and Ukraine, and for this sector the image is blended. 

Slovenia’s Krka stated in its presentation that the scenario in Russia and Ukraine — its first and third largest markets respectively — didn’t considerably have an effect on its Q1 gross sales. In actual fact through the quarter the corporate made the very best first quarter internet revenue in its historical past, as gross sales elevated in all gross sales areas and all merchandise and repair teams. 

Nevertheless, the corporate stated that whereas it was among the many first corporations to reinstate logistics all through the whole distribution chain in Ukraine, it faces a difficult atmosphere in Russia and Ukraine the place the “period and long-term penalties [are] laborious to foretell”. We’re “performing all efforts to make sure enterprise continuity in [the] area and fulfill social accountability of uninterrupted provide,” the corporate’s presentation added. 

Croatian meals and pharma group Podravka, in the meantime, stated that its general gross sales in Japanese Europe dropped by 30.4% in Q1, primarily pushed by a forty five.3% fall in prescription drugs gross sales. The group attributed this to “decrease gross sales of pharmaceuticals and non-prescription programme as a result of discontinued deliveries of medicine to the market of Russia”.

In “pharma we recorded decrease gross sales of our personal bands as a result of scenario between Russia and Ukraine as a result of we cancelled all shipments to Russia for the reason that conflict began … you’re all conscious of the significance of the Russian marketplace for our pharma section,” stated Irena Ivanković, head of investor relations at Podravka. 

Hovering costs 

Podravka is energetic in a variety of meals segments in addition to prescription drugs. The group reported constructive outcomes for 2021 with 2.8% larger gross sales throughout the group, together with 2.1% larger gross sales for meals and 5.5% for pharma. 

Nevertheless, in addition to the disruption of gross sales to Russia, the corporate’s presentation stated that “Unfavorable developments in costs of uncooked supplies and provides have been recorded in 2021 in comparison with 2020”, weighing on profitability. 

Ivanković identified that Podravka already elevated the costs of its merchandise by between 7% and 10% at first of 2022 — with out a unfavourable impact on the amount of meals gross sales — and forecast that the development of rising costs will proceed via the yr.

One other main Croatian meals and beverage firm, Atlantic Group, reported a big improve in income and normalised Ebitda in Q1, regardless of the “difficult and unprecedented atmosphere” and the autumn in gross sales in Russia and the CIS through the quarter. 

The group’s presentation additionally famous a “Important improve within the costs of a big portion of our uncooked supplies and packaging supplies, logistics and different providers and vitality”. Amongst them is an anticipated improve of greater than 60% in common costs of uncooked espresso on the worldwide commodity markets. 

Past FMCG

The rising costs of meals and different fast-paced client items (FMCGs) are having a knock on impact on corporations from the hospitality sector. 

Devansh Bakshi, CFO of Area Hospitality Group, stated the group is anticipating sturdy orders this yr, “coming fairly near 2019”, in Croatia in addition to different markets resembling Germany. Alternatively, Bakshi warned about inflation and provide chain points, with inflation within the vary of 6-8% for many merchandise, however as excessive as 20% for some.

Concerning the provision chain, he stated: “we’re working very intently with all our suppliers, speaking on a weekly foundation, particularly for meals, drinks, cleansing provides, cleaning soap shampoo and so on, all of the consumables and provides. Up to now no suppliers instructed us there could be disruption besides engineering suppliers.” 

Commenting on the long-term response, Bakhri stated: “All companies want to take a look at sustainability — different methods of manufacturing and lowering. We’ve got a plan, we’re working with specialists, we predict sustainability is a really strategic matter that has shifted to a precedence given the occasions of the final 5 months.”  

Labour market 

Labour stays a problem for a lot of nations in Central and Southeast Europe. Croatian corporations have lengthy struggled to seek out seasonal tourism and building employees. Delač highlighted the workforce as one other problem particularly for tourism, IT and building corporations within the nation. 

Bakshi additionally singled out the labour market, saying it shrank additional in recent times by way of expert workforce. The corporate responded wth a profitable recruitment drive inside Croatia, in addition to looking for overseas employees, predominantly from the Philippines, Ukraine, North Macedonia, Serbia, Bosnia & Herzegovina and Indonesia. Nevertheless, Bakshi added, worldwide recruitment provides to the labour prices, for instance via commissions, journey, housing and meals.  

One other main tourism firm Valamar Rivera stated in its presentation that retention of current workers and attracting new ones are amongst its foremost wants. It warned of a rise of round 14% within the salaries for occupations resembling cooks, waiters and receptionists. 

Span’s Keča Vidović stated securing expertise is the primary impediment to the corporate’s progress. “To develop extra we have now to make use of extra. We’re importing individuals from Asia, using as many as we will. Our progress could be a lot larger if extra sources have been obtainable,” Keča Vidović stated.