Page 23 - bne magazine July 2022_20220704

bne July 2022 Companies & Markets I 23
Auto-making halted in Russia
Experiencing the war on the other side is AD Plastik, a Croatian supplier to the automotive industry that pre-war generated just over a quarter of its revenues (27%) in Russia.
“In Q1 22, unfortunately we are impacted like most companies by the Russia-Ukrainian crisis. On top of that, still we are facing this issue of lack of semi-conductors,” said Josip Boban, president of the board of AD Plastik.
Commenting on the challenges the company is facing this year, Boban listed the war, shortages of semi-conductors and increasing prices of materials and energy. The company’s responses include working on cost adjustment and efficiency improvement, as it focuses on financial stability and profitability.
The future of its business in Russia is highly uncertain. Automakers have halted production as a result of international sanctions and falling demand. French car maker Renault agreed in April to transfer its 68% stake in Russia’s largest carmaker AvtoVaz to the state for a symbolic price one ruble and a five-year option to get the asset back. Another of AD Plastik’s customers, Volkswagen, has also halted production but has not yet announced what its plans are.
Mixed picture for pharma
Several companies from the region are suppliers of pharmaceuticals to Russia and Ukraine, and for this sector the picture is mixed.
Slovenia’s Krka said in its presentation that the situation
in Russia and Ukraine – its first and third largest markets respectively – did not significantly affect its Q1 sales. In fact, during the quarter the company made the highest first- quarter net profit in its history, as sales increased in all sales regions and all products and service groups.
However, the company said that while it was among the first companies to reinstate logistics throughout the entire distribution chain in Ukraine, it faces a challenging environment in Russia and Ukraine, where the “duration and long-term consequences [are] hard to predict. We are performing all efforts to ensure business continuity in [the] region and fulfill social responsibility of uninterrupted supply,” the company’s presentation added.
Croatian food and pharma group Podravka, meanwhile, said that its overall sales in Eastern Europe dropped by 30.4% in Q1, mainly driven by a 45.3% fall in pharmaceuticals sales. The group attributed this to “lower sales of prescription drugs and non-prescription programme due to the discontinued deliveries of drugs to the market of Russia”.
In “pharma we recorded lower sales of our own bands due
to the situation between Russia and Ukraine because we cancelled all shipments to Russia since the war started ... you are all aware of the importance of the Russian market for
our pharma segment,” said Irena Ivankovic, head of investor relations at Podravka.
Soaring prices
Podravka is active in a wide range of food segments as well as pharmaceuticals. The group reported positive results for 2021 with 2.8% higher sales across the group, including 2.1% higher sales for food and 5.5% for pharma.
However, as well as the disruption of sales to Russia, the company’s presentation said that “Negative trends in prices of raw materials and supplies were recorded in 2021 compared to 2020”, weighing on profitability.
Ivankovic pointed out that Podravka had already increased the prices of its products by between 7% and 10% at the beginning of 2022 – without a negative effect on the volume of food sales – and forecast that the trend of rising prices will continue throughout the year.
Another major Croatian food and beverage company, Atlantic Group, reported a significant increase in revenue and normalised Ebitda in Q1, despite the “challenging and unprecedented environment” and the fall in sales in Russia and the CIS during the quarter.
The group’s presentation also noted a “significant increase
in the prices of a large portion of our raw materials and packaging materials, logistics and other services and energy”. Among them is an anticipated increase of more than 60% in average prices of raw coffee on the global commodity markets.
Beyond FMCG
The rising prices of food and other fast moving consumer goods (FMCGs) are having a knock-on effect on companies from the hospitality sector.
Devansh Bakshi, CFO of Arena Hospitality Group, said the group is expecting strong orders this year, "coming pretty close to 2019”, in Croatia as well as other markets such as Germany. On the other hand, Bakshi warned about inflation and supply chain issues, with inflation in the range of 6-8% for most products, but as high as 20% for some.
Regarding the supply chain, he said: “we are working very closely with all our suppliers, talking on a weekly basis, especially for food, beverages, cleaning supplies, soap shampoo, etc, all the consumables and supplies. So far no suppliers told us there would be disruption except engineering suppliers.”
Commenting on the long-term response, Bakhri said: “All businesses need to look at sustainability – other ways of producing and reducing. We have a plan, we are working with specialists, we think sustainability is a very strategic topic that has shifted to a priority given the events of the last five months.”
Labour market
Labour remains an issue for many countries in Central and Southeast Europe. Croatian companies have long struggled to find seasonal tourism and construction workers. Delac
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