Exclusive: Analysis of the State of the Real Sector in the Last Six Years
Author: Lider
March 18, 2025
written by: Nikola Nikšić, Konter
According to historical experiences, publicly published annual statistical financial reports for capital companies whose securities are listed on the Zagreb Stock Exchange serve as a good ‘exit survey’ for what results can be expected for that year for the so-called ‘real sector’ of the Croatian economy, corporate income tax payers. Especially when the data published for 2024 is linked with several years from the previous period, in order to gain insight into trends over a longer time dimension. Observing only ‘year on year’ is not sufficient and will not provide information on how a business entity operates from the perspective of long-term sustainable and stable operations, primarily through excellence growth, which is subsequently reflected in revenues, profit, and indicators of productivity, profitability, liquidity, activity, and indebtedness.
To understand and adequately interpret the figures and derived indicators of the ‘heavyweights’ and their trends, it is important to initially note some of the key circumstances from the broader and narrower external environment. 2024 was a year in which extremely unpleasant and uncertain (outcome and duration) geopolitical upheavals and armed conflicts intensified, and in which the election of Donald Trump as the new American president at the end of the year hinted at significant changes in American policies and the overall international order.
2024 was a “super election year” for Croatia, with GDP growth of 3.8 percent and inflation of 3.4 percent. Compared to the previous year, service prices increased by 5.9 percent, food by four percent, non-food industrial products excluding energy by 1.4 percent, while energy prices fell by 0.9 percent. Inflationary pressures and negative circumstances in the labor market (aging population, fluctuation, late entry of youth into the labor market, and early retirement, etc.) were also reflected in the dynamics of average monthly net salary growth, which reached 1,346 euros in 2024, 12 percent higher than in 2023, while the median (1,242) maintained a negative deviation of 100 euros compared to the average, which has been a standard deviation for a longer period. Interest rates on loans to non-financial institutions (60 percent are used by large business entities), despite a slight decline in the second half of 2024, remained high, with the average nominal interest rate for 2024 for existing loans at 4.34 percent, and for newly contracted loans in December at 4.14 percent.
Collectively observed, six banks whose securities are listed on the ZSE achieved 1.35 billion net income in 2024 (8.2 percent more compared to 1.25 billion for 2023) and 659.5 million net profit (seven percent more compared to 616.2 million for 2023). The value of Croatian goods exports in 2024 amounted to 23.9 billion euros, which is 4.6 percent more than in 2023, while imports increased by 5.4 percent to 41.8 billion euros. Thus, in 2024, the foreign trade deficit increased by 1.2 billion, to 17.8 billion in 2024 compared to 16.6 billion in 2023. The coverage of imports by exports in 2024 decreased to 57.3 percent, down by 0.5 percentage points compared to 57.8 percent for 2023.
In such conditions, out of a total of 160 thousand entrepreneurial organizations and 17 thousand non-profits, and slightly less than 500 financial institutions, 59 capital companies from the ‘real’ sector operated, six out of about 30 banks and savings banks, and three out of 20 insurance companies whose securities are listed on the ZSE. These are robust systems that primarily ‘play it safe’, more focused on short-term profits for the title holders of ownership, on the development of operational excellence (efficiency: structure and organization, digitalization of processes, etc.), routine, experience, and greater negotiating power towards some of the shareholder groups of their ecosystems (primarily towards suppliers), and less on flexibility (speed of response and implementation of changes in accordance with environmental circumstances) and business excellence (effectiveness: innovation).
In the analysis, Adris d.d. was observed unconsolidated (the largest part of consolidated revenues comes from Croatia osiguranje d.d., and Maistra d.d. was observed separately), and Končar DST (the ‘flagship’ of the Končar group) and Dalekovod d.d., new potential stars of the Končar group, were not included, as they are covered by the consolidation of Končar elektroindustrija d.d.
Out of a total of 59, 17 are registered in the sector (name according to NKD – area) C Manufacturing, 14 in I Accommodation, food preparation and serving activities, 8 in H Transportation and storage, 5 each in G Trade and M Professional, scientific and technical activities, and F Construction, while the remaining 10 are in 6 other sectors.
Complex Consolidations
As these are consolidated reports, it should be noted that in addition to the consolidation holder with its identifiers (form of organization, activity, location, etc.), the consolidation also includes some business entities with completely different characteristics (activity, location, size) from the holder, which can more or less influence the consolidated values and derived indicators depending on their scope and quality of operations. A more complex structure is observed for:
* Atlantic Group in consolidation includes the operations of 23 companies, some of which are engaged in trade (Atlantic trade), while others in production (Cedevita, Droga, Štark, Argeta BiH, Grand, Farmacia, etc.), some are ‘domestic’ (Croatia) and some from the Ex-YU region and other foreign markets.
* Podravka includes a strong pharmaceutical company (Belupo) and Žito Ljubljana, as well as 4 of its companies in Serbia, BiH, Poland, and the Czech Republic.
* Hrvatski Telekom, in addition to including related companies Iskon and Crnogorski Telekom, also includes Combis from the computing sector.
* Saponia (chemical industry) also includes the operations of Kandit (food industry).
* INA includes the operations of 20 companies, of which very interesting companies by global potential (STSI and Crosco) are from the mining and maintenance of mining equipment sector.
* Čakovečki Mlinovi (food industry) also includes 3 regional retail chains (Radnik Opatija, Trgovina Krk which previously merged with Metss and Trgostil, and Trgocentar).
* Zagrebačke Pekarne Klara (food industry) also includes the retail chain Prehrana trgovina, and is currently in the process of merging with Čakovečki Mlinovi.
* Lošinjska Plovidba (storage and shipping) also includes Lošinjska Plovidba shipyard and Lošinjska Plovidba tourism (camping activities).
Less complex consolidations that aggregate the results of larger related companies are Medika (which includes the retail pharmacy chain Prima Pharme), Končar Group, Kraš, Đuro Đaković, Maistra (Grand Hotel Imperial Dubrovnik), Valamar (Imperial Riviera Rab, Magične stijene, and Bugenvilia), Granolio (Zdenka). In total, the consolidated financial reports of the heavyweights cover the operations of just over 350 business entities, of which three-quarters are based in Croatia, and one-quarter is based abroad.
In 2024, 59 capital companies collectively achieved 13.95 billion in total revenues, which is 6.8 percent more compared to 13.05 billion for 2023. At the same time, expenses increased more moderately, by 6.6 percent. To better interpret the operations of the ‘heavyweights’, considering that the value of data from ‘year on year’ deviations has very limited value, the following analysis will place greater emphasis on trends over a longer time period, six years, with 2019 set as the base year, the ‘best’ year that concluded the propulsion cycle from 2015, halted in 2020 due to the corona pandemic.
Operations of the ‘Heavyweights’
In six years, the total revenues of the heavyweights grew on average annually by 6.6 percent, measured by the compound annual growth rate (CAGR), while business expenses grew 0.9 percentage points less, at 5.9 percent. From this positive trend of deviations, an average annual growth of the total value of net profit of 17 percent emerged. Observed over four years from 2021 to 2024, in the period after the corona crisis, the total revenues of the heavyweights grew on average annually by 9.8 percent, while expenses grew by 9.3 percent. In 2024 (the same ratio in 2023, of 10, 9 had losses), 49 companies operated with net profit, and 10 with net loss. This is certainly a significantly better ratio than in 2019, when 15 operated with net loss.
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* Total revenues for six activities with revenues exceeding 1 billion in 2024 and others for the period 2019 – 2024, with a comparison of 2024/2023 and compound annual growth rate (CAGR) over six years.
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The aggregate revenue growth of the heavyweights of 6.6 percent over six years resulted from relatively uniform growth in four of the strongest revenue-generating activities, from three trade-service activities, and one industrial (food). Telecommunications, according to the operations of HT as the dominant market leader, stagnated over six years (growth of 1.1 percent), with a growth of 6.4 percent in 2024. The production of electrical equipment from the data on the operations of the dominant market leader Končar Group (which also includes some other industrial activities: rail vehicles, metal processing, etc.) is the leader in average revenue growth of the heavyweights over six years, at 18.7 percent, while with the highest growth in 2024 (20.7 percent) is the trade of motor vehicles (Auto Hrvatska, CIAK Group), which follows with a 12 percent six-year growth. * Net profit for six activities with revenues exceeding 1 billion in 2024 and others for the period 2019 – 2024, with a comparison of 2024/2023 and compound annual growth rate (CAGR) over six years. 2384274 * Net margin for six activities with revenues exceeding 1 billion in 2024 and others for the period 2019 – 2024, with a comparison of 2024/2023 and compound annual growth rate (CAGR) over six years. 2384275 From the analysis of net results and margins, it can be observed: • That wholesale is increasingly distant from net margins which in the ‘best’ year 2019, and in the years of corona (2020) and post-corona (2021) were above four percent, and that the margin of 2.4 percent is more than one hundred percent lower than that from 2019. The net result for 2024 (48.29) is 13.79 million lower than in 2019 (62.09), and 5.10 million lower than 53.39 for 2023. • That for the hospitality sector, 2024 was the second year in which there was a decline in net margin (in 2023 by 11.5 percent compared to 2022, and 12 percent in 2024 compared to 2023), thus increasing the negative difference compared to the ‘record’ 15.7 percent for 2019. In absolute terms, hoteliers in 2024 (135.96) achieved a net profit margin 2.82 million lower than 138.77 from ‘long ago’ 2019 and 6.67 million lower than 2023 (142.63). It should be noted that hospitality is the most represented sector by the number of heavyweights on the ZSE (14 out of 59, 23.7 percent), so these aggregate results can be considered relevant indicators for the entire sector. • HT, as a representative of telecommunications operations (52.2% share in total revenues for 2023 among HT – A1 – Telemach), despite stagnation in revenues (CAGR 1.1 percent over 6 years), achieved good growth in net profit (CAGR 6.5 percent, 2024/23. 7.2 percent), and thus in net margin (CAGR 5.3 percent, 2024/23. 0.7 percent). • The food industry achieved significantly higher growth in net profit and margin compared to revenue growth. Over 6 years, the average growth of net profit for 5 food heavyweights (Podravka, Granolio, Klara, Kraš, and Čakovečki Mlinovi) was 18.5%. For 2024/23, it was 13.4%. The net margin averaged a growth of 13.2% over 6 years, and in 2024, it grew by 5.5% compared to 2023. • Končar, as a representative and strong vertical integrator of export industrial production in Croatia, confirmed significant revenue growth and a trend of developing organizational excellence with exceptional growth in profitability: CAGR of net profit at 69.4 percent, 2024/23. 123.2 percent, CAGR of net margin at 42.8 percent, 2024/23. 87.2 percent. • The trade of motor vehicles, after compensating for the decline in net margin in the corona year in 2021, returned to the basic profitability principles of the activity in the next three years with a nice revenue growth (in the ‘best’ year 2019 at three percent, in the period 2021 – 2024 ranging from 3.2 to 3.6 percent). * Total revenues for the Top 10 heavyweights and 49 others collectively by revenues in 2024, for the period 2019 – 2024, with a comparison of 2024/2023 and compound annual growth rate (CAGR) over 6 years. 2384276 * Net result for the Top 10 heavyweights and 49 others collectively by revenues in 2024, for the period 2019 – 2024, with a comparison of 2024/2023 and compound annual growth rate (CAGR) over 6 years. 2384277 * Net margin for the Top 10 heavyweights by revenues in 2024, for the period 2019 – 2024, with a comparison of 2024/2023 and compound annual growth rate (CAGR) over 6 years. 2384278 The values, trends, and proportions of liquidity and indebtedness indicators, as well as financial stability and creditworthiness, observed collectively, indicate that the heavyweights certainly respect the ‘rules of the game’ in the field of financial management, aware that they cannot play with their shareholders and cooperate in a manner that is partially allowed and enabled for companies colloquially referred to as ‘family businesses’. In doing so, primarily focused on short-term profits and operational excellence (efficiency – doing things right), they lose, for ‘modern times’, an important opportunity to achieve a higher level of business excellence (effectiveness – doing the right things) through speed of response, avoiding routine, taking on risks more intensively, and a higher level of organizational flexibility and worker agility. And that is a significant competitive advantage, privilege, and attractiveness of smaller and more simply owned entrepreneurial organizations. 2384279 The share of financial debt in liabilities (sources of business) over all six years of observation ranged from 14.2 percent (2023) to 16.1 percent (2019). As of December 31, 2024, it amounted to 15.1 percent. In assets, the share of cash ranged from seven percent (December 31, 2024) to 11.9 percent on December 31, 2021. Considering the growth of absolute values of EBITDA and OCF, the growth of financial debt with a decrease in cash on accounts expressed as ‘net financial debt’ in relation to EBITDA, despite the negative change, is far below the value at which business banks would have an economically justified reason to pull the brakes or redefine the terms of cooperation (interest rates, deadlines, fees, etc.). Since six commercial banks (ZABA, Erste, HPB, Podravska, Slatinska, Istarska kreditna) have their securities listed on the ZSE, this is also confirmed by insights into their business results, which, whether collectively or individually observed, are far above the levels achieved by the ‘best’ customers of their products and services from the entrepreneurship segment, which they, like other suppliers, offer and deliver. 2384280
Stronger Entrepreneurship
All in all, when looking at all the figures and indicators of the heavyweights, and their trends over the six-year period from 2019 to 2024, according to the circumstances from the broader external environment, a diverse and therefore analytically interesting period, it is evident how much the entire Croatian entrepreneurship is stronger and more economically rational compared to the period of the previous crisis (which began at the end of 2007 and lasted 7-8 years, decreasing in intensity). At that time, major problems were related to over-indebtedness and illiquidity, arising from unnecessary costs of personal consumption and economically unjustified investments without adequate returns on investment, unethical behavior in fulfilling contractual obligations (non-payment, extending deadlines, etc.) further supported by the introduction and implementation of pre-bankruptcy settlements and shortened bankruptcy procedures.
And if a smart conclusion should be drawn from all the previously presented, in sifting through historical sources, an analysis of Croatian society and economy that saw the light of day back in September 2019 at Lider’s Day of Big Plans emerges. And lo and behold, six years later, it can be almost entirely acknowledged, understanding the current circumstances (opportunities and threats) from the environment, as well as the possibilities (strengths and weaknesses) of our economy and society as a whole. The recommendations within that analysis were directed towards two sectors, public and private:
• Recommendations for the public sector (the state) to spend significantly smarter and generate more revenue:
1. QUALITY OF BUREAUCRACY Croatia spends significantly more than the EU average on the public sector, which should be reduced by optimizing organization and digitalizing processes, simplifying procedures, and reducing bureaucracy.
2. GREY ECONOMY Combating the grey economy brings greater tax revenues to the budget.
3. STATE ENTERPRISES Through comprehensive restructuring (strategic, operational, and financial) and digitalization, optimize their operations, achieving greater profits through improved efficiency and thus bringing greater revenues to the budget.
• Recommendations for the private sector on how to ensure sustainability and competitiveness through modernization:
1. DIGITALIZATION Robotization and automation of well-chosen strategic industries guarantee their competitiveness, i.e., productivity and efficiency, while digitalizing supporting activities and organizational units improves the overall efficiency of entrepreneurship.
2. EXPORT MARKETS A strong market diversification is needed, structured and guided (economic diplomacy, sources of financing, risk management, associations, etc.) to reduce dependence on a few markets, mainly from the neighborhood.
3. INVESTMENT IN DEVELOPMENT AND INNOVATION is a trend in the EU, while in Croatia, investments continue to be made in real estate. In R&D, Croatia invests several times less of its GDP compared to the EU.
Four key words: “strategy, production, export, investments” are not rocket science nor great wisdom, but they are crucial for the success of entrepreneurship, which, as a stakeholder in the broader system (Croatia, EU, etc.), is the bearer of creating economic added value, an important component of the overall excellence of a particular community, economy, or company. De-globalization (the intention to ensure energy, water, and food self-sufficiency and/or as much independence as possible at the levels of more complex social and economic entities and states…), geopolitics dominated by the need to satisfy the interests of great powers and the use of ‘rough’ tools to achieve them (armed conflicts, trade and intelligence wars, etc.), climate change and ecological demands, and more, increasingly push local economies, including ours, to systematically strengthen their competitiveness and self-sufficiency based on their well-recognized and respected comparative advantages and potentials. Especially in the areas of energy, food, and water, health and safety care.
Sustainably, among other things, implies: stronger and more concrete involvement and action of science and education in close cooperation with entrepreneurship; restructuring the public sector to enable adjustments in tax policies, major changes in organization, competencies (business literacy), and behavior of the financial sector, agile economic diplomacy, strategic associations and integrations (especially of small and micro enterprises), ownership and operational restructuring of state-owned companies, directing subsidies and support to economically justified investments in development and research, development of competencies and new business models, digital transformation, and similar.
