14 November 2023
Ziņas un Viedokļi
Baltic Corporate Excellence Award 2023

In the whirlwind of lockdowns, geopolitical unease, and cost hikes doing the cha-cha with consumer wallets, Baltic company managers can’t afford to kick back and relax. It’s like a wild rollercoaster that beats any MBA program for executives! Current environment puts more responsibility on management teams in Baltic countries to skilfully manage companies’ costs and to adapt to current macro situation. However, even in this demanding environment, there are resilient and well-managed companies holding their own.

Our objective with the Corporate Excellence Award has been to evaluate and acknowledge businesses listed on the main list of the Baltic stock exchange, and during the last year, Lithuanian companies has shown best results in Baltics – 4 companies from Lithuania has managed to be listed among TOP 5. In 2022, the Baltics saw the highest price hike in the Euro Area, and this obviously has exerted pressure on profitability. Alongside volatile electricity prices and previously mentioned rising interest rates have created not easy challenges for the companies. According to our evaluation of corporate past results, the pressure was managed the best by the retailers and a telecom company, which have ensured their top positions among the Baltic companies.

Companies with less than three years data history are not included in the evaluation
Source: Alphinox, Reuters

Long-term Baltic top dweller, Telia Lietuva, remained in the top also this year, regaining positions from last year after it saw moderate increase in net profitability. The company continues to stay as stable as possible ensuring its profit growth every year. It managed to stay in the very top even despite substantial investments to launch 5G, which naturally caused decline in free cash flow that translated into the dividend cut. Telecoms are very capital-intensive businesses, having investment cycles defined by the technological leaps, which are needed to stay competitive. So, it is a challenge for the management to navigate these cycles smoothly and, it seems, that Telia’s management can cope well with it not getting into the risk zone by keeping rather conservative capital structure and high profit margins.

In TOP 3 this year the 2nd place is taken by fashion retailer Apranga, which turned out to be more resilient than expected. The group’s strategy to be present in the largest Baltic cities and owning most of stores in the largest shopping centers is bearing fruits. Apranga generates double digit sales growth every quarter starting with Q4’21 and has already exceeded pre-pandemic sales volumes in the end of 2022. Of course, as many consumers longing for human-connection and for touching and feeling the fabrics that fashion retailers can offer, the online sales has noticeably decreased, but still generate approximately 12% of total revenues. The group also has potential to expand its product categories beyond clothing to include accessories, beauty products and home goods. Rising labor costs will occupy the minds of the management team for some time to come, but so far, the margins remain stable and net profit continues to grow.

Tallinna Kaubamaja (TKM) safeguarded 3rd place for it in the top, improving its position from being 4th last year. KIA brand dealer and Selver stores operator, continues to be well-managed in very competitive market environment. Despite surging electricity prices and labour cost inflation in 2022, the company ensured limited profit decline as setback in supermarket segment was mitigated by profitability growth in car trade and department store segment. The company is well-positioned to grow further given ease on cost side, while focusing on further improving efficiency of its operations recognizing the threat from new market player in food retail segment.

Looking at Baltic Main list constituents, majority of the companies managed to increase their turnover during the last year.  Average sales growth in 2022 of Baltic companies was 24%, which was driven primarily by the consumer and energy producing companies. However, the unpleasant macro environment spurring cost inflation resulted in a decline of average profitability of companies: gross margin was down by 2% and ROE fell from 18% to 14%. Still, after so many challenges the future looks less cloudy, as inflation is decreasing, and global economy grows despite all.


More about Baltic Corporate Excellence Award: www.alphinox.com/awards/


Author: Alphinox team, alphinox.com