According to data released today, annual growth in average wages in the Czech Republic accelerated in the third quarter of this year. It was 6.1% yoy in Q3 after 4.4% yoy in Q2. The yoy acceleration was mainly due to the lower comparative base of last year's third quarter, which was marked by the unwinding of pandemic-related extraordinary bonuses in the health and social care sector. In quarter-on-quarter terms, by contrast, we estimate that wage growth slowed temporarily from 2% (seasonally adjusted) in Q2 22 to 1.6% qoq. Tensions in the labour market are contributing to the continued rise in nominal wages in the private sector. In the public sector, wage growth was partly affected by the 10% increase in pay scales for some public administration workers from September. This will only become more pronounced in the Q4 data.

According to data released today, annual growth in average wages in the Czech Republic accelerated in the third quarter of this year. It was 6.1% yoy in Q3 after 4.4% yoy in Q2. The yoy acceleration was mainly due to the lower comparative base of last year's third quarter, which was marked by the unwinding of pandemic-related extraordinary bonuses in the health and social care sector. In quarter-on-quarter terms, by contrast, we estimate that wage growth slowed temporarily from 2% (seasonally adjusted) in Q2 22 to 1.6% qoq. Tensions in the labour market are contributing to the continued rise in nominal wages in the private sector. In the public sector, wage growth was partly affected by the 10% increase in pay scales for some public administration workers from September. This will only become more pronounced in the Q4 data.

Wage growth in the private sector was driven by both manufacturing and services. Over the last year, earnings in transport and storage (+9.1% yoy to CZK 36,904) and administrative and support activities (+9% yoy to CZK 28,795) increased at the fastest pace. However, given their weight, wage growth in the private sector was mainly driven by trade (+6.9% yoy to CZK 37,231) and manufacturing (+7.8% yoy to CZK 38,282). Wage growth in the private sector (7.8% yoy) continued to be supported by a tight labour market. The October general unemployment rate of 2.2% was only slightly above the pre-pandemic level and remained the lowest among EU countries.

In real terms, as in Q2, average wages fell by 9.8% yoy in Q3 due to high inflation. This is the fastest ever year-on-year decline in the purchasing power of wages since measurement began in 2001. Thus, real wage dynamics still lags well behind (real) labour productivity, which has been roughly unchanged over the same period. In quarter-on-quarter terms, real wages have been declining visibly since 3Q21. This is reflected in real household consumption, which has been contracting quarter-on-quarter since the end of last year. Compared to our estimate (-10.1% yoy), the decline in real wages was slightly milder, in line with the market consensus. Moreover, nominal wage growth was also as forecasted by the central bank. From the CNB's point of view, this information that would not visibly change its outlook, although the structure shows slightly lower wage growth in market sectors compared to its assumptions (7% yoy vs. 7.3% yoy expected).

Full-time equivalent employment rose by 1% yoy in Q3, compared with a 1.2% yoy increase a quarter earlier. Thus, there is still a strong demand for labour in the domestic economy. According to published data, wages and salaries rose by 7.2% yoy in Q3, after 5.7% yoy in the previous quarter.

For this year as a whole, we expect nominal wage growth of around 7%, but given high inflation, this means a decline in real wages of roughly the same magnitude. We expect nominal wage growth to accelerate at the turn of the year. In an environment with a tight labour market, high inflation, which is causing a record fall in the purchasing power of wages this year, should be reflected in wage demands, especially in the business sector. Thus, wages could grow at a double-digit rate next year and not fall further in real terms.

Kofola ČeskoSlovensko reported third-quarter results yesterday after the market closed, marking the strongest quarter seasonally. Revenues grew at a decent pace across all sectors. However, high inflation caused margins to decline. EBITDA were down 10.5% yoy to CZK462m. The numbers are 3.4% above consensus when comparing EBITDA but missed the market estimate on net profit by 2.5%. For the full year, Kofola should reach the lower end of the original guidance. It emerged that, in addition to the high prices of materials, the company is beginning to experience problems with cooling demand. Thus, meeting the target may prove to be a challenge.

Kofola ČeskoSlovensko reported third-quarter results yesterday after the market closed, marking the strongest quarter seasonally. Revenues grew at a decent pace across all sectors. However, high inflation caused margins to decline. EBITDA were down 10.5% yoy to CZK462m. The numbers are 3.4% above consensus when comparing EBITDA but missed the market estimate on net profit by 2.5%. For the full year, Kofola should reach the lower end of the original guidance. It emerged that, in addition to the high prices of materials, the company is beginning to experience problems with cooling demand. Thus, meeting the target may prove to be a challenge.

In all segments (CS +11.3%, F&H +19.4%, AD +7.0%) Kofola recorded sales growth that surpassed even last year's record level. The reason for this is the price increase, which is based on rising material costs but also high volumes. Total sales increased by 11.0% yoy to CZK2,347m. The most important sector of CS accounts for over 71% of total revenues. The cost of sales increased (23.3% yoy) more than sales alone. The growth was particularly noticeable in CS. This was driven by growth in input materials and energy. Operating costs (marketing, sales, distribution) increased at a slightly lower rate (8.0% yoy) compared to revenue. However, administrative expenses decreased (-32.5% yoy) due to the revision of the option plan. EBITDA decreased by 10.5% yoy to CZK462.2m. The margin decreased by 4.7pps. All three sectors reported a positive result (CS CZK650m, F&H CZK35m and AD CZK195m). Net profit of CZK189.4m is 27.6% weaker compared to the same period last year.

Net debt/EBITDA is 3.0x in 3Q22, down slightly from 3.1x at the end of last year. 

Guidance: Kofola management has revised full-year projections. This is due to the difficult current situation and rising prices, which have led to cooling consumer demand. EBITDA is now expected to reach CZK1,080m, which represents the lower end of the previous goal (CZK1,080-1,115m). Revenue growth should reach +19% yoy (unchanged). Reported EBITDA YTD is 81.5% (or CZK 880m) of the full-year target (last year 87.4%). This leaves CZK200m for the final quarter of the year. This may seem ambitious in view of the current environment, as well as seasonality and the decline in demand.

Outlook for the next quarter. Traditionally, Kofola indicated sales dynamics in the last quarter of the year. Revenues grew by 7% in October. This is a slower pace compared to previous quarters. However, it points to decent growth for the full year. We expect the full-year growth target of +19% yoy to be met.