Earnings Report /
Croatia

Podravka Group: Impact on Pharma due to Russian crisis evidenced

  • In Q1 2022 Podravka’s sales increased 8.6% YoY amounting to HRK 1.17bn, Food segment up 10.8% YoY, Pharma + 0.6% YoY

  • EBITDA was down 7.7% YoY due to negative FX differences and higher expenses related to sales growth

  • Negative FX differences came from trade receivables and payables stemming from the Pharma and Rouble devaluation

Tea Pevec
Tea Pevec

Head of Research

InterCapital
2 May 2022
Published by

In Q1 2022 Podravka’s sales increased 8.6% YoY amounting to HRK 1.17bn, above our annual growth estimate of 6.4% YoY. This is because Podravka Group corrected food prices in its markets, mainly in the range of 7% to 10%, which is somewhat above our estimates. On the other hand, the Pharma segment grew only 0.6% which is below our annual estimate of 10.4%, due to the discontinued deliveries of drugs to the market of Russia because of to Russia -Ukraine crisis.

Food segment sales grew by 10.8% YoY to HRK 936.9m with own brands growing at 9.5%. Podravka made reorganization of the Food segments due to the full integration of Žito, so new segments were introduced. Bakery and Basic food recorded the highest nominal increase by growing HRK 20m and HRK 31m, respectively. On the other hand, Podravka’s BU Culinary (16% share in sales) grew below our estimates by 2.4% YoY.

The slight increase in the Pharma segment (+0.6% YoY) came on higher sales of OTC drugs (increasing by HRK 6.1m). OTC growth was partly offset by lower sales from prescription drugs (-6%, HRK -9.4m), due to lower sales in Russia. Meanwhile, other sales in the Pharma segment were up by HRK 4.6m (+9.1% YoY), primarily due to the increase in sales of trade goods of the Farmavita company in the market of B&H. In Q1 strong growth in prices of raw materials was already evidenced so the gross profit margin was down 100 bp to 37.1%. COGS increase due to improved material rights of employees and movements in prices of raw materials and supplies (primarily from grains, fats, oils, vegetables, and metal packaging) which amounted to negative HRK 41.8m in the Food segment relative to the comparative period.

EBITDA was down 7.7% YoY and came in at HRK 170m mostly because of unfavourable movements in foreign exchange differences on trade receivables and trade payables (HRK -24m in Q1 2022) vs. HRK +5.7m in Q1 2021 stemming from the Pharma segment (due to devaluation of Rouble) and a higher level of expenses related to sales growth (+8.6% YoY). Below the operating line, Podravka’s net financial result came in at HRK -2.4m due to unfavourable movements in foreign exchange differences on borrowings and lower interest expenses. Income tax amounted to HRK 21.2m, which is in line with the comparable period. All this has resulted in net profit after minorities decreasing by 15.6% to HRK 89m.

As expected 1Q entailed negative FX differences because of a long position in the Russian rouble. The decrease in Pharma is below our estimate, while growth in Food is above our estimate. 1Q net income stands at 33% of our 2022 estimate, so in case there are no new deteriorations due to inflation of wages and materials our estimate is still achievable, so we keep our current recommendation.