Earnings Report /
Croatia

Podravka Group: FY 19 – Solid results continue

  • Ended FY 19 on a strong note, as Group’s sales went up by 4.2% yoy to HRK4.4bn

  • Food grew by 3.6% yoy to HRK 3.5bn; Pharma up 6.5% yoy to HRK955.4mn

  • We're in the process of adjusting our model in light of slightly higher-than-expected results

InterCapital
28 February 2020
Published byInterCapital

Podravka ended FY 19 on a strong note, as the Group’s sales went up by 4.2% yoy to HRK4.4bn. The company's FY 19 results are slightly above our expectations; thus, we will consider the new information and adjust our model to present a more updated target price.

Food grew by 3.6% yoy to HRK 3.5bn. Within the segment, its own brands are up 4.1% yoy to HRK3.2bn, primarily due to the growth in sales of all business units. Growth in sales came from stronger selling and marketing activities, demand for newly launched products and the expanded distribution of certain categories. Other sales are down 3.5% yoy, primarily as a result of lower sales of trade goods in the markets of Bosnia and Herzegovina and Serbia.

Pharma segment is up 6.5% yoy to HRK955.4mn. The Group's own brands recorded a 4.9% yoy increase to HRK783.4mn, primarily due to the increase in demand and sales in the markets of Russia, Croatia, Serbia and Slovakia. Other sales revenues are up 14.8% yoy as a result of higher sales of trade goods in the markets of Bosnia and Herzegovina and Croatia. 

Gross profit is up 4.7% yoy to HRK1.6bn with both segments contributing to the increase. The gross margin is slightly up, amounting to 37.0%. Note that this is below our projections of 38.1%, as the movement in prices of raw materials and supplies of the food segment resulted in a negative impact of HRK26.1mn for the company.

The Group’s FY 2019 EBITDA amounted to HRK509mn, representing an 9.8% yoy increase, which is broadly in line with our estimates. If one were to exclude the estimated HRK38mn benefit from lower lease expense (due to the adoption of the IFRS 16 standard), EBITDA would be up 1.6% yoy. Profitability-wise, EBITDA margin in 2019 went up to 11.5% (from 11.0%).

Among operational expenses, G&A and marketing expenses rose the most, posting an 7.3% yoy and 7.1 yoy increase, respectively. Note that higher marketing expenses were previously announced and could serve as a building block for future growth. Meanwhile G&A expenses grew primarily as a result of higher staff costs and different dynamics of movements in provisions. 

Below the operating line, Podravka’s net financial result deteriorated with the company posting a higher net financial loss of -HRK17.7mn, more than double compared to FY 18. However, note that this was due to the influence a positive one-off recorded in 2018 when the company benefited from a FX gain on loans in the amount of HRK11.5mn. 

Net profit after minorities amounted to HRK221.6mn (+7.7% yoy). Podravka’s net profit after minorities came in above our estimates as the company recorded a lower tax expenses, coupled with a lower portion of profits being attributed to minorities than we expected. 

On the balance sheet, Podravka continues to deleverage their operations as part of their strategy. In 2019 the Group was able to reduce their borrowings by HRK88.3mn. However, due to the implementation of the IFRS 16 standard, Podravka’s indebtedness in 2019 rose by 9% yoy. As a result, net debt amounted to HRK822.4mn, which translates to 1.6x net debt/EBITDA. Meanwhile, if one were to exclude the influence of the IFRS 16 effect, net debt would be down HRK34.6mn since the beginning of the year and would amount to HRK720.5mn.