Končar Group showed another strong quarter, with Q4 sales increasing by as much as 17% YoY. On a FY level, sales are up by 17% YoY, reaching HRK 3.48bn, which is in line with our estimates. Of that, the Domestic market accounts for 40.1% or HRK 1.42bn (+26%). Thereof, sales of goods and services to HEP relates to 45.1%, while HŽ accounts for 24.1%. Sales of goods and services, HEP related, noted an increase of 12.8 p.p. In FY, we have seen a solid increase of operations concluded on the EU market with sales accounting for 86.5% of total sales. In the EU market, significant shares in sales were realized in Germany, which represents the highest exporting county (20%), and in Sweden (13.3%). Such an increase in the EU market could partially be attributed to a decrease in sales on other continents, which is a direct result of the inability to travel and be in direct contact with customers. However, the pandemic was to a certain extent able to benefit the Group, as the customers opted for nearby producers to mitigate the risk of global supply chain disruption. Looking at Končar’s segments, one can observe a very solid performance of the transformer segment, which noted an increase in sales of 17.6%, reaching HRK 1.6bn (transformer segment makes up to 45% of total sales achieved by Group). Besides that, the railway vehicles segment observed strong results (+195.7%) as contracted deals started kicking in.
With the increase in business activity, an increase in operating expenses followed (+14.4%) and reached HRK 2.96bn. The higher OPEX to some extent came from strong commodity price increases in 2021, especially those pertaining to the transformer program (copper, aluminium, transformer sheet metal, transformer oil, steel). However, one should note that the company does hedge this with forward contracts in case of copper, while for steel, transformer sheet and other important supply parts the company attempts to mitigate the risk with semi-annual and annual contracts. These costs of materials represent 68.7% of the Group’s sales. As a result of all the above, EBITDA observed a sharp increase of 60% to HRK 292.2m, which is above our estimates. Such a result shows an improvement of EBITDA margin by 2.2 p.p. to 8.4%. Going further down the P&L, operating profit increased by 128% and amounted to HRK 193.9m, mostly on the back of a very solid sales growth. Equity-accounted companies’ result of HRK 35.4m (+55.3% YoY) was supported by significantly better result of KPT, Končar’s JV with Siemens. In 2021 the Group noted an increase in net profit to majority 2.2x YoY, reaching HRK 163.1m. The Group’s backlog once again reached a record of HRK 5bn (+17.9%). Also, it should be noted that current volatility experienced on the markets due to the Russian invasion of Ukraine should not directly or significantly influence Končar, as Group’s operations are not tied to Russia.
We find the results to be very positive. It should be noted that we are in the process of making a new model for Končar to reflect the current situation, as the past price target is not applicable anymore.