Earnings Report /
Croatia

Končar Group: Yet Another Strong Start of the Year

  • Končar Group showed another strong quarter, with Q1 sales increasing by as much as 28% YoY, reaching HRK 884m

  • Costs of materials represent 78% of the Group’s sales

  • In 2021 the Group noted an increase in net profit to majority of 3.15x YoY, reaching HRK 98.5m

Tea Pevec
Tea Pevec

Head of Research

InterCapital
3 May 2022
Published by

Končar Group showed another strong quarter, with Q1 sales increasing by as much as 28% YoY, reaching HRK 884m. Of that, the Domestic market accounts for 40.3% or HRK 356m (+54% YoY). Therefore, sales of goods and services to HEP relate to 43.6%, while HŽ accounts for 26.1% of sales in the domestic market. Sales of goods and services, HEP related, noted an increase of 40% YoY.

In Q1, we have seen a strong increase in operations concluded in the EU market with sales accounting for 68.3% of total sales. In the EU market, significant share in sales was realized in Germany, which represents the highest exporting county (19%), and in Sweden (8.9%). Končar managed to increase sales both in the domestic market and in exporting countries, which was not always the case looking a few quarters back.

Looking at Končar’s segments, one can observe a very solid performance of the transformer segment, which noted an increase in sales of 25.4%, reaching HRK 634m (transformer segment makes up to 72% of total sales achieved by Group in Q1). Besides that, the railway vehicles segment observed results doubled (2x) as contracted deals started kicking in.

Other revenues increased by HRK 52.1m and amounted to HRK 69.8m – for the most part, it was generated from a reversal of provisions, income from the sale of non-core assets and the effect of the transaction related to the share capital increase of Dalekovod. With the increase in business activity, an increase in operating expenses followed (+25%) and reached HRK 840.4m. The higher OPEX to some extent came from increased operating activity but also from strong commodity price increases, 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 the 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 78% of the Group’s sales.

As a result of all the above, EBITDA observed a sharp increase of more than 2x (+127.2%) to HRK 139.3m, which is above our estimates. Such a quality result shows an improvement of EBITDA margin by 6.9 p.p. to 15.8%. Going further down the P&L, operating profit increased by more than 3x (+206.8%) and amounted to HRK 113.6m, mostly on the back of a robust solid sales growth. Equity-accounted companies’ result of HRK 6.6m (+57% YoY) was supported by the significantly better result of KPT, Končar’s JV with Siemens.

In 2021 the Group noted an increase in net profit to majority of 3.15x YoY, reaching HRK 98.5m. The Group’s backlog once again reached a record of HRK 5.6bn (+10.8% YoY). Also, it should be noted that the 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.