In 9M 2020, Končar recorded an increase in sales of 12.7%, an increase in EBITDA of 43.7% and an increase in net profit of 185%.
In the first 9m of 2020, Končar Group generated revenue from sale of products and services in the amount of HRK 2.051bn, representing an increase by of 12.7% YoY (or HRK +231.4m)
When looking at the sales breakdown, on the Croatian market, revenue generated from sale of products and services to HEP Group companies amounted to HRK 273. (38.7% of total revenue generated in the Croatian market), representing an increase by 2.9% YoY.
On the foreign markets, the largest segment (66% of total sales), sales amounted to HRK 1.345bn, representing an increase of 19% (or HRK 215.2m). When it comes to export by individual countries, the most significant export volume relates to the Swedish market, amounting to HRK 183.9m or 13.7% of total export. Goods and services exported to Germany amounted to HRK 160.7m (11.9% of total export); to Austria HRK 106.3m (7.9% of total export); and to Finland HRK 54.4m (4.0% of total export). Segment wise, it seems that the transformers (Končar D&ST) were the leading driver of the increased sales. You can read about Končar D&ST’s 9M results here.
The management noted on a FY basis that they expect to see an increase in sales of 5% YoY, which is slightly higher than the expected 4% increase stated in the H1 2020 report.
In the first 9m, Končar contracted new transactions valued at HRK 2.225bn. From the total amount of transactions contracted, HRK 664.3m (or 29.9%) refers to the Croatian market, while HRK 1.56bn (or 70.1%) refers to export contracts. This represent an increase of 7% (HRK 145m). The value of backlog as of end September amounted to HRK 3.531bn, representing an increase of 5.3% YoY.
Moving on to operating expenses, they amounted to HRK 2.06bn, which is an increase of 10.3%. Of that, material costs amounted to HRK 1.477bn (+14.6%). Such an increase is mainly the result of the structure of sales and increased price of raw materials and supplies. Staff costs amounted to HRK 438.8m (+4.9%) which came on the back of an increase in the number of employees (54 more employees at the Group level).
EBITDA & Net Profit (9M 2019 vs 9M 2020) (HRK m)
As a result of all of the above-mentioned, EBITDA amounted to HRK 120.2m, representing an increase of 43.7% YoY. Such a result shows an improvement of the EBITDA margin by 1.3 p.p. YoY to 5.7%. Meanwhile, operating profit is up by 3x and stands at HRK 47.17m.
Going further down the P&L, the bottom line was further boosted by an increase in net financial result which amounted to HRK 10.2m (compared to HRK 3.6m in 9M 2019). Such an increase could mostly be attributed FX gains.
In the first 9m, the share in profit from undertakings linked by vritue of participating interests amounted to HRK 7.4m representing a decrease of 45.7%. The company does not give much insight to the reasons behind the decrease, however it is safe to assume that the decrease could be attributed to the poor performance of KPT (JV with Siemens), which has traditionally added a solid boost to the bottom line.
Končar Group reported an increase in net profit of 185%, amounting to HRK 49.19m. Such a result led to an improved profit margin by 1.4 p.p. YoY which as of 9M stands at 2.3%. Of the reported net profit, HRK 25.18m relates to net profit to majority (increase of 6x YoY). Although the above mentioend results seem to be quite positive, one needs to remain aware that in 9M 2019 the Group showed quite a poor performance due to a lower topline performance, which now served as a lower base. As a reminder, in 9M 2019 a decrease in operating revenues was caused by prolongation and blockade of several significant deals, which include the construction of a hydroelectric power plant in Bosnia and Herzegovina and a delay in the contract realization of equipment to an Iranian buyer (due to sanctions implemented to Iran).
Finally, looking at CAPEX one can see that the company more than halved their investments in the first nine months of 2020 (-53%), while they amounted to HRK 59.55m.