Krka published their preliminary H1 2020 results yesterday, showing a 5.6% YoY increase in sales, 30% YoY increase in EBITDA and a 15% YoY increase in net profit which amounted to EUR 160m.

According to H1 2020 preliminary results, the Krka Group recorded EUR 801.8m in sales, representing a 5.6% YoY increase. All sales regions, except Slovenia grew sales growth, while sales of all product groups and services advanced as well.

When breaking down revenue, East Europe remained the largest market, accounting for 33.9% of the Group’s total sales. The region recorded sales in the amount of 271.7m, which represents an 8% YoY increase. Russia, the region’s key market, posted an 8% YoY increase in sales.   Meanwhile, sales growth was also recorded in most other markets of Eastern Europe and Central Asia.

Region Central Europe, comprising the Visegrad Group and the Baltic states, followed with sales amounting EUR 182.7m (+8% YoY). Note that this accounted for 22.8% of Krka’s total sales. Poland, the leading market, generated EUR 85.9m in sales and recorded an 8% YoY growth.

Region West Europe made EUR 181.6m, a 22.6% share, and was the third largest Krka Group region in terms of sales value. The highest growth was recorded in Germany, Benelux, France, Scandinavia, and Portugal. In Germany, the largest market in the region, Krka sold EUR 47.9m worth of products, recording an 18% YoY increase.

In Region South-East Europe, product sales amounted to EUR 103.5m (+4.9% YoY) which represents 12.9% of Krka Group sales.

In Slovenia, Krka Group sales decreased 14.9% YoY and amounted to EUR 38.3m. The decline in sales came due to a 46% slump in sales of health resort and tourist services, which was caused by the outbreak of the coronavirus. However, note that product sales were up 7% YoY.

The improved top line translated down to the operating performance as well with Krka posting a 30% YoY increase in EBITDA, which amounted to EUR 273m. Finally, net profit increased by 15% YoY and amounted to EUR 160m.  

In the first half of the year, CAPEX amounted to EUR 30m out of the planned EUR 134m. Note that the primarily goal of these investments planned is to increase and upgrade production facilities and the infrastructure.

Despite a strong performance in H1 2020, the Management left their outlook unchanged. As a reminder, the 2020 plan projects sales at EUR 1.5bn and net profit at over EUR 210m.  We intend to allocate EUR 134m to investment projects, and 10% of revenue to research and development.

Krka Key Financials

At the current share price dividend yield is 5%. Ex-dividend date is 21 July 2020.

Krka published their resolutions from their AGM in which the shareholders approved  to allocate the accumulated profit for 2019. Of the EUR 270.87m of 2019 profit, EUR 133.85m was approved to be paid as dividends. This translates to a dividend per share of EUR 4.25 and is 32.8% higher compared to the dividend paid for 2018.

At the current share price dividend yield is 5.0% Note that the ex-dividend date is 21 July 2020.

In the graphs below, we are bringing you a historical overview of the company’s dividend per share and dividend yield, where one can observe a stable growth of the dividends throughout the years. Note that this would be the highest dividend yield in the observed period.

Dividend per Share (EUR) and Dividend Yield (%) (2009 – 2020)*

*compared to the share price a day before the dividend proposal

The rating mainly reflects its solid business profile as a concessionaire and operator of the gas transmission network in Romania.

Fitch Ratings affirmed Transgaz’ rating at BBB-, Stable Outlook. The rating mainly reflects its solid business profile as a concessionaire and operator of the gas transmission network in Romania as well as our expectation of a progressive contraction of its international gas transit business derived from traditional routes.

The rating is supported by the country’s regulation for gas transmission and rating agency’s expectation that a significant current investment related to the Bulgaria-Romania-Hungary-Austria corridor (BRUA) will be added to Transgaz’ regulated asset base (RAB), supporting future earnings.

Fitch continues to evaluate the Romanian transmission regulation as fairly transparent and stable and therefore supportive of Transgaz’s rating. In the initial months of the fourth regulatory period, all parameters have been applied consistently with the exception of the allowed real rate of return, which has been set at 6.39% versus an expected 6.9%.

Fitch adds that Transgaz’s financial profile is strong with a limited net debt position at end-2019. They expect funds from operations (FFO) net leverage to rapidly increase to around 4.5x at end-2021 from 0.5x at end-2019 due to increased capex and temporarily weaker transmission earnings before falling to around 3.8x over 2022-2024.