Korado Bulgaria

The first quarter of 2020 saw a drop in both top and bottom lines as OPEX dropped slower than revenues. During the period, Korado sold a total of 114k radiators, down 1.6% y/y, generating sales revenues of BGN 8.8m, down 7.3% y/y, the latter being an evidence for a drop in end product prices.

Despite the overall drop in volumes sold, Korado marked a 2% y/y increase in the sales of bathroom radiators to 26k pieces, which is in line with management’s expectations for higher tubular radiators, a trend which has been in place for the past several quarters.

Surging sales y/y in Bulgaria and Romania

Market-wise, during the quarter, Korado performed well in Bulgaria and Romania, sales in the former surging 42.6% y/y to BGN 241k and sales in the latter adding 15.3% y/y to BGN 3m. Ukrainian and Russian sales underperformed, dropping 27.7% y/y and 17.3% y/y to BGN 454k and BGN 4.8m, respectively.

Further down the line, OPEX decreased slower than top line mainly due to labor costs staying flat y/y at BGN 1.2m in Q1’20. During the quarter, there was a decrease in costs of materials (down 12.4% y/y to BGN 5.9m), driven by a combination of drop in steel prices at the end of Q1’20 and lower production.

Shrinking profitability in pandemic disruption

For Q1’20, Korado’s production of panel radiators dropped by 1.9% y/y to 93.5k pieces. The number of tubular radiators produced, however, rose by 3.8% y/y reaching 25.6k pieces by the end of the quarter.

Accordingly, profitability dropped, with EBITDA and net profit arriving to BGN 1.7m and BGN 1.2m, down 10.1% and 11.5% y/y, respectively during the quarter. EBITDA margin and net profit margins shrank by 0.68 p.p. and 0.8 p.p., reaching 18.7% and 13.8%, respectively.

Given that COVID-19 pandemic started in mid-Mar’20, it is still unclear how the crisis would develop further in 2020. Despite global supply chains being disrupted by the pandemic, Korado has already found a way to make sure its steel deliveries are uninterrupted, supplying them from Italy. Global steel prices have been on the decrease since end of Mar’20 due to global economic slowdown, though some partial price recovery has been evident post May’20.

A significant factor for Korado continues to be the consolidation in the radiators production sector that has been in place for the past few years. Current COVID-19 pandemic could intensify this process as some of the smaller and weaker players would be pushed out of the market as economic growth in Europe is expected to decelerate by an average of 7.4% y/y in 2020 affecting various industries, incl. construction where radiators producers’ main clients operate. This would give Korado an opportunity to take over part of competitors’ shares, thus surmounting the negative effect from the slowdown in construction activity, which was in effect even before COVID-19.

Dividend policy kept intact

Despite the pandemic’s emergence and the economic slowdown coming along with it, Korado has kept its dividend policy intact distributing H1’19 semiannual dividend of BGN 0.19, bringing the annual dividend for FY2019 to BGN 0.29, flat y/y, yielding 4.73% annually (based on ex-div prices).

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