Q1'23 revenue was PLN 412.2m (-2% y/y), in line with our expectations. Management signalled at the last earnings conference call that 1H'23 may not look optimistic.
• Gross margin (28.9%) at a noticeably weaker level y/y - we had assumed a y/y decline, but it is larger than we had assumed. The company argues for the decline with higher raw material and energy costs and falling volumes. We note that the raw material cost base will start to become less demanding from Q2'23 onwards.
• The ratio of SG&A costs to revenue has increased markedly y/y (a sizable increase in cost of sales on lower volumes).
• Impact of the balance of other operating activities in Q1'22 at: PLN -1.5 million.
• EBITDA amounted to PLN 9.9m in Q1'23 (vs. PLN 36.8m a year ago). The result was much weaker than we had anticipated (due to weak margins and high SG&A expenses). Lowest EBITDA in Q1 since 2018.
• Financial activities with a negative impact of PLN -5.4m (significant impact of foreign exchange).
• Net result in Q1'23 at PLN -5.1m
• Operating cash flow was PLN -76m in Q1'23 (significant increase in receivables). CAPEX: PLN 13m.
• The Company had net debt of PLN 126m (PLN 76m after adjusting for loans to related parties).
• As at the balance sheet date, inventories located in the 'conflict region' amounted to PLN 57m and receivables from customers from unrelated companies in the region amounted to PLN 23m.
The company's Q1'23 results are clearly below our expectations, despite our assumption that the results of Q1'22 could not be repeated. The gross margin fell more sharply than we expected, and SG&A costs rose sharply despite the decline in sales volumes.
Management signalled at the last earnings conference call that 1H'23 may not look optimistic. It should also be taken into account that usually Q1 and Q4 are seasonally weak for the company and the strong results in Q1'22 and Q1'21 were rather a deviation from the norm. We assume that the demand environment for the company may continue to be challenging in the coming periods, while we expect cost pressures to ease (raw material prices in many categories are already clearly lower y/y, relatively high MDI prices in Europe remain a challenge).
Our last forecast for 2023 was for PLN 151m EBITDA (vs. PLN 199m in 2022) - its realization will now largely depend on H2'23 (the base in Q2'23 will not be as demanding as in Q1'23, while Q3'22 was very strong in 2022, and Q4'22 recognized a one-off on the bank settlement). The company is not holding an earnings conference call, nor has there been a traditional earnings press release on the website to date. For the last four quarters' results, EV/EBITDA=3.6x, P/E=6.1x.
