Market environment
Market economic conditions
The Group companies are exposed to trends fluctuations occurring both in the Polish economy, which is the recipient of roughly 48% of the sales, and in the economies of other European countries, which receive about 48% of the Capital Group total sales. The remaining 4% is generated on markets outside Europe, mainly in the USA. The sales revenue of the Capital Group is diversified among a number of customers, whereas the share of none of the customer exceeds 5% of the consolidated sales.
In 2022, sales were developing fast, practically in all directions. The fastest development pace was recorded in the European Union countries, with over 40% growth of sales year over year. In other countries 24% growth year over year was recorded, while the growth of revenue on the domestic market reached 24% y/y.
Analysing the product sales structure to third-party customers (outside of the Capital Group), a significant 41% share of the Aluminium Systems Segment may be observed (façade systems, door-and-window systems, as well as external aluminium roller shutters), the sales of which is realised mainly in the construction business.
In 2022, owing to the growing aluminium prices, the share of the Extruded Products Segment sales in the total sales of the Capital Group grew by 2 p.p. The Segment manufactures aluminium profiles, tubes and bars for customers in many sectors, however, the leading share belongs to the construction, transport and automotive industries. The Flexible Packaging Segment recorded a share close to that of the preceding year. The Segment offers its products mainly to the food sector (plastic laminates and films, either printed or not printed). Therefore, all factors affecting the economic situation in the construction business (availability of loans, level of investments), the automotive and transport sector (number of vehicles sold, share of aluminium elements in the vehicles) as well as the food sector (consumption and type of packaging applied by food manufacturers) have a significant effect on the sales of the Capital Group.
Raw materials availability
The basic raw materials used by the Capital Group include primary aluminium, aluminium scrap as well as semifinished products based on aluminium (sheet aluminium and aluminium foil and tape as well as billets made of aluminium and its alloys). In aggregate, they account for about 55% of all raw materials and production materials. In the production of flexible packaging, the Group also uses various types of films and plastics granulates (polyethylene, polypropylene), printing paper, paints, adhesives and binders, which jointly represent 20% of all purchased materials. The list of basic materials is supplemented with accessories for the production of aluminium systems, with 10% share. The main suppliers of raw materials and production materials are European companies, including those located in Poland (ca. 30%) and in other European countries (60%). Purchases made outside of Europe represent roughly 10% of all purchased raw materials and production materials. In order to maintain high production quality, the purchasing policy is based on cooperation with selected suppliers who guarantee an adequate level of deliveries, simultaneous diversification (which ensures competitiveness), as well as the application of ethical standards binding at the Group. The value of purchases from the individual suppliers does not exceed 10% of consolidated purchase of raw materials and production materials.
In 2022, despite the market turbulence related to the war in Ukraine and resignation from cooperation with suppliers in Russia and Belarus, the companies of the Capital Group did not suffer any major problems in basic materials supplies.
Customs policy
On 12 October 2020, the European Commission imposed penal customs duties ranging from 30% to 48% on extruded products imported to Europe from China. The duties result from the proceedings of the Commission, and stating from April 2021 they shall be binding for the period of 5 years, which may have a potentially positive effect on the level of orders to be received by the European manufacturers, including the Extruded Products Segment of Grupa KĘTY S.A.
The customs policy of the specific countries in relation to the products offered by the Capital Group or its customers may affect sales indirectly. Further, the possible customs duties imposed by the European Commission on raw materials and semi-products acquired by the Capital Group companies outside of the European Union may have a negative impact on costs.
Exchange rates
As estimated, in the period covered with this report, the sales value of the Capital Group companies denominated in EUR exceeded the costs incurred in that currency. The surplus level in 2022 is about EUR 200 million. As regards USD, costs in the year exceeded sales by roughly USD 150 million. Consequently, changes in the PLN exchange rates to EUR and USD affect the results generated. This refers both to the profitability of exports and competitiveness on the domestic market compared to imported products. The companies of the Capital Group take measures to mitigate FX risk by entering into currency forward transactions, transferring risk to the customer by application of price formulas covering for foreign exchange rates fluctuations, or maintaining a part of their debt in foreign currencies.
Competitors
The Capital Group Segments operate mainly on the European market, competing both with local companies in the respective country, and concerns operating on global or European scale. Moreover, products from the Far and Middle East are sold on the European markets. Despite the fact that those companies mostly supply relatively simple products, which do not require major processing or complicated and precise logistics, their price offer affects the prices on the markets where the products are sold.
Further, the activities of the competitors (price policies, investments in new production capacity, introduction of new innovative products, introduction of new high-efficiency technologies, access to cheaper raw materials, etc.) may affect the competitive position on the market and, thus, the sales and financial results generated by the Capital Group companies.
Access to and costs of external sources of finance
The companies of the Capital Group implement investment programmes and extend their scale of operations inaccordance with the assumed strategy, also availing of external finance. It means that even if cash is generated from operating activities the restrictions in access to third-party finance may have a significant impact on further development opportunities and dividend paid by Grupa KĘTY S.A. The interest rates related to external debt affect the value of finance costs and, thus, the generated net results.
In 2022, the main banks financing the current activities and investment projects of the Group were: Bank BNP Paribas S.A., PKO BP S.A., Bank Pekao S.A., and ING Bank Śląski S.A. All the major banks signed in 2022 annexes extending the period of finance for the Capital Group for at least the subsequent 12 months, as well as increasing the revolving finance limits. Moreover, an agreement was signed with Bank PEKAO S.A. for an investment loan amounting to PLN 150 million to finance the investment projects at the Aluminium Systems Segment, and an agreement with ING Bank Śląski S.A. for an investment loan amounting to PLN 200 million to finance investment projects at the Extruded Products Segment.
Necessity to adjust the polish economy to the assumptions of the EU policy regarding climate change
On 28 November 2018, the European Commission presented a long-term strategic vision of a well prospering, modern, competitive and climate neutral economy by the year 2050. Therefore, Poland as one of the member states should implement actions to follow the vision. The actions may be related to some additional investments at the Capital Group, or incurring additional costs. Detailed information on the Capital Group activities with regard to climate change prevention as well as the parameters planned for 2022 and achieved in that year may be found in section 9 of this report entitled ‘Non-financial Information Statement’.
Changes in law
The Capital Group is obliged to abide by a large and continuously growing number of legal regulations, including those related to personal data protection, environmental protection, waste management, corruption prevention, money laundering prevention, and many others, which results in higher costs related to the monitoring of the areas and higher risk of sanctions in the event of possible breaches. In 2022, there were no penalties imposed on the Capital Group companies that could have a major impact on the companies’ activities or their financial results.