Exbud SA looks for partners and a domestic focus
His construction company performed admirably last year, after an unexpectedly poor year in 1993. Sales were up by 73% and net profits increased 11 fold over 1993.
A painful restructuring process in 1991 and 1992 was reflected in the poor 1993 results, says Aleksander Kundera, construction director and board member.
The restructuring focused on targeting the domestic market after conditions in foreign markets worsened in the early 1990s.
Management is also optimistic about 1995, expecting double digit increases in income, even after accounting for inflation (projected to be 17-24% in 1995). The estimates are realistic, Kundera says, because most of the contracts are already signed.
Exbud provides a wide range of building construction services, primarily to the industrial, public works, and residential building sectors. In the early 1990s, the company was caught off-guard by new restrictions imposed by foreign governments, particularly by Germany, on foreign construction companies operating abroad. These included freezes or limits on new investment, obligatory fees, compulsory wage increases for foreign workers, and outright bans on foreign workers in some areas.
Since the foreign market accounted for 60% of Exbud SA's sales at this time, two thirds of this from the German market, the impact was devastating.
Because of these restrictions, Exbud SA changed its strategy late in 1992, refocusing on the domestic market, and targeting large foreign investors in Poland, such as Coca Cola, and the Dutch investor hypermarket operator Makro Cash and Carry. Currently, the domestic market represents just over half of all sales. Kundera says this proportion will increase next year, mainly because of a 1994 consolidation that combined Exbud SA with Exbud 1, a large subsidiary of the Exbud Holding Group that was formerly operating as an independent company.
Kundera expects most growth in 1995 to come from the domestic market, fueled by a growing economy and a number of large public sector projects planned for 1995 and beyond. These include a national highway construction project, reconstruction and development of infrastructure, environmental protection initiatives and apartment house construction.
But Kundera concedes that Exbud SA now finds it difficult to compete with large foreign companies, especially for larger contracts.
"For large contracts, investors expect not only doing the job but financing", Kundera says. "Exbud's possibilities are limited here."
While the European Bank for Reconstruction and Development provides credit to contractors, through an international bidding process, the system favors large companies with access to vast amounts of capital.
"In the West, there is a tendency toward consolidation in the construction industry, huge companies have emerged with yearly proceeds of several billion dollars," Kundera says.
Unfair competition is another problem.
"It is the long term strategy of many foreign firms to conquer this market, and we suspect dumping," Kundera says.
"Dumping" occurs when a foreign competitor sells (or "dumps") a product, or in this case a service, in a foreign market at a price which is below cost. By doing this, the foreign firm can gain market share at the expense of the domestic competitor.
Offending firms often employ Polish sub-contractors to do the work, but "suggest" prices to them that make it difficult or impossible for the sub-contractor to make a profit. While this practice is illegal, it is difficult to police.
Kundera says that many smaller Polish companies are also able to provide artificially low bids by illegally avoiding government regulations in order to lower costs.
Exbud SA is considering offering a significant amount of equity to a large Western construction firm, which could help the company to compete with huge foreign firms. Kundera said that Exbud SA has already been approached by such an investor.
"We can't exclude this possibility because we're aware of the fact that if we want to compete in a unified Europe, we have to belong to some kind of a strong group," Kundera says. A foreign partner would also help Exbud update technology in key areas such as heating, environmental protection and bridge construction.
Founded by Mr. Witold Zaraska in October 1977, as a part of the state-owned Kielce Building Union, Exbud exported construction services to Libya, Iraq, and Germany, employing smaller sub-contractors in the Kielce region. In 1986, the company's activities were expanded to include foreign trading in goods, and provision of services to the Hungarian and Czechoslovakian markets, among others. In 1989, Exbud began shifting its focus to the domestic market. The joint stock company, Exbud SA, was founded in October 1990, with an initial public offering of 1 million shares at zl. 5 million. In November 1993, the stock underwent a 5:1 split. In February 1994, there was a second equity issue of 3 million shares at zl. 54 million. Exbud SA employs just over 5,000 employees, down from around 12,000 during the late 1980s.
A painful restructuring process in 1991 and 1992 was reflected in the poor 1993 results, says Aleksander Kundera, construction director and board member.
The restructuring focused on targeting the domestic market after conditions in foreign markets worsened in the early 1990s.
Management is also optimistic about 1995, expecting double digit increases in income, even after accounting for inflation (projected to be 17-24% in 1995). The estimates are realistic, Kundera says, because most of the contracts are already signed.
Exbud provides a wide range of building construction services, primarily to the industrial, public works, and residential building sectors. In the early 1990s, the company was caught off-guard by new restrictions imposed by foreign governments, particularly by Germany, on foreign construction companies operating abroad. These included freezes or limits on new investment, obligatory fees, compulsory wage increases for foreign workers, and outright bans on foreign workers in some areas.
Since the foreign market accounted for 60% of Exbud SA's sales at this time, two thirds of this from the German market, the impact was devastating.
Because of these restrictions, Exbud SA changed its strategy late in 1992, refocusing on the domestic market, and targeting large foreign investors in Poland, such as Coca Cola, and the Dutch investor hypermarket operator Makro Cash and Carry. Currently, the domestic market represents just over half of all sales. Kundera says this proportion will increase next year, mainly because of a 1994 consolidation that combined Exbud SA with Exbud 1, a large subsidiary of the Exbud Holding Group that was formerly operating as an independent company.
Kundera expects most growth in 1995 to come from the domestic market, fueled by a growing economy and a number of large public sector projects planned for 1995 and beyond. These include a national highway construction project, reconstruction and development of infrastructure, environmental protection initiatives and apartment house construction.
But Kundera concedes that Exbud SA now finds it difficult to compete with large foreign companies, especially for larger contracts.
"For large contracts, investors expect not only doing the job but financing", Kundera says. "Exbud's possibilities are limited here."
While the European Bank for Reconstruction and Development provides credit to contractors, through an international bidding process, the system favors large companies with access to vast amounts of capital.
"In the West, there is a tendency toward consolidation in the construction industry, huge companies have emerged with yearly proceeds of several billion dollars," Kundera says.
Unfair competition is another problem.
"It is the long term strategy of many foreign firms to conquer this market, and we suspect dumping," Kundera says.
"Dumping" occurs when a foreign competitor sells (or "dumps") a product, or in this case a service, in a foreign market at a price which is below cost. By doing this, the foreign firm can gain market share at the expense of the domestic competitor.
Offending firms often employ Polish sub-contractors to do the work, but "suggest" prices to them that make it difficult or impossible for the sub-contractor to make a profit. While this practice is illegal, it is difficult to police.
Kundera says that many smaller Polish companies are also able to provide artificially low bids by illegally avoiding government regulations in order to lower costs.
Exbud SA is considering offering a significant amount of equity to a large Western construction firm, which could help the company to compete with huge foreign firms. Kundera said that Exbud SA has already been approached by such an investor.
"We can't exclude this possibility because we're aware of the fact that if we want to compete in a unified Europe, we have to belong to some kind of a strong group," Kundera says. A foreign partner would also help Exbud update technology in key areas such as heating, environmental protection and bridge construction.
Founded by Mr. Witold Zaraska in October 1977, as a part of the state-owned Kielce Building Union, Exbud exported construction services to Libya, Iraq, and Germany, employing smaller sub-contractors in the Kielce region. In 1986, the company's activities were expanded to include foreign trading in goods, and provision of services to the Hungarian and Czechoslovakian markets, among others. In 1989, Exbud began shifting its focus to the domestic market. The joint stock company, Exbud SA, was founded in October 1990, with an initial public offering of 1 million shares at zl. 5 million. In November 1993, the stock underwent a 5:1 split. In February 1994, there was a second equity issue of 3 million shares at zl. 54 million. Exbud SA employs just over 5,000 employees, down from around 12,000 during the late 1980s.
