Foiling the competition

“We believe large foreign aluminum companies with global ambitions cannot afford to ignore Kęty..."
By : Jeffrey Sparshott

   Last week domestic aluminum manufacturer Grupa Kęty (http://www.gk-kety.com.pl/index_ang.html) was promoted to the Warsaw Stock Exchange’s (WSE) blue chip WIG 20 index. This week Kęty and its biggest shareholder are searching for a strategic investor to take a majority stake in the company.

   “We are negotiating with some investors interested in purchasing 50% of our shares at the moment,” said Zbigniew Paruch, spokesman for Kęty. “The talks are proceeding … we plan to complete them by the end of this year.”

   Kęty and its biggest shareholders are tight-lipped about negotiations and subsequent plans, but U.S.-based Alcoa, Canadian Alcan, France’s Aluminium Pechiney and Norsk Hydro have been mentioned as possible investors. Paruch said the new partner would likely be a “large, international company.”

   “We believe large foreign aluminum companies with global ambitions cannot afford to ignore Kęty, with its 50% Polish market share in aluminum profiles, 40% in aluminum systems and 20% in flexible packaging,” said ING Barings in an equity markets report.

   “Enterprise Investors (EI) (http://www.eicom.pl) would like to arrange this deal so that all shareholders will be able to sell at the same price, and then I think the company would de-list,” said Sylwia Jaskiewicz, an analyst with ING Barings. “That depends of course on the future strategic investor.”

   Paruch said the company would probably maintain its listing but “it’s hard to say what decisions the future investor will make.”

   Kęty’s share price has lost about 5.5% of its value since Jan. 1, which normally would be unimpressive. But the WIG20 index has shed more than 40% in the same period and the overall market is down more than 30%, making the company one of Poland’s safer equity investments. The listing on the WIG20 index reflects the company’s position as one of the 20 largest and most traded companies in the country.

   “We are considered a company that managed to transform from a state-owned company into a private one successfully; being listed on WIG 20 is proof,” Paruch said.

   Bank Zachodni WBK joined Kęty on the index, while builder Mostostal Export and BIG Bank Gdański got the boot. Kęty made the grade as a blue chip once before, in 1997, but slid off after only one quarter.

   The company’s share price, at about zł. 40 last week, has been buoyed by hopes that the sale to a strategic investor will net shareholders a good return and by a strong financial performance so far this year, analysts said.

   The company’s 2001 forecast calls for zł. 42.6 million ($10 million) in net profit, a 143% increase from 2000. The company’s second-quarter consolidated report showed net profit of zł. 26.1 million ($6.1 million) for the first half of the year, and Paruch said that after eight months it should be possible to meet or exceed expectations.

   “Despite bad world conditions and the economy in Poland, their performance is quite nice,” Jaskiewicz said.

   The results include six subsidiaries. The company also has a stake in seven firms not on the consolidated balance sheets.

   Kęty’s biggest single shareholder is Enterprise Investors, a Warsaw-based investment fund. EI set up a consortium of financial investors to buy a 40% stake in Kęty from the treasury in 1995 and the pending exit is part of the fund’s strategy.

   “It is a normal procedure for private equity investors,” said Iwona Drabot, public relations director for EI. “We are in a company for a certain time, three to seven years. Then, together with the management, we look for another way to develop the company. We’ve been involved with Kęty for six years now.”

   EI spent $12 million in 1995, snapping up its stake for zł. 15.90 per share. The treasury initially kept a significant stake, though that has dwindled, and most shares are now held by individual investors. Institutional investors include EI, Credit Suisse First Boston, Bank Handlowy, Bank Austria, Towarzystwo Finansowe Silesia and the Treasury Ministry.

   The company, which takes it name from the southwestern town near Bielsko-Biała where it is headquartered, may not be a household word but anyone unwrapping consumer goods from Nestlé, Unilever, Cadbury-Wedel or Kraft Foods may have peeled off the firm’s foil. In 2000, Kęty’s flexible packaging segment held 20% of the domestic market. But the biggest chunk of sales is from aluminum shapes, wires, pipes and rods used in building construction, cars and trucks, and interior design. Kęty is the largest Polish producer of these extruded aluminum products and controls 50% of the domestic market.

   The new partner will be able to take over that large market share and expand into Eastern and Central Europe markets from a base in Poland, Paruch said.

   The company credits a $100 million, seven-year investment program for its share of the domestic market and increasing presence in export markets, according to a company report. The company’s largest single outlay came last year with a zł. 100 million ($23.8 million) greenfield investment in the Katowice Special Economic Zone. The state-of-the-art plant makes aluminum extrusions, the company said.

   The company’s privatization started in 1992 when Zakłady Metali Lekkich Kęty was transformed into a state treasury joint-stock company. In 1994 the firm restructured its management and decentralized decision making along product lines. Grupa Kęty, the capital group that oversees all holdings, was officially set up in 1996, the same year the company was first quoted on the WSE.

   “We wanted to transform the plant that used to produce alloys and typical aluminum products into a modern, well-organized company, offering value-added products,” Paruch said. “We succeeded because we had a clear vision of development and qualified workers who could deal with the most difficult tasks.”