Following the scent of success

Following Pollena-Eva, Kolastyna is set to become the second company from the personal-care-products sector to enter the Warsaw Stock Exchange. The price of the Kolastyna Group's shares has been set at zł.3.50, the maximum price given in the issue prospectus. The company will debut at the beginning of February.

"We are seeing huge interest in our offer, both from institutional and individual investors. Our potential shareholders pay particular attention to the rich traditions of [our] brands, to the ability to maintain the leading position among Polish producers as well as to good quality of products," says Andrzej Grzegorzewski, president of Kolastyna.  

Some 11 million shares are designated for institutional investors, whereas four million have been set aside for individual investors. An additional 29.55 million bearer shares will also be available, each worth zł.1. The Kolastyna Group estimates that it will obtain up to zł.52.5 million from the overall issue.

"The most important aim of the IPO is to raise money to spend on increasing Kolastyna's market share in hair and skin-care products," says Grzegorzewski. Currently, the company's market share in this area amounts to some 5.2 percent.

"Within the next three years we want it to grow to 10 percent," says Grzegorzewski.

Sunny prospects

In addition to hair and skin-care, Kolastyna also makes sunscreen products. Approximately every fourth unit of sunscreen sold in Poland has been produced by the firm, making it the largest producer of sun-care products in Poland. Kolastyna also produces perfume and cologne, and the company wants to increase its sales of these products by 15 percent.

"Experts estimate that the personal-care-products market in Poland is worth zł.8 billion. In France its value is four times higher, so there is room [here] for further growth," says Grzegorzewski.

The Polish personal-care-products market is something of a regional curiosity in that domestic producers account for between 55 and 70 percent of the total market. According to Blanka Chmurzyńska-Brown, general director of the Polish Union of Private Employers of the Cosmetics Industry (PZPPBK), the reason for this is that, before 1989, Poland specialized in personal-care products within the communist bloc.

Now the industry foresees dynamic growth because on December 1, 2006, the Ministry of Finance lifted a 10-percent excise tax on personal-care products.

"Previously we were not able to develop as fast as the rest of Europe. Now we will grow even faster," says Chmurzyńska-Brown "The growth will be higher in value than in volume," adds Remigiusz Sopel, an analyst from IDMSA.

Rapid growth

Experts say the personal-care-products market in Poland will be growing by four to eight percent a year by 2010. The fastest growing part of the market is currently in hair and skin-care, which is worth some zł.1.5 billion a year.

Last year the Kolastyna Group's estimated consolidated sales revenues reached zł.90.08 million and gross profit amounted to zł.7.8 million. A year earlier it had consolidated revenues of zł.81.5 million and gross profit of zł.3.7 million. Kolastyna will announce its prognosis for this year after Q1.

According to Sopel, the implementation of the firm's development investment strategy is feasible. "The revenue estimates have been based on sales achieved in previous periods, the demand of the market and existing contracts. I believe the company will be able to increase its sales by some 20 percent," says Sopel.

The company also plans to increase exports by 30 percent within the next three years. The main importers of the company's products are Russia, Ukraine, Belarus, Lithuania and Kazakhstan. In 2005, export to these countries exceeded 80 percent of the total value of the firm's exports. Now it plans to concentrate on the Mediterranean markets with its sun-care products.

The firm plans to spend around zł.6-7 million from its IPO on the development of exports, as well as on marketing. A similar amount from the IPO will be spent on a new laboratory located in Kraków's Niepołomice, whose total investment cost should exceed zł.20 million. The company also wants to increase its turnover capital and will dedicate another zł.7 million to that end.

Bigger and better

According to GlobalEconomy.pl, there are over 500 personal-care-products producers in Poland, of which the majority are one-person firms or small, family enterprises. Grzegorzewski echoes this fact, stating that the Polish market is very fragmented and that he believes that consolidation is unavoidable.

To this end, some zł.28 million - around half of the sum the firm hopes to get from its IPO - will be spent on acquisitions or the creation of new brands. Kolastyna owns three brands at present - Laboratorium Kolastyna, Miraculum and Juliette Essayer - and its portfolio includes over 300 products, the best known of which are the Pani Walewska and Brutal brands.

For Grzegorzewski, French L'Oreal represents an ideal model and he wants to emulate it.

"We are going to take L'Oreal's path. The company possesses a huge number of brands. We began the process by taking over the majority stake at Miraculum, one of the oldest brands in Poland," Grzegorzewski adds.

Kolastyna has a 24-year history, beginning in 1983 when it was established by Urszula Grzegorzewska as a family business. After the IPO, the Grzegorzewski family will maintain a more than 52-percent stake in the company, preventing any takeover of the company by domestic or foreign capital.

"Two years ago we were wondering whether Polish companies would consolidate after we joined the European Union. It is happening, but at a very slow pace," confirms Chmurzyńska-Brown.

Kolastyna:

CEO:   Andrzej Grzegorzewski

Strengths:

- Know-how and experience

- Strong position on the market

Weaknesses:

- Growing competition on the domestic market

- Possible appearance of a financially stronger foreign competitor