Prochem SA: No place like home
"Many of our former clients were located in Iraq and Yugoslavia and these markets collapsed for obvious reasons. In other traditional markets, like East Germany, the Czech Republic and Slovakia, poor economic conditions hurt our business, and Germany also adopted labor policies limiting the number of Polish workers (allowed in Germany)," explains CEO and President Stanislaw Srokowski.
Needless to say, 1994 was a year of rebuilding for Prochem, with the company re-focusing its efforts on the Polish market. Domestic sales now represent the lion's share of Prochem's business, at about 75% of total revenues. Net sales have rebounded to a more respectable zl. 32.3 million ($13.8 million) - although, after adjusting for inflation, this is still shy of the sales levels reached in 1992. Net profits are also up 118% versus 1993 and 78% versus 1992.
Another major element in the company's turnaround was the purchase of 35% of Prochem's stock by strategic investor Fluor Daniel Incorporated, a U.S. construction, engineering and design firm with 1994 revenues of about $8 billion and 38,000 employees worldwide. Fluor Daniel is expected to provide management and technical expertise to bring Prochem up to Western standards, and to promote Prochem's services in foreign markets. Fluor Daniel will have access to cheap but skilled Polish labor and the growing Polish construction market.
High Tech Projects
Prochem's expertise is in the area of complex, highly technical engineering and design projects, concentrating mainly on the chemical industry and the environmental protection sector. Their services include feasibility studies, project engineering and design, general contracting and turnkey operations. Recent projects have included designing a washing detergent plant for Lever Polska, a diaper manufacturing plant for Procter & Gamble Polska, a waste-water treatment facility for PepsiCo and an air traffic control center for Warsaw's Okecie airport.
Despite Prochem's new focus on the domestic market, the company's target customers are primarily large foreign companies that are investing in Poland. Prochem hopes to establish long-term relationships with these customers and eventually "move east" with them into emerging CIS markets, including Russia.
Competition
Since Prochem is a small company that offers mainly specialized design and engineering services, it is vulnerable to competition from large construction companies, such as Polish Exbud SA and large foreign firms. These firms also provide project design and engineering but offer construction services as well.
Prochem's small size also limits its ability to bid effectively for major projects, such as Poland's upcoming highway construction plan, because these projects require not only a wide range of capabilities but may also require the prime contractor to finance part of the project. These factors have essentially made Prochem a niche player in a market that is increasingly dominated by larger international construction companies. But Srokowski downplays this.
"Some clients prefer local engineering companies who can then choose subcontractors based on specific project needs (instead of being stuck with the prime contractor's sevices)," Srokowski says.
Nonetheless, Prochem's intention to purchase other small engineering companies in order to expand its range of activities and expertise, and its recent partnership with Fluor Daniel, are evidence of management's recognition that the company cannot survive as a niche player in the long term.
Information Technology/
Training
In order to compete with Western engineering and design firms, whose employees utilize state-of-the-art computer-aided design tools, Prochem has had to invest heavily in new technology as part of its $2 million, two-year "upgrade program." Most of the money spent in 1994, upwards of $1 million, was invested in new computer hardware and software. In 1995, Prochem plans to finish this investment and then focus on training the employees to use the new technologies, with the help of Fluor Daniel.
Investments in an improved quality-assurance system have been another major part of Prochem's strategy. The company expects to receive this month ISO 9001 certification, a stamp of approval which affirms a company's adherence and committment to internationally recognized quality standards.
"We will be the first engineering company in Poland to get the (ISO) certificate," Srokowski says.
The company is also building a new office building on Al. Jerozolimskie, on a plot of land purchased in 1993. Prochem has found partners for the project and hopes to complete it by 1996.
Mangement's expectations for the future are bright.
"We want to achieve zl. 50 million ($21.3 million) in sales for 1995 with profits of zl. 5-6 million ($2.1-$2.6 million) and we expect to double our sales within 3-4 years," Srokowski says.
Results so far this year are encouraging. First quarter sales are up 156% versus last year and net profits jumped by 98%.
Prochem was established in 1947 as a state-owned engineering and design office for industrial construction projects, specializing in the chemical industry.
The company was converted to a joint-stock company in June 1991 with an initial share capital of zl. 72,700. Its share capital was increased in April 1993 through a private placement of 27,300 shares, at zl. 14 per share ($5.96), to employees and existing shareholders. After a 5:1 stock split in November 1993, Prochem went public the following month with an initial public offering of 150,000 shares at zl. 80 per share ($34.04). A secondary offering to Fluor Daniel of 350,000 shares, priced at zl. 18.05 per share ($7.68), took place in April 1994, and a second 5:1 stock split occured in December of last year, bringing the total number of shares to 5 million. As of June 12 Prochem's total number of shares was 5 million, trading at zl. 8.80 ($3.74) each. Trading of Prochem shares is currently restricted to the Warsaw Stock Exchange (WSE) parallel market because the company initially failed to meet all WSE listing requirements. Prochem has since met all requirements and this week submitted an application to be traded on the main market, according to the company. A decision is expected within two months.
Needless to say, 1994 was a year of rebuilding for Prochem, with the company re-focusing its efforts on the Polish market. Domestic sales now represent the lion's share of Prochem's business, at about 75% of total revenues. Net sales have rebounded to a more respectable zl. 32.3 million ($13.8 million) - although, after adjusting for inflation, this is still shy of the sales levels reached in 1992. Net profits are also up 118% versus 1993 and 78% versus 1992.
Another major element in the company's turnaround was the purchase of 35% of Prochem's stock by strategic investor Fluor Daniel Incorporated, a U.S. construction, engineering and design firm with 1994 revenues of about $8 billion and 38,000 employees worldwide. Fluor Daniel is expected to provide management and technical expertise to bring Prochem up to Western standards, and to promote Prochem's services in foreign markets. Fluor Daniel will have access to cheap but skilled Polish labor and the growing Polish construction market.
High Tech Projects
Prochem's expertise is in the area of complex, highly technical engineering and design projects, concentrating mainly on the chemical industry and the environmental protection sector. Their services include feasibility studies, project engineering and design, general contracting and turnkey operations. Recent projects have included designing a washing detergent plant for Lever Polska, a diaper manufacturing plant for Procter & Gamble Polska, a waste-water treatment facility for PepsiCo and an air traffic control center for Warsaw's Okecie airport.
Despite Prochem's new focus on the domestic market, the company's target customers are primarily large foreign companies that are investing in Poland. Prochem hopes to establish long-term relationships with these customers and eventually "move east" with them into emerging CIS markets, including Russia.
Competition
Since Prochem is a small company that offers mainly specialized design and engineering services, it is vulnerable to competition from large construction companies, such as Polish Exbud SA and large foreign firms. These firms also provide project design and engineering but offer construction services as well.
Prochem's small size also limits its ability to bid effectively for major projects, such as Poland's upcoming highway construction plan, because these projects require not only a wide range of capabilities but may also require the prime contractor to finance part of the project. These factors have essentially made Prochem a niche player in a market that is increasingly dominated by larger international construction companies. But Srokowski downplays this.
"Some clients prefer local engineering companies who can then choose subcontractors based on specific project needs (instead of being stuck with the prime contractor's sevices)," Srokowski says.
Nonetheless, Prochem's intention to purchase other small engineering companies in order to expand its range of activities and expertise, and its recent partnership with Fluor Daniel, are evidence of management's recognition that the company cannot survive as a niche player in the long term.
Information Technology/
Training
In order to compete with Western engineering and design firms, whose employees utilize state-of-the-art computer-aided design tools, Prochem has had to invest heavily in new technology as part of its $2 million, two-year "upgrade program." Most of the money spent in 1994, upwards of $1 million, was invested in new computer hardware and software. In 1995, Prochem plans to finish this investment and then focus on training the employees to use the new technologies, with the help of Fluor Daniel.
Investments in an improved quality-assurance system have been another major part of Prochem's strategy. The company expects to receive this month ISO 9001 certification, a stamp of approval which affirms a company's adherence and committment to internationally recognized quality standards.
"We will be the first engineering company in Poland to get the (ISO) certificate," Srokowski says.
The company is also building a new office building on Al. Jerozolimskie, on a plot of land purchased in 1993. Prochem has found partners for the project and hopes to complete it by 1996.
Mangement's expectations for the future are bright.
"We want to achieve zl. 50 million ($21.3 million) in sales for 1995 with profits of zl. 5-6 million ($2.1-$2.6 million) and we expect to double our sales within 3-4 years," Srokowski says.
Results so far this year are encouraging. First quarter sales are up 156% versus last year and net profits jumped by 98%.
Prochem was established in 1947 as a state-owned engineering and design office for industrial construction projects, specializing in the chemical industry.
The company was converted to a joint-stock company in June 1991 with an initial share capital of zl. 72,700. Its share capital was increased in April 1993 through a private placement of 27,300 shares, at zl. 14 per share ($5.96), to employees and existing shareholders. After a 5:1 stock split in November 1993, Prochem went public the following month with an initial public offering of 150,000 shares at zl. 80 per share ($34.04). A secondary offering to Fluor Daniel of 350,000 shares, priced at zl. 18.05 per share ($7.68), took place in April 1994, and a second 5:1 stock split occured in December of last year, bringing the total number of shares to 5 million. As of June 12 Prochem's total number of shares was 5 million, trading at zl. 8.80 ($3.74) each. Trading of Prochem shares is currently restricted to the Warsaw Stock Exchange (WSE) parallel market because the company initially failed to meet all WSE listing requirements. Prochem has since met all requirements and this week submitted an application to be traded on the main market, according to the company. A decision is expected within two months.
