Producing results
Pronox Technology, a producer and distributor of electronic equipment, is celebrating last week's debut on the Warsaw Stock Exchange. The price of its rights to shares (PDA), increased by 9.5 percent and reached zł.21.90 on the debut day and the firm's management proclaimed it a success.
"The debut is a breakthrough day for our company. We are proud that three months of work and preparations have ended in a success. Strong interest as well as a successful debut only prove that our intentions and our strategy are right," says Artur Mrozik, president of Pronox Technology.
A long road
But the preparations which led to last week's debut lasted much longer than initially expected. From the moment of its inception in 1997, Pronox had intended to list on the WSE.
"Already at that point we thought we would do something very transparent and stable and we chose the model of a joint stock company," says Dariusz Smagorowicz, deputy president of Pronox Technology and one of its founders. "This strategy allowed us to grow pretty fast because, as a company with a capital of zł.100,000, we gained the trust of banks and insurance companies and we could use the funds quickly to enhance our further growth," he adds.
Łukasz Kania, an analyst at Secus Asset Management, notes that Pronox has kept its operations fairly transparent from the beginning, because of its intention to list, and that its decision to list now is the result of organic growth. "The year 2007 is the best year for the company to debut since it needed an injection of funds," says Kania.
Center development
In its debut, Pronox issued 1.5 million series-E shares with the issue price set at zł.20. The firm had hopes of raising at least zł.20 million from the market and exceeded them, taking around zł.30 million in total.
The money has already been earmarked for various products. Pronox will designate between zł.7-10 million to the development of its currently under-construction production and logistics center, for example. When completed, the new complex will comprise 36,000 sqm and will host warehouses, loading terminals and an assembly line. The total cost of the project is estimated at around zł.69 million.
The new assembly line will host the production of electronic devices such as LCD TVs and DVD players for Pronox's partners in China. The center is scheduled to open in autumn 2007 with an initial production target of 600,000 units per annum, though this should eventually increase to two million units.
Main activities
Logistics and distribution operations constitute a major part in the company's revenues, reaching around 87 percent last year. The remaining 13 percent of revenues came from the sale of house-brand products such as Easy Touch (computer mouses, keyboards, webcams, mp3 players), Procomp (PCs), My Color and Request.
Collectively these brands include almost 1,000 different products. Pronox wants to increase their share in the revenue structure to reach 25 percent in 2008. Thus the firm intends to spend some zł.10-13 million on increasing its operational capital necessary to finance the dynamic growth of its products.
According to Smagorowicz, the list of Easy Touch products will expand this year and is to include irons and other small home appliances. The first new products are to be sold this year.
"We will spend some zł.10 million on the development of the brand," says Smagorowicz.
He adds that their mid-market prices will locate the products between the cheapest and the most expensive on the shelf. The company also intends to promote its products on Asian and European markets.
Crossing borders
Pronox Technology already operates on 10 European and five Asian markets - in Spain, Germany, Bulgaria, Austria, Hungary and Indonesia, for example - but the share of export in the total revenue structure was only 4.59 percent in 2006, up from a marginal one percent in 2005. Even though Smagorowicz is optimistic and believes the quality and price of the products will will help his firm conquer foreign markets, he is reluctant to give exact figures of his prognosis.
The company has recently signed a letter of intent with one of the biggest distributors on the Czech market, ED System. According to Pronox's president, this cooperation will result in an increase of sales of Pronox Technology's products in the Czech Republic and Slovakia, with other European markets to come in the future.
Making changes
Another area in which Pronox Technology operates is complex services, including assembling, sale and repairs of electronic devices. The company's services are used by Asian electronics companies such as BenQ, Gigabyte, PowerCom and Kworld, which sell their products in the European Union. The production work is mainly done in two facilities located in Katowice and Chorzów, while repair work is centered in Wrocław. The number of repairs performed annually stands at around 120,000 at the moment, but the firm wants to increase this number to 180,000 in the future.
Since 2004, however, Pronox Technology has been trying to move away from its position as a typical distributor of IT devices and is working to strengthen its reputation as a production, logistics and services operator. According to its management, the company's current market position should be an advantage in helping it achieve this goal, and contracts currently being negotiated on Asian markets will contribute to this as well.
Secus' Kania says this change in the firm's sale structure will result in revenue growth. "The sale of the company's own brands has a higher [profit] margin than the sale of other companies' products," he states, adding that "The prospects for the IT market are promising. It is going to grow by some 10 percent per annum for the next couple of years."
Size matters?
Wacław Iszkowski, president of the Polish Chamber of Information Technology, confirms that the market has growth prospects. "Within the next four years Poland will experience further economic development and Poles will have more money to spend," says Iszkowski.
This should be reflected in the company's revenues. In Q1 2007, Pronox Technology's revenues amounted to zł.134 million, compared to zł.95.6 million in Q1 2006. Net profit reached zł.829,000 in Q1 2007 and zł.939,000 in Q1 2006. Last year's total revenues amounted to 466.3 million, with a net profit of zł.6.79 million, marking increases of around zł.70 and zł.2.5 million, respectively, over 2005 results.
Kania believes the company should see growth of around 40 percent per year. "Net profit should reach zł.9 million this year and some zł.13-14 million next year. If the Polish economy doesn't slow down for some reason, this prognosis is highly achievable," he suggests.
According to Kania, the market is very fragmented and will soon observe consolidation. "Unfortunately, Pronox is too small a company to take over other firms in Poland. It is more likely to be the object of an acquisition than an acquirer itself," says Kania.
Pronox's president is confident, however, that his firm can safely navigate the market. "It is true that the Polish IT and electronics market is fragmented. There are a few dozen firms operating, but most of them have relatively low revenues and a local scope," Mrozik claims.
"We are now investigating the changes on the market and we are planning to take them into account when outlining the company's strategy. At the current stage we are concentrating on the development of the company, leaving the issue of consolidation for the long-term perspective," he concludes.
