Ster-Projekt ponders three ways to grow
For Ster-Projekt, Poland's fifth largest IT solutions and systems integrator by one estimate, the current dilemma is whether to seek a new stakeholder, acquire a strategic investor with an appetite for growth or turn to the financial markets for a war chest to finance acquisitions in the near future.
The company will make that decision within the next two to three months, according to Piotr Smólski, Ster-Projekt's president, as the next step in fulfilling its new three-year strategy unveiled in August.
Ster-Projekt, which has a market capitalization of about zł. 95 million ($22.6 million), is focusing on four core sectors for services: banking and financial, telecommunications, administration (including the military) and manufacturing (especially energy companies). The firm's goal is to rank as the top or second best performer in each of its four specialized sectors.
Ster-Projekt expects to swell revenues by 15-20% per year from 2003-2005 and generate zł. 500 million in revenue in 2005, while boosting its operating margins at least 7%. The company reported total revenue of zł. 247 million ($58.8 million) and net profit of almost zł. 3.2 million ($750,000) in 2001. It predicts revenue of nearly zł. 330 million ($78.6 million) and overall net profit this year, although Smólski declined to indicate a figure. Services and IT solutions for customers will account for about 33% of Ster-Projekt's turnover in 2002, lifting to more than 50% in 2005, according to the new strategy.
For now, Ster-Projekt's task is to target two suitable niche IT companies for a round sum of zł. 70 million ($16.7 million). Informal talks have begun with several prospects that could offer access to new technologies or new markets, but Smólski declined to say if Ster-Projekt is close to deals.
"Our strategy is to make acquisitions of small companies and to build the resources and skills inside (those) companies
and get (them) inside to build a bigger Ster-Projekt," said Smólski, who has been at the firm's helm for three years after working as general manager of Hewlett-Packard Polska for eight years.
Ster-Projekt is one of a handful of IT companies consolidating and fortifying its position to withstand growing competition and take advantage of new IT projects funded by European Union investment.
Despite the search for the two niche IT companies, Smólski did not rule out going for a larger acquisition or merger, for which Ster-Projekt would require a fresh share issue. And with most IT companies anticipating strong competition from new players arriving with Poland's EU promotion, Smólski also admitted Ster-Projekt could find roles reversed and be a takeover target itself.
Analysts are cool about Ster-Projekt achieving at least some goals in the new strategy. Katarzyna Perzak at Dom Maklerski Big-BG thought that the shift was an improvement on its former policy of focusing on the military and public administration sectors, two areas with big funding problems and a consequent drought of new IT tenders. But a merger with a larger player rather than buy-ups of smaller niche companies would be more feasible since it would be cheaper and quicker, she said.
Another Warsaw-based IT analyst said Ster-Projekt's new strategy offered no clear advantages to outsmart competitors. He saw problems with the company's plans to expand its low operating margin of about 1.5-2% to the level of bigger IT systems integrators like Prokom Software and ComputerLand, basking in operating margins of 7-15%.
Ster-Projekt was founded in 1986 and started designing, producing and implementing specialized equipment in the fields of automatics, digital circuits and computer systems. It widened its product range to focus on implementating advanced IT projects. Headquartered in Warsaw, it has branch offices in Gdańsk, Wrocław, Łódź, Poznań, Kielce, Kraków and Bydgoszcz.
According to Ster-Projekt's annual report for 2001, the major shareholders are Prokom (12.11%), Smólski (10.72%) and National Investment Fund Kwiatkowskiego (10.53%) with the remaining shares held by individuals. Ster-Projekt went public in 1998, listing on the WSE parallel market and reaching the primary market in March 2000.
