White goods maker Amica turns up heat on competition

Household electrical goods manufacturer Amica Wronki plans to battle through a slow economy and is using acquisitions and mergers to increase profits and solidify its position in the European market. The company plans to increase profits by more than 10% this year, despite the slowdown on the Polish market, increasing sales from zł. 856 million ($214 million) in 2001 to zł. 955 million ($238 million) and boost profits to zł. 14.8 million ($3.7 million) this year. Following a decline in domestic sales of electrical goods of around 20% last year, Amica's net profits dived from zł. 40 million ($10 million) in 2000 to zł. 5 million ($1.25 million) in 2001. "The household electrical industry has fallen on very hard times," said Bogna Sikorska, analyst at CDM Pekao. "People simply don't have the money to buy electrical goods. Since this is a purchase that can be deferred, they choose not to buy. But Amica is coping very well in this climate because it has taken its products to other markets, and in large quantities."

Amica's principal export market is Germany, while its purchase of Danish refrigerator manufacturer Gram last December has given the firm access to Scandinavian markets. "Amica uses Gram, which controls around 10% of the Danish refrigerator market, to market other Amica products," Sikorska said. "Hence their rather spectacular sales growth at the moment. This growth could be even better if not for the fact that Amica's accounting is done in euros, which means the company is suffering from the high value of the złoty." Amica was established as a state-owned company in 1945 to manufacture gas and coal-powered stoves for the Russian market. It started exporting to Western markets in the 1980s and by the 1990s the company began to diversify its production. Two years after its privatization in 1994 it invested in a refrigerator factory, while its 1997 launch on the Warsaw Stock Exchange was followed by the construction of a washing machine factory in 2000.

Last month the company announced plans to sell 1 million of its shares, currently controlled by its subsidiaries, to reduce the cost of servicing its bank debt and to increase its free float. The shares represent 11.45% of the company's capital and 8.59% of shareholder votes. Last month Amica announced its plan to merge with Frankfurt-based distributor Magotra by June 2003. Magotra, which is owned by Jacek Rutkowski, Amica's largest shareholder, distributes the firm's products on the European market. But the move has come under fire from Amica's investors, Sikorska said. "They see it as a way for Rutkowski to siphon profits out of the company," she said. But the move could generate savings for Amica, according to an analyst who asked not to be named. "Everybody suspects that Magotra imposed a set of charges, some of which were not transparent," he said. "But it is good in that it will increase transparency and the company's margins will increase since … these charges will disappear." Whirlpool steps in Last year Amica gained control of 20% of the Polish white goods market, becoming the market leader when Polar, its largest domestic competitor, suffered financial problems because its majority shareholder, French household electrical conglomerate Brandt Group, filed for bankruptcy.

"Polar's sales in 2001 were around 40% of Amica's sales, "Sikorska said. "Amica has 2,000 employees and Polar more than 2,900, while for its level of sales it should employ around 600." But following the takeover of Polar by U.S. white goods firm Whirlpool, analysts believe that Amica's main competitor is set to become more of a threat. Analysts say that Whirpool's modern washing machine production facility in Poprad, Slovakia, will make it likely to end production in Poland but its purchase of the Polar brand will give it new leverage on the market. "Whether Whirlpool is buying it (Polar) for distribution or production, it means a new party on the market who will sell their products aggressively, perhaps under the Polar brand," said Rafał Wiatr, analyst at COK Banku Handlowego.