Market environment

The KĘTY Capital Group is exposed to trends fluctuations occurring both in the Polish economy, which is the recipient of roughly 49% of the sales, and in the economies of other European countries, responsible for about 47% of the Group’s consolidated sales revenue. The remaining 4% of revenue is generated on markets outside Europe, mainly in the USA. Revenue is diversified and comes from a great number of customers, whereas the share of none of them exceeds 10% of consolidated sales.

In 2023, sales dropped by 12% y/y by value, particularly due to lower prices of main raw materials (drop in aluminium prices by ca. 15% y/y and plastics by ca. 30% y/y), as well as lower demand compared with 2022 (specifically in the first part the year). Domestic sales revenue dropped by approximately 10% y/y, whereas the sales in other European countries was lower by roughly 14% y/y and outside Europe by about 8% y/y.

Analysing the product sales structure to third-party customers (outside of the Capital Group), a significant 45% share of the Aluminium Systems Segment may be observed (façade systems, door-and-window systems, as well as external aluminium roller shutters), the sales of which is realised mainly in the construction business.

In 2023, owing to dropping materials prices and weaker market economic situation, the share of the Extruded Products Segment in the sales of the whole Capital Group dropped by 1 p.p. y/y, and the share of the Flexible Packaging Segment by 3 p.p. y/y. The Extruded Products Segment manufactures aluminium profiles, pipes and bars for customers in many sectors, however, the leading share belongs to the construction, transport and automotive industries. The Flexible Packaging Segment offers its products mainly to the food sector (plastic laminates and films, either printed or not printed).

Therefore, all factors affecting the economic situation in the construction business (availability of loans, level of investments), the automotive and transport sector (number of vehicles sold, share of aluminium elements in the vehicles) as well as the food sector (consumption and type of packaging applied by food manufacturers) have a significant effect on the sales of the Capital Group.

The basic raw materials used by the Capital Group include primary aluminium, aluminium scrap as well as semi-finished products based on aluminium (sheet aluminium and aluminium foil and tape as well as billets made of aluminium and its alloys). In aggregate, they account for about 55% of all raw materials and production materials. In the production of flexible packaging, the Group also uses various types of films and plastics granulates (polyethylene, polypropylene), printing paper, paints, adhesives and binders, which jointly represent 20% of all purchased materials.

The list of basic materials is supplemented with accessories for the production of aluminium systems, with 10% share. The main suppliers of raw materials and production materials are European companies, including those located in Poland (ca. 27%) and in other European countries (65%). Purchases made outside of Europe represent roughly 8% of all purchased raw materials and production materials.

In order to maintain high production quality, the purchasing policy is based on cooperation with selected suppliers who guarantee an adequate level of deliveries as well as simultaneous diversification (which ensures competitiveness and security). The value of purchases from the individual suppliers does not exceed 10% of consolidated purchase of raw materials and production materials.

In 2023, despite market turbulence related to the war in Ukraine and resignation from cooperation with suppliers in Russia and Belarus, the companies of the Capital Group did not suffer any major problems in basic materials supplies

On 12 October 2020, the European Commission imposed penal customs duties ranging from 30% to 48% on extruded products imported to Europe from China. The customs duties have been binding since April 2021 for the period of 5 years, which may have a potentially positive effect on the level of orders to be received by the European manufacturers, including the Extruded Products Segment of Grupa KĘTY S.A.

The customs policy of the specific countries in relation to the products offered by the Capital Group or its customers may affect sales indirectly. Further, the possible customs duties imposed by the European Commission on raw materials and semi-products acquired by the Capital Group companies outside of the European Union may have a negative impact on costs.

As estimated, in the period covered with this report, the sales value of the Capital Group companies denominated in EUR and GBP exceeded the costs incurred in these currencies. The surplus levels in 2023 are estimated as ca. EUR 139 million and GBP 26 million.

As regards USD, costs in the year exceeded sales by roughly USD 65 million. Consequently, changes in the PLN exchange rates to EUR, GBP and USD affect the results generated. This refers both to the profitability of exports and competitiveness on the domestic market compared with imported products.

The companies of the Capital Group take measures to mitigate FX risk by entering into currency forward transactions, transferring risk to the customer by application of price formulas covering for foreign exchange rates fluctuations, or maintaining a part of their debt in foreign currencies.

The Capital Group Segments operate mainly on the European market, competing both with local companies in the respective countries, and concerns operating on global or European scale. Moreover, products from the Far and Middle East are sold on the European markets. Despite the fact that those companies mostly supply relatively simple products, which do not require major processing or complicated and precise logistics, their price offer affects the prices on the markets where the products are sold.

Further, the activities of the competitors (price policies, investments in new production capacity, introduction of new innovative products, introduction of new high-efficiency technologies, access to cheaper raw materials, etc.) may affect the competitive position on the market and, thus, the sales and financial results generated by the Capital Group companies.

The companies of the Capital Group implement investment programmes and extend their scale of operations in accordance with the assumed strategy, also availing of external finance. It means that restrictions in access to third-party finance may have a significant impact on further development opportunities and dividend paid by Grupa KĘTY S.A. The interest rates related to external debt affect the value of finance costs and, thus, the generated net results.

In 2023, the main banks financing the current activities and investment projects of the Capital Group were: Bank BNP Paribas S.A., PKO BP S.A., Bank Pekao S.A., and ING Bank Śląski S.A. In 2023, there were signed annexes extending the financing of the Capital Group with PKO BP S.A. and Bank Pekao S.A.

On 28 November 2018, the European Commission presented a long-term strategic vision of a well prospering, modern, competitive and climate neutral economy by the year 2050. Therefore, Poland as one of the member states should implement actions to follow the vision.

The actions may be related to some additional investments at the Capital Group, or incurring additional costs. Detailed information on Grupa KĘTY activities with regard to climate change prevention as well as the parameters planned for 2023 and achieved in that year may be found in section 9 of this report entitled ‘Non-financial Information Statement’.

The Capital Group is obliged to abide by a large and continuously growing number of legal regulations, including those related to personal data protection, environmental protection, waste management, corruption prevention, money laundering prevention, and many others, which results in higher costs related to the monitoring of the areas and higher risk of sanctions in the event of possible breaches.

In 2023, there were no penalties imposed on the Capital Group companies that could have a major impact on the companies’ activities or their financial results.