Grupa Kety S.A. (KTY) Earnings Call Transcript

Good morning, ladies and gentlemen. Welcome to the conference devoted to the presentation of the Q3 2026 earnings of Grupa Kety. Yesterday, we published a quarterly report. And the Management Board would like to comment upon the results and all the events that took place in the past quarter. Following the presentation, you're obviously invited to ask your questions. And the presentation, as always, will be started by Roman Przybylski, President of the Board.

Thank you, and welcome. It is our pleasure to welcome you once again, especially since we have just completed a very good Q3 of this year. The third quarter, which from our perspective, was mainly something that was marked by the acquisition of the METRA Group. But before I go to this particular fact, let's focus on the basic, the core business. We reached very good results, still handling at a very difficult market, still better than the competition, trying to make the most -- and succeeding in making the most of the circumstances provided by the macroeconomic situation. The situation in the business is so-so. I'm talking about the construction production both in Poland and across Europe, there are better months and some worse months. So we go up and down. But generally, there is no significant revival in the industry. There is some in construction production, but mainly for infrastructure production compared to building production. Here, the standing is rather weak or mixed. Actually, multifamily housing construction is handling even worse, but at least some construction permits as far as houses are concerned are being issued. And I'm sure you know that the premium segment is more important to us in this respect. We hope that the economic revival is something that we will see more pronounced in the months and quarters to come. We still handle very well in this difficult market. Another element, we have noticed in our very good quarterly results is the fact that our vertical integration really manages well due to the pressure of inflation increase of raw material costs, the margin is lower in downstream costs in mainly in ASS and SSS, However, with higher margins in EPS and FPS more production segments. So we are talking mainly about these 2 sectors. Due to the higher prices, our premium is higher, stable volumes in [ SSP ], however, in EPS, obviously, we are handling very well due to the stability of the resource prices. We are making the most of the situation, which translates very well to the high dynamic compared to the previous year. In this respect, we obtained more than PLN 331 million of EBITDA and PLN 208 million of net profit in Polish zloty, obviously. As I've already mentioned, a very important event in Q3 was the conditional contract for the purchase of shares in the METRA Group, and there was a separate conference devoted to this particular matter. So I'm not going to go into details here. But let me emphasize how important it will have on further development of the group. METRA, manufacturers sections and aluminum systems operating in Italy and in North America with about EUR 645 million in estimated revenue very widespread and heavily present group with this heavily pronounced and presence in the American market. So we signed this provisional contract. We are getting to the closing on the contract. We've already filed our applications to the antitrust offices and this is going really well. As far as our business is concerned and how we handle in individual segments, I give to Rafal Warpechowski, our CFO.

Let's start from consolidated results. The quarter and the past quarter Q3 was subject to very heavy changes in macroeconomics, this being the main reason. Next to our trade decisions. As far as margin goes, the main reason having impact on our sales revenues, both in terms of receivables and liabilities. The raw materials growing, getting higher in prices, both resins and aluminum that we use in the segment of Flexible Packaging segment. Hence, the increase of EBITDA are, I mean, PLN 331 million, that's a very good result. High profitability is maintained by the individual segments, that's, well, a slightly different situation and more about that in a moment as far as financial gain. We are mainly talking about interest here similar to the previous year, slightly lower scale, which is due directly to reduced debt ratio in this quarter. Taking into account some fiscal charges close to the interest rate. We have noted as much as well, plus 42% as far as net profit. So a perfect, excellent quarter as far as financial results are concerned. Okay, let's start with some individual segments and the discussion in the Architectural Systems Segment, in which as already mentioned, is the one that is facing a very difficult market situation. The feedstock is growing -- the feedstock prices are growing. Raw materials are more and more expensive. The segment had to change twice its price leads. Consequently, in spite of lower volumes the sales revenues are still higher year-over-year by 5% actually. But still in spite of the EBITDA and this very high efficiency and the cost-effectiveness and the margin capacity still EBITDA is 9% lower compared to the previous -- the previous year. A ready-made products, we are still in finished products. We are selling about PLN 100 million in a yearly scale, no large changes as far as the structure of domestic and foreign sale, we are talking about 40% of export. Another segment that we talked a lot in previous quarters, mainly due to the weather conditions in the first quarter. And in Q2, there was a big market pressure, maintaining as well is the Sun-shading systems. The deviation of EBITDA here is PLN 11 million but it's still lower than the one observed after the first 6 months. So the situation has stabilized a little bit. Given the stable volumes as far as the sale -- the system sales, we reported 8% drop for finished products. Now the competitive situation in the market is really very demanding, but still, it seems stable or there is a promise of stability. Last of the segments in terms of aluminum product is concerned, is the Extruded Products Segment, and it's clear, given those bars that you can see that on the one hand, very high operating efficiency because this is yet another quarter where we improved in sales volumes, 2% higher sales, combined with raw materials growing in prices, which then translated into sales revenues. So quantitatively, there is as much as 30% of increase about and very high occupancy of raw materials, products growing in prices, hence the twofold increase of EBITDA, nearly twofold. So this is particularly in the segment that actually benefited from the market turbulences, thanks to the very fact that we could really very efficiently find our place in the market. Another positive factor affecting us is the customers from the construction sector. about which we've just heard that it's performing better than industry at large. Those customers account for about 50% of our product portfolio, which also supports our financial results at large. Similarly, 50% of exports. And in this respect, no significant changes were reported. Another segment to discuss Flexible Packaging Segment, also a very good result compared to the previous year. In terms of volume, we're slightly below the year-over-year ratios, but this is due to optimization of structures and packaging types. However, as far as sales revenue is concerned. And the margin, we see very good trend. Raw materials are growing in prices, but there was an opportunity to update the prices and the capacity to generate higher gain on EBITDA. Now when we talk about some financial ratios. Our debt has been continuously declining. That was also a very good quarter as far as Polish zloty was concerned. Strong EBITDA allowed us to finance the first tranche of dividend payment, but also increase of operating capital. That is a direct consequence of the raw materials -- raw material prices growing. Hence, the 2% EBITDA debt was what I would like to draw attention to. One nmore thing that I would like to draw attention is about PLN 170 million of investment expenditure. As mentioned, in Q4, CapEx should increase our estimates speak of about PLN 100 million. So we will have closed the year with about PLN 40 million to PLN 50 million below the estimate the projection. Originally, the projection was PLN 114 million. Just as a reminder, However, the increase in Q4 means that about half of the spending will be allocated in the flexible products and related to the construction of the third BOPP film line, which means that we are entering the very final phase of this investment. Hence, the accumulation of spending late this year, early next year. As far as projections for Q4, as far as market environment, no significant changes in demand compared to Q3 are expected. The prices of raw materials have stabilized or show some downward trend, but some deviations in both sides are obviously possible due to speculation, operations and geopolitics, it's very difficult to anticipate something for the market. As far as prospects for the sales -- for sales volumes are concerned, year-over-year, they are quite comparable virtually in all segments. So I'm not talking about any market breakdown or any rebound really. So in other words, on operating terms, we are trying to make the most of our capabilities and do whatever we can in the market given the current situation. It will be a very important quarter concerning our operations related to the acquisition of the METRA Group. We've already submitted all the documents required to procure all the permits from the regulatory bodies. We are awaiting any inquiries from the officials, and we are hoping that we will procure all those permits in Q4. As far as finances go, we will pay the second tranche of the dividend in November. About PLN 300-plus million. We will also focus on securing the METRA acquisition transaction. We have partially already done that. We managed to do it in September, a part of the operations were completed in October. And we want the foreign exchange rate under this transaction to account for about 3/4 of this entire value. Those stable market projections as far as volumes are concerned, also calls that our annual projection should be exceeded as already informed in previous quarter, it seems that, we will have about 5% exceedance of the EBITDA model -- of the EBITDA threshold according to our models. According to our estimates, it is absolutely possible. And last but not least, on this occasion, I would like to say thank you to many participants of all the activities. That's a great success as far as what was happening in the company is concerned, we were actually -- we are actually commended under the competition organized by IRIP, the best annual report competition. So congratulations to everybody involved in this activity. I wish that such a level of reporting continues to be maintained for the stakeholders next year. Thank you.

Thank you very much for your presentation. And now we are moving on to the Q&A session.

The first question is regarding cost of transaction of acquiring METRA Group, what cost level can be expected recognized in the fourth quarter of 2026?

Honorable ladies and gentlemen. In quarter 4 alone, it will not be significant amounts. We may say that transaction costs are estimated to be roughly 1% of transaction value or around this figure. Half of it will be recognized within this year, a majority of which is included already in the results for 10 months and a small portion in the fourth quarter and half because it includes success fee element out of this element probably within next year after closing the transaction.

Thank you very much. And a more general question, what greatest opportunities do you see do we see in the following quarters? That means in the last quarter of this year and next quarters of 2027?

You know, the fourth quarter, it's already here. So it is not the strongest quarter in the sectors we are active in. Therefore, it's hard to talk about something spectacular. We will be getting ready for the next year, and we are working hard on foundations on developing business in order to, actually, utilize those opportunities best in 2027. And we have 2 areas, as we mentioned. And when publishing the strategy last year. Firstly, we focus on organic growth. Therefore, very strongly, we are working, and we will be working on development, both market and product development. So as you know, we have opened company in France. And we are now in the progress of building the team. We are strongly rebuilding and changing our teams in foreign markets. We work on tools and processes to serve clients in the organization, and we implement new products or improve on the existing ones. And here, a spectacular new implementation, which we actually showed in the third quarter was a synergy product of [indiscernible]. So practically, very strongly, we put stress on organic growth in foreign markets and in the results of our work, which we carry out on a day-to-day basis and all the backup we built for this purpose. Second element, of course, there will be integration of METRA Group, which will be a process spread over years. Whereas I assume that certain areas will be possible to be touched on sooner. We are buying similar things, both in [ SSW ] and [ SSA ], we buy similar materials and elements. So there are areas where, for sure, we will be looking for synergy and values right in the first quarters after closing. Very strongly, I would count upon stability and improvement of macroeconomic situation and geopolitical one because this, actually, roller coaster is difficult. And we, on the one hand, are using it. As you can see in the results of this quarter, we are able to translate the macro disturbances into results, but we will all be much more calm if, first of all, the military conflicts, both in the Ukraine and in Middle East would come to an end or at least would get frozen to not to be actually affected by increased prices of raw materials, and it is actually influencing our clients who put off or give up buying decisions. So we do count upon macro revival, but today, it's very hard to forecast when it will happen.

Thank you very much. And question is about, first in, first out. FIFO in Extruded Products Segment. In the third quarter, did you noticed such effect? And if yes, then what was its scale. Well, here, ladies and gentlemen, really, we were considering how in case of extruded products to calculate the one-off result related to increased prices.

Our estimations, which displayed how prices were forming also -- I mean, buying prices. Well, a few months ahead. And well, they pointed the possibility that in the third quarter, such effect resulted from rapid increase of prices of raw materials, well, between PLN 20 million and PLN 50 million we estimated it to be. And in what scope in that what influenced positively EBITDA stayed in the fourth quarter may stay in Flexible Packaging Products. In the third quarter, those positive influence on FPS was much lower than in quarter 2. They were present, but they were present in the half of first quarter. Now at the moment, we assume that the fourth quarter will be a typical one for the Flexible Product segment, well, with events typical for this segment, but not influencing the market so much.

Thank you. And in the third quarter, both Architectural Systems as well as systems of Sun-shading. Well noted, what is the factor that influenced the situation? Will quarter 4 will be under pressure also in these segments and whether in 2027, we see a possibility to return to positive dynamics of EBITDA in those segments?

Honorable ladies and gentlemen, I think that to these questions, the answer was included in earlier answers. So the main reason is weak market, first of all, for the volume, both in construction. I mean, both in Poland and all over Europe because in both segments, we are selling a great share of exports. But what we sell in Poland is a great majority exported west by our clients. So weakness of the market is the decisive factor here. This weakness of the market results from small number of new started construction products and savings, putting off investment decisions or withholding them by both companies and individuals. And here, unfortunately, construction segment is weak here. And -- but as we always repeated this, the residential resources must be increasing, so that weakness must not be indefinite. And we assume that a certain moment, it will start bouncing up as you can see in Poland, we can see more construction permits issued, so granted. So these results are already. And this is, for sure, the main element we are struggling with today. And as I also mentioned, we are doing a lot of work in order to be able to -- in the following quarters to be growing start growing if macro and the market help us all the better. But if not, we will be actually struggling, growing comparing with the competitors, but I'm strongly convinced that we will see positive dynamics in those segments in 2027.

And now -- thank you. The question regarding the Extruded Products segment, whether the improvement noted in the third quarter should be considered durable, permanent? And how do you actually foresee this segment for 2027?

In today's situation, for sure, in part -- results of quarter 3 are supported by macro trends. This was the situation in quarters 2 and 3. Whereas unquestionably growing volumes and obtaining and maintaining high level of or high content of the portfolio, this is our organizational success. And both these results are present, a 14% profitability is a high level now. And it's difficult to assume that it is a level in today's market, which is possible to be maintained. So minimum is actually taking off the effect of turbulences in the raw material market. But still, we have potential because using of the capacity to the level of 70% roughly, and we still can be increasing it up to 100% using the capacity.

After 2 increases of prices in architectural and in Sun-shading segments, any significant changes are planned for the nearest months or weeks?

No, we are not planning such changes. We will be watching the situation on the go, both from cost side, raw material size and market size today, no plans of this kind are not in place today.

So thank you. How can you specify the initial thread regarding spending for the 2027?

Well, they will not be significantly different from this year's figures probably. But we are waiting for -- in total, of course, for closing the transaction of acquiring METRA, it will influence CapEx. But if we look at Kety Group alone, for sure, it is a level oscillating somewhere close to this year's forecast.

thank you. Whether questions of the full estimations for the quarter 4. Did the Management Board consider elements related to rotation of stock -- I mean, FIFO, whether in the fourth quarter and the Management Board expect some?

Well, the fourth quarter, we actually assume at the level similar to last year's, and we believe that these effects with current raw material trends with stabilization or even downwards trend, they will not be significant.

Thank you. A request for reminding what is the currency position of the company, what costs -- operational costs the company is bearing in U.S. dollars and which in the euros?

Economic exposition is a couple of million euros a month. We are generating a couple of million euros a month in case of other currencies, these are very small amounts because we convert aluminum bought in U.S. dollars right away to euros. So we actually reduced this exposure to euro. So as you can see, part of our loans are also denominated in euros to have a kind of natural hedging between operational exposition and financial one. [ Exposure ].