12/08/2011

ALCHEMIA S.A.

Q3 results confirm successful consolidation of Alchemia Group

In the nine months of 2011, steelmaking Capital Group Alchemia, gained nearly PLN 847.5 million in revenues, an increase of over 73% as compared to the respective period of the previous year. Consolidated net profit after three quarters of this year more than tripled (y-o-y) reaching PLN 62.9 million.

The past quarter was also successful in terms of operating profit growth pace at Alchemia Capital Group. In Q3 2011 it amounted to PLN 80 million, which represents an increase of over 290% as compared with the respective period of the previous year. This is a continuation of a very good first half of this year, when the company noted a fivefold increase as compared to the respective period in 2010.

“In the first half of this year, we completed the acquisition phase and we spent the third quarter on implementing solutions that will allow the Group to fully benefit from the synergies. We treat the very good financial results as confirmation that our strategy is working, but it is also a stimulus for further hard work” – says Karina Wściubiak-Hankó, CEO of Alchemia S.A. “In the last quarter we have modified the billets order system and carrying out environmental tests, which is already yielding savings. However, not all our companies are fully using their capacity, therefore we continue to strive to obtain as many new orders as possible” – she adds.

In Q3 2011, the sales of Alchemia Capital Group increased by 59.5% as compared to the previous year (reaching PLN 294 million). Operating profit increased by 156% to PLN 27.7 million, and net profit grew by 101.8% to PLN 23.9 million. During this period, the gross margin on sales grew from 12 to 16%.

On 9 November 2011, the Extraordinary General Meeting of Alchemia SA passed a resolution on the merger of Alchemia with its subsidiaries: Huta Batory, Rurexpol and Walcownia Rur Andrzej (formal consolidation is dependent on the decision of the court). This is a part of the restructuring and the way to further lower the operating costs of the Capital Group.

Q3 2011 in Alchemia Capital Group

PIPE SEGMENT
The consistently implemented consolidation policy of Alchemia’s pipe group (Alchemia, Huta Batory, Rurexpol and Walcowna Rur Andrzej) made it possible to minimize the effects of lower demand in the past quarter. The strategy of offering a full range of pipes manufactured by three plants by one sales team handling all the company’s sales, provides customers with fast and comprehensive service. Measurable effects of the adopted strategy are the achieved financial results. At the moment, the central sales department which manages customer service is already running. In case of Walcownia Rur Andrzej the takeover of sales structures is carried out successively since October of this year.

The immediate factor influencing the increase in sales, especially export, in the third quarter, was the boost of purchases by Spanish, Italian and American contractors. Alchemia Capital Group has also entered new markets including: Ireland and the United Arab Emirates. Exports in the aforementioned new directions and the existing significant sales markets – Germany and the Netherlands were a major factor in the turnover of Huta Batory (over 80%). In case of Rurexpol, the share of export and domestic sales was in balance.
As a result of the product synergy effect, through allocations of pipes in common sizes produced by Huta Batory and Rurexpol, the productivity of both rolling mills increased without additional financial outlays. In the third quarter, the greatest demand in the sector of seamless steel pipes was for transport, construction and drilling pipes.

A sign of maintaining the strong position of the Group in the area of construction was the realization of supplies for the construction of the stadium in Rzeszów, and deliveries of high-alloy boiler tubes for key Polish customers. While the sales of the company’s seamless pipes dwindled in October, the final months of the year should be better.

HUTA BANKOWA
Despite the declining demand for round bars in the third quarter of 2011, the level of orders for these products remained high in Huta Bankowa. The upward trend in orders for railway wheel tyres, which was observed in the previous quarter, maintained mainly on the domestic market. Sales of heat-treated rods continued to increase.
Huta Bankowa maintained its leading position on the Polish market, especially in the segment of rims and rings. The number of new orders for railway wheel tyres systematically increased. However, a downward trend in the orders for long products from domestic and foreign markets was noted in Q3. The level of orders for forged-rolled products was stable. The influx of cheap materials from Far Eastern markets, as well as lowering prices for finished materials by the competitors remain a threat for the upcoming quarter. The threat of the so-called second wave of the crisis caused a slump in the number of orders, particularly from the German market.

KUŹNIA BATORY
Demand for forged products remained stable throughout Q3. Kuźnia Batory, has kept its output and sales unchanged during Q3 from the first two quarters of 2011, despite the rising cost of billets in the last three months. The plant benefited from the weakening Polish zloty against the euro and dollar.

During third quarter Kuźnia Batory sold mainly rough-turned rods from coal-manganese steel to Germany and alloy steel rods with very high durability and resilience. Additionally, the last quarter brought positive results of an audit re-certifying the quality management system ISO 9001 and the extension of the certificate to 17 October 2014. The next quarters should see an increase in exports. The company expects further orders for railway axles. It consistently strivers to increase the use of its capacity..