Sharp increase in the FAMUR Group’s revenue in 2017

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The company’s performance was an effect of the Group consistently pursuing its strategy focused on winning new contracts and developing a comprehensive offering for various industries. 2017 saw the first tangible results of the consolidation of Poland’s mining-related market, driven by the integration of FAMUR and KOPEX. In the operational sense, the process is practically completed. The Group’s results already show the first financial effects of the changes made and of the strengthened market position.

We are very satisfied with the revenue, which clearly indicates that the market is beginning to rebound, although the positive market trends were accompanied by a significant increase in costs, especially in the second half of the year. Nevertheless, we believe that the current market situation and the revenue we earned last year are a springboard for the Group’s further development. That is why we are looking into new scenarios focused on building our presence on foreign markets, in various parts of the world. In Poland, we are steadily improving our offering, making it more comprehensive and innovative. We do not only sell mining machinery, but also provide more and more solutions for the power sector and logistic solutions for reloading in ports – says Mirosław Bendzera, President of the Management Board of FAMUR SA – As a Polish manufacturer, we have earned ourselves a strong position in Poland and we mean to keep it by participating in the mining industry modernisation process. These are not all of our ambitions, though. We want FAMUR to become a global company. Therefore, we focus on foreign expansion, winning new contracts in the key markets. These efforts produced tangible results last year. I believe that also this year we will take advantage of the positive market landscape in the mining industry, both in the countries where our presence is strong and in the emerging markets, where we may grow naturally in the long run.

Growth of the FAMUR Group is in line with the Polish government’s ‘Strategy for responsible development’ and ‘The program for the coal mining sector in Poland’ (adopted in January 2018). Since the beginning of the fourth quarter of 2017, the Group has reported in its stock exchange reports on securing new contracts worth more than PLN 460m (in the corresponding period of the previous year, the value was twice lower). Given the government programme for the Polish coal mining industry and the investment outlays planned, among others, by leading domestic mining entities i.e. Polska Grupa Górnicza, Jastrzębska Spółka Węglowa, Tauron Wydobycie and Bogdanka, as well as the improved financial situation of mining companies, we expect a further increase in orders from this sector.

As a strong player on the Polish market, offering a comprehensive range of products and services, the FAMUR Group plans to actively participate in the modernisation of the Polish mining industry and to intensify foreign expansion. Russia, Kazakhstan, Turkey, Indonesia, Argentina and Mexico are considered promising export markets. The FAMUR Group is also looking at India, China, the US, Canada, and Australia. Therefore, analysis is carried out to formulate an international expansion strategy. Various scenarios are considered, predicting organic development or strategic alliances, if they would guarantee tangible benefits to the Group.

Using the practical experience and unique knowledge we gained when doing business abroad, we want to choose the best development-oriented model supporting our future global strategy. That is why we are analysing and evaluating different options. In the course of efforts to make our business truly global and thus create added value in the long term, we must carefully select the areas which offer real opportunities for growth. These should be areas and projects that will provide the strongest revenue potential to the Group. This will help us effectively use our current advantages and competence – emphasizes Bartosz Bielak, Vice President of the Management Board responsible for preparation of the global strategy.

The Group plans to present the strategy to shareholders and investors in the third quarter of 2018.

Results by business segment

Since the third quarter of 2017, in addition to Underground (longwall, gallery and transport systems) and Surface (handling and open pit mining), the FAMUR Group has reported on its performance in two more segments: Electrical Equipment and Mining Industry Services. This is connected with the acquisition of the KOPEX Group.

Revenue by segment, Q1-Q4 2017 (%)

Segment Share in revenue
Underground 70%
Surface 20%
Electrical Equipment 3%
Mining Industry Services 7%

In 2017, the FAMUR Group earned revenue of PLN 1.46bn, up by 42% on 2016. The Group’s EBITDA (operating profit before depreciation and amortisation) amounted to PLN 292m, up by 22% year on year. Consolidated net profit for 2017 reached PLN 58m and was down by 38% relative to the previous year, mainly due to the strong increase in the cost base (particularly in the second half of the year) and certain non-recurring events, including specifically the recognition of provisions and allowances in connection with tax inspections.

We recognised the provisions and allowances because we approach all the risks associated with our operations with great caution. Our decision followed in particular from the change we had observed in the tax authorities’ interpretation of tax laws. It is worth noting that the tax settlements concerned were made in conformity with the laws in effect at the time, as well as with consistent position presented by tax authorities and administrative courts’ rulings, and were confirmed by the findings of the tax inspection carried out in 2013 – emphasizes the President of the Management Board of FAMUR SA

The Group’s financial performance in 2017 could have been even stronger if it were not for the increase in the cost of labour, services, raw materials and other production inputs. The scale of the cost increase in the second half of 2017 came somewhat as a surprise to industry operators. They did expect some increase in the costs of raw materials and a wage pressure in the enterprise sector, but both turned out to be higher than anticipated.

Along with a growing number of orders, in the second half of 2017 there was a strong increase in production costs. Last year, the Group mainly performed contracts signed in 2016 and early 2017, based on valuations made at that time. As these contracts were not renegotiable, there was a temporary drop in our margins. However, contracts which were negotiated from the third quarter of 2017 were valued with reference to a new cost base, so margins should soon return to optimum levels – commented Mirosław Bendzera.

Merger with the KOPEX Group

The growth of the FAMUR Group is additionally stimulated by its merger with the KOPEX Group, which is currently at final stages. Certain functions, including sales, sales support, contracting and logistics, have been centralised to generate synergies. Also, an optimum operational structure model has been developed, which assumes integration of the machinery businesses of both groups. Assets intended for divestment have been identified and the rules of cooperation between the two companies within the Group have been clarified. Thanks to this business combination, the FAMUR Group may broaden its offering and thus enhance the comprehensive nature of its business.

Thanks to the right decisions on modernisation of our management structure and the responsible investment policies, today FAMUR is benefiting from the market recovery, both in Poland and abroad. With our investment in new technologies and a continuous process of improving and extending our offering, our products and services will even more effectively compete in the global markets. The merger with KOPEX strengthens our competence in the increasingly competitive environment and helps us to build tangible added value of the Group – said Mirosław Bendzera, President of the Management Board of FAMUR SA

Inclusion in important stock index and growing market capitalization

In December 2017, in recognition of its strong market position, FAMUR was included in the mWIG40 stock index. An investment in FAMUR shares offered an annual rate of return of around 18%. In the same period, the value of the mWIG40 index fell by 4.5%, while WIG20 gained 4%. FAMUR’s market capitalization is over PLN 3.4bn.

Summary of the Group’s performance

Financial highlights of the FAMUR Group for Q1-Q4 2017 (PLNm)

2017 2016 % change
Revenue 1,458 1,030 +42%
EBIT 117 114 +2%
EBITDA 292 239 +22%
EBITDA margin 20% 23%
Net profit 58 94 -38%

The Group’s gross margin was adversely affected by the wage pressure, growing prices of steel, and rising contracting costs.

The FAMUR Group’s results for the first quarter of 2018 will be published on May 28th.