Ferro (WSE:FR) – Strategy 2022-2026 – Warsaw Stock Exchange

Strategy F1: 2019- 2023

The Group pursued the Strategy F1 successfully and realized it earlier than assumed; revenues and EBITDA beat the strategic targets (assumed at PLN 700 million and PLN 90 million, respectively, in 2023) hitting PLN 831 million and PLN 119 million, respectively, already in 2021, and all without incorporating the acquisition effectively closed in March 2021.

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Strategy F1R2: 2022-2026

For the years 2022-26 the management adopted a new strategy that assumes using the Group’s competitive advantages and its stable financial condition to accelerate its growth and expand the market share. The Strategy F1R2 defines the Group’s goals and directions of development in 3 dimensions: strategy, structure, and organizational culture. It includes ESG issues as well. The new strategy is based on 4 pillars:

â–  market expansion,

â–  product expansion,

â–  production,

â–  effectiveness.

The market/ product expansion is aimed at a sales growth through market widening and product offer increase. The third pillar is supposed to support the Group’s perception as a producer through investments in production capacities, and the fourth one indicates internal transformation and elimination of the organization’s weaknesses. These last two are supposed to extend the Group’s operational flexibility and lower the risks related to unexpected changes in supply chains.

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The Strategy F1R2 defines key directions of the Group’s development as:

• new markets,
• well-adjusted offer,
• operational perfection,
• strong brand.

The Company’s strategy covers M&A activities. Future acquisitions should enable the Group to take over a company offering complementary products to Ferro’s offer. A business growth potential after a takeover target has been incorporated, and means to raise capital for funding a potential acquisition are factors which play an important role in making a decision about the transaction.

The management estimates that the realization of two main assumptions of the Strategy F1R2 will allow the Company to deliver in 2026:

• revenues at PLN 1,400 million,
• EBITDA at PLN 193 million, with
• the annual capex not exceeding PLN 30 million.

The discussed assumptions do not cover the Company’s acquisition plans.

The Strategy F1R2 assumes a dividend payout in the amount not less than 50% of the Company’s NI in the stable market and financial situation including, among other things, the consolidated ND/ EBITDA ratio staying ⩽ 2.5x.

Conclusions

The goals for 2026 assumed by the management are higher than our revenues and EBITDA forecasts by c. 20%. We assumed lower capex which is to be verified. The Company’s new strategy covering expansion, diversification, and competitive position improvement is, in our view, realistic. Given the current market circumstances, we are more concerned about our short-term forecasts, especially for the next year.

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Catalysts

1. Expansion in European markets
2. Strengthening position on the existing markets
3. Launching a new logistic center in the southern Europe
4. New products (expanding the product offer)
5. Own brands repositioning
6. Favorable FX rates and raw materials prices
7. Acquisitions in the attractive segment (heat sources)

Risk factors

1. Economic slowdown in Europe
2. Falling demand for new flats
3. Falling frequency of renovations
4. Qualified workforce shortage
5. Pressure on salaries
6. Energy/ heat price increase
7. Volatile raw materials prices (of copper and zinc, in particular)
8. Unfavorable/volatile FX rates (currency risk when PLN and CZK weaken against US$ and EUR)
9. Own brands developed by shopping chains
10. Turmoil in the region (war in Ukraine)
11. Temporary higher inventories

This report is prepared for the Warsaw Stock Exchange SA within the framework of the Analytical Coverage Support Program 3.0.

Analyst: Sylwia Jaśkiewicz, CFA

GPW’s Analytical Coverage Support Programme 3.0