Financial analysis

ANALYSIS OF SELECTED ITEMS IN THE PROFIT OR LOSS

Selected items in the Impexmetal Group's profit and loss statement for 2013 compared to 2012 are shown in the following table:

in millions PLN20132012
Cash revenue on sales 2,728.7 2,596.3
Products 2,139.0 2,135.3
Goods and materials 589.6 461
Gross profit on sales 193.8 182.3
Gain on sales 79.9 70
EBIDTA 125 137
Operating profit 72.8 79.1
Gross profit 74.6 79.5
Net profit from continuing operations 65.2 73.1
Net profit from discontinued operations 20.9 -22.5
Total net profit 86.1 50.6

The effect of individual components of the profit and loss statement on the consolidated net result for 2013 is presented below in graphical form.

IMPACT OF KEY MARKET CONDITIONS AND OTHER ON THE FINANCIAL RESULT

SALES REVENUES

in millions PLN20132012
Sales revenues, including: 2,728.7 2,596.3
Aluminum Segment 815.1 841.5
Copper Segment 984.4 872.1
Zinc and Lead Segment 630 578.8
Trading Segment 477.8 508.8
Other Segments and corrections 178.5 205
Exports as % of total sales 54% 49%

Over 5% increase in sales revenue was mainly the result of the impact of the following factors:

  • Improved macroeconomic situation in Poland and in the euro area,
  • Decrease in the average prices of major metals on world markets and prices of main currencies,
  • Increase in the volume of sales in the Group Companies (had a negligible impact on the growth of revenues). 

Over half of the Group's products is exported. The most important destination for exports, with the share of 48% in 2013, are the European Union countries. The biggest export country, with 16% share of total sales, is Germany. In 2013, export sales increased by 5 percentage points. The largest increases in export sales related to the Czech Republic and Slovakia.

The contribution of individual segments to the revenue of the Impexmetal Group is shown in the charts below:

MACROECONOMIC SITUATION

The overall macroeconomic situation in 2013 was more favourable compared to 2012. This was a consequence of the increased activity of the European economies in the second half of the year. The upturn broke the negative trend of the economic crisis, which remained in the market for nearly two years. Particular improvement can be seen in the period September 2013 - January 2014.

PMIs determining the level of activity in the industry in the most important economies for the Group, namely the Euro zone (including Germany) and Poland, since July 2013 have exceed the level of 50 points, which is the border of the crisis. In recent months, they reached two-year highs, which were respectively: 54.0 points for the Euro zone in January 2014, 56.5 points for Germany in January 2014 and 54.4 points for Poland in November 2013.

Improvement of these PMIs, which are considered leading indicators, may suggest a lasting improvement in the economic situation in Europe, which has an impact on the demand for the Group's segments.

According to Eurostat data, in 2013 in Poland, Germany and the European Union economic growth amounted to 2.2% for Poland, 1.4% for Germany, 1.0% for the European Union. These increases relate to changes in GDP in the fourth quarter of 2013 compared to the fourth quarter of 2012.

PRICES OF METALS AND CURRENCIES

Another factor that has significantly affected revenues are metal and currency prices. Average annual prices of basic metals on the LME and exchange rates according to the NBP are presented in the following table and charts:

 20132012
Aluminium [USD] 1,845 2,001
Copper [USD] 7,325 7,95
Zinc [USD] 1,909 1,946
Lead [USD] 2,141 2,061
EUR 4.20 4.19
USD 3.16 3.26
Aluminium [PLN] 5,834 6,519
Copper [PLN] 23,158 25,901
Zinc [PLN] 6,036 6,342
Lead [PLN] 6,769 6,716

Source: LME, NBP daily listing

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The prices of metals on the London Metal Exchange (LME) have a decisive impact on the revenues from sales due to the fact that about 90% of total sales in the Impexmetal Group are generated by companies operating in the non-ferrous metals industry. The level of metals prices is the main component of the price of products.

In the analysed 2013, the average price of aluminium fell by 8%, copper by 8% and zinc by 2%, the price of lead increased by 4%.

Metal prices also affect the price of scrap metal, including scrap battery, which is the main raw material used for the manufacture of lead in Baterpol S.A. Due to the high competition in the market in 2013, the average price of scrap battery was actually about 20% higher than in 2012. Battery scrap prices achieved in 2013 their record highs ,surpassing by more than 50% the prices of pure lead on the LME, which resulted in negative results for Baterpol S.A. and the Group. Currently, battery scrap prices are lower by 5-10% compared to the peak in March 2013. It should be noted, however, that the situation on the market of battery scrap is dynamic and often unpredictable. 

The dynamics of the daily fluctuations of metal prices in 2012 - 2013 were as shown the following charts:

Due to the prevailing settlement of transactions in foreign currencies, exchange rates have a very significant impact.

The price level of the dollar has an impact on the Group's revenue and the results of Baterpol S.A. - the sole manufacturer of metal in the Group, which has a manufacturer margin. The price level of the euro is important for the Group, due to the fact of the dominance of metal processing margins of companies, denominated in that currency, and a 54% share of export sales, primarily to the euro zone.

The dynamics of the daily fluctuations of currency exchange rates in 2012 - 2013 were as shown the following charts:

SALES VOLUMES

Another factor that had an impact on revenues in 2013 was the level of sales volumes in the Impexmetal Group companies. Manufacturing companies sold, as part of continuing operations in 2013, 193,200 tons, more by 6%, i.e. about 1,000 tons of products, goods and materials than in the corresponding period last year.

Most of the Group companies achieved a higher volume of sales than in the same period in the previous year, including: WM dziedzice S.A. with an increase of 5,800 tons (i.e. 24%), ZM Silesia S.A./ Oława Branch with an increase of 2,400 tons (14%) and Baterpol S.A. with an increase of 800 tons (2%). It is worth noting that WM dziedzice S.A. achieved the highest sales volume in its history. 

RESULTS

Gross profit on sales increased by PLN 11.5 million to the level of PLN 193.8 million. This was due to higher margins and higher sales volumes.

The increase in cost of sales was primarily the result of higher sales volume. 

Lower overhead costs amounted to 3% and were associated with a continued policy of optimisation of fixed costs.

Balance of operating income/expenses amounted to PLN (7.1) million and was lower by 16.2 million compared to 2012, primarily due to the lower impact of one-off events.

The operating result (EBIT) in main operating segments was as follows:

in millions PLN20132012
Earnings from operating activities, including: 72.8 79.1
Aluminium Segment 37.4 33
Copper Segment 17.9 8.8
Zinc and Lead Segment 2.2 22.4
Trading Segment 17.2 16.1

The contribution of individual segments to the operating result of the Impexmetal Group is shown in the charts below:

The level of operating results in 2013 in the individual segments was a result of:

  • Higher results in the Aluminium Segment  - the increase was mainly due to the change in product mix to products with a higher margin.
  • Higher results in the Copper Segment - an increase in operating results occurred in both companies in the segment (i.e. WM Dziedzice S.A. and Hutmen S.A.). WM Dziedzice S.A. owes the increase in the operating result mainly due to record sales volumes (highest, 24% increases in the Impexmetal Group). Hutmen S.A. had a higher result on sales, mainly due to higher margins in the core product - plumbing pipes.
  • Lower results in the Trading Segment - mainly due to a decrease by 6% of sales revenue, which is a consequence of the difficult situation in the automotive industry.
  • Lower results in the Zinc and Lead Segment - main company in the segment - ZM Silesia S.A.  had an improvement in the operating result. The decrease only concerned Baterpol S.A. and was a consequence of the higher cost of basic raw materials - battery scrap, the impact of which was partially reduced by higher sales volume.

Balance of financial income/expenses amounted to PLN 1.8 million and is higher by PLN 1.4 million, which is mainly due to the higher positive balance of foreign exchange gains and derivative financial instruments.

Net result from continuing operations amounted to PLN 65.2 million and was lower by PLN 7.9 million. 

After taking into account net result from discontinued operations in the amount of PLN 20.9 million, the net result in 2013 amounted to PLN 86.1 million. It was higher by PLN 35.5 million than the result achieved in 2012. 

The result of HMN Szopienice S.A. (discontinued operation) higher by PLN 43.4 million is a consequence of a grant in the amount of PLN 14.0 million for the disposal of post-production sludge, higher sales of the liquidated assets and the lack of negative one-off events (in 2012, interest was accrued in the amount of PLN 12.7 million to the Treasury for the repayment of public aid).

A graphical analysis summarising the above deviations relating to the individual levels of the income statement is presented in the following graph: