Move to the top of the page

Business development opportunities and risks

Home page 4. Present and anticipated financial situation Business development opportunities and risks

 

A priority in operations of ELEKTROBUDOWA SA is to be responsive to the needs and requirements of the stakeholders, particularly Shareholders, Customers and Employees, and also to be governed by the Company’s key values.

Development of the product structure

The Production Segment has four modern, well-equipped and well-organised manufacturing facilities:

  • Low and Medium Voltage Switchgear Production Plant in Konin,
  • Gas Insulated High Voltage Switchgear Production Plant in Konin,
  • Mechanical Processing Plant in Modła Kolonia, near Konin,
  • Busduct Factory in Tychy.

 

 

The division of the Production Division into four production plants results from distinctiveness of the offered products and enables concentration of manufacturing activities of different types and specifications in separated centres.

The Low and Medium Voltage Switchgear Factory in Konin is the producer of switchgear panels for primary distribution, in the whole range of voltages: from low voltage up to 145kV, and for secondary distribution in the voltage levels of LV to MV.

Having the high-voltage gas-insulated switchgear type OPTIMA 145 and OPTIMA 24 in the offer substantially increases the Company’s chances to win new orders in the power sector – orders for construction of main substations, end-user substations, high voltage grid substations, particularly the substations in urban development where, because of the reduced building volumes, relatively small, compact design of MV/LV switchgear gains in equal importance as its technical parameters. Gas-insulated switchgear usually is the main or substantial cost component of a substation. It is a product technically much more advanced than traditional air insulated switchgear.

Development trends of high voltage switchgear are dictated by global leaders, and the increasing requirements of customers force constant work on optimization of OPTIMA 145 and OPTIMA 24 in respect of technology and cost. The strategic goal of the Busduct Factory in Tychy for 2016 was to maintain its position among the European leading manufacturers of medium voltage busducts, through constant improvement of the products and by extending its product range with auxiliary equipment and devices compatible with the main product.

The Mechanical Processing Plant has the task of ensuring the preparation and supply of particularly complicated components of equipment of OPTIMA 145 and OPTIMA 24 switchgear, requiring very high accuracy. The Plant specializes in the production of busbar systems, circuitbreaker drives and current contacts of various kinds, and small elements of the high voltage switchgear. Owing to the modern machine park which includes numerically controlled lathes and vertical machining centres, the Plant can provide turned parts used in the manufacture of low voltage and medium voltage switchgear, so far bought from external producers. Furthermore, the Mechanical Processing Plant renders services for other companies, contributing in this way to the reduction of costs of manufacturing small parts for internal needs. Owing to the equipment with specialist measuring instruments, the manufactured details are of highest quality level, providing the possibility to cooperate with global leaders, for example in delivery of pumps or manufacture of agricultural machines. Plans for the current year includes increasing the share of external orders and, consequently, a steady increase of the capacity.

In the Project Execution segment the existing structure of offered services has not changed, both in domestic and foreign markets. The segment is focused on improvement of quality of performed services. In the last quarter of 2014 the Project Execution Segment successfully completed a stage of work on the new CRM system being implemented in the Division. Also, the valid procedures and their compatibility with the new software were reviewed which is particularly important for monitoring of tendering processes and observing the directions of business development.

To ensure competitive advantage and high quality of offered products and services, ELKTROBUDOWA SA earmarks some of its financial resources to development works. The development works focused on the domestic market include extension and modernization of the present product range, in order to respond to the customers’ needs to the largest possible extent. The developments principally concern application of new equipment in our products, to boost their competitiveness, and also application of internally manufactured equipment. Developments focused on foreign markets concern new products and include also adaptation of the existing products to the requirements of customers, what involves the required testing and certifications. Further certifications and new implementations are planned for the first half of 2017. Capital expenditure on development works carried in 2016 amounted to 2 852 thousand PLN (in 2015: 3 319 thousand PLN).


 

Foreign markets

 

Beside its strong existence in Poland’s market, ELEKTROBUDOWA SA is also present in foreign markets. Sales in the foreign markets in 2016 had a 20.0% share in total sales generated by the Company, compared to 9.3% in the same period of the previous year.

As at 31 December 2016 the Company had a branch (permanent establishment) registered in Finland, through which it provides services in that country. Through its related entities, the company introduces its products in the markets of Russia and Ukraine.

ELEKTROBUDOWA SA has exported its finished products to the Russian market for many years, through its associate, Power Equipment Production Plant VECTOR Ltd. Mobile substations type SKP provided with MV switchgear as well as medium voltage switchgear for indoor operation will remain the basic products exported to Russia. Facing the growing competitiveness of domestic products in the Russia market, VECTOR Ltd. has significantly increased its share of sales in this market.

Products offered by VECTOR Ltd. are not under embargo of either country. At present, investments are made to increase the production capacity of the Russian company in order to manage the potential and expectations of that market. Actions have been taken to launch news products of ELEKTROBUDOWA SA in the Russian market.

In Ukraine, business operations have been conducted by the subsidiary, ELEKTROBUDOWA UKRAINE Ltd. for six years. The company supplies the local market with products manufactured by ELEKTROBUDOWA SA. By the end of 2016 reorganising of the company had been completed, new management appointed and active promotion and marketing in Ukraine started.

ELEKTROBUDOWA SA makes efforts to establish cooperation with Iran companies to be given an opportunity to supply for projects relating to extension of the distribution network.

In 2017, the first supplies of switchgear panels to Peru, South America will be provided; the Company will continue to build up the relations and winning new orders from the market of Peru and the neighbouring countries.

Continued are the works relating to certification of new products manufactured by ELEKTROBUDOWA SA for conformity with GOST standards, which should enable extension of the market offer in the Eastern markets in 2017 and later.

ELEKTROBUDOWA SA takes actions targeted at identification of new directions of market development in Poland in the area of construction of railway and urban traction. The two Divisions are conducting the activity, both in the product area and in the construction of turnkey traction substations.

Plans for 2017 include participation in a number of trade fairs, seminars and meetings with customers, with the objective of introducing the Company’s offer to the broadest possible group of foreign customers.


 

Prospects for development

In the years to come the main driving force of the power sector will be extension and modernization of main substations and, on the generation side, modernization and construction of power units. Investments in renewable sources of energy seem prospective as well. A boom is expected in the construction industry in next years, as the new EU financial perspective has been launched. Many investments included in the new European budget for 2014 –2020 enter their execution stage. This funding will also cover new transport infrastructure projects, concerning both road and railway systems. The years 2018–2020 will bring implementation of projects relating to modernization of the existing facilities and construction of new ones for urban and railway traction, while the Investment Project called MUZA2 will direct the attention of building companies to this area.

The following factors will undoubtedly have influence on the level of future revenue to be generated by ELEKTROBUDOWA SA:

  • economic situation in the power, chemical, metallurgic and building trades,
  • forecasted growing demand for electricity,
  • price level of electrical materials and equipment as well as metallurgic products,
  • increasing environmental requirements,
  • course of structural changes, especially in the power industry and mining,
  • nuclear plans of the power industry,
  • growing requirements for financial security of contract performance in the power construction sector,
  • competitiveness of the Company’s offer.

In the first half of 2017 ELEKTROBUDOWA SA will focus on upgrading its competitive advantage by:

  • increasing the experience in the market of new products,
  • optimizing the key processes and projects,
  • optimizing lead time for supplies,
  • providing a complex offer tailored to the needs and requirements of customers,
  • consistent development of the customer service network,
  • expanding to new trade areas.

Prospects for development of ELEKTROBUDOWA SA will be based on maintained strong position in the electricity distribution and generation sectors and opening to new export markets, taking advantage of synergies among the Group entities to establish presence in the power sector of the emerging markets. For the Production Segment, it will be important to maintain its leading position as the supplier of switchgear of high current and short-circuit parameters for heavy industry. In the coming years the power distribution industry and projects for extension of 110/15kV stations in urban areas and industrial zones will remain the most prospective areas for soliciting and sales of the Company’s products. Extension of the existing electric power distribution and transmission stations also offer a potential, both for the Project Execution Segment in the scope of modernization works and for the Production Segment in the scope of supply of its products.

Activity of the Production Segment concentrates around winning new customers in the Poland’s market, particularly by co-operating with local design offices in respect of “promoting” the GIS 24kV / 110kV OPTIMA 24 / 145, which are generally located in big towns (urban areas). The Production Segment also cooperates with General Contractors in tendering for big projects which include LV and MV switchgear. The Mechanical Processing Plant has plans to increase the share of external orders in the first half of 2017 and increase its production capacity in this way.

In 2017, the Project Execution Segment intends to continue its actions taken in 2016, simultaneously modelling the organizational structure of the Division able to ensure more efficient pursuit of the Company’s strategic goals. The Division intends to maintain its present share in the market of complete power facilities. The Division expects and has hopes for opening of the local market to new investments concerning construction of new sources (based on the amended Renewable Energy Sources Act), additional funding for pro-environmental projects in the electric power sector, heat generating sector and the industry.

Generally, the entire long-term activity of the division will be focused on:

  • optimization of material, financial and human resources required for the implementation of the budgetary and strategic goals,
  • building up the awareness of the integrated functioning of the Division within the frame of the Corporate Group (interconnected and acting in changing environment) working for a common goal,
  • possibility to attain sustainable development in each area of the activity,
  • attaining slow but steady growth.

 

Significant risks

 

 

Risk management is a process of identification, evaluation, management and control of potential occurrences or situations, which aims at providing reasonable assurance that organisation’s objectives will be accomplished. Risk management is focused on limiting the risks and protecting against their impact. The Management establishes general rules for risk management and policies for specific risk areas.

In performing its business operations the Company is exposed to various risks, such as market risk, credit risk, liquidity risk, capital risk.

 

5. Market situation - Sales destinations

Site managed by InCMS