Grupa Kety SA
WSE:KTY
Earnings Call Analysis
Q3-2023 Analysis
Grupa Kety SA
Grupa Kety S.A. commenced its Q3 2023 earnings call led by Chairman Dariusz Manko, along with other segment directors who provided detailed segment analyses. Despite concerns over potential sales collapse due to negative signals from European markets, especially Germany, the company successfully navigated the quarter. Key successes included cost reductions from decreased raw material prices, steady investment progress, and maintaining capacity utilization at approximately 80%. Management's adept sales strategies and internal efficiencies yielded an impressive EBITDA of PLN 257 million and net profit of PLN 170 million. Additionally, the company paid dividends and provided optimistic guidance, though culminating the year successfully will require constant effort until the last day of the year.
The presentation detailed advances and challenges in various segments. For instance, the Aluminum Systems segment, managed by executive Tomasz Grela, achieved historically high sales and profit despite a contracting market, boosted by their international presence and product innovation, like fire-resistant glass. An influential factor across segments was reduced costs of aluminum due to price decreases, offering the company competitive leverage. The Extruded Products segment, conversely, continues to adapt to market fluctuations and geopolitical uncertainties, such as the war in Ukraine, which necessitates provisions. Despite these, the segment remains active in manufacturing automotive safety components for electric cars, including crash elements and decorative trimmings, and anticipates increased capacity to meet future market demands.
CFO Rafal Warpechowski expressed an expectation of raw material price stabilization and detailed the company's prudent approach toward energy hedging for future quarters. Queries about the possibility of surpassing projected EBITDA were addressed, suggesting potential for surpassing projections if the Aluminum Systems and Flexible Packaging segments perform exceptionally well in Q4. An upcoming strategy focusing on acquisition-driven growth indicates the company's intention to bolster its European presence, reflecting a determination to scale up in a controlled manner, minimizing the potential for investment errors commonly associated with cross-border expansion.
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[Interpreted] Good morning, ladies and gentlemen. It is 11 a.m. So we shall start our presentation, discussing the consolidated results of Grupa Kety S.A. for Q3 2023. The presentation will be kicked off by the Chairman of the Board, Dariusz Manko, and the individual segments will be discussed by the individual directors responsible for them. And in conclusion, we shall pass to the financials and then answer your questions.
So Mr. Chairman, the floor is yours.
[Interpreted] Good morning. and welcome to another meeting about the results for Q3 2023. And we are to present these results. Since we were quite anxious about this year and when we were drafting the budget, we were accompanied by some very negative emotions. However, it turns out that another quarter, the third quarter of this year has not brought a collapse in sales as we would have potentially expected despite the negative signals coming from the European markets and for the Polish market, especially in the German market, if you are talking about the rest of Europe, we have been able to cope.
And I will tell you a bit about where I see this success, which -- well, we can say in these conditions that the third quarter has been a success. But from what we present to you -- it results that the demand level is below our expectations. There is a huge pressure on margins.
However, the positive aspects include a decrease in the price of raw materials. And this is a significant aspect, which we can examine in some more detail because this is a situation which is by all means favorable for the Aluminum Systems segment. Our products are simply much cheaper, obviously, also for the Extruded Products segment, this is favorable because we can eliminate or at least be competitive in a decent way against the substitutes for aluminum.
Good things are going on at the company. No problems when it comes to investments. The biggest tasks, namely the new production shop, the [indiscernible] is going on as planned. We don't have any shift here, no slip-ups, no problems, and we are hoping that these two investments will support us in the achievement of the assumed results for the coming year. 80% utilization of capacities is still very good.
Ladies and gentlemen, we were afraid when we were budgeting that we would have to actually decrease the capacities utilized, especially in the Flexible Packaging segment and the Extruded Products segment. So this is a positive surprise for us, but it doesn't come out of nowhere. And definitely, strong sales organization in the individual segments has definitely given us this advantage, mainly that we can search for orders and find them where others can't.
And we are also capable of adopting some nonconventional measures. So the presses are actually working and the capacity is utilized. And every month virtually ends with a positive result.
[indiscernible] whether the capacities will be utilized. However, at the end of the day or at the end of the month, we kind of push it to say colloquially we kind of squeezed it in and we utilized these capacities, and we managed to sell good quantities in the individual segments, which then translates into a good result. But this is with a bit of pain actually and with a bit of stress. We struggle every month initially. And it can be tiring because in the last 2 years, that was more about diplomatically refusing to some customers or about diplomatically reducing the production allocations to the customers because the orders were so big that they would exceed our production capacity. So the situation has, as you see, reversed in just a dozen months or so, it has actually made a 180-degree turn.
So this mobilization costs us more efforts than before -- than ever before in history. And this struggle in sales, these achieved successes in the area of commerce and production because we have to admit that we have made many minor innovative changes.
However, still, we saw some costs in the utilities consumption area, for instance, the savings versus the budget in the Extruded Products segment. So these in-house actions, these in-house measures actually translated to excellent EBITDA of PLN 257 million and net profit of PLN 170 million.
So this is an amazing result, especially under these market conditions. And we are actually fighting for Q4 and to keep going to close this year as possible. However, we can't say as we sit here today, we can't tell you, okay, let's have some coffee because the year is over and done.
Obviously, we've raised the forecast, but this will be a fight until the very end until the 31st of December, to implement the forecast -- to deliver on the forecast we actually signed.
And among the events that took place [indiscernible] dividend per share. And another tranche, I would like to remind you that it will be paid in November.
And well, I will pass to the increased outlook -- the increased guidance. For results, obviously, we're [indiscernible], we are actually -- we have to admit we have to change this as a result of 2023. We have to increase this budgeted result. And I will remind you, I will keep reminding you today that the budgets are actually done on bottom-up basis. Nobody is forcing anyone to do anything in terms of budgeting in this company.
The model we developed is that all the individual divisions and departments present their ideas, their capacities for action for production controlling, finance then translates this into Polish zloty and department by department, segment by segment, division by division, we gather it all together here at the head office. And at the end of the day, Rafal Warpechowski comes to me and says, this is the amount we're talking about.
So obviously, this is usually less than we expect or less than the market expects. The market is always optimistic in its outlook. But the sentiments in October and November for the 2023 budget were really tragic. If we're talking about the meetings, which came later, they are usually supposed to motivate and they are supposed to -- well not create, let's not use this bad word when it comes to budgeting, but it kind of forces people to be creative, maybe to kind of manage to squeeze something out of the budget.
Well, those were arguably -- it was the most difficult year in terms of budgeting -- one of the most difficult years because earlier, but that's a long time ago, earlier it used to be even more difficult. However, over the last 5 or 6 years, this was the most difficult budget to draft at this company because usually, we would need 2 or 3 meetings at the level of the segment heads, in a nutshell, negotiate better budget internally and better guidance for next year. In this case, in the case of the 2023 budget, the meetings were numerous, and we didn't really move forward because the arguments were very strong from the sales point of view. And we were really expecting the market to collapse, and that was the outlook in November last year.
But of course, the guidance is different. And it might -- nobody should really care because that's our job, right? This isn't anyone's business but ours. And we are there to guarantee that the forecast and budgets are prepared in such a way as to fit the actual reality in the following year.
So in my history of work with this company, usually, the actual figures were in line with the forecast or they exceeded them slightly. This year, we actually exceeded more than slightly. And this is -- well, this is our era in the forecast, and we have to, well, admit it to put it bluntly. We perhaps could have done more. But where does it come from? Was the EBITDA versus the forecast for 27th of July, where we actually increased the results. We are increasing by 7%. The EBITDA to PLN 870 million and so a 7% increase. So this is based on several elements.
In the Flexible Packaging segment, there is a struggle, struggle and struggle. And the budget will be implemented in accordance in line with the expectations, maybe slightly exceeded.
In the Extruded Products segment, we were expecting a worse Q1. It turned out better than expected. And what can I say? Well, definitely, the decrease in prices of aluminum, the decreasing prices of billets and that actually has been helping the Extruded Products segment. And so this is hard work of the sales department dragging these [indiscernible] gave a statement on top of this area of employment and definitely utilities, and that was the biggest savings level in that area. And this is an advantage for the Extruded Products segment, the exceeding of the budget because [indiscernible] Aluminum Systems segment, but this is based on many aspects. And it is actually the hinterland [indiscernible] I'm not going to talk to you about that. These are certain actions within this segment of systems. And apart from natural ones seeking the largest possible number of holders and work within the company to reduce costs.
Apart from that, particularly important is something we need to bear in mind. Certain mechanisms were in operation. And I will repeat this. I'm not going to elaborate on that. This is the works. This is our internal mechanism. I actually felt that when I was the President of Aluprof, they are per annual -- actually, they are always there. And I will tell you about 2 phenomena. However, the Polish market, it would have seemed that the aluminum segment increased its share in this market. How to explain it? And what to try to -- well, the market shrank, the construction market is indeed weak. And maybe it's -- I might just suspect, it is the case -- it's a question of a strong brand, a strong company, a strong financial partner above all. A financial partner that in a way looks after these customers.
First seeks to win them over and then looks after them. It's going to be with Aluprof for customers. It seems at this day and when the struggle for the fuel, there sometimes are fluctuations in the financial area. And [indiscernible] a strong partner is a great advantage.
Hence, the expansion of the customer base, this poor situation in the construction industry worked well for Aluprof. And another thing, in our opinion, is the matter of export. The German market, for instance, let's use this example. A very hermetic, launching and entering with products on to those markets is hard. And manufacturers of plastic materials, plastic windows managed to attack Europe externally. And Poland, obviously, is a strong producer of plastic windows.
While aluminum -- well, we are still not a big [indiscernible] money when it comes to Europe, and we are actually not a major player there. We are only entering this segment. And another thing when there is a marketing crisis, where there is a tough market, there's another aspect. Customers who are actually well embedded in Western Europe, when the market is weak and something bad is happening, they are quite willing to look at different products. They are willing to meet with the supplies from other countries, not only the countries they were used to, and they are open to talks and negotiations. So this indicates the conversations with our customers has found confirmation, namely that maybe the market is weaker, but talks and the possibility of supplying products from Poland, aluminum products from Poland is easier than before. And this is as [indiscernible] because it doesn't come from the fact that Aluprof has been selling so much on the Polish market where all data speak to the weakness of the construction industry.
Something big has happened. So in brief, our customers, they actually export these products, mainly to Western Europe and they go to Western Europe because Western Europe is more open to talks and seeking cheaper suppliers, seeking alternatives to make sure that they will survive in these tough conditions.
I don't have to tell you who's following us and who's actually participating in our conferences and most the group. And this market is really a drop in the ocean. It might seem to us that we are a big country, but look at the Netherlands, look at Belgium. And we have huge consumption of aluminum. It seems incredible when you compare it to the number of inhabitance and number of people living there. So aluminum continues to be a metal of the future to put it briefly. And we still have a lot to do in Europe, and we will definitely continue on this journey directly and indirectly by our customers.
And one more word of comment, since I got the microphone. When we were publishing announcing that starting on 1st of January [indiscernible] start working as the Vice President of the Board, responsible for the development of [indiscernible] and investments.
In other words, growth and development in general, just to justify it and just explain the situation. Why this decision? Well, we are ahead of a new strategy for another 5-year period. And therefore, this -- we should have it in autumn next year [indiscernible] joins us, he should be involved in preparing it. And in order to be involved in it, he needs to work in the company for some time to learn about the specificity and about its operation.
But already today, I may say that one of the main points of this strategy, this is a public conference, so everybody gets the information simultaneously. We are definitely ahead of growth via acquisition. The company cannot escape this move. The company is so big that several billion of revenue EBITDA at the level of PLN 1 billion, this allows us or authorizes us to make a bolder decision.
Why am I talking about that? Well, this organic growth when we have -- when our company is so large, this will not change a lot every additional press, printer, paint shop, it won't change too much at this scale of investment. Even this might go unnoticed. So the company will not be growing. I'm dreaming of [indiscernible] that is twice as big as it is now with strong hubs in other European countries.
I'm speaking about Europe because mentally and culturally, we're closest to European countries. So I think we can count on less error than in other countries that are culturally distant. And this well-thought over strategy of attacking European markets by building a base and to build a base in specific countries, we probably need to buy to acquire another entity. And these should be our goals that in 6 years' time, we can say to ourselves, yes, we have this and that percentage of the market in Belgium, in France, in Germany, in Spain, in Great Britain, in The Balkans. We've got -- our foot is already there. We are present there. We are a player on those markets.
Investment errors. Well, we won't probably count them, those made by Polish companies investing abroad. You know me well, and you know that I don't make abrupt decisions. The -- I will think -- we will definitely think them over and we'll build teams that will be able to handle such a capital investment. If we proceed with these investments, I hope that [indiscernible] who will be joining us shortly, will be able to build such a team so that in case anything goes wrong after such an acquisition process if there's any conflict with the management of the other company, that's probably -- that actually condemns all the investments of that. I mean this lack of understanding with the other management. There's no team spirit. Everybody wants to go their way. That's when such investments go wrong.
Last, the return on investment is very prolonged or it's simply canceled the whole process. So we need such a team. We need to build a team that in case anything happens, we'll be able to go in that company and set things up in accordance with [indiscernible] organization so that all the puzzles go together because this will be a responsibility upon us, spending all the funds of the shareholders for such an investment. It's a responsibility. We need to make sure that we double our forces and doing all things right. And we want that to be effective. So it cannot be prolonged. This simulation has to be quick.
Therefore, we're strengthening the management board. That's why we're having Mr. [indiscernible] coming and joining us, who is experienced in commercial activities and acquisitions in the previous company where he worked. So I think he will be able to cope with it. And so we'll be able to think about building strong [indiscernible] group in Europe.
Thank you very much. I'm now giving the floor to Michal.
[Interpreted] Thank you very much. Thank you for this introduction, comprehensive introduction. Before we move on to the next part, let me remind you that the presentation is announced in the investment relationships shareholding structure on the website. I know that some of you are interested in having to look at it. Not everybody is aware of where to find it, but you can find it on our site.
Let's move on to the operating activity of segments, Piotr Wysocki, Extruded Products segment. Piotr, the floor is yours.
[Interpreted] Good morning, ladies and gentlemen. As you said, we have, as usually, something from the aluminum curve. You see this rebound, the level of 2,000 -- 2,200. It's a good acceptable level, acceptable to the whole market. There's no fluctuations here in terms of supply.
There was a peak. There was some panic. We did not know where it would go. But we are at this level. The second diagram shows the drop in the Billet premium. A year ago, we were at the level of 1,100. Now we're at 30% of that value, which proves that the market is weak. And the producers, this oversupply of billets on the market and a year or 2 years ago, it was a huge challenge for the Billets. Well, to find them -- to find enough Billets on the market, the amount that we needed.
Now PMI index for Poland remains low. In Germany, that's below 40 points. In Austria, that's the same. If you have a look at sales of our competition in Germany, Extruded Profiles in all the extrusion companies in Germany, year-to-year sales are lower by 12%.
Now moving on to the results of the Extruded Products segment. Michal, please. Thank you. We can see that this -- it's less by 18% but let's not worry about that. It's not about volume because in sales, we are -- the exchange that we function, and it causes lower value of sales, but tonnage that's a tonne sold, that's the unit that we refer to. And here, you find an improvement.
Let me mention the diversification between domestic and international sales because for now, we were pulled forward by international sales. You could see it in accumulated results for the 3 first quarters. Now domestic, it was like 20%. Now we look at 20% -- like September, it collapsed internationally. And the country is at a moderate low towards higher level.
This diversification allows us to -- when we don't do fine in international sales, we have domestic sales and vice versa. Austria is dropping. There's a huge one large contract there. We have exports to Slovenia, to Austria. And these contracts result in growth year-to-year.
Then that's the construction of Fisker electric car. That's the offtake, which causes a 2% increase on the Austrian market. Could you please change the slide, Michal? Thank you.
Utilization of the capacity, 83% and which is a good projection because when the market wakes up and we finish the investments that are ongoing, we're estimating our capacity to be 110,000 tonnes to 125,000 tonnes or 130,000 tonnes with the extra press we're planning to add. So we'll have this potential on the market, and I hope that the market will wake up soon, and we'll start working really intensely.
Looking at Ukraine, we were just talking about a -- it's a fact that the company is in a country with war operations. It's difficult to find -- it's difficult to project results for a company that is in a war zone. But we're projecting -- but since we've got good results, this company contributes to it. It does operate under these war conditions. They have totally different problems. And those we have here like the market prices, competition, there we also need to fight with the internal situation of the [indiscernible].
And a few words about the other production company, [indiscernible] Slovenia, very stable. And I say that the contract that is really important for us. I mentioned that already, that's production for the [indiscernible] Fisker electric car. So today, it's 200, 250 cars per day -- I mean, pieces per day. The project is speeding up. We've got more nominations to other projects by showing that we are able to do such things.
As for investments, the 2000 press is speeding up, it's getting into its operational rhythm, it's not like we turn it on and it starts being fully operational. It has -- it needs some time, but it's going in the right direction. 4040, that's what we planned delivery by the end of the year. But here, you can see the main part, the main body, and we are getting new elements. We're assembling it. It's delivery plus assembly, we're starting to assemble the device. And I think at the beginning of next year, we'll start production. And I think this is it.
No fireworks in the Extruded Products segment in the last quarter.
Okay. So we should pass to the Aluminum Systems segment. Mr. Tomasz Grela.
[Interpreted] Ladies and gentlemen, good morning. I'm glad to present the results for Q3 in the Aluminum Systems segment, especially since these are historic results, these are record results. A couple of words about the market environment in which we managed to achieve them. A couple of words have been said by the Chairman here. According to industry analysis, the whole sector, windows and doors recorded a 30% decrease after the first half of the year. The results for the whole year will be around minus 15% year-on-year, it will be an excellent result actually, the estimated one. In the facades segment, 19% decrease year-on-year, minus 16% is the year-on-year estimate in terms of aluminum facades for the whole year.
So this is the market environment in which we have managed to achieve record results, as I've mentioned just now in terms of sales and profit and operating profit as well as net profit.
What happened over the last quarter and what we would like to boast about. Well, definitely, the process that started many years ago is related to the spreading of our -- the destination of our fire products in the European market, and this is coming to -- and this is nearly every country, which, according to our analysis, requires these certificates and has been certified, and we have individual national certifications in every European country basically. And this is important since as you know this year, starting this year in export markets, we can sell a system, but also fire-resistant glass which we have been producing this year in our plant.
So actually, we see quite a lot of motion when it comes to production of new facility, especially new Green Deal. When the new Green Deal is concerned, so environmentally friendly solutions. And we have been showing this to you gradually over the years at subsequent conferences. We have been showing the direction in which our company is developing in terms of the products. And these products for many years have been focused on energy savings and not only savings, not only energy, and this is confirmed by many green certificates in Poland and abroad.
And it seems that today -- as of today, Aluprof and the Systems, we offer already for such projects in the future, too.
Now a couple of words about our sales, our sales volumes, PLN 640 million. This is the figure in million in Q3. This is still less than last year after 3 quarters, obviously, but this seems according to our -- this is more actually than the last year, sorry. But this is the change of 8%. So we have managed to actually recover some of the market working on. So this is an increase in Poland and abroad.
Even though this increase abroad, as you see, is lower than the increase in Poland, but taking into account the worst situation in the export market, especially in the German market, it seems that our company has achieved very satisfactory results in this respect.
What's the outlook until the end of the year? Well, until the end of the year, we would like to see the sales result of last year. So we still have some catching up to do a bit. But hopefully, this will actually -- this Q3 will give us a possibility of approaching this. In terms of EBITDA profit, well, you can see PLN 133 million. This is 70% more than in Q3 of last year. So here, after 3 quarters, we have managed to exceed last year's EBITDA as opposed to the other figures, which for the first 3 quarters were lower than last year.
So hopefully, we'll be able to end the year with a similar result. And also, there's a surprising high margin in EBITDA level to nearly 21%. The industry is not used to such a high level of EBITDA margin. And where does it come from? Well, in the first place, a volume increase, the lower batch price, the lower [indiscernible] price. And actually, enigmatic aspect -- I don't talk to you about this. Can we expect a similar level to be maintained until the end of the year? Well, for obvious reasons, December? Definitely not. But looking from the point of view of the coming month end of October and the assumed sales, we can assume that these sales in October will be higher than the September sales.
So the margin level should approach this margin of September, which we would like to see very much. And then -- and as far as the product breakdown is concerned, the structure is very stable indeed. And we can see that the architectural and the roller blind systems, this is still a similar level, and we can see that in both segments, we are coping very well indeed in this difficult period. The same goes for the breakdown by country and the export sales. This is also slightly different. This is a difference of just 1%. In our most important markets, we are keeping the status quo. There's no situation in which any of the markets would bring some supernaturally high sales or low sales. It's status quo maintained.
So as far as investments are concerned. Well, they already mentioned one major investment related to the construction and the coping of the production shop in Zlotów.
And at the end of December, we're estimating this as the time of handing over for use of the vertical paint shop and works are nearing completion, they have been completed actually. And hopefully, the investment we're expecting to actually be completed before the deadline.
And just include one product-related remark. Well, these products over the year, we have been releasing very many products, and I could dedicate a separate meeting to a discussion of all these products. I just want to say at this point that from my point of view, in my position and from the point of view of the sales and marketing people, it seems to us that product-wise, we are ready today to be able over the next couple of years to be able to look at the developments in the market currently and to compete successfully on the domestic and on the export markets.
And just towards about the U.S. market to conclude this part. As you see here, these are pictures of some example facilities being implemented now. And historically, I just want to remind you where Aluprof was in the past and where we are now. Our sales in the U.S. market started 15 years ago. And these sales and our activity have been based on the functioning in the form of a joint venture with our American partner. And there, over a dozen years or so, we have managed to implement large contracts successfully by selling ready-to-use products made in Poland. And for a couple of years now, we've been changing the concept. And now we are functioning independently on the U.S. market. And the change of the concept involves being a system provider -- a European system provider in the U.S., selling a premium product.
So what we do in Poland and in the rest of Europe, and as you see, we've been successful in this endeavor because these facilities compared to what we've showed to you in the past, these are done with our U.S. partners. So they actually install these prefabricated systems at sites in the U.S. So thank you for your attention.
And now the Flexible Packaging segment. Rafal, the floor is yours.
[Interpreted] Okay, the flexible packaging segment Q3 2023 is over, a good quarter since we recorded increases in sales volume in both segments we catered to on the market compared to Q2 2023. And you see there's a certain rebound in recovery in terms of the raw material prices, the raw materials used by both our businesses, and this resulted from a limitation supply by PP and PE granule manufacturers because they would shut down their production plans in the recent times. Unfortunately, it's not a result of increased consumption or increased demand. This still stays at a limited level. And an example, the largest [indiscernible] Dutch market, the German market, which has been reporting for some time now decreases in retail sales at food stops at fixed prices and the last data for July, we talked about an over 4% decrease. And in August, these decreases accelerated to the level of over 6%. We don't have the data for September yet. What can I say.
We feel affected by these decreases very strongly, especially in the PP segment. And looking at the market environment, we have to appreciate all the more results for the last 3 months. And since actually the increase compared to the previous quarter is by 1,000% in the operating profit. And this was related obviously, to an increase in volumes, but also it was linked to the achievement of very high margins in both segments of the market we cater to.
In the packaging business, these margins at the EBITDA level exceeded 22%, while in the PP Film segment, they reached nearly 14%. And in September, this margin at [indiscernible] exceeded 16%.
So let's have the next slide. Thank you. Now when we look at these results, they were worse than the results achieved in the same period of last year. However, the effect of -- actually overstated base last year that was related to the migration wave to the situation across our Eastern border and to the low availability of raw materials, I talked about this extensively at the results conference after Q1. So this topic, I'm not going to elaborate on this today.
However, what we do observe is a clear erosion in unit price in the packaging segment and the BOPP Film segment, and this is a result of decreases of the average quarterly prices of raw materials. We have seen this for 1.5 years now. But this also results from the change of the structure of sales in our core business, this Flexible Packaging, which we have been observing for a couple of years. And this is actually related to the increase in the pace of changes in -- towards the greener packaging with a lower environmental impact, that's on the next slide.
And these new products, which you can see here. Well, this is an extensive portfolio. And please note that the changes on the packaging market, which used to be implemented only in the food content segment that is desserts and powdered soups and [indiscernible], this basically now extends the whole packaging segment on the market. We're talking about coffee, tea, animal food, children's nutrition and also crisps and snacks and also hygiene products. And we have to openly say that we are proud of being [indiscernible] of these pro-environmental changes with our customers. And please note, these are top brands which function on the market, and you definitely need them on a daily basis while shopping.
Ladies and gentlemen, this novel goal, that accompanies the new trends, unfortunately, has its dark side as well in terms of margin levels that we can generate here for the new projects because those new packages based mainly on PP foil, polyethylene foil or paper that is easy for recycling that has less impact on natural environment, they are much less processed than the packaging that our group was famous for, highly processed, high barrier and high margin packages that were common on the market.
Ladies and gentlemen, like I said, this trend cannot be reversed. We need to be happy to be in this [indiscernible] that is speeding up. However, we need to know that the value of -- the chain of added value within the segment has been cut down even more so that new packaging based mainly on substrate that we are obliged to buy from specific suppliers and the specific terms and conditions and at specific prices, strictly defined prices. And due to their simplicity, there's a lot more competition because these simple technologies allow them to produce the simple structures than before. Next slide, please. Thank you.
As for performance of plan, it's according to schedule, the outlays were related mainly to investments that maintained the production potential of the segment, obviously, increase in volumes translated into an increase in the utilization of our production capacity. It's been the highest level in the last 12 months. And we've been observing this increase, like I said, at the beginning of this meeting, we've been observing it in both segments on the market.
This is optimistic piece of information at the end of my presentation. Now, thank you very much. All right.
Let's move on to financial results. Mr. Rafal Warpechowski will present them. Consolidated financial results.
[Interpreted] Good morning, ladies and gentlemen. That's the first quarter this year when compared to the analogous period of the previous year, the results are better. We are happy to see those results at increasing volumes and the very drop of revenues in terms of value is due solely to the fact that the prices of the main resources dropped in petrochemicals, 30% drop year-to-year, aluminum 20% drop. Increase of EBITDA by PLN 4 million to PLN 257 million in a very difficult environment, and it's composition has transformed in this quarter. As Mr. Grela has said, the driver in this quarter is Aluprof, the Aluminum Systems segment. That's PLN 54 million higher EBITDA year-on-year to this regular level, the normal base that the Flexible Packaging segment decreased by PLN 33 million. So it returns to the previous basic baseline, and Extruded Products segment in PLN 4 million less. That's the difference in EBITDA.
Interest is growing. Weighted average cost of debt has increased by 1 percentage point. And we see a decrease -- a significant decrease by 40% of debt, which translates into PLN 7 million less on the results.
The other element I would like to point your attention to is this effective interest rate, 12%, which is due to the fact that we recognize we've identified deferred tax assets, PLN 30 million in this quarter. This is related with the investments that we have ongoing in the Extruded Products segment and the Aluminum System segments under the main projects related to tax relief.
Very good information in terms of our cash flows. PLN 330 million of operating cash flow. That's the highest result, as you can see in the presented period, PLN 82 million, that's the support under the operating working capital, 3/4 is the decrease of inventory, which is the matter of optimization but mainly of decreased prices of raw materials that I mentioned already.
As for investment outlays, expenses that are lower in this quarter, which is due to the payment schedule. Now we're focusing on finishing payments for the main investment components. So mainly Extruded Products segment, 4,000 tonne press. So we expect higher [indiscernible] in Q4. But as for the work schedule, the segments are confirming the performance of works and of the investment program for this year.
The payment in Q3 in September of the third tranche of dividend, PLN 193 million. That's an important fact. And despite this event, we have very high cash -- operating cash flows, which allowed us to reduce indebtedness by PLN 45 million in Q3. The level of debt, it's very low, PLN 653 million. This level to high degree is due to the working capital optimization because in the last 9 months, it's PLN 300 million. And as before -- again, 2/3 of this amount is due to the reduction of the level of inventory.
We know -- well, the structure of debt is -- has not changed. We are still financed by Eurodebt, which is the natural hedging for our operating exposure. As we look at the 9 months, the reduction of indebtedness by PLN 400 million, these are strong operating cash flows that allowed us in -- with some access to finance investments and the remaining part, we almost -- we paid almost PLN 200 million of the first tranche of the dividend, but we need to emphasize that the projections for Q4 are an increase in debt, PLN 1 billion, PLN 1.5 billion, which is due to the fact that we need to finish the investment program and pay PLN 410 million of the second tranche of the dividend, and we still assume there will be a good EBITDA in Q4.
A few words for our closest projections for Q4, we're not expecting any major fluctuations in terms of prices of raw materials after this significant decrease year-on-year, this level has been stabilized, it seems. And all the studies that have been mentioned already by my colleagues, points to a persistent difficult situation, uncertainty in terms of growth and development and reduced demand. And under these conditions, as we declared, we're trying to -- we're planning key investments, which are important events and items in our budgets by PLN 150 million, which is 3x as much as in Q3. So it's a huge challenge for us.
But like I said, the work goes according to schedule. And we focus on utilization of our capacity because maintaining the level above 80% of utilization of our production capacity, guarantees, economic effectiveness, in fact, economically effective use of our resources and assets.
As for finances. Like I said, we have an ambitious plan because the yearly projection is to increase the EBITDA by PLN 70 million, and we are planning on paying PLN 410 million on the second tranche of dividend, which will maintain our secure financial indices. We're not planning on any specific demand for working capital increase. We are to renew 2 contracts. Credit agreements [indiscernible] ongoing loan contract for PLN 535 million [indiscernible] and we are also renegotiating another revolving credit for PLN 400 million, which will become a long-term credit after we are done with negotiations.
Thank you very much. This was the last part of the presentation. Now let us move on to questions. President Manko opened the Pandora's box regarding acquisitions. So let's go with the questions on acquisitions.
Which directions, which segments, how will it be financed? Is the company envisaging any issue of shares to gain money for the acquisitions, maybe these 4 topics?
Okay. So -- all of that will be included in the strategy that we'll present in autumn. Thank you. That's all I can say. It's too early to talk about that. In terms of directions, well, the financial direction has shown you that we have good credit worthiness, so we don't need too much money for acquisitions. As for directions, we would like it to be direction somewhere in Europe. I would like to mark our presence in other European countries so that we have a share -- an observable share in the Benelux countries, in France, Spain, Germany, The Balkans, the United Kingdom. We'll see. It all depends on the potential entities that could be acquired.
When you're asking about the size of the transaction. For now, well, we'll see during -- a new member of the management board is coming, we'll be doing the market research. This will be -- this work is yet to be done. However, if I'm asked personally, I prefer investments, which are not very large. So the size is like EUR 50 million to EUR 100 million because this allows us to sometimes brutally go into the company to cure the relations and maintain the company in our structure under our terms and conditions and not having a company that is too big and has too many subsidies and it's too difficult to handle. So there's always this risk of a bigger transaction. They are not trying to escape from such decisions. We are yet to work on this.
Perhaps there will be an entity that already has a well-organized structure that does not require much involvement to adapt it to the [indiscernible] entity which could allow us to create some synergy of our products and gain together. I'm not excluding it. This is it. Thank you for now.
Next question about the future. And more specifically about the guidance for 2024. The first topic, will the forecast be published in December?
Well, this is the rhythm we adopted that schedule-wise. We are planning to draft the budget and discuss it with the Supervisory Board for the last couple of years. We've been doing it in December, and this is our intention for this year.
Thank you. The Chairman has mentioned, the [indiscernible] preparing when drafting the guidance for 2023, the sentiments were rather poor. And so this influence, the level of the guidance and the conservative nature of these forecasts. And one of the attendees points out that currently, as you gentlemen have emphasized, the sentiments, the mood is not really that better -- compared to October, November last year.
And so consequently, the guidance for 2024, will it be equally conservative?
Well, I said it earlier, after 2 excellent years, all of a sudden, there comes November last year, and our representatives from one of the segments went to a trade show in Germany [indiscernible] because everybody was saving energy, so there was psychosis and general kind of mood in Europe that the crisis was coming that we had never heard of before. So this fear, this psychosis after 2 excellent years, this is something that [indiscernible] also in our company, and we are not seemingly the only ones in the capital market who have submitted to these negative sentiments. And those were the moves in which the budget for 2023 was drafted.
This year is -- well, -- this year's budget for next year, will definitely be drafted under different conditions. Well, humans creatures that adapt to changing conditions. So [indiscernible] the fact that the market is weak, and we've been working with this. I believe that such situation is actually better when it's constantly -- a constant that the market is weak, and we know what we're dealing with compared to the situation last year that was external and all of a sudden, it was a black hole, and we wouldn't know what would happen in the future. So definitely, we have proven our strength in these difficult conditions, and we have proved that we can do it and that we are coping under these difficult conditions. So in brief, I believe that the sentiments when drafting the budget for 2024 will be extremely different.
Well, for the time being, the last question about the guidance for 2024. Since the Chairman has mentioned that the publication of the strategy might be shifted to Q3 to the autumn. So consequently, since there will be no new strategic investments, investments for 2024, will they be at a relatively modest level?
As I said earlier, we're not expecting major investments in production capacity since we are utilizing 80% of them currently. So we don't really have a need to do it or some extensive investments, organic investments to be implemented. This organic growth, as I have mentioned, in a sense, we believe that it has been exhausted in a way because these production capacities are sufficient. We are definitely a big company. It is a company in the segment of industrial production. So for instance, these recovery investments actually constitute quite -- account for quite a significant share of our expenditures. So we have to be ready for this.
Our budget is PLN 380 million, more or less, of the investments. And so from this point of view, definitely unless new things surface, the ones we are thinking about certain continuation or some standard level of maintenance expenses, we are at the level of between PLN 250 million, PLN 250-plus million a year unless new investments [indiscernible]. Thank you.
And now a more technical question for the Aluminum Systems segment. Mr. Grela has mentioned, about the lowering of the price list in Q3. So if you could elaborate, what kind of scale you are talking about?
We have this question from one of the attendees.
Yes, this is formal information actually. For the first time in the history of this company, we were forced by the market expectations to reduce the prices. And I further mentioned this, this was 6.5% -- less than 6.5% in the prices of [indiscernible] so these are not all products, 70% of the products more or less. And since August, the reduction in prices in rollers and shutters and since November, the remaining 30% of [indiscernible] Systems products have been affected by the decrease in prices.
Another question linked to whether the effect of these decreases can already be seen in the results and whether the margin, which was presented by this segment in Q3 and achieved by the segment in Q3, whether this margin in Q4 in October and November, whether it is sustainable because we know that December is a totally different month? It's an atypical month, right?
So the comprehensive impact on our prices will only be visible starting from November because the final part of the market decrease is planned to take place from the first of November. But as I mentioned earlier, sales. October sales make us optimistic to the point that it will definitely be higher than last year, and it seems it will be higher than what we assumed in the budget. And this should contribute to the margin obtained on sales in October and possibly also in November, so contribute to a high good margin, whether it will be a 2-something margin. It's hard to say at this point. But we will do everything we can to make sure that the margin obtained in Q3 can be sustainable and maintainable.
So the last question for the [indiscernible]. For the time being, it's about [indiscernible] company. In Q3, [indiscernible] added to the EBITDA of the segment or the start of this activity, it actually reduced the EBITDA for this segment?
Q3 is a quarter in which [indiscernible] did not reduce the EBITDA for the segment. Of course, there is a slight addition to the EBITDA for the whole group. As expected, on top of that, there is depreciation related to that net profit, it is generally a negative figure.
However, we need to take this into account and the information which you should be getting on the products, we manufacture through [indiscernible]. We earn twice. First, on manufacturing and second on sales, and Aluprof sells the products. Consequently, summing these -- aggregating these 2 amounts, we can say with all responsibility that we on fire-resistant glass at the EBITDA and net profit level. So Aluprof has earned money and money in Q3 on fire-resistant glass products. Thank you very much.
About the Ukrainian company now. In the context of potential changes on the reserves on the provisions made for this company. The current situation, does it actually make the management board inclined to release these provisions by the end of this year, is there any risk of these provisions being increased potentially?
Well, as far as the risk of increase is concerned, it's basically not there because we actually establish provisions on all property plans and equipment and a part of the working capital, which is pre-war capital which has not been collected or paid. So there is no risk because our current exposure is very strongly controlled. So we basically bring the products together in the same amount. So we don't increase our exposure.
In terms of the solution, Well, every quarter, we check whether there are premises in terms of impairment tests -- value impairment tests. So in the case of continued war [indiscernible] the situation makes us inclined to keep these provisions. If this -- once the situation becomes calm, we'll be able to discuss this. But this is a question of a dozen million or so of write-downs that we actually are keeping.
Thank you. So a question for the Extruded Products segment. Which elements for electric cars are manufactured at [indiscernible]?
I understand it's about [indiscernible] well, it's hard to say really which elements we produce. Well, aluminum elements generally, which are responsible for -- depending on the make on the application. But generally, they are responsible for safety. So these are crash elements, crash alloys, and this is what we use the most in the construction of electric cars. Simplifying, we can say that these are shock-absorbing elements in the case of a crash. So that absorbed the corrosion energy. Also, finishing trimmings, decorative elements, broadly understood also luggage compartment elements and luggage carrying. You can build the whole car using aluminum to carry luggage and so on and so forth.
So this is in both segments, electric cars, electric vehicles, we're talking about big segment, we talk about big utilization in internal combustion engine cars. It's hard to say in one sentence, what we produce. Well, the bumpers, we produce a bumper for one well-known make. It's crash elements. We [indiscernible] hard alloys, some sleeves, pistons, engine pistons, brake pistons, fitting blocks for the air conditioning systems. So this application of aluminum in cars and vehicles -- not only in electric vehicles, mind you, because most of the production now is for internal combustion engine cars. And so this is vast, this application.
Thank you very much. A question, a general question about the costs. Generally, cost reduction in Q3. To what extent is it temporary? And to what extent is it permanent?
Well, I understand that it's about the raw materials costs. This was the only item that went down. Maybe the CFO will answer now.
Yes. This is, indeed, as we look at the income statement, as such, the remaining costs related to volumes or to remuneration or third-party services, which indirectly also depend on remuneration costs, these are growing by about 10%, which is an answer to the normal market situation. But if we're talking about raw materials, they helped in this quarter, obviously, especially in the Aluminum Systems segment, as Mr. Grela said, and this is the market situation. We are expecting in the nearest future, stabilization in terms of raw material prices. So that's the only answer I can give. We're not expecting changes in this department. We're not expecting actually relinquishing the cost for no reason.
If we are talking about the costs, let's pass to electricity. We have a question about the level of security for the coming year. The company, the group. Have they started any purchases? Can we let -- can we let you in on any info on the pricing level this year in the second half in terms of the market, what is the expected level hedged for next year?
Surprises, I cannot share this information. These will be good prices for sure. They can be better, of course. We have a procedure. We follow the procedure. The closer we look at Q4 [indiscernible] in terms of energy. We're talking about purchase for Q1 next year, Q2. So we buy it step-by-step, small amounts every day being close to the market. But it's difficult for me to talk about prices.
Is the competition asking? So it's difficult to talk about prices, right?
We have a request to add some more precise information in terms of components, the construction of electric engines. Do we do that?
Do we do the casing, right, for electric engines? Yes, we do, but not for vehicles, electric engines in a car that's cast element.
Thank you very much. Do you see any option of exceeding the currently increased projection of EBITDA by 5%, 10%, if hypothetically, the Aluminum Systems segment had a very good result in December and Flexible Packaging segment, if there were an increase in margins in Q4 in the OPP sector?
Well, with this scenario, obviously, yes, we've earned PLN 250 million of EBITDA in Q4. In Q3, we know we want to earn PLN 170 million in Q4, which reflects the specificity of this quarter. This will have to be very great, 2 months. In December, if it's a regular amount, these business activities due to Christmas, it shrinks a little bit, these operations. So it's like zero-plus period. Though in the last few years, we had better results in this month. So if it happens so, yes. But for now, Q4 in today's conditions, that's -- well, 2 good months designed in the same way as in Q3.
Thank you very much. I'm just trying to see if there are any other questions because I read the last question regarding the hypothetical situation of abrupt improvement of the situation on the market in Q4. I don't see any other questions.
Therefore, I would like to thank all of you for today's meeting. I would like to thank you gentlemen for excessive comprehensive answers. And let me invite everybody to another conference which would probably take place in December when we present the projections for 2024. Thank you very much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]