Grupa Kety SA

WSE:KTY

Earnings Call Transcript 2018-Q1

[Michal Malina, executive]

[Foreign Language] Good afternoon, ladies and gentlemen. It's nice to welcome you to today's meeting with the management board of Kety Group. As you can see, our board is full right now. All board members are with us today.

As I need to remind you that last year, our board has expanded. We added 3 board members. So the last change happened in March this year, 2 board members you know exactly well. And so Dariusz Mañko, CEO; and Adam Piela, CFO -- the CFO; and the remaining persons will be introduced by Dariusz Mañko. So over to you, sir.

[Dariusz Mañko, executive]

Good afternoon, ladies and gentlemen. Welcome to the meeting. After the first quarter, as Michal has mentioned, that our board is now expanded, and you have even better access to all information about our company.

We have 3 additional board members and they are responsible for 3 segments. So Rafal Lechowicz, who's responsible for Flexible Packaging segment, so Alupol Packaging and other companies, the new investment they -- that will be presented today. And then we started the first stage and launched the first machine and the second one is in progress.

So the first one started in 1996, and that is really old history. We're really young people who came to the company to restructure it. And ever since, we've been there, Tomasz Grela, who was hired by me when I was responsible for Aluprof. So I hired him in 2000, back in 2000 -- 2001, and he came from the pharmaceutical company. So what was the name of the company? Farmacol. And since that time, Tomasz was operational manager for quite some time. He's been a President of Aluprof.

Piotr Wysocki, again, I hired you. When was it? I believe it was 1999. So he was working for our competitor, Hydro Aluminium. So he was doing so fine that Kety Group decided to hire him, and he's been with us ever since.

And as you can see, we've been working for a long time. We know each other very well. We know what to expect. We know how to cooperate, and we are experts in the areas that we are responsible for. And I hope that the 3 new board members will be very beneficial for the whole group.

Ladies and gentlemen, what has happened and what's our presumption of the first quarter. Well, it was quite concrete, quite solid as you may have got used to it. We've prepared some forecasts. We've prepared some goals, and we've been working on it. And our expectations have been met.

So we weren't wrong to -- we've been very ambitious, and that the first quarter this year is better than the first quarter of 2017. And there's still some margin that we are able -- even better results. So we are doing everything that we can. We are very happy about this first quarter. We are very happy about the operational profit. So EBIT is 7% and EBITDA, 6%.

So what's happening -- because we've got some turmoil there. President Trump decided to announce a resources war, war on resources and to what's -- how that ended? You can see exactly here. Well, the prices of aluminum have grown on the markets. But with regards to Kety Group, I wouldn't be too much keen on this information because our company is not setting the prices and does not influence the situation on a wider extent. So we are able to actually fit into the market, and our production needs are so concise that we have not been hurt by that.

My colleagues will confirm that. And well, everyone has to deal with the same situation on the market and the growing curve prices of the resources. Therefore, the prices of the aluminum systems and aluminum profiles will have to grow. Well, it's inevitable, so there is nothing really to add here.

We can't really wait with the rises -- with raising the prices because it wouldn't be fair to the customers because if we don't raise our prices right now, that would mean that our previous prices were too high. And so it wouldn't -- as I said, it wouldn't be fair to the customers.

Well, the macroeconomic conditions, as I've already presented it, as I've already said it several times in the previous meetings, well, the situation has been changing over the years, and this is not the factor that would shake our budget strongly. And of course, we are doing a normal economic work. So we've got more need, more demand for aluminum, for capital, but our company has no problems in getting, acquiring some aluminum, and we don't really have any high credit or loan to be afraid of.

Shortly speaking, I don't really want to prolong my speech because we've got 3 other board members who would like to present their parts, and the Financial Director will present some financial information. So I really want them to speak as well, to have the chance to speak as well.

So a couple of words about sales. Now we're very happy that the market in Poland is growing. Well, the sales is in Polish zloty, so nothing hurting here. And of course, we would prefer a higher price of euro and dollar versus Polish zloty because we're selling all over Europe and in the U.S. And -- but then the situation is as it is.

And now the first segment, so Piotr Wysocki and the Extruded Products segment. Over to you.

[Piotr Wysocki, executive]

So Extruded Products segment. Well, this is a resource-related area. Our groups -- well, this slide shows you our sales to the U.S.A. Well, a week ago, that was a very hot topic. Everyone wanted to know how our sales to the U.S.A. works, looks like. 0.9% -- 90% of the deliveries are made by EXW Kety.

It's really interesting because logistically, it was called sales to the U.S.A. But the whole commodity transport goes to Mexico. I believe these are [ ex paso ] facilities. This is the automotive company and -- well, this is where we deliver this. And our deliveries were sent to Mexico, but it's not that the subject will end. We don't believe that the customs duties on the aluminum profiles can hurt us, can impact us.

As the CEO has mentioned well, the sanctions on the Russian oligarchs will -- and the Rusal company didn't really hurt us. A while ago, it was quite a huge client for us. But right now, this is just 7.5% that -- of sale to the customer.

Well, we found some place where we could replace it. We are talking about also billets. So this is owned by Rusal, and the company is located in Sweden too. And Rusal's share in aluminum purchases for us is equal to 0%. So well, this can hurt us only via stock exchanges, but that is impacting everyone.

Now about the price. Aluminum price today, it's nearly PLN 2,700, but in the segment prices expressed in ELMI+. So it will rise by itself individually because nearly 80% of customers work basing on this formula, ELMI+. So we are looking for new markets outside of Europe. India has shown -- Mozambique, we are taking the premium aluminum from there; Bahrain, Alba; and the investment connected to -- with -- enlarged capabilities, up to 600,000 tonnes. Well, it will make it very easy for us to replace the Rusal, I think.

So the situation -- economic situation is really good. The market is really doing very well. And so on this slide, you have some graphs and watches to showing you the 3 basic machines, 124, 111 days on the orders. So if anyone approaches us today, the customer will have to wait 121 days for the order to be completed. So the market is really busy.

Some growth here. Previously, we've been taking all the orders here. But now we are choosing the best contracts available. So it seems that the German and Czechia didn't want to pay a better price stayed flat. Well -- and domestic production capacities are reaching 90%, and we are using 4-sheet system. And in terms of values quarter-on-quarter, this is 9% growth. In terms of quantity, it's 6% growth, and that's overlapped, too, with metal that has a higher price.

And an interesting thing is the growth in salaries. Last year, we had quite significant raises. We are ahead of our local market, and we've been paying better salaries last year, better than other companies. And this year, we are not feeling this huge pressure on salaries as last year. So we are forecasting 5% rises in salaries. And that should cover 100% demands that come from our employees.

So well, the rotation, turnover ratio, you can see a good number. This is 1.1%. This is our employee turnover ratio. And with the speeding market, we can forecast that the growth of sale next quarter should be around 10% to 12%, depending on the stock exchange right now. It may be even more.

So now a couple of information about our foreign companies, one of them is Aluminium Kety EMMI. So we've overtaken that in 2016. In 2017, we've been working on the synergies. So we are still trying to build the synergy, but we've been working on the margins most of the time.

You can actually see that second quarter of 2017, the margin there, it started to grow there. And in the fourth quarter, the situation was really good. The first quarter, you can see a slight fall, but it's connected with the biggest contract that wasn't launched. It's been moved.

And this is the contract for Mercedes. So this is a doorstep for Mercedes. You can see this on the slide. So that was a huge contract, and we've been supposed to deliver at the doorstep the elements during the first quarter. But we've been doing that without the contract, and the contract has been culminated. And the forecast value is EUR 5.1 million, it's been maintained.

Depending on the sales of the model on the market, it may even grow or only grow. So this premier -- this car has premiered in the U.S. and it is premiering in Europe. However, the car has been made for the American market mostly and the demand is really huge. So we haven't used the biggest synergy effect, so we are not producing aluminum there. We are buying there. That's really good for the future.

So if somebody would like to use our company and send the production there, so -- because in Kety, we are working on some automotive products. We have machines that process aluminum profiles, so Aluminium Kety EMMI, this is a company that processes aluminum profiles. Today, we are able to select contracts and allocated them depending on bigger profit, whether the profit is here in Poland or in other European countries. So it started this process of reallocation.

So another factor that impacts growth of sale today in Slovenia is the combination of the sales departments. When we bought the company, it was nearly on the verge of bankruptcy, so we are trying to reduce the services, the sales services. So we're taking all -- taken all the sales managers from Slovenia, Germany, Italy, and they are searching for contracts for Aluminium Kety EMMI.

So I've mentioned Mercedes project. It's a huge and a very interesting project that gives us also some references in the industry because well, the producers are asking each other, "Where do you deliver? Where do you take it from?" And well, this is how it's done now.

Ukraine, a couple of words. It's a completely different country and completely different market. But what's interesting here for us, so the growth of production, the growth of efficiency there. During the first quarter this year, we had 13% growth using the same machine. So this is a 13% growth of efficiency, which translates into tonnes that can be sold from there. And we know that this is not our final say, and we want to reach 15% growth of efficiency next quarter, and this will enable us to sell more.

We are using 4-sheet system there, so 700 tonnes from one press. Well, this will be a good result. Well, the problems that the country suffers from is connected with the fact that this is a completely different country, completely different market. They follow completely different rules, but after the years, we are quite used to that.

And now about investment projects. So we've completed the hall for Aluminium Advanced Products. This investment has been completed. The hall is now operating and processing aluminum profiles.

And now soft alloys press. Well, the hall is done. It's constructed already. On the 7th of May, we'll have the machines coming over. And then we will have the first works started in August this year and then followed by normal production in autumn and winter. Also, press for hard alloys, still at the preparatory stage. In the third quarter, we will have assembly of devices and starting production.

And then another huge investment is the anodizing line. So it is -- the preparation is in progress. The designs are being done. We've agreed upon the design with the supplier. We are still waiting for the environmental consent. Well, this investment has an impact on the environment. Therefore, we need the proper consents. Without that, we won't be able to start that, launch that, but it is all in progress right now.

So that's all from me about my segment. Thank you so much for your attention.

[Tomasz Grela, executive]

Welcome, ladies and gentlemen. And I'll speak about Aluminium Systems segment, and I'll start with the customs duties because, as you know, we sell to the U.S. and to whom -- I'll tell you about the aluminum prices and embargoes as well.

America, this is about 5% of our sales, and this market differs from what you know in terms of Poland and Europe. So we are delivering ready segments to the U.S. Since the very beginning, it is -- these segments are covered by 6.5% of the duty and it hasn't changed, and all the turmoil is not really hurting us at all.

So the delayed decisions and changes implemented in the U.S. haven't really hurt us, haven't really influenced our situation in the U.S. And what is paid by our partner, well, this is up to them. We are responsible for delivering the products to the harbor. And what is happening later on, our partner is paying the duty and all other necessary fees and is using that on the construction site.

As you can see, a couple of pictures, our latest investments. So we are trying to do it as smoothly as possible, and we are preparing the production always ahead of time for the coming months. And you can see the pictures of the building that is being finished. Our production in Poland has been finished and our deliveries has been finished, so this is the building on the left.

And then in the center, this is the building in Manhattan. Our production has reached 55th floor, and the U.S. started to assemble our elements. And at the moment, we are testing our elements in the U.S. -- in U.S. in terms of some new elements that will be constructed to use in the third quarter. So our policy to secure our production is being planned 10, 12 months ahead.

So now with regards to our portfolio today. This is PLN 85 million in contracts that have been already signed. So it's 12, 13 months of ready process and production that will be done in the coming future.

Now with regards to the prices and as my colleague has mentioned that have grown, have risen, and they influence our segment. Well, we are completely open to the prices, to the changes, fluctuation of prices on the market because 90% of our purchases are located in our Extruded Products segment and only 10% is bought outside of our own segment.

Well, what is the hedging here? We are hedging about 50%, 60% of our needs for the coming 6 months. And so today, with -- while still -- we still have hedging for 3, 4 months to come. So in terms of tonnes, 3.5 tonnes, we have it already. So this is our hedging for the situation on the market. This is our policy. This is what we do, and that helps us to be secure in the coming months. And we can base on the aluminum that we previously hedged.

Of course, what is happening here now with regard to -- the prices needs to translate to the prices that we have for our customers. Well, we've announced the higher prices. We'll start in May for the foreign sales. And in -- as of July 1, the prices in Poland will be also risen. We don't know what will happen with the price of aluminum in the future, but we are still -- we have to say that we are open to the growing prices. And while we need to follow the market and we have stable clients and -- we don't really see any threat here, to be honest.

And now shortly about the situation, after the first quarter and some forecasts and what may happen on the market and shortly, about our sales, how it is distributed. You know that we have 2 segments, so architectural products and roller shutters. So 28%, this is roller shutters. Aluminum joinery, this is 64%; and the ready-made products, 8%. So it is the U.S. and European markets as well. So in terms of the ready-made products, 3% of that is to the European markets.

So we are trying to be a company that is specializing in fireproof products, and we have the biggest portfolio of fireproof products. Well, in Europe, it is not an easy process because each country has got individual tests and consents, and we've been implementing that throughout the years. And that translates to the situation that we -- our ready products, doors, windows, roller shutters that are fireproof, and we are becoming an expert for fireproof solutions in our industry.

Well, it costs us money and time, but we have our chance in very hermetic countries are just Belgium or France that we can be a leader in the most difficult industry. So we are starting really -- from a really high level, so very specialized products in order to sell also other products that we have. So after the first quarter, the growth -- the sale has grew generally by 13%. In Poland, this was 11%. International was 15%. We're very happy about that, and the level is really nice, really high.

And now about our export markets. Well, the drop down was only on the British market. This is not a dangerous situation. Some bigger contracts have been moved to other quarters, really good situation in the Netherlands. Last year, we bought a company in the Netherlands, and it is developing really dynamically right now, more than 80% growth of sales on the Dutch market here. And a very good situation of Czechian, Slovakian -- Czech and Slovakian markets. Well, Germany, Belgium and other European markets, 2 digits growth, and we are very happy about it. We do care about it. This is not a -- these are not markets that can show a really high growth very quickly, but everything is well thought and will be very effective for us.

And a couple of pictures from the most recent objects, buildings. And as you know, our company is also doing Mennica in Warsaw, the mint house. So down there on the slide, you can see the pictures and the design as it's supposed to really work. So we are a contractor there. We -- at the bottom of the slide, you can see that the first elements have been already delivered.

This is very difficult in terms of technique subject. Therefore, we decided to do it from scratch until it is finalized in order to ensure the investor that the situation is under control and is done properly. We are using all our powers to do it the best. And we believe that this will be a very interesting investment that will be worth highlighting in the future as well.

And now more about employment, employees and the issues connected with it and that affects all companies in our countries. Well, how do we deal with that situation? How do we deal it -- with the situation? Our segment -- now number of employees. You can see more than 2,100 people, and the growth year-on-year is about 4%. So this is according to our expectations and the budget and everything.

Now turnover, employee turnover is minus 14%. This is definitely below the industry. So how do we deal with that? Well, our company is hiring people, employees who are not qualified. Our production doesn't require specialized processes, so it's easier for us to attract the employee from the -- on the market, which is easier if we deal with less skilled employees.

And with the jobs that require longer studying and skills, so designers, for instance, engineers, the most -- in our industry, the demand for them is the biggest. Well, we are going to universities, to colleges to look for them. And this year, well, we've agreed upon 2 universities. So Silesian University of Technology and another school. So we've signed some agreements on the faculties, on the majors, and our employees will be also giving some lectures to the students. And that will help us to educate the employees, skilled employees in the future because it's really difficult to find such skills on the market. So we would like to be ahead of time.

And now our investment projects. As you can notice, we've been -- we are a segment in the whole group. We are the segment that is spending not much in terms of investments. This year, the main investments will include PLN 60 million worth, so several projects, 3 main projects. So R&D center. So we are subsidized by the European Union funds. So we've completed the plan this month. And by the end of the year, the whole laboratory building should be ready and we will be opening it. So the furnace chamber will be done -- will be available in the laboratories around May. Next year, we will have fully functioning laboratory for our needs.

And another project includes the Opole production hall expansion, so roller shutters are produced there. At the moment, we are selecting logistical solutions. We are cooperating with highly specialized logistical company that helps us with our logistical processes. Everything is in progress and in line with the deadlines.

And then the last project will be our another coating line, vertical powder coating line. The construction should be finalized by the end of the year. Everything should be ready in 2019 in terms of the machines and the devices. Well, we've finalized the design and really hope to be according to the time table. This is our forecast.

And I believe that's all for me, and I give the floor to my colleague.

[Rafal Lechowicz, executive]

Rafal Lechowicz. Welcome, ladies and gentlemen. I am very happy to be able to present you the results of the first quarter 2018, the results in the Flexible Packaging segment. I am responsible for coordinating the works. And well, that's what I'm doing. And I need to highlight that I don't manage it. I coordinate the works of the senior managers and the management boards of the subsidiaries. They are very competent people and passionate about what they do, very professional people in their daily duties. And I'd like to thank them for their work using this opportunity.

So Flexible Packaging segment, 3 entities. So the dominating company located in the special economic zone in Tychy and 2 subsidiaries, one of them being Alupol Packaging Kety located in Kety and the other company, Alupol Films. This is a new subsidiary, and we produce polypropylene foil there. So the first quarter has ended already. It was a very good quarter, 21% growth. So sales in Poland is growing and international sales is growing.

Let me point to the international sales. That is nearly 44% of the total turnover. Germany and the Netherlands account to nearly 20% of Flexible Packaging sales.

And now about the environment in which we function because that differs from the business environment of the other companies that are part of Kety Group. Well, in my whole time, my whole work in Kety in Flexible Packaging, which took 20 years, well, I never refused any order. So this is quite stable industry in Poland and around the world. So there are no significant fluctuations there.

It is growing in a slow but very stable way. And we are talking about EUR 14 billion in European market, and Western Europe is growing by about 1% yearly. And EUR 3 billion, this is Central and Eastern Europe. Well, the -- it is growing about 2% every year.

And Poland is a very special market. In terms of production capacities, it is overinvested, and it is growing about -- by about 4% every year. So if you compare our markets, so the dynamics on the markets where we deliver our products is about 3% year-on-year. So let's see that in 2017 versus 2016. So the segment grew by 25%. So this is 1 tonne, 20% a year. So we are growing 7x faster than our market. So this is what is our company doing.

And on the left and on the right side of each slide, I am showing you the products that we are delivering because some of you, you know exactly the packagings. For instance, Nespresso, we are serving it today, the coffee. And these are the products that have been packed in our packaging.

On the left, you can see the coffee and tea market. This is generally a stable market. If there any disturbances, then these are coffees and the types of coffees that are featured in the left upper corner of the slide.

Well, generally, these are the changes in customers' preferences that are connected with that. On the right, you can see the market that is under a huge pressure. But historically, it was the most important market for us. So powder soups, bouillons and sweet concentrates. Well, our customers suffer from a huge pressure from the changes in the dietary preferences in other target group.

And so the CEO has mentioned that in the previous -- during the previous meetings, well, the cuisine and the way of cooking has been changing. So people are using more fresh products. But at the bottom, on the left, you can see the spices. This is the industry that is growing, developing very dynamically. Because even if people are buying fresh products to cook something at home, they still need spices and herbs. So generally, this is a very positive industry.

So investment projects. After a huge success, which was polypropylene foils that were launched -- and I need to remind you that the line was supposed to work as of 2020, and it's been working for 6 months. And the target margin has been already achieved. Well, we've decided, together with the owners, to invest in another line that will be locating in Oswiecim, and this investment will start next quarter, and the production will be launched in line with the initial forecast in 2020.

Well, on the left -- on the slide, you can see the sweets industry. This is doing very well. On the right, you can see some butter and margarine industry. Generally, this fine -- although the oil palm -- palm oil is not selling that well. So the pressure is somewhere there as well.

And my last slide for you today is dedicated to the employees. And our employment grew by 150 people during the past 2 years, so the cost is stable. Employee turnover is similar to the other businesses. It is about 4% every quarter. But I need to highlight the growth of work efficiency in our segment.

During the past 2 years, our 1 employee is generating 18% higher sale on yearly basis. So every year, we increase the work efficiency by 9%. Well, next quarter, we will have dynamics of about 5% to 6% because the capacities are now -- the capacities are used to full extent. So our forecasted sale growth will be 5% to 10%, and we are still growing quite fine.

Well, in terms of the pictures, on the left, you can see the fresh products or frozen products and the foils are produced in Tychy. And this market is developing very dynamically, and we are growing very dynamically. On the right, this is also a growing industry. So these are the products that are based on cereals. So mostly, for instance, pasta or bread.

So that's all from me. Thank you so much for your attention.

[Adam Piela, executive]

So consolidated results. Boring as usual. Well, our forecasts have been met, but let's take a look at the general yearly forecast. Well, 9% growth of sales and 12% EBITDA growth. This is what we are doing. That was the best quarter for our group and record-setting revenues and EBITDA. And of course, many factors influenced these factors. So the price of aluminum in this quarter, and that was the smallest influence because it was offset by the USD price. And well -- and the impact there was very minimum on the level of sales, so it was even lower than in 2017 in the same period.

Now about other factors. Generally, they are connected with the growing amount of sale and the mix of products that was discussed by my colleagues and the factors connected with the dynamic growth of external services. I'll talk about that in a moment.

Now with regards to the tax. So the tax is much higher than in 2017. Now we've started to use the assets for the deferred tax. I need to remind you that this year, we will have about $11 million of assets connected to -- with our new investment in Oswiecim. But this asset will be launched by the end of the year. We will start that in the second quarter in connection with the launch of investment and payments, and it will -- the influence of the assets will be bigger in the third and the fourth quarter.

Now the cost. Cost is under control, so the salary growth that is mentioned so often in Poland is big for us, is significant in our company. But the growth matches the growth of sales, the growth of sales revenues. So during the first quarter, the biggest impact on the costs came from external services that were connected to -- with the bigger sales. And the transport of our products outside of Poland in cooperation of our contractors, well, it grew. And our forecast for this year, external services should grow by 26%. This is our forecast for this year, and this factor will be increasing in connection with the construction of mint house investment.

So the operating capital, the working capital. We are expecting PLN 5 million growth in the second quarter this year. This forecast is concerned with the quantity growth and the growth of aluminum price that happened last month, over $300 or even $400.

And now operational flows, really good. We didn't really have that growth of working capital connected with the launch of operation in Oswiecim facility. So the rotation here matches the level of previous quarters and years.

And now financing. We expect dividend to be paid in the coming quarters. We expect that the working capital will grow in connection with the aluminum prices. And as a result of our investment program implementation, over more than PLN 50 million more in loans at the end of the next quarter. And depending on the situation on the aluminum market, the growth may be even higher. And some other factors that will influence our group will be launched in the third quarter. The so-called speed payment may cost us about PLN 50 million more. Well, that will regard to the loan, the credit as well. This is also the worst case scenario.

Now summarizing the situation. That was a very good quarter for our group. And being very optimistic -- we are very optimistic about the coming quarters and the situation on the market, and we stay by our forecast for 2018. And well, I encourage you to ask the questions.

[Michal Malina, executive]

So we are hoping for your questions. So the first question, here comes the first question.

[Unknown Analyst]

I have the question about the hedging. Could you please explain this hedging in terms of the systems in more detail? So the portfolio was PLN 85 million as far as I can remember. This is several months of production, and I understand that half of the input was hedged? Or maybe it's wrong?

[Tomasz Grela, executive]

PLN 65 million, it's the contract value, the U.S. contracts. It does not translate to the general situation. Well, I am talking about hedging for the whole group. So this is 3, 3.5 months to come. So this will help us to stay profitable during the coming 3, 3.5 months until we implement and consummate the plan -- consume the planned rise.

[Michal Malina, executive]

Well, this hedging applies only to the cost of aluminum. And to President Grela when speaking about the value, PLN 85 million, was mentioning the whole valuation of the contract. But out of this PLN 85 million, aluminum is worth PLN 20 million because the huge part of the cost is the prefabrication glass transport.

[Dariusz Mañko, executive]

Well, we have a production. We have people. And when we think about the production, we need to have around PLN 100 million to production and, therefore, we are able to work on the American market to assembly there. So if we are talking about PLN 85 million in our portfolio, then we are talking about being ahead of time. We don't really want the situation that we have the facility building and a huge number of people working 3 shifts. And there is nothing really to do because, well, if we send them back home that will be difficult for us to get them back to work. Therefore, we are trying to set the contracts in an order that will help us to continue operation. And another thing is the hedging. The hedging is that the management board of Aluprof is observing the purchase and creating a budget, preparing a budget and is saying, "Well, okay, we are buying this much of aluminum. Therefore, we need to hedge the resources." So they do hedging with regard to aluminum and foreign currencies. And they know that in June, the aluminum will cost this and this. They would know how much this will cost for them in June. So I don't know what was the hedging. The last hedging, around 2. So well, they've -- they insured the input of the resource raw material because it's very difficult to translate for them because for Piotr Wysocki, the price is ELMI+. So for instance, if it's 3,500, this is 3,500 plus. But Aluprof and Tomasz Grela, they've got price lists in Poland, so the customer is buying. So in order to change the price list, you need to notify the customer, approach the customer and tell the customer and they negotiate with the customer because the customers says, well, I understand the new price list, but I have already assigned a contractor for deliveries and things like that because we've got this rule and that sometimes, the prices to be changed need to -- at least 6 months. Therefore, we need this hedging in order to be more flexible. Maybe I shouldn't have really combined 2 different things in 1 sentence. Well, it was really good because maybe that wasn't really understandable for you. So the demand for aluminum in this segment is hedged up to 50%. So generally speaking, there is some influence of depression. And well, it will hurt us a little bit in terms of the aluminum prices in this segment, but we've dealt with a similar situation already. Maybe it will hurt us, margin a little bit, but we will need to actually sell more in order to reach the goal.

[Unknown Analyst]

And the second question. You have mentioned your fireproof solutions, and we have the stock exchange company [ Mericor ] that offer similar solutions. Is it a competition for you?

[Tomasz Grela, executive]

Practically, there is no competition here because we specialize in aluminum only. Now this is the one area that [ Mericor ] doesn't focus on. They focus on wood, for instance, ventilation, air flow, coatings, paints and so on, but they don't touch the aluminum, which is our area.

[Unknown Analyst]

Do you do it individually? Or do you cooperate with other entity that specializes in it? Is it your competence?

[Tomasz Grela, executive]

Well, you can simply imagine a building that is constructed from scratch, and the European law says that you need to ensure fireproof façades, walls and so on. Now most of its time, they are done out of aluminum, and this is our competence. And in addition to the fact that we are the biggest supplier of systems in Poland, and we hope in Europe soon, are also able to produce and deliver ready product with -- attached with a certificate and tests anywhere in Europe. So for instance, if we have Spanish customer who would like to buy a system in our component, the customer will buy it. But if, for any reason, they want to buy ready products such as walls or windows, we will deliver it with certificate. We don't assemble it, no, we just deliver it, either the system, either the ready product because it's easier to convince the client to cooperate with us. So when we deliver the whole-ready product and then the system, therefore, some countries work like that. Therefore, we decided to start with the most difficult products, the most complex products that need to come with certificates. Therefore, the clients think that since we are able to deliver highly specialized products with quality and other products will match their quality as well. And in addition to the European certificates that may seem enough in many countries, well, in Poland, they are enough, but some countries have some additional tests and certificates. And this is, for instance, a French situation, and this is the most closed and hermetic market in Europe.

[Dariusz Mañko, executive]

Well, we are also a producer of, for instance, solutions and some corporation is there. For instance, for glass. We don't produce glass ourselves. We just buy it, but the solution is ours. And this is not a huge market such as windows or fireproof facades. But as President Grela said, this is something that we specialize in it and Europe knows us by it. And so the investors think, "Oh, wow, what -- the Poles are able to do it." So we have this patent to produce and deliver systems of a very complex and important elements such as fireproof systems.

[Unknown Analyst]

I also have a question about Aluminium Systems. You were mentioning that the rising prices for international markets as of [ 15 mains ], how did you calculate it?

[Tomasz Grela, executive]

Well, we always try to calculate the price lists, both the current ELMI. So if the aluminum stops growing, then we can correct it to buy VAT. So it is corrected by the level of 2,600 ELMI. And if there are any changes, the corrections will need to be implemented in the third quarter. Sometimes, it happens. Sometimes, we have to correct our prices twice a year. There's no risk here because the whole European market is reacting, responding in a very similar way. So for instance, Germany, Belgium react -- responds similarly. Well, they've introduced their new prices a month ago. And so -- well, we've been patient and we can say that our prices will be more adequately be matching the growth of aluminum prices.

[Dariusz Mañko, executive]

And now about the aluminum. And generally, in terms of aluminum and replacement, well, it will be difficult to replace the aluminum products. Did I understand your question correctly? That's about the demand for the raw material in terms of aluminum. Well, my colleague will answer that question because it's a quite funny thing in terms of Rusal and the impact. This is just the one producer, but we need to remember that it operates on the market. They also have signed contracts. So we can't say that it's just the one Russian company owned by an oligarch and it is closed down and contracts are resolved. Well, I believe that in a moment, there will be some forces pressuring the situation. And the U.S. President will not be able to withdraw from the obligations, but then still, they will continue some production and the same aluminum will go via India or any other market. And it will reach the same place as it was supposed to -- initially supposed to reach. And they will have to have new invoices and banks that service the whole delivery, and that's it.

[Piotr Wysocki, executive]

And now with the price worth $2,600, $2,700s, is it -- it's good to bring it from China. And because of the environmental protection, they dwindled the productions, they reduced the production. But -- well, there was smog and there were fumes and the government was closing down the factories, and now they are being reopened and it's good to bring it from China. And therefore, we have our contract with Mozambique. Well, it may be more difficult to get it, but we'll be always able to get the aluminum. They will reduce the production, but they will not close down electrolysis.

[Unknown Analyst]

And now about the Flexible Packaging. The plant deadlines for the new foil production plant 2020. So is it the closest possible, feasible date?

[Rafal Lechowicz, executive]

Well, it -- the situation may vary. Well, the big challenge for us is the construction area. If everything works fine by the end of 2019, it will be possible to launch the plant. But some higher forces may take place, therefore, we need to have the safety net, and therefore, 2020. But we hope to launch the plant in 2019 by the end of the year. And well, we will start construction in the third quarter of this year. And between the first and the second quarter 2019, we'll start bringing devices. And I hope everything will be in line with the timetable.

[Unknown Analyst]

I have one more question about Aluminium Systems and the mint contract. Could you please remind us the value of the contract? Is it linked with the prices in any way?

[Tomasz Grela, executive]

With the deliveries that have been completed already, well, it's -- I don't think it's a secret, the value of the contract. This is over PLN 80 million, the whole contract, too, but we are working in consortium with other -- with our partner, 60% Aluprof and 40% is applicable to our partner. And we've reached the stage where the value of the whole aluminum is about PLN 20 million in this contract. So out of this PLN 20 million, we've produced already 70% profiles ready for production. So the profiles have been produced at a lower plant price already, but the contract will be completed in the first quarter of the coming year. So we still have 12 months to observe aluminum situation. So I don't really see any risk here in terms of this contract.

[Michal Malina, executive]

Thank you so much. Are there any further questions? We also have some online questions.

What are the consequences of the growing prices of aluminum? Previously, the CEO said to the -- that the customers agree for -- to higher prices. So is the price a surprise for the industry? What do you expect in the coming months?

[Dariusz Mañko, executive]

I believe that this question has been answered several times already. Well, it is never nice in your life when the prices are growing even if you get the higher price for the energy. But let's imagine that our customers are producing some gates, some other devices and they've also signed some contracts to deliver some elements. For instance, they've got contract signed with Castorama chain of stores and they need to offset that somehow. So this is the -- our own period to -- in which we need to be humans to our customers. For instance, we've got a customer that we cooperate with for 20 years, and they've struggled with meeting the obligations of the contract. We need to help such a contract -- such a customer. We can't say the customer then pay higher and just go bankrupt tomorrow. We try to help our customers to deal with the situations and to actually meet the objectives of the contract and function in the future. So that's what we do, and we feel comfortable enough to help our customers. But still we expect to -- the loyalty and to -- orders in the future. And this is a good, full time for us as well because in big corporations, people just don't ask questions. So while the sales manager receives the new price release, then that's it, and there is no flexibility left there. But our company is personal enough that we are able to take decisions at any point of time.

[Piotr Wysocki, executive]

Well, I was talking about the unexpected information. Well, it's been on there for 10 days. The first information from Rusal came on a Monday. And well, this information concerned transferring payments to other accounts, and that's it on Monday. Well, the price was growing and dropping $100 to order. Well, the surprise was there for everybody. So what's the solution? Nobody knows. Still, nobody knows. And various scenarios are still possible. We still need to be secure and hedged.

[Tomasz Grela, executive]

Well, at the end, I need to tell you about our customers. Please imagine a situation that we have a window, so we have systems, a ready product that is sold by our customer to investor. This is 25% up to 30% of our share. So how the aluminum can influence the growth of the price of the product? So we are taking into account the price rise that we've prepared basing on the growth of production cost connected to it and the growing salaries. So this is not a surprise. It's not that we respond very quickly to the situation on the market. We've been planning this rise for a long time. Now we have various suppliers of many elements that are necessary to complete our system, and the prices for various reasons, mostly the salaries will be growing, the costs will be growing. Therefore, the situation we've been announcing the changes for some time already. And the amount of rise depends right now on the price of aluminum. So this is not a complete surprise for our customer. And then so we are talking about 20% to 30% of the share of our system in a window.

[Michal Malina, executive]

Thank you so much. Are there any further questions? If there are no further questions, I'd like to thank you for today's meeting. And of course, after the meeting, the board members and the President of the board will stay with us, so you'll have more chances to speak to them. I'd like to invite you to the next meeting that will take place at the beginning of August. Thank you so much. Have a nice day.