An interview with Thomas Lehmann, Libet CEO

Ever since the day of the company’s stock market debut, Libet share prices have been falling steadily. The first transactions at the end of April were made at PLN 4.69 per share. Last Friday, it was only PLN 3.5 per share. Why?

The decline in stock prices results primarily from the general poor performance of the Warsaw Stock Exchange and other equity markets worldwide. It is also related to negative ratings on the building and construction material industries by equity analysts. However, Libet share prices have declined at a slower rate that the building sector sub-index WIG-Budownictwo, which could suggest that investor perceptions of our company are better than those of other companies from this sector.

The decline can also be related to low share turnover.

That’s true, our turnover is relatively low, but if investors had no trust in our company, the decline in stock prices would be much more dramatic. As for the low number of transactions, it can be attributed to the fact that our shareholders include many investment and pension funds which have little interest in frequent dealing. In addition, our low turnover is related to our short listing history and few reports on our financial results disclosed so far.

What were the results in the second quarter of the year?

Exactly as we had anticipated. We recorded a significant year-over-year second quarter improvement in both revenues and profits. We will provide detailed information on this subject in the report we are going to publish in August.

What do you expect in the second half of the year?

In the second half-year our sales usually increase due to higher demand for paving blocks and setts, which reaches its peak between September and November. We expect it to be the same this year. Following on from this, our forecasts for more than 297 million revenues and almost 32 million net profits remain unchanged.

Is the paving block and sett market in Poland going to grow this year?

I think we can expect a more dramatic market growth than last year; the market is likely to expand by more than 6 per cent. And it should be even more in 2012.

Why is that?

First of all, the demand of the Polish market for premium setts, i.e. higher quality, more attractive and, consequently, more expensive products, has been growing steadily year by year. This can be attributed to the change in the preferences and approaches of both individual and institutional customers such as developers or local administration, who attach more and more importance to aesthetically pleasing surroundings.

Isn’t it likely that the recent increase in paving block and sett prices reflecting higher manufacturing costs will reduce the demand?

The costs are higher, no doubt. For the last few months we have witnessed a steady increase in the prices of such raw materials as aggregates or cement, and recently also the cost of transportation, which has forced us to raise our prices as well. However, despite the price increase we see a growing need for improving the aesthetic quality of landscapes, which stimulates the demand.

Are you going to expand your manufacturing capacity to accommodate the growing demand?

Last year we purchased two industrial plants: in Pomerania and in Greater Poland. With the new facilities, we were able not only to increase our manufacturing production capacity, but also to extend our geographic sales coverage. This is crucial because the cost of transportation is very important when it comes to paving block and sett manufacturing. The only profitable option is to manufacture blocks and setts within less than 100 km radius of the sales outlet; otherwise it is impossible to keep the transportation cost at a reasonable level. We are also starting new production lines in the existing facilities. Apart from extending our geographic sales coverage, we are also going to extend our product offer in order to meet the increasingly diversified needs of our customers.

Are there any new plant acquisitions planned for this year?

We are monitoring the market on the ongoing basis in order to identify potential acquisitions. At the same time, we are focusing on organic growth and on developing new products, especially for the premium segment, because with such products we can earn higher profit margins than with the traditional paving blocks.

Some companies focus on increasing their revenues and only start working towards improving their profits when their revenues reach a sufficiently high level. Is this the case with your company?

For us, net profits, not revenues, matter most. This is why we have concentrated on extending our premium range. With 30% market share, we are the leader in this segment. What is more, we believe that the growing demand for premium products provides promising growth opportunities. I think that in 2 or 3 years time, the number of major infrastructure investments which generate large contracts for our industry will dwindle, and most of our output will be sold to customers who order smaller quantities of custom-made products.

Will your focus on maximizing profits result in dividend payments for the shareholders?

It is the primary purpose of the Management Board to earn profits and share them with the shareholders. Naturally, it is the shareholders who will make the final decision.