Karo Leather Plans CZK 285 Million Capital Increase to Repay Debt and Boost Profits Before Dividends Start

The board of the leather processor Karo Leather will propose to the general meeting to be held on December 16 an increase in the share capital with cash investments and the issuance of new shares with CZK 285 million. The objective of the subscription is the full repayment of the company’s non-bank liabilities for this amount. The board of directors wants to strengthen the company’s balance sheet, reduce debt financing costs and improve cash flow.

The board of directors proposes to increase the company’s share capital by issuing 1.9 million new shares. Each share will be offered at a price of CZK 150, which is seven percent higher than the current price of CZK 140 on the Prague Stock Exchange.

Only holding companies owned by Pavel Klvaňa and Jakub Hemerka, the main owners of Karo, will be able to buy new shares. By buying these shares, they change their earlier loans to the company to be equal to the price of the shares they receive.

By issuing new shares and converting loans to equity, the company hopes to resolve its non-bank debt and significantly reduce its total debt. The aim is to achieve a much healthier level of debt which is in line with the commitment of the company’s main shareholders.

The plan is based on two pillars – on the one hand, to increase the operating profit of the company (from CZK 36 million last year to CZK 100 million this year) and at the same time to reduce the total debt by CZK 285 million . The remaining debts of the company are only bank loans.

The company expects that its debt repayment costs, which amounted to CZK 31.6 million in 2023 and should reach CZK 27.6 million this year, will be significantly reduced. Due to debt reduction, these costs should drop to only 11.1 million CZK in 2025.

The company plans to use the savings from lower debt costs either to pay dividends to its investors or for further development. If it sticks to its investment plan, it should start paying its first dividends as early as 2025, which would be a year earlier than originally planned.

“Given the situation evident in many business sectors in Europe, this step allows the company to regain its capacity to deal with any deterioration in market conditions. Instead of high repayments of non-bank loans with high interest, it is assumed that money accumulates, which increases the ability of the company to withstand economic crises or the most important sector. The Board of Directors and major shareholders see this as a more sensible move, which aims to protect the investment of each shareholder,” the published report of the Board reads.

Karo Leather confirms that the number of leather produced and sold this year has reached at least 1.1 million m2with sales of CZK 300 million and the achievement of an EBITDA operating profit of CZK 100 million with an EBITDA margin of 33 percent.

The company’s net profit should exceed CZK 30 million with a net margin of ten percent. In 2025, the group expects 1.3 million m2 of leather produced and sold, sales at the level of at least CZK 400 million and the achievement of operating EBITDA profit of at least CZK 130 million with an EBITDA margin of 32.5 percent. The net profit should then exceed the threshold of CZK 60 million with a net margin of 15 percent.

The history of the Karo group, which is covered by the holding company Karo Leather, dates back to the mid-1990s and was first involved in the leather trade for the furniture industry.

In 2015, the purely commercial group gradually began to transform into a complex commercial and manufacturing group. Production itself started in November 2015 in Boršov near Jihlava, and in 2023 a second plant was opened in Brtnice near Jihlava. Since 2019, Karo Leather shares are traded on the Prague stock exchange.