A long-awaited debut
Poland's largest developer, Warsaw-based JW Construction (JWC), could build up to 14,000 apartments on the plots which it currently possesses. This figure, however, is small time in comparison with JWC's ambitions, and the firm is anxious to list on the Warsaw Stock Exchange in order realize its plans.
"We have already had a meeting with the Polish Financial Supervisory Authority. We are planning to have the issue prospectus accepted by the end of April. However, because of the holidays at the beginning of the month, the whole procedure will start in the second week of May. So I believe we should be able to find the letters JWC on stock listings in the middle of May," says Ryszard Matkowski, president of JW Construction Holding.
A broken engagement
If JWC's earlier plan to acquire listed Energopol-Południe back in October 2006 had worked out, the company would have already entered the bourse through the back door. The merger was to enable the firm to expand its activities in the south of the country as well as begin projects such as road construction.
At that time, Józef
Wojciechowski, chairman of the supervisory board at JW Construction, said that the management was looking for different solutions to strengthen the company and provide a cash injection. "We have considered different options but our negotiations resulted in an agreement with Energopol. We have reached a solution which initially satisfies both parties," he stated.
Investors apparently approved of the planned merger as Energopol's share price jumped from around zł.30 up to zł.190 at its apex. Just before Christmas, however, the broker for the deal, Dom Inwestycyjny BRE, announced that the transaction was impossible. JWC then decided to enter the Warsaw Stock Exchange on its own and Energopol-Południe announced its own new strategy at the end of January.
Remigiusz Sopel, an analyst from IDM SA, believes it is better for JWC to enter the floor on its own. "There are many advantages to the situation. The most important, however, is that this solution creates transparency and provides a credible financial evaluation of the company. Of course, we can say that the effects of synergy will not be taken advantage of, but JWC has a good development strategy," adds Sopel.
IPO plans
It is not yet known how many shares will be offered in the May IPO but according to the management, the amount will not exceed 20 percent.
"The company intends to increase the capital and acquire up to zł.200 million from the initial public offer," says Jerzy Zdrzałka, JWC's CEO.
"We will designate the entire amount to the purchase of new plots for future investments," comments Matkowski, adding that apart from a well-established portfolio of already completed projects, his firm's greatest asset is its "stockpile of plots."
"A few years ago the cost of plots did not exceed 10 percent of the value of the whole investment. Now the ratio reaches 15-20 percent, hence it is an important factor in the attractiveness of an investment. JWC is in a comfortable situation, because we own a large and diversified stockpile of plots," adds Matkowski.
The funds acquired from the IPO will allow the company to further increase its stockpile. IDM SA's Sopel believes that JWC has one of better strategies on the construction market. "Investors look both at the amount of land possessed as well as at the amount of already completed space," he adds.
Recent developments
According to JWC's figures, the firm sold over 4,000 apartments last year. "Taking into account that the market is stabilizing we do not expect further growth. Assuming that we will build and sell between 3,000 and 4,000 apartments per annum, we are in a comfortable position for the next four years," says Matkowski. Moreover, he says, the company is constantly searching for new locations.
"We don't feel the pressure and we don't have to buy at the highest prices. We're looking for opportunities," he says, and adds that Warsaw and its vicinity will remain in the company's focus but they are already present in Łód, Tri-city, Katowice, Szczecin. The firm is also looking at Wrocław and Kraków and will soon start a project near Moscow.
Additionally, JWC wants to diversify its offer, which is still dominated by mid-priced apartments. It will now build more high-standard apartments and homes. It also plans to develop second homes, mainly for buyers who want to own an apartment near the seaside - these will be located near Łeba, winoujcie and the Hel Peninsula. It will also extend its hotel network of two- and three-star hotels, of which it currently has five, to perhaps 10. The plan is to sell the hotels in the future, however, because according to Zdrzałka, "This segment generates much lower profitability than developing."
Designs for the future
Zdrzałka believes that the construction industry boom will continue and, judging by its results, the firm appears to be experiencing healthy growth. In 2006 its net profit rose to zł.132 million, a 10-fold increase over its 2005 revenues of zł.11.3 million. Last year's revenues amounted to zł.726.3 million, compared to zł.414.6 in 2005.
According to research by PMR Publications, there is still a deficit of at least one million apartments in Poland. PMR analysts estimate that around 100,000 apartments will come onto the market each year, while investments in the residential sector could reach zł.20 billion annually.
Zdrzałka expects that the residential market in Warsaw will see moderate growth in apartment prices this year, amounting to some 10 percent, while prices grew last year by 50 percent. However, he is still optimistic about the company's 2007 results.
"This year our results will not be worse for sure," he asserts.
In the meantime, JWC is trying to insulate itself from market risks, including the growing prices of building materials and the emigration of construction builders. In order to reduce the negative influence of growing building-material prices and operational costs, the company produces sub-products used in construction, such as woodwork and sanitary ware.
Regarding its personnel problems, the firm wants to enlist a number of workers from Central Asian countries such as Uzbekistan.
"The first group of 80 workers will arrive within the next couple of days," claims Matkowski.
