Strategic highway
Construction firm Erbud has turned its issue prospectus in to the Polish Financial Supervision Authority (KNF) and expects to debut on the WSE in May. Prospective investors will be offered 30 percent of all shares. Out of that, 80 percent will go to institutional investors and the rest to individuals.
The firm's management hasn't yet revealed how much they want to obtain from the IPO, but says that Erbud has already formulated a long-term strategy.
"Our strategy is aimed at growth. Now thanks to the WSE, we will speed the process up," says Józef Zubelewicz, one of two members of Erbud's board.
Currently, the company operates primarily as a general constructor. Last year, it signed 45 contracts, of which 18 were for work in Poland. Some 38 percent of its activity involves residential construction and around 62 percent concerns industrial and public-utility construction - including hospitals and cinemas - as well as engineering. In Warsaw, the firm is building some 1,500 apartments. Outside the capital it's working on the Museum of Contemporary Art in Toruń, a zł.150-million shopping center in Poznań and a several apartment complexes in Kraków.
Home and away
The company has offices in Wrocław, Szczecin, Toruń, Rzeszów and Warsaw, and has a good deal of international experience in Germany, Belgium, Sweden, Great Britain and France.
"[Our] strong position in these markets allows us to be sure that whatever standstill might occur in any of their construction sectors, we will still be able to concentrate our production in booming areas," says Dariusz Grzeszczak, Erbud's other board member.
Although the company's strategy calls for some geographical diversity, Erbud wants to concentrate a large part of its operations on the Polish market. However, as Zubelewicz says, the company also wants to diversify its activities into road and engineering work.
"If we take into account investment plans in particular sectors, structural funds designated for infrastructure and available opportunities, we see our great chance here," says Zubelewicz.
Engineering success
"We believe that the engineering and road-construction sectors will help us increase our already good [profit] margin, which is at some five percent," says Grzeszczak.
Andrzej Szymański, an analyst from BZ WBK, emphasizes that most contracts for engineering and road work - especially those financed from EU funds - are won through public tenders. "In order to win them, the company needs references," he adds.
Zubelewicz says his company already has experience in engineering. In addition, Wolff & Müller, Erbud's strategic shareholder, also has a reputation in the sector. Moreover, in order to better its own reputation, Erbud is planning to acquire firms with experience in these areas.
"It would be possible to increase our competences on our own. However, the aim of the acquisitions is to speed up the process, and enter the market earlier. We would like to develop our operation in that part of the sector in Poland and [thus] we need funds to acquire companies competent in these areas. We are now negotiating acquisitions and plan takeovers for this or next year," says Zubelewicz.
"We are a general contractor in over 99 percent of all contracts and we want our new subsidiary to operate similarly," says Grzeszczak.
BZ WBK's Szymański says that sewage treatment plants and hydro-construction projects demand references as well as a large amount of working capital. "Sometimes the company has to invest some 20 percent of the value of the contract before it gets any money back," he points out.
"In order to operate well and take part in tenders, the firm needs [borrowing] power amounting to 25 percent of its turnover," he says. A percentage of the money obtained from the IPO will also be designated for this.
Erbud in context
The construction sector is fragmented in Poland. It is estimated that there are around 2,500 firms that employ at least nine workers, not counting smaller companies and the gray economy. According to the Polish Association of Construction Industry Employers (PZPB), about 125 companies comprise some 80 percent of the market.
"We estimate that we are in the top 20. Our strategy will help us move up to the top 10," says Zubelewicz,"
Currently, the company employs 1,200 people, including 140 engineers and technicians. Just last year the firm increased its employment by 600 new workers. One disadvantage of the market, however, is that there are too few manual workers. Therefore the company already cooperates with vocational schools and helps to finance the education of young people.
"Those who want to leave to work abroad can go on contracts to the countries where we operate. They don't have to look for a job on their own," says Grzeszczak.
For the last four years the company' revenues have been growing and have averaged over 60-percent growth a year. In 2006, revenues reached zł.394.7 million, 76.3 percent higher than in 2005. At the same time net profit amounted to zł.21.3 million, compared to zł.3.3 million in 2005.
According to ASM - Market Research and Analysis Center, the construction market grew at 17.5 percent last year, y-o-y. "This year we estimate it will rise another 15.3 percent," says Sylwia Proniewska from ASM.
Grażyna Gęsicka, Minister for Regional Development, confirms this sector forecast. "Entrepreneurs that operate in the construction business will benefit most," she says.
