Tall ambitions

to talk about Orco's results, its activity in Poland and its plans for the future.

Adam Zdrodowski: You came to Poland primarily to announce Orco Property Group's 2007 financial results. Were they in line with your previous expectations?

Arnaud Bricout: I think they were. We had a pre-announcement of the financial results in January, when our revenue was estimated at E275 (zł.957) million, and in the end we achieved almost E300 (zł.1,044) million, which came as a surprise to us. We also recorded a net profit of E87 (zł.302) million, which is certainly what we had expected. On top of that, we announced a significant increase of the dividend - by 40 percent - with the 2007 value at E1.4 (zł.4.8) per share, compared to only E1 (zł.3.48) last year.

Orco Property Group is a large company that is present in many countries in Europe. How important is the Polish market for you?

For us there's still a very buoyant market for residential development projects, not only in Warsaw, but also in other main cities where we may, in the future, acquire a land bank in order to develop some projects. The advantage of Poland compared to other Central European countries is its 40 million inhabitants - it's the big baby of Central Europe - with seven-eight big cities, which is not the case in Hungary, the Czech Republic or Slovakia. So of course we intend to continue to develop our business in Poland.

How is it different from other European real states markets?

Well, for us it's, let's say, "quite an easy market" compared to the Russian market. We have less experience in Poland than in the Czech Republic, where we started 17 years ago, but nevertheless I think we have proven that, after being here for five years, we have been able to develop the real estate business in several segments. We are present in at least four different segments of the real estate market, which is not bad after a few years.

There are some indications that a slowdown and a drop in apartment prices may occur. What are your predictions concerning the future of the Polish market?

Well, there was a huge increase in residential prices over the last two-three years. Nevertheless, among the projects we are developing, I think we've properly calibrated our selling prices according to the exceptional quality we are delivering for our customers. At the end of the day we're not afraid of any potential crisis regarding the selling price - there is still a huge demand.

Also, it's important to note that in Central Europe - whether in Poland, the Czech Republic, Hungary or Slovakia - we are not really faced with any credit crunch, which is the most important thing. If the credit crunch was going to hit us, I think it would have happened already. The banking system is quite efficient [in the region] and there are very strong banks, so there's still access to mortgages. So we don't have any particular fears regarding that.

What segment of the real state market in Poland is most promising in your view? Which segments are you going to focus on in the future?

Residential development. We intend to focus on the middle-to-upper-class segment, trying to provide products which are a little bit different from our competitors', with sustainability involved. We do not want to compete in the lower segment with companies like - with all due respect - JW. We do not believe in shell-and-core delivery, as is still common in Poland - we are trying to provide different choices of kitchens and bathrooms to our customers. We think that this shell-and-core habit is something from the past and we're trying to implement something new, providing nicer equipment in the apartments.

What about the Złota 44 project in Warsaw. There has recently been news of another protest against the investment. Has this in any way endangered it?

We are aware that there are some neighbors, individuals, who are against Orco. But what we can say on this topic is that the construction work and the whole development are in accordance with the law in Poland. The issues mentioned by our neighbors are already well known to the authorities, to the court, and already taken into consideration in the past. So we are not afraid. ... It shouldn't affect the implementation of the project.

Orco has mainly been active in Warsaw so far. Do you plan to expand into Poland's regional cities as well?

We are planning to start projects in different cities, but we would like to focus on the main cities, like Gdańsk, Poznań, Kraków and Wrocław. Of course, if there are any good investment opportunities in smaller cities, we will take advantage of them. But our main target is the most important cities in Poland.

There have been some rumors in the media recently concerning a new skyscraper that you are allegedly going to build in cooperation with hotel operator Orbis in Warsaw. Can you confirm this?

I think it's too early to discuss that. It's true that we do not intend to end our skyscraper projects with Złota 44. That's it.

How would you describe your cooperation with the municipal authorities in Poland? Do you feel discouraged by the prolonged administrative proceedings regarding construction permits?

We were expecting some delays because we knew that it was going to be tough to get a building permit. We are still within our schedule, that is delivery of the tower in 2010, and even if it was postponed for a few months into 2011, it wouldn't change the potential profit from the project.

It's just a natural game between Orco Property Group and the authorities on a project which will significantly change the face of the center of Warsaw. No big surprise.