Atal SA

WSE:1AT

Earnings Call Analysis

Atal Group's Strong Half-Year Performance Amidst Market Challenges

Atal Group reported over PLN 700 million in sales for the first half of 2024, a 13% increase in development agreements. Net profit rose 7% to PLN 154 million, though net margin declined by 4.9 percentage points due to lower-margin projects. The company handed over 1,215 flats, up 27% from last year, and maintains a robust inventory of over 6,600 flats. For the rest of 2024, Atal anticipates sales of 2,300 to 2,500 flats, with gross margins projected at 26-27% for the year. Despite market uncertainties, management remains optimistic about future sales and project launches.

A Strong Half-Year Performance

Atal Group reported significant financial achievements for the first half of 2024, generating over PLN 700 million in sales revenue. This reflects a commendable increase from the same period last year, attributed largely to the handover of a larger number of residential units. The net profit rose by 7%, amounting to PLN 154 million, even as the net margin experienced a decline of 4.9 percentage points. The anticipated gross margin for the year is estimated to be between 26% and 27%, indicating a cautious yet positive outlook.

Production and Handover Insights

The company successfully handed over 1,215 flats in the first half of 2024, a substantial increase of 27% compared to 959 units in the previous year. As of June 2024, 86% of these flats were contracted, demonstrating strong demand. Looking ahead, Atal plans to complete over 3,000 flats in 2025, with the current contracting level at 40%, up from 35% last year.

Ongoing and Planned Developments

Atal is actively pursuing growth, with 40 ongoing investments translating to over 9,000 flats. Notably, the company launched 15 projects for around 3,200 flats during the first half of the year, further solidifying its presence in the Polish housing market. As of now, the land bank has been enhanced by nearly PLN 300 million worth of new land purchases, facilitating future projects.

Managing Financial Resources

The financial health of Atal remains robust, with a total cash reserve of PLN 533 million as of June 2024, despite a decrease from the previous year due to rising construction costs. The total assets increased by 8%, attributed mainly to an uptick in inventory due to more ongoing construction projects. Furthermore, the company reported no major liabilities maturing in 2024, with a manageable PLN 340 million in bonds and loans set to mature in subsequent years.

Market Challenges and Strategic Responses

Although sales have slowed slightly due to uncertainties around the popular '0% loan' program, Atal mitigates risks through diversification across eight regional markets in Poland and a broad range of property offerings. The executive team remains optimistic that sales will improve in Q4 2024, projecting an adjustment in sales targets for the half-year to between 2,300 and 2,500 flats, which could strengthen with demand returning.

Dividends and Shareholder Returns

Reflecting its commitment to shareholders, Atal's board has approved a dividend of PLN 259 million, constituting 76% of the company’s income for the period, aligning with its ongoing dividend policy to distribute 70% to 100% of consolidated profit. This not only reinforces investor confidence but also underscores the company’s stable revenue generation capabilities amidst fluctuating market conditions.

Conclusion and Future Outlook

In summary, Atal Group showcases a strong financial foundation with promising growth strategies in place. Despite facing some market headwinds, the company's proactive management and diversified operational framework position it well for future expansion. Investors can expect Atal to navigate current challenges effectively while continuing to deliver value through innovative housing solutions.

Earnings Call Transcript 2024-Q2

[Andrzej Biedronka-Tetla, executive]

Good morning. Today's summary of results conference of Atal Group for the first half 2024. We would like to welcome you together with the CEO, Zbigniew. My name is Andrzej Biedronka-Tetla, I'm the Chief Financial Officer.

Today's conference is also available in English. You can select the language under the button interpretation at the bottom of the page.

As usual, We meet every quarter. We would like to present to you the results of our group after the second quarter of 2024 and the entire first half of this year. As usual, I will first give a presentation and then the CEO will comment on the current situation. And then we'll answer your questions in the Q&A session.

Let's start with the presentation, summary of results for the first half of 2024 for Atal Group. We start with operating activities, I'm presenting investments in progress and in the pipeline of Atal Group. As we mentioned before at the previous conference, we have one new branch in Szczecin. Now we have one undergoing investment in progress, but we also purchased another plot of land. So we're planning another investment. So the branch will be soon implementing to investments.

In total, in the entire group, we have 40 investments in progress, over 9,000 flats, more than 522,000 square meters. We're planning 41 more investments over 11,000 flat over 622,000 per meter of sellable area.

As for sales of flat in the first half of this year, it will be quite emotional, I guess. So we will probably have some questions about that. Let me just point out that in the first half of 2024, we signed development agreements for 1,289 flats, which is an increase by 13% as compared to the same period in 2023.

That's the data for the entire half of the year. As for Q2 alone, it's the bottom chart, we signed 566 contracts for flat. As for flats sold, 1,289 flats puts us among the top developers. You can see it in the diagram. And let's move on to our offer.

At the end of June, we had 6,615 flats in our offer. As you are well aware, our offer in Atal is related to the presence in 8 markets, development markets, in Poland, where we want our offer to be complementary. So we want to have products at various standards in various locations. And adding our construction production that we started in the recent quarters, simply speaking, new investments that we started recently, this ends up as up to 6,615 flats. It's quite a huge increase as compared to the previous year. But we will also show you how it translates into Zlotys.

And now hand overs in the first half of 2024, something that will translate or has translated into revenues from sales. 1,215 handed over flats. The major contributions like Wroclaw, 266 flats and also Lodz 278 flats but also Silesian region and Kraków. These were the biggest handovers in 2024 half 1.

As for the analogous period of the previous year, this handovers volume is by 27% from 959 to 1,215. And here, you can see a 32% decrease in terms of handovers total saleable area, which means that the flats we handed over were slightly bigger than those that we sold last year.

This is an interesting slide on new plots of land. We spend funds in first half 2024. We bought -- we spent PLN 174 million on that, which will allow us to build 622,000 square meters of flat. It's in our land bank. And it's not the end of our purchases because after this half of 2024, we bought almost PLN 130 million millions worth of land. so far, we have spent PLN 300 million, and there is still a long time until the end of the year.

The land we purchased in the first half in 2024. These were Kraków, Szczecin, Katowice, Wroclaw, Lodz, and the average price per square meter of saleable area of a flat with today's prices, our price was only PLN 1,400 is the average, obviously. And the land bank we had by the end of June this year. This will allow us to implement projects for 622,000 square meters of total saleable area.

As for dividend, obviously, the dividend policy has not changed. We maintain our policy at 70% to 100% of net profit -- of consolidated profit. On the 20th of June 2024, the General Meeting of Shareholders adopted a resolution on paying the dividend on PLN 259 million, which contributed -- which constitutes 76% of Atal's income. It is being paid out to the shareholders. The total amount of dividend paid out from IPO is PLN 1.209 billion.

As for potential of handovers in 2024, this is quite interesting because we're nearing the end of the year, and this slide shows us very nicely that most of the flats that we're planning to hand over in 2024 are already completed. Those items in gray are finished, finalized and handed over with used permit. Now the last 2 , Jagodno Enklawa and Marcelin II in light gray, these are 2 undertakings that where we have already handovers. They received the permit for use after Q2. And there's one investment where we are awaiting the permit for use. So this level -- these levels of handovers for 2024, these numbers are not threatened in any way for this year.

Specifically, if we look at the contracting level at the end of June, which was 86% of flats. So 86% of flats that you've seen so far by the end of June are already sold. And since then, the level of contracting has increased. Let me emphasize that by the end of June, that the number of flats that are not transferred, which is 1,043 flat, it's a large number, but this is the result of getting the permit for use by the end of second quarter of 2024. So these investments are being handed over until today. Most of them like 75% were contracted back then. So there's no threat -- no risk here with handing over those flats.

As for potential of handover in 2025. Here, the number of flats that we intend to complete, to finalize are over 3,000 flats with the sales contracting is being 40% at the end of June. As a comparison, let me just say that in the analogous period last year, so end of June 2023, the level of contracting was even lower because in the previous year, it was about 35%. And so potential of planned projects after 2026 -- from 2026 onwards, so these are the projects that we are planning for consecutive years, it involves 63 investments, including over 16,700 flats.

And now the second part of our presentation, where I will present the consolidated financial results of Atal Group. We reported revenues from sales at over PLN 700 million. Net sales -- gross result of sales is over PLN 200 million and net result is PLN 154 million -- over PLN 154 million. The margin on sales -- let me remind you that in the first half 2023, there was a high-margin handovers and high-margin projects, these were not average projects. They were just high-margin projects, therefore, these numbers differ are lower this year.

As for net revenues from sales -- there's an increase in the first half 2024 as compared to the previous year, and it results mainly from handing over a bigger number of flats. Net result is higher by 7% as compared to the previous year. Net margin is lower by 4.9 percentage points as a result of what I have just explained.

And let us have a look at quarterly margin by second quarter, it was 25.2%. So above the goal, the threshold, we're talking about second quarter alone because in the first quarter, it was 31.2%. And that margin by quarter is 18.6% versus 24.8% in the first quarter of 2024.

As for assets and our financial results, the balance sheet. Here, we see assets in total have increased. Current assets have increased by 8% due to inventory, but we will move on to that in a moment. And in liabilities, we see this drop by 6% of equity. That's the result of handing over under a resolution of the shareholders, the dividend to shareholders. And at the end of June, the dividend was still in liabilities because it was paid out in July. So automatically, these liabilities increased by this amount of PLN 250 million -- over PLN 250 million.

And as for inventory, there's an increase up to [ PLN 2.975 billion ]. And let me show you what they consist of. An increase in work in progress to [ PLN 2.657 billion ], which is the result of -- like I said at the beginning of the fact that we implement more and more development project undertakings and construction, ongoing construction is higher and higher. And the plan is that we start more and more new investments. That's why we have increased work in progress.

Finished products an increase again. And this results from unhanded -- flats that were not handed over -- like over 1,000 flats that were completed but not handed over yet.

Coming back to the key items from the balance sheet. Cash, PLN 533 million at the end of the first half of 2024, a decrease as compared to 2023 as a result of increase of construction works carried out. And equity financing the assets dropped due to the dividend payment and liabilities and increased by -- because of the investments and also the dividend of PLN 259 million that was -- back then was a liability in accounting terms.

As for maturity of debt, in 2024, we have no mature -- no liabilities or like bonds or loans that are being mature this year. But in 2025, we'll have [ 340 ] worth of bonds, loans granted by the shareholders, PLN 300 million. And then bank loans worth PLN 100 million.

And probably my favorite slide that shows the sources of financing our activities. I usually emphasize that it's mainly equity, almost PLN 1.6 billion and then prepayments from customers which we show in liabilities. If they increase, we put them in increasing liabilities, but these are prepayments from customers. And then corporate bonds and loans granted by the shareholder and bank loans.

Okay. To conclude to summarize our achievements in the first half of 2024, we started 15 projects for 3,200 flats -- over 3200 flats. We launched sales in 13 investments, and we finalized work of 8 investments. We have 41 ongoing -- 40 investments and 41 planned investment, and we had more than 6,600 flats in the offer by the end of June this year.

Now I would like to encourage you to ask questions. We will leave you for a minute so that you can peacefully write your questions, and we'll be back after a short break.

[Andrzej Biedronka-Tetla, executive]

We are back after the break We will be answering the questions now. Now the first question, what about bookings for 0% loan. Are they still active?

Yes, we have prolonged the program for this 0% loan. It's extended to at least the first quarter of 2025. So the customers who want to use this program 0% safe loan, they will be able to use it in this prolonged period. So there's some uncertainty in the market related to the safe loan. There are some decisions by the customers to use this program.

The next question. How many flats has the company handed over -- added to the offering in the first half of 2024. And how many do you plan for the entire year?

[Zbigniew Juroszek, executive]

In the first half, we introduced 13 projects in the offer for the total number of 3,000 flats. And currently, we have July and August, 5 more projects have been launched for 640 flats. And by the end of the year, we're planning 9 more investments.

We're assuming that majority of them will be added to the offer, but we don't want to make any declarations because we're at the final stage of completing of arranging it. But it will be added to the offer.

[Andrzej Biedronka-Tetla, executive]

There's a similar question. How many flats the company's planning to add to the offer?

[Zbigniew Juroszek, executive]

In 2025, its too far to predict. It depends on whether we introduce all 9 projects or 6 or 7 because then they will be shifted to 2025. But as a whole, we're planning over a dozen investments that we are certain that will be introduced. But in the consecutive quarterly meetings, we will probably update you on that.

[Andrzej Biedronka-Tetla, executive]

Now does the current slowdown of sales? Does it affect the number of handovers in 2025?

[Zbigniew Juroszek, executive]

Well, handovers are as planned. which has been presented in this conference as for 2024. As for 2025, we're not expecting any major changes as compared to our forecast because actually, this level of contracting is rather higher than we anticipate. It could be a little bit lower in the first half of 2026 because like 1 sale, this might -- lower sales in the last quarter might translate into 2026. But I believe that the last quarter, in 2024, and the beginning of 2025, we'll have bigger sales. So I assume that majority, or even all of those plans will be completed by 2026. So now -- for now, 2024 handovers are as planned. So we stick to it.

[Andrzej Biedronka-Tetla, executive]

Another question. What level of purchase of land can we expect in the entire 2024, assuming that we have the level of PLN 300 million for now.

[Zbigniew Juroszek, executive]

As you saw in the presentation, we've already spent more than PLN 300 million and I think another PLN 100 million will be spent on that because we have some things being prepared. So I think PLN 400 million is the right estimation for our expenses on land.

[Andrzej Biedronka-Tetla, executive]

Why do we have lower profitability in Q2 2024? Or was it a matter of specific projects?

You are well aware that these handovers are spread differently between quarters, there is some different specificity of construction in certain projects. So all this contributes to this result.

We noticed very high offer with low sales. Are you not worried that you have a lot of constructed sales with unsold flats?

[Zbigniew Juroszek, executive]

Well, this worry is in every business, but we control it. For now, we have handovers, we have sales, and we have funds. We have cash. So in the -- and until the first quarter -- well, we did not see it. We saw lower sales in July and August and September, it's better, but you know the situation. This period of waiting is decisive. And what we're waiting for, these are 2 things, not only the 0% loan projects. I will comment on that in a moment, and we don't know if it's going to be implemented or not. But we're also waiting for cheaper money, drop of interest rates. So well, you know the situation you had the conference yesterday.

So you're aware of the fact that there is a perspective in this matter. But for now, it does slow down sales. But closer to the end of the year, it's a long-term loan, so many customers calculate in this way, like for instance, yes, we'll be paying bigger interest for a year or 2. But in the long term, they assume they'll be lower, and they will cope with it.

It's not beneficial at all for buying customers, but the monetary market is as it is. And there's no situation that we produce flats without feeling the opportunity to sell them. For now, we feel it's safe. We -- our projects are diversified geographically, 8 branches. But the product is also diversified within each branch. We have lower prices, medium prices, higher prices, we have a broad range of products in our offer. So sales are, as we assume, quite safe. It's not an easy moment. Such a good company, a big company and well organized as ours will cope with it.

[Andrzej Biedronka-Tetla, executive]

There is a related question, what sales do you expect in the second half of the year and in Q3?

[Zbigniew Juroszek, executive]

Like I said, we assumed 208 -- 2,800 flats. We need to correct it to 2300 to 2,500 flats because of what happened in July and August, but it's not certain, but we might have a very strong Q4 so we might catch up, but we are assuming it might have to be adjusted, this level of things.

[Andrzej Biedronka-Tetla, executive]

What will be the gross margin from sales in the second half of the year?

[Zbigniew Juroszek, executive]

We're assuming that in the entire year, it should be like 26%, 27%. It's quite conservative anticipation and 25% all over the world -- throughout the whole world -- throughout the whole year, sorry. So even if it's less than 20% in the second half, the average net would be at [indiscernible].

[Andrzej Biedronka-Tetla, executive]

Now there's a series of questions regarding the current demand.

[Zbigniew Juroszek, executive]

Yes. So maybe I will address these questions globally. There's a lot of press releases and addresses from politicians concerning the 0% loan. I actually today listened to the Minister of Development from PSL whose defense, the sense of introducing this project on 0%, it's got so many restrictions, and it's so much dedicated to families with a bigger number of children.

If a program is attractive, it has a lot of restrictions usually. So those politicians, in a very irresponsible way, who say that this specific program might be harmful to the treasury or to the market. It's not true because it's a small amount, first of all, that the treasury will invest in it. And then the -- it's very dedicated. A small group of people, and it will be very restrictive, and it will not affect -- impact the prices in any way. And I'm really surprised to see that Polska 2050 actually is saying that it will only increase the prices. I totally disagree with it.

And what is more -- what's more and more promoted is that social flat should be built municipal or council housing, all kinds of things are suggested here. I'm really fully ready to take on the fact that on these ideas like social council housing, for 10 years, it will be the minimum amount that can be constructed. It will not affect the market in any way whatsoever. And it's not demanded and required and those politicians can think that they will gain some benefits in the polls, they are wrong because we ordered some polls and 97% of polls want to own their own flat. So what's the point of promoting social council housing, if in all polls, polls say that they want to own a flat. So every dedicated support -- and this amount here is so dedicated to a specific group or and is so small, it will be no cost for treasury.

We have VAT on all the products, construction products, all those events like from contracting, subcontracting, final sales, all the benefits for the treasury, whether companies growing that produced materials, we export them to Czechia, to Germany. If we reduce construction, these facilities and companies and entities will be in a poorer situation, so the treasury will not gain on that.

So I think we need this program. I think it's very cheap, almost costless for the treasury. And all those ideas for social housing, council housing, I think, is a political move with no chances of success.

[Andrzej Biedronka-Tetla, executive]

Now the target sales for this year, are they going to be maintained?

We said it's verified to an -- adjusted level is 200 -- is 2300 to 2,500 flats.

Is Atal going to launch new projects? We've said that.

What if there's no safe loan? It has been said, if this program 0% is not launched.

Now what projects are we planning in Bydgoszcz?

[Zbigniew Juroszek, executive]

Yes, we did buy land there in Bydgoszcz then we decided to create a branch in Szczecin, and then we invested in more land and organizing the branch. As for Bydgoszcz, we don't know yet. We just purchased the land. We want to get all the permits. And in the basic version for now, since it was purchased at a good price, perhaps we will just resell it or perhaps we will just keep it waiting. There's no decision in this respect yet.

[Andrzej Biedronka-Tetla, executive]

Part of the market are awaiting some adjustments of prices because the surplus in certain cities like too much, this dropping sales dropping demand.

[Zbigniew Juroszek, executive]

Yes, the final prices are affected by several elements. You know them. The purchase of land here, we have increasing prices because the supplies of those lands -- of land is small because municipalities are preparing for general plans, and therefore, they don't prepare some local plans and so there's less and less land, therefore, the prices are higher.

As for construction prices, they are on halt. There was an increase in 2021, 2022. From 2023, '24, the prices have stabilized. There's no fluctuation. The prices of building materials are quite stable as well. But there's other costs that are growing, like personnel costs, external infrastructure costs. Is not just roads and connections, but more and more often, it involves -- we need to do more development works regarding sewage systems, water systems, all the utilities. These costs are growing.

Since this infrastructure that we've had so far is obsolete and it has to be refurbished and very often developers are burdened with the costs and we have to burden the buyers with it, and it's always the same.

[Andrzej Biedronka-Tetla, executive]

And 3 related questions. You said about bookings of flats with -- for this program on 0%. And if it's not implemented, what happens? How many flats are we talking about?

We think this demand is on hold for now. It's not a big share in our sales in total. Most of customers are just waiting to see what happens with this 0% loan.

There's a question also about what's the level of prolonged reservations?

These are not prolonged reservations. These are development agreements. So these customers have made certain decisions regarding the purchase. They're just waiting for the program to be launched. So we're not expecting any huge levels of resignations even if this loan is -- if this program is not launched.

If somebody is hesitating, this would be booking, right, the reservation, they might hesitate. But if there's a development contract time, there will be not so much resignation and hesitation.

Another question, how big a percent of sales was for cash?

[Zbigniew Juroszek, executive]

50%, 60% in the last 2, 3 quarters, and it has not changed recently.

[Andrzej Biedronka-Tetla, executive]

And this was the last question. I rejected some questions because they are similar to those asked. I can see there are no more questions. Since there are no questions, then we will end our conference.

Thank you for participating in it, and we encourage you to contact our Investor Relations department. Thank you very much. Goodbye.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]