Atal SA

WSE:1AT

Q2-2025 Earnings Call

[Operator]

Good morning, ladies and gentlemen, starting the summer of results conference for the first half of 2025 for Atal Group. As usually, as every quarter, we have the CEO of Atal, Zbigniew Juroszek, with us. Good morning and CFO, Andrzej Biedronka-Tetla [Operator Instructions]

[Unknown Executive]

As you all know, we will have 3 parts in this meeting. First, we will give a presentation to show you the summary of results for the first half of the year for Atal Group. Then in the second part, Mr. Zbigniew Juroszek will comment on the current situation for Atal and on the market. And in the third part of our meeting, we will ask you -- we'll invite you to ask questions at the very end of the meeting.

So let's start with the presentation and with operating activities as usually. As you are well aware, we have investments in 8 branches of the Atal Group.

Currently, all the date and all the data sets up, that's the data for the end of June. We had 52 undertakings at that point, the total number of 10,402 flats. We have 13 new planned new investments for more than 10,000 flats. As for sales of flats, we will probably say more about it in the discussion part. But in the first half of 2025, we have sales at a level of 735 flats, the decrease as we've mentioned a number of times, it's due to those high interest rates that limited the possibilities of taking loans in the buyers and our customers are usually those who take loans and buy flat for their own needs. So when you compare the quarters in Q2 2025, we contracted 3,098 flats. As for our flats in offer, you know very well that we are building, we have a lot of ongoing undertakings, more than 50 construction projects.

And here, most of them, they will be finalized in 2026. Therefore, the flats in offer and flats in construction, they increased up to 8,688 flats. As for handovers, in first half of the year, you obviously know the number, 610 flats in total that will allow us to report revenues at the level of PLN 390 million. And these are flats that were mainly handed over in Przewóz and in [ Lódz ]. As for handovers of flats in the first half of 2025, it was 610 flats. And this level is a decrease as compared to the first half of the previous year.

We did tell you about that this is -- that goes together and [ results ] from the schedule of handovers and the schedule of finalization of construction projects. Most of the flats will be handed over in Q4. In Q1 and Q2, the numbers were lower and the drop of handovers was at the level of -- the drop was by 50% more or less. As for the total salable area that we handed over in the first half, it was a drop by 54%. So the area was smaller than last year.

As for new lands in this year or in this first half, PLN 108 million have been spent on buying new land, and we're estimating that this land will allow us -- this is the land that was purchased until end of June 2025, we can build 59,000 of total saleable area of flats. In this half of the year, we purchased land in Kraków, Wroclaw, Warszawa, and Gdansk and the average price of purchase of useful area of 1 square meter was still at a very good level, PLN 1,844 per square meter.

And when we look at the end of June, 30th of June 2025 and the land that we have for that day, we could build 552,000 square meters of flats. In the recent days, the Atal Group paid out the dividend at the end of -- the dividend day was on 3rd of July. And the dividend was paid yesterday. And the dividend for 2024 that we shared with the shareholders was PLN 238 million. The amount of -- the total amount of dividend that has been paid since our IPO is PLN 1.447 billion. It was paid in every year apart from 2020, which was the COVID year. As for the potential of handovers in 2025, these are projects under construction as at 30th of June 2025. The dark gray projects are projects that are finalized, they are being handed over. This lighter gray, these are investments that are to be finalized in Q3 with the permit for use also. So this 3,447 flats -- that's a total number.

Most of them will be handed over in Q3, but mainly in Q4 on 2025. As for the number of flats that have not been transferred as the balance sheet date, 30th of June, that's 638 flats. But those that have not been sold were 353. All the remaining ones were sold already and are in the process of handing over to the owners. And the potential handovers in 2026, we have quite a significant number of projects, 2 slides, more than 6,000 flats. Some of the projects will be finalized in 2026. Some will -- some were accelerated a little bit, and they will probably finalize in 2025, 2 or 3 investments will contribute to the potential of 2025. For now, it's planned to finalize them in 2026, so they are displayed and included here. But during the next meeting, we will probably give you information on them being transferred to 2025 numbers.

As for the total potential of handovers of the projects, we're planning after 2027, that's 51 projects, 12,000 flats. And now let's move on to the second part of the presentation, consolidated financial results for the Atal Group. And as I mentioned, 610 flats handed over to our purchasers translated into PLN 390 million of revenues and the net -- sorry, gross result of sale is PLN 133 million also, even though there was a drop in revenue regarding the handed over area, revenues dropped by 44%. As you remember, the drop in area handed over that's more than 50% and the revenues dropped by a smaller amount by 44%.

So we increased the cost discipline because they dropped by 49%. And as a result, gross result of sales dropped by only 34%. So we have a record high margin of sales, which was more than 34%. Obviously, what you can see is stabilized cost of sales and general management costs and operating results, PLN 108 million and financial costs, we financed most of it, but the cost is due mainly to a reverse accounting notes that like PLN 37 million, like the items -- accounting items were like PLN 31 million regarding discounts and of the interest and cash loans, that's just PLN 7 million.

Here, as you can see, a similar period in 2024. It was a period when we acknowledged it in -- when we included in the accounting books, the financial revenues. Now we're reversing these items because the advanced payments are shorter than the end of the year. So this is less than 12 months this period. So according to the International Financial accounting standards, we need to do reverse accounting regarding the discounts on advanced payments that we received from the customers. And therefore, the financial net result was PLN 57,485 million. That's net margin at the level of 14.7%. If you have a look at net quarterly margin for Q2, it was almost 16% of net margin and gross margin for Q2, it was higher than in the first half of the year alone, and it was 35.4% in Q2. So this is a record high.

When you look at the financial results and the balance sheet, we obviously have more assets. They have increased due to inventory increases. You will see on consecutive slides how they look like and liabilities, what we have mainly the liabilities that financed those assets and production of flats, but we will break it down into details, but drop in equity due to the dividend that has been paid out since the resolution of the shareholders' meeting spoke about paying out the dividend of PLN 240 million. And here, obviously, equity is lowered as at the balance sheet date and the payment of dividend was paid out in -- was in September. So it's also included in liabilities. So it's kind of artificial, but it increases the liabilities by PLN 240 million.

But that ratio is increasing because we have more and more construction sites. We have a huge number of undertakings ongoing that will be finalized mainly in next year, and it's 0.28, the net debt ratio. Now more detailed information from the -- on the financial results, an increase in inventory as compared to the previous year, we have PLN 4.215 billion, cash at the same level as last year and the drop in equity at the cost of liabilities that have increased by PLN 240 million, which was the dividend that was paid out on the 3rd of September.

And if you have a look at inventory in detail, PLN 4.215 billion. This is mainly ongoing production, flats that are being constructed and that will be handed over in Q4 this year in 2026 and PLN 3.912 billion and finished products, that's PLN 300 million, more than half of them are flats sold. As a structure of debt maturity as at 30th of June, we had EUR 72 million of bank loans that are mature in 2025, revolving credits mainly. EUR 200 million of loans granted by the shareholder mature as well. After the balance sheet, they -- these -- they were shifted to be repaid in 2026 and EUR 260 million of bonds that are to be redeemed this year.

The current financing of the increase in inventory is at the site of the shareholder that finances the company's operations by granting loans. And the increase in the debt to the shareholder is visible here. Here, if we summarize the financial sources, these are mainly equity, but also apart from prepayment from customers, also loans granted by the shareholder, also bank loans and corporate bonds. And just to summarize the number of construction projects. As you can see, in the first half of the year, we started 7 projects, encompassing 957 flats we launched in sales and investments covering 1,738 flats, and we finalized 9 investments, 1,403 flats.

And now I will give the floor to Mr. Juroszek to comment on the current situation, and then we'll invite you to ask questions.

[Zbigniew Juroszek, executive]

Okay. Good morning, ladies and gentlemen. Once again, I would like to comment on what's probably the most interesting to you, the current sales situation and also the number of our projects that are being carried out and will be sold and handed over in 2025 at the end of the year and 2026 at the beginning of the year. As the current situation is being monitored on an ongoing basis, and we reported to you. It was -- it has been difficult from the beginning of the year, but we assumed that in the middle of the year, we did shift to Q4 to 2024 and to the entire 2026. I'm speaking about sales. We wanted to shift to those sales, hoping that this would give us a broader range of customers. Obviously, like April, May and June, it didn't make any point to fight for customers because it was involved bigger discounts. So it was better to wait for a moment when there would be more people wanting to buy flats.

So now we come back to the current situation. According to what we expected, perhaps it's a little bit slower because we assume that August would be the month that will start accelerating sales, but it only happened after mid-August. I think it was the time of summer holidays, but I think that, that was a contributing factor, but reservations started increasing. And in the last week of August and the first week of September, we can see there's an increase in interest. As for the numbers, the first numbers will show up in a week or 2 to see how much the sales have increased. But you see in the balance sheet, how much we have sold.

We need to review it carefully, even assuming that in September, October, November, December, it will be probably by about 50% or even 100% higher than in the previous months. So 2,000, this is the maximum challenge for us. It will be a little bit fewer flats that we assumed because we assumed it would be 2,300 or 2,500. These forecasts varied. But the most important thing is that as for the construction process, this is flawless. All the projects are being finalized as scheduled.

Some projects that were to finalize in Q1 next year. Since we have very good weather and good situation with the contractors, we will be trying to finalize them this year to make a bigger number of handovers. So as for construction and organization, it all works fine. Obviously, we have a huge supply for plan for 2026, but we assume that first decisions of customers were postponed because everybody was waiting for the supportive scheme -- government scheme. There were several proposals, but none of them was adopted. Well, we need to accept it.

So now these customers are kind of accumulated. If there's no problem, customers will need to -- will have to make decisions. And then there are the interest rates, customers were waiting for lower interest rates. We don't see as many decreases in interest rates as we would like to, but we already see some decreases. So that people can have higher loans and it costs less. And there's a perspective that the cost of loan will be even decreasing even more. So this settles down the customers. So those mental psychological barriers are gone.

Now we're talking about real supply and real sales. The supply is bigger on the market than the demand, but it will be changing slowly because the number of projects launched is decreasing and some more attractive in terms of price projects are being exhausted slowly. So we think that the breakthrough will be like the end of October and beginning of November will give us a shift in the curve of sales towards bigger demand for sale -- for flats. So this excess will decrease or it will be even.

Well, as compared to the previous quarter, and not a lot has changed in our strategy. Our strategy was to finalize the projects that we started. There is no kind of excess that would be dangerous. We have 300 flats that are built but not sold. So regarding the whole scale of our undertakings, operations, it's not a burden to us. We're assuming that in Q4 and in Q1 of the next year, we'll have higher sales, and there will be more handovers of flats. And we assume that all those projections will be -- will improve. That's what we count on. I think that the current scenario that we see is pretty good. So much for the introduction. And then we will tell you more in response to your questions. So now we would like to invite you to ask questions in the Q&A.

[Unknown Executive]

We are back after a short break. We start with the question, how -- what percentage of flats are contracted among of those that are to be handed over in 2025 and '26. In 2025, the level is about 60%, but those investments that are being finalized in those projects, we have contracting increasing at the very end of the year. So this is a kind of a change as compared to previous years. As for 2026, it's about 20%, the level of contract. Now a request for the comment on the record high gross margin. What was it due to? Was it due to the mix of projects or lack of capitalization of interest?

[Unknown Executive]

Well, we always capitalize them. This is our rule. So it's not like we do not do it in one quarter and we do it in other quarters. We capitalize all the interest in inventory, and we updated the risk regarding the production of flats. I presented it in the previous slide, the EUR 7 million of interest in financial costs. These are interest that do not finance the projects, but all the other interests are capitalized in the construction production. As for the first part, the profitability of the gross margin, what was it due to in the first half of this year and what we anticipate for the next part of the year -- of the second part of the year. You know that the cost discipline is maintained, contained and the market is favorable in this respect and construction costs were not increasing.

And I told you that the drop in costs was quite higher. So the profitability of the projects, mainly Warszawa and [ Lódz ], but we -- so it was better than assumed and the budget show us bigger profitability on projects that we are to finalize in 2025. So this is almost certain, but also the projects for 2026, this is a similar situation. As for the second half of 2025, we are envisaging about 28%. The budgets even show a little bit more. But we will see if it's not higher.

[Unknown Executive]

What was the increase -- decrease of the average price of a flat sold on average in the first half of 2025?

[Unknown Executive]

If we look at the average price of a flat sold in the first half of 2025 as compared to the end of 2024, we can say that it's constant. It's like a drop by PLN 30 maybe. So -- but it's very close. We compare different flats, different locations, but we can say it's the same. It has not changed in gross amounts.

[Unknown Executive]

What gross margin from sales and net margin for the company is the target for 2025 in the second half? What are the projects in Plus and that contribute and decrease the margin?

[Unknown Executive]

Well, like I said, we're increasing the profitability as to what was assumed, we were assuming in the budget. We usually assume some provisions for extra costs. When we know that the production is shortly to be finalized, we can give it up then. Now in the second half of 2025, the amount of reverse discounts from advanced payments from customers can also be close to EUR 30 million. It's an interesting question, but it's hard to answer it because it all depends on what kind of flats we sell, which flats will be bought by the customers?

[Unknown Executive]

Will they be the ones that are to be sold within 1 year from the balance sheet date or more than 1 year? Or are they -- are the customers going to pay advances? Or will they use the 20 to 80 formula of payment?

[Unknown Executive]

It all depends on what the customers select, what they choose. So I can also add that -- before that, the schedules were always the same, and there was a balance regarding the discounts. There was more balance regarding the discounts. But now when customers buy flats that are closer to finalization, so this element of financing is less than a year, we -- there's no like kind of balance as such. And if customers don't pay advances, there's no discount. So it's a difficult question to answer really because it's just kind of fortune telling about what the customers will be willing to buy, which we cannot predict.

[Unknown Executive]

How many flats is the company planning to introduce to the offer of sales in Q3, Q4 in 2025?

[Unknown Executive]

It's not a lot. It's several hundred flats. And at the beginning of 2026, it's not going to be a big number. We have all those accumulated. We shifted them. We postponed them. Now there'll be a cycle to introduce very few flats just to supplement the offer as for bigger injections of flats end of 2026, '27 and '28. So these consecutive quarters will not have a lot of flats introduced to the offer.

[Unknown Executive]

What the scale of funds that the company would like to use for land purchase in 2025?

[Unknown Executive]

We have finalized it this year. There's just an amount of about PLN 10 million to close 1 transaction. So yes, we've actually finalized spending money on land. And now the idea of Katowice was imposing tax that have not been handed over for the customer and before the notarial deed.

[Unknown Executive]

After it's handed over about before notarial deed, what about this idea? And how can it affect the company?

[Unknown Executive]

We've heard about it for a few days that based on legal analysis, not only ours, but various legal analysis, it's a faulty interpretation because we produce flats. We get a building permit for flats. We build flats. We get a permit for use -- first building permit, then permit for use. And then we get the permits for flats individually. So we are present as developers in the cycle -- administrative cycle of flats. And it's not like it's transferred to somebody who rents those flats and commercializes them, perhaps then it would be an issue. But if we sell them, it doesn't matter if we sell them sooner or later. So the interpretation of Katowice is faulty and we're not afraid of it.

[Unknown Executive]

Are the costs of construction stable or increasing?

[Unknown Executive]

They're not stable. In some places, there are some corrections. We can see there's quite a lot of margin for kind of discounts and rebates. We have good profitability because the cost of construction are very good.

[Unknown Executive]

Are the prices of land increasing?

[Unknown Executive]

We don't see that. We actually see something quite opposite. If the crisis of -- last for a quarter or 2, not much changes on the market. And the situation since the beginning of 2024 is like 2 years almost, and we see projects from small and medium-sized developers that are reducing their resources. They're not introducing new offers. They're reducing their land offer and they try to sell them. Prices vary. There are no huge drops because the situation was quite good on the market for quite a long time. So the motivation of the sellers is not very strong to correct the situation very significantly. But we can say that at times, we can supplement the bank of land at average prices, maybe not low prices, but they're not increasing these prices.

[Unknown Executive]

What will be the demand for the working capital for the second half of 2025?

[Unknown Executive]

If you read the financial statements after the balance sheet date, we have taken some extra loans from the shareholder. But we're assuming that there will be PLN 300 million, maybe PLN 400 million more of such loans. It will obviously depend on the inflows of funds to the company. It's a process after some legal changes where the customers don't pay those funds on their own, but at the request of the bank, that's when they do it and then banks withhold those funds. So this doesn't -- is not favorable.

So additional loans to inject the working capital will depend on that. But according to our projections, it's going to be PLN 300 million or PLN 400 million of loans granted by the shareholder. And we do realize that it is a high level of debt, but these are mainly loans from the shareholders. It's almost like "equity like," but we can kind of treat it almost like that. And we have acknowledgment from the shareholder that he will be granting such loans, and we're not afraid of repayment of such loans because our cash flows and sales put us in a safe position regarding that, and we can return those loans based on the flats that are already sold.

Maybe I will not give you the exact number, but this will be close to PLN 1 billion and the flats that we will be selling even at the average level of sales, these will be cash inflows at the level of at least PLN 2 billion. We're actually estimating it's going to be more. So we are not worried about that. And just to supplement what has been said in the cycle of production of flats, it's enough if from October, November, several new investments are finalized.

So expenses finished there and new expense entries are not added. So the curve of expenses will be changing at the end of October and beginning of November, and therefore, the revenues as compared to expenses will be increasing. Now the total amount of funds for purchase of land in 2025, it's going to be more than PLN 200 million. No, it's going to be about PLN 150 million, and we're not planning any more purchases of land.

[Unknown Executive]

Is -- should we expect dividend payment for 2025?

[Unknown Executive]

It's not a question to us, but to the shareholders' meeting. But historically, I showed you that the COVID year was the only year when we did not pay dividend for understandable reasons. We use 70% to 100% of profit for dividend, and it all depends on the number of flats handed over in October, November. If there are higher sales and handovers, we will have the same approach to dividend.

[Unknown Executive]

And one last question. In 2025, are you expecting to hand over [indiscernible] [ 2,500,000 ] flats?

[Unknown Executive]

As you remember, the plan was 2,400, but the plan is to hand over about 500 flats in Q3 and a great number in Q4 also. But it all depends on customers, obviously. But if we manage to do it time-wise, but we are prepared in Q4 to service all those flats. And I've also mentioned 3 undertakings, 3 projects that might be finalized sooner than 2026, which might increase the potential of handovers for 2025. And usually, Q4, well, it usually has the biggest number of handovers.

We tried to set the schedule so that November, we have those opportunities already because sometimes we plan something for December, but then there's Christmas period, and it already starts mid-December. So it makes things complicated. It's like customers, well, they very often go on a holiday or are not interested in that stuff. They're thinking about Christmas already. So we accelerated several construction works so that we can hand them over in November before the Christmas period. So the level of handovers, it's up to date.

We're assuming that sales will be a little bit lower than we assumed because those May, June, July, August still are kind of a burden. But we assume that sales will be according to schedule at the end of the year. So we will increase this number to 2,000. And if handovers are to be as scheduled, and there are no delays here, it should be the same as what we published.

[Unknown Executive]

And in Q4 it is 1,000 to 1,300 flats. And in 2026, is it realistic to hand over about 5,000 flats?

[Unknown Executive]

It's a difficult question. We can assess the situation in 2025 because there was an accumulation of events, and we hope that we will rebound based on it. But in 2026, we're assuming the market will be much better. Supply will be dropping. Projects are being reduced. So it's happening. Now if the economic situation of the customers is positive, it is realistic, but it's very difficult to refer to this question. I think it's a little bit too early. I think during the next conference, we'll be able to tell you more precisely.

[Unknown Executive]

That was the last question. One last question. In 2026, are you expecting to sell 3,000 flats?

[Unknown Executive]

Yes. That's something we're not afraid of the sales scenario because with the offer we have and the corrected market, I think we can assume sales at this level. The previous question is more difficult regarding handovers in 2026 because it depends on many things.

[Unknown Executive]

Okay. I see no further questions. Thank you very much then for participating in the conference. And as usually, feel free to contact us for more details. And feel invited to join us for the conference in -- after Q3. Goodbye.

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