The Management Board of Unibep SA (Issuer) informs that due to the completion on 8 August 2024 of the process of aggregation of preliminary financial data carried out for the purpose of preparing financial statements for the first half of 2024, the Issuer has decided to publicly disclose the preliminary estimated selected financial and operational data of the Unibep Capital Group (Capital Group) for the first half of 2024, which were published on this day in the ESPI stock exchange system.
Below, the Management Board of the Issuer provides a commentary on the presented preliminary estimated data.
The operations of the Capital Group in the analysed period of the first half of 2024 resulted in revenue from core activities amounting to PLN 1,159.4 million, representing a decrease of 6.2% compared to the same period last year. The decrease in revenue was most significant in:
- Modular construction (i.e., the activities of the subsidiary, Unihouse SA, and separate export transactions of the Issuer) (decrease of approx. 29% year-on-year),
- Development segment (decrease by approx. 28.7% year-on-year), and
- Construction segment (decrease by approx. 1.3%), comprising collectively: power and industrial construction, structural construction, and infrastructure. Changes in revenue levels achieved in the first half of 2024 compared to the corresponding data of the similar period last year broke down by business segments:
- power and industrial construction (decrease by 25.2% year-on-year)
- structural construction (decrease by 6.0% year-on-year),
- infrastructure (increase by 63.4% year-on-year)
In the analysed period of the first half of 2024, the Capital Group achieved an operating profit of PLN 120.2 million. Compared to the previous year, when the operating profit reached PLN 27.7 million, this represents an increase by over PLN 92 million.
An important factor influencing the aforementioned preliminary estimated financial results is, however, the effect of one-time events related to the reclassification and valuation of land owned by the subsidiaries of Unidevelopment SA, as reported by the Issuer in Current Report No. 18/2024. The Management Board of Unidevelopment SA has decided to cease preparations for selected land plots intended for residential projects and to maintain these lands to benefit from their increased market value. That decision involved reclassifying these land properties from inventory to investment properties and valuing them at fair value. The positive impact of the performed operations on the presented preliminary results for the first half of 2024 is as follows:
— Operating profit: PLN 100.3 million
— Net profit: PLN 84.4 million
— Net profit attributable to shareholders of the parent company: PLN 47.8 million
The Management Board of the Issuer would like to point out that the Group’s operating profit, adjusted for the impact of the aforementioned effect, amount to approx. PLN 17 million. Considering the losses recorded in the fourth quarter of 2023 in two areas of the Group’s operations, namely the construction segment and the modular segment, this represents a significant step in improving the Group’s operating profitability as well as its cash position. The dynamics of this phenomenon are better than the assumptions outlined in the 2023 report, which was published on 18 April 2024.
In addition to the one-time effect of the aforementioned phenomenon on the analysed level of the operating profit, the results achieved in the individual business segments discussed later in the commentary also had some impact.
In the analysed period of the first half of 2024, the Capital Group recorded an increase in the management costs, reflecting a change of PLN 14.0 million compared to the corresponding period last year. This change was caused on one hand by the increasing level of employment and wages (following salary adjustments made both during 2023 and in the second quarter of 2024), but also due to the separation and reclassification of production support costs, which, since the beginning of 2024, have been recorded and monitored as general expenses of the business activities conducted by the Capital Group. As a result of reviewing all cost items, the Management Board of the Issuer has reorganised the structure and adjusted it to the current tasks and responsibilities of the broadly defined supporting departments, which has been in effect since the beginning of the current year. Currently, the construction supporting teams, which have characteristics of shared services departments, are classified under general management costs. In 2023, they were partially included in the structures of individual business segments as general costs of those segments. The new classification allows for achieving a synergy effect that will positively impact operational results in subsequent reporting periods.
In addition to the operational factors mentioned above, the Capital Group’s results were also impacted by the financial activities outcome (a decrease of approx. PLN 1.9 million year-over-year), primarily due to higher interest costs and additionally due to the valuation of financial assets, such as impairment allowances on receivables calculated in accordance with IFRS 9.
As a result of the aforementioned factors, the estimated net profit of the Capital Group was approximately PLN 77.5 million higher than the previous year. The difference between the net profit of the Capital Group and the net profit attributable to the shareholders of the parent company arises from contracts executed in the joint venture (JV), format, where the results are partially excluded from the profit attributable to the shareholders of the Issuer.
Based on the current state of knowledge and as of the publication date of this report, the Issuer’s Management Board does not foresee any risk to the continuation of the Issuer’s activities. The Issuer’s liquidity position remains balanced, while profitability indicators show consistent improvement. At the end of the first half of 2024, the Capital Group’s cash position was PLN 247.3 million, compared to PLN 120.6 million for the same period in the previous year. This position naturally offsets the financial debt amounting to PLN 400.1 million as of 30 June 2024 (compared to PLN 299.0 million as of 30 June 2023), resulting in a net financial debt of PLN 152.9 million for the first half of 2024, compared to PLN 178.4 million, and was more than 14% lower compared to the corresponding period last year.
Throughout the first half of 2024, the construction segment, which includes the industrial and power construction, structural construction, and infrastructure segments, reported sales of PLN 960.0 million, representing a decrease by 1.3% year-on-year.
The decrease was most significantly impacted by negative deviations in the power and industrial construction (decrease of 25.2% year-on-year), which includes reduced production capacities and the cessation of the Umicore contract, a result of mutual termination of the construction agreement by Unibep SA and the ordering party, as reported in the Issuer’s Management Board in current reports No. 10/2024 and No. 11/2024. This sector, which formally began operations relatively recently (in the first quarter of 2022), had been actively expanding throughout 2023 through increased contracting and acquisitions that began in 2022 and continued into the previous year. The Issuer’s current activities in this segment are balanced, and the contracts and orders are signed selectively. This is part of the mid-term strategy outlined in previous public statements by the Management Board, which aims to achieve a lasting improvement in the operational profitability of the entire construction segment of the Issuer. Therefore, when analysing the data for the first half of 2024, as well as data in subsequent quarters compared to the same periods in the previous year, an important factor explaining changes will be the effect of the so-called high base.
The revenue from sales recorded in the first half of 2024 for structural construction indicates slight change compared to the comparable data for the corresponding period last year (a decrease of 6.0% year-over-year). This area encompasses both domestic activities and operations in Eastern markets. In 2023, the Capital Group began the construction of the Polish Embassy in Minsk, and in subsequent periods, the implementation of the “Szeginie” border crossing on the Ukrainian-Polish border will commence, i.e., a contract signed in the current year, through which the Capital Group has reestablished its economic presence in the Ukrainian market. The Management Board would like to point out that, similarly to the power and industrial construction segment, the contracting and acquisitions in structural construction also employ a selective strategy. It ensures that contracts acquired for execution have safe estimated operating profitability and will contribute to a sustainable improvement in the profitability of the entire construction segment of the Capital Group in future periods.
Within the entire construction segment, there was a very strong increase in sales revenue (by 63.4% year-over-year) in the infrastructure segment. This is due to the fact that many contracts in this sector are executed in the “design and build” formula, which extends the start of construction work. Currently, many of the contracts signed in 2023 are still in the design phase, but some have entered the implementation phase, which enabled the aforementioned increases compared to the data for the previous year.
From the perspective of sales gross profit, in addition to the aforementioned decrease in total revenues for the entire construction segment, the results recorded in the first half of 2024 were negatively affected by the characteristic (prudence-based) valuation of construction contracts, which included losses estimated in the previous reporting period ending on 31 December 2023. These losses had a one-time impact on the results for the fourth quarter of 2023 due to the creation of appropriate reserves, with a neutral effect on subsequent quarters, including the first half of 2024. However, in the context of the analysed results, this means that these contracts have no positive contribution to the entire segment, especially for covering general costs, including costs of some ongoing construction projects that are still in the process of final acceptance of construction works. And it was a marginal phenomenon in the corresponding period last year.
It is worth noting that those from the aforementioned contracts, the execution stage of which had been completed in the analysed period of the first half of 2024, should no longer have a negative impact on the results in subsequent reporting periods. On the other hand, new contracts signed in the past 12 months, according to the information available as of the publication date of this report, should not deteriorate the operating profitability assumed during the bidding stage.
In the second quarter of 2024, the Management Board of the Capital Group conducted a review and update of the estimates for the valuation of active construction contracts. Some of these contracts recorded a decrease in operating profitability, which negatively affected the overall operating results of the Capital Group for the analysed period of the first half of 2024.
As a result of the aforementioned factors, the gross profit margin from sales decreased, indicating a drop from a gross profit margin of +2.7% to +1.2%, including:
- The industrial and power construction segment: a decrease in gross profit margin from a gain of 5.5% to a loss of 12.1%;
- The structural construction segment (domestic and export): an increase in the gross profit margin from 1.6% to 3.2%
- The infrastructure segment: an increase in the gross profit margin from a gain of 2.1% to 7.7%.
Notably, in the first half of 2024, within the construction segment, the Capital Group secured contracts with a total value of approx. PLN 1.1 billion (significantly more than in the corresponding period last year). Thus, the backlog of orders for this segment for the upcoming periods reached a value of approximately PLN 3.7 billion, representing an approximate increase by 21% compared to the similar period last year.
The sales of the development segment in the first half of 2024 amounted to PLN 140.8 million with PLN 197.6 million in the corresponding period of the previous year. The segment’s revenue decline of approx. 29% year-over-year was in line with the assumptions derived from the schedules of ongoing development projects. In the first half of 2024, the residential units delivered to clients were from more profitable development projects compared to the same period in 2023, as evidenced by the achieved gross profit margin of 31.6% versus 25.0% in the first half of 2023.
In the results for this segment in the first half of 2024, the Capital Group recognised the sale (handover inspection reports) of 201 residential units, compared to the sale of 432 units in the same period of 2023. The abovementioned financial results are mainly influenced by the handovers in the following investments: Idea Venus estate and Idea Ogrody estate in Radom, Pauza Ochota estate in Warsaw, and the project developed under the joint venture model, Fama Jeżyce 3 in Poznań (handover inspection reports), where 146 residential units were delivered.
In the current period, the developer sales reached a volume of 153 residential units (including 48 within joint ventures), compared to 198 units (including 105 within joint ventures) in the similar period of 2023.
In the first half of 2024, the number of residential units sold was influenced by factors such as customers delaying purchasing decisions, including issues related to the availability and cost of mortgage loans, as well as a lack of clear information regarding the introduction of the “Mieszkanie na Start” government programme.
We are closely monitoring the preparations for the “#naStart” loan programme and await further, more specific information regarding its implementation. Although the lack of final information regarding the implementation of the mentioned programme contributes to customer uncertainty, it does not have a crucial impact on the strategy of Unidevelopment SA. Given the potential of the housing market, in the second half of 2024, companies within the Unidevelopment Group are continuing to pursue their plans for launching and placing subsequent investments on market.
As a result of the financial data aggregation process, preliminary estimates for the first half of 2024 indicate that the Unidevelopment Group achieved an operating profit of PLN 141.6 million during the analysed period, compared to PLN 38.9 million recorded in the similar period last year.
The greatest impact on the level of operating profit in the first half of 2024 had the decision of Unidevelopment Group to cease development activities on selected land properties and to hold these properties to increase their value. The result of this decision was the reclassification of the aforementioned properties as investment properties, leading to their valuation at fair value.
Additionally, actions were taken to sell part of the land bank through direct transactions, which resulted in the sale of a property in Coopera Street in Warsaw in the second quarter of 2024.
In the first half of 2024, the modular segment managed and overseen by Unihouse SA achieved sales of approx. PLN 89 million, which is about PLN 36 million less than in the corresponding period last year (decrease of 28.9% year-on-year). Operating profitability reached PLN minus 0.4 million and was significantly better (by PLN 11.6 million) compared to last year. After adjusting for depreciation, the EBITDA (operating profit adjusted for depreciation) shows a positive value of approximately PLN 2.0 million.
In the second half of 2023, Unihouse SA undertook a series of reorganisation measures to adjust the production capacity of the plant in Bielsk Podlaski to current economic and market conditions. This has resulted in lower sales on one hand but, more importantly, in significantly improved profitability at the EBIT level. The production volume of Unihouse SA in the first half of 2024 amounted to 5,598 m2 (decrease of approx. 70% year-on-year).
The Management Board wishes to highlight that the abovementioned reorganisation measures, which are being consistently continued in 2024, are yielding the expected results. The operational effectiveness, as measured by the EBITDA indicator, has been achieved by the manufacturing plant earlier than anticipated.
Management Board of Unihouse SA has been intensively expanding its penetration of the Polish market. Works are also being continued in the Scandinavian and German markets. The Management Board wishes to point out that despite the significant year-on-year decline in production, Unihouse works on contracts signed in previous periods, while maintaining a positive operating margin. Additionally, during the period in question, the level of contracting amounted to approx. PLN 14 million, which translates into a backlog of orders for execution in future periods worth approx. PLN 48 million.
In the first half of 2024, the level of contracting was lower than in the previous year. However, after the balance sheet date, two contracts worth PLN 43 million were signed, and several other significant contracts are being prepared in the Polish and German markets, which are expected to be resolved in the third quarter of 2024. The Management Board of Unihouse SA positively assesses the prospects of focusing acquisition efforts on the Polish and German markets, where the Unihouse SA is already known. In the area of projects to be acquired, there are contracts with a total value of nearly PLN 500 million.
THE OUTLOOK
The Management Board of the Issuer, as well as the management boards of the subsidiaries forming the Unibep Capital Group, will continue to pursue a policy of choosing contracts selectively in the construction and modular segments, ensuring optimal economic outcomes. Such a policy might slightly limit the development dynamics of construction and modular activities on one hand, but on the other, it will positively contribute to improving operational profitability in future reporting periods. In the case of the development segment, the Management Board will continue to implement sales plans in accordance with schedules for individual investments and a carefully considered pricing policy for individual customers.
As previously mentioned, in the entire first half of 2024, the Unibep Group acquired contracts in the construction segment with a total value of approx. PLN 1.1 billion. Consequently, as of 30 June 2024, the backlog of orders for upcoming periods amounted to approx. PLN 3.7 billion, compared to PLN 3.0 billion as of 30 June 2023. At the same time, the value of contracts pending signature, where the Issuer’s offer ranked first in the bidding process, exceeds PLN 0.74 billion. And new orders totalling PLN 0.1 billion have been acquired and signed just recently from this group of pending contracts.
In the opinion of the Management Board, the greatest prospects for contracting lie in the infrastructure and relatively good in the power and industrial construction segments. Under the infrastructure segment, the value of contracts already signed in 2024 amounted to PLN 0.66 billion as of 30 June 2024, while contracts currently pending signature total an additional PLN 0.1 billion. Once the remaining contracts are signed, the backlog of orders in infrastructure will total approximately PLN 2 billion, which the Management Board believes will allow for stable operations over the next three years. In the coming quarters, the infrastructure segment will focus on leveraging the potential related to geographic diversification and further increase of the share of large contracts in the backlog of orders.
In the power and industrial construction segment, the Capital Group is currently engaged in advanced discussions on several large projects, including those involving potential technological partners. The Management Board of the Issuer continues to see significant opportunities in placing offers in the energy sector, including power transmission and distribution, cogeneration, and renewable energy. As of 30 June 2024, the value of contracts signed in 2024 amounted to PLN 0.1 billion, while contracts currently pending signature total an additional PLN 0.5 billion. After their signing, the backlog of orders in this area will amount to approx. PLN 0.9 billion
In the area of structural construction (domestic and export), contracting activities will focus on a selective approach to new orders and on seeking projects with the highest bid profitability. As of 30 June 2024, the value of contracts signed in 2024 amounted to PLN 0.3 billion. Additionally, contracts currently pending signature and signed after the balance sheet date total PLN 0.2 billion. Considering these contracts, the order backlog in this area will amount to approx. PLN 1.53 billion.
The Management Board of the Capital Group will continue difficult negotiations on several active contracts in the construction segment to agree with the ordering parties on adjustments and relevant amendments increasing the value of orders. The impact of these actions is difficult to assess due to the rigidity of the existing contract provisions.
The Management Board of the Capital Group anticipates continued stable growth, and the achievement of goals set for the development segment. It is worth noting that the development scenarios for this segment include new cooperation models with external partners. This pertains to both joint project ventures and the potential involvement of an external minority partner to give momentum the activities of the Unidevelopment Group. The primary goal is to launch new expansion directions into other complementary residential segments or facilitate the acceleration of territorial expansion in the Polish market.
Nevertheless, the anticipated pace of growth for the segment may experience a temporary slowdown due to the observed weakening in the dynamics of the development market in Poland. The significant decline in demand for residential units, already emerging in the domestic market since the second quarter of 2024, combined with the process of rebuilding the housing supply by development companies, has resulted in a halt to the price increases for residential units per square metre that had been occurring over the past few quarters. This phenomenon is already amplifying the downward trend in housing prices and could relatively quickly lead to a decline in the operating profitability of developers.
We attribute the limited demand to the persistently high interest rates on mortgage loans, relatively high housing prices, and a concurrent decline in demand for residential units due to some clients delaying their investment decisions while awaiting the launch of a new government programme.
For the subsidiary Unihouse SA, efforts are ongoing to develop an optimal scenario for the further growth of the modular segment. These efforts also include options related to the potential involvement of an external business partner or changes in the ownership structure, which were initiated at the end of 2023. Currently, this process is at the stage of due diligence being conducted by prospective bidders; however, no decisions in this regard have been made yet. At the same time, based on the implemented market segmentation program, the contracting strategy is being executed, which focuses on the German and Polish markets. Based on this, the Management Board of the Issuer expects that the indicated bidding activities will secure module production to the extent necessary to achieve operational breakeven
In the first quarter of 2024, the Management Board of Unibep SA conducted a thorough review of internal processes, ranging from the acquisition process to collaboration with support teams, and ending with oversight on construction sites. The main internal optimisation activities continuously aim at restructuring the financial control system and strengthening operational control processes as well as risk management processes. Their main goal is to achieve a synergistic effect. The Operational Controlling team has now been fully established. This team, in collaboration with contract management, conducts regular reviews of construction contract estimates, analysing in detail all risks and opportunities that could potentially impact future operational results.
The Management Board of the Issuer wishes to point out that the presented financial data of the Capital Group represents a true and accurate reflection of the knowledge held in this respect as of the publication date of this study.
The Management Board of the Issuer is confident that the aforementioned measures will yield measurable benefits in 2024, both financial and performance-related, and will contribute to sustaining the trend of improving operational profitability across the entire Capital Group in the coming quarters.