Develia S.A. (DVL) Earnings Call Transcript & Summary

A warm welcome to the Poland ON AIR Conference. It's a real pleasure to have you here today for this roundtable session, and this session is dedicated to Develia. And we are truly delighted to have the chance to hear from the leadership team, which is the honor CFO, Pawel Ruszczak, who will share his insights with us now. So Pawel, the stage is yours.

Thank you very much, Franziska. Thank you very much to all of you. I'm really happy that you have -- that you managed to find some time to know a little about Develia. What I'm going to do, I'm going to give you a short presentation, 20, maybe 25 minutes. And then I hope we are going to have good Q&A questions. So if you, during the presentation, going to have any question, please write it down and then give me opportunity to answer to this question. One more time, I'm Pawel Ruszczak. I'm CFO and Vice President of Management Board of Develia. And I will start, if you don't mind. So the first thing I would like to show you just briefly information what really Develia is doing. So Develia is top 2 residential developer in Poland. The company was established in 2006 and then in 2007 was listed on the Warsaw Stock Exchange. At the beginning, company was doing commercial development and residential development. So we managed to build roughly 200,000 square meters of commercial space to office building or retail or mixed project. We -- as a Management Board, we joined the company at the end of 2020, and we changed a little the strategy of the company. We decided to focus on residential development and to sell out our commercial project in order to have equity to invest in residential and to increase the scale of our business. That's why at the moment, I can say that Develia is fully in 100% residential development and developer component. In the meantime, from this 2006, we built 159 phases of resi projects totaling 1.2 million square meters. And we delivered roughly 22,000 apartments in Poland. What's important from my point of view, in our land bank, we've got a land giving us option to build 13,500 apartment. How we are doing business and where we are doing business. We are operating in the major Polish cities, in fact, in 6 of them, so in Warsaw, in Poznan, Wroclaw, Kraków, Katowice and Free City. The biggest market for us is, of course, Warsaw. Warsaw is capital city, and because of that, it's the biggest city in case of supply and demand. And it's also the most important for us. Almost 40% of our revenues is coming at the moment from Warsaw. We are focused on affordable and accessible product. It means we don't have in our offer any high-end apartments. And we are also not present in low-end flats. So we are covering roughly 80%, 85% of the market. I mean this middle-market segment, from our point of view, it's the most profitable and, at the same time, the most stable markets in Poland. In 2025, we acquired Polish subsidiary of French developer, Bouygues Immobilier. That transaction was happened in July and is giving us option to increase the scale of doing business, especially in Warsaw, Wroclaw and Poznan because there were markets where Bouygues Immobilier wasn't and is Develia now expanding our business. And that map, which you can see on the Slide 3, there, I mean you've got the information about apartment under construction, so almost 6,000 in Develia, an extra 1,300 in Bouygues Immobilier and the same, the land bank, 13,500 in Develia, an extra 2,800 apartment after the acquisition of Bouygues Immobilier Poland. Develia have got stable shareholder structure and clear dividend policy. In fact, Develia is controlled by Polish pension funds. As you can see on the Slide 3 of them have roughly 53% of our shares. In Poland, according to the law, Polish pension fund cannot have more than 20% of shares or cannot vote more than 20% of shares. So in fact, this structure of investors making us the company which need cooperation between the Polish pension fund, but we've got experience and we know how to cooperate in Polish pension fund to keep good strategy and realize profits. About the dividend policy, our dividend policy is saying that we are paying out 75% of our profit. You can see on the slide how big the dividend was in each of the year. You can see that they are just growing. And the roughly dividend yield is between 7% and 8%. We -- by realizing the strategy of Develia, we are increasing the profit. And just doing this, we are also increasing the dividends, which we are paying to our shareholders. And some information about our financial situation and profit and so on. So we decided to show at this slide the figures starting from 2020 because that was, in fact, the first year when the new Management Board started doing business. So we wanted to say where the company was and what we managed to do during this last, let's say, almost last 5 years. So from our point of view, what's important is that we increased of our sales from PLN 570 million to one point almost PLN 800 million. So the scale went up significantly. It's because of focusing the business on the residential development. At the same time, we managed to improve return on equity. On the slide, you can see the ROE. We've got -- we are showing return on equity and also return on equity, adjusted net profit. This adjustment consider the valuation of commercial portfolio. So without the valuation of commercial portfolio in 2020, this return on equity was 7.5%, in 2024 above 20%. So in each year, we were achieving better return on equity. And we also managed to increase our profits from PLN 99 million in 2020. It is also adjusted profit without -- I mention one more time without effect of valuation of commercial real estate to PLN 352 million in 2024. So we are quite happy about last 5 years and what we managed to do, how we managed to improve sales, profitability and return on equity. We've got good financial and strong cash position, and it's despite the growth, which we managed to do. If you check the net debt-to-equity ratio, in my opinion, it's a quite good ratio showing how big a debt of residential developer at least in Poland is because developers have sometimes quite a lot of free cash from sale of apartments. So this ratio was 0.13% at the end of first quarter 2025, 0.06% in 2024. So it's much above market benchmark. So it shows that Develia still growth, still plenty of room to buy -- to increase our sale by increasing the leverage and using more debt to have a good profitability. In the past, in fact, we were achieving the increase of the scale rather by increasing -- rather by selling our commercial assets. So we're just selling the asset, having the money, invested the money in the land bank or in the acquisition, and that was important to create bigger sale and bigger profits. So how our performance look like? In our opinion, Develia has got strong operating performance. You can see that we managed to increase our market shares. In 2020, it was 2.6%, as you can see on the graph, to more -- to 8.1% in 2024 and almost 9% in the first half of 2025. So yes, what we did, we invested the money in the new project. We built a team who was and is able to do more business. And by doing this, we are much bigger developer. When we joined the company in 2020, Develia was top 10 developer in Poland. At the moment, as I mentioned to you, we are top 2 developer. Here, you've got some of the -- of our aims, of our targets according to the strategy which we announced a year ago. In fact, when we joined the company, I mentioned to you that we announced the first growth strategy. It was the strategy from year 2021 up to 2024. And the main target of this strategy was to focus on residential development to sell out -- to sell our commercial projects and invest the money, invest equity into residential business and increase the scale to more than 3,000 apartments. I will mention that in 2020, Develia was selling almost 1,400 apartments. So our target was to exceed 3,000 apartment of sale in 2024, and we managed to do it. As you can see on this graph above, we sold almost 3,200 apartment in 2024. And we managed to invest the money, increase the land bank, which is also giving us option to grow in the next years. Our new strategy, the main target, which I would like to point you out, is this first one. So we would like to increase the scale of our business to 4,500 apartments. So we would like to be a developer who is increasing the sales, improving the figures and improving the amount of profits and dividend to investors. Our strategy? What's important also in our strategy is that it's giving us option to develop, to increase by doing merger and acquisition. In fact, we bought the first company -- we did the first merger and acquisition in 2024. At that time, we bought the Polish subsidiary of Nexity France. Nexity France is probably the biggest residential developer in France. Polish subsidiary of Nexity was selling roughly 500 apartment per year. We bought it in 2023. In 2023 and 2024, we did -- we managed to do a merger between Develia and Nexity. At the moment, we've got one team, one land bank, and we work as also one company. And in 2025, we decided to do a second acquisition in the history of Develia. As I mentioned before, we bought a Polish subsidiary of Bouygues Immobilier, French developer, the second after -- in France, the second biggest after Nexity. And here, you've got some of the information about the transaction. So the value of transaction is EUR 65.9 million. That's how we -- how much money we paid for the Polish subsidiary of Bouygues Immobilier. The scale of a business which Bouygues Immobilier in Poland was doing was between 500 and 600 apartments in sale per year. So it should increase our scale of business by roughly additional 20%. So it should be one of the -- one of many ways to increase the scale to go to the target, which we have in strategy, this 4,500 apartments. When the transaction happened, we signed preliminary agreement in April 2025, we were waiting for the approval of Office of Competition and Consumer Protection. We received it at the beginning of July, and on the 10th of July, we bought the shares. And we -- so because of that, we're starting consolidation of Bouygues Immobilier Poland in our books from the 10th of July. So at the moment, almost 2 months. What I would like also to show you, I would like to show you where the Polish market is and how it looks like. So the first thing I would like to say is that we believe that Polish residential market is a good market to do business, and it's worth to focus on Polish residential market if you are experienced developer. One of the reason is the gap of apartment, the lack of apartments. It's from -- it's because of the Soviet history, the Communist history of Poland. So still, there is roughly between 300,000- to 400,000-apartment gap. And if you compare it to amount of the apartment which we are selling in the biggest cities in Poland, and this apartment, the lack is in the biggest cities in Poland. So we are selling at the moment in the biggest cities roughly 39,000 to 40,000 apartments. So if the sale would be at the level where it is right now, it means that in order to solve the problem, which -- of the small amount of the apartment in Poland, we need an extra 8 up to 10 years still, yes. We also believe that the Polish market is going to have a better time because of the potential increase -- sorry, potential decreases of the interest rate. So at the moment, we've got a slowdown on the market because of the high interest rates. As you can see at the beginning of 2025, we have interest rates -- the base interest rates above -- at the level of 5.75%. This year, in May and in July, Polish National Bank decided to decrease interest rates to 5%. We've got increase of the number of clients at the moment in inquiry, contact meeting in our sales office. So it's improving. It potentially is going to improve the sale on the Polish market. But analysts are saying that because of the low inflation rate, we are going to see next decreases of the Polish interest rates. And we assume here, we've got the figure of the biggest Polish bank, PKO BP, who assume that the interest rates are going to go down to 4% during next year. So it also should be extra additional boost to our side. So we are also believing that because of the decrease of the interest rates, we are going to have more and more new clients in our sales office because in fact, there is an easy microeconomy connection between interest rates and the sale of apartments, credibility of the clients and the sale of apartments. That's how the market works, not only in Poland but in the whole world, United States and Europe, of course. And it's, of course, most important as well. So that's -- I promised to take you roughly 20 minutes, yes, and we've got 22 minutes. So that's all what I really wanted to show you just at the beginning. I really -- I'm really going to be grateful if you've got nice questions. I'm here to answer all of them, even a stupid question, yes. So my colleague is saying that there are no stupid questions, so I'm ready also for all of the questions you have.

Thank you so much, Pawel, for the insightful presentation. I've received 2 questions already. [Operator Instructions] The first question that we received from the chat is, in your opinion, which of the largest Polish cities has the most promising residential real estate markets?

So maybe I will go a little down to the previous slide to show you how the Poland looks like if somebody is not really sure where the Polish cities are or which of them. So from my point of view, there are 2 cities which are the most promising one. It's Warsaw and Free City. And that's because of the number of apartments in the offer comparing to the sale of the apartment. So I mentioned to you that at the moment, we've got slowdown of -- on the Polish market. If you check the average sellout ratio selling how big is the offer to the number of sales of apartment per year, you would notice that this ratio is above 6.5. So it's showing that we've got a market of buyer. So buyers can easily choose the apartment and can do negotiation in the sales office. But there are 2 cities which are a little different where the structure of offer and sale is a little different and this ratio is lower. It's Warsaw and Free City. And there, the ratio is around [ 1.25 ]. So it means that we've got, let's say, equilibrium between the number of clients and between the number of apartment in sale. And that's the market where the risk is lower where people are more eagerly looking for a new apartment. So yes, they are the 2 markets. Warsaw, I would mention also that Warsaw is the biggest city in Poland and is the capital city, and that's the city which is just having -- just increasing the number of habitants the most. So it's taking the people from rural area, from the smaller city around, and it's also the city which is growing the fastest in Poland. So that's also another one reason why Warsaw is such a good place to do business. And as I mentioned to you, we've got roughly 40% of our business right now in Warsaw.

Thanks so much for answering this question. The second question that we have, which sales of apartments do you expect in 2026 and 2027?

I believe that because of the decreases in -- of the interest rates, which already happened and which are going to happen, I hope, in 2025 and in 2026, we are going to see increase of the -- increase of sale. It's going to be [ phased ] by the decision of the Polish National Bank. So each decrease of the interest rates are going to give a little more space for creditors to buy an apartment or to buy bigger apartment, and it's going to decrease the cost of the credit. So I believe that after each of the decrease of the interest rates, we are going to have more and more clients deciding to buy the apartment. So I assume that we are going to have better 2026 than 2025 and much better 2027 than 2026. So in fact, I'm most optimistic about 2027. I believe that we are going to have -- that 2027 is going to be a good year. 2026 is going to be good, but we are going to have the market probably going up. Of course, it's going to happen if decreases of interest rates are going to be realized as in the way as the market analysts predicting.

Thank you so much for answering this question. We have another question from the chat, if you could elaborate on this. What are potential bottlenecks to your growth targets?

Sorry, could you repeat your question? I have some...

What are potential bottlenecks to your growth targets?

I'm not sure if I understand, the...

What obstacles, what things could go into the way when you think about the growth targets?

Okay. So the problem which might happen in growth of our targets. We are -- I mean we are a residential developer, and it's important to deal with the market. It's more difficult to grow or to achieve the target if the market is difficult. And so yes, what I would like to say is that the problem on the market are going to be also the problem of Develia. In the past, what I would like to say, we managed to growth -- to increase our market share even if the market was difficult. So we -- in 2023, we were selling more than in 2020. So we know how to deal with a difficult market, but it's difficult to be really aggressive if the market is difficult, yes. So we are strongly connected to decreases of the interest rates. But good information is that inflation is going down in Poland and the Polish National Bank already started the procedure of decreasing interest rate. The another thing which is also going to affect our profitability, it's not going to affect the number of apartments we are going to sell but the profitability, is the cost of our general contractors, yes. We've got stability on the market for the last 2 years. In Poland, at the moment, we've got a lot of general contractors being interested in doing business with residential developer because the construction segment, in fact, is going down in Poland right now. So it's helping right now, and I believe it's going to help in 2025, maybe in 2026 at the beginning at least. But yes, we are -- our margins are partly connected to the situation on the construction market. The good thing is that we are [ frozening ] the prices at the beginning because we are signing contract with general contractor with a fixed price. So at the moment, we are signing the contract, which we are going to show in our profits in 2 years' time. So it's helping us to show -- so in fact, if I'm going to sign a good deal with general contractors right now, I'm going to have a good profit in 2026 or beginning in 2027 because the contract is already fixed. Yes, that's how it works.

Thank you so much, Pawel, for answering also this question. There's no further questions as of yet. This is the last chance for you. [Operator Instructions] I'm going to wait a moment. And it looks like we haven't received any further questions. So thank you so much on behalf of Airtime for listening and participating in this roundtable. Thank you to you, Pawel. I wish you all the best for the future. And I hand over to you for some final remarks.

Thank you very much. Thank you very much, Franziska. Thank you very much for joining us, all of you.