Polnord Looks for Growth In Russia

WARSAW -- Polish developer Polnord wants to boost gross profit by at least half next year as it taps Russia for growth to offset the weak local housing market, chief executive Wojciech Ciurzynski said Thursday.

Ciurzynski said the company was trying to lift its gross profit, or sales minus costs of goods sold, above 50 million zlotys ($20.42 million) in the third quarter and expects 200 million for the whole year.

Polnord, controlled by Polish billionaire Ryszard Krauze, is battling weak new homes sales, which account for 60 percent of its revenue, by expanding into the construction of office buildings, shopping centers and hotels.

The company has won building contacts in Russia and is also looking at potential entry into Ukraine, Ciurzynski said, adding that Polnord wanted half of its profit to come from abroad in the next three to four years.

"We have other sources of profit [than selling apartments]," Ciurzynski said. "That's why we estimate that ... next year our gross profit will be higher, maybe not twice as high, but at least 50 percent higher than this year."

Local home builders, including Dom Development and J.W. Construction, have been slashing their sales forecasts in recent months as Poles who bought apartments as an investment have been selling to take advantage of a rapid rise in prices, flooding the market with properties.

Ciurzynski said weakness in new apartment sales should continue for the next year, but looking at the growth in mortgages and an improving economy, the demand for housing showed no signs of waning.

"That is why those developers, who have the cash do not cut their prices," he said. "Polnord's policy is to keep profit levels that are not lower than what we told the banks, and that means 10 to 12 percent in net margins, and we stick to that."

The company has seven contracts in Russia worth $200 million and wants to double their value as it seeks deals to build a housing development in Moscow and an office building in the country's northern exclave of Kaliningrad, Ciurzynski said. "In Russia, the construction costs are low. Gross margins reach 30 to 40 percent [compared with] around 20 percent in Poland."

Ciurzynski dismissed worries that the company could suffer from the current political and economic concerns, which have sent Russian stocks tumbling, saying the company had cash on hand to finance its projects there.

"That market is so huge and the needs are so large that even such turmoil won't have an impact," he said.

Polnord shares have fallen 67 percent this year as sentiment toward local developers soured.