Current report 31/2010
Legal basis: Article 56.1 point 1 of the Act on Public Offering– confidential information
Acting pursuant to section 56.1.1 of the Act on Public Offering and Conditions Governing the Introduction of Financial Instruments to Organized Trading and Public Companies of 29 July 2005 (Journal of Laws 2005, No. 184, item 1539, as amended.)
J.W. Construction Holding S.A. with its seat in Ząbki ( the Company,the Issuer), reports that on 18 June 2010, the Management Board of the Companypassed a resolution on issuing bonds to bearer, dematerialized, unsecured (Bonds) with a total nominal value, but not higher than PLN 130,000,000. The nominal value of each bond will be PLN 100,000,
a maturity bond was set at 25 June 2013. Interest on Bonds will be variable (floating debentures), based on WIBOR 3M rate plus margin. The Bonds will be offered to be acquired only by qualified investors mentioned in the Article 8 of theAct on Public Offering and Conditions Governing the Introduction of Financial Instruments to Organized Trading and Public Companies of 29 July 2005 (Journal of Laws No. 184, item 1539, as amended.)
In the process of preparing the issuence of the Bonds, under the paragraph 9.1 of the Act on Bond, the Company is going to pass a bid documentation (the Documentation) regarding the issuance of bonds to the selected investors to whom the issue of Bonds is referred. The documentation will include the following components: i) a description of emission goals, ii) a description of the project that is supposed to be financed from the issue of Bonds and iii) the Company's selected financial data as at 31 March 2010 (the Financial Estimates), which data were published by the Company in the form of a periodical report for the first quarter of 2010 and outlook on formation of liabilities till bonds redemption.
Due to equal access for all shareholders and investors to financial data, the Company provides the following descriptions and estimates included in the Documentation.
I) Emission Goals
The investment plans of the Company for the following years 2010 - 2011 assume the beginning of development projects on a part of owned land of housing and commercial projects. The Company also monitors the market from the point of view of purchasing new plots or projects for future investments, that will allow to accelerate the development of the Issuer Group in the future
Housing projects that may be co-financedwith financial resources from Bonds issueinclude the construction of about 4300 flats.The Company plans to begin these projects gradually within the next 2-3 years. In turn, the commercial investments operated by the Companyinclude 4 office projects with a total usable area of 72,000 square metres2 and plannedhotel-commercial project in Wrocław with a total usable area of4,546 sqm. Most of the surface in this projectwill be operated by Hilton Group. Two commercial projects (including the project in Wrocław are currently in progress, another three projects are to be run throughout this year.
Above mentioned investment plans will require to incur significant expenditure. The financial resources obtained from the issuance will be one of the sources of financing housing and commercial projects and potential purchases of plots.Other sources of financing will be from equity capital of the Issuer as well as bank loans. The Issuer's intention is to gain the value of sources obtained from the issuence of Bonds in the amount of PLN 130,000,000
Regardless of submitted plans to acquire entities acting in the construction and installation sectors and the possibility to finance such transactions using funds from the issuance, at the time of preparation the Offering Memorandum, the Issuer have not taken any investment commitments in that scope i has not been conducting any negotiations in order toperform such acquisitions.
II) Description of the project to be financed by the issuance of the Bonds.
The Company prepared the developemnt projects,that may be partially financed with funds obtained from the issuance of Bonds and which include the implementation
of 20 stages of housing stages in major Polish cities, 4 office and hotel-commercial complex projects.
The activation of new housing projects will significantly enable to increase the number of flats in the Issuer's offer beginning from the turn of 2010 and 2011. The Management Board of the Company assumes that, owing to new projects and beneficial trends in the market,the annual sales of the Group in 2011 will increase to the level of over 2,000 flats. At the same time, through current lower construction costs, the Issuer's Board believes in the implementation of attractive gross margins for the prepared projects.
In the scope of office projects, J.W Construction Holding S.A. establishes
the construction of 72,000 sq m of2 usable area. The first project is currently in the course of implementing, the building of next three projects will start throughout one year. The strategy of the Company takes into consideration the possibility to draw some benefits from renting of office properties, however in case of appearance of attractive offers, the sale of such possibility will be possible. Moreover, the Company , for the time being, is going to implement (in the scope ofspecial purpose company of which 50% of shares the Issuer will obtain) the hotel-commercial project in Wroclaw. Within the project, by the end of the second quarter of 2012,there will be about 28,500 sq m of hotel surface area, which will be operated by Hilton Group, and 16,517,3 sq m2of surface in an office, commercial and housing form. At the date of drawing up Memorandum, not all conditions of the
co-operation agreement, regarding the implementation of above project, were fulfilled.
In the opinion of the Issuer's Board, the entry into the sector of commercial projects will increase not only the range of activities ofthe Issuer's Group but also its diversification level. Furthermore, the Issuer's Group will be a general contractorof all implemented commercial projects, what will allow to increase the production capacity of the company, to extend the scope of its competence and to obtain an additional margin on providing services of the general contractor.
A part of the funds obtained from the issuance may be dedicated for the acquisition of attractive plots or projects for future projects. The Issuer assumes that acquired lands will complete the housing offer of the Group starting from 2012.
The housing projects that are in the Issuer's offer, as at the date of issuance, will generate a large surplus of cash (after repayment of credits) till the end of 2011. The Issuer expects to obtain a significant surplus of cash (after repayment of credits) from currently running development projects till the maturity date of Bonds. According to the assesment of the Issuer's Board, the financial resources generated from existing and currently running housing projects will be sufficient to pay the liabilities resulting from the issue of Bonds on time.
III) Selected financial data of the Company in the scope of commitments and outlook on formation of liabilities tillthe total bonds redemption.
The total consolidated balance of the liabilities of the Capital Group of the Issuer as at 31 MArch 2010 amounted to PLN 1,019,000,000 of which PLN 206,000,000 fell on long-term liabilities, and PLN 813,000,000 fell on short-term liabilities. Credit liabilities of the Capital Group of the Issuer include PLN 102,000,000 of long-term credit that was taken by TBS Marki Sp. z o.o. that manages its own properties under separate terms than Krajowy Fundusz Mieszkaniowy.
In the scope of liabilities, the main items were as follows:
- financial liabilities in the amount of PLN 557,000,000 (including: long-term bank credit and loan liabilities in the amount of PLN 116,000,000;short-term bank credit and loan liabilitiesin the amount of PLN 246,000,000 and bill payables in the amount of PLN 132,000,000;
- trade creditors in the amount of PLN 54,000,000;
- advances that were received from the flat's recepients in the amount of PLN 300,000,000.
Consolidated and unitary liabilities of the Issuer as at 31 March 2010 amounted to PLN 930,000,000, including PLN 87,000,000 in the form of long-term liabilities and PLN 843,000,000 in the form of short-term liabilities. The main positions of unit liabilities of the Issuer included:
- financial liabilities in the amount of PLN 427,000,000 (including: long-term bank credit and loan liabilities in the amount of PLN 13,000,000, short-term bank credit and loan liabilities in the amount of PLN 235,000,000 and bill payables in the amount of PLN 121,000,000);
- trade creditors in the amount of PLN 111,000,000;
- advances that were received from the flat's recepients in the amount of PLN 291,000,000.
Moreover, the Issuer's cash balance at the consolidated level as at 31 March 2009 amounted to PLN 18,000,000.
The existing at the end of the first quarter of 2010 short-term bank credit and loan liabilities included credits granted for housing projects of the Issuer that were in the
course of the implementation and amounted to PLN 177,000,000.
The Issuer expects significant cash inflows over next two years in connection with completion of projects and sale of the remaining flats in the offer. A part of revenues from existing projects will be dedicated to repay the loans taken for realization, as mentioned above. On the other hand, the beginning of new housing and office projects of the Issuer's Group will entail the necessity of incurring new credit realization. The Issuer estimates that about40% ofbuilding expenses in housing projects and about 50% of expenses in office projects will be financed from bank credits. As a result of the above trends, the total net financial debt of the Issuer ( without including debt of the issuance of bonds as stated) should, till the end of the year 2010, decrease, while during next years it should decrease because of implementing new housing and office projects. The real future level of financialliabilities will largely depend on future trends in the property market and the scale of development projects started by the Company in 2011.
The increase in the number of housing projects in the stage of implementation will also cause the increase of prepayment liabilities from customers. The scale of growth will depend on demand for flats. Strong demand will cause higher sales before completion of the project and thus can increaseprepayment liabilities. The trade creditors also derive from the number of implemented projects and may increase together with undertaking an extensive investment program.Consequently, the Management Board predicts, that the total non-interest bearing liabilities of the Issuer's Group willsignificantly increase in the next few years, but growth rates willlargely dependon market factors.