Judged on the last match

Ewa Andrzejewska, Eurobuild CEE': How do you measure a company's success?
Michał Sołowow: This is a complex and extensive question. In my opinion different measures should be applied for different companies at the various stages of their development. These measures are of course the figures that describe their worth. For a company that develops and invests rapidly, the measure of success will be its EBITDA, whereas for a business entity developing in a stable manner and that has a significant share of the market the gauge will be its EBIT and cash flow. The measure of success of companies that have achieved a high level of development will be the amount of dividends paid and the growth in the value of their stock.

Are such factors as completed projects or the company's reputation, not to mention human capital, of no significance at all?
The world is developing very dynamically. Everything is happening very quickly, faster and faster, and companies - just like sportspeople - are judged on their performance in their last match. What was happening five or ten years ago has some significance, but it is not of the utmost importance.

Has Echo Investment has been a success
according to your measurement system?
Yes. Echo is a successful company. I'm measuing this by the stability of its results and the quality of the projects it develops.

How will Echo change in the near future? Will it be similar in five years' time?
Echo's operations for the next five years have virtually all been planned out. We have a land bank and confirmed development plans for 66 projects, and this will be shown on our income statements over these five years. Of course, some of the 66 projects will not end up being developed because of market changes, and some of them will eventually take a different form from how we imagine them today. But the vast majority will be finished on time.

Do you plan to expand your operations by entering new areas or foreign markets?
This is a funny question. This way of analysing a company is based on the media's criteria rather than the actual quality of the developed projects. But there is no such evaluation criterion as foreign expansion - there are good and bad projects or, to be more precise, profitable and unprofitable ones. I remember when GTC was expanding abroad, giving it the title of absolute market leader because it was investing in shopping centres in Bulgaria. Nobody wondered what facilities they were, what their quality was and what it actually meant. Please note that I don't have anything against GTC. On the contrary - it is a fine company and its flagship project, Galeria Mokotów, has been a great commercial success, any way you look at it. Another odd criterion is whether you are present in Warsaw or not. Echo is not from Warsaw and is automatically put in a different league. To answer your question, Echo wants to develop good, profitable projects regardless of their location.

Echo's foreign projects, eg. the Mundo mall in Budapest, seem to have stalled.
Indeed, we have three foreign projects. I have to admit that they have not been the most fortunate investments so far. However, we have succeeded in accomplishing two things - although we did not buy them cheaply, they were not too expensive either; and, in addition, they are in really good locations. I will tell you about them briefly, starting with the one I regard as the luckier one, an office centre in Kyiv. We have secured the building permit and will start the construction of the office park in a market which is suffering from a complete lack of modern space. I think that we will be successful because we will offer a suitable product, good quality and a good price. As for Budapest, here we have a well located plot in the Zugló district. We bought it on the assumption that an underground line would be built there. However, Hungary was then plunged into the crisis and the construction of the metro stalled two stops earlier, while the law on shopping centre development was changed so that now it is the government that makes decisions about their locations - which is, incidentally, against EU law. We have managed to fight our way through the administrative procedures and are now waiting for the right window in terms of the economic outlook for developing the project. And the third project is a shopping centre in Braşov, Romania. It is currently 60 pct leased and we will most probably start on its construction this year. These are important, but not crucial, projects from Echo's point of view. The effect of scale is significant, since this is only three projects out of the 66 that are planned, and none of the 66 is crucial.

And added to Echo's completed projects this makes a hundred in total...
Indeed, the Aquarius Business House office complex in Wrocław, which obtained its occupancy permit in November, turned out to be our hundredth project. So perhaps I will now say a few words about Echo. Echo's operations are based on three segments: shopping centres, apartments, as well as our office and hotel projects. Echo's main advantage, which is quite untypical on the development market and can sometimes be a burden, is the fact that for many years the company has built up competences that our competitors don't have. Firstly, we have our own sales departments, whereas developers tend to use agents. Secondly, we have large design teams, which do not actually design anything, but they do participate in the design process and work on the optimisation of our projects. Thirdly, we also have a large group of project managers who are responsible for the completed projects, so we can manage them in a different way to our competition. We are able to carry out a project on the basis of package contractors rather than using general contractors all the time. Fourthly, we have a large, significant division responsible for property management and recommercialisation. To sum up, all these factors, which separately would be rather unlikely to secure a better position than the competition, are the source of both our strength and our advantage over the rest of the market.

What will Echo's operations look like in five to ten years' time?
The absorption capacity of individual market segments changes. The critical issue for Echo, and other developers, is the time factor. In Poland, intensive development of shopping centres is already a thing of the past. Despite the fact that Echo's plans include projects of this type, I know that it is not able to maintain the current development dynamics in this field. We are a rational investor, which takes into account its own ideas while planning for the future, but first of all we assess the prospects and the future of the market, observe what the competition is doing, and adjust our operations in the light of this. I think that the residential sector is still open. Echo's projects are ranked in the medium and higher segment, so we are naturally present on a designated section of the market. Echo is not set up to be a mass producer of apartments and will never be one. When it comes to the office sector I believe in its future intensive development, which is possible in Warsaw as well as regional towns. I think that such a trend could last ten years. The future of Echo involves becoming more of a real estate fund than a developer.

Does this mean that the company will no longer be selling finished projects?
No, it only means that apart from selling Echo will also be buying. So far Echo has not bought a finished project even though it has the necessary competences in the field of property management, recommercialisation and value-adding. We can become an investor to a larger extent. We have bought some finished properties, but only to adapt or demolish. So they were acquired to analyse in terms of the plot rather than what was located there.

As with the Mercure hotel in Warsaw?
The situation was the same, as in the case of the Cracovia hotel in Kraków and a few others. I assume that Echo can buy any office building or shopping centre in order to manage it.

When can we expect the actual terms for establishing a fund?
We already are such a fund; we do not need an additional legal structure to run such operations. It is hard to talk about specific dates, it is more a question of a strategic vision for Echo's development. As I have already mentioned before, the market for new shopping centres will see some natural shrinkage and we will gradually transform ourselves. Today we are a property owner - in fact, a fund and a developer, but we have built our main value on the basis of development activities, by developing new projects. I expect that in five years' time our strength will lie not so much in generating value through new projects, but in holding on to properties and adding to their value. The mechanism will be the same as for other funds - own capital plus some project financing from the banks. You don't like Echo?

I admire your achievements and the people I know there, but regret that you are in Kielce as it makes it difficult to meet. Coming back to another firm you founded - Mitex. Do you want to go back to your roots and make acquisitions during the recession in construction?
Certainly not, this is a closed chapter. Mitex was my first company. This is how I started my business activity after completing my studies in 1988. Construction services are in a difficult market, which has changed radically. I personally regret that a market that should be domestic has been handed over to foreign companies almost in its entirety. I am and I have been part of this process through the sale of the controlling stakes in Exbud and Mitex. My decisions influenced a significant section of the construction market, but unfortunately I had no choice. A Polish operator is usually treated worse than a foreign one and arouses more controversy, but please do not ask me why this is. I'll write a book about it one day, so I can't give away the plot. Across the world services are usually carried out by local firms, but in Poland it's just the opposite. When on my way to Warsaw I see that Mota Engil is building a bridge using our Polish workers, I don't get it and it really frustrates me. I don't believe that Exbud or Mitex would have a chance of winning such a contract in Spain or Portugal, not to mention Germany, where we wouldn't even be allowed to participate in a tender as a general contractor.

An interesting recent topic is Polski Holding Nieruchomości's privatisation. Are you keen on cooperating with them?
No. I can't see the upside.

So only organic development remains?
Echo is a collection of projects. It is a company that does not need to do anything tomorrow, it does not have to force itself into more and more projects in order to function as a stable entity. We have the comfort of choosing, we only look for good projects, and we are not forced to do anything due to the cost or organisational structure. I expect that 2013 and 2014 will see good transactions for Echo - a lot of purchase opportunities will arise and we will be able to take advantage of them thanks to our position and financial strength. The Spanish and the Irish gave us crazy property prices in the past, but now it's time to buy them back - and very cheaply, too.

Do you want to extend a portfolio that already includes Barlinek and Rovese?
Echo is good as it is. I cannot see any added value in mergers or acquisitions on the development market. Of course, I don't exclude acquiring a property portfolio if an interesting one appears on the market. Coming back to your question about Polski Holding Nieruchomości, if the group had such a portfolio, which, I emphasise, was attractively priced, we would be trying to buy it. I believe that there will be opportunities for transactions coming from other sources - banks, foreign companies and funds interested in quick liquidity. We are open to any opportunities that arise.

And how do you rate the Polish economy? There was a crisis, there is a crisis, or are the worst days still ahead of us?
The latest crisis started in the summer of 2012 and it is clearly getting worse. The final, crucial part of the puzzle, consumption, has now collapsed. If you can only hear about the crisis raging all around you, then you make a lot of decisions under this pressure. We will buy less and invest less. And psychology is of great importance when it comes to consumers.

How long will it last?
I don't know. If I knew the answer, I'd probably be very wise or very stupid.

For a moment I thought you were going to say "very rich".

Outstanding figure
He is one of the most eminent Polish business figures of the last twenty years. A modest person who gets on with his work, an outstanding businessman, and an excellent rally driver - this is how Michał Sołowow was described by the people who know him in a film about the winner of the Outstanding Contribution to Real Estate at the Eurobuild Awards 2012. The Kielce-born magnate is the now third wealthiest Pole, with assets estimated at PLN 5.5 bln, according to Forbes. He owns significant stakes in Echo Investment (a developer established in 1996 out of the Kielce-based Echo Press publishing house), bathroom equippers Rovese (formerly Cersanit), laminated floor producer Barlinek and Synthos (formerly Firma Chemiczna Dwory). His involvement with construction and property goes back to the 1980s. In 1988 he established the construction company Mitex, which he sold in 2001 to French group Eiffage. He also listed the first private firm - Polish Life Improvement (now DIY store chain Nomi) - on the Warsaw Stock Exchange, later selling his stock to British group Kingfisher. His property-related activities are focused on Echo Investment, where he directly or indirectly controls 44.74 pct of the shares. Echo is active in the office, hotel, retail and residential sectors, mainly carrying out projects in Poland, but also owning land in Romania, Hungary and Ukraine. In Q1-Q3 2012, the firm generated operating income of PLN 435 mln, a nearly 50 pct y-o-y increase. The fifty-one-year-old businessman's passion, however, is rally driving. In 2001 he founded the Cersanit Rally Team (now the Synthos Cersanit Rally Team). He has been European vice-champion three times (2008, 2009 and 2012) and was twice Polish vice-champion (2006 and 2010).