Mercator Medical, which wants to invest around PLN 150 million over the next 12 months in the real estate segment, may increase this amount by “another fairly large amount” after evaluating the realization of the first stage of the segment’s development, and hopes that the investments will yield “the upper several percent return,” the company’s CEO Wieslaw Zyznowski said.
He stressed that in order to diversify the Group’s operations and profitably manage financial surpluses, Mercator Estates, a wholly owned subsidiary of Mercator Medical, was established in June this year, and its goal is to invest in residential and commercial projects, either independently or with industry partners.
“We established Mercator Estates, a 100% subsidiary of Mercator Medical, in June 2023, and its goal is to protect the company’s capital and cash resources and generate additional shareholder value, which is especially important now that Mercator’s core business is going through a crisis. Our intention is to invest about PLN 150 million in the first stage over the next 12 months or so […]. There is a possibility of extending this PLN 150 million to another quite large amount of money, after evaluating the realization of the first stage of development of the real estate segment,” Zyznowski said during a video conference.
“We have the first project behind us – on September 30 Mercator Estates concluded an investment agreement for PLN 15 million for a residential development in downtown Krakow, and the agreement is valid until 2026. We have about PLN 400 million in free funds, and the development business can be leveraged, and it is possible, and we are taking it into account, that we will allocate further tranches to these investments,” he added. He added, while noting that the company is not giving up on the glove business.
Asked what the annual contribution of the real estate segment to the Group’s results would be and when it would occur, the CEO replied: “Given the amounts we are investing and want to invest in this segment, we believe it will bring an upper several percent return, but the result from development projects is only seen in the results when you start to commercialize projects and sell apartments.”
Asked what business model the company will adopt in the real estate segment – whether it will be developer loans or stand-alone development projects, the CEO said the idea consists of a whole range of possibilities.
“It’s mainly in the residential, mid-budget and premium area, but we haven’t limited ourselves and are considering different business models – from lending through mezzanine plus, where we lend the money and share in the profits to some extent, and further through joint venture partnerships, to standalone investing, where Mercator Estates buys a plot of land and builds on its own. We look at each project from the point of view of profitability, and we select the business model for the project depending on the profitability in terms of return,” the CEO said.
Mercator Medical Group, which mainly manufactures and distributes diagnostic gloves, estimates that 2023 appears to be a very challenging year for disposable glove manufacturers, while distributors may be in a relatively good position sooner.
“Prices for gloves are historically the lowest (in USD), which we are trying to make up for with volume so as not to lose revenue and margin. In the crisis in which the industry found itself after the pandemic boom, the situation has now become somewhat differentiated, as production is not doing too well, while distribution is slightly better,” the CEO said.
“The swallow as far as the glove industry is concerned is the distribution segment, which is starting to look good, and this comes from the fact that distribution always adapts to the situation faster [than production]. I hope that when we meet in six months, distribution will look not too bad, although it may not be sensational.” – He added.
Asked if glove prices fell further in Q3 or if the market stabilized, the CEO replied: “I don’t have good news on prices, and I can’t confirm that prices have twitched, that they have started to rise in the production or distribution segment, they are very low. However, in distribution we are likely to see more positive results sooner. I don’t know what will happen to prices in the future and when they will rise, or if they won’t fall further, but I believe they are at their lowest levels at the moment. It’s worth noting that we’re facing an oversupply of glove production worldwide.”
He also assessed that now is not a good time for Mercator to make potential acquisitions of production assets in the glove segment.
“This is not the time to acquire manufacturers, unless there would be some bargains, and so much so that it would be worthwhile to acquire someone like that without knowing when the economy will improve,” the CEO said.
Earlier, the company said it had a consolidated net loss attributable to shareholders of the parent company of PLN 8.13 million in H1 2023, compared with a loss of PLN 4.19 million a year earlier, on sales revenues of PLN 234.25 million, compared with PLN 286.08 million a year earlier. EBITDA loss reached PLN 42.76 million against PLN 155.54 million loss in this terms a year earlier.
Mercator Medical Group had net cash and other financial assets of PLN 412.7 million at the end of June 2023, which accounted for PLN 21 million of financial income in the first half of the year (balance of asset valuations, interest and dividends received).
Mercator Medical is a manufacturer of disposable gloves and distributor of disposable medical supplies. It is one of the most important players in Poland and a major player internationally. In 2013, the company debuted on the WSE; it is included in the sWIG80 index. Its consolidated sales revenues reached PLN 542.5 million in 2022.
Source: Mercator Medical Group and ISBnews
