Commentary by the President of the Management Board Dariusz Blocher on the financial data from the consolidated financial statements of the Budimex Group for three quarters of 2013

We continue to observe a dynamic decline in the market. In the period January-September 2013, the value of construction and assembly production decreased by -15.6% year-on-year. In the same period, the sales of the Budimex Group amounted to PLN 3,455 million and were lower by 25% than the sales achieved in the corresponding period of 2012.

However, the improving situation on the market is evidenced by the fact that the situation on the market is decreasing compared to the first and second quarters of this year. the dynamics of the decline in sales of the Budimex Group, which in the third quarter amounted to 19% with sales at the level of PLN 1,368 million.

In the period from January to September 2013, the Budimex Group improved profitability at every level of profit. In the discussed period, operating profit amounted to almost PLN 144 million with a margin of 4.2%, gross profit of PLN 142 million with a margin of PLN 4.1% and net profit of PLN 112 million with a margin of 3.2%. In the corresponding period of 2012, the Group generated PLN 109 million with a profitability of 2.4%, PLN 134 million with a profitability of 2.9% and PLN 77 million with a profitability of 1.7%, respectively.

In the third quarter of this year alone. the Group’s profitability improved both at the level of gross margin on sales (from 4.0% to 7.6%) and at the operating level (from 3.1% to 4.0%), mainly due to improved profitability in the construction segment. In a given quarter, the Group generated an operating profit of PLN 55 million compared to PLN 53 million generated in the corresponding quarter of 2012. The Group’s net profitability was maintained at a comparable level.

The net cash position of the Budimex Group, including own cash and short-term securities less external sources of financing, amounted to PLN 920 million at the end of September 2013, while at the end of the third quarter of 2012 it amounted to PLN 718 million. The increase in cash was mainly driven by the core business, but also, to a significant extent, by the real estate development segment, thanks to an increase in the volume of pre-sales.

In the third quarter of this year. The Budimex Group signed contracts worth PLN 483 million, while in the corresponding quarter of 2012 it was worth PLN 1,041 million. Since the beginning of the year, the Budimex Group has signed contracts worth PLN 2,636 million compared to PLN 1,962 million in the corresponding period of the previous year (an increase of 34% y/y). The third quarter was a period of preparation for announcing tenders from the new EU perspective, as evidenced by the participation of the Budimex Group companies in numerous pre-qualification proceedings. This fact allows us to look optimistically at the value of the market for new tenders next year.

The Group’s order book at the end of September this year stabilized at PLN 4.8 billion. At the end of 2012, the value of the portfolio was comparable and amounted to PLN 4.9 billion. In the near future, we expect to sign further contracts worth approx. PLN 250 million (based on tenders in which the bids of the Budimex Group companies were awarded first place).

Despite the difficult situation in the industry, the construction business segment improved profitability at the level of gross margin on sales and operating margin. In the third quarter, the core business generated a gross profit on sales of PLN 85 million compared to PLN 53 million generated in the third quarter of the previous year. At the same time, this segment generated operating profit at the level as in the third quarter of 2012, i.e. PLN 41 million, improving profitability from 2.6% to 3.3%.

The third quarter should also be considered successful in the development segment. Budimex Nieruchomości pre-sold (excluding reservations) 214 units, which is an increase of 91% y/y and may be a sign of the improving condition of the housing market. In the first three quarters of this year, Budimex Nieruchomości pre-sold a total of 494 apartments.

After three quarters of this year. The property development segment recorded an over 30% increase in sales compared to the corresponding period of 2012 (PLN 167 million compared to PLN 125 million, respectively) with notarial sales at the level of 344 apartments.

The segment’s operating profitability improved both in the quarter itself and in total for the period January – September 2013 compared to the corresponding periods of the previous year and amounted to 12.0% and 12.5%, respectively.

In the coming months, several new projects are planned to be launched, which will allow the current offer to be expanded by several hundred apartments in various locations.

The Group’s current situation is stable, as evidenced by the profits generated so far in 2013 and a very good cash position.

Next year should be comparable to the current year in terms of the value of the construction market, but a further, single-digit decline in the value of construction and assembly production is not excluded. For the Budimex Group, bearing in mind the prospect of a recovery in the infrastructure tender market, it will be a period of stabilisation of revenues and cost control while building a portfolio for the coming years.