Commentary by the President of the Management Board of Budimex SA – Dariusz Blocher on selected financial data from the consolidated financial statements of the Budimex Group for 2013

In 2013, the Budimex Group achieved sales of PLN 4.75 billion. This is a 22% lower sales compared to the previous year, when the Budimex Group recorded a historical turnover of PLN 6.1 billion.

The declines in sales in 2013 are not a surprise for the market. This is the year of the expected slowdown and waiting for the new EU budget for 2014-2020, which was finally approved in November 2013.

2013 was another year in which the construction and assembly production recorded a negative growth rate (-13.6% year-on-year), mainly caused by the situation in the infrastructure segment, which shrank by 18.6%. Infrastructure construction accounted for 59% of the sales of the construction segment of the Budimex Group in 2013 and 63% in 2012.

In 2013, the Budimex Group generated an operating profit of PLN 333 million with a profitability of 7% compared to the operating profitability achieved in 2012 at the level of 3%.

The results were significantly affected, although not decisively, by the sale of the subsidiary Budimex Danwood, a leader in the market of single-family houses in frame construction. The sale of the company was part of the implementation of the strategy of focusing on the core business of the Budimex Group and preparing its structure for the new market situation in the coming years.

The result generated in 2013 was driven by the construction segment, which improved profitability at every level of activity. The segment’s profitability at the level of gross margin is 7.3% compared to 6.4% of the profitability achieved in 2012. Operating profitability reached 3.3% compared to 2.0% in 2012. This situation was mainly influenced by the decrease in the prices of construction materials, care for the quality of signed contracts and the fact that the most difficult motorway contracts have already been completed.

2013 was a good year for development activity in terms of pre-sales of apartments. Changes in credit requirements, relatively low interest rates resulting in relatively cheap financing and unattractive interest rates on bank deposits have resulted in a significant increase in pre-sales of apartments. In 2013, Budimex Nieruchomości pre-sold 742 flats compared to 515 pre-sold flats in 2012, recording a 44% increase. The level of pre-sales of flats recorded in 2013 is close to that of the boom in the housing market.

In 2013, Budimex Nieruchomości sold 495 flats by notary, while in the same period of 2012 it sold 740 flats. It should be remembered that the notarial sale of apartments depends on the dates of completion of construction projects and handing over finished apartments to clients, it is not a seasonal phenomenon and comparable year to year.

The decline in sales did not affect the profitability of the development activity, which at the level of gross margin is 20.0%, compared to 22.8% profitability achieved in the previous year.

In 2013, assets were reviewed in the property development segment, which resulted in a write-down of the value of part of the land held in the amount of PLN 61.8 million. The write-off was made mainly on the two largest plots owned by Budimex Nieruchomości. It has no impact on the level of cash. However, it will allow you to prepare a more attractive offer for customers, significantly accelerating the start of new projects and their pre-sales.

As a consequence of the impairment loss, the net result of the property development segment is negative and amounts to PLN -23.4 million.

In 2013, Budimex Nieruchomości continues to concentrate its operations in three locations: Warsaw, Kraków and Poznań. Currently, it offers 700 apartments ready for sale.

The Budimex Group maintained a very high level of cash position, which amounted to PLN 1.56 billion at the end of the year (recorded year-on-year growth: 31%). The cash position was mainly affected by a very good cash level in the property development segment, caused by high pre-sales of apartments and the sale of Danwood.

In 2013, an increase in the average value of tenders could already be observed. The average value of the bid submitted by Budimex SA on the infrastructure market in 2013 amounted to PLN 55 million, while in 2012 it was PLN 32 million. However, the total value of tenders concluded in 2013 was comparable to the value of 2012.

Thanks to the effort and increased effectiveness of bidding, in 2013 the Budimex Group signed contracts worth PLN 3.3 billion. This value is higher than the value of contracts signed in 2012 by nearly PLN 0.5 billion. The Group’s order backlog at the end of 2013 amounted to PLN 4.3 billion.

From the new EU perspective, road contracts with a total value of over PLN 40 billion have already been announced. The Budimex Group has been included in the pre-qualifications of all tenders announced so far. Currently, our goal is to obtain the highest possible value of contracts while taking care of their profitability. We also want to prepare well for the implementation of the contracts we have acquired, focusing on the development and retention of the best possible managerial staff in the near future.

In 2013, Budimex remains the most valuable construction company listed on the Warsaw Stock Exchange. The trust we enjoy is evidenced not only by the awards we receive, but above all by the increase in the value of Budimex SA shares recorded
in 2013 (an increase of 89%, from PLN 70 to PLN 132 per share).

Selected financial data from the consolidated financial statements of the Budimex Group prepared in accordance with International Financial Reporting Standards (IFRS) for 2013 and comparable data for 2012.

Results of the reporting segments for 2013 (in PLN thousand):

Results of the reporting segments for 2012 (in PLN thousand):