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 the first half of 2015

In the first half of 2015, the Budimex Group maintained positive trends in the first quarter: high sales, improved profitability, high level of pre-sales of flats and net cash position.

In particular, attention should be paid to the very good effectiveness of bidding on the road contract market. Budimex submitted the best bids for 30% of the contracts announced by GDDKiA in recent months. The level of the Budimex Group’s order book is also noteworthy, currently reaching PLN 7 billion.

The sales of the Budimex Group for the first half of 2015 amounted to PLN 2,268 million and were higher by 5.3% than the sales achieved in the corresponding period of 2014. The main driving force of the Group’s sales remains the sales of the construction segment, which in the first half of this year was higher by 10.6% than the sales of the first half of 2014. The dynamics of construction and assembly production in this period increased by 0.8% compared to the same period of the previous year.

In the second quarter of this year, we started notarial sales of the project in Poznań and the first stage of the “Wiślany Mokotów” project in Warsaw. As a result, the sales of the real estate development segment in the second quarter amounted to PLN 105 million and were 80% higher than the notarial sales in the second quarter of 2014. As a result, sales in the real estate development segment in the first half of 2015 amounted to PLN 139 million. In the entire year 2015, sales in the development segment should be similar to the sales of the previous year.

In the second quarter of 2015, the Budimex Group improved its results and profitability at all levels of its operations. The operating profit of the Budimex Group generated in this period increased by 42.8% and the result before tax by 55.5% compared to the corresponding period of the previous year. The Budimex Group’s profitability at the level of the pre-tax result amounted to 6.1% in the second quarter.

As a result, the Group’s results and profitability in the first half of 2015 are better than those generated in the first half of the previous year.

The improvement in the Group’s profitability is mainly due to the improvement in profitability in the construction segment. In the second quarter of 2015, the segment’s profit before tax was better than the result of the second quarter of 2014 by 51.1%. Profitability at this level increased by 42.5% to reach 5.14% in this period. As a result, the construction segment’s result before tax generated in the entire first half of 2015 exceeded PLN 100 million.

The improvement in the profitability of construction activities is one of the results of more effective contract management. The level of prices of building materials continues to be positively surprising. The margins generated in the second quarter of this year in the infrastructure segment are therefore higher than last year.

In the second quarter of this year, the Budimex Group signed contracts with a total value of PLN 1.84 billion, 66% of which in the infrastructure segment. As a result, the value of contracts signed in the first half of 2015 amounted to PLN 2.88 billion. This is more than twice as high as in the first half of the previous year.

At the same time, the value of contracts for which Budimex submitted the most advantageous price offers reached a historically high level of PLN 3.4 billion, including PLN 2.8 billion for road contracts. If the entire above-mentioned value is contracted in the second half of the year, the contracting of 2015 will exceed the record level achieved last year. We owe this situation to the already mentioned very high efficiency of bidding in the road segment.

The value of the Budimex Group’s order book at the end of June 2015 changed significantly compared to the value at the end of June 2014 (a recorded increase of 78%). Currently, it amounts to PLN 6,987 million.

The market continues to maintain the high level of competition observed in the first quarter of this year. In the road segment, in addition to regular competitors, new players have also appeared. However, Budimex focuses not only on the volume, but also on the profitability of the order portfolio being built, especially in the case of design and build contracts. These are more demanding projects, with a longer implementation period. Therefore, it is crucial to carefully analyze each tender and work from the moment the offer is submitted.

We participate in tenders in the energy segment, especially in the gas construction segment. We are currently working on offers worth several hundred million zlotys.

In the second quarter of 2015, we started the next stages of the Nowe Czyżyny project in Kraków, thanks to which the pre-sales of flats in the development segment remain at a high level.
In the second quarter alone, Budimex Nieruchomości pre-sold 580 apartments, which gives a total pre-sale in the first half of the year at the level of 1,079 apartments. This is almost twice as much as in the first half of 2014. This result places Budimex Nieruchomości in the top three developers with the highest pre-sales of apartments in Poland in the first half of 2015.

The number of apartments under construction remains at the same level as in the first quarter of this year – we have over 3000 apartments under construction, of which only 771 have not been pre-sold.

In the first half of 2015, Budimex Nieruchomości purchased new land worth over PLN 100 million, on which over 2 thousand apartments can be built. We are observing the market of land for residential investments. One of our goals is to diversify and expand our land bank. In the second half of the year, we will work on acquiring more land in attractive locations.

The Budimex Group maintains a high level of net cash position, which amounted to PLN 1.48 billion at the end of the first half of the year. This is an increase of 62% compared to the same period of the previous year. The Group owes this level of cash to the continuing high pre-sales of apartments and the advances received for the implementation of construction contracts (the current balance is PLN 407 million).

In the second half of 2015, the Budimex Group will focus on further building a profitable order portfolio. We will strive to achieve its historical level, while working on contracting in other business segments, where the energy segment remains the key segment.

The task for 2015 is to improve profitability in the construction segment and to achieve the Group’s sales at a level similar to that of the previous year.

Budimex remains not only the highest-valued construction company on the market, but also a very stable listed company with a good cash position and a predictable plan for the near future.

BUDIMEX Group

Selected financial data from the consolidated financial statements of the Budimex Group prepared in accordance with International Financial Reporting Standards (IFRS) for the first half of 2015 and comparable data for the first half of 2014.

Results of the reporting segments for the first half of 2015 (in PLN thousand):

Results of the reporting segments for the first half of 2014 (in PLN thousands):