Commentary by the President of the Management Board of Budimex SA – Dariusz Blocher on the financial data from the consolidated financial statements of the Budimex Group for 2014

The year 2014 was a time when the Budimex Group recorded a significant increase in all main areas: sales, operating result, cash position, contracting, order book and pre-sales of apartments.

2014 was the best year in the history of the Budimex Group in terms of the value of contracts signed. Contracting reached PLN 6.3 billion, which is almost twice as high as last year.

As a consequence of high contracting, the value of the portfolio at the end of the year amounted to PLN 6.1 billion – 41% more than at the end of the previous year.

In 2014, the effectiveness of Budimex’s bidding in the road segment was very high and amounted to 25%. In the next year, we would like it to remain at a level not lower than 20%, so that we can continue to fill the portfolio with infrastructure contracts.

The Group’s cash position at the end of 2014 amounted to PLN 1.72 billion (a year-on-year increase of 10%). This position is close to the historical maximum recorded in 2010. The cash position was mainly affected by a very good level of cash in the property development segment, caused by high pre-sales of apartments and changes in the legislation on the payment of advances in the performance of construction contracts.

Good weather conditions and the schedule of contract works, which assumed their finalization on key road contracts, had a decisive impact on the level of sales in 2014. It amounted to PLN 4.95 billion and was higher than in 2013 by nearly PLN 600 million, i.e. by 13.3% – taking into account comparable data, i.e. without taking into account the revenues of Budimex Danwood sold in December 2013.

In 2014, the Budimex Group improved its results and profitability at all levels of its operations compared to the results of 2013, excluding the results of Budimex Danwood, profit on its sale and impairment loss on the value of land.

The Group’s operating profit generated in 2014 increased by 46.1% compared to the same period of the previous year.

The Group’s operating profitability reached 5.0% and improved by 28.9% compared to the profitability recorded in the corresponding period of the previous year.

The improvement in the Group’s profitability is mainly due to the improvement in profitability in the construction segment, in which we generated an operating result of nearly PLN 200 million. This is a result better than last year’s by 53.4%. Profitability in this segment improved by 34.4%.

The improvement in profitability in the construction segment is the result of the completion of difficult road contracts and a decrease in the prices of construction materials and the cost of subcontractors’ services. However, we expect them to increase again in the second half of 2015.

In 2014, we decided to develop our own technical office organically. Taking into account the type of road contracts, most of which are announced in the design and build formula, we believe that our own office will allow us to manage contractual risks more effectively.

Pre-sales of flats in 2014 reached the historic level of 1,685 flats. This is more than twice as many as last year, when we pre-sold 742 apartments. The attractiveness of Budimex’s offer in Kraków as part of the Nowe Czyżyny project, which meets the criteria of the Mieszkanie dla Młodych programme, has definitely contributed to achieving such a high level of pre-sales. Therefore, although in 2014 Budimex Nieruchomości introduced as many as 2204 flats to its offer, the currently offered portfolio is 1008 flats.

In 2014, Budimex Nieruchomości intensively analysed the land market for development investments. The company has finalized three transactions, in Poznań, Gdańsk and Warsaw. In 2015, further contracts will be concluded. It is important that the purchased land has a regulated legal situation to enable a quick start of construction.

In 2014, Budimex SA acquired 41.65% of shares in Elektromontaż Poznań SA, thus increasing its share in the company to 92.31%. We are currently working on its strategic plan for the next 2-3 years, in which one of the options is to sell the operational part of the business.

We expect the results to stabilize at a level comparable to 2014. We will implement the contracts signed in 2014. Taking into account the formula of the contracts signed, their implementation will be spread over a larger number of months. Achieving the sales level of 2014 will therefore require effort. We will strive to achieve the goals we have set for ourselves and, if possible, to exceed them. The overarching goal is for Budimex to remain a predictable company worthy of investors’ trust.

This year, we want to strengthen our position on the road market. At the same time, we would like to implement railway contracts. However, tenders will most likely appear only in the fourth quarter of 2015 or at the beginning of 2016. We will also compete for orders from the energy segment. We are analysing investments in gas-fired units and we will certainly take part in selected tenders.

In 2015, we also want to prepare the capital and human base for the expected accumulation of works in 2016-2018. We plan to significantly increase capital expenditures, but above all to focus on hiring the best specialists in the industry, for whom we have about 800 jobs.

BUDIMEX Group

Selected financial data from the consolidated financial statements of the Budimex Group prepared in accordance with International Financial Reporting Standards (IFRS) for 2014 and comparable data for 2013.

Results of the reporting segments for 2014 (in PLN thousand):

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

Additional information:

Annual results (in thousands of zlotys) – excluding the results of Budimex Danwood, its sale and impairment loss on land in 2013: