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 the first half of 2016

The Group’s sales for the first half of 2016 amounted to PLN 2.4 billion and were higher than the sales of the first half of the previous year by over PLN 160 million. The growth was driven by the construction segment (recorded sales growth by 9.4% year-on-year), in which, in accordance with the Investor’s (GDDKiA) wishes, it was possible to intensify work on selected road contracts and put into operation two sections of the A1 motorway and a section of the A4 motorway Rzeszów-Jarosław before the planned deadline. In the discussed period, the construction and assembly production decreased by 12.5%.

In the first half of 2016, the Budimex Group generated very good results, improving them in relation to the comparable period of the previous year at every level: gross margin on sales, operating result and net result by 40%, 38% and 37%, respectively. This improvement is not only the result of the aforementioned acceleration of work on selected contracts, but above all of the persistently low prices of raw materials and the costs of subcontractors’ work.

Despite the fact that GDDKiA suspended the announcement of new road tenders in 2016, the value of the Budimex Group’s order book is growing quarter by quarter and at the end of June this year amounted to PLN 9.3 billion. This is its highest value in the history of the Budimex Group.

The growing order book is due to the high contracting in the general construction segment. This made it possible to offset the effect of the stagnation in the infrastructure tender market, which was already noticeable in the second quarter of this year. In the period from April to June this year, contracts worth PLN 1,053 million were signed in the general construction segment.

The total value of contracts signed by the Budimex Group in the first half of the year exceeded PLN 3 billion and was higher by 6.4% than the value signed in the corresponding period of the previous year. The structure of signed contracts has changed. In the first half of 2015, contracts in the general construction segment accounted for 32% of contracts signed, while in the corresponding period of this year their share increased to 45%.

The value of contracts where Budimex’s offer was selected as the most advantageous at the end of June amounted to PLN 988 million, of which infrastructure contracts accounted for only 17%. In addition to the cubature market, we are also intensifying our activities in the energy area, where the bid submitted by the consortium with the participation of Budimex for the construction of an incineration plant in Vilnius was selected as the most advantageous. Budimex’s share in the submitted offer is approximately PLN 375 million.

The net cash position as at 30 June 2016 amounted to PLN 1,784 million. This is 20% higher than at the end of June 2015. One of the main reasons for the increase in the level of cash in this period is the increase in the balance of funds paid for the purchase of apartments by Budimex Nieruchomości’s customers (an increase of 67%, i.e. PLN 220 million).

The ending offer of apartments in the “Nowe Czyżyny” project is the main reason for the decline in pre-sales at Budimex Nieruchomości. In the first half of 2016, the company sold 467 (i.e. 60%) fewer apartments on the above-mentioned project than in the same period of the previous year. The total decrease in pre-sales of apartments is lower and amounts to 367 apartments, i.e. 34% compared to the same period of the previous year (712 pre-sold apartments now to 1079 pre-sold in the first half of the previous period).

In the first half of 2016, we started pre-sales of apartments on five new projects. By the end of the year, we plan to launch several more investments. Launching a minimum of ten development projects per year is necessary to maintain annual pre-sales at the level of 1500 apartments. At the moment, we offer 1285 apartments to customers, which is 30% of the residential units currently under construction.

Despite the higher number of signed notarial deeds (an increase of 8.0%), sales recognized in the property development segment decreased by 8.8% compared to the same period of the previous year. This is the result of a decrease in the average price of an apartment, which results from an increased share in sales of projects located outside Warsaw, i.e. in Poznań and Kraków. The operating profitability of development projects remains at the level of 15%.

In the second half of this year, the Budimex Group will invariably focus on achieving the operational and strategic objectives set at the beginning of the year. We have started investing in the railway machine park. We are constantly strengthening our position on the general and energy construction market. We try to adapt to the changing macroeconomic environment on an ongoing basis. We are strengthening our regional structures and intensively starting bids on small road contracts. At the same time, after the adoption of the amendment to the Public Procurement Law, we are waiting for the resumption of announcing infrastructure tenders from the new EU perspective.

We are prepared to take part in tenders according to the new criteria for evaluating bids. Punctuality and attention to quality are key elements of the Group’s strategy. We have 20 laboratories throughout Polish, including the central laboratory, which we modernized last year and equipped with modern equipment for the inspection of construction products and surface diagnostics. We employ over 150 people dealing with quality control at every stage of the investment.

The Budimex Group also attaches great importance to acting in a socially responsible manner, creating new jobs, caring for employees and the environment. This year, we hired another 500 people under an employment contract. Thanks to these activities, Budimex has been continuously included in the RESPECT Index since 2011 – a stock market index covering companies conducting business in a responsible manner.

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 2016 and comparable data for the first half of 2015.

Results of the reporting segments for the first half of 2016 (in PLN thousands):

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