Commentary of the President of the Management Board Dariusz Blocher on the financial data from the consolidated financial statements of the Budimex Group for Q1 2014

“Stopping the downward trend in sales, improving profitability at every level of activity, continuing to have a high level of cash and starting to build an order book for the coming years” – this is how the first quarter of 2014 of the Budimex Group can be summed up in a nutshell.

The sales of the Budimex Group in the first quarter of 2014 amounted to PLN 834 million. In the first quarter of 2013, it was PLN 853 million. On the other hand, when comparing to the sales of the first quarter of 2013, in which we do not take into account the sales generated by Budimex Danwood, the sales of the Budimex Group increased by 8%.

The sale of Budimex Danwood and, consequently, the lack of consolidation of its results since December 2013 affects the comparative analysis of the Budimex Group’s results year-on-year and is the main reason for the deviations recorded in the segment of the Group’s other activities.

Sales revenues of the construction segment remained unchanged (PLN 696 million in the first quarter of 2014 compared to PLN 694 million in the corresponding period of the previous year). However, its structure has changed, in which the share of infrastructure contracts has increased significantly – from 40% to 49%.

Construction and assembly production in the first quarter of 2014 increased by 8.9% compared to the first quarter of the previous year, including the construction of roads and motorways by 5.7%, respectively.

Maintaining stable sales in the Group’s construction segment in relation to the increase in construction and assembly production results from a lower value of the portfolio than in the previous year, which in turn offsets the effect of increased production resulting from better weather conditions.

The Budimex Group has improved profitability at every level of its operations. Operating profitability increased by 26% and profitability at the level of profit before tax by 29% compared to the first quarter of 2013.

The improvement in the Group’s profitability is a consequence of the increase in margins in the construction segment.
The decline in the prices of construction materials and the completion of difficult motorway contracts significantly contributed to the improvement of profitability in this segment, which at the operating level and at the level of profit before tax increased in the first quarter by 74% compared to the same period of 2013.

The profitability of the real estate development segment remains at a level similar to that of the first quarter of 2013.

The Budimex Group maintains a very high level of net cash position, which at the end of the first quarter amounted to nearly PLN 1.3 billion.

This is an increase of 80% compared to PLN 0.72 billion at the end of the first quarter of 2013.

The value of the Budimex Group’s order book at the end of March 2014 amounted to PLN 4.54 billion
and is higher than its value at the end of 2013 by PLN 200 million.

The value of contracts signed in the first quarter of 2014 amounts to PLN 810 million and is higher by 69% compared to the value in the corresponding period of 2013. At the same time, we are waiting for the signing of further contracts worth nearly PLN 1.7 billion (on the basis of tenders in which the bids of the Budimex Group companies were awarded first places).

In the first quarter, the tender for the construction of the unit in Turów was resolved,
in which the consortium with Budimex’s participation won first place. The signing of this contract will be an important step in the implementation of the strategy of diversification of the Budimex Group’s construction portfolio.

The beginning of 2014 is a completely different moment in the business cycle than the one in which the domestic construction segment was a year ago. The EU budget for 2014-2020 has already been approved. Currently, a series of road tender settlements is beginning, for which pre-qualifications were announced back in 2013. The goal of the Budimex Group is to obtain as many contracts as possible
from the new EU perspective, but without participating in the price war.

The continuing upward trend in the housing market was reflected in the increase in pre-sales recorded by Budimex Nieruchomości. In the first quarter of 2014, the company pre-sold 275 apartments, thus recording the highest pre-sale of apartments in the first quarter of the year in several years. In the corresponding period of the previous year, Budimex Nieruchomości pre-sold 121 apartments, and in 2012 and 2011 it was 98 respectively
and 229 apartments.

In the first quarter of 2014, Budimex Nieruchomości sold 394 apartments by notary public
(compared to 204 apartments sold in the corresponding period of the previous year), maintaining over 20% profitability on sales. The notarial sale of the first quarter of 2014 was a consequence of the high pre-sales of apartments in the previous year.

The sales structure has changed. Nearly 58% of notarial sales in the first quarter of 2014 were flats in Kraków and Poznań, while in the same period of the previous year 56% of notarial sales were flats in Warsaw.

In 2014, Budimex Nieruchomości started pre-sales of 300 apartments on two new projects. As of today, Budimex Nieruchomości offers about 540 apartments ready for sale. The company’s goal is to significantly expand the offer of apartments and achieve pre-sales of over 1000 apartments.

After the sale of Budimex Danwood, the remaining activities of the Budimex Group include Elektromontaż Poznań and Parking Wrocław. Elektromontaż Poznań is a company intended for sale. The company has been loss-making in recent years, but after going through the restructuring process starting from 2013, the unit has been generating profits. The planned sale of the company is in line with the Group’s strategy.

On the other hand, Parking Wrocław is a company established in order to implement the project of building a
and then managing the parking lot in Wrocław in the public-private partnership formula. This is the first project of this type implemented by the Budimex Group. The Group plans to develop this type of activity, i.e. to build and then manage facilities in the PPP formula.

In the first quarter of 2014, Budimex remains the most valuable construction company listed on the Warsaw Stock Exchange. It also remains a company that continues its policy of sharing profit with shareholders. In May 2014, Budimex will pay a dividend for 2013 with a historical value of PLN 303 million, which as of today puts the company at the forefront of all listed companies in terms of dividend yield.

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

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

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

Additional information:

Results for the first quarter (in thousands of zlotys) – excluding the results of Budimex Danwood: