Executive Commentary of Chairman of the Management Board on selected financial data for the first half of 2015

In the first half of 2015, the positive trends observed in the first quarter have continued for the Budimex Group, namely: high sales volume, improved profitability, high level of pre-sale of apartments and of the net cash position.

In particular, emphasis should be given to considerable effectiveness of its bids on the market of road contracts. Budimex submitted the best bids for 30% of contracts announced by GDDKiA over the last months. Additionally, also the level of the Budimex Group’s order portfolio is noteworthy, reaching 7 billion Polish Zloty at the moment.

The sales of the Budimex Group for the first half of 2015 was PLN 2,268 million, and was 5.3% higher than the sales accomplished in the same period of 2014. The sales in the construction segment remain the major driver of the Group’s sales. In the first half of this year they were 10.6% higher than the sales recorded in the first half of 2014. The growth of building and assembly production in this period went up by 0.8% compared to the same period of last year.

In the second quarter of 2015 we commenced sales under notarial deeds of the Poznań project, and of the first stage of “Wiślany Mokotów” project in Warsaw. This has led to increased sales volume in the development segment in the second quarter, which was PLN 105 million, and it was 80% higher than the sales under notarial deeds recorded in the second quarter of 2014. Consequently, the value of sales in the development segment in the first half of 2015 was PLN 139 million. In the entire 2015, the sales in the development segment should be similar to those of the previous year.

In the second quarter of 2015, the Budimex Group improved its results and profitability at all levels of its activity. The operating profit of the Group earned in this period increased by 42.8%, and the result before tax by 55.5%, compared to the corresponding period of the preceding year. The profitability of the Budimex Group at the level of result before tax was 6.1% in Quarter 2.

Consequently, the results and profitability of the Group in the first half of 2015 are better than those accomplished in the corresponding period of 2014.

The improvement of the Group’s profitability results primarily from the improved profitability of the construction segment. In the second quarter of 2015, the result before tax in this segment was 51.1% better than the result in the second quarter of 2014. Profitability at this level increased by 42.5%, reaching the level of 5.14% in this period. Thus, the result before tax in the construction segment, accomplished in the entire first half of 2015, exceeded PLN 100 million.

The improved profitability on the construction business resulted, among other things, from more effective contract management. The price level of construction materials is still a source of positive surprise. The margins earned in the second quarter of 2015 in the infrastructure segment are thus higher than those of 2014.

In the second quarter of this year, the Budimex Group signed contracts to the overall value of PLN 1.84 billion, of which 66% in the infrastructure segment. Consequently, the value of contracts signed in the first half of 2015 totalled PLN 2.88 billion. The value is nearly twice higher compared to that attained in the first half of last year.

Additionally, the value of contracts for which Budimex submitted the best bids in terms of price, reached the historically high level of PLN 3.4 billion, of which PLN 2.8 billion are road contracts. If the entire value is contracted in the second half of the year, the level of contracts in 2015 will exceed the record high level of last year. This situation, as already mentioned, is the result of highly efficient bids in the road segment.

The value of the order portfolio of the Budimex Group at the end of June 2015 changed significantly compared to the value at the end of June 2014 (the recorded growth of 78%). Currently the value is PLN 6,987 million.

The market is still characterised by high level of competition observed in the first quarter of 2015. New players emerged in the road segment, apart from the existing ones. However, Budimex is focused not only on the volume but also on profitability of the building order portfolio, particularly when it comes to contracts signed on design-and-build basis. Such projects are more demanding, and their completion period is longer. Therefore, it is of key importance that each tender procedure is carefully analysed and work is started from the moment of bid submission.

We take part in tender procedures for the power sector, particularly gas construction sector. Currently, we work on bids worth several hundred million Polish Zloty.

In the second quarter of 2015, we commenced the next stages of the Nowe Czyżyny project in Krakow, which has led to a high level of pre-sales of apartments in the real estate development segment. Also in the second quarter, Budimex Nieruchomości sold 580 apartments on a pre-sale basis, which gives the total of 1,079 pre-sold apartments in the first half of the year. This is nearly twice more than in the first half of 2014. This result makes Budimex Nieruchomości one of the first three development companies that recorded the highest pre-sale of flats in Poland in the first half of 2015.

The number of apartments under construction is at the same level as in the first quarter of 2015, we are currently building 3000 apartments of which only 771 have not been not pre-sold.

In the first half of 2015, Budimex Nieruchomości purchased new land of the value exceeding PLN 100 million, on which more than 2 thousand flats can be built. We are watchful of the market of land intended for housing investments. It is one of our goals to diversify and increase the land bank. In the second half of this year we will work on gaining new land in attractive locations.

The Budimex Group has kept a very high level of the net cash position, amounting to over PLN 1.48 billion at the end of the first half of 2015, which represents a 62% increase compared to the same period of 2014. This level of cash is attributed to continuously high volume of pre-sales of apartments and advance payments received for construction contracts (at the moment their balance is PLN 407 million).

In the second half of 2015, Budimex Group will focus on continued development of the portfolio of profitable contracts. We shall strive to reach the historic level, while also working on contracts in other segments of our operations, with the power sector being of key importance.

Our target for 2015 is to improve the profitability in the construction segment and to arrive at the level of the Group’s sales similar to that of last year.

Budimex continues to be the construction business fetching the highest price, and a very stable listed company featuring a good cash position and predictable plan for the nearest future.

The  BUDIMEX Group

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

The results of segments for the first half of 2015 (in PLN thousands):

The results of segments for the first half of 2014 (in PLN thousands):