Budimex Group’s results after three quarters of 2019

Market situation:

▪ Construction and assembly production increased by 9% after three quarters of 2019, reaching PLN 73 billion

▪ The data of the Central Statistical Office indicate a slight improvement in the profitability of the largest entities: the gross profitability ratio in the first half of 2019 amounted to 1.4% compared to -0.4% in the first half of 2018. Smaller companies are benefiting from market growth, their gross profitability in the first half of the year reached 10%

▪ Despite the overall slight improvement in profitability, the following months brought terminated contracts and a further deterioration of the financial situation of some entities

Budimex Group results:

▪ Sales after three quarters of 2019 were comparable year-on-year and reached PLN 5.38 billion

▪ The gross profit margin of the Budimex Group amounted to 4.0%. On the other hand, in the third quarter alone, profitability reached 4.9% m.in. due to the change in the strategic support agreement (reduction of remuneration from 0.5% to 0.33% of sales revenues) and a one-off increase in the result by PLN 34.8 million

▪ The gross profit margin in the construction segment was relatively good and amounted to 2.7% (compared to 3.8% in the corresponding period of 2018)

▪ The real estate development segment achieved a very good gross profit margin of 17.3%

▪ Starting from July, we started consolidating the results of the FBSerwis Group in the services segment. In the third quarter, the FBSerwis Group achieved PLN 131 million in sales and PLN 17 million in operating profit

Cash position of the Budimex Group:

▪ At the end of September, the Budimex Group’s net cash amounted to PLN 570 million and was close to the level at the end of the third quarter of the previous year

▪ In the third quarter, despite the expenditure on the purchase of FBSerwis, the net cash balance improved by PLN 306 million compared to the end of the second quarter

▪ Cash remains under pressure from delays on the part of investors in the approval and invoicing process

Results of the construction segment of the Budimex Group:

▪ Sales of the construction segment increased by 1%, achieving a slightly lower dynamics than the industry – we continue to focus on building a profitable order book

▪ The gross profit margin of the construction part was 2.7%, well above the market benchmark

▪ The order book of the Budimex Group remained at a high level of PLN 10.7 billion.

▪ Thanks to the signing of another railway contract on the Vistula Bridge – Czechowice-Dziedzice – Zabrzeg line , we have entered the group of leaders in this area. Work in the hydrotechnical segment is also attractive, where we are successfully implementing, m.in others, a flood control reservoir in Racibórz and a post-industrial reservoir for KGHM

▪ The pace of contracting in the coming quarters may weaken due to underestimated investor budgets and protracted tender processes

Results of the development segment of the Budimex Group:

▪ During the first three quarters of the year, Budimex Nieruchomości’s clients signed 1,229 notarial deeds

▪ The extension of the offer resulted in high pre-sales of 1,286 apartments

▪ The revenue of the real estate development segment increased by 3% and amounted to PLN 422 million, and the gross profit was PLN 73 million with a high profitability of 17.3%

▪ The current offer of Budimex Nieruchomości is just over 1,700 apartments in 5 locations

The coming quarters through the eyes of the Budimex Group

▪ The situation of the Budimex Group is stable, and the high level of the order book allows for fully effective use of resources and secures the work front for the next few quarters

▪ The average profitability of the portfolio is relatively good, and the implementation of most of the difficult contracts in the area of infrastructure and general construction, signed a few years ago, has been completed. The profitability of the energy segment remains under pressure from contracts in Turów and Vilnius

▪ The identified losses on projects in progress are included in the results, therefore we do not expect significant changes in the profitability of the portfolio. We have also filed the first court claims for an excessive increase in prices on the basis of the “rebus sic stantibus” clause

▪ The prices of petroleum materials, steel and aggregates are similar to the level of the previous year. We continue to observe an increase in the costs of labor and subcontracting services

▪ We are constantly observing aggressive behaviour of the competition – bold offers submitted by entities that often do not have local experience in implementation are not verified by the contracting authorities. Contract conditions are not improving, so balancing the risks between contractors and contracting authorities remains a challenge for the coming quarters

▪ The situation on the labour market is improving, staff shortages in the industry are lower. The availability of qualified employees in the railway area remains a problem