29.10.2012
Commentary by the President of the Management Board of Budimex SA, Dariusz Blocher, on the agreement for support provided to Budimex by a strategic investor
The previous contract, which was signed on 18 June 2003, did not fit the current market realities and expired in 2010.
Regulating the issue of correct and realistic valuation of the support provided to Budimex by Ferrovial Agroman is particularly important from the point of view of the tax liabilities of both companies.
In order to maintain reliability and full transparency, Budimex SA and Ferrovial Agroman SA commissioned independent consultants from Ernst & Young Polska and Ernst & Young Spain to evaluate the value of the support received by Budimex. The value of the contract fee was determined using the comparative method and the methods of assessment and division of the benefits obtained. The fee set in the agreement at the level of 0.5% of the value of revenues results from the assessment of the impact of Ferrovial Agroman on the increase in profit at the gross level of Budimex and ranks among the lowest valuations in the world, which oscillate between 0.215% and 30% of the value of revenues of companies supported by their strategic investors.
Exclusion of revenues from sales of Budimex Nieruchomości Sp. z o.o. (a development company wholly owned by Budimex SA) results from the fact that the transaction price of the 50% shares in Budimex Nieruchomości purchased by Budimex SA on 4 November 2009 from Grimaldi Investments B.V., a company belonging to the Ferrovial Group, already takes into account the added value resulting from the support provided to the developer company by the Ferrovial Group.
In the event that in any quarter of the term of the agreement Budimex incurs a loss at the gross level of the consolidated profit and loss account, the payment of remuneration to Ferrovial Agroman under the agreement will be suspended until the Budimex Group generates a gross profit for a period of at least 3 months.
The agreement covers a period of 5 years from 1 January 2012 to 31 December 2016.
The valuation of the services, carried out by independent consultants, in order to confirm their correctness and maintain full transparency, will be verified by the Ministers of Finance of Poland and Spain based on the bilateral APA procedure. (bilateral APA – a procedure for the fiscal authorities of two countries to recognize the correctness of the selection and application of the method of determining the transaction price between a domestic entity related to a foreign entity and this foreign entity). Such verification, according to practice, may take over a year. Until the correctness of the valuation is confirmed by the fiscal authorities of both countries, Budimex SA will pay to Ferrovial Agroman SA a fee reduced by 25% in the form of a partial payment, i.e.: in the amount of 0.375% of the value of annual sales revenues of the Budimex Group less sales revenues of Budimex Nieruchomości Sp. z o.o.
After the confirmation of the arm’s length valuation level by the fiscal authorities of both countries, the parties to the agreement will make mutual settlements in accordance with the decision of the Ministers of Finance.
The signing of the agreement has a neutral impact on the financial results of the Budimex Group in 2012, as the company has created appropriate provisions for this purpose.
I have no doubt that the support from the strategic investor translates into a strong market position and financial results of Budimex, constituting added value for all shareholders of the company.