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 Q1 2016

The Budimex Group ended the first quarter of 2016 with very good results – high sales in the construction segment, a significant improvement in profitability and a 9 billion order portfolio.

The Budimex Group recorded a 16.7% increase in sales in the first quarter of 2016. Year-on-year sales growth took place in both the construction and development segments.

Construction and assembly production in the first quarter of 2016 decreased by 13.9%, while the construction segment of the Budimex Group recorded a 12.5% increase. The record-breaking (over the last four years) sales in this segment, worth PLN 930 million, are due to the efficient implementation of road contracts and ahead of construction work schedules. The real estate development segment also recorded an increase in sales. In the first quarter of 2016, 242 apartments were sold by notaries, which is 122% more than in the same period of the previous year. As a result, sales in the development segment increased by 128% year-on-year, reaching PLN 78 million.

In the first quarter of 2016, the Budimex Group also generated record-breaking (for the first quarter) results, improving them in relation to the previous year at every level: gross margin, operating result and net result by 42%, 35% and 38%, respectively.

The value of the Budimex Group’s order book at the end of March 2016 amounted to PLN 9.1 billion and is higher than its value at the end of 2015 by PLN 677 million.

The value of contracts signed in the first quarter of 2016 amounted to PLN 1.5 billion and was higher by 43% than in the corresponding period of 2015. The contracts signed in the first quarter of this year are mainly contracts won in the previous year. The value of contracts where Budimex’s offer was selected as the most advantageous at the end of 2015 amounted to PLN 2 billion. At the end of March this year, it was PLN 1.4 billion, of which only PLN 0.5 billion was in infrastructure. Over PLN 0.5 billion are contracts related to construction for the needs of the health service, which puts us among the leaders in this segment.

Due to the slowdown in announcing new tenders, it will be difficult to repeat the level of contracting from 2015. However, we would like to maintain or even increase our bidding effectiveness in the subsequent quarters of 2016 so as to maximally fill the order book for the coming years. We are intensifying our activities on the cubature market, because we would like to become a significant contractor in every city in Poland.

In the first quarter of 2016, we recorded a decrease in the level of cash compared to the end of the previous year, which is characteristic of this period. Despite this fact, the Budimex Group maintains its net cash position at the level of PLN 2.0 billion at the end of the first quarter of 2016. This is an increase of 15% compared to the end of the first quarter of 2015.

Pre-sales of apartments in the first quarter of 2016 decreased by 36% compared to the same period of the previous year (317 pre-sold apartments now to 499 pre-sold in the first quarter of the previous year). This decline is not a signal of decreasing demand, it is only due to the end of pre-sales on the “Nowe Czyżyny” project in Krakow. This project, due to its very attractive price, was very popular. Therefore, maintaining the level of pre-sales from 2015 will be a big challenge. It is necessary to launch new projects regularly. In the first quarter of this year, we started the construction of three new projects, including the next stage of the “Wiślany Mokotów” project in Warsaw. We are also continuing the process of searching for attractive locations for new investments in order to regularly expand our offer.

We are currently building over 4000 apartments, of which 1370 are not pre-sold and constitute an offer for customers.

Despite high notarial sales, the operating and net results of the real estate development segment in the first quarter of 2016 are lower than in the corresponding period of the previous year. In the first quarter of 2015, the real estate development segment sold land at Racławicka Street, which had a significant impact on the segment’s results achieved at that time.

Good results of 2015 and the continuing high level of cash resulted in the Management Board’s recommendation to pay dividend for the eighth time, which was accepted yesterday by the General Meeting of Shareholders. The dividend will be paid in May in the amount of PLN 208 million, i.e. PLN 8.14 gross per share.

In 2016, the Budimex Group will focus on the implementation of the chosen direction of development, including in particular strengthening its competitive position on the railway market through investments in the machinery park. The energy sector, the gas and energy transmission market, as well as road maintenance and facility management continue to be among our main diversification goals.

In 2016, we expect a slight increase in sales dynamics, but we expect construction works to intensify in 2017-2018. However, the first symptoms of rising prices of materials and subcontractors’ services can already be seen today. To maintain profitability, we try to contract the key resources necessary to perform contracts in the first stages of work. Our plans in terms of personnel policy have not changed – in 2016 we want to employ 700 people. We want to maintain a leading position in the construction market, a company that shares profits with shareholders and conducts business in a socially 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 quarter of 2016 and comparable data for the first quarter of 2015.

Results of the reporting segments for the first quarter of 2016 (in PLN thousand):

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