Financial results of the Budimex Group after the first half of 2019

Market situation:

• Construction and assembly production rose by 10% in the first half of 2019 and reached the level of PLN 43.1 billion. However, the monthly reading of the market dynamics in June was much lower, which is a negative signal and may mean a slowdown in orders and accumulation of works in subsequent periods.
• The difficult market situation translates into a significant deterioration of the financial standing of large entities that carry out the largest orders, largely based on subcontracting services.
• Some general contractors are starting to indicate problems with financial liquidity, which means that the first motions for bankruptcy of large entities are appearing as well.
• In recent months, numerous infrastructure contracts have been terminated, e.g. for sections of S5, S61, S7, S3 expressways and the A1 motorway.

Results of the Budimex Group:

• The Group's sales in the first half of 2019 were close to the level of the first half of 2018 and reached the level of PLN 3.25 billion.
• Gross profit margin for the Budimex Group amounted to 3.3%.
• The construction segment remains under pressure of cost inflation, gross profit margin dropped to 1.7% (as compared to 3.6% in the first half of 2018).
• The property development segment achieved a gross profit margin at the level of 17.6%, thus improving the result from the first half of 2018 when the margin was 14.3%.

Cash position of the Budimex Group:

• In the first half of 2019, we recorded a drop in the net cash balance, typical for that period, to the level of PLN 264 million.
• The net cash balance dropped, among others, as a result of dividend payment in the amount of PLN 161 million and a seasonal increase in the working capital involvement in the construction area.
• The tendency persists among investors to be late in the process of accepting and invoicing completed works.
• At the same time, the increasingly difficult liquidity situation in the industry requires companies to maintain the policy of financing subcontractors through earlier payments and acceptance of more frequent invoicing of completed works.

Results of the construction segment of the Budimex Group:

• Sales of the construction segment increased by 3%, achieving a slightly lower increase than in the industry as a whole - we focus on building a profitable order portfolio.
• The gross profit margin in the construction segment dropped to 1.7% as compared to 3.6% in the first half of 2018.
• Due to external factors beyond the company's control, we expect the construction of a waste incineration plant in Vilnius to be prolonged and the financial result on this contract to deteriorate. We are in talks with the Ordering Party and the Consortium member regarding further contract execution.
• The order portfolio of the Budimex Group reached a record level of PLN 11.1 billion, mainly due to new orders in the railway segment.
• In July, we signed a contract for continuation of works on the A1 motorway section and for construction of a gas pipeline for Gaz-System. Recently, we have also acquired new strategic customers such as JSW, Tauron and PGNiG.

Results of the property development segment of the Budimex Group:

• In the first half of 2019, the customers of Budimex Nieruchomości signed 947 notarial deeds.
• The extension of our offer in recent months allowed us to achieve a pre-sale of 731 apartments.
• The revenues of the property development segment dropped by 5% and amounted to PLN 313 million, while the gross profit amounted to PLN 55 million with a high profitability of 17.6%.

The Budimex Group outlook on the upcoming quarters...

• The situation of the Budimex Group is stable and the record level of order portfolio 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, but we are still experiencing the effects of executing difficult contracts signed 2-3 years ago. Valorisation of contracts have been implemented to a limited extent in new GDDKiA and PKP PLK projects, whereas there are no such solutions in local government orders. At present, we cannot assess how the new indexation mechanisms will work in practice.
• The market environment remains difficult, especially in terms of availability and maintenance of personnel and prices of materials and subcontractors. The deterioration of the liquidity situation in the industry is also visible.
• We have completed negotiations on the acquisition of 51% of shares in FBSerwis. At the beginning of July, the transaction was finalised, and starting from that date Budimex Group will start consolidation of the results of FBSerwis Group. It is a strategic and long-term investment which will diversify the business of the Budimex Group.

The Budimex Group...

• Develops corporate social responsibility. Budimex won the 22nd edition of the "Benefactor of the Year" competition in the "Education - Large Company" category for its involvement in the project of the first plant nursery "Puszczyk".
• Recently, to celebrate our 30th anniversary, Parent Zone in Chorzów was opened.
• It strives to create the best possible working conditions for its employees. Once again, we were on the podium of the Most Attractive Employers Poland 2019, ranking in the "Engineering" category.
• Budimex Nieruchomości now offers almost 2,000 apartments in 5 locations.

Complete information with financial data can be downloaded here.