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PBG Group Announces 2013 Full-Year Results

PBG Group Announces 2013 Full-Year Results

In 2012, the PBG Group's results were heavily impacted by a number of non-recurring events which followed the significant deterioration of PBG's and the Group's financial standing. In 2013, the economic and operational position of the Group, and of PBG in particular, improved. However, despite the improvement, non-recurring events related to the on-going restructuring processes within the Group heavily weighed on the results. Since June 2012, the process of approval of PBG's voluntary arrangement with creditors has been on-going. At the current stage of the process, PBG's key objective is to ensure that agreement is reached with the creditors and the arrangement is formally approved. Once approved, the arrangement will allow the Company to continue business activities and rebuild its value in the future. The PBG restructuring process is complex. In parallel to the debt restructuring, the Company is also engaged in reorganisation of its operations and assets. All these efforts are being taken to prepare the organisation for effective performance of the arrangement and to enable the Group to operate as a regular business.

Below are presented the Group's financial highlights for 2013.

PBG:

·         PBG posted revenue of PLN 336m, which represents a year-on-year growth of as much as PLN 114m.

·         Gross loss totalled PLN 63.6m, compared with a PLN 123.3m loss in the previous year.

·         Operating profit came in at PLN 222.2m.

·         Net profit amounted to PLN 128.7m.

·         The value of the order book as at December 31st 2013 was approximately PLN 420m.

·         The Company's results were primarily affected by the non-recurring events discussed further in this document.

RAFAKO Group:

·         The RAFAKO Group posted revenue of PLN 836m, down by PLN 455m on 2012.

·         Gross profit was almost PLN 58m, compared with PLN 115m in the previous year.

·         Operating loss was PLN 26m.

·         Net loss attributable to owners of the parent was PLN 135.5m, compared with PLN 9.8m net profit in 2012.

·         The value of the RAFAKO Group's order book was approximately PLN 5.1bn as at December 31st 2013(of which PLN 3.2bn of RAFAKO's entire share in the Elektrownia Opole project was subcontracted to an entity outside the PBG Group).

·         The RAFAKO Group's net result was affected by a PLN 94.2m impairment of receivables recognised as part of the PBG company voluntary arrangement proceedings.

PBG Group:

·         In 2013, the PBG Group took in revenue of PLN 1.316bn, down by 28% year on year.

·         Gross loss totalled PLN 12.2m, compared with a loss of PLN 906.8m in the previous year.

·         Operating profit came in at PLN 337.1m.

·         Net profit attributable to owners of the parent was PLN 257.6m, compared with a loss of PLN 2.869bn in 2012.

·         The value of PBG Group's order book was approximately PLN 5.5bn as at December 31st 2013(of which PLN 3.2bn of RAFAKO's entire share in the Elektrownia Opole project was subcontracted to an entity outside the PBG Group).

DISCUSSION OF PBG'S 2013 FULL-YEAR RESULTS

In 2013, the Company generated revenue of PLN 336m, compared with PLN 222m in the previous year.

The one-off event which had an adverse impact on the Company's net finance income/costs was recognition of an impairment loss on investments classified as held-to-maturity, representing PLN 76m-worth of bonds issued by Strateg Capital Sp. z o.o. in 2010. Currently Strateg Capital is in company voluntary arrangement. The Company remains an active participant in the negotiations between the Strateg Capital Management Board and the principal creditors, and supports the company's restructuring as far as possible.

A one-off item which positively affected operating profit was partial reversal, by PLN 335m, of the provision recognised at the end of 2012 for potential claims under the surety bonds and guarantees previously issued by the Company, and under joint and several liability towards subcontractors assumed under consortium agreements. The value of the provision in 2012 was PLN 780m. On September 30th 2013, the Company filed with the Court a revised draft of the arrangement proposals, first filed along with the petition for PBG S.A.’s insolvency with arrangement option on June 4th 2012. In accordance with IAS 8, the Company reviewed its estimates at December 31st 2013 and reversed the provision down to PLN 445m.

PBG's 2013 revenue totalled PLN 335m, which represents an increase of PLN 114m on 2012. The revenue sources which largely contributed to this strong year-on-year growth were two contracts signed with PGNiG (construction of the Lubiatów-Międzychód-Głogów oil and gas extraction facilities (completed on March 22nd 2013) and the Wierzchowice underground gas storage, currently at the stage of final commissioning) and from the LNG Terminal contract in Świnoujście, executed for Polskie LNG. The 2012 top-line was low, mainly due to a PLN 66m provision for potential contractual penalties, which were recognised by the Company as a revenue decrease.

In 2013, PBG reported a gross loss of PLN 63.6m, compared with a loss of PLN 123.2m in 2012. Operating profit was PLN 222.2m, in contrast to operating loss of PLN 2.033bn posted for the previous year. The key contributory factors included:

a)      administrative expenses of over PLN 23m, which were more than 80% down year on year;

b)      other income of PLN 365m, with the largest item being a PLN 335m reversal of the provision for potential liabilities under sureties and guarantees issued by the Company;

c)      other expenses, which totalled PLN 55.8m, where the largest items included a PLN 16.6m impairment loss on loans, a PLN 12m impairment loss on real property, and PLN 8.2m impairment losses on receivables.

The above factors, combined with finance costs (net of finance expenses)of PLN 93.5m, led to net profit for 2013 of PLN 129m, in contrast to net loss of PLN 2.352bn in 2012.

PBG's financial results in 2013 vs. 2012

DISCUSSION OF RAFAKO GROUP'S 2013 FULL-YEAR RESULTS

In 2013, the RAFAKO Group's revenue amounted to PLN 836m, down by PLN 455.4m on 2012. The decrease was mainly attributable to:

a)      lower (year on year) cost exposure to running contracts, which primarily resulted from the fact that the progress of contracts in RAFAKO’s order book as at December 3st 2013 differed from that recorded as at December 31st 2012;

b)      postponement of the effective date of the Opole contract involving construction of two power generating units and the launch of the Jaworzno project for the construction of one power generating unit. As a consequence of the delays, RAFAKO could not use the planned in-house and third-party production capacities, which in turn resulted in the company not being able to recognise sales.

The RAFAKO Group reported decline in both domestic and export sales. The expected increase in the value of RAFAKO S.A.'s order book in 2014, including on the back of launch of the Opole project and the expected start of the Jaworzno project, will translate into higher revenue this year.

With cost of goods and materials sold at PLN 341.9m in 2013, the RAFAKO Group's gross profit on sales came in at PLN 57.7m (2012: 114.6m). The change over 2012 was primarily due to:

a)      lower revenue;

b)      lower gross margin on contracts performed in H1 2013, including contracts delivered with a loss, which accounted for a relatively high share in the aggregate value of sales;

Operating loss recognised by the RAFAKO Group in 2013 was PLN 25.7 versus PLN 15m operating profit for 2012.

The operating result was affected by:

a)      administrative expenses of PLN 43.5m.

b)      other income of PLN 4.7m, which mainly included compensations received of PLN 1.3m; 

c)      other expenses of PLN 3.6m.

The above factors, combined with PLN 16.4m finance income and PLN 32.2 finance costs, as well as PLN 94.2m finance costs related to change of the estimated amount of receivables from a related entity recognised as part of company arrangement proceedings, resulted in net loss for 2013 attributable to owners of the parent of PLN 135.3m.

RAFAKO Group's financial results in 2013 vs. 2012

DISCUSSION OF PBG GROUP'S 2013 FULL-YEAR RESULTS

The discussion of the 2013 results of the PBG Group should begin with an analysis of the Group's structure. Apart from PBG (the parent), at the end of 2013 the Group also comprised RAFAKO (and its subsidiaries making up the RAFAKO Group), PBG AVATIA, KWG, BROKAM, PBG Ukraina, PBG Operator, PBG oil and gas, Al Watanyiah Oil & Gas, BATHINEX, Multaros, WSCHODNI INVEST, ENERGOPOL UKRAINA PBG, and PBG DOM (and its subsidiaries making up the PBG DOM Group).

In 2013, the PBG Group reported revenue of PLN 1.316bn, relative to PLN 1.837bn in 2012. The revenue shrank mainly as a result of an almost 35% year-on-year decline in revenue posted by the RAFAKO Group, and because the number of companies in the Group fell during the year, which drove down the amount of consolidated revenue. Another important factor, to a certain extent outside the Group's control, was the fact that its largest contracts had already been completed or their highest revenues had been recognised in 2011 and 2012.

In 2013, PBG reported gross loss of PLN 12m, compared with a loss of PLN 907m in 2012. The share of the oil and gas segment, led by PBG, in consolidated revenue was 25%, while the power construction segment, led by RAFAKO, accounted for 66% of consolidated revenue. These two business segments are the strategic lines of the Group’s operations.

Operating profit of the PBG Group in 2013 was PLN 337.1m, in contrast to PLN 3.544bn operating loss in 2012. The key contributory factors included:

a)      administrative expenses of almost PLN 90m, which was one third of the expenses reported for 2012;

b)      other income of PLN 716m, comprising gain on investments in related entities of PLN 252m (arising from exclusion from consolidation of Energomontaż Południe as at June 30th 2013 following the company's loss of control of its own administration and the resulting loss of control of the entire asset by PBG; and from exclusion from consolidation of Strateg Capital), and a PLN 336m reversal of provision for potential liabilities under the sureties and guarantees issued by PBG (for details, see discussion of PBG's results);

c)      other expenses, which totalled PLN 216m, where the largest items included PLN 59.6m impairment losses on receivables, and PLN 28.5m impairment losses on loans. Other material items of operating expenses were PLN 19.2 fair value measurement of investment property and a PLN 17m provision for liabilities.

The factors described above, together with finance costs of PLN 137m (the largest item of which was impairment loss on the PLN 76m-worth of bonds issued by Strateg Capital and acquired by PBG in 2010), produced net profit attributable to owners of the parent of PLN 258m in 2013. IN 2012, the Group reported loss of PLN 2.869m.

PBG Group's financial results in 2013 vs. 2012

At January 1st 2014, the value of PBG Group's order book was approximately PLN 5.5bn (of which PLN 3.2bn of RAFAKO's entire share in the Elektrownia Opole project was subcontracted to an entity outside the PBG Group), including PLN 1.4bn in contracts to be delivered in 2014, and the balance of ca. PLN 4.1bn to be delivered in next years. Power construction projects account for the largest proportion of the order book value (92%), with the balance (8%) attributable to the oil, gas and fuels segment.

Table: Structure of the order book at January 1st 2014

*RAFAKO's entire share of deliveries (PLN 3.2bn) in the Elektrownia Opole project, has been subcontracted to en entity outside the PBG Group.

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