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PBG Group publishes H1 2013 results

PBG:

·         PBG posted revenue of PLN 215m for H1 2013, which represents a robust growth of PLN 184m year on year.

·         Gross profit totalled PLN 14.5m, compared with a loss of PLN 113.3m in the previous year.

·         Operating profit stood at PLN 88.7m.

·         Net profit amounted to PLN 1.4m.

·         The value of the order book as at July 1st 2013 was approximately PLN 630m.

RAFAKO Group:

·         The RAFAKO Group posted revenue of PLN 381m for H1 2013, down by PLN 365m on H1 2012.

·         Gross profit was under PLN 40m, compared with PLN 94m in the previous year.

·         Operating profit stood at PLN 5.9m.

·         In H1 2013, net profit attributable to owners of the parent was PLN 6.7m, compared with PLN 32m in the same period of the previous year.

·         The value of the Group's order book as at July 1st 2013 was approximately PLN 5.2bn.

PBG Group:

·         In H1 2013, the PBG Group took in revenue of PLN 708m, down by 32% year on year.

·         Gross profit totalled PLN 47m, compared with a loss of PLN 707m in the previous year.

·         Affected by one-off events, operating profit amounted to PLN 235m.

·         In H1 2013, net profit attributable to owners of the parent was PLN 138.3m, compared with a loss of PLN 1.685bn in the same period of the previous year.

·         The value of the Group's order book as at July 1st 2013 was approximately PLN 5.85bn.

KEY EVENTS AT PBG IN THE FIRST SIX MONTHS OF THE YEAR

PBG has published its financial results for the first six months of 2013. With revenue of PLN 215m in H1 2013, PBG generated gross profit of PLN 14.5m and delivered a gross margin of 6.7%.

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. As Strateg Capital is currently in liquidation bankruptcy, PBG has lost control of that subsidiary's assets. However, the Company remains an active participant of the negotiations held between the Strateg Capital Management Board and the principal creditors, and is supporting the company's restructuring as far as possible.

Furthermore, in the first six months of 2013 the Company partially reversed the PLN 90m provision recognised at the end of 2012 for potential liabilities under the sureties and guarantees previously issued by the Company and under joint and several liability towards subcontractors, assumed under consortium agreements. This partial reversal had a positive effect on operating profit/loss. Post-reversal, the provision amounts to PLN 690m.

PBG's H1 2013 revenue totalled PLN 215m, which represents a growth of PLN 184m on the same period in 2012. The revenue streams which largely contributed to this strong year-on-year growth were from contracts signed with PGNiG (construction of the Lubiatów-Międzychód-Głogów Oil and Gas Production Facilities and the Wierzchowice Underground Storage Facility, completed on March 22nd 2013) and from the LNG Terminal construction contract in Świnoujście, executed for Polskie LNG. The H1 2012 top-line figure was low, mainly due to the PLN 66m provision for potential contractual penalties, which were recognised by the Company as a revenue decrease.

In H1 2013, PBG earned PLN 14.5m in gross profit, compared with a loss of PLN 113.3m in the same period the year before. The oil and gas segment accounted for the largest share of the Company's revenue (in excess of 90%).

Operating profit booked by PBG in H1 2013 was PLN 88.7m, in contrast to operating loss of PLN 269m posted in the same period of the previous year. This rise was driven by:

a)      other income of PLN 115.8m, with the largest component being the reversal of the provision for potential liabilities under the sureties and guarantees issued by the Company, amounting to PLN 90m;

b)      administrative expenses of almost PLN 16m, which was more than 80% lower compared with the corresponding period of the previous year;

c)      other expenses in the aggregate amount of PLN 25.7m, with the largest component being impairment losses on receivables of PLN 10m.

The factors described above, together with finance costs of PLN 90.1m (the largest item of which was impairment loss on bonds issued by Strateg Capital and acquired by PBG in 2010), produced net profit of PLN 1.4m in H1 2013, compared with net loss of PLN 1.021bn in H1 2012.

H1 2013 vs. H1 2012 results for PBG are presented in the table below.

KEY EVENTS AT THE RAFAKO GROUP IN THE FIRST SIX MONTHS OF THE YEAR

In the first half of 2013, the RAFAKO Group's revenue amounted to PLN 381.4m and was down by PLN 365.8m on the corresponding period of the previous year. The decrease was mainly attributable to:

a)      cost engagement in running contracts being lower than in H1 2012, which was primarily due to the fact that the contracts included in the contract portfolio in H1 2012 and H1 2013 were at different completion stages;

b)      postponement of the effective date of the Opole contract for the construction of two power generating units and the launch of the Jaworzno contract for the construction of one power generating unit. The consequences of delays in the commencement of material work on the aforementioned key contracts included preventing RAFAKO from using planned in-house and third-party production capacities, which in turn resulted in the inability to recognise sales, calculated in proportion to the cost engagement in a given running contract.

Cost of products and materials sold amounted to PLN 341.9m in H1 2013, which allowed the RAFAKO Group to post gross profit on sales of PLN 39.5m. The change on H1 2012 was primarily due to:

a)      lower sales in H1 2013;

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

c)      completion in 2012 of contracts with a relatively high operating margin and a relatively high share in aggregate sales in H1 2012.

Operating profit booked by the RAFAKO Group in H1 2013 was PLN 5.8m versus PLN 25.7m posted in the same period of the previous year. This was driven by:

a)      administrative expenses of PLN 19.7m. Lower costs, which decreased by almost PLN 10m, were due to the disclosure in H1 2012 of the costs of Energomontaż Południe, a subsidiary of RAFAKO;

b)      other income of PLN 2.8m, which mainly included income from contractual penalties or damages received of PLN 1.3m;

c)      other expenses of PLN 1.6m.

As a result of the above events and considering the effect of finance income of PLN 10m and finance costs of PLN 8m, net profit attributable to owners of the Parent reached PLN 6.7m in H1 2013.

H1 2013 vs. H1 2012 results for the RAFAKO GROUP are presented in the table below.

KEY EVENTS AT THE PBG GROUP IN THE FIRST SIX MONTHS OF THE YEAR

The discussion of the H1 2013 financial results of the PBG Group should begin with an analysis of the Group's structure, i.e. its constituent companies. Apart from PBG (the Parent), the Group also comprises RAFAKO (and its subsidiaries making up the RAFAKO Group), PBG Energia, Metorex, PBG Avatia, KWG, BROKAM, PBG Ukraina, PBG Operator, PBG oil and gas, Bathinex, Wschodni Invest, PBG Bułgaria, PBG DOM (and its subsidiaries making up the PBG DOM Group).

In the period under review, the following events also took place:

1.       Changes in the interests held by PBG in the share capital of the subsidiaries of the PBG Group and other events:

a) Acquisition of full control over Capital Sp. z o.o. (presently in liquidation bankruptcy);

b) Disposal of shares in PBG Africa (PTY) LTD;

c) Removal of the self-administration body at Energomontaż Południe S.A. (presently in liquidation bankruptcy) and change of the type of bankruptcy proceedings.

2.       Changes in interests held in non-consolidated entities:

a)      Disposal of shares in MIKO-TECH Sp. z o.o.

b)      Disposal of shares in Grupa DUON S.A.;

c)      Disposal of shares in REMAXBUD Sp. z o.o.

In H1 2013, the PBG Group reported revenue of PLN 708.7m, relative to PLN 1.038m in H1 2012. The revenue figure shrank mainly as a result of an almost 50% year-on-year decline in revenue posted by the RAFAKO Group, and because the number of companies that make up the Group has fallen this year, which drove down the amount of consolidated revenue. Liquidity problems faced by the majority of the Group companies, which began in Q2 2012 and have limited the amount of work done under contracts in 2013, continue to have a negative effect on revenues from long-term contracts.

Another factor of importance which, in a sense, lies outside the Group's control is the fact that its largest contracts were at the stage of generating the highest revenue or had already been completed in 2011 and 2012 (save for the Opole power construction contract in RAFAKO's portfolio). These contracts included landmark projects of national importance, such as the National Stadium in Warsaw, the Baltic Arena Stadium in Gdańsk and the Lubiatów-Międzychód-Grotów oil and gas production facility, which was completed ahead of schedule in March 2013. The majority of installations built by PBG as part of the Wierzchowice Underground Gas Storage Facility construction contract, another highly complex project that is fundamental to Poland's energy security, are currently at the commissioning stage. All these factors combined have translated into the H1 2013 revenue being incomparably lower than the revenue from all those contracts in the peak phase of their execution, which occurred in the previous years.

In H1 2013, the PBG Group earned PLN 47m in gross profit, compared with a loss of PLN 707m in the same period of 2012. The share of the oil and gas segment, led by PBG, in consolidated revenue was 30%, while the power construction segment, led by RAFAKO, accounted for 57% of consolidated revenue. These two business segments are the strategic lines of the Group's operations.

Operating profit booked by the PBG Group in H1 2013 was PLN 235.1m in contrast to operating loss of PLN 1.626m posted in the same period of the previous year. This rise was driven by:

a)      administrative expenses of almost PLN 51.7m, which were three times lower than in the corresponding period of the previous year;

b)      other income of PLN 366m, comprising gain on investments in related entities (PLN 222m) (arising from the exclusion from consolidation of the subsidiary Energomontaż Południe as of June 30th 2013 following the loss of control over the company's administration and, hence, loss of control of the entire asset by PBG) and reversal of a provision for potential liabilities under the sureties and guarantees issued by PBG (PLN 90m);

c)      other expenses in the aggregate amount of PLN 94.7m, with the largest item being impairment losses on receivables of PLN 13m.

The factors described above, together with finance costs of PLN 107.8m (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 138.3m in H1 2013, compared with net loss of PLN 1.685bn in H1 2012.

PBG Group H1 2013 vs. H1 2012 results are presented in the table below.

As at July 1st 2013, the value of the PBG Group's order book was approximately PLN 5.85bn, of which about PLN 840m represents orders to be executed in 2013, with the balance of approximately PLN 5bn scheduled for execution in the coming years. Power construction projects account for the largest proportion of the backlog's value (90%), with the balance (10%) attributable to the oil, gas and fuels segment.

Table: Order book structure as at July 1st 2013

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