PBG Group plans to increase capital and focus on strategic markets
PBG Group plans to increase capital and focus on strategic markets
- The PBG Group continues to pursue its strategy of focusing on high-margin sectors, strengthening its leadership in the Polish specialist construction market and reducing its debt.
- With a view to financing the implementation of this strategy, PBG is currently considering a rights or convertible issue in the second quarter of 2012.
PBG intends to make the best of the market opportunities in the coming years. To this end, PBG is considering a rights issue addressed to its existing shareholders or an issue of convertible bonds.
"At this stage, we are considering various options available on the capital market. As a shareholder, I analyse all the possible scenarios to find the optimal way for PBG to raise the required capital. The company needs a strong strategic investor, and so we should be able to issue convertible bonds with preemptive rights waived, and to carry out a rights issue that I would acquire or which would be bought by a such an investor. We consult the capital market on all the decisions we make, and the course of action we will eventually decide to take will depend on the outcome of negotiations and shareholders' views",says Jerzy Wiśniewski, PBG's CEO and largest shareholder.
According to draft resolutions to be adopted during the Extraordinary General Meeting called for April 3rd 2012, the Management Board the convertible issue. Under to the resolutions, the Company will be able to issue up to 12 thousand bonds, with nominal value of PLN 100 thousand per bond. This means that the total nominal value of these securities may amount to PLN 1.2 billion. The Management Board will be authorised set all terms and conditions of the bonds, including their issue price and interest, purchase/conversion dates and the conversion price. Such terms and conditions will have been defined before the offer is made to potential bondholders.
In order to secure the optimum capital structure, the Company may also carry out a rights issue. Pursuant to the resolutions, the Company may issue up to of 14 295 000 shares, with a par value of PLN 1 per share. The final number of shares to be issued and their issue price will be defined during the GM. Each existing share will entitle its owner to acquire 1 new issue (assuming that the maximum number of shares laid down in the resolution is issued). The rights record date has been set to June 1st 2012.
The proposed solutions will allow PBG to find a strategic investor who will be able to acquire a significant holding of the Company shares.
Objectives of the issue
Regardless of the final decision as to the how the capital is to be increased, the Company intends to allocate the raised capital to finance its running projects and anticipated contracts in the power industry, as well as to optimize the structure and amount of its current debt.
Power engineering and natural gas and crude oil segments as drivers of PBG growth
The PBG Group plans to significantly strengthen its position in the Polish power sector. This year alone, contracts worth ca. PLN 30 billion are to be awarded. In the coming years, the estimated value of all projects in the secotr may amount to hundreds of billions of złotys.
"We are planning to make the best of the opportunities now emerging on the Polish construction market. We are also working towards strengthening of position in those segments of the market which may provide us with the most satisfactory profit margins going forward. We want to focus on our core business, effectively use the growth opportunities offered by the power sector and continue to develop our business on the natural gas and crude oil segment. We believe that these sectors can offer significantly higher gross margins. We believe that these margins should continue to be high over the next several years. Taking into account our vast experience, competences in both sectors and the fact that we have managed to significantly strengthen our Group by acquiring Rafako and Energomontaż Południe, we can certainly expect an increased contribution of these segments to our profits", says Jerzy Wiśniewski.
The need to provide an alternative for the much outdated power units (nearly half of the Polish power assets [turbines and generators] currently in use is over 30 years old) and the expected growth of demand for electricity in Poland (estimated at several per cent a year) will require significant investments in the sector. At the same time, a change in approach is seen among Polish energy groups, and the significance of low-emission technologies in the structure of energy sources continues to grow.
The acquisitions of Energomontaż Południe and Rafako marked the beginning of significant changes related to repositioning of the Group's business towards power engineering. Both takeovers will allow PBG to increase its revenue streams coming from outside the road and general construction segments. Power engineering already accounts for the largest share of PBG's backlog - approximately 33% of its total worth (as of late 2011).
To make the best use of the opportunities offered by the power engineering market, PBG has taken the following steps:
- RAFAKO has been designated as the leader of the PBG Group's power engineering segment;
- Strategic cooperation with major players on the global power engineering market has been commenced in the area of joint winning and executing contracts in Poland;
- Building own competences and credentials by winning and executing contracts of increasingly larger unit values.
The segment of natural gas, crude oil and fuels has been an important part of the Group's business operation for many years, generating high profit margins. The Group is planning to continue to focus on the oil and gas market. Some of the running projects in this segment include construction of the LMG crude oil production facility and the LNG terminal in Świnoujście. Both are executed by PBG. These are currently flagship projects for the Polish market.
The Group intends to continue strengthening its leading position in the oil and gas sector by winning new contracts for execution of the largest and most complex projects in Poland.
But at the same time the Group does not plan to withdraw from the other segments of its current business. PBG wants to focus on the market of infrastructural and specialist engineering services, i.e. construction of waste management facilities, incinerating plants and hydro-engineering projects, while selecting projects offering most attractive profit margins.
The Group's intention is to move away from large construction projects characterized by low margins, and instead adopt a selective approach to projects with satisfactory levels of profitability. This strategy has already been adopted by the Group in the road construction segment, where PBG increasingly replaces highway projects with more specialist and local projects. The same is true for the water sector, where the Group focuses on hydro-engineering generating higher profit margins.
Deleveraging
An important element of PBG's strategy is the reduction of the Group's debt. PBG plans to sell some of its non-core assets and scale down its operations in areas which require significant capital expenditure but are not key to the Group's development in the upcoming years. To this end, the Group wants to sell 63 properties and projects with an aggregate value of several hundred million złotys; the total area of the properties exceeds 700 thousand square meters.