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PBG Group releases Q1 2012 results

PBG Group releases Q1 2012 results

The Group and its advisers work on the preparation of financial forecasts for 2012-2013.

·         In Q1 2012, the PBG Group's revenue grew to PLN 715.8m, i.e. by 50% year on year. Gross loss on sales was PLN 13.7m, against gross profit on sales of PLN 55.3m in Q1 2011, while operating loss was PLN -41.5m, against a PLN 45.7m profit a year ago. Net loss attributable to owners of the parent was PLN 60.5m, against net profit of PLN 24.1m in Q1 2011.

·         The main cause of the loss were road projects, where the key contributors were upward revisions of project costs and increase in planned losses on two projects: "Road link between the Gdańsk Airport and the Port of Gdańsk – Trasa Słowackiego, Task 2” (PLN -30m), "Construction of Toruń-Stryków A-1 Motorway, Section III” (PLN -20m).

·         Rafako, with revenue of PLN 321m and net profit of PLN 12.4m, was the largest contributor to the Group’s performance.

·         The PBG Group intends to release its financial forecasts for 2012-2013 in June 2012. At present, contract budgets are being reviewed. The Group's financial forecasts prepared will be audited by Ernst&Young, as required under an agreement with the financing banks.

·         The cost-cutting programmes implemented across the Group are expected to generate savings of PLN 23m by the end of 2012.

·         As part of the measures, the Management Board has requested the Supervisory Board to reduce the remuneration of Management Board members by 15% until the end of 2012.

·         The value of the PBG Group's order book as at the end of March 2012 was PLN 8.9bn, of which nearly PLN 4bn of contracts are scheduled for execution in 2012.

·         High-margin contracts in the power engineering segment account for approx. 56% of the backlog value, with projects in the natural gas and crude oil segment accounting for another 13%, and road construction contracts accounting only for 19% of the value (as at April 1st 2012).

·         Jerzy Wiśniewski advanced a PLN 36m loan to PBG S.A.

·         The PBG Group's amounts due from customers for construction contract work, and trade and other receivables were in excess of PLN 2.6bn as at the end of March 2012. Amounts due to customers for construction work contract and trade and other payables were less than PLN 1.4bn.

In the first three months of 2012, the PBG Group's revenue was nearly PLN 716m, up by 50% year on year. This strong growth was a result of the Rafako consolidation and the Group's exposure to the road contracts. The significant deterioration of the financial performance at all levels of the P&L resulted mainly from the execution of the capital-intensive road construction projects. In Q1 2012, the Group recognised provisions for a total of PLN 50m in connection with the construction of a section of Trasa Słowackiego in Gdańsk and the A1 motorway near Toruń.

·         The contract which had the largest effect on the Group's revenue in Q1 2012 was the construction of a section of the A4 motorway near Dębica. Other significant contracts carried out during the period included the construction of the National Stadium in Warsaw, construction of an FGD unit at the Bełchatów power plant, and construction of the Lubiatów-Międzychód-Grotów crude oil and natural gas mine.

Last year's acquisitions of Energomontaż Południe and RAFAKO allowed the Group to create another strong business segment. In the context of projects planned in Poland's energy sector, power engineering is becoming the Group's key business segment. To reflect this shift in the Group's corporate structure, Mr Wiesław Różacki, RAFAKO's CEO, has been appointed to the PBG Management Board. He will be responsible for the entire power engineering segment.

One of the most important developments in Q1 2012 was the conclusion of the contract for construction of power generating units at the Opole power plant, valued at PLN 9.4bn (VAT exclusive). The Group also participates in tenders or pre-qualification proceedings in the power sector; the total value of tendered projects is nearly PLN 70bn.

In Q1 2012, the PBG Group's revenue grew by 50%, from PLN 477.6m to PLN 715.8m. Gross loss on sales was PLN -13.7m, down a PLN 55.3m gross profit a year ago. Operating loss was PLN 41.5m, against an operating profit of PLN 45.7m in Q1 2011. Net loss attributable to owners of the parent was PLN 60.5m, against a profit of PLN 24.1m in Q1 2011.

The table below presents the financial performance of the PBG Group in Q1 2012

The coming months of 2012 will see intensive restructuring at the PBG Group. The Management Board is preparing financial forecasts for 2012–2013. Pursuant to the agreement executed with the financing banks, the forecasts will be audited by Ernst&Young prior to their release scheduled for June 2012. As part of the activities planned for 2012, the Group intends to save approximately PLN 23m against the budget target set initially for the year. Group's cost savings generated by the end of April were PLN 2m. Further, following optimisation of the Group’s equipment and transport resources, the Group has sold equipment and vehicles for a total value of more than PLN 9m.

As part of the cost saving programmes, the PBG Management Board requested reduction of its remuneration. As the request was approved by the Supervisory Board, the remuneration of the Management Board members was cut by 15% until the end of the year. With a view to improving the Company’s current position, Jerzy Wiśniewski, President and major shareholder of PBG S.A., granted a PLN 36m loan to the Company, bearing interest on market terms. The loan is another form of Mr. Wiśniewski’s recent capital involvement in the Company. In recent months, Mr Wiśniewski increased his equity interest in PBG S.A., having bought approximately 150 thousand shares in the period October 2011–January 2012. As the largest shareholder, he declared to participate in the issue of convertible bonds. The first of the twelve bond tranches with an aggregate par value of PLN 1.2bn will be issued in late June and early July 2012.

As at April 1st 2012, the value of the PBG Group’s order book was PLN 8.9bn, including PLN 3.94bn to be delivered in 2012. A year ago, the value of the backlog was nearly PLN 4bn lower. Some 56% of the order book are high-margin contracts in the area of power engineering, a segment where the Group has operated for less than a year. Road construction contracts account for 19% of the backlog (39% a year ago).

PERFORMANCE OF THE GROUP'S SUBSIDIARIES IN Q1 2012

PBG S.A.’s revenue in Q1 2012 was PLN 78.2m, down by 50% year on year, which was mainly attributable to the completion of the Wierzchowice Underground Gas Storage Facility project. The Company's profitability also declined, as the share of this high-margin contract in PBG's total revenue decreased. The Company’s performance was also adversely affected by the upward revision of costs of the Malczyce Barrage project, higher finance expenses resulting from a larger share of bonds in the financing structure, and adverse foreign exchange differences.

The RAFAKO Group (RAFAKO and Energomontaż Południe) made the largest contribution to consolidated revenue. These companies (operating in the power engineering segment) generated PLN 321m in revenue and PLN 16.2m in operating profit, which significantly improved the PBG Group’s overall performance.

The Hydrobudowa Polska and Aprivia groups reported losses caused by the need to recognise further provisions for road construction contracts. The performance of Hydrobudowa Polska was most adversely affected by an upward revision of costs and a PLN 30m increase in the anticipated loss on the construction of Trasa Słowackiego in Gdańsk. Similarly, Aprivia’s negative result was primarily attributable to a revision of costs and an approximately PLN 20m increase in the expected loss on the construction of the A1 motorway near Toruń.

The table below outlines the financial performance of PBG S.A. and of the capital groups operating under the PBG Group in Q1 2012

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