Events

PBG Group announces Q3 2013 results

Wysogotowo, November 14th 2013

PBG Group announces Q3 2013 results

Q3 AND Q1–Q3 RESULTS SUMMARY

PBG:

1. Q1–Q3 results
2. PBG took in revenue of PLN 276.5m, up by 183.9m year on year
3. Gross loss totalled PLN 5.1m, compared with a loss of PLN 102.2m in the previous year
4. Operating profit came in at PLN 80.8m
5. Net loss amounted to PLN 7.9m
6. The value of PBG’s backlog as at September 30th 2013 was close to PLN 0.5bn.
7. Q3 results
8. PBG took in revenue of PLN 61.5m, up by 0.2m year on year
9. Gross loss totalled PLN 19.6m, compared with a profit of PLN 11.2m in the previous year
10. Operating loss was PLN 7.9m
11. Net loss amounted to PLN 9.4m.

RAFAKO Group:

1.   Q1–Q3 results

• The RAFAKO Group turned in revenue of PLN 551.9m
• Gross profit totalled PLN 18.9m
• Operating loss was PLN 59m
• Net loss attributable to owners of the parent was PLN 39m
• The value of the RAFAKO Group’s backlog as at September 30th 2013 was PLN 5.1bn.

 2. Q3 results

• The RAFAKO Group turned in revenue of PLN 180m
• Gross loss amounted to PLN 21.9m
• Operating loss was PLN 65m
• Net loss attributable to owners of the parent was PLN 39m.

PBG Group:

1.   Q1–Q3 results

• The PBG Group took in revenue of PLN 957.3m, down by PLN 495.4m year on year
• Gross profit totalled PLN 7.6m, compared with a loss of PLN 857.2m in the previous year
• Operating profit stood at PLN 149m
• Net profit attributable to owners of the parent was PLN 80.8m, relative to a net loss of PLN 1.52bn the year before
• The value of the PBG Group’s backlog as at September 30th 2013 was PLN 5.6bn.

2.   Q3 results

• The PBG Group took in revenue of PLN 248.7m, down by PLN 165.4m year on year
• Gross loss totalled PLN 39.3m, compared with a loss of PLN 150.3m in the previous year
• Operating loss was PLN 86.1m
• Net loss attributable to owners of the parent was PLN 57.5m, relative to a net profit of PLN 159.7m the year before.

Q1–Q3 2013 SUMMARY AND KEY EVENTS WITH A BEARING ON THE FINANCIAL RESULTS POSTED BY PBG

PBG has published its financial results for the third quarter of 2013. All business segments and individual contracts have been reviewed. The key factor affecting the Company’s financial performance was the conclusion of an agreement with its consortium partners in a contract for construction of the Wierzchowice underground gas storage facility. The agreement had a negative effect on the Company’s gross loss (an increase in variable costs of over PLN 24m reduced the result on sales by more than PLN 23m) and a positive effect on its operating loss (reversal of an impairment loss on receivables of PLN 21.4m). The agreement, concluded after many months of negotiations between the parties, was a great success for PBG.Failing to reach it, PBG would have been exposed to risks on the resolution of the dispute between consortium members, and payment to some of those members of claims of ca. PLN 190m arising from the dispute. With a view to completing the contract as soon as possible, the agreement resolved the dispute by regulating certain issues that will enable contract completion or facilitate the Company’s current operations. In the opinion of the Management Board, the steps taken substantially mitigated, or at least reduced, the risk of termination of the agreement by the Employer, limiting the risk of imposition of further contractual penalties.

In Q1–Q3 2013, PBG’s revenuewas PLN 276.5, up 198% year on year.Accounting for nearly 93%of the total, the gas, oil and fuels segmentwas the largest contributor to revenue (revenue earned under contracts performed for PGNiG SA in the analysed period, i.e. the construction of the LMG oil and gas production facility and the Wierzchowice underground gas storage facility, and the contract for the construction of the LNG terminal in Świnoujście for Polskie LNG).The second largest segment was power construction. Its share in revenue during the period under review was just under 3%(from a contract fulfilled for KGHM S.A.). The watersegment also accounted for the same percentage (3%) of the Company’s revenue.

For Q1–Q3 2013, PBG reported a gross loss of PLN 5.1m, compared with a loss of PLN 102.2m for the same period the year before. Operating profit was PLN 80.8m, in contrast to an operating loss of PLN 618m posted in the same period of the previous year. This financial performance was driven by:

1. administrative expenses of just under PLN 22m, almost 80% less than in the corresponding period of the previous year;
2. other income of PLN 137.3m, with its largest components being an amount of PLN 90m from partial reversal of a provision recognised at the end of 2012 for potential claims under surety bonds and guarantees previously issued by the Company, and under joint and several liability towards subcontractors assumed under consortium agreements, as well as PLN 25.6m from reversal of impairment losses on receivables, including a PLN 21m reversal of receivables under the Wierzchowice gas storage facility contract, and
3. other expenses totalling PLN 29.3m.

These items, compounded by finance costs (whose main component was an impairment loss on investments classified as held-to-maturity, i.e. bonds issued by Strateg Capital Sp. z o.o. (currently in bankruptcy by liquidation) and acquired by PBG in the amount of PLN 76m), together produced a net loss of PLN 7.9m for Q1–Q3 2013, compared with a loss of PLN 1.18bn reported for the same period the year before.

PBG’s Q1–Q3 2013 results vs. Q1–Q3 2012 are presented in the table below.

Q1–Q3 2013 SUMMARY AND KEY EVENTS WITH A BEARING ON THE FINANCIAL RESULTS POSTED BY THE RAFAKO GROUP

For Q1–Q3 2013, the RAFAKO Group recorded revenue of PLN 551.9m, which represents a marked decline year on year This decline was driven by:

1. lower (year on year) cost engagement in running contracts, which primarily resulted from the fact that the progress of contracts in RAFAKO’s order book as at September 30th 2013 differed from that recorded as at September 30th 2012;
2. a significant decline in weighted average profit margin realised on running contracts, as compared with the margin reported in the same period last year, and
3. 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.

All of the factors and developments described above had an overall negative effect on the RAFAKO Group’s financial performance. For Q1–Q3 2013, the Group posted operating loss of PLN 59m and net loss attributable to owners of the parent of PLN 39m.The financial results were further negatively affected by one-off recognition of impairment losses on receivables from PBG Group companies, for which the company lodged a claim in the course of PBG’s arrangement proceedings. The impairment losses were recognised after PBG had filed revised arrangement proposals with the Bankruptcy Court. RAFAKO recognised impairment losses of PLN 9.6m, which had a negative impact on the PBG Group’s performance. Further, the PBG Group’s consolidated results were affected by an impairment loss recognised by RAFAKO on its investment in biogas plant construction. RAFAKO recognised a PLN 16.2m impairment loss on investments, of which PLN -9.9m affected the consolidated result of the PBG Group.

The table below presents the RAFAKO Group’s Q1–Q3 2013 and Q3 2013 results

Q3 2013 SUMMARY AND KEY EVENTS WITH A BEARING ON THE FINANCIAL RESULTS POSTED BY THE PBG GROUP

Discussion of the Q3 2013 financial results of the PBG Group should begin with an analysis of the Group’s structure, and its constituent companies. Apart from PBG (the parent), the Group also comprises RAFAKO (and its subsidiaries making up the RAFAKO Group), PBG Avatia, KWG, PBG oil and gas, Bathinex, Wschodni Invest, PBG DOM, PBG Erigo (the subsidiaries making up the PBG DOM Group), and PBG Energia.

For Q1–Q3 2013, the PBG Group reported revenue of PLN 957.3m, which compares negatively with the PLN 1.45bn posted for Q1–Q3 2012. The main reason behind this decline was the lower number of companies making up the Group this year, which depressed consolidated revenue.

Liquidity issues faced by most Group companies, which began in Q2 2012 and have limited the amount of work done under contracts in 2013 as well, continue to have a negative effect on revenues from long-term contracts. In Q1–Q3 2013, the PBG Group earned PLN 7.6m in gross profit, compared with a loss of PLN 857.2m in the same period of 2012. The share of the oil and gas segment, led by PBG, in was 28% in consolidated revenue, while the power construction segment, led by RAFAKO, accounted for 61% of consolidated revenue. These two business segments are the strategic lines of the Group’s operations.

In Q1–Q3 2013, operating profit booked by the PBG Group was PLN 148.9m, in contrast to an operating loss of PLN 2bn posted in the same period of the previous year. This result was driven by:

1. administrative expenses of just under PLN 70.6m, a figure more than three times lower than in the corresponding period of the previous year, and
2. other income of PLN 391.2m, comprising a PLN 222m gain on investments in related entities This arose from exclusion of Energomontaż Południe from consolidation(as of June 30th 2013, following loss of control of the management of the bankruptcy estate and the resulting loss of control of the asset by PBG), and PLN 90m from partial reversal of a provision recognised at the end of 2012 for potential claims under surety bonds and guarantees previously issued by the Company, as well as under joint and several liability towards subcontractors assumed under consortium agreements, and
3. other expenses of PLN 133.9m, comprising in particular impairment losses on assets (PLN 63.6m) and interest on trade and other payables (PLN 7m).

These items, compounded by finance costs totalling PLN 113.4m (whose main component was an impairment loss on investments classified as held-to-maturity, i.e. bonds issued by Strateg Capital Sp. z o.o. (currently in bankruptcy by liquidation) and acquired by PBG in the amount of PLN 76m), together produced a net profit attributable to owners of the parent of PLN 80.8m in Q1–Q3 2013, against a loss of PLN 1.5bn reported for the same period the year before.

PBG Group’s Q1–Q3 2013 results vs. Q1–Q3 2012 are presented in the table below.

As at October 1st 2013, the value of the PBG Group’s backlog was approximately PLN 5.63bn, of which about PLN 540m represents orders to be executed in 2013, with the balance of over PLN 5bn scheduled for execution in subsequent years. Power construction projects account for the largest proportion of the order book (90.9%), with the balance (9%) attributable to the oil, gas and fuels segment.

The table below presents the order book breakdown as at October 1st 2013

*The PBG Group is a specialist provider of construction services in the area of gas/oil production and fuel facilities, as well as general contractor services spanning power, infrastructure, industrial and residential construction.

Contact:

Jacek Balcer

Corporate Communication Director

+48 605 470 718

jacek.balcer@pbg-sa.pl

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