The commentary of the president of the Unibep SA management board on the results reported for the first half of 2018

The Unibep Group completed the first half of 2018 with sales revenues of PLN 814 million (+ 21% y/y) and a net profit of PLN 24.5 million (+ 67% y/y). The increase in profit is driven by good results of the development segment.

The construction industry faces many challenges. On one hand, the construction and assembly production are growing (+18.7% y/y, data as of 1 July 2018). There are a lot of orders, many tenders. On the other hand, the contractors' margins are falling strongly, what is the result of growing price pressure from subcontractors and significant, as even up to several percent, increase in wages and prices of materials. If we add the lack of employees, especially those qualified, then the current image of the construction industry does not look optimistic.

The Unibep Group feels the impact of the adversely conditioned market situation - in accordance with the signed commitments, we execute contracts concluded in 2016-2017, which did not envisage such a significant increase in the investment implementation costs. I would like to add that we are conducting effective negotiations with investors regarding the valorisation of remuneration for services rendered to cover the related losses. This applies mainly to domestic general contracting, where most contracts have been signed with private investors.

The development segment of Unibep Group has significantly improved its sales - in the first half of the current year it amounted to PLN 115 million in relation to PLN 22 million in the corresponding period of the previous year. Currently, Unidevelopment is implementing the construction of over 1,000 apartments, of which 235 will be delivered this year. The company consistently builds a bank of land - it will have 2,900 apartments to offer on the Warsaw and Poznań markets in the coming years.

It is worth adding that in August, Unidevelopment SA began pre-selling apartments in the first development project in Bielsk Podlaski. The general contractor for the investment, which will be built in technology implemented at the Modular House Factory in Bielsk Podlaski, is Unihouse Branch of Unibep SA. For Unihouse, this is the first implementation of a housing estate in Poland (up to now, over 2,200 flats have been built in Norway and Sweden) - the factory has developed a product for the domestic market.

The remaining segments of the Unibep Group carry out sales and have results in line with predictions.

Foreign general contracting implements construction projects in accordance with the schedules and actively conducts acquisitions on the Belarusian and Ukrainian markets.

I would like to add that the Infrastructure Branch of Unibep SA develops its activities on voivodeship, national and express roads in north-eastern Poland, both in consortia and independently. Practically, after implementation of the S8 expressway section in the consortium, we will be building - also in the consortium - the S61 expressway on the section Szczuczyn - Ełk South Junction and we will be reconstructing an important traffic junction in Białystok (Porosły junction, from the Warsaw side). We have also started - this time on our own - to work on the reconstruction of a major intersection in Białystok, connecting the voivodeship road with the S8 expressway. The contracts are safe in terms of financial conditions and realistic in terms of implementation in the assumed schedules.

The orders portfolio of Unibep Group in the construction and infrastructure segment at the end of June 2018 amounts to PLN 2.1 billion for subsequent periods. Since the beginning of 2018, we have signed contracts worth ca. PLN 1.2 billion. Bearing in mind the safe level of the orders portfolio and the complicated market situation, we approach new contracts selectively. This applies to all segments of construction.

At the end of June 2018, the employment in the Unibep Group was 1,468 people (an increase of ca. 5% y/y). We are continuing our strategy of developing our own staff capabilities. Such activities allow us to increase independence and minimize the risk of rising prices of subcontracting services based on the cost of labour.

Despite the demanding and dynamic market situation, we continue to follow the chosen course of development, consistently build competences in every construction segment, we approach new contracts very carefully and take care of the timely implementation of the commissioned works.

Currently, the overriding objectives for the entire leadership of the company are effective management of the current business activities in individual segments, building a secure orders portfolio for subsequent years and caring for the financial security of the Unibep Group.

The complete management report for the first half of 2018. - HERE