2010-08-25
Strong Rise in Revenue with Tight Rein on Costs
- Hydrobudowa Polska Group posts a 44% rise in revenue for H1 2010
- Actual profits beat analysts’ expectations
- New high-value long-term contracts added to the order book
In the previous quarter, the Hydrobudowa Polska Group posted PLN 471.5m in revenue, up 38% on Q2 2009. The Group’s consolidated sales in the first six months exceeded PLN 794.1m, which represented a 44% increase, setting the Group apart from industry peers – in H1 2010 the Polish construction and assembly sector’s production fell (according to the Central Statistics Office) by more than 6% year on year. The decline was undoubtedly caused by inclement weather conditions in the period, especially the long and harsh winter.
The Hydrobudowa Polska Group was successful in mitigating the seasonality effect typical of the construction sector, as it managed to diversify its revenue sources in prior periods and win contracts with high unit values, including contracts for the construction of football stadiums for the 2012 European Championships.
The strong rise in the Hydrobudowa Polska Group’s revenue was accompanied by a significant increase in gross profit, which in Q2 2010 stood at nearly PLN 48.2m, up by 44% on the comparative period last year. “As a result our gross margin rose to 10.2%, from 9.8% a year before. The rise was attributable, among other things, to the settlement of several high-profit contracts,” explains Rafał Damasiewicz, Member of Hydrobudowa Polska’s Management Board, CFO.
In H1 2010, consolidated gross profit rose by nearly 25%, to PLN 73.1m. Gross margin in the same period was 9.2%, versus 10.6% in H1 2009.
In addition, the Hydrobudowa Polska Group’s cost optimisation programme is beginning to deliver positive effects. Despite the considerable rise in sales, general and administrative expenses were curbed. In H1 2010, they were less than PLN 25.6m, having been reduced by over PLN 2m year on year. The share of general and administrative expenses in revenue fell from 5% to 3.2%. “We expect that welcome trend to continue into the second half of the year,” assures Rafał Damasiewicz.
In Q2 and H1 2010, the Hydrobudowa Polska Group earned, respectively, nearly PLN 24.5m and PLN 36.1m in operating profit. The amounts are lower than the respective comparative figures by 4% and 13%. However, it should be recalled that the Q2 2009 results set a very high base due to a non-recurring event, namely remeasurement by Hydrobudowa 9(a subsidiary) of the real property located at ul. Górecka in Poznań, following its sale to PBG Dom. The gain was PLN 8.6m.
“Another factor which had a positive effect on the Q2 2009 net result was the settlement of deferred tax relating to unused tax losses at Hydrobudowa 9. Accordingly, when comparing this year’s earnings with the previous year’s results, we should bear in mind the (high) base effect,” stresses the CFO. In H1 2010, the Hydrobudowa Polska Group’s net profit attributable to owners of the parent was PLN 31.1m (against PLN 43.2 m a year before). In Q2 alone, it stood at PLN 22.2m (versus PLN 36.1m in the corresponding period of 2009).
Despite the profit erosion, the Hydrobudowa Polska Group’s performance was better than the analysts’ consensus. The consensus forecast for the construction sector (representing the average of the forecasts prepared by individual brokerage houses), published at the end of July by the Parkiet daily, assumed that in Q2 2010 the Hydrobudowa Polska Group would post PLN 17.8m in net profit, PLN 22m in operating profit and PLN 442.3m in revenue. This means that the analysts’ estimates were exceeded by 25%, 11% and 7%, respectively.
The Hydrobudowa Polska Group began the second half of the year with the order book worth over PLN 1.6bn. This amount does not take into account the planned involvement of some of the Group companies in the construction of sections of the A1 and A4 motorways and the S5 expressway under contracts concluded in June and July. The aggregate value of the road construction contracts is close to PLN 3.7bn (of which approximately PLN 1.8bn is attributable to companies of the PBG group, including Hydrobudowa Polska).
“This year, we should not have any difficulties in achieving revenue in line with the previous year’s revenue of some PLN 1.7bn. What is more, our order book for the next year is pretty much full,” concludes Rafał Damasiewicz.