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Polish construction companies 2016 – Major Players, Key Growth Drivers and Development Prospects

Introduction 5

Chapter 1. Financial analysis of the largest construction companies 7

1.1. List of the largest construction companies in Poland by revenue earned in 2015 8

1.2. List of the largest construction companies in Poland by operating income in 2015 10

1.3. ListofthelargestconstructioncompaniesinPolandbynetprofitin2015 12

1.4. Debt of the largest construction companies in 2015 15

1.5. Capital expenditure to sales ratio of the largest construction companies in 2015 16

1.6. Revenue of the largest construction companies by region and by type in 2015 18

1.7. 1.7. Market capitalization of the largest construction companies listed on the Warsaw Stock Exchange 26

Chapter 2. Prospects for development of construction companies in Poland 33

2.1. Introduction 34

2.2. Key growth drivers for the construction market in Poland 36

2.3. Bankruptcies in the construction sector 38

2.4. Employment in the construction sector 39

2.5. Development prospects for construction market segments in Poland 41

2.6. Market Perspective 58

2.7. Summary 61

Chapter 3. Profiles of the largest construction companies in Poland 64

Bibliography 113

Contact us 115

Contents

Polish construction companies 2016 | Major Players, Key Growth Drivers and Development Prospects

5

Introduction

Dear Sirs and Madams,

We have the pleasure to present the fourth report entitled Polish Construction Companies 2016 – Major Players, Key Growth Drivers and Development Prospects,analysingtheconditionoffifteenlargestconstruction companies in Poland, as measured by revenues, and describing market prospects for growth.

Havinganalysedthefinancialdatafor2015,weobserved further improvement in revenues and profitabilityoftopplayersinthePolishconstructionmarket.Thetotalrevenuesofallthefifteenlargestcompanies grew by PLN 3.1 billion, i.e. 11.3% compared tothe2014figures.Therevenuegrowthtranslatedintohigheroperatingprofitandnetprofitofthetop15.Attheendof2015,marketcapitalizationofthefifteenlargest construction companies listed on the Warsaw Stock Exchange and included in the ranking was considerably higher than a year before.

Undoubtedly, further growth in 2015 resulted from the general upturn in the Polish economy and completion of works and projects carried out under the previous EUfinancialframework.Asinpreviousyears,largeinfrastructure projects in the road, railway and industrialconstruction sectors, in particular in the energy market, were key drivers of the industry.

Still, in 2016 the construction market saw a considerable slowdown. This results from postponing key infrastructure projects carried out under the new financialperspectiveto2017and2018.Theslowdownwill be particularly visible in the market of contracts for modernization of railroads. Undoubtedly, the major rescheduling of key investment projects will impede sector growth in 2016 and entail an accumulation of construction works in the following years. Thefirstpartofourreportpresentsafinancialanalysisof companies operating on the Polish construction sector,basedonfifteenentitiesthathavemanagedtobuild the strongest market position. It examines their revenues,salesprofits,netprofits,debt,geographicaland revenue structure.

The second section comprises an analysis of the prospects for the industry’s short-term and mid-term growth, a discussion of possible capital expenditure inindividualmarketsegments,bankruptcyfigures,andemploymenttrendsinthesector.Attheendof this section, a summary of the industry’s current condition and the key growth drivers are presented from the perspective of the largest Polish construction companies and key public investors, such as PKP PolskieLinieKolejoweS.A.andtheDirectorateGeneral for National Roads and Motorways.

Inthefinalpartofthereport,webrieflyexaminethecharacteristicsofthebusinessactivityofthefifteenmost important market players in 2015. We include the most crucial information concerning the scope of their activities, ownership structures anddetailedfinancialdataderivedfromtheirannualfinancialstatements.

Our report has been prepared based on publically availablefinancialdataorinformationprovideddirectlyby entities discussed in the report.

Wehopethatyouwillfindthereport:PolishConstruction Companies 2016 – Major Players, Key Growth Drivers and Development Prospects informative and that it will give you a better understanding of the current situation in the Polish construction market, including the opportunities and challenges that lie ahead of sector investors and construction companies.

Asalways,wehighlyencourageyoutocontributeyourinsights and suggestions concerning any issues discussed in the report.


6


7

Chapter 1. Financial analysis

of the largest construction

companies


8

1.1. List of the largest construction companies in Poland by revenue earned in 2015In2015,thecombinedrevenueofthefifteenlargest construction companies totalled PLN 31.1 billion, up by PLN 3.1 billion (11.3%) vs. 2014. The largest players did not change compared to the preceding year. This year’s list is again topped by Skanska Group, whose revenue reached PLN 5.5 billion, up by 8.4%. It is followed directly by Budimex Group, controlled by the Spanish company

Ferrovial, with revenue totalling PLN 5.1 billion, which means a 3,7% rise year-on-year.TheAustrianStrabagisthethirdlargest construction company in Poland, whose revenue increased by 22% vs. 2014, reaching PLN 3.8 billion. It should be emphasised that the Strabag Group reported the most considerable increase in its revenue (PLN 693 million) in nominal terms among all the ranked companies. ApartfromStrabagGroup,therevenueofTorpol Group and Polimex Mostostal Group also rose substantially in value terms,

by PLN 463 million and PLN 446 million, respectively. The most exponential increase in percentage terms (by almost 60%) was reported by Torpol Group. Consequently, it went up from the 15th place in 2014 to12thpositionayearlater.ApartfromStrabag Group, a strong increase in revenue, exceeding 30%, was also seen by companies that are new to the ranking, i.e. Mota - Engil S.A.andHochtiefPolskaS.A.

Table 1.1: List of the largest construction companies in Poland by revenue (in PLN ‘000)

No. Company nameRevenue

2015Revenue

2014Change in nominal

termsChange in

percentage terms

1 Skanska Group 5 509 363 5 081 675 427 688 8.4%

2 Budimex Group 5 133 994 4 949 939 184 055 3.7%

3 Strabag Group** 3 835 846 3 142 849 692 997 22.0%

4 Polimex-Mostostal Group 2 548 575 2 102 197 446 378 21.2%

5 PBG Group 1 798 815 1 530 248 268 567 17.6%

6 Erbud Group 1 763 282 1 692 055 71 227 4.2%

7 Trakcja Group 1 329 180 1 601 674 -272 494 -17.0%

8 PORR Group*** 1 293 120 1 045 019 248 101 23.7%

9 Mostostal Warszawa Group* 1 275 431 1 509 524 -234 093 -15.5%

10 Unibep Group 1 242 860 1 079 703 163 157 15.1%

11 Elektrobudowa Group 1 242 830 1 108 316 134 514 12.1%

12 Torpol Group* 1 238 241 775 399 462 842 59.7%

13 Warbud S.A. 1 106 860 1 049 886 56 974 5.4%

14 Mota - Engil Central Europe S.A. 949 576 658 133 291 443 44.3%

15 Hochtief Polska S.A. 788 488 579 348 209 140 36.1%

Total 31 056 460 27 905 965 3 150 495 11.3%

average 2 070 431 1 860 398 210 033 11.3%

Note: This analysis does not take account of the revenue generated by foreign branches of construction companies operating in Poland or that of special purpose vehicles established to carry out specific projects as part of consortia, as their revenue is included in the consolidated revenue of the consortium members

Source: Financial statements for 2014-2015

Increase Decrease No change


9

In 2015, the most considerable drop in revenue in nominal and percentage terms was reported by the Trakcja Group (PLN 272 millionand17%respectively).Anequallylarge percentage drop was seen by the Mostostal Warszawa Group (15.5% year-on-year).

In 2015, the number of companies whose revenue increased did not change as compared to the preceding year (eleven). Asmanyas13companies(elevenin2014)recorded growth in 2015. The Mostostal Warszawa Group was the only entity to

report a decrease in revenue for two consecutive years.

Consideringthelastfiveyears,thehighlevelof revenue in 2011 was the consequence of major infrastructure projects carried out in Poland before EURO 2012 and the accumulationofinvestmentsinthefirstfinancialperspective.Increasesseenin2014 and 2015 were attributable to the improvement of the overall economic conditions in Poland and worldwide as well as the completion of work relating to projects implementedinthefirstfinancialperspective(2007 – 2013).

Diagram 1.1: Change in average revenue of the ranked companies between 2011 and 2015 (in PLN ‘000)

2 818 580

2 266 448

1 735 8471 900 183

2 070 431

2011 2012 2013 2014 2015

Based on previous editions of reports presenting the largest construction companies in Poland (Deloitte reports: Polish Construction Companies 2011 - 2015) Source: Financial statements 2011-2015


10

1.2. List of the largest construction companies in Poland by operating margin in 2015The operating margin of the largest constructioncompanies,definedasthedifferencebetweenoperatingrevenueand cost of goods sold (excluding other operating revenue and expenses) shows that for the majority of the ranked entities increases/decreases in revenue in 2015 were correlated with increases/decreases in operating income (except Warbud and Hochtief which reported a drop in operating margin despite an increase in revenue). The average operating margin

for the largest companies went up by more than PLN 52 million, which is similar to the increaseseenin2014.Asinthepastyear,the Skanska Group reported the highest operating margin and earned operating income of PLN 664 million. Budimex Group was second, with operating margin of PLN 493 million, i.e. more than 13% more than in the previous year. Strabag Group came third with operating margin of PLN 287 million (more than twice as high as in the preceding year).

For Strabag Group and Hochtief which preparetheirprofitandlossaccountbynature of expense, operating margin takes account of selling costs and general and administrative costs (as opposed to the other ranked entities)

Table 1.2 Operating profit of the fifteen largest construction companies in nominal terms (in PLN ‘000)

No. Company nameOperating margin

2015Operating margin


termsChange in

percentage terms

1 Skanska Group 664 060 567 685 96 375 17.0%

2 Budimex Group 492 714 432 680 60 034 13.9%

3 Strabag Group** 287 052 114 632 172 420 150.4%

4 Trakcja Group 166 133 202 128 -35 995 -17.8%

5 Polimex-Mostostal Group 152 868 -201 623 354 491 175.8%

6 Erbud Group 121 701 99 242 22 459 22.6%

7 PBG Group 117 652 94 494 23 158 24.5%

8 Mostostal Warszawa Group* 110 274 121 104 -10 830 -8.9%

9 Elektrobudowa Group 109 201 73 218 35 983 49.1%

10 Warbud S.A. 106 123 136 033 -29 910 -22.0%

11 Torpol Group* 67 760 48 368 19 392 40.1%

12 Unibep Group 67 238 66 713 525 0.8%


14 Hochtief Polska S.A. 7 153 7 826 -673 -8.6%

15 PORR Group*** no data no data no data no data

Average 179 920 127 735

Average sales margin (%) 8.46% 6.66%




11

In 2015, ten out of the fourteen ranked companies saw an increase in their sales and four had a lower result than over the comparable period in the preceding year. The most exponential increase was reported by Polimex-Mostostal Group (more than PLN 354 million) and the most noticeable drop - by Trakcja Group (more than PLN 35 million). The list also shows that thirteen out of the fourteen ranked companieswhichhavemadetheirfinancialdata available earned operating income both in 2014 and 2015.

The average operating margin was 8.46% in 2015. This is an almost 2 p.p. increase vs. 2014 (6.66%). The highest operating income in percentage terms was generated by Trakcja Group, whose operating margin was 12.50%. Second place went to Skanska Group with an operating margin of 12%, whereas Budimex occupied third position with an operating margin of 9.60% together with Warbud, whose margin was 9.59%. Hochtief, whose operating margin equalled 0.91% was at the bottom of the list.

Asinthepastyear,2015increasesinrevenue were accompanied by further rises in the operating margins of the largest construction companies.

Diagram 1.2: Operating margins of the largest construction companies (%)


12.50% 12.05%

9.60% 9.59%8.79% 8.65%

7.48%6.90% 6.54%

6.00%5.47% 5.41% 5.15%

0.91%no data

8.46%

12.62%

11.17%

8.74%

12.96%

6.61%

8.02%

3.65%

5.87%6.18% 6.24%

-9.59%

3.92%

1.35%

6.66%

-15.00%

-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

6.18%

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2015

2014


12

1.3. List of the largest construction companies in Poland by net profit in 2015 Netprofitisanotherindicatorreflectingtheoverall condition of the largest construction companies. On average, the fourteen largest construction companies generated netprofitofPLN71million,whichmeansaPLN 25 million increase compared to PLN 45 million in 2014. Skanska Group reported thehighestnetprofit(PLN417million),which represents a 29% increase year-on-year.

Second place went to Budimex Group, whichgeneratedanetprofitofPLN237million. Strabag Group was third with a net profitofPLN178million.

On the other hand, PBG Group incurred a net loss of PLN 201 million despite a positive operating margin.

Asmanyasthirteenrankedcompaniesreportedanetprofit,whereasonlyoneincurred a loss. For comparison, in 2014 ten entitiespostedanetprofitandtheaveragenetprofitofalltherankedcompanieswaslower.Tencompaniesreportedanetprofitboth in 2014 and 2015.

Table 1.3: Net profit/loss of the largest construction companies in nominal terms (in PLN ‘000)

No. Company nameNet profit/loss for

2015Net profit/loss for


termsChange in

percentage terms

1 Skanska Group 417 314 324 185 93 129 29%

2 Budimex Group 236 520 193 938 42 582 22%

3 Strabag Group** 177 987 148 981 29 006 19%

4 Polimex-Mostostal Group 68 975 -153 226 222 201 145%

5 Trakcja Group 51 758 50 391 1 367 3%

6 Elektrobudowa Group 49 965 27 015 22 950 85%

7 Warbud S.A. 35 728 48 416 -12 688 -26%

8 Mostostal Warszawa Group 32 466 -8 738 41 204 472%

9 Torpol Group* 31 954 25 009 6 945 28%

10 Erbud Group 31 689 27 892 3 797 14%

11 Hochtief Polska S.A. 29 769 22 203 7 566 34%

12 Unibep Group 23 281 20 925 2 356 11%

13 Mota - Engil Central Europe S.A. 4 540 -12 841 17 381 135%

14 PBG Group -201 104 -80 799 -120 305 -149%


Average 70 774 45 239

Average procentowa marża netto 3.33% 2.36%




13

In percentage terms, the average net profit(3.33%)in2015washigherthaninthe preceding year. The list is topped by SkanskaGroupwithanetprofitmarginof 7.57%. Second place went to Strabag Group and the third to Budimex Group, withanetprofitmarginof4.64%and4.61%, respectively. These top companies recorded the highest net margins both in 2014 and in 2015.

Asregardstheoperatingincome,themajority of the ranked companies saw an increaseintheirnetprofitmargins.Thus,events which were not directly related to theircorebusinessandtheprofit/lossonfinancingactivitiesdidnothaveanadverseeffectontheirperformance,althoughtheirmargins did not increase as exponentially as in the preceding year.

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7.57%

4.64% 4.61%4.02% 3.89% 3.78%

3.23% 2.71% 2.58% 2.55%1.87% 1.80%

0.48%

-11.18%

no data

3.33%

6.38%

4.74%3.92%

2.44%3.15%

4.83% 4.61%

3.23%

-0.58%

1.94% 1.65%

-1.95%

-5.28%

2.36%

-20.00%

-15.00%

-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

-7.29%

Diagram 1.3: Net profit margins of the largest construction companies (%)

2015

2014



14

Our reports presenting the performance of largest construction companies in Poland show that 2015 was another year showing performance improvement, both in regards togrossprofitmarginonthecorebusiness(grossprofitability)andnetprofitmarginincludingotheroperatingandfinancingactivities. Since 2012, which saw a massive drop in the transaction volume (in 2012 theresultsonunprofitableinfrastructurecontractscarriedoutinthepriorfinancialperspective announced by the European

Parliament for years 2007 - 2013 were taken into account), the margins on projects and the performance of the largest construction companies have clearly been improving.


Diagram 1.3.1: Change in average net and gross profit margins of the ranked companies between 2011 and 2015 (in %)

-20,0%

-15,0%

-10,0%

-5,0%

0,0%

5,0%

10,0%

2011 2012 2013 2014 2015

Grossprofitability

Netprofitability


15

1.4. An analysis of the debt ratios of the largest construction companiesThe debt ratios of the largest construction companies were relatively high both in 2014 and in 2015. The average debt weighted by revenue was 78% in 2015. In the analysed period, seven companies increased and seven reduced the share of debt capital in their funding.

Asin2014,fiveentitiesuseddebtcapitaltofinanceatleast75%oftheirassets.PBGGroup had the highest debt in percentage terms, which did not change as compared to2014.Attheendof2015,thecompany’stotal debt constituted 137% (that is, it was 37% higher than the value of its assets), and it went up by 6 p.p. vs. 2014. Having lost liquidity in 2012, the company

went into bankruptcy proceedings open to composition arrangements, which wasfinallyvotedforbythecreditorsinAugust2015.Asregardstheremainingentities, Skanska Group reported the most considerable increase in its debt, from 67% at the end of 2014 to 73% a year later. The debt of the other ranked companies did not increase by more than 5 p.p. in 2015.

Diagram 1.4: Debt ratios between 2014 and 2015

2015

2014

0.77

0.53

0.63

0.74

0.73

0.70

0.73

0.70

0.70

0.67

0.84

0.80

0.86

0.86

1.31

0.78

0.45

0.57

0.66

0.67

0.71

0.71

0.72

0.73

0.73

0.80

0.82

0.83

0.87

1.37

0.00 0.25 0.50 0.75 1.00 1.25 1.50

Average

Trakcja Group

Elektrobudowa Group

Torpol Group

Mota - Engil Central Europe S.A.

Erbud Group

Unibep Group

Strabag Group**

Skanska Group

Polimex-Mostostal Group

Warbud S.A.

PORR Group***

Mostostal Warszawa Group

Budimex Group

PBG Group

no data

Hochtief Polska S.A.



16

The debt ratio of Trakcja Group (45%) was the lowest out of all the ranked companies. Attheendof2015,theaveragedebtratioof the largest construction companies rose by approx. 1% year-on-year.

1.5. Capital expenditure to sales ratio of the largest construction companies in 2015Companies operating in the construction sector typically have a relatively low ratio of capitalexpenditure(definedasinvestmentinfixedassetsandintangibleassets)tosales, due to a high volume of sales and a relatively low level of capital expenditure necessary to provide construction services. In 2015, the combined capital expenditure of the largest companies totalled almost

PLN 254 million, and was PLN 54 million higher compared to 2014.

It should also be emphasized that fewer than half of all the ranked companies reduced their expenditure as compared to the preceding year.

Table 1.5: Capital expenditure of the fifteen largest construction companies in nominal terms (in PLN ‘000)

No. Company nameCapital expenditure

in 2015Capital expenditure

in 2014Change in nominal

termsChange in

percentage terms

1 Budimex Group 67 915 24 072 43 843 182%

2 Trakcja Group 44 309 25 674 18 635 73%

3 PBG Group 29 214 17 125 12 089 71%

4 Torpol Group 26 280 15 046 11 234 75%

5 Mostostal Warszawa Group 18 757 8 279 10 478 127%

6 Warbud S.A. 17 220 19 187 -1 967 -10%

7 Mota - Engil Central Europe S.A. 17 182 8 328 8 854 106%


9 Erbud Group 13 318 16 077 -2 759 -17%

10 Unibep Group 2 825 3 191 -366 -11%

11 Polimex-Mostostal Group 2 480 26 869 -24 389 -91%

12 Hochtief Polska S.A. 752 450 302 67%

13 Strabag Group** no data 24 464 no data no data

14 Skanska Group no data no data no data no data


Razem **** 254 090 175 787 78 303 45%

Average 21 174 15 404 5 770 37%

**** - for the purpose of calculating the ratios of percentage and nominal change of capital expenditures, the amounts concerning Strabag Group in 2014 were excluded. Source: Financial statements for 2014-2015



17

In 2015, Budimex Group incurred the highest capital expenditure in nominal terms (PLN 68 million up by 182% vs. 2014). Trakcja Group with total expenditure of PLN 44 million (a 73% increase year-on-year) and PBG Group with expenditure of PLN 29 million (a 71% rise year-on-year) came second and third, respectively.

In 2015, the capital expenditure to sales ratio was 1.24%, which was a 0.3 p.p. year-on-year. Trakcja Group and Torpol Group reported the highest capital expenditure to sales ratios. Both these entities have a considerable share in the railway contract market. In 2015, the lowest capital expenditure to sales ratio was reported by Hochtief Polska and Polimex-Mostostal Group.

Diagram 1.5: Capital expenditure to sales ratio (figures for 2015 and 2014)

2015

2014

1.03%

no data

no data

0.78%

1.28%

0.08%

0.95%

0.95%

1.04%

0.98%

0.55%

1.83%

1.12%

1.27%

1.94%

1.60%

1.24%

no data

0.10%

0.10%

0.23%

0.76%

1.11%

1.32%

1.47%

1.56%

1.62%

1.81%

2.12%

3.33%

0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 4.00%

Average

Skanska Group

PORR Group***

Strabag Group**



Unibep Group

Erbud Group

Elektrobudowa Group

Budimex Group


Warbud S.A.

PBG Group

Mota - Engil Central Europe S.A.

Torpol Group

Trakcja Group



18

1.6. Revenue of the largest construction companies by region and by type in 2015

1.6.1 Revenue structure by region Large construction groups operating in Poland are also present on foreign markets. However, their sales volume generated abroad is still relatively low and Poland remains the key market on which they provide construction services. In nominal terms, the average revenue earned by the largest construction companies abroad was PLN 173 million, down by almost PLN 22 million as compared to 2014. This means an 11% drop year-on-year. Trakcja Group,whichcontrolsABKaunoalarge

construction group operating in Lithuania and other Baltic states, generated the highest revenue abroad. It totalled PLN 487 million but was 14% lower than in 2014.Second place went to Polimex-Mostostal Group (same as in the preceding year), which reported revenue of PLN 443 million and a 15% increase vs. 2014. The Unibep Group, whose revenue totalled PLN 239 million, was third and reported a 25% drop compared to the preceding year.

The exports of Polish construction companies focus on neighbouring markets, mainly Eastern Europe, Scandinavia and Germany.

Table 1.6.1: Revenue earned by the largest construction companies abroad, in nominal terms (in PLN ‘000)

No. Company nameRevenue from

sales on foreign markets in 2015

Revenue from sales on foreign markets in 2014

Change in nominal terms

Change in percentage terms

1 Trakcja Group 486 978 565 884 -78 906 -14%

2 Polimex-Mostostal Group 442 622 383 978 58 644 15%

3 Unibep Group 238 590 319 497 -80 907 -25%

4 Budimex Group 206 959 195 632 11 327 6%

5 Erbud Group 158 218 195 373 -37 155 -19%

6 PBG Group 128 643 226 268 -97 625 -43%


8 Torpol Group 62 243 28 507 33 736 118%

9 PORR Group*** 48 809 10 379 38 430 370%

10 Mostostal Warszawa Group 13 172 144 453 -131 281 -91%

11 Strabag Group** 8 685 8 883 -198 -2%

12 Warbud S.A. 0 0 0 0%

13 Mota - Engil Central Europe S.A. 0 0 0 0%

14 Hochtief Polska S.A. 0 0 0 0%

15 Skanska Group no data no data no data n/a

Total 1 908 053 2 146 190 -238 137 -11%

Average 173 459 195 108 -21 649 -11%




19

The average share of revenues from sales on foreign markets in the total operating revenue of the ranked companies was over 8%, down by almost 2 p.p. as compared to 2014. Foreign sales of one entity, namely the Trakcja Group, accounted for 37% of their total sales revenue.

Ananalysisofsalesbyregionrevealsthat a growing number of companies from the construction sector are looking foropportunitiestofulfilcontractsandfindclientsonforeignmarkets.Inthelonger term, searching for new markets and,consequently,thediversificationofbusiness risk, will be of crucial importance after the EU funds received in the 2014-2020perspectivehavebeenusedup.Anumber of companies have already made

attemptstofulfilcontractsonforeignmarkets (principally on the neighbouring markets and in Scandinavia), which should translate into greater regional diversity of their operations in the future.

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Diagram 1.6.1: Percentage share of foreign sales in total sales for the fifteen largest construction companies in 2015

2015

2014

36.64%

19.20%17.37%

9.10% 8.97%7.15%

5.03%4.03%

3.77%

1.03%0.23% 0% 0% 0%

8.40%

35.33%

29.59%

18.27%

6.08%

11.55%

14.79%

3.68% 3.95%

0.99%

9.57%

0.28%0% 0% 0%

10.45%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

no data



20

Diagram 1.6.2: Sales of the fifteen largest construction companies in 2015 – by region

Domestic West European East European Scandinavian Asian OtherTOTAL

(2015, in PLN ‘000)

Trakcja Group 842 202No information about where foreign revenues are generated.

Value of foreign revenues - 486 9781 329 180

Polimex-Mostostal Group 2 105 953No information about where foreign revenues are generated.


Unibep Group 1 004 270 29 760 76 804 131 868 158 1 242 860

Budimex Group 4 927 035 174 854 32 105 5 133 994

Erbud Group 1 605 064No information about where foreign revenues are generated.


PBG Group 1 670 172No information about where foreign revenues are generated.


Elektrobudowa Group 1 129 696 3 367 18 476 78 460 6 848 5 983 1 242 830

Torpol Group 1 175 998No information about where foreign revenues are generated.


PORR Group*** 1 244 311No information about where foreign revenues are generated.


Mostostal Warszawa Group 1 262 259 2 359 10 112 701 1 275 431

Strabag Group** 3 827 161No information about where foreign revenues are generated.


Warbud S.A. 1 106 860 1 106 860

Mota - Engil Central Europe S.A. 949 576 949 576

Hochtief Polska S.A. 788 488 788 488

Skanska Group No data 5 509 363

TOTAL: 31 056 460

MARKETS



21

Diagram 1.6.3: Sales of the fifteen largest construction companies in 2014 – by region

Domestic West European East European Scandinavian Asian OtherTOTAL

(2014, in PLN ‘000)

Trakcja Group 1 035 790No information about where foreign revenues are generated.

Value of foreign revenues - 565 884 1 601 674

Polimex-Mostostal Group 1 718 219No information about where foreign revenues are generated.


Unibep Group 760 206 22 152 173 964 123 323 58 1 079 703

Budimex Group 4 754 307 158 085 37 547 4 949 939

Erbud Group 1 496 682No information about where foreign revenues are generated.


PBG Group 1 303 980No information about where foreign revenues are generated.


Elektrobudowa Group 1 040 980 9 806 21 545 17 427 10 966 7 592 1 108 316

Torpol Group 746 892No information about where foreign revenues are generated.

Value of foreign revenues - 28 507775 399

PORR Group*** 1 034 640No information about where foreign revenues are generated.


Mostostal Warszawa Group 1 365 071 79 701 23 090 39 959 1 703 1 509 524

Strabag Group** 3 133 966No information about where foreign revenues are generated.


Warbud S.A. 1 049 886 1 049 886

Mota - Engil Central Europe S.A. 658 133 658 133

Hochtief Polska S.A. 579 348 579 348


TOTAL: 27 905 965


MARKETS


22

1.6.2 Sales by typeSalesbytypereflectdiversificationoftheoperationscarriedoutby the largest construction companies in the general, energy, road andrailwaysectors.Amaterialpartoftheirrevenueisalsoderivedfrom the housing construction and construction engineering sectors.

Diagram 1.6.2.1: Sales by type - fifteen largest companies in 2015

General construction

Housing construction

Road and railroad

construction

Civil engineering

Energy construction

Other operations

TOTAL (2015, in PLN ‘000)

Polimex-Mostostal Group 224 165 27 504 1 801 367 495 539 2 548 575

Budimex Group 4 673 666 460 328 5 133 994

PBG Group 1 552 389 246 426 1 798 815

Elektrobudowa Group 1 047 388 195 442 1 242 830

Unibep Group 999 149 129 498 114 213 1 242 860

PORR Group*** 1 189 268 103 851 1 293 120

Trakcja Group 1 240 975 88 206 1 329 180

Mota - Engil Central Europe S.A. 138 385 708 385 41 418 61 387 949 576

Erbud Group 1 130 960 330 741 253 717 47 864 1 763 282

Torpol Group 1 222 041 16 200 1 238 241

Warbud S.A. 1 091 486 15 374 1 106 860

Mostostal Warszawa Group 272 421 1 000 384 2 626 1 275 431

Hochtief Polska S.A. 614 933 94 605 78 838 113 788 488


Strabag Group** No data 3 835 846

TOTAL: 31 056 460

MARKETS



23

Diagram 1.6.2.2: Sales by type - fifteen largest companies in 2014


Housing construction

Road and railroad

constructionCivil engineering

Energy construction

Other operationsTOTAL

(2014, in PLN ‘000)

Polimex-Mostostal Group 239 740 466 173 968 837 427 447 2 102 197

Budimex Group 4 566 628 383 311 4 949 939

PBG Group 317 063 1 188 076 342 172 1 530 248

Elektrobudowa Group 904 583 203 733 1 108 316

Unibep Group 867 258 124 871 87 574 1 079 703

PORR Group*** 1 000 093 44 926 1 045 019

Trakcja Group 1 474 086 127 588 1 601 674

Mota - Engil Central Europe S.A. 70 808 507 332 46 177 33 816 658 133

Erbud Group 1 397 537 160 185 88 885 45 448 1 692 055

Torpol Group 755 188 20 211 775 399

Warbud S.A. 1 038 747 11 139 1 049 886

Mostostal Warszawa Group 317 063 3 159 1 509 524

Hochtief Polska S.A. 417 048 92 677 69 508 114 579 348

Skanska Group No data 383 311 5 081 675

Strabag Group** No data 3 142 849

TOTAL: 27 905 965

* General and civil engineering construction Source: Financial Statements for 2014-2015


MARKETS


24

No. Company nameOther operations

2015Other operations


termsChange in

percentage terms

1 Polimex-Mostostal Group 495 539 427 447 68 092 15.9%

2 Budimex Group 460 328 383 311 77 017 20.1%

3 PBG Group 246 426 342 172 -95 746 -28.0%

4 Elektrobudowa Group 195 442 203 733 -8 291 -4.1%

5 Unibep Group 114 213 87 574 26 639 30.4%

6 PORR Group*** 103 851 44 926 58 925 131.2%

7 Trakcja Group 88 206 127 588 -39 382 -30.9%


9 Erbud Group 47 864 45 448 2 416 5.3%

10 Torpol Group 16 200 20 211 -4 011 -19.8%

11 Warbud S.A. 15 374 11 139 4 235 38.0%

12 Mostostal Warszawa Group 2 626 3 159 -533 -16.9%

13 Hochtief Polska S.A. 113 114 -2 -1.7%

14 Skanska Group no data no data no data n/a

15 Strabag Group** no data no data no data n/a

Total 1 847 569 1 730 638 116 931


Diagram 1.6.2: Other activities of the largest construction companies in 2015.


25

In nominal terms, the highest share of other non-construction revenue in total revenue in 2015 was reported by Polimex Group and Budimex Group (PLN 496 million and PLN 460 million, respectively).Ascomparedto2014,the average percentage share of other operating revenue went down from 9.6% to 9.2%. In 2015, in most cases, the share of construction and assembly services as a percentage of total sales ranged from

80% to 100%. The operations of Polimex - Mostostal Group continue to show the highestdegreeofdiversification.The scope of the Group’s non-construction operations includes mainly assembly and manufacturing services. On the other hand, Budimex Group, which occupies second place, mainly derives its other operating revenue from property development.

Out of the thirteen entities analysed above, which earned revenue from other operations,onlyfiveincreasedtheirpercentage share of non-construction operations in total revenue in 2015 vs. 2014. This was mainly due to a continued increase in the value of revenue generated by the largest companies on construction and assembly services in 2015.

Diagram 1.6.2.3: Share of revenue from other (non-construction) operations in total operating revenue (for 2015-2014)

2015

2014

9.6%

0.0%

0.2%

2.6%

1.1%

2.7%

18.4%

5.1%

8.0%

4.3%

7.7%

22.4%

20.3%

19.6%

9.2%

no data

no data

0.0%

0.2%

1.3%

1.4%

2.7%

3.4%

6.5%

6.6%

8.0%

9.0%

13.7%

19.4%

20.0%

0% 25%

Average

Skanska Group

Strabag Group**


MostostalWarszawa Group

Torpol Group

Warbud S.A.

Erbud Group

Elektrobudowa Group

Mota - Engil CE S.A.

Trakcja Group

PORR Group***

Budimex Group

PBG Group*


Unibep Group



26

Arelativelylowshareofrevenueisearnedon non – construction related operations. This trend should reverse once projects receiving EU support in the second financialperspectivehavebeenfinalized.Itshould be emphasised, though, that large construction groups have already begun to diversify their business and invest in areas which are not directly related to construction or property development operations, such as property management, supply and installation of specialist industrial equipment or construction advisory and consulting services.

1.7. Market cap of the largest construction companies whose shares are traded on the Warsaw Stock Exchange2015 was a period when the WIG Budownictwo (WIG BUD) index regained the trust of investors. The said index increased by ca. 30% year-on-year, while the main WIG index dropped by ca. 10% in 2015, compared to the end of the preceding year.

Thesharesofnineoutofthefifteenlargestconstruction companies ranked in the report were traded on the Warsaw Stock Exchange, which was used as the basis forthemarketcapranking.Attheendof 2015, the combined market value of nine construction companies listed on the Warsaw Stock Exchange was PLN 8 billion and was PLN 2.4 billion higher than their combined market cap at the end of 2014. In percentage terms, the combined market cap increased by 42%.

The list of companies whose shares are traded on the Warsaw Stock Exchange is topped by Budimex, whose share in the combined market cap is almost 60%. Nevertheless, even excluding Budimex, the increase in the market cap of the remaining entities was 50% year-on-year.

Atthebeginningof2016theWIGBUDindex recorded a drop caused by the limited volume of construction and assembly works in the winter season and a decrease in the volume of new building construction projects. In May 2016, there was another decrease in the index and it reached its lowest value in mid-June 2016. ThesignificantdecreaseoftheWIGBUDindex in May and June was correlated with the general stock exchange trend, driven by the information of the potential withdrawal of the United Kingdom from the European Union-thewithdrawalwasconfirmedbythe results of the referendum which was arranged in the UK in June 2016. Beginning

Diagram 1.7: Changes in WIG and WIG-Budownictwo indices between 2014 and 2016

WIG

WIG BUDOWNICTWO

0

500

1�000

1�500

2�000

2�500

3�000

3�500

38�000

40�000

42�000

44�000

46�000

48�000

50�000

2015

-12-

30

2016

-02-

12

2016

-03-

24

2016

-05-

09

2016

-06-

20

2016

-07-

29

2016

-09-

09

Source: Deloitte analysis based on data published on the website of the Warsaw Stock Exchange.


27

from that date we observe a reversal of the short-term downturn and an increase of the WIG BUD index which, in September 2016, came close to the high levels observed in 2015.

Thismightconfirmthat,despitenegativeinformation about a considerable slowdown in the building construction sector in 2016 - which is well visible in the diagram below - investors take note that listed companies will soon reap thebenefitslinkedwithrunninglargeinfrastructuralcontractsfinancedunderthe new EU perspective for 2014 - 2020.

Diagram 1.7.1: Construction and assembly market ratis in years: 2015 - 2016 (YoY)


10.00%

2015 2016

-25.00%

-20.00%

-15.00%

-10.00%

-5.00%

0.00%

5.00%

I II III IV V VI VII VIII IX X XI XII I II III IV V VI VII VIII


28

The market value of none of the nine analysed companies decreased in 2015. Budimex, whose market cap was PLN 4,953 million (up by 37% compared to 2014), has been the unquestionable leader since 2011. The market cap of Budimex constitutes 60% of the cap value of all the analysed companies. Trakcja PRKiI was ranked second and Elektrobudowa - third (their market capitalisation was PLN 650 million and PLN 617 million, respectively).

Ascomparedwiththepreviousyear,attheendof2015therewasasignificant(42%) increase of the market cap ratio of the largest construction companies. Such a trend is consistent with the increasing revenue of the ranked companies, which was discussed above.

Table 1.7: Market cap of the largest construction companies listed on the Warsaw Stock Exchange as at 31 December 2015 (in PLN ‘000)

No. Company nameMarket cap as

at 31 December 2015

Market cap as at 31 December

2014

Change in nominal

terms

Change in percentage

terms

1 Budimex S.A. 4 952 839 3 612 509 1 340 330 37%

2 Trakcja PRKiI S.A. 650 204 390 637 259 568 66%

3 Elektrobudowa S.A. 617 189 350 373 266 816 76%

4 Polimex-Mostostal S.A. 498 924 303 166 195 758 65%

5 Unibep S.A. 378 763 288 281 90 482 31%

6 Erbud S.A. 354 376 324 153 30 223 9%

7 Torpol S.A. 285 287 229 011 56 277 25%

8 Mostostal Warszawa S.A. 260 000 120 000 140 000 117%

9 PBG S.A. 25 445 23 444 2 001 9%

Total 8 023 028 5 641 573 2 381 455 42%


Diagram 1.7.1: Market cap share of the largest construction companies listed on the Warsaw Stock Exchange as at 31/12/2015

BudimexS.A.

TrakcjaPRKiIS.A.

ElektrobudowaS.A.

ErbudS.A.

Polimex-MostostalS.A.

UnibepS.A.

TorpolS.A.

MostostalWarszawaS.A.

PBGS.A.61.73%8.10%

7.69%

4.42%

6.22%

4.72%

3.56%3.24% 0.32%



29

Basedonthefinancialdataasat30June2016, the combined capitalisation of the analysed companies fell by over 14% as compared with the end of December 2015(the decrease is 5% higher if Budimex is excluded).Asindicatedabove,inMayandJune 2016 all stock exchange indices had a considerable decrease connected with the information concerning the potential withdrawal of the United Kingdom from theEuropeanUnion,whichwasfinallyconfirmedinthereferendumofmid-June2016.

In the second half of the year, the most considerable increase in the market cap in percentage terms was reported by PBG, which resulted from an arrangement with its creditors and the closing of bankruptcy proceedings. On the other hand, Torpol, Elektrobudowa and Polimex-Mostostal reportedthemostsignificantdecreasesintheir market capitalisation.

Diagram 1.7.1: Market cap of the largest construction companies listed on the Warsaw Stock Exchange as at 30/06/2016 (in PLN ‘000)

No. CompanyMarket cap as at 30

June 2016 (in PLN '000)

Market cap as at 31 December 2015

(in PLN '000)

Nominal change (in PLN '000)

Percentage change 2016 vs. 2015

1 Budimex S.A. 4 386 071 4 952 839 -566 768 -11.44%

2 Trakcja PRKiI S.A. 508 856 650 204 -141 349 -21.74%

3 Elektrobudowa S.A. 446 228 617 189 -170 961 -27.70%

4 Erbud S.A. 330 418 354 376 -23 958 -6.76%

5 Polimex-Mostostal S.A. 361 200 498 924 -137 724 -27.60%

6 Unibep S.A. 339 484 378 763 -39 279 -10.37%

7 Torpol S.A. 195 934 285 287 -89 353 -31.32%

8 Mostostal Warszawa S.A. 241 400 260 000 -18 600 -7.15%

9 PBG S.A. 34 165 25 445 8 720 34.27%

Total 6 843 755 8 023 028 -1 179 273 -14.70%



30

Diagram 1.7.2: Market cap of the largest construction companies listed on the Warsaw Stock Exchange as at 30 June 2016 (in PLN ‘000)

Inthefirsthalfof2016thecompanieslisted on the Warsaw Stock Exchange reported a slight increase (by almost 2%) in their sales revenue year-on-year. Budimex Group with revenue of PLN 2.4 billion (a rise by more than 7% increase year-on-year) was again the major player. It should be emphasised that the average operatingmarginforthefirstsixmonthsof2016 went up to 9.4% as compared to the corresponding period in 2015, when it was 7.74%.

2015 was a successful year for the largest constructioncompanies.Inthefirsthalfof2016 they managed to keep the investor's trust and their revenues even slightly exceeded the turnover obtained during a comparable period in 2015. The second half of 2016 and the following years will be crucial from a sort-term perspective. The current level of the WIG BUD shows that, despiteasignificantdeclineincontractvolume in 2016, investors still believe that there will be a positive impact from the infrastructure contract initiative, and that companies operating on the construction marketwillcontinuetobenefit.

The delay in announcing new tenders may erode this trust, because investors may decide to withdraw their capital, which in turn will result in a drop of the WIG BUD index and lower market capitalization of the analysed companies.

BudimexS.A.

TrakcjaPRKiIS.A.

ElektrobudowaS.A.

ErbudS.A.

Polimex-MostostalS.A.

UnibepS.A.

TorpolS.A.

MostostalWarszawaS.A.

PBGS.A.


64%7%

7%

5%

5%

5%3%

4%

0%


31

Diagram 1.8: Revenue of construction companies listed on the Warsaw Stock Exchange in the first half of 2016 (in PLN '000)

Source: Financial statements as at 30 June 2016

0

500�000

1�000�000

1�500�000

2�000�000

2�500�000

3�000�000

Budi

mex

Gro

up

Polim

ex-M

osto

stal

Gro

up

PBG

Gro

up

Erbu

d G

roup

Trak

cja

Gro

up

Mos

tost

al W

arsz

awa

Gro

up

Uni

bep

Gro

up

Elek

trob

udow

a G

roup

Torp

ol G

roup

Table 1.7.2: Revenues of companies listed on the Warsaw Stock Exchange as at 30 June 2016 and 30 June 2015.

No. Company nameRevenue June 2016

(in PLN '000)Revenue June 2015

(in PLN '000)Change in nominal

termsChange in

percentage terms

1 Budimex Group 2 429 700 2 268 240 161 460 7.1%

2 Polimex-Mostostal Group 641 952 511 049 130 903 25.6%

3 PBG Group 788 660 771 957 16 703 2.2%

4 Erbud Group 788 168 805 820 -17 652 -2.2%

5 Trakcja Group 478 829 564 772 -85 943 -15.2%

6 Mostostal Warszawa Group 732 999 569 898 163 101 28.6%

7 Unibep Group 501 551 574 787 -73 236 -12.7%

8 Elektrobudowa Group 528 228 592 901 -64 673 -10.9%

9 Torpol Group 335 960 443 379 -107 419 -24.2%

Total 7 226 047 7 102 803 123 244 1.7%

Average 802 894 789 200 13 693.8 1.7%


* The financial data for 2014 were reconciled with the financial statements for 2015 after adjustments had been made to the opening balance.

**Considering that consolidated financial statements of the Strabag Group are not available, for simplicity's sake, the financial data are comprised of the total revenue of companies: Strabag Sp. z o.o. and Strabag Infrastruktura Południe Sp. z o.o. The financial data of Strabag for 2014 were reconciled with the financial statements for 2015, after adjustments had been made to the opening balance.

***In 2015 PORR BAU GMBH acquired Bilfinger Infrastructure S.A.. Considering that consolidated financial statements of the are not available, the financial data for 2015 are presented as the aggregate of the data derived from the financial statements of PORR Polska Construction S.A. and PORR Polska Infrastructure S.A. (formerly Bilfinger Infrastructure S.A.). The data pertaining to 2014 have been derived from the financial statement of PORR Polska Construction S.A.

Revenue June 2016 (in PLN million)

Revenue June 2015 (in PLN million)


32


33

Chapter 2. Prospects for Development

of Construction Companies

in Poland


34

2.1 IntroductionThis section of the Report includes an analysisofthefactorswhichaffectthecondition of the construction industry as well as supporting data, such as bankruptcies among construction companies and employment rates in the sector. Next, key information concerning selected segments of the construction sector is presented along with an analysis of their prospects for development in the short and medium term. Finally, a summary of the current conditions and the key growth drivers in the sector are presented from the perspective of representatives of Polish construction companies.

Following a period of decline in 2012 and 2013, the construction sector in Poland saw a modest recovery in 2014 and 2015.

In 2015, the Polish construction sector grew by 2.9% at constant prices (growth at current prices amounted to 0.13%). In 2014, the sector grew by 4.9% in current prices (5.9% at constant prices). Considering delays in contract award procedures relating to large infrastructure projects supported in the new 2014-2020 EU perspective, the upward trend observed over the past two years will not be seen this year.

Theeffectsofthesaiddelayshavealreadybeen demonstrated in data published by theCentralStatisticalOffice.InAugust,production in the construction and assembly sector dropped by 20.5% (at constant prices). It also went down (by 14.9% at current prices) in the entire period fromJanuarytoAugust2016.

The latest data regarding bankruptcies in the enterprise sector also support thattrend.Afterthreeconsecutiveyearswhen construction company bankruptcies decreasedinnumber,inthefirsthalfof2016 they grew by 8% as compared with the corresponding period of 2015.

Sold production in construction industry (in PLN bn)

Source: Central Statistical Office

Within the next few years we can expect many changes, because the business climate in the construction industry to a large extent depends on infrastructure projects. Beginning from 2018, the planned road and railway projects will be launched and most likely, they will accumulate, which in turn may cause a price war in the sector. Piotr Janiszewski, CEO, Skanska S.A.

Delays in inviting tenders for large infrastructure projects in 2016 have had an adverseeffectonthecurrentsituationintheconstruction sector. Nevertheless, the average pay in the industry rose in early 2016. It is also anticipated that the demand for workforce will increase due to the expectation of the launch of EU supported projects.

AstheleveloffundingfromtheEUperspective is known but the project timelines are still uncertain, construction companies have refrained from investing inmodernfixedassetsorinnovativetechnology solutions.

TheinfluxoffundsfromtheEuropeanUnion will be of crucial importance to the improvement of the conditions on the infrastructure construction market in Poland in the upcoming years. The EU structural and investment funds allocated to Poland for 2014-2020 total EUR 86.6 billion, out of which EUR 0.8 billion (0.9% of the total allocated amount) had been disbursed by the European Union by May 2016. The aggregate value ofapplicationsfiledunderalltheavailableoperational programmes for 2014-2020 by July 2016 exceeded PLN 143.5 billion, including PLN 88 billion of EU support.

7.7

17.2

6.3

10.5

7.0

10.9

7.3

10.9

7.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

1H 2012 2H 2012 1H 2013 2H 2013 1H 2014 2H 2014 1H 2015 2H 2015 1H 2016


35

Representatives of the largest construction companiesseethenewEUfinancialperspective as a great opportunity but they also voice concerns over the delays in inviting tenders and completing the existing contract award procedures. Following the change in the government in October 2015, the new authorities have begun to revise the key infrastructure programmes, that is the National Road Building Programme and theNationalRailwayProgramme.Accordingto the Ministry of Infrastructure, in its current version the National Road Building Programme would require additional funds of PLN 90 billion so that all the objectives definedthereincouldbeachieved.Suchconclusions have been arrived at following theverificationofplansandcostsassumedintheNationalRoadBuildingProgramme.AtthebeginningofAugust2016,theMinistryof Infrastructure and Construction held a dialogue with road contractors, which resulted in the announcement of work on the improvement of public procurement processes. Representatives of the industry emphasized that unpredictability of the investment process was their major concern. On 2 September 2016, the Minister of Infrastructure, PKP PLK and the Directorate General for National Roads and Motorways presented the road and railway construction status and plans.

AccordingtotheMinister,thesituationin the road segment is relatively good as opposed to that in the railway segment, where tenders that should have been invited a year ago will only be invited this and next year. This was due to a lack of documentation, which should have been prepared by the former government

The housing construction segment enjoys a strong growth in the demand, which has continued uninterruptedly since 2014.In the short-term perspective this trend is expected to continue, considering that Poland has one of the lowest ratios of flatsper1,000citizensinEuropeandthat government programmes intended to support housing (such as “Flats for the Young” or the “National Housing Programme”) have been launched. In addition, part of the demand is generated by investment-oriented transactions. Low interestrates,whichsignificantlyrestrictthe

profitabilityofinvestingindeposits,alongwith the unfavourable situation on the Warsaw Stock Exchange which discourages investors result in an increased focus on real property investments. Nonetheless, in the mid-term, a slowdown in the housing construction segment can be expected inviewofthefinalizationoftheFlatsforthe Young programme in 2018 and the heightened restrictions of mortgage loan availability.

In2015,thesupplyontheofficeconstruction market was the highest on record. This is evidenced by an unprecedentedvolumeofofficespacebuilt(622,000 sq.m.). The demand increased as well and the overall lease transaction value was40%higherthanin2014.Accordingto Colliers International, over 1.5 million sq.m.ofofficespaceisbeingconstructedat present, half of which is in Warsaw. It can be expected though that - considering the high demand that can be observed now and that is planned for the future - the unrented space ratio for the major Polish markets will be going up over the next few quarters.

In the upcoming years, construction companies will, on the one hand, focus on taking advantage of the increased volume of projects(asaresultofaninfluxofEUfundsand the launch of government housing programmes), and on the other on ensuring growth in value in the long term. In order to maintain a competitive advantage after the end of the 2014-2020 EU perspective, companies continue their expansion on foreign markets, to include Western Europe, Scandinavia or the Balkans, both through exports and through development of operations in other countries. They have also been diversifying their business and developing new competences, such as modernization projects in building and facility construction or maintenance in theinfrastructuresegment.Additionally,managers have launched operational optimisation initiatives (such as headcount reduction or operational structure changes).

The aforementioned factors show that the conditions in the construction sector vary considerably by segment. The infrastructure segment, which depends on public funding and government decisions, is faced with the most problematic situation.

Aslowdowninthatsegmentmayleadtoanend of the upward trend observed in the construction sector for the past two years. The sector companies will have to make it through the temporary delays in the major infrastructure projects, which are caused by the launch of the 2014-2020 EU perspective and revision of the existing road and railway programmes. In this chapter we attempt to sum up the opportunities that are now available, indicate the key growth drivers and prospects for development.

AsthePolishconstructionmarket is expected to shrink after the end of the current EU perspective, Polish construction companies should consider international expansion now.Leszek Gołąbiecki - Chairman of the Management Board, Unibep S.A.


36

2.2. Key growth drivers for the construction market in PolandIn the upcoming years, the condition of the construction sector will be determined mainly by such factors as the macroeconomic situation in Poland (primarily, its economic growth) and the use of the funds allocated to infrastructure investments in the 2014-2020 EU perspective, which will depend on the possibilities of subsidizing infrastructure projects limited by the criterion of the public debt level.

Economic growthIn 2015, the compound average growth rate in Poland was 3.6%. The growth was fuelled mainly by household consumption and a rise in exports that was attributable to improved competitiveness of Polish goods (primarily owing to depreciation of the Polish currency relative to the euro and U.S. dollar).

Early 2016 saw a slowdown in the growth rate to 2.6% (January - March) as compared to a rate of 3.8% in the corresponding period in the preceding year. Initial estimatesbytheCentralStatisticalOfficeshow that in Q2 2016 GDP went up by 3% year-on-year vs. 3.2% a year before. The slowdown results mainly from a decline in infrastructure investment accompanied by a drop in government spending in relation to the EU funding cycle. The government's forecasts as to the planned 3.8% growth were updated in the second half of Augustto3.5%.However,consideringthe decline in infrastructure investment and the uncertainty resulting from the announcementofBrexit,itmaybedifficultto reach GDP growth even at the reduced level.

Increase of Poland's GDP

Source: EIU, Country Forecast Poland, August 2015 update

Geographicaldiversificationisthestrategicobjectiveof the Trakcja PRKiI Group. The Group is present in the Lithuanian market and strives to acquire new clientsinmarketsofferingmanyopportunities,suchas Scandinavia or the Balkans. Ultimately, the Group intends to generate 50 percent of its revenue from export sales.Jarosław Tomaszewski – Chairman of the Management Board, Trakcja PRKiI S.A.

3.7%

5.0%

1.6%1.3%

3.3%3.6%

3.1%2.9%

3.4% 3.3% 3.2%

0%

1%

2%

3%

4%

5%

6%

2010

2011

2012

2013

2014

2015

2016

F

2017

F

2018

F

2019

F

2020

F


37

Government debtThe level of government debt largely determines the possibilities of the State and local governments to support infrastructure projects.Attheendof2015,thegovernmentdebt-to-GDPratiowas48.4%.Accordingto the government debt management strategy for 2016-2019, as proposed by the Minister of Finance, in 2015 and 2016 the government debt-to-GDP ratio will rise to 49.0% but it will gradually decrease to 47.5% in 2019.

EU fundsTheinfluxoffundsfromtheEuropeanUnioninthe2014-2020financialperspectiveisa key growth driver for the construction market, especially in the infrastructure sector. The total funds allocated to Poland under the cohesion policy is EUR 82.5 billion, including EUR 45.6 billion earmarked for grants under National Operational Programmes. Detailed allocation of funds to each Operational and National Programme was presented in the previous edition of the Report.

Funds for infrastructure projects are derived mainly from the Eastern Poland programme and the Infrastructure and Environment programme. The Eastern Poland Operational Programme covers infrastructure projects on two priority axes, namely the Modern Transport Infrastructure and the Supra-Regional Railway Infrastructure.

In 2015, no grant applications and no contracts were signed under the 2014 - 2020 perspective. Likewise, no applications for payments linked with infrastructure projects were settled under the program by the end of 2015.

Under the Infrastructure and Environment OperationalProgramme(POIiŚ)2014-2020,grant agreements totalling EUR 615.7 million had been signed by the end of 2015 in relation to railway infrastructure projects (core network, comprehensive network and other railways) and EUR 1.9 billion for roads and motorways (the total value of grant agreements signed under the programme as a whole was EUR 2.5 billion out of EUR 14.6 billion available).

Public debt as a GDP percentage

Source: Ministry of Finance – “Public Finance Sector Debt Management Strategy for 2015-2018, September 2014

Allocation of EU funds under 2014-2020 perspective (in PLN bn)

Source: Ministry of Development and Infrastructure

Rural Development Programmes

Regional Operational Programmes

National Operational Programmes

Establishing the Polish Cluster of Construction Exporters, an association of construction companies controlled by Polish investors, will help strengthen the position of Polish companies in foreign markets.Leszek Gołąbiecki - Chairman of the Management Board, Unibep S.A.

5.52 5.85 6.19 6.49 6.80 7.10 7.39

3.834.05

4.274.47

4.684.88

5.091.57 1.181.17

1.171.17

1.171.17

2014 2015 2016 2017 2018 2019 2020

53.4%52.6%

53.9%

47.8% 48.4%49.0% 49.0%

48.1% 47.5%

40%

42%

44%

46%

48%

50%

52%

54%

56%

58%

60%

2011 2012 2013 2014 2015 2016F 2017F 2018F 2019F


38

The recent decision of the UK to leave the European Union may reduce the available EU funds. Needless to say, withdrawal from the EU is a lengthy process, which will probably take several years. However, the United Kingdom is one of the largest net payers to the EU budget. Consequently, its secession may lead to a reduction in the number of investment projects and introductionofmorestringentfinancingcriteria.

Based on the economic factors and theexpectedinfluxofEUfundswemay conclude that the prospects for the construction sector are good. The statistical data concerning bankruptcy and employment(discussedbelow)wellreflectthe current situation in the sector and its prospects for the nearest future. In addition, section 2.6 of our report presents our forecast regarding the market situation from the perspective of companies, PKP PLK and the Directorate General for National Roads and Motorways.

2.3. Bankruptcies in the construction sector Inthefirsthalfof2016,thenumberofbankruptcies in the construction sector increased by 8% year-on-year, which was a consequence of a temporary lack of contracts. However, this does not fully reflecttheconditionofconstructioncompanies. The real drop in construction investment is almost twice as high as the increase in the number of bankruptcies in absolute terms. Companies expect that the situation will improve once infrastructure projects have been launched in the new EU perspective.

The majority of entities going bankrupt are those operating in the road and water supply system infrastructure segment, while the number of bankruptcies in the housing constructionsegmentisdefinitelylower.Atpresent, the condition of companies in the housing construction segment is considered good.Asthesupplyhasagoodcorrelationwith the demand, the problem of unsold projects has disappeared. However, the medium-term outlook is less optimistic as banks are planning to reduce the number of new loans (increased pressure to match the asset and liability portfolios and the

146

273253

184

146

66 71

0

50

100

150

200

250

300

2011

2012

2013

2014

2015

1H20

15

1H20

16

Number of bankruptcies among construction contractors between 2011 and 1H 2016

Source: Euler Hermes

20% 29% 27% 22% 20% 20%17%

Share of bankruptcies in the construction sector in all bankruptcy petitions

Aseriouschallenge,fromtheperspectiveofbothinvestors and general contractors, is to understand the changes to the Public Procurement law, namely the 40% non-price criterion. Indisputably, it is the right direction that will favour companies focused on social responsibility, innovation, security and sustainability.Piotr Janiszewski, CEO, Skanska S.A.

necessity to implement more stringent credit analysis criteria).

The social tenement housing programme proposed by the government may have an impact on the market in the longer term. The major threat for companies operating in the infrastructure segment is delays in contract award procedures as well as an uncertainty as to the pricing of construction materials in the case of project accumulation.


39

2.4. Employment in the construction sectorInthefirsthalfof2016,thenumberofemployees in the construction sector ceasedtofallforthefirsttimesince2012.AccordingtothePolishCentralStatisticalOffice,inthefirsthalfof2016,the average number of employees increased by 0.2% as compared to the corresponding period in the preceding year, although a drop by 0.3% YoY was seen inthefirstquarter.In2015,theaveragenumber of employees was 387,600, which means a 5,8% drop (in 2013 an 8.6% decrease was reported, followed by a 7.6% decline in 2014).

With a decelerating downward trend in employment in the construction sector, the average gross monthly pay in 2015 was PLN 4,076.47, up by 4.9% year-on-year.

Inthefirsthalfof2016theaveragepaywas PLN 4,169.37 (i.e. 2.3% more than in 2015). Considering that over the past three yearstheaveragepayinthefirsthalfoftheyear was ca. 2% lower than the average annual pay, a further increase in pay may be expected in the construction sector in 2016 as a whole.

AccordingtoasurveyconductedbytheCentralStatisticalOfficeamongconstructioncompanies,ashortageofqualifiedstaffisagrowingproblemintheindustry.InAugust201628.1%ofcompaniesidentifiedthisfactor as a barrier to business. The ratio was higheronlybetween2006and2008.Asinthe preceding year, employment costs were consideredtheheaviestfinancialburden.

Theywereidentifiedasabarriertobusinessby 61% of employers (vs. 62% in 2015).

Average employment and gross salary in the construction sector from 2008 to 1H2016

Gross average pay [PLN]

Averageemploymentinyear[inthousands]

Average gross pay in the first half of 2016 in specific construction sectors



SignificantEUfundsusedforfinancingPolishinfrastructureprojectsandnobarriersofentryonthedomesticmarketcreatedfiercecompetitionforcontractsandconsiderablyreducedmarginsearnedbygeneral contractors. The fact that projects under the new perspective are delayed by almost three years makes us cautious, because now it is uncertain whether all investment projects planned under the National Railway Programme will be delivered and whether the PLN 66 bn will be fully used.

Jarosław Tomaszewski – Chairman of the Management Board, Trakcja PRKiI S.A.

Averagepayinspecificsegments

Averagepayinconstructionindustry

3 359

3 464

3 540

3 704 3 702 3 728

3 888

4077 40434169

398.9

443.3 446.1

478.2488.1

445.8

411.5

387.6 382.5 383.4

200

250

300

350

400

450

500

550

2 900

3 100

3 300

3 500

3 700

3 900

4 100

4 300

2008 2009 2010 2011 2012 2013 2014 2015 1Q 2016 1H 2016

4 018

4 393

4 121

4 169

3 800

3 900

4 000

4 100

4 200

4 300

4 400

4 500

Building construction Works linked with construction ofcivil and water engineering structures

Specialized construction work


40

Employment outlookThe latest report entitled “Manpower Employment Outlook Barometer” presents the employment outlook for the economy for Q4 2016.1 The data contained in the report shows that employers in Poland are clearly optimistic about the future. The net employment outlook is positive for nine out of ten sectors surveyed. In Q4, 15% of the respondents are planning to increase the number of their employees, 75% declare that no changes will be made in this regard and 7% expect a headcount reduction. Optimism prevails also among employers in the construction sector. The net employment outlook for the analysed period is +13%, which translates into a 2 p.p. rise year-on-year.

This means that 13% more companies expect that the number of their employees will increase as opposed to fall. Before the seasonal update, the net employment outlook is +12%. Considering a large number of projects to be implemented within the next 6-7 years with the support of the European Union, the number of employees in the infrastructure segment may be expected to rise over the years 2014 - 2020.

Hays forecasts that the employment rate will increase mainly in the road and railway infrastructure segments and candidates for the position of site manager, contract manager and industry manager will be most frequently searched for in 2016 by general contractors.

1 The “net employment outlook” in the "Manpower Employment Outlook Barometer" is a percentage difference between the number of employers anticipating an increase in the total number of employees and the number of employers expecting a fall in the total number of employees in their branch in the nearest quarter.

Key business challenges faced by construction companies

August2014

August2015

August2016

We are constantly developing our machinery stock. New specialized equipment will bring us a competitive advantage and it will certainly be required in domestic and Scandinavian contracts. Investments in specialized machinerystockandhighlyqualifiedstaffareofkeyimportance for further growth of the Torpol Group.Grzegorz Grabowski, Chairman of the Management Board of Torpol S.A.


62%

34% 35%

19%

62%

31% 31%

22%

61%

30% 28% 28%

0%

10%

20%

30%

40%

50%

60%

70%

Employment costs Cots of materialsInsufficient demand Shortage of competentstaff


41

2.5. Development prospects for construction market segments in PolandIn 2015, the structure of construction and assembly production was similar to that reported in the preceding year. Aslightincrease was observed in infrastructure construction (from 38.2% to 38.6%) and in specialist construction (from 33.5% to 34.0%), tothebenefitofworksrelatingtotheerectionof buildings.

In 2015, the Polish construction sector grew by 2.9% at constant prices (growth at current prices amounted to 0.13%). AccordingtoreviseddatapublishedbytheCentralStatisticalOffice,thegrowthratewas considerably higher a year before, when it reached 4.9% at current prices (5.9% at constant prices). The2016figuresreflectaslowdown resulting from the suspension of contract award procedures and delays in infrastructureinvestments.AccordingtotheCentralStatisticalOffice,constructionandassembly production dropped by 20.5% in Augustvs.July2015,andbetweenJanuaryandAugustthedecreasewas14.9%(atconstant prices). Considering the anticipated acceleration of infrastructure projects due to the necessity to implement government programmes and use EU funds, the construction market value may be expected to increase in the upcoming years. However, as the completion of contract award procedures and the selection of contractors will take more time and, due to the fact that a number of road and railway projects are carried out in the design-build formula, market growth will probably be seen only in 2018.

Structure of the construction market in Poland in 2015

Construction of civil and water engineering structures

Building construction

Specialized construction


Polish construction market divided into segments 2010 - 2015 [PLN bn]

Specialized construction work

Construction of civil and water engineering structures

Building construction

* CAGR - Compound Annual Growth Rate


The medium term objective of the Unibep Group is to grow the share of exports in total revenues.Modular construction in Scandinavia is a key element of the Group's development strategy.Leszek Gołąbiecki - Chairman of the Management Board, Unibep S.A.

33.5% 34.0%

28.3% 27.4%

38.2% 38.6%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2014 2015

71.8 64.2 63.1 52.9 55.5 56.4

37.7 48.9 47.0

41.047.0 45.5

51.469.1

60.6

64.163.2 64.1

2010 2011 2012 2013 2014 2015

CAGR*-2.3%


42

Despite a drop in production in the construction segment, the "WIG Budownictwo" index has been rising steadily since February 2016, after a period of slight decline in the winter, which may be attributable to an expected increase in the number of contracts on the market. Taking account of the expected increase of employment levels in the construction industry, it may be concluded that the market expects more orders in the infrastructure sector and continued optimism in the housing construction segment.

0

500

1000

1500

2000

2500

3000

3500

2015-01-02 2015-11-02 2016-09-02

WIG BUD and WIG20 for the period 31.07.2008- 16.09.2016

WIG 20

WIG Budownictwo

The Torpol Group plans further business growth in the Norwegian market, where it has been winning new deals.

Grzegorz Grabowski, Prezes, Torpol S.A.

Source: stooq.pl


43

2.5.1. Road constructionIn the road construction sector, 2015 was a period of transition between the 2007-2013 perspective and the new EU 2014-2020 perspective. Prior perspective projects were being completed and new perspective projects were being planned and prepared at the same time. Investments supported by the EU in the 2014-2020 perspective will be realized in accordance with the National Road Building Programme for 2014-2023 (with projections by 2025) (the “NRBP”), set by the Ministry of Infrastructure and Development in September 2015. Detailed assumptions underlying the programme were presented in the previous edition of the Report.

In 2015, funds totalling PLN 11.5 billion, derived from all the available sources, were spent on road projects. In 2015, the road project spending from the National Road Fund itself went down as compared to the preceding year (PLN 8.4 billion in 2015 vs. PLN 12.8 billion in 2014), which represents a drop of 34%.1 In 2015, 24.7 kilometres of expressways and motorways were made available for use and 61.8 kilometres of national roads were rebuilt. This is slightly less than planned in the NRBP (36.0 and 66.4 kilometres, respectively).

Changes made to the Ministry of Infrastructure and Construction after the establishment of a new government in 2015 have had an impact on the implementation of the road building programme. The NRBPwasrevised,specificallyintermsofitsfinancialassumptions.Initially,PLN107billion was to be secured under the NRBP tofulfilthetasksplanned.Currently,theMinistry of Infrastructure and Construction estimates that PLN 198 billion will be necessary for that purpose2. It has not been decided yet whether additional funds will besecuredtofulfilallthetasksandtheNRBP will be updated or whether the list ofinvestmentswillbeverifiedintermsofpriority and precedence.

1 Supreme Chamber of Control report on adherence to the government budget in 2015 (Section 39 – Transport).

2 Presentation by Jerzy Szmit, Deputy Minister of Infrastructure and Construction, at the meeting of the Parliamentary Infrastructure Committee on 11 March 2016.

New contract award procedures were suspendedfortheNRBPverificationperiodand resumed after the announcement of the "Road and Railway Investment Initiative" by the Ministry of Infrastructure andConstructionon2September.Aninvestment budget of more than PLN 4 bn was opened in September with 14 invitations to tender. Other tender proceedings worth PLN 8 billion will be announced by the end of the year. Following the execution of these contracts the total value of works would reach PLN 60-65 billion, i.e. 60% of the planned amount.

Althoughtheresumptionofroadinvestments is a positive sign, it is still questionable whether funds necessary to implement the programme in the upcoming years will be secured, in particular if the total expenditure were to increase to PLN 198 million. In July, the Ministry of Infrastructure and Construction announced that the debt of the National Road Fund exceeded PLN 40 billion (ca. PLN 60 billion along with interest).

Investments in expressways and motorways under the National Road Building Programme for 2014-2023 (with projections by 2025) – completion status after 2015

Completed or in progress

New investments under the NRBP 2014-2023

Investment projects will accumulate primarily in the railway segment - we expect that fewer projects will be undertaken in the road segment.Wojciech Trojanowski – Member of the Management Board of Strabag Sp. z o.o.

Source: National Road Building Programme for 2014-2023 (with projections by 2025)


44

Before the announcement of the "Initiative", in the new EU perspective under the Infrastructure and Environment Operational Programme 2014-2020, the Directorate General for National Roads and Motorways signed an agreement whereby funding would be received for 23 projects totalling PLN 30.9 bn (funding of PLN 13.2 bn) – to be carried out in the years 2015-2020.

The technical condition of roads, which deteriorated both in 2014 and 2015 despite considerable investment, is a major problem forroadinfrastructureinPoland.Attheendof 2015, 14.1% of roads were considered “in poor condition” (as compared to 13.2% at the end of 2014) and 25.3% were regarded as “unsatisfactory” (vs. 25.1% in 2014). AccordingtotheReportontheTechnicalCondition of National Roads as at the end of 2015, prepared by the Directorate General for National Roads and Motorways, the followingfactorsaffectedthedeteriorationofthetechnicalconditionofnationalroads:

• insufficientfundsconsideringtheidentifiedrepairneeds;

• adverse weather conditions – exceptionally low temperatures in winter andhighinsummer;

• changes to the road condition assessment methodology – a longer list of parameters and the application of innovativemeasurementtechniques;

• a smaller increase in the length of new roads (in good technical condition) in 2015 as compared to 2014.

• national road condition by region (as at the end of 2015).

The Dangerous Road Section Management Programme (the "DRSMP") was launched earlier this year with a view to improving the condition of the existing national roads. Thetasksdefinedintheprogrammearemainly aimed at improving the safety of unprotectedtrafficparticipants.In2016,atotalof292tasksaretobefulfilled,forwhich the amount of PLN 300 million has been allocated. The National Road Fund and the government budget allocated to the annual programmes implemented by the Directorate General for National Roads and Motorways are the sources of funding for

National road condition by region (as at the end of 2015)

75 percent of the domestic revenue of the Strabag Group come from infrastructure projects, while the remaining 25 percent - from the construction of buildings and facilities.Wojciech Trojanowski – Member of the Management Board of Strabag Sp. z o.o.

Source: Report on the Technical Condition of National Roads as at the end of 2015

the aforementioned programme. Ultimately, PLN 600 million will be allocated to the programme annually.

Good conditionUnsatisfactory conditionPoor condition


45

Local government road networkIn addition to national roads (including expressways and motorways), the Polish public road network consists of local government (regional, district and municipal) roads.

The Ministry of Infrastructure and Development supports local government road investments as part of the general subvention fund and the "Municipal and District Road Development Programme" for 2016-2019.

The general subvention fund dates back to 1999 and is created annually in the governmentbudgetundertheActonLocal Government Unit Income. In 2016, PLN 336 million was allocated as part of the general subvention to support local government road investments, with more than half earmarked for four regions, namelyMazowsze,Pomorze,ŚląskandWielkopolska. The fund will account for 50%ofthetaskvalue.Allocationoffundsto each task has been presented on the website of the Ministry of Infrastructure andConstruction:http://mib.gov.pl/2-Rezerwasubwencjiogolnej.htm.

The aggregate value of tasks to be supported under the Municipal and District Road Infrastructure Programme for 2016-2019 is PLN 4 billion. The list (based on priority) includes 418 projects relating to district and 938 to municipal roads. Every year ca. 2,200 km of district and municipal roads may be built, rebuilt or repaired under theprogramme.AccordingtotheSupremeChamber of Control, the condition of 36% of district and municipal roads is poor as compared to only 29% whose condition is considered good or satisfactory3. Due to the fact that the current technical condition of municipal and district roads is unsatisfactory and that the local road infrastructure will not receive any considerable support in the 2014-2020, EU perspective4, the necessary funds must be provided by the State.

3 As of March 2014, considering the effects of the implementation of the National Programme for Local Road Rebuilding between 2008 and 2015.

4 Investments in provincial roads may be fiananced from Regional Operational Programmes.

Road category

Length [km]

Share [%]

Road administration authority*

Ownership

National roads

19 293 4.6%Directorate General for National Roads and Motorways

State Treasury

Regional roads

28 593 6.9%Central administration authority in the region

Local administration authority in the region

District roads

125 330 30.1%Central administration authority in the district

Local administration authority in the district

Municipal roads

243 810 58.5%Municipality Head (Mayor)

Local administration authority in the municipality

Total 417 026 100% - -

Polish public road categories (as at 31 December 2014)

*in district cities/towns, the mayor is the administration authority for all public roads, except motorways and expressways

Source: Central Statistical Office, Deloitte analysis

Division of general subvention fund resources

łódzkie-(1%)

dolnośląskie-(1%)

lubuskie - (2%)

świętokrzyskie-(2%)

warmińsko-mazurskie-(3%)

opolskie - (4%)

podlaskie - (4%)

małopolskie-(5%)

kujawsko-pomorskie - (6%)

podkarpackie - (6%)

lubelskie - (7%)

zachodniopomorskie - (9%)

wielkopolskie - (9%)

śląskie-(10%)

pomorskie - (10%)

mazowieckie - (21%)

Source: Ministry of Development and Infrastructure

http://mib.gov.pl/2-Rezerwasubwencjiogolnej.htm.

http://mib.gov.pl/2-Rezerwasubwencjiogolnej.htm.


46

2.5.2. Railway Construction The scope of railway construction projects includes the modernization and development of railway and tram infrastructure. In Poland, 19,300 kilometres of railways are used at present, out of which ca. 96% are administeredbyPKPPLKS.A.Thetechnicalcondition of the railway infrastructure is unsatisfactory. However, it has been improving steadily since 2010. The condition of 52% of the railways administered by PKP PLK is considered good, 27% satisfactory and 21% unsatisfactory.

The railway investment framework hasbeendefinedintwodocuments,namelytheMulti-AnnualRailwaySectorInvestmentProgramme by 2015 (with projections by2020), which was adopted under a resolution on13March2015,the"MARSIP",andtheNational Railway Programme by 2023,dated 15 September 2015 (the “NRP”),whichcontinuestheMARSIP.Theunderlyingassumptions were presented in the previousedition of the Report.

In 2015, projects of PLN 7.2 billion5 were completedundertheMARSIPvs.PLN9.0billion planned. This shows that the plan for 2015 was 80% implemented in terms of spending but the stage of completion of the construction works was 90%, which is partly attributable to cost savings realized in contract award procedures.

Currently,theNRPisbeingupdated.Asatthe date of this Report, the latest version of the draft programme was published on 11 July 2016. The time limit for the expression of opinions on the draft programme in a social consultation process expired on 2 September. The programme is being updated primarily with a view to making theinvestmentplansmoreflexible.Theypreviously assumed that 50% of the contract award procedures planned for a 6-year period would be completed in 2019 and 2020.

5 In 2015, the total expenditure met using individual sources of funding was PLN 7.2 billion, whereas the expenses paid by PKP PLK to contractors amounted to PLN 7.7 billion. The difference of ca. PLN 0.5 billion is a refund, which will be transferred to the accounts of PKP PLK in 2016, once it has been verified by the Centre for the EU Transport Projects.

Railway spending of PKP PLK (in PLN billion)

Delivery

Estimates

Previous version NRP

NRP forecast

Source: PKP PLK reports, Multi-Annual Railway Sector Investment Programme, National Railway Programme, Deloitte analysis

The updated version provides for changes in the schedule (acceleration for 2016-2017) and extension of the time limit for completion of the investment projects beyond 2020. The objective is to avoidparalysisoftherailwaytrafficandaccumulation of investments in 2019 and 2020 which could lead to delays, highercostsandfinancialproblemsofthecontractors, as it did in the case of road building projects.

Until now towns were using EU funds for purchases of rolling stock, but now we can expect more substantial outlays on building tram rails.Wojciech Trojanowski – Member of the Management Board of Strabag Sp. z o.o

1.4

2.43.2 2.8 2.8

3.8 3.9

5.3

7.17.7

4.3

6.2

9.5

14.3

18.4

7.0

3.0

1.9

5.3

8.6

12.2 12.212.9

6.1

3.4

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023


47

By the end of September, tenders had been invited for projects with an aggregate value of PLN 18.8 billion (total investments under the NRP estimated at PLN 66 billion). PKP PLK has announced that further tenders will be invited by the end of 2016 with respect to projects of PLN 6.5 billion. In 2017, investments of PLN 5.5 billion in total are to be realized (the additional PLN 1.5 billion will be spent on purchases of materials and works performed by PKP PLK itself) and tenders will be invited for projects of ca. PLN 5.0 billion.

In addition to the volume and value of investmentsfinancedbytheStateandEU funds, the condition of the railway construction sector is also determined by thelocalgovernmentactivityinthefieldofrepair and improvement of suburban rail. Suchprojectsarefinancedbygrants-in-aidand the Railway Fund. The annual funding limit for 2016-2019 is PLN 110 million.

The scope of municipal investment plans also includes the construction and repair of tram lines. In the new EU perspective, up to PLN 13 billion may be spent on the development of tram transport (infrastructure and rolling stock). It may be estimated that about a half of that amount will be spent on infrastructure. However, thelatestMulti-AnnualFinancialPlansforthefivelargestcitiesassumerailwayinfrastructure spending of PLN 1.5 billion by 2020.

Funding of NRP capital expenditures in 2016 - 2023 (in PLN billion)

Other

RPO 2007-2013

RPO 2014-2020

PO PW

POliŚ2007-2013

POliŚ2014-2020

CEF

Railway infrastructure investments planned for 2014-2020 under the National Railway Programme vs. completed MARSIP projects

Source: PKP PLK reports, Multi-Annual Railway Sector Investment Programme, National Railway Programme, Deloitte analysis

Source: Draft National Railway Programme by 2023, dated 11 July 2016

Time pressure related to the deadlines for completion of railway investment projects andtheirfinalsettlementintheperiod required by the new EU perspective is one of the major sector risks.

Grzegorz Grabowski, Chairman of the Management Board of Torpol S.A.

0.1 1.02.9

4.3 4.6 4.7

0.4 0.31.1

2.1

3.1

4.8 4.66.1

4.12.6

0.9 0.4

1.3 1.8

1.6

1.2 1.01.2

0.9

1.1

2016 2017 2018 2019 2020 2021 2022 2023


48

2.5.3. Energy construciton6 Poland has large-scale power industry investmentplans.AccordingtotheEnergyRegulatoryOfficepowercompaniesareplanning to make (in aggregate) almost 16 GW of new capacity available between 2016 and 2028, the major part of which will be by the end of 2020. The total capital expenditure on new capacity, planned for 2014-2028, is estimated at PLN 55 billion. Wind farms were to account for the major part of the new investments. However, in the context of the legal changes being introduced, the investment plans will have to be revised. The Wind Farm Investment ActpublishedinJuly2016introducedmajorchanges to the wind power industry.

Somepowercompanieshadtowriteoffinvestment projects previously planned. Additionally,in2017changeswillbemade to the taxation of property where wind farms are located. Under the new act, property tax will apply not only to the structure (foundation and tower) but also to the technical components, which account for ca. 70% of the total wind farm value, and this will further reduce the return onsuchinvestments.However,thefinalconsequences of the legal changes may not be determined at present, as new draft amendments to the act were prepared in September with a view to reducing the negativeeffectsofsuchmodificationstoaminimum.

6 The national power industry investment plans discussed in the previous edition of the Report have not changed.

Planned generation capacity (MW)

Source: Energy Regulatory Office Newsletter No. 3 (93) of 30 September 2015

The margins on energy projects generated by technologyprovidersandconstructioncompaniesdiffer,with the former reporting much better performance.

Antoni Józwowicz, CEO, Polimex-Mostostal S.A.

1.9

2.8

3.6

3.9

3.0

0.5

0.3

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

2016 2017 2018 2019 2020 2021 AFTER 2021


49

Selected key investments in the power industry(bystageofcompletion):

Projects in progress7:

1. One Unit in Kozienice Power Plant (1075 MW;hardcoal);

2. Two units in Opole Power Plant ( 2 x 900 MW;hardcoal);

3. StalowaWolaPowerPlant(450;240MW;naturalgas);

4. WłocławekPowerPlant(463MW;naturalgas);

5. TurówPowerPlant(450MW;browncoal);

6. JaworznoPowerPlant(910MW;hardcoal);

7. PłockHeatandPowerPlant(596MWe;naturalgas;plannedtobemadeavailablefor use by the end of 2017).

Projects planned (contract signed / pending contract award procedure / pre-implementation analyses):

1. ŻerańHeatandPowerPlant(420-490MW;naturalgas);

2. NorthPowerPlant(ultimately2x800MW;hardcoal;aconstructionpermithasnotbeenobtainedyet);

3. GrudziądzPowerPlant(ca.420-600MW;naturalgas;projectsuspended);

4. PuławyPowerPlant(ca.400MW;naturalgas);

5. Czeczott Power Plant (ca. 1000 MW).

Suspended projects:

1. ŁagiszaPowerPlant(413MW;naturalgas) – the project has been suspended by Tauron Group, which was communicated in September 2016 when the Group's Strategy for 2016-2025 was being announced.

The power industry plays an important role in the draft "Responsible Growth Strategy" presented by the government inAugust2016.The"PolishNuclearPower Programme" is planned to be continued. The Programme provides for the development of

7 Above 100 MW

two nuclear power plants with a total capacity of approx. 6000 MW net (4-8 nuclearpowerunits).Atpresent,theMinistry of Energy is working on a programme for the construction of the firstnuclearpowerunitwithacapacityofca. 1000 MW, to be built within the next decade.Accordingtotheindustry,theconstruction of nuclear power plants in Poland is not certain. The visions of the ministries of development and energy concerning the future of the power industry differandnuclearpowerplantinvestmentrequires massive expenditure.

There are new investment plans for the renewable energy sector in Poland, too. AccordingtotheEnergyRegulatoryOffice,the installed capacity in the renewable energy sector is 82 GW (as at 30 June 2016). The Institute for Renewable Energy forecasts investments in new renewable energy sources of 15 GW (electricity) and of 9GW(heat).AccordingtotheEnergyMarketAgency,theshareofrenewableenergyinPoland should account for about 19% in 2030.8

8 2030 capacity forecast assuming predefined technical and economic parameters for nuclear power plants, ARE S.A., June 2013

Źródło energii:

- węgiel kamienny

- węgiel brunatny

- gaz

- rozważane lokalizacje elektrowni jądrowej

Żarnowiec

Gąski Rajkowy

Grudziądz

WłocławekPłock

Żerań

Kozienice

Stalowa Wola

Turów

Opole Łagisza

Jaworzno

Puławy

Wola k/Pszczyny

Figure 1: Map of selected key capacity investments – in progress and planned

Source: Deloitte analysis

Sources of energy:

- hard coal

- brown coal

- natural gas

- considered locations of nuclear power plant consideration


50

In addition to capacity investments, a number of projects aimed at developing the transmission and distribution networks are planned. Based on the plans adopted in 2014, total expenditure on distribution and transmission infrastructure between 2016 and 2019 is to reach ca. PLN 42 billion.

Project Contractor Estimated expenditure (in PLN billion)

Baltic Pipe (Poland-Denmark)

Gaz-System PLN 1.6 billion

LNG FSRU Terminal Gaz-System PLN 0.5-0.9 billion

Natural gas storage facility PGNiG PLN 0.9 billion

EFRAProject Lotos Group PLN 2.2 billion

Oil terminal construction in Gdańsk

PERN PLN 0.4 billion

LNG terminal development inŚwinoujście

Gaz-System PLN 0.7-1.7 billion

GIPL gas pipeline (Poland-Lithuania)

Gaz-System PLN 1.9 billion

North-South Gas Corridor Gaz-System PLN 4.5 billion

Construction of gas pipelines across Poland

PGNiG PLN 8.4 billion

Year 2014* 2015* 2016 2017 2018 2019

Expenditure 6,482 6,680 6,361 7,617 8,199 5,246**

Table: Key investments realized or planned in the field of distribution and transmission systems

Table: Total agreed capital expenditure of five distribution system operators and the transmission system operator for 2014-2019 (in PLN million).

* - delivery

** - expenditures 5 OSD (no OSP) Source: Energy Regulatory Office

Source: "Bezpieczeństwo warte miliardy”, the Rzeczpospolita daily, 27 May 2016

We believe that business diversificationandundertaking projects in the energy and road segments maximize our chances of development.Jarosław Tomaszewski – Chairman of the Management Board, Trakcja PRKiI S.A.


51

Accordingtothedraft"Developmentplanfor the satisfaction of the current and future demand for electricity between 2016 and 2025",duringthefirstfiveyearsPSEplansto incur capital expenditure of PLN 7.08 billion to develop the transmission network. Almost78%ofthatamountwillbespenton the construction of new transmission facilities, while the remaining part on modernization projects. Outlays of PLN 6.43 billion are estimated for the second half of the investment horizon.

Decisions on the implementation of projects relating to the development and modernization of transmission networks will be taken after the relevant criteria havebeensatisfied(toincludeadefinitionof connection conditions or execution of connection agreements).

Figure 2: Transmission network map – forecast as at the end of 2025

Source: PSE, Development plan for satisfaction of the current and future demand for electricity between 2016 and 2025


52

2.5.4. Environmental protection Funds allocated under the Infrastructure and Environment Operational Programme 2014-2020 to investments in water and sewage management and in waste management total EUR 1.62 billion and EUR 0.93 billion, respectively. They will enable Poland to continue its investment programme aimed at bringing the Polish infrastructure into line with the parameters definedbytheEuropeanUnion.

Water and sewage management Investmentsplannedinthefieldofwater and sewage management have beendefinedinthe“MasterPlanforthe implementation of Council Directive 91/271/EEC” (the “Master Plan”) and the “National Programme for Municipal Sewage Treatment” (the “NPMST”). In May 2016, an "Update to the Master Plan" was approved by the Ministry of Environment. Currently, the fourth version of the NPMST dated 21 April2016isinforce.AtthebeginningofSeptember,workonthefifthversionoftheNPMST began, to be completed in March 2017.

Accordingtothelatestversion,thetotal estimated value of the projects implemented under the NPMST for 2015 is PLN 6 billion and the total estimated expenditure along with the amount to be spent in 2016 is PLN 23 billion, where almost PLN 17.5 billion is to be spent by the end of 2020.

In 2015, 4,862 kilometres of sewage pipes were built and 698 kilometres modernized. Asaresult,thenumberofpeopleusingsewage management services increased by ca. 606,000.

The fourth version assumes that investments will be realized in 824 treatment plants, that 16,918 kilometres of new sewage pipes will be built and a further 3,505 kilometres modernized. Asaresult,thenumberofpeopleusingsewage management services following the development and modernization of the network will increase by ca. 1.8 million.

Structure of the planned expenditures, according to NPMST

Source: NPMST 2015 Update

Construction of sewage

system 52%

Modernization of sewage system

15%

Wastewater treatment incl. septic sludge

treatment and management 33%


53

Waste managementTheinvestmentsplannedinthefieldofwastemanagementhavebeendefinedmainly in the National Waste Management Plan 2022 (the “NWMP”). The resolution to introduce the new plan was adopted on1July2016andissuedon11August2016.Theobjectivesandtasksdefinedinthe document concern the years 2016-2022 and the years 2023-2030 in the long term. The key objective of the NWMP is to avoid waste production and to use

waste as a resource. The said objective is consistentwiththemeasuresdefinedintheInfrastructure and Environment Operational Programme with respect to municipal waste management. The planned investment projects support the plan assumptions that 50% of municipal waste should be recycled by 2020 (60% by 2025) and no more than 30% of such waste ought to be incinerated.

In the 2014-2020 perspective, funds of EUR 0.93 billion have been allocated to municipal waste management under the Infrastructure and Environment Operational Programme.

Construction of municipal waste incineration facilities – projects in progress and planned


Project location

Capacity of Solid Waste Treatment

Estimated project cost

(in PLN million)

Additional funds form IEOP 2014-20 (in PLN

million)

Project formula

Expected project length

Existing

Warsaw 40 Traditional Operating

Bydgoszcz 180 523 255 Traditional Operating

Kraków 220 826 372 Traditional Operating

Białystok 120 333 210 Traditional Operating

Konin 94 388 165 Traditional Operating

Poznań 210 720 352 PPP Operating

Preparatory stage

Szczecin 150 666 255 Traditional

Investment approx. 80% completed. Originally, it was planned to be completed by the end of 2015. The deadline was extended until 10

December 2016, but in June 2016 the contractor (Mostostal) withdrew from the contract. The process of selecting the new contractor is

Warsaw 305 1 100 Traditional

MPO (City Sanitation Department) has signed an engineer's contract with the consortium Eko-Inwest, ECM Group Polska with respect to extension ofthemunicipalwasteincinerationfacilitiesinWarszawa-Targówek.The

project is scheduled to be completed at the turn of

Oświęcim 160 400 TraditionalThe project contractor has been selected. The project is scheduled for

2018.

Koszalin 92 340 PPP The procedure to select the contractor is in

Gdańsk 250 400-500 PPPThe provisions of the PPP contract are being negotiated with 5 preselected

contractors. The construction work is scheduled for 2018 - 2020.

Olsztyn 100 250 PPP"The project is at the planning stage. The project is scheduled to be

completed in 2020."

Rzeszów 100 285 Traditional"The construction contract has been signed.

The scheduled launch date is in 2018."

Legnica 120 347 Traditional No decision concerning the start of the

Sosnowiec 180 480 Traditional No decision concerning the start of the

Ruda Śląska

500 1 699 TraditionalThe stage of public consultations has ended. No decision concerning the

start of the investment.

Project abandoned

Łódź 200 1 130 PPP Project abandoned.

The current capacity of waste incineration facilities 864 thousand tons per year

Capacity to be achieved in 2017: 1 014 thousand tons per year

Potential capacity if all projects that are being considered are to be carried out: 2 781 thousand tons per year


54

2.5.5. Construction in the commercial and service sectorIn 2015, the commercial space market in Poland increased by almost 650,000 sq.m. Ahighersupplywasobservedinthesecondhalf of the year, when almost two-thirds of new commercial space was made available for use. Shopping centres accounted for ca. 550,000 sq.m. and commercial warehouses represented98,000sq.m.Attheendofthefirsthalfof2016,morethan13.5millionsq.m. of modern commercial space was available in Poland.

In 2015, 23 new commercial and service facilities were opened, the largest being "ZieloneArkady"inBydgoszcz(51,000sq.m.),"Sukcesja"inŁódz(46,000sq.m.)and"Tarasy Zamkowe" in Lublin (38,000 sq.m.).

Development of existing shopping centres accounted for more than 25% of commercial space made available for use in 2015. Fifteen facilities were extended, including"CentrumBielany"inWrocław(additional 35,000 sq.m. built), which thus became the largest shopping centre in Poland with a total area of 145,000 sq.m.

In 2015, the vacancy rate on mature markets in the eight largest cities was 2.9% on average vs. 4.0% in regional cities. The lowest rate was recorded in Warsaw, WrocławandLublin(1.5%)andthehighestinBydgoszcz,RadomandToruń(6.0%,5.7%and 5.2%, respectively).

Currently, almost 700,000 sq.m. of commercial space is being built, out of which 450,000 sq.m. is planned to be made available for use in 2016.

Nonetheless, the outlook for commercial space construction companies is uncertain due to the changes in the Polish legal system and the political and economic climate in Europe. On 14 June 2016 the PolishgovernmentratifiedthefinalversionoftheActontradetaxanditisestimatedthat approx. 100 major commercial networks operating in Poland will become liable to that levy. The increased level of uncertainty in Europe (inter alia due to Brexit), especially in the Context of FOREX

Structure of commercial space opened in 2015 by investment type and format

Source: Cushman&Wakefield Analyses

New Shopping Centres

Extension of Shopping Centers

New Commercial Parks

Extension of Commercial Parks

New Outlet Centres

Extension of Outlet Centres

Mega Department Stores

57%21%

3%

15%2%

1%1%

rates,maychecktheinflowofforeigncapital, which in turn will lead to a decrease of investment volumes in the commercial real property segment.

We have great competence inthefieldofgeneralandengineering construction, but we are also looking out for new areas of expertise. We plan to reinforce our footprint in the large project segment , which does not mean that we will neglect local investments. Our company increasingly relies on innovation. Delivering top-quality services and the safety of our employees at construction sites constitute our main priorities.

Piotr Janiszewski, CEO, Skanska S.A.


55

2.4.6. Housing constructionThe outlook for housing construction companies remains positive. The ratio of flatsper1,000citizensinPolandislowerthan in other European countries. This means a potential for further growth and an opportunity for entities active on the Polish housing construction market.

In 2015, both the demand and supply on the residential property market were strong.Notonlydidthenumberofflatssoldincreasebutthenumberofnewflatsmadeavailable on the market went up as well. AccordingtoREAS,51,800flatsweresoldin 2015 (vs. 43,000 in 2014), while 51,900 were made available for sale (as compared to47,500in2014).Thefirsthalfof2016wasalso exceptionally good in this regard. The numberofflatssoldwas29,400andflatsmade available for sale was 31,400, which was a 21% and 28% rise, respectively, as comparedtothefirsthalfof2015.

Asregardsthesupply,arecoveryonthe housing construction market is also reflectedinsuchstatisticsasthenumberofflatsforwhichanoccupancypermitwas issued or the number of residential building construction permits issued (In 2015, 147,595,000 and 72,000, respectively). This was a 3% rise in the number of new flatsvs.2014anda10%increaseinthenumberofissuedconstructionpermits.Amore considerable increase in the supply wasseeninthefirsthalfof2016,whenthenumberofflatsforwhichanoccupancypermit was issued went up by 15% and the number of construction permits issued increased by 14% year-on-year.

Number of flats per 1000 inhabitants in 2015

Source: Euromonitor International, Deloitte analysis

Number of flats sold in six largest Polish cities (in thousand)

Source: REAS

295

363 375418 436 437 438 448 451 455 471 486 510 512 516 522 532 533 543

573

0

100

200

300

400

500

600

700

Number of flats sold in six largest Polish cities (in thousand)

Numberofflatsplacedintoservice

Issued housing construction permits


Construction and modernization of hospital buildings can generate higher volumes of investment projects in the coming years.

Wojciech Trojanowski – Member of the Management Board of Strabag Sp. z o.o

7.48.1

9.610.9 11

10.4 10.411.2 11.5

12.7 13.214.4 14.3

15.1

0

2

4

6

8

10

12

14

16

1Q2013

2Q2013

3Q2013

4Q2013

1Q2014

2Q2014

3Q2014

4Q2014

1Q2015

2Q2015

3Q2015

4Q2015

1Q2016

2Q2016

160

136 132

153145 143 148

74

91 88 8576

67 6572

39

0

20

40

60

80

100

120

140

160

180

2009 2010 2011 2012 2013 2014 2015 1H 2016


56

Factors affecting the demand on the housing construction marketIn 2015, the favourable conditions on the housing construction market were additionally sustained by government programmessupportingflatpurchasesandthe vision of more stringent requirements for home loans.

AccordingtotheNationalBankofPolandreport entitled "The Loan Market in Q3 2016", published in July 2016, banks imposed stricter criteria for granting home loans in Q2 2016 and announced the establishment of more demanding requirements with respect to collateral pledged by borrowers, as a result of which a drop in the demand is expected. However, in2015andinthefirsthalfof2016,thedemand was still considerable and at the end of Q1 2016 the overall number of active mortgage agreements administered by the Polish banking sector exceeded 2 million for thefirsttime.

One of the factors fuelling the demand for home loans was the continuation of the "Flats for the Young" programme for 2014- 2018. The fact that the programme is limited in time and the borrowers' concerns that the funds allocated to subsidies under the "Flats for the Young" programme9 for 2017 will soon be used up contributes to good conditions on the housing market.

It should also be emphasized that currently the provisions of the National Housing Programme are being drafted. The programmeisalsoaimedatfacilitatingflatpurchases. It provides for the establishment of the National Housing Fund, which will enable the construction of tenement houses that may later be purchased at attractive prices, without the use of State funds. The land to be used for construction purposes, to secure funds for projects implemented in other locations or for the provision of financialsupport,ismainlyState-ownedproperty.

9 Under the applicable regulations, where the down-payment may not be partially covered in 2016, an application may be filed with the planned subsidy payment date in 2017.

Mortgages in Poland in 2010-2015 and 1H 2016

Number of active contracts

Total indebtedness (in PLN billion)


The objective of the programme is to increasethesupplyofflatsandtheiravailability and to lower rents for individuals whocannotaffordtheirownflatorfailtosatisfy the loan granting criteria.

Under the programme, the spending on social tenement houses should reach PLN 157.2 million and PLN 12.8 million in 2017 and 2018, respectively, and PLN 4,730.4 millionbetween2019and2025.Atotalofalmost200,000flatsareplannedtobebuilt(7,000 in 2017, 13,000 in 2018 and 179,000 between 2019 and 2025).

One of the objectives of the National Housing Programme is to catch up with the averagenumberofflatsper1,000citizensinthe European Union. It is estimated that this willrequiretheconstructionof2millionflatsin Poland by 2030.

Asinthepastyear,theattractivenessofinvestmentsinflatsforrentwasamajorfactorinfluencingthepurchaseofflatsinthe context of an uncertain outlook for the Warsaw Stock Exchange. On the one hand, it is expected that foreign investors may return to the Warsaw Stock Exchange followinganoutflowofinvestments,butonthe other, the possibility that open-ended pension funds will be done away with, the fact that opinions about Poland are not particularly favourable on foreign markets and that the number of IPOs is decreasing have considerably weakened the position of the Warsaw Stock Exchange over the past few years. The future of the Warsaw Stock Exchange will depend on the economic conditions in Poland and abroad, which may not be determined at present.

1,448 ,828

1,630 ,694

1,731 ,593

1,819 ,796

1,896 ,779

1,994 ,677

2,027 ,972

263.6

313.7 316.3330.8

350.4

374.1382.9

120

170

220

270

320

370

420

2010 2011 2012 2013 2014 20150

500 000

1 000 000

1 500 000

2 000 000

2 500 000

1H 2016


57

2.5.7. Office constructionIn2015,thesupplyontheofficeconstruction market in Poland was the highestonrecord.Thetotalmodernofficespace available in the nine largest Polish cities(Warsaw,Kraków,Wrocław,Tricity,Katowice,Poznań,Łódź,SzczecinandLublin) was 8.2 million sq.m. at the end of 2015. Only in 2015, 643,000 sq.m. of modernofficespacewasconstructed,outof which 278,000 sq.m. was in the capital and 366,000 sq.m. in regional markets. The demandontheofficeconstructionmarketwas very high last year as well. The overall lease transaction value was 40% higher than in the preceding year.

Nonetheless, it needs to be emphasised thatthesituationontheofficeconstructionmarket may deteriorate over the next fewquarters.Accesstoforeignfunding(duetolowinterestratesofferedindeveloped countries), which contributed to the increase of the available space, may become restricted in the months to come. In addition, considering the anticipated high supply, it is to be expected that the unrented space ratio will go up in the largest Polish cities.

Attheendof1Q2016thevacancyrateinPoland equalled 12.6%, with the highest rate recorded in Szczecin (18.3%), Katowice (17.4%),Poznań(14.4%),Warsaw(14,1%)and Tricity (14%).

The National Bank of Poland points out the growing imbalance on the real property market which is a consequence of excess supply. Considering the increasing number of vacancies and the associated drop in rents,thecost-effectivenessofinvestinginofficespacewillgodown,whichisalreadyreflectedinthevaluationofinvestmentcertificatesofclosedinvestmentfundsinvesting in real property.

Warehouse space in construction 1Q 2016 (in sq.m.)

Source: Cushman&Wakefield Analyses

8,000

110,000 106,000

91,000

184,000

99,000

44,000

60,000

81,000

0

20000

40000

60000

80000

100000

120000

140000

160000

180000

200000

Warsaw- the city

Warszawa- the suburbs

CentralPoland

UpperSilesia

Poznań Wrocław Tricity Kraków Otherregions

2.5.8. Warehouse constructionThe warehouse construction market grew considerably both in 2015 and in Q1 2016.AttheendofMarch2016,Polandhada total of 10.3 million sq.m. of modern warehouse space. Growing demand makes the market outlook even more optimistic. The transactions entered into in Q1 2016 involved 637,000 sq.m. of warehouse space, which means an 8% (45,000 sq.m.) increase year-on-year. The rise in the demand was accompanied by the increasing supply of warehouse space. Only in Q1 2016, the warehouse space resources increased by 447,000 sq.m., which represented almost a half of the supply recorded in 2015 as a whole.Additionally,thefactthatthevacancyrate has again gone down shows that the supply has a good correlation with the demand.AttheendofQ12016,thevacancyrate was 5.9% of the existing resources, i.e. ca. 0.9 p.p. less than in the corresponding period of the preceding year.


58

2.6. Market perspective Construction industry companies emphasise that 2016 seems more challenging than expected due to delays in the performance ofEUco-financedprojects.Theestimatedrevenue of entities in the infrastructure construction sector in 2016 are 50% lower than expected.

The future of the energy construction industry will depend on political decisions on supporting selected sources of energy.Accordingtocontractors,simultaneousperformance of three or four large projects proves disadvantageous due to the lack ofaqualifiedworkforce.Followingthecompletion of a considerable number of contracts in 2019, considerable oversupply of workers is expected.Energyprojectsalsodifferinmarginsgenerated by technology providers and construction companies, with the former reporting much better performance. It is not certain, though, if this trend will continue in the long run.

The situation in the general construction segment is considerably better, but the continued growth of supply depends on furtherinflowofforeigncapital,whichmayslow down over the next few months. Atpresentthecommercialmarketreportsgrowth. Contractors have recognized the potential of modernizing old shopping malls andofficesandthedemandforcommercialandofficespaceintownsandsmallercities. The public sector is also expected to increase the demand for general construction works in the healthcare and defence sectors.

The residential construction market has seen a rapid growth. Market players mention the investment boom resulting from the expected termination of the Flat for the Young mortgage subsidy programme and limited access to mortgage loans. Property companies do not believe that the Flat Plus Programme following the government's social support policy, willconsiderablyaffecttheresidentialconstruction market. This is because the flatsundertheprogrammewillmainlybe provided to individuals with low creditworthiness. From the viewpoint of construction companies, under this assumption, the Programme should entail many new projects.

Despite delays in infrastructure projects, theexpectedmarginpressureandfiercecompetition in tenders, EU funds will still drive investments in the coming years. Contractors, however, are fully aware that new strategies should be implemented now to ensure growth beyond 2020.

The supply gap in infrastructure construction in 2016 results from the transition period in EUco-financedprojectsandamendmentsto the public procurement law. Still, the shift ismoresignificantthananticipatedfollowingthe change of government in 2015 and the suspension of public tender proceedings during investment programme reviews.

The analysis of government programmes carried out by the Ministry of Infrastructure and Construction has shown a ca. PLN 90 billion underestimation of outlays on road construction and substantial delays in railway projects. The shortfall for road projects will be difficulttofind,consideringtheNationalRoadFund already had PLN 60 billion of debt. It has not been decided yet if additional funds (andhowmuch)willbeallocatedtofinanceall projects planned or if the projects will be reprioritized and rescheduled.

In our opinion, much weight in the tendering procedure should to be attached to the quality criterion. Ideally, the price criterion weight should not exceed 40 percent, andthenon-pricecriteriashouldtakeonaddedsignificance.AtthemeetingsofInvestment Forum working groups, working hand in hand with contractors, we have prepared a list of non-price criteria.

Rejecting the lowest and the highest price bids also seems a reasonable approach in tenderassessment.Anotherideawhichisworthconsideringinthefutureistoextendthe scope of the contract with the contractor to include maintenance services, e.g. for a period of 10 years after putting the infrastructure into operation.

We have reviewed our investment projects and updated the schedules to prevent project accumulation in the coming years. In the last quarter of the year we intend to call for tenders with a total value of PLN 6.5 billion under the new EU perspective.

Ireneusz Merchel, CEO, PKP Polskie Linie Kolejowe S.A.


59

AccordingtotheDirectorateGeneralforNational Roads and Motorways all public procurement projects are carried out in line withtheschedule.Aninvestmentbudgetof more than PLN 4 billion was opened in September with 14 invitations to tender. Other tender proceedings worth PLN 8 billion will be announced by the end of the year.Following the execution of these contracts the total value of works would reach PLN 60-65 billion, i.e. more than 60% of the planned amount. The legislators are currently working on making the soft tender appraisal criteria more detailed, but the tenders announced so far are conducted in line with the regulations binding so far, which primarily rely on the price.

AccordingtotheDirectorateGeneralforNational Roads and Motorways, no problems with tenders for road projects are expected, even if additional State budget funds are allocated to increase capital expenditure spent under the NRBP.

The situation in the railway construction sector is more complicated, though. Tenders are announced with 12 month delays, which implies that most investment projects may be carried out during the last years of the EU 2014-2020 perspective, considering the duration of the tendering processes and the designing stage. Sector participants emphasise that due to the accumulation of investment projects a considerable number of railroad sections may be closed at the sametime,disruptingrailtraffic.

They also claim that there is a serious threat that PKP PLK will not be able to consume all allocatedfunds.AccordingtotheProKolejFoundation, PKP PLK considers carrying out alternative projects involving special purpose vehicles and using the funds to construct railway stations and railway sidings. Construction companies claim, however, that this would imply shifting the burden of contribution from central to local administration.

AccordingtoPKPPLKthereviewoftheplanned investment projects and their timeframe will make fund allocation more realistic in the coming years and prevent closing all railway lines in a given direction at the same time. Moreover, if purchases of materialsandtheirfinancingareplannedin advance, some problems with their transportation when lines are closed and the pricegrowtheffectscanbeavoided.

The winning bid prices have been decreasing, which is perceived as a negative trend. Two years ago the winning bid price comprised ca. 70% of the investment budget, while in 2015 the share dropped to 60% and in 2016 - to 50%.Accordingtoconstructioncompanyleaders, although the railway investment initiative announced by the Ministry and PKP PLK encouraged companies to purchase equipmentandemploynewstaff,noinvestment boom occurred.

Apartfromthestrongpricepressure,increased competition has also been observed in tenders. Recently, the number of bidders has increased twice, and the group also includes companies from Western Europe (for instance from Portugal, Spain, ItalyandAustria),whichdidnotoperateonthe Polish market in previous years.

Polish construction companies, however, positively assess expected changes in tender proceedings. The key change is limiting the price criterion weight to a maximum of 60%. Expertsemphasise,however,thatthefinaloutcome will depend on what other non-price criteria are applied. They also suggest that rejecting the lowest price bid could prevent spoiling the market. Moreover, they mention the Scandinavian model, where the selection of the winning bidder is based on theeconomicbenefitsproducedbytheofferpresented. The category includes factors such as supply period, payment terms, supply terms, social and environmental impact, and quality. Market participants, however, indicatethatnon-pricecriteriaaredifficulttomeasure, they require advanced knowledge and experience. What is more, such criteria are generally avoided by authorities in fear of alleged corruption.

ApositivechangewasappointingtheCouncilof Experts on Road Construction by the Ministry of Infrastructure and Construction. The Council is composed of contractors, clients and non-government organizations. The key responsibility of the Council of Experts is to draw up contract templates, develop guidelines on preparing descriptions of the object of the contract and guidelines on tender proceedings.

Still, a discussion on contract award procedures has started among clients and contractors. It is a positive trend, as the dialogue may lead to developing solutions beneficialtothemarket.Grzegorz Grabowski, Chairman of the Management Board of Torpol S.A.


60

AccordingtotheDirectorateGeneral,forNational Roads and Motorways non-price criteria should focus on the quality of works, and the warranty period should no longer constitute a selection criterion, but become a requirement. Moreover, the requirement to use your own human resources is considered a good idea. The Directorate General for National Roads and Motorways emphasises that, in response to the needs of contractors, beginning from autumn 2013(underthenewfinancialperspective2014 - 2023) contracts ensure contract price adjustment using rates published by the CentralStatisticalOffice(withthecapof1%of the contract value).

Railway construction issues are discussed by PKP PLK and contractors at working group meetings of the Investment Forum. One of the items on the agenda are tender conditions. The list of possible soft (non-price) criteria as part of tender assessment has already been discussed.

AccordingtoPKPPLKthetargetpricecriterion weight could equal 40% in procedures related to services linked with the investment process (especially the engineer, pre-investment documentation, and project documentation). Other proposed changes which are positively assessed are the introduction of advance payments,andfinancingpurchasesofmaterials. The maximum warranty period required by PKP PLK will be 6 years. This

changeisamoreeffectivesolutionthana ten year warranty period, which made contractors promise the maximum warranty period, as the price still remained the decisivecriterion.AccordingtoPKPPLKan interesting solution, which would be worth considering, would be a ten-year contractual maintenance period managed by the contractor after putting the railway infrastructure into operation. PKP PLK also agrees with the idea of rejecting bids with the lowest and the highest price. Learning from the experience of projects co-financedwithEUfundsfromthepreviousperspective, companies carried out a number of modernisation and investment initiatives aimed at mitigating operational risk,revenuediversification,increasingefficiencyandflexibility,whichareessentialin the changing market environment. Some companies have started optimizing processes and organizational structures and follow downsizing strategies. Still, it has not resulted in a sector headcount reduction.AccordingtothedataoftheCentralStatisticalOffice,inthefirsthalfof2016, the average headcount increased slightly (by 0.2% YoY). Moreover, companies havediversifiedtheirportfoliosintermsof operations and region. Companies gain new competencies, such as the increasingly popular construction of buildings (commercialandofficespace),realestateadministration or "green construction".

Anumberofcompaniesgetinvolvedinsmaller projects, i.e. the construction of local roads or the development of buildings in smaller cities and towns.

Many entities follow geographical diversificationstrategiesbasedongrowingexports, mergers and acquisitions and establishing foreign branches. Companies focus on Scandinavia, Germany, the Baltic States and the Balkans, although Balkan investment projects involve increased political risks and challenges related to economic volatility.

For the Directorate General for National Roads and Motorways, the possible increase in expenditure in the next few years will not cause any organizational problems related to processing additional tendering procedures.

Tendering procedures are performed as planned. In September 2016, contractors were invited to tenders with an aggregate value exceeding PLN 4 billion (according to investment budgets). By the end of the year, we are planning to invite contractors to tenders for another PLN 8 billion.

The warranty period will no longer constitute a selection criterion. Non-price criteria should focus on quality.Iwona Stępień – Pilipczuk - Deputy General Director, Directorate General for National Roads and Motorways


61

2.7. Summary2015 was a year of stagnation for the construction sector. Production in the construction sector went up by a symbolic 0.13%.Amajortrendobservedin2016is a drop in the number of contracts in the infrastructure segment, which is the consequence of the end of the 2007-2013 EU perspective and delays in the implementation of government projects that willreceivefinancialsupportinthe2014-2020 perspective. Currently, changes to the programmes are being discussed so as to improve the public procurement process

and prevent the accumulation of projects duringthefinalyearsofthe2014-2020perspective, which would have an adverse effectonconstructioncompaniesthrougha rise in the prices of materials and labour costs in addition to disturbing road and railway transport. The market players emphasize the positive aspect of the dialogue between the public side and contractors, considering the large-scale investment plans for the upcoming years and prior EU perspective experience.

Table: Volume of selected planned investments, broken down by construction market segment

YearsPlanned investment volume

Source Comments

Road construction

Expressways and motorways

2014-2025 PLN 97.5 bn

National Road BuildingProgramme for 2014-2023 (with projections by 2025)

Excluding expenditure on modernization of regional and municipal roads.

Ring roads 2014-2025 PLN 9.6 bn

Maintenance of the technical standard of theexisting road network

2014-2025 PLN 46.8 bn

Road repair works 2015 PLN 7,2 bnGeneral Directorate for National Roads and Motorways

The amount represents the financialneedsrelatedtoelimination of the unsatisfactory and poor condition of national roads. The amount that the Directorate General for National Roads and Motorways is actually planning to spend on that purpose is not known.

Municipal and district roads

2016-2020 PLN 4 bn

Municipal and district road infrastructure programme for 2016-2020

Government budget expenditure on programme implementation

Railway Construction

Railways 2014-2023 PLN 66 bnNational Railway Programme by 2023

The amounts planned in the budgets of individual cities do not represent the total capital expenditure on tram networks in those cities (some will be financedbymunicipaltramcompanies).

Trams and suburban rail 2015-2020 PLN 1,5 bnMulti-AnnualFinancialPlans for the six largest cities in Poland

Energy construction

Transmission and distribution networks

2014-2019 PLN 42 bn EnergyRegulatoryOfficeConstruction of new capacity of 18 GW is planned.Excluding capital expenditures on nuclear power plant construction.Capacity 2014-2028 PLN 55 bn EnergyRegulatoryOffice

Environmental protection

Sewage systems2014-2015after 2015

PLN 4.1 m PLN 15.4 m

NPMST Update

Sewage treatment2014-2015after 2015

PLN 2,7 bn PLN 7.6 bn

NPMST Update IV


62

YearsPlanned investment volume

Source Comments

Construction of buildings and facilities (commercial and service facilities, residential, office and warehouse buildings)

No forecasts as to amounts in the longer term.

The volume of investments in progress is high in the commercial construction segment, but an increasing imbalance of the demand and supply can be observed, which may check the growth dynamics.

In the housing construction segment, the demand depends mainly on the funding available under government programmes. The demand in the segment is expected to decline following the expiry of the "Flats for the Young" programme, which is planned to be continued until 2018. The heralded "Flat Plus Programme" willbeafactorinfluencingthe housing market but its effectsaredifficulttopredictatpresent.



64


65

Chapter 3. Profilesofthe

largest construction companies in

Poland


66

Skanska Group

Skanska has been operating in Poland since the early 1970s, when it built the firstWestern-standardhotels:NovotelWarszawa Centrum (former Forum Hotel) andSofitelVictoriaWarszawa(formerVictoria Hotel) in Warsaw in addition to a dry dock for the Gdynia Shipyard.

In 2000 Skanska acquired Exbud Group and has been continuously present on the Polish construction market.

Skanska Group operates on the European andNorthAmericanmarketswhereitactsas a general contractor and developer on housingandofficeprojects.ItcarriesoutPPP projects as well

SkanskaS.A.actsasthegeneralcontractorand thorough its units, has a footprint all over Poland. It specialises in general construction and construction engineering. It carries out both small-scale projects for local authorities and large, nationwide investments. Skanska has implemented BIMtechnologyatthestageofoffering,design, construction and post-construction measurements.

General constructionThe Skanska Group acts as a general contractor delivering shopping and entertainment centres, healthcare and educationalfacilities,offices,hotels,residential buildings, sports and industrial facilities with the accompanying infrastructure.

Civil engineeringSkanskaS.A.buildsroadsandbridgesinaddition to carrying out hydro-technical, environmental protection, and railway projects.

The company has a network of bituminous material production facilities, concrete production plants, road laboratories, aggregate mines, equipment bases and a steel structure manufacturing plant.

Asinthepreviousyear,forthepurposeof this edition of the report we have only been provided with selected consolidated financialdataofSkanskaGroupcompaniesoperating in Poland for 2015.

In 2015, the revenue earned by Skanska Group totalled PLN 5.5 billion and its operatingprofitamountedtoPLN470million.

In 2015, the Group employed almost 8,000 people in Poland.


67

Key figures (PLN '000)

2015 2014 2013Percentage

change '15 vs. '14

Assets

Non-current assets 1 437 026 340 095 597 603 322.5%

Current assets 2 563 677 4 383 950 2 723 054 -41.5%

Total assets 4 000 704 4 724 045 3 320 657 -15.3%

Equity and liabilities

Equity 1 082 656 1 577 801 1 102 756 -31.4%

Total equity and liabilities 4 000 704 4 724 045 3 320 657 -15.3%

Profit and loss account

Revenue 5 509 363 5 081 675 4 202 767 8.4%

EBIDTA 446 174 367 908 196 253 21.3%

EBIT 469 999 396 675 159 624 18.5%

Netprofit/loss 417 314 324 185 132 165 28.7%


68

Budimex Group

BudimexS.A.,previouslyCentralaHandluZagranicznego Budownictwa Budimex, was founded in 1968 in order to export construction services, mainly to developing marketsinAsiaandAfrica,andtotheSocialist block countries.

In the late 1980s and the early 1990s, Budimex became a leading contractor on the Polish market.

In 1992, the enterprise was privatised and two years later it was converted into a joint-stock company. Since 1995, its shares have been traded on the Warsaw StockExchange.Asat31December2015,the mainly shareholders of Budimex were Valivala Holdings B.V. (the Netherlands) holding 59.06% of shares (a company operatingintheSpanishFerrovialS.A.Group)andAvivaOFEAvivaBZWBKholding 5.01% of shares.

BudimexGroupprovidesbroadlydefinedconstruction and assembly services acting as a general contractor, both in Poland and abroad, it is a property developer and manager and engages in sales, manufacturing, transport and other activities.Apartfromitsconstructionoperations,BudimexS.A.isanadvisory,managementandfinancialcentreinthecapital group.

In 2015, the revenue of Budimex Group went up by 3.7% year-on-year. Poland and Germany are the key markets where the Group operates.

In 2015, sales revenue generated on the German market, where Budimex acts mainly as a provider of workshop services, exceeded PLN 170 million, which means a rise of more than 10% vs. 2014. Foreign market sales accounted for 4% of the total revenue generated by the Group in 2015.Construction and assembly works represented more than 91% of the total revenueearnedin2015.Ascomparedto2014, sales in this segment increased by 2.3% to PLN 4.6 bn.

In 2015, revenue from sales of property development and management services amounted to PLN 291.4 million, which was a ca. 17% year-on-year increase. In 2015, netpre-salesofnewflatswas1,918vs.1,685 in the preceding year.

The Group’s EBIT was PLN 292.2 million, upby18.2%year-on-year.Thenetprofitalso increased by 22%. Improvement of the Group’s performance in 2015 was attributable to a rise in sales revenue, which increased by 3.7% as compared to the preceding year.

Attheendof2015,totaldebtincreasedby12.8% vs. 2014. In 2015, capital expenditure incurredbytheGrouponnon-financialnon-current assets went up by 182% to PLN 68 million.

In 2015, Budimex Group companies entered into construction contracts totalling PLN 7.1 billion, a PLN 0.8 billion increasevs.2014.Asat31December2015,the Group’s contract portfolio totalled PLN 8.4 billion, which represented a ca. 38% year-on-year increase. The company’s market cap increased from PLN 3.6 billion at the end of 2014 to PLN 4.95 billion a year later.


69



change '15 vs. '14

Assets

Non-current assets 821 207 677 496 622 230 21.2%

Current assets 3 892 157 3 178 532 3 064 523 22.5%

Non-current assets held for sale 0 2 181 0 -100.0%

Total assets 4 713 364 3 858 209 3 686 753 22.2%


Equity 603 124 522 509 645 175 15.4%

Provisions for liabilities 317 256 290 767 267 802 9.1%

Long-term liabilities 262 535 233 460 200 309 12.5%

Short-term liabilities and accruals 3 530 449 2 811 473 2 573 467 25.6%

Total equity and liabilities 4 713 364 3 858 209 3 686 753 22.2%


Revenue 5 133 994 4 949 939 4 749 459 3.7%

Domestic sales 4 927 035 4 754 307 4 198 885 3.6%

Export sales 206 959 195 632 550 574 5.8%

Construction operations 4 673 666 4 566 628 4 005 617 2.3%

Other operations 460 328 383 311 743 842 20.1%

EBIDTA 314 566 270 349 362 199 16.4%

EBIT 292 218 247 318 333 306 18.2%

Netprofit/loss 236 520 193 938 301 300 22.0%

Other data

Net debt 1 697 114 1 504 048 1 382 795 12.8%

Debt/Balance sheet total 87.2% 86.5% 82.5% 0.9%

Capital expenditure/revenue 1.3% 0.5% 0.4% 164.6%

Market cap 4 952 839 3 612 509 3 369 973 37.1%


70

Sales by type in 2015

Construction operations

Property management and property development

Other activities

Sales by region in 2015

Domestic sales

Export sales

96%

4%

EBIDTA, EBIT and net profit/loss in years 2013 -2015

2015

2014

2013

EBIDTA EBIT Netprofit/loss

PLN

mill

ion

0

50

100

150

200

250

300

350

400

6%

91%

3%


71

Strabag

STRABAGhasbeenoperatingontheconstruction market since 1835. In 1985, the company launched its operations in Poland, which is its third most important market in Europe. In 2015, the company’s revenue generated in Poland amounted to PLN 3.8 billion, a 22% increase from preceding year.

The core business of the Polish entities includes general construction, infrastructure construction, and bridgeandrailwayconstruction.STRABAGisalso present in other sectors, inter alia hydro-technical construction and power engineering, it is also active in the property development and facility management market. Its key companies in Poland areSTRABAGSp.zo.o.andStrabagInfrastrukturaPołudnieSp.zo.o.ThefinancialstatementsoftheSTRABAGGroup are not consolidated at the local level.

STRABAG SP. Z O.O.TheoperationsofSTRABAGSp.zo.o.focus mainly on infrastructure investments as well as general construction and construction engineering. It also carries outprojectsinthefieldofenvironmentalprotection, railway construction, modernization and construction of wharves, industrial and power engineering construction, also in relation to renewable energy.

Ascomparedtotheprecedingyear,thecompany’s revenue dropped by 24.1% to PLN 3.3 billion.

However, the company’s EBIT was positive and amounted to PLN 146 million and its profittotalledPLN143million.

The company’s net debt was similar to that reported at the end of the preceding year and amounted to PLN 343 million at the end of 2015. It had been accumulated mainly through trade liabilities and measurement of contracts. STRABAGGroupcompaniesdonotuseanyexternal sources of funding and participate in a cash pool system instead.


72



change '15 vs. '14

Assets


Current assets 2 384 751 1 990 207 1 673 328 19.8%

Total assets 3 105 908 2 505 601 2 231 633 24.0%


Equity 891 569 748 350 618 256 19.1%


Long-term liabilities 0 0 0 0.0%




Revenue 3 253 370 2 620 636 2 854 633 24.1%

Domestic sales 3 246 691 2 616 875 2 851 224 24%

Export sales 6 679 3 761 3 409 78%

Construction operations no data no data no data n/a

Other operations no data no data no data n/a

EBIDTA 207 640 230 188 130 125 -9.8%

EBIT 146 185 152 543 38 111 -4.2%

Netprofit/loss 142 519 132 261 57 490 7.8%

Other data

Net debt 342 854 348 274 494 567 -2%

Debt/Balance sheet total 71% 70.1% 72.3% 2%

Capital expenditure/revenue no data 0.8% 1.6% n/a


73


2015

2014

2013


PLN

mill

ion

0

50

100

150

200

250

300

350


74

Strabag Infrastruktura PołudnieSp.zo.o.The Company has been active on the Polish market for 20 years and its business focuses mainly on design and construction works in the road and bridges sector, as wellasairfieldpavements.Untiltheendof 2014, it operated under the name of Heilit+ Woerner Sp. z o.o. and then changed itsnametoSTRABAGaspartofasinglebrand initiative. The company specializes mainly in concrete pavements. The majority of its revenue is generated in Poland. The operations of Strabag Infrastruktura Południearenotparticularlydiversified.The company recorded an 11.5% year-on-year increase in its revenue, from PLN 522.1 million in 2014 to PLN 582.5 million in 2015.ItsEBITandnetprofitamountedtoPLN 40.3 million (vs. PLN 18 million in 2014) and PLN 35.5 million (vs. PLN 16.7 million in 2014), respectively. The company's operationsarefinancedmainlywithcashpool loans from related parties.


75


2015 2014* 2013*Percentage

change '15 vs. '14

Assets


Current assets 492 674 239 732 213 149 105.5%

Total assets 556 968 285 528 241 054 95.1%


Equity 111 579 76 111 59 392 46.6%


Long-term liabilities 0 0 0 0

Short-term liabilities and accruals 364 738 129 299 112 007 182.1%

Total equity and liabilities 556 968 285 528 241 054 95.1%


Revenue 582 476 522 213 444 121 11.5%

Domestic sales 580 470 517 091 441 985 12.3%

Export sales 2 006 5 122 2 136 -60.8%

Construction operations no data no data no data n/a

Other operations no data no data no data n/a

EBIDTA 44 241 22 260 22 836 98.7%

EBIT 40 338 17 977 18 064 124.4%

Netprofit/loss 35 468 16 720 16 861 112.1%

Other data

Net debt 4 522 6 117 34 139 -26.1%


Capital expenditure/revenue no data 0.5% 0.4% n/a

*ThefinancialdataofStrabagfor2013and2014werereconciledwiththefinancialstatementsfor2015and2014,respectively,afteradjustmentshadbeenmadeto

the opening balance.


76


2015

2014

2013


PLN

mill

ion

5101520253035404550

0


Domestic sales

Export sales

99%

1%


77


Polimex-Mostostal Group is one of the largest Polish capital groups with a constructionandengineeringprofile,and it is an entity of strategic importance to the national economy. The history of Polimex-MostostalS.A.,whichistheparentcompany, dates back to the early post-war era. In its current form, the company was established through a merger of Polimex-CekopS.A.andMostostalSiedlce,whichtook place in 2004. Polimex-Mostostal S.A.hasbeenlistedontheWarsawStockExchange since 1997.

The Group operates in the power engineering, petrochemical and industrial construction sectors. Polimex-Mostostal is also a manufacturer of steel structures and products, which includes catwalk grids, and a provider of hot-dip galvanising services. It has built the power units in the Kozienice and Opole power plants.

Apartfromtheparentcompany,in2015, the capital group was composed of Naftoremont-Naftobudowa Sp. z o.o. Polimex Power Sp. z o.o (these are two operating companies of the Group), PolimexOpoleSp.zo.o.sp.k.(former:PolimexProjektOpoleSp.zo.o.),PRInż– 1 Sp. z o.o., Stalfa Sp. z o.o., Polimex-MostostalUkrainaSAZ,PolimexOpoleSp.zo.o.(former:PolimexProjektKozieniceSp.z o.o.).

In 2015, the number of employees in the Group decreased by 413 to just over 5,000, which resulted from the implementation of a restructuring plan.

In 2015, the Polimex-Mostostal Capital Group completed the operational restructuringprocess.Aneworganizationalstructure was developed to centralize the supportfunctions;twosegments,namelypetrochemicals and power engineering, were separated organizationally and transferred to Naftoremont-Naftobudowa Sp. z o.o. and Polimex Power Sp. z o.o., which are separate commercial companies.

In 2015, the Group's sales revenue totalled PLN 2.5 billion (up by 21% as compared to 2014). In 2015, 83% of the Group’s revenue was generated on domestic sales and 17% on export sales, mainly to European Union memberstatesandUkraine.Ascomparedto 2014, the group's sales went up both on the Polish market (by 23%) and abroad (by 15%).

In the preceding years, the Group reported lossesbutitgeneratedaprofitin2015.EBIT totalled PLN 119.3 million, while the netprofitamountedtoPLN69million.The aforementioned improvement in the Group's performance was mainly attributabletohighercontractprofitability,lower costs, and fewer losses on sales and liquidation of non-current assets, a drop in general and administrative expenses and a decrease in the value of provisions recognised in 2015.

Ascomparedtotheprecedingyear,thenetdebt of the Polimex-Mostostal Group went up by ca. PLN 22 million, and the debt ratio decreased by 4 p.p. vs. 2014 and reached 80.2% as at 31 December 2015.

Currently, the portfolio of contracts entered into by the Polimex-Mostostal Group, less sales to other consortium members, is worth ca. PLN 4.6 billion.

In September 2015, the Polimex-Mostostal Group presented its new strategy for the years 2016-2020. The growth strategy focuses on the following areas of the Group'soperations:

• powerengineering;

• oil-gas-chemicals;

• industrialconstruction;

• production.


78



change '15 vs. '14

Assets

Non-current assets 1 164 624 908 997 1 347 640 28.1%

Current assets 1 385 347 1 331 986 1 698 060 4.0%

Assetsheldforsale 177 818 450 614 97 476 -60.5%

Total assets 2 727 789 2 691 597 3 143 176 1.3%


Equity 540 851 431 558 363 202 25.3%

Provisions for liabilities 303 378 328 455 177 401 -7.6%

Long-term liabilities 465 473 606 814 266 342 -23.3%


Liabilities directly related to assets held for sale 118 391 266 336 0 -55.5%



Revenue 2 548 575 2 102 197 2 362 752 21.2%

Domestic sales 2 105 953 1 718 219 1 774 271 22.6%

Export sales 442 622 383 978 588 481 15.3%



EBIDTA 150 903 -343 685 -105 093 143.9%

EBIT 119 351 -395 752 -173 607 130.2%

Netprofit/loss 68 975 -153 226 -260 889 145.0%

Other data

Net debt 1 560 793 1 583 006 2 276 702 -1.4%

Debt/Balance sheet total 80.2% 84.0% 88.4% -4.5%

Capital expenditure/revenue 0.1% 1.3% 1.2% -92.4%

Market cap 498 924 303 166 190 758 64.6%


79


Production

Industry

Power Engineering

Infrastructure Construction

Petrochemicals

Other activity


Domestic sales

Export sales

83%

17%


2015

2014

2013


PLN

mill

ion

-500

-400

-300

-200

-100

0

100

200

7%

71%

3%1%

17%

1%


80

PBG Group

PBG Group began its operations in 1994 as a family-owned partnership under the nameofPiecobiogazs.c.JerzyWiśniewski,MałgorzataWiśniewska.Duringthefirstyears of its operations, the entity focused primarily on construction, modernization and maintenance of pressure reduction and metering stations, as well as the construction of steel and polyethylene pipelines for the transmission and distribution of natural gas. In 1997, Technologie Gazowe "Piecobiogaz" Sp. z o.o. was established and it took over the key part of the partnership’s business involving the construction of gas facilities. Continuous growth and implementation of innovative projects resulted in a change of the company's legal form and name to PBG S.A.(ajoint-stockcompany).

Aninitialpublicoffering,whichtookplacein mid-2004, was another important step. The IPO on the Warsaw Stock Exchange enabled the company to secure funding and establish the PBG Capital Group. SinceJune2012,PBGS.A.hasbeeninbankruptcy by arrangement. The vote on the arrangement with creditors was heldinAugust2015.InOctober2015,the Bankruptcy Court approved the arrangement with creditors, which became finalunderacourtjudgementinJune2016.

Attheendof2015,JerzyWisniewskiholding27.15% of interest in the share capital and 42.23% of the voting rights was the keyshareholderofPBGS.A.istheparentcompany in the capital group, which acts as a general contractor on natural gas, oil and fuel facility projects as well as a provider of comprehensive project services in the power engineering sector.

The business operations of PBG Group mainly focus on the Polish market, which is considered to be the key one due to current investments in the power engineering sector, planned investments in the natural gas and oil sector as well as hydro-technicalprojectsrelatingtofloodprevention systems.

Attheendof2015,PBGGroupreportedan18% increase in sales revenue year-on-year. The Group's revenue went up from PLN 1.5 billion in 2014 to PLN 1.8 billion in 2015. The Group's performance was worse in 2015. EBIT was negative and amounted to PLN 190.6 million, while the net loss totalled PLN 201.1 million.

Attheendof2015,thevalueofPBGGroup’s contract portfolio was ca. PLN 4.92 billion, out of which contracts totallingca.PLN1.97billionwillbefulfilledin 2016 and the remaining part in the following years. The share of contracts in the power engineering sector is the highest (94%). These include a contract for the construction of power units in the Jaworzno III Power Plant. The oil, gas and fuel segment is the second largest one with a 6% share in the Group's contract portfolio.


81


2015 2014 2013*Percentage

change '15 vs. '14

Assets

Non-current assets 879 473 1 072 886 1 014 080 -18.0%

Current assets 1 314 334 1 116 319 1 665 378 17.7%

Assetsheldforsale 2 055 75 881 3 083 -97.3%

Total assets 2 193 807 2 189 205 2 679 458 0.2%


Equity -808 100 -672 757 -582 846 -20.1%






Revenue 1 798 815 1 530 248 1 227 600 17.6%

Domestic sales 1 670 172 1 303 980 997 088 28.1%

Export sales 128 643 226 268 230 512 -43.1%

Construction operations 1 552 389 1 188 076 774 302 30.7%

Other operations 246 426 342 172 453 298 -28.0%

EBIDTA -171 625 -26 397 362 569 -550.2%

EBIT -190 638 -46 254 333 217 -312.2%

Netprofit/loss -201 104 -80 799 207 512 -148.9%

Other data

Net debt 2 660 161 2 757 269 3 088 410 -3.5%



Market cap 25 445 23 444 31 592 8.5%

*Thefinancialdatafor2013wasreconciledwiththefinancialstatementsfor2014afteradjustmentshadbeenmadetotheopeningbalances.


82


Natural gas, oil and fuels

Energy construction

Other


Domestic sales

Export sales

93%

7%


2015

2014

2013


PLN

mill

ion

-300

-200

-100

0

100

200

300

400

86%

1%13%


83

Erbud Group

ErbudGroupisoneofthefivelargestconstruction companies in Poland, with over 25 years experience in the industry. It was established by Eryk Grzeszczak and his son Dariusz Grzeszczak in 1990 underthenameofPrzedsiębiorstwoBudowlaneiUsługTechnicznychERBUD.In 1993, its German subsidiary – GWI Bauunternehmung GmbH – was founded to carry on the Group's business abroad. In1999,JózefAdamZubelewiczbecameashareholder of Erbud – his responsibility as a management board member was to develop the company’s business in Poland.

In 2003 Erbud received a capital injection from a strategic investor – a German companyWolff&MüllerGmbH&Co.KG. Since 2004, the company has been developing its independent regional branches in Poland and its Western European expansion began in 2005, to include such markets as Belgium, France, Sweden, Ireland and England.

In 2006, Erbud was converted into a joint-stock company and in 2007 made its IPO debut on the Warsaw Stock Exchange. In2006ErbudtookoverBudlexS.A.-atpresent the group is in the process of sellingthatentity.Attheendof2007,Erbud also acquired Rembet Plus Sp. z o.o., a company operating in the road and engineeringsector.PrzedsiębiorstwoRobótDrogowychS.A.(PRDSA),operatingintheroad sector, joined the group in 2008. In 2010 the road companies belonging to the group,i.e.PRDSAandRembetPlusSp.zo.o. were consolidated, as a result of which

PrzedsiębiorstwoBudownictwaDrogowo-InżynieryjnegoS.A.wasestablished.In 2012, the group purchased shares in Engorem, a company providing comprehensive investment, repair and diagnostic services to the power industry. Development of the business in the area of modernization, repair and maintenance of the existing industrial and power facilities resulted in the establishment of a new entity, Erbud Industry, in 2014. Erbud Industry comprises Engorem.

Asat31December2015,Wolff&MüllerGmbH&Co.KGholding32.41%oftheshares was the key shareholder of the company.Theothershareholdersare:

• Dariusz Grzeszczak and DGI Fundusz InwestycyjnyZamkniętyAktywówNiepublicznych, controlled by Dariusz Grzeszczak (22.72% interest in total),

• AdlerPropertiesSp.zo.o.controlledbyJózefAdamZubelewicz6.56%

• two Open-Ended Pension Funds (ING andAVIVA)holding19.12%ofsharesinthe company

Erbud Group provides general contracting and subcontracting services in the commercial, public utilities, power and residential sectors, as well as services in the area of road and engineering in Poland and other European countries (primarily Germany, Belgium, Luxembourg and the Netherlands).

One of the group’s priorities is its further growth in the segment of general construction,specificallyofficebuildings,shopping centres and public utility buildings, and in the power engineering segment in Poland and abroad.

In 2015, Erbud Group earned revenue of PLN 1.8 billion and reported a4.2% increase in sales year-on-year. 91% of its sales revenue was generated in Poland, whereas 9% was derived from business carried out in Western Europe. Building construction was the key source of the group's revenue, accounting for 64% of its consolidated sales in 2015.

In the analysed period, the Group's profitabilityincreasedandtheconsolidatedEBIT was PLN 51.5 million, up by 20% vs. 2014.ThenetprofittotalledPLN31.7million and was 13.6% higher than in the preceding year.

In 2015, the net debt of the Group remained at a similar level to the one reportedintheprecedingyear:PLN529million.Attheendof2015,theGroupequityfinanced28.7%ofitsoperations.Eurbud Group employs 2,044 people.


84



change '15 vs. '14

Assets


Current assets 924 304 889 284 678 175 3.9%

Total assets 1 098 889 1 051 445 795 930 4.5%


Equity 315 787 287 531 266 966 9.8%




Total equity and liabilities 1 098 889 1 051 445 795 930 4.5%


Revenue 1 763 282 1 692 055 1 223 609 4.2%

Domestic sales 1 605 064 1 496 682 1 013 873 7.2%

Export sales 158 218 195 373 209 736 -19.0%



EBIDTA 62 096 52 003 40 427 19.4%

EBIT 51 528 43 128 32 700 19.5%

Netprofit/loss 31 689 27 892 18 079 13.6%

Other data

Net debt 528 964 554 651 404 374 -4.6%



Market cap 354 376 324 153 432 167 9.3%


85


Construction - General Construction

Property Development

Road and engineering

Energy construction


Domestic sales

Export sales

91%

9%


2015

2014

2013


PLN

mill

ion

19%

64%

14%

3%

0

10

20

30

40

50

60

70


86

Trakcja Group

TrakcjaPRKiIS.A.isamongthelargestentities operating in the infrastructure construction and railway modernization sector in Poland. The company has been operating under this name since the end of 2013, but in organizational terms it continues the tradition and draws on the experience gained by its predecessors over thepast60years(PKRES.A.,PRKiIS.A.,PRK7S.A.).

TheGroupfulfilsanumberofimportantcontracts related to the modernization of road and railway infrastructure in Poland and abroad. It is also active in the urban rail transport, roads, bridges and power engineering sectors. The core business of its subsidiaries is the preparation of feasibility studies and project documents, provision of specialist railway infrastructure maintenance services as well as general and residential construction.

The company's current status has been achieved in stages. First, as a state-owned enterprise it was restructured in1995.Anotherstageofdevelopmenttook place in 2004, when the control of TrakcjaPolskaS.A.,aholdingcompanypreviously established, was assumed byPrzedsiębiorstwoKolejowychRobótElektryfikacyjnychS.A.Thecompanywasprivatised in 2005 through the sale of a minorityinteresttoComsaS.A.Spain.

AtthebeginningofApril2008,thecompany made its IPO debut on the Warsaw Stock Exchange. In 2009, the companywasmergedwithPRK-7S.A.andin 2011 the Tiltra Group was acquired. In 2012, the company’s name was changed toTrakcjaS.A.In2013,thecompanycontinued the organizational and legal restructuring project at the Capital Group.

Its key aspect was the merger of Trakcja S.A.andPRKiIS.A.,asaresultofwhichTrakcjaPRKiIS.A.wasestablished.

With a 28.8% interest and share in the votingrights,ComsaS.A.remainsthecompany’s key shareholder.

Atpresent,thebusinessoftheTrakcjaGroupfocusesspecificallyonthecomprehensive design of railway and road infrastructure, urban rail transport with associated buildings and facilities, the construction and modernization of railways, contact lines, underground and overhead lines, power supply systems, the construction and modernization of roads, highways, utility infrastructure and engineering structures.

In 2015, export sales remained at a level similar to the preceding year and accounted for 37% of total sales, which was mainly attributable to major contracts fulfilledforLithuanianrailways.PKPPLKS.A.isakeyclientoftheGroupinPoland.

In 2015, the Trakcja Group employed 1,908 people and generated revenue of PLN 1.3 billion, down by 17% as compared to the preceding year. The Group's EBIT in 2015 was PLN 76.7 million vs. PLN 85.8 million in2014,a10.6%drop.In2015,EBITDAwasPLN 99 million and decreased by 9.6% year-on-year.Thenetprofitfor2015totalledPLN 51.8 million. In 2015, debt capital represented 45% of the Group's funding.


87



change '15 vs. '14

Assets

Non-current assets 704 278 719 867 721 913 -2.2%

Current assets 623 143 725 949 776 004 -14.2%

Total assets 1 327 421 1 445 816 1 497 917 -8.2%


Equity 726 291 674 503 623 372 7.7%



Short-term liabilities and accruals 435 466 598 080 743 004 -27.2%



Revenue 1 329 180 1 601 674 1 274 222 -17.0%

Domestic sales 842 202 1 035 790 811 295 -18.7%

Export sales 486 978 565 884 462 926 -13.9%

Construction operations 1 240 974 1 474 086 1 144 184 -15.8%


EBIDTA 98 992 109 518 63 277 -9.6%

EBIT 76 726 85 844 40 591 -10.6%

Netprofit/loss 51 758 50 391 29 995 2.7%

Other data

Net debt 349 695 709 467 790 946 -50.7%



Market cap 650 204 390 637 530 443 66.4%


88


Railway construction

Road construction

Bridge construction

Tramway construction

Production

Other


Domestic sales

Export sales

64%

36%


2015

2014

2013


PLN

mill

ion

0

20

40

60

80

100

120

25%

65%

3%3%2%

2%


89

PORRPolskaConstructionS.A.

Established in 1869, PORR is one of the largest construction companiesinAustriaandinEurope.WithnumerousofficesacrossCentral,EasternandSouth-Eastern Europe, PORR has embarked on expansion in the Middle East, mainly in Qatar.

In Poland, PORR has been carrying out construction operations since 1987 and the main company in the group, PORR (Polska) S.A.,(currentlyPORRPolskaConstructionS.A.)wasestablishedin1993.PORRPolskaConstructionS.A.offersawiderangeofconstructionservices,specificallyinthebuildings and facilities segment (hotels, officebuildings,residentialbuildings,educational facilities, shopping centres and industrial facilities). In 2015, PORR Polska InfrastructureS.A.(formerlyBilfingerInfrastructureS.A.)joinedthePORRGroup.PORRPolskaInfrastructureS.A.isamarketleader in the scope of road infrastructure in Poland. Since 2012 it has also been involved in bridge construction projects in Norway.ThefinancialstatementsofPORRGroup are not consolidated at the local level.

PORR Polska Construction S.A.PORRPolskaConstructionS.A.specializesin the construction of buildings and facilities as well as railway engineering.

In2015,PORRPolskaConstructionS.A.generated revenue of PLN 626.9 million from its core operations, which was a 40% drop compared to the preceding year. Construction and assembly services accounted for 95% of the said revenue and the remaining 5% was earned on otheroperations.Additionally,97%ofthecompany's revenue was generated on the Polish market.


90


2015 2014Percentage

change '15 vs. '14

Revenue 626 862 1 045 019 -40.0%

Domestic sales 608 600 1 034 640 -41.2%

Export sales 18 262 10 379 75.95%

Construction operations 592 682 1 000 093 -40.7%

Other operations 34 179 44 926 -23.9%



Other operations


Domestic sales

Export sales

5%

95% 97%

3%


91

PORRPolskaInfrastructureS.A.

PORRPolskaInfrastructureS.A.specializesin infrastructure, power engineering, civil engineering and hydro-technical construction.

In2015PORRPolskaInfrastructureS.A.generated revenue of PLN 666.2 million from its core operations, which was an 11% decrease compared to the preceding year. Construction and assembly services accounted for 90% of the said revenue and the remaining 10% was earned on otheroperations.Additionally,95%ofthecompany's revenue was generated on the Polish market.


2015 2014Percentage

change '15 vs. '14

Revenue 666 258 600 661 10.9%

Domestic sales 635 711 570 126 11.5%

Export sales 30 547 30 535 0.

Construction operations 596 586 544 177 9.6%

Other operations 69 672 56 484 23.3%



Other operations


Domestic sales

Export sales

10%

90%

5%

95%


92


Mostostal Warszawa was founded in 1945anditsfirstprojectsconsistedofreconstructing post-war Warsaw buildings. Mostostal Warszawa launched its overseas business in 1973. In 1991, the enterprise was converted into a joint-stock company and privatised. On 14 October 1993, Mostostal Warszawa made its IPO debut on the Warsaw Stock Exchange.

In 1994, Mostostal Warszawa began to build its own capital group, which currently comprises more than ten design and construction companies. In 1999, the company was merged with the Spanish AccionaGroup.

Attheendof2015,AccionaS.A.with50.09% of shares was the majority shareholder of Mostostal Warszawa. Otwarty Fundusz Emerytalny PZU“ZłotaJesień”,anopen-endedpensionfund,andAVIVAPTEAVIVABZWBKS.A.also held a considerable interest of 18.33% and 5.09%, respectively

The operations of Mostostal Warszawa can be divided into two main segments, namely engineering and industrial, and general construction. The key projects completed in 2015 were a Cultural and Congress CenterinJordanki(Toruń),theMunicipalStadium in Tychy, redevelopment of the ElblągCanal,thePowerEngineeringCenteroftheAGHUniversityofScienceandTechnologyinKraków,SzymanyAirport,construction of tanks for IDS-BUD in Gdańsk,constructionofanIOSfacilityforPKNORLENS.A.aswellasplatformmoduleassemblyatGdańskaStoczniaRemontowa.

The consolidated revenue generated by Mostostal Warszawa in 2015 amounted to PLN 1.3 billion and was almost entirely derived from construction operations. The majority of contracts focused on general construction as well as engineering and industrial works. The revenue earned in 2015 was lower than in the preceding year and 1% of sales revenue was generated abroad. In 2015, the Group reported a net profitofPLN32.5million.In2015,EBITwaspositive and amounted to PLN 49 million, which was more than double 2014 EBIT (PLN 23.9 million).

In 2015, the average headcount in Mostostal Warszawa Group was 1,463, which was a 5% drop compared to 2014.

The net debt ratio in 2015 was 83% and it was lower than in the preceding year, when it was 86%.


93



change '15 vs. '14

Assets


Current assets 1 083 276 1 135 362 1 119 610 -4.6%

Assetsheldforsale 0 0 113 443 n/a

Total assets 1 287 135 1 367 462 1 610 141 -5.9%


Equity 223 682 193 372 212 060 15.7%



Short-term liabilities and accruals 815 715 896 251 1 119 211 -9.0%

Liabilities directly related to assets held for sale 0 0 113 438 n/a



Revenue 1 275 431 1 509 524 1 633 363 -15.5%

Domestic sales 1 262 259 1 365 071 1 219 101 -7.5%

Export sales 13 172 144 453 414 262 -90.9%

Construction operations 1 272 805 1 506 365 1 632 383 -15.5%

Other operations 2 626 3 159 980 -16.9%

EBIDTA 62 132 49 579 -205 844 25.3%

EBIT 49 062 23 931 -237 450 105.0%

Netprofit/loss 32 466 -8 738 -314 380 471.5%

Other data

Net debt 710 723 971 796 1 292 591 -26.9%



Market cap 260 000 120 000 89 800 116.7%


94


Engineering and industry


Other operations


Domestic sales

Export sales

-350

-300

-250

-200

-150

-100

-50

0

50

100

21%

79%

99%

1%


2015

2014

2013


PLN

mill

ion


95

Unibep Group

UNIBEPS.A.,whosehistorydatesbackto1950, is the parent company in the UNIBEP CapitalGroup.Thecompanyfirstoperatedas a state-owned enterprise and in 1998 it was converted into a limited liability company. In 1999, the company’s name was changed to UNIBUD BEP Sp. z o.o. and in 2004 it was converted into a joint-stock company. The company has been operating under its current name since 2006. From 2008 the company's shares have been traded on the Warsaw Stock Exchange.

Asat31December2015,thekeyshareholdersofUNIBEPS.A.were:ZofiaMikołuszkowith25.09%ofthesharecapital,ZofiaStajkowskawith14.26%,BeataSkowrońskawith16.52%,AVIVAOFEAVIVABZWBKS.A.with9.75%ofthesharecapitalas well as Nationale-Nederlanden OFE with 6.11%.

The core business of the Unibep Group is general building construction - property development, construction and assembly services, and road and bridge building. Such works are delivered both in Poland and abroad.

In 2015, UNIBEP Group employed 1,129 people and its revenue from core operations amounted to PLN 1.2 billion, which was more than 15% increase compared to the preceding year. In 2015, 81% of revenue was generated in Poland, whereas the remaining part was earned on exports, mainly to Scandinavia (especially Norway), Russia, Belarus and Germany. By market segment, 70% of revenue was generated on building and facility construction.

Unibep Group is distinguished from its competitors through its involvement inproductionactivity.FabrykaDomówModułowychinBielskPodlaski,whichisthelargest plant producing modular houses in Poland, produces modular buildings which are then assembled in Scandinavia (primarily in Norway). The revenue from this segment constitutes approx. 10% of the overall revenue of the Group, whereas the remaining 20% is derived from the operations carried out in the roads and bridges, and property development segments.

In2015,EBITDAamountedtoPLN31.3million (down by 36% vs. 2014). The Group's EBIT totalled PLN 23.5 million as compared toPLN25.1millionin2014.Thenetprofitfor 2015 was PLN 23.3 million which was almost PLN 2.4 million higher than in the preceding year.

In 2015, the share of equity in the Group’s funding was 28.3%.

Attheendof2015,thecontractportfolioof the UNIBEP Group totalled ca. PLN 1.3 billion, up by ca. 30% year-on-year.


96



change '15 vs. '14

Assets


Current assets 556 920 494 353 409 183 12.7%

Assetsheldforsale 0 10 0 -100.0%

Total assets 766 723 666 644 554 094 15.0%


Equity 217 203 203 046 185 820 7.0%






Revenue 1 242 860 1 079 703 905 553 15.1%

Domestic sales 1 004 270 760 206 676 284 32.1%

Export sales 238 590 319 497 229 269 -25.3%

Construction operations 1 128 648 992 129 623 640 13.8%


EBIDTA 31 349 49 299 38 773 -36.4%

EBIT 23 475 25 138 24 682 -6.6%

Netprofit/loss 23 281 20 925 17 585 11.3%

Other data

Net debt 419 611 337 530 368 452 24.3%



Market cap 378 763 350 373 522 237 8.1%


97

0

10

20

30

40

50

60


Construction of buildings and facilities

Road construction

Property Development

Lightweight structures


Domestic sales

Export sales

11%

9%

10%

70%

19%

81%


2015

2014

2013


PLN

mill

ion


98

Elektrobudowa Group

Theparentcompany–ELEKTROBUDOWAS.A.–wasfoundedin1953asPrzedsiębiorstwoMontażuElektrycznego"Elektrobudowa”. In 1992, this state-owned enterprise was converted into a joint-stock company, and three years later the company’s IPO was executed and its shares were traded on the Warsaw Stock Exchangeforthefirsttimein1996.In2000, a restructuring process was carried out,whichaffectedemployees,assets,marketing, organizational structure and finance.

Attheendof2015,thekeyshareholderswereopen-endedpensionfunds:AVIVAOFEAVIVABZWBKS.A.(10.75%),Nationale-Nederlanden Otwarty Fundusz Emerytalny (9.89%), PKO BP Bankowy Otwarty Fundusz Emerytalny(9.74%),AXAOtwartyFunduszEmerytalny(9.41%),OFEPZU"ZłotaJesień”(9.31%),PTEAllianzPolskaSA(6.31%),MetLife Otwarty Fundusz Emerytalny (6.08%), and Generali Otwarty Fundusz Emerytalny (5.09%).

Atpresent,ELEKTROBUDOWAS.A.Groupprovides comprehensive construction and assembly services for the needs of the power engineering, petrochemical, mining and public utility building construction sectors. The business activity of the Group canbedividedintothefollowingsegments:

• power engineering – electrical installations, stations and power transmissionanddistributionfacilities;

• construction – general construction of buildings (turnkey delivery) and electrical installations;

• industry – complete electrical installationsfortheindustry;

• automatic control – MV and LV indoor switchgears.

In2015,ELEKTROBUDOWASAGroupemployed 2,158 people and generated revenue of PLN 1.2 billion, which was a more than 12% increase compared to the preceding year. In 2015, as much as 91% of revenue was generated in Poland. The remaining part was earned on sales of products and services, inter alia, in European Union member states, Eastern EuropeandAsia,anditwas68%higherthan the revenue generated abroad in 2014.

In2015,EBITDAamountedtoPLN77.7million, up by 58% vs. 2014. The Group's EBIT for 2015 totalled PLN 63.1 million, compared to PLN 35.7 million in the precedingyear.Thenetprofitfor2015amounted to PLN 50.0 million and increased by 85% year-on-year.

In 2015, debt capital accounted for 57% of the Group's funding, down by 6 p.p. compared to the preceding year.

The contract portfolio of ELEKTROBUDOWASAtotalledPLN1.3billion at the end of 2015.


99



change '15 vs. '14

Assets


Current assets 709 258 737 303 576 137 -3.8%

Non-current assets held for sale 0 246 0 -100.0%

Total assets 897 827 911 812 775 664 -1.5%


Equity 386 802 338 243 326 724 14.4%




Total equity and liabilities 897 827 911 812 775 664 -1.5%


Revenue 1 242 830 1 108 316 905 553 12.1%

Domestic sales 1 129 696 1 040 980 676 284 8.5%

Export sales 113 134 67 336 229 269 68.0%



EBIDTA 77 739 49 299 38 773 57.7%

EBIT 63 090 35 718 24 682 76.6%

Netprofit/loss 49 965 27 015 17 585 85.0%

Other data

Net debt 404 974 511 330 368 452 -20.8%



Market cap 617 189 350 373 522 237 76.2%


100

0102030405060708090


Construction and assembly

Electrotechnical products

Other services

Sales of materials


Domestic sales

Export sales

84%

14%2% 9%

91%


2015

2014

2013


PLN

mill

ion


101

Torpol Group

Torpol Sp. z o.o., the parent company, was established in 1999. In 2012, it was converted into a joint-stock company. On 1July2014,thesharesinTorpolS.A.wereallocatedaspartofaninitialpublicoffering,when the former shareholder, Polimex – Mostostal sold all its shares in the company.TorpolS.A.sharesandallotmentcertificatesweretradedontheWarsawStockExchangeforthefirsttimeon8July2014.

The core business of the Group involves general contractor services related to the construction of roads and railways.

The Group also provides general construction services relating to line distribution facilities – power and telecommunication lines, as well as design services.

Asat31December2015,thekeyshareholdersofTorpolS.A.were:TFSilesiaSp. z o.o. (38%), PKO TFI (8.59%), and Nationale-Nederlanden OFE (6.97%).

In 2015, the Group employed more than 614 people on average. In 2015, sales revenue increased substantially (by nearly 60% compared to 2014 ) to PLN 1.2 billion. This was attributable to a rise in revenue both on the domestic and foreign markets. AmajorpartoftheGroup'srevenueisearned on operations carried out in the railway segment (ca. 89% of total revenue).

TheGroup'sEBIT,EBITDAandthenetprofitincreased considerably.

In 2015, EBIT amounted to PLN 43.3 million (upby33%),whileEBITDAtotalledPLN55.8million(upby29%).Thenetprofitincreasedby 28% from PLN 25 million in 2014 to PLN 32 million in 2015.

Debt capital accounts for 67% of the funding used by Torpol Group.


102



change '15 vs. '14

Assets


Current assets 520 342 648 523 373 412 -19.8%

Total assets 675 918 764 510 479 139 -11.6%


Equity 222 890 203 312 123 008 9.6%

Provisions for liabilities 24 288 10 262 914 136.7%





Revenue 1 238 241 775 399 415 717 59.7%

Domestic sales 1 175 998 746 892 401 790 57.5%

Export sales 62 243 28 507 13 927 118.3%



EBIDTA 55 804 43 161 21 369 29.3%

EBIT 43 257 32 647 10 730 32.5%

Netprofit/loss 31 954 25 009 4 790 27.8%

Other data

Net debt 110 169 361 949 252 306 -69.6%



Market cap 285 287 229 011IPO took place on

08/07/201424.6%


103

0

10

20

30

40

50

60


Railways

Tramways

Other


Domestic sales

Export sales

1%10%

89%

5%

95%


2015

2014

2013


PLN

mill

ion


104

Warbud

Warbud has been present on the Polish market since 1989. Initially, the company operated as a private enterprise. In 1992, Warbud was converted into a joint-stock company with the participation of a French construction tycoon – now VINCI Group. VINCI Construction International Network remains the majority shareholder of the company with 99.76% of the share capital as at 31 December 2015. For several years now, VINCI Group has been a leader amongthe largest construction companies in Europeintermsofrevenue.Asitispartofthe VINCI Group, Warbud may draw on the international experience of its experts in addition to enjoying stability and a strong financialposition.

The primary focus of Warbud is to provide services in the construction sector, mainlyinthefieldofbuildingandfacilityconstruction(shoppingcentres,officebuildings, housing estates), civil engineering structures (roads, bridges), healthcare facilities (hospitals, healthcare centres, health farms), cultural facilities (theatres, concert halls, museums), environmental protection projects (sewage treatment plants, incineration plants) as well as specialised construction works and concrete production.

Considering VINCI's 20-plus years experience in PPP, for several years Warbud has been popularizing public-private partnerships in respect of the development and management of public infrastructure.

In2015,thecompanysignedthefirstPPPcontract with the Polish government to constructRegionalCourtinNowySączandit actively participates in many PPP tender procedures.

In 2015, Warbud employed 1,042 people and its revenue from core operations amounted to PLN 1.1 billion, which was a more than 5% increase vs. 2014. Construction and assembly services accounted for 99% of the said revenue, and the remaining 1% was earned on other operations. The company's revenue was generated entirely on the Polish market.

The Company's EBIT in 2015 was PLN 40.8 million, compared to PLN 48.8 million in 2014, a 16% decrease.

In2015,EBITDAwasPLN50.6million,a10.8% decrease compared to 2014. The net profitfor2015totalledPLN35.7millionanddropped by 26% year-on-year. In 2015, debt capital accounted for 82% of the company's funding, which was a 2.2 p.p. increase compared to the preceding year. The funding structure has remained virtually unchanged over the past few years.


105



change '15 vs. '14

Assets


Current assets 708 482 659 294 705 639 7.5%

Total assets 788 296 739 687 785 040 6.6%


Equity 141 963 146 697 131 063 -3.2%






Revenue 1 106 860 1 049 886 1 121 472 5.4%

Domestic sales 1 106 860 1 049 886 1 121 472 5.4%



EBIDTA 50 584 56 726 43 965 -10.8%

EBIT 40 786 48 775 37 022 -16.4%

Netprofit/loss 35 728 48 416 32 555 -26.2%

Other data

Net debt 233 227 171 687 209 654 35.8%




106

0

10

20

30

40

50

60


Revenue from construction and assembly

Revenue from other services

99%

1%


2015

2014

2013


PLN

mill

ion


107

Mota-EngilCentralEuropeS.A.

Mota-EngilCentralEuropeS.A.isamongthe largest construction companies in Poland. It was established through the merger of two Polish enterprises, namelyKrakowskiePrzedsiębiorstwoRobótDrogowychS.A.(KPRD)andPrzedsiębiorstwoBudowyMostówwLubartowie Sp. z o.o. (PBM), which had been present on the local market since 1949. Today, Mota-Engil Central Europe is a strong construction company drawing on more than 60 years' Polish tradition in road and bridge construction and specializing at the same time in the construction of buildings and facilities, railways, and in powerengineering.Additionally,ithasamineinGórkaSobocka,wherehighqualityaggregate is extracted for sale.

Mota-Engil Central Europe has built hundreds of kilometres of roads which are of crucial importance to Poland, includingtheA4,A2motorways,andtheS3, S5, S8 and S17 expressways. It has also constructed residential and public utility buildings and electric power stations.

Actingasthegeneralcontractoronmajorconstruction projects in Poland, Mota-Engil Central Europe employs more than 1,500 people and cooperates with hundreds of local businesses.

People are the key assets of Mota-Engil Central Europe. Its success on the Polish market would not be possible without respect for long-established tradition, professionalism, know-how and the capabilities of its employees – people who work on the most innovative and ambitious projects that satisfy the highest quality standards at all times.

Corporate social responsibility is one of the major elements of the strategy adopted by the company, expressed in its management style, which is ethically, socially and ecologically responsible.

The company has substantial equipment resources, a network of bituminous material production facilities as well as its ownboardingandscaffoldingdivision.

In 2015, the revenue earned by Mota-EngilCentralEuropeS.A.totalledPLN950 million, up by almost PLN 300 million versus the preceding year.

Revenue from construction services accounted for almost 94% of its total revenue in 2015. Other revenue was derived from sales of materials and products (aggregate, mineral and asphalt mixtures).

In2015EBITDAexceededPLN41million,compared to ca. PLN 24 million the year before. EBIT equalled over PLN 7 million, which was a PLN 12 million year-on-year increase. In 2015, the company reportedaprofitofPLN4.5millioncompared to a loss of almost PLN 13 million in the preceding year.

Its contract portfolio totalled PLN 2.1 billion at the end of 2015.


108



change '15 vs. '14

Assets


Current assets 475 958 426 541 433 590 11.6%

Total assets 760 147 743 518 790 486 2.2%


Equity 224 153 221 246 201 745 1.3%






Revenue 949 576 658 133 1 166 578 44.3%

Domestic sales 949 576 658 133 1 166 578 44.3%

Export sales 0 0 0 -



EBIDTA 35 480 23 252 37 971 52.6%

EBIT 7 044 -5 132 7 376 237.3%

Netprofit/loss 4 540 -12 841 -11 236 135.4%

Other data

Net debt 413 610 377 356 474 001 9.6%




109


Public works

Real property

Sanitary sewage and power supply systems

Sale of products and materials


2015

2014

2013


PLN

mill

ion

0

10

20

30

40

50

60

-20

-10

75%

15%

4%6%


110

HochtiefPolskaS.A.

HOCHTIEF Polska is a company from the multinational HOCHTIEF construction group. The HOCHTIEF Group has more than 140 years experience and it has been present on the Polish market since 1990.

HOCHTIEF Polska Sp. z o. o. launched its operations in 1996. On 31 December 2009, the company was converted into HOCHTIEF PolskaS.A.

Allthesharesinthecompanyareheld by HOCHTIEF Construction Erste Vermögensverwaltungsgesellschaft GmbH, a wholly-owned subsidiary of HOCHTIEF Infrastructure GmbH.

HOCHTIEF Polska specializes in the construction of buildings and facilities, as well as infrastructure construction. The scope of its services includes mainly the constructionofofficefacilities,residential,industrial and public utility buildings, shopping and entertainment centres, civil and water engineering structures for major infrastructure projects, construction works for waste incineration plants as well as the implementation of projects for the commercial power industry. In cooperation with HOCHTIEF PPP Solutions, the entity participates in the implementation of public-private partnership projects in the social infrastructure sector in Poland. HOCHTIEF Polska operates across Poland throughitsbranchesandofficeslocatedinWarsaw,Poznań,KrakówandKatowice.

In 2015, the company's sales revenue totalled PLN 788.5 million, up by 36% year-on-year. The company also managed to improve its performance considerably versus the preceding year. In 2015, its EBIDTAamountedtoPLN25.4million,increased from PLN 19.1 million in 2014. EBIT for 2015 totalled PLN 24.3 million compared to PLN 18.1 million in the precedingyear.Thenetprofitfor2015totalled PLN 29.8 million and increased by nearly PLN 7.5 million year-on-year.

In 2015, debt capital represented 66% of the company's funding.

The company employed more than 650 people in 2015.


111



change '15 vs. '14

Assets


Current assets 290 216 381 460 374 117 -23.9%

Total assets 382 507 461 191 443 397 -17.1%


Equity 129 058 118 523 124 795 8.9%


Long-term liabilities 0 0 0 -




Revenue 788 488 579 348 631 785 36.1%

Domestic sales 788 488 579 348 631 785 36.1%

Export sales 0 0 0 -

Construction operations 788 376 579 233 631 779 36.1%

Other operations 113 114 6 -0.9%

EBIDTA 25 406 19 120 20 641 32.9%

EBIT 24 265 18 053 19 898 34.4%

Netprofit/loss 29 769 22 203 20 860 34.1%

Other data

Net debt 100 071 193 754 174 602 -48.4%




112


General Construction

Housing Construction

Energy Construction


2015

2014

2013


PLN

mill

ion

0

10

20

30

40

50

60

78%

12%

10%


113

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114

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35. CIRE.plwebsite:http://www.rynek-energii-elektrycznej.cire.pl/st,33,335,tr,145,0,0,0,0,0,budowane-i-planowane-elektrownie.html

36. Eurostatwebsite:http://ec.europa.eu/eurostat

37. WebsiteoftheMinistryofInfrastructureandDevelopment,dedicatedtoEUfunds2014-2020: https://www.funduszeeuropejskie.gov.pl/

38. Website of the Directorate General for National Roads and Motorways, Report on the technical condition of national roads as at the end of 2015:https://www.gddkia.gov.pl/userfiles/ articles/r/raporty_18751//Raport%20stan%20na%20koniec%202015%20v11.pdf

39. PKPPLKwebsite:http://www.plk-sa.pl

40. WebsiteoftheNationalCouncilofWaterManagement,dedicatedtotheNationalSewageTreatmentProgramme: http://kzgw.gov.pl/pl/Krajowy-program-oczyszczania-sciekow-komunalnych.html

41. Website of the National Council of Water Management, Master Plan for the implementation of Council Directive 91/271/EEC (http://www.kzgw.gov.pl/pl/Wiadomosci/Master-Plan-dla-wdrazania-dyrektywy-Rady-91271EWG.html)

42. WebsiteoftheEnergyRegulatoryOffice:http://www.ure.gov.pl/

43. TechNavio, Construction Market in Poland 2015-2019

44. EnergyRegulatoryOffice,National Report of the President of the Energy Regulatory Office 2015, July 2015

45. Multi-AnnualFinancialPlansforWarsaw,Kraków,Poznań,Wrocław,GdańskandKatowice

46. PolishBankAssociation,Nationwide report on home loans and real estate transactional prices,August2016

47. Information,pressreleasesandwebsites:

48. http://mib.gov.pl/files/0/1797173/MieszkaniePlus.pdf

49. http://www.bankier.pl/wiadomosc/Program-Mieszkanie-Plus-szczegoly-7408952.html

50. http://www.polskieradio.pl/42/4393/Artykul/1481586,Zamiast-kupowac-nareszcie-bedzie-mozna-wynajac-tanio-mieszkanie

51. http://wroclaw.wyborcza.pl/wroclaw/1,35771,19620311,najczesciej-plajtuja-firmy-budowlane-ale-bankrutow-coraz-mniej.html

52. http://www.rynekbudowlany.com/aktualnosci/271291/rekordowa-podaz-na-rynku-biurowym-w-i-pol-2016/done

53. http://www.pois.gov.pl/media/18557/Zal_5_Wykaz_projektow_zidetyfikowanych_2016-04-13.pdf

54. http://www.rynek-kolejowy.pl/watki/fundusze-unijne.html

55. Articlehttp://www.rynek-kolejowy.pl/wiadomosci/jest-pierwsza-wersja-nowego-krajowego-programu-kolejowego-76778.html

56. http://www.mg.gov.pl/Power+jadrowa elektro-innowacje.pl

57. http://odnawialnezrodlaenergii.pl/oze-aktualnosci/item/2290-wojewodztwo-podlaskie-wyda-50-mln-zl-z-ue-na-inwestycje-w-oze

http://www.rynek-energii-elektrycznej.cire.pl/st%2C33%2C335%2Ctr%2C145%2C0%2C0%2C0%2C0%2C0%2Cbudowane-i-planowane-elektrownie.html

http://ec.europa.eu/eurostat

http://www.funduszeeuropejskie.gov.pl/

http://www.gddkia.gov.pl/userfiles/

http://www.plk-sa.pl/

http://www.plk-sa.pl/

http://kzgw.gov.pl/pl/Krajowy-program-oczyszczania-sciekow-komunalnych.html

http://www.kzgw.gov.pl/pl/Wiadomosci/Master-Plan-dla-wdrazania-dyrektywy-Rady-91271EWG.html)

http://www.ure.gov.pl/

http://mib.gov.pl/files/0/1797173/MieszkaniePlus.pdf

http://www.bankier.pl/wiadomosc/Program-Mieszkanie-Plus-szczegoly-7408952.html

http://www.polskieradio.pl/42/4393/Artykul/1481586,Zamiast-kupowac-nareszcie-bedzie-mozna-wynajac-tanio-mieszkanie

http://wroclaw.wyborcza.pl/wroclaw/1,35771,19620311,najczesciej-plajtuja-firmy-budowlane-ale-bankrutow-coraz-mniej.html

http://www.rynekbudowlany.com/aktualnosci/271291/rekordowa-podaz-na-rynku-biurowym-w-i-pol-2016/done

http://www.pois.gov.pl/media/18557/Zal_5_Wykaz_projektow_zidetyfikowanych_2016-04-13.pdf

http://www.rynek-kolejowy.pl/watki/fundusze-unijne.html

http://www.rynek-kolejowy.pl/wiadomosci/jest-pierwsza-wersja-nowego-krajowego-programu-kolejowego-76778.html


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Contact usMaciej KrasońDeloittePartner,RealEstate&ConstructionGroupLeaderinPoland,AuditDepartment+48 (22) 511 03 [email protected]

Łukasz MichorowskiDeloitteDirector,AuditDepartment+48 (22) 348 36 [email protected]

Wojciech Kłys DeloitteSeniorManager,AuditDepartment+48 (22) 511 03 [email protected]

Patryk DarowskiDeloitteAssistantDirector,FinancialAdvisoryServices Department+48 (22) 511 04 [email protected]


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