We present the letter from the President of the Management Board of the Poznań-based Construction Corporation Pekabex S.A. - Mr Robert Jędrzejowski, opening the report of the Pekabex Group for 2017.


On behalf of the entire Management Board, I am pleased to present to you the unitary and consolidated financial results of Poznańska Korporacja Budowlana Pekabex S.A. for 2017.


In 2017, Pekabex continued organic growth, which resulted in improved results at all levels, despite the fact that market difficulties affected the entire construction industry. Significant acceleration in the construction market, after a weak beginning of the year, resulted in a significant increase in the cost of materials as well as construction services, and in addition this trend was strengthened by the increase in labor costs observed since 2016. This phenomenon caused a gradual improvement in margins in the prefabrication segment and difficulties in the scope of contracts implemented in comprehensive contracting. However, they were not too severe due to the policy of the Management Board of the Pekabex Group, in the scope of avoiding the risks associated with concluding long-term contracts that do not allow price indexing. We are afraid, however, that not all entities in the construction industry adhered to this principle, which is why we consider it necessary to closely monitor the credit risk of our clients. After the period of acquisitions in previous years, 2017 was devoted to the development of a strong synergy effect, consolidation of our resources and procedures. The assumed goals were largely achieved, and based on these experiences new ideas were born to improve the competitiveness of the Pekabex Group. We will implement them in the coming months.


2017 was a year of extremely dynamic development of the Pekabex Capital Group, which was reflected in a significant improvement in the Group's results compared to 2016. The value of net sales revenues in 2017 amounted to PLN 623.3 million (PLN 505.4 million in 2016), operating profit in 2017 amounted to PLN 35 million (PLN 27.3 million in 2016), and net profit PLN 25.8 million (PLN 20.8 million in 2016). The above data for 2016 for comparability were adjusted for a one-off event which was a bargain purchase of Ergon and the disclosure in the financial statements for 2016 of a gain on a transaction of PLN 13.5 million. Also, the total volume of production performed in 2017 was almost 25% higher than in 2016 and increased from 140 thousand m3 to 174 thousand m3 of production per year.


We owe such positive results above all to product and geographic diversification. It is worth noting the very good results achieved on the residential Swedish market, which is experiencing a period of high economic situation: sales of the Pekabex Group exceeded PLN 192 million on this market in 2017.


We expect further continuation of the upward trend in labor costs despite possible periodic adjustments of the economic downturn. Therefore, the strategic goal of our Group remains the automation of production and the digitization of our operations. We undertake these activities on many levels, analyzing both the purchase of individual machines as well as investments in new lines and production solutions.


In 2018, the strategic goal of the Pekabex Group will be to use our Scandinavian experience in order to become a leader in housing construction in Poland. We believe that the industrial approach proposed by Pekabex for the construction process will be a remedy for the lack of hands on the construction sites that is affecting the industry. We have started a project to build a modular housing estate Jasielska in Poznań, we plan to commission first apartments in the second half of 2018. We want this project to convince our clients and the market that the Pekabex system in housing construction means speed and availability without compromising quality.


Yours faithfully,


Robert Jędrzejowski


Chairman of the Board