Information on estimated negative impact of financial result of ZRUG Zabrze S.A. for the first half of 2015 on the Stalprofil S.A. Capital Group's results

Management Board of Stalprofil SA informs that on 31 July 2015 it received information about projected by the subsidiary ZRUG Zabrze SA negative net financial result for the first half of 2015 amounting to PLN -3,009 thousand. Stalprofil Management Board,s estimates show that projected by the board of Zabrze SA ZRUG loss for the first half of 2015 will decrease consolidated profit of the Stalprofil S.A. Group, attributable to parent company shareholders, by approximately 3,400 thousand PLN.
The financial statements prepared by ZRUG Zabrze S.A. Management Board and the consolidated financial statements of the Stalprofil S.A. Capital Group have not yet been reviewed by the auditor but Stalprofil S.A. Management Board estimates that despite the forecasted by ZRUG Zabrze S.A. losses, Group's financial result for the first half of 2015 will be positive.
A negative result shown by ZRUG Zabrze S.A. in the financial statements for the first half of 2015 takes into account the estimated costs expected to be incurred to the date of completion of contracts and the impact on its level had the following events:
- additional unforeseen costs associated with the extension of the deadline for completion of the contract concluded with OGP Gaz-System S.A. for the construction of the pipeline DN700 with a length of 204 km, Szczecin-Gdańsk, Phase II-IV,
- lower than expected, negative profitability estimated on the contract concluded with OGP Gaz-System S.A. for the construction of the gas pipeline with a length of 41 km, DN500 Gałów-Kiełczów.
The blame for the delay and the formation of defects in workmanship in the pipeline are largely borne by subcontractors of ZRUG, mainly the company INSTALGAZ Andrzej Szulc being the main subcontractor for the construction of a gas pipeline Szczecin-Gdańsk and a member of the executive of the pipeline consortium Gałów-Kiełczów. In the framework of implemented corrective actions to minimize delays occurring, which is the general contractor ZRUG Zabrze S.A. took over from subcontractors defective work performed, executing them on their own or introducing other subcontractors in the context of execution of substitute. The costs of replacement and removal workmanship defects are successively transferred to the unreliable subcontractors, unfortunately, some of these costs burdened ZRUG Zabrze S.A., generating indicated above negative financial result.
The progress of work on the above-mentioned tasks is as follows:
- pipeline DN700 Szczecin-Gdańsk on Stage II Karlino-Koszalin and Stage III Koszalin-Słupsk is made, the final acceptance by OGP Gaz-System S.A. took place on 24 July 2015,
- pipeline DN700 Szczecin-Gdańsk in Stage IV Słupsk-Wiczlino is the entire length of chip and filled with gas, made technical acceptance by OGP Gaz-System S.A. and has been granted permission to use this section of the pipeline. Work is currently underway related to the removal of faults isolation and implementation of cathodic protection (corrosion) that part of the pipeline. Upon completion of these works will be final acceptance of Phase IV of the latter by OGP Gaz-System S.A.
- pipeline DN500 Gałów-Kiełczów has been subjected to technical acceptance by OGP Gaz-System S.A. and from 3 August will begin its activities related to the gassing, the contract is implemented on time.
Lengthening procedures related to final acceptance of the Szczecin-Gdańsk cause that there is a risk associated with delayed execution of the contract, including the risk of further deterioration estimated by ZRUG Zabrze S.A. financial results. Full assessment of the negative effects of delays in the contract for the result of the company and the Group will be possible after its completion.