Budimex.pl

Executive Commentary of Chairman of the Management Board on selected financial data for 3Q 2016

News date: October 27, 2016
Executive Commentary of Chairman of the Management Board on selected financial data for 3Q 2016

Major achievements of the Budimex Group for three quarters of the current year have been the following: 10% year-on-year increase in sales, very strong financial performance at all levels of business activity,
including a net profit of PLN 250 million and a net cash position of more than PLN 2 billion. Moreover, despite the fact that the General Directorate for National Roads and Motorways (GDDKiA) suspended tendering procedures, the Budimex Group signed contracts worth PLN 4.1 billion in that period.

 

The reported increase in sales was mainly due to increased construction activity within major road projects. Some of these investments are likely to be completed within a few months before the contractual deadline. However, construction and assembly production fell by 15.4% in that period. This is largely due to delays in issuing award decision for railway contracts, as well as the above-mentioned lack of new tenders from GDDKiA.

 

Persistent low raw material prices and favourable prices for subcontracting services, resulting from a relatively poor performance of the sector, have translated into excellent financial results of the Budimex Group. Gross margin on sales, operating profit and net profit have increased by 38%, 55% and 56%, respectively, compared to the same period of the previous year.

 

A noticeable trend in the construction market has been to suspend new calls for tender. The companies have been engaged in aggressive price competition, which may lead to a decrease in margins in the future. The total value of bids submitted by Budimex in that period was PLN 5.3 billion – a decrease of more than 70% compared to the same period last year. Steps taken to increase involvement in other business segments and improve the bidding process allowed Budimex to sign contracts worth PLN 4.1 billion in the three quarters of the current year.

 

However, this represents a 13.6% decrease compared to the value of contracts signed in the same period of the previous year. The value of contracts signed by Budimex in the road segment fell by 36% compared to the first three quarters of the previous year (respectively, PLN 1.9 billion vs. 2.9 billion). However, we have managed to increase the value of new contracts in the general construction segment by 16% in annual terms, allowing us to sign contracts with values close to those from the road segment. In both these segments, we have been successfully expanding our business into the area of smaller scale, local contracts. In addition, in September, the consortium including Budimex signed a contract to build an incineration plant in Vilnius. Our company’s share in the bid is approx. PLN 375 million.

 

The value of the contracts awarded to Budimex for providing the most advantageous offer currently stands at PLN 1.1 billion, half of which is accounted for by infrastructure contracts. However, awarding authorities under these contracts are municipal authorities or local infrastructure managers. In recent days, the consortium including Budimex has also been awarded a contract by PKP PLK.

 

The value of the Budimex order book at the end of September stood at PLN 8.7 billion – an increase of PLN 0.3 billion compared to the end of 2015. Road contracts account for the largest share of the Budimex order book.  Currently, every fourth km of roads in Poland is constructed by Budimex. However, in the third quarter alone, high sales, combined with a decrease in the value of signed infrastructure contracts, caused a decline in the order book value. It may be difficult to maintain the current level of orders over subsequent months.

 

As at 30 September 2016, the net cash position of the Budimex Group was PLN 2,127 million. This represents an 18% increase compared to the end of September of 2015. The increase in cash levels
during the period is due to improved profitability of the construction segment and increased amount of funds paid towards the purchase of flats by customers of Budimex Nieruchomości.

 

The number of flats purchased under the pre-sale procedure, in the development segment within the three quarters of this year, amounted to 1,121 – a decrease of 22% (316 flats) compared to the same period last year. The purchasing activity in the housing market remains high, while the decrease in the number of flats sold by Budimex Nieruchomości under the pre-sale procedure is mainly due to the “New Czyżyny” project having come to an end (number of pre-sold flats decreased by 484).

 

Since the beginning of 2016, we have launched seven new projects involving the pre-sale of flats. We plan to launch several more investments by the end of the year. Our aim is to achieve pre-sales of 1,500 flats on an annual basis. Our current offer for customers includes 1,129 flats, which accounts for 27% of the flats currently under construction.

 

During the first three quarters of 2016 a total of 667 notarial deeds were signed – an increase of 47% compared to the same period last year, with sales being reported to grow at a slightly lower rate of 29%. This resulted from a decrease in the average price of flats, which is due to the increased share of the projects located outside Warsaw, i.e. in Poznań and Kraków, in total sales. This trend will continue in the next quarter and in the next year due to a greater share in sales involving notarial deeds of flats sold under the “Nowe Czyżyny” project.

 

Our focus in the near future and in 2017 will be to build a profitable order book for subsequent years. Following a downtime of nearly a year in the award of infrastructure contracts, GDDKiA has been gradually re-opening and initiating new tendering processes in the railway market. GDDKiA, which is a major investor for the Budimex Group, has recently issued a call for tenders in the road segment. Pre-qualification procedures under these contracts were initiated several months ago, while the first award decisions will be announced at the end of this year. In the case of PKP PLK, we have already submitted the first quotations. Furthermore, we have been pre-qualified for fourteen tendering processes. We have invested in the railway equipment with a view to win railway contracts worth approx. PLN 1 billion per annum. We will closely analyse the outcomes of subsequent award decisions to achieve better results in the future. Despite the market decline in the first three quarters of this year, we have increased the number of employees by more than 300. In 2017, we plan to further increase the number of jobs, provided that the public procurement market shows signs of recovery.

 

Next year, we are expecting increased growth of sales. For a number of road contracts the design phase ends in 2016. Therefore, we expect increased level of construction activity in 2017. The increased scale of investment activities could cause wage growth and further limit the availability of skilled workers.

 

 

BUDIMEX Group

 

Financial highlights from the consolidated financial statements of the Budimex Group prepared in compliance
with the International Financial Reporting Standards (IFRS) for three quarters of 2016 and the comparable data for three quarters of 2015.

 

 

Results of reporting segments for three quarters of 2016 (in PLN thousand):

 Construction segmentReal estate development segmentOther activityDerecognitionConsolidated data
Net revenue from sales of products, goods and raw materials4,026,240209,002124,550(240,784)

4,119,008

Gross profit on sales

profitability (%)

440,691

10,9%

51,517

24,6%

16,884

13,6%

(13,676)

495,416

12,0%

Operating profit

profitability (%)

278,801

6,9%

27,907

13,4%

9,863

7,9%

(7,548)

309,023

7,5%

Gross profit

profitability (%)

280,281

7,0%

31,245

14,9%

9,520

7,6%

(7,548)

313,498

7,6%

Net profit

profitability (%)

224,716

5,6%

25,283

12,1%

7,710

6,2%

(6,116)

251,593

6,1%

Profit attributable to shareholders of the Parent Company

profitability (%)

224,716

5,6%

25,283

12,1%

7,208

5,8%

(6,116)

251,091

6,1%

 

Results of reporting segments for three quarters of 2015 (in PLN thousand):

 Construction segmentReal estate development segmentOther activity

Derecognition

Consolidated data
Net revenues from sales of products, goods and raw materials3,639,380161,994129,163(187,497)3,743,040

Gross profit on sales

profitability (%)

317,021

8,7%

40,181

24,8%

16,467

12,7%

(14,793)

358,876

9,6%

Operating profit

profitability (%)

169,647

4,7%

32,513

20,1%

7,062

5,5%

(10,282)

198,940

5,3%

Gross profit

profitability (%)

171,619

4,7%

36,323

22,4%

5,625

4,4%

(10,282)

203,285

5,4%

Net profit

profitability (%)

135,211

3,7%

29,345

18,1%

5,494

4,3%

(8,331)

161,719

4,3%

Profit attributable to shareholders of the Parent Company

profitability (%)

135,211

3,7%

29,345

18,1%

4,930

3,8%

(8,331)

161,155

4,3%

 


 
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