Budimex.pl

Artur Popko - President of Budimex, comments on 1H financial results

News date: July 27, 2022
Artur Popko - President of Budimex, comments on 1H financial results

Budimex Group ended 1H 2022 with good financial results - despite the difficult market situation.

 

The outbreak of war in Ukraine has significantly affected most branches of our economy. Construction is one of the sectors that has been hit hardest by the consequences of this armed conflict. Recent months, despite the difficult geopolitical situation, have brought partial stabilisation. Nevertheless, some of the unfavourable trends for the industry, which intensified after 24 February, continue to this day - these include, above all, the rise in fuel prices and the high level of inflation.

 

In the first half of 2022, the Budimex Group generated an operating profit of PLN 235 million at a profitability of 5.9%, with operating profitability of 3.6% in the first quarter of this year and a 7.4% result in the second quarter.

 

The Budimex Group's gross profit was PLN 262 million with a profitability of 6.6% compared to 8.0% in the first half of the previous year (5.9% after excluding the effect of the sale of Budimex Nieruchomości in the second quarter of 2021). Profitability at the gross profit level was supported by a significant improvement in the result of financing activities as a result of an increase in the average level of interest on cash invested by the Budimex Group.

 

 

Budimex Group (PLN million)

Profit and loss account

1H 2022

1H 2021

y/y

Sales

3,998

3,241

23.4%

Operating profit

235

276

-15.1%

% of sales

5.9%

8.5%

-2.7% pp.

Gross profit

262

260

1.0%

% of sales

6.6%

8.0%

-1.5% pp.

Net profit*

on continued operations

201.2

200.7

0.3%

% of sales

5.0%

6.2%

-1.2% pp.

* attributed to the shareholders of the Parent Company

 

discontinued operations

0

521

-100.0%

 

 

We recorded a significant increase in the Group's sales revenue, mainly due to the larger scale of sales achieved in the construction segment. In the service segment, revenues were similar to the previous year.  

 

Construction and assembly production in Poland in the first half of 2022 (at current prices) increased year-on-year by 24.5%, from PLN 45.4 billion to PLN 56.5 billion. In the buildings segment, the sold production increased by 33.4%, while in the infrastructure segment, the increase was 15.2%.

 

 

 

 

 

Construction segment

Statistical data (PLN billion)

1H 2022

1H 2021

y/y

Sold production

56.5

45.4

24.5%

Buildings

31.0

23.2

33.4%

share

54.8%

51.2%

3.7% pp.

Engineering

25.5

22.2

15.2%

of which: roads

8.6

6.9

24.3%

of which: railways

3.2

3.0

6.7%

share

45.2%

48.8%

-3.7% pp.

 

 

 

Budimex Group's construction segment sales amounted to PLN 3,634 million in 1H 2022.

 

 

Construction segment (PLN million

Profit and loss account

1H 2022

1H 2021

y/y

 

Sales

3,634

3,029

20.0%

 

Operating profit

197

161

22.4%

 

% of sales

5.4%

5.3%

0.1% pp.

 

Gross profit

221

144

52.9%

 

% of sales

6.1%

4.8%

1.3% pp.

 

Order portfolio

11,781

12,973

-9.2%

 

Contracting

2,059

2,923

-29.6%

 

 

Despite the market difficulties resulting from the temporary destabilisation of the market in the area of material prices and broken supply chains, the scale of realised sales revenues in the first half of 2022 in the construction segment was significantly higher than in the same period of the previous year. The high order backlog with which we started 2022, a well-thought-out purchasing policy and favourable weather conditions allowed us to increase revenues by 20%.

 

The operating profitability of the construction segment was 5.4%, a similar level compared to the first half of 2021. Recently, we have seen some stabilisation in the prices of key commodities and, in some cases (including steel), a reduction in prices compared to levels recorded a few weeks after the outbreak of war. A responsible contracting strategy and a tailored purchasing strategy have allowed us to reduce the losses associated with the current market situation to a minimum. The budgets of all our ongoing projects are kept up to date, while the profitability of the portfolio remains stable in the final stages of execution thanks to good contract profitability.

 

The construction segment's gross profitability in the period under review was 6.1%, higher than in the first half of 2021, when it was 4.8%. Within gross profit, the construction segment improved its result on financing activities by more than PLN 40 million, mainly from interest on deposits.

 

The difficult-to-predict macroeconomic situation translated into our approach to new bids. All projects in which the calculations were based on prices from before the outbreak of war in Ukraine were recalculated - as a consequence of which we resigned from participating in ongoing proceedings amounting to approximately PLN 3 billion. Following this decision, we recorded a temporary decline in the value of signed contracts in Q2 of this year. Looking through the prism of securing the margins of the company's portfolio, this was a good decision.

 

In the first half of 2022, we acquired contracts worth PLN 2.1 billion. The order portfolio of the Budimex Group at the end of June 2022 amounted to PLN 11.8 billion and secures the work front for the whole of the current year and most of 2023.

 

At the end of April and the beginning of May, we had some concerns about the potential for contracting in the current year. However, intensive work on the acquisition of new projects in Poland and abroad in recent months has resulted in the signing or submission of the most favourable bids in several key tenders for us. These include, above all, the extension of the T3 Container Terminal in Gdańsk with a total value of EUR 245 million, the construction of the D1 Bratislava-Triblavina road (EUR 111 million) and the tender for the design and construction of the S1 road (PLN 398 million). As a result of the above activities, the value of signed and pending projects is over PLN 4 billion, which should ensure the stability of the portfolio of new orders in the next 2-3 quarters.

 

Budimex Group ended Q2 2022 with a net cash position of PLN 2 billion. In June 2022, we paid the remaining dividend for 2021 of PLN 23.47 per share. This brings the total dividend for 2021 per share to a record-breaking PLN 38.37.

 

In the first half of 2022, the FBSerwis Group maintained a high level of sales revenue while maintaining good profitability.

 

 

Service segment (PLN mil)

Profit and loss account

1H 2022

1H 2021

y/y

Sales

371

360

3.1%

Operating profit

38

55

-31.9%

% of sales

10.1%

15.3%

-5.2% pp.

Gross profit

42

55

-24.2%

% of sales

11.3%

15.3%

-4.1% pp.

 

Revenues of the FBSerwis Group, which is a key asset within the service segment (the results of the service segment also include the operations of several smaller companies, including Budimex Parking Wrocław), amounted to PLN 369 million and were slightly higher than in the same period of the previous year. The operating profit of the FBSerwis Group was 38 million, with a profitability of 10.2% compared to 15.4% in the corresponding period of the previous year. The decrease in profitability in the first half of 2022 was mainly due to lower prices in the waste collection and management tenders awarded in late 2021 and early 2022. We are currently seeing a reversal of this trend, with the significant increase in management costs translating into higher prices in the new proceedings. In the part of infrastructure maintenance, we have experienced, above all, an increase in fuel prices.

 

We have recently secured several important contracts, both in the area of infrastructure maintenance and waste management, which will allow us to fully utilise the capacity of the FBSerwis Group in the coming quarters. In the area of infrastructure, these are contracts for the year-round maintenance of roads in the area of Jędrzejów, Starachowice and Wieluń with a total value of over PLN 150 million. In the environmental services segment, we signed another contract for waste management from the Warsaw area worth PLN 45 million. We continue to invest in the expansion of the existing waste processing facilities and landfills, which will allow us to gradually increase the scale of operations using our resources. In the second quarter, as expected, we finalised the acquisition of a waste management company, which will further strengthen our position in the environmental services segment.

 

 

Budimex Group's prospects for the next quarters look optimistic.

 

The Budimex Group's current portfolio of orders secures the front of works until the end of 2023, while newly signed contracts build strong foundations of operations for 2024-2025. Looking at the current macroeconomic situation and fluctuations in material prices, we invariably approach new bids very cautiously, calculating cost estimates reliably and responsibly and assessing potential risks related to future contract execution.

 

We positively assess the increase of the valorisation limits on GDDKiA contracts to 10% - a move in the right direction - but with the current scale of material price increases and double-digit inflation, this is still not a sufficient level. We are also discussing the principles of valorisation with PKP PLK. In the case of private investors, after negotiations, most agree to compensate for the higher costs.

 

We are consistently working on expanding in neighbouring markets. In recent weeks, we have won the tender for the construction of the 16.8 km long D1 Bratislava-Triblavina motorway under the 'design and build' formula. This is a milestone for us in building our market position in Slovakia. At the same time, it is the third contract won abroad since the beginning of 2021, when we decided to expand abroad (the previous two contracts were won in the German market).

 

We are continuing the construction of our 7MW wind farm in Drachowo. We will start producing green energy as early as next year, and we want to be self-sufficient in energy by 2026. After the amendment of the '10H' law, we are more optimistic about the possibility of acquiring new projects. We are also undertaking the first investments in a network of charging points for electric cars - we plan to create a network of such points within four years.

 

As a result of the Budimex Startup Challenge announced last year, we started piloting new energy management systems based on AI and machine learning. We have also completed tests of safety tags on helmets for workers on construction sites, enabling automatic monitoring and prediction of worker collisions with construction machinery. We are also testing automated monitoring for occupational safety and health.

 

We started cooperation with a team of young scientists, the OSA Team, who are the winners of the European Space Agency's main prize in the CanSat competition. During their paid internship, they had the opportunity, under the supervision of the Budimex SA Innovation Team, to work on their own ideas and propose improvements to the organisation using state-of-the-art technology such as 3D or Mixed Reality.

 

We won the title of ‘Golden Construction Brand 2022’ in a nationwide survey conducted among 300 construction subcontractors. Out of the top ten general contractors, we topped the podium among the companies recommended as a partner to work with, as well as the best partner in terms of financial terms and payment terms. We received the Top Builder award for the construction of the PKN Orlen Research and Development Centre in Płock, and the Office of Technical Inspection singled out Budimex for its high standard of technical safety.  We also won the Biały Listek Polityki award - a distinction for the most responsible and socially committed companies.

 

At Budimex, corporate social responsibility includes long-term projects which support communities near the construction projects carried out by the company. We have launched the first of the planned this year and the fortieth Parent Zone in the Independent Public Health Care Institution of the County Hospital in Pisz. We are building another one at the J. Brudziński Voivodship Children's Hospital in Bydgoszcz. By the end of the year, we will also have handed over Parent Zones in hospitals in Ełk and Szczecin.

 

We completed the second edition of the ‘House from the Heart’ programme - a social initiative of Budimex aimed at helping families with many children. As part of the action, we helped a family of eight struggling with a difficult financial situation and dealing with the health problems of two children. Joining forces with other construction companies, we completed the construction of Iwona and Christopher's house and fitted it out, turnkey.

 

We continue to monitor the situation related to the armed conflict in Ukraine and respond to the immediate needs of our eastern neighbours. At the request of a school in Lviv, which also serves as a refugee centre for refugees from the bombed areas of Ukraine, we provided the high-powered electricity generator needed for its operation. As a result of a voluntary initiative by our employees, a sum of almost PLN 140,000 was raised. As an employer, we decided to double this amount and donate it to the Polish Red Cross relief effort in Ukraine. Since the outbreak of war in Ukraine, the total value of aid from Budimex to Ukraine, including our employees, has amounted to nearly PLN 4 million.