Commentary by Artur Popko, President of Budimex, on the financial data for the first half of the year

The Budimex Group has completed the 1. Half of 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 most affected by the consequences of this armed conflict. Recent months, despite the difficult geopolitical situation, have brought partial stabilization. Nevertheless, some of the unfavourable trends for the industry, which intensified after 24 February, continue to this day – mainly the increase in fuel prices and high inflation.

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

The gross profit of the Budimex Group amounted to PLN 262 million with a margin 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). The profitability at the level of gross profit was supported by a significant improvement in the result on financing activities, which is the result of an increase in the average interest rate on cash deposited by the Budimex Group.

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

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

Sales of the construction segment of the Budimex Group in the first half of 2022 amounted to PLN 3,634 million.

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

The operating profitability of the construction segment amounted to 5.4% and was at a similar level compared to the first half of 2021. Recently  , we have been observing a certain stabilization in the prices of key assortments, and in some cases (m.in. steel) a decrease in prices, compared  to the levels recorded a few weeks after the outbreak of the war. A responsible contracting strategy and a tailored purchasing strategy allowed us to reduce losses related to the current market situation to a minimum. The budgets of all our projects are updated on an ongoing basis, but thanks to the good profitability of contracts, the profitability of the portfolio remains stable at the last stages of implementation.

The gross margin of the construction segment in the period in question was 6.1% and was higher than in the first half of 2021, when it amounted to 4.8%. As part of the gross profit, the construction segment improved the result on financing activities by over PLN 40 million, mainly due to interest on deposits.

The unpredictable macroeconomic situation has translated into our approach to new offers. All projects in which calculations were based on prices from before the outbreak of the war in Ukraine were recalculated – as  a result of which we resigned from participation in ongoing proceedings for the amount of approx. 3 billion zlotys. Following that decision, in the 2. In the quarter of this year, we recorded a temporary decrease in the value of contracts signed. Looking through the prism of securing the margins of the company’s portfolio, it was a good decision.

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

At the turn of April and May, we had some concerns about the potential of contracting this 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 advantageous offers in several tenders of key importance to us. These are primarily the expansion of the T3 Container Terminal in Gdansk 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 projects signed and awaiting signing is over PLN 4 billion, which should ensure the stability of the portfolio of new orders in the next 2-3 quarters.

The Budimex Group has completed the 2. quarter of 2022 with a net cash position of PLN 2 billion. In June 2022. We paid the remaining dividend for 2021 in the amount of PLN 23.47 per share. Thus, the total dividend for 2021 per share amounted to a record PLN 38.37.

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

The revenues of the FBSerwis Group, which is a key asset in the services segment (the results of the service part also include the activities of several smaller companies, including Budimex Parking Wrocław), amounted to PLN 369 million and were slightly higher than in the corresponding period of the previous year. The operating profit of the FBSerwis Group amounted to PLN 38 million with a profitability of 10.2% compared to 15.4% in the corresponding period of the previous year. The decline in profitability in the first half of 2022 was mainly due to: lower prices
in tenders for waste collection and management decided at the turn of 2021 and 2022. Currently, we are observing a reversal of this trend – a significant increase in development costs translates into higher prices in new proceedings. In the part of infrastructure maintenance, we have mainly experienced an increase in fuel prices.

Recently, we have obtained several important orders for us, both in the area of infrastructure maintenance and waste management, which will allow us to fully use the production capacity of the FBSerwis Group in the coming quarters. In  the area of infrastructure, these are contracts for 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 have signed another contract for the management of waste from the Warsaw area, worth PLN 45 million. We continue to invest in the expansion of existing waste processing installations and landfills, which will allow us to gradually increase the scale of operations using our resources. In the  second quarter, as expected, we completed the acquisition of a waste management company, which will further strengthen our position in the environmental services segment.

The Budimex Group’s prospects for the coming quarters look optimistic.

The current portfolio of orders of the Budimex Group secures the front of works until the end of 2023, and the newly signed contracts build strong foundations for operations for 2024-2025. Looking at the current macroeconomic situation and fluctuations in the prices of materials, we invariably approach new offers very carefully, reliably calculating cost estimates and assessing potential risks related to
future performance of contracts.

We positively assess the increase of the indexation limits on GDDKiA contracts to 10% – this is a step in the right direction – but with the current scale of increases in material prices and double-digit inflation, it is still not a sufficient level. We are also talking about the principles of indexation with PKP PLK. In the case of private investors, after negotiations, the majority agrees to  compensate for higher costs

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

We are continuing the construction of our 7MW wind farm in Drachów. We will start producing green energy as early as next year, and by 2026 we want to be energy self-sufficient. After the amendment of the “10H” Act, we are more optimistic about the possibilities of acquiring new projects. We are also making the first investments in a network of electric car charging points – we plan to create a network of such points within 4 years.

As a result of the Budimex Startup Challenge competition announced last year,  we have started piloting new energy management systems based on AI and machine learning. We have also carried out tests of protective tags on helmets for workers on construction sites, enabling automatic monitoring and prediction of collisions between employees and construction machinery. We also check automatic monitoring in the field of health and safety safety.

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

We have been awarded the title of “Golden Construction Brand 2022” in a nationwide survey conducted among 300 construction subcontractors. Out of the ten leading general contractors, we stood on the first place of the podium among companies recommended as a partner for cooperation, 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 awarded Budimex for its high standard of technical safety. We also won the White Leaf of Polityka – a distinction for the most responsible and socially engaged companies.

Corporate social responsibility at Budimex also includes long-term projects supporting m.in. residents of communities adjacent to the company’s construction sites. We have launched the first of the Parent Zones planned this year, and the fortieth in a row, in the Independent Public Health Care Facility of the District Hospital in Pisz. We are building another one at the Provincial Children’s Hospital im. J. Brudzinski in Bydgoszcz. By the end of the year, we will also hand over Parent Zones in hospitals in Ełk and Szczecin.

We have completed the second edition of the “Home from the Heart” programme – it is a social initiative of Budimex aimed at helping large families. As part of the action  , we helped a family of eight struggling with a difficult financial situation and struggling with health problems of two children. Joining forces with other construction companies, we completed the construction of Iwona and Krzysztof’s house and equipped it “turnkey”.

We continue to monitor the situation related to the armed conflict in Ukraine and respond to the most urgent needs of our eastern neighbours. At the request of one of the schools in Lviv, which also serves as a point for refugees from the bombed territories of Ukraine, we provided the high-power generator needed for its operation. As a result of the voluntary initiative of our employees, the amount of nearly 140 thousand was collected. PLN. As an employer, we have decided to double this amount and allocate it to help Ukraine through the Polish Red Cross. Since the outbreak of the war in Ukraine, the total value of aid from Budimex for Ukraine, including our employees, has amounted to nearly PLN 4 million.