Commentary by Artur Popko – President of Budimex SA on the financial results for 2021

We are very pleased with the results achieved in 2021. Despite the difficult market conditions caused by the effects of the COVID-19 pandemic and rising prices of key materials, we recorded an increase in the Group’s gross profit in continuing operations (i.e. construction and services) from PLN 427 million in 2020 to PLN 554 million in 2021, while improving profitability from 5.5% to 7.0%. Such a good result is the result of an improvement in the result of the construction part, as well as the settlement of the result on transactions between the construction and development segments in the amount of PLN 68 million in connection with the sale of Budimex Nieruchomości.

We recorded an increase in the Group’s sales revenues. Revenues in the services segment grew at a double-digit rate (+28%) for another year in a row, while in the construction segment we recorded a slight decrease (-3%), while in the fourth quarter alone, in line with our expectations, revenues in the construction segment were higher by 7% compared to the same period of the previous year.

Construction and assembly production in 2021 (at current prices) increased by 7.9% year-on-year from PLN 108.5 billion in 2020 to PLN 117.1 billion in 2021. In the buildings segment, sold production increased by 5.0%, while in the infrastructure area the increase was as much as 10.7%.

As part of the general construction, the value of sold production increased both in the residential (+7.2%) and non-residential (+3.7%) parts. In most areas of non-residential construction, growth was recorded (hotels +9.7%, office buildings +11.6%, industrial buildings +16.6%). The decrease in the scale of annual production concerned mainly commercial and service construction (-16.0%). The value of sold production of civil engineering construction increased in all areas (roads, railways, hydrotechnics, gas and energy transmission) except for the part related to airports.

The sales of the construction segment of the Budimex Group amounted to PLN 7,282 million (-3.4% y/y), while recording an improvement in gross profitability from 4.9% to 5.6%.

The scale of sales revenues generated in 2021 in the construction segment is slightly lower than in the corresponding period of the previous year. It is worth noting that the dynamics of decline in the first half of the year amounted to -10.4% (due to unfavorable weather conditions in the first quarter and also due to the time of the pandemic extended waiting time related to obtaining a building permit for several important orders in the road area, and in the second half of the year it was positive and reached +2.3% compared to the same period of 2020.

The lower level of contracting in 2021 was mainly due to a lower number of tenders in the railway construction segment. We hope that the change in the sources of financing railway investments and the newly announced tenders at the beginning of 2022 will fundamentally change this situation. The gross margin of the construction segment amounted to 5.6% and was higher compared to the corresponding period of the previous year, when it amounted to 4.9%.

After a period of intense growth, we are currently observing a stabilization of material prices. On the contracts signed by the company in 2020, stabilised profitability is possible thanks to the mechanisms of partial indexation, as well as the policy of hedging the prices of key product ranges.

In 2021, we obtained contracts worth over PLN 7 billion. Our priority, invariably, is to take care of the profitability of the order portfolio. In the “waiting room” we have new orders worth over PLN 2 billion. At the end of December 2021, the value of the order book reached PLN 13 billion.

The Budimex Group ended 2021 with a net cash position of PLN 2.6 billion. In June 2021. We paid a dividend of PLN 426 million, which amounted to PLN 16.70 per share. In addition, on 18 October 2021, we paid an interim dividend for 2021 in the amount of PLN 14.90 per share (over PLN 380 million). It was the thirteenth year in a row that we shared the profit with shareholders.

2021 was another year of intensive growth of the FBSerwis Group, which significantly increased sales revenues while maintaining high 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 Budimex Parking Wrocław) amounted to PLN 780 million and increased by 27.9% compared to the previous year. The sales volume achieved was much higher than our plans, which was mainly due to increased volumes in the waste management segment. Gross profit amounted to PLN 81 million compared to PLN 74 million in 2020.

We are working on increasing the economic potential of the FBSerwis Group, among others through investments in the expansion of existing waste processing installations and landfills. Thanks to this, we are able to increase the scale of operations, using the resources we already have. Acquisition projects are also being carried out independently. At the moment, we are looking for companies that will help us carry out our current tasks and at the same time contribute to increasing sales revenues so that in 2026 we will reach 1 billion while maintaining the level of profitability.

We end 2021 with a high order backlog of PLN 13 billion.

Analyzing the level of contracts, in the “waiting room” that we plan to sign in the coming months, we have a largely secured work front until the end of 2023, which is why we are selective about new offers, reliably and responsibly calculating cost estimates, especially in an environment of dynamically changing prices.

2021 brought significant increases in the cost of materials, especially in the first two quarters. Currently, the prices of key assortments do not show such volatility, but due to the rising prices of fuel, energy and CO2 allowances, we should prepare for further increases, probably not as drastic as last year. We positively assess the impact of indexation clauses, which at least partially compensate for the increase in material prices. However, we can see that in the current macroeconomic situation, the indexation limit at the level of 5% is insufficient. We are glad that the contracting authorities are raising this limit for new contracts.

2021 was a period of intensive development of the Budimex Group and preparations for geographical expansion in accordance with internal assumptions. As part of the planned activities on the German, Czech and Slovak markets, we have established special purpose vehicles. We have signed the first order on the German market. The next milestone will be winning a contract on the Czech and Slovak markets, where our goal is primarily  road and hydrotechnical projects.

In line with the chosen direction of development of the Budimex Group, we are consistently working on photovoltaic and wind farm projects, both onshore and offshore. On February 22, 2022, we finalized the acquisition of a company implementing a project to build a wind farm with a capacity of up to 7 MW. This is the first, very important step for us, which means Budimex’s entry into the electricity generation segment
renewable energy sources in high-capacity projects. The new project in Budimex’s portfolio provides for the construction of a wind farm consisting of 2 wind turbines with an estimated annual production of more than 25 GWh.

Our goal in the coming year is to maintain our leading position in key segments of the construction market. Looking at the current order backlog, we expect that the next quarters, and consequently the entire year 2022, should bring a high level of sales. Last year, we also completed several difficult contracts, which should allow us to achieve profitability above market indicators.

We plan to continue investing in RES while entering selected foreign markets, in line with the development directions adopted by the Budimex Group. A high cash position, including m.in. cash from the sale of Budimex Nieruchomości, provides a wide range of investment opportunities that will support entry into new areas.

The Budimex Group also invests in innovative solutions, including green technologies, i.e.: to reduce the carbon footprint. We plan that by 2030 all the energy we use will be obtained from green sources. We are also analyzing investments in young technology companies operating pro-environmentally. As part of the Budimex Startup Challenge, we have selected 5 companies and committed ourselves to cooperate with them.

We approach our projects reliably and take care of timeliness, but we do not forget about creativity and innovation, constantly striving to develop key areas of the Company’s operations and increase its competitiveness. We are currently testing the possibilities of reusing construction waste, e.g. reclaimed asphalt in the construction process, replacing classic materials with composites or ecological substitutes, and we are also using the possibilities of prefabrication. We are increasingly using modern technologies such as drones, 3D scanning, robotization of processes, BIM or advanced investment management software.

Despite the demanding environment, we keep our contractual obligations and carry out the tasks entrusted to us in accordance with the regulations, while taking care of quality and maintaining the highest environmental and social standards. In 2021, our efforts were recognized with numerous awards, including the Sustainable Economy Diamonds competition in the Sustainable Construction Leader category. We also won as many as five Construction of the Year 2020 awards, the most among all general contractors. Our construction of a new unit at the Turów power plant was recognized by the National Labour Inspectorate as the safest construction site in 2021.

Budimex has also been carrying out projects for its sustainable development for years. In 2021, we announced the “CSR Strategy for 2021–2023”, which refers to the UN Sustainable Development Goals.

Despite the ongoing pandemic, in 2021 we continued to develop our original social programs, i.e.: “Parent Zone. Budimex for Children” and “Hello ICE. Budimex for Children”. As part of Hello ICE, last year more 3D belts were created in 4 locations, and over 1700 children took part in safety days organized by the company. So far, Budimex has launched 39 Parent Zones in Polish hospitals in children’s wards. In 2021, 5 Parent Zones were created (in Białystok, Świecie, Lublin, Włocławek and Środa Śląska).

Last year, we also started the second edition of the “House from the Heart” program, under which we join forces with other companies to build, equip and donate a house for a large family in need from Brusy, in the Pomeranian Voivodeship. The new home will be a living space where children will have the right conditions to learn and develop their talents. This project – a gesture of the heart – aims to help large families in a difficult financial situation, and at the same time encourages other companies to initiate similar aid activities aimed at this group of people in need.

The net result from continued operations of PLN 451 million, achieved for another year in a row, allows us to further strengthen the Group’s stable position and provides a positive perspective for its further effective operation.