Commentary by Artur Popko, President of the Management Board of Budimex, on the financial results of the Budimex Group for 2022

In 2022, the Budimex Group recorded an increase in sales revenues of 8.9%. This is mainly due to the larger scale of sales in the construction segment, in particular in the area of cubature and infrastructure construction and in Mostostal Kraków. In the service part, revenues in 2022 increased by 4.9% compared to the previous year.

The Budimex Group generated an operating profit of PLN 562 million with a margin of 6.5%. The gross profit of the Budimex Group amounted to PLN 649 million with a margin of 7.5%. Profitability at the level of gross profit was supported by a significant improvement in the result on financing activities, especially in the second half of 2022, which is the result of an increase in the average interest rate on cash deposited by the Budimex Group.

Construction and assembly production in 2022 (at current prices) increased by 19.9% year-on-year from PLN 117.1 billion in 2021 to PLN 140.4 billion in 2022. In the buildings segment, sold production increased by as much as 24.6%, while in the infrastructure area the increase was 15.5%. At the same time, it is worth noting that the growth rate of production in constant prices (excluding the effect of an increase in the prices of construction and assembly production) was much lower – it amounted to 6.2%.

Sales of the construction segment of the Budimex Group amounted to PLN 7 billion 821 million.

In 2022, the construction industry was under strong pressure from a number of adverse external factors. However, despite market difficulties, such as interrupted supply chains of materials, shortage of construction workers, a clear slowdown in residential and local government investments, sales in the construction segment of the Budimex Group were noticeably higher than in the corresponding period of the previous year. A high and well-diversified order book at the beginning of 2022, as well as a well-thought-out purchasing policy and favorable weather conditions, allowed us to increase sales revenues by over 7%.

In the second half of 2022, we observed a stabilization of 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. The effect of cost increases was partially reduced by increasing the level of indexation on construction contracts. A responsible contracting strategy and a tailored purchasing policy allowed us to reduce losses related to the current market situation to a minimum.

Higher interest income generated in financing activities also contributed to maintaining profitability.

We also maintained a stable position on the market by working intensively on the acquisition of new contracts. The value of projects signed in January 2023 and awaiting signing is nearly PLN 6 billion, which should ensure the stability of the order portfolio. These contracts include m.in. railway line 201 Kościerzyna-Somonino (PLN 1,284 million), Zabierzów bypass (PLN 549 million), I75 Šaľa road in Slovakia (PLN 374 million), or railway line 104 Chabówka-Nowy Sącz (PLN 366 million). In 2022, we acquired contracts worth nearly PLN 7.9 billion, and the Budimex Group’s order book at the end of 2022 amounted to PLN 13.3 billion.

The Budimex Group ended 2022 with a net cash position of more than PLN 3.1 billion, which is our advantage on the market of construction companies, and at the same time means that in difficult times for this market, we are nevertheless ready to invest in the Group’s development and also as an Investor in new ventures. 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. The stable financial situation and high cash resources of the Budimex Group were conducive to high investments in the modernisation and expansion of the equipment base, both in Budimex SA and in other companies of the Group. The subject of the investment was m.in. modern railway equipment, construction machinery and a machine base intended for the performance of maintenance contracts in the service segment.

In 2022, the services segment recorded an increase in the level of revenues with a simultaneous improvement in profitability.

The revenues of the FBSerwis Group, which is a key asset in the service segment (the results of the service part also include the activities of several smaller companies, including Budimex Parking Wrocław), amounted to PLN 818 million, which translates into an increase of 4.8% compared to the previous year. The operating profit of the FBSerwis Group amounted to PLN 93 million with a margin of 11.4%.

Market outlook

Last year, the entire construction sector struggled with drastic increases in the prices of materials, energy and fuels, as well as with rising inflation. Its indicators remain high, despite the fact that most forecasts for the coming quarters are being revised downwards and their range and uncertainty are still at a high level. That is why it is so important to continue working on mechanisms for valorization of long-term orders.

Being aware of the mechanisms governing the markets in Poland and around the world today, we are closely monitoring the environment and gradually developing our business strategy. Using
from the experience that the COVID-19 pandemic has brought us, we know that the only way to successfully recover from stagnation is continuous development. The events we are witnessing today, which is also confirmed by the EU agencies m.in. Fit for 55 do not stop European economies from following the trends set in recent years. After every crisis, there is a “rebound” and acceleration, as the beginning of 2022 showed us.

We treat our commitment to sustainable development as a duty of a company that influences the living conditions of local communities and contributes to the national economy. The energy market is currently in the process of transformation, which enables the participation of companies from other sectors of the economy, which seemed impossible two years ago. Therefore, we are working intensively on improving energy efficiency in the current operations of our Group. In cooperation with partners and within internal processes, we are looking for innovations and technologies that increase the environmental neutrality and efficiency of our construction processes. We are gradually increasing the share of waste reuse, which is currently at 50 percent. We introduce solutions in the field of energy saving and renewable energy sources on our construction sites. We also follow the development of technologies in the area of energy-efficient construction and encourage investors to implement them at the design stages.

In the green competence pillar of our Capital Group, as an Investor, we have Magnolia Energy and Fotowoltaika, which are implementing the construction of a wind and photovoltaic farm with a combined capacity of over 20 MW. In 2022, as a general contractor, we completed a wind farm in Drachów. Low-emission transport requires appropriate infrastructure to be able to develop on the Polish market. That is why Budimex Mobility, a company established in the Budimex Group, has invested in 109 electric chargers in less than a year and intends to launch them in the first quarter of 2023 in: Szczecin, Poznań, Bydgoszcz and Gorzów Wielkopolski.

We are also present in the process of preparing investments in nuclear energy with strategic partners such as Westinghouse from the United States.

We see the Budimex Group’s share in the RES market as an element of strengthening energy efficiency and the company’s business portfolio. Green energy is an area that will require huge investments in the coming years, and we as a company have the capital that will allow them to be implemented on the necessary scale.

Step by step, we are building our position in neighboring countries. On the Slovak market, we have acquired and commenced the implementation of the motorway construction contract (in the “redesign and build” formula) with the highest value in this market, i.e. the D1 Bratislava-Triblavina contract worth EUR 111 million. On the German market, Budimex Bau GmBH acquired construction projects worth over PLN 70 million in 2022. We are striving for further projects in the Czech Republic and Latvia. We are developing our competences and acquiring new orders in the hydrotechnical segment in Poland. In 2022, we signed the DCT Gdansk (Baltic Hub) contract, which will be one of the largest container terminals in Europe when completed. An equally important and strongly developed construction segment in our Group was also the military investment segment.

The current order book of the Budimex Group fully secures the work front for the next two years. Newly acquired contracts (in particular orders in the “design-build” formula) strengthen the foundations for the coming years. The coming quarters may be a challenge in terms of acquiring new orders for the entire industry. On the one hand, we are observing problems with financing railway projects and growing competition in the road segment. On the other hand, in the general construction sector, the number of housing projects started has been drastically decreasing for several quarters. However, the high and well-diversified order book in our company allows us to approach bidding responsibly. We expect that the chosen development directions, including expansion into foreign markets and strengthening of the position in the hydrotechnical and military segments, will allow us to maintain the long-term trend of growth of the order book and revenues of the construction segment. We hope that our own projects in the area of renewable energy sources will become an additional impulse for the growth of the construction part.
Over the next 10 years, investments worth over PLN 1 trillion are planned in Poland, which allows the construction industry to look into the future with optimism. The outlook for the entire industry is still promising. Access to EU funds and bridge funds is a prerequisite for further development. Private investors’ funds can also support the state’s financial policy. In the long term, involvement in the reconstruction of Ukraine will also be an opportunity for the industry. The Ukrainian authorities and the European Investment Bank indicate that the total cost of post-war reconstruction projects in Ukraine will amount to more than $1 trillion.

Social commitment

As a responsible company, we implement projects along the entire ESG value chain – we promote equal pay and working conditions, attach great importance to the safety of our employees and activities for the benefit of the immediate environment. It was a special year in terms of our social activity. We have become involved in financial and material assistance for Ukraine. The value of this support reached nearly PLN 3 million.The commitment of our employees was particularly high. This year’s Volunteer Grant program with the participation of our staff was mainly devoted to our neighbors from the East.

We also made efforts to improve financial standards. Budimex has signed an agreement under the Cooperation Programme with the Head of the National Tax Administration. Participation in the Programme confirms that the tax procedures and processes used by Budimex as well as the supervision of tax settlements meet the highest requirements.

In the opinion of the 300 largest construction subcontractors, Budimex was ranked first among the ten leading general contractors as a partner for cooperation, as well as the best partner in terms of financial terms and payment terms. We have also joined the Partnership for the Implementation of the Sustainable Development Goals Agenda 2030 implemented by the Ministry of Development and Technology. The 2030 Agenda is a strategy for the development of the world until 2030, it contains 17 Sustainable Development Goals in line with ESG goals.

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 fortieth Parent Zone in the Independent Public Health Care Facility of the District Hospital in Pisz and another one in the Provincial Children’s Hospital named after J.Brudzinski in Bydgoszcz.

We are developing our long-term social programs. The Hello ICE educational programme, serving the safety of children in road traffic, has gained the patronage of the Ministry of Sport and Tourism.
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We have completed the second edition of the “House from the Heart” program in Brusy in Pomerania. 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”.
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Our construction projects have won several valuable industry awards: 7 awards in the “Construction of the Year 2021” competition, commonly known as the Construction Oscars, and two “Modernization of the Year” awards. Among the awarded investments were, m.in, the PKN Orlen Research and Development Centre in Płock, the PKP S.A. railway station in Białystok and Rother’s Mills in Bydgoszcz.
Budimex was also awarded the Award of the Year of the Federation of Polish Entrepreneurs – Leader of Sustainable Development. The award was granted for Budimex’s activities in the field of environmental protection, circular economy, low-emission and social activities. We also join in pro-ecological social activities. As part of the Green Stop campaign, we will plant 400 new trees with housing cooperatives and communities in Warsaw.
Budimex’s strategy assumes m.in. being a good neighbor, guest and partner for local communities.

During 2022. we have charitably supported the surroundings of construction sites as part of 43 projects in: Ełk, Szczecin, Bydgoszcz, Szczecin, Kraków, Warsaw, Dolice near Szczecin. Szczecin, Białystok, Narewka near Szczecin. Hajnówka, Czechowice – Dziedzice, Suwałki, Marki near Dziedzice. Warsaw, Słupca near Warsaw. Konin and Strachocin. The total value of the aid amounted to nearly PLN 2 million.