Commentary by Artur Popko, President of the Management Board of Budimex SA, on the financial data of the Budimex Group for the first half of 2023

The Group’s very good condition enables us to responsibly pursue the goals we set for ourselves. Operating profitability and net result for the second quarter are even better than in the first quarter of 2023, hence we assess the entire first half of  2023 as very good. We  continue to develop on foreign markets and continue to strengthen our commitment to renewable energy sources in order to achieve the ambitious goal of climate neutrality in 2050.

The Budimex Group generated an operating profit of PLN 273 million (compared  to PLN 235 million in the first half of 2022), with the operating profitability reaching 5.3% in the first quarter of this year and 7.2% in the second quarter.

The gross profit of the Budimex Group amounted to PLN 357 million with a margin of 8.3% compared to 6.6% in the first half of last year. 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 also  recorded an increase (year-on-year) in the Group’s sales revenues, both in  the construction part (+6.9%) and in the service part (+18.4%).

Construction and assembly production in the first half of 2023 (in current prices) increased year-on-year by 15.5% from PLN 56.5 billion to PLN 65.3 billion. In the building segment, production sold increased by 6.2%, while in the infrastructure area the increase was as much as 27%.

Sales of the construction segment of the Budimex Group in the first half of 2023 amounted to PLN 3,885 million (+6.9% y/y), recording an increase in both operating profitability (from 5.4% to 5.9%) and gross profitability (from 6.1% to 8.0%).

The scale of sales revenues generated in the first half of 2023 in the construction segment was higher than in the corresponding period of the previous year. A high and well-diversified order book, as well as favorable weather conditions, allowed us to increase revenues by nearly 7%. The increase in sales revenues was mainly driven by the segment of cubature and road contracts.

The operating profitability of the construction segment amounted to 5.9% and was higher by 0.5 percentage points compared to the same period of the previous year. In  the period in question, the construction industry felt the effects of disrupted supply chains caused by the outbreak of the armed conflict in Ukraine to a lesser extent than a year earlier. This resulted in greater price predictability and the availability of the main assortment of building materials, which can be seen in the example of steel or concrete.

In addition, thanks to the slowdown observed in residential construction, the availability of subcontractors in the area of cubature construction increased, which also had an impact on the prices offered by them. At the same time, the effects of increases in the prices of construction materials and labour, observed from the moment of submitting the bid to the commencement of construction works (in the case of contracts implemented in the “Design and Build” formula, it is usually over a year) have been partially absorbed by the increase in the level of valorisation of construction contracts carried out for public contracting authorities.

The gross margin of the construction segment in the period in question was 8.0% and was significantly higher than in the first half of 2022, when it amounted to 6.1%. In the first half of 2023, in addition to an increase in profitability at the operating level, profitability at the level of gross profit was supported by a positive result generated on financing activities due to interest on deposits.

In the first half of 2023, we obtained contracts worth over PLN 2.5 billion. These include such investments as the new Podłęże-Piekiełko railway line, the extension of the Szczecin Sports House and the northern bypass of Gorzów. The Budimex Group’s order book at the end of June 2023 amounted to PLN 12.2 billion and secures the work front for the next two years. Intensive work on the acquisition of new projects has resulted in the value of projects awaiting signing, and those where the offer of Budimex or Group companies has been rated the highest, currently at PLN 4.6 billion. In the coming quarters, this should translate into maintaining a high value of the order book.

The Budimex Group ended the first half of 2023 with a net cash position of PLN 2.7 billion. In June, a dividend was paid from the profit generated for 2022 in the amount of PLN 459 million, which is PLN 17.99 per share.

In the first half of 2023. The FBSerwis Group recorded an increase in sales revenues by PLN 68 million, while maintaining good profitability.  Gross profit amounted to PLN 47 million compared to PLN 38 million in the  first half of 2022.

The revenues of the FBSerwis Group, which is a key asset within the service segment (the results of the service part also include the activities of several smaller companies, including Budimex Parking Wrocław) amounted to PLN 437 million and were 18.4% higher than in the corresponding period of the previous year. The increase in sales volume was achieved in each of the business segments and was higher than our internal plans. The increase in sales in the first half of 2023 compared  to the corresponding period of the previous year is mainly due to the increased scale of operations (acquisition of shares in a new venture, increase in the volume of waste collected and processed and a higher number of contracts in the road segment).

Market outlook

The current order book of the Budimex Group fully secures the work front until the end of this year and, combined with the projects in the waiting room, provides a solid foundation for operations for 2024-2026. 

However, the key challenge remains the fight for new orders, which will give the opportunity to maintain stable profitability in the long term. On the market, we are observing a progressive intensification of competition, both on the road and rail markets. We expect that in the next few quarters, the aggressive pricing policy of competitors will result in pressure on margins in the industry. Bearing in mind the uncertain macroeconomic situation and fluctuations in the prices of materials, we invariably approach new offers with caution, calculating cost estimates reliably and responsibly.

We expect that segment diversification and building unique competences, as well as expansion into foreign markets, will allow us to maintain a competitive advantage and strengthen our position as an industry leader in the long run. In the second quarter of this year. Mostostal Kraków has taken over Konstalex, a company that specializes in the construction of steel structures for the energy and  infrastructure sector. This acquisition is in line with the development strategy of Mostostal Kraków and the entire Budimex Group, supplementing the production potential with new types of steel structures. In the last six months, FBSerwis also expanded its order portfolio. The company has signed m.in agreements. for the maintenance of the Tischenra Office building in Krakow, technical service of the Assembly Plant in Gdańsk and two road contracts with the Olsztyn branch of GDDKiA.

After starting operations on the German, Slovak and Czech markets, we are working on acquiring orders on the Latvian market. We are in the proceedings regarding Rail Baltica, where a consortium with Budimex’s participation has been selected for further negotiations. However, this is the next stage of the tender and at the moment it is not known what its final result will be. We have the right equipment, people and experience to carry out such complex contracts and  we treat this order as an opportunity to strengthen our position as a leading construction company in the area of Central and Eastern Europe.

We continue our development direction in the area of renewable energy investments. In the newly established BXF Energia company, we plan to build a portfolio of RES projects with a capacity of approx. 500 MW from wind and solar in operation or construction. We are currently working on projects with a capacity of over 200 MW, in addition, we are analyzing new projects at a very early stage of development. Later this year, we would like to invest about PLN 100 million in green energy projects.

We are gradually building our potential in the area of electromobility. We are involved in the development of the national charging infrastructure for electric vehicles. A few months after the purchase of 112 stations in four Polish cities from Enea Operator, we handed over the first devices with the Budimex Mobility logo. 27 new chargers can already be used by the residents of Bydgoszcz and 9 more in Szczecin. 

Awards and distinctions

The diligence and quality with which we carry out the tasks entrusted to us by investors are appreciated and distinguished by the industry. In recent months, Budimex has once again achieved the highest score in a survey conducted by ASM Market Research and Analysis Centre among subcontractors in the construction industry. We were awarded the title of “General Contractor Friendly to Construction Companies”. We also became the leader of the subcategories for m.in. security or payment terms and timeliness of settlements with subcontractors.

In May, we received the Top Builder 2023 award for the modernization of the E-59 railway line on the Rokietnica-Wronki section. This is an example of an investment that requires high skills and innovative solutions. A similar contract was the construction of the PepsiCo factory in Środa Śląska – the company’s most sustainable plant located in Europe – completed by Budimex at the beginning of the year.

In addition to industry awards, Tygodnik Polityka, Deloitte and the Responsible Business Forum indicated Budimex as one of the companies leading sustainable development and ESG in Poland. This is another CSR Leaf of Polityka that we have on our account.

Responsibility and sustainability

In the Budimex Group, we carefully observe the reality around us, we understand that the business potential of a company cannot be built today in isolation from responsibility – environmental and social. At the beginning of July this year. we announced Budimex’s Strategy for 2023-2026 in the area of sustainable development. This document is intended to organize and accelerate our activities in the area of ESG.

By 2050, Budimex wants to achieve climate neutrality. On the way to zero-emission, it plans further investments in the development of renewable energy, reduction of CO₂ emissions and gradual implementation of the principles of circular economy throughout the construction process.

In 2026, 100 per cent. of electricity from RES produced in the Group is to be used for Budimex’s current operational needs. From 2024, the company will recycle approx. 70 per cent. soil and non-hazardous waste. It will also be one of the first companies in Poland to measure its water footprint.

Safety, education and CSR

In May this year, together with the entire construction sector, we celebrated the jubilee Safety Week under the slogan “Stop has power. Be careful, I don’t put it at risk” by organizing a number of trainings and campaigns to increase the awareness of our employees. As part of our commitment to environmental protection, we planted the first 140 trees around the construction of the Warsaw Tram to Wilanów with the residents of Mokotów and Wilanów. Ultimately, in addition to compensatory plantings, more than 400 new trees will appear in the vicinity of the investment.

The first half of the year was also full of events related to the flagship social projects of the Budimex Group. In June, we opened the 42. Parent Zone. A space for rest and fun for families was created in the pediatric ward of the “Pro-Medica” hospital. On the occasion of Children’s Day, we also joined the organization of several special events for the youngest, where as part of the “Hello ICE. Budimex for Children” we educated about safety in road traffic. We visited m.in. Warsaw, Ełk or the Kołbaskowo commune.

At Budimex, we believe in the strength and ingenuity of young people. Together with the Zwolnieni z Teorii Foundation, we organized a nationwide competition for students of construction technicians for the most innovative CSR project. During the grand finale, organized in May in Warsaw’s Służewiec district, we awarded three winning projects. The prize pool in the competition exceeded 75 thousand. PLN.