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

We assess the first quarter of 2023 as very good. Profitability at every level of the result improved, showing the stable position of the Budimex Group and gave even better prospects for further responsible development, in connection with the growing involvement in the RES sector.

The Budimex Group generated an operating profit of PLN 102 million (compared to PLN 57 million in the first quarter of 2022), while recording an increase in profitability from 3.6% to 5.3%. The Group’s revenues increased by 21.3%, which, while maintaining cost discipline, improved the profitability of the gross margin.

The gross profit of the Budimex Group amounted to PLN 143 million with a margin of 7.4% compared to 3.9% in the first quarter of last year. Profit margin before tax was supported by a significant improvement in the result on financing activities, which is the result of higher financial income from interest.

We recorded a significant increase in the Group’s sales revenues, both in the construction part (+20.1%) and in the service part (+31.1%).

Construction and assembly production in the first quarter of 2023 (in current prices) increased by 16.2% year-on-year from PLN 23.4 billion to PLN 27.2 billion. In the buildings segment, sold production increased by 6.6%, while in the infrastructure area the increase was as much as 29.7%.

The sales of the construction segment of the Budimex Group in the first quarter of 2023 amounted to PLN 1724 million (+20.1% y/y), while recording an increase in both operating profitability (from 3.0% to 4.7%) and gross profitability (from 3.2% to 7.0%).

The scale of sales revenues in the first quarter of 2023 in the construction segment was noticeably higher than in the corresponding period of the previous year. A high and well-diversified order portfolio, as well as favorable weather conditions, allowed us to increase revenues by over 20%. Sales were mainly affected by the area of road contracts – a large part of the contracts, which in the first quarter of 2022 were in the design phase, went into the implementation phase, showing higher revenues.

The operating profitability of the construction segment amounted to 4.7% and was significantly higher compared to the corresponding period of the previous year, when it amounted to 3.0%. 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, the prices of services offered by the main subcontractors in the first quarter of this year were subject to noticeably smaller fluctuations than in the corresponding period of the previous year. This is particularly noticeable in the area of cubature construction. 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 on construction contracts carried out for public contracting authorities.

The gross margin of the construction segment in the period in question was 7.0% and was significantly higher than in the first quarter of 2022, when it amounted to 3.2%. In the first quarter 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 quarter of 2023, we obtained contracts worth over PLN 600 million. The Budimex Group’s order book at the end of March 2023 amounted to PLN 12.6 billion and secures the work front for the entire current year and gives the prospect of maintaining a high level of sales for 2024-2025. 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 exceeding PLN 5.3 billion. In the coming quarters, this should translate into maintaining a high value of the order book.

The Budimex Group ended the first quarter of 2023 with a net cash position of nearly PLN 3.3 billion. In fulfilling the assumptions of the adopted dividend policy, the Management Board of Budimex SA recommended to the Supervisory Board and the General Meeting of Shareholders the payment of a dividend from the profit generated for 2022 in the amount of PLN 459 million, which is PLN 17.99 per share. The dividend would be paid in June 2023.

In the first quarter of 2023. The FBSerwis Group recorded an increase in sales revenues by PLN 51.4 million, while maintaining good profitability. Gross profit amounted to PLN 23 million compared to PLN 16 million in the first quarter of 2022.

The revenues of the FBSerwis Group, which is a key asset within the services segment (the results of the service part also include the activities of several smaller companies, including Budimex Parking Wrocław) amounted to PLN 217 million and were  31.1% higher than in the corresponding period of the previous year. The increase in sales volume was achieved in each of the segments of operations at a higher level than we assumed. The increase in sales in the first quarter 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 waste processing 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 and gives the prospect of maintaining a high level of sales in 2024-2025. 

We positively assess the decision of the contracting authorities in the area of infrastructure to increase the indexation rates of construction contracts. In the face of persistently elevated inflation and general economic uncertainty, this allows to stabilize the profitability of long-term orders and, consequently, has a positive impact on the stability of the entire sector.

The challenges of the coming quarters are primarily to supplement the order portfolio. On the one hand, our fears about the tightening of competition on the road market are materializing. It is possible 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 hope that other market participants will also approach the submission of bids in the coming months reliably and with due consideration. On the other hand, we are observing persistent delays in financing railway projects, where we have several important contracts waiting to be signed. This confirms our  belief that the chosen development directions, including segment diversification by strengthening our position in the hydrotechnical and military segments, as well as expansion into foreign markets, will allow us to maintain the long-term growth trend of the construction segment’s order portfolio and revenues while maintaining stable profitability. 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.

Continuing the direction of dynamic development in the area of investments in renewable energy, in recent weeks we have signed an agreement with our partner – Ferrovial on the establishment of a new joint-venture company BXF Energia, which is currently working on projects with a capacity of 110 MW in wind energy and 112 MW in photovoltaics at various stages of advancement. In the next 4-5 years, our goal is to have a portfolio of RES projects with a capacity of approx. 500 MW from wind and solar in operation or construction.

Awards and distinctions

Supporting the development of the national economy and improving the quality of life of the beneficiaries of the implemented investments are among the key objectives of Budimex’s operations. Our commitment was reflected in the awards we received in the first quarter of this year. We received the WNP Awards for our contribution to changing the Polish market for the better and the title of Dividend Company of the Year 2022 by the Invest Cuffs Foundation. Budimex was also named the Construction Company of the Year by the “Builder” magazine.

Education

As we continue our efforts to promote work in the construction industry,
at the beginning of March, we inaugurated a new edition of the Budimex Academy student internship programme. The project “Practice is a measure of success” will benefit 250 students from all over Polish. As part of the activities aimed at secondary schools, in the first quarter of 2023, we established cooperation with the Railway Technical School in Warsaw, including joint scientific and technical activities and training projects.

We are also constantly implementing a special project with the Zwolnieni z Teorii Foundation, which had its grand finale on April 21. Within a few months, we visited 127 technical schools throughout Poland. We established cooperation with 40 schools, and 34 teams of students, in cooperation with our experts, took up the challenge of creating original CSR projects. On 1 March, a group of programme participants also started their internships at Budimex.

ESG activities

At Budimex, we want to be a good neighbour, responding to the needs of local communities. As a general contractor for the construction of a tram to Warsaw’s Wilanów district, we are greening the urban space. At the beginning of the year, we started the first stage of the “Green Stop” project, in which we will plant 400 additional trees by spring 2024, and ultimately 1000, including compensatory plantings, along the tram line in the Mokotów and Wilanów districts.

As a company with roots in the construction industry, we also attach great importance to the issue of safety. At the beginning of this year, the third edition of Budimex’s proprietary programme – “Hello ICE”, under the patronage of the Ministry of Sport and Tourism, was launched. The aim of the project is to promote proper behaviour on the road among children. The first day of educational activities took place in Ziębice.