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

We recorded an increase in the Group’s sales revenues, both in the construction and service parts. We also improved profitability.

After three quarters of 2023, the Budimex Group generated an operating profit of PLN 482 million. After three quarters, the operating profitability reached 6.9%. The Budimex Group ended the third quarter of 2023 with a high net cash position, exceeding PLN 2.8 billion. Bearing in mind the record level of projects awaiting signing, we are confident about the level of utilization of our production capacity in the next 2-3 years.

We continue to diversify our business and invest in the development of competences.  With  courage and responsibility, we are involved in the development of foreign markets, achieving more and more ambitious goals. During the first three quarters of 2023, we obtained contracts worth over PLN 4.5 billion.

The Budimex Group’s order book at the end of September 2023 exceeds PLN 12 billion. The value of projects awaiting signing, where our company’s offer took first place in tender procedures, is currently over PLN 12 billion, of which over PLN 8 billion was attributable to contracts on foreign markets: the Czech Republic, Slovakia and Latvia. ‘

We also  recorded a year-on-year increase in the Group’s sales revenues, both in the construction part (+9.2%) and in the service part (+16.4%).

Construction and assembly production for the first three quarters of 2023
(in current prices) increased year-on-year by 13.2% from PLN 94.5 billion to PLN 107 billion. In the buildings segment, sold production increased by 3.9%, while in the infrastructure area the increase was as much as 23.5%.

The sales of the construction segment of the Budimex Group for the first three quarters  of 2023 amounted to PLN 6,346 million (+9.2% y/y), while recording an increase in both operating profitability (from 6.1% to 6.7%) and gross profitability (from 6.9% to 8.4%).

The scale of sales revenues generated in the first nine months of 2023 in the construction segment was noticeably higher than in the corresponding period of the previous year. The high level of the order book and its diversification, combined with favorable weather conditions, allowed the company to increase revenues by over 9.2%. We recorded an increase in sales in most areas of construction activity on the domestic market. The sales of the Budimex Group were also supported by the recognition of the first significant revenues from operations on foreign markets.

The operating profitability of the construction segment in the period under discussion amounted to 6.7% and was higher by 0.6 percentage points compared to the same period of the previous year.

As a result of the slowdown observed in residential construction, the availability of subcontractors in the area of cubature construction has improved, which often translated into the prices they offer. 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 carried out in the “Design and Build” formula, it is usually over a year), have been partially absorbed by the introduction of indexation mechanisms on construction contracts carried out for public contracting authorities.

The gross margin of the construction segment in the period in question was 8.4% and was 1.5 percentage points higher than in the corresponding period of 2022, when it amounted to 6.9%. In the first three quarters of 2023, in addition to an increase in the profitability of contracts at the operating level, the profitability at the level of gross profit was supported by a positive result on financing activities due  to interest on deposits. 

New contracts and order book

During the first three quarters of 2023, we obtained contracts worth over PLN 4.5 billion. These include such investments as: the Zabierzów bypass along DK 79, the railway line 104 Chabówka – Rabka Zaryte, or the expansion of the Opera Nova in Bydgoszcz. In addition, on October 13, 2023, a significant railway contract was signed for the implementation of comprehensive construction works covering rail and road infrastructure on the Tychy – Vistula Bridge section, worth over PLN 900 million.

The Budimex Group’s order book at the end of September 2023 exceeded PLN 12 billion, which secures the work front for the next two years. The intensification of work on acquiring new projects in Poland and abroad has resulted in the fact that the value of projects awaiting signing, and those where the offer of Budimex or Group companies has been rated the highest, or occupies the best bargaining position, is currently over PLN 12 billion, of which over PLN 8 billion was attributable to contracts on foreign markets – the Czech Republic,  Slovak and Latvian. On 31 August 2023, Budimex SA received information about the selection of the bid of the consortium of Eiffage Genie Civil, Rizzani de Eccher S.p.A. and Budimex S.A. as the most advantageous in the tender procedure for the construction of the main railway line “Rail Baltica” in Latvia. The budget of the entire contract is nearly EUR 3.7 billion net, with the estimated value of the first stage of works being approx. EUR 230 million net. Budimex SA holds a 30% stake in the above-mentioned consortium. In the coming quarters, this should translate into maintaining a high and geographically diversified order portfolio.

The Budimex Group ended the third quarter of 2023 with a high net cash position, exceeding PLN 2.8 billion. In June, for the 15th year in a row, we paid a dividend of PLN 459 million, which is PLN 17.99 per share. The stable margins achieved on construction contracts in recent quarters, combined with effective management of working capital and meticulous control of fixed costs, allow the Budimex Group to maintain a safe level of cash that may be invested in new areas of activity in the future.

We estimate that the decisions on segment diversification as well as expansion into foreign markets are the right directions, currently over 60% of contracts in the waiting room are orders on foreign markets. Our company has the appropriate potential and  experience to carry out complex contracts in Poland and abroad – this is an opportunity for us to strengthen the position of the Budimex Group as a leading construction company in  Central and Eastern Europe.

Energy and electromobility

We continue our development direction in the area of renewable energy investments. In September, our first wind farm started producing green energy. 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. We are currently analyzing projects at various stages of advancement with a capacity of approx. 800 MW.

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. By the end of the year, Budimex Mobility will have 160 publicly available chargers, and internal plans assume 230 chargers by the end of 2024.

After three quarters, the FBSerwis Group recorded an increase in sales revenues by PLN 93 million, while maintaining good profitability. Gross profit amounted to PLN 64.5 million compared to PLN 65 million in 2022.

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 companies from the RES area and Budimex Parking Wrocław), amounted to PLN 665.5 million and were 16.2% 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.

Social activities and awards

We have created a new educational room of the Technical School of Power Engineering in Bełchatów. This is an award in the competition for the best CSR project as part of the “Practice that will stay with you” campaign, which is an initiative of Budimex carried out in cooperation with the Zwolnieni z Teorii Foundation. The winners – a group of students from the Technical School of Power Engineering in Bełchatów – decided to use the construction skills acquired at school and renovated an apartment for a family from Ukraine. We supported the Second Breakfast campaign addressed to first-graders of primary schools in Ełk.

More than 20 housing communities and cooperatives joined the second edition of the Przystanek Zieleń program in Warsaw. Budimex continues the apprenticeship programme for students of construction technicians. This year’s edition was attended by 40 apprentices, studying in construction classes and related specializations. The “Learn and build practice” program aims to develop the skills of young construction adepts, as well as to support the education of future specialists.

Our construction sites have won prestigious awards. The modernization of the Planetarium in Chorzów was awarded the title of Modernization of the Year 2023 in the 27. edition of the Modernization of the Year – Construction of the 21st Century competition. The contract carried out by Budimex in 2019-2022 was rated the highest by the jury in the category of public buildings. Over 500 investments were submitted to the competition. Only the best 20 of them were awarded. Budimex returns with 2 awards from this year’s edition of the “Construction of the Year” competition, organised by the Polish Association of Construction Engineers and Technicians. The investments awarded with Construction Oscars include the construction of the Łagiewnicka Route in  Krakow and the modernization of the Institute of Thermal Technology of the Warsaw University of Technology in  Warsaw.

Market outlook

The current order book of the Budimex Group fully secures the work front for the coming quarters. Bearing in mind the record level of projects awaiting signing, we are confident about the level of utilization of our production capacity in the next 2-3 years.

The total value of projects awaiting signing is over PLN 12 billion – with more than half of this value related to contracts in the railway area, including the order for the construction of the main Rail Baltica line in Latvia. We estimate that the decisions on segment diversification as well as expansion into foreign markets are the right directions, currently over 60% of contracts in the waiting room are orders on foreign markets. We have the right equipment, people, capital and experience to carry out such complex contracts in Poland and abroad – this is an opportunity for us to strengthen the position of the Budimex Group as a leading construction company in Central and Eastern Europe.

On the local market, we are constantly observing an aggressive fight for orders in the road, rail and cubature areas. On the one hand, this is a consequence of the lower supply of tenders, on the other hand, we are observing a tightening of the level of competition from foreign entities. We expect that over the next few quarters, the aggressive pricing policy of competitors will result in further pressure on margins in the industry. When taking part in tenders outside Poland, we usually have to go through a certification process – we would like to feel that construction companies from abroad are verified and certified in Poland in the same way as Budimex in neighbouring countries.