Budimex Group ended H1 2022 with good financial results – despite the difficult market situation.
The outbreak of war in Ukraine has significantly affected most branches of our economy. The construction industry is one of the sectors hardest hit by the consequences of this armed conflict. The last few months, despite a difficult geopolitical situation, have brought partial stabilisation. Nevertheless, some of the unfavourable trends for the industry, which intensified after 24 February, has been experienced to this day; these include above all the rise in fuel prices and the high level of inflation.
In H1 2022, the Budimex Group generated an operating profit of PLN 235 million at a profitability of 5.9%, with operating profitability of 3.6% in Q1 of this year and a result of 7.4% in Q2.
The Budimex Group’s gross profit was PLN 262 million with a profitability of 6.6% compared to 8.0% in H1 of the previous year (5.9% when excluding the effect of the sale of Budimex Nieruchomości in Q2 2021). Profitability at the level of gross profit was supported by significant improvement in financial results, which resulted from an increase in the average level of interest rate of cash invested by the Budimex Group.
We recorded a significant increase in sales revenues of the Group, mainly due to a larger scale of sales realised in the construction segment. In the services segment, revenues were similar to the previous year.
Construction and installation production in H1 2022 (at current prices) increased year-on-year basis by 24.5% from PLN 45.4 billion to PLN 56.5 billion. In the buildings segment, production sold increased by 33.4%, while in the infrastructure segment the increase was 15.2%.
Sale of the Budimex Group’s construction segment amounted to PLN 3,634 million in H1 2022.
Despite market difficulties resulting from temporary destabilisation of the market in the area of material prices and broken supply chains, the scale of realised sales revenue in H1 2022 in the construction segment was significantly higher than in the corresponding period of the previous year. The high order portfolio at the beginning of 2022, a well-thought-out purchasing policy and favourable weather conditions allowed us to increase revenues by 20%.
The operating profitability of the construction segment was 5.4% and was at a similar level compared to H1 2021. Recently, we have seen some stabilisation in the prices of key assortments, and in some cases (including steel) a reduction in prices, compared to levels recorded a few weeks after the outbreak. A responsible contracting strategy and a tailored purchasing strategy allowed us to keep losses associated with the current market situation to a minimum. The budgets of all our projects are updated on an ongoing basis, while profitability of the portfolio remains stable thanks to good profitability of the contracts in the final stages of execution.
Gross profitability of the construction segment in the period under review was 6.1% and was higher than in H1 2021, when it amounted to 4.8%. Within gross profit, the construction segment improved its result on financing activities by over PLN 40 million, mainly from interest on deposits.
The macroeconomic situation, which was difficult to predict, translated into our approach to new bids. All projects in which the calculations were based on prices from before the outbreak of war in Ukraine were recalculated – therefore we resigned from participating in ongoing proceedings amounting to approximately PLN 3 billion. Following this decision, we recorded a temporary decline in the value of signed contracts in Q2 of this year. In terms of securing the margins of the company’s portfolio, this was a good decision.
In H1 2022, we acquired contracts worth PLN 2.1 billion. Budimex Group’s contract portfolio at the end of June 2022 amounted to PLN 11.8 billion and secures the work front for the entire current year and most of 2023.
At the end of April and the beginning of May, we had some concerns about the contracting potential of the current year. However, intensive work on acquisition of new projects in Poland and abroad in recent months has resulted in signing or submission of the most favourable bids in several key tenders. They include, above all, expansion of the T3 Container Terminal in Gdańsk with a total value of EUR 245 million, construction of the D1 Bratislava-Triblavina road (EUR 111 million) and the tender for the design and construction of the S1 road (PLN 398 million). As a result of the above activities, the value of signed and pending projects is over PLN 4 billion, which should guarantee stability of the portfolio of new orders in the next 2-3 quarters.
The Budimex Group ended Q2 2022 with a net cash result of PLN 2 billion. We paid the remaining dividend for 2021 of PLN 23.47 per share in June 2022. Thus, the total dividend per share for 2021 was a record PLN 38.37.
In H1 2022 the FBSerwis Group maintained a high level of sales revenues while maintaining good profitability.
Revenues of FBSerwis Group, which is a key asset within the services segment (the results of the services segment also include activities of several smaller companies, including Budimex Parking Wrocław) amounted to PLN 369 million and were slightly higher than in the same period of the previous year. FBSerwis Group’s operating profit was 38 million with a profitability of 10.2% compared to 15.4% in the same period of the previous year. Decreased profitability in H1 2022 was mainly due to: lower prices in the tenders for waste collection and management awarded in late 2021 and early 2022. We currently see a reversal of this trend, with significant increase in management costs translating into higher prices in the new proceedings. In the segment of infrastructure maintenance, we felt, above all, an increase in fuel prices.
We have recently secured several important orders, both in the area of infrastructure maintenance and waste management, which will allow us to fully utilise the capacity of the FBSerwis Group in the coming quarters. In the infrastructure segment, these are contracts for the year-round road maintenance in the area of Jędrzejów, Starachowice and Wieluń with a total value of over PLN 150 million. In the environmental services segment, we signed another contract for waste management in the Warsaw area worth PLN 45 million. We continue to invest in expansion of existing waste processing facilities and landfills, which will allow us to gradually increase the scale of our operations using our existing resources. In Q2, as expected, we completed acquisition of a waste management company, which will further strengthen our position in the environmental services segment.
Budimex Group’s prospects for the next quarters look optimistic.
Budimex Group’s current portfolio of orders secures the work front until the end of 2023, and the newly signed contracts build a strong foundation of operations for 2024-2025. Looking at the current macroeconomic situation and fluctuations in material prices, we invariably approach new bids very cautiously, reliably and responsibly calculating cost estimates and assessing potential risks associated with the future contract performance.
We are positive about the increase in valorisation limits on contracts with General Directorate for National Roads and Motorways (GDDKiA) to 10% – it is a step in the right direction – but with the current scale of material price increases and double-digit inflation, this is still not a sufficient level. We are also discussing the principles of valorisation with PKP PLK. In case of private investors, after negotiations, most agree to compensate for the higher costs.
We are consistently working on development on neighbouring markets. In recent weeks, we have won the tender for construction of the 16.8 km long D1 Bratislava-Triblavina motorway under the “design-build” formula. This is a milestone for us in building our market position in Slovakia. At the same time, it is the third contract won abroad since the beginning of 2021, when we decided to expand abroad (the previous two contracts were won in the German market).
We are continuing construction of our 7 MW wind farm in Drachov. We will start producing green energy as early as next year, and we want to be self-sufficient in energy by 2026. After the amendment of the “10H” law, we are looking more optimistically at the possibility of acquiring new projects. We are also undertaking the first investments in a network of charging points for electric cars – we are planning to create a network of such points within four years.
As a result of the Budimex Startup Challenge announced last year, we started piloting new energy management systems based on AI and machine learning. We also performed tests of safety tags on helmets for workers on construction sites, enabling automatic monitoring and prediction of worker collisions with construction machinery. We are also testing automated monitoring for occupational safety and health.
We launched collaboration with the OSA Team of young scientists who are the winners of the European Space Agency’s top prize in the CanSat competition. During their paid traineeship, they had the opportunity, under the supervision of the Budimex SA Innovation Team, to work on their own ideas and propose improvements to the organisation using state-of-the-art technology such as 3D or Mixed Reality.
We won the title of “Złota Marka Budowlana 2022” (Golden Construction Brand 2022) in a nationwide survey conducted among 300 construction subcontractors. From among the top ten general contractors, we took the first place on the podium among companies recommended as partners for cooperation, and also as the best partner in terms of financial and payment conditions. We received the Top Builder award for realisation of the PKN Orlen Research and Development Centre in Płock, and the Office of Technical Inspection singled out Budimex for its high standard of technical safety. We also won the Biały Listek Polityki – a distinction for the most responsible and socially committed companies.
At Budimex, corporate social responsibility also means long-term projects supporting, among others, the inhabitants of communities neighbouring the construction sites run by the company. We launched the Parent Zone in the Independent Public Health Care Institution of the District Hospital in Pisz – the first planned for this year and the fortieth in general. We are building another one at J. Brudziński Children’s Hospital in Bydgoszcz. By the end of the year, we will also have handed over Parent Zones in hospitals in Ełk and Szczecin.
We completed the second edition of the “Dom z Serca” (House of the Heart) programme – a social initiative of Budimex aimed at helping large families. Within this initiative, we helped a family of eight struggling with a difficult financial situation and facing health problems of two children. Joining forces with other construction companies, we completed the construction of Iwona and Krzysztof’s house and fitted it out turnkey.
We are continuously monitoring the situation related to the armed conflict in Ukraine and respond to the immediate needs of our eastern neighbours. At the request of a school in Lviv, which also serves as a centre for refugees from the bombed areas of Ukraine, we supplied the high-powered electricity generator needed for its operation. As a result of a voluntary initiative by our employees, we raised a sum of almost PLN 140,000. As an employer, we decided to double this amount and donate it to help Ukraine. Since the outbreak of the war in Ukraine, the total value of Budimex’s assistance to Ukraine, including our employees, has amounted to nearly PLN 4 million.
BUDIMEX SA is a company with over fifty years of tradition, which has a significant contribution to the economic development of Poland. With our work, we improve the quality of life of millions of Poles. During the 50 years of our existence, we have completed thousands of modern infrastructure, construction and industrial investments. The culture of innovation, improvement and following the principles of sustainable development allowed us to gain the position of a leader in the Polish construction market. Not only are we present on the Polish market, but also abroad. We gradually increase our involvement in the facility management (operation of real estate and infrastructure facilities) and waste management sectors. Since 1995, our company has been listed on the Warsaw Stock Exchange, and since 2011 it has been included in the ESG index – gathering the most responsible companies on the stock exchange. Its strategic investor is a Spanish company with global reach – Ferrovial. The group includes: Mostostal Kraków and FBSerwis.
We are one of the signatories of the Agreement for Safety in Construction – an initiative established in 2010, bringing together the largest general contractors in Poland in order to improve occupational safety in the construction industry.
More information is available at www.budimex.pl/en