Artur Popko - President of the Management Board of Budimex SA

Comment by President of the Management Board of Budimex SA Artur Popko to selected financial data from the consolidated financial statements of the Budimex Group for 2021

25.02.2022
  • Budimex Group’s sales revenue in 2021 amounted to PLN 7,911 million and were higher by 2.6% than last year’s revenue, while net profit from continuing operations amounted to PLN 451 million (+49% y/y)
  • Gross profitability from continuing operations of the Group improved and reached 7.0% (as compared to 5.5% last year), which resulted, among others, from the settlement of the result from transactions between the construction and development segments in the amount of PLN 68 million in connection with the sale of Budimex Nieruchomości
  • The results of the development segment and the profit realised due to the sale of Budimex Nieruchomości are presented in the consolidated profit and loss account as discontinued operations (also in the comparable data for the year 2020)
  • Acquisition of contracts worth PLN 7 billion in 2021 allowed to maintain a stable contract portfolio amounting to PLN 13.0 billion
  • Net cash position amounted to PLN 2.6 billion and included funds from the sale of Budimex Nieruchomości

 

We are very pleased with the results we achieved in the year 2021.

Despite difficult market conditions caused by the effects of the COVID-19 pandemic and rising prices of key materials, we recorded an increase in gross profit of the Group under continuing operations (that is construction and services) from PLN 427 million in 2020 to PLN 554 million in 2021, with a simultaneous improvement in profitability from 5.5% to 7.0%. Such a good result is due to the improvement of the result of the construction segment, as well as settlement of the result on transactions between the construction and development segments in the amount of PLN 68 million due to the sale of Budimex Nieruchomości.

1

We recorded an increase in the Group's sales revenue. Revenues in the services segment grew for yet another year in a row at a double-digit rate (+28%), while in the construction segment we recorded a slight decline (-3%), but in the fourth quarter alone, in line with our expectations, revenues in the construction segment were higher by 7% as compared to the same period of the previous year.

Construction and installation production in 2021 (at current prices) increased year-on-year basis by 7.9% from PLN 108.5 billion in 2020 to PLN 117.1 billion in 2021. In the buildings segment, production sold increased by 5.0%, while in the infrastructure segment the increase was as high as 10.7%.

2

Within general construction, the value of production sold increased in both the residential (+7.2%) and non-residential (+3.7%) segment. Most areas of non-residential construction saw growth (hotels +9.7%, office buildings +11.6%, industrial buildings +16.6%). The decrease in annual production was mainly observed in commercial and service construction (-16.0%). The value of production sold of civil engineering construction increased in all areas (roads, railways, hydraulic engineering, gas and power transmission), except for the airport segment.

Sales of the Budimex Group's construction segment amounted to PLN 7,282 million (-3.4% y/y), while gross profitability improved from 4.9% to 5.6%.

3

The scale of sales revenues in the construction segment, realised in 2021, is slightly lower than in the corresponding period of the previous year. It is worth noting that the dynamics of the decrease in the first half of the year amounted to -10.4% (due to unfavourable weather conditions in the first quarter and also due to the extended waiting time, resulting from the pandemic, related to obtaining building permits on several significant orders from the road segment) and – in the second half of the year – the dynamics was positive and reached +2.3% compared to the same period of 2020.

The lower level of contracting in 2021 was mainly due to fewer tenders in the railway construction segment. We hope that the change in the sources of financing for railway investments and the newly announced tenders at the beginning of 2022 will fundamentally change this situation.

The gross profitability of the construction segment amounted to 5.6%, up from 4.9% in the same period last year.

After a period of intensive growth, we are currently observing stabilisation of material prices. In the contracts the company signed in 2020, profitability is stabilised thanks to the mechanisms of partial valorisation, as well as the policy of securing the prices of key assortments.

In 2021, we obtained contracts worth over PLN 7 billion. Our priority, invariably, is to ensure the profitability of our contract portfolio. In the “waiting room”, we have new orders worth over PLN 2 billion. At the end of December 2021, the value of the contract portfolio reached PLN 13 billion.

Budimex Group ended 2021 with a net cash result of PLN 2.6 billion. In June 2021, we paid a dividend amounting to PLN 426 million, which amounted to PLN 16.70 per share. In addition, on 18 October 2021, we paid an advance dividend for 2021 of PLN 14.90 per share (over PLN 380 million). This was the thirteenth consecutive year when we shared profit with our shareholders.

2021 was another year of intensive growth for the FBSerwis Group, which significantly increased its sales revenue, while maintaining high profitability.

4

Revenues of FBSerwis Group, which is a key asset within the services segment (the results of the services segment also include activities of Budimex Parking Wrocław) amounted to PLN 780 million and increased by 27.9% as compared to last year. The achieved sales volume was significantly higher than our plans, which was primarily due to increased volumes in the waste management segment. Gross profit amounted to PLN 81 million compared to PLN 74 million in 2020.

We are working to increase the economic potential of FBSerwis Group, including by investing in the expansion of existing waste treatment facilities and landfills. This allows us to increase the scale of our operations by using the resources we already have. Independently, acquisition projects are also being carried out. At the moment, we are looking for companies that will help us carry out our current tasks and, at the same time, contribute to an increase in sales revenue, so as to reach 1 billion in 2026, while maintaining the level of profitability.

We end 2021 with a strong contract portfolio at the level of PLN 13 billion.

When analysing the level of contracts in the “waiting room”, which we plan to sign in the coming months, we have largely secured the front of works until the end of 2023, so we are selective in our approach to new offers, calculating cost estimates in a reliable and responsible manner, especially in an environment of dynamically changing prices.

2021 brought significant increases in material costs, especially in the first two quarters. Currently, the prices of key assortments do not show such volatility, but due to rising fuel, energy and CO2 emission allowance prices, we should be prepared for further increases, yet probably not as drastic as in the last year. We view positively the impact of the valorisation clauses, which – at least partially – compensate for material price increases. However, we see that, given the current macroeconomic situation, a valorisation limit of 5% is insufficient. We are glad that ordering parties are raising this limit for new contracts.

The year 2021 was a period of intensive development of the Budimex Group and preparation for geographical expansion in accordance with internal assumptions. As part of the planned activities on the German, Czech and Slovak markets, we established special purpose vehicles. On the German market, we have signed our first order. The next milestone will be the contract win on the Czech and Slovak markets, where our objectives are primarily road and hydraulic engineering projects.

In accordance with the chosen development direction of the Budimex Group, we consistently work on photovoltaic and wind farms projects, both onshore and offshore. On 22 February 2022, we finalised the transaction for the purchase of a company implementing a project to build a wind farm with a capacity of up to 7 MW. For us, this is a first, very important step that marks Budimex’s entry into the segment of electricity generation from renewable energy sources in high-power projects. The new project in Budimex’s portfolio envisages the construction of a wind farm consisting of 2 wind turbines with an estimated annual energy production in excess of 25 GWh.

Our goal in the coming year is to maintain our leadership position in key segments of the construction market. Looking at the current contract portfolio, we expect that the following quarters, as well as the entire year 2022, should result in maintaining high sales. Last year, we also completed a number of difficult contracts, which should allow us to achieve profitability above market indices.

We are planning new investments in renewable energy sources, while entering selected foreign markets, in line with the development directions adopted by the Budimex Group. A high cash position, including, among others, cash from the sale of Budimex Nieruchomości, gives us wide investment opportunities, that will support our entry into new segments.

The Budimex Group also invests in innovative solutions, including green technologies, that is aiming at the reduction of the carbon footprint. We plan that, by 2030, all the energy we consume will be obtained from green sources. We are also analysing investments in young technological companies operating in a pro-environmental way. As part of the Budimex Startup Challenge competition, we have selected 5 companies and committed ourselves to cooperate with them.

We approach our projects reliably and care about timeliness, yet we do not forget about creativity and innovation, constantly striving to develop key areas of the Company’s operations and increase its competitiveness. We are currently testing the possibilities of re-using construction waste, for example asphalt rubble, in the construction process, replacing classic materials with composites or ecological substitutes, and also using the possibilities of prefabrication. We more and more often use modern technologies, such as drones, 3D scanning, robotisation of processes, BIM and advanced software for managing investments.

Despite the demanding environment, we adhere to our contractual obligations and carry out the entrusted tasks in accordance with the provisions, taking care of quality and maintaining the highest environmental and social standards. In 2021, our efforts were recognised with numerous awards, including the “Sustainable Economy Diamonds” in the “Sustainable Construction Leader” category. We also won as many as five “Construction of the Year 2020” awards, the highest number among all general contractors. Our construction of the new unit at the Turów power plant was recognised by the National Labour Inspectorate as the safest construction site in 2021.

For years, Budimex has also been running projects serving its sustainable development. In 2021, we announced the “CSR Strategy 2021-2023”, which refers to the UN Sustainable Development Goals.

Despite the ongoing pandemic, in 2021, we continued to develop our proprietary social programmes, that is “Parent Zone. Budimex for Children” and “Hello ICE. Budimex for Children”. Within the Hello ICE initiative, last year, new 3D lanes were created in 4 locations, and over 1,700 children took part in safety days organised by the company. So far, Budimex has launched 39 Parent Zones in Polish hospitals in children's wards. In 2021, 5 Parent Zones were created (in Białystok, Świecie, Lublin, Włocławek and Środa Śląska).

Last year, we also launched the second edition of the ”Home from the Heart” programme, in which we join forces with other companies to build, equip and donate a home for a large, needy family from Brus, in the Pomeranian Voivodeship. The new home will be a living space, where children will have the right conditions to learn and develop their talents. This project – a kind gesture – is aimed at helping families with many children, who are in a difficult financial situation, and – at the same time – it encourages other companies to initiate similar aid activities aimed at this group of needy people.

The net result from continuing operations of PLN 451 million, achieved for another consecutive year, allows for further strengthening of the Group’s stable position and provides a positive outlook for its continued effective operation.

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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 FB Serwis.

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

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Artur Popko - President of the Management Board of Budimex SA

Artur Popko - President of the Management Board of Budimex SA