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Comment by Artur Popko - President of Budimex, on financial data for Q1 of 2022

News date: April 28, 2022
Comment by Artur Popko - President of Budimex, on financial data for Q1 of 2022

The first quarter of 2022 was a difficult period for Budimex Group, the construction market and the whole world. The outbreak of war in Ukraine significantly affected most sectors of our economy. The construction industry is one of the sectors most strongly affected by the consequences of the conflict outside our Eastern border. The most important factors affecting our sector are the drastic increase in the prices of materials, particularly steel and oil, as well as the outflow of workers from Ukraine.

 

Despite extremely difficult market conditions, the Budimex Group generated an operating profit of PLN 57 million (compared to PLN 63 million in the first quarter of 2021), while recording a decrease in profitability from 5.0% to 3.6%. The lower profitability is mainly the result of the worsening situation in the construction sector. Most of the work carried out in the first quarter of 2022 concerned contracts in which some of the material was already on the construction sites and the prices of key assortments and services for the following months were contracted. Nevertheless, we observe that the drastic increase in the prices of materials, including steel and oil, affected the profitability of most contracts, especially those that are currently in the initial stages of implementation.

 

Budimex Group's gross profit amounted to PLN 63 million with a profitability of 3.9% compared to 4.4% in the first quarter of the previous year. Profitability on gross profit level was supported by significant improvement of result on financial activities, which is a result of an increase in the average level of interest on cash deposited by the Budimex Group.

 

Budimex Group

(PLN mln)

Profit and Loss Statement

Q1 2022

Q1 2021

YOY

Sales

1,599

1,245

28.5%

Operating profit

57

63

-8.6%

% of sales

3.6%

5.0%

-1.5%

Gross profit

63

55

14.3%

% of sales

3.9%

4.4%

-0.5%

Net profit*

56

68

-16.5%

% of sales

3.5%

5.4%

-1.9%

*attributable to shareholders of the Parent Company

continuing operations

56

42

33%

discontinued operations

0

25

-100%

 

 

We recorded a significant increase in the Group's sales revenue, mainly due to the larger scale of sales in the construction sector. In the service sector, revenues were similar to the level of the first quarter of 2021.

 

Construction and assembly production in the first quarter of 2022 (in current prices) increased year-on-year by 35.1% from PLN 17.3 billion to PLN 23.4 billion. In the buildings segment, sold production increased by 45.3%, while in the infrastructure area, the increase was as high as 23%.

 

 

 

Construction sector

Statistical data (billion PLN)

Q1 2022

Q1 2021

YOY

Sold Production

23.4

17.3

35.1%

Buildings

13.7

9.5

45.3%

share

53.6%

54.5%

4.1%

Engineering

9.7

7.9

23.0%

of which: roads

2.5

2.0

23.3%

of which: railways

1.3

1.1

20.6%

share

41.4%

45.5%

-4.1%

 

Sales of the Budimex Group's construction segment amounted to PLN 1,436 million in Q1 2022 (+21.7% y/y), recording a decrease in both operating profitability (from 4.1% to 3.0%) and gross profitability (from 3.4% to 3.2%).

 

Construction segment

(PLN mln)

Profit and Loss Statement

Q1 2022

Q1 2021

YOY

Sales

1,436

1,180

21.7%

Operating profit

43

49

-12.4%

% of sales

3.0%

4.1%

-1.2%

Gross profit

46

40

13.2%

% of sales

3.2%

3.4%

-0.2%

Order backlog

13,170

12,754

3.3%

Contracting

1,385

993

39.6%

 

 

The scale of realised sales revenues in the first quarter of 2022 in the construction segment was significantly larger than in the same period of the previous year. The high order backlog and favourable weather conditions made it possible to increase revenues by over 20%.

 

The construction segment's operating profitability amounted to 3.0% and was lower compared to the same period last year, when it amounted to 4.1%. We are experiencing a drastic increase in material prices, which is best seen in the prices of various types of steel. In some areas, we are seeing supply chain disruptions, which further hinder contract execution. The budgets of all our projects are updated on an ongoing basis, while the average profitability of the portfolio remains stable thanks to the good profitability of contracts in the final stages of execution. The impact of changes in the prices of key assortments is visible primarily in projects where we have relatively low material advancement.

 

The gross profitability of the construction segment in the period under review was 3.2%, down from 3.4% in the first quarter of 2021. This year, profitability at the gross profit level was supported by a positive result on financing activities from interest earned on deposits.

 

The unexpected increases in material prices also translated into our approach to new bids. All projects where calculations were based on prices before the outbreak of war in Ukraine were recalculated so that we could make responsible decisions on whether to sign or abandon a given tender. In most cases, the updated cost estimates significantly exceeded the values of the bids submitted, which forced us to abandon participation in such tenders.

 

In the first quarter of 2022, we obtained contracts worth over PLN 1.4 billion. As of the end of March 2022, the order backlog of the Budimex Group amounted to PLN 13.2 billion and secures work front for the entire year and most of 2023. The challenge will be to maintain the order backlog over several quarters with a view to securing revenue in subsequent years (after 2023).

 

Budimex Group ended the first quarter of 2022 with a net cash position of PLN 3 billion. We plan to pay the remaining dividend for 2021 of PLN 23.47 per share in June 2022. Thus, the total dividend for 2021 per share (including the dividend advance paid in 2021) will be PLN 38.37.

 

In the first quarter of 2022, FBSerwis Group maintained a high level of sales revenue while maintaining good profitability. Gross profit amounted to PLN 16 million compared to PLN 22 million in the first quarter of 2021.

 

Services segment

(PLN mln)

Profit and Loss Statement

Q1 2022

Q1 2021

YOY

Sales

166

168

-0.9%

Operating profit

15

22

-33.7%

% of sales

8.9%

13.3%

-4.4%

Gross profit

17

23

-25.1%

% of sales

10.2%

13.4%

-3.3%

 

Revenues of FBSerwis Group, which is a key asset within the service segment (results of the service sector also include activities of several smaller companies, including Budimex Parking Wrocław) amounted to PLN 165 million and were similar to the same period of the previous year. The achieved sales volume was slightly higher than our internal plans, which was mainly due to increased throughput in the infrastructure maintenance sector. The price increase in key assortments had little impact on the FBSerwis Group's core business, the environmental services segment. In the infrastructure maintenance sector, we primarily felt the increase in fuel prices.

 

In line with our predictions, we are currently fully utilising the potential and capacity of the FBSerwis Group, which limits the possibility of organic business growth. We are focusing on investments in the expansion of existing waste treatment facilities and landfills, which will allow us to increase the scale of operations using our existing resources. In addition, several acquisition projects are underway, one of which - the acquisition of a waste management company with annual revenues in the order of PLN 30 million - may be finalised as early as in the first half of this year. We are looking for companies that will help us carry out our current tasks, fit into the Group's business model and, at the same time, contribute to an increase in sales revenue so as to reach PLN 1 billion in 2026 while maintaining profitability.

 

We are entering the construction season with a high order backlog of PLN 13.2 billion.

 

As a representative of the industry, we appeal for verification and updating of the valorisation clauses, which only partially compensate for the increase in material prices. We positively assess the increase in indexation limits for some orders to 10%, but with the current scale of material price increases and double-digit inflation, this is still not a sufficient level, particularly for contracts in progress.

 

Lack of valorisation may lead to the need to suspend work on contracts by contractors or even bankruptcy of companies in a weaker financial position.

 

Our goal and challenge in the coming year is to maintain the leading position in the key segments of the construction market. At the same time, the difficult situation in the local construction tender market gives us additional arguments to strengthen our presence in neighbouring markets. In the German market, we have already completed our first order, and recently we have been selected to perform another tender for the construction of a small sports hall. The next stage of our foreign expansion will be winning contracts in the Czech and Slovak markets, where we are primarily targeting infrastructure projects. In recent months, we have submitted more than a dozen significant bids in these markets, several of which are second best in terms of price.

 

Following the purchase of the 7MW Drachowo wind farm project (SPV Magnolia), we immediately started construction work. Next year we will begin the production of green energy. We are looking at further investment opportunities in RES, in line with the development directions adopted by the Budimex Group, and our high cash position gives us broad investment opportunities.

 

We test automatic monitoring for occupational safety and health on our construction sites with the winner of the Budimex Startup Challenge programme. We started cooperation with the OSA Team of young scientists who are the winners of the main prize of the European Space Agency in the CanSat competition.

 

We allocated PLN 0.5 million for specialist hospital medicines for the Children's Neonatal Hospital and Saint Pantalejmone’s Hospital in Lviv. Together with the Polish Association of Construction Employers, we co-financed the purchase of an ambulance for Ukraine. In addition, our employees across the Ferrovial Group are also donating their own funds for humanitarian aid to Ukraine. The money doubled by the Ferrovial Group and Budimex will be transferred to a jointly selected foundation bringing aid to Ukraine. We estimate that the total value of our aid for Ukraine, including our employees, will exceed PLN 4 million.

 

We are preparing the first two of five Parent Zones this year in the Independent Public Health Care Facility of the County Hospital in Pisz and the J. Brudziński Regional Children's Hospital in Bydgoszcz. We are completing finishing works on a house for a family of eight in the Dom z Serca 2 project in Pomerania.

 

We have been awarded the title of General Contractor of the Year 2021 in the competition Diamonds of the Infrastructure and Construction Industry. The construction of a new power unit in Turów for PGE, carried out by Budimex, was awarded first place in the Build Safely competition of the National Labour Inspectorate.


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