Commentary of Artur Popko, President of Budimex SA, on the financial results for 2021

We are satisfied with the results achieved in 2021. Despite difficult market conditions in the wake of the COVID-19 pandemic, and rising prices of key materials, the Group’s gross profit in continuing operations (i.e. construction and services) increased from PLN 427 million in 2020 to PLN 554 million in 2021, while profitability improved from 5.5% to 7.0%. Such a good result is due to an improvement in the result of the construction part, and as a the result of settlement of transactions between the construction and development segments in the amount of PLN 68 million, following the sale of Budimex Nieruchomości.

The Group’s sales revenue increased as well. Revenues in the services segment grew at a double-digit rate for the second year in a row (+28%), while the construction part declined slightly (-3%), with revenues in the construction part in Q4 alone being 7% higher year-on-year, as expected.

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

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

Sales of the Budimex Group’s construction segment amounted to PLN 7,282 million (-3.4% YOY), showing an improvement in gross profitability from 4.9% to 5.6%.

The scale of realised sales revenue in 2021 in the construction segment is slightly lower than in the corresponding period of the previous year. Importantly, the dynamics of the decrease in H1 amounted to -10.4% (due to unfavourable weather conditions in Q1 and also due to the extended waiting time for building permits for several important orders from the road area; in H2 it was positive and reached +2.3% compared to the corresponding period of 2020.

The lower level of contracting in 2021 was mainly due to the fewer tenders in the rail construction segment. We hope that the change in funding sources for rail investments and the newly announced tenders in early 2022 will fundamentally change this situation. Gross profitability of the construction segment amounted to 5.6%, an increase as compared to the corresponding period of the previous year, when it amounted to 4.9%.

After a period of intense growth, the prices of materials are stabilising at the moment. As for the contracts signed by the company in 2020, profitability is stabilised thanks to the mechanisms of partial indexation, as well as the policy of securing the prices of key product ranges.

In 2021, we acquired contracts worth over PLN 7 billion. Our priority is invariably to take care of the profitability of our order portfolio. In addition, we have further orders worth over PLN 2 billion waiting to be executed. At the end of December 2021, the value of the order portfolio reached PLN 13 billion.

The Budimex Group finished 2021 with a net cash position of PLN 2.6 billion. In June 2021, we paid a dividend in the amount of PLN 426 million, which was PLN 16.70 per share. Furthermore, on 18 October 2021, we also paid an advance dividend for 2021 in the amount of PLN 14.90 per share (over PLN 380 million). That was the thirteenth year in a row of sharing profit with shareholders.

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

The revenues of the FBSerwis Group, which is a key asset within the service segment (the results of the service part also include the activities of Budimex Parking Wrocław) amounted to PLN 780 million, an increase by 27.9% compared to the previous year. The achieved sales volume was much higher than planned, which was mainly 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 the FBSerwis Group, including by investing in the expansion of existing waste processing facilities and landfills. This enables us to increase the scale of our operations using the resources we already have. Acquisition projects are conducted at the same time. At the moment, we are looking for companies to help us carry out our current tasks and at the same time contribute to an increase in sales revenues so as to reach 1 billion in 2026 while maintaining the profitability level.

We end 2021 with a high order backlog of PLN 13 billion.

Analysing the level of contracts waiting to be signed in the coming months, we have largely secured the front of works until the end of 2023, which is why we are selective in approaching new offers, and calculating cost estimates in a reliable and responsible manner, especially in the environment of dynamically changing prices.

2021 brought significant increases in the costs of materials, especially in the first two quarters. Currently, the prices of key product ranges do not show such volatility, but due to the rising prices of fuel, energy and CO2 allowances, we should prepare for further increases, although probably not as drastic as in the previous year. We assess as positive the impact of the indexation clauses, which at least partially compensate for the increase in material prices. However, with the current macroeconomic situation, a 5% cap on indexation is insufficient. We are glad that ordering parties are increasing this limit for new contracts.

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. We have signed the first order on the German market. The next milestone will be winning contracts in the Czech and Slovak markets, where we are primarily targeting road and hydraulic engineering projects.

In accordance with the chosen direction of development of the Budimex Group, we are consistently working on photovoltaic and wind farm projects, both onshore and offshore. On 22 February 2022, we closed the purchase of a company implementing a project for building a wind farm with a capacity of up to 7 MW. For us, this is the 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 involves the construction of a wind farm consisting of 2 wind turbines with estimated annual production exceeding 25 GWh.

Our goal for the coming year is to maintain the leading position in the key segments of the construction market. Looking at the current order portfolio, we expect that in the next quarters, and consequently the entire year 2022, the high sales levels should be maintained. Last year we also completed several difficult contracts, which should allow us to achieve profitability above market indicators.

We are planning further investments in RES while entering selected foreign markets, in line with the development directions adopted by the Budimex Group. A high cash position, including, inter alia, cash from the sale of Budimex Nieruchomości, provides plenty of investment opportunities supporting our expansion into new areas.

Budimex Group is also investing in innovative solutions including green technologies, with a view to reducing our 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-ecological way. As part of the Budimex Startup Challenge, we have selected 5 companies and committed to cooperate with them.

We approach our projects in a reliable and timely manner, while staying creative and innovative, and constantly striving to develop key areas of the company’s operations and increase its competitiveness. We are currently testing the possibilities of reusing construction waste, e.g. asphalt rubble, in the construction process. We are replacing traditional materials with composites or ecological substitutes and using the possibilities of prefabrication. We are increasingly using modern technologies such as drones, 3D scanning, process robotisation, BIM and advanced investment management software.

Despite the difficult environment, we keep our contractual obligations and carry out the tasks entrusted to us in accordance with the provisions, while ensuring quality and maintaining the highest environmental and social standards. In 2021, our efforts have been acknowledged with an award in the Sustainable Economy Diamonds competition in the Sustainable Construction Leader category. We also won five Construction of the Year 2020 awards, the most 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.

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

Despite the ongoing pandemic, in 2021 we continued to develop our proprietary social programmes, i.e. “Parent Zone. Budimex for Children” and “Hello ICE. Budimex for Children”. As part of Hello ICE, more 3D lanes were set up in 4 locations last year and more than 1,700 children took part in safety days organised by the company. So far, Budimex S.A. has launched 39 Parent Zones in children’s wards in Polish hospitals. 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, as part of which we are cooperating with other companies to build, equip and donate a house for a family in need with many children from Brus, in the Pomeranian Voivodeship. The new house will be a living space where children will have appropriate conditions for learning and developing their talents. This project, a heartfelt act of good will, is intended to help families with many children who are in a difficult material situation, while encouraging other companies to initiate similar aid activities addressed to this group of people in need.

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