Commentary by Artur Popko, President of the Management Board of Budimex SA, on the financial data of the Budimex Group for the first quarter of 2024

• In Q1 2024, the Budimex Group’s sales revenues amounted to PLN 1,645 million (-15.2% y/y), and the net profit[1] reached PLN 119 million, which is an increase of PLN 13 million (+12.1%).
• The Group’s operating profitability improved significantly compared to the corresponding period of the previous year and reached 7.0% (compared  to 5.3% in Q1 2023), with the profitability of the construction segment at 6.7%.
• The Group’s gross margin was 9.4% compared to 7.4%
  in Q1 2023.
• The Budimex Group’s order book at the end of March 2024 amounted to PLN 14.6 billion and secures the work front for the entire current year and most of 2025. In addition, the value of contracts waiting to be signed reached PLN 10 billion.
• The Budimex Group consistently implements its dividend policy, and the high net cash position of PLN 3.9 billion allows it to recommend the payment of a dividend of PLN 911 million, PLN 35.69 per share.

We assess the first quarter of 2024 as very good. Profitability improved at every level of the result, and the geographically diversified order book increased to PLN 14.6 billion, securing optimal capacity utilization and a safe outlook for the coming quarters. The maintained high cash position will allow the Group to continue sustainable development, finance investments in the RES sector and implement development projects in the invest and build formula. The lower revenues in the first quarter were the result of difficult weather conditions in January, larger than average public holidays and the achievement of a high level of production in advance in the fourth quarter of 2023.

The Budimex Group generated an operating profit of PLN 115 million (compared  to PLN 102 million in the first quarter of 2023), while recording an increase in profitability from 5.3% to 7% despite the decline in the Group’s revenues y/y.

The gross profit of the Budimex Group amounted to PLN 155 million with a profitability of 9.4% compared to 7.4% in the first quarter of last year. As in the corresponding period of the previous year, profitability at the level of gross profit was supported by financing activities, which consisted mainly of interest earned on the Group’s high net cash position.

Construction and assembly production in the first quarter of 2024 (in current prices) decreased by 4.2% year-on-year from PLN 27.2 billion to PLN 26.1 billion. In the buildings segment, sold production decreased by 1%, while in the infrastructure area a decrease of 8% was recorded.

In the first quarter of 2024, the sales of the construction segment of the Budimex Group amounted to PLN 1,415 million (-17.9% y/y), while recording an increase in both operating profitability (from 4.7% to 6.7%) and gross profitability (from 7.0% to 9.5%).

The scale of sales revenues generated in the first quarter of 2024 in the construction segment was noticeably lower than in the corresponding period of the previous year. The decline in sales was mainly due to the investment cycle of the largest contracting authorities, in particular in the railway area. In addition, several important contracts were completed, which last year had a large share in sales revenues.

The operating profitability of the construction segment amounted to 6.7% and was significantly higher compared to the corresponding period of the previous year, when it amounted to 4.7%. The observed increase was due to several factors. One of them was the stabilization of prices and greater availability of construction materials and subcontractors’ services. We recorded an improvement in operating profitability m.in. in the building construction segment, which, thanks to the completion and settlement of several large and difficult contracts last year and greater availability of subcontractors, achieved higher profitability in the current quarter than in the corresponding period of the previous year.

The gross margin of the construction segment in the period in question was 9.5% and was significantly higher than in the first quarter of 2023, when it amounted to 7.0%. In the first quarter of 2024, in addition to an increase in profitability at the operating level, profitability at the level of gross profit was supported by a positive result generated on financing activities due to interest on deposits.

In the first quarter of 2024, we acquired contracts worth over PLN 2,703 million. The Budimex Group’s order book at the end of March 2024 amounted to PLN 14.6 billion, of which over PLN 1 billion was for construction contracts acquired outside Poland. Such a high value of the order book secures the Group’s work front for the entire current year and most of 2025. Intensive work on the acquisition of new projects has resulted in the value of projects awaiting signing and those where the offer of Budimex or Group companies has been rated the highest at PLN 10 billion. In the perspective of the coming quarters, this should translate into maintaining a stable value of the order book and responsible bidding in upcoming tenders.

The Budimex Group ended the first quarter of 2024 with a net cash position of nearly PLN 3.9 billion. In fulfilling the assumptions of the adopted dividend policy, the Management Board of Budimex SA recommended to the Supervisory Board and the General Meeting of Shareholders the payment of a dividend from the profit generated for 2023 in the amount of PLN 749.6 million and retained earnings from previous years in the amount of PLN 161.6 million, which gives a total of PLN 35.69 in per share. The dividend would be paid in June 2024.

Mostostal Kraków is involved in the nuclear project

The American Westinghouse has chosen Mostostal Kraków, a company from the Budimex Group, to support the construction of the first nuclear power plant in Poland. The American company responsible for the project entrusted the production and assembly of steel structures, which is part of the Budimex Group. Talks with the contractor on the construction part are also being conducted by Budimex SA.

A special event was also the selection of Mostostal Kraków as the contractor of the steel structure of the new road bridge over the Niemen River in Kaunas, weighing 6,200 tons.

In the first quarter of 2024. The FBSerwis Group recorded an increase in sales revenues by PLN 13.3 million, while maintaining good profitability.

The revenues of the FBSerwis Group, which is a key asset in the services segment (the results of the services part also include the activities of companies from the RES area, Budimex Mobility and Budimex Parking Wrocław) amounted to PLN 230 million and were 6.1% higher than in the corresponding period of the previous year.

Market outlook

At the end of the first quarter of 2024, the Budimex Group’s order book reached a record level, exceeding PLN 14 billion. This level fully secures the work front until the end of this year and at the same time provides a strong foundation for operations for 2025-2026. The current portfolio offers the prospect of a stable margin, it was built on contracts signed in the last 2-3 years, which were offered at current prices, and in addition, valorisation is planned for most projects.

The last few quarters in the Budimex Group have been a time of hard work and preparation of the organisation for growth in the coming years, both on the Polish market and neighbouring markets. We have built the structures necessary to effectively execute the record order portfolio. Our activities are aimed at preparing the entire organization for sustainable growth, taking into account the ambitious goals we have set in the ESG strategy for 2023-2026.

We implement our business assumptions on an ongoing basis, adapting to dynamically changing conditions. Recent years have shown that we need to carefully observe the environment and react appropriately in a way that will allow us to responsibly achieve our goals in the long term. Looking ahead to the next quarters, there are challenges on the horizon related to cost control and effective management of human resources in the face of an insufficient number of qualified employees, as well as the reconstruction of the order book in the railway and energy areas. Our concerns about tougher competition in recent quarters have materialized. However, we invariably approach new offers with caution, calculating cost estimates reliably and responsibly. The Group’s priority is to acquire profitable orders with well-identified risks. We hope that other market participants will also approach the submission of bids in the coming months reliably and with due consideration.

Aggressive competition for orders and fluctuations in the tender action of key contracting authorities related to investment cycles confirm our chosen direction of development. We hope that segment diversification by strengthening our position in the hydrotechnical segment, entering the energy transmission market, as well as expansion into foreign markets will allow us to maintain the long-term trend of growth in the order book and revenues of the construction segment. An additional impulse for the growth of the construction part will be development projects carried out together with partners and internal projects in the area of RES.

Recently, we have finalized the acquisition of another RES project. The Azalia project provides for the construction of a photovoltaic farm with a total capacity of up to 60 MW in the Podkarpackie Voivodeship, which means that with this transaction, the group has increased its capacity in the construction and operation phase to approximately 80 MW. The project has a set of administrative and legal permits allowing for the commencement of construction works and connection of the farm to the grid. This is another step in the implementation of our strategy of building a portfolio of our own renewable energy sources with a capacity of 500 MW. Regardless of the acquisition, we work independently on wind and photovoltaic farm projects – at the moment, we have over 800 MW of photovoltaic and wind projects at various stages of development.

Sustainable development at Budimex

Environmental and social responsibility are our priorities and a strong commitment, which is reflected in the actions taken by Budimex. Taking care of the planet and the comfort of people living in the vicinity of the investment, we are implementing m.in. the Przystanek Zieleń campaign related to the construction of the Tram to Wilanów. In March this year. we collected applications for the third stage, in which, together with local housing communities and cooperatives and with the support of Budimex volunteers, we will plant a total of 410 trees and 50 shrubs.

Among the goals that we, as an organisation, have set for ourselves in the social area of Budimex’s ESG Strategy for 2023-2026 is to share knowledge and experience with young generations. We want to create a positive image of the construction industry in the eyes of young people and encourage them to work in the industry. In March this year. this year’s edition of the student internship programme at Budimex – „Find your key to success” – has been launched. We have prepared nearly 250 places for people studying engineering, as well as HR, finance or IT. We are very proud of this initiative, especially that after last year’s edition of the project, as many as 84 per cent. participants declared their willingness to continue cooperation with Budimex.

We also encourage young staff to choose construction as a career path by joining forces with universities. In January this year, we signed an agreement with the Cracow University of Economics. This is the 41st university or technical school and the third in Kraków with which Budimex has started long-term cooperation over the past year. Together with the CUE we will operate in the area of training, as well as conduct research on the development of innovative solutions for the construction industry.

In addition to education, an important area of Budimex’s involvement is activities for the benefit of the regions and communities in which we are present as a company. In the first quarter of 2024, we completed more than 15 projects to support neighbours of our construction sites for the amount of over PLN 0.6 million.

Awards and distinctions

Budimex entered the WIG-20 index of the largest listed companies. We also received the Bulls and Bears award of the Parkiet stock exchange newspaper and the Forbes Diamond for our financial results.

[1] Attributable to shareholders of the parent company