* Indicators marked with „*” was subject of a assurance engagement by an independent auditor.
Looking at the year 2017 from the macro perspective, we could observe a significant improvement in the dynamics of economic growth compared to 2016, especially in the last quarter. Gross value added in construction in 2017, as compared to the year before, grew by 11.5% as contrasted with a 7.2% drop in 2016.
Construction and assembly production grew by 12.9% (as compared to 14.4% drop in 2016), resulting in the highest dynamics since 2011. The growth rate was 12.6% whilst the increase of hand-overs in developer segment resulted in 42.6% sales increase in 2017. Concurrently, along with the sales increase and investment scale in construction sector, a further increase in the prices of raw materials and subcontractors services occurred. At the same time, similarly to the previous year, the decrease of available workforce was apparent. Despite the difficulties, the profitability on the operational level in Budimex Group was 9.2%. The growth of popularity of construction and assembly production was supported by the increase in the production for housing, which reached 14.2%. It also had an impact on the reversal of negative trend in housing, where the production in 2017 increased by 14.0%, especially in the group of public and industrial buildings. The scale of construction and assembly production in the reported period made no significant change in relation to 2016, and the largest share in its total production involved civil engineering constructions (50% of total construction and assembly production).
The main reason behind the improvement in the total production volume was the growth observed in infrastructure constructions by 11.7% (in current prices) in relation to the decrease by 19.0% in 2016. The last months of 2017 were characterised by more frequent tender procedures (compared to previous periods), and the value of tenders submitted by Budimex in 2017 grew by more than 80% compared to 2016. The biggest share of these tenders involved road segment and the General Directorate for National Roads and Motorways. The total value of tenders submitted in this segment in 2017 was three-times as high as in 2016 and equalled to PLN 24.4 billion (a year-over-year increase by 14.5% in current prices). High growths were also reported in railway construction (a year-over-year increase by 52.0% in current prices).
However, the year 2017 in construction sector was also characterised by high uncertainty and concern caused by: low supply of public procurement at the beginning of the year and slowdown of private investments, shortage of qualified staff at the end of the year. Filling the gap in employment in construction companies will be one of the biggest challenges for the whole sector in upcoming years. The largest public investors, such as GDDKiA and PKP PLK, are planning a significant increase in expenditures, which also means an increase in procurement, but also urgent need for staff and equipment. An inextricable element of the growing investment scale will be further pressure on the growth of pay and price of subcontracting services. For Budimex Group, it means a necessity to take special care of the costs of contracts implemented and responsible approach to the calculation of new bids.
We start 2018 with a portfolio in peak order.
In 2018, the construction sector will be driven by growing investments in infrastructure. Many projects contracted in 2017 will take a step from the design to the construction phase, which will translate into further growth of construction and assembly production. The scale of road investments in subsequent years will be shaped by the progress of the “National Road Construction Programme for 2014-2020 with prospects for 2025”, which was updated in 2017 by the government. Its progress rate as at the end of 2017 was 64%. Therefore, an accumulation of investments in road construction is to be expected.
Another area of construction which will be dynamically growing in the years to come is the railway infrastructure market. Similarly with road construction, in mid-2017, an update was made by the government to the “National Railway Programme to 2023”, which takes into account the initiation of additional projects, should savings allow. Furthermore, in accordance with the announcements by the Minister of Infrastructure, preparatory works are conducted in PKP PLK for projects not included in the main list of the Programme, with a total value of PLN 16 billion.
Another important area is hydro-engineering. Since the signing by the President of Poland of the ratification of the European Agreement on Main Inland Waterways (AGN Convention) at the beginning of 2017, in which Poland committed to adjust its main waterways to European standards, hydro-engineering in Poland is still in the planning phase. Investments in this respect are projected at the level of PLN 77 billion, for the years 2016-2030. According to the announcement of the Deputy Minister of the Deputy Minister of Maritime Affairs and Inland Navigation, Jerzy Materna of February 2018, in the upcoming years the government plans to invest approx. PLN 25 billion in port and harbour infrastructure.
In the energy construction segment, despite the fact that the largest contracts have already been awarded, there are still considerable investment projects in the broadly-understood conventional power engineering sector, at the planning or tendering stage. The Ministry of Energy plans to build another 5 or 6 power units of the total value amounting to PLN 45 – 50 billion (including nuclear power plant).
In accordance with the “Forecast of peak demand coverage for power in 2016-2035” published by Polskie Sieci Elektroenergetyczne (PSE), the required increase of new power, excluding the units currently under construction, in the national electricity system in 2016-2035, for the BAT modernisation scenario, should reach 15.8 GW. This translates into high investment demand in respect of power units, and this demand will be the driving force of energy construction in the upcoming years.
In the years to come, further implementation of the investment programmes in electricity and gas transmission and distribution market is to be expected. The operators of national transmission systems, PSE and Gaz System, are currently conducting social consultations concerning the updated development programmes for 2018-2027. According to the investment plans, the expenditures of PSE and Gaz System on infrastructure development in the discussed period will exceed PLN 12 billion and PLN 15 billion, respectively.
For 2018, we predict further increase of flats sold, however the peak level of 2017 may prove difficult to achieve. With certainty, the high sales trend will remain stable on 6 major Polish markets: in Warsaw, Wrocław, Cracow, Łodź, Poznań and Tricity, and the final result will largely depend on the impact of the expiry of MdM programme and the implementation of the Mieszkanie Plus project.
Public Private Partnership (PPP) projects may turn out to be an opportunity for further development of the construction market; however, these are still rare and mostly concern small projects.