2.1. Business model and value chain, 2.1.4. Current activities and development perspectives for the Budimex Group, About Budimex Group
2.1.4 Activities of the Budimex Group and development prospects
STRUCTURE OF SALES REVENUES OF THE BUDIMEX GROUP
Sales of the construction segment
In 2023, the construction market in Poland (measured by the value of sales of construction and assembly production) increased, according to the Central Statistical Office, by nearly 15.4%compared to 2022. A strong increase was recorded in both the infrastructure construction area (+24.1%) and the general construction sector (+6.5%). In contrast, the residential construction segment saw a slowdown in activity (-6.8%). At the same time, there was an increase in non-residential construction activity (+15.0%), driven by improvements within the construction of commercial, industrial and warehouse buildings.
In the financial year 2023, Budimex Group’s sales revenue in the construction segment increased by 13.8% over 2022.
The share of the infrastructural construction segment in total revenue from sales of the Group’s construction and assembly services increased from 38.8% in 2022 to 40.2% in 2023. The share of the railway segment in the revenue structure of the Group’s construction segment increased from 24.2% to 28.1% in 2023. The share of the general construction segment, on the other hand, dropped from 37.0% in 2022 to 31.7% in 2023.
Table: The sales structure by individual segments of the construction market
Figure: The geographical structure of revenues from sales (with respect to construction ctivities) in 2023
The main markets on which the Budimex Group operates are:
• Poland
• Germany
• Slovakia
STRUCTURE OF SALES REVENUES OF BUDIMEX SA
Sales of construction and assembly services
In 2023, sales of construction and assembly services of the Company increased by 12.2% compared to 2022. Sales of the infrastructural segment increased to PLN 3 547 thousand in 2023 from PLN 3 019 thousand in 2022 (by 17.5%). Sales in the rail area increased by 32.6% from PLN 1 877 million to PLN 2 489 million in 2023. Sales in the general construction segment decreased by 9.2% from PLN 2 555 million in 2022 to PLN 2 321 million in 2023.
Table: The structure of sales of construction and assembly work by individual segments of the construction market
Figure: The geographical structure of Budimex SA’s of revenues from sales in 2023
The main markets on which Budimex SA operates are:
• Poland
• Germany
• Slovakia
Construction activities of the Budimex Group on the German market [1]
In 2023, workshop services were rendered on the German market. Sales revenues amounted to PLN 222 556 thousand (of which Budimex SA accounted for PLN 195 127 thousand and Mostostal Kraków SA for PLN 27 429 thousand) and were lower by PLN 17 358 thousand, i.e., by 7.2% compared to 2022. A decrease was recorded in the case of prefabrication works (10.5%), while an increase was recorded for metal-related works (8.7%). The crisis in the construction market caused a drop in orders for prefabricated elements in 2023, resulting in lower sales. The operating profit on the German market amounted to PLN 20 584 thousand in 2023, while in 2022 it was PLN 28 797 thousand. Overall profitability in 2023 stood at 9.2%, while in 2022 it was 12%. Customer structure shows dispersion and only one customer exceeded 10% of total turnover (it accounted for 12% of total turnover).
In 2023, Budimex Bau GmbH, a wholly-owned subsidiary of Budimex SA, continued to develop its activities in the construction sector, in the road infrastructure segment and in the general construction segment. Revenue in 2023 stood at EUR 9 510 thousand. At the same time, the Company has secured new contracts with a total value of EUR 22 343 thousand, which will help to increase revenue in the coming years.
Budimex Group and Budimex SA development prospects in the forthcoming year
Next year the Budimex Group will continue to operate in all major sectors of the construction market in Poland, as well as on selected foreign markets.
The value of orders signed by the Budimex Group in 2023 was 5.2% higher than in the previous year. The diversified structure of the order portfolio (including long-term “design and build” contracts) largely secures the work front for the next 2 years. The Group continues to take steps to expand geographically, in particular into the German, Czech, Slovak and Latvian markets.
In 2023, the first construction contract was signed in the Czech market, worth PLN 102 million. Looking ahead to the next few years, the aforementioned markets may be a source of additional orders that will allow us to maintain a stable order portfolio, also in the long term.
The Group also plans to consistently consolidate its position in the building objects construction segment and win new contracts in the industry and energy segment, rail segment, and hydraulic engineering construction segment. Projects implemented on a public-private partnership basis are also in the area of interest.
The Budimex Group also operates in the segment of renewable energy sources – not only as a contractor of this type of installation, but also as an investor. In February 2022, the Company acquired a project for a ready-to-build wind farm located in the Wielkopolskie province with a capacity of up to 7 MW. The “Magnolia” wind farm (Magnolia Energy Sp. z o.o.), was commissioned in the second half of 2023, and electricity output from this farm exceeded 8 GWh in 2023. In addition, the Budimex Group has been developing photovoltaic projects. As part of the development of this segment, the photovoltaic farm “Kamelia” (Fotowoltaika HIG XIV Sp. z o.o.) was acquired in November 2022. The project was acquired in the form of the purchase of shares in a company that had complete documentation for the construction of a 14 MW photovoltaic farm. In 2023, work was underway to build a photovoltaic facility, but this work has not yet been completed. The energy produced by this farm should largely cover Budimex SA’s demand for electricity.
In April 2023, Budimex SA and its partner in the Ferrovial Group – Ferrovial Energy Infrastructure and Mobility – signed a partners’ agreement establishing a new joint venture company, BXF Energia Sp. z o.o. Budimex SA has a majority share (51%) in the new entity. The objective of the company is the development of renewable energy projects, their construction and operation. The company is focused on projects in photovoltaic and wind farm technology. The development has commenced by securing further sites for potential power plants with a capacity of several hundred MW. At the same time, it admits further acquisitions of projects in readiness for construction. Further efforts will be made to organically develop this type of facility in the coming years. Further growth of the FBSerwis Group is planned, particularly in the area of municipal services, both organically and through potential acquisitions of entities with an established market position.
In 2023, the Budimex Group companies signed construction contracts for a total value of PLN 8 289 576 thousand (with annexes). The value of the order portfolio of the Budimex Group as at 31 December 2023 amounted to PLN 13 139 554 thousand, which was on a par with the end of 2022.In 2023, Budimex SA in turn signed construction contracts for a total value of PLN 7 470 358 thousand (with annexes). As of 31 December 2023, the order portfolio amounted to PLN 11 943 325 thousand.
Figure: The structure of the Budimex Group’s order portfolio as of 31 December 2023
Evaluation of investment project feasibility
In 2023, the Budimex Group plans to incur capital expenditure of approx. PLN 230 million, of which approx. PLN 70 million will be incurred by Budimex SA, approx. PLN 25 million – by Budimex Kolejnictwo SA, PLN 35 million by the FBSerwis Group and PLN 35 million for the development of photovoltaic and wind farms. Key expenditure will be incurred for the purchase of construction and railway machinery and implementation of IT projects as well as investment in renewable energy sources. Capital expenditure planned by the FBSerwis Group will include investments in the area of municipal services and means of transport.
Risk factors
In the course of its activities, the Budimex Group is exposed to a number of risks, of which the most significant groups of risks affecting the Company are as follows:
- financial risks: currency risk, price risk, credit risk,
- technical risks,
- legal risks.
The inherent risk of any business activity is the credit risk of business partners. Despite implementing restrictive debt control procedures at the Group, the risk of investor insolvency has not been eliminated. Delays in timely repayment of debt may have adverse effects on the financial results of the Group and may require that receivables impairment write-downs be recognized or that current business be financed through external borrowings.
Construction contracts are executed under specific technical and economic conditions which have an effect on the level of realized margin. The Budimex Group companies rendering construction services monitor technical, organizational, legal and financial risks related to the planning and progress of contract work. Despite control and preventive measures undertaken with respect to general risks (credit, currency risks), it is possible that certain factors occur, due to which contracts will be performed with lower margins than initially planned. Such factors may include:
- economic uncertainty related to the war in Ukraine,
- increases in costs of subcontractor services, limited availability or bankruptcy of subcontractors,
- increases in employment costs and limited availability of qualified employees,
- increases in prices of construction materials, energy and oil derivatives,
- delays in timely performance or insufficient quality of subcontracted works,
- delays in obtaining relevant administrative decisions,
- changes in the scope of work or technologies as agreed in the contracts,
- unfavorable weather or land conditions.
Procurement source changes
In 2023, there were no significant changes in the procurement sources for construction sites. None of the suppliers of raw materials or services exceeded 10% of the Budimex Group’s and Budimex SA’s sales.
[1] The description of business activities does not cover all activities of the Budimex Group in Germany.
