Budimex S A Shs

Good morning, I cordially welcome you. Thank you very much for coming to our invitation, both here in the audience and the people who participate remotely. We would like to present our financial results today after three quarters of the Budimex Group in 2021. We are joined by Marcin Węgłowski, the financial director of the Budimex Group, Artur Pielech, the president of the FB Service Group and Jacek Lech, the president of the Mostostal Kraków Group.

For sure, the biggest challenge was the mobilization of the equipment in the right amount to ensure the assumed efficiency of the work. The department of equipment services was at the task and provided us enough mobilization to achieve and even exceed our expectations of efficiency. When it comes to such engineering issues, geology was a big challenge here, as well as predictability and management of the composition of material for the construction of embankments. Finally, during the construction, we had to carry out additional geological reconnaissance and reconnaissance of the perspective areas from which we obtained material for the construction of the initial dams of the facilities. These were the requirements of the investor to provide monthly scanning and report showing the model of the building growing. The building was the best for almost any reason. As for the surface of the construction site, over 600 hectares. As for the key to effective cooperation with the investor, it was definitely providing good service.

BIM is short for Building Information Modeling, which is nothing more than spatial modeling. To put it simply, it is a 3D model enriched with information such as information about materials, the amount of materials used in a given investment or an object. On this particular investment, the client's requirement was to verify the progress of the work with the use of laser scanning technology 3D and image it on a monthly scale on the example of the BIM model. We used here laser scanning technology stationary. We managed to measure with a stationary method up to about 100 hectares surface. Then we made a decision to invent an aviation method using a drone, where we then reached an area of ​​about 600 hectares, the possibility of a reduced surface. Our contract, but also the investor, had real information on a monthly scale. How much land work has been done. In our company, we use BIM technology at every stage of the investment process in cooperation with our trading office, thanks to which the investor, when receiving an offer from us, is sure that it is well-prepared, well-calculated. Having a BIM model, we are able to continuously verify the quality of this project prepared by an external subject or in the case of projects and buildings by us, where we are able to verify collisions before their appearance at the stage of implementation, which again allows us to perform the work on time.

Ladies and gentlemen, we wanted to show and present to you that these figures do not come from nowhere. These are contracts that we carry out every day. We completed this contract exactly a week ago, seven months before the deadline. Without this contract, the KGHM company, and we know what kind of conglomerate it is, would not have been able to function. It was 100% made by our own efforts. For the need of this contract, we bought equipment worth PLN 120 million. The size of this contract is 30 stadiums and 30 million sq. m. of land resources. And so the scale that we are drawing here is huge and this type of contracts are a challenge for us, but we like such contracts because they generate, of course, both turnover and margin on our contracts. And you can also see how modern technologies are used. Even with such tanks, we are currently using BIM technology. which allows for measuring through the use of drones, as well as later generating three-dimensional models for the investor in a guaranteed period, to have the work we have been conducting under control all the time. Marcin, allow me to give you the floor.

I have a microphone here, so I also welcome you warmly. Once again, before we move on to the presentation itself, I will tell you what today's day will look like. short presentation, there will be time to ask questions. We also tried to organize it in such a way that those of you who could not be present and are with us in person could also ask these questions. I do not know if we will be able to answer all of them, but we have it somehow technically prepared. And what is most important, it seems to me, in today's day and age, in addition to our results, we also have a small bonus prepared for those who are here with us in the room, where you will be able to use at our modest lunch, an individual meeting with the presidents and with me, of course, where we will be able to talk and exchange market information and not only. Moving on to the first part of the presentation that I came across. This is a macroeconomic situation in Poland. Of course, you probably know better, because you are probably the best financiers. I would like to make a small comment from the point of view of construction, but what we see is that we have a fairly large economic growth, but what worries us all is probably not only us from the point of view of Budimex, but probably the entire economy of individual people. This is inflation. Here it is shown quite modestly. As we know, it appeared recently above 6%. For now, such a forecast that is prepared by NBP is 5.3%. I think it is medium-year, but these data are, in my opinion, not stable and many things may happen. We are waiting for a 100% increase. We will see how much the National Bank of Poland will try to reduce this inflation and find some compromise between economic growth and inflation, which is. As for the construction market, a large increase in the year 2000 20 in relation to 19, which is 0.4%. It would seem that this dynamics is falling a bit, as we look at the years 2017-2018, the growth dynamics was 12-21%, but in the first three quarters of this year we have a level of 4.9%, with what is most important, in the very third quarter there was a quite strong jump, especially in the construction almost 14% in infrastructure, which, of course, also contributed in some way to this scorched economy in this part of the building, causing quite large increases in the prices of building materials. We will probably talk about this in the further part of the presentation. Of course, these are data from GUS, from companies employing nine employees. When it comes to profitability, this profitability continues to grow. Since 2017, it has increased to 4.7% in 2020. As we can see, this increase is still at the level of 6.6%. Here are the data not only for three quarters, but for the first half of the year, we have no other data. But you can see that this growth and the condition of construction companies looks moderately good. Moderately does not mean that it is good for everyone, because you probably know the results of some companies that have already appeared on the stock exchange. However, fortunately, Budimex is in this part, the so-called orange part, i.e. the part where our profitability is very good. We will talk about it in detail later. In any case, these companies, which are large, employ more than 250 employees. This profitability in 2020 increased by 41%, which is a very good year compared to 2015. There is a normalization of our subcontractors, a march of our subcontractors, that is, the market of general performance is slowly becoming, possibly such a balanced market. This means that this profitability is earned by both large and small companies. A little bit about employment in construction. It is on a stable level. Here there are almost no foreign companies. who work with us, who supplement this market, the number of employees, which fell from 483 to 419 in 2012, without work on the same level. However, we obviously observe the dynamics of the growth of salaries and we see a lot in construction, i.e. 6.8% in infrastructure and 7.8% in general construction. Here, when it comes to building materials, I think Artur Tybuś commented on it better.

Yes, every quarter we would like to show you what is going on with the materials, because it is a rather hot topic. As you can see, when it comes to these key four elements that have a great impact on the construction industry, cement, year-on-year growth of 8%, price increase, when it comes to gasoline, of course, and oil. 30% and it worries us very much, because of course, to a large extent, it depends on the cost of the buildings and the cost of asphalt. What is dangerous is the 49% increase in asphalt, i.e. from the material that is mainly used for bituminous surfaces and steel. Jacek, as I could ask you, we have a Kraków steel bridge, which mainly deals with steel constructions. What is happening with steel?

Ladies and gentlemen, from the point of view of Mostostal, a company that I have the pleasure of managing, processes about 35,000 tons of steel, and in connection with the above steel, it is a material that directly connects with the Mostostal P&L. Over the course of three quarters of this year, we observed significant price increases. From week to week, these levels were getting higher and higher. The level that Stal noted was historical, that is, the levels not yet encountered. In the fourth quarter, we are observing, it would be possible to say, a slight correction, that is, from week to week, the price of steel in all species, that is, from armaments through construction, 1-2% per week fall. As Mostostel, as a group, we will still look at this indicator in order to mitigate the risk in the best possible way and take advantage of the chances that will occur.

However, looking globally at the problem of increasing the price of materials, to say that this level has been fairly stabilized outside of fuels. We don't have a full impact on that, but we see these basic materials that are used in the construction industry. It may not be falling much at the moment, but it is a sign of stabilization. We hope that it will be more or less based on the same level. Let's move on to the financial results. If we look at the financial results of our entire group, There is a slight drop of 1.5% in sales. I will discuss this difference later with the respective segments. If you look at the margin, the margin improvement is 10%. We achieved a gross margin of PLN 589 million. Significant improvement when it comes to EBIT, from 253 million we achieved EBIT at level 416. What is important, of course, is that we have mainly improved the results both in the basic industry and in terms of sales. The second important element is, of course, in terms of the sale of Bidimex real estate as well as operational activities. If we look at the individual segments in our company. Sales in the construction industry, part of the construction itself, minus 7%, we achieved PLN 5.1 billion, a little less than in 2020. This is mainly due to the first quarter of this year, when the weather conditions were quite unfavorable and we had, as you can see, 17% less sales than a year earlier. But this was also due to the pandemic, because most of the projects that we started to implement were projects in the formula of project and build. And there we had delays because and the decisions that were needed to allow the construction were delayed, so we could not start as planned certain investments. When it comes to the FB Service Group and very good results, 30% above what was in 2020, over 560 million and the entire Group, just 1% below what we had in 2021, 5.5 billion zloty. If we look at EBIT, excellent situation, what Marcin said. And here I would sum up the whole quarter. Last year, after three quarters, we achieved only 3.5% EBIT. This year it is 5.4%, so we have improved almost 50% of the EBIT of the entire group. And both in the construction and construction industry, as well as in the TfB Service industry, we have achieved 13% of the EBIT margin, which is 45% higher than in 2020. In total, we have achieved more than 7.5% EBIT. This is PLN 400 million, of which 1% is a one-off effect due to the consolidation correction after the sale of Budimex real estate. And now, as we summarize and look at the long term, since 2010, Sales are not much lower. However, if we look at EBIT, you can see that we have a historic EBIT at the turn of the last few years. After considering the sale of building materials from the real estate, we have a historic EBIT, so what happened is considered to be a very positive effect. As Marcin said, it is important to emphasize that when we look at the GUS statistics, the companies reached a level of about 4.9%. Our EBIT is 7.5%, so we have almost 50% higher than what average companies forecast and show on the Polish market. So I think we have something to boast about. When it comes to the level of cash at the end of September, it is over PLN 2.8 billion. And what is important is that it is very healthy cash, little of this amount comes from deposits, so most of it is cash that we keep in our portfolio. Dividend. You know our company very well and we share a dividend with our shareholders. We have currently paid more than 3.5 billion in dividends. We even paid 50% of the profit from 2021 in this quarter. And of course, we are still striving to be a dividend company. As for employment, We control, it is under control. If you look at the end of 2020, more than 7,000 employees. At the moment, we have gone below 7,000. We have it under control all the time, so that these intermediate costs are not too high. The costs of the board are still at the same level, so they are falling, so we are trying to control it so that it is not less competitive. If we move on to the construction segment, of course construction, sales achieved, what I said above 5 billion, significantly minus 7% compared to 2020. When it comes to EBIT profit, i.e. 5.4%, I think it is a very good profit. If we look at the competition achieved, if we also look at the quarter, three quarters, In 2020 we achieved 3.8% and now we have 50% higher, so 5.4%. A very good year. Actually, all 200 contracts are on a positive margin. We have one troublesome contract with the Museum of History of Poland, which we are still discussing with the orderers. It is a very difficult contract when it comes to the implementation. The rest of the contracts are positive. We have completed contracts that were difficult for us. A contract in Turów, a contract in Vilnius, so this portfolio is very healthy. When we look at the diversification of our portfolio, it is relatively similar to 2020. We only show the main segments. part of the construction sector, i.e. primarily industrial and incubator, part of the railway and infrastructure sector. I am talking here about the industrial and energy sector. This is the level of sales of 700 million zloty per year, but also after 5 years it generates very good financial results. If we look at the completed offers, we knew that 2021 would be a very difficult year. due to the fact that the EU perspective ends in 2014-2020, we move on to the new perspective of the EU in 2021-2027. This year is a year of stagnation, so we focused very much in 2020 to gain and increase our portfolio, so as not to make offers aggressively this year. In addition, we have collected and recognized PLN 32 billion in terms of compared to the previous year, only 11% less. And here the difference, where there is a noticeable difference, is of course the railway part. When we look at the contract, the year 2020, what I mentioned earlier, historically 9 billion zloty signed in 2020. However, after three quarters, we have currently signed PLN 5.9 billion. We expect that by the end of the year we will reach a level of PLN 6.5-7 billion, so I think it will be on a similar scale by 2019, so looking and basing on what is happening this year, it is a very good contract even above our expectations. What is worth mentioning is, of course, the difference in the railway segment. As you can see, after three segments last year we had 1.8 billion contracts signed, in 2021 only half a billion zlotys. If we look at our entire backlog, Historically, the historical value is over PLN 14 billion. Ladies and gentlemen, it is very well diversified. Even if we did not sign any contract at the turn of the next period, we have provided work for our employees until 2023. And so here we look very optimistically at our future, because this portfolio is safe and these contracts that we are really putting on a safe margin. Mostostal Kraków.

Ladies and gentlemen, a few words about the results of Mostostal. As for the three quarters of this year, Mostostal recorded sales at the level of 220 million. This is 10% more than three quarters of last year. As for the margin, we finished the first three quarters with a figure of 37 million zlotys, which is 2 million more than in the similar period of the previous year. As for the fourth quarter, what I said earlier, taking into account the macroeconomic environment and the drop in steel prices, we expect a significant improvement in profitability and sales of over PLN 300 million.

Thank you. Artur, Grupa FBService.

Thank you very much. Ladies and gentlemen, of course, it is a great pleasure for me to present such results, not others. I hope I will have this pleasure for as long as possible. Artur has already said a lot about the results of the FB Service Group, so I will only add that in fact our growth dynamics from recent years will certainly be maintained this year, and after three quarters we have increased by 30% year to year. I think we will try to maintain this dynamic for the fourth quarter. And what I think is even more pleasing than the dynamics of sales growth is that the dynamics of profitability growth is also increasing. It is even higher than when it comes to sales, because if sales has increased by 30%, EBITDA and EBIT have increased by 40% and 54%. So, as you can see here, we are able to even increase these profitability indicators of EBITDA and EBITDA, despite or also with the increase in sales. Fortunately, we have not been touched by most of these elements so far, which my interlocutors, Artur and Jacek, mentioned, related to EBITDA. increase in cost of materials, of course, in the same way, but their importance for our business is smaller. The results that I present to you today, they are already traditionally mostly carried out by waste business or, as usual, more and more raw materials. And there, the situation is quite stable when it comes to costs. Unfortunately, the situation also stabilizes when it comes to revenues, because in recent years, the rising level of payments for the distribution of waste in particular has also helped us to grow. This element is running a little away from us at the moment, because prices are stabilizing, so we will have to grow differently, so by simply increasing the scale of activity, but we will certainly talk about it at the opportunity of your questions. Thank you very much.

Thank you. We would like to show you what we are doing from this quarter, because apart from the results, apart from the fact that we are building, we also bring a lot to our society and we would like to show you that we are doing everything to be friendly to our climate. And what happened in the last quarter? We became the leader of balanced construction. We received the award as a company friendly to the environment. And this is very important, because most of our buildings at the moment, we are trying to design and realize them so that they are pro-ecological. And not only on paper, but actually in reality. We equip and equip our equipment so that it is electrically powered. We have the first power station in Europe that is electrically powered. In addition, special power banks that replace aggregates and are used in buildings and electrically powered. Due to the work we do every day, we received this award this quarter, so we contribute a lot to be innovative and also digitized when it comes to ecology. When it comes to our achievements and awards. In this quarter, five of our buildings received the so-called Oskary Budownictwa. They were identified as the best buildings in the country. These are the buildings of the Wrocław reservoir, very similar to the one you saw and implemented in KGHM. I did not mention that we implemented this reservoir in KGHM and in Wrocław. We implemented it before, and it should be emphasized that it was a period of the pandemic, so a very difficult period where people did not want to come to work. It is a contract, maybe I will not mention the names of these contracts, but one is very important that these five contracts have been awarded. We are the company that has received the most awards. When it comes to what we do outside for people. For many years we have been the creator and creator of so-called parent zones. In 37 hospitals, we have already organized special rooms in which parents can stay with their children. At the moment, we have already built the 37th parent zone in this quarter. If we count it, about a million children have already stayed with their parents in our parent zones. If you see in which hospital, it will definitely be our work. We cooperate with schools. At the moment, we have already carried out seven such special passes painted in three dimensions. We train small children, of course, we take care to hand them over and secure them in t-shirts and special emblems for protection. In particular, these are children somewhere in small towns or, I would say, villages that walk in dangerous conditions, of course, they go to school. In fact, almost half a thousand schools have announced the desire to participate in this program. What we also want to boast about is that we have signed another contract for the construction of a house for a family that does not have funds. It is a family that has six children, and in this family there are two children who are ill with a heart attack. Last year we finished building a house for a single mother who had 14 children and we decided that every year we will build one house for families who need support and help. We would also like to show you moving on, of course, apart from the ESG, which we are dealing with, because we also want to move on to supporting schools. And this is our next program, which we really want to get into, but maybe I will also tell you about the results and how we see the market in the coming years. As for our two key applicants, i.e. the General Directorate and the PKP.pl Group, We see that the trend is actually in accordance with the announcements of the General Directorate. The plan was that in 2021 there will be announced 17 billion PLN, 17.6 billion PLN. After the third quarter, it was 11 billion PLN. And I think that the plan that the General Directorate has set up is achievable, is to be achieved. It is an ambitious plan, but I think that the General Directorate will be able to implement it. The General Directorate has also presented a plan and forecast for 2022. There will be 24 contracts, a total of 252 km of roads. This is 100 km less than in the current year. However, it is going steadily and here we are looking with quite a lot of optimism when it comes to the General Directorate. On the other hand, what is happening in PKP PLK? We are talking to the PKP PLK government. It has projects prepared at the moment, but due to the fact that there is no guaranteed financing, the number of tenders is limited. As you can see, after three quarters it was only 1.5 billion, or actually it was two tenders, of which one we signed. It was the Ełk station. The announcements are such that as soon as they receive the funding, these fairs will be launched and the plan for the future, in a moment I will show you what the plan for the next few years is. If we look at the railway construction program, then according to the government's announcements, it is a gigantic amount of 291 billion, of which it should be emphasized that 104 billion are in the process of implementation. However, what is ahead of us is PLN 186 billion, so it is still a gigantic amount when it comes to what the Polish state wants to achieve. So by 2030, most of the fast-moving roads will be built. When we look at what we think will interest everyone very much, because it depends on the EU funds, Of these 291 billion, only 14% comes from the EU Fund for Income, so 14% is 40 billion zloty. So here we also look with optimism that even holding these funds will not cause a drastic decline in orders when it comes to the General Directorate. As you probably remember, every fourth kilometer built in our country, when it comes to the road of fast traffic, is made by us. So the level of offer and in our portfolio, in the portfolio of the General Directorate, it is 20% of the portfolio of the General Directorate. So our efficiency is very large. It is a very important partner for us to realize. If we look at the national railway program, This new program has not been announced yet. 50 billion has already been made or is in the phase of implementation. 20 billion has been completed, so from the phase that was 2014-2020, practically everything has been done. The unofficial announcements of the PKP.pl group look like this, that it is supposed to be a stable amount of orders of over PLN 12 billion year-on-year. However, we are waiting for confirmation of funding. If we look at the EU funds, because here mainly it supports us in certain areas and not only in the road industry, but also in the entire construction industry, in the EU funding program 2014-2020, if we take only part of the funding, then it was POS, it was PLN 27 billion. Today, in the program and in the approved budget 2021-2027, it is PLN 25 billion, so not much less. If we count CEF, i.e. the projects that receive funding due to the points and Poland has the opportunity to participate, it is PLN 30 billion in turn. in the year between 2014 and 2020, this pool has remained and this budget has been increased, and these are funds of over PLN 33 billion. When we look at it globally, it is rather the level of funds that will be intended for infrastructure should be at a similar level, so it gives us such a guarantee for sure for the coming years of certain development. When it comes to the national reconstruction plan, In terms of reconstruction, if we look only at the construction industry, the funds that were allocated there were 2.6 billion PLN for railways and 700 million PLN for railways. And what is important and what we said to you when it comes to our strategy and our promises. We said that we are also very focused on the coastal markets and we are thinking here about the German, Czech and Slovak markets. And what happened in the last quarter? Ladies and gentlemen, if we look at the German market, which is the market for the coming decade, one of the first five in the whole world and gives great prospects, we have been on this market for 30 years. We have 1,000 employees employed there. At the moment, we mainly work in factories that deal with prefabrication of certain segments, construction elements. However, at the moment, we are already making offers on our own in the process of negotiations. One of our offers has already been selected, so we are waiting for the signing of a small offer. It is worth 10 million euros. It is the construction of a bridge facility very close to the Polish border. But this is where we want, as I said, we want to achieve this market in small steps, because we want to learn first and not make any mistakes by entering a large contract without a recognized area. When it comes to the Czech and Slovak markets, we are constantly focusing on making offers. We make these offers. I believe that by the end of the year, because the Czech market looks quite optimistic, we may be able to make an offer with success. On all these markets, we have opened our departments, we have established our companies, both on the German, Czech and Slovak markets. And of course, we have established these structures, so normal activity has already begun. That's all. I cordially invite you to ask questions. We are open, as Marcin said. If we are only able to answer all the questions, we will try to answer all of them.

Maybe the first person in the room, please. There are no eager rooms? It's easier to ask a question on Teams, right? You got used to it live. I don't know if there is a microphone.

Yes, yes, we have a microphone, so maybe in that case, the first question that was on Teams. Good morning. I'm reading the question. Good morning. President Artur Popko said that you are worried about the price of asphalt. You have recently announced that you are hedging asphalt prices and other basic materials. Do I understand correctly, then, that price protection concerns only parts, and not all of the materials used?

Yes, it's good. I don't know if it's you or you, but it's good. Pytający dobrze rozumie. My hedżujemy ceny asfaltu, mamy ten asfalt zahedżowany na 3 lata do przodu. Natomiast we never hedge 100% of the asphalt value, because in the case of not taking guaranteed amounts, the penalties imposed by Ollant or LOTOS are very high. This is almost twice the value of asphalt, so at this point we hedge it at 80-90% depending on the given year. And the prospects show that the year 2023 will be Reading these perspectives, we see that in 2023 we can expect a decrease in fuel prices, but this is of course a long time. We hope that it will especially affect 2023, but as you can see, we are analyzing very closely what will happen and what will happen to our contracts. We currently have 80% of asphalt secured for 2022. and over 60% in 2023, so we are looking more at the year 2024-2025.

Any questions from the audience?

Good morning, Michał Szukalski, Agiofans TV. I have two questions. One question is about the employees. I mean, how do you deal with the lack of labor force, or with the expectations of paid employees? Are you able to transfer it later to the General Staff or to the PKP? And the second question here to the FB Service company. Here, the president said that you already see problems with the future growth due to the fact that the prices of garbage and the prices of garbage collection will not grow. I remember that investments were promised in this company. Are there any specific or already some acquisition goals that you have chosen? Do you possibly talk about it? Or maybe some organic development, I don't know, building a gas station or something like that.

Thank you. If you allow me Artur, I will start with the employees. Of course, the topic of employees concerns every company and probably every industry. Like the whole country, we deal partially with employees, although it is not so painful, I would say, because It depends on the seasonality, because the construction industry, of course, is often conditioned by seasonality. We are more short of employees in the German market. At the moment, we have more than 1,000 employees, exactly 1,015 employees. We are looking for 200 employees in the German market and we have it. In fact, it is a challenge for us. z uwagi na to, że te wynagrodzenia zaczynają się wyrównywać i no nie wszystkie osoby z terenu Polski oczywiście chcą pracować na terenie Niemiec. A więc jest to dla nas wyzwanie. Staramy się zachęcać i to, co wspomniałem tutaj też wcześniej, to We really want to emphasize cooperation with universities, so that already from the vocational school, from the technical school, from the school, I would say from the studios, encourage people to work in the construction industry, so that they remain, if they have already chosen this direction, so that they remain. Every year, ladies and gentlemen, there are a few thousand people at our construction sites when it comes to students. Some of these students remain with us at work and this is one of the elements that we put a lot of pressure on. The rest, of course, as for the rewards, expectations, we see what is happening with inflation, of course, expectations of employees for a significant increase in wages. This year we have not yet specified what the value will be, but of course we are raising these salaries and in future estimates and offers made for applicants, of course, this is taken into account. Artur?

Thank you. Thank you for this crucial question. In fact, in my statement it was possible to see this element such that, as I said, this growth element, which certainly had an impact on our results in the last at least two years, has ceased to matter so much. We expected it, because in general, the prices for recycling waste in Poland are already at the level strong in the Middle East and Europe, so I do not see much possibility of further growth, unless again the regulatory environment, because it is a very strongly regulated business based on, for example, the various payments, taxes, or also quasi-taxes, which are either through the central level or through the level of local governments, of course, according to the letters of law imposed on all of us as waste generators. So, assuming that this engine will no longer grow, we have actually focused for at least two years on, first of all, a whole range of investment projects in Greenfield. And here you are right, we have also informed about, for example, a heating project with a German partner and with CIECH in Kujawy. This project is still in preparation, so we will not withdraw from it. It is possible that at the end of the year we will have something new in this project to communicate when it comes to its status. However, when it comes to the border growth, we have, I think, at least a dozen investments at various stages of implementation. started mainly in our current locations, where we have our installations. Either they concern modernization or they also concern expansion. The challenge is that it is a very long preparation period and obtaining the most various permits and permits to implement these investments. So I think that when it comes to these organic investments, then rather expect that they will be implemented by us and then reported to you in the following years. I would even say that closer to 2023 or even in the following years. And in these short-term topics that would increase our scale of activity, we are definitely focusing on M&A. and we think that somewhere at the beginning of next year we will be able to communicate successfully completed one transaction. We are still working on at least two others, also in the field of waste management, raw materials preparation, but I think that the prospect of closing these transactions, if they will be closed at all, then it is rather the end of next year. So one will probably be very soon, and the next one will be somewhere there at the end of last year. Nevertheless, these are existing businesses, so their consolidation from the next day should have a positive impact on our results. And maybe I'll add one more, I'm already at the voice. Ladies and gentlemen, of course, we are also trying to develop organically, not only in waste, but also in other activities. And here I am also a careful optimist when it comes to maintaining roads. It seems that we can finish this year quite well when it comes to contracting in this area, which, in conjunction with the new model of maintaining the General Directorate, is no longer a rush, but a measure, i.e. paying for all the orders that the General Directorate orders, and not an assessment of the reach-out and, as it were, throwing at us the risk of all costs and the amount of these orders, well, it may cause that next year this business, especially road maintenance, i.e. the main non-waste business, we have a chance that it will also improve the results.

Thank you very much. So maybe now, Michał, we'll ask for something from TIMS. Already.

Jak wygląda sentyment na trwających obecnie postępowaniach przetargowych? Czy konkurencja agresywnie ofertuje się na tych kontraktach? Jakie są różnice między zachowaniem konkurencji na przetargach Generalnej Dyrekcji Dróg Krajowych i Autostrad i PKP PLK?

Z uwagi na to, że to są różne segmenty, In each segment it looks different and I will try to describe how it looks in the segment, maybe from the end I will start in the railway segment. In the railway segment, the situation is very difficult and many railway companies do not have a secured portfolio and have a big problem with it, so this competition, when it comes to I would say that the offensive composition of offers by our competitors is very large. So you can see that we are fighting very hard for these tenders, which are practically non-existent. And I know that next year will also be very difficult, because as soon as these tenders appear, most companies will want to get these contracts, so they will lower these prices. And this must be said consciously. We have a very large portfolio of over 4 billion. We have the largest portfolio when it comes to the entire PKP PLK group. We are in the first place there, despite the fact that we are a young child. I would say that this is a young part of our industry. We have been there for 7 years. We have also purchased over 100 million railway equipment, so we are very competitive. However, it arouses our great concern when it comes to the next year. trade fairs in the railway industry. As for the general direction, what is noticeable, the tendency has returned to the fact that most of the offers are made up of between 60 and 75% of the investor's budget, which is a very disturbing phenomenon. You remember that in previous years the budgets were mostly exceeded, and very often exceeded more than 150%. This year showed that due to the slowdown in the first two quarters, companies began to offer very aggressively. And this is, as I mentioned, between 60% and 70% of the budget, which may end up being a big problem for some companies. And now the construction industry, even, I would say, general construction and industrial. Here the situation is the opposite. I see that the competition has come to a conclusion, because especially in this general construction industry, which has been, I think, the most affected by the increase in the price of materials, because here, as we can see in the building, we have many elements that have grown very significantly. because the second very important element is that they are difficult to deliver. It will not take long. A lot of companies have suffered losses, so these offers are made much higher than they were made last year. And this is the element where we see that the competition has decreased and all companies have started to raise prices very significantly. And here I see a big positive effect when it comes to the elaboration of all these elements.

There are two more series of questions that I will combine into one. They concern the valuation. Does the valuation clause apply to all signed contracts or only public contracts? And the second question also concerns this topic. The valuation mechanism has been questioned by the industry for a long time due to its formula, i.e. a 5% cap. How did it look this year? Was the valuation significant support for profitability?

Here I would also share this segment because yes, General Directorate and PKP PLK, they are the main clients here, introduced a valuation clause and it is not presumed, it is really real. Unfortunately, it is limited to 5% of the contract value. Is this 5% of the contract value, is this valuation enough? No, it's not enough. Today, for most of the contracts carried out by the General Directorate, we have already reached this cap, when it comes to 5%. And the promise of the General Directorate is a change in approach to this limit. We have promises during meetings with the General Directorate and the Ministry that it will be analyzed and there will be an attempt to reduce this limit. Moreover, this was shown by the NIC control, which told the General Directorate that it should be changed. that this cap should not be limited only to 5% of the contract value. But this is real help for companies. I think that if there was no help, many construction companies would have a big problem. And so, if someone asks, I answer with a firm yes, it has helped both our company and the entire construction industry. However, according to the new public procurement law, all public investors should introduce a valuation pattern. And what is disturbing for us is that we notice, especially in self-governments or in smaller public entities, a pattern of valuation is introduced, or also a valuation that is only apparent, i.e. where it is limited by certain conditions that we have never seen from the very beginning. So, for example, the contract is two years old, the valuation has been taken up in the last quarter of the contract, for example, because it is also part of this assortment, so it apparently exists in the contract. However, I am trying to find such an element so that this valorization has never been used. And it hurts us a bit, because we all see what is happening with prices, we see what is happening with inflation. And so here we appeal, and of course we appeal every time we meet with investors, to really approach the issue of valorization. However, based on the whole, yes, valorization has helped construction companies a lot.

Next question. I will also combine these two questions with each other. A request for a guidance on profitability in construction activity for the coming quarter and the entire year 2022. Will the sales structure, more and more road and railway contracts, be a natural support for profitability? And the continuation of this question. By the end of the third quarter of 2021, the reserve balance has significantly increased in terms of losses in construction contracts. The ratio of this balance to the backlog is currently exceeding 4%. It is the highest since 2016, resulting in a more conservative approach to establishing a reserve.

Two questions. Maybe I'll start with the more difficult one. Regarding these losses, or rather the reserve that we have in the balance sheet. As you know, these are reserves for losses on contracts, as well as so-called reserves for a negative margin, i.e. in the event that the contract, which is multi-year, carries out its margin and we look at the entire contract and in the first year this margin is proportionally higher in relation to the entirety of the contract, then we eliminate this surplus. Of course, we take into account the situation of the long-term market on these contracts, we also take into account the increase in costs and inflation, So we can say that these reserves include potential risks that may take place in these contracts when it comes to the increase in cost prices, as well as the increase in potential contracts that have this loss. But we assess that this level of reserves is so high that it should not continue to increase. And the first question was regarding what our forecast will be. Of course, we do not give a forecast, as you know. However, I can tell you what our expectations are when it comes to sales in the coming years. Of course, the sales of the road and railway segment will have a great impact on our turnover. However, we assume that this sales level of 2021 it will not have a great chance of dynamics, i.e. we would rather see sales comparable to the year 2001 in the coming years and we expect this trend, as I said, whether the industry of these large companies, the construction industry of large companies with a good backlog will had a chance to improve their profitability, i.e. by transferring the price to us, sales are rather flat for the future, while a slight improvement in profitability is real. I don't know if Artur wanted to add to this.

Maybe I'll add something to these reserves. You know our company, we approach our results very conservatively, maybe sometimes even too conservatively. As I mentioned earlier, we have reached the limit of valorization on contracts, especially where we have a large share of steel parts. We add some reserves for an eventual increase in materials, an increase in the price of materials, which does not have to happen at all and we do not estimate that it will happen. Well, but as a company of this scale, we believe that we should have somewhere insurance for the sale of any materials, because of course we don't have a glass ball, we don't know what will happen and we are rather conservative. If this does not happen, as Marcin said, we would rather expect or expect improvement, then possibly some financial results.

That's what I meant to say.

Maybe some questions from the audience? If not, then read the next question from the teams. There is also a series of questions about the price of materials. I will start with the first one. In the context of materials, are there any recent reports of limited cement availability in the industry? Will this material not be currently under the greatest pressure of price increases? Renewal of energy, CO2, tension with Belarus, which is a major exporter to Poland.

I mean, I would first of all deny that Belarus is a major exporter of cement, because it is not true. partially removed cement from Belarus, because we would rather not remind ourselves that we would buy it this year, but it certainly limits raising prices in Poland, the price of cement. I see that it has become a very popular topic when it comes to cement. Yes, we noticed at some point the lack or decrease in the amount, the possibility of buying cement, but it was due to the fact that many of the cement factories worked above 100% of their efficiency and suddenly it turned out that in the middle of the season they had to close their factories or factories in order to repair certain elements that were damaged. This caused the shutdown of, let's say, a certain supplier. I would not like to mention or advertise suppliers. And of course, it mixed up the amount of cement on the market. However, Belarus is not a large exporter when it comes to cement. And here, as for the increase in the price of cement, we are talking about cement, and yes, we are being warned about the increase in the price of cement. Last year, as far as I remember, it increased by 8% year to year. I think that when it comes to energy, then every serious company and ours and everyone who deals with such a scale of production has secured the price of energy for two years in advance. And let's be honest, so when it comes to cement plants, I believe that cement plants also have long-term contracts signed, so the price of energy should not affect the increase in cement. However, there are announcements from the government due to increased costs or taxes imposed due to ecology. And this, of course, may apply to the price of cement.

Another question about material prices, in this case more about steel. We have observed a strong trend in the price of steel, according to what you said earlier, in the fourth quarter you can see slight drops. What do we expect in the next quarters, when projects from the reconstruction plans will be launched? Do you think that the current price levels are already discounting it in some way?

Maybe I'll ask Jacek.

Jacek. I mean, we usually don't speculate, so when it comes to determining the price in the future, it's a bit hard to determine, but looking at the market, And taking into account factors that affect the price of steel, on the one hand, we observe phenomena that can determine price drops, as if increasing the production of huts, huts, both on the Polish and foreign market, but on the other hand, the cost pressure, such as the increase in CO2 and the electricity energy mentioned by President Popko, can affect the price of steel. If we had what we estimate or what value we think the market will behave in the next year. I think it will still be corrected. I mean, I think that the amount of about PLN 4 for the price of construction steel and PLN 3.50 for the armament, these are the limits where the market should stabilize. But what the future will show, we will see. When it comes to investments related to the Polish Ład, I think it will not have much impact, because today the market is so heated up when it comes to steel producers and steel makers, that I think the future will show a little slowdown of this trend.

Good. Next question. As we are at the topic of steel, it is partially related to the topic of railways. Railway question. Is the scenario from 2016-2017, when PKP PLK, after a long break, started with the proceedings, and were these contracts difficult in terms of margin for the performers? Czy może teraz sytuacja jest pod jakimś względem inna w stosunku do tamtej?

Tak. Uważam, że przyszły rok, szczególnie przyszły rok, będzie bardzo trudny dla branży kolejowej i będzie duża presja na obniżanie cen na przetargach kolejowych.

Next financial question. Operational cash flow in the very third quarter of this year was quite weak. Usually, seasonally, it was a good period in terms of cash inflows. Is it a matter of the fact that the flows in this single quarter were so large, or is there some lasting trend in the market?

We always had the second and third quarter as months where However, this cash was more involved than at the beginning and at the end of the year, so here we do not predict another scenario, i.e. again at the end of the year we will have large payments from our investors and there will be this effect at the end of the year, so I do not predict any differences here, so I would not agree that there would be a constant trend.

I can also confirm that the fourth quarter will certainly be much better in terms of cash generation than the previous one.

In general, we have cash at the level of almost PLN 2.8 billion, so this is the historical value of cash that is in our portfolio.

Thank you for the answer. Now a question about foreign expansion that appeared here. Are public contracts in Germany, the Czech Republic or Slovakia also subject to such a value mechanism as it is in Poland?

No, it is not subject to it. It depends on the country, of course. The smaller issues that are carried out in the short term do not have value patterns. However, when it comes to the Czech Republic, large issues We had a meeting two weeks ago with a representative, such a counterpart of our head, our general director, Mr. Minister Żuchowski, who told us that this year they are also introducing a valuation pattern, which will not be with a limit of any percentage as to the drop in the valuation. And these trades to which we are approaching now already have a valuation pattern without a limit. This situation, for example, in the Czech Republic, is much better when it comes to valuation than in Poland.

Thank you. The next question is about OZE. You mentioned at the last conferences about the desire to develop in the OZE area. Please update if something new is happening in this area and clarify whether Budimex wants to exist in this area as an investor or as a contractor. If as an investor, what amounts are we planning to invest and whether we intend to develop projects organically or rather acquire projects

from the market. Today we are the developer of OZE projects. It mainly concerns wind farms and photovoltaic farms. A lot of our investments are currently in photovoltaic farms and it concerns factories, buildings. Today, most of them are equipped, or even stations are equipped with photovoltaics. There are definitely fewer wind farms at the moment, because these investments are practically stopped and do not exist. So, when it comes to implementation, we exist and participate in it. When it comes to the investor, we want to be an investor in this area. However, we come up with a large, I would say, We approach this a little bit, to put it mildly, carefully, when it comes to what is happening in OZE, because it changes from day to day. These prices of both materials, i.e. photovoltaic panels, as well as the prices of finished projects, very often go up from day to day. So it turns out that after analyzing a given investment, when we want to become an investor, after a few months, this investment does not bring us such an effect. what we would expect. At the moment, we are very much considering investing in wind farms. We are actually running a due diligence of one of the companies. If it goes well, the transaction will come and what we want to invest in at the turn of the next year is a government between 50 and 100 million PLN. This amount of funds will be invested when it comes to Budimex.

Thank you. We have here on Teams a series of three questions. Actually, all of them also concern the price of materials. The first question is how does the management assess the trend of increased participation in the pre-production of concrete in the market? Will this participation still grow? Does the company consider the construction of production assets in this area?

Pre-production.

No, at the moment we are working on the German territory in companies that deal with prefabrication. When it comes to buying some prefabricated companies, we do not carry out such analysis.

Next question from this block. Do you notice serious supply problems when it comes to the availability of some groups of materials?

When it comes to ours, due to the fact that we mainly focus on large investments and large infrastructural investments, then in this part, and it is 80% of our portfolio, we do not notice such problems. There are, of course, some sporadic elements that concern the industry. And here we see that there is a problem where these are complicated industrial contracts of the type of realization for Orlen, the type of realization that we recently finished the power plant in Turów. These are the elements where some of the materials come from all over the world. And there we actually noticed a slowdown or a blockade due to the COVID situation in obtaining this material. I think that this is not a big problem when it comes to the whole scale of activities carried out by Budimex.

Thank you. And the last question from this block, when it comes to the availability of materials. How does the company approach the purchase of railway tracks? With what advancements are the purchase of tracks carried out? Do the producers pay for the tracks resulting from the increase in energy prices? What were the prices of the last purchase of railway tracks compared to the prices a year ago?

As for the purchase price, of course, I am not able to reveal it to you and I would not like to do it. We have long-term contracts signed, usually these are 2-3-year contracts hedged by the price per ton of steel, per ton of rail. However, what happened in the last quarter, we got information about the connection of the two main rail producers in the consortium. I would not like to mention names here either. And this caused an increase in the price per tonne of rail sales. And of course, we received information with a request for an additional payment for the contract already signed, which is implemented by the company that supplies us with rail for the construction site. However, in our scale, it is a significant scale as to what we have already signed when it comes to railway contracts and we are implementing these contracts. but it will actually be a problem in the future.

Thank you. Any questions from the room in the meantime?

Let's check. In the meantime, I checked for you how much cement was brought in this year from Belarus. It was 2.3% when it comes to the Polish scale.

I have a question about industrial construction, specifically energy. Now, after closing the project in Turów and after gathering experience, what do you think about what went wrong? How are you prepared for future new projects in this area?

This has taught us a lot. These are long-term contracts, so we approach the indexation of prices and the price increase on these contracts in a different way. And what about responsibility? Because we mainly deal with the construction part, we are not a technology supplier, we should not participate or be responsible for obtaining parameters later after making a given investment. And that was our mistake, because here we established a natural consortium with Mitsubishi and the company TRC Spain, where we were mainly the executors of the construction industry, and we were responsible for the parameters that had to be obtained. And here we experienced in this contract such sad situations, where during the pandemic, of course, we were focused all the time and we were doing this work, and not exactly our partners felt the same pressure, which, of course, he also felt and relied on us to order. So we are very carefully approaching the selection of partners from the technology industry, because it is difficult in Poland to acquire these partners. And what about responsibility for this type of implementation and investment. So we notice that this is a very nice market for us and I would say with great potential, but here we will be more approachable to this that we, as responsible for the construction part, should avoid responsibility for the later parameters and technology that we get or receive from our partners. But I can see that these partners are also working very hard, General Electric, Hitachi or other companies, I see that they are taught by experience how difficult it is to make some investments and these deadlines are very difficult. They also raised their prices a lot and also changed their approach to trade issues. But there are a lot of these investments in the country. And as you have also noticed, we recently signed, it was this quarter, we signed a long-term agreement on such cooperation with Hyundai, which is actually the executor of the largest investment for Orlen, Olefine. This is a contract of over PLN 10 billion. We have such a strategic agreement that we are their main executor in Poland. Thank you.

Are there any more questions from the audience? I see a new question here on Teams. The profitability of contracts. Are construction contracts signed in 2021 generally characterized by better, worse or worse margins than contracts from 2020? Are there any significant differences in the margin in particular industries, roads, railways, kubatura, industry?

Maybe I will answer. We always give such a comment. Our goal, the goal of the margin is always such a model, which we say is 8% gross margin, the cost of the general administration in the vicinity of 3, maybe 3 with a piece and so that this margin is in the vicinity of 5%. And we always give such a comment as a question, what is the profitability that we would like to have in comparison. So we do not give information about contracts. However, in order not to leave the answer in this way, it can be said that the margin of infrastructural contracts today is much better than that of kubotary construction, i.e. where we work more with machines, less people. And this effect today in this kubatory part has been overshadowed by a very large increase in terms of building materials, about which the president spoke, it can be said that the business that is drawn here is infrastructure, both road and railway. It is worse in this part, in the part of Kuba Turowa.

Here in this question, there is also a comparison, a request for a comparison of 2021 to 2020, when it comes to the margin of these contracts.

The question and the answer is the same.

We are not a company that looks at what is happening on the market and suddenly raises prices or drops them. We always go steadily with our plan, which we have. Maybe this is a bad approach, maybe a good one. It certainly works in the long run and we do not rely on the fluctuation that is happening on the market. We float like a big ship and it's hard to drown us in this way.

Thank you.

Another question from Teams, a little synthetic, summarizing, we can say. There is a request and a question. Can we say once again, synthetically, what the expected improvement in profitability in general performance in the coming years results from? and this in relation to the expected increase in costs of inflation and energy prices.

What does this result in? We were talking about improving profitability of our business. Remember that we have the main engine and there will be an infrastructure part and in the case of general construction it will be difficult. In fact, general construction has always been characterized by a lower margin and a smaller contract. Especially in the apartment building, where the recipient is an individual customer, there is a lot of reserve for warranty repairs, which is a standard in this business, it causes the prices to be lower. So, the improvement in profitability, which I hope we will have, concerns our portfolio, which is with us, not necessarily in the entire industry. However, the engine, as I said, will be the railway and road infrastructure.

Well, but we can't forget about our companies either, because let's look at FB Service. Our plan is to raise sales and value by 2025, especially sales to almost a billion zlotys, where the profitability and maintenance of this profitability, where today the profitability is over 13%. And so, every increase in sales in the FB Service Group greatly improves our results. And this is also one of the elements that we very much focus on the development of the company. with great optimism and expectations about the FB Service Group. And this is one of the elements that we will focus on when it comes to our future, because we also see that there is a very great potential there. The second element is of course the Kraków Steel Bridge, which we cannot forget, which is here with us. Today, we also deliver steel constructions to the entire European Union. We want to continue to develop it. We have combined our divisions and structures very strongly. We are based on large, complicated contracts where we see and have the opportunity to gain total synergy, because our group has over 4,000 engineers. If we combine these forces, I do not see such a second company that could compete in such a range, because today the reconstruction, and I have already said it many times, maybe it will sound strange, but the reconstruction of the cemetery in Świnoujście through the construction of an electric power plant in Turów, through the construction of a gas pipeline, where we are also the leader of Baltic Pipe somewhere near Rzeszów, along the Suwałki bypass, so we actually exist in every city, right? There is no segment here where we would not exist or not be the leader, i.e. both the road, railway, kubatur, gas, hydrotechnical waste industry. We want to be number one. For us, the main core business is of course Poland. To do this, we have now made a decision, we are diversifying, we are going outside of Poland, we feel so strong that today they have this experience, we want to go outside of Poland and also develop there, but in small steps, so that we don't make a mistake somewhere. And it all allows us, having such a diversification, to improve the margin and get better results. And look with great optimism, because today 14 billion in the portfolio is really, look, a huge portfolio. We are talking about the fact that PLK, Plan PLK, PKP PLK, the whole group is 12 billion, and today we have 14 billion in the portfolio.

Thank you very much. A question from the editor Tomasz Elżbiciak from Wysokie Napięcie, so energy topics. Budimek promised to acquire energy storage technology with high and low power. What is happening in this regard? Does the company also look at hydrogen technology?

As far as energy storage is concerned, we are recognizing this segment all the time. And we look more in the future. At the moment, there are very few of these energy stores in Poland. Unfortunately, there is no economic justification for this without the EU funding. Due to the current situation, we will not enter this segment without any additional payments, but we will still have our hands on the pulse and we will analyze. And here we have an agreement with one of the companies that deals with such elements as to energy storage, as I mentioned, probably three months ago. and we will be building and getting started on such fair procedures. However, this is not a topic that will arise in the next, I suspect, year or two and will not generate cash flow. However, as for hydrogen, I believe that if we look globally at the hydrogen scale, which is to come from energy, it is an element that will be the future, but not yet in the next few years. seeing and listening to professors and how the statements, because above all it should come from green energy, this is not yet the moment when we should think about hydrogen.

Thank you for the answer. At the moment, we have exhausted all the questions, we have divided them into all the questions that appeared on the teams. Any more questions from the room? Pani redaktor Elżbieta Pałys, Redaktor Struktury.

Ja bym chciała jeszcze spytać o te kontrakty zagraniczne, o tym, że zbliża się jakby moment wyboru oferty, albo może się zbliżyć taki moment oferty Budimexu w Niemczech, od jakiegoś czasu już wiadomo, jak widać trochę trwało to zanim zostało to sfinalizowane, zostanie właściwie. Chciałabym spytać, jak Pan ocenia ease of obtaining a contract abroad compared to how easy it is to enter an external company on the Polish market? And one more thing, will the contract that will be signed in Germany open the way to facilitate the acquisition of subsequent contracts? As I understand it, the company was quite strongly verified. Will it make this procedure easier in the future?

Thank you for this question and I think it is very accurate. When it comes to the market, I will focus on individual markets. When it comes to the German market, we have just experienced that by making an offer for our scale and our company, we have set up an offer for a retail promotion worth 10 million euros, so 40 million zlotys. If we look at the Polish market, then in our portfolio, these types of contracts are rather small contracts. Depending on whether they are complicated or not, but usually we treat it as the lowest rating group. For four months we explained to the investor in Germany whether we can do it, who we will be doing it and what our experience is. Four months of explaining what to choose our offer. Yes, our offer was selected last week for the realization of this contract. The amount of correspondence that had to be prepared, the amount of documents that we prepared to explain that we can do it, was really huge. And this shows the scale of how difficult it is to enter the German market, how strongly this market is consolidated and closed for companies outside of Germany. 90% of contracts made in Germany are made by German companies. I believe that this is the first light in the tunnel where we will prove that we can do it and step by step we will be able to approach much larger and more serious issues. As for the Czech market, it should also be divided into the road market and the railway market. The road market is available for companies outside the Czech market, but it is also covered with certain elements. We have to show up there with equipment, i.e. with, for example, asphalt production plants. And in order to do this, you have to install these devices, while the waiting time for permission to build and install these devices is many times over two years. So entering this market is very difficult when it comes to the road industry, but it is not impossible. And here we are trying to find a solution through the purchase of a company or a partner with whom we will be able to start there. But to some extent it is real. However, the railway industry, which is very promising, is over PLN 35 billion in the coming years. So we really want to enter the railway industry in the Czech Republic. It is so complicated that we will not be there without the purchase of the company and the staff who has experience and, of course, uses the Czech language is required, as well as, of course, the equipment and certification of this equipment. So it is very difficult to enter the Czech market outside of companies like us from Poland. If I were to compare the possibility and ease of entering the Polish market and the Czech or German market, it is a diametral difference. It is very easy to enter the Polish market and we see how many companies appear from day to day, which we do not know at all and which do not have experience, but they can enter and exist on our market, both in the road and railway and industrial industries.

Thank you very much. Any more questions from the room?

I think, Michał, that we have already reached the end, we have actually passed, we would not like to waste your time. We are already halfway to 2 p.m. Thank you very much for coming to our invitation, both to you in the room and those present outside the room, here on Teams. I invite you to a modest toast and thank you very much.