Budimex Sa · GPW:BDX
Budimex Sa — 1-3Q 2019 Earnings Presentation
30 slides from Budimex Sa's earnings presentation, November 2019
Slide 1: Investor Presentation 1-3Q’19
Investor Presentation 1-3Q’19
Slide 2: Table of Contents
Table of Contents 1. Market snapshot 1.1 Market environment – top facts 1.2 Macroeconomic forecasts for Poland 1.3 Overview of construction segment 1.4 Labour market 1.5 Prices of main materials 1.6 Presales of residential developers 2. Budimex Group in 1-3Q’19 2.1 Budimex Group – top facts 2.2 P&L
Slide 3: 1.1 Market environment – top facts
1.1 Market environment – top facts ▪ In 10’19 World Bank increased forecast of GDP growth for Poland → ’19f: 4,3% vs. 4,0% published in 04’19 ▪ Average inflation rate should soon close to 3,0% level → ’20f: 2,9% y-o-y ▪ The government approved a draft of State Budget for ’20, which assumes no budget
Slide 4: 1.2 GDP growth and inflation rate
1.2 GDP growth and inflation rate ▪ In 10’19 World Bank increased forecast of GDP growth for Poland in ’19 Comment by 0,3 p.p. ▪ GDP growth forecast for ’20 and ’21 remained unchanged GDP growth and inflation rate (%, y-o-y) 5,0 5,1 Forecasted decrease of GDP growth 4,9 4,5 GDP growth mainly due 4,3
Slide 5: 1.3 Construction production by segment
1.3 Construction production by segment ▪ Construction production in 1-3Q’19 grew by 9,0% y-o-y Comment ▪ The production rises not as fast as in ’18 Construction and assembly production ’10 – 1-3Q’19 (bn PLN, enterprises with > 9 employees, current prices) Infrastructure General construction 17,6% -1
Slide 6: 1.3 Production vs. net profit margin in construction
1.3 Production vs.net profit margin in construction ▪ Compared to 1H’18, net margin in construction increased in 1H’19 Comment ▪ Generally, more and more companies adjust their offer prices to new cost environment and improve the quality of backlog Construction production (companies > 9 employees) v
Slide 7: 1.3 EBIT margin by size of construction company
1.3 EBIT margin by size of construction company ▪ Small construction companies were able to improve their margin in ’18, while Comment profitability of big companies felt to 1,2% ▪ In 1H’19 profitability of big companies faced a recovery 11,9% 9,4% 8,7% 8,8% 8,2% 8,2% 7,1% 7,2% 7,5% 5,2% 5,1% 5,5% 4
Slide 8: 1.4 Labour market
1.4 Labour market ▪ Construction companies have to deal with labour shortage and Comment increase of labour costs Unemployment rate (%) Employment in construction (thous. employees) 510 12,0 483 10,0 470 8,0 420 6,0 5,1 430 4,0 390 2,0 0,0 350 12'15 09'16 09'17 09'18 09'19 12'09 12'10 12'11 12'12 12
Slide 9: 1.5 Prices of main materials
1.5 Prices of main materials ▪ Lower dynamics of construction production may normalize the Comment situation on materials market Concrete Reinforcement steel 180 180 160 160 144 139 140 160 140 120 133 120 140 122 100 100 129 80 80 120 60 60 119 3Q'10 3Q'11 3Q'12 3Q'13 3Q'14 3Q'15 3Q'16 3Q'17 3Q'18
Slide 10: 1.6 Presales of residential developers
1.6 Presales of residential developers ▪ Despite visible increase of flats prices, the demand on residential Comment market remains high Presales of selected developers in 1-3Q’19 (flats) +4% -2% +28% -8% +59% +16% +60% +31% -34% -24% +20% -3% -8% -21% 2 699 y-o-y 2 640 2 305 1 853 1 286 1 167 1 129
Slide 11: 2.1 Budimex Group – top facts in 1-3Q’19
2.1 Budimex Group – top facts in 1-3Q’19 ▪ No significant change of sales in 1-3Q’19 → 1-3Q’19: 5,4 bn PLN (-0,1% y-o-y) ▪ Decrease of % EBIT in construction segment → 1-3Q’19: 3,0% (-1,0 p.p. y-o-y) ▪ Rising share of railway in construction sales → 1-3Q’19: 15,7% (+7,5 p.p. y-o-y) ▪ Increase of net
Slide 12: 2.2 P&L
2.2 P&L ▪ Similar level of sales in 1-3Q’19 vs. 1-3Q’18 (-0,1%) Comment ▪ Group’s margin still under pressure 1-3Q'19 1-3Q'18 ∆ FY'18 FY'17 Sales 5 383 5 390 -7 7 387 6 369 y-o-y dynamics -0,1% 18,4% -18,5 pp. 16,0% 14,3% Gross margin 354 446 -92 629 810 % sales 6,6% 8,3% -1,7 pp. 8,5% 12,7% SG&A -1
Slide 13: 2.2 P&L – quarterly sales
2.2 P&L ▪ Comparable sales in construction in 3Q’19 vs. 3Q’18 Comment ▪ In 3Q’19 Budimex began full consolidation of FBSerwis Group results (services segment) Quarterly sales in Budimex Group (M PLN) Construction Developer 5 136 2 010 422 1 854 1 272 187 126 110 10% -2% -2% 1% -11% 5% 36% 3% 1Q'19 2
Slide 14: 2.2 P&L – quarterly gross margin
2.2 P&L ▪ Profitability on gross margin in construction level improved in 3Q vs. 2Q Comment ▪ Decent profitability in developer segment maintained in 3Q Quarterly gross margin in Budimex Group (M PLN) Construction Developer 5,6% 4,3% 5,4% 5,1% 20,6% 25,2% 26,4% 23,5% 259 99 108 39 72 79 32 29 -28% -
Slide 15: 2.2 P&L – quarterly EBIT
2.2 P&L ▪ 35 M PLN effect of the adjustment of the historical cost of the license fee in construction segment on overheads level Comment ▪ Consolidation of FBSerwis contributes to higher EBIT margin at Group level Quarterly EBIT in Budimex Group (M PLN) Construction Developer 1,8% 2,2% 4,5% 3,0% 14,
Slide 16: 2.2 P&L - results by segment
2.2 P&L - results by segment ▪ At the begin of 07’19 Budimex finalized transaction and became the sole Comment owner of FBSerwis (price for equity = 98,5 M PLN) ▪ „Other activity” segment renamed to „Services” 1-3Q’19 sales 1-3Q’19 EBIT Internal eliminations (% Group sales) (% Group EBIT) -310 M PLN
Slide 17: 2.2 P&L – sales and EBIT history
2.2 P&L ▪ No significant y-o-y change of sales Comment ▪ Due to unfavorable market environment in construction sector, EBIT margin felt in 1-3Q’19 to 4,2% Sales in Budimex Group (M PLN) 5 390 5 383 4 580 4 553 4 119 3 823 3 713 3 743 3 455 3 161 2 442 1-3Q'09 1-3Q'10 1-3Q'11 1-3Q'12 1-3Q'13 1-3Q'14
Slide 18: 2.3 Evolution of Net Treasury Position
2.3 Evolution of Net Treasury Position ▪ Net cash recovery vs. 06’19 Comment ▪ Cash remains under pressure due to delays in approval of construction works and invoicing Net Treasury Position in Budimex Group (bn PLN) 2,6 2,3 2,2 2,1 2,0 2,0 1,8 1,8 1,7 1,8 1,6 1,6 1,6 1,5 1,5 1,3 1,3 1,2 1,2 1,1 0,9
Slide 19: 2.4.1 Construction segment
2.4.1 Construction segment ▪ 35 M PLN effect of the adjustment of the historical cost of the license fee Comment on EBIT level (details: current report No. 63/2019) ▪ Significant contribution of railway segment to 1-3Q’19 sales 1-3Q'19 y-o-y dynamics Sales and EBIT margin (M PLN) Sales 5 136 1% 4,2%
Slide 20: 2.4.1 Construction segment – offers placed
2.4.1 Construction segment ▪ +45% increase of value of offers placed in 1-3Q’19 vs. 1-3Q’18 due to Comment increased activity in all segments ▪ Few high-value offers placed in railway Offers placed in Budimex Group (bn PLN) 31 58 95 123 118 43,7 average value (M PLN) 3,8 40,5 4,5 36,2 8,6 4,5 9,0 24
Slide 21: 2.4.1 Construction segment – contracts signed
2.4.1 Construction segment ▪ Prudent bidding on GDDKiA market had an impact on contracts signed in infrastructure Comment ▪ High y-o-y increase of contracts signed in railway due to two big projects acquired (No. 7: Deblin – Naleczow and railway contract in Gdynia seaport) Contracts signed in Budime
Slide 22: 2.4.1 Construction segment – backlog
2.4.1 Construction segment ▪ At the end of 3Q’19 Budimex had a backlog of 10,7 bn PLN Comment ▪ Share of railway projects in backlog is higher than general construction Backlog in Budimex Group (bn PLN) Share 10,7 10,3 10,1 5% 0,9 1,0 10% 0,6 6% 8,9 8,4 2,5 23% 1,1 13% 2,5 25% 0,8 10% 2,7 26% 1,9 2,
Slide 23: 2.4.2 Developer segment
2.4.2 Developer segment ▪ High level of notary sales in 1-3Q’19 (1 229 flats) Comment ▪ Much higher presales reached in 1-3Q’19 (1 286 flats) vs. 1-3Q’18 ▪ Developer segment generated decent gross margin at 23,5% level 1-3Q'19 y-o-y dynamics Sales and EBIT margin (M PLN) Sales 422 3% 15,6% 16,0% 13,
Slide 24: 2.4.2 Developer segment – market offer
2.4.2 Developer segment ▪ Market offer noted serious increase vs. 12’18 due to few projects Comment launched in Warsaw, Tricity, Poznan & Wroclaw ▪ In 09’19 land bank amounted to 9 571 flats Market offer as at 09’19 (flats) presold 4 074 not presold 4 006 Gdansk 308 2 325 Poznan Warsaw 2 264 430 828
Slide 25: 2.4.3 Services
2.4.3 Services ▪ Services results in 1-3Q’18 encompassed Elektromontaz Poznan and BIG that were disposed in 3Q’18 (+44 M PLN impact in 3Q’18) Comment ▪ 1-3Q’19 results were generated by two companies: FBSerwis and Budimex Parking Wroclaw ▪ Since 07’19 Budimex began full consolidation of FBSerwis Gro
Slide 26: 2.4.3 FBSerwis – key financial data
2.4.3 FBSerwis – key financial data ▪ Sales structure in 1-3Q’19: Waste Management – 65%, Infrastructure Maintenance – 26%, Facility Management & Street Lightening – 8% Comment ▪ M&A transactions in Waste Management helped to increase FBSerwis Group profitability ▪ Intangible depreciation has a sign
Slide 27: 2.5 Employment
2.5 Employment ▪ The level of employment felt slightly vs. 12’18 Comment ▪ Taking control over FBSerwis Group increased employment of Budimex Group by ca. 1 000 people Employment in Budimex Group* Bx Group w/o FBS FBS 7 840 7 684 7 256 934 985 1 006 6 054 5 313 635 4 676 432 4 188 313 179 6 906 6 69
Slide 28: 3. Budimex S.A. on WSE
3. Budimex S.A. on WSE ▪ In 1-3Q’19 Budimex market capitalization faced 10% increase vs year-end Comment ▪ Total pension funds’ share in BDX amounts to 30-35% Shareholders structure (12’18) P/E ratio Budimex P/E ratio WIG_Budownictwo P/E 22,7 Ferrovial Group 20,7 29,5% 15,5 Aviva OFE 13,8 12,8 12,4
Slide 29: 3. Budimex S.A. on WSE – market value
3. Budimex S.A. on WSE ▪ After declines in share prices from ’18, in 1-3Q’19 market value of Comment some construction companies, including Budimex S.A., faced a rebound Market value as at 09’19 (M PLN) +10% -20% +40% +53% +59% +15% -47% -50% +179% +97% -26% +16% +44% +64% % change vs. 31.12'18 3 20
Slide 30: 3. Budimex S.A. on WSE – dividends paid
3. Budimex S.A. on WSE ▪ As a result of decreasing margin in construction sector and planned investment outlays, in 04’19 Management Board recommended a dividend Comment payment of 50% of FY’18 net profit ▪ In 05’19 shareholders accepted Board’s recommendation Dividends paid (M PLN) ∑ = 2 606 102,1