We invite you to read the content of the interview with the President of the Management Board of Elektrotim S.A.
https://akcjonariat.pl/news/show/19057/elektrotim-szykuje-sie-do-dalszego-wzrostu
Elektrotim prepares a new strategy for further growth
We are prepared for growth to scale the business. The available warranty options, contract insurances, and financial limits allow us to talk about revenues twice as high as the current ones. Further development will be supported by a new strategy that will be introduced next year," says Artur Więznowski, President of the Management Board of Elektrotim SA
Akcjonariat.pl: Elektrotim ranks in the Top 5 public companies in terms of return on investment, both for the past year (almost 150% increase in share price) and for the last three years (533% increase in share price). The sharp increase in results certainly helped, but probably not only that?
Artur Więznowski, President of the Management Board of Elektrotim SA: The dynamic growth in the company's value came from the correct identification by investors of the changes that have occurred within the company. Elektrotim has undergone profound changes over the past few years. This pertains to both our market positioning and internal changes. Shareholders have appreciated what we are doing.
The key to our success was opening up to large contracts - from Elektrotim's perspective, those exceeding PLN 100 million. Additionally, the implementation of our new strategy at the beginning of 2023 and changes in the management board have given a clear boost to our growth. Previously, the company had low market recognition, and for a long period, we did not pay dividends. The group was also not very transparent. In our strategy, we gave a clear signal that we want to focus on our core business, outlining five areas of operation that significantly define our activities. It was also important to declare that we do not foresee any further acquisitions, which previously were more or less successful.
One of the key aspects that changed our perception was showcasing the market in which we operate. In our service mix, there are three areas that we consider very attractive and where we expect to reap the rewards. One of them is related to defense and security spending, where we hold the necessary and required certifications. The second area is tied to the energy transition, including renewable energy and nuclear energy, as well as the expansion of the distribution network. The third area focuses on the comprehensive service of local governments, where the funding source is naturally derived from the National Reconstruction Plan (KPO).
It turned out that conveying this knowledge about the market, properly implementing the strategy, and making internal changes resulted in a clear improvement in performance and was reflected in the stock price.
Another element worth highlighting is the dividend paid by Elektrotim - the highest dividend yield in the entire construction industry. Can shareholders expect equally generous payouts in the future?
We want to continue our dividend policy. In this context, margin is a very important parameter for us when it comes to contracts. We are therefore looking for projects where specialization, references, and certification allow us to achieve above-average results in the market. The idea is to share these results with shareholders. Thus, we maintain that we plan to allocate 50-70% of our profit to dividends.
Meanwhile, the construction market is struggling with a shortage of orders, and there are also voices suggesting that 2025 could be just as challenging in this regard. However, Elektrotim entered the second half of 2024 with a record order portfolio, recording the highest net profit in history after the first half of the year. What is the recipe for dynamic growth in such a demanding market?
Firstly, the construction industry has limited access to financing, which has led to a deterioration in its condition. This is due to a variety of reasons. In our case, when deciding to pursue larger contracts, we adopted the principle that one of our strengths would be access to financing. This approach was met with a positive response from banks, and as a result, we currently have open credit lines of PLN 150 million, which is more than sufficient for the scale of operations we have, and even covers a scale that is 50% higher. In 2022 and 2023, BGK guarantees helped us a lot, and we made use of them.
The continued strong performance over the years has allowed us to count on further expansion of financing from banks, in fact, without the need for special collateral. The financing we secured has enabled us to avoid "jumping" at every contract that appears on the market, and instead, we focus on those that are attractive from our perspective. More attractive contracts often require paying out PLN 20 million or PLN 50 million in advance for a few months of execution, and in these cases, the competition is often much weaker. Additionally, we are able to ensure the right subcontractor base, as we are known in the market as a reliable payer. An important aspect is also good cost estimation. This model works well and is particularly attractive in a difficult year like 2024.
How does the Management Board view the second half of this year, and is it possible to continue the upward trends?
"We see the possibility of maintaining this positive trend. The backlog we have was built according to our standards and rules of engagement. Therefore, there should be no surprises. We already have forecast publications for the third quarter of this year from analysts tracking our company. They have their own forecasting models for our company, which reflect reality quite well.
What is the current stage of the perimeter contract on the Bug River, and when are the largest revenues from this contract expected?
We are in the peak period of contract execution. Very intensive work is underway. The progress on individual sections is varied, but we are executing key deliveries. The revenues from the contract will be spread over 2024 and 2025. Regarding cash flow, a significant portion of the funds will come in next year.
What is currently the biggest cost pressure for contractors?
The pressure on costs is related to the increased competition for workers, which naturally leads to higher wages. It's important to recognize that the influx of new orders will further increase competition in the labor market. With the implementation of all the anticipated projects supported by European Union funds, there will be a significant challenge on the resource side. This refers to the availability of skilled construction managers, estimators, engineers, and implementers. That's why we are placing a strong emphasis on our workforce, increasing employment by 10% in the implementation area. If all the tenders in sectors like energy, defense, railway infrastructure, or local governments go ahead, we are concerned about a repeat of the scenario from 2021/2022. If all contractors go after the suppliers, the prices of building materials will start to rise. Therefore, we are already working to secure contracts in terms of pricing, resource availability, and the possibility of potential price adjustments.
Elektrotim has recently announced the acquisition of several significant contracts. Could this indicate a supply-side revival?
These are not yet the areas I mentioned earlier in the context of expected "harvests." All the recently announced contracts reflect our successful efforts in a relatively challenging market. We have secured interesting orders from the industrial and manufacturing sectors, as well as traction.
How many tender procedures is the company participating in and what is the total value?
We participate in numerous tenders ranging from several million PLN to much higher amounts. Currently, we have around 180 active projects being physically executed. The average execution horizon is between 12 to 18 months. Of these, about 130 projects have been acquired in the last year, and the expected success rate of our bidding is around 20%. To secure 130 projects, we need to bid on at least 600 to 700 procedures.
Energy transformation provides new opportunities for companies like Elektrotim. Is the company planning to expand into new areas?
Yes, we aim to make a stronger presence in three new areas. The first is electromobility. We see that more and more local governments are opting to organize urban transportation using electric buses. In this area, we want to offer our services in designing and executing installations related to the installation of chargers, ensuring their power supply, and energy storage systems. We are in discussions with local governments regarding this. The second area that is very interesting to us is energy storage at various levels. The third segment where we see potential for growth is nuclear energy.
Where does the Management Board see Elektrotim in the coming years?
The year 2025 will be a period of redefining our strategy. We want to incorporate the previously mentioned three new areas of development into it. We will also consider whether our current geographical structure is sufficient and if the five business segments we currently have are enough to support the expected growth scale. The new strategy will include a dividend policy.
We plan to present the strategy in the second half of 2025. The previously adopted 3-year horizon for the strategy may turn out to be insufficient due to the long-term investment programs that will be implemented. Therefore, we are considering a 5-year horizon. We are prepared for growth to scale the business. Available guarantee and insurance options for contracts, as well as our financing limits, suggest we could see revenues twice as high as the current ones.
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