In the first quarter of 2023, the Unibep Group reached a sales level of PLN 523 million, representing a 25% year-on-year increase. It mainly occurred in the construction segment, as the result of increased activity in general contracting and power and industrial construction.
The operating profit of the Group was lower by 25% compared to the same period last year. The decrease in the operational result was primarily influenced by lower gross profitability from sales in the modular construction segment and development segment.
The gross profit of the Unibep Group was approx. 64% lower than in the previous year. Apart from the factors mentioned above, the result of the financial activities had a significant impact as well (decrease by PLN 6.2 million compared to the same period last year), primarily due to higher interest costs and the valuation of financial assets.
The smaller decline in net profit attributable to shareholders of the dominant entity (compared to gross profit) was associated with the implementation of a joint venture agreement in the first quarter of 2022 (Joint Venture), the result of which was partially excluded from the profit attributable to shareholders of Unibep SA. In the first quarter of 2023, the result of the Group did not recognise any significant values of such agreements.
At the end of Q1 2023, the cash balance of the Group amounted to PLN 108 million, compared to PLN 181 million at the end of Q1 2022. According to the cash flows statement, compared to the end of 2022, it decreased by PLN 29 million year-on-year. The decrease of the cash balance was related to operational activities (a decrease of PLN 52 million, primarily due to a reduction in non-financial liabilities). The Group recorded positive cash flows of PLN 22 million in financial activities, particularly due to an increase in the balance of financial liabilities by approximately PLN 34 million.
In the construction segment, including general contracting, infrastructure, and power and industrial construction segments, the sales reached PLN 409 million (an increase of 28% year on year). The largest increase occurred in the power and industrial construction segment, amounting to approx. PLN 92 million. This is the result of a growing backlog of orders in this segment. Currently, we are executing a dozen of agreements for power and industrial construction, whereas when we started our operations in the first quarter of 2022, we had only three active agreements.
The operational profitability is at a similar level (1.2% in the analysed period, compared to 1.1% the year before). The power and industrial construction segment had a positive impact on the profit of this period, as it achieves higher margins than other segments. The decrease of the gross profitability of the construction segment was related to the previously mentioned result of the financial operations.
Similarly to the whole industry, the impact of the war in Ukraine on the construction segment was smaller in the first quarter of 2023 than the year before. Good access to key construction materials and subcontractors was noticeable. Despite the still high inflation, the manufacturing costs are not so affected by volatility and uncertainty as they were a year ago. Notwithstanding the perceivable stabilisation, the Board identifies a range of risks related to this area of operation. They are primarily related to the completion of the agreements affected by the decrease in profitability caused by the increase in prices and services in previous years, as well as the risk of an increase in overdue receivables.
The result of the Construction Segment was influenced by the indexations of agreements implemented for both public (mainly infrastructure) and private investors. The indexation pressure (due to the high prices of services and materials) will be still experienced, at least in some of the ongoing investments.
In the first quarter of 2023, we secured agreements for implementation in the Construction Segment with a total value exceeding PLN 300 million. This results in a backlog of orders worth approx. PLN 3.4 billion. The significant decrease in the number of new orders compared to the previous year is driven by the base effect from the first quarter of 2022 when the Group signed significant agreements in the area of general contracting and infrastructure. However, throughout the year 2023, the level of contract awards should be at a similar level compared to 2022.
In the nearest future, the activity of this segment will be focused on acquiring and initiating new contracts, based on updated implementation costs and cash flows.
In the first quarter of 2023, the Development Segment recognised the sale (handover inspection reports) of 144 residential units (including one as part of a joint venture), compared to the sale of 152 residential units (including 84 as part of joint ventures) in the first quarter of 2022. The financial result for the first quarter of 2023 is mainly influenced by the handovers inspection reports of investments: Osiedle Idea in Radom (78), Latte in Warsaw (65), and Ursa Sky in Warsaw (1). The developer sales in the first quarter of 2023 reached a volume of 107 residential units compared to 112 residential units in the first quarter of 2022.
The Unidevelopment Group achieved an operating profit of PLN 16,1 million (compared to PLN 19.0 million in the first quarter of 2022). The decrease in profitability of this segment is caused by a differing structure of the premises sold. In the first quarter of 2023, the backlog of orders of the Group consisted of a higher number of basic standard projects (low-end) than in the first quarter of 2022, where there were more premises with an elevated standard (lower-middle). Despite the decrease in profitability of this segment, the Management Board does not perceive any negative trends in the development market. There were no tendencies of price reduction, and the demand for new apartments has stabilised at a level similar to that of 2022.
Our main task within the Development Segment is the efficient launch of new projects according to schedule, as well as offering attractive and market-adapted solutions (for instance Sadyba Spot in Warsaw or Kusocińskiego investment in the Tricity area). In recent years, we have been witnessing an increasing duration in obtaining all necessary permissions in the development segment, which may result in delays in initiating the implementation of some of our projects.
The outlook
In the first quarter of 2023 the Unibep Group acquired contracts with a total worth of approx. PLN 390 million. Therefore, the portfolio for implementation from the second quarter of 2023 amounts to approx. PLN 3.5 billion. The Management Board assesses the prospects for future periods positively in this regard, especially in the power & energy and infrastructure segments. The market environment is stable, and the number of emerging new tenders will enable us to achieve revenues in 2023 at a level not lower than in the previous year while building a better-quality backlog of orders for the future.
The Management Board will continue negotiations aiming to index part of the ongoing investments and reach agreements on indexation clauses in the newly signed contracts. Increasing the indexation ratios by the ordering parties in residential, office, industrial, and infrastructural construction will allow to offset the impact of the current rise in prices of materials and services. We will undertake efforts to adjust our remuneration both in the public and private sectors.
The Management Board perceives a significant development potential in the area of power and industrial construction, as well as in road and bridge infrastructure. Despite the fact that these segments have just started to develop, we have already built a stable backlog of order that includes not only contracts from the energy sector but also from the industry and road sectors.
As mentioned earlier, we have noticed that the development market has stabilised. The number of new customers is comparable to that of 2022, and housing prices remain at a similar level. We have the potential to build over 5,000 residential units under multi-stage investments. In the nearest future, the Group will focus its activities on launching new projects within the timelines established in their budgets.
The biggest challenge we face within the segment of Modular Construction is building a backlog of orders that ensures the optimal workload and the best use of the plant’s manufacturing capacities. This will be based on developing cooperation with established partners and on standardisation and repeatability of products. The indexation clauses will also be included in newly acquired contracts.
In the Board’s assessment, despite the noticeable stabilisation, the entire 2023 will be a demanding year due to the market challenges. As a result, a review of the business risks of individual contracts has commenced within the Unibep Group. As part of the review, the potential of ongoing projects will be assessed in terms of the earned margin and generated cash flows in the short- and medium-term perspective. The potential adjustment of the annual budget of the Unibep Group will depend on the results of this review.