Hello, and welcome to the Royal BAM Group Q1 2024 trading update. Please note this call is being recorded, and for the duration of the call, your lines will be on listen only. However, you will have the opportunity to ask questions at the end of the call. This can be done by pressing star one on your telephone keypad. If you require assistance at any time, please press star zero and you will be connected to an operator. I will now hand you over to your host, Ruud Joosten, CEO, to begin today's conference. Please go ahead.
Good morning, and welcome to this analyst call for Royal BAM Group, following the publication of our trading statement this morning. I'm Ruud Joosten, CEO. With me are Frans den Houten, our CFO, and Michel Aupers, our Investor Relations Manager. I want to start by mentioning the tragic accident in February at a Dutch project site for a bridge over the Twente Canal. Two employees of subcontractors lost their lives and two were seriously injured. We express our sympathy for them and everyone affected. Investigations into this accident are ongoing, and since last week, we have access to the construction site again. The safety of everyone working on our projects remains a fundamental priority for BAM, and we continue to improve our safety culture and procedures. For our opening slide, we show you Alyth substation. Last February, after almost three years of construction, this substation has been commissioned.
Delivered by Siemens, BAM joint venture. This critical infrastructure is a key part of SSEN Transmission's reinforcement of the East Coast network. It will support the connection of new renewable energy generation in the North Scotland to the grid. Looking at our financial performance in the first three months, revenue was a little below the first quarter of 2023. We report an adjusted EBITDA of EUR 44 million, which translates into a margin of 3.1%. As you know, lower contributions from our businesses are not unusual for the first quarter. Important to note that adjusted EBITDA and revenue in the first quarter of last year included the result of the divestment of an office development in the United Kingdom. Let me highlight the developments per division. The division Netherlands had a higher contribution versus the comparable period last year.
Our civil engineering activities had a good start of the year. Non-residential construction was impacted by issues on two remaining projects in Denmark. We expect to complete this project during this year. It's good to see that our Dutch house sales in the first quarter of 2024 were well above the comparable period last year. More retail buyers are returning to the market as higher salaries and stable mortgages, which seems to have a positive effect on consumer confidence. However, institutional investors are still reluctant to invest. This hesitation particularly affects the development of large inner-city complexes, which need a cornerstone investor to get started. There's a clear shortage of Dutch homes, which is also reflected in the forecast of some major banks that prices will continue to increase.
BAM is well-positioned to increase the production of new homes, provided that the government will offer more clarity regarding regulations, and will facilitate faster permitting procedures. In telecom, energy, and water, more of our clients are moving to long-term contracts to secure our availability as a key supplier. In Dutch civil, we see continued growth in the market for energy transition and attractive opportunities in the public transport sector. Contribution of our division UK and Ireland was lower versus the first quarter of 2023. The performance of Construct UK was held back by some project delays as supply chain issues continued. The result of civil engineering improved, also supported by a high production level, especially in rail-related projects. Our activities, BAM Ventures in Ireland, had positive contributions. I'm very pleased with the development of our order book in the first quarter.
We continue to focus on margin above volumes and on projects with strong sustainability aspects. In the first three months, BAM's order book totaled EUR 10.7 billion, which is a 10% increase versus year-end 2023. For the group, our book-to-bill ratio was well above 100%. A substantial part of our recent project wins is in line with our strategic objective to expand in sustainable solutions. For example, I can highlight our role in the Eastern Green Link 2 electricity transmission project. It was a major project win in Sheffield, UK. BAM and Hitachi will supply the converter stations at both sides of the Peterhead and Drax subsea cable. This is UK's single largest electricity transmission project, transporting enough electricity to power 2 million UK homes. This is a great proof point for our strategic focus on sustainability.
Our liquidity position showed a typical seasonal outflow at the start of the year. Our capital ratio further improved based on our positive result in the first quarter and a shorter balance sheet. The buyback program to neutralize dilution, scrip dividend, and the additional EUR 30 million share buyback, as announced in February, will start tomorrow. Looking ahead for the full year, we expect to deliver an adjusted EBITDA margin within the strategic range of 4%-6%. Now, let's open the line for questions.
Thank you. If you would like to ask the questions on today's call, please press star one on your telephone keypad. To withdraw your question, please press star two. We will take our first question from Martijn den Drijver from ABN AMRO. Your line is open. Please go ahead.
Yeah, thank you, operator. Good morning, Ruud, and good morning, Frans. I have a number of issues I'd like to broach, and I'll do them one by one. On the Danish school projects, would you be able to share, not the amount, obviously, but is it a low, is it a mid, is it a high single digits type of additional loss provision on those two remaining projects? Just to give us a bit of a sense of the impact.
Okay, you do, you do them one by one. Okay, then we answer one by one. I thought you came with a full list, sorry for that. But no, we don't go into at this moment in time into the exact amounts on these school projects in Denmark. I think the good news is that we are finalizing them. So on short notice, I think we can come back with some more details on finalization of these projects still remaining. Last year, we had 4, and we finalized 2 of them by now, so 2 remaining.
Is this a project whereby you have ongoing discussions with the client, meaning that after completion, there's still perhaps a possibility of a settlement of the additional cost that you have incurred? Or is this, given the contract structure, really just a 100% bump?
As always, Martijn, we value current insights based on IFRS, so let's not speculate on further upside or downside. Today, we have in our books how we see completion of these projects going forward.
Yeah, but that's what you said as well with the 2023 results. But I'll move on.
Yeah, but-
But, let me move on. On the home sales, the 1,700 unit guidance, which is positive. I was just wondering, I have a bit of trouble weighing wage inflation versus which is up, versus building materials, which are down. What would be the net? Is it positive or negative on new home sales relative to 2023?
Well, I think we had a good start compared to the Q1 of last year, so we see clearly a positive development, especially with regard to private persons stepping into the market again. I think that's what we have seen in the first quarter of 2024, based on the fact that people see some stability in the interest rates, but maybe even more their increased salary, net salaries, they are stepping back into the market, and that's what we see. I think that's a very positive signal. Although it's a volatile market, that is also clear. That's why we stick to our, let's say, full year kind of expectation. But still, I think it's clearly a positive signal that private persons are back in the market.
Yeah, I agree, but I was just wondering about the profitability of those home sales. Not so much the number or the sales effect, but more your profitability. Would it be fair to assume that it's better, or is it roughly equal, but is there anything you can add to that?
Well, I think it's... Let's say we are positive about it. If you look at the market situation this moment in time, also predicted by the banks, that prices of homes will increase. That's what we see here as well. So there is positive price effect on margins here, then. That's clear.
I'll move on to the U.K. Now, if you assume that the Netherlands was slightly better, let's say EUR 1-2 million, and last year you did 58, and then the starting point is 60, you report 44, so there's a delta of 16. Given that you don't mention projects specifically or delays in Ireland, I assume that most of that pain, if you will, is in the U.K. in construction and property, because civil engineering did well. Maybe you could share with us a little bit about these projects. Are these all projects that you bid for and won before 2020? How should we think about these projects also going forward?
Well, I think it's fair to say, of course, compared to last year, we have to take into account the sale last year in our revenue and profitability of a substantial development in the Q1 2023. So that's an explanation, I think, for the biggest part of that drop in profitability. On the other hand, your question regarding this project, yeah, we are finalizing a few older projects, as you can say. So we don't expect that going forward. There is always risk, of course, in project. That's our business. But yeah, it's fair to say that these are, let's say, projects we are finalizing at this moment in time.
Okay. Okay, so but just to come back to that question, these are all the projects... The real question is, is it prior to your arrival or post your arrival?
Yeah, it's -- we're talking about a few projects.
And it's
-finalization.
And it's a mix, and it's first of all, the transaction we did last year, as we said, but then also in general, there's a statement on commercial client hesitating for new investments, also giving interest rates. So there's also clearly a market that is a bit tougher, as we also made clear in the press release.
Okay. I'll move on to Ireland. What's specifically driving that, that slightly lower result? Or the lower results for Ireland. Is that across the board, is it just higher wage inflation? Could you share a bit of light as to why the Ireland if you did slightly less?
I think not a clear, defined reason there, Maarten. I think that's just a very small amount. In general, we are positive about the Irish market. Of course, we are finalizing a big project there, as you know. But on the other hand, we see big investments and big program from the Irish government to invest in infrastructure, but also in hospital, schools. So we're well positioned to take advantage of that, I think the coming period. So economy is in very good shape there as well. So this small drop in the Q1, I think, is no substantial or let's say, structural effect on our company.
Okay. And then my final question for Frans. On the Trade working capital, clearly there's been an acceleration in the decline of the Trade working capital, so less negative. Is it logical to assume that it's more linear from now, or can it be really as bumpy as it's been in this particular quarter for the remainder of the strategic period?
Yeah, I think for the first quarter, we see two things there. We see the normal seasonal decline in this EUR 250 million slippage, but also indeed, the structural reduction in the trade working capital efficiency. And we made a step of 0.7%. We're around -12.5, and we guided for the full year a 1%-2% slippage, which we yeah, iterate. So basically, this is in line with what we expected.
Mm-hmm. Okay, great. Thank you very much, gentlemen.
Thank you.
Thank you. Our next question comes from Tijs Hollestelle from ING. Your line is open. Please go ahead.
Thanks, operator. Morning, gentlemen.
Hi, Tijs. Good morning.
Yeah, I basically had the same questions as Martijn, but let's approach it from a different angle, eh? Because you've probably seen that the share price is down 17% this morning. Now, I noticed that you are quite relaxed in, let's say, answering the questions about what's going on. But clearly, investors are still very, very cautious about what's going on, eh? And you give us, I must say, yeah, not very much insight in what's going on, eh. So the minus EUR 30 million loss in the construction and the property business in the UK in the second half of last year, compared to, I think it was a plus EUR 15 or 16 positive in the first half. Yeah, what kind of delta should we look at for the first half of 2024, eh?
I mean, you mentioned that you had a positive gain in the overall UK of the property transaction. But yeah, it's very, very difficult to make sense out of these numbers, eh. Should I put in a -15 in the first half of this year, or is it plus? Any guidance-
Yeah, we don't go into... As you know, we don't go into the specific segments during this Q1 call. So that there will be more detail, let's say, after Q2 in July, a little bit earlier than we are used to. But yeah, I think, yeah, like we said before, there is a substantial explanation by the transaction we made last year in Q1. And then on top of that, some difficult circumstances in the commercial construction industry at this moment in time, and a few projects that are in their end phase. Yeah, that in total is the leverage you or is the explanation for the deficit tax.
Yeah.
And then balancing also, I think, had a comments on order book. We're really pleased with the order intake, residential, number of houses sold, positive, sourcing, adding 25%, even a bit more. Yeah, so I think overall, we just look at the, at a bit of a slow start on the year, in the EBA side, but a lot of positives, as well.
Yeah, okay. But you are aware that the stock market is looking at this in a different way because of a lack of disclosure and the same on the Danish projects. I mean, there were a couple of projects last year in the first quarter. You take loss provisions, and so that impacted Q1 EBITDA. And then assuming that you're more or less accurate with taking these loss provisions, those two remaining projects should, yeah, let's say, give you a zero EBITDA. But apparently, you took additional loss provisions.
So if I were an investor, I would say, "Okay, what's happening in the U.K.?" That can also mean that in the coming quarters, there will be also all kinds of additional losses on those projects, and there the losses were very significant in the second half.
Yeah, I think Frans' statement is pretty clear. I think we are indeed answering these questions in a relaxed mode because we look at the more fundamental, let's say, basis of the company, looking at order book at EUR 0.9 billion, higher than Q4 last year. So we see a clear acceleration in these energy projects in Civil UK, but also in the Netherlands. We see an uptick in the domestic house sales, investors coming back—I mean, private investors coming back into the market, so substantial increases there. That's why, of course, we are positively looking at the future of this company, notwithstanding the fact that we had some, indeed, some explanation like we did before on Construct UK.
With some difficulty in that market there, we see, still see, yeah, substantial issues with subcontractors in, in the UK at this moment in time, because that commercial market is still under pressure. So that, that's clearly what you see in the results. But again, a substantial part of the result last year was that sale of the, of a commercial development we had developed earlier. So that's to, to make it a bit more relative, I think, where we are at this moment in time.
Okay. Yeah. Okay. Thank you.
Thank you. We will take our next questions from Maarten Verbeek from TheIdea. Your line is open. Please go ahead.
Good morning, it's Maarten Verbeek of TheIdea. Question concerning the trade working capital. Pleasing to hear you mentioning the number of -12.5, which you did not provide in the press release. But still, when I make—and you also mentioned that your cash position dropped by some EUR 250 million. Could you put some more color to that? Because when I look just to the drop of 13.2 to 12.5, then EUR 250 million looks, yeah, a bit much according to my calculations.
Yeah. So the EUR 250 is in the press release, because it's just basically the liquidity position and then comparing that with year-end. So that's how you get to that.
Mm-hmm.
That delta that you are looking for is explained by the seasonal decline. So it's the, it's the normal seasonal pattern with an additional reduction of the trade working capital efficiency as we unwind the pre-financing on the large project portfolio. And for that element, we said, for 2024 for a full year, we expect a 1%-2% further normalization, and we took a first step there.
Okay. And then, secondly, also a bit about the result, and maybe you can provide some guidance on that or some indication. Last year we had the plus of the UK real estate sale. This year, we have losses on Denmark. If we exclude this, would then more or less, without giving any numbers, the result be at par?
Yeah. Well, obviously, we don't go into that kind of calculations, but I think you can make your own calculations, of course, if you want to. But these two, of course, had, like we described before, had substantial impact on these numbers. And not—again, Q1 is a smaller Q. So we are looking more at the fundamentals going into the year and hopefully in Q2, after Q2, not hopefully, we will, in the Q2, let's say presentation, July 25, we can have a more, let's say, detailed discussion on the segments going forward.
Okay. And, lastly, now you state that you expect your EBITDA margin to be within your strategic range of 4%-6%. Will you be willing to fine-tune that guidance during the year? Because I can understand that you don't do it at the start of the year, because it's a small year, and we just started. But you're willing to... Or should we expect that you will fine-tune that guidance during the year?
Yeah, well, we normally don't give an outlook in Q1. So what we then do, of course, is, like we presented earlier during the end of year results, that we use our strategic, long-term strategic range of 4%-6%. And I think that's important for our shareholders to know that this range is there also through the cycle. So that's why we use that as a kind of a guideline for everybody following us. And then after Q2, normally we come back with a more detailed outlook for the full year.
Okay, thank you.
Thank you. As a reminder, if you would like to ask a question, please press star one on your telephone keypad. We will take our next questions from Tim Ehlers from Kepler Cheuvreux. Your line is open. Please go ahead.
Yes, good morning. Thanks for taking my question. Well, most of my questions were asked already, as you can imagine. Maybe one question with regards to civil engineering, Netherlands. You mentioned that you saw good performance there. Is that also the case for the margins? So is your, your take confirmed that you've seen the margin stabilization that we've seen over the two years continuing?
Yeah, it's, I think that is the right summary, Tim. We're pleased with the performance of Q1 of the BAM Infra and on the revenue side.
Okay, great. And then for Ireland, you already said that there's no substantial weakness. Does the finalization of the children's hospital also has to do with the lower revenue contribution? Or was that really a short-term dip in the market that you've seen in Ireland?
No, what you see-
Or is it more comparable?
That is a large project in the portfolio that is coming to an end, and then you, yeah, you move over to a portfolio that consists of smaller projects. So there's a bit of a revenue effect there, completing one large project and starting up various smaller. All in all, it's in the bandwidth. It's, as Riet commented, it's not a big numbers, it's just a slightly smaller performance than last year in the first quarter.
Okay. It's rather a comparison effect that you see there?
Yeah.
Okay. Clear. Then maybe... Yeah, I'm not sure if you can answer that question, but with regards to Construction UK, where you've seen that weakness. No, not with Construction UK, but more with the divestment of this office project that you mentioned, that yeah, led to some higher comps of last year.... Can you maybe give a magnitude to it? I mean, if I look into Ventures UK, and I see that margin high, a spike in it to the 11.9% in H1 2023. Is it fair to assume that half of it was then contributed to this divestment so that we get an idea what the quantified impact of this positive one-off was last year?
Well, we didn't, let's say, give that last year. I, I don't think we can give that now. Like I said before, it's a substantial part of it.
Yeah. But it's overall, the development in the UK with construction UK is not something because you seem, yeah, quite relaxed, as Tijs's already mentioned. It's not something that is of big concern and that you, yeah, see-
Yeah, I think-
-from situation.
Yeah. What we say is this, we have this transaction, then we see a bit of a cool down on the commercial investment decisions.
Yeah.
supply chain headwinds, and that adds up to this message from the Construct UK segment.
Okay. But from a margin perspective rather than a top-line perspective, it's not... Because then I guess the margin drop also comes primarily from these project delays and not from an overall weakness in the market. Not something that you're deeply concerned about.
Yeah, that's true, but the environment is clearly not positive in U.K. If you follow the construction market in the U.K., I think we're doing a pretty good job. Of course, also supported by big wins in infrastructure and civils.
Yeah.
But the commercial development side in the UK construction market is, is tough at this moment in time. So compared to, especially supply chain partners, we're doing an, a pretty good job, but that does not withstand the fact that there isn't a, a difficulty at this moment in time in, in that market, going forward. That, that's, that's pretty clear, and we are hoping, of course, with new investment, especially from, the commercial side, that will come back. What we see now is that that's, of course, our, strategic target as well to, to benefit from investments from the UK government and especially education and healthcare, and that will continue. We also, are convinced that we'll continue with, after elections in the UK, end of this year.
Big investment programs are necessary for education and healthcare, and that—although that's not part of the commercial side of that market, but that's where our strategy is focused on. So in that sense, we are convinced we are following the right route there as well. So not completely depending on these commercial investments in new builds, for example. On the other hand, we see more interest in renovation, also in the commercial side, and that's where we're also focusing more than in the past.
Actually, and then one last question. Residential Netherlands, 440 homes, that's pretty impressive number. Do you decided to stick to the rather conservative guidance of 1,700 homes, you know, just for the sake of, yeah, being a bit more careful, or did you have a significant impact in Q1 from a big project that led to this increased number?
No, not really. I think, I think you're right. I think we are very pleased with this number, big uptick compared to last year. And maybe even more important is the climate in the market, where private consumers are coming back to the market and prices are increasing. And that's more important, I think, than only the number, because it's very volatile.
Mm-hmm.
Indeed, sometimes you have big developments where you have big number of homes involved. This was not clearly happening in Q1. I think it's just an representation of where the market is at this moment in time, which is a positive trend. But it would not be smart, I think, to do a prediction for the full year here because of the volatility of the market.
Yeah, fair enough. Fair enough. But it's yeah, overall market improvement and not yeah, one of project with big housing-
Yeah.
-operation.
Yeah. Yeah.
Yeah.
Definitely.
Okay.
Yeah.
Perfect. Thanks. That was it from my side.
Thank you. We will take our next questions from Leontien de Waal from ABN AMRO. Your line is open.
Thank you. Good morning, gentlemen. We talked a little-
Good morning.
Good morning. We talked already a little bit about UK infrastructure. Elections are coming up. What's your stance upon the impact of the elections in terms of how will it affect your future order intake and perhaps also margins? We generally see a freeze on infrastructure budgets for quite a lengthy period around the elections. So how does that impact your business?
That's a very good question, and of course, talking about politics nowadays is anyhow problematic, but, as we know, also from our Dutch situation, so let's be very careful here. But the only thing I can say is that, with either side of the political spectrum, winning that election, there will be investment in infrastructure, especially in the electrification side of it. There is a U.K. commitment on that, which is pretty strong, as by the way, the same in the Netherlands. We don't see that changing with the new government. So we see their long-term investment programs that are committed, and that will continue after the elections. So that's a very positive signal for our infrastructure business in the U.K.
On the construction side of the spectrum, we are also convinced that with the new government in place, there will be a positive investment program going on, especially on healthcare and education. And that I think will be on both sides of the political spectrum. I think in a Labour government, which is now, let's say, positively or looking with a positive mind at the elections, you can say, are also very interested in investing, in investing in education and healthcare. So that is where we are, and I don't see a change there after the elections. I think the U.K. people are really expecting their improvements and probably will also be part of the discussions within the before the elections.
I think that can only be positive for BAM, being specialized in education and healthcare.
Thank you. And, as we all know, well, the municipalities are facing budget problems. How much of that is true also for the other authorities whom you work for?
Yeah, we see that in, especially in the UK, yeah, that some,
Yeah.
Indeed, on local level, you have individual issues. Absolutely. We are looking at, let's say, UK-wide investment programs that are committed. So our expectations are based on these UK total numbers.
Okay, thank you.
Thank you. We will take our next question from Tijs Hollestelle from ING. Your line is open. Please go ahead.
Yeah, thank you, operator. Yeah, I was thinking in the past, and that's a long time ago before you were running the BAM Group. But BAM then seemed to execute a very thorough analysis of its project portfolio, if I remember correctly, somewhere in November. And so a detailed look at project budget versus the project progress, and then it's, in the past, led to an above average chance that the full year profit was adjusted upward, but also downwards towards the end of the year. Now, I understand that if significant issues pop up in a project, that they are addressed immediately and also being reported in the reporting period.
But there's also part of the project in which you can basically look, let's say, at the future milestones per project, and that you can already basically anticipate problems further down the road. Is this now taking place more early in the earlier in the year at BAM, or I'm completely wrong on this?
I think you're right, with the fact that, probably this happened in November. I don't know about it. What we do now is constantly looking at the portfolio and taking all projects into account. And, yeah, our numbers and our outlook, although, let's say, more very detailed after this Q1, are based on that, Tijs.
Yeah.
Of course, that's... I think Frans and myself are more, let's say, focused on that nowadays, looking at all projects, not only the big ones. Of course, we are finalizing some high-risk projects from the past, more and more. So in that sense, our portfolio has improved a lot. We also know that some of these old projects were still in the portfolio also in this year, so let's be very transparent about it.
Yeah.
But that detailed look at all projects is now much more part of our DNA, and our outlook is always based on this year.
Yeah, let me emphasize that. So every month we do report, but specifically on a quarterly basis, we have in-depth reviews of the projects, and then we really look at progress and also at the milestones that you refer to. So that is really a continuous process to come to revenue recognition, hand in hand with very detailed value analysis of how we value variation orders and claims. So that is really drumbeat in the quarter. And there's not a specific exercise in November, as we run it.
Yeah, and that was the case in the past. So probably in the past, some projects were only reviewed in a lot of detail once a year. Therefore, the deviation between budget and expectations could be much more wider.
Mm.
So you do that now every quarter,
Absolutely. And, I can't comment on that, on that part of the past, Thijs. We do this already for years, as long as I'm here, on a quarterly basis.
Yeah. Thank you.
Thank you. It appears there are no further questions at this time, so I will hand back to Ruud Joosten for any additional or closing remarks. Please go ahead.
Yes, thank you. Yeah, thank you, ladies and gentlemen. This brings us to the end of the call. So finally, we'd like to mention that we will publish our half year results on Thursday, the 25th of July, so three weeks earlier than in previous years. Thank you for your attention, and wish you a good day. Thank you.
This concludes today's call. Thank you for your participation. You may now disconnect.