Good morning, everyone. I'm Michel Aupers, Investor Relations Manager of Royal BAM Group. Welcome to everyone joining this analyst meeting here in Amsterdam or in the audio webcast. The meeting is hosted by our CEO, Ruud Joosten, and our CFO, Frans den Houter. They will make a short presentation on key points of BAM's results for the full year 2022 that we published this morning. Afterwards, we will take analyst questions. I'll draw your attention to the disclaimer here. Ruud, over to you, please.
Thank you, Michel, and good morning, all. Here in Amsterdam, we have a great view on our crossover project across the highway. We'll complete this mixed-use building this summer. It'll have the highest sustainability label, BREEAM-NL, outstanding for a mixed-use building, offices, homes, and retail, which is unique in the Netherlands. This is an BAM AM project from A to Z, and a great example of intercompany collaboration within BAM Group. For all those in our webcast, you see another sustainable project, the Echo building at the Delft University of Technology last year. BAM Bouw en Techniek completed this new interfaculty building. This energy-generating interfaculty building is designed to meet the leading Dutch university's need for flexible extra teaching space. This brings us to the main item of this morning, our full-year results. We had a good year in 2022.
We delivered our guidance and made substantial progress with our strategy. The financial position of our company further improved, driven by our satisfactory operational performance for the year and also supported by our divestment program. Our liquidity position remains strong. We made early and full repayment of the deferred COVID-19 VAT and salary tax payments, and refinanced the revolving credit facility, which is now also linked to our sustainability targets. Our capital ratio improved substantially. The order book is solid. Taking account of this financial strength, I'm pleased that we are proposing to restart paying a dividend to shareholders after a gap of 3 years. The proposal of EUR 0.15 per ordinary share represents a payout of 32% of the net income, excluding the one-off result on the Wayss & Freytag transaction. Let's look at our strategic development in the year.
We made significant progress with our strategy, Building a Sustainable Tomorrow, during 2022. In line with our plan, we further improved the focus of portfolio by divesting two Belgian subsidiaries and our German infrastructure company, Wayss & Freytag Ingenieurbau. Our new organization structure is in place to drive operational excellence, knowledge and sharing, and development of lifecycle solutions. We introduced a culture program focused on five values, and we are investing in industry-leading capabilities for sustainability and industrialized construction. In January, we launched a new sustainability strategy. This is very important for our group, and I will say more about it later. The next slide is a summary of our progress against strategic targets. We met many of the strategic targets for 2023 already last year. We are in much better shape than two years ago when we started this strategic plan.
We have two strong divisions in our growth markets. We lowered our risk profile, maintained a solid order book, strengthened the financial position, and rolled out a bold new sustainability agenda. I thank our employees for the great job done and continue to do as we drive forward with the third year of our strategy. Let's look at the performance of the two divisions. As part of our sustainability strategy, we continue to invest in zero-emission equipment. Adjusted EBITDA in the division in the Netherlands showed a strong increase to EUR 173 million, equal to a margin of 5.9%. The contribution of Dutch construction and property was still solid, but below the high level of 2021.
In the last quarter of the year, we sold 925 homes, bringing the total of 2,028 homes for the full year 2022. Non-residential was held back by inflation, supply chain issues, and delays at some projects in the Netherlands and Denmark. Our activities in energy, water, and telecom solutions improved substantially. The civil engineering activities showed a recovery with good operational performance and made a welcome return to profit. We made good progress on Afsluitdijk, and we closed the file on the Sea Lock IJmuiden. Our order backlog is stable at EUR 4.4 billion. Moving on to the division U.K. and Ireland.
For several years, BAM Nuttall has worked under challenging conditions around the tides and through the seasons, as well as during the COVID pandemic, to strengthen the Dawlish sea wall and provide greater protection to the railway in Dawlish from rising sea levels and extreme weather for generations to come. The division BAM U.K. & Ireland report an adjusted EBITDA of EUR 82 million, reflecting a margin of 2.6%. During 2022, the results were held back by supply chain issues and some larger contracts, especially in civil engineering. BAM Ventures shows a stable performance. In Ireland, we are in constructive discussions with the client regarding the National Children's Hospital, which is now at 80% completion. Order book declined mainly as the result of the review of regional roads programs by the U.K. government and the negative effect of exchange rates.
Frans will take us through the numbers.
Thank you, Ruud. Good morning, everyone. This slide shows the Dendermonde prison in Belgium, a project of Invesis, BAM FM, and also Interbuild. As Ruud said, 2022 was a good year for BAM. We delivered a total EBITDA of EUR 350 million, over EUR 6.6 billion of revenues. I'm also pleased with the further improvement of the quality of our balance sheet, illustrated by the strong improvement of our capital ratio from 14.5% to 21.2%. Trade working capital increased but remains at a good level, with an efficiency ratio of -15.8%. Our solid operational performance, in combination with the shortening of the balance sheet, resulted in an average return on capital employed of 16.8%, versus 5.6% last year. I also like to mention two important steps from the last quarter of 2022.
As Ruud said, we made early and full repayment of EUR 120 million deferred COVID-19 VAT and salary tax payments. We further strengthened our financial position with the refinancing of the RCF for EUR 330 million, which is now also linked to our sustainability targets. Let's go to the income statement. Total group revenues declined by 10%, reflecting the effect of the divestments. Revenues of the division Netherlands and U.K. and Ireland combined increased by 2%. With the total adjusted EBITDA, the EUR 52 million book profit on the Wayss & Freytag transaction is reported in the line Germany, Belgium, and International. This line also includes 9 months operational result of Wayss & Freytag, and the full positive results from BAM Interbuild in Belgium.
BAM shares of Infosys net results for the full year was EUR 24 million, which is included the EUR 16 million from positive changes in fair value of hedges. Depreciation and amortization was lower due to the divestment, and it is a positive development that total impairments were modest versus previous years. Arriving at the bottom line, I am pleased there is a big step up on our net result to EUR 180 million, which equals an earnings per share of EUR 0.60. Excluding the one-off Wayss & Freytag transaction, our EPS is EUR 0.47, which is a major improvement versus the EUR 0.07 we reported over last year. Before we go to the cash flow statement and financial statements, I will provide a short update on Infosys, our 50/50 joint venture with PGGM.
Today, BAM Ventures reports a portfolio of 48 projects, of which 5 are under construction. Important developments in 2022 are the financial close of the Egied van Broeckhovenschool school in Belgium, and the acquisition of a data center operator in the U.K., Asanti. BAM Ventures contributed substantially to our 2022 results, please bear in mind, this is also supported by the revaluation of hedges. This year, BAM Ventures expects several bidder decisions and has an active identified pipeline of project opportunities. Next to the traditional market, BAM Ventures also pursuing opportunities in new markets. All in all, we are very pleased with our BAM Ventures venture, and we appreciate our partnership with PGGM as we continue to grow the business together. Let's go back to the financial performance of the group. Our cash flow from operations was strong, delivering EUR 246 million.
Previously, we provided guidance to the market that we expected working capital to increase. In the numbers provided today, you see it is reflected in the balance sheet and a step up in the trade working capital efficiency. Cash flow from working capital was EUR 466 million negative. Let me provide a breakdown of this number. First of all, we repaid the remainder of the COVID-19 deferred VAT and salary tax payments, resulting in a cash out of EUR 120 million. Secondly, divestments had a negative effect on total working capital at year-end and resulted in a cash reduction of EUR 70 million. Thirdly, shorter payment terms for mid-sized companies in the Netherlands resulted in a cash out of around EUR 40 million. Number four, an increase of our property positions under construction in residential and non-residential resulted in a cash out of EUR 50 million.
Number five is the cash effect of our strategy to step away from large lump sum contracts that typically have sizable pre-funding. Last but not least, the seasonal cash flow inflow at year-end was lower compared to previous year as a reflection in the change of client behavior in light of increasing interest rates. Moving to our financial position. As stated in my introduction, I am pleased with the improvement of our financial position. Our capital ratio improved to 21.2%. This is driven by our substantial improved performance, the positive impact of the Wayss & Freytag transaction, and the shorter balance sheet. At the end of 2022, our balance sheet declined by almost EUR 700 million to a total of EUR 3.8 billion.
To conclude, I am pleased with the substantial step up in the return on capital employed to 16.8%, reflecting our financial performance. Back to you, Ruud.
Thank you, Frans. Our strategy for 2021 to 2023 is called Building a Sustainable Tomorrow. This is focused on positioning BAM for a sustainable future. To complement this, we announced in January our sustainable strategy. This is a holistic strategy about how BAM interacts with planet and people, going well beyond carbon. We have defined six themes which align closely to the United Nations Sustainable Development Goals. These are decarbonization, circularity, climate adaptation, biodiversity, safe, healthy, and well-being, and social value. This is a multidimensional approach, looking at all the elements that a construction company can influence. We see a strong drive for sustainable construction in our markets. Supporting clients in their own sustainability goals is increasingly the way to win. We are happy with the feedback so far on this new strategy, especially from clients and employees. Looking ahead.
We continue our strong focus on order book quality and selective tendering. The order book is at a solid level of EUR 10 billion. The change since a year ago is mainly caused by the divestment and the review of a road program in the U.K. The wider macroeconomic uncertainty are causing some delays to tendering and starting of new projects. In the Netherlands, the government is committed to essential investments for energy transition, infrastructure, and housing, while the uncertainty regarding nitrogen persists. In the Dutch residential market, discussions about the rent regulation are creating uncertainty for institutional investors. Average house prices and the number of building permits slow a declining trend. Nevertheless, there is a clear shortage of affordable and sustainable homes. BAM is well-positioned to supply these homes. We are investing in innovative solutions for sustainable and affordable homes.
In the U.K., growth sectors in civil engineering are rail, road, and energy. Although infrastructure spend may be scrutinized due to macroeconomic developments, the longer-term outlook remains good in BAM's key U.K. construction markets for education, health, offices, and leisure. In Ireland, economic conditions are mixed. A clear positive is the commitment from the Irish government to a 20-year national development plan focused on infrastructure. BAM is in good shape to benefit from its strong market position and structural growth opportunities. Despite headwinds created by the uncertain macroeconomic and the geopolitical situation, the group remains on track with the execution of its strategy. It's aiming to deliver a performance towards the 2023 strategic targets. To conclude, I am pleased with the performance for the year 2022 as a whole, and especially because we can propose our shareholders a dividend of EUR 0.15 per share over the year.
We will take your questions.
Can I start? Yeah. Martijn den Drijver, ABN AMRO Oddo BHF. My first question would be, on your 2023 statements, aiming to deliver a performance towards the 2023 strategic targets. Previously you said the target is 5% adjusted EBITDA margin. What has changed that you now use somewhat, well, or clearly softer language?
Well, to be exact, the target was approximately 5%, so it's a very small, I think difference there. Let's say we are used in the first meeting of the year, in this meeting, not to give an outlook for the year. That's what we do also today. Clearly the results of 2022 shows that we have de-risked the company. A lot of let's say, risks are taken out, if you look at the divestment, but also the big projects and the projects that we settled in the year. In that sense, our company is, feels much more solid, than two years ago. That's what's reflected, I think, also in this text, that we are on track with the implementation of the strategy.
There's a lot of uncertainty in the market. I think everybody can read it in the newspapers. Of course, we like to be realistic as well and come back with hopefully a more specific outlook during the year.
Just to follow up on that one. If you take out Wayss & Freytag's profitability, because that's been divested now, and you take out the one-off settlements that you had, you get to a level ballpark 3.8% adjusted EBITDA margin. Getting, given these market circumstances, to around 5% or two, it seems quite a challenge, to put it mildly. Can you elaborate on the building blocks that you see to get to around that level? What are the key elements to get to that level?
Yeah. Maybe 4.5%, on that basis, Wayss & Freytag is already excluded, huh? It's in the 5.3%. If you would normalize for the impact of the divestment, I would say 4.5% is the underlying performance of the company in 2022. With that, we provide the guidance as just discussed by Ruud, we aim to move towards strategic targets, yeah. There are more targets. It's about the EBITDA, but it's also about revenue. It's about ROCE.
We will give more guidance as the year progresses.
Is it, is the upswing, more in civil engineering, the Netherlands? Is it more in the U.K. that you need or is it just across the board?
No. That's too early in the year. You see always the group has a portfolio with two divisions and a number of segments. Detail we will provide of course, as the year matures. That's too early to bottom out.
My second question is, it's obviously a difficult one, but has the Netherlands Public Prosecution Service given you any indication as to timing or planning? At a certain point in time, the Dutch public prosecutor needs to say, "We're going to charge you," or, "We've done our investigation, and there is no charge." Is there any indication as to whether that take, well, semesters, years? Anything would be helpful.
Well, everything we want to communicate about that is in the press release, that's everything we know at this moment in time. Of course, when there is any news, we will bring it, we will communicate it immediately to the outside world.
Okay, thank you.
Morning, everybody. Tijs Hollestelle from ING. Yeah, I appreciate that BAM started to paying a dividend again. And the stability and the predictability I think also helps. For me, the dividend payment going forward is an important characteristic of the stock price. It's too early, yeah, for you guys to talk about the dividend over 2023. On a higher level, yeah, because you already excluded the book gain from the EPS to start at the low end of your payout ratio, is your intention to, let's say, pay a progressive dividend? The earnings of BAM going forward will always be kind of volatile, so that you, let's say, pay the absolute amount next year so that it is kind of a floor in the dividend.
Maybe because in the U.K. you see that if there is a situation of a real strong performance and excess cash that you provide, let's say, a bonus dividend on top of the normal dividend so that investors and also analysts can always calculate basically the floor and the dividend.
Yeah.
on a high level-
Yeah.
What is your thought about that?
I'm very happy with that question, Tijs. I would not expect to already discuss the dividend of next year. That's first indeed, we're very happy that this year we can propose dividend to the shareholders. We feel EUR 0.15 is a good restart. It's as you say, if you correct for the one-off, it's at the low end of the range of the policy. The policy says 30%-50% of our net results. And that's the only statement we make now. Going forward, we just will, of course, look at 2023 if the time is there. As a policy, of course, and we are happy that we can respect it again today here.
Okay.
Well, we can say the strategy is a stable to rising dividend. That's what we aim to do, of course, which is probably a statement many companies will make. That's of course what the ambition that we have.
Okay. That's clear. Then on the public-private partnership division, can you help us a bit with the technicalities? How can we calculate or estimate, let's say, the impact of FX? Because it can also probably reverse.
Yeah. Indeed, Infosys had a bit of a complex year with the impact of the hedges earlier this year. Let's first look at the net result, EUR 23.5 million.
Yeah.
Basically, earlier this year we already confirmed there's EUR 16 million of hedge revaluations that ran through the P&L. we run that now through our equity. The P&L volatility has been removed going forward. Underneath there's an EUR 8 million, yeah, true performance if you like, of Infosys. You see still of course, hedge revaluations in equity as always. we specify them, so we make sure it's clear what they are. EUR 35 million for the year 2022. Of course, that helped in our solvency because if you add it up, that's 1% of solvency, combined with the net results.
Yeah.
Going forward that will remain volatile. It will follow the interest rate movements. In the longer run, in those long, typical SBC contracts, of course, there is a zero effect. It goes up and down with the interest rates through equity. We cannot make any forecasts on how that will evolve. Only in the long run there will be. Yeah, there's no effect, but it's, it just swings as the interest rate evolves.
Yeah. I understand the impact on equity-
Yeah.
That has always been the case with BAM.
Yeah.
In the published, let's say, profitability numbers, it will also disappear?
It is already disappeared. The effect you see now, that is from the first half of the year. In the second half year, you see true performance of Infosys.
Okay. Yeah. That helps.
Yeah.
That was indeed my question. Yeah, for now maybe a last question. I appreciate your comments on the trade working capital split out-
Yeah.
I don't have to ask it.
Yeah.
-for the first time ever, I guess. Also looking forward, I mean, what is your feel? What will be the big movements in trade working capital, what you can see already right now?
Yeah. We feel that those last two components that we mentioned there. Clearly BAM has stepped away from large lump sum projects where you typically receive a lot of pre-funding.
Yeah.
We like that element. We do not like the risk profile and the margins that those projects bring. We don't enter those anymore. That is not there anymore and it will not come back. That's one. Number two, the last statement is that, yeah, the interest rates of course have impact on behavior of clients. The typical, yeah, dumping of cash almost at year-end that we used to experience, which is difficult to predict.
Yeah.
Also, yeah, a bit hard to understand because it's very temporary moment in time. We feel that we'll be more stabilizing going forward. Then driven by the interest rate, the trade working capital will further go up, be less negative, meaning a cash out for the company. Yeah. As we saw this year, 1% up, it did not surprise us. Similar number for next year, it's really difficult to predict.
Yeah.
We expect that that will be a cash out. EUR 50 million-EUR 100 million cash out on such an item is not out of the ordinary.
Yeah. That's clear. Yeah.
Yeah.
I appreciate already the early flagging of this by you. Also the impact from, let's say, pre-financing on the property development there, because a lot of consumers prepay the purchase of a house. Yeah, the housing market in the Netherlands is cooling off.
Yeah.
Is that an significant amount in the total? If the market goes down further, that you can also say there's another EUR 100 million to be lost on the pre-financing trade working capital?
No. Typically we only start construction of our projects if we have sold 70% of our positions, yeah, of our apartments, before we really start to work. During construction, of course, you grow that percentage. Yeah, we do not see dramatic changes yet. Yeah, the market is a bit under pressure, so we may expect a bit more of that 30% to be there. Because in recent years, basically we were sold out straight away, so all the projects we started were 100% sold.
Sure
... at start of the project. Those days are clearly not there anymore. Yeah, to speak of substantial cash out for 2023, I think we don't see that yet. Although we will see maybe a bit normal patterns that we used to have. Yeah, a modest cash out, to reflect that, is something you can model in.
Yeah. Yeah, while we're talking about the housing market, how much visibility do you have, let's say, for this year? You have an order book, you're in talks with all these developers, et cetera.
Of course a lot of things are happening in the Dutch market at this moment in time. We had the nitrogen ruling, we see the interest rates going up. We see consumer confidence going down because of economic uncertainty. On the other hand, there is still this huge deficit of homes, and that makes it very difficult to balance it out in the end, when and how big will the impact be on BAM. For this year, we have visibility for indeed for 2023, and we are still confident looking at the statement we made on our outlook. That says enough, I think.
Of course, we anticipated earlier in stepping into projects that are aligned with indeed nitrogen areas, but also the mix in the portfolio of homes that are maybe a little bit lower in price, huh? Because that's probably the most attractive part for the coming years, and less impacted by, for example, rent regulation. In that way, we try to, yeah, optimize the portfolio and still make use of the deficit of these homes, which is clearly there, if you look at the additional people in the Netherlands last year caused by immigration. But also the number of households increasing dramatically because people get older and people live more alone. The market is there. The long-term market is there. It's... Do we have the capabilities to make use of that in a smart way?
Looking at all the, yeah, let's say complications that are in the market at this moment in time. It's not easy. For this year, we see a cooling down of the market, a cooling off of the market, like Frans described. People are first selling their home before they buy a new one. That will give a delay then, eh? That will give a kind of a, yeah, a short delay in the market dynamic because of that. That will happen. That is happening. We feel confident that we, with capabilities we have, we can make use of that in a proper way. Okay, let's stay realistic. The market is not as buoyant anymore as a year ago.
Yeah. Okay. Thanks a lot.
Maarten Verbeek, from The Idea. Firstly, you have reduced your order book by some GBP 600 million because of a U.K. government review on the regional projects, road development projects. What are the odds that that could come back, or that that could come back at a different size, or could you put some more color on that?
A good question. There's a number of projects in this, in this, in this program. Those have been put on hold, where on some of the scopes we were already in the mobilization. We feel that those, most of those scopes in the end will be going into the market and that we are still well positioned there. The question is when. It's very difficult to assess what the government's timelines will be. In the end, we have good hopes that in the end these projects will be going to the market and that we are well positioned to execute them.
Could it cause for some underutilization at your end because you have taken them out of your books?
No, because these are multi-year programs, so that order book number is spread over five years. It was not a huge job all in 2023. We can adjust our portfolio quite easily.
The press release also states that in Germany, you have sold all your operations in Germany, but still, you share some responsibility for some projects. Could you put some more information on that?
That was part of the first transaction that we did with the Germany Construction and Property, where we have a number of projects that we are completing together with the current owner of the company. Also there were a number of, yeah, typical assurances and guarantees in the transaction that we are still following up, and where we also provided assurance to the buyer.
Okay. Do you already dare to make some, provide some guidance on the home sales you expect for this year?
Well, I try to answer that, let's say on the question of Thijs, and difficult to give a number there. also not smart-
Broadly in line with last year's 2000, or do you expect it to be somewhat lower?
No, I'm not giving you a number there. I think that would be a bit too early in the year. Maybe in the next meeting or in half year, we can have a more clear statement. You saw that this year we had a great run in the last quarter, and we sold 925 homes. In one quarter, supported also by some institutional transactions. That's also very much, let's say, depicting the number, what kind of homes are part of these deals. Sometimes there are indeed investor, big investors having more units in one deal, then it can go very fast. You have to be a bit careful there in giving a number.
Okay. Of your current order book, some EUR 5.1 billion will be executed this year. In the past, that would reflect more or less 80% of your annual revenues, but your portfolio has changed somewhat, to put it mildly. Do you believe that ratio is still valid?
Yeah. We did not disclose guidance on the revenue for this year, but we can confirm the percentage of secured revenue for this year, which we track, is in line with previous years. There's not a huge deviation. In that sense, the risk profile on the order book is okay.
Just want to come back on Wayss & Freytag. My initial question on the EBITDA margin and excluding Wayss & Freytag wasn't including the one-off, it was the profitability up until deconsolidation. In order to understand what the underlying performance is of BAM in 2020, could you confirm that the Wayss & Freytag unit had EBITDA margins roughly, give or take, 7%?
Correct. Yeah. Because they typically have a higher depreciation portion in there, so they were on the upside of the range. They were indeed included in the numbers up to Q3.
Okay. Clear. Secondly, I know that the Belgian units are now part of the core operations, could you shed some light on the profitability of those units? Is that in negative-
Yeah
...territory, positive territory? Just a little bit more color.
Yeah
...so we.
No, it's a good question.
...full performance.
We are really happy. As we said, EUR 150 million of revenue in there, and yeah, the just the EBITDA %, it's in range of 4%-4.5%. We're pretty pleased with that.
Okay. Got it.
We are happy there. We reorganized the organization there a bit last year, integrated the developer and the Interbuild, which is the builder. We're let's say pretty happy with the results, order book, and also the spirit is now in that company. Being a full part of the BAM Group again.
Have you actually communicated, obviously you had that in the press release, but some sort of longer term commitment to these units?
Absolutely. Belgium CMP is with the group there to stay.
Okay
We have the two divisions and Belgium CMP. It's reported in the line item Germany, Belgium, and International.
Mm-hmm.
Of course, in 2023 we will further, clean up because then the divestments will be out, and it will be more about Belgium CMP, going forward. We will be showing you more numbers there going forward.
On the order intake, can you shed some light on how that, the quality of that order intake has been specifically in the second half of the year? There was more pressure on the market. Have you been maintaining that discipline or did you have to move with the market, meaning slightly lower perhaps versus the first half?
No. We stay very selective. We are on top of that because of course that predicts your profitability in the future. Same discipline there and we maintain the same kind of expected profitability percentages for these projects in that order book. Order book is sometimes a bit hesitant, especially for bigger projects in the CMP area, non-residential, where sometimes large or big investors are a bit hesitant to go for these bigger projects. We also had some scores there, you know, over the last period. We still are confident that with our expertise, and that's the good thing we see now more and more, people are very much interested in stable parties with a lot of expertise in, for example, sustainability in big tenders.
Of course the owners and the investors also want a very sustainable project, and then BAM can give the answers. That's more and more the discussion in these big tenders. We still see then that we can indeed keep our profitability, have strict, let's say, rules regarding inflation for these big tenders, because these are long-term projects. That's what the game we are playing. We are very disciplined there. If that's not in the tender, we will not go into these projects. That gives a comfortable attitude also from our people to the market. In that circumstances, we still have a few big wins over the last over the last period. We mentioned, I think, Bajeskwartier in Amsterdam last time.
In the newspaper, in some communication, you could already see new police head office in The Hague that BAM will be building as well, so.
Another large hospital in the U.K.
Not another one.
No, no.
Yeah, in the U.K. itself. Yeah, yeah. I thought you were referring to the Irish hospital.
I'll get to that later.
We are still completing that one.
I'll get to that later.
Hospitals is indeed an expertise in the U.K. Hospitals and universities are our key core business, so that's correct.
Just to follow up on that order intake, when inflation went up, when we were talking about building materials, you said that on the larger contracts we have a clause.
Yeah
...that leads to immediate amendment. We were talking about energy cost, wage inflation going well beyond-
Yeah
...what was normal, for which you didn't have a clause.
Yeah.
You were trying to include that into your contracts and sometimes even amend contracts perhaps that you already had signed. How successful have you been in implementing those elements into new contracts? That's question one. The second one is, have you had any hiccups in terms of projects already in your backlog? Where, well, in fact, you've had to go back to the client, say, "Hey, we're unable to do it for that level-
Yeah.
-for that price.
Maybe on the first one, this is a discipline that's in the company for a longer time, fortunately. Yeah. Because otherwise you would be too late. This year, of course, we experienced those headwinds.
Mm-hmm
...from inflation, we also specified, in some areas you have a bit more pain than in others, specifically Civil in the U.K. and the non-residential part in the Netherlands is where we saw the margins being a bit under pressure. In general, over the full portfolio, we are pleased with how those mechanisms have been working. Going forward, yeah, we will continue, of course. Then do we see any specific disruptions in the supply chain? I think that was your.
No, not specifically. I can imagine that you've signed contracts, in the backlog now-
Yeah
... for which you may not actually see the profitability that you had foreseen.
No. Yeah.
either you accept that.
Yeah
It would reflect upon your order intake, you say that the quality is the same, or you eat the margin.
No. We do two things. First of all, as Ruud just explained, in tendering we are focusing on quality, not on quantity, so we don't go for low margins just to have volume. Resources are scarce in these markets, yeah, also our human resources. We better.
Mm-hmm
...yeah, have our people working on projects that we are good at and where we have a healthy contract and can make a margin than just to, you know, try to get volume into our order book. That is not of the right balance there.
No material hiccups?
No.
Okay.
Well, what you do see, of course, in the whole supply chain, there are issues. That maybe not so much in the BAM numbers, in the total portfolio and total supply chain, you see some issues, and we also mentioned a few of these in some of the projects. That's also fair to state. We have been pretty good, I think, in de-risking that part of the profit and loss.
If I may, just two more. On the German projects for which you are still liable to a certain extent, when do you think those projects will end, or when those settlement discussions will end? Do we see the light at the end of the tunnel in that respect?
No, I think a light at the end of the tunnel.
Is a bit too negative.
First of all, yeah. We will also coming year, as I said, the line Germany, Belgium, International, we will report out on, and that will be a mix as this year, of Belgium CMP. We have still also in International, that's not done yet. The projects are completed, we have still some discussions with clients as we have the project in Germany. We will report to the market what is happening there, we don't expect these numbers to be material of impact to the group overall performance. It's pluses and minuses. Timing is difficult to predict.
These projects are in the final phase, right?
Yeah. Projects in Germany have been physically completed. also there it's about discussions with clients...
Got it.
...which are difficult to estimate in time and outcome.
The B version of this question was indeed with regards to the BAM International projects, which are now mainly, I think, in BAM U.K. & Ireland. Are those about to be completed as well? Antarctica seems to be progressing well.
Antarctica is a very special one for the U.K. organization. Let's say they are not in the portfolio of issues or problem projects. These are very specific projects and profitable projects for the U.K. government. That's, for me, a different ballgame. Some of the, let's say, the bigger civil projects that were first part of International are now partly part of BAM Nuttall, but some of them are also in the Wayss & Freytag business. With that sale, the percentages are clearly down for BAM Group.
Got it. Then my final question is on CapEx. That's gone up a little bit more in the second half of the year, due to electrification, perhaps some other elements. What is your guidance for 2023, perhaps even 2024?
CapEx currently at a level around EUR 93 million, so a little bit below our depreciation profile. In there we're still, of course, partly the companies we have divested meantime. That EUR 93 million, we expect it to go up a little bit because we will continue to invest in electrification of our equipment. Guidance around EUR 100 million in the new setting would be a good number to start with.
The same for 2024?
Yeah. I think it's a more general statement, so it can be a bit more, a bit less, but it's in this area. Typically, depreciations, CapEx are close to each other in a construction company. I think we will invest a bit more than we depreciate in the coming years because we see opportunities there to grow our business.
Thanks.
Okay. Good morning. Shit. Tim Eilers from Kepler Cheuvreux. About the infra business, also when you look at the EIB report that was published, I think 2 weeks ago, and the outlook on the overall construction markets on not only proper residential construction, you can see that they also predict that even infra will go down a little bit, and the only market for growth is everything sustainability related. Do you have a share of your revenues that is exposed to that market? As I understand it, for example, your BAM Energy & Water, which obviously is part of that, is in your construction property, but you also have parts of it in civil engineering. Can you maybe also going forward give maybe a share of revenue?
I was asked that quite a bit from clients to make a, yeah, estimate, yeah?
Yeah, this is very dynamic, this is in full development. What I can tell is that over the last couple of years, we clearly decreased in infra the big projects side with the lot of risk profile projects. We changed strategy in the Netherlands completely towards these segments. It shows that we are confident that that indeed will be the market. We see more and more customers and also governments, yeah, coming through with their sustainability claims in projects. I still think that goes too slowly, also from a Dutch government point of view, also other governments. I would expect more drive there because when the government communicates very strict and ambitious sustainability targets, would also expect then when they tender to bring this as a very important element.
I think we still have a lot to learn. It's also our responsibility. That's why we came up with this very ambitious sustainability strategy. I don't know whether you have seen that strategy, but it's, it goes very far, and it's very ambitious. We really set here, let's say the agenda for the industry, not only about carbon, because most companies only talk about carbon. We have six elements, or in a way, eight elements of the SDGs to cover the full palette of things we can influence as a construction company. Of course, that's a very clear signal to the market that we want to drive the business like that. Together with our customers, we want to take up that glove.
The strategy for Infra is completely based on that one. We are restructuring that business into a specialized business on these kind of projects. Smaller Infra projects, but mainly focused on electrification, for example. For now, the portfolio is already different because we don't step into these large projects anymore. The next three years, three, four, five years, maybe even longer, this will be probably 80% or 90% of the Infra agenda for BAM anyway. That's a bit the context of that development.
Okay, clear. Thanks. Catching up on your housing markets topic, obviously one of the most present topics. I think it's quite impressive that you managed the 2,000 houses overall last year, especially with the 900 additional ones in Q4. As you said, that mainly comes from a big institutional project. Does it mean, obviously, the revenue per unit were down? Or how does it look there? What does the EBITDA margin per house or unit sold then mean? If you say, okay, we can offset a cool-off with bigger institutional projects maybe, does it has any effect on the margin?
In fourth quarter, basically, the margin is still in line with first part of the year. Not the sharp increases anymore that we saw in the previous years because it had been a good period for this business. Yeah, with that going forward, we have to see, of course, how that evolves. As you say, we are really happy, 950 have been added in 3 months' time, but number of larger transactions driving that.
Okay. One question to U.K. You've seen a decline in EBITDA margin there. Let's say going forward, if that margin does not improve for whatever reason, do you also have, let's say, an emergency plan in mind? I mean, it's significantly below your target margin that you at one point maybe say, "Okay, maybe this is also something we look at from a, yeah, quality over quantity perspective," and say, "Okay, maybe we rather step out of that market because we don't see any margin improvement there." I mean, top line grew, but also FX effects, obviously. Yeah, bottom line did not improve. Is that something you monitor, or is that something you're not concerned about at all because you believe they will recover?
No, it's a fair question. Of course, we are very much interested in that because we have two big divisions. In that sense, it's pretty foreseeable. Indeed, of course, we will look at improvements of that profitability. I think that's the target number one. There as well is a huge demand for especially infrastructural work in the U.K., a lot of investment coming through. You see there's a little bit of a different model there in the depreciation. 1% you can defend lower than the Netherlands because of 1% lower in that part.
Still, the challenge is clearly there to improve profitability by selling our services better and telling our customers that the price they have to pay for the things we can do are worth, have value. That's our target for. That's the opportunity I think we have as a company to improve indeed the overall group profitability. You see already a good development in Ireland, where we stepped in last year, more change management, look differently at the portfolio. That kind of focus from our side will hopefully lead to further profit improvement.
Okay, one last question. Just a quick one. Regarding your projects in Germany, you said that all of them are physically completed. What about the Fehmarnbelt Tunnel? I think you still have a stake in there, and it's not complete.
Yeah, that's reported in Infra the Netherlands. That stake has been transferred. With the closure of the Wijzonol transaction, 50% of that share has gone to the new owner.
Yeah.
The other half is managed from Infra the Netherlands' services.
Oh, okay. It was only about the projects within BAM Germany and not.
Yeah
the German exposure within BAM Netherlands.
Exactly. the German part of the-.
Okay
... of the share has been sold.
All right. Thanks.
All right.
Leontine Waal from ABN AMRO. You already told us a bit about your sustainability strategy, which clearly points in the direction of electrification of machinery and equipment. What's your look upon all kinds of regulations coming up from Europe and the Netherlands as well, regarding carbon pricing? Construction is obviously a business where a lot of concrete and cement is used. Carbon pricing will also affect your cost price and might require certain investments or CapEx in that area.
Yeah, very good question. In general, we support, let's say, any measure to decrease the carbon levels. It's one of the key elements within, let's say, construction. As steel and concrete are creating a lot of, let's say, carbonization in this world. It's one of the biggest industries in that sense. Any, let's say, policy or activity that can decrease that huge amount of carbon, I think we support. You can say, "Yeah, that's bad for the industry." I don't think so at all.
I think we should work together and try to find other solutions or different kinds of concrete or cement or steel or let's say produce steel in a different way to substantially decrease the carbon amount within our industry. That's one of the reasons why we developed and presented last year the Flow concept, where we will change from concrete in the Netherlands to wood in building homes. Which is a big change for this company after many, many decades of this way of building homes. We will go to the wooden homes way of working. That's all part of that kind of ambition to really focus on decarbonization. We set some strict KPIs there as well in this strategy.
That's pretty ambitious because we didn't go for a 30-year or 40-year or 2 generations or 1 generation kind of KPI. We said, no, clear targets for 2026, 2030 as well. Pushing ourselves as well to do something dramatic in that sense.
If I may elaborate on that. You gave an example about residential construction in the Netherlands with new concepts, the Flow concept. If you look upon civil engineering, what's the carbon reduction potential in that area, excluding electrification of equipment, of course?
There you get into a very interesting discussion. For example, if you do a big project on electrification, with wind parks, for example, but still producing that with concrete. You have to make the calculation long term, is it helpful for decarbonization, looking at the one time carbon inflow because of the project? That's something more and more we are looking into that has to do with the scoping, Scope 1, 2, and 3 of our industry. A lot of people only look at Scope 1 and 2, then you can say, "Well, if we electrified our process, we are off the hook." We don't believe that. We think you also have to look at the Scope 3 implications, and that's what we're trying to do also with this target setting.
Which is pretty difficult, because it also has to do with the usage of the things you are building, for example. That's why you have to more and more go into these electrification projects, or climate adaptation projects, where you can have a more favorable calculation on long-term carbon usage, for example. Sounds all very complicated. It is also very complicated. The EU is also coming with new taxonomy there for all companies, especially for listed companies, and it's pretty strict, but also very much in development. Maybe, Frans, you can.
Maybe also good to point out, next week we will publish the annual report, and there will be more disclosures on this EU taxonomy. We very much see, of course, You asked the regulation, trading carbon rights, but also, yeah, of course, CSRD, EU taxonomy, where we will embrace it. We seek for, yeah, kind of level play fields to understand the true performance of companies on sustainability. That will be a journey. Last year, we already reported eligibility, as it was labeled. This year, we will report alignment on the first two chapters, climate mitigation, climate adaptation. Yeah, step by step, all companies will go to 2024, where also limited assurance will be required.
It's exciting and important, I think, that this is coming our way.
Looking forward to it.
Yeah.
One follow-up, last follow up question, more specifically about civil engineering in the Netherlands. We have the provincial elections coming up. What's your stance on that? Will it have a positive impact or will it.
Can it spur something or-
I don't know. I normally we don't have any view on politics. It's too complicated for a simple construction, company people. I really don't know. I only see as an citizen of this country that politics are pretty turbulent and, but like all of you, I guess we'll wait and see and have our own preference. Hopefully, of course, what we hope is that investments in indeed, the sustainability of this country go faster and faster because there are very ambitious targets. If you see what we've done altogether over the last years, it's not enough. If you see the concepts we have in, yeah, changing houses, transferring them from gas to zero on the meter, as we call them, with EVs and water pump and air pumps, yeah, we can go very fast.
It's still very difficult to go through the red tape and the permits and all the people who are part of the decision-making process. We are ready to do this much faster. It's not only, let's say, the mistake of others, maybe also we should be more aggressive there. Sometimes it's frustrating to see how slow decision-making is. Maybe that's the only thing I can say. Let's hope politics come more and more into the pragmatic mode of, if you set an ambition, you also create the context in which things are happening and not then. That sometimes happens in the Netherlands. There's a very ambitious target, and then all kind of ministries come with all kinds of rules and regulations or new policies that are completely against the targets that were set by the new government, for example.
That's, I think, not helpful for the Netherlands.
Thank you.
If I may, I would ask you to help me out with a hypothetical situation. If I have a large project and it's going actually really well, there are pictures on the internet how the progress is at the moment, and projections are that will be completed in a year and a half or roughly that timeframe. However, in the local media, there's some talk about substantial claims between the contractor and the actual client. If I understand IFRS 15 correctly, if you have outstanding claims, disputes over whether it's due to delay, changes in design, COVID, whatever, you would have to recognize a provision. Is that the correct way to see it?
If so, how come there's so much of a disconnect in this hypothetical situation between what is stated in the media claims and the reaction or the reporting of the company in question?
It's more statements and a mix of statements and questions coming to a hypothetical situation, let me try to respond, Martijn. First of all, we report our projects under IFRS 15, as you rightfully point out, we try to do that in a very careful, prudent way that's also being audited. Provisions we need to take are in there, we try to come to a realistic view on the full portfolio. That is the basis, of course, for our numbers that we present today. We have many discussions with many clients, this is not always about valuations or variation. It can also be about scopes, who is responsible for what, how do we interpret it, certain clauses. There are many discussions on many projects.
Then, of course, not sure what project you refer to, but there's a lot in the media, and there are many angles. Normally, we leave communication around projects to clients.
Mm-hmm.
We focus on IFRS 15 for the bookkeeping and on the quality of the project and make sure that we deliver what we committed to.
I'll leave that alone, and it was indeed about the Children's Hospital in Dublin, obviously.
Oh. Oh, okay.
For those who are listening in. two more pragmatic questions, I guess. Could you help us out in terms of the backlog growth of the energy water telecoms unit? Is that in line with the group? Is there an acceleration there?
That's bigger than the group. As we, I think Ruud also said in the voice over, so it's one of the markets we want to grow. We see that we have a good proposition to our clients there, and it's also very much in line with our sustainability ambitions. Yeah, there's appetite in the market, and Ruud gave the example of electrification. It's all in this mix where we want to grow. So it's growing faster than the rest of the portfolio.
Are we talking about twice the rate? Are we talking about high single-digit growth in the backlog? Low single-digit or mid-single-digit growth?
No, the divisions only grew by 2%, which is very modest. This is a multiple of that.
Okay. In your press release, you mentioned about civil engineering Netherlands, that you, that there's a good operational performance, and some other positive statements. What does a good operational performance mean in that sense? Is that already close to your target of, for the group of 5%, or are you midway? Just a bit of color on where you stand with that plan.
No, indeed. When we mention good performance, we look at the targets for this company, which is towards the 5%. That's what we think is a reasonable to good performance. We see in the Infra Netherlands, a big turnaround coming through, closing off of some big problem childs of the past, last year, especially IJmuiden, but also a very important deal with the government in June last year on Afsluitdijk. We are very happy to say that before the end of the year, we also had the beschikbaarheid moment with the Afsluitdijk, so the dike in that sense is ready. Still a lot of work to do, but not so much visible for the general public, right? Because that's with the sluices.
Mm-hmm
... and some other artworks, as we call them. Still a few years work to do for us, but the dike itself, 32 km is ready in time, which is big, big moment for that project. From a big negative discussion item, now it's much more positive thing we can proud of. Not only us, but also Rijkswaterstaat and the citizens of this country when you drive over the dike. It's, it's now safe for the next decades and decades going forward. On top of that, we had good performance as well operationally in the regions of this, of this business, of this segment within the Netherlands. It's a combination of operational performance on the dike itself, for example, but also some other big projects.
The smaller projects we have in the regions with provinces, with all over the Netherlands, yeah, municipalities, over the Netherlands itself. The combination of the two things, yeah, led to a huge increase in profitability in the year.
Just two follow ups if I may. In terms of completing the Afsluitdijk project, you know, from a client perspective, will that then happen in 2023?
No, no.
No, that's, that will still continue.
Yeah, that will take a couple of years more. At the moment when we hand over the dike itself is done, let's say, which is a long-term project.
Mm-hmm.
Still there is a lot of complicated work to do on the sluices. Then also need to be, let's say, renovated because of the climate adaptation specifications over there.
Mm-hmm.
We are full floor with that to make that happen the next couple of years. Let's say from a risk point of view, it's a completely different picture of course, than two years ago.
One remark or question on sluices. Is Terneuzen going to be completed in 2023?
From my mind, Terneuzen is going to be completed in a year. Probably the beginning of 2024. It's very high completion date, completion rate at this moment in time.
Okay. Thank you.
Maarten Verbeek, Idea .
One final question? One final question.
I will split it up to A, B and C. Let me briefly get back to the National Children's Hospital in Glasgow because you had a lot of discussion in the past, concerning extra work.
That's not in Glasgow.
Oh, sorry.
It's in Dublin.
Sorry, Dublin.
I was afraid we have another one. That's why
I hope not. Concerning extra work and variation orders, has it been made some progress or it's still just discussions?
Of course, we are in full negotiation with the government. I think it's very, very dangerous to make statements there. Good news is that the completion rate is at 80%, so we are really coming to an end there. We went there. We had a visit lately there. It's very impressive. It's an amazing hospital. You can be really proud if you look at the building itself. Of course, we want to finalize it also financially in a proper way. We are hopeful. We think we have a very strong position. I think we did a great job till now, also in COVID times. It's very, very difficult. Give us some time to report on that one.
In general, when you look at discussions concerning claims and after payments or whatever, is it now at a much lower level compared to the past because you have got rid of more complex projects?
Yeah, absolutely. It's also because we don't attract these kind of projects anymore, so they're running out of the portfolio. We don't want a large lump sum where typically you also then have large variation or the claim discussions. Yeah, we always, also in the past, value of course our projects in the bandwidth. We, yeah, we really have the ambition to be more prudent there because we very value predictability, which is not always easy in a construction company.
Part C of my question. In the past you have mentioned that you require some EUR 500 million-EUR 600 million in cash to run your business. You have divested quite a bit. You only opt for lower risk projects with better prepayment terms, et cetera, et cetera. What do you reckon now is the level of cash you need to run your business?
It's a good question. Indeed, we will tune that number a bit down also following the portfolio, how it evolves. We used to say 500-600. I think today I say 450 plus, maybe 500 max.
Thanks.
Yeah.
Yeah. With that, I would like to thank you for for being here and have a good day. Hopefully we see each other in a couple of months. Thank you.
Sorry, didn't use the mic. Again, thank you for being here, asking your questions and have a good day, let's see each other in a couple of months. Thank you.