Koninklijke BAM Groep nv (BAMNB) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for holding, and welcome to the Royal BAM Group call. [Operator Instructions] I would like to hand over the conference call to the CEO of the company, Mr. Ruud Joosten. Please go ahead, sir.

Good morning, and welcome to this analyst call for Royal BAM Group. I'm Ruud Joosten here today, your CEO, and I'm joined by Frans den Houter, our CFO; and Michel Aupers, our Investor Relations Manager. Today, we are reporting a satisfactory first quarter in terms of trading and early momentum of the new strategy. Our growth platform business in the Netherlands and the U.K. performed well, although Ireland was mainly held back by the partial lockdown of construction sites during the first quarter of this year. We are not satisfied with the performance of the manage for value businesses in Germany and Belgium and with BAM International. The wind-down of BAM International is scheduled to be completed before the end of the year. We are fully focused on our new strategic plan, building a sustainable tomorrow. We completed our cost reduction program that started in September. We made 2 small divestments and invested in offsite industrialized construction in response to the increasing market demand for affordable price and low-carbon homes. Revenue was slightly higher versus the comparable period last year, and order book continued to grow driven by the U.K. In line with our new strategic road map, we now report adjusted EBITDA. The adjusted EBITDA margin in the first quarter was 3.2%. This is a clear improvement versus 2.6% in the first quarter last year. Our cash position stayed strong at EUR 1.3 billion after the repayment of the RCF. Trade working capital efficiency increased again during the quarter to minus 15.6%. Let me conclude our introduction with some comments regarding our outlook for 2021. BAM had a satisfactory start of the year, which provides confidence for the full year. We are in the early execution phase of our new strategy, which includes the further derisking of our portfolio, and there is still uncertainty around COVID. BAM will provide its outlook for 2021 in due course. Now we will take your questions.

[Operator Instructions] The first question is from Mr. Luuk Van Beek from Degroof Petercam.

First of all, a question on the residential, which was going very strongly in Q1. Can you talk a bit about the pipeline and, say, the availability of land positions to continue this high level of production and not necessarily the Q1 level, but say the trailing 12 months production level, if that's still sustainable or even possible to grow it or that this is becomingly increasingly difficult? And partly related to that, there are signs that the input prices are increasing. Can you talk about how you handle that? And how you can protect yourself from that?

Yes, first question about the residential, we are already for some time pretty upbeat about the home market in the Netherlands. Clearly a huge deficit of affordable homes. And also, we see, like you do, I guess, politically strong support for the building of traditional homes in the Netherlands. So let's say, mid to long term, short even, we see an opportunity for further growth or, let's say, stabilization of the high growth we already have in this segment. Of course, it is indeed zoning and permits is an issue to, let's say, further increase the speed of building, but the market is good and will remain good in the Netherlands residential. The second question on raw material pricing is indeed, let's say, a high-impact occurrence for the market, but we have long term. On our long-term projects, we have, let's say, contractual defense in place, so we don't see big risk there. For new tenders, indeed, it can sometimes lead to longer negotiations to get it into the tender. But yes, our intention always is, of course, to build it into the tender as we start the project.

Okay. And one follow-up for now. In International, you indicated that you want to complete the remaining activity by the end of the year. Can you give a rough indication of the volume that still needs to be executed this year?

Luuk, Frans here. Backlog is still EUR 55 million in BAM International, as we speak.

[Operator Instructions] The next question is from Mr. Martijn den Drijver from ABN AMRO MRO.

The first question I had is on the liquidity. If you adjust for the drawdown or repayment of the RCF, liquidity went down by EUR 100 million, but your trade working efficient -- trade working capital efficiency went up, improved. You had some modest divestment proceeds. So can you explain the delta in the liquidity? That would be question number one. And then Infra, positive EBITDA. So that's more or less in line with the last 2 quarters or at least definitely to Q4. How has the order book been developing? How will you just talk about the order books drying up in Dutch Infra? Maybe you can shed some light on how you guys are seeing that? And what are you seeing in terms of your order book? And the third question is on the savings target. It's pretty clear that you're not going to restructure anymore. Is that savings target that you set out in 2020 still the same now that you've decided to restructure not additionally? And my final question is now -- is on seasonality. This is obviously the first quarter. Usually, the first quarter is the softest quarter or the weakest quarter. Has seasonality been the same as usual this year? Or has there been some positive element from benign weather?

Okay. Let me start with the first one, and then I hand over to Ruud for number two, 3 and 4, I guess. On trade working capital, actually, we saw a pretty good quarter. Indeed, as you say, if you exclude the RCF, then still liquidity is better than a normal seasonal pattern because normally, in Q1, you see a slippage of EUR 200 million-plus, given the seasonal pattern. So this trade working capital improvement is mainly driven by a number of prepayments on specific projects, where our clients are really are willing to prefinance this, and that led to this Q1. Then year-on-year, if you compare with the first quarter last year, you see really a step up. So yes, versus year end, I would say, stable. And against the seasonal pattern year-on-year, it's a reflection of the high focus on trade working capital that we have since a number of quarters.

Thank you, Frans. With regards to the question on the order backlog for Dutch Civil, we see indeed an increase of 10% in Q1 versus the situation in 2020. But on local level, we see some stagnation because of COVID at local government impact. So difficult to say what will happen, let's say, after, hopefully, we are all over in even better way in this country. But for now, we see indeed that effect on local government level happening. And yes, there's also this limitation on new large projects in the country that has to do also with nitrogen issues and legislation in this country as well. So these effects are having an impact on Dutch Civil at the moment. But indeed, for now, we saw an increase of backlog in the first Q. Next question was about -- sorry?

I was wondering if I could ask a follow-up.

Yes, please.

On Dutch Civil. If the outlook is somewhat -- well, let's call it, vague, not easy to determine, are you already taking precautionary measures? Or are you keeping capacity as is?

Well, in our strategic presentation, we already decided or presented not to go anymore for these big projects over EUR 150 million single stake lump sum. So that also has an effect on the project portfolio longer-term for this company, this part of the company. But that comes from ourselves. So in that sense, we took, I think, a pretty important measure already in controlling that portfolio. For the rest, we have to see. We have to clearly follow it very closely, difficult to predict, but we are very close to it. And yes, of course, if necessary, we'll take -- we take actions, of course, in that part of the business, that's also clear. Yes, your next question was about savings. Indeed, we are pretty proud and happy to make -- to present that we ended the first big cost reduction program internally, more than EUR 100 million of savings with more than 1,000 people involved. So pretty fast action, I'm pretty part of the organization how that went. But of course, you never know. And if we need to take further action, we will. For now, no, let's say, very specific plans on the table. But we are at the early stages of the strategic plan implementation. So let's see how that goes, and that's also linked to the -- to our agenda, of course, in that perspective, looking at the adjacent markets. Seasonality, yes, I see in a normal pattern there. I saw some, let's say, issues at the beginning of the year because of 2 weeks of snow and cold weather in the Netherlands that had an impact on production. We're not used at it anymore, I guess, in this country. But for the rest, we see normal seasonality going through.

The next question is from Mr. Christophe Beghin from Kempen & Co.

Do you hear me?

Yes. Christophe, we hear you?

I have a question with regard to BAM International. Frans, you said that there is, let's say, a backlog of EUR 55 million to be completed in comparison to EUR 80 million, if I'm correct to the end of the year 2020. Can you indicate what's the proportion is of the 2 Middle East projects in the EUR 55 million?

We don't disclose that detail. What we did say is that the impact of EUR 12.9 million on our results is mainly driven by 2 projects in the Middle East, and that's where we leave it for now, Christophe.

Okay. And in the -- because you have finalized the IKEA project in Indonesia, how many projects are still in the portfolio in BAM International. Can you maybe just that explain?

Yes, we said at year-end, we have about 6 projects to be completed this year. And indeed, as you say, we have completed the IKEA project and also did a press release on the Korean and handing that part of BAM International over to local management.

The next question is from Andre Mulder, Kepler Cheuvreux.

Three questions, sir. first question on the, let's say, the noncore operations, Belgium, Germany, Switzerland already out in the shut out. I believe there was sourcing operation in Denmark, what you would also be looking for selling that and the other parts that are not identified, maybe come up for disposal? Second question on your government support, I believe that was EUR 230 million at the end of last year. Where are we now? And what is the plan for repaying that? Last question on Ireland. You said that that country was still impaired by the COVID resections. And any numbers that you can mention there in terms of sales or extra costs?

Okay. Yes, first question about noncore, we call it manage for value markets. You can, let's say, respect, I guess, that we don't do any -- make any comments on the agenda for -- on M&A in both directions. Denmark, we see in this context as a part of the Dutch organization. We don't have clear change of plans there for Denmark at the moment. And for the rest of the strategic agenda, I guess, you have to wait for further news in the next period going forward. And maybe, Frans, you could take the one on government support.

Yes. So EUR 230 million, indeed, to be repaid in 3 years. We said, yes, spread that out equally. So as a consequence, EUR 70 million to be repaid this year, which we will start in or have started in Q2.

Yes. Then there was another question on Ireland, yes, we don't, let's say, present details on COVID impact there. It's a pretty conflicted picture. Some of the most important sites were kept opened. And it helped us on some of the bigger projects. But on the other hand, smaller projects indeed were closed, that we're not seeing as vital in that country. So clearly an impact on the Q1 in Ireland, but difficult to say what the impact for the full year will be.

[Operator Instructions] The next question is from Maarten Verbeek from The Idea.

It's Maarten of The Idea. To have a proper like-for-like comparison, could you also more or less indicate what the result of BAM International was in the first quarter of 2020?

Frans here. Yes, there was a comparable number. That's really close to what we report here today for BAM International.

Okay. Fine. Could you also inform us about the developments in order intake, when we look at your core countries, the Netherlands, U.K. and Ireland versus the other. You have grown your backlog by EUR 300 million. Could you more or less indicate what you have grown in those core markets and those noncore since, yes, you run the current business in Germany and Belgium on value. So not willing to take a lot of orders on board. So could you share some light on that?

Well, I'm really happy to say that we see very good developments, indeed, in the home market, looking especially at the U.K. in Q1 with some big projects in CMP, but also metal is, let's say, benefiting from government actions in the U.K. to really invest in infrastructure. So most of the, let's say, a big part of the growth is based on developments on that part of the business, which is nice because that, of course, is fully emphasizing that our strategy is going in the right direction looking indeed at the growth markets, U.K. or in the Netherlands.

But to be more specific with the order book of the noncore, let me address like that, did that increase compared to year end?

No -- let's say, in Q2, maybe we can be a bit more specific over there. I'm just saying that the growth -- the majority of the growth came from activities in the U.K. at this moment in time.

And then lastly, could you inform us about the later stages of the Children's Hospital in Dublin?

Yes. Well, that's indeed, of course, an important project for our Irish colleagues. And where we are fully committed to, let's say, finish that big project and together with the Irish government to get to a proper solution for both parties. And that's where we're working on it and focusing on at this moment in time.

When do you expect to complete this project? And when do you believe you will have an agreement with the -- with your clients?

It's very complicated. And I think one of the biggest projects ever in that country. So difficult to say, because of COVID, last year, there was a lot of impact on the total construction time. So probably also there, we need to come back to you guys later in the year.

Mr. Joosten, there are no further questions, so please continue.

Okay. Well, if that's the case, I think this brings us then to the end of the conference call. I will see you on August 19 at the half year results. So thank you for now, and have a good day.

Ladies and gentlemen, this concludes the Royal BAM Group event call. You may now disconnect your lines. Thank you, and have a nice day.