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

Good morning, and welcome to everyone joining this analyst meeting of Royal BAM Group in the room or in the webcast. I'm Ruud Joosten, CEO. With me today are Frans den Houter, our CFO, and Michel Aupers, our Investor Relations Manager. On this slide, you see the Sir William Bragg building, University of Leeds. This building was a winner at the 2021 British Construction Industry Awards. BAM had a successful knife taking home Project of the Year and being highly commended on a finalist in 6 categories. Constructing the iconic Bragg building on such a difficult city center site presented a series of challenges for the team. However, our use of modular elements, including precast concrete frame enabled us to deliver the project safely and efficiently. 2021 was the first year of our strategic plan, building a sustainable tomorrow, to create a more predictable, profitable and sustainable company. I'm very happy with the progress we made. We took significant steps to derisk the group, and we've improved or stabilized performance in the operating companies. Overall, we are well on track to meet our targets for 2023. Demand in our markets was greatly -- generally solid, we were mostly successful in mitigating ongoing supply chain shortages and inflation, staff retention pressures in COVID-19. Our 2021 revenue increased by 7%. This is despite having the consolidated BAM PPP, the wind down of BAM International, the divestment of BAM Deutschland, and a focus on margin above volume. Our adjusted EBITDA margin for the full year grew to EUR 278 million, at a margin of 3.8%. That is driven mainly by another strong year at Dutch residential property and the United Kingdom and Ireland bouncing back after COVID-19. The Dutch Civil business disappointed because of significant cost overruns in the large contract division, which overshadowed a satisfactory performance in the regional and specialist activities. Loss at BAM International reduced significantly compared to 2020. Our share in BAM PPP joint venture also made a good contribution. We reported a net result of EUR 18 million, a clear improvement versus the reported net loss of EUR 122 million of 2020. Our net result in 2021 was held back by a negative effect of noncash tax charges of EUR 34 million, mainly related to changes in tax laws and EUR 49 million of impairments which included EUR 26 million related to the announcement and completed divestments of Belgium and Germany. Taking into account target for capital ratio, we do not propose a dividend over 2021. Cash flow from operations was strong. We ended the year with liquidity of EUR 1.3 billion despite repaying the RCF, the convertible bonds and our decision to accelerate the repayment of a substantial part of COVID-19 deferred VAT and salary tax payments. In addition, divestments also had a negative impact on our cash position. Frans will explain financial [ leaders ] in more detail. Let's now discuss the strategic development of the group. Our strategic implementation in the first year was focused on further derisking the portfolio. I'm happy to see we made good progress with our global goal to optimize the portfolio and create a solid base platform for future growth. We are definitely getting into better shape. In 2021, we completed the divestments of BAM Swiss, BAM facility services in Germany, BAM Decorient in Indonesia and, of course, BAM Deutschland. Two weeks ago, we closed the sale of our Belgian subsidiary, BAM Galère. And 2 days ago, we announced the divestment of BAM Contractors also in Belgium. Meanwhile, the wind down of BAM International is in the final stage. Although good progress, we are not completely there yet on derisking, and we still have to complete a number of difficult projects. At the same time, we have heightened our tender discipline withdrawn from single-stage lump sum projects over EUR 150 million. Group-wide programs during 2021 has improved project deliveries. The other pillar of our strategy is to accelerate opportunities for future growth. We have put in place a new operating model to facilitate this with 2 dedicated COOs. 1 for the Netherlands and 1 for the United Kingdom and Ireland. This new setup will drive knowledge sharing and development of the life cycle and sustainable solutions. We also increased our emphasis on modern and sustainable building methods and invested in industrialized and modular construction capacity. Our focus on this pillar will ramp up over the coming 2 years. In 2021, we took important steps to further optimize our balance sheet. Based on a very strong cash position, we took a decision to repay this the RCF. In addition, we redeemed the convertible bonds. Based on the strength of our balance sheet and the positive operational development, we were and still are confident we do not need to strengthen our capital base with some kind of new potentially dilutive instruments. Finally, we accelerated the repayment of a substantial part of the COVID-19 deferred VAT and salary payments. Let's take a closer look at the performance of BAM versus our key performance indicators. This table shows an overview of the performance of BAM in 2021 versus the strategic targets set for 2023, presented here in Amsterdam exactly 1 year ago today. Although we are only in the first year of our new strategy, building a sustainable tomorrow, the table confirms we made good progress in delivering. Of course, there is still a way to go in order to realize our ambition to become more profitable and predictable and create a platform for future growth. Without going through all the details, I'd like to mention a few points. For instance, revenues of our activities in the Netherlands, United Kingdom and Ireland, combined was approximately EUR 6 billion in 2021. That is substantially above our strategic target for 2023. Further, I'd like to mention that we achieved a Climate A rating from CDP for the third successive year. We're only 1 of the 4 construction companies in Europe to do that. And only 1 of 5 Dutch companies are on the list altogether. We are pleased with this recognition of our commitment and hard work in an area which is increasingly vital all along the constructive industry value chain. It gives us a real edge to win projects, attract staff and make partnerships. And last but not least, it's very positive that our incident frequency further declined. For me, safety is a top priority, and it is very important that we further lower the number of incidents. Now let's look at the Construction & Property part of our business. Here you see a picture of Counting House in Cork, Ireland, completion of the Counting House development marked a significant step in the transformation of a medieval part of Cork. Counting House is a mixed use of 14,000 square meter development, which includes 6,500 square meters of state-of-the-art office space. It has been developed by our Irish development subsidiary, BAM Property and delivered by BAM Building. Overall revenue for Construction & Property grew by 6% compared to 2020, mainly driven by performance in the Netherlands, United Kingdom and Ireland. Construction & Property generated an adjusted EBITDA of EUR 162 million at a margin of 4.1%. The Dutch residential activities had again a strong year, supported by high demand for homes. Full year 2021, sales of Dutch homes grew by 4% compared to 2020. The U.K. had a good result, which was supported by a claim settlement in the first half year. In Ireland, the new National Children Hospital in Dublin is now circa 60% completed, and we are making good progress. BAM Deutschland showed a negative adjusted EBITDA in the second half. The divestment was finalized mid-October and included shared responsibility for some projects. The decline in the order book in Construction & Property was due to the sale of BAM Deutschland. The order book in the Netherlands reduced partly due to a longer tender negotiation caused by cost inflation but stays at a strong level. The U.K. order book grew significantly, including a positive foreign exchange effect. Turning to Civil. On this slide, you recognize already probably the Sea lock IJmuiden. On January 25, the largest lock of the world was officially opened by King Willem-Alexander. The joint venture project shows the technical capabilities of our company and people. However, from a financial perspective, it was a painful project, which resulted in a significant loss. In Civil Engineering, revenues increased by 13%, mainly driven by very strong growth in the U.K. All countries improved their performance, except for the Netherlands. The low adjusted EBITDA contribution of Dutch Civil engineering reflected the underperformance in the large contract division. A constructive dialogue with the client is ongoing on a major contract under construction. Given the advanced stage of this dialogue, the significant financial impact of the envisaged outcome has been incorporated in the results accordingly. This overshadowed the satisfactory performance at the regional and other Dutch infra activities. In the U.K., the adjusted EBITDA contribution improved in 2021, supported by a high activity level on some major projects. Also, the performance in Belgium and Germany improved. The Civil engineering order book increased by 7%, driven by the Netherlands and the U.K. As I said at the half year, from a risk perspective, BAM has refrained from tendering from several large infrastructure projects in the Netherlands. Earlier this week, we announced the divestment of our Belgian company, BAM Contractors. After the completion of this transaction, which is expected in the second quarter, BAM is no longer active in the civil market in Belgium. Frans, over to you for the financials.

Thank you, Ruud, and good morning, everybody. On this slide, you see Project DeBuurt in Utrecht, consisting of 343 rental apartments, commercial units and parkings. This project is a development of AM together with BAM Wonen and was completed last December. All homes are sustainable and energy-efficient and the project plays an important role in upgrading the Overvecht area. Let me take you through the main features of the 2021 income statement. It's good to see that the business lines, construction and property and civil engineering combined reported an adjusted EBITDA of EUR 265 million for 2021, which is nearly the double of the level we saw previous year 2020. Our 50% share of the net result in the BAM PPP joint venture with PGGM contributed EUR 13.7 million adjusted EBITDA in 2021. The joint venture has a positive year -- had a positive year and the pipeline is healthy of prospects and active bids. At the end of the year, there were 41 operational projects, the same as in 2020. With a further 6 projects under construction and 1 at the preferred bidder stage PPP is making today 48 projects in total. BAM International made an adjusted EBITDA of negative EUR 12.2 million in 2021, with the second half year being nearly breakeven. Construction of the final project was almost finished in the fourth quarter of 2021, and we are in discussion regarding the final settlement of 2 projects in the Middle East. The remaining revenue for 2020 is very limited. All in all, the group adjusted EBITDA was EUR 278 million, equal to a margin of 3.8%. As stated by Ruud, this is a nice step-up from last year, whilst we also have been further derisking the company in parallel. Now I will take you through the main items below adjusted EBITDA. The interest increased despite the repayment of the RCF and the convertible bond in the first half of the year. And the main reason is that 2020 still included approximately EUR 8 million interest income from BAM PPP that was by then still fully consolidated. Restructuring costs of EUR 6.5 million are related to reorganizations in Dutch civil and Belgium. The noncash impairments totaled EUR 49 million. These impairments include EUR 26 million related to the intended divestment of BAM Contractors and the completed divestment of BAM Galère in Belgium as well as the impact of the completed divestment of BAM Deutschland. In addition, there was an additional impairment of EUR 6 million on the asphalt new joint venture that we have with Heijmans mainly related to a business plan to lower emissions. Furthermore, we impaired the balance around EUR 9 million on a few property positions and EUR 8 million for several other smaller items, including some equipment of BAM International. The reported tax cost of EUR 48.5 million include EUR 33.5 million noncash deferred tax charges. These deferred tax charges relate to the changes in tax regimes in the Netherlands and in the U.K., which I explained in detail in the first half year and partly to items arising from the divestment. We report an effective tax rate of 74% without the noncash tax items, the effective tax rate would have been 23%. The overall net result for the year was EUR 18.1 million compared with a net loss of EUR 122 million in 2020. This is an important step up year-on-year, but it's clearly not at the level where we want to be. As described, the noncash elements of tax law changes, mainly related to -- and the impact of the divestments had a substantial negative effect on the reported net result. Now let me continue by describing the effects of the portfolio changes in 2021. I trust this will help you build your models. The income statement for 2021 includes BAM Deutschland up to October '18. And as such, we reported EUR 380 million of revenue in 2021. BAM Galère and BAM Contractors in Belgium were included in the income statement for the full year, although classified as held-for-sale at year-end, which only has an impact on the balance sheet as these companies are reported on a separate line item. The divestment of BAM Galère was completed on February 3, and we expect to complete the divestment of BAM Contractors in the second quarter of the year. Both activities generate a revenue of approximately EUR 200 million each per annum in the year 2021. For completeness, BAM International reported a revenue of EUR 82 million in 2021. And as I said, we'll only report a few million in 2022. Now let's look at the cash flow. Our liquidity position at the end of 2021 remains strong at EUR 1.3 billion. In 2021, the improved operational performance resulted in a robust cash flow from earnings of EUR 222 million. Also, there was a positive cash inflow of EUR 142 million from working capital. The receivables declined while BAM continued to respect the payment conditions to the supply chain. Overall, trade working capital efficiency improved from 16% to 16.9% versus 13.9% last year. As we have stated previously, going forward, we anticipate a modest normalization of our trade working capital efficiency. The positive cash flow from working capital included the repayment of EUR 115 million of COVID-19 deferred VAT and salary tax payments, approximately EUR 99 million was a voluntarily accelerated payments. At year-end 2021, the remaining COVID-19 deferred VAT and salary tax report payments amount circa EUR 120 million. Cash flow from investing activities included a negative impact of EUR 94 million related to the proceeds from sale of subsidiaries. Cash flow from financing initiatives was EUR 661 million negative, mainly due to the repayment of the RCF and the unsecured subordinated convertible bond. As a consequence of the divestment process of the Belgium companies BAM Galère and BAM Contractors, these assets and liabilities are reported as held-for-sale, and this had a negative cash impact of EUR 42 million. The exchange rate of the British pound had a positive effect of EUR 45 million. So let me now take you to the financial position. First of all, our net cash position before leases was almost unchanged with the remark we substantially lowered our interest-bearing debt by the repayment of the RCF and the convertible bond. As mentioned before, during the year, we also paid EUR 150 million COVID deferred VAT and salary payments. The lower lease liabilities are mainly explained by the divestment of BAM Deutschland and the reclassification of BAM Galère and BAM Contractors to assets held-for-sale. BAM's capital ratio improved to 14.5% compared to 13.4% at year-end 2020 and shareholders' equity increased with EUR 70 million, mainly due to the actuarial gains, a positive exchange rate effect and the net result that was added to equity. The capital base for BAM declined due to repayment of the remaining unsecured subordinated convertible bond. The negative effect of the lower capital base on the capital ratio was more than compensated by a EUR 729 million decline in the balance sheet, which totaled today EUR 4.5 billion. This is explained by the repayment of the RCF, the convertible and the COVID-19 accelerated repayments as well as the divestment of BAM Deutschland. This development was partly offset by a higher cash position due to improved trade working capital. Same as Ruud, overall, I'm pleased with the steps we have made in the first year of our new strategy. And next to continued derisking of the company, the step-up in the EBITDA and a further improvement of the capital ratio whilst repaying the convertible bonds, made us look back on a good first year, and we look forward to continue working with all our committed BAM employees on the next step of the strategy implementation. Back to you, Ruud.

Yes. Thank you, Frans. Yes, we are highly committed to further lower our emissions and invest in the electrification of our equipment. On this picture, you see the world's first fully electric-driven asphalt spreading paver, which we developed together with our partners, Wirtgen and New Electric. On an annual basis, this new machine will result in the reduction of CO2 emission of 93,000 kilograms. Order book and market trends. The backlog at the end of the year remains high at EUR 13.2 billion, which includes a negative impact of approximately EUR 900 million for the divestment of BAM Deutschland. Furthermore, we do not longer tender for large single-stage lump sum contracts with a high risk profile. The order book is supported by generally good demand for infrastructure improvement, housing and sustainable buildings, although supply chain pressure and price inflation are leading to longer tendering processes. Outlook in the important Dutch residential property market remains strong. It's very positive that the new Dutch government has appointed a special minister for homes. We need to work closely with the national government and local bodies to develop structural measures to ease the bottlenecks in permitting, which are a main constraint on Netherlands house construction. At the same time, we expect that nitrogen will have an impact on already awarded projects in the Netherlands and cause postponement of new growth projects. In the United Kingdom, the continued use of frameworks by BAM Nuttall strategic clients offers them an expedient route to market and fits with BAM Nuttall's derisking objectives. Clients are putting great emphasis on meeting carbon targets and early involvement in projects, building planning stage is essential for delivering realistic reductions. Last week, BAM Construction has been reappointed to procure partnership Northwest contractor framework. This framework includes all kind of public housing like schools, local authorities and health care, and has an estimated total value of GBP 1.8 billion. This renewed 4-year framework will launch on April 1, and BAM has secured a place on the 3 lots for which we tendered. Yes, looking at the outlook for 2022, we have made an encouraging start of delivering our strategy. Market demand is generally positive, and we have to manage the supply chain headwinds. Staff retention is probably our main operational challenge, although we are largely able to manage and mitigate this. Discussions with some of our clients regarding the timing and settlement of some substantial claims are ongoing. Against this background, we are on track to deliver our strategic target for 2023, and we expect a further improvement of our adjusted EBITDA margin in 2022. Now we will take your questions. For the first round of questions, I would ask you to limit the number of questions to 2.

Good morning. Tijs Hollestelle, ING. Sorry for not having my phone on mute. Yes, I've got a few questions on the very strong performance of your Construction and Property business in the Netherlands. I think last year, your revenues in property were almost EUR 600 million. For us, I think it's easy to track, let's say, the developments in the residential business. You had a volume increase in the number of houses sold. It depends a little bit whether it's apartments or family homes. But we have a view on that. I guess the pricing impact was much higher than the 4.5% last year, the pricing component of the increase in the residential property business?

There was a price -- I don't know whether we disclosed the percentage...

No, not the percentage, but there was real clearly upside inflation -- also the numbers of houses sold when we start the project had gone up. So there's a lot of volume and also price levels increase. So that supported the good performance in C&P.

Yes, you have a lot of pricing power, I guess, in that business. And then because the commercial real estate projects were sold, I think, above average. How much? Because yes, looking forward, it is more lumpy was it an above-average impact and also on profitability?

Do you mean the specific transaction that we disclosed in Q3 or...

No, I thought you were mentioning that several commercial real estate project being sold in 2021, so that can have a material impact?

No. So the 2 elements there, normal course of business because we always have some projects like this, but we had 1 specific transaction in the second half related to a large share [ Winkle ] centrum, what is it, shopping center. And that has almost a 0 effect on the P&L. So that was sold around book value, a small upside there. So that was more shortening making the land bank smaller.

Okay. Yes. And then the whole topic, of course, is the infrastructure business in the Netherlands. As far now I understand finally why the outlook is so conservative as there were cost overruns and also you took an actual loss provision on a single project. But yes, going forward, what do you see and the length of the current problematic projects in the order book? Is it gone in 2023 because you're no longer wheeling in new large risky projects? Or what is the kind of horizon for you guys?

Yes, this is indeed a very complex issue and several things are going on, and most of them are going in the right direction. To give you some context there, of course, these are long-term projects. And we always said when we started the strategy exactly 1 year ago, by the way, this will take a longer time to solve it in a proper way for both customers and for us because these are multiyear projects and not finalized. So step by step, we are managing that, I think, in a very good way. First of all, what is really helping are the divestments because, of course, that limits the number of these big projects for the group substantially. Like I said, the divestment of BAM Contractors in Belgium, for example, means to be very specific that we will not be in the Oosterweel project anymore when we have closing. That's a major step in derisking of this company. But also in Germany, of course, the BAM Deutschland big projects, I think we are mitigating that by the divestment as well. So step by step, we are managing this partly by divestment. Second element is they are not tendering anymore. So that is helping already the size of this big project division in the Netherlands, for example. So the -- let's say, on the front door, the problems are not coming into the company anymore, that's already an effect we see. And then there is list, not a long list of -- yes, of big projects that need to be finalized and to be discussed. And in all these projects, we have constructive discussions with the client to solve them. And well, we are now 1 year in strategy. We're making good progress there. But as you can imagine, it's very difficult for the customer and also for us to make a statement because then we would really put that kind of negotiations into danger, which would be not very helpful for the group, for our JV partners and for the customer. So that's where we are. It's a short list, but the impact is still there, but we are very confident and hopeful that this will be resolved -- most of them will be resolved in the year 2022. Some of them will probably still be there even a little bit longer, also depending on the divestment calendar that we are following. Like we said last year, the activities in Germany and Belgium are in principle ready for divestment. That means after the Belgium contracts -- contractors business, yes, we still have a construction company and the Belgium development company in Belgium. And there is still large construction civil company in Germany. So we are very active in all these fronts to derisk this group. And I think we made good progress because we're clearly not there yet.

And then specifically for the Netherlands, I mean, the performance of the smaller projects is good. It's in line with already your expectations.

Yes, that's the very good news. That was pretty strong in 2021. And I think we explained it already a couple of times. If you look at the Dutch Infra division, of the total, around EUR 250 million is the big project division. So you see it already coming down. Yes, but still some complex solutions need to be found for us on big projects, but I'm really hopeful we can do that soon. And yes, with some substantial effect in this year.

One final remark and it has been in the newspapers, and there might be a positive payment coming from the Armada project. Will you disclose that in a separate press release or will that be, let's say, included in the numbers because that can, of course, mitigate potentially an impact of another loss provision, but yes, we...

Yes, I think that's -- we didn't really decide that yet. It's in the last stage of coming to a decision. It was an expert committee appointed to come up with a solution. I think in the next probably 6 weeks, 6 to 8 weeks, there will be a solution on it. And then together with the customer, in this case, the Dutch government will come with news around it, and our JV partner that VolkerWessels.

And is it included in your forecast already such a thing? Probably not with?

No, you have to be careful with these things because also the customer can still let's say, not agree with the outcome of the expert committee and then the process can be long. So from an IFRS point of view, we are always conservative.

So I think the most interesting is that it's not in the books of 2021. So it's not -- the forecast is another thing, but it's not in the actuals. So anything that comes out will be upside in '22.

Martijn den Drijver for ABN AMRO ODDO. Continuing on possible claims settlements. In the Q3 update, you specifically mentioned that there could be some claim settlements, some of which could even be material. I see in your numbers or least it, I assume that there is a loss provision in Civil NL. I think Frans already referred to that. The tone of voice seems to be also right now more positive. Does that mean that some of these potential claims have now been resolved? Or have, in fact, come to your assessment of those possible outcomes has been -- has improved? Or is it still possible that some of these larger claims can come to the fore in 2022?

Well, indeed, we are, let's say, 3 months, 4 months further into the discussions with the let's say, the solving process of these big claims. So we are a bit more -- we have some more, let's say, light at the end of the tunnel of these projects. And so we are more hopeful that they come to a positive outcome. But it's always difficult and risky to make statements on that one. Mostly, we are there, let's say, together with our JV partners, with the customer. So it's a difficult and complex process. The numbers are high for all these projects, but the situation looks more positive than when we reported in Q3 on these big projects.

Would it be fair to say that positive claims settlements, for example, the 2 in the Middle East, the other 1 being the IJmuiden Sea lock would equal potentially the possible negative outcomes of the ones that we know of, for example, the Children's Hospital, and...

Maybe Frans can give some more light, but I'm -- that would not be a smart conclusion to draw right now. The projects in the Middle East are, let's say, technically concluded. So that's also a very important point that we handed over the projects to the customer. So now it's more an end kind of negotiation on the settling of accounts that is in the last phase. But maybe, Frans, you can add some more light on this one.

No, I think, in line with the team of derisking that comes out here. So it's about the valuation of the positions where we really try to be prudent and the effect that you just mentioned that some of these settlements are in this final phase. Now IFRS 15, things need to be highly probable. So in a difficult kind of commercial final discussion, yes, you just have to wait what the outcome is before you take it into your books. But let's not make the relation, the pluses and the minuses in the portfolio. We go project by project.

You guys can do that, but we have to look at it that way. Second question is on the restructuring is because you had a substantial restructuring program, which you started at the end of 2022 -- excuse me, 2020, the EUR 100 million savings target, you've updated a little bit about that. But how much have you realized of those savings in 2021? And how much should we still expect in 2022? And there's an additional small restructuring charge in 2021. So does that result in savings in 2022. So we have a bit of picture of what to expect from that element in 2022?

Yes. The project was completed by April last year. So the 1,000 people left the organization. You see that especially in lower overheads because like we reported before, let's say, relatively more people left the organization in overhead kind of jobs compared to direct kind of jobs. So that effect is clear in the P&L. On the other hand, we increased revenue as well. So we also had additional cost, of course, to cover for the additional revenue, which was higher than we expected. So the market was clearly better than we expected in 2021 with some additional cost for extra people to support the projects. So that's a bit the balance, I think, Frans, for the reset project as we called it, which had a substantial impact on profitability.

Yes. And maybe on your comment on the provision. So provisions reduced a bit because of the cash out of this program, which was completed in Q1, as Ruud says the additional restructuring costs are related to Belgium and a small reorganization of an Infra division. So it's not related to the larger program that we have run and completed.

So minor savings from that?

Sorry? Yes, minor savings, because Belgium is also in the mix of the divestment portfolio.

Michael [indiscernible] of Petercam. I have a question on those -- Dutch civil projects that you walk away from. Are other large companies trigger happy to take on those projects? Or is now the customer faced with a more rational construction industry that forces them to basically share a bit more of the risks with you and the other companies?

Yes. Good question. There is a discussion going on with Dutch government about a new way of contracting. So that's very clear that Dutch government sees that, let's say, starting up new contracts where the risk is primarily in the hands of contractors that make very low margins. If you look at the margins we -- the construction industry is making is not the way forward. So also there, good discussions are going on. And this government is really yes, coming up with new ways of contracting. And you can also see that in the view examples that were tendered in 2021. So that is happening. On the other hand, yes, some projects where we did not tender for other people stepped in. So that is also a fact of life, which I cannot deny, which is, of course, a decision of other companies. For us, it's very clear. We will not take this kind of risk anymore. And I think that is also important for Dutch government that we took that decision also for other contractors that we took the lead there because I think that is indeed fastening the track of this development to better contracts and step out of these huge contracts that you step into with a lump sum and you have to deliver an 8- or 9-year contract or project for hundreds of millions of euros, which is very difficult to plan out, of course. And I think we made a very clear statement there didn't make us very popular. But it is helping, I think, in the end, to get to a much better and open transparent discussion, which I've clearly recognized at this moment in time with the Dutch government. So BAM is not walking away from Dutch government at all. It's a very important customer. But we need to get into this mode of honest and transparent contracts. So on the other hand, it's also a very important development because of nitrogen problems in the Netherlands. Many of these big projects were delayed, this infrastructural projects last year. So that also gives a bit of a, yes, delay of this discussion as well, because a lot of these big projects were withdrawn from the market. So the discussion on these contracts still need to take place when the government can tender them again when there is a solution for the nitrogen problems that are getting more and more complex, you can read it in the newspaper and also for us, it's getting pretty complex to deal with.

And could you say what is changing in the mind of the government because typically with large contracts, there are 2 things that you can get burned by. It's either input costs, all of a sudden skyrocketing, and that doesn't help you as a contractor with a fixed price or somewhere halfway through the contract, the customer says, oh, I want a new design, and you have to change everything in between. So those are 2 typical problems. What is changing with the customer? Is it both of them that are perhaps changing for the construction industry or only 1 of them?

Yes. I think more holistically, the realization that these extremely complex projects, you need to detail out much further before you can price them. And I think that's pretty clear now. And for these complex projects, that will be the way forward. So we call that 2 stage. So first, you see like, let's say, a group of partners. And then you start to -- when you've chosen from that group, let's say, a party to continue with, you start to detail out a project in much detail, much more detail. And then you get to much more realistic pricing. And then you -- also the attitude from both parties is there to share the risk in that way. And that means that for the contractor, there is a kind of a not guaranteed margin but highly probable margin at the end of the project. And that's what you need as a contractor. You cannot just step into these 8, 9 years contracts without any feasibility of the end and the full risk you take into this company. In the U.K., like I mentioned today, frameworks are very, very popular, but are more common. So it also guarantees for the industry, let's say, a longer series of projects coming into the portfolio. Well, if you have to invest in a business line, you need to have that long-term stability in tenders coming from the market. And then I mean not a tender like we have now. But indeed, as part of a framework, you know already in year 2, 3, 4, 5, these projects are coming to the market. We are discussing together with the government because it's mostly the government, of course, to get to -- yes, try together to try to that program. And then you can invest in that business line when you have stable profitability and you have revenue for, let's say, 3, 4, 5 years. Otherwise, you have to wait for a big tender, you have it or you don't have it. Now you get this unhealthy processes that we saw in the Netherlands over the last -- what is it 10, 15 years.

Okay. clear. So in the U.K., it's much more of a steady workflow and more stable margins in the Netherlands, let's hope it that way.

Yes, I think we have good experience in the U.K. with the BAM Nuttall, where we where we see more stable profitability and stable workflow. Also on top of that, the U.K. government created a huge investment fund for infrastructure for the next years after COVID or during COVID, EUR 700 billion plan to invest in U.K. infrastructure that helps or helps for the confidence of the industry, because you know that will -- that kind of money will flow into the market. So that gives us a lot of confidence for our U.K. business.

Andre Mulder, Kepler. First question on, again, Dutch Civil Engineering. You said the list is becoming shorter. How many projects are we talking about? And can you give us any indication on, let's say, the annual sales or the backlog impact of those projects?

Yes. Don't think we're going to come here to kind of a quizzing on which projects we have and how big they are. It's, let's say, a list of -- you can count on 1 hand. So that kind of number of projects we're talking about when we talk about these big projects. The revenue of the total division is EUR 250 million. So and that is decreasing because we don't tender anymore. So that's a bit the context of what we're talking about.

In terms of the backlog?

Yes, we don't give that specific number.

Okay. Then a question on the associates line, changed from minus EURO 6 million to plus EURO 50 million. Can you give us any indication what's behind that? And...

What page are you in Andre? What page?

It's in the P&L on sheet 13.

No, you're in the presentation, right?

We see the share of results and investments of associates, jumping from minus EURO 6 million to plus EURO 5 million. So can you -- any indication...

Sorry, wait a minute. I just had to catch up -- that is because of the assets held-for-sale.

What kind of number should we look for, for '22 because -- it's certainly quite large.

Basically, the full amount is because of assets held-for-sale.

Sorry?

The full amount is related to assets held-for-sale. So it depends on the -- how the divestment portfolio evolves in the coming year, what number we will see there.

Then -- to finalize the divestment agenda as soon as possible, of course, because this is having all kind of effects on the total company also on the numbers because numbers can, of course, flow in and out. and that makes it sometimes difficult to compare things. But I think we made good progress within the year, but I still have a few big dossiers to solve their coming periods.

Yes. Martijn den Drijver from ABN AMRO ODDO. I don't get that. Why is there an asset held-for-sale in the P&L?

I'm looking at the line changes in assets and liabilities held-for-sale minus EURO 6 million to minus EURO 42 million, right?

We're looking at the P&L.

Martijn, it's the split of joint venture income we have property development...

So the PPP is in there?

No, PPP is on the -- yes, PPP is in the result from joint ventures and exactly it's primarily because sometimes the executing projects alone. Sometimes we do it with partners. That's quite common in property development, and that's changing quite a bit from year-to-year. But it's not something like an exceptional item.

No. So coming back to Andre's question. In fact, next year, we will also have a PPP result and the share of JV results it will be maybe EURO 10 million or EURO 30 million that depends on the market but that's -- it's not going to 0. I just wanted to clarify that.

No, we don't keep that in P&L.

Okay. Got it. You already mentioned that in Civil NL, that portfolio of projects is coming down. You mentioned separately that there are delays due to the nitrogen issue. Within construction property, you have flexibility by the use of subcontractors. You have that much less in civil where you use mostly your own equipment and staff. So what does that imply for profitability for Civil NL just taking these 2 elements into account. And when we talk about those nitrogen issues, you mentioned there could be project delays, -- is that something we should expect for 2022 already? And is that an H1 effect already or an H2 effect? Or should it be 2023? Or will it be 2023?

Well till now in Construction & Property, we had an exemption rule, so we could build, let's say, to say it easily homes without any problem in the year 2021. So that didn't stop us in -- you can see that in the numbers as well. So that really helped over the last couple of days and weeks, you saw a lot of news and discussion about nitrogen, which is very complex. It had to do with the trading of nitrogen rights, which is more limited after a ruling, but also some other elements are changing at a 25-kilometer versus the 5-kilometer discussion we have. Probably that makes -- that has impact as well, especially on infra. Yes. And altogether, the risk is, of course, that also the construction of smaller projects -- and that -- because also there is a discussion of stopping this exemption. That then altogether, it becomes very complex for people like us to deal with that. So now it was pretty clear smaller projects like homes and commercial infrastructure or commercial construction was okay. So there was no limit in building there. Now with these 3 elements happening in only a couple of days in the newspaper, we have to see what the effect is. So we clearly ask from government now clarity and there is now even a minister level on nitrogen. And hopefully, she will come very quickly with solutions and clarity what it means, not only for construction for the whole Dutch economy because we need to have clarity there. It cannot be this complexity is just very difficult to understand for us, but for everybody, I think, too going forward. Again, last year, we were not so much hampered because we -- yes, we do smaller projects anyway, and we only have a big tendering for new projects, we are not so much interested in. So for us, for BAM, that's clearly the issue. For others, it is a big problem. For people who are, let's say, more focused on big infrastructural projects, this is a huge problem for their company, of course. We are in a bit, let's say, a different situation. Having made a statement, we will not tender for this huge tenders anyway if that's the tendering route, the contract route. But I'm, of course, very interested in the policy of the new minister here to solve this and to free up the economy, the Dutch economy from building, constructing and developing itself. Because if you add the 3 elements together, yes, again, it will be very complex for everybody, I think, in the industry and not only for the construction industry. So for now, impact on BAM was relatively small, but this is something we need to solve, I think.

But it is included in your thinking about the guidance that you've given. So it's already a, I assume that because you're always conservative, at least the new management team. That -- that is included.

Yes, that is included, but we have to be very honest here. This is a very dynamic issue this nitrogen. And every day, you can read in the newspaper, new developments. So there is absolute necessity for government to come up with clear instructions here. What does it mean for the industry, but not only in construction for all industries, how can we develop the Dutch economy in a proper way and keep us moving around the country.

What would happen if the new minister is unable to find such a solution. What would be the next step for BAM? Because you basically then stuck between a rock and a hard players because you want to maintain that capacity because you already have a tight labor market? At the same time you may be faced with both regional, smaller and larger projects...

I'm very confident because the Dutch government also appointed a Minister for Homes and also appointed the Minister for Infra. So the Minister for Homes has a very clear target to build, let's say, 100,000 homes a year. So there will be a solution to, to make that happen. I'm absolutely sure. I think the society demands homes, especially affordable homes for people to start a family, for example, to start for starters. And it cannot be that will be stopped, I think, by the nitrogen problems.

Okay. Then related to that, you mentioned in your opening speech that to retain employees is key, and that you've all sorts of measures to mitigate any negative effect. Can you elaborate on what type of process and programs because what I hear is that poaching is becoming almost common in the industry. So what type of -- what can you do as above besides raising wages above your collective labor agreements?

Yes, it's more and more important, I think that people want to work with you as a brand, as a company, so to provide a purpose, to provide a future. And I think that's why it's very important we started last year with strategy, the sustainable future, which is not only the financial future but also, yes, what kind of company do you want to be? And BAM's clearly chosen to be focused on sustainability and build homes with, let's say, low CO2 emission those are buildings and also in infra focus on that much more digital solutions. So the direction for the total company, the strategy for the total company to be profitable in, let's say, successful, but also provide that kind of future where do you want to work as a young engineer, for example, is getting more and more important. That having said, indeed, competition for people is extreme. You cannot deny it. You cannot deny it. So there is it happens, yes, it happens, people move around more quickly than in the past, I think, I know. So you have to fight for your people and make it attractive for them to stay in the company. I think that's what we're doing. And until now, we were still able to mitigate, but the pressure is increasing. That's also clear. So this is a big issue for all people in the industry, but not only in our industry.

Okay. Yes. I also got a couple of follow-up questions. [ I&D ], do you already have a view on, let's say, the depreciation levels for the continued business because the property development business has less depreciation in order to calculate kind of the new BAM excluding the asset held-for-sale?

Yes. So looking at the CapEx level of EUR 65 million for 2021, we think for the coming year, that will go up a bit towards around maybe EUR 90 million, driven by investments in electrification of the company. So despite a smaller company because we do divestments, we think CapEx will step up. So we have been very focused on reducing CapEx and OpEx, of course, during Corona. So there's also a bit of a catch-up in investments in PPP, electrification, but also investments we do in modular. And you see a recent example of that already this year, where we are building a plant for our C&P business in the Netherlands. So I would say towards EUR 90 million is what we see now as a number, where our ROU, our leases will be around EUR 90 million level, the EUR 30 million level, sorry. So EUR 90 million for CapEx, EUR 30 million for ROU. As a rough number, just to give you a bit of an indication for your model.

And the level of restricted cash at the end of 2021?

Yes. So there's always a bit a few elements. So I'll just give you some components. So EUR 1.3 billion is a big number. First of all, I would say it's the year-end number, so -- and you know that you have your [indiscernible] due during the year. So it's better to look at it somewhere midyear. Typically, EUR 300 million to EUR 400 million movement through the year, then you need a bit of buffer for volatility, daily volatility. Then there is -- I already mentioned in the opening, EUR 120 million of VAT support. We still need to repay. And then there is the impact also in 2022, the cash impact of the divestments. So this year, we report for 2021, an accumulated impact of around EUR 130 million negative on the whole portfolio of divestments but also the effect for 2022, we cannot provide a number there because we have to learn more about how the remaining 3 companies will go. But if you add that all up, clearly, there is excess cash in the company also in 2021, and we will just also have to see how the trade working capital efficiency evolves. We see that stabilize in Q3 to Q4. But we already said, we think it will cool down a bit. We still see clients at year-end paying bills weeks too early. Clearly, cash is like a hot potato still coming our way on those moments. And that's difficult to forecast for year-end, but also for the coming year. Let's see how that evolves. We think it will be normalizing a bit and as such a cash out for that question.

That was indeed my next question because it's great these levels, but indeed if it referred but you cannot predict that. But if you have any visibility also help us out because the excess cash for the dividend payment is important, so you explained that well. And for the solvency ratio, would you, let's say, already announce a dividend over this year, so to be paid next year if, let's say, the solvency ratio is going in the right direction, but not yet at the 20%. Would that be possible?

So what we now say is for 2021, let me stress that out. We have repaid the convertible and not brought in a new dilutive instruments. For us, that's very important that the interest of the shareholders are important for us. But we do see solvency not close enough to the target yet. So we really want to make a substantial step towards that 20% mark and then consider the dividend over 2022 when the time is there. So we're not going to take early position on that. We did not say it's a hard line. We need to first go to 20%. We do say we want to make -- we want to grow closer to the target. And that will also be helped again by the divestments here. So Galère and Belgium Contractors coming to closing will, for example, give us 0.5% solvency as an uplift.

2 questions remaining. Firstly, indeed, on the trade working capital, if that would normalize, what would you think it would be the impact on the cash? Second question, looking at the German civil engineering operations, almost a crown jewel of the company with a margin of 9%. How sustainable is that? There's a book profit in [indiscernible] but would you say that EUR 30 million EBITDA is still the sustainable level. Just to determine what it could do to the value if you want to sell that?

So maybe on the first one, on the first. So yes, 16.9%, if you compare Q3 to Q4, it's basically stabilized because there's a mix effect of the divestments in there, which had a less -- a lower negative number. So the trade working capital efficiency performance of the divested companies was not at this level. It was at a lower level. If you would ignore those, we've been stabilizing roughly. Now of course, it would be impossible to give you a number for the coming year, but we said earlier, we expect it to come down with a few percents, and it will be a cash out for the company. That's what we anticipate. So that -- on our turnover can be a substantial number. It's easily EUR 100 million to EUR 200 million, if you just want the ballpark number. But it's not based on insights because we also have to see how our clients will behave. Yes, on your second question, in detail, our Civil German business has been running really well for the past 3 years. If you look in how our management team there has achieved turning that into a good company, good backlog and a healthy business that's clearly succeeded. Yes, going forward, we only give guidance on the outlook for the full company. So we're not going into individual businesses.

There are no furnish included there apart from this book profit?

Sorry, no?

There are no furnish included in that number?

No one-off elements, you mean?

Yes.

No, yes. There are pluses and minus in there, but the underlying business performance is well displayed by the EUR 30 million of EBITDA that you see there. So it's a good running business. It is 1 thing to mention there is that the typical CapEx levels for those projects that we do in Civil Germany is higher than in the other companies, and that's why the EBITDA is a bit typically higher there as well. So you have to step from EBITDA to PBT is a different 1 that we see in the other companies. That is an important element.

Just a follow-up on the [indiscernible] unit. Without saying anything about valuation, but normally, you don't keep a data room available to potential buyers for a year or 1.5 years. So can you shed some light as to where you stand on those remaining -- I'm not counting on Kaïros, that's going to be a minor one. So where do you stand specifically on [indiscernible]? Is there a long list, are we in the short list? A bit more color than just you have to wait and see what we do in the next 2 years.

Well, I think we made a very bold statement last year to the external world in saying that we will sell these companies because normally, you don't do that. Normally, you just sell them and then you explain to the outside world that you've sold them. I felt 1 year ago that was necessary to give that clarity to everybody and also to you guys because I think the company had to make that, let's say, clear statement on strategy. Of course, the risk is then that every time people are, hey, what's the status? What's the status? Which is fair. And yes, to give the same, let's say, explicit clarity, that process is fully operational. And yes, Frans and myself are on top of this on a daily basis. So we are in charge of this derisking process, and this is a key element there, of course. And so that means the speed is pretty high. As you could also see, for example, this week, when we needed to go out on Tuesday with the news on contractors, Belgium Contractors, because, yes, there was another 1 we had that deal, and we had to go out, which is good, but only 2 days for this meeting. It shows you the dynamic of that process. So we don't hold back. I think that's the message. And you can expect news there during this year -- because like I said before, this also 3-year strategic plan is based on, let's say, 1.5 year derisking just to give an idea how we are managing the company. And then hopefully, let's say, 75%, 80% is derisked and we can start building more the sustainable future part of the strategy. So we are now 1 year -- yes, let's say, on track. Progress is pretty good. I think I'm really happy with what the team, let's say, achieved in that M&A part. It is not very easy, I can tell you, to sell these companies. These are not always the best and profitable companies, as you can imagine. So this is difficult. This is complex. There are long-term projects involved. The financial context is pretty complex as well. So this is the [ hot cuisine ] of finance to make this work, to make this work for buyers as well. And on top of that, we would like to sell these companies to good companies. And we were very happy with the Galère sale to Thomas & Piron, which is a strong, let's say, EURO 500 million-plus company in Belgium. So you create a nice, strong local company. They're more in the southern part of Belgium. Now with BAM contractors with Stadsbader, which is a very good profitable company in Belgium, family-owned. And they, let's say, double their size as well in the Belgium context. So it's also important for us that our people there worked very hard for many years for BAM, have a good future. So it's not only making a deal, but it's also looking to who, and is it credible? So that's another complexity of doing these kind of deals. And yes. But again, I'm really happy with the progress we're making. And I think during this year, you can expect more news in that field. And again, I hope, by the end of this year, we can stop this process and finalize the direction we took.

Final question.

Could you elaborate a bit more on the nitrogen issue regarding residential in correlation with your modularization and industrialized activities you're fueling up, to which extent are the industrial activities, industrial residential production and answer to nitrogen issues, for example, in the province of North Holland where the Governor has sent a very urgent letter to the Dutch cabinets that they see very limited room for expansion of residential construction. And I'm also wondering how this might impact your land bank position regarding the message of the governor of North Holland?

Well, that's indeed a pretty complex question because the nitrogen issue, like we discussed before, is now impacted by these 3 elements that come into the picture as [indiscernible] as they call it, which is getting more and more difficult. So the exchange of nitrogen rights is getting more and more difficult or forbidden even. The limit of the 25 kilometers, let's say, fall out of nitrogen is now being questioned, and the exemption for the construction industry to build projects is also under discussion. So these 3 elements together, like I said before, are making it a bit unsecured. So we need their really government activity. The link to industrial building is a bit more complex. There we see -- well, in that sense, we are trying to build up a way of, let's say, building faster and more efficient CO2-neutral homes. That's what we're trying to do. We announced during 2021 that we will start a new way of constructive -- the construction of the home itself, by wooden frame, not only external part of the house, but also the construction part of the house itself. That's why we are investing partly in this new factory in North Holland by the way to be able to change from a concrete way of building a house to really have the basis of the house of wood. And that can speed up the production of homes. And that can help as well with, of course, yes, having to, let's say, hire more people to build more homes. So this is robotization of building homes, which is really important with the lack of people. So that's more linked to that part of the problems we have. That investment will produce homes, parts of our homes in 2023. So that will help us a lot in the Dutch context. That's not a solution for the nitrogen issue that the government needs to solve for us because now, indeed, it starts to become even a local issue. So you have different rules them per province in the end even. So that makes it even more difficult. So a company can have luck that are very, let's say, more focused in 1 region and where the government looks a little bit different than, for example, in [indiscernible] or in [ Limburg ] then in [indiscernible], where there was now also a clear statement. So that cannot be the future, I think, for this country. So there, again, we need clear solutions. Otherwise, these homes cannot be built, of course, going forward.

But did you already have a look upon your land bank positions? Or is it still too early to make such an assessment.

Yes, we looked at that, of course. And let's say, most of that activity is in the Western part of the country and in the Midwestern part of the Netherlands. But it doesn't -- that sounds good for us, but it's not a solution anyhow because we can have developments there as well. So let's really wait for a national solution year to be able to serve the community and build these homes. I think that's much more important. And that's clearly a government responsibility to make that happen. And well, like I said before, I cannot imagine Central government will not really be decisive on this 1 because the demand from society for these homes is extremely high, I think. So that will happen. Okay. That was the last question. I think Aupers is now giving a clear signal. Thank you very much for coming, and have a good day.

Thank you.