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

Good morning. I'm Michel Aupers, Investor Relations Manager of Royal BAM Group. Welcome to everyone joining this analyst meeting here in Amsterdam or in audio webcast. This meeting is hosted by our CEO, Ruud Joosten; and our CFO, Frans den Houter. They will present the key points of BAM's results for the first half year 2023, which we published this morning. Afterwards, we will take analyst questions. I draw your attention to the disclaimer here. Ruud, over to you, please.

Thank you, Michel, and good morning all. Our opening slide gives an aerial overview of Dawlish seafront in Devon where BAM recently completed the new Dawlish sea wall. This will help protect the railway from extreme weather and rising sea levels. The entire sea wall project has given the local economy an enormous boost through network rail and BAM commitments to using local labor, materials and accommodation wherever possible. This brings us to the main item of this morning, our half year results. BAM reports EUR 119 million adjusted EBITDA in the first half year of 2023, reflecting an adjusted EBITDA margin of 4%. I'm pleased that most of our businesses had a satisfactory performance. Our market remained challenging -- the market remains challenging. Higher interest rates, ongoing inflation and international tensions continue to affect short-term sentiment and cause some delays to new projects and home sales. More recently, the fall of the Dutch cabinet added to this uncertainty. It's good to see that civil engineering in the Netherlands continued the positive trend of recent quarters. They made a substantial contribution to our group results. Dutch residential construction made a satisfactory contribution to the results, although sales of new homes were down from a year ago. I will say more about that important market for BAM shortly. The lower result of the division in the Netherlands was mainly due to design issues and cost overruns at the 4 projects in Denmark. This is clearly disappointing, but we will complete the projects in the coming quarters. The division United Kingdom and Ireland performed well and had higher contribution. This was driven by Ventures and Ireland. Belgium and our PPP joint venture Invesis also contributed to our results. Our trade working capital efficiency and our cash liquidity continued to normalize, and we have moved away from large single-stage contracts with large prepayments. And our order book remains at a good level. Our capital ratio is now 22.3%, which means an improvement of 1.1% versus end year '22. Over the first 6 months, the group realized a net income of EUR 60 million, reflecting earnings per share of EUR 0.22. Here, you can see some of the 100 sustainable new-build homes in Hof van Haag in The Hague, delivered by a residential builder, BAM Wonen. The division Netherlands contributed an adjusted EBITDA of EUR 55 million in the first half year, reflecting a margin of 4.1%. This was substantially below the performance realized in '22. Later, I will come back to this. Let us start with residential construction and property development. These activities had a somewhat lower, but satisfactory contribution to our results. As you are well aware, the Dutch residential market is currently under pressure. It's due to a combination of developments, higher interest rates and building costs, somewhat lower consumer confidence, slow permit processes and uncertainty regarding government regulation. Residential construction and property development remains a key focus area of our group. The structural shortage of homes in the Dutch market is a huge opportunity for BAM for the long run. We are committed to remain a leader in this market. Now a brief overview regarding our position in residential property development. BAM owns approximately 900 acres of land, of which around half is fully owned and half via participations. Almost all our land positions are located in areas where it's a high economic activity. Of our total development potential, 40% is in inner cities and the remainder for suburban development. Around 50% to 60% of our development potential is in the segment social, middle range and affordable private homes. The focus of the government and municipalities has been on the development of new homes in inner cities. However, in our opinion, the best way to increase the production of sustainable and affordable homes is also a higher focus on the development of suburban regions and locations. Otherwise, the Dutch government will not be able to build 900,000 new homes within the next decade. While the residential market is under pressure, we are currently forecasting to sell around 1,500 homes in 2023. We are positioning ourselves for when conditions improve. Now over to the other segments in the Dutch division. We are disappointed with the performance of the nonresidential, which was impacted by the losses of our 4 projects in Denmark. In Denmark, we are faced with the consequences of design issues and cost overruns. We are fully focused on completing these 4 projects in the coming quarters. A clear positive is the strong first half year of our activities in energy, water and telecom. The Dutch civil engineering activities also continued to be positive. Trend started already in '22. The Netherlands order backlog grew by 2%, driven by nonresidential construction and civil engineering, partly offset by residential construction and property. Moving on to the division U.K. and Ireland. This slide shows the National Children Hospital in Dublin. It shows the scale of this major project. We are fully resourced for the planned scope of work. The tireless effort of our staff and supply chain partners has driven the build phase to more than 85% of completion. We are fully committed to delivering this world-class hospital within the shortest possible time frame. The division United Kingdom and Ireland contributed EUR 63 million adjusted EBITDA to the group, a substantial improvement versus last year. The performance reflects an adjusted EBITDA margin of 4.1%. Ventures had a strong result supported by the sale of an office development and civil engineering in U.K. showed a satisfactory performance, supported by a high activity level. The contribution of Construction U.K. was impacted by supply chain issues on some larger contracts. In Ireland, the overall performance in the first half year was solid. The order book declined mainly as a result of the additional review of the road programs by the U.K. government. We are particularly pleased to win projects for 2 converter stations to connect subsea cables from offshore wind farms to the U.K. onshore power grid. This is a vital part of the U.K.'s decarbonization ambitions. And we have leadership in this important growth market. Now Frans, will you take us through the financials?

Yes, Ruud, and good morning, everyone. On this slide, you see an example of our new electric construction equipment. In line with our ambitious sustainability target, we continue to invest in electrification of plant and equipment in order to realize our recently accelerated strategic target of 80% reduction on Scope 1 and 2 CO2 in 2026 versus the base year 2015. Now let's have a look at the income statement. Overall, the highlights of our performance in the first half year are most activities showed a satisfactory performance against the background of challenging market conditions. It is good to see that our capital ratio further improved and that our order book remains at a good level. Trade working capital is following the seasonal pattern, but it's also reduced by the unwinding of advanced payments on large projects as a consequence of our adjusted tendering strategy, and it includes the effect of higher interest rates. We are pleased with the net result of EUR 60 million that is supported by the finance result due to higher interest rates, but also by the lower income taxes, with no impairments, a clean conversion to net results. Let's discuss a bit more detail. Revenues of the division in the Netherlands and the United Kingdom and Ireland combined were 1% lower than the first half year of 2022. Our total group revenues declined by 11%, and this reflects the effect of the divestments that we completed last year. Adjusted EBITDA was EUR 119 million, applying a margin of 4%. The margin in both divisions were around 4%. I'd like to note that the comparable base from 2022 was rather high as we were supported by the contribution of the divested companies, hedge revaluation reserves related to Invesis and 2 large settlements. Combined, this explains a delta of more than EUR 60 million. The adjusted EBITDA contribution of the 2 divisions combined was EUR 118 million. As explained by Ruud, the continued good performance of our safe activities in the Netherlands is clearly positive. The lower result of the Netherlands was mainly due to the 4 nonresidential projects in Denmark. Compared to last year, the contribution of the division U.K. and Ireland was EUR 15 million higher. The line, Germany, Belgium and International has a small positive result. BAM's share of Invesis net results for the first half year was EUR 3 million. At this moment, Invesis has 42 operational projects and 5 projects under construction and is fully focused on implementing the strategy. Our net results over the first half year is EUR 60 million, equal to EUR 0.22 per share. We report no impairments or reorganization costs. Although the interest rate is not supportive for our construction business, our finance results improved to EUR 7 million. In other words, today, our negative working capital brings more value to the company. Furthermore, the income tax charge was low in recognition of additional deferred tax assets of EUR 5 million. This is related to the liquidation losses of 4 subsidiaries in BAM International, a direct consequence of the wind-down process. Let's go to the cash flow statement. Our cash and cash equivalents totaled EUR 661 million, which is EUR 180 million below the position of year-end 2022, as said, following the seasonal pattern but also impacted by portfolio decisions and interest rates. Some more detail. We had a good cash flow from operations of EUR 113 million, mainly driven by the operational performance of the company. The outflow of working capital totals EUR 180 million, basically explains the movement from year-end cash position. This is driven by seasonal pattern, unwinding of advanced payments on large projects and in results of the increased interest rates. Cash flow from investing activities primarily relates to regular capital expenditure. As a reminder, the comparable period last year included a net outflow of EUR 40 million from the divestments. The cash flow from financing activities included EUR 34 million of dividends related payments, of which EUR 24 million in cash and EUR 12 million for the repurchase of shares to compensate for the dividend in stock. Now let's have a look at the financial position. As per earlier guidance, we see a further increase of our working capital related to the balance sheet and the changes in trade working capital efficiency from minus 15.8% to minus 14.8% at the end of the first half year. As stated before, we expect a further gradual increase of the trade working capital efficiency in the coming periods. It is good to see that our financial resilience further improved as our capital ratio increased during the first half year by 1.1% to 22.3% in total. Back to you Ruud.

Thank you, Frans. Before we look ahead, we show you one of the major nonresidential projects in the U.K. Sky Studios, Elstree, Sky's new state-of-the-art film and TV studio with 13 sound stages just north of London. We continue our strong focus on order book quality and selective tendering. The order book is at a solid level of EUR 9.5 billion. The change since the end of '22 is mainly caused by the further review of road programs in the U.K. by the government. The trends in interest rates and inflation and the wider macroeconomic uncertainty continued to cause some delays to tendering and starting of new projects. In the Netherlands, we hope to see a new and stable government in place that will maintain essential investments for energy transition and infrastructure, take action to support the construction of much-needed new homes for our citizens and bring practical solutions to the nitrogen issue while respecting the natural environment. In the U.K., there's a long-term pipeline for education projects and robust opportunities in health care and regional frameworks. The energy sector is offering significant opportunities as the U.K. drives towards independence in this area. Infrastructure market is expected to remain relatively steady. Also, the outlook for the rail market is favorable. There are attractive opportunities in key markets in Ireland and BAM remains focused on winning projects with the right risk/reward balance. Now we have reached August. We are updating our outlook for the year. We expect to deliver an adjusted EBITDA margin higher than 4% for the full year 2023. Now we will take your questions. Michel, who's first.

Tijs, the floor is yours.

My first question is about, let's say, the outlook statement in the beginning of the year as compared to now. And my question is, did you already include or anticipate the quite positive contribution from the U.K. property business? Because that's the Ventures division normally makes EUR 6 million, EUR 7 million per 6 months. And now there is a EUR 17 million beat on that number, which for the stock market is difficult to predict. So was that included in your previous outlook?

Yes, this kind of sale, of course, is not a onetime event. It's part of the natural, the core business of Ventures. The property, which is part of Ventures property department division within the U.K. So of course, we knew that this was completed and ready for sale. Of course, you can have a plan, let's say, in detail when the deal is going to come, but it was part of our '23 business.

Okay. But I assume that you would not like us to put in these kind of gains every year going forward because it sporadically happened in my view.

Yes, but it was included in the Q1 numbers. And there, the previous outlook, as such, included this result.

Yes. So the slight downward adjustment is basically because of the nonresidential projects in Denmark?

Well, I think it's a combination of the -- of certain uncertainties in the market. If you look at the Dutch market, especially, I think the U.K. is pretty stable, where we are more focused on infrastructure, health care and education, which is pretty solid. Whereas in the Netherlands, of course, there's more pressure on the residential part of the market. I think that's a critical aspect of our performance in the Netherlands. Over the years, it was very successful, of course, that part of the business. Now it's more under pressure. You also see that in the number of houses that we've sold. So it's a combination of things. Clearly disappointing the result in -- the effect of the results in Denmark. Kind of in the last phase of the derisking of, let's say, regions within the portfolio. So we are finalizing these 4 projects, and we stopped tendering there. But indeed, it is a disappointment and it has an impact on the result. I think for the rest of the year, what we say with this outlook is that the second half year will be better. That's the more positive translation, I think, of the message. But of course, we try to promise and over deliver with this one. That's also clear.

And from my understanding, so the first half EBITDA of the Danish project includes significant loss provisions. So the rest of the project should be -- if the provisions are right be, let's say, at 0 margin.

It's very difficult to -- in this business to make remarks on projects. It's my experience after a couple of years. So I'm not going to do that, but let's say, we just stick to the bookkeeping rules of IFRS in this one.

Yes. How BAM normally does this.

Yes. So all that we see and that we have in the planning is included in the half year numbers as for each project.

Yes. Okay. That's helpful. Yes. And also diving in a bit deeper on the impact of the property development business. I should know it as an analyst covering the sector for a long time, but there is, let's say, a direct impact on the results from the low home sales, but probably there's also a spillover effect from, let's say, finishing of milestone payments from past projects. So how does the result going forward will be impacted by this very low number of sold houses?

I don't think that's a clear link with that amount. I think there is a clear direct effect of having less houses sold within the results. And for the whole year, we still expect 1,500 homes, so that we will have a positive effect in the second half year. And I think our outlook is also based on that number.

And selling the house tells you something about state of the market, and it's always a bit phasing in there because in some quarters, you do larger transactions with investors. The profit taking that you relate to is when the transfer is done at the notary. So during the construction, yes, you realize profit as you complete the building and then when you deliver to the final owner, the transfer at the notary, you do the final profit taking on the development. While the selling of the homes is here -- is more a market indicator.

Yes. That's the major driver for taking profitability. And also, what I understand is that although the number, the volume was low, your margins were relatively okay. So you had not do fire sales in order to -- so it's just on an absolute level a lower contribution, but the margin is still okay. And then there's, of course, also a big impact from the residential building activities of BAM, which are still executing, let's say, higher home sales of last year. So there will be, let's say, a downturn in front of you, but there the business has lower margin on average. So the impact is, I would say, less significant, visible in the numbers.

They had a pretty good first half year and also reflecting a lot of activity in renovation. So that's a growing business in the Netherlands. When people are not moving, you see an uptick in renovation of homes, maintenance of homes, but also the electrification and that kind of investments that are going on and are, let's say, increasing in the Netherlands. So indeed, maybe lesser building activities or finalizing the homes that were, let's say, sold earlier, but an uptick in -- a clear uptake in renovation activities.

And then you're doing the work for institutional home portfolio owners because you have -- private individuals. I'm not going to...

No, no, typically larger volumes. Associations building associations, for example, 80 houses or that kind of projects, 48 houses that numbers are then realistic.

Yes. And just one final question for now. You probably have seen, let's say, the transaction of one of your competitors in the Netherlands, basically replenishing its land bank position. I also noticed with BAM, the land bank is coming down in the past 10 years. Are you now more actively also searching for building rights, land positions? What is the, let's say, the opportunity for BAM here? And also if you make those investments, where can I exactly find them in the cash flow statement? Is it in CapEx? Or is it in financial?

Yes. Maybe the last question is in the PPE line. And then we disclose normally, yes, we provide more color on it. So our land position is typically above EUR 400 million, EUR 420 million today, roughly, and it's stable. So we continuously invest. The reason why the number has gone down is because we have focused on quality of the land bank. So we've reduced and we've had impairments in the past on that to come to a good quality of the land bank with a high visibility of turning those land positions into projects, yes. And then we always do -- sometimes we do a bit larger transactions there. We did a small -- in June, we did a small transaction. We've continuously looked in the market if there are smaller kind of acquisitions. Yes, that was the EUR 10 million, EUR 12 million investment, for example.

Okay. And that's unchanged from the last year.

That line is still the same, yes.

Tim Ehlers from Kepler. Well, now that we already talked about the acquisition by Heijmans and then I'll just jump to that question right away. I mean your cash position is decent. The balance sheet is solid. What's your planning regarding the capital allocation going forward? Do you also maybe look around if there comes up opportunity similar to that one? Or is your trust in the Dutch housing market not that good yet to buy a property developer? What's your view there?

Yes, it's always very risky to talk about M&A strategies for our company, especially in a small market, not so many players. So we have to be a bit careful there. I think we have a solid land bank. So we have solid opportunity to indeed have, let's say, increase in sales going forward. We see need -- a dip now in the home sales, but going forward, there will be an increase and BAM will benefit from that. We always look for opportunities, of course, in M&A. I think a couple of years ago, it was completely out of the question that BAM could do in M&A activity on acquisition. We are now in a much better position. Looking at our balance sheet and our cash position and the company is derisked to a certain extent to a high extent. We're looking at profitability. You saw a very nice conversion to net profit in the first half year, which is really important, I think, for shareholders and stakeholders. And we said earlier that we also want to be a reliable dividend payer to our shareholders. So the stable or growing dividend is also very important for us in that respect if you talk about capital allocation.

Okay. Clear. So the internal view on the housing market is -- can we see a trough more or less now? And then do you expect an uptick, let's say, in the next year?

Yes. I think our colleagues and I can commit to that kind of number of 65,000 homes in 2023 built is clearly a decrease compared to last year's, which is a bit painful, if you look at the deficit of homes in the Netherlands for our citizens -- for the citizens of the Netherlands. But okay, a couple of reasons that led to that, I think we talked about it earlier. But indeed, you see people now already getting a bit used to the higher interest rates, but it's still historically kind of a normal interest rate in the Netherlands. People also see in their balance sheet -- not in their balance sheet, but on their -- basically on a monthly basis, they see the uptick there as well because of the sometimes 7%, 8%, 9%, 10% increase in salaries. So they see that they also can afford a little bit higher more market payments. So you see there already a bit of a stabilization in house prices in June. July, we see that also in our commercial activities. So hopeful as we are, we think and hope that the dip should be manageable in '24, but we expect a dip in building activity for next year.

Okay. Clear. Then one question regarding the Construction & Property division. So residential, construction down on the revenue level. Renovation up. What did nonresidential construction do? Was it also dipping like we've seen it in the U.S.? For example, is there a concerning trend in that case because overall, the revenue, yes, is flat? So -- or did nonresidential performed better than expected?

Nonresidential performance, I think, as expected. Like I said before, there is some hesitation in new projects in nonresidential. We were lucky. Our sales people did a good job earlier, I think, in commercial activity to secure a few bigger projects in the Netherlands. I think we communicated on the new police station in the Hague; Berghaus here in Amsterdam, which is a pretty big project. And we are active in a few big ones at this moment in time. So we're happy with where we are. But in general, I think the nonresidential market is in -- is having a pretty difficult time in the Netherlands.

So going forward, we have to expect small dip further because...

No, I would not say that because I think our portfolio looks strong. And I see some interesting projects coming up in the pipeline. So for BAM, I am pretty positive looking at sales in nonresidential.

Okay. Then one last question to wrap it up. Regarding Ireland, I mean, the dip there is explained by further finalization of the Children's Hospital. What will be the normal level of revenues there? Is it then after the hospital because you're not going for large projects like that again or...

We were almost around EUR 600 million at a certain point of time. That was very boosted by indeed revenue on new Children's, 400 million to 500 million company. You have EUR 400 million to EUR 500 million on an annual basis as kind of indicative would be a good starting point.

And the Children's Hospital will be finalized this year or next year?

Next year.

Okay.

85% now -- it's coming to the conclusion phase, but it's a huge, very impressive project. And you can imagine that, that will take some time as well. But I mean in the end phase, but we plan to end at first half year '24.

Martijn den, ABN AMRO. I would like to ask a question on the international part. Of course, it's renovating. You did have quite a big steps there. But talking about underlying performance there. You mentioned that Belgium was at a satisfactory level. Could you elaborate a little bit on the remaining part and what's maybe -- could explain because we argue that Belgium at satisfactory levels would be somewhere more towards the 4%? Could you elaborate a little bit on that? Mainly the German part, what you did there in your results...

Yes, and it's a good question. So if you look at the revenue, it is a small revenue compared to where we were. The EUR 400 million we saw last year included still the divested companies. Today, this number is basically Belgium. And then indeed, if you look at the performance of Belgium, I think it already said in Q1 around 4%, and we're happy with that, and that's still the case. But we still have some rundown costs on BAM International, where we have completed, of course, all the physical work on the projects, but yes, we are unwinding those entities and there's still some aftermath there, which is all we're not worried about, but it's having its impact on the bottom line, of course.

Okay. And then is that more or less already at an end? Or is this something...

No. That will continue second half of this year, maybe a little bit, of course, to come early next year, but that's running down and that's minimal. So you'll see the impact of the positive impact of Belgium coming through more visible on the bottom line should be emerging as we phase out.

Yes. A year from now, probably there will be Belgium. But indeed. I think we're happy with the development in winding down these entities. And some big steps to make in the second half of this year, going into the right direction.

And it's really the administration side of it, fiscal and closing those entities and BAM International had a footprint in a lot of countries. So that takes time, and there's people involved and costs.

Yes, Maarten.

Maarten Verbeek, The Idea. Firstly, if you want to disclose them separately, please, but I don't think you will be, but maybe you would like to give the combination of the losses you had in Denmark and the office in U.K. Just to get a good feel of the underlying development. If we would combine those 2 results, would it be breakeven? Or would it still be a loss or plus?

Yes. Indeed, we never go into individual deals. We're also protecting our customers, of course, because that would not appreciate it. But both were, let's say, substantial amounts. I think you can calculate yourself a bit if you look at the historical results. And I think we should leave it with that, I guess, Frans, but I'm looking at you with my conscious here.

Agree.

Okay. And then secondly, when we look at the order book of the U.K., even excluding the highway contract that's coming down pretty rapidly in the past year. Is that due to poor market? Or are you more picky in what to tender for?

Yes, it's a combination, I guess. It's -- first of all, last year already, we took a decrease in cutting some of these road projects from the portfolio of BAM Nuttall at the civil company. And that's -- this year, we took the last part, I think, and it was -- we didn't do that. It was addition of the British government to do it, another EUR 300 million out of the portfolio, which is not a real problem, I think, for the profitability of the group, to be honest. Also from a sustainability point of view, it's not a worse part of the business to lose in the U.K. And on the other hand, you're absolutely right, we are very picky with big nonresidential contracts anyway. And that's what it is in the U.K. U.K. construct is nonresidential as we don't have the residential part, which is sometimes also lucky when that market is under pressure like in the Netherlands.

Okay. You've said before that your working capital ratio will come down or go up, become less negative. The target is still to keep it below the minus 10%. To what level do you still expect it to come down?

Yes. That's the most difficult thing, I think in the construction company, forecasting cash trade working capital. We gave guidance in the past quarters that we expect to reduce 1% to 2% on trade working capital or increase, become less negative this year and next year. And that I think we should hang on to that position. So this year, we see it come down minus 15.8% year-end today, minus 14.8%. That will not be more negative because you have some strong quarters running out. The working capital itself will stabilize roughly second half of the year. So then the percentage will by default become less negative second half of the year. And then next year, again -- bit careful here that the trade working capital will move towards the minus 10% at the pace of 1% to 2%. And that's really -- that's driven by, I think, smart portfolio decisions to step away from those large projects that bring too much risk to the company. And they're not receiving the prefunding anymore on new ones, while we, of course, have to -- as we complete those projects, basically repay the clients on those advanced positions. And that's a more stronger effect we see today than the seasonal pattern.

You already mentioned the benefit is that you have a nice interest income.

Yes.

What do you expect this to be for full year?

What do you think of the interest rates? See, that would be my first question. Let's assume that it's stable, then yes, it will continue as being a positive contribution to bring it to net result, where I think the first half year was a bit stronger maybe than the second half year. It will not be more in the second half as it was in the first half.

What I noticed was when I look at your geographical P&L that this interest is more or less fully allocated to the U.K. Does it also imply that your whole negative working capital -- trading work capital is allocated in the U.K.?

No, that's a good question. But we see typically that our U.K. businesses bring a more negative trade working capital. So we have more cash in the machine than in the Netherlands that is available. And yes, the U.K. interest rates are also a bit more [Technical Difficulty] in Netherlands, so that helps in this scenario. So yes, it's a big part is there and brings value.

Okay. And then lastly for the moment. You stated about conversion from your adjusted EBITDA to your net result. Do you have a specific target for that?

No, yes. So the target is, of course, to prevent impairments and that's very important. And we have, in the past, not been successful. I think we were really happy last year with what we saw. Again, very pleased that we just basically have no impairments first half of this year. Yes. And then on the tax side, around 20% is a good number for BAM, giving our tax position in the Netherlands where we still have losses that we can consume. And then this one is supported by the unwinding process of BAM International, where we just discussed the cost side of it in the line Germany, Belgium and International. Here, you see, we have some tax uplift as we close those entities and the losses there of the original investments that we've done, we can deduct from our tax position.

But now we had a conversion ratio of some 50% in H1 '23. Is that a goal going forward or...

No. We give guidance on adjusted EBITDA, and I give you these inputs on -- and you have to define your conversion percentage yourself.

[indiscernible], ABN AMRO. I have 2 questions. The first one in forced the nitrogen issue in the Netherlands, which is still not solved. In the meantime, there are other issues popping up like water quality requirements also coming from the EU and implying difficulties for construction companies. What you look upon that? Might it impact the delays in projects or might it impact -- might it have an impact on costs? And my second question is also about specific Dutch issue, I think, and that's more or less the net congestion, which is increasingly becoming a topic and might also cause delays in project, impacting perhaps the residential business, nonresidential business, but also infra projects. What's your look upon that?

Yes, very important question. Also looking at our sustainability strategy that we launched early this year in Q1, where we have a look at these kind of KPIs. We're now talking about our financial KPIs, but indeed, our nonfinancial KPIs are just as important. And it's also very a difficult question to answer because nitrogen, for example, is for now more or less a Dutch problem in the portfolio with a little bit of Belgium. And of course, it's also difficult to solve. For our project at this moment in time, it's not a big problem. Also especially with the fact, of course, that we are not involved anymore in this very big infrastructural, let's say, roads in the Netherlands that are stopped by legislation, for now by the judges. But longer term, of course, this needs to be solved. Also when you want to build houses, you need infrastructure as well. So that needs to be solved. And again, we are pushing for a stable government who will take us through this period in a realistic way. Still respecting the natural environment, which is also really important. We need to break through, I think, the stand still and come for the Netherlands to a good solution there, where not everything is stopped and blocked. In general, the opportunity for BAM in the whole transformation of the Netherlands, but also for the U.K. has to do with the fact that there needs to be enormous amount of electrification, but also the water situation in the Netherlands. The adaptation -- the climate adaptation is something where BAM can play a very positive role. So there is a negative side, of course, of this for consumers and for the building industry as well in working on projects short term. But long term, there's a huge opportunity for companies like BAM to help the government in realizing long-term solution in a sustainable way. And that has to do with the water management, but also the electrification of the country where tens of billions of euros will be invested by companies like Tenet, but also the local companies like [ Lianda ], for example, in Neon, to make that happen, to make the electric society possible. We play a leading role there. So you have short-term maybe hiccups. But long term, this is the future of BAM.

For the moment, you don't see any big delays coming up, popping up in your order book?

No. I see indeed the opportunity in some of the big tenant jobs, for example, where we are doing, so that gives an uptick. Of course, nitrogen is an issue for the total country. And in some of the provinces, it's very difficult to like North Brabant, it's difficult to start up new projects. So then you have to look very carefully to our own portfolio. And then we see that we are not hit so much at this moment in time. But it doesn't say that there is no problem for the Netherlands, of course.

Tijs Hollestelle. I have a follow-up question. I know it's not your favorite subject, talking about the individual projects. But yes, I think for the stock market, it's quite important what to expect. And the question is, do you have, let's say, visibility on certain, let's say, claim settlements or discussions with customers towards the end of the year in any of the major important entities? Because I can imagine that, I mean, there are still some legacy projects. So you have kind of visibility, also milestone -- important project milestones or maybe court cases coming towards us. So is there anything we should expect? Because, yes, I've heard the update last year, but I, of course, lost a bit of track where we are with all these problematic files.

Yes. Like your introduction, every word I say about it, of course, is very risky and speculative. Fact of the matter is that the number of risky projects in risky countries has decreased immensely over the last couple of, let's say, 3 years. But I also said the derisking was not finalized and you see that today in the Danish operation. I'm really dissatisfied with that, of course, but we are closing down the entity, closing the projects. But okay, it shows you that the derisking is not completed yet, and we still probably need the full strategic periods to make that happen. And then still, there are a few bigger projects that are -- that started before the derisking period in our portfolio. But the good news is we didn't start new projects with that kind of risk profile over the last 3 years. So yes, there will be some settlements going on. We don't see -- I don't see big things coming up on short notice. Good news is that we settled in the U.K., one of our old-time risky projects, the Cambridge Guided Busway, big settlement that we finally made a deal with the British government or the local British government, which is also out of our portfolio. So one by one, we are finalizing these risk elements on our list and working very hard there, making very good progress. But it's very difficult to make a judgment on the second half year. Frans, looking at you as well. The outlook is there. So you can see we expect a better second half of the year. And that's where we are.

Yes, rightfully so. So Cambridge Guided Busway impacting our risk profile, reducing it. That's a settlement, was a cost out, but it derisked the company. If you look at the lumpiness of the settlements, in your question, I think the derisking is in the fact that under IFRS 15, we are very prudent in valuing commercial settlements. So in the last stage of other projects that we do, you typically have a negotiation and you aim for a positive outcome there, but you just wait with -- put it in your books until you have a signature. So that by default, we'll always bring a bit of variability on those projects. So -- and that's why we point out like in Q1 where we had a nice transaction and there's a bit of uplift, but it will stay part of the business that there is a bit volatility. But it should be in a more conservative valuation where we are today that should lead to positive normally.

Yes. So as I understand correctly, you as the new management team, built in more leeway, financial leeway on these provisions so to dampen potential negative impacts. Yes, because the reason is that not only BAM, but also other construction companies have a tendency to report, let's say, quite good, let's say, third quarter numbers. And then a lot of the settlements take place towards the end of the year. So in my experience, I have seen a lot of profit warnings on these settlements in the fourth quarter.

Yes. And we are more -- as I said, driven by IFRS 15, but also by the fact that we want to derisk the company and not be aggressive in our valuations, not on claims, not on variation order and not speculate on settlements if we're not convinced by evidence.

It's also not on major projects because, yes, you probably have a whole list of these claims settlements, which people bring to you as Board members, but, let's say, a few which are quite significant.

No, yes. But I think the best evidence is last year where we disclosed settlements on OpenAI [indiscernible] the future in a similar fashion, where in the end of the project, you are just conservatively valued your cost and that's part of your project management and the project can be good or bad. But then in the final settlement, it should bring you a bit of relief.

So in general, you feel more comfortable with the balancing out of it.

Yes. Well, look at Infra, the Netherlands, you see now stable results for a couple of quarters without us having huge discussions on OpenAI or level, for example. So that is a big improvement, I think. It doesn't mean it will be always like that, but it's a completely different discussion, I think, when we started this process 3 years ago because it was the only trips that we told -- well, 75% of the time was about that part of the business. So that's nice, but of course, we have to be careful and one by one settle these things.

It's the first time ever, I think, in 20 years that there were no questions about the Dutch infrastructure. So that is a deep positive. You're right...

Maarten Verbeek. I have a follow-up on the previous topic about the Cambridge Guided. You mentioned there has been a cash out, but it has not impacted the P&L account.

It did. There was a small negative in that settlement process, a small cost.

Okay. And then brief question about...

But there was a significant derisking. So there's a claim discussion with the client. And then in the end, we settled for something we are pleased with.

Okay. And then the investigation of the Dutch authorities field. You're not willing to get into the topic fine. But do you already have some insight when do you think you can give more clarity and more information about this topic?

Very difficult for us to answer that one. Of course, we are fully cooperating with the Dutch government on this one. But yes, fully also, of course, dependent on their progress and their communication to us in that sense are very difficult to predict. Again, we are fully cooperating and let's hope this will end quick, of course, that's good for the company. And we are -- that's why we are cooperating to 100% with the authorities to finalize this project. But again, this is fully in the hands of the authorities in the Netherlands.

Maybe just one quick question. When I read through your note, and then you mentioned that for Construction U.K., the EBITDA was impacted by inflation and supply chain challenges. But you don't mention it for any of the other divisions. Is there a reason why that division is more impacted by it? Or do you -- in general, how do you see the current situation with cost inflation and supply chain? Do you already see easing? And...

Yes. I think the huge spike, I think, is easing. Still, I think on -- the labor costs are still increasing, also from next year. Of course, we're pretty successful now to calculate it through in our tenders. So no real impact on profitability. But again, hesitation on these projects because of some of these projects because costs are increasing, of course, and investors and customers are then saying, well, is this the right moment to go for a new office or a new home or a big other project or renovation then? That's what you see a little bit in the order book. On top of the fact that we are more picky in risk/profit balance. So that's, I think, the balance where we are today. And but inflation will go on, I think, especially based indeed on labor costs because you see indeed an ease in some of the categories in materials.

Okay. You also don't see a normalization of the labor market yet. So it's still tough to get the people you want to get.

Yes. And that's, of course, a special element right now that you see still employment is still very strong. So you see some of the demand under pressure, but the economy is still strong, I think, because of consumer spending and no unemployment yet, which is, I think, good for all of us.

A bit related because at the start of the meeting -- Martijn den, ABN AMRO, again. You mentioned this U.K. coastal project where you work together with local suppliers, local subcontractors. Is this a little bit the way to go and give this you kind of edge and gives that ultimately a better pricing as well for these kind of projects? Because you specifically mentioned it...

Well, we mentioned the element of using local spending, let's say, investment that's in cost into project using local subcontractors and investing it in the businesses of the Dawlish region at this moment in time. I think that's why we mentioned it. And that's also part of our sustainability strategy to do -- when you do a project somewhere that you also bring value to the local community and especially with date of project, that can be substantial. So also using local restaurants or local suppliers of food to do the project. So it sounds maybe small, but for that community, it can be important. The project can be 3, 4, 5 years sometimes. So you try to work together with the customer in this case, rail, British rail, to also make it a nice and good investment for the local community over there. And it helps also with the positive sentiment towards a project, which can be sometimes difficult, of course, with delays and logistical issues in a small community. That's why we show this project.

It's more and more a part of the, I would say, the ESG profile you want to have. It doesn't give you a true advantage.

Well, we use, of course, our -- if we can, we use local subcontractors too, but, of course, we first look at quality in bringing -- because it's a pretty complicated project. So if you look at the quality of the subcontractors to help us there. But on top of that and in combination with that, we try to make it an interesting project for local people as well.

And then that's completely in line with our sustainability strategy. But to your last point, it's really valued by clients as well. So they also -- if that's in your proposition, social value is the theme and you bring that to communities. Of course, clients want to be involved in that as well, and they are really willing to pay a premium for that.

And we see that the U.K. is a bit further with that than the Netherlands in that social value element, also in calculating the value of that for local citizens, for example, which is fully in line with our strategy. And we learned from that here also in the Netherlands to bring that into our tendering processes because it makes our work also much nicer, of course, if you get into that kind of environment where people appreciate the project and that's very helpful.

Okay. Maybe -- yes it's good to finish the conference.

Okay. Well, thank you for coming. Ladies and gentlemen, this brings us to the end of the meeting. Thanks for being present here in Amsterdam again and for listening to our webcast. And we're looking forward to meeting you next time for our trading update for the first 9 months on November 2. Thank you, and have a good day.