Koninklijke BAM Groep NV
AEX:BAMNB
Koninklijke BAM Groep NV
AEX:BAMNB
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The conference is now being recorded.
Good morning, ladies and gentlemen. Thank you for holding, and welcome to the trading update Q1 2019 of Royal BAM Group. [Operator Instructions] I would like to hand over the conference to CEO, Rob van Wingerden. Please go ahead.
Good morning, and welcome to the call for the Royal BAM Group trading update for the first quarter of 2019. My name is Rob van Wingerden, CEO, and with me on the line is Frans den Houter, our CFO; and also here is our new Investor Relations Manager, Michel Aupers. Before I talk about the quarter, this weekend marks 150 years since BAM started as a carpenter shop in the Netherlands. And now we operate around the world and employ 20,000 people. We are proud to celebrate our heritage and sustainability and look ahead with confidence to create future successes. And then the first quarter. The total adjusted results before tax for the quarter was EUR 17 million. Our first quarter usually has seasonally low results, and this was better than our recent year's quarters except 2018. Compared to last year, civil engineering had a slow start and we also didn't have any book profit on transfers of PPP projects to the joint venture. This was, again, a strong contribution from construction and property. In construction and property, we sold 951 homes in the Netherlands, which was over 400 higher than last year. This increase is mainly explained by some transactions with institutions. As I told you before, supply of new build homes in the Netherlands is constrained by delays in zoning and permitting at the municipalities. For the full year 2019, we anticipate a modest increase in homes sold. In Belgium, steps are being taken to improve the performance. Civil engineering was held back by the activities in the Netherlands and Belgium. And at the sea lock, we had an additional cost due to a number of several -- number of smaller issues. For example, logistical costs related to moving the locked doors from Rotterdam to Apeldoorn. We are on track to emerge the second caisson later this year. Our activities in the U.K. and Ireland had another solid quarter. And regarding Brexit, we keep monitoring the market carefully. PPP had a steady contribution from the existing portfolio and after the quarter end, a consortium, including BAM was awarded preferred proponent status for the Cross River Rail project in Brisbane. When the project is awarded, this will bring EUR 100 million revenue for BAM companies in each of the next 5 years. Our order book grows slightly year-to-date, and we are keeping up our tender discipline. And the quality of the order book is developing positively. Our trade working capital efficiency improved, driven by strong first quarter. We clearly have momentum and aim to get back to minus 10%, and our financial position remains strong. Our new executive committee is now in place and will accelerate the implementation of our strategy. We are maintaining our outlook for full year 2019. We expect revenue to be around EUR 7 billion and aim to further improve the adjusted result before tax margin within the strategic margin range of 2% to 4%. And now we are ready to take your questions.
[Operator Instructions] The first question is from Bart Cuypers from KBC Securities.
Yes. I have 2 questions for now. Maybe starting with Apeldoorn. Again, a higher cost than foreseen. Are some of these costs enduring going forward? And do you still plan to finish thinking the second caisson in the third quarter this year?
Yes, to the last question -- answer to the last question that the third quarter, we plan to lower the second caisson. Preparations are ongoing as we speak. And regarding the cost, all the costs we see we put in our forecast. So this is the forecast we have at this moment, looking forward.
Okay. And so going forward, there were no indications that the -- from the provisions -- the outlooks that you've taken that there will be additional costs compared to what was envisioned before?
No. Otherwise, we would've taken in and out.
Okay. All right. Yes, then maybe a question regarding the projects' cost overruns for the children hospital project in Dublin, which is appearing to be more than doubling in size. At the fourth quarter results, you indicated that outcome to contracts as well as, yes, your prices and dams processes were all solids. I assume, yes, you are currently still waiting for a response from Misters Harris and Donahue on the PwC reports. But based on the current information and project execution seems done. This is still your assessment for that project?
Yes. That's correct. The -- there was a report from PwC and the conclusion is that BAM is not at all to blame for the cost overruns. So that's important. And we are confident that we are in the right position to execute this project in the right way. So there was indeed a lot of publicity around it, but it was more political internally rather than related to BAM, as it may appear in the beginning. But that really changed.
The next question is from Mr. Luuk Van Beek from Banque Degroof Petercam.
Yes. First of all, a question on your performance in infrastructure in the Netherlands excluding the sea lock impact. Can you comment on how that is developing? Now second question on the working capital, was that only thanks to the group capital program? Or is it also in effect already in Q1 of the financing of the sea lock by the banks that has restarted? So -- and the third question on the -- you mentioned that you still focus on the risk reward. Can you comment if you are really seeing also in this quarter that the projects are coming in close to budget during the year, execution?
Okay. Thank you for your questions. Last one maybe first. We are very much focusing on the risk rewards. You might have noticed that we are also critical in decision to pick up tenders, to stop tenders and to change contracts with clients. I think that is the -- the part is probably visible and the other part is that, of course, internally we keep tracking and monitoring those risks. And we are definitely working on getting this risk-reward balance better. And as I said just now that our order book is also showing that. So I think we are on the right track. Of course, we always want to go faster, but we are doing, in my -- confidence, the right thing. If you look at the performance in the Netherlands, if you take out the lock, there you see civil engineering. It's the first quarter. It's seasonally sensitive. So it's difficult to read too much in any one quarter, but especially in the Q1. So I would say, of course, the competition is still heavy there, but let's not take -- draw too many conclusion on the civil engineering in the Netherlands even when you take out the lock.
Okay. The working capital?
Yes. Frans den Houter here. On to working capital the benefits in Q1 are mainly coming from the new program or the revitalized program, where we managed to reverse the trends. A lot of focus on the overuse, the in-built, and we trained many people. And as such, we are benefiting from that across the whole company.
[Operator Instructions] The next question is from Tijs Hollestelle from ING.
I asked a question about the revenue guidance. If I correct -- if I understood correctly the impact of the accountancy change for the German joint arrangements was about EUR 170 million, but if you mentioned that in the last reports. And then split over 30% impact in the building division at about 70% in Schiphol. I also saw that you've divested a very small telecom unit in Belgium of about EUR 10 million of annual revenue. So is it correct that the 2018 starting point of the revenue is EUR 7.80 billion revenue? And, yes, then as a follow-up, do you then assume no growth whatsoever in 2019? And then on top of that, now we have another EUR 60 million year-on-year revenue increase in Q1, so I'm a bit confused about how to read the revenue guidance of only EUR 7 billion. So maybe I'm missing something.
Yes. I can understand that because the relatively high revenue of the first quarter that you asked this question. The revenue growth in the first quarter was mainly driven by the houses sold to investors and that's always lumpy, yes. So it's not something we should do x4 every quarter. And that's why we also guide a bit on the house sold at the end of the year. There is some increase, but not to the extent we reported this first quarter. So that's why we are -- that's one of the reasons the revenue stays within this, the range of EUR 7 billion. Maybe on the Argen?
Yes. So Tjis, Frans here. On the Argen, we now in the forecast seen impact of around EUR 200 million on the revenue that we no longer take into our books.
Okay. And that explains then this. Okay. Yes, and your remark on the houses sold to the people of last year, it was a little bit low. It was down 16% year-over-year. So as always a bit follow-up house where you had a very easy comparison base so that is of the -- probably explaining the ...
Yes. I tried to say that, that's the impact deals and, of course, they have good deals, but that can be a bit lumpy. And maybe on top of that, of course, I keep repeating, we are not -- for us, it's revenue and outcome and other targets. So we are really selective in the projects we want to take in as you can also -- have noticed in some press releases on certain big projects.
Okay. That's clear. And then, also one last question on the sea lock. It's probably driving you crazy, all these questions. But I understand your comments that you -- Yes, your base, your information on what you currently have, but are there at the moment discussions going on with client on several topics, which, yes -- which might have a substantial outcome on potential future loss provisions here? Because I think the way the stock market looks at it, if you have in the next quarters, let's say couple of million additional loss provisions, it is -- it's quite good news given the magnitude of what can happen, that is now also -- do you also have some conversations on topics, which might include a more severe potential loss provision? Can you share anything about that for the duration of the sea lock project?
No. We have nothing in sight for more severe provisions in sight. And of course, we're always in discussion with our clients. So -- but it is -- the most accurate forecast we give on the project is what we do now. And no indication at this point that we should go, say, there's a lot of ups rate or downside. We are pretty -- we can do a thorough assessment of the project all the time. And at the same time, we are preparing for the second caisson and as we all know that is still a big issue in the project. And well, later of the year, we know how we're doing there. So far the preparations are in full progress and going well. We learned a lot about the first caisson. So we are really implementing all those lessons learned also in the second one. But that's still a big thing. The project is not finished yet, but when it comes to the forecast, this is pretty accurate. And at the moment, we don't have any big -- upsides or downsides in sight.
Yes. So no major difference of opinion with the customer over things have happened in the past, okay? Yes?
No.
The next question is from Bart Cuypers from KBC Securities.
Maybe a follow-up question, a new question on -- in the press release, both in construction and property as well in civil engineering. Belgium is mentioned as lagging in performance. Can you provide some more color on what the main issues are in both divisions? And what the measures are that you -- that are mentioned that you have taken to improve margin? And perhaps also, when you expect this to come through?
Yes. Understood the question, of course. In construction and property, we have some smaller projects with -- the whole performance is not what -- we are not, let's say, satisfied with the performance there. So there's not a -- there are not leaders in that sense, but our overall performance should be better. So that's why we appointed a new COO. We added a new COO in that part of the company. And we also appointed new finance director. So those are the 2 measures we take because we want them also to perform in the strategic range and that's currently not yet the case. So that's mainly construction and property for civil and the market is still slow. There are some postponements of major projects. Wallonia, for instance, remains at a low level. So there's also some work to do. Again, also here, it's early in the season. So it's not the method of leaders or big things, but we are not overall satisfied, that's why we take these measures.
Yes. Okay. So no major step-up in margin expected in the short term, if I understand correctly?
No, no, no. There are also, always discussions on claims that would be lumpy here and there, but that is everywhere in the company. So -- but apart from that, it's work in progress.
The next question is from Andre Mulder from Kepler.
Two questions. So the first question on the sea lock. Second, can you give us any indication of the settlement of the risk profile in the next few quarters?
Risk profile, yes. We have -- there were -- there are basically 3 important things here. That is the first caisson that are the doors and there's the second caisson. And the first one, we passed and the third big issue in terms of risk profile is the lowering of the second caisson. And we took into account all the lessons learned from the first caisson. So we are preparing now and bringing all those lessons into practice and we expect to -- this caisson going down in starting summer and completion somewhere end of Q3. That's the idea. Q3, Q4, depending on how it's going. But in terms of risk reward, that is a big thing in the remainder of the project.
But what's -- are there -- when this is soft, when this is executed?
When the caisson is down at the exact depths, which we were also succeeding with the first one within millimeters. So -- but that is the moment. When the second caisson is down on exact location and position where we want it to have and that we will all know later this year. So far so good.
So from their own, you see that the risk diminished to fairly low levels?
Again, we have passed 3 big things and that will change the risk profile substantially.
Last year, there was not only this [indiscernible] approach so we bought EUR 4 million. You also mentioned a U.K. property gain last year of a few millions. Have there been any exceptional gains like this one this year?
In the first quarter, you mean?
Yes.
No, no, no.
Any upcoming gains that you expect? Any big elements in -- for example, especially the property side, but also in the PFI side that we could expect for the next few quarters?
Yes. We're always, of course, looking for big projects, but we give you more information at Q2. Because also this can be lumpy. We don't know when it's exactly happening. But it's business as usual to go for these deals, also transfer to the PPP, et cetera. And...
But it looks like there are still a few ones in the pipeline for this year.
No.
The next question is from Maarten Verbeek from The Idea.
Two questions. First of all, you indicated to growth for construction and property. According to me, that's more or less implies that at civil engineering, we have -- revenue was flat. Could you confirm that? And then with respect to civil engineering, your order book was up by some 20% at year-end compared to the previous year. So why haven't we seen any growth there? And when do you expect that to materialize? And then secondly, getting back to open eye, could you indicate what the rate of completion is today or after Q1? And at what kind of rate will be after completion of the second caisson?
Yes. Maybe regarding the order book, the volume is one thing, but the nature of the projects is another, when we have multiyear projects, that could start next year and take 3 or 4 years, for instance. Brisbane is not yet in the order book, but that's a project. When it is in the order book, it's a rather big volume, but it takes 5, 6 years to materialize. So the volume of the order book is one thing, but the nature is another thing when you -- when it comes to predictability of when the revenue comes out of the order book. In terms of project progress, We -- I'll let you know in a second. And the first question, sorry, what was that?
The first question was related to civil engineering. If my assumptions were right that civil was flat compared to last year.
Yes. Civil, that's correct. And the increase will come from property and construction.
And then second and third questions were concerning the rate of the completion at the...
Yes. I'll let you know in a second. I can recheck that because I want to give a good [indiscernible].
The next question is from Tijs Hollestelle from ING.
Yes. I had one additional follow-up on the IFRS 16 impact. From the leases on the balance sheet, the range in the annual report is still to EUR 275 million between EUR 325 million, that has not changed?
Yes. We're still in that range on the lower side of it.
If I can get some more color on the lower side?
Yes.
And the same for EUR 5 million shift in operating cost to depreciation and interest results, EUR 5 million?
Yes. So that was a view we took for full year. So, yes, if you divide it by 4, you are in the right area.
The next question is from Andre Mulder from Kepler.
Yes. Some further, sort of, information looking for the full year backlog. So that's developing positively, but you said that's across the board or are there any segments or countries standing around?
Sorry. Say again?
On the -- you said the quality of 2 backloggers is developing positively. Is that across the board or are there any segments or countries that are doing better than others?
No. I think it's in general. But, of course, if you look at the markets, there are some differences there. The oil and gas market is not yet really growing, but we took in some jobs in Canada really in our sweet spot. And I think the risk and reward balance there is okay. So looking at our order intake, we say that it's over the whole range, yes. And of course, in some markets, as the Netherlands evolved, Belgium's evolved, there we are pushing it to better position. It's not -- we're not happy there yet, but I think in general, the trend is up.Maybe on the progress on the projects, we are about 2/3 -- over half -- somewhere between half, 2/3. [Foreign Language] Sorry, that was the open question.
[Operator Instructions]
Okay. When there are no more questions then I like to thank you -- or is there a question?
No, there is no further questions. Please, go ahead.
Okay, then I'd like to thank all the attendants for their time. And we'll meet again soon and anyway at Q2. Thank you for your time. Have a good day.
Thank you. Enjoy your day.
Ladies and gentlemen, this concludes the event call. You may now disconnect your line. Thank you. Have a nice day.