Koninklijke BAM Groep NV

AEX:BAMNB

Earnings Call Analysis

Earnings Call Transcript 2022-Q4

[Michel Aupers, executive]

Good morning, everyone. I'm Michel Aupers, Investor Relations Manager of Royal Bam Group. Welcome to everyone joining this analyst meeting here in Amsterdam or in the audio webcast. The meeting is hosted by our CEO, Ric Jose; and our CFO, Frans Stenalder. They will make a short presentation on key points of bonds results for the full year 2022 that we published this morning. Afterwards, we will take analyst questions. I draw your attention to the disclaimer here, Rod, over to you, please.

[Rod, executive]

Thank you, Michel, and good morning all. Here in Amsterdam, we have a great view on our crossover project across the highway. We will complete this mixed news building this summer to have the highest sustainability label, BNL, outstanding for a mixed-use building, offices, homes, and retail, which is unique in the Netherlands. This is BOM projects from AZ and a great example of intercompany collaboration within BAM Group. For all those in our webcast, you see another sustainable project, the Eco Building at the Delhi University of Technology last year. Bonten completed this new interfaculty building. This energy-generating interfaculty building is designed to meet the leading Dutch university's needs for flexible extra teaching space. This brings us to the main item of this morning our full year results. We had a good year in 2022. We delivered our guidance and made substantial progress with our strategy. The financial position of our company further improved, driven by our satisfactory operational performance for the year and also supported by our divestment program. Our liquidity position remains strong. We made early and full repayment of the deferred COVID-19 VAT and salary tax payments and refinanced the revolving credit facility, which is now also linked to our sustainability targets. Our capital ratio improved substantially. The order book is solid. Taking account of this financial strength, I'm pleased that we are proposing to restart paying a dividend to shareholders after a gap of three years. The proposal of EUR 0.15 per ordinary share represents a payout of 32% of the net income, excluding the one-off result on the rise and Frito transaction. Let's look at our strategic development in the year. We made significant progress with our strategy, building a sustainable tomorrow during 2022. In line with our plan, we further improved the focus of portfolio by divesting two Belgium subsidiaries and our German infrastructure company, VisenFritak in clear BAM. Our new organization structure is in place to drive operational excellence, knowledge, and sharing and development of life cycle solutions. We introduced a culture program focused on five values. And we are investing in industry-leading capabilities for sustainability and industrialized construction. In January, we launched a new sustainability strategy. This is very important for our group, and I will say more about it later. The next slide is the summary of our progress against strategic targets. We met many of the strategic targets for 2023 already last year. We are in much better shape than two years ago when we started the strategic plan. We have two strong divisions in our growth markets. We lowered our risk profile, maintained a solid order book, strengthened the financial position, and rolled out a bold new sustainability agenda. I thank our employees for the great job done and continue to do as we drive forward with the third year of our strategy. Now, let's look at the performance of the two divisions. As part of our sustainability strategy, we continue to invest in geo-emission equipment. Adjusted EBITDA in the division in the Netherlands showed a strong increase to EUR 173 million, equal to a margin of 5.9%. The contribution of Dutch Construction and Property was still solid, but below the high level of 2021. In the last quarter of the year, we sold 925 homes, bringing the total of 2,028 homes for the full year 2022. Nonresidential was held back by inflation, supply chain issues and delays at some projects in the Netherlands and Denmark. Our activities in energy, water and telecom solutions improved substantially. The civil engineering activities showed a recovery with good operational performance and made a welcome return to profit. We made good progress on OslaDeck, and we closed the file on the salon. Our order backlog is stable at EUR 4.4 billion. Moving on to the division U.K and Ireland. For several years, Bob nut has worked under challenging conditions around the tides and through the seasons as well as during the covid-pandemic to strengthen the dolichseawall and provide greater protection to the railway in delist from rising sea levels and extreme weather for generations to come. The division in United Kingdom and Ireland report an adjusted EBITDA of EUR 82 million, reflecting a margin of 2.6%. During 2022, the results were held back by supply chain issues and some larger contracts, especially in civil engineering. BomVentures shows a stable performance. In Ireland, we are in constructive discussions with the client regarding the National Trillo Hospital, which is now at 80% completion. Order book declined mainly as the result of the review of regional road programs by the U.K. government and the negative effect of exchange rates. Now Franz will take us through the numbers.

[Franz, executive]

Thank you, Rod. Good morning, everyone. This slide shows the denim on the prison in Belgium, the projects of Infosys, Banmavem, and also Interbuild. As Rod said, 2022 was a good year for BAM. We delivered a total EBITDA of EUR 350 million over EUR 6.6 billion of revenues. I'm also pleased with the further improvement of the quality of our balance sheet, illustrated by the strong improvement of our capital ratio from 14.5% to 21.2%. Trade working capital increased but remains at a good level with an efficiency ratio of minus 15.8%. Our solid operational performance in combination with the shortening of the balance sheet resulted in an average return on capital employed of 16.8% versus 5.6% last year. I also like to mention two important steps from the last quarter of 2022. As Rich said, we made early and full repayment of EUR 120 million deferred over '19 VAT and salary tax payments. Also, we further reduced our financial -- further strengthened our financial position with the refinancing of the RCF for EUR 330 million, which is now also linked to our sustainability targets. Let's go to the income statement. Total group revenues declined by 10%, reflecting the effect of the divestments. Revenues of the division, Netherlands and U.K. and Ireland combined increased by 2%. With the total adjusted EBITDA, the EUR 52 million book profit on the Wise Freitag transaction is reported in the line, Germany, Belgium, and international. This line also includes nine months operational result of Visen Frito and the full positive results from BAM Inter built in Belgium. BAM shares of Infosys net results for the full year was EUR 24 million, which has included the EUR 16 million from positive changes in fair value of hedges. Depreciation and amortization was lower due to the divestment, and it is a positive development that total impairments were modest versus previous years. Arriving at the bottom line, I am pleased there is a big step-up on our net result to EUR 180 million, which equals an earnings per share of EUR 0.60. Excluding the one-off Wise Freitag transaction, our EPS is EUR 0.47, which is a major improvement versus the $0.07 we reported over last year. Before we go to the cash flow statement and financial statements, I will provide a short update on Infosys, our 50-50 joint venture with PDGM. Today, Infosys reports a portfolio of 48 projects, of which five are under construction. Important developments in 2022 are the financial close of the EI from Blucora in Belgium and the acquisition of a data center operator in the U.K., Assante. Infosys contributed substantially to our '22 results, but please bear in mind, this is also supported by the revaluation of hedges. This year, Infosys expects several bidder decisions and an active identified pipeline of project opportunities. Next to the traditional market, Infosys is also pursuing opportunities in new markets. All in all, we are very pleased with our Infosys venture, and we appreciate our partnership with PGGM as we continue to grow the business together. Let's go back to the financial performance of the group. Our cash flow from operations was strong, delivering EUR 246 million. Previously, we provided guidance to the market that we expected working capital to increase. In the numbers provided today, you see this reflected in the balance sheet and a step-up in the trade working capital efficiency. Cash flow from working capital was EUR 466 million negative. Let me provide a breakdown of this number.First of all, we replace the remainder of the COVID-19 devert VAT and salary tax payments, resulting in a cash out of EUR 120 million. Secondly, divestments had a negative effect on total working capital at year-end and resulted in a cash reduction of EUR 70 million. Thirdly, shorter payment terms for midsized companies in the Netherlands resulted in a cash out of around EUR 40 million. Number four, an increase of our property positions under construction in residential and nonresidential resulted in a cash out of EUR 50 million. Number five, is the cash effect of our strategy to step away from large lump-sum contracts that typically have sizable prefunding. Last but not least, the seasonal cash flow inflow at year-end was lower compared to the previous year as a reflection in the change of client behavior in light of increasing interest rates. Moving to our financial position. As stated in my introduction, I'm pleased with the improvement of our financial position, our capital ratio improved to 21.2%. This is driven by our substantial improved performance, the positive impact of the Wise Freighter transaction, and the shorter balance sheet. At the end of 2022, our balance sheet declined by almost EUR 700 million to a total of EUR 3.8 billion. To conclude, I'm pleased with the substantial step-up in the return on capital employed to 16.8%, reflecting our financial performance. Now back to you, Rod.

[Rod, executive]

Thank you, Franz. Our strategy for 2021 to 2023 is called building a sustainable tomorrow. This is focused on positioning going for a sustainable future. To complement this, we announced in January our sustainable strategy. This is a holistic strategy about how bond interact with Planet and people going well beyond carbon. We have defined six themes, which align closely to the United Nation sustainability development goals. These are decarbonization, circularity, climate adaptation, biodiversity, safe, healthy and well-being, and social value. This is a multidimensional approach, looking at all the elements that a construction company can influence. We see a strong drive for sustainable construction in our markets. Supporting clients in their own sustainability goals is increasingly the way to win. We are happy with the feedback so far on this new strategy, especially from clients and employees. Now, looking ahead. We continue our strong focus on order book quality and selective tendering. The order book is at a solid level of EUR 10 billion. The changes since the year ago is mainly caused by the divestment and the review of a road program in the U.K. The trends in interest rates and inflation and the wider macroeconomic uncertainty are causing some delays to tendering and starting of new projects. In the Netherlands, the government is committed to essential investments for energy transition, infrastructure, and housing, but the uncertainty regarding nitrogen persists. In the Dutch residential market, discussions about the rent regulation are creating uncertainty for institutional investors. Average house prices and the number of building permits slow a declining trend. Nevertheless, there is a clear shortage of affordable and sustainable homes. BAM is well-positioned to supply these homes, and we are investing in innovative solutions for sustainable and affordable homes. In the U.K., growth sectors in civil engineering are rail, road and energy, although infrastructure spend, may be scrutinized due to macroeconomic developments. The longer-term outlook remains good in BAM's key U.K. construction markets for education, health, offices, and leisure. In Ireland, economic conditions are mixed. The clear positive is the commitment from the Irish government to a 10-year national development plan focused on infrastructure. BAM is in good shape to benefit from its strong market position and structural growth opportunities. Despite headwinds created by the uncertain macroeconomic and the geopolitical situation, the group remains on track with the execution of its strategy is aiming to deliver a performance towards the 2023 strategic targets. To conclude, I am pleased with the performance for the year 2022 as a whole and especially because we can propose our shareholders a dividend of EUR 0.15 per share over the year. Now, we will take your questions soon.

[Martijn den Drijver, analyst]

Can I start?

[Rod, executive]

Yes.

[Martijn den Drijver, analyst]

Martijn Den Drijver for ABN AMRO auto. My first question would be on your 2023 statements, aiming to deliver a performance towards the 2023 strategic targets. Previously, you said the target is 5% adjusted EBITDA margin. So, what has changed that you now use somewhat -- well, or clearly softer language.

[Rod, executive]

Well, to be exact, the target was approximately 5%. So it's a very small, I think, difference there. And let's say, we are used in the first meeting of the year in this meeting, not to give an outlook for the year. And that's what we do also today. Clearly, the results of 2022 shows that we have derisked the company. A lot of, let's say, risks are taken out, if you look at the divestment but also the big projects and the projects that we settled in the year. So in that sense, our company feels much more solid than two years ago. And that's what's reflected, I think, also in this tax that we are on track with the implementation of the strategy. There's a lot of uncertainty in the market. I think everybody can read it in newspapers. And of course, we like to be realistic as well and come back with, hopefully, a more specific outlook during the year.

[Martijn den Drijver, analyst]

Just a follow-up on that one. If you take out windfitak's profitability because that's been divested now, and you take out the one-off settlements that you had, you get to a level ballpark, 3.8% adjusted EBITDA margin. So getting -- given these market circumstances to around 5% or toward it seems kind of a challenge to put it mildly. So can you elaborate on the building blocks that you see to get to around that level? What are the key elements to get to that level?

[Rod, executive]

Yes. So maybe the 4.5% on that basis, is an Frittatas already excluded that. So, it's in the 5.3%. So, if you would normalize for the impact of the divestment, I would say 4.5% is the number we look at. And then below there, you see always pluses and minuses, and there are settlements as in every year, but I would say on the whole bandwidth, 4.5% is the underlying performance of the company in 2022. And with that, we provide the guidance, as just discussed by Ruter. We aim to move towards strategic targets. And there are more targets. It's about EBITDA, but it's also about revenue. It's about ROCE, and we will give more guidance as the year progresses.

[Martijn den Drijver, analyst]

But is it -- is the upswing more in civil engineering in the Netherlands? Is it more in the U.K. that you need? Or is it just across the board?

[Rod, executive]

No. So that's too early in the year. You see always add that the group has a portfolio with two divisions and a number of segments and detail we will provide, of course, as the year matures. That's too early to bottom out.

[Martijn den Drijver, analyst]

Okay. And then my second question is it's obviously a difficult one, but has the Dutch public prosecutor's office given you any indication as to timing or planning. At a certain point in time, the does public prosecutor needs to say we're going to charge you or we've done our investigation and there is no charge. So any indication as to whether they take well semesters, years? Anything would be helpful.

[Rod, executive]

Well, everything we want to communicate about that is in the press release, and that's everything we know at this moment in time. Of course, when there is any news, we will bring it -- we'll communicate it immediately to the outside world.

[Martijn den Drijver, analyst]

Okay. Thank you.

[Tijs Hollestelle, analyst]

Good morning, everyone. This is Tijs Hollestelle of ING. Yes, I appreciate that BAM started paying a dividend again and the stability and the predictability, I think also helps. For me, the dividend payment going forward is an important characteristic of the stock price. So, it's too early for you guys to talk about the dividend over 2023. But on a higher level, because you already excluded the book gain from the EPS to start at the low end of your payout ratio. Is your intention to, let's say, pay a progressive dividend because the earnings of on going forward will always be kind of volatile, so that you, let's say, pay the absolute amount next year, so that it is kind of a floor in the dividend? And then maybe because in the U.K., you see that if there is a situation of a real strong performance and excess cash that you provide, let's say, a bonus dividend on top of the normal dividend, so that investors and also analysts can always calculate basically the floor and the dividend. So on a high level, what is your thought about that?

[Rod, executive]

I'm very happy with that question, Tej. So, I would not expect to already discuss the dividend of next year. But as a first, indeed, we're very happy that this year, we can propose dividend to the shareholders. And we feel, yes, EUR 0.15 is a good restart. As you say, if you correct for Visen Frito, it's at the low end of the range of the policy. So the policy says 30% to 50% of our net results. And that's the only statement we make now going forward, we just will, of course, look at 2023 if the time is there. But as a policy, of course, and we are happy that we can respect it again today here. While we can say the strategy is a stable to rising dividend. That's what we aim to do, of course, which is probably stating many companies will make. But that's, of course, what the ambition that we have.

[Tijs Hollestelle, analyst]

Okay. That's clear. And then on the public-private partnership division, can you help us a bit with the technicality? So how can we calculate or estimate, let's say, the impact of FX because it can also probably reverse?

[Rod, executive]

Yes. So in details, our Infosys had a bit of a complex year with the impact of the hedges earlier this year. So let's first look at the net result, EUR 23.5 million. Basically, earlier this year, we already confirmed at EUR 16 million of hedge revaluations that ran through the P&L. Now, we run that now through our equity. So the P&L volatility has been removed going forward. And underneath, there's an EUR 8 million to performance, if you like, of Infosys. Then you see still, of course, hedge revaluations in equity as always, and we specify them. So we make sure it's clear what they are, EUR 35 million for the year 2022. And of course, that helped in our solvency because if you added up that 1% of solvency combined with the net results. And going forward, that will remain volatile, it will follow the interest rate movements. In the longer run, in those long typical SBC contracts, of course, there is a zero effect. So, it goes up and down with the interest rates through equity, but we cannot make any forecast on how that will evolve. Only in the long run, there will be -- yes, there's no effect, but it just swings as the interest rate evolves.

[Tijs Hollestelle, analyst]

Yes. I understand the impact on equity as has always been the case on -- but in the published, let's say, profitability numbers, it will also disappear...

[Rod, executive]

It has already disappeared. So the effect you see now that is from the first half of the year, in the second half year, you see two performance of Infosys.

[Tijs Hollestelle, analyst]

That helps... That was indeed my question. And yes, for now, maybe a last question. I appreciate your comments on the trade working capital split out, sorry, you don't have to ask it for the first time ever, I guess. But also looking forward, I mean, what is your few -- what will be the big movements in trade working capital, what you can see already...

[Rod, executive]

Yes. So, we feel that those last 2 components that we mentioned there. So clearly, BAM has stepped away from large lumpsum projects where you typically receive a lot of prefunding. We like that element. We do not like the risk profile and the margins that those projects bring. So we don't enter those anymore. And that is not there anymore, and it will not come back. So that's one. Number two, the last statement is that, yes, the interest rates, of course, have impact on behavior of clients. So, the typical dumping of cash almost at year-end that we used to experience, which is difficult to predict, but also, yes, a bit hard to understand because it's very temporary moment in time. So, we feel that we'll be more stabilizing going forward. And then driven by the interest rate, the trade working capital will further go be less negative. -- meaning a cash out for the company, yes. And as we saw this year, 1% up, it did not surprise us. So, a similar number for next year, it's really difficult to predict, but we expect that, that will be a cash out. And then EUR 50 million to EUR 100 million cash out on such an item is not out of the ordinary.

[Tijs Hollestelle, analyst]

Yes, that's clear. Yes, I appreciate already the early flagging of this by you. And also the impact from, let's say, pre-financing on the property development because a lot of consumers prepay the purchase of a house that the housing market and then cooling off. Is that a significant amount in the total. So if the market goes down further, that you can also say there's another EUR 100 million to be lost on the prefinancing trade book cover?

[Rod, executive]

No. So typically, we only start construction of our projects if we have sold 70% of our positions of our apartments before we really start to work. Then during construction, of course, you grow that percentage. Yes, we do not see dramatic changes yet. But yes, the market is a bit under pressure. So, we may expect a bit more of that 30% to be there because in recent years, basically, we were sold out straight away. So, all the projects we started were 100% sold at the start of the project. Now those days are clearly not there anymore. But yes, to speak of substantial cash out for 2023, I think we don't see that yet, although we will see maybe a bit normal patterns that we used to have. So, modest cash out to reflect that is something you can model in.

[Tijs Hollestelle, analyst]

Yes. Yes. And while we're talking about the housing market, how much visibility do you have, let's say, for this year, you have an order book, you're in talks with all these developers, et cetera?

[Rod, executive]

Yes. Yes. Of course, a lot of things are happening in the Dutch market at this moment in time. We had the nitrogen ruling, we see the interest rates going up. We see consumer confidence going down because of economic uncertainty. On the other hand, there is still this huge deficit of homes, and that makes it very difficult to balance it out in the end when and how -- how big will the impact be on BAM. For this year, we have visibility indeed, for '23 and we are still confident looking at the statements we made on our outlook. That says enough, I think. Of course, we anticipated earlier in stepping into projects that are aligned with in the nitrogen areas, but also the mix in the portfolio of homes that are maybe a little bit lower in price because that's probably the most attractive part for the coming years and less impacted by, for example, rental regulation. And in that way, we try to optimize the portfolio and still make use of the deficit of these homes, which is clearly there. If you look at the additional people in the Netherlands last year, of course, by immigration, but also the number of households increasing dramatically because people get older and people live more alone, the market is there. The long-term market is there. So it's -- do we have the capabilities to make use of that in a smart way and looking at all the, let's say, complications that are in the market at this moment in time. It's not easy. For this year, we see a cooling down of the market -- the cooling off of the market like Franz described. So, people are first selling their home before they buy a new one. That will give a delay then they will give a kind of a short delay in the market dynamic because of that. That will happen. That is happening. We feel confident that we -- with the capabilities we have, we can make use of that in a proper way. But okay, it's -- let's stay realistic. The market is not as buoyant anymore as a year ago.

[Maarten Verbeek, analyst]

Maarten Verbeek, the IDEA. Firstly, you have reduced your order book by some EUR 600 million because of U.K. government review on the regional projects, road development projects. What are the odds that could come back or that could come back in a different size? Or could you put some more color on that?

[Rod, executive]

Yes. So good question. There's a number of projects in this program. Those have been put on hold were on some of the scopes we were already in the mobilization. We feel that those -- most of the scopes in the end will be going into the market and that we are still well positioned there. The question is when. So it's very difficult to assess what the government's time lines will be. But in the end, we have good hopes that in the end, these projects will be going to the market and that we are well positioned to execute them.

[Maarten Verbeek, analyst]

Could it cause for some underutilization at your end because you have taken out of your books?

[Rod, executive]

No, because these are multiyear programs, so, that order book number is spread over five years. So, it was not a huge job all in 2023, so we can adjust our portfolio quite easily.

[Maarten Verbeek, analyst]

The press results state that in Germany, you have sold all your operations in Germany, but still you share some responsibility for some projects. Could you put some more information on that?

[Rod, executive]

Yes, that was part of the first transaction that we did with the Germany construction and property, where we have a number of projects that we are completing together with the current owner of the company. And also, there were a number of typical assurances and guarantees in the transaction that we are still following up and where we also provided assurance to the buyer.

[Maarten Verbeek, analyst]

And then, do you already dare to make some -- provide some guidance on the home sales you expect for this year?

[Rod, executive]

Well, I try to answer that, let's say, on the question of Tecan difficult to give a number there --

[Maarten Verbeek, analyst]

In line with last year's 2000 or do you expect it to be somewhat lower?

[Rod, executive]

No, I'm not giving you a number there. I think that would be -- it's still a bit too early in the year, maybe in the next meeting or in half year, we can have a more clear statement. You saw that this year, we had a great run in the last quarter when we sold 925 homes in one quarter, supported also by some traditional transactions. So, that's also very much, let's say, depicting the number, what kind of homes are part of these deals. Sometimes they are indeed investor -- big investors having more units in one deal and then it can go very fast. So, we have to be a bit a bit careful there in giving a number.

[Maarten Verbeek, analyst]

Of your current order book, some EUR 5.1 billion will be executed this year. In the past, that would reflect more or less 80% of your annual revenues, but your portfolio has changed somewhat put it mildly. But do you believe that ratio is still valid?

[Rod, executive]

Yes. So we did not disclose guidance on the revenue for this year, but we can confirm the percentage of secured revenue for this year, which we track is in line with previous years. That's not a huge deviation. So in that sense, the risk profile and the order book is okay.

[Maarten Verbeek, analyst]

I Just want to come back on Visalia, my initial question on the EBITDA margin. And excluding margin in fact, wasn't including the one-off, it was the profitability up until deconsolidation. So, in order to understand what the underlying performance is of BAM in 2020, could you confirm that the visit unit had EBITDA margins roughly, give or take, 7%, correct?

[Rod, executive]

Yes, because they typically have a higher depreciation portion in there. So they were on the upside of the range. And they were indeed included in the numbers up to Q3.

[Maarten Verbeek, analyst]

Okay. Clear. And then secondly, I know that the Belgian units are now part of the core operations. But could you shed some light on the profitability of those units where -- is that in negative territory positive there? Just a little bit more color, so we get --

[Rod, executive]

That's a good question. And we are really happy, as we said, EUR 150 million of revenue in there. And yes, the adjusted EBITDA percentage, it's in a range of 4% to 4.5%. So, we're pretty pleased with that. We're happy there be reorganizing the organization there a bit last year, integrated the developer and the Interbuild, which is the builder. So we're, let's say, pretty happy with the results, order book and also this period is now in that company. And yes, being a full part of the bank group again.

[Maarten Verbeek, analyst]

Have you actually communicated? Obviously, you had that in the press release, but some sort of longer-term commitment to these units?

[Rod, executive]

Absolutely. So, Belgium C&P is with the group there to stay. And so we have the two divisions in Belgium CNP. And it's reported in the line item Germany, Belgium and international. Of course, in 2023, we all further, yes, clean up because then the divestments will be out, and it will be more about Belgium C&P going forward. So, we will be showing you more numbers there going forward.

[Maarten Verbeek, analyst]

And then on the order intake, can you shed some light on how that quality of that order intake has been specifically in the second half of the year there was more pressure on the market? Have you been maintaining that discipline? Or did you have to move if the market, meaning slightly lower, perhaps versus the first half?

[Rod, executive]

No. We stay very selective. We are on top of that because, of course, that predicts your profitability in the future. So, same discipline there, and we maintain the same kind of expected profitability percentages for these projects in that order book. Order book is sometimes a bit hesitant, especially for bigger projects in the CMP area, nonresidential, where sometimes large or big investors are a bit hesitant to go for these bigger projects. But we also had some scores there over the last period. So, we still are confident that with our expertise, and that's the good thing we see now more and more. People are very much interested in stable parties with a lot of expertise in, for example, sustainability in big tenders because, of course, the owners and the investors also want a very sustainable project. And then BAM can give the answers. So, that's more and more the discussion in these big tenders. And we still see then that we can indeed keep our profitability, have strict, let's say, rules regarding inflation for these big tenders and because these are long-term projects. And that's what the game we are playing. We are very disciplined there. And if that's not in the tender, we will not go into these projects. And that gives a comfortable attitude also from our people to the market. And in that circumstance, we still have a few big wins over the last period. We mentioned, I think, better house in Amsterdam last time. Newspaper in some communication, you could already see new police head office in the Hague and BAM will be building as well. So --

[Maarten Verbeek, analyst]

Not a large hospital in the U.K?

[Rod, executive]

Not... Another Yes, in the U.K. Yes, I thought you were referring to the Irish hospital To completing that one get... But hospitals is indeed an expertise in the U.K. So, hospitals and universities are our key core business, so that's correct.

[Maarten Verbeek, analyst]

And just a follow-up on the order intake. When inflation went up when we're talking about building materials, you said that on the larger contracts, we have a clause that leads to immediate amendment. But then we were talking about energy cost, wage inflation going well beyond what was normal for which you didn't have a clause. You were trying to include that into your contracts and sometimes even in men contracts perhaps that you already had signed. How successful have you been in implementing those elements into new contracts? That's question one. And the second one is, have you had any hiccups in terms of projects already in your backlog, where -- well, in fact, you had to go back to the client say, "Hey, we're unable to do it for that level for that price".

[Rod, executive]

So, maybe on the first one, so this is a discipline that's in the company for a longer time, fortunately because otherwise, you would be too late. So this year, of course, we experienced those headwinds from inflation. And we also specified in some areas, you have a bit more pain than in others, specifically civil in the U.K. and the nonresidential part in the Netherlands is where we saw the margins being a bit under pressure. But in general, over the full portfolio, we are pleased with how those mechanisms have been working. So going forward, yes, we will continue, of course. And then do we see any specific disruptions in the supply chain. I think that's what your...

[Maarten Verbeek, analyst]

No, not specifically. I can imagine that you've signed contracts in the backlog now for which you may not actually see the profitability that you had foreseen which either you accept that but then it would reflect upon your order intake. You say that the quality is the same. -- are you or you at the margin?

[Rod, executive]

No. So, we do two things. So first of all, as we just explained in tendering, we are focusing on quality, not on quantity. So, we don't go for low margins just to have volume. Resources are scars in these markets, also our human sources. So we better have our people working on projects that we are good at and where we have a healthy contract and can make a margin, then just to try to get volume into our order book. That is not of the right balance there.

[Maarten Verbeek, analyst]

So no material hiccups.

[Rod, executive]

No. What you do see, of course, in the whole supply chain, there are issues, but that may be not so much in the BAM numbers, but in the total portfolio and total supply chain, you see some issues, and we also mentioned a few of these in some of the projects. That's also fair to state. But we have been pretty good, I think, in derisking that part of the profit and loss.

[Maarten Verbeek, analyst]

If I may, just two more? Yes. On the German projects for which you are still liable to a certain extent. When do you think those projects will end or when those settlement discussions will end? When do we see the light at the end in that respect?

[Rod, executive]

No. I think light at the end of the tunnel that's, first of all... Yes, because we will also coming years, as I said, the line Germany, Belgium International, we will report out on and that will be a mix as this year of Belgium CNP. We are still also in international that's not done yet. The projects are completed, but we have still some discussions with clients as we have the project in Germany. So, we will report to the market what is happening there, but we don't expect these numbers to be material of impact to the group overall performance. So it's pluses and minuses, timing is difficult to predict.

[Maarten Verbeek, analyst]

But these projects are in the final phase.

[Rod, executive]

Yes. Projects in Germany have been physically completed. So, also there, it's about discussions with clients which are difficult to estimate in time and outcome...

[Maarten Verbeek, analyst]

And the B version of this question was indeed with regards to the BAM International projects, which are now mainly, I think, in BAM U.K, Ireland. Are those about to be completed as well, Antartica seems to be progressing well?

[Rod, executive]

Yes, Antarctica is a very special one for the U.K. organization. Let's say, they are not in the portfolio of issues or problem projects. These are very specific projects and profitable projects for the U.K. government. So, that's for me a different ballgame. But some of the, let's say, the bigger sale projects that were first part of international are now partly part of Bonetal, but some of them are also in the Advicare tack business. So, with that sale, the percentages are clearly down for Bond Group.

[Maarten Verbeek, analyst]

Got it. And then my final question is on CapEx. That's gone up a little bit more in the second half of the year due to electrification, perhaps some other elements. What is your guidance for 2023, perhaps even 2024?

[Rod, executive]

Yes. So, CapEx, currently at a level of around EUR 93 million, so a little bit below our depreciation profile. But in there was still, of course, partly the companies we have divested meantime. So that 93, we expect it to go up a little bit because we will continue to invest in electrification of our equipment. So, guidance around EUR 100 million in the new setting would be a good number to start with.

[Maarten Verbeek, analyst]

The same for 2024?

[Rod, executive]

Yes. I think it's a more general statement. So it can be a bit more, a bit less, but it's in this area. Typically, depreciation CapEx are close to each other in a construction company. I think we will invest a bit more than we depreciate in the coming years because we see opportunities there to grow our business.

[Tim Ehlers, analyst]

Okay. Good morning. Tim Ehlers from Kepler Cheuvreux. About the infra business. So, also when you look at the EIB report that was published, I think, two weeks ago, and the outlook on the overall construction markets are not only residential construction. You can see that they also predict that even infra will go down a little bit. And the only market for growth is everything sustainability-related. Do you have a share of your revenues that is exposed to that market. So, as I understand it, for example, the BAM Energy & Water, which obviously is part of that is in your construction property. But you also have parts of it in civil engineering. And can you maybe also going forward, give maybe your share of revenue because I was asked that quite a bit from clients to make -- estimate them?

[Rod, executive]

Yes, this is very dynamic, and this is in full development. What I can tell is that over the last couple of years, we clearly decreased in Infra, the big projects side with a lot of risk profile projects. And we changed strategy in the Netherlands completely towards these segments and shows that we are confident that we need will be the market. And we see more and more customers and also governments, coming through with their sustainability claims in projects. I still think that goes too slowly. Also from a Dutch government point of view, but also other governments, I would expect more drive there because the government communicates very strict and ambitious sustainability targets. We'd also expect them when they tender to bring this as a very important element. I think we still have a lot to learn. It's also our responsibility. That's why we came up with this very ambitious sustainability strategy. I don't know whether you have seen that strategy, but it goes very far. And it's very ambitious, and we really sat here, yes, let's say, the agenda for the industry, not only about carbon because most companies only talk about carbon. But we have six elements in a way, eight elements of the SDGs to cover the full pallet of things we can influence as a construction company. And of course, that's a very clear signal to the market that we want to drive the business like that. And that, together with our customers, we want to take up that glove. And the strategy for Infra is completely based on that one. So, we are re, let's say, restructuring that business into a specialized business on these kind of projects are smaller infra projects, but mainly focused on electrification, for example. And so for now, the portfolio is already different because we don't step into these large projects anymore. But the next three years, 3, 4, 5 years, maybe even longer, this will be probably 80% or 90% of the infra agenda for BAM anyway. So, that's a bit the context of that development.

[Tim Ehlers, analyst]

Okay. Clear. Then catching up on your housing market topic, obviously, one of the most present topics. So, I think it's quite impressive that you managed the 2,000 houses overall last year, especially with the 900 additional ones in Q4. As you said, it mainly comes from a big institutional project. Does that mean obviously the revenue per unit were down? Or how does it look there? And also what is the EBITDA margin per house or units sold than mean? Because if you say, okay, you can offset a cool off with bigger institutional projects maybe. Does it have any effect on the margin?

[Rod, executive]

So, in fourth quarter, basically, the margin is still in line with the first part of the year, not the sharp increases anymore that we saw in the previous years because it has been a good period for this business. Yes. And with that, going forward, we have to see, of course, how that evolves. But as you say, we are really happy in 950 have been added in three months' time, but a number of larger transactions driving that.

[Tim Ehlers, analyst]

Okay. And then one question to U.K. You've seen a decline in EBITDA margin there. And let's say, going forward, if that margin does not improve for whatever reason, do you also have, let's say, an emergency plan in mind? Because I mean, it's significantly below your target margin that you, at one point, maybe say, okay, maybe this is also something we look at from a quality over quantity perspective and say, okay, maybe we rather step out of that market because we don't see any margin improvement there because, I mean, top line grew, but also FX effects, obviously, but bottom line did not improve. Is it something you monitor? Or is that something you're not concerned about at all because you believe they will recover.

[Rod, executive]

No, that's a fair question. And of course, we are very much interested in that because we have two big divisions in that sense is pretty overseeable. Indeed, of course, we will look at improvement of the profitability. I think that's the target number one. There as well is a huge demand for especially infrastructural work in the U.K., with a lot of investment coming through. And you see there's a little bit of a different model there in depreciation. So 1% you can, let's say, defend lower than the Netherlands because of 1% lower in that part. But still, the challenge is clearly there to improve profitability by selling our services better and telling our customers that the price they have to pay for the things we can do are worth, have value and that's our target for -- that's the opportunity. I think we have as a company to improve indeed the overall group profitability. You see already a good development in Ireland, where we stepped in last year more change management, look differently at the portfolio. And yes, that kind of focus from our side will hopefully lead to further profit improvement.

[Tim Ehlers, analyst]

Okay. One last question. Just a quick one regarding your projects in Germany. You said that all of them are physically completed. What about the FEMA Bell tunnel? I think you still have a stake in there, and it's not completely...

[Rod, executive]

Yes. But that's reported infra the Netherlands. So, that stake has been transferred. And with the closure of the VisenFritac transaction, 50% of that share has gone to the new owner and the other half is managed from infra the Netherlands.

[Tim Ehlers, analyst]

Okay. So it was only about the projects within BAM Germany and the German exposure within BAM...

[Rod, executive]

So the German part of the share has been sold.

[Tim Ehlers, analyst]

All right. Thanks.

[Leon Sidwal, analyst]

Leon Sidwal from ABN AMRO. You already told us a bit about your sustainability strategy, which clearly points in the direction of electrification of machinery and equipment. What about what's your look upon all kinds of regulations coming up from Europe and the Netherlands as well regarding carbon pricing because construction is obviously a business where a lot of concrete and cement is used. And carbon pricing will also affect your cost price and might require certain investments or CapEx in that area. Yes, very, very good question?

[Rod, executive]

General, we support, let's say, any measure to decrease the carbon levels. It's one of the key elements within, let's say, construction as steel and concrete are creating a lot of, let's say, carbonization in this world. It's one of the biggest industries in that sense. So any, let's say, policy or activity that can decrease that huge amount of carbon, I think will be support. And you can say, yes, that's bad for the industry. I don't think so at all. I think we should work together and try to find other solutions or different kinds of concrete or cement or steel or let's say, produce steel in a different way to substantially decrease the carbon pounds within our industry. That's one of the reasons why we developed and presented last year, the flow concept, where we will change from concrete in the Netherlands to Wood in building homes, which is a big change for this company after many, many decades of this way of building homes, we will go through the wooden homes way of working. That's all part of that kind of ambition to really, really focus on decarbonization. And we set some strict KPIs there as well in this strategy. And that's pretty ambitious because we didn't go for a 30-year or 40-year or two generations for one generation kind of KPI, but we said, no, clear targets for 2026, '30 as well, pushing ourselves as well to do something dramatic in that sense.

[Leon Sidwal, analyst]

And if I may elaborate on that. You gave an example about residential construction in the Netherlands with new concepts, the flow concept. But if you look upon full engineering, what's the carbon reduction potential in that area, excluding electrification of equipment, of course.

[Rod, executive]

Well, there you get into a very interesting discussion, for example, if you do a big project on electrification with wind parks, for example, but still producing that with concrete. And then you have to make the calculation long term, is it helpful for decarbonization, looking at the onetime carbon inflow because of the project. And that's something more and more we are looking into that has to do with the scoping has got one, two, and three of our industry. A lot of people only look at Scope 1 and 2, then you can say, well, if we electrify our process, we are off the hook. We don't believe that. We think you also have to look at the Scope three implications, and that's what we're trying to do also with this target setting, which is pretty difficult because it also has to do with the usage of the things you are building, for example. And that's why you have to more and more go into these electrification projects... climate adaptation projects where you can have a more favorable calculation on long-term carbon usage, for example, Sounds all very complicated. It is also very complicated. The EU is also coming with new taxonomy there for all companies, especially for listed companies. And it's pretty strict, but also very much in development. Maybe Franz, you can...

[Franz, executive]

Yes. So also, it's good to point out next week, we will publish the annual report and there will be more disclosures on this EU taxonomy. So we very much see, of course, as the regulation trading carbon rights, but also, yes, of course, CSDEU taxonomy, where we will embrace it, and we seek for kind of level playfield to understand the true performance of companies on sustainability. That will be a journey. And last year, we already reported eligibility as it was labeled. This year, we will report alignment on the first two chapters, Climate Mitigation and climate adaptation. And then, yes, step by step, all companies will go to 2024, where also limited assurance will be required. So it's exciting and important, I think, that this is coming our way.

[Leon Sidwal, analyst]

Looking forward to it, one follow-up, last follow-up question, more specifically about Civil engineering in the Netherlands. We have the profit elections coming up. What's your stance on that? Will it have a positive impact? Or will it -- can it spur something or...

[Rod, executive]

I don't know. Normally, we don't have any view on politics. It's too complicated for a simple construction company people. I really don't know. I only see as a citizen of this country that politics are pretty turbulent. And -- but like all of you, I guess we will wait and see and have our own preference. And hopefully, of course, what we hope is that the investments in indeed, the sustainability of this country go faster and faster because there are very ambitious target. But if you see what we've done altogether over the last years, it's not enough. If you see the concepts we have in changing houses, transferring them from gas to 0 on the meter as we call them, with EVs and water airborne, yes, we can go very fast, but it's still very difficult to go through the red tape and the permits and all the people who are part of the decision-making process. So we are ready to do this much faster. And it's not only, let's say, the mistake of others, maybe also we should be more aggressive there. But sometimes it's frustrating to see how slow decision-making is. So maybe that's the only thing I can say, let's how politics go more and more into the pragmatic mode of if you have an ambition, you also create the context in which things are happening and not then that sometimes happens in the Netherlands, there's a very ambitious target. And then all kind of ministries come with all kinds of rules and regulations journey policies that are completely against the targets that were set by the new government, for example. And that's, I think, not helpful for the Netherlands.

[Leon Sidwal, analyst]

Thank you.

[Tim Ehlers, analyst]

If I may, I would ask you to help me out with a hypothetical situation. If I have a large project and it's going actually really well. There are pictures on the Internet how the progress is at the moment and projections are that will be completed in 1.5 years or roughly the time frame. However, in the local media, there is some talk about substantial claims between the contractor and the actual client. If I understand IFRS 15 correctly, if you have outstanding claims disputes over whether it's due to delay, changes in design, covet, whatever, you would have to recognize a provision. Is that the correct way to see it? And if so, how come in there, so much of a disconnect in this hypothetical situation between what is stated in the media, claims, and the reaction or the reporting of the company in question.

[Rod, executive]

At mix of statements or questions coming to a hypothetical situation, but let me try to respond more then. Yes, first of all, we report our projects under IFRS 15, as you rightfully point out, and we try to do that in a very careful prudent way. That's also being audited. So provisions we need to take are in there, and we try to come to a realistic view on the full portfolio that is the basis, of course, for our numbers that we present today. Yes, then we have many discussions with many clients, but this is not always about valuations or variations. It can also be about scopes, who is responsible for what? How do we interpret certain clauses. There are many discussions on many projects. And then, of course, I'm not sure what project you referred to, but there's a lot in the media, and there are many angles. But normally, we leave communication around projects to clients and we focus on IFRS 15 for the bookkeeping and on the quality of the project and make sure that we deliver what we committed to.

[Tim Ehlers, analyst]

I'll leave the loan and it was indeed about the children's hospital in Dublin, obviously. Okay. For those who are listening in. Two more pragmatic questions, I guess. Could you help us out in terms of the backlog growth of the Energy Water telecoms unit, just to get a sense of whether there is some -- is that in line with the group? Is there an acceleration there?

[Rod, executive]

It's bigger than the group -- as we -- I think it also said in the 4s over. So it's one of the markets we want to grow. We see that we have a good proposition to our clients there, and it's also very much in line with our sustainability ambitions. Yes. And there's appetite in the market. And we gave the example of electrification. It's all in this mix where we want to grow. So it's growing faster than the rest of the portfolio.

[Tim Ehlers, analyst]

Are we talking about twice the rate? Are we talking about high single-digit growth in the backlog, low single digit to mid-single-digit growth. Just a bit of...

[Rod, executive]

Now either divisions only grew by 2%, which is very modest. This is a multiple of that.

[Tim Ehlers, analyst]

Okay. And then in your press release, you mentioned about Civil engineering Netherlands said that you -- that there's a good operational performance and some other positive statements. But what does a good operational performance mean in that sense? Is that already close to your target of -- for the group of 5%? Or are you midway? Just a bit of color on where you stand with that...

[Rod, executive]

No, indeed, when we mentioned good performance, if we look at the targets for this company, which is towards the 5%, and that's what we think is a reasonable to good performance. And we see in infra the Netherlands, a big turnaround coming through closing off of some big problem childs of the past last year, especially Emera, but also a very important deal with the government in June last year on slide. And we are very happy to say that before the end of the year, we also had the scribe heads moment with the Alida, so the dike in that sense is ready. Still a lot of work to do, but not so much visible for the general public because that's to be with Sluis and some other art works as we call them. So still a few years of work to do for us, but the die itself, 32 kilometers is ready in time, which is a big, big moment for that project. And from a big negative discussion item now, it's much more positive thing we can proud of, not only us, but also ex-Waterstadt and the citizens of this country when you drive over that dike, it's now safe for the next decades and decades going forward. On top of that, we had good performance as well operationally in the regions of this business, of this segment within the Netherlands. So it's a combination of operational performance on the dike itself, for example, but also some other big projects and the smaller projects we have in the regions with provinces with remainders all over the Netherlands, the municipalities over the Netherlands itself. So the combination of the two things led to a huge increase of profitability in the year.

[Tim Ehlers, analyst]

And just two follow-ups, if I may. In terms of completing the slide project from a client perspective, will that then happen in 2023?

[Rod, executive]

No, no.

[Tim Ehlers, analyst]

No, that will still continue. So...

[Rod, executive]

Take of years more. But at the moment over the dike itself is done, let's say, which is a very important moment because this is a long-term project. But still, there is a lot of complicated work to do on the less -- and then also need to be, let's say, renovated because of the climate adaptation specifications over there. And we are fully flowing with that to make that happen the next couple of years. But let's say, from a risk point of view, it's a completely different picture, of course, than two years ago.

[Tim Ehlers, analyst]

And then one remark or question on uses. Is Troso going to be completed in 2023?

[Rod, executive]

From my mind, tenders is going to be completed in a year. So probably the beginning of '24. But it's very high completion commission rate at this moment in time. Mark?

[Maarten Verbeek, analyst]

Yes. I was split up to AB and C. Let me briefly get back to the national tuning Glass car because you had a lot of discussion in the past con... It's not in lesson. I'm sure it's in Dublin... Sorry, Dublin. I certainly have another one I hope not. Concerning card and variation orders. Has it been made some progress or it's still just discussions?

[Rod, executive]

Yes. Of course, we are in full negotiation with the government. I think it's very, very dangerous to make statements there. Good news is that the completion rate is 80%. So we are really coming to an end there. We went there. We had a visit lately there very impressive. It's an amazing hospital. So you can be really proud if you look at the building itself. But of course, we want to finalize it also financially in a proper way. We are hopeful. We think we have a very strong position. I think we did a great job until now, also in Covittimes, it's very, very difficult. So give us some time to report on that one.

[Maarten Verbeek, analyst]

And in general, when you look at discussions concerning claims and after payments or whatever, is it now at a much lower level compared to the past because you have got rid of more complex projects?

[Rod, executive]

Yes, absolutely. So it's also because we don't attract these kind of projects anymore. So they're running out of the portfolio. We don't want to large lump sum, but typically, you also then have large variation or the claim discussions. Yes. And then we always also in the past, value, of course, our projects in the bandwidth. But we -- yes, we really have the ambition to be more prudent there because we very value predictability, which is not always easy in a construction company.

[Maarten Verbeek, analyst]

And then Part C of my question. in past, you have mentioned that you require some EUR 500 million to EUR 600 million in cash to run your business. However, you have divested quite a bit. You have -- you only opt for lower risk projects with better prepayment terms, et cetera, et cetera. What do you reckon now with the level of cash you need to run your business?

[Rod, executive]

Yes, it's a good question. So indeed, we would tune that number a bit down. Also following the portfolio how it evolves. We used to say 500 to 600 million. I think today, I'd say 450 plus maybe 500 MAX.

[Maarten Verbeek, analyst]

Thanks.

[Rod, executive]

Again, thank you for being here and asking your questions. And have a good day, and let's see each other in a couple of months. Thank you.