Financial performance


8 - Target: Creating return on capital employed above 10 per cent

Management summary

2018 has been a year of good progress for BAM. Most of our business performed well , which reflected the benefits of ongoing improvements in our tendering and project execution. Although the sea lock IJmuiden adversely affected our result and cash flow, we made further steps in de-risking the project. 

Our overall cash flow for the year was positive and our financial position remained strong. We propose an increased dividend, adjusted for the non- operational and non-cash impairment of the Dutch deferred tax asset, of 14 cents per share.

Conditions in most of our markets are generally positive, although uncertainty over Brexit remains.

We are firmly focused on delivering the targets of our strategy Building the present, creating the future. In order to enhance our project portfolio, we refrain from tenders where acceptable contract terms cannot be achieved. We are in ongoing discussions with public sector infrastructure clients which have to lead to improved risk and reward balance for new projects in our portfolio. We are shaping our business portfolio with our proposed joint venture for asphalt production in the Netherlands. And we are shaping our future portfolio by investing in modular construction in Ireland and the digital experience center for Dutch new build house buyers.


9 - Key financial results
(x €1 million, unless otherwise stated)

 

2018

2017

 

 

 

Revenue

7,208

6,535

Adjusted result before tax

153.2

24.9

Margin (%)

2.1

0.4

Result before tax

114.5

20.0

 

 

 

Net result attributable to the shareholders of the Company

23.8

(13.8)

Order book

12,692

11,636

Earnings per share

9 cents

-5 cents

Dividend proposal

14 cents

10 cents

* the comparative figures, were applicable, have been restated for IFRS15.


10 - Result before tax
(x €1 million, unless otherwise stated) 

 

2018

2017

Continuing operations

 

 

Adjusted result before tax, depreciation
and amortisation charges 

223.0

84.4

Depreciation and amortisation charges

(69.8)

(59.5)

Adjusted result before tax

153.2

24.9

Impairment charges

(23.8)

(4.8)

Restructuring and other exceptional costs

(3.8)

(0.1) 

Pension one-off

(11.1)

-

Result before tax

114.5

20.0

 

 

 

Income tax

(90.1)

(32.9)

Result for the year

24.4

(12.9)

 

 

 

Non-controlling interests

0.6

0.9

Net result attributable to shareholders
of the Company

23.8

(13.8)

* the comparative figures, were applicable, have been restated for IFRS15.

Revenue

The revenue increased by €673 million (10 per cent) to €7,208 million. There was growth in all geographies reflecting generally positive market conditions.

Result

The adjusted result before tax for the year 2018 improved by €128.3 million to €153.2 million. The result in the Netherlands improved significantly due to lower impact of sea lock IJmuiden and a higher contribution from residential property development. There were strong results in the UK and Ireland. The performance in Belgium and International remained under pressure from market conditions. The PPP result was slightly ahead of last year.

The revenue and result included €27 million which had been derecognised in the adoption of IFRS 15. There was an offsetting effect from revenues which were not recognised in 2018, but would have been under the old accounting rules. 

Impairments reflected mainly the lower valuation of Dutch regional property adjacent to the development of a large wind mill park which is now reduced to the value of farmer’s land. The pension one-off item related to the equalisation of Guaranteed Minimum Pensions for men and women in the UK.

Income tax included a non-cash impairment of €72 million (2017: €40 million) on the deferred tax assets. This was related to the  lower performance of the Dutch fiscal unity and the negative effect of the lowering of the future Dutch corporate income tax rate.

Order book

The overall order book growth was driven by positive market conditions and winning multiyear projects especially in civil engineering in the UK. The margin on the new order intake continued to improve and is well within the strategic target margin bandwidth of 2 per cent to 4 per cent.
Of the current order book position, €5.9 billion (2017: €5.7 billion) is expected to be carried out in 2019 and €6.8 billion (2017: €5.9 billion) in the years after. The growth is particularly noticeable in the civil sector.

Earnings per share

The number of outstanding ordinary shares of the Group increased by 0.1 million in 2018 to 273.3 million shares as at 31 December 2018, due to stock dividend minus the repurchase of shares for the conditional performance share plan. (Diluted) earnings per share amounted to 9 euro cents (2017: -5 euro cents).

Dividend proposal

BAM’s policy is to pay out 30 to 50 per cent of the net result for the year subject to considering the balance sheet structure supporting the strategic agenda and the interests of the shareholders. BAM’s net result for 2018 of €23.8 million included a charge of €72 million for the impairment of deferred tax assets. Since this item is one-off non-operational and non-cash in nature, BAM has added back this item for the payout calculation. Therefore, BAM proposes a dividend of 14 euro cents per ordinary share for 2018 (2017: 10 euro cents) which equates to a payout ratio of 40 per cent of the adjusted net result. Subject to approval by the Annual General Meeting on 17 April 2019, this will be paid in cash with a scrip alternative. BAM will repurchase and cancel shares to offset the dilution due to shareholders taking the scrip alternative.


11 - Financial position
(x €1 million, unless otherwise stated)

 

2018

2017

 

 

 

Cash and cash equivalents

744

696

Less: borrowings

(343)

(503)

Net cash

401

193

Add: non-recourse financing

127

265

Recourse net cash

528

458

 

 

 

Capital employed

 

 

- Non-current assets

1,271

1,424

- Net working capital

(626)

(600)

 

 

 

Shareholders’ equity

729

721

Capital base

847

836

Total assets 

4,578

4,489

Solvency (%)

18.5

18.6

* the comparative figures, were applicable, have been restated for IFRS15.

Cash and cash equivalents

Cash and cash equivalents as at 31 December 2018 amounted to €744 million (2017: €696 million), of which €173 million (2017: €217 million) concerns the Group’s share of cash and cash equivalents in joint operations.


12 - Business cash flow 1

 

Full year
2018

Full year
2017

 

 

 

Group: net cash result 2

171

78

Investments (in)tangible fixed assets

(71)

(83)

Trade working capital 3

(60)

(39)

Net investment:

 

 

- Property

6

80

- PPP

6

1

Other changes in working capital

47

(24)

 

Business cash flow

99

13

 

 

 

Dividend

(11)

(7)

Restructuring

(11)

(25)

Pensions (additional)

(12)

(12)

Other

(17)

(12)

 

Change in cash position

48

(43)

1 These metrics are not directly comparable with the IFRS-based condensed cash flow statement.
2 Net cash result is net result excluding depreciation, impairments, cash out related to restructuring, movements of provisions and book profit on sale of PPP projects.
3 Working capital excluding property positions, PPP receivables, assets and liabilities held for sale, derivatives, provisions, taxes, other receivables and other payables.

The business cash flow was again positive with €99 million, predominantly boosted by the net cash result. Investments in (in)tangible assets were below last year, when BAM invested more after years of structural lower investments.

The outflow on trade working capital increased in 2018, predominantly due to loss financing of OpenIJ EPC VOF, the entity in which the construction of sea lock IJmuiden is carried out, and by the deconsolidation of German joint arrangements (impact €92 million) that are now accounted for as joint ventures based on updated accounting interpretations.

Other changes in working capital in 2018 were driven by changes in accruals and positive effects from the cash flow in relation to joint arrangements, predominantly due to the deconsolidation of German joint arrangements. In the same period in 2017 there was a negative effect from the cash flow in relation to joint arrangements. Total impact of deconsolidation of the German Argen included in the business cash flow amounts to a cash out flow of €16 million. 

Property cash flow was below 2017, when property positions in the northeast of the Netherlands and stadium Zwolle were sold.
In 2018 cash proceeds were partly reinvested in new equity light developments. 

Borrowings

As at 31 December 2018 total borrowings amounted to €343 million (2017: €503 million) of which €127 million (2017: €265 million) concerned non-recourse debt. Non-recourse loans associated with PPP projects decreased with €147 million (2017: decrease €84 million), due to the transfer of a project to the joint venture with PGGM. Non-recourse debt related to property development increased with €10 million in 2018.

As at 31 December 2018 a net cash position is achieved of €401 million (2017: €193 million net cash position). This position comprised of cash and cash equivalents of €744 million minus borrowings of €343 million.

The Group had two credit facilities as at 31 December 2018: unsecured subordinated convertible bonds for €125 million and a committed syndicated credit facility of €400 million. The bonds will be convertible into ordinary shares of BAM with a nominal value of €0.10 each. The bonds are subordinated to BAM’s senior payment obligations. The bonds will carry an annual coupon of 3.5 per cent payable semi-annually and a conversion price of €4.9997. The bonds will be redeemed at their principal amount on or around 13 June 2021. BAM will have the option to call all but not some of the outstanding bonds at their principal amount plus interest from 28 June 2019, if the value of a BAM share exceeds for a specified period of time a price which is 30 per cent higher than the conversion price.

The committed syndicated credit facility has a duration until 31 March 2023 and as at 31 December 2018 the committed syndicated credit facility was not used, just as in 2017.


13 - Borrowings
(x €1 million, unless otherwise stated)

 

2018

2017

Non-recourse debt

 

 

PPP

43

190

Property

79

69

Other

5

6

 

 

127

265

 

 

 

Subordinated convertible bonds

118

115

 

 

 

Recourse debt

 

 

PPP

14

30

Property

59

80

Financial lease

25

13

 

98

123

 

Borrowings

343

503

The recourse net debt, part of the recourse leverage ratio in BAM’s financing arrangements, mainly comprising equity bridge loans for PPP projects and property loans on a recourse basis minus cash and cash equivalents, amounted to a net cash position of €528 million as at 31 December 2018, an increase of €70 million compared to 2017.

Capital employed

Non-current assets
On balance, non-current assets decreased in the year with €154 million (2017: decrease €30 million).
As the net capital expenditures in the year were higher than the annual depreciation, the carrying amount of property, plant and equipment increased with €8 million to €290 million. The majority of the capital expenditures concerned the asset category plant & equipment in the sector Civil Engineering.

Intangible assets predominantly contains goodwill with a carrying amount of €373 million, an decrease of €2 million compared with 2017, due to the lower exchange rate of the British pound sterling. Goodwill is tested for impairment annually and this did not result in an impairment. The sensitivity analyses indicated that for the cash generating unit BAM International, representing a goodwill amount of €22 million, a limited headroom remains in case of a negative change of 50 basis points on the discount rate and / or growth rate beyond the forecast period.

The total carrying amount of intangible assets increased with €4 million, mainly due to investment in non-integrated software.

PPP receivables decreased in 2018 to €90 million from €249 million principally due to the divestment of one project to the BAM PPP/ PGGM joint venture.

The carrying amounts of investments (accounted for using the equity method) and other financial assets increased in the year with €14 million (from €96 million to €110 million) respectively increased with €9 million (from €92 million to €101 million).

Net working capital
Net working capital (current assets excluding cash and cash equivalents minus current liabilities excluding current borrowings) as at 31 December 2018 amounted to minus €625 million (2017: minus €600 million). Gross investment in property development has been reduced with €27 million in 2018 to €564 (2017: €591 million), as a consequence of property sales, divestments and an impairment charge of €21.9 million (2017: €4 million). Net investment in property development, taking into account associated borrowings, amounted to €431 million (2017: €446 million).

Shareholders’ equity and capital base

Shareholders’ equity increased by €8 million in 2018 to €729 million as at 31 December 2018. This increase is principally due to the net result for the year of €23.8 million.

Capital base includes the subordinated convertible bonds of €118 million (2017: €115 million). The difference between the nominal value of the convertible bonds of €125 million and the reported value of €118 million, consists of the valuation of the conversion right and transaction cost.

Solvency

As at 31 December 2018 solvency is 18.5 per cent (2017: 18.6 per cent) determined by using the capital base. Given the small increase in capital base and the higher balance sheet total, solvency slightly decreased in 2018. Recourse solvency, the ratio in accordance with the bank covenants, slightly decreased to 27.0 per cent as at 31 December 2018 (2017: 29.6 per cent), which comfortably exceeds the required minimum of 15 per cent.

Other balance sheet items

Post-employment benefits
The net benefit asset amounted to €19 million as at 31 December 2018, a change of €62 million compared to 2017 principally due to changes in actuarial assumptions, specifically the discount rate used.

Provisions
Provisions, other than post-employment benefits, increased by €15 million to €238 million as at 31 December 2018, predominantly due to the net increase of the provision for onerous contracts of €26 million, mainly related to sea lock IJmuiden. In 2018, €5 million was added to the restructuring provision, mainly in Belgium and €11 million was used for payments on restructuring, mainly in the Netherlands.

Deferred tax assets and liabilities
The Group has a net deferred tax asset of €166 million (2017: €235 million) principally reflecting the tax losses carried forward in the Netherlands and Germany. The decrease is due to tax rate cuts in the Netherlands in 2020 and 2021, with an impairment of €26 million and an impairment of €46 million as a consequence of lower performance in the Dutch fiscal unity.

Assets and liabilities held for sale
The assets and liabilities held for sale as at 31 December 2018 amount to €9 million (2017: €9 million) for the assets and €0 million (2017: €0 million) for the liabilities and are fully attributable to one remaining property position to be transferred in the Northeast part of the Netherlands.

Tax

In 2018, BAM recognised a tax expense of €90.1 million (2017: €32.9 million). Excluding the impairment of Dutch deferred tax assets of €72 million, the effective tax rate of the Group for 2018 is 15.8 per cent (2017: -35.6 per cent), influenced predominantly by the use of previously unrecognised tax losses outside the Netherlands and tax incentives.

On corporate income tax, taxes on wages, social security contributions and VAT, the Group paid a total amount of €819 million in 2018 (2017: €725 million). Relative to the Group’s revenue, the share of taxes paid deviates most from the share of revenue in the Netherlands. Here, the Group’s share of taxes is relatively high compared to revenue.


14 - Taxes paid in 2018
(x €1 million, unless otherwise stated)

 

Taxes

%

Revenue

%

Netherlands 

422

51

2,712

38

United Kingdom 

193

24

1,998

28

Belgium 

47

6

703

10

Germany 

114

14

820

11

Ireland 

24

3

474

7

Rest of the world 

19

2

501

7

Total 

819

100

7,208

100

Construction and Property


15 - Construction and Property
(x €1 million, unless otherwise stated)

 

2018

2017

Revenue

4,043

3,696 

Adjusted result before tax

114.6

68.9

Margin (%)

2.8

1.9

Order book

7,025

6,895

At Construction and Property, revenue increased by €347 million (9.4 per cent) to €4,043 million. Half of this increase was attributable to the Dutch residential construction and development activities. Revenues in most other business grew, driven by improved market conditions. The UK revenue stabilised.

The sector result was up by €45.8 million to €114.7 million (margin of 2.8 per cent) due to the larger contribution of Dutch property and strong results in Ireland and the UK. The construction activities in the Netherlands experienced some margin erosion from supply chain pressure. Germany delivered according to plan a positive result for the full year after the refocusing of activities in 2016. The modest result in Belgium included some claim settlements and small project losses.

The contribution to the result from property rose to €52.9 million (2017: €26.7 million) mostly coming from Dutch residential. Dutch house sales were up by 6 per cent to 2,448 despite the ongoing constraints in the availability of locations with building permits. The gross investment in property reduced by €27 million, mainly due to the non-cash impairment in the third quarter, to €564 million at the end of 2018. These investments were financed by €53 million recourse property loans (year-end 2017: €75 million) and €79 million non-recourse property loans (year-end 2017: €69 million).

The year-end order book increased by €130 million (2 per cent) to €7,025 million. The increase came mainly from the refocused business in Germany, Ireland due to the strong market position and the Netherlands. In the Netherlands, the order book grew following improved market conditions. The order book was lower in Belgium and at BAM International due to selective tendering. 

Civil engineering


16 - Civil engineering
(x €1 million, unless otherwise stated)

 

2018

2017

Revenue

3,223

2,907

Adjusted result before tax

19.3

(58.6)

Margin (%)

0.6

(2.0)

Order book

5,577

4,694

In Civil engineering, revenue grew by €316 million (11 per cent) to €3,223 million. This increase came in all businesses, mainly the Netherlands and the UK. The sector result was €19.3 million after a loss of €58.6 million in 2017. Ireland and the UK had strong results which were partly offset by losses in the Netherlands, International and Belgium.

The Dutch activities were mainly held back by the cost overrun at the sea lock IJmuiden and a modest result from the regional activities. At the end of 2018, the first caisson which holds the door of the sea lock was successfully immersed and the lock doors arrived in the Netherlands. The second caisson will be immersed in the second half of 2019. The cumulative cost overrun at this project at year end 2018 was €106.7 million, of which €31.8 million was included in the 2018 results, €7.5 million in the IFRS15 restatement and €67.4 million in the 2017 results. The small losses at Belgium and BAM International reflected the challenging market conditions.

The order book rose by €882 million (19 per cent), mainly due to multiyear project awards in the UK and the Netherlands while maintain tender discipline. 

The order book in Germany grew, although the year end number was reduced by the accounting change (deconsolidation) of German Argen.

PPP


17 - PPP
(x €1 million, unless otherwise stated)

 

2018

2017

Revenue

35

135

Adjusted result before tax

20.2

19.0

Order book 

202

210

Average invested equity

128

110

Return on equity (%)

15.8

17.3

PPP had a result of €20.2 million coming mostly from the existing portfolio. One project was transferred to the joint venture with PGGM and one project was won. The order book reduced due to the construction progress and a new project win in joint venture. The pipeline of active bids in BAM’s home markets and International remains healthy. The total directors’ valuation of the PPP portfolio as at the end of 2018 was €261 million, which included €75 million of unrealised value.

BAM PPP Portfolio financial performance
At year-end 2018, shareholders equity invested by BAM PPP totaled €75 million (2017: €68 million). BAM PPP invested €22 million and transferred €13 million to the BAM PPP PGGM joint venture in 2017. BAM PPP does not invest in projects until their structural completion, with the shareholders’ equity part being financed with a bridging loan.

Committed equity is €145 million, all by the joint venture.

The invested and committed equity totaled €219 million. New projects will mainly be undertaken by the joint venture.

The future asset flow is based on the expected inflow of cash from the concessions portfolio for the shareholders’ equity (dividends, interest and repayment). The discounted value of this future cash inflow is the directors’ valuation and totals €261 million (2017: €229 million).

A comparison of the directors’ valuation and the discounted value of the invested and committed equity results in an unrealised value of the portfolio of €75 million (2017: €75 million).


18 - Portfolio financial performance 2018
(x €1 million, unless otherwise stated)

 

 

Nominal

Discounted

Invested equity

 

75

 

Committed equity

 

145

 

Total invested and committed equity 

(a)

220

186

Future equity cash flows 

(b)

812

261

Implied forecast unrealised value in the portfolio 

(b)-(a)

 

75

 

Name

Company