Report of the Supervisory Board

The year 2017 was marked by the further implementation of BAM’s strategy ‘Building the present, creating the future’. This strategy was introduced early 2016 and aims to prepare the Company for the future while improving current performance and increasing predictability of results. The goal is to transform BAM from a fairly traditional, highly decentralized construction company to a company that applies digital innovation and industrialization as key elements in the construction process. The strategy also includes clear objectives for the period 2016 – 2020 on people, planet and profit, with specific and in our view realistic financial targets. 

In our discussions with management, also market developments were a recurring theme. The general outlook in the home markets in which BAM operates is positive. The oil and gas industry seems to be through its lowest point which will help BAM International. The Brexit though may entail risks for the UK construction market while the geopolitical situation could negatively impact the economy and therefore also the construction industry. But in general market developments support the achievement of the financial targets set for the period until 2020.

Unfortunately, these positive developments were overshadowed by a substantial loss at the Sea lock IJmuiden, a large project that BAM is executing in a 50/50 joint venture with another construction company. Although this project was on our radar screen and discussed quarterly, the big loss that had to be reported in early December 2017 came as a surprise. It shows that despite the steps taken to transform the organisation and improve risk management, BAM is not yet where it should be. We discussed the root causes and lessons learnt extensively with the Executive Board and agree that better design management in the tendering phase is crucial to limit risks. In addition, project management in the execution phase needs to be further strengthened, supported by additional business controls. 

Although miscalculations or unforeseen circumstances can never be fully excluded in the construction industry, we support management’s view that with all the actions taken, the company is on the right track to prevent major project losses and achieve its targets for the period until 2020. The Sea lock IJmuiden project once again raises the question how a better risk balance between client and contractors can be achieved for this type of unique, large and complicated projects. We welcome the ongoing discussions with the Dutch Ministry of Public Works on this theme, because a more balanced distribution of risks is ultimately in the interest of all parties involved. 

Mainly as a result of the loss on the Sea lock IJmuiden project, the financial results in 2017 are very disappointing. When the company announced that the 2017 adjusted profit before tax would be substantially lower than expected, the stock market reacted very negatively, showing a loss of confidence. We agree with management that restoring confidence through predictable performance in line with the financial targets is a top priority. Despite the disappointing results in 2017, BAM is financially healthy. During the year 2017, BAM hardly needed to call upon its revolving credit facilities and the capital ratio at the end of the year was above 20 per cent.

2017 Financial statements and dividend

This annual report, which is presented in accordance with the International Integrated Reporting Framework, includes the 2017 financial statements, duly prepared by the Executive Board. The financial statements have been audited by the independent auditor, Ernst & Young Accountants LLP; the unqualified auditor’s report is included on page 241 of this Integrated Report.

The Audit Committee discussed the draft financial statements with the Chief Executive Officer, the Chief Financial Officer and the independent auditor. The Audit Committee also discussed the auditor’s report, the management letter and the quality of internal risk management and control systems and had a discussion with the auditor without BAM’s management being present. Subsequently, our full board discussed this annual report, including the financial statements with the Executive Board in the presence of the independent auditor. We took note of the reporting from the Audit Committee and reviewed the auditor’s report and the quality of internal risk management and control systems. We concluded that we agree with the 2017 financial statements. We agree with the Executive Board that a predictable dividend, based on a solid performance in line with the financial targets and taking into account the financial condition of the company, is important for the attractiveness of the BAM-share. We therefore agree with the proposal of the Executive Board to distribute a dividend of €0.10 per share. 

We recommend the Annual General Meeting to be held on 18 April 2018, to adopt the 2017 financial statements. We are of the opinion that the financial statements, the report by the Executive Board and the report by the Supervisory Board provide a solid basis on which to hold the Executive Board accountable for the management policies pursued and the Supervisory Board accountable for its supervision on these policies. The members of the Supervisory Board have signed the financial statements in accordance with their statutory obligations under Article 2:101, paragraph 2 of the Dutch Civil Code. 

Strategy and operational plan

We regularly discussed strategy implementation with the Executive Board. Our meeting in September was largely devoted to this subject. The discussions again showed that BAM is on a journey that includes considerable change. The values that BAM has defined require different behaviour compared to what BAM’s people were used to and to what is still common in the construction industry. To reap the benefits of its scale, BAM has also introduced the One BAM philosophy. This means sharing knowledge, resources, systems, processes and innovation across operating companies. Since BAM comes from a very decentralized model with a high degree of local autonomy, this One BAM approach means a major change. It requires more central steering (with strong involvement of operating company management) while maintaining local entrepreneurship. We agree with BAM’s strategy and fully support the Executive Board’s commitment to the required changes. In our view, BAM is doing the right things, but it should be clear that the benefits of this change process will only gradually materialize to their full extent.

The operating companies and corporate functions have developed their own strategic agendas which are aligned with the BAM strategy. Within that framework, the operating companies and corporate functions have prepared operating plans for 2018, which were presented and discussed in our meeting in September. Subsequently these plans have been further developed and consolidated into the operating plan for the Group. We discussed this plan in an extra meeting in December and approved an updated version in our January 2018 meeting. 

Risk management

Predictable performance requires ongoing improvements in risk management. This was therefore high on our agenda. As in previous years the need for selective tendering was regularly discussed with the Executive Board. The Tender Stage Gate Process that has been implemented throughout the company plays an important role in the early identification of potential risks and taking appropriate measures to limit these. The Operational Audit department audited the application of this process and we discussed the outcome with the Executive Board. This confirmed that the stage gate approach has been introduced throughout the Group and that its impact is increasing. Although this approach cannot prevent any risk to occur, it certainly helps to focus on projects where BAM can achieve decent margins.

Another important tool in that respect is the project data base. The Executive Board updated us on the development of this tool, which provides extensive information on projects executed by the Group. We were impressed by the insights this yields in the factors that influence the profitability of projects. It is a good example of learning by sharing information across BAM.

The audit plan for 2017 was presented to and discussed with the Audit Committee and subsequently the full Supervisory Board which approved the plan. The Operational Audit team continued to audit a number of high exposure projects, resulting in recommendations to improve risk control. Several very large projects in the tender stage were presented to the Supervisory Board in regular and extra meetings. We reviewed these projects by asking critical questions mainly focused on risks and how these were managed and taken into account in the pricing of the project. 

Based on a presentation by the Governance, Risk and Compliance officer, we reviewed risks, including strategic risks, and risk management in the Group and concluded that although risk management has been strengthened, continuous attention and improvement is necessary in order to protect the company against the risks it faces. We also noted that the Group has in place internal risk management and control systems, financial reporting manuals and procedures for drawing up financial reports, as well as an established monitoring and reporting system. The ability of the Executive Board to monitor the operational activities of the Group improved further as a consequence of improved internal reporting, the Tender Stage Gate Process and monthly meetings with the Management Board, all of which contribute to increased transparency and awareness. 

Safety and sustainability 

Safety remained a focal area for the company. Therefore, we start every meeting with the Executive Board with a discussion on safety. BAM’s safety performance slightly improved in the year under review (from IF BAM of 4,8 in 2016 to IF BAM of 4,6 in 2017). Nevertheless, the safety performance overall was unsatisfactory as BAM regrettably had to record 4 fatal incidents, These were extensively evaluated in the meetings with the Executive Board. In view of the lack of material improvement of safety performance in 2017 compared to 2016, we have emphasized the importance of even more attention to safety, not only with regard to guidelines and instructions but especially regarding behavioural aspects. The Safety Behaviour Audits, which are being held throughout the company, will support this goal. Together with the Executive Board, we remain of the opinion that the achievement of a higher safety level is one of the most important challenges for the Group. We fully support the Executive Board’s commitment to further increase management’s dedication to safety.

With respect to sustainability, we believe that BAM is a frontrunner in the construction industry. The sustainability strategy 2020 and beyond is aligned with the corporate strategy and forms the basis for KPIs on people and planet. The content of this Integrated Report is based on themes identified in the materiality assessment as being most relevant for BAM and its stakeholders. We were informed by the Executive Board on the proactive consultation of clients, partners and suppliers in stakeholder dialogues and were pleased to hear that these are highly appreciated by the participants.

Corporate governance

In December 2016, the new Dutch Corporate Governance Code was presented. It became effective as of 2017. Together with the Executive Board we reviewed the corporate governance structure of the Company and the consequences of the new Code. The overall conclusion was that BAM’s governance was already broadly in line with the new Code. As a result of the review, the rules of the Executive Board, Supervisory Board and its three committees have been updated. The profile of the Supervisory Board has been amended and a diversity policy has been added that applies to the Executive Board as well. The annual meeting schedule for the Supervisory Board has also been amended in order to include discussion on all matters mentioned in the Code. 

Compliance with the Corporate Governance Code will be explained via an overview, providing information on compliance per principle and best practice included in the Code. This overview is available on the Company’s website.

The Supervisory Board and the Executive Board are of the opinion that Royal BAM Group’s corporate governance is up to standard. Please refer to the corporate governance statement in this report and the overview on the Company’s website concerning the Company’s compliance with the Code.

Shareholders and investor relations

We are of the opinion that an open and regular dialogue with shareholders and investors is important to explain the Company’s strategy and performance as well as to listen to and discuss their feedback. We regularly reviewed the Group’s investor relations activities and shareholder base and were informed on the feedback given by shareholders, investors and analysts. We also took note of the feedback from the Capital Markets Day that was held in April 2017.

The Supervisory Board prepared the Annual General Meeting and evaluated it afterwards. We were pleased with the constructive dialogue with shareholders at the meeting but noted with disappointment the rejection by the meeting of the proposal to restrict or exclude preferential rights upon issuing respectively granting rights to acquire ordinary shares. This limits the possibilities to act efficiently in case the company wants to issue shares.

Discussions with external auditor

In the Annual General Meeting on 22 April 2015 Ernst & Young Accountants LLP was appointed as independent auditor for the financial years 2016, 2017 and 2018. During its review of the 2016 full year results and the 2017 half year results, the Supervisory Board met with Ernst & Young Accountants LLP to discuss their report. We established that the independent auditor had received the financial information on which the financial reports were based. The independent auditor had also been given the opportunity to discuss the information provided with BAM officers and the Executive Board. 

We took note of the reports and management letters as prepared by the independent auditor. In our February 2017 meeting, we discussed with the independent auditor and the Executive Board the key items as presented by the auditor, being: valuation of projects and revenue recognition, valuation of deferred tax assets, IT controls and procedures, the valuation of land and building rights, the involvement of the finance function in key projects and the procedures the Group has in place regarding business conduct. In addition, we discussed in our August 2017 meeting the criteria for capitalization of development costs and agreed that the patented development of Gravity Based Foundations for offshore wind power met these criteria. We also discussed the follow-up to the independent auditor’s findings with the Executive Board.

Ernst & Young Accountants LLP attended the Annual General Meeting of 19 April 2017 and was available to answer questions. As part of the process to prepare this annual report and the 2017 financial statements, we assessed the relationship with Ernst & Young Accountants LLP, based on reports from the Executive Board and the Audit Committee. We concluded that the collaboration with BAM management and the employees involved in the audit is constructive and satisfactory.

Other activities and meetings

In addition to the items mentioned before, in each of our regular meetings, we discussed with the Executive Board the state of affairs, the financial performance of the Group and the operating companies, market developments and order intake, working capital and cash flow, the financial condition of the Group as reflected by the balance sheet, investments and divestments, major projects with a higher risk profile and the quarterly press releases. Each of our quarterly meetings featured a report on what had been discussed in meetings of the three permanent committees of our board.

Other matters discussed included the Integrated Report and financial statements for 2016, the 2017 half-year report and interim statements, the reserve and dividend policy and the dividend proposal for 2016, the various effects of changes in the International Financial Reporting Standards (IFRS) on the Group’s financial reports, as well as compliance reports and material legal proceedings in which the Group is engaged. 

In the presence of key staff involved, we took note of several lost tender analyses and of major projects in execution. The Executive Board regularly updated us on the situation regarding the parking garage at Eindhoven Airport which partly collapsed in the last phase of construction, fortunately without anybody being hurt. BAM immediately initiated its own investigation and fully cooperates with the investigations by the client and the Dutch Safety Board. 

The corporate director HR informed us on the progress with respect to management development, succession planning for senior management positions and talent identification. He also presented a diversity analysis of operating company and project management in BAM. The recently appointed corporate compliance officer gave an update on compliance within the Group. 

In September 2017, we went to Ireland for our annual working visit. We met with management and key staff of BAM Ireland and got presentations on market developments, business performance and major projects. We also met with the Management Board and discussed their preliminary views on the operating plans for 2018. During a breakfast meeting, the Irish Minister of Foreign Affairs and Trade presented his view on the Brexit and economic developments in Ireland. We also visited several major projects, including the new European headquarters of Microsoft build by BAM. 

A delegation of our Board met with the Central Works Council on several occasions. The annual meeting of the Supervisory Board and the Executive Board with the Central Works Council was held in August 2017.

The Supervisory Board actively engages with the Executive Board as well as other senior management in order to ensure it has the right information. The chairman of the Supervisory Board had regular contact with the Chief Executive Officer while the chairman and other members of the Supervisory Board met with senior managers in order to be briefed on specific topics such as HR, Finance, Corporate Governance and Operational Audit. 

The Supervisory Board approved the remuneration report prepared by the Remuneration Committee. The remuneration report is included in paragraph 4.3 of the Integrated Report. The remuneration policy was not amended in 2017. The Supervisory Board agreed with the proposal of the Remuneration Committee regarding the remuneration of the Supervisory Board and decided to submit this proposal to the Shareholders meeting, which proposal was adopted at the Annual General Meeting in April 2017.

In 2017, the Supervisory Board met on seven occasions in the presence of the Executive Board. In addition, three conference calls were held. The attendance rate of the individual members
at the Supervisory Board meetings and the meetings of the committees was as follows:


Mr. H.L.J. Noy 100%   100% 100%
Mr. K.S. Wester 100% 100%    
Mr. G. Boon 100% 100%    
Mrs. C.M.C. Mahieu 86%   100% 100%
Mr. M.P. Sheffield 100% 100%    
Mrs. H. Valentin 100%   100% 100%
Total 97% 100% 100% 100%

We also met without the Executive Board being present. These meetings were primarily devoted to the functioning of the Executive Board and the Supervisory Board. We also discussed our view on a number of strategic and organisational matters, as well as the remuneration of the Executive Board, including the determination of the variable portion of that remuneration and the targets for 2017.

Composition and functioning of the Supervisory Board

Early 2017, Mr. Elverding had to announce his retirement as chairman of the Supervisory Board as per the Annual Shareholders Meeting in April 2017, due to illness. Regretfully, he passed away later in the year. In him we lost a very experienced chairman and a wise person. We are very grateful for the important and stabilizing role he fulfilled as of 2011, in a period that the company was hit hard by the economic crisis. 

In line with their already planned retirement, also Mr. Scheffers and Mr. Hanssen stepped down from the Supervisory Board at the end of the Shareholders meeting in April 2017. We thank them both for their contribution to BAM and Mr. Scheffers especially in his role as chairman of the Audit Committee as of 2009 and vice chairman as of 2011.

As a result of these retirements, the composition of the Supervisory Board changed substantially. After the Annual General Meeting in April Mr. Noy took over the role of chairman from Mr. Elverding and Mr. Wester succeeded Mr. Scheffers as vice-chairman. Two new members were appointed, being Mrs. Valentin and Mr. Boon. The latter succeeded Mr. Scheffers as chairman of the Audit Committee. In August, an Extraordinary General Meeting was held in which Mr. Sheffield was appointed as a member of the Supervisory Board. There were no regular reappointments.


Both the Supervisory Board and the Executive Board recognize the importance of diversity in the Group’s managerial bodies. In our view diversity is not limited to gender, it also involves age, nationality and background. As part of the implementation of the new Dutch Corporate Governance Code, we updated the profile for the Supervisory Board. As before, it includes a minimum 30 per cent target for female and male board members. This gender target applies mutatis mutandis for the Executive Board. 

We are of the opinion that our present composition is in line with the profile for our board. We meet the specific target regarding gender diversity. The Executive Board meets this target as well. We agree with the Executive Board that gender diversity at levels below the Executive Board needs serious attention. As the construction industry is traditionally pretty male dominated, a better gender balance requires measures to attract more women, which will take time.


The Supervisory Board meets the requirements of the new Dutch corporate governance code with regard to independence. In 2017 the Supervisory Board members did not have any other relationships of a business nature with the company. None of the Supervisory Board members had more than five memberships of Supervisory Boards at Dutch listed companies or other large institutions. 

The Supervisory Board is not aware of any conflicts of interest between the company and members of the Supervisory Board,
or between the company and natural persons or legal entities that hold at least 10 per cent of the shares in the company.

In early 2018 we performed our annual self-evaluation. It was based on an extensive questionnaire that was filled in by all board members prior to the session. We concluded that despite considerable changes in our composition, the board is operating well, with open discussions and constructive contributions from all members. We also assessed the expertise of the individual board members and concluded that the combined expertise is in line with the characteristics of the company and its business. We noted that the Executive Board under the leadership of the Chief Executive, has an open and transparent attitude towards the Supervisory Board. Several suggestions were made for further improvement. These relate amongst others to the induction program for new members, invitation of external experts to inform on specific issues as part of permanent education, information to the Supervisory Board in between meetings, contacts with members of the Management Board and the need to pay more attention to succession planning.

The Supervisory Board’s committees

The Supervisory Board has three permanent committees: an Audit Committee, a Remuneration Committee and a Nomination Committee. It is the task of these committees to support and advise the Supervisory Board concerning items under the committees’ responsibility and to prepare the Supervisory Board’s decisions regarding those items. The Supervisory Board as a whole remains responsible for the way in which it performs its tasks and for the preparatory work carried out by the committees. The committees submitted reports on their meetings to the Supervisory Board.

The Audit Committee 
Due to the retirement of Mr. Scheffers and Mr. Hanssen the composition of the Audit Committee changed substantially. Mr. Boon took over the role as chairman after the Annual General Meeting and Mr. Sheffield replaced Mr. Hanssen. As per the end of 2017 the Audit Committee was composed of Mr. Boon (chairman), Mr. Wester and Mr. Sheffield. The composition of the Audit Committee is in line with the provisions of the Dutch corporate governance code. 

The Audit Committee supports the Supervisory Board in the performance of its tasks, especially with regard to financial and accounting matters. The Committee met four times over the past financial year. The independent auditor was present at all of these meetings. The Chairman of the Executive Board, the Chief Financial Officer and the Operational Audit Director also attended all the Audit Committee meetings. 

In addition to its regular tasks and responsibilities, the Audit Committee addressed the following specific matters in 2017: the assurance plan 2017 of the independent auditor EY, internal audit plan for 2018, impact of new reporting standards IFRS 9, 15 and 16, material legal proceedings, development of working capital, investments in innovation, key projects, financing of the company and developments relating to taxes, IT and governance, risk and compliance. Furthermore, the Audit Committee participated in a work shop on project control.

The Audit Committee was briefed by the independent auditor on relevant developments in the audit profession, especially those related to the new EU directive on non-financial information, the revised Dutch corporate governance code and the transition to new IFRS reporting standards. The committee met with the independent auditor without the Executive Board being present and reported to the Supervisory Board on the relationship with the independent auditor. Furthermore, the chairman of the Committee regularly communicates on a one to one basis with the independent auditor. The Audit Committee considers the relationship with the independent auditor sound.

Remuneration Committee 
In 2017, the composition of the Remuneration Committee changed as well. Mrs. Valentin succeeded Mr. Elverding as per the end of the Annual General Meeting. As per the end of 2017, the Remuneration Committee was composed of Mrs. Mahieu (Chairwoman), Mrs. Valentin and Mr. Noy. The composition of the Remuneration Committee is in line with the provisions of the Dutch corporate governance code.

One of the tasks of the Remuneration Committee is to make proposals to the Supervisory Board with regard to the remuneration policy, the terms of employment of members of the Executive Board and the remuneration of the members of the Supervisory Board and Executive Board.

The Committee submitted a proposal to the Supervisory Board relating to the short term incentive of members of the Executive Board based on the 2016 performance and the criteria for variable remuneration in 2017. In addition, the Remuneration Committee prepared a remuneration report on the way the remuneration policy has been implemented in practice. 

The Committee also performed a comparative survey regarding the remuneration of Supervisory Board members of BAM and other Dutch AMX companies which led to the conclusion that the remuneration was no longer in line with what is customary in this peer group nor in proportion with the increased responsibilities and the intensity of its activities. As a result of this survey a proposal was prepared for the Supervisory Board for amendment of the remuneration for members of the Supervisory Board. 

The Remuneration Committee met three times during the year under review. The Chairman of the Executive Board was present during parts of these meetings. The committee members consulted with each other a number of times outside the context of a formal meeting. In addition, a number of conference calls were held. 

Nomination Committee 
Due to the retirement of Mr. Elverding, Mr. Noy took over the role of chairman after the Annual General Meeting and Mrs. Valentin joined the Committee. As per the end of the year under review, the Nomination Committee was composed of Mr. Noy (Chairman), Mrs. Mahieu and Mrs. Valentin. One of the tasks of the Nomination Committee is to make proposals to the Supervisory Board regarding selection criteria and appointment procedures, and regarding the size, composition, appointments and reappointments to the Supervisory Board and the Executive Board as well as assessment of their performance. The committee also monitors the Executive Board’s policy on selection criteria and appointment procedures for senior management and holds annual appraisals with the individual members of the Executive Board.

The Nomination Committee met three times in the past financial year and held several conference calls. Items discussed were the vacancies in the Supervisory Board, the required profile of the individual positions, review of and interviews with a number of candidates and the final selection of the preferred candidates. Proposal for the appointment of the new members were submitted to the Supervisory Board. The Committee discussed with the Chief Executive Officer and with the corporate director Human Resources the succession planning process within the Company and the implementation of the One BAM value set.

Composition and functioning of the Executive Board

During 2017, the Executive Board was composed of three members. There were no scheduled reappointments in 2017. 

The Supervisory Board reviewed the performance of the Executive Board. The Chief Executive Officer gave input regarding the performance of the other members of the Executive Board. The Nomination Committee had meetings with each member of the Executive Board in which feedback was given on personal performance. The non-financial targets that had been set were evaluated as well as the functioning of the Executive Board as a team. The conclusions were discussed in an internal meeting of the Supervisory Board.

Based on these discussions, the Supervisory Board announced that Mrs Menssen will step down as CFO and member of the Executive Board of the company as per 1 July 2018. This decision was reached by mutual agreement as the further implementation of the strategic agenda requires a different fulfilment of the CFO role. The process to find a successor has been started. The Supervisory Board wants to thank Thessa Menssen for her contribution and dedication to BAM. 

Per the Annual General Meeting in April 2018, the term of Mr. Bax as a member of the Executive Board will end. The Supervisory Board of Royal BAM Group nv has decided to nominate Mr Bax for re-appointment as member of the Executive Board. This reappointment will be for a term of one year. Mr Bax has informed the Supervisory Board that he wishes to explore other opportunities and would therefore not seek re-appointment as member of the Executive Board for four years. Reappointment for one year ensures continuity and a smooth transition of responsibilities, also in light of Mrs T. Menssen stepping down from the Executive Board effective 1 July 2018, as previously announced. The Supervisory Board very much appreciates Mr Bax’ commitment to BAM.

The Supervisory Board concluded that none of the members of the Executive Board holds more than two supervisory board positions at large organizations or a position as chairman of such supervisory body. This is in line with the Management and Supervision (Public and Private Companies) Act and the Code. 

The Supervisory Board has no evidence of any conflicts of interest between the company and members of the Executive Board.

Final comments

The year 2017 was overshadowed by a few major incidents. Nevertheless, the underlying developments are positive. The company made good progress with the further implementation of its strategic agenda, and although not yet visible in the financial results, risk management improved. We are confident that consistent implementation of the 2016-2020 strategy, including the necessary cultural changes, will lead to results in line with the targets. This confidence is also based on the capabilities and dedication of BAM’s management and employees to deliver a predictable performance. We want to thank all involved for their contribution and efforts under sometimes challenging circumstances. 

Bunnik, 20 February 2018

On behalf of the Supervisory Board,
Harrie Noy, Chairman