Koninklijke BAM Groep nv (BAMNB) Earnings Call Transcript

Welcome to the Royal BAM Group Conference Call. Today's presentation will be followed by a Q&A session. [Operator Instructions] I will now hand over to Michel Aupers to begin the presentation.

Good morning, everyone, and welcome to the Royal BAM Group Analyst Call. Thank you for joining us at short notice. I'm Michel Aupers, Manager, Investor Relations. Our CEO, Ruud Joosten, and CFO, Henri De Pater, will discuss today's announced acquisition of A.Hak, its expected contribution to BAM's growth and earnings profile, and the strategic rationale behind the transaction. The presentation slides are available on our website. After their remarks, we will open the line for your questions. Before we begin, I would like to draw your attention to the disclaimer shown here. Ruud, over to you.

Thank you, Michel, and good morning, everyone. Today, we are pleased to present an important strategic step for BAM, the acquisition of A.Hak. I will introduce the company and explain the strategic rationale, the attractive markets in which it operates, and the strength of our combined proposition. Henri will then cover the financial parameters and reporting, after which I will conclude this call. With the acquisition of A.Hak, a specialist in critical underground infrastructure, BAM will take a leading position in the Dutch market for energy, water, and gas infrastructure. For 2026, A.Hak is projected to generate revenues of approximately EUR 425 million with an adjusted EBITDA margin of around 10%. This transaction will accelerate BAM's growth strategy and is expected to make a meaningful contribution to the group's earnings profile. It increases our exposure to markets with very attractive long-term structural growth drivers and enhances earnings visibility through a strong order backlog of EUR 1 billion, covering the period '27 to '31. A.Hak is expected to achieve double-digit growth. This is driven by 2 key trends: the transition from a fossil fuel-based society to one increasingly powered by electricity, and the need to invest in water infrastructure to secure drinking water supplies, including during periods of drought, and to manage excess water. This is driving a sharp increase in investment in critical underground infrastructure such as reinforcing and expanding power grids and water networks, and other infrastructure supporting industrial decarbonization. The Netherlands is in a once-in-a-generation infrastructure investment cycle, and this acquisition puts BAM at the heart of that transition. A.Hak brings leading specialist capabilities that are highly relevant to our clients, particularly difficult to replicate organically. This includes large diameter pipelines, grid, heat, and water network reinforcement, and trenchless techniques. The company has an experienced management team and a loyal, highly skilled workforce of circa 900 employees with a strong focus on operational excellence. A.Hak is a preferred partner for grid operations and utility clients. More than half of its current revenue comes from framework contracts, and the company has secured an order backlog of EUR 1 billion for the period '27 to '31. This provides a strong degree of revenue visibility and a resilient earnings profile. Around 85% of A.Hak's current revenues are generated in the Netherlands. At the same time, we see attractive growth opportunities in the U.K. The value of A.Hak goes well beyond its equipment or historic earnings. Its real strength lies in its people, specialist engineering expertise, and long-standing client relationships. In a market constrained by skilled labor and technical capacity, these capabilities are scarce and they cannot be built quickly. A.Hak operates in markets supported by powerful and durable growth drivers. Aging electricity, water, and gas networks need to be expanded and renewed while new infrastructure is required for hydrogen, carbon dioxide, and district heating. Grid congestion is now one of the country's largest constraints on economic growth. Demand for grid reinforcement and distribution upgrades already exceeds market capacity. This structural demand is underpinned by substantial and visible investment programs. These investment budgets have been revised upwards repeatedly in recent years. The total investment requirement across the relevant Dutch infrastructure market is estimated at approximately EUR 235 billion between '26 and 2040. Investment in water infrastructure is also expected to rise considerably. In parallel, the U.K. is planning major expenditure on electricity transmission, distribution, and water networks. Together, BAM and A.Hak will be better equipped to address the key capacity challenges clients face. After closing, we can offer greater execution capacity to grid operators and water utilities. We will bring a large pipeline and trenchless techniques expertise in-house, and we will be able to deliver substantial multiyear volumes under framework agreements. Scale is becoming increasingly important. Clients are looking for strong partners that combine specialist knowledge, broad design and delivery capabilities, and balance sheet strength. We believe the energy transition and rising demand for water solutions will create clear winners. This transaction places BAM in a strong position to capture the opportunities ahead. The strategic fit between BAM and A.Hak is illustrated by our combined position across the critical underground infrastructure market. BAM already has strong civil engineering capabilities, energy transmission and distribution activities, and considerable experience in delivering integrated solutions. These include substations, transformers, grid connections, and last mile infrastructure. A.Hak has specialist expertise in pipelines, including large diameter pipelines, trenchless techniques, high voltage and low and medium voltage cable infrastructure, and in water and gas networks. Together, we can offer a complete and integrated proposition from design and engineering through construction and maintenance. This combination creates opportunities that neither company could capture as effectively on its own. It enables us to support clients across larger and more complex infrastructure programs while reducing interface risks and strengthening execution. That is a powerful proposition in a market where delivery capacity is scarce and clients increasingly value integrated solutions. The combination is also compelling geographically and culturally. BAM has a strong position in the West and South of the Netherlands, while A.Hak is particularly strong and well established in the North, East, and South. Together, we create strong nationwide coverage with combined revenue of approximately EUR 725 million in underground infrastructure. Our capabilities are complementary. A.Hak contributes specialist expertise in pipelines, drilling, power, water, and gas. BAM contributes distribution network capabilities, including last mile infrastructure, civil engineering strength, integrated delivery experience, and an established U.K. platform through which we can introduce these specialist services. Both organizations value safety, craftsmanship, their people, effective leadership, and sustainability. For employees, the combination creates opportunities to develop, share knowledge, and build careers within a broader organization. For clients, it brings more capacity and an integrated service offering. And for shareholders, it provides greater exposure to structurally growing markets and attractive long-term value creation. Henri, over to you.

Thank you, Ruud. The acquisition will be financed through a combination of existing cash resources and a committed bridge loan provided by Rabobank, ING, and ABN AMRO. These are conservative financing arrangements to preserve sufficient liquidity for BAM's ongoing operations, including volatility in working capital, while maintaining financial flexibility. We expect A.Hak to make an attractive financial contribution to the group. We also expect A.Hak to generate around EUR 43 million in adjusted EBITDA this year, which is expected to rise to EUR 65 million and EUR 75 million in the medium term. We also expect a positive contribution to free cash flow from 2027 onwards. We see a clear pathway to accelerating growth, enhancing margins, and generating returns above our cost of capital. And at the same time, BAM's solvency is expected to remain approximately unchanged compared to the end of the first half of 2026. Following completion, which depends on customary closing conditions, A.Hak will continue to operate independently under its own name within BAM's Netherlands division. Its results will be reported in the Construction and Property segment alongside BAM Energy and Water. Net income will be affected by purchase price allocation, and we will disclose these effects transparently after the closing of the transaction. Michel, over to you.

Thank you, Henri. We will now open the call for questions. Ruud and Henri are available to answer your questions. Operator, could you please explain the procedure and open the line for Q&A.

[Operator Instructions] Our first question is from Tijs Hollestelle from ING. [Operator Instructions]

Can you hear me, operator?

Yes.

Okay. Now first of all, I think this is a great deal you announced this morning, putting your cash to work. I have some questions. And a friend of mine basically works at the company you acquired, and he told me some years ago already that A.Hak has quite a lot of special equipment and kind of trench shooters, which are in extremely high demand and basically fully utilized and generating a lot of cash flow. Can you confirm this? And also that the competitive landscape is quite limited. So there are only a few other companies which provide that special service to the market. So if you could also elaborate a little bit on the market structure of A.Hak and basically tell us what the hidden strength of A.Hak is. That's the first one. I would like to ask my questions 1 by 1, please.

Yes. Thank you. Indeed, thank you. We are also extremely happy, of course, with this move we are making in this market. Indeed, it's a very specialized company with very special equipment. And yes, the word specialization is already clear that there are not so many people in the Dutch market who can do the same activity. There are a few, of course. But together with that, we get a pretty strong position, as you can imagine, with our own energy and water activities together. So that's true. And also, indeed, these machines are pretty special as well and indeed fully utilized. So that's also confirming already now the strength of this market. But going forward, big investment plans and programs are being confirmed so that the future of these markets are extremely strong for at least 10 years to come. And if you then combine it with our engineering power and full service delivery experience, we feel we form an extremely strong combination. And that will really help customers to choose for a combination that can bring that kind of service for a long period of time. Also looking from a regional point of view, it really adds up where we are very strong in, let's say, in the North and South part. A.Hak is also very strong in the western part of the Netherlands. So that's also a nice combination. Also from a customer point of view, it really adds up. So in that sense, synergy is very high. Yes, indeed, we are also very happy, of course, with 900 people joining us who have this kind of expertise in-house. So it's not only the machine, but maybe more importantly, the operational excellence of these 900 people to be able to do these pretty complicated maneuvers in the Dutch market and to make this work. It's not something you can learn easily. So in that sense, it's also a high entrance barrier, I think, to get in this market. So that's another reason for us to acquire this experience and build on our own experience. So a very strong combination indeed.

Okay. And let's say, the equipment is also, let's say, not aging. So there's not, let's say, a need for a big CapEx program at A.Hak in the coming years?

Well, of course, we get the normal write-off and investment program, but we don't see an extreme need for additional investment. But of course, if you have this growth in your plans, of course, you need to invest. But that's on a, let's say, a regular level, I would say, an extreme different view there from our side on the activities.

Okay. And the trade working capital profile of A.Hak is also negative?

Henri here. Yes, indeed also from my side in regard to your congratulations. Really happy with this deal, zooming in on trade working capital, a different figure if you compare it with BAM on a lower level, but still negative and quite a healthy cash position, and specifically also the conversion from EBITDA to cash is really strong within this company.

Okay. That's clear. And yes, one final question, more, let's say, general regarding the balance sheet. Also, I think the question is for Henri. I think you mentioned that you have a structural net cash position, you're generating quite a lot of free cash flow normally in the second half of this year, and the deal is expected to close in the first quarter. Also next year, I'm expecting quite some free cash flow. So let's say, on the quick and dirty calculations, even after the cash outflow for this transaction, you still have, let's say, room for a share buyback similar to what you did last year and paying the dividends in 2027 and then remain structural net cash. Is that also something you can confirm? Or maybe you have a specific view on a structural net cash level you want to have? Or is that kind of an analysis you can make?

So first of all, with regard to the funding, we were able to organize an additional bridge loan that the bank has already said in my intro. So it's a combination of our available cash, which is still a very strong number. You've seen it in the half year figures, and we are still acting and trading more or less on the same level. We are quite focused on organizing it, of course, in a sufficient way in terms of being, you noted, a bit more conservative to give us also, let's say, the flexibility which is needed going forward as well. So the expectation will be that the net cash position also in 2026 and 2027 will be strong. And based on that, moving back to shareholders, I'm talking about dividend and the share buyback, the strategy for 2024 to '26 is still the same, which will be part of also our annual accounts in Feb 2027 to announce what will be the level of our dividends and share buybacks, but we will discuss that later on our Capital Markets Day in the first quarter of 2027. But very positive views on those developments going forward.

Our next question is from Simon Van Oppen from Kepler Cheuvreux.

Can you hear me?

Yes.

Yes. I have a question on your stated adjusted EBITDA of EUR 65 million to EUR 75 million on the medium term. Can you give us, let's say, a rough estimate how soon you expect these levels of adjusted EBITDA to occur? And what, let's say, needs to happen in the next coming years to achieve that? Yes, I'll ask my questions 1 by 1, starting with this one first.

First of all, talking about the medium term. We have modeled and calculated the medium term in a period of roughly 3 years from now and expecting based on a very strong backlog and top line growth of around 10%.

That's very helpful. Then maybe secondly, on the project business of A.Hak, I noticed activities in underground cable laying and transport pipelines. How do you assess, let's say, the riskiness of the overall project portfolio and backlog also in light of your own activities? Do you see the risk-reward as attractive? Or maybe some more color on that?

Yes, I think a very good question. Of course, we will introduce also in our ways of working, which pretty, let's say, focused on strong risk avoidance in the tender phase. But on the other hand, of course, this is a highly specialized company in what they're doing. So that's why, of course, the customers are so much relying on A.Hak because of their expertise in these activities. So really specialized and they are also focused on these activities. So they're not going into all kind of different activities. It's just this is what they do and getting better and better at it. So in that sense, the project risk, which is normally coming from very complex one-by-one projects, one-offs as we call them, is not so much applicable in this business. So they have a lot of experience and specialized knowledge in this market. So -- and also the contract sizes are, of course, less big than in some of the projects where you can see the big risk coming through. So that combination of things adds to a reasonable risk profile that we can -- comparing, let's say, to the BAM portfolio, can accept.