The main operational risks Heijmans faced in 2023 were those resulting from the nitrogen emissions issue, relatively high mortgage interest rates, the government’s limited execution capacity and budgets and the scarcity of materials, products and labour, as well as significantly higher procurement costs (especially for energy-driven products). Thanks to strong demand for homes in the Netherlands, despite high interest rates compared with two years ago, home sales to private individuals remained at reasonable levels in 2023 and we saw a slight recovery in the last months of 2023. Sales to housing associations increased last year. At Residential building, the decline in production for Property Development was offset by building for housing associations and renovation projects.
The nitrogen emission issue led to delays in permit procedures, delays in projects under construction and the drying up of the Ministry of Public Works and Water Management’s tender calendar for new-build projects, especially for line-infrastructure projects. This is the entirety of traffic infrastructure and its surroundings meant for traffic and the transport of people, goods and messages. It includes roads and motorways, waterways, pipelines, power lines and infrastructure for telecommunications. The shortfall in government budgets for infrastructure projects has also led to postponements and cancellations of tenders. Heijmans has mitigated this by shifting its project portfolio to focus more on the flood protection programme and energy transition in addition to line infrastructure. At the same time, we are dealing with extensive spatial planning procedures, with limited civil servant capacity, which is causing delays. In addition, the nitrogen exemption for construction has expired, which means we have to provide Aerius calculations for many projects and have these verified.
Following the significant price increases in 2022, prices stabilised in 2023, but remained at high levels. In particular, energy and semi-finished products produced using it were substantially more expensive than the previous year. Heijmans closely monitors price developments and ensures, among other things, that the organisation is provided with the right information to take sufficient account of the price risk in tenders (including advice on the indexation to be applied). Price increases are primarily the result of an imbalance between supply and demand. This imbalance in turn leads to scarcity, which is ultimately more challenging. We try to mitigate this risk by working with fixed partners and securing purchases at an early stage. In addition, Heijmans has so far succeeded in passing on part of the high procurement costs in the selling prices of our products and services via indexation agreements. We do this by including an assessment of how clients deal with price risk and indexation agreements as an assessment criterion when selecting projects for tendering. The commitment, risk awareness and adaptability of our people play an important role on this front. The expected wave of bankruptcies due to the repayment of the Covid grants and/or deferred taxes failed to materialise among our suppliers and subcontractors in 2023.
We try to identify undesirable developments in time through monthly monitoring of our main projects, so we can take appropriate management measures at the earliest possible stage. In this respect, we have found over the past year that monthly monitoring of long-term projects and earlier action on (weak) signals are important for timely intervention. We will therefore continue to pay extra attention to the monitoring of our long-term contracts in the future and address this in our project reviews.
It is important that the operational risk management team is and remains independent of the tender team in order to bring and keep sufficient focus in the assessments we make during the tender process.
Heijmans is agile and can respond adequately to changing circumstances. However, if the organisation is doing well, there is a danger that our vigilance may waver. Should the market deteriorate or change substantially in the future, the pressure on the order book may increase. We are very vigilant about avoiding any increase in our risk appetite, as well as in our overall cost levels, creating potential problems for the future. We therefore also continue to focus on ‘margin over volume’.
Dave Saija
“Since we work in the ground, hygiene is important. I am a stickler for cleanliness and take good care of my guys. Everything has to be spotless. I bring my own cleaning equipment. I clean the inside of the shed every day, so everyone can have a safe meal and a cup of coffee or tea. I also make sure there is a full jerry can of water so people can wash their hands.”