6.26 Financial risks and risk management

General

In the normal course of business, Royal Heijmans N.V. is exposed to various financial risks, including credit, liquidity, market, price and interest-rate risks. This section describes the degree to which these risks manifest themselves, the objectives set regarding the risks and the policy and procedures for measuring and managing them, as well as the management of capital.

The risk policy is focused on the identification and analysis of the risks to which the Group is exposed and the determination of acceptable (credit) limits. The risk policy and systems are assessed on a regular basis and then modified if necessary for changes in market conditions and the operations of the Group.

The objective is to create a disciplined and constructive approach to risk management, with the aid of training, standards and procedures whereby all employees are aware of their roles and responsibilities.

The Audit and Risk Committee periodically reviews the risk management policy and procedures. In addition, the Committee reviews the risk policy used in the light of the risks to which the Group is exposed.

Credit risk

Credit risk is the risk that the Group will be exposed to financial loss if a party (against which the Group has a claim) fails to meet its contractual obligations. Credit risks arise primarily from receivables due from clients and consortium partners. The Group also assess the creditworthiness of suppliers as part of its assessment of the security of supply. The carrying amount of the financial assets subject to credit risk can be specified as follows:

There is no concentration of credit risk in view of the large number of clients and the significant share of private individuals and (semi) public sector authorities.

The assessment of creditworthiness is part of the standard procedure, and involves using company-specific reports produced by rating agencies. Credit risk is mitigated by pre-financing arrangements and payments in instalments. Risks are insured with a credit insurer if considered necessary:

• The credit risk in residential building projects is limited because future residents cannot take possession of their new homes until all obligations have been met. Moreover, the construction phase is pre-financed.

• For commercial property development, construction contracts and infrastructure projects, the Group assesses the creditworthiness of the parties involved and my request additional securities. This is particularly important in the case of turnkey purchases, for which payment is made in arrears. However, business-to-business transactions are usually also pre-financed.

• In the Working and Connecting segments, the Group carries out numerous projects for government bodies, for which the credit risk is considered to be extremely low. Large-scale, integrated projects often involve the formation of consortia. The more specialised the expertise of a consortium partner, the more important that partner’s creditworthiness is to the Group. In some cases, insufficient creditworthiness can lead to exclusion from the consortium, because a financial guarantee does not ensure that the necessary expertise will be retained.

• Cash and cash equivalents are held at various banks that have been assessed for creditworthiness. The credit risk is further limited by concentrating cash in a cash pool as much as possible.

Ageing trade receivables and provision for expected credit losses

Trade receivables are assessed for expected credit losses. The ageing of receivables from invoices past their due date for which no impairment has been applied was as follows:

At year-end 2024, the balance of trade receivables stood at € 179 million (2023: € 196 million). This was the balance of invoices not yet due, invoices due for which no impairment has been applied (see table above) and the provision for expected credit losses on trade receivables (see table below).

The due dates of the other financial assets have not been exceeded.

Provision for expected credit losses from trade receivables 

Trade receivables are presented after the deduction of impairments (expected credit losses). As soon as a significant deterioration in the credit risk of trade receivables is identified on an individual or collective basis, the provision is increased to the expected credit losses over the full term of the receivables in question. This is the case, for example, when a debtor has serious financial problems, does not comply with a repayment arrangement, or shows other observable signs of increased credit risk. The movements in the provision for expected credit losses were as follows:

Liquidity risk

Liquidity risk is the risk that the Group cannot meet its financial obligations at the time it is required to do so. See also note ‘6.22 Interest-bearing loans and other financing liabilities'. The liquidity-risk management assumption is that sufficient liquidity levels will be maintained to meet current and future financial obligations, in both normal and exceptional circumstances, without incurring unacceptable risks and without endangering the reputation of the Group.

Weekly three-month rolling and annual 12-month rolling liquidity forecasts are among the tools used to determine whether the Group has sufficient liquidity available. In addition, the availability of credit, including in the form of headroom available from credit insurers or providers of guarantees, is continuously monitored by regularly making projections of the score in relation to financial covenants and engaging in an active dialogue with all financial stakeholders. Based on this forecast, the Group considers that sufficient liquidity is available to conduct operations and to meet its financial obligations (see table hereafter).

To secure the availability of financial resources for both the long term and the short term, at year-end 2024 Heijmans has access to the following facilities:

• € 177.5 million committed revolving credit facility, with € 30 million of this committed in the form of an overdraft facility (see also section ‘6.22 Interest-bearing loans and other financing liabilities’);

• project financing facilities for property developments; and

• leases of assets.

In order to satisfy clients’ requirements for bank guarantees, the Group has access to guarantee facilities with various institutions. These facilities, insofar as they are not with ABN Amro, ING or Rabobank, are not committed. Every month, the Group draws up a projection of the use of the available bank guarantee facilities, based on current tenders and expectations regarding the discharge of existing bank guarantees. Based on these projections, the Group believes that the present size of the facilities is adequate.

At year-end 2024, the bank guarantee facilities totalled € 290 million (2023: € 276 million) provided by a total of nine parties. In 2024, the overall amount of the facilities was increased by € 15 million with one party. Total use of the facilities declined last year to stand at € 138 million at year-end 2024 (2023: € 147 million, with almost € 0.2 million of this for guarantees relating to the international activities that Heijmans disposed of in 2017. The remainder was exclusively related to guarantees for the Netherlands. The decline in use was largely due to the delivery of a major project in the Connecting segment.

The contractual maturity dates of the financial obligations, including interest payments, were as follows:

Market risk

Market risk is the risk that the income of the Group or the value of financial instruments is adversely affected by changes in market prices, for example, due to movements in exchange rates, interest rates and share prices. The objective of managing market risk is to keep the market risk position within acceptable limits while achieving optimum returns.

To manage market risk, derivatives may be bought and sold, and financial commitments may be undertaken. Transactions of this nature are carried out within established guidelines. As at year-end 2024, the Group’s subsidiaries and joint operations had not contracted any derivative instruments (2023: none).

Price risk

Price risk associated with the purchase of raw materials and consumables as well as with outsourced work is primarily mitigated by making price indexation agreements with clients, or where possible by making price agreements with suppliers at an early stage, mainly in the case of long-term contracts. If necessary, derivatives may be used occasionally to hedge the price risk of procuring raw materials. Over the past years the Group has reduced its focus on large, integrated projects, and such the structure of the order book has become somewhat more short-cyclical. This mitigates inflation risk.

Interest-rate risk

The Group’s interest rate policy is focused on limiting the impact of changes in interest rates on the Group’s results. For the majority of the project financing arrangements, Heijmans opts for fixed interest rates, which provides greater certainty with respect to results from the various projects. With respect to the use of the syndicated loan, this is subject to a floating rate, in the form of a fixed margin plus the one-month Euribor rate (revolving credit facility). The revolving credit facility is primarily used to finance working capital. This is generally not required at the end of the year, so there are no benefits in fixing interest rates for longer periods.

If the interest rate for 2024 had been 2% higher on average on the floating interest-bearing loans, receivables and the average position, the result before tax would have been approximately € 1.0 million higher (2023: approximately € 2.4 million higher). The impact of a 2% difference in interest rates on the Group’s equity (assuming all other variables had remained constant) would have resulted in € 0.8 million higher group equity (2023: € 1.8 million higher group equity). Due to the fact that the average level of cash and cash equivalents was positive, the calculations show that higher interest rates had a positive impact on the result development.

The table below shows the periods after which interest rates for interest-bearing financial assets and financial liabilities are revised:

As at year-end 2023, 39% (2023: 8%) of the interest-bearing gross debt had been negotiated at a fixed rate of interest, and 61% (2023: 92%) at a floating rate. The major change compared with the previous year is due to the repayment of the syndicated loan at a floating interest rate.

The average weighted term to maturity of project financing is 2.5 years (2023: 2.8 years). In recent years, Heijmans has concluded few if any new project financing facilities and has primarily occasionally extended financing arrangements. As a result, the average weighted term to maturity is generally declining.

The interest-bearing loans that were granted and drawn are measured at amortised cost rather than at fair value. The carrying amount of the loans is therefore not affected by changes in interest rates.

Currency risk

The Group’s exposure to currency risk on sales, purchasing and loans is extremely limited, since by far the greater part of the cash flows within the Group are in euros. There are virtually no transactions in another currency.

Fair values

The table below shows the fair values and the carrying amounts of the financial instruments. The fair values are allocated to different levels of the fair-value hierarchy, depending on the inputs used to determine the measurement methods. The levels are defined as follows:

Level 1: quoted (unadjusted) market prices available to the Group on the measurement date, in active markets for identical assets or liabilities.

Level 2: input that is not a quoted market price at level 1 but is obtainable for the asset or liability concerned, either directly (as a price) or indirectly (derived from a price).

Level 3: input for the asset or liability not based on data available in a market (unobservable input).

The Group has no financial assets or liabilities measured at fair value.

Loans and receivables

• *The carrying amount is a reasonable approximation of the fair value.

The above values are based on the present value of future cash flows. The loans with a fixed interest rate are discounted using the yield curve for 31 December 2024, plus the relevant risk mark-up.

All loans with a variable interest rate are assumed to have a fair value equal to their carrying amount. Credit risk has no significant effect on the carrying amount of these loans.

Capital management

The Group’s capital management policy has been designed to achieve a sound capital position with sufficient availability of credit to be able to ensure continuity for stakeholders. A sound long-term capital structure is based on operating with sufficient headroom within both the covenants as the headroom in the syndicated loan. The financial covenants are the leverage ratio, which is net interest-bearing debt after deduction of non-recourse financing divided by EBITDA not exceeding 3, plus an interest cover ratio of at least 5 and a solvency ratio of at least 21% (see also note '6.22 Interest-bearing loans and other financing liabilities’ for a description of the financial ratios in the conditions agreed with the banks).