The accounting information in the financial statements is partly based on estimates and assumptions. The Group makes these estimates and makes assumptions about future developments, based on factors such as experience and expectations about future events that may reasonably be expected to occur given the current state of affairs. These estimates and assumptions are continually reassessed.
Revisions of estimates and assumptions, or differences between estimates and assumptions and actual outcomes, may lead to material adjustments to the carrying amounts of assets and liabilities.
Supplementary to the estimates already described in the accounting policies (section 5) and the explanatory notes (6.1 to 6.29), the key elements of estimation uncertainty are explained below.
Macro-economic developments
The current economic climate is characterised by a great deal of uncertainty and is a result of high inflation, increased interest rates, geopolitical risks and the remaining consequences of the pandemic.
In the past year, purchase costs in the construction sector have risen across the board and the availability of materials and labour has been under pressure. Energy and partly-finished goods in particular are substantially more expensive than in the previous year. The Group is, therefore, not accepting large-scale or long-term work without arrangements on indexation. In 2023, the Group succeeded in passing on higher purchase prices largely through indexation arrangements passed on in the selling prices of our products and services.
Until the acquisition of Van Wanrooij, the Group had a positive net cash position. As a result, higher interest rates had a positive impact on the balance of net interest income and expenses.
Impairment test for goodwill
Higher interest rates lead to an increase in the discount rate (WACC) used in the annual impairment test for goodwill (see note 6.12 Intangible assets). Given the considerable margin between the carrying amount and the value in use of the relevant cash-generating units, which is only relevant for Building & Technology and Infra (it is not yet known for Van Wanrooij), there is only a very limited risk of a future write-down as a result of further interest rate increases. (see note 6.12 Intangible assets)
The Executive Board constantly monitors the effects of macro-economic developments. The outlook for the Group in the years ahead is good, due among other things to the orders on the books (which are of a good quality and have a limited risk profile) and the headroom afforded by the financing facilities.
Nitrogen problem (PAS)
The nitrogen problem had only a limited effect on the Group’s financial results in 2023. It created delays in tenders for large infrastructure projects. The delays in carrying out our projects are currently limited. The possible effects of delays in issuing permits are monitored constantly. The prospects for the Group in the years ahead are good, given the orders on the books (which are of a good quality and have a limited risk profile) and the leeway afforded by the financing facilities among other factors.
Climate matters
Climate change brings both risks and opportunities for the Group. These may have consequences for the medium-term forecasts that underlie the measurement of assets.
Appendix 11.6.10 to the annual report lists the opportunities and risks related to climate change. This shows that the opportunities are greater than the risks. The Group does not see any reason to adjust its medium-term projections downwards.
The considerations for each asset class are as follows (in the order they appear in the Consolidated statement of financial position):
Property, plant and equipment
There is a limited likelihood of a write-down because of climate-related risks. Property, plant and equipment comprises relatively new material that meets environmental standards and capital expenditure on a timber frame house manufacturing facility (industrial-scale building). Heijmans also has older material with a relatively low carrying amount. It may be that the older material can be used less in due course. This is the case, for example, for older lorries with excessive greenhouse gas emissions. There is a plan to replace this equipment with cleaner equipment. There is a second-hand market for the older material (at least for the time being), in particular in developing and underdeveloped countries, which means that the current residual values can often still be realised. In addition, older material that cannot, for example, be used in town centres may still be used outside these areas.
Right-of-use assets
There is a limited impact of climate-related risks on the measurement due to the short-term nature of the leases.
Intangible assets
As the opportunities are greater than the risks (see appendix 11.6.10 to the annual report) for all Heijmans segments (including the Building & Technology and Infra cash-generating units to which the intangible assets are allocated), climate-related risks do not lead to a greater risk of a write-down.
Joint ventures and associates
These mainly concern joint ventures and associates holding land positions. All land positions are in the Netherlands. There is continuing high demand for housing and consequently also for land on which to build them. In the very long term there is a risk that land could become unusable because of flooding. The Group is confident that, as a prosperous country, the Netherlands will take measures against this and there is still enough time to do this. There is a limited likelihood of a write-down of joint ventures and associates holding land because of the impact of climate-related risks.
Joint ventures and associates includes the 50% holding in AsfaltNu. It is not expected that the demand for roads will decline over the long term. There is no more environmentally friendly alternative for asphalt currently available. The requirements on greenhouse gas emissions and other hazardous materials are expected to increase and so in due course it may no longer be possible to use existing asphalt manufacturing plants without further capital expenditure in cleaner solutions. There is a medium likelihood of a write-down of the holding in AsfaltNu because of the impact of climate-related risks.
Loans granted to joint ventures
Loans granted to joint ventures consist primarily of loans to joint ventures holding land positions. As explained above, there is a limited likelihood of a write-down of those participating interests as a result of climate-related risks and so the risk to loans to those participating interests is also limited.
Deferred tax assets
There is a modest likelihood of a write-down because of the impact of climate-related risks in view of the short realisation period.
Strategic land positions
All land positions are in the Netherlands. There is continuing high demand for housing and consequently also for land on which to build them. In the very long term there is a risk that land could become unusable because of flooding. The Group is confident that, as a prosperous country, the Netherlands will take measures against this and there is still enough time to do this. There is a limited likelihood of a write-down of joint ventures and associates holding land because of the impact of climate-related risks.
Other inventories
Other inventories mainly concerns residential property in preparation and under construction. There is a modest likelihood of a write-down because of the impact of climate-related risks in view of the short realisation period.
Work in progress assets
There is a modest likelihood of a write-down because of the impact of climate-related risks in view of the short realisation. Specific climate-related targets have been agreed with the principal for certain projects. In some cases these are difficult to achieve because of the limited supply of low-emission materials and this may incur penalties. Where necessary, these have already been discounted in the measurement.
Trade and other receivables
By definition, there is a modest likelihood of a write-down because of the impact of climate-related risks in view of the very short realisation period.
Measurement of projects
For more information on the key assumptions used in the measurement of projects, see note 6.17, Work in progress.
Financing
Note 6.22 discloses the conditions attached to the financing in greater detail. An important condition involves satisfying the banking covenant ratios, specifically the interest cover ratio, the leverage ratio and the solvency ratio. Proper management of project risks (see above) is crucial to meeting the ratios. The same applies to the achievement of the 2024 business plan and longer-term projection.
Pensions
The key actuarial assumptions for the calculation of the pension obligations are outlined in note 6.23. There is an increased risk that the Group will be required to make additional contributions to the insured schemes that follow the indexation of the Pension Fund for the Construction Industry (Bouwnijverheid). Heijmans will not make any major contributions in 2024, due to the fact that the pension fund for the construction industry (bpfBOUW) has decided not to index pensions this year. It is possible that further contributions may be required in the years after 2024.
Deferred tax assets
For more information on the key assumptions used in the measurement of deferred tax assets, refer to note 6.15 Deferred tax assets and liabilities.
Strategic land holdings
For more information on the key assumptions used in the measurement of the strategic land holdings, refer to note 6.16 Inventories.
Intangible assets
For the main principles used in the annual determination of the recoverable amount of intangible assets, see note 6.12 Intangible assets.
Business combinations
As part of the acquisition, a purchase price allocation (PPA) must be carried out in accordance with IFRS, in which the total transaction sum must be allocated to the assets and liabilities acquired. These are then recognised at market value (fair value accounting) and the difference between the price paid and the net asset value of the assets and liabilities at market value is recognised as goodwill. As permitted under IFRS 3 'Business Combinations', the fair value of the identifiable assets and liabilities acquired has been presented on a provisional basis. An independent professional expert performed the preliminary fair value measurements.