Annual results 2016: adjustment strategy and new financing agreements
23 February 2017, 07:00
- Revenues 2016 € 1.9 billion (2015: € 2 billion)
- Growth number of homes sold to 1,962 homes (2015: 1,791 homes)
- Significant impact project losses € 90 million, clear improvement risk profile loss-making projects
- Underlying operating result 2016 € 66 million negative (2015: € 5 million negative)
- Net loss € 110 million in 2016 (2015: net loss € 27 million)
- Strategy adjusted: fully focused on Dutch market, tightened focus on core competencies in property development, residential building, non-residential, infrastructure
- Dutch order book at year-end 2016: € 1.9 billion (year-end 2015: € 1.7 billion)
- New agreements with financiers, including extension of financing to 1 July 2019: phased reduction of credit facility to € 122 million
- Solvency ratio approximately 18%, >20% after planned divestment foreign operations
|x 1 € million||H2 2016||H2 2015||2016||2015|
|underlaying operating result**||-59||6||-66||-5|
|result after tax||-98||12||-110||-27|
|earnings per share (in €)||-4.59||-0.56||-5.16||-1.32|
|number of FTE||6.241||6.582||6.241||6.582|
* Unless otherwise noted, the key figures are presented for all operations. In the consolidated income statement (see attached sheets) the results of the continued and discontinued operartions are shown separately
** Underlying operating result is the operating result corrected for operating result joint ventures, write down on property assets, restructuring costs, book result on sale of subsidiaries and other extraordinary items.
Ton Hillen, CEO Heijmans:
“With a loss of € 110 million, we are reporting a dramatic result for 2016. This is largely due to settlements we have agreed and provisions we have taken on a number of loss-making projects. At the same time, the agreement we have reached with the relevant clients regarding these projects have led to a clear improvement in the company’s risk profile going forward. In addition, we were also able to reach agreements with our banking consortium about an extension of the financing agreements through to 1 July 2019. This has secured our financing and safeguards the company’s continuity.
We have also adjusted our strategy, to the effect that we will now focus exclusively on the Dutch market, with a tightened focus on our core competencies in property development, residential building, non-residential and infrastructure. The divestment of our foreign operations is in line with this strategy and will make a significant contribution to the reduction of our debts. In the years ahead, we will focus on returning to profitability, the reduction of our debts and the structural improvement of our financial leverage ratios, with a commercial focus on market segments in which we are strong and where we can realise healthy margins. On top of this, we will be able to build on our solid position in the Dutch residential market and the enormous growth opportunities this offers and a well-filled order book that is in line with our strategy. This is how we will work on a sustainable recovery of our company.”
Key developments second half of 2016
The underlying operating result was exceptionally negative in 2016 and amounted to € 66 million negative (2015: € 5 million negative). The net loss amounted to € 110 million (2015: loss of € 27 million). The largest negative impact on the underlying operating result was caused by a number of loss-making projects Heijmans previously reported on. This primarily refers to the Drachtsterweg Leeuwarden, Energiefabriek Tilburg, RIVM, Wilhelminasluis Zaandam and the N23 Westfrisiaweg projects. Heijmans has in the past period conducted extensive consultations with clients with the aim of minimising the uncertainty regarding these projects. This has led to a number of settlements and provisions related these projects, totalling around € 90 million.
With regard to the N23 Westfrisiaweg project, Heijmans recently reached agreement on 15 February 2017 on the approach, planning and financial settlement of this project. Heijmans took a loss provision of € 32 million on this project in 2016. In the case of the RIVM project, in which Heijmans has a share of 37.5%, it turned out that a new design was required to meet vibration resistance requirements, which led to delays in the project. We expect construction to start in the spring of 2017. The client and the consortium are still discussing the financial consequences. Heijmans took a provision of € 10 million for this project in 2016. The contract for the Energiefabriek Tilburg was terminated as of 1 December 2016, and the client now bears full responsibility for the operation and maintenance of the installation. The total loss on this project in 2016 amounted to € 23 million. Heijmans reached a settlement with its client regarding the Drachtsterweg project in Leeuwarden, as a result of which Heijmans took a loss of € 6 million in 2016. With regard to the Wilhelminasluis project in Zaandam, work has been halted due to a difference of opinion on the design of the lock chamber and arbitration proceedings have been started. Heijmans set aside an additional provision of € 8 million for this project in 2016. In addition to the above-mentioned projects, Heijmans also suffered a number of smaller losses on projects, totalling € 10 million. These projects and the financial settlement of same were all completed in 2016.
As a result of the losses on the loss-making projects, Heijmans would no longer have been able to meet the requirements of its financial bank covenants at year-end 2016. The company therefore initiated proactive and constructive negotiations with its financiers, which have resulted in an extension of its financing agreements to 1 July 2019.
Strategic adjustment with tightened focus
Heijmans has developed a strategic plan for the period 2017 – 2019: Focus, Discipline and Excellence. The aim of this plan is to realise a sustainable recovery of the company and a return to profitability, a debt reduction and a structural strengthening of the company’s financial leverage ratios. Heijmans will implement this adjusted strategy in this coming period.
Heijmans is developing into a company focused on the Netherlands with a tighter focus on core competencies in the segments Property Development, Residential Building, Non-Residential and Infrastructure. The previously announced divestments of the Belgian and German activities are part of this strategy. Heijmans is transforming into a core company with a volume of approximately € 1.5 billion.
The main focus of this strategy will be the selective acquisition of new contracts in property, construction and infrastructure disciplines, in which Heijmans has the requisite expertise, as well as the expansion of Heijmans’ role as director and the development of long-term relationships with clients through services, maintenance and management contracts. Heijmans is focusing on market segments in which the company can deliver real added value, by transferring vision, expertise and direction into tangible results for its clients and their customers. The importance of partnering in large-scale projects will increase in the years to come.
Heijmans will focus strongly on controlling costs to achieve an optimum cost structure appropriate to the new scope of the company. Although there is no question of a large-scale reorganisation, Heijmans will continue to streamline its organisation and reduce overheads. The roll-out of SAP/ERP software, which was launched in 2014 and which we continued to implement in 2016, made a significant contribution to the uniform management of processes, with the aim of realising the targeted business benefits. Heijmans has already published more detailed information on its strategy in the press release on its preliminary annual results, the refinancing and the strategic adjustment on 16 February of this year.
2016 in retrospect
Property Development, Residential Building
In 2016, Heijmans benefited from strong growth in the residential market, which led to a large increase in revenues and results at Property Development. Revenues amounted to € 332 million in 2016 (2015: € 278 million), while the underlying operating result was € 15 million (2015: € 9 million). The number of homes sold increased to 1,962 (2015: 1,791), with 1,019 of these homes sold to private individuals and 943 to investors. The value increase of homes was reflected in the average price including transaction costs (to private buyers, excl. VAT) of the homes sold: this amounted to € 243,000 in 2016 (in 2015: € 229,000).
Residential Building recorded revenues comparable to the previous year of approximately € 296 million (2015: € 295 million). Heijmans is opting for controlled growth in this sector. On the procurement side, the recovering housing market led to mounting pressure from suppliers and subcontractors, both in terms of pricing and availability. Residential Building also wants to maintain a selective focus on projects with healthy margins. Residential Building booked a underlying operating result of € 4 million in 2016 (2015: € 5 million).
In late 2016, Heijmans won a number of new projects for the development and realisation of homes, including 74 homes in Amsterdam’s Spaarndammerbuurt neighbourhood, 95 homes in Son en Breugel and 94 homes in the town of Pijnacker. In December, Heijmans delivered its 1000th Huismerk Home in Leidsche Rijn and completed the transformation of the Wijnhavenkwartier in The Hague.
Non-Residential recorded a decline in revenues in 2016 due to delays in the RIVM project and a cautious policy on the acquisition of large-scale projects: € 315 million (2015: € 421 million). The non-residential new-build market is stabilising in terms of volumes and the number of players in the market remains relatively large, which is resulting in pressure on prices. Non-Residential is maintaining a selective acquisition policy in a number of target markets. The underlying operating result at Non-Residential was below par in 2016 at € 15 million negative (2015: nil), largely due to the strongly negative result from the RIVM project.
The maintenance and management operations, in which technical services play a key role, performed well. In 2016, Heijmans won a number of new contracts, including a multi-year service and maintenance contract for the University of Leiden and a maintenance contract for the European Patent Office in Rijswijk. Heijmans currently has a number of long-term maintenance contracts, including contracts for the Timmerhuis in Rotterdam and a number of ministries in The Hague. The multi-year ‘Hart van Zuid’ area development project in Rotterdam is currently in full swing, and in the project to realise new housing for the Amsterdam Court House, Heijmans has started the demolition work on the old building.
Infra reported a decline in revenues, largely due to the stagnation in production or problems on projects. In addition, over the past year Infra has further tightened its acquisition of new contracts. Revenues amounted to € 621 million in 2016 (2015: € 690 million). Infra recorded a significant negative result in 2016, due to the financial impact of the Energiefabriek Tilburg, Drachtsterweg in Leeuwarden, the N23 Westfrisiaweg and Wilhelminasluis Zaandam projects. The underlying operating result amounted to € 78 million negative (2015: € 26 million negative). The majority of the Dutch Infra activities are performing according to plan, but this performance was more than offset by the loss-making projects.
In late 2016, the Heijmans and Europoles consortium was awarded the preliminary contract for the Wintrack II TenneT project. The project was awarded definitively in February 2017. This project includes the design and realisation of high-voltage masts and foundations along two routes. Also in late 2016, Heijmans completed and delivered the N309-A28 road reconstruction project in Gelderland and the A12 Parallel structure was officially opened.
Via the GO! (Geen Ongevallen) programme, Heijmans continues to focus on safety. Heijmans is targeting safety across the entire chain by also applying the GO! principles to alliances with partners, suppliers and subcontractors. The number of accidents among our own staff and temporary employees continued to decline in 2016, in comparison with 2015. In the past year, we also took steps to implement integrated safety measures in the design stages of projects. The Dutch IF figure for 2016 was 3.6.
‘You share the responsibility, but only one person is liable’Heijmans and M.J. van Riel exchange ideas
Revenues declined in 2016 compared with the previous year to € 1.9 billion (2015: € 2 billion), as a result of Heijmans’ selective acquisition policy and stagnation in the production of a number of projects at Non-residential and Infra. The revenues at Property Development increased, thanks to the growth of the residential market and the strong product range of available homes. Revenues at Residential Building were virtually unchanged. The combined revenues from the Belgian and German operations amounted to a total of € 514 million in 2016 (2015: € 529 million).
The underlying operating result is the operational result adjusted for the operational result from joint ventures, excluding any adjustments for the valuation of real estate or land holdings, restructuring costs and other extraordinary items. In 2016, the underlying operational result amounted to € 66 million negative (2015: operating result € 5 million negative).
The continued growth of the residential market led to a higher underlying operating result at Property Development (2016: € 15 million versus € 9 million in 2015) and a virtually unchanged underlying operating result at Residential Building (2016: € 4 million versus € 5 million in 2015). Residential Building did see an increase in procurement prices at suppliers in the year under review, due to the market growth. This exerted downward pressure on the result. Residential Building operates in a cost-driven market and controlled growth with a clear focus on quality remains important in that market.
Non-residential recorded a underlying operating result of € 15 million negative in 2016, with the results strongly impacted by the RIVM project. Heijmans took a provision of € 10 million on this project. The project was hit by delays due to the fact that a new design was required to fully meet the standard vibration resistance requirements for laboratory spaces. This made it impossible to realise any production in 2016. Lower revenue levels also played a role, as this led to a lower coverage of general overheads.
Heijmans Infra operations in the Netherlands recorded strongly negative results, with a loss of € 78 million in 2016 (2015: loss of € 26 million). The loss was largely due to settlements and provisions on the N23 in Noord-Holland, the Energiefabriek in Tilburg, the Drachtsterweg in the province of Friesland and the Wilhelminasluis in Zaandam projects.
Heijmans’ Dutch group companies recorded an underlying operating result of € 74 million negative in 2016 (2015: € 12 million negative), while its German and Belgian companies recorded a combined positive result of € 20 million (2015: € 15 million) and Heijmans reported corporate/other expenses of € 12 million (2015: € 8 million).
A number of one-off items also had a negative impact on the results for 2016. This included a total of € 19 million in value adjustments on property assets. These pertained to revaluations of land and real estate holdings in the peripheral regions of the Netherlands, where lagging house price movements were outpaced by rising purchasing costs. This and delays in public sector plan developments both had a negative impact on values. In addition, Heijmans suffered a book loss of € 6 million on the previously announced sale of the German company Franki and incurred costs of € 4 million for organisational changes.
Financial income and expenses
The balance of financial income and expenses declined by € 2 million compared to 2015. In 2016, the average interest rate percentage was lower than in the previous year. In addition, in 2015 we recognised a one-off item related to a write-down on an outstanding loan. The average debt utilisation was slightly higher, however, especially in the fourth quarter.
Capital position, net debt and financing
As a result of the losses on the loss-making projects, Heijmans would no longer have met the requirements of its financial bank covenants at year-end 2016. The company therefore initiated proactive and constructive negotiations with its financiers, which have resulted in an extension of its financing agreements to 1 July 2019.
The banking consortium will in the years ahead comprise the four banks ABN Amro, ING, KBC and Rabobank. The core elements of the new agreements are a reduction in the usage of loan facilities and a year’s extension.
The negative results in recent years have resulted in an average increase in the usage of loan facilities. Together with its banks, Heijmans has concluded that it needs to reduce its debt levels to arrive at healthy financial leverage ratios. It was with this goal in mind that Heijmans adjusted its strategic focus to a company concentrated on the Netherlands. The previously mentioned divestment of the Belgian and German activities is in line with this adjusted scope. Heijmans is currently investigating the sale of its German subsidiary Oevermann. Following the planned divestments and the introduction of other measures, solvency ratio will return to above 20%. The proceeds from the divestment will be largely used for debt reduction and as a result the committed credit facility will be reduced in phases to € 122 million as of 30 June 2019. The agreements do not include any additional strengthening of the shareholders’ equity.
With respect to the financial covenants, the agreements stipulate that these will not be tested for Q4 2016 and Q1 2017. With respect to Q2, Q3 and Q4 2017, the parties agreed to minimum levels for EBITDA and solvency. The agreement includes a minimum EBITDA, rising to € 20 million in Q4 2017, and solvency increasing to a minimum 20% in Q4 2017. The existing covenants will once again be applicable from 2018 onwards, which means the Interest Cover ratio must be tested at a minimum level of 4 at the end of every quarter, the Leverage ratio must be tested at a maximum level of 3 at the end of every half-year period and the Average Leverage ratio must be tested at a maximum level of 2.5 at the end of every quarter.
Additional collateral has been agreed with the banks in a number of instances. This pertains to the pledging of the proceeds from the sale of the divestments, as well as a first right of mortgage on land holdings with a total book value of almost € 80 million. The interest rate due to the banks has been raised, but this will return to the current levels when the proposed reduction of the facility is realised.
The net result amounted to € 110 million negative (2015: € 27 million negative). This leads to a result per share of - € 5.16.
The order book for the Dutch operations amounted to € 1.9 billion at year-end 2016 (year-end 2015: € 1.7 billion). This does not include the Wintrack II and Zuidasdok projects, which were won in early 2017. Around 62% of the total forecast revenues for 2017 are currently in the order book (2016: 67%).
In view of the development of both operating result and net result for 2016, Heijmans has decided that no dividend will be paid on (depositary receipts for) ordinary shares for the financial year 2016.
The secured financing has created a solid foundation for the continuity of Heijmans. The financial delimitation of the loss-making projects, the divestments of Franki and the Belgian activities and the measures introduced to streamline the organisation and tighten its focus into a Dutch core company are key steps on the road to the company’s recovery, with healthy financial leverage ratios and healthy results. Heijmans’ focus in 2017 will be on the recovery of profitability, the continued implementation of the adjusted strategy and the realisation of the proposed debt reduction, as well as the repositioning of the Dutch core company. Heijmans has a well-filled order book with contracts that are in line with the company’s strategic parameters.