Full year results: poor 2nd half year 2014, order book and housing market offer good prospects
26 February 2015, 06:30
'Challenging market requires continuous improvement and innovation'
- Underlying operating result: € 12 million negative (2013: operating result of € 23 million positive); revenues decrease to € 1.9 billion (2013: € 2.0 billion);
- Net result for 2014 € 47 million negative after write down on property assets and reorganisation costs (2013: net profit of € 2 million);
- Good results from Belgian activities. Property Development and Residential Building show improved result. Disappointing result at Roads and Civil (Infra Netherlands) partly due to unexpected negative outcome in arbitration procedure; except for arbitration case results in line with trading update Q3 2014;
- Reorganisations at Non-Residential, Civil and Oevermann on schedule, 350 jobs involved;
- Number of homes sold up 25% (2014: 1,347, from 1,082 in 2013);
- Order book at year-end 2014 up strongly at around € 2.3 billion (€ 1.6 billion at year-end 2013); strong order intake in PPP and infra projects;
- Solvency solid at 27%.
|x 1 € million||H2 2014||H1 2014||2014||2013*|
|Underlying operating result**||-5||-7||-12||23|
|Earnings per share (in €)||-2,01||-0,43||-2,44||0,10|
|Number of FTE||7.034||7.118||7.034||7.361|
* After adjustment due to change in accounting policy for joint arrangements.
** Underlying operating result corrected for operating result joint ventures, write down on property assets, restructuring costs, extraordinary pension income and extraordinary items.
Bert van der Els (CEO)
“We closed 2014 with a negative result, despite strong growth in the order book and a recovery in the housing market. An unexpected ruling in an arbitration case relating to Energiefabriek Tilburg on 30 December last year had a substantial negative impact on our results. Disappointing results at the Infra activities in the Netherlands put downward pressure on our margin and results. Nevertheless, there is comfort for the future, which is also demonstrated by the additional agreement made with our banks in the past few weeks concerning the financial covenants as per mid-2015.
As previously announced, we are introducing additional measures on top of the improvement measures initiated in 2014, to improve project results at Infra in the Netherlands. In the second half of 2014, we saw the recovery in the housing market leading to an increase in production. Our investments in inner-city developments and process improvements at Property Development and Residential Building are starting to bear fruit.
We saw a strong decline in revenues at Non-Residential, which is late-cyclical due to the technical installation activities. Therefore for are implementing significant adjustments to the organisation. Our financial position remains solid, with a solvency ratio of 27% and a year-end balance sheet without recourse debt. Furthermore, our innovations, including Heijmans ONE, Hydrofit and Smart Highway, are generating interest around the world and offer ample opportunities for the future. I am convinced that our strategy of targeting improvement and innovation will have a clear impact on our performance in 2015. Barring unforeseen circumstances, we expect to realise a significant improvement of the underlying operating result in 2015. Due to the measures we have introduced, our healthy order book and the recovering housing market, this should be possible.”
Key developments second half 2014
The housing market is showing signs of clear recovery, consumer confidence increased slightly and mortgage interest rates are at historic lows, all of which have a positive impact on the market. The government policy that came into effect in the autumn of 2012 seems to be working; the measures against so-called ‘scheefwonen’, where people remain in cheap social housing despite high incomes, combined with the further reduction of the mortgage debt is boosting market forces in every segment of the housing market. This could lead to further recovery in the market, despite the tighter regulations with regard to loan-to-value ratios. Heijmans realised a greater number of homes sold in the year under review (2014: 1,347 homes, versus 1,082 in 2013) with a greater proportion of sales to private buyers (711 or 53% in 2014 versus 437 or 40% in 2013). Heijmans sold 670 homes in the fourth quarter.
Heijmans has seized the prospect of the recovering market to develop a much faster time-to-market system for concept homes. This way, the past year more than 500 Heijmans Huismerk homes have been developed and are being realised, in locations such as Waalwijk and Den Dungen. With the launch of the moveable Heijmans ONE home last autumn, Heijmans is creating an innovative link between the shortage of high-quality temporary rental homes and vacant areas.
The order book at both Property Development and Residential Building continued to increase in the second half of 2014, partly due to the acquisition of projects such as the Parool tower/ Trouw building in Amsterdam and the Kooiplein in Leiden. In addition, the fourth quarter saw the start construction on numerous new projects, including Eemskwartier in Groningen, Hooghkamer in Voorhout and Ons Huuske in Apeldoorn. Heijmans also launched a number of projects in Belgium, including the realisation of the l’Ensemble Immobilier Villa Urbana apartment complex in Evere. In Germany, last autumn Oevermann began preparations for the construction of a new residential area in the former Winkhaus site in Münster. Heijmans signed the contract for this project and started construction in early 2015.
Revenues at Non-Residential declined substantially in 2014, largely due to the late-cyclical nature of the technical installation activities. The management of large projects continued to improve but the margins on these projects are still below target, partly due to market conditions. Non-Residential also noted a shift in demand. Larger, often integrated projects demanded a greater design and engineering component, which requires a different organisational profile. These developments have resulted in organisational adjustments, which will result in the loss of approximately 230 jobs. The adjustments are necessary to make Non-Residential profitable in the near future.
In December 2014, Non-Residential delivered the National Military Museum in Soesterberg. This museum attracted more than 100,000 visitors in six weeks, which exceeded expectations. In addition to being the builder of this project, Heijmans is also the management, maintenance and service partner for the museum for the next 25 years. As of 2014, Non-Residential provides the management and maintenance for the Meander Medical Centre in Amersfoort, a project that was delivered in 2013. In the field of installation services, Non-Residential is responsible for projects including the maintenance of the Persgroep premises in Amsterdam, the Ministry of Security and Justice and the Ministry of Home Affairs in The Hague. The latter project covers the management and maintenance of the installations in a total of 130,000 m2 of buildings for a period of 18 years.
The results of Infra Netherlands (Roads and Civil) came under considerable pressure in 2014, for a variety of reasons. First of all, it is proving difficult to convert our strategy of margin over volume to a market with surplus capacity. Based on the latest insights, opportunities and threats were insufficiently valued in some bids, which put pressure on margins. In addition, the completion of optimisations planned in tenders is requiring additional design and engineering costs. Combined with the developments related to the Energiefabriek Tilburg project, these factors resulted in a serious operating loss in 2014.
We had already introduced several improvement measures in 2014 and initiated additional measures in the final months of the year. In concrete terms, this relates to the following issues; a differentiated ‘estimation’ of design (management) costs, adapting the management of design and preparation processes, improving contract management in combination with the professionalisation of the cooperation with clients, tight management and documentation of go/no-go moments and greater attention from the Executive Board for projects in the start-up phase. In addition, we have decided to put Roads and Civil under a single centralised management, which will allow us to enhance the uniformity of project management. This will also enable us to further optimise a number of support processes based on the new ERP platform that came into operation for all of Infra in the Netherlands in early February.
On 30 December 2014, Heijmans Civil was confronted with a negative arbitration ruling in an appeal case related to the Energiefabriek Tilburg project. The arbitration procedure has a strong impact on the results of Infra in the Netherlands. Heijmans recognised the negative financial impact directly related to the case – amounting to € 9 million - in the results for the second half of 2014. The project will have a total negative impact of € 11 million in 2014. In view of the complex nature of the issue and the disproportionate financial outcome of the procedure, Heijmans continues to investigate legal options to reduce the financial damage to the company.
The Belgian activities delivered a significant contribution to results, partly due to a strong project portfolio and a good performance on the Liefkenshoekspoorverbinding project. Similar to the Dutch market, the German market is suffering from declining volumes. Heijmans German subsidiary Oevermann closed some branches in anticipation of this decline. This will result in the reduction of approximately 100 jobs. Oevermann’s subsidiary Hochbau acquired the contract to realise a major shopping centre in Dorsten. Last year, Franki began several projects for E.ON and Unilever. And Franki is participating in the execution of various Dutch projects, such as the A4, the N23, the Eurojust basement parking facility and the St. Jan underground parking garage in Den Bosch.
In line with the Q3 trading update, the extra work in the design and engineering phase of several complex Infra projects resulted in an operating loss. During the year the order book grew significantly to € 2.3 billion as per year-end 2014, compared with € 1.6 billion at year-end 2013. The underlying operating result amounted to a loss of € 5 million in the second half of 2014, compared with an operating profit of € 21 million positive in the second half of 2013. The solvency ratio remained solid at 27%.
Key developments 2014
Revenues declined slightly across the board in the year under review, to a level of € 1.9 billion. Especially Non-Residential saw a particularly heavy decline in revenues (2014: € 388 million, versus € 466 million in 2013). Other activities managed to keep revenues stable, or even booked an increase. This was especially true for Property Development, which increased revenues by 15% last year. The Dutch and German Infra markets remain under strong pressure, which is leading to overcapacity and pressure on margins. The recovery in the residential market in the Netherlands continued last year and Heijmans saw the number of homes sold increase by almost 25% to 1,347 in 2014. In 2013, Heijmans joined forces with 3i Investments plc to facilitate growth in the PPP market. Last year, Heijmans won three PPP project, including the A9 and A12 Veenendaal – Ede – Grijsoord motorway projects, and is in the running for another three PPP projects.
Heijmans’ strategy is focused on continuous improvement of its core activities and processes by streamlining purchasing, commerce, tender and project management, as well as renewal through the development of new markets via promising innovations and concepts. To back up this strategy more effectively, in 2014 Heijmans appointed a Chief Technology Officer and a Chief Commercial Officer.
Safety and sustainability are important themes at Heijmans and they are integrated in the company’s business operations. In 2014, Heijmans reported an injury frequency rate of 5.6 (number of injuries resulting in absenteeism of at least one day per million working hours. In 2013, this figure stood at 6.1). Heijmans CO2-emissions decreased by 13% to 48,995 tonnes in 2014. You will find more detailed information in the integrated annual report.