Half year results 2014: moderate first half year, growth order book

August 20, 2014

Highlights

  • Net loss of € 8 million, (H1 2013 loss of € 5 million);
  • Revenues first half of 2014 at € 823 million (€ 912 million in H1 2013);
  • Order book increases across the board: € 2.3 billion at end-June 2014 vs. € 1.6 billion at end-2013;
  • Infra The Netherlands reports negative result, Infra Belgium improved from year-earlier period;
  • Number of homes sold in first half of 2014 increased to 482 (386 homes in H1 2013); share of homes sold to private buyers increased to 244 (172 homes in H1 2013);
  • Net debt at € 99 million as per end-June 2014, compared with € 121 million end-June 2013, solvency 30%

Key figures *

x 1 € million H1 2014 H1 2013 2013
revenues 823 912 2.001
underlaying operating result -7 2 23
operating result -12 -4 12
result after tax -8 -5 2
earnings per share (in €) -0,43 -0,27 0,10
order book 2.281 1.826 1.643
net debt 99 121 66
number of FTE 7.118 7.611 7.361

* Figures drawn up taking into account new IFRS 11 rules. Comparable figures have also been adjusted. See section 7.3 for explanation.

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Bert van der Els, CEO Heijmans:

“I am not satisfied with our result. It simply has to improve. We believe that the strong growth in our order book right across the board and the increasingly stronger recovery in the residential market offer a clear perspective for improvements. We will continue with our improve the core program, which focuses on purchasing, tender and project management, will certainly help us to achieve this. We are fully committed to this course and I expect the operating result to improve the coming periods.

The acquisition of prestigious and integrated projects, such as the N23 and Eurojust, plus the PPP projects A9, RIVM and A12 demonstrate the quality of our business and the opportunities for the future. We will be devoting a great deal of time to the preparation for these projects. The recruitment of the chief technology officer will accelerate our innovation portfolio even further. As a centrally managed organisation, we focus on projects in which this strength creates added value for our clients.”

We will continue with our improve the core program, which focuses on purchasing, tender and project management.

Residential

There is a significant recovery in the housing market. The decrease in mortgage interest rates and the focus of housing corporations on their core business have boosted the position of (new-build) private homes for sale as well as the liberalised sector rental homes. In the first half of 2014, Heijmans sold 482 homes, compared to 386 in the same period of last year. Of these, 244 were sold to private buyers, up from 172 in the first half of 2013. This offers perspective for the second half of 2014 and 2015. Due to historically low production volumes, the first half of 2014 was, as expected, a very difficult period. This resulted in a loss of € 4 million at Property Development and Residential Building in the first half of 2014, compared with a loss of € 8 million in the same period of 2013. On the other hand, Property Development and Residential Building realised a significant number of Huismerk (private label) homes in the past six months. This standardised and competitively priced concept is therefore proving an effective response to the current market conditions. The past half year Property Development began development of the Wijnhaven area in The Hague and the sale of the Fenix Loodsen lofts in Rotterdam. In addition, Property Development not only put a relatively large number of projects such as these onto the market, but is also preparing the sale of a number of other projects. This will enable the company to respond quickly to the recovery in the market. The order book at both Property Development and Residential Building increased considerably due to the market recovery.

Non-Residential

Non-Residential had a solid period with a modestly positive operating result in the first half of 2014. The introduction of project phasing and tight risk management is bearing fruit. The integrated approach, combining technical services and construction in a single organisation, gives this business a unique market proposition. This resulted in a number of prestigious projects in the past six months, such as the renovation and new-build of De Resident complex in The Hague, as well as the new premises for the national public health and environment body RIVM and Eurojust. The project Datacenters in Apeldoorn was completed the past half year.The Utrecht music centre TivoliVredenburg, comprising five concert halls, was opened by King Willem Alexander in early July. In Belgium, Heijmans Construction, together with the Willemen Groep, will in the near future start on the radical renovation and new build of the ‘Elisabethzaal’ concert halls in the centre of Antwerp. German Oevermann’s Hochbau activities acquired the contract for the construction of a shopping centre in Dorsten. The gross surface of the new shopping centre is 45.000 m2 and a parking garage.

Infra

With a loss of € 5 million, the result was well below the result reported in the same period of last year (first half 2013: a positive result of € 11 million). Due to stiff competition surrounding regional projects on the one hand and little margin potential in large projects on the other hand, the results are significantly lower than the first half year of 2013. Our persistent emphasis on continuous improvement both commercially as in the execution of projects and services at regional works, should lead to improved results the coming period. Furthermore, the order book is well filled following the acquisition of projects such as the N23, A9, A12 road projects and the new public transport hub at Schiphol Airport, as well as the Bioscience Park in Leiden. Roads and Civil were involved in some prominent projects in the past six months, such as the temporary traffic measures related to the international Nuclear Summit in The Hague, temporary parking sites for government planes at Schiphol Airport for that same summit and the parking arrangements for the hockey world championships in The Hague. Heijmans was also responsible for the innovative hockey field for this global sports event in The Hague.

The Belgian Infra operations performed extremely well in the first half of the year. In Belgium, Heijmans is involved in a number of projects, including the tunnel installations and the control system for the Liefkenshoek rail link in Antwerp. The German infra activities, consisting of the companies Franki and Oevermann performed as expected the past half year despite the heavy competition.

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Key developments

Heijmans’ strategy is geared towards continuous improvement of its core activities via purchase, tender and project management, based on the centralised management of operating companies and of projects. This enables Heijmans to continuously raise quality and innovation levels right across the board. Examples such as the Huismerk homes and the mobile ONE residence, as well as PPP (Public-Private Partnership) projects show that Heijmans is making progress on this front. In mid-2013, Heijmans set up a joint venture with the British firm 3i Investment plc to finance these types of projects. This is a response to the growth opportunities in the DBFMO market. The order book also increased thanks to the acquisition of projects of this type. This puts us in a solid starting position for the second half of 2014 and certainly also for 2015 and 2016.

Revenues

Revenues in the first half of the year fell to € 823 million (€ 912 million in the first half of 2013). This was largely due to the impact of the troubled housing market in recent years and the completion of some large-scale projects in Non-Residential. The recovery in the housing market and the acquisition of a number of contracts in the second quarter create perspective for growth in the future.

Table 2: Breakdown operating result per sector

result after tax -8 -5 2
x € 1 million H1 2014 H1 2013 2013
revenues 823 912 2.001
underlying operating result -7 2 23
correction operating result joint ventures -2 -2 -1
write down on property assets -1 0 -7
restructuring costs -2 -4 -7
exceptional release pension provision 0 0 4
operating result -12 -4 12
financial results 1 -1 -4
share of profit of joint ventures and associates 1 1 0
result before tax -10 -4 8
income tax result 2 -1 -6

Table 3: Underlying operating result

total underlying operating result -7 2 23
x €1 million H1 2014 H1 2013 2013
Netherlands:
property development -1 -3 1
residential -3 -5 -3
non-residential 1 1 2
roads & civil -5 11 16
-8 4 16
foreign:
Belgium 8 5 13
Germany 0 0 6
8 5 19
corporate / other -7 -7 -12

Operating result

Heijmans reported an underlying operating loss of € 7 million, compared with an operating profit of € 2 million in the first half of 2013, partly due to the moderate results from the Dutch infra activities. The company booked a total operating loss € 12 million in the first half of 2014, compared with an operating loss of € 4 million in the same period of last year. Roads and Civil in the Netherlands recorded an operating loss in the first half of the year. This had a negative impact on the group’s operating results. The results in Belgium and Germany remained at a healthy level. Non-Residential recorded a solid operating profit of € 1 million. Property Development and Residential Building improved their operating result, but partly due to the market conditions in recent years this still came in at a loss of € 4 million, compared with a loss of € 8 million in the year-earlier period. Restructuring costs of € 2 million are mainly related to the closure of a number of German offices of Oevermann Road Construction. The value adjustments of € 1 million relate to some property assets.

Financial income and expenses

Financial income came in at € 1 million in the first half of 2014, compared with expenses of € 1 million in the first half of 2013. The book profit of € 3 million on the sale of Heijmans’ shares in the PPP project Brabo I N.V. has been reported as financial income.

Net result

Heijmans recorded a net loss of € 8 million in the first half of 2014, compared with a loss of € 5 million in the first half of 2013. This translates into a loss per share after taxes of € 0.43.

Net debt and capital position

The net debt position per June 30, was € 99 million being € 22 million lower than the position as per the end of June 2013. The sale of the equity stake in the PPP project Brabo 1 and the reduction of a number of property holdings mean that Heijmans has already realised its target for disinvestment for the full year 2014, as outlined in August of 2013. This has also bolstered the company’s capital position. The solvency ratio stood at 30% at end-June 2014, compared with 32% at end-2013, both on the basis of IFRS 11.

Effect IFRS 11

Per 1 January 2014 the new IFRS 11 directives came in to force. As a result, joint ventures in which Heijmans participates are consolidated differently. This leads to a decrease of the net debt by € 80 million and land bank by approximately € 100. Under the new directives a number of Property Development joint ventures are not proportionally consolidated, but are incorporated based on the “equity-method” (in one post on the balance sheet). Yearly revenues decrease by approximately € 50 million. The solvency rate increases by approximately 3% due to the decrease of the balance sheet total. The underlying result does not change, because the effect is corrected for IFRS 11. The net results remains unchanged.

Order book

With € 2.3 billion at the end of June 2014, the order book was considerably higher than the € 1.6 billion recorded at year-end 2013.

Miscellaneous

The General Meeting of Shareholders of 16 April last authorised the Supervisory Board to appoint the external auditor. The accountancy firm EY has since been appointed and the process of transition to a new auditor was smooth and has now been completed.

Outlook

The recovery in the housing market continued over the past six months and Heijmans has a well-filled order book. This offers perspective for growth in the coming months and 2015-2016. We will continue to devote attention to working capital management and a reduction of the capital utilisation in 2014. The year 2014 will also be a year in which the years-long crisis will have a significant impact on revenues and profit. In view of the interim results we are nevertheless confident that we will close the year with a positive operating result.

Heijmans will publish a trading update before the opening of the stock market on 5 November of this year.

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