ENP Newswire - 25 August 2014
Release date- 22082014 - Nico de Vries, Chairman of the Executive Board of Royal BAM Group: 'The results for the first half of 2014 show a mixed performance.
In our two operational sectors, we continue to work through orders booked under very difficult market conditions - especially in the Netherlands. The two Civil engineering projects with major losses which we announced on 7 July are stable; other projects delivered strong results, supporting the overall sector result for the first half.
In our two investment sectors, the good momentum in the property divestment programme continued, with successful transactions in the Netherlands, Belgium and the UK. In the Dutch residential new home market, the green shoots are translating into encouraging growth in our homes sold, which will over time feed in to our residential construction activities. In PPP we won two new projects, we strengthened our joint venture agreement with PGGM, and our bid pipeline is encouraging, I confirm the scope of the improvement actions we announced on 7 July. Some initiatives in cost reduction and working capital management are underway; others are still in the preparation phase, which will be completed early in October.
I have taken the decision to retire from the Executive Board with effect from 1 October. This will allow my successor Rob van Wingerden to take complete responsibility for the actions to improve performance and lead the next phase in BAM's development. I thank all my colleagues at BAM for their support and contributions in the past four years.'
First half year 2014 results and order book
Revenue of EUR3,382 million was up by EUR150 million (5%) compared to the first half of 2013. This was mainly attributable to the Property sector, due to the divestment of commercial properties. The total result of the sectors was EUR4 million, down from EUR11 million last year.
The result at Civil engineering was sharply lower, due to the combined losses of EUR68 million on two projects as announced on 7 July 2014, which were mostly offset by strong results on some other projects. There was a positive result in Property in the first half of 2014 after a loss in first half of 2013.
Looking at the results by geography, the losses in the UK and Germany in the first half of 2014 mainly related to the two projects mentioned above. There was also a loss in the Netherlands, predominantly due to the Construction and M&E services activities. There were strong results in Belgium and at BAM International.
Total restructuring costs included in the sector results for the first half of 2014 were EUR4.5 million (first half of 2013: EUR1 million). The total order book closed at EUR10.7 billion on 30 June 2014, up from EUR10 billion at year-end 2013. This growth was driven by the operational sectors in the Netherlands and the UK, as well as in PPP. The order book in Belgium fell, mainly reflecting the progress on one large project and low order intake.
The strengthening of the pound versus the euro during the first half of 2014 had a positive impact on the revenue and closing order book as reported in euros.
In the Construction and M&E services sector, revenue in the Netherlands was down by 16% compared to the first half 2013. This was partly offset by increased revenues in Germany, the UK and Belgium. The loss of EUR6.8 million for the sector in the first half of 2014 was attributable to the Netherlands, specifically to older orders booked when market conditions were at their worst and before the introduction of improved tendering procedures.
The fall in revenue in the Netherlands partly reflected lower order intake in the second half of 2013; in the first half of 2014, good new order intake meant the book to bill ratio rose. The construction and M&E services order books in Belgium and Germany fell due to order phasing; the UK order book grew by 15%, part of which related to foreign exchange movements.
In Civil engineering, the growth in revenue by 4% to EUR1,862 million was mainly due to the UK and, to a lesser extent, Ireland. Revenues dipped in Germany due to completion of some large projects and at BAM International because of work phasing.
The total loss for the first half of 2014 of EUR19.2 million included losses of EUR68 million related to the two projects - one in Germany and one in the UK - announced on 7 July 2014. This was mostly offset by positive results on other projects. Because of these two projects, the German and UK civil engineering activities were loss-making in the first half of 2014. There was also a small loss in the Netherlands.
Belgium, Ireland and BAM International recorded healthy positive margins. BAM has taken effective actions to ensure these projects are stable and will be delivered on schedule. The total order book for the Civil engineering sector grew by 7% to EUR5.4 billion. In the Netherlands, as in Construction and M&E services, strong new order intake in the first half of 2014 led to a positive book to bill ratio. There was also strong growth in the UK order book, which partly reflected the appreciation of the pound versus the euro during the period.
In Property, BAM made a good result of EUR 14.7 million (first half of 2013: loss of EUR9.7 million). The main driver was the sales of commercial properties. In addition to the successful divestments in Belgium in the first quarter, BAM concluded the sale of the Capgemini head office in the Netherlands and some smaller offices in the UK. Total gross proceeds of divestments were EUR112 million. Compared to a year ago, BAM is experiencing better conditions in rental and investment markets for commercial property, especially in the UK.
The residential market in the Netherlands is showing some green shoots, though activity is still well below pre-crisis levels. BAM sold 936 homes from its own development projects in the first six months of the year (first half 2013: 531 homes) in the Netherlands.
Total investment in the stock of property of EUR941 million at 30 June 2014 was EUR87 million lower compared to 31 December 2013. Within this, investments in the Netherlands amount to EUR733 million. The Dutch property portfolio at the end of the first half of 2014 included stock of 116 completed but unsold homes, 363 unsold homes still under construction, and approximately 30,800 m2 of finished but unlet commercial property.
These investments are financed in part by recourse and non-recourse project-related property loans. As at 30 June 2014, the recourse property loans stood at EUR73 million (year-end 2013: EUR71 million) and the non-recourse property loans at EUR175 million (year-end 2013: EUR271 million). BAM PPP had a strong first half of 2014, with revenue in line with last year and a positive result of EUR13.7 million. In total, five projects were transferred to the joint venture with PGGM.
As announced in June, PGGM is increasing its commitment to the joint venture by EUR100 million. This brings the total combined committed funding to EUR425 million. It is the intention of both parties to continue to monitor the utilization of the additional funding and further increase the commitment when required. The growth in the PPP order book in the first half of 2014 reflected the winning of two new projects.
Net cash result in the first half year of 2014 was impacted by the low results and the cash outflow of the restructuring provisions taken in 2013. The lower net investments in tangible fixed assets was due to significant lower investments especially in civil engineering equipment across the company in combination with some divestments of equipment.
The movement in working capital for the operational sectors in the first half of 2014 was significantly higher compared to last year. This is mainly due to the cash outflow on the handful of major loss making projects as reported in August 2013. As a consequence of this, working capital efficiency (defined as period end working capital as a percentage of rolling four quarters revenue) was negatively impacted.
The cash flow in Property for the first half of 2014 was positive as a result of successful divestments in the Netherlands, Belgium and the UK. The cash inflow for BAM was reduced by the redemption of the loans on all properties.
The positive PPP cash flow in the first half of 2014 was driven by the transfer of projects to the joint venture with PGGM. The cash inflow was significantly higher compared to the first half year of 2013 due to early investment of equity during construction in the first half of 2013. Other changes in working capital are stable compared to the first half year of 2013. Due to the nature of the items there will be an improvement in the second half year of 2014.
The recourse net debt increased by EUR348 million in the first half of 2014 (first half of 2013: EUR378 million). This was caused mainly by seasonality, the cash outflow on the handful of loss making projects as reported in August 2013 and the negative net cash result for the first half of 2014. As in previous years, the recourse net debt position is expected to improve again in the fourth quarter of the year.
The capital ratio improved by 1.1% points to 20.9% due to a lower balance sheet total. The balance sheet was positively affected by the divestment of property and the transfer of PPP projects to the joint venture with PGGM during the first half of 2014. The Group was within the limits of all its banking covenants as at 30 June 2014; the recourse leverage ratio was 1.42, the recourse interest coverage ratio 7.36 and the recourse solvency ratio 30%.
Actions to improve operational and financial performance
On 7 July, BAM announced it will undertake several improvement actions. Some of these actions have already started; others are still in the preparation phase, which will be completed early in October. At this stage, the final actions are expected to include:
A cost reduction programme to deliver annual savings of at least EUR100 million by the end of 2015.
Restructuring and streamlining of the operating company structure.
A programme to improve working capital by at least EUR300 million by the end of 2015.
Continuation of the current property divestment programme.
Investigation of all other opportunities to further strengthen BAM's financial position, including divesting other assets.
Intensification of programmes to improve tendering procedures and execution of projects.
BAM will give a detailed presentation of these actions, their costs, benefits and timing early in October.
Royal BAM Group expects a result before tax, impairments and restructuring charges for the full year of about EUR20 million. There will be restructuring charges in the second half of 2014 and in 2015.
Risks and uncertainties
As indicated in the annual report for the 2013 financial year, strengthening risk management is a key element of BAM's strategic agenda for 2013 to 2015. The Group's risk management system does not imply avoidance of all risks. Instead it aims at identifying opportunities and threats and managing them.
Better, more effective risk management will enable BAM to undertake larger commitments in a well controlled environment. The risks that can have a material impact on the Group's results and its financial position are described in detail in the annual report for the 2013 financial year. On that basis, BAM can see the following risks and uncertainties in particular for the remainder of the 2014 financial year:
The risk that conditions will deteriorate further on the Group's markets. Any deterioration of our markets could affect the revenue and result and the valuation of goodwill, the stock of unsold property (property under development, under construction or already completed) and work in progress. The order book could also be affected by the consequences of any further market deterioration.
Revenue, result and the valuation of accounts receivable could be affected by the risk that it will be impossible to continue relationships with suppliers, partners and customers that do not belong to the Group, but are active in the construction process, causing work on projects to stagnate and perhaps making it impossible to collect receivables.
The availability of funding and/or the operational cash flow could be affected by the risk of a further reduction in the availability of credit on the financial markets, making it more difficult to receive payments (whether or not in advance) and more difficult to finance or refinance investments in land positions or real estate development.
Other risks that are either not currently known or currently considered non-material could prove to have an effect (material or otherwise) in due course on the markets, objectives, revenue, results, assets, liquidity or funding of the Group.
Declaration in accordance with the Dutch Financial Supervision Act
In accordance with their statutory obligations under Article 5:25d(2) of the Dutch Financial Supervision Act, the members of the Executive Board declare that, in so far as they are aware:
the half-yearly financial report provides a true and fair reflection of the assets and liabilities, the financial position and the result generated by the Company and by companies included in the consolidated accounts and
the half-yearly report by the Executive Board provides a true and fair overview of the information required pursuant to Article 5:25d(8) and (9) of the Dutch Financial Supervision Act.
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