Annual results 2017: sound basis for continued recovery

• In 2017, Heijmans transformed into a purely Dutch company with a focus on its core competencies in property development, residential building, non-residential and infrastructure;
• Underlying EBITDA NL € 30 million (2016: € 73 million negative);
• Total number of homes sold 2,192 (2016: 1,962), of which 1,394 were sold to private buyers (2016: 1,019);
• Continuation of strong growth in revenue and result Property Development, stable development Residential Building;
• Infra from severely loss-making to profitable operation, lagging performance Non-Residential;
• Net profit (incl. €29 million foreign operations) to € 20 million in 2017 (2016: net loss of € 110 million);
• Solvency of 27%, net cash position year-end € 14 million (2016: net debt € 100 million).

Heijmans benefitted from strong growth in the housing market in 2017 and this translated into a considerable increase in revenue and result for property development. Revenue at property development increased to € 391 million (2016: € 332 million), and underlying EBITDA amounted to € 20 million (2016: € 15 million). Revenue at Residential Building was € 297 million in 2017, compared to € 296 million in 2016, while underlying EBITDA was € 5 million (2016: € 4 million). At Residential Building in particular, the increase in demand resulted in considerable pressure on the availability of suppliers and procurement prices. It also led to higher land prices as well as development and realisation costs. We constantly monitor our suppliers to safeguard the required quality and margin development.

In that context, Residential Building is very keen on a selective acquisition policy and controlled growth, with a considerable proportion of capacity being kept available to safeguard the growing production at Property Development. In 2017, approximately 65% of the Residential Building revenue was sourced via Property Development. The number of homes sold in 2017 was 2,192 (2016: 1962), with 1,394 (64%) of these homes sold to private buyers and 798 homes (36%) to investors and housing corporations (2016: 1,019 homes or 52% sold to private buyers, and 943 homes or 48% sold to investors). The increase in homes sold and our well-filled order book underlines that the outlook for the year ahead is also positive.

In the realisation of the Heijmans Home concept (Woonconcept - Huismerk and Wenswonen), we have experienced that it is due to our long-term partnerships and clear mutual agreements with co-makers that we have been able to respond to demand in the market. Homes built according to the Woon concept accounted for 28% of total home sales in 2017 and more than 550 homes were taken into production. We expect that number to grow towards 1,000 in 2018.

With its strong position in the housing market, Heijmans succeeded in acquiring a number of new contracts in 2017, including the development and urban transformation of the Sloterdijk-Centrum area in Amsterdam and the development and realisation of more than 370 homes in various municipalities for Vesteda. We also made solid headway on projects in progress, such as the realisation of the Bananenstraat in the Katendrecht area of Rotterdam. On the renovation front we started on a number of projects in 2017, including the renovation and sustainability upgrade of 1,000 homes for housing corporation Lefier in Groningen.

The results at Non-Residential lagged in 2017, partly due to significantly lower revenue at € 240 million, (2016: € 315 million). Underlying EBITDA was € 6 million negative (2016: 14 million negative). Although the market for non-residential building saw an increase in volume in the year under review, there was no notable recovery in price levels. Revenue and result declined in 2017 as a result of the tightened commercial focus and strict acquisition policy with respect to newly build projects, which in turn led to insufficient coverage of general overhead.

Heijmans also decided to withdraw from the RIVM project and transfer its interest in the consortium to Strukton. This decision meant that Heijmans was forced to recognise a one-off loss of € 3.5 million. Heijmans now no longer has any part in the execution and exploitation of this project. Heijmans believes that the strong drive for sustainability upgrades in the non-residential building market, as well as the major demand for urban residential building with non residential features (primarily high-rise > 70m) provide sufficient potential for Heijmans to make up for this recent decline in 2018.

The result at Infra in 2017 showed a strong turnaround compared to previous, loss-making years. Revenue was up at € 680 million, from € 621 million. The underlying EBITDA was € 16 million and therefore at a much improved level compared to last year (2016: € 73 million negative).

In 2017, we introduced a number of improvement measures and made solid progress towards structural recovery. These included measures to improve the management of the organisation, a reduction of the cost structure and the implementation of a tightened commercial focus. Heijmans also appointed a Chief Risk Officer to improve risk management across the organisation.

Furthermore, Heijmans took steps in the settlement of a number of high-risk projects. The Drachtsterweg in Leeuwarden has been completed, the realisation of the N23 is under control and on schedule. Heijmans is waiting for a final verdict of the Arbitration board for the building industry (RvA: Raad van Arbitrage voor de Bouw) in the Wilhelmina lock project. Following various additional efforts, work on the A9 project is progressing towards delivery of the tunnel to the Dutch Ministry of Public Works and Waterways (delivery for use), which is scheduled for the end of June 2018.

Heijmans implemented and refined its strategic plan 'Focus, Discipline, Excellence' in 2017. The purpose of the strategy is to achieve a sustainable recovery of the company, as well as a recovery of profitability, debt reduction and structural strengthening of the company's capital ratios. The focal point of this strategy is the transformation of Heijmans into a Dutch company with a tighter focus on its core competencies in the segments property development, residential building, non-residential and infrastructure.

In 2017, Heijmans' strongly focused on the selective acquisition of new contracts in the disciplines it masters, as well as the expansion of its role as project coordinator and the development of multi-year client relationships via services, asset management and maintenance. The guiding principle of this drive is the continuous improvement of the company's core activities via tender management, project management, combining and boosting procurement and commercial effectiveness. This continuous improvement is focused on cost reduction and risk control, increasing profitability, strict working capital management, efficiency and improved margins. For instance, we launched the GRIP programme to safeguard greater control and effective project management, and therefore increasing the predictability of projects. With the GO! Programme, Heijmans is continuing its efforts to improve work safety, not only within our own company but throughout the entire chain, together with partners, suppliers and subcontractors. In 2017, the IF figure (number of work-related accidents resulting in absenteeism of at least one day per million of hours worked) was 3.7, including combined works. Despite our continuous efforts to increase safety and awareness in every level of the organisation, we sadly have to report one fatal work-related injury in 2017.

We have already taken the first steps towards 2023 with a number of choices related to central staffing and the organisation of our business activities. Since our clients are putting fewer PPP contracts to market, as per year-end, we have decided to incorporate the PPP department's activities in the various divisions. We also decided to make the Chief Risk Officer (CRO), originally appointed for Infra, the CRO for Heijmans N.V., which will take the integrated approach to risk management to a higher level company-wide. We have also made preparations to strengthen our Human Resources management on culture, talent and organisational development.

With respect to our business activities, we decided at year-end 2017 to centralise the management of Non-Residential and Residential Building and we will implement this integration in the course of 2018. The creation of the 'Building & Technology' business segment will enable Heijmans to further streamline underlying construction processes and know-how, while respecting each individual's specific competencies. By doing this, Heijmans is effectively responding pro-actively to the increasing pressure on inner-city areas, which is leading to higher density and more high-rise buildings and therefore more urban-intensive construction. The formation of the 'Building & Technology' business segment gives Heijmans the opportunity to respond effectively to the growth in large-scale, multi-functional inner-city new-build projects and the application of smart, sustainable technologies.

Underlying EBITDA in the Netherlands increased to € 30 million in 2017, from € 73 million negative in 2016.

The continued growth of the housing market led to an improved result at Property Development (2017: € 20 million versus € 15 million in 2016) and a slight increase at Residential Building (2017: € 5 million versus € 4 million in 2016). For Residential Building, which is operating in a fiercely competitive market, controlled growth with a clear focus on quality remains a top priority.
The result at Non-Residential amounted to € 6 million negative in 2017 (2016: € 14 million negative). As in the previous year, the RIVM project in Utrecht had a negative impact on this division's result. Following Heijmans' decision to withdraw from this project, the company was forced to recognise another one-off loss amounting to € 3.5 million. Additionally, due to decline in revenues general overhead costs were not fully covered.

The measures Heijmans has taken at Infra are paying off: the results of the Infra operations improved strongly in 2017 compared with previous years. Underlying EBITDA amounted to € 16 million positive, compared with € 73 million negative in 2016. Heijmans has reduced the division's overhead and made less use of temporary workers.

The result was influenced by a number of non-operational items. These included € 6 million in value adjustments of property assets, which are valued at both a structural and an individual level. This pertained to the value adjustments of property assets in the peripheral regions of the Netherlands, where the lack of price increases in relation to rising costs are a factor, together with delays in plan development at local government level. This has an impact on the valuation of these land holdings.

Another non-operational item of € 3 million is related to soil remediation.

In addition, Heijmans incurred restructuring costs as a result of several adjustments in the company's senior management, as well as a number of organisational changes, as part of the strategic reorientation that Heijmans implemented last year. Restructuring costs amounted to € 8 million in 2017 (2016: € 4 million). These primarily related to holding, Non-Residential and Infra, where, in line with previous announcements, Heijmans adjusted the organisation to its new scale, following a number of divestments. In 2017, the total number of FTEs decreased by 155.