HEIJMANS : Half year results 2015: recovering housing market, pressure on infra

Heijmans benefits from recovering housing market, negative result due to pressure on infra.

• Number of homes sold increased to 746 in the first half of 2015 (first half 2014: 482 homes sold). Number of homes sold to private buyers more than doubled;
• Underlying operating result first half 2015 € 11 million negative (first half 2014: € 7 million negative): significantly improved result at Property Development and Residential Building could not compensate the lower result of the Dutch Infra activities;
• Net result € 15 million negative (first half 2014: € 8 million negative);
• Solvency virtually unchanged at 29%; Net debt € 108 million at end-June 2015 (end-June 2014: € 99 million).

* underlying operating result is the operating result corrected for operating result joint ventures, write down on property assets, restructuring costs and other extraordinary items.

"The Dutch housing market is recovering and we can see the effects of this in the revenues and results of Property Development and Residential Building. Our expertise in housing concepts, urban development and transformation positions us in a good position to capitalise on the opportunities in the residential sector in the coming period. The Heijmans Woon Concept (residential concept), the Wijnhaven area in The Hague, the Timmerhuis and Fenixloodsen projects in Rotterdam, the transformation of the former Parool tower and the Trouw building in Amsterdam are just a few appealing examples of our expertise. At the same time we remain in the tail-end of the economic crisis, leaving the overall picture for Heijmans much to be desired. The results of the Dutch Infra activities in particular are lagging more than we had anticipated. Previously announced measures have been implemented but the financial effects are not yet visible. The improved margin potential of newly acquired projects and service activities does not yet outweigh the poor conditions on longer-running projects that still have to be completed. In the face of a turbulent market, Heijmans is operating with a healthy solvency ratio and complies with the covenants as agreed with our financiers."

The positive trend in the housing market continues and this has resulted in a considerable increase in revenues, an improved result as well as an increasing order book. The number of homes sold in the first half of 2015 was 746, compared to 482 in the same period of last year. Of those, 565 homes were sold to private buyers (first half 2014: 244). The considerable increase in sales to private buyers is a key indicator for the recovery of the housing market. Revenues from the Property Development activities amounted to € 126 million, and the operating result amounted to € 4 million (first half 2014: € 61 million and € 1 million negative). Residential Building reported revenues of € 158 million and a result of € 3 million (first half 2014: € 92 million and € 3 million negative).

The key to the future development of this segment will be an appropriate response to the needs of investors, corporations and the private market. The Heijmans Woon Concept (Heijmans Huismerk for the rental market and Heijmans Wenswonen for private buyers) combines standardisation, affordability and quick realisation with a range of carefully thought-out options for residential consumers to choose from.

The most recent project is Harener Holt, in Haren, where the realisation of 53 homes (all now sold) started in June. Heijmans has recently set its sights on Slim Wonen (Smart Living), by offering home controls in all houses. This system enables residents to use their tablet and smartphone to operate facilities such as lighting and heating, wirelessly, remotely and completely safely, which in turn gives them greater control of their energy consumption. In Amsterdam, Heijmans is involved in projects such as the transformation of the former Parool tower and the Trouw building into The Student Hotel, the first part of which was delivered recently. The realisation of Meyster's Buiten near the former Cereol site in Utrecht is also nearing completion, while the development of the Wijnhaven area in The Hague is well under way. Residential Building projects such as Villa Industria in Hilversum and Jakobskamp in Den Dungen are also progressing rapidly.

Revenues at Non-residential came in higher at € 220 million in the first half of 2015, from € 169 million in the first half of 2014. Large-scale integrated projects account for a considerable proportion of the revenues in this segment and demand an increasing focus on design and engineering. This enables Heijmans to provide greater added value on projects, but also demands greater attention for the control of design risks and costs, especially in a challenging market with low margins.

Following some difficult years, Services (largely in the maintenance and management of technical installations) has developed positively, partly thanks to maintenance and management projects, such as those for the premises of the Ministry of Security and Justice and the Ministry of the Interior and Kingdom Relations in The Hague, together with the National Military Museum (NMM) in Soesterberg. The operating phase of the NMM contract is progressing well. The museum has already welcomed more than 350,000 visitors this year.

Continued tightening and streamlining of internal processes remained high on the agenda in the first half of 2015. One part of that effort was the implementation of the reorganisation plans announced in late 2014, which planned to reduce the workforce by approximately 230 jobs. Heijmans applied for a collective redundancy permit for a number of these jobs, which was not granted by the UWV (Dutch Employees Insurance Agency). However, we still aim to realise the underlying targets in terms of capacity and cost reductions. Agreement has now been reached with two-thirds of the employees affected and Heijmans will take further steps in the second half of the year to reduce operational capacity. The financial impact of the reorganisation will be become visible with a slight delay. The result from Non-residential in the first half of 2015 was € 2 million negative (first half 2014: € 1 million positive). The order book declined to € 549 million at end-June 2015 (end 2014: € 661 million).

At Amsterdam Schiphol Airport, we worked hard on the renovations of the E and F piers in connection with the transfer to centralised security across the entire terminal, which has now been completed in line with the tight planning. The realisation of the Timmerhuis in Rotterdam is well under way and the new complex will be delivered in October of this year. The realisation of the Bèta Campus at the Bio Science Park Leiden is also ongoing. The new premises for the Mathematics and Natural Sciences faculty in Leiden will be completed in January 2016. The development of the new offices for the National Institute for Public Health and the Environment (RIVM) and the National Medicines Evaluation board (CBG) in Utrecht will move into the next phase with the start of construction this autumn. In this DBFMO contract, Heijmans is responsible as a consortium member for the maintenance and operation for 25 years following completion of the project.

As in the previous year, the infra activities felt the effects of highly challenging market conditions, characterised by overcapacity and low margins. Revenues came in at € 306 million and the result was € 15 million negative (first half 2014: € 341 million and € 5 million negative respectively). In the Netherlands, the order book contains a number of multi-year projects that were acquired in previous years at challenging conditions. Heijmans is focusing strongly on improvements to the tender, design and preparation process, as well as contract management, to make sure new projects are acquired at conditions that fairly reflect the risk profile of the projects. The first results of these efforts are becoming visible, especially in regional projects, and this is translating into an improved margin profile. Infra's order book also includes a number of large, integrated projects with slightly better margin potential.

One of the key changes over the past six months was bringing Infra under a single centralised management, followed by standardisation of processes and procedures. The reorganisation at Civil's cable and pipeline business is now virtually completed. Various projects have been delivered and taken into use in the past period, such as the St.-Jan parking garage in 's-Hertogenbosch and the traffic tunnels under the rail road in Bilthoven. At Schiphol, Infra carried out maintenance on the Zwanenburg runway and a new public transport hub was taken into use. The realisation of the A4 Delft - Schiedam demands a major effort but is on schedule. The delivery of an eco-aqueduct marks the progress in this project and we expect the road to be taken into use at the end of this year. The execution phase of the A9 motorway project, for which Heijmans is part of the IXAS consortium, has already commenced. Heijmans expects the construction work on the Energiefabriek in Tilburg, for which we reported a considerable cost overrun in the annual results due to an arbitration case, to be ready for operational testing this year. The result from this project showed a further slight decline.

The Belgian Infra activities booked a slight decrease in revenues as expected, while the result remained positive. Revenues of the German subsidiaries Franki and Oevermann came in higher than in the first half of 2014, while the result was comparable to last year. Reorganisations at the German Oevermann operations have been completed. The impact of these measures will become visible in the financial results of the second half of 2015.

The focus of Heijmans' strategy is to improve and to renew. Heijmans' top priority is to improve its underlying operating result. At the end of 2014, the company implemented additional improvements in the areas of tender and project management, procurement and commerce. As part of this ambition, Heijmans devotes specific attention to the start-up phase of projects, tight control of go/no go moments, the design and preparation process and contract management. Via the GO! (Geen Ongevallen - no accidents) programme, Heijmans has also further improved safety awareness within the company and we have seen a considerable reduction, both in terms of the number of accidents (50 in the first half of 2015) and in terms of the IF number (number of accidents leading to absence of at least one day per million hours worked: 4.8 in the first half of 2015).

In the first half of the year, following lengthy negotiations, agreement was reached with the trade unions on a new collective labour agreement for the construction sector. The agreement includes a wage increase for employees, but also downsizing of sector funds and greater flexibility in employment conditions.

Heijmans is focusing on continued targeted know-how and technology development to further increase the company's innovative potential. The SONOB field test with the Solar Noise Barriers (energy-generating noise barriers) commenced in's-Hertogenbosch, while in Amsterdam Heijmans is now a partner in a ground-breaking project (MX3D) to develop a steel bridge using 3D printing technology. The company has continued to develop Heijmans ONE, the moveable home for young singles, into a concept home for affordable production in series which is now ready for market launch. The concept has been nominated for the 2015 Dutch Design Award.

Revenues in the first half of 2015 increased to € 922 million (first half 2014: € 823 million). This increase was largely due to the recovery in the housing market, which led to a considerable increase in revenues at Property Development and Residential Building and to a lesser extent to revenue growth at Non-Residential. Revenues at Infra declined slightly.

The underlying operating result came in at € 11 million negative in the first half of 2015 (first half 2014: € 7 million negative), largely due to the negative results at the Dutch Infra activities. At Non-residential, the result came in just below breakeven at € 2 million negative (first half 2014: € 1 million positive). The result at Property Development improved and amounted to € 4 million (first half 2014: € 1 million negative). Residential Building recorded similar developments, with a result of € 3 million (first half 2014: € 1 million negative). The result of the Belgian infra activities declined as expected to € 3 million in the first half of 2015, from € 7 million in the first half of 2014. The result from the German activities improved slightly (first half 2015: € 1 million, first half of 2014: nil).

The value adjustments of more than € 1 million are related to a number of smaller property assets. Financial expenses amounted to € 3 million in the first half of the year, compared to financial income of € 1 million in the same period of last year. The previous financial year included a book gain on the sale of shares in the PPP project Brabo I N.V. Taxes amounted to € 2 million positive, taking into consideration a loss of more than € 1 million as a result of offsettable losses no longer being available.
The net result for the first half of 2015 was € 15 million negative (first half 2014: € 8 million negative), which translates into negative earnings per share of € 0.76 after taxes.

Net debt amounted to € 108 million at end-June 2015 and was therefore € 9 million higher than at end-June 2014 (€ 99 million). Heijmans' solvency ratio remains solid and stood at 29% at end-June 2015.

At May 20, Heijmans issued 1.9 million depositary receipts for new ordinary shares via an accelerated book build issue (ABB). The share issue raised € 21 million. This sum was entirely used for the repurchase of financing preference shares B, which was effected mid-July. The withdrawal procedure is currently pending. This initiative has reduced the amount of outstanding financing preference shares to € 45 million.

Heijmans complies with the financial covenants as agreed with its bank syndicate, of which the Leverage Ratio is the most critical in the period under review. In view of the considerable negative impact of the arbitration case relating to the Energiefabriek Tilburg project at end-2014, Heijmans reached agreement with the bank syndicate in the first quarter of 2015 regarding the calculation of the financial covenants as per mid-2015. As part of this agreement, Heijmans was able to exclude the impact of the € 9.2 million negative financial result related to the Energiefabriek Tilburg project in the second half of 2014 from the calculation of the EBITDA. This agreement is likely to lead to an increase in financial expenses in the second half of the year. Working capital management through the 'Fit for Cash' programme and the reduction of capital employed demand our constant attention. A return to profitability and the associated improvement in the operating cash flow are required to realise a structural improvement in the financing position.

The order book, at € 2.2 billion as per end-June, was slightly lower compared to end-2014 (€ 2.3 billion). The order book at Property Development and Residential Building and the German subsidiary Oevermann increased, while the order book of Non-Residential and Infra declined. The Services (primarily technical installations) order book at Non-Residential and the order book of regional projects at Infra are developing positively.

Heijmans is still feeling the effects of the crisis in the construction sector. The recovery on the Non-Residential and Infrastructure markets will be slow and improvement will have to come from sharpening processes and organisation to boost project margins. The measures Heijmans has taken to this end show improvement but this is not yet visible in the financial results for the first half of the year. We expect the Property Development and Residential Building segment to grow in the period ahead in terms of both revenues and result, which will be a clear step towards better times. The order book offers perspective. Heijmans expects an improvement in the operating result for the full-year 2015 on its way to the return to profitability.

Heijmans will publish a trading update on 4 November of this year before the opening of the stock exchange.