Heijmans : Half year results 2017

• Strong improvement in underlying EBITDA NL: € 9 million (H1 2016: € 9 million negative) largely driven by the recovery at Infra and the performance of Property Development and Residential Building activities;
• Revenues NL € 646 million in first half, lower than last year partly due to selective acquisition of new projects by Non-Residential (H1 2016: € 705 million);
• Number of homes sold: 1,106 in the first half of 2017 (H1 2016: 1,069 homes);
• Net result after taxes € 20 million (H1 2016: € 12 million negative);
• · Strong order book of € 2.1 billion at end-June (year-end 2016: € 1.9 billion);
• Divestment programme foreign activities completed, credit facility reduced to € 176 million from € 256 million, solvency up at 27%;
• Net debt reduced to € 45 million at end-June 2017 (end-June 2016: € 77 million), as a result of divestments and improved working capital management.

* Unless otherwise noted, the key figures are presented for all operations. In the consolidated home statement (see attached sheets) the results of the continued and discontinued operations are shown separately.

** Underlying operating result is the operating result corrected for operating result joint ventures, write down on property assets, restructuring costs, book result on sale of subsidiaries and other extraordinary items.

*** Underlying EBITDA is the underlying result before depreciation and amortisation.

The Dutch housing market continues to develop positively and offers Heijmans opportunities to continue its growth in the Property Development and Residential Building segment in the period ahead. Revenues from Property Development rose to € 186 million in the first half of 2017, compared to € 169 million in the first half of 2016). The underlying EBITDA also increased and amounted to € 8 million in the first half of 2017 (first half of 2016: € 6 million). In the first half of this year, Heijmans sold 1,106 homes, of which 565 (51%) were sold to private buyers (first half of 2016: 1,069, of which 569 were sold to private buyers). The development of the average purchase price for private buyers, excluding VAT, reflects the growing demand from private buyers and amounted to € 290,000 (excl. VAT) in the first half of 2017 (first half of 2016: € 249,000).
Revenues from the Residential Building activities amounted to € 139 million in the first half of 2017 (first half of 2016: € 152 million). The underlying EBITDA was € 2 million (first half of 2016: € 2 million). Residential Building is opting for controlled growth and is focusing on projects - commissioned by Property Development and through own sales activities - with good returns. The combined order book for the Property Development and Residential Building activities offers good prospects and amounted to € 647 million at the end of June 2017 (year-end 2016: € 638 million).

On the procurement front, Heijmans is seeing increasing pressure on prices and availability from suppliers and sub-contractors. Heijmans is responding to this by devoting attention to procurement as early as the acquisition phase, by involving acquisition partners at an early stage and by agreeing good indexing arrangements with clients.

In the Property Development and Residential Building segment, Heijmans has acquired several new projects, also via tenders. Following the acquisition of the project for the development of Sloterdijk-Centrum area in Amsterdam in the first quarter of this year, Heijmans won another major tender in the second quarter of this year, for the development and realisation of 125 sustainable homes in the Leidsche Rijn Centrum district in Utrecht.

At Non-Residential, we see the first signs of a cautious recovery in the market for new-build projects. However, this is still only visible in robust volume and not yet in improved pricings. Heijmans continues to apply a selective acquisition policy. In line with expectations, revenues from this activity decreased to € 118 million in the first half of 2017 (first half of 2016: € 162 million). The underlying EBITDA for the first half of this year amounted to € 1 million negative (first half of 2016: € 1 million). The market for maintenance and management is growing and Heijmans' Services activities are developing well. These activities currently account for 70% of total Non-residential revenue. The Non-Residential order book remained at a comparable level as at year-end 2016 and amounted to € 756 million (year-end 2016: € 758 million).

In line with the focus on our service activities, Heijmans has developed the innovative concept BeSense, which enables smart and efficient building management by using sensor technology to generate data on occupation, usage and comfort. Heijmans is now upscaling the pilot project for this concept at Aegon's offices in The Hague to cover a total surface area of 15,000 m. At the end of May, the Dutch Central Government Real Estate Agency (Rijksvastgoedbedrijf) awarded Heijmans the contract to conduct fire safety checks at 32 Ministry of Defence barracks and to make necessary modifications.

Very recently, the commencement certificate was issued for the realisation of the New Amsterdam Court House, which means that following the demolition phase Heijmans can commence with the new-build construction phase. In the first quarter, Heijmans delivered the new Eurojust office building in The Hague.

Infra has focused strongly on the acquisition of projects with both healthy margins and manageable risks that are a good fit with Heijmans' capabilities and expertise. The result is a healthy order book that is a good match with the strategy. At end-June 2017, the order book amounted to € 987 million, much higher than the € 730 million recorded at year-end 2016, thanks to the acquisition of the Zuidasdok project and the Wintrack II project contracted by TenneT.

In February, Heijmans was definitively awarded the contract for the design and realisation of the Zuidasdok project in Amsterdam, after which the company was able to start the engineering and preparation phases. The work on the third lock at the Prinses Beatrixsluis in Nieuwegein and the A1/A27 projects is progressing well. In May, Heijmans successfully completed, within a challenging short timeframe, the major maintenance work on the Kaagbaan runway at Amsterdam Schiphol Airport. On this project, Heijmans deployed a wide range of infra specialisms and its logistics expertise. In early July, the company reached a significant milestone in the A1 Apeldoorn - Beekbergen project with the placement of a new flyover at the Beekbergen junction. The work on the A9 Gaasperdammerweg is progressing well but will require an additional effort in terms of labour and materials for the land tunnel. Heijmans now has a clear idea of the scope of this extra effort and has posted a loss of € 11 million on this project.

Infra's strategy has been tightened further in the period under review and is now driven by the primary theme: 'de-risking Infra'. The main points of this theme are the structural improvement of risk management and a tightened commercial focus on line infrastructure with the selective acquisition of water/energy projects. In addition to major projects that fit into the strategic parameters, Infra's activity profile now puts more emphasis on profitable growth via regional projects, maintenance and management and specialist companies.

Heijmans has made solid progress in terms of making the Drachtsterweg and N23 projects manageable. The work on the Drachtsterweg in Leeuwarden is now progressing well. The aqueduct was recently partly opened and motorised traffic can now make use of this road section. The whole project will be completed by the end of this year. The work on the N23 Westfrisiaweg is now running full steam ahead after the restart of the project in the first quarter of this year and is progressing according to plan. Delivery is planned for end-2018.

For the RIVM project, a technical solution has been agreed and the commencement certificate has been issued. A committee of experts has examined the issue of a financial compensation and has now issued a recommendation. On the basis of this recommendation, Heijmans maintains its previous estimates regarding this project.

The arbitration proceedings related to the Wilhelminasluis lock project in Zaandam are currently on-going and Heijmans is awaiting a ruling.

Heijmans is on track with its transition into a profitable, Dutch core company with a strong position in the property development, residential building, non-residential and infrastructure sectors. Based on its 'Focus, Discipline, Excellence' strategy for the period 2017 - 2019, Heijmans is now focusing on the sustainable recovery of its business and its profitability, debt reduction and the structural improvement of its financial leverage. The creation of a Dutch core company has now been completed following the disposal of Heijmans' foreign activities in Belgium and Germany.

The main focus of the strategy is the selective acquisition of new contracts in the property development, construction and infrastructure disciplines based on Heijmans' core competences. As part of this strategy, Heijmans is focusing on the expansion of its role as contractor/manager and the development of long-term client relationships via services, maintenance and management.

As part of the de-risking strategy at Infra, Heijmans recently devised a new structure for the management of the infra organisation. This includes the new role of the Chief Risk Officer in the management. This officer's task is to take the risk management at every level and across the entire Infra organisation to a higher level and to do so sustainably. We have already started on the implementation of the new organisational structure.

A major factor in the success of this transition is a business culture that encourages the desired focus, discipline and excellence and embeds these values in the organisation. Heijmans is using internal strategy and culture programmes to devote specific attention to the attitude and behaviour of our employees; focused on the disciplines property development and residential building, non-residential and infrastructure, but always based on the same principles and values. These programmes translate the desired behavioural traits of focus on results, ownership and collaboration into initiatives for every level of the company.

The same values are at the heart of the safety programme GO!, which is part of Heijmans' on-going structural effort to promote safe working practices. The (12 months rolling) IF (Injury Frequency) figure is 3.7 (IF at year-end 2016: 3.6).

Heijmans shapes innovation into specific forms of expertise, technology and product development, in Heijmans' areas of expertise, close to the business and in cooperation with its clients. The development of the moveable Heijmans ONE home, the BeSense concept for smart building management and the innovative asphalt product Recoflex are all examples of these innovations.

Heijmans is working towards an optimal cost structure that is in line with the company's revised scope and strategy.

The net result also improved in the first half of 2017, when compared with the same period of last year, and amounted to € 20 million (first half 2016: € 12 million negative), as a result of the book profits on the sale of Heijmans' foreign operations. The sale of these activities generated a book profit of € 31 million. The net result was also impacted by restructuring costs and write down on property assets. The costs for measures to streamline the organisation amounted to a total of € 4 million in the first half of 2017. Heijmans recorded a book loss totalling € 3 million on the sale of a number of land holdings.

The above resulted in earnings per share after tax of € 0.92.

At end-June 2017, net debt amounted to € 45 million (end-June 2016: € 77 million). In addition to the structural attention devoted to working capital management, the sale of Heijmans' Belgian and German subsidiaries also made a significant contribution to the reduction of Heijmans' debt. Following the effectuation of the sale of the foreign activities, solvency had returned to approx. 27% at end-June 2017

The new financing agreements, which Heijmans reached with its banking syndicate in February of this year, include agreements on minimum levels of EBITDA and solvency on a quarterly basis. These include an agreement on a minimum EBITDA of 0 for Q2 2017, rising to € 20 million in Q4 2017, and solvency rising to a minimum of 20% in Q4 2017. With the results recorded in the first half of 2017 and current solvency, Heijmans meets the covenant requirements set by its banks.

The completion of the divestment programme related to Heijmans' foreign activities in Belgium and Germany generated total proceeds of € 116 million (€ 97 million after the deduction of the cash and cash equivalents sold with the companies) and a related book profit of € 31 million, which made a significant contribution to the reduction of Heijmans' debt and the improvement of its solvency.

As a result of the sale of Heijmans' foreign activities and the planned exit of Deutsche Bank from the company's banking syndicate, the size of the syndicate's loan was reduced by € 80 million compared with year-end 2016 and amounted to € 176 million at end-June. Heijmans and its banks had agreed to reduce the loan to € 215 million. Heijmans had used € 25 million of this at 30 June 2017. Heijmans will continue to focus on cash generation in the period ahead, with the aim of reducing this loan to € 122 million by mid-2019.