The operational result of the Heijmans Building division in 2007 is expected to show a large drop compared to 2006, resulting in a major loss in 2007.
As already indicated in the 12 October press release, new disappointments have occurred on orders accepted in 2005. The effect of these disappointments amounts to approximately 40 mln. after taxes. This is contributable to some 50 projects accepted in 2005. Risk- and projectmanagement on a number of these 50 projects was insufficient. In addition specific market conditions (strong price increases of materials and subcontractors) have increased the losses on this group of projects. At present expectations some 35 projects out of the group of 50 will be technically and financially completed by the end of this year. The completion of the remaining 15 projects will largely take place in 2008 (the majority in the first half of the year). Related revenues in 2008 will amount to 62 mln . Loss provisions for these 15 projects are sufficient. During 2007 measures were taken to prevent future reoccurrence. These measures are partly completed and partly in execution. External support is hired for this.
The most important measures are:
- New management with effect from early 2007;
- Consolidation of regions;
- Creation of a business unit responsible for large projects;
- Strengthening riskmanagement (tenderboard)
- Implementation of an internal audit program;
- External audit.
The orderbook, aforementioned remaining loss projects excluded, shows a positive margin. This is also contributable to measures taken in 2006 such as risk management and selective tendering policy. Besides this, the margin is lower than usual which reflects the present market situation which is characterized by price increases of wages, subcontractors and materials.
The 2007 Operating Result for the Heijmans Property Development Division is expected to be somewhat higher than the already high level achieved in 2006 (80 mln.)
The division expects to sell approximately 3,500 homes for all of 2007. This is somewhat lower than the number of homes sold in 2006 (3,600), but is in line with market trends. These show the number of sales transactions of new homes during the first 9 months of 2007 went down by approximately 15% in relation to the comparable period in 2006.
This decrease in sales is a consequence of the increased mortgage interest rate, stricter mortgage criteria and a drop in consumer confidence in recent months in particular. This trend is particularly strong outside the Randstad. The fact that the price increases continue, especially within the Randstad (expected increase this year approx 4%), is a consequence of lacking supply due to delays in planning procedures and lack of building locations. Heijmans does not anticipate any changes to this trend in the short term. Aforementioned market trends are also reflected in the development of the orderbook.
Demand will continue to be structurally strong due to the growth in the number of households and the shortfall in supply will continue until new building locations are planned. The possession of a landbank remains strategically very important. If building volumes remain constant Heijmans has development capacity for between approximately 8 and 10 years. This amounts to 45,000 homes (65% based on land, 35% based on development competitions) and 675,000 m² of commercial property. In addition to location, the product offered is increasingly decisive for success in development. Heijmans focuses development on a target group, introducing new products such as Water or Homes for the Elderly and developed products such as Tailor Housing.
The Heijmans Infrastructure Division's operating result is expected to be lower than in 2007 by a few million (2006: 25 mln.). The outlook as given at presentation of interim results assumed an operational result equal to that in 2006. The adjustment of this outlook is a consequence of lower than expected revenues in roadbuilding. Due to the fact that price improvements in the roadbuil