The Netherlands: Ballast Nedam Profit Up 28,57 pct
Ballast Nedam has performed well, certainly considering the bleak market conditions, increasing competition and price pressure. This situation will persist in the coming years. The operating profit achieved of € 19 million was in line with the forecast issued in March last year of between € 15 million and € 20 million.
The profit for the period improved by € 2 million to € 9 million on a revenue of € 1.4 billion. Excellent results were achieved on several large multiyear projects and in the niche markets. The results endorse Ballast Nedam’s strategy of focusing on integrated projects and the niche markets of industrial construction, hospitals, offshore wind turbines, secondary raw materials and alternative fuels. The poor market conditions pushed property development, the infrastructure regional companies and the prefabricated concrete companies in particular into loss. Restructuring operations were duly undertaken in all three of these areas in 2011. The restructuring followed on from the change to the new cluster structure that was introduced last year. The cluster structure puts us in a better position to operate as ‘One Ballast Nedam’ in proposing integrated projects and achieving efficiency gains.
Among the favourable developments were a stronger order book of € 1.9 billion and a strengthening of the balance sheet through the sale of three PPP projects, the sale of the Canadian resort, a lower property exposure and the extension of loan facilities to 2017.
Theo Bruijninckx, Ballast Nedam CEO, comments, ‘Our strategic focus has allowed us to continue to deliver respectable results in 2011. The strengthening of our balance sheet together with the quality and the larger size of the order book give Ballast Nedam a favourable starting position to withstand the current recession and to continue to gain from the opportunities for integrated projects and the niche markets. For 2012 they forecast approximately equal results on a revenue of € 1.4 billion in further deteriorating market conditions.’
The volume in the infrastructure market remained reasonable in the first half of last year. The picture changed half-way through the year as competition intensified. The downward pressure on prices in the public procurement market for traditional contracts consequently increased substantially. The regional companies were still heavily dependent on this type of tender. Although competition also increased for the major projects, the niche markets of industrial construction and offshore wind turbines held up well.
Generally speaking, infrastructure performed well. Profit increased from € 10 million for 2010 to € 14 million because of the excellent major project results and the contribution from PPP project sales. The regional companies made a disappointing loss in the second half of the year.
The results were excellent on the ongoing major projects in the niche segments of industrial construction and offshore wind turbines. For instance, in industrial construction, building has started on a bio-energy plant in Delfzijl, and the Nuon Magnum multifuel power plant was nearing completion. It was also a good year for offshore wind turbines. In the first half-year the heavy lift vessel Svanen installed 51 foundations for the Walney II Offshore Wind Farm in England, before moving on to the London Array offshore wind farm. At the end of the year installation started of the foundations for the Anholt offshore wind farm in Denmark, which comprises 111 turbines.
Poor prices and declining volume in the market prevented the regional companies from keeping pace with the cost level of competitors in the regions. In addition, their scale was insufficient to realize the ambition to strengthen their position on the growth market of more integrated projects. A restructuring of the regional companies was therefore put into action at the end of last year. The reorganization costs came on top of the regional companies’ losses. The first action was to adjust capacity downward, thereby eliminating 115 of the 519 jobs. The operations will later become a centrally managed company, with attendant efficiency gains, while putting the company in a stronger position to tackle the more integrated design & construct projects.
They are strengthening their position on the Dutch market for public-private partnership projects through the Benelux Secondary PPP Fund I, in which Ballast Nedam has a 20% stake and responsibility for management. The fund acquired the equity stakes of three operational PPP projects from Ballast Nedam. Two of these PPPs were Komfort in Utrecht, which is the headquarters of the Dutch Army, and DUO2 in Groningen, which provides new offices for the Education Executive Agency and the Tax Administration. This transaction has released capital for investment in new PPP projects, and also demonstrates that the business model is successful. They create value through design, building, multiyear management and investment in these projects. Infrastructure was a member of a consortium that prequalified in 2012 for the PPP tender for the A1 – A6 highway link from Diemen to Almere. Infrastructure had already prequalified last year for the current PPP tender of the entire two-line tram system in the city of Groningen.
The balance sheet was also strengthened by the sale at the end of 2011 of the 4-season Kicking Horse Mountain Resort in Canada. Ballast Nedam created the infrastructure, developed the village centre and managed the 1,131 hectare skiing area that attracts 160,000 visitors a year.
In early 2012 CNG Net’s position as the major road vehicle green gas supplier was strengthened by the award to Connexxion of the largest green gas public transport concession in the Netherlands. For a ten-year period from the end of 2012 CNG Net will supply green gas for all 225 Connexxion city buses in the Arnhem-Nijmegen metropolitan region, which represents an expansion of approximately 6 million kilograms of green gas a year. In 2011 CNG Net also continued to expand its nationwide green gas filling station network. With the current 52 stations, five of which are under construction, the volume has risen by 30% to approximately 13 million kilograms. Green gas is a less expensive vehicle fuel than the alternatives and is almost CO2 neutral. The vehicles are quieter and almost free of harmful emissions, such as nitrogen dioxide and particulate matter.
In 2011 Ballast Nedam also started the company LNG24 for the construction of a public LNG filling station network. LNG stands for liquefied natural gas. It has the same advantages as natural gas, but with a much larger radius of action, making it an attractive fuel for the heavier road vehicles and shipping. LNG24 will open the first LNG filling station in Zwolle in the spring of 2012.
Infrastructure’s total assets declined from € 309 million to € 228 million, in particular through the sale of the PPP projects and the Canadian resort.
Infrastructure succeeded in the second half of 2011 in acquiring orders with a value as high as € 566 million. The contract worth approximately € 250 million for the design, delivery and installation in 2013 of 80 foundations for the Butendiek offshore wind farm in Germany was the largest of these. The order book of € 1 152 million was consequently € 166 million higher than at the end of 2011. In the next few years there will be substantial contributions from attractive major projects, such as the A2 in Maastricht, which was acquired in a new contract form in 2009, and the large multiyear PPP project for the Maasvlakte – Vaanplein section of the A15.
Outlook for 2012
The volume in the infrastructure market will be lower in 2012 than in 2011. Based on the well-filled order book they nonetheless expect Infrastructure to gain from the opportunities they see in the niche markets and the effects of the restructuring of the regional companies, and to achieve a higher profit in 2012 on a likewise higher revenue.
Revenue increased by 2% from € 1 359 million to € 1 382 million. The specialized companies and the supply companies deliver competitive advantage to the total solutions through innovation, cost leadership and purchasing strength. The 15% rise in internal revenue in 2011 is a favourable development. It confirms their steadily growing capability in implementing integrated projects, and demonstrates the fruits of organizational restructuring. Of the revenue, 91% was generated in the Netherlands.
The operating profit rose from € 18 million in 2010 to € 19 million. The total operating profit of the segments was equal to that in 2010 on a fractionally higher revenue. The ‘Other’ result consisted mainly of holding company costs, where the release of a provision formed in 2002 in connection with a competition case, compensated for the additional costs concerned with introducing the cluster structure and a € 2 million downward valuation of goodwill. Goodwill at year-end 2011 was € 11 million.
Offshore WIND staff, March 09, 2012; Image: Ballast Nedam