BAM: Profit warning following further losses from German non-residential building activities
Bunnik, Netherlands, 20 November 2006 – Before trading opens on Thursday, 30 November, Royal BAM Group will report on business during the first nine months of 2006. In advance of that report, BAM announces that the 2006 loss forecast of German non-residential building company Wayss & Freytag Schlüsselfertigbau has been raised to €115 million. Despite the favourable operating results from its other activities, BAM expects that it will be unable to achieve its profit forecast of approximately €180 million for 2006 as announced when the half year figures were presented. Based on current information, BAM expects to record a profit of approximately €130 million for the 2006 financial year.
The dramatic drop in the results of Wayss & Freytag Schlüsselfertigbau during the third quarter was caused by a number of factors. A careful evaluation of the Wayss & Freytag Schlüsselfertigbau portfolio meant that, in addition to further provisions for losses from current projects (around €55 million for the whole of 2006), provisions have also been formed in connection with specific risks. Those risks primarily concern accounts receivable and/or claims on principals and warranties (totalling approximately €50 million for 2006). The evaluation revealed that the contract and project management conducted was insufficient. Another reason for the losses was the rapid increase in prices of subcontractors and suppliers as a result of the recovery of the German construction economy, which had not been sufficiently anticipated. The reorganisation based on the operating company's earlier losses will also be accelerated and expanded. According to current expectations, the related provisions will total approximately €10 million. The loss-generating Tiefbau department in Göttingen will be disposed of (approximately seventy jobs). The other jobs, which will disappear, are mainly staff positions (approximately thirty).
Wayss & Freytag Schlüsselfertigbau will cease to exist as an independent market player, and its management has been suspended. Its activities have been transferred to the management of sister company Müller-Altvatter, which will receive support from other parts of the group. Müller-Altvatter is known to be a profitable operating company that has been active on the German non-residential building market for several years.
In addition to these measures, it has been decided that the company will be subjected to an external audit. In light of the situation, the Executive Board has also decided to order a forensic audit.
The higher loss casts a shadow over the performances of all other operating companies, including those in Germany. The market conditions are favourable in virtually all other countries and sectors, which is one reason why several of the operating companies are performing above expectations this year and are currently expected to contribute substantially more to the overall profits. The prospects for next year are also positive.
It should be noted that the current profit forecast for 2006 includes non-recurring income and expense, totalling on balance around €30 million in income, from factors such as a lower effective tax rate in the Netherlands (based on the reduced corporate income tax rates announced) and lower pension charges.
BAM's 30 November report on its third quarter will include further information about business at all divisions and about the strategic agenda for 2007-2009.
The dividend for 2006 will remain at €0.40 per ordinary share, despite the lowering of the 2006 profit forecast to approximately €130 million.
Press: A.C. Pronk, +31 (0)30 659 86 21
Analysts: P. Juge, +31 (0)30 659 86 01
A Dutch conference call will be held for press and analysts at 11 a.m. today to discuss this press release. Those who wish to participate can do so by calling +31 (0)20 531 58 23.