Descripción general.

Ballast Nedam is exposed to risks of various kinds, including strategic risks, market risks, financial and operational risks, liquidity and treasury risks, social risks, and ICT risks. This section gives details of these types of risk and how Ballast Nedam sets out to control them.

5.2.1. Strategic risks: integrated projects and spreading risks

Our business strategy is supported by two important pillars. The first is our wish to strengthen the front and back ends by playing an earlier part in projects and remaining involved for longer. The second has to do with strengthening the supply companies through continuously enhancing the product range and the specialized companies. To this end, we perform active portfolio management.

The market for relatively large infrastructure projects will remain reasonably stable for the next few years and our operations in various niche markets give us a relatively favourable risk profile. However, the market for construction and property development is much more sensitive to the economic cycle. Although our business strategy sets out to reduce sensitivity to cyclical trends, the current recession will have repercussions in construction and property for some years to come. Part of our strategy is to invest in activities with long-term, predictable cash flows, including management and maintenance and PPPs, besides which we also spread strategic risks by delivering activities that perform differently in various stages of the economic cycle.

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5.2.2. Market risks: developing more under our own control

Ballast Nedam operates primarily in the Dutch market. The business results are substantially determined by the economic situation and by government expenditure. Some 70 to 80 per cent of our revenue is from public and semipublic clients, which in times of recession should be favourable for continuity and payment security. However, the government has announced a more austere budgetary policy, the consequences of which we too are feeling. Our clusters that operate in the infrastructure sector are exposed in the current market conditions to risks of overcapacity, in particular with respect to the general procurement projects and the main prefabricated concrete products.

The revenue of the Building & Development clusters depends substantially on consumers’ confidence in the future. However, this confidence depends in turn on factors such as the availability of finance, continued employment, the interest rate, the tax deductibility of mortgage interest, and the economic climate. Consumer confidence would appear to have been at a low point for some considerable time, with no clear signs of recovery. Residential construction normally represents about 25 per cent of annual revenue.

We intend in the future to be able to increase our share of own development, and we have accordingly acquired strategic land positions with a carrying amount of 154 million euros in recent years. We value these land positions at historical cost, so that we have imputed almost no interest and preparatory expenses. We limit the impairment risk in this way. We perform an annual impairment test on each separate land position to determine whether the value has reduced exceptionally. We start construction on projects under our own control only once we can be sure that at least 60 per cent of the homes or 100 per cent of the commercial property is sold or leased. These land positions are a good basis from which to benefit from an economic recovery.

5.2.3. Identifying and controlling financial and operating risks

The highest-risk elements of the primary process are the design, preliminary estimates, the tendering process, purchasing and project planning, and particularly the transitions between these phases. A second opinion may therefore be required on key sections, in particular for large and complex projects. We include any uninsurable operating risks in the budget as a risk premium. Any risk that materializes, despite the controls, will often have a considerable impact on a project’s margin.

Technical risks are often involved in the execution phase. Ballast Nedam concentrates on continuous process improvement, quality assurance and systematic analysis of failure costs. We take out normal insurance to cover risks during the design phase and construction. Building Information Models are another tool for rapidly identifying and controlling process risks. Where possible we avoid credit risk in the course of projects by arranging for contractual payment instalments in line with progress.

5.2.3.1. Failure costs

Getting things right first time. This is the best answer to the stubbornly high level of failure costs in the entire building column. Ballast Nedam sets to prevent failure costs out on three levels: on the market, inside the group, and in projects.

Reducing failure costs on the market

Integrated contracts lead to lower failure costs in the building column. In traditional contracts, the client chooses to divide the process into many pieces. New project partners are then required to master the subject matter for every new contract. We engage in dialogue with the building column (which consists of clients, advisers, subcontractors and end-users) with a view to increasing the number of integrated contracts.

In 2011 Ballast Nedam was part of a consortium that acquired the Arnhem Public Transport Terminal project based on a design & build contract. The client opted for an integrated contract following the failure of earlier tenders. The Arnhem Public Transport Terminal project set out to distribute the project risks more effectively and control failure costs. The result was a

Reducing failure costs within the group

A result of the 2011 organizational changes is more intensive cooperation between Ballast Nedam business units. Failure costs arise when people or departments dwell too long on subjects they know too little about. Ballast Nedam’s specialized companies now contribute their knowledge at an early stage in projects. In this way the responsibility resides with the right experts. Where specific expertise is not available in house, we immediately call in comakers to take on the project components concerned and bear the associated risk.

Reducing failure costs on projects

We aim to staff our projects effectively, because failure costs arise when there are too few good people to get the work done. By consciously assigning additional people at the start of a project, we keep operational processes under control and manage risky actions at an early stage.

A school in Heerhugowaard was procured as an engineer & build contract. We then added a plan developer from our Building & Development Special Projects cluster to the regional company’s project organization. He contributed the expertise needed to analyse the risks in the final design phase satisfactorily. Ballast Nedam acquired the project and work has now started.

In 2011 Ballast Nedam was part of a consortium responsible for the Nieuwegein Town Hall: a complex project on a poorly accessible, town centre construction site. By assigning additional planners early in the project, we completed all the critical components on time, in detail and as planned. The construction consortium was two months ahead of the completion stage schedule according to contract.

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5.2.4. Liquidity and treasury risks: cash flow management and responsible

borrowing

Ballast Nedam’s legal structure currently comprises the Infrastructure and Building & Development segments, which each have a financing facility. No undertakings of liability have been filed for these subholdings. It is normal in construction companies for current liabilities to exceed current assets, because companies receive prepayments on projects. The business as a whole runs a liquidity risk if it receives less in prepayments. Ballast Nedam controls this risk by performing periodic cash flow forecasts. We moreover have sufficient overdraft facilities. Managing the group’s funds, the treasury function, is a joint responsibility, and is therefore organized centrally.

Ballast Nedam carries out projects outside the euro zone on a limited scale. Foreign currency translation risk is estimated and where possible covered on a project basis.

Interest risk is determined by the combination of long-term loans and the positive cash position. The main long-term loans have been contracted at fixed interest rates for lengthy periods. The interest risk, other than for the financing of a number of PPP contracts, is not hedged. For an explanation and sensitivity analysis of the financial risks, see page 165.

5.2.5. Social risks: competent employees are the most important success

factor

Employees are an important component of a company’s value. Our ability to attract and keep good employees largely determines Ballast Nedam’s success. Working conditions in the construction industry are heavy, and the sector is confronted with relatively high rates of absence through illness. There is additional information on this subject in the section on health (see page 81). A relatively large proportion of Ballast Nedam employees have flexible working arrangements, mainly through subcontractors. The operational margin is therefore less sensitive to a decline in revenue. Any strikes, work interruptions and integrity issues can lead to a substantial loss of revenue.

5.2.6. ICT risks: standard where possible, specific where necessary

All business units use ICT infrastructure and ICT information systems intensively. We continuously improve and upgrade these systems in various processes, enabling us to manage the associated change processes effectively with relatively little risk. The ICT infrastructure is based on a wide range of services, modern communication technology and advanced virtualization techniques for data storage and processing. We are able in this way to continuously achieve and safeguard the required capacity, availability and sustainability.

We make an appropriate information system available for each business process, without losing sight of the overall picture in the company. Where possible we select proven technology and standardization across the business units in order to prevent disruption, unless a business process demands a unique solution that will give us a distinct advantage.

Ballast Nedam has drawn up an internal ICT code of conduct, known as the Code for Information Security. This code is the cornerstone of our ICT security policy.

5.2.7. Risk of climate change

Ballast Nedam is aware that climate change may put a strain on the internal organization and diminish our market opportunities in the long term. Some examples of climate management measures we are taking are given in the section on Energy and CO₂ reduction (see page 69).

5.2.8. Risks in connection with tax and legal matters

In Saudi Arabia, proceedings are ongoing in which the tax authorities are disputing the status of a tax-exempt contract dating back to 1999. Ballast Nedam repudiates the tax demand, and sees no need to make an additional provision. The tax demand involved relates to a Ballast Nedam International subsidiary for which Ballast Nedam is not liable.

Ballast Nedam started an internal investigation in 2011 to answer questions from the Tax and Customs Administration about the accounts of a foreign entity from 1998 through 2001. This foreign entity was closed in 2001. Ballast Nedam has submitted the records obtained in this investigation for further investigation by the Public Prosecution Service, with which the company has cooperated in full.