Outlook

The Netherlands is well and truly in recession, with the economy expected to shrink by 3.5% based on a forecast at the start of 2009. Successive reductions in the European rate of interest have had hardly any effect on the upheaval in the financial markets and hence on spending and investment. The number of bankruptcies accordingly rises. Industrial production suffers from the weaker demand for exports and the negative trend in domestic demand. Surprisingly enough, CAOs for 2009 concluded in many sectors provide for substantial wage increases in light of the economic conditions. Combined with a crisis of confidence in the financial world resulting in tighter financing conditions, from a macro-economic perspective all the ingredients are in place for an extremely turbulent year. The lessening risk of inflation as a result of the strong decline in raw material prices provides a ray of hope for 2009. Increased investment by the public sector together with supportive measures to stimulate investments will also be required to boost the economy and restore consumer and producer confidence.

Installation

The majority of the installation companies performed better in 2008 than in the year before. Because of a higher personnel turnover than in other years the scarcity on the labour market was keenly felt and there was upward pressure on the wage bill. The intention to do more work using our own people has accordingly not been realised. Projects of a larger size and with proportionately too many temporary workers are conspicuously difficult to manage. Dependence on the tender market declined in 2008 and we secured some large design and construction contracts. At the end of the year, work carried forward in the industry sector, and to a lesser extent in the non-residential construction sector, caused us inconvenience. The volume of work in hand at the installation companies was distinctly lower at 2008 year-end than it was a year earlier. In installation engineering, attention is firmly focused on recruiting and retaining skilled workers and on further margin growth. In a declining market, the latter will, however, not be easy. In the short-term, the postponement of projects in industry is the greatest cause for concern. Around the summer, the supply of work in the non-residential construction sector is also expected to diminish. The government has a major role to play in jump-starting economic recovery by investing in non-residential construction and infrastructure projects.

Trading

In terms of turnover and operating results, the Trading group was in positive territory in the first half of 2008. The diminishing order intake, however, already made it clear that this trend would not continue in the second half. At the end of the day, the greatest decrease in relative terms happened in the turnover of the product groups electronic components for the technological industry and fastening materials for the automotive industry. As from November 2008, the fall in industrial demand continued and on-call orders were carried forward, and as from mid-December a large number of industrial customers in the Benelux closed down for several weeks. The order book at year-end 2008 is at virtually the same level as at year-end 2007. Investment in infrastructure is expected to continue in 2009. It is above all the industry that calls up on-demand orders in dribs and drabs and in much smaller quantities. The top priority for the trading companies accordingly is to be extremely cost conscious in their operations.

Expectations

The spreading of Batenburg Beheer N.V.'s activities across customers and markets, its local entrepreneurial presence and solid balance sheet positions, provides a good starting position to face the recession. However, additional measures will be needed in 2009. Therefore, the following focal points have been identified:

• working capital management
  Critically reviewing the financial resilience of debtors and other contract partners, actively manage inventories, give extra attention to work-in-progress financing.
• cost consciousness
  Deal critically with vacancies at the companies, pay greater attention to purchasing and cash discounts, no unnecessary expenses and activities, attention to planning and capacity utilisation, intragroup lending and borrowing of staff, demarcation of responsibilities and obligations in contracted works.
• service quality
  Precisely in these times, service providers that perform well have the edge and can promote customer loyalty. Quality also means generating ideas together with the customer to offer the best solution, and innovating and applying new (sustainable) concepts and services.

All in all, the uncertainties at the start of 2009 are considerable. What is important is that consumers and producers swiftly regain their confidence in the economy and that the dearth in project and investment finance is resolved. The dwindling demand for technical trading products and installations, and the expected downward pressure on prices will not leave Batenburg Beheer N.V. unaffected. Based on current insights, it is therefore realistic to assume that the 2009 result will be lower than that for 2008. The Batenburg Group companies are in a good position, however, and in these times the sound balance sheet provides the opportunity for anti-cyclical investments. For the medium to long term our mood is still one of optimism, but it is still too early to suggest any concrete expectation for 2009.

Post-balance sheet date events

On 10 March our subsidiary company Van Dalen Installatietechniek took over the shares of Installatie Bureau Meurs. Installatie Bureau Meurs is a small-scale installation company in the field of mechanical engineering and has been established in Apeldoorn for many years. The company, which has turnover of about EUR 1 million per annum, is engaged in small non-residential construction projects and has a wide portfolio of maintenance contracts.