Review of the Installation and Trading groups

General

The vast majority of the companies in the Installation group operate in the Netherlands, and while they usually provide a regional service, principals are also supported nationally if they so wish by using the resources of fellow subsidiary companies in the Batenburg Group. Hoogendoorn Growth Management also exports automation products for the horticultural industry outside of the Benelux. The installation companies operate in the non-residential construction, industrial and infrastructure markets. The large number of providers makes the market extremely competitive, and competition is often on price. Public sector parties continue insistently to award tenders on the basis of the lowest price. An increase in returns therefore has to come especially from entering into long-standing relationships with principals and partners in the overall construction process, thereby reducing failure costs coupled to a continual capacity optimisation of the production organisation.

The companies of the Trading group are established in the Netherlands and Belgium. They represent the products of renowned international suppliers in the Benelux, or are logistical partners for the supply to industrial customers of complete customised packages of brand-independent products. They also produce medium-sized series of products and semi-finished products for their customers. The Batenburg Beheer N.V. trading companies operate mainly as sub-contractors to the manufacturing industry and infrastructure market in the Benelux.

The 2008 turnover segmented into sub-markets is shown below. Compared to 2007, the share of non-residential construction declined somewhat due in part to the sale of the De Bosman companies in 2007.

Market developments 

For the non-residential construction market, the Dutch Economic Institute for the Building Industry established in late 2008 that in terms of time, the total volume of work on hand had declined to about seven months. This is the lowest it has been since the beginning of 1997. The decline is a result of weaker demand for office accommodation and the fewer options available for funding new projects. Banks are more critical in selecting the projects they are willing to finance, and usually lower the ratio of finance required/market value of the project. Because already financed projects are still in progress, the real effects of the credit crunch and the recession are not expected to be felt until mid-2009. The extent to which newbuild activities will recover largely depends on financing facilities becoming available again, the impact of voids on market prices, and a revival of confidence in the economy.

Should financing options continue to stagnate and should there be fears about the downward pressure on the market value of investments, the property market will at first seek to adjust by postponing newbuild projects. Given the existing installation capacity in the Dutch market, there will be downward pressure on prices for any projects still being undertaken. The expected sharp reduction in new housing starts will only add to this. The installation companies now operating in this segment will go in search of work in other sectors. Voids in the Dutch real estate market still amount to approximately 12%, so that renovations will increase in importance. Also, there are opportunities for the more knowledge-driven installation companies now that the demand for energy efficient buildings is rising. Tenants are usually prepared to pay a relatively higher rent for energy efficient premises since the savings in energy consumption take care of the higher rent, and such a choice enhances the tenant's image.

In industry sector, the volume of work on offer for installation companies fluctuated in 2008, while the trading companies experienced a falling demand for products and semi-finished products. The first signs of a slowdown became noticeable even before the summer when producers and sub-contractors in the semi-conductor industry experienced sharply reduced demand. These parties accordingly used up the stocks available in the supply chain. For industry-oriented installation activities, no change had yet become noticeable around the start of summer. For a major part, their automation activities find their way to the foodstuffs and luxury food and drink industries, which are less sensitive to the economic cycle, and to the producers of capital goods with busy order books.

Once the credit crunch had manifested itself in all its intensity in October 2008, the consequences for the Dutch and Belgian manufacturing industries became perceptible in November and December. Especially consumer electronics and the automotive industry and their sub-contractors were faced with plummeting demand for luxury consumer and capital goods. For many industrial businesses there is as yet no clarity how long it will take before demand from end-customers is restored. Many of these businesses have accordingly not cancelled their orders but postponed them for periods varying from weeks to months. For our trading companies it means that their order books are still well-filled, but also that inventories are ageing and the risk of obsolescence is increasing. The installation companies that reserved capacity for expected orders have capacity utilisation problems as a result of projects that have been carried forward or postponed. Apart from reduced market demand, the financial markets are also causing disruptions. The funds available for investment and refinancing decreased considerably during 2008 and in early 2009. The doubts about creditworthiness and the declining confidence of credit insurers became manifest in the lowering or cancellation of customers' credit limits. As a result of the tighter financial conditions, we are seeing a growing number of bankruptcies, so far, however, with hardly any direct adverse consequences for our companies. This may be seen as a short-lived success, however, for a bankrupt customer cannot place anymore orders or award anymore contracts in 2009.

The infrastructure market (transport of people, goods and energy and water treatment) was the most stable market in 2008. The need for increased capacity of the existing infrastructure for clean water and energy is still rising. For a few installation and trading companies in the Batenburg Group, this offers a stable source of revenue, although a significant portion of the contracts in this market are acquired via tenders. In this market, too, our companies have the edge in the field of application-driven knowledge. A case in point is the Thalys Internet package solution developed by HPR Techniek. In the world of water and energy, a consolidation trend has been ongoing for some years. The privatisation of the energy grid companies will be further consolidated following the introduction of the Independent Grid Management Act (Unbundling Act). As a result of this act, energy production, energy trading and energy supply companies may, with effect from 2011, no longer form part of the same group as the grid companies. Furthermore, effective 2009, the high voltage activities in excess of 110 kV have been transferred to TenneT. It is expected that the increasing need for energy will see investment in expansion of the grids in the coming years. There is also a problem in that producers of sustainable electric power cannot supply it to the energy grid because its capacity is inadequate. Our installation and trading companies, usually in combination with specialised partners, are well-equipped to carry out the complex and large-scale projects in these sectors. In view of the increasing demand for water and energy and the limited degree of cyclical sensitivity of these markets, we consider it important to achieve more than average growth in these sectors in the coming years. In addition, the construction of Maasvlakte II and investments in the Rotterdam harbour area offer real opportunities and possibilities.

Installation group

Koldijk closed the 80th year of its existence with higher turnover and higher net income than in 2007. The high level of its activities and the concurrent demands made on its liquid resources resulted in much attention given to the advance financing of works. In the past few years, the turnover from existing customers grew strongly in relation to the turnover generated through tenders. A number of design and construction contracts of substantial size that continue through to 2009 were secured in the year under review.

Beenen closed the year with higher turnover and profit, yet looks back on a somewhat onerous year. Especially in the second half of 2008, capacity planning required more than the usual attention due to jobs being carried forward in terms of timing. Industrial customers carried forward planned works for an indefinite period due to decreased production or project financing problems. Expansion of the service activities will feature prominently in 2009.

Hoogendoorn has had a good year with slightly higher turnover and higher profitability. The significant rise in energy prices has had an inhibiting effect on investments by horticulturalists. This was compounded by the credit crunch which limited the possibilities for investment. Nonetheless, around the summer of 2008 Hoogendoorn Growth Management successfully introduced the new iSii process computer. The JB Systems entity was hampered by the shortage of engineers on the labour market. A joint venture was therefore concluded with an Indian company that provides software engineers to be put to work in the Netherlands. Lastly, Data Vision supplies camera systems and solutions in the machine vision market. Since camera systems are becoming more and more a commodity, the supply of client-specific solutions is bound to grow in importance.

Schekman had lower turnover but better results than in 2007. The lower turnover is due mainly to projects that have been carried forward to early 2009. Despite the capacity utilisation problems this led to in the last months of 2008, the volume of work on hand for early 2009 is good. Schekman is reducing its dependence on tenders from semi-government institutions by taking advantage of the demand for turn-key projects together with building engineering contractors.

Van Dalen Installatietechniek had a demanding year, with a lower turnover and its results under pressure. The lower turnover was deliberate, following unbridled growth in 2007. A more selective works acceptance should contribute to more manageable operations and better results.

Sparreboom again performed well, achieving higher turnover and net income in 2008. The growth in turnover was accomplished mainly by undertaking more small-scale works, such as the replacement of fire detection systems, control and inspection contracts, and small extensions and alterations, mostly at regular customers. Sparreboom is making the most of the increasing demand for security systems in public spaces and of advisory services in the field of energy management.

IJsselmuiden was in a significantly better position at 2008 year-end than it had been at the beginning of that year. The first half of 2008 ended with a loss, partly due to work in progress execution and coordination problems. We again had to intervene in the organisation, which was strengthened in key positions. At the start of 2009, there is still one large project in progress that was accepted at poor conditions in 2007. The orders on hand have been replenished, so that capacity utilisation prospects for 2009 are favourable.

Wisse performed well in its first full year as part of the Batenburg Group and contributed to results in accordance with expectations. Turnover was a little lower than in 2007, mostly owing to a lower average staff complement. Given the favourable market conditions in 2007 and 2008, a number of direct employees started out as freelancers. The recruitment of young employees and attracting trainees is accordingly receiving the required attention.

Trading group

Seher Nederland's turnover and results, while lower than in 2007, nonetheless again produced good returns. In late 2008, Seher adjusted its internal organisation and reduced its divisions from five to three. Daelman Systems, which was taken over in 2007, has now been integrated into the Energy Technology division. The turnover of this new unit progressed well in 2008. The Electric Engineering & Electronics division had a more difficult year. Its lower turnover can be attributed above all to a virtual standstill in the demand from the semi-conductor industry and to obstacles put up by the grid operators preventing horticulturalists from recycling energy into the distribution grid. This caused sales of complete transformer substation assemblies to fall. The Fastening Engineering division has been feeling the effects of the credit crunch from the fourth quarter of 2008 onwards, with automotive industry customers being particularly affected.

Seher Belgium supplies fastening materials and thermal management products to the Belgian industry. After a satisfactory first half, the effects of the economic downturn were also felt here in the course of 2008. Such was the impact that a significant part of the Belgian industry was closed for several weeks around the turn of the year. In the new year, demand picked up but slowly, with the average size of orders considerably smaller than in the past.

Bevar saw its result go down on turnover comparable to that in 2007. In September, the TIP activities were taken over and integrated into Bevar. In view of Bevar's high quality delivery performance and its dependence on customers needing just-in-time deliveries, much energy and a great deal of money were spent on preparing the changeover to a new ERP system. Bevar's turnover is mainly in the manufacturing industry in the Netherlands, a significant part going to the automotive industry. Starting in the last few months of 2008, the fall in demand has been keenly felt.

HPR Techniek achieved higher results and turnover in 2008. In late 2007, HPR took over a resistor agency from its fellow subsidiary company Seher and added it to its own production and sales of resistors. In addition, strong growth was achieved in the field of process engineering and controllers. Its market position was strengthened in recent years by means of small targeted acquisitions.

TPC turned in a satisfactory performance in its first full year within the Batenburg Group. Turnover was on an ascending curve for a large part of the year. In the fourth quarter, incoming orders were on course, but the level of on-call deliveries to industrial customers declined. The purchase of an additional SMD machine improved the efficiency of the production process as from mid-2008 and has enabled TPC to deliver even better quality.

Measures taken in 2008

As indicated, the result for the second quarter of 2008 is comparable with that for the same period in 2007. The mix is different however. The contribution to net income of the installation companies increased significantly. The trading companies with their early-cyclical customers already felt the effects of the recession in 2008 and closed that year with a lower result and a lower order/bill ratio than in 2007. The volume of the work on hand at the installation engineering companies focusing on the non-residential construction industry is still good, but a fair number of temporary workers have been shed. Particularly at the installation companies with industrial principals, contracts are being postponed.

Based on profitability considerations, we already took the necessary measures to enhance future efficiency at Batenburg Group entities in 2008. Hoogendoorn Growth Management decided to let even more of its distribution activities go through dealer channels. Branches in France and the UK were accordingly closed, and in the Netherlands, Hoogendoorn Projects, its own installation unit, was transferred to one of the dealers. Seher bundled the activities of its former five divisions into just three. HPR Techniek implemented a similar measure. The trading companies especially employed fewer people as of the end of the year under review following more efficient process management and a critical attitude towards the filling of vacancies or the replacement of employees who left.