Annual report 2013 MT Højgaard Group - PDF

Annual report 2013 MT Højgaard Group Annual report 2013 ANNUAL REPORT 2013 MANAGEMENT S REVIEW MANAGEMENT S REVIEW Group profile 4 Summary 5 Financial results for Outlook for Consolidated

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Annual report 2013 MT Højgaard Group Annual report 2013 ANNUAL REPORT 2013 MANAGEMENT S REVIEW MANAGEMENT S REVIEW Group profile 4 Summary 5 Financial results for Outlook for Consolidated financial highlights 6 Productivity in focus - for our customers and ourselves 7 Strategic platform 8 Focus areas 8 Must Win Battles 8 Targets 8 Operating review 10 Construction 10 Civil works 11 Offshore and steel bridges 12 Activities in other enterprises 12 Financial review 15 Fourth quarter Performance highlights - financial statements Revenue and earnings 16 Balance sheet 17 Capital, cash resources and financial position 18 Order intake and order book 19 Outlook for Knowledge resources, organisation and management 21 Customers 21 Processes, method development and new products 21 Employees 21 Strengthening the Group 22 Management changes 22 Corporate social responsibility 23 Injury prevention 23 Environment and climate 24 Women in management 25 Future workforce 25 Other CSR initiatives 25 New initiatives in Membership of UN Global Compact 26 Setting up GRI reporting 26 Risk management 27 Risk management as an essential part of the Group 27 About risks in the construction and civil engineering industry 27 About risk handling in the Group 27 Our risk management model works 27 Paradigm for where the Group bids 28 Risks on project development activities 29 Other risk factors 29 Financial risks 29 Corporate governance 30 Financial reporting process 31 MANAGEMENT STATEMENT AND INDEPENDENT AUDITOR S REPORT Statement by the Executive Board and the Board of Directors 34 Independent auditor s report 35 Executive Board 36 Board of Directors 37 FINANCIAL STATEMENTS Income statement and statement of comprehensive income 40 Balance sheet 41 Statement of cash flows 43 Statement of changes in equity, parent company 44 Statement of changes in equity, Group 45 Notes 46 OTHER INFORMATION Consolidated financial highlights EUR 88 3 ANNUAL REPORT 2013 MANAGEMENT S REVIEW Group profile The MT Højgaard Group is one of the leading players in the construction and civil engineering industry in the Nordic countries. The Group has the size, experience and capabilities to deliver everything from small construction and civil engineering projects to very large, complex projects. We are organised into the company MT Højgaard and a group of specialised wholly-owned and partly owned subsidiaries. We provide services based on our strong capabilities, which, allied to our geographical footprint, expertise and strengths when it comes to managing special projects, give the Group a solid foundation both in Denmark and internationally. Our history began in 1918, when the two companies Monberg & Thorsen and Højgaard & Schultz were founded. The two companies merged in 2001, and the MT Højgaard Group became a reality. We operate in selected markets, both geographically and in terms of capabilities, and with our international business relationships we are able to form the relevant joint ventures and partnerships. Our good reputation is based on satisfied customers achieved by focusing on quality, efficiency and delivery reliability. 4 ANNUAL REPORT 2013 MANAGEMENT S REVIEW Summary Management s review The financial results match expectations and are a marked improvement on the major losses of the two previous years. Recent years losses have been turned around to a profit from ordinary activities of DKK 35 million and a consolidated operating profit (EBIT) of DKK 165 million, matching the outlook at the start of the year. The Buxton case, which is one of several old disputes, was concluded in 2013, and these cases contributed a total of DKK 130 million to the results The improvement is due to targeted action, especially in risk management, tightened profitability requirements and process efficiencies Several striking projects were handed over to satisfied clients, including Novo Nordisk s new head office, the Hardanger Bridge, the PPP project Stjerneskolen, the motorway bridge near Linå between Aarhus and Silkeborg and the expansion of the E45 motorway near Vejle A 26% increase in order intake, partly through a number of large orders such as head offices for Nordea Bank and BESTSELLER; refurbishment of Rosenhøj and Langkærparken; civil works, construction and electrical works on the New University Hospital (DNU); and construction of a care centre and a health centre at the shopping centre Albertslund Centrum A new strategy framework focusing on profitability was adopted by the Board of Directors in November We aim to achieve an operating result (EBIT) of 5% by the end of Improvement of the financial results in 2014 based on an expected positive market development, a tight risk model and profitability requirements, focus on customer satisfaction and long-term partnerships, but also the fact that the first half of 2014 will continue to be affected by old, unprofitable projects. Financial results for 2013 Revenue was DKK 7.4 billion, as expected Profit from ordinary activities was DKK 35 million, as expected The consolidated operating result (EBIT) was a profit of DKK 165 million compared with a loss of DKK 507 million in The effect of the conclusion of the Buxton case and other disputes contributed DKK 130 million to consolidated operating profit. Equity stood at DKK 1.1 billion compared with DKK 771 million at the end of In February 2013, the Group received an injection of DKK 300 million in new capital. The equity ratio at 31 December 2013 was consequently 27.8% versus 17.4% in 2012 Cash flows from operating activities were an inflow of DKK 19 million No dividend is proposed Outlook for 2014 Expected revenue of between DKK 7.0 and 7.5 billion Expected positive operating result (EBIT) of DKK million, equivalent to an EBIT margin of 2-3% before special items (old offshore disputes) The result may be affected by the outcome of old offshore disputes, most of which are expected to be concluded in 2014, and the first of them already within a relatively short time New IFRS rules for jointly controlled entities have a positive impact of around DKK 50 million on the expectations concerning the operating result (EBIT) The order book stood at DKK 7.5 billion at the start of 2014, with DKK 5.1 billion expected to be executed in 2014 Maintenance of satisfactory financial resources in the form of cash and cash equivalents, securities and credit facilities 5 ANNUAL REPORT 2013 MANAGEMENT S REVIEW Consolidated financial highlights Management s review Amounts in DKK million Income statement Revenue 9,087 8,303 9,307 9,735 7,358 Gross profit (loss) Operating profit (loss) (EBIT) Profit (loss) before tax Profit (loss) for the year Cash flows Cash flows from operating activities Purchase of property, plant and equipment Acquisition and disposal of enterprises and activities Other investments, net* Cash flows for investing activities Cash flows from operating and investing activities * Portion relating to net investments in securities Balance sheet Non-current assets 1,036 1,080 1,124 1,143 1,043 Current assets 4,468 3,618 4,530 3,290 2,977 Total assets 5,504 4,698 5,654 4,433 4,020 Equity 1,610 1,618 1, ,116 Non-current liabilities Current liabilities 3,654 2,761 3,960 3,253 2,404 Total equity and liabilities 5,504 4,698 5,654 4,433 4,020 Other information Order intake 7,081 10,070 8,836 7,026 8,849 Order book, year end 7,455 9,222 8,751 6,042 7,533 Net interest-bearing deposit/debt (+/-) Invested capital 880 1,281 1, ,019 Average number of employees 5,872 5,217 4,738 4,688 3,974 Financial ratios Gross margin (%) EBIT margin (%) Pre-tax margin (%) Return on invested capital (ROIC) (%) Return on invested capital after tax (ROIC after tax) (%) Return on equity (ROE) (%) Equity ratio (%) Proposed dividend (DKK million) The financial ratios have been calculated in accordance with Recommendations & Financial Ratios 2010 published by the Danish Society of Financial Analysts. The financial ratios used are defined in note 1. 6 ANNUAL REPORT 2013 MANAGEMENT S REVIEW Productivity in focus - for our customers and ourselves 2013 was a busy year with major changes, both internally and in relation to our customers. Taking this into account, it is satisfying that we delivered a profit from ordinary activities of DKK 35 million and a consolidated operating profit (EBIT) of DKK 165 million, corresponding to a margin of around 2.2% of revenue. The Buxton case, which is one of several old disputes, was concluded in 2013, and these cases contributed a total of DKK 130 million to the results. This is on a par with expectations and a marked improvement on the major losses of the two previous years. The improvement was due to a determined effort to restore a healthy financial position. Profitability has already increased, the quality of our order portfolio has greatly improved and our risk profile is healthier. We have thus entered a phase of reasonable, positive development and command confidence from both our customers and our business partners. The result reflects the fact that we are still completing previous orders with low profitability and this will also be the case for However, our sights are set on a much better profitability than we have had for many years, in the form of an EBIT margin of 5%, which we aim to achieve by the end of In parallel with our work to complete the unprofitable projects, we have been consistently building up a strong, forward-looking platform. We have particularly focused on improving efficiency, organisation and risk management. The effect of all the restructuring is increasingly filtering through in the form of improved profitability in both the day-to-day operations and the intake of new orders. results in better quality, increased satisfaction, reasonable project realisation and greater profitability. We have had problems with earnings, but we have also addressed them, for instance by tightening the profitability requirements for taking on new projects and ensuring a more precise distribution of responsibilities and closer follow-up than previously on the individual projects. This has helped to improve earnings over the past year and has equipped the Group to meet a brighter, more exciting future. However, there is still some uncertainty related to outcomes of the offshore disputes that the Group is involved in and we expect to be concluded in The first of them already within a relatively short time. As in other parts of industry, we can see challenges ahead, but also many opportunities. We anticipate that the Danish construction and civil engineering market will grow by approx. 20% overall over the next five years. We have become much better at bidding for projects that are a good match for us. We have implemented a large number of strategic and organisational initiatives. And last but not least, our customers are expressing their satisfaction with our services. So, together with our highly skilled and committed employees and managers, I look forward to the Group delivering many good solutions and results in the years ahead. Torben Biilmann President and CEO The focal point of our strategy is productivity. Our task is to improve productivity in all we do. This will ensure a sound financial position for the Group, but optimum productivity is also our guiding principle in every single customer contact, in all our collaborative relationships and on every single project. In this way we will also play our part in increasing productivity in the industry and the community as a whole. One way in which we are improving our productivity is through our ever-increasing use of information technology. This improves efficiency in our communication concerning individual projects. At the same time, increased digitisation provides good opportunities for continuously coordinating expectations, coordinating the activities of those involved and making the MT Højgaard Group a central unifying point during the course of the project. Customers receive better results and we gain valuable and useful insight, which can be exploited for the future. With the help of stronger collaborative relationships and well-structured partnerships, we also try to become involved in projects at the earliest possible stage. This 7 ANNUAL REPORT 2013 MANAGEMENT S REVIEW Strategic platform The MT Højgaard Group s vision is to be the most productivity-enhancing group in the construction and civil engineering industry. By this we mean that we want to increase productivity in all we do, because productivity is one of the main challenges facing Danish society, where the construction and civil engineering industry in particular is characterised by very low productivity. We are keen to change this, as it will also help to ensure a sound financial position for our customers and ourselves. The outcome of our daily work must be the opportunity for both us and our business partners to work more efficiently and productively. When we build new head offices, we strive to give our customer s users the opportunity to be productive, for example by ensuring a better indoor climate or space for more production machinery at the same price. And when we build a bridge or a road with more hard-wearing asphalt or extra capacity, we help to create productivity in the community. When we carry out our tasks in a more intelligent way by involving the right people at the right time and thus reducing the input of production, energy and resources, this also helps to promote productivity. In this way our vision embraces everyday tasks and also reaches out into the community. Focus areas We have a three-pronged strategy framework, which ensures that we enhance productivity and offer better, faster and more cost-effective solutions: Projects from Community to Operation, Best in Class VDC (Virtual Design Construction) and Exploiting Group Synergies. Projects from Community to Operation We focus on establishing collaboration with individual clients and their consultants as early as possible, preferably already in the conceptual phase. In this way, the Group s experience and efficient solution options will play a much bigger part in the final solution and the process will be simpler. Best in Class VDC We focus on efficiency in individual projects and in the way we implement individual activities, and on strengthening these by increased use of common information technology. This technology helps with factors such as visualisation, technical precision, procurement and supplies (the right quantities in the right places and at the right times), planning and coordination of the many processes involved and continuous monitoring that realisation is in line with plans technically and financially. All projects are supported by increased systematisation and standardisation. In the light of experiences with individual projects, we accumulate knowledge, which we can use in developing optimum processes and standard solutions. We call this VDC - Virtual Design Construction. Exploiting Group Synergies Our day-to-day work is characterised by cooperation between the companies in the Group in all relevant contexts. We do this via central cross-organisational initiatives and ad hoc from project to project. Pooling our experiences and skills, as well as types of projects and customers means that the various members of the Group benefit greatly from each other, both strategically and operationally. Developing common solutions in such areas as IT, risk management and procurement, drawing on common skills in areas such as law, finance and health and safety, increases knowledge, raises quality, lowers costs and creates a more efficient Group. Must Win Battles We have identified five action areas that are to help us to achieve our targets. Each of the five areas is made up of a number of actions that help us to implement our strategy. 1. Control of operations Actions to improve the Group s financial strength 2. Employees, management, culture and values Actions to reinforce our culture, embed our values and support management development and professional development 3. Project and price optimisation Actions to improve prices, quality and projects 4. Markets and customers Actions to cultivate attractive markets and segments and link key customers more closely to the Group 5. Group strategy Actions to develop long-term robustness and profitability for the Group Targets We have set ourselves six operational targets. In the first year, they will only apply to the MT Højgaard company, but beyond 2014 the targets will be extended to cover the whole Group: Customer satisfaction index 76 We want to have satisfied customers, who feel their collaboration with us provides them with sound solutions. We achieve this by ensuring that price and quality go hand in hand. In 2013, we had an overall customer satisfaction index of 77 out of 100. In 2013, we carried out fewer surveys than previously and had a response rate of 37%. In 2014, we would like to increase this figure to 50% while at the same time maintaining focus on a high degree of satisfaction, at a minimum of 76 out of % of revenue from key customers We have well-functioning partnerships with good customers, who we see great potential in working with again and thus achieving added sales. Those we describe as key customers currently represent 40% of our revenue. We would like to increase this to 60% by the end of 8 ANNUAL REPORT 2013 MANAGEMENT S REVIEW 2016, for instance through closer internal collaboration on customers and by building up a better understanding of the customer s needs. Employee satisfaction index 76 Our employees have to put the strategy into practice and work towards achieving our vision. It is they who will have to secure productivity, so we focus on job satisfaction and motivation for implementing the strategy in practice. In spring 2013, we measured employee satisfaction at MT Højgaard and achieved an overall satisfaction index of 68 out of 100. This was a fall of seven points from the index of 75 in The fall was expected as a result of the turbulence, the adjustments and the speed of the changes that the employees have experienced during the last few years. We are currently focusing on improving the index to 76 by the end of 2016, for instance through management by results and objectives, which will give the employees motivation and direction, and we also expect that the figure will increase when the Group delivers the expected results. No defects or deficiencies Defects and deficiencies in building equal poor economy, as they mean that individual tasks have to be performed several times. We therefore wish to ensure that we avoid defects and deficiencies, for instance by using proven standard solutions, in respect of both the methods we use and the actual product we sell. In recent years, we have been focusing on developing solutions that will ensure we avoid defects and deficiencies. The next step is the implementation of a measurement of the number of defects and deficiencies on projects. Max. 15 injuries per one million hours worked The most important reason why we are constantly striving to avoid injuries is that it should be safe to go to work. However, being able to show the lowest possible injury frequency also puts us in a better position with regard to our clients, and injuries are also bad for business as they invariably affect productivity. In 2013, MT Højgaard s injury frequency of 27.4 per one million hours worked among our hourly paid employees was far too high. Over the next three years, we want to bring this down to below 15, with none resulting in fatalities or being of a serious nature (injuries resulting in amputation, bone fractures or extensive bodily injury). Ongoing improvements in productivity In collaboration with the Confederation of Danish Industry (DI) we are working on defining a method for measuring productivity in our Group. At the same time, we have launched a number of
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