Your browser is no longer supported

For the best possible experience using our website we recommend you upgrade to the newest version of your browser.

Your browser appears to have cookies disabled. For the best experience of Construction News, please enable cookies in your browser.

Welcome to the Construction News site. As we have relaunched, you will have to sign in once now and agree for us to use cookies, so you won't need to log in each time you visit our site.
Learn more

Bam to cut costs after UK and German projects cause £60m hit

Updated: Royal Bam Group’s chairman has said he is “open-minded” about the sale of future Bam assets amid increased scrutiny of its UK operations after a scheme contributed to around £60m of overall project losses.

The group announced it expected to be hit by losses of around €75m (£59.3m), with “unexpected problems” at a UK project it bid on in 2012 contributing to the loss.

Chairman Nico de Vries told analysts the group will “explore all options” to increase its financial strength, including divesting assets. “I am open-minded and will consider all options that will unlock value and not damage the future performance of the group,” he said.

Bam will implement a cost reduction programme to find cost savings of around €100m (£79m) by the end of 2015. It will also aim to improve working capital across the group by at least €300m (£237m) in the same time period.

Losses were attributed to problems two projects: one in Germany that was hit by adverse ground conditions – one of “a handful of loss-making projects” reported last year.

Adverse ground conditions and bad weather also struck a “mid-sized UK civil engineering project”.

Royal Bam Group declined to name the UK project or the extent of the losses it had suffered when contacted by Construction News due to commercial sensitivities.

Mr de Vries said the project had been identified as a “code red” scheme and that Bam would do its “utmost to deliver it on time, but it will cost a lot in extra manpower and equipment”.

“For both projects we can now see that we bid too sharp. We ended up taking the contract risk for the ground conditions and we underestimated the potential downside. We also made optimistic estimates of cost savings that we could not, in fact, deliver.”

Mr de Vries said the contractor had bid for the jobs under “old tender procedures” and that under new tender procedures implemented a year ago the losses would not have occurred.

Asked would the group divest of its business in a whole country, the chairman said: “I said I am open-minded and we are investigating and looking at all options.”

In 2013, its UK civils arm Bam Nuttall had turnover of £756m for the year (2012: £730m) while pre-tax profits fell by £7.4m to £10.7m.

Bam said it will streamline the structure of its operating companies and try to secure annual revenue of at least €100m (£79m) through property disposals.

Mr de Vries said: “I want to make it very clear we accept the urgent need to raise our game. This does not mean [in] increments; it means step-changes across the entire group.

“We will get help from external consultants to support us in this process. That will be new for us, we acknowledge that we need outside help to plan and drive the change programmes.”

Bam said the cost-saving measures were being undertaken “to improve results” and to ensure Bam will remain within its banking covenants.

It will publish further details of its cost-savings programme alongside its six-month results on 21 August 2014.

Bam’s UK construction, property and FM arm, Bam Construct, had group turnover of £839.5m, down 8.5 per cent from £917.2m in 2012, while pre-tax profits fell 21.6 per cent to £10.9m (2012: £13.9m).

Have your say

You must sign in to make a comment

Please remember that the submission of any material is governed by our Terms and Conditions and by submitting material you confirm your agreement to these Terms and Conditions. Links may be included in your comments but HTML is not permitted.