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Grontmij to cut agency staff and offshore work to Eastern Europe and Asia in bid to return to profit

Troubled consultant Grontmij is to cut agency staff and offshore design work to Eastern Europe and Asia as part of a wholesale restructure focused on profitable organic growth.

The firm confirmed today that it collapsed into the red last year, largely due to a poor performance in the UK, Netherlands and France. It made a net loss for the year ending 31 December 2011 of €55.9M (£46.9M) against a net profit of £14.5M in 2010. It has issued two profit warning in the last four months and revealed today that at year end 2011 it was acting under a waiver agreement with its banks as otherwise it would have been in breach of its covenants.

The restructuring has been led by accountant KPMG and will also see the firm pull out of some markets, including maintenance, property development and waste management work.

The firm will also focus on only on winning work in its current European home markets of the Netherlands, the UK, France, Denmark, Sweden, Belgium, Germany, Poland, Turkey and Hungary.

It will target work in water and energy, highways, light rail, sustainable design and asset management. And it will implement strict procedures for assessing which contracts to bid for.

It said the measures will see the firm deliver revenue growth of 3% to 5% per year and a profit margin of 6% to 8% on total revenue by 2015. Total revenue in 2011 was £782M, a increase on 2010 but this was because of acquisitions. On a like-for-like comparison total revenue fell 1.3% last year, and alarmingly by 8.1% in the final quarter.

The firm expects to make cumulative cost savings of €36M (£30M) by the end of 2015. From 2015 annual cost savings will be £12M.

It said 51% of the cost savings would come from cutting the number of indirect employees, with a further 13% saved on a reduction in the associated IT costs and another 36% by reducing the number of offices in Europe. The firm confirmed today that 266 permanent jobs had already been cut. The firm now employs 8,672 staff overall, a fall of 3%.

Basic design work would instead be offloaded to countries where it can be done cheaper.

“Grontmij is exploring the possibilities to off-shore basic, low-value add engineering activities to low-cost countries e.g. in Eastern Europe or Asia,” it said. “Other activities outside the European home markets will only be pursued on a project basis and will be evaluated against stringent criteria.”

The firm added that it would work to sell off unwanted parts of its business in the next 12 months.

“In 2012, we will work further on making these activities available for sale, start preparation and take final decisions on the timing of divestments,” it said. In 2011 the businesses up for sale brought in a combined £54M.

Chief executive Michiel Jaski said there was no quick fix to the firm’s current predicament.

“The year 2011 has turned out to be a very disappointing one for Grontmij with a significant net loss for the full year. We have taken firm actions and 2012 will become a year of restructuring for Grontmij.

“By rebalancing both our operations and our financial household we aim to position Grontmij in the best possible way to achieve profitable organic growth in the years to come. Although there is no quick fix to the challenges Grontmij is facing, we are convinced we have the right strategy to recapture shareholder value and bring Grontmij ‘back on track’.” he said.

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