Search This Blog

Thursday, 28 February 2013

Dutch Central Planning Bureau confirms what everybody already knew: The Netherlands is not going to stay within the 3% EU budget deficit threshold for 2013 and 2014.

Today, 28 February 2013, was an important day for the cabinet of Prime Minister Mark Rutte (Liberal-Conservative VVD party) and vice-PM Lodewijk Asscher (PvdA; Dutch Labour).

Today, the Dutch planning data for 2013 and 2014 have been presented by the Dutch Central Planning Bureau (

Frankly, the longterm value of these CPB forecasts is in reality close to zero, due to the fact that the real world seldomly sticks to the plannings and models of the CPB.

However, the data is useful as an indicator for the success rate of the current cabinet's policy, as it calculates the projected outcomes from political decisions that have been made in the (recent) past by the cabinet (and its predecessors, as a matter of fact).

A very important figure in the CPB-forecasts is the (forecasted) budget deficit for 2013 and 2014. This budget deficit for both years should come under the 3% threshold that has been set in the European Stability and Growth Pact (SGP). This pact has been reinforced in 2011 by the Euro-zone members, as a consequence of the unstable financial and economical situation in the PIIGS-countries (Portugal, Ireland, Italy, Greece and Spain).

The fact that The Netherlands for the last five years in a row couldn’t meet the demands, set by the SGP, has been quite painful for PM Mark Rutte. He and former finance minister Jan Kees de Jager repeatedly banged the drum for ‘sticking to the budget’ in the South-European countries: a policy which didn’t owe them much applause from these countries.

Today, the CPB data was again a great disappointment for the liberal/labour cabinet, although the figures themselves were not really bad at all. Still, the (dim) hopes of the cabinet that The Netherlands would stick within the 3% EU budget deficit threshold in 2013 and 2014 after all, were blown to smithereens.

Instead of directly announcing yet other austerity measures, the cabinet wisely decided to keep its policy ‘as is’ for 2013.  For 2014, the cabinet did promise additional austerity measures to the tune of €4 bln.

Let’s have a look at the English press release of the CPB and the accompanying data. Afterwards, I will share my comments to the data and forecast.

CPB expects a budget deficit of 3.3% for 2013 and 3.4% for 2014. Despite a slight recovery later on in the year, GDP volume in 2013 will fall by 0.5%. For 2014, the economy is expected to grow again by 1%. Unemployment in 2013 will increase by 90,000 people to 560,000 and for 2014 this will be 575,000.

For 2013, projected economic growth has not been adjusted compared to last December’s projections. Private consumption in 2013 will decline sharply (-1,5 percent), as it did last year. Housing investments are projected to decline even more – by 7%. In contrast, the export of domestically produced goods shows signs of recovery. Despite this fact, GDP volume will fall for the second consecutive year, by 0.5%, following the drop of 0.9% in 2012. This causes employment to decline again and unemployment therefore to rise further, to 6,25% of the labour force.

The projected recovery for 2013 will become evident in the year-on-year figures for 2014, at which time growth will return, by 1%. The limited recovery largely will be due to a more positive development of the global economy under less elaborate deficit-reducing measures than those in effect for 2013. Domestic spending, however, is not expected to contribute to this growth and, despite this limited growth, unemployment will continue to increase up to 6,5%.

In 2013, the sizeable deficit-reducing measures will cause the budget deficit to increase by 0.7% of GDP to 3.3%, with a subsequent marginal increase up to 3.4% in 2014. The Maastricht criterion of a 3% maximum deficit will be exceeded in 2013 by 2 billion euros and in 2014 by 3 billion. These exceedings are accomplished despite substantial incidental factors (e.g. telecom auction, the SNS Bank’s nationalisation, one-off resolution levy, higher recession-related dividend from Dutch Central Bank) which on balance will have a positive effect on the budget deficit (1 billion euros in 2013 and 2 billion euros in 2014).

Here is a table with the most important data from the Central Planning Bureau

Crude oil price (Brent, $)
Exchange rate (dollar p euro)
Long-term interest rate
(level in %)
Gross domestic product
(GDP, economic growth) (%)
Value gross domestic
product (GDP) (bln euro)
Private consumption (%)
Exports of goods
(non-energy) (%)
of which domestically
produced (%)
re-exports (%)
Imports of goods (%)
Consumer prices (CPI) (%)
Compensation per full-time
employee market sector (%)
Gross wage Jones family
(in euro's)
Purchasing power (Jones,
one-income household) (%)
Purchasing power
(median, all households) (%)
Unemployment rate
(% labour force)
Unemployment rate,
national definition
(% labour force)
Production (%)
Labour productivity (%)
General government financial
balance (% GDP)
Gross debt general
government (% GDP)

I made the most interesting data in this overview bold. I hope that the other data speaks more or less for itself.

Again, although today's data for 2013 and 2014 seems negative for the cabinet, I suspect that some data is still much too optimistic. 

I said the same of last year’s CPB outlook and I have proven to be right about that: look for instance at the Dutch GDP, the private consumption and unemployment figures in last year’s outlook and compare them to the real data over last year in today's outlook.

Now my comments on this year’s bold data: 
  • As far as I’m concerned, there is the chance of a snowball-in-hell that the Brent-Crude price in 2013 and 2014 will remain at about the same level as in 2012. The shale-gas revolution in the United States, with the plummeting prices for Liquified Natural Gas (LNG), is already diminishing the prices for coal as a fuel. In my opinion, it will also affect the demand and thus the price for oil and oil-derivatives.
    • Although oil is still hard to replace as a fuel in cars and in the plastics industry, the shale-gas revolution might put LPG (Liquified Petrol Gas) or LNG (back) at the map as a relatively clean car fuel.
  • The stable exchange rate between Euro and Dollar in 2013 and 2014 in this forecast, seems somewhat out of touch in light of the mounting currency conflict between Japan, China and the US/UK vs Europe.

    A more expensive Euro would change the Dutch economic picture dramatically, in spite of the fact that The Netherlands is relatively (!) insensitive towards a cheaper dollar, according to Prof. Sylvester Eijffinger.
    • With a cheaper dollar, the purchasing power of all importing countries diminishes, whose local currency is closely connected with the dollar: countries like Russia, Ukraine, Argentina, Brazil(?) etc. The higher prices for Dutch products will definitely have an effect on Dutch (agricultural) exports and thus on Dutch economic prosperity.
  • I’m really puzzled how the CPB can think that the unemployment will remain relatively stable in 2013 and 2014 and the private consumption might even improve in 2014.
    • Mass lay-offs have been the name of the game, since mid-2011 and their number is only soaring in the financial industry, Building&Construction, Transport&Distribution and a dozen of other industries in The Netherlands.
    • In my humble opinion, unemployment will rise further until 8.25% at the end of 2013 and perhaps even 9% in 2014.
    • This will have a devastating effect on consumption: this will not only drop in 2013, but also in 2014, is my conviction.
Summarizing, I would say that the most important task of the current cabinet is not to choke the Dutch economy to death in the coming years, in a crazy attempt to meet the SGP-standards. 

“We” did that in Greece, Spain and Portugal and we are threatening to do that in Italy, France and The Netherlands. Let this data please be a warning for this cabinet that both excess austerity, as well as “mindless” Keynesian spending can never be the solution for this economic crisis. The cabinet must find a balance between austerity and stimulus for topics like, education, innovation and scientific development.

Like I wrote a few months ago:

What the new cabinet should do is not firing up the intra-European exports again, for reasons that I described earlier. The cabinet should try to stimulate the Dutch internal economy and consumer confidence. Not through a brainless Keynesian stimulus-package that fills potholes and builds bridges to nowhere, but by stimulating education, development of skills and craftsmanship,  innovation and creativity. And maybe even through developing an old-fashioned industrial policy: it worked for the Germans during the last decade. Hell, did it!

Wednesday, 27 February 2013

Imtech found out how deep the rabbit hole was and reported €300 mln in write-off losses on German and Polish ´work-in-progress´ portfolio. Company forced to make follow-on offering of €500 mln.

The Dutch Engineering and Consultancy agency Royal Imtech NV (IM) is a company in deep trouble nowadays.

A few weeks ago, the company reported that a write-off of ‘at least €100 million’ had to be made on Polish projects, concerning the adventure park ´Adventure World Warsaw`and the development of energy-generating biomass plants, also in Warsaw:

Especially the story concerning the bounced bill of exchange and the blocked accounts with €200 mln in advanced payments by Adventure World that do or do not exist, leave ample room for speculation. As a consequence, there had been the designated write-off of €100 mln on work-in-progress, that had been disputed by Adventure World director Peter Mulder as being exaggerated.

On top of that, there has been the message from CEO Van der Bruggen that Imtech´s Polish projects could have been subject to´irregularities´ during the execution. The expression ´irregularities´ could point at a wide array of disturbing causes.

In my humble opinion (warning: this is pure speculation on my behalf!), even bribery of Polish officials could be among these causes. The situation at Philips Poland of 1.5 years ago showed that these things can never be ruled out.

There is one other disturbing fact: when I look at a photo-series of World Adventure amusement park, connected to this article in the FD, I wonder where the €100 mln in activities, carried out by Imtech, did go? I don't see this park being finished (no way!) within two years and I don't see how millions of Euro's could be spent on this park, unless in drawings, computer-designs and blueprints.

The fact that – apart from the Polish officials – also the German management of Imtech have resigned, gives much food for thought. I suspect that these Polish adventures of Imtech could have an unpleasant follow-up in the very near future.

To be continued…

Again my instincts did not deceive me.

Yesterday, a news message reveiled that Imtech had been promoted from the Dutch Midcap-index (AMX) to the leading AEX index at NYSE Euronext Amsterdam: a promotion to the ‘Champions League’ of Dutch stock. This had been a widely anticipated development, as the market capitalization value of Imtech earned the company this promotion. The only factor stopping it, was that another fund would have to leave the AEX for some reason first.

What should have been a glorious day for Imtech, turned into a nightmare this morning. The new CEO of Imtech, Gerard van de Aast, announced additional information on the initial story concerning the adventure park in Poland and the news was… not really pleasant, to say the least.

Instead of the write-off to the tune of €100 million that Imtech initially announced on February 8, a mindboggling €300 million must be written off on the Polish, as well as the German work-in-progress and matured debtor-portfolio. In order to regain a healthy balance, Imtech is forced to make a follow-on stock offering of €500 million in 2013.

Indeed, like I wrote in the aforementioned snippet, the dismissal of the German executive management had been a bad omen.

The stock got pounded with an 11.43% loss at closing time. This was an enormous loss, when you reckon that it is only weeks before the quotation at the AEX will start (March 18, 2013): all index-trackers have to buy Imtech stock in the coming weeks to remain up to date.

On top of that, investors are currently holding a massive short position in Imtech of (at least) 8.96%. As in this figure only the larger short positions of above 0.5% have been summarized, the real short position is probably (much) higher. This short-selling number comes from the up-to-date short-selling list of the Dutch Authority Financial Markets (, which I used as a source.

The figure of €300 million in write-offs becomes even more shocking when we look at the personnel number, the revenues and profits of Imtech's German and East-European operation in 2011: with 5326 employees, the German/East-European subsidiary of this Dutch company collected €1506 million in revenues and an EBITA (Earnings before Interest, Taxes and Amortization) of €127 million (€107.8 million in 2010).

In other words, this write-off blew Imtech's EBITA of 2011, 2010 and partly 2009 skyhigh. Per personnel member, a mindboggling amount of €56,326 in revenues is down the drain. The German / East-European Imtech personnel worked from January until 15 March 2012 for free! Can you believe it?! I can’t!

This morning, the rookie CEO of Imtech, Gerard van de Aast, had an interview with BNR Business radio about these latest bad tidings. What was more important than what Van der Aast said, was what he didn’t say:

BNR: Concerning Poland, how could a write-off of €100 million suddenly turn into €150 million?

Gerard van de Aast: We already stated on February 8 that the €100 million has been a minimum amount. Further investigation showed that the real amount of the loss has been €150 mln in Polen

BNR: And Germany also added €150 mln in losses. What happened there?!

Van de Aast: On February 5, we replaced the management in Germany. The new management started an investigation and this disclosed that the ‘matured debtor’ balance, the work-in-progress balance and losses that had been incorrectly forwarded to the future, combinedly made up a loss of €150 million, which needed to be written off.

BNR: You talk about it in a quite detached manner. How could this happen?! What is wrong within the Imtech organization that you only were informed less than a month ago?!

Van de Aast: We are announcing two events today:

1. A considerable improvement of our financial position and structure
2. A number of measures that must improve the management structure of Imtech. The targets, the rewarding structure, the set-up of systems...

BNR: My question was : what is wrong with Imtech. Some hedge funds already showed us some time ago that there wore some structural flaws within the Imtech organization. At first, this was denied by Imtech. Now you will have to come to the conclusion that some parts of the outside world knew better what was going on at Imtech, than the Imtech management itself. What has been wrong?!

Van de Aast: What has been wrong is that some systems need to be improved. We have to alter the style of direction within the company, with tighter controls when it comes to projects and issues that are going on, concerning our financial structure. We are doing that now.

BNR: Is everything disclosed concerning Poland, Germany and other parts of Imtech or is this only the tip of the iceberg?

Van de Aast: I have been asking this question to myself. I have this job now for two months and this is of course the obvious question. After I started at this job, I took the time for one month to look around. I came to the conclusion that - outside Poland and Germany - Imtech is a fine company. Also Imtech Germany is in itself a fine company with state-of-the-art technology, which works for a lot of customers of high repute. Secondly, I looked at what was going on with issues like cash conversion and I was fairly comforted by what I saw.

BNR: You will get a quotation at the AEX index soon. Which effects will Poland and Germany have on your quotation?

Van de Aast: It is important that we state clearly what we are going to do about this situation. That is what we are doing right now. We are going to improve our financial structure and we are going to take sturdy directives to better control the organization. That is what we have to do.

BNR: Is transparency the solution in such a situation?

Van de Aast: Yes, transparency is part of the solution. I have been totally clear and transparent. We will take and solve these problems.

When I would have to give a figure from 1 to 10 on the amount of blatant nonsense in this interview, I would give it a 12!

As you can see from the red and bold text, the interviewers of BNR did their best to get some useful information from this CEO within the natural boundaries of a topical radio program. 

However, as the blue and bold text shows, this was a total 'mission impossible'. Van der Aast didn’t even give a hint of an answer about what caused these enormous and unprecedented losses in Poland and Germany and how to prevend this from happening again in the future. 

CEO Van der Aast's last remark, that he had been totally clear and transparent is the worst insult on my intelligence that I have ever endured.

The more I think about this mega-loss of €300 million, the more I am convinced that there is something very, very wrong within Imtech and that it is almost a miracle that the organization still exists in its current form.

The only ‘optimistic and non-cynical’ reasons for such mega-losses could be that:
  • Imtech spent €300 million on salaries, purchases of materials & tools and on hiring subcontractors for the execution of new and existing projects in Germany and Poland, without checking if the people, who arranged these assignments, had any money to spend;
  • Nobody bothered to send an invoice in Germany and Poland for at least three months in 2012 or forgot to do so in a substantial number of cases for a number of years in a row, without reporting this properly;
  • The invoices actually had been sent, but everybody forgot to check if these lost invoices had been paid at all. Of course, nobody had bothered to report this to the Dutch head-office;

I buy neither of these three reasons for a dollar!

The last two reasons had also been mentioned during the bankruptcy case of a former employer of mine in 2002. In reality, this whole bankruptcy case dispersed an intolerable stench of fraud, forgery and embezzlement of company money from every pore of the organization

A more realistic reason, in my humble opinion (yes, this is an opinion, which is based on my personal gutfeeling) is therefore that Imtech became the victim of wide-spread fraud, embezzlement, forgery and / or bribery with company money (strike where not applicable). In my opinion, this is the only realistic reason for losses to this gargantuous amount of €300 million.

How else could a large subsidiary lose 20% (!) of its annual revenues, without anybody noticing it at the head-office in The Netherlands?!

What becomes clear from the interview with CEO Gerard van de Aast is that he:
  • Either didn’t want to say what went wrong within the German and Polish Imtech organizations. This would be an offence against 'stock regulation on full disclosure' in The Netherlands;
  • Or that he still is totally clueless himself about what caused this mega-loss;

When you take these circumstances into consideration, it seems that keeping Imtech stock and especially entering into the €500 million follow-on stock offering (in the form of a restricted (claim) emission for current holders of Imtech stock) suddenly became a long shot.

Either way, this is very disturbing news that makes me want to go short on Imtech stock.

This is of course not an investment advice, as I give none! Following my non-advices is something that you do at your own risk and expense!

Tuesday, 26 February 2013

It is a time of forced austerity in the ICT-business Pt II: reaction from a reader.

Last Saturday, I wrote an  article on the difficult times in today’s ICT-industry.

These difficulties have been mainly caused by the fact that arguably the two most important categories of principals – the central and local governments and the financial industry – both try to save money on their ICT-investments. 

They do so by 1. just spending less money on ICT-projects, 2. using less bureaucratic and (seemingly) inefficient ways of software-development, like 'scrum' and 'agile' development,  3. outsourcing work to the low-wage countries and 4. hiring (temporary or fixed) personnel from the East-European and Far Eastern low-wage countries.

These cost-saving measures by the financial industry and the government bodies make that the ICT-industry must go through massive austerity, reorganization and change programs in order to keep head above water.

Last Sunday, I received a reaction from an anonymous reader. As I found the content of this reaction very interesting, I will print it integrally and write my comments at it, where applicable.

Interesting article!
I am looking at it from the perspective of public government.

There are strong forces in Dutch politics that want to merge local governments in order to take advantages through economies of scale.

There is strong opposition from local governments but they do realise that they need to take austerity measures. One of the easiest ways to do this is through going back to core business and outsourcing non-core business activities to separate organisations. This organisation could do the same work for a number of local governments. It means costs can be cut for all local governments that participate. You see this developement in fire services, police, emergency, healthcare, environmental law enforcement (RUD), etc and also in ICT. Centralisation for economies of scale.

ICT is not necessarily core business for local government. Decission making IS. Sure, local governments base their business on steady streams of information but if this can be obtained cheaper by outsourcing they will do it. It might save local governments a good deal of money.

Very interesting comment. Especially the central government sees probably many opportunities for saving money, when using such an approach of joint software development. By joining government bodies and/or separate cities and communities together, the economies of scale can be used to make development of commonly used software easier and cheaper. When one city/community or government body has €1.5 million to spend, then ten comparable cities and government bodies would have €15 mln combinedly. This would enormously increase the possibilities of software development.

Yet, there is a catch. During my 20 year ICT-career, I noticed many times that companies and organizations that seem almost exactly the same, often differ quite much in reality. Reasons are often intangible, but very important concepts, like:
  • the environment in which the organization or company operates;
  • corporate culture and management style;
  • organization setup and 'mental' maturity-rate of the organization;
  • the sheer size of the organization: 
    • small organizations can work very successfully in an informal and fairly unorganized fashion, while large organizations often require lots of red tape to be successful. 
When organizations (in any form) are joint for software and infrastructure development, these are often the factors that can make or break such projects.

Many people know the endless discussions that can be held on the smallest details in such heterogenous environments, existing of multiple, independent organizations: discussions that start often in a good technical atmosphere, but soon end in bitter struggles for territory and battles on who’s right and who’s wrong. Often the biggest and most powerful party wins, leaving the other parties with a deep antipathy against the software to-be-developed: Not Invented Here!

Therefore the chances for success and efficiency of such joint software development should not be overestimated. The best chances are there, when a strong software house already developed a fairly complete framework of what the software should be and should do. The individual organizations can fill in the details and in the end everybody might be fairly happy.

Although such joint software development is of course a risk for many ICT consultancy companies, I’m certain that the failures still outnumber the successes, especially within  government bodies or cities/communities, where cost-efficiency and time to market play a less important role than thoroughness and completeness.

Another development that is effecting the ICT-sector and local governments over the past 5 years or so, is the infrastructure of nationaly standardised 'basis registraties'. (look at programmes like I-NUP, GEMMA, etc).

This standardisation of information infrastructure makes it much easier to outsource ICT services because all local governments have the same standardised information needs...! It's a very far reaching development! a lot less customised ICT work will be needed. Think about it...

If this proces of merging and cooperation between local governments continues in the near to midterm future inevitably this will lead to a lower demand/need in the public sector for ICT services.

Again, you are absolutely right about these standardized 'common basic administrations and registrations' as a trigger to be reckoned with for standardized software development. 

This could indeed be a very worrisome development for many, especially smaller ICT consultancy companies, who would not have the access and the financial stamina to cooperate in such development projects of this size and magnitude. 

Still, reality bites… The many ICT-failures at the local and central governments prove that standardization is not so easy and straight-forward as it sometimes seems. The Electronic Patient File (in Dutch: EPD) and the numerous other failed projects at the Dutch ministries, cities and communities and the Dutch internal revenue service prove that it is not so easy to catch reality in a standardized system.

Still, I agree with you that these developments are ongoing and that they should be incorporated in future ICT business. Foresight is the essence of government and this is especially true in the ICT industry. 

Many ICT-companies have acted and many ICT-projects have been executed at such an unbelievable level of amateurism and (I’m sorry to say this) stupidity, that it doesn’t surprise much that so many ICT-projects fail.

The winning companies will be:
  • Those companies that have the best, brightest and most intelligent people. People that find a good solution in virtually any situation. And people that have a natural entrance at the real decision-makers of companies, while avoiding the middle-management.

    Middle-management often has little real decision-making and investment power, but can be very annoying, retarding and even counter-productive in the execution of projects.

    You could say: in the ICT business, the peanuts are handed out at the middle-management and the real meat only at the top;
  • Those companies that know an important trick, system or tool that everybody has heard of and nobody else knows and / or controls at the time. While such a situation is often quite short-lived – until the hype or fashion is over or until every company knows and controls the same trick – companies can earn good money with it.
  • Those companies that can execute projects in a controlled fashion, with a relatively high success rate at any place in a predictable, fixed amount of time. The power of repeatability, instead of improvising and making the same mistakes over and over again! 
If your ICT-company doesn’t fit in in any of these three categories yet, than it is time to create a masterplan or to make a switch to another industry. One thing is sure: the time of mediocrity in the ICT-business and of promising more than you can achieve, is definitely over!