Implenia AG (IMPN) Earnings Call Transcript & Summary

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[indiscernible] Yes, we can say that the market is really challenging. But we are doing quite well in this challenging market. We have to look forward and we have to project and analyze our environment well to risk management, but we can do that and we can really guarantee that also for the future. So we also improved the equity ratio. This was positive and the cash flow could be significantly increased. In the first half year, we could also improve the cash flow. So Implenia will be strengthened after this transformation process. So the transformation is now completed. It's seen as completed, no onetime effect for 2022 and the future are to be expected. So with our 4 divisions, we are well positioned and we also -- we can face good big projects and with our Value Assurance process, we are on the right track. We're working on our innovation processes and our culture and our attitude to face challenges of a modern environment. So the group is well positioned and profitable and directed to a profitable growth. Now let's talk about the business update. All divisions have improved their operative performance and are profitable, all strategic markets do a positive contribution and contribute positively to our development. So the decrease of the turnover is due to some shortage in some areas. So we stepped back from Austria. So we're no longer present in Austria. So we've closed down also some different sites and the onetime effect had a -- and the currency -- and the currency changes between Swiss franc and Euro have a negative impact in the future. Now we are with CHF 7 billion, and we are at a record level. So the implementation of the Value Assurance really gave us more margin and a benefit and improved our situation. So we started the operating model in 2019. We introduced this model and it still continues. So the real estate with the development to this division and real estate investment and management and products are also introduced. We will talk about that later on. Then Civil Engineering, with buildings, modernization and consulting and planning also contribute positively to the higher margins. So Civil Engineering with the classical 3 divisions, the tunnel construction, civil business and specialties also contribute profitably and the specialties like timber technologies, building construction, geotechnologies and building logistics. Now let's talk about the results of the single divisions. Real estate contributed strongly with CHF 70 million and did a lot in the development work. EBIT is quite high, thanks to 2 projects. The civil is in Winterthur and Baufeld 4 in Baar and Implenia invests also in the future in a real estate portfolio. Real state benefits also from the other divisions, Construction Division and people on the field who also recommend Implenia, but also creates a pipeline of orders for other areas. So Ina Invest also developed positively, and this increased also our service contracts. In Basel, also the development contributed to a positive development. But we depend on the pipeline, and there will be years with higher contributions, of course, and it is with lower contribution. This depends on the portfolio and on the right time when we have to invest and to do investments. Now let's talk about the real estate portfolio. It's a high-quality portfolio and is strategically well positioned. It is also located in attractive environment in Switzerland and Germany. An example is the quick acquisition of an interesting development project in bill and we could -- already implemented in 2021, even if it was planned for 2022. So the development business, the upside business is really significant for a positive development of Implenia. And the performance business, the real estate investment or real estate management also contributed positively to the entire business. And it will be continued also in the future. Then real estate products, together with partners, the division of standardized. We produce and generate an industrialized and standardized broad products, and this is something that where we see high potential of growth and is really something very promising for the future. Here are some project highlights. Rocket and Tigerli in Winterthur. Maybe you have read and written about it already. It's the highest building made of timber all over the world. It is -- it attracts a lot of attention also in the U.S. And here, we have a very interesting construction technique. Then Tivoli Süd in Neuchâtel, in Switzerland. Here, an area with different buildings. It's created a park that we already know in other sites. Then the Marienplatz in Darmstadt in Germany with a residence buildings at a very high quality. Now let's talk about high -- buildings. We have a stable revenue and increased profitability with continued high order book of better quality. So all the areas in buildings contributed today's high turnover. We have CHF 851 million. Here, very high turnover. We have a very stable order backlog here in Germany and Switzerland because we concentrate on big projects here. Then we have other competencies in consultancy, for example. This is contributing a higher margin in -- also in research. We are here now in a building where we're doing research and development. These are areas that are also interesting for us in the future. Then we have some other examples here. Empa Eawag Campus but you will hear more about that from experts of Implenia who will talk about this campus. Then we have the EUREF Campus in Düsseldorf in Germany, CHF 180 million of project volume here. Implenia show their competencies in construction of real estate and also continue with our knowledge in research and development. BIM models are the key for the success of these projects. Already Kyoto, Green Village in Geneva. We have also a different project in a framework of this Green Village project. We also implemented the Kyoto in Geneva. You may have heard about it. And the division, Buildings and Civil Engineering, they are then benefiting from each other. So now let's talk about Civil Engineering. This division for the first time in the first half of the year had a positive profit which contributed to the profit at a record level of order book and improved quality. So it may not sound that high, the revenue. But in the first half of the year, normally, this division is not that good and has negative numbers to show sometimes. But here, we are in the positive side. So we have really done well in the first half of the year in Norway and Sweden. Some projects were canceled. So we have -- also here we have a decrease of the turnover due to that. So we have CHF 4 billion regarding the order backlog, that is really good. The division is prepared well and on the right track to be even more profitable in the future. Has high competition in tunnel construction, civil engineering and has a very good market position. And due to something that happened recently, I'm talking about the second tube of the Gotthard Road tunnel that was now -- so the first was completed, and now we can also contribute to the second tube of the Gotthard Road tunnel and we are really proud of this year. This is what we planned to present. The Gotthard main northern lot was also given to us now as a project. And then we have the U81 urban railroad to Düsseldorf and also an underground train station is included here. So this is a good example of a construction site where there are a lot of different infrastructure points on a very narrow area. So it is a highly populated area, and it is not so easy to construct this infrastructure project in this area. It needs a lot of competencies. And then we have the connection tunnel metro in Stockholm in Sweden, and we use the BIM models. And then we have another example from Switzerland, the district heating micro tunneling in Wallis, maybe not that -- not so known and is a heating tunnel for an ecological energy supply. Then let's talk about Specialties. The Specialties Division is going through a transformation that will last more years still, and it's a multiyear transformation of the division well on track. There is an increase in underlying performance. Some nonprofitable and nonstrategic division, we closed that. Therefore, we improved our underlying performance compared to the first half year of 2021 year. We did some smaller changes at it. So the order book here is really good and the revenue is equal to CHF 79 million. And so then some examples here in the Specialties' Division. We have the Facade Technology in Filmhaus WDR in Cologne. The BBV Systems in Stockholm, in Sweden. This is the bridge, the Lilla Lidingö bridge or for example, BCL Jena in Germany. The Zeiss High-Tech locations for optimized construction logistics. Now I would like to talk about the update on -- I would like to go deeper regarding the Strategy, Value Assurance and Sustainability. So let's start with the Strategy. We started as a strategic process, and it shows to be right. So it was a success and accelerated implementation has proven to be successful. Implenia is now on track for a sustainable and profitable growth. So in a very short time, we achieved a lot that I'm really, really proud of what the division was able to do in this short time. So the -- our priority is still that we have our portfolio that we are carrying on. We are focusing on profitable growth and innovation and talent organization. So all these will still happen also in the future. This is our focus until the end of 2022. So after the transformation process, now everything has been completed, the Value Assurance process has been completed and the tunnel construction division and all the connected divisions and the transformation in this division has been completed. How can -- how were we able to sharpen market presence after completion of transformation. The organization has 4 divisions and global functions with a bundled expertise and competencies and clear responsibilities. And this is the key to success and has proven to be right and transparency, collaboration and excellence is now really key and the focus here, and we can see it also at our headquarters and Value Assurance process in all the divisions. We have a higher margin now and a higher profitability in all divisions. Also the project selection was now changed. So we're trying to improve the process. The tender process, the realization and completion of the project and want to satisfy the minimum criteria here. We want to improve. We wanted to improve the minimum margin, and we were able to do this by 1.5 percentage points. And this is really remarkable. And we want to decrease and to reduce our risks and learn from our old errors and then implement the new results and learnings in our -- during our new projects. Connect is our new headquarter. Implenia Connect -- it is called Implenia Connect, and this is something I'm really proud of. So it enables optimal internal and external collaboration and is really reflecting our culture. Please come and visit us there if you haven't done it yet. So it really shows our new culture and new values, collaboration and transparency. And we are giving -- offering the best possible conditions for internal and external collaboration, increased productivity and well-being and satisfaction, and it minimizes the use of our resources. And it is the first WELL Platinum certified building in Switzerland, and it was so successful that we hope that we can also roll it out on other workplaces and other sites -- in this concept at other sites within our organization. And it's better to have one larger headquarter than a lot of smaller sites. So this has also been something important then. Empa and Eawag Research Campus is a key project regarding innovation and research. Implenia is a preferred partner for the implementation of customer-driven sustainable developments. And when Benjamin will show you the construction site, he will go more into the details. So innovative laboratory building was the focus here and MSCI has given Implenia the rating with a AAA. So Stefan, here, you have to work on the financial part. And we were able to reach 85 points here at ESG Industry, so we were top rated. And Ecovadis also gave us the gold award. So this is -- these are the results of really our -- all our efforts during the last few years. And we are also committed to change and transform our industry. We have 12 ambitious goals in 5 priorities until 2025. So we want to implement sustainable development and realization in using higher standards in projects, and we want to use renewable energy and sustainable partners and eco-construction site. Then I want to cite only a few of our priorities and ambitious goals. We want to reduce our CO2 emissions by 15% until 2025, and we want to develop new circle of business models and promote closing of material cycle. So I will hand over now to Stefan and we will see each other later again.

Thanks, André, and welcome and hello to everybody. And I'm really pleased to present to you the numbers of the first half of the year for the first time here now. Implenia has improved the results, CHF 1.8 billion is the revenue in the first half of the year 2022. And the reported EBIT in the first half of the year, 2022 was significantly above the prior year due to improved performance of all divisions and above-average contribution of real estate. And the onetime effects were not that significant. So they were almost to be neglected. So the impact of real estate contribution results in group EBIT margin of 5.4% in the first half of the year. Financial results are higher due to a negative currency effects between Euro and Swiss francs. Overall, we had an improved net profit of CHF 64 million. So the foreign currency effects had a negative impact mainly on the order backlog and revenue. And this were to be connected to the effect of the currency effects between Swiss francs and Euros. So foreign currencies with negative translation effect, mainly from Euro to francs. Currency adjusted order book in the first half of year was equal to 3% above reported figure. And so the reduction was CHF 2.8 million despite the -- due to the revaluation of the yards. So it is a real improvement compared to the prior year period. So in the first half of the year, despite the sales of these projects did not -- was not reduced significantly. So we had a net working capital reduced by approximately CHF 200 million compared to the prior year. So the reevaluation of yards according to the IFRS led to an increase of CHF 56.3 million in revaluation model. So the asset-light strategy was consistently pursued. So Implenia could do improvements. We have an improved equity ratio and a higher balance sheet structure -- better balance structure. So the -- and current liabilities were reduced. And lower current liabilities due to repayments of convertible bonds were achieved as of 30th June 2022. And there was an increase in noncurrent financial liabilities compared to the prior year period due to issuance of CHF 175 million bonds in the half -- in the second half year of 2022. The equity was increased to CHF 451.5 million. So an improvement of 31% in the first year -- half of the year. So equity ratio was increased to 16%. So this has also an impact on the reevaluation effects. So this increase, the equity was strengthened by CHF 106 million 2022 target. The target of at least CHF 80 million was also exceeded in the first half of the year. So we have a fair value valuation under IFRS with positive effect due to the revaluation of the asset class of the yards. As you can see in this graph. In the first half of the year, we had a negative equity development. It was then already changed during the last year. And now we have a positive trend, and you can see that the change in equity now in the first half of the year can be seen. And there is a positive effect and debt amounts to 31%. So an increase of 31%. So the improvement of the operator's business can be seen in the balance sheet structure, and we are really on a good track and to be able to increase the equity ratio by 20%. So the cash flow was improved in the first half of the year. There was a significant reduction of cash outflow in the first half of the year in line with historical seasonality. Minus CHF 31.2 million. So there was roughly more and higher and improved profitability, a significantly improved operating cash flow compared to the prior year period. It was the cash flow from investing and financing activities that were impacted by the repayment of convertible bonds as per June 30. So the costs from the transformation have been completed now, and we expect further positive developments in the cash flow. Due to the strong operative performance in the first half of the year in 2022. And in June 2022, we published a positive profit warning, thanks to strong underlying performance in the half -- first half of the year. So we have an increase compared to the last year. The year period, we have an increase of 33%, and we expect further improvement during the full year 2022. So we exceeded already our expectations, and we had less than 20% onetime effects. A strong improvement of operating cash flow compared to the last year period. And so our visibility for the full year 2022 can be increased to CHF 130 million operative amount without onetime effect. So it has been very special to present. So we are expected a profitability target that can be reached and even -- was even already exceeded in 2022. And so no further onetime effects are to be expected from transformation. So the midterm target is to have a 3.5% EBIT margin and the long-term ambition is to have a 4.5% EBIT margin.

Thanks a lot for your attention. Now I would like to give you a market outlook. The megatrends and industry shifts continue to offer attractive opportunities. The megatrends of population growth, urbanization, infrastructure investments and renewable energies are also developing further and further. So industrialization -- modernization and industrialization are also strengthened by Implenia and we want to continue to follow this trend. We have a strategic positioning, and we have our competencies, and so we can benefit a lot from these tendencies and these megatrends. So for us, the predictions are quite positive even though we have some instabilities on the market like the Ukrainian crisis, currency and instabilities, but we have still a positive predictions for our industry. Of course, there are some problems in the supply chains and the supply chains are instable, but we are still positive. Implenia can always -- was able to guarantee a stable supply for all our construction sites till now, and we hope that this will continue to be like that also in the future. All divisions had an improved operative performance in the first half of the year. In the second half of the year, we will continue to pursue this strategy. And for -- as the recent predictions and outlook is still positive and it has proven to be good that we started to pursue this strategy, and we completed the transformation with our focus on the profitability and sustainability, we are in a good position to still increase our profitability. So Implenia has been strengthened and is now stronger after this transformation and is facing a good growth and increased -- and improved growth. So we can see this all the results that we have presented to you today show that our strategy was right. Thanks a lot for your attention. And now I hand over to my colleague.

Thanks, André. I know that you would like to hear more about some data. We have a Capital Market Day on the 1st of November 2022. We will present the full year report of 2022 on March 1, 2023. And there will be an AGM in 2023 on March 28. So for further announcements for the events, you can also have a look at our calendar. And now I would like to open the discussion. So also in the live stream, you can enter your questions, and we will now have our Q&A session. So we have microphones here in order to also have the possibility -- give the possibility to our colleagues in the live stream to listen to and hear your questions. So please, the first question?

Alexandra Bossert, UBS. I would have one question on the guidance -- on the topic of guidance. It is hard for me to understand because in the past, this was stronger than in -- compared to the first half of the year, CHF 130 million and then minus CHF 195 million. Then we have CHF 35 million for the second half of the year. With that real state -- so this is indicating also a clear improvement also in the other divisions, right? And then the 3.5% of midterm margin. Is this meant for 2023? Or what do you mean by that? So the midterm margin -- EBIT margin that has been presented. And when do you want to exceed the 20%?

First, I would like to answer the question on guidance, and then I would like to answer the rest. We -- from the real estate, we do not expect a lot in the second half of the year because we already performed well. We have no onetime effect in the second half of the year. So the other divisions must also perform more as they did in the others, the last -- during the last years in the second half of the year. Of course, we also have to consider that there could be supply chain problems -- problems in the supply chain. But the divisions must not only supply this CHF 35 million, but more because we also have to consider that there are costs to be covered on the guidance. Something else, then the EBIT margin of 3.5%, normally, we say midterm means that you do that, that a midterm is concentrating on the next 2 to 3 years. And then after 2 to 3 years is long term.

So from 2023 on, we want to increase it to 20%, and this is what we want to achieve. We want to achieve this 20%. And therefore, we followed the asset-light strategy, and we pursue this asset-light strategy. Of course, it will be better even to achieve it earlier, but or -- but we want to achieve it in 2023 at least.

Martin Hüsler, Kantonalbank. One question to the real estate portfolio. At the end of the last year, you said that the fair value is at CHF 10 million at the end of 2021. Where are we today approximately after 2 big projects have been sold? And then another question regarding the mechanism. Why has the land bank only taken CHF 5 million, even though such a big project was sold?

The land bank is assessed only -- always in the end of the year. So this year we will present the numbers of the last year then and the assets are then introduced in the balance sheet. And therefore, it can be that a long-term project has -- is in a deeper area on the balance sheet.

The land bank is in -- is part -- is contributing to current assets. And therefore, there is no sales. So we always also purchase some things. We do not only have to consider only sales, but acquisitions as well always in the development.

May be another hint regarding land bank. We have a -- we contribute or participate in Ina Invest with a 42.2%. So we have to consider that as well. Don't forget that, Ina Invest.

So the contribution that you booked in -- regarding the participation in Ina, was this estimated or is this something effective?

No, this is an estimated value, but it is not far away from the real value. But we don't have -- so at the moment, when we do our balance sheet of the year, we have an estimated value of the Ina Invest, but it's very close to the effective value.

Another question. Christian Arnold, Stifel. One question from my side. The old guidance was close to CHF 120 million with special effects. And in the U.K., Ireland, we have no onetime effect. So where are now the CHF 20 million. Why there are no special effects now?

When we did the budget and when we communicated the budget, we assumed that we would not have sold these projects. Some of them wouldn't have been necessary because they were restructured. So that therefore, we do not need this onetime effects anymore. And so a combination from some operative businesses, which went better than expected and then also the effects from the transformation had an impact on this.

CHF 1.1 million were considered in the first half of the year. So in the guidance, it is almost identical.

And the Specialties Division, will it be -- remain the way it is now? Will you not sell any activities in Specialties anymore?

So this applies to all divisions. All divisions must have always been jacked again. And if we see or are of the opinion where some divisions are not profitable anymore or some projects and activities are no longer profitable, then we will sell them. This is the ongoing business. This has nothing to do with the big transformation, but it's ongoing business. So this applies to all divisions, not only to the Specialties Division. If we look at the project, if we look at the activities that -- and if they are profitable, we, of course, try to pursue this business. Otherwise, we try to sell activities.

Then one question to yards, the revaluation of yards. Are all yards included in this reevaluation or are there assets that will be reevaluated in the future and -- which could lead to onetime effects in the future maybe?

The reason why we could have -- well, we could do this is because the transformation has been completed. The network within Switzerland had to be adapted and adjusted. Our footprint had to be adapted in Switzerland and now the transformation is seen as completed.

Will there be other transformations in the future? Yes, of course. But as a normal ongoing business, we do not plan any big projects. So we reevaluated all yards that are part of it. There are only a few that are not in the strategic focus yet and these have not been reevaluated. This reevaluation is realistic and conservative. And we will not have a negative evaluation next year. Yes, it is a fair value evaluation and in our balance sheet, of course, we have been very cautious and careful about this evaluation.