Implenia AG (IMPN) Earnings Call Transcript & Summary

Hello, everyone, and welcome to the presentation of the acquisition of Wincasa by Implenia. We are very happy to have you here on this call. My name is Silvan Merki. I am your Chief CCO of Implenia. We are going to hold this presentation in English and German, and you can listen to the English streaming translation. You can then afterwards choose your language. Before we start, I would like to call your attention to here with disclosed disclaimer. CEO André Wyss will show you the most important fact of the transaction. Afterwards, Stefan Baumgärtner, our CFO, will tell you about the financial reflections. And afterwards, we will be moving on to a question and answer session. André, the floor is yours.

Thank you, Silvan. Good morning to all of you, and welcome I am very happy today to go through a milestone of Implenia to present this one to you. Yesterday, we signed the contract for the takeover of the leading real estate partner here in Switzerland, Wincasa, and we are very happy to see that Wincasa will meet our demands very well. And we had concluded this in a very successful manner. And now we are ready for the strategic phase "Fit for Growth" that we already mentioned on the 1st of November during the Capital Markets Day last year. Through organic and inorganic growth, we want to be stronger on the market. And we are going to focus on sector-oriented specializations and integration along the entire value chain. And with this strategic acquisition, we want to expand our value chain, and we want to bundle our competencies to a unique services, pallet services in the life cycle of the real estate and all clients will be able to benefit from this. We expect from this acquisition or take over also returning revenues and also higher margins and also a very good development of our contribution margin. And this will lead then to an increase of earnings per share before the synergy potential from the first full financial year onwards. We can also benefit from cost synergies and other things. So the purchase price CHF 171.6 million and also depends on the authorization permits from the Swiss authorities and is planned then for the second quarter of this year with Wincasa, the leading real estate service provider, will be joining the Implenia Group. Wincasa is with CHF 81 billion of assets under management in the area of property manager as a leader in the Swiss market for institutional real estate investors. The services will bring in of more than 250,000 objects that are managed and also increased our portfolio. And also the financial profile is very attractive. It shows in the branch margins and through very long-term CRM relationships that we will be able to benefit with about 1,350 full-time equivalents are on 33 sites in Switzerland. And so with the closing, we intend to integrate all these employees into the Implenia Group. Wincasa is not only the leader of property managers for synergies and also increase the other domains are also very attractive and very need in construction management. Wincasa goes through all the phases of construction, plantification, and construction itself and modernization projects. We are talking here about construction volume of CHF 3 billion annual and along the sustainability management along the entire chain. We are there from the consulting phase into the consideration of ESG criteria. And last but not least, Wincasa, which stream now has a market-driven digital offer with virtual end-to-end services for tenants and landlords. So the customers of Wincasa have large real estate portfolios and our listed investors, not only in Switzerland, but also in Germany. And these customers offer a one-- or they want to one-stop solution for property administration and management. So by bundling all of these competencies, we will be able to offer a unique and integrated office services to all customers. The takeover of Wincasa is a strategic expansion of Implenia service offering. In order to create this growth, we want to go through the "fit for growth" by going along the integrated model, synergy, and growth potential on the value chain. With Wincasa acquisition, Implenia is endeavoring then a going-forward approach, and we want to go over the real estate chain also through the first phase. And so Wincasa is a great addition then for our value chain. First of all, we want the revenue and also synergies of growth and also not only for cost for the entire group. This comes from the construction and modernization potential and then also other sales and within the Implenia Group. And on the cost side, we were able to recognize the mutual sales synergies, and they will be realized and following the closing. Wincasa fulfills all acquisition criteria that we, within the "fit for growth" have defined and also communicated. And so the enterprise matches our portfolio and also our strategic orientation. The value chain will especially in the use and also operational phase then complemented through the acquisition of this market leader. We will have an optimal positioning within the construction and also services domain. Together with the additional real estate services of Wincasa, we will be able to offer a unique integrated solution for all customers. We have planned to have Wincasa as its own independent entity within the Buildings division and the name will continue to exist. The business model and the long-term relationships that we have with the customers will continue to be maintained. This will happen seamlessly, and things will be going on seamlessly within the entire group. Opportunities of the transactions will be then realized. And so including Wincasa in the Implenia Group will thus be done by a dedicated team represented by Wincasa and Implenia and it will be implemented in a very careful manner. And the closing will take place during or is planned for the second quarter of 2023. We're already happy today to welcome the employees of Wincasa with all of their expertise and know-how. And now I would like to hand over the microphone to Stefan Baumgärtner his reflections on finance.

Thank you very much, André, and hello to everyone. First, I would like to talk about the financial aspects of the acquisition. So by this acquisition of Wincasa, we are going to strengthen our margin profile of Implenia. We've got CHF 234 million or even 8.6x EBITDA for the year of 2022, also taken into on consideration. The synergy costs, we have a multiple of 6.3x EBITDA. The purchase price amounts to CHF 171.6 million and will be settled with on liquidity from profitable activities. What we want is to have a step-by-step then integration. The EBIT margin today for Wincasa is around 10% and will have a positive impact on Implenia's margin profile in the future. Through these transactions, we expect to have additional recurring revenue. In 2022, Wincasa had a turnover of CHF 159 million. And also we have mutual sales synergies, for example, from consulting, construction, and modernization projects as well as additional mandates. Already in 2023, we are expecting for synergy effects and a low positive EBIT contribution. This due to the consolidation during the year, acquisition, and integration costs. As of 2024, we were expecting a positive annual EBIT contribution of about CHF 15 million. And prior to the write-off and the PPA in addition to the allocation of costs. We are already expecting first synergy effects. So the first potential in the group will be around CHF 5 million as of 2024 and or respectively, CHF 10 million as of 2027. Already as of the first business year, we are expecting a sustainable increase in earnings per share. Following the transaction, the capital quote will be expected at a similar level. We are also expecting an equity ratio, medium-term contribution to increase, and Wincasa business is in line with the Implenia's asset-light strategy that we still want to continue to follow in a consequent manner. The acquisition of Wincasa means for Implenia a sustainable and profitable growth, and so we presume that the EBIT margin of the group as of the first business years will be increased by 3.5% prior to the realization of the potential of synergies. And by this acquisition, and also certain improvements and the development of our activities, Implenia is on the right path for the "Fit for Growth" and also on the right path for the target of 4.5% of EBIT margins.

Thank you, Stefan. We are convinced that, together with Wincasa, Implenia will be well positioned for sustainable success. Before we move on to the Q&A here once again the highlights of our transaction. So within the framework of "Fit for Growth" and what we want with the takeover the leading Swiss real estate service provider, we want a bundling of competencies in a unique range of services for all customers over the entire life cycle of real estate and construction. We expect a significant synergy and growth potential across the entire and whole Implenia Group and also a very positive impact on the earnings per share as of the first business year. We are very happy to count Wincasa among the Implenia Group and to make a better offering to our customers. Thank you very much. And Silvan, I would like to hand over the microphone for the presentation of the Q&A session.

Thank you, Andre. Thank you very much. Stefan, we have already received questions in the chat, so you can continue then to enter your questions, if you like, and we will treat them as we move on. So the first question comes from Torsten Sauter from Kepler Cheuvreux. What is the expected date for first-time consolidation, is it mid-Q2? I'm asking since SPS rights subject to regulatory approvals, the transaction is expected to close in the second quarter and the economic interest will be transferred retrospectively as of January 1, 2023.

Thank you very much for this question. Yes, we said that the closing in the second quarter is expected. Perhaps, Stefan, you can add a few words regarding the economic interest.

Yes, the economic interest will be transferred but the figures in the report will only be mentioned or consolidated after the closing. So the economic interest will be transferred.

Yes, indeed. Thank you very much. The second question also from Torsten Sauter. How much of Wincasa's CHF 3 billion construction volume is currently tendered to Implenia? Is this share set to increase substantially? In what way can Implenia be considered as preferred partner without affecting Wincasa mandate to act strictly in the interest of its clients?

At the moment, the volumes are not very high, but we expect that they will continue to increase and so we will have an increase in turnover and also a positive effect on the EBIT and the EBIT margin. So thank you very much for this question.

Thank you, André. Torsten continues ask a question. What sort of synergies are expected? Can you breakdown the cost synergies and the expected split across overheads, IT, et cetera? How big are the expected revenue synergies?

As I mentioned before, the synergy potential of around CHF 5 million will take place as of 2024, respectively, CHF 10 million as of 2027. So turnover synergies, partially so additional business by modernization projects, canceling, and also other mandates, but also cost synergies that through further purchases or common use of IT systems, for example, advantages with this licenses. So the goal is, of course, to increase or to continue then the business activities and to further develop them for Wincasa.

Torsten Sauter continues to ask. Where do you see the risk and potential dis-synergies in the transaction? Is there a major antitrust risk in your view?

[Foreign Language] So we don't see any antitrust risks. Everything -- we are full on track.

[ In deferment of finance ], which with Implenia be a competition in Ina Invest through this acquisition? And what does assets under management of CHF 81 billion? What do you understand by that? And what is the value of the real estate that are going to be administered then by Wincasa? And does this culture also match ours?

So Wincasa is very strong on the operations, so it's not a competition. It's actually a potential in, let's say, customer in invest. Assets under management, well, it means that they are managed assets. So not the assets, but the values. As for the culture, will we see a good fit in construction management and digitalization as well as sustainability where Implenia is a leader and Wincasa also is more by this in its activities. And so the cultures are based on similar values. And so I think there will be no problem as far as this goes.

Thank you very much, Andre. Klaus Bonanomi from Radio SRF is asking, how many of the 250,000 administered objects are apartments and is this something that's going to change then for the people renting these apartments? And then you also emphasize on the high profitability of Wincasa with an EBIT margin of 10% but then there are also cost raising then in this real estate administering. For example, the fixed percentages and also the additional costs. What do you say to this?

Well, I must say it's a very difficult and complex domain. And I think Wincasa is one of the exceptional leaders and offers, and that's why we were interested in having this exchange. So I think that this critique is only justified to a certain extent. If there's something that's going to change for the people renting these real estate buildings? No, everything is going to be taken over one-to-one on seamlessly. Regarding the number of residential, there are about 40% that are residential, 22 offices, and 40% of commercial and retail.

Thank you very much for answering this question. Christian Arnold is asking, "can you already tell us something about the generated goodwill and the other intangible assets? What can you tell us about this based on the pay purchase price of CHF 172 million? How high would the PPAs be and over what kind or what period?"

I think Stefan can answer this question.

Well, that's actually a task for the closing. That is being calculated, and we cannot disclose this at the moment. We're not at liberty to disclose this at the moment.

Thank you very much. We also have a question for Holger Frisch from the Zürcher Kantonalbank. Why will Wincasa be then included in the division building? Couldn't we have granted Wincasa its own division? What will happen with the services of Ina Invest? Could that be integrated into Wincasa?

Thank you very much for this question. Well, of course, we see the greatest synergy potential in the buildings. But of course, there are other synergies that are possible on the entire group, the integration team -- we'll have a look at this in more detail. How this allocation is going to take place? Well that's something that will be left up to this team and also needs to be approved and by the management, but we'll have a closer look at this following the closing.

Thank you very much. Another question from Holger Frisch. What does it mean then to have then this sort of graded payments. There are certain conditions that could influence these prices.

So Stefan Baumgärtner can answer.

No, there are no special conditions. The installments are fixed for the year 2023 and also for 2024.

Martin Hüsler first asked the same question. So we won't answer this one once again. And Holger Frisch is coming back with another question. How many debts will Implenia take over through the takeover and what kinds of debt are there? Is there also the possibility of a refinancing?

We are not taking over any doubts. We only have leasing liabilities according to IFRS 16. And no, there is no necessity for refinancing.

Thank you very much. Manuel Rentsch from the Schweizer Radio SRF. Are there any other takeovers in this area planned?

No, of course, not. We have not planned any further takeovers. We will go about this takeover in a very careful manner, integrated, and also implemented in a very successful manner.

Christian Arnold from Stifel asks, "so can you tell us how the capital quote will be changed through this transaction?"

Now we had already foreseen that this capital quote is going to stay or remain at the similar level.

So you can continue to enter other questions on the chat. Martin Hüsler from the Zürcher Kantonalbank, how much goodwill is involved here?

Well, we will calculate this following the closing and will be disclosed then for in the first semester.

[indiscernible] The market asks EPS growth in the first business year does that mean -- do you mean by that 2023 or 2024? And second, why is the midterm margin objective remaining unchanged if the EBIT margin for Wincasa is going to be double as high as that of Implenia.

Of course, we mean the year 2024, although it's going to start in 2023. We already see a certain growth. Why are we speaking about the midterm margin objective unchanged? We are speaking about those 4.5%. We need to do more acquisitions, and that's indicated in the slide with the graphics, and that's how we need to maintain this 4.5% EBIT margin.

Holger Frisch from the Zürcher Kantonalbank asks, "can you already give us a certain indication regarding the expected PPA?"

Well, that has to do with the goodwill and that will be then calculated and dealt with after the closing and will be disclosed following the first semester.

Holger Frisch has another question, again from the Zürcher Kantonalbank. Wincasa, according to the presentation is expecting a very strong cash flow, generating cash flow and how much is the revenue?

Around 10%...

Thank you very much. [indiscernible] of AWP asks, Wincasa is the market leader. How high is the market share? Who are the strongest competitors? Please describe the markets in general. Is this market is doing competitive? How often do the real estate owners also change their, let's say, landlords or their administrations?

Well, Wincasa is a market leader. And then there are a few other companies that I do not wish to disclose here that we can do eye-to-eye. And of course, we are speaking about a very competitive market, but I believe that Wincasa is the leader, #1. And so the change -- regarding the change then of owners or ownerships is one question. And the other question is about the management world regarding the ownership, that's not part of our -- we don't have any influence on that. And I must say that the management they don't change so quickly. There is a certain dependency there that plays a role.

[indiscernible] of [indiscernible] Capital asks, so how high is the Wincasa turnover with SPS and with [ CS ]? And how long are these contracts going to continue?

Well, we are not at liberty or don't want to disclose any such details for the moment.

Manuel Rentsch from the Schweizer Radio SRF. Can you give us any explanations regarding the market. There are lots of companies in the real estate service providing sector. And how split is this branch and not only you as a construction company are interested in the real estate services, but also other parties. How do you explain this sudden interest?

I believe that I've already answered the first question regarding the market. Yes. Interest for these real estate services is very interesting. It's a very attractive business, and that's why Implenia showed its interest in taking over Wincasa. We are very happy that we were able to take over this market leader. And the interest is also in continuing a very profitable and positive business.

Torsten Sauter from Kepler Cheuvreux asks, "how big is Wincasa's business outside of Switzerland"

Yes. I cannot answer this question very easily. Wincasa is focused on the Swiss market.

[indiscernible] from Helvetic Trust asks, "was this takeover been pushed by Wincasa or rather by Implenia? Did Implenia had an exclusive bidding transaction?"

We are not going to disclose anything regarding this question, but we are very interested and we're interested and are still interested in Wincasa and we have already communicated our interest on the 1st of November last year, regarding our strategy and that we were very interested in this kind of business on the margin.

Martin Hüsler from the Zürcher Kantonalbank again. How high are the PPA amortizations going to be or depreciated?

We've already had this question before. As I said, before we are going to deal with this in detail following the closing, and it will be published following the first semester.

[indiscernible] from the Basler Kantonalbank. Since when has Implenia and SPS been planning this takeover of Wincasa? Was there also a tender competition and is Wincasa a desired enterprise?

I will not answer the first question I've already expressed myself in this respect. Is Wincasa a so-called desired enterprise, I can only say yes to this question.

Another question from Martin Hüsler of the Zürcher Kantonalbank, if Wincasa today is already aiming for CHF 15 million EBIT. Why is the contribution for Employee 2024, only CHF 15 million.

As we said before, it is prior to PPA. But in addition, there are the synergies that we mentioned previously.

Thank you very much. And Christian Arnold of Stifel Swiss. Wincasa generated an EBIT margin of around 10%. That is lower than that of SPS of 12% to 15%. Do you know or how do you explain then this difference is discrepancy? Implenia is expecting synergies of CHF 5 million as of 2024 respectively CHF 10 million as of 2027, and that implies a margin of 13% to 16%. Is Implenia the so-called better owners?

So regarding the first question, I cannot answer that when you have to ask this question to SPS. But we are convinced that we will be able to have this growth of business not only at the contribution or the margin but also the EBIT level, and we are convinced that this otherwise, we would never have gone through with the takeover. We are very optimistic regarding the future for Implenia and Wincasa.

Andreas von Arx of Baader Helvea. Can you give us a comment regarding the ROIC, meaning then the profit amount of the purchase price compared to the WACC.

That depends on the closing for the first half year, and then it will become more transparent as we move on.

You can continue to enter other questions in the chart if you do. So we have one last question from Andreas von Arx of Baader Helvea. Did the deal have an impact whether Implenia would participate in a capital increase of Ina Invest?

No, it had no influence. It is independent of the increase of capital in Ina Invest. We will have a look at it or deal with this when it's time to cross the bridge.

So we don't have any further questions in the charter, and so I would like to end this Q&A and I would like to hand over the microphone to our JV.

Thank you Stefan, [indiscernible], -- thank you very much for your interest. And with your questions, we are convinced that with Wincasa, we will have had a great and successful takeover. And following the closing, we are happy then to include them and to continue to further these business activities. I wish you all a wonderful day. Thank you very much for your interest. [Statements in English on this transcript were spoken by an interpreter present on the live call.]