Implenia AG (IMPN) Earnings Call Transcript & Summary

Hello, and welcome to the Analyst and Media Conference on Implenia's 2024 Annual Results. We are delighted to be able to present our results to you once again here in the connect hall and also welcome the stream attendees. My name is Silvan Merki. I'm Implenia's Chief Communications Officer here at Implenia, and I will be accompanying you throughout the event today. Our presentation will be held in German. You may also select the English translation in the stream. You can then ask your questions here in the room or in the chat of the stream in German or in English. Before we start, I would like to draw your attention to the disclaimer shown here. Today, we will present as follows: First, CEO, Andre Wyss, will give you a business update on the annual results. Our CFO, Stefan Baumgartner, will then guide you through the financial figures. This is followed by Andre Wyss' outlook on strategy and the market, and we will be happy to answer your questions afterwards. I will now hand over to Andre for the first part. Andre, the floor is yours.

Thank you, Silvan, and hello to all of you. 2024 was another successful year. Implenia achieved its targets and also increased its profitability and thus continues the positive business development of recent years. This emphasizes that we are excellently positioned with our clear strategic focus and our strong team. And for 2024 -- 2025, sorry, we are, therefore, once again setting ourselves a higher operating target. And now to the details. So at CHF 6.8 billion, the order book remained at a high level and is still of good quality. At CHF 3.6 billion, revenue was comparable to the previous year. We achieved a strong EBIT of CHF 130.5 million, and we're able to increase the EBIT margin to 3.7%. We also improved the equity ratio to 21.2%. We have, therefore, achieved all targets for the 2024 financial year. With a comprehensive range of services, our divisions' specialized expertise for large and complex real estate and infrastructure projects, which cover the entire value chain. We -- I will now explain the results of the individual divisions. The Real Estate division achieved a solid EBIT of CHF 32.2 -- sorry, CHF 37.2 million, including the earnings contribution from Ina Invest. Due to the market situation, there were only a few project sales last year as we sell projects at the ideal time in each case. At the same time, we have made above-average investments in our attractive property portfolio. With regard to Ina Invest, we welcome the announced merger with the Cham Group. And as a strategic partner, Implenia will continue to provide development and realization services for the merged company and will benefit from -- sorry, from dividends. Real Estate develops sustainable and pioneering projects, both from our own portfolio and on behalf of customers. A few examples for this are the development of Lokstadt in Winterthur or the emergence of new mixed neighborhoods such as in Baar and in Pratteln. So despite the challenging market situation, the Buildings division's order book is the same -- at the same level as in the first half of the year. And -- at CHF 1.8 billion, revenue was at the previous year's level. And at the same time, the division improved EBIT to over CHF 55.5 million. Wincasa also made a strong contribution to this result. In view of the building permit applications in Switzerland and in the investments in major projects in Germany, the division expects an overall positive order trend. Current projects demonstrate the balanced portfolio mix of the division. Our specialized skills are used, for example, at the Aarau Cantonal Hospital or used in the TRON research building in Mainz. Civil Engineering achieved a continued high order book of CHF 4.3 billion. At CHF 1.8 billion, revenue was at the previous year's level. EBIT rose to around CHF 40 million, particularly due to strong contributions from the tunneling business in all our markets. Many years of experience and extensive expertise position the division optimally on the market. Implenia is making an important contribution to sustainable mobility and energy infrastructure in Europe. Examples here for include the Sechshelden viaduct in Germany or the Ligerz Tunnel here in Switzerland. Implenia is also the only construction company involved in all four European Trans Alpine rail links currently under construction, including, of course, the second Gotthard road tunnel. These projects are technical masterpieces that confirm our experience and expertise in large complex infrastructure projects. Specialties achieved an order book of CHF 197 million, increase in revenue to CHF 169 million and at CHF 8.6 million, EBIT was even significantly higher than in the previous year. The division is further expanding its high-margin areas with a focus on planning and consulting. It will continue to actively develop its portfolio in the future. The Specialties business units provide innovative services on attractive projects. And for example, Implenia Facade's techniques work for the Heidekreis-Klinikum in Lower Saxony or the design of the building technology in the Schönbühl shopping center in Lucerne by Planovita. Expertise in sustainable real estate and infrastructure is increasingly in demand from our customers. This year, we received limited assurance for all audited ESG indicators, a seal of quality for transparency and reliability. In addition, the relevant ESG ratings once again confirm our leading role in the construction and property sector. For further highlights on this topic, please refer to the sustainability report also published today. Now before I hand over to Stefan Baumgartner for the financial update, we would like to show you a short video with insights into our current projects in our divisions. [Presentation]

So, hello to everyone. All divisions were also successful last year. Accordingly, we were able to increase our profitability. For the past 4 years, we have consistently generated an EBIT of over CHF 40 million in every half year, even in the seasonally weaker first half years. It should also be emphasized that Implenia achieved strong positive free cash flows in the second half of the year. This last half year, this last period was a positive free cash flow of CHF 227 million. In addition, we have doubled our equity ratio in the last 4 years. Implenia expects a sustainable positive financial performance, thanks to its strong operating business. The foreign or currency effects in the past year were lower than in previous years. These effects had only a slight influence. There were barely any transaction effects due to natural hedging. Income statement shows the reported results, including the currency effects. The strong EBIT of CHF 130.5 million was achieved by the profitable business of all divisions. EBIT includes a one-off effect due to the income of CHF 31 million recognized in the income statement as a result of the contract adjustment with Ina Invest. And in relation to revenue of CHF 3.6 billion, this results in an EBIT margin of 3.7%, an increase of 0.3 percentage points compared to the previous year. The financial result was higher due to lower foreign currency gains and slightly higher interest expenses. The consolidated net income of CHF 93.4 million is not comparable with the previous year due to one-off tax effects. We generated a solid operating cash flow of CHF 43.2 million. The adjusted free cash flow totaled CHF 58.2 million, excluding strategic growth investments such as the purchase price paid for Wincasa and the above-average net investments in the real estate portfolio. This year, free cash flow was influenced by one-off effects. This mainly include the second installment of the Wincasa purchase price and the substantially above average net investments in our real estate portfolio. The Ina Invest income recognized in our profit or loss or income statement, which is contractually guaranteed to be paid in 2025 and ultimately, the lower advanced payments from customers, the positive effect of falling interest rates on prepayments is not expected until 2025. So our goal remains to generate a sustainably positive free cash flow. For 2025, we expect a positive development influenced by our good pipeline as well as the incoming invest -- Ina Invest payment. Cash and cash equivalents at the end of December totaled CHF 402 million. The balance sheet total increased for the following reasons, among others, the above-average investments in our real estate portfolio, as already mentioned, that led to an increase in the carrying amount of over CHF 40 million. Point two, due to the acquisition of additional shares in a large existing joint venture in the tunneling business; and three, the outstanding receivable had an effect on the balance sheet total due to the Ina Invest contract amendment recognized in the income statement. Liabilities from services increased due to higher liabilities to joint ventures as we had more and larger joint ventures, which we include using the equity method. Contract liabilities decreased further down to lower -- or due to lower advanced payments from customers. As already mentioned, falling interest rates have a delayed impact on our business. The payment of the second installment of the Wincasa purchase price has reduced financial liabilities. With the positive consolidated results, we were able to further strengthen equity to over CHF 650 million, which corresponds to a year-on-year improvement of 14%. The further strengthened equity base results in an equity ratio of 21.2%. The Board of Directors wants the shareholders to continue participating in the company's increasing success. It will, therefore, propose to the Annual General Meeting on the 25th of March to distribute a dividend of CHF 0.90 per share. This represents an increase of 50% on the previous year and a dividend yield of 2.9%. The Board of Directors assumes that Implenia will continue to pay dividends in the future. We have set ourselves a high operating target for 2025 with an EBIT of approximately CHF 140 million. In the medium term, we are still aiming for an EBIT margin of over 4.5% as well as an equity ratio of 25%. And so back to Andre for strategy and an outlook.

Thank you, Stefan. So having further strengthened our competitiveness in the Fit for Growth phase, Implenia is now entering the next phase called New Horizon. For New Horizon, we confirm our successful strategy. Accordingly, we are consistently pursuing our four strategic priorities. So portfolio, profitable growth, innovation and talent and organization. Particularly important are the improved margins with an optimized cash flow, the asset-light strategy, a broad positioning along with the -- or along the value chain and our sector-oriented specialization. There are adjustments in our divisional structure, the divisions, Real Estate and Buildings will be merged and managed by Adrian Wyss on an integrated basis. And as a result, Jens Vollmar's position will not be filled and the Executive Committee will be reduced from eight to seven members. The Specialties division is now called Service Solutions and continues to develop, including Wincasa into a provider of modern and versatile services. This adapted organization enables us to move forward and even more successfully. As a group, we are ideally positioned to benefit from social megatrends and help shape changes in the industry. Population growth, urbanization and the energy transition continue to drive demand for complex property and infrastructure projects. Implenia's range of services and expertise are geared precisely towards making the best possible use of these opportunities. And we expect a positive trend in total construction output in Switzerland and all of Europe. Accordingly, we anticipate an increasing order trend, also supported by our strong pipeline. Only the German market for residential construction remains challenging. Our strategic focus on large and complex projects is paying off. So we are hardly affected by the low demand for small residential construction projects as is the case in Germany. We aim to achieve a sustainable increase in profitability based on three building blocks. Firstly, the optimization of our existing business, for example, through a consistent focus on operational excellence. Secondly, growth in the existing business and so scale effects of endless projects. And thirdly, the development of new business opportunities. We are, therefore, well on the way to increasing our profitability to over 4.5% in the medium term. Implenia achieved the targets that were set for 2024. This underlines the fact that our integrated offering and strong team are excellently positioned. After 6.5 years, I have decided to retire from operational activities in Implenia. This is the ideal time for Implenia. The group has a strong strategic position and can grow profitably in the long term. Jens Vollmar will take over as CEO on the 1st of April. As Head of a large division, he has played a key role in shaping Implenia and we'll continue to consistently pursue our strategy together with the management team. I wish Jens and the entire management team much success, luck and of course, also fun in this task. My thanks go to Hans Ulrich Meister, Chairman of the Board of Directors, especially and the Board of Directors and the Implenia Executive Committee and all my colleagues for the trust they have placed in me. I am proud of what we have been able to achieve together today. Implenia is a strong and financially healthy enterprise and made possible with the commitment of the entire team. And so back to you, Silvan.

Thank you very much, Andre. So you've seen it in the video. Our impressive projects are all created outside, and we can't just bring them in here. But we would be delighted to show you on site what our experts and specialists are enthusiastically committed to every day. We invite you to visit the Ligerz Tunnel or the new building for the Department of Biomedicine in Basel. Following this event, you will receive an e-mail with the opportunity to register for visit live. I would also like to draw your attention to the next dates. So please save the next days. We will be holding our Annual General Meeting on the 25th of March. And on the 20th of August, we will present the half year results of 2025. If you have any further questions after this event, please get in touch with the contacts that you already know.

And now we would like to move on to our question-and-answer session. So Stefan, if you could please come back here and Andre to the stage. So we will start with the first question. So we will start with the first question. I'm very happy to see lots of hands. And then afterwards, we will then answer the questions that had been written in the chat. [indiscernible] I've got three questions. So you spoke about over or above average investments and CHF 40 million adjustment for the free cash flow. At the same time, you said that you were you had less sales or under average sales. So what do you mean by under average? So what would be the average actually? That would be my first question, by the way.

So do you want me to answer directly.

Yes, please.

So yes, we have invested and we have CHF 40 million that have been disclosed, CHF 40 million gross. So we sold less. It doesn't mean that there is a clear line here, but we had growth performances from the divisions during the last semester and also over the past years, they always were around the CHF 40 million. And so you also have to add that our CHF 60 million that come from Ina Invest you can see more or less what the average is. Would you like to add something Stefan.

No.

And then I have other -- two other questions regarding Ina Invest. So first of all, could you perhaps help me to understand better. So the CHF 31 million come from the cash of 2024, I believe. And then you've got the EBIT of CHF 16 million. But I as I said that the impact would CHF 34.7 million, and then you've got a loss of also around, I believe, CHF 6 million something perhaps you could clarify this for me because I really don't understand it.

No. So the payments of the CHF 31 million that is guaranteed for the first semester 2025. And the second point, because of the EBIT influence or impact. So we had the participation. So it's more or less 4%. And then you've also got side effects. And the same thing applies into Ina Invest. So we cannot divulge anything. But there is another impact then, but the net influence because of these change of contracts we delivered CHF 16.4 million impact of EBIT.

And so the second question regarding Ina Invest, I saw that the revenue has increased. What were the drivers for this significant increase? I'm sorry, could you repeat those figures? What figures are you based on? It's in your annual report. So did you say revenue so that the turnover?

Well, the contract offsets had a direct influence on the turnover on the revenue. So these changes of contracts, that is the main driver that explains why that explains this increase, yes.

[Operator Instructions] I have a question regarding the merger of the divisions. Aren't you afraid of perhaps losing some kind of transparency, a certain level of transparency because you've got two different businesses, you've got Real Estate and Buildings, I mean, I mean also, let's say, transparency for us. The externals, no.

Of course, we don't. Why do we want to have that separate? We wanted to push those divisions so that they could become successful in a focused manner. But it is an integrated model. The Real Estate and also the Buildings. And because they are both very successful, we would like to merge them now. Regarding transparency, of course, the three divisions will be then disclosed as individual entities and the transparency that is necessary for the analysts and also the externals will be able then to evaluate or be able to interpret correctly.

So any other questions here in the hall. Microphone for Johannes.

Johannes Brinkmann from [indiscernible]. I have a question regarding the synergies of Wincasa. So -- for 2027, you talked about CHF 10 million and you had another figure that for 2024.

Yes, we're very happy about the integration of Wincasa. We were able to obtain the correct results with these CHF 20 million EBIT total lower than to the PPA subscriptions. Yes. So we have achieved our goals. And for 2027, there's no reason in my opinion why we shouldn't achieve that goal as well.

[Operator Instructions] So regarding the takeover of these tunnel project, what was the background reason? Or let's say, what were the reasons why you did that.

So you're talking about the for Q1. We took it over from rebuild. Rebuild had a quick growth but decided then to leave -- to treat from the Austrian market, and we thought it's a wonderful project. We know that project very well, by the way. And so we had a settlement agreement and we decided that -- it was decided that we would take over that project.

Here in the front, another hand raised.

Two questions. Martin Hüsler Kantonalbank. Could you once again just quickly explain what the new net contractual negotiations with Ina will have as an impact in the future. Will you have less than cash flows or EBIT contributions in the future?

So first of all, the contracts were dissolved so to say and were then replaced by strategic partnerships. So we think that the asset portfolio management will probably decrease and the development and also the execution work will, on a strategic level be pursued. But you have to imagine we're not talking about great figures. We're talking about single-digit figures. And so the first -- the first step -- the first part will then decrease and the second part, we'll then go into a strategic partnership.

And perhaps here, if you take the CHF 130 million EBIT of 2024 and because of that one-off payment, perhaps you have to -- and then you have CHF 140 million you were talking about, is that primarily due to the real estate? Or is there going to be an improvement across all divisions.

So well, one of our priorities is then to continue to optimize our business with operational excellence and to have economies of scale. And so we presume that all of the divisions will continue then to expand and also contribute to the margin, the expansion of the margin, and that belongs to real estate. But the other divisions will contribute as well. So you have buildings according to the old system, but also civil engineering and specialties as well.

Very well. Are there any further questions here in the room. Otherwise, I have three questions I received in the chat. So all three from Chaima Ferrandon of ODDO.

Can you give us an idea at this stage of the split in terms of sales and profitability between the three new divisions.

Well, I believe that I can answer in German. For the moment, there is no guidance or there are no details in this respect. So we will continue then to guide in the future. But you can expect that if we calculate Wincasa for Real Estate and the division Buildings, well, you get a result -- you get the results and then civil engineer will say there is no transition of real estate organizations towards the new buildings division, but or the new civil engineering, but there are no essential changes. So that's how you can imagine the whole situation.

Another question from ODDO.

How are you seeing potential synergies, thanks to this new reporting.

Yes. I believe that there are synergies with the collaboration with the clients. There are very similar clients for the buildings and real estate. And so we can work in a more integrated manner. So regarding cost synergies, don't expect too much. But if you reduce from four to three divisions, there's also going to be the possibility of a certain cost reduction, but that was not the major reason why we want to do that merge. The major reason is that we have two very strong divisions, and we want to, let's say, bring them closer to the client, and that's why we're merging them. But for the other two divisions, there's not going to be much of a change for civil engineering, no. And what we're going to have in the other division is Wincasa. So we have the services business that we want to continue to expand.

And the third question.

An update regarding your M&A strategy.

Well, the M&A strategy, I believe I have already shown its implicitly. So there's not much that's going to change, such as we saw in one slide, we're going to have a very strong, let's say, market activity fees along the value chain, but there is not going to be construction activities and more services oriented. And so that's why we have this division Services Solution. And so is there in the planning or the realization or it could also take place after realization. But actually, we're talking about services business all along the value chain.

Any questions here in the room perhaps. Here to the left.

Tommaso Operto from UBS. One question regarding the gross margin. I saw that it has increased significantly versus the year 2023. Is that due to the operational excellence? Or are there also one-off effect? Is it a big business mix related? Or are there is another upside for the years to come.

I will start, and you can take over. Yes, actually, it's all of that, that you have -- so all of the above. So it's a mix of all of what you have mentioned. Now I can support this yet mix of all of the above, I would say. So as we showed, we have always increased our margin over the years. We want to and need to continue over the next years to attain this 4.5% EBIT. So it's a communication with all of the other divisions, but we have to continue that to increase -- to obtain that result of the gross margins.

And another regarding provisions, another question. So you have another decrease, I believe you said. So is this one-off related to what goes into the P&L or the income statement. Could you be perhaps more precise.

So late reserves at tenement provisions, it is always the case for all of our projects. So we always launch lots of projects, great projects and then others are added. So in the past, we have been able to realize and conclude some projects so some mixture of a new, let's say, build up then of provisions and then dissolving the other ones. And it has to do also with the deadlines and the projects. That's normal. But what we are expecting is that it's not just going to decrease. The longer the projects last and the higher the provision, you can't calculate that way, but we don't have any extraordinary effects.

So a last question regarding the dividends with the increasing profitability. I believe that your dividends will also increase. But just before, you said that the payout ratio is also increasing or should increase. Do you have a certain, let's say, expectation regarding these payout ratios of these ratios?

No. We have a mixed approach for all aspects, whether it's capital ratio, equity ratio or other aspects. So of course, we want to give back a fair amount then to our investors but it's not a payout ratio day. There's not going to be a payout ratio day. It's just going to be the dividend that's going to be paid and we want to continue to pay those to our investors.

So you still have the possibility then to jot down your questions in the chat. If you wish to ask any. Are there any other questions here in the room? Does anyone wish to speak up, ask a question. I believe everyone wants to move on to lunch. They are all hungry. Does anyone else have a question here in the room, here in the front to the left. Here in the front to the left.

So one last question regarding the dividend or dividend policy. So you -- there's a payout ratio that you want or can define, but perhaps you could call it a progressive dividend according to the business activity. Is that what you want to support?

This exactly what I said 2 years ago, we started paying our dividends once again. And so we said we wanted to be a bit cautious, but we want to continuously then increase so that our investors can also benefit from that. And the KPIs is clear, the equity ratio, free cash flow, but also that and the equity ratio, and because we believe also in the future of this company and so this percentage increase to the CHF 0.90 is something that we can then continue to evaluate. It has been evaluated then by the Board of Directors as well.

Martin has a question here in the front.

Perhaps just a question regarding let's say, from the value assurance program. Today, if you look at those projects, and I believe that it is quite -- you've got X thousands of projects and you compare these to the trend of last year. So what is the new portfolio going to hand over to the new CEO. Has everything improved? Or can you be a bit more specific.

Well, a major part of the order book has to come because it comes from the new CEO, especially in Buildings. Now the value assurance project that we launched in the first of my 2019 that we introduced the was really the absolute correct decision, not only that we did it, but how we did it. And I'm very proud about its development. And it's not -- we're not talking just about an improvement from 2022 to 2024, over the years that there was a positive development and thanks on the processes and also to the culture within our company. We have a different quality of discussions within the company. And everybody wants the same. We want successful projects. And for the successful, you have to first have a point satisfaction and plan also has to be satisfied and you need a certain margin for that. And so how we also evaluate the risks and I don't think that is comparable to what we have done years ago. But the development of '23 and '24, it wasn't like a lead. It was a continuous increase. So are we at the end. Now, of course, we can always improve, and we still do a lot more now with artificial intelligence and also with the references. And so Specialties is a very optimal division for that. So it's easier than once you have already built, let's say, a hospital is easy to build another because you already have a success of the first project, and that is a great reference. Then for a second one or other projects that are similar as well for the future, if I can add something. What's essential is to have -- to continue to push this in a consistent and consequent way. So always have permanent improvements but still, let's stay -- remain steady, and that is the basis for the success we had over the past years. And we will continue to do so over the next years. And Jens Vollmar was always one of the people who design and continued to implement and to develop this.

Are there any other questions in the room? Who would like to take over the microphone and pose a question. We would still have some time. I think that's it, isn't it, Andre. Otherwise, well, there are then beverages outside and so everything will be prepared for the lunch time. Are there any questions in the room? I don't have any in the chat. Are there any other questions here in the room that we can answer? Well, if that's not the case, we will then conclude here. You may take your seats. So we said other questions and the background. Well, we have then for further questions and background information, you can contact the familiar investor and media contact at any time. And so we would like then to invite you here for a small lunch afterwards. Thank you for your attention for attending and for attending the analyst and media conference. And I wish you all a wonderful day. Thank you very much.