Implenia AG (IMPN) Earnings Call Transcript & Summary

Good afternoon, and a warm welcome to the analyst and media conference on Implenia's 2026 half year results. We present our results again live at our headquarters, Implenia Connect in Germany, and we also welcome everyone joining us via this prerecorded online stream in English. My name is Silvan Merki, I'm Chief Communications Officer, and I will lead you through today's event. Please ask any questions via the chat window in the stream. We will answer them afterwards during the Q&A session. Here's today's agenda. First, our CEO, Jens Vollmar, will provide a business update on the half year results; CFO, Stefan Baumgärtner, will then take you through the financials. This will be followed by an outlook from Jens Vollmar. And afterwards, we will be happy to answer your questions in the Q&A. I will now hand over to Jens Vollmar for the first part. Jens?

Thank you, Silvan. Also a warm welcome from my side. I'm looking forward to presenting our half year results today. Implenia delivered strong operational results in the first half of the year. One key success factor is the resilience of our business model. Due to highly diversified portfolio, Implenia remains strong despite the current macroeconomic and geopolitical developments. Our order book continues to grow and the precalculated margin has further improved. We won several major bridge and tunneling projects in Germany and in Scandinavia. Overall, Germany delivered the strongest order growth across the markets, both in percentage terms and in absolute value. Furthermore, we sharpened our strategic positioning and published the primer to Implenia. The growth investments we have previously announced are progressing as planned. We expanded our teams and capabilities in attractive growth markets such as data center and defense infrastructure. We reinforced the focus on large and complex projects, and we further optimized specific areas of the organization. Another important step was the acquisition of Zigmo Engineering in Germany within the division, Service Solutions. Zigmo complements our competencies and creates significant synergy potential. Overall, we have proven in the first half of 2026 that we are consistently executing our strategy and driving profitable growth. Let's look at our financials. The order book increased further, while the precalculated margin also improved to 7.9%. EBIT reached CHF 60.4 million. The margin improved to 3.4%. The free cash flow improved by more than CHF 50 million compared to the first half of 2025. Due to the seasonality of the industry, the free cash flow is typically weaker in the first half than in the second half of the year. The equity ratio also increased to 23.4%. Let me now provide you with more details on our business. I will now walk you through the key figures of each division, Buildings, Civil Engineering and Service Solutions. Let me start with Buildings. The order book of the division Buildings increased to over CHF 3 billion. The revenue of CHF 859 million is about at the same level as last year. The revenue of Buildings Construction increased while we had fewer transactions in real estate development. Given the strong increase in the order book, we expect the revenue to grow going forward. EBIT in Building Construction increased from CHF 20.7 million last year to CHF 23.5 million this year. The EBIT in Real Estate Development decreased to CHF 40 million, reflecting 1 completed transaction compared with 2 transactions in the first half of 2025. The book value of the real estate portfolio increased to CHF 194 million as a result of 3 acquisitions. This is an important KPI for us as it shows the future real estate pipeline. Here are some project highlights showing the balanced mix of our project portfolio in buildings. In Switzerland, for example, our specialized expertise is reflected in projects such as the [indiscernible] in Zurich, a real estate development together with the modernization business or the Department of Biomedicine for the University of Basel or in Germany, where we plan to build large and complex projects like the Police headquarters in Munster or an office building in [indiscernible]. Let me come to Civil Engineering. The division increased its order book to almost CHF 5.5 billion. This demonstrates the strong demand for our expertise in large and complex infrastructure projects. Our revenue declined slightly to CHF 926 million, and this temporary reduction in revenue is due to recently won large infrastructure projects. So we have currently several in the initial ramp-up phase, not yet generating full revenue. Our EBIT nevertheless increased to CHF 18.8 million, while the EBIT margin further improved to 2%. The first half of the year is seasonally weaker in terms of profitability than the second half. Therefore, we expect the EBIT margin to increase in the second half. Our strong focus on improving the profitability and the efficiency in this division is clearly delivering results, and we will continue to optimize our portfolio even further. Here are some highlight projects. Implenia is playing a key role in Europe's infrastructure development. We build bridges that enhance mobility such as the railway bridge underlying [indiscernible] Basel or the bridge mark over the mine in Germany or tunneling projects to cities or through the Alps, for example, the Gotthard Road Tunnel, the second tube, where we celebrated a breakthrough in the first half of 2026. These projects underline our experience and leading expertise in delivering large and complex infrastructure projects across Europe. Let me turn to the third division to Service Solutions. Service Solutions comprises Wincasa as its largest business unit as well as other planning and engineering services along the value chain such as the building construction, logistics, BCL, Planovita or Encira in Switzerland. In July, we acquired Zigmo Engineering as part of the division. Zigmo is a German structural engineering and building design specialist. We do not expect Zigmo to deliver an EBIT contribution in 2026 yet due to transaction costs. Service Solutions nevertheless increased its EBIT to CHF 11.7 million. Wincasa slightly increased its assets under management to CHF 86 billion and the order book of the other businesses, BCL, Planovita and Encira increased by 25% to CHF 69 million. So going forward, we plan to further expand the service business in high-margin areas also through selective acquisitions. Here are some -- or here some projects illustrating the broad range of our service offering within the division, demonstrating the strong collaboration across the group. For example, the Shopping Arena in St. Gallen, which combines Wincasa's center and mixed-use site management services with building modernization expertise or the [indiscernible] in Zurich, where Wincasa for the transaction and buildings for the development part was involved. Or last but not least, [indiscernible] in Mannheim, Deutschland, Germany, where Zigmo Engineering and Buildings work together as partners even before the acquisition. So we are not only continuing to make progress in implementing the strategy in the divisions, but also in cross-divisional initiatives. We are expanding our expertise in attractive and specialized market segments, for example, data centers, defense infrastructure, bridges and tunneling. We are increasingly deploying AI applications across projects and processes, for example, in contract management or in our value assurance process, the Implenia risk management. This improves the productivity and the efficiency. At the same time, our group-wide culture program is strengthening collaboration, leadership, performance orientation across the organization. This embeds our values even more deeply in our daily work. Before I now hand over to Stefan, our CFO, we will show you a short video featuring project highlights from the 3 divisions, action. [Presentation]

Good afternoon. Implenia's earnings contributions of all divisions underline Implenia's resilience despite ongoing geopolitical and macroeconomic uncertainties. Our order book increased by CHF 746 million year-on-year to CHF 8.5 billion, up 9.6% providing a solid foundation for future growth. At the same time, the pre calculated project margin of the order book improved from 7.5% to 7.9%. Revenue of CHF 1.8 billion was 4.8% below prior year, mainly due to the typically lower revenue contribution during the initial ramp-up phase of major infrastructure projects. Foreign exchange effects had no material impact on first half year earnings, supported partially by our natural hedging. In the first half of '26, we made growth investments in a low single-digit million Swiss franc range and remain on track to deliver the planned full year investments of approx CHF 10 million to CHF 20 million. We delivered a strong EBIT of CHF 60.4 million, up 6% year-on-year despite a lower contribution from real estate transactions. With revenue of CHF 1.8 billion, the EBIT margin increased to 3.4%, up by 0.3 percentage points versus the prior year, mainly driven by higher margins in Civil Engineering and Service Solutions. The achievement of an investment-grade rating and the early refinancing of our syndicated credit facility further enhanced our financial flexibility and funding profile. By extending maturities to 2031, we have strengthened the long-term security of our liquidity reserves and guarantee lines. The consolidated profit increased by 6.8% to CHF 35.6 million. In the first half of '26, free cash flow amounted to negative CHF 118 million, up by CHF 51 million compared to the prior year period. Free cash flow in the first half of the year was primarily driven by higher operating profit, the positive development of net working capital, in particular from project-specific services received from suppliers and subcontractors where associated costs had not yet been invoiced or approved. Further upside potential lies in reducing contract assets and increasing contract liabilities, respectively, advanced payments supported by growing business volume. Our objective remains to further improve free cash flow conversions over the cycle. At the end of June, cash and cash equivalents amounted to CHF 376 million, up by 38% or CHF 104 million above the prior year level of CHF 272 million despite the usual seasonal fluctuations. Total assets, including short-term deposits increased compared to the prior year. The main drivers were significantly higher cash and cash equivalents, targeted investments in our real estate portfolio and a higher share of investments in associates, primarily reflecting the earnings contribution from [indiscernible] Swiss properties. Reducing contract assets by accelerating the settlement of claims and variations remains a key priority. This is an important level to further improve the cash conversion. The increase in trade payables reflects improved supplier management rather than an increase in outstanding creditor balances. Other current liabilities declined year-on-year, mainly driven by lower short-term financial debt and contract liabilities. At June 30, all syndicated credit facilities of CHF 400 million remained fully available, complemented by additional bilateral credit lines. Net debt was reduced by about CHF 80 million compared to the prior year period. As per June 30, the equity ratio was at 23.4% adjusted for the short-term time deposits from the bond issuance, up by 2.2 percentage points compared to the prior year period. Over recent years, we have consistently improved our operating performance also in the seasonally weaker first half of the year. Free cash flow, which was seasonally negative in the first half of the year due to industry-specific factors amounted to negative CHF 118 million, up by CHF 51 million year-on-year. I would like to highlight that Implenia has consistently generated strong positive cash flows in the second half of the year. In addition, we have continuously strengthened our equity ratio over the last years. Supported by our strong operating business, we remain confident in Implenia's long-term financial development. With that, let me hand over back to Jens for the outlook.

Thank you, Stefan. Let me now turn to the outlook. Given the strong performance in the first half of the year and the good visibility based on the order book, we confirm our guidance. That means for 2026, around CHF 150 million EBIT before the announced growth investments of CHF 10 million to CHF 20 million for the strategy implementation. From 2027 onwards, we expect further improvements in profitability and EBIT of more than CHF 150 million. Short to medium term, we remain committed to the financial targets, profitable growth, an EBIT margin of 4.5% and an equity ratio of 25%. Furthermore, the key investment highlights outlined in the [indiscernible] published in June remain unchanged. We are firmly on track here as well. So summary, Implenia is well positioned for the future. We further increased our order book and the precalculated margin. We've won various important projects, and we have even more in the pipeline. We increased both EBIT and profitability. All the divisions delivered sound half year results and contributed to the positive performance of the group. We continue to implement our strategy consistently, and we are progressing in areas such as digitalization, AI and specialization. Implenia is growing with a differentiated offering. With that, I hand back to Silvan. Thank you.

Thank you, Jens. Thank you, Stefan. Our upcoming events for your calendar. The annual results 2026, we will publish on 3rd March 2027. And our Annual General Meeting will be held on 31st of March. If you have any questions after the event, please contact us via the well-known touch points. That said, we close our prerecorded conference here in English. In a few moments, you will be switched to the live stream of the Q&A where we are taking up your questions in English or in German. See you there. We welcome the English audience from the stream, Jens and Stefan here on stage again, and we switch the language for our Q&A with Jens and Stefan on stage. Please join me. [Foreign Language] We are now happy to answer your questions here in the room or via the chat of the stream. You can submit them to us in English or German. [Foreign Language]

[Interpreted] Luca just asked for translation in English. So [indiscernible] asked about the JV income and the amount of EBIT included in the JV income from Palm properties, it's single-digit -- low single-digit million Swiss franc amount. And as we are entering more and more in JVs, as we are focusing on large and complex infrastructure projects, this result increases. And SG&A is not allocated to the JVs in the same way. So that's the reason why the JV income increased significantly compared to previous years.

[Interpreted] The question was related to trade payables and around the free cash flow and the free cash flow significantly increased, but not due to the fact that we did not pay creditors. The position within trade payables of creditors decreased actually.

[Interpreted] Question was related to the growth investments, CHF 10 million to CHF 20 million. And the question was why don't we narrow or narrow this -- I mean, because we think it's the best estimate today, CHF 10 million to CHF 20 million, and we are investing in people. So we've already invested a low single-digit million amount of Swiss francs in people, especially. Of course, some investments were related to the Zigmo Engineering. And that's true. It's both. It's people, hiring of people and especially but not only. There are some other topics related to that. So we still believe that CHF 10 million to CHF 20 million is still a valid or the best estimate that we can give you today. Thank you very much. The mic is still open. I see a hand over here. The question was related to the EBIT margin in Service Solutions. And the question was what is the reason for the increase in margin to 9.5%. The answer was it's a mix of measures, different measures, SG&A reduction, profitability of the projects. Yes. So -- and we are targeting for, of course, to at least keep the high margin in Service Solutions. Question was around free cash flow and cash conversion and what kind of measures are implemented or planned to be implemented to increase cash conversion. And the answer was different measures related to processes, governance, incentive structures, contractual topics.

[Foreign Language]

[Foreign Language]

In both buildings and in Civil Engineering. Could you give us more color on which segment is driving this more? And do you see this pace of order intake sustaining into half year 2 and in 2027?