Full Year 2020 Implenia AG Earnings Call Wallisellen Mar 3, 2021 (Thomson StreetEvents) — Edited Transcript of Implenia AG earnings conference call or presentation Wednesday, March 3, 2021 at 7:30:00am GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * André Wyss Implenia AG – CEO * Marco Dirren Implenia AG – CFO * Silvan Merki Implenia AG – Chief Communications Officer ================================================================================ Presentation ——————————————————————————– Silvan Merki, Implenia AG – Chief Communications Officer  ——————————————————————————– Good morning, and welcome to Implenia’s Media and Analyst Conference. We are happy to have you here. My name is Silvan Merki, Chief Communications Officer of Implenia. We will hold our presentation in English. However, during and after the presentation, you are kindly invited to ask your questions either in English or German via chat function already now and after our presentation during the Q&A session. Before we start with our presentation, I would like to first draw your attention to our disclaimer that you find presented here. On second remark, you will find our media release and our presentation shown already published on our website implenia.com. And now let me hand over to Implenia’s CEO, André Wyss. André? ——————————————————————————– André Wyss, Implenia AG – CEO  ——————————————————————————– Thank you, Silvan. Also a welcome from my side. Before I go into details, I would like to highlight a few points. 2020 had been a year of significant challenges and transformation. The COVID-19 pandemic led to partly interrupted supply chains, construction site closures in some areas and productivity decreases due to increased hygienic measures. In this challenging time, our operating model and organizational set up enabled efficient COVID task forces. Further, we had to make unavoidable write-downs on projects that started before 2019. As a consequence, we sharpened and accelerated our strategy execution within portfolio and profitable growth. With the closing of financial year 2020, we could, therefore, de-risk our company. In addition, we manage opportunities and risks along the entire project timeline with our value assurance framework and first quantitative analysis shows already positive effects. Looking ahead, our order book is of improved quality with focus on profitability, and we continue to place the customer at the center. Now let me share some details on the developments in 2020. We achieved an EBITDA of minus CHF 4.9 million, which was impacted by several onetime effect. The order book amounted to over CHF 6.3 billion. Our accelerated and sharpened strategy implementation in all 4 strategic priorities is on track. We continue to be solidly financed. Further, we won several new flagship projects in Switzerland and Germany and market predictions are positive. For 2021, we expect an EBIT of over CHF 100 million and confirm our midterm target of an EBIT margin of 4.5%. Lastly, Implenia’s Board of Directors proposes to the Annual General Meeting on 30th of March to refrain from paying a dividend. Now looking at the structure of today’s presentation. I will start with a business update. Our CFO, Marco Dirren, will then walk you through the details of our financials. Afterwards, I will show you our outlook. Marco and myself, will be happy to answer your questions at the end of the presentation. So let’s first have a look at our business update. The group’s order book remained at a high level with a value of over CHF 6.3 billion and was well diversified across targeted businesses and markets. The reason for the increase of the order book compared to last year, is mainly the newly won flagship project in Switzerland and Germany. Further positive news is that our 80% of our estimated revenues for 2021 are already in our order book, which is of improved quality based on our profitability focused value assurance framework. Implenia’s revenues decreased by 10% versus last year, which was highly impacted by COVID-19. Closed construction sites in some regions in the first half year as well as interrupted supply chains and productivity losses were key drivers. Regarding profitability, Implenia closed with a reported EBITDA of minus CHF 4.9 million. Looking at our underlying performance We achieved an EBITDA of CHF 163.5 million, including a COVID-19 impact of about CHF 52 million. In financial year 2020, our underlying performance was impacted by one-time effects that amounted to net CHF 168.3 million negative. Positive one-timers were the incremental Ina Invest effect, lower restructuring costs and lower expense than anticipated for employee benefits. Negative one-times were as expected, the announced write-downs and revaluations as well as restructuring provisions. Implenia is organized in 4 divisions. These represent a strong and integrated offering based on which we aim to achieve our vision to become a multinational integrated construction and real estate services provider. Now let’s have a look at a brief video that summarizes the competencies of our divisions. (presentation) ——————————————————————————– André Wyss, Implenia AG – CEO  ——————————————————————————– Looking at our division Real Estate, which achieved a strong underlying EBITDA of CHF 61.6 million including a negative COVID-19 impact of approximately CHF 9 million. The reported EBITDA amounted CHF 110.6 million, which included net one-time effects of CHF 49 million. The division continues to develop an attractive land portfolio valued at historical cost of CHF 177 million, and an estimated market value at completion of about CHF 2.3 billion. Gross investments in its development portfolio of CHF 57.9 million strengthened the project pipeline for future positive business development. As communicated in the first half year, we spun off approximately 50% of our development portfolio in terms of market value to Ina Invest. The partnership with Ina Invest will accelerate our growth potential by creating substantial income streams. Going forward, Real Estate will also develop standardized industrially manufactured real estate products. Buildings closed the financial year 2020 with a solid underlying EBITDA of CHF 40.5 million, including a negative COVID-19 impact of around CHF 13 million. The reported EBITDA amounted to minus CHF 6.1 million due to negative one-time effects of total CHF 46.6 million. The order books stood at over CHF 3 billion and represents a significant increase in quality and volume. This was based on the acquisition of various large projects in Switzerland and Germany. Enabled by Implenia’s strategy of early involvement in the pre-construction phase and the collaboration with our clients. On revenue level, Buildings achieved a slightly lower result in last year due to the effects of the COVID-19 pandemic. The division continues to strengthen its core business in Switzerland and Germany and plans to further expand its planning and consulting capabilities in the preconstruction phase to become an end-to-end construction services provider. Coming now to Civil Engineering, which achieved an underlying EBITDA of CHF 48.3 million, including negative COVID-19 impact of about CHF 26 million. Most write-downs had to be made in Civil Engineering within sub-unit Civil. Total negative one-time effects amounted to minus CHF 149.5 million, which led to a reported EBITDA of minus CHF 101.2 million. The order book decreased to CHF 3.2 billion and was of improved quality. The division’s revenue declined by 12%. Both effects were mainly due to temporarily reduced market volume caused by COVID-19 and emphasized by a more selective project acquisition and the shift from volume to margin oriented growth, well in line with our strategy. Going forward, Civil Engineering will focus on complex projects and on establishing new partnerships base contract models. Further, we plan to reduce our project realization capacities at the lower end of the value chain in all our markets. For example, by outsourcing our yards and equipment. Division Specialties achieved a positive development of the underlying EBITDA versus last year, totaling to CHF 21 million. Reported EBITDA was CHF 2.8 million after net negative one-time effect. Division Specialties increased its order book to CHF 157 million based on growth of facade solutions, construction logistics and building technology. Revenue decreased by 7%, impacted by some significant COVID-19 related project delays. The division continues to invest in and scale performing businesses such as facade solutions, building construction logistics and building technology planning. It also expands its engineering and planning competencies such as timber construction and formworks. In 2020, we sold to Tüchler Ausbau in Austria and decided to close Implenia Modernbau in Germany. We continue to evaluate further portfolio adjustments of non-strategic businesses. When it comes to our geographical footprint, we strongly focus on real estate, large-scale buildings and infrastructure in Switzerland and Germany. Because of continued challenges in other markets of our sub-unit civil, Division Civil Engineering will only of the tunneling and related infrastructure beyond Switzerland and Germany going forward. Reasons for this are better margin profiles a strong track record and international tendering practices within tunneling. The strategy we defined in 2019, with our 4 strategic priorities remains valid. As a consequence of the necessary write-downs, we decided to sharpen and accelerate our strategic priorities portfolio and profitable growth. Now let’s have a look at the status of our key initiatives in 2020 and what we plan for 2021. As part of our strategic priority portfolio, we sell or ramp down non-core and non-performing businesses in all of our divisions. In 2020, we sold Tüchler Ausbau and started the ramp-down of [Suit Barton] and Modernbau. This year, we will continue to execute the announced divestments and ramp-downs according to our revised geographical graphical footprint. Second, we aim to externalize our asset-heavy activities and refocus selected businesses to become more asset-light in Switzerland, Germany and in Austria. Further, we will continue to scan and invest in new business models, focusing on engineering and planning capabilities. Regarding our strategic priority, profitable growth. We focus on 2 key initiatives. On the one hand, the opportunities and risk management with value assurance, where we have worked on a key [PI] approach to quantitively measured the impact on our profitability. This year, we will refine it and implement early warning indicators during the entire project timeline. On the other hand, we are implementing our operational excellence and cash management initiatives, which are all well on track. Our new ERP INSPIRE with harmonized and digitalized processes went live in Switzerland at the beginning of this year. Concerning value assurance, we can confirm that our framework is effective. Each project runs through a standardized process to rigorously assess opportunities and risks. With this framework, we are already successfully managing opportunities and risks early and continuously during project timelines. On top of this, initial quantitative analysis shows, on average, a better risk profile of tendered projects and an improved tender EBIT margin. Due to an average project duration of 3 to 5 years for complex projects, it will take some time until projects have undergone the entire value assurance process. Hence, the positive impact on realized profit margin can be measured only in near future. Besides portfolio and profitable growth, innovation remains an important pillar. We pursue innovation with a threefold strategy. First, we foster entrepreneurship and corporate entrepreneurship with Implenia employees submitting already over 60 ideas to the Innovation Hub. Out of this, 8 pilots are currently in market test. Second, we pursue innovation M&A in our defined focus areas to fill existing portfolio gaps or white spots. Third we foster open innovation through partnerships with research and innovation networks. Initial pilots are already ongoing. In particular, 2 initiatives are in focus, namely the selective testing and application of promising technologies such as drones for surveying and geolocation. Further, we are testing use cases within artificial intelligence, RFID and Internet of Things. In addition, we are developing standardized products that will be assembled on site. So far, we have identified opportunities within real estate, for example, various kinds of living spaces. Also, infrastructure offers attractive and scalable business models for example, standardized bridges or viaducts. In 2021, we will further detail the business model concepts within these areas, and launch market tests. On talent and organization, change management activities have been set up to support the leadership team and the employees in the current restructuring phase. Further, talent management remains a key priority. These initiatives are supported by our values and operating model, which built the foundation. Our operating model continues to enable transparency and an effective execution of all strategic initiatives. Implenia’s 5 corporate values, agility, collaboration, excellence, integrity and sustainability are now part of the performance management system, and thus, have an impact on compensation. For our value sustainability, we have defined concrete goals until 2025. Let’s have a look at the video, which summarizes this as well as our progress related to innovation. (presentation) ——————————————————————————– André Wyss, Implenia AG – CEO  ——————————————————————————– To wrap this up, I would like to point out that we take the topic of sustainability very seriously and are committed to achieve our defined goals internally and with our customers and partners. For further information, please have a look at our new sustainability report published today. I’m now handing over to our CFO, Marco Dirren, to provide an update on the financials. Marco? ——————————————————————————– Marco Dirren, Implenia AG – CFO  ——————————————————————————– Thank you, André. Let me start with a detailed overview of the financial performance of Implenia in 2020 and thereafter, close with the guidance for 2021. Looking at the income statement for the financial year 2020, the EBITDA of minus CHF 4.9 million was heavily impacted by one-time effects, which I will comment in more detail later. The increase in depreciation compared to 2019 was affected by a goodwill impairment in the Division Civil Engineering of around CHF 40 million. Hence, the EBIT stood at minus CHF 146.8 million. The financial result of minus CHF 17 million slightly improved due to FX gains. Taxes were positively impacted by tax less loss carryforwards. All in all, leading to a net result of about minus CHF 132 million compared to CHF 34 million in 2019. Let me explain the one-time effects one by one as we go through the chart from left to right. The impact from write-downs and re-evaluations of projects and litigations was slightly above the amount of around CHF 200 million, we announced in October last year. With regards to restructuring, we were able to reduce provisions for restructuring costs to around CHF 36 million compared to our previous estimate of around CHF 60 million. I would like to emphasize that by reducing restructuring costs, we do not change the scope or magnitude of our restructuring program nor the target organization, creating annual savings of more than CHF 50 million until 2023. One effect leading to lower-than-anticipated restructuring cost was a reduction in required hard layoffs and related expected termination costs. We were able to negotiate socially responsible options with our employees. In addition, the cost decreased due to the transfer of non-core and non-performing businesses and departures by mutual consent. The positive onetime effect from the Ina Invest transaction was CHF 52.5 million. This includes the release of provisions of around CHF 4 million that were initially estimated in connection with the spin-off. Finally, there were additional positive one-time effects of around CHF 18 million, which mainly referred to lower-than-expected expense for employee benefits according to IAS 19 compared to the October 2020 estimate. Excluding all of the one-time effects, Implenia’s underlying performance for the year 2020 was CHF 163.5 million, including a COVID impact of around CHF 52 million. This comprehends positive project developments in the operating business in the last quarter of 2020. Taking all effects into account, our reported EBITDA stood at minus CHF 4.9 million, which is significantly better-than-anticipated last October. Let me share with you a detailed analysis of the deviation between the October 2020 estimate, hence, the full year 2020 reported effects on EBITDA, including its split on the divisions. Write-downs and re-evaluations of projects concerned mainly the Division Civil Engineering and here, especially the business unit, Civil, [Sweden]. In the Division Buildings, the write-downs can mainly be traced back to legacy litigation cases, which are all handled at group level. The majority of restructuring costs were in Division Civil Engineering and to a lesser extent, in Division Specialties and in group functions. The positive impact from the Ina Invest transaction is entirely allocated to the Division Real Estate. COVID-19 impacted all of our divisions as forecasted last year. The fourth quarter 2020 showed a positive upside on claim and litigation cases of around CHF 7 million compared to the previous estimate. In addition, general project development was better than our forecast last year. Adding all up, we were able to improve EBITDA compared to the October estimate in several different positions, leading to a positive deviation of CHF 65 million. Let’s continue with the asset side of our balance sheet. Cash and cash equivalents stood at CHF 720 million in 2020, approximately CHF 190 million below last year and continued to trail at a high level. The position real estate transactions decreased by around CHF 50 million as a result of the transfer of half of the development portfolio at market value into Ina Invest last June. The real estate transactions were transferred at book value, which then led to a revaluation gain. In turn, the other non-current assets increased due to this transaction and includes the strategic participation of 42.5% in Ina Invest. As per end of 2020, the participation had a value of CHF 143.6 million. The goodwill impairment of around CHF 40 million was made in the Division Civil Engineering following the write-downs and strategic restructuring. All in all, in line with our asset-light strategy and despite the Ina Invest participation of CHF 143.6 million, total assets are reduced by approximately by CHF 140 million to around CHF 2.9 billion at the end of 2020. Current liabilities increased by around 7%, driven by an addition in provisions related to the Ina Invest transaction for write-downs and for restructuring. Total equity at the end of 2020 stood at CHF 303 million. The key drivers for this development are the negative one-time effects, including the goodwill impairment as well as the dividend in kind related to the Ina Invest transaction. As a result, our equity ratio has temporarily decreased to 10.3%, in line with the level we announced. A detailed view on the change in equity shows the impact from negative one-time effects as part of the net result and from the dividends. Dividends include both the ordinary dividend to Implenia shareholders and the dividend in kind that was distributed to the shareholders of Ina Invest. I would like to emphasize the temporary nature of the current equity level and our midterm ambition of an equity ratio of more than 20%. We not only have strengthened and de-risked our underlying business, but also, as mentioned by André, we have already started the deconsolidation of selected non-core or asset-heavy activities. In the midterm, increasing earnings and expected dividends from Ina Invest will support our ambition. Continuing with the cash flow statement, cash and cash equivalents remained at a high level. The negative cash flow from operating activities was driven by the operating result, which was significantly affected by COVID-19. In addition, the divisions Buildings and Civil Engineering had received above-average pre-payments in late 2019, which were consumed and therefore reduced during the course of 2020. Also, the Division Real Estate contributed with a lower cash flow following the cash-free transfer of a part of the development portfolio to Ina Invest. The cash flow from investing activities improved compared to last year, driven by divestments in line with our asset-light strategy. The entire management puts focus on cash management, hence, the cash conversion cycle remains a top priority for all divisions. Implenia’s net result was significantly impacted in 2020 by both one-time effects and the operating business that was affected by COVID-19. We have the clear focus to strengthen the company for the future. We will execute on our strategic priorities for sustainable future growth. By doing so, we aim to improve the equity ratio in 2020 towards the midterm level of 20% and to act in the interest of our shareholder. Therefore, Implenia’s Board of Directors proposes to the Annual General Meeting of Shareholders on March 30, 2021, to refrain from paying a dividend. Following the announcement of the restructuring program last October, I would like to provide you with an update thereof. Our restructuring towards the target organization is well on track. With around CHF 37 million, restructuring costs provisioned in 2020, we are set to achieve annually recurring savings of more than CHF 50 million by 2023. To recap, the main effect, leading to a reduction in restructuring costs was fewer required hard layoffs and hence, lower expected severance costs. We were able to negotiate socially responsible options with our employees. Further, the transfer of non-core and non-performing businesses as well as departures by mutual consent had a positive impact. A major strategic transaction affecting Implenia in 2020 was the spin-off of Ina Invest. One of the main benefits of the Ina Invest transaction is the accelerated value realization of the real estate portfolio. Ina Invest as a real estate vehicle is in an optimal position to fulfill the capital demands through additional financing capacity that are required to fully realize the potential of the development portfolio. Further, by transferring around half of its development portfolio into Ina Invest, the capital turnover of these projects has significantly improved. This will increase return on equity for Implenia as a significant minority shareholder to Ina Invest. Finally, Ina will generate stable, sustainable and increasing future income streams for Implenia. On the one hand, through recurring earnings from services and on the other hand, through the participation as a significant minority shareholder of Ina Invest Limited. Implenia is solidly financed to support its operational targets. The company is reporting a positive net cash position of over CHF 160 million excluding lease liabilities and is provided with a well-diversified financing mix. The syndicated facility agreement we have in place consists of 2 lines. The backup liquidity line that we reduced to CHF 100 million to better reflect Implenia’s business needs. This will consequently lower availability fees as the facility remained entirely undrawn in the past. The guarantee line of CHF 550 million is unchanged in size. It adds to around CHF 2 billion of uncommitted guarantee and surety lines that are in place to support the operating business. The company continues to be solidly financed with a well-balanced maturity profile. Overall, Implenia’s core banks and lenders remain strongly committed to provide financing for our way forward. I would like to conclude my presentation with the financial guidance for 2021. Based on our strong order book, it’s systematically improved quality and the enhanced visibility on the operational business, we expect an EBIT of more than CHF 100 million for the full year 2021. Our midterm target is an EBIT margin of 4.5%. And with this, I hand back to André for the market outlook. ——————————————————————————– André Wyss, Implenia AG – CEO  ——————————————————————————– Thank you, Marco. Before we move to our Q&A session, I would like to briefly provide you an overview of our outlook. The outlook remains positive for all Implenia relevant markets despite the COVID-19 pandemic. Total construction output is expected to stabilize in Western European countries with annual growth rates of plus 2.7% for Buildings and 3.3% for Civil Engineering until 2023. The market outlook for large infrastructure projects is promising due to potential economic stimulus packages and an investment backlog in infrastructure. Besides the market development, megatrends and industry shifts continue to be positive. High demand for living space in city centers as well as required investments in mobility and infrastructure provide attractive opportunities for Implenia’s integrated offering. We are well aware of industry shifts and they’re addressing them in corresponding strategic initiatives. All divisions won or developed new flagship projects. Real Estate developed sustainable projects like Green Village in Geneva or further lock stop projects like [Big Boy] and [Elephant] in [winter 2]. Based on sound client relationships and often pre-contract conceptualization and planning, Buildings won several flagship projects, such as the cantonal hospital in Aarau, UBS Paradeplatz in Zurich and Alto Pont-Rouge in Geneva. With its proven expertise in complex infrastructure projects, Civil Engineering acquired the A7 Tunnel in Hamburg Altona, the northern safety tunnel of Gotthard and the modernization of the Waldenburgerbahn in Baselland. Specialties will deliver facade technology solution for the modernization of the swim center Alster in Hamburg, building construction logistics to the Arnulfpost in Munich and post-tensioning systems to the [Ostras] Elbmarsch in Hamburg. Based on the presented results and outlook, we are convinced that we are firmly on our way to realizing our unchanged vision and strategy of becoming a leading multinational integrated construction and real estate service provider. Now before we answer your questions, a quick note that we have our Annual General Meeting on March 30 and we’ll present our 2021 half year results on August 17. If you have any questions after this event, please do not hesitate to get in touch through the usual channels. Thank you very much for your attention. I now hand over to Silvan to facilitate the Q&A session. Silvan? ================================================================================ Questions and Answers ——————————————————————————– Silvan Merki, Implenia AG – Chief Communications Officer  ——————————————————————————– Thank you, André. So now I can open our conference call for your questions. (Operator Instructions) Our first question arrived. It is a question from [Holger Fisch] of [Jet Cape]. The question is with respect to the new syndicated loan facility, was there an adjustment of the covenants? How are they defined now? And what is the new term of the facility? I hand this question to André. ——————————————————————————– André Wyss, Implenia AG – CEO  ——————————————————————————– I ask Marco to respond to that question, Marco. ——————————————————————————– Marco Dirren, Implenia AG – CFO  ——————————————————————————– Thank you very much. Yes, the syndicated facility agreement is actually not new. It has been amended, and that consists of a backup liquidity line and the guarantee line, which is as well commented on our annual report. Implenia’s core banks and lenders remain strongly committed to providing our — to finance our way forward. And you can expect that we have a customary set of covenants, which we do not comment on the details nor the details of the covenants and the pricing. So the maturity date of the facility remains unchanged, which is end of 2023. ——————————————————————————– Silvan Merki, Implenia AG – Chief Communications Officer  ——————————————————————————– Next question from [Holger Fisch], [Jet Cape] Could you please explain the significant investment in working capital, especially, why has there been such a significant increase in accounts receivable? ——————————————————————————– André Wyss, Implenia AG – CEO  ——————————————————————————– Yes. I believe that’s also a question for Marco. Marco, can you respond to that? ——————————————————————————– Marco Dirren, Implenia AG – CFO  ——————————————————————————– Yes. So our focus remains on the cash conversion cycle, and that has been even accelerated in the last quarter of 2020. And that had an effect on invoicing, which then reduced on the other hand side working progress. So there has also been a shift from 2020 into 2021 from accounts receivables, payments and larger settlements as well took place at the end of year. So some receivables are actually settled after the reporting date. And the increase itself has been driven by third parties and JVs. ——————————————————————————– Silvan Merki, Implenia AG – Chief Communications Officer  ——————————————————————————– (Operator Instructions) Next question that arrived from Christian Arnold from Stifel. It’s on Buildings. Question is like the Swiss Association of Master Builders, the [bio master band] has spoken of project postponements by major investors such as SPV in the building construction sector. How do you assess the situation in this regard? And what effect might this have on Implenia? ——————————————————————————– André Wyss, Implenia AG – CEO  ——————————————————————————– Indeed, it has been announced. That, for example, SPV would postpone their investments. But following several discussion with the owner, SPV has adjusted the reduction in real estate investments, communicated at the end of January. And as a result, SPV can implement real estate projects that are ready for construction and important for communities and regions without any interruptions. So hence, we do not see any negative impact on Implenia’s project at this point in time. And we are actually quite confident that these investments will take place. ——————————————————————————– Silvan Merki, Implenia AG – Chief Communications Officer  ——————————————————————————– Question that reached us from Torsten Sauter, Kepler Cheuvreux. What is the fair market value of the real estate portfolio, Implenia published an independent appraisal value like Ina Invest has done. ——————————————————————————– André Wyss, Implenia AG – CEO  ——————————————————————————– So as you remember, last year, in June, we have conducted 2 independent evaluations of most of our real estate portfolio, which amounted to over CHF 600 million market value. Half of it remains with us in Implenia, and we certainly also, as you could see in the report, continue to invest in it. So you can assume value over CHF 300 million. The Implenia’s project portfolio has an estimated market value on its completion of around CHF 2.3 billion, which we also announced earlier or mid of last year. And this has derived from last year’s external evaluation. So we are very prudent on how Ina Invest develops, and they announced their results last week, but we are also very happy with our own portfolio, which is continue to develop absolutely into the right direction. ——————————————————————————– Silvan Merki, Implenia AG – Chief Communications Officer  ——————————————————————————– Another question from Torsten Sauter, Kepler. Why has the cash performance been so weak? Will net cash increase again in 2021, considering deferred cash outs for restructuring and real estate land bank replenishment? ——————————————————————————– André Wyss, Implenia AG – CEO  ——————————————————————————– I think I give that answer to Marco. Marco? ——————————————————————————– Marco Dirren, Implenia AG – CFO  ——————————————————————————– So first and foremost, I’d like to highlight that Implenia is still running on a high level of cash, and we do emphasize that we had not used any backup liquidity in 2020 of the syndicated facility agreement. So in 2020, we started the year with an elevated cash level due to above-average pre-payments received at the end of 2019. And these have been consumed now in the course of 2020. The decrease in cash in 2020 was as well driven by the low operating result, especially impacted, of course, by those legacy projects that led to the announcement we did in October. And also, the real estate cash flow, the usually expected real estate cash flow came in low because of the cash-free transaction in an investor transaction. So those were the main reasons why the cash has been not as expected at the beginning of the year. So we expect cash and cash equivalents to remain at the high level as well in 2021, certainly because of the increased business performance. ——————————————————————————– Silvan Merki, Implenia AG – Chief Communications Officer  ——————————————————————————– We are still happy and ready to answer more questions. (Operator Instructions). I see another question in our tracker, it’s from [Mark Miley], [ICV]. Until when can the covenants of the banks be fulfilled again? ——————————————————————————– André Wyss, Implenia AG – CEO  ——————————————————————————– So I will take that answer, although, Marco, I think he would also be in a good position to answer it. So the syndicated facility is in place. However, we do, as I mentioned before or Marco mentioned before, we do not comment on the covenants. ——————————————————————————– Silvan Merki, Implenia AG – Chief Communications Officer  ——————————————————————————– We have a next question by [Mark Miley], [ICV]. How did it come about that the impairments announced in October 2020 were wrong and now have to be revised again. Did the auditors pay a role — play a role? ——————————————————————————– André Wyss, Implenia AG – CEO  ——————————————————————————– Marco, can you say something about our goodwill discussion. ——————————————————————————– Marco Dirren, Implenia AG – CFO  ——————————————————————————– So following the write-downs and our strategic restructuring costs that were made in line with our announcement in October last year. We made a detailed assessment. So an impairment test of the goodwill in Civil Engineering that resulted in an impairment of CHF 40 million. So this is a usual process when you do such restructuring and write-downs in a given year. So the remaining goodwill is on our well-performing core businesses and is validated by the auditors. ——————————————————————————– Silvan Merki, Implenia AG – Chief Communications Officer  ——————————————————————————– Next question by [Mark Miley, ICV]. How high are the current credit facilities? Are they secured? Do the covenants also apply to the guarantee facilities, have the fees for the guarantee facilities increased? ——————————————————————————– André Wyss, Implenia AG – CEO  ——————————————————————————– So I will hand over that answer to Marco. Marco? ——————————————————————————– Marco Dirren, Implenia AG – CFO  ——————————————————————————– So the syndicated facility agreement is committed, and we have adjusted the facility and reduced it from CHF 800 million to CHF 650 million to better reflect our business needs. We decided to reduce the backup liquidity line to save on availability fees, so to reduce our capital costs. And the cash line of the old syndicated facility agreement was never drawn in the past. So we had a CHF 250 million line, which was never drawn, and we have reduced that now to CHF 100 million. So we are absolutely sufficient — we do have absolutely sufficient backup facility as well for the guarantee line. So guarantee line of CHF 550 million was unchanged. And we do not comment on the fee and on the structure of the facility apart from what you can see in our annual report. I would like to emphasize that the CHF 550 million guarantee line is joined by CHF 2 billion — over CHF 2 billion guarantee line, which is uncommitted. ——————————————————————————– Silvan Merki, Implenia AG – Chief Communications Officer  ——————————————————————————– We are still ready to receive more questions from you. (Operator Instructions). We are receiving more questions. We have one from [Matthias Tike] from [Raton Partners]. Good morning. I would like to ask the following questions. Why were the requirements for additional write-offs not discovered in the initial round of write-offs after the management change in 2018? And do some or all of the new write-offs relate to projects that have been acquired in the last 2 years? If yes, were these projects subject to the new value assurance process? And will the planned portfolio changes trigger additional goodwill amortization? ——————————————————————————– André Wyss, Implenia AG – CEO  ——————————————————————————– So given our effort in systematically reviewing all the project claims and litigation cases, we are very confident that we have disclosed all significant one-time write-downs on legacy projects that started well before 2019. So none of this was in the last 2 years. We have implemented strict governance and risk management processes with our value assurance framework across all projects. I want to emphasize that the nature of our business is large project business. There is, by in nature, always a certain risk involved, and it will always require certain write-downs in the ordinary course of business. However, this certainly was not ordinary. Following the write-downs and strategic restructuring that were made in line with our disclosure in October, we made a detailed assessment of the goodwill in Civil Engineering and resulting in a CHF 40 million an impairment we discussed as well. I think it’s important that the order book we accumulated in the last 2 years are of significant improved quality. We have already the initial signs of this, which I mentioned before in my presentation. I also want to emphasize that in October 2018, when we announced the first write-off that it was a few weeks after the arrival of myself. And then we changed the organic [ram] in first of March. The new operating model first of March 2019 and most IC members or the executive members joined first of March, but some of them came in later in May, some of them September and the last one even in January 2020. So I think with the new operating model, with the new people in place, and with the now well-established value assurance process. Since then, we have not revealed problems on such projects. ——————————————————————————– Silvan Merki, Implenia AG – Chief Communications Officer  ——————————————————————————– We’re still open for more questions. I see in the tracker from Andreas Brun, CS. The cash credit line was reduced. Please elaborate on the reasons. ——————————————————————————– André Wyss, Implenia AG – CEO  ——————————————————————————– Yes. Marco, can you answer that question? ——————————————————————————– Marco Dirren, Implenia AG – CFO  ——————————————————————————– Yes. As I said before, the new syndicated facility agreement does better reflect our business needs. We decided to reduce the backup liquidity line to save on availability fees. And one would need to know that we’ve never drawn the liquidity line in the past of the CHF 250 million. With a high cash position of CHF 720 million, we are convinced that this CHF 100 million cash line is absolutely sufficient to be our backup facility. ——————————————————————————– Silvan Merki, Implenia AG – Chief Communications Officer  ——————————————————————————– Still open for more questions. (Operator Instructions) I see another question from [Holger Fisch], [Jet Cape]. With the equity ratio down to around 10%, you still emphasize that Implenia is solidly financed. Under what circumstances would you consider a capital increase to strengthen the balance sheet? ——————————————————————————– André Wyss, Implenia AG – CEO  ——————————————————————————– So I may start, and then I hand over to Marco. So we do not consider an increase right now and do not see a need for this. And this has several reasons. Marco, can you elaborate on the reasons why not? ——————————————————————————– Marco Dirren, Implenia AG – CFO  ——————————————————————————– Yes. So we still think that — and we are convinced that Implenia is solidly financed and that we have sufficient cash. We do have enough liquidity to support our operational targets. And the company is reporting a net cash position of CHF 160 million, which is still on a good level. And this provided, and that’s probably more important, too, with a well of diversified financing mix and a balanced maturity profile. Our syndicated facility agreement is in place, and we do have this backup liquidity. So — and the guarantee line, so there is no need, as André said, to do any measures. And our core banks and our lenders remain strongly committed to providing financing for our way forward. So all of the debt financing instruments show really a well-balanced maturity profile, and we do currently have no plans to increase the capital. ——————————————————————————– Silvan Merki, Implenia AG – Chief Communications Officer  ——————————————————————————– We have another question from [Matthias Tike], [Raton Partners]. What specific measures can contribute due to an increase in the equity ratio and over what time frame? ——————————————————————————– André Wyss, Implenia AG – CEO  ——————————————————————————– So first, our midterm ambition for an equity ratio, well above 20% is absolutely realistic from our point of view. We expect to achieve this with strong underlying business through divestments of selected non-core activities and externalization of asset-heavy activities and also supported with earnings and dividends from our shareholder participation in Ina Invest Limited. The temporary decrease of the equity ratio in 2020 was driven by extraordinary effects such as project and goodwill write-downs, restructuring costs and Ina Invest transaction. So we are confident that we will increase the equity ratio very quickly and already, as we said, this year, to around 15%. And if you would add back the land bank, we would already now be at 15%. So that’s why we are so confident. ——————————————————————————– Silvan Merki, Implenia AG – Chief Communications Officer  ——————————————————————————– We have a question from Martin Husler, ZKB. Real Estate with strong underlying result from — of CHF 61.6 million. What are the main reasons? And what is the outlook for 2021? ——————————————————————————– André Wyss, Implenia AG – CEO  ——————————————————————————– Yes, we are certainly very confident with real estate for many, many reasons. One is certainly Ina Invest, which you probably have seen the results presented last week, where they already could provide a profit, which was not in the plans. We also announced that it will now accelerate the income of Implenia, hand-in-hand together with Ina Invest with significant uptake already in 2003, but we see also some returns in 2001 and 2002. Then our own development, as you know, we have a very good portfolio, still in our hands, which was how — or is still half, and we started to invest again. We have very strong capabilities and trade developer and additional expansion business model, for example, in services of foreseen. And also Division Real Estate is an early stage of expansion to Germany. So as I said at the Ina Invest announcement. We are very confident that real estate was and will be even a strong player for Implenia going forward. This is a short dip in 2021, mainly ’21 and then ’22, we see a slight uptick. ——————————————————————————– Silvan Merki, Implenia AG – Chief Communications Officer  ——————————————————————————– We have a question from [Emmanuel Spe], [Ruthan Partners]. Why don’t you use part of your liquidity of CHF 720 million to repay loans? Is this not possible due to the structure of the loans? Or do you need the entire liquidity for projects. ——————————————————————————– André Wyss, Implenia AG – CEO  ——————————————————————————– So maybe I start just with a very short answer, and then I hand over to Marco. This is a large project business, and we always want to be on the conservative side to be ready at any point in time. Marco? ——————————————————————————– Marco Dirren, Implenia AG – CFO  ——————————————————————————– Yes. The project business and especially the construction business has a strong seasonality. So in the first 6, 7 or 8 months of the year, usually, in the construction industry, you do consume money. And this is this intra-year swing. After all and which has being increased over the last 1.5 years, the cash management and our — the focus on the cash conversion cycle is and has been a top priority of the Implenia management. ——————————————————————————– Silvan Merki, Implenia AG – Chief Communications Officer  ——————————————————————————– We have another question from Torsten Sauter, Kepler Cheuvreux. Given the aim to exit some activities and considering the price over volume approach, why has the order book increased again? ——————————————————————————– André Wyss, Implenia AG – CEO  ——————————————————————————– Yes, Mr. Sauter. That’s a very good question. So first of all, as you remember, this famous T-chart where we show where we want to play and where we do not want to play. We do not want to play mainly in Civil, outside Switzerland and Germany. And these tend to be the smaller projects, shorter-term projects, which we have more or less stopped already in many places or at least not acquired anymore like in Sweden, Norway and in some other places. Also in Switzerland and Germany, we announced that we focus more on larger projects as opposed to smaller projects. However, we were able to acquire very significant flagship projects, mainly in Buildings, Switzerland and Germany. As I announced in the presentation right before. So you saw UBS Paradeplatz in Zurich, you saw cantonal hospital in Aarau, but we also achieved quite significant acquisition in Germany with many great projects there. Furthermore, we also announced that in the tunneling, we continue to focus on large tunneling projects. And as you saw, we acquired, for example, A7 Altona near Hamburg, which is a great infrastructure project, which fits perfectly with our strategy. So whilst we stopped doing those projects, which used to destroy value for Implenia. And we’re not margin positive or quite the country where had to take it significantly write-downs. We now got quite some interesting acquisitions in the businesses we used to make money. And that’s why we are so bullish about the future. 80% is already in and that makes us very bullish. And the other thing is all these acquisitions were in Germany and Switzerland, which we announced as our core markets and where we have a good history of success, too. ——————————————————————————– Silvan Merki, Implenia AG – Chief Communications Officer  ——————————————————————————– We have another question by Martin Husler, ZKB. To the order book. What’s the share of all the projects and what the share of new projects under the new framework? ——————————————————————————– André Wyss, Implenia AG – CEO  ——————————————————————————– Certainly, the share of the older project continues to decrease significantly. The order book contains normally an average or a project loss on an average 3 to 5 years. The new order book was developed in the last 2 years. However, with significant large projects, most recently. So you can assume that the older projects disappear more and more. But you can also assume that even if there is an older project, which we acquired before that time, we did go back and investigated that project in a little bit more in details to see how good it is. Our initial analysis already shows that the risk profile of tendered project has improved, and the average tender EBIT margin is higher compared to the respective margin before the implementation of the value assurance, which gives us great hope. The expected improvements is also reflected in our midterm profitability target of 4.5% EBIT margin. ——————————————————————————– Silvan Merki, Implenia AG – Chief Communications Officer  ——————————————————————————– Another question by Martin Husler. For the equity ratio of more than 20%, you still target 2 years from now, so it’s 2023, right? ——————————————————————————– André Wyss, Implenia AG – CEO  ——————————————————————————– Yes. Remember, we — we are now at 10%, as I said, including the land bank, we would be over 15% already. But yes, excluding the land bank, we aspire to reach over 20% within midterm, which is in the next 2 years, so 2023. ——————————————————————————– Silvan Merki, Implenia AG – Chief Communications Officer  ——————————————————————————– Do you foresee any lockdown impact 2021 so far? That’s the next question. ——————————————————————————– André Wyss, Implenia AG – CEO  ——————————————————————————– So that’s certainly also a question we ask ourselves. So we assume in 2021, that we continue — we start to score for some while as it concerns COVID-19. In our budget, the COVID-19 impact is reflected as such, so with the current status. We currently do not foresee close construction sites, similar to the situation in 2020. Our assumption is that the start to score will prevail in 2021, and we expect a certain decrease in productivity caused by strict hygienic and other measures such as reduced staff, quarantine measures and so on. But this is all considered in our budget. ——————————————————————————– Silvan Merki, Implenia AG – Chief Communications Officer  ——————————————————————————– We have a question by [Christian Mel]. Our negative COVID-19 effects estimated in 2021. Do you have problems with your supply chain due to COVID-19? ——————————————————————————– André Wyss, Implenia AG – CEO  ——————————————————————————– So that’s — I answered this partly already as I said, we assume start to score, which is a significantly reduced impact to what we have seen in 2020. We certainly, as I said, we expect a certain decrease in productivity caused by this process, strict process, measures we have to stick to like hygienic and so on. Recent market predictions, though, remain very positive despite the COVID-19 impact for all Implenia markets. Total construction and output is expected to recover in 2021 already. So this year and continue to grow in 2020. EUROCONSTRUCT forecasts moderate growth in 2021 and beyond. The CAGR estimate for Europe EC 15 is 2.7% from 2021 to 2023. So we are quite confident that the growth or the market opportunities will not hinder us to perform if start to score remains. ——————————————————————————– Silvan Merki, Implenia AG – Chief Communications Officer  ——————————————————————————– We have a question by Alexandra Bossert, UBS. Do you already have plans on how to replace or refinance the subordinated EUR 175 million convertible bond maturing in June 2022? May you shed some light on the covenants on your syndicated credit facility. How much headroom do you have? How quickly do you intend to strengthen again your balance sheet? And what is your expectation for free cash flow in 2021? ——————————————————————————– André Wyss, Implenia AG – CEO  ——————————————————————————– Marco, I think there are probably all for you. ——————————————————————————– Marco Dirren, Implenia AG – CFO  ——————————————————————————– Yes. So I think it’s quite simple. And as we see it today, and we assess it. If we achieve our targets in 2021 and looking at the market at the beginning of 2022, we do not see any significant challenge to actually refinance in 2022. So the covenants, the covenants, as I already said, we do not comment on the covenants, and we do not comment on the fees there, that’s probably quite comment. So we do strengthen the balance sheet with a strong underlying business through divestment of selected non-core activities and the externalization of asset-heavy activities. And also, that will be supported with earnings and dividends from our shareholdership in Ina Invest. So we expect the cash and as well the cash equivalents to remain at the high level. So that’s backed by a solid underlying business performance in 2021. And as I already said, the entire management puts really a high focus on cash management and the cash conversion cycle and the profitability of the — in the execution phase. And therefore, we are quite confident that we will not have any major issues to refinance in 2022. ——————————————————————————– Silvan Merki, Implenia AG – Chief Communications Officer  ——————————————————————————– Martin Husler, ZKB, has another question. What is your assessment of price pressure in the market? Is it increasing or maybe leading to lower volume for Implenia due to a stricter offering? ——————————————————————————– André Wyss, Implenia AG – CEO  ——————————————————————————– Yes. For us, it’s extremely important to go after projects where we believe our integrated offering matches the market demand. So we are no longer going after each and every project, and we’re definitely not going into insight on pricing only. So therefore, we do not hesitate to push — pull back from certain projects where we see that the price only matters. And that’s why we have applied this strict value assurance process. And we have already good examples of projects where we have not considered to continue offering because we didn’t see a reason to finance someone others project. However, we also see that complex projects such as UBS Paradeplatz or some others, pricing is not the primarily endpoint. There are a few others. And we still believe there are not so many companies who are able to provide this. And this is true for Real Estate, that’s true for Buildings, but also for Civil Engineering. And that’s why you see that the most recent wins are usually projects of significant complexity where Implenia is a good partner or joins with another strong partner in a JV to make sure that we have the right capabilities in place. So we no longer going after pricing only, quite the contrary there we would refrain to go. ——————————————————————————– Silvan Merki, Implenia AG – Chief Communications Officer  ——————————————————————————– Christian Arnold, Stifel has a next question. Is it a fair assumption that also for full year ’21, you will not pay a dividend in order to strengthen your equity capital? ——————————————————————————– André Wyss, Implenia AG – CEO  ——————————————————————————– This year, due to the net result of minus CHF 138 million and the negative free cash flow. The Board recommends to the AGM on the 30th of March to refrain from paying a dividend. The dividend proposal for next year is as well subject to the Board of Directors and the decision is and will be subject to the general assembly. The Board of Directors will make sure to take prudent approach with its recommendation, while at the same time, allowing our shareholders to participate in the future success of the company. So I think it’s just too early to answer that question. ——————————————————————————– Silvan Merki, Implenia AG – Chief Communications Officer  ——————————————————————————– Okay. And next question by Martin Husler. Why do not use some of the high liquidity of CHF 720 million to pay back loans. This would increase the equity ratio immediately. Is it not possible because the loans do not allow it? Or do you need liquidity as it serves our project guarantees? ——————————————————————————– André Wyss, Implenia AG – CEO  ——————————————————————————– So first of all, we don’t see an immediate need to immediately push the equity ratio up. So we will only do what really makes sense to the business mid to long term. And as Marco mentioned already, we believe that with the underlying performance of this year with the activities we have taken, measures and the accelerated strategy, we will be able to gradually now increase the equity ratio, but we have enough measures in our back hands, in case some something would develop slightly different. Marco, anything to add? ——————————————————————————– Marco Dirren, Implenia AG – CFO  ——————————————————————————– No, I think there’s nothing to add. We’ve already said everything, which is related to the equity ratio. ——————————————————————————– Silvan Merki, Implenia AG – Chief Communications Officer  ——————————————————————————– We still have to have time for some last questions. So we have one from Alexandra Bossert, UBS again. May you please give some guidance for free cash flow generation in 2021? ——————————————————————————– André Wyss, Implenia AG – CEO  ——————————————————————————– Marco? ——————————————————————————– Marco Dirren, Implenia AG – CFO  ——————————————————————————– Yes. We — as we said, we expect the cash equivalents to remain on a high level. We do not guide on free cash flow as you know and we have enough backup liquidity and that will be supported by our business performance in 2021. ——————————————————————————– Silvan Merki, Implenia AG – Chief Communications Officer  ——————————————————————————– Still time for 1 or 2 last questions. One question from [Matthias Tike], [Raton Partners]. Could you please answer my question about the risk for future goodwill impairment, which could be triggered by the planned portfolio changes. ——————————————————————————– André Wyss, Implenia AG – CEO  ——————————————————————————– So I just want to highlight that the audit has validated the current goodwill from our — what we have taken. And what we also can say the current goodwill is clearly on our well-performing core businesses. So we are quite confident. ——————————————————————————– Silvan Merki, Implenia AG – Chief Communications Officer  ——————————————————————————– We are ready for a last question. After that, time is really running out. And you may ask your questions then through your channels, well known. Last question from [Holger Fisch], [Jet Cape]. How many employees were affected by the sale of Tüchler Ausbau and the closure of Implenia Modernbau? What is the current status regarding further sales of selected business units? And how far are you in the negotiation process with interested parties? ——————————————————————————– André Wyss, Implenia AG – CEO  ——————————————————————————– So we are very well advanced and done already with Stiffler. And then the 2 closures Suit Barton and Modernbau, which were old businesses with moderate or no profit or even negative profit. And this has already, I would say, reduced our headcount dramatic. As you can see, our headcount from 2019 to 2020 has reduced by almost 200 people. And the part of this certainly is included there. What I can say is we have a very comprehensive program ongoing as far as divestments or closing of businesses are concerned and we proceeding according to plan, which is a very aggressive plan, but we are very confident what we can see that we are well advanced in many stages from due diligence to non-binding office. But we will disclose all of those moves in the next months and few years. But what I can reassure you, a lot happens in 2021 has happened already. Continues to happen and then to a lesser extent, 2022. So we are ready with the CHF 50 million annual savings, which we announced by 2023. So with this, I want to thank you for participating in today’s event. Thanks a lot for your question. And with this, I can only wish you a nice day. Stay safe and healthy and goodbye. Thank you.