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Edited Transcript of IMPN.S earnings conference call or presentation 20-Aug-19 7:15am GMT

Half Year 2019 Implenia AG Earnings Call

Zurich Aug 27, 2019 (Thomson StreetEvents) -- Edited Transcript of Implenia AG earnings conference call or presentation Tuesday, August 20, 2019 at 7:15:00am GMT

TEXT version of Transcript

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Corporate Participants

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* André Wyss

Implenia AG - CEO

* Marco Dirren

Implenia AG - CFO

* Silvan Merki

Implenia AG - Chief Communication Officer

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Conference Call Participants

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* Alexandra Bossert

UBS Investment Bank, Research Division - Head of Swiss Credit Research, Executive Director and Analyst

* Bernd Pomrehn

Bank Vontobel AG, Research Division - Analyst

* Christian Korth

HSBC, Research Division - Analyst

* Martin Hüsler

Zürcher Kantonalbank, Research Division - Research Analyst

* Patrick Appenzeller

Research Partners AG - Senior Analyst

* Patrick Horch

MainFirst Bank AG, Research Division - Associate

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and thank you for standing by. Welcome to today's Implenia Analyst Conference 2019 First Half Results Call. (Operator Instructions) I will now like to turn the conference over to your speaker today, Silvan Merki. Please go ahead.

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Silvan Merki, Implenia AG - Chief Communication Officer [2]

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Good morning, and welcome to the analyst conference according to the half year result 2019 of Implenia. My name is Silvan Merki in the function of Chief Communications Officer.

Before we start with the conference, first, I would like to draw your attention on our disclaimers that you find presented here and on the slides also published on implenia.com.

During this conference, forward-looking statements may be made. Such statements involve certain risks that could not be predicted with reasonable assurance. Implenia assumes no obligation to update or revise any forward-looking statements, whether as a result of new developments or otherwise.

Second, at the end, you will be able to ask questions. First, we will take the questions here in the room, and afterwards, we will open the line for the participants from the call. For any questions on behalf of this Andreasturm here or if you want to explore the tower with our project leader, we are happy to arrange this. Please refer to me.

Here with me are our CEO, André Wyss; and our CFO, Marco Dirren, who will present today. I'll give the floor now to Implenia's CEO, André Wyss. André?

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André Wyss, Implenia AG - CEO [3]

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Thank you, Silvan. Good morning, everyone. A very warm welcome here to the Andreasturm, a building we actually have built ourselves and was opened at the end of 2018. Also, a very warm welcome to the people on the webcast. We have a webstream, as you know, and people dial in.

Today, I'm presenting the 2019 half year results for the first time with the new CFO, Marco Dirren. Welcome to Marco. And also, we have in the room Anita Eckardt. She will take over the Division Specialties at the 1st of September, and she will become a member of the Executive Committee of Implenia. Welcome, Anita.

Before I go into the details of today's presentation, I would like to give you summarizing of the main highlights of the first half year 2019.

Implenia achieved an EBITDA of CHF 72.9 million for the first half year and confirms the earnings expectation for the transitional year 2019 as well as the medium-term margin for the EBITDA. All divisions: Development, Buildings, Civil Engineering and Specialties, contributed to the positive results. Development and Buildings in particular achieved very good results.

The corrective measures initiated at the end of 2018 EBITDA are working. Despite good underlying performance, Civil Engineering and Specialties are, as we expected, still subject to continued negative influences.

Our new organizational structure is proving to be effective, and thanks to clear roles and responsibilities, is enabling rapid implementation of our strategic initiatives.

We will now present our half year results as follows. First, I will give a business update of the group and its divisions, followed by the financials by Marco Dirren. Then I will come back and talk about the strategy update and the outlook for the year. As well, later on, followed by a Q&A, which will be done jointly by Marco and myself.

Implenia's group results for the first half of 2019 confirmed our expectations for this transition year with an EBITDA of almost CHF 73 million. The order book remains high. And orders are well diversified, both geographically and across all the divisions. We see already a better quality in the order book, thanks to more selective order acquisition. Strong revenue growth are mainly attributable to the internationalization strategy in Civil Engineering. FX corrected, it would even be almost 5%, it's 4.8%.

We see a good underlying performance overall by the divisions. Please remember we compared to a first half 2018 before the profit warning which took place in December. So first half year was extremely strong with an EBIT forecast of CHF 130 million. As expected, the EBITDA brought down by a lack of contribution margin from projects which we corrected at the end of 2018 and by costs of the strategy implementation. The EBITDA deviation compared to previous year is to 2/3 attributable to the effects of these corrections and 1/3 to the effects of implementing our new strategy. No further unexpected correction has been identified.

I will now talk about the performance of each of our 4 divisions: the Division Development, as our integrated project developer for site and property development; the Division Buildings as our end-to-end construction service provider and general and total contractor; the Division Civil Engineering as our specialized civil engineering business with strong engineering capabilities for tunnel construction, special foundations, and road and rail construction; and finally, our Division Specialties as a differentiated provider in attractive niches and with the focus on innovation. For example, facade technology, pretensioning technology or construction site logistics.

Our Development division achieved a strong result in the first 6 months. The EBITDA increased to CHF 27.4 million, which is a substantial increase of over 18% versus the previous year and was mainly driven by successful sales, for example, the KIM inno-living in Winterthur announced very recently.

The markets in the relevant segments show all positive development. The division's portfolio, as this year, we invested CHF 13.5 million, and over the last 8 months, CHF 40 million, shows that we are convinced that the Swiss property development is an attractive business to be in, and has therefore, invested in. The real estate portfolio in June 2019 is in the books now at the purchase value of almost CHF 200 million, so increased. We are currently evaluating greater value creation with this division, investing in investment properties, combined with innovative financing models. We also looked into geographical orientation. A team started already in Germany.

Our Buildings division also achieved a strong result in the first 6 months. A more selective acquisition policy has led to a reduction in the order book after the first half to CHF 2.8 billion, but there has also been a significant increase in the quality of the orders.

Revenues came in at CHF 1.1 billion for the first 6 months. The revenue in Switzerland and Austria are slightly higher than a year ago. Primarily, shortages of certain trades in Germany led to slightly lower revenue than previous year. The EBITDA of CHF 21.3 million is at the almost same high level as the comparable figures in the previous year. Our measures in South Baden are largely completed.

By focusing on our core competencies, such as complex large-scale projects and revising the order book, the risk profile has been significantly reduced. We have a good market position in Switzerland, Germany and Austria to leverage the market opportunities created by the urbanization megatrend.

The order book in our Civil Engineering division increased significantly to CHF 3.5 million. The order book is broadly based on the lines of our good positioning in our home markets. One example would be the concrete dam at Lake Grimsel. The division's revenues increased significantly by 7.7% to CHF 1.1 billion and is driven by the ongoing internationalization of the division. Continued positive revenue and earnings effect we have seen from large-scale projects. The turnaround in Swiss regional business and in Germany progressing according to our plan and the quality of the order book has already improved.

Overall, the results are within the expected range and the division's underlying performance is very good. Measures in Norway, having an impact as expected, but no further corrections has been identified.

We have very good position in our home markets to take advantage of the market opportunities created by the mobility and infrastructure investments megatrends, which we also introduced at the strategy presentation in February.

The order book of the Specialties division has decreased to CHF 144 million. Successful acquisition has been seen in wood construction and pretensioning facade technology. Specialties generate the revenues of CHF 120 million in the first half year, with an EBITDA of CHF 6.5 million. The reduction in revenue is mainly due to delays in wind power projects. However, we expect partial compensation for this in the second half of 2019.

The strategic review of the individual business is ongoing and should be completed by the end of 2019. We are scaling up existing profitable services while activities for which Implenia is not the right owner, may be dropped in order to create sustainable value for everybody.

Measures in Poland having an impact and no further corrections has been identified. We have developed and created an Innovation Hub which will be launched very soon. With this and the appointment of Anita Eckardt as of 1st of September, we have set the course for the future development of the Division Specialties.

I would close my update with a brief glimpse into what our divisions are doing every day and the total of around 5,000 ongoing projects. Sustainably developed properties and construct buildings as well as infrastructure, this and for people to fit their modern living, working and mobility needs. Be it in modern residential space in Fribourg, office space in Munich, infrastructure for science at the CERN in France or space for culture and history in Berlin.

I will now hand over to our CFO, Marco Dirren, who will present our financials of the first half 2019 in more detail, and then I will come back for the strategy update later on. Marco?

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Marco Dirren, Implenia AG - CFO [4]

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Thank you, André, and good morning from my side as well.

So before we dive into the financials for the first half year of 2019, I'd like to point out some notes to IFRS 16.

Implenia applied the new IFRS 16 leasing standard for the first time. IFRS 16 requests that assets and liabilities arising from leasing contracts are to be recognized in the balance sheet.

As illustrated here, in the application of IFRS 16 result in higher total assets, EBITDA and free cash flow. The previous year's equivalent figures have not been adjusted. This is important for your comparisons.

As laid out by Mr. Wyss, the EBITDA of Implenia Group was CHF 73 million. I'm very pleased that all divisions have contributed to the positive result. Excluding IFRS 16, the EBITDA of the group would have been CHF 41.4 million. Therefore, the result meets our expectations during this transition year of 2019.

The EBITDA deviation, excluding IFRS 16, is CHF 14.6 million. This compares to a first half year of 2018 before the profit warning by the end of last year. 2/3 of those CHF 15 million are due to lack of contribution margin from the 2018 communicated projects in Norway and Poland. 1/3 is due to strategy implementation effects. Depreciation, excluding IFRS 16, is at previous year level. As a consequence, and as expected, the operating income, excluding PPA, is lower. The PPA amortization of the half year 2019 will be mirrored in the second half of 2019. The financial results and taxes are as expected. Bottom line, the consolidated profit is CHF 0.5 million.

As expected, in the transition year of 2019, group costs rose by around CHF 3 million. This is due to the implementation of our strategy and its core initiatives: Value Assurance, Procurement Excellence, ERP transformation project INSPIRE and the new organization. Roughly half of the costs for strategy implementation, which are totaling around CHF 10 million, are management expenses and the other half are divisional costs.

Implenia's balance sheet is as solid as ever. The total to asset value is more than CHF 2.9 billion. As the following free cash flow statement will show, cash and cash equivalents has been reduced. However, the level of those positions remain with over CHF 700 million at a high level. The real estate transactions are valued at acquisition costs. The market value is much higher. Other current assets are almost unchanged despite the late payments by a few customers, mainly from the public sector. The rights of use from leasing, mainly due to IFRS 16, are lower than expected. The increase of other fixed asset is driven mainly by CapEx needed to finance our growth.

Implenia's accounts payable are on a lower level, mainly due to prompt repayment of our suppliers. The increase in financial liabilities is due to IFRS 16 and there have not been other significant changes. Excluding liabilities from leasing, Implenia has a robust net cash position of around CHF 200 million. The equity ratio remains solid by industry standards. Due to IFRS 16, and as expected, the equity ratio dropped temporarily below 20% to 19.3%. Excluding IFRS 16, the ratio would have been on a comparable level as per year-end 2018. For the next 6 months and thereafter, we are confident about the course of our business. This confidence is based on: one, the low PPA amortization; and second, the forecasted results. Implenia is determined to maintain its investment grade rating.

Our equity ratio is in line with our expectations and guidance. Adjusted by the IFRS 16 effect, it's on a comparable level as per year-end 2018. The equity has been influenced by purchase price allocation, other comprehensive income and dividends. In total, and since 2015, our PPA amortization is around CHF 90 million. Due to the increase in total assets after the adjustment of IFRS 16, the equity ratio has been reduced by 0.9%. We expect an increase in the equity ratio in the second half of 2019. This will be due to increased earnings and lower PPA amortization, as mentioned before.

Due to the usual seasonality of our business, the free cash flow is reported at minus CHF 167.5 million. The change in net working capital have mainly been influenced by date-related shift. Generally, the cash collection has been successful. Delays were caused by late payments by a few customer, mainly from the public sector, where we assume that those are at low risk. Furthermore, we have paid our creditors on time. We've invested in our machinery park fleet mainly to finance our growth.

In the first half year of 2019, there has been net investments in the real estate portfolio of CHF 13.5 million. These investments has been done in the greater area: Zürich area and the Arc Lémanique area. On the other hand, we sold large development projects such as sue&til and KIM inno-living.

Next, Mr. Wyss will give you an update on the progress on the implementation of our strategy and our business outlook. Thank you. André?

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André Wyss, Implenia AG - CEO [5]

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Thank you, Marco.

So in February, we presented our new strategy and vision. We strive to be a multinational leader in construction services. This is our vision. With more than 10,000 employees, we develop and build property and infrastructure with and for people with great passion every day.

While we do this, we focus, as we presented in February, on 4 strategic priorities and have achieved great progress already.

Let's start with the portfolio. We have defined and implemented a portfolio of 4 critical-sized, differentiated and entrepreneurial divisions in attractive markets. In addition, we have further detailed our organic and inorganic portfolio optimization options across geographies and the value chain.

On the profitable growth, our Operational Excellence program for future growth is well on track. The new holistic Value Assurance framework, digitalization with BIM and ERP transformation, Procurement Excellence, where we have supplier summits to optimize our conditions and outlined ideas for future partnerships and our procurement strategy.

Lean Construction following successful projects in pilots. We refined our Lean Standards and consolidated them into Toolbox to multiply and apply hopefully in the future to all projects.

On the innovation side, our Innovation Hub will be launched in September. Five innovation fields derived from the megatrends we've seen, 3-gate process is validate, pilot and implement, supported by tools and coaching.

On the talent and organization side, we have quickly, very quickly implemented our new operating model: entrepreneurship, functional excellence and local relationships. Simplicity, consistency and clear roles and responsibilities enable our strategy implementation.

I will now do a deep dive on the Value Assurance, the digitalization and our organization.

We have started the implementation of our new holistic Value Assurance framework to improve our project performance. Now we have 4 project classes based on risk factors, with committees for decision-making and escalation. We have also introduced several milestones for project selection, tender approval and execution for large projects. On the standard side, we have implemented group-wide standardized classification and reporting as well as early warning indicators and first analytics.

The organization is ramped up for Value Assurance and new capabilities has been initiated. First projects have already been selected following this new process and confirmed the way we're doing it. Next year, we will refine our project classes based on risk factors with analytics and introduce milestones for project selection and tender approval plus reviews during the execution for all these projects.

We will embed standardized classification and reporting, including early warning indicators and analytics tools, which should be supported by our ERP system and digitalization. And we will establish a Value Assurance organization and networks for knowledge sharing across the company and even outside the company, introduce and build new capabilities such as work teams for projects who has a problem.

Our ERP transformation and further deployment of BIM is also on track. An analysis in 2018 showed truly fragmented processes and systems, and we therefore initiated our transformation and digitalization program called INSPIRE. This year, we have already created an enterprise-wide mapping of core and support processes and will, by the end of the year, have the blueprint for future harmonized processes defined.

In 2020 and onwards, we will pilot the blueprint implementation in Switzerland, and thereafter, do the rollout refined by the blueprint, to all markets from 2021 and onwards.

Within our BIM initiative, we have enlarged our set of use cases, planning and execution phase, but primarily on the planning phase, and planned the rollout of the use cases across countries through group-wide BIM strategy. Next year, we will push the rollout of use cases across countries as per defined plan and leverage BIM as a competitive advantage with model-based core processes and enabled workforce.

I'm personally very pleased that we have managed to successfully implement our new organizational structure and the operating model that lies behind us in a very short period of time and very effective.

Starting from fragmented businesses with partially overlapping scope and activities, we have implemented our 4 divisions: Development, Building, Civil Engineering and Specialties, as of March, with clearly defined scope, activities and accountabilities.

Up until 2019, functions were primarily locally focused and has now been elevated to a global level as of March in order to operate fully integrated. With the newly established country presidents, we now have a clearly defined single point of contact for clients, suppliers and partners in each country.

To summarize, our new organization is notable for its simplicity and consistency and clear roles and responsibilities. The divisions are responsible for their results, the global functions for group-wide excellence in their areas of responsibilities and the country the presidents for the network in their home markets.

To conclude with our half year results, I will now give an outlook for the 2019 financial year as a whole and beyond.

As you can see, the market size prediction for our home markets remained largely positive. Overall, it is expected that the Civil Engineering segment will grow more strongly than the Building segment. Given these market predictions, we remain very optimistic. You see -- as you can see for Civil's Engineering Norway plus 8%; Civil Engineering in Sweden, 5%. But you also see Germany flat, although we've considered this as rather conservative. Civil Engineering France is growing. Austria is growing and Switzerland is growing. So we are very bullish on far -- as far as our home markets are concerned.

As we have mentioned, 2019 is a year of transition for Implenia, during which we are creating the conditions for long term, profitable growth of this company. This includes stabilizing our business. The corresponding measures we took already show clearly a positive impact. We're gaining market share. And through innovation, we aim to grow profitably in the medium term so that we can continue our long-term transformation.

In light of the still very high order book, we've now increased quality, the solid market environment and the positive impact from our strategic initiatives, we feel very confident for the second half of the financial year. We expect that the positive earnings trend will increase in the second half, especially in Civil Engineering and Specialties, mainly as a result of the typical seasonal factors that affect our industry and also some of those projects which now come to an end. Consequently, we are confirming our EBITDA target for the current transition year of over CHF 150 million before the cost of the strategy implementation of approximately CHF 20 million. And we also confirm our medium-term EBITDA target of 5.25% to 5.75%.

Before we answer your questions, a quick note on important upcoming dates. We will be holding a Capital Market Day on October 1. We will provide more deep dive information about our strategy and its implementation. We will present our 2019 annual report on the 25th of February next year, while our next Annual General Meeting will be on the 24th of March following the annual report. If you have any questions after this event, please do not hesitate to get in touch through the usual channels you are well familiar with.

I thank you very much for the attention, and we are now very happy to answer your questions.

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Questions and Answers

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Silvan Merki, Implenia AG - Chief Communication Officer [1]

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First, we are happy to get your questions here in the room. We have a micro there. Please speak into the micro so the other persons on the webcast can hear as well. Sir?

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Bernd Pomrehn, Bank Vontobel AG, Research Division - Analyst [2]

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Bernd Pomrehn from Vontobel. Two questions, if I may. Firstly, you mentioned late payments by a few customers in the public sector. How can we understand this? Currently, in the environment of negative interest rates, everyone wants to pay as quickly as possible. The financial situation in Switzerland, in Germany, in Scandinavia is pretty strong. So what's behind that? And then the second question. Everyone in the construction industry, some of your suppliers are talking about cost inflation, companies like Caterpillar, et cetera, but also, pertinent cost inflation is pretty severe. How do you see this affecting you currently or maybe also in the coming years?

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André Wyss, Implenia AG - CEO [3]

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So maybe I start and then Marco can complement this.

So on the cost inflation side, we don't see this yet as a major problem to us. We are multinational, which means certain costs go up, certain go even down and you become more effective. We see more of a problem of getting the right people because the competition on getting the best people is extremely severe. So this is more of a challenge. Having said that, I think if you are a very strong company, you can attract great people. And we have seen this now in the last couple of months, that we have applications for roles, more than 50 people for the same role, which we haven't seen before. So I think -- we also prefer to become a very attractive organization where people want to join. But certainly, the costs, we have a sharp eye on.

On the late payment, when we say late payment, this is also relative, right? It depends on the day you pay. And as you know very well because you're an expert in the construction industry, certainly, there are some tactics and techniques where you push a bit, then you delay a bit to get some pressure on both sides. But again, it's mainly in the public sector, and we are very confident that we get the payment. But we will not optimize cash as a result of EBITDA. So we will not offset one over the other. We are patient.

Marco?

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Marco Dirren, Implenia AG - CFO [4]

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Yes. There is not much to add. For the late payments, the public sector, we consider the public sector as a low risk client. They will pay. But usually, the process is a bit longer than on the private sector side. So we are very confident that we will get those payments sorted.

For the cost inflation, as André Wyss mentioned, we don't see the signs yet. There is a mix between financing the assets and purchasing the assets. And on a low interest market, the financing may be lower versus the purchasing costs are a bit higher, but that compensates. So to us, it has not been arrived to us now and it's more the resources than the assets.

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Silvan Merki, Implenia AG - Chief Communication Officer [5]

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A question in second row, please?

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Martin Hüsler, Zürcher Kantonalbank, Research Division - Research Analyst [6]

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Martin Hüsler, Zürcher Kantonalbank. I have 2 questions. First of all, on Page 15, just that I understood this correctly. You showed the deviation or actually the impact of your strategic implementations. And you say that EBITDA was impacted or deviation was CHF 15 million, but only the cost of this implementation was CHF 10 million. I was just wondering then if Norway and Poland added like CHF 20 million of negative EBITDA to this bridge, yes, that's first question.

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Marco Dirren, Implenia AG - CFO [7]

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Okay. So it's CHF 15 million is the net impact. CHF 10 million, as we said, 2/3 of that is based on the projects in Norway and Poland, so both areas. And CHF 5 million is the net effect of the implementation of our strategy. That means we've got CHF 10 million costs so far for the first half year, but we've got positive impact as well. And if I refer to purchasing excellence, for instance, we've made supplier summits, and we have positive impact already in 2019 from those initiatives, implementing the strategy in 2019. So it's CHF 10 million business, CHF 5 million net effect of implementation of the strategy.

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Martin Hüsler, Zürcher Kantonalbank, Research Division - Research Analyst [8]

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Okay. Understood. And the second question, a bit -- a broader question. Looking at your EBITDA margin, if you achieve this CHF 150-plus EBITDA in this year, it's probably at about 3.5% to 4%. I was just wondering, what is closing the gap to your longer-term or midterm EBITDA bridge? Of course, it could be mix of projects or divisional mix if you have more development. Can you just shed some more light on what does this mean for each divisions? How can you build up this 5 -- to 5.7%, 5.5% margin if you look at each division a bit?

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André Wyss, Implenia AG - CEO [9]

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So this is certainly also a very good question. Yes, we have now the divisions and we certainly optimize the divisions according to their value chain. If you follow the strategy review in the February, we said that we changed the value generation in each of the divisions.

Let's start with development. I said that we have mainly 3 things we continue. We're going to be more effective in the way we purchase and develop land. We will use financial systems to support this and we will also do a geographic expansion. So we are actually very optimistic on as far as development is concerned.

When it comes to Buildings, the building side, we also said we're going to change in the value chain a bit, become more of an integrated planner. And if you look at the Construction Buildings situation, with the pure manufacturing or production or construction, the margins are fairly low. But if you look at the services around it before construction and after construction, the margins are definitely higher. And we have expanded there already, so we invest in certain planning activities as a result of this. But we also concentrate more on large, complex projects where when we look into the offer situation, there are not many companies who can easily compete. So we're going to say a little bit more hello -- bye to those projects where we have 10 offers and 2 or 3 are below costs. We're not going to go into this anymore.

On the Civil Engineering, this is a bit broader based. You have 3 business units. You have special foundations. You have tunneling. And you have the rest, which is mainly bridges, road, rail and the activities. This last business was primarily decentralized in the past. We're centralizing this now. That doesn't mean that it's centralized so deeply, but it's centralized with clear guidance on what they're allowed to do and what they're not allowed to do. So they cannot -- no longer just go into offers which are really absolutely me-toos. We had unfortunately some of those. So we're going to also [there] in the value chain further up the complex projects. Tunneling, we do this already. And special foundation as well. And we also use the special foundations to complement our offering towards Civil Engineering. Also, in Civil Engineering, you should also recognize that by mid of last year, these major write offs, for example, in Norway hasn't taken place yet, which means that came in the second half. So you compare now something versus the half year where this correction has not been reflected yet.

Specialties had a bit of a suffering the first 6 months. We mentioned 2 effects. One of the effects was the 2 bridges in Poland which now come in at this 0 contribution. And on the smaller division, this has an impact, as you can appreciate. These were quite large bridges, I would say, for the specialty division, would be a very small bridge for the Civil Engineering organization, which it should belong to. And the second effect is that we had some wind energy, lower orders, which we believe can be partially compensated in the second half.

So you see that also in the niche market. Anita Eckardt will be asked to look unit-by-unit in order to develop them towards a higher margin business, but also bring in super innovation. And there, where we cannot use the scale of Implenia, as we said, we will find a solution mid to long term.

So that's how we see it's developing. We are very confident that we will reach this margin. It is doable. And it doesn't need absolute drop in size, but it needs discipline. Our strategic priorities portfolio, I discussed. When you look at the Value Assurance process, we see already how it works. We see already how we benefit from it. We have more healthier discussion around this. The procurement, Marco Dirren already alluded to. We already see positive signs this year and we will see more positive signs going forward. Lean Construction, the whole industrialization of the industry, we see huge, huge benefits. And if we simply are faster than everyone else in Europe, we will benefit in the margin. If we are slower than the others, it will be factored into the price and we will not benefit from it. So we have a real interest to go faster than everyone else. And we're learning right now from companies outside of Europe. So there are many, many activities we go. And at the end, we are a people business. If we have highly motivated and we have the best people, I'm convinced that we will turn it.

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Martin Hüsler, Zürcher Kantonalbank, Research Division - Research Analyst [10]

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Just to understand, you talked about more complex projects with better quality and less competition maybe. But would you agree that more complex projects also could mean higher risk because of its complexity?

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André Wyss, Implenia AG - CEO [11]

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The risks we have seen which had a negative impact on this company were not necessarily complex projects. It was very often projects where we underestimated certain things. We had not involved the right people at the right time. And we had 2 low level people who decided finally on the project. When we now discuss projects, we have already a way more robust discussion. Think about if Norway recommends a project, it's not going to be reviewed by me only and the CFO. It's going to be reviewed first by the division. This division has built multiple tunnels across the world, has done multiple roads and rails around the world and has top experts who will assess the offer before it even reaches my table. Now you can say more bureaucracy, I don't think so. It's really adding knowledge to those projects at the time it's required. And then maybe say no. We had absolutely no problems in timing so far. So this additional refuge, this additional knowledge sharing and also decision-making has not slowed down the organization by far. So I believe this will add so much quality that it will weigh overcompensate. On the other side, if we, as a company, are not able to manage complex projects, we are not the right company for this. So we need to be able to do this.

Yes. I think in the second row here.

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Silvan Merki, Implenia AG - Chief Communication Officer [12]

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Yes. The lady in the second row.

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Alexandra Bossert, UBS Investment Bank, Research Division - Head of Swiss Credit Research, Executive Director and Analyst [13]

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Alexandra Bossert, UBS. I have a couple of questions if I may on the balance sheet. One is the clearly lower cash position. On the one hand, you said you pay your certain suppliers faster. But can you also shed some light on the prepayment -- prepayments by your customers? The second question I have is, on Slide 7, you talked about innovative financing models in development. Can you please give us a better understanding of what you mean with that? Or and if that weighs further on your balance sheet? And lastly, you said you want to defend your investment grade rating. You expect your equity ratio to be slightly higher, but I mean it's still way below with your earlier communicated target. Could you please shed some light on how you really want to improve finally your equity ratio to a more comfortable level?

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André Wyss, Implenia AG - CEO [14]

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I will start, give you a high level on the 3, and then I will hand over to Marco.

To the cash position and prepayments, when I came in, I saw that there were some optimization done which to me was at the upper end. It was on the creditors and on the debtors, and I promised already last year that we corrected. We corrected it last year to a certain extent, but I also announced that we will also further optimize or correct this, this year. So you have 2 impacts. And it's from the prepayment as well as well as from the creditors. I think we are now in quite a good situation. But Marco will go into the details on this.

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Alexandra Bossert, UBS Investment Bank, Research Division - Head of Swiss Credit Research, Executive Director and Analyst [15]

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Just maybe to phrase it slightly different. You have now a cash holding of about CHF 200 million. And you also say that you have some customers that do not pay in time. You also have to invest because -- to manage your order book. I mean what's the level of cash, the absolute minimum level of cash you have -- need to have on your balance sheet to still be in a comfort zone?

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André Wyss, Implenia AG - CEO [16]

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Yes. Marco will then answer this question. But we feel actually being in the comfort zone right now, and we still have many, many other options beside what he will answer afterwards. The financing models I mentioned, we have the opportunity that we are very, very strong in how we do development. We are seen as one of the best organization in doing this, and we're seeing this already. But we also need to see how we can manage the balance sheet at the same time and how we can further scale. We're working on these tools and we will come back probably 1st of October and in the beginning of next year to introduce more details to this. But the aim is actually to further expand development business within Implenia.

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Alexandra Bossert, UBS Investment Bank, Research Division - Head of Swiss Credit Research, Executive Director and Analyst [17]

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So the idea is that financing your customers but the customers are co-financing the development, kind of?

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André Wyss, Implenia AG - CEO [18]

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Yes. We are not yet giving this information away. We will park this for 1st of October and then February next year, if you don't mind. But we're working on it. We will find a good model.

And on the investments and equity ratio, yes. We actually landed exactly where we said. We will say -- we will see a short drop again towards mid of the year, but we are now bullish for the future. If you look compared to other construction companies, we are actually in the ballpark. We are not on the high end, but we're definitely not on the lower end. We are actually up the mid, and this is okay. But we also said that's not the level we wanted to stay. We want to optimize this mid to long term, but it's not something we need to rush. We need to do this carefully. And at the end, the equity ratio, the cash position and so on, these are all measures as a result of how you do business. And that's why we want to do great business. As a result, the equity ratio will increase and the cash position will increase, and not the other way around, if you don't mind. But it's very clear, our aim is still the 25%. But we are not concerned, not at all concerned at the levels we are today. It's just not on the most optimal level. But we have enough freedom to operate and we will also operate for the next 2 years.

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Marco Dirren, Implenia AG - CFO [19]

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Thank you, André. And just some add-on information regarding cash position. If you look at our suppliers in the balance sheet, we've reduced the suppliers comparing to last year of about CHF 60 million. This is mainly due to more timely payments of our suppliers. And then the prepayments remained at a level with comparable to last year. And so if we -- if you think about the minimum cash position, we need to have to refine this growth, if we think that on a growing business, the supplier -- the accounts payables and the prepayments would be in line with what we've got right now on the balance sheet, and we've got the cash position of CHF 700 million. So that's where we feel comfortable right now. And on the other hand side, if it would come to a shortage of cash, we've got unused credit lines, as you know, out of -- from our balance sheet from our reporting. And these unused credit lines could help us eventually to overcome a temporary shortage.

The equity ratio, as André mentioned, our midterm target is still -- is 25% and we are still confident. And this year, especially for the second half year, we're confident because of the low dividends we paid in the first half year, and the lower PPA and as well the result we are expecting by the end of the year. So we expect an equity ratio over 20%, which is, by industry standards, solid.

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Silvan Merki, Implenia AG - Chief Communication Officer [20]

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Thank you, Marco. I would like to hand over to the webcast now. Do we have some questions from there?

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Operator [21]

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(Operator Instructions) There are currently no questions. Please continue.

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Silvan Merki, Implenia AG - Chief Communication Officer [22]

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Okay. We have one question here.

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Patrick Appenzeller, Research Partners AG - Senior Analyst [23]

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Patrick Appenzeller, Research Partners. I have a question on the IFRS 16. First, the impact of H1, you have shown us in each division. For the full year, can we just multiply that by 2? That's the first question. And then when you say the target of 5.25% to 5.75%, EBITDA margin is excluding IFRS, and IFRS 16 is now our new reality, so will be in the books from now. So that would mean, if I understand it correctly, that your target is above 6% EBITDA margin in the near future. Is that correct?

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André Wyss, Implenia AG - CEO [24]

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So to the second question, the answer is yes. But we have not calculated it. It's actually also very hard to calculate this and predict all those measures. We are learning this now. We're looking into division by division. But the 5.25% to 5.75% is excluding the impact of IFRS 16. But we are not guiding yet on IFRS 16. We will need to see when we do this because, looking forward, it's still much harder than looking backwards. But yes, the answer is yes.

And to the first question, Marco?

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Marco Dirren, Implenia AG - CFO [25]

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No. You can't multiply it by 2. There are some effects which are only shown the first time. And I'd like to refer to your handout because on the back half on your handout, you've got a very detailed overview of what has -- what the impact of IFRS 16 was. And on the other hand side, we have some major impacts. Let's say, on the rights of use for leases of CHF 140 million this year, this first half year, and that won't double in the second half. So it's really more progressing along the business. It's not a double. We haven't done a concrete outlook on IFRS 16 impact by the end of the year.

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Patrick Appenzeller, Research Partners AG - Senior Analyst [26]

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So that means that from the current level, it's probably -- it's not twice, but it's a bit more? So CHF 30 million, CHF 35 million, CHF 40 million? Something around that?

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Marco Dirren, Implenia AG - CFO [27]

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So we've got an impact of CHF 31.5 million now. And assuming that it will increase a bit, but along the lines with the business growth for the second half. Yes.

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Patrick Appenzeller, Research Partners AG - Senior Analyst [28]

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For the second half to 50, more 40s. Okay.

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Silvan Merki, Implenia AG - Chief Communication Officer [29]

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Okay. We have one question on the webcast.

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Operator [30]

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Your question on the webcast comes from the line of Patrick Horch from MainFirst.

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Patrick Horch, MainFirst Bank AG, Research Division - Associate [31]

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I'm wondering, could you shed some more light on the review of the businesses within the Specialties division? So how many of these businesses have you already reviewed? And maybe for how many of those could you mention a sale in 2019 or 2020? And then what kind of sale proceeds could you realize here?

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André Wyss, Implenia AG - CEO [32]

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Thank you, Patrick. We have -- of the 10, these are 10 businesses, 10 different businesses. They're very different, so the smallest one is a few million sales. The largest one is over CHF 60 million. We have reviewed almost half of them in details. We're going to -- And actually out of 5 for, as we speak, being reviewed. They're doing well. They are all, I would say, good businesses. They all make sense. But we have not yet come to the conclusion on what we do with each of them. As soon as any director is on board, which is in a few weeks from now, she will be fully involved. So we will not take any decision before she is on board. She will take some time. And as I said, by the end of the year, we have a greater detail on what we do. Some of them, we may announce, some of them, we may not announce, because also respect that there are some tactical considerations. We are not forced to sell any of those, so we don't want to give necessarily an impression to the outside world that we want to get rid of something. And tactically-wise, we will see how we announce this step-by-step.

Don't expect significantly large moves. Again, these are smaller businesses. But we will probably sell those we don't see a long-term fit. And we will probably acquire 1 or 2 from the outside which we can easily scale within the company. So more details definitely to follow in the next 6 to 12 months.

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Silvan Merki, Implenia AG - Chief Communication Officer [33]

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Do we have any question on webcast currently? No? Any questions in the room left? Maybe one.

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Unidentified Analyst, [34]

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Yes. An add-on. Norway and Poland, when do those projects drop out of the -- or don't have any impact anymore? Is it this year or next year?

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André Wyss, Implenia AG - CEO [35]

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Yes. That's also a good question. It's this year. In fact, they're coming now to an end as we speak. Kongsberg, which you know well from Norway, is coming to an end in the third quarter. But when we say end, it's finished construction. There are still activities ongoing, claim management, legal cases and so on. They are still coming, but we have a good handle on where we are because it's almost completed.

Poland is a very similar situation. Also, those 2 bridges come to an end at the September framework and should also fade out in due course. And these are significant projects. And as a result, they had an impact on our business, which, by the way, we always communicated. We just have no write-offs anymore.

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Silvan Merki, Implenia AG - Chief Communication Officer [36]

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Okay. We have one last question from the webcast currently.

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Operator [37]

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Your question comes from Christian Korth, HSBC.

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Christian Korth, HSBC, Research Division - Analyst [38]

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I have 2 questions actually. The first one relates to IFRS and the changes to the financials and the financial costs with regards to this. I haven't seen anything or maybe I've overseen it. Could you maybe give us some indication how the financial costs will look like? And the second one, and you've talked a lot about real estate values and the transaction values versus the current values. My question would be, do you have an idea what the average age is of the real estate portfolio that you have on your balance sheet?

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André Wyss, Implenia AG - CEO [39]

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Christian, thank you for your question. I start to answer the second one and then Marco will answer the first one. On the real estate transaction value, yes, I think you're probably not the only one who wants to know this in greater details. In fact, we have in the book CHF 199 million. Over CHF 40 million have been acquired since mid last year, CHF 13.5 million this year, so we build. So you can assume that probably this CHF 50 million, CHF 40 million is more or less book value equals market value. Maybe there is already an increase. That would be a good thing. Then on the rest, on the CHF 150 million to CHF 160 million, which was in the books, we are not disclosing any value correction, which would also be very difficult to do because we cannot assume the market. But we have indeed real estate in our books which has been acquired many, many, many years ago even before Implenia existed and we have some others. But it's for sure a great asset we have. We are very pleased to have this asset. And I think for me, it's important that Implenia optimizes this, does not just decline it, but use this asset to the best interest of the company short term, midterm and primarily long term. And we will come back with more plans and details about this in the next 12 months.

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Marco Dirren, Implenia AG - CFO [40]

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When it comes to IFRS 16 and the financial costs, as we've shown, IFRS had an impact of around CHF 32 million in our income statement. CHF 30 million of those, roughly CHF 32 million has been depreciation and CHF 1.5 million to CHF 2 million are based on financial results. I'd like to refer to page -- to my Page #3, where you've got the bridge between EBITDA and the consolidated profit, where you see that our financial result compared to last year, excluding IFRS 16, is on a similar level with CHF 6.4 million, and including IFRS 16, CHF 8.6 million. So if you account the roughly CHF 2 million, you're on the right ballpark.

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Silvan Merki, Implenia AG - Chief Communication Officer [41]

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Okay. We will end the Q&A session now.

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André Wyss, Implenia AG - CEO [42]

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So with this, I want to thank you for attending our presentation here face-to-face or over the webcast. Thank you very much for coming. And we look forward to see you either on the 1st of October for our Capital Market Days or our annual report, 25th of February or then at the AGM at the 24th of March. Thank you very much and have a great day. Thank you.

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Operator [43]

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That does conclude our conference for today. Thank you for participating. You may all disconnect.