Implenia – ready for the future

2018 was a challenging year in which issues were revealed in select units and projects. The Group posted good growth in revenue and production output compared with the previous year, thanks especially to the Infrastructure Segment, but also to the International and Switzerland Segments. Also, the Development segment achieved again a strong performance. The challenges of the year were reflected in the EBITDA and EBIT figures, both of which were significantly down on 2017. The reasons for this are to be found mainly in the Norwegian and South Baden units, and in a Polish subsidiary of Implenia Construction Germany. Structural issues played a part. These weaknesses are being corrected, and first steps have been taken. Despite these issues, Implenia remains optimistic about the future, particularly because of its newly developed strategy, its high level of incoming orders, its good positioning, broad-based technical and organisational capabilities and robust markets.

­­Implenia Group – “One company, one goal, one spirit”

6,248 (6,043)

Order book, CHF m

90 (174)

EBITDA, CHF m

4,364 (3,859)

Revenue, CHF m

41 (103)

EBIT excl. PPA, CHF m

16 (197)

Free cash flow, CHF m

7% (27%)

ROIC

 

Swiss construction market still very active

Overall, the construction industry remains a growth market. Megatrends such as urbanisation and mobility will continue to offer clear growth potential. The Swiss construction industry has enjoyed a long boom, though this growth has recently slowed a little. The value of contracts in building construction may have been slightly lower in 2018 than 2017, but the market remains at a high level. Residential construction is still trending sideways as expected, while commercial construction has become an engine of growth thanks to the healthy economy, and may well post its most successful year since 2009 in revenue terms. The civil works sector is putting in a solid performance, with business activity very much driven by large-scale public sector projects. The overall outlook for civil works remains positive.

Consolidated key figures

 

2018

2017

Δ

Δ like for like1

 

CHF 1,000

CHF 1,000

  

Consolidated revenue

4,364,473

3,859,478

13.1%

11.6%

EBIT Business Units excl. PPA

40,623

103,195

(60.6%)

(58.9%)

EBIT Business Units

22,558

65,474

(65.5%)

(61.8%)

Operating income

12,935

63,591

(79.7%)

(75.3%)

Consolidated profit excl. PPA

13,149

65,438

(79.9%)

(76.9%)

Consolidated profit

504

39,033

(98.7%)

(92.4%)

EBITDA

89,726

173,835

(48.4%)

(47.8%)

in % of consolidated revenue

2.1%

4.5%

  

Free cash flow

(52,586)

162,535

  

Net cash position (as at 31.12.)

397,211

488,513

(18.7%)

(17.1%)

Equity (as at 31.12.)

585,175

654,909

(10.6%)

(9.6%)

Order book (as at 31.12.)

6,248,291

6,043,261

3.4%

5.6%

Production output

4,452,761

3,926,727

13.4%

11.8%

Workforce (FTE; as at 31.12.)

9,781

9,342

4.7%

 

1   Foreign currency adjusted

Key balance sheet figures

   
 

31.12.2018

31.12.2017

Δ

 

CHF 1,000

CHF 1,000

 

Cash and cash equivalents

913,233

985,443

(7.3%)

Real estate transactions

185,292

158,055

17.2%

Other current assets

1,044,098

1,043,616

0.0%

Non-current assets

718,732

709,880

1.2%

Total assets

2,861,355

2,896,994

(1.2%)

    

Financial liabilities

516,022

496,930

3.8%

Other liabilities

1,760,158

1,745,155

0.9%

Equity

585,175

654,909

(10.6%)

Total equity and liabilities

2,861,355

2,896,994

(1.2%)

Net cash position

397,211

488,513

(18.7%)

Investments in real estate transactions

62,821

39,802

57.8%

Investments in fixed assets

80,025

70,050

14.2%

Equity ratio

20.5%

22.6%

 

Strong international home markets

Germany’s construction industry set a series of records on its way to another very good year. Residential construction benefited from a healthy economy, while the federal government has continually increased spending on transport infrastructure in recent years. Building construction in Austria has also performed well, and the outlook for Austrian civil works is even better. Transport construction, especially the expansion of the railways under the government’s 2018-2023 framework plan, remains the most important growth driver. Construction spending in Norway, in both the buildings and civil works sectors, continues to be well fuelled by public-sector investment. In Norway and Sweden, growth in infrastructure construction is being stoked by the investments made under government transport infrastructure plans. In Sweden, the government has added another EUR 11 billion to the plan for the 2018-2029 period. In France too, the promising trend of 2017 was continued last year, with healthy growth in civil engineering and civil works.

  • For third subsequent year and beyond
  • For second subsequent year
  • For subsequent year

Order book

   
 

31.12.2018

31.12.2017

Δ

 

CHF 1,000

CHF 1,000

 

Switzerland

3,031,301

2,956,197

2.5%

Infrastructure

1,527,835

1,340,700

14.0%

International

1,689,155

1,746,364

(3.3%)

Total order book

6,248,291

6,043,261

3.4%


Production output

   
 

2018

2017

Δ

 

CHF 1,000

CHF 1,000

 

Development

107,772

140,254

(23.2%)

Switzerland

2,522,570

2,356,438

7.1%

Infrastructure

852,337

615,444

38.5%

International

1,538,559

1,308,761

17.6%

Miscellaneous / elimination of intra-group services

(568,477)

(494,170)

(15.0%)

Total production output

4,452,761

3,926,727

13.4%

Increases in revenue and production output

Implenia posted consolidated revenue of CHF 4,364 million in 2018 (2017: CHF 3,859 million), an increase of around 13% on the previous year. Organic growth amounted to 10.2%, with the rest of the rise coming from currency effects and the acquisition of Bilfinger Hochbau, which was consolidated for twelve months for the first time. Production output for the period under review was CHF 4,453 million (2017: CHF 3,927 million). The Infrastructure Segment in particular achieved strong top-line growth, with the International and Switzerland Segments also making a positive contribution.

Adjustments hamper results

Profitability for the year under review was significantly hampered by the write-downs announced in December. As part of the further development of strategy, a review of enterprise and commercial risks had uncovered issues in select units and projects – particularly in Norway, South Baden and at a subsidiary of Implenia Construction Germany in Poland. At CHF 89.7 million, EBITDA was clearly lower than the prior year’s CHF 173.8 million. Relative to revenue, this gave a margin of 2.1% (2017: 4.5%).

  • Business Unit EBIT excl. PPA

Business Unit EBIT (excl. PPA) stood at CHF 40.6 million (2017: CHF 103.2 million). This result is within the range communicated at the end of the year. Apart from the issues communicated in early December 2018, the review of enterprise and commercial risks did not reveal any other material issues.

The Development Segment delivered another excellent result. The Infrastructure Segment also achieved a very good result, while the Switzerland Segment performed within expected bounds. The issues mentioned above had a negative effect on the International Segment’s results. Implenia also invested in digitalization and the consolidation of the Group’s IT systems during the year under review. The integration of previous years has significantly increased the cost of the company’s system landscape, leading to a breakeven result for Implenia’s financial year 2018: consolidated profit was down to CHF 0.5 million after CHF 39.0 million in the previous year.

  • Consolidated profit excl. PPA

Underlying business intact

Operating cash flow was positive, despite the faster payment to creditors of a nine-digit sum in total. Implenia is accelerating payment to strengthen strategic partnerships with suppliers and partners. At the same time, the company is optimising its costs in response to the continuing negative interest rate environment. This measure is also having a positive effect on the equity ratio. Overall free cash flow for 2018 was negative at CHF -52.6 million (2017: CHF 162.5 million). If it had not been for the accelerated payments, free cash flow would, however, have been significantly positive, showing that the underlying operational business is very healthy. Cash holdings remained at a very high level as at year end.

  • Invested capital (in CHF million)

Invested capital

   
 

31.12.2018

31.12.2017

Δ

 

CHF 1,000

CHF 1,000

 

Current assets (excl. cash and cash equivalents)

1,229,390

1,201,671

2.3%

Non-current assets (excl. pension assets)

713,025

704,135

1.3%

Less debt capital (excl. financial liabilities and pension liabilities)

(1,739,480)

(1,726,075)

(0.8%)

Total invested capital

202,935

179,731

12.9%


Operating income

   
 

2018

2017

Δ

 

CHF 1,000

CHF 1,000

 

Development

40,257

39,241

2.6%

Switzerland

53,384

43,626

22.4%

Infrastructure

22,255

14,419

54.3%

International

(93,338)

(31,812)

 

Miscellaneous / Holding

(9,623)

(1,883)

 

Total operating income

12,935

63,591

(79.7%)

Solid financial foundations

Total assets at end-2018 came to CHF 2,861 million (2017: CHF 2,897 million). Despite the high revenue growth, total assets remained stable, in particular because Implenia was once again very disciplined in its management of operating capital. At year end, equity came to CHF 585.2 million, down on the previous year’s figure of CHF 654.9 million. The reasons for this reduction are the dividend payment and lower overall profit. The equity ratio came to 20.5%, compared to 22.6% in the previous year. The Group thus still has a solid equity base by industry comparison. Implenia is unequivocally committed to maintaining its investment-grade rating.

Positive outlook for the Swiss market

Prospects for the ongoing performance of the Swiss construction industry are positive. Following recent years of strong growth, the Swiss National Bank, for example, expects activity in the construction industry to remain at a high level. The number of planning applications has barely changed of late. A robust economy and low interest rates continue to create an investment-friendly climate, though temporary corrections caused by market consolidation are possible. There is only likely to be a general change in the trend in building construction, because of overproduction, if interest rates go up significantly. In the civil works sector, all the signs remain positive. The Swiss government’s vehicle for funding and expanding rail infrastructure (FABI), the national road building and urban transport fund (NAF) and healthy public sector budgets provide very good conditions for the current economic cycle and beyond.

Europe’s construction industry keeps growing

The European construction industry is expected to continue growing until 2021 – albeit not at the same speed. The deceleration is due primarily to the high base effect after the strong growth seen over the past few years. The main drivers of the upswing in European construction include the good economic situation, the attractive interest rate environment, and the greater scope of public sector investment. Increasing urbanisation in many parts of Europe has pushed up demand for housing and infrastructure.

Germany is still in a strong growth phase, even if the boom has softened slightly. Having increased by approximately 10% in 2018, order books in the German construction sector are at their fullest for more than two decades. Capacity constraints in the construction industry have risen appreciably as a result, pushing up prices and creating a continuing shortage of skilled personnel.

In Austria, the growth in building construction is gradually weakening, while prospects for investment, particularly in rail construction, but also in road construction, remain on an expansion course. Transport infrastructure plans in Norway and Sweden continue to fuel high growth in the Group’s two Scandinavian home markets. For civil works, the growth forecast for 2019-2021 is 10-15% in Norway and 5-7% in Sweden.

High order backlog fuels positive outlook

At CHF 6,248 million, the order backlog at Group level at the end of 2018 was very healthy (2017: CHF 6,043 million). This growth was generated organically. Currency effects had a negative impact on the order book of 2.2%. The Infrastructure Segment contributed particularly strongly to this welcome upward trend, with a number of attractive contracts outside Switzerland. The Switzerland and International Segments posted figures similar to the previous year’s.

At the end of 2018, Implenia employed 9,781 people (full-time equivalents, including temporary employees), compared to 9,342 at the end of 2017.

­­Implenia Group – “One company, one goal, one spirit”

6,248 (6,043)

Order book, CHF m

90 (174)

EBITDA, CHF m

4,364 (3,859)

Revenue, CHF m

41 (103)

EBIT excl. PPA, CHF m

16 (197)

Free cash flow, CHF m

7% (27%)

ROIC