2018 was a challenging year for Implenia. Hans Ulrich Meister (Chairman of the Board of Directors) and André Wyss (CEO) review the past year and look to the future.
Mr. Meister, the Board of Directors has faced a number of challenges over the past year. You initiated a change in the Group’s operational leadership, brought André Wyss on board as CEO, and commissioned a strategy review. How would you summarize the first few months of this new chapter?
Hans Ulrich Meister: I’m completely satisfied in every respect and remain confident that we’ve made the right choice. The Board of Directors’ aim was to internationalize Implenia and take it forward. In André Wyss, we have a leader on board who possesses the necessary experience and drive. He has set a very fast pace in his first few months. We’re impressed at how purposefully he has started to address the various topics on the table.
Implenia lowered its expected earnings at the end of 2018. What were the discussions in the Board of Directors like at that time?
Hans Ulrich Meister: It was definitely a challenging phase. We published our half-year results shortly before André Wyss joined us as CEO. At that time, based on the information at our disposal, we were convinced that we would reach the year-end targets we had previously announced. While working to further develop our strategy, we simultaneously carried out an in-depth review of our enterprise and commercial risks at every level. Those findings eventually pushed us to adjust our previous forecasts for the 2018 financial year.
Implenia nevertheless managed to increase its revenues significantly in 2018. However, value adjustments and reduced operational performance – particularly in certain projects and units in the International segment – had a very negative impact on results. What happened?
André Wyss: When I joined Implenia, not only did we immediately start work on the strategy but, as Hans Ulrich Meister mentioned, we also reviewed our enterprise and commercial risks. That analysis uncovered issues in select units and projects – particularly in Norway, South Baden and at a subsidiary of Implenia Construction Germany in Poland. The underlying causes varied widely and included structural deficits, such as insufficiently standardized processes, a fragmented system landscape, and inadequate cross-departmental collaboration. Implenia is a project-driven business, so project risks are par for the course. Most projects are very successful, however, and as things stand we do not see any other significant problem areas that require action. Resolving the pain points we have already identified is a top priority for us.
How will you deal with project business risks in future?
André Wyss: Mainly by improving and harmonizing our risk and control processes – from project analysis and selection, to costing, right through to completion. To that end, we’re introducing an integral process in which internal experts help us take the right decisions at key milestones. We have identified potential improvements in this area and will be addressing these very soon.
You mentioned difficulties in relation to international business. Are there other challenges you believe need to be addressed?
Hans Ulrich Meister: First of all, I’d like to point out that, even with hindsight and despite the difficulties I mentioned before, our internationalization strategy was correct. The markets we chose are attractive and we’re confident that we will achieve the desired results in the medium term. It takes time to integrate a new unit or new market at a cultural, HR, system and management level. Looking back, our assessments at the time were possibly too optimistic. But we stand by our intentions regarding international business, and we’re confident that our new strategy and adapted organization will empower us to succeed. Megatrends such as urbanization and mobility will increase the demand for our know-how and services in future.
André Wyss: We’ve looked at every area in minute detail. Operationally speaking, road construction in Switzerland and Germany is also not yet performing as well as expected. So we’ve come up with a plan comprised of specific improvement actions, and that plan is already being realized by way of internal projects. We are monitoring these closely and will adapt them in future whenever necessary. However, the previous operating model had a number of shortcomings in the end-to-end management of our international business. This has led us to make changes there as well, not least to the organization.
How did the various segments perform in 2018?
Hans Ulrich Meister: The Infrastructure segment in particular has helped us win some attractive orders outside Switzerland, for example in Germany and France. The Switzerland and International segments posted solid overall revenue. Buildings is performing well in Germany and Switzerland, and Development had a very good year in 2018. That said, we haven’t yet managed a turnaround in road and bridge construction, especially in Switzerland. We’re going to keep working on that. One thing is certain: the way we’re positioning ourselves now across all our segments is setting us up well for the future.
The modified profit forecasts announced back in December also negatively affected equity. Are you planning a capital increase?
Hans Ulrich Meister: Compared to other players in the industry, our equity base is still healthy. If we took our subordinate convertible bonds into account, like banks do, our equity ratio would be even higher. So we don’t see any need for action at this time.
How has cash flow developed?
André Wyss: We’re enjoying a positive cash flow from operational activities, despite the fact that we’ve been building our own land reserves back up for a long time, and have decided to pay our creditors back more quickly. The latter was an important step in strengthening strategic partnerships for the long term.
Mr. Wyss, you joined the company on 1 October, 2018 as the new CEO and were immediately tasked with further developing the current strategy. How does Implenia plan to assert itself in the market in future?
André Wyss: We’re internationalizing the Development, Buildings and Civil Engineering divisions, and consolidating our specialty businesses under one lead. To realize this successfully, we’ve introduced a new structure with international leadership, and global processes and systems. But making Implenia strong also calls for overarching links between our international business and the relevant local operations. We have to get closer to our customers in every home market. We need to know and understand them and their project challenges. Internally, of course, we’ll need to think and act with an entrepreneurial mindset, from analyzing construction projects through to completion and further development.
So far, Implenia has only offered its development services in Switzerland. What potential for international growth do you see for this business?
André Wyss: We possess international skills and a strong development business in Switzerland, one that understands the processes and methods involved. This is all scalable in international markets. With this in mind, we are exploring those geographical markets that might be attractive. For example, we believe there is short-term potential to be captured in the German market, where we already have the relevant competencies.
Will this new strategy be supported by a cost-saving program?
André Wyss: A fundamental cost-saving program is not part of our plan. Our aim is to be more cost-effective and to be so in stable, newly restructured divisions that work seamlessly together, supported by competent, overarching Group functions. As well as a new organization, we’ve also launched an operational excellence program designed to move us one massive step forward in terms of processes, systems and tools.
What are the next steps toward realizing the new strategy?
Hans Ulrich Meister: 2019 will be a transition year. The new organization comes into effect on 1 March, and with it, the implementation of the strategy.
André Wyss: We will be investing in systems, staff and processes, as well as in the operational excellence program I mentioned before. And we will set ourselves up in such a way as to facilitate our transformation into a successful multinational provider of construction services. We’ll be focusing on profitable growth and aiming to reach our medium-term target of an EBITDA margin between 5.25% and 5.75%.1
In addition to the new strategy, the Group has also introduced a new vision, mission and values. What will change as a result?
André Wyss: We are reinforcing a shared understanding of Implenia as a multinational provider of construction services, which is based in Switzerland but which now employs almost as many people abroad. The new values will be the heart and soul of Implenia. We need to operate at a very high level in everything we do. This makes it crucially important to have a concrete mission and the right set of values. Our mission is to sustainably develop properties and construct buildings as well as infrastructure with and for people to fit their modern living, working and mobility needs.
What was the strategy development process like?
André Wyss: The strategy was developed by a core team of almost 100 people, all of whom know the business really well. They worked alongside a group that managed the process. It is a bottom-up strategy that was analyzed top-down. The core team will also drive the communications cascade and strategy implementation over the next 18 months.
Mr. Meister, how would you describe your experience of collaborating on the strategy?
Hans Ulrich Meister: We held several intensive workshops with management and a dedicated project team, during which everything was discussed in a very thorough and structured way. In the end, we were able to produce some good results by working together. Management worked closely with the Board of Directors to develop the strategy, and then enthusiastically approved it. Our approach, involving almost 100 people, enabled us to gain acceptance in advance and will also save a lot of time later when it comes to internal communication, implementation, and further realization.
What does this new strategy mean for employees?
André Wyss: Above all, it will create opportunities for challenging new tasks and projects, innovative approaches and close collaboration. Construction sites will still be construction sites, and they will continue to be at the heart of Implenia. We will support our people working on construction sites as best as we possibly can, by training them and giving them the right tools. Those working in development, engineering and other services, as well as those in overarching functions, will be equipped to effectively and efficiently manage and support projects and tasks in their own roles. They will have the chance to work in a global organization that also offers considerable scope for individual development.
What does the new Implenia management look like?
André Wyss: The new management body – the Implenia Executive Committee – comprises the CEO, the heads of the four divisions, the CFO, the CHRO, the General Counsel and the Head Country Management. This committee combines the many years’ experience offered by numerous Implenia managers with the expertise provided by new recruits from other leading companies. The global functions that I manage directly, such as IT, Marketing/Communications and Strategy, plus the central “Project Excellence & Services” competence center, now belong to the extended core Group management.
What is your outlook for this year?
Hans Ulrich Meister: Although our 2018 results did not meet expectations, Implenia is on a solid base for the future. The Board of Directors has thus decided to propose to shareholders, at the Implenia Ltd.’s Annual General Meeting of 26 March, 2019 a reduced dividend of CHF 0.50 per share (2017: CHF 2.00 per share). This allows Implenia to make the required investments in order to effectively implement the new strategy.
André Wyss: We’ll be pressing ahead with both the implementation of the new strategy and our operational business. I am very confident that, working in tandem with our entire team, we will succeed in this effort and that we will soon start to see results.
The interview was conducted by Reto Aregger and Anna Lang.