Change needs direction — Step by step from upheaval to new start.

From upheaval to new start

Implenia’s markets offer attractive growth opportunities, the quality of its order books has improved, the underlying performance of its divisions is good and its strategic initiatives are having a noticeable impact. CEO André Wyss answers questions about the Group’s performance in the first half of 2019, discusses how strategy implementation is going, and talks about Implenia’s prospects.

How would you assess the first half of 2019, Mr. Wyss?

“Good. I’d almost say very good. Results met expectations with EBITDA of CHF 72.9 million. The divisions’ underlying performance was good overall. Implementation of the new strategy is on course and we have already made very good progress. Our order book remains high, despite our more discerning approach to project selection. And Implenia continues to operate in attractive markets. Consequently, we are confirming that our EBITDA target for transition year 2019 is more than CHF 150 million (excl. IFRS 16) before approximately CHF 20 million of strategy implementation costs. We are also confirming our medium-term EBITDA target margin of 5.25% to 5.75% (excl. IFRS 16). Two-thirds of the change in EBITDA since the previous year can be attributed to the effects of the corrections we made at the end of 2018, and one third to implementing the new strategy.”

How are we doing in terms of total assets, equity ratio and free cash flow?

“The balance sheet remains solid and we still have a high level of cash and cash equivalents. Our equity ratio has remained stable as expected, and at 19.3% is only slightly below the previous year comparison of 20.2% because of IFRS 16. Implenia still has a solid equity base by industry standards, and is confident about its future direction. Free cash flow, which is always affected by seasonal factors, stands at CHF –167.5 million. This is due to greater investment in machinery, investments in Division Development’s portfolio, and more timely payments to creditors. Delays in large incoming payments from major projects also played a role here.”

Could you explain the performance of the individual divisions in a little more detail?

“Divisions Development and Buildings are producing impressive results, with high-quality development projects and a good volume of contracts. In Divisions Civil Engineering and Specialties, the measures taken in response to the corrections announced at the end of 2018 in Norway and Poland are having an impact. No further unforeseen need for corrections has been identified. However, as we acknowledge in the outlook for the current year, these projects are still not contributing any profit, which is bringing down the overall margin merited by the underlying performance of these divisions. The corrected projects in South Baden – reported under Division Buildings – are not having this effect because they were completed at the end of 2018.”

How is this affecting Group revenue?

“Revenue went up in the first half of the year mainly because of our internationalisation strategy in Civil Engineering, where the special foundations business and large-scale tunnel construction projects have generated very healthy growth rates. Divisions Buildings and Specialties are slightly down on the previous year’s figures. The overall performance of the divisions is good and taken as a whole we are on course to achieve our target for the year.”

Construction business is project business – and so a risky business.

“You can’t pretend the risks aren’t there, but you can manage them. With our significantly more comprehensive Value Assurance approach, which has already been applied to some initial projects, we are improving our risk management process and our controlling. Decision-making within the new system is supported by data-based tools. Value Assurance is used right at the start when contracts are being chosen, with a more selective focus on the opportunities and risks relating to each project’s earnings contribution. The Value Assurance approach then supports the project until the end of the guarantee period. By classifying all projects according to multiple risk-based criteria, and by using clearly defined milestones and decision-making bodies, Implenia can make better decisions when it comes to approving and monitoring its projects. We will be expanding our Value Assurance approach to all projects. Data from initial projects will be used to analyse the variables that affect the performance of our projects. The results will then be built into our assessment and control tools.”

What other progress has been made on strategy implementation?

“Our Procurement Excellence initiative has produced quick wins in purchasing, and we are now working on medium and long-term measures. At the same time, we are working on the harmonisation and digitalisation of our core processes and key system interfaces. Our ERP transformation project INSPIRE is progressing according to plan. BIM is gradually being standardised to make it easier to replicate the methodology. The main focus is currently on offer-phase use cases; we are also prioritising some pilot projects in the execution phase. In Lean Construction we continued to develop our Lean standards in the first half of the year and have gathered them together in a Toolbox. The Toolbox is a modular system with elements that facilitate a smooth, efficient and effective organisation as well as improved collaboration between project participants and on construction sites. We are rolling this out to other projects. A cross-divisional core team situated within Division Specialties is currently building the new Implenia Innovation Hub, which will be launched in September. It will be a digital platform for intrapreneurship that is accessible to all employees.”

How is the new organisation, with its four divisions, global functions and country presidents, working out?

“The new organisation has successfully established itself within a short period of time and is having an impact. As well as facilitating rapid implementation of our strategic initiatives, the simplicity and consistency of this structure creates clear roles and responsibilities, as well as embedding a system of multiple assessors for the selection, approval and monitoring of projects. The new organisational structure also encourages entrepreneurship in the divisions, reinforces group-wide excellence in the disciplines managed by global functions and – thanks to the country organisations – helps strengthen local relationships with customers and other stakeholders. It was important to us to bundle our ‘specialties’ into one division, and in September this division gets a dedicated new leader, Anita Eckardt.”

How is cooperation going in Implenia’s Executive Committee (IEC) and with the rest of management?

“From September, the addition of Anita Eckardt will complete the IEC and we will grow even stronger together as a management team. Roles are clear and well defined. The team takes entrepreneurial responsibility and works very closely together at international level. We have already appointed heads to all the global functions and most of our other management positions have also been filled. Collaboration is intense, efficient and fast, precisely because it is so clear.”

What’s happening in terms of sustainability and safety?

“Implenia wants to remain a sustainability leader. The environmental standard defined for our own development projects – based on the”Swiss Sustainable Construction Standard“ – has been rolled out internally. We have also adjusted Implenia’s Sustainability Committee to the new organisational structure, appointing representatives from all the divisions and relevant global functions to sit on it. Within the next half year the committee will define our objectives up to 2025. Implenia is doing a lot – with health and safety concepts, good equipment and targeted training – to ensure that our employees are highly safety-conscious as they go about their day-to-day work on our construction sites.”

What prospects do the markets offer for Implenia’s further development?

“Predictions about the size and development of our markets give us reason to be confident. Growth is expected in our home markets, with activity in the civil engineering sector predicted to be stronger than for buildings. Against this background, and given the good opportunities that the international market continues to offer, Implenia can look to the future with confidence.”