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Edited Transcript of IMPN.S earnings conference call or presentation 25-Feb-20 7:30am GMT

Zürich Mar 10, 2020 (Thomson StreetEvents) — Edited Transcript of Implenia AG earnings conference call or presentation Tuesday, February 25, 2020 at 7:30:00am GMT

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

Good morning and welcome to the analyst and media conference for the Implenia 2019 annual results, both to everybody here in Zurich and to those who are joining us this conference via webcast.

My name is Silvan Merki. I’m Chief Communication Officer of Implenia.

Today, for the first time, we combined our presentations for media and analysts, and we’re happy to have you here. We will hold our presentation in English. However, you are kindly invited to ask your questions either in English or German, whatever you feel more comfortable with.

Before we start with our presentation, I would like to first draw your attention to our disclaimer that you find presented here. I’d like to highlight the passage where it says that, 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.

One second remark. You will find already the slides shown today published on our website.

And third, if you wish to interview our CEO right after the presentation, please reach out to me, and I will coordinate the lineup.

And now let me hand over to Implenia’s CEO, André Wyss.

Thank you, Silvan. Good morning, everybody. Also a very warm welcome from my side.

So before I go into the details of today’s presentation, I would like to start by summarizing our main highlights: EBITDA expectations met and you see a solid performance on free cash flow. Our strategy is being implemented successfully and the operating model is already effective. A spin-off of part of Implenia’s development portfolio is intended to create Ina Invest, a listed real estate company.

We target a middle-single-digit percentage EBITDA growth for 2020, and a cash dividend of CHF 0.75 per share is proposed.

We will now present our 2019 annual results as follows. First, I will give you an update — business update, of the group and its divisions. Then our CFO, Marco Dirren, will provide a more detailed summary of the financials as well as an outlook ahead before I share a strategy update. We will be happy to answer your questions at the end of the presentation. Now let’s get started the business update of Implenia’s group and its divisions.

Implenia Group result for the annual year 2019 confirmed our expectations for the transition year 2019. A total of — so the order book remains at the high level and is well diversified across divisions and countries, with better quality, thanks to our holistic Value Assurance framework and a clear focus on profitability over volume. Revenue increased by 1.5% to CHF 4.4 billion. As expected, the group achieved an EBITDA of CHF 186.8 million. A total of around CHF 20 million was spent on strategy implementation activities. This spending was mainly concentrated around Value Assurance, ERP transformation program INSPIRE, our supplier consolidation and the implementation of our operating model. On a divisional level, all divisions delivered a good operating result and show a positive trend.

I will now talk about the performance of each of our 4 divisions: Divisions Development, Buildings, Civil Engineering and Specialities.

Let us start with Development. The sale of the development project KIM inno-living and a large number of condo sales contributed to a very good result. EBITDA increased by 9% to CHF 44.5 million. Looking ahead, we are convinced that the Swiss property development is an attractive business to be in and have therefore invested over CHF 53 million in the division’s portfolio at attractive locations. As a result, our development portfolio is now at almost CHF 190 million valued at historical cost. Last but not least, our Development business in Germany started successfully.

In 2019, our Buildings division significantly increased its operating result compared to 2018. The division focused on new contract models, leading to a strong pipeline that is not yet reflected in the order book. As a result and given by our profitability-focused Value Assurance framework, the order book has now an improved quality. The division generated a solid revenue at previous year’s level. This has significantly improved EBITDA that is broadly based and underlines the division’s solid earnings power. All countries and organizations contributed to this positive result. Our strong market position in Switzerland, Germany and Austria will enable the division to leverage the urbanization trend and adapt to changes in the customer demand. Looking ahead, the division will continue to focus on profitability and an extension of the value chain as general planner and in real estate consulting.

Our Civil Engineering division saw a continuation of the positive trend established in the first half year. It managed to further strengthen its order book in spite of a more selective Value Assurance framework and successfully acquired new project in all 3 global business units. With revenue of CHF 2.3 billion at previous year’s level, it significantly improved its EBITDA based on ending of legacy project without profit contribution, solid results in special foundations and good progress with large tunneling projects. Looking ahead, the division at a strong position in continuously attractive home markets under the new leadership of Christian Späth, a civil engineering specialist and leader who has developed at and with Implenia over years.

Our Specialities division delivered a solid performance with a strong second half. The order book is at previous year’s level, with significant acquisitions in facade technology and timber construction, for example, for Switzerland’s tallest wooden building that Implenia will construct in Zug called Pi. With CHF 242 million, the division’s revenue is slightly lower than in 2018 mainly due to a weak market for wind energy projects in Germany. Nevertheless, the division delivered a solid EBITDA of CHF 19.2 million, and the legacy projects in Poland were completed. The Implenia Innovation Hub is now successfully launched to develop ideas into new business opportunities. Looking ahead, the division’s portfolio will be aligned to anticipate change in the construction industry as a result of the conducted strategy reviews in each of the units.

I will now hand over to our CFO, Marco, to provide a more detailed summary of the financials as well as an outlook ahead.

Marco?

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Marco Dirren, Implenia AG – CFO [3]

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Thank you, André.

Before we dive into the financials, please keep in mind that we’ve adopted the new IFRS 16 standard for the first time in 2019.

As already mentioned, Implenia meets the expectation for EBITDA. All divisions had a significant contribution to this result. Based on our strategic initiatives, we were able to further increase our EBITDA margin in 2019, and we are confident to reach our short- and mid-term targets. As announced last year, we’ve spent around CHF 20 million on our initiatives to further implement the strategy. Depreciation is above prior year due to the execution and further progression on key projects. In 2019, we fully reflected our purchasing price allocation amortization, which has come to an end. Therefore, we will not have any PPA in 2020.

Taking all mentioned effects into account, our operating income increased considerably to CHF 63.5 million. Our financial result and taxes have been on the expected level, which led us to an increased consolidated profit of CHF 33.9 million.

Our balance sheet remains robust. Apart from the IFRS 16 effects, we’ve not experienced major shifts in the structure of our balance sheet. Our cash position remains at a comfortable level, and we’ve been able to invest more than CHF 53 million in our development portfolio. As mentioned, on the asset side of our balance sheet hereto, apart from the IFRS 16 effects, there have not been major shifts in the structure of our balance sheet. We’ve continued to pay our suppliers in time in order to be able to further strengthen our partnership. Implenia is determined to maintain its investment-grade credit rating.

Due to IFRS 16, our equity ratio has been technically reduced by 1.1%, but it remains solid by industry standards. Thus, in 2019, the equity ratio remained at previous year’s level and has been impacted by currency and pension plan effects mainly. We do expect an increase in our equity ratio based on the completed PPA amortization, the planned profit increase in 2020 and today’s announced Ina Invest transaction.

We delivered a solid free cash flow. Due to the timely invoicing of our work in progress and the consequent cash collection thereafter, including some payments from key projects, we’ve been able to control our net working capital. With that said, we’ve been able to finance all our investments by the underlying business, including the earlier mentioned CHF 53 million into our development portfolio and over CHF 58 million in assets to support our growth.

Based on our performance on profit and cash flow, the Board of Directors will propose a cash dividend of CHF 0.75 per share.

Let us now take an outlook for the financial year 2020 and beyond, starting with an overview on the overall construction market forecast by EUROCONSTRUCT for our 6 home markets.

For our home markets, the market size predictions remained positive. Overall, it is expected that the Civil Engineering segment will grow more strongly than the Building segment. Important to note is that Germany’s estimates are seen as conservative, as mentioned in the detailed report by EUROCONSTRUCT. Given these market predictions, we remain optimistic.

As planned, 2019 was a year of transition in order to create conditions for long-term profitable growth. The measures we took to stabilize our business show a positive impact. Moving forward, we will continue to focus on our 4 strategic priorities with its initiatives, especially profitable growth and innovation, to become a multinational leader in construction services. In light of the still very high order book with now increased quality, the solid market environment and the positive impact from our strategic initiatives, we feel confident for the financial year 2020 and beyond. For 2020, we aim for mid-single-digit percentage EBITDA growth before strategy implementation costs of CHF 10 million. We do confirm our mid-term EBITDA target margin of 6.25% to 6.75%. Please note that this guidance is based on the current group structure and before the potential spin-off of part of our development portfolio.

Before handing back to André for the strategy update: We’ve prepared a brief video on what we do every day with passion.

(presentation)

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André Wyss, Implenia AG – CEO [4]

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So now let me share an update on where we stand with regards to our strategy.

A year ago, we presented our new strategy and operating model. We strive to be a multinational leader in construction services. That’s our vision. Over the past year, we also made great progress in successfully implementing our strategy along 4 strategic priorities. Within portfolio, we established 4 strong and differentiated divisions with clear P&L and balance sheet responsibility and continued to shape and implement our organic and inorganic portfolio initiatives along the value chain. One of those, I will further elaborate in detail in a few moments.

In terms of profitable growth, a comprehensive Value Assurance approach was rolled out for projects across the group. This is already having a positive impact on the quality of our order book. Further strategic initiatives, including BIM and LEAN Construction, the ERP transformation INSPIRE and the supplier consolidation, are all progressing as planned.

As part of our innovation priority, we successfully launched the Implenia Innovation Hub in September. So far, we already have more than 40 ideas submitted from employees across the entire organization in our stage-gate innovation process. In addition, we launched a new program to drive industrialization in Implenia. Last but not least, in talent and organization, we have established a highly effective operating model, completed our leadership teams on several levels and defined and anchored 5 Implenia values as a basis for a strong Implenia culture.

Now let us shift back to our strategic priority portfolio. Since 2018, we have developed a model to sustainably grow the value from real estate activities for Implenia. Today, we would like to share details on our intention to spin-off a part of our development portfolio to accelerate our real estate development business; and to create Ina Invest, a new listed leader in Swiss real estate development, this of course being subject to approval of the upcoming Annual General Meeting in March.

Let me start by underlying that Implenia is well positioned to expand its real estate business. First, Implenia has a strong track record in delivering innovative integrated real estate development. Second, Implenia has a geographically diversified development portfolio across attractive locations in Switzerland as a solid basis for future growth, with a total estimated market value of more than CHF 600 million, respectively more than CHF 3 billion at completion. Third, real estate investments are expected to remain attractive in Implenia’s target markets. Last but not least, Implenia’s integrated and innovative business model allow seizing new market opportunities through group-wide market presence and provides access to leading cross-divisional construction and real estate expertise.

Let’s now watch another short video clip where you see our development expertise and our integrated business model in action.

(presentation)

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André Wyss, Implenia AG – CEO [5]

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By the way, you will find these videos as well as additional videos on exciting projects and the future of construction as part of our digital annual report on implenia.com. Now let’s get back to our presentation.

Today, we announced the intended spin-off of Ina Invest to accelerate Implenia’s real estate business. Concretely, Implenia intends to transfer half of its portfolio with a current market value of approximately CHF 300 million to a newly founded real estate company called Ina Invest. Ina Invest will act as a real estate investment company covering the entire value chain from initiation until realization as well as management and letting. At the same time, Implenia expand — plans to expand along the value chain to offer project portfolio and real estate asset management services while offering its development and realization capabilities at arm’s length and continuing to identify market opportunities for both Implenia and Ina Invest. Access to new equity and debt financing for the development portfolio will accelerate the growth of Ina Invest and in turn will create increasing recurring earnings for Implenia as a compensation for its services and through its profit participation as a significant minority shareholder.

This proposed spin-off would yield significant revaluation gains for shareholders by crystallizing value of Implenia’s development portfolio. As just mentioned before, around 50% of the current development portfolio with a market value of approximately CHF 300 million, respectively CHF 1 billion at completion, would be transferred to Ina Invest. This transfer would yield a gross revaluation gain of approximately CHF 200 million for Implenia. On the other hand, Implenia would keep around 50% of its current development portfolio with also a market value of approximately CHF 300 million. This part of the portfolio would remain valued at historical purchasing cost and contains potential future revaluation gains of approximately CHF 200 million.

The proposed spin-off would also create additional value for Implenia and its shareholders through recurring earnings and further risk diversification. Implenia plans to expand along the value chain through a newly created unit called Implenia real estate services to offer asset and portfolio management services to Ina Invest. At the same time, Implenia intends to offer development and realization capabilities at arm’s length to Ina Invest. Both parties would benefit from early involvement in conception, concretization and realization; as well as from Implenia’s integrated operating model and market presence to identify new market opportunities. Last but not least, Implenia would benefit from increasing recurring earnings via customary fees and profit participation as a significant minority shareholder.

In addition to Implenia and Ina Invest, both existing and new shareholders would benefit from the proposed spin-off, which I will now explain in a bit more detail. Implenia will participate in Ina Invest AG as a significantly minority shareholder to enable a light balance sheet and is expected to hold at least 40% of the shares. The remaining shares of Ina Invest AG will be held by Ina Invest Holding AG whose shares shall be listed on the SIX Swiss Exchange. Implenia plans to distribute all shares of Ina investing holding AG (sic) [Ina Invest Holding AG] to its shareholders, and Implenia shareholders will vote on dividend in kind to effect the spin-off at the upcoming AGM. If approved, Implenia shareholders will receive 1 Ina Invest Holding AG share for every 5 Implenia shares with a NAV per share of CHF 25, respectively CHF 5 per Implenia share.

Concurrently, Ina Invest Holding AG intends to raise new equity in the form of cash of approximately CHF 100 million to be invested into Ina Invest AG, with the possibility for new investors to participate. There is already an investment of an experienced real estate investor with a strong interest in up to 15% stake which got confirmed.

A brochure for shareholders enclosed to the invitation to the AGM will contain further details as well as the indicative timetable for carrying out the transaction.

On the left side of this slide, you see a high-level overview of Ina Invest’s starting portfolio. Additional details can be found in the appendix of this presentation and in the brochure for shareholders which will be distributed soon as well. The starting portfolio consists of strategically selected mature Implenia development project with a well-balanced utilization mix. The selected projects have a current market value of approximately CHF 300 million and an expected market value after completion of CHF 1 billion. Acquisitions of new land in the range of CHF 50 million per annum are intended in order to grow the total Ina Invest real estate portfolio to approximately CHF 2 billion after completion, with an above-market return on equity after initial ramp-up phase.

With Ina Invest, we have the ambition to create a leading Swiss investor developer. As such, Ina Invest will cover the entire value chain from initiation until realization as well as management and letting in a lean and scalable setup. It will drive an accelerated acquisition strategy utilizing market-proven capabilities and the network of Implenia in a partnership at arm’s length. Also Ina Invest will manage a portfolio consisting also of condos to be sold after development to generate funds for new acquisitions and focus on high-standard sustainability project in the industry for development and operation. Last but not least, Ina Invest will maximize efficiency gains through joint optimization in new integrated collaboration models.

While a mutually beneficial long-term partnership with Implenia lies at the core of Ina Invest’s strategy, its independence is assured by a transparent corporate governance structure as shown on the right side of this slide. We are happy that we have attracted a well-respected industry expert as the designated Chairman for Ina Invest, and we will announce him soon. Furthermore, we have also made great progress in our CEO search and identified a well-known real estate expert as well.

Parallel to Ina Invest, Implenia Development will continue its proven and successful strategy as a trader developer and expand along the value chain to also become a real estate service provider. Specifically, Implenia Development will further develop existing projects, continue acquiring additional green and brownfields, further expand in Germany and provide asset and portfolio management services to generate recurring fees.

Before wrapping up this section of our annual results presentation, I would like to summarize the intended benefits of the proposed spin-off: first of all, value gains. There would be gross revaluation gains of approximately CHF 200 million on the transferred development portfolio, with additional potential future revaluation gains of more than CHF 200 million on the remaining development portfolio. Second, maximizing the value from Implenia’s integrated business model to accelerate growth in real estate development. And third, increasing and recurring returns would further derisk Implenia’s financials via customary fees and profit participation.

In addition to this value creation potential for Implenia and its shareholders, the proposed transaction would also create a new listed leader in Swiss real estate development. Concretely, Ina Invest would have a very attractive real estate portfolio across top locations in Switzerland right from the start, access to Implenia’s proven development and execution expertise as well as its network to identify new opportunities and, last but not least, a compelling financial profile with substantial valuation upside and above-market return on capital.

Here you see a summary of the intended transaction characteristics. To wrap up this section on the proposed spin-off, I would like to highlight the following key dates: first, the AGM on March 24, where shareholders will vote on the proposed transaction; then a Capital Market Day on April 21, where we will focus on Implenia in the morning and on Ina Invest in the afternoon; June 3, the day with the publication of the prospectus and the rights offering; and June 12, the day with the dividend in kind and the first trading day of Ina Invest Holding AG shares. Please note that Alantra and Crédit Suisse are acting as financial advisers to Implenia for the spin-off. Crédit Suisse will be acting as the sole bookrunner in the capital increase of Ina Invest Holding AG.

Further details for carrying out the transaction can be found in the brochure for shareholders enclosed to the invitation to the AGM distributed soon. 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, and now we are happy to answer any questions you might have.

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Silvan Merki, Implenia AG – Chief Communication Officer [6]

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Thank you very much, André.

We will start the Q&A session here in the room before we then hand over to the webcast participants, who can then ask their questions too. So the mic is open. I plead you to speak or to announce — or to speak your question into the mic because — so that the webcast can participate on your questions, and the answer of André and Marco too.

So who can I give the micro to in the room?

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Questions and Answers

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Bernd Pomrehn, Bank Vontobel AG, Research Division – Analyst [1]

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Bernd Pomrehn from Vontobel. And firstly, maybe just a general remark. You mentioned a positive outlook for the civil engineering industry. I just hope that you’re right. Following the referendum in Zurich, following the last elections in Germany, I have turned a little bit more cautious, I must admit, especially on large civil engineering projects. Just — that’s just a general remark. Then for the Buildings business, you mentioned that you have to adapt to changes in customer demand. What are you reflecting to? Is that sustainability? Is that BIM? What changes do you really see in customer demand in Buildings?

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André Wyss, Implenia AG – CEO [2]

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To the — maybe to the first one, civil engineering. It was not a question actually. It was a remark, but anyway, I comment on this. You saw that the EUROCONSTRUCT data actually see it differently. So they’re quite optimistic. And what we see in the markets is the demand is high, very high. So there are many projects we cannot even offer because we simply do not have capacity. So we don’t see yet any slowdown in this marketplace, in the markets we are present. On the Buildings side, yes, you actually addressed already most of the answers. One, for sure, is sustainability, which comes up more and more. And you see also in our own development projects that most of them are delivered with sustainability measures.

And another example is this project Pi, the wooden timber construction in Zug 80 meters high. So there are many, many requests coming not only in Switzerland but also outside in Switzerland. Then new contract models. Partnership contract models is something which comes up more and more, especially in Germany. So the — I would say these initiatives go definitely into the right direction. These partnership models often also talk about shared benefits when Lean Construction is applied and optimization is applied. So we are very happy with these developments.

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Silvan Merki, Implenia AG – Chief Communication Officer [3]

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Okay. Who can I hand the micro next? Here in front.

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Martin Hüsler, Zürcher Kantonalbank, Research Division – Research Analyst [4]

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Martin Hüsler, Zürcher Kantonalbank. My question is, first, about your target margin you adjusted. Can you maybe give us a breakdown, how does this look for the segments? In order to get a better feel for that. Because a lot of it might come from Ina or property development as such. Just to get an idea. And when would you expect to reach these target ranges?

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André Wyss, Implenia AG – CEO [5]

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So I start. First of all, we’re not guiding by division, as you know. We see, and I said that already in the strategy presentation exactly a year ago, that all in all we expect from each division to equally contribute to the result of Implenia. For that aspect, you can assume that all the divisions need to prove that they can do this. And if they don’t find a good way, we will certainly look and find alternative ways to get this. So we expect contribution from all divisions. Otherwise, we would implement corrective actions, but we are very — we are actually very bullish in that this is happening. What we probably can say on by when, if you look at today, the EBITDA is already at a decent level, and we plan to further increase this margin. So we believe that, in the midterm, we can achieve this profitability guidance we have given. And you also see in the trend that it’s absolutely realistic, but we don’t say a specific year, Mr. Hüsler. Thank you.

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Silvan Merki, Implenia AG – Chief Communication Officer [6]

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Next question in the room over here.

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Alexandra Bossert, UBS Investment Bank, Research Division – Head of Swiss Credit Research, Executive Director and Analyst [7]

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I have a couple of — Alexandra Bossert, UBS. I have a couple of questions on the balance sheet. You seem to be very confident of being able to retain an investment-grade rating. Could you please elaborate a bit further on what makes you believe this? Also the equity ratio is really thin, yet you also stress your asset-light balance sheet. That doesn’t match up in my view. You already guided for an improvement in equity ratio. Could you give us a feel on where you will be moving or where that ratio will come in going forward? Also you indicated that in the part you keep of development you want to grow further, you want to acquire more land. How will you finance this?

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André Wyss, Implenia AG – CEO [8]

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Thank you. So most of the questions (sic) [answers] will probably come from Marco, but let me start with the development question which you ended. So the beauty now of this new situation is we have 2 vessels or 2 organizations we can work with: on the one side, Ina Invest, where we’re going to hold more than 40% of the shares, so we are a significant shareholder; on the other side, our own development portfolio. And we will carefully select what goes where in conjunction with the 2 different strategies they have. So one of the reasons why we did Ina Invest was actually the situation that sometimes we would like to have invested but we couldn’t finance it in this order of magnitude. This would now go to Ina Invest, but we can also as we did this year or 2019, invest over CHF 50 million in new acquisitions in our own development portfolio.

We can do this as well, which we will finance the same way as we did in the past. So on this side we are actually quite bullish. And you mentioned the asset-light balance sheet. That was certainly one of the reasons why we did Ina Invest, because if now Ina Invest will grow above what we would have had with our own development organization will help us to keep an asset-light balance sheet. And maybe last but not least, you asked also about the reasonable equity ratio and what we aim for. This hasn’t changed. In fact, we are not looking so bad. If you look at the industry’s average, it’s around 15%. We are at 19.2%, more or less same level as last year despite some negative effects on currency and pension fund. He will answer the details then afterwards. And we aim for certainly, as we said, always in the direction of 25%. Marco?

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Marco Dirren, Implenia AG – CFO [9]

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Yes. So just to reinforce that the equity ratio, at the mid-term level, we aim for this 25%. That — and we are confident because of our Value Assurance approach we have, so increased profitability to close the gap. And you’ve seen examples on how we do that. André mentioned before that we have been lean, sustainability and those core initiatives we further drive. And yes, the market outlook. We are in the market of urbanization, infrastructure, mobility infrastructure; and we are pretty confident that we can close that gap. So how do we increase our equity ratio with the light balance sheet? First of all, we’ve finished the PPA amortization, so that’s now gone. That has been around CHF 100 million over the last few years, and that’s finished now. Then we will further increase, as we plan, our profit that will contribute to the equity. And we are confident then that we can further fuel our equity — and then the — improve the equity ratio to our desired level.

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Alexandra Bossert, UBS Investment Bank, Research Division – Head of Swiss Credit Research, Executive Director and Analyst [10]

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Okay. So just to follow up. So the earlier 30% equity ratio target, that’s history. That’s gone. Because it used to be 30%. So that’s no longer valid, right? So it’s 25% now…

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André Wyss, Implenia AG – CEO [11]

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I don’t think that I personally ever mentioned 30%. I always talk…

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Alexandra Bossert, UBS Investment Bank, Research Division – Head of Swiss Credit Research, Executive Director and Analyst [12]

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It was in the annual report always, for years, 30%…

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André Wyss, Implenia AG – CEO [13]

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Yes, but I never mentioned, which doesn’t mean that we would exclude it. If there is 30%, we would, but we actually believe that with the 25% we are in a very solid situation. Already with 20% we’re actually very solid, when you look at the industry standard, but we aim for 25%. And if we see a change and we see further upsides, we would certainly talk about this. But for the moment, we go for 25%.

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Alexandra Bossert, UBS Investment Bank, Research Division – Head of Swiss Credit Research, Executive Director and Analyst [14]

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And your confidence in terms of profitability is based on the improved margin in your order book compared to what you have now and there is not going to be any nasty surprises from further impairments.

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André Wyss, Implenia AG – CEO [15]

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So first of all, if you are in a construction industry, you always need to count in some surprises. You always have projects. They’re not going the way you plan through. That’s part of the construction business, but that’s part of our planning. But we certainly will ensure that we don’t have these surprises we used to have in the past, yes.

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Silvan Merki, Implenia AG – Chief Communication Officer [16]

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Your name, yes?

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Unidentified Analyst, [17]

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(inaudible), ZKB. 2 questions, if I may. First question is with regard to your cash. Could you please elaborate on your operating cash needs? I know you’ve got a huge cash position, but obviously you need a lot of cash to run your business. And the second question would be with regard to your distribution and, going forward, your distribution policy. Now you intend to increase your payout ratio. How would you like to handle this going forward also taking into account the bondholder needs?

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André Wyss, Implenia AG – CEO [18]

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Good. So maybe I’ll start with the second question, the payout ratio. So we do not have a policy inside Implenia on how we pay dividends. There was never such a policy. We increased it now because, last year, we had a very difficult year. This year is now a better year. That’s why we believe it’s now time to increase the ratio, although the ratio itself was not increased. Only the value was increased, but we also delivered more profit. So as a result — there is no policy, but we often pay out in the range of 40%, 50%. But there’s no policy.

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Marco Dirren, Implenia AG – CFO [19]

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And when it comes to the cash position, we do have a huge cash position at the end of the year. We are confident with net cash position of around CHF 200 million to CHF 400 million, depending on which factors you actually calculate into the net cash position, and — that we use that to fund our growth because we need to be cash positive on a net cash position to fund our growth. That’s on the cash position and we certainly won’t change that. If you look at the net cash position compared to last year, we’ve improved the debt slightly, and that gives us confidence that we can further — as well further finance our growth.

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

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Maybe one question in the room before we hand over to the conference call questions. Over here.

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Bernd Pomrehn, Bank Vontobel AG, Research Division – Analyst [21]

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Bernd Pomrehn from Vontobel. One add-on question, please. You are targeting mid-single-digit EBITDA growth for 2020 excluding strategy implementation costs. Could you help us a little bit, what will be the main drivers? Which segments? Which cost savings? What will be the main growth drivers really of this mid-single-digit EBITDA growth?

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André Wyss, Implenia AG – CEO [22]

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So remember we called this year a transition year, and the reason why we called it a transition year is we still had some legacy project which continued with 0 contribution. We mentioned Poland. We also mentioned a few in Norway and in other regions, and they’re finished. So we do no longer expect them. So you can actually assume, when you change this, that will be driving mainly the profitability. Having said that, the Value Assurance process helps us now to identify more qualitative good projects. And also in the execution issues, not because — as you remember from the strategy presentation, we have a 3-gate process of preselection, then offer and then also execution. Then certainly the INSPIRE project will not yet add to efficiency and profitability gains because we start the implementation now but you will see this in the outer-years. And then certainly, Lean Construction and all our efforts in digitalization, they will certainly contribute as well. So these are the main contributors. INSPIRE, not yet, but this will come in the outer-years.

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Silvan Merki, Implenia AG – Chief Communication Officer [23]

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So can I open the mic for the conference call? Are there any questions in the line already?

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Operator [24]

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(Operator Instructions) We have one question. Your first question comes from the line of Christian Korth.

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Christian Korth, HSBC, Research Division – Analyst [25]

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I have one question with regards to the Ina investment. In the press release you said that you intend to keep at least 40%. Now in the presentation you said that in the initial split-up you intend to keep 49.9%. Can you maybe elaborate a little bit on this, what your thinking is here behind this?

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André Wyss, Implenia AG – CEO [26]

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Yes. So in the first minute after the spin-off has legally taken place, there will be 49.9%, but then it will slightly decrease over time due to dilution. And we said we’re going to keep more than 40% over the midterm. So that’s the technical — the 49.9% is a technical situation, but then it will go down but, again, not below 40%. Thank you for your question.

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Silvan Merki, Implenia AG – Chief Communication Officer [27]

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Are there more questions in the line?

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Operator [28]

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There are no questions on the line. (Operator Instructions)

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

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Then we have one question in the front here. May I have the mic?

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Martin Hüsler, Zürcher Kantonalbank, Research Division – Research Analyst [30]

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Could you please elaborate a bit about Specialties, which is a mixed bag, very heterogeneous segment? What drove profit? What — you were mentioning wind was a bit of a burden. And when do you think that you see some strategic results from your review?

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André Wyss, Implenia AG – CEO [31]

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So that’s a good question, yes. In fact, these are 10 units, 10 very different units. We have done strategy reviews of each of them. We have a good idea on how we’re going to develop them further, whether long term they are a good fit to Implenia or there would be a better fit with someone else. We’re also looking into opportunities to eventually acquire, which we could use the organization, the capabilities of Implenia to scale another organization. What I can say is that — you mentioned wind energy. So we have this unit BBV, prestressing technologies. And they had these problems with the Polish bridges, where we have taken write-offs last year significantly. So 2018 when I say last year because we talk about 2019 here. And we said they still have a 0 contribution in 2019.

In addition, they get now hit by the wind energy because they heavily had business with the wind energy in Germany, and as you may know, this has almost come to a standstill. And that’s why they were hit this year a bit. That’s normal business, so I don’t think that for us now a big surprise. That happens. That’s part of the game. Some others are doing extremely well. So we see various degrees of profitability and capabilities, but it’s clear this is a speciality division. And we expect there from each division to contribute higher margins than the other divisions and that, as a result, they need now to deliver one after the other. All in all, we are actually quite satisfied. It’s a very small unit, but they generated nice profit but they’re certainly not yet there where we want them to be. And you can expect moves in the next couple of years, but we will not divest based on needs, only when we see a good time. So there is no pressure.

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Silvan Merki, Implenia AG – Chief Communication Officer [32]

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We have time for 1 or 2 last questions. Over here.

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Unidentified Participant, [33]

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May I ask regarding the Ina transaction. Is there any tax effect out of this transaction either for Implenia but also for Implenia shareholders connected to this dividend in kind?

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Marco Dirren, Implenia AG – CFO [34]

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So we constructed the structure of the spin-off tax neutral for the company. We’ve had — and we’ve ruled that. So in terms of tax for Implenia, there is no impact. When it comes to the shareholders, the dividend in kind, the dividend in kind is technically very small. And there is tax impact of less than CHF 0.01 per share…

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André Wyss, Implenia AG – CEO [35]

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In other words, it’s tax-wise a good construct.

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

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Last question possible. Is there one in the conference call? No further…

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Operator [37]

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There are no questions on the telephone lines.

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Silvan Merki, Implenia AG – Chief Communication Officer [38]

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Okay. Is there one last question in the room? Okay, thank you very much for your questions. And I hand back to André.

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André Wyss, Implenia AG – CEO [39]

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Thank you, Silvan.

So once again, thank you very much for your attention. Thank you very much for your presence here. I wish you a good back home, or most of you are probably back to the office. Thank you very much, and goodbye.

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