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The international construction company is reducing its workforce by almost a quarter. There are 750 layoffs, 250 of them in Switzerland. Due to depreciation and valuation adjustments, the result for 2020 will be in the red. In the future, only Germany and Switzerland will be the main market for the most part.
Road construction workers from Implenia renovating Rosengartenstrasse in Zurich. Recorded July 15, 2015.
Implenia management pulls the plug: Because the above business model has repeatedly led to unsatisfactory results, the leading Swiss construction company is getting rid of all its legacy problems in one fell swoop. In the future, he wants to focus primarily on the core business in Germany and Switzerland. This will cost up to 2,000 full-time positions or a fifth of all jobs by 2023. Since certain activities do not have to be sold but must be stopped, the company expects about 750 layoffs, a third of them in Switzerland (around 5% of the Swiss workforce). Implenia management did not say how many positions at the Dietlikon (ZH) headquarters will be affected.
No halftones
These drastic measures are the result of a comprehensive review of the strategy. It was started in March 2019 by new CEO André Wyss, who replaced Implenia’s strongman Anton Affentranger in the fall of 2018. Apparently, it turned out that not just a few corpses, that is, H. unprofitable projects and legal proceedings desperate, found in the basement, but also the four-legged structure of the group was not optimal.
For this reason, Implenia will eliminate all unprofitable areas and businesses that are no longer part of the core business within three years. Where no new owners are found, the areas should be maintained. Of the 2,000 jobs that were cut, 1,250 people can expect to find new employers. Implenia currently has around 9,700 full-time jobs. Talks with potential buyers have already started, the CEO said on a conference call.
Civil engineering at its lowest point
Implenia is large-scale mining, especially in civil engineering (Civil Engineering Division). With the exception of tunnel construction, all activities in Sweden, Norway, Austria and Romania must be sold or abandoned. The exit from Austria is justified by the lack of critical size in this market. The construction of tunnels in France is under observation, so it could also be sold. The unprofitable situation has come to light especially in Sweden: in order to use the capacities to the fullest, the unprofitable companies have retreated ashore there, but they will never bear fruit. The management team in Sweden was changed and additional adjustments were made. In the future, Implenia will concentrate its civil engineering in Switzerland and Germany, where it makes profits, and will only be active in tunneling in other regions. Implenia will also have some workshops and construction equipment in German-speaking Europe.
This geographic focus in the two countries is also implemented in the other areas. In the building construction division (Building Division), unprofitable units such as Bau GmbH in Germany are closed, and business in Austria is “transferred to the best possible owner”. The internationalization strategy followed in recent years through acquisitions is largely backward.
Even the specialty division, which operates as a general contractor in construction and engineering, has to divest from businesses that are not profitable enough or are suffering losses. Specifically, Implenia Modernbau GmbH is looking for a new home in Germany.
Everything that is not profitable is eliminated. Implenia can no longer allow the weak company to constantly muddy the overall result and destroy the substance. Too much capital was immobilized and the value of the company plummeted. Implenia’s share price has plunged 22% since the beginning of the year, and fell by a similar measure on Tuesday. In two years, the market capitalization has tripled, a track record that no management could accept idle for long.
The extensive measures serve to detoxify and shift to a less capital-intensive business model. First, however, the company needs to have a little more money on hand to be able to carry out and finance the radical restructuring. Extraordinary value adjustments of 200 million Swiss francs must be made for existing projects. The claims and the success of legal disputes have been evaluated “in the past too optimistically”, it is said. According to the information, these are all projects that started before 2019, that is, still under the care of the old management. The goodwill must be written off at 30 million Swiss francs. The restructuring will cost around 60 million Swiss francs, which should save at least 50 million Swiss francs annually by 2023.
Almost nothing more equity
As a result of the restructuring, the already thin capital base is becoming even tighter. Given that the share capital is around 300 million Swiss francs, the share capital ratio in the current fiscal year will be just over 10% (end of June: 16.7%) and will violate the clauses on bank loans. Discussions with the lenders are currently underway, the CFO said. However, a capital increase is not necessary, added the CEO.
The reason for the battered balance sheet is the deficit caused by this year’s restructuring. A loss of CHF 70 million is expected at the Ebitda level. Losses due to the pandemic (temporary closure of works, additional hygiene measures, order cancellations) will burden this year’s bill in the expected range of 50 million Swiss francs. From a purely operational point of view, excluding all special costs, Ebitda will improve slightly to CHF 200 million (previous year: CHF 187 million).
Furthermore, Implenia’s management no longer wants to be measured by Ebitda targets, but by Ebit margin, that is, after deducting value adjustments and amortization. For next year the company plans to generate an operating profit at the EBIT level of at least CHF 100 million, which corresponds to a good 3% margin. On the previous basis (Ebitda) this would be around 5.5%. Implenia has been targeting an EBITDA margin of 6.5% for years, a goal it never achieved. Having removed all the contaminated sites, this should finally be feasible.
