Royal Imtech publishes fourth quarter and full year 2014 results

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Beleggingsadvies 18/03/2015 07:17
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Ready for operational focus

-Quarterly highlights:
. Order intake in Q4 at a satisfactory level of €912 million
. Revenue in Q4 €1,030 million, in line with expectations
. Operational EBITDA in Q4 improved to break-even level
. Non-operational costs in the quarter amount to €127 million, predominantly from restructuring measures announced in 2014
. Net finance result in the quarter normalising, benefiting from the significant debt reduction and related interest rate reset
. Net interest-bearing debt and working capital targets achieved

Full year highlights:
. Revenue down 8% to €3,922 million, mainly due to Germany & Eastern Europe and UK & Ireland
. Operational EBITDA loss of €32 million, significantly improving from €78 million loss in 2013
. Net loss of €559 million mainly as a result of previously announced one-off restructuring costs, finance charges, the loss on discontinued operations and the goodwill impairment in Germany & Eastern Europe
. Reconfirmation of the achievability of our medium term targets
. Positive operational EBITDA expected in 2015

Key figures
Quarters
in € million, unless otherwise indicated
Full year Q4 2014 Q4 2013* 2014 2013*
1,030.1 1,061.9 Revenue and other income 3,922.3 4,248.4
-1.4 -11.2 Operational EBITDA -31.9 -78.3
-127.0 -245.9 Non-operational costs -221.8 -375.3
-128.4 -257.1 EBITDA -253.7 -453.6
-174.7 -308.2 Operating result (EBIT) -340.6 -562.2
-182.1 -330.7 Result from continuing operations -488.8 -648.5
-0.7 -39.3 Result from discontinued operations -70.5 -48.1
-182.8 -370.0 Net result -559.3 -696.6
911.7 919.7 Order intake 3,729.1 3,948.2
-47.0 -58.3 Operational working capital -47.0 -58.3
334.3 737.0 Net interest-bearing debt 334.3 737.0

Margins
-0.1% -1.1% Operational EBITDA margin -0.8% -1.8%
-12.5% -24,2% EBITDA margin -6.5% -10.6%
22,193 23,788 Number of employees (in FTE) 22,193 23,788

* Restated, see note 3 to the Financial Statements 2014.

Gerard van de Aast, CEO: "2014 was a year in which Imtech normalised its financial situation and dealt with substantial one-off costs. We continued to improve our operational performance, which is the third pillar of our recovery plan. Working capital performance, an important indicator, has significantly improved and the volume and quality of the order intake developed satisfactorily. Operational results are improving as well and with the large restructuring actions behind us, we can now focus to further restore overall profitability. We are well aware of the challenges still ahead on our road to recovery, but progress to date has been steady."

Progress on Recovery Plan
Since February 2013 the focus of the new Boards of Imtech has been on three priorities:

Dealing with the implications of the past irregularities
Implementing a stable financing structure
Improving operational performance


To deal with the first priority, we have implemented a robust set of Governance, Risk and Compliance (GRC) policies and have replaced most of the senior management teams across the group to allow for a new playing field going forward. We believe that our current GRC system is an appropriate safeguard against the events from the past reoccurring.

Unfortunately, issues or allegations from the past might continue to come up. That is a reality that Imtech has to deal with. It is our firm commitment to properly deal with these legacy issues. See the separate chapter 'Update on GRC issues' in this press release for a current update.

With the completion of the rights issue in October 2014, the sale of the ICT division and the resulting adjustments to our financing terms, we have adequately addressed the second priority. This now gives us the time and flexibility to fully focus on our third priority - the recovery of operational performance. The progress to date has been steady, but we are well aware of challenges still ahead, in particular for Germany & Eastern Europe.

Recovery of operational performance
We have defined four key drivers to manage our operational recovery: quality and volume of order intake, improved project execution resulting in a higher gross margin, reduction of indirect costs, and reduction of operational working capital.

The group's order intake for the year of €3,729 million was satisfactory and in line with revenue, though with differences per division. UK & Ireland had a good order intake. Order intake in Germany & Eastern Europe was lower than revenue, which is related to our decision to prioritise margin over volume. See below for a separate and detailed update on developments in Germany & Eastern Europe.

The results on projects were unsatisfactorily, amongst others caused by old and legacy projects, insufficient operational discipline on several projects and the turmoil surrounding the company in 2014. Although the cultural change needed for improvement of project results obviously will take time, we expect improvements to become visible in 2015 already by replacing loss making projects with new projects at healthier margins. Further improvements will come from standardisation of processes, increased efforts in training, planning and scope change management, and a more professional approach to procurement.

In 2014, indirect cost reductions of €100 million have been achieved. Half of this reduction is savings and the remaining relates to reduced volumes. Further savings will be realised through standardisation and integration of back office processes, rationalisation of real estate portfolios (mainly in the Netherlands and Germany), prudent spending (e.g. sponsoring, car leasing) and a reduction of external support.

To achieve our overall medium term target EBITDA margin of 4% to 6%, we focus on improving our gross margin to a range of 18% to 22% (2014: 16%) and reducing our indirect costs as percentage of revenue to a range of 12% to 16% (2014: 17%). These improvements will result on the medium term in an increase of our gross margin of at least €75 million and a decrease of our overhead costs of at least €50 million.

Operational working capital, an important health indicator, ended at €47 million negative (-1.2% of revenue), well ahead of our target of 0% of revenue. The medium term target bandwidth for operational working capital remains at -3% to 0% of revenue, allowing for normal seasonal fluctuations customary in our industry.

In general, Imtech Nordic and Imtech Traffic & Infra have kept a stable operational performance in 2014. Although Imtech UK & Ireland saw its performance drop in 2014, the outlook is solid given the market and the present UK & Ireland organisation. Imtech Spain has shown a recovery in the second half of 2014, while Imtech Marine has ended 2014 with a full year positive operational EBITDA clearly demonstrating the effects of a well-executed turnaround. The recovery of Imtech Benelux is showing some mixed signals but with the steps taken in 2014, this division should be on track again in 2015. For the overall recovery of Imtech the turnaround of the Germany & Eastern Europe division is of significant importance.

Recovery of operational performance in Germany & Eastern Europe

The 'Neue Imtech' programme in Germany & Eastern Europe is based on the same four key drivers as stated above. Moving forward this programme is constantly adapted to provide the optimal approach for the turnaround under changing circumstances.

1.
Quality and volume order intake

New stringent tender procedures, which prioritises margin over volume, have been in place since mid 2013. The net effect, as planned, is a significant smaller business. Eastern Europe represents around €30 million of revenue with mainly projects serving German automotive customers, primarily in Poland. Recurring stable service revenue amounts to approximately €225 million. Next to recurring services, the business is balanced with a project portfolio with, although significantly smaller in size, better pre-calculated margins and better understood risk profiles.

2.
Improved project execution
A key task in Germany & Eastern Europe has been to work through legacy projects acquired in the past. By now, the bulk of those have been dealt with, with only a few legacy projects remaining. Execution of new projects shows an encouraging improvement. Further improvement by enhancing and standardising basic processes and reducing subcontractor dependency will be the key focus in 2015.

3.
Reduction of indirect costs
Significant progress has been made in reducing the indirect cost run rate through headcount reductions, termination of sponsor contracts and reduction of external consultancy costs. Three key items to further improve operational efficiency are shared service centres, footprint rationalisation and significant reduction of real estate costs. These items should contribute to a further EBITDA margin improvement of 2% to 3%.

4.
Operational working capital
Operational working capital development in Germany & Eastern Europe has been trailing those elsewhere in the group. This is caused to a large extent by supply chain turmoil that existed for most of 2014. Further operational deficiencies caused delay in timely settlement of contract balance sheet positions. Going forward we expect operational working capital performance to gradually become in line with the group's medium term target bandwidth of -3% to 0% of revenue.

The aim of the 'Neue Imtech' programme is to rebuild our business and organisation in Germany & Eastern Europe to a profitable and cash generative company. As a result of this total reset, the goodwill for the division of €27.5 million is fully impaired in Q4 2014.

One-off costs drive negative result of €183 million in Q4

The net loss for the fourth quarter of €183 million includes significant non-operational costs of €127 million and a goodwill impairment relating to Germany & Eastern Europe of €28 million.

For the full year, the net loss of €559 million includes an operational EBITDA loss of €32 million, non-operational costs of €222 million, net finance charges of €179 million and a loss on discontinued operations of €71 million.

Medium term targets
With focus on operational recovery, we have refined our medium term targets to a gross margin of 18% to 22% and overhead costs of 12% to 16% of revenue resulting in an overall EBITDA margin of 4% to 6%. Working capital should be between minus 3% and 0% of revenue with net debt targeted below 2x EBITDA.

Outlook
With solid order intake, Imtech's main focus is now on operational improvements in 2015 as the main driver for profit recovery. Our UK & Ireland, Nordic, Spain and Traffic & Infra divisions are expected to further improve operational results. The Benelux and Marine divisions have recovered from past operational issues and are much better positioned. The German & Eastern Europe division also expects further operational improvement. We do not expect any major restructuring in 2015, although we will continue with the implementation of operational efficiencies across the group and in particular in Germany & Eastern Europe. We expect a positive operational EBITDA in 2015.

Composition of the Supervisory Board
During the Annual General Meeting of shareholders (AGM) on 12 May 2015, Mrs. Christine Wolff will be nominated for appointment as member of the Supervisory Board for four years. Mrs. Wolff is a German national and more than 20 years of experience in international engineering consulting firms. In her last position she was Managing Director for Europe & Middle East at URS Corporation (now AECOM), a global and NYSE listed US based provider of engineering, construction and technical services, with 55,000 employees and US$ 11 billion annual revenue (2012). She currently serves on the supervisory board of Hochtief AG, Berliner Wasserbetriebe A.ö.R and KSBG Kommunale Verwaltungsgesellschaft GmbH and is a member of the advisory board of Wessling GmbH & Co. KG, J. Heinr. Kramer Holding GmbH and The Aspen Institute Germany. The Supervisory Board considers the specific knowledge and experience of Mrs. Wolff on project organisations and technical services providers, such as Imtech, as a welcome addition to the existing knowledge and experience within the Supervisory Board.

Mrs. Ruth van Andel will be nominated for reappointment for her second term of four years. Directly after the AGM, Mr. Kees van Lede, chairman of the Supervisory Board, will retire according to the scheduled retirement. The Supervisory Board intends to appoint Mr. Frans Cremers as chairman, as previously announced.

Deloitte Accountants nominated as external auditor
Imtech proposes the appointment of Deloitte Accountants as the company's auditor for an initial three year period with effect from the financial year 2016. This nomination will be presented to the Annual General Meeting on 12 May 2015.

The nomination of Deloitte is the result of a thorough selection process, overseen by the audit committee of the Supervisory Board. Under Dutch legislation for listed companies, Imtech is required to change its auditor as of January 2016.

The current auditor KPMG Accountants N.V. will remain in place until the conclusion of the audit for the financial year 2015.

Update on GRC issues

Improving GRC framework and culture
During 2014, we substantially completed the implementation of Imtech's new Governance Risk and Compliance framework (GRC framework). We also continued to make progress in the transformation of Imtech's culture, into one that values integrity, loyalty and critical thinking. These values are clearly reflected and articulated in the Group's new Code of Conduct. Behavioural training programmes for management and employees were continued; also in 2015 substantial attention will be paid to culture and behaviour.

Incident reporting
In the year 2014, 91 incident reports of whistle-blowers were received, compared to 29 in 2013 and 3 in 2012. Since the beginning of 2015, 5 incident reports of whistle-blowers were received. This increase demonstrates the strong development in our new culture in which people are encouraged to speak up and report any incidents they observe via our whistle blower's procedure. Most of the reports refer to alleged inappropriate behaviour that took place prior to 2013. The majority of the reports have been investigated and dealt with. Approximately 40% of total reported incidents were either unfounded or backed by insufficient information to follow up. In cases where a violation of the Code of Conduct was detected, a number of actions were taken, which included dismissal, disciplinary actions or specific process modifications. The remaining 26 reports are under investigation and are being dealt with appropriately. These on-going investigations include the 'legacy' items relating to Germany and Poland.

United Arab Emirates: no material findings
On 13 January 2015, Imtech informed the market that it had initiated an investigation into certain sales activities by an Imtech Marine unit in the United Arab Emirates in relation to potential violations of applicable export controls and sanctions regulations. The internal investigation, which was conducted with the support of external counsel and experts, concluded that possible violations may have taken place, but that these were relatively small in size and number and that the potential financial impact is therefore likely to be not material. Imtech will continue to cooperate fully with the appropriate authorities to resolve and settle this issue. The Imtech Marine entity in the United Arab Emirates has annual revenues of around €15 million.

Broadening scope competition law investigation in Germany
On 4 February 2015, Imtech informed the market that German authorities are conducting a broader investigation into the overall technical services industry in Germany, which includes Imtech. As part of this investigation the German authorities have served warrants to obtain information from Imtech and other companies. Following the investigations by the authorities, Imtech has broadened the scope of its own investigations as well. So far, this broadened internal investigation, with regard to Imtech, did not confirm that competition laws were violated.

Berlin Brandenburg Airport
On 26 February 2015 a German newspaper published unconfirmed allegations of bribery towards former Imtech management in connection with the new airport Berlin Brandenburg in the period prior to 2013. Imtech had already informed the authorities and the Compliance Department of the Berlin Brandenburg Airport of the unconfirmed allegations well before 26 February 2015. So far, internal investigations did not prove the allegations.

zie het totale overzicht met cijfers en grafieken op
http://hugin.info/130755/R/1904311/677423.pdf

tijd 09.18
Imtech EUR 4,088 +35,8ct vol. 987.000




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