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Wednesday, 27 February 2013

Imtech found out how deep the rabbit hole was and reported €300 mln in write-off losses on German and Polish ´work-in-progress´ portfolio. Company forced to make follow-on offering of €500 mln.

The Dutch Engineering and Consultancy agency Royal Imtech NV (IM) is a company in deep trouble nowadays.

A few weeks ago, the company reported that a write-off of ‘at least €100 million’ had to be made on Polish projects, concerning the adventure park ´Adventure World Warsaw`and the development of energy-generating biomass plants, also in Warsaw:

Especially the story concerning the bounced bill of exchange and the blocked accounts with €200 mln in advanced payments by Adventure World that do or do not exist, leave ample room for speculation. As a consequence, there had been the designated write-off of €100 mln on work-in-progress, that had been disputed by Adventure World director Peter Mulder as being exaggerated.

On top of that, there has been the message from CEO Van der Bruggen that Imtech´s Polish projects could have been subject to´irregularities´ during the execution. The expression ´irregularities´ could point at a wide array of disturbing causes.

In my humble opinion (warning: this is pure speculation on my behalf!), even bribery of Polish officials could be among these causes. The situation at Philips Poland of 1.5 years ago showed that these things can never be ruled out.

There is one other disturbing fact: when I look at a photo-series of World Adventure amusement park, connected to this article in the FD, I wonder where the €100 mln in activities, carried out by Imtech, did go? I don't see this park being finished (no way!) within two years and I don't see how millions of Euro's could be spent on this park, unless in drawings, computer-designs and blueprints.

The fact that – apart from the Polish officials – also the German management of Imtech have resigned, gives much food for thought. I suspect that these Polish adventures of Imtech could have an unpleasant follow-up in the very near future.

To be continued…

Again my instincts did not deceive me.

Yesterday, a news message reveiled that Imtech had been promoted from the Dutch Midcap-index (AMX) to the leading AEX index at NYSE Euronext Amsterdam: a promotion to the ‘Champions League’ of Dutch stock. This had been a widely anticipated development, as the market capitalization value of Imtech earned the company this promotion. The only factor stopping it, was that another fund would have to leave the AEX for some reason first.

What should have been a glorious day for Imtech, turned into a nightmare this morning. The new CEO of Imtech, Gerard van de Aast, announced additional information on the initial story concerning the adventure park in Poland and the news was… not really pleasant, to say the least.

Instead of the write-off to the tune of €100 million that Imtech initially announced on February 8, a mindboggling €300 million must be written off on the Polish, as well as the German work-in-progress and matured debtor-portfolio. In order to regain a healthy balance, Imtech is forced to make a follow-on stock offering of €500 million in 2013.

Indeed, like I wrote in the aforementioned snippet, the dismissal of the German executive management had been a bad omen.

The stock got pounded with an 11.43% loss at closing time. This was an enormous loss, when you reckon that it is only weeks before the quotation at the AEX will start (March 18, 2013): all index-trackers have to buy Imtech stock in the coming weeks to remain up to date.

On top of that, investors are currently holding a massive short position in Imtech of (at least) 8.96%. As in this figure only the larger short positions of above 0.5% have been summarized, the real short position is probably (much) higher. This short-selling number comes from the up-to-date short-selling list of the Dutch Authority Financial Markets (, which I used as a source.

The figure of €300 million in write-offs becomes even more shocking when we look at the personnel number, the revenues and profits of Imtech's German and East-European operation in 2011: with 5326 employees, the German/East-European subsidiary of this Dutch company collected €1506 million in revenues and an EBITA (Earnings before Interest, Taxes and Amortization) of €127 million (€107.8 million in 2010).

In other words, this write-off blew Imtech's EBITA of 2011, 2010 and partly 2009 skyhigh. Per personnel member, a mindboggling amount of €56,326 in revenues is down the drain. The German / East-European Imtech personnel worked from January until 15 March 2012 for free! Can you believe it?! I can’t!

This morning, the rookie CEO of Imtech, Gerard van de Aast, had an interview with BNR Business radio about these latest bad tidings. What was more important than what Van der Aast said, was what he didn’t say:

BNR: Concerning Poland, how could a write-off of €100 million suddenly turn into €150 million?

Gerard van de Aast: We already stated on February 8 that the €100 million has been a minimum amount. Further investigation showed that the real amount of the loss has been €150 mln in Polen

BNR: And Germany also added €150 mln in losses. What happened there?!

Van de Aast: On February 5, we replaced the management in Germany. The new management started an investigation and this disclosed that the ‘matured debtor’ balance, the work-in-progress balance and losses that had been incorrectly forwarded to the future, combinedly made up a loss of €150 million, which needed to be written off.

BNR: You talk about it in a quite detached manner. How could this happen?! What is wrong within the Imtech organization that you only were informed less than a month ago?!

Van de Aast: We are announcing two events today:

1. A considerable improvement of our financial position and structure
2. A number of measures that must improve the management structure of Imtech. The targets, the rewarding structure, the set-up of systems...

BNR: My question was : what is wrong with Imtech. Some hedge funds already showed us some time ago that there wore some structural flaws within the Imtech organization. At first, this was denied by Imtech. Now you will have to come to the conclusion that some parts of the outside world knew better what was going on at Imtech, than the Imtech management itself. What has been wrong?!

Van de Aast: What has been wrong is that some systems need to be improved. We have to alter the style of direction within the company, with tighter controls when it comes to projects and issues that are going on, concerning our financial structure. We are doing that now.

BNR: Is everything disclosed concerning Poland, Germany and other parts of Imtech or is this only the tip of the iceberg?

Van de Aast: I have been asking this question to myself. I have this job now for two months and this is of course the obvious question. After I started at this job, I took the time for one month to look around. I came to the conclusion that - outside Poland and Germany - Imtech is a fine company. Also Imtech Germany is in itself a fine company with state-of-the-art technology, which works for a lot of customers of high repute. Secondly, I looked at what was going on with issues like cash conversion and I was fairly comforted by what I saw.

BNR: You will get a quotation at the AEX index soon. Which effects will Poland and Germany have on your quotation?

Van de Aast: It is important that we state clearly what we are going to do about this situation. That is what we are doing right now. We are going to improve our financial structure and we are going to take sturdy directives to better control the organization. That is what we have to do.

BNR: Is transparency the solution in such a situation?

Van de Aast: Yes, transparency is part of the solution. I have been totally clear and transparent. We will take and solve these problems.

When I would have to give a figure from 1 to 10 on the amount of blatant nonsense in this interview, I would give it a 12!

As you can see from the red and bold text, the interviewers of BNR did their best to get some useful information from this CEO within the natural boundaries of a topical radio program. 

However, as the blue and bold text shows, this was a total 'mission impossible'. Van der Aast didn’t even give a hint of an answer about what caused these enormous and unprecedented losses in Poland and Germany and how to prevend this from happening again in the future. 

CEO Van der Aast's last remark, that he had been totally clear and transparent is the worst insult on my intelligence that I have ever endured.

The more I think about this mega-loss of €300 million, the more I am convinced that there is something very, very wrong within Imtech and that it is almost a miracle that the organization still exists in its current form.

The only ‘optimistic and non-cynical’ reasons for such mega-losses could be that:
  • Imtech spent €300 million on salaries, purchases of materials & tools and on hiring subcontractors for the execution of new and existing projects in Germany and Poland, without checking if the people, who arranged these assignments, had any money to spend;
  • Nobody bothered to send an invoice in Germany and Poland for at least three months in 2012 or forgot to do so in a substantial number of cases for a number of years in a row, without reporting this properly;
  • The invoices actually had been sent, but everybody forgot to check if these lost invoices had been paid at all. Of course, nobody had bothered to report this to the Dutch head-office;

I buy neither of these three reasons for a dollar!

The last two reasons had also been mentioned during the bankruptcy case of a former employer of mine in 2002. In reality, this whole bankruptcy case dispersed an intolerable stench of fraud, forgery and embezzlement of company money from every pore of the organization

A more realistic reason, in my humble opinion (yes, this is an opinion, which is based on my personal gutfeeling) is therefore that Imtech became the victim of wide-spread fraud, embezzlement, forgery and / or bribery with company money (strike where not applicable). In my opinion, this is the only realistic reason for losses to this gargantuous amount of €300 million.

How else could a large subsidiary lose 20% (!) of its annual revenues, without anybody noticing it at the head-office in The Netherlands?!

What becomes clear from the interview with CEO Gerard van de Aast is that he:
  • Either didn’t want to say what went wrong within the German and Polish Imtech organizations. This would be an offence against 'stock regulation on full disclosure' in The Netherlands;
  • Or that he still is totally clueless himself about what caused this mega-loss;

When you take these circumstances into consideration, it seems that keeping Imtech stock and especially entering into the €500 million follow-on stock offering (in the form of a restricted (claim) emission for current holders of Imtech stock) suddenly became a long shot.

Either way, this is very disturbing news that makes me want to go short on Imtech stock.

This is of course not an investment advice, as I give none! Following my non-advices is something that you do at your own risk and expense!

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